THE SHAPE OF THINGS TO COME - cimc raffles
THE SHAPE OF THINGS TO COME - cimc raffles
THE SHAPE OF THINGS TO COME - cimc raffles
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<strong>THE</strong> <strong>SHAPE</strong><br />
<strong>OF</strong> <strong>THINGS</strong><br />
<strong>TO</strong> <strong>COME</strong><br />
YANTAI RAFFLES SHIPYARD LIMITED<br />
ANNUAL REPORT 2008
CORPORATE PR<strong>OF</strong>ILE<br />
Yantai Raffles Shipyard Limited is the largest builder of semisubmersible<br />
drilling rigs in China, with strong expertise and<br />
know-how in the construction of various offshore and marine<br />
projects which include jack-up drilling rigs, semi-submersible<br />
drilling rigs, floating production storage and offloading vessels,<br />
heavy lift vessels, pipe lay vessels and other prototype vessels.<br />
Leveraging on the innovation and scalability of our yard, Yantai<br />
Raffles is supported by a highly-skilled engineering force, cuttingedge<br />
facilities and superior technology.<br />
OUR VISION<br />
To be the Yard of Choice.<br />
OUR MISSION<br />
To be a leading offshore fabrication specialist, dedicated<br />
to bring value to our customers through delivery of total,<br />
integrated quality solutions and support, superior returns to our<br />
shareholders and create a rewarding work environment for<br />
our employees.<br />
Located in Yantai, Shandong Province of China, our yard, which<br />
spans nearly 100,000 square metres, is equipped with some of the<br />
largest state-of-the-art offshore marine construction infrastructure<br />
in the world. Our award-winning 20,000 metric tonne gantry<br />
crane, ‘Taisun’, has set a heavy lift world record with its lifting<br />
capacity; and it is set to revolutionalise the way semi-submersible<br />
rigs and other large offshore marine facilities are built.<br />
CONTENTS<br />
Our Core Values<br />
The Shape of Things to Come<br />
Chairman’s Message<br />
CEO Review<br />
Corporate Highlights in 2008<br />
Construction Process of a Semi-Submersible Drilling Rig<br />
Our Order Book<br />
Financial Highlights<br />
Financial Review<br />
Board of Directors<br />
Corporate Information<br />
Corporate Structure<br />
Financial Contents<br />
1<br />
2<br />
4<br />
8<br />
10<br />
12<br />
14<br />
15<br />
16<br />
18<br />
22<br />
23<br />
24
OUR CORE VALUES<br />
INNOVATION<br />
We thrive on creativity and ingenuity. We seek innovations and<br />
ideas from our employees and are not afraid to empower our<br />
employees and take measured risks for such innovations. We<br />
anticipate market trends and move quickly to meet change.<br />
TEAMWORK<br />
We believe that teamwork is important in all societies. We treat<br />
one another with respect and communicate openly and value<br />
the culture of mentorship. We appreciate the value of multiple<br />
perspectives and diverse expertise.<br />
EXCELLENT PERFORMANCE<br />
We are committed to perfect tasks given to us. We aspire to<br />
flawless execution and maintain good product quality. We seek<br />
the best talent and promote their development.<br />
CUS<strong>TO</strong>MER FOCUS<br />
We respect our customers above all else and never forget that<br />
they come to us by choice. We can achieve nothing without<br />
our customers. We share a personal responsibility to maintain<br />
our customers’ loyalty and trust. We listen and respond to our<br />
customers and seek to exceed their expectations.<br />
ANNUAL REPORT 2008 1
<strong>THE</strong> <strong>SHAPE</strong> <strong>OF</strong> <strong>THINGS</strong> <strong>TO</strong> <strong>COME</strong><br />
2 YANTAI RAFFLES SHIPYARD LIMITED
The coming together of two world-class companies – one<br />
excelling in the construction of large offshore and marine<br />
projects with world class business facilities and cutting-edge<br />
construction methodologies; the other, the world’s leading<br />
manufacturer of transportation equipment – yields much synergy.<br />
The alliance, established in November 2008, when Shenzhenlisted<br />
China International Marine Containers (Group) Co., Ltd<br />
(“CIMC”) invested an initial 10% stake in our Group, led to<br />
the President of CIMC, Mr Mai Bo Liang, being appointed as<br />
Chairman and Director of Yantai Raffles Board.<br />
As one of the world’s leading shipyards with strong expertise in<br />
the construction of various offshore and marine projects, Yantai<br />
Raffles is now focused on securing increased production capacity<br />
and strengthening its engineering and manufacturing capabilities<br />
to be the best of its class. We look forward to a scalable, more<br />
efficient Yantai Raffles – which in effect, is the shape of things<br />
to come.<br />
ANNUAL REPORT 2008 3
CHAIRMAN’S MESSAGE<br />
Dear Shareholders<br />
I am delighted to be appointed as Chairman<br />
of Yantai Raffles Shipyard Limited<br />
(“Yantai Raffles” or the “Company”),<br />
and honoured to have this opportunity to<br />
participate in the future development of<br />
Yantai Raffles.<br />
The current global financial and broader<br />
economic climate has made significant<br />
impact and created new challenges<br />
for many industries around the world,<br />
including the offshore marine sector.<br />
Driven by our determination to be a world<br />
class leading shipyard, I firmly believe<br />
that Yantai Raffles has the ability and<br />
confidence not only to overcome these<br />
economic challenges, but also to create<br />
opportunities amidst the crisis.<br />
SEEING OPPORTUNITIES IN CRISIS<br />
Notwithstanding the global economic<br />
downturn and its recessionary impact<br />
on many countries, China, as a major<br />
representative of new emerging<br />
economies, has since 4Q2008, announced<br />
aggressive economic policies and measures<br />
to ease the domestic impact of the global<br />
downturn. The Chinese government has<br />
set an 8 percent Gross Domestic Product<br />
growth target for 2009 and, issued a<br />
series of economic stimulus measures to<br />
support the achievement of this growth<br />
target. These include a 4-trillion-yuan<br />
(US$600 billion) stimulus package and<br />
development plans for 10 key industries<br />
that include ours, namely the energy and<br />
shipbuilding industry. In view of this, I<br />
believe that China will play an increasingly<br />
important role in the global offshore<br />
industry, and this, in turn, will provide<br />
significant opportunities to the benefit of<br />
Yantai Raffles and its shareholders.<br />
<strong>THE</strong> <strong>SHAPE</strong> <strong>OF</strong> <strong>THINGS</strong> <strong>TO</strong> <strong>COME</strong><br />
As you may already know, China<br />
International Marine Containers (Group)<br />
Co., Ltd (“CIMC”), of which I am President,<br />
acquired a 10% strategic stake in Yantai<br />
Raffles in November 2008, and has since<br />
increased that stake to approximately<br />
18.3% currently. This strategic alliance<br />
brings together two dynamic world class<br />
organisations, leveraging their respective<br />
strengths and promising to yield substantial<br />
synergies in the future.<br />
CIMC is recognised as the world leader<br />
in the manufacture of transportation<br />
equipment. With its excellent systems<br />
and vast experience in operating on a<br />
global scale, CIMC has honed its core<br />
competencies in the areas of resource<br />
4 YANTAI RAFFLES SHIPYARD LIMITED
“THROUGH YANTAI RAFFLES’ AND CIMC’S JOINT<br />
EFFORTS AND MUTUAL OBJECTIVES <strong>TO</strong> TRANSFORM<br />
YANTAI RAFFLES IN<strong>TO</strong> A WORLD-CLASS BUSINESS,<br />
YANTAI RAFFLES WILL, OVER <strong>THE</strong> NEXT FEW YEARS, BE<br />
ABLE <strong>TO</strong> SECURE PROMINENCE IN <strong>THE</strong> CHINESE AND<br />
GLOBAL <strong>OF</strong>FSHORE INDUSTRY, <strong>THE</strong>REBY EARNING <strong>THE</strong><br />
RESPECT, LOYALTY AND CONTINUED SUPPORT <strong>OF</strong> OUR<br />
CUS<strong>TO</strong>MERS, EMPLOYEES AND STAKEHOLDERS.”<br />
allocation, product development, state-ofthe-art<br />
production capabilities, provision of<br />
complete life cycle products and services,<br />
human resource management and<br />
considerable brand capital. Through the<br />
years, CIMC has forged strong long-term<br />
relationships with local and international<br />
banks. CIMC’s many successes on<br />
the world stage have won the attention<br />
of the Chinese government, and the<br />
company’s recent investment in Yantai<br />
Raffles has received great support from<br />
the Chinese authorities.<br />
Yantai Raffles, on the other hand, is one<br />
of the world’s leading shipyards and<br />
possesses significant business development<br />
capabilities, world class facilities and<br />
cutting-edge construction methodologies.<br />
Most importantly, it has an experienced,<br />
trustworthy and respectable business<br />
leader and partner in Mr Brian Chang, the<br />
Company’s Deputy Chairman.<br />
From the very outset of this alliance, CIMC<br />
has made clear its intention to share its<br />
complementary core competencies with<br />
Yantai Raffles, and vice versa. The benefits<br />
from this cooperation are already bearing<br />
fruit and I strongly believe that, with the<br />
capabilities and continued cooperation<br />
of both companies, Yantai Raffles will<br />
become a world-leader in the offshore<br />
marine industry in the foreseeable future.<br />
Even now, this transformation is well<br />
under way.<br />
In spite of the business opportunities,<br />
Yantai Raffles’ extensive resources<br />
and capabilities, which enables the<br />
Company to respond to adverse external<br />
factors, and to remain competitive in<br />
the current challenging market, Yantai<br />
Raffles needs to continue to improve.<br />
We have identified a number of key<br />
areas where there is room for significant<br />
and ongoing improvement. We must<br />
seize every opportunity, gain customers’<br />
confidence, build up and demonstrate<br />
effective internal management, shorten<br />
construction cycles, strengthen delivery<br />
capability, build up supporting human<br />
resources systems, enhance engineering<br />
and management teams, and improve the<br />
commissioning and R&D centre in order<br />
to remain competitive. In addition, we<br />
are actively developing and implementing<br />
action plans to deliver efficiency and<br />
productivity gains, and reduce costs.<br />
We will continue to improve on our<br />
internal processes and communication,<br />
encourage innovation, and instill a renewed<br />
culture focused on sincerity, collaboration<br />
and excellence.<br />
OUR VISION FOR YANTAI RAFFLES<br />
I believe and expect that, through Yantai<br />
Raffles’ and CIMC’s joint efforts and<br />
mutual objectives to transform Yantai<br />
Raffles into a world-class business, Yantai<br />
Raffles will, over the next few years, be<br />
able to secure prominence in the Chinese<br />
and global offshore industry, thereby<br />
earning the respect, loyalty and continued<br />
support of our customers, employees and<br />
stakeholders. That is not only our dream,<br />
but our realistic goal.<br />
Mai Bo Liang<br />
Chairman of the Board<br />
ANNUAL REPORT 2008 5
6 YANTAI RAFFLES SHIPYARD LIMITED
ANNUAL REPORT 2008 7
CEO REVIEW<br />
Dear Shareholders,<br />
Yantai Raffles has undergone many<br />
changes over the past few years. You were<br />
recently advised of China International<br />
Marine Containers (Group) Co., Ltd<br />
(“CIMC”) investment into your Company<br />
as its second largest shareholder. In a<br />
short span of time, CIMC has brought<br />
significant enterprise value in the areas<br />
of procurement, advanced manufacturing<br />
processes, people management, finance<br />
and opportunities for new products and<br />
domestic sales.<br />
To reflect CIMC’s investment in your<br />
Company, the President and Director of<br />
CIMC, Mr Mai Bo Liang, was invited and<br />
kindly agreed to be the Chairman of Yantai<br />
Raffles’ Board in November 2008.<br />
In March 2009, CEO Mr Y J Cho completed<br />
his three-year contract with the Company<br />
and I was subsequently reinstated as CEO.<br />
HIGHLIGHTS <strong>OF</strong> 2008<br />
2008 has seen the Company facing<br />
several challenges, including increased<br />
costs and engineering changes on some<br />
of our projects, some of which resulted<br />
in project delays. With strong support<br />
from CIMC, your Company has identified<br />
solutions to many of these key challenges<br />
and has restructured many aspects of the<br />
operation and, to a large extent, restored<br />
much confidence. We are committed to<br />
resolving these ongoing challenges and<br />
expect to see the fruits of our efforts<br />
in 2010.<br />
I am pleased to report that, under all the<br />
circumstances, your Company returned a<br />
credible financial performance in 2008.<br />
For the 12 months ended 31 December<br />
2008, your Company reports a net<br />
profit attributable to equity holders of<br />
S$26.9 million. Further details can be<br />
found in the financial review and financial<br />
statements enclosed in this report.<br />
Over the past 9 months or so, you will<br />
have been bombarded daily with news<br />
about the global financial and economic<br />
environment, and I will not burden you<br />
further with that. Although your Company<br />
has not been totally immune from the<br />
impact of this global situation, we have<br />
been fortunate that our clients have held<br />
faith with us in spite of the challenges.<br />
The credit squeeze that started during the<br />
second half of last year is still being felt<br />
across many industries, and your Company<br />
has been working hard with its banks that<br />
continue to be very supportive of our<br />
business, particularly in China. We are also<br />
working with our clients, and supporting<br />
each other to overcome the challenges<br />
arising from the present situation, and I<br />
am pleased to say that all of our clients<br />
have been extremely constructive and<br />
cooperative in presenting and agreeing to<br />
solutions that work for us all. With the<br />
flexibility extended to us by our clients and<br />
by us to them, we are confident that all<br />
the projects will be successful.<br />
2008 was also the year when your<br />
Company created history by testing the<br />
largest gantry crane in the world. The<br />
name “Taisun” in China denotes greatness<br />
and is the reason that we named this<br />
crane “Taisun”. “Taisun” lifted 20,133<br />
metric tonnes in one extraordinary event<br />
and received the Guinness World Record<br />
for the heaviest lift made by any crane.<br />
In November 2008, “Taisun” completed<br />
its first commercial lift at 14,000 metric<br />
tonnes, and will continue to bring great<br />
value to your Company by changing the<br />
way very large projects are built. “Taisun”<br />
is a game-changer, and will save millions<br />
of man-hours per project as a result of<br />
complex modules now being built on the<br />
ground and not in the air. In 2009, we<br />
will be undertaking four further major<br />
commercial lifts varying from 14,000 to<br />
17,000 metric tonnes.<br />
In May 2008, the gantry crane bagged<br />
the inaugural “Spotlight on New<br />
Technology Award” and the 25th ASME-<br />
IPTI “Woelfel Best Mechanical Engineering<br />
Achievement Award” at the annual<br />
Offshore Technology Conference in<br />
Houston, USA. We believe “Taisun“ will<br />
be a great asset to your Company and on<br />
a larger scale, the offshore industry, for<br />
many years to come.<br />
8 YANTAI RAFFLES SHIPYARD LIMITED
CEO REVIEW<br />
In 2008, your Company invested RMB 400<br />
million in building its second fabrication<br />
yard in Haiyang, Shandong, China<br />
through our wholly owned subsidiary<br />
company, Haiyang Raffles Offshore<br />
Engineering Co., Ltd (“HROE”). The yard<br />
is fully operational and is now working<br />
at capacity. Management is currently<br />
very satisfied with HROE’s high levels of<br />
productivity and efficiency.<br />
Today, the headcount in our Engineering<br />
Department stands at 680, of which, 70%<br />
are graduate engineers. The in-house<br />
capability of our Engineering Department<br />
is growing rapidly. This means we can be<br />
less dependent on, and drastically reduce<br />
the use of, outsourcing engineering<br />
companies. We are now more than 90%<br />
self-sufficient in the scope of engineering.<br />
As our engineers gain experience, both<br />
through dedicated training programmes<br />
and on-the-job, we aim for our engineering<br />
capabilities to be second to none and<br />
a key competitive advantage.<br />
Whilst many companies have been<br />
cutting back on recruitment and capital<br />
investment, your Company continues<br />
to move forward and improve its<br />
capabilities in many areas. This include the<br />
building of a special deep water wharf<br />
to accommodate four deep water<br />
semisubmersible drilling rigs at one<br />
time, complete with thrusters. Your<br />
Company will therefore be able to<br />
install thrusters and commission the<br />
rigs alongside its wharf. With this<br />
facility, we will not need to take rigs<br />
out to deep water with consequential<br />
savings in time and money, and with<br />
improved safety.<br />
We are also using this period to up-skill<br />
our employees to enhance both their<br />
own careers and their contribution to<br />
your Company.<br />
we raised a total of RMB 2 million from<br />
staff, clients, subcontractors and other<br />
stakeholders. The funds were entrusted<br />
to the Yantai Red Cross Society and<br />
designated for the Beichuan County in<br />
Sichuan Province, one of the areas hit<br />
hardest by the earthquake. I wish to thank<br />
all donors for their generosity. Our hearts<br />
and our thoughts continue to be with the<br />
victims and their families. In addition, as<br />
part of our ongoing CSR initiatives, the<br />
employees of Yantai Raffles continue to<br />
care for the weak and aged in and around<br />
the Zhifu district.<br />
LOOKING AHEAD<br />
Your Company continues to have a very<br />
positive outlook, and is looking forward<br />
to an exciting future despite the current<br />
global industry downturn. We are well<br />
positioned and ready for the upturn. We<br />
will continue to strive to be a high quality,<br />
lowest cost manufacturer, and the Yard of<br />
Choice for our customers.<br />
A WORD <strong>OF</strong> THANKS<br />
I would like to express my deepest<br />
appreciation to all our employees,<br />
shareholders, vendors, clients and<br />
business partners, especially during these<br />
challenging times. I particularly appreciate<br />
the leadership of Mr Mai as Chairman of<br />
the Board in providing the benefit of his<br />
valuable experience and advice to help<br />
us overcome many of the challenges we<br />
have encountered. The road ahead will<br />
always be wrought with challenges, but<br />
all at Yantai Raffles are fully committed to<br />
make your Company the greatest in the<br />
industry.<br />
Brian Chang<br />
Deputy Chairman and<br />
Chief Executive Officer<br />
CORPORATE SOCIAL RESPONSIBILITY (CSR)<br />
Your Company responded compassionately<br />
and swiftly to calls for assistance in the<br />
aftermath of the Sichuan Earthquake<br />
in May 2008. Within just a few days,<br />
ANNUAL REPORT 2008 9
CORPORATE HIGHLIGHTS IN 2008<br />
11 FEBRUARY<br />
‘Taisun’ was conferred the inaugural Spotlight<br />
on New Technology Award by the Offshore<br />
Technology Conference (OTC) in Houston, USA.<br />
25 FEBRUARY<br />
Yantai Raffles delivers a 350-man accommodation<br />
barge MODU (Mobile Offshore Drilling Unit) to<br />
Marine Subsea, Norway.<br />
18 MARCH<br />
Yantai Raffles receives a Safety Certification<br />
prepared by the General Administration of<br />
Quality Supervision, Inspection and Quarantine<br />
of the PRC following the successful test<br />
lifts performed by ‘Taisun’, from the Special<br />
Equipment Inspection Institute of Shandong.<br />
08 APRIL<br />
Yantai Raffles reports a net profit of<br />
S$35.9 million for the 12 months ended<br />
31 December 2007, surging 74.3% from<br />
S$20.6 million as compared to FY2006. Group<br />
revenue rose 25.1% to S$323.4 million, from<br />
S$258.5 million previously.<br />
18 APRIL<br />
Yantai Raffles christens the world’s first fixed<br />
dual-beam gantry crane, ‘Taisun’. ‘Taisun’ is<br />
awarded a Guinness World Record for hoisting<br />
a 20,133 MT launching barge 30 metres above<br />
the water.<br />
05 MAY<br />
Yantai Raffles wins the ASME Woelfel Best<br />
Mechanical Engineering Achievement Award<br />
2008 for its innovative, new technology ‘Taisun’.<br />
13 MAY<br />
Yantai Raffles is a finalist for the Technical<br />
Innovation Award at the Seatrade Asia<br />
Awards 2008.<br />
23 MAY<br />
Yantai Raffles sets up the Sichuan Earthquake<br />
Relief Fund and, through the generosity of<br />
its clients, suppliers, business partners and<br />
employees, a donation of RMB 2 million was<br />
presented to the Sichuan Province Red Cross<br />
Society of China. The proceeds will aid the<br />
construction of Beichuan County in Mianyang<br />
city, considered to be one of the worst-affected<br />
regions in the quake zone.<br />
10 YANTAI RAFFLES SHIPYARD LIMITED
29 MAY<br />
Yantai Raffles successfully executes the<br />
keel laying for the Elevating Support Vessel<br />
(“ESV”) which is under construction for<br />
Remedial ‘Cyprus’ Limited.<br />
22 AUGUST<br />
Yantai Raffles reports revenue and net profit of<br />
S$346.2 million and S$13.0 million respectively<br />
for the six-month period ended 30 June 2008,<br />
an improvement of 144.8% and 32.7% as<br />
compared to S$141.4 million and S$9.8 million<br />
in the corresponding period in 2007.<br />
15 OC<strong>TO</strong>BER<br />
Yantai Raffles is one of the top 5 finalists for<br />
the Innovation Award at the Lloyd’s List Asia<br />
Awards 2008.<br />
17 – 19 OC<strong>TO</strong>BER<br />
Yantai Raffles participates in the Yantai<br />
International Ship and Marine Exhibition held in<br />
Shandong, China.<br />
03 NOVEMBER<br />
China International Marine Containers (Group)<br />
Co., Ltd (“CIMC”) completes the acquisition of<br />
its initial 10% stake in Yantai Raffles Shipyard<br />
Limited. Yantai Raffles appoints Mr Mai Bo Liang<br />
as Chairman and Non-executive Director of<br />
the Board.<br />
22 NOVEMBER<br />
‘Taisun’, celebrates its first commercial lift by<br />
successfully lifting the 14,000 MT deckbox of<br />
the ‘COSL Pioneer’ semi-submersible drilling<br />
rig, and mating it onto the columns and hull rig<br />
in one single operation.<br />
02 – 05 DECEMBER<br />
Yantai Raffles participates in the 17th<br />
International Oil and Gas Industry Exhibition and<br />
Conference, OSEA 2008, held in Singapore.<br />
ALTERNATE<br />
USES <strong>OF</strong> ‘TAISUN’<br />
Towering at 122 metres and spanning<br />
a width of 130 metres, ‘Taisun’ is the<br />
world’s most powerful crane. In April<br />
2008, ‘Taisun’ set the record for “the<br />
heaviest weight lifted by a crane” in<br />
the Guinness World Records by lifting<br />
a barge ballasted with water, which<br />
weighed in at 20,133 metric tonnes.<br />
With the ability to accommodate<br />
loads of up to 120 metres wide and in<br />
a dock that is 14 metres deep,<br />
‘Taisun’ is able to provide total lifting<br />
solutions for the world’s largest<br />
offshore vessels.<br />
Owing to its special load spreading<br />
design, ‘Taisun’ introduces extremely<br />
small stresses in the structures,<br />
simplifying the lifting design and<br />
increasing the number of structures<br />
that can be lifted.<br />
It possesses the ability to:<br />
(1) Mate an entire outfitted deckbox<br />
onto its hull<br />
(2) Install FPSO topsides on the<br />
FPSO hull deck in one or two<br />
‘Integrated Modules’<br />
(3) Decommission rigs<br />
(4) Hoist structures with widths of up<br />
to 120 metres<br />
With the combination of unrivalled<br />
capacity and flexibility, ‘Taisun’ is<br />
ready to take on the most challenging<br />
lifting projects and is for turnkey<br />
lifting operations.<br />
ANNUAL REPORT 2008 11
CONSTRUCTION PROCESS<br />
<strong>OF</strong> A SEMI-SUBMERSIBLE<br />
DRILLING RIG<br />
Providing clients with total solutions in the design, production and fabrication of<br />
various marine and offshore facilities such as jack-up rigs, semi-submersible drilling rigs<br />
and heavy-lift vessels, Yantai Raffles has the requisite technological and engineering<br />
capabilities to manufacture these complex vessels at our world-class yard in Yantai, China.<br />
A semi-submersible drilling rig may take up to 36 months to build, depending on the<br />
complexities of specifications required by the rig owner. In this section, we take a closer<br />
look at the construction process of a semi-submersible drilling rig at Yantai Raffles.<br />
1. BASIC DESIGN<br />
2. DETAILED ENGINEERING<br />
3. PRODUCTION PHASE<br />
• Basic designs are provided by the client<br />
during the contract proposal stage,<br />
or procured from a third party design<br />
company. The basic design drawings<br />
provide the overall framework for the<br />
development of the project.<br />
• Detailed production specifications are<br />
planned and accommodated for, eg:<br />
types of equipment required on board<br />
the rig and layout of the equipment.<br />
• Key rig components such as engines,<br />
drilling equipment, thrusters and<br />
switchboards are procured.<br />
• At Yantai Raffles, we utilise the<br />
Dassault Systemes Product Lifecycle<br />
Management (DS PLM) solutions:<br />
CATIA for the design of offshore<br />
structure, DELMIA for production<br />
and simulation, and ENOVIA VPLM<br />
for creating digital 3D mockups,<br />
facilitating multi-discipline<br />
collaboration, and standardising virtual<br />
product modeling best practices. The<br />
information sharing platform ensures<br />
strict quality control, design precision<br />
and other mission-critical elements in<br />
the end-to-end process of planning,<br />
designing, building and project<br />
management of the vessels.<br />
• Production phase commences after<br />
the completion of design drawings.<br />
• Yantai Raffles adopts the approach of<br />
outsourcing the construction of simple<br />
components or ‘blocks’ to smaller yards<br />
while retaining the complex assembly<br />
operations in our main yard.<br />
• The blocks are extensively outfitted at<br />
fabrication stage. This simplifies the<br />
assembly process, thereby reducing<br />
the time required.<br />
• Effective engineering support,<br />
logistics supply and quality control<br />
allow for these outsourced blocks to<br />
be constructed to the owners’<br />
exact requirements.<br />
• The blocks are then assembled into<br />
two large components of the rig – the<br />
deckbox and the lower hull.<br />
12 YANTAI RAFFLES SHIPYARD LIMITED
4. DECKBOX / LOWER HULL<br />
MATING OPERATION<br />
• Once the deckbox and lower hull<br />
are completed, ‘Taisun’, our 20,000<br />
MT gantry crane is used to vertically<br />
mount the deckbox on top of<br />
the hull in one single unique<br />
mating operation.<br />
• With its colossal strength and unique<br />
capability, ‘Taisun’ has distinguished<br />
Yantai Raffles from other yards. With<br />
a lifting capacity that is five times more<br />
than conventional cranes, it allows<br />
Yantai Raffles to build vessels with<br />
greater efficiency, speed, safety and at<br />
lower cost.<br />
5. MECHANICAL COMPLETION AND<br />
COMMISSIONING<br />
• This refers to the final connection of<br />
mechanical components and systems<br />
such as pipes and cables in the rig.<br />
• Testing and certification of all systems<br />
on board.<br />
• Sea trial commences at this stage to<br />
test and certify these systems at sea.<br />
6. DELIVERY<br />
• The completed submersible drilling rig<br />
is now ready for delivery.<br />
ANNUAL REPORT 2008 13
OUR ORDER BOOK<br />
1. SEMI-SUB DP3 DRILLING RIG (COSL PIONEER)<br />
Client: COSL Pioneer Pte Ltd<br />
Country: China<br />
2. SEMI-SUB DP3 DRILLING RIG (COSL INNOVA<strong>TO</strong>R)<br />
Client: COSL Innovator Pte Ltd<br />
Country: China<br />
4. SEMI-SUB DP2 DRILLING RIG NO 1 F&G MILLENNIUM DESIGN<br />
Client: Schahin/Baerfield Drilling LLC<br />
Country: Brazil<br />
5. SEMI-SUB DP2 DRILLING RIG NO 2 F&G MILLENNIUM DESIGN<br />
Client: Schahin/Soratu Drilling LLC<br />
Country: Brazil<br />
3. SEMI-SUB DP3 DRILLING RIG (COSL PROMOTER)<br />
Client: COSL Promoter Pte Ltd<br />
Country: China<br />
5 9<br />
6<br />
8 7<br />
6. SEMI-SUB DP3 DRILLING RIG D90<br />
Client: Frigstad Discoverer Invest Ltd<br />
Country: Norway<br />
7. JACKUP DRILLING RIG F&G SUPER M2 DESIGN<br />
Client: Remedial ‘Cyprus’ Limited<br />
Country: Cyprus<br />
8. ROCK DUMPING BULK CARRIER<br />
Client: Van Oord Marine Services B.V.<br />
Country: Norway<br />
9. ICED STRENG<strong>THE</strong>NED PIPELAY VESSEL<br />
Client: Saipem (Portugal) Comercio Maritimo,<br />
Sociedade Unipessoal Lda<br />
Country: Portugal<br />
10. SEMI-SUBMERSIBLE CRANE VESSEL<br />
Client: Consafe MSV AB<br />
Country: Sweden<br />
11. 350-MAN ACCOMMODATION BARGE<br />
Client: Amisos Shipping Company Limited<br />
c/o Marine Subsea<br />
Country: Norway<br />
12. FALL PIPE VESSEL<br />
Client: Boskalis Westminster Shipping B.V.<br />
Country: Netherlands<br />
14 YANTAI RAFFLES SHIPYARD LIMITED
FINANCIAL HIGHLIGHTS<br />
Revenue<br />
(S$ million)<br />
Net Profit attributable to equity<br />
holders of the Company (S$ million)<br />
1000<br />
800<br />
891.0<br />
40<br />
35<br />
30<br />
35.9<br />
26.9<br />
600<br />
25<br />
20<br />
20.6<br />
400<br />
200<br />
258.5<br />
323.4<br />
15<br />
10<br />
5<br />
0<br />
2006<br />
(Restated)<br />
2007 2008<br />
0<br />
2006<br />
(Restated)<br />
2007 2008<br />
Net Assets<br />
(S$ million)<br />
600<br />
565.1<br />
578.4<br />
Earnings Per Share (Basic)<br />
attributable to equity holders of the Company<br />
(in Singapore cents)<br />
500<br />
15<br />
14.1<br />
400<br />
300<br />
316.6<br />
10<br />
9.5 9.9<br />
200<br />
5<br />
100<br />
0<br />
2006<br />
(Restated)<br />
2007 2008<br />
0<br />
2006<br />
(Restated)<br />
2007 2008<br />
in S$ million 2006 (Restated) 2007 2008<br />
Current Assets 517.9 1,099.5 1,191.9<br />
Non-current Assets 263.4 403.3 529.9<br />
Total Assets 781.3 1,502.8 1,721.8<br />
Current Liabilities 447.0 918.1 1,120.8<br />
Non-current Liabilities 17.7 19.6 22.6<br />
Total Liabilities 464.7 937.7 1,143.4<br />
Total Equity 316.6 565.1 578.4<br />
ANNUAL REPORT 2008 15
FINANCIAL REVIEW<br />
For the financial year ended 31 December 2008<br />
REVIEW <strong>OF</strong> FINANCIAL PERFORMANCE<br />
Group revenue from vessel and<br />
rig building grew by 176% to<br />
S$891.0 million from S$323.4 million<br />
in FY2007, with an order book value<br />
of approximately S$2.5 billion as of<br />
31 December 2008. Gross profit from<br />
construction contracts increased by<br />
131.0% to S$121.5 million from S$52.6<br />
million in FY2007. Operating in an extremely<br />
challenging business environment, the<br />
Group managed to deliver a positive<br />
net profit attributable to equity holders<br />
of S$26.9 million. The decline in net<br />
profit attributable to equity holders from<br />
S$35.9 million in 2007 was mainly due to<br />
provision for impairment of available-forsale<br />
investments and unrealized foreign<br />
exchange losses. Earnings per share<br />
for the year was 9.9 cents, down from<br />
14.1 cents in 2007.<br />
The increase in revenue is primarily due to<br />
higher percentage of completion achieved<br />
by projects as all are in the production<br />
phase of construction. Nonetheless, the<br />
Group’s gross profit margin suffered a<br />
slight decline to 13.6% in FY2008 from<br />
16.3% in FY2007, mainly due to the<br />
following:<br />
(i) Increase in price of materials and<br />
equipment, especially in the earlier<br />
part of FY2008;<br />
(ii) Higher ancillary out-sourcing and subcontracting<br />
costs;<br />
(iii) Provision for contractual liquidated<br />
damages of S$14.3 million and<br />
foreseeable losses of S$13.5 million<br />
for certain projects for which<br />
negotiation for waiver and/or<br />
monetary compensation have not<br />
been concluded as at the date of the<br />
audit report.<br />
The Group incurred other losses of<br />
S$25.1 million, as opposed to a gain of<br />
S$32.7 million in FY2007. The gain in<br />
FY2007 was mainly due to one-off sale<br />
of available-for-sale investments and a fair<br />
value gain on derivatives. In FY2008, the<br />
losses were mainly due to provision for<br />
impairment losses on available-for sale<br />
investments amounting to S$10.8 million,<br />
S$11.0 million of foreign exchange losses,<br />
S$23.2 million gain on forward contracts<br />
and S$30.9 million of a fair value loss<br />
on derivatives.<br />
For accounting purposes, available-forsale<br />
investments are marked to market<br />
using each investment’s quoted share<br />
price as the basis for deriving a fair<br />
value. Whereas management is of the<br />
view that a quoted share price is not<br />
necessarily the best or only indication of<br />
fair value in the current volatile financial<br />
and economic environment, particularly<br />
where investments are made with a long<br />
term investment horizon and the investee<br />
companies are financially strong with<br />
good business prospects, the Group is<br />
guided by FRS 39, and has recognised<br />
a S$10.8 million loss on available-forsale<br />
investments.<br />
The foreign exchanges losses (net) relate<br />
mainly to unrealized translation losses<br />
on foreign currency monetary items,<br />
particularly the USD syndicated bank loan<br />
secured in July 2008. The USD has since<br />
appreciated against SGD.<br />
The fair value loss on derivative<br />
financial instruments (net) refers to the<br />
mark to market losses on embedded<br />
derivatives arising from multi-currency<br />
contracts, partially offset by gain from<br />
foreign exchange forward contracts.<br />
Embedded derivatives reported a gain of<br />
S$21.8 million in FY2007 and a loss of<br />
S$30.9 million in FY2008. In FY2008,<br />
the Group commenced hedging certain<br />
exposures by way of foreign exchange<br />
forward contracts and successfully reported<br />
a gain of S$23.2 million, substantially<br />
mitigating the profit and loss volatility<br />
16 YANTAI RAFFLES SHIPYARD LIMITED
FINANCIAL REVIEW<br />
For the financial year ended 31 December 2008<br />
arising from the embedded derivatives.<br />
Distribution and administrative expenses<br />
rose to S$56.2 million in FY2008 from<br />
S$39.9 million in FY2007. The increase<br />
in business volume has driven all<br />
aspects of operational costs increase,<br />
including headcount and personnel<br />
costs, depreciation and armortisation<br />
and professional consultancy costs. For<br />
example, Group headcount stood at more<br />
than 4000 as at 31 December 2008,<br />
compared to 2700 as at 31 December<br />
2007, reflecting the successful recruitment<br />
of additional employees to meet current<br />
and projected contractual commitments.<br />
Net financing costs totaled S$5.2 million<br />
in FY2008 as opposed to S$6.9 million of<br />
net financing income in FY2007, due to the<br />
increase in borrowings to meet increased<br />
working capital and yard expansion and<br />
improvement requirements.<br />
Higher income tax expense of<br />
S$11.1 million as compared to S$9.4 million<br />
in FY2007 was due to higher tax rates in<br />
the Group’s PRC subsidiaries in FY2008<br />
and certain expenses not deductible for<br />
tax purpose including provision for loss<br />
in available-for-sale investments. The<br />
Group’s two major operating subsidiaries<br />
in the PRC were taxed at 25% compared<br />
to 12% in FY2007. The new Corporate<br />
Income Tax Law issued during the 5th<br />
Session of the 10th National People’s<br />
Congress has introduced a wide range of<br />
changes which include the unification of<br />
the income tax rate for domestic-invested<br />
and foreign-invested enterprises at 25%.<br />
As a result of the change, income tax<br />
expenses were higher in FY2008.<br />
REVIEW <strong>OF</strong> FINANCIAL POSITION<br />
Cash at bank for the Group stood<br />
at S$175.2 million, as compared to<br />
S$335.1 million as at 31 December 2007.<br />
Overall increase in business volume has<br />
driven a significantly higher level of working<br />
capital requirement, together with a funds<br />
requirement for ongoing expansion and<br />
improvement of yard facilities. The Group<br />
has secured and continues to establish<br />
banking facilities to support these<br />
ongoing requirements.<br />
Total assets of the Group were up by<br />
14.6% to S$1,721.8 million as of 31<br />
December 2008. The increase is mainly due<br />
to acquisition of land and sea use rights,<br />
property, plant and equipment, investment<br />
in subsidiary, and generally increased<br />
working capitals such as inventories<br />
and advances to suppliers. Property,<br />
plant and equipment increased from<br />
S$297.3 million to S$438.2 million.<br />
Major capital expenditure pertained to<br />
the building of a new fabrication yard,<br />
through the Group’s new 100% owned<br />
subsidiary, Haiyang Raffles Offshore<br />
Equipment Ltd. (“HROE”). HROE’s<br />
operations are quickly proving successful,<br />
and its production efficiency, quality<br />
control and responsiveness to needs have<br />
led to customers gaining confidence in the<br />
new yard.<br />
Total liabilities increased by 21.9% to<br />
S$1,143.4 million as of 31 December<br />
2008 due mainly to net new borrowings<br />
of S$334.6 miliion procured for business<br />
operations and the expansion of the<br />
Group’s yards. The Group funds its<br />
operations mainly from international banks<br />
in Singapore and banks in the PRC. The<br />
Group is in an ongoing process of securing<br />
a range of new and comprehensive<br />
banking facilities, primarily in the PRC, to<br />
not only enhance liquidity, but to extend<br />
the Group’s debt maturity profile. The<br />
introduction of China International Marine<br />
Containers (Group) Co., Ltd (“CIMC”) as<br />
a substantial shareholder of the Company<br />
is already proving to be of significant value<br />
to the Group, including, but not limited to,<br />
enhancing and expanding of the Group’s<br />
banking relationships in the PRC.<br />
Shareholders’ equity rose from<br />
S$565.1 million to S$578.4 million mainly<br />
due to FY2008 profits, partially offset<br />
by reversal of fair value gain reserve for<br />
available-for-sale investment.<br />
The net asset value per share stood at<br />
S$2.06 as at 31 December 2008.<br />
ANNUAL REPORT 2008 17
BOARD <strong>OF</strong> DIREC<strong>TO</strong>RS<br />
MR MAI BO LIANG<br />
Chairman, Non-Executive Director<br />
Mr Mai Bo Liang was appointed as our Non-Executive Director<br />
and Chairman of Yantai Raffles with effect from 3 November<br />
2008. He graduated with a mechanical engineering degree from<br />
South China University of Technology. Since 1982, Mr. Mai has<br />
been working in China International Marine Containers (Group)<br />
Co., Ltd. (“CIMC”), first as technician then as manager of<br />
Product Technical Dept and general manager. He began to serve<br />
as CIMC’s President in 1992 and Director in March 1994.<br />
MR BRIAN CHANG<br />
Deputy Chairman and CEO, Executive Director<br />
Mr Brian Chang, our Deputy Chairman and CEO founded Yantai<br />
Raffles in 1994. With over 40 years of experience in the shipbuilding<br />
industry, he pioneered the construction of Singapore’s first jack-up<br />
drilling rig at Far East Levingston Shipbuildling Limited (currently<br />
known as Keppel FELS Limited). In 1971, Mr Chang started<br />
the Promet shipyard (known today as PPL Shipyard) and has<br />
implemented and supervised a wide spectrum of marine projects<br />
ranging from offshore tugs and supply boats to sophisticated<br />
offshore vessels including extreme environment semi-submersible<br />
drilling platforms. To date, he has overseen more than 600<br />
marine construction projects and has led Yantai Raffles to the<br />
forefront of the shipbuilding and marine fabrication sector with<br />
the construction of the world’s largest gantry crane with lifting<br />
capacity at 20,000 MT. Mr Chang received a scholarship for an<br />
Honors degree in Electrical Engineering at the City University, in<br />
London and graduated in 1965.<br />
18 YANTAI RAFFLES SHIPYARD LIMITED
MR JULIAN CHANG<br />
Executive Director<br />
Mr Julian Chang was appointed as a Director on the Board in<br />
September 1997 and helms the procurement, estimation and<br />
marketing departments in Yantai Raffles. Mr Chang brings with<br />
him more than 30 years of experience in the shipbuilding and<br />
offshore marine industry and was involved in establishing the<br />
Group’s main office in Singapore. Mr Chang holds Certificates<br />
in Shipping, Procurement Strategy and Advance Procurement,<br />
and was awarded a Diploma in Business Studies in 1975, from<br />
Tottenham College in the United Kingdom.<br />
MR MICHAEL LINDSAY SHARP<br />
Executive Director<br />
MR MALCOLM CHANG<br />
Executive Director<br />
Mr Malcolm Chang was appointed to the<br />
Board in October 2000 and is currently<br />
overseeing the Group’s Contracts<br />
Department. Mr Chang holds directorships<br />
in several oil and gas infrastructure<br />
installation companies and was awarded<br />
an Honors degree in Science (Economics),<br />
Brunel University, United Kingdom,<br />
in 1995.<br />
Mr Michael Sharp joined the Board in<br />
October 2006 and leads Yantai Raffles’<br />
corporate finance, investment and investor<br />
relations activities. Mr Sharp has close to<br />
30 years of experience in the international<br />
banking sector with a wide range of<br />
responsibilities within the areas of equity<br />
and debt funding; fixed income and money<br />
markets; foreign exchange; investment<br />
and private banking. Prior to joining Yantai<br />
Raffles, Mr Sharp was the Head of Private<br />
Bank, South Island, at ANZ Banking Group<br />
in New Zealand from 1999 to 2006. Mr<br />
Sharp completed his A-levels at King<br />
Edward VI Grammar School, East Retford,<br />
Nottinghamshire, England.<br />
ANNUAL REPORT 2008 19
BOARD <strong>OF</strong> DIREC<strong>TO</strong>RS<br />
MR FRANCIS JAMES REIDY<br />
Independent Director<br />
Mr Francis James Reidy was appointed as an Independent Director to the Board in<br />
2003. He is currently a Director and shareholder of Pennsylvania General Energy, an<br />
oil and natural gas exploration, drilling and production company started in 1984, with<br />
annual sales amounting to US$60 million. From 1973 to 1984, he was the managing<br />
director of General Diesel, which in 1984 was sold to Unilever PLC. Mr Reidy currently<br />
holds directorships at Mc Clees Associates, Navy League of the United States, Operation<br />
Smile International and Research Centre for Bio-Electrics. He holds a Bachelor of Civil<br />
Engineering from Villanova University and a Diploma in Far East Studies from the<br />
University of Minnesota.<br />
MR LIU CHEE MING<br />
Non-Executive Director<br />
Mr Liu Chee Ming was appointed a Non-Executive Director to the Board in December<br />
2005. Mr Liu brings with him over 30 years of experience within the financial services<br />
sector. He has been the Managing Director of Platinum Holdings Company Limited since<br />
1996, prior to which he held senior-level positions at various Jardine Fleming entities for<br />
over 17 years. Mr Liu is an independent non-executive director of several public-listed<br />
companies, including StarHub Ltd in Singapore; and Kader Holdings Company Ltd in<br />
Hong Kong. Since May 1995, he has been a member of the Takeovers Appeal Committee<br />
and the Takeovers and Mergers Panel of the Securities and Futures Commission in Hong<br />
Kong. In 1st April 2008, he was appointed as a deputy Chairman. He is also currently<br />
a Governor of Singapore International School. Mr Liu holds a Bachelor of Business<br />
Administration from the former University of Singapore.<br />
20 YANTAI RAFFLES SHIPYARD LIMITED
MR SUM SOON LIM<br />
Independent Director<br />
Mr Sum Soon Lim, an ex-banker, was appointed to the Board in January 2007 as an<br />
Independent Director. Mr Sum brings to the Board his expertise in the financial industry,<br />
having worked with the Singapore Economic Development Board, DBS Bank, J.P. Morgan<br />
Inc., Overseas Union Bank and Nuri Holdings (S) Pte Ltd, a private equity investment<br />
company, and had served as a corporate adviser to Temasek Holdings and Singapore<br />
Technologies. Currently the Chairman and Director of Times Development, Mr Sum also<br />
sits on the boards of Singapore Press Holdings Limited, Singapore Health Services Pte<br />
Ltd. and Singapore Technologies Telemedia Pte Ltd. He was a member of the Securities<br />
Industry Council from 1998 to 2005. Outside of Singapore, he is a commissioner of<br />
PT Indosat Tbk and the Chaiman of its risk management committee. Mr Sum holds a<br />
Bachelor of Science (Honors) in Production Engineering from the University of Nottingham<br />
in England.<br />
MR ANG KONG HUA<br />
Independent Director<br />
Mr Ang Kong Hua, a well-known corporate figure in Singapore, was appointed to the<br />
Board as an Independent Director in September 2006. He is the Executive Director of NSL<br />
Ltd, a leading industrial group in Singapore, in which he had served as Chief Executive<br />
Officer for 28 years. Mr Ang also serves on the Boards of The Government of Singapore<br />
Investment Corporation Pte Ltd, GIC Special Investments Pte Ltd and DBS Bank Limited.<br />
Mr Ang graduated from the University of Hull, UK, with a Bachelor of Science (Economics)<br />
Upper II Honors degree in 1966.<br />
ANNUAL REPORT 2008 21
CORPORATE INFORMATION<br />
BOARD <strong>OF</strong> DIREC<strong>TO</strong>RS<br />
Executive<br />
Brian Chang<br />
Julian Chang<br />
Chang Yee Meng, Malcolm<br />
Michael Lindsay Sharp<br />
Non-Executive<br />
Mai Bo Liang (Chairman)<br />
Ang Kong Hua<br />
Francis James Reidy<br />
Liu Chee Ming<br />
Sum Soon Lim<br />
AUDIT COMMITTEE<br />
Sum Soon Lim (Chairman)<br />
Ang Kong Hua<br />
Francis James Reidy<br />
Liu Chee Ming<br />
NOMINATING COMMITTEE<br />
Ang Kong Hua (Chairman)<br />
Brian Chang<br />
Sum Soon Lim<br />
REMUNERATION COMMITTEE<br />
Ang Kong Hua (Chairman)<br />
Francis James Reidy<br />
Liu Chee Ming<br />
CORPORATE SECRETARY<br />
Oo Lay Kim<br />
AUDI<strong>TO</strong>RS<br />
Ernst & Young LLP<br />
Public Accountants and<br />
Certified Public Accountants<br />
One Raffles Quay<br />
Level 18, North Tower<br />
Singapore 048583<br />
Partner-in-charge : Tan Peck Yen<br />
(Appointed since financial year ended<br />
31 December 2007)<br />
PRINCIPAL BANKERS<br />
ABN AMRO Bank N.V.<br />
(a subsidiary undertaking of<br />
The Royal Bank of Scotland Group plc)<br />
One Raffles Quay<br />
South Tower, Level 26<br />
Singapore 048583<br />
Bank of China<br />
No 11 Changjiang Road<br />
Economy and Technology<br />
Development District<br />
Yantai, Shandong, PRC<br />
China Construction Bank<br />
No 9 Nan Da Street<br />
Yantai, Shandong, PRC<br />
China Merchants Bank<br />
No 60 Xingfuzhong Road<br />
Zhifu District<br />
Yantai, Shandong, PRC<br />
China CITIC Bank<br />
No 207 Shengli Road<br />
Zhifu District<br />
Yantai, Shandong, PRC<br />
REGISTERED <strong>OF</strong>FICE<br />
No. 1 Claymore Drive<br />
#08-04 Orchard Towers<br />
Singapore 229594<br />
Tel: (65) 6735 8690<br />
Fax: (65) 6734 5449<br />
22 YANTAI RAFFLES SHIPYARD LIMITED
CORPORATE STRUCTURE<br />
As at 31 December 2008<br />
36%<br />
Consafe MSV AB<br />
Sweden<br />
100%<br />
Borneo Offshore Limited<br />
British Virgin Islands<br />
100%<br />
Coral Offshore Limited<br />
British Virgin Islands<br />
100%<br />
Deep Water Offshore Limited<br />
British Virgin Islands<br />
100%<br />
Raffles Yacht Limited<br />
Hong Kong SAR<br />
100%<br />
Evolution Offshore Ltd<br />
British Virgin Islands<br />
100%<br />
YRS Shiplease Pte Ltd<br />
Singapore<br />
100%<br />
Far East Drilling Ltd<br />
British Virgin Islands<br />
Yantai Raffles<br />
Shipyard Limited<br />
Singapore<br />
100%<br />
YRS Investments Limited<br />
Hong Kong SAR<br />
100%<br />
Asiatic Offshore Limited<br />
British Virgin Islands<br />
71.6%<br />
Yantai Raffles Shipyard Co. Ltd<br />
People’s Republic of China<br />
100%<br />
Baratpur Limited<br />
British Virgin Islands<br />
12.8%<br />
100%<br />
Offshore Accomodation Pte Ltd<br />
Singapore<br />
85.2%<br />
Yantai Raffles Offshore Ltd<br />
People’s Republic of China<br />
100%<br />
Pelican Waters Investment Ltd<br />
British Virgin Islands<br />
100%<br />
YRS Chartering Pte. Ltd.<br />
Singapore<br />
100%<br />
YRS Offshore Chartering Pte. Ltd.<br />
Singapore<br />
100% Deepwater Venture Pte. Ltd. 50%<br />
Singapore<br />
Peyan Singapore Pte. Ltd.<br />
Singapore<br />
100%<br />
Haiyang Raffles Offshore<br />
Equipment Ltd<br />
50%<br />
People’s Republic of China<br />
Yan Pex Singapore Pte. Ltd.<br />
Singapore<br />
30%<br />
Haiyang Blue Island Offshore Ltd<br />
People’s Republic of China<br />
ANNUAL REPORT 2008 23
FINANCIAL CONTENTS<br />
Corporate Governance<br />
Directors’ Report<br />
Statement By Directors<br />
Independent Auditors’ Report<br />
Consolidated Income Statement<br />
Balance sheets<br />
Statements of Changes in Equity<br />
Consolidated Cash Flow Statement<br />
Notes To Financial Statements<br />
Shareholding Statistics<br />
Notice of Annual General Meeting<br />
25<br />
29<br />
33<br />
34<br />
35<br />
36<br />
38<br />
40<br />
42<br />
99<br />
100<br />
24 YANTAI RAFFLES SHIPYARD LIMITED
CORPORATE GOVERNANCE REPORT<br />
For the financial year ended 31 December 2008<br />
The Board of Directors (the “Board”) is committed to ensure that high standards of corporate governance are practised by Yantai<br />
Raffles Shipyard Limited (the “Company”) and its subsidiaries (together the “Group”), as a fundamental part of its responsibilities to<br />
protect and enhance shareholders’ value and the financial performance of the Group.<br />
The Board uses the Code of Corporate Governance, issued by The Council on Corporate Disclosure and Governance 2005 (the “2005<br />
Code”) which is applicable to listed companies in Singapore, as a guide for the Group’s corporate governance practices. This report<br />
describes the Group’s corporate governance processes, activities and structures that were in place during the financial year ended 31<br />
December 2008, with specific reference to the principles and guidelines of the 2005 Code.<br />
BOARD MATTERS<br />
Principle 1: Effective Board to lead and control the company<br />
Principle 2: Strong and independent Board<br />
Principle 3: Clear division of Chairman and Chief Executive Officer (“CEO”) to ensure a balance of power and authority<br />
Principle 6: Provision of complete, adequate and timely information prior to board meetings and on an on-going basis<br />
The Board comprises the following directors as of 25 May 2009:<br />
Mr Mai Bo Liang<br />
Mr Brian Chang<br />
Mr Julian Chang<br />
Mr Chang Yee Meng Malcolm<br />
Mr Michael Lindsay Sharp<br />
Mr Ang Kong Hua<br />
Mr Francis James Reidy<br />
Mr Liu Chee Ming<br />
Mr Sum Soon Lim<br />
(Chairman, Non-executive Director)<br />
(Deputy Chairman and Chief Executive Officer)<br />
(Executive Director)<br />
(Executive Director)<br />
(Executive Director)<br />
(Independent Non-executive Director)<br />
(Independent Non-executive Director)<br />
(Independent Non-executive Director)<br />
(Independent Non-executive Director)<br />
The principal functions of the Board are:<br />
• Approving the Group corporate policies and authorization matrix;<br />
• Approving annual budgets, key operational matters, major acquisitions and disposals, major investment funding;<br />
• Supervising the management of business and affairs of Group;<br />
• Overseeing the processes for evaluating the adequacy of internal controls, risk management, financial reporting and<br />
compliance;<br />
• Reviewing the financial performance of the Group;<br />
• Approving nominations to the Board of Directors and, appointment of the various Board Committees and key executives; and<br />
• Assuming responsibility for corporate governance.<br />
The Board regularly reviews the business plans and financial performance of the Group. The Board has overall responsibility for putting<br />
in place a framework of good corporate governance in the Group, including the processes for financial reporting and compliance.<br />
As a group, the Board members bring with them their independent judgment, a broad range of industry knowledge, expertise and<br />
experience to bear on issues of strategy, performance, resources and standards of conduct. The profiles of the directors are set out at<br />
http://www.yantai-<strong>raffles</strong>.com/?page_id=23. The Board is of the view that the current board size is appropriate, taking into account<br />
the nature and scope of the Group’s operation. Newly appointed directors are provided with background information about the<br />
Company and the Group, and are invited to visit the Group’s operations to enrich their understanding of its business operation. To<br />
keep pace with new laws, regulations and changing commercial risks, directors are encouraged to attend relevant and useful seminars<br />
conducted by external organizations.<br />
The Board is scheduled to meet at least four times a year. Ad-hoc meetings may be convened when there are matters requiring the<br />
Board’s consideration and decision in between the scheduled meetings.<br />
The Board has delegated certain specific responsibilities to three Committees, namely the Audit Committee, the Remuneration<br />
Committee and the Nomination Committee. More information on these Committees is set out below. The Board accepts that<br />
while these Committees have the authority to examine particular issues and will report back to the Board with their decisions and<br />
recommendations, the ultimate responsibility for the final decision on all matters lies with the Board.<br />
The Group has operations in Singapore and the People’s Republic of China (“PRC”). The roles of Chairman and Deputy Chairman cum<br />
Chief Executive Officer (“CEO”) are separated to ensure an appropriate balance of power, increased accountability and greater capacity<br />
of the Board for independent decision making.<br />
ANNUAL REPORT 2008 25
CORPORATE GOVERNANCE REPORT<br />
For the financial year ended 31 December 2008<br />
The Chairman was appointed on 3 November 2008. He is the President and Director of China International Marine Containers<br />
(Group) Ltd, a world class company ranked in the World Leading Companies by Forbes. Together with the Deputy Chairman, they are<br />
responsible for strategic business development, and facilitating effectiveness of the Board. The Deputy Chairman of the Company,<br />
having nearly 40 years of experience in the shipbuilding industry, and also CEO of the PRC subsidiaries, bears full executive responsibility<br />
for business and operational decisions.<br />
The Board is provided with quarterly management accounts, project progress and operational reports. The annual budget, quarterly<br />
financial results and updated forecasts are presented to the Board for approval. As a general rule, board papers are sent to directors<br />
at least three working days in advance in order for directors to be adequately prepared for each meeting. Senior management attends<br />
board meetings to answer any queries from the Board. The directors also have unrestricted access to the Group’s senior management<br />
at all times.<br />
The Company Secretary attends all Board meetings and ensures the Board procedures are followed. It is the Company Secretary’s<br />
responsibility to ensure that the Company complies with the requirements of the Companies Act. The Articles provide that the<br />
appointment or removal of the Company Secretary is subject to approval of the Board.<br />
The directors, whether as a group or individually, seek independent professional advice relating to the Group’s affairs when necessary<br />
in the furtherance of their duties, at the Group’s expense.<br />
Nomination Committee (“NC”)<br />
Principle 4: Formal and transparent process for appointment of new directors<br />
Principle 5: Formal assessment of the effectiveness of the Board and contribution of each director<br />
The Nomination Committee was set up in January 2008. It is chaired by Mr Ang Kong Hua. The other RC members are Mr Brian Chang<br />
and Mr Sum Soon Lim. The NC has a written Terms of Reference endorsed by the Board that sets out its duties and responsibilities.<br />
The appointments and re-appointments of directors are done through a transparent process. The NC ascertains whether all nonexecutive<br />
directors are independent and that directors have devoted sufficient time and attention to the Group’s affairs. The NC<br />
evaluates the Board’s performance as a whole, and the performance of individual directors, based on certain performance criteria,<br />
including qualitative and quantitative factors such as performance of principal functions and fiduciary duties, level of participation in<br />
meetings, guidance provided to management, and attendance at meetings.<br />
Under the Company’s Articles of Association, each director is required to retire at least once in every three years by rotation and all<br />
newly appointed directors have to retire at the Annual General Meeting (“AGM”) following their appointments. The retiring directors<br />
are eligible to offer themselves for re-election.<br />
The NC is also responsible for determining annually, the independence of the directors. In doing so, the NC takes into account the<br />
circumstances set forth in Guideline 2.1 of the 2005 Code and any other salient factors. Following the annual review, Mr Ang Kong<br />
Hua, Mr Francis James Reidy and Mr Sum Soon Lim are endorsed to be independent for FY2008. Mr Liu Chee Ming is assessed to be<br />
independent at the point of assessment for FY2009.<br />
The NC is satisfied that sufficient time and attention are being given by the directors to the affairs of the Group, notwithstanding<br />
that some of the directors have multiple board representations, and there is no need to implement internal guidelines to address their<br />
competing time commitments. The matter is reviewed on an annual basis by the NC.<br />
Remuneration Committee (“RC”) and Disclosure on remuneration<br />
Principle 7: Formal and transparent procedures for fixing remuneration package of directors<br />
Principle 8: Appropriate remuneration to attract, retain and motivate directors<br />
Principle 9: Clear disclosure of remuneration policy, level and mix<br />
The RC was set up in March 2007 and comprises three non-executive and independent directors. It is chaired by Mr Ang Kong Hua.<br />
The other RC members are Mr Francis James Reidy and Mr Liu Chee Ming.<br />
The principal responsibilities of RC are:<br />
• Recommending to the Board for endorsement, a framework for computation of Board’s fees, as well as remuneration of executive<br />
directors and senior management to ensure that they are competitive and sufficient to attract, retain and motivate key executives<br />
of the required quality to run the Group successfully;<br />
26 YANTAI RAFFLES SHIPYARD LIMITED
CORPORATE GOVERNANCE REPORT<br />
For the financial year ended 31 December 2008<br />
• Recommending the specific remuneration package for each director and for senior management of the Group; and<br />
• Administering the Yantai Raffles Employee Share Option Scheme (“ESOS”).<br />
The RC reviews and determines the remuneration packages of the executive directors and key executives to ensure that they are<br />
adequately remunerated. The RC also considers, in consultation with the Chairman, key executives’ responsibilities, skills, expertise<br />
and contribution to the Group’s performance and whether remuneration packages are competitive to ensure that the Group is able to<br />
attract and retain the best available executive talent. No individual director is involved in fixing his own remuneration.<br />
Non executive directors are paid fees annually on a standard fee basis. The fees proposed to be paid to the non-executive directors for<br />
the current financial year are determined based on the following formula:<br />
Proposed Fee (FY2008)<br />
SGD<br />
Chairman Member<br />
Retainer fee for non-executive directors 70,000 45,000<br />
Audit Committee 30,000 20,000<br />
Remuneration Committee 10,000 8,000<br />
Nomination Committee 8,000 5,000<br />
If a board or committee members occupies a position for part of the financial year, the fee or allowance payable will be prorated<br />
accordingly. Such fees will be approved by the shareholders of the Company as a lump sum payment at the AGM.<br />
The level and mix of each executive director’s remuneration package for the current financial year is as follows:<br />
Fee<br />
(%)<br />
Basic salary<br />
(%)<br />
Variable<br />
bonus /<br />
profit<br />
sharing<br />
(%)<br />
Benefits in<br />
kind<br />
(%)<br />
Fair value of<br />
stock options<br />
(%)<br />
Executive directors<br />
Between S$500,000 to S$999,999<br />
Brian Chang - 100 - - - 100<br />
Julian Chang<br />
Michael Lindsay Sharp<br />
-<br />
-<br />
70<br />
43<br />
11<br />
7<br />
19<br />
19<br />
-<br />
32<br />
100<br />
100<br />
Between S$250,000 to S$499,999<br />
Malcolm Chang - 93 - 7 - 100<br />
Two immediate family members of certain directors have employment relationships with the Group and have received remuneration<br />
aggregating approximately S$309,000 in those capacities during the financial year.<br />
Total<br />
(%)<br />
Audit Committee (“AC”)<br />
Principal 11: Establishment of an Audit Committee (AC) with written terms of reference.<br />
The AC was established in March 2007 and comprises 4 non-executive directors, out of whom three are independent directors in<br />
FY2008. Mr Sum Soon Lim is the chairman and the other three members are Mr Ang Kong Hua, Mr Francis James Reidy and Mr Liu<br />
Chee Ming. The Board is of the view that the members of AC have sufficient financial management expertise and experiences to<br />
discharge the AC’s function.<br />
The AC has written Terms of Reference endorsed by the Board, setting out its duties and responsibilities as follows:<br />
• Reviewing the scope and results of the audit and its cost effectiveness, including the external auditors’ audit plan, audit report and<br />
evaluation of the system of internal accounting control, as well as assistance given by management to the external auditors;<br />
• Reviewing the nature and extent of the external auditors’ non-audit services to the Group, seeking to balance the maintenance<br />
of objectivity and value for money;<br />
• Reviewing any significant financial reporting issues and judgment so as to ensure the integrity of the financial statements of the<br />
Group and the formal announcement relating to the Group’s financial performance;<br />
• Reviewing the quarterly and full year financial statements of the Group, prior to submission to the Board for approval for release<br />
to FINFO;<br />
ANNUAL REPORT 2008 27
CORPORATE GOVERNANCE REPORT<br />
For the financial year ended 31 December 2008<br />
• Reviewing the adequacy of the Group’s internal control, operational and compliance controls, and risk management policies and<br />
systems;<br />
• Reviewing the adequacy and effectiveness of the Group’s internal audit function at least annually, including the adequacy of the<br />
internal audit resources as well as the scope and results of the internal audit procedures; and<br />
• Making recommendation to the Board on the appointment, re-appointment and removal of the external auditors, and approving<br />
the remuneration and terms of engagement of the external auditors.<br />
• To review interested person transactions.<br />
The AC is authorized by the Board to investigate any matters within its Terms of Reference and has full access to the Group’s<br />
management.<br />
Internal Control and Internal Audit<br />
Principal 10: Board to present balanced and understandable assessment of the Group’s performance<br />
Principal 12: Sound system of internal control<br />
Principal 13: Establishment of an internal audit function that is independent of activities functions it audits<br />
The Board recognizes the importance of sound internal controls and risk management practices to good corporate governance. The<br />
Board affirms its overall responsibilities for the Group’s systems of internal controls and risk management, and for reviewing the<br />
adequacy and integrity of those systems on an annual basis. The Board also recognizes that no internal control systems will preclude<br />
all errors and irregularities. The system is designed to manage rather than to eliminate the risk of failure to achieve business objectives.<br />
The controls are to provide reasonable, but not absolute, assurance to safeguard shareholders’ investments and the Group’s assets.<br />
With effect from January 2007, the Internal Audit (“IA”) function is principally outsourced to Deloitte & Touche Enterprise Risk<br />
Services Pte Ltd. With the assistance of IA, the AC and Board review the effectiveness of the key internal controls, including financial,<br />
operational and compliance controls, and risk management on an on-going basis. There are formal procedures in place for both<br />
internal and external auditors to report independently their findings and recommendations to the AC. The AC also reviews and<br />
approves the annual IA plans and resources to ensure that IA has the necessary resources to adequately perform its functions. The<br />
scope of the IA covers all business and support functions within the Group.<br />
Communication with shareholders<br />
Principal 14: Regular, effective and fair communication with shareholders.<br />
Principal 15: Greater shareholders participation at AGMs<br />
The Group has a dedicated investor relations team which communicates with its shareholders and analysts on a regular basis and<br />
attends to their queries and concerns. It also manages the dissemination of corporate information to the media, the public as well as<br />
the institutional investors and public shareholders to ensure it is made publicly available on a timely and non-selective basis. Material<br />
information including significant contracts, half year results and full year results are published on FINFO and the Company’s website<br />
www.yantai-<strong>raffles</strong>.com and where appropriate, through media release.<br />
The Articles allow a shareholder to appoint one or two proxies to attend and vote at an AGM. Articles currently do not allow a<br />
shareholder to vote in absentia.<br />
All directors, including the Chairman of the Board, AC and RC and senior management are in attendance at AGMs and Extraordinary<br />
General Meetings to address shareholders’ queries. The external auditors are also invited to attend the AGM’s to address shareholders’<br />
queries on the conduct of audit and auditors’ report. Resolutions are as far as possible, structured separately and may be voted on<br />
independently.<br />
Dealing in securities<br />
The Group provides guidance and internal regulation with regard to dealing in the Group’s securities by its directors and officers. It<br />
prohibits its directors and officers from dealing in securities of the Group while in possession of unpublished material price-sensitive<br />
information in relation to such securities and during the “closed period”, which is defined as two weeks before the date of announcement<br />
of results for each of the first three quarters of the Group’s financial year and one month before the date of announcement of full<br />
year results.<br />
28 YANTAI RAFFLES SHIPYARD LIMITED
DIREC<strong>TO</strong>RS’ REPORT<br />
For the financial year ended 31 December 2008<br />
The directors are pleased to present their report to the members together with the audited consolidated financial statements of Yantai<br />
Raffles Shipyard Limited (the “Company”) and its subsidiaries (collectively, the “Group”) and the balance sheet and statement of<br />
changes in equity of the Company for the financial year ended 31 December 2008.<br />
Directors<br />
The directors of the Company in office at the date of this report are as follows:<br />
Mai Bo Liang (appointed on 3 November 2008)<br />
Brian Chang<br />
Julian Chang<br />
Chang Yee Meng Malcolm<br />
Michael Lindsay Sharp<br />
Ang Kong Hua<br />
Francis James Reidy<br />
Liu Chee Ming<br />
Sum Soon Lim<br />
Arrangements to enable directors to acquire shares or debentures<br />
Except as described in “Share Options” in this report, neither at the end of nor at any time during the financial year was the Company<br />
a party to any arrangement whose objects, or one of whose objects is, to enable the directors of the Company to acquire benefits by<br />
means of the acquisition of shares or debentures of the Company or any other body corporate.<br />
Directors’ interests in shares or debentures<br />
According to the register of directors’ shareholdings required to be kept under Section 164 of the Singapore Companies Act, Cap. 50,<br />
the following directors, who held office at the end of the financial year, had an interest in shares and share options of the Company<br />
and related corporations (other than wholly-owned subsidiaries) as stated below:<br />
Name of director<br />
At the<br />
beginning<br />
of financial<br />
year<br />
Direct interest<br />
At the<br />
end of<br />
financial<br />
year<br />
At the<br />
beginning<br />
of financial<br />
year<br />
Deemed interest<br />
At the<br />
end of<br />
financial<br />
year<br />
Ordinary shares of the Company<br />
Brian Chang 12,976,087 12,976,087 111,210,013 83,853,513<br />
Julian Chang – – 1,050,000 1,050,000<br />
Chang Yee Meng Malcolm – – 1,033,146 1,033,146<br />
Michael Lindsay Sharp – – 120,000 210,000<br />
Ang Kong Hua – – 2,056,000 2,056,000<br />
Francis James Reidy 2,744,000 2,744,000 171,000 –<br />
Liu Chee Ming – – 3,698,700 3,799,700<br />
Sum Soon Lim – – 400,000 400,000<br />
ANNUAL REPORT 2008 29
DIREC<strong>TO</strong>RS’ REPORT<br />
For the financial year ended 31 December 2008<br />
Directors’ interests in shares or debentures (cont’d)<br />
Name of director<br />
At the<br />
beginning<br />
of financial<br />
year<br />
Direct interest<br />
At the<br />
end of<br />
financial<br />
year<br />
Share options of the Company<br />
Julian Chang 1 2,000,000 2,000,000<br />
Chang Yee Meng Malcolm 1 1,600,000 1,600,000<br />
Michael Lindsay Sharp 300,000 300,000<br />
Ang Kong Hua 50,000 50,000<br />
Francis James Reidy 50,000 50,000<br />
Liu Chee Ming 50,000 50,000<br />
Sum Soon Lim 50,000 50,000<br />
1 These two directors have agreed to waive all rights they have or may have under the Options.<br />
Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, share options,<br />
warrants or debentures of the Company, or of related corporations, either at the beginning of the financial year, or date of appointment<br />
if later, or at the end of the financial year.<br />
Mr Brian Chang, who by virtue of his interest of not less than 20% of the issued capital of the Company, is deemed to have an interest<br />
in the whole of the share capital of the Company’s wholly owned subsidiaries and in the shares held by the Company in the following<br />
subsidiaries that are not wholly owned by the Group.<br />
At the beginning of<br />
financial year<br />
At the end of<br />
financial year<br />
Yantai Raffles Offshore Ltd<br />
– Registered and paid-in capital RMB 234,690,000 RMB 234,690,000<br />
Yantai Raffles Shipyard Co., Ltd<br />
– Registered and paid-in capital RMB 125,980,000 RMB 125,980,000<br />
Directors’ contractual benefits<br />
Since the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit by reason<br />
of a contract made by the Company or a related corporation with the director, or with a firm of which the director is a member, or with<br />
a company in which the director has a substantial financial interest, except as disclosed in the accompanying financial statements and<br />
in this report, and except that certain directors have employment relationships with the Company and have received remuneration in<br />
those capacities.<br />
30 YANTAI RAFFLES SHIPYARD LIMITED
DIREC<strong>TO</strong>RS’ REPORT<br />
For the financial year ended 31 December 2008<br />
Share options<br />
At an Extraordinary General Meeting held on 21 June 2006, shareholders approved the Yantai Raffles Executive Share Option Scheme<br />
(the “Scheme”) for the granting of non-transferable options that are settled by physical delivery of the ordinary shares of the Company,<br />
to eligible directors, senior executives and employees respectively.<br />
The Scheme is operated at the discretion of the Remuneration Committee, subject to a maximum period of 10 years from the date<br />
on which the Scheme was adopted, beyond which is subject to approval of the members by way of ordinary resolutions in general<br />
meetings and any relevant authorities which may then be required. The maximum aggregated number of shares which may be issued<br />
and/or transferred pursuant to all options shall not exceed 10% of the issued share capital of the Company on the day preceding the<br />
date of grant.<br />
Under the Scheme, share options are granted to employees of the Group selected by the Remuneration Committee. The exercise price<br />
of the granted options is based on the arithmetic average of the daily volume weighted average price in Norwegian Kroner (“NOK”)<br />
of the Company’s shares traded on the Norwegian OTC during the period of three trading days ending on the day before the date of<br />
grant. Where they are issued in currency other than NOK, it is based on the prevailing spot exchange rate quoted by the Company’s<br />
bank. Share options shall be exercisable in whole or in part in respect of 1,000 shares or any multiple thereof, subject to the vesting<br />
period as described by the Remuneration Committee in its absolute discretion.<br />
During the financial year ended 31 December 2008, share options in respect of 1,154,003 were granted to certain senior management<br />
staff and employees, at an exercise price between USD1.6425 to USD1.65 per share (the “2008 Share Options”). The 2008 Share<br />
Options are exercisable from 1 July 2010 to 30 June 2012.<br />
Details of all the share options to subscribe for ordinary shares of the Company pursuant to the Scheme as at 31 December 2008 are<br />
as follows:<br />
Exercise period Exercise price Number of share options<br />
1 August 2008 – 31 July 2010 $2.80 390,000<br />
16 January 2009 – 15 January 2011 US$1.64 100,000<br />
1 February 2009 – 31 January 2011 NOK 10.50 60,000<br />
13 April 2009 – 12 April 2011 NOK 16.50 600,000<br />
22 May 2009 – 21 May 2011 US$1.64 to US$3.05 1,154,003<br />
18 September 2009 – 17 September 2012 NOK 26.00 936,000<br />
18 September 2009 – 17 September 2017 NOK 26.00 3,505,000<br />
1 July 2010 – 30 June 2012 US$1.6425 to US$1.65 1,154,003<br />
Total 7,899,006<br />
Since the commencement of the Scheme till the end of the financial year:<br />
• No share options that entitle the holder to participate, by virtue of the options, in any share issue of any other corporation have<br />
been granted, and<br />
• Other than 1,154,003 share options that were granted to certain senior executives, none of whom are directors, at a discount<br />
of 45% to market average price at time of grant, there were no other share options that were issued at a discount.<br />
The number of shares options granted to directors of the Company pursuant to the Scheme and which remain outstanding as at 31<br />
December 2008 are disclosed in “Directors’ interests in shares or debentures” of the report.<br />
ANNUAL REPORT 2008 31
DIREC<strong>TO</strong>RS’ REPORT<br />
For the financial year ended 31 December 2008<br />
Auditors<br />
Ernst & Young LLP have expressed their willingness to accept reappointment as auditors.<br />
On behalf of the Board of Directors,<br />
JULIAN CHANG<br />
Director<br />
MICHAEL LINDSAY SHARP<br />
Director<br />
Singapore<br />
25 May 2009<br />
32 YANTAI RAFFLES SHIPYARD LIMITED
STATEMENT BY DIREC<strong>TO</strong>RS<br />
We, Julian Chang and Michael Lindsay Sharp, being two of the directors of Yantai Raffles Shipyard Limited, do hereby state that, in<br />
the opinion of the directors,<br />
(i)<br />
(ii)<br />
the accompanying balance sheets, consolidated income statement, statements of changes in equity, and consolidated cash flow<br />
statement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and of<br />
the Company as at 31 December 2008 and the results of the business, changes in equity and cash flows of the Group and the<br />
changes in equity of the Company for the financial year ended on that date, and<br />
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<br />
they fall due.<br />
On behalf of the Board of Directors,<br />
JULIAN CHANG<br />
Director<br />
MICHAEL LINDSAY SHARP<br />
Director<br />
Singapore<br />
25 May 2009<br />
ANNUAL REPORT 2008 33
INDEPENDENT AUDI<strong>TO</strong>RS’ REPORT<br />
To the Members of Yantai Raffles Shipyard Limited<br />
We have audited the accompanying financial statements of Yantai Raffles Shipyard Limited (the “Company”) and its subsidiaries<br />
(collectively, the “Group”) set out on pages 35 to 98, which comprise the balance sheets of the Group and the Company as at 31<br />
December 2008, the statements of changes in equity of the Group and the Company, the income statement and cash flow statement<br />
of the Group for the financial year then ended, and a summary of significant accounting policies and other explanatory notes.<br />
Management’s responsibility for the financial statements<br />
Management is responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of<br />
the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes devising<br />
and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded<br />
against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to<br />
permit the preparation of true and fair profit and loss account and balance sheet and to maintain accountability of assets; selecting and<br />
applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.<br />
Auditors’ responsibility<br />
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance<br />
with Singapore Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the<br />
audit to obtain reasonable assurance whether the financial statements are free of material misstatement.<br />
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.<br />
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the<br />
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant<br />
to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate<br />
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit<br />
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by<br />
management, as well as evaluating the overall presentation of the financial statements.<br />
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.<br />
Opinion<br />
In our opinion,<br />
(i)<br />
(ii)<br />
the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company<br />
are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a<br />
true and fair view of the state of affairs of the Group and of the Company as at 31 December 2008 and the results, changes in<br />
equity and cash flows of the Group and changes in equity of the Company for the year ended on that date; and<br />
the accounting and other records required by the Act to be kept by the Company and by the subsidiaries incorporated in<br />
Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.<br />
Ernst & Young LLP<br />
Public Accountants and Certified Public Accountants<br />
Singapore<br />
25 May 2009<br />
34 YANTAI RAFFLES SHIPYARD LIMITED
CONSOLIDATED IN<strong>COME</strong> STATEMENT<br />
For the financial year ended 31 December 2008<br />
Group<br />
Note 2008 2007<br />
$’000 $’000<br />
Revenue 4 891,014 323,448<br />
Cost of sales (769,528) (270,800)<br />
Gross profit 121,486 52,648<br />
Other (losses)/gains, net 5 (25,058) 32,697<br />
Expenses<br />
- Distribution and marketing expenses (568) (503)<br />
- Administrative expenses (55,670) (39,419)<br />
Profit from operating activities 6 40,190 45,423<br />
Finance income 8 5,220 10,790<br />
Finance costs 8 (10,461) (3,935)<br />
Net finance (costs)/income 8 (5,241) 6,855<br />
Share of results of associates 1,285 (190)<br />
Profit before income tax 36,234 52,088<br />
Income tax expense 9 (11,121) (9,399)<br />
Profit for the year 25,113 42,689<br />
Attributable to:<br />
Equity holders of the Company 26,932 35,907<br />
Minority interests (1,819) 6,782<br />
25,113 42,689<br />
Earnings per share attributable to equity holders of the Company<br />
- Basic (cents per share) 10 9.85 14.08<br />
- Diluted (cents per share) 10 9.85 13.99<br />
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.<br />
ANNUAL REPORT 2008 35
BALANCE SHEETS<br />
As at 31 December 2008<br />
Group<br />
Company<br />
Note 2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
ASSETS<br />
Current assets<br />
Cash and bank balances 11 175,233 335,082 132,640 251,969<br />
Trade and other receivables 12 105,839 76,502 35,126 50,321<br />
Amounts due from subsidiaries<br />
(non-trade) 13 – – 34,349 2,622<br />
Inventories 14 244,710 209,014 136,344 74,417<br />
Vessels under construction 15 88,903 11,768 135,375 105,957<br />
Construction work-in-progress in<br />
excess of progress billings 16 94,302 103,013 311,604 531,756<br />
Derivative financial instruments 36(g) 12,234 24,400 12,217 24,400<br />
Other current assets 17 470,701 339,689 193,491 108,878<br />
1,191,922 1,099,468 991,146 1,150,320<br />
Non-current assets<br />
Amounts due from subsidiaries<br />
(non-trade) 13 – – 55,302 74,134<br />
Financial assets, available-for-sale 18 3,529 58,872 – –<br />
Investment in subsidiaries 19 – – 83,136 81,608<br />
Investment in associates 20 15,978 579 – –<br />
Investment in a joint venture 20 – 2,894 – –<br />
Property, plant and equipment 21 438,176 297,286 1,160 683<br />
Prepayments 22 302 8,697 – –<br />
Land and sea use rights 22 31,116 3,839 – –<br />
Intangible assets 23 24,818 20,428 6,868 3,174<br />
Deferred tax assets 24 15,994 10,778 1,611 –<br />
529,913 403,373 148,077 159,599<br />
Total assets 1,721,835 1,502,841 1,139,223 1,309,919<br />
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.<br />
36 YANTAI RAFFLES SHIPYARD LIMITED
BALANCE SHEETS<br />
As at 31 December 2008<br />
Group<br />
Company<br />
Note 2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
LIABILITIES<br />
Current liabilities<br />
Progress billings in excess of<br />
construction work-in-progress 16 315,791 648,955 119,179 620,019<br />
Advances from customers 25 31,118 40,145 – 172<br />
Derivative financial instruments 36(g) 26,975 – 24,830 –<br />
Trade and other payables 26 329,476 148,123 102,539 35,118<br />
Borrowings 27 385,071 55,400 298,741 24,302<br />
Amounts due to subsidiaries (trade) 13 – – 977 82,870<br />
Income tax payable 16,481 7,511 14,893 1,600<br />
Provision for other liabilities 28 15,895 17,969 9,479 11,922<br />
1,120,807 918,103 570,638 776,003<br />
Non-current liabilities<br />
Borrowings 27 21,433 16,550 146 188<br />
Deferred tax liabilities 24 – 1,692 – 1,692<br />
Other long term liabilities 1,150 1,394 – –<br />
22,583 19,636 146 1,880<br />
Total liabilities 1,143,390 937,739 570,784 777,883<br />
Net assets 578,445 565,102 568,439 532,036<br />
EQUITY<br />
Equity attributable to equity holders<br />
of the Company<br />
Share capital 29 591,482 591,246 591,482 591,246<br />
Other reserves 30 26,394 39,672 9,125 2,691<br />
Accumulated losses (53,519) (80,740) (32,168) (61,901)<br />
564,357 550,178 568,439 532,036<br />
Minority interests 14,088 14,924 – –<br />
Total equity 578,445 565,102 568,439 532,036<br />
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.<br />
ANNUAL REPORT 2008 37
STATEMENTS <strong>OF</strong> CHANGES IN EQUITY<br />
For the financial year ended 31 December 2008<br />
Attributable to equity<br />
holders of the Company<br />
Note<br />
Share Other Accumulated Minority Total<br />
capital reserves losses interests equity<br />
$’000 $’000 $’000 $’000 $’000<br />
Group<br />
As at 1 January 2008 591,246 39,672 (80,740) 14,924 565,102<br />
Reversal of fair value gains on<br />
available-for-sale financial assets<br />
recognised in equity previously 30 – (26,198) – – (26,198)<br />
Currency translation differences 30 – 6,486 – 983 7,469<br />
Net income recognised directly in<br />
equity – (19,712) – 983 (18,729)<br />
Profit for the year – – 26,932 (1,819) 25,113<br />
Total recognised income and<br />
expense – (19,712) 26,932 (836) 6,384<br />
Grant of equity-settled share options<br />
to employees 30 – 6,777 – – 6,777<br />
Transfer from reserve 54 (343) 289 – –<br />
Exercise of employee share option 29 182 – – – 182<br />
As at 31 December 2008 591,482 26,394 (53,519) 14,088 578,445<br />
As at 1 January 2007 417,608 4,671 (116,647) 11,011 316,643<br />
Net gain on available-for-sale<br />
financial assets 30 – 32,828 – – 32,828<br />
Currency translation differences 30 – (381) – (12) (393)<br />
Net income recognised directly in<br />
equity – 32,447 – (12) 32,435<br />
Profit for the year – – 35,907 6,782 42,689<br />
Total recognised income and<br />
expense – 32,447 35,907 6,770 75,124<br />
Acquisition of minority interests in<br />
subsidiaries – – – (2,857) (2,857)<br />
Grant of equity-settled share options<br />
to employees 30 – 2,554 – – 2,554<br />
Issue of shares 29 178,077 – – – 178,077<br />
Share issue expense 29 (4,439) – – – (4,439)<br />
As at 31 December 2007 591,246 39,672 (80,740) 14,924 565,102<br />
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.<br />
38 YANTAI RAFFLES SHIPYARD LIMITED
STATEMENTS <strong>OF</strong> CHANGES IN EQUITY<br />
For the financial year ended 31 December 2008<br />
Attributable to equity<br />
holders of the Company<br />
Note<br />
Share Other Accumulated Total<br />
capital reserves losses equity<br />
$’000 $’000 $’000 $’000<br />
Company<br />
As at 1 January 2008 591,246 2,691 (61,901) 532,036<br />
Profit for the year, representing total<br />
recognised income and expense – – 29,444 29,444<br />
Grant of equity-settled share options<br />
to employees 30 – 6,777 – 6,777<br />
Transfer from reserve 54 (343) 289 –<br />
Exercise of employee share option 29 182 – – 182<br />
As at 31 December 2008 591,482 9,125 (32,168) 568,439<br />
As at 1 January 2007 417,608 137 (71,260) 346,485<br />
Profit for the year, representing total<br />
recognised income and expense – – 9,359 9,359<br />
Grant of equity-settled share options<br />
to employees 30 – 2,554 – 2,554<br />
Issue of shares 29 178,077 – – 178,077<br />
Share issue expense 29 (4,439) – – (4,439)<br />
As at 31 December 2007 591,246 2,691 (61,901) 532,036<br />
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.<br />
ANNUAL REPORT 2008 39
CONSOLIDATED CASH FLOW STATEMENT<br />
For the financial year ended 31 December 2008<br />
Group<br />
Note 2008 2007<br />
$’000 $’000<br />
Cash flow from operating activities<br />
Profit before income tax 36,234 52,088<br />
Adjustments for:<br />
- Amortisation of intangible assets 2,587 918<br />
- Amortisation of land and sea use rights 452 101<br />
- Bad debts written off – 990<br />
- Depreciation on property, plant and equipment 10,351 6,342<br />
- Impairment loss on property, plant and equipment – 413<br />
- Loss on disposal of property, plant and equipment 968 1,092<br />
- Impairment loss on financial assets, available for sale 10,796 1,649<br />
- Impairment loss on investments in an associate 7,676 –<br />
- Gain on sale of financial assets, available-for-sale – (9,625)<br />
- Write back of provision for liquidated damages (2,175) (1,890)<br />
- Provision for warranty costs 4,128 1,026<br />
- Write back of doubtful debts (744) (60)<br />
- Provision for foreseeable losses 27,796 –<br />
- Translation differences 16,663 563<br />
- Share options expense 6,777 2,554<br />
- Interest expense 10,461 3,935<br />
- Interest income (5,220) (10,790)<br />
- Share of results of associates (1,285) 190<br />
- Loss on disposal of investment in an associate 64 –<br />
- Fair value losses/(gains) on derivative financial<br />
instruments 30,917 (21,800)<br />
- Gain on forward contracts (23,235) –<br />
Operating cash flows before working capital changes 133,211 27,696<br />
Change in operating assets and liabilities<br />
- Inventories (35,696) (191,614)<br />
- Vessel under construction (77,135) (11,768)<br />
- Construction work-in-progress and excess progress<br />
billings (352,250) 340,794<br />
- Trade and other receivables (28,593) 29,897<br />
- Other current assets (131,012) (295,562)<br />
- Advances from customers (9,027) 38,292<br />
- Trade and other payables 181,353 76,992<br />
- Other long term liabilities (244) (358)<br />
- Provision for other liabilities (4,027) 8,394<br />
Cash (used in)/generated from operations (323,420) 22,763<br />
Interest received 5,220 10,790<br />
Interest paid (10,461) (3,935)<br />
Income tax paid (8,506) (9,163)<br />
Cash pledged for performance bonds and trade facilities (5,192) (15,561)<br />
Net cash (used in)/generated from operating activities (342,359) 4,894<br />
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.<br />
40 YANTAI RAFFLES SHIPYARD LIMITED
CONSOLIDATED CASH FLOW STATEMENT<br />
For the financial year ended 31 December 2008<br />
Group<br />
Note 2008 2007<br />
$’000 $’000<br />
Cash flows from investing activities<br />
Proceeds from disposal of property, plant and equipment 398 402<br />
Purchase of property, plant and equipment and intangible assets (137,548) (93,596)<br />
Purchase of land and sea use rights (26,523) (601)<br />
Prepayments 8,395 (8,107)<br />
Proceeds from sales of financial assets, available-for-sale – 27,011<br />
Purchase of financial assets, available-for-sale (1,870) (33,848)<br />
Investment in an associate and a joint venture company – (3,663)<br />
Proceeds from disposal of an associate 1,139 –<br />
Net cash used in investing activities (156,009) (112,402)<br />
Cash flows from financing activities<br />
Proceeds from issuance of ordinary shares 182 178,077<br />
Share issue expenses – (4,439)<br />
Proceeds from borrowings from banks 450,139 168,461<br />
Repayment of borrowings from banks (116,994) (210,841)<br />
Net cash from financing activities 333,327 131,258<br />
Net (decrease)/increase in cash and cash equivalents (165,041) 23,750<br />
Cash and cash equivalents at beginning of financial year 208,873 185,123<br />
Cash and cash equivalents at end of financial year 11 43,832 208,873<br />
The accompanying accounting policies and explanatory notes form an integral part of the financial statements.<br />
ANNUAL REPORT 2008 41
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
1. Corporate information<br />
Yantai Raffles Shipyard Limited (the “Company”) is incorporated and domiciled in Singapore. The address of its registered office<br />
is No.1 Claymore Drive, #08-04 Orchard Towers, Singapore 229594.<br />
The principal activities of the Company are to carry on the business of provision of project management services, the construction<br />
and conversion of vessels, rigs and offshore facilities and investment holding. The principal activities of its subsidiaries and<br />
associates are set out in Note 19 and 20 respectively to the financial statements.<br />
2. Summary of significant accounting policies<br />
2.1 Basis of preparation<br />
The consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company<br />
have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”).<br />
The financial statements have been prepared on a historical cost basis, except as disclosed in the accounting policies below.<br />
The consolidated financial statements are presented in Singapore Dollars (“SGD” or “$”) and all values are rounded in the tables<br />
to the nearest thousand ($’000) except when otherwise indicated.<br />
The preparation of financial statements in conformity with FRS requires management to exercise its judgment in the process<br />
of applying the Group’s accounting policies. It also requires the use of certain critical accounting estimates and assumptions.<br />
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the<br />
financial statements are disclosed in Note 3.<br />
The Group recorded net operating cash outflow of $342,359,000 (2007: net cash inflow of $4,894,000) and net decrease in<br />
cash and cash equivalents of S$165,041,000 (2007: net increase of $23,750,000) during the financial year ended 31 December<br />
2008. In the opinion of the directors, the Group is able to continue on going concern basis. Despite its operating outflow in<br />
2008, the Group is confident of its ability to generate cash flow from its operations, as well as from the continuing support<br />
of its bankers. Accordingly, the directors are of the view that the use of the going concern assumption is appropriate for the<br />
preparation of the financial statements of the Group.<br />
2.2 Changes in accounting polices<br />
The accounting policies have been consistently applied by the Group during the financial year ended 31 December 2008, except<br />
for the changes in accounting policies discussed below. New standards effective for annual periods beginning on or after the<br />
dates as stated are as follows:<br />
Effective for<br />
annual periods<br />
beginning on or after<br />
FRS 107 Financial Instrument: Disclosure 1 January 2008<br />
INT FRS 111 FRS 102 - Group and Treasury Share Transactions 1 January 2008<br />
INT FRS 112 Service Concession Arrangements 1 January 2008<br />
INT FRS 114 FRS 19 - The Limits on a Defined Benefit Assets,<br />
Minimum Funding Requirements and their Interaction<br />
1 January 2008<br />
42 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.2 Changes in accounting polices (cont’d)<br />
FRS 107, Financial Instruments: Disclosures and amendment to FRS 1(revised), Presentation of financial statements<br />
(Capital Disclosures)<br />
FRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative<br />
and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures<br />
about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. The amendment to FRS 1 requires the<br />
Group to make new disclosures to enable users of financial statements to evaluate the Group’s objectives, policies and processes<br />
for managing capital. The Group has applied FRS 107 during the current financial year.<br />
The other standards are not applicable to the Group’s activities.<br />
2.3 Future changes in accounting policies<br />
The Group has not adopted the following FRS and INT FRS that have been issued but not yet effective:<br />
Effective for<br />
annual periods<br />
beginning on or after<br />
FRS 1 Presentation of Financial Statements – Revised presentation 1 January 2009<br />
FRS 1<br />
Presentation of Financial Statements – Amendments relating to Puttable Financial<br />
Instruments and Obligations Arising on Liquidation<br />
1 January 2009<br />
FRS 23 Borrowing Costs 1 January 2009<br />
FRS 27<br />
FRS 32<br />
FRS 39<br />
FRS 101<br />
Consolidated and Separate Financial Statements – Amendments relating to Cost of<br />
an Investment in a Subsidiary, Jointly Controlled Entity or Associate<br />
Financial Instruments: Presentation – Amendments relating to Puttable Financial<br />
Instruments and Obligations Arising on Liquidation<br />
Financial Instruments: Recognition and measurement – Amendments relating to<br />
Eligible Hedge Items<br />
First-time Adoption of Financial Reporting Standards – Amendments relating to<br />
Cost of an Investment in a Subsidiary, Joint Controlled Entity or Associate<br />
1 January 2009<br />
1 January 2009<br />
1 July 2009<br />
1 January 2009<br />
FRS 102 Share-based payment – Vesting conditions and cancellations 1 January 2009<br />
FRS 108 Operating Segments 1 January 2009<br />
INT FRS 113 Customer Loyalty Programme 1 July 2008<br />
INT FRS 116 Hedge of a Net Investment in a Foreign Operation 1 October 2008<br />
INT FRS 117 Distribution of Non-Cash Assets to Owners 1 July 2009<br />
ANNUAL REPORT 2008 43
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.3 Future changes in accounting policies (cont’d)<br />
The directors expect that the adoption of the above pronouncements will have no material impact on the financial statements in<br />
the period of initial application, except for FRS 1 and FRS 108 and Improvements to FRSs as indicated below.<br />
FRS 1 Presentation of Financial Statements – Revised presentation<br />
The revised FRS 1 requires owner and non-owner changes in equity to be presented separately. The statement of changes in<br />
equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line item.<br />
In addition, the revised standard introduces the statement of comprehensive income: it presents all items of income and expense,<br />
either in one single statement, or in two linked statements. The Group is currently evaluating the format to adopt.<br />
FRS 108 Operating Segments<br />
FRS 108 requires entities to disclose segment information based on the information reviewed by the entity’s chief operating<br />
decision maker. The impact of this standard on the other segment disclosures is still to be determined. The Group does not expect<br />
this standard to have any impact on the financial position and results of the Group when implemented in 2009.<br />
2.4 Revenue recognition<br />
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and rendering of services in<br />
the ordinary course of the Group’s activities. Revenue is presented, net of value-added tax, rebates and discounts, and after<br />
eliminating sales within the Group. Revenue is recognised as follows:<br />
(a)<br />
Revenue from construction contracts<br />
Revenue from ship and rig conversion and building is recognised on percentage of completion method when the outcome<br />
of the construction contracts can be reliably ascertained. Please refer to paragraph “2.8 Construction Contracts” for more<br />
detailed accounting policies.<br />
(b)<br />
Revenue from sales contracts<br />
Revenue from ship and rig sales contracts is recognised upon delivery of the vessels.<br />
(c)<br />
Interest income<br />
Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired,<br />
the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at<br />
the original effective interest rate of the instrument, and continues amortising the discount as interest income on the<br />
recoverable amount.<br />
2.5 Group accounting<br />
(a)<br />
Subsidiaries<br />
Subsidiaries are entities (including special purpose entities) over which the Group has power to govern the financial and<br />
operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and<br />
effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the<br />
Group controls another entity.<br />
44 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.5 Group accounting (cont’d)<br />
(a)<br />
Subsidiaries (cont’d)<br />
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an<br />
acquisition is measured as the fair value of the assets acquired, equity instruments issued or liabilities incurred or assumed<br />
at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and<br />
contingent liabilities assumed in a business combination are measured initially at their fair value on the date of acquisition,<br />
irrespective of the extent of any minority interest. Please refer to the paragraph “2.7 Intangible assets - Goodwill” for the<br />
accounting policy on goodwill on acquisition of subsidiaries. Any excess of the Group’s share in the net fair value of the<br />
acquired subsidiary’s identifiable assets, liabilities and contingent liabilities over cost of business combination is recognised<br />
as income in the income statement on the date of acquisition.<br />
Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from<br />
the date on which control ceases.<br />
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the<br />
balance sheet date. In preparing the consolidated financial statements, transactions, balances and unrealised gains on<br />
transactions between Group companies are eliminated. Unrealised losses are also eliminated but are considered an<br />
impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to<br />
ensure consistency with the policies adopted by the Group.<br />
Minority interests are that part of the net results of operations and of net assets of a subsidiary attributable to interests<br />
which are not owned directly or indirectly by the Group. They are measured at the minorities’ share of the fair value of the<br />
subsidiaries’ identifiable assets and liabilities at the date of acquisition by the Group and the minorities’ share of changes<br />
in equity since the date of acquisition, except when the losses applicable to the minority interests in a subsidiary exceed<br />
the minority interests in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minority<br />
interests are attributed to the equity holders of the Company, unless the minority interests have a binding obligation to,<br />
and are able to, make good the losses. When that subsidiary subsequently reports profits, the profits applicable to the<br />
minority interests are attributed to the equity holders of the Company until the minority interests’ share of losses previously<br />
absorbed by the equity holders of the Company have been recovered.<br />
Minority interests are presented in the consolidated balance sheet within equity, separately from the parent shareholders’<br />
equity, and are separately disclosed in the consolidated income statement.<br />
Please refer to the paragraph “2.9 Investment in subsidiaries, associates and a joint venture company” for the accounting<br />
policy on investment in subsidiaries in the separate financial statements of the Company.<br />
(b)<br />
Transactions with minority interests<br />
The Group applies a policy of treating transactions with minority interests as transactions with parties external to the<br />
Group. Disposals to minority interests, which result in gains and losses for the Group, are recorded in the income statement.<br />
Purchase from minority interests result in goodwill, being the difference between any considerations paid and the Group’s<br />
incremental share of the carrying value of identifiable net assets of the subsidiary.<br />
(c)<br />
Associates and joint venture company<br />
An associate is an entity, not being a subsidiary or a joint venture company, in which the Group has significant influence.<br />
This generally coincides with the Group having 20% or more of the voting power or has representation on the board of<br />
directors.<br />
A joint venture company is a contractual arrangement whereby two or more parties undertake an economic activity that is<br />
subject to joint control, where the strategic financial and operating decisions relating to the activity require the unanimous<br />
consent of the parties sharing control.<br />
ANNUAL REPORT 2008 45
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.5 Group accounting (cont’d)<br />
(c)<br />
Associates and joint venture company (cont’d)<br />
The Group’s investment in an associate and a joint venture company are accounted for using the equity method. Under<br />
the equity method, the investments in an associate company and joint venture company are carried in the balance sheet<br />
at cost plus post-acquisition changes in the Group’s share of net assets of the associate and joint venture company. The<br />
Group’s share of the profit or loss of the associate and joint venture company are recognised in the consolidated income<br />
statement. Where there has been a change recognised directly in the equity of the associate and joint venture company,<br />
the Group recognises its share of such changes. After application of the equity method, the Group determines whether it<br />
is necessary to recognise any impairment loss with respect to the Group’s net investment in the associate and joint venture<br />
company. The associate and joint venture company are equity accounted for from the date the Group obtains significant<br />
influence until the date the Group ceases to have significant influence over the associate and joint venture company.<br />
Goodwill relating to an associate and a joint venture company is included in the carrying amount of the investment.<br />
Any excess of the Group’s share of the net fair value of the associate’s and joint venture company’s identifiable assets,<br />
liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment<br />
and is instead included as income in the determination of the Group’s share of the associate’s and joint venture company’s<br />
profit or loss in the year in which the investment is acquired.<br />
When the Group’s share of losses in an associate and a joint venture company equals or exceeds its interest in the associate<br />
and joint venture company, including any other unsecured receivables, the Group does not recognise further losses, unless<br />
it has incurred obligations or made payments on behalf of the associate and joint venture company.<br />
The most recent available audited financial statements of the associate and joint venture company are used by the Group in<br />
applying the equity method. Where the dates of the audited financial statements used are not co-terminous with those of<br />
the Group, the share of results is arrived at from the last audited financial statements available and management financial<br />
statements to the end of the accounting year. Consistent accounting polices are applied for like transactions and events in<br />
similar circumstances.<br />
2.6 Property, plant and equipment<br />
(a)<br />
Measurement<br />
(i)<br />
(ii)<br />
All items of property, plant and equipment are initially recognised at cost and subsequently carried at cost less<br />
accumulated depreciation and accumulated impairment losses.<br />
Components of costs<br />
The cost of an item of property, plant and equipment includes its purchase price and any cost that is directly<br />
attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the<br />
manner intended by management. The projected cost of dismantling, removal or restoration is also included as<br />
part of the cost of property, plant and equipment if the obligation for the dismantling, removal or restoration is<br />
incurred as a consequence of acquiring or using the asset. Cost may also include any gains/losses on qualifying cash<br />
flow hedges of foreign currency purchases of property, plant and equipment that are transferred from the hedging<br />
reserve.<br />
46 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.6 Property, plant and equipment (cont’d)<br />
(b)<br />
Depreciation<br />
Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their depreciable<br />
amounts over their estimated useful lives as follows:<br />
Useful lives (Years)<br />
Buildings 20 – 30<br />
Quays and dry docks 50<br />
Barges 25<br />
Machinery and equipment 3 – 15<br />
Office equipment 3 – 15<br />
Motor vehicles 5<br />
The residual values and useful lives of property, plant and equipment are reviewed, and adjusted as appropriate, at each<br />
balance sheet date. The effects of any revision of the residual values and useful lives are included in the income statement<br />
for the financial year in which the changes arise.<br />
(c)<br />
Subsequent expenditure<br />
Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the<br />
carrying amount of the asset only when it is probable that future economic benefits associated with the item will flow to<br />
the Group and the cost of the item can be measured reliably. Other subsequent expenditure is recognised as repair and<br />
maintenance expense in the income statement during the financial year in which it is incurred.<br />
(d)<br />
Disposal<br />
On disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and its carrying<br />
amount is taken to the income statement. An item of property, plant and equipment is also derecognised when no future<br />
economic benefits are expected from its use.<br />
(e)<br />
Construction in progress<br />
Construction in progress is intended to be held as property, plant and equipment upon the completion of construction and<br />
is stated at cost. These amounts include all expenditure incurred in developing the fixed assets. Assets under construction<br />
included in property, plant and equipment are not depreciated as they are not available for use.<br />
2.7 Intangible assets<br />
(a)<br />
Goodwill<br />
Goodwill represents the excess of the cost of acquisition of subsidiaries over the fair value of the Group’s share of the<br />
identifiable net assets of the acquired subsidiaries at the date of acquisition. Goodwill on acquisitions of subsidiaries is<br />
included in intangible assets.<br />
Goodwill recognised separately as intangible assets is tested at least annually for impairment and carried at cost less<br />
accumulated impairment losses. Gains and losses on the disposal of the subsidiaries include the carrying amount of<br />
goodwill relating to the entity sold.<br />
ANNUAL REPORT 2008 47
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.7 Intangible assets (cont’d)<br />
(b)<br />
Computer software licenses<br />
Acquired computer software licenses are initially capitalised at cost which includes the purchase price net of any discounts<br />
and rebates.<br />
Following initial recognition, computer software licenses are subsequently carried at cost less accumulated amortisation<br />
and accumulated impairment losses. These costs are amortised to the income statement using the straight-line method<br />
over their estimated useful lives of 3 to 10 years.<br />
(c)<br />
The amortisation year and amortisation method of intangible assets other than goodwill are reviewed at least at each<br />
balance sheet date. The effects of any revision of the amortisation year or amortisation method are included in the income<br />
statement for the financial year in which the changes arise.<br />
2.8 Construction contracts<br />
A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are<br />
closely inter-related or inter-dependent in terms of their design, technology and functions or their ultimate purpose or use.<br />
Contract costs are recognised when incurred.<br />
When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised<br />
as revenue and expenses respectively by reference to the stage of completion of the contract activity at the balance sheet<br />
date (percentage-of-completion method). When the outcome of a construction contract cannot be estimated reliably, contract<br />
revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. When it is probable that total<br />
contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.<br />
Contract revenue comprises the initial amount of revenue agreed in the contract and variations in the contract work and claims<br />
that can be measured reliably. A variation or a claim is only included in contract revenue when it is probable that the customer<br />
will approve the variation or negotiations have reached an advanced stage such that it is probable that the customer will accept<br />
the claim.<br />
The percentage of completion is measured by reference to the contract costs incurred to date to the estimated total costs for<br />
the contract. Costs incurred during the financial year in connection with future activity on a contract are shown as construction<br />
contract work-in-progress on the balance sheet unless it is not probable that such contract costs are recoverable from the<br />
customers, in which case, such contract costs incurred are recognised as an expense immediately.<br />
Construction work-in-progress at the balance sheet date is recorded in the balance sheet at cost plus attributable profit<br />
less recognised losses, net of progress claims and allowance for foreseeable losses, and is presented in the balance sheet as<br />
“construction work-in-progress in excess of progress billings” (as an asset) or “progress billing in excess of construction workin-progress”<br />
(as a liability), as applicable. Construction costs include cost of direct materials, direct labour and overhead costs<br />
incurred in connection with the construction. Provision for foreseeable loss on a contract is provided for the year in which such<br />
losses are determined.<br />
2.9 Investment in subsidiaries, associates and a joint venture company<br />
Investment in subsidiaries, associates and a joint venture company are stated at cost less accumulated impairment losses in the<br />
Company’s balance sheet. On disposal of investment in subsidiaries, associates and a joint venture company, the difference<br />
between net disposal proceeds and the carrying amounts of the investment are taken to the income statement.<br />
48 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.10 Land and sea use rights<br />
Land use rights<br />
Land use rights are initially measured at cost. Following initial recognition, land use rights are measured at cost less accumulated<br />
amortisation and accumulated impairment losses. Land use rights are amortised on a straight line basis over the lease terms of<br />
the agreements of 20 to 50 years.<br />
Sea use rights<br />
Cost of acquisition of sea use rights is capitalised and amortised on a straight line basis over the lease terms of the agreements<br />
of 40 to 50 years.<br />
2.11 Impairment of non-financial assets<br />
(a)<br />
Goodwill<br />
Goodwill is tested for impairment annually and whenever there is indication that the goodwill may be impaired. Goodwill<br />
included in the carrying amount of an investment in an associate is tested for impairment at point of the investment, rather<br />
than separately.<br />
For the purpose of impairment testing of goodwill, goodwill is allocated to each of the Group’s cash-generating-units<br />
(CGU) expected to benefit from synergies arising from the business combination.<br />
An impairment loss is recognised when the carrying amount of a CGU, including the goodwill, exceeds the recoverable<br />
amount of the CGU. Recoverable amount of a CGU is the higher of the CGU’s fair value less cost to sell and value-in-use.<br />
The total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and<br />
then to the other assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU.<br />
An impairment loss on goodwill is recognised in the income statement and is not reversed in the subsequent year.<br />
(b)<br />
Intangible assets, property, plant and equipment, investment in subsidiaries, associates and a joint venture company<br />
Intangible assets (other than goodwill), property, plant and equipment and investment in subsidiaries, associates and a joint<br />
venture company are reviewed for impairment whenever there is any indication that these assets may be impaired. If any<br />
such indication exists, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) of the<br />
asset is estimated to determine the amount of impairment loss.<br />
For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis<br />
unless the asset does not generate cashflows that are largely independent of those from other assets. If this is the case,<br />
recoverable amount is determined for the CGU to which the asset belongs. If the recoverable amount of the asset (or CGU)<br />
is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable<br />
amount.<br />
An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates<br />
used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying amount of<br />
an asset other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed<br />
the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been<br />
recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in the<br />
income statement.<br />
ANNUAL REPORT 2008 49
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.12 Financial assets<br />
(a)<br />
Classification<br />
The Group classifies its financial assets as either financial assets at fair value through profit and loss, loans and receivables,<br />
held to maturity investments or available-for-sale financial assets, as appropriate. The classification depends on the purpose<br />
for which the assets were acquired. Management determines the classification of its financial assets at initial recognition<br />
and where allowed and appropriate, re-evaluates this designation at every reporting date.<br />
(i)<br />
Loans and receivables<br />
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in<br />
an active market. They are included in current assets, except those maturing later than 12 months after the balance<br />
sheet date which are classified as non-current assets. Loans and receivables are classified within “trade and other<br />
receivables” and “cash and bank balances” on the balance sheet.<br />
(ii)<br />
Available-for-sale financial assets<br />
Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or<br />
not classified in any of the other categories as prescribed in FRS 39. They are included in non-current assets unless<br />
management intends to dispose of the assets within 12 months after the balance sheet date.<br />
(b)<br />
Recognition and derecognition<br />
Financial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual<br />
provisions of the financial instrument.<br />
Purchases and sales of financial assets, available-for-sale, are recognised on trade-date – the date on which the Company<br />
commits to purchase or sell the asset.<br />
Financial assets are derecognised when the right to receive cash flows from the financial assets have expired or have been<br />
transferred and the Group has transferred substantially all risks and rewards of ownership.<br />
On sale of a financial asset classified as available-for-sale, the difference between the net sale proceeds and its carrying<br />
amount is taken to the income statement. Any amount in the fair value reserve relating to that asset is also taken to the<br />
income statement.<br />
(c)<br />
Measurement<br />
Loans and receivables and available-for-sale financial assets are initially recognised at fair value plus transaction costs.<br />
Loans and receivables are subsequently carried at amortised cost using the effective interest method. Financial assets,<br />
available-for-sale, are subsequently carried at fair value. Changes in the fair value of financial assets classified as availablefor-sale<br />
are recognised in the fair value reserve within equity. When financial assets classified as available-for-sale are sold<br />
or impaired, the accumulated fair value adjustments in the fair value reserve within equity are included in the income<br />
statement.<br />
Interest and dividend income on financial assets, available-for-sale are recognised separately in the income statement.<br />
Changes in the fair values of available-for-sale debt securities (i.e. monetary items) denominated in foreign currencies<br />
are analysed into currency translation differences on the amortised cost of the securities and other changes; the currency<br />
translation differences are recognised in the income statement and other changes are recognised in the fair value reserve.<br />
Changes in fair values of available-for-sale equity securities (i.e. non-monetary items) are recognised in the fair value<br />
reserve, together with the related currency translation difference.<br />
50 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.12 Financial assets (cont’d)<br />
(d)<br />
Impairment<br />
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of<br />
financial assets is impaired.<br />
(i)<br />
Loans and receivables<br />
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and or default or<br />
significant delay in payments are objective evidence that these financial assets are impaired. The carrying amount of<br />
these assets is reduced through the use of an impairment allowance account. The amount of the allowance is the<br />
difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at<br />
the original effective interest rate. The amount of allowance for impairment is recognised in the income statement<br />
within “Administrative expenses”.<br />
If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively<br />
to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed.<br />
Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying<br />
value of the asset does not exceed its amortised cost at the reversal date.<br />
(ii)<br />
Available-for-sale financial assets<br />
In the case of an equity security classified as available-for-sale, a significant or prolonged decline in the fair value of<br />
the security below its cost and disappearance of an active trading market for the security are objective evidence that<br />
the security is impaired.<br />
When there is objective evidence that an available-for-sale financial asset is impaired, the cumulative loss that has<br />
been recognised directly in the fair value reserve is removed from the fair value reserve within equity and recognised<br />
in the income statement. The cumulative loss is measured as the difference between the acquisition cost and the<br />
current fair value, less any impairment loss on that financial asset previously recognised in the income statement.<br />
Impairment losses on equity instruments classified as available-for-sale financial assets are not reversed through the<br />
income statement.<br />
2.13 Borrowings / Borrowing costs<br />
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised<br />
cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income<br />
statement over the years of the borrowings using the effective interest method.<br />
Borrowings which are due to be settled within 12 months after the balance sheet date are presented as current borrowings even<br />
though the original term was for a year longer than 12 months and an agreement to refinance, or to reschedule payments, on<br />
a long-term basis is completed after the balance sheet date and before the financial statements are authorised for issue. Other<br />
borrowings due to be settled more than 12 months after the balance sheet date are presented as non-current borrowings in the<br />
balance sheet.<br />
Borrowings costs are recognised in the income statement using the effective interest method. Costs that are directly attributable<br />
to borrowings acquired specifically for the construction of vessels and rigs are capitalised in contract costs and charged to income<br />
statement as part of cost of sales. Capitalisation of borrowing cost commences when the activities to prepare the asset for its<br />
intended use or sales are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until<br />
the completion of the construction.<br />
ANNUAL REPORT 2008 51
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.14 Financial liabilities<br />
Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual<br />
provisions of the financial instrument.<br />
Financial liabilities are recognised initially at fair value, plus, in the case of financial liabilities other than derivatives, directly<br />
attributable transaction costs.<br />
Subsequent to initial recognition, all financial liabilities are measured at amortised cost using the effective interest method,<br />
except for derivatives, which are measured at fair value.<br />
A financial liability is derecognised when the obligation under the liability is extinguished. For financial liabilities other than<br />
derivatives, gains and losses are recognised in the income statement when the liabilities are derecognised, and through the<br />
amortisation process. Any gains or losses arising from changes in fair value of derivatives are recognised in the income statement.<br />
Net gains or losses on derivatives include exchange differences.<br />
2.15 Fair value estimation<br />
The carrying amounts of current financial assets and liabilities, carried at amortised cost, are assumed to approximate their fair<br />
values.<br />
The fair values of financial instruments traded in active markets (such as exchange-traded securities and derivatives) are based<br />
on quoted market prices at the balance sheet date. The quoted market prices used for financial assets held by the Group are the<br />
current bid prices; the appropriate quoted market prices for financial liabilities are the current ask prices.<br />
The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques.<br />
The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet<br />
date. Where appropriate, quoted market prices or dealer quotes for similar instruments are used. Valuation techniques, such as<br />
estimated discounted cash flows, are also used to determine the fair values of the financial instruments.<br />
The fair values of financial liabilities carried at amortised cost are estimated by discounting the future contractual cash flows at<br />
the current market interest rates that are available to the Group for similar financial liabilities.<br />
2.16 Operating leases<br />
The Group leases certain property, plant and equipment from third parties.<br />
Leases of property, plant and equipment where substantially of the risks and rewards of ownership are retained by the lessor are<br />
classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are taken<br />
to the income statement on a straight-line basis over the year of the lease.<br />
Contingent rents are recognised as an expense in the income statement in the financial year in which they are incurred.<br />
When an operating lease is terminated before the lease year has expired, any payment required to be made to the lessor by way<br />
of penalty is recognised as an expense in the financial year in which termination takes place.<br />
2.17 Inventories<br />
Inventories are carried at the lower of cost and net realisable value. Cost is determined using the weighted average method. Net<br />
realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.<br />
52 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.18 Income taxes<br />
(a)<br />
Current tax<br />
Current income tax liabilities and assets are measured at the amounts expected to be paid to or recovered from the tax<br />
authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.<br />
(b)<br />
Deferred tax<br />
Deferred tax assets/liabilities are recognised for all deductible and taxable temporary differences arising between the tax<br />
bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred tax assets/<br />
liabilities arise from the initial recognition of an asset or liability in a transaction that is not a business combination and at<br />
the time of the transaction, affects neither accounting nor taxable profit or loss.<br />
Deferred tax liability is recognised on temporary differences arising on investment in subsidiaries, except where the Group<br />
is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will<br />
not reverse in the foreseeable future.<br />
Deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which<br />
the temporary differences can be utilised.<br />
Deferred tax assets and liabilities are measured at:<br />
(i)<br />
(ii)<br />
the tax rates that are expected to apply when the related deferred tax asset is realised or the deferred tax liability is<br />
settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date;<br />
and<br />
the tax consequence that would follow from the manner in which the Group expects, at the balance sheet date, to<br />
recover or settle the carrying amounts of its assets and liabilities.<br />
Current and deferred taxes are recognised as income or expenses in the income statement for the year, except to the<br />
extent that the tax arises from a business combination or a transaction which is recognised directly in equity.<br />
(c)<br />
Value added tax (“VAT”) and Goods and Service Tax (“GST”)<br />
Revenue, expenses and assets are recognised net of the amount of sales tax except where the sales tax incurred on a<br />
purchase of assets or services is not recoverable from the taxation authority, in which case the VAT/GST is recognised<br />
as part of the cost of acquisition of the asset or as part of the expense item as applicable, and receivables and<br />
payables that are stated with amount of VAT/GST included. The net amount of VAT/GST recoverable from, or payable<br />
to, the taxation authority is included as part of receivables or payables in the balance sheet.<br />
2.19 Provisions<br />
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is more<br />
likely than not that an outflow of economic resources will be required to settle the obligation and the amount of obligation can<br />
be estimated reliably.<br />
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable<br />
that an outflow of economic resources will be required to settle the obligation, the provision is reversed. If the effect of the time<br />
value of money is material, provisions are discounted using a current pre tax rate that reflects where appropriate, the risk specific<br />
to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as finance cost.<br />
Provision for warranties<br />
The Group recognises the estimated liability to repair or rectify any defect caused by faulty design done. A provision is recognised<br />
at the balance sheet date for expected warranty claims based on estimate from technical engineers and past experience of the<br />
probable level of repairs and rectifications.<br />
ANNUAL REPORT 2008 53
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.19 Provisions (cont’d)<br />
Provision for liquidated damages on construction contracts<br />
The Group recognises provision for liquidated damages in respect of anticipated claims from project owners for construction<br />
contracts of which deadlines are overdue or are not expected to be delivered on time in accordance with contractual<br />
obligations.<br />
2.20 Employee compensation<br />
(a)<br />
Defined contribution plans<br />
Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into<br />
separate entities such as the Central Provident Fund in Singapore and social security insurance in the People’s Republic of<br />
China (the “PRC”) on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the<br />
contributions have been paid. The Group’s contributions are recognised as employee compensation expense when they are<br />
due.<br />
In accordance with the relevant regulations in the PRC, the premiums and welfare benefit contributions borne by the<br />
Group are calculated based on percentage of the total salary of employees, subject to a certain ceiling, and are paid to<br />
the labour and social welfare authorities. The applicable percentage used to provide for insurance premium and welfare<br />
benefits funds are listed below:<br />
Basic pension insurance 20%<br />
Basic medical insurance 7%<br />
Unemployment insurance 2%<br />
Maternity fund 2%<br />
Accident insurance 1%<br />
Housing fund 6%<br />
(b)<br />
Share-based compensation<br />
The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received<br />
in exchange for the grant of the share options is recognised as an expense in the income statement with a corresponding<br />
increase in the share option reserve over the vesting period. The total amount to be recognised over the vesting period<br />
is determined by reference to the fair value of the share options granted on the date of the grant. Non-market vesting<br />
conditions are included in the estimation of the number of shares under share options that are expected to become<br />
exercisable on the vesting date. At each balance sheet date, the Group revises its estimates of the number of shares under<br />
share options that are expected to become exercisable on the vesting date and recognises the impact of the revision of<br />
the estimates in the income statement, with a corresponding adjustment to the share option reserve over the remaining<br />
vesting period.<br />
When the share options are exercised, the proceeds received (net of any directly attributable transaction costs) and the<br />
related balance previously recognised in the share option reserve are credited either to share capital, when new ordinary<br />
shares are issued, or to the “treasury shares” account within equity, when treasury shares purchased are re-issued to the<br />
employees.<br />
(c)<br />
Employee leave entitlement<br />
Employee entitlements to annual leave are recognised as a liability when they accrue to employees. A provision is made<br />
for the estimated liability for leave as a result of services rendered by employees up to the balance sheet date.<br />
54 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.20 Employee compensation (cont’d)<br />
(d)<br />
Termination benefits<br />
Termination benefits are payable when employment is terminated before the normal retirement date or whenever an<br />
employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when<br />
it is demonstrably committed to either terminate the employment of current employees according to a detailed plan<br />
without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary<br />
redundancy. In the case of an offer made to encourage voluntary redundancy, the measurement of termination benefits is<br />
based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after balance<br />
sheet date are discounted to present value.<br />
2.21 Currency translation<br />
(a)<br />
Functional and presentation currency<br />
Items included in the financial statements of each entity in the Group are measured using the currency of the primary<br />
economic environment in which the entity operates (“functional currency”). The financial statements are presented in<br />
Singapore Dollar, which is the Company’s functional currency.<br />
(b)<br />
Transactions and balances<br />
Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency<br />
using the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting from<br />
the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign<br />
currencies at the closing rates at the balance sheet date are recognised in the income statement, except for currency<br />
translation differences on the net investment in foreign operations, borrowings in foreign currencies and other currency<br />
instruments qualifying as net investment hedges for foreign operations, which are included in the currency translation<br />
reserve within equity in the consolidated financial statements.<br />
Non-monetary items that are measured at fair values in foreign currency are translated using the exchange rates at the date<br />
when the fair values are determined. Currency translation differences on non-monetary items whereby the gains or losses<br />
are recognised directly in equity, such as equity investments classified as available-for-sale financial assets, are included in<br />
the fair value reserve.<br />
(c)<br />
Translation of Group entities’ financial statements<br />
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy)<br />
that have a functional currency different from the Singapore Dollar are translated into the Singapore Dollar as follows:<br />
(i)<br />
(ii)<br />
(iii)<br />
Assets and liabilities are translated at the closing rates at the date of the balance sheet;<br />
Income and expenses are translated at average exchange rates (unless the average is not a reasonable approximation<br />
of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are<br />
translated using the exchange rates at the dates of the transactions); and<br />
All resulting exchange differences are taken to the currency translation reserve within equity.<br />
(d)<br />
Consolidation adjustments<br />
On consolidation, currency translation differences arising from the net investment in foreign operations, borrowings in<br />
foreign currencies, and other currency instruments designated as hedges of such investments, are taken to the currency<br />
translation reserve. When a foreign operation is sold, such currency translation differences recorded in the currency<br />
translation reserve are recognised in the income statement as part of the gain or loss on sale.<br />
ANNUAL REPORT 2008 55
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.22 Segment reporting<br />
A business segment is a distinguishable component of the Group engaged in providing products or services that are subject<br />
to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable<br />
component of the Group engaged in providing products or services within a particular economic environment that is subject to<br />
risks and returns that are different from those of segments operating in other economic environments.<br />
2.23 Cash and cash equivalents<br />
For the purpose of presentation in the consolidated cash flow statement, cash and cash equivalents include cash on hand,<br />
deposits with financial institutions which are subject to insignificant risk of change in value and bank overdrafts.<br />
2.24 Bank overdrafts<br />
Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.<br />
2.25 Share capital<br />
Proceeds from issuance of ordinary shares are recognised as share capital in equity.<br />
Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the share capital account.<br />
2.26 Dividends<br />
Interim dividends are recorded in the financial year in which they are declared payable. Final dividends are recorded in the<br />
financial year in which the dividends are approved by the shareholders.<br />
2.27 Contingencies<br />
A contingent liability or asset is a possible obligation or asset that arises from past events and whose existence will be confirmed<br />
only by the occurrence or non-occurrence of uncertain future event(s) not wholly within the control of the Group.<br />
Contingent liabilities and assets are not recognised on the balance sheet of the Group.<br />
2.28 Derivative financial instruments and hedging activities<br />
Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and<br />
are subsequently re-measured at fair value. Derivative financial instruments are carried as assets when the fair value is positive<br />
and as liabilities when the fair value is negative.<br />
Any gains or losses arising from changes in fair value on derivative financial instruments that do not qualify for hedge accounting<br />
are taken to the income statement for the financial year.<br />
The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with<br />
similar maturity profiles. The fair value of interest rate derivative contracts is determined by reference to market values for similar<br />
instruments.<br />
56 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
2. Summary of significant accounting policies (cont’d)<br />
2.28 Derivative financial instruments and hedging activities (cont’d)<br />
Embedded derivatives<br />
The Group assesses when it first becomes a party to a contract whether any embedded derivatives contained in the contract are<br />
required to be separated from the host contract and accounted for as derivatives.<br />
An embedded derivative is to be separated from the host contract and accounted for as a derivative if, and only if:<br />
(a)<br />
(b)<br />
(c)<br />
the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics<br />
and risks of the host contract;<br />
a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and<br />
the hybrid (combined) instrument is not measured at fair value with changes in fair value recognised in income statement<br />
(that is, a derivative that is embedded in a financial asset or financial liability at fair value through income statement).<br />
Embedded derivatives identified and separately accounted for are fair value through income statement.<br />
Derivatives that are not designated or do not qualify for hedge accounting<br />
Fair value changes on these derivatives are recognised in the income statement when the changes arise.<br />
3. Significant accounting judgements and estimates<br />
Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors,<br />
including expectations of future events that are believed to be reasonable under the circumstances.<br />
3.1 Critical accounting estimates and assumptions<br />
The Group on its own or in reliance on third party experts makes estimates and assumptions concerning the future. The resulting<br />
accounting estimates, by definition, will seldom equal the related actual results. The estimates and assumptions that have a<br />
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year<br />
are discussed below.<br />
(i)<br />
Impairment of goodwill<br />
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which<br />
the goodwill is allocated. This requires the Group to estimate the future cashflows expected from the cash-generating units<br />
and an appropriate discount rate in order to calculate the present value of the future cashflows. The carrying amount of<br />
goodwill at the balance sheet date is disclosed in Note 23.<br />
(ii)<br />
Impairment of available-for-sale financial assets<br />
The Group classifies certain assets as available-for-sales financial assets and recognises movements of their fair values in<br />
the equity. When the fair value declines, management makes assumptions about the decline in value to determine where<br />
there is an impairment that should be recognised in the income statement. At 31 December 2008, impairment losses of<br />
$10,796,000 (2007: $1,649,000) have been recognised for available-for-sale financial assets. The carrying amount of<br />
available-for-sale financial assets as at 31 December 2008 was $3,529,000 (2007: $58,872,000).<br />
ANNUAL REPORT 2008 57
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
3. Significant accounting judgements and estimates (cont’d)<br />
3.1 Critical accounting estimates and assumptions (cont’d)<br />
(iii)<br />
Revenue recognition<br />
The Group uses the percentage of completion method to account for its contract revenue where it is probable that contract<br />
costs are recoverable. The stage of completion is measured in accordance with the accounting policy stated in Note 2.8.<br />
Significant judgement is required in determining the stage of completion, the extent of the contract costs incurred, the<br />
estimated total contract revenue and contract cost and the recoverability of the contracts. In making the assumption, the<br />
Group evaluates by relying on past experience and the work of the project management team. Revenue from construction<br />
contracts is disclosed in consolidated income statement.<br />
The stage of completion of each construction contract is assessed on a cumulative basis in each accounting year. Changes<br />
in estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contract<br />
could impact the amount of revenue and expenses recognised in the income statement in the year in which the change is<br />
made and in subsequent years. Such impact could potentially be significant.<br />
(iv)<br />
Income taxes<br />
The Group has exposure to income taxes in more than one jurisdiction. Significant judgement is required in determining<br />
the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax<br />
determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues<br />
based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different<br />
from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in<br />
the year in which such determination is made. The carrying amount of taxation and deferred taxation is disclosed in the<br />
consolidated balance sheet.<br />
(v)<br />
Useful lives of property, plant and equipment<br />
The Group’s management determines the estimated useful lives and related depreciation charges for its plant and<br />
equipment. This estimate is based on the historical experience of the actual useful lives of plant and equipment of similar<br />
nature and functions. It could change significantly as a result of technical innovations and competitor actions in response<br />
to severe industry cycles. Management will increase the depreciation charge where useful lives are shorter than previously<br />
estimated, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or<br />
sold.<br />
(vi)<br />
Fair value of Executive Share Option<br />
The Group determines the fair value of the share options granted under its Executive Share Option Scheme as disclosed in<br />
Note 29, using the Binomial and Trinomial Valuation models with significant inputs estimated by management.<br />
(vii)<br />
Provision for liquidated damages on construction contracts<br />
The Group recognised provision for liquidated damages in respect of anticipated claims from project owners for construction<br />
contracts of which deadlines were overdue or where vessels were not expected to be delivered on time in accordance with<br />
contractual obligations.<br />
(viii) Provision for warranties on construction contracts<br />
The Group has exposure to warranties arising from warranty obligations stated in its construction contracts. Management<br />
estimates the related provision for future warranty claims based on available knowledge and historical warranty claim<br />
information, as well as recent trends that suggest that past cost information may differ from future claims.<br />
Factors that could impact the estimated claim information include the quality of the Group’s products as well as the parts<br />
and labour costs.<br />
58 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
3. Significant accounting judgements and estimates (cont’d)<br />
3.1 Critical accounting estimates and assumptions (cont’d)<br />
(viii) Provision for warranties on construction contracts (cont’d)<br />
The Group recognises provision for warranties to the extent that it has a present legal or constructive obligation as a result<br />
of past event; it is more likely than not that an outflow of resources will be required to settle the obligation; and that the<br />
amount has been reliably estimated.<br />
The carrying amount of the provision for warranties is disclosed in Note 28.<br />
(ix)<br />
Deferred income tax assets<br />
The Group recognises deferred income tax assets on carried forward tax losses to the extent there are sufficient estimated<br />
future taxable profits and/or taxable temporary differences against which the tax losses can be utilised. The carrying<br />
amount of the deferred income tax assets as disclosed in Note 24.<br />
3.2 Critical judgements in applying the Group’s accounting policies<br />
The following judgement is made by management in the process of applying the Group’s accounting policies that have the most<br />
significant effect on the amounts recognised in the financial statements.<br />
(i)<br />
Revenue recognition<br />
In the process of applying the Group’s accounting policies, the directors are of the opinion that the application of judgements<br />
to the determination of the stage of percentage of completion which in turn affects contract revenue recognised, has the<br />
most significant effect on the amounts recognised in the financial statements.<br />
(ii)<br />
Reclaimed land and buildings without ownership certificates<br />
The Group is in the process of applying for the State-owned Land Use Right Certificate in respect of land reclaimed from<br />
the sea as well as Building Ownership Certificates for certain buildings and premises of the PRC subsidiaries. The carrying<br />
amount of the buildings without the relevant ownership certificates amounted to $22,311,000 as of 31 December 2008<br />
(2007: $15,038,000). The Group has made the necessary applications to the relevant authorities. The directors expect<br />
to obtain the relevant approvals in due course and are of the opinion that the PRC subsidiaries can continue to use the<br />
buildings and premises in the meantime without any penalty. The buildings and premises have been recognised as assets<br />
of the Group pending obtaining the ownership certificates.<br />
No contingent liabilities in connection with any possible breach or non-compliance with the relevant laws and regulations<br />
in respect of the buildings without ownership certificates have been provided for in the financial statements as the directors<br />
are of the opinion that the risk associated thereof is low.<br />
4. Revenue<br />
Revenue comprises revenue earned on construction contracts, including variation orders in the contract works and claims.<br />
ANNUAL REPORT 2008 59
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
5. Other (losses)/gains, net<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Write back of doubtful trade and other receivables 744 60<br />
Bad debts written off – (990)<br />
Foreign exchange losses, net (11,043) (9,251)<br />
Gain on sale of financial assets, available-for-sale – 9,625<br />
Impairment loss on property, plant and equipment – (413)<br />
Impairment loss on financial assets, available-for-sale (10,796) (1,649)<br />
Impairment loss on investment in an associate (7,676) –<br />
Loss on disposal of investment in an associate (64) –<br />
Loss on disposal of property, plant and equipment (968) (1,092)<br />
Write back of provision for liquidated damages on construction contracts 2,175 1,890<br />
Rental income from machinery and office premises 4,945 683<br />
Gain on sale of scrap materials 6,628 3,336<br />
Compensation income arising from project termination – 7,507<br />
Fair value (loss)/gain on derivative financial instruments (30,917) 21,800<br />
Gain on forward contracts 23,235 –<br />
Miscellaneous (losses)/gains, net (1,321) 1,191<br />
(25,058) 32,697<br />
6. Profit from operating activities<br />
Profit from operating activities is derived after charging the following items:<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Depreciation on property, plant and equipment (Note 21) 10,351 6,342<br />
Employee compensation (Note 7) 78,842 35,304<br />
Operating leases expenses 2,814 656<br />
Provision for warranty (Note 28) 4,128 1,026<br />
Amortisation of land and sea use rights (Note 22) 452 101<br />
Amortisation of intangible assets (Note 23) 2,587 918<br />
60 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
7. Employee compensation<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Wages, salaries and bonuses 58,601 26,320<br />
Employer’s contribution to defined contribution plans including Central Provident Fund<br />
and social security insurance 8,984 4,241<br />
Welfare expenses 4,480 2,189<br />
Share options expense (Note 30) 6,777 2,554<br />
78,842 35,304<br />
8. Net finance (costs)/income<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Interest income 5,220 10,790<br />
Finance costs:<br />
Interest on early retirement benefits – (79)<br />
Interest on bank loans and overdrafts (15,864) (6,897)<br />
Interest paid to related parties (30) (132)<br />
Less: Amount included in cost of sales 5,433 3,173<br />
(10,461) (3,935)<br />
Net finance (costs)/income (5,241) 6,855<br />
9. Income tax expense<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Income tax expense<br />
Tax expense attributable to profit is made up of:<br />
Current income tax 19,068 12,586<br />
Underprovision in respect of prior years (1,593) 92<br />
17,475 12,678<br />
Deferred tax (Note 24) (6,354) (3,279)<br />
11,121 9,399<br />
ANNUAL REPORT 2008 61
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
9. Income tax expense (cont’d)<br />
The tax expense on profit before income tax differs from the amount that would arise using the Singapore standard rate of<br />
income tax is as follows:<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Profit before income tax 36,234 52,088<br />
Tax at the domestic rates applicable to profits in the countries where the Group<br />
operates 6,318 9,376<br />
Effects of:<br />
Effect of changes in tax rate (56) (3,491)<br />
Effects of partial tax exemption (28) (55)<br />
Expenses not deductible for tax purposes 8,112 6,202<br />
Income not subject to taxation (181) –<br />
Utilisation of previously unrecognised tax losses and capital allowances – (33)<br />
Deferred tax assets not recognised 31 –<br />
Recognition of deferred tax assets on prior year unrecognised losses – (2,553)<br />
Under provision of deferred tax assets in respect of prior year (1,284) (139)<br />
Over provision of deferred tax liabilities in respect of prior year (198) –<br />
(Over)/under provision of income tax in respect of prior year (1,593) 92<br />
Income tax expense recognised in the income statement 11,121 9,399<br />
Yantai Raffles Shipyard Limited, YRS Shiplease Pte Ltd, Offshore Accomodation Pte Ltd, YRS Chartering Pte Ltd, YRS Offshore<br />
Chartering Pte Ltd, Deepwater Venture Pte Ltd, Peyan Singapore Pte Ltd and Yan Pex Singapore Pte Ltd are incorporated in<br />
Singapore and accordingly, are subject to the income tax laws of Inland Revenue Authority of Singapore (“IRAS”) and the income<br />
tax rate is 18% (2007: 18%) for the financial year ended 31 December 2008.<br />
The Company and its Singapore subsidiaries’ tax liabilities have been computed based on the corporate tax rate tax laws prevailing<br />
at balance sheet date. On 22 January 2009, the Singapore Second Minister for Finance announced changes to the Singapore<br />
Tax laws, which included new incentives that might be available to certain group entities with effect from the year of assessment<br />
2009. The Company and its Singapore subsidiaries’ tax exposure for the financial year ended 31 December 2008 have not taken<br />
into consideration the effect of these incentives as the final detailed interpretation of the incentive had not been released by the<br />
tax authority as the date of authorisation of the financial statement.<br />
YRS Investments Limited and Raffles Yacht Limited are incorporated in Hong Kong and are subject to the income tax laws in Hong<br />
Kong at corporate tax rate of 17.5% for the financial year ended 31 December 2008 (2007: 17.5%).<br />
Pelican Waters Investment Ltd, Asiatic Offshore Limited, Borneo Offshore Limited, Baratpur Limited, Coral Offshore Limited, Deep<br />
Water Offshore Ltd, Evolution Offshore Ltd and Far East Drilling Ltd are incorporated under the International Business Companies<br />
Act of the British Virgin Islands (“BVI”) and accordingly, are exempted from payment of BVI income taxes.<br />
On 16 March 2007, the PRC Corporate Income Tax Law (“the New Corporate Income Tax Law”) was approved and became<br />
effective on 1 January 2008. The New Corporate Income Tax Law introduces a wide range of changes which include, but are<br />
not limited to, the unification of the income tax rate for domestic-invested and foreign-invested enterprises at 25%. Based on<br />
the implementation and administrative rules and regulations relating to the New Corporate Income, YRSCL, YROL and HROE are<br />
subjected to income tax at the rate of 25% for the financial year ended 31 December 2008 (2007: 24%).<br />
62 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
10. Earnings per share<br />
Basic earnings per share are calculated by dividing the net result attributable to equity holders of the Company by the weighted<br />
average number of ordinary shares outstanding during the financial year.<br />
For the purpose of calculating diluted earnings per share, the weighted average number of ordinary shares outstanding are<br />
adjusted for the effects of all dilutive potential ordinary shares. The Company has only one category of dilutive potential ordinary<br />
shares, that is, share options.<br />
For the share options, the weighted average number of shares in issue is adjusted as if all share options that are dilutive were<br />
exercised. The number of shares that could have been issued upon the exercise of all dilutive share options less the number of<br />
shares that could have been issued at fair value (determined as the Company’s average share price for the financial year) for the<br />
same total proceeds is added to the denominator as the number of shares issued for no consideration, with no adjustment to<br />
results (numerator).<br />
The following table reflects the income statement and share data used in the computation of basic and diluted earnings per<br />
shares for the years ended 31 December:<br />
Group<br />
2008 2007<br />
Net profit attributable to equity holders of the Company<br />
($’000) 26,932 35,907<br />
Weighted average number of ordinary shares in issue for<br />
basic earnings per share (‘000) 273,524 254,952<br />
Effect of dilution:<br />
- Share options – 1,673<br />
Weighted average number of ordinary shares adjusted<br />
for the effect of dilution 273,524 256,625<br />
Earnings per share attributable to equity holders of the Company<br />
- Basic (cents per share) 9.85 14.08<br />
- Diluted (cents per share) 9.85 13.99<br />
The share options granted to employees are anti-dilutive for the current financial year. Accordingly, diluted earnings per share is<br />
similar to basic earnings per share for the current financial year.<br />
11. Cash and bank balances<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Cash at bank and on hand 43,696 115,954 28,817 32,841<br />
Fixed deposits 131,537 219,128 103,823 219,128<br />
175,233 335,082 132,640 251,969<br />
ANNUAL REPORT 2008 63
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
11. Cash and bank balances (cont’d)<br />
At the balance sheet dates, the carrying amounts of cash and bank balances approximate their fair values. Cash and bank<br />
balances were denominated in the following currencies:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Chinese Renminbi 28,265 63,057 – –<br />
Euro 27,512 35,717 21,118 29,656<br />
Norwegian Kroner 659 92,248 658 92,248<br />
Singapore Dollar 128 1,078 129 1,077<br />
United States Dollar 118,669 142,982 110,735 128,988<br />
175,233 335,082 132,640 251,969<br />
Fixed deposits at the balance sheet dates had an average maturity of 1 day to 6 months (2007: 1 day to 6 months) from the end<br />
of the financial year. The range of interest rates of fixed deposits and cash at bank are as follows:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
% % % %<br />
Chinese Renminbi 0.36 to 0.72 0.81 to 1.53 – –<br />
Euro 0.10 to 3.00 0.10 to 4.00 1.00 to 3.00 0.55 to 4.00<br />
Norwegian Kroner – 3.00 to 5.56 – 3.00 to 5.56<br />
Singapore Dollar 0.00 to 0.10 1.86 to 3.31 0.00 to 0.10 1.86 to 3.31<br />
United States Dollar 0.25 to 3.12 0.25 to 5.48 0.25 to 3.12 0.25 to 5.48<br />
The exposure of cash and bank balances to interest rate risks is disclosed in Note 36(c).<br />
For the purposes of the consolidated cash flow statements, the consolidated cash and cash equivalents comprised the<br />
following:<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Cash and bank balances (as shown) 175,233 335,082<br />
Less: Balances pledged in respect of performance bonds and trade facilities (131,401) (126,209)<br />
Cash and cash equivalents per consolidated cash flow statement 43,832 208,873<br />
As at 31 December 2008, the Group secured short term bank loans of $28,742,000 (2007: $24,266,000) by way of a charge<br />
over certain bank balances amounting to $5,887,000 (2007: $10,397,000) as disclosed in Note 27.<br />
64 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
12. Trade and other receivables<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Trade receivables 36,305 46,582 31,840 46,095<br />
Less : Allowance for doubtful<br />
receivables (1,550) (1,625) (1,029) (1,138)<br />
Trade receivables, net 34,755 44,957 30,811 44,957<br />
Tax recoverable 40,472 21,308 59 303<br />
Other receivables 29,962 10,044 533 1,989<br />
Deposits 3,723 3,707 3,723 3,707<br />
Less: Allowance for doubtful<br />
receivables (3,073) (3,514) – (635)<br />
Other receivables, net 71,084 31,545 4,315 5,364<br />
105,839 76,502 35,126 50,321<br />
Trade receivables are non-interest bearing and generally on 5 to 30 days’ terms. These are recognised at the original invoice<br />
amounts which represent their fair values on initial recognition.<br />
Trade receivables<br />
Receivables that are past due but not impaired<br />
The Group has trade receivables amounting to $12,233,000 (2007: $30,629,000) that are past due at the balance sheet date but<br />
not impaired. These receivables are unsecured and the analysis of their aging at the balance sheet date is as follows:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Trade receivables past due:<br />
Lesser than 30 days 11,167 – 11,167 –<br />
30 to 60 days – 40 – 40<br />
61 to 90 days – 29,650 – 29,650<br />
91 to 120 days – – – –<br />
More than 120 days 1,066 939 1,066 939<br />
12,233 30,629 12,233 30,629<br />
Receivables that were past due but not impaired relate to a number of independent customers that have a good track record<br />
with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment<br />
is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still<br />
considered fully recoverable. The Group does not hold any collateral or other credit enhancements over these balances.<br />
ANNUAL REPORT 2008 65
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
12. Trade and other receivables (cont’d)<br />
Trade receivables (cont’d)<br />
Receivables that are impaired<br />
The Group’s trade receivables that are impaired at the balance sheet date and the movement of the allowance accounts used to<br />
record the impairment are as follows:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Trade receivables – nominal amounts 2,602 2,564 2,081 2,077<br />
Less: Allowance for impairment (1,550) (1,625) (1,029) (1,138)<br />
1,052 939 1,052 939<br />
Movement in allowance accounts:<br />
At 1 January 1,625 1,508 1,138 1,138<br />
Allowance for the year – 93 – –<br />
Write back during the year (109) – (109) –<br />
Exchange differences 34 24 – –<br />
At 31 December 1,550 1,625 1,029 1,138<br />
Trade receivables that are individually determined to be impaired at the balance sheet date relate to debtors that are in<br />
significant financial difficulties and have defaulted on payments. These receivables are not secured by any collateral or credit<br />
enhancements.<br />
Other receivables<br />
Movements in allowance for doubtful receivables are as follows:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
At 1 January 3,514 3,663 635 880<br />
Allowance for the year – 92 – –<br />
Write back during the year (635) (245) (635) (245)<br />
Exchange difference 194 4 – –<br />
At 31 December 3,073 3,514 – 635<br />
Trade and other receivables were denominated in the following currencies:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Chinese Renminbi 61,213 23,537 167 156<br />
Euro 17,723 4 17,723 4<br />
Norwegian Kroner 1,119 140 1,119 140<br />
Singapore Dollar 216 187 216 187<br />
United States Dollar 25,568 52,634 15,901 49,834<br />
105,839 76,502 35,126 50,321<br />
66 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
13. Amount due from/(to) subsidiaries<br />
Amounts due from subsidiaries (non-trade) (current) and amounts due to subsidiaries (trade) (current) are unsecured, noninterest<br />
bearing, and are repayable on demand.<br />
Amounts due from subsidiaries (non-trade) (non-current) are unsecured, non-interest bearing and are not expected to be repaid<br />
within the next 12 months.<br />
14. Inventories<br />
Inventories are stated at the lower of cost and net realisable value and comprise of materials and supplies held for construction.<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Inventories, at cost 244,710 209,014 136,344 74,417<br />
Bank borrowings are secured by inventories amounting to $10,981,000 (2007: $Nil) as disclosed in Note 27.<br />
15. Vessels under construction<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Vessels under construction 88,903 11,768 135,375 105,957<br />
Vessels under construction as at 31 December 2008 are committed for sale within one year from balance sheet date. Subsequent<br />
to 31 December 2008, there are further costs incurred in respect of the construction of the vessels.<br />
16. Construction work-in-progress<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Aggregate contract costs recognised and<br />
recognised profits to date 1,155,595 315,172 1,587,756 811,771<br />
Less: Foreseeable losses (27,796) – (17,169) –<br />
Less: Progress billings received and receivable (1,349,288) (861,114) (1,378,162) (900,034)<br />
Amount due to customers for contract work,<br />
net (221,489) (545,942) 192,425 (88,263)<br />
Comprising:<br />
Construction work-in-progress in excess of<br />
progress billings 94,302 103,013 311,604 531,756<br />
Progress billings in excess of construction<br />
work-in-progress (315,791) (648,955) (119,179) (620,019)<br />
(221,489) (545,942) 192,425 (88,263)<br />
ANNUAL REPORT 2008 67
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
16. Construction work-in-progress (cont’d)<br />
Borrowings costs of $5,433,000 (2007: $3,173,000) arising from financing the construction contracts were capitalised during<br />
the financial year and included in the “aggregate contract costs recognised”.<br />
Bank borrowings are secured by construction work-in-progress of the projects with the balance of $31,382,000 (2007:<br />
$11,141,000) as disclosed in Note 27.<br />
Included in “aggregate contract costs recognised” of the Company is an amount of $21,794,000 (2007: $408,541,000) of<br />
advances to subsidiaries in relation to ongoing construction contracts.<br />
17. Other current assets<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Prepayments 718 2,199 82 920<br />
Advances to suppliers, net 432,403 337,490 193,409 107,958<br />
Advances to an associate 37,580 – – –<br />
Total 470,701 339,689 193,491 108,878<br />
18. Financial assets, available-for-sale<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
At beginning of the financial year 58,872 12,008<br />
Additions 1,870 33,848<br />
Disposal – (17,386)<br />
Allowance for impairment (10,796) (1,649)<br />
Reclassification to investment in an associate (20,086) –<br />
Currency translation difference (133) (777)<br />
(Reversal)/ recognition of fair value gains in equity [Note 30(b)(iv)] (26,198) 32,828<br />
At end of the financial year 3,529 58,872<br />
The financial assets available-for-sale are denominated in the following currencies:<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Quoted securities:<br />
- Australian Dollars 2,036 5,282<br />
- Norwegian Kroner 1,493 11,189<br />
- Hong Kong Dollars – 42,401<br />
3,529 58,872<br />
There has been a significant decline in the market value of the listed equity investments during the financial year. Such a decline<br />
indicates that the listed equity investments have been impaired and an impairment loss of $10,796,000 (2007: $1,649,000) has<br />
been recognised in the income statement for the financial year. There was also a transfer from the available-for-sale investment<br />
revaluation reserve of $3,709,000 (2007: Nil) pertaining to the equity investments.<br />
68 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
19. Investment in subsidiaries<br />
Investment in subsidiaries<br />
Company<br />
2008 2007<br />
$’000 $’000<br />
Shares, at cost 81,382 75,944<br />
Additional investment – 5,438<br />
Capital contribution in the form of share options issued to employees of subsidiaries 1,754 226<br />
83,136 81,608<br />
As at 31 December 2008, the details of the subsidiaries of the Group are as follows:<br />
Name of companies<br />
Principal activities<br />
Country of<br />
incorporation<br />
Effective equity interest<br />
holding by the Group<br />
31 December 31 December<br />
2008 2007<br />
% %<br />
Held by the Company<br />
Yantai Raffles Offshore Ltd. (b)<br />
Offshore and marine project construction<br />
and supply of engineering works and<br />
materials<br />
People’s Republic<br />
of China<br />
94.38 (a) 94.38 (a)<br />
Yantai Raffles Shipyard<br />
Co., Ltd. (b)<br />
Offshore and marine project construction<br />
and supply of engineering works and<br />
materials<br />
People’s Republic<br />
of China<br />
71.63 71.63<br />
YRS Investments Limited (c) Investment holding Hong Kong SAR 100 100<br />
YRS Shiplease Pte Ltd (d)<br />
Offshore and marine vessel leasing<br />
operator (including chartering)<br />
Singapore 100 100<br />
Raffles Yacht Limited (c) Construction and sale of mega yachts Hong Kong SAR 100 100<br />
Held through Yantai Raffles<br />
Offshore Ltd<br />
Haiyang Raffles Offshore<br />
Equipment Ltd (b)<br />
Offshore and marine project construction<br />
and supply of engineering works and<br />
materials<br />
People’s Republic<br />
of China<br />
100 100<br />
Held through YRS Shiplease<br />
Pte Ltd<br />
Pelican Waters Investment Ltd (f)<br />
Ownership and chartering of self<br />
unloading bulk carrier<br />
British Virgin<br />
Islands<br />
100 100<br />
Asiatic Offshore Limited (f) Investment holding British Virgin<br />
Islands<br />
100 100<br />
ANNUAL REPORT 2008 69
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
19. Investment in subsidiaries (cont’d)<br />
Name of companies<br />
Principal activities<br />
Country of<br />
incorporation<br />
Effective equity interest<br />
holding by the Group<br />
31 December 31 December<br />
2008 2007<br />
% %<br />
Held through YRS Shiplease<br />
Pte Ltd (cont’d)<br />
Borneo Offshore Limited (f) Dormant British Virgin<br />
Islands<br />
Baratpur Limited (f) Dormant British Virgin<br />
Islands<br />
Coral Offshore Limited (f) Dormant British Virgin<br />
Islands<br />
Deep Water Offshore<br />
Dormant British Virgin<br />
Ltd (f) Islands<br />
100 100<br />
100 100<br />
100 100<br />
100 100<br />
Offshore Accomodation<br />
Pte Ltd (d)<br />
Ownership and<br />
chartering of accommodation barge<br />
Singapore 100 100<br />
Evolution Offshore Ltd (f) Dormant British Virgin<br />
Islands<br />
Far East Drilling Ltd (f) Dormant British Virgin<br />
Islands<br />
100 100<br />
100 100<br />
YRS Chartering Pte Ltd (g)(j) Dormant Singapore 100 –<br />
YRS Offshore Chartering Dormant Singapore 100 –<br />
Pte Ltd (h)(j)<br />
Deepwater Venture Pte Ltd (e) Dormant Singapore 100 –<br />
Held through Deepwater<br />
Venture Pte Ltd<br />
Peyan Singapore Pte Ltd (i) Dormant Singapore 50 –<br />
Yan Pex Singapore Pte Ltd (i) Dormant Singapore 50 –<br />
70 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
19. Investment in subsidiaries (cont’d)<br />
(a)<br />
Effective equity interest stated is inclusive of indirect interests held by a subsidiary company, Yantai Raffles Shipyard Co., Ltd.<br />
(b)<br />
Audited by Wan Long Asia Certified Public Accountants, a firm of certified public accountants in the PRC for PRC statutory audit purpose and audited by Ernst<br />
& Young, Shanghai for purposes of consolidation.<br />
(c)<br />
Audited by Grant Thornton CPA, Hong Kong.<br />
(d)<br />
Audited by Ernst & Young LLP, Singapore.<br />
(e) Incorporated on 23 July 2008.<br />
(f)<br />
Not required to be audited under the laws of the country of incorporation.<br />
(g) Incorporated on 9 July 2008.<br />
(h) Incorporated on 15 July 2008.<br />
(i) Incorporated on 20 August 2008.<br />
(j)<br />
Subsequent to the financial year end, these entities have been struck off.<br />
20. Investment in associates and joint venture<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Unquoted shares, at cost<br />
At beginning of financial year 3,663 –<br />
Acquisition during the financial year – 3,663<br />
- Associate – 769<br />
- Joint venture – 2,894<br />
Reclassification from financial assets, available-for-sale 20,086 –<br />
Disposal during the year (1,139) –<br />
At end of financial year 22,610 3,663<br />
Share of post-acquisition profits/(losses) 1,095 (190)<br />
Loss on disposal of investment in an associate (64) –<br />
Impairment loss on investment in an associate (7,676) –<br />
Exchange difference 13 –<br />
15,978 3,473<br />
Commitments in relation to future financial support to an associate – 23,623<br />
ANNUAL REPORT 2008 71
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
20. Investment in associates and joint venture (cont’d)<br />
Name<br />
Principal activities<br />
Country of<br />
incorporation<br />
Effective equity interest<br />
holding by the Group<br />
31 December 31 December<br />
2008 2007<br />
% %<br />
Held through YRS Shiplease<br />
Pte Ltd<br />
Consafe MSV AB (a)<br />
Held through Yantai Raffles<br />
Offshore Ltd (“YROL”)<br />
Ownership and chartering of<br />
semi-submersible crane/accommodation<br />
vessel<br />
Sweden 36% 36%<br />
Haiyang Blue Island<br />
Offshore Ltd (b)<br />
(“HBIO”)<br />
Design, construct, sale and repair<br />
offshore marine facilities<br />
People’s Republic<br />
of China<br />
28% (d) 46%<br />
Held through YRS Investments<br />
Limited (“YRSI”)<br />
TSC Offshore Group Ltd (c)<br />
(“TSC”)<br />
Construction and trading of rig products<br />
and technology and oilfield expendables<br />
and supplies, the provision of rig turnkey<br />
solutions and consultancy services<br />
Cayman Islands 8% (e) –<br />
(a)<br />
(b)<br />
(c)<br />
Audited by Ohrlings PricewaterhouseCoopers AB.<br />
Audited by Shandong Wanlong Qilu CPA Co. Ltd, a firm of certified public accountants in the PRC.<br />
Audited by KPMG, Hong Kong<br />
(d) During the financial year, YROL disposed 18% of its effective equity interest in HBIO for a total consideration of RMB 5,700,000.<br />
(e)<br />
On 5 November 2008, a subsidiary and a director cum shareholder, Brian Chang entered into an agreement to act in concert in respect of their shareholdings<br />
in TSC. Both parties agree to act together and co-operate by concerted exercise of the voting rights they hold as well as in respect of advisory role accorded<br />
to Brian Chang by TSC. Accordingly, the investment in TSC is classified as investment in associates as the subsidiary has significant influence over TSC.<br />
The summarised financial information of the associates, not adjusted for the proportion of ownership interest held by the Group,<br />
is as follows:<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Assets and liabilities of the associates:<br />
Total assets 432,172 116,320<br />
Total liabilities 255,554 108,717<br />
Results of the associates:<br />
Revenue 248,855 4,817<br />
Profit/(loss) for the financial year 16,963 (529)<br />
72 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
21. Property, plant and equipment<br />
Buildings<br />
Quays<br />
and dry<br />
docks<br />
Machinery<br />
and<br />
equipment Barges<br />
Office<br />
equipment<br />
Motor<br />
vehicles<br />
Construction<br />
in progress Total<br />
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000<br />
Group<br />
Cost<br />
At 1 January 2007 17,246 94,219 54,537 8,287 1,278 – 68,697 244,264<br />
Currency translation differences (6) 145 1 22 – – (172) (10)<br />
Additions 817 681 6,510 56 158 463 81,989 90,674<br />
Transfer 6,769 123 10,880 (1,617) – – (16,155) –<br />
Disposals (1,372) – (1,979) – (2) – (215) (3,568)<br />
Transfer to “construction work-inprogress”<br />
– – – – – – (5,522) (5,522)<br />
At 31 December 2007 23,454 95,168 69,949 6,748 1,434 463 128,622 325,838<br />
Currency translation differences 1,953 6,702 8,228 1,516 – – 5,568 23,967<br />
Additions 2,010 501 10,300 2,291 100 – 115,449 130,651<br />
Transfer 7,491 2,518 89,344 24,038 – – (123,391) –<br />
Disposals (431) – (3,222) – – – – (3,653)<br />
At 31 December 2008 34,477 104,889 174,599 34,593 1,534 463 126,248 476,803<br />
Accumulated depreciation and<br />
impairment loss<br />
At 1 January 2007 1,593 5,234 14,829 1,120 1,084 – 3 23,863<br />
Currency translation differences 2 (6) 16 (1) – – (3) 8<br />
Depreciation charge 447 2,587 2,734 444 110 20 – 6,342<br />
Impairment loss – – 413 – – – – 413<br />
Disposals (300) – (1,774) – – – – (2,074)<br />
At 31 December 2007 1,742 7,815 16,218 1,563 1,194 20 – 28,552<br />
Currency translation differences 144 633 1,154 80 – – – 2,011<br />
Depreciation charge 788 2,754 5,596 973 147 93 – 10,351<br />
Disposals (140) – (2,147) – – – – (2,287)<br />
At 31 December 2008 2,534 11,202 20,821 2,616 1,341 113 – 38,627<br />
Net carrying amount<br />
At 31 December 2008 31,943 93,687 153,778 31,977 193 350 126,248 438,176<br />
At 31 December 2007 21,712 87,353 53,731 5,185 240 443 128,622 297,286<br />
ANNUAL REPORT 2008 73
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
21. Property, plant and equipment (cont’d)<br />
Machinery and<br />
equipment<br />
Office<br />
equipment<br />
Motor<br />
vehicles<br />
Construction<br />
in progress<br />
Total<br />
$’000 $’000 $’000 $’000 $’000<br />
Company<br />
Cost<br />
At 1 January 2007 1,368 1,277 – – 2,645<br />
Additions – 158 463 – 621<br />
Disposals – (2) – – (2)<br />
At 31 December 2007 1,368 1,433 463 – 3,264<br />
Additions – 101 – 616 717<br />
At 31 December 2008 1,368 1,534 463 616 3,981<br />
Accumulated depreciation<br />
and impairment loss<br />
At 1 January 2007 1,368 1,083 – – 2,451<br />
Depreciation charge – 110 20 – 130<br />
At 31 December 2007 1,368 1,193 20 – 2,581<br />
Depreciation charge – 147 93 – 240<br />
At 31 December 2008 1,368 1,340 113 – 2,821<br />
Net carrying amount<br />
At 31 December 2008 – 194 350 616 1,160<br />
At 31 December 2007 – 240 443 – 683<br />
74 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
21. Property, plant and equipment (cont’d)<br />
Depreciation of property, plant and equipment<br />
Depreciation on property, plant and equipment of $8,752,000 (2007: $5,589,000) arising from construction work were capitalised<br />
during the financial year, and included in the aggregate contract costs.<br />
Property, plant and equipment pledged as security<br />
Bank borrowings of $27,366,690 (2007: $62,982,000) are secured by the following property, plant and equipment as disclosed<br />
in Note 27:<br />
(i)<br />
20,000T crane with a carrying amount of $63,007,000 (2007: $52,059,000); and<br />
(ii) certain construction in progress with carrying amount of $NIL (2007: $18,923,000).<br />
Property, plant and equipment held under finance lease<br />
During the financial year ended 31 December 2007, the Group acquired a motor vehicle with an aggregate cost of $288,000 by<br />
means of a finance lease as disclosed in Note 27. The cash outflow on acquisition of the motor vehicle amounted to $58,000.<br />
The carrying amount of the motor vehicle held under finance lease at the balance sheet date was $220,800 (2007: $278,000).<br />
Construction in progress<br />
Construction in progress mainly relates to cranes, barge and buildings with carrying amounts of $1,001,000 (2007: $68,798,000),<br />
$67,121,000 (2007: $23,288,000) and $33,105,000 (2007: $8,228,000) respectively.<br />
Building ownership certificates<br />
The Group is in the process of applying for the Building Ownership Certificates for certain buildings and premises of the PRC<br />
subsidiaries. The carrying amount of the buildings without the relevant ownership certificates amounted to $22,311,000 as at 31<br />
December 2008 (2007: $15,038,000). The Group has made the necessary applications to the relevant authorities. The directors<br />
expect to obtain the relevant approvals in due course and are of the opinion that the PRC subsidiaries can continue to use the<br />
buildings and premises in the meantime without any penalty. The buildings and premises have been recognised as assets of the<br />
Group pending obtaining the ownership certificates.<br />
ANNUAL REPORT 2008 75
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
21. Property, plant and equipment (cont’d)<br />
Building ownership certificates (cont’d)<br />
No contingent liabilities in connection with any possible breach or non-compliance with the relevant laws and regulations in<br />
respect of the buildings without ownership certificates have been provided for in the financial statements as the directors are of<br />
the opinion that the risk associated thereof is low.<br />
22. Prepayments and land and sea use rights<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Cost associated with purchase of sea use rights (a) – 8,465<br />
Prepayment in relation to purchase of land use right – 166<br />
Other prepayments 302 66<br />
Total 302 8,697<br />
(a)<br />
This pertains to compensation cost incurred in connection with the construction of deep water wharf. As of 31 December 2008, the Group is in the process<br />
of applying for approval for the transfer of sea use rights from the Sea and Fishery Bureau of Yantai.<br />
Land and sea use rights<br />
The Group’s land and sea use rights are located in the People’s Republic of China (“PRC”) where the Group’s PRC shipbuilding<br />
and storage facilities reside.<br />
Group<br />
Land use rights Sea use rights Total<br />
$’000 $’000 $’000<br />
Cost<br />
At 1 January 2007 – 3,865 3,865<br />
Additions 551 50 601<br />
Currency translation differences (3) (24) (27)<br />
At 31 December 2007 548 3,891 4,439<br />
Additions 25,130 1,393 26,523<br />
Currency translation differences 942 321 1,263<br />
At 31 December 2008 26,620 5,605 32,225<br />
Accumulated amortisation<br />
At 1 January 2007 – 502 502<br />
Amortisation – 101 101<br />
Currency translation differences – (3) (3)<br />
At 31 December 2007 – 600 600<br />
Amortisation 324 128 452<br />
Currency translation differences 12 45 57<br />
At 31 December 2008 336 773 1,109<br />
Net carrying amount<br />
At 31 December 2008 26,284 4,832 31,116<br />
At 31 December 2007 548 3,291 3,839<br />
Average remaining amortisation period (years) 33 42<br />
76 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
22. Prepayments and land and sea use rights (cont’d)<br />
Land use rights agreements<br />
In accordance with the relevant PRC laws, the land use rights agreements relating to the land on which the property, plant and<br />
equipment of the PRC subsidiaries is residing allow the PRC government to expropriate the land with 30 days’ notice to the<br />
subsidiaries.<br />
In addition, the land on which the property, plant and equipment of the PRC subsidiaries is residing is held on a leasehold basis.<br />
Accordingly, the PRC subsidiaries have to obtain the approval of the relevant authorities before they can sell or mortgage certain<br />
properties on their land.<br />
The Group is in the process of applying for the State-owned Land Use Right Certificate in respect of land reclaimed from the<br />
sea.<br />
23. Intangible assets<br />
Group<br />
Goodwill<br />
Computer<br />
software<br />
licenses<br />
Total<br />
$’000 $’000 $’000<br />
Cost<br />
At 1 January 2007 13,817 3,266 17,083<br />
Arising from acquisition of equity interests from minority interests 2,580 – 2,580<br />
Additions – 2,922 2,922<br />
At 31 December 2007 16,397 6,188 22,585<br />
Currency translation differences – 120 120<br />
Additions – 6,897 6,897<br />
At 31 December 2008 16,397 13,205 29,602<br />
Accumulated amortisation<br />
At 1 January 2007 – 1,239 1,239<br />
Amortisation – 918 918<br />
At 31 December 2007 – 2,157 2,157<br />
Amortisation – 2,587 2,587<br />
Currency translation differences – 40 40<br />
At 31 December 2008 – 4,784 4,784<br />
Net carrying amount<br />
At 31 December 2008 16,397 8,421 24,818<br />
At 31 December 2007 16,397 4,031 20,428<br />
Average remaining amortisation period (years) – 6<br />
ANNUAL REPORT 2008 77
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
23. Intangible assets (cont’d)<br />
Company<br />
Computer<br />
software<br />
licenses<br />
$’000<br />
Cost<br />
At 1 January 2007 2,279<br />
Additions 2,600<br />
At 31 December 2007 4,879<br />
Additions 6,094<br />
At 31 December 2008 10,973<br />
Accumulated amortisation and impairment loss<br />
At 1 January 2007 913<br />
Additions 792<br />
At 31 December 2007 1,705<br />
Additions 2,400<br />
At 31 December 2008 4,105<br />
Net carrying amount<br />
At 31 December 2008 6,868<br />
At 31 December 2007 3,174<br />
Average remaining amortisation period (years) 2<br />
Impairment test for goodwill<br />
The recoverable amount is determined based on a value in use calculation using cash flow projections based on financial budgets<br />
approved by management covering a period of three financial years ending 2009, 2010 and 2011 (the “Projection Periods”).<br />
The pre-tax discount rate applied to the cash flow projections is 7.24%. The financial budget is prepared based on existing and<br />
potential contracts to be granted to the CGU for the Projection Periods. The Group has not projected a growth rate beyond the<br />
Projection Periods.<br />
The following described each key assumption on which management has based on its cash flow projections to undertake<br />
impairment testing of goodwill.<br />
– Budgeted gross margins – management determined the budgeted gross margin based on operational plans for the CGU<br />
and the expected margin to be achieved which is reasonable in view of the scope of services provided by the CGU.<br />
– Growth rates – management forecasted growth rates based on order book on hand as well as published industry<br />
research.<br />
78 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
24. Deferred tax<br />
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current<br />
tax liabilities and when the deferred taxes relate to the same fiscal authority. The amounts, determined after appropriate offsetting,<br />
are shown on the balance sheets as follows:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Deferred tax assets 15,994 10,778 1,611 –<br />
Deferred tax liabilities – (1,692) – (1,692)<br />
Deferred tax, net 15,994 9,086 1,611 (1,692)<br />
The movement in the deferred tax assets and liabilities during the financial year is as follows:<br />
Fair value<br />
losses on<br />
derivatives<br />
financial<br />
instruments,<br />
net<br />
Unutilised<br />
business<br />
losses<br />
Interest<br />
receivables<br />
Amortisation<br />
of preoperating<br />
expenses<br />
Group<br />
Impairment<br />
and<br />
depreciation of<br />
property, plant<br />
and equipment Provisions<br />
Accrued<br />
expenses<br />
Recognised<br />
profits on<br />
construction<br />
contracts<br />
Reinvestment<br />
allowance<br />
Total<br />
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000<br />
Deferred tax (liabilities)/<br />
assets<br />
At 1 January 2007 – – (719) 483 649 1,998 761 2,656 – 5,828<br />
Currency translation<br />
differences – – – – (4) (7) 2 (12) – (21)<br />
(Charge)/credit to income<br />
statement<br />
(Note 9) – – 719 15 (1,342) 24 102 3,761 – 3,279<br />
At 31 December 2007 – – – 498 (697) 2,015 865 6,405 – 9,086<br />
Currency translation<br />
differences 18 6 – 16 59 124 67 262 2 554<br />
(Charge)/credit to income<br />
statement<br />
(Note 9) 514 282 (713) (514) 46 5,915 189 591 44 6,354<br />
At 31 December 2008 532 288 (713) – (592) 8,054 1,121 7,258 46 15,994<br />
ANNUAL REPORT 2008 79
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
24. Deferred tax (cont’d)<br />
Deferred tax (liabilities)/assets<br />
Company<br />
Impairment and<br />
depreciation of<br />
Interest<br />
receivables<br />
property, plant<br />
and equipment Provisions Total<br />
$’000 $’000 $’000 $’000<br />
At 1 January 2007 (719) 204 1,095 580<br />
(Charge)/credit to income statement 719 (1,896) (1,095) (2,272)<br />
At 31 December 2007 – (1,692) – (1,692)<br />
(Charge)/credit to income statement (713) 311 3,705 3,303<br />
At 31 December 2008 (713) (1,381) 3,705 1,611<br />
25. Advances from customers<br />
This relates to advances received on construction contracts.<br />
26. Trade and other payables<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Trade payables:<br />
- third parties 209,289 102,458 62,280 16,780<br />
Other payables 32,806 20,570 24,130 9,952<br />
Amount due to an associate 1,244 – – –<br />
Amount due to CIMC Vehicle Financial Leasing<br />
Co., Ltd (1) 6,105 – – –<br />
Amount due to Leung Kee Holdings Ltd (2) 10,070 – 10,070 –<br />
Amount due to shareholder (3) 1,893 2,016 1,893 2,016<br />
Accrued costs of sales 60,996 13,910 – –<br />
Accrued operating expenses 7,073 9,169 4,166 6,370<br />
120,187 45,665 40,259 18,338<br />
Total 329,476 148,123 102,539 35,118<br />
(1) CIMC Vehicle Financial Leasing Co., Ltd (“CIMC Leasing) is a shareholder related company.<br />
(2) Leung Kee Holdings Ltd is a director related company.<br />
(3) The amount relates to profit sharing payable to a director cum shareholder.<br />
The carrying amounts of current trade and other payables approximate their fair values at the balance sheet date.<br />
The amount due to CIMC Leasing is unsecured, non-interest bearing and repayable on demand.<br />
The amount due to Leung Kee Holdings Ltd is unsecured, bears effective interest rate at 2.58% per annum over and above the<br />
London Inter-Bank Offered Rate and has remaining maturity terms of between 9 to 10 months.<br />
80 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
26. Trade and other payables (cont’d)<br />
Trade and other payables were denominated in the following currencies:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Chinese Renminbi 199,070 99,262 107 –<br />
Euro 26,315 15,294 18,559 6,578<br />
Singapore Dollar 6,602 13,165 6,579 13,129<br />
Sterling Pound 3,553 121 3,440 –<br />
United States Dollar 72,569 20,157 55,637 15,287<br />
Norwegian Kroner 20,556 124 17,406 124<br />
Swedish Krona 811 – 811 –<br />
329,476 148,123 102,539 35,118<br />
27. Borrowings<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Current<br />
Finance lease 36 36 36 36<br />
Loans from banks:<br />
- Secured 167,571 46,839 92,100 24,266<br />
- Unsecured 217,464 8,525 206,605 –<br />
385,035 55,364 298,705 24,266<br />
385,071 55,400 298,741 24,302<br />
Non-current<br />
Finance lease 146 188 146 188<br />
Loans from banks:<br />
- Secured 21,052 16,142 – –<br />
Loans from third party 235 220 – –<br />
21,433 16,550 146 188<br />
Total borrowings 406,504 71,950 298,887 24,490<br />
As at 31 December 2008, certain directors of the Company have provided personal guarantees amounting to $38,552,000<br />
(2007: $40,637,000) in respect of certain credit facilities granted to the Group.<br />
ANNUAL REPORT 2008 81
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
27. Borrowings (cont’d)<br />
(a)<br />
Securities granted<br />
Secured loans from banks<br />
The secured loans from banks bear effective interest at 1.96% to 8.22% (2007: 5.85% to 12.02%). Certain bank<br />
borrowings are secured by the following:<br />
(i) certain construction work-in-progress as disclosed in Note 16;<br />
(ii) certain property, plant and equipment as disclosed in Note 21;<br />
(iii)<br />
certain inventories as disclosed in Note 14; and<br />
(iv) charge over certain bank balances as disclosed in Note 11.<br />
Loan from third party<br />
Non-current loan from third party is unsecured, non-interest bearing and is not expected to be repaid within 12 months.<br />
(b)<br />
Maturity of borrowings<br />
The current borrowings have an average maturity of 3 months from 31 December 2008 (2007: 3 months). The non-current<br />
borrowings as at 31 December 2008 have maturity of between 2 to 5 years (2007: 2 to 6 years).<br />
(c)<br />
Currency risk<br />
The carrying amounts of total borrowings were denominated in the following currencies at balance sheet date:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Chinese Renminbi 85,493 36,465 – –<br />
Euro 1,056 369 – –<br />
Singapore Dollar 183 224 183 224<br />
United States Dollar 319,772 34,892 298,704 24,266<br />
406,504 71,950 298,887 24,490<br />
(d)<br />
Interest rate risks<br />
The range of the interest rates of total borrowings at the balance sheet date was as follows:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
% % % %<br />
Bank borrowings<br />
Chinese Renminbi 5.54 to 8.22 5.85 to 8.02 – –<br />
Euro Dollar 3.97 to 5.79 6.09 to 6.20 – –<br />
United States Dollar 1.96 to 7.32 6.36 to 12.02 1.96 to 6.16 6.36 to 6.87<br />
Finance lease<br />
Singapore Dollar 4.85 4.85 4.85 4.85<br />
The exposure of current and non-current borrowings to interest rate risks is disclosed in Note 36.<br />
82 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
27. Borrowings (cont’d)<br />
(e)<br />
Carrying amounts and fair values<br />
The carrying amounts of current and non-current borrowings approximated their fair values as they are repriced<br />
frequently.<br />
(f)<br />
Defaults or breaches<br />
During the current financial year, the Company breached certain financial covenants of 2 bank loans.<br />
The amount outstanding as at 31 December 2008 is $253,031,000 and is presented as current liabilities at the balance<br />
sheet date. The bank is contractually entitled to demand for full and immediate repayment of the outstanding loan amount<br />
in the event of breach of covenant prior to the contractual repayment date of 25 June 2009. Subsequent to year end, the<br />
banks have consented to a waiver of the breaches for the financial year ended 31 December 2008.<br />
As at the date of this report, no repayment demand prior to contract repayment date of 19 June 2009 has been made to<br />
the Company.<br />
28. Provision for other liabilities<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Other liabilities 8,763 8,394 2,347 2,347<br />
Provision for liquidated damages on<br />
construction contracts – 2,175 – 2,175<br />
Provision for warranties on construction<br />
contracts 7,132 7,400 7,132 7,400<br />
15,895 17,969 9,479 11,922<br />
The Group normally gives a one-year warranty on certain defects and undertakes to repair or rectify such defects resulting<br />
from faulty design. A provision was recognised at the balance sheet date for possible warranty claims based on an estimate by<br />
technical engineers and past experience of the possible level of repairs and rectifications.<br />
Movements in provision for liquidated damages on construction contracts and provision for warranties on construction contracts<br />
are as follows:<br />
Group and Company<br />
2008 2007<br />
$’000 $’000<br />
Provision for liquidated damages on construction contracts<br />
At beginning of the financial year 2,175 4,065<br />
Provision made during the financial year – 2,175<br />
Provision reversed during the financial year (2,175) (4,065)<br />
At end of the financial year – 2,175<br />
Provision for warranties on construction contracts<br />
At beginning of the financial year 7,400 6,374<br />
Provision made during the financial year 4,128 2,046<br />
Provision utilised during the financial year (4,396) –<br />
Provision reversed during the financial year – (1,020)<br />
At end of the financial year 7,132 7,400<br />
ANNUAL REPORT 2008 83
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
29. Share capital and share options<br />
(a)<br />
Share capital<br />
Group and Company<br />
No. of shares Amount<br />
‘000 $’000<br />
2008<br />
At 1 January 2008 273,500 591,246<br />
Exercise of employee share options 65 182<br />
Transfer from share option reserve – 54<br />
At 31 December 2008 273,565 591,482<br />
2007<br />
At 1 January 2007 252,200 417,608<br />
Issue of shares 21,300 178,077<br />
Share issue expenses – (4,439)<br />
At 31 December 2007 273,500 591,246<br />
The holders with ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary<br />
shares carry one vote per share without restrictions.<br />
For the financial year ended 31 December 2007, the Company issued 21,300,000 ordinary shares for a total consideration<br />
of $178,077,000 for cash to provide funds for the expansion of the Group’s operations. The newly issued shares rank pari<br />
passu in all respects with the previously issued shares.<br />
(b)<br />
Share options<br />
Fair value of share options granted<br />
The fair value of share options granted under the Scheme during the financial year is determined using the Trinomial<br />
valuation model, taking into account the terms and conditions upon which the instruments were granted. $6,777,000<br />
(2007: $2,554,000) was charged to the income statement during the financial year.<br />
At an Extraordinary General Meeting held on 21 June 2006, shareholders approved the Yantai Raffles Executive Scheme<br />
(the “Scheme”) for the granting of non-transferable share options that are settled by physical delivery of the ordinary<br />
shares of the Company, to eligible directors, senior executives and employees respectively.<br />
The Scheme is operated at the discretion of the Remuneration Committee, subject to a maximum period of 10 years from<br />
the date on which the Scheme was adopted, beyond which is subject to approval of the members by way of ordinary<br />
resolutions in general meetings and any relevant authorities which may then be required. The maximum aggregated<br />
number of shares which may be issued and/or transferred pursuant to all share options shall not exceed 10% of the issued<br />
share capital of the Company on the day preceding the date of grant.<br />
Under the Scheme, share options are granted to employees of the Group selected by the Remuneration Committee. The<br />
exercise price of the granted share options is based on the arithmetic average of the daily volume weighted average price<br />
in Norwegian Kroner (“NOK”) of the Company’s shares traded on the Norwegian OTC during the period of three trading<br />
days ending on the day before the date of grant. Where they are issued in currency other than NOK, it is based on the<br />
prevailing spot exchange rate quoted by the Company’s bank. Share options shall be exercisable in whole or in part in<br />
respect of 1,000 shares or any multiple thereof, subject to the vesting period as described by the Remuneration Committee<br />
in its absolute discretion.<br />
84 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
29. Share capital and share options (cont’d)<br />
(b)<br />
Share options (cont’d)<br />
Fair value of share options granted (cont’d)<br />
During the financial year ended 31 December 2008, a total of $1,154,003 options were granted to certain senior<br />
management staff at an exercise price between US$1.6425 to US$1.65 per share (the “2008 share options”). The 2008<br />
share options are exercisable from 1 July 2010 to 30 June 2012.<br />
Since the commencement of the Scheme till the end of the financial year:<br />
• No share options that entitle the holder to participate, by virtue of the options, in any share issue of any other<br />
corporation have been granted, and<br />
• Other than 1,154,003 share options that were granted to certain senior executives, none of whom are directors, at<br />
a discount of 45% to market average price at time of grant, there were no other share options that were issued at<br />
a discount.<br />
Details of all share options to subscribe for ordinary shares of the Company pursuant to the Scheme as at 31 December<br />
2008 are as follows:<br />
2006<br />
Share options<br />
2007<br />
Share options<br />
2008<br />
Share options<br />
Outstanding at 1 January 2008 525,000 6,690,289 –<br />
- Granted – – 1,154,003<br />
- Forfeited – (335,286) –<br />
- Exercised (65,000) – –<br />
- Cancelled (70,000) – –<br />
Outstanding at 31 December 2008 390,000 6,355,003 1,154,003<br />
Exercise price $2.80 NOK 10.50 to NOK 26.00 US$1.6425 to US$1.65<br />
Exercise period<br />
1 August 2008 to<br />
31 July 2010<br />
16 January 2009 to<br />
17 September 2017<br />
1 July 2010 to<br />
30 June 2012<br />
As at 31 December 2008, 65,000 of the share options are exercised.<br />
The fair value of share options granted during the financial year ended 31 December 2008 determined using valuation<br />
model and the charge to the income statement during the period was $530,000. The significant inputs into the model<br />
were share price of NOK16.00, at the respective grant dates, exercise price shown above, standard deviation of expected<br />
share price returns of 45%, the option life shown above and annual risk-free interest rate of between 5.23% to 5.40%.<br />
The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of volatility<br />
of market comparables.<br />
ANNUAL REPORT 2008 85
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
29. Share capital and share options (cont’d)<br />
The following table lists the inputs to the share option pricing model for the financial years ended 31 December 2008 and<br />
31 December 2007:<br />
2008<br />
Share options<br />
2007<br />
Share options<br />
2006<br />
Share options<br />
Standard deviation of expected share<br />
returns (%) 45 45 40<br />
Option life (years) 4 4 to 10 4<br />
Annual risk-free rate (%) 5.23 to 5.40 4.41 to 4.76 5<br />
Share price NOK 16.00 NOK 10.50 to NOK 26.50 $2.62<br />
30. Other reserves<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
(a)<br />
Composition:<br />
Capital reserve 2,567 2,567 – –<br />
PRC statutory surplus reserve 3,789 3,789 – –<br />
Share option reserve 9,125 2,691 9,125 2,691<br />
Fair value reserve (206) 25,992 – –<br />
Currency translation reserve 11,119 4,633 – –<br />
26,394 39,672 9,125 2,691<br />
(b)<br />
Movements:<br />
(i)<br />
Capital reserve<br />
At beginning/end of financial year 2,567 2,567 – –<br />
(ii)<br />
PRC statutory surplus reserve<br />
At beginning/end of financial year 3,789 3,789 – –<br />
(iii)<br />
Share option reserve<br />
At beginning of financial year 2,691 137 2,691 137<br />
Grant of equity-settled share<br />
options to employees 6,777 2,554 6,777 2,554<br />
Expiry of share options (289) – (289) –<br />
Exercise of share options (54) – (54) –<br />
At end of financial year 9,125 2,691 9,125 2,691<br />
86 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
30. Other reserves (cont’d)<br />
(b)<br />
Movements: (cont’d)<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
(iv)<br />
Fair value reserve<br />
At beginning of financial year 25,992 (6,836)<br />
Financial assets, available-for-sale<br />
- (Reversal)/recognition of fair value gains (Note 18) (26,198) 32,828<br />
At end of financial year (206) 25,992<br />
(v)<br />
Currency translation reserve<br />
At beginning of financial year 4,633 5,014<br />
Net currency translation differences of financial statements of foreign subsidiaries 7,469 (393)<br />
Minority interests (983) 12<br />
6,486 (381)<br />
At end of financial year 11,119 4,633<br />
(c)<br />
Share option reserve<br />
Share option reserve represents the equity-settled share options granted to employees. The reserve is made up of the<br />
cumulative value of services from employees recorded over the vesting period commencing from the grant date of equitysettled<br />
share options, and is reduced by the expiry of the share option. When the option is exercised, the amount from<br />
the share option reserve is transferred to share capital. When the share option expires, the amount from the share option<br />
reserve is transferred to accumulated gains/(losses).<br />
(d)<br />
Non-distributable statutory reserves<br />
Subsidiaries established in the PRC (the “PRC subsidiaries”) are required to maintain certain statutory reserves by transferring<br />
from their profit after taxation in accordance with the relevant laws and regulations and, if applicable, Articles of Association<br />
of the PRC subsidiaries, before any dividend is declared and paid.<br />
(i)<br />
PRC Statutory Surplus Reserve<br />
The PRC subsidiaries are required to transfer, at their directors’ recommendation, a certain percentage of their profit<br />
after taxation to the statutory surplus reserve until the balance reaches 50% of their respective registered capital,<br />
where further transfers will be at their directors’ recommendation. The statutory surplus reserve can only be used<br />
to make up prior year losses or to increase share capital, provided that the fund does not fall below 25% of the<br />
registered capital.<br />
(ii)<br />
Staff and workers’ bonus and welfare fund<br />
The PRC subsidiaries are required to appropriate staff and workers’ bonus and welfare fund from their profit after<br />
taxation calculated in accordance with the PRC accounting standards and systems. The percentage to be appropriated<br />
is determined by the board of directors of the companies. The staff and workers’ bonus and welfare fund can only<br />
be used for special bonuses and collective welfare benefits to staffs and workers. The fund may not be reversed or<br />
distributed to the owners. The staff and workers’ bonus and welfare fund, due to its nature, is classified as other<br />
liabilities in the consolidated balance sheet and correspondingly debited to staff costs in the consolidated income<br />
statement.<br />
ANNUAL REPORT 2008 87
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
30. Other reserves (cont’d)<br />
(d)<br />
Non-distributable statutory reserves (cont’d)<br />
(ii)<br />
Staff and workers’ bonus and welfare fund (cont’d)<br />
For the financial year ended 31 December 2008 and 31 December 2007, the board of directors of the PRC subsidiaries<br />
have not approved the appropriation of staff and workers’ bonus and welfare fund.<br />
(iii)<br />
Enterprise expansion fund<br />
The PRC subsidiaries are required to appropriate the enterprise expansion fund from their profit after taxation<br />
calculated in accordance with the PRC accounting standards and systems. The percentage to be appropriated is<br />
determined by the board of directors of the PRC subsidiaries. Upon approval from the board of directors, the<br />
enterprise expansion fund can be used to expand production or to increase capital.<br />
For the financial year ended 31 December 2008 and 31 December 2007, the board of directors of the PRC subsidiaries<br />
have not approved the appropriation of enterprise expansion fund.<br />
(iv)<br />
Capital reserve<br />
Capital reserve represents contribution to paid-in capital in excess of the registered capital of the PRC subsidiaries and<br />
appropriation from retained earnings in respect of waiver of debts in accordance with the PRC rules and regulations.<br />
The reserve is non-distributable under the PRC laws.<br />
31. Loans and receivables<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Non-current<br />
Amounts due from subsidiaries (non-trade) – – 55,302 74,134<br />
Current<br />
Cash and bank balances 175,233 335,082 132,640 251,969<br />
Trade and other receivables 105,839 76,502 35,126 50,321<br />
Amounts due from subsidiaries (non-trade) – – 34,349 2,622<br />
Total loans and receivables 281,072 411,584 257,417 379,046<br />
88 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
32. Financial liabilities carried at amortised cost<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Non-current<br />
Borrowings 21,433 16,550 146 188<br />
Current<br />
Trade and other payables 329,476 148,123 102,539 35,118<br />
Borrowings 385,071 55,400 298,741 24,302<br />
Amounts due to subsidiaries (trade) – – 977 82,870<br />
Provision for other liabilities 15,895 17,969 9,479 11,922<br />
Total financial liabilities carried at amortised<br />
cost 751,875 238,042 411,882 154,400<br />
33. Segment information<br />
Reporting format<br />
The primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affected<br />
predominantly by differences in the products and services produced. Secondary information is reported geographically. The<br />
operating businesses are organised and managed separately accordingly to the nature of the products and services provided,<br />
with each segment representing a strategic business unit that offers different products and serves different markets.<br />
Primary reporting format - Business segments<br />
The Group currently has only one business segment. The principal activities of the Group are to carry on the business of<br />
construction and conversion of offshore and marine projects and investment holding. Accordingly, it is not meaningful to disclose<br />
information by business segments for the current financial year.<br />
Secondary reporting format - Geographical segments<br />
The Group’s revenue by geographical segments is based on the location of its customers.<br />
Segment assets of the Group are based on the geographical location of the assets and are located in Asia, namely People’s<br />
Republic of China and Singapore.<br />
The following table shows the Group’s revenue by geographical markets:<br />
Total revenue<br />
2008 2007<br />
$’000 $’000<br />
Asia 636 562<br />
Europe 615,850 282,551<br />
USA 274,528 40,335<br />
891,014 323,448<br />
ANNUAL REPORT 2008 89
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
34. Related party transactions<br />
In addition to the related party information disclosed elsewhere in the financial statements, the following significant transactions<br />
between the Group and related parties took place at terms agreed between the parties during the financial years:<br />
(a)<br />
Sale and purchase of goods and services<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Interest paid to firm connected with a director 190 132<br />
Purchases of equipment from an associate 7,695 –<br />
Consultancy fees paid to a firm connected with a director – 409<br />
(b)<br />
Expenses<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Directors’ remuneration 1,942 3,701<br />
Directors’ fee 321 316<br />
(c)<br />
Key management personnel compensation<br />
Key management personnel compensation is analysed as follows:<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Salaries and other short-term employee benefits 2,574 3,722<br />
Share options expense 4,623 1,761<br />
7,197 5,483<br />
The remuneration of key management personnel is determined by the board of directors having regards to the performance<br />
of individuals and market trends. During the financial year ended 31 December 2008, Nil (2007: 4,100,000) share options<br />
have been granted to the Company’s directors.<br />
(d)<br />
Personal guarantees by directors<br />
As at 31 December 2008, certain directors of the Company have provided personal guarantees amounting to $38,552,000<br />
(2007: $40,637,000), to secure certain credit facilities of the Group.<br />
90 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
35. Commitments and contingencies<br />
(a)<br />
Capital commitments<br />
Capital expenditures contracted for at the balance sheet date but not recognised in the financial statements are analysed<br />
as follows:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Land and sea use rights – 1,969 – –<br />
Property, plant and equipment 27,285 40,783 – –<br />
Vessels built for sales or charter 324,608 475,044 308,900 249,061<br />
351,893 517,796 308,900 249,061<br />
During the financial year 2007, a PRC subsidiary of the Group, Yantai Raffles Offshore Ltd (“YROL”), entered into a<br />
compensation agreement in connection with the acquisition of sea use rights as disclosed in Note 22. Under this<br />
arrangement, Yantai Xing Yang is given priority to tender for YROL’s subcontract works on the condition that all terms are<br />
equal and Yantai Xing Yang has the capacity to undertake such subcontract works.<br />
(b)<br />
Operating lease commitments - where a group company is a lessee<br />
The future aggregate minimum lease payable in respect of warehouse, land and sea use rights under non-cancellable<br />
operating leases contracted for at the balance sheet date but not recognised as liabilities, are analysed as follows:<br />
Group<br />
Company<br />
2008 2007 2008 2007<br />
$’000 $’000 $’000 $’000<br />
Not later than one year 3,225 2,391 414 356<br />
Between two and five years 8,058 5,983 386 26<br />
Later than five years 10,629 9,193 – –<br />
21,912 17,567 800 382<br />
(c)<br />
Performance guarantees<br />
As of 31 December 2008, performance guarantees issued by financial institutions for contracts awarded to the Company<br />
and its subsidiaries amounted to $353,513,000 (2007: $364,985,000).<br />
(d)<br />
Contingent liabilities<br />
As of 31 December 2008, the Company has provided corporate guarantees to a financial institution for performance<br />
guarantees issued for contracts awarded to a PRC subsidiary amounting to $71,549,000 (2007: $71,425,000).<br />
ANNUAL REPORT 2008 91
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
36. Financial risk management objectives and policies<br />
The Group’s activities expose it to a variety of financial risks include market risk (including currency risk, interest rate risk and price<br />
risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management programme focuses on the<br />
unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.<br />
Risk management is carried out under policies approved by the board of directors. The board provides general principles for<br />
overall risk management such as currency risk, market risk, cash flow and fair value interest rate risk, credit risk and liquidity<br />
risk.<br />
(a)<br />
Currency risk<br />
The Group operates mainly in Asia and is exposed to foreign exchange risk arising from various currencies combinations.<br />
The Group’s sales are mainly denominated in United States Dollar (“USD”), Euro and Chinese Renminbi (“RMB”). The<br />
Group’s purchases are mainly denominated in United States Dollar, Chinese Renminbi (“RMB”), Norwegian Kroner (“NOK”)<br />
and Euro whilst its operating costs are denominated mainly in RMB and Singapore Dollar (“SGD”).<br />
To the extent that the Group’s sales, purchases and operating costs are not naturally matched in the same currency and<br />
that there is timing differences between collections and payments, the Group will be exposed to any adverse fluctuations<br />
of the various currencies against the SGD. Restrictions over the conversion or remittance of foreign currencies such as RMB<br />
may also expose the Group to adverse fluctuations in exchange rates. As a result, the Group’s earnings may be materially<br />
and adversely affected.<br />
The Group closely monitors exchange rate movements and cash flow requirements for various currencies. It seeks to enter<br />
into contracts with customers whereby progress settlements are in a mix of various currencies which it requires to pay for<br />
its purchases and operating costs. It also obtains bank borrowings in the currencies that are required for operation. The<br />
Group engages foreign currency contracts to hedge material exchange exposures.<br />
The financial statements of certain subsidiaries are prepared in their respective functional currencies, namely RMB and USD.<br />
This represents a translation risk in that any material fluctuation in the RMB and USD against SGD will have an effect on<br />
the Group’s consolidated financial statements which are presented in SGD. Translation exposure is not normally hedged as<br />
these investments are intended to be held on a long term basis and the translation risk arising from the investments cannot<br />
be appropriately hedged by short-term hedging instruments available. Furthermore, the cost of entering into such hedging<br />
activities outweighs the benefits.<br />
Currently, the PRC government imposes control over foreign currencies. RMB, the official currency of the PRC, is not freely<br />
convertible. Enterprises operating in the PRC can enter into exchange transactions through the People’s Bank of China or<br />
other authorised financial institutions.<br />
Payments for imported materials or services, which are outside of the PRC, are subject to the availability of foreign currency<br />
which depends on the foreign currency denominated earnings of the enterprises. Exchanges of RMB for foreign currency<br />
must be arranged through the People’s Bank of China or other authorised financial institutions and is granted to enterprises<br />
in the PRC for valid reasons such as purchase of imported materials and remittance of earnings. While conversion of<br />
RMB into SGD or other currencies can generally be effected at the People’s Bank of China or other authorised financial<br />
institutions, there is no guarantee that it can be effected at all times.<br />
The Group’s currency exposure is disclosed in the respective notes to the financial statements relating to the financial assets<br />
and financial liabilities.<br />
92 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
36. Financial risk management objectives and policies (cont’d)<br />
(a)<br />
Currency risk (cont’d)<br />
The following table demonstrates the sensitivity to a reasonably possible change in the EUR, NOK, USD and GBP against<br />
the S$ and RMB$, with all other variables held constant, of the Group’s profit net of tax:<br />
Group<br />
Profit net of tax<br />
2008 2007<br />
$’000 $’000<br />
EUR/SGD: - strengthened 5% (2007: 5%) 1,014 1,154<br />
- weakened 5% (2007: 5%) (1,014) (1,154)<br />
EUR/RMB: - strengthened 5% (2007: 5%) (121) (151)<br />
- weakened 5% (2007: 5%) 121 151<br />
NOK/SGD: - strengthened 5% (2007: 5%) (781) 4,613<br />
- weakened 5% (2007: 5%) 781 (4,613)<br />
NOK/RMB: - strengthened 5% (2007: 5%) (158) -<br />
- weakened 5% (2007: 5%) 158 -<br />
USD/SGD: - strengthened 5% (2007: 5%) (11,385) 6,963<br />
- weakened 5% (2007: 5%) 11,385 (6,963)<br />
USD/RMB: - strengthened 5% (2007: 5%) (1,642) 26<br />
- weakened 5% (2007: 5%) 1,642 (26)<br />
GBP/SGD: - strengthened 5% (2007: 5%) (172) -<br />
- weakened 5% (2007: 5%) 172 -<br />
(b)<br />
Price risk<br />
The Group is exposed to equity securities price risk because of the investments held by the Group classified as “financial<br />
assets, available-for-sale”. The securities are listed on the stock exchanges in Australia and Norway.<br />
Sensitivity analysis for equity price risk<br />
As at 31 December 2008, if a general increase of 5% (2007: 5%) in market price of investment is estimated, with all<br />
other variables held constant, the fair value reserve would increase by $176,000 for the year ended 31 December 2008<br />
(2007: $2,944,000). A general decrease of the same percentage in market price of investment would have had the equal<br />
but opposite effect on the fair value reserve to the amount shown above, on the basis that all other variables remain<br />
constant.<br />
(c)<br />
Cash flow and fair value interest rate risks<br />
Cash flow interest rate risk is the risk that the future cash flows of financial instrument will fluctuate because of changes<br />
in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to<br />
changes in market interest rates. The Group’s borrowings are currently predominantly variable rate loans and are expected<br />
to reprice in less than one year from the financial year end.<br />
The Group’s policy is to obtain the most favourable rates available to manage interest cost, whilst taking into consideration<br />
an increasing or declining interest rate environment.<br />
ANNUAL REPORT 2008 93
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
36. Financial risk management objectives and policies (cont’d)<br />
(c)<br />
Cash flow and fair value interest rate risks (cont’d)<br />
The financial assets and liabilities of the Group are non-interest bearing except for cash and bank balances and borrowings<br />
as set out in the table below, categorised by the earlier of contractual repricing or maturity date.<br />
Less than<br />
6 months<br />
Variable rates<br />
6 to 12<br />
months<br />
1 to 5<br />
years<br />
Less than<br />
6 months<br />
Fixed rates<br />
6 to 12<br />
months<br />
1 to 5<br />
years<br />
Over 5<br />
years<br />
Noninterest<br />
bearing<br />
Total<br />
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000<br />
Group<br />
At 31 December 2008<br />
Assets<br />
Cash and bank balances 42,566 – – 103,958 – – – 28,709 175,233<br />
Liabilities<br />
Borrowings 306,952 33,682 21,051 30,754 13,683 146 – 236 406,504<br />
At 31 December 2007<br />
Assets<br />
Cash and bank balances 90,539 – – 219,263 – – – 25,280 335,082<br />
Liabilities<br />
Borrowings 24,266 5,375 16,142 1,496 24,263 – 188 220 71,950<br />
The Group’s borrowings at variable rates are denominated in Euro, Singapore Dollar, Chinese Renminbi and United States<br />
Dollar as disclosed in Note 27.<br />
Variable<br />
rates<br />
Less than<br />
6 months<br />
Less than<br />
6 months<br />
Fixed rates<br />
6 to 12<br />
months<br />
1 to 5<br />
years<br />
Over 5<br />
years<br />
Noninterest<br />
bearing<br />
Total<br />
$’000 $’000 $’000 $’000 $’000 $’000 $’000<br />
Company<br />
At 31 December 2008<br />
Assets<br />
Cash and bank balances 111 103,822 – – – 28,707 132,640<br />
Liabilities<br />
Borrowings 296,425 2,316 – 146 – – 298,887<br />
At 31 December 2007<br />
Assets<br />
Cash and bank balances 7,564 219,128 – – – 25,277 251,969<br />
Liabilities<br />
Borrowings 24,266 – 36 – 188 – 24,490<br />
The Company’s borrowings at variable rates are denominated in Singapore Dollar and United States Dollar as disclosed in<br />
Note 27.<br />
94 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
36. Financial risk management objectives and policies (cont’d)<br />
(d)<br />
Credit risk<br />
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the<br />
Group. For trade receivables, the Group adopts the policy of assessing credit worthiness and credit history of customers<br />
and obtaining sufficient security where appropriate to mitigate credit risk.<br />
The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, available-for-sale financial<br />
assets, amounts due from associates, other receivables and certain derivative instruments, arises from default of the<br />
counterparty, with a maximum exposure equal to the carrying amounts of these financial instruments. The Company is<br />
also exposed to credit risk through the granting of financial guarantees, further details of which are disclosed in Note 35<br />
to the financial statements.<br />
As at 31 December 2008, 98% (2007: 96%) of trade receivables relate to 3 major customers of the Group. The Group has<br />
policies in place to ensure its dealings are with customers with an acceptable credit history.<br />
(e)<br />
Liquidity risk<br />
The Group monitors its risks to a shortage of funds and considers the maturity of its financial assets and liabilities and<br />
projected cash flows from operations. The Group’s objective is to maintain a balance between continuity of funding and<br />
flexibility through the use of stand-by credit facilities.<br />
The Group and the Company monitor and manage internal liquidity risk and seek to maintain sufficient liquid financial<br />
assets and stand-by credit facilities with at least five major financial institutions. At the balance sheet date, approximately<br />
94.7% (2007: 77%) of the Group’s loans and borrowings (Note 27) will mature in less than one year based on the carrying<br />
amount reflected in the financial statements. 99.9% (2007: 99.2%) of the Company’s loans and borrowings will mature<br />
in less than one year at the balance sheet date. As at 31 December 2008, the Group has unutilised banking facilities of<br />
$245.8 millions. The Group is actively seeking to extend the maturity profile of its borrowings, particularly with the major<br />
Chinese banks, to the extent current market conditions allow. The Group is also seeking to establish new banking facilities<br />
to enhance its liquidity position and accommodate future repayment obligations. Subsequent to the year end, the Group<br />
has secured new banking facilities amounting to $425.7 millions. As at the date of this report, the Group has undrawn<br />
banking facilities aggregating $274.3 millions. The Group also has further applications in progress at various stages of<br />
approvals aggregating $973.8 millions.<br />
During the financial year, the Company breached certain similar financial covenants of two bank loans with an outstanding<br />
aggregate balance of $253,031,000 as at 31 December 2008. Subsequent to year end, the banks have consented to a<br />
waiver of the breaches and no repayment demand prior to contractual repayment date has been made.<br />
The table below summarises the maturity profile of the Group’s and the Company’s financial liabilities at the balance sheet<br />
date based on contractual undiscounted payments.<br />
Group<br />
2008 2007<br />
1 year 1 to 5<br />
1 year 1 to 5<br />
or less years Total or less years Total<br />
$’000 $’000 $’000 $’000 $’000 $’000<br />
Trade and other payables 329,476 – 329,476 148,123 – 148,123<br />
Borrowings 389,015 23,833 412,848 56,557 19,667 76,224<br />
718,491 23,833 742,324 204,680 19,667 224,347<br />
Company<br />
Trade and other payables 102,539 – 102,539 35,118 – 35,118<br />
Borrowings 300,091 230 300,321 24,491 297 24,788<br />
Due to subsidiaries (trade) 258 719 977 82,870 – 82,870<br />
402,888 949 403,837 142,479 297 142,776<br />
ANNUAL REPORT 2008 95
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
36. Financial risk management objectives and policies (cont’d)<br />
(f)<br />
Fair values<br />
The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between<br />
knowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale.<br />
Management has determined that the carrying amounts of cash and short term deposits, current trade and other<br />
receivables, bank overdrafts, current trade and other payables, other liabilities, current bank loans and non-current floating<br />
rate loans based on their notional amounts, reasonably approximate their fair values because these are mostly short term<br />
in nature or are repriced frequently.<br />
(g)<br />
Derivative financial instruments<br />
Cash flow hedges – Embedded foreign currency forward contracts<br />
The Group closely monitors exchange rate movements and cash flows for the various currencies in which the Group<br />
transacts its business. The Group seeks to enter into contracts with customers where progress payments are made in a mix<br />
of various currencies (such as USD, EUR, NOK and RMB) which the Group requires to pay for its purchases and operating<br />
costs. Contractual payments due from customers and denominated in currencies other than the currency in which the shipbuilding<br />
contracts are routinely expressed, the functional currencies of the Company or the customers, are deemed to be<br />
contracts with embedded derivatives which are required to be accounted for separately under FRS 39 as if the Group had<br />
entered into foreign currency forward contracts.<br />
Forward currency contracts are also used to hedge the Group’s sales and purchases denominated in USD for which firm<br />
commitments existed at the balance sheet date, extending to July 2009.<br />
Under these arrangements, as of balance sheet date, the fair value and notional amount of derivative financial instruments<br />
(namely embedded foreign currency forward contracts and forward currency contracts) of the Group as at 31 December<br />
are as follows:<br />
Group<br />
2008 2007<br />
S$’000<br />
S$’000<br />
Contract/<br />
Notional<br />
Amount Assets Liabilities<br />
Contract/<br />
Notional<br />
Amount Assets Liabilities<br />
Embedded derivatives 548,602 6,674 (13,705) 693,789 24,400 –<br />
Forward currency contracts 665,007 5,560 (13,270) – – –<br />
Total derivatives 12,234 (26,975) 24,400<br />
Company<br />
2008 2007<br />
S$’000<br />
S$’000<br />
Contract/<br />
Notional<br />
Amount Assets Liabilities<br />
Contract/<br />
Notional<br />
Amount Assets Liabilities<br />
Embedded derivatives 548,602 6,674 (13,705) 693,789 24,400 –<br />
Forward currency contracts 564,312 5,543 (11,125) – – –<br />
Total derivatives 12,217 (24,830) 24,400<br />
As at 31 December 2008 and 2007, the derivative financial instruments of the Group and the Company are not designated<br />
nor qualify for hedge accounting. Fair value changes are recognised in the income statement and hence, no hedging<br />
reserve is recorded as at 31 December 2008 and 2007.<br />
96 YANTAI RAFFLES SHIPYARD LIMITED
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
37. Capital management<br />
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital<br />
ratios in order to support its business and maximise shareholder value.<br />
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions and the risk<br />
characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment<br />
to shareholders, return capital to shareholders or issue new shares. As disclosed in Note 30(d), the PRC subsidiaries of the Group<br />
are required to contribute and maintain a non-distributable statutory surplus reserve fund and enterprise expansion fund. This<br />
externally imposed capital requirement has been complied with by the subsidiaries for the financial year ended 31 December<br />
2008 and 2007. No changes were made in the objectives, policies or processes for managing capital during the year ended 31<br />
December 2008.<br />
The Group monitors capital using a gearing ratio, which is net debt divided by the total capital plus net debt. The Group ideally<br />
targets to maintain a gearing ratio between 30% and 70%. Net debts includes interest-bearing bank and other borrowings,<br />
loans from associates, trade and other payables, accruals, less cash and cash equivalents. Capital includes equity attributable to<br />
equity holders of the parent, less the hedging reserve or the net unrealised gains reserve. The Group’s ability to raise additional<br />
capital under favourable terms is subject, inter alia, to external market forces and factors that are beyond the Group’s control.<br />
The gearing ratios as the balance sheet dates were as follows:<br />
Group<br />
2008 2007<br />
$’000 $’000<br />
Borrowings (Note 27) 406,504 71,950<br />
Trade payables and other payables (Note 26) 329,476 148,123<br />
Provision for other liabilities (Note 28) 15,895 17,969<br />
Less: Cash and bank balances (Note 11) (175,233) (355,082)<br />
Net debt 576,642 (117,040)<br />
Equity attributable to the equity holders of the Company 564,357 550,178<br />
Less: - Fair value reserve (Note 30) 206 (25,992)<br />
- Statutory reserve fund (Note 30) (3,789) (3,789)<br />
Total capital 560,774 520,397<br />
Capital and net debt 1,137,416 403,357<br />
Gearing ratio 51% n.m.<br />
n.m.: not meaningful<br />
ANNUAL REPORT 2008 97
NOTES <strong>TO</strong> <strong>THE</strong> FINANCIAL STATEMENTS<br />
For the financial year ended 31 December 2008<br />
38. Comparatives<br />
Certain comparative figures have been reclassified to conform with the current year’s presentation as follows:<br />
Balance Sheets<br />
Group<br />
Company<br />
As previously<br />
stated 2007<br />
As restated<br />
2007<br />
As previously<br />
stated 2007<br />
As restated<br />
2007<br />
$’000 $’000 $’000 $’000<br />
Current assets<br />
Inventories 106,276 209,014 – 74,417<br />
Vessels under construction 114,506 11,768 180,374 105,957<br />
Construction work-in-progress in<br />
excess of progress billings 70,633 103,013 499,376 531,756<br />
Other current assets 231,731 339,689 920 108,878<br />
Current liabilities<br />
Progress billings in excess of<br />
construction work-in-progress 508,617 648,955 479,681 620,019<br />
39. Authorisation of financial statements<br />
The consolidated financial statements for the financial year ended 31 December 2008 were authorised for issue in accordance<br />
with a resolution of the board of directors of Yantai Raffles Shipyard Limited on 25 May 2009.<br />
98 YANTAI RAFFLES SHIPYARD LIMITED
SHAREHOLDINGS STATISTICS<br />
As at 25 May 2009<br />
Shareholders List as at 25 May 2009<br />
No. Shareholders No. of Shares Percentage<br />
1 DNB Nor Bank ASA 131,147,700 47.94%<br />
2 Leung Kee Holdings Limited 51,758,207 18.92%<br />
3 Sharp Vision Holdings Limited 27,356,500 10.00%<br />
4 Yantai Shipyard Pte Ltd 19,200,000 7.02%<br />
5 Brian Chang 12,976,087 4.74%<br />
6 Bright Touch Investment Limited 9,521,306 3.48%<br />
7 Platinum Nominees Limited 9,284,200 3.39%<br />
8 Airtrust (Singapore) Pte Limited 3,715,000 1.39%<br />
9 Francis James Reidy 2,744,000 1.00%<br />
10 James W. Reidy 1,257,000 0.46%<br />
Total 268,960,000 98.32%<br />
ANNUAL REPORT 2008 99
NOTICE <strong>OF</strong> ANNUAL GENERAL MEETING<br />
NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held on 24 June 2009 (Wednesday) at 4.00 p.m.<br />
(Singapore Time) at Pan Pacific Orchard, Monet Room, Level 3, 10 Claymore Road, Singapore 229540 for the following purposes:-<br />
As Ordinary Business<br />
1.<br />
2.<br />
To receive and adopt the Directors’ Report and Audited Accounts for the financial year ended 31 December 2008, together<br />
with the Auditors’ Report thereon.<br />
(Resolution 1)<br />
To re-elect Mr Mai Bo Liang, a Director retiring pursuant to Article 97 of the Articles of Association of the Company.<br />
(Resolution 2)<br />
3.<br />
4.<br />
5.<br />
6.<br />
To re-elect Mr Brian Chang, a Director retiring by rotation pursuant to Article 91 of the Articles of Association of the<br />
Company.<br />
(Resolution 3)<br />
To re-elect Mr Francis James Reidy, a Director retiring by rotation pursuant to Article 91 of the Articles of Association of the<br />
Company.<br />
(Resolution 4)<br />
To re-elect Mr Ang Kong Hua, a Director retiring by rotation pursuant to Article 91 of the Articles of Association of the<br />
Company.<br />
(Resolution 5)<br />
To approve the payment of Directors’ fees of S$320,667 for the financial year ended 31 December 2008.<br />
(Resolution 6)<br />
7.<br />
To re-appoint Ernst & Young LLP as Auditors and to authorize the Directors to fix their remuneration.<br />
(Resolution 7)<br />
As Special Business<br />
8.<br />
To consider, and if thought fit, to pass the following resolution as an ordinary resolution, with or without modifications:-<br />
“AUTHORITY <strong>TO</strong> ISSUE SHARES<br />
That pursuant to the provisions of Section 161 of the Companies Act, Cap. 50, the Directors be and are hereby authorized<br />
to allot and issue:<br />
(i)<br />
(ii)<br />
shares in the Company; and<br />
convertible securities and any shares in the Company pursuant to the conversion of such convertible securities<br />
(whether by way of rights, bonus or otherwise) at any time and from time to time upon such terms and conditions whether<br />
for cash or otherwise with such rights and restrictions and for such purposes and to such persons as the Directors shall in their<br />
absolute discretion deem fit to impose and that such authority shall continue in force until the conclusion of the next Annual<br />
General Meeting or the expiration of the period within which the next Annual General Meeting of the Company is required<br />
by law to be held, whichever is earlier.”<br />
(Resolution 8)<br />
100 YANTAI RAFFLES SHIPYARD LIMITED
NOTICE <strong>OF</strong> ANNUAL GENERAL MEETING<br />
As Special Business (cont’d)<br />
9.<br />
To transact any other business that may properly be transacted at an Annual General Meeting<br />
By Order of the Board<br />
OO LAY KIM<br />
Company Secretary<br />
Singapore, 5 June 2009<br />
Explanatory Notes:<br />
• Mr Mai Bo Liang, upon re-election as a Director, will remain as the Chairman of the Board of Directors.<br />
• Mr Brian Chang, upon re-election as a Director, will remain as the Deputy Chairman of the Board of Directors and a member of<br />
the Nominating Committee.<br />
• Mr Francis James Reidy, upon re-election as a Director, will remain as a member of the Audit Committee and a member of the<br />
Remuneration Committee.<br />
• Mr Ang Kong Hua, upon re-election as a Director, will remain as the Chairman of the Nominating Committee, Chairman of the<br />
Remuneration Committee and a member of the Audit Committee.<br />
• Ordinary Resolution 8 is to empower the Directors of the Company from the date of the above meeting until the next Annual<br />
General Meeting to issue shares and convertible securities in the Company. This authority will, unless revoked or varied at a<br />
general meeting, expire at the conclusion of the next Annual General Meeting of the Company or the expiration of period within<br />
which the next Annual General Meeting of the Company is required by law to be held, whichever is earlier.<br />
Notes:<br />
1.<br />
2.<br />
3.<br />
A member of the Company entitled to attend and vote at the Annual General Meeting of the Company is entitled to appoint one<br />
or two proxies to attend in his stead. A proxy need not be a member of the Company.<br />
A member of the Company which is a corporation is entitled to appoint its authorized representatives or proxies to vote on its<br />
behalf.<br />
The instrument appointing a proxy must be deposited at the Registered Office of the Company at 1 Claymore Drive #08-04, Orchard<br />
Towers, Singapore 229594 not less than 48 hours before the time appointed for holding of the Annual General Meeting.<br />
ANNUAL REPORT 2008 101
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YANTAI RAFFLES SHIPYARD LIMITED<br />
No. 1 Claymore Drive<br />
#08-04 Orchard Towers<br />
Singapore 229594