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16 September 2010

Company Announcements Office Australian Securities Exchange 20 Bridge Street Sydney NSW 2000

Savcor Group Limited – Notice of General Meeting and Explanatory Memorandum

The directors of Savcor Group Limited (the “Company”) wish to announce the convening of a general meeting of shareholders to be held on Friday 15 October 2010 at 3.00pm to consider the sale by the Company of the Savcor FACE business.

In accordance with ASX Listing Rule 3.17, the Company hereby provides a letter from the Chairman, Notice of Meeting, Explanatory Memorandum and Proxy Form which will be mailed to shareholders today, 16 September 2010.

Yours faithfully,

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Mr Iikka Savisalo Company Secretary

Level 16, 132 Arthur Street North Sydney NSW 2060 AUSTRALIA

Tel: +61 2 9025 2000 Fax: +61 2 9025 2099 [email protected] www.savcor.com

Savcor Group Limited ABN 52 127 734 196

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EXPLANATORY MEMORANDUM

~~Savcor Group Limited ABN 52 127 734 196~~

Notice of General Meeting

~~to be held at the~~

~~Christie Conference Centre 100 Walker Street, North Sydney NSW 2060~~

~~on~~

~~15 October 2010 at 3.00pm~~

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This is an important document. You should read this explanatory memorandum carefully and in its entirety to develop your understanding of the transaction in order for your vote at the General Meeting to be an informed decision.

	Page
ChAiRMAN’s LETTER	3
NOTiCE Of MEETiNg	5

EXPLANATORY MEMORANDUM
iMPORTANT NOTiCEs	8
1. REAsONs fOR ThE TRANsACTiON	10
2. OvERviEw Of ThE TRANsACTiON	12
3. fURThER DETAiLs Of ThE TRANsACTiON	14
4. REsOLUTiONs	16
5. iNfORMATiON AbOUT CENCORP	19
6. fiNANCiAL iMPLiCATiONs Of ThE TRANsACTiON fOR sAvCOR	20
7. iNDEPENDENT EXPERT's REPORT	20
8. Risk fACTORs	170
9. DiRECTORs' iNTEREsTs	172
10. gLOssARY	173

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Chairman’s letter

Dear shareholder

Your board has been actively assessing a number of restructuring options to restore shareholder value in the Company, including a possible separation of the savcor ART business and the savcor fACE business. The conclusion from that review was that the preferred option was to sell the savcor fACE business. Accordingly, on 28 May 2010 the Company announced to the AsX that it had entered into an agreement with Cencorp to sell the savcor fACE business. Cencorp is a company listed on the finnish stock exchange and is controlled by savcor group Oy which is also the controlling shareholder in the Company.

for the reasons set out in this explanatory memorandum, the sale is subject to shareholder approval. The board is therefore requesting that shareholders vote on the resolutions set out in the notice of meeting accompanying this explanatory memorandum to bring about the sale. Consideration for the sale will be by way of a cash payment from Cencorp to the Company and the issue of shares in Cencorp to the Company. The Company will also receive the benefit of a further reduction in debt in its remaining business because the debt of the savcor fACE business as at the Completion Date will remain in that business following the sale to Cencorp.

if shareholders pass the resolutions approving the sale of the savcor fACE business and the other Conditions for the Transaction to proceed are fulfilled, the Company will become a major shareholder in Cencorp. Cencorp is proposing to issue new shares to fund the cash required for the acquisition of the savcor fACE business and for its future growth. Assuming the Cencorp Capital Raising raises €5,000,000 (approximately $7.1 million, based on an exchange rate of $1.00 = €0.70) at an issue price of €0.14 per share (approximately $0.20) and assuming Cencorp also issues the €16,000,000 (approximately $22.9 million) of Cencorp Consideration shares to the Company at the same issue price of €0.14 per share, the Company would own approximately 40% of the issued shares in Cencorp on completion of the Cencorp Capital Raising and the Transaction. however, because the shares may not be issued at €0.14, and because the Cencorp Capital Raising may raise more or less than €5,000,000, the Company’s shareholding in Cencorp may vary from this estimate of 40%.

it is the Company’s intention to dispose of part or all of the Consideration shares following the

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EXPLANATORY MEMORANDUM ANNUAL REPORT 2009 3

Chairman’s letter continued

Completion, in order to reduce debt and provide capital for the development of the savcor ART business.

You should read this explanatory memorandum carefully and in its entirety to develop your understanding of the Transaction in order for your vote at the general Meeting to be an informed decision. The meeting will be held at the Christie Conference Centre, 100 walker street, North sydney, Nsw at 3pm on 15 October 2010. You may attend the meeting and vote personally or by representative, or by returning the proxy form attached to the notice of meeting to Registries Limited by no later than 3pm on 13 October 2010.

The Company retained Pkf Corporate Advisory (East Coast) Pty Limited (PkfCA), an independent expert, to provide an independent Expert’s Report on whether the proposed sale of the savcor fACE business is fair and reasonable. The independent Expert’s Report is set out in section 7 of this explanatory memorandum and should be read in its entirety. PkfCA has concluded that the sale by the Company of the savcor fACE business is not “fair” but is on balance “reasonable”.

The Directors have considered the advantages and disadvantages of the Transaction and the opinion of PkfCA. They are all in favour of the proposal to sell the savcor fACE business. Jyrki salminen, Nicholas Psaltis and i intend to vote all shares owned or controlled by us in favour of the resolutions. hannu savisalo and iikka savisalo and their associates will not vote on the resolution for the reasons set out in this explanatory memorandum.

Yours sincerely

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Simon Rowell Chairman

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Notice of meeting

Savcor Group Limited ACN 127 734 196

Notice of meeting

Notice is given that a general meeting of savcor group Limited (Company) will be held at the Christie Conference Centre, 100 walker street, North sydney, Nsw on 15 October 2010 at 3pm.

Resolution – Sale of Savcor FACE Business

To consider and if thought fit pass the following resolutions, each as an ordinary resolution:

subject to Resolution 2 being passed, that the sale by the Company of the savcor fACE business on the terms more particularly set out in the explanatory memorandum accompanying the notice of this meeting, be approved for the purposes of and in accordance with the requirements of rule 10.1 of the AsX Listing Rules. The Independent Expert has concluded that the proposed transaction is not fair but is on balance reasonable to the non-associated Shareholders.
subject to Resolution 1 being passed, that the sale by the Company of the savcor fACE business on the terms more particularly set out in the explanatory memorandum accompanying the notice of this meeting, be approved for the purposes of and in accordance with the requirements of Chapter 2E of the Corporations Act 2001 (Cth).

By order of the board

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Iikka Savisalo Company Secretary Date: 16 September 2010

Notes:

A member entitled to attend and vote at this meeting is entitled to appoint one proxy or, if the member is entitled to cast two or more votes at the meeting, two proxies to attend and vote on behalf and instead of the member.
where two proxies are appointed and the appointment does not specify the proportion or number of the member’s votes each proxy may exercise, each proxy may exercise half of the votes.
A proxy need not be a member.

EXPLANATORY MEMORANDUM

continued Notice of meeting

A proxy form accompanies this notice. To be valid it must be received by the Company’s share registrar, Registries Limited, together with the power of attorney or other authority (if any) under which the form is signed, or a certified copy of that power or authority, not less than 48 hours before the time for holding the meeting, namely by 3pm on 13 October 2010. Delivery details are as follows:
(a) By post
- share Registry – Registries Limited
- gPO box 3993
- sydney Nsw 2001 Australia
(b) By facsimile
- - 61 2 9290 9655
(c) In person

share Registry – Registries Limited

Level 7, 207 kent street

sydney Nsw 2000 Australia

Regulation 7.11.37 determination: A determination has been made by the board of directors of the Company under regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that those persons who are registered as the holders of shares in the Company as at 3pm on 13 October 2010 will be taken to be the holders of shares for the purposes of determining voting entitlements at the meeting.

Voting exclusion statement

The Company will disregard any votes cast on the resolutions by:

any party to the Transaction and an associate of the party in respect of Resolution 1;
any related party of the Company who would obtain a financial benefit if the resolution is passed, or an associate of any such person, in respect of Resolution 2; and
any person whose votes, in AsX’s opinion, should be disregarded in respect of Resolution 1or 2.

however, the Company need not disregard a vote in relation to the resolution if:

it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with the direction on the proxy form to vote as the proxy decides.

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continued Notice of meeting

The chairman of the meeting intends to vote undirected proxies held by the chairman in favour of the resolution. Please refer to the proxy form accompanying the notice of meeting for more information.

EXPLANATORY MEMORANDUM

Important notices

This explanatory memorandum is an important document and should be read carefully. it comprises part of, and should be read in conjunction with, the notice of the general meeting of the Company to be held on 15 October 2010. if you have any questions regarding the matters set out in this explanatory memorandum (or elsewhere in the notice of meeting) please contact the Company or your stockbroker or other professional adviser.

The information in this explanatory memorandum relating to Cencorp, including in section 5 of this explanatory memorandum and the independent Expert’s Report in section 7 of this explanatory memorandum, has been prepared by the Company from information provided by Cencorp (Cencorp information) and its officers, employees and shareholders. The Company has assumed for the purpose of preparing this explanatory memorandum that the Cencorp information is correct. however, in making this assumption, none of the Company, its officers or employees or persons engaged by the Company in the preparation of this explanatory memorandum takes any responsibility for the Cencorp information or anything prepared or distributed by Cencorp or any of its officers, employees and shareholders.

The forward looking statements contained in this explanatory memorandum have been based on expectations at the date of preparation of this explanatory memorandum about future events. They are, therefore, subject to risks, uncertainties and assumptions that could cause actual results to differ materially from the expectations. These factors include, among other things, the risks identified in section 8 of this explanatory memorandum and other investment considerations, as well as other matters not yet known to the Company or Cencorp or not currently considered material by the Company or Cencorp. None of the Company, Cencorp, the officers and employees of the Company or Cencorp or the persons engaged by the Company or Cencorp in the preparation of this explanatory memorandum, gives any assurance that the implied values, anticipated results, performance or achievements expressed or implied in forward looking statements contained in this explanatory memorandum will be achieved or otherwise makes any representation or warranty (express or implied) as to the accuracy or likelihood of fulfilment of any forward looking statement except to the extent required by law.

Defined terms

A number of terms used in this explanatory memorandum are defined in section 10 of this explanatory memorandum.

Important dates

Event	Target date1
Despatch notice of meeting and explanatory memorandum to shareholders	15 september 2010

1 some of these dates are subject to change. The Company reserves the right to amend this indicative timetable.

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continued Important notices

Event	Target date1
Latest time for receipt of proxy forms	3pm on 13 October 2010
Date for determining voting entitlements at the general meeting	3pm on 13 October 2010
hold general meeting	3pm on 15 October 2010
Completion of sale of the savcor fACE business, issue of shares in Cencorp to the Company and payment of Cash Payment	The Completion Date

EXPLANATORY MEMORANDUM

Reasons for the transaction

1. Reasons for the Transaction

The board has been assessing a number of restructuring options to restore shareholder value.

The possibility of raising additional capital through the issue of further shares in the Company (for example by way of a rights issue or placement) was considered by the board in conjunction with the Company’s advisors, wilson hTM. This option was considered to be feasible only if supported by savcor group Oy, which is the controlling shareholder in the Company, particularly due to the difficult capital market conditions that have recently been experienced. however savcor group Oy indicated it was unwilling to support the raising of additional capital for the Company.

The possibility of the sale of the savcor fACE business to an unrelated third party was assessed by the board in conjunction with the Company’s advisors, wilson hTM. such a sale was determined not to be feasible, however, as the Company would be forced to reveal a significant amount of commercially sensitive and proprietary technology and information during the due diligence process for any sale and there was perceived to be a very high risk that this information could not be adequately protected.

The board also considered, in conjunction with the Company’s advisors, wilson hTM, the divestment of the savcor fACE business pursuant to the Transaction.

The advantages to the Transaction considered by the board included:

The Company after the sale will comprise the savcor ART business, a focussed business with operations throughout Australia, New Zealand, Papua New guinea, india, China, Japan and finland. The Company will be able to use all of its resources to develop and grow the savcor ART business in the future;
The sale of the savcor fACE business reduces the interest bearing debt of the remaining business because the debt owed by the savcor fACE business as at the Completion Date (i.e. the Outstanding Completion Debt) will remain with that business after the sale;
A further reduction in interest bearing debt of the remaining business is intended to occur because the Company will receive the Cash Consideration which it is intended will be used to reduce bank debt;
The Company will own a significant number of shares in Cencorp, a public listed company, and it intends to sell some or all of those shares over a period of time, and intends to use the proceeds for debt reduction and expansion of the savcor ART business;
The sale of the savcor fACE business eliminates the need to invest further capital in that business;
The earnings of the savcor fACE business have been volatile and subject to significant variation because of external factors such as general demand for mobile phones and in particular demand for certain mobile phone models;

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Reasons for the transaction continued

The sale reduces the risks of currency fluctuations in the remaining business, as
the savcor fACE business is generally operating in the People's Republic of China with the associated risk of currency movements between the Australian Dollar and the Chinese Renminbi;
following the sale there may be opportunities for cost savings in the remaining business to reflect the smaller size and reduced complexity.

The disadvantages of the Transaction considered by the board included:

Any future decline in Cencorp’s share price will have an adverse impact on the consideration being paid for the savcor fACE business, as approximately 80% of the consideration value relates to the Consideration shares;
The liquidity of Cencorp shares (and consequently the Consideration shares) is not very high;
The independent Expert has determined that the Company’s earnings per share will reduce as a result of the Proposed Transaction;
The independent Expert has determined that the net assets of the Company will reduce as a result of the Transaction;
The Company will be less diversified as a result of the Transaction with a focus on the business activities of the savcor ART business and with a greater exposure to the steel and concrete remediation industry;
The Company will not directly benefit from any continued future improvement in the savcor fACE business (and potential growth in the mobile phone industry in general) although this risk will be partially mitigated during the period that the Company retains the Consideration shares due to an indirect exposure to the savcor fACE business.

The board also considered that the Independent Expert has concluded that the Transaction is not fair but is on balance reasonable to the non-associated Shareholders.

The board considered the advantages and disadvantages of the Transaction as set out in section 7 of the independent Expert’s Report, in addition to the matters set out above and concluded that the Transaction is the best available option for the Company and should assist in the process of restoring shareholder value.

EXPLANATORY MEMORANDUM 11

Overview of the transaction

2. Overview of the Transaction

The Company announced to AsX on 28 May 2010 that it and intune Circuits had entered into the share sale Agreement with Cencorp under which they are to sell to Cencorp:

(a) the savcor fACE Assets being:
(1) the sale shares; and
(2) the Ancillary Assets; and
(b) the fACE Receivable (being a debt owed by savcor Pacific to the Company).

The consideration for the sale of the savcor fACE Assets and fACE Receivable is:

(c) the issue of the Consideration shares (being shares in Cencorp with an aggregate issue price of €16,000,000) (approximately $22.9 million); and
(d) the payment of the Cash Payment (being A$11,000,000 less the Outstanding Completion Debt converted to $A at the RMb Exchange Rate on the Completion Date, where the Outstanding Completion Debt is the amount to be advanced to the group Entities under the New bank facility of approximately RMb35,000,000 (net of any deposited cash held as security)).

in addition, the Company will benefit by an effective debt reduction in the remaining business because the interest bearing debt of the savcor fACE business (being the Outstanding Completion Debt referred to above) will remain with the savcor fACE business after the sale.

The consideration is subject to adjustment if the value of the net assets of the savcor fACE business at Completion differs from the value of the net assets of the savcor fACE business as at 31 December 2009 with a corresponding payment to be made by the relevant party. The share sale Agreement also requires that payment of the intra group Payables (being the aggregate outstanding trade and other payables owed by the savcor fACE business to the Company and the remaining business at Completion less the aggregate outstanding trade and other payables owed by the Company and the remaining business to the savcor fACE business at Completion) be made following Completion. These payments are to be made in 4 equal monthly instalments following the determination of the net assets of the savcor fACE business and the outstanding payables at Completion.

further details of the Transaction, including the Conditions to Completion of the Transaction, are set out in section 3 of this explanatory memorandum.

An overview of Cencorp, which is listed on the finnish stock exchange, is set out in section 5 of this explanatory memorandum.

if the Transaction is approved, the Company will no longer own the savcor fACE business and will become a major shareholder in Cencorp. because Cencorp is proposing to issue new shares under the Cencorp Capital Raising to fund the cash required for the acquisition of the savcor fACE business and for its future growth (with an aggregate issue price estimated at €5,000,000 it is not possible to accurately determine the percentage ownership of the issued shares in Cencorp which the Company will receive under the Transaction.

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Overview of the transaction continued

The share sale Agreement requires that the Consideration shares in Cencorp be issued to the Company at the same issue price per share as those proposed to be issued for cash under the Cencorp Capital Raising. Therefore the number of Consideration shares to be issued will depend on the final issue price per share achieved in the Cencorp Capital Raising.

Currently Cencorp has 134,561,052 issued shares. if the €16,000,000 of Consideration shares were issued at €0.14 per share, this would result in the Company receiving 114,285,714 shares in Cencorp at Completion of the Transaction. if Cencorp raises €5,000,000 in the Cencorp Capital Raising also at an issue price of €0.14 per share, the Company will own 40.16% of the expanded share capital of Cencorp following completion of the Cencorp Capital Raising and the Transaction. however, because the shares may not be issued at €0.14 per share, and because the Cencorp Capital Raising may raise more or less than €5,000,000, the Company’s shareholding in Cencorp may vary from this estimate.

The Transaction is subject to a number of Conditions referred to in section 3, including shareholder approval in order to comply with the AsX Listing Rules and the Corporations Act. Details of the resolutions to be put to the general Meeting to approve the Transaction are set out in section 4 of this explanatory memorandum.

A consolidated pro-forma balance sheet of the remaining business as at 31 December 2009 (which has been prepared on the assumption that the Transaction had completed on 31 December 2009) and a pro-forma income statement for the remaining business for the year ended 31 December 2009 (which has been prepared on the assumption that the Transaction had been completed on 1 January 2009) are each detailed in section 14 of the independent Expert’s Report.

EXPLANATORY MEMORANDUM

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Further details of the transaction

3. Further details of the Transaction

3.1 Conditions to Completion

Completion of the Transaction is subject to the fulfilment of a number of Conditions including that:
(a) the group Entities:
(1) repay the amounts due under the Current banking facilities; and
(2) obtain the consent of the ANZ bank to the termination of the Current banking facilities and the release of all related securities,

on terms satisfactory to the Company;

(b) the group Entities enter into the New bank facility with bank of China or another financier on terms and conditions satisfactory to Cencorp;
(c) savcor and intune Circuits obtain all necessary regulatory approvals including that the shareholders approve the proposed terms of the disposal of the savcor fACE business for the purposes of the AsX Listing Rules and the Corporations Act;
(d) Cencorp and savcor Pacific obtain all necessary regulatory approvals to the Transaction;
(e) the Company and Cencorp receive satisfactory opinions from their respective advisers;
(f) an independent expert provides an opinion that the Transaction is on balance “reasonable” for the purposes of AsX Listing Rule 10.1; and
(g) shareholders of Cencorp approve the Transaction.

3.2 Completion date

Completion of the Transaction is to occur 3 business Days after all of the Conditions for Completion have been satisfied or waived or at such other time as the Company, intune Circuits and Cencorp agree. it is expected that, if shareholders approve the Transaction at the general Meeting, it may take a further period of time to satisfy any other outstanding Conditions.

3.3 Warranties and indemnities

The terms of the share sale Agreement include warranties and indemnities given by the Company and intune Circuits and warranties given by Cencorp. briefly, the warranties and indemnities relate to:

(a) by savcor and intune Circuits:
(1) corporate existence, records and documentation;
(2) title to the sale shares and Ancillary Assets;
(3) the accounts of the group Entities;
(4) liabilities;

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Further details of the transaction continued

(5) intellectual property rights;
(6) environmental matters;
(7) employees and employee entitlements;
(8) litigation; and
(9) tax; and
(b) by Cencorp:
(1) corporate existence;
(2) capital structure; and
(3) information.

EXPLANATORY MEMORANDUM 15

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Resolutions

4. Resolutions

4.1 Resolution 1 – Approval of Sale of Savcor FACE Business for the purposes of ASX Listing Rule 10.1

The Independent Expert has concluded that the proposed transaction is not fair but is on balance reasonable to the non-associated Shareholders.

Rule 10.1 of the AsX Listing Rules states that an entity must ensure that neither it, nor any of its child entities acquires a substantial asset from, or disposes of a substantial asset to, certain persons without approval from the shareholders of that entity. Those persons include a related party, or a substantial holder, of the entity, or persons associated with either of these (a Proscribed Person ).

A ‘substantial asset’ is essentially an asset the value of which is 5% or more of the entity’s equity interests.

The value of the savcor fACE Assets and fACE Receivable exceed 5% of the Company’s equity interests. The value of the Consideration shares exceeds 5% of the Company’s equity interests. Accordingly each of:

(a) the fACE Assets and fACE Receivable, and
(b) the Consideration shares,

is a substantial asset of the Company for the purposes of rule 10.1 of the AsX Listing Rules.

Due to:

(c) hannu savisalo and iikka savisalo being a director of each of the Company, Cencorp and savcor group Oy; and
(d) savcor group Oy being a substantial holder in the Company (i.e. holding at least 10% of the total votes attached to the Company’s securities) and also having a controlling interest in Cencorp,

Cencorp would be a Proscribed Person in respect of the Company.

Accordingly, the sale by the Company of the savcor fACE Assets and fACE Receivable to Cencorp would be the disposal by the Company, and the issue to the Company of the Consideration shares would be an acquisition by the Company, (respectively) of a substantial asset to and from a Proscribed Person for the purposes of rule 10.1 of the AsX Listing Rules requiring shareholder approval. The purpose of the resolution is to obtain this shareholder approval.

4.2 Resolution 2 – Approval of Sale of Savcor FACE Business for the purposes of Chapter 2E of the Corporations Act

Chapter 2E of the Corporations Act sets out rules requiring approval by the shareholders of a public company (such as the Company) to give a financial benefit to a related party of the Company and also requires certain information about the proposed financial benefit to be given to shareholders to assist them in deciding how to vote on the relevant resolution giving that approval.

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Resolutions continued

Due to:

(a) Each of hannu savisalo and iikka savisalo being a director of each of the Company, savcor group Oy and Cencorp;
(b) hannu savisalo and iikka savisalo and their relatives having a controlling interest in savcor group Oy; and
(c) savcor group Oy having a controlling interest in both the Company and Cencorp,

hannu savisalo and iikka savisalo and their spouses (and each of their parents and children), and savcor group Oy and its directors and their spouses (and each of their parents and children), and Cencorp, and each entity controlled by any of them are considered to be related parties of the Company for the purposes of Chapter 2E of the Corporations Act to whom the proposed resolution would permit a financial benefit to be given. The financial benefit to be given to these parties would be the sale by the Company of the savcor fACE Assets and fACE Receivable to Cencorp as described in this explanatory memorandum.

information relating to:

(d) the recommendation of the directors of the Company in respect of the proposed resolution is set out in section 4.3 of this explanatory memorandum;
(e) the interests of the directors of the Company in the outcome of the proposed resolution are set out in section 9 of this explanatory memorandum; and
(f) the nature of the financial benefits (being the terms of the Transaction) and other matters relevant to the shareholders’ consideration of whether or not it is in the Company’s interest to pass the proposed resolution is set out in this explanatory memorandum.

4.3 Directors’ recommendations

The current directors of the Company are:

simon Rowell (Chairman)

Jyrki salminen

Nicholas Psaltis hannu savisalo

iikka savisalo

All the directors have approved this explanatory memorandum. All of the directors are in favour of putting the resolution and the Transaction to shareholders for approval. The directors unanimously recommend that shareholders vote in favour of the resolution (except to the extent a shareholder is precluded from voting).

EXPLANATORY MEMORANDUM 17

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Resolutions continued

The directors intend to cast the votes attached to the shares they own or control in favour of the resolution, except that hannu savisalo and iikka savisalo and their associates will not be voting on the resolutions, due to the voting exclusions required under AsX Listing Rules 10.1 and Chapter 2E of the Corporations Act and otherwise due to their interest in the outcome of the proposed resolutions as further described in section 9 of this explanatory memorandum.

The reasons of each director for recommending shareholders vote in favour of the resolution are set out in this explanatory memorandum (in particular in section 1 of this explanatory memorandum).

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Information about Cencorp

5. Information about Cencorp

5.1 Profile of Cencorp Corporation

information regarding Cencorp is included in section 5 of the independent Expert’s Report.

5.2 Nasdaq OMX Helsinki

Cencorp is listed on the Nasdaq OMX helsinki and information regarding that stock exchange is included in section 6 of the independent Expert’s Report.

5.3 Valuation of the Consideration Shares

The Company will receive shares in Cencorp as part consideration and information regarding the valuation of those shares is included in section 11 of the independent Expert’s Report.

5.4 Financial Implications for Cencorp

Cencorp has prepared a pro-forma income statement and pro-forma balance sheet showing the financial implications of the transaction on Cencorp and information on those pro-forma statements is included in section 15 of the independent Expert’s Report.

5.5 Cencorp rationale for the Transaction

An overview of the rationale for the transaction from Cencorp’s point of view is included in section 16 of the independent Expert’s Report.

5.6 Exemption from an obligation to launch a takeover bid under Finnish Securities Act

The Company and savcor group Oy have been granted an exemption by the finnish financial supervisory Authority finanssivalvonta based on section 15 of Chapter 5 of the finnish securities Act from an obligation to launch a takeover bid for all remaining shares and securities in Cencorp as a result of the Transaction. The effect of the exemption is that the Company will not be required to make an offer for the shares in Cencorp which it does not own following the Transaction.

EXPLANATORY MEMORANDUM 19

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Financial implications of the transaction for Savcor

6. Financial Implications of the Transaction for Savcor

6.1 Overview

An overview of the effect of the Transaction on savcor is included in section 14 of the independent Expert’s Report.

6.2 Pro forma balance sheet

The pro-forma balance sheet as at 31 December 2009 of savcor on the assumption that the Transaction had completed on that date is included in section 14 of the independent Expert’s Report.

6.3 Pro forma income statement

The pro-forma income statement for the year ended 31 December 2009 of savcor on the assumption that the Transaction had been completed on 1 January 2009 is included in section 14 of the independent Expert’s Report.

6.4 Savcor ART and Savcor Corporate Combined

The key remaining components within the savcor business after the Transaction will be savcor ART and savcor Corporate (the savcor head office costs). included in section 13 of the independent Expert’s Report is information regarding the historical performance of savcor ART and savcor Corporate, together with information regarding the budget for fY2010.

7. Independent Expert's Report

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Savcor Group Limited

Independent Expert Report in relation to the Sale of the Savcor FACE Business

26 August 2010

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Financial Services Guide

This Financial Services Guide is issued in relation to an independent expert report (“ Report “) prepared by PKF Corporate Advisory (East Coast) Pty Limited (ABN 70 050 038 170) (“ PKFCA “) at the request of the directors (“ Directors “) of Savcor Group Limited (“ Savcor ”) in relation to the sale to Cencorp Corporation of all of the issued shares in Savcor Pacific Limited (a wholly owned subsidiary of Savcor) which owns and operates the Savcor FACE business (“ Proposed Transaction ”). The Report is intended to accompany the notice of meeting and accompanying explanatory memorandum that are to be provided by the Directors in relation to the Proposed Transaction.

Engagement

PKFCA has been engaged by the Directors to prepare the Report expressing our opinion as to whether the Proposed Transaction is fair and reasonable to Savcor shareholders other than those directly involved in the Proposed Transaction or associated with such persons under the Australian Securities Exchange Listing Rule 10.1 and Chapter 2E of the Corporations Act 2001 (Cth).

Financial Services Guide

PKFCA holds an Australian Financial Services Licence (License No: 247420) (“ Licence ”). As a result of our Report being provided to you, PKFCA is required to issue to you, as a retail client, a Financial Services Guide (“ FSG “). The FSG includes information on the use of general financial product advice and is issued so as to comply with our obligations as holder of an Australian Financial Services Licence.

Financial services PKFCA is licensed to provide

The Licence authorises PKFCA to provide reports for the purposes of acting for and on behalf of clients in relation to proposed or actual mergers, acquisitions, takeovers, corporate restructures or share issues, to carry on a financial services business to provide general financial product advice for securities and certain derivatives (limited to old law securities, options contracts and warrants) to retail and wholesale clients.

PKFCA provides financial product advice by virtue of an engagement to issue the Report in connection with the issue of securities of another person.

Our Report includes a description of the circumstances of our engagement and identifies the party who has engaged us. You have not engaged us directly but will be provided with a copy of our Report (as a retail client) because of your connection with the matters on which our Report has been issued.

Our Report is provided on our own behalf as an Australian Financial Services Licensee authorised to provide the financial product advice contained in the Report.

General financial product advice

Our Report provides general financial product advice only, and does not provide personal financial product advice, because it has been prepared without taking into account your particular personal circumstances or objectives (either financial or otherwise), your financial position or your needs.

Some individuals may place a different emphasis on various aspects of potential investments.

An individual’s decision in relation to the Proposal described in the Document may be influenced by their particular circumstances and, therefore, individuals should seek independent advice.

Benefits that PKFCA may receive

PKFCA has charged fees for providing our Report. The basis on which our fees will be determined has been agreed with, and our fees will be paid by, the person who engaged us to provide the Report. Our fees have been agreed on either a fixed fee or time cost basis. PKFCA will receive a fee based on the time spent in the preparation of this Report in the amount of approximately $80,000 (plus GST and disbursements). PKFCA will not receive any fee contingent upon the outcome of the Proposed Transaction.

Savcor Group Limited – Independent Expert Report

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Remuneration or other benefits received by our employees

All our employees receive a salary. Employees may be eligible for bonuses based on overall productivity and contribution to the operation of PKFCA or related entities but any bonuses are not directly connected with any assignment and in particular are not directly related to the engagement for which our Report was provided.

Referrals

PKFCA does not pay commissions or provide any other benefits to any parties or person for referring customers to us in connection with the reports that PKFCA is licensed to provide.

Associations and relationships

PKFCA is the licensed corporate advisory arm of PKF (East Coast Practice), Chartered Accountants and Business Advisers. The directors of PKFCA may also be partners in PKF New South Wales, Chartered Accountants and Business Advisers.

PKF (East Coast Practice), Chartered Accountants and Business Advisers is comprised of a number of related entities that provide audit, accounting, tax and financial advisory services to a wide range of clients.

PKFCA’s contact details are as set out on our letterhead.

PKFCA is unaware of any matter or circumstance that would preclude it from preparing this Report on the grounds of independence under regulatory or professional requirements. In particular, PKFCA has had regard to the provisions of applicable pronouncements and other guidance statements relating to professional independence issued by Australian professional accounting bodies and ASIC.

Tuokko Auditing Ltd (“ Tuokko ”), a former associate firm of PKF was the previous auditor of Cencorp. PKFCA have engaged Tuokko in investigating the operations of Cencorp, in particular in relation to the translation of various key documents that were in Finnish. We note that in undertaking this work Tuokko worked solely under the direction of PKFCA. Accordingly, the work undertaken by Tuokko could not be regarded as capable of affecting PKFCA’s ability to provide an unbiased opinion in relation to the Proposed Transaction.

Complaints resolution

As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing, addressed to The Complaints Officer, PKF Corporate Advisory (East Coast) Pty Limited, Level 10, 1 Margaret Street, Sydney NSW 2000.

On receipt of a written complaint we will record the complaint, acknowledge receipt of the complaint and seek to resolve the complaint as soon as practical. If we cannot reach a satisfactory resolution, you can raise your concerns with the Financial Ombudsman Service Limited (“ FOS ”). FOS is an independent body established to provide advice and assistance in helping resolve complaints relating to the financial services industry. PKFCA is a member of FOS. FOS may be contacted directly via the details set out below.

Financial Ombudsman Service Limited GPO Box 3 Melbourne VIC 3001

Toll free: 1300 78 08 08 Email: [email protected]

Savcor Group Limited – Independent Expert Report

26 August 2010

The Independent Directors Savcor Group Limited Level 16, 132 Arthur Street NORTH SYDNEY NSW 2060

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Attention: Mr Simon Rowell (Chairman)

Dear Independent Directors

INDEPENDENT EXPERT REPORT IN RELATION TO THE SALE OF THE SAVCOR FACE BUSINESS

Introduction

Savcor Pacific Limited (“ Savcor Pacific ”) is a wholly owned subsidiary of Savcor Group Limited (“ Savcor ”) that owns and operates the Savcor FACE business (“ Savcor FACE ”) through its wholly owned subsidiaries Savcor FACE (Beijing) Technologies Co., Ltd. (Ch) (“ Savcor FACE Beijing ”) and Savcor FACE (Guangzhou) Technologies Co., Ltd. (Ch) (“ Savcor FACE Guangzhou ”) (collectively, “ Savcor Pacific Group ”).

On 28 May 2010, Savcor released an announcement to the Australian Stock Exchange (“ ASX ”) advising that it had entered into a conditional agreement for Cencorp Corporation (“ Cencorp ”) to acquire Savcor FACE (“ Proposed Transaction ”).

As both Savcor and Cencorp are controlled entities of Savcor Group Oy (“ Savcor Oy ”) (64.1% and 62.4% owned, respectively), the independent directors of Savcor (“ Directors ”) have requested PKF Corporate Advisory (East Coast) Pty Limited (“ PKFCA ”) to prepare an independent expert report (“ Report ”), setting out our opinion as to whether the Proposed Transaction is fair and reasonable to Savcor shareholders other than those directly involved in the Proposed Transaction or associated with such persons (“ Nonassociated Shareholders ”). Essentially, Non-associated Shareholders will be those Savcor shareholders other than Savcor Oy or related to Savcor Oy.

The Report is intended to accompany the notice of meeting (“ Notice of Meeting ”) and accompanying explanatory memorandum (“ Explanatory Memorandum ”) that are to be provided to Savcor shareholders by the Directors in relation to the Proposed Transaction (“ Documents ”).

Background

Savcor Oy is a technology company established in 1981 in Mikkeli, Finland owned by the Savisalo family. It has grown to be a global operator with many business activities. The current CEO is the founder of the company, Mr Hannu Savisalo.

Savcor is a publicly listed Australian technology company operating primarily the following two businesses:

Savcor Advanced Rehabilitation Technology (“ Savcor ART ”), primarily involving the protection and remediation of steel and concrete structures; and
Savcor FACE, which provides solutions based on surface coatings technology mainly for the telecommunications and other electronics industries.

Tel: 61 2 9251 4100 | Fax: 61 2 9240 9821 | www.pkf.com.au

The PKF East Coast Practice is a member of the PKF International Limited network of legally independent member firms. The PKF East Coast Practice is also a member of the PKF Australia Limited national network of legally independent firms each trading as PKF. PKF East Coast Practice has offices in NSW, Victoria and Brisbane. PKF East Coast Practice does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

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Savcor FACE provides functional and decorative solutions, mainly for the telecommunications and other electronics industries. Its product range includes electromagnetic interference (“ EMI ”) shielding, decorative coatings, radio frequency identification (“ RFID ”) antennas and flexible antennas. The three production facilities of Savcor FACE are located in China – one in Beijing and two in Guangzhou.

Cencorp is a public company listed on the Helsinki Stock Exchange with its headquarters in Mikkeli, Finland. It provides automation solutions for the electronics and semiconductor industries.

Proposed Transaction

The Proposed Transaction involves the sale by Savcor to Cencorp of certain assets described below (“ Sale Assets ”) in return for Savcor acquiring a minority investment (40.16%) in Cencorp.

The Sale Assets owned by Savcor proposed to be sold to Cencorp comprise the following:

assets that comprise the Savcor FACE business:
all of the shares in the capital of Savcor Pacific (“ Sale Shares ”);
other assets owned by Savcor used in connection with Savcor FACE, including those owned by a wholly-owned subsidiary of Savcor, Intune Circuits Oy Business ID 19623427 (“ Intune Circuits ”) (collectively, “ Ancillary Assets ”); and
the receivable owed or to be owed by Savcor Pacific to Savcor as described below (“ FACE Receivable ”).

The amount of the FACE Receivable will be determined at the date 3 business days after the conditions of the Proposed Transaction (“ Conditions ”) have been met or waived or such other date as Savcor and Cencorp agree (“ Completion Date ”).

The FACE Receivable arises as a consequence of Savcor having advanced funds (or procured the advance of funds) to Savcor Pacific for the purpose (when aggregated with the finance to be provided under the New Banking Facility (refer definition below)) of the Savcor Pacific Group repaying its current banking facilities and security agreements (which includes security given by Savcor and any company directly or indirectly controlling, controlled by or under the common control of Savcor after implementing the Proposed Transaction (“ Retained Entities ”)) with ANZ Bank (“ Current Banking Facilities ”).

If the FACE Receivable was calculated as at 30 June 2010, the aggregate amount would have been approximately $7.1 million.

The consideration payable by Cencorp for the above Sale Assets (“ Consideration ”) is as follows:

the issue of fully paid shares in Cencorp with an aggregate issue price of 16,000,000 Euros (“ Consideration Shares ”); and
the payment of Australian dollars (“ AUD ”) 11,000,000 (in cash) less the Outstanding Completion Debt (refer definition below) (the net amount being termed the “ Cash Payment ”).

The Outstanding Completion Debt is the amount (to be denominated in Chinese Yuan Renminbi (“ RMB ”) and converted at the AUD: RMB exchange rate on the business day immediately prior to Completion Date) to be advanced to the Savcor Pacific Group under a new bank facility in the amount of approximately RMB 35,000,000 with the Bank of China or another banking institution acceptable to Cencorp (“ New Banking Facility ”) net of any deposited cash held as security (“ Outstanding Completion Debt ”).

The Consideration is subject to adjustment if the net assets of Savcor FACE at completion of the Proposed Transaction (“ Completion ”) differ from the net assets of Savcor FACE as at 31 December 2009. Following the determination of the net assets (which is to be no later than 45 days after Completion), this adjustment will be paid in four equal monthly instalments by Savcor if the net assets decline or by Cencorp if the net assets increase. For the purposes of our assessment herein, we have assumed that there will be no adjustment made.

SAVCOR GROUP LIMITED – Independent Expert Report

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The level of net assets in Savcor Pacific at Completion for the purpose of the net asset adjustment will be reduced by any capital subscribed to Savcor Pacific by Savcor in respect of new preference shares issued by Savcor Pacific in satisfaction of any part of the outstanding FACE Receivable.

The parties have agreed that Cencorp will ensure that the Savcor Pacific Group repays all Intra-Group Payables (refer to the Glossary for definition) to the Retained Entities in four equal monthly instalments commencing no later than 45 days after Completion.

Impact of the Proposed Transaction on Savcor Group Corporate Structure

Before Implementing the Proposed Transaction

Illustrated below is the corporate structure before implementing the Proposed Transaction:

Figure 1

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----- Start of picture text -----

Group Structure Before Implementing the Proposed Transaction
Savcor Oy
100% 62.4%
Savcor Face Other Savcor
Cencorp
Group Oy Oy Companies
64.1%
Other Savcor Face
Savcor
Group Oy Companies
100% 100%
Savcor Intune
Pacific Circuits
100% 100% 100%
Savcor FACE Savcor FACE
Savcor ART
(Beijing) (Guangzhou)
----- End of picture text -----

Source: Savcor management

Legend: Red denotes entities affected by the Proposed Transaction and blue denotes entities that are not directly affected by the Proposed Transaction.

Cencorp management indicated that prior to implementing the Proposed Transaction, Cencorp proposes to raise 5,000,000 Euros in additional funds through a capital raising (“ Cencorp’s Proposed Capital Raising ”). For illustrative purposes only, this has been assumed to involve the issue of 35,714,286 shares at Cencorp’s weighted average share price for the 1 month period to 15 June 2010 of €0.14 (refer Section 5.17 ) (“ Cencorp Share Price ”) (i.e. €5,000,000/€0.14). The weighted average share price of €0.14 is an indicative value for illustrative purposes only, and does not reflect the current share price and may not reflect the price at which the capital raising will be undertaken.

After Implementing the Proposed Transaction

At an assumed Cencorp Share Price of 0.14 Euros, Savcor will receive 114,285,714 Consideration Shares (i.e. €16,000,000/€0.14).

Currently, Cencorp has 134,561,052 shares on issue. After implementing the Proposed Transaction and Cencorp’s Proposed Capital Raising (at the assumed Cencorp Share Price of 0.14 Euros), Cencorp will have 284,561,052 shares on issue and Savcor will own 114,285,714 of these shares; effectively 40.16% of Cencorp.

Savcor Group Limited – Independent Expert Report

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Savcor Oy currently has a 62.4% interest in Cencorp. After implementing the Proposed Transaction, this interest will be diluted to 29.50% (based on the above assumed Cencorp Share Price of 0.14 Euros). However, in addition to its direct interest of 29.50% in Cencorp, Savcor Oy will also have an indirect interest of 25.74% in Cencorp (via its holding in Savcor). Accordingly, after implementing the Proposed Transaction, Savcor Oy will have a total direct and indirect interest of 55.24% in Cencorp. Together, Savcor and Savcor Oy will have a controlling interest in Cencorp after implementing the Proposed Transaction.

Illustrated below is the proposed corporate structure after implementing the Proposed Transaction:

Figure 2

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----- Start of picture text -----

Group Structure After Implementing the Proposed Transaction
Savcor Oy
100%
Savcor Face Other Savcor
Group Oy Oy Companies
64.1%
Other Savcor Face
Savcor
Group Oy Companies
100% 100% 40.16% 29.50%
Intune Other Savcor
Savcor ART Cencorp
Circuits Companies
100%
Savcor
Pacific
100% 100%
Savcor FACE Savcor FACE
(Beijing) (Guangzhou)
----- End of picture text -----

Source : PKFCA workings

Legend: Red denotes entities affected by the Proposed Transaction and blue denotes entities that are not directly affected by the Proposed Transaction.

Regulatory Requirements

Australian Stock Exchange Listing Rules (“ASX Listing Rules”)

The Proposed Transaction requires the approval of the Non-associated Shareholders under ASX Listing Rule 10.1. The Notice of Meeting to approve the Proposed Transaction must be accompanied by a report from an independent expert stating whether the Proposed Transaction is “fair and reasonable” to the Nonassociated Shareholders.

Savcor Group Limited – Independent Expert Report

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Chapter 2E of the Corporations Act

Under Chapter 2E of the Corporations Act 2001 (Cth) (“ Act ”), entering into the Proposed Transaction by Savcor is regarded as the giving of a financial benefit to a related party (i.e. to Cencorp). Such a transaction requires approval by Savcor’s shareholders other than any related party of Savcor who would obtain a financial benefit under the Proposed Transaction or any associate of such person, unless each arrangement is on arm’s length terms (or less favourable to the related party than arm’s length terms) (refer section 208 and section 210 of the Act).

PKFCA role

PKFCA has been engaged to prepare a Report setting out our opinion as to whether:

the Proposed Transaction is fair and reasonable to Non-associated Shareholders under ASX Listing Rule 10.1; and
the giving of a financial benefit to a related party (i.e. to Cencorp) is not on arm’s length terms under Chapter 2E of the Act.

PKFCA Conclusions

Australian Stock Exchange Listing Rules (“ASX Listing Rules”)

In our opinion, the Proposed Transaction is not “fair”, but is on balance “reasonable” to the Nonassociated Shareholders for the purposes of ASX Listing Rule 10.1.

Although we consider that the assessed fair market value of the Consideration being received is not “fair” when compared with the assessed fair market value of the Savcor FACE assets being sold, we believe that on balance, there are sufficient reasons for the Proposed Transaction to be considered reasonable to the Non-associated Shareholders.

Chapter 2E of the Corporations Act

Given that in our opinion the assessed value of the Consideration is not “fair” when compared with the assessed fair market value of the Sale Assets, we believe that the giving of the financial benefit to Cencorp is not on arm’s length terms. Accordingly, in our opinion, the giving of such a financial benefit requires approval by Savcor’s shareholders under Chapter 2E of the Act.

The Proposed Transaction is not Fair

We have compared our assessed fair market value of the Consideration to our assessed fair market value of the Sale Assets, as set out below:

Table 1: Fairness Assessment

(AUD 000’s) Ref.	(AUD 000’s) Ref.	Low Value High Value Mid Value	Low Value High Value Mid Value	Low Value High Value Mid Value
Assessed Value of Consideration Assessed value of the Sale Assets Difference	12.4 10.7	25,665 28,113	27,315 33,402	26,484 30,711
		(2,448)	(6,087)	(4,227)
Source:PKFCA analysis

The assessed value of the Consideration is lower than our assessed value of the Sale Assets and accordingly, the Proposed Transaction is considered to be not “fair” to the Non-associated Shareholders.

For the purposes of ASIC Regulatory Guide 111 Content of expert reports (“ RG111 ”), an offer is considered to be “reasonable”, if it is “fair”. However, it might also be “reasonable” if, despite being “not fair”, the expert believes that there are sufficient reasons for security holders to accept an offer in the absence of any higher offer before the close of the offer.

Savcor Group Limited – Independent Expert Report

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The Proposed Transaction is Reasonable

After considering the following advantages and disadvantages, we consider that the Proposed Transaction is on balance “reasonable” to the Non-associated Shareholders.

Advantages of the Proposed Transaction

Approving the Proposed Transaction has the following advantages:

Better employment of capital to improve shareholder returns

The Savcor FACE business is an investment intensive business that requires approximately $2.5 million per annum in continuous investment in new production technologies, which will consume Savcor’s capability to invest in the international growth of ART. Savcor management anticipates that focusing future investment in ART (instead of Savcor FACE) will result in higher returns on investment for shareholders.

Reduced exposure to competitive process manufacturing

The Savcor FACE business is generally regarded as a competitive, commodity manufacturing business which may be replicated and actively pursued in the market place by numerous other similar organisations based in China. Accordingly, divestment of this business reduces Savcor’s direct exposure to such risk.

Opportunity to retain an indirect interest in Cencorp

The Proposed Transaction provides Savcor with the opportunity to retain an interest of approximately 40% (before planned divestment) in a broader based Cencorp. This will enable Savcor to benefit from any future growth achieved by the combined Cencorp and Savcor FACE business.

Reduced exposure to concentrated customer base

The Savcor FACE business customers are generally concentrated amongst the top ten direct customers and one customer generates approximately 30% of sales. In addition, Savcor’s principal end customer is Nokia which further exacerbates the customer concentration risk. The Proposed Transaction will reduce Savcor shareholders’ exposure to such risk, especially as the Savcor FACE business will be able to leverage off Cencorp’s strong customer base.

Improved shareholder value through a focussed business

Historically, Savcor’s expertise and knowledge in metallurgy sciences was a common denominator for the growth of both the ART and FACE divisions. However, as the two divisions developed over time, established their independent client bases and niche markets, this common driver played a reduced role. The two divisions today are quite independent of each other with minimal synergies between them.

The divestment of the Savcor FACE business will enable Savcor to stay focused on and committed to the growth of the ART business, which has established operations in India, China, Japan and elsewhere. In our opinion, a focused business could improve shareholder value.

Reduced gearing

Approximately half of Savcor’s debt (as at 31 December 2009) related to the Savcor FACE business. Implementing the Proposed Transaction will result in a substantial reduction in the amount of debt and Savcor’s gearing level will reduce (refer pro forma balance sheet in Section 13 for details), resulting in reduced gearing risks.

This reduced gearing will also enable Savcor to more easily obtain external funding to invest in the growth of the ART business, particularly to facilitate international expansion (organic growth and acquisitions).

Savcor Group Limited – Independent Expert Report

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The scrip portion of the Consideration is more liquid (shares of a listed entity) than shares in Savcor Pacific, providing Savcor with the opportunity, if required, to realise cash for further debt reduction or expansion of the ART business by selling Cencorp shares that it will hold following the Proposed Transaction. In fact, the Directors of Savcor have indicated that they intend to dispose of some of the Consideration Shares in Cencorp.

Likely share price in the absence of the Proposed Transaction

In the absence of the Proposed Transaction, the share price of Savcor is unlikely to alter in the medium to long term because of the high gearing. The Proposed Transaction provides Savcor with the opportunity to readjust itself and its remaining business so as to create future shareholder value. It also gives Savcor the opportunity to grow its remaining business either organically or by acquisition.

Reduced exposure to foreign currency fluctuations

Savcor’s financial position and financial performance currently have significant exposure to foreign currency risk as a result of the Savcor FACE operations in China. Savcor FACE trades predominantly in RMB. The Australian dollar has demonstrated significant volatility in 2010, with over 14% fluctuation in value with respect to the RMB.

This foreign currency exposure will be significantly reduced as a result of the Proposed Transaction as the Savcor ART business does not give rise to any significant exposure to foreign currency fluctuations.

This reduction in exposure to foreign currency fluctuations may be offset slightly if Savcor decides to retain the Consideration Shares, as Cencorp trades predominantly in Euros.

Potential to enhance liquidity of Savcor shares

Historically, trading in Savcor shares has been relatively illiquid as illustrated below in Section 3.11 . The Proposed Transaction provides Shareholders with the opportunity for enhanced liquidity of Savcor shares by restoring market confidence in the performance of the company as a single focussed business that is simpler for the market to understand and assess value.

No superior alternative avenues to restore shareholder value to Savcor

As discussed below in Section 2.1 , the Directors have been assessing a number of restructuring options to restore shareholder value to Savcor, including divesting the Savcor FACE business. Savcor management indicated that the divestment of Savcor FACE was considered to be the superior means of restoring shareholder value given the difficulty experienced in raising additional capital in the market place.

Potential for Savcor to pay dividends

Savcor has not paid any dividends during the Trading Period reviewed (i.e. 1 January 2009 to 15 June 2010, refer Section 3.11 ). Any improvement in the financial performance of Savcor as a result of the Proposed Transaction may result in the potential for Savcor to pay dividends.

Alternatively, if Savcor were to retain the Consideration Shares it receives as part of the Proposed Transaction, it may be entitled to receive dividend payments from Cencorp which it may then pass on to shareholders through dividend payments of its own.

Potential for reduced overheads

Following the Proposed Transaction, the remaining business will be smaller in size with reduced complexity. There may be opportunities for management and reporting cost savings, such as audit fees.

Some of the potential reporting cost savings may be offset slightly by the need for Savcor to equity account for its investment in Cencorp should it decide to retain the Consideration Shares.

Savcor Group Limited – Independent Expert Report

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Potential improvement in the value of Cencorp shares

Approximately 80% of the Consideration value is represented by Cencorp shares. Savcor shareholders can benefit from future improvements (if any) in Cencorp’s listed share price.

Adhere to the debt reduction schedule

As mentioned above, approximately half of Savcor’s debt (as at 31 December 2009) related to the Savcor FACE business. We understand that management is intending to adhere to the debt reduction schedule agreed with the ANZ Bank.

Implementing the Proposed Transaction will reduce Savcor’s Current Banking Facilities and as a result assist in the achievement of the debt reduction programme.

Disadvantages of the Proposed Transaction

Approving the Proposed Transaction has the following disadvantages:

Risk in the value of Cencorp shares

Cencorp has recently undergone restructuring resulting in a new management team and new strategy. As such, there is minimal proven track record to support future business performance and share price. Any future decline in Cencorp’s share price will have an adverse impact on the Consideration value, as approximately 80% of the Consideration value relates to Consideration Shares.

Reduction of Earnings per Share (“ EPS ”)

Based on our review of the EPS assuming that the Proposed Transaction is approved, we have determined that Savcor EPS will reduce. Moreover, we believe that the position will exacerbate in the current financial year when it is expected that the Savcor FACE business would have improved performance.

Reduction in net assets

Based on our review of the net assets assuming that the Proposed Transaction is approved, we have determined that Savcor net assets will reduce.

Lack of Diversification

With operations in mobile telephone component manufacturing and the protection and remediation of steel and concrete structures, Savcor is currently reasonably diversified in its activities. To a certain extent, this cushions Savcor’s financial performance against any adverse movements in either industry. Accepting the Proposed Transaction will focus Savcor’s business activities in the corrosion prevention and rehabilitation industry and reduce the diversification of Savcor’s business activities.

Foregone opportunity to continue to benefit from any turnaround in the Savcor FACE business

Any continued future improvement in the Savcor FACE business may translate to increases in the Savcor share price and dividend payments. Should shareholders approve the Proposed Transaction, the shareholders may not benefit directly from any such improvement, although this risk may be partially mitigated if Savcor decides to retain the Consideration Shares that it receives as part of the Proposed Transaction.

Remaining Savcor business at risk if the performance of ART is not improved

For YTD June 2010, the remaining Savcor business (ART and Corporate) achieved close to a breakeven result at EBIT level (an improvement from the loss incurred in YTD May 2010 results due to a strong June performance).

Savcor Group Limited – Independent Expert Report

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We note that if the ART business is not turned around in the short term and if growth is not sustained, there will be significant risk to the remaining Savcor business which may adversely impact Savcor’s share performance.

Loss of potential to participate in significant growth opportunities in the mobile phone industry

The mobile phone industry is forecast to grow by approximately 9.0% in 2010 before declining to 6.6% per annum growth rates until 2013 (applicable for the Asia Pacific region).

Approving the Proposed Transaction will result in Savcor losing the potential to directly participate in the above Industry growth opportunities, through the Savcor FACE business.

Increased Liquidity Risk

As discussed below, the liquidity of Cencorp shares is not very high. Approving the Proposed Transaction will result in Savcor acquiring an approximate interest of 40.16% together with Savcor Oy’s 29.5% shareholding in Cencorp. This large shareholding is likely to exacerbate the illiquidity of Cencorp shares. However, we understand that Cencorp management will be attempting to reduce this illiquidity issue through the proposed capital raising and placement of some of Savcor’s Cencorp shareholding into the secondary market.

Helsinki Stock Exchange

Our comparison of the Helsinki stock exchange to the ASX shows that it is a smaller market and does not enjoy the same level of liquidity as the ASX. However, the Helsinki stock exchange does have a greater focus on industrials and consumer discretionary companies and this would be considered to be an advantage. Nonetheless the advantage does not mitigate the lower level of liquidity.

Overall analysis

Whilst the Proposed Transaction does not result in a “fair” value being attributed to the Sale Assets and in particular, the Savcor FACE business, it does provide Savcor with an opportunity to realise some cash and reduce debt as well as refocus its operations towards the Savcor ART business. In the absence of all Savcor shareholders being willing to invest further equity capital into Savcor, in our opinion, the Proposed Transaction provides for a strategic alternative which in part includes an indirect partial investment in the Savcor FACE business through Cencorp and at the same time an opportunity to potentially benefit from some form of merger synergies between the Cencorp business and the Savcor FACE business.

Other matters

Shareholders’ individual circumstances

Our analysis has been undertaken, and our conclusions are expressed, at an aggregate level. Accordingly, PKFCA has not considered the effect of the Proposed Transaction on the particular circumstances of individual shareholders. Some individual shareholders may place a different emphasis on various aspects of the Proposed Transaction from that adopted in this Report. Accordingly, individual shareholders may reach different conclusions as to whether or not the Proposed Transaction is fair and reasonable in their individual circumstances. As the decision of an individual shareholder in relation to the Proposed Transaction may be influenced by their particular circumstances (including their taxation position), shareholders are advised to seek their own independent advice.

Fair market value

For the purposes of our opinion, the term “fair market value” is defined as the price that would be negotiated in an open and unrestricted market between a knowledgeable, willing, but not anxious purchaser, and a knowledgeable, willing, but not anxious vendor, acting at arm’s length.

Savcor Group Limited – Independent Expert Report

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Special value

We have not considered special value in forming our opinion. Special value is the amount that a potential acquirer may be prepared to pay for a business in excess of the fair market value. This premium represents the value to the particular potential acquirer of potential economies of scale, reduction in competition, other synergies and cost savings arising from the acquisition under consideration not available to likely purchasers generally. Special value is not normally considered in the assessment of fair market value as it relates to the individual circumstances of special purchasers.

Current Market Conditions

Our opinion is based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time. Changes in those conditions may result in any valuation or other opinion becoming quickly outdated and in need of revision. PKFCA reserves the right to revise any valuation or other opinion, in the light of material information existing at the valuation date that subsequently becomes known to PKFCA.

Summary

This Summary should be read in conjunction with the balance of the Report which sets out in full the purpose, scope, basis of evaluation, limitations, analysis and our findings.

Approval or rejection of the Proposed Transaction is a matter for individual Shareholders based on their expectations as to the expected value and future prospects and market conditions and their particular circumstances, including risk profile, liquidity preference, portfolio strategy and tax position. Shareholders should carefully consider the Documents. Shareholders who are in doubt as to the action they should take in relation to the Proposed Transaction should consult their professional adviser.

Capitalised terms used in this Report have the meanings set out in the Glossary in Appendix 1.

Sources of Information

Appendix 2 identifies the information referred to, and relied upon by PKFCA during the course of preparing this Report and forming our opinion.

Financial Services Guide

A financial services guide is attached at the start of this Report.

Yours sincerely

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Vince Fayad Director

Savcor Group Limited – Independent Expert Report

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TABLE OF CONTENTS	TABLE OF CONTENTS	TABLE OF CONTENTS
FINANCIAL SERVICES GUIDE .................................................................................................................................... 2
1	SCOPE AND	LIMITATIONS ................................................................................................................................ 17
	1.1	REGULATORYREQUIREMENTS.......................................................................................................... 17
	1.2	PURPOSE OF THEREPORT................................................................................................................ 17
	1.3	SCOPE............................................................................................................................................ 18
	1.4	BASIS OF ASSESSMENT..................................................................................................................... 18
	1.5	CHAPTER2EOF THEACT................................................................................................................. 20
	1.6	LIMITATIONS.................................................................................................................................... 22
	1.7	ASSUMPTIONS................................................................................................................................. 24
2	THE PROPOSED TRANSACTION ...................................................................................................................... 25
	2.1	OVERVIEW...................................................................................................................................... 25
	2.2	SUMMARY OFKEY TERMS OF THESHARE ANDASSETSALEAGREEMENT............................................... 25
3	PROFILE OF	SAVCOR GROUP LIMITED .......................................................................................................... 28
	3.1	OVERVIEW...................................................................................................................................... 28
	3.2	KEYMILESTONES............................................................................................................................ 28
	3.3	SAVCORART .................................................................................................................................. 29
	3.4	SAVCORFACE ............................................................................................................................... 29
	3.5	PRODUCTS ANDSERVICES................................................................................................................ 30
	3.6	CUSTOMERS................................................................................................................................... 31
	3.7	SUPPLIERS...................................................................................................................................... 31
	3.8	BOARD OFDIRECTORS..................................................................................................................... 32
	3.9	KEYMANAGEMENTPERSONNEL........................................................................................................ 33
	3.10	CAPITALSTRUCTURE....................................................................................................................... 34
	3.11	SHAREPRICEANALYSIS................................................................................................................... 36
	3.12	HISTORICALFINANCIALPERFORMANCE.............................................................................................. 38
	3.13	SWOT ANALYSIS............................................................................................................................ 42
4	PROFILE OF	THE SAVCOR PACIFIC BUSINESS ............................................................................................. 43
	4.1	OVERVIEW...................................................................................................................................... 43
	4.2	PRODUCTS...................................................................................................................................... 43
	4.3	CUSTOMERS................................................................................................................................... 44
	4.4	FINANCIALPERFORMANCE................................................................................................................ 45
	4.5	BALANCESHEET.............................................................................................................................. 49
	4.6	CASHFLOWSTATEMENT.................................................................................................................. 50
	4.7	SWOT ANALYSIS............................................................................................................................ 51
5	PROFILE OF	CENCORP CORPORATION ......................................................................................................... 52
	5.1	INTRODUCTION................................................................................................................................ 52
	5.2	KEYMILESTONES............................................................................................................................ 52
	5.3	CUSTOMERS................................................................................................................................... 53
	5.4	PRODUCTS...................................................................................................................................... 54
	5.5	SUPPLIERS...................................................................................................................................... 57
	5.6	CENCORP– SALES BYINDUSTRY....................................................................................................... 57
	5.7	CENCORPSTRATEGY....................................................................................................................... 57
	5.8	COMPETITORS................................................................................................................................. 58
	5.9	RESEARCH ANDDEVELOPMENT......................................................................................................... 58
	5.10	BOARD OFDIRECTORS..................................................................................................................... 59
	5.11	KEYMANAGEMENTPERSONNEL........................................................................................................ 60
	5.12	CORPORATESTRUCTURE................................................................................................................. 61
	5.13	ORGANISATIONALSTRUCTURE.......................................................................................................... 61
	5.14	CAPITALSTRUCTURE....................................................................................................................... 62
	5.15	EMPLOYEES.................................................................................................................................... 62

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	5.16	PATENTS& TRADEMARKS................................................................................................................. 62
	5.17	SHAREPRICEANALYSIS................................................................................................................... 63
	5.18	RISKS............................................................................................................................................. 65
	5.19	HISTORICALFINANCIALPERFORMANCE.............................................................................................. 65
	5.20	YEAR TODATEFINANCIALINFORMATION............................................................................................ 72
	5.21	FORECASTS.................................................................................................................................... 72
	5.22	SWOT ANALYSIS............................................................................................................................ 74
6	OVERVIEW OF THE NASDAQ OMX HELSINKI ................................................................................................. 75
	6.1	BACKGROUND................................................................................................................................. 75
	6.2	RULES AND REGULATIONS OF THENASDAQ OMX HELSINKI............................................................... 75
	6.3	SUPERVISION.................................................................................................................................. 76
	6.4	MAJORINDICES............................................................................................................................... 76
	6.5	RECENTCAPITALRAISINGS.............................................................................................................. 76
	6.6	NASDAQ OMX HELSINKI CF. AUSTRALIANSECURITIESEXCHANGE..................................................... 77
7	ECONOMIC OVERVIEW ..................................................................................................................................... 79
	7.1	INTRODUCTION................................................................................................................................ 79
8	INDUSTRY OVERVIEW ....................................................................................................................................... 82
	8.1	MARKETOVERVIEW......................................................................................................................... 82
	8.2	BARRIERS TOENTRY........................................................................................................................ 83
	8.3	DEMANDDETERMINANTS.................................................................................................................. 83
	8.4	MAJORPARTICIPANTS...................................................................................................................... 83
	8.5	FUTUREOUTLOOK........................................................................................................................... 84
	8.6	INDUSTRY– CENCORP..................................................................................................................... 84
	8.7	CONCLUSION................................................................................................................................... 85
9	VALUATION	METHODOLOGY ........................................................................................................................... 86
	9.1	OVERVIEW...................................................................................................................................... 86
	9.2	SAVCORFACE ............................................................................................................................... 86
	9.3	SAVCORFACE VALUATIONCROSSCHECK........................................................................................ 87
	9.4	CENCORP....................................................................................................................................... 87
	9.5	CENCORPVALUATIONCROSSCHECK................................................................................................ 88
10	VALUATION	OF THE SAVCOR FACE BUSINESS ............................................................................................ 89
	10.1	VALUATIONSUMMARY...................................................................................................................... 89
	10.2	VALUATIONAPPROACH..................................................................................................................... 89
	10.3	SALESHARES................................................................................................................................. 90
	10.4	SAVCORANCILLARYASSETS............................................................................................................. 95
	10.5	INTUNECIRCUITSANCILLARYASSETS................................................................................................ 96
	10.6	FACERECEIVABLE........................................................................................................................... 96
	10.7	VALUATIONCONCLUSION.................................................................................................................. 97
	10.8	VALUATIONCROSSCHECK............................................................................................................... 97
11	VALUATION	OF CONSIDERATION SHARES .................................................................................................... 98
	11.1	VALUATIONSUMMARY...................................................................................................................... 98
	11.2	EURODOLLARVALUE OFCONSIDERATIONSHARES TO BE ISSUED........................................................ 98
	11.3	AUD:EUROEXCHANGERATE........................................................................................................... 98
	11.4	DISCOUNT FOR LACK OF LIQUIDITY..................................................................................................... 98
	11.5	PREMIUM FOR SIGNIFICANT INFLUENCE............................................................................................... 98
	11.6	SHARES TO BE ISSUED TOSAVCOR.................................................................................................... 99
	11.7	VALUATIONCROSSCHECK............................................................................................................... 99
12	VALUATION	OF CONSIDERATION .................................................................................................................. 102
	12.1	VALUATIONSUMMARY.................................................................................................................... 102
	12.2	CONSIDERATIONSHARES............................................................................................................... 102
	12.3	CASHPAYMENT............................................................................................................................. 102
	12.4	VALUATIONCONCLUSION................................................................................................................ 103
13	SAVCOR ART AND SAVCOR CORPORATE COMBINED .............................................................................. 104

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13.1	OVERVIEW.................................................................................................................................... 104
13.2	SAVCORART ANDSAVCORCORPORATEFINANCIALPERFORMANCE.................................................. 104
13.3	SAVCORARTANDSAVCORCORPORATE1HFY2010 PERFORMANCE................................................ 106
13.4	FULLYEARFY2010 BUDGET.......................................................................................................... 107
14 FINANCIAL IMPLICATIONS OF THE PROPOSED TRANSACTION FOR SAVCOR ...................................... 114
14.1	INTRODUCTION.............................................................................................................................. 114
14.2	SAVCORPACIFICLIMITED– BALANCESHEET.................................................................................... 115
14.3	SAVCORGROUPLIMITED- PRO FORMABALANCESHEET................................................................... 117
14.4	SAVCORPACIFICLIMITED- INCOMESTATEMENT............................................................................... 119
14.5	SAVCORGROUPLIMITED- PRO FORMAINCOMESTATEMENT............................................................. 120
15 FINANCIAL IMPLICATIONS OF THE PROPOSED TRANSACTION FOR CENCORP .................................... 122
15.1	INTRODUCTION.............................................................................................................................. 122
15.2	ACCOUNTINGPOLICIESFORTHEUNAUDITEDPROFORMAFINANCIALINFORMATION............................ 122
15.3	CENCORPPROFORMACONSOLIDATEDINCOMESTATEMENT............................................................. 123
15.4	CENCORPPROFORMACONSOLIDATEDBALANCESHEET................................................................... 124
16 CENCORP	RATIONALE FOR THE PROPOSED TRANSACTION ................................................................... 126
16.1	OVERVIEW.................................................................................................................................... 126
16.2	KEYBENEFITS FORCENCORPSHAREHOLDERS................................................................................. 127
16.3	KEYBENEFITS FORSAVCORSHAREHOLDERS................................................................................... 127
17 EVALUATION .................................................................................................................................................... 128
17.1	FAIRNESS..................................................................................................................................... 128
17.2	REASONABLENESS......................................................................................................................... 128
17.3	CONCLUSION................................................................................................................................. 132
18 QUALIFICATIONS AND DECLARATIONS ....................................................................................................... 133
18.1	QUALIFICATIONS............................................................................................................................ 133
18.2	INDEPENDENCE.............................................................................................................................. 133
APPENDIX 1	GLOSSARY .................................................................................................................................... 135
APPENDIX 2	SOURCES OF INFORMATION ...................................................................................................... 138
APPENDIX 3	VALUATION METHODS................................................................................................................. 139
APPENDIX 4	MERGER AND ACQUISITION INFORMATION ............................................................................. 141
APPENDIX 5	SAVCOR PACIFIC COMPARABLE COMPANY DESCRIPTIONS ................................................ 143
APPENDIX 6	SAVCOR PACIFIC COMPARABLE COMPANY TRADING MULTIPLES ..................................... 144
APPENDIX 7	SAVCOR PACIFIC COMPARABLE COMPANY OPERATING ANALYSIS................................... 145
APPENDIX 8	DEBT REPAYMENT ....................................................................................................................... 146
APPENDIX 9	CENCORP COMPARABLE COMPANY DESCRIPTIONS ............................................................. 148
APPENDIX 10	CENCORP COMPARABLE COMPANY TRADING MULTIPLES .............................................. 149

Savcor Group Limited – Independent Expert Report

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1 SCOPE AND LIMITATIONS

1.1 Regulatory Requirements

The Proposed Transaction is subject to Chapter 10 of the ASX Listing Rules and Chapter 2E of the Act.

1.1.1 ASX Listing Rules

ASX Listing Rule 10.1 requires the approval of an entity’s Non-associated Shareholders where it is proposed to acquire a substantial asset from, or dispose of a substantial asset to:

a related party or an associate of a related party;
a subsidiary or an associate of a subsidiary; or
a substantial shareholder or an associate of a substantial shareholder.

A substantial shareholder is defined by the ASX Listing Rules as a shareholder with a relevant interest in at least 10% of the total votes attached to the voting securities at any time in the six months prior to the Proposed Transaction.

As both Savcor and Cencorp are controlled entities of Savcor Oy, Cencorp would be considered an associate of a substantial shareholder of Savcor, (Savcor Oy being the substantial shareholder with a 64.1% interest in Savcor).

ASX Listing Rule 10.2 defines an asset as being substantial if its value or the value of the consideration for it is, or in the ASX’s opinion is, 5% or more of the total equity interests of the entity as set out in the latest consolidated accounts given to the ASX under the ASX Listing Rules. Savcor FACE has a value that is greater than 5% of the equity interests of Savcor.

ASX Listing Rule 10.3 lists a number of exceptions to ASX Listing Rule 10.1. However, the Proposed Transaction does not fall within this list of exceptions.

Accordingly, approval to proceed with the Proposed Transaction is required from Savcor’s Nonassociated Shareholders.

1.1.2 Chapter 2E of the Act

The Proposed Transaction will constitute the giving of a financial benefit to a related party of Savcor under Chapter 2E of the Act. This is due to the fact that as both Savcor and Cencorp are controlled entities of Savcor Oy, Cencorp would be considered an associate of a substantial shareholder of Savcor (Savcor Oy being the substantial shareholder with a 64.1% interest in Savcor).

Under Chapter 2E of the Act, the giving of such a financial benefit requires approval by Savcor’s shareholders other than any related party of Savcor who would obtain a financial benefit under the Proposed Transaction or any associate of such person, unless each arrangement is on arm’s length terms (or less favourable to the related party than arm’s length terms) (refer section 208 and section 210 of the Act).

Savcor has requested PKFCA to report on whether the giving of the financial benefit, being the sale to Cencorp of the Savcor Pacific shares and other assets, is fair and reasonable to the Nonassociated Shareholders.

1.2 Purpose of the Report

Listing Rule 10.10.2 requires that the Notice of Meeting to approve the Proposed Transaction be accompanied by a report from an independent expert stating whether the Proposed Transaction is “fair and reasonable” to the Non-associated Shareholders.

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In addition, whilst there is no requirement for an independent expert report under Chapter 2E of the Act, in fulfilling Savcor’s request to report on whether the giving of the financial benefit is fair and reasonable to the Non-associated Shareholders, consideration will be given to the same test set out in Listing Rule 10.10.2 – that is, the fairness and reasonableness of the Proposed Transaction.

The Report is to accompany the Notice of Meeting required to be provided to the Non-associated Shareholders and is prepared to assist the Directors in complying with ASX Listing Rule 10 and Chapter 2E of the Act and fulfilling their obligation to provide shareholders with full and proper disclosure to enable them to assess the merits of the Proposed Transaction and to decide whether to agree by resolution to the Proposed Transaction.

1.3 Scope

The scope of the procedures we have undertaken in forming our opinion on whether the Proposed Transaction is fair and reasonable to the Non-associated Shareholders has been limited to those procedures we believe were required in order to form our opinion. Our procedures did not include verification work, nor constitute an audit or assurance engagement in accordance with Australian Auditing and Assurance Standards.

The assessment of whether the Proposed Transaction is fair and reasonable necessarily involves determining the “fair market value” of various securities, assets and interests.

By its very nature, the formulation of a valuation assessment necessarily contains significant uncertainties and the conclusions arrived at in many cases will be subjective and dependent on the exercise of individual judgement. There is therefore no indisputable value, and we normally express our opinion as falling within a likely range.

1.4 Basis of assessment

Neither the Act nor ASX Listing Rule 10.10.2 defines the expression “ fair and reasonable ”. However, guidance is provided by ASIC’s Regulatory Guides which establish certain guidelines in respect of independent expert reports required under the Act.

1.4.1 Regulatory Guide 111

In particular, RG111 establishes guidelines in respect of independent expert reports under the Act. However, RG111 does not specifically address the definition of “ fair and reasonable ” in the context of the Listing Rules.

Essentially, RG111 establishes that an expert should analyse a control transaction as if it were a takeover bid.

In analysing a control transaction, the tests are:

is the offer ‘fair’; and
is it ‘reasonable’?

That is, the terms “fair” and “reasonable” are regarded as separate elements and are not regarded as a compound phrase.

We note that, strictly speaking, RG111 does not apply to the Proposed Transaction as:

RG111 establishes guidelines only in respect of independent expert reports under the Act; and
the Proposed Transaction is not a “control transaction” as referred to in RG111, in that control of Savcor is not altering.

However, the terms of RG111 can provide some guidance on the meaning of the term “fair and reasonable” under ASX Listing Rule 10.

Savcor Group Limited – Independent Expert Report

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Fair

RG111.10 indicates that an offer is ‘fair’ if the value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer. RG111.11 indicates that an offer is ‘reasonable’ if it is fair. It might also be ‘reasonable’ if, despite being ‘not fair’, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid before the close of the offer.

We understand that when applying the term “fair market value” in the context of the test of whether a proposal is “fair” under ASIC regulatory guides, ASIC’s interpretation in RG111 is that:

an expert is not permitted to have regard to the then current situation of the asset being valued, including any then current difficult financial position and the impact of measures required to rectify such a position. Instead, in assessing fairness, the expert should assume an orderly market for the asset being valued, even if such market circumstances do not exist at the time of the fairness assessment; and
factors such as the then current difficult financial position of the asset and the then current state of the market in which the asset operates are appropriate matters to be taken into account when assessing the reasonableness of the proposal under consideration.

RG111.27 to RG111.30 provide that:

if the bidder is offering non-cash consideration in a control transaction, the expert should examine the value of that consideration and compare it with the valuation of the target’s securities, whether the transaction is effected by a takeover bid, a scheme of arrangement or an issue of shares;
the comparison should be made between the value of the securities being offered (allowing for a minority discount) and the value of the target entity’s securities, assuming 100% of the securities are available for sale. This comparison reflects the fact that:
the acquirer is obtaining or increasing control of the target; and
the security holders in the target will be receiving scrip constituting minority interests in the combined entity.
if the expert uses the market price of securities as a measure of the value of the offered consideration, the expert should consider and comment on:
the depth of the market for those securities;
the volatility of the market price; and
whether or not the market value is likely to represent the value if the takeover bid is successful.

For example, trading after a bid is announced may reflect some of the benefits of the combined entity, depending on whether the market has confidence that the transaction will proceed.

Based on the above, we have undertaken the following:

valued Savcor FACE, after taking into account a premium for control in relation to the Sale Shares in Savcor Pacific, the value of the Ancillary Assets and the FACE Receivable; and
compared the total of the above values to the total value of the Consideration. In assessing the value of the Consideration, we had regard to the percentage interest and level of influence over the Consideration Shares and to the extent possible, took into account a premium for significant influence over Cencorp attributable to the Consideration Shares.

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Reasonable

RG111.12 sets out some of the factors that an expert might consider in assessing the reasonableness of an offer, including:

the bidder’s pre-existing voting power in securities in the target;
other significant security holding blocks in the target;
the liquidity of the market in the target’s securities;
taxation losses, cash flow or other benefits through achieving 100% ownership of the target;
any special value of the target to the bidder, such as particular technology, the potential to write off outstanding loans from the target, etc;
the likely market price if the offer is unsuccessful; and
the value to an alternative bidder and likelihood of an alternative offer being made.

We have taken the following matters into account in regard to the Proposed Transaction:

consideration of Savcor’s current level of gearing and overall financial risk;
liquidity and volatility of the shares of Cencorp;
the ability to realise the Consideration Shares and reduce financial risk;
a comparison of the Savcor’s historical and prospective earnings per share and dividends assuming the Proposed Transaction proceeds and does not proceed;
the relationship between Savcor FACE and Savcor and any potential lost synergies;
the risk/return profile of Savcor pre and post the Proposed Transaction;
the likely market price and liquidity of Savcor’s shares in the absence of the Proposed Transaction;
any known intentions of existing or new Cencorp and Savcor significant shareholders; and
other advantages and disadvantages for Savcor Shareholders of accepting or rejecting the Proposed Transaction.

1.5 Chapter 2E of the Act

Neither the Corporations Act nor ASIC’s Regulatory Guides set out any requirement for an independent expert report or guidelines in respect of the opinion that an independent expert should provide in the context of the giving of a financial benefit to a related party of a company under Chapter 2E of the Act (including by use of either of the terms “fair and reasonable”).

Savcor has requested PKFCA to report on whether the giving of the identified financial benefits is fair and reasonable to the Non-associated Shareholders.

Section 219 of the Corporations Act sets out the requirements for the explanatory statement to be provided to the members of a company when considering whether to approve the giving of a financial benefit, and includes the requirement that the following information be provided to shareholders:

(1)(e) all other information that:
(i) is reasonably required by members in order to decide whether or not it is in the company's interests to pass the proposed resolution; and
(ii) is known to the company or to any of its directors.

(2) An example of the kind of information referred to in paragraph (1)(e) is information about what, from an economic and commercial point of view, are the true potential costs and detriments of, or resulting from, giving financial benefits as permitted by the proposed resolution, including (without limitation):

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(a) opportunity costs; and
(b) taxation consequences (such as liability to fringe benefits tax); and
(c) benefits forgone by whoever would give the benefits.

Set out below are some extracts from ASIC’s Regulatory Guide 159 Takeovers, compulsory acquisitions and substantial holding notices (“ RG 159 ”) in respect of Chapter 2E of the Act. RG 159.176 – 182 discuss the meaning of the term “arm’s length” in the context of an underwriting of a share issue by a company by a party that may acquire a substantial interest in the issuer.

RG 159.177 A benefit on arm’s length terms would be on terms produced by real bargaining with a non-related underwriter.

RG 159.178 In assessing whether an underwriting is on arm’s length terms we will consider the commercial nature of the underwriting rather than the legal form. We will consider the underwriting in all the circumstances of the transaction.

RG 159.179 If a purpose of the underwriting is to give the underwriter control, the underwriting will not be on arm’s length terms. This means that the factors discussed in RG 159.169 will also be critical to the question whether holder approval is required under Pt 2E.2.

RG 159.180 The following may also suggest that the underwriting is not on arm’s length terms:

(a) an excessive or undisclosed underwriting fee or other benefit; or

(b) the underwriter will benefit from the company’s proposed use of the capital raised (other than as holder).

RG 159.181 Another factor is whether the company sought to engage a non-related underwriter and what terms were discussed with potential underwriters.

In summary, RG159 appears to indicate that the term “arm’s length” refers to terms produced by real bargaining with a non-related party.

1.5.1 Conclusion

Having regard to the discussion above, in order to satisfy the requirements of Savcor in relation to Chapter 2E of the Corporations Act, we will determine whether the giving of the financial benefit is fair and reasonable to the Non-associated Shareholders by considering the fairness of the Proposed Transaction and comparing the assessed advantages and disadvantages of giving the financial benefit and considering whether such advantages outweigh such disadvantages.

In our opinion, the Proposed Transaction will be fair to the Non-associated Shareholders if the assessed value of the Consideration to be paid under the Proposed Transaction is equal to or exceeds the assessed value of Savcor FACE including the Ancillary Assets and the FACE Receivable.

In our opinion, the Proposed Transaction will be reasonable to the Non-associated Shareholders, if on balance, the assessed advantages of approving the Proposed Transaction outweigh the assessed disadvantages to the Non-associated Shareholders.

The Proposed Transaction has been judged in terms of its overall effect. It is not meaningful to separately assess the individual elements of the Proposed Transaction.

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1.6 Limitations

1.6.1 General

PKFCA has consented to the inclusion of the Report with the Documents to be issued by Savcor. Apart from the Report, PKFCA is not responsible for the contents of the Documents, any other document or announcement associated with the Proposed Transaction. PKFCA acknowledges that its Report may be lodged with the ASX.

The Report should not be used for any other purpose and PKFCA does not accept any responsibility for its use outside this purpose. Except in accordance with the stated purpose, no extract, quote or copy of our Report, in whole or in part, should be reproduced without our written consent, as to the form and context in which it may appear.

1.6.2 Shareholders’ individual circumstances

1.6.3 Current Market Conditions

Our opinion is based on economic, market and other conditions prevailing at the date of this Report. Such conditions can change significantly over relatively short periods of time. Changes in those conditions may result in any valuation or other opinion becoming quickly outdated and in need of revision. PKFCA reserves the right to revise any valuation or other opinion, in the light of material information existing at the valuation date that subsequently becomes known to PKFCA.

1.6.4 Reliance on Information

This Report is based upon financial and other information provided by Savcor and Cencorp. PKFCA has considered and relied upon this information. PKFCA believes the information provided to be reliable, complete and not misleading, and we have no reason to believe that any material facts have been withheld.

PKFCA’s procedures, in the preparation of the Report, involved an analysis of financial information and accounting records. This did not include verification work nor constitute an audit or review in accordance with Australian Auditing and Assurance Standards and consequently does not enable us to become aware of all significant matters that might be identified in an audit or review. Accordingly, we do not express an audit or review opinion.

It was not PKFCA’s role to undertake, and PKFCA has not undertaken, any commercial, technical, financial, legal, taxation or other due diligence, other similar investigative activities or valuations in respect of the Proposed Transaction. PKFCA understands that the Directors have been advised by legal, accounting and other appropriate advisors in relation to such matters, as necessary. PKFCA does not provide any warranty or guarantee as to the existence, extent, adequacy, effectiveness and/ or completeness of any due diligence or other similar investigative activities by the Independent Directors and/or their advisors.

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PKFCA does not provide any warranty or guarantee that its inquiries have identified or verified all of the matters which an audit, extensive examination or “due diligence” investigation might disclose. An opinion as to whether a corporate transaction is “fair and reasonable” is in the nature of an overall opinion, rather than an audit or detailed investigation and it is in this context that PKFCA advises that it is not in a position, nor is it practical for PKFCA, to undertake such an extensive verification exercise.

It is understood that except where noted, the accounting information provided to PKFCA was prepared in accordance with generally accepted accounting principles (including adoption of Australian Equivalents to International Financial Reporting Standards and prepared in a manner consistent with the method of accounting used by Savcor in previous accounting periods.

1.6.5 Prospective Financial Information

In preparing the Report, PKFCA had regard to prospective financial information for the financial year ending 31 December 2010 in relation to each of Savcor and Cencorp (“ Prospective Financial Information ”). PKFCA understands that the Prospective Financial Information has been prepared as part of the ongoing management processes of the respective companies.

For the purposes of our Report, PKFCA understands and has assumed that the Prospective Financial Information:

has been prepared fairly and honestly, on a reasonable basis and is based on the best information available to the management and directors of Savcor and Cencorp and within the practical constraints and limitations of such information; and
does not reflect any material bias either positive or negative.

We understand that the Prospective Financial Information has been based on assumptions concerning future events and market conditions and while prepared with due care and attention and the Directors consider the assumptions to be reasonable, future events and conditions are not accurately predictable and the assumptions and outcomes are subject to significant uncertainties. Actual results are likely to vary from the Prospective Financial Information and any variation may be materially positive or negative. Accordingly, neither the Directors, Savcor, Cencorp, nor PKFCA guarantee that the Prospective Financial Information or any other prospective statement contained in the Report or otherwise relied upon will be achieved.

For present purposes, PKFCA has not been engaged to undertake an independent review of the Prospective Financial Information in accordance with Australian Auditing or Assurance standards, and has not undertaken such a review. However in order to disclose and to rely on the Prospective Financial Information in the Report, PKFCA is required to satisfy itself that the Prospective Financial Information has a reasonable basis.

Set out below are some of the factors that in our opinion support a conclusion that the Prospective Financial Information has a reasonable basis:

a material portion of the Prospective Financial Information incorporates established trends in the businesses and current arrangements in place - for example:
Prospective Financial Information largely reflects an established history of operations, sales and profitability of the businesses; and/ or
Prospective Financial Information reflects contractual or other forms of written arrangements in place to establish some surety as to future revenues;
Prospective Financial Information is not based on business models that have yet to be proven and/or anticipated arrangements with customers, suppliers, or other parties that have yet to be confirmed;
the reporting and budgeting processes of Savcor and Cencorp have been in place for some time and involve regular reporting of actual performance to budget variances, management follow up, input from senior management and that process itself is under continuous review;

Savcor Group Limited – Independent Expert Report

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Prospective Financial Information is based on detailed models that are designed to be driven by specific key inputs such as production rates, production efficiency, etc;
Prospective Financial Information has been endorsed by the management and Directors of Savcor and Cencorp; and
Prospective Financial Information makes appropriate allowance for known contingencies.

In order to ascertain the above, the scope of PKFCA’s work in this regard has comprised the following:

obtained details of the Prospective Financial Information and the process by which this information was prepared;
determined the composition of the Prospective Financial Information;
discussions with management of Savcor and Cencorp regarding the basis on which the Prospective Financial Information was formulated and where possible on a “desktop” level, undertaking evaluation of such information, by reference to past trading performance, available evidence and/or other documentation provided;
reviewed any assumed growth over historical earnings, determining the source of growth e.g. price, customer acquisition, customer volume purchase increase and investigated any new key contracts;
enquired if the Prospective Financial Information is adopted by the directors of Savcor and Cencorp;
investigated previous forecasting history and experience;
reviewed the most recently available monthly management accounts; and
considered the relevant industry trends and the position of Savcor and Cencorp within their respective industries.

1.7 Assumptions

In forming our opinion, we have made certain assumptions as outlined below:

that matters such as retention of key personnel, compliance with laws and regulations and contracts in place are in good standing, and will remain so, and that there are no material legal proceedings, other than as publicly disclosed;
any public information used in relation to Savcor and Cencorp any other publicly available information relied on by us is accurate and up to date;
information in relation to the Proposed Transaction that is distributed to shareholders, or any information issued by a statutory body is complete, accurate and fairly presented in all material respects;
if the Proposed Transaction is implemented, it will be implemented in accordance with its publicly stated terms;
the legal mechanisms to implement the Proposed Transaction are valid and effective; and
in preparing the Pro forma Income Statement and Pro forma Balance Sheet, we have assumed the following:
there is no capital gains tax arising from the Proposed Transaction;
Cencorp is able to raise sufficient capital in order to finance the Proposed Transaction and that the amount raised is at the Cencorp Share Price;
Savcor is able to finance the settlement of the Current Banking Facilities; and
Savcor will be able to report its investment in Cencorp at the fair value on acquisition as an equity accounted investment. We note that the Cencorp Pro forma Combined Financial Statements are prepared on the basis that Cencorp and Savcor Pacific are entities under common control.

Savcor Group Limited – Independent Expert Report

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2 THE PROPOSED TRANSACTION

2.1 Overview

The Directors have advised us that they have considered a number of alternative options to restore shareholder value to Savcor, including divesting the Savcor FACE business and undertaking equity rights issues and placements. We have been advised that the parent company, Savcor Oy has been unwilling to provide further funding to Savcor. On this basis, any option to fund the business is extremely limited and the issue is exacerbated by the recent and current difficult capital markets and requirements to reduce the Current Banking Facilities.

On 19 January 2010, Savcor announced that it had signed a non-binding letter of intent relating to the possible sale of the Savcor FACE business to Cencorp.

On 28 May 2010, Savcor, Cencorp and Intune Circuits entered into a share and asset sale agreement (“ Share and Asset Sale Agreement ”), pursuant to which Savcor and Intune Circuits have agreed to sell to Cencorp the Sale Assets (including the Savcor FACE business), which comprises the following:

the Sale Shares;
the Ancillary Assets; and
the FACE Receivable.

As mentioned above, the Consideration payable by Cencorp for the Sale Assets is as follows:

the Consideration Shares; and
the Cash Payment.

The Consideration is subject to adjustment if the net assets of Savcor FACE at completion of the Proposed Transaction differ from the net assets of Savcor FACE as at 31 December 2009. Following the determination of the net assets, this adjustment will be paid in four equal monthly instalments by Savcor if the net assets decline or by Cencorp if the net assets increase. The level of net assets in Savcor Pacific at Completion for the purpose of the net asset adjustment will be reduced by any capital subscribed to Savcor Pacific by Savcor in respect of new preference shares issued by Savcor Pacific in satisfaction of any part of the outstanding FACE Receivable.

The parties have agreed that Cencorp will ensure that the Savcor Pacific Group repays all IntraGroup Payables (refer to the Glossary for details) to the Retained Entities in four equal monthly instalments commencing no later than 45 days after Completion.

2.2 Summary of Key terms of the Share and Asset Sale Agreement

A summary of the key terms of the Share and Asset Sale Agreement are set out below:

on or prior to Completion, Savcor shall procure financing to the Savcor Pacific Group for the purpose (when aggregated with the finance provided under the New Banking Facility) of the Savcor Pacific Group repaying its Current Banking Facilities;
the Savcor Pacific Group will enter into a New Banking Facility prior to Completion;
the aggregate consideration for the Savcor FACE business will be the Consideration, being the:
- Consideration Shares; and
Cash Payment of $11 million less the A$ equivalent of the Outstanding Completion Debt.
Cencorp has agreed that it will ensure that the Savcor Pacific Group repays to the Retained Entities all Intra-Group Payables following Completion;

Savcor Group Limited – Independent Expert Report

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Savcor and Intune Circuits acknowledge that it is their current intention to dispose of part or all of the Consideration Shares following Completion, subject to any applicable laws or requirements; and
the Sale Shares are sold:
free from all encumbrances; and
with all rights attached to the Sale Shares as at Completion and all rights accruing after that date.

Completion of the acquisition is subject to the fulfilment of a number of Conditions as set out in clause 4.1(a) of the Share and Asset Sale Agreement being met or waived, including that:

the Savcor Pacific Group:
repay the amounts outstanding under its Current Banking Facilities; and
obtain the consent of the ANZ Bank to the termination of the Current Banking Facilities and the release of all related securities,

on terms satisfactory to Savcor;

the Savcor Pacific Group enter into the New Banking Facility with Bank of China or another financier on terms and conditions satisfactory to Cencorp;
Savcor and Intune Circuits obtain all necessary regulatory approvals, including that the Savcor Shareholders approve the disposal of the Savcor FACE Business for the purposes of the ASX Listing Rules and the Act;
Cencorp and Savcor Pacific obtain all necessary regulatory approvals to the Proposed Transaction, including that Cencorp Shareholders approve the Proposed Transaction, and grant the necessary authorisation to consummate the Proposed Transaction, including authorisation for the Directors of Cencorp (“ Cencorp Directors ”) to issue the Consideration Shares pursuant to clause 3.2 of the Share and Asset Sale Agreement;
shareholders of Cencorp (“ Cencorp Shareholders ”) approve the Proposed Transaction.
the auditors of Cencorp have provided satisfactory auditor’s statements and opinions of transactions contemplated by Cencorp, as are required in order to validly and lawfully issue the Consideration Shares, and such statements and opinions are satisfactory to Cencorp in its sole discretion;
Cencorp’s financial advisor, PCA Corporate Finance Oy Business ID 1000611-5, has provided a satisfactory fairness opinion to Cencorp, according to which opinion the valuations to be used in the transactions contemplated are reasonable;
Wilson HTM has provided a satisfactory opinion to Savcor, according to which opinion the valuation to be used in the transactions contemplated are reasonable;
an independent expert appointed by Savcor has opined that the transactions contemplated by the Share and Asset Sale Agreement are reasonable for the purposes of the related parties approval required under ASX Listing Rule 10.1; and
no matter or circumstance shall have occurred (whether as a result of any breach of warranties by Savcor or Cencorp or due to any other matter or circumstance, or any change, development, or effect thereof) on or after the date of the Share and Asset Sale Agreement that results in or may reasonably be expected to result in a material adverse effect to any Savcor Pacific Group entity or Cencorp.

The conditions set out in clause 4.1(a) may be waived by the parties as set out in clause 4.1 (b).

If the conditions set out in clause 4.1 are not met or waived in accordance with clause 4.1 and Completion has not taken place on or before 30 November 2010 or such other date as Cencorp and Savcor may agree, then the Share and Asset Sale Agreement automatically terminates on that date, per clause 4.3(a).

Savcor Group Limited – Independent Expert Report

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On the termination of the Share and Asset Sale Agreement under clause 4.3(a), the parties will be under no further obligation to each other and will have no further rights against each other under the Share and Asset Sale Agreement (including any right to require compensation of expenses and advisor fees incurred in connection with any preparation undertaken in relation to the Proposed Transaction).

Savcor has provided a tax indemnity to Cencorp in relation to the Savcor FACE business. Limited warranties provided by Savcor include those in relation to the following:

corporate existence, records and documentation;
title to the Sale Shares and Ancillary Assets;
the accounts of the Group Entities;
liabilities;
intellectual property rights;
environmental matters;
employees and employee entitlements;
litigation; and
tax.

Limited warranties have been provided by Cencorp, mainly relating to continuous disclosure and capital structure.

The Share and Asset Sale Agreement is governed by the laws of New South Wales, Australia.

Savcor Group Limited – Independent Expert Report

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3 PROFILE OF SAVCOR GROUP LIMITED

3.1 Overview

Savcor Oy, a family-owned technology company was established in Finland in 1981. It currently has a controlling interest in both Savcor and Cencorp, as illustrated above. The company’s foundations are in the pulp and paper industry and solutions developed therein have provided the platform for the development of Savcor's core technology.

Savcor has been listed on the ASX since December 2007 and is an industrial technology business. Savcor’s operations primarily comprise two businesses:

Savcor ART - advanced corrosion control equipment and solutions in the infrastructure and resources sectors; and
Savcor FACE - application of surface coatings and surface protection technologies in the mobile phone handset manufacturing industry.

Savcor has subsidiary companies in 7 countries with chief operations in Australia and China.

3.2 Key Milestones

Outlined below is a summary of the key milestones of Savcor Oy and Savcor since 1981:

Table 2: Savcor Oy and Savcor – Key Milestones

Date	Description
Savcor Oy
1981 1995 1996 1996 1996 1998 2000 2000 2002 2002 2003 2003 2004 2005 2006 2007 2007	Savcor Oy was established in Finland in 1981. The Savcor ART division was established in Australia in 1995 following the acquisition of Remedial Engineering. The Savcor FACE division commenced a project to industrialise the process for manufacture shielding components such as metallised plastic mobile phone shells. Created first electromagnetic interference (EMI) shielding of plastic mobile phone bodies. Design and installation of pre-cast cathodic prevention system for the Sydney Opera House sub-structure. Mass production of EMI shielding for plastic mobile phone bodies in Europe. Design and implementation of innovative access and replacement system for removal and replacement of Sydney Opera House capping tiles. Savcor FACE commenced operations in China with the establishment of the Guangzhou mass-production manufacturing facilities. This included the transfer of technology from Europe. Savcor ART acquired Finn International. Savcor FACE expanded operations in China with the establishment of Beijing manufacturing facilities. Savcor ART acquired Corrpro Australia. Savcor FACE acquired a Danish decorative etching company, LK Engineering Savcor FACE acquired Swedish mobile phone flexible circuit antenna manufacturer, Swedecal AB. First EMI shielding of housings for camera modules in mobile phones. First metallised decoration applications for mobile phones. Savcor ART acquired Pacific Lining Solutions Holdings Pty Ltd. First NCVM decoration applications for mobile phones.
Savcor
2007 2008 2008 2008 2008	Savcor listed on the ASX. Opening of second Guangzhou factory in China. Savcor acquired the intellectual property and patented technologies of Futurtec Oy, a Finland-based developer and supplier of structural monitoring technologies. Savcor acquired Intune Circuits, a producer and supplier of antennas for RFID tags and inlays. Savcor signed an agreement to manufacture RFID antennas for UPM Raflatac.

Savcor Group Limited – Independent Expert Report

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Date	Description
2009 2010 2010	Savcor completed the acquisition of the Savcor CHEC business in China, a four-year joint venture between Savcor Oy and China Harbour Engineering Corporation. The new company is wholly owned by Savcor and trade as Savcor Corrosion Technology. Savcor entered into a non-binding letter of intent relating to the possible acquisition of the Savcor FACE business by Cencorp. On 28 May 2010, Savcor, Cencorp and Intune Circuits entered into a Share and Asset Sale Agreement, pursuant to which Savcor and Intune Circuits agreed to sell to Cencorp the Savcor FACE business which comprises the following: • the Sale Shares; • the Ancillary Assets; and • the FACE Receivable.

Date

Description

2009
2010
2010

Savcor completed the acquisition of the Savcor CHEC business in China, a four-year joint
venture between Savcor Oy and China Harbour Engineering Corporation. The new
company is wholly owned by Savcor and trade as Savcor Corrosion Technology.
Savcor entered into a non-binding letter of intent relating to the possible acquisition of the
Savcor FACE business by Cencorp.
On 28 May 2010, Savcor, Cencorp and Intune Circuits entered into a Share and Asset Sale
Agreement, pursuant to which Savcor and Intune Circuits agreed to sell to Cencorp the
Savcor FACE business which comprises the following:
•
the Sale Shares;
•
the Ancillary Assets; and
•
the FACE Receivable.

Source : Savcor Website, 2007 Savcor Prospectus and ASX announcements

3.3 Savcor ART

The Savcor ART division was established in Australia in 1995 following the acquisition of Remedial Engineering. The acquisitions of Finn International and Corrpro Australia which shared the same customer base were completed in 2002 and 2003. Pacific Lining Solutions Holdings Pty Ltd was acquired in October 2007. This was a complimentary bolt-on acquisition that provided Savcor with access to the water infrastructure market and important BHP-owned heavy industrial and mine sites in New South Wales and South Australia.

The Savcor ART business is a leading repair, rehabilitation, protection and maintenance provider. It uses its surface protection technology to provide services relating to the protection and remediation of steel and concrete structures via the application of electrochemical protection technology and provides maintenance services for mining, infrastructure and industrial sectors.

The Savcor ART business operates predominantly in Australia.

3.4 Savcor FACE

Savcor FACE is a global provider of functional and decorative solutions mainly for telecom and consumer electronics industries. The Savcor FACE business uses surface coating technology to manufacture and supply EMI and EMC shielding solutions and decorative coatings for mobile phones and manufactures and supplies flexible circuits used in mobile phone and RFID tag antennas.

The Savcor FACE division commenced a project to industrialise the process for manufacture shielding components such as metallised plastic mobile phone shells in 1996. In 1998, Savcor FACE division commenced mass production supply of these components and the major end customer was Nokia.

Savcor FACE commenced in China in 2000 with the establishment of the Guangzhou manufacturing facilities and in 2002 with the new Beijing factory. In 2003, Savcor FACE division acquired a Danish decorative etching company, LK Engineering and in 2004 acquired Swedish mobile phone flexible circuit antenna manufacturer, Swedecal AB. Savcor FACE division transferred both technologies to China to take advantage of the country’s low cost manufacturing area.

Savcor Group Limited – Independent Expert Report

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3.5 Products and Services

3.5.1 Savcor ART

The Savcor ART division offers the following products/technologies and services:

Technologies

Electrochemical Prevention and Protection – Savcor designs, supplies, installs and services specialist corrosion management and monitoring systems, such as RECON and MCON. These systems have been developed in-house by Savcor’s research and development engineers to provide digital remote control of cathodic protection systems for the reinforcement of concrete and steel structures;
Industrial Process Improvements (“ IPI ”) – Savcor’s proprietary industrial process improvements technologies deliver significant efficiencies to clients. One such is Scale management which uses an electrochemical technique to discourage scale from forming on vessel walls which overcomes significant problems in the alumina industry by delivering significant process efficiency which gives cost, safety and environmental benefits to existing refineries. Another IPI technology is Wedge, a process diagnostic software package that monitors and maximises efficiencies across a wide variety of processes;
Corrosion Monitoring – Savcor has developed and installed several corrosion monitoring systems using linear polarisation resistance and galvanostatic pulse techniques. The early detection of corrosion activity in the steel reinforcement of concrete structures can assist in planning appropriate corrosion prevention measures which significantly reduce future maintenance costs;
Futurtec Structural Health Monitoring – Savcor provides valuable information on the integrity of structures to its clients using the Futurtec system of strategically placed sensors with a powerful software analysis package to provide real-time monitoring of structures and alert any structural problems. The benefit of early warning data is critical in increasing safety and reducing significant repair costs;
Asset Assessment – Savcor has an array of state-of-the-art technologies which assist in providing customers with meaningful asset condition reports for concrete and steel. Its asset assessment technologies include, but are not limited to:
galvanostatic pulse;
linear polarisation resistance;
electrical resistance corrosion rate monitoring;
half-cell potential mapping;
direct current voltage gradient coating defect surveys;
electro-magnetic covermeter surveys;
- ultrasonic surveys;
- coating thickness; and
adhesion testers;
Linabond Co-Lining Systems – Linabond Co-Lining Systems are used in the sewer rehabilitation process and combine an advanced polymer coating with an impervious PVC to provide an expected life of over 50 years;
Specialised High Performance Coatings and Linings – Savcor provides a variety of high performance coatings and linings including high density polyethylene (“ HDPE ”) linings, Linabond Co-Lining Systems, elastromeric urethane/polyurea spray applied technology, world class acid resistant coatings, fireproofing materials and thermal insulation products; and

Savcor Group Limited – Independent Expert Report

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Corrosion Related Products – Savcor provides several products to assist in the fight against corrosion including anodes, corrosion monitoring equipment, vapour phase corrosion inhibitors and pipe locating and repair equipment.

Services

Savcor’s technical division provides technical and commercial information to plan and implement remediation works. Its technical team includes engineers, scientists and experienced industry professionals who aim to provide innovative and practical rehabilitation solutions.

The ability to combine and implement new technology with traditional rehabilitation techniques and services means that concrete repair, protective coatings application and commercial facade refurbishment are supplemented with specialist services such as rope access techniques and specialised diagnostic hi-tech equipment.

Research and Development

The research and development team at Savcor works with all levels of the business and clients to develop cutting edge technology. Savcor’s research and development program includes proactive involvement with key industry bodies, sponsorship of university undergraduate honours projects, collaborative research projects with universities and an in-house product development team.

Safety, Quality and Environment

Savcor has the following safety, quality and environment certifications:

Safety AS/NZS 4801:2001;
Quality ISO 9001:2000; and
Environment ISO 14001:2004.

It prides itself on not only meeting these standards but also being a market leader in delivering the highest quality product, safely and with all environmental aspects identified and controlled.

3.5.2 Savcor FACE

The products/services offered by Savcor FACE are discussed in Section 4

3.6 Customers

Savcor’s customers include a number of leading corporates and government authorities. In addressing its customer base, Savcor recognises that it needs to establish direct relationships with both the customers that it directly invoices such as Laird, Foxconn and Flextronics as well as end-customers such as Nokia and Sony Ericsson.

3.7 Suppliers

For the Savcor FACE division, the primary inputs to the manufacturing process are metals sourced from suppliers including Rogers Technologies, Metalor Technologies and Skultuna Flexible. These suppliers are provided with non-binding estimates of demand by Savcor. Materials are ordered as required.

For the Savcor ART business, the primary inputs to the projects and services are sub-contractors providing services such as water blasting, suppliers of specialist materials such as AkzoNobel, and labour hire companies.

Savcor Group Limited – Independent Expert Report

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Savcor has strict criteria for its suppliers in terms of performance, quality, safety and ethical standards. Suppliers engaged by Savcor are expected to adhere to Savcor’s best practice environmental standards. To encourage constant development and ensure efficiency amongst its suppliers, Savcor seeks to secure more than one source of supply for key products and services and is constantly on the search for best practices as well as creative new technologies.

3.8 Board of Directors

The Directors of Savcor are as follows:

Table 3: Savcor Board of Directors

Name Position Background	Name Position Background	Name Position Background
Hannu Savisalo Simon Rowell Nicholas Psaltis Jyrki Salminen Iikka Savisalo	Chief Executive Officer, Managing Director, Director and Member of Nomination & Remuneration Committee Non Executive Chairman, Chairman of Nomination & Remuneration Committee and Chairman of Audit & Risk Committee Non Executive Director, Member of Audit & Risk Committee and Member of Nomination & Remuneration Committee Non Executive Director Company Secretary, Non Executive Director and Member of Audit & Risk Committee	Hannu Savisalo established Savcor Group in 1981 and led the development of the company from a start-up operation to a business that had three core divisions and employed approximately 1,500 employees around the world inclusive of the FACE and ART divisions. Mr Savisalo has driven Savcor's strategy since its establishment and has been integral to leading the integration of the various acquisitions that have been completed. He has relocated to Sydney to lead Savcor. Mr Savisalo was awarded the honorary title of Industrial Counsellor by the President of Finland in 2004. Mr. Savisalo holds a Master of Science in Metallurgy from Helsinki University of Technology. Simon Rowell is chairman of McPherson's Limited. Mr Rowell is the former managing director of Snack Foods Limited and AV Jennings Homes and he has extensive experience of leading businesses with Asian, including Chinese, operations. Mr Rowell is a Chartered Accountant and holds an honours degree in Arts. Nicholas Psaltis is a director and partner of Millennium Properties Pty Limited. He was previously CEO of Minson Construction which was subsequently acquired by Transfield PBM. Mr Psaltis was a founder of Remedial Engineering in 1986 and was an executive director of that company until its acquisition by Group in 1995. Mr Psaltis holds a Diploma in Civil Engineering from Victoria University. Jyrki Salminen is a senior vice-president, retail sales at Nokia, currently in charge of Nokia’s sales in Nokia’s stores, via franchised and partner hosted Nokia stores, via Nokia Solutions Partners Network and of Nokia’s on-line stores. Mr Salminen holds a Master of Science in Technology from Helsinki University of Technology. Iikka Savisalo has worked with Savcor Group since 1995 and has been closely involved in the company's growth by acquisition strategy. He has responsibility for Savcor's business development and mergers and acquisitions functions. Prior to taking on this role Mr Savisalo was director of M&A for the ART division and before that director of consumer operations for the FACE division. Mr Savisalo studied BBA in Accounting from Porvoo Commercial College.

Sources : Capital IQ; Savcor 2009 annual report

Savcor Group Limited – Independent Expert Report

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3.9 Key Management Personnel

The key management personnel of Savcor are as follows:

Table 4: Savcor Key Management Personnel

Name Position Background	Name Position Background	Name Position Background
Hannu Savisalo Herkko Soininen Sami Lindfors Atef Cheaitani	Chief Executive Officer, Managing Director, Director and Member of Nomination & Remuneration Committee Chief Financial Officer President of Savcor FACE Chief Technology Officer and General Manager of International Operations	Hannu Savisalo established Savcor Group in 1981 and led the development of the company from a start-up operation to a business that had three core divisions and employed approximately 1,500 employees around the world inclusive of the FACE and ART divisions. Mr Savisalo has driven Savcor's strategy since its establishment and has been integral to leading the integration of the various acquisitions that have been completed. He has relocated to Sydney to lead Savcor. Mr Savisalo was awarded the honorary title of Industrial Counsellor by the President of Finland in 2004. Mr. Savisalo holds a Master of Science in Metallurgy from Helsinki University of Technology. Herkko Soininen has been Chief Financial Officer of Savcor Group since 2004. Prior to that Mr Soininen spent a five year period with SmartTrust and held a number of roles including director corporate business segment, Managing Director of Singapore operations and director alliances & partners. He served as sales manager and area manager for Tecnomen Oy. Mr Soininen holds a Master of Science in Economics and Business Administration from Helsinki School of Economics and a Master of Science in Technology from Helsinki University of Technology. Sami Lindfors has been President of Savcor Face at Savcor since June 2004. Mr Lindfors joined Savcor Group in 1996, and transferred to China as Plant Manager until commencement of the Guangzhou FACE operations in 2001. Mr Lindfors’ qualifications include a Mechanical Engineering Certificate from Mikkeli Polytechnic and an MBA from China Europe International Business School. . Atef Cheaitani has been the Chief Technology Officer of Savcor Group since 2007 and serves as its General Manager of International Operations. Mr. Cheaitani was employed at Remedial Engineering at the time of its acquisition by Savcor in 1995. He had initially joined Remedial Engineering in 1989. Mr. Cheaitani holds a Master of Science in Civil Engineering from Dundee University.

Source : Capital IQ

Savcor Group Limited – Independent Expert Report

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3.10 Capital Structure

3.10.1 Shares

The top ten shareholders of Savcor as at 10 March 2010 were as follows:

Table 5: Top 10 Shareholders as at 31 December 2009

Shareholder’s Name	Number of Shares Held	% of Total Shares on Issue
Savcor Face Group Oy National Nominees Limited Citicorp Nominees Pty Limited Avenir Enterprises Pty Ltd JP Morgan Nominees Australia Limited SVA Employee Share Plan Managers Pty Ltd Torres Industries Pty Limited Mrs Jane Elizabeth Miglic HSBC Custody Nominees (Australia) Limited RBC Dexia Investor Services Australia Nominees Pty Limited Total held by top ten shareholders Shares held by other shareholders Total Shares on issue	89,203,610 10,143,213 3,936,733 2,165,000 2,134,826 1,902,590 1,500,000 1,240,000 1,203,769 847,658	64.14% 7.29% 2.83% 1.56% 1.53% 1.37% 1.08% 0.89% 0.87% 0.61%
	114,277,399 24,801,448	82.18% 17.82%
	139,078,847	100.00%

Source : Savcor 2009 Annual Report

3.10.2 Options over unissued shares

Savcor has adopted an employee option plan (“ EOP ”), pursuant to which eligible participants may be granted options entitling the grantee to acquire shares upon payment of an exercise price (if any) determined by the Directors, exercisable on achievement of pre-set time and vesting conditions as determined by the Savcor Board of Directors. If the conditions are satisfied, the options are exercisable by the grantee for an exercise price determined by the Savcor Board of Directors. An option may only be exercised by a date determined by the Savcor Board of Directors, and will lapse at a date determined by the Savcor Board of Directors.

The Savcor Shareholders approved an initial grant of 5,228,698 options to 11 executives and Directors under the EOP in 2007 prior to Savcor’s initial public offering in (“ IPO ”) in 2007. The exercise price of these options is $2.00 per share, equal to the IPO offer price.

As at 31 December 2009, there were a total of 5,228,698 unquoted executive options on issue representing 3.76% of the total issued ordinary shares. Of these, in 2010, 1,757,068 options have lapsed due to resignations or performance conditions not achieved.

The options vest in three tranches between 2010 and 2012 subject to performance conditions being met. Option holders do not have any right, by virtue of the option, to participate in any share issue of Savcor or any related body corporate.

The weighted average remaining contractual life of the unquoted executive options on issue as at 31 December 2009 is 2.21 years.

Savcor Group Limited – Independent Expert Report

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The vesting and performance conditions for exercise of the unquoted executive options are set out in the table below:

Table 6: Vesting and performance conditions of Savcor unquoted executive options

Tranche % of Options Time Hurdles Performance Hurdles	Tranche % of Options Time Hurdles Performance Hurdles	Tranche % of Options Time Hurdles Performance Hurdles	Tranche % of Options Time Hurdles Performance Hurdles
1	33.3%	Exercisable: • No earlier than 27 months following Listing Date • No later than 39 months following Listing Date	• 25% vests if EPS CAGR≥12% p.a. • 50% vests if EPS CAGR≥15% p.a. • 100% vests if EPS CAGR≥18% p.a. EPS CAGR measured from 1 Jan 2008 to 31 Dec 2009, based on pro-forma CY07 EPS of 11.24 cents.
2	33.3%	Exercisable: • No earlier than 27 months following Listing Date • No later than 39 months following Listing Date	• 25% vests if EPS CAGR≥12% p.a. • 50% vests if EPS CAGR≥15% p.a. • 100% vests if EPS CAGR≥18% p.a. EPS CAGR measured from 1 Jan 2008 to 31 Dec 2010, based on pro-forma CY07 EPS of 11.24 cents.
3	33.3%	Exercisable: • No earlier than 27 months following Listing Date • No later than 39 months following Listing Date	• 25% vests if EPS CAGR≥12% p.a. • 50% vests if EPS CAGR≥15% p.a. • 100% vests if EPS CAGR≥18% p.a. EPS CAGR measured from 1 Jan 2008 to 31 Dec 2011, based on pro-forma CY07 EPS of 11.24 cents.

Source : Savcor 2009 Annual Report

Savcor would have to achieve EPS of at least approximately 18 cents and 20 cents in FY2010 and FY2011 respectively, in order for even 25% of the options to vest in each respective year.

Based on discussions with Savcor management, it is unlikely that the performance conditions that are required to the met in order for the options to vest will be met. Accordingly, these options are considered to be “out of the money”.

Savcor Group Limited – Independent Expert Report

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3.11 Share Price Analysis

The chart below compares Savcor’s share price to the S&P/ASX 200 Index (“ Australian Index ”) from 1 January 2009 to 15 June 2010 (“ Trading Period ”) (refer to Table 7 for a legend of the market sensitive announcements noted on the chart below):

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Figure 3
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Savcor Share Price vs. S&P/ASX 200 Index
($) (000
0.60
0.50
0.40
B
0.30
A
0.20
D
E
C
0.10
0.00
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-1
Volume (RHS) Share Price (LHS) S&P/ASX 200 Index
Source : Bloomberg/ASX and Company Announcements
Note : Australian Index movements have been rebased
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Savcor Group Limited – Independent Expert Report

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As illustrated in the chart above, Savcor significantly underperformed the Australian Index for most of the Trading Period.

Notable events disclosed by Savcor which may have impacted the share price and trading volumes are set out below:

Table 7: Market sensitive announcements

Date Chart Reference Announcement Details	Date Chart Reference Announcement Details	Date Chart Reference Announcement Details
2 March 2009 3 June 2009 28 August 2009 19 January 2010 30 March 2010	A B C D E	Presentation to Investors outlining financial results, operational review and future outlook. Market Update: Due to deterioration in market conditions the half year Earnings before interest, tax, depreciation and amortisation (“EBITDA”) is expected to be in the range of $2.0 to $2.5 million compared to prior guidance of $7.0 to $8.0 million. Presentation to Investors outlining financial results, operational review and future outlook. Letter of Intent in relation to this Proposed Transaction was issued. Savcor announced that negotiations with Cencorp, relating to the possible divestment of the Savcor FACE business are continuing beyond the end of the first quarter 2010.

Source : ASX Company Announcements

The table below sets out details of Savcor’s share trading liquidity in the 12 months prior to 15 June 2009:

Table 8: Savcor Share Trading Summary

Period Total value traded ($’000s) Total volume traded (‘000 shares) Turnover as % of issued shares	Period Total value traded ($’000s) Total volume traded (‘000 shares) Turnover as % of issued shares	Period Total value traded ($’000s) Total volume traded (‘000 shares) Turnover as % of issued shares	Period Total value traded ($’000s) Total volume traded (‘000 shares) Turnover as % of issued shares	Average Bid/ Ask Spread
As at 15 June 2010 1 month to 15 June 2010 3 months to 15 June 2010 6 months to 15 June 2010 12 months to 15 June 2010	1 175 781 1,047 4,475	8 1,413 6,326 8,514 32,966	0.01% 1.02% 4.55% 6.12% 23.70%	4.35% 6.64% 7.98% 9.05% 7.86%

Source : Bloomberg, PKFCA analysis

We note the following in relation to the above:

the periods reviewed demonstrate a decrease over time in average daily volume traded during the lead up to 15 June 2010, albeit over increasingly shorter trading periods. The same can be said for total turnover. These measures indicate that the liquidity of the stock was decreasing;
during the twelve months leading to 15 June 2010, the average bid-ask spread was 7.86%, while in the one month prior to 15 June 2010 the average bid-ask spread was 6.64%, which may indicate that the liquidity of the stock was improving slightly; and
during the 379 trading days in the Trading Period reviewed, Savcor traded on 335 days. This represents approximately 88.39% of total trading days.

We conclude that the liquidity of the stock is not very high. The bid-ask spread is reasonably wide and turnover over the 12 month period to 15 June 2010 was very low. Further, Savcor is not widely followed by analysts and the top 20 shareholders held around 85.78% of the total number of shares outstanding as at 10 March 2010.

SAVCOR GROUP LIMITED – Independent Expert Report

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3.12 Historical Financial Performance

Following is a summary of Savcor’s audited financial statements for the years ended 31 December 2007 to 2009, (both inclusive).

3.12.1 Income Statements

Summarised in the table below are Savcor’s audited consolidated income statements for the years ended 31 December 2007 to 2009 (both inclusive):

Table 9: Savcor Income Statements

Year Ended 31 December Audited	FY2008 (AUD ‘000s) FY2009 (AUD ‘000s)	FY2008 (AUD ‘000s) FY2009 (AUD ‘000s)
Revenue Cost of Sales Gross Profit Other income Research and development expenses Sales and marketing expenses Administrative expenses Share listing costs arising on existing shares Impairment losses Finance costs Other expenses Profit/(loss) before income tax Income tax (expense)/benefit) Profit/(loss) after income tax	125,031 (89,475)	111,943 (85,519)
	35,556 5,288 (3,830) (3,941) (15,664) 0 (968) (2,997) (273)	26,424 3,213 (2,825) (4,611) (14,931) 0 (792) (3,131) (3,227)
	13,171 (3,126)	120 (371)
	10,045	(251)

Source: Savcor Audited Financial Statements Note: Savcor was incorporated in October 2007, therefore the FY2008 statutory income statement refers to the first full year results of Savcor.

We note the following in relation to the historical financial performance of Savcor, as set out above:

FY2008 – FY2008 proved to be a record result for the ART division, with demand remaining robust through ongoing or recurring maintenance and rehabilitation services for production or critical infrastructure. However, the FACE division’s activity was at unprecedented lows in the last quarter of 2008 driven by low Christmas retail demand and supply chain destocking. We note that the integration of Intune into Savcor’s Chinese operations had largely been undertaken between the FY2008 and FY2009 financial year; and
FY2009 – tighter profit margins in the ART division coupled with soft demand in the FACE division’s markets, notably in the first half of 2009 saw a relatively strong decline in Savcor’s earnings in FY2009.

Savcor Group Limited – Independent Expert Report

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3.12.2 Savcor 1HFY2010 performance

Savcor 1HFY2010 performance is outlined in the table below:

Table 10: Savcor 1HFY2010 Income Statement

1HFY2010	Savcor ART and Savcor Corporate3 (AUD ‘000s) Savcor Pacific1 (AUD ‘000s) Eliminations/ adjustments2,3 (AUD ‘000s) Savcor Consolidated (AUD ‘000s)	Savcor ART and Savcor Corporate3 (AUD ‘000s) Savcor Pacific1 (AUD ‘000s) Eliminations/ adjustments2,3 (AUD ‘000s) Savcor Consolidated (AUD ‘000s)	Savcor ART and Savcor Corporate3 (AUD ‘000s) Savcor Pacific1 (AUD ‘000s) Eliminations/ adjustments2,3 (AUD ‘000s) Savcor Consolidated (AUD ‘000s)	Savcor ART and Savcor Corporate3 (AUD ‘000s) Savcor Pacific1 (AUD ‘000s) Eliminations/ adjustments2,3 (AUD ‘000s) Savcor Consolidated (AUD ‘000s)
Revenue COGS Gross profit Other income R&D expenses Sales and marketing expenses Administration expenses EBITDA Depreciation and amortisation Earnings before interest and tax (“EBIT”)	39,999 (30,188)	14,569 (11,509)	(361) 7	54,207 (41,690)
	9,811 879 (642) (1,865) (6,598)	3,060 328 (288) (563) (1,106)	(354) 157 166 61 21	12,516 1,365 (765) (2,367) (7,683)
	1,585 (1,548)	1,430 (1,976)	51 131	3,066 (3,392)
	38	(546)	182	(326)

Source : Savcor unaudited management accounts for 1HFY2010

Notes:

Savcor Pacific includes Savcor Pacific, FACE Guangzhou and FACE Beijing.
Eliminations/adjustments include Intune Circuits Oy and inter-company adjustments.
The above results have not been normalised, and include the following:
(a) Eliminations/adjustments column includes royalty payments of $175,486 from Savcor Pacific to Savcor Corporate which are non recurring subsequent to the Proposed Transaction and amortisation of patents for Intune Circuits Oy of $11,712; and
(b) Savcor Corporate column includes amortisation of FACE patents of $204,045 and amortisation of other IPRs of $99,021.

We note that Savcor’s 1HFY2010 EBITDA contribution was approximately evenly split between Savcor Pacific and the combined Savcor ART and Corporate.

Savcor Group Limited – Independent Expert Report

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3.12.3 Balance Sheets

Summarised in the table below are the audited consolidated balance sheets of Savcor as at 31 December 2007, 2008, and 2009:

Table 11: Savcor Balance Sheets

As at 31 December Audited	FY2007 (AUD ‘000s)	FY2008 (AUD ‘000s)	FY2009 (AUD ‘000s)
Current Assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivables Total Current Assets Non Current Assets Investment in subsidiaries Property, plant and equipment Intangible assets and goodwill Deferred tax assets Total Non-Current Assets TOTAL ASSETS Current Liabilities Trade and other payables Deferred acquisition consideration Interest-bearing loans and borrowings Provisions Income tax payable Total Current Liabilities Non Current Liabilities Trade and other payables Interest-bearing loans and borrowings Provisions Deferred tax liabilities Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS Equity Contributed equity Retained earnings Reserves Total Equity	12,328 29,028 7,034 0	6,810 25,851 9,934 362	4,663 28,756 7,374 450
	48,390 0 23,867 14,384 3,004	42,957 0 42,032 14,854 3,039	41,243 280 32,350 12,930 4,117
	41,255	59,925	49,677
	89,645	102,882	90,920
	21,615 2,683 8,179 1,143 4,059	13,844 187 25,661 2,054 1,192	15,826 0 25,094 1,996 0
	37,679 0 22,690 232 696	42,938 35 16,711 138 911	42,916 69 12,986 241 1,446
	23,618	17,795	14,742
	61,297	60,733	57,658
	28,348	42,149	33,262
	274,717 8,797 (255,166)	273,901 13,155 (244,907)	273,388 12,904 (253,030)
	28,348	42,149	33,262

Source : Savcor Audited Financial Statements

We note the following in relation to Savcor’s historical financial position, as set out above:

Net Assets – The increase in net assets from FY2007 to FY2008 can largely be attributed to the integration of Intune into Savcor’s Chinese operations which had largely been completed during the FY2008 financial year.

The decline in net assets from FY2008 to FY2009 was primarily brought on by the decline in Property, Plant and Equipment (“ PPE ”). The decline was driven by a shift in the foreign exchange rate, which established a negative $8.3 million translation difference.

Savcor Group Limited – Independent Expert Report

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3.12.4 Cash Flow Statements

Summarised in the table below are the audited cash flow statements of Savcor for the years ended 31 December 2008 to 2009 (both inclusive):

Table 12: Savcor Cash Flow Statements

Year Ended 31 December Audited	FY2008 (AUD ‘000s)	FY2009 (AUD ‘000s)
Cash Flows from Operating Activities Receipts from customers Payments to suppliers and employees Dividends received Interest received Borrowing costs Income tax (paid)/refunded Net Cash Provided by/(used in) Operating Activities Cash Flows from Investing Activities Proceeds from sale of property, plant and equipment Proceeds from sale of intangible assets Purchase of property, plant and equipment Purchase of intangible assets Purchase of or investment in controlled entity, net of cash required Return of capital from subsidiaries Deferred consideration on acquisition of subsidiary Advances to related parties Net Cash Provided by/(used in) Investing Activities Cash Flows from Financing Activities Proceeds from issue of shares Payment of share issue costs Payment for share buy-back Proceeds from borrowings Repayment of borrowings Proceeds from borrowings - related parties Repayment of borrowings - related parties Repayment of finance lease principal Payment of pre-listing period dividends owed to related parties Equity dividends paid Net Cash Provided by/(used in) Financing Activities Cash & Cash Equivalents at the Start of the Year Net foreign exchange differences Net Decrease in Cash and Cash Equivalents Cash & Cash Equivalents at the End of the Year	148,041 (128,799) 0 283 (2,916) (5,658)	120,118 (109,027) 0 24 (3,198) (2,519)
	10,951 188 0 (9,369) (1,047) (2,096) 0 (2,623) 0	5,398 30 0 (6,140) 0 (588) 0 (632) 0
	(14,947) 0 0 (816) 45,211 (39,802) 0 0 (761) (2,844) (4,278)	(7,330) 0 0 (513) 58,902 (56,799) 0 0 (636) 0 0
	(3,290) 12,328 1,768 (7,286)	954 6,810 (1,169) (978)
	6,810	4,663

Source : Savcor Audited Financial Statements

Note: Savcor was incorporated in October 2007, therefore the FY2008 statutory cash flow statement refers to the first full year results of Savcor.

Comments made in respect of the income statement and balance sheet (refer to Section 3.12.1 and 3.12.2 ) are also applicable to the cash flow statement. Specifically, the decline in FY2009 cash flows from operating activities was primarily a result of difficult conditions experienced by the Savcor FACE business, while proceeds from borrowings increased through the introduction of the unsecured floating rate bank facility.

Savcor Group Limited – Independent Expert Report

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3.13 SWOT Analysis

Set out below is an analysis of the strengths, weaknesses, opportunities and threats (“ SWOT ”) of Savcor:

Table 13: SWOT Analysis

	Strengths		Weaknesses
•	Performance of the Savcor ART business	•	Poor performance of the Savcor FACE business
•	Innovative research and development team	•	High level of debt
•	Unique product offering	•	Poor share performance and liquidity
•	Large diversified customer base	•	Patent protection in a limited number of countries
•	Strong customer relationships	•	Limited access to funds for capital expenditure
• •	Strong supplier relationships Wide range of technologies offered to clients		jeopardises short term and long competitiveness	term
•	Safety, quality and environment certifications
	Opportunities		Threats
•	Growth and improved performance through	•	Vertical integration by competitors
	focus on the Savcor ART division	•	Introduction of new technology by competitors
•	Possible divestment of the Savcor FACE
	business
•	Development of new technologies
Sources: Savcor management; PKFCA analysis

Savcor Group Limited – Independent Expert Report

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4 PROFILE OF THE SAVCOR PACIFIC BUSINESS

4.1 Overview

Savcor Pacific is a global provider of functional and decorative solutions mainly for the telecommunications and consumer electronics industries.

Savcor FACE’s growth and success were built primarily on its metallurgy expertise. The business commenced with a project to industrialise the process for the manufacture of EMI and electromagnetic compatibility (“ EMC ”) components largely for metallised plastic mobile phone casings in 1996. In 1998, Savcor FACE commenced mass production of these metallised plastic casings for Nokia. Since then, the business flourished for a time. Savcor management has advised that it is currently recognised as a global leader in the EMI/EMC sector for mobile phones. In addition, Savcor Pacific has also extended its product lines to include flexible circuits and decorative areas for mobile phones.

Savcor Pacific has a holding company in Hong Kong, two manufacturing facilities in Guangzhou (which were established in 2000 and 2008) and one manufacturing facility in Beijing (which was established in 2002). EMI/EMC shielding and decorative products are manufactured in Guangzhou while flexible circuits are manufactured in Beijing.

Both Beijing and Guangzhou operations have attained ISO9001 (Quality Management System) and ISO14001 (Environmental Management System) accreditation.

Savcor Pacific’s customers are mobile phone component suppliers and Original Equipment Manufacturers (“ OEM ”)s, generally located in China.

4.2 Products

Key product offerings include EMI/EMC shielding, flexible materials and decorative coatings as illustrated in the diagram below.

Figure 4: FY09, Budget FY10 and YTD10 - Sales by Products

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----- Start of picture text -----

Sales By Products ($000)
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
EMI/EMC Flexible materials Decorative
shielding (antennas & coatings
RFID tags)
2009 2010 Budget May 2010 YTD (5 Months)
Source: Management accounts
Note: In FY2009, flexible materials revenue was comprised of 95% antennas and 5% RFID tags.
----- End of picture text -----

Approximately half of Savcor Pacific’s revenue was generated by flexible materials. Contribution from EMI/EMC shielding products is forecast to decrease between FY2009 and FY2010, whilst contribution from decorative coatings is forecast to increase by a corresponding dollar amount.

Savcor Pacific’s key products include the following:

Savcor Group Limited – Independent Expert Report

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EMI/EMC shielding – Savcor EMI/EMC shields comply with global electromagnetic compatibility and environmental protection standards. The shields against electromagnetic radiation for hand phones are metallic coatings deposited using magnetron sputtering which have a cost, weight and space advantage over ‘cans’.
Historically, application of EMI/EMC shields was focused on mobile phone casings. However, with the introduction of decorative interchangeable plastic casings, the industry moved away from application of EMI/EMC shields on casings to EMI/EMC protection internal to the phone, which Savcor Pacific does not currently provide. As a result, Savcor Pacific shifted its focus from EMI/EMC shields for casings to EMI/EMC shields for cameras embedded within the mobile phone.
Flexible materials (antennas and RFID tags) – flexible materials are thin converted polymer films, which are laminated with multiple materials and then die-cut. Typical applications for flexible substrates are antennas, labels and RFID tags.

Savcor Pacific currently has approximately 30 different antennas in production, ranging from decorative antennas to wireless antennas and GPS antennas. Savcor management has indicated that Savcor Pacific’s competitive advantage in antennas is attributable to its quick turnaround time, ability to develop prototypes and efficient production capacity.

Applications of RFID tags include car keys, security tags and wireless ticketing for train terminals. Antennas utilised in RFID tags are generally aluminium antennas compared to copper antennas utilised in mobile phones. Production capability for aluminium antennas were enhanced by the acquisition of Intune Circuits in 2008.

Decorative coatings – Savcor has numerous specialised decoration technologies providing products with a spectacular finish. Decorations range from metallic vacuum coatings to etched decorative metal parts and recently introduced film coatings over plastic covers to give a metallic look.

Savcor management has indicated that Savcor Pacific is developing the manufacture of a new film coating over plastic covers to give a metallic look. The new film coatings are currently in mass production and are forecast to generate increased sales revenue if the underlying products for which the film coatings are used prove successful.

4.3 Customers

Savcor Pacific’s customers are broadly categorised as follows:

Direct customers – this includes Tier 1 (Foxconn, Light-On Mobile and BYD) and Tier 2 suppliers (Laird and ST Microelectronics). Tier 1 suppliers have capabilities to manufacture the complete mobile phone for the end customer whilst Tier 2 suppliers are generally suppliers which manufacture mobile phone components only.
Savcor Pacific has a concentrated direct customer base with 92% of sales generated by the top ten customers and 74% of sales generated by the top five customers.
End customers – Nokia and Sony Ericsson are regarded as end customers and Savcor FACE has been a supplier of Nokia since 1998. Historically, Savcor FACE had good logistics with factories in China, Finland, Hungary, Mexico, etc, consistent with Nokia’s decentralised model. Since 2000, Savcor FACE commenced operations in China in line with Nokia’s approach which focused on cost savings. Savcor FACE’s business model has adapted closely to Nokia’s business model, enabling Savcor FACE to provide excellent support to Nokia and to develop a long term successful business relationship with Nokia.

Whilst Savcor FACE has significant end customer concentration risk with Nokia representing 90% of FY2009 end customer sales. The strategic partnership with Nokia is key to Savcor FACE’s business success as Nokia is currently estimated to hold approximately 34% of the global market share.

Although Savcor FACE’s immediate customers are predominantly located in China (occasionally within the same business park), some of its products have end markets that span the globe.

Savcor Group Limited – Independent Expert Report

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4.4 Financial Performance

Following is a summary of Savcor Pacific’s financial statements for the years ended 31 December 2007 to 2009 (both inclusive) and Savcor Pacific’s Budget for the year ended 31 December 2010 (“ SP FY2010 Budget ”) which was prepared in December 2009.

4.4.1 Income Statements

Summarised in the following table are Savcor Pacific’s unaudited consolidated income statements for the years ended 31 December 2007 to 2009 (both inclusive) and SP FY2010 Budget:

Table 14: Savcor Pacific Consolidated Financial Performance and SP FY2010 Budget

Year Ended 31 December Consolidated	FY2007 Unaudited (AUD ‘000s) FY2008 Unaudited (AUD ‘000s) FY2009 Unaudited (AUD ‘000s) SP FY2010 Budget (AUD ‘000s)	FY2007 Unaudited (AUD ‘000s) FY2008 Unaudited (AUD ‘000s) FY2009 Unaudited (AUD ‘000s) SP FY2010 Budget (AUD ‘000s)	FY2007 Unaudited (AUD ‘000s) FY2008 Unaudited (AUD ‘000s) FY2009 Unaudited (AUD ‘000s) SP FY2010 Budget (AUD ‘000s)	FY2007 Unaudited (AUD ‘000s) FY2008 Unaudited (AUD ‘000s) FY2009 Unaudited (AUD ‘000s) SP FY2010 Budget (AUD ‘000s)
Revenue COGS Gross profit Other income R&D expenses Sales and marketing expenses Administration expenses EBITDA Depreciation and amortisation EBIT Adjustments(Note 2) Add back: royalty payments to Savcor (included in expenses above) EBITDA (excluding royalty payments to Savcor) Revenue growth % Gross margin % EBITDA growth % EBITDA margin %	38,933 (21,526)	40,815 (28,078)	32,316 (23,314)	34,030 (22,793)
	17,407 137 (Note 1) (1,171) (2,465)	12,737 174 (746) (1,360) (2,747)	9,001 112 (486) (1,108) (2,290)	11,238 58 (998) (1,644) (2,075)
	13,909 (2,240)	8,057 (3,595)	5,229 (4,655)	6,578 (3,720)
	11,669 1,143	4,462 746	574 486	2,858 635
	15,052	8,803	5,715	7,213
	n/c 44.7% n/c 35.7%	4.8% 31.2% (42.1)% 19.7%	(20.8)% 27.9% (35.1)% 16.2%	5.3% 33.0% 25.8% 19.3%

Sources : Savcor Pacific unaudited management accounts for FY2007 to FY2009; SP FY2010 Budget

Notes :

n/c – not calculated, n/a – not available

R&D expenses incurred in FY2007 were included in various expense line items. FY2007 financial information provided has slightly different classifications to following years due to the previous Savcor structure (prior to listing).
Royalty payments will be an inter-company transaction post acquisition as the patents and Intellectual Property Rights (“ IPR ”) associated with these royalty payments will be transferred to Cencorp as part of the Proposed Transaction. Accordingly, Savcor Pacific EBITDA has been adjusted in the above table for royalty payments to assist in determining the maintainable EBITDA.

Savcor Group Limited – Independent Expert Report

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We note the following with respect to historical performance from FY2007 to FY2009:

seasonality was observed in the FY2007 monthly sales trend analysis, with peak sales achieved in the fourth quarter as retailers built up stock for the Christmas season. However, revenue declined significantly in the FY2008 fourth quarter due to the onset of the global financial crisis (“ GFC ”). This adverse impact continued into FY2009 resulting in negative revenue growth of 20.8% for that year;
weak performance in FY2009 was attributed to the GFC (reduced volumes) and Savcor Pacific’s role in the mobile phone industry. As a Tier 2 to Tier 3 supplier (i.e. low ranking in the supply chain) in the industry, Savcor Pacific’s business was highly dependent on subcontracts from Tier 1 suppliers and OEMs. When the financial crisis hit, Tier 1 suppliers, OEMs, wholesalers and retailers who were higher in the supply chain attempted to reduce their stock levels, which translated to low procurement and low sales volume for Savcor Pacific, being a Tier 2 or Tier 3 supplier. Savcor management advised that it took approximately 4 months to clear inventory through the long supply chain;
gross margin declined from 44.7% in FY2007 to 31.2% in FY2008 and further declined to 27.9% in FY2009 as a result of stiff competition during the GFC (resulting in lower volumes) and the lack of new product innovation (i.e. no new first mover advantage products with high margins). In addition, management indicated that the new Guangzhou factory was slow in establishing mass production in FY2008 for the new metallic coating on mobile phone covers and buttons which had an adverse impact on profitability;
the above decline in gross margin coupled with lower volumes lead to weak gross profit performance between FY2007 ($17.4 million) and FY2009 ($9.0 million); and
EBITDA plummeted 62.4% (down from $13.9 million in FY2007 to $5.2 million in FY2009) due to the decreased gross profit level (due to low volume) whilst maintaining a semi fixed overhead cost base.

We note the following with respect to the SP FY2010 Budget:

the SP FY2010 Budget was prepared in December 2009 and approved by the Directors;
actual May 2010 year to date performance was slightly ahead of the SP FY2010 Budget. Performance improvement was driven by:
volume ramp up following recovery from the GFC; and
first mover advantage in the decorative product line. Savcor Pacific currently has a new project for ‘film’ coating over mobile phone covers and buttons which is expected to replace the current metallic coating trend. Savcor management advised that this new product line is currently in mass production and has realised sales;
favourable technological shift, continued R&D investment and global economic recovery are crucial to lifting performance (margins and volume) in FY2010;
Savcor management has indicated that Savcor Pacific currently has approximately six new R&D projects underway which are expected to commence generating revenue between 2010 and 2012. Projects scheduled for 2010 are already in production and have already generated some revenue; and
key assumptions adopted by management in the preparation of the SP FY2010 Budget are outlined in the table below:

Savcor Group Limited – Independent Expert Report

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Table 15: Key Assumptions used in budget prepared in SP FY2010 Budget

Area Assumption PKFCA Comments	Area Assumption PKFCA Comments	Area Assumption PKFCA Comments
*Volume assumptions*
Growth rate for the mobile phone industry Savcor’s accessible market Savcor’s market share	8.9% 75% •EMI/EMC shielding: 14.5%. •Flexible circuits (antenna): 32.0%. •Flexible circuits (RFID): 8% to 25% (varies with frequency). •Decorative coatings: 2.3% to 2.6%.	8.9% industry growth rate for the mobile phone industry used in the budget prepared in December 2009 is broadly consistent with the 9.0% growth anticipated by Gartner Technology Business Research Insight. Refer toSection 8for details on the Gartner paper. The budget prepared in December 2009 assumes 75% accessible market as management estimates that 75% of all mobile phone components are manufactured in China. We note that the following industry surveys indicate that approximately 50% of mobile phones are manufactured in China: • a report by Research in China indicated that:“China is the world largest mobile phone manufacturing base and around 46.9% of the world’s mobile phones were made in China in 2006.“;and • a report by Make it Fair dated September 2008 indicated that:“Currently half of the world’s mobile phones are produced in China”. However, Savcor management has advised that 75% of mobile phone components are manufactured in China, of which some are exported, resulting in approximately 50% of mobile phones being manufactured in China. Savcor’s forecast market share is supported by historical market share as follows: • EMI/EMC shielding: approximately 14% in FY2009; • Flexible circuits (antenna): 30% - 40% between FY2007 and FY2009; • Flexible circuits (RFID): 2% in FY2009; and • Decorative coatings: 0% - 10% (depending on type of coating) between FY2007 and FY2009. Savcor management has indicated that Savcor Pacific only entered the RFID market in the fourth quarter of FY2009 and expects that market penetration will improve in FY2010. Accordingly, Savcor management has assumed that Savcor’s RFID market share will improve from 2% (FY2009) to 8%-25%.
*Price assumptions*
Unit sales price (average)	Undisclosed due to commercial sensitivity.	For EMI/EMC shielding and flexible circuits (antenna) products, Savcor’s forecast unit price is within the range of historical unit prices achieved between FY2007 and FY2009. Savcor management has indicated that historical unit prices for other products are not comparable with the budget prepared in December 2009 due to significant product variations. As such, these have not been presented in this Report. Nevertheless, we note that EMI/EMC and flexible circuits (antenna) are Savcor’s key products, referFigure 4.
*COGS / Gross margin % assumptions* COGS •Material and labour: Savcor management estimates by product category, based on historical data. •Gross margin percentage: 33.0% •Gross margin of 33.0% is broadly consistent with historical performance which ranged from 27.9% to 44.7% between FY2009 and FY2007, respectively. •We understand that the gross margin percentage is partially driven by product innovation and first mover advantage.

Savcor Group Limited – Independent Expert Report

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Area Assumption PKFCA Comments	Area Assumption PKFCA Comments	Area Assumption PKFCA Comments
*Overhead assumptions*
Salary increase and other overheads	•2% for Beijing. •3% for Guangzhou.	2% to 3% increase in staff salaries and overhead expenses appear broadly consistent with the consumer price index (“CPI”). Reported inflation rates in China were: • 3.1% CPI in May 2010 based on Trading Economics (www.tradingeconomics.com); and • 2.4% and 2.8% CPI in March 2010 and April 2010 respectively based on The China Daily (www.chinadaily.com.cn). We understand that the majority of China’s electronic industry is located within the Guangzhou province. Therefore, labour costs are higher in Guangzhou (as compared to Beijing) and are more sensitive to shortages, rate increases and variations in supporting services. Accordingly, Savcor management has assumed a higher cost increase for Guangzhou compared to Beijing.

Sources : Savcor FY2010 Budget; Savcor management; PKFCA analysis

4.4.2 Normalised historical earnings

Set out below is our analysis of the historical earnings of Savcor Pacific, normalised to take into account any significant items which are non-recurring in the normal course of business:

Table 16: Normalised Historical Earnings

Year ended 31 December	FY2007 (AUD ‘000s)	FY2008 (AUD ‘000s)	FY2009 (AUD ‘000s)
EBITDA Normalisation adjustments Intune Circuit expenses Normalised EBITDA	13,909 8,057 5,229 - 735 316
	13,909 8,792 5,545

Sources: Savcor management; PKFCA analysis

Following the Intune Circuits acquisition in July 2008, Intune Circuits’ production lines were dismantled in Finland and shipped to China for installation at Savcor FACE Beijing. In addition to freight cost, Savcor Pacific also incurred expenditure for staff travel and training in relation to the new machinery between the fourth quarter of FY2008 and the first quarter of FY2009. These costs are non-recurring and are not reflective of Savcor Pacific’s cost base going forward, therefore they have been adjusted for in the above table.

Savcor Group Limited – Independent Expert Report

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4.5 Balance Sheet

Set out below are the unaudited consolidated Balance Sheets of Savcor Pacific as at 31 December 2007, 2008 and 2009 and 31 May 2010:

Table 17: Savcor Pacific Balance Sheet

As at 31 December	FY2007 (AUD ‘000s)	FY2008 (AUD ‘000s)	FY2009 (AUD ‘000s)	31 May 2010 (AUD ‘000s)
Current assets Cash and cash equivalents Trade receivables Inventories Prepayments and other Income tax receivable Total current assets Non-current assets Building and structures Machinery and equipment Intangible assets Advance payments for tangible assets Deferred tax asset Other assets Total Non-current assets TOTAL ASSETS Current liabilities Interest bearing liabilities Trade payables Income tax liability Other liabilities Total current liabilities Non-current liabilities Interest Bearing Liabilities Deferred tax liability Total non-current liabilities TOTAL LIABILITIES NET ASSETS	4,858 12,314 4,683 257 -	4,283 7,417 7,510 106 228	3,168 8,455 5,021 229 86	2,313 8,396 4,937 174 -
	22,113 4,240 9,095 839 6,322 - 15	19,545 5,322 27,147 2,756 4,567 290 1,370	16,959 3,883 18,127 1,947 4,552 394 825	15,820 3,985 17,982 1,945 4,895 697 795
	20,511	41,451	29,729	30,298
	42,624	60,996	46,688	46,118
	9,782 4,215 - 5,511	24,992 9,766 - 3,118	20,201 2,513 - 4,306	20,119 2,422 110 3,938
	19,507 2,604 -	37,876 - 119	27,020 - -	26,589 - -
	2,604	119	-	-
	22,111	37,995	27,020	26,589
	20,512	23,001	19,668	19,529

Source : Savcor Pacific management accounts

We note the following with respect to the above financial position of Savcor Pacific:

Cash and Cash Equivalents – historically, excess cash was utilised for dividend payments. More recently, Savcor management has utilised excess cash for debt repayments, resulting in reduced idle cash;
Inventories – inventory levels (i.e. inventory balances in RMB) have been fairly stable as the mobile phone industry generally operates on a just in time basis. Significant fluctuations observed in historical inventory levels shown in the table above (in AUD) were driven primarily by foreign currency fluctuations, with minor contribution from inventory build up as a result of the GFC and the acquisition of Intune Circuits;
Machinery and Equipment – the significant increase in the 31 December 2008 balance was driven by the acquisition of Intune Circuits and the purchase of PPE for the Guangzhou factory. The strengthening of the AUD in December 2009 coupled with depreciation resulted in a decline in the 31 December 2009 balance;

Savcor Group Limited – Independent Expert Report

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Intangible Assets – intangible assets relate largely to know how and software in relation to EMI and physical vapour deposition (“ PVD ”) technologies, which were acquired from a related Savcor FACE Group Oy company between 2001 and 2003; and
Interest Bearing Liabilities as at 31 May 2010, this balance included external Current Banking Facilities of approximately $16.9 million and an inter-company loan from Savcor of approximately $3.2 million. We understand that management is intending to adhere to the debt reduction schedule agreed with the ANZ Bank. Implementing the Proposed Transaction will reduce Savcor’s Current Banking Facilities and as a result assist in achieving the debt reduction programme. All inter-company loans from Savcor will then be transferred to Cencorp as the FACE Receivable in accordance with the Share and Asset Sale Agreement.

4.6 Cash Flow Statement

Set out below are the unaudited consolidated cash flow statements for Savcor Pacific for the years ended 31 December 2008 and 31 December 2009:

Table 18: Savcor Pacific Cash Flow Statements

Year ended 31 December	FY2008 (AUD ‘000s)	FY2009 (AUD ‘000s)
Cash flows from operating activities Receipts from customers Payments to suppliers & employees Interest received/(paid) Income tax (paid)/refunded Net cash provided by/(used in) operating activities Cash flows from investing activities Proceeds from sale of tangible and intangible assets Purchase of tangible and intangible assets Purchase of controlled entity, net of cash acquired Net cash provided by/(used in) investing activities Cash flows from financing activities Proceeds from issue of share capital Proceeds from borrowings Repayment of borrowings Payment of pre-listing period dividends owed to related parties Equity dividends paid Net cash provided by/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash & cash equivalents at the start of the year Effects of exchange rate changes on cash Cash & cash equivalents at the end of the year	48,636 (30,416) (973) (1,200)	29,692 (30,081) (1,544) (20)
	16,046 - (14,749) (17,625)	(1,953) 48 (2,573) -
	(32,373) 17,625 25,015 (18,512) (3,073) (6,581)	(2,526) 3,316 15,771 (14,769) - -
	14,474	4,319
	(1,854) 4,858 1,279	(160) 4,283 (955)
	4,283	3,168

[Source][: Savcor Pacific management accounts ]

Note: Savcor management has indicated that the FY2007 cash flow statement is not readily available, as Savcor was under a different structure then (prior to its listing on the ASX).

Savcor Group Limited – Independent Expert Report

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We note the following with respect to the cash flow statements of Savcor Pacific:

FY2008 purchase of controlled entity and proceeds from issue of share capital for $17.6 million – Savcor Pacific was created as a holding entity in the Savcor structure in 2008. The cash outflow for financing activities relates to the acquisition of Savcor FACE Beijing and Savcor FACE Guangzhou from Savcor. Savcor Pacific issued shares to Savcor as consideration for this acquisition which is reflected in cash inflows from investing activities;
FY2008 operating cash flows – operating cash flows in FY2008 were driven by strong FY2007 fourth quarter sales performance which converted into cash in the first quarter of FY2008 coupled with higher gross margins in FY2007 and FY2008 (compared to FY2009); and
FY2009 operating cash flows – the decline in FY2009 operating cash flows was predominantly due to weak sales in the fourth quarter of FY2008 (as a result of the onset of the GFC) and lower margins in FY2009 compared to FY2008.

4.7 SWOT Analysis

Set out below is a SWOT analysis of Savcor Pacific:

Table 19: SWOT Analysis

Strengths	Weaknesses
• Savcor Pacific has successfully retained its market leader position through advanced industrial technology know-how secured by IPR • Savcor Pacific has excellent manufacturing capabilities and the ability to manufacture and supply components on a mass production basis, benefiting from economies of scale • Experienced management • Strong R&D team with proven ability to innovate and commercialise technology • Reliance on single manufacturing sites – each of its key products is manufactured at a single location i.e. EMI shielding and decorative products are produced at Guangzhou while flexible circuits are manufactured at Beijing. Continued operations at these facilities are critical to the business • Limited access to funds for capital expenditure jeopardises short term and long term competitiveness • Concentrated customer base gives rise to customer concentration risk
Opportunities	Threats
• Quality customer base demonstrated by excellent track record. Savcor FACE continues to be one of Nokia’s suppliers (and has been since 1998) • Substantial barriers to entry driven by significant start up costs and specialised technical expertise • Being a Tier 2 or Tier 3 supplier in the mobile phone industry, Savcor Pacific is low in the supply chain and very dependent on contracts from Tier 1/Tier 2 suppliers and OEMs. As such, the business is susceptible to significant volatility • Vertical integration undertaken by competitors (e.g. Foxconn International Holdings and BYD Co. Limited) has resulted in increased competition and pricing pressures • Declines in average sales prices are reflective of the commoditisation of the industry and decreasing margins throughout the supply chain

Sources : Savcor management; PKFCA analysis

Savcor Group Limited – Independent Expert Report

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5 PROFILE OF CENCORP CORPORATION

5.1 Introduction

The foundations of Cencorp can be traced back to 1948 when the Finnish company Evox Ltd was established. Cencorp (Colorado Engineering Corporation) itself was founded in 1978 and is now a public company listed on the Helsinki Stock Exchange (NASDAQ OMX Helsinki) with headquarters in Mikkeli, Finland. Formerly known as PMJ automec Oyj, the company changed its name to Cencorp in March 2005. Cencorp has been operating as a subsidiary of Savcor Group Oy since 5 May 2009.

Cencorp provides automation solutions for the electronics and semiconductor industries. Cencorp offers in-line and off-line depaneling equipment, as well as odd-form assembly equipment, such as component placing equipment. It also manufactures standard and custombuilt laser marking, laser cutting, laser welding, laser drilling, and laser micromachining workstations for stand-alone and in-line production, as well as provides automated test equipment and test-handling solutions. Cencorp primarily serves manufacturers in the automotive electronics, telecommunications, industrial electronics, and electronic manufacturing service (“ EMS ”) sectors. The company primarily operates in Europe, the Americas and Asia. All production of Cencorp’s products takes place in Finland.

Cencorp’s vision is to be the market leader in selected standard depaneling, testing, odd-form component placement, laser cutting, welding and total automation engineering applications. Management has advised that in order to achieve this, Cencorp has strong engineering capabilities and resellers as well as sales representatives in all major markets.

Cencorp’s strategy is to differentiate itself by providing high quality and new innovative solutions that help customers to be more competitive in their own businesses. This is achieved by lowering supply chain and product costs while introducing new innovative solutions.

5.2 Key Milestones

Outlined below is a summary of the key milestones of Cencorp since its foundation in 1948: Table 20: Cencorp – Key Milestones

Date	Description
1948 1978 1986 1989 1994 1995 1998 1999 2000 2001 2003 2004 2005 2006	The foundations of Cencorp can be traced back to 1948 when the Finnish company Evox Ltd was established. Evox Ltd produced the first automotive capacitor manufacturing machine. Cencorp was founded as a separate entity and slowly began to expand its global operations after establishing a manufacturing base in Colorado, USA. With increasing advances in technology, the first assembly cell for odd-form components was manufactured. Markku Jokela acquired Evox’s automation business and the company was re-established as PMJ automec Corporation (“PMJ automec”). Further technological advances brought about the launch of the first modular production cell, the High Speed Assembly Cell (“HiSAC”). In the same year, a company specialising in test handling and manufacturing test adaptors was established by Hannu Seppälä in Salo. Technology agreement with Adept signed. Second generation of HiSAC was launched. PMJ automec listed on the Helsinki Stock Exchange. Third generation of HiSAC was launched. PMJ automec acquired both Cencorp and Hannu Seppälä’s testing company in Salo. HiSAC 500 robot platform introduced. Cencorp launched the MLT 1000 test platform. Cencorp launched the Cencorp 1000 process platform. Cencorp launched the MLT 2000 test platform. PMJ automec changed its name to Cencorp Corporation. Further, a daughter company, Singulase was established. Singulase is 100% owned by Cencorp and was focussed on the development and sales of laser cutting solutions. Cencorp launched the MLT 4 test platform. Cell to Top of Conveyor (“CTC”) platform was introduced.

Date

Description

1948
1978
1986
1989
1994
1995
1998
1999
2000
2001
2003
2004
2005
2006

The foundations of Cencorp can be traced back to 1948 when the Finnish company Evox Ltd was
established. Evox Ltd produced the first automotive capacitor manufacturing machine.
Cencorp was founded as a separate entity and slowly began to expand its global operations after
establishing a manufacturing base in Colorado, USA.
With increasing advances in technology, the first assembly cell for odd-form components was
manufactured.
Markku Jokela acquired Evox’s automation business and the company was re-established as PMJ
automec Corporation (“PMJ automec”).
Further technological advances brought about the launch of the first modular production cell, the High
Speed Assembly Cell (“HiSAC”). In the same year, a company specialising in test handling and
manufacturing test adaptors was established by Hannu Seppälä in Salo. Technology agreement with
Adept signed.
Second generation of HiSAC was launched.
PMJ automec listed on the Helsinki Stock Exchange. Third generation of HiSAC was launched.
PMJ automec acquired both Cencorp and Hannu Seppälä’s testing company in Salo.
HiSAC 500 robot platform introduced.
Cencorp launched the MLT 1000 test platform.
Cencorp launched the Cencorp 1000 process platform.
Cencorp launched the MLT 2000 test platform.
PMJ automec changed its name to Cencorp Corporation. Further, a daughter company, Singulase was
established. Singulase is 100% owned by Cencorp and was focussed on the development and sales of
laser cutting solutions.
Cencorp launched the MLT 4 test platform. Cell to Top of Conveyor (“CTC”) platform was introduced.

Savcor Group Limited – Independent Expert Report

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Date	Description
2008 2009 2010	Cencorp announced its proposed transaction with Savcor Oy. Savcor Oy acquired approximately 62.4% of Cencorp shares and Cencorp acquired the Savcor Alfa laser business. Cencorp announced its Proposed Transaction in relation to the acquisition of Savcor FACE.
Source: Cencorp Website

5.3 Customers

Cencorp serves customers in telecommunications and automotive electronics, industrial electronics and contract manufacturers. While some customers seek extremely fast, but less flexible back-end production processing solutions, other customers seek extremely flexible tailor made solutions, but with lower volume demands.

OEMs seek global and uniform production automation solutions that offer significant benefits to the production process.

Contract manufacturers clearly focus on flexible and cost effective solutions, the main purchase criteria being price.

A new customer group consists of smaller contract manufacturers, who turn to automation in order to substantially improve the quality and cost-effectiveness of specific sub-processes. They are the main buyers of factory reconditioned robots.

Cencorp’s customers include:

Table 21: Cencorp’s recent major customers



Autoliv Blaupunkt Bosch Bose Carplastic SA Continental Danfoss	Delphi Denso Diehl Elcoteq Ericsson Filtronic Flextronics	Foxconn Grundfos Hella Intel Jabil Johnson Controls Kamstrup	Kimball Electronics Miele Motorola Nokia Omron Phoenix International Rafi	RIM Sagem Salcomp Sanmina SCI Siemens VDO Solectron Sony	Sony Ericsson Temic Texas Instruments TRW Valeo Viessmann Visteon

Source : Cencorp website

Sales are generated by a combination of Cencorp staff and agents. Agents are monitored regularly to ensure that maximum sales are achieved.

We have reviewed Cencorp’s customer profile and note that there is a reasonable spread of customers and that Cencorp is not heavily dependent on any one customer. We note that for FY2009, the top customer represented approximately 10% of revenues and the top 10 customers accounted for 49% of revenue. This compares to approximately 58% in FY2008.

Savcor Group Limited – Independent Expert Report

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5.4 Products

Cencorp’s product portfolio is designed to meet the demand and requirements of different customer segments. It uses patented technology and focuses on streamlined products which results in the highest quality products. Cencorp offers the following range of products:

Table 22: Cencorp – Products

Type	Description
Depaneling Cencorp 1000 BR	Cencorp provides a wide range of flexible and effective depaneling solutions suited for small, medium and high volume production, as well as covering off-line manufacturing solutions. For high-mix production, its flexible handling systems provide fast product set-ups with minimised product changes. For high-volume / low-mix production, its intelligent board handling systems and servo-grippers enable reliable manufacturing and high productivity. For low and medium volume production, the off-line routers provide the most economical way of depaneling. Cencorp’s depaneling product line comprises the following equipment: *In-line Depaneling* • Cencorp 1000 BR (High Volume/High Mix Router); • Cencorp 1000 VR (High Volume/Low to Medium Mix Router); and *Off-line Depaneling* • Cencorp 1300 SR (Medium to High Volume/ High Mix Router or Saw).
Odd-Form Assembly Cencorp 1000 OF	Assembly equipment is developed especially for the needs of the automotive and industrial electronics industries. Cencorp’s odd-form solutions are designed for high volume and high mix production. Its assembly equipment can be adjusted to customers’ changing product processes using different types of replaceable devices. Simple and low cost product-specific parts enable inexpensive production for many years. Odd-form process automation is an efficient way to improve profitability in an area where an otherwise smooth running production line usually slows down. Automation here improves profitability significantly by increasing the throughput and assembly quality. Cencorp’s odd-form assembly product line comprises the following equipment: • Cencorp 1000 OF – improves profitability through odd-form process automation; and • Cencorp Feeders – offer total flexibility in material feeding.
Test Handling Cencorp 2000 ML	Cencorp has extensive experience in designing and manufacturing automated test equipment and test-handling solutions. Its expertise covers Information and Communications Technology (“ICT”) testing and flash software downloading as well as Radio frequency testing, tuning, labelling and alignment testing. Cencorp’s test handlers are designed for applications where automation gives absolute advantages in terms of precision and efficiency compared to manual testing. The test target can be a Printed Circuit Board (“PCB”), a module or an end product. Cencorp’s innovative and patented multilevel tester concept enables the possibility of running different tests simultaneously. This makes it more flexible than any other in-line test handling device yet seen. Cencorp’s test handling product line comprises the following equipment: • Cencorp 2000 ML – unequalled speed removes testing bottlenecks; • Cencorp 4 ML – compactness with fast implementation; and • Cencorp 501 SL – one platform that meets several needs.

Savcor Group Limited – Independent Expert Report

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Type	Description
Laser Applications Cencorp 800 LMR	Cencorp laser workstations are designed to meet the specific needs of each customer. Cencorp manufactures standard and custom-built laser marking, laser cutting, laser welding, and laser drilling and laser micromachining workstations for stand-alone and in-line production. Cencorp laser systems integration combines tens of years of experience in the field of laser materials processing and production automation, which results in products that meet the needs of industrial laser processing and the demands of today's high volume mass-production. In its laser systems integration, Cencorp uses the latest in technology and design tools to provide state-of-the-art laser solutions, which include fully integrated features such as: • solid state, CO2, diode or fibre lasers; • supply unit and cooling unit; • automated axes and parts handling automation; • machine vision assisted automation; • programmable fume extraction and shielding gas; and • remote maintenance via Ethernet. *Laser Marking* Cencorp laser marking workstations are designed to meet the demands of heavy industrial use. High quality components from top to bottom make Cencorp platforms highly accurate and reliable. From the heavy duty steel base structure to state of the art lasers and scanners, these systems are designed to bring optimal performance to the application while also being very easy to use. The compact Cencorp laser marking workstations provide a small foot print saving valuable factory floor space as everything is integrated into the workstation; laser unit, scanner, supply unit, cooling unit and computer. Cencorp laser marking workstations can be used for a wide range of laser marking tasks. The marking workstation product range starts from a mini scale tabletop workstation, 300 LM, which is perfect for integration with manual workstations. The 800 LM and 800 LM-R are stand-alone systems for larger scale products and higher volume production. For in- line production requirements, the 500 LM offers full in-line capability for a range of marking applications. This system is compatible with trays, pallets, or other formats that are transportable by conveyor. Multi-axis movement of the laser and marking of large products is possible in the 1200 LM platform. Cencorp also manufactures customised workstations that are built based on specific customer requirements. *Laser Degating* Degating is the process of cutting plastic runners away from injection moulded parts. Cencorp laser degating workstations are used for automating the degating process and achieving very high edge quality. Laser cutting provides maximum process control for the most demanding applications such as optical windows. The high cutting speed and the reliability of the cutting process makes laser cutting of runners with Cencorp degating workstations a highly economical process compared to any other conventional degating technique. The slim design of the Cencorp 500 LC makes it easy to integrate into the injection moulding cell, cutting the runners of plastic parts directly after they have been moulded. The high cutting speed and efficient parts handling automation of the 500 LC makes it ideal for fully automated production of injection moulded parts. Accurate fixturing technology enables high precision cuts with tight tolerances and high yields also in mass-production. The Cencorp 500 LC-T provides flexible mass-production when it is integrated into a production cell where 2 robots are loading and unloading the 500 LC-T with pre-cut plastic parts. The fast change over time from a known product to another enables truly flexible mass-production, where parts made by several injection molding machines are degated with just one Cencorp 500 LC-T. Tight tolerances and high yields can be achieved even with parts molded in several different cavities due to the accurate fixturing technology used in the 500 LC-T. Highlights of the Cencorp degating workstations include: • high accuracy cutting results; • dust free process; • high yields ever for first class visual products; and • fast change over time.

Type

Description

Laser Applications
Cencorp 800 LMR

Cencorp laser workstations are designed to meet the specific needs of
each customer. Cencorp manufactures standard and custom-built laser
marking, laser cutting, laser welding, and laser drilling and laser
micromachining workstations for stand-alone and in-line production.
Cencorp laser systems integration combines tens of years of experience
in the field of laser materials processing and production automation, which
results in products that meet the needs of industrial laser processing and
the demands of today's high volume mass-production.
In its laser systems integration, Cencorp uses the latest in technology and
design tools to provide state-of-the-art laser solutions, which include fully
integrated features such as:
•
solid state, CO2, diode or fibre lasers;
•
supply unit and cooling unit;
•
automated axes and parts handling automation;
•
machine vision assisted automation;
•
programmable fume extraction and shielding gas; and
•
remote maintenance via Ethernet.
Laser Marking
Cencorp laser marking workstations are designed to meet the demands of
heavy industrial use. High quality components from top to bottom make
Cencorp platforms highly accurate and reliable. From the heavy duty steel
base structure to state of the art lasers and scanners, these systems are
designed to bring optimal performance to the application while also being
very easy to use. The compact Cencorp laser marking workstations
provide a small foot print saving valuable factory floor space as everything
is integrated into the workstation; laser unit, scanner, supply unit, cooling
unit and computer.
Cencorp laser marking workstations can be used for a wide range of laser
marking tasks. The marking workstation product range starts from a mini
scale tabletop workstation, 300 LM, which is perfect for integration with
manual workstations. The 800 LM and 800 LM-R are stand-alone
systems for larger scale products and higher volume production. For in-
line production requirements, the 500 LM offers full in-line capability for a
range of marking applications. This system is compatible with trays,
pallets, or other formats that are transportable by conveyor. Multi-axis
movement of the laser and marking of large products is possible in the
1200 LM platform. Cencorp also manufactures customised workstations
that are built based on specific customer requirements.
Laser Degating
Degating is the process of cutting plastic runners away from injection
moulded parts. Cencorp laser degating workstations are used for
automating the degating process and achieving very high edge quality.
Laser cutting provides maximum process control for the most demanding
applications such as optical windows. The high cutting speed and the
reliability of the cutting process makes laser cutting of runners with
Cencorp degating workstations a highly economical process compared to
any other conventional degating technique.
The slim design of the Cencorp 500 LC makes it easy to integrate into the
injection moulding cell, cutting the runners of plastic parts directly after
they have been moulded. The high cutting speed and efficient parts
handling automation of the 500 LC makes it ideal for fully automated
production of injection moulded parts. Accurate fixturing technology
enables high precision cuts with tight tolerances and high yields also in
mass-production.
The Cencorp 500 LC-T provides flexible mass-production when it is
integrated into a production cell where 2 robots are loading and unloading
the 500 LC-T with pre-cut plastic parts. The fast change over time from a
known product to another enables truly flexible mass-production, where
parts made by several injection molding machines are degated with just
one Cencorp 500 LC-T. Tight tolerances and high yields can be achieved
even with parts molded in several different cavities due to the accurate
fixturing technology used in the 500 LC-T.
Highlights of the Cencorp degating workstations include:
•
high accuracy cutting results;
•
dust free process;
•
high yields ever for first class visual products; and
•
fast change over time.

Savcor Group Limited – Independent Expert Report

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Type Description Laser Plastics Welding High quality laser welding for plastic components is achieved in a process known as quasi-simultaneous welding where the laser beam is guided along the welding path by a high speed scanner. Cencorp incorporates state of the art laser and scanning components into both stand-alone and in-line platforms. These easy to use systems are designed to handle the demands of high volume industrial applications. All workstations can be equipped with diode and fiber laser sources of different power levels depending on the application requirements. Monitoring of the welding process and quality assurance features are included in Cencorp’s laser welding systems, further enhancing the reliability of the laser welding process. The modular concept of Cencorp workstations combined with multiple laser options makes it easy to configure solutions based on customer specific needs. Further, custom-built systems can be delivered based on scanner technology or industrial robots and linear axes for the contour welding applications. The stand-alone 800 QS is a versatile workstation for various laser plastics welding applications. The wide front door allows loading of large parts and the progress of the welding can be observed through a window. The 800 QS-R is well suited for high production volumes. The 2-station rotary index table minimises idle time for the laser as the operator can change material on one station while the other station is being processed. The 500 QS is an in-line workstation for fully automated high volume production. The workstation is integrated to a production line where products on palettes are moved by conveyor into the workstation for welding. A universal clamping device minimises the requirements for product specific tooling. The product specific fixtures can be easily changed including the product specific part of the clamping device. This enables fast change-over times from known products to another. The system can be equipped with various laser powers and optical configurations in order to achieve the required setup for the application. Source : Cencorp Website

It is noted that Cencorp typically offers a twelve month warranty on its products and generally there are minimal warranty claims.

5.4.1 Customer Service

Currently supporting in excess of 2,000 systems in the field worldwide, Cencorp's customer service operations are an integral part of its ‘Full Service Solution’ business approach. Based around expert telephone support and a large number of regional support engineers, Cencorp ensures that if a problem cannot be rectified remotely, on-site assistance is always close at hand.

This is supplemented by numerous local spare parts facilities and two central spare part holdings at Longmont in the USA, and Salo in Finland.

Cencorp offers its customers preventative maintenance which is included as part of customer support.

5.4.2 Sales

Cencorp actively investigates new business opportunities based on its two core competencies - innovation and customer orientation. Its major customers are leading manufacturers in automotive electronics, the telecommunications sector, industrial electronics, consumer electronics and EMS.

Cencorp has global sales and service activities either directly, or through partner representatives and distributors.

Savcor Group Limited – Independent Expert Report

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5.5 Suppliers

For the period up to and including 31 December 2009, Cencorp had a diversified supplier base with no one supplier exceeding 6% of total purchases during the year. The largest supplier for the years ended 31 December 2008 and 31 December 2009 was a company supplying electronic components that were used in the production of machines.

However, on or about 1 January 2010, Cencorp altered its business model to move away from a sales, design and manufacturing operation to a sales and design with a sub-contract business and has outsourced the majority of its manufacturing activities to a private company third party. To date, most of the manufacturing operations have been transferred to this third party. The manufacturing process largely involves the assembly of components.

However, there remains a small manufacturing operation and this is expected to be transitioned shortly. The remaining manufacturing personnel will be absorbed into the service and parts aspects of the business and as a consequence, there will be no further need for redundancies.

Cencorp has entered into an agreement with this third party company and the key terms of that agreement are as follows:

Cencorp remains responsible for purchasing of the components and that these components are priced on an “open book” cost basis, plus a small margin for those components;
the third party charges Cencorp for its labour at a flat hourly rate. The pricing of the labour is reviewed on a quarterly basis;
the third party will be obliged to make all stock purchases initially from Cencorp and in due course, as these stock lines run down, the third party will purchase the stock from external suppliers; and
moving forward, the third party supplier will hold the stock parts necessary to assist with the service and delivery and Cencorp will use its stockpile for machines sold in the past to service those machines, before they run out over time.

Cencorp management has advised us that to date, there are no issues with the quality of the work of the third party and that the transition appears to be seamless. Additionally, Cencorp management believes that its contract with the third party contractor is material to their operations and as a result, this will ensure timely service.

5.6 Cencorp – Sales by Industry

Below is a breakdown of Cencorp’s sales by industry for the FY2008 and FY2009 period.

Table 23: FY2008 and FY2009 – Cencorp sales by industry

Industry	FY2008 FY2009	FY2008 FY2009
Industrial Telecommunications Automotive EMS Consumer Other Total	45.0% 27.0% 12.0% 12.0% 2.0% 2.0%	48.9% 30.6% 8.4% 5.7% 3.4% 3.1%
	100.0%	100.0%

Source : Cencorp management

5.7 Cencorp Strategy

With the move to outsourcing manufacturing to subcontractors, Cencorp is aiming to become a sales, engineering and R&D focused company.

Savcor Group Limited – Independent Expert Report

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5.8 Competitors

We have discussed with management Cencorp’s competitors and note the key competitors in the table below:

Table 24: Cencorp’s key competitors

Name Comments	Name Comments
Rohwedder IPTE ASYS Miyachi	This was formerly a listed company in Germany and is now in liquidation. The company owns a business known as JOT Automation and it is believed that the business is likely to be sold back to the former owners. The business is involved in automation and testing. This is a Belgium based company, which is currently believed to be subject to a management buy-out. The business is also involved in the area of automation and testing. This is a depaneling type business in the area of routing of PCBs. This is a Japanese company, which is involved in laser focused technology.

Name
Comments

Rohwedder
IPTE
ASYS
Miyachi

This was formerly a listed company in Germany and is now in liquidation. The company owns
a business known as JOT Automation and it is believed that the business is likely to be sold
back to the former owners. The business is involved in automation and testing.
This is a Belgium based company, which is currently believed to be subject to a management
buy-out. The business is also involved in the area of automation and testing.
This is a depaneling type business in the area of routing of PCBs.
This is a Japanese company, which is involved in laser focused technology.

Source : Cencorp Website

In short, Cencorp management believes that there are few competitors in the market place. In addition, Cencorp management believes that its laser focus provides it with a niche advantage over its competitors.

5.9 Research and Development

Cencorp has substantial in-house experience in R&D. Additionally Cencorp is focused on ensuring an appropriate level of investment is made to provide for new technology improvements to satisfy customer product needs. Recently, the main level of R&D spend has been around the laser products.

All drawings, service manuals and other documentation created by Cencorp are in a format which ensures approval by the relevant authorities in Europe.

Cencorp has also had a non-exclusive agreement with a company called Photonium Ltd (“ Photonium ”), a company owned by Mr. Markku Jokela. The agreement is a non exclusive agreement which allows Cencorp to sell Photonium’s products. Photonium is attempting to terminate the agreement.

Savcor Group Limited – Independent Expert Report

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5.10 Board of Directors

The Cencorp Directors are as follows:

Table 25: Cencorp Directors

Name Position Background	Name Position Background	Name Position Background
Hannu Savisalo Matti Paasila Iikka Savisalo	Chairman, Member of the Board of Directors Vice Chairman of the Board, Member of the Board of Directors Member of the Board of Directors	Hannu Savisalo was recently appointed chairman of the Cencorp Board. Mr Savisalo established Savcor Group in 1981 and led the development of the company from a start-up operation to a business that had three core divisions and employed approximately 1,500 employees around the world inclusive of the FACE and ART divisions. Mr Savisalo has driven Savcor's strategy since its establishment and has been integral to leading the integration of the various acquisitions that have been completed. He has relocated to Sydney to lead Savcor. Mr Savisalo was awarded the honorary title of Industrial Counsellor by the President of Finland in 2004. Mr. Savisalo holds a Master of Science in Metallurgy from Helsinki University of Technology. Matti Paasila serves as Chief Executive Officer of Sarna Group, Switzerland. Mr. Paasila has wide experience concerning international executive management and working in the Boards of Directors. Mr. Paasila served as Chief Executive Officer of Sarna Polymer Holding Inc. in Switzerland. He served as Chief Executive Officer of Rieter Automotive Systems and in several management level positions in Nokia Corporation. He co-founded Sasken Finland Oy (formerly Botnia Hightech Oy) in 1989. He has been Director of Cencorp Oyj since December 2008. Mr. Paasila serves as Chairman of the Board of Directors of Maillefer S.A. He has been Chairman of the Supervisory Board of Alphaform AG since January 15, 2009 and as its Member of the Supervisory Board since December 16, 2008. He serves as Director of Sasken Finland Oy. Mr Savisalo has worked with Savcor Group since 1995 and has been closely involved in the company's growth by acquisition strategy. He has responsibility for Savcor's business development and mergers and acquisitions functions. Prior to taking on this role Mr Savisalo was director of M&A for the ART division and before that director of consumer operations for the FACE division. Mr Savisalo studied BBA in Accounting from Porvoo Commercial College.

Source : Capital IQ

Savcor Group Limited – Independent Expert Report

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5.11 Key Management Personnel

The key management personnel of Cencorp are as follows:

Table 26: Cencorp Key Management Personnel

Name Position Background	Name Position Background	Name Position Background
Hannu Timmerbacka Ville Parpola Iikka Savisalo Anssi Jansson Simo Hietaniemi Jari Ketoluoto	Internal Director, Chief Executive Officer, President, Chairman of Management Board Secretary, Chief Legal Officer, Head of Human Resources, Member of Management Board Chief Financial Officer, Corporate Sales Director of Cencorp Head of Automation Business Head of IT	Hannu Timmerbacka founded Botnia Hightech Oy in 1989 and served as its Chairman of the Board. Mr. Timmerbacka has served as Chief Executive Officer of Cencorp j since December 22, 2008. He was Vice Chairman of the Board and President of Cencorp since December 2008 until May 2009. Mr Timmerbacka has more than 30 years of versatile experience working as an expert in R&D, export sales and in management with profit responsibility in multinational companies. Ville Parpola, LL.M. has been Executive Vice President of Legal Affairs for Cencorp since June 8, 2006 and has been a member of the group management team since November 21 2006. Mr. Parpola serves as Executive Vice President of Legal Affairs & Personnel and Secretary of the Board of Cencorp and served as its Vice President of Legal Affairs until June 8, 2006. He worked as Legal Counsel for Cencorp Corporation from 1999 to 2002. He worked as a lawyer for Attorneys at Law Borenius & Kemppinen, specialising in mergers, acquisitions and international contracts. As above. Anssi Jansson has broad experience in different lasers and various laser materials processing applications for more than 10 years. Previously he has worked in project sales and as a project manager at VTT in laser micro machining applications and multi-kW laser applications. Simo Hietaniemi has served Cencorp since January 2 2009. He has a significant amount of experience in the project business and the development of project business as well as in managerial positions in Finnish corporations operating internationally. Before his current position, he worked as a Director of Software Business of Sasken Finland Oy and in managerial positions in Nokia Oyj (Nokia Networks), Metso Automation Oy and Valmet Automation Oy. He holds a Bachelor of Science degree in Electrical Power Engineering. Jari Ketoluoto moved to Cencorp from Savcor Alfa in spring 2009 and has since that time been leading the specialised technology team in improving the competitiveness of the technology’s total offering.
Source: Capital IQ

Savcor Group Limited – Independent Expert Report

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5.12 Corporate Structure

Illustrated below is the current corporate structure of Cencorp:

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Figure 5
Cencorp Corporate Structure
Other Cencorp
Savcor Oy
Shareholders
64.1% 35.6%
Cencorp
Savcor Alfa Oy
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Source : Cencorp management

Legend: Red denotes entities affected by the Proposed Transaction and blue denotes entities unaffected directly by the Proposed Transaction.

5.13 Organisational Structure

Illustrated below is the current organisational structure of Cencorp:

Figure 6

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Cencorp Organisational Structure
Hannu Timmerbacka
Chief Executive Officer
Anssi Jansson Simo Petri Kivela Jari Ketoluoto
Marketing & Hietaniemi Customer Care Research and
Sales Automation Business Development
Business
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Source : PKFCA workings

Savcor Group Limited – Independent Expert Report

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5.14 Capital Structure

Top 10 Share

The top ten shareholders of Cencorp as at 31 May 2010 were as follows:

Table 27: Cencorp top ten shareholders as at 31 May 2010

Shareholder’s Name	Number of Shares Held % of Total Shares	Number of Shares Held % of Total Shares
Savcor Oy Tilitoimisto Capital Oy Jokela Markku Paasila Matti Timmerbacka Hannu Tuohi & Paalu Oy FT Capital Oy Parpola Ville Oy Trobe Nordea Pankki Suomi Oyj Total held by top ten shareholders Shares held by other shareholders Total Shares on issue	83,952,206 9,176,500 6,100,888 2,777,777 2,222,222 2,050,000 1,707,140 1,317,181 1,055,000 1,026,400	62.4% 6.8% 4.5% 2.1% 1.7% 1.5% 1.3% 1.0% 0.8% 0.8%
	111,385,314 23,175,738	82.8% 17.2%
	134,561,052	100.0%

Source: Cencorp website

We note that there are approximately 4,700 shareholders in Cencorp.

Options

Cencorp has approximately 4 million options on issue with varying strike prices. As per discussions with Cencorp management, all options are out of the money.

5.15 Employees

Set out below are the Cencorp employee numbers over the last 5 years.

Table 28: Employee Numbers

	FY2005 FY2006 FY2007 FY2008	FY2005 FY2006 FY2007 FY2008	FY2005 FY2006 FY2007 FY2008	FY2005 FY2006 FY2007 FY2008	FY2009
End of period Average	214 205	185 156	134 133	119 101	97 86
Source: Cencorp management

As can be seen from the above, employee numbers have declined as a result of restructuring initiatives undertaken by Cencorp.

5.16 Patents & Trademarks

Patents and Patent Applications

Cencorp has a number of patents and patent applications in respect of its technological products. The patents and patents applications are held in countries such as Germany, the USA and Canada. We have been provided with a list of these patents and patent applications.

Trademarks

Cencorp also has a number of trademarks including the Cencorp name. The trademark applications are held in countries such as China, Japan, Singapore, Taiwan, the USA, Finland and South Korea. We have also been provided with a list of these patents and patent applications.

Savcor Group Limited – Independent Expert Report

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5.17 Share Price Analysis

The chart below compares Cencorp’s share price to the NASDAQ OMX Helsinki Index (“ Finnish Index ”) during the course of the Trading Period (refer to Table 29 for a legend of the market sensitive announcements noted on the chart below):

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Figure 7
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Cencorp Share Price vs. NASDAQ OMX Helsinki Index
($) (000s)
0.25 50,000
45,000
0.20 40,000
35,000
C D
0.15 30,000
25,000
B
0.10 20,000
15,000
A
0.05 10,000
5,000
0.00 0
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10
Volume (RHS) Share Price (LHS) NASDAQ OMX Helsinki
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Source : Bloomberg/ASX and Company Announcements

Note : Index movements have been rebased; Volumes traded on several days may not appear on the graph above because of their relatively small sizes

Savcor Group Limited – Independent Expert Report

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As depicted in the chart above, Cencorp outperformed the Finnish Index for most of the Trading Period.

Key events disclosed by Cencorp, which may have impacted the share price and trading volumes are set out below:

Table 29: Market sensitive announcements

Date Chart Reference Announcement Details	Date Chart Reference Announcement Details	Date Chart Reference Announcement Details
27 March 2009 1 April 2009 19 January 2010 28 May 2010	A B C D	The final outcome of the public purchase offer made by Savcor Oy on all shares and options of Cencorp was released to the market. Notification of change in ownership to market. Sampo Bank Oyj sold 44,594,041 shares to Savcor Oy. Cencorp signs a letter of intent in relation to the possible acquisition of Savcor FACE. Cencorp announced the Proposed Transaction in relation to the acquisition of Savcor FACE.

Source : ASX Company Announcements

The table below sets out details of Cencorp’s share trading liquidity during the 12 months prior to 15 June 2010:

Table 30: Cencorp Share Trading Summary

Period Total value traded ($’000s) Total volume traded (‘000 shares) Turnover as % of issued shares	Period Total value traded ($’000s) Total volume traded (‘000 shares) Turnover as % of issued shares	Period Total value traded ($’000s) Total volume traded (‘000 shares) Turnover as % of issued shares	Period Total value traded ($’000s) Total volume traded (‘000 shares) Turnover as % of issued shares	Average Bid/ Ask Spread
As at 15 June 2010 1 month to 15 June 2010 3 months to 15 June 2010 6 months to 15 June 2010 12 months to 15 June 2010	1 166 954 1,496 2,268	6 1,157 5,861 9,193 13,835	0.00% 0.86% 4.36% 6.83% 10.28%	7.14% 6.85% 6.99% 7.00% 6.92%

Source : Bloomberg, PKFCA analysis

We note the following in relation to the liquidity of Cencorp’s share price presented above:

the periods reviewed demonstrate a decrease over time in average daily volume traded, albeit over increasingly shorter trading periods up to 15 June 2010. The same can be said for total turnover. This indicates that the liquidity of the stock was decreasing;
the average bid-ask spread was 6.92% during the twelve months leading to the announcement. In the one month to 15 June 2010, the average bid-ask spread was 6.85%. We note that average bid-ask spread during the period reviewed remained within the range of 6.85% to 7.14%, which indicates that the liquidity of the share remained relatively consistent throughout the period; and
during the 379 day Trading Period reviewed, Cencorp traded on 342 days. This represents approximately 90.24% of total trading days.

We conclude that the liquidity of the stock is not very high. Turnover over the 12 month period was very low. Further, Cencorp is not widely followed by analysts and the top 10 shareholders held around 82.8% of the total number of shares outstanding over the 12 months to 15 June 2010.

Savcor Group Limited – Independent Expert Report

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5.18 Risks

The following are some of the risks associated with an investment in Cencorp:

subcontractor concentration – Cencorp now relies on one major subcontractor;
technological – customer product requirements change extremely quickly and the failure to react quickly to customer needs could result in loss of a customer(s);
R&D – Cencorp is required to invest significantly in R&D. It is possible that such investment does not result in the creation of commercially viable products;
inventory risk – inventory turnover is required to be quick in order for Cencorp to be competitive and to avoid inventory obsolescence;
changing markets – Cencorp operated in a rapidly changing market. In order to keep abreast of changes, Cencorp must continually update its product range so as to deal with the anticipated changes. Any erroneous estimates in market changes could result in detrimental consequences for the business;
dependency on agents – Cencorp has historically been dependent on agents to sell products. Loss of key agents could affect future sales; and
foreign currency – due to the diversity of sales.

5.19 Historical Financial Performance

Following is a summary of Cencorp’s audited financial statements for the years ended 31 December 2007 to 2009 (both inclusive).

5.19.1 Income Statements

Summarised in the following table are Cencorp’s audited consolidated income statements for the years ended 31 December 2007 to 2009 (both inclusive):

Table 31: Cencorp Income Statements

Year Ended 31 December Audited	FY2007 (Euro ‘000s) FY2008 (Euro ‘000s) FY2009 (Euro ‘000s)	FY2007 (Euro ‘000s) FY2008 (Euro ‘000s) FY2009 (Euro ‘000s)	FY2007 (Euro ‘000s) FY2008 (Euro ‘000s) FY2009 (Euro ‘000s)
Net Sales Other operating income Expense, total Depreciation and amortisation Operating result Financial income and expenses Results before taxes Income tax Consolidated net result	20,323 421 (20,901) (893)	15,611 86 (17,051) (831)	6,107 844 (10,836) (901)
	(1,050) (2,839)	(2,185) (2,386)	(4,786) (306)
	(3,889) (74)	(4,571) (24)	(5,092) 33
	(3,963)	(4,595)	(5,059)

Source : Cencorp Audited Financial Statements and management accounts

We note the following with respect to the historical financial performance of Cencorp, as set out above:

Overview

The last three to five years has seen a decline in sales and financial performance for Cencorp. There are a number of drivers for this decline and these include:

reduction in sales volumes as a result of a slowdown in the market, lack of willingness of customers to upgrade their technology, general pressure on pricing and the GFC; and
the relatively high level of fixed costs required to sustain the Cencorp business.

Savcor Group Limited – Independent Expert Report

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Below is a brief overview of the explanation provided in relation to the results for FY2007, FY2008 and FY2009:

FY2007

sales for FY2007 were flat;
there were marginal improvements in employee expense benefits and a reduction in depreciation and amortisation expenses;
gross margin was also consistent with prior years; and
in general, the result was affected by lower sales volume compared to FY2005 and prior.

FY2008

sales in FY2008 decreased dramatically, again, due to slow market conditions and the general decrease in spend by Cencorp’s key manufacturing customers;
initiatives were undertaken to decrease staff costs;
due to the slowing in sales, there were additional stock write-downs required which impacted upon the results; and
a number of restructuring initiatives were undertaken which resulted in additional costs to Cencorp. The restructuring resulted in the closure of the Swedish and French operations as well as a reduction in the Finnish costs; and
the former CEO was terminated resulting in a one-off termination payment.

FY2009

sales continued to decline mainly due to the GFC;
Cencorp continued its efforts to reduce staff costs;
due to the sale of the Lohja real estate, there were further restructuring costs which should result in future cost reductions. As a result of this, personnel were transferred to Mikkeli and Salo facilities. In addition, a profit on sale was recorded in FY2009 of €0.6 million;
the continued decline in sales also resulted in further stock write-downs;
excluding the effects of additional stock write-downs, gross margin increased slightly in FY2009; and
other fixed costs including costs premises, data and communication, external services, sales and marketing and other administrative expenses, decreased mainly as a result of decreased costs for premises due to the closures and restructuring of facilities, as well as decreased patent administration and voluntary personnel costs in FY2009.

Savcor Group Limited – Independent Expert Report

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5.19.2 Normalisation Adjustments

Set out below are the normalisation adjustments in relation to non-recurring items:

Table 32: Cencorp Normalisation Adjustments

Year Ended 31 December Note	Year Ended 31 December Note	FY2008 (Euro ‘000s) FY2009 (Euro ‘000s)	FY2008 (Euro ‘000s) FY2009 (Euro ‘000s)
Reported EBITDA *Adjustments* Profit on sales of assets in Lohja Write down of inventory Savcor Alfa Oy acquisition costs Restructuring costs Termination of CEO's contract Savcor Alfa Oy financials Adjusted EBITDA	1 2 3 4 5 6	(1,354) 0 878 0 900 72 (90)	(3,797) (600) 900 300 700 0 0
		406	(2,497)

Source : Cencorp management

The explanations of the above normalisation adjustments are as follows:

Cencorp sold its industrialisation agreement with the city of Lohja to Savcor Group Oy in December 2009. The sale resulted in a profit of €0.6 million. We have adjusted this as a non-recurring item.
Cencorp has made large inventory write downs both in FY2008 and FY2009 due to slow moving and obsolete stock. The write downs amounted to approximately €0.9 million during both years. We have adjusted for these as non-recurring costs.
In FY2009, Cencorp recorded €0.3 million of costs related to the acquisition of Savcor Alfa Oy. Costs mainly relate to legal, advisory and other administrative fees. We have treated these as a non-recurring item.
Cencorp has undertaken major restructuring of its operations during both FY2008 and FY2009, with one off costs recorded during both years, as follows:
In FY2008, Cencorp shut down its operations in Sweden and France, with one off costs amounting to €0.260 million, relating mainly to redundancies. In Finland, Cencorp laid off a number of employees, with related costs totalling €0.639 million.
In FY2009, Cencorp shut down its factory in Lohja and transferred personnel to Mikkeli and Salo. The transfer resulted in one off costs amounting to €0.700 million, mainly relating to redundancies.

We have adjusted for these as non-recurring costs.

Cencorp terminated its contract with its former CEO in May 2008. This resulted in a one off cost of approximately €0.173 million. We have adjusted for this as non-recurring cost. We have deducted from this add-back the cost of a CEO in the period when the Group functioned without a CEO (i.e. 7 months), in order to illustrate the cost structure as if the change had not occurred.
Cencorp acquired Savcor Alfa Oy and this adjustment reflects the loss for the period from 1 January 2008 to the date of acquisition. We have adjusted for this as non-recurring cost.

Savcor Group Limited – Independent Expert Report

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5.19.3 Sales History

The following illustrates Cencorp’s sales history in millions of Euros from 1993 to 2009:

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Figure 8
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Cencorp’s Sales History
Source: Cencorp management
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As illustrated above, sales peaked in 2000 and have gradually declined since. The current expectation in the short to medium term is for sales to return to levels experienced in FY2006 and FY2007. This expectation appears to be supported by the current level of sales in back log orders as well as quoted sales.

Savcor Group Limited – Independent Expert Report

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5.19.4 Balance Sheets

Summarised in the table below are the audited consolidated balance sheets of Cencorp as at 31 December 2007, 2008, and 2009:

Table 33: Cencorp Balance Sheets

As at 31 December	FY2007 (Euro ‘000s)	FY2008 (Euro ‘000s)	FY2009 (Euro ‘000s)
Current Assets Inventories Accounts receivable Other short-term assets Cash and bank receivables Total Current Assets Non Current Assets Tangible assets Investment property Goodwill Other intangible assets Product development in progress Deferred tax assets Available-for-sale investments Total Non-Current Assets TOTAL ASSETS Current Liabilities Accounts payable and other liabilities Short-term loans Long-term loans shortening Provisions Total Current Liabilities Non Current Liabilities Long term loans Deferred tax liability Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS Equity Share Capital Other equity funds Translation difference Retained earnings Total Equity	4,298 6,388 744 253	3,554 2,974 472 175	2,559 1,629 1,353 107
	11,683 1,613 343 2,028 430 1,340 23 17	7,175 1,431 0 2,028 1,243 0 0 10	5,648 734 2,966 988 0 0 10
	5,794	4,712	4,698
	17,477	11,887	10,346
	3,737 2,219 1,564 192	2,919 2,596 1,383 115	2,470 2,077 0 39
	7,712 7,078 303	7,013 2,962 13	4,586 2,949 110
	7,381	2,975	3,059
	15,093	9,988	7,645
	2,384	1,899	2,701
	3,425 8,842 0 (9,883)	3,425 12,007 69 (13,602)	3,425 18,432 110 (19,266)
	2,384	1,899	2,701

Source : Cencorp Audited Financial Statements and Management Accounts

Savcor Group Limited – Independent Expert Report

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We note the following in relation to Cencorp’s financial position as displayed above:

Assets

the decrease in Cencorp’s tangible assets in FY2009 was predominantly a result of the disposal to Savcor Oy of real estate at the company’s Lohja site. This had an effect of approximately €1.1 million, offset by machinery acquired in the Savcor Alfa Oy transaction amounting to €0.427 million at December 2009;
intangible assets comprised of intangible rights (€0.293 million), patents for software (€0.054 million) and capitalised R&D expenditure (€0.695 million). There was a decrease of approximately (€0.300 million) representing a write down in R&D;
Cencorp’s goodwill increased by approximately €0.9 million as a result of the acquisition of Savcor Alfa Oy. There was no need for impairment of this goodwill in FY2009;
inventories have decreased as a result of Cencorp’s move from in house manufacturing to subcontracting. In addition, slow moving inventory related to out-of-date technology no longer used by the subcontractors and a balance of €0.9 million was subsequently written off in FY2009. Cencorp also held replacement parts for machines that were 10 years or older;
there was a decrease in accounts receivable due to the reduced sales and a requirement to increase the provision for bad and doubtful debts due to potential insolvent customers; and
Cencorp also had a receivable of €1.042 million from Savcor Oy in relation to the sale of the Lohja site.

Liabilities

Cencorp has been funded by loans from Savcor Oy (€1.4 million) and Savcor FACE Oy (€1.5 million). These loans mature at the end of 2011 and the interest rate is set at Euribor plus 4%;
Cencorp also had external borrowing facilities of approximately €3.5 million consisting of an export line of credit (€1 million), factoring loan facility (€1.5 million) as well as an overdraft limit (€1 million); and
accrued expenses and other liabilities include interest bearing unsettled interest of €0.594 million on convertible debentures exercised in FY2008 and FY2009. These unsettled balances accrue interest at a rate of 8.5% pa which amounts to €0.94 million as at December 2009.

Shareholders’ Equity

Cencorp issues shares totalling €2.9 million and net €2.4 million (after issue expenses) which resulted in an increase in equity.

Savcor Group Limited – Independent Expert Report

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5.19.5 Cash Flow Statements

Summarised in the table below are the audited cash flow statements of Cencorp for the years ended 31 December 2007 to 2009 (both inclusive):

Table 34: Cencorp Cash Flow Statements

Year Ended 31 December	FY2007 (Euro ‘000s)	FY2008 (Euro ‘000s)	FY2009 (Euro ‘000s)
Result before Taxes Adjustments: Depreciation and amortisation Impairment charges Unrealised foreign exchange gains and losses Other non-cash flow items Finance cost - net Funds from operations Change in working capital Total net cash flow from operating activities Interest paid Interest received Income tax paid Net Cash Provided by/(used in) Operating Activities Cash Flows from Investing Activities Capital expenditure Proceeds from sales of fixed assets Loans receivable proceeds Net Cash Provided by/(used in) Investing Activities Cash Flows from Financing Activities Proceeds from Issue of Shares Proceeds from long-term liabilities Payments of long-term liabilities Proceeds from short-term liabilities Payments of short-term liabilities Net Cash Provided by/(used in) Financing Activities Net Decrease in Cash and Cash Equivalents Cash & Cash Equivalents at the Start of the Year Translation difference Cash & Cash Equivalents at the End of the Year	(3,889) 893 0 108 0 2,839	(4,571) 831 7 0 5 2,379	(5,092) 901 88 (20) (1,058) 326
	(49) 26	(1,349) 3,613	(4,855) 1,241
	(23) (723) 0 (45)	2,264 (896) 2 0	(3,614) (787) 0 0
	(791) (261) 0 0	1,370 (170) 350 0	(4,401) (802) 0 0
	(261) 1,360 0 (1,698) 786 (96)	180 0 0 (1,605) 9,737 (9,755)	(802) 2,858 2,926 (130) 1,920 (2,439)
	352	(1,623)	5,135
	(700) 953 0	(73) 253 (5)	(68) 175 0
	253	175	107

Source : Cencorp Audited Financial Statements and Management Accounts

The same comments made in respect of the Income Statements and Balance Sheets (refer to Section 5.19.1 and Section 5.19.4 ) are also applicable to the cash flow statement.

Savcor Group Limited – Independent Expert Report

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5.20 Year to Date Financial Information

Set out below is the year to date financial information for the period from 1 January 2010 to 31 May 2010 (“ YTD FY2010 ”), as compared to the same period in FY2009:

Table 35: YTD FY2010 Financial Information

Euro ‘000s	YTD FY2009 (May)	YTD FY2010 (May)
Revenues EBITDA Depreciation and amortisation EBIT Consolidated net result *Normalisation Adjustments* Inventory Adjustment Mission Expenses Savcor Group invoice Laid-off adjustments Vacation expense adjustments Total Normalisation Adjustments Adjusted results Adjusted Revenues Adjusted EBITDA Adjusted EBIT Adjusted Consolidated net result	1,993 (1,508) 315 (1,823) (1,957) 0 0 0 0 0	3,339 (1,380) 319 (1,699) (1,751) 64 500 31 50 60
	0 1,993 (1,508) (1,823) (1,957)	705 3,339 (675) (994) (1,046)
Source: Cencorp management, unaudited Note: The above reflects the parent company accounts, not the consolidated group

We make the following comments with regard to Cencorp’s YTD FY2010 financial position as displayed above:

sales are approximately 67% higher compared to the same period in FY2009 and appear to be in line with the budgeted sales;
EBITDA losses are approximately 55% lower than the same period in FY2009;
contribution margin appears to be tracking well at 62%; and
operating expenses are approximately 12% lower compared to the same period in FY2009, however they are slightly higher than budgeted operating expenses as a result of the unanticipated recruitment of staff in the sales organisation as well as two more project managers and one lead designer in R&D.

5.21 Forecasts

Overview of Forecasts

We have been provided with Cencorp management forecasts for the year ending 31 December 2010 (“ Cencorp Forecasts ”). Due to confidentiality reasons, we have not disclosed details of the forecasts. However we are able to note the following:

sales are expected to grow significantly compared to FY2009 sales but are still expected to remain well under FY2008 levels;
gross profit margin is expected to improve slightly mainly due to the fact that fixed manufacturing costs will be heavily reduced as a result of the outsourcing of manufacturing to subcontractors;

Savcor Group Limited – Independent Expert Report

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operating expenses are expected to be largely in line with the second half of FY2009; and
Cencorp expects R&D expenditure to decrease reflecting the anticipated decline in demand for new products in the short term.

Based on the above, Cencorp is expected to incur a loss at the EBIT level. The EBIT loss is expected to be significantly lower compared to FY2009, even on a normalised basis. Cencorp is expected to make a small positive EBITDA.

Key Assumptions

We note the following key assumptions with regard to the Cencorp Forecast:

Table 36: FY10 Forecasts – Key Assumptions

Area Assumption PKFCA Comments	Area Assumption PKFCA Comments	Area Assumption PKFCA Comments
Revenue - Product Sales - Spare parts and service Gross Margin Salaries Expenses Head office costs	The product sales forecast has been based on the individual product sales based on expected demand and after allowing for an appropriate level of capacity to produce products. The sales price is consistent with recent sales history. The spare parts and service sales forecast has been based on prior history and pricing for spare parts and service. Gross margin is forecast to be slightly higher than prior year. These are based on level of personnel on or around 31 December 2009 and take into account current salary levels. These are based on the run rate of the last quarter of FY2009, adjusted for a minor increase in inflation. These include corporate and secretarial costs that have been undertaken by Savcor Oy.	Based on year to date sales, unfilled orders, actual sales and quoted sales, Cencorp should be able to achieve the overall forecasted level of sales. The overall level of service and spare parts is consistent with that of the prior year. However, as a percentage of sales, it is lesser than that of the prior year. Rationale provided for this is the fact that fixed manufacturing costs will be heavily reduced as a result of the outsourcing of manufacturing to subcontractors We have reviewed the calculations of forecast salaries and they appear to be consistent with the restructured operations. Nothing has come to our attention to suggest that these are unreasonable. Based on explanations provided, these costs appear to be reasonable.

Source : Cencorp management

Savcor Group Limited – Independent Expert Report

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5.22 SWOT Analysis

Set out below is a SWOT analysis of Cencorp:

Table 37: SWOT Analysis

Strengths	Weaknesses
• Patented, proven technology • Innovative research and development team • Unique product offering being laser technology • Large diversified customer base • Strong customer relationships • Strong supplier relationships • Poor capital and financial structure • Dependence on distributors • Sales revenue dependent upon a strong economy • Patent protection in a limited number of countries
Opportunities	Threats
• Increase in Asian presence • Opportunity to explore the Green Energy market • Development of new technologies • Increased competition from low cost labour providers, eliminating the need for fast efficient technology • Dependence on one key supplier for manufacturing capability • Loss of key staff, particularly in the area of sales and research and development • Introduction of new technology by competitors

Source : Cencorp management; PKFCA

Savcor Group Limited – Independent Expert Report

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6 OVERVIEW OF THE NASDAQ OMX HELSINKI

6.1 Background

The NASDAQ OMX Helsinki is a stock exchange located in Helsinki, Finland. Previously called the Helsinki Stock Exchange, it became part of OMX AB (“ OMX ”) on 3 September 2003 and was thereafter referred to as OMX Helsinki (“ OMXH ”). OMX is a Swedish-Finnish financial services company, formed in 2003 through a merger between OM AB and HEX plc. It has two divisions, OMX Exchanges, which operates eight stock exchanges in the Nordic and Baltic countries, and OMX Technology, which develops and markets systems for financial transactions used by OMX Exchanges, as well as by other stock exchanges. OMX claims to be a world leader in financial instruments trading systems.

NASDAQ acquired OMX in February 2008 and since then the official name of the Helsinki exchange has been the NASDAQ OMX Helsinki.

Normal trading sessions of the NASDAQ OMX Helsinki are from 10:00am to 6:30pm on all days of the week except Saturdays, Sundays and holidays declared by the Exchange in advance.

Market Capitalisation of Listed Entities

The following table summarises the market capitalisation structure of entities listed on the OMXH:

Table 38: Market Capitalisation Overview

Class	Number of Companies Distribution of Class Market Capitalisation (€ Billions) Distribution of Market Capitalisation	Number of Companies Distribution of Class Market Capitalisation (€ Billions) Distribution of Market Capitalisation	Number of Companies Distribution of Class Market Capitalisation (€ Billions) Distribution of Market Capitalisation	Number of Companies Distribution of Class Market Capitalisation (€ Billions) Distribution of Market Capitalisation
Large Capitalisation Mid Capitalisation Small Capitalisation Total	34 43 60	25% 31% 44%	122.5 15.9 3.0	87% 11% 2%
	137	100%	141.2	100%

Source : Ernst and Young – NASDAQ OMX Helsinki (16 June 2010)

6.2 Rules and regulations of the NASDAQ OMX Helsinki

Rules of the NASDAQ OMX Helsinki include, among other things, listing requirements for all instruments and disclosure rules for issuers.

NOREX Member Rules are the harmonised trading rules in all Nordic exchanges. In some detailed issues, the rules include exchange-specific clauses, which need to be observed.

Regarding Stabilisation rules at NASDAQ OMX Helsinki, can be found in the European Commission Regulation (EC) No 2273/2003 (“ Commission Regulation ”). While the same Commission Regulation applies also to share buy-backs of listed companies, the exchange also has its additional guidelines, “Own shares of a listed company”.

The NASDAQ OMX Helsinki has prepared a Corporate Governance Code (“ Code ”) in cooperation with other market participants, and the Code is also a part of NASDAQ OMX Helsinki regulation. In addition, the same participants have issued Guidelines for Insiders of listed companies.

The NASDAQ OMX Helsinki has also issued Guidelines for market making. Furthermore, the Rules of the Disciplinary Committee are a part of the NASDAQ OMX Helsinki’s rules and regulations.

Savcor Group Limited – Independent Expert Report

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6.3 Supervision

The NASDAQ OMX Helsinki is governed by the Financial Supervisory Authority as well as the NASDAQ OMX. A description of these entities is found below:

Financial Supervisory Authority – the Financial Supervisory Authority supervises Finland’s financial and insurance sectors, as well as the OMXH. Its supervision responsibilities include the monitoring of securities market infrastructure and trading and brokerage, and investigating potential cases of abuse in securities markets; and
NASDAQ OMX – the NASDAQ OMX regulates its trading activity. In addition, there is a series of listing requirements applicable to financial instruments as well as disclosure rules for issuers.

6.4 Major Indices

The major indices of the NASDAQ OMX Helsinki are summarised below:

OMX Helsinki Index – this is the Helsinki Stock Exchange General Index (Economic Sector), which is a capitalisation-weighted index consisting of all the stocks traded on the exchange. The OMX Helsinki Index is disaggregated using the Global Industry Classification Standard (“ GICS ”) since 1 July 2005; and
OMX Helsinki 25 Index – this is a modified-capitalisation weighted index that consists of the 25 most traded series on NASDAQ OMX Helsinki's Main List. The index is used as a benchmark for the Finnish Market. The index calculation includes free float factors and each company in the index is limited to a weight of 10%.

In addition to the above, there are indices which cover specific industry groups. These include consumer discretionary, consumer staples, materials and energy, financials, health care, industrials, information technology as well as other industry groups, which are generally covered by major global stock exchanges.

6.5 Recent Capital Raisings

Several capital raisings have taken place on the OMXH in recent times. We have highlighted these in the table below:

Table 39: OMXH Recent Issues

Company Issue Type Announced	Company Issue Type Announced	Company Issue Type Announced	Issue Size (€ Millions)	Target Group
Ixonos Oyj Suominen Oyj Technopolis Oyj InCap Oyj Lemminkainen Oyj Honkarakenne Oyj Biotie Therapies Oyj HKScan Oyj Amer Sports Oyj Componenta Oyj Stockmann Oyj Stockmann Oyj Finnlines Oyj Cencorp Oyj	Rights Issue Rights Issue Directed share issue Directed share issue Directed share issue Directed share issue Directed share issue Rights Issue Rights Issue Directed share issue Directed share issue Rights Issue Rights Issue Rights Issue	1/06/2010 1/06/2010 18/05/2010 13/04/2010 17/03/2010 26/01/2010 4/12/2009 24/11/2009 24/09/2009 8/09/2009 14/08/2009 14/08/2009 26/05/2009 2/04/2009	6.2 10.0 19.4 1.3 39.5 3.5 7.2 78.0 152.0 29.3 96.0 45.0 33.7 1.6	Shareholders Shareholders Institutional investors Management and shareholders Private and institutional investors Management Institutional investors Shareholders Shareholders Shareholders, banks and institutional investors HTT Holding Oy AB Shareholders Shareholders Shareholders
Total			522.7

Source : Cencorp management

Savcor Group Limited – Independent Expert Report

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6.6 NASDAQ OMX Helsinki cf. Australian Securities Exchange

We have provided a comparison of the NASDAQ OMX Helsinki to the ASX in the following section.

Sector Coverage

The following table compares the GICS sector coverage of both exchanges as at the date of this Report:

Table 40: GICS Sector Analysis

Sector	NASDAQ OMX Helsinki Participants ASX Participants	NASDAQ OMX Helsinki Participants ASX Participants
Automobile and Components Banks Capital Goods Classification Pending Commercial & Professional Services Consumer Discretionary Consumer Durables and Apparel Consumer Services Consumer Staples Diversified Financials Energy Food and Staples Retailing Food Beverage and Tobacco GICS Sector Code Not Applicable Health Care Equipment and Services Households and Personal Products Industrials Information Technology Insurance Materials Media Pharmaceuticals, Biotechnology and Life Sciences Real Estate Retailing Semiconductors & Semiconductor Equipment Software and Services Technology Hardware and Equipment Telecommunication Services Transportation Utilities Total	n.a n.a n.a n.a n.a 16 n.a n.a 7 14 1 n.a n.a n.a 5 n.a 40 27 n.a 12 n.a n.a n.a n.a n.a n.a n.a 1 n.a 1	10 13 114 42 59 n.a 29 42 n.a 166 226 7 45 194 70 2 n.a n.a 10 685 44 84 116 40 2 80 33 30 27 33
	124	2,203

Source : ASX Website, NASDAQ OMX Helsinki Website (8 June 2010 - Data Release) Note : 1. n.a – not applicable.

In summary, the ASX has almost 18 times the amount of companies listed on its exchange compared to the NASDAQ OMX Helsinki. Also, the ASX covers additional GICS sectors compared to the NASDAQ OMX Helsinki, which include real estate, transportation and automobiles and components.

We note that the ASX is largely dominated by companies engaged in the materials and energy sectors, while the NASDAQ OMX Helsinki differs, with a large portion of its listed companies operating in the industrials and consumer discretionary sector.

Savcor Group Limited – Independent Expert Report

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Trading Volumes

In order to compare the total volumes traded on the two exchanges, we reviewed the total volume traded for the OMX Helsinki Index and the S&P/ASX All Ordinaries Index, for the twelve month period ending 15 June 2010. An overview of our findings is provided in the table below:

Table 41: Total Volume Traded

Period OMX Helsinki Index Volume (000’s) S&P/ASX All Ordinaries Index Volume (000’s)	Period OMX Helsinki Index Volume (000’s) S&P/ASX All Ordinaries Index Volume (000’s)	Period OMX Helsinki Index Volume (000’s) S&P/ASX All Ordinaries Index Volume (000’s)
As at 15 June 2010 1 month to 15 June 2010 3 months to 15 June 2010 6 months to 15 June 2010 12 months to 15 June 2010	48,881 1,246,403 4,054,097 7,252,105 14,061,298	1,130,514 30,148,488 89,302,106 157,529,736 353,113,564
Source: Bloomberg

During the period analysed, the S&P/ASX All Ordinaries Index had a significantly higher total volume traded, compared to that of the OMX Helsinki Index, with the S&P/ASX All Ordinaries Index having over 25 times greater volume traded than the OMX Helsinki Index.

Technology Index

We reviewed the technology based Indices of the NASDAQ OMX Helsinki and the ASX. This included a review of the S&P/ASX 200 Information Technology Index (“ ASX 200 IT Index ”), which covers software and services as well as technology hardware and equipment, and the OMX Helsinki Technology Hardware and Equipment Index (“ OMX Technology Index ”). We note that the S&P/ASX 200 Technology, Hardware and Equipment Index is no longer readily available from 2007, and as such we conducted our review of these two respective indices. A graph of the performance of these two indices is set out below:

Figure 9

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----- Start of picture text -----

Technology Based Index Comparison
(%)
150.00%
140.00%
130.00%
120.00%
110.00%
100.00%
90.00%
80.00%
70.00%
Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10
S&P/ASX 200 Inf ormation Technology Index OMX Helsinki Technology Hardware & Equipment
Sources: Bloomberg; NASDAQ OMX Helsinki Website
----- End of picture text -----

As per the figure above, it is evident that the ASX 200 IT Index has outperformed the OMX Technology Index from 16 June 2009 to 15 June 2010. We note that the OMX Technology Index has been unable to sustain a position higher than its last traded price of 24.44 points on 16 June 2009 for an extended period of time (the longest period of time was just over 1 month, which was during March 2010), while the ASX 200 IT Index has performed strongly, which is evident through its general growth throughout the period reviewed. As at 15 June 2010 the ASX 200 IT Index had outperformed the OMX Technology Index by approximately 55.32%.

Savcor Group Limited – Independent Expert Report

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7 ECONOMIC OVERVIEW

7.1 Introduction

The following observations regarding economic conditions are based on our review of generally available economic analysis reports published by major Australian trading banks and economic forecasting bodies at or about the date of this Report.

7.1.1 Global Economic Overview

The latter part of 2008 and the first few months of 2009 saw what has come to be regarded as the most serious international recession in decades. Global growth has since resumed better than expected, with activity recovering at varying speeds – tepidly in many advanced economies but solidly in most emerging and developing economies.

The recent downturn involved the simultaneous collapse in demand for durable goods around the world at the end of 2008 and a sudden increase in risk averseness. Various governments had to save major financial institutions in a number of countries. This affected consumption and saving decisions, firms’ investment plans and hiring intentions.

The recovery thus far has been quite hesitant. Economic activity remains well below the peak levels seen in 2007 and 2008, and in some of these economies it may not reach those levels for another few years.

In the first quarter of 2010 the key driver of the sustainability of the global recovery was the broadening out of the stimulus-induced rise in consumer spending and the inventory-induced increase in manufacturing. The effects of spending has become visible on many fronts and has lead to a belief that the somewhat mild recovery in developed economies is solidifying, although still not at a pace to quickly recoup losses incurred during the GFC.

In the first quarter of 2010, financial markets were adversely affected by sovereign debt concerns, however consumer spending did not contract even after government stimulus decreased and business confidence continued to rise.

Despite the slow growth in Asia’s traditional export destinations – North America, Europe and Japan – trade in the region has bounced back remarkably strongly after a precipitous fall in late 2008. A large part of this rebound has been a result of an increase in intra-region exports of final products, particularly to China.

Inflation in the Euro area and the USA is still trending downwards, and spare capacity could be expected to dampen price changes for some time, although commodity prices are rising.

Recent concerns over Greece’s sovereign debt lead to a slight market correction across major markets as investor confidence weakened. The European Union and the IMF have announced a cooperative package of financing amounting to €110 billion over three years to help the country ride out its debt crisis, revive growth and modernise the economy. China has also announced that it will not be disposing of its Greek assets. These measures have helped restore market confidence.

7.1.2 Australian Economic Overview

While several major countries had one of their most serious recessions in the post-World War II period, Australia had one of its mildest, with a relatively sharp but brief downturn in aggregate demand and economic activity late in 2008, with a return to expansion during the first half of 2009.

The Australian Bureau of Statistics estimates that real GDP grew by 2.75% in 2009, which is a little below average, but much higher than for most other developed economies.

Savcor Group Limited – Independent Expert Report

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At its meeting on 1 June 2010, the Reserve Bank of Australia (“ RBA ”) kept its cash rate on hold at 4.5%, breaking a series of continuous rises from 3% in April 2009. In a statement made by the RBA Governor, Mr Glenn Stevens, reasons for the unchanged rate were as follows:

concerns about sovereign creditworthiness in several European countries have been a focus of financial markets. As a result, equity prices have fallen and long-term government bond rates have declined outside of the countries most affected by the sovereign concerns. The Australian dollar fell sharply as part of this adjustment. Commodity prices have also softened, though those important for Australia remain at very high levels;
at this stage, global growth is still expected to be at about trend pace in 2010. Conditions in Europe overall have been relatively weak, but growth is becoming more established in North America. In Asia, growth has continued to be quite strong;
in Australia, with the high level of the terms of trade expected to add to incomes and demand, output growth over the year ahead is likely to be about trend, even though the effects of earlier expansionary policy measures will be diminishing; and
inflation appears likely to be in the upper half of the target zone of 2 to 3% over the next year in Australia.

The RBA expects that there is solid-to-strong growth overall among Australia’s trading partners, a high level of the terms of trade pushing up national income, reasonably confident firms and households and strong population increase which all mean that Australia is not likely to see persistently weak economic growth.

The following key Australian economic indicators are addressed below:

Commodities – commodity prices reduced in 2009 as the global economy contracted for the first time since 1946. However, as the global economy is starting to recover, there is an expectation that prices will recover significantly in 2010, with a strong rally expected to continue in 2011. However, growth and contribution from the mining sector may be limited by potential legislative changes in relation to the proposed mining super profits tax;
Labour Market - in April 2010 the unemployment rate was 5.4%, a slight increase from February 2010 when it was 5.3%;
Business Conditions – business and consumer confidence levels are both currently at historically high levels;
Consumer Price Index – headline consumer prices rose 0.9% over the March quarter, with inflation at an annual rate of 2.9% year on year which is in the upper region of the RBA target band of 2 to 3%; and
Gross Domestic Product – GDP rose a smaller than expected 0.2% in the September 2009 quarter with this increase being due to an earlier than expected recovery in dwelling investment and a robust 0.7% rise in household consumption. In seasonally adjusted terms, GDP increased 0.9% in the December 2009 quarter. GDP growth was 2.7% for the year to December 2009, while non-farm GDP grew 2.5%.

The Australian economy is expected to grow by 2.5% in FY2009/10, 3.3% in FY2010/11 and 3.3% in 2011/12 fuelled by a near-term surge in private sector demand and increased confidence. Inflationary pressures are expected to emerge which will necessitate a shift to a tightening of monetary policy.

7.1.3 Chinese Economic Overview

Strong domestic demand has supported China’s growth through the recent economic crisis, with a reported GDP growth of 8.7% in 2009 per the IMF. Strong growth continues, with FY2010 first quarter GDP growth surging to 11.9% (year on year growth) and inflation pressures also continue to mount. This exceeds the IMF’s projection of 10.0% GDP growth in 2010.

Savcor Group Limited – Independent Expert Report

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The strength in domestic demand in China is expected to have positive knock on effect on other economies, especially other Asian and Pacific economies, particularly exported of commodities and capital goods.

7.1.4 Conclusion on Economic Prospects

A general consensus has emerged that ongoing improvements to the global economic conditions will be slow and protracted, but positive. Based on the above, economic conditions in Australia are set to improve in 2010 and 2011, beyond conditions experienced in 2009.

Savcor Group Limited – Independent Expert Report

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8 INDUSTRY OVERVIEW

Savcor Pacific operates in the Mobile Phone Component Manufacturing Industry (“ Industry ”). The Industry consists of global entities engaged in the design and manufacturing of electronic equipment and components used in mobile phones devices. The following observations regarding industry conditions on or around the date of this Report are based on PKFCA’s review of generally available industry reports and statistics, as well as discussions with, and the information provided by, Savcor.

8.1 Market Overview

The Industry has experienced considerable growth in the past decade as a result of technological innovations and newly emerging products and services, the continued liberalisation of the telecommunications industry and the significant increase in mobile penetration rates.

Key characteristics of the Industry are as follows:

Mobile Phone Subscribers in Australia – there were approximately 24.22 million subscribers in FY2009, which represents a 9.5% increase from the previous year. We note that this represents a penetration level of 110% of the Australian population (compared to the FY1999 penetration rate of approximately 33.7%). The increase in subscriptions is primarily due to the increasing acceptance of wireless broadband and other 3G services.

The graph below shows the growth in mobile penetration from 2006 to 2009 in Australia:

Figure 10: Mobile Phone Penetration

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----- Start of picture text -----

Mobile Penetration in Australia
30,000 120.0%
25,000 100.0%
20,000 80.0%
15,000 60.0%
10,000 40.0%
5,000 20.0%
0 0.0%
2006 2007 2008 2009
Mobile Phones Owned % of Population
% of Population
Mobile Phones Owned (000's)
----- End of picture text -----

Source : Australian Communications and Media Authority (ACMA)

• Global Telecommunications Market – Mature markets such as the United States, Australia, Hong Kong, Japan and South Korea have remained vital testing sites for network upgrades that use high capacity technologies, however growth rates are relatively low compared to emerging markets.

Emerging markets, which include countries such as Malaysia and Vietnam, have higher growth rates in regards to the uptake of mobile handsets and high speed technologies. This is particularly noticeable in major cities and towns.

Handsets and Services – Innovation and technological advancements in both handsets and wireless technologies has been prolific. The uptake in 3G technology has also been relatively strong. The introduction of iPhones has boosted the uptake of 3G over 2G due to heavy data usage. In addition, ‘cap plans’, Voice2Text services and internet usage have assisted in driving demand of handsets.
Commoditisation of the industry – Decreasing average sales prices suggests commoditisation of the Industry and decreasing margins throughout the supply chain. Smart phones are slowing this trend but increasing value is mainly coming from stronger processors, bigger memories, higher quality displays and increasing share of software. It does not significantly alter the position of mechanical suppliers.

Savcor Group Limited – Independent Expert Report

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Components are supplied to several industries – In addition to supplying components to the mobile phone industries, some component manufacturers also supply components (e.g. microprocessors, memories, PCBs, etc) to the computer industry and to other electronic product manufacturers.

8.2 Barriers to Entry

The Industry is described as one with high barriers to entry. The primary barriers are as follows:

Economies of Scale – this is largely evident through the major players in the Industry. These firms are able to produce at reduced unit costs, through for instance increased negotiating power when purchasing raw materials. Such conditions force new entrants to spend more on marketing activities to establish industry links and gain market presence;
Intellectual Property Barrier – firms that have intellectual property are superior to other competing firms, and possess significant advantages over new entrants, particular if intellectual property is adequately protected; and
Customer and Supplier Relationships – established firms have developed brands and/or solid relationships with customers and suppliers. Customers have a tendency to approach well established firms with trusted products and equipment and this presents a barrier to entry for new competitors.

8.3 Demand Determinants

Demand for products within the Industry is primarily driven by the following:

advances in component and product technologies;
convergence of technologies. This can facilitate new products and services, which can in turn drive demand for new and existing electronic equipment and machinery;
movements in product prices;
growth in household incomes;
employment levels;
taxes and interest rates;
government regulations; and
increase in mobile telecommunication network coverage.

8.4 Major Participants

We note the following major Industry participants that operate in direct competition with Savcor and are also Savcor’s customers in some instances:

Foxconn International Holdings – Foxconn International Holdings is a vertically integrated firm, which operates in Europe, Asia and America. The company offers a comprehensive range for leaders in the handset and wireless communications industry. Its operations include range from design and development, manufacturing and assembly, to after sales servicing and repairs;
Light-On Mobile Pte. Ltd. – Light-On Mobile Pte. Ltd. provides innovative design solutions for mobile phone handsets. Its products include plastics and metal decorations, keymat solutions, antennas and radio frequency modules, as well as glass and light solutions. The company operates around the globe and collaborates with all major handheld device vendors including Nokia, Polar, Sony Ericsson, HTC and Arima.
Laird PLC – Laird PLC is listed on the London Stock Exchange and operates in North America, Europe and across Asia. Its primary operations include the design and supply of components that reduce or prevent interference both within and between electronic devices, and of antennae and actuation products for mobile handsets;

Savcor Group Limited – Independent Expert Report

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Arwi Group – Arwi Group products and services include the design and supply of shielding, advanced decorative metal coatings and reflective coatings solutions for various industries. Whilst Arwi Group is one of Savcor’s key competitors, its operations are smaller compared to other competitors listed here;
BYD Electronic International Company Ltd – BYD Electronic International Company Ltd is a subsidiary of BYD Company Ltd and was incorporated in 2007. Its operations are vertically integrated and include the manufacture and sale of handset casings and keypads, as well as modules for handset manufacturers; and
Jabil Circuit Inc – Jabil Circuit Inc is an electronic manufacturer of products for the communications, personal computer, peripheral, consumer, and automotive markets. The company offers circuit and board design, from schematic, prototype assembly, volume board assembly, system assembly, repair and warranty services.

8.5 Future Outlook

The following section which discusses the outlook of the mobile phone device industry is based on research presented by analyst firm Gartner. We note that the information outlined by Gartner is supported by other sources such as market guidance provided by Nokia.

We have made reference to this material as a proxy for the outlook of the Industry due to the limited information available in relation to the outlook of the Industry.

Gartner sets out the following:

Mobile Phone Device Market Growth – in 2010, the mobile phone device market is expected to grow by 9.0% compared to 2009 sales of 1.214 billion units. Historical year on year growth levels of 20.0% are no longer anticipated, due to the saturation of mature markets. Growth is expected to come largely from emerging markets;
White Label Manufacturers – white label manufacturers, are manufacturers who do not have a licence to sell and manufacture devices without a valid international mobile equipment identity. Originally sales of products by these manufacturers were limited to China, however going forward, sales are expected to spread to emerging markets in Asia, Eastern Europe, the Middle East and Latin America, and lower the weighted average selling price of mobile phone devices;
Smart Phones – smart phone sales volumes reached 14.0% of total mobile phone device sales in 2009, and are forecast to reach 38.0% in 2013. In addition, Gartner expects that the average selling price of smart phones to decline by 3.0% during 2010; and
Replacement Cycles – the GFC impacted disposable income and extended replacement cycles from 12 to 18 months within mature markets. Gartner expects that global replacement cycles will return to normal within 2 years as a result of the introduction of more aggressively priced smart phone contracts as well as shorter contract periods.

In addition to the above, Ovum a global research and analysis has forecast a compound annual growth rate of 6.6% until 2013 for the Asia pacific mobile phone market.

Ovum predict that by 2014 there will be 6.42 billion mobile phone connections globally, which amounts to a 59.0% growth in comparison to 2008 figures.

8.6 Industry – Cencorp

As noted in paragraph 5.6, Cencorp’s key industries are industrial and telecommunications. Due to the broadness of the industrial sector, we have not covered this industry in our Report. The telecommunications industry is discussed above.

Savcor Group Limited – Independent Expert Report

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8.7 Conclusion

In response to the GFC, Industry prospects have reduced from pre crisis levels, but still remain relatively strong. The increase in network coverage to emerging markets is expected to increase mobile phone device penetration rates, as well as the uptake in smart phones. This is a positive outlook for the Industry in which Savcor FACE operates.

Based on the above analysis of the Industry, in the foreseeable future there does not appear to be a significant risk of general adverse industry specific conditions that might have a material adverse impact on the operations of participants in the Industry and Savcor FACE in particular.

Savcor Group Limited – Independent Expert Report

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9 VALUATION METHODOLOGY

9.1 Overview

In arriving at our valuation conclusions for the Savcor FACE business and Cencorp we considered the following broad categories of valuation methods:

sum of parts;
comparable market transactions;
capitalisation of future maintainable earnings (“ CFME ”);
discounted cash flow (“ DCF ”);
asset-based valuations; and
the most recent quoted market price of listed securities (share market trading method).

Set out in Appendix 3 are summary descriptions of valuation methods we have considered.

Set out below is a discussion of the valuation methods we consider appropriate for the purposes of undertaking our valuation assessment of Savcor FACE and Cencorp.

9.2 Savcor FACE

We have adopted the ‘sum of parts’ approach with the underlying components based primarily on the CFME valuation method to value the Savcor FACE business. The following components included in the Proposed Transaction have been assessed independently, and then aggregated to arrive at the value of the Savcor FACE business:

Sale Shares;
Savcor Ancillary Assets;
Intune Circuits Ancillary Assets; and
FACE Receivable.

9.2.1 Sale Shares - Capitalisation of Future Maintainable Earnings

In our opinion, the most appropriate method with which to value the Sale Shares is the CFME method. We have selected this method as the most appropriate for valuing the Sale Shares for the following reasons:

Savcor Pacific has traded profitably in the past (with the exception of FY2009), current financial year and future profitability is expected in FY2011 and beyond;
the FY2009 loss occurred against a weak economic backdrop and is consistent with losses experienced by several comparable companies;
the business is well established and has strong relationships with key players in the Industry such as Nokia. It can be expected to continue trading on a going concern basis, provided technological shifts are well managed and R&D investments are sustained;
the Industry outlook indicates expectations for sustained growth at approximately 9.0% in 2010 before declining to 6.6% per annum growth rates until 2013 applicable for the Asia Pacific region. The strength and position of Savcor Pacific’s brand places Savcor Pacific in a favourable position to participate in this growth; and
limitations of other valuation methods as they apply to Savcor Pacific.

This Report proceeds on the basis that the Sale Shares include all of Savcor Pacific’s issued capital as at Completion Date, including any shares issued by Savcor Pacific in respect of the repayment of amounts owing under the FACE Receivable, (as defined in the Share and Asset Sale Agreement), issued between the date of the Share and Asset Sale Agreement and the Completion Date. As such, we have assumed that the Sale Shares include both issued ordinary shares and issued redeemable preference shares of Savcor Pacific and that all of both types of shares will be transferred to Cencorp as part of the Proposed Transaction.

Savcor Group Limited – Independent Expert Report

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We have therefore valued all the equity in Savcor Pacific as a whole and have not allocated the equity value between ordinary shares and redeemable preference shares.

9.2.2 Savcor Ancillary Assets

Savcor Ancillary Assets relate to patents and other IPRs held by Savcor which are utilised by Savcor Pacific for its manufacturing activities. These intangible assets have been excluded from the “sum of parts” valuation on the basis that these assets are integral to producing the earnings of Savcor Pacific that are capitalised in the application of the CFME method. Accordingly, the corresponding royalty payments that would be payable as a result of the use of the intangible assets have been excluded from the maintainable EBITDA utilised pursuant to Section 9.2.1 , thus resulting in a higher EBITDA that is capitalised. Refer to Section 10.4 for details.

9.2.3 Intune Circuits Ancillary Assets

Intune Circuits Ancillary Assets relate to patents held by Intune Circuits. We have not ascribed a value to these assets as these patents currently do not generate any royalty payments and there is uncertainty around their future commercial application. For details, refer to Section 10.5 .

9.2.4 FACE Receivable

Funds owed or to be owed by Savcor Pacific to Savcor as at the Completion Date as a consequence of Savcor having advanced funds (or procured the advance of funds) to Savcor Pacific for the purpose of debt repayment are referred to as the FACE Receivable.

In our opinion, despite the inter-company nature of the loan, the face value of the FACE Receivable is suitable for assessing its fair market value as the loan attracts a commercial interest rate charge. This valuation method assumes that Savcor Pacific has the ability to service the inter-company loan at this interest rate charge into the future and eventually repay the principal amount.

9.3 Savcor FACE Valuation Cross Check

To provide additional evidence of value, we have assessed the reasonableness of the valuation result assessed using the primary valuation method by using a valuation cross check, being the revenue multiple of Savcor Pacific.

We believe that this is an appropriate cross check as sales volume is a key driver of the business. In the absence of new products and first mover advantage, the business can generally be regarded as a commodity manufacturing business which is highly dependent on sales volume to drive profitability.

The revenue multiple method may ignore the valuation impact of differing gross margins and EBITDA margins of the business as compared with other entities.

9.4 Cencorp

Based on our understanding of Cencorp, the ideal valuation methodology to adopt would have been the CFME methodology. However, given the limitations in the historical and forecast earnings as discussed above in Section 5.18 and Section 5.21 , we adopted the share price at which Cencorp is going to raise capital in order to fund the acquisition of the Savcor FACE business (i.e. the Cencorp Share Price), which is to be used as the basis for determining the number of Consideration Shares.

The basis for the use of the share price at which Cencorp is going to raise capital is the Share and Asset Sale Agreement. Pursuant to clause 3.2(b) of the agreement, the issue price per Consideration Share shall be equal to the issue price at which ordinary shares were issued by Cencorp pursuant to Cencorp’s Proposed Capital Raising.

Savcor Group Limited – Independent Expert Report

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Although Cencorp’s Proposed Capital Raising is not a condition of the Share and Asset Sale Agreement, it is implied by clause 3.2(b) of the agreement. It is noted that the Cencorp Share Price only determines the number of Cencorp shares issued to Savcor. As the Consideration is expressed to be a value of Euro 16 million, to be satisfied in Cencorp shares, the Savcor should receive value of Euro 16 million.

However, per Cencorp management representations, information in relation to Cencorp’s Proposed Capital Raising and the Cencorp Share Price will not be available in a timely manner to facilitate adopting this price in this Report. According, in accordance with Cencorp management representations, we have adopted the Cencorp Share Price to calculate the number of Cencorp shares that Savcor is likely to receive upon implementing the Proposed Transaction.

We adjusted the Cencorp Share Price having regard to the following:

an assessment of the ability of Savcor, and time required, to realise the Consideration Shares;
allowance of a premium for significant influence arising from the size of the share parcel; and
an allowance for currency risks.

9.5 Cencorp Valuation Cross Check

To provide additional evidence of the value of Cencorp shares, we have assessed the reasonableness of the valuation resulting using the primary valuation method by using a valuation cross check, being the capitalisation of sales method.

Savcor Group Limited – Independent Expert Report

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10 VALUATION OF THE SAVCOR FACE BUSINESS

10.1 Valuation Summary

In our opinion, the fair market value of the Savcor FACE business on the sum of parts method is summarised in the following table:

Table 42: Valuation Summary – Savcor FACE business

Ref.	Ref.	Low Value High Value Mid Value	Low Value High Value Mid Value	Low Value High Value Mid Value
SALE SHARES OF SAVCOR PACIFIC Maintainable EBITDA ($000s) EBITDA Multiple (times) Enterprise value (minority basis) ($000s) Less: interest bearing liabilities ($000s) Less: capital expenditure ($000s) Equity value - minority basis (ex. surplus assets) ($000s) Add: control premium Equity value - control basis (ex. surplus assets) ($000s) Add/(less): surplus assets/ (liabilities) ($000s) Equity value - control basis ($000s) SAVCOR ANCILLARY ASSETS Intangible assets (patents and IPRs) ($000s) INTUNE CIRCUITS ANCILLARY ASSETS Intangible assets (patents) ($000s) FACE RECEIVABLE FACE receivable ($000s) SUM OF PARTS Total asset value ($000s)	10.3.1 10.3.2 10.3.3 10.3.4 10.3.5 10.3.6 10.4 10.5 10.6	7,500 4.25	7,500 4.75	7,500 4.50
		31,875 (16,107) (0)	35,625 (16,107) (0)	33,750 (16,107) (0)
		15,768 15%	19,518 20%	17,643 17.5%
		18,133 2,900	23,422 2,900	20,731 2,900
		21,033 excluded excluded 7,080	26,322 excluded excluded 7,080	23,631 excluded excluded 7,080
		28,113	33,402	30,711

Source: PKFCA analysis

Based on the above, we have assessed the fair market value of the Savcor FACE business (including the FACE Receivable) to be in the range of $28.1 million to $33.4 million, with a midpoint of $30.7 million.

10.2 Valuation Approach

As mentioned above in Section 9.2 , we have adopted the sum of parts approach in arriving at a valuation for the Savcor FACE business. The following components included in the Proposed Transaction have been assessed independently, and then aggregated to arrive at the value of the Savcor FACE business:

Sale Shares;
Savcor Ancillary Assets;
Intune Circuits Ancillary Assets; and
FACE Receivable.

Savcor Group Limited – Independent Expert Report

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10.3 Sale Shares

In utilising the CFME method to value the Sale Shares, we have given consideration to the determination of the following:

an estimate of the future maintainable earnings of Savcor Pacific (“ FME ”);
selection of an appropriate earnings capitalisation multiple;
where necessary, deducted from the resultant enterprise value:
any future capital expenditure and working capital requirements;
interest bearing liabilities; and
any potential contingent liabilities;
applied a premium for control; and
considered the value of any surplus assets and liabilities.

Set out below are the key parameters and our considerations with respect to each.

10.3.1 Future maintainable earnings

FME is the assessed level of sustainable earnings, in real terms, that can be expected to be derived by the existing operations of the business regardless of short term economic fluctuations and excludes any one off profits or losses.

In our opinion, the appropriate earnings to adopt in valuing most businesses and companies is EBITDA as it most accurately reflects the return generated by the business and ignores factors that may not be relevant to the actual earning capacity of the business, such as the following:

interest costs, that reflect the method of financing the business and which vary between businesses;
interest revenue, that reflects earnings on surplus assets;
effective tax rates, that reflect both the tax regimes in different countries and different tax positions of, and tax planning measures implemented by, businesses;
historical costs of fixed assets at the time of their acquisition and different accounting policies, that will affect annual depreciation charges; and
amortisation charges in respect of intangible assets that discriminate against companies that have accomplished business growth by acquisition of other companies as opposed to those that have organically grown their businesses.

Our estimate of the FME of Savcor Pacific has been determined after consideration of:

Savcor Pacific’s SP FY2010 Budget earnings (refer Section 4.4.1 above);
nature and quantum of any adjustments to budgeted earnings, including royalty payments in relation to Savcor Ancillary Assets;
actual YTD FY2010 performance in comparison to the SP FY2010 Budget;
growth prospects and the effect of changes and trends in the Industry that may impact on earnings;
the SWOT analysis of Savcor Pacific and the effectiveness of the Savcor Pacific’s competitive strategy in managing any threats; and
the ability of Savcor Pacific to meet budgeted earnings in the past.

Based on the above analysis, we have estimated the EBITDA FME of Savcor Pacific to be $7.5 million. We note the following:

the estimated EBITDA FME is broadly consistent with the SP FY2010 Budget, (prepared in December 2009) which was approved by the Directors;

Savcor Group Limited – Independent Expert Report

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the estimated the EBITDA FME is reflective of actual YTD FY2010 performance versus the SP FY2010 Budget;
the estimated EBITDA FME may not reflect Savcor Pacific’s full earnings capacity if future R&D initiatives yield significant commercial advantage. Similarly, the estimated EBITDA FME may not be achieved if Savcor Pacific does not undertake adequate R&D projects, is unable to adapt promptly to market trends or lacks sufficient investment in its manufacturing capabilities; and
Savcor Pacific’s performance was ahead of its budget in FY2006. However, between FY2007 and FY2009, Savcor Pacific demonstrated poor budgeting accuracy with actual performance lagging behind budget. Savcor management has attributed poor budgeting accuracy to:
FY2007 – given the strong performance in FY2006, the FY2007 budget was aggressive coupled with the curtailment of EMI contracts and cancellation of an antenna contract;
FY2008 – delays in establishing the second Guangzhou factory and the onset of the GFC in the fourth quarter; and
FY2009 – reduced volumes due to the GFC.

10.3.2 Capitalisation multiple

The appropriate earnings multiple is usually assessed by collecting market evidence with respect to the earnings multiples of comparable companies with operations that are comparable to those of the entity being valued.

In selecting this multiple range, we have considered:

earnings multiples derived from prices achieved in mergers and acquisitions of broadly comparable companies;
earnings multiples derived from share market prices of broadly comparable listed companies; and
identified specific factors relevant to Savcor Pacific.

Our analysis was performed based on data available as at 15 June 2010.

Merger and acquisition multiples

We have undertaken research of merger and acquisition transactions involving companies broadly comparable to Savcor Pacific which operate in the same Industry in which Savcor Pacific operates.

Transaction multiples provide a useful insight in the valuation of businesses. However, caution must be exercised in utilising this data as the transaction multiples (unlike the share market trading multiples) in most instances include premiums for control and possibly synergies and may reflect companies with different business activities.

There have been limited recent comparable transactions in the Industry. As such, we have placed limited reliance on these multiples. A summary of comparable transactions is set out in Appendix 4 . We note the following with respect to merger and acquisition multiples:

the multiple for one transaction was 20.4 times historical EBITDA; and
transactions ranged in size from US$1 million to US$1 billion.

Savcor Group Limited – Independent Expert Report

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We note the following with respect to the transactions listed in Appendix 4 :

Taiwan Green Point Enterprises Company Limited has a highly diversified business with operations ranging from mobile phone plastic parts to plastic parts for optical and automotive applications. Also, it has operations not only in China, but also in Taiwan and Malaysia. We consider the multiple applicable to Taiwan Green Point Enterprises Company Limited to be considerably high as a result of the above diversification which may result in better growth prospects; and
transaction multiples based on earnings were not publicly available for other transactions.

Share market trading multiples

In selecting appropriate comparable companies, we had regard to companies that operate within the Industry. We have selected a range of broadly comparable companies which are manufacturers of mobile phone components. Set out in Appendix 5 are descriptions of the operations of the identified companies. Stock market trading valuation parameters for the companies are set out in Appendix 6 . It is noted that the multiples in Appendix 6 are based on market trading in minority parcels of shares and represent values determined on a minority interest (and not a controlling or 100%) basis.

We note the following in relation to the selected companies:

Laird Plc is considered to be the most comparable company as it is a Tier 2 supplier and is not vertically integrated. In addition, it also focuses on EMI/EMC shielding and wireless antenna solutions which are also key products of Savcor Pacific. However, we note that Laird Plc has a more diverse geographical spread (compared to Savcor Pacific) with operations in North America, Europe and across Asia;
other companies (Foxconn, BYD Electronic and Jabil) also operate in the same Industry and are direct competitors of Savcor Pacific. However, we note that these companies are Tier 1 suppliers and are vertically integrated. Whilst they do share similar risks and dependencies, the businesses may not be as vulnerable and dependent on subcontracts as Savcor Pacific is; and
we note that all the above comparable companies are significantly larger with all except Laird Plc having more than a billion Australian dollars in revenue compared to Savcor Pacific which had $32.3 million revenue in FY2009.

Our assessment of comparable companies produced a range of earnings multiples (excluding outliers), with an average and median actual (FY2009) EBITDA of approximately 7.0 times and 6.9 times, respectively and an average and median forecast (FY2010) EBITDA of approximately 5.3 times and 5.5 times, respectively.

Whilst there are some key differences between Savcor Pacific and the identified companies, the analysis provides an indicative range of EBITDA multiples that may be regarded as being relevant for the purpose of valuing Savcor Pacific.

The capitalisation rate should reflect the growth prospects of the business, the quality of its earnings and the risks of the business. In order to ascertain the appropriate multiple range to apply to Savcor Pacific, we have undertaken a limited review of the characteristics of the companies that we consider most comparable. We have identified differences in the characteristics of those companies and their range of operations. Set out in Appendix 5 and below is our analysis in this regard.

Savcor Group Limited – Independent Expert Report

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Analysis of share market trading multiples

We have adjusted the observed trading multiples of the selected companies for the following factors:

Size of the business: larger companies are generally valued at higher earnings multiples which reflect the benefits of size particularly in relation to market power, control over prices and costs, depth of management, diversity of customers, and general operational and financial robustness.
In addition, larger listed companies may trade at higher earnings multiples because of the liquidity of their shares and the likelihood of greater interest in the shares from a wider base of investors (e.g. institutions or foreign investors). All of the comparable companies are considerably larger than Savcor Pacific from both a revenue and total assets perspective. As such, Savcor Pacific commands a lower earnings multiple in this respect;
Growth opportunities for the business: a company which is expected to grow more strongly will tend to have a higher earnings multiple for a given level of earnings than one which is expected to experience slower growth. Savcor Pacific appears to have comparable growth opportunities to the selected companies as adequate R&D investment and constant ability to re-innovate are critical to all companies involved in the dynamic mobile phone industry. Accordingly, Savcor Pacific commands a comparable earnings multiple in this respect;
Comparative performance: Appendix 7 sets out a comparison of key financial indicators for the selected companies and Savcor Pacific. Savcor Pacific’s performance is comparable to that of the selected companies. As such, it commands a comparable earnings multiple in this respect;
Diversity and quality of earnings: the range of products provided by most of the selected companies can be considered to be wider when compared to those of Savcor Pacific. In addition, Foxconn, BYD and Jabil are vertically integrated businesses and are Tier 1 suppliers in the mobile phone industry. Such a characteristic enables not only a maximisation of potential revenue streams, but also disperses the risk associated with revenues for those companies. As such, Savcor Pacific commands a lower earnings multiple;
Market position: we understand that the mobile phone industry is a dynamic industry and is largely lead by the OEMs and Tier 1 suppliers. Savcor Pacific, as a Tier 2 or Tier 3 supplier is highly dependent on subcontracts received from OEMs and Tier 1 suppliers, and faces stiff competition from other Tier 2 or Tier 3 suppliers. Savcor Pacific does not hold a dominant position in the market. As such, Savcor Pacific commands a lower earnings multiple;
Key person risk: the manufacturing facilities in Beijing and Guangzhou have individual plant managers who are supported by the necessary managers (R&D manager, manufacturing/operations manager, finance manager and HR manager). This middle management is in turn supported by the various teams/staff. Therefore, there is no significant key person risk additional to that experienced by the comparable companies. As such, Savcor Pacific commands a comparable earnings multiple in this respect;
Level of gearing: a company which is heavily geared will often trade on a lower earnings multiple than a company which is more conservatively geared, which reflects the greater risk attached to the earnings of a highly leveraged company. Savcor Pacific’s gearing ratio is significantly higher compared to that of the selected companies. As such, Savcor Pacific commands a lower earnings multiple in this respect;
Discount for marketability: a discount for marketability is generally applied to private companies as minority parcels of shares in unlisted companies are valued at a discount to minority parcels of shares in comparable listed companies. An unlisted share of a closely-held company in which trading is infrequent (and which therefore lacks negotiability) is less attractive than a similar listed stock which has ready negotiability of shares and therefore liquidity. Accordingly, as there is relative lack of negotiability due to non-listing, Savcor Pacific commands a lower earnings multiple in this respect; and

Savcor Group Limited – Independent Expert Report

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Country risk: Savcor Pacific operates predominantly within the China market which is vulnerable to significant market risk, competitor risk and legislative risk compared to the comparable companies which operate in more mature economies and diverse geographical locations. As such, Savcor Pacific commands a lower earnings multiple.

Multiple applicable to Savcor Pacific

Based on our analysis above, we have arrived at an EBITDA multiple range applicable to Savcor Pacific’s EBITDA FME of 4.25 times to 4.75 times. In our opinion, this multiple reflects:

the multiples of companies broadly comparable to Savcor Pacific, particularly Laird Plc which has operations that are most closely aligned to Savcor Pacific’s operations;
necessary adjustments made to these multiples to take into account differences between Savcor Pacific and the above comparable companies; and
the SP FY2010 Budget assumptions of Savcor Pacific.

10.3.3 Interest bearing liabilities

Based on Savcor Pacific’s adjusted balance sheet following implementation of the Proposed Transaction, interest bearing liabilities total $16.107 million. Refer to Table 72 in Appendix 8 for details.

10.3.4 Capital expenditure

The Savcor Pacific business requires a certain level of capital expenditure in order to achieve the FME set out in Section 10.3.1 . We understand that sufficient capital expenditure has been provided for within the SP FY2010 Budget prepared in December 2009, to enable Savcor Pacific to achieve budgeted earnings, which is broadly consistent with the FME set out in Section 4.4.1 . In addition, the capital expenditure set out in the SP FY2010 Budget is broadly consistent with historical capital expenditure. Accordingly, we have not adjusted for any additional capital expenditure in the short to medium term.

Nevertheless, we note that if additional capital expenditure (over and above SP FY2010 Budget budgeted capital expenditure) is incurred to increase manufacturing capacity, a corresponding improvement in earnings beyond that of the SP FY2010 Budget (and subsequently the FME) could be achieved. Any additional capital expenditure will have to be assessed on its own merits. Therefore, we have not adjusted for it in our assessment.

10.3.5 Premium for control

Our assessment of the earnings multiple range applicable to Savcor Pacific has been derived predominantly from the multiples observable from trades of minority parcels of shares in listed entities. Accordingly, the trading prices reflect a minority interest value. The interest being valued represents a controlling interest in Savcor Pacific. When valuing a controlling interest, an appropriate allowance should be made for a premium for control.

Appendix 4 sets out the assessed control premiums on recent transactions within the mobile phone and the RFID industries. We note that the implied control premium based on the value of the offer and on the share price on the day prior to an offer being made or, where possible, speculation of an offer being made, ranged from 7% to 23%, with an average of 16% and a median of 18%.

Having regard to the above, for the purposes of valuing a controlling interest in Savcor Pacific, we have applied a premium for control in the range of 15% to 20%. In our opinion, this premium is appropriate in reflecting:

observable control premiums on recent transactions within the mobile phone industry as discussed above; and

Savcor Group Limited – Independent Expert Report

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the value of synergy benefits available to the group of logical buyers of Savcor Pacific, which may include (but is not limited to) costs savings in relation to corporate overheads, rationalisation of technologies and technology platforms and elimination of duplicate business functions.

Our premium for control does not reflect the value of synergies specific only to Cencorp as an acquirer of Savcor Pacific.

10.3.6 Surplus assets

Surplus assets are assets which form part of an entity but do not contribute to the business earnings or cash flow generation capacity of that entity. These are assets that, if sold, would not impact on the revenue or profit generating capacity of the active business undertaking.

Assets and liabilities which do not form part of the business undertaking must be valued separately. Such assets are considered to be ‘surplus’ to the business undertaking, but nevertheless represent value that should be reflected in the overall value of the entity as they could be sold separately and the cash added to the value of the business.

Surplus cash

Savcor management has indicated that Savcor Pacific has surplus cash of approximately $2.9 million as at 30 June 2010, after consideration for additional working capital required to achieve the above FME. Accordingly, we have adjusted the equity value for this surplus cash.

We understand that this is the only potential material surplus asset.

Other

We understand that Savcor Pacific currently has a spare production line in Beijing which does not contribute to the business’ earnings. Following the acquisition of Intune Circuits in 2008, Intune Circuits’ factories in Finland were shutdown, and all production lines and equipment were shipped to the Beijing plant. Existing production lines in Beijing had to be relocated to free up floor space for the incoming Intune Circuits machinery. As a result, Savcor Pacific currently has one production line in a container which is not utilised in the manufacturing process. The carrying value of this production has been written down to nil (was $0.7 million in 2008).

We understand that the production line is specialised and it may prove difficult to obtain a buyer for this production line. Accordingly, we have not attributed any value to this surplus asset.

10.4 Savcor Ancillary Assets

Savcor Ancillary Assets relate to six patents and two IPRs currently owned by Savcor which will be transferred to Cencorp as part of the Proposed Transaction. Savcor acquired these patents and IPRs from other Savcor Oy entities as part of its IPO in 2007. Savcor Pacific currently pays the following royalties to Savcor for the use of these patents and IPRs:

5% of sales for vacuum coating;
5% of sales for E-coating; and
5% of sales for deco metal. However, this royalty payment is only applicable to 40% of deco metal sales, effectively a 2% royalty charge on total deco metal sales.

These royalty payments are eliminated upon consolidation in the consolidated Savcor financial statements.

Savcor management has advised that whilst it is possible to charge external businesses for the use of these patents and IPRs (provided an interested party can be identified), Savcor Pacific has never undertaken this in the past and it is unlikely that Savcor management will seek to generate royalty revenue from external parties in the short term.

Savcor Group Limited – Independent Expert Report

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The patents and IPRs associated with these royalty payments will be transferred to Cencorp as part of the Proposed Transaction. These royalty payments will be eliminated as income to Cencorp from Savcor Pacific following implementation of the Proposed Transaction.

Based on the above, royalty expenses incurred in relation to Savcor’s patents and IPRs have been excluded from our assessment of the FME EBITDA in our CFME valuation of Savcor Pacific. Accordingly, the fair values of these assets (patents and IPRs) have also been excluded from our sum of total parts valuation calculation.

10.5 Intune Circuits Ancillary Assets

The Intune Circuits Ancillary Assets relate to an RFID patent held by Intune Circuits which was acquired from an Intune related entity prior to the acquisition of Intune Circuits in 2008. In 2008, the carrying value of this patent was based on an independent valuation of €100,000 with a 10 year useful life, resulting in a current book value of €81,142 (approximately AUD 0.1 million) as at 31 May 2010.

Savcor Pacific currently does not utilise this RFID patent and does not incur any royalty payments. Savcor management has advised that should a technological shift occur and the RFID technology of this patent translate into a commercial application, Savcor Pacific could commercialise this patent. In the absence of a technological shift, Savcor Pacific could attract royalty payments from external businesses for this patent, although Savcor management has not attempted to undertake this. The likelihood of a commercial application is uncertain.

Due to the absence of current royalty payments and the uncertainty of future commercial application for this patent (i.e. no contracted future cash inflows), we have not attributed any value to this asset.

10.6 Face Receivable

The FACE Receivable relates to the inter-company loan from Savcor to Savcor Pacific as a consequence of Savcor having advanced funds (or procured the advance of funds) to Savcor Pacific for the purpose of Savcor Pacific Group repaying Current Banking Facilities, which will be assumed by Cencorp following implementation of the Proposed Transaction. Refer to Appendix 8 for details.

We understand that the inter-company loans accrue interest at 7.0% p.a. (USD denominated loan) and 10.0% p.a. (AUD denominated loan). Savcor management has confirmed that an intercompany loan agreement has recently been formalised. Savcor management also has confirmed that the above interest rates are at commercial rates of interest for the loans and the assumed security that will be granted in relation thereto.

Based on the SP FY2010 Budget EBIT detailed in Section 4.4.1 , it is anticipated that Savcor Pacific will have the ability to service this inter-company loan on commercial terms.

We understand that as at 30 June 2010, all inter-company loan balances were converted to redeemable preference shares.

Savcor management has indicated that a portion or all of the Current Banking Facilities may be settled via a capital injection instead of an inter-company loan. Therefore, the value of the FACE Receivable may subsequently decrease. Further, the level of net assets in Savcor Pacific at Completion for the purpose of the net asset adjustment will be reduced by any capital subscribed to Savcor Pacific by Savcor in respect of new preference shares issued by Savcor Pacific in satisfaction of any part of the outstanding FACE Receivable.

Savcor management has advised that Savcor had a funding shortfall of approximately $1.5 to $2.5 million within its current corporate funding facility in June 2010 for settlement of the Current Banking Facilities. This Report assumes that management is successful in obtaining the necessary funding shortfall from alternative sources.

Savcor Group Limited – Independent Expert Report

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Based on the above, the FACE Receivable has been assessed at its face value of $7.1 million (the anticipated balance subsequent to settlement of the Current Banking Facilities as detailed in Appendix 8 ).

10.7 Valuation Conclusion

Based on the above, in our opinion, the fair market value of the Sale Assets is summarised in the following table:

Table 43: Valuation Conclusion – Sale Assets

Ref.	Ref.	Low Value ($000s) High Value ($000s) Mid Value ($000s)	Low Value ($000s) High Value ($000s) Mid Value ($000s)	Low Value ($000s) High Value ($000s) Mid Value ($000s)
Sale Shares of Savcor Pacific - control basis Savcor Ancillary Assets FACE Receivable Intune Circuits Ancillary Assets Total Sale Assets value ($000s)	10.3.1 to 10.3.6 10.4 10.6 10.5	21,033 excluded 7,080 excluded	26,322 excluded 7,080 excluded	23,631 excluded 7,080 excluded
		28,113	33,402	30,711

Source: PKFCA analysis

We have assessed the fair market value of the Sale Assets (including the Savcor FACE business and the FACE Receivable) to be in the range of $28.1 million to $33.4 million, with a midpoint of $30.7 million.

10.8 Valuation Cross Check

We have performed a valuation cross check based on the revenue multiple of the Savcor Pacific business. Our estimate of the revenue multiple of Savcor Pacific has been determined after consideration of:

Savcor Pacific’s SP FY2010 Budget budgeted earnings (refer Section 4.4.1 above);
actual YTD FY2010 performance in comparison to the SP FY2010 Budget; and
revenue multiple of comparable companies.

We have assessed the revenue multiple to be 1.0 times. Set out below is our assessment:

Table 44: Valuation Cross Check – Savcor Pacific

Ref.	Ref.	($000s)
Enterprise value (mid point) (minority interest basis) determined based on our primary valuation method (CFME) SP FY2010 Budget revenue Implied revenue multiple Revenue multiple of comparable companies (FY2010 forecast median, excluding outliers)	10.1 4.4.1 Appendix 6	33,750 34,030
		1.0x
		0.7x
Sources: Savcor management accounts; PKFCA analysis

Whilst the implied revenue multiple of 1.0 times is higher than the 0.7 times revenue multiple of comparable companies, we are of the opinion that this is reasonable given Savcor Pacific has some potential for high earnings growth.

Savcor Group Limited – Independent Expert Report

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11 VALUATION OF CONSIDERATION SHARES

11.1 Valuation Summary

In our opinion the value of the Consideration Shares is in the range of $20.79 million and $22.44 million, with a midpoint of $21.61 million, calculated as follows:

Table 45: Valuation Summary – Consideration Shares

Ref.	Ref.	Low Value High Value Mid Value	Low Value High Value Mid Value	Low Value High Value Mid Value
Euro Dollar Value of Consideration Shares to be issued AUD:Euro Exchange Rate @ 30 June 2010 AUD Value of Consideration Shares to be issued Less: Discount for lack of liquidity Add: Premium for significant influence Value of Consideration Shares (AUD) Valuation of Consideration Shares per share issued to Savcor (AUD) 1 month weighted average share price to 15 June 2010 (Euros) No. of shares to be issued to Savcor	11.2 11.3 11.4 11.5 11.6 11.6	16,000,000 0.67374	16,000,000 0.67374	16,000,000 0.67374
		23,748,033 (15.0%)	23,748,033 (10.0%)	23,748,033 (12.5%)
		20,185,828 3.0%	21,373,230 5.0%	20,779,529 4.0%
		20,791,403	22,441,892	21,610,710
		0.182	0.196	0.189
		0.14	0.14	0.14
		114,285,714	114,285,714	114,285,714

Source : PKFCA analysis

11.2 Euro Dollar Value of Consideration Shares to be issued

The value of the Consideration Shares is €16,000,000 as per the Share and Asset Sale Agreement.

11.3 AUD:Euro Exchange Rate

The AUD: Euro exchange rate as at 30 June 2010 was 1:0.67374 as per the currency converter on www.oanda.com.

11.4 Discount for lack of liquidity

We have applied a discount of 10% to 15% for the lack of liquidity in Cencorp shares.

Generally, the discount applied for lack of liquidity varies from 10% to 30%. We have selected a range of 10% to 15% based on our review of the liquidity of Cencorp shares as well as our review of the NASDAQ OMX Helsinki. In particular, we note the following:

the liquidity of Cencorp shares is not very high (refer Section 5.17 );
the ASX is larger than the NASDAQ OMX Helsinki (refer Section 6 );
the ASX has significantly higher total volume traded than the NASDAQ OMX Helsinki (refer Section 6 ); and
the ASX 200 IT Index has outperformed the OMX Technology Index during the period of our review (refer Section 6 ).

Based on the above, we believe that a discount of 10% to 15% for the lack of liquidity in Cencorp shares is reasonable.

11.5 Premium for significant influence

We have applied a premium of 3% to 5% for significant influence.

Savcor Group Limited – Independent Expert Report

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Based on Cencorp’s weighted average share price for the 1 month period to 15 June 2010 of €0.14 (refer Section 5.17 ), Savcor will have an interest of approximately 40.16% in Cencorp.

This would place Savcor in a position of significant influence. However, we note that Savcor may dispose of part of its interest in Cencorp following the implementation of the Proposed Transaction.

Generally, premiums for control range from 20% to 25%. A smaller premium would be applied for a position of significant influence.

Based on the above, we believe that a premium of 3% to 5% for a position significant influence having regard to the fact that Savcor intends to dispose of part of its interest is reasonable.

11.6 Shares to be issued to Savcor

Based on Cencorp’s Share Price (i.e. the weighted average share price for the 1 month period to 15 June 2010 of €0.14 (refer Section 5.17 )), Savcor will receive 114,285,714 Consideration Shares (€16,000,000/€0.14).

11.7 Valuation Cross Check

We have undertaken a cross check of our valuation of the Consideration Shares using the capitalisation of sales method. We set out our results below:

Table 46: Cross Check Valuation Summary – Consideration Shares

Ref.	Ref.	Low Value High Value Mid Value	Low Value High Value Mid Value	Low Value High Value Mid Value
Euro Dollar Value of FY2008 Sales Historical Sales Multiple Enterprise Value Less: Interest Bearing Liabilities Equity Value on a minority basis Premium for significant influence Equity Value AUD:Euro Exchange Rate @ 30 June 2010 AUD Equity Value No. of shares to be issued to Savcor Value per share	11.7.1 11.7.2 11.7.3 11.7.4 11.7.5 11.7.6	15,611,000 1.21	15,611,000 1.28	15,611,000 1.24
		18,820,486 (5,504,000)	19,913,256 (5,504,000)	19,366,871 (5,504,000)
		13,316,486 3.0%	14,409,256 5.0%	13,862,871 4.0%
		13,715,981 0.67374	15,129,719 0.67374	14,417,386 0.67374
		20,357,973 114,285,714	22,456,317 114,285,714	21,399,035 114,285,714
		0.178	0.196	0.187

Source: PKFCA analysis

We have assessed the AUD value of the Consideration Shares to be in the range of $0.178 and $0.196, with a midpoint of $0.187. This supports our valuation of the Consideration Shares assessed using our primary methodology.

11.7.1 Sales

FY2009 was a poor year in terms of performance for Cencorp, including in terms of sales. As illustrated in Section 5.19.1 , sales were down by more than half in FY2009 compared to FY2008, largely because of the GFC. There are indications that the market expects sales to return to levels generated by Cencorp in FY2006 and FY2007. Accordingly, we believe FY2008 sales of approximately €15,611,000 are a more realistic level of sales to adopt for the purposes of this cross check than FY2009 sales.

Savcor Group Limited – Independent Expert Report

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11.7.2 Sales Capitalisation multiple

In selecting this multiple range, we have considered:

earnings multiples derived from share market prices of broadly comparable listed companies; and
identified specific factors relevant to Cencorp.

Our analysis was performed based on data available as at 30 June 2010.

Share market trading multiples

In selecting appropriate comparable companies, we had regard to companies that operate within the same industry as Cencorp. We have selected a range of broadly comparable companies which provide automation and manufacturing services. Set out in Appendix 9 are descriptions of the operations of the identified companies. Stock market trading valuation parameters for the companies are set out in Appendix 10 . It is noted that the multiples in Appendix 10 are based on market trading in minority parcels of shares and represent values determined on a minority interest (and not a controlling or 100%) basis.

We note in relation to the selected companies that Rohwedder AG and Schuler AG are considered to be direct competitors of Cencorp. However, their multiples are considered to be outliers given how small these companies are in comparison to the other comparable companies considered and Cencorp in terms of market capitalisation.

Our assessment of comparable companies produced a range of earnings multiples (excluding outliers), with an historical average and median (FY2009) of approximately 1.4 times and 0.9 times, respectively and a forecast average and median (FY2010) of approximately 1.1 times and 0.9 times, respectively.

Whilst there are some key differences between Cencorp and the identified companies, the analysis provides an indicative range of sales multiples that may be regarded as being relevant for the purpose of valuing Cencorp.

Analysis of share market trading multiples

We have adjusted the observed trading multiples of the selected companies for the lack of liquidity of Cencorp shares. More liquid companies trade at higher earnings multiples because of the liquidity of their shares and the likelihood of greater interest in the shares from a wider base of investors (e.g. institutions or foreign investors). Based on our assessment of the liquidity of Cencorp shares (refer Section 5.17 ), we have applied a discount of 10% to 15% to the comparable companies’ multiples for the lack of liquidity in Cencorp shares.

Multiple applicable to Cencorp

Based on our analysis above, we have arrived at a sales multiple range applicable to Cencorp’s sales of 1.21 times to 1.28 times. In our opinion, this multiple reflects: • the multiples of companies broadly comparable to Cencorp;
necessary adjustments made to these multiples to take into account differences between Cencorp and the above comparable companies; and

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• the historical sales of Cencorp.

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11.7.3 Interest bearing liabilities

Based on Cencorp’s unaudited balance sheet as at 31 March 2010, Cencorp has interest bearing liabilities of €5,504,000.

11.7.4 Premium for significant influence

We have applied a premium of 3% to 5% for significant influence.

Based on Cencorp’s Share Price (refer Section 5.17 ), Savcor will have an interest of approximately 40.16% in Cencorp.

This would place Savcor in a position of significant influence. However, we note that Savcor may dispose of part of its interest in Cencorp following the implementation of the Proposed Transaction.

Generally, premiums for control range from 20% to 25%. A smaller premium would be applied for a position of significant influence.

Based on the above, we believe that a premium of 3% to 5% for a position significant influence having regard to the fact that Savcor intends to dispose of part of its interest is reasonable.

11.7.5 AUD:Euro Exchange Rate

The AUD: Euro exchange rate as at 30 June 2010 was 1:0.67374 as per the currency converter on www.oanda.com.

11.7.6 Shares to be issued to Savcor

Based on Cencorp’s weighted average share price for the 1 month period to 15 June 2010 of €0.14 (refer Section 5.17 ), Savcor will receive 114,285,714 Consideration Shares (€16,000,000/€0.14).

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12 VALUATION OF CONSIDERATION

12.1 Valuation Summary

In our opinion, the total value of the Consideration is in a range between $25.66 million and $27.32 million, with a midpoint of $26.48 million, as set out below:

Table 47: Valuation Conclusion – Consideration

AUD Ref.	AUD Ref.	Low Value High Value Mid Value	Low Value High Value Mid Value	Low Value High Value Mid Value
Value of Consideration Shares Value of Cash Payment Total Value of Consideration	12.2 12.3	20,791,403 4,873,289	22,441,892 4,873,289	21,610,710 4,873,289
		25,664,692	27,315,181	26,483,999

Source : PKFCA analysis

12.2 Consideration Shares

As set out above in Section 11.1 , the value of the Consideration Shares is in the range of $20,791,403 and $22,441,892 with a midpoint of $21,610,710.

12.3 Cash Payment

As set out above, the value of the Cash Payment is equivalent to the payment of AUD 11,000,000 less the outstanding completion debt converted at the RMB exchange rate on the business day immediately prior to Completion Date, where the outstanding completion debt is the amount to be advanced to the Savcor Pacific Group under a new bank facility of approximately RMB 35,000,000 with the Bank of China or another banking institution acceptable to Cencorp net of deposited cash held as security.

In preparing our Report, we have assumed that the New Banking Facility (entered into with the Bank of China or another banking institution) is not repaid prior to implementation of the Proposed Transaction.

Accordingly, the value of the Cash Payment is AUD 11,000,000 less the net of RMB 35,000,000 and any deposit cash held as security, which we are advised is $nil.

The AUD: CNY exchange rate as at 30 June 2010 was 1:5.71269 as per the currency converter on www.oanda.com. At this exchange rate, the value of the New Banking Facility RMB 35,000,000 is AUD 6,126,711.

Based on the above, the value of the Cash Payment is 4,873,289 as follows:

Table 48: Cash Payment

Description	Amount (AUD)
Cash Less: Outstanding Completion Debt (New Banking Facility) Cash Payment	11,000,000 (6,126,711)
	4,873,289

Source: PKFCA analysis

We note that in the event that the Savcor FACE business performs extremely well between the day of this report and completion, then the above position may potentially be mitigated.

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12.4 Valuation Conclusion

Based on the above, in our opinion, the total value of the Consideration is in the range of $25,664,692 and $27,315,181, with a midpoint of $26,483,999, as set out below:

Table 49: Valuation Conclusion – Consideration

AUD Ref.	AUD Ref.	Low Value High Value Mid Value	Low Value High Value Mid Value	Low Value High Value Mid Value
Value of Consideration Shares Value of Cash Payment Total Value of Consideration	12.2 12.3	20,791,403 4,873,289	22,441,892 4,873,289	21,610,710 4,873,289
		25,664,692	27,315,181	26,483,999

Source: PKFCA analysis

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13 SAVCOR ART AND SAVCOR CORPORATE COMBINED

13.1 Overview

As illustrated in Figure 1, the key remaining components within the Savcor business subsequent to the Proposed Transaction will be:

Savcor Corporate (the Savcor head office costs);
Savcor ART; and
Intune Circuits.

For the purposes of this section of the Report, we have included Savcor Corporate and excluded Intune Circuits when analysing historical and budget performance for the following reasons:

Savcor Corporate – Savcor Corporate will continue to be part of the remaining group subsequent to the Proposed Transaction and we understand that it includes employment costs of some ART division and Corporate management personnel. As such, inclusion of Savcor Corporate ensures that all overhead expenses of Savcor Corporate and Savcor ART subsequent to the Proposed Transaction are accounted for; and
Intune Circuits – although Intune Circuits is not divested as an entity, its major assets (patents) will be sold as part of the Proposed Transaction. In addition, Savcor management has indicated that the remaining one staff member within Intune Circuits will be transferred to Cencorp. As a result, subsequent to the Proposed Transaction, it is unlikely that Intune Circuits will have any material earnings impact on Savcor.

13.2 Savcor ART And Savcor Corporate Financial Performance

A comparison between FY2008, FY2009 financial performance and Budget FY2010 for the combined Savcor Art and Savcor Corporate division is outlined below. The original budget (“ Original Budget ”) was approved by the Savcor Board of Directors in December 2009, whilst the revised budget (“ Revised Budget ”) represents six months actual performance (January 2010 to June 2010 (both inclusive)) and six months of the Original Budget (July 2010 to December 2010).

The Revised Budget assumes approximately 13.7% sales growth in FY2010 (compared to FY2009) driven by volume increase due to the general economic recovery post GFC. Adjusted EBITDA margin of 7.4% (Revised Budget) is comparable to the 7.8% adjusted EBITDA margin achieved in FY2009.

However, we understand that the combined Savcor ART and Savcor Corporate divisions currently face significant challenges in achieving the Original Budget and Revised Budget (refer section 13.4 for details).

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Table 50: Savcor ART and Corporate Consolidated Financial Performance and Budget

Year Ended 31 December	FY2008 FY2009 FY2010 FY2010	FY2008 FY2009 FY2010 FY2010	FY2008 FY2009 FY2010 FY2010	FY2008 FY2009 FY2010 FY2010
Consolidated	Unaudited Unaudited Original Budget Revised Budget
	(AUD ‘000s) (AUD ‘000s) (AUD ‘000s) (AUD ‘000s)
Revenue COGS Gross profit Other income/(expenses) R&D expenses Sales and marketing expenses Administration expenses EBITDA (unadjusted) Depreciation and amortisation EBIT (unadjusted) Adjustments (Notes 1 and 2) Intercompany royalty receipts One-off impairment of Savcor's investment in Savcor Pacific Inter-company dividends Group contributions paid to Intune Circuits Oy EBITDA (adjusted) Revenue growth % Gross margin % EBITDA growth % (unadjusted) EBITDA margin % (unadjusted) EBITDA growth % (adjusted) EBITDA margin % (adjusted)	84,620 (55,654)	80,615 (56,769)	100,155 (71,223)	91,651 (66,877)
	28,966 (91,518) (1,612) (2,917) (12,226)	23,846 (51,215) (1,832) (3,664) (11,827)	28,932 527 (1,516) (3,912) (13,205)	24,774 1,143 (1,388) (3,826) (13,423)
	(79,307) (3,206)	(44,692) (3,109)	10,826 (3,034)	7,280 (3,056)
	(82,513) (746) 101,107 (8,000) 0	(47,801) (486) 50,134 (2) 1,324	7,792 (635) 0 0 0	4,224 (543) 0 0 0
	13,054 n/c 34.2% n/c (93.7)% n/c 15.4%	6,278 (4.7)% 29.6% (43.6)% (55.4)% (51.9)% 7.8%	10,191 24.2% 28.9% 124.2% 10.8% 62.3% 10.2%	6,737 13.7% 27.0% 116.3% 7.9% 7.3% 7.4%

Sources : Savcor unaudited management accounts; Original Budget; Revised Budget .

Notes:

n/c – not calculated

Adjustments above relate to revenue and expenses which are not recurring in the combined Savcor ART and Savcor Corporate division on a “go forward” basis as advised by Savcor management.
Non significant inter-company expenses have not been adjusted for in the above table.

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13.3 Savcor ART and Savcor Corporate 1HFY2010 Performance

Overview

Outlined below is a comparison between actual results and Original Budget for 1HFY2010 for the combined Savcor ART and Savcor Corporate division:

Table 51: Savcor ART and Corporate Consolidated 1HFY2010 Income Statement

1HFY2010	1HFY2010 Actual 1HFY2010 Original Budget Favourable/ (unfavourable) variance	1HFY2010 Actual 1HFY2010 Original Budget Favourable/ (unfavourable) variance	1HFY2010 Actual 1HFY2010 Original Budget Favourable/ (unfavourable) variance	1HFY2010 Actual 1HFY2010 Original Budget Favourable/ (unfavourable) variance
	(AUD ‘000s) (AUD ‘000s) (AUD ‘000s) %
Revenue COGS Gross profit Gross profit % Other income R&D expenses Sales and marketing expenses Administration expenses EBITDA Depreciation and amortisation EBIT	39,999 (30,188)	48,503 (34,534)	(8,504) 4,346	(17.5)%
	9,811 25% 879 (642) (1,865) (6,598)	13,969 29% 265 (771) (1,951) (6,380)	(4,158) 614 129 86 (218)	(29.8)%
	1,585 (1,547)	5,132 (1,527)	(3,546)	(69.1)%
	38	3,605	(3,568)	(99.0)%

Sources : Savcor unaudited management accounts for 1HFY2010; Original Budget

For the half year ending 30 June 2010, performance of the combined Savcor ART and Savcor Corporate division was lagging behind the Original Budget by approximately $8.5 million and $3.5 million at revenue and EBITDA levels, respectively.

Management has indicated that Savcor ART’s weak 1HFY2010 performance was primarily attributed to the loss from one project within the Industry and Resources business unit, coupled with restructuring costs of the Industry and Resources business unit.

Performance by Business Units

Savcor ART is comprised of 10 fully owned subsidiaries and one 50% owned joint venture company, which are grouped into 6 business units for internal management reporting purposes. Actual 1HFY2010 EBITDA achieved by each business unit as well as Savcor Corporate are illustrated below:

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Figure 11: Savcor ART and Savcor Corporate 1HFY2010 performance

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----- Start of picture text -----

1HFY2010 EBITDA
2,000
1,606 1,585
1,500
1,102
1,000
500 304
173 4
0
Infrastructure Products International Corrosion Japan Savcor Industry and Eliminations Consolidated
Marine, Engineering (33) Corporate Resources (Savcor ART
(500) Buildings, Services and
Water & Savcor
Wastew ater Corporate)
(567)
(1,000)
(1,003)
(1,500)
EBITDA $000
----- End of picture text -----

Source : Savcor unaudited management accounts for 1HFY2010

Notes:

Industry and Resources business unit comprises Savcor Finn Pty Limited, Savcor PLS Pty Limited and Pacific Lining Solutions Holdings Pty Limited.
Infrastructure, Marine, Buildings and Water & Wastewater business unit comprises part of Savcor ART Pty Limited and the joint venture.
Corrosion Engineering Services (“CES”) business unit comprises part of Savcor ART Pty Limited and Savcor ART New Zealand Limited.
Savcor Products business unit represents Savcor Products Pty Limited.
International business unit comprises Savcor India Pvt Limited, Savcor Tempo Oy and Savcor Corrosion Technology Company Limited.

For 1HFY2010, the Infrastructure Marine, Buildings, Water and Wastewater business unit was the largest EBITDA contributor (positive $1.6 million EBITDA) while the Industry and Resources business unit was the weakest performer (negative $1.0 million EBITDA).

13.4 Full Year FY2010 Budget

Original Budget by Business Units

The following chart illustrates the Original Budget projected performance for each business unit as well as the consolidated Savcor ART and Savcor Corporate division:

Figure 12: Savcor ART and Savcor Corporate Original Budget

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----- Start of picture text -----

Original Budget – EBITDA level
12,000 10,826
10,000
8,000
6,000 5,502
4,000 3,507
2,000 1,364 850 575 247
0
Industry and Infrastructure Corrosion Products International Japan Savcor Eliminations Consolidated
(2,000) Resources Buildings, Water & Marine, Engineering Services Corporate (1,189) (30) (Savcor ART Savcor and
Wastew ater Corporate)
Source : Original Budget
EBITDA $000
----- End of picture text -----

The Original Budget assumes that the Industry and Resources, the Infrastructure Marine, Buildings, Water and Wastewater and CES business units would contribute the majority of the

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consolidated EBITDA of Savcor ART and Savcor Corporate. Accordingly, this section of the Report will focus on these three business units.

Savcor Corporate is estimated to incur a loss of approximately $1.2 million.

Original Budget Assumptions

We understand that the Original Budget preparation for Savcor ART and Savcor Corporate involved several iterations between October 2009 and the Board of Directors approval in December 2009. The Original Budget presented above is based on a combination of assumptions utilised in the iterations. Savcor management has indicated that there are no final definitive assumptions. As such, only a broad picture of initial key assumptions adopted by Savcor management in the early stages of the budgeting process for key business units is outlined in the table below:

Table 52: Key Assumptions used in the initial budgeting process

Business unit	Key Assumptions	PKFCA Comments
Industry and Resources business unit	• The Original Budget assumes a revenue growth of approximately 8% (compared to FY2009E). • The Original Budget’s gross margin is lower compared to its previous long term history. Savcor management has attributed this to increased competition. Nevertheless, Original Budget gross margin is higher than the FY2009E gross margin.	• We note that the Industry and Resources business unit incurred an EBITDA loss in 1HFY2010 (refer Figure 11), which suggests actual performance varied significantly from the Original Budget’s assumptions.
Infrastructure Marine, Building, Water and Wastewater business unit	• Strategy adopted involved a big increase in revenue to obtain more experienced staff, grow the client base and utilise this increased base for future years. Savcor management anticipates that a high volume of tenders will be submitted at relatively small margins, while maintaining similar EBITDA levels in FY2010 compared to FY2009E. • The Original Budget assumes that revenue will grow by approximately 19% to 81% (varies with state/region) in FY2010 compared to FY2009E, with an overall total increase in sales of 41%. • Margin is assumed to decrease by approximately 15% in VIC and NSW, and decrease by approximately 40% in PNG. In contrast, margin is assumed to increase by approximately 6% in QLD. • Savcor management has indicated that revenue from PNG is largely dependent on its relationship with one client and the willingness of a very small group of expatriates being able and willing to continue working in PNG.	• Savcor management advised that the initial strategy outlined opposite was not executed as Savcor adapted its strategy to suit the business environment as it presented itself in FY2010. Executed strategy so far for 1HFY2010 was one of low volume and high margin, to preserve EBITDA, broadly consistent with that of FY2008. • There appears to be significant customer concentration risk, particularly in PNG. This risk is exacerbated by the fact that PNG is expected to contribute approximately 39% of total sales. However, Savcor management advised that Savcor has established a strong presence in PNG which ensures continued contribution from this region and in the process mitigates the above concentration risk. • Staffing/resourcing in PNG may be an issue in the future due to reliance on a small group of expatriates. However, Savcor management advised that Savcor currently has over 100 locally trained staff to minimise this risk. • Savcor management anticipates that the performance of this business unit will be broadly consistent with its Original Budget at EBITDA level (refer below).

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Business unit Key Assumptions PKFCA Comments	Business unit Key Assumptions PKFCA Comments	Business unit Key Assumptions PKFCA Comments
Corrosion Engineering Services (“CES”)	• The Original Budget assumes a revenue growth of approximately 7% (compared to FY2009E). • Gross margin is forecast to increase from 19.1% (FY2009E) to 21.5% (FY2010 Budget). Nevertheless it is still lower than the 23.6% gross margin achieved in FY2008.	• Management has indicated that it is unlikely that CES will achieve its Original Budget. • It is likely that this business unit will be restructured in the new fiscal year.

Sources : Savcor FY2010 Budget; Savcor management; PKFCA analysis

Note: FY2009E above indicates expected full year FY2009 results, estimated by Savcor management when the initial first draft of the Original Budget was prepared in October 2009. It is not reflective of the actual FY2009 results.

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Run Rate Analysis

In the following analysis, we have normalised non-recurring costs and one-off losses in the 1HFY2010 results and have annualised the normalised results on a straight-line basis to arrive at a pro forma run rate revenue and EBITDA (refer Table 53). This was then compared to the full year Revised Budget (refer Table 54). We note that this analysis ignores the lumpy nature of contract based revenue and any other potential differences between the half year performance and the resultant full year performance. We also note that the run rate may not serve as an indication of anticipated full year performance. Actual FY2010 results may differ significantly from the run rate results shown below.

Non-recurring costs and one-off losses which were normalised from the 1HFY2010 results are outlined below:

Table 53: Savcor ART and Savcor Corporate normalised 1HFY2010 results

1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate	1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate	1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate	1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate	1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate	1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate	1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate	1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate	1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate	1HFY2010 Actual Adjustments (AUD ‘000s) 1HFY2010 Adjusted FY2010 Annualised Run Rate
(AUD ‘000s) Costs associated with the Proposed Transaction Restructuring of Industry and Resources business unit Reverse one-off project loss Add back earnings for the one-off project on a comparable basis Gain on sale of unused equipment Inter- company royalty revenue (AUD ‘000s) (AUD ‘000s)
Revenue EBITDA	39,999 1,585	0 493	0 785	(654) 1,012	1,718 344	0 (430)	(175) (175)	40,888 3,614	81,776 7,228

Sources : Savcor unaudited management accounts for 1HFY2010; Savcor management ; PKFCA analysis Note: Adjustments above are as advised by Savcor management.

We note the following in relation to the above adjustments:

Cost associated with the Proposed Transaction – this adjustment relates to costs associated with the Proposed Transaction which comprises internal management time and costs (56.0%), legal fees (20.5%), advisors fees (17.4%) and travel expenses (6.1%). Savcor management has adjusted internal management time and costs related to this Proposed Transaction as in the absence of this Proposed Transaction, management would have had the opportunity to focus on other growth initiatives;
Restructuring of Industry and Resources business unit – the Industry and Resources business unit underwent a restructuring process in 1HFY2010 - refer to the Industry and Resources Business Unit section below for details. This adjustment includes internal management time and costs (53.1%), retrenchment costs (31.0%), consultant fees (7.0%), travel expenses (7.2%) and recruitment costs (1.7%);
Reverse one-off project loss – the adjustment above reflects the reversal of accounting revenue and negative EBITDA recognised/incurred in the 1HFY2010 results in relation to one specific project within the Industry and Resources business unit. Savcor management indicated that this is a one-off project loss which occurred under unusual circumstances and it is unlikely that those circumstances would prevail under ‘business as usual’ conditions;

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Add back earnings for the one-off project on a comparable basis – for the above one-off project, Savcor management estimates that the project should have generated approximately $1.7 million revenue with a 20% EBITDA margin ($0.3 million EBITDA) under ‘business as usual’ conditions in 1HFY2010. Savcor management has indicated that these estimates are based on a recent comparable project undertaken by Savcor;
Gain on sale of unused equipment – Savcor ART achieved a one-off gain on sale of unused equipment in 1HFY2010. This gain was recognised in Other Income, as such only the EBITDA line has been adjusted in the table above; and
Inter-company royalty revenue – inter-company royalty revenue from Savcor Pacific to Savcor Corporate is non-recurring subsequent to the Proposed Transaction.

A comparison between the current run rate and the Original Budget and the Revised Budget for the combined Savcor ART and Savcor Corporate division is outlined below:

Table 54: Savcor ART and Savcor Corporate - Run Rate Analysis

For the year ended Run Rate Original Budget Revised Budget	For the year ended Run Rate Original Budget Revised Budget	For the year ended Run Rate Original Budget Revised Budget	For the year ended Run Rate Original Budget Revised Budget	For the year ended Run Rate Original Budget Revised Budget	For the year ended Run Rate Original Budget Revised Budget	For the year ended Run Rate Original Budget Revised Budget	For the year ended Run Rate Original Budget Revised Budget
31 December 2010 (AUD ‘000s) Original Budget1,3 Favourable/ (unfavourable) variance Revised Budget2,3 Favourable/ (unfavourable) variance
(AUD ‘000s) (AUD ‘000s) % (AUD ‘000s) (AUD ‘000s) %
Revenue EBITDA	81,776 7,228	99,520 10,191	(17,744) (2,963)	(17.8)% (29.1)%	91,108 6,737	(9,332) 491	(10.2)% 7.3%

Sources : Savcor unaudited management accounts for 1HFY2010; Original Budget and Revised Budget; PKFCA analysis

Notes : 1. The Original Budget’s revenue of $99.5 million above is comprised of $100.2 million less $0.6 million inter-company royalty receipts, refer Table 50.

The Revised Budget’s revenue of $91.1 million above is comprised $91.7 million less $0.5 million inter-company royalty receipts as identified in Table 50.
The Original Budget and Revised Budget’s EBITDA have been adjusted for inter company royalty receipts, refer Table 50.

We note the following in relation to performance between the run rate and the Original Budget:

the run rate is significantly lower compared to the Original Budget at both revenue and EBITDA levels, suggesting that it is unlikely that Savcor ART and Corporate combined will achieve the Original Budget, despite adjustments for non-recurring and one-off events as identified in Table 53 above.

We note the following in relation to performance between the run rate and the Revised Budget:

the revenue run rate is approximately 10.2% lower than the Revised Budget while the EBITDA run rate is 7.3% higher than the Revised Budget;
the above suggests that it is unlikely that Savcor ART and Corporate combined will achieved the Revised Budget at a revenue level, despite adjustments for non-recurring and one-off events; and
the non-recurring and one-off normalisation adjustments have improved the run rate’s EBITDA margin.

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Interest Cover Ratio Analysis

Set out below is an analysis of Savcor ART and Savcor Corporate’s interest cover ratio analysis. We note that the analysis shown is for illustrative purposes only and the future finance cost and debt levels may differ to those shown below due to refinancing, debt repayments, changes in interest rates, changes in the business, etc. As such, the future interest cover ratio may differ to that shown below.

Table 55: Savcor ART and Savcor Corporate – Interest Cover Ratio Analysis

Item Assumption / Calculation Source	Item Assumption / Calculation Source	Item Assumption / Calculation Source	AUD ‘000s
Finance cost
Loan balance Finance cost	Loan balance as indicated in the 31 December 2009 Pro forma Balance Sheet. (an approximation of Savcor ART and Savcor Corporate’s initial loan balance subsequent to the Proposed Transaction.) Less the sale of Cencorp shares. (Savcor management intends to realise approximately $10.0 million cash from the sale of a portion of the Cencorp shares (Consideration) which will be received subsequent to the Proposed Transaction. Savcor management has indicated that any proceeds will be applied against the loan balance.) Adjusted loan balance. (We note that this is an approximation only and actual debt balance may differ significantly.) Finance cost comprises line fees, interest charge, restructuring fees and capitalised borrowing costs. The finance cost has been calculated for a 12 month period, based on the above adjusted loan balance of $17.1 million.	Table 59 Savcor management ANZ term sheets, Savcor management, Bloomberg	27,080 (10,000)
			17,080
			1,833
Pro forma run rate EBITDA
EBITDA	Based on pro forma annualised June 2010 run rate analysis.	Table 53	7,228
Interest cover ratio
Interest cover ratio	EBITDA / finance cost (times)		3.9
Leverage ratio
Leverage ratio	Adjusted loan balance / EBITDA (times)		2.4

Sources : Savcor management discussions; Current Banking Facilities term sheets; Bloomberg; PKFCA analysis

We note that Savcor ART and Savcor Corporate may have an EBITDA to interest expense cover ratio of approximately 3.9 times and a leverage ratio of approximately 2.4 times.

Industry and Resources Business Unit

The Original Budget assumes a $5.5 million EBITDA contribution from this business unit. However, the Industry and Resources business unit incurred a negative $1.0 million EBITDA (i.e. loss) in its 1HFY2010 results.

Savcor management has indicated that the Industry and Resources business unit will fall short of the full year Original Budget due to a weak first half year. Nevertheless, Savcor management anticipates that performance will turn around in the second half of the year and return to business as usual from July 2010 onwards.

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The Industry and Resources business unit recently established a completely new management team. As a result, there may be some uncertainties in the short term until operations of the business stabilise.

Infrastructure Marine, Buildings, Water and Wastewater Business Unit

The Original Budget assumes that this business unit is forecast to contribute $3.5 million EBITDA in FY2010, of which it has contributed $1.6 million in 1HFY2010. Based on the current performance, Savcor management has indicated that the performance of this business unit will be broadly consistent with its Original Budget.

The Infrastructure Marine, Buildings, Water and Wastewater business unit’s ability to sustain its performance in the remaining FY2010 period is highly dependent on its ability to win significant contracts at a reasonable margin. The Infrastructure Marine, Buildings, Water and Wastewater business unit currently has the following pipeline projects:

Table 56: Pipeline Projects

Projects	Approximate Contract Value (AUD ‘000s)
Major tenders submitted and pending Current opportunities	42,480 25,100
Total	67,580

Source : Infrastructure Marine, Buildings, Water and Wastewater May 2010 management report

Corrosion Engineering Services Business Unit

Within the May 2010 management report, Savcor management indicated that CES may not have sufficient pipeline orders or prospects to achieve the Original Budget. Management has indicated that whilst CES projects are profitable at present and job margin is typically maintained at 24%, there has been a lull in the industry, most likely due to the GFC which resulted in the postponement of a large number of projects.

Savcor management has indicated that CES will probably be restructured in the new 2011 fiscal year, whereby all technical divisions across all business units will be regrouped under one umbrella to achieve enhanced technological focus and approach within the Savcor ART business. This will be facilitated via an internal reorganisation of staff.

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14 FINANCIAL IMPLICATIONS OF THE PROPOSED TRANSACTION FOR SAVCOR

14.1 Introduction

This section contains the following pro forma financial statements of Savcor:

Unaudited Pro forma Balance Sheet of Savcor as at 31 December 2009 (refer Section 14.3 ), illustrating the effect of implementing the Proposed Transaction on Savcor’s consolidated financial position based on the assumption that the Completion Date was 31 December 2009; and
Unaudited Pro forma Income Statement of Savcor for the year ended 31 December 2009 (refer Section 14.5 ), illustrating the effect of implementing the Proposed Transaction on Savcor’s financial performance based on the assumption that the Completion Date was 1 January 2009.

The pro forma financial statements are not intended to reflect the financial position or performance that would have actually resulted had the Proposed Transaction been completed on the indicated dates, or the results that may be obtained in the future. If the Proposed Transaction had occurred in the past, the actual financial position and financial performance would likely have been different to the pro forma financial statements presented below.

Savcor’s pro forma financial statements have been prepared for illustrative purposes only, to show the impact of the following categories of pro forma adjustments:

divestment of Savcor Pacific based on Savcor Pacific’s unaudited income statement and balance sheet, which represent the Sale Shares;
divestment of the Ancillary Assets by Savcor;
transfer of the FACE Receivable by Savcor;
Consideration received from Cencorp;
the impact of Savcor’s resultant ownership interest of 40.16% in Cencorp as a result of implementing the Proposed Transaction, as discussed above. We note that the 40.16% interest is an approximation only and will be dependent on the number of additional shares issued by Cencorp; and
other adjustments to reflect inter-company transactions and debt settlement.

We note the following in relation to the pro forma financial statements:

the pro forma financial statements may have rounding differences; and
adjustments shown are subject to foreign currency translation fluctuations and final values may differ.

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14.2 Savcor Pacific Limited – Balance Sheet

The following table identifies Savcor Pacific assets, Intune Circuits Ancillary Assets, Savcor Ancillary Assets and the FACE Receivable which will be transferred to Cencorp as part of the implementation of the Proposed Transaction.

Table 57: Balance Sheet assets to be transferred to Cencorp

As at 31 December 2009 (A$000s unless otherwise indicated)	Savcor Pacific Limited Intune Circuits Machinery Intune Circuits Ancillary Assets	Savcor Pacific Limited Intune Circuits Machinery Intune Circuits Ancillary Assets	Savcor Pacific Limited Intune Circuits Machinery Intune Circuits Ancillary Assets	Savcor Ancillary Assets	Total Assets Sold to Cencorp
Assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivables Property, plant and equipment Intangible assets and goodwill Deferred tax asset Total assets Liabilities Trade and other payables Interest bearing liabilities (Note 1) Total liabilities Net assets	3,168 8,684 5,021 86 27,388 1,947 394	- - - - (1,595) - -	- - - - - 141 -	- - - - - 1,868 -	3,168 8,684 5,021 86 25,793 3,956 394
	46,688 6,819 20,201	(1,595) - -	141 - -	1,868 - -	47,102 6,819 20,201
	27,020	-	-	-	27,020
	19,668	(1,595)	141	1,868	20,082

Sources : Savcor management accounts; management pro forma adjustments; management discussions Note:

1. Refer Table 58

We note the following in relation to the table above:

Savcor Pacific – this represents the carrying value of assets and liabilities of Savcor Pacific as at 31 December 2009. The assets and liabilities of Savcor Pacific will be deconsolidated from Savcor subsequent to the Proposed Transaction;
Intune Circuits Machinery – in 2008, Intune Circuits’ acquired assets were recognised on Savcor Pacific’s balance sheet based on the fair value ascribed by an external accountant’s valuation undertaken by BDO. However, as a result of group adjustments the total of the carrying values of the assets recognised on Savcor’s balance sheet was $2.0 million lower than the total of the carrying values of the assets that were recognised on Savcor Pacific’s balance sheet. The difference of $2.0 million has since been depreciated to $1.6 million as at 31 December 2009.

The $1.6 million adjustment shown above reduces the carrying value of total PPE from $27.4 million (carrying value on Savcor Pacific’s balance sheet) to $25.8 million, which is consistent with the carrying value recognised on Savcor’s balance sheet;

Intune Circuits Ancillary Assets – the adjustment of $141,000 represents the carrying value of Intune Circuits’ patents which will be transferred to Cencorp;
Savcor Ancillary Assets – the adjustment of $1.9 million represents the carrying value of Savcor’s patents and other IPR which will be transferred to Cencorp; and
Interest Bearing Liabilities (includes FACE Receivable) – as at 31 December 2009, Savcor Pacific’s debt balance of $20.2 million comprised a $0.2 million inter-company loan from Savcor and a $20.0 million external Current Banking Facilities.

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As part of the Proposed Transaction, Savcor is required to settle the Current Banking Facilities. The full $20.2 million interest bearing loan balance has not been adjusted for in Table 57 above due to the following:

it is envisaged that the Current Banking Facilities settlement will be facilitated via an inter company loan and/or capital injection from Savcor. The inter company loan will subsequently be transferred to Cencorp as the FACE Receivable; and
Outstanding Completion Debt or New Banking Facility (as defined in the Share and Asset Sale Agreement) has been adjusted for in Table 59 .

Table 58 below illustrates the impact of the above on Savcor Pacific’s interest bearing liabilities balance:

Table 58: Savcor Pacific – Interest Bearing Liabilities following Proposed Transaction

		Adjustments	Adjustments
(A$000s unless otherwise indicated)	As at 31 Dec 2009	Outstanding Completion Debt (to be Funded by an Alternative Funder)	Settlement of the ANZ facility (less Outstanding Completion Debt)	Pro forma	Notes
FACE Receivable External Current Banking Facilities External debt Interest bearing liabilities	194 20,007 0	0 (6,127) 6,127	13,880 (13,880) 0	14,074 0 6,127	1 2
	20,201	0	0	20,201

Sources : Savcor management accounts; management pro forma adjustments; management discussions

Notes:

1. The above assumes that the residual Current Banking Facilities will be fully settled via an inter-company loan. However, note that a portion or all of the residual Current Banking Facilities could be settled via capital injection. In June 2010, Savcor undertook a capital injection of approximately $5.9 million. As a result, the inter-company loan value will decrease by the corresponding capital injection value. As such, the FACE Receivable value transferred to Cencorp may differ from that shown above.

2. This alternative funding source is yet to be obtained. Nevertheless, Savcor management has indicated that the Bank of China may be a likely source.

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14.3 Savcor Group Limited - Pro forma Balance Sheet

Table 59: Savcor - Unaudited Pro forma Balance Sheet

			Pro forma Adjustments	Pro forma Adjustments	Pro forma Adjustments	Pro forma Adjustments
As at 31 December 2009 (A$000s unless otherwise indicated)	Savcor Group Limited (Note 1,2) Divestment of Savcor Pacific		Inter Company	Consideration	Settlement of the	Application of Surplus Cash from the Sale of Savcor Pacific Against Debt	Savcor Group Pro forma Balance Sheet
			Receivables	Received	Outstanding
			and Payables		Completion Debt (New Banking Facility)
Assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivables Investments (Note 4) Property, plant and equipment Intangible assets and goodwill Deferred tax asset (Note 3) Total assets Liabilities Trade and other payables Interest bearing liabilities Provisions Deferred tax liabilities (Note 3) Total liabilities Net assets Net assets per share (cents) (Note 5)	4,663 28,756 7,374 450 280 32,350 12,930 4,117	(3,168) (8,684) (5,021) (86) - (25,793) (3,956) (394)	- 215 - - - - - -	11,000 - - - 23,748 - - -	(6,127) - - - - - - -	(4,873) - - - - - - -	1,495 20,287 2,353 364 24,028 6,557 8,974 3,723
	90,920 15,895 38,080 2,237 1,446	(47,102) (6,819) - - -	215 1,826 - - -	34,748 - - - -	(6,127) - (6,127) - -	(4,873) - (4,873) - -	67,781 10,902 27,080 2,237 1,446
	57,658	(6,819)	1,829	-	(6,127)	(4,873)	41,665
	33,262	(40,283)	(1,611)	34,748	-	-	26,117
	23.8						18.7

Sources : Savcor 2009 Annual Report; management accounts; management pro forma adjustments; management discussions.

Notes:

1. As reported in Savcor 2009 Annual Report.

2. Intune Circuits is a wholly-owned subsidiary of Savcor and therefore is included in the consolidated Savcor figures.

3. Deferred tax impact of the pro forma adjustments and equity accounted pro forma loss from the combined Cencorp and Savcor Pacific entity have not been adjusted for in the above Pro forma Balance Sheet. However, it is a relevant consideration as a potential impact on Savcor’s Balance Sheet.

4. Value of Consideration received is based on Cencorp Share Price.

5. The net assets per share calculation is based on 139,484,000 weighted average number of ordinary shares.

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We note the following with respect to the above pro forma adjustments:

Divestment of Savcor Pacific – this pro forma adjustment represents the transfer of the Sale Shares, Intune Circuits Ancillary Assets, Savcor Ancillary Assets and FACE Receivable to Cencorp in accordance with Table 57 . Had the transaction occurred on 31 December 2009, these assets and liabilities which form part of the Proposed Transaction would no longer be recognised on Savcor’s balance sheet. Savcor Pacific’s interest bearing liabilities have been excluded from the pro forma above as the Share and Asset Sale Agreement requires Savcor to settle the Current Banking Facilities (Current Banking Facilities);
Inter Company Receivables and Payables – these inter-company balances have been adjusted for in the Divestment of Savcor Pacific column, but not accounted for in Savcor’s consolidated balance sheet due to the inter-company nature;
Consideration Received – in accordance with the Share and Asset Sale Agreement, Savcor will receive Consideration from Cencorp as set out in the above. The above Pro forma Balance Sheet assumes the following Consideration:
ordinary shares of Cencorp having an aggregate issue price of €16.0 million (approximately $23.7 million). The adopted value is based on the assumed Cencorp Share Price; and
$11.0 million cash less Outstanding Completion Debt.
Settlement of Outstanding Completion Debt (New Banking Facility) – as defined in the Share and Asset Sale Agreement, the Consideration paid by Cencorp will be less Outstanding Completion Debt, which is estimated to be approximately RMB35.0 million (approximately $6.1 million); and
Application of Surplus Cash from the Sale of Savcor Pacific Against Debt – Savcor management has indicated that any cash consideration received from Cencorp will be applied against interest bearing liabilities. Accordingly, there will be approximately $4.9 million ($11.0 million less $6.1 million as indicated above) of surplus cash.

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14.4 Savcor Pacific Limited - Income Statement

The following table illustrates the income statement impact of Savcor Pacific, Intune Circuits Ancillary Assets, Savcor Ancillary Assets and FACE Receivable which will be transferred to Cencorp as part of the Proposed Transaction.

Table 60: Income Statement – Sale to Cencorp

For the year ended 31 December 2009 (A$000s unless otherwise indicated)	Savcor Pacific Limited (Note 1) Intune Circuits Machinery Intune Circuits Ancillary Assets Savcor Ancillary Assets	Savcor Pacific Limited (Note 1) Intune Circuits Machinery Intune Circuits Ancillary Assets Savcor Ancillary Assets	Savcor Pacific Limited (Note 1) Intune Circuits Machinery Intune Circuits Ancillary Assets Savcor Ancillary Assets	Savcor Pacific Limited (Note 1) Intune Circuits Machinery Intune Circuits Ancillary Assets Savcor Ancillary Assets	Total
Revenue Cost of sales Gross profit Other income R&D expenses Sales and marketing expenses Administrative expenses Finance costs Other expenses Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) after income tax	32,316 (28,286)	- 286	- (25)	- (606)	32,316 (28,631)
	4,030 3,266 (529) (1,109) (2,452) (1,500) (2,633)	286 - - - - - -	(25) - - - - - -	(606) - - - - - -	3,685 3,266 (529) (1,109) (2,452) (1,500) (2,633)
	(927) 189	286 -	(25) 7	(606) 122	(1,272) 318
	(738)	286	(18)	(484)	(954)

Sources : Management accounts; management pro forma adjustments; management discussions. Note:

1. Savcor Pacific’s revenue of $32.3 million and loss after tax of $0.7 million agree to Table 14 . Note that individual line items between revenue and profit after income tax do not agree with Table 14 due to classification differences.

In relation to the table above, we note the following:

Savcor Pacific – this represents the income statement of Savcor Pacific for the year ended 31 December 2009. The income statement results of Savcor Pacific would not have impacted Savcor had the transaction occurred on 1 January 2009;
Intune Circuits Machinery – the above $286,000 adjustment relates to the additional depreciation incurred in Savcor Pacific’s income statement as a result of the higher asset carrying value in Savcor Pacific compared to Savcor. We understand that this additional depreciation does not attract any tax benefit;
Intune Circuits Ancillary Assets – the adjustment of $25,000 represents the amortisation of Intune Circuits’ patents which will be transferred to Cencorp. The amortisation expense has a corresponding income tax impact of $7,000 based on a 26% tax rate in Finland; and
Savcor Ancillary Assets – the adjustment of $606,000 represents the amortisation of Savcor’s patents ($408,000) and other IPRs ($198,000) which will be transferred to Cencorp. The amortisation expense for patents has a corresponding 30% Australian income tax impact of $122,000. IPRs are not tax deductible.

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14.5 Savcor Group Limited - Pro forma Income Statement

Table 61: Savcor - Unaudited Pro forma Income Statement

	Adjustments	Adjustments	Adjustments	Adjustments	Adjustments	Adjustments	Adjustments
For the year ended 31 December 2009 (A$000s unless otherwise indicated)	Savcor Group Limited (Note 1) Divestment of Savcor Pacific Inter Company Royalties Inter Company Interest (FACE Receivable) Options Revaluation for Savcor Pacific’s Employee Impact of Debt Settlement Savcor Share of Cencorp & Savcor Pacific combined							Pro forma Income Statement
Revenue Cost of sales Gross profit Other income R&D expenses Sales and marketing expenses Administrative expenses Impairment losses Finance costs Other expenses Share of profit/(loss) in associates Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) after income tax Basic earnings per share (cents)(Note 2)	111,943 (85,519)	(32,316) 28,631	- -	- -	- -	- -	- -	79,627 (56,888)
	26,424 3,213 (2,825) (4,611) (14,931) (792) (3,131) (3,227) -	(3,685) (3,266) 529 1,109 2,452 - 1,500 2,633 -	- - (486) - - - - - -	- - - - - - (9) - -	- - - - (9) - - - -	- - - - - - (1,341) - -	- - - - - (3,478)	22,739 (53) (2,781) (3,502) (12,488) (792) (2,981) (595) (3,478)
	120 (371)	1,272 (318)	(486) 146	(9) 3	(9) -	(1,341) 402	(3,478) -	(3,932) (138)
	(251) (0.18)	954	(340)	(6)	(9)	(939)	(3,478)	(4,070) (2.92)

Sources : Savcor Group Limited 2009 annual report; management accounts; management pro forma adjustments; management discussions. Notes:

1. As reported in Savcor Group Limited 2009 annual report.

2. The EPS calculation is based on 139,484,000 weighted average number of ordinary shares.

3. The above excludes any Savcor Pacific related transaction costs (e.g. advisor’s fees), gain/(loss) as a result of the Proposed Transaction and the impact (if any) of tax deductibility of interest expense due to thin capitalisation rules as a result of the Proposed Transaction.

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We note the following with respect to the above pro forma adjustments:

Divestment of Savcor Pacific – this pro forma adjustment represents the income statement impact of the transfer of the Sale Shares, Intune Circuits Ancillary Assets, Savcor Ancillary Assets and FACE Receivable to Cencorp in accordance with Table 60 . Had the transaction occurred on 1 January 2009, these assets which form part of the Proposed Transaction would not have had an income statement impact on Savcor;
Inter Company Royalties – $486,000 in R&D expenses relate to inter-company royalties paid by Savcor Pacific to Savcor which has been included as an expense in the Divestment of Savcor Pacific column but not accounted for in Savcor’s income statement due to its inter-company nature. This R&D expense has a corresponding tax impact of $146,000;
Inter Company Interest (FACE Receivable) – in FY2009, Savcor Pacific incurred $9,000 in interest expense in relation to the inter-company loan between Savcor Pacific and Savcor which have been included in the Divestment of Savcor Pacific column but not accounted for in Savcor’s consolidated income statement due to its inter-company nature. This inter-company interest expense has a corresponding tax impact of $3,000;
Options Revaluation for Savcor Pacific’s employee – an employee of Savcor Pacific has options in Savcor, which are revalued on each reporting date in accordance with Australian Accounting Standards. The $9,000 adjustment above relates to a revaluation gain recognised in Savcor’s income statement. Revaluation gains on options are not taxable;
Impact of Debt Settlement – the $1.3 million finance cost adjustment assumes the following:
the $9.0 million increase in interest bearing liabilities (Savcor Pacific’s Current Banking Facilities of $20.0 million less $11.0 million consideration received) is assumed to incur an interest expense of 11.0% p.a.;
the existing debt of $17.9 million (which represents Savcor’s corporate debt plus Savcor ART’s debt) is assumed to incur an additional 2.0% p.a. interest due to a higher leverage ratio; and
the pro forma adjustment of $1.3 million finance cost has a corresponding tax impact of $0.4 million.

Savcor’s overall finance cost is assumed to decrease from $3.1 million to $3.0 million driven primarily by cash consideration received from Cencorp which was partially offset by higher funding costs in Australia compared to China. Hence the modest decline in the pro forma finance cost;

Savcor Share of Cencorp and Savcor Pacific Combined – the $3.5 million pro forma adjustment for loss in associates relates to Savcor’s portion of loss incurred by the combined Cencorp and Savcor Pacific entity. The value of this pro forma adjustment is based on a pro forma prepared by Cencorp; and
Basic EPS – Basic EPS deteriorated from a loss of 0.18 cents per share to a pro forma loss of 2.92 cents per share predominantly due to the loss generated by Savcor’s investment in the combined Cencorp and Savcor Pacific entity. If this factor was excluded, the EPS would have declined to a loss of 0.42 cents per share. The decline from a loss of 0.18 cents per share to a loss of 0.42 cents per share was primarily driven by the loss of royalty revenue for Savcor (the Parent) in relation to Savcor Ancillary Assets.

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15 FINANCIAL IMPLICATIONS OF THE PROPOSED TRANSACTION FOR CENCORP

15.1 Introduction

We summarise below the Pro forma financial information that Cencorp proposes to issue with its stock exchange release in relation to the acquisition of Savcor FACE and Cencorp’s Proposed Capital Raising (“ Cencorp Draft Stock Exchange Release ”). We note that the stock exchange release and the Pro forma financial information are in draft form and subject to change.

PKFCA has not been involved in the preparation of this Pro forma financial information and has not analysed it in detail. However PKFCA have had regard to this Pro forma financial information in forming its opinion as set out in the Report.

15.2 Accounting Policies For The Unaudited Pro Forma Financial Information

Extract from Cencorp Draft Stock Exchange Release:

The following unaudited pro forma consolidated income statement and consolidated balance sheet of the new Cencorp are presented to illustrate the pro forma result of the Cencorp group, had the above described acquisition taken place on 1 January 2009, and what the pro forma balance sheet of the Cencorp group would be, had the above described acquisition taken place on 31 December 2009. Consequently, the pro forma information presumes that the following transactions took place earlier than they actually have:

The acquisition between the company and Savcor Group Limited has been completed, whereby Cencorp Corporation has acquired the shares of Savcor Pacific Limited, an internal loan granted by Savcor Group Limited to the target business, and certain immaterial assets.
The company has carried out an issue of new shares in order to finance the cash part of the consideration.
The company has carried out a directed share issue to Savcor Group Limited, where Savcor Group Limited has subscribed to a number of shares corresponding to EUR 16 million.

The information is presented only to illustrate the effects of the acquisition and is not intended to present what the result and financial position of the new Cencorp group would actually be, had the acquisition been carried out on the date mentioned above. The information does not present what the result and financial position of the new Cencorp group will be in the future. The pro forma consolidated income statement and balance sheet do not take into account possible synergies.

The unaudited pro forma information is based on Cencorp’s audited financial report for the financial year ended 31 December 2009, published on 31 March 2010, and the diverged and unaudited financial report of Savcor Face (Telecom) for the financial year ended 31 December 2009.

Unaudited pro forma consolidated income statement and balance sheet for Cencorp

Due to their nature, the below pro forma consolidated income statement and balance sheet only describe a hypothetical situation, and do not provide a view of the actual financial situation or result of the new Cencorp group formed upon completion of the acquisition. Had the above described acquisition been completed on 1 January 2009, Cencorp could have achieved a different financial situation and result during the pro forma period. These kind of hypothetical assumptions have not been incorporated in the pro forma information.

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15.3 Cencorp Pro Forma Consolidated Income Statement

Extract from Cencorp Draft Stock Exchange Release:

Table 62: Cencorp – Consolidated Pro Forma Income Statement as at 31 December 2009

(EUR ’000s)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Inter- company eliminations Pro forma adjustments arrangement Pro forma Cencorp Group	Cencorp Group (audited) Diverged Savcor Face (unaudited) Inter- company eliminations Pro forma adjustments arrangement Pro forma Cencorp Group	Cencorp Group (audited) Diverged Savcor Face (unaudited) Inter- company eliminations Pro forma adjustments arrangement Pro forma Cencorp Group	Cencorp Group (audited) Diverged Savcor Face (unaudited) Inter- company eliminations Pro forma adjustments arrangement Pro forma Cencorp Group	Cencorp Group (audited) Diverged Savcor Face (unaudited) Inter- company eliminations Pro forma adjustments arrangement Pro forma Cencorp Group
Sales revenue Cost of sales Gross profit Other operating income R&D expenses Sales and marketing expenses Administration expenses Other operating expenses Operating Income Finance income Finance expences Profit/loss before taxes Income tax Change in deferred taxes Profit/loss for the year Translation differences Comprehensive profit/loss for the year	6,107 (6,417)	18,385 (16,070)	(233) 233		24,259 (22,254)
	(310) 844 (680) (2,115) (1,970) (555)	2,315 142 (25) (631) (1,523) (17)	0 (60)		2,005 926 (705) (2,746) (3,493) (572)
	(4,786) 20 (326)	261 1,071 (1,986)	(2)	638	(4,585) 1,091 (1,676)
	(5,092) 0 33	(654) (70) 301	(62)	638	(5,170) (70) 334
	(5,059) 41	(423) 211	(62)	638	(4,906) 252
	(5,018)	(212)	(62)	638	(4,654)

Source : Cencorp Directors

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15.4 Cencorp Pro Forma Consolidated Balance Sheet

Extract from Cencorp Draft Stock Exchange Release:

Table 63: Cencorp – Consolidated Pro Forma Income Statement as at 31 December 2009

(EUR ’000s)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)
ASSETS Non current assets Tangible assets Goodwill Other intangible assets Investments Investments available for sale Total non current assets Current assets Inventory Trade receivables Other current receivables Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Issued capital Other reserves Translation difference Retained earnings Total shareholders’ equity Non current liabilities Deferred tax liabilities Total non current liabilities	734 2,966 988 10	16,283 2,530			9,778	(9,778)	17,017 2,966 3,518 0 10
	4,698 2,559 1,629 1,353 107	18,813 3,126 5,078 1,091 1,972	(62)	3,250	9,778 9,522 (3,300)	(9,778) (9,522)	23,511 5,685 6,645 2,444 2,029
	5,648	11,267	(62)	3,250	6,222	(9,522)	16,803
	10,346	30,080	(62)	3,250	16,000	(19,300)	40,314
	3,425 18,432 110 (19,266)	12,305 2,423 (1,469)		3,250	16,000	(12,305) 2,527	3,423 40,209 2,533 (20,795)
	2,701	13,259	(60)	3,250	16,000	(9,778)	25,372
	2,949 110						2,949 110
	3,059						3,059

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(EUR ’000s)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)	Cencorp Group (audited) Diverged Savcor Face (unaudited) Intercompany eliminations 1) Pro forma adjustments share offer 2) Pro forma adjustments arrangement 3) Intercompany eliminations 4) Pro forma Cencorp 5)
Current liabilities Trade and other payables Interest bearing loans and liabilities Reserves Current liabilities Total liabilities Total equity and liabilities	2,470 2,077 39	4,245 12,576	(2)			(9,522)	6,713 5,131 39
	4,586	16,821	(2)			(9,522)	11,883
	7,645	16,821	(2)			(9,522)	14,942
	10,346	30,080	(62)	3,250	16,000	(19,300)	40,314

Source : Cencorp Directors

Description of Pro forma adjustments

Extract from Cencorp Draft Stock Exchange Release:

The following adjustments have been made in the columns of the above tables:

1. Elimination of intra-group transactions between the Cencorp group and Savcor Face (Telecom) business, EUR 295.000.

2. The minimum subscription price obtained through the directed share issue is allocated to equity and cash.

3. The directed share issue of EUR 16 million from Cencorp to Savcor Group Limited for the purposes of paying the consideration for the shares in Savcor Pacific Limited as well as for certain immaterial assets and receivables. In addition, the calculations are based on the assumption that EUR 3.3 million of the total consideration is paid in cash.

4. The “Business combinations under common control” -policy has been applied in calculating the pro forma information, as the acquisition involves the merging of two businesses under the control of the Savcor group (excluded from the scope of IFRS 3). The difference between the acquisition cost, EUR 9.8 million, and the net assets of the acquired business, EUR 12.3 million, amounting to EUR 2.5 million, is allocated to the consolidated equity, and no goodwill is recorded.

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16 CENCORP RATIONALE FOR THE PROPOSED TRANSACTION

16.1 Overview

The following is an overview of the Proposed Transaction from Cencorp’s point of view:

Figure 13: Overview of the Proposed Transaction from Cencorp’s point of view

		Transaction Overview
	Cencorp	Savcor Pacific (FACE)	CencorpFACE
	(acquirer)	(target)	(the combined entity -
			potential for high growth and
			profitability)
•	A leader in end-of-line automation	•A global provider of functional and	•Two key business areas:
• •	solutions. Key products include depaneling, odd-form assembly, test handling and laser applications. Customer base includes major manufacturers in automotive electronics, telecommunications,	decorative solutions mainly for the telecom and consumer electronics industries. •Key products include EMI/EMC shielding, flexible circuits (antennas and RFID) and decorations.	−automation and laser solutions; and −specialised manufacturing. •Geographic diversification across the globe with established presence in Finland, China and USA.
•	industrial electronics and EMS. Customer base of over 750 companies including leading global players from various industries.	•Strategic alliance with Nokia (end customer). Direct customers include Kanto Tatsumi, Laird, Molex, Largan and Foxconn. •Savcor Pacific has two	•Forecast strong sales and EBITDA growth between 2010 and 2014. •Publically listed in Helsinki.
•	Cencorp has operations in all continents.	manufacturing facilities in Guangzhou and one in Beijing,
•	Publically listed in Helsinki.	with a holding office in Hong Kong.
		•Wholly owned subsidiary of
		Savcor, an ASX listed entity.

Sources : Savcor management; Cencorp management

Both Cencorp and Savcor management envisage that the Proposed Transaction will add value to both the shareholders of Cencorp and Savcor, and that the combined entity will have significant growth and earnings potential. Cencorp management’s key rationale supporting the deal includes:

Enhanced market position through the combined entity – the combined CencorpFACE entity will be able to compete more aggressively in the market space. Enhanced economies of scale will enable the combined entity to place pricing pressures on suppliers and achieve cost savings through back office synergies. These factors could translate into improved profitability and enhanced shareholder value;
Financial strength – Cencorp management envisages that the combined entity will have improved cash flow and a solid balance sheet with a strong pro forma equity ratio. CencorpFACE is forecast to generate strong pro forma turnover and EBITDA in 2010 and to double its turnover by 2014;
Opportunities to cross sell – the combined CencorpFACE entity will have opportunities to cross sell Savcor FACE’s specialised niche products and manufacturing services to Cencorp’s customers across the Americas and Europe. Similarly, there will be opportunities to cross sell Cencorp’s products to Savcor FACE’s established client base in China;
Specialised manufacturing – the combined CencorpFACE entity has a proven track record in serial manufacturing of specialised niche products. Significant synergies can be leveraged through the sharing of technical expertise and manufacturing know-how; and
Improved global presence – the combined CencorpFACE entity will have a strong global presence.

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16.2 Key Benefits for Cencorp Shareholders

The Cencorp Directors expect that the Proposed Transaction will add value to Cencorp Shareholders as follows:

Table 64: Cencorp – the Value Proposition

Area Key Benefits Description	Area Key Benefits Description	Area Key Benefits Description
Manufacturing capabilities Growth opportunities	Access to manufacturing facilities in China. Significant growth opportunities in Asia, particularly China.	Savcor Pacific currently has two established manufacturing plants in Guangzhou and one in Beijing. This will provide Cencorp with easy access to cost efficient and proven manufacturing capacity that can be utilised for the assembly of Cencorp’s volume products. Savcor Pacific’s strong presence in China will provide Cencorp with an immediate presence in China, as well as easy access to the Asian region.

Source : Cencorp management

16.3 Key Benefits for Savcor Shareholders

The Savcor Directors expect that there are significant benefits for Savcor Shareholders as a result of the Proposed Transaction. Key benefits are as outlined below:

Table 65: Savcor – the Value Proposition

Area Key Benefits Description	Area Key Benefits Description	Area Key Benefits Description
Business focus Gearing risk Consideration received Foreign currency risk Operational costs	A focused business. Gearing level will reduce subsequent to the Proposed Transaction. Consideration received will further reduce debt and facilitate expansion of the ART division. Reduced exposure to foreign currency fluctuations. Reduced operational costs post transaction.	Historically, Savcor’s expertise and knowledge in metallurgy sciences was a common denominator for the growth of both the ART and FACE divisions. However, over time, as the two divisions developed and established their independent client bases and niche markets, this common driver played a reduced role. The two divisions today are quite independent of each other, with minimal synergies between them. The divestment of Savcor Pacific will enable Savcor to focus on and commit to the growth of the ART business, which has established operations in India, China, Japan and elsewhere. A focused business approach could improve shareholder value. Approximately half of Savcor’s debt (as at 31 December 2009) related to Savcor Pacific. Following the Proposed Transaction, Savcor’s gearing level will reduce (refer pro forma balance sheet inSection 13for details). The cash portion of the Consideration received from the Proposed Transaction will be applied against residual debt, thereby further reducing debt levels. The scrip portion of the Consideration (shares of a listed entity) can be sold, providing Savcor with the opportunity to realise cash for further debt reduction or expansion of the ART business, if required. Savcor Pacific trades predominantly in RMB. However, the Australian dollar: RMB exchange rate has demonstrated significant volatility, with over 14% fluctuation in value with respect to the RMB in 2010. Savcor’s financial position and financial performance currently has significant exposure to foreign currency risk as a result of Savcor Pacific’s operations, which will be reduced subsequent to the Proposed Transaction. Following the Proposed Transaction, the remaining business will be smaller in size with reduced complexity. There will be opportunities for cost savings.
Source: Savcor Directors

We have considered the above matters in further detail in Section 17 .

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17 EVALUATION

17.1 Fairness

We have compared our assessed value of the Consideration to our assessed value of the Savcor FACE business as set out below:

Table 66: Fairness Assessment

(AUD 000’s) Ref.	(AUD 000’s) Ref.	Low Value High Value Mid Value	Low Value High Value Mid Value	Low Value High Value Mid Value
Assessed Value of Consideration Assessed value of Sale Assets (Savcor FACE business and FACE Receivable) Difference: Consideration less assessed value of Sale Assets (Savcor FACE business and FACE Receivable)	12.4 10.7	25,665 28,113	27,315 33,402	26,484 30,711
		(2,448)	(6,087)	(4,227)
Source:PKFCA analysis

ASX Listing Rules

The assessed value of the Consideration is lower than our assessed range of values for the Savcor FACE business and accordingly, is considered to be not “fair” for the purposes of the ASX Listing Rule 10.1.

Chapter 2E of the Act

Under Chapter 2E of the Act, the giving of such a financial benefit requires approval by Savcor’s shareholders unless each arrangement is on arm’s length terms (or less favourable to the related party than arm’s length terms) (refer section 208 and section 210 of the Act).

Given that the assessed value of the Consideration is considered to be not “fair” based on the fair market value assessment of the Savcor FACE business, in our opinion, the giving of the financial benefit to Cencorp is not on arm’s length terms. Accordingly, the giving of such a financial benefit requires approval by Savcor’s shareholders under Chapter 2E of the Act.

17.2 Reasonableness

For the purposes of RG111, an offer is considered to be “ reasonable ”, if it is “ fair” . However, it might also be “reasonable” if, despite being not “fair”, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid before the close of the offer.

17.2.1 Advantages

Approving the Proposed Transaction has the following advantages:

Better employment of capital to improve shareholder returns

Savcor Pacific (FACE) is an investment intensive business that requires approximately $2.5 million per annum in continuous investment in new production technologies, which will consume Savcor’s capability to invest in the international growth of ART. Savcor management anticipates that focusing future investment in ART (instead of FACE) will result in higher returns on investment for shareholders.

Reduced exposure to competitive process manufacturing

The Savcor FACE business is generally regarded as a commodity manufacturing business which potentially could be replicated and actively pursued in the market place by numerous other similar organisations based in China. Accordingly, divestment of this business reduces Savcor’s direct exposure to such risk.

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Opportunity to retain an indirect interest in Cencorp

Reduced exposure to concentrated customer base

Improved shareholder value through a focussed business

Historically, Savcor’s expertise and knowledge in metallurgy sciences was a common denominator for the growth of both the ART and FACE divisions. However, over time, as the two divisions developed, established their independent client bases and niche markets, this common driver played a reduced role. The two divisions today are quite independent of each other with minimal synergies between them.

Reduced gearing

The scrip portion of the Consideration is more liquid (shares of a listed entity) than shares in Savcor Pacific, providing Savcor with the opportunity, if required, to realise cash for further debt reduction or expansion of the ART business by selling Cencorp shares that it will hold following the Proposed Transaction. As a matter of fact, the Directors or Savcor have indicated that they intend to effect some disposal of the Consideration Shares in Cencorp.

Likely share price in the absence of the Proposed Transaction

Reduced exposure to foreign currency fluctuations

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This reduction in exposure to foreign currency fluctuations may be offset slightly if Savcor decides to retain the Consideration Shares, as Cencorp trades predominantly in Euros.

Potential to enhance liquidity of Savcor shares

Historically, trading in Savcor shares has been relatively illiquid as illustrated above in Section 3.11 . The Proposed Transaction provides Shareholders the ability to enhance the liquidity of Savcor shares by restoring market confidence in the performance of the company as a single focussed business is simpler for the market to understand and also to assess its value.

No superior alternative avenues to restore shareholder value to Savcor

As discussed above in Section 2.1 , the Directors have been assessing a number of restructuring options to restore shareholder value to Savcor including to divest the Savcor FACE business. Savcor management have indicated that the divestment of the Savcor FACE business was considered to be the superior means of restoring shareholder value given the difficulty in having to raise capital in the market place.

Potential for Savcor to pay dividends

Savcor has not paid any dividends during the Trading Period reviewed (i.e. 1 January 2009 to 15 June 2010). Any improvement in the financial performance of Savcor as a result of the Proposed Transaction may result in the potential for Savcor to pay dividends.

Alternatively, if Savcor were to retain the Consideration Shares it receives as part of the Proposed Transaction, it may be entitled to receive payments from Cencorp which it may then pass on to shareholders through dividend payments of its own.

Potential for reduced overheads

Following the Proposed Transaction, the remaining business will be smaller in size with reduced complexity. There may be opportunities for management and reporting cost savings such as audit fees.

Some of the potential reporting cost savings may be offset slightly by the need for Savcor to equity account for its investment in Cencorp should it decide to retain the Consideration Shares.

Potential improvement in the value of Cencorp shares

Approximately 80% of the Consideration value is represented by Cencorp shares. Savcor shareholders can benefit from future improvements (if any) in Cencorp’s listed share price.

Adhere to the debt reduction schedule

Implementing the Proposed Transaction will reduce Savcor’s Current Banking Facilities and as a result assist in the achievement of the debt reduction programme.

17.2.2 Disadvantages of the Proposed Transaction

Approving the Proposed Transaction has the following disadvantages:

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Risk in the value of Cencorp shares

Reduction of EPS

Based on our review of the EPS assuming that the Proposed Transaction is approved, we have determined that EPS will reduce from a loss of 18 cents per share to a further loss of $2.91 per share. Moreover, we believe that the position will exacerbate in the current financial year when it is expected that the Savcor FACE business would have improved performance. This calculation ignores any potential synergies that may arise between the Savcor FACE business and Cencorp as well as any turn around in performance in the Cencorp business.

Reduction of Net Assets

Based on our review of the net assets assuming that the Proposed Transaction is approved, we have determined that net assets will reduce from 23.8 cents per share to 18.7 cents per share.

Lack of Diversification

With operations in mobile phone component manufacturing and the protection and remediation of steel and concrete structures, Savcor is currently reasonably diversified in its activities. To a certain extent, this cushions Savcor’s financial performance against any adverse movements in either industry. Accepting the Proposed Transaction will focus Savcor’s business activities in the corrosion prevention and rehabilitation industry and reduce the diversification of Savcor’s business activities.

Foregone opportunity to continue to benefit from turnaround in the Savcor FACE business

Any continued future improvement in the Savcor FACE business may translate to increases in the share price and dividend payments. Should shareholders approve the Proposed Transaction, the shareholders may not benefit directly from such an improvement, although this risk may be partially mitigated if Savcor decides to retain the Consideration Shares that it receives as part of the Proposed Transaction.

Remaining Savcor business at risk if the performance of ART is not improved

Loss of potential to participate in significant growth opportunities in the mobile phone industry

The mobile phone industry is forecast to grow by approximately 9.0% in 2010 before declining to 6.6% per annum growth rates until 2013 (applicable for the Asia Pacific region).

Approving the Proposed Transaction will result in Savcor losing the potential to participate in the above Industry growth opportunities, through the Savcor FACE business.

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Increased Liquidity Risk

As discussed above, the liquidity of Cencorp shares is not very high. Approving the Proposed Transaction will result in Savcor having an approximate interest of 40.16% together with Savcor Oy’s 29.5% shareholding in Cencorp. This large shareholding is likely to exacerbate the illiquidity of Cencorp shares. However, we understand that Cencorp management will be attempting to reduce the illiquidity issue through the capital raising and placement of some of Savcor’s shareholder into the secondary market.

Helsinki Stock Exchange

Our review and comparison of the Helsinki stock exchange with the ASX shows that it is a smaller market and does not enjoy the same level of liquidity as the ASX. However, the Helsinki stock exchange does have a greater focus on industrials and consumer discretionary companies and this would be considered to be an advantage. Nonetheless the disadvantage does not mitigate the lower level of liquidity.

17.3 Conclusion

Based on the above, we conclude that although the Proposed Transaction is not “fair”, on balance, there are sufficient reasons for the Proposed Transaction to be considered reasonable to the Non-associated Shareholders.

Whilst the Proposed Transaction does not result in a fair value being attributed to the Savcor FACE business, it does provide Savcor with an opportunity to realise some cash and reduce debt as well as refocus its operations towards the Savcor ART business. In the absence of all Savcor shareholders being willing to invest further capital into Savcor, in our opinion, the Proposed Transaction provides for a strategic alternative which in part includes a partial investment in the Savcor FACE business through Cencorp and at the same time an opportunity to potentially benefit from some form of merger synergies between the Cencorp business and the Savcor FACE business.

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18 QUALIFICATIONS AND DECLARATIONS

18.1 Qualifications

PKFCA is the licensed corporate advisory arm of PKF East Coast Practice, Chartered Accountants and Business Advisers. PKFCA provides advice in relation to all aspects of valuations and has extensive experience in the valuation of corporate entities and provision of expert reports.

Mr Vince Fayad B.Bus, CA, is a Director of PKFCA and the head of the corporate advisory practice. Mr Fayad is also a partner of PKF East Coast Practice. Mr Fayad is the Director responsible for this Report. Mr Vince Fayad has over 25 years experience in a number of specialist corporate advisory activities including company valuations, due diligence investigations, preparation and review of business feasibility studies, public company floats, accounting, advising on transactions and acquisitions, preparation of independent expert reports, preparation of information memoranda and other corporate investigations.

Based on his experience, Mr Fayad is considered to have the appropriate expertise and professional qualifications to provide the advice offered.

18.2 Independence

PKFCA was not involved in advising on, negotiating, setting, or otherwise acting in any capacity for Savcor in relation to the Proposed Transaction, other than the preparation of this Report. Further, PKFCA has not held and, at the date of this Report, does not hold any shareholding in, or other relationship with Savcor that could be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposed Transaction.

PKFCA considers itself to be independent in terms of RG 112 Independence of experts (“ RG 112 ”), issued by ASIC.

PKFCA will receive a fee based on the time spent in the preparation of this Report in the amount of approximately $80,000, (plus GST and disbursements). PKFCA will not receive any fee contingent upon the outcome of the Proposed Transaction, and accordingly, does not have any pecuniary or other interests that could reasonably be regarded as being capable of affecting its ability to give an unbiased opinion in relation to the Proposed Transaction.

Three (3) drafts of this Report were provided to the Directors of Savcor for review of factual accuracy. Certain changes were made to the Report as a result of the circulation of the draft Reports. However, no changes were made to the methodology, conclusions or recommendations made to the Shareholders.

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18.2.1 Disclaimer

This Report has been prepared at the request of the Directors and was not prepared for any purpose other than that stated in this Report. This Report has been prepared for the sole benefit of the Directors and Shareholders. Accordingly, this Report and the information contained herein may not be relied upon by anyone other than the Directors and Savcor Shareholders without the written consent of PKFCA. PKFCA accepts no responsibility to any person other than the Directors, and Savcor Shareholders in relation to this Report.

The statements and opinions contained in this Report are given in good faith and are based upon PKFCA’s consideration and assessment of information provided by the Directors, executives and management of all of Savcor.

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APPENDIX 1 GLOSSARY

Table 67: Glossary

Term
Definition

$ / A$ / AUD
€ / EUR / EURO
1HFY2010
Act
Ancillary Assets
ANZ
ASIC
ASX
ASX Listing Rules
ASX 200 IT Index
Australian Index
Cash Payment
Cencorp
Cencorp Directors
Cencorp Draft Stock
Exchange Release
Cencorp Forecasts
Cencorp Shareholders
Cencorp Share Price
Cencorp’s Proposed
Capital Raising
CFME
Code
COGS
Commission Regulation
Completion
Completion Date
Conditions
Consideration
Consideration Shares
Cooperative
CPI
CTC
Current Banking Facilities
DCF
Directors
Documents
DTA / DTL
EBIT
EBITDA
EMI
EMS
EOP
EPS
Explanatory Memorandum

Australian dollar
Euro dollars
First half year to 30 June 2010
Corporations Act 2001 (Cth)
Assets owned by Savcor and Intune Circuits used in connection with the Savcor FACE business
Australia and New Zealand Banking Corporation
Australian Securities and Investments Commission
Australian Stock Exchange
Australian Stock Exchange Listing Rules
S&P/ASX 200 Information Technology Index
S&P/ASX 200 Index
Payment of AUD 11,000,000 less the Outstanding Completion Debt
Cencorp Corporation
Directors of Cencorp
Stock exchange release that Cencorp proposes to issue in relation to the acquisition of Savcor
FACE and Cencorp’s Proposed Capital Raising
Cencorp management forecasts for the year ending 31 December 2010
Shareholders of Cencorp
Cencorp’s weighted average share price for the 1 month period to 15 June 2010 of €0.14
Prior to implementation of the Proposed Transaction, Cencorp proposes to raise 5,000,000 Euros
in additional funds through a capital raising.
Capitalisation of Future Maintainable Earnings
NASDAQ OMX Helsinki Corporate Governance Code
Cost of goods sold
Commission Regulation (EC) No 2273/2003
Completion of the Proposed Transaction
Date which represents 3 business days after the Conditions have been met or waived or such
other date as Savcor and Cencorp agree
Conditions of the Proposed Transaction
Consideration payable by Cencorp for Savcor FACE
Issue of shares in Cencorp with an aggregate issue price of 16,000,000 Euros
NASDAQ OMX Helsinki, when it was converted into a cooperative owned mostly by banks, traders,
other companies and associations.
Consumer Price Index
Cell to Top of Conveyor
Savcor Pacific Group’s current banking facilities and security agreements with ANZ Bank having an
aggregate amount outstanding as at 21 May 2010 of approximately RMB 116,500,000
Discounted Cash Flow
Directors of Savcor Group Limited
Notice of Meeting and Explanatory Memorandum
Deferred tax asset / liability
Earnings Before Interest and Tax
Earnings Before Interest, Tax, Depreciation and Amortisation
Electromagnetic interference
Electronic Manufacturing Services
Employee Option Plan
Earnings Per Share
Explanatory Memorandum to be issued in relation to the Proposed Transaction

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Term
Definition

FACE Receivable
Finnish Index
FME
FOS
FSG
FX
FY20XX
Gartner
GDP
GFC
GICS
Group
HDPE
HiSAC
ICT
IMF
Industry
Intra-Group Payables
Intune Circuits
IPI
IPO
IPR
Licence
NASDAQ OMX Helsinki
New Banking Facility
Non-associated
shareholders
Notice of Meeting
NPV
NSW
OEMs
OMX
OMXH
OMX Technology Index
Original Budget
Outstanding Completion
Debt
Outstanding Retained
Entity Payables
pa
PCB
Photonium
PKFCA

Receivable owed or to be owed by Savcor Pacific to Savcor at Completion Date as a consequence
of Savcor having advanced funds (or procured the advance of funds) to Savcor Pacific for the
purpose of Savcor Pacific Group repaying its Current Banking Facilities
NASDAQ OMX Helsinki Index
Future Maintainable Earnings
Financial Ombudsman Service Limited
Financial Services Guide
Foreign exchange rate
Financial year ending 31 December 20XX
Gartner Technology Business Research Insight
Gross Domestic Product
Global Financial Crisis
Global Industry Classification Standard
Savcor Group Limited
High Density Polyethylene
High Speed Assembly Cell
Information and Communications Technology
International Monetary Fund
Mobile Phone Component Industry
The aggregate amount of all amounts owing (whether interest-bearing or not), together with any
interest accrued thereon, by Savcor Pacific Group to the Retained Entities at Completion, but
excluding the FACE Receivable (“Outstanding Group Payables”) after having set off such against
the aggregate amount of all amounts owing (whether interest-bearing or not), together with any
interest accrued thereon, by the Retained Entities to Savcor Pacific Group at Completion
(“Outstanding Retained Entity Payables”)
Intune Circuits Oy Business ID 1962342-7
Industrial Process Improvements
Initial Public Offering
Intellectual Property Rights
Australian Financial Services Licence (License No: 247420)
Helsinki Stock Exchange
Amount to be advanced to the Savcor Pacific Group under a new bank facility of approximately
RMB 35,000,000 with the Bank of China or another banking institution acceptable to Cencorp
Savcor shareholders other than those directly involved in the Proposed Transaction or associated
with such persons
Notice of Meeting to be issued in relation to the Proposed Transaction
Net Present Value
New South Wales
Original equipment manufacturers
OMX AB
OMX Helsinki
OOMX Helsinki Technology, Hardware and Equipment Index
FY2010 budget for ART and Corporate combined which was approved by the Savcor Board of
Directors in December 2009
Amount (to be denominated in RMB and converted at the AUD: RMB exchange rate on the
business day immediately prior to Completion Date) to be advanced to the Savcor Pacific Group
under the New Banking Facility net of deposited cash held as security
All amounts owing (whether interest-bearing or not), together with any interest accrued thereon, by
the Retained Entities to Savcor Pacific Group at Completion
Per annum
Printed Circuit Board
Photonium Ltd
PKF Corporate Advisory (East Coast) Pty Limited (ABN 70 050 038 170)

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Term
Definition

PMJ automec
PNG
PPE
Proposed Transaction
Prospective Financial
Information
PVD
R&D
QLD
RBA
Report
Revised Budget
Retained Entities
RFID
RG111
RG112
RG159
RMB / CNY
Sale Shares
Savcor
Savcor ART
Savcor FACE
Savcor FACE Beijing
Savcor FACE Guangzhou
Savcor Oy
Savcor Pacific
Savcor Pacific Group
Savcor Shareholders
Savcor Affiliates
Share and Asset Sale
Agreement
SP FY2010 Budget
SWOT
Trading Period
Tuokko
USA
VIC
YTD FY2010

PMJ automec Corporation
Papua New Guinea
Property, plant and equipment
Sale of Savcor FACE to Cencorp
Prospective financial information for the financial year ending 31 December 2010 in relation to
each of Savcor and Cencorp
Physical vapour deposition
Research and Development
Queensland
Reserve Bank of Australia
Independent Expert Report prepared by PKFCA
FY2010 revised budget for ART and Corporate combined which was based on six months actual
performance (January 2010 to June 2010) and six months of the Original Budget (July 2010 to
December 2010)
Savcor and any company directly or indirectly controlling, controlled by or under the common
control of Savcor after the implementation of the Proposed Transaction
Radio frequency identification
Regulatory Guide 111_Content of expert reports_
Regulatory Guide 111_Independence of experts_
Regulatory Guide 159_Takeovers, compulsory acquisitions and substantial holding notices_
Chinese Yuan Renminbi
all of the shares in the capital of Savcor Pacific
Savcor Group Limited
(This includes the business which relates to Savcor prior to its incorporation in 2007)
Savcor Advanced Rehabilitation Technology
Savcor FACE business, owned and operated by Savcor Pacific
Savcor FACE (Beijing) Technologies Co., Ltd. (Ch)
Savcor FACE (Guangzhou) Technologies Co., Ltd. (Ch)
Savcor Group Oy
Savcor Pacific Limited, a wholly owned subsidiary of Savcor
(This includes the Savcor FACE business prior to its incorporation in 2007)
Savcor Pacific, Savcor FACE Beijing and Savcor FACE Guangzhou
Shareholders of Savcor
Any company directly or indirectly controlling, controlled by or under the common control of Savcor
Agreement entered into on 28 May 2010 by Savcor, Cencorp and Intune Circuits pursuant to which
Savcor and Intune Circuits have agreed to sell the Savcor FACE business which comprises the
following:
•
the Sale Shares;
•
the Ancillary Assets; and
•
the FACE Receivable,
to Cencorp.
Savcor Pacific management budget for the year ended 31 December 2010 based on the budget
prepared in December 2009 and approved by the Directors
Strengths, weaknesses, opportunities and threats
1 January 2009 to 15 June 2010
Tuokko Auditing Ltd
United States of America
Victoria
Year to Date 31 May 2010

Source: PKFCA

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APPENDIX 2 SOURCES OF INFORMATION

In preparing this Report PKFCA had access to and relied upon the following principal sources of information:

Savcor draft Notice of Meeting, draft Explanatory Memorandum and accompanying draft Information Memorandum;
Savcor audited annual financial statements for the year ended 31 December 2008 and 31 December 2009 and the reviewed financial statements for the half years ended 30 June 2008 and 30 June 2009;
Savcor Pacific Budget for the year ended 31 December 2010;
Savcor Pacific management accounts as at and for the year ended 31 December 2007, 2008 and 2009;
Savcor Pro forma Balance Sheet and Income Statement as at and for the year ended 31 December 2009;
various Savcor Board Minutes;
various Savcor Audit Committee Minutes;
IBISWorld Industry Report – Electronic Component Manufacturing in Australia and Telecommunications Services in Australia;
Savcor ASX announcements;
Savcor website, http://www.savcor.com.au/;
Savcor FACE website, http://www.savcor.com.au/face/;
Cencorp website, http://www.cencorp.com/;
Savcor internal management documents;
Cencorp internal management documents;
various discussions with Savcor management;
various discussions with Cencorp management
information an research sourced Bloomberg and Capital IQ; and
information generally available and provided by major Australian economic forecasting bodies.

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APPENDIX 3 VALUATION METHODS

In arriving at our valuation conclusions for the Savcor FACE business and Cencorp, the following commonly used business valuation methods have been considered:

Discounted Cash Flow Method

The DCF method is based on the premise that the value of a business or any asset is represented by the present value of its future cash flows. It requires two essential elements:

the forecast of future cash flows of the business asset for a number of years (usually five to 10 years); and
the discount rate that reflects the riskiness of those cash flows used to discount the forecast cash flows back to net present value (“ NPV ”).

DCF is appropriate where:

the businesses’ earnings are capable of being forecast for a reasonable period (preferably five to 10 years) with reasonable accuracy;
earnings or cash flows are expected to fluctuate significantly from year to year;
the business or asset has a finite life;
the business is in a 'start up' or in early stages of development;
the business has irregular capital expenditure requirements;
the business involves infrastructure projects with major capital expenditure requirements; or
the business is currently making losses but is expected to recover.

Capitalisation of Future Maintainable Earnings Method

This method involves the capitalisation of estimated future maintainable earnings by an appropriate multiple. Maintainable earnings are the assessed sustainable profits that can be derived by the vendor’s business and excludes any one off profits or losses. An appropriate earnings multiple is assessed by reference to market evidence as to the earnings multiples of comparable companies.

This method is suitable for the valuation of businesses with indefinite trading lives and where earnings are relatively stable or a reliable trend in earnings is evident.

Net Realisable Value of Assets

Asset based valuations involve the determination of the fair market value of a business based on the net realisable value of the assets used in the business.

Valuation of net realisable assets involves:

separating the business or entity into components which can be readily sold, such as individual business units or collection of individual items of plant and equipment and other net assets; and
ascribing a value to each based on the net amount that could be obtained for the asset if sold.

The net realisable value of the assets can be determined on the basis of:

orderly realisation : this method estimates fair market value by determining the net assets of the underlying business including an allowance for the reasonable costs of carrying out the sale of assets, taxation charges and the time value of money assuming the business is wound up in an orderly manner. This is not a valuation on the basis of a forced sale where the assets might be sold at values materially different from their fair market value;
liquidation : this is a valuation on the basis of a forced sale where the assets might be sold at values materially different from their fair market value; or

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going concern : the net assets on a going concern basis estimates the market value of the net assets but does not take into account any realisation costs. This method is often considered appropriate for the valuation of an investment or property holding company. Adjustments may need to be made to the book value of assets and liabilities to reflect their going concern value.

The net realisable value of a trading company’s assets will generally provide the lowest possible value for the business. The difference between the value of the company’s identifiable net assets (including identifiable intangibles) and the value obtained by capitalising earnings is attributable to goodwill.

The net realisable value of assets is relevant where a company is making sustained losses or profits but at a level less than the required rate of return, where it is close to liquidation, where it is a holding company, or where all its assets are liquid. It is also relevant to businesses which are being segmented and divested and to value assets that are surplus to the core operating business. The net realisable assets methodology is also used as a check for the value derived using other methods.

These approaches ignore the possibility that the company’s value could exceed the realisable value of its assets.

Share Market Trading History

The application of the price that a company’s shares trade on the ASX is an appropriate basis for valuation where:

the shares trade in an efficient market place where ‘willing’ buyers and sellers readily trade the company’s shares; and
the market for the company’s shares is active and liquid.

Constant Growth Dividend Discount Model

The dividend discount model works best for:

firms with stable growth rates;
firms which pay out dividends that are high and approximate free cash flow to equity;
firms with stable leverage; and
firms where there are significant or unusual limitations to the rights of shareholders.

Special Value

Special value is the amount which a potential acquirer may be prepared to pay for a business in excess of the fair market value. This premium represents the value to the potential acquirer of potential economies of scale, reduction in competition or other synergies arising from the acquisition of the asset not available to likely purchases generally. Special value is not normally considered in the assessment of fair market value as it relates to the individual circumstances of special purchases.

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APPENDIX 4 MERGER AND ACQUISITION INFORMATION

Set out in the table below are the results of our merger and acquisition transactions research:

Table 68: Merger and Acquisition Multiples

Target Company	Acquired by	Effective	Currency	Consideration	Historical Multiple	Historical Multiple	Historical Multiple	Implied Acquisition Premium
		Date		(Local currency)	EBIT (times)	EBITDA (times)	Revenue (times)
Palm Inc (Note 2) Bluehill ID AG Intune Circuits Limited Taiwan Green Point Enterprises Company Limited Average Median	Hewlett-Packard Company SCM Microsystems Inc. Savcor Group Limited Jabil Circuit Incorporation	April 2010 Dec 2009 July 2008 April 2007	USD USD AUD TWD	1.2 billion 41.2 million 3.3 million 29.0 billion	n/m n/a n/a 36.8x	n/m n/a n/a 20.4x	1.1 x 2.2x 1.1x 2.3x	23% 18% n/a 7%
					36.8x 36.8x	20.4x 20.4x	1.7x 1.7x	16% 18%

Sources: Company announcements; Bloomberg; PKFCA analysis

Notes :

1. n/a indicates data not available, n/m indicates data not meaningful to the analysis, x indicates times, outliers or excluded multiples marked *

2. Palm Incorporation incurred losses FY2010 due to strong competition from the iPhone and Android devices, a failure to market Palm devices outside North America and weak marketing. As such, transaction multiples were not obtained in the table above.

We note the following with respect to the above:

on 28 April 2010, Hewlett-Packard Company signed a definitive agreement to acquire Palm Inc for US$1.2 billion or US$5.70 per share. The offer price represented a 23.1% premium to the closing price on the day prior to the announcement. Palm Inc provides mobile products for individual users and business customers worldwide. The company also offers handheld computers, as well as various add-ons and accessories, including memory expansion cards, micro USB cables, charging kits, vehicle power adapters, and carrying cases;
on 20 September 2009, SCM Microsystems Inc signed an agreement to acquire Bluehill ID AG for US$41.2 million in stock. Bluehill ID AG shareholders received 0.52 shares of SCM's common stock for every one share of Bluehill ID AG. The acquisition was completed on 29 December 2009 and SCM Microsystems Inc acquired 92% stake in Bluehill ID AG. The remaining stake was acquired under compulsory acquisition. The offer price represented an 18.3% premium to the closing price on the day prior to the announcement. Bluehill ID AG focuses on the development of logical and physical access control, identity management, and RFID technologies;
on 21 July 2008, Savcor Group Limited acquired Intune Circuits Limited from Outotec Oyj for approximately $3.3 million. Intune Circuits Limited produces and supplies radio frequency identification antennas. It supports single and multiple layer designs, passive, semi-active and active transponders, high frequency and ultra-high frequency frequencies with copper, aluminium, and silver materials. Intune Circuits Limited has been a subsidiary of Savcor Group Limited since 21 July 2008; and

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on 22 November 2006, Jabil Circuit Inc launched a tender offer to acquire all of the outstanding shares of Taiwan Green Point Enterprises Company Limited. Under the terms of the transaction, Jabil Circuit would pay TWD 109 per share in cash for each of Green Point's common stock. The acquisition was completed in April 2007 following the acquisition of a 97.6% stake in January 2007 and the acquisition of the remaining stake in April 2007 via a merger agreement. The offer price represented a 7.1% premium to the closing price on the day prior to the announcement. Taiwan Green Point Enterprises Company Limited engages in the manufacture and sale of plastic products for electronic, communication, automotive, and optical applications. The company offers cellular phone plastic parts, land mobile products plastic parts, battery charger plastic parts, precise injection moulds, injection moulding machines, back-light modules plastic parts, optical lens plastic parts, and motor vehicle structure plastic parts. It operates in Taiwan, China, and Malaysia.

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APPENDIX 5 SAVCOR PACIFIC COMPARABLE COMPANY DESCRIPTIONS

Set out in the table below are summary descriptions of the operations of the selected listed comparable companies:

Table 69: Listed Comparable Companies

Name
Description

Foxconn International
Holdings Limited
Laird Plc
BYD Electronic
International Company
Limited
Jabil Circuit Incorporation
Palm Incorporation

Foxconn International Holdings Limited is a vertically integrated manufacturing services provider for
the mobile telephone handset industry worldwide. The company's manufacturing services include
designing and manufacturing precision tools and moulds, products development and manufacturing
of components.
Laird Plc manufactures products for various electronics and security applications. The company
designs and supplies electromagnetic interface shielding solutions, as well as designs, develops,
and manufactures security systems. Laird also distributes semi-finished plastic shapes and parts in
North America.
BYD Electronic International Company Limited researches, develops, manufactures handset
components such as handset casings and handset keypads and modules for handset
manufacturers. The company also provides assembly services comprising assembly service and
PCB assembly service to global handset manufacturers.
Jabil Circuit Incorporation is an electronic manufacturing services provider for international
electronics companies in the communications, personal computer, peripheral, consumer, and
automotive markets. The company offers circuit design, board design from schematic, prototype
assembly, volume board assembly, system assembly, repair, and warranty services.
Palm Incorporation provides mobile computing products through internet, retail, reseller, and
wireless operator channels throughout the world. The company also sells its products through its
own retail and online stores. The company's products include smart phones, mobile managers,
handheld computers, and software and accessories.

Source : Bloomberg

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APPENDIX 6 SAVCOR PACIFIC COMPARABLE COMPANY TRADING MULTIPLES

Set out in the table below are the trading multiples of companies generally comparable to Savcor Pacific:

Table 70: Comparable Company Multiples

Company	Market cap1	Historic multiple
	Local millions AUD millions	Sales EBITDA EBIT Sales EBITDA EBIT
Foxconn International Holdings HKD Dec 09 40,502 6,007 Laird Plc GBP Dec 09 331 566 BYD Electronic (International) Company Limited HKD Dec 09 10,162 1,507 Jabil Circuit Incorporation USD Aug 09 2,965 3,425 Palm Incorporation USD May 09 962 1,110 Average Median Average (Excluding Foxconn And Palm) Median (Excluding Foxconn And Palm)		5.5x 104.1 315.3x 4.3x 73.2x 163.2x 0.7x 6.7x 18.5x 0.7x 5.5x 7.5x 0.8x 6.9x 11.1x 0.7x 5.6x 8.7x 0.3x 7.3x 20.2x 0.3x 4.8x 8.1x 2.1x n/m n/m 1.3x n/m n/m
		1.9x 23.6x 71.8x 1.4x 16.5x 36.5x 0.8x 6.9x 18.5x 0.7x 5.5x 8.1x
		0.6x 7.0x 16.6x 0.5x 5.3x 8.1x 0.7x 6.9x 18.5x 0.7x 5.5x 8.1x

Sources : Bloomberg; PKFCA analysis

Notes :

1. Analysis performed on 15 June 2010.

2. n/a indicates data not available, n/m indicates data not meaningful to the analysis, x indicates times, outliers or excluded multiples marked *

3. Multiples based on enterprise value calculated as market capitalisation, plus debt less cash.

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APPENDIX 7 SAVCOR PACIFIC COMPARABLE COMPANY OPERATING ANALYSIS

Set out in the table below are key financial indicators of Savcor Pacific and the comparable companies.

Table 71: Comparable Companies – Key Indicators

Company	Year end	Currency	Enterprise Value	Sales Growth	Sales Growth		EBITDA Growth	EBITDA Growth		EBITDA Margin	EBITDA Margin
			($m)	Historical	Forecast		Historical	Forecast		Historical	Forecast
				2009 (%)	2010	(%)	2009 (%)	2010	(%)	2009 (%)	2010	(%)
Savcor Pacific	Dec-09	AUD	Refer Section 10.1	(20.8%)		5.3%	(35.1%)		25.8%	16.2%		19.3%
Comparable companies
Foxconn International Holdings Limited	Dec-09	HKD	39,538.9	(22.2%)		24.9%	(18.9%)		31.9%	5.3%		5.9%
Laird Plc	Dec-09	GBP	376.4	(16.8%)		2.6%	(33.5%)		32.9%	10.6%		12.1%
BYD Electronic (International) Company Limited	Dec-09	HKD	8,969.0	30.9%		54.7%	(9.3%)		33.7%	11.6%		11.7%
Jabil Circuit Incorporation	Aug-09	USD	3,330.4	(8.6%)		9.7%	(21.6%)		48.5%	3.9%		5.4%
Palm Incorporation	May-09	USD	1,509.3	(44.2%)		57.3%	271.1%*		2.3%	(29.7%)	(20.5%)
Average				(12.2%)		29.8%	(20.8%)		29.9%	0.3%		2.9%
Average (excluding negatives)				30.9%		29.8%	n/a		29.9%	7.8%		8.8%

Sources : Bloomberg; PKFCA analysis

Notes :

1 . * Represents outliers omitted from the average analysis

2 . n/a – not available

3 . n/m – not meaningful

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APPENDIX 8 DEBT REPAYMENT

We note the following in relation to the tables set out below:

the final debt balance may differ to that shown in the following tables as a result of foreign currency fluctuations; and
the tables assume that the residual amount owing under the Current Banking Facilities will be settled via an inter-company loan which will convert into the FACE Receivable and be transferred to Cencorp. However, note that a portion or all of the residual Current Banking Facilities could also be settled via capital injection. As such, the FACE Receivable value may change in line with the corresponding capital injection amount.

Savcor Pacific’s debt balance as at 30 June 2010 is set out in the table below:

Table 72: Savcor Pacific – Interest Bearing Liabilities Prior to Implementation of the Proposed Transaction

	AUD (’000s)	Comments
Current Banking Facilities Current Banking Facilities balance as at 30 June 2010 Intercompany loan Intercompany loan as at 30 June 2010 Total interest bearing liabilities as at 30 June 2010	16,107 0	Loan balance was RMB93.2 million as at 30 June 2010. The AUD equivalent shown opposite is based on Savcor’s foreign currency translation rate.
	16,107

Source: Savcor management

As part of the Proposed Transaction, Savcor Pacific will be required to settle the Current Banking Facilities facility. Savcor management advised that this repayment may be funded as follows:

Table 73: Savcor Pacific - Proposed Debt Repayment Plan

As at 30 June 2010	AUD (’000s)	Comments
New loan to be sourced from a Chinese bank Savcor Pacific’s own cash Savcor Shortfall Total ANZ Debt	6,127 2,900 5,300 1,780	This funding source of approximately RMB35 million (approximately $6.1 million) is yet to be obtained. Nevertheless, Savcor management has indicated that the Bank of China may be a likely source. Savcor management expects that Savcor Pacific may have approximately $2.9 million in cash for debt repayment. Savcor management indicated that it is likely that Savcor will have this amount of unused funds within its current corporate facility at the end of June 2010. If Savcor settles the Current Banking Facilities via an inter-company loan, this will form part of the FACE Receivable to be transferred to Cencorp. Savcor management indicated that the funding source for this short fall is yet to be confirmed. If this short fall is funded via the corporate facility, this inter-company loan will form part of the FACE Receivable to be transferred to Cencorp.
	16,107
Source: Savcor management

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The following table outlines the proposed split between external debt and the inter-company loan (FACE Receivable) subsequent to the settlement of the Current Banking Facilities. Note that the final split and values may differ from the values shown below:

Table 74: Savcor Pacific – Pro forma Interest Bearing Liabilities Subsequent to Settlement of the Current Banking Facilities

As at 30 June 2010		AUD (’000s) Comments	AUD (’000s) Comments
Current Banking Facilities Debt balance as at 30 June 2010 Debt repayment Total Current Banking Facilities external debt Bank of China (or other) New facility Total Bank of China (or other) external debt Intercompany loan Intercompany loans will convert to Savcor FACE Receivable as defined in the Share and Asset Sale Agreement. Intercompany loan as at 30 June 2010 Future funding from Savcor Shortfall Total intercompany loan (FACE Receivable) Total interest bearing liabilities (pro forma) Surplus cash Total repayment of Current Banking Facilities	A B C=A+B D E F G H=F+G I=D+H J K=I+J	16,107 (16,107)	Refer toTable 72above. Refer toTable 73above. Partly funded by surplus cash of $2.9 million, New facility and FACE Receivable Refer toTable 73above. Refer toTable 72above. Refer toTable 73above. Available funding within Savcor’s current corporate debt facility. We have assumed that this will be funded by Savcor and will form part of Savcor FACE’s Receivables. ReferTable 73above. Savcor management has yet to identify this funding source. We have assumed that this will be funded by Savcor and will form part of the FACE Receivable.
		0
		6,127
		6,127 0 5,300 1,780
		7,080
		13,207 2,900
		16,107

Source : Savcor management

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APPENDIX 9 CENCORP COMPARABLE COMPANY DESCRIPTIONS

Set out in the table below are summary descriptions of the operations of the selected listed comparable companies:

Table 75: Listed Comparable Companies

Name
Description

Actuant Corporation
ATS Automation Tooling
Systems
Dover Corporation
Elexis AG
FANUC LTD
Feintool International
Holding AG
Gildemeister AG
Interroll Holdings AG
Key Technology Inc
M.A.X. Automation AG
Metso Oyj
Mikron Holding AG
Mirle Automation Corp
Rohwedder AG
Schuler AG

Actuant Corporation manufactures and markets a broad range of industrial products and systems.
The Company sells branded, specialized electrical and industrial tools to hydraulic and electrical
wholesale distributors, to catalogue houses, and through retail distribution channels. Actuant also
designs and markets customized motion control systems for original equipment manufacturers.
ATS Automation Tooling Systems, Inc. is a custom engineer and producer of industrial automated
manufacturing systems. The Company also manufactures related precision components under long-
term contracts for customers in the automotive and other industries. ATS' products are sold
throughout the world.
Dover Corporation manufactures a variety of specialized industrial products and manufacturing
equipment. The Company's products include Material handling equipment, refuse truck bodies, tank
trailers, refrigeration systems, refrigeration display cases, marking and coding systems, sucker rods,
drill bit inserts, nozzles, swivels and breakaways, and electronic technology equipment.
Elexis AG manufactures industrial machinery. The Company produces automation equipment for the
steel, paper, foil, plastics, rubber and printing industries, robotics for plastic injection moulding, and
drive components and oscillation technology equipment based on vibration feeder technology.
FANUC LTD. manufactures factory automation (FA) systems and equipment, and robots. The
Company's products include computerized numerically-controlled (CNC) equipment, servo motors,
laser systems, industrial robots, wire-cut electric discharge machines, and CNC drill. Fanuc
participates in a joint venture with General Electric in the FA field.
Feintool International Holding AG manufactures integrated systems for fine blanking and forming
technologies. The Company produces presses and special tooling capable of manufacturing
precision parts, automation systems, riveting machines, and extruded plastic and metal components.
Gildemeister AG manufactures and markets machine tools including automatic lathes, milling,
turning, laser, and ultrasonic machines. The Company's products are sold throughout Germany, the
United States, Russia, and Europe.
Interroll Holding AG, through its subsidiaries, produces components and systems for the storage and
distribution of goods. The Company's products include conveyor rollers, bulk storage, dynamic
storage, and automation equipment. Interroll's products provide solutions for storage, distribution,
and commissioning of goods.
Key Technology, Inc. designs, manufactures, sells, and services process automation systems for the
food processing industry and other industries such as tobacco, plastics, and pharmaceuticals. The
Company's systems integrate electro-optical automated inspection and sorting systems, specialized
conveying systems, and product preparation systems.
M.A.X. Automation AG, through its subsidiaries, produces and markets handling systems, conveyors
and recycling installations. The Company also manufactures steel and plastic tanks and metal
containers. Its products include heating circuits and heating pipes, boiler connection assemblies and
heat distribution equipment.
Metso Corporation is a global supplier of process industry machinery and systems. The Company's
core businesses are divided between Metso Paper (fibre and paper technology), Metso Minerals
(rock and mineral processing), and Metso Automation (automation and control technology). Metso's
main market areas are Europe and North America. The Company also invests in venture
companies.
Mikron Holding AG manufactures and markets machine tools and robots. The Company produces
lathes, milling tools, calibrating tools, gun drills, reamers, flat, spiral, and step drills, moulds for plastic
products, high speed assembly systems, robotic assembly systems, injection-moulded plastic parts,
and mobile telephone components and accessories.
Mirle Automation Corp. manufactures and markets automation equipment. The Company's products
include computer and information systems, automated storage and retrieval systems, robotic
systems, automatic guided vehicle systems, horizontal packaging machines, and automatic servo
cup sealers.
Rohwedder AG develops and markets automated testing and assembly systems and solutions. The
Company provides systems focused on assembly, testing and handling technologies as well as
image processing and robotics. Rohwedder's systems and solutions are used in the automotive,
electronics, entertainment, telecommunications, and medical industries.
Schuler AG designs, manufactures and markets metal forming, machining and stamping equipment.
The Company's products include mechanical press systems, hydraulic press systems, hydro forming
machinery, tool and die systems and process automation equipment. Schuler markets its equipment
primarily to the automobile, electronics, household appliance and coin minting industries.

Source : Bloomberg

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APPENDIX 10 CENCORP COMPARABLE COMPANY TRADING MULTIPLES

Set out in the table below are the trading multiples of companies that are generally comparable to Cencorp:

Table 76: Comparable Company Multiples

Company	Last	Market cap1	Historic multiple
	Reporting Date	Local millions AUD millions	Sales EBITDA EBIT Sales EBITDA EBIT
Actuant Corporation USD 08/2009 1,254 1,487 ATS Automation Tooling Systems CAD 03/2010 497 556 Dover Corporation USD 12/2009 7,715 9,148 Elexis AG EUR 12/2009 95 141 FANUC LTD JPY 03/2010 2,378,314 32,192 Feintool International Holding AG CHF 09/2009 256 286 Gildemeister AG EUR 12/2009 412 612 Interroll Holdings AG CHF 12/2009 254 285 Key Technology Inc USD 09/2009 70 82 M.A.X. Automation AG EUR 12/2009 75 111 Metso Oyj EUR 12/2009 3,891 5,779 Mikron Holding AG CHF 12/2009 117 131 Mirle Automation Corp TWD 12/2009 5,185 191 Rohwedder AG EUR 12/2008 0 0 Schuler AG EUR 09/2009 48 72 Average Median Average (excluding Rohwedder and Schuler) Median (excluding Rohwedder and Schuler)			1.3x 9.6x 13.8x 1.3x 8.7x 12.5x 0.6x 27.1x n/m 0.5x 5.1x 8.2x 1.5x 10.5x 15.1x 1.4x 7.5x 9.4x 0.7x 9.3x 14.3x 0.7x 6.0x 8.5x 7.4x 27.3x 34.2x 5.0x 11.3x 11.6x 0.9x n/m n/m 0.9x 11.7x 40.6x 0.6x 11.0x 21.5x 0.5x 9.8x 17.5x 1.1x 13.7x 83.4x 1.0x 10.0x 26.1x 0.5x 22.8x n/m 0.5x 7.8x 12.5x 0.5x 19.0x 154.2x 0.5x 6.9x 10.6x 0.9x 11.4x 17.4x 0.9x 8.7x 12.4x 0.6x n/m n/m 0.5x 12.8x n/m 1.6x 12.0x 13.5 1.0x 8.9x 9.6x 0.2x n/m n/m n/a n/a n/a 0.3x n/m n/m 0.3x 6.8x 56.2x
			1.3x 15.8x 40.8x 1.1x 8.7x 18.1x 0.7x 12.0x 17.4x 0.8x 8.7x 12.4x
			1.4x 15.8x 40.8x 1.1x 8.9x 15.0x 0.9x 12.0x 17.4x 0.9x 8.7x 12.0x

Sources : Bloomberg; PKFCA analysis

Notes :

1. Analysis performed on 30 June 2010.

2. n/a indicates data not available, n/m indicates data not meaningful to the analysis, x indicates times, outliers or excluded multiples marked *

3. Multiples based on enterprise value calculated as market capitalisation, plus debt less cash.

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Risk factors

8. Risk Factors

8.1 Overview

This section 8 identifies what the Company regards as the major risks associated with Completion of the Transaction. shareholders should read the whole of this explanatory memorandum in order to fully appreciate those risks and the manner in which the Company and the remaining business is intended to be operated following Completion of the Transaction, before any decision is made to vote on the resolutions.

while the Company believes that prudent management will minimise the risks to shareholders, the business activities of the Company and the remaining business will be subject to a number of risks that may impact on its future performance. These are summarised below.

8.2 General risks

general risks that may impact significantly on the Company and the remaining business following Completion of the Transaction, its performance and the price of shares in the Company include:

(a) economic conditions in Australia and internationally may worsen, leading to reduced economic activity and negative growth in the remaining business;
(b) investors’ views regarding the stock market and share market conditions generally may decline, leading to reduced prices for shares in the Company;
(c) changes in fiscal and monetary policy may result in adverse consequences for the Company and the remaining business;
(d) changes in relevant taxation and other legal regimes may result in adverse consequences for the Company and the remaining business;
(e) currency fluctuations between the Australian Dollar and other currencies may result in adverse movements in the value of the Company’s assets or earnings.

8.3 Specific risks

business specific risks that may impact significantly on the Company and the remaining business, its performance and the price of Cencorp shares include:

(a) competitive pressures may prevent the Company and the remaining business from winning a satisfactory number of new contracts or reduce the price at which such contracts are won, thereby depressing margins and profitability;
(b) new technologies may be introduced which supplant the Company’s technologies and result in less business for the Company and the remaining business;
(c) the industries in which the Company and the remaining business operates, including mining and resources, infrastructure and construction, may decline or suffer reduced activity, leading to reduced demand for the Company’s products and services;
(d) the Conditions set out in the contract and summarised in section 3 of this explanatory memorandum may not be fulfilled and therefore the Transaction fails to proceed;

170 sAvCOR gROUP LiMiTED

Risk factors continued

(e) rapid increase in demand for the Company’s products and services may impair the ability of senior management to manage growth and may result in contracts with customers not being completed optimally;
(f) Cencorp may not be able to improve or grow the savcor face business following its acquisition by Cencorp;
(g) the liquidity of Cencorp shares and their trading price may be reduced due to general trading conditions, the performance of the businesses operated by Cencorp or the attitude of investors towards Cencorp.

The above risk factors ought not to be taken as exhaustive of the risks faced by the Company and the remaining business or investors in the Company. Those risk factors, and others not specifically referred to above, may in the future materially affect the financial performance of the Company and the remaining business and the value of shares in the Company.

EXPLANATORY MEMORANDUM 171

Directors' interests

9. Directors' Interests

9.1 Directors’ relevant interests in securities of the Company

At the date of this explanatory memorandum, the directors of the Company have the following relevant interests in shares of the Company:

This director...	..has a relevant interest in this number of shares in the Company...
simon Rowell (Chairman	252,102
Jyrki salminen	88,653
Nicholas Psaltis	555,622
hannu savisalo	89,203,610
iikka savisalo	89,203,610

9.2 Directors’ relevant interests in securities of Cencorp

At the date of this explanatory memorandum, the directors of the Company have the following relevant interests in shares in Cencorp:

This director...	...has a relevant interest in this number of shares in Cencorp...
simon Rowell (Chairman)	None
Jyrki salminen	None
Nicholas Psaltis	None
hannu savisalo	83,952,206
iikka savisalo	83,952,206

9.3 Any other interest of directors in resolution

hannu savisalo and iikka savisalo are directors of Cencorp and directors and shareholders of savor group Oy. No other director of the Company has any interest in the resolutions except as disclosed elsewhere in this explanatory memorandum.

172172 sAvCOR gROUP LiMiTEDsAvCOR gROUP LiMiTED

Glossary

10. Glossary

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----- Start of picture text -----

Term Definition
----- End of picture text -----

Ancillary Assets	Assets owned by the Company and intune Circuits used in
	connection with the savcor fACE business
ASX	AsX Limited ACN 008 624 691
ASX Listing Rules	Offcial listing rules of AsX
Board	board of directors of the Company
Cash Payment	Cash in an amount equal to:
	(a) A$11,000,000 less
	(b) the A$ equivalent of the Outstanding Completion Debt
	converted to A$ using the RMb Exchange Rate on the business day
	immediately prior to the Completion Date.
Cencorp	Cencorp Corporation (registered in finland) business
	iD 0749606-1
Cencorp Capital Raising	An equity capital raising proposed to be conducted by Cencorp
	prior to Completion of the Transaction to enable it to fund the Cash
	Payment and for Cencorp’s future growth.
Cencorp information	information relating to Cencorp provided to the Company by
	Cencorp and its offcers, employees and shareholders
Company	savcor group Limited ACN 127 734 196 and (where the context
	requires) its wholly owned subsidiaries
Completion	Completion of the sale of the savcor fACE Assets and fACE
	Receivable under the share sale Agreement
Completion Date	3 business days after the Conditions have been met or waived or
	such other date as savcor and Cencorp agree

EXPLANATORY MEMORANDUM 173

continued Glossary

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----- Start of picture text -----

Term Definition
----- End of picture text -----

Conditions	The conditions to which Completion is subject
Consideration Shares	shares in Cencorp to the value of €16,000,000 to be issued to
	the Company as part consideration for the sale of the savcor face
	Assets and fACE Receivable
Corporations Act	Corporations Act 2001 (Cth)
Current Banking Facilities	The group Entities’ banking facilities with ANZ bank drawn down
	to RMb 85,900,000 as at 23 August 2010
Current Bank Facility	The securities given by a group Entity and the Retained Entities to
Security	secure the Current banking facility
EBITDA	Earnings before interest, tax, depreciation and amortisation
EBIT	Earnings before interest and tax
FACE Receivable	The amount owed by savcor Pacifc to the Company at the
	Completion Date as a consequence of the Company having
	advanced funds to repay the Current banking facilities
General Meeting	The meeting of members to be held on 15 October 2010 at the
	Christie Conference Centre, 100 walker street, North sydney, Nsw
	at 3pm.
Group Entities	savcor Pacifc, savcor fACE (beijing) and savcor fACE
	(guangzhou)
Independent Expert	Pkf Corporate Advisory (East Coast) Pty Ltd
Independent Expert’s	The report prepared by the independent Expert dated 26 August
Report	2010 set out in section 7 of this explanatory memorandum

174174 sAvCOR gROUP LiMiTEDsAvCOR gROUP LiMiTED

continued Glossary

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Term Definition
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Intra Group Payables	The amount by which amounts owed to the Retained Entities by
	the group Entities (other than the fACE Receivable) exceeds the
	amounts owed to the group Entities by the Retained Entities as at
	the Completion Date
Intune Circuits	intune Circuits Oy business iD 1962342-7
New Bank Facility	The new banking facility to be entered into by the group Entities
	by the Completion Date with bank of China or another fnancier to
	raise approximately RMb 35,000,000 (net of deposited cash held
	as security for the New bank facility)
Notice of Meeting	The notice of the general Meeting accompanying this explanatory
	memorandum
NPAT	Net proft after tax
NTA	Net tangible assets
Ordinary Shares	fully paid ordinary shares in the capital of the Company
Outstanding Completion	The amount advanced to the group Entities under the New bank
Debt	facility as at the Completion Date (net of deposited cash held as
	security for the New banking facility)
RMB Exchange Rate	The spot currency exchange rate of UsDCNY and AUDCNY
	displayed on the relevant day at 14.00 hours (Australian time) on
	the bfiX pages of the bloomberg system
Retained Entities	The Company and the entities that it controls other than savcor
	Pacifc and its subsidiaries

EXPLANATORY MEMORANDUM 175

continued Glossary

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Term Definition
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Savcor ART Business	The business owned and operated by the Company and its
	affliated companies other than the group Entities relating to
	protection and remediation of steel and concrete structures via the
	application of electrochemical protection technology and provision
	of maintenance services for mining, infrastructure and industrial
	sectors
Sale Shares	All of the shares in the capital of savcor Pacifc
Savcor FACE Assets	The sale shares and the Ancillary Assets
Savcor FACE (Beijing)	savcor fACE (beijing) Technologies Co., Ltd
Savcor FACE Business	The business relating to certain functional and decorative solutions
	for the telecommunications and consumer electronics industries,
	including EMi/EMC shielding, decorative coatings and fexible
	antennas, owned and operated by savcor Pacifc and the other
	group Entities
Savcor FACE (Guangzhou)	savcor fACE (guangzhou) Technologies Co., Ltd
Savcor Group Oy	savcor group Oy (registered in finland) business iD 0483411-7
Savcor Pacifc	savcor Pacifc Limited (registered in hong kong) Company Number
	1134051
Shareholders	The holders of Ordinary shares
Share Sale Agreement	share sale agreement between the Company, intune Circuits and
	Cencorp under which Cencorp has agreed to buy the savcor fACE
	Assets and fACE Receivables
Transaction	The sale of the savcor fACE Assets and fACE Receivables in
	exchange for the Consideration shares, Cash Payment and other
	consideration as more fully described in section 3

176176 sAvCOR gROUP LiMiTEDsAvCOR gROUP LiMiTED

Corporate directory

SAVCOR GROUP LIMITED

AbN 52 127 734 196 incorporated in victoria, Australia website: www.savcor.com

REGISTERED OFFICE

Level 16, 132 Arthur street North sydney Nsw 2060 Phone: +61 2 9025 2000 fax: +61 2 9025 2099

DIRECTORS

simon Rowell (Non-Executive Chairman) hannu savisalo (Managing Director) Nicholas Psaltis (Non-Executive Director) Jyrki salminen (Non-Executive Director) iikka savisalo (Non-Executive Director)

COMPANY SECRETARY

SECURITIES EXCHANGE LISTING

Australia

SHARE REGISTRY

Registries Limited Level 7, 207 kent street sydney Nsw 2000

gPO box 3993 sydney Nsw 2001

CONTACT:

Within Australia Phone: 1300 737 760 fax: 1300 653 459

Outside Australia Phone: +61 2 9290 9600 fax: +61 2 9279 0664 Email: [email protected]

iikka savisalo John O’Malley

EXPLANATORY MEMORANDUM 177

www.savcor.com

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Savcor Group Limited ACN 127 734 196

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FOR ALL ENQUIRIES CALL:

(within Australia) 1300 737 760 (outside Australia) +61 2 9290 9600

FACSIMILE +61 2 9290 9655

ALL CORRESPONDENCE TO:

«NameAddress_1» «NameAddress_2» «NameAddress_3» «NameAddress_4» «NameAddress_5» «NameAddress_6»

Registries Limited GPO Box 3993 Sydney NSW 2001 Australia

Your Address

This is your address as it appears on the company’s share register. If this is incorrect, please mark the box with an “X” and make the correction on the form. Securityholders sponsored by a broker should advise your broker of any changes. Please note, you cannot change ownership of your securities using this form.

«Holder_ID»

YOUR VOTE IS IMPORTANT

FOR YOUR VOTE TO BE EFFECTIVE IT MUST BE RECORDED BEFORE 3.00pm WEDNESDAY 13 OCTOBER 2010

TO VOTE BY COMPLETING THE PROXY FORM

STEP 1 Appointment of Proxy

Indicate here who you want to appoint as your Proxy

If you wish to appoint the Chairman of the Meeting as your proxy, mark the box. If you wish to appoint someone other than the Chairman of the Meeting as your proxy please write the full name of that individual or body corporate. If you leave this section blank, or your named proxy does not attend the meeting, the Chairman of the Meeting will be your proxy. A proxy need not be a security holder of the company. Do not write the name of the issuer company or the registered securityholder in the space.

Proxy which is a Body Corporate

Where a body corporate is appointed as your proxy, the representative of that body corporate attending the meeting must have provided an “Appointment of Corporate Representative” prior to admission. An Appointment of Corporate Representative form can be obtained from the company’s securities registry.

Appointment of a Second Proxy

You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you wish to appoint a second proxy, an additional Proxy Form may be obtained by telephoning the company’s securities registry or you may copy this form.

To appoint a second proxy you must:

(a) complete two Proxy Forms. On each Proxy Form state the percentage of your voting rights or the number of securities applicable to that form. If the appointments do not specify the percentage or number of votes that each proxy may exercise, each proxy may exercise half your votes. Fractions of votes will be disregarded.

STEP 3 Sign the Form

The form must be signed as follows :

Individual: This form is to be signed by the securityholder.

Joint Holding : where the holding is in more than one name, all the securityholders must sign.

Power of Attorney: to sign under a Power of Attorney, you must have already lodged it with the registry. Alternatively, attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: this form must be signed by a Director jointly with either another Director or a Company Secretary. Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. Please indicate the office held by signing in the appropriate place.

STEP 4 Lodgement of a Proxy

This Proxy Form (and any Power of Attorney under which it is signed) must be received at an address given below not later than 48 hours before the commencement of the meeting at 3.00pm on Friday, 15 October 2010 . Any Proxy Form received after that time will not be valid for the scheduled meeting.

Proxies may be lodged using the reply paid envelope or:

BY MAIL - Share Registry – Registries Limited, GPO Box 3993, Sydney NSW 2001 Australia

BY FAX - + 61 2 9290 9655

IN PERSON - Share Registry – Registries Limited, Level 7, 207 Kent Street, Sydney NSW 2000 Australia

(b) return both forms together in the same envelope.

STEP 2 Voting Directions to your Proxy

You can tell your Proxy how to vote

Attending the Meeting

If you wish to attend the meeting please bring this form with you to assist registration .

To direct your proxy how to vote, place a mark in one of the boxes opposite each item of business. All your securities will be voted in accordance with such a direction unless you indicate only a portion of voting rights are to be voted on any item by inserting the percentage or number of securities you wish to vote in the appropriate box or boxes. If you do not mark any of the boxes on a given item, your proxy may vote as he or she chooses. If you mark more than one box on an item your vote on that item will be invalid.

Savcor Group Limited

«NameAddress_1» «NameAddress_2» «NameAddress_3» «NameAddress_4» «NameAddress_5» «NameAddress_6»

«SR_Refer ence»

«SR_Reference»

STEP 1 - Appointment of Proxy

I/We being a member/s of Savcor Group Limited and entitled to attend and vote hereby appoint

the Chairman of the Meeting OR (mark with an ‘X’)

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If you are not appointing the Chairman of the Meeting as your proxy please write here the full name of the individual or body corporate (excluding the registered Securityholder) you are appointing as your proxy.

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy at the General Meeting of Savcor Group Limited to be held at the Christie Conference Centre,100 Walker Street, North Sydney, NSW on Friday, 15 October 2010 at 3.00pm and at any adjournment of that meeting, to act on my/our behalf and to vote in accordance with the following directions or if no directions have been given, as the proxy sees fit.

If the Chairman of the Meeting is appointed as your proxy or may be appointed by default, and you do not wish to direct your proxy how to vote in respect of a resolution, please mark this box. By marking this box, you acknowledge that the Chairman of the Meeting may vote as your proxy even if he has an interest in the outcome of the resolution and votes cast by the Chairman of the Meeting for those resolutions, other than as proxy holder, will be disregarded because of that interest. If you do not mark this box, and you have not directed your proxy how to vote, the Chairman of the Meeting will not cast your votes on the resolution and your votes will not be counted in calculating the required majority if a poll is called. The Chair intends to vote all undirected proxies in favour of the resolution.

STEP 2 - Voting directions to your Proxy – please mark  to indicate your directions

Ordinary Business For Against Abstain Resolution 1 Sale of Savcor FACE Business Subject to Resolution 2 being passed, that the sale by the Company of the Savcor FACE Business on the terms more particularly set out in the explanatory memorandum accompanying the notice of this meeting, be approved for the purposes of and in accordance with the requirements of rule 10.1 of the ASX Listing Rules. The Independent Expert has concluded that the proposed transaction is not fair but is on balance reasonable to the non-associated Shareholders.* Resolution 2 Sale of Savcor FACE Business Subject to Resolution 1 being passed, that the sale by the Company of the Savcor FACE Business on the terms more particularly set out in the explanatory memorandum accompanying the notice of this meeting, be approved for the purposes of and in accordance with the requirements of Chapter 2E of the Corporations Act 2001 (Cth).

In addition to the intentions advised above. The Chairman of the Meeting intends to vote undirected proxies in favour of each of the items of business.

*If you mark the Abstain box for a particular item, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll.

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STEP 3 - PLEASE SIGN HERE This section must be signed in accordance with the instructions overleaf to enable your directions to be implemented.
Individual or Securityholder 1 Securityholder 2 Securityholder 3
Sole Director and Sole Company Secretary Director Director/Company Secretary
Contact Name ……………………………….…….. Contact Daytime Telephone ………………………………….. Date / / 2010
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AI assistant

FLUENCE CORPORATION LIMITED — Proxy Solicitation & Information Statement 2010

64922_rns_2010-09-15_43b01322-270d-41f5-8bb7-133f6828877e.pdf

Savcor Group Limited – Notice of General Meeting and Explanatory Memorandum

~~EXPLANATORY MEMORANDUM~~

~~Notice of General Meeting~~

~~Contents~~

Dear shareholder

Resolution – Sale of Savcor FACE Business

Notes:

Voting exclusion statement

Defined terms

Important dates

1. Reasons for the Transaction

The board also considered that the Independent Expert has concluded that the Transaction is not fair but is on balance reasonable to the non-associated Shareholders.

2. Overview of the Transaction

3. Further details of the Transaction

3.1 Conditions to Completion

3.2 Completion date

3.3 Warranties and indemnities

4. Resolutions

4.1 Resolution 1 – Approval of Sale of Savcor FACE Business for the purposes of ASX Listing Rule 10.1

4.2 Resolution 2 – Approval of Sale of Savcor FACE Business for the purposes of Chapter 2E of the Corporations Act

4.3 Directors’ recommendations

Information about Cencorp

5. Information about Cencorp

5.1 Profile of Cencorp Corporation

5.2 Nasdaq OMX Helsinki

5.3 Valuation of the Consideration Shares

5.4 Financial Implications for Cencorp

5.5 Cencorp rationale for the Transaction

5.6 Exemption from an obligation to launch a takeover bid under Finnish Securities Act

6. Financial Implications of the Transaction for Savcor

6.1 Overview

6.2 Pro forma balance sheet

6.3 Pro forma income statement

6.4 Savcor ART and Savcor Corporate Combined

7. Independent Expert's Report

Savcor Group Limited

Financial Services Guide

Engagement

Financial Services Guide

Financial services PKFCA is licensed to provide

General financial product advice

Benefits that PKFCA may receive

Remuneration or other benefits received by our employees

Referrals

Associations and relationships

Complaints resolution

INDEPENDENT EXPERT REPORT IN RELATION TO THE SALE OF THE SAVCOR FACE BUSINESS

Introduction

Background

Proposed Transaction

Impact of the Proposed Transaction on Savcor Group Corporate Structure

Figure 1

Figure 2

Source : PKFCA workings

Regulatory Requirements

Australian Stock Exchange Listing Rules (“ASX Listing Rules”)

Chapter 2E of the Corporations Act

PKFCA role

PKFCA Conclusions

Australian Stock Exchange Listing Rules (“ASX Listing Rules”)

Chapter 2E of the Corporations Act

The Proposed Transaction is not Fair

The Proposed Transaction is Reasonable

Advantages of the Proposed Transaction

Better employment of capital to improve shareholder returns

Reduced exposure to competitive process manufacturing

Opportunity to retain an indirect interest in Cencorp

Reduced exposure to concentrated customer base

Improved shareholder value through a focussed business

Reduced gearing

Likely share price in the absence of the Proposed Transaction

Reduced exposure to foreign currency fluctuations

Potential to enhance liquidity of Savcor shares

Potential for Savcor to pay dividends

Potential for reduced overheads

Potential improvement in the value of Cencorp shares

Adhere to the debt reduction schedule

FLUENCE CORPORATION LIMITED Proxy Solicitation & Information Statement 2010

EXPLANATORY MEMORANDUM

Notice of General Meeting

Contents