RISING TO THE CHALLENGE

Transcription

1 RISING TO THE CHALLENGE Annual Report 2008

2 Wisdom Courage Credence Integrity Investor Relations Contacts COSCO Corporation (Singapore) Limited Mr Li Jian Xiong, Vice President Tel: (65) Fax: (65) SPIN Capital Asia (Investor Relations Consultant) Mr Michael Tan / Ms Dawn Soo Tel: (65) / (65) michael@spin.com.sg

3 Rising to the challenge with the spirit of enterprise Since its inception, COSCO Corporation s fundamental values have remained strong and steadfast. It is this spirit that takes COSCO Corporation to the heights of world-class excellence. Now, even as challenges loom, we stand strong and undaunted. The spirit of enterprise has taken us this far and we trust that it will not only tide us through the storm but take us further. COSCO OVERVIEW 02 Corporate Profile 04 Corporate Structure 06 Financial Highlights 08 Significant Events After all, there is no greater challenge than to emerge victorious in this unprecedented financial crisis. INSIDE COSCO AND CORPORATE CITIZENSHIP 78 Research and Development 80 Human Resources 82 Workplace Safety 84 Corporate Social Responsibility COSCO Overview KEY MESSAGES 14 Chairman s Message 18 Vice Chairman and President s Message OPERATIONS REVIEW 24 Our Strengths and Capabilities 26 Our Major Shipyards 28 Business Overview 32 Ship Repair, Ship Building, Offshore Marine Engineering 34 Dry Bulk Shipping 36 Shipping Agency 38 Group Financial Review CORPORATE GOVERNANCE AND TRANSPARENCY 42 Corporate Governance 58 Board of Directors 64 Key Management 66 Organisation Structure 67 Corporate Information 68 Investor Relations 72 Risk Management FINANCIAL STATEMENTS 86 Directors Report 92 Statement by Directors 93 Independent Auditor s Report 94 Consolidated Income Statement 95 Balance Sheets 96 Consolidated Statement of Changes in Equity 98 Consolidated Cash Flow Statement 100 Notes to the Financial Statements 166 Five-Year Summary 167 Shareholding Statistics 169 Notice of Annual General Meeting Proxy Form for Annual General Meeting Notes for Proxy Form 01

4 Annual Report 2008 Corporate Profile COSCO Corporation (Singapore) Limited ( COSCO Corporation or the Group ) has one of the largest Ship Repair, Ship Building and Marine Engineering operations in China. A diversified group with activities also in Dry Bulk Shipping, Shipping Agency and other sectors, it is the SGX Mainboard-listed subsidiary of China Ocean Shipping (Group) Company ( COSCO Group ), China s largest shipping group and one of the top shipping conglomerates in the world. COSCO Corporation has achieved significant progress in growing its Ship Repair, Ship Building and Marine Engineering capacity and capabilities. The completion of its acquisition of a 51% stake in one of the largest shipyards in China, COSCO Shipyard Group ( COSCO Shipyard ), on 1 January 2005 had propelled COSCO Corporation into the premier league in the ship repair industry. 02

5 COSCO Corporation is poised to continue in its dynamic growth momentum for further breakthrough in its core businesses and global coverage. COSCO Corporation is a component stock in the Straits Times Index, which comprised of the 30 largest listed companies in terms of market capitalisation in Singapore. In October 2006, COSCO Corporation was rated as a component stock of Prime Partners China Index - the first index that tracks the performance of China enterprises listed on the SGX. Since January 2008, we have been part of the FTSE ST China Index, and from July 2008, we were also included in the FTSE ST China Top Index, both of which were created to reflect the increasing representation of China-based companies in the Singapore stock market. Among other indexes, we are also a component stock of the Morgan Stanley Capital International World Index as well as the SGX Morgan Stanley Capital International Asia Apex 50 Index Futures which feature some of the most promising, widely-traded and investible Asian companies outside Japan. COSCO Overview 03

6 Annual Report 2008 Corporate Structure COSCO Corporation (Singapore) Limited Dry Bulk Shipping COSCO (Singapore) Pte Ltd Shipping 100 % Agency & Others Cos Fair Shipping Pte Ltd Cos Glory Shipping Inc. Hanbo Shipping Limited Sanbo Shipping Limited Cos Knight Shipping Maritime Inc. Cos Lucky Shipping Maritime Inc. Cos Orchid Shipping Pte Ltd Cos Prosperity Shipping Pte Ltd 70 % COSTAR Shipping Pte Ltd 18.0 % 70 % COSLINK (M) Sdn. Bhd. 04

7 Ship Repair, Ship Building & Marine Engineering 90 % COSCO Marine Engineering (Singapore) Pte Ltd 58.7 % 51 % COSCO Shipyard Group Co., Ltd COSCO (Dalian) Shipyard Co., Ltd COSCO Overview 50.0 % COSCO (Nantong) Shipyard Co., Ltd 100 % COSCO (Zhoushan) Shipyard Co., Ltd 75.0 % COSCO (Guangdong) Shipyard Co., Ltd 100 % Harington Property Pte Ltd 95.0 % COSCO (Shanghai) Shipyard Co., Ltd 90.0 % COSCO (Tianjin) Shipyard Co., Ltd 51.0 % COSCO (Xiamen) Shipyard Co., Ltd 60.0 % COSCO (Lianyungang) Shipyard Co., Ltd Ship Repair, Ship Building & Marine Engineering Dry Bulk Shipping Shipping Agency And Others Note: This chart only includes major subsidiaries of COSCO Corporation (Singapore) Limited 05

8 Annual Report 2008 Financial Highlights Turnover (S$ m) ,262 3, ,215 Net Profit Attributable to Equity Holders (S$ m) Net Assets (S$ m) ,303 1,609 Revenue By Activities (%) 92% 7% 1% Ship Repair, Ship Building & Marine Engineering Dry Bulk Shipping Shipping Agency and Others 06

9 5-Year Profit and Loss Accounts S$ m S$ m S$ m S$ m S$ m Turnover Operating Profit before Tax Share of Profit of Associated Companies Taxation Profit from Ordinary Activities Minority Interest Net Profit attributable to Equity Holders of the Company , , , Other Key Statistics Number of Shares (m) Basic Earnings per Share (cents) * Dividend per Share (cents) Dividend Cover (times) Net Tangible Assets (cents) * Net Assets Value per Share (cents) Gearing Ratio (net of cash)(times) Return on Equity (%) Return on Assets (%) ,085.1 # # ,098.8 # , , cash , cash COSCO Overview * Basic earnings per share and net tangible assets per share have been adjusted to account for the bonus shares issued in 2004 and sub-division of one ordinary share of $0.20 each into two ordinary shares of $0.10 each in 2006 # Based on shares of 20 cents par value each Dividends per Share (cents) and Basic Earnings per Share (cents) # Dividends per share (cents) Basic earnings per share (cents) # Based on shares of 20 cents par value each 07

10 Annual Report 2008 Significant Events January 2008 Signed an agreement with the local government of Jiangsu to begin construction of a marine engineering base in Qidong Industrial Park, Jiangsu. Began expansion work on COSCO Nantong offshore construction base. Won US$422m worth of conversion and tanker building projects. March 2008 Implemented CIMS ship building management system to refine our project management model. Celebrated the opening of our subsidiary COSCO Lianyungang, Jiangsu province. COSCO Corporation, together with the rest of the COSCO Group donated to the Zhoushan Buddhist Association for the construction of Liu Heng Zhong Yuan Primary School. 08

11 April 2008 Implemented a series of measures to encourage green and sustainable development. Won high-value offshore & tanker building contracts totaling US$292m. May 2008 COSCO Overview Commenced our Clarity campaign to standardise and protect our production capabilities through adoption of the TnPM management model. Held our first Safety Quiz to promote a further strengthening of our emphasis on workplace safety. The Shipping Logistics Department of COSCO Zhoushan Shipyard and the floating dock Ocean II of our Guangdong shipyard both won the national Workers Pioneer award. COSCO Shipyard s Managing Director Mr Wang Xing Ru was awarded the prestigious National Labour Day s Labour Medal. 09

12 Annual Report 2008 Significant Events July 2008 Commenced operation of COSCO s design centre COSCO-KOMAC. Celebrated the commencement of our first training programme for fresh graduates with an Opening Ceremony in Dalian. Completed and delivered COSCO s first offshore newbuilding product 350,000 bbl JVPC FSO FSO Rang Dong MV - 17 at Zhoushan. September 2008 Implemented a new organisation structure comprising a reseach & development unit within the Ship Repair and Building department. Set up a new Quality Control centre and an Inventory Control Department. Won high value ship building and conversion contracts amounting to about US$256m. 10

13 November 2008 Completed conversion of Apollo Shoju one of the world s largest FPSO. December 2008 Independently designed, constructed, and delivered one of the world s largest floating dock of 120,000 tonne lifting capacity to a Korean customer. Achieved a breakthrough in technology the dock does not use anchors, and is able to operate like a semisubmersible barge carrying out underwater work. COSCO Overview Completed multi-functional offshore rig FDPSO MPF1000 at Dalian. This FDPSO was built using breaking on-ground ship building technology. 11

14 智 者不惑 Wisdom is rising to the test

15 WISDOM OVER THE YEARS, OUTSTANDING LEADERS HAVE LED COSCO CORPORATION SUCCESSFULLY TOWARDS THE ACCOMPLISHMENT OF ITS GOALS. THIS YEAR, COSCO CORPORATION WELCOMES A NEW LEADER WHO WILL DIRECT THE GROUP TO GREATER GLORY.

16 Annual Report 2008 Chairman s Message With steadfast management, we sailed the COSCO ship on an even keel... 14

17 2008 A Year of Strength 2008 was an extraordinary year for COSCO Corporation. With steadfast management, we sailed the COSCO ship on an even keel amidst challenging economic conditions. For the year under review, we booked a strong increase of revenues by 54% to $3.5 billion. Gross profit grew 3% to $630.1 million in FY2008 while net profit attributable to equity holders was booked at $302.6 million, a decrease of 10%, year on year, due to allowance for impairment of trade and other receivables made in light of the adverse global economic climate and the higher costs incurred in ship building and offshore marine engineering projects. Earnings per share (diluted) amounted to cents per share. I am pleased to report that the Board has recommended a first and final dividend of 7.0 cents for the FY2008 which comprises ordinary dividend of 4.0 cents per share and a special dividend of 3.0 cents per ordinary share. We have strived to maintain the same dividend payout despite the challenges in the current economic climate as we firmly believe the future prospects for COSCO Corporation remain bright and are confident of our strong financial position. Meanwhile, our shares continue to be one of the most liquid actively traded counters on the local bourse, which is a testimony of shareholder interest. Milestones In FY2008, we showed operational agility and strategic acumen that underscored our development during the year. We expanded our shipyard capacity, further established a solid presence in offshore marine engineering, progressing to more technically sophisticated marine engineering projects, such as Sevan 650 ordered by Norwegian marine company Sevan Marine ASA. In July, we successfully delivered our first FSO project to a Japanese customer whose expectations on the technical and commercial standards of the unit were both met by our shipyard. These milestones of the past year are a true reflection of our innate strength and capabilities that will enable our Group s further expansion. Key Messages 15

18 Annual Report 2008 Chairman s Message Financially, we remain strong, with a healthy balance sheet of increased assets and sizeable cash position. Co-ordinated Government Efforts On the wider horizon, in the face of gloomy economic news, various major financial institutions and corporations are being bailed out by their national governments to prevent their respective economies from further deterioration. The Baltic Dry Index (BDI), a measurement of global freight rates and a leading economic indicator of global economic prospects, elicits signs of recovery from a precipitous low last December. Meanwhile, the Chinese, Japanese, European, and American governments have passed large fiscal stimulus packages. The US Administration recently enacted in February 2009 a record US$787 billion stimulus package aimed at reviving the American economy. It is reassuring that the governments of all major economies are keenly aware that co-ordinated, concrete efforts are essential to adequately address the weakened world economy. Sustainable Development in COSCO Despite the challenging external environment, I remain confident in the healthy, sustainable and sound development of all business sectors of COSCO Corporation and in particular, I foresee that our shipyards will remain busy. As at 31 December 2008, our order book stands at US$7.3 billion with progressive deliveries to the first half of Financially, we remain strong, with a healthy balance sheet of increased assets and sizeable cash position. The moderating business climate might actually create attractive opportunities for strategic restructuring. We firmly believe in the importance of creating and nurturing competitive advantages and understand that effective strategic positioning will anchor our business and secure our future. The long term outlook for our business remains bright. Our COSCO Shipyard Group, which oversees six major shipyards in China, is operating at a brisk pace and has reinforced its strong commitment to steer our business forward. 16

19 According to the International Energy Agency (IEA) World Energy Outlook 2008 report, energy demands for oil are projected to grow as economic giants China, India, Brazil, Mexico and other populous countries continue their long term development trajectory. These developments augur well for our offshore marine engineering activities, as there will be demand for oil rigs to tap new, far flung sources of oil. Shipping, likewise, will continue to play a vital role in the infrastructure of the global economy and commerce. In consequence, the demand for new ships and ship repair will also continue. Conclusion COSCO Corporation continues to enjoy the confidence and support of the wider COSCO Group in general and the parent company in particular. In meeting the challenges ahead, COSCO Corporation would be able to call on the formidable resources of the COSCO Group. This is a distinct and competitive advantage in today s environment. On behalf of the Board of Directors, I welcome on board Mr Jiang Li Jun as our new Vice Chairman and President. With his 34 years of experience in the shipping industry and over 10 years of experience in the management of listed companies, we look forward to his wise and capable leadership. Finally, I would like to thank the directors for their devotion and advice and I applaud the outstanding efforts made by our staff. To our loyal shareholders, my heartfelt gratitude for your confidence and continued support. Though we are unsure how long this global recession will last, I assure you that together, we will rise to the challenges ahead. Li Jian Hong Chairman Key Messages 17

20 Annual Report 2008 Vice Chairman and President s Message Highlights of FY2008 For the year in review, COSCO Corporation booked a net profit attributable to equity holders of $302.6 million on the back of $3.5 billion in record revenue, an increase of 54% over FY2007. Compared with the year before, diluted earnings decreased by 10% to 13.5 cents per share while our net asset value grew 21.7% to 51.1 cents per share. Our revenues grew during the year with a steady fulfillment of our order book. The largest business segment of ship repair, ship building and marine engineering business saw a robust surge of 57% from revenues of $2.0 billion in FY2007 to $3.2 billion in FY2008. The offshore marine engineering division has been growing steadily. Indeed, the progress made to the building of SEVAN 650, a complex cylindrical shaped drilling unit for deep water oil exploration and drilling, is not only a testament to our growing technical expertise but also signals the widening revenue streams we have strategically engineered. On 17 July 2008, we marked a milestone by successfully delivering on schedule our first offshore marine project, a Floating, Storage and Offloading (FSO) vessel. This was from our Zhoushan shipyard to a Japanese customer. Meanwhile, on 20 November 2008, COSCO Corporation delivered one of the world s largest floating dock of 120,000 tonne lifting capacity to a Korean client. This highly specialised dock does not use anchors, and is able to operate as a semisubmersible barge carrying out underwater work. Present Challenges, Strategic Moves Moving into 2009, we expect operating conditions to be overall challenging in this uncertain global economic environment. We will expend greater efforts in developing more ship repair and conversion projects as well as to tap opportunities in the offshore engineering sector. Our focus on fulfilling our existing orders remains a top priority. With a robust order book of US$7.3 billion, our shipyards will remain busy with progressive deliveries to the first half of

21 With our establishment in the lucrative area of offshore marine engineering, we are positioning ourselves strategically for growth. Key Messages 19

22 Annual Report 2008 Vice Chairman and President s Message We are increasing our expertise, adopting the block-building technique and importing other expert knowledge from abroad to further develop technological advantages. With our establishment in the lucrative area of offshore marine engineering, we have positioned ourselves strategically for growth. A key milestone was reached in November 2008, when we completed conversion of one of the world s largest FPSO. Going forward, we envision offshore marine engineering to be a growing contributor to our business, further solidifying and widening our revenue base. Engineering Sustained Growth What has started as a subprime crisis in the US has impacted the global financial system and affected almost every business in the world. Ours is no exception. In times of crisis, all industries undergo a period of consolidation where, through a natural process of elimination, the strongest and fittest survive. At COSCO Corporation, we are endowed with a solid order book, technological expertise, experienced management and a reliable name that signifies excellence. With these strengths, we have the ability, capacity and capability to emerge from this period better, stronger and more resilient than ever before. The Right Attitude Our strategy to sustain growth begins with a focus on careful, conscientious management to counteract the adverse effects of a gloomy macro outlook. We believe through prudent management, technological upgrades, research & development and human resources development, we will reinforce our strengths while paving the way for future growth. Therefore, despite a challenging economic environment, we intend to do our best to retain staff through retraining and re-deployment. We will also keep operating costs at an optimal low and invest in technological upgrades to increase operating efficiency. Upgrades and Improvements We are increasing our expertise, adopting the block-building technique and importing other expert knowledge from abroad to further develop technological advantages. We are also upgrading our docking capabilities to cater to more offshore marine engineering projects. By improving existing building facilities, we are able to undertake high value conversion jobs. Securing the Future Under my management, we will endeavor to increase our marketing outreach to widen our client pool and improve client retention rates. COSCO Corporation, as a leading enterprise, believes in the importance of corporate governance and disclosure, and as such, we will continue to engage our directors, shareholders and investors. 20

23 When I took over as President of COSCO Corporation, I initiated several schemes to strengthen our business. One of these was the establishment of a strategic task force tasked with developing strategies to catalyse improvements and spur competitiveness. This is part of my vision to lift our capabilities and ensure COSCO Corporation remains one of the leaders in our industry. Our vision at COSCO Corporation is to build a value-driven world-class enterprise providing value-added services that meet the requirements of a global customer base and create sustainable returns for our shareholders. At COSCO Corporation, we see clear opportunities to move forward, even as today s economic uncertainties are posing challenges to many businesses. The current environment, in my view, will differentiate companies that are prepared not only to weather economic down cycles, but also to take advantage of opportunities that arise from it. With its solid financial foundation and robust track record, COSCO Corporation will emerge stronger and focused in its quest for excellence. We will meet the challenges ahead, assured of the support of parent company in particular and the wider COSCO Group in general. We will do whatever it takes to see us through the difficult period ahead. When the clouds have cleared and confidence returns, having endured the rigours of the recession, COSCO Corporation will emerge fitter and stronger, ready to pursue its vision of being one of the top global companies in the industry. Acknowledgements In closing, on behalf of the management, I would like to extend our deepest and most heartfelt gratitude to Captain Wei Jia Fu for steering the company to new corporate heights. I would also like to thank all shareholders, customers and partners for their support and confidence. We look forward to your continued partnership in the years ahead. Jiang Li Jun Vice- Chairman and President Key Messages 21

24 COURAGE COSCO CORPORATION COURAGEOUSLY TAKES ON EVERY CHALLENGE THAT COMES ITS WAY. THIS COURAGE IS CONSTANTLY STRENGTHENED THROUGH EFFECTIVE TRAINING PROGRAMMES THAT BOOST INDIVIDUAL CAPABILITIES AND DEVELOP THE ORGANISATION IN A HOLISTIC MANNER.

25 勇 Courage is advancing in the face of challenges 者不惧

26 Annual Report 2008 Our Strengths and Capabilities Headquartered in Singapore, COSCO Corporation has three main business units: Ship Repair, Ship Building & Marine Engineering, Dry Bulk Shipping and Shipping Agency. The Group is one of China s leading ship repair, ship building and offshore marine engineering companies. Ship Repair and Conversion Oil Tanker Conversion Single to Double Hull Conversion Ship Building HLV Bulk Carrier Car Carrier 24

27 Offshore Marine Engineering FDPSO FSO Jack-Up Semi-Submersible Rig Operations Review Dry Bulk Shipping and Others 25

28 Annual Report 2008 Our Major Shipyards Floating dock x 2 (180,000 dwt and 300,000 dwt) Dry dock x 1 (80,000 dwt) Quay x 14 (total 3.7 km) Workshop x 8 (total 89,587 sq m) Total Capacity - 560,000 dwt Dalian LIANYUNGANG NANTONG SHANGHAI ZHOUSHAN Floating dock x 2 (80,000 dwt and 150,000 dwt) Quay x 5 (915 m) Workshop x 5 (total 37,341 sq m) GUANGDONG Total Capacity - 230,000 dwt 26

29 Floating dock x 1 (80,000 dwt) Quay x 3 (total 660 m) Workshop x 3 (total 19,146 sq m) Total Capacity - 80,000 dwt Floating dock x 2 (80,000 dwt and 150,000 dwt) Quay x 5 (total 1.2 km) Workshop x 11 (total 33,419 sq m) Total Capacity 230,000 dwt Floating dock x 1 (35,000 dwt) Quay x 2 (total 280 m) Workshop x 11 (total 4,759 sq m) Operations Review Total Capacity - 35,000 dwt Dry dock x 3 (80,000 dwt, 230,000 dwt and 400,000 dwt) Quay x 6 (total 1.4 km) Workshop x 12 (total 232,670 sqm) Total Capacity - 710,000 dwt 27

30 Business Overview Headquartered in Singapore, COSCO Corporation has three main business units: Ship Repair, Ship Building & Marine Engineering, Dry Bulk Shipping and Shipping Agency. The Group is one of China s leading ship repair, ship building and offshore marine engineering companies. Year in Review In FY2008, the Group reported a record turnover amounting to S$3.5 billion, an impressive increase of 54% increase over FY2007. The rise in turnover was driven by expansion across its biggest business segment of ship repair, ship building and marine engineering operations which contributed 92% to total group turnover. The combination of quality, technical capability and efficiency that has enabled COSCO Corporation to win and execute several significant projects in 2008 in ship building, ship conversion and offshore engineering for world-renowned companies led to an unprecedented growth in turnover which leaped 57% to $3.2 billion in As at 31 December 2008, our order book stood at US$7.3 billion comprising of ship building, ship conversion and marine engineering contracts secured from major maritime players in Germany, Taiwan, Greece, USA and India. The growth in our top line performance was boosted further with contributions from the bulk shipping and other segments which saw turnover increasing to $280.3 million, an increase of 22% in FY2008. Despite the strong performance, net profit attributable to shareholders ended lower at $302.6 million. This was mainly due to allowance made for impairment of trade and other receivables and the higher costs incurred in ship building and offshore marine engineering projects due to expanded activities. During the year, high steel prices, driven by strong demand from all sectors, prevailed and while efforts were made to secure competitive pricing for raw materials, the strong demand for steel drove up the average purchasing 28

31 costs. Coupled with an increase in out-sourcing and sub-contracting costs and tighter pre-delivery inspection procedures imposed by ship owners, cost of sales was up 72% in FY2008. Managing Operational Efficiencies The foundation for the sustainable success of COSCO Corporation is formed by strong positions on its key businesses in ship repairs and conversion, ship building and offshore marine engineering and a balanced portfolio in its other marine-related businesses. This will allow the Group to partially offset turbulence in individual markets and businesses and to minimise risk. With the increasing expertise in ship building and offshore marine engineering in our Chinese shipyards, expanded facilities and capabilities, and the adoption of best practices and standards, we are optimising operational efficiencies and streamlining procedures. Strong Leadership COSCO Corporation and its China-based shipyard subsidiaries, have built up a strong reputation for delivering technically complex and demanding projects in the past year. Significant projects delivered include its first FSO project to a Japanese customer by COSCO Zhoushan Shipyard in July COSCO Corporation is widely regarded as one of the recognised global leaders in the specialised field of ship repairs and conversions. Our credence is enhanced further with our recent foray into the technically demanding offshore marine engineering business. Our ability to secure and deliver puts us in an enviable position in the global arena. Not resting on our laurel, COSCO Corporation intends to continue to accelerate the pace of change, through the adopting of new technology platforms, expanded facilities and new best practices to serve an ever expanding universe of customers and industry categories. Sustained Investment in Offshore Marine Engineering In 2007 and early 2008, the rise in oil prices increased demand for offshore marine engineering business. This was followed by a down cycle in oil prices. Although oil Operations Review The foundation for the sustainable success of COSCO Corporation is formed by strong positions on its key businesses in ship repairs and conversion, ship building and offshore marine engineering and a balanced portfolio in its other marine-related businesses. 29

32 Business Overview prices have hit a whole year low in 4Q of 2008, the Group has continued to invest in expanding its offshore marine engineering capacity in order to benefit from the longer term opportunities. The tumble in oil prices has seen a reduction in expenditure for oil exploration. However, in the long run, it is expected that demand for rigs will persist as long term global energy demand continues to increase. The International Energy Agency forecasts that world energy demand will grow at 1.6% per annum until There is a need for continued investment in oilfields to meet this demand. Fossil fuel will continue to be the main source of energy consumption for the world in the foreseeable future. Changing Outlook The International Monetary Fund has predicted that global economic expansion will slow to 0.5% in 2009 from 3.7% in Coupled with fast deteriorating economic conditions due to a rapid slowdown in global trade, volatile steel prices and crumbling financial and oil markets, COSCO Corporation is now seeing more volatility and uncertainty in the securing of new orders. In November 2008, the Chinese government unveiled a 4 trillion yuan (S$864.4 billion) fiscal stimulus package and the Chinese central bank recently cut interest rates five times. The Chinese government has also increased the export tax rebate for a wide range of industries, slashed the housing transaction tax, and expanded subsidies to the agriculture sector. In addition, the Chinese government has increased credit for small and medium-sized enterprises. This could indirectly benefit COSCO Corporation as the boost to infrastructure projects likely means increased shipping requirements driven by rising commodity imports. 30

33 Given the current malaise, the Group does not anticipate substantial growth in our order book in While the market outlook for 2009 remains tenuous, the Group has taken steps to strengthen its businesses and to remain resilient in these difficult times. Our earlier efforts in developing niches in various aspects of the marine industry including ship repair and conversions, new ship building and offshore marine engineering will allow us to build sustainability and further growth. Our continued presence in the dry bulk and shipping agency businesses will help to broaden our earning base. We will further optimise our capacity in the various shipyards in China and cost structures. In combination with the successful implementation of our growth strategy, COSCO Corporation will continue to evaluate and develop appropriate tactical strategies to cope with the changing economic landscape. With an order book standing at US$7.3 billion as at 31 December 2008, our shipyards will be kept busy to first half 2012, barring any unforeseen circumstances. We expect that the second half of 2009 will see an increasing number of consolidations in China s shipyard industry. Strong Chinese government support for shipyard operations could translate to opportunities for the Group to acquire other niche industry players through mergers and acquisitions is shaping out to be a difficult year, but we are confident that we can overcome the difficulties as we have the right approach to rise to the challenges. Our record of accelerated growth through diverse revenue streams in the past years has created a sound and sustainable base for future earnings. The broadening of our businesses and the strengthening of our expertise will help us ride out the economic storm. Operations Review 31

34 Business Segment Ship Repair, Ship Building, Offshore Marine Engineering COSCO Shipyard Group, the 51% owned subsidiary of COSCO Corporation, has six major shipyards in China - Dalian, Lianyungang, Nantong, Shanghai, Zhoushan and Guangdong. Occupying a coastline that extends across the whole eastern seaboard of China, the shipyards are critical engines of growth for the COSCO Corporation in its quest for excellence in the global arena. COSCO Shipyard Group provides an extensive array of innovative and customised ship repair, ship building and marine engineering services which include new ship building, conversion, construction of barges and oil rigs as well as the repair of ships and oil rigs. In the past year, our shipyards were busy with projects relating to ship repair, ship building and offshore marine engineering. Turnover in this business segment amounted to S$3.2 billion which represented 92% of the total revenue in Exceptional progress in securing ship building and conversion contracts were seen during the year. We marked a milestone on 17 July 2008 by successfully delivering on schedule our first offshore marine project, a Floating Storage and Offloading (FSO) vessel. This was from our Zhoushan shipyard to a Japanese customer. In October 2008, our 51% owned COSCO Shipyard Group (CSG) clinched ship building contracts totaling RMB1 billion (S$220.2 million). They were awarded by two Chinese ship owners for the building of three 57,000 dwt bulk carriers. Two of the vessels will be fabricated at COSCO Guangdong Shipyard and one at COSCO Dalian Shipyard for progressive delivery in During the same month, CSG also signed an offshore contract with a Dutch customer to construct two windmill turbine installation vessels. The two units will be fabricated in COSCO Nantong Shipyard and are scheduled to be delivered separately in 2010 and Meanwhile, on 20 November 2008, COSCO Corporation delivered one of the world s largest floating dock with a lifting capacity of 120,000 tons to a Korean customer. Types of Vessels Repaired in FY2008 by Revenue Tankers 8% Container Ships 9% 2008 Chemical Ships 1% Others 8% Bulk Carriers 74% 32

35 This highly specialised dock does not use anchors, and is able to operate as a semi-submersible barge carrying out underwater work. To cope with the increased demand, the shipyard group continued to expand its capacity from 1.73 million dwt in FY2007 to 1.85 million dwt in FY2008. We also expanded capacity in Nantong. On 16 January 2008, CSG inked an agreement with the Jiangsu Qidong Municipal Government to commence the expansion work on COSCO Corporation s offshore construction base in Qidong Shipyard. The new yard is located at the entrance of Yangtze River and covers an area of 1 million square meters along 2km of coastline. It will focus on offshore projects including the construction of oil & gas related equipment such as semi-submersible rigs, jack-up rigs and other floaters. Over the past year, the Group has matured as a global provider of specialised ship repair, ship building and offshore marine engineering services and particularly, at an important time for the industry. We have excellent facilities in six strategic locations in China, offering a wide array of repairs, conversion and building services. As we have grown, we have attracted excellent talent and technical expertise, while gaining valuable experience along the way. Being able to work with the leading shipowners and oil companies affords us a unique opportunity to stay current with trends and develop best practices. Our customer base with more than 400 shipping companies spanning over 140 countries, including countries such as Greece, Germany, Norway, Denmark, the UK, the USA and Japan is a testament to our tenacity and determination to succeed in an increasingly competitive climate. COSCO Corporation will emerge from the uncertainty and challenges of 2009 as a focused and strong contender with a clear vision. The Group s shipyards are well equipped, and with an engaged and experienced operation and management team at helm, we have every confidence in delivering across all core competencies. With a strong financial foundation, the Group will move forward with certainty and confidence. Operations Review Revenue contribution from Ship Repair, Ship Building and Offshore Marine Engineering 37% Conversion 20% Offshore 20% New Building 23% Ship Repair FY

36 Business Segment Dry Bulk Shipping COSCO Corporation s Dry Bulk Shipping business is managed by the Company s wholly-owned subsidiary, COSCO (Singapore) Pte Ltd. obtained the ISO9002 certification awarded only to companies that have shown a consistent and unparalleled commitment to quality. COSCO (Singapore) s dry bulk shipping fleet transports cargo along the main trading sea routes from China to major ports in the US, Europe, South America and South Africa via Singapore. The company has a fleet of 12 dry bulk carriers, with a combined carrying capacity of 698,306 dwt. The carriers transport dry bulk cargo such as iron ore, coal, steel, cement and fertiliser. The ships are also chartered out to other ship owners and operators. The customer base is made up of major shipping companies based in countries such as Germany, Norway, Denmark, Greece, Switzerland, the UK and the USA. The fleet has been certified to meet the most stringent of international quality and safety standards, having Year in Review The dry bulk shipping business did well in FY2008, due to higher charter-hire rates secured in the first half of 2008 when the Baltic Dry Index (BDI) was at an all-time high. Turnover from the dry bulk shipping business rose by 24% from $207.9 million in 2007 to $257.4 million in FY2008, making up 7% of the Group s revenue for the year. Market Outlook 2008 has underlined the cyclical nature of the shipping industry, in particular the fluctuations of the BDI. The BDI, a measure of shipping costs for commodities, fell as weaker economic growth cut demand for steel and the raw materials used to make it. In December 34

37 Global Dry Bulk Shipping Network Countries: 1. Conakry (Guinea) 2. Lagos (Nigeria) 3. Hamburg (Germany) 4. Cape Town (South Africa) 5. Ventspils (Latvia) 6. Odessa (Ukraine) 7. Suez Canal (Egypt) 8. Aqaba (Jordan) 9. Novorossivsk (Russia) 10. Aden (Yemen) 11. Mumbai (India) 12. Singapore 13. Bangkok (Thailand) 14. Penang (Malaysia) 15. Shanghai (China) 16. Hong Kong (China) 17. Albany (Australia) 18. Lianyungang (China) 19. Taichung (China) 20. Onahama (Japan) 21. Nagoya (Japan) 22. Tokyo (Japan) 23. Gladstone (Australia) 24. Portland (USA) 25. Los Angeles (USA) 26. New Orleans (USA) 27. Panama Canal 28. Antofagasta (Chile) 29. Seven Island (Canada) 30. Maracaibo (Venezuela) 31. Santos (Brazil) Operations Review 2008, the BDI fell to 663 points, a decline of 94% from a record in May A 30% cut in global production of steel, combined with frozen credit markets and new vessels entering the market, has caused shipping rates to collapse. The slowdown has been devastating for raw materials suppliers to the steel industry. The steep fall in freight rates is expected to impact COSCO Corporation s dry bulk shipping business. The economic crisis has devastated global trade, causing ship demand to fall. Demand for dry bulk ships from major steel-producing countries like China and Brazil, has shrunk. The dry cargo market has been badly hit due to huge cutbacks in industrial production and a lack of liquidity in the banking sector. Overcapacity remains a problem for dry bulk carriers. We are concerned that the structural overcapacity in the dry bulk market today combined with the weak global economic conditions will continue to put pressure on this market. We expect, however, that the overcapacity will be mitigated by the large orders for scrapping old vessels in Prospects and Future Plans In FY2008, COSCO Corporation s dry bulk shipping business continued to bring in healthy revenue due to high charter rates and prudent operating style. However, in the first half of 2009, a majority of the ship s contracts will be under review for renewal of lease. The Group expects that the BDI will rebound moderately in the near term as Chinese buyers start to purchase iron ore from Australia and Brazil with ships thus needed to bring the iron ore from more distant suppliers to China. This may mitigate the drop in charter rates. 35

38 Business Segment Shipping Agency COSTAR Shipping Pte Ltd, a 70% owned subsidiary of COSCO, is the shipping agent of the wider COSCO Group. Established in Singapore in 1989, COSTAR Shipping canvasses for cargo from both existing and potential clients, so as to maximise the tonnage capacity being loaded on the COSCO Group s ships that pass through Singapore. COSTAR Shipping provides extensive agency services for full container and break-bulks, which include document preparation of bills of lading and delivery orders, collection of freight, cargo operation, vessel husbanding, customs declaration, port authority coordination, administration and settlement of cargo claims, transhipment management, bunkering services and container handling. COSTAR Shipping s business mainly stems from containerisation services for COSCO Container Lines customers. Costar Shipping has the capabilities to transport almost all types of containers, including Outof-Gauge (OOG) containers, general purpose units (GP), reefer containers and hazardous containers from over 1,300 ports in more than 160 countries. 36

39 In addition, COSTAR Shipping offers value-added services, for instance, recommending trucking, freight forwarding, stuffing, container depot, and warehouse and storage services. In Malaysia, COSLINK (M) Sdn. Bhd. serves as the general shipping agent for the wider COSCO Group s entire fleet of vessels that call at Malaysian ports and provides a similar range of services as COSTAR Shipping in Singapore. Prospects and Outlook The contribution from the shipping agency business does not form a significant part of the Group s turnover and profits. Whilst the shipping agency business is expected to remain profitable in the coming year, it will continue to leverage on its network of agents and industry partners worldwide to grow its customer base and improve performance. Operations Review Year in Review Turnover from the shipping agency business contributed about 1% to the total turnover of the Group. The shipping agency business handled approximately 600 vessels during the year and income derived from this business segment has remained relatively stable for the past years. 37

40 Annual Report 2008 Group Financial Review Overview The Group turnover in FY2008 grew by 54% to $3.5 billion while net profit attributable to equity holders declined by 10% to $302.6 million. The Group saw an increase in turnover due to revenue expansion across all business segments, driven primarily by its largest business segment, the ship repair, ship building and marine engineering segment, as well as its dry bulk shipping business. The decline in net profit attributable to equity holders was mainly due to allowance for impairment of trade and other receivables and the higher costs incurred in ship building and offshore marine engineering projects. Turnover Group turnover increased by 54% in FY2008 was underpinned by growth across all key business segments. Our largest business segment of ship repair, ship building and marine engineering operations expanded by 57% to $3.2 billion, due to a strong ship conversion, ship building, and offshore marine engineering project order book. During the year, the Group made significant inroads into the offshore marine engineering field, securing significant orders and successfully delivering, on schedule in July 2008, its first offshore marine project - a Floating, Storage and Offloading (FSO) vessel from its Zhoushan shipyard to a Japanese customer. Dry bulk shipping turnover grew by 24% to $257.4 million in FY2008 due to higher charter rates locked in on a one-plus-one year basis on charter renewal in the first half of These results were registered amidst an extremely volatile Baltic Dry Index (BDI). During the year in review, the BDI, a measure of shipping costs for commodities, reached an all-time high of 11,793 points in May 2008 before plunging steeply to a 22-year low of 663 points in December This economic indicator highlighted the sheer precariousness of business activity during the year, and underlines our steady navigation through its ebbs and flows. Ship repair, ship building and marine engineering business represented the bulk of the Group turnover with 92% contribution in 2008 while dry bulk shipping constituted 7% and shipping agency and others accounted for the remaining 1% of Group turnover. Profitability Gross profit edged up by 3% from $610.2 million in FY2007 to $630.1 million in FY2008 on the back of a 54% increase in turnover which more than offset the higher operational costs in ship building and offshore marine engineering business. The higher operational costs which include expected losses of $89.0 million recognised on construction contracts was mainly due to: (i) (ii) (iii) (iv) the substantial increase in steel prices from the time of contracting the projects and the time that the orders for the steel required for the construction of these vessels were placed; higher ancillary out-sourcing and sub-contracting costs; tighter pre-delivery inspection procedures imposed by ship owners facing current unfavorable market conditions; and additional operational and development costs incurred due to the unwillingness of some residents to vacate their properties originally planned for acquisitions by the Group for shipbuilding purposes. Other miscellaneous gains increased by 87% from $111.2 million in FY2007 to $207.9 million in FY2008 due mainly to higher income from sale of scrap materials, higher interest income from the higher bank deposits and foreign exchange gain. Distribution and administrative costs rose in line with increasing business volume as well as allowance for impairment of trade and other receivables of $61.3 million. These provisions are made in light of the adverse global economic climate, the deteriorating market conditions facing the shipping industry in the fourth quarter of 2008, and requests for payment delays by several ship owners. Bank interest rates were generally lower during FY2008 and there were lower borrowings during the year, thus resulting in a decrease in interest expense. The bulk of borrowings was made towards end Higher income tax expense was due to higher tax rates in the PRC subsidiaries in FY2008 as compared to FY2007. Minority interests decreased due to lower contributions from the Company s PRC subsidiaries involved in ship repair, ship building and marine engineering operations. Group net profit attributable to equity holders of the Company stood at $302.6 million which is a decrease of 10% from the $336.6 million in FY

41 Turnover (S$ m) Cash Flow from Operating Activities (S$ m) Gross Profit (S$ m) Diluted Earnings per Share (cents per share) , , , , The return on shareholders fund decreased to 29.0% in FY2008 from 41.8% in FY2007. Balance Sheet and Cash Flow (31 December 2008 vs 31 December 2007) Cash and cash equivalents increased from $1.1 billion to $1.9 billion mainly due to more advances received from customers as the Group continued to secure more ship building contracts. The increases in Trade and other receivables, Inventories and Construction contract work-in-progress were mainly due to the increase in volume of ship repair, ship building and marine engineering businesses. Trade and other receivables include advances paid to suppliers of $743.1 million. This compares with $376.8 million in FY2007. Total Shareholders Equity Shareholder s equity rose from $939.9 million to $1.1 billion mainly due to the transfer of FY2008 profits to retained earnings and increase in currency translation reserves. Return on Equity was 29.0% Net Gearing Total borrowings increased from $176.4 million to $656.6 million due to additional funding procured for business operations and the expansion of the Group s major shipyards. The Group had a positive net cash position of $1.2 billion at the end of FY2008. Earnings Per Share On a fully diluted basis, with profits moderating, earnings per share decreased from cents in FY2007 to cents in FY2008. Operations Review With the ongoing expansion of our facilities and major shipyards in the PRC, our fixed assets of property, plant and equipment increased from $1.5 billion to $2.1 billion. Trade and other payables which include advances received from customers of $2.8 billion (FY2007: $1.3 billion), rose from $2.4 billion to $4.4 billion as more advances were collected from customers. Share Capital COSCO s share capital increased from $266.9 million to $270.6 million. This was due to the issue and allotment of shares under the COSCO Corporation Employees Share Option Scheme Dividends Per Share To reward shareholders for their loyalty, the Board of Directors has proposed a first and final exempt dividend of 7.0 cents comprising of ordinary dividend of 4.0 cents per ordinary share and a special dividend of 3.0 cents per ordinary share. The dividend declared in FY2008 is equivalent to the dividend paid in FY2007, underscoring our commitment to shareholders. The dividend payout will amount to $156.7 million (FY2007: $156.7 million) while Dividend Cover was 1.9. Net Asset Value per Share In line with capacity and facility expansion, the net asset value per share of COSCO Corporation increased by 21.7% from 42.0 cents per share at 31 December 2007 to 51.1 cents per share at 31 December

42 INTEGRITY IN THE WORLD OF BUSINESS, CORPORATE GOVERNANCE IS NOT AN EXERCISE IN COMPLIANCE; IT IS A HIGHER FORM OF MANAGEMENT THAT CLEARLY EXHIBITS COSCO CORPORATION S INTEGRITY. THIS EXPLICIT CLARITY IN CORPORATE GOVERNANCE IS WHAT COSCO CORPORATION IS CONSISTENTLY FOCUSED ON, IN ORDER TO ENSURE THE EFFECTIVE PROMOTION OF LONG-TERM SHAREHOLDER INTEREST.

43 Integrity is exhibiting explicit clarity 诚 者不虞

44 Annual Report 2008 Corporate Governance COSCO Corporation (Singapore) Limited ( COSCO Corporation or the Company ) believes that governance is not an exercise in compliance nor is it a higher form of management. The Company believes that governance has a clear objective: ensuring the pursuit of the Company s purpose. The Board s activities are focused on this task: ensuring the pursuit of the Company s purpose and this task is discharged by the Board through undertaking such activities as are necessary for the effective promotion of long-term shareholder interest. COSCO Corporation remains committed to the principles of good corporate governance and to achieving high standards of business integrity, ethics and professionalism across all its activities. The Company has applied, and complied with, the principles and guidelines set out in the Code of Corporate Governance 2005 ( Code 2005 ). 42

45 A. BOARD MATTERS THE BOARD S CONDUCT OF AFFAIRS Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the success of the company. The Board works with Management to achieve this and the Management remains accountable to the Board. As a company, COSCO CORPORATION recognises the importance of good governance and that it is a discrete task from Management. Clarity of roles is key to our approach. Policies and processes depend on the people who operate them.governance requires distinct skills and processes. Governance is overseen by the COSCO Corporation Board, while Management is delegated to the Group President and Executive Directors. Our Board exercises judgement in carrying out its work in policy-making, in monitoring executive action and in its active consideration of Group strategy. The Board s judgements seek to maximise the expected value of shareholders interest in the Company, rather than eliminate the possibility of any adverse outcomes. The Board oversees the business affairs of the Company and is collectively responsible for its success. The principal functions of the Board apart from its statutory responsibilities are to: a) set values and standards of the Company and ensure that obligations to shareholders and others are understood and met; b) provide entrepreneurial leadership, approve the strategic and financial objectives, corporate policies and authorisation matrix of the Company; c) oversee the processes for risk management, financial reporting and compliance and evaluate the adequacy of internal controls; approve annual budget, key operational matters, major acquisition and divestment proposals, major funding proposals of the Company; d) review management performance; e) approve the nominations to the Board of Directors and appointment of key management, as may be recommended by the Nominating Committee; f) assume responsibility for corporate governance framework of the Company. To facilitate effective management, certain functions of the Board have been delegated to various Board committees, namely Audit, Nominating, Remuneration and Enterprise Risk Management Committees. Further information regarding the details of the terms of reference of the respective Board committees are set out in the later part of the Report. The Board conducts regular scheduled meetings on quarterly basis. Ad-hoc meetings are convened when circumstances required. The Company s Articles of Association (the Articles ) provides for Board meetings to be conducted by way of telephone and video conferencing. The attendance of the Directors at meetings of the Board and Board committees as well as number of such meetings is set out in the table below: Attendance at Board and Board Committees Meetings Corporate Gover nance and Transparency Name Board Audit Committee Nominating Committee Remuneration Committee Enterprise Risk Management Committee Number of Meetings held: 6 Number of Meetings held: 9 Number of Meetings held: 2 Number of Meetings held: 5 Number of Meetings held: 2 Number of Meetings Attended Number of Meetings Attended Number of Meetings Attended Number of Meetings Attended Number of Meetings Attended Wei Jia Fu Note 1 4 NA NA NA NA Li Jian Hong Note 2 6 NA NA NA NA Jiang Li Jun Note 3 1 NA Zhang Liang Note 4 1 NA NA NA NA Sun Yue Ying 6 NA NA NA NA 43

46 Annual Report 2008 Corporate Governance Name Board Number of Meetings held: 6 Number of Meetings Attended Audit Committee Number of Meetings held: 9 Number of Meetings Attended Nominating Committee Number of Meetings held: 2 Number of Meetings Attended Remuneration Committee Number of Meetings held: 5 Number of Meetings Attended Enterprise Risk Management Committee Number of Meetings held: 2 Number of Meetings Attended Ji Hai Sheng Note 5 5 NA Min Jian Guo 6 NA NA NA NA Ma Gui Chuan 6 NA NA NA NA Wang Xing Ru 6 NA NA NA NA Tom Yee Lat Shing Wang Kai Yuen Er Kwong Wah Ang Swee Tian Li Jian Xiong (Alternate to Li Jian Hong) 6 NA NA NA NA Lu Cheng Gang Note 6 (Alternate to Wei Jia Fu) 4 NA NA NA NA Lu Cheng Gang Note 7 (Alternate to Zhang Liang ) 1 NA NA NA NA Ye Bin Lin (Alternate to Sun Yue Ying) 6 NA NA NA NA Liu De Tian (Alternate to Wang Xing Ru) 6 NA NA NA NA NA: Not Applicable Note: 1. Wei Jia Fu resigned on 22 July Li Jian Hong was appointed the Chairman of the Company on 22 July Jiang Li Jun was appointed on 7 August Zhang Liang was appointed on 15 October Ji Hai Sheng resigned on 7 August Lu Cheng Gang (Alternate to Wei Jia Fu) ceased on 22 July Lu Cheng Gang (Alternate to Zhang Liang) was appointed on 15 October Whilst the Board has delegated the day to day management of the Group to the Group President and Executives, there are matters referred for the Board by which the Board oversees control of the Group s affairs. Some of the matters referred to the Board and Board s approval are: - the Group s long term objectives and commercial strategy; - the making of any decision to cease to operate all or any material part of the business of the Group or to extend the Group s activities into new business; - the consideration of any proposal to merge or amalgamate the Company with any other company; - the approval of any acquisition of any investment, asset or business by the Company or any of its subsidiaries which would involve the commencement of an activity of a substantially different nature or character to any activity from time to time carried on by the Company or any of its subsidiaries; - changes relating to the Group s capital structure including changing the amount or currency of the Company s authorised share capital, reduction of capital, share issues (except under employee share option plan); 44

47 - the approval of and ensuring the maintenance of internal controls and risk management procedures for the Company and its subsidiaries; - approving the Company s Audited Financial Statement and other appropriate statements for inclusion in the Company s Annual Report and the issue of the Annual Report; - the issue and filing of statutory or regulatory statements, the quarterly, half yearly and full year reports; - determining and approving any significant change to the accounting policies or practices of the Company, and of the Company and its subsidiaries; - the recommendation of the payment of any dividend by the Company or any exercise of the powers of the Board in relation to reserves or capitalisation of profit; - appointments or removals from the Company s Board of Directors (following receipt of recommendations by the Nominating Committee) and the appointment or removal of the Company Secretary; - changes to the structure, size and composition of the Board, following receipt of recommendations from the Nominating Committee; - in the case of any conflict of interest which the Board, after being appropriately advised, considers to be material, as to whether such conflict should be authorised and, if so, authorise such conflict upon such terms and conditions as the Board considers appropriate; - determining the remuneration policy for senior executives of the Company (following receipt of recommendations by the Remuneration Committee); - undertaking a review annually of its own performance, that of its committees and the contribution by each director to the effectiveness of the Board; - any matter required to be considered or approved by the Board as a matter of law or regulation. BOARD COMPOSITION AND GUIDANCE Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board s decision making. The Board has eleven (11) members: three (3) Non-Independent Executive Directors, four (4) Non-Independent and Non-Executive Directors and four (4) Non-Executive Independent Directors. The composition of the Board is as follows and the Directors academic and professional qualifications are set out on pages 58 and 63 of this Annual Report. No individual or group of individuals dominates the Board s decision-making. Collectively, the Non- Executive Directors and Non-Executive Independent Directors bring a wide range of experience and expertise as they all currently occupy or have occupied senior positions in industry and public life, and as such each contributes significant weight to Board decisions. None of the non-executive independent directors has any relationship with the Company, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director s independent business judgement with a view to the best interests of the Company. Corporate Gover nance and Transparency Board of Directors Li Jian Hong Jiang Li Jun Zhang Liang Sun Yue Ying Min Jian Guo Ma Gui Chuan Wang Xing Ru Tom Yee Lat Shing Wang Kai Yuen Er Kwong Wah Ang Swee Tian - Chairman and Non-Independent and Non-Executive Director - Vice Chairman, President and Non-Independent Executive Director - Non-Independent and Non-Executive Director - Non-Independent and Non-Executive Director - Vice President and Non-Independent Executive Director - Non-Independent Executive Director - Non-Independent and Non-Executive Director - Non-Executive Independent Director - Non-Executive Independent Director - Non-Executive Independent Director - Non-Executive Independent Director 45

48 Annual Report 2008 Corporate Governance Changes to the Board during the financial year 2008 are as follows: Wei Jia Fu Li Jian Hong Jiang Li Jun Ji Hai Sheng Zhang Liang Lu Cheng Gang Lu Cheng Gang resigned on 22 July 2008 as Chairman and Non-Executive Director appointed on 22 July 2008 as Chairman appointed on 7 August 2008 as Vice Chairman, President and Non-Independent Executive Director resigned on 7 August 2008 as Vice Chairman, President and Non-Independent Executive Director appointed on 15 October 2008 as Non-Independent and Non-Executive Director ceased on 22 July 2008 as Alternate to Capt Wei Jia Fu appointed on 15 October 2008 as Alternate to Zhang Liang The efficiency and effectiveness of the Board are of paramount importance. Our Board s size is necessary to allow sufficient Executive Director representation to cover the breadth of the Group s business activities and sufficient Non-Executive Independent Director representation to reflect the scale and complexity of COSCO Corporation and to staff our Board committees. A Board of this size allows orderly succession planning for key roles. The current size of the Board is appropriate and will facilitate effective decision making. The Board will continue to review the size of the Board on an ongoing basis. As a team, the Board collectively provides core competencies in the areas of accounting, finance, business and management experience, as well as industry knowledge. Directors also receive regular updates on relevant new laws and regulations, and evolving commercial risks and business conditions from the Company s relevant advisors. Newly appointed directors are provided with background information about the Company and the Group. Occasional visits are arranged for Non-Executive Directors to acquaint them with important operations overseas. CHAIRMAN AND CHIEF EXECUTIVE OFFICER Principle 3: There should be a clear division of responsibilities at the top of the company the working of the Board and the executive responsibility of the company s business which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. The roles of Chairman and the President are undertaken by separate persons so as to create a clear division of responsibilities and maintain an effective oversight. The Chairman and the President are not related to each other. The Chairman is responsible for the workings of the Board, ensuring the integrity and effectiveness of its governance process. In his absence, his appointed alternate and/or the President would act on his behalf. The President is the most senior executive in the Company and has full executive responsibilities over the business directions and operational decisions of the Group. He works closely with the Board to implement the policies set by the Board to realise the Group s vision. BOARD MEMBERSHIP Principle 4: There should be a formal and transparent process for the appointment of new directors to the Board Recommendations for nominations of new directors and retirement of directors are made by the Nominating Committee and considered by the Board as a whole. The Nominating Committee ( NC ) reviews and assesses candidates for directorship before making recommendations to the Board. The NC takes into consideration the skills and experience required and the existing composition of the Board and strives to ensure that the Board has an appropriate balance of independent directors as well as directors with the right profile of expertise, skills, attributes and abilities when recommending new directors to the Board. 46

49 The process for the appointment of new directors begins with the NC, together with the Chairman and Vice Chairman of the Company, conducting a needs analysis and identifying the critical requirement in terms of expertise and skills that are needed in the context of the strengths and weaknesses of the existing Board. The NC then defines a profile for the new director to serve as a brief for recruitment. When a candidate has been endorsed by the NC, the NC will then make a recommendation to the Board for the approval of his appointment. The NC assesses and recommends to the Board whether retiring directors are suitable for re-nomination for reelection. In evaluating a director s contribution and performance for the purpose of re-nomination, the NC takes into consideration a variety of factors such as attendance, preparedness, participation and candour. In accordance with the provisions of the Articles, one-third of the Directors retire by rotation and subject themselves to re-election at every Annual General Meeting ( AGM ) of the Company. The President who is a member of the Board must also subject himself to retirement by rotation and re-election by the Shareholders. New directors who were appointed by the Board during the year will hold office only until the next AGM and will be eligible for reelection. The dates of initial appointment and last re-election/reappointment of each of the Directors are set out below: Director Position Date of Initial Appointment Date of Last Re-election Li Jian Hong Chairman, Non-Independent and Non-Executive Jiang Li Jun Vice Chairman, President and Non-Independent Executive n.a Zhang Liang Non-Independent and Non-Executive n.a. Sun Yue Ying Non-Independent and Non-Executive Min Jian Guo Vice President and Non-Independent Executive Ma Gui Chuan Non-Independent Executive Wang Xing Ru Non-Independent and Non-Executive Tom Yee Lat Shing Non-Executive Independent Wang Kai Yuen Non-Executive Independent Er Kwong Wah Non-Executive Independent Ang Swee Tian Non-Executive Independent Li Jian Xiong Alternate to Li Jian Hong n.a Lu Cheng Gang Alternate to Zhang Liang n.a Ye Bin Lin Alternate to Sun Yue Ying n.a Liu De Tian Alternate to Wang Xing Ru n.a. NOMINATING COMMITTEE Corporate Gover nance and Transparency The Nominating Committee ( NC ) comprises five Directors, majority of whom, including the Chairman is independent. The NC members are: Wang Kai Yuen (Chairman) (Non-Executive Independent) Jiang Li Jun (Non-Independent Executive) (Appointed on 7 August 2008) Ji Hai Sheng (Non-Independent Executive) (Resigned on 7 August 2008) Tom Yee Lat Shing (Non-Executive Independent) Er Kwong Wah (Non-Executive Independent) Ang Swee Tian (Non-Executive Independent) 47

50 Annual Report 2008 Corporate Governance The principal functions of the NC are to: a) identify, review and recommend candidates for appointment as Directors of the Company and appointment to the Board committees as well as to senior management positions in the Company; b) evaluate the effectiveness of the Board as a whole and assess the contribution by each Director, to the effectiveness of the Board; c) determine annually whether or not a Director is independent; and d) make recommendations to the Board on re-appointment of Board and Board committee members. During the financial year the NC held two meetings. The NC met to review the nominations for the appointments of those directors that were appointed during the financial year for recommendation to the Board to approve the appointments. In arriving to their decisions on the new appointments, the NC took into consideration the incumbents academic qualifications, experience, their individual field of expertise and their potential contributions to the effectiveness of the Board. The NC also met and determined the independence of the Directors is in line with the undertakings described in the Code It also reviewed the composition of the Board and the Board Committees in relation to the needs of the Group. The NC is of the opinion that the Board is able to exercise objective judgement on corporate affairs independently and no individual or small group of individuals dominates the Board s decision making process. The NC assesses and recommends to the Board whether retiring Directors are suitable for re-election. The NC considers that the multiple Board representations held presently by some Directors do not impede their respective performance in carrying out their duties to the Company. BOARD PERFORMANCE Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board. A formal assessment process is in place to assess the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board. The NC uses objective and appropriate quantitative and qualitative criteria to assess the performance of the Board as a whole and the contribution of each Director to the effectiveness of the Board. Assessment parameters include evaluation of the Board s access to information, risk management, accountability, the Board s performance in relation to discharging its principle functions, communication with management and stakeholders, the business performance of the Company, the quality of Board processes, the attendance records of the Directors at Board and Committee meetings and the level of participation at such meetings. The evaluation of the Board is conducted annually. As part of the process, the Directors will complete appraisal forms which are collated by the Company Secretary. The Company Secretary will then reviews the results of the appraisal and present the results to the Chairman of the NC who will then present a report to the Board. An individual assessment of each Director is also undertaken annually. The process of the assessment is through self-assessment where each Director will complete appraisal forms which are collated by the Company Secretary. The Company Secretary consolidated the appraisal forms and presented the results to the Chairman of the NC who will then present a report to the Board. ACCESS TO INFORMATION Principle 6: In order to fulfil their responsibilities, Board members should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis. The Board is provided with management information pertaining to such areas as detailed divisional performance, variance analysis, budget, forecast, funding positions and cash flow projections of the Group, to help them carry out their responsibilities effectively. In addition, all relevant information on material events and transactions are circulated to Directors as and when they arise. 48

51 All Board members have separate and independent access to the advice and services of the Company Secretary. The Company Secretary attends Board and Board committee meetings and is responsible for ensuring that Board procedures are followed. Together with the other management staff of the Company, the Company Secretary is also responsible for compliance with the SGX-ST Listing Manual and all other applicable rules and regulations. All Board members also have separate and independent access to the senior management of the Company and the Group. Board members are aware that they, whether as a group or individually, in the furtherance of their duties, can take independent professional advice, if necessary, at the Company s expense. B. REMUNERATION MATTERS PROCEDURES FOR DEVELOPING REMUNERATION POLICIES Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration. The Remuneration Committee ( RC ) meets yearly to discuss the performance assessment of the Executive Directors as well as to discuss the level of emoluments to pay. The recommendations are forwarded to the Board for approval of the remuneration of the Executive Directors. The RC also reviews and approves the remuneration of senior management, as well as the total annual increment and variable bonus for employees. Directors fees are recommended by the RC and are submitted for endorsement by the Board. Directors fees are subjected to approval by shareholders at the AGM. All the members of the RC are Non-Executive Independent Directors except for Mr Ji Hai Sheng, the then Vice Chairman and President of the Company who had retired on 7 August 2008 and Mr Jiang Li Jun the current Vice Chairman and President. The RC is of the view that the presence then of Mr Ji and now Mr Jiang would help the RC by providing intimate knowledge of the remuneration policies in the industry the Company is in. No Director is involved in deciding his own remuneration. LEVEL AND MIX OF REMUNERATION Principle 8: The level of remuneration should be appropriate to attract, retain and motivate the directors needed to run the company successfully but companies should avoid paying more than is necessary for this purpose. A significant proportion of executive directors remuneration should be structured as to link rewards to corporate and individual performance. In setting the remuneration packages of the Executive Directors, the Remuneration Committee ( RC ) takes into account the respective performance of the Group and the individual. In its deliberation, the RC takes into consideration, remuneration packages and employment conditions within the industry and benchmarked against comparable companies. Non-Executive Independent Directors are paid a basic fee and an additional fee for serving on any of the committees. The Chairman of the Audit Committee is compensated for the added responsibilities as the Chairman of the Audit Committee. Such fees are approved by the shareholders of the Company as a lump sum payment at the AGM of the Company. Corporate Gover nance and Transparency 49

52 Annual Report 2008 Corporate Governance REMUNERATION COMMITTEE The Remuneration Committee ( RC ) comprises five Directors, majority of whom including the Chairman is independent. The RC members are as follows: Er Kwong Wah (Chairman) (Non-Executive Independent) Jiang Li Jun (Non-Independent Executive) (Appointed on 7 August 2008) Ji Hai Sheng (Non-Independent Executive) (Resigned on 7 August 2008) Tom Yee Lat Shing (Non-Executive lndependent) Wang Kai Yuen (Non-Executive lndependent) Ang Swee Tian (Non-Executive Independent) The principal functions of the RC are to: a) recommend to the Board base salary level, benefits and incentive programs, and identify components of salary which can best be used to focus management staff on achieving corporate objectives; b) approve the structure of compensation programme (including but not limited to Directors fees, salaries, allowances, bonuses, options and benefits in kind) for the Directors and senior management to ensure that the programme is competitive and sufficient to attract, retain and motivate senior management of the required quality to run the Company successfully; c) review, on annual basis, the compensation package of the Company s Directors and senior management personnel and determine appropriate adjustments; and d) administer the COSCO Group Employees Share Option Scheme The Company currently adopts a remuneration policy for staff consisting of a fixed component and a variable component. The fixed component is in the form of a base/fixed salary. The variable component is in the form of a variable bonus that is linked to the Company and individual performance. Another element of the variable component is the grant of share options under the COSCO Group Employees Share Option Scheme Information on the COSCO Group Employees Share Option Scheme 2002 such as size of grants, exercise price of options that were granted as well as outstanding and vesting period of options are set out on pages 89, 90 and 91 of the Annual Report. The RC held five meetings during the financial year. The issues deliberated at these five meetings included reviewing the termination of options granted, extension of exercise period of options granted, the bonus payments to senior management and the compensation programme for the Directors and senior management. DISCLOSURE ON REMUNERATION Principle 9: Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration in the company s annual report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key executives, and performance. 50

53 DIRECTORS AND KEY EXECuTIVES REMuNERATION The Directors and key executives remuneration table for the financial year ended 31 December 2008 is as follows: Non-Independent Executive Directors in the Band of Fees Salary Bonus Other Benefits Benefits from Stock Options S$1,250,000 to S$1,500,000 Ma Gui Chuan 0% 18.14% 26.53% 6.25% 49.08% 100% Min Jian Guo 0% 18.64% 26.62% 6.25% 48.49% 100% Non-Independent Executive Director in the Band of S$750,000 to below S$1,000,000 Ji Hai Sheng Note 1 0% 21.81% 61.76% 9.02% 7.41% 100% Non-Independent and Non-Executive Directors in the Band of S$750,000 to below S$1,000,000 Wang Xing Ru 0% 8.03% 16.80% 0.59% 74.58% 100% Lu Cheng Gang 0% 0% 24.58% 0% 75.42% 100% Liu De Tian 0% 16.53% 12.59% 5.32% 65.56% 100% Non-Independent Executive Director in the Band of below S$500,000 Jiang Li Jun 0% 49.44% 26.04% 24.52% 0% 100% Independent Directors in the Band below S$500,000 Tom Yee Lat Shing 18.58% 0% 0% 0% 81.42% 100% Wang Kai Yuen 17.30% 0% 0% 0% 82.70% 100% Er Kwong Wah 17.30% 0% 0% 0% 82.70% 100% Ang Swee Tian % 0% 0% 0% 0% 100% Executives in the Band of S$1,000,000 to below S$1,250,000 Ye Bin Lin 0% 16.95% 26.70% 4.71% 51.64% 100% Li Jian Xiong 0% 16.64% 26.22% 6.43% 50.71% 100% Executives in the Band below S$500,000 Wong Meng Yun Note 2 0% 67.77% 19.77% 12.46% 0% 100% Teo Chuan Teck Note 3 0% 24.52% 33.89% 16.12% 25.47% 100% Total Corporate Gover nance and Transparency Note: 1. Ji Hai Sheng resigned on 7 August Wong Meng Yun was appointed on 1 July Teo Chuan Teck resigned on 31 March Wei Jia Fu, Li Jian Hong, Zhang Liang and Sun Yue Ying were not paid any fees, salary, bonus, other benefits and benefits from stock options for the financial year ended 31 December No employee of the company and its subsidiary companies was an immediate family member of a Director and whose remuneration exceeded S$150,000 during the financial year ended 31 December

54 Annual Report 2008 Corporate Governance Executives Remuneration The Company adopts a remuneration strategy that supports a pay-for-performance philosophy. Executives participate in an annual performance review process that assesses the individual s performance and contributions. The remuneration structure for the Group President and other key executives consists of the following components: Salary Fixed pay comprises basic salary and Annual Wage supplement (AWS) and the Company s contribution towards the Singapore Central Provident Fund where applicable. Bonus Bonus is paid based on the Company s and individual s performance. Other Benefits Other benefits comprise of usage of Company s car and club membership. Benefits From Stock Option Share options are granted to align staff s interests with that of shareholders. These options are granted with reference to the desired remuneration structure target and valued based on the Binomial Valuation Model. Details of the share option scheme can be found in the Directors Report section of the Annual Report. C. ACCOUNTABILITY AND AUDIT ACCOUNTABILITY Principle 10: The Board should present a balanced and understandable assessment of the company s performance, position and prospects The Board has overall responsibility to shareholders for ensuring that the Group is well managed and guided by its strategic objectives. In presenting the Group s annual and quarterly financial results to shareholders, the Board aims to provide shareholders with a balance and understandable assessment of the Group s performance, position and prospects. Management provides the Board with management accounts and other financial statements on a periodical basis. AUDIT COMMITTEE Principle 11: The Board should establish an Audit Committee ( AC ) with written terms of reference which clearly set out its authority and duties. The Audit Committee ( AC ) comprises the following: Tom Yee Lat Shing (Chairman) (Non-Executive Independent) Wang Kai Yuen (Non-Executive Independent) Er Kwong Wah (Non-Executive Independent) Ang Swee Tian (Non-Executive Independent) The AC performs the following functions: a) reviews with the external auditors, their audit plan, evaluation of the accounting controls, audit reports and any matters which the external auditors wish to discuss; b) reviews with the internal auditors, their audit plan, the adequacy of the internal audit procedures and their evaluation of the effectiveness of the overall internal control systems, including financial, operational and compliance controls and risk management; 52

55 c) reviews the quarterly and annual financial statements, including announcements to shareholders and the SGX- ST prior to submission to the Board so as to ensure the integrity of the Company s financial statements; d) reviews any significant findings and recommendations of the external and internal auditors and related management response and assistance given by the management to auditors; e) reviews interested person transactions to ensure that internal control procedures approved by the shareholders are adhered to; and f) conducts annual review of the independence and objectivity of the external auditors, including the volume of non-audit services provided by the external auditors, to satisfy itself that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors before confirming their re-nomination. The AC and the Board of Directors, with the assistance of internal audit and external audit, reviews the effectiveness of the key internal controls, including financial, operational and compliance controls, and financial risk management on an ongoing basis. There are formal procedures in place for both the internal and external auditors to report independently their findings and recommendations to the AC. The AC has full access to, and cooperation from the Management including internal and external auditors, and has full discretion to invite any Director and executive officer to attend its meetings. The AC has also express power to investigate any matter brought to its attention, within its terms of reference, with the power to retain professional advice at the Company s expense. The Group recognises the importance of the internal audit function which, being independent of Management is one of the principal means by which the AC is able to carry out its responsibilities effectively. The Company has its own Internal Audit function in addition to having Messrs Deloitte & Touche Enterprise Risk Services Pte Ltd as the internal auditors of the Group. The internal auditors, the in-house and out-sourced incumbents plan their internal audit schedules in consultation with Management and submit their respective plan to the AC for approval. The Internal Auditors, the in-house and out-sourced incumbents, report directly to the AC. The AC conducts regular meetings scheduled on a quarterly basis. Apart from the quarterly meetings, the AC meets with the external and internal auditors, without the presence of the management at least once a year. Ad-hoc meetings may be carried out from time to time, as circumstances require. The AC held nine meetings during the financial year. The AC, having reviewed the non-audit services provided by the external auditors, PricewaterhouseCoopers LLP, to the Group, is satisfied with the independence and objectivity of the external auditors and recommends to the Board of Directors, the nomination of the external auditors for re-appointment. Whistle-blowing Policy The Company has in place a whistle-blowing policy and arrangements by which staff may, in confidence, raise concerns about possible corporate improprieties in matters of financial reporting or other matters. To ensure independent investigation of such matters and for appropriate follow up action, all whistle-blowing reports are to be sent to the designated officers. The Chairman of the Audit Committee and the Vice-Chairman of the Board will be informed immediately of all whistle-blowing reports received. Details of the whistle-blowing policy and arrangements are given to all staff for their easy reference. New staff are briefed on these during the orientation programme. Corporate Gover nance and Transparency 53

56 Annual Report 2008 Corporate Governance INTERNAL CONTROLS Principle 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders investments and the company s assets. The Group maintains a system of internal controls for all companies within the Group, but recognises that no internal control system will preclude all errors and irregularities. The system is designed to manage rather than to eliminate the risk of failure to achieve business objectives. The controls are to provide reasonable, but not absolute, assurance to safeguard shareholders investments and the Group s assets. The Group s key internal controls include: - establishment of risk management policies and systems; - establishments of policies and approval limits for key financial and operational matters, and issues reserved for the Board; documents of key processes and procedures; - segregation of incompatible functions which give rise to a risk of errors or irregularities not being promptly detected; maintenance of proper accounting records; - safeguarding of assets; - ensuring compliance with appropriate legislation and regulations; and - engaging qualified and experience persons to take charge of important functions. Operational risks management measures implemented by the Group include the implementation of safety, security and internal control measures and taking up appropriate insurance coverage. Details of the Group s financial risks management measures are outlined in Note 35 to the Financial Statements. Based on internal controls established by the Group, work performed by the internal and external auditors, and reviews conducted by the Audit Committee and the Management Risk Committee, the Board is of the opinion that the Group has adequate internal controls. ENTERPRISE RISK MANAGEMENT COMMITTEE The Enterprise Risk Management Committee ( ERMC ) comprises five Directors, the majority of whom including the Chairman is independent. The ERMC members are: Ang Swee Tian (Chairman) (Non-Executive Independent) Jiang Li Jun (Non-Independent Executive) (Appointed on 7 August 2008) Ji Hai Sheng (Non-Independent Executive) (Resigned on 7 August 2008) Tom Yee Lat Shing (Non-Executive Independent) Wang Kai Yuen (Non-Executive Independent) Er Kwong Wah (Non-Executive Independent) The ERMC assists the Board in fulfilling its oversight responsibilities on risk management. The responsibilities of the ERMC would include the following: - reviews the overall risk management system and process and makes recommendations on changes as and when considered appropriate - reviews the Group s risk policies, guidelines and limits; and - reviews periodically the Group s material risk exposures and evaluates the adequacy and effectiveness of the mitigating measures implemented by management. Established on 28 Feb 2008, the ERMC held two meetings during the year at which discussions were held on the existing risk management structure, the key risk exposures of the Group and the action plan to mitigate such risks. 54

57 In its continuous endeavours to address and mitigate its operational risks, COSCO Shipyard Group has entered into a comprehensive strategic agreement with a leading Chinese insurance institution to strengthen its risk management system and to enhance its operational structure. The said insurance institution will establish a team to provide the Group with different facades of insurance for domestic and international trades; setting up a standardised claims and liabilities system; the evaluation of ship owners credit ratings, the tracking of ship owners risk; and the evaluation of countries credit ratings. The Company believes all these efforts are to help the Group to move towards the establishment of an all-encompassing risk management system. INTERNAL AUDIT Principle 13: The company should establish an internal audit function that is independent of the activities its audits. The internal audit function s primary line of reporting is to the Chairman of the Audit Committee. In addition to having an in-house Internal Audit function, the Company has also appointed Messrs Deloitte & Touche Enterprise Risk Services Pte Ltd as the internal auditors of the Group. Based on its review, the Audit Committee believes that the internal auditors, both the in-house and the out-sourced internal auditors, are independent and have the appropriate standing to perform its function effectively and objectively. D. COMMUNICATION WITH SHAREHOLDERS Principle 14: Companies should engage in regular, effective and fair communication with shareholders COSCO Corporation strives for timeliness and transparency in its disclosures to the shareholders and the public. All information on the Company s new initiatives will be first disseminated via SGXNET followed by a news release, where appropriate. The Company currently holds media and analyst briefing upon the release of its financial results. Management regularly receives visiting fund managers and institutional shareholders to receive feedback from them on the Company s business and developments, as well as to better understand and address their concerns. In addition to the media and analyst briefings, the Company has taken part in various road shows. The Company does not practise selective disclosure. Price-sensitive information is first publicly released via SGXNET, either before the Company meets with any group of investors or analyst or simultaneously with such meetings. Results and annual reports are announced or issued within the period prescribed by the SGX-ST. Principle 15: Companies should encourage greater shareholder participation at AGMs, and allow shareholders the opportunity to communicate their views on various matters affecting the company. COSCO Corporation encourages shareholders to participate actively in general meetings. At general meetings of the Company, shareholders are given the opportunity to express their views and ask questions regarding the Company and the Group. Corporate Gover nance and Transparency The Company s Articles of Association allow a shareholder entitled to attend and vote to appoint a proxy who need not to be a shareholder of the Company to attend and vote at the meetings. The Board members and Chairpersons of the Audit, Nominating, Remuneration and Enterprise Risk Management Committees are present and available to address shareholders questions at general meetings. The external auditors are also present to address shareholders queries relating to the Auditor s Report and the conduct of the audit. 55

58 Annual Report 2008 Corporate Governance E. INTERESTED PERSON TRANSACTIONS ( IPTS ) POLICY The Company has adopted an internal policy in respect of any transactions with interested persons and has set out the procedures for review and approval of the Company s interested person transactions with the China Ocean Shipping (Group) Company and its associates, which are covered by a Shareholders Mandate approved at each general meeting. The AC reviews the Shareholders Mandate at regular intervals, and is satisfied that the review procedures for IPTs and the reviews to be made periodically by the AC in relation thereto are adequate to ensure that the IPTs will be transacted on normal terms and will not be prejudicial to the interests of the Company and its minority shareholders. Name of Interested Person Between Subsidiaries and: Aggregate value of all interested person transaction during the financial period under review (excluding transactions less than $100,000 and transactions conducted under shareholders mandate pursuant to Rule 920) S$ 000 Aggregate value of all interested person transactions conducted under shareholders mandate pursuant to Rule 920 (excluding transactions less than $100,000) S$ 000 Chimbusco (S) Pte Ltd 875 Chimbusco Dalian Branch 10,565 Chimbusco Guangzhou Branch 3,074 Chimbusco Lianyungang Branch 1,069 COSCO (Cayman) Mercury Co., Ltd 1,199 COSCO (HK) Investment & Development Co., Ltd 435 COSCO (HK) Shipping Co., Ltd 125,525 COSCO Air Service Dalian Ltd 213 COSCO Bulk Carrier Co., Ltd 219,703 COSCO Bulk Carrier Holdings (Cayman) Limited 45,809 COSCO Container Lines Co., Ltd 14,242 COSCO Logistics (Nantong) 112 COSCO Finance Co., Ltd 773,305 COSCO Nantong Steel Co., Ltd 7,013 COSCO Network (Beijing) Ltd 361 COSCO Shanghai Container Shipping Agency Co., Ltd 1,113 COSCO Shanghai Ship Management Co., Ltd 22,958 COSCO Shipping Co., Ltd 1,683 Dalian Ocean Shipping Company 409 Dalian Yuan Chang Shipping Co., Ltd 2,415 Guangzhou Ocean Shipping Company 68,419 Han Yuan Technical Service Centre 427 Lianyungang Ocean Shipping Company 807 Nantong Chimbusco Marine Bunker 2,784 Nantong COSCO Khi Ship Engineering Co., Ltd 309 Nantong COSCO Ship Equipment Company 7,161 Qingdao Manning Co-operation Ltd 2,407 56

59 Name of Interested Person Between Subsidiaries and: Aggregate value of all interested person transaction during the financial period under review (excluding transactions less than $100,000 and transactions conducted under shareholders mandate pursuant to Rule 920) S$ 000 Aggregate value of all interested person transactions conducted under shareholders mandate pursuant to Rule 920 (excluding transactions less than $100,000) S$ 000 Qingdao Ocean Shipping Company 56,936 Shanghai Ocean Crew Co., Ltd 4,787 Shanghai Ocean Shipping Company 10,321 Shanghai Puyuan Shipping Co., Ltd 1,031 Shengzhen Ocean Shipping Company 3,430 Tianjin Tianhui Shipping & Enterprise Co., Ltd 3,144 Tianjin Yuanhua Shipping Co., Ltd 3,628 Tosco Keymax International Ship Management Co., Ltd 19,481 Xiamen Ocean Shipping Company 1,985 Total NIL 1,419,135 F. DEALING IN SECURITIES In line with Chapter 12 Rule 1207(18) of the Listing Manual of SGX-ST on dealings in securities, the Company has adopted an internal compliance code which mirrors substantially the provisions of the said rule to provide guidance to its Directors and officers in relation to dealings in its securities. The Company s Code prohibits securities dealings by the Directors and employees while in possession of pricesensitive information. The Company issues regular circulars to its Directors, principal officers and relevant officers who have access to unpublished material price-sensitive information to remind them of the aforementioned prohibition and to remind them of the requirement to report their dealings in shares of the Company. The Directors and employees are also prohibited from dealing in the securities of the Company during the period commencing two weeks before the announcement of financial results of the Company for each of the first, second and third quarters of its financial year or one month before the financial year, as the case may be, and ending on the date of the announcement of the relevant results. Corporate Gover nance and Transparency 57

60 Annual Report 2008 Board of Directors Li Jian Hong Chairman, Non-Independent and Non-Executive Director Mr Li Jian Hong is currently the Chairman and Non- Independent and Non-Executive Director of COSCO Corporation (Singapore) Limited, Executive Vice President, Chief Risk Officer and Chief Information Officer of COSCO (Group) Company. He is also the Chairman of COSCO Shipyard Group Co., Ltd., COSCO International Ship Trading Co., Ltd., Dalian COSCO Shipbuilding Industry Co., Ltd. and Sino-Ocean Land Holdings Ltd; Vice Chairman of China International Marine Containers (Group) Co., Ltd., Suzhou Industrial Park Co., Ltd., Nantong COSCO KHI Ship Engineering Co., Ltd.; Non-Executive Director of China COSCO Holdings Co., Ltd. and COSCO International Holdings Limited; Executive Director of COSCO Pacific Ltd. Mr Li is concurrently the Vice Chairman of China Association of the National Shipbuilding Industry and Vice President of China Association of the National Shipbuilding Industry. Mr Li joined the COSCO Group in 1989, and has successively held the posts of Factory Director of COSCO (Nantong) Shipyard, General Manager of COSCO Industry Co., Ltd. and COSCO Real Estate Development Co., Ltd., Assistant to the President and Chief Economist of COSCO Group. Mr Li obtained his Master Degrees in Business Administration from University of East London, England and in Economic Management from Jilin University respectively. He is a Senior Economist with vast experience in business management and capital operation. Jiang Li Jun Vice Chairman, President and Non-Independent Executive Director Mr Jiang Li Jun was appointed as Vice Chairman and President of COSCO Corporation (Singapore) Limited in Mr Jiang joined COSCO as an accountant upon his graduation in December He has held various positions within the COSCO Group, including accounting manager of COSCO (Group) Company, SINOTASHIP, Chung Ling Shipping (Japan) Co., Ltd, Yick Fung Shipping (HK) Co., Ltd., Deputy General Manager of Florence Container (HK) Co., Ltd and COSCO Pacific Co., Ltd (a public listed Company in Hong Kong), and Chief Executive Officer of COSCO Shipping Co., Ltd (a public listed Company in Shanghai A shares). Mr Jiang had also been the head of Finance Department and Deputy General Manager of Operation Department of COSCO Japan Co., Ltd, General Manager of COSUZ Co., Ltd as well as Deputy Chief Financial Officer of COSCO Container Lines Ltd. Mr Jiang holds an MBA degree from the University of Shanghai. He has extensive experience in the management of listed companies and corporate financial management. 58

61 Zhang Liang Non-Independent and Non-Executive Director Mr Zhang Liang, is currently a Non-Independent and Non-Executive Director of COSCO Corporation (Singapore) Limited, and Executive Vice President of COSCO (Group) Company. He is also the Chairman of COSCO Bulk Carrier Co., Ltd, Qingdao Ocean Shipping Co., Ltd. and Shenzhen Ocean Shipping Co., Ltd., and the Chairman of COSCO (H.K.) Shipping Co., Ltd. Mr Zhang Liang joined COSCO Group in He was appointed as Executive Vice President of COSCO Group in 2006 and was also the Chief Legal Advisor of COSCO Group between 2006 and He has successively held the positions of Marine Superintendent, Director of Personnel Department, Assistant to General Manager, Deputy General Manager (cum Safety & Quality Manager) of Tianjin Ocean Shipping Company, Deputy General Manager of COSCO Bulk Carrier Co., Ltd., General Manager of Tianjin Ocean Shipping Company and General Manager of COSCO Bulk Carrier Co., Ltd. Mr Zhang graduated from Dalian Maritime University, where he majored in ship navigation, and he also holds a Master s degree in Transport Planning & Management from Shanghai Maritime University and a Doctor s degree in Enterprise Management from Nankai University. He is a senior engineer. Mdm Sun Yue Ying Non-Independent and Non-Executive Director Mdm Sun Yue Ying is currently a Non-Independent and Non-Executive Director of COSCO Corporation (Singapore) Limited and the Chief Financial Officer of COSCO (Group) Company. She is also the Chairman of COSCO Finance Co., Ltd. and COSCO (Cayman) Fortune Holding Co., Ltd.; Non-Executive Director of China COSCO Holdings Co., Ltd.; Executive Director of COSCO Pacific Ltd and Director of China Merchants Bank Co., Ltd. Mdm Sun joined COSCO Group in She was appointed as CFO of COSCO Group in 2000, and has successfully held the posts of Deputy Director of the Finance Department of Tianjin Ocean Shipping Company, Finance Director of COSCO Japan Co., Ltd., General Manager of the Finance Department and Deputy CFO of the COSCO Group. Mdm Sun has extensive experience in finance and corporate financial management. Mdm Sun graduated from Shanghai Maritime University majoring in Finance and Accounting for Shipping Industry. She is a Certified Public Accountant and senior accountant. Corporate Gover nance and Transparency 59

62 Annual Report 2008 Board of Directors Min Jian Guo Vice President and Non-Independent Executive Director Mr Min Jian Guo joined COSCO Corporation (Singapore) Limited as the Vice President on 5 April He was responsible for the personnel aspects of the Company as well as in charge of a few subsidiaries and agency units under the Company. Before his arrival in Singapore, Mr Min was based in Beijing, China as Deputy Managing Director of COSCO Logistics Co., Ltd. Prior to that, he was the Deputy General Manager of China Ocean Shipping Agency head office from September 2000 to December 2001, the Deputy General Manager of COSCO International Freight Forwarding Company from September 1995 to September 2000, and Deputy General Manager in China Road Transportation Company from November 1994 to September Mr Min has extensive experience in international freight forwarding and strategic management of modern logistics. He was conferred a Master degree by Capital University of Economics and Business. Mr Min was awarded the Golden Anchor Prize by the China Seaman s Association in September Ma Gui Chuan Non-Independent Executive Director Mr Ma Gui Chuan was elected as Non-Independent Executive Director on 10 January He joined the COSCO Group in 1978 and was appointed the Chairman of the Union of COSCO Group in Currently, he is the Chairman of COSCO Holdings (S) Pte Ltd. He was involved in the management of the Qingdao Ocean Shipping Company for many years and became the person-in charge of Qingdao Ocean Mariner s College in From 2001 to 2003, he was a standing member of CPC Committee and Deputy Mayor of Yinchuan, Ningxia. In 2003, Mr Ma was elected an executive committee member of the 14th national representatives congress of All-China Federation of Trade Unions. He had nearly 30 years of experience in the shipping industry and extensive experience in ship and crew management. Mr Ma graduated from Dalian Maritime University majoring in engineering management and from Capital University of Economics and Business with postgraduate qualifications in business administration. 60

63 Wang Xing Ru Non-Independent and Non-Executive Director Mr Wang Xing Ru was appointed as a Non-Independent and Non-Executive Director of COSCO Corporation (Singapore) Limited in February He has been the Managing Director of COSCO Shipyard Group Ltd. since Prior to that, Mr Wang was Executive Director of COSCO Co-Development (Tianjin) Co., Ltd & Vice President of COSCO Industry Co. A graduate from Engineering School of Shandong University, Mr Wang holds a Master of Engineering degree. He has a wealth of experience in shipyard business and assets operation. Corporate Gover nance and Transparency 61

64 Annual Report 2008 Board of Directors Tom Yee Lat Shing Non-Executive Independent Director Dr Wang Kai Yuen Non-Executive Independent Director Mr Tom Yee was appointed to the Board on 15 December He is a Non-Executive and Independent Director and was last re-elected as Director on 18 April He is Chairman of the Company s Audit Committee and member of the Nominating, Enterprise Risk Management and Remuneration Committees. Mr Yee is a Certified Public Accountant and was a partner of an international public accounting firm from 1974 to He has more than 35 years of experience in the field of accounting and auditing and extensive experience in handling major audit assignments of public listed and private companies in various industries, including insurance, manufacturing and retailing. He is currently a consultant. Mr Yee also sits on the Boards of several listed companies, and is a fellow member of the Institute of Chartered Accountants in Australia, CPA (Australia), FCPA (Singapore), associate member of the Institute of Chartered Secretaries and Administrators, and Council Member of the Institute of Certified Public Accountants of Singapore. Dr Wang Kai Yuen was appointed as an Independent Director on 2 May He chairs the Nominating Committee and is a member of the Audit, Enterprise Risk Management, and the Remuneration Committee. Dr Wang served as a Member of Parliament for the Bukit Timah Constituency from December 1984 till April He was the Chairman of Feedback Unit from 2002 till his retirement from politics. He is currently the Centre Manager of Fuji Xerox Singapore Software Centre. In that capacity, he has built up the software centre and assisted in the establishment of similar centres in the UK, India, China, Brazil and Ireland. Dr Wang also holds directorships at ComfortDelgro Group Ltd, CAO (Singapore) Corporation Ltd, Asian Micro Holdings Ltd, Ezion Holdings Ltd, Xpress Holdings Ltd, China Lifestyle Foods and Beverages Ltd, Matex International Ltd, and others. He graduated from the University of Singapore with a First Class Honours degree in Electrical and Electronics engineering. Dr Wang holds a Master of Science in Electrical Engineering, a Master of Science in Industrial Engineering and a PhD in Engineering from Stanford University, US. He received a Friend of Labour Award in 1988 for his contributions to the Singapore labour movement. 62

65 Er Kwong Wah Non-Executive Independent Director Ang Swee Tian Non-Executive Independent Director Mr Er Kwong Wah is a Non-Executive and Independent Director of COSCO Corporation (Singapore) Limited. A Colombo Plan and Bank of Tokyo Scholar, Mr Er obtained a first class honours degree in Electrical Engineering at the University of Toronto, Canada, in 1970 and an MBA from the Manchester Business School of the University of Manchester, UK in Mr Er spent 27 years in the Singapore Civil Service and served in various departments including the Ministry of Defense, Public Service Commission, Ministry of Finance, Ministry of Education and Ministry of Community Development. He was Permanent Secretary in the Ministry of Education from , and in the Ministry of Community Development until his retirement in Currently, he is an Executive Director of the East Asia Institute of Management, as well as, an Independent Director on the Boards of several public listed companies such as Unidux Electronics Ltd, Firstlink Investment Corporation Ltd, Hartawan Holdings Ltd, China Sky Chemical Fiber Co., Ltd, China Essence Group Ltd and Sun East Group Ltd. Mr Ang Swee Tian is a Non-Executive and Independent Director of COSCO Corporation (Singapore) Limited. He graduated from the Nanyang University in Singapore with a First-Class Honours Degree in Accountancy in 1970 and was conferred a Masters Degree in Business Administration with distinction by the Northwestern University in Upon his return from the United States, Mr Ang served in several departments in the Monetary Authority of Singapore (MAS). He was the Head of the Money Market Division in the Banking Department in 1976/1977 and was the Deputy Insurance Commissioner in the Insurance Commissioner s Department. Mr Ang later became the Chief Executive Officer of the Singapore International Monetary Exchange (SIMEX) in Mr Ang s illustrious career included the successful merger of SIMEX with Stock Exchange of Singapore (SES) in 1999 which became the internationally recognised Singapore Exchange (SGX) of today. He served as the President of SGX from 1999 to Corporate Gover nance and Transparency He is Chairman of the Toa Payoh Central Citizens Consultative Committee and a Member of the Bishan- Toa Payoh Town Council. For his outstanding service in the Government and in the community, Mr Er was awarded the PPA(E) or Public Administration Medal (Gold) and the PBM (Public Service Medal). In 1991, the Government of France conferred him a National Honour with the award of Commandeur dans l Ordre des Palmes Academiques. 63

66 Annual Report 2008 Key Management from left: Jiang Li Jun Vice Chairman, President and Non-Independent Executive Director Min Jian Guo Vice President and Non-Independent Executive Director Jiang Li Jun Vice Chairman, President, and Non-Independent Executive Director Mr Jiang Li Jun was appointed as Vice Chairman and President of COSCO Corporation (Singapore) Limited in Mr Jiang joined COSCO as an accountant upon his graduation in December He has held various positions within the COSCO Group, including accounting manager of COSCO (Group) Company, SINOTASHIP, Chung Ling Shipping (Japan) Co., Ltd, Yick Fung Shipping (HK) Co., Ltd., Deputy General Manager of Florence Container (HK) Co., Ltd and COSCO Pacific Co., Ltd (a public listed Company in Hong Kong), and Chief Executive Officer of COSCO Shipping Co., Ltd (a public listed Company in Shanghai A shares). Mr Jiang had also been the head of Finance Department and Deputy General Manager of Operation Department of COSCO Japan Co., Ltd, General Manager of COSUZ Co., Ltd as well as Deputy Chief Financial Officer of COSCO Container Lines Ltd. Mr Jiang holds an MBA degree from the University of Shanghai. He has extensive experience in the management of listed companies and corporate financial management. Min Jian Guo Vice President and Non-Independent Executive Director Mr Min Jian Guo joined COSCO Corporation (Singapore) Limited as the Vice President on 5 April 2006, responsible for the personnel aspects of the Company as well as in charge of a few subsidiaries and agency units under the Company. Before his arrival to Singapore, Mr Min was based in Beijing, China as Deputy Managing Director of COSCO Logistics Co., Ltd in January Prior to that, he had been appointed as the Deputy General Manager of China Ocean Shipping Agency head office from September 2000 to December 2001, the Deputy General Manager of COSCO International Freight Forwarding Company from September 1995 to September 2000, and Deputy General Manager in China Road Transportation Company from November 1994 to September Mr Min has extensive experience in the international freight forwarding and strategic management of modern logistics. He was conferred his master s degree by Capital University of Economics and Business. Mr Min was awarded the Golden Anchor Prize by China Seaman s Association in September

67 from left: Ye Bin Lin Chief Financial Officer Li Jian Xiong Vice President Wong Meng Yun Financial Controller Ye Bin Lin Chief Financal Officer Mr Ye Bin Lin has extensive experience in finance and corporate financial management. From 1993 to 1998, Mr Ye was the finance manager of accounting department of COSCO Container Lines Co., Ltd. From 1998 to 2001, he was the general financial manager of COSCO Germany Shipping Agencies GMBH. Mr Ye joined COSCO Corporation (S) Ltd (formerly known as COSCO Investment (S) Ltd) as finance director in August 2001 and was re-designated Chief Financial Officer of the company on 14 April Li Jian Xiong Vice President Mr Li Jian Xiong has rich knowledge and many years in shipping management and business operation. From 1997 to 2000, Mr Li served as Managing Director of COSCO Container Service Ltd; Deputy General Manager of COSCO Pacific Ltd (Listed Company in HK) and Deputy Managing Director of COSCO Pacific (China) Investment Co., Ltd. Mr Li joined COSCO Corporation (S) Ltd (formerly known as COSCO Investment (S) Ltd) in April 2001 as Vice President. Mr Li graduated from Qiandao Ocean Shipping Mariners College with a Bachelors Degree of Navigation and received his MBA from Shanghai JiaoTong University. Wong Meng Yun Financial Controller Mr Wong Meng Yun has more than 25 years of working experience in financial management, corporate finance, internal & external audit and treasury management of which the last 12 years were in a senior regional management position with a leading US listed software company. Mr Wong graduated from the University of Singapore with a Bachelor of Accountancy and is a Fellow of the Association of Chartered Certified Accountants, CPA Australia, the Institute of Certified Public Accountants of Singapore and the Singapore Institute of Arbitrators. He is a Certified Treasury Professional (CTP) with the Association for Financial Professionals, a Certified Internal Auditor (CIA) and a Certified Financial Services Auditor (CFSA) with the Institute of Internal Auditors, a Certified Information Systems Auditor (CISA) and a Certified Information Security Manager (CISM) with the Information Systems Audit and Control Association (ISACA). Corporate Gover nance and Transparency 65

68 Annual Report 2008 Organisation Structure COSCO Corporation (Singapore) Limited Vice Chairman & President Vice President Financial Controller Administration Department Chief Financial Officer Internal-Audit Department Finance Department Investor Relations Department Strategic Development Department 66

69 Corporate Information Board of Directors Li Jian Hong Jiang Li Jun Zhang Liang Sun Yue Ying Min Jian Guo Ma Gui Chuan Wang Xing Ru Tom Yee Lat Shing Wang Kai Yuen Er Kwong Wah Ang Swee Tian Audit Committee Tom Yee Lat Shing Wang Kai Yuen Er Kwong Wah Ang Swee Tian Chairman and Non-Independent and Non-Executive Director Vice Chairman, President and Non-Independent Executive Director Non-Independent and Non-Executive Director Non-Independent and Non-Executive Director Vice President and Non-Independent Executive Director Non-Independent Executive Director Non-Independent and Non-Executive Director Non-Executive Independent Director Non-Executive Independent Director Non-Executive Independent Director Non-Executive Independent Director Chairman Remuneration Committee Er Kwong Wah Chairman Jiang Li Jun (Appointed on 7 August 2008) Tom Yee Lat Shing Wang Kai Yuen Ang Swee Tian Nominating Committee Wang Kai Yuen Chairman Jiang Li Jun (Appointed on 7 August 2008) Tom Yee Lat Shing Er Kwong Wah Ang Swee Tian Enterprise Risk Management Committee Ang Swee Tian Chairman Jiang Li Jun (Appointed on 7 August 2008) Tom Yee Lat Shing Wang Kai Yuen Er Kwong Wah Ye Bin Lin (Appointed on 1 March 2009) Registered Office and Business Contact Information 9 Temasek Boulevard #07-00 Suntec Tower Two Singapore Telephone: Fascimile: Website: Company Registration Number G Auditors PricewaterhouseCoopers LLP 8 Cross Street #17-00 PWC Building Singapore Partner-in-charge: Mr Tham Tuck Seng (since FY2007) Company Secretaries Mr Lawrence Kwan Ms Lin Moi Heyang Share Registrar and Share Transfer Office Tricor Barbinder Share Registration Services (A division of Tricor Singapore Pte Ltd) 8 Cross Street #11-00 PWC Building Singapore Telephone: Facsimile: Principal Bankers Bank of China 4 Battery Road Bank of China Building Singapore United Overseas Bank Limited 80 Raffles Place UOB Plaza Singapore Corporate Gover nance and Transparency 67

70 Investor Relations Total overseas roadshows organised in FY At COSCO, creating value is at the heart of what we do. Whether it is ship building or ship repair or oil rig construction, we look for unique ways to valueadd, recognising that that is the key to creating long, sustainable and profitable relationships. As such, we understand the importance of investor relations in shareholder value creation and recognise the integral role strong investor relations plays in our overall corporate development strategy. Our investor relations commitment is expressed through a belief in strong and accountable leadership, effective corporate governance, regular performance reporting and clear and timely investor communications. We believe our active investor relations engagement has contributed to a large investor following on the Singapore Exchange, where we are one of the most widely traded, liquid stocks. COSCO is also a component stock in the Straits Times Index, comprised of the 30 largest companies in terms of market capitalisation. Since January 2008, we had been a part of the FTSE ST China Index, and from July 2008, we were also included in the FTSE ST China Top Index, both of which were created to reflect the increasing representation of China-based companies in the Singapore stock market and to offer investors simple vehicles in which to tap into the range of highly liquid, locally-listed China companies. Among other indices, we are also a component stock of the Morgan Stanley Capital International World Index as well as the SGX Morgan Stanley Capital International Asia Apex 50 Index Futures which feature some of the most promising, widely traded and investable Asian companies outside Japan. Financial Calendar Activities FY2007 full-year financial results announcement Annual General Meeting 1st quarter financial results announcement 2nd quarter financial results announcement 3rd quarter financial results announcement FY2008 full-year financial results announcement Date 21 February April April August October February

71 Analyst name list Name Daniel Ong Glenford Tan Lim Siew Khee Low Horng Han Caroline Maes Haider Ali Janice Chua Kevin Chong Serene Lim Ying Jian Chan Rohan Suppiah Ashwin Sanketh Melinda Baxter Company AmFraser Securities Pte Ltd BNP Paribas CIMB-GK Research Citi Investment CLSA Credit Suisse DBS Vickers Deutsche Securities Asia DMG & Partners JP Morgan Kim Eng Securities Macquarie Capital Securities Merrill Lynch Address Corporate Gover nance and Transparency Praveen Choudhary Morgan Stanley Lisa Lee Nomura Securities Kelly Chia OCBC Stella Tan Phillip Securities Cheryl Lee UBS Esther Sim UOB Kayhian Total investor conferences attended and analyst briefings organised in FY

72 Investor Relations IR and Communications Activities Timely and pertinent disclosures are part and parcel of our investor relations programme. We work with the media and the investment community to discuss and disseminate information to the public. Material announcements we have undertaken include contracts won, quarterly results, growth strategies and operational outlook. We undertake this communications process through media interviews and news reports across a variety of platforms such as newswires, print, broadcast, investor meetings and roadshows, and dialogue with minority shareholders at Annual General Meetings and Extraordinary General Meetings, our website as well as the SGX website. IR Awards In 2008, we were awarded the Certificate of Excellence for the IR Magazine Awards 2008 South East Asia, in association with Investor Relations Professionals Association (Singapore) (IRPAS) and Singapore Exchange. We also clinched the Fastest 50 growing certification 2008, certified by DP Information Group. The leading Hong Kong business magazine Yazhou Zhoukan also conferred on COSCO an award for the World s 1000 Best China Companies Legend: STI Index MSCI Asia APEX 50 COSCO Share Price STI Index COSCO Share Price MSCI Asia APEX Source: Bloomberg and COSCO Jan 31 Feb 29 Mar 31 Apr 30 May 30 Jun 30 Jul 31 Aug 31 Sep 30 Oct 31 Non 30 Dec 31 FY

73 In 2009, we were also awarded the Singapore 1000 award from DP Information Group, Singapore s leading credit & business information bureau. The rankings use the audited results of over 8,000 companies incorporated in Singapore and ranks them according to their sales, profit and return on equity performance. These awards recognise our efforts in corporate governance and disclosure, regular communications and investor engagement. We will continue to improve upon these achievements, regardless of the operational scenario or economic environment. Total participants in FY2008 (comprising of analysts and shareholders) 3,261 Corporate Gover nance and Transparency Fastest 50 growing certification 2008 Awarded the Fastest 50 growing certification 2008, certified by DP Information Group Yazhou Zhoukan Named as one of the Top 10 Enterprises of 2008 (Singapore) by Yazhou Zhoukan IR Magazine Awards 2008 South East Asia Awarded Certificate of Excellence for the IR Magazine Awards 2008 South East Asia, in association with Investor Relations Professionals Association (Singapore) (IRPAS), and Singapore Exchange. Singapore1000 Award Awarded the Singapore 1000 award from DP Information Group, Singapore s leading credit & business information bureau. 71

74 Risk Management Introduction The Group, like all businesses, is exposed to a number of risks which may have material and adverse effects on its reputation, performance and financial condition. It is not possible to identify or anticipate every risk that may affect the Group. Some material risks may not be known, others, currently deemed as immaterial, could become material and new risks may emerge. The Group s risk management process is described below. It aims to identify the risk factors that may have a material impact on the Group, and to manage them appropriately. The material risk factors identified by the Group s risk management process are set out below. Each of these could have a material and adverse effect on the Group, including on its reputation, performance and financial condition. They have been divided into four categories: external risks; internal risks; execution risks; and financial risks. Risk Management Process The Group s process for identifying and managing risk is set by the Board through the ENTERPRISE RISK MANAGEMENT COMMITTEE ( ERMC ). The ERMC has delegated the day-to-day management of risk within the Group to the Risk Management Committee ( RMC ) of each of its operating subsidiaries. The RMC of each of the subsidiaries comprises senior management staff of each division within the operating subsidiaries. The Board currently conducts an annual review of the Group s risks, during which it identifies the key risks for the year ahead. As part of this review, operational and strategic risks are proposed as key risks by the RMC, based on inputs from regions, function heads and business leaders. The risk factors set out below reflect the key risks identified as part of this process. Each of the key risks is assigned to the Chairman of the RMC at the operating subsidiaries who proposes a level of risk the subsidiary is willing to take and develops an appropriate plan of action to mitigate the risk. All risk mitigation plans are reviewed, challenged and agreed by the Board. Once risk mitigation plans are agreed, each operating subsidiaries is asked to carry out a self assessment exercise which requires all operating units to confirm compliance with Group policies and also to confirm that key operational controls are in place and working effectively. The results of this exercise, together with a review of specific plans for strategic risks, enable the Board to confirm that the business has a sound riskbased framework of internal control. The Group auditors, internal and external, provide independent re-assurance that the standard of risk management, compliance and control meets the needs of the business, and this includes an evaluation of the accuracy and completeness of the self assessment exercises. Group audit status reports are discussed 72

75 with the Enterprise Risk Management Committee, the Audit Committee and the Board on a regular basis. The Board also recognises that the risks facing the business may sometimes change over short time periods. Every quarter each operating subsidiary provides an update on new and emerging risks to the ERMC and the Board and proposals to update the Group risks are provided to the ERMC and the Board. While the Group s risk management process attempts to identify and manage (where possible) the key risks it faces, no such process can totally eliminate risk or guarantee that every risk is identified, or that it is possible, economically viable, or prudent to manage such risks. Consequently, there can never be an absolute assurance against the Group failing to achieve its objectives or a material loss arising. 1. External Risks The Group is subject to a number of external risks. The Group defines external risks as those that stem from factors which are mainly outside of its control. These risks will often arise from the nature of the Group and the industry in which it operates. Legal, Regulatory, Political and Societal Risks The Group is at risk from significant and rapid change in the legal systems, regulatory controls, and custom and practices in the regions in which it operates. These affect a wide range of areas. Accordingly, changes to, or violation of, these systems, controls or practices could increase costs and have material and adverse impacts on the reputation, performance and financial condition of the Group. Political developments and changes in society, including increased scrutiny of the Group, its businesses or its industry, by non-governmental organisations or the media, may result in, or increase the rate of, material, legal and regulatory change, and changes to custom and practices. Competition Increased competition in the markets in which it operates may materially adversely impact the Group s performance and financial condition. The ship building and ship repair and shipping industry are highly competitive. The Group competes with other multinational corporations which also have significant financial resources. Customer Demand Customer demand for the Group s services and expertise is expected to increase to a higher level of expectation. The Group expects greater scrutiny by customers before they take delivery of vessels. This will, inadvertently, increase the cost of building the vessels. A failure to recover higher costs could materially adversely impact the Group s performance. Corporate Gover nance and Transparency 73

76 Risk Management Raw Materials The Group depends upon the availability, quality and cost of steel and steel-plates from around the world, which exposes it to price, quality and supply fluctuations. Although the Group will take measures to protect against the short-term impact of these fluctuations and of the concentration of supply, there is no guarantee that these will be effective. A failure to recover higher costs or shortfalls in availability could materially adversely impact the Group s performance. 2. Internal Risks Internal risks are those arising from factors primarily within the Group s control, including those from the Group s structure and processes. Information Technology Infrastructure The Group depends on accurate, timely information and numerical data from key software applications to aid day-to-day business and decision-making. Any disruption caused by failings in these systems, of underlying equipment or of communication networks could delay or otherwise impact the Group s day-today business and decision-making and have materially effects on the Group s performance. Operation Interdependence The Group s operations in individual provinces are increasingly dependent on the proper functioning of their business on other parts of the Group s in terms of raw material and product supply, sales and marketing programme development, technology, funding and support services. Any underperformance or failure to control the Group s operations in one province properly could therefore impact the Group s businesses in a number of other provinces and materially adversely impact the performance or financial condition of the Group. Employees The Group depends on the continued contributions of its executive officers and employees, both individually and as a group. While the Group reviews its people policies on a regular basis and invests significant resources in training and development and recognising and encouraging individuals with high potential, there can be no guarantee that it will be able to attract, develop and retain these individuals at an appropriate cost and ensure that the capabilities of the Group s employees meet its business needs. Any failure to do so may impact the Group s performance. Managing Cost of Wages Through Outsourcing Ship repair is a labour-intensive industry and an increase in wages will have a significant impact on the Group. The Group has been encountering increases in labour cost in particular in Guangdong. Other than having a permanent work force of skilled employees on the payroll, the Group has adopted a contract hiring system. Under the contract hiring system, unskilled 74

77 manpower is hired on a contractual basis and paid according to projects undertaken. While the Group has benefitted from the decrease in fixed wage costs, it is at risk from failures by these third parties to deliver on their contractual commitments, which may adversely impact its reputation and performance. 3. Execution Risks Executive risks arise from the implementation of the Group s strategy and its change and investments programmes, which aim to enhance long-term shareholder value. Investments, Acquisition and Disposals Risks inherent in the investments, acquisition and disposals may have an adverse impact on the Group s business or financial results. From time to time, the Group may make investments, acquisitions and disposals of businesses. While these are carefully planned, the rationale for them may be based on incorrect assumptions or conclusions and they may not realised the anticipated benefits or there may be other unanticipated or unintended effects. Additionally, while the Group seeks protection, for example through warranties and indemnities, significant liabilities may not be indentified in due diligence or come to light after the warranty or indemnity periods. These factors may materially adversely impact the performance or financial condition of the Group. 4. Financial Risks The Group is exposed to market risks such as interest rate and exchange rate risks arising from its international business. Managing Currency Fluctuations The main financial risks facing the Group are fluctuations in foreign currency, interest rate risk, availability of financing to meet the Group s needs and default by counterparties and customers. Any of these financial risks may materially adversely impact the performance or financial condition of the Group. The Group has established a management system to address financial risks. Fluctuations in currency exchange rates are closely monitored. The Group employs simple forward currency contracts on a systematic approach to meet its financial obligations and foreign and local currencies needs. The Group does not engage in speculative foreign investments. Strict compliance controls are in place to ensure that procedures are adhered to and management decisions are not made unilaterally. The Group also engages the guidance of the holding company in managing its foreign exchange risks exposure. A detailed disclosure of the Group s financial risks can be found in the Notes to the Financial Statements on pages 150 to 158. Corporate Gover nance and Transparency 75

78 信 者不疑 Credence is being credible and reliable

79 CREDENCE EXPERTISE AND EXPERIENCE ARE VITAL IN BUSINESS, BUT STRONG PRINCIPLES AND ETHICS COUNT FOR MUCH MORE BECAUSE WITH THEM, COMES GREATER CREDENCE. THIS CREDENCE HAS ESTABLISHED COSCO AS A RELIABLE ENTITY IN THE INDUSTRY, AND HAS OPENED OUR DOORS TO FURTHER OPPORTUNITIES AND GROWTH.

80 Research and Development Innovation: A beacon of light directing our growth Innovation is the driving force behind our quest to: a. Increase efficiency b. Enhance productivity c. Improve quality Innovation holds the key to our future successes. Through constant renewal and refining of our technological capabilities, we are equipping ourselves with a potent competitive edge that will create enduring value for our customers and shareholders in Review In 2008, we expanded our Reseach and Development (R & D) departments in China to comprise a highly qualified team of over 400 experts across six companies in the fields of ship building, marine engineering, and ship repair and conversion. The areas of research included ship conversion, hull design, marine engineering products and software development. United by a common goal that is directed at improving our project management capabilities, increasing dock turnover rates, reducing material costs, and minimising fuel consumption, our R & D team is essential in sustaining our future progress. The Big Picture Our plans for 2009 include an upgrade of existing systems to apply precision management and block construction methods to the ship building process. We will also acquire technologically advanced ship building equipment and paint installation techniques to enhance existing ship building, ship repair and ship conversion processes. To promote better and more efficient project management, we are committed to the developing of new software, sophisticated marine engineering products, and improved building technology. Ship Repair and Conversion In 2009, we are applying the latest of construction design technology to two super-sized floating docks, each with a capacity of up to 130,000 tonnes. We are also moving ahead with the conversion and re-fitting of our Cui Hua Shan dock. Other focuses include the upgrading of our FPSO conversion technology and the acquisition of block construction methods, all of which are improvements that will undeniably facilitate greater operational efficiency. 78

81 Ship Building In 2008, as a testament to COSCO s technological capabilities, we won the Second Prize at the annual awards organised by CSNAME for our engineering design and construction of a floating dock that caters to 30,000-tonne vessels. COSCO Corporation, on our own accord, has developed detailed engineering design for two shuttle tankers, each of capacity 105,000 DWT. Our international collaboration with SEVAN Marine and F&G has resulted in the completion of the detailed engineering design and production design for the world s first cylindrical FDPSO and a jack-up drilling platform Super M2. Working with Shanghai Merchant Ship Design & Research Institute, COSCO Corporation has finalised the detailed engineering design and production design of a 5,000 Pure Car Truck Carrier (5000PCTC), a 57,000 DWT dry bulk carrier, and a 30,000 DWT heavy lift vessel. Marine Engineering In 2008, we won the contract to construct SEVAN one of the most advanced oil rigs in the world capable of an oil storage capacity of 150,000 barrels and an ability to drill wells of up to 40,000 feet deep at water depths of up to 10,000 feet. Its technically challenging cylindrical design requires us to further improve and refine our building methods in 2009 to ensure on-time delivery and completion of the project. We will also be focusing our efforts on the conceptualisation of an octagonal rig, as well as conduct more research into developing stronger marine engineering equipment that will withstand more extreme weather conditions. Software Development We are extending our research into developing better and more efficient software that will enable us to reduce dock periods, enhance turnover times, and improve project management capabilities. Looking Ahead To ensure the effectiveness of our R & D efforts, we will work towards better communication and collaboration between our various units. We will also continue to expand our areas of research to create a more comprehensive network of coverage and seek allround improvements. Furthermore, we will be closely monitoring our expenditure to constantly improve our return on R & D investment. Inside COSCO and Corporate Citizenship 79

82 Human Resources Overview At COSCO Corporation, we believe that people are one of our most valuable assets. It is our conviction that when we have dedicated, motivated and skilful staff, we will not only provide excellent service and products, we will also retain our pool of expertise which, above cost, coverage and location, is our ultimate long-term advantage. COSCO Corporation has various approaches to strengthen its workforce, namely recruitment, training, a succession scheme and a reward scheme. We recruit and retain talent through an attractive reward and remuneration scheme which is based on a performance and appraisal system that helps staff structure and achieve their personal career goals. Indeed, our emphasis on education and training also encourages potential recruits to see COSCO Corporation as an employer of choice. Our succession scheme plays an important part in our human resource strategy. COSCO Corporation knows that the leaders at the helm will affect the destiny of the ship. Thus, the company actively identifies employees who show good potential, tests their acumen and stretches their experiences. Through this process, promising employees are recommended and groomed for senior management positions. Recruitment and Training COSCO Corporation is made of talented people that are dedicated to creating a value-driven world-class enterprise which maximises growth and leverages opportunities. We have a rich pool of strong and diverse talent, and are dedicated to developing this talent as we grow our business. To supplement our existing talent pool, the Group actively recruits top graduates from leading Chinese universities yearly, grooming them for management positions. At COSCO Corporation, we believe that people are one of our most valuable assets. It is our conviction that when we have dedicated, motivated and skilful staff, we will not only provide excellent service and products, we will also retain our pool of expertise which, above cost, coverage and location, is our ultimate long-term advantage. 80

83 These management trainees undergo internal courses that prepare them for their roles. All new employees undergo a compulsory training course, which lasts from one to three months. Technical staff is required to pass a course before they assume their work duties. They are also assessed annually to maintain their requisite services and skills standards. COSCO Corporation partners SembCorp Marine, which has a 30% stake in COSCO Shipyard Group, to develop staff capabilities. We send staff to SembCorp Marine s PPL Shipyard to undergo training in areas such as international standards and safety measures, technical, engineering and management skills. In fact, we have been leveraging on our strategic ties with Sembcorp Marine to spearhead our offshore rig building business. COSCO Corporation also draws on the expertise of external experts from the marine engineering industry, drawn from locations such as Singapore, Japan and Korea. Middle management at the Group is given opportunities to attend institutes of higher learning. Senior management from key departments are also given the opportunity to learn from other industry experts when they are posted to countries like Norway, which has a successful maritime industry. Reward and Retention COSCO Corporation has various schemes that seek to inculcate staff loyalty and cultivate the full potential of all our employees. One such system is the performance and achievement appraisal system which aims to link work goals with personal career development and remuneration. Another staff motivator is our annual Model Employee Reward scheme where the best performing employee from each subsidiary is rewarded with a trip to the Company s overseas subsidiaries. Besides being an incentive trip for the employees, these visits also provide opportunities to experience the work culture in other COSCO companies. Other schemes include competitions which are held among the different shipyards to promote a can-do, optimistic spirit while creating opportunities for bonding. To motivate senior management and experienced employees, COSCO Corporation gives share options. Inside COSCO and Corporate Citizenship 81

84 Workplace Safety Overview The Group is greatly aware of the need to establish and maintain safe working environments throughout our subsidiaries. Work safety is a priority, and we are pleased to report a progressively improving safety track record over the last seven years. In 2009, we are going to continue to focus our efforts on demonstrating, training and supervising to create a working culture distinguished by an across-the-board focus on work safety. Apart from equipping our staff with the latest technical skills, new employees undergo compulsory training courses specially designed to alert them to the potential dangers at the workplace and safety precautions, after which further tests are administered to ensure a level of proficiency and understanding. Concrete Action, Attainable Goals The objective of our programme in 2009 strives to totally eliminate the occurrence of serious fire hazards, explosions, collisions, and accidents at the work place such as leakages of dangerous substances that lead to environment pollution and chemical poisoning. We are protecting our workers through education and training and our goal is to achieve zero serious accidents among our workers. We have identified the tankers repair area and areas of high worker density as our focus zones. While applying an thorough approach to the implementation of safety guidelines throughout our organisation, the above mentioned areas of our operation are of particular interest to us, and we have paid special attention to reduce the impact of accidents within these zones. 82

85 Apart from the emphasis on our staff s safety, we are also focused on the physical environment in our areas of operation. We seek to minimise environmental damage through procedures designed to facilitate safe discharge of waste gases, waters, and other dangerous materials. Creating Awareness 2009 marks the year in which the Group is advancing with its implementation of a system of evaluation for its safety practices to further improve its safety record. With zero fatalities and accidents as our ultimate goal, the Group has formed a Safety Committee of experts tasked with raising safety standards through a comprehensive safety monitoring system. At the Group s five shipyards, the Safety Committee conducts spot checks on working practices to ensure safety standards are upheld. We are going to reinforce the level of safety awareness through education and training. Concrete actions we have implemented include a mandatory hour-long lesson on safety once every week to update our staff on the latest safety rules and regulations. Live demonstrations of safety procedures are conducted at the workplace regularly and workers are required to undergo mandatory training for specialised skill sets to upgrade their skills. Upon completion of their training courses, workers are tested on their comprehension this testing ensures we are on track with inculcating the right safety values within our organisation. Enhancing Efficiency through Better Workplace Safety The Group believes that workplace safety is integral in sustaining operational efficiency and long term profitability. The Group has in place a comprehensive network of supporting operators to complement its focus on work safety. These include on site medical facilities that are available at all shipyards. Other staff benefits include annual health checks, medical insurance, dental treatment, and immunization against influenza. Inside COSCO and Corporate Citizenship 83

86 Corporate Social Responsibility Overview As a responsible corporate citizen with a global presence, the Group is committed to making a positive contribution that benefits communities within and beyond the regions of our operations. While lending a helping hand to communities in need, the Group is also dedicated to protecting and sustaining the physical environments of our earth. Social and Education Contributions Singapore In Singapore, we support the Yellow Ribbon project a foundation and fund established to pool together resources and to create jobs for ex-convicts to help them re-integrate with society. Our contributions include a $10,000 donation annually for the past two years, as well as involvement in the charity golf and gala dinner event. This active participation to a good social cause reflects the Group s social responsiveness, while our donations are gestures of goodwill directed at assisting the communities we operate in. China COSCO Corporation has lent support through social and educational contributions to the COSCO Charity Foundation - the first non-public funding foundation initiated by state-owned enterprises. The foundation was created in 2005 to manage COSCO Group s social projects, and has been involved in charity work within China for disaster-relief, povertyaid, medical-aid and education support. Contributions to the foundation by COSCO subsidiaries have increased year on year since its conception, enabling the foundation to react in swift response to worthy causes such as a 10-million-Renminbi donation to the Sichuan earthquake disaster zone. In sync with its goal of improving educational facilities, the foundation furthered its involvement in school projects in March 2008 when it made a RMB8 million donation to the Zhoushan Buddhist Association towards the building of Liu Heng Zhong Yuan Primary School. Environmental Awareness COSCO Corporation s aim of operating a viable business and generating profits for our shareholders is conducted with the environment in mind. To minimise environmental impact, we have introduced to all our subsidiaries the International Safety Management Code (ISMC) to establish an uniform pollution prevention management system. Our systems call for regular reviews of our environmental policies and working procedures, allowing us to constantly improve our environmental standards. Furthermore, internal and external audits ensure we keep abreast with the latest environmental protection measures. Internally, we have created strict operational processes to eliminate the discharge of environmentally harmful wastes and chemicals. To promote environmental sustainability, we will continue striving towards adapting environmentallyfriendly technologies and ensure minimal wastage through design and recycling. 84

87 Contents 86 Directors Report 92 Statement by Directors 93 Independent Auditor s Report 94 Consolidated Income Statement 95 Balance Sheets 96 Consolidated Statement of Changes in Equity 98 Consolidated Cash Flow Statement 100 Notes to the Financial Statements 166 Five-Year Summary 167 Shareholding Statistics 169 Notice of Annual General Meeting Proxy Form for Annual General Meeting Notes for Proxy Form 85