CORPORATE INFORMATION

Board of Directors Jia Changbin Chairman and Non-Executive Director Chen Jiulin Managing Director & Chief Executive Officer Gu Yanfei Non-Executive Director Li Yongji Non-Executive Director Chen Kaibin Non-Executive Director Zhang Lianxi Non-Executive Director Jerry Lee Kian Eng Independent Director Tan Hui Boon Independent Director Dr Yan Xuetong Independent Director

Audit Committee Jerry Lee Kian Eng Chairman Li Yongji Tan Hui Boon

Remuneration Committee Tan Hui Boon Chairman Chen Jiulin Jerry Lee Kian Eng Li Yongji

Company Secretaries Adrian Chang Choon Siew ACA Anne Skading ACIS

Share Registrar & Share Transfer Office Lim Associates (Pte) Ltd Principal Bankers 10 Collyer Quay #19-08 Ocean Building Fortis Bank S.A./N.V. 049315 Societe Generale BNP Paribas Auditors United Overseas Bank Limited Ernst & Young The Development Bank of Singapore 10 Collyer Quay #21-01 Ocean Building Bank of Communications Singapore 049315 Industrial and Commercial Bank of China Natexis Banques Populaires Partner-in-charge since 2003 Ho Shyan Yan Registered Office 8 Temasek Boulevard #31-02 Suntec Tower Three Singapore 038988 Tel : (65) 6334 8979 Fax : (65) 6333 5283 Tlx : CAO RS20338 Website : http://www.caosco.com E-Mail : [email protected] CONTENTS

Corporate Information ... INF

Key Milestones, Awards & Accolades ... 2

Chairman’s Message ... 4

Managing Director and CEO’s Review ... 6

Financial Review ... 12

Board of Directors ... 14

Key Executives ... 17

Corporate Governance ... 18

Financial Reports

Report of the Directors ... 25 Statement by Directors ... 26 Auditors’ Report ... 27 Profit and Loss Accounts ... 28 Balance Sheets ... 29 Statements of Changes in Equity ... 30 Consolidated Statement of Cash Flows ... 31 Notes to the Financial Statements ... 32 Additional Information ... 54 Statistics of Shareholdings ... 55 Notice of Annual General Meeting ... 56 Proxy Form ... 59 KEY MILESTONES, AWARDS & ACCOLADES

2004 11 to 13 February Went with CLSA on roadshow in the US to increase its profile amongst international institutional investors.

5 February Acquired a 24.5%-stake in South China Bluesky Aviation Oil Co. Ltd from Fortune Oil Plc of the UK. Bluesky owns the jet fuel supply infrastructure in 15 airports in Southern and Central China, and is the sole jet fuel supplier to all domestic Chinese and foreign airlines in the region. The Bluesky stake is CAO’s largest investment to date.

26 to 30 January Went with ABN AMRO on roadshows in the US and UK.

20 January Acknowledged for its outstanding risk-management structure and procedures by China National Enterprise Federation at China’s Tenth Annual Creative Management Awards. CAO was the only overseas Chinese-funded enterprise accorded the honour.

2003 29 December Announced acquisition of 80% stake in Shuidong oil storage facilities from Shenzhen Juzhengyuan Petrochemical Co Ltd (“JZY”). A joint-venture between CAO and JZY will be established to operate the Southern China oil facilities and carry out other oil-related activities.

28 November Sealed first gasoil deal with Saudi Aramco of Dhahran in Saudi Arabia, one of the largest suppliers in the global oil business.

28 November Opened branch office for wholly owned subsidiary, Greater China Travel Industry at People’s Park Complex, Singapore.

19 to 21 November Went with ABN AMRO on roadshow in Thailand to increase the profile of CAO regionally.

20 to 24 October Went with DBS Vickers on roadshows in the US and UK.

30 September Held CAO’s first real-time, bilingual Internet forum for interested investors, analysts and media representatives to increase interaction and understanding between participants of the forum and management.

26 September Announced new corporate slogan – Chinese Wisdom, International Expertise – and initiatives aimed at enhancing Company’s management practises, increasing transparency and openness with investors, and optimising risk management procedures.

18 July Signed US$160 million five-year Syndicated Term Credit Facility with ten international banks led by Societe Generale Asia to capitalise on oil-related investment opportunities.

24 June Granted five-year extension to membership in Global Trader Programme (“GTP”) by IE Singapore. Under the terms of membership, CAO will enjoy a concessionary tax rate of 10% on qualifying income for a term of five years, commencing 1st January 2003.

23 April Completed transfer of ownership of CAO from China Aviation Oil Supply Corporation (“CAOSC”) to China Aviation Oil (“CAOHC”).

7 April Ranked alongside leading companies in the sixth annual industry perception survey by Houston, U.S.-based Applied Trading Systems Inc. (“ATS”) of regional petroleum trading firms. CAO was ranked 3rd in “Specialty or Niche”, 4th in the “Improved” and 5th in the “National Oil Co.” categories. 2002

11 October Announced impending transfer of ownership of CAO from CAOSC to CAOHC.

August Won “Most Transparent Company Award” by the Securities Investors Association (Singapore) among newly listed companies on the Singapore Exchange.

August Transformed into an integrated enterprise encompassing international oil trading and strategic investments in the second of CAO’s series of business transformation. Announced CAO’s “three- pronged strategy” to include Strategic Oil-related Investments, International Oil Trading and Jet Fuel Procurement.

2 Annual Report 2003

31 July Signed Sale and Purchase Agreement for a 5% equity investment in Compania Logistica de Hidrocarburos, S.A. (“CLH”) of Spain.

23 July Entered into a Share Transfer Agreement for the investment of a 33% stake in Pudong International Airport Aviation Fuel Supply Company Ltd (“Pudong”) of China.

March Rated 26th most transparent company among those listed in Singapore by Business Times Index.

22 February Ranked top company listed on the Singapore Exchange in 2001 according to Singapore 1000, a report by the DP Information Network and compiled in conjunction with the Registry of Companies and Businesses.

CAO was ranked 127th among other big multinational corporations, the highest ranked company that had an IPO in 2001, and 26th among oil companies and 2nd among overseas Chinese companies in Singapore. 2001

6 December Listed on the mainboard of the Singapore Exchange with gross proceeds of S$80.6 million. CAO was subsequently ranked first in terms of economic performance among IPO companies listed on the Singapore Exchange in 2001. CAO is also the only publicly listed entity of China Aviation Oil Supply Corporation, a state-owned aviation transportation logistic group of the People’s Republic of China. 1999

1999 Labelled “King of Jet Fuel Procurement” by Singapore’s main Chinese daily, Lianhe Zaobao. Market share of total jet fuel imports to China jumped significantly to 83% from an initial 3% in 1997, subsequently rose to near 100%.

Extended jet fuel procurement activities to a wider range of products e.g. fuel oil, gas oil, petrochemical products and oil derivatives. 1998

Attained profitability for the first time since company was incorporated in Singapore, underscoring the success of CAO’s business transformation.

8 September Conferred the Approved Oil Trader Award (renamed as Member of Global Trader Programme) by the Government of Singapore. 1997

Embarked on the first of a series of strategic transformations and resumed operations as an oil trading company, with focus on jet fuel procurement activities. 1995

14 February Became a wholly owned overseas subsidiary of CAOSC after the company acquired the shares held by the two other shareholders. 1993

26 May Incorporated in Singapore as a joint venture between CAOSC, China Foreign Trade Transportation Corporation and Neptune Orient Lines Ltd of Singapore as a shipping broker.

3 CHAIRMAN’s MESSAGE

Dear Shareholders, control most of China’s major jet fuel consumption points, with the exception of the fuel supply company at Capital On behalf of the Board of Directors of China Aviation Oil International Airport, controlled by CAO’s sister company. (Singapore) Corporation Ltd (“CAO”), I take great pride in presenting to you our Annual Report for FY03, a year that was With Bluesky, CAO’s Asian “growth triangle” is now well- affected by two landmark events – the Iraq War and the Severe established, comprising our head office in Singapore, the world’s Acute Respiratory Syndrome (“SARS”) epidemic – each of which third largest oil trading hub; Pudong in Shanghai, China’s left an indelible imprint on the world. economic power-house; and Bluesky and Shuidong in the heart of China’s southern economic region. Furthermore, CAO has top- The volatile operating conditions of FY03 particularly impacted level access to global oil majors through our board seat in Spanish companies engaged in international oil trading activities, and those oil infrastructure leader, Compania Logistica de Hidrocarburos, with businesses in China relating to aviation and travel. I wish S.A. (“CLH”). to commend the management team and all employees of the Group for having outdone themselves in FY03. Despite such I am extremely pleased that CAO has gained recognition as an unprecedented external events, they have managed to increase emerging player in the international business and financial shareholder value in FY03. CAO again posted record results, with communities. It is a ringing endorsement of CAO’s prospects, for S$2.43 billion in revenue and S$54.3 million in net profit after instance, that London-listed Fortune Oil decided to accept a tax. Net assets amount to approximately S$225 million. significant portion of the consideration for its Bluesky stake in the form of CAO shares and share options. China’s aviation industry continues to be one of the country’s shining stars. As many market watchers have projected, air travel With all three of our business lines thus developing in positive in China will continue to grow at amongst the highest levels in directions, we feel confident that we are succeeding in our the world for some time to come, and the fast rebound from the mission of value creation. However, this is only the beginning of SARS outbreak has underscored its resilience. Our jet fuel a long road. It is advantageous to have secured fresh investment procurement volumes have broken all-time records for the past deals so early in the New Year, as this places the Group in an three consecutive quarters since July 2003, with a good possibility excellent position to achieve record profitability in 2004, that the April – June 2004 will also be a record-breaking assuming no unforeseen external shocks. CAO will persist in quarter. I am confident that CAO will continue to benefit by building our earnings base further in order to rise to the next level springboarding on this tremendous growth potential as it is of profitability. founded on robust fundamentals. In view of the results and of our continuing positive outlook, China Aviation Oil has prided itself on the development of its the Board is recommending a tax-exempt dividend of 3.5 Singapore unique three-pronged business model, encompassing strategic cents per share. In addition, the Board recommends the issuance oil-related investments, international oil trading and jet of two bonus shares for every five shares held, which should fuel procurement. CAO’s achievements in the months since further increase the liquidity of CAO’s shares while rewarding our December 2003 have been highly significant for CAO’s long-term shareholders for their loyalty. growth strategy, beginning with the acquisition of an 80% equity interest in the Shuidong oil tank farm in southern China. In I would like to thank all our shareholders, customers, business addition, CAO’s successful wrapping-up of the acquisition of a partners, directors, managers and staff for their unfailing support. 24.5% stake in South China Bluesky Aviation Oil Co. Ltd Such dedication has benefited CAO immeasurably through the (“Bluesky”) from UK-based Fortune Oil Plc in early February 2004 challenges of the past year. We look forward to meriting your was another important milestone. continuing support in the years to come.

Bluesky is the largest jet fuel supply company in the booming economic zone of southern and central China covering 15 airports. These include the Guangzhou Baiyun International Airport, which will be China’s largest when the new airport is open in the second half of 2004. Coupled with 33%-owned associate company Jia Changbin Shanghai Pudong International Airport Aviation Fuel Supply Chairman Company Ltd (“Pudong”), the investment means the Group will

4 Annual Report 2003

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5 MANAGING DIRECTOR & CEO’s REVIEW

Dear Shareholders, I am pleased to report that our risk-management systems and trading acumen enabled our trading and procurement divisions On behalf of the management, I am proud to present the Annual to surmount these unfamiliar challenges. Total volumes from the Report for China Aviation Oil (Singapore) Corporation Ltd international oil trading division climbed 56% to reach 38 (“CAO”) for the year ended 31 December 2003 (“FY03”). million metric tonnes for FY03. Jet fuel procurement volumes rose 31% to 1.88 million metric tonnes. FY03 represented another landmark year for CAO, in more ways than we had expected. On the international front, the first half of Achieved normalised profits growth of 60% For FY03, the FY03 saw the unprecedented twin challenges of the Iraq War and Group recorded net profit after tax of S$54.3 million and profit Severe Acute Respiratory Syndrome (“SARS”) epidemic, which before tax of S$67.1 million These represented 12.5% growth over together spurred extensive uncertainties and fanned doomsday the S$48.2 million in after-tax profits booked in FY02 and a anxieties. 22.8% gain on FY02’s S$54.6 million in pretax profits.

These turbulent circumstances in our operating environment were Shareholders should note that the FY02 results included one-time beyond our control and posed special challenges for oil- and China- exceptional items amounting to S$12.7 million, arising from the related companies. Fortunately, SARS was brought under control, write-back of unutilised provisions for management fees and staff with important lessons for the future, and the recovery was strong. bonuses in prior years which were included in FY02's fourth As the year proceeded, business sentiment broadly turned quarter. Excluding these exceptional items, pre-tax profit for FY03 optimistic, but residual uncertainties kept global markets rose 60.0% over FY02. volatile. Strategic investments were the main contributor to our This period of external turmoil tested the resilience bottom line as planned. Three dividends from 5%- and dynamism of our three-pronged diversification owned Compania Logistica de Hidrocarburos S.A. strategy, encompassing strategic investments in oil- (“CLH”) of Spain in FY03 amounting to EUR6.6 million related infrastructure businesses, international oil (S$13.1 million). The FY03 return on investments trading and jet fuel procurement. It also brought (“ROI”) for our CLH investment was thus 10.9% in home the cold fact that the Group must be prepared Euro terms and 12.0% in S$ terms. Together with the for any unforeseen shocks, including ongoing equity accounting of Pudong’s profits, investments terrorism threats, which would impact our Asian economies and accounted for 68% of the Group’s profit before tax for FY03. operating spheres acutely. Proposed Dividend of 3.5 cents plus 2-for-5 Bonus Issue In Ultimately, the Group’s achievement of net profit after tax of S$54.3 view of the FY03 results and continuing positive outlook, the Board million on revenues of S$2.43 billion was the best testimony to has proposed rewarding shareholders with a tax-exempt dividend date of the efficacy of our three-pronged strategy, leveraging on of 3.5 Singapore cents per share, representing a dividend yield the vast potential of China’s burgeoning economy to expand our of 2.8% based on the year-end share price, and a 2-for-5 bonus international presence. We are confident that this proven strategy issue. will continue to be the strong foundation of the Group’s continual thrust towards becoming one of the leading players in Enhanced Investment War-chest CAO signed a US$160 the global oil-related industry. million syndicated term credit facility with ten international banks on 18 July 2003. CAO also received from Pudong a dividend of RMB105.6 million (approximately S$22.3 million) paid out of Performance Scorecard for FY03 Pudong’s FY02 profit and a distribution of retained earnings of RMB39.6 million (approximately S$8.4 million) accrued in years During the year under review, the Iraq war brought about prior to FY02. exceptional volatility and some of the toughest trading conditions in the world’s oil markets, while the SARS epidemic decimated Acquired Shuidong Oil Tank Farm near Maoming, China’s aviation-related industry, on both domestic and Southern China On 29 December, CAO purchased an 80% international fronts. Inevitably, contributions from our 33%- equity interest in the Shuidong oil tank farm in Southern China, owned associate company, Shanghai Pudong International including 76,732 square meters of land, for RMB18.4 million in Airport Aviation Fuel Supply Company Ltd (“Pudong”) were also cash (S$3.83 million). The facility is connected by a short pipe- affected. line to the neighbouring Maoming Oil Refinery, China’s second-

6 Annual Report 2003

largest refinery. It has direct ocean access and is close to China’s enlarged share capital) and options for 26 million new CAO shares third- and fifth-largest airports. Total capacity is 50,000 cubic with a strike price of S$1.60. The use of shares in the deal, was a metres (“CBM”) comprising six 5,000 CBM tanks and two great vote of confidence by Fortune Oil in CAO’s future potential. 10,000 CBM tanks. The facilities have been in use for 10 years and economic useful lives are at least 50 years. Based on the Bluesky owns the entire jet fuel supply infrastructure at 15 existing land area, the tank farm may be expanded to more than airports in Southern and Central China, and is the sole jet fuel double its current capacity. Total stored volume reached 650,000 supplier to all domestic Chinese and foreign airlines operating CBM in FY03 for a turnover rate around 13 times. there. CAO thus has obtained immediate access to these airports, including the new Guangzhou Baiyun International Airport, which, when it opens in the second half of 2004, will become Outlook for the Future China’s largest airport. Together with the stake held by our sister company, China Aviation Oil Supply Corporation, Group The Group kicked off FY04 on a high note with record levels of shareholding in Bluesky is 75.5%, with the balance held by procurement, and continued the momentum by securing major BP. strategic initiatives, fundamentally strengthening CAO’s power bases in investments, international oil trading and jet fuel Potential for China’s Oil Market This is the third year procurement. following China’s accession to the WTO. Among the biggest deregulations seen to date are those in financial services, Breaking All-time Highs for Quarterly Jet Fuel Procurement telecommunications, utilities, and civil aviation. The impact of Volumes Jet fuel procurement was at all-time highs in 3Q03 the reduction in tariffs and of the further opening of the market and again in 4Q03. Total spot and tender volumes for the will continue to grow. The relaxation or lifting of import quotas January-March 2004 quarter (“1Q04”) reached 603,000 metric for non-State-owned oil product traders and the progressive tonnes (“MT”) were the highest ever for a first quarter, marking a reduction of import tariff rates will lead to more intense market third consecutive quarterly record. All current indications point to CAO maintaining or surpassing FY03 levels in FY04.

Securing Foothold in Southern and Central China through Bluesky Investment On 5 February 2004, CAO acquired a 24.5% stake in South China Bluesky Aviation Oil Co. Ltd (“Bluesky”), the largest jet fuel supply company in Southern and Central China, from UK-listed Fortune Oil Plc. Consideration was agreed at earnings-accretive valuations, comprising US$21.7 million in cash (RMB180 million), 37.76 million new CAO shares (5.2% of

7 MANAGING DIRECTOR & CEO’s REVIEW

competition. Against this backdrop, however, CAO is of the In Appreciation opinion that the open-door policies and future deregulations in China offer more opportunities than threats. CAO has ridden through difficult times and made several landmark accomplishments since the start of 2003. On behalf of China is expected to consume 6.8 million MT of jet fuel in 2004, the management, I wish to express our appreciation to our up 19% from the 5.7 million MT last year, of which 33% was shareholders, customers, strategic partners and business associates, supplied by CAO. Total consumption is forecast to jump to 10 as well as the Singapore government agencies and the Embassy million MT in 2008. Officials forecast China’s dependency on of the People's Republic of China in Singapore, for their imports may rise to 50% by 2007 from only 31% in 2002. considerable contributions in making it all happen for CAO.

Experts have estimated that nationwide oil demand is expected to I also wish to express particular gratitude to fellow members of grow at a compound annual rate of 12% over the next two decades. the Board, in particular our Chairman Jia Changbin, as well as By 2020, total oil demand will reach 450 million MT a year. the staff members of CAO. I thank you all for your invaluable Dependence on supply sources outside of China will rise to 60%, dedication, support and hard work in bringing CAO to a new compared with 30% currently. Of total imports, southern China level of growth, profitability and shareholder value-creation. is expected to consume 60%.

Leveraging on China, Going Global China’s long-term growth prospects remain among the strongest in the world. CAO capitalizes on its Chinese background and its multinational talent and reach to provide superior growth prospects and maximize shareholder value. Underpinned by its three-pronged strategy, its 1-2-3 management concept and its stringent risk management system, CAO will continue to collaborate with industry leaders and positioning towards growing presence and influence in the global arena over the long term.

For FY04, Shuidong and Bluesky are expected to start contributing to the Group’s performance. Pudong’s margins post-SARS are expected to stabilise. Procurement Sincerely volumes are expected to sustain or exceed FY03’s levels. In light of the developments outlined above and barring any unforeseen circumstances in the external environment, the Group is confident it is on track to record another year of growth.

Chen Jiulin Managing Director and CEO

8