BUILDING FOR THE FUTURE COSCO Corporation (Singapore) Limited Annual Report 2010 WE BEHOLD OUR PAST WITH PRIDE THE PATH WE TOOK THE FOUNDATION WE LAID

TO CREATE A PLATFORM FOR SUSTAINABLE GROWTH THUS BRINGING US CLOSER TO THE FUTURE WE ENVISION WITH CONFIDENCE AND PASSION

CONTENTS

COSCO OVERVIEW 01 Corporate Profile 02 Corporate Structure 04 Financial Highlights 08 Major Developments 10 Major Deliveries in 2010 11 Our Major Shipyards

KEY MESSAGES 14 Chairman’s Statement 18 Interview with Vice Chairman and President

OPERATIONS AND FINANCIAL REVIEW 23 Ship Repair, Ship Building and Offshore Marine Engineering 26 Dry Bulk Shipping & Others 28 Group Financial Review

CORPORATE GOVERNANCE AND TRANSPARENCY 32 Corporate Governance 49 Corporate Information 50 Board of Directors 56 Key Management 60 Investor Relations 64 Risk Management

INSIDE COSCO AND CORPORATE CITIZENSHIP 68 Research and Development 70 Human Resources and Workplace Safety 72 Corporate Social Responsibility

FINANCIAL STATEMENTS 74 Directors’ Report 80 Statement by Directors 81 Independent Auditor’s Report 82 Consolidated Income Statement 83 Consolidated Statement of Comprehensive Income 84 Balance Sheets 85 Consolidated Statement of Changes in Equity INVESTOR RELATIONS CONTACTS 86 Consolidated Cash Flow Statement COSCO Corporation (Singapore) Limited 88 Notes to the Financial Statements Mr Li Jian Xiong, Vice President 153 Five-Year Summary Mr Wang Hui, General Manager, Investor Relations Tel: (65) 6885 0888 154 Shareholding Statistics Fax: (65) 6336 9006 Email: enquiry@.com.sg 156 Notice of Annual General Meeting Proxy Form for Annual General Meeting SPIN Capital Asia (Investor Relations Consultant) Notes for Proxy Form Mr Michael Tan Tel: (65) 6227 7790 Email: [email protected] 01

Annual Report 2010

CORPORATE PROFILE

“A diversified marine conglomerate providing Ship Repair and Conversion, Ship Building and Offshore Marine Engineering solutions.”

COSCO Corporation (Singapore) Limited COSCO Corporation is committed to long- (“COSCO Corporation” or the “Group”) has term growth through its core businesses and one of the largest Ship Repair, Ship Building global coverage. In October 2006, COSCO and Offshore Marine Engineering operations Corporation was rated as a component in . A diversified group with activities stock of Prime Partners China Index - the also in Dry Bulk Shipping, Shipping Agency first index that tracks the performance of and other sectors, it is the SGX Mainboard- China enterprises listed on the SGX. Since listed subsidiary of China Ocean Shipping January 2009, we have been part of the (Group) Company (“COSCO Group”), China’s FTSE ST China Index, and from July 2009, largest shipping group and one of the top we were also included in the FTSE ST China shipping conglomerates in the world. Top Index, both of which were created to reflect the increasing representation of China- COSCO Corporation has achieved significant based companies in the Singapore stock progress in growing its Ship Repair, Ship market. Among other indexes, we are also Building and Offshore Marine Engineering a component stock of the Morgan Stanley capacity and capabilities. The completion of Capital International World Index as well as its acquisition of a 51% stake in one of the the SGX Morgan Stanley Capital International largest shipyards in China, COSCO Shipyard Asia Apex 50 Index Futures which feature Group (“COSCO Shipyard”), on 1 January some of the most promising, widely-traded 2005 propelled COSCO Corporation into the and investible Asian companies outside premier league in the ship repair industry. Japan. 02

COSCO OVERVIEW

CORPORATE STRUCTURE

Dry Bulk Shipping

100% COSCO (Singapore) Pte Ltd

Shipping Agency & Others

70% COSTAR Shipping Pte Ltd 100% • Costar Agencies (M) Sdn Bhd 60% • CNF Shipping (M) Sdn Bhd 18%

70% COSLINK (M) Sdn Bhd

100% Harington Property Pte Ltd 03

Annual Report 2010

Ship Repair, Ship Building & Offshore Marine Engineering

90% COSCO Marine Engineering 100% • COSCO Engineering Pte Ltd (Singapore) Pte Ltd

50% COSCO (Nantong) Shipyard Co., Ltd 39% COSCO (Dalian) Shipyard Co., Ltd

51% COSCO Shipyard Group Co., Ltd 50% • COSCO (Nantong) Shipyard Co., Ltd 60% • COSCO (Qidong) Offshore Co., Ltd 59% • COSCO (Dalian) Shipyard Co., Ltd 75% • COSCO (Guangdong) Shipyard Co., Ltd 60% • COSCO (Lianyungang) Shipyard Co., Ltd 51% • COSCO (Xiamen) Shipyard Co., Ltd 95% • COSCO () Shipyard Co., Ltd 90% • COSCO () Shipyard Co., Ltd 100% 100% • COSCO (Zhoushan) Shipyard Co., Ltd • Cos Fair Shipping Pte Ltd 60% • COSCO (Nantong) Ocean Shipyard Co., Ltd • Cos Glory Shipping Inc 75% • COSCO Dalian Rikky Ocean Engineering Co., Ltd • Hanbo Shipping Limited 51% • Zhongyuan Sea-Land Engineering Co., Ltd • Sanbo Shipping Limited 60% • COSCO Shipyard Total Automation Co., Ltd • Cos Knight Shipping Maritime Inc. 30% • Diesel Marine Dalian Ltd • Cos Lucky Shipping Maritime Inc. 30% • Diesel Marine International (Nantong) Co., Ltd • Cos Orchid Shipping Pte Ltd 30% • DMI (Guangzhou) Ltd • Cos Prosperity Shipping Pte Ltd 40% • Tru-Marine Cosco (Tianjin) Engineering Co., Ltd

100% • CNF Shipping Agencies Pte Ltd OVERVIEW COSCO 04 FINANCIAL 3,000 4,000 3,500 2,000 2,500 96.3% by Activities Revenue (S$’m) Turnover 1,000 1,500 ENGINEERING MARINE OFFSHORE & BUILDING SHIP REPAIR, SHIP 500 0 2006 1,215 2007

2,262 2008

(%) 3,476 HIGHLIGHTS 2009 2,899 2010 3,861 (S$’m) 300 200 350 250 100 150 Equity Holders Attributable to Net Profit 50 0 2006 205 2007 337 2008 303

2009 110 0.4% 2010 249 1,800 1,200 1,500 900 600 300 (S$’m) Net Assets 0 3.3% OTHERS AND AGENCY SHIPPING DRY BULK SHIPPING BULK DRY 2006 920 2007 1,303 2008 1,609 2009 1,611 2010 1,794 05

Annual Report 2010

Dividends per Share (cents) and Basic Earnings per Share (cents)

15.1

15 13.5

11.1 12 9.3

9 7.0 7.0

6 4.0 4.9 4.0 3.0 3 Basic Earnings per Share (cents) Dividends per Share (cents) 0 2006 2007 2008 2009 2010

5-YEAR PROFIT AND LOSS ACCOUNTS (S$’m) 2006 2007 2008 2009 2010 Turnover 1,215 2,262 3,476 2,899 3,861 Operating Profit before Tax 301 497 451 179 402 Share of Profit/(Loss) of Associated Companies 1 1 1 0 0 Taxation 23 19 32 41 43 Profit from Ordinary Activities 279 479 420 138 359 Non-Controlling Interests 74 142 117 28 110 Net Profit Attributable to Equity Holders of the Company 205 337 303 110 249

OTHER KEY STATISTICS 2006 2007 2008 2009 2010 Number of Shares (m) 2,214.0 2,237.7 2,239.2 2,239.2 2,239.2 Basic Earnings per Share (cents)* 9.3 15.1 13.5 4.9 11.1 Dividend per Share (cents) 4.0 7.0 7.0 3.0 4.0 Dividend Cover (times) 2.3 2.1 1.9 1.6 2.8 Net Tangible Assets per Share (cents)* 29.8 41.6 50.7 48.0 53.1 Net Assets Value per Share (cents)* 30.3 42.0 51.1 48.4 53.5 Gearing Ratio (net of cash)(times) 0.2 cash cash cash 0.1 Return on Equity (%) 34.5 41.8 29.0 9.9 21.8 Return on Assets (%) 12.5 11.5 5.6 1.7 4.0

* Basic earnings per share, net tangible assets per share and net assets value per share have been adjusted to account for the sub-division of one ordinary share of $0.20 each into two ordinary shares of $0.10 each in 2006 The GM4000 is a semi submersible vessel designed for well intervention services including a wide range of capabilities like through tubing rotatory drilling and coiled tubing drilling. It is a purpose-built well intervention unit capable of operating on the Norwegian Continental Shelf all year round. the foundation VITAL MARINE SOLUTIONS FOR ALL Our diversified repertoire of marine engineering, ship building, ship repair and conversion services enables the Group to support an increasingly demanding and varied international clientele. 08 COSCO OVERVIEW

MAJOR DEVELOPMENTS

Deliveries in 2010

1 Super M2 Jack-up rig

2 M.V. Parandowski New build 30,000 dwt multi-purpose heavy lift vessel

3 M.V. Magda P New build 57,000 dwt bulk carrier

4 M.V. Mairini New build 80,000 dwt bulk carrier

5 M.V. Scandinavian Express New build 92,500 dwt bulk carrier 1

Current Developments

1

4 5 09

Annual Report 2010

2 4

3 5

2 3

6

1 Sevan Driller II (Sevan Brasil) 2 Octabuoy 3 Car Carrier 4 Wind Turbine Installation Vessel 5 Drillship 6 GM4000 10 COSCO OVERVIEW

MAJOR DELIVERIES IN 2010

Name of Vessel Project Details Delivered In

COSCO Dalian Shipyard M.V. Ocean Garnet New build 92,500 dwt bulk carrier January 2010 M.V. Vlazakis 1 New build 57,000 dwt bulk carrier January 2010 M.V. Scandinavian Express New build 92,500 dwt bulk carrier February 2010 M.V. Pu Lan Hai New build 57,000 dwt bulk carrier March 2010 M.V. Banos A New build 57,000 dwt bulk carrier May 2010 M.V. RBD Ocean of Joy New build 92,500 dwt bulk carrier June 2010 M.V. Chang Shan Hai New build 57,000 dwt bulk carrier June 2010 FPSO Cidade De Angra Dos Reis MV22 Conversion from VLCC to FPSO August 2010 M.V. Mairini New build 80,000 dwt bulk carrier September 2010 M.V. Georgios P New build 57,000 dwt bulk carrier September 2010 M.V. Magda P New build 57,000 dwt bulk carrier October 2010 M.V. Star New build 30,000 dwt multi-purpose heavy lift carrier October 2010 M.V. Parandowski New build 30,000 dwt multi-purpose heavy lift carrier November 2010 M.V. Newlead Tomi New build 80,000 dwt bulk carrier December 2010 M.V. Shinyo Ayush New build 80,000 dwt bulk carrier December 2010 M.V. Chipolbrok Galaxy New build 30,000 dwt multi-purpose heavy lift carrier December 2010

COSCO Zhoushan Shipyard M.V. Dai Shan Hai New build 57,000 dwt bulk carrier January 2010 M.V. Shun Xin New build 57,000 dwt bulk carrier April 2010 M.V. Ince Kastamonu New build 57,000 dwt bulk carrier April 2010 M.V. Ince Karadeniz New build 57,000 dwt bulk carrier May 2010 M.V. Quan Shan Hai New build 57,000 dwt bulk carrier May 2010 HBIS Sunrise VLCC to VLOC Conversion May 2010 M.V. Asia New build 57,000 dwt bulk carrier June 2010 M.V. Ince Akdeniz New build 57,000 dwt bulk carrier June 2010 M.V. Fantastic New build 57,000 dwt bulk carrier August 2010 M.V. Amazing New build 57,000 dwt bulk carrier August 2010 M.V. Milos New build 57,000 dwt bulk carrier October 2010 M.V. SIFNOS New build 57,000 dwt bulk carrier November 2010 M.V. Arizona New build 57,000 dwt bulk carrier December 2010

COSCO Guangdong Shipyard M.V. Flag Alexandros New build 57,000 dwt bulk carrier January 2010 M.V. Annabo New build 57,000 dwt bulk carrier January 2010 M.V. Toxotis New build 57,000 dwt bulk carrier April 2010 M.V. Christos Theo New build 57,000 dwt bulk carrier June 2010 M.V. Perth 1 New build 57,000 dwt bulk carrier August 2010 M.V. Ioannis Theo New build 57,000 dwt bulk carrier August 2010 M.V. Almyros New build 57,000 dwt bulk carrier October 2010 M.V. Er Nazire New build 57,000 dwt bulk carrier December 2010

COSCO Nantong Shipyard Super M2 New build jack-up rig June 2010 11

Annual Report 2010

OUR MAJOR SHIPYARDS

Through COSCO Shipyard Group, COSCO Corporation owns and operates seven major shipyards Dalian strategically located along China’s coastline. Lianyungang

Qidong Nantong Shanghai Zhoushan

Guangdong The Super M2 jack-up rig delivered by COSCO (Nantong) Shipyard Co., Ltd has an operating capability (at a water-depth of 91 metres) to provide supporting services to offshore drilling rigs and other marine engineering facilities. the path STRENGTHENING MOMENTUM IN MEETING THE GROWING NEEDS FOR OFFSHORE MARINE ENGINEERING EXPERTISE Meeting the burgeoning global demand for energy, we constantly seek to advance our capabilities to create a new paradigm in our offerings, and to enhance our operational efficiency and productivity in Ship Building, Ship Repair and Conversion and Offshore Marine Engineering. 14

KEY MESSAGES

CHAIRMAN’S STATEMENT

Dear Shareholders,

It is with much pleasure that I present to you our annual report for Financial Year 2010. Taking over the reins of COSCO Corporation recently in September 2010, I am pleased to say that not only has our corporate ship been steady and on course, it has moved full steam ahead!

Completing our transformation to a of previous Chairman Li Jian Hong. deliveries of 35 vessels and our diversified marine conglomerate, we Under his leadership, he has steered maiden jack-up rig. Throughout, are at a completely new level. Where us through some difficult waters and continued skills-upgrading in offshore previously our main business was we have no doubt emerged the better. marine engineering, and the securing ship repair and conversion services, For these reasons — strategic focus, of significant contracts attest to our now our integrated and upgraded solid growth and transformation operational expertise and reputation. operations allow us to offer an array of despite economic uncertainty — I am Leveraging on our developing leading-edge ship building, ship repair encouraged and positive for our future. expertise, we continued to secure and conversion as well as offshore We have a proven strategy for growth orders over the year. marine engineering services. We are, and the experience at all levels to take in a sense, a new entity. us further. We will certainly be prudent, To reiterate, what was especially as we have been, but we will also encouraging was the fact that these I believe this fundamental paradigm capitalise on the new opportunities positive developments occurred shift opens up new opportunities we that we now are able to bid for. despite a backdrop of economic have never had before and will enable uncertainty. While the developed us to take COSCO further and higher Building on a Solid Base economies exhibited continued in the long run. I am excited to take Our base is solid, with a robust and hangover effects from the global over the reins from the capable hands productive 2010 and progressive financial crisis of 2009, with the US and 15

Annual Report 2010

Liu Guo Yuan Chairman

Japan mired in weak, low-employment equity holders grew 126.1% to $248.8 been nothing short of extraordinary, growth and Europe suffering from million from $110.1 million in FY2009. and puts us in prime position to add protracted sovereign debt problems, On a per share basis, earnings per truly long-term operational value to our Asia showed marked resilience with ordinary share grew from 4.9 cents enterprise. strong recovery and growth in major in FY2009 to 11.1 cents per ordinary economies such as China, Indonesia share. Net asset value per ordinary Outlook and Strategy and India. share as of 31 December 2010 was Looking ahead to Financial Year 53.5 cents, compared with 48.4 cents 2011, the world economy seems Maintaining Focus, as of 31 December 2009. With this headed for crosswinds. According Delivering Results strong base, our Group is proposing to the International Monetary Fund Operating in such challenging a dividend of 4.0 cents per share to (IMF), in a World Economic Outlook conditions, we focused on our goals be approved at the upcoming Annual report dated 25 January 2011, the of improving efficiencies, diversifying General Meeting. This amounts to global economy will likely experience capabilities, and leveraging on our a dividend payout ratio of 36.0%. continued recovery from the global strengths, concluding the year with However, I believe numbers tell only financial crisis but in a “two-track” expanded revenue of $3.9 billion, a part of the story — there’s more. To an pathway. Developed economies will 33.2% increase from $2.9 billion in enterprise like COSCO Corporation, be stymied by prolonged weak growth FY2009. Net profits attributable to our transformative experience has and bloated public finances while Asia 16

KEY MESSAGES

CHAIRMAN’S STATEMENT

experiences relatively more brisk growth, Building for the Future with albeit with ensuing inflation risks. The Foresight and Vigilance IMF projects the world economy to grow Despite the forecasted uncertainties in by 4.5% for 2011. our operating environment, we can be assured of the significant progress we Closer to our base, the spectre of high have already made in our development inflation, especially in China, is a scenario as a marine conglomerate and confident we will have to manage. Over 2010, the of our particular position in the marine Chinese Yuan rose about 3% against services industry. With our increasing the US Dollar. The Chinese government expertise, we have managed to is managing China’s over-heating secure orders of US$6.1 billion as of economy and continued high inflation 31 December 2010 with progressive with restrictive economic policies such deliveries up to 2013. as central bank rate hikes, increased bank reserve ratio requirements intended Looking ahead, the dry bulk shipping to curb the money supply, as well as market faces continual challenges, with property market-dampening measures the slow growth in global shipping and to stem the exuberant real estate oversupply of new bulk carriers likely market. With potential labour shortages dampening future orders for dry bulk and increases in raw material prices ship building, which currently comprise including that of steel, there remains the majority of our work. possible pressure on our operating We will have to actively manage our margins. We will continue to monitor the diversification strategy and secure more situation closely. orders for a wider range of ship building and marine engineering projects. 17

Annual Report 2010

On an upbeat note, the Offshore & Marine positive, despite an uncertain economic industry is experiencing an upcycle, with outlook. We have achieved so much more demand for new ships and vessels and will continue to make progressive such as drill ships and other specialised improvements. Certainly we have the support vessels used in offshore marine capability to achieve even more. engineering. There is also increased demand for oil rigs, driven, as it were, by At this juncture, on behalf of the Board, the fundamental need for energy from I would like to thank our directors, large emergent economies. We aim to management and staff for their wise optimise our offerings and capitalise on counsel and contributions over the year. this uptrend. Internally, within COSCO I would like to also specially thank the Corporation, we have management previous Chairman Mr Li Jian Hong, structures in place, especially in the for his contributions. Last but not least, areas of strategy and risk, to anticipate gratitude must be extended to our loyal industry trends, drive group-wide shareholders. I look forward to meeting initiatives and respond to developments you all at our upcoming Annual General as they unfold. Meeting.

Focused, Prudent and Positive As we enter a new year, uncertainties remain. We maintain our cautious Liu Guo Yuan outlook and keep our focus, building for Chairman the future with expanded capabilities. I believe we must be focused but also 18 KEY MESSAGES

INTERVIEW WITH VICE CHAIRMAN AND PRESIDENT

Driving Growth in 2010 order book was US$6.1 billion with Key Corporate Values: progressive deliveries up to 2013, Strategic Focus, Steadfast 1. What was the operating which will keep our shipyards busy. Determination environment like for COSCO in 2010? One of the major operational highlights 2. From just ship repair, we had over 2010 was our developing you now offer a wide First and foremost, I would like to expertise. With our sharpened skills, range of marine services thank our management and staff we increased efficiency, shortened our including offshore marine for their efforts over the past year. It average dry bulk carrier construction engineering, ship repair has truly been rewarding to see the period from 18 months in 2009 to and ship building. What fruits of our endeavours. Over 2010, 15 months in 2010 and enhanced are the reasons for your we experienced continual challenges productivity. We ended the year transformation to a from an uncertain global economy. with the delivery of a record 32 bulk diversified ship repair & Weak, low-employment economic carriers. In addition, our COSCO marine engineering and growth coupled with high public debt Dalian shipyard completed 3 multi- shipping group? stifled the developed economies while purpose heavy lift vessels while developing economies recovered COSCO Nantong shipyard delivered Transforming a large corporate entity strongly from the global recession. our milestone self jack-up engineering such as COSCO to a diversified marine Notwithstanding the challenges platform, the Super M2 jack-up rig. services group has been challenging, in the operating environment, we especially amidst the volatility prevalent have successfully completed the In the area of dry bulk shipping, in the global economy these few years. construction of a large number of shipping rates remained weak in 2010, We have been able to rise to these vessels as well as secure additional affected by the abundance of new bulk challenges because of two factors: orders. As at 31 December 2010, our carriers in the global market. strategic management focused on 19

Annual Report 2010

Jiang Li Jun Vice Chairman and President

long-term goals and an integrated, offshore oil and gas. Our ultimate goal, year-on-year increase in turnover to dedicated workforce. COSCO had in sum, was to offer an enhanced $3.7 billion from shipyard operations already grown into a major shipyard value proposition and take COSCO to with higher contributions from the group, with a strength primarily in ship an entirely new level. ship building and marine engineering repair. We had reached a milestone projects. Meanwhile, turnover from the and were keen to take the group to With that goal in mind, we engaged dry bulk shipping business decreased new directions. our staff around these objectives, 3.2% year-on-year to $128.6 million and further developed them with the due to lower charter rates. On a group- After a group-wide review, we decided necessary skills to achieve those wide basis, the shipyard business was that, moving ahead, our broad, ends. Externally, we embarked on an the largest revenue contributor, making long-term objective was to advance ambitious marketing plan to expand up 96.3% of Group turnover. the group forward to be a broadly our presence and reach a wider base diversified marine services group, of prospective customers. Our net assets at financial year-end capable not only of undertaking ship are $1.8 billion while cash and cash repair and ship conversion, but also The results have been promising equivalents at 31 December 2010 ship building and offshore marine with turnover for Financial Year 2010 amount to $0.9 billion, giving us engineering. In this way, we would be growing 33.2% to $3.9 billion while net financial confidence and we believe able to capitalise on the full potential profits attributable to equity holders these achievements are a reflection of of the marine services sector and the increased 126.1% to $248.8 million. our long-term vision and resolve. burgeoning demand for shipping and This was achieved through a 35.2% 20

KEY MESSAGES

INTERVIEW WITH VICE CHAIRMAN AND PRESIDENT

Growing our Capabilities with a maximum haulage capacity of 5. What did you learn from 640 tons, serves multiple roles as bulk the recent global financial 3. In the Ship Repair, Ship carrier, container ship and heavy lift crisis? Building and Offshore vessel. Marine Engineering sectors, Focusing on our strategic goals of what were the important On top of this, we leveraged on our diversifying our offerings and thus benefits the Group has successful completion of the Sevan income streams, despite all the market derived from its work here? Driller in 2009 with an Engineering, volatility surrounding us. Also, the Procurement, Construction and importance of risk management and To improve our capabilities, we Installation (“EPCI”) contract for the maintaining a strong balance sheet. have been seeking opportunities Sevan Driller II, a deepwater DP3 semi- These key lessons will position us well to undertake new and increasingly submersible drilling rig. It has been especially in an operating environment complex projects. In fact, many have renamed “Sevan Brasil”. I am proud marked by shorter economic cycles, been successfully completed and to say COSCO is one of the leading volatile capital flows and uneven global delivered, especially over the past ship builders in China to have secured growth. year. These have in turn bolstered our a full EPCI contract for such a rig. In level of expertise and reputation and, sum, all these developments put us in 6. Are you putting any of in a virtuous circle, have enabled us to prime position to grow in the way we these lessons into practice? secure even larger projects. had envisioned. Definitely! We maintain management For example, in August 2010, we 4. What distinguishes you structures for risk and strategy and completed yet another ship conversion, from your competitors? meet regularly to discuss, develop and this time of a Very Large Crude co-ordinate activities and plans. In Carrier (VLCC), to an FPSO (Floating, Our vision, determination and strong July 2009, we established a Strategic Production, Storage and Offloading) foundations have enabled us to Development Committee. Comprising vessel. Named the FPSO Cidade De weather the storms in our operating directors, this Committee will catalyse Angra Dos Reis MV22, this vessel is environment over the past four the development and evaluation of able to process up to 100,000 barrels capricious years. Additionally, it Group strategy. of oil daily as well as 5 million cubic has given us the ability to devise an metres of gas. expanded business model and the In the area of risk management, we energy to undertake the necessary have a dedicated Enterprise Risk Building on our successful construction changes. Management Committee (“ERMC”) of the heavy lift carrier “Adam Asnyk” which meets every quarter to review in 2009, we completed a larger heavy and manage Group-wide risks: internal, lift carrier, the 30,000 ton “Chipolbrok external, execution and financial. Star”. This carrier, which comes Under this ERMC, we manage risks on equipped with two 320 ton cranes a regular basis. 21

Annual Report 2010

Outlook and Strategy 8. Since dry bulk carriers 9. What are your group’s comprise the bulk of your priorities looking ahead? 7. What is the Group’s ship building contracts, outlook for the Baltic Dry what strategies have you We have achieved much in Index and how will it impact planned to minimise any the direction we have taken. your dry bulk ship building negative effects? Looking ahead, we are cautious business? about the operating environment To mitigate business risk, we intend and will continue to monitor it The BDI started 2010 at 3,140 points to further diversify our range of closely. Nonetheless, our strategic and ended it much lower at 1,773 projects and enhance our skills and development as a leading diversified points, with the year’s average at capabilities as we move forward. We marine services group is a definite 2,752 points. Any further rebound have managed to grow our offshore positive. Building on this, our chief may remain subdued in light of the marine engineering business with the priorities will be to leverage on our abundant supply of new bulk carriers successful completion of the semi- increasing strengths in diversified globally. In fact, there has been a submersible oil rig “Sevan Driller” in marine services, maintaining our gradual increase in the global supply 2009 and the jack-up oil rig “Super focus on deliveries and upgrading our of bulk carriers over recent years. M2” in 2010. During the year in review, capabilities and facilities. we also secured a contract worth As such, while we have been able to more than US$500 million contract to secure about US$1 billion worth of construct another semi-submersible new contracts for bulk carriers over oil rig named the “Sevan Brasil”. Aside 2010, we remain cautious about our from oil rigs, we are actively developing outlook for bulk carrier ship building. other offshore marine engineering The global oversupply in dry bulk vessels such as the “GM4000” and the carriers could impact demand for ship “Octabuoy”, both are semi-submersible building services with subsequent offshore vessels, and an offshore pricing pressures and weakened order wind turbine installation vessel. Last flow for new bulk carriers. In the area but not least, we have completed of dry bulk ship chartering, we are construction of Phase One of our new decreasing our dry bulk shipping fleet Qidong shipyard which specialises in from 12 to 10 carriers in early 2011, not offshore marine engineering. Already renewing the leases for two charter-in in operation, it will elevate our diverse Panamax vessels. This is in order to capabilities even higher. streamline our focus on ship building and offshore marine engineering. 22

OPERATIONS AND FINANCIAL REVIEW

OPERATIONAL HIGHLIGHTS

Achieved strong growth against a challenging backdrop as business, industry and private demand conditions remain uncertain.

Successfully delivered 32 bulk carriers, 3 multi-purpose heavy lift vessels and 1 jack-up rig in 2010.

New orders received in 2010 totalling more than US$2.1 billion include 31 bulk carriers, 1 deepwater drillship, 1 Sevan drilling rig, 1 wind turbine installation vessel and 2 deck barges. An order book of US$6.1 billion as at 31 December 2010 with progressive deliveries up to 2013. 23

Annual Report 2010

from shipyard operations recorded a Gaining Expertise in Ship Repair SHIP REPAIR, SHIP 35.2% rise to $3.7 billion in 2010, due and Ship Building to higher revenue contributions from As a testament of our developing BUILDING AND ship building and marine engineering expertise and reputation, we OFFSHORE MARINE projects. managed to secure larger contracts ENGINEERING and complete fabrication of more Creating New Milestones sophisticated vessels in 2010. New Overview Over the course of the year, we orders received in 2010 totaling COSCO Shipyard Group, the 51% delivered a total of 32 new-build bulk more than US$2.1 billion include 31 owned subsidiary of COSCO carriers – 8 by COSCO Guangdong bulk carriers, 1 deepwater drillship, Corporation, has seven major shipyards shipyard, 12 by COSCO Dalian 1 deepwater DP3 semi-submersible in China, located in Dalian, Nantong, shipyard and 12 by COSCO Zhoushan Sevan drilling rig, 1 wind turbine Zhoushan, Guangdong, Shanghai, shipyard. Also notably, COSCO installation vessel and 2 deck barges. Lianyungang, and Qidong. Strategically Nantong shipyard delivered one jack- In June 2010, COSCO Nantong situated along China’s coastline, up rig, “Super M2”, in June 2010 and shipyard delivered 1 jack-up rig Super these shipyards provide an extensive COSCO Dalian shipyard delivered 3 M2 and COSCO Dalian shipyard array of advanced capabilities in ship multi-purpose heavy lift vessels in the delivered 3 multi-purpose heavy lift building, ship repair and conversion, second half of 2010. vessels in the second half of the year. and offshore marine engineering. The Group will continue to focus on This segment remained our biggest deliveries while it upgrades its shipyard revenue contributor in FY2010, making capabilities to improve operational up 96.3% of group revenue. Turnover efficiency and productivity. 24

OPERATIONS AND FINANCIAL REVIEW

COSCO Corporation’s abilities in ship piping system and a multi-function role long. This unique vessel is purpose- conversion were further boosted with of bulk carrier, container ship, multi- built and optimised for both light and the successful conversion in August purpose vessel and heavy lift vessel. It heavy well intervention, giving offshore 2010 of “FPSO Cidade De Angra Dos is capable of accommodating different operators new options when they need Reis MV22” from a VLCC. Purchased ocean-going cargoes with its large to pull tubing and re-enter oil and gas by MODEC Offshore Production tonnage, powerful lifting capacity, high wells in depth to 100 metres. Systems (Singapore) Pte Ltd, it is able speed, highly automated integration to process up to 100,000 barrels of oil and flexible loading capability. Such During the year, the Group continued per day and 5 million cubic metres of engineering milestones augment our to ink landmark contracts. Following gas. capabilities and bolster our reputation, the successful delivery of our first positioning us strategically as a leading Sevan Driller in 2009, we managed to In 2010, the Group also completed the diversified marine conglomerate. secure an engineering, procurement, construction and delivery of 3 multi- construction and installation (“EPCI”) purpose heavy lift carriers, namely Gaining Momentum in Offshore contract worth more than US$500 “Chipolbrok Star”, “Parandowski” and Marine Engineering million for the Sevan Driller II, a “Chipolbrok Galaxy”. The month of June 2010 saw COSCO deepwater DP3 semi-submersible Nantong shipyard deliver its first jack- drilling rig now named the “Sevan Essentially similar to the “Adam Asnyk” up rig. Named “Super M2”, the new- Brasil”. It will be the second deepwater delivered in 2009, the “Chipolbrok Star” build jack-up rig measures 8 metres DP3 semi-submersible drilling rig to has more compartments, a complex high, 56 metres wide and 73 metres be undertaken by COSCO. With this 25

Annual Report 2010

contract, COSCO Shipyard Group is wind turbines at any time and operate Types of Vessels Repaired one of the leading shipyards in China at water depths of up to 45 metres. in FY2010 by Revenue to have secured a full EPCI contract Alternative energy systems and Tankers Bulk 6% to construct a deepwater DP3 semi- alternative energy offshore exploration Carriers Container Ships submersible drilling rig. We are proud is really one of the ways our industry is 67% 11% of this achievement and our teams of developing and with this venture, we Chemical Ships marine engineers, R&D professionals are strategically placed to capitalise on 7% and managers stand ready to growth in this area as well. Others 9% contribute to this seminal project. Our Group looks towards participating In summary, we have made significant Revenue Contribution from and leveraging on this market-leading progress in our ship repair and Ship Repair, Ship Building and project experience. conversion, ship building and offshore Offshore Marine Engineering marine engineering sector. Looking During the same month, we signed a ahead, we shall continue to develop Ship Conversion Ship Building 10% contract valued over US$130 million our strengths and solidify our position 52% with a European shipowner to build a as a leading solution provider for vessel specially designed for installing diverse marine needs. Ship Repair offshore wind turbines. The jack-up 13% vessel will be able to carry 8 to 10 Marine Engineering 25% 26

OPERATIONS AND FINANCIAL REVIEW

serving COSCO’s strong clientele shipping, shipping agency and others DRY BULK SHIPPING base of shipping companies from contributed to 3.7% of the Group’s AND OTHERS Germany, Norway, Denmark, Greece, total revenue. Switzerland, UK, USA amongst others. The Baltic Dry Index (“BDI”), a measure Dry Bulk Shipping of shipping costs for commodities, By upholding strict international quality started the year at 3,140 points and Overview and safety standards, COSCO’s fleet ended the year at a much lower 1,773 Managed by COSCO (Singapore) has been awarded with an ISO9002 points, with the yearly average standing Pte Ltd – the Group’s wholly-owned certification, which recognises at 2,752 points. In view of ongoing subsidiary - our dry bulk shipping companies for a consistently high concerns about the global economy business currently comprises a fleet commitment to quality. as well as the abundant supply of of 10 dry bulk carriers that make up new ships in the market, any rebound a total carrying capacity of 550,978 Highlights of the Year in the BDI may remain subdued. An dwt. Plying the main trading routes, Turnover from the Group’s dry bulk increased supply of vessels will also these carriers cargo such shipping business decreased 3.2% heighten industry competition and as iron ore, coal, steel, cement and over the year to $128.6 million due likely pose a challenge to COSCO’s fertiliser to major ports of the world. to lower charter rates strategically dry bulk shipping segment. Our dry bulk carriers are chartered out secured at the point of charter to other ship owners and operators, renewals. The business of dry bulk 27

Annual Report 2010

Nonetheless, the Group will continue of-Gauge (OOG) containers, General that call at Malaysian ports, offering a to build upon the strengths of our Purpose (GP) units, reefer containers range of services similar to COSTAR businesses and derive synergies from and hazardous containers from over Shipping in Singapore. it to support our dry bulk shipping 1,000 customers in more than 50 business. countries. Towards the end of 2010, the Company entered into separate Shipping Agency Since its beginnings in 1989, COSTAR conditional sale and purchase Shipping canvasses for cargo from agreements with Freightworld Pte Ltd, Overview clients to fully maximise tonnage an indirect wholly-owned subsidiary COSCO’s shipping agency arm is capacity of COSCO’s ships, as well of China COSCO Holdings Company managed by subsidiaries of COSCO as the ships of our clients transiting Limited. The Company will sell its Corporation, namely COSTAR through Singapore. Our business also whole 700,001 shares in COSTAR Shipping Pte Ltd and COSLINK provides extensive agency services for Shipping Pte Ltd – representing (M) Sdn Bhd. Providing mainly full container, break-bulks and other approximately 70% of the issued share containerisation services for COSCO value-added services. capital of COSTAR; and 1,400,000 Container Lines and its customers, shares in COSLINK (M) Sdn Bhd COSTAR Shipping provides a wide In Malaysia, COSLINK (M) Sdn. Bhd. – representing approximately 70% of array of shipping agency services for serves as the general shipping agent the issued share capital of COSLINK all types of containers, including Out- for the fleet of COSCO Group’s vessels to Freightworld. 28

OPERATIONS AND FINANCIAL REVIEW

GROUP FINANCIAL REVIEW

Overview Turnover from dry bulk shipping mainly due to the higher sales value of The Group concluded the year with business decreased 3.2% to $128.6 scrap materials and foreign currency a 33.2% increase in Group turnover million in FY2010 due to lower charter exchange gain. to $3.9 billion in FY2010 while net rates. The Baltic Dry Index (BDI), profit attributable to equity holders a measure of shipping costs for Distribution costs rose 18.3% in line of the Company increased 126.1% commodities, started the year 2010 at with the expanding business volume to $248.8 million. The increase in 3,140 points but ended the year much and rising cost environment. The turnover was mainly due to higher lower at 1,773 points, averaging 2,752 11.6% decrease in administrative costs revenue contributions from ship points for the whole of 2010. to $160.2 million was mainly due to net building and marine engineering reversal of impairment of trade and projects. The increase in net profit Shipyard business remained the other receivables of $31.2 million in attributable to equity holders of the biggest revenue contributor, forming FY2010 as compared to $11.4 million Company was attributable to higher 96.3% of Group turnover in FY2010. in FY2009. profit contributions from ship building Dry bulk shipping, shipping agency and marine engineering projects and and others accounted for the remaining Interest expense remained largely dry bulk shipping. 3.7%. unchanged at $42.1 million in FY2010 as the effects of higher interest rates Turnover Profitability were offset by reduced borrowings. Turnover from shipyard operations Gross profit increased 60.0% from increased 35.2% to $3.7 billion $297.6 million in FY2009 to $476.1 Income tax expense increased by in FY2010 due to higher revenue million in FY2010 on greater cost only 6.1% mainly due to higher profit contributions from ship building and efficiencies in dry bulk shipping and contributions from certain subsidiaries marine engineering projects. The higher profit contributions from ship in the People’s Republic of China Group delivered 32 bulk carriers in building and marine engineering (PRC) partially offset by higher tax- FY2010. COSCO Dalian and COSCO business on turnover rise. exempt shipping profits. Zhoushan shipyards delivered 12 bulk carriers each while COSCO Other income comprised gain from the Non-controlling interests increased Guangdong shipyard delivered the sale of scrap materials, compensation due to higher contributions from the remaining 8 bulk carriers. Also notably, received from customers, interest Group’s PRC subsidiaries involved in COSCO Nantong shipyard delivered 1 income from bank deposits, foreign ship repair, ship building and marine jack-up rig, “SUPER M2”, in June 2010 currency exchange gain and net engineering operations. and COSCO Dalian shipyard delivered fair value gain on forward currency 3 multi-purpose heavy lift vessels in contracts. Other income increased the second half of 2010. 21.8% to $178.3 million in FY2010 29

Annual Report 2010

As a result of the above, net profit Property, plant and equipment Gearing attributable to equity holders of the decreased from $2.3 billion to $2.2 Total bank borrowings decreased Company increased 126.1% from billion despite facility expansions of the from $1.1 billion to $992.2 million $110.1 million in FY2009 to $248.8 major shipyards of COSCO Shipyard due to repayment of bank loans million in FY2010. Group Co., Ltd (CSG) mainly due to procured for business operations and depreciation. the expansion of the Group’s major Balance Sheet and Cash Flow shipyards. The Group had a gearing (31 December 2010 vs 31 December Trade and other payables decreased (net of cash) position of $125.0 million 2009) from $3.6 billion to $3.1 billion as at the end of FY2010. less advances were received from Cash and cash equivalents decreased customers (from $1.8 billion to $1.2 Earnings Per Share from $1.5 billion to $867.2 million mainly billion) due to completion of some of the On a fully diluted basis, earnings per due to cash used in dividend payment, ship building and marine engineering share increased from 4.9 cents in purchases of new property, plant and contracts. FY2009 to 11.1 cents in FY2010. equipment, repayment of borrowings and less advances received from Share Capital Dividends Per Share customers. COSCO’s share capital remained To reward shareholders for their loyalty, unchanged at $270.6 million. There the Board of Directors has proposed a Trade and other receivables increased was no new issue and allotment of first and final exempt dividend of 4.0 $573.5 million from $1.5 billion to shares under the COSCO Corporation cents. The dividend payout will amount $2.0 billion mainly due to increase Employees’ Share Option Scheme to $89.6 million (FY2009: $67.2 million) in advances paid to suppliers from 2002. while Dividend Cover was 2.8. $679.2 million to $858.8 million and increase in construction contracts Equity Net Asset Value Per Share due from customers for ship building Equity rose by $114.6 million to $1.2 In line with capacity and facility and marine engineering projects from billion as at 31 December 2010 due expansion, the net asset value $249.5 million to $565.8 million in line to the transfer of FY2010 profits to per share of COSCO Corporation with the expanding business. retained earnings, partially offset by increased by 10.6% from 48.4 cents the payment of dividends in May 2010. per share at 31 December 2009 to Return on Equity was 21.8%. 53.5 cents per share at 31 December 2010. COSCO Corporation’s abilities in ship conversion were further boosted with the successful conversion in August 2010 of “FPSO Cidade De Angra Dos Reis MV22” from a VLCC. Purchased by MODEC Offshore Production Systems (Singapore) Pte Ltd, it is able to process up to 100,000 barrels of oil per day and 5 million cubic metres of gas. WITH OUR DIVERSE GROWTH DYNAMICS, WE CHART OUR COURSE The modern marine industry is characterised by rapid developments and changing needs. With that in mind, we have transformed our range of marine services to respond with added swiftness and tactical acumen. This lays the platform for sustainable growth. 32

CORPORATE GOVERNANCE AND TRANSPARENCY

CORPORATE GORVERNANCE

COSCO Corporation (Singapore) Limited (“COSCO Corporation” or “the Company”) and its subsidiaries (together, the “Group”) believes that good governance is acknowledged to be essential for the success of any organisation and is now more important than ever. The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the Company.

At COSCO Corporation the Board of Directors, guided by the Singapore Code of Corporate Governance 2005 (the “Code 2005”) issued by the Singapore Council on Corporate Disclosure and Governance, remains committed to the principles of good corporate governance and to achieving high standards of business integrity, ethics and professionalism across all its activities. The Company has applied, and complied with, the principles and guidelines set out in the Code 2005.

A. BOARD MATTERS

THE BOARD’S CONDUCT OF AFFAIRS

PRINCIPLE 1

Governance is overseen by the COSCO Corporation Board whilst management is delegated to the Group President and Executive Directors. The Board oversees the business affairs of the Company and is collectively responsible for its success. All directors make decisions objectively in the best interests of the Company and have exercise due diligence and independent judgement in so doing.

The principal functions of the Board apart from its statutory responsibilities are to:

a) set values and standards of the Company and ensure that obligations to shareholders and others are understood and met;

b) provide entrepreneurial leadership; approve the strategic and financial objectives, corporate policies and authorisation matrix of the Company;

c) oversee the processes for risk management, financial reporting and compliance and evaluate the adequacy of internal controls; approve annual budget, key operational matters, major acquisition and divestment proposals, major funding proposals of the Company;

d) review management performance;

e) approve the nominations to the Board of Directors and appointment of key management, as may be recommended by the Nominating Committee; and

f) assume responsibility for corporate governance framework of the Company.

To facilitate effective management, certain functions of the Board have been delegated to various Board committees, namely Audit, Nominating, Remuneration, Enterprise Risk Management and Strategic Development Committees.

The schedule of all Board, Board committee meetings for the next calendar year is planned in advance, in consultation with the directors. During this financial year the Board held five meetings and had on eight occasions used circular resolutions in writing to sanction certain decisions. 33

Annual Report 2010

The Company’s Articles of Association (the “Articles”) provides for Board meetings to be conducted by way of telephone and video conferencing. The attendance of the Directors at meetings of the Board and Board committees as well as number of such meetings is set out in the table below:

Attendance at Board and Board Committees’ Meetings

Enterprise Risk Strategic Audit Nominating Remuneration Management Development Name Board Committee Committee Committee Committee Committee Number of Number of Number of Number of Number of Number of Meetings Meetings Meetings Meeting Meetings Meeting held: 5 held: 8 held: 2 held: 1 held: 4 held: 1 Number of Number of Number of Number of Number of Number of Meetings Meetings Meetings Meetings Meetings Meetings Attended Attended Attended Attended Attended Attended

Liu Guo Yuan1 1 NA NA NA NA NA Li Jian Hong2 3 NA NA NA NA NA Jiang Li Jun 5 NA 2 1 3 1 Zhang Liang3 2 NA NA NA NA NA Wang Hai Min4 1 NA NA NA NA NA Sun Yue Ying5 2 NA NA NA NA NA Ma Zhi Hong6 1 NA NA NA NA NA Ma Gui Chuan 4 NA NA NA NA NA Wang Xing Ru7 4 NA NA NA 2 NA Tom Yee Lat Shing 5 8 2 1 4 1 Wang Kai Yuen 5 8 2 1 4 1 Er Kwong Wah 5 8 2 1 4 1 Ang Swee Tian 5 8 2 1 4 1 Li Jian Xiong (Alternate to Liu Guo Yuan) 5 NA NA NA NA 1 Lu Cheng Gang (Alternate to Wang Hai Min ) 5 NA NA NA NA NA Ye Bin Lin (Alternate to Ma Zhi Hong) 5 NA NA NA 4 NA Liu De Tian8 (Alternate to Wang Xing Ru) 5 NA NA NA 0 NA

NA: Not Applicable

1 Mr Liu Guo Yuan was appointed Director and Chairman of the Board on 1 September 2010 2 Mr Li Jian Hong resigned his Directorship and Chair of the Board on 1 September 2010 3 Mr Zhang Liang resigned his Directorship on 2 August 2010 4 Mr Wang Hai Min was appointed Director on 2 August 2010 5 Mdm Sun Yue Ying resigned her Directorship on 2 August 2010 6 Mr Ma Zhi Hong was appointed Director on 2 August 2010 7 Mr Wang Xing Ru was appointed as a member of the Enterprise Risk Management Committee on 12 July 2010. 8 Mr Liu De Tian was appointed as a member of the Enterprise Risk Management Committee on 12 July 2010. 34

CORPORATE GOVERNANCE AND TRANSPARENCY

CORPORATE GORVERNANCE

Whilst the Board has delegated the day to day management of the Group to the Group President and Executives, there are matters reserved for the Board by which the Board oversees control of the Group’s affairs. Some of the matters reserved for the Board and Board’s approval are:

• the recommendations of the Strategic Development Committee; • the Group’s long term objectives and commercial strategy; • the making of any decision to cease to operate all or any material part of the business of the Group or to extend the Group’s activities into new business; • the consideration of any proposal to merge or amalgamate the Company with any other company; • the approval of any acquisition of any investment, asset or business by the Company or any of its subsidiaries which would involve the commencement of an activity of a substantially different nature or character to any activity from time to time carried on by the Company or any of its subsidiaries; • changes relating to the Group’s capital structure including changing the amount or currency of the Company’s authorised share capital, reduction of capital, share issues (except under employee share options plan); • the approval of and ensuring the maintenance of internal controls and risk management procedures for the Company and its subsidiaries; • approving the Company’s Audited Financial Statement and other appropriate statements for inclusion in the Company’s Annual Report and the issue of the Annual Report; • the issue and filing of statutory or regulatory statements, the quarterly, half yearly and full year reports; • determining and approving any significant change to the accounting policies or practices of the Company, and of the Company and its subsidiaries; • the recommendation of the payment of any dividend by the Company or any exercise of the powers of the Board in relation to reserves or capitalisation of profit; • appointments or removals from the Company’s Board of Directors (following receipt of recommendations by the Nominating Committee) and the appointment or removal of the Company Secretary; • changes to the structure, size and composition of the Board, following receipt of recommendations from the Nominating Committee; • in the case of any conflict of interest which the Board, after being appropriately advised, considers to be material, as to whether such conflict should be authorised and, if so, authorise such conflict upon such terms and conditions as the Board considers appropriate; • determining the remuneration policy for senior executives of the Company (following receipt of recommendations by the Remuneration Committee); • undertaking a review annually of its own performance, that of its committees and the contribution by each director to the effectiveness of the Board; and • any matter required to be considered or approved by the Board as a matter of law or regulation.

BOARD COMPOSITION AND GUIDANCE

PRINCIPLE 2

The Board has ten (10) members: two (2) Executive Directors, four (4) Non-Executive Directors and four (4) Non-Executive Independent Directors. The composition of the Board is as follows and the Directors’ academic and professional qualifications are set out on pages 50 to 55 of this Annual Report. No individual or group of individuals dominates the Board’s decision- making. Collectively, the Non-Executive Directors and Non-Executive Independent Directors bring a wide range of experience and expertise as they all currently occupy or have occupied senior positions in industry and public life, and as such each contributes significant weight to Board decisions. None of the non-executive independent directors has any relationship with the Company, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgment with a view to the best interests of the Company. 35

Annual Report 2010

Board of Directors

Liu Guo Yuan Chairman and Non-Independent and Non-Executive Director Jiang Li Jun Vice Chairman, President and Non-Independent Executive Director Ma Gui Chuan Non-Independent and Executive Director Wang Hai Min Non-Independent and Non-Executive Director Wang Xing Ru Non-Independent and Non-Executive Director Ma Zhi Hong Non-Independent and Non-Executive Director Tom Yee Lat Shing Non-Executive Independent Director Wang Kai Yuen Non-Executive Independent Director Er Kwong Wah Non-Executive Independent Director Ang Swee Tian Non-Executive Independent Director

Changes to the Board during the financial year 2010 are as follow:

Sun Yue Ying resigned on 2 August 2010 her appointment as Non-Independent and Non-Executive Director.

Zhang Liang resigned on 2 August 2010 his appointment as Non-Independent and Non-Executive Director.

Ma Zhi Hong was appointed on 2 August 2010 as a Non-Independent and Non-Executive Director.

Wang Hai Min was appointed on 2 August 2010 as a Non-Independent and Non-Executive Director.

Li Jian Hong resigned on 1 September 2010 his appointment as Chairman and Non-Independent and Non-Executive Director.

Liu Guo Yuan was appointed on 1 September 2010 as Chairman and Non-Independent and Non-Executive Director.

Our Board’s size is necessary to allow sufficient Non-Executive Director and Non-Executive Independent Director representation to cover the breadth and complexity of the Group’s business activities and to staff our Board committees. A board of this size allows orderly succession planning for key roles.

The current size of the Board is appropriate and will facilitate effective decision making. The Board will continue to review the size of the Board on an ongoing basis. As a team, the Board collectively provides core competencies in the areas of accounting, finance, business and management experience, as well as industry knowledge.

Directors are provided with regular updates on relevant new laws and regulations, and evolving commercial risks and business conditions from the Company’s relevant advisors. Newly appointed directors are provided with background information about the Company and the Group. Annual visits are arranged for Non-Executive Independent Directors to acquaint them with important operations overseas. 36

CORPORATE GOVERNANCE AND TRANSPARENCY

CORPORATE GORVERNANCE

STRATEGIC DEVELOPMENT COMMITTEE

The Strategic Development Committee (“SDC”) comprising six (6) Directors; the majority is independent non-executive directors. The SDC members are:

Jiang Li Jun (Chairman) (Non-Independent Executive) Liu Guo Yuan1 (Non-Independent Non-Executive) Li Jian Hong2 (Non-Independent Non-Executive) Tom Yee Lat Shing (Non-Executive Independent) Wang Kai Yuen (Non-Executive Independent) Er Kwong Wah (Non-Executive Independent) Ang Swee Tian (Non-Executive Independent)

Note: 1 Liu Guo Yuan was appointed a member of the Strategic Development Committee on 3 March 2011 2 Li Jian Hong resigned on 1 September 2010 as Chairman, Non-Independent and Non-Executive Director

The SDC assists the Board in fulfilling its responsibilities for developing, evaluating and monitoring the Company’s long and short-term strategic goals. The SDC operates at the Board level but shall not assume the Board’s governance accountability or to make final strategic decisions. The SDC acts solely to address and develop current and future strategy-related issues. The SDC has the responsibility for creating and driving the Company’s strategy development and planning and Management takes responsibility for implementing the Company’s strategy(ies) after the SDC received approval from the full Board and/or other relevant board committees.

The SDC have the following authority and responsibilities:

a) Review and develop Company Strategy(ies): Meet with Management periodically to review, develop and evaluate the Company’s evaluation and implementation of its business strategy;

b) Provide Resource Support: Support the Board or Management in the valuation and/or refining of the Company’s strategic plans;

c) Assess Progress: Review and assess the status of implementation of the Company’s business strategy and whether the results are consistent with the goals of the strategic plan as adopted by the Board; and

d) Recommend Improvements: Recommend areas of improvement and provide feedback to the Board and Management regarding the overall success of the business strategy.

The SDC met once in the financial year of 2010.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

PRINCIPLE 3

The roles of Chairman and the President are undertaken by separate persons so as to create a clear division of responsibilities and maintain an effective oversight. The Chairman and the President are not related to each other.

The Chairman is responsible for the workings of the Board, ensuring the integrity and effectiveness of its governance process. In his absence, his appointed alternate and/or the President would act on his behalf.

The President is the most senior executive in the Company and has full executive responsibilities over the business directions and operational decisions of the Group. He works closely with the Board to implement the policies set by the Board to realise the Group’s vision. 37

Annual Report 2010

BOARD MEMBERSHIP

PRINCIPLE 4

Recommendations for nominations of new directors and retirement of directors are made by the Nominating Committee (“NC”) and considered by the Board as a whole.

The NC reviews and assesses candidates for directorship before making recommendations to the Board. The NC takes into consideration the skills and experience required and the existing composition of the Board and strives to ensure that the Board has an appropriate balance of independent directors as well as directors with the right profile of expertise, skills, attributes and abilities when recommending new directors to the Board.

The process for the appointment of new directors begins with the NC, together with the Chairman and Vice Chairman of the Company, conducting a needs analysis and identifying the critical requirement in terms of expertise and skills that are needed in the context of the strengths and weaknesses of the existing Board. When a candidate has been endorsed by the NC, the NC will then make a recommendation to the Board for the approval of his appointment.

The NC assesses and recommends to the Board whether retiring directors are suitable for re-nomination for re-election. In evaluating a director’s contribution and performance for the purpose of re-nomination, the NC takes into consideration a variety of factors such as attendance, preparedness, participation and candour.

In accordance with the provisions of the Articles, one-third of the Directors retire by rotation and subjects themselves to re- election at every Annual General Meeting (“AGM”) of the Company. The President who is a member of the Board must also subject himself to retirement by rotation and re-election by the Shareholders. New directors who were appointed by the Board during the year will hold office only until the next AGM and will be eligible for re-election.

The dates of initial appointment and last re-election/re-appointment of each of the Directors of the current Board are set out below:

Date of Initial Date of Last Director Position Appointment Re-election

Liu Guo Yuan Chairman, Non-Independent and Non-Executive 1.9.2010 n.a. Jiang Li Jun Vice Chairman, President and Non-Independent Executive 7.8.2008 20.4.2009 Ma Gui Chuan Non-Independent Executive 10.1.2007 20.4.2010 Wang Hai Min Non-Independent and Non-Executive 2.8.2010 n.a. Wang Xing Ru Non-Independent and Non-Executive 14.2.2006 15.4.2008 Ma Zhi Hong Non-Independent and Non-Executive 2.8.2010 n.a. Tom Yee Lat Shing Non-Executive Independent 16.11.1993 20.4.2010 Wang Kai Yuen Non-Executive Independent 2.5.2001 20.4.2009 Er Kwong Wah Non-Executive Independent 20.12.2002 20.4.2010 Ang Swee Tian Non-Executive Independent 13.11.2007 20.4.2010 Li Jian Xiong Alternate to Liu Guo Yuan 1.9.2010 n.a. Lu Cheng Gang Alternate to Wang Hai Min 2.8.2010 n.a. Ye Bin Lin Alternate to Ma Zhi Hong 2.8.2010 n.a. Liu De Tian Alternate to Wang Xing Ru 14.2.2006 n.a. 38

CORPORATE GOVERNANCE AND TRANSPARENCY

CORPORATE GORVERNANCE

NOMINATING COMMITTEE

The Nominating Committee (“NC”) comprising five Directors, majority of whom, including the Chairman is independent. The NC members are:

Wang Kai Yuen (Chairman) (Non-Executive Independent) Jiang Li Jun (Non-Independent Executive) Tom Yee Lat Shing (Non-Executive Independent) Er Kwong Wah (Non-Executive Independent) Ang Swee Tian (Non-Executive Independent)

The principal functions of the NC are to:

a) identify, review and recommend candidates for appointment as Directors of the Company and appointment to the Board committees as well as to senior management positions in the Company;

b) evaluate the effectiveness of the Board as a whole and assess the contribution by each Director, to the effectiveness of the Board;

c) determine annually whether or not a Director is independent; and

d) make recommendations to the Board on re-appointment of Board and Board committee members.

During the financial year the NC held two meetings. The NC met to review the nominations for the appointments of those directors that were appointed during the financial year for recommendation to the Board to approve the appointments. In arriving at their decisions on the new appointments, the NC took into consideration the incumbents’ academic qualifications, experience, their individual field of expertise and their potential contributions to the effectiveness of the Board. The NC also met and determined the independence of the Directors is in line with the undertakings described in the Code 2005. It also reviewed the composition of the Board and the Board Committees in relation to the needs of the Group.

The NC is of the opinion that the Board is able to exercise objective judgment on corporate affairs independently and no individual or small group of individuals dominates the Board’s decision making process.

The NC assesses and recommends to the Board whether retiring Directors are suitable for re-election. The NC considers that the multiple board representations held presently by some Directors do not impede their respective performance in carrying out their duties to the Company.

Tom Yee Lat Shing, who is over the age of 70 years, will have to retire at the forthcoming Annual General Meeting pursuant to Section 153 (6) of the Companies Act, Cap. 50. The assessment of Tom Yee Lat Shing’s reappointment and his independence were given particular consideration by the NC as he has now served on the Board for more than 17 years. The NC believes that due to his strength of character, experience and knowledge, Tom Yee Lat Shing continues to be highly effective as an independent non-executive director. He provides objective and rigorous challenges to, and engages in constructive debate with, the board and the committees on which he sits. Tom Yee Lat Shing also brings a wealth of useful and relevant experience both in his position as an independent non-executive director and as the Chairman of the Audit Committee.

Accordingly, the NC has recommended and the Board has endorsed the re-appointment of Tom Yee Lat Shing by shareholders at the annual general meeting. The NC and the Board believe that it is in the shareholders’ best interests for Tom Yee Lat Shing to be reappointed as an independent non-executive director. 39

Annual Report 2010

BOARD PERFORMANCE

PRINCIPLE 5

A formal assessment process is in place to assess the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board. The NC uses objective and appropriate quantitative and qualitative criteria to assess the performance of the Board as a whole and the contribution of each Director to the effectiveness of the Board. Assessment parameters include evaluation of the Board’s access to information, risk management, accountability, the Board’s performance in relation to discharging its principal functions, communication with management and stakeholders, the business performance of the Company, the quality of Board processes, the attendance records of the Directors at Board and Committee meetings and the level of participation at such meetings.

The evaluation of the Board is conducted annually. As part of the process, the Directors will complete appraisal forms which are collated by the Company Secretary. The Company Secretary will then review the results of the appraisal and present the results to the Chairman of the NC who will then present a report to the Board.

An individual assessment of each Director is also undertaken annually. The process of the assessment is through self- assessment where each Director will complete appraisal forms which are collated by the Company Secretary. The Company Secretary consolidates the appraisal forms and presents the results to the Chairman of the NC who will then present a report to the Board.

ACCESS TO INFORMATION

PRINCIPLE 6

The Board is provided with management information pertaining to such areas as detailed divisional performance, variance analysis, budget, forecast, funding positions and cash flow projections of the Group, to help them carry out their responsibilities effectively. In addition, all relevant information on material events and transactions are circulated to Directors as and when they arise.

All Board members have separate and independent access to the advice and services of the Company Secretary. The Company Secretary attends Board and most of the Board committees meetings and is responsible for ensuring that Board procedures are followed. With the assistance of the management staff of the Company, the Company Secretary is also responsible for compliance with the SGX-ST Listing Manual and all other applicable rules and regulations. The appointment and the removal of the Company Secretary are subject to the Board’s approval.

All Board members also have separate and independent access to the senior management of the Company and the Group.

Board members are aware that they, whether as a group or individually, in the furtherance of their duties, can take independent professional advice, if necessary, at the Company’s expense.

B. REMUNERATION MATTERS

PROCEDURES FOR DEVELOPING REMUNERATION POLICIES

PRINCIPLE 7

The Remuneration Committee (“RC”) meets yearly to discuss the performance assessment of the Executive Directors as well as to discuss the level of emoluments to pay. 40

CORPORATE GOVERNANCE AND TRANSPARENCY

CORPORATE GORVERNANCE

The recommendations for approval of the remuneration of the Executive Directors are forwarded to the Board. The RC also reviews and approves the remuneration of senior management, as well as the total annual increment and variable bonus for employees.

Directors’ fees are recommended by the RC and are submitted for endorsement by the Board. Directors’ fees are subjected to approval by shareholders at the AGM.

All the members of the RC are Non-Executive, Independent Directors except for Mr Jiang Li Jun the Vice Chairman and President. The RC is of the view that the presence of Mr Jiang Li Jun would help the RC by providing intimate knowledge of the remuneration policies in the industry the Company is in. No Director is involved in deciding his own remuneration.

LEVEL AND MIX OF REMUNERATION

PRINCIPLE 8

In setting the remuneration packages of the Executive Directors, the RC takes into account the respective performance of the Group and the individual. In its deliberation, the RC takes into consideration, remuneration packages and employment conditions within the industry and benchmarked against comparable companies.

Non-Executive Independent Directors are paid a basic fee and an additional fee for serving on any of the committees. The Chairman of each of these committees is compensated for his additional responsibilities. Such fees are approved by the shareholders of the Company as a lump sum payment at the AGM of the Company.

REMUNERATION COMMITTEE

The RC comprising five Directors, majority of whom including the Chairman is independent. The RC members are as follows:

Er Kwong Wah (Chairman) (Non-Executive Independent) Jiang Li Jun (Non-Independent Executive) Tom Yee Lat Shing (Non-Executive lndependent) Wang Kai Yuen (Non-Executive lndependent) Ang Swee Tian (Non-Executive Independent)

The principal functions of the RC are to:

a) recommend to the Board base salary level, benefits and incentive programmes, and identify components of salary which can best be used to focus management staff on achieving corporate objectives;

b) approve the structure of compensation programme (including but not limited to Directors’ fees, salaries, allowances, bonuses, options and benefits in kind) for the Directors and senior management to ensure that the programme is competitive and sufficient to attract, retain and motivate senior management of the required quality to run the Company successfully;

c) review, on annual basis, the compensation package of the Company’s Directors and senior management personnel and determine appropriate adjustments; and

d) administer the COSCO Group Employees’ Share Option Scheme 2002.

The Company currently adopts a remuneration policy for staff consisting of a fixed component and a variable component. The fixed component is in the form of a base/fixed salary. The variable component is in the form of a variable bonus that is linked to the Company and individual performance. Another element of the variable component is the grant of share options under the COSCO Group Employees’ Share Option Scheme 2002. 41

Annual Report 2010

Information on the COSCO Group Employees’ Share Option Scheme 2002 such as size of grants, exercise price of options that were granted as well as outstanding and vesting period of options are set out on pages 76, 77 and 78 of the Annual Report.

The RC held one meeting during the financial year and had on four occasions used circular resolutions in writing to resolve certain decisions which are then recommended to the Board. The issues deliberated at the meeting and through the circular resolutions in writing included reviewing the termination of options granted, extension of exercise period of options granted, the bonus payments to senior management and the compensation programme for the Directors and senior management.

DISCLOSURE ON REMUNERATION

PRINCIPLE 9

DIRECTORS’ AND KEY EXECUTIVES’ REMUNERATION

The Directors’ and key executives’ remuneration table for the financial year ended 31 December 2010 is as follows:

Amortisation of Other Stock Options Fees Salary Bonus Benefits Expenses Total

Non-Independent Executive Directors in the Band of S$500,000 to S$750,000 Jiang Li Jun 0% 41.82% 41.40% 16.78% 0% 100% Ma Gui Chuan 0% 47.83% 38.53% 13.64% 0% 100%

Non-Independent and Non-Executive Director in the Band of S$500,000 to S$750,000 Liu De Tian Note 1 0% 26.89% 66.03% 7.08% 0% 100%

Non-Independent and Non-Executive Directors in the Band of below S$500,000 Wang Xing Ru Note 1 0% 89.00% 6.79% 4.21% 0% 100% Ma Zhi Hong 0% 89.00% 6.79% 4.21% 0% 100% Lu Cheng Gang 0% 0% 100% 0% 0% 100%

Independent Directors in the Band of below S$500,000 Tom Yee Lat Shing 100% 0% 0% 0% 0% 100% Wang Kai Yuen 100% 0% 0% 0% 0% 100% Er Kwong Wah 100% 0% 0% 0% 0% 100% Ang Swee Tian 100% 0% 0% 0% 0% 100%

Executives in the Band of below S$500,000 Ye Bin Lin 0% 46.83% 37.50% 15.67% 0% 100% Li Jian Xiong 0% 47.83% 38.31% 13.86% 0% 100% Wong Meng Yun 0% 54.44% 38.19% 7.37% 0% 100%

Note 1: The salary, bonus and other benefits of the incumbent directors are paid by the subsidiaries. 42

CORPORATE GOVERNANCE AND TRANSPARENCY

CORPORATE GORVERNANCE

No employee of the Company and its subsidiary companies was an immediate family member of a Director and whose remuneration exceeded S$150,000 during the financial year ended 31 December 2010.

Executives’ Remuneration

The Company adopts a remuneration strategy that supports a pay-for-performance philosophy. Executives participate in an annual performance review process that assesses the individual’s performance and contributions.

The remuneration structure for the Group President and other key executives consists of the following components:

Salary

Fixed pay comprises basic salary and the Company’s contribution towards the Singapore Central Provident Fund where applicable.

Bonus

Bonus is paid based on the Company’s and individual’s performance.

Other Benefits

Other benefits comprise of usage of Company’s car and other benefits-in-kind.

Stock Option

Share options are granted to align staff’s interests with that of shareholders’. These options are granted with reference to the desired remuneration structure target and valued based on the Binomial Valuation Model. Details of the share option scheme can be found in the “Directors Report” section of the Annual Report.

C. ACCOUNTABILITY AND AUDIT ACCOUNTABILITY

ACCOUNTABILITY

PRINCIPLE 10

The Board has overall responsibility to shareholders for ensuring that the Group is well managed and guided by its strategic objectives. In presenting the Group’s annual and quarterly financial results to shareholders, the Board aims to provide shareholders with a balanced and understandable assessment of the Group’s performance, position and prospects. Management provides the Board with management accounts and other financial statements on a quarterly basis.

AUDIT COMMITTEE

PRINCIPLE 11

The Audit Committee (“AC”) comprising all Non-Executive Independent Directors are as follows:

Tom Yee Lat Shing (Chairman) (Non-Executive Independent) Wang Kai Yuen (Non-Executive Independent) Er Kwong Wah (Non-Executive Independent) Ang Swee Tian (Non-Executive Independent) 43

Annual Report 2010

The AC performs the following functions: a) reviews with the external auditors, their audit plan, evaluation of the accounting controls, audit reports and any matters which the external auditors wish to discuss; b) reviews with the internal auditors, their audit plan, the adequacy of the internal audit procedures and their evaluation of the effectiveness of the overall internal control systems, including financial, operational and compliance controls and risk management; c) reviews the quarterly and annual financial statements, including announcements to shareholders and the SGX-ST prior to submission to the Board so as to ensure the integrity of the Company’s financial statements; d) reviews any significant findings and recommendations of the external and internal auditors and related management response and assistance given by the management to auditors; e) reviews interested person transactions to ensure that internal control procedures approved by the shareholders are adhered to; and f) conducts annual review of the independence and objectivity of the external auditors, including the volume of non-audit services provided by the external auditors, to satisfy itself that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors before confirming their re-nomination.

The AC and the Board of Directors, with the assistance of internal audit and external audit, reviews the effectiveness of the key internal controls, including financial, operational and compliance controls, and risk management on an on-going basis. There are formal procedures in place for both the internal and external auditors to report independently their findings and recommendations to the AC.

The AC has full access to, and cooperation from the Management including internal and external auditors, and has full discretion to invite any Director or executive officer to attend its meetings. The AC has also expressed power to investigate any matter brought to its attention, within its terms of reference, with the power to retain professional advice at the Company’s expense.

The Group recognises the importance of the internal audit function which, being independent of Management is one of the principal means by which the AC is able to carry out its responsibilities effectively. The Company has its own Internal Audit function in addition to having Messrs Deloitte & Touche Enterprise Risk Services Pte Ltd as the internal auditors of the Group.

The internal auditors, the in-house and out-sourced incumbents plan their internal audit schedules in consultation with Management and submit their respective plan to the AC for approval. The Internal Auditors, the in-house and outsourced incumbents, report directly to the AC.

The AC conducts regular meetings scheduled on a quarterly basis. Apart from the quarterly meetings, the AC meets with the external and internal auditors, without the presence of the management at least once a year. Ad-hoc meetings may be carried out from time to time, as circumstances require. The AC held nine meetings during the financial year.

The AC, having reviewed the non-audit services provided by the external auditors, PricewaterhouseCoopers LLP, to the Group, is satisfied with the independence and objectivity of the external auditors and recommends to the Board of Directors the nomination of the external auditors for re-appointment.

As for those subsidiaries that were not audited by PricewaterhouseCoopers LLP, the Board and the AC are satisfied that the appointments would not compromise the standard and effectiveness of the audit of the Group. 44

CORPORATE GOVERNANCE AND TRANSPARENCY

CORPORATE GORVERNANCE

Whistle-blowing Policy

The Company has in place a whistle-blowing policy and arrangements by which staff may, in confidence, raise concerns about possible corporate improprieties in matters of financial reporting or other matters. To ensure independent investigation of such matters and for appropriate follow-up action, all whistle-blowing reports are to be sent to the internal audit function. The Chairman of the Audit Committee and the Vice Chairman of the Board will be informed immediately of all whistle-blowing reports received. Details of the whistle-blowing policy and arrangements are given to all staff for their easy reference. New staff is briefed on these during the orientation programme.

INTERNAL CONTROLS

PRINCIPLE 12

The Group maintains a system of internal controls for all companies within the Group, but recognises that no internal control system will preclude all errors and irregularities. The system is designed to manage rather than to eliminate the risk of failure to achieve business objectives. The controls are to provide reasonable, but not absolute, assurance to safeguard shareholders’ investments and the Group’s assets.

The Group’s key internal controls include:

• establishment of risk management policies and systems; • establishments of policies and approval limits for key financial and operational matters, and issues reserved for the Board; • documents of key processes and procedures; • segregation of incompatible functions which give rise to a risk of errors or irregularities not being promptly detected; maintenance of proper accounting records; • safeguarding of assets; • ensuring compliance with appropriate legislation and regulations; and • engaging qualified and experience persons to take charge of important functions.

Operational risk management measures implemented by the Group include the implementation of safety, security and internal control measures and taking up appropriate insurance coverage.

Details of the Group’s financial risk management measures are outlined in Note 35 to the Financial Statements.

Based on internal controls established by the Group, work performed by the internal and external auditors, and reviews conducted by the Audit Committee and the Enterprise Management Risk Committee, the Board is of the opinion that the Group has adequate internal controls.

ENTERPRISE RISK MANAGEMENT COMMITTEE

The Enterprise Risk Management Committee (“ERMC”) comprising six Directors, the majority of whom including the Chairman is independent. The ERMC members are:

Ang Swee Tian (Chairman) (Non-Executive Independent) Jiang Li Jun (Non-Independent Executive) Tom Yee Lat Shing (Non-Executive Independent) Wang Kai Yuen (Non-Executive Independent) Er Kwong Wah (Non-Executive Independent) Wang Xing Ru (Non-Independent and Non-Executive) (Appointed on 12 July 2010) Ye Bin Lin (Alternate Director) Liu De Tian (Alternate Director) (Appointed on 12 July 2010) 45

Annual Report 2010

The ERMC assists the Board in fulfilling its oversight responsibilities on risk management. The responsibilities of the ERMC would include the following:

• reviews the overall risk management system and process and makes recommendations on changes as and when considered appropriate; • reviews the Group’s risk policies, guidelines and limits; and • reviews periodically the Group’s material risk exposures and evaluates the adequacy and effectiveness of the mitigating measures implemented by management.

The ERMC has delegated the day-to-day management of risk within the Group to the Risk Management Committee (“RMC”) of each of its operating subsidiaries. The RMC of each of the subsidiaries comprises senior management staff of each division within the operating subsidiaries.

The ERMC held four meetings during the year at which discussions were held on the existing risk management structure, the key risk exposures of the Group and the action plan to mitigate such risks.

COSCO Shipyard Group continues to have a comprehensive strategic agreement with a leading Chinese insurance institution to strengthen its risk management system and to enhance its operational structure. The said insurance institution has established a team to provide the Group with different facades of insurance for domestic and international trades; setting up a standardised claims and liabilities system; the evaluation of ship owners’ credit ratings, the tracking of ship owners’ risk; and the evaluation of countries’ credit ratings. The Company believes all these efforts are to help the Group to move towards the establishment of an all-encompassing risk management system.

During the financial year the ERMC has engaged the services of Deloitte & Touche Enterprise Risk Services Pte Ltd to provide the following services:

• Review the Group’s Risk Management Existing Policies and Procedures • Review and document risk management practices employed at the Group • Review risk tolerance and limits being in use across the Group • Review the risk reports generated and used by the Group • Identify key areas or risk factors not covered by existing risk management practices • Review existing risk management practices against industry practices • Identify and customise risk management best practices for the Group • Review and recommend appropriate risk management policies and procedures • Review and recommend appropriate risk management reporting package and processes • Training for senior management of the Company and its key subsidiaries

Deloitte & Touche Enterprise Risk Services Pte Ltd had performed a strategic risk profiling in the Group’s major subsidiaries and this has been successfully completed in 2010. As the Group’s enterprise risk management programme is a long-term initiative that calls for commitment and inputs from various stakeholders, a phased implementation of the enterprise risk management policies with guidance from Deloitte & Touche Enterprise Risk Services Pte Ltd are planned to be carried out in a systematic manner coupled with constant education and training of local management staff and risk owners.

INTERNAL AUDIT

PRINCIPLE 13

The internal audit function’s primary line of reporting is to the Chairman of the Audit Committee. Internal Audit is an independent function within the Company. Internal Audit reports directly to the AC and administratively to the President. The Company has also appointed Messrs. Deloitte & Touche Enterprise Risk Services Pte Ltd as the internal auditors of the Group. Based on its review, the Audit Committee believes that the internal auditors, both the in-house and the outsourced internal auditors, are independent and have the appropriate standing to perform its function effectively and objectively. 46

CORPORATE GOVERNANCE AND TRANSPARENCY

CORPORATE GORVERNANCE

D. COMMUNICATION WITH SHAREHOLDERS

REGULAR, EFFECTIVE AND FAIR COMMUNICATION

PRINCIPLE 14

COSCO Corporation strives for timeliness and transparency in its disclosures to the shareholders and the public. All information on the Company’s new initiatives will be first disseminated via SGXNET followed by a news release, where appropriate. The Company currently holds media and analyst briefings upon the release of its quarterly financial results. Management regularly receives visiting fund managers to provide them an insight to the Company’s business and developments, as well as to better understand and address their concerns. In addition to the media and analyst briefings, the Company has taken part in various road shows.

The Company does not practise selective disclosure. Price-sensitive information is first publicly released via SGXNET, either before the Company meets with any group of investors or analysts or simultaneously with such meetings. Results and annual reports are announced or issued within the period prescribed by the SGX-ST.

GREATER SHAREHOLDER PARTICIPATION

PRINCIPLE 15

COSCO Corporation encourages shareholders to participate actively in general meetings. At general meetings of the Company, shareholders are given the opportunity to express their views and ask questions regarding the Company and the Group.

The Company’s Articles of Association allow a shareholder entitled to attend and vote to appoint a proxy who need not be a shareholder of the Company to attend and vote at the meetings.

The Board members and chairpersons of the Audit, Nominating, Remuneration, Enterprise Risk Management and Strategic Development Committees are present and available to address shareholders’ questions at general meetings. The external auditors are also present to address shareholders’ queries relating to the conduct of the audit and the preparation of the auditor’s report.

E. INTERESTED PERSON TRANSACTIONS (“IPTS”) POLICY

The Company has adopted an internal policy in respect of any transactions with interested persons and has set out the procedures for review and approval of the Company’s interested person transactions with the China Ocean Shipping (Group) Company and its associates, which are covered by a Shareholders’ Mandate approved at each general meeting.

The AC reviews the Shareholders’ Mandate at regular intervals, and is satisfied that the review procedures for IPTs and the reviews to be made periodically by the AC in relation thereto are adequate to ensure that the IPTs will be transacted on normal terms and will not be prejudicial to the interests of the Company and its minority shareholders. 47

Annual Report 2010

E. INTERESTED PERSON TRANSACTIONS (“IPTS”) POLICY (continued)

Aggregate value of all interested person transactions during the Aggregate value of financial period under review all interested person (excluding transactions transactions conducted less than $100,000 and under shareholders’ mandate transactions conducted pursuant to Rule 920 under shareholders’ mandate (excluding transactions less Name of Interested Person pursuant to Rule 920) than $100,000) S$’000 S$’000 Between Subsidiaries and:

Chimbusco (S) Pte Ltd - 528 Chimbusco Dalian Branch - 10,504 Chimbusco Guangzhou Branch - 6,994 Chimbusco Lianyungang Branch - 969 Chimbusco Shanghai Branch - 441 Chimbusco Zhoushan Branch - 7,708 Cosbulk International Trading Co., Ltd - 808 Cosco (Cayman) Mercury Co., Ltd - 242 Cosco (HK) Shipping Co., Ltd - 3,972 Cosco Bulk Carrier Co., Ltd - 12,637 Cosco Bulk Carrier Holdings (Cayman) Limited - 13,866 Cosco Container Lines Co., Ltd - 10,408 Cosco Finance Co., Ltd - 453,925 Cosco International Trade Ltd - 101 Cosco Jiangsu International Freight Co. - 433 Cosco Nantong Steel Co., Ltd - 19,398 Cosco Shanghai Ship Management Co., Ltd - 4,754 Cosco Shipping Co., Ltd - 138 Dalian Ocean Shipping Company - 2,940 Dalian Yuan Chang Shipping Co., Ltd - 959 Freightworld Pte Ltd 11,650 - Guangzhou Ocean Shipping Company - 25,272 Nantong Chimbusco Marine Bunker - 2,009 Nantong Cosco Ship Equipment Company - 6,513 Nantong Yuantong Container Warehouse and Transportation Co., Ltd - 432 Qingdao Manning Co-operation Ltd - 2,326 Qingdao Ocean Shipping Company - 1,984 Shanghai Cosco-Shokuyu Shipping Company - 121 Shanghai Ocean Crew Co., Ltd - 5,277 Shanghai Ocean International Trading Co., Ltd - 573 Shanghai Ocean Shipping Company - 6,404 Shenzhen Ocean Shipping Company - 690 Tianjin Tianhui Shipping & Enterprise Co., Ltd - 2,071 Tianjin Yuanhua Shipping Co., Ltd - 380 Tosco Keymax International Ship Management Co., Ltd - 150 Xiamen Ocean Shipping Company - 925 YuanTong Marine Service Co. - 101 Total 11,650 606,953 48

CORPORATE GOVERNANCE AND TRANSPARENCY

CORPORATE GORVERNANCE

E. INTERESTED PERSON TRANSACTIONS (“IPTS”) POLICY (continued)

As At 31/12/2010 As At 31/12/2009 S$’000 S$’000

Balances placed with a fellow subsidiary, Cosco Finance Co., Ltd: - Cash at bank 85,045 168,493 - Short-term bank deposits 388,500 616,031 473,545 784,524

F. DEALING IN SECURITIES

In line with Chapter 12 Rule 1207(18) of the Listing Manual of SGX-ST on dealings in securities, the Company has adopted an internal compliance code which mirrors substantially the provisions of the said rule to provide guidance to its Directors and officers in relation to dealings in its securities.

The Company’s Code prohibits securities dealings by the Directors and employees while in possession of price-sensitive information. The Company issues regular circulars to its Directors, principal officers and relevant officers who have access to unpublished material price-sensitive information to remind them of the aforementioned prohibition and to remind them of the requirement to report their dealings in shares of the Company. The Directors and employees are also prohibited from dealing in the securities of the Company during the period commencing two weeks before the announcement of financial results of the Company for each of the first, second and third quarters of its financial year or one month before the financial year, as the case may be, and ending on the date of the announcement of the relevant results. 49

Annual Report 2010

CORPORATE INFORMATION

Board of Directors Liu Guo Yuan Chairman and Non-Independent and Non-Executive Director Jiang Li Jun Vice Chairman, President and Non-Independent Executive Director Ma Gui Chuan Non-Independent Executive Director Wang Hai Min Non-Independent and Non-Executive Director Wang Xing Ru Non-Independent and Non-Executive Director Ma Zhi Hong Non-Independent and Non-Executive Director Tom Yee Lat Shing Non-Executive Independent Director Wang Kai Yuen Non-Executive Independent Director Er Kwong Wah Non-Executive Independent Director Ang Swee Tian Non-Executive Independent Director

Audit Committee Enterprise Risk Management Company Registration Number Tom Yee Lat Shing Chairman Committee 196100159G Wang Kai Yuen Ang Swee Tian Chairman Er Kwong Wah Jiang Li Jun Auditors Ang Swee Tian Tom Yee Lat Shing PricewaterhouseCoopers LLP Wang Kai Yuen 8 Cross Street #17-00 Remuneration Committee Er Kwong Wah PWC Building Er Kwong Wah Chairman Ye Bin Lin Singapore 048424 Jiang Li Jun Wang Xing Ru Partner-in-charge: Tom Yee Lat Shing (Appointed on 12 July 2010) Tham Tuck Seng (since FY2007) Wang Kai Yuen Liu De Tian Ang Swee Tian (Appointed on 12 July 2010) Company Secretaries Lawrence Kwan Nominating Committee Strategic Development Committee Low Siew Tian Wang Kai Yuen Chairman Jiang Li Jun Chairman Jiang Li Jun Liu Guo Yuan Share Registrar and Share Transfer Tom Yee Lat Shing (Appointed on 3 March 2011) Office Er Kwong Wah Tom Yee Lat Shing Tricor Barbinder Share Registration Ang Swee Tian Wang Kai Yuen Services (A division of Tricor Singapore Er Kwong Wah Pte Ltd) Ang Swee Tian 8 Cross Street #11- 00 PWC Building Registered Office and Business Singapore 048424 Contact Information Telephone: 6236 3333 9 Temasek Boulevard Facsimile: 6236 4399 #07-00 Suntec Tower Two Singapore 038989 Telephone: 6885 0888 Fascimile: 6336 9006 Website: www.cosco.com.sg 50

CORPORATE GOVERNANCE AND TRANSPARENCY

BOARD OF DIRECTORS

From left to right: Ang Swee Tian, Tom Yee Lat Shing, Wang Hai Min, Liu Guo Yuan, Wang Kai Yuen, Ma Gui Chuan, Er Kwong Wah, Jiang Li Jun, Wang Xing Ru and Ma Zhi Hong 51

Annual Report 2010

Liu Guo Yuan Jiang Li Jun Chairman, Non-Independent and Vice Chairman, President and Non-Executive Director Non-Independent Executive Director

Mr Liu Guo Yuan has been appointed as the Chairman, Non- Mr Jiang Li Jun was appointed as Vice Chairman and Independent and Non-Executive Director of the Company President of COSCO Corporation (Singapore) Limited in in place of Mr Li Jian Hong with effect from 1 September 2008. Mr Jiang joined COSCO as an accountant upon his 2010. graduation in December 1974. He has held various positions within the COSCO Group, including accounting manager Mr Liu Guo Yuan, born in 1951, started his career in 1975. of COSCO (Group) Company, SINOTASHIP, Chung Ling Currently, Mr Liu is General Counsel/Chief Legal Officer of Shipping (Japan) Co., Ltd, Yick Fung Shipping (HK) Co., Ltd., COSCO Group head office and China COSCO Holdings Deputy General Manager of Florence Container (HK) Co., Company Ltd. He is also a certified senior economist and an Ltd and COSCO Pacific Co., Ltd (a public listed Company in arbitrator of the China Arbitration commission. Hong Kong), and Chief Executive Officer of COSCO Shipping Co., Ltd (a public listed Company in Shanghai ‘A’ shares). In 1975, Mr Liu graduated from Foreign Languages Institute and joined COSCO H.Q. as a fleet operation planner Mr Jiang had also been the head of Finance Department in the shipping department. From 1980 to 1982, he studied and Deputy General Manager of Operation Department of and acquired master degree (LLM) in the Law School of COSCO Japan Co., Ltd, General Manager of COSUZ Co., University of Washington Seattle U.S.A. Since 1982, he Ltd as well as Deputy Chief Financial Officer of COSCO had worked as manager, director and deputy managing Container Lines Ltd. director in departments of Shipping, Law & Policy Research, Administration, Corporate Planning & Strategy. In early Mr Jiang holds an MBA degree from the University of 1990s, he was promoted as the Senior Commercial Director Shanghai. He has extensive experience in the management of COSCO H.Q. of listed companies and corporate financial management.

In 1993 he became the deputy managing director of COSCO Tianjin. From 1998 to 2000, he was vice president and president of COSCO Europe.

From 2000 to 2008, Mr Liu was nominated separately the Executive Vice-Chairman & President of COSCO (Hong Kong) Group Ltd., the Executive Vice Chairman of COSCO International Holdings Ltd (HKEX 517), Executive Director & Vice Chairman of COSCO Pacific Ltd. (HKEX 1199), a Non- Executive Director of China COSCO Holdings Company Ltd (HKEX 1919) and a Non-executive director of the Chong Hing Bank Ltd (HKEX 1111), Chairman and Executive Director of COSCO (H.K.) Shipping Co., Ltd. Etc. Mr Liu was also nominated by the HKSAR Government member of Hong Kong Port Development Council, the Hong Kong Maritime Industry Council, the Hong Kong LOGSCOUNCIL, and an Investment Promotion Ambassador (IPA) He was the Vice Chairman of Hong Kong Shipowners’ Association, Vice Chairman of the Hong Kong Chinese Enterprises Association as well as a Council member of the Hong Kong General Chamber of Commerce and the Hong Kong Management Association. On July 1st 2007, Mr Liu was appointed by HKSAR Chief Executive as the Justice of Peace (JP). 52

CORPORATE GOVERNANCE AND TRANSPARENCY

BOARD OF DIRECTORS

Ma Gui Chuan Wang Hai Min Wang Xing Ru Ma Zhi Hong Non-Independent Executive Director Non-Independent and Non-Executive Director Non-Independent and Non-Executive Director Non-Independent and Non-Executive Director

Mr Ma Gui Chuan was elected as Non-Independent Executive Mr Wang Hai Min has been appointed as a Non-Independent Mr Wang Xing Ru was appointed as a Non-Independent and Mr Ma Zhi Hong has been appointed as a Non-Independent Director on 10 January 2007. He joined the COSCO Group in Non-Executive Director of the Company in place of Mr Zhang Non-Executive Director of COSCO Corporation (Singapore) Non-Executive Director of the Company in place of Mdm Sun 1978 and was appointed the Chairman of the Union of COSCO Liang with effect from 2 August 2010. Limited in February 2006. He has been the Managing Director Yue Ying with effect from 2 August 2010. Group in 1998. Currently, he is the Chairman of COSCO of COSCO Shipyard Group Ltd since 2001. Prior to that, Mr Holdings (S) Pte Ltd. He was involved in the management of Mr Wang Hai Min, born in July 1972, graduated from Wang was Executive Director of COSCO Co-Development Mr Ma Zhi Hong, born in March 1957, graduated from Dalian the Qingdao Ocean Shipping Company for many years and Shanghai Fudan University with a MBA degree. He joined (Tianjin) Co., Ltd and Vice President of COSCO Industry Maritime University with a doctorate degree. He joined became the person-in-charge of Qingdao Ocean Shipping COSCO Container Lines in July 1995 and worked in this Co. Mr Wang was elected as President of the ship repair COSCO in July 1979. Over the past 30 and more years, Mr Ma Mariner’s College in 1994. From 2001 to 2003, he was a company until January 2010. Over these years, Mr Wang branch of China Shipbuilding Industry Association, and Vice has worked as an engineer on-board ships, chief engineering standing member of CPC Committee and Deputy Mayor of had worked in different positions of staff, assistant manager, President of China Shipbuilding Industry Association in 2006. superintendent of COSCO Container Lines, deputy director Yinchuan, Ningxia. In 2003, Mr Ma was elected an executive deputy manager, manager, senior manager and department Mr Wang was awarded “the leading persons of China’s ship of COSCO Bulk, assistant president of COSCO Group head committee member of the 14th national representatives head with growing responsibilities on cooperated shipping repair and ship-breaking industry” in 2007, and was awarded office, vice president of COSCO Hong Kong and deputy congress of All-China Federation of Trade Unions. He had services and strategic planning. From June 2006 to January “National Medal for Labor Day” by All-China Federation of managing director of COSCO Shipyard Group. nearly 30 years of experience in the shipping industry and 2010, he was the general manager of the strategic planning Trade Unions. Mr Wang graduated from Shandong Industrial extensive experience in ship and crew management. department. In January 2010, Mr Wang was transferred to University in 1991, majoring in machinery manufacturing. Mr Beijing and became the general manager of transportation Wang holds a Master of Engineering degree. He has a wealth Mr Ma graduated from Dalian Maritime University majoring division in COSCO Group head office. of professional experience in shipyard business and assets in engineering management and from Capital University of operation. He is a senior engineer. Economics and Business with postgraduate qualifications in business administration. 53

Annual Report 2010

Ma Gui Chuan Wang Hai Min Wang Xing Ru Ma Zhi Hong Non-Independent Executive Director Non-Independent and Non-Executive Director Non-Independent and Non-Executive Director Non-Independent and Non-Executive Director

Mr Ma Gui Chuan was elected as Non-Independent Executive Mr Wang Hai Min has been appointed as a Non-Independent Mr Wang Xing Ru was appointed as a Non-Independent and Mr Ma Zhi Hong has been appointed as a Non-Independent Director on 10 January 2007. He joined the COSCO Group in Non-Executive Director of the Company in place of Mr Zhang Non-Executive Director of COSCO Corporation (Singapore) Non-Executive Director of the Company in place of Mdm Sun 1978 and was appointed the Chairman of the Union of COSCO Liang with effect from 2 August 2010. Limited in February 2006. He has been the Managing Director Yue Ying with effect from 2 August 2010. Group in 1998. Currently, he is the Chairman of COSCO of COSCO Shipyard Group Ltd since 2001. Prior to that, Mr Holdings (S) Pte Ltd. He was involved in the management of Mr Wang Hai Min, born in July 1972, graduated from Wang was Executive Director of COSCO Co-Development Mr Ma Zhi Hong, born in March 1957, graduated from Dalian the Qingdao Ocean Shipping Company for many years and Shanghai Fudan University with a MBA degree. He joined (Tianjin) Co., Ltd and Vice President of COSCO Industry Maritime University with a doctorate degree. He joined became the person-in-charge of Qingdao Ocean Shipping COSCO Container Lines in July 1995 and worked in this Co. Mr Wang was elected as President of the ship repair COSCO in July 1979. Over the past 30 and more years, Mr Ma Mariner’s College in 1994. From 2001 to 2003, he was a company until January 2010. Over these years, Mr Wang branch of China Shipbuilding Industry Association, and Vice has worked as an engineer on-board ships, chief engineering standing member of CPC Committee and Deputy Mayor of had worked in different positions of staff, assistant manager, President of China Shipbuilding Industry Association in 2006. superintendent of COSCO Container Lines, deputy director Yinchuan, Ningxia. In 2003, Mr Ma was elected an executive deputy manager, manager, senior manager and department Mr Wang was awarded “the leading persons of China’s ship of COSCO Bulk, assistant president of COSCO Group head committee member of the 14th national representatives head with growing responsibilities on cooperated shipping repair and ship-breaking industry” in 2007, and was awarded office, vice president of COSCO Hong Kong and deputy congress of All-China Federation of Trade Unions. He had services and strategic planning. From June 2006 to January “National Medal for Labor Day” by All-China Federation of managing director of COSCO Shipyard Group. nearly 30 years of experience in the shipping industry and 2010, he was the general manager of the strategic planning Trade Unions. Mr Wang graduated from Shandong Industrial extensive experience in ship and crew management. department. In January 2010, Mr Wang was transferred to University in 1991, majoring in machinery manufacturing. Mr Beijing and became the general manager of transportation Wang holds a Master of Engineering degree. He has a wealth Mr Ma graduated from Dalian Maritime University majoring division in COSCO Group head office. of professional experience in shipyard business and assets in engineering management and from Capital University of operation. He is a senior engineer. Economics and Business with postgraduate qualifications in business administration. 54

CORPORATE GOVERNANCE AND TRANSPARENCY

BOARD OF DIRECTORS

Tom Yee Lat Shing Wang Kai Yuen Er Kwong Wah Ang Swee Tian Non-Executive Independent Director Non-Executive Independent Director Non-Executive Independent Director Non-Executive Independent Director

Mr Tom Yee Lat Shing was appointed to the Board on 15 Dr Wang Kai Yuen was appointed as an Independent Director Mr Er Kwong Wah was appointed as an Independent Mr Ang Swee Tian is a Non-Executive and Independent December 1993. He is a Non-Executive and Independent on 2 May 2001. He chairs the Nominating Committee and Director on 20 December 2002. He chairs the Remuneration Director of COSCO Corporation (Singapore) Limited. He Director and was last re-elected as Director on 20 April 2010. is a member of the Audit, Enterprise Risk Management, Committee and is a member of the Audit, Nominating, chairs the Enterprise Risk Management Committee and He is Chairman of the Company’s Audit Committee and Remuneration and Strategic Development Committee. Dr Enterprise Risk Management and Strategic Development is a member of the Audit, Remuneration, Nominating and member of the Nominating, Enterprise Risk Management, Wang served as a Member of Parliament for the Bukit Timah Committee. A Colombo Plan and Bank of Tokyo Scholar, Strategic Development Committees. Remuneration and Strategic Development Committees. Mr Constituency from December 1984 till April 2006. He was Mr Er obtained a first class honours degree in Electrical Yee is a Certified Public Accountant and was a partner of an the Chairman of Feedback Unit from 2002 till his retirement Engineering at the University of Toronto, Canada, in 1970 Mr Ang was the President of Singapore Exchange Ltd international public accounting firm from 1974 to 1989. He has from politics. He retired as the Centre Manager of Fuji Xerox and an MBA from the Manchester Business School of the (“SGX”) from 1999 to 2005 during which he played an more than 35 years of experience in the field of accounting Singapore Software Centre in Dec 2009. Dr Wang also holds University of Manchester, UK in 1978. active role in successfully promoting SGX as a preferred and auditing and extensive experience in handling major directorships at ComfortDelgro Group Ltd, CAO (Singapore) listing and capital raising venue for Chinese enterprises. audit assignments of public listed and private companies Corporation Ltd, Asian Micro Holdings Ltd, Ezion Holdings Mr Er spent 27 years in the Singapore Civil Service and served Mr Ang also played a pivotal role in establishing Asia’s first in various industries, including insurance, manufacturing Ltd, Xpress Holdings Ltd, Matex International Ltd, and in various departments including the Ministry of Defense, financial futures exchange, the Singapore International and retailing. He is currently a consultant. Mr Yee sits on others. He graduated from the University of Singapore with Public Service Commission, Ministry of Finance, Ministry of Monetary Exchange (“SIMEX”) in Singapore in 1984 and was the boards of several Singapore listed companies. He is a a First Class Honours degree in Electrical and Electronics Education and Ministry of Community Development. He was instrumental to establishing SGX AsiaClear which started fellow member of the Institute of Chartered Accountants engineering. Permanent Secretary in the Ministry of Education from 1987- offering OTC clearing facility in 2006. Following his retirement in Australia, CPA (Australia), Institute of Certified Public 1994, and then in the Ministry of Community Development in January 2006, Mr Ang served as Senior Adviser to SGX Accountants Singapore and an associate member of the Dr Wang holds a Master of Science in Electrical Engineering, until his retirement in 1998. until December 2007. Institute of Chartered Secretaries and Administrators. He a Master of Science in Industrial Engineering and a PhD in is also a council member of the Institute of Certified Public Engineering from Stanford University, USA. He received a Currently, he is an Executive Director of the East Asia In March 2007, Mr Ang became the first person from an Accountants Singapore. Friend of Labour Award in 1988 for his contributions to the Institute of Management, as well as an Independent Director Asian Exchange to be inducted into the Futures Industry Singapore labour movement. on the Boards of several public listed companies such as Association’s Futures Hall of Fame which was established Unidux Electronics Ltd, Firstlink Investment Corporation to honour and recognise outstanding individuals for their Ltd, Hartawan Holdings Ltd, China Sky Chemical Fiber Co., contributions to the global futures and options industry. Ltd, China Essence Group Ltd, China Oilfield Technology Services Group Ltd, Eucon Holding Ltd and Van Der Horst Mr Ang graduated from Nanyang University of Singapore with energy Ltd. a First-Class Honours Degree in Accountancy in 1970. He was conferred a Master Degree in Business Administration For his outstanding service in the Government and in the with distinction by the Northwestern University in 1973. community, Mr Er was awarded the PPA(E) or Public Administration Medal (Gold), the BBM (Public Service Star) and the PBM (Public Service Medal). In 1991, the Government of France conferred him a National Honour with the award of Commandeur dans l’Ordre des Palmes Academiques. 55

Annual Report 2010

Tom Yee Lat Shing Wang Kai Yuen Er Kwong Wah Ang Swee Tian Non-Executive Independent Director Non-Executive Independent Director Non-Executive Independent Director Non-Executive Independent Director

Mr Tom Yee Lat Shing was appointed to the Board on 15 Dr Wang Kai Yuen was appointed as an Independent Director Mr Er Kwong Wah was appointed as an Independent Mr Ang Swee Tian is a Non-Executive and Independent December 1993. He is a Non-Executive and Independent on 2 May 2001. He chairs the Nominating Committee and Director on 20 December 2002. He chairs the Remuneration Director of COSCO Corporation (Singapore) Limited. He Director and was last re-elected as Director on 20 April 2010. is a member of the Audit, Enterprise Risk Management, Committee and is a member of the Audit, Nominating, chairs the Enterprise Risk Management Committee and He is Chairman of the Company’s Audit Committee and Remuneration and Strategic Development Committee. Dr Enterprise Risk Management and Strategic Development is a member of the Audit, Remuneration, Nominating and member of the Nominating, Enterprise Risk Management, Wang served as a Member of Parliament for the Bukit Timah Committee. A Colombo Plan and Bank of Tokyo Scholar, Strategic Development Committees. Remuneration and Strategic Development Committees. Mr Constituency from December 1984 till April 2006. He was Mr Er obtained a first class honours degree in Electrical Yee is a Certified Public Accountant and was a partner of an the Chairman of Feedback Unit from 2002 till his retirement Engineering at the University of Toronto, Canada, in 1970 Mr Ang was the President of Singapore Exchange Ltd international public accounting firm from 1974 to 1989. He has from politics. He retired as the Centre Manager of Fuji Xerox and an MBA from the Manchester Business School of the (“SGX”) from 1999 to 2005 during which he played an more than 35 years of experience in the field of accounting Singapore Software Centre in Dec 2009. Dr Wang also holds University of Manchester, UK in 1978. active role in successfully promoting SGX as a preferred and auditing and extensive experience in handling major directorships at ComfortDelgro Group Ltd, CAO (Singapore) listing and capital raising venue for Chinese enterprises. audit assignments of public listed and private companies Corporation Ltd, Asian Micro Holdings Ltd, Ezion Holdings Mr Er spent 27 years in the Singapore Civil Service and served Mr Ang also played a pivotal role in establishing Asia’s first in various industries, including insurance, manufacturing Ltd, Xpress Holdings Ltd, Matex International Ltd, and in various departments including the Ministry of Defense, financial futures exchange, the Singapore International and retailing. He is currently a consultant. Mr Yee sits on others. He graduated from the University of Singapore with Public Service Commission, Ministry of Finance, Ministry of Monetary Exchange (“SIMEX”) in Singapore in 1984 and was the boards of several Singapore listed companies. He is a a First Class Honours degree in Electrical and Electronics Education and Ministry of Community Development. He was instrumental to establishing SGX AsiaClear which started fellow member of the Institute of Chartered Accountants engineering. Permanent Secretary in the Ministry of Education from 1987- offering OTC clearing facility in 2006. Following his retirement in Australia, CPA (Australia), Institute of Certified Public 1994, and then in the Ministry of Community Development in January 2006, Mr Ang served as Senior Adviser to SGX Accountants Singapore and an associate member of the Dr Wang holds a Master of Science in Electrical Engineering, until his retirement in 1998. until December 2007. Institute of Chartered Secretaries and Administrators. He a Master of Science in Industrial Engineering and a PhD in is also a council member of the Institute of Certified Public Engineering from Stanford University, USA. He received a Currently, he is an Executive Director of the East Asia In March 2007, Mr Ang became the first person from an Accountants Singapore. Friend of Labour Award in 1988 for his contributions to the Institute of Management, as well as an Independent Director Asian Exchange to be inducted into the Futures Industry Singapore labour movement. on the Boards of several public listed companies such as Association’s Futures Hall of Fame which was established Unidux Electronics Ltd, Firstlink Investment Corporation to honour and recognise outstanding individuals for their Ltd, Hartawan Holdings Ltd, China Sky Chemical Fiber Co., contributions to the global futures and options industry. Ltd, China Essence Group Ltd, China Oilfield Technology Services Group Ltd, Eucon Holding Ltd and Van Der Horst Mr Ang graduated from Nanyang University of Singapore with energy Ltd. a First-Class Honours Degree in Accountancy in 1970. He was conferred a Master Degree in Business Administration For his outstanding service in the Government and in the with distinction by the Northwestern University in 1973. community, Mr Er was awarded the PPA(E) or Public Administration Medal (Gold), the BBM (Public Service Star) and the PBM (Public Service Medal). In 1991, the Government of France conferred him a National Honour with the award of Commandeur dans l’Ordre des Palmes Academiques. 56

CORPORATE GOVERNANCE AND TRANSPARENCY

KEY MANAGEMENT

From left to right: Wong Meng Yun, Li Jian Xiong, Jiang Li Jun and Ye Bin Lin 57

Annual Report 2010

Jiang Li Jun Ye Bin Lin Vice Chairman, President, Chief Financial Officer and Non-Independent Executive Director Mr Ye Bin Lin has extensive experience in finance and Mr Jiang Li Jun was appointed as Vice Chairman and corporate financial management. From 1993 to 1998, Mr President of COSCO Corporation (Singapore) Limited in Ye was the finance manager of accounting department of 2008. Mr Jiang joined COSCO as an accountant upon his COSCO Container Lines Co., Ltd. From 1998 to 2001, he was graduation in December 1974. He has held various positions the general financial manager of COSCO Germany Shipping within the COSCO Group, including accounting manager Agencies GMBH. of COSCO (Group) Company, SINOTASHIP, Chung Ling Shipping (Japan) Co., Ltd, Yick Fung Shipping (HK) Co., Ltd., Mr Ye joined COSCO Corporation (S) Ltd. as finance director Deputy General Manager of Florence Container (HK) Co., in August 2001 and was re-designated Chief Financial Officer Ltd and COSCO Pacific Co., Ltd (a public listed Company in of the company on 14 April 2008. Hong Kong), and Chief Executive Officer of COSCO Shipping Co., Ltd (a public listed Company in Shanghai ‘A’ shares). Wong Meng Yun Financial Controller Mr Jiang had also been the head of Finance Department and Deputy General Manager of Operation Department of Mr Wong Meng Yun has more than 25 years of professional COSCO Japan Co., Ltd, General Manager of COSUZ Co., Ltd and leadership experience in financial management, corporate as well as Deputy Chief Financial Officer of COSCO Container finance, internal & external audit and treasury management Lines Ltd. of which 12 years were in a senior regional management position with a leading US-listed software company prior to Mr Jiang holds an MBA degree from the University of his joining the Group in July 2008. Shanghai. He has extensive experience in the management of listed companies and corporate financial management. He graduated from the University of Singapore with a Bachelor of Accountancy and is a Fellow of the Association of Li Jian Xiong Chartered Certified Accountants, CPA Australia, the Institute Vice President of Certified Public Accountants of Singapore, the Chartered Institute of Arbitrators, the Institute of Arbitrators & Mediators Mr Li Jian Xiong has rich knowledge and experience in Australia and the Singapore Institute of Arbitrators. shipping management and business operation. From 1997 to 2001, Mr Li served as Deputy Managing Director of HK He is a Certified Treasury Professional (CTP) with the Yu Hang Investment Ltd; Managing Director of COSCO Association for Financial Professionals, a Certified Internal Container Service Ltd; Deputy General Manager of COSCO Auditor (CIA) and a Certified Financial Services Auditor Pacific Ltd (Listed Company in HK) and Deputy Managing (CFSA) with the Institute of Internal Auditors, as well as, a Director of COSCO Pacific (China) Investment Co., Ltd. He Certified Information Systems Auditor (CISA) and a Certified also served as the Vice Chairman of Zhangjiagang Win Information Security Manager (CISM) with the Information Hanverky Container Terminals Co. Ltd. and the director of Systems Audit and Control Association (ISACA). various COSCO subsidiary companies in China.

Mr Li joined COSCO Corporation (S) Ltd. in April 2001 as Vice President. In 2009, he became the director of Investor Relations Professionals Association (Singapore) (IRPAS). He is currently also the director of COSCO Marine (S) Ltd.

Mr Li graduated from Qingdao Ocean Shipping Mariners’ College and received his MBA from Shanghai Jiao Tong University. Artist’s impression of COSCO Qidong shipyard which specialises in offshore marine engineering. WE ARE CLOSER TO THE FUTURE WE ENVISION With our wide offerings, we have a solid foundation for long- term expansion. The value we are creating will enable us to realise our vision to be a diversified marine conglomerate providing Ship Repair and Conversion, Ship Building and Offshore Marine Engineering. 60

CORPORATE GOVERNANCE AND TRANSPARENCY

INVESTOR RELATIONS

At COSCO Corporation, Investor indexes were created to reflect the and disseminate information about Relations (IR) is a key component of increasing representation of China- COSCO Corporation. We also engage our strategy to develop as a global based companies on the Singapore the media and the general public marine conglomerate and a leading stock market and offer investors through media interviews and news corporate entity. Building on our simple vehicles through which they reports on a variety of media platforms strong and accountable leadership, can participate in the potential growth such as newswires, print, broadcast, we practice effective corporate of highly liquid, locally-listed China investor meetings and roadshows, and governance, regular performance companies. dialogue with shareholders at Annual reporting and clear and timely investor General Meetings. communications. In this regard, Active Engagement we strive to provide frequent and As a widely traded stock included During the year in review, we have substantive corporate disclosure in many indexes, we understand held many meetings with investors. through an active investor relations the importance of timely and Our investor relations activities also programme. pertinent corporate disclosure. Over include meetings with fund managers the year in review, we undertook and shareholders, results briefings for Our pro-active investor relations announcements covering contracts every financial quarter, and investment engagement has generated strong won, quarterly results, growth briefings. Over FY2010, we engaged interest in our stock. As a testament strategies, operational commentaries all senior management members of to widespread shareholder interest, and our business outlook. We COSCO Corporation through various we have been included in the FTSE frequently interact with the investment meetings and events. In addition, ST China Index since January community of shareholders, stock over 300 shareholders attended our 2008, and in the FTSE China Top brokerages, banks and other financial Annual General Meeting in April 2010. Index since July 2008. Both these institutions to discuss, elaborate 61

Annual Report 2010

Analyst Company

Ajay Mirchandani JP Morgan

Alfred Low Phillip Securities

Alex Goh AmResearch

Cheryl Lee UBS

Chua Jen-Ai CLSA

Chong Wee Lee Merrill Lynch

Gerald Wong Credit Suisse

Ho Pei Hwa DBS Vickers

Janice Chua DBS Vickers

Kevin Chong Deutsche Bank

Lim Siew Khee CIMB

Lisa Lee Nomura Securities

Low Horng Han CITI

Low Pei Han OCBC Research

Nancy Wei UOB Kay Hian

Neel Sinha HSBC

Rohan Suppiah Kim Eng Securities 62

CORPORATE GOVERNANCE AND TRANSPARENCY

INVESTOR RELATIONS

Major IR Events in 2010

Date Event 13 January DBS Vickers Pulse of Asia Conference 2010 22 February FY2009 results briefing 10 – 11 March DAIWA Securities investor conference 20 April FY2009 Annual General Meeting 23 April DBS Vickers Hong Kong investor briefing 6 May 1QFY10 results briefing 10 – 11 May Deustche Bank investor conference 19 – 20 May Bank of America Merrill Lynch investor conference 24 – 25 May DBS Vickers investor conference 7 July DBS Vickers investor conference 2 August 2QFY10 results briefing 3 August Bank of America Merrill Lynch briefing 11 August CITI investor conference 19 – 20 August CLSA investor conference 1 – 2 September UBS investor conference 29 September DAIWA investor conference 5 October Awarded SIAS Investors’ Choice Award 20 – 22 October CITI investor conference 3 November 3QFY10 results briefing 4 November DBS Vickers briefing 9 – 10 November Morgan Stanley investor conference 16 – 18 November DAIWA investor conference 63

Annual Report 2010

1850 2.200 Last Price COS SP Equity [R1] 2.140 +.010 2.140 3300 FSSTI Index [R2] 319004 -22.42 1800 MXSG Index [R3] 1762.52 -14.65 2.000 3200 1762.52 3190.04 1750

3100 1.800 1700

3000 1650 1.600

2900 1600

1.400 2800 1550

2700 1500 1.200

1450 2600 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

FY2010

IR Awards 2010 For the 2nd consecutive year, the Securities Investors Association of Singapore selected COSCO Corporation as the “Most Transparent Company” in the overseas company category at its “SIAS 11th Investors’ Choice Award 2010”, held in Singapore on 5 October 2010.

This award, as well as other previous accolades, recognise our continuous efforts in corporate governance and disclosure, regular communications and investor engagement. Looking forward, we intend to continue active investor relations and further improve our standards, understanding its integral importance in generating long-term sustainable shareholder value. 64

CORPORATE GOVERNANCE AND TRANSPARENCY

RISK MANAGEMENT

Risk factors Committee (“RMC”) of each of develops an appropriate plan of action its operating subsidiaries. The to mitigate the risk. All risk mitigation Introduction RMC of each of the subsidiaries plans are reviewed, challenged and The Group, like all businesses, is comprises senior management staff agreed by the Board. exposed to a variety of risks and of each division within the operating uncertainties which can have material subsidiaries. Once risk mitigation plans are agreed, and adverse effects on its reputation, each operating subsidiary is asked to performance and financial condition. It The ERMC also engages the services carry out a self assessment exercise is not possible to identify or anticipate of Deloitte & Touche Enterprise which requires all operating units every risk that may affect the Group. Risk Services Pte Ltd to perform to confirm compliance with Group Some material risks may not be strategic risk profiling in the Group’s policies and also to confirm that key known, others, currently deemed as major subsidiaries and this has been operational controls are in place and immaterial, could become material successfully completed in 2010. As the working effectively. The results of this and new risks may emerge. Group’s enterprise risk management exercise, together with a review of program is a long-term initiative that specific plans for strategic risks, enable The Group’s risk management calls for commitment and inputs the Board to confirm that the business process is described below. It aims to from various stakeholders, a phased has a sound risk-based framework of identify the risk factors that may have implementation of the enterprise risk internal control. a material impact on the Group, and to management policies with guidance manage them appropriately. from Deloitte & Touche Enterprise The Group Auditors, internal and Risk Services Pte Ltd are planned to external, provides independent The material risk factors identified by be carried out in a systematic manner reassurance that the standard of risk the Group’s risk management process coupled with constant education and management, compliance and control are set out below. Each of these could training of local management staff and meets the needs of the business, have a material and adverse effect on risk owners. and this includes an evaluation of the the Group, including on its reputation, accuracy and completeness of the performance and financial condition. The Board currently conducts self assessment exercises. Group They have been divided into four periodical reviews of the Group risks, Audit status reports are discussed categories: external risks; internal during which it identifies the key risks with Enterprise Risk Management risks; execution risks; and financial for the year ahead. As part of this Committee, Audit Committee and risks. review, operational and strategic risks Board on a regular basis. The Board are proposed as key risks by the RMC, also recognises that the risks facing Risk management process based on inputs from regions, function the business may sometimes change The Group’s process for identifying heads and business leaders. The Risk over short time periods. Every quarter and managing risk is set by the Factors set out below reflect the key each operating subsidiary provides an Board through the Enterprise Risk risks identified as part of this process. update on new and emerging risks to Management Committee (“ERMC”). Each of the key risks is assigned to the the board and proposals to update the The ERMC has delegated the day- Chairman of the RMC at the operating Group risks are provided to the Audit to-day management of risk within subsidiaries who proposes a level of Committee and the Board. the Group to the Risk Management risk the Group is willing to take and 65

Annual Report 2010

While the Group’s risk management rate of, material legal and regulatory The Group is also exposed to process attempts to identify and change, and changes to custom and counterparty risk from customers that manage (where possible) the key risks practices. could result in financial losses should it faces, no such process can totally those counterparties become unable eliminate risk or guarantee that every Competition to meet their obligations to the Group. risk is identified, or that it is possible, Increased competition in the markets economically viable, or prudent to in which it operates may materially Raw materials manage such risks. Consequently, adversely impact the Group’s The Group depends upon the there can never be an absolute performance and financial condition. availability, quality and cost of steel and assurance against the Group failing to The ship building and ship repair and steel-plates from around the world, achieve its objectives or a material loss shipping industry is highly competitive. which exposes it to price, quality and arising. The Group competes with other supply fluctuations. Although the multinational corporations which also Group will take measures to protect 1. External risks have significant financial resources. against the short-term impact of these The Group is subject to a number fluctuations and of the concentration of external risks. The Group defines Customer demand of supply, there is no guarantee that external risks as those that stem from Customer demand for the Group’s these will be effective. A failure to factors which are mainly outside of its services and expertise is expected recover higher costs or shortfalls in control. These risks will often arise to increase to a higher level of availability could materially adversely from the nature of the Group and the expectation. The Group expects impact the Group’s performance. industry in which it operates. greater scrutiny by customers before they take delivery of vessels. This will, The Group manages this risk through Legal, regulatory, political and inadvertently, increase the cost of constant monitoring of the markets societal risks building the vessels. A failure to recover in which it operates and continuous The Group is at risk from significant higher costs could materially adversely review of capital expenditure and rapid change in the legal systems, impact the Group’s performance. programmes to ensure they reflect regulatory controls, and custom and market conditions. A continuous focus practices in the regions in which it The Group has introduced enhanced on operating expenditure is also an operates. These affect a wide range modern shipbuilding management important method of mitigating this of areas. Accordingly, changes to, or systems software to better manage risk. violation of, these systems, controls and to mitigate the risks of late ship- or practices could increase costs and built delivery and quality. A “COSCO The Group has developed uniform have material and adverse impacts Shipyard CIMS System Maintenance processes and procedures with on the reputation, performance and and Operation Regulation” is being applications such as SAP to manage financial condition of the Group. developed to ensure common procurement of raw materials. The practices, smooth and stable operation Group also has developed strategic Political developments and changes throughout the various shipyard alliances with certain selected in society, including increased subsidiaries. major steel mills and other leading scrutiny of the Group, its businesses companies on the purchase of steel or its industry, for example by non supply, bunker, marine valves, boilers, governmental organisations or the engines and other related equipments media may result in, or increase the to mitigate risks in such supplies. 66

CORPORATE GOVERNANCE AND TRANSPARENCY

RISK MANAGEMENT

2. Internal risks Operational performance and Employees Internal risks are those arising from project delivery The Group depends on the continued factors primarily within the Group’s Failure to meet production targets can contributions of its executive officers control, including from the Group’s result in increased unit costs, which and employees, both individually and structure and processes. are pronounced at operations with as a group. While the Group reviews its higher levels of fixed costs. Unit costs people policies on a regular basis and Information technology may exceed forecasts, adversely invests significant resources in training infrastructure affecting performance and the results and development and recognising The Group depends on accurate, of operations. and encouraging individuals with high timely information and numerical data potential, there can be no guarantee from key software applications to aid Failure to meet project delivery times that it will be able to attract, develop day-to-day business and decision- and costs could have a negative effect and retain these individuals at an making. Any disruption caused by on operational performance and lead appropriate cost and ensure that the failings in these systems, of underlying to increased costs or reductions in capabilities of the Group’s employees equipment or of communication revenue and profitability. meets its business needs. Any failure networks could delay or otherwise to do so may impact the Group’s impact the Group’s day-to-day A number of strategies have been performance. business and decision making and implemented to mitigate these risks have materially effects on the Group’s including management oversight of The ability to recruit, develop and performance. operating performance and project retain appropriate skills for the Group delivery through regular executive is made difficult by competition for Operation interdependence management briefings, increased skilled labour. The failure to retain The Group’s operations in individual effectiveness of procurement initiatives skilled employees or to recruit new provinces are increasingly dependent to reduce unit costs and improve staff may lead to increased costs, for the proper functioning of their delivery of projects. interruptions to existing operations business on other parts of the and delay in new projects. Group’s in terms of raw material and The Group has also established an product supply, sales and marketing enterprise technology standards A number of strategies are programme development, technology, system under the guidance of implemented to mitigate this risk funding and support services. Any Singaporean and South Korean including attention to an appropriate underperformance or failure to control experts to enhance the basic design suite of reward and benefit structures the Group’s operations in one province and detailed design of ships and and ongoing refinement of the Group properly could therefore impact the marine engineering products. as an attractive employee proposition. Group’s businesses in a number of other provinces and materially adversely impact the performance or financial condition of the Group. 67

Annual Report 2010

Managing cost of wages through From time to time the Group may The Group has established a outsourcing make investments, acquisitions and management system to address Ship repair is a labour-intensive disposals of businesses. While these financial risks. Fluctuations in currency industry and an increase in wages are carefully planned, the rationale exchange rates are closely monitored. will have a significant impact on for them may be based on incorrect The Group at its discretion may the Group. The Group had been assumptions or conclusions and they employ simple forward hedging on encountering increases in labour may not realise the anticipate benefits a systematic approach to meet its cost. Other than having a permanent or there may be other unanticipated financial obligations and foreign and work force of skilled employees on or unintended effects. Additionally, local currencies needs. the payroll, the Group has adopted while the Group seeks protection, a contract hiring system. Under the for example through warranties and The Group does not engage in contract hiring system, unskilled indemnities, significant liabilities may speculative foreign investments. Strict manpower is hired on a contractual not be identified in due diligence or compliance controls are in place to basis and paid according to projects come to light after the warranty or ensure that procedures are adhered undertaken. While the Group has indemnity periods. These factors to and management decisions are not benefitted from the decrease in fixed may materially adversely impact the made unilaterally. wage costs, it is at risk from failures by performance or financial condition of these third parties to deliver on their the Group. The Group also engaged the guidance contractual commitments, which may of the holding company in managing adversely impact its reputation and 4. Financial risks its foreign exchange risk exposure. The performance. The Group is exposed to market risks holding company has an experienced such as interest rate and exchange Treasury operations team responsible 3. Execution risks rate risks arising from its international for managing the funding requirements Executive risks arise from the business. and liquidity risk. implementation of the Group’s strategy and its change and investments Managing currency fluctuations A detailed disclosure of the Group’s programmes, which aim to enhance The main financial risks facing the financial risks can be found in the long term shareowner value. Group are fluctuations in foreign Notes to the Financial Statements on currency, interest rate risk, availability pages 139 to 147. Investments, acquisition and of financing to meet the Group’s needs disposals and default by counterparties and Risks inherent in the investments, customers. Any of these financial risks acquisition and disposals may have may materially adversely impact the an adverse impact on the Group’s performance or financial condition of business or financial results. the Group. 68

INSIDE COSCO AND CORPORATE CITIZENSHIP

RESEARCH AND DEVELOPMENT

COSCO believes in being at the forefront Our R&D team has successfully of technological change. In fact, constant registered thirteen patents with the State technological innovation has always Intellectual Property Office of China. been the driving force behind our quest With high standards and dynamic for: drive, our R&D team has made major breakthroughs in contributions to the a. Greater efficiency, techniques and processes employed b. Enhanced productivity, and in vessel construction including the c. Higher quality standards construction of jack-up rigs and a series of shuttle tankers. We believe innovation holds the key to our future success. Through constant Projects carried out with our R&D input renewal and refining of our technological also include the Super M2 jack-up rig, capabilities, we will be positioned with a GM4000 semi-submersible platform, competitive advantage for the present the wind turbine installation jack-up and engender sustainable growth for vessel, the Dalian Developer (the first the future. deepwater drillship to be built in China) and the Sevan Driller (the world’s first Year in Review cylindrical drilling unit), which are major The year 2010 saw COSCO reaping and important contracts in the Chinese the fruits of our labour as we gained offshore marine engineering market. Our national recognition for our R&D efforts. R&D team is also currently involved in the COSCO Shipyard Group’s Technical construction of the Octabuoy Production Centre received national recognition Platform and the second Sevan Driller. from the PRC National Development and Reform Commission (NDRC), Finance In August 2010, we commenced the Ministry and other relevant government construction of the DP3 deepwater agencies. drillship. When completed, it will be able to drill wells in oilfields with high Our R&D team comprises more than efficiency and safety, even in harsh 1,000 technicians and researchers with environments and at ultra-deep water 400 professionals in the areas of ship depths up to 10,000 ft with drilling repair, ship conversion, shipbuilding and depths exceeding 35,000 ft. Its variable offshore marine engineering. deck load capacity of 25,000 tons and 69

Annual Report 2010

1,000,000 BBL cargo storage capacity has created a win-win strategy for both will be the highest of any drillship ever companies, especially in the areas of built. This engineering achievement technology improvement and market attests to our growing offshore marine expansion, as KOMAC brings cutting- engineering capabilities. edge expertise and extensive experience to the various operational divisions of Strategic Partnerships the shipyards, realising its vision to be a Collaborations with reputable institutions world-class ship design centre. and companies to accelerate design and technological improvements have always In the offshore sector, COSCO Technical been crucial to the company’s growth. Centre continually partners with World- Class design consultancy companies In 2010, COSCO Shipyard inked a such as GustoMSC, F&G, Moss strategic cooperation agreement Maritime, and GVA to jointly develop with Harbin Engineering University to the latest generation of jack-up rigs, develop new products, technology semi-submersibles, drillships, FPSOs and techniques, and conduct strategic and wind turbine installation jack-up research and technical communication vessels. through the hiring of professors as advisors, conducting academic Moving Forward seminars and establishing information Looking forward, we aim to strengthen exchange systems. The university will research not only internally but through also assist COSCO Shipyard to set up a strategic alliances. Our direction for post-doctoral centre where experts will R&D remains clear. We seek to create be able to carry out research work. This original technology, bringing product co-operation provides COSCO Shipyard design development, scientific research, with an important springboard for the quality assessment, new technical mastering of new core technologies, and development and more under the roof of the training of an advanced research and COSCO Shipyard Technical Center. This development team. will further complement our growth and maturity as an integrated ship repair, ship The establishment of the COSCO- building and offshore marine engineering KOMAC (CK) Design Centre in 2008, industry player. 70

INSIDE COSCO AND CORPORATE CITIZENSHIP

HUMAN RESOURCES AND WORKPLACE SAFETY

Human Resources prior to work commencement. They stability for both our contract and are then assessed annually to ensure in-house workforce. This will ensure Overview that their skills meet the necessary that we are able to achieve optimal At COSCO, we value our people. standards. performance. They are vital in our pursuit of greater growth today and in the future. We In line with our belief that continuous Workplace Safety have accordingly employed various learning is a fundamental building block approaches such as recruitment, of growth, our employees undergo Overview training and a reward scheme to training for international standards At COSCO, a strong safety culture strengthen the workforce. and safety measures, technical, in the workplace is of paramount engineering and management skills. importance. We require our staff to Talents are recruited through a undergo workplace safety training competitive reward and remuneration Reward and Retention courses specially designed to educate scheme, and are constantly developed To inculcate staff loyalty and bring out staff about potential workplace dangers through a performance and appraisal their best, COSCO has introduced and the necessary safety precautions. system to help staff progress in various schemes including the Tests are also administered to ensure their personal goals and career performance and achievement a fundamental degree of proficiency advancement. Aside from attracting appraisal system which seeks to and understanding. new talent, it is equally important for align work goals with personal career the group to educate and train our development and remuneration. With these procedures in place, we people as an investment for long-term have maintained a consistent safety growth. Another scheme is the “Model track record over the last decade, and Employee Reward” scheme. In will continue to promote an adherence Recruitment and Training past years, some best-performing to these standards to foster and As a value-driven, world-class employees have been awarded with a maintain a work culture that places enterprise, we recognise that human trip to one of the Company’s overseas high regard on workplace safety. capital is an important component subsidiaries. Aside from being an in optimising growth. Our team is incentive trip, it gives the recipient an The Year in Review constantly strengthened through opportunity to experience the work The year 2010 saw the continued active recruitment of top graduates culture in a foreign environment. emphasis on workplace safety with from leading Chinese universities. Skill-based competitions are also the development and introduction of Annually, more than 1,000 fresh held frequently to enhance skills and new and improved scaffolding for use graduates are recruited. They then cultivate initiative. in shipbuilding projects. Equipped to undergo management trainee courses boost efficiency and encourage better which prepare them for their future Outlook safety standards, the scaffolding also management roles. Technical staff are In the year ahead, COSCO will continue reduces manpower needs and is more trained and required to pass a course its effective management of contract environmentally-friendly. workers and maintain harmony and 71

Annual Report 2010

Operational Safety A grading system has also been put which uphold a “safety-first” mentality. Operational safety is important to in place for the safety management We will retain our reward scheme to us. As such, we consider it essential officers’ course, allowing safety encourage safety and deter hazardous to undertake regular facility and officers to further monitor and behaviour in the workplace. equipment upgrades as well as manage the safety of their respective establish efficient waste disposal shipyards. In addition, appraisals are We will also be instituting short-term methods. done by external parties on various on-board stints for maintenance departments in COSCO. These staff, in order to improve the The Safety Committee established in appraisals examine and certify the operational oversight and workplace 2009 continues to conduct frequent quality of the work environment and safety management skills of ship site visits to all our shipyards to work safety. management. Specifically, their ensure that safety requirements and responsibilities include the prevention standards are strictly adhered to. Medical Benefits of piracy, smuggling, pollution, fire, Equipment and tools are also checked To complement the stringent rules collision, personal injury and typhoon and sent for scheduled maintenance and regulations for workplace safety, disaster management. at least once a month to ensure they COSCO has in place an all-inclusive are in optimum working condition. network of supporting operations COSCO Shipyards’ management has In addition, forums and staff training which include on-site medical facilities maintained a good track record in the are just as important in establishing at all shipyards. Annual health past few years in the provision of safety, a safety-first attitude, thus reducing checks, medical insurance, dental security and stability. Moving forward, the risk of workplace incidents treatment and immunisation against we will enhance our ship tracking, and enabling greater operational influenza are some of the many health monitoring and inspection operations, efficiency. benefits provided for by COSCO, and as well as information exchange among contribute to the continual well-being all onshore and offshore departments Reinforcing Safety Standards of our employees. A healthy workforce and all crew on our vessels. This will Education and training to raise safety is essential to the productivity of a facilitate a holistic understanding of awareness levels is imperative in global enterprise, and COSCO will operational procedures and help us to COSCO’s pursuit of high safety strive to ensure that its people are well formulate comprehensive and effective standards. These include mandatory cared for. workplace safety measures. hour-long training sessions every week to update our staff on the 2011: Actions and Goals updated safety rules and regulations. 2011 will see COSCO continue its The training sessions include live pursuit of zero accidents and fatalities. demonstrations on safety measures, With new equipment regularly brought and comprise an assessment at into our facilities, there is a need to the end of the course to evaluate introduce necessary expertise and the employees’ competency and safety management measures. This will proficiency on the subject. be done through training programmes, 72

INSIDE COSCO AND CORPORATE CITIZENSHIP

CORPORATE SOCIAL RESPONSIBILITY

Overview Environmental Awareness COSCO Corporation believes that Protecting the environment remains an enterprise pursuing sustainable one of the important tasks within corporate development should not the Group. This year, in support of only focus on increasing operating environmental protection in the area of profit but also establish a socially ship repair propagated by the Green responsible corporate culture. This Expo in 2010, its subsidiary Shanghai will pave the way for long-term Shipyard adopted environmentally- development of the enterprise as protective operating techniques for well as catalyse our contributions rust removal utilising a high pressure to society, the environment and the water jet instead of traditional sand economy. In this way, the corporation blasting, improving the surrounding benefits all stakeholders including air quality. COSCO also continues shareholders, business partners, to implement the International Safety employees, customers and suppliers. Management Code (“ISMC”) within the Group, establishing a uniform Singapore pollution prevention management COSCO has always been a strong system. We will continue to employ supporter of the Yellow Ribbon environmentally-friendly technologies project – a fund established to create and ensure minimal wastage through jobs for ex-convicts and engage the innovative “green” design and community in giving ex-offenders recycling. a second chance. COSCO has donated annually for the past four Conclusion years. This gesture may be simple, COSCO remains committed to but it has nevertheless inspired many high standards of Corporate Social ex-offenders to re-integrate back to Responsibility practices within the society. Group, being active in community projects, environmental protection China and charities. As the global economy Besides contributing locally, COSCO gradually recovers, we will continue to Corporation is also a long-time donor conduct our business operations in a to COSCO Charity Foundation - the way that ensures the health, welfare and first non-public foundation initiated safety of our employees, customers, by state-owned enterprises. This communities and ecological system. foundation manages COSCO Group’s social projects and charity work within China for disaster relief, poverty aid, medical aid and educational support. Regular contributions by COSCO subsidiaries have enabled the foundation to assist its employees and the society. FINANCIAL STATEMENTS

74 Directors’ Report 80 Statement by Directors 81 Independent Auditor’s Report 82 Consolidated Income Statement 83 Consolidated Statement of Comprehensive Income 84 Balance Sheets 85 Consolidated Statement of Changes in Equity 86 Consolidated Cash Flow Statement 88 Notes to the Financial Statements 153 Five-Year Summary 154 Shareholding Statistics 156 Notice of Annual General Meeting Proxy Form for Annual General Meeting Notes for Proxy Form 74

COSCO Corporation (Singapore) Limited

DIRECTORS’ REPORT For the Financial Year Ended 31 December 2010

The directors present their report to the members together with the audited fi nancial statements of the Group for the fi nancial year ended 31 December 2010 and the balance sheet of the Company as at 31 December 2010.

Directors

The directors of the Company in offi ce at the date of this report are as follows:

Liu Guo Yuan (appointed on 1 September 2010) Jiang Li Jun Ma Gui Chuan Wang Hai Min (appointed on 2 August 2010) Wang Xing Ru Ma Zhi Hong (appointed on 2 August 2010) Tom Yee Lat Shing Wang Kai Yuen Er Kwong Wah Ang Swee Tian Li Jian Xiong (alternate director to Liu Guo Yuan, appointed on 1 September 2010) Lu Cheng Gang (alternate director to Wang Hai Min, appointed on 2 August 2010) Ye Bin Lin (alternate director to Ma Zhi Hong, appointed on 2 August 2010) Liu De Tian (alternate director to Wang Xing Ru)

Arrangements to enable directors to acquire shares and debentures

Neither at the end of nor at any time during the fi nancial year was the Company a party to any arrangement whose object was to enable the directors of the Company to acquire benefi ts by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, other than as disclosed under “Share options” on pages 76, 77 and 78 of this report.

Directors’ interests in shares or debentures

(a) According to the register of directors’ shareholdings, none of the directors holding offi ce at the end of the fi nancial year had any interest in the shares or debentures of the Company or its related corporations, except as follows:

Number of ordinary shares Number of ordinary shares in registered in name of which a director is deemed director or nominee to have an interest At At 1.1.2010 1.1.2010 or date of or date of At appointment, At appointment, 31.12.2010 if later 31.12.2010 if later

The Company Wang Xing Ru 1,067,000 1,067,000 – – Tom Yee Lat Shing 1,400,000 1,400,000 – – Wang Kai Yuen 900,000 900,000 1,000,000 1,000,000 Er Kwong Wah 650,000 650,000 – – Ang Swee Tian 130,000 130,000 5,000 5,000 Li Jian Xiong 1,000,000 1,000,000 – – Lu Cheng Gang – – 50,000 50,000 Ye Bin Lin 600,000 600,000 – – Liu De Tian 153,000 153,000 120,000 120,000 75

Annual Report 2010

DIRECTORS’ REPORT For the Financial Year Ended 31 December 2010

Directors’ interests in shares or debentures (continued)

(a) (continued)

Number of unissued ordinary shares under option held by director At 1.1.2010 or date of At appointment, 31.12.2010 if later

Related corporations COSCO International Holdings Limited - Share Option Scheme Liu Guo Yuan 2,300,000 2,300,000 Ma Zhi Hong 1,600,000 1,600,000

China COSCO Holdings Company Limited - Share Appreciation Rights Plan Lu Cheng Gang 265,000 265,000

(b) According to the register of directors’ shareholdings, certain directors holding offi ce at the end of the fi nancial year had interests in the options to subscribe for ordinary shares of the Company granted pursuant to the Cosco Group Employees’ Share Option Scheme 2002 as set out below and under “Share options” on pages 76, 77 and 78 of this report.

Number of unissued ordinary shares under option held by director At 1.1.2010 or date of At appointment, 31.12.2010 if later

2006 Options Lu Cheng Gang 700,000 700,000

2007 Options Ma Gui Chuan 700,000 700,000 Wang Xing Ru 700,000 700,000 Er Kwong Wah 300,000 300,000 Li Jian Xiong 700,000 700,000 Lu Cheng Gang 700,000 700,000 Ye Bin Lin 700,000 700,000 Liu De Tian 700,000 700,000 76

COSCO Corporation (Singapore) Limited

DIRECTORS’ REPORT For the Financial Year Ended 31 December 2010

Directors’ interests in shares or debentures (continued)

(b) (continued)

Number of unissued ordinary shares under option held by director At 1.1.2010 or date of At appointment, 31.12.2010 if later

2008 Options

Ma Gui Chuan 700,000 700,000 Wang Xing Ru 700,000 700,000 Tom Yee Lat Shing 300,000 300,000 Wang Kai Yuen 300,000 300,000 Er Kwong Wah 300,000 300,000 Li Jian Xiong 700,000 700,000 Lu Cheng Gang 700,000 700,000 Ye Bin Lin 700,000 700,000 Liu De Tian 700,000 700,000

(c) The directors’ interests in the ordinary shares and share options of the Company as at 21 January 2011 were the same as those as at 31 December 2010.

Directors’ contractual benefi ts

Since the end of the previous fi nancial year, no director has received or become entitled to receive a benefi t by reason of a contract made by the Company or a related corporation with the director or with a fi rm of which he is a member or with a company in which he has a substantial fi nancial interest, except as disclosed in the accompanying fi nancial statements and in this report, and except that certain directors have employment relationships with the ultimate holding corporation or related corporations, and have received remuneration in those capacities.

Share options

(a) Cosco Group Employees’ Share Option Scheme 2002

The Cosco Group Employees’ Share Option Scheme 2002 (the “Scheme 2002”) was approved by members of the Company at an Extraordinary General Meeting on 8 May 2002.

Under the Scheme 2002, share options to subscribe for the ordinary shares of the Company are granted to directors, key management personnel and employees. The exercise price of the granted options is determined at the average of the closing prices of the Company’s ordinary shares as quoted on the Singapore Exchange for the fi ve market days immediately preceding the date of the grant. The options may be exercised in full or in part in respect of 1,000 shares or a multiple thereof, on the payment of the exercise price. The Group has no legal or constructive obligation to repurchase or settle the options in cash. 77

Annual Report 2010

DIRECTORS’ REPORT For the Financial Year Ended 31 December 2010

Share options (continued)

(a) Cosco Group Employees’ Share Option Scheme 2002 (continued)

Options issued to directors and employees who have been in the service of the Company, subsidiary or associated company, or the holding company for at least one year on or prior to the date of the grant, may be exercised twelve months after the date of grant but before the end of one hundred and twenty months. For employees and directors who are in the service of the associated company and non-executive directors, the options shall expire at the end of sixty months. Options issued at a discount to market price, may only be exercised two years after the date of the grant.

Options issued to directors and employees who have been in the service of the Company, subsidiary or associated company, or the holding company for at least six months but less than one year on or prior to the date of grant, may be exercised twenty-four months after the date of the grant but before the end of one hundred and twenty months. For employees and directors who are in the service of the associated company and non-executive directors, the options shall expire at the end of sixty months. Options issued at a discount to market price, may only be exercised three years after the date of the grant.

Particulars of the options granted pursuant to the Scheme 2002 in 2006, 2007 and 2008 known as “2006 Options”, “2007 Options” and “2008 Options” respectively were set out in the Directors’ Report for the fi nancial years ended 31 December 2006, 31 December 2007 and 31 December 2008 respectively.

The Remuneration Committee administering the Scheme 2002 comprises the following directors:

Er Kwong Wah (Chairman) Jiang Li Jun Wang Kai Yuen Tom Yee Lat Shing Ang Swee Tian

Details of the options granted to directors of the Company are as follows:

Aggregate Aggregate granted since exercised since commencement commencement Aggregate of Scheme of Scheme outstanding 2002 to 2002 to as at Name of directors 31.12.2010 31.12.2010 31.12.2010

Ma Gui Chuan 1,400,000 – 1,400,000 Wang Xing Ru 3,000,000 1,600,000 1,400,000 Tom Yee Lat Shing 2,200,000 1,900,000 300,000 Wang Kai Yuen 2,200,000 1,900,000 300,000 Er Kwong Wah 2,200,000 1,600,000 600,000 Li Jian Xiong 4,700,000 3,300,000 1,400,000 Lu Cheng Gang 2,100,000 – 2,100,000 Ye Bin Lin 4,700,000 3,300,000 1,400,000 Liu De Tian 4,400,000 3,000,000 1,400,000 26,900,000 16,600,000 10,300,000 78

COSCO Corporation (Singapore) Limited

DIRECTORS’ REPORT For the Financial Year Ended 31 December 2010

Share options (continued)

(a) Cosco Group Employees’ Share Option Scheme 2002 (continued)

No options have been granted to controlling shareholders of the Company or their associates (as defi ned in the Listing Manual of the Singapore Exchange Securities Trading Limited).

No options have been granted during the fi nancial year.

No participant under the Scheme 2002 has received 5% or more of the total number of shares under option available under the Scheme 2002.

There were no shares of the Company allotted and issued by virtue of the exercise of options to take up unissued shares of the Company during the fi nancial year. There were no unissued shares of the subsidiaries under option at the end of the fi nancial year.

(b) Share options outstanding

The number of unissued ordinary shares of the Company under option in relation to the Scheme 2002 outstanding at the end of the fi nancial year was as follows:

Number Number cancelled/ Number of unissued lapsed of unissued ordinary during the ordinary Options relating to shares at fi nancial shares at Exercise Scheme 2002 1.1.2010 year 31.12.2010 price Exercise period ’000 ’000 ’000 $

2006 Options (i) 2,780 – 2,780 1.23 21.2.2007 – 20.2.2016 2007 Options (ii) 12,770 (1,800) 10,970 2.48 5.2.2008 – 4.2.2017 2008 Options (iii) 19,430 (2,230) 17,200 2.95 24.3.2009 – 23.3.2018 34,980 (4,030) 30,950

(i) For non-executive directors, the exercise period shall be 21.2.2007 to 20.2.2011.

(ii) For non-executive directors, the exercise period shall be 5.2.2008 to 4.2.2012.

(iii) For non-executive directors, the exercise period shall be 24.3.2009 to 23.3.2013. 79

Annual Report 2010

DIRECTORS’ REPORT For the Financial Year Ended 31 December 2010

Independent auditor

The independent auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept re-appointment.

On behalf of the directors

JIANG LI JUN MA GUI CHUAN Director Director

3 March 2011 80

COSCO Corporation (Singapore) Limited

STATEMENT BY DIRECTORS For the Financial Year Ended 31 December 2010

In the opinion of the directors,

(a) the balance sheet of the Company and the consolidated fi nancial statements of the Group as set out on pages 82 to 152 are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2010, and of the results of the business, changes in equity and cash fl ows of the Group for the fi nancial year then ended; and

(b) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the directors

JIANG LI JUN MA GUI CHUAN Director Director

3 March 2011 81

Annual Report 2010

INDEPENDENT AUDITOR’S REPORT To the Members of Cosco Corporation (Singapore) Limited For the Financial Year Ended 31 December 2010

Report on the Financial Statements

We have audited the accompanying fi nancial statements of Cosco Corporation (Singapore) Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 82 to 152, which comprise the consolidated balance sheet of the Group and the balance sheet of the Company as at 31 December 2010, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash fl ow statement of the Group for the fi nancial year then ended, and a summary of signifi cant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation of fi nancial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the “Act”) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls suffi cient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition, that transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profi t and loss accounts and balance sheets and to maintain accountability of assets.

Auditor’s Responsibility

Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation of fi nancial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated fi nancial statements of the Group and the balance sheet of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010, and the results, changes in equity and cash fl ows of the Group for the fi nancial year ended on that date.

Report on other Legal and Regulatory Requirements

In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors, have been properly kept in accordance with the provisions of the Act.

PricewaterhouseCoopers LLP Public Accountants and Certifi ed Public Accountants

Singapore, 3 March 2011 82

COSCO Corporation (Singapore) Limited

CONSOLIDATED INCOME STATEMENT For the Financial Year Ended 31 December 2010

Note 2010 2009 $’000 $’000

Sales 4 3,861,445 2,899,004 Cost of sales (3,385,358) (2,601,406) Gross profi t 476,087 297,598

Other income (net) 7 178,253 146,314

Expenses - Distribution (50,172) (42,420) - Administrative (160,164) (181,250) - Finance 8 (42,131) (41,904)

Share of (loss)/profi t of associated companies 20 (27) 214 Profi t before income tax 401,846 178,552

Income tax expense 9(a) (43,240) (40,758) Net profi t 358,606 137,794

Profi t attributable to: Equity holders of the Company 248,837 110,080 Non-controlling interests 109,769 27,714 358,606 137,794

Earnings per share for profi t attributable to equity holders of the Company (expressed in cents per share) 10 - Basic 11.11 4.92 - Diluted 11.11 4.92

The accompanying notes form an integral part of these fi nancial statements. 83

Annual Report 2010

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Financial Year Ended 31 December 2010

Note 2010 2009 $’000 $’000

Net profi t 358,606 137,794

Other comprehensive (loss)/income: Financial assets, available-for-sale - Net fair value (loss)/gain 32(b)(v) (279) 371 Currency translation differences arising from consolidation 32(b)(iii) (100,144) (27,480) Other comprehensive loss, net of tax (100,423) (27,109)

Total comprehensive income for the year 258,183 110,685

Total comprehensive income attributable to: Equity holders of the Company 181,752 93,345 Non-controlling interests 76,431 17,340 258,183 110,685

The accompanying notes form an integral part of these fi nancial statements. 84

COSCO Corporation (Singapore) Limited

BALANCE SHEETS As at 31 December 2010

The Group The Company 2010 2009 2010 2009 Note $’000 $’000 $’000 $’000

ASSETS Current assets Cash and cash equivalents 11(a) 867,201 1,549,175 116,957 134,511 Forward currency contracts 12 – 944 – – Trade and other receivables 13 1,976,663 1,452,240 2,895 236 Inventories 14 518,035 677,568 – – Construction contract work-in-progress 15 182,728 199,385 – – Other current assets 16 4,155 6,573 205 220 3,548,782 3,885,885 120,057 134,967

Non-current assets Trade and other receivables 17 49,089 – – 64,285 Financial assets, available-for-sale 18 3,434 4,034 – – Club memberships 19 557 492 172 156 Investments in associated companies 20 3,569 1,922 – – Investments in subsidiaries 21 – – 374,037 290,813 Investment properties 22 14,619 11,786 – – Property, plant and equipment 23 2,207,952 2,349,098 650 775 Intangible assets 24 9,468 9,525 – – Deferred expenditure 25 3,169 1,061 – – Deferred income tax assets 30 212,703 158,523 – – 2,504,560 2,536,441 374,859 356,029

Total assets 6,053,342 6,422,326 494,916 490,996

LIABILITIES Current liabilities Forward currency contracts 12 – 14,448 – – Trade and other payables 26 3,144,533 3,559,006 17,620 16,767 Current income tax liabilities 9(b) 72,766 84,136 245 549 Borrowings 27 555,148 176,262 – – Provisions for other liabilities 29 45,049 36,436 – – 3,817,496 3,870,288 17,865 17,316

Non-current liabilities Borrowings 27 437,065 938,946 – – Deferred income tax liabilities 30 4,304 2,400 4,056 2,198 441,369 941,346 4,056 2,198

Total liabilities 4,258,865 4,811,634 21,921 19,514

NET ASSETS 1,794,477 1,610,692 472,995 471,482

EQUITY Capital and reserves attributable to equity holders of the Company Share capital 31 270,608 270,608 270,608 270,608 Statutory and other reserves 32 103,950 174,030 45,105 45,105 Retained earnings 824,059 639,404 157,282 155,769 1,198,617 1,084,042 472,995 471,482 Non-controlling interests 595,860 526,650 – – Total equity 1,794,477 1,610,692 472,995 471,482

The accompanying notes form an integral part of these fi nancial statements. 85

Annual Report 2010

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Financial Year Ended 31 December 2010

Attributable to equity holders of the Company Statutory Non- Share and other Retained controlling Total Note capital reserves earnings Total interests equity $’000 $’000 $’000 $’000 $’000 $’000

2010 Beginning of fi nancial year 270,608 174,030 639,404 1,084,042 526,650 1,610,692 Total comprehensive income for the year – (67,085) 248,837 181,752 76,431 258,183 Disposal of subsidiaries 11(b) – – – – (6,057) (6,057) Dividend declared by subsidiaries to non-controlling interests of subsidiaries – – – – (1,164) (1,164) Dividend for 2009 33 – – (67,177) (67,177) – (67,177) Transfer from asset revaluation reserve to retained earnings 32(b)(iv) – (3,218) 3,218 – – – Transfer from retained earnings to statutory reserves 32(b)(ii) – 223 (223) – – – End of fi nancial year 270,608 103,950 824,059 1,198,617 595,860 1,794,477

2009 Beginning of fi nancial year 270,608 167,904 705,692 1,144,204 464,963 1,609,167 Total comprehensive income for the year – (16,735) 110,080 93,345 17,340 110,685 Employee share option scheme: - Value of director and employee services 32(b)(i) – 3,240 – 3,240 – 3,240 Non-controlling interests share of interest in a newly incorporated subsidiary – – – – 8,404 8,404 Non-controlling interests share of increase in registered capital of subsidiaries – – – – 37,455 37,455 Decrease in non-controlling interests of a subsidiary – – – – (12) (12) Dividend declared by subsidiaries to non-controlling interests of subsidiaries – – – – (1,500) (1,500) Dividend for 2008 33 – – (156,747) (156,747) – (156,747) Transfer from asset revaluation reserve to retained earnings 32(b)(iv) – (3,218) 3,218 – – – Transfer from retained earnings to statutory reserves 32(b)(ii) – 22,839 (22,839) – – – End of fi nancial year 270,608 174,030 639,404 1,084,042 526,650 1,610,692

The accompanying notes form an integral part of these fi nancial statements. 86

COSCO Corporation (Singapore) Limited

CONSOLIDATED CASH FLOW STATEMENT For the Financial Year Ended 31 December 2010

2010 2009 Note $’000 $’000

Cash fl ows from operating activities Net profi t 358,606 137,794 Adjustments for: - Income tax expense 43,240 40,758 - Depreciation and amortisation 168,426 153,416 - Net reversal of impairment of trade and other receivables (31,241) (11,375) - Write-off for inventory obsolescence and inventory write-down 572 4,236 - Loss on disposal of a transferable club membership – 4 - (Reversal of impairment)/impairment in value of transferable club memberships (16) 32 - Net (gain)/loss on disposal of property, plant and equipment (743) 351 - Expected losses recognised on construction contracts 64,822 578 - Write-off for property, plant and equipment 136 40 - Employees share option expenses – 3,240 - Net fair value (gain)/loss on forward currency contracts (13,253) 15,625 - Share of loss/(profi t) from associated companies 27 (214) - Negative goodwill – (12) - Dividend income (20) (314) - Interest expense (fi nancing) 42,131 41,904 - Interest income from bank deposits (investing) (13,882) (32,781) 618,805 353,282 Changes in working capital: - Inventories and construction contract work-in-progress 171,920 234,555 - Trade and other receivables (552,397) 121,453 - Trade and other payables (469,060) (850,141) - Other current assets 2,418 13,219 - Deferred expenditure (2,193) (1,061) - Provisions for other liabilities 8,613 16,280 - Exchange differences 66,029 30,489 Cash used in operations (155,865) (81,924)

Income tax paid (109,234) (82,444) Net cash used in operating activities (265,099) (164,368)

The accompanying notes form an integral part of these fi nancial statements. 87

Annual Report 2010

CONSOLIDATED CASH FLOW STATEMENT For the Financial Year Ended 31 December 2010

2010 2009 Note $’000 $’000

Cash fl ows from investing activities Purchase of property, plant and equipment (176,105) (469,924) Proceeds from disposal of property, plant and equipment 11,200 12,319 Purchase of investment properties (10) – Purchase of a transferable club membership (61) (101) Proceeds from disposal of a transferable club membership – 45 Net cash outfl ows on disposal of subsidiaries 11(b) (3,950) – Dividends received 648 764 Interest received from bank deposits 20,022 40,922 Net cash used in investing activities (148,256) (415,975)

Cash fl ows from fi nancing activities Proceeds from borrowings 838,819 799,875 Repayments of borrowings (899,945) (328,273) Repayments of fi nance lease liabilities (17) (18) Non-controlling interests contribution for the equity interest in a newly incorporated subsidiary – 8,404 Proceeds from non-controlling interests for increase in registered capital of subsidiaries – 37,455 Decrease in bank deposits pledged 266 10,929 Interest paid (41,750) (41,536) Dividends paid to equity holders of the Company (67,177) (156,747) Dividends paid to non-controlling interests of subsidiaries (2,499) (34,356) Net cash (used in)/provided by fi nancing activities (172,303) 295,733

Net decrease in cash and cash equivalents (585,658) (284,610) Cash and cash equivalents at beginning of fi nancial year 1,545,621 1,865,833 Effects of currency translation on cash and cash equivalents (96,050) (35,602) Cash and cash equivalents at end of fi nancial year 11(a) 863,913 1,545,621

The accompanying notes form an integral part of these fi nancial statements. 88

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

These notes form an integral part of and should be read in conjunction with the accompanying fi nancial statements.

1. General information

Cosco Corporation (Singapore) Limited (the “Company”) is incorporated and domiciled in Singapore. The address of its registered offi ce is 9 Temasek Boulevard, #07-00 Suntec Tower Two, Singapore 038989.

The Company is listed on the Singapore Exchange.

The principal activities of the Company are those of investment holding and provision of management services to the subsidiaries. The principal activities of its subsidiaries are set out in Note 21 to the fi nancial statements.

2. Signifi cant accounting policies

2.1 Basis of preparation

These fi nancial statements have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”). The fi nancial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below.

The preparation of fi nancial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group’s accounting policies. It also requires the use of certain critical accounting estimates and assumptions. Areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are signifi cant to the fi nancial statements, are disclosed in Note 3.

Interpretations and amendments to published standards effective in 2010

On 1 January 2010, the Group adopted the new or amended FRS and Interpretations to FRS (“INT FRS”) that are mandatory for application from that date. Changes to the Group’s accounting policies have been made as required, in accordance with the transitional provisions in the respective FRS and INT FRS.

The following are the new or amended FRS and INT FRS that are relevant to the Group:

FRS 27 (revised) Consolidated and Separate Financial Statements FRS 103 (revised) Business Combinations Amendments to FRS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items

The adoption of the above new or amended FRS and INT FRS did not result in substantial changes to the Group’s and Company’s accounting policies and had no material effect on the amounts reported for the current or prior fi nancial years.

2.2 Revenue recognition

Sales comprise the fair value of the consideration received or receivable for the ship repair, ship building and marine engineering income, rental income, time charter revenue, shipping agency income and sale of scrap materials in the ordinary course of the Group’s activities. Sales are presented net of value-added tax, rebates and discounts, and after eliminating sales within the Group. 89

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.2 Revenue recognition (continued)

The Group recognises revenue when the amount of revenue and related cost can be reliably measured, when it is probable that the collectibility of the related receivables is reasonably assured and when the specifi c criteria for each of the Group’s activities are met as follows:

(a) Rendering of services

(i) Shipping

Revenue from time charter is recognised on the straight-line basis over the period of the time charter agreement. Any losses arising from time charters are provided for in full as soon as they are expected.

Booking commissions, agency and transhipment fees are recognised upon the rendering of services to customers.

Revenue from freight forwarding, transport agency and feeder services are recognised when the service is rendered.

(ii) Ship repair, ship building and marine related activities

Revenue from ship repair, ship building, marine engineering, container repairs and services, fabrication work services and production of marine outfi tting components is recognised on the percentage-of- completion method based on progress of the contract work, where the outcome of the contract can be estimated reliably. If the contract covers a number of projects and the cost and revenue of such individual projects can be identifi ed within the terms of the overall contract, each such project is treated as a separate contract. Provision is made in full where applicable for expected losses on contracts in progress. Please refer to the paragraph “Construction contracts” for the accounting policy on revenue from construction contracts for ship building and marine related activities.

(b) Rental income

Rental income from operating leases on investment properties and property, plant and equipment is recognised on the straight-line basis over the lease term.

(c) Sale of scrap materials

Revenue from sale of scrap materials is recognised when the products have been delivered to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured.

(d) Interest income

Interest income is recognised on the time-proportion basis using the effective interest method.

(e) Dividend income

Dividend income is recognised when the right to receive payment is established. 90

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.3 Group accounting

(a) Subsidiaries

(i) Consolidation

Subsidiaries are entities (including special purpose entities) over which the Group has power to govern the fi nancial and operating policies so as to obtain benefi ts from its activities, generally accompanied by a shareholding giving rise to a majority of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases.

In preparing the consolidated fi nancial statements, transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests are that part of the net results of operations and of net assets of a subsidiary attributable to the interests which are not owned directly or indirectly by the equity holders of the Company. They are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet. Total comprehensive income is attributed to the non-controlling interests based on their respective interests in a subsidiary, even if this results in the non-controlling interests having a defi cit balance.

(ii) Acquisition of businesses

The acquisition method of accounting is used to account for business combinations by the Group.

The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.

Acquisition-related costs are expensed as incurred.

Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.

On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree at the date of acquisition either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifi able assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifi able assets acquired is recorded as goodwill. Please refer to the paragraph “Intangible assets - Goodwill” for the subsequent accounting policy on goodwill. 91

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.3 Group accounting (continued)

(a) Subsidiaries (continued)

(iii) Disposals of subsidiaries or businesses

When a change in the Company’s ownership interest in a subsidiary results in a loss of control over the subsidiary, the assets and liabilities of the subsidiary including any goodwill are derecognised. Amounts recognised in other comprehensive income in respect of that entity are also reclassifi ed to the income statement or transferred directly to retained earnings if required by a specifi c Standard.

Any retained interest in the entity is remeasured at fair value. The difference between the carrying amount of the retained investment at the date when control is lost and its fair value is recognised in the income statement.

Please refer to the paragraph “Investments in subsidiaries and associated companies” for the accounting policy on investments in subsidiaries.

(b) Transactions with non-controlling interests

Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control over the subsidiary are accounted for as transactions with equity owners of the Group. Any difference between the change in the carrying amounts of the non-controlling interest and the fair value of the consideration paid or received is recognised in a separate reserve within equity attributable to the equity holders of the Company.

(c) Associated companies

Associated companies are entities over which the Group has signifi cant infl uence, but not control, generally accompanied by a shareholding giving rise to voting rights of 20% and above but not exceeding 50%. Investments in associated companies are accounted for in the consolidated fi nancial statements using the equity method of accounting less impairment losses, if any.

Investments in associated companies are initially recognised at cost. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Goodwill on associated companies represents the excess of the cost of acquisition of the associate over the Group’s share of the fair value of the identifi able net assets of the associate and is included in the carrying amount of the investments.

In applying the equity method of accounting, the Group’s share of its associated companies’ post-acquisition profi ts or losses are recognised in the income statement and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. These post-acquisition movements and distributions received from the associated companies are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company, including any other unsecured non-current receivables, the Group does not recognise further losses, unless it has obligations or has made payments on behalf of the associated company.

Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of associated companies have been changed where necessary to ensure consistency with the accounting policies adopted by the Group.

Gains and losses arising from partial disposals or dilutions in investments in associated companies are recognised in the income statement. 92

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.3 Group accounting (continued)

(c) Associated companies (continued)

Investments in associated companies are derecognised when the Group loses signifi cant infl uence. Any retained interest in the entity is remeasured at its fair value. The difference between the carrying amount of the retained investment at the date when signifi cant infl uence is lost and its fair value is recognised in the income statement.

Please refer to the paragraph “Investments in subsidiaries and associated companies” for the accounting policy on investments in associated companies.

2.4 Property, plant and equipment

(a) Measurement

(i) Land and buildings

Land and buildings are initially recognised at cost. Freehold land is subsequently carried at cost less accumulated impairment losses. Buildings and leasehold land are subsequently carried at cost less accumulated depreciation and accumulated impairment losses.

(ii) Motor vessels

Motor vessels are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses.

The cost of motor vessels includes actual interest incurred on borrowings used to fi nance the motor vessels while under construction and other direct relevant expenditure incurred in bringing the vessels into operation. For this purpose, the interest rate applied to funds provided for constructing the motor vessels is arrived at by reference to the actual rate payable on borrowings for construction purposes. The capitalisation of interest charges will cease upon the completion and delivery of the motor vessels.

(iii) Other property, plant and equipment

All other items of property, plant and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses.

(iv) Components of costs

The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Cost also includes borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (Note 2.6). The projected cost of dismantlement, removal or restoration is also recognised as part of the cost of property, plant and equipment if the obligation for the dismantlement, removal or restoration is incurred as a consequence of either acquiring or using the asset for purposes other than to produce inventories. 93

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.4 Property, plant and equipment (continued)

(b) Depreciation

Freehold land is not depreciated. Depreciation on other items of property, plant and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows:

Useful lives

Buildings on freehold land 50 years Leasehold land and buildings 10 - 50 years Offi ce renovations, furniture, fi xtures and equipment 3 - 5 years Plant, machinery and equipment 3 - 10 years Motor vehicles 5 - 10 years Motor vessels 20 years Docks and quays 30 years

No depreciation is provided for construction-in-progress.

On 1 January 2010, the estimated useful life of motor vessels was changed from 15 years to 20 years which is considered to be economically more realistic. The change in accounting policy has been applied prospectively subsequent to that date. Accordingly, the adoption of the change in accounting estimate has no effect in prior years. The effect on the fi nancial year ended 31 December 2010 is to decrease depreciation expense by $12,849,000 and increase the carrying amount of motor vessels by $12,849,000.

The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revision are recognised in the income statement when the changes arise.

(c) Subsequent expenditure

Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset only when it is probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured reliably. All other repair and maintenance expenses are recognised in the income statement when incurred.

The motor vessels are subject to overhauls at regular intervals. The inherent components of the initial overhaul are determined based on the estimated costs of the next overhaul and are separately depreciated over a period of 2½ years in order to refl ect the estimated intervals between two overhauls. The costs of the overhauls subsequently incurred are capitalised as additions and the carrying amounts of the replaced components are written off to the income statement.

(d) Disposal

On disposal of an item of property, plant and equipment, the difference between the disposal proceeds and its carrying amount is recognised in the income statement. 94

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.5 Intangible assets

Goodwill on acquisitions

Goodwill on acquisitions of subsidiaries on or after 1 January 2010 represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifi able assets acquired.

Goodwill on acquisition of subsidiaries prior to 1 January 2010 and on acquisition of joint ventures and associated companies represents the excess of the cost of the acquisition over the fair value of the Group’s share of the net identifi able assets acquired.

Goodwill on subsidiaries is recognised separately as intangible assets and carried at cost less accumulated impairment losses.

Goodwill on associated companies is included in the carrying amount of the investments.

Gains and losses on the disposal of subsidiaries and associated companies include the carrying amount of goodwill relating to the entity sold, except for goodwill arising from acquisitions prior to 1 January 2001, the goodwill of which was adjusted against retained earnings in the year of acquisition and not recognised in the income statement on disposal.

2.6 Borrowing costs

Borrowing costs are recognised in the income statement using the effective interest method except for those costs that are directly attributable to borrowings acquired specifi cally for the construction of motor vessels, docks and quays. The actual borrowing costs incurred during the construction period less any investment income on temporary investments of these borrowings, are capitalised in the cost of the docks and quays.

2.7 Construction contracts

A construction contract is a contract specifi cally negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use.

Contract costs are recognised when incurred.

When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the balance sheet date (“percentage-of-completion method”). When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Contract revenue comprises the initial amount of revenue agreed in the contract and variations in the contract work and claims that can be measured reliably. A variation or a claim is recognised as contract revenue when it is probable that the customer will approve the variation or negotiations have reached an advanced stage such that it is probable that the customer will accept the claim.

The stage of completion is measured by reference to the completion of a physical proportion of the contract work. Costs incurred during the fi nancial year in connection with future activity on a contract are excluded from costs incurred to date when determining the stage of completion of a contract, the costs of which are shown as construction contract work-in-progress on the balance sheet unless it is not probable that such contract costs are recoverable from the customers, in which case, such costs are recognised as an expense immediately. 95

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.7 Construction contracts (continued)

At the balance sheet date, the cumulative costs incurred plus recognised profi ts (less recognised losses) on each contract is compared against the progress billings. Where costs incurred plus the recognised profi ts (less recognised losses) exceed progress billings, the balance is presented as due from customers on construction contracts within “trade and other receivables”. Where progress billings exceed costs incurred plus recognised profi ts (less recognised losses), the balance is presented as due to customers on construction contracts within “trade and other payables”.

Progress billings not yet paid by customers and retentions are included within “trade and other receivables”. Advances received are included within “trade and other payables”.

2.8 Investment properties

Investment properties include those portions of offi ce buildings that are held for long-term rental yields and/or for capital appreciation.

Investment properties are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses. Depreciation is calculated using the straight-line method to allocate the depreciable amounts over the estimated useful lives of 10 to 50 years. The residual values, useful lives and depreciation method of investment properties are reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revision are included in the income statement when the changes arise.

Investment properties are subject to renovations or improvements at regular intervals. The cost of major renovations and improvements is capitalised as addition and the carrying amounts of the replaced components are recognised in the income statement. The cost of maintenance, repairs and minor improvements is charged to the income statement when incurred.

On disposal of an investment property, the difference between the disposal proceeds and the carrying amount is recognised in the income statement.

2.9 Investments in subsidiaries and associated companies

Investments in subsidiaries and associated companies are carried at cost less accumulated impairment losses in the Company’s balance sheet. On disposal of investments in subsidiaries and associated companies, the difference between disposal proceeds and the carrying amounts of the investments are recognised in the income statement.

2.10 Impairment of non-fi nancial assets

(a) Goodwill

Goodwill is tested for impairment annually, and whenever there is indication that the goodwill may be impaired. Goodwill included in the carrying amount of an investment in associated company is tested for impairment as part of the investment, rather than separately.

For the purpose of impairment testing of goodwill, goodwill is allocated to each of the Group’s cash-generating unit (“CGU”) expected to benefi t from synergies arising from the business combination.

An impairment loss is recognised when the carrying amount of a CGU, including the goodwill, exceeds the recoverable amount of the CGU. The recoverable amount of a CGU is the higher of a CGU’s fair value less cost to sell and value-in-use.

The total impairment loss of a CGU is allocated fi rst to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU.

An impairment loss on goodwill is recognised in the income statement and is not reversed in a subsequent period. 96

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.10 Impairment of non-fi nancial assets (continued)

(b) Property, plant and equipment Investment properties Investments in subsidiaries and associated companies

Property, plant and equipment, investment properties and investments in subsidiaries and associated companies are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired.

For the purpose of impairment testing of these assets, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash fl ows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the CGU to which the asset belongs.

If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount.

The difference between the carrying amount and recoverable amount is recognised as an impairment loss in the income statement unless the asset is carried at revalued amount, in which case, such impairment loss is treated as a revaluation decrease.

An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying amount of this asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.

A reversal of impairment loss for an asset other than goodwill is recognised in the income statement, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase. However, to the extent that an impairment loss on the same revalued asset was previously recognised in the income statement, a reversal of that impairment is also recognised in the income statement.

2.11 Financial assets

(a) Classifi cation

The Group classifi es its fi nancial assets in the following categories: at fair value through profi t or loss, loans and receivables, held-to-maturity, and available-for-sale. The classifi cation depends on the nature of the asset and the purpose for which the assets were acquired. Management determines the classifi cation of its fi nancial assets at initial recognition.

(i) Financial assets, at fair value through profi t or loss

This category has two sub-categories: fi nancial assets held for trading, and those designated at fair value through profi t or loss at inception. A fi nancial asset is classifi ed as held for trading if it is acquired principally for the purpose of selling in the short term. Financial assets designated as at fair value through profi t or loss at inception are those that are managed and their performances are evaluated on a fair value basis, in accordance with a documented Group investment strategy. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are presented as current assets if they are either held for trading or are expected to be realised within 12 months after the balance sheet date. 97

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.11 Financial assets (continued)

(a) Classifi cation (continued)

(ii) Loans and receivables

Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. They are presented as current assets, except for those maturing later than 12 months after the balance sheet date which are presented as non-current assets. Loans and receivables include “trade and other receivables” and “cash and cash equivalents” except for non- current interest-free receivables from a subsidiary which have been accounted for in accordance with the accounting policy on investments in subsidiaries and associated companies (Note 2.9).

(iii) Financial assets, held-to-maturity

Financial assets, held-to-maturity are non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignifi cant amount of held-to-maturity fi nancial assets, the whole category would be tainted and reclassifi ed as available-for-sale. They are presented as non-current assets, except for those maturing within 12 months after the balance sheet date which are presented as current assets. The Group currently does not have any held-to-maturity fi nancial assets.

(iv) Financial assets, available-for-sale

Financial assets, available-for-sale are non-derivatives that are either designated in this category or not classifi ed in any of the other categories. They are presented as non-current assets unless management intends to dispose of the assets within 12 months after the balance sheet date.

(b) Recognition and derecognition

Regular way purchases and sales of fi nancial assets are recognised on trade-date - the date on which the Group commits to purchase or sell the asset.

Financial assets are derecognised when the rights to receive cash fl ows from the fi nancial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. On disposal of a fi nancial asset, the difference between the carrying amount and the sale proceeds is recognised in the income statement. Any amount in the fair value reserve relating to that asset is transferred to the income statement.

(c) Initial measurement

Financial assets are initially recognised at fair value plus transaction costs except for fi nancial assets at fair value through profi t or loss, which are recognised at fair value. Transaction costs for fi nancial assets at fair value through profi t or loss are recognised immediately as expenses.

(d) Subsequent measurement

Financial assets, both available-for-sale and at fair value through profi t or loss are subsequently carried at fair value. Loans and receivables and fi nancial assets, held-to-maturity are subsequently carried at amortised cost using the effective interest method.

Changes in the fair value of fi nancial assets, at fair value through profi t or loss, including the effects of currency translation, interest and dividend, are recognised in the income statement when the changes arise. 98

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.11 Financial assets (continued)

(d) Subsequent measurement (continued)

Interest and dividend income on fi nancial assets, available-for-sale are recognised separately in the income statement. Changes in the fair values of available-for-sale debt securities (i.e. monetary items) denominated in foreign currencies are analysed into currency translation differences on the amortised cost of the securities and other changes; the currency translation differences are recognised in the income statement and the other changes are recognised in other comprehensive income. Changes in fair values of available-for-sale equity securities (i.e. non-monetary items) are recognised in other comprehensive income, together with the related currency translation differences.

(e) Impairment

The Group assesses at each balance sheet date whether there is objective evidence that a fi nancial asset or a group of fi nancial assets is impaired and recognises an allowance for impairment when such evidence exists.

(i) Loans and receivables/Financial assets, held-to-maturity

Signifi cant fi nancial diffi culties of the debtor, probability that the debtor will enter bankruptcy, and default or signifi cant delay in payments are objective evidence that these fi nancial assets are impaired.

The carrying amount of these assets is reduced through the use of an impairment allowance account which is calculated as the difference between the carrying amount and the present value of estimated future cash fl ows, discounted at the original effective interest rate. When the asset becomes uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognised against the same line item in the income statement.

The allowance for impairment loss account is reduced through the income statement in a subsequent period when the amount of impairment loss decreases and the related decrease can be objectively measured. The carrying amount of the asset previously impaired is increased to the extent that the new carrying amount does not exceed the amortised cost, had no impairment been recognised in prior periods.

(ii) Financial assets, available-for-sale

In addition to the objective evidence of impairment described in Note 2.11(e)(i), a signifi cant or prolonged decline in the fair value of an equity security below its cost is considered as an indicator that the available-for-sale fi nancial asset is impaired.

If any evidence of impairment exists, the cumulative loss that was recognised in the fair value reserve is transferred to the income statement. The cumulative loss is measured as the difference between the acquisition cost (net of any principal repayments and amortisation) and the current fair value, less any impairment loss previously recognised in the income statement. The impairment losses recognised in the income statement on equity securities are not reversed through the income statement. 99

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.12 Financial guarantees

The Company has issued corporate guarantees to banks for bank borrowings of its subsidiaries and third parties for services provided to a subsidiary. These guarantees are fi nancial guarantees as they require the Company to reimburse the banks and third parties if the subsidiaries fail to make principal or interest payments when due in accordance with the terms of their borrowings or payment for services when due, respectively.

Financial guarantees are initially recognised at their fair values plus transaction costs in the Company’s balance sheet.

Financial guarantees are subsequently amortised to the income statement over the period of the subsidiaries’ borrowings, unless it is probable that the Company will reimburse the bank for an amount higher than the unamortised amount. In this case, the fi nancial guarantees shall be carried at the expected amount payable to the bank in the Company’s balance sheet.

2.13 Borrowings

Borrowings are presented as current liabilities unless the Group has an unconditional right to defer settlement for at least 12 months after the balance sheet date.

Borrowings are initially recognised at fair value (net of transaction costs) and subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

2.14 Trade and other payables

Trade and other payables are initially recognised at fair value, and subsequently carried at amortised cost using the effective interest method.

2.15 Derivative fi nancial instruments and hedging activities

A derivative fi nancial instrument is initially recognised at its fair value on the date the contract is entered into and is subsequently carried at its fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategies for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, on whether the derivatives designated as hedging instruments are highly effective in offsetting changes in fair values or cash fl ows of the hedged items.

The Group designates each hedge as either (a) fair value hedge; or (b) cash fl ow hedge.

(a) Fair value hedge and cash fl ow hedge

The Group has not designated any derivatives as hedging instruments during the fi nancial year.

(b) Derivatives that are not designated or do not qualify for hedge accounting

Fair value changes on these derivatives are recognised in the income statement when the changes arise. 100

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.16 Fair value estimation of fi nancial assets and liabilities

The fair values of fi nancial instruments traded in active markets (such as exchange-traded and over-the-counter securities and derivatives) are based on quoted market prices at the balance sheet date. The quoted market prices used for fi nancial assets are the current bid prices; the appropriate quoted market prices for fi nancial liabilities are the current ask prices.

The fair values of fi nancial instruments that are not traded in an active market are determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Where appropriate, quoted market prices or dealer quotes for similar instruments are used. Valuation techniques, such as discounted cash fl ow analyses, are also used to determine the fair values of the fi nancial instruments.

The fair values of forward currency contracts are determined using actively quoted forward exchange rates.

The fair values of current fi nancial assets and liabilities carried at amortised cost approximate their carrying amounts.

2.17 Leases

(a) When the Group is the lessee:

The Group leases certain property, plant and equipment from non-related parties.

(i) Lessee - Finance leases

Leases of property, plant and equipment where the Group assumes substantially all risks and rewards incidental to ownership of the leased assets are classifi ed as fi nance leases.

The leased assets and the corresponding lease liabilities (net of fi nance charges) under fi nance leases are recognised on the balance sheet as property, plant and equipment and borrowings respectively, at the inception of the leases based on the lower of the fair value of the leased assets and the present value of the minimum lease payments.

Each lease payment is apportioned between the fi nance expense and the reduction of the outstanding lease liability. The fi nance expense is recognised in the income statement on a basis that refl ects a constant periodic rate of interest on the fi nance lease liability.

(ii) Lessee - Operating leases

Leases of property, plant and equipment where substantially all risks and rewards incidental to ownership are retained by the lessors are classifi ed as operating leases. Payments made under operating leases (net of any incentives received from the lessors) are recognised in the income statement on the straight-line basis over the period of the lease.

Contingent rents are recognised as an expense in the income statement when incurred. 101

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.17 Leases (continued)

(b) When the Group is the lessor:

The Group leases certain items of property, plant and equipment and investment properties to non-related parties.

(i) Lessor - Operating leases

Leases of property, plant and equipment and investment properties where the Group retains substantially all risks and rewards incidental to ownership are classifi ed as operating leases.

Rental income from operating leases (net of any incentives given to lessees) is recognised in the income statement on the straight-line basis over the lease term.

Initial direct costs incurred by the Group in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense in the income statement over the lease term on the same basis as the lease income.

Contingent rents are recognised as income in the income statement when earned.

2.18 Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of fi nished goods and work-in-progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and applicable variable selling expenses.

2.19 Income taxes

Current income tax for current and prior periods is recognised at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

Deferred income tax is recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the fi nancial statements except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profi t or loss at the time of the transaction.

A deferred income tax liability is recognised on temporary differences arising on investments in subsidiaries and associated companies, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

A deferred income tax asset is recognised to the extent that it is probable that future taxable profi t will be available against which the deductible temporary differences and tax losses can be utilised.

Deferred income tax is measured:

(i) at the tax rates that are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date; and

(ii) based on the tax consequence that will follow from the manner in which the Group expects, at the balance sheet date, to recover or settle the carrying amounts of its assets and liabilities. 102

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.19 Income taxes (continued)

Current and deferred income tax are recognised as income or expense in the income statement for the period, except to the extent that the tax arises from a business combination or a transaction which is recognised directly in equity. Deferred tax arising from a business combination is adjusted against goodwill on acquisition.

2.20 Provisions

Provisions for warranty and other liabilities are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outfl ow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on estimates by technical engineers and historical experience of the level of repairs and replacements.

Other provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax discount rate that refl ects the current market assessment of the time value of money and the risks specifi c to the obligation. The increase in the provision due to the passage of time is recognised in the income statement as fi nance expense.

Changes in the estimated timing or amount of the expenditure or discount rate are recognised in the income statement when the changes arise.

2.21 Employee compensation

(a) Defi ned contribution plans

Defi ned contribution plans are post-employment benefi t plans under which the Group pays fi xed contributions into separate entities such as the Central Provident Fund and social security plans in the People’s Republic of China (“PRC”) on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid.

(b) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

(c) Share-based compensation

The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense in the income statement with a corresponding increase in the share option reserve over the vesting period. The total amount to be recognised over the vesting period is determined by reference to the fair value of the options granted on the date of the grant. Non-market vesting conditions are included in the estimation of the number of shares under option that are expected to become exercisable on the vesting date. At each balance sheet date, the Group revises its estimates of the number of shares under options that are expected to become exercisable on the vesting date and recognises the impact of the revision of the estimates in the income statement, with a corresponding adjustment to the share option reserve over the remaining vesting period.

When the options are exercised, the proceeds received (net of transaction costs) are credited to share capital account when new ordinary shares are issued. 103

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.22 Currency translation

(a) Functional and presentation currency

Items included in the fi nancial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated fi nancial statements are presented in Singapore Dollars, which is the functional currency of the Company.

(b) Transactions and balances

Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates at the dates of the transactions. Currency translation differences resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance sheet date are recognised in the income statement, unless they arise from borrowings in foreign currencies, other currency instruments designated and qualifying as net investment hedges and net investment in foreign operations. Those currency translation differences are recognised in the currency translation reserve in the consolidated fi nancial statements and transferred to the income statement as part of the gain or loss on disposal of the foreign operation.

Non-monetary items that are measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined.

(c) Translation of Group entities’ fi nancial statements

The results and fi nancial position of all the Group entities (none of which has the currency of a hyperinfl ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) Assets and liabilities are translated at the closing exchange rates at the reporting date;

(ii) Income and expenses are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case, income and expenses are translated using the exchange rates at the dates of the transactions); and

(iii) All resulting currency translation differences are recognised in the currency translation reserve.

Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and translated at the closing rates at the reporting date. For acquisitions prior to 1 January 2005, the exchange rates at the dates of acquisition are used.

2.23 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the key management whose members are responsible for allocating resources and assessing performance of the operating segments.

2.24 Cash and cash equivalents

For the purpose of presentation in the consolidated cash fl ow statement, cash and cash equivalents include cash on hand, deposits with fi nancial institutions which are subject to an insignifi cant risk of change in value and bank overdrafts and exclude pledged deposits with fi nancial institutions. Bank overdrafts are presented as current borrowings on the balance sheet. 104

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

2. Signifi cant accounting policies (continued)

2.25 Share capital

Ordinary shares are classifi ed as equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the share capital account.

2.26 Dividends to Company’s shareholders

Dividends to Company’s shareholders are recognised when the dividends are approved for payment.

2.27 Government grants

Grants from the government are recognised as a receivable at their fair value when there is reasonable assurance that the grant will be received and the Group will comply with all the attached conditions.

Government grants receivable are recognised as income over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. Government grants relating to expenses are shown separately as other income.

Government grants relating to assets are deducted against the carrying amount of the assets.

3. Critical accounting estimates, assumptions and judgements

Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Uncertain tax positions

The Group is subject to income taxes in numerous jurisdictions. In determining the tax liabilities, management applies the statutory tax rate of the tax jurisdictions in which the subsidiaries operate in and is required to estimate the amount of capital allowances and the deductibility of certain expenses (“uncertain tax positions”) at each tax jurisdiction. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the fi nal tax outcome of these matters is different from the amount that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such determination is made.

If the actual fi nal outcome (on the judgement areas) differs by 10% from the management’s estimates, the Group would need to:

- increase the income tax liability by $6,559,000, if unfavourable; or - decrease the income tax liability by $6,559,000, if favourable.

(b) Construction contracts

The Group uses the percentage-of-completion method to account for its contract revenue. The stage of completion is measured by reference to the completion of a physical proportion of the contract work.

Signifi cant judgement is required in determining the stage of completion, the estimated total contract costs, the estimated completion dates, as well as the recoverability of the contracts.

If the estimated total contract revenue increases/decreases by 10% from management’s estimates, the Group’s revenue will increase/decrease by $270,862,000. 105

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

3. Critical accounting estimates, assumptions and judgements (continued)

(b) Construction contracts (continued)

If the contract costs to be incurred increase/decrease by 10% from management’s estimates, the Group’s cost of sales will increase/decrease by $251,365,000.

(c) Useful life of property, plant and equipment

The management of the Group determines the estimated useful lives and related depreciation expense for the property, plant and equipment. The management of the Group estimates useful lives of the property, plant and equipment by reference to expected usage of the property, plant and equipment, expected repair and maintenance, and technical or commercial obsolescence arising from changes or improvements in the market. The useful lives and related depreciation expense could change signifi cantly as a result of the changes in these factors.

(d) Impairment of receivables

Management reviews its receivables for objective evidence of impairment regularly. Signifi cant fi nancial diffi culties of the debtor, the probability that the debtor will enter bankruptcy, and default or signifi cant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgement as to whether there is observable data indicating that there has been a signifi cant change in the payment ability of the debtor, or whether there have been signifi cant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates.

Where there is objective evidence of impairment, management makes judgements as to whether an impairment loss should be recorded in the income statement. In determining this, management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash fl ows are reviewed regularly to reduce any differences between the estimated loss and actual loss experience.

Any changes in the net present values of estimated cash fl ows from management’s estimates for all past due receivables, will not result in any signifi cant impact to the Group’s allowance for impairment.

4. Revenue

The Group 2010 2009 $’000 $’000

Rendering of services - Ship repair and marine engineering income 886,568 1,069,681 - Time charter revenue 128,605 132,894 - Shipping agency income 12,615 14,184 Construction revenue - Ship building and marine engineering 2,832,915 1,681,362 Others 742 883 Total sales 3,861,445 2,899,004 106

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

5. Expenses by nature

The Group 2010 2009 $’000 $’000

Raw materials, fi nished goods, consumables and other overheads 2,036,572 1,221,161 Changes in inventories and construction contract work-in-progress 131,824 213,631 Net reversal of impairment of trade and other receivables (31,241) (11,375) Expected losses recognised on construction contracts 64,822 578 Depreciation and amortisation 168,426 153,416 Director and employee compensation (Note 6) 317,330 347,314 Sub-contractor expenses 616,942 595,471 Write-off for inventory obsolescence and inventory write-down 572 4,236 Write-off for property, plant and equipment 136 40 Rental expense on operating leases 69,886 82,678 Repairs and maintenance 22,489 33,518 Non-audit service fees paid/payable to auditor of the Company 77 154 Commission 39,917 30,087 Crew overheads 13,682 10,771 Vessel overheads 8,421 13,062 Other expenses 135,839 130,334 Total cost of sales, distribution and administrative expenses 3,595,694 2,825,076

6. Director and employee compensation

The Group 2010 2009 $’000 $’000

Wages, salaries and staff benefi ts 287,577 317,218 Employer’s contribution to defi ned contribution plans including Central Provident Fund 29,468 26,591 Share option expenses [Note 32(b)(i)] – 3,240 Directors’ fees of the Company 285 265 317,330 347,314 107

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

7. Other income (net)

The Group 2010 2009 $’000 $’000

Rental income 2,564 1,594 Dividend income 20 314 Currency exchange gain - net 25,655 15,715 Interest income from bank deposits 13,882 32,781 Reversal of impairment/(impairment) in value of transferable club memberships 16 (32) Net fair value gain/(loss) on forward currency contracts 13,253 (15,625) Net gain/(loss) on disposal of property, plant and equipment 743 (351) Negative goodwill – 12 Compensation received from customers 15,055 15,263 Government grants 4,038 21,382 Sundry income 12,743 8,119 Sale of scrap materials 90,284 67,142 178,253 146,314

Included in the Group’s sundry income is Jobs Credit Scheme of $85,000 (2009: $407,000). The Jobs Credit Scheme is a cash grant introduced in the Singapore Budget 2009 to help businesses preserve jobs in the economic downturn. The amount an employer can receive depends on the fulfi lment of certain conditions under the scheme. The Jobs Credit Scheme ceased on 30 June 2010.

8. Finance expenses

The Group 2010 2009 $’000 $’000

Interest expense - Bank borrowings and bills payable 44,564 46,347 - Finance lease liabilities 3 3 Total interest expense 44,567 46,350 Less: Amount capitalised in construction of property, plant and equipment [Note 23(c)] (2,436) (4,446) Finance expenses recognised in the income statement 42,131 41,904

Borrowing costs on fi nancing were capitalised at a rate of 3.71% (2009: 4.35%) per annum. 108

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

9. Income taxes

(a) Income tax expense

The Group 2010 2009 $’000 $’000

Tax expense attributable to profi t is made up of:

Current income tax - Singapore 442 894 - Foreign 131,484 103,092 131,926 103,986 Deferred income tax (Note 30) - Singapore (3) (12) - Foreign (66,338) (72,602) (66,341) (72,614) 65,585 31,372 (Over)/Under provision in prior fi nancial years: - Current income tax - Singapore (763) (566) - Foreign (24,480) 6,686 (25,243) 6,120 - Deferred income tax (Note 30) - Foreign 2,898 3,266 43,240 40,758 109

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

9. Income taxes (continued)

(a) Income tax expense (continued)

The tax expense on profi t differs from the amount that would arise using the Singapore standard rate of income tax as explained below:

The Group 2010 2009 $’000 $’000

Profi t before tax and share of (loss)/profi t of associated companies 401,873 178,338

Tax calculated at a tax rate of 17% (2009: 17%) 68,318 30,317 Effects of: - Change in tax rate (14,669) (21,713) - Different tax rates in other countries 22,631 13,496 - Singapore stepped income exemption (170) (131) - Exemption of shipping profi ts under Approved International Shipping Scheme and Section 13A of Singapore Income Tax Act (7,074) (9,153) - Profi ts exempted from tax (6,808) (1,327) - Income not subject to tax (5,160) (120) - Expenses not deductible for tax purposes 8,894 21,396 - Tax incentive rebates from the People’s Republic of China – (1,465) - Utilisation of previously unrecognised deferred tax asset (383) (246) - Deferred tax asset not recognised – 295 - Others 6 23 Tax charge 65,585 31,372

(b) Movements in current income tax liabilities

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Beginning of fi nancial year 84,136 61,348 549 4,885 Currency translation differences (8,680) (4,874) – – Disposal of subsidiaries (139) – – – Income tax paid (109,234) (82,444) (819) (3,938) Tax expense on profi t for the current fi nancial year 131,926 103,986 1,050 97 (Over)/under provision in prior fi nancial years (25,243) 6,120 (535) (495) End of fi nancial year 72,766 84,136 245 549 110

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

10. Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing the net profi t attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the fi nancial year.

2010 2009

Net profi t attributable to equity holders of the Company ($’000) 248,837 110,080

Weighted average number of ordinary shares outstanding for basic earnings per share (’000) 2,239,245 2,239,245

Basic earnings per share (cents per share) 11.11 4.92

(b) Diluted earnings per share

For the purpose of calculating diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted for the effects of all dilutive potential ordinary shares arising from share options.

For share options, the weighted average number of shares on issue has been adjusted as if all dilutive share options were exercised. The number of shares that could have been issued upon the exercise of all dilutive share options less the number of shares that could have been issued at fair value (determined as the Company’s average share price for the fi nancial year) for the same total proceeds is added to the denominator as the number of shares issued for no consideration. No adjustment is made to the net profi t.

Diluted earnings per share attributable to equity holders of the Company are calculated as follows:

2010 2009

Net profi t attributable to equity holders of the Company ($’000) 248,837 110,080

Weighted average number of ordinary shares outstanding for basic earnings per share (’000) 2,239,245 2,239,245

Adjustment for - share options (’000) 658 –

Weighted average number of ordinary shares outstanding for diluted earnings per share (’000) 2,239,903 2,239,245

Diluted earnings per share (cents per share) 11.11 4.92

For 2009, the outstanding share options did not have any dilutive effect on the earnings per share as the exercise prices for the outstanding share options were higher than the average market price during that fi nancial year. 111

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

11. Cash and cash equivalents

(a) Cash and cash equivalents at the end of the fi nancial year comprise the following:

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Cash at bank and on hand 261,309 463,810 14,361 3,393 Short-term bank deposits 605,892 1,085,365 102,596 131,118 867,201 1,549,175 116,957 134,511

Cash at bank and short-term bank deposits include an amount of $473,545,000 (2009: $784,524,000) placed with a fellow subsidiary, Cosco Finance Co., Ltd.

For the purpose of presenting the consolidated cash fl ow statement, the consolidated cash and cash equivalents comprise the following:

The Group 2010 2009 $’000 $’000

Cash and bank balances (as above) 867,201 1,549,175 Less: Bank deposits pledged (Note 27) (3,288) (3,554) Cash and cash equivalents per consolidated cash fl ow statement 863,913 1,545,621

Cash and bank balances and short-term bank deposits of the Group to the extent of $3,288,000 (2009: $3,554,000) were pledged as security for the following:

(i) long-term bank loans (Note 27) obtained to fi nance the purchases of certain motor vessels;

(ii) trade fi nance facilities; and

(iii) the issuance of banker’s guarantees in favour of third parties. 112

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

11. Cash and cash equivalents (continued)

(b) Disposal of subsidiaries

On 30 December 2010, the Company’s 51%-owned subsidiary, Cosco Shipyard Group Co., Ltd (“CSG”) has ceased to have management control over Diesel Marine Dalian Ltd and Diesel Marine International (Nantong) Co., Ltd, being companies in which CSG has an equity interest of 30% each. As a result of this cessation of control, the assets and liabilities of these two companies were deconsolidated from the fi nancial statements of the Group. The effects of the disposal on the cash fl ows of the Group were:

The Group $’000

Carrying amounts of assets and liabilities disposed Cash and cash equivalents (3,950) Inventories (3,698) Trade and other receivables (5,810) Property, plant and equipment (Note 23) (6,337) Total assets (19,795)

Trade and other payables 11,003 Current income tax liabilities (Note 9) 139 Total liabilities 11,142

Net assets derecognised (8,653) Less: Non-controlling interests 6,057 Net assets disposed (2,596)

The aggregate cash fl ows arising from the disposal of Diesel Marine Dalian Ltd and Diesel Marine International (Nantong) Co., Ltd were:

The Group $’000

Net assets disposed (as above) 2,596 Reclassifi cation to investment in associated companies (Note 20) (2,596) Cash proceeds from disposal – Less: Cash and cash equivalents in subsidiaries disposed (3,950) Net cash outfl ow on disposal (3,950) 113

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

12. Forward currency contracts

The Group 2010 2009 $’000 $’000

Beginning of fi nancial year (13,504) 1,623 Fair value gain/(loss) included in income statement 13,253 (15,625) Currency translation differences 251 498 End of fi nancial year – (13,504)

Analysed as:

The Group Contract Fair value notional Net amount Assets Liabilities assets $’000 $’000 $’000 $’000

2010 Non-hedging instruments - Forward currency contracts - current ––––

2009 Non-hedging instruments - Forward currency contracts - current 223,944 944 (14,448) (13,504) 114

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

13. Trade and other receivables - current

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Trade receivables: - Non-related parties 388,841 434,984 – – - Fellow subsidiaries (see note (i) below) 114,600 78,663 – – - Associated companies 2,502 – – – - A subsidiary – – 131 131 505,943 513,647 131 131 Less: Allowance for impairment of receivables - non-related parties (17,553) (51,036) – – Trade receivables - net 488,390 462,611 131 131

Construction contracts due from customers (Note 15): - Non-related parties 545,451 154,704 – – - Fellow subsidiaries 20,346 94,827 – – 565,797 249,531 – – Other receivables: - Non-related parties 56,126 48,887 109 105 - Ultimate holding corporation 23 – – – - A fellow subsidiary 4,488 10,675 – – 60,637 59,562 109 105 Less: Allowance for impairment of other receivables - non-related parties (792) (831) – – Other receivables - net 59,845 58,731 109 105

Advances paid to suppliers 858,775 679,201 – –

Staff advances 1,222 1,357 – –

Dividend receivable from - Subsidiaries – – 2,655 – - Associated companies 2,634 809 – – Total 1,976,663 1,452,240 2,895 236

(i) A subsidiary of the Group has factored trade receivables with carrying amounts of $45,283,000 (2009: nil) to a bank in exchange for cash during the fi nancial year ended 31 December 2010. The transaction has been accounted for as a collateralised borrowing as the bank has full recourse to the subsidiary in the event of default by the debtors (Note 27). 115

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

14. Inventories

The Group 2010 2009 $’000 $’000

Raw materials 429,816 602,391 Work-in-progress 46,014 72,273 Finished goods 42,205 2,904 518,035 677,568

The cost of inventories recognised as an expense and included in “cost of sales” amounted to $3,322,337,000 (2009: $2,525,714,000).

15. Construction contract work-in-progress

The Group 2010 2009 $’000 $’000

Beginning of fi nancial year 199,385 170,143 Contract costs incurred during the fi nancial year 2,566,433 1,789,167 Contract expenses recognised in the income statement during the fi nancial year (2,572,134) (1,755,283) Currency translation differences (10,956) (4,642) End of fi nancial year 182,728 199,385

Aggregate costs incurred and profi ts recognised (less losses recognised) to date on uncompleted construction contracts 2,616,896 1,937,692 Less: Progress billings (2,448,845) (2,177,092) Currency translation differences (6,424) 8,162 161,627 (231,238) Analysed as: Due from customers on construction contracts (Note 13) 565,797 249,531 Due to customers on construction contracts (Note 26) (404,170) (480,769) 161,627 (231,238)

Advances received on construction contracts (Note 26) 1,122,503 1,747,029

16. Other current assets

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Deposits 1,687 1,980 7 9 Prepayments 2,468 4,593 198 211 4,155 6,573 205 220 116

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

17. Trade and other receivables - non-current

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Trade receivables: - Non-related parties (i) 72,739 – – – Less: Current portion (34,507) – – – 38,232 – – – Other receivables: - A non-related party (ii) 10,857 – – –

Loans to a subsidiary (iii) – – – 64,285 49,089 – – 64,285

(i) As at 31 December 2010, the total trade receivables of $39,690,000 are secured, interest-free and with monthly instalment payments that will be repayable in full by 2012. The remaining balance of $33,049,000 are unsecured, interest-bearing at 7% per annum and with quarterly instalment payments that will be repayable in full by 2015.

As at 31 December 2010, the fair values of the non-current trade receivables approximated its carrying amounts, determined from the cash fl ow analyses discounted at market borrowing rates of 3.40% which the directors expected to be available to the Group.

(ii) Other receivables from a non-related party are unsecured and interest-free.

As at 31 December 2010, the fair values of the non-current other receivables approximated its carrying amounts, determined from the cash fl ow analyses discounted at market borrowing rates of 3.40% which the directors expected to be available to the Group.

(iii) The loans to a subsidiary were interest-free, unsecured and had no fi xed terms of repayment. In 2010, the full amount of $64,285,000 was capitalised as investment in a subsidiary.

18. Financial assets, available-for-sale

The Group 2010 2009 $’000 $’000

Beginning of fi nancial year 4,034 3,630 Currency translation differences (211) (91) Fair value (loss)/gain recognised in equity [Note 32(b)(v)] (389) 495 End of fi nancial year 3,434 4,034 117

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

18. Financial assets, available-for-sale (continued)

At the balance sheet date, fi nancial assets, available-for-sale include the following:

The Group 2010 2009 $’000 $’000

Quoted equity shares in a corporation, at fair value 530 958

Unquoted equity shares in corporations, at cost - A fellow subsidiary 1,943 2,058 - A non-related party 961 1,018 2,904 3,076 3,434 4,034

The directors do not anticipate that the carrying amounts of these unquoted equity investments will deviate signifi cantly from their fair values on the basis that these unquoted equity shares in corporations are in positive net tangible assets position.

19. Club memberships

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Transferable club memberships, at cost 937 879 428 428 Currency translation differences (13) (2) – – Allowance for impairment in value of club memberships (367) (385) (256) (272) 557 492 172 156

20. Investments in associated companies

The Group 2010 2009 $’000 $’000

Beginning of fi nancial year 1,922 2,577 Currency translation differences (226) (32) Reclassifi cation from investment in subsidiaries [Note 11(b)] 2,596 – Share of (loss)/profi t after tax (27) 214 Dividends declared, net of tax (696) (837) End of fi nancial year 3,569 1,922

The summarised fi nancial information of associated companies are as follows: - Assets 29,638 11,008 - Liabilities 18,141 5,036 - Revenue 24,052 9,286 - Net (loss)/profi t (207) 602 118

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

20. Investments in associated companies (continued)

Details of associated companies are set out below:

% of Country of paid-up Name of incorporation/ capital held by associated companies Principal activities business subsidiaries 2010 2009 % %

DMI (Guangzhou) Ltd (i) Overhaul and spare-parts People’s Republic 30 30 replacement and repair of China (“PRC”)

Tru-Marine Cosco (Tianjin) Overhaul and spare- parts PRC 40 40 Engineering Co., Ltd (i) replacement and repair

Diesel Marine International Overhaul and spare-parts PRC 30 – (Nantong) Co., Ltd (i) and (ii) replacement and repair

Diesel Marine Dalian Ltd (i) and (ii) Overhaul and spare-parts PRC 30 – replacement and repair

(i) Audited by RSM China Certifi ed Public Accountants, PRC. (ii) See Note 11(b).

21. Investments in subsidiaries

The Company 2010 2009 $’000 $’000

Unquoted equity shares Beginning of fi nancial year 310,871 310,871 Additions 82,664 – 393,535 310,871 Accumulated impairment losses (19,498) (20,058) End of fi nancial year 374,037 290,813

Movements in accumulated impairment losses are as follows:

2010 2009 $’000 $’000

Beginning of fi nancial year 20,058 20,903 Reversal of impairment charge (560) (845) End of fi nancial year 19,498 20,058 119

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

21. Investments in subsidiaries (continued)

Details of the subsidiaries are set out below:

Country of % of paid-up capital held by Name of Principal incorporation/ Cost of subsidiaries activities business investment The Company Subsidiaries 2010 2009 2010 2009 2010 2009 $’000 $’000 % % % %

Cosco Ship owning, ship Singapore 87,664 5,000 100 100 – – (Singapore) chartering and Pte Ltd (i) investment holding

Cosco Marine Ship repairing, Singapore 2,242 2,242 90 90 – – Engineering marine (Singapore) engineering, Pte Ltd (i) container repairs and services, fabrication works services and production of marine outfi tting components

Harington Trading and Singapore 52,701 52,701 100 100 – – Property investing in Pte Ltd (i) properties, provide property management services and investment holding

Coslink (M) Shipping Malaysia 771 771 70 70 18 18 Sdn. Bhd. (ii) agency and related activities

Costar Shipping agent Singapore 4,018 4,018 70 70 – – Shipping and investment Pte Ltd (i) holding

Cosco Shipyard Investment People’s 191,173 191,173 51 51 – – Group Co., Ltd holding Republic of (v) and (vi) China (“PRC”)

Cosco (Nantong) Ship repair and PRC 24,670 24,670 50 50 50 50 Shipyard Co., marine Ltd (v) and (vi) engineering

Cosco (Dalian) Ship repair, ship PRC 30,296 30,296 39 39 59 59 Shipyard Co., building and Ltd (v) and (vi) marine engineering 120

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

21. Investments in subsidiaries (continued)

Country of % of paid-up capital held by Name of Principal incorporation/ Cost of subsidiaries activities business investment The Company Subsidiaries 2010 2009 2010 2009 2010 2009 $’000 $’000 % % % %

Cosco Ship repair and PRC – – – – 75 75 (Guangdong) ship building Shipyard Co., Ltd (v) and (vi)

Cosco Ship repair, ship PRC – – – – 100 100 (Zhoushan) building and Shipyard Co., marine engineering Ltd (v) and (vi)

Cosco (Xiamen) Ship repair PRC – – – – 51 51 Shipyard Co., Ltd (v)

Cosco Ship repair PRC – – – – 95 95 (Shanghai) Shipyard Co., Ltd (v)

Cosco (Tianjin) Ship repair PRC – – – – 90 90 Shipyard Co., Ltd (v)

Cosco Ship repair PRC – – – – 60 60 (Lianyungang) Shipyard Co., Ltd (v) and (vi)

Cosco (Qidong) Offshore marine PRC – – – – 60 60 Offshore Co., engineering Ltd (v)

Cosco Dalian Overhaul, repair, PRC – – – – 75 75 Rikky Ocean commissioning Engineering and spare-parts Co., Ltd (v) replacement of governor, turbocharger and engine fuel system

Diesel Marine Overhaul and PRC – – – – – 30 Dalian Ltd spare-parts (iii), (v) and (vii) replacement and repair 121

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

21. Investments in subsidiaries (continued)

Country of % of paid-up capital held by Name of Principal incorporation/ Cost of subsidiaries activities business investment The Company Subsidiaries 2010 2009 2010 2009 2010 2009 $’000 $’000 % % % %

Diesel Marine Overhaul and PRC – – – – – 30 International spare-parts (Nantong) replacement Co., Ltd (iii), (v) and repair and (vii)

Cosco (Nantong) Ship repair and PRC – – – – 60 60 Ocean Shipyard corrosion Co., Ltd (v) control (formerly known as Cosco Clavon Shipyard Co., Ltd)

Zhongyuan Ship repair PRC – – – – 51 51 Sea-Land Engineering Co., Ltd (v)

Cosco Shipyard Design, PRC – – – – 60 60 Total Automation manufacture, Co., Ltd (v) sale and technical service relating to vessels and industrial instruments

Cos Fair Ship owning Singapore/ – – – – 100 100 Shipping and ship Worldwide Pte Ltd (i) chartering

Cos Glory Ship owning Panama/ – – – – 100 100 Shipping and ship Worldwide Inc. (i) chartering

Hanbo Ship owning Hong Kong/ – – – – 100 100 Shipping and ship Worldwide Limited (ii) chartering

Sanbo Shipping Ship owning Hong Kong/ – – – – 100 100 Limited (ii) and ship Worldwide chartering

Cos Orchid Ship owning Singapore/ – – – – 100 100 Shipping Pte and ship Worldwide Ltd (i) chartering 122

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

21. Investments in subsidiaries (continued)

Country of % of paid-up capital held by Name of Principal incorporation/ Cost of subsidiaries activities business investment The Company Subsidiaries 2010 2009 2010 2009 2010 2009 $’000 $’000 % % % %

Cos Prosperity Ship owning Singapore/ – – – – 100 100 Shipping Pte and ship Worldwide Ltd (i) chartering

Cos Knight Ship owning Panama/ – – – – 100 100 Shipping and ship Worldwide Maritime Inc. (i) chartering

Cos Lucky Ship owning Panama/ – – – – 100 100 Shipping and ship Worldwide Maritime Inc. (i) chartering

Costar Shipping agent Malaysia – – – – 100 100 Agencies (M) Sdn. Bhd. (iv)

CNF Shipping Shipping agent Malaysia – – – – 60 60 (M) Sdn. Bhd. (iv)

CNF Shipping Vessel chartering, Singapore – – – – 100 100 Agencies feedering, freight Pte Ltd (i) forwarders, transport agent, warehousing and other related services

Cosco Ship repairing, Singapore – – – – 100 100 Engineering marine Pte Ltd (i) engineering, container repairs and services, fabrication works services and production of marine outfi tting components 393,535 310,871

(i) Audited by PricewaterhouseCoopers LLP, Singapore. (ii) Audited by PricewaterhouseCoopers fi rms outside Singapore. (iii) Deemed to be a subsidiary as the Group had the power to govern the fi nancial and operating policies of the entity. (iv) Audited by Deloitte KassimChan, Malaysia. (v) Audited by RSM China Certifi ed Public Accountants, PRC. (vi) Audited by PricewaterhouseCoopers LLP, Singapore and fi rms outside Singapore for the purposes of consolidation. (vii) See Note 11(b). 123

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

22. Investment properties

The Group 2010 2009 $’000 $’000

Cost Beginning of fi nancial year 15,804 15,849 Currency translation differences (121) (45) Additions 10 – Reclassifi cation from property, plant and equipment (Note 23) 3,565 – End of fi nancial year 19,258 15,804

Accumulated depreciation and accumulated impairment losses Beginning of fi nancial year 4,018 3,632 Currency translation differences (27) (9) Depreciation charge 471 395 Reclassifi cation from property, plant and equipment (Note 23) 177 – End of fi nancial year 4,639 4,018

Net book value 14,619 11,786

Fair values 19,806 14,909

Investment properties are stated at cost less accumulated depreciation and accumulated impairment losses as the Group has elected to adopt the cost model method to measure its investment properties.

Fair values of the investment properties as at the balance sheet date are stated based on independent professional valuations using the direct comparison method.

Investment properties are leased to fellow subsidiaries and non-related parties under operating leases.

The following amounts are recognised in the income statement:

The Group 2010 2009 $’000 $’000

Rental income 1,372 1,151 Direct operating expenses arising from investment properties that generated rental income 769 540 124

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

23. Property, plant and equipment

The Group

Offi ce renovations, Plant, Freehold Leasehold furniture, machinery Docks land and land and fi xtures and and Motor Motor and Construction- buildings buildings equipment equipment vehicles vessels quays in-progress Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

2010 Cost Beginning of fi nancial year 3,044 820,315 46,096 794,641 45,878 307,210 783,701 149,790 2,950,675 Currency translation differences – (44,904) (2,398) (44,254) (2,376) (26,613) (43,920) (8,384) (172,849) Additions – 12,133 2,971 4,327 593 1,614 – 154,467 176,105 Disposals – (79) (322) (13,044) (1,326) (1,354) – (3,673) (19,798) Disposal of subsidiaries [Note 11(b)] – (4,646) (333) (3,536) (470) – – (156) (9,141) Reclassifi cation – 100,880 1,673 67,113 2,218 – 57,521 (232,970) (3,565) End of fi nancial year 3,044 883,699 47,687 805,247 44,517 280,857 797,302 59,074 2,921,427

Accumulated depreciation Beginning of fi nancial year 883 78,713 23,529 195,409 24,692 134,363 143,988 – 601,577 Currency translation differences – (5,407) (1,493) (13,694) (1,524) (12,530) (9,138) – (43,786) Depreciation charge 61 33,481 9,030 76,411 6,777 14,168 27,942 – 167,870 Disposals – (10) (261) (6,560) (1,080) (1,294) – – (9,205) Disposal of subsidiaries [Note 11(b)] – (258) (250) (1,889) (407) – – – (2,804) Reclassifi cation – 502 (74) (588) – – (17) – (177) End of fi nancial year 944 107,021 30,481 249,089 28,458 134,707 162,775 – 713,475

Net book value End of fi nancial year 2,100 776,678 17,206 556,158 16,059 146,150 634,527 59,074 2,207,952 125

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

23. Property, plant and equipment (continued)

The Group

Offi ce renovations, Plant, Freehold Leasehold furniture, machinery Docks land and land and fi xtures and and Motor Motor and Construction- buildings buildings equipment equipment vehicles vessels quays in-progress Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

2009 Cost Beginning of fi nancial year 3,044 480,241 34,011 575,804 40,110 312,369 692,045 416,336 2,553,960 Currency translation differences – (9,514) (634) (11,773) (760) (6,233) (14,185) (8,533) (51,632) Additions – 71,344 11,383 28,768 5,181 2,489 – 350,759 469,924 Disposals – (1,433) (954) (8,718) (1,301) (1,415) – (7,756) (21,577) Reclassifi cation – 279,677 2,290 210,560 2,648 – 105,841 (601,016) – End of fi nancial year 3,044 820,315 46,096 794,641 45,878 307,210 783,701 149,790 2,950,675

Accumulated depreciation Beginning of fi nancial year 822 61,563 16,548 143,229 19,111 109,109 121,628 – 472,010 Currency translation differences – (1,825) (561) (5,035) (599) (3,197) (3,370) – (14,587) Depreciation charge 61 19,684 8,293 62,427 7,102 29,724 25,730 – 153,021 Disposals – (714) (753) (5,205) (922) (1,273) – – (8,867) Reclassifi cation – 5 2 (7) – – – – – End of fi nancial year 883 78,713 23,529 195,409 24,692 134,363 143,988 – 601,577

Net book value End of fi nancial year 2,161 741,602 22,567 599,232 21,186 172,847 639,713 149,790 2,349,098

(a) The carrying amount of motor vehicles held under fi nance leases at 31 December 2010 amounted to $32,000 (2009: $63,000) (Note 27).

(b) As at the balance sheet date, the net book values of motor vessels of the Group amounting to $67,825,000 (2009: $78,547,000) are mortgaged to banks to secure long-term bank borrowings and bank facilities (Note 27).

(c) Borrowing costs of $2,436,000 (2009: $4,446,000) which arise mainly due to fi nancing for the construction of docks and quays, are capitalised during the fi nancial year (Note 8). 126

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

23. Property, plant and equipment (continued)

The Company

Offi ce renovations, furniture, fi xtures and Motor equipment vehicles Total $’000 $’000 $’000

2010 Cost Beginning of fi nancial year 551 1,128 1,679 Additions 7 – 7 End of fi nancial year 558 1,128 1,686

Accumulated depreciation Beginning of fi nancial year 512 392 904 Depreciation charge 19 113 132 End of fi nancial year 531 505 1,036

Net book value End of fi nancial year 27 623 650

2009 Cost Beginning of fi nancial year 536 1,128 1,664 Additions 15 – 15 End of fi nancial year 551 1,128 1,679

Accumulated depreciation Beginning of fi nancial year 489 279 768 Depreciation charge 23 113 136 End of fi nancial year 512 392 904

Net book value End of fi nancial year 39 736 775 127

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

24. Intangible assets

The Group 2010 2009 $’000 $’000

Goodwill arising on consolidation 9,468 9,525

Cost Beginning of fi nancial year 9,525 9,546 Currency translation differences (57) (21) End of fi nancial year 9,468 9,525

Net book value 9,468 9,525

Impairment tests for goodwill

Goodwill is allocated to the Group’s cash-generating units (“CGU”), identifi ed as the subsidiaries in the People’s Republic of China (“PRC”) according to country of operation and business segment. The business segments refer to ship repair, ship building and marine engineering activities.

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash fl ow projections based on the existing capacity of the CGU. Cash fl ows beyond 2010 are extrapolated using the estimated growth rate stated below. The growth rate does not exceed the long-term average growth rate for ship repair business in the PRC in which the CGU operates.

Key assumptions used for value-in-use calculations:

Growth rate1 4.50% Discount rate2 2.27%

1 Weighted average growth rate used to extrapolate cash fl ows beyond the budget period 2 Pre-tax discount rate applied to the pre-tax cash fl ow projections

These assumptions were used for the analysis of the CGU within the business segment. Management determined budgeted gross margin based on past performance and its expectations of the market development. The weighted average growth rate used was consistent with the forecasts included in industry reports. The discount rate used was pre-tax and refl ected specifi c risks relating to the relevant segments.

There is no impairment charge recognised for the fi nancial years ended 31 December 2010 and 31 December 2009.

25. Deferred expenditure

Deferred expenditure relates to rental prepaid for leasehold land on operating leases and is amortised on the straight- line basis over the lease period. 128

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

26. Trade and other payables

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Trade payables: - Non-related parties 532,907 448,979 – – - Associated companies 2,057 – – – - Fellow subsidiaries 42,913 99,717 – – 577,877 548,696 – –

Construction contracts - Advances received (Note 15): - Non-related parties 1,122,503 1,703,968 – – - Fellow subsidiaries – 43,061 – – 1,122,503 1,747,029 – –

Construction contracts - Due to customers (Note 15): - Non-related parties 404,170 480,769 – – 1,526,673 2,227,798 – –

Advances from non-related parties 33,927 40,658 – –

Non-trade payables: - Ultimate holding corporation 680 720 – – - A subsidiary – – 15,000 14,000 680 720 15,000 14,000

Deposits received 12,218 12,765 – –

Other accruals for operating expenses 991,000 720,856 2,620 2,767

Dividend payable to non-controlling interests of subsidiaries 2,158 7,513 – –

Total 3,144,533 3,559,006 17,620 16,767

The non-trade balances payable to ultimate holding corporation and a subsidiary are unsecured, interest-free and are repayable on demand. 129

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

27. Borrowings

The Group 2010 2009 $’000 $’000

Current Bank borrowings (unsecured) 410,280 144,047 Bank borrowings (secured) 47,337 7,244 Bills payable 97,528 24,954 Finance lease liabilities (Note 28) 3 17 555,148 176,262

Non-current Bank borrowings (unsecured) 427,743 921,492 Bank borrowings (secured) 9,322 17,451 Finance lease liabilities (Note 28) – 3 437,065 938,946

Total borrowings 992,213 1,115,208

The exposure of the borrowings of the Group to interest rate changes and the contractual repricing dates at the balance sheet dates are as follows:

The Group 2010 2009 $’000 $’000

Less than 1 year 555,148 176,262 1 – 5 years 380,732 802,025 Over 5 years 56,333 136,921 992,213 1,115,208

(a) Security granted

At the balance sheet date, total borrowings include secured liabilities of $56,662,000 (2009: $24,715,000) for the Group. Secured bank borrowings are secured by:

(i) the Group’s motor vessels (Note 23) (ii) certain bank deposits [Note 11(a)] (iii) certain trade receivables (Note 13)

Finance lease liabilities of the Group are secured by the rights to the leased motor vehicles, which will revert to the lessor in the event of default by the Group (Note 23). 130

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

27. Borrowings (continued)

(b) Fair values of non-current borrowings

At the balance sheet date, the carrying amounts of non-current borrowings approximated their fair values.

The fair values were determined from cash fl ow analyses, discounted at the market borrowing rates which the directors expected to be available to the Group as follows:

The Group

2010 2009 SGD USD RMB SGD USD RMB

Bank borrowings – 2.79% 3.71% – 3.28% 4.35% Bills payable ––– ––– Finance lease liabilities 4.91% – – 4.91% – –

28. Finance lease liabilities

The Group 2010 2009 $’000 $’000

Minimum lease payments due: - Not later than one year 4 20 - Later than one year but not later than fi ve years – 4 4 24 Less: Future fi nance charges (1) (4) Present value of fi nance lease liabilities 3 20

The present values of fi nance lease liabilities are analysed as follows: - Not later than one year (Note 27) 3 17 - Later than one year but not later than fi ve years (Note 27) – 3 3 20

29. Provisions for other liabilities

The Group 2010 2009 $’000 $’000

Provision for off hire claim on hire income [Note (a)] 7,043 14,242 Provision for warranties [Note (b)] 38,006 22,194 45,049 36,436 131

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

29. Provisions for other liabilities (continued)

(a) Movements in provision for off hire claim on hire income were as follows:

The Group 2010 2009 $’000 $’000

Beginning of fi nancial year 14,242 15,225 Provision made during the fi nancial year 1,715 2,537 Provision utilised during the fi nancial year (7,572) (3,129) Currency translation differences (1,342) (391) End of fi nancial year 7,043 14,242

Provision for off hire claim on hire income is in respect of refund to be made to customers for period in which the motor vessels are not available for use.

(b) Movements in provision for warranties were as follows:

The Group 2010 2009 $’000 $’000

Beginning of fi nancial year 22,194 4,931 Provision made during the fi nancial year 21,289 18,014 Provision utilised during the fi nancial year (2,819) (36) Currency translation differences (2,658) (715) End of fi nancial year 38,006 22,194

The Group gives one to two-year warranties on certain ship building and marine engineering contracts and undertakes to repair or rectify defects that fail to perform satisfactorily. A provision is recognised at the balance sheet date for expected warranty claims based on an estimate by technical engineers and past experience of the possible repairs and rectifi cations. 132

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

30. Deferred income taxes

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fi scal authority. The amounts, determined after appropriate offsetting, are shown on the balance sheets as follows:

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Deferred income tax assets: - to be recovered within one year 207,444 146,501 – – - to be recovered after one year 5,259 12,022 – – 212,703 158,523 – –

Deferred income tax liabilities: - to be settled within one year – – – – - to be settled after one year 4,304 2,400 4,056 2,198 4,304 2,400 4,056 2,198

Deferred income tax assets are recognised for tax losses, capital allowances, provisions and accruals carried forward to the extent that realisation of the related tax benefi ts through future taxable profi ts is probable. The Group has unrecognised tax losses of Nil (2009: $1,089,000) for which no deferred tax asset has been recognised at the balance sheet date which can be carried forward and used to offset against future taxable income subject to meeting certain statutory requirements by those companies with unrecognised tax losses in their respective countries of incorporation. The tax losses have no expiry date.

The movements in the deferred income tax account, net were as follows:

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Beginning of fi nancial year (156,123) (91,237) 2,198 – Change in tax rate (14,669) (21,713) – – Currency translation differences 11,277 4,338 (112) 33 Deferred tax (credited)/charged to income statement (48,774) (47,635) 1,970 2,165 Deferred tax (credited)/charged to equity [Note 32(b)(v)] (110) 124 – – End of fi nancial year (208,399) (156,123) 4,056 2,198 133

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

30. Deferred income taxes (continued)

The movements in the deferred income tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) during the fi nancial years were as follows:

Deferred income tax liabilities The Group 2010 2009 $’000 $’000

Accelerated tax depreciation Beginning of fi nancial year 166 180 Credited to income statement (3) (14) End of fi nancial year 163 166

Fair value gain Beginning of fi nancial year 208 91 Currency translation differences (7) (7) (Credited)/charged to equity (110) 124 End of fi nancial year 91 208

Undistributed profi ts of foreign subsidiaries Beginning of fi nancial year 2,198 – Currency translation differences (112) 33 Charged to income statement 1,970 2,165 End of fi nancial year 4,056 2,198

Total Beginning of fi nancial year 2,572 271 Currency translation differences (119) 26 Charged to income statement 1,967 2,151 (Credited)/charged to equity (110) 124 End of fi nancial year 4,310 2,572

Reconciliation of total deferred income tax liabilities after appropriate offsetting from the same tax jurisdiction is as follows: Total deferred income tax liabilities 4,310 2,572 Offsetting of deferred income tax assets from the same tax jurisdiction (6) (172) Total deferred income tax liabilities after appropriate offsetting from the same tax jurisdiction 4,304 2,400

134

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

30. Deferred income taxes (continued)

Deferred income tax assets The Group 2010 2009 $’000 $’000

Provisions and accruals Beginning of fi nancial year (158,695) (91,508) Change in tax rate (14,669) (21,713) Currency translation differences 11,396 4,312 Credited to income statement (50,741) (49,786) End of fi nancial year (212,709) (158,695)

Reconciliation of total deferred income tax assets after appropriate offsetting from the same tax jurisdiction is as follows: Total deferred income tax assets (212,709) (158,695) Offsetting of deferred income tax liabilities from the same tax jurisdiction 6 172 Total deferred income tax assets after appropriate offsetting from the same tax jurisdiction (212,703) (158,523)

31. Share capital

Issued share capital No. of ordinary shares Amount ’000 $’000

2010 Beginning and end of fi nancial year 2,239,244 270,608

2009 Beginning and end of fi nancial year 2,239,244 270,608

All issued shares are fully paid. There is no par value for these ordinary shares.

There were no shares issued in 2010 and 2009.

Share options

Under the Cosco Group Employees’ Share Option Scheme 2002 (the “Scheme 2002”), share options are granted to directors, key management and employees. The exercise price of the granted options is equal to the average of the closing prices of the Company’s ordinary shares on the Singapore Exchange for the fi ve market days immediately preceding the date of grant. The options may be exercised in full or in part in respect of 1,000 shares or a multiple thereof, on the payment of the exercise price. The persons to whom the options have been issued have no right to participate by virtue of the options in any share issue of any other company. The Group has no legal or constructive obligation to repurchase or settle the options in cash. 135

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

31. Share capital (continued)

Share options (continued)

Options issued to directors and employees who have been in the service of the Company, subsidiary or associated company, or the holding company for at least one year on or prior to the date of grant, may be exercised twelve months after the date of grant but before the end of one hundred and twenty months. For employees and directors who are in the service of the associated company and non-executive directors, the options shall expire at the end of sixty months. Options issued at a discount to market price, may only be exercised two years after the date of grant.

Options issued to directors and employees who have been in the service of the Company, subsidiary or associated company, or the holding company for at least six months but less than one year on or prior to the date of grant, may be exercised twenty-four months after the date of grant but before the end of one hundred and twenty months. For employees and directors who are in the service of the associated company and non-executive directors, the options shall expire at the end of sixty months. Options issued at a discount to market price, may only be exercised three years after the date of grant.

Movements in the number of unissued ordinary shares under option at the end of the fi nancial year and their exercise prices are as follows:

The Group and the Company

Financial year ended 31 December 2010

Number of ordinary shares under option outstanding Lapsed Beginning during End of Options relating to of fi nancial fi nancial fi nancial Exercise Scheme 2002 year year year price Exercise period ’000 ’000 ’000 $

2006 Options (i) 2,780 – 2,780 1.23 21.2.2007 – 20.2.2016 2007 Options (ii) 12,770 (1,800) 10,970 2.48 5.2.2008 – 4.2.2017 2008 Options (iii) 19,430 (2,230) 17,200 2.95 24.3.2009 – 23.3.2018 34,980 (4,030) 30,950

Financial year ended 31 December 2009

Number of ordinary shares under option outstanding Lapsed Beginning during End of Options relating to of fi nancial fi nancial fi nancial Exercise Scheme 2002 year year year price Exercise period ’000 ’000 ’000 $

2006 Options (i) 2,840 (60) 2,780 1.23 21.2.2007 – 20.2.2016 2007 Options (ii) 14,420 (1,650) 12,770 2.48 5.2.2008 – 4.2.2017 2008 Options (iii) 20,040 (610) 19,430 2.95 24.3.2009 – 23.3.2018 37,300 (2,320) 34,980

(i) For non-executive directors, the exercise period shall be 21.2.2007 to 20.2.2011.

(ii) For non-executive directors, the exercise period shall be 5.2.2008 to 4.2.2012.

(iii) For non-executive directors, the exercise period shall be 24.3.2009 to 23.3.2013. 136

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

31. Share capital (continued)

Share options (continued)

The Group and the Company (continued)

Out of the outstanding options on 30,950,000 shares (2009: 34,980,000), options on 30,950,000 shares (2009: 34,250,000) are exercisable. There was no share option issued in 2010 and 2009. There were also no shares of the Company allotted and issued by virtue of the exercise of options to take up unissued shares of the Company in 2010 and 2009.

32. Statutory and other reserves

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

(a) Composition: Share option reserve 44,578 44,578 44,578 44,578 Statutory reserve 137,372 137,149 – – Currency translation reserve (90,804) (23,861) – – Asset revaluation reserve 12,554 15,772 – – Fair value reserve 181 323 – – Realised surplus on long-term investment 69 69 527 527 103,950 174,030 45,105 45,105

(b) Movements:

(i) Share option reserve Beginning of fi nancial year 44,578 41,338 44,578 41,338 Employee share option scheme: - Value of director and employee services (Note 6) – 3,240 – 3,240 End of fi nancial year 44,578 44,578 44,578 44,578

The Group 2010 2009 $’000 $’000

(ii) Statutory reserve Beginning of fi nancial year 137,149 114,310 Transfer from retained earnings 223 22,839 End of fi nancial year 137,372 137,149

(iii) Currency translation reserve Beginning of fi nancial year (23,861) (6,937) Net currency translation differences of fi nancial statements of foreign subsidiaries and associated companies (100,144) (27,480) Non-controlling interests 33,201 10,556 End of fi nancial year (90,804) (23,861) 137

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

32. Statutory and other reserves (continued)

The Group 2010 2009 $’000 $’000

(b) Movements: (continued)

(iv) Asset revaluation reserve Beginning of fi nancial year 15,772 18,990 Revaluation reserve transferred to retained earnings (3,218) (3,218) End of fi nancial year 12,554 15,772

(v) Fair value reserve Beginning of fi nancial year 323 134 Fair value changes for fi nancial asset, available-for-sale (389) 495 Deferred tax credited/(charged) to equity (Note 30) 110 (124) Non-controlling interests 137 (182) End of fi nancial year 181 323

Statutory reserve represents the amount set aside in compliance with the local laws in the PRC where the subsidiaries of the Group reside.

Statutory and other reserves are non-distributable.

33. Dividends

The Group and the Company 2010 2009 $’000 $’000

Ordinary dividends paid Final tax-exempt one-tier dividend paid in respect of the previous fi nancial year of 3.0 cents (2009: 4.0 cents) per ordinary share 67,177 89,570 Special tax-exempt one-tier dividend paid in respect of the previous fi nancial year of Nil cents (2009: 3.0 cents) per ordinary share – 67,177 67,177 156,747

At the Annual General Meeting scheduled on 20 April 2011, a fi rst and fi nal tax-exempt one-tier dividend of 4 cents per ordinary share (2009: fi rst and fi nal tax-exempt one-tier dividend of 3 cents per ordinary share) amounting to a total of $89,570,000 (2009: $67,177,000), based on the number of shares issued as of 31 December 2010, will be recommended. These fi nancial statements do not refl ect these dividends, which will be accounted for in equity as an appropriation of retained earnings in the fi nancial year ending 31 December 2011. 138

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

34. Commitments

(a) Capital commitments

Capital expenditure contracted for at the balance sheet date but not recognised in the fi nancial statements are as follows:

The Group 2010 2009 $’000 $’000

Property, plant and equipment 102,537 166,681

(b) Operating lease commitments – where the Group is a lessee

The Group leases various offi ce premises, docks, quays and motor vessels under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights.

The future aggregate minimum lease payables under non-cancellable operating leases contracted for at the balance sheet date but not recognised as liabilities, are as follows:

The Group 2010 2009 $’000 $’000

Not later than 1 year 19,271 20,039 Later than 1 year but not later than 5 years 42,690 52,448 Later than 5 years 66,245 63,514 128,206 136,001

(c) Operating lease commitments – where the Group is a lessor

The Group leases out certain items of property, plant and equipment and investment properties to non-related parties under non-cancellable operating leases.

The future minimum lease receivables under non-cancellable operating leases contracted for at the balance sheet date but not recognised as receivables, are analysed as follows:

The Group 2010 2009 $’000 $’000

Not later than 1 year 28,664 45,537 Later than 1 year but not later than 5 years 1,189 1,280 29,853 46,817 139

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

35. Financial risk management

Financial risk factors

The Group’s activities expose it to a variety of fi nancial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk.

Risk management is carried out under policies approved by the Board of Directors. The Board approves guidelines for overall risk management, as well as policies covering these specifi c areas.

(a) Market risk

(i) Currency risk

Currency risks arise from transactions denominated in currencies other than the respective functional currencies of the entities in the Group.

The Group monitors its foreign currency exchange risks closely and where appropriate, enters into forward currency contracts to manage the currency exposure.

In addition, the Group has certain investments in foreign operations, whose net assets are exposed to currency translation risk. Currency exposure to the net assets of the Group’s foreign operations in the People’s Republic of China is managed primarily through borrowings denominated in RMB.

The Group’s currency exposure based on the information available to key management is as follows:

SGD USD RMB Others* Total $’000 $’000 $’000 $’000 $’000

At 31 December 2010 Financial assets Cash and cash equivalents and fi nancial assets, available-for-sale 74,475 308,646 462,625 24,889 870,635 Trade and other receivables, excluding advances paid to suppliers 15,415 864,332 232,515 57,370 1,169,632 Other fi nancial assets 284 – 1,365 38 1,687 90,174 1,172,978 696,505 82,297 2,041,954

Financial liabilities Borrowings 3 281,099 711,111 – 992,213 Other fi nancial liabilities 16,192 80,158 1,492,953 4,328 1,593,631 16,195 361,257 2,204,064 4,328 2,585,844

Net fi nancial assets/(liabilities) 73,979 811,721 (1,507,559) 77,969 (543,890)

Less: Net fi nancial assets/(liabilities) denominated in the respective entities’ functional currencies (73,628) (108,500) 1,507,562 (2,298)

Add: Firm commitments and highly probable forecast transactions in foreign currencies – 3,143,108 – 72,709 Currency exposure 351 3,846,329 3 148,380

* Others mainly include Euro, Japanese Yen and Malaysian Ringgit. 140

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

35. Financial risk management (continued)

(a) Market risk (continued)

(i) Currency risk (continued)

SGD USD RMB Others* Total $’000 $’000 $’000 $’000 $’000

At 31 December 2009 Financial assets Cash and cash equivalents and fi nancial assets, available-for-sale 100,592 511,419 935,000 6,198 1,553,209 Trade and other receivables, excluding advances paid to suppliers 13,549 539,395 196,312 23,783 773,039 Other fi nancial assets 288 – 1,651 41 1,980 114,429 1,050,814 1,132,963 30,022 2,328,228

Financial liabilities Borrowings 20 24,695 1,090,493 – 1,115,208 Other fi nancial liabilities 27,109 141,753 1,131,290 4,640 1,304,792 27,129 166,448 2,221,783 4,640 2,420,000

Net fi nancial assets/(liabilities) 87,300 884,366 (1,088,820) 25,382 (91,772)

Less: Net fi nancial assets/(liabilities) denominated in the respective entities’ functional currencies (87,300) (63,751) 1,088,813 (2,025)

Add: Firm commitments and highly probable forecast transactions in foreign currencies – 2,400,461 – 215,624 Less: Forward currency contracts – (223,944) – – Currency exposure – 2,997,132 (7) 238,981

* Others mainly include Euro, Japanese Yen and Malaysian Ringgit. 141

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

35. Financial risk management (continued)

(a) Market risk (continued)

(i) Currency risk (continued)

The Company’s currency exposure based on the information available to key management is as follows:

2010 2009 SGD USD RMB Total SGD USD RMB Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets Cash and cash equivalents 63,535 53,422 – 116,957 79,867 54,643 1 134,511 Trade and other receivables 237 10 2,655 2,902 244 64,286 – 64,530 63,772 53,432 2,655 119,859 80,111 118,929 1 199,041

Financial liabilities Borrowings ––– – –––– Other fi nancial liabilities 17,620 – – 17,620 16,767 – – 16,767 17,620 – – 17,620 16,767 – – 16,767

Net fi nancial assets 46,152 53,432 2,655 102,239 63,344 118,929 1 182,274

Less: Net fi nancial assets denominated in the entity’s functional currency (46,152) – – (63,344) – – Currency exposure – 53,432 2,655 – 118,929 1

If the USD changes against the SGD and RMB by 500 basis points (2009: 500 basis points) with all other variables including tax rate being held constant, the effects arising from the net fi nancial asset position will be as follows:

2010 2009 Increase/(decrease) Profi t Profi t after tax after tax $’000 $’000

The Group USD against SGD - strengthened 1,412 1,499 - weakened (1,412) (1,499) USD against RMB - strengthened 3,840 4,347 - weakened (3,840) (4,347)

The Company USD against SGD - strengthened 1,728 3,513 - weakened (1,728) (3,513) 142

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

35. Financial risk management (continued)

(a) Market risk (continued)

(ii) Price risk

The Group is not exposed to any signifi cant equity securities price risk.

(iii) Cash fl ow and fair value interest rate risks

Cash fl ow interest rate risk is the risk that the future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a fi nancial instrument will fl uctuate due to changes in market interest rates. The Group has cash balances placed with reputable banks and fi nancial institutions which generate interest income for the Group. The Group manages its interest rate risks by placing such balances on varying maturities and interest rate terms.

The Group’s interest rate risk mainly arises from non-current borrowings. The Group monitors the interest rates on borrowings closely to ensure that the borrowings are maintained at favourable rates and will use derivative fi nancial instruments to hedge their exposures when the exposure is signifi cant.

The Group’s borrowings at variable rates on which effective hedges have not been entered into are denominated mainly in RMB and USD. If the RMB and USD interest rates increase/decrease by 0.5% (2009: 0.5%) with all other variables including tax rate being held constant, the profi t after tax will be lower/higher by $872,000 (2009: $1,998,000) and $1,088,000 (2009: $56,000) respectively as a result of higher/lower interest expense on these borrowings.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligation resulting in fi nancial loss to the Group.

Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large number of customers who are internationally dispersed. Due to these factors, management believes that no additional credit risk beyond the amount of allowance for impairment made is inherent in the Group’s and Company’s trade receivables.

The Group has no signifi cant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history.

A subsidiary in the Group obtained a pledge of 4 vessels (2009: 3 vessels) valued at US$54,950,000 (2009: US$9,000,000) to secure its outstanding trade receivables of US$30,852,000 (2009: US$7,900,000) as at 31 December 2010.

Other than the above-mentioned, the Group and Company do not hold any other collateral. The maximum exposure to credit risk for each class of fi nancial instruments is the carrying amount of that class of fi nancial instruments presented on the balance sheet, except as follows:

The Company 2010 2009 $’000 $’000

Corporate guarantees provided to banks on subsidiaries’ loans 15,939 24,695 Corporate guarantees provided to third parties for services provided to a subsidiary 156 301 16,095 24,996 143

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

35. Financial risk management (continued)

(b) Credit risk (continued)

The Group’s and Company’s major classes of fi nancial assets are bank deposits and trade receivables.

The credit risk for trade receivables (including amount due from customer on construction contracts) based on the information provided to key management is as follows:

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

By business segments Shipping 7,165 8,751 – – Ship repair, ship building and marine engineering activities 1,070,615 691,647 – – Others 14,639 11,744 131 131 1,092,419 712,142 131 131

(i) Financial assets that are neither past due nor impaired

Bank deposits that are neither past due nor impaired are mainly deposits with banks with high credit- ratings assigned by international credit-rating agencies. Trade receivables that are neither past due nor impaired are substantially companies with a good collection track record with the Group.

(ii) Financial assets that are past due and/or impaired

There is no other class of fi nancial assets that is past due and/or impaired except for trade receivables.

The age analysis of trade receivables past due but not impaired is as follows:

The Group 2010 2009 $’000 $’000

Past due 0 to 3 months 3,274 1,137 Past due 3 to 6 months 23 36 Past due over 6 months 610 514 3,907 1,687

144

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

35. Financial risk management (continued)

(b) Credit risk (continued)

(ii) Financial assets that are past due and/or impaired (continued)

The carrying amount of trade receivables individually determined to be impaired and the movement in the related allowance for impairment are as follows:

The Group 2010 2009 $’000 $’000

Gross amount 17,553 51,036 Less: Allowance for impairment (17,553) (51,036) – –

Beginning of fi nancial year 51,036 69,183 Currency translation differences (1,642) (827) Allowance utilised (575) (5,066) Reversal of (31,250) (12,235) Amount written off (16) (19) End of fi nancial year 17,553 51,036

(c) Liquidity risk

The Group adopts prudent liquidity risk management by maintaining suffi cient cash and having an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims at maintaining fl exibility in funding by keeping committed credit facilities available.

The table below analyses the maturity profi le of the Group’s and Company’s fi nancial liabilities (including forward currency contracts) based on contractual undiscounted cash fl ows.

Between Less than 1 and 5 Over 1 year years 5 years $’000 $’000 $’000

The Group At 31 December 2010 Gross-settled forward currency contracts - Receipts –– – - Payments –– – Other fi nancial liabilities (1,593,631) – – Borrowings (572,106) (410,910) (61,716)

At 31 December 2009 Gross-settled forward currency contracts - Receipts 208,844 – – - Payments (223,950) – – Other fi nancial liabilities (1,304,792) – – Borrowings (222,856) (882,167) (171,176) 145

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

35. Financial risk management (continued)

(c) Liquidity risk (continued)

Between Less than 1 and 5 Over 1 year years 5 years $’000 $’000 $’000

The Company At 31 December 2010 Other fi nancial liabilities (17,620) – – Borrowings –– – Financial guarantee contracts (16,095) – –

At 31 December 2009 Other fi nancial liabilities (16,767) – – Borrowings – – – Financial guarantee contracts (24,996) – –

(d) Capital risk

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividend payment, return capital to shareholders, issue new shares, buy back issued shares, obtain new borrowings or sell assets to reduce borrowings.

Management monitors capital based on the return on shareholders’ fund. The return on shareholders’ fund was 21.8% per annum for the current fi nancial year ended 31 December 2010 (2009: 9.9% per annum).

The return on shareholders’ fund is calculated as net profi t attributable to equity holders of the Company divided by average shareholders’ equity.

The Group and the Company are in compliance with all externally imposed capital requirements for the fi nancial years ended 31 December 2010 and 31 December 2009.

(e) Fair value measurements

The following table presents assets and liabilities measured at fair value and classifi ed by level of the following fair value measurement hierarchy:

(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

(b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

(c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

146

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

35. Financial risk management (continued)

(e) Fair value measurements (continued)

Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000

The Group 2010 Assets Available-for-sale fi nancial assets - Quoted equity shares 530 – – 530 - Unquoted equity shares – – 2,904 2,904 Total assets 530 – 2,904 3,434

Liabilities Forward currency contracts – – – –

2009 Assets Forward currency contracts – 944 – 944 Available-for-sale fi nancial assets - Quoted equity shares 958 – – 958 - Unquoted equity shares – – 3,076 3,076 Total assets 958 944 3,076 4,978

Liabilities Forward currency contracts – (14,448) – (14,448)

The fair value of fi nancial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for fi nancial assets held by the Group is the current bid price. These instruments are included in Level 1.

The fair value of fi nancial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. The fair value of forward currency contracts is determined using quoted forward exchange rates at the balance sheet date. These investments are included in Level 2. In infrequent circumstances, where a valuation technique for these instruments is based on signifi cant unobservable inputs, such instruments are included in Level 3.

There is no change in Level 3 instruments in 2010 and 2009. The movement in 2010 was due to currency translation difference.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of fi nancial liabilities for disclosure purposes is estimated based on quoted market prices or dealer quotes for similar instruments by discounting the future contractual cash fl ows at the current market interest rate that is available to the Group for similar fi nancial instruments. The fair value of current borrowings approximates their carrying amount. 147

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

35. Financial risk management (continued)

(f) Financial instruments by category

The carrying amount of different categories of fi nancial instruments is as disclosed on the face of the balance sheets and in Note 18 to the fi nancial statements, except for the following:

The Group The Company 2010 2009 2010 2009 $’000 $’000 $’000 $’000

Loans and receivables 2,034,178 2,322,214 119,859 199,041 Financial liabilities at amortised cost 2,583,189 2,420,000 17,620 16,767

36. Immediate and ultimate holding corporation

The Company’s immediate and ultimate holding corporation is China Ocean Shipping (Group) Company, registered in the People’s Republic of China.

37. Related party transactions

(a) The Company is controlled by China Ocean Shipping (Group) Company (“COSCO”), the parent company and a state-owned enterprise established in the People’s Republic of China (“PRC”).

The Group has adopted the amendment to FRS 24, "Related party disclosures" in 2009. The amendment introduces an exemption from all of the disclosure requirements of FRS 24 for transactions among government-related entities and the government. Those disclosures are replaced with a requirement to disclose the name of the government and the nature of their relationship, the nature and amount of any individually- signifi cant transactions, and the extent of any collectively-signifi cant transactions qualitatively or quantitatively. It also clarifi es and simplifi es the defi nition of a related party.

COSCO itself is controlled by the PRC government, which also owns a signifi cant portion of the productive assets in the PRC. In accordance with amendment to FRS 24, other government-related entities and their subsidiaries (other than COSCO group companies), directly or indirectly controlled, jointly controlled or signifi cantly infl uenced by the PRC government are also defi ned as related party corporation of the Group. On that basis, related party corporation include COSCO and its subsidiaries, other government-related entities and their subsidiaries directly or indirectly controlled, jointly controlled or signifi cantly infl uenced by the PRC government, other entities and corporations in which the Company is able to control or exercise signifi cant infl uence and key management personnel of the Company and COSCO as well as their close family members.

The related parties refer to directors of the Company and a director of a subsidiary.

The transactions of revenues and expenses in nature conducted with government-related entities were based on arm’s length transactions.

In addition to the related party information and transactions disclosed elsewhere in the consolidated fi nancial statements, the following is a summary of signifi cant related party transactions entered into the ordinary course of business between the Group and its related parties during the fi nancial year. 148

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

37. Related party transactions (continued)

(a) (continued)

The Group 2010 2009 $’000 $’000

Revenue Sales to fellow subsidiaries 85,759 237,452 Sales to associated companies 142 – Sales to related party corporations 97 214 Rental income received/receivable from fellow subsidiaries 879 1,409 Rental income received/receivable from associated companies 177 – Rental income received/receivable from related party corporations 306 200 Sub-contractor expenses received/receivable from fellow subsidiaries – 73 Time charter revenue received/receivable from a fellow Subsidiary – 19,276 Compensation received/receivable from a fellow subsidiary 3,090 – Service income received from ultimate holding corporation 85 – Service income received from fellow subsidiaries 3,789 1,144 Interest received/receivable from a fellow subsidiary 10,711 17,417

Expenditure Purchases from fellow subsidiaries 37,137 27,094 Purchases from associated companies 294 – Purchases from related party corporations 44 47 Purchases of plant and equipment from fellow subsidiaries – 17,990 Purchases of plant and equipment from an associated company 1,115 – Rental paid/payable to fellow subsidiaries 48 235 Rental paid/payable to a related party corporation 6,936 – Vessel rental paid/payable to a fellow subsidiary 6,404 7,435 Management fee paid/payable to a related party corporation 315 320 Crew wages paid/payable to fellow subsidiaries 7,603 7,347 Sub-contractor costs paid/payable to fellow subsidiaries 25,551 14,330 Sub-contractor costs paid/payable to associated companies 6,141 – Sub-contractor costs paid/payable to a related party corporation 1,128 – Utilities expenses paid/payable to a fellow subsidiary – 719 Utilities expenses paid/payable to a related party corporation 2,444 – Service expenses paid/payable to fellow subsidiaries 2,797 1,988 Service expenses paid/payable to related party corporations 75 – Commission paid/payable to a fellow subsidiary 33 511

Outstanding balances as at 31 December 2010, arising from sales or purchases of goods and services, are set out in Notes 13 and 26 respectively. 149

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

37. Related party transactions (continued)

(b) Share options granted to key management

There were no share options granted to key management of the Group during 2010 and 2009. The share options were given on the same terms and conditions as those offered to other employees of the Company (Note 31). The outstanding number of share options granted to key management of the Group at the end of the fi nancial year was 10,300,000 (2009: 13,100,000).

(c) Key management personnel compensation

Key management personnel compensation is as follows:

The Group 2010 2009 $’000 $’000

Salaries and other short-term employee benefi ts 3,804 4,912 Employer’s contribution to defi ned contribution plans including Central Provident Fund 8 8 Share option expenses – 938 3,812 5,858

Included in the above was total compensation to directors of the Company amounting to $3,506,000 (2009: $5,563,000).

38. Segment information

Management has determined the operating segments based on the reports reviewed by the key management that are used to make strategic decisions.

The key management considers the business from the business segment perspective. The segment in the People’s Republic of China derives revenue from ship repair, ship building and marine engineering activities. On the other hand, the segments in Singapore and Malaysia derive revenue from shipping, shipping agency, ship repair and marine engineering activities.

Other services included within Singapore and Malaysia include shipping agency activities and rental of property; but these are not included within the reportable operating segments, as they are not included in the reports provided to the key management. The results of these operations are included in the “all other segments” column. 150

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

38. Segment information (continued)

The segment information provided to the key management for the reportable segments is as follows:

Ship repair, ship building and marine Total for engineering All other continuing Shipping activities segments operations $’000 $’000 $’000 $’000

Financial year ended 31 December 2010

The Group Sales - External sales 128,605 3,719,483 13,357 3,861,445 - Inter-segment sales – 336 64,894 65,230 128,605 3,719,819 78,251 3,926,675 Elimination (65,230) 3,861,445

Segment results 83,417 369,886 (9,299) 444,004 Finance expense (42,131) Share of loss of associated companies (27) Profi t before income tax 401,846 Income tax expense (43,240) Net profi t 358,606

Other segment items Capital expenditure - property, plant and equipment 1,624 174,185 296 176,105 Depreciation and amortisation 14,280 153,245 901 168,426 Write-off for inventory obsolescence and inventory write-down – 572 – 572 Net reversal of impairment of trade and other receivables – (31,241) – (31,241) Expected losses recognised on construction contracts – 64,822 – 64,822

Segment assets 190,998 4,976,390 60,356 5,227,744 Associated companies 3,569 Short-term bank deposits 605,892 Financial assets, available-for-sale 3,434 Deferred income tax assets 212,703 Consolidated total assets 6,053,342

Segment liabilities 23,527 3,132,749 33,306 3,189,582 Borrowings 992,213 Current income tax liabilities 72,766 Deferred income tax liabilities 4,304 Consolidated total liabilities 4,258,865

Consolidated net assets 1,794,477 151

Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

38. Segment information (continued)

The segment information provided to the key management for the reportable segments is as follows: (continued)

Ship repair, ship building and marine Total for engineering All other continuing Shipping activities segments operations $’000 $’000 $’000 $’000

Financial year ended 31 December 2009

The Group Sales - External sales 132,894 2,751,043 15,067 2,899,004 - Inter-segment sales – 541 94,609 95,150 132,894 2,751,584 109,676 2,994,154 Elimination (95,150) 2,899,004

Segment results 60,283 170,448 (10,489) 220,242 Finance expense (41,904) Share of profi t of associated companies 214 Profi t before income tax 178,552 Income tax expense (40,758) Net profi t 137,794

Other segment items Capital expenditure - property, plant and equipment 2,679 467,129 116 469,924 Depreciation and amortisation 29,846 122,652 918 153,416 Write-off for inventory obsolescence and inventory write-down – 4,236 – 4,236 Net reversal of impairment of trade and other receivables – (11,375) – (11,375) Expected losses recognised on construction contracts – 578 – 578 Employees share option expenses – – 3,240 3,240

Segment assets 187,456 4,938,525 46,501 5,172,482 Associated companies 1,922 Short-term bank deposits 1,085,365 Financial assets, available-for-sale 4,034 Deferred income tax assets 158,523 Consolidated total assets 6,422,326

Segment liabilities 33,237 3,538,500 38,153 3,609,890 Borrowings 1,115,208 Current income tax liabilities 84,136 Deferred income tax liabilities 2,400 Consolidated total liabilities 4,811,634

Consolidated net assets 1,610,692

152

COSCO Corporation (Singapore) Limited

NOTES TO THE FINANCIAL STATEMENTS For the Financial Year Ended 31 December 2010

38. Segment information (continued)

Geographical information

The Group’s business segments operate in three main geographical areas:

z People’s Republic of China - the operations in this area are principally in ship repair, ship building and marine engineering activities; z Singapore - the operations in this area are principally in shipping, shipping agency, ship repair and marine related activities, rental of property; and z Malaysia - the operations in this area are principally in shipping agency activities.

Sales are based on the country in which the services are rendered to the customer. Non-current assets are shown by the geographical area where the assets are located.

Sales for continuing operations Non-current assets 2010 2009 2010 2009 $’000 $’000 $’000 $’000

People’s Republic of China 3,711,802 2,739,236 2,330,568 2,334,473 Singapore * 147,433 158,041 173,903 201,860 Malaysia 2,210 1,727 89 108 3,861,445 2,899,004 2,504,560 2,536,441

* The Group’s shipping companies operate in worldwide shipping routes. Hence, it would not be meaningful to allocate sales to any geographical segments for shipping activities.

No single external customer has sales which exceed 10% of the Group’s total sales for the fi nancial years ended 31 December 2010 and 31 December 2009.

39. New or revised accounting standards and interpretations

Certain new accounting standards, amendments and interpretations to existing standards have been published that are mandatory for accounting periods beginning on or after 1 January 2011. The management does not expect that adoption of these accounting standards or interpretations will have a material impact on the fi nancial statements of the Group and of the Company.

40. Authorisation of fi nancial statements

These fi nancial statements were authorised for issue in accordance with a resolution of the Board of Directors of Cosco Corporation (Singapore) Limited on 3 March 2011. 153

Annual Report 2010

FIVE-YEAR SUMMARY

Notes 2006 2007 2008 2009 2010 $’000 $’000 $’000 $’000 $’000

INCOME STATEMENT Turnover 1,215,469 2,261,700 3,476,009 2,899,004 3,861,445 Operating profi t before taxation 301,696 497,536 450,745 178,338 401,873 Share of (loss)/profi t of associated companies 1 600 537 643 214 (27) Profi t before income tax 302,296 498,073 451,388 178,552 401,846 Income tax expense (22,981) (19,512) (31,620) (40,758) (43,240) Net profi t 279,315 478,561 419,768 137,794 358,606 Attributable to: Equity holders of the company 205,353 336,568 302,588 110,080 248,837 Non-controlling interests 73,962 141,993 117,180 27,714 109,769 Net profi t 279,315 478,561 419,768 137,794 358,606 Dividend 2 89,348 156,738 156,747 67,177 89,570

BALANCE SHEET Share capital 239,947 266,852 270,608 270,608 270,608 Statutory and other reserves 70,855 82,806 167,904 174,030 103,950 Retained earnings 359,256 590,249 705,692 639,404 824,059 Non-controlling interests 249,889 362,847 464,963 526,650 595,860 Total equity 919,947 1,302,754 1,609,167 1,610,692 1,794,477 Forward Currency Contracts 45 8,778 1,441 – – Trade and other receivables – – – – 49,089 Financial assets, available-for-sale 2,208 3,067 3,630 4,034 3,434 Club memberships 412 479 473 492 557 Investments in associated companies 2,227 1,794 2,577 1,922 3,569 Investment properties 11,350 11,472 12,217 11,786 14,619 Property, plant and equipment 1,110,179 1,478,453 2,081,950 2,349,098 2,207,952 Intangible assets 9,319 9,302 9,546 9,525 9,468 Deferred income tax assets – 21,996 91,417 158,523 212,703 Deferred expenditure – – – 1,061 3,169 Current assets 747,926 2,431,829 4,596,023 3,885,885 3,548,782 Current liabilities (676,153) (2,557,025) (4,572,188) (3,870,288) (3,817,496) Non-current liabilities (287,566) (107,391) (617,919) (941,346) (441,369) Net Assets 919,947 1,302,754 1,609,167 1,610,692 1,794,477

RATIOS Basic earnings per share (cents) 3 and 4 9.3 15.1 13.5 4.9 11.1 Dividend per share (cents) 4.0 7.0 7.0 3.0 4.0 Dividend cover (times) 5 2.3 2.1 1.9 1.6 2.8 Net tangible assets per share (cents) 4 29.8 41.6 50.7 48.0 53.1 Gearing ratio (Net of Cash) 6 0.2 cash cash cash 0.1

Notes 1. The share of profi t of associated companies is net of tax. 2. The dividend for 2010 is calculated based on the number of shares issued as of 31 December 2010. The actual amount payable will be based on the number of shares issue at book closure date. 3. Basic earnings per share is calculated as net profi t attributable to equity holders of the company divided by the weighted average number of ordinary shares issued in the fi nancial year. 4. Basic earnings per share and net tangible assets per share have been adjusted to account for the sub-division of one ordinary share into two ordinary shares in 2006. 5. The dividend cover is calculated as net profi t attributable to equity holders of the Company divided by the amount of equity dividend. 6. Gearing ratio is derived by taking total borrowings (net of cash) over the shareholders’ funds. 154

COSCO Corporation (Singapore) Limited

SHAREHOLDING STATISTICS As at 4 March 2011

STATISTICS OF SHAREHOLDERS AS AT 4 MARCH 2011

Class of Shares - Ordinary shares Voting Rights - One Vote per share

DISTRIBUTION OF SHAREHOLDERS BY SIZE OF SHAREHOLDINGS

No. of Size Of Shareholdings Shareholders % of Holders No. of Shares % of Shares

1 - 999 104 0.33 38,547 0.00 1,000 - 10,000 24,072 76.83 110,110,426 4.92 10,001 - 1,000,000 7,110 22.70 287,601,945 12.84 1,000,001 and above 44 0.14 1,841,494,036 82.24 Total 31,330 100.00 2,239,244,954 100.00

SUBSTANTIAL SHAREHOLDERS

Direct Interest Deemed Interests No. of shares No. of shares No. Name held % held %

1. China Ocean Shipping (Group) Company 1,194,565,488 53.35 – – 2. Temasek Holdings (Private) Limited – – 118,378,713(1) 5.29

Note:

(1) Temasek Holdings (Private) Limited is deemed to have an interest in 118,378,713 ordinary shares in which its associated companies have or are deemed to have an interest.

COMPLIANCE WITH RULE 723 OF THE SGX-ST LISTING MANUAL

Based on information available and to the best knowledge of the Company as at 4 March 2011 approximately 41.05% of the ordinary shares of the Company are held by the public. The Company is therefore in compliance with Rule 723 of the SGX- ST Listing Manual. 155

Annual Report 2010

SHAREHOLDING STATISTICS As at 4 March 2011

LIST OF 20 LARGEST SHAREHOLDERS

SHAREHOLDER’S NAME NO OF SHARES %

1 CHINA OCEAN SHIPPING (GROUP) COMPANY 1,194,565,488 53.35 2 CITIBANK NOMINEES SINGAPORE PTE LTD 92,387,618 4.13 3 HSBC (SINGAPORE) NOMINEES PTE LTD 80,175,270 3.58 4 SEMBCORP MARINE LTD 70,000,000 3.13 5 DBS NOMINEES PTE LTD 66,844,048 2.99 6 RAFFLES NOMINEES (PTE) LTD 57,172,596 2.55 7 UNITED OVERSEAS BANK NOMINEES PTE LTD 45,727,842 2.04 8 DBSN SERVICES PTE LTD 40,454,457 1.81 9 SCM INVESTMENT HOLDINGS PTE LTD 21,000,000 0.94 10 SEMBMARINE INVESTMENT PTE LTD 20,400,000 0.91 11 UOB KAY HIAN PTE LTD 17,816,670 0.80 12 OCBC SECURITIES PRIVATE LTD 12,834,530 0.57 13 PHILLIP SECURITIES PTE LTD 12,002,900 0.54 14 DBS VICKERS SECURITIES (SINGAPORE) PTE LTD 9,559,738 0.43 15 HUI SHUNE MING @ HUI SHUN MENG 8,000,000 0.36 16 OCBC NOMINEES SINGAPORE PTE LTD 6,485,369 0.29 17 ROYAL BANK OF CANADA (ASIA) LTD 6,327,250 0.28 18 DB NOMINEES (SINGAPORE) PTE LTD 5,753,024 0.26 19 BANK OF SINGAPORE NOMINEES PTE LTD 5,457,754 0.24 20 MERRILL LYNCH (SINGAPORE) PTE LTD 5,161,827 0.23 Total 1,778,126,381 79.43 156

COSCO Corporation (Singapore) Limited

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of the Company will be held at Suntec Singapore International Convention & Exhibition Centre, 1 Raffl es Boulevard Suntec City, Singapore 039593, Meeting Room 325-326, Level 3 on Wednesday, 20 April 2011 at 3:00 p.m. for the purpose of transacting the following businesses:

Ordinary Business:

1. To receive and adopt the Directors’ Report and Audited Financial Statements for the fi nancial year (Resolution 1) ended 31 December 2010 together with the Auditors’ Report thereon.

2. To approve a First and Final tax-exempt (one-tier) Dividend of S$0.04 per ordinary share for the (Resolution 2) year ended 31 December 2010.

3. To approve payment of Directors’ Fees of S$285,000 for the year ended 31 December 2010. (last (Resolution 3) year: S$265,000)

4. To re-elect the following directors, on recommendation of the Nominating Committee and endorsement of the Board of Directors, who are retiring in accordance with Article 98 of the Articles of Association of the Company and who, being eligible, offer themselves for re-election:

a. Mr Wang Xing Ru; (Resolution 4)

b. Dr Wang Kai Yuen (See Explanatory Note 1) (Resolution 5)

5. To re-elect the following directors, on recommendation of the Nominating Committee and endorsement of the Board of Directors, who are retiring in accordance with Article 104 of the Articles of Association of the Company and who, being eligible, offer themselves for re-election:

a. Mr Liu Guo Yuan (Resolution 6)

b. Mr Ma Zhi Hong (Resolution 7)

c. Mr Wang Hai Min (Resolution 8)

6. To re-appoint, on recommendation of the Nominating Committee and endorsement of the Board of (Resolution 9) Directors, Mr Tom Yee Lat Shing, a Director who will retire under Section 153(6) of the Companies Act, Cap 50, to hold offi ce from the date of this Annual General Meeting until the next Annual General Meeting of the Company. (See Explanatory Note 2)

7. To re-appoint Messrs. PricewaterhouseCoopers LLP as Auditors and to authorise the Directors to (Resolution 10) fi x their remuneration.

Special Business

To consider and, if thought fi t, to pass the following as Ordinary Resolutions, with or without modifi cations:

8. General Mandate to authorize the Directors to issue shares or convertible securities: (Resolution 11)

“That pursuant to Section 161 of the Companies Act (Cap 50) and the Listing Rules of the Singapore Exchange Securities Trading Limited (the “Listing Rules”), authority be and is hereby given to the Directors to allot and issue:-

(a) shares in the capital of the Company (whether by way of bonus, rights or otherwise); or

(b) convertible securities; or

(c) additional securities issued pursuant to Rule 829 of the Listing Rules; or

(d) shares arising from the conversion of convertible securities in (b) and (c) above, 157

Annual Report 2010

NOTICE OF ANNUAL GENERAL MEETING

at any time and upon such terms and conditions and for such purposes as the Directors may in their absolute discretion deem fi t provided that :-

(i) the aggregate number of shares and convertible securities that may be issued shall not be more than 50% of the issued shares in the capital of the Company (calculated in accordance with (ii) below), of which the aggregate number of shares and convertible securities issued other than on a pro rata basis to existing shareholders must be not more than 20% of the issued shares in the capital of the Company (calculated in accordance with (ii) below); and

(ii) for the purpose of determining the aggregate number of shares and convertible securities that may be issued pursuant to (i) above, the percentage of issued share capital shall be calculated based on the issued shares in the capital of the Company at the time of the passing of this resolution after adjusting for (a) new shares arising from the conversion or exercise of any convertible securities; (b) new shares arising from exercising share options or vesting of share awards outstanding or subsisting at the time of the passing of this resolution and (c) any subsequent consolidation or subdivision of shares; and

(iii) unless revoked or varied by ordinary resolution of the shareholders of the Company in general meeting, this resolution shall remain in force until the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier”. (See Explanatory Note 3)

9. Authority to allot and issue shares under the Cosco Group Employees’ Share Option Scheme 2002 (Resolution 12) (“Scheme”)

“That approval be and is hereby given to the Directors to offer and grant options (“Options”) in accordance with the provisions of the Cosco Group Employees’ Share Option Scheme 2002 (“Scheme”) and to allot and issue from time to time such number of shares in the capital of the Company as may be required to be issued pursuant to the exercise of Options granted under the Scheme, provided that the total number of Shares to be offered under the Scheme shall not in total exceed fi fteen (15) per cent of the issued share capital of the Company on the day preceding any Offer Date at any time and from time to time during the existence of the Scheme.” (See Explanatory Note 4)

10. Proposed Renewal of Shareholders’ Mandate for Recurrent Interested Person Transactions (Resolution 13)

(i) “That approval be and is hereby given for the renewal of the mandate for the purposes of Chapter 9 of the Listing Manual of the SGX-ST, for the Company, its subsidiaries and associated companies or any of them to enter into any of the transactions falling within the types of Interested Person Transactions, particulars of which are set out in the Appendix A (“Appendix”) to the Annual Report of the Company for the fi nancial year ended 31 December 2010 with any party who is of the class of Interested Persons described in the Appendix provided that such transactions are made on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders and in accordance with the review procedures set out in the Appendix;

(ii) That the Audit Committee of the Company be and is hereby authorized to take such actions as it deems proper in respect of such procedures and/or to modify or implement such procedures as may be necessary to take into consideration any amendment to Chapter 9 of the Listing Manual of the SGX-ST which may be prescribed by the SGX-ST from time to time;

(iii) That the Directors of the Company be and are hereby authorized to complete and do all such acts and things (including all such documents as may be required) as they may consider expedient or necessary or in the interests of the Company to give effect to this Resolution; and

(iv) That the authority conferred by this Resolution shall, unless revoked or varied by the Company in general meeting, continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier.” (See Explanatory Note 5) 158

COSCO Corporation (Singapore) Limited

NOTICE OF ANNUAL GENERAL MEETING

BY ORDER OF THE BOARD

Lawrence Kwan Company Secretary

Singapore, 23 March 2011

Explanatory Notes on Business to be transacted

1. Dr Wang Kai Yuen will, upon election as a Director, remain as the Chairman of the Nominating Committee and a member of the Audit Committee, Remuneration Committee, Enterprise Risk Management Committee and Strategic Development Committee; and will be considered independent for the purpose of Rule 704(8) of the Listing Manual of the SGX-ST.

2. Mr. Tom Yee Lat Shing will, upon re-appointment, remain as the Chairman of the Audit Committee and a member of the Nominating Committee, Remuneration Committee, Enterprise Risk Management Committee and Strategic Development Committee; and will be considered independent for the purposes of Rule 704(8) of the Listing Manual of the SGX-ST.

3. Ordinary Resolution 11 is to empower the Directors of the Company from the date of the above Meeting until the next Annual General Meeting to issue shares and/or convertible securities in the capital of the Company up to an amount not exceeding in aggregate 50% of the issued shares in the capital of the Company of which the total number of shares and convertible securities issued other than on a pro-rata basis to existing shareholders shall not exceed 20% of the issued shares in the capital of the Company at the time the resolution is passed, for such purposes as they consider would be in the interests of the Company. This authority will, unless revoked or varied at a general meeting, expire at the next Annual General Meeting of the Company.

4. Ordinary Resolution 12 is to empower the Directors of the Company, from the date of this Meeting until the next Annual General Meeting, to allot and issue shares in the capital of the Company pursuant to the exercise of such options under the Scheme. The total number of Shares to be offered under the Scheme shall not exceed fi fteen (15) per cent of the issued share capital of the Company on the day preceding any Offer Date at any time and from time to time during the existence of the Scheme.

5. Ordinary Resolution 13 is to renew the General Mandate to allow the Company, its subsidiaries and associated companies or any of them to enter into certain Recurrent Interested Person Transactions with person who are considered “Interested Persons” (as defi ned in Chapter 9 of the Listing Manual of the SGX-ST).

The Company’s Audit Committee has confi rmed that the methods and procedures for determining the transaction process have not changed since the last renewal of the Shareholders’ Mandate on 20 April 2010 in respect of transactions described in Section 2.1 of Schedule II of the Appendix; and since the approval of the additional Shareholders’ Mandate on 17 July 2007 in respect of transactions described in Section 2.2 of Schedule II of the Appendix; and that the said methods and procedures are suffi cient to ensure that the Recurrent Interested Person Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders.

Notes

i. A member of the Company entitled to attend and vote at a meeting is entitled to appoint one or two proxies to attend and vote in his stead. A proxy need not be a member of the Company.

ii. Where a member appoints two proxies, the appointments shall be invalid unless he specifi es the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy.

iii. The instrument appointing a proxy or proxies must be deposited at the registered offi ce of the Company at 9 Temasek Boulevard, #07-00 Suntec Tower Two, Singapore 038989 not later than 48 hours before the time fi xed for holding the Annual General Meeting.

iv. This instrument appointing a proxy or proxies must be under the hand of the appointer or his attorney duly authorized in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its common seal or under the hand of any attorney duly authorized.

v. A corporation which is a member may also authorize by resolution of its directors or other governing body, such person as it thinks fi t to act as its representative at the meeting in accordance with Section 179 of the Companies Act, Cap. 50. 159

Annual Report 2010

NOTICE OF ANNUAL GENERAL MEETING

NOTICE OF BOOKS CLOSURE

NOTICE IS HEREBY GIVEN that, subject to the approval of shareholders to the First and Final Dividend being obtained at the Annual General Meeting to be held on 20 April 2011, the Transfer Books and the Register of Members of the Company will be closed on 5 May 2011 for the preparation of dividend warrants for shareholders of ordinary shares registered in the books of the Company.

Duly completed registrable transfers of ordinary shares in the capital of the Company (“Shares”) received by the Company’s Share Registrar, Tricor Barbinder Share Registration Services, 8 Cross Street, #11-00, PWC Building, Singapore 048424 up to 5.00 p.m. on 4 May 2011 will be entitled to the proposed First and Final Dividend.

Members whose Securities Accounts with The Central Depository (Pte) Limited are credited with Shares at 5.00 p.m. on 4 May 2011 will be entitled to the proposed First and Final Dividend. Payment of the dividends, if approved by members at the Annual General Meeting, will be made on 19 May 2011.

BY ORDER OF THE BOARD

Lawrence Kwan Company Secretary

Singapore, 23 March 2011 This page has been intentionally left blank COSCO CORPORATION (SINGAPORE) LIMITED Important: (Incorporated in the Republic of Singapore) 1. For investors who have used their CPF monies to buy the Company’s shares, this Annual Report is sent to them at (Company Registration No.: 196100159G) the request of their CPF Approved Nominees solely FOR INFORMATION ONLY. 2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for all intents and purposes if used or ANNUAL GENERAL MEETING purported to be used by them. 3. CPF investors who wish to vote should contact their CPF PROXY FORM Approved Nominees.

I/We NRIC/Passport No.

of being a member of Cosco Corporation (Singapore) Limited (the “Company”), hereby appoint

NRIC/Passport Proportion of Name Address Number Shareholdings (%)

And/or (delete as appropriate) NRIC/Passport Proportion of Name Address Number Shareholdings (%)

as my/our proxy/proxies to attend and to vote for me/us on my/our behalf and, if necessary, to demand a poll, at the Annual General Meeting of the Company to be held at Suntec Singapore International Convention & Exhibition Centre, 1 Raffl es Boulevard Suntec City, Singapore 039593, Meeting Room 325-326, Level 3 on Wednesday, 20 April 2011 at 3:00 p.m. and at any adjournment thereof.

I/We have indicated with an “X” in the appropriate box against the item how I/we wish my/our proxy/proxies to vote. If no specifi c direction as to voting is given or in the event of any item arising not summarised below, my/our proxy/proxies may vote or abstain at the discretion of my/our proxy/proxies.

No. Resolutions For Against ORDINARY BUSINESS 1. To receive and adopt the Directors’ Report and Audited Financial Statements for the year ended 31 December 2010 together with the Auditors’ Report thereon. 2. To declare a First and Final tax exempt (one-tier) Dividend of S$0.04 per ordinary share for the year ended 31 December 2010. 3. To approve payment of Directors’ Fees. 4. To re-elect Mr Wang Xing Ru, who is retiring under Article 98 of the Articles of Association of the Company. 5. To re-elect Dr Wang Kai Yuen, who is retiring under Article 98 of the Articles of Association of the Company. 6. To re-elect Mr Liu Guo Yuan, who is retiring under Article 104 of the Articles of Association of the Company. 7. To re-elect Mr Ma Zhi Hong, who is retiring under Article 104 of the Articles of Association of the Company. 8. To re-elect Mr Wang Hai Min, who is retiring under Article 104 of the Articles of Association of the Company. 9. To re-appoint Mr Tom Yee Lat Shing, who is retiring pursuant to Section 153(6) of the Companies Act, Cap 50. 10. To re-appoint Messrs PricewaterhouseCoopers LLP as Auditors of the Company and to authorise the Directors to fi x their remuneration. SPECIAL BUSINESS 11. To authorise Directors to issue shares pursuant to Section 161 of the Companies Act, Cap 50. 12. To authorise Directors to issue shares pursuant to the Cosco Group Employees’ Share Option Scheme 2002. 13. To approve the renewal of Shareholders’ Mandate for Recurrent Interested Person Transactions.

Dated this day of 2011

Total No. of Shares in No. of Shares CDP Register Register of Members

 Signature of Member(s) or Common Seal

IMPORTANT: Please Read Notes for This Proxy Form. NOTES: 1. Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defi ned in section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your name in the Register of Members, you should insert that number of Shares. If you have Shares entered against your name in the Depository Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the Shares held by you. 2. A Shareholder of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote on his behalf. Such proxy need not be a Member of the Company. 3. Where a Shareholder appoints two proxies, the appointments shall be invalid unless he specifi es the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy. 4. The instrument appointing a proxy or proxies must be deposited at the registered offi ce of the Company at 9 Temasek Boulevard, #07-00 Suntec Tower Two, Singapore 038989 not less than 48 hours before the time set for holding the annual general meeting. The sending of a Proxy Form by a Shareholder does not preclude him from attending and voting in person at the annual general meeting if he fi nds that he is able to do so. In such event, the relevant Proxy Forms will be deemed to be revoked. 5. The instrument appointing a proxy or proxies must be under the hand of the appointer or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of a director or an offi cer or attorney duly authorised. 6. Where an instrument appointing a proxy or proxies is signed on behalf of the appointer by an attorney, the power of attorney (or other authority) or a duly certifi ed copy thereof must (failing previous registration with the Company) be lodged with the instrument of proxy, failing which the instrument may be treated as invalid. 7. A corporation which is a Shareholder may authorise by resolution of its directors or other governing body such person as it thinks fi t to act as its representative at the annual general meeting, in accordance with section 179 of the Companies Act, Chapter 50 of Singapore. 8. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointer are not ascertainable from the instructions of the appointer specifi ed in the instrument appointing a proxy or proxies. In addition, in the case of a Shareholder whose Shares are entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the Shareholder, being the appointer, is not shown to have Shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the annual general meeting, as certifi ed by The Central Depository (Pte) Limited to the Company.

First fold

Please affi x postage stamp

COSCO CORPORATION (SINGAPORE) LIMITED 9 Temasek Boulevard, #07-00 Suntec Tower Two, Singapore 038989

Second fold

Third fold Apply glue here 9 Temasek Boulevard #07-00 Suntec Tower Two Singapore 038989 Telephone: 6885 0888 Fascimile: 6336 9006

www.cosco.com.sg