CIMC Raffles Offshore (Singapore) Limited and its Subsidiaries Registration Number: D

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1 CIMC Raffles Offshore (Singapore) Limited and its Subsidiaries Registration Number: D Annual Report Year ended 31 December 2011 KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

2 General Information Directors Mai Bo Liang Brian Chang Yu Ya Yu Yu Qun Jin Jian Long (Appointed on 21 March 2012) Wang Yu Chang Yee Meng Malcolm (Resigned on 21 March 2012) Liu Chee Ming Yu Ning Zhang Li Min Company Secretaries Lai Wai Kit Andrew Chen Dan (Appointed on 4 July 2011 and resigned on 21 March 2012) Registered Office No. 1 Claymore Drive, #08-04 Orchard Towers, Rear Block Apartment, Singapore Tel: (65) Fax: (65) Principal Bankers China Development Bank The Export-Import Bank of China Bank of China China Bank of Communications China Merchants Bank China Construction Bank Agricultural Bank of China Standard Chartered Bank ANZ Bank Auditors KPMG LLP

3 General Information Index Pages Directors' Report 1 Statement by Directors 6 Independent Auditors' Report 7 Consolidated Statement of Comprehensive Income 9 Statements of Financial Position 10 Statements of Changes in Equity 12 Consolidated Statement of Cash Flows 14 Notes to the Financial Statements 16

4 Directors' Report Year ended 31 December 2011 The directors are pleased to present this annual report to the members together with the audited financial statements of the Company for the financial year ended 31 December Directors The directors of the Company in office at the date of this report are as follows: Mai Bo Liang Brian Chang Yu Ya Yu Yu Qun Jin Jian Long (Appointed on 21 March 2012) Wang Yu Liu Chee Ming Yu Ning Zhang Li Min Arrangements to enable directors to acquire shares or debentures Except as described in Share options in this report, neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other body corporate. Directors' interests According to the register of directors shareholdings required to be kept under Section 164 of the Singapore Companies Act, Cap. 50, the following directors, who held office at the end of the financial year, had an interest in shares and share options of the Company and related corporations (other than wholly-owned subsidiaries) as stated below: Name of director Ordinary shares of the Company Direct interest At the beginning of financial year At the end of financial year Deemed interest At the beginning of financial year At the end of financial year Brian Chang 1 342,860, ,860,173 Chang Yee Meng Malcolm (Resigned on 21 March 2012) 1,033,146 1,033,146 Liu Chee Ming 1,561,500 1,561,500 Ordinary shares of the ultimate holding company China International Marine Containers () Co., Ltd. Mai Bo Liang 494, ,702 Chang Yee Meng Malcolm (Resigned on 21 March 2012) 51,000 51,000 1 The director sold his shares to China International Marine Containers (Hong Kong) Limited on 16 December 2011.The share transfer was completed on 10 January

5 Directors' Report Year ended 31 December 2011 Directors' interests (cont'd) Name of director At the beginning of financial year Direct interest At the end of financial year Share options of the Company Liu Chee Ming 25,000 Chang Yee Meng Malcolm 2 (Resigned on 21 March 2012) 1,500,000 1,400,000 Share options of the ultimate holding company China International Marine Containers () Co., Ltd. Mai Bo Liang 3,800,000 3,800,000 Yu Ya 1,500,000 1,500,000 Yu Yu Qun 1,000,000 1,000,000 Wang Yu 500, ,000 Share Trust Plan of a related corporation CIMC Vehicles () Co., Ltd. Mai Bo Liang 10,000,000 10,000,000 Yu Ya 2,000,000 2,000,000 Yu Yu Qun 2,000,000 2,000,000 Wang Yu 1,500,000 1,500,000 Share options of a related corporation CIMC Enric Holdings Limited Yu Ya 250, ,000 Yu Yu Qun 800,000 1,100,000 2 The director has agreed to waive all rights he has or may have under the Options. Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, share options, warrants or debentures of the Company, or of related corporations, either at the beginning of the financial year, or date of appointment if later, or at the end of the financial year. Mr Brian Chang, who by virtue of his interest of not less than 20% of the issued capital of the Company, is deemed to have an interest in the whole of the share capital of the Company s wholly owned subsidiaries and in the shares held by the Company in the following subsidiaries that are not wholly owned by the. At the beginning of financial year At the end of financial year Yantai CIMC Raffles Offshore Ltd. Registered and paid-in capital RMB402,690,000 RMB1,042,690,000 Yantai CIMC Raffles Shipyard Co., Ltd. Registered and paid-in capital RMB125,980,000 RMB125,980,000 2

6 Directors' Report Year ended 31 December 2011 Directors contractual benefits Except for salaries, bonuses and fees and those benefits that are disclosed in this report and in Note 36 to the financial statements and except that certain directors have employment relationships with related corporations and have received remuneration in those capacities, since the end of the last financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director, or with a firm of which the director is a member, or with a company or related corporations in which the director has a substantial financial interest. Share options Equity-settled share options At an Extraordinary General Meeting held on 21 June 2006, shareholders approved the CIMC Raffles Executive Share Option Scheme (the Scheme ) for the granting of non-transferable options that are settled by physical delivery of the ordinary shares of the Company, to eligible directors, senior executives and employees respectively. The Scheme is operated at the discretion of the Board Committee, subject to a maximum period of 10 years from the date on which the Scheme was adopted, beyond which is subject to approval of the members by way of ordinary resolutions in general meetings and any relevant authorities which may then be required. The maximum aggregated number of shares which may be issued and/or transferred pursuant to all options shall not exceed 10% of the issued share capital of the Company on the day preceding the date of grant. Under the Scheme, share options are granted to employees of the selected by the Board Committee. The exercise price of the granted options is based on the arithmetic average of the daily volume weighted average price in Norwegian Kroner ( NOK ) of the Company s shares traded on the Norwegian OTC during the period of three trading days ending on the day before the date of grant. Where they are issued in currency other than NOK, it is based on the prevailing spot exchange rate quoted by the Company s bank. Share options shall be exercisable in whole or in part in respect of 1,000 shares or any multiple thereof, subject to the vesting period as described by the Board Committee in its absolute discretion. At an Extraordinary General Meeting held on 16 February 2011, shareholders approved the amendment of the Scheme due to the removal of the Company s shares from the Norwegian OTC. The exercise price for each share in respect of which an option is exercisable shall be determined by the Board Committee in its discretion instead of being based on the arithmetic average of the daily volume weighted average price of the Company s shares traded on the Norwegian OTC during the period of three trading days ending on the day before the date of grant. For options issued in NOK, the exercise price is amended to be at a price in US dollar of Singapore Dollar based on the prevailing spot exchange rate quoted by the Company s banks as determined by the Board Committee s discretion. There is no equity-settled option granted or exercised during the financial year ended 31 December

7 Directors' Report Year ended 31 December 2011 Share options (cont'd) Details of the equity-settled share options to subscribe for ordinary shares of the Company pursuant to the Scheme as at 31 December 2011 are as follows: Exercise period Exercise price Number of share options 18 September September 2012 NOK , September September 2017 NOK ,000 1 July June 2012 US$ to US$1.65 1,154,003 Total 2,017,003 During the financial year: - No equity-settled share options that entitle the holder to participate, by virtue of the options, in any share issue of any other corporation have been granted, and - No equity-settled options were granted at discount during the financial years ended 31 December 2011 and 31 December The number of equity-settled shares options granted to directors of the Company pursuant to the Scheme and which remain outstanding as at 31 December 2011 are disclosed in Directors interests of the report. Cash-settled share options At a board of directors' meeting held on 27 September 2011, the directors approved the CIMC Raffles Share Appreciation Rights Incentive Plan ("SARI") for the granting of non-transferable share-based cash settled options to eligible key senior executives and employees. Under the SARI, stock appreciation rights ("SARs") are granted to employees of the approved by the board of directors. The exercise price of the granted SARs is determined as the higher of: - Closing price of the ultimate holding company, China International Marine Containers () Co., Ltd. s ("CIMC") "A" stocks listed on the Shenzhen Stock Exchange one trading day before the date of grant; or - Average closing price of CIMC s "A" stocks listed on the Shenzhen Stock Exchange during the period of thirty trading days before the date of grant. The vesting conditions of the SARI are dependent on personal performance and conduct and financial performance of CIMC. The exercise and expiry periods are as follows: - Up to 25% of SARs exercisable between 24 months to 48 months from grant date; and - Up to 75% of SARs, remaining SARs exercisable between 48 months from grant date to 28 September

8 Directors' Report Year ended 31 December 2011 Share options (cont'd) SARs which qualify for exercise but not exercised during exercise period will be cancelled. During the financial year ended 31 December 2011, 760,000 (2010: NA) SARs were granted. There were no SARs exercisable or exercised during the financial years ended 31 December Details of the SARs pursuant to the SARI Scheme as at 31 December 2011 are as follows (2010: NA): No. of share Exercise period Exercise price options 22 September September 2015 RMB , September September 2020 RMB ,000 During the financial year ended 31 December 2011: - No SARs were granted at discount (2010: NA), - No SARs were granted to directors of the Company (2010: NA), and - No SARs were outstanding to directors of the Company (2010: NA). 760,000 Auditors At the Annual General Meeting of the Company held on 6 June 2011, KPMG LLP were appointed as auditors of the Company. On behalf of the Board of Directors, MAI BO LIANG Director YU YA Director Singapore 9 April

9 Statement by Directors Year ended 31 December 2011 Statement by Directors In our opinion: (i) (ii) the financial statements set out on pages 9 to 116 are drawn up so as to give a true and fair view of the state of affairs of the and of the Company as at 31 December 2011 and the results, changes in equity and cash flows of the and the changes in equity of the Company for the year ended on that date in accordance with the provisions of the Singapore Companies Act, Chapter 50 and Singapore Financial Reporting Standards, and at the date of this statement, with the continuing financial support from the ultimate holding company, China International Marine Containers () Co., Ltd., to enable the Company to continue its business in the next twelve months, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. On behalf of the Board of Directors, MAI BO LIANG Director YU YA Director Singapore 9 April

10 KPMG LLP 16 Raffles Quay #22-00 Hong Leong Building Singapore Telephone Fax Internet Independent auditors report Members of the Company CIMC Raffles Offshore (Singapore) Limited Report on the financial statements We have audited the accompanying financial statements of CIMC Raffles Offshore (Singapore) Limited (the Company ) and its subsidiaries (the ), which comprise the statements of financial position of the and the Company as at 31 December 2011, the statements of changes in equity of the and the Company, and the consolidated statement of comprehensive income and consolidated statement of cash flows of the for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 9 to 116. The financial statements for the year ended 31 December 2010 were audited by another firm of certified public accountants, whose report dated 9 April 2011 expressed an unqualified opinion on those financial statements. Management's responsibility for the financial statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act, Chapter 50 (the Act ) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. 7

11 Independent auditors report Year ended 31 December 2011 Opinion In our opinion, the consolidated financial statements of the and the statement of financial position and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the and of the Company as at 31 December 2011 and the results, changes in equity and cash flows of the and the changes in equity of the Company for the year ended on that date. Report on other legal and regulatory requirements In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act. KPMG LLP Public Accountants and Certified Public Accountants Singapore 9 April

12 Consolidated Statement of Comprehensive Income for the financial year ended 31 December 2011 Note US$'000 US$'000 Revenue 4 82, ,355 Cost of sales (141,364) (477,125) Gross loss (59,290) (122,770) Other item of income Other income 5 9,408 23,642 Other items of expense Marketing and distribution expenses (358) (848) Administrative expenses (44,129) (35,115) Other expenses 6 (42,647) (17,049) Loss from operating activities 7 (137,016) (152,140) Finance income 9 1,198 1,271 Finance costs 9 (30,351) (23,314) Net finance costs 9 (29,153) (22,043) Share of results of associates (net of tax) Loss before income tax (166,146) (173,389) Income tax credit 10 5,853 12,744 Loss for the year (160,293) (160,645) Other comprehensive income/(loss) Recognition of changes of fair value on available-for-sale financial assets 20 (138) 563 Foreign currency translation 2,371 5,961 Other comprehensive loss for the year, net of tax 2,233 6,524 Total comprehensive loss for the year (158,060) (154,121) Loss attributable to: Owners of the Company (155,188) (158,220) Non-controlling interests (5,105) (2,425) Loss for the year (160,293) (160,645) Total comprehensive loss attributable to: Owners of the Company (153,446) (152,126) Non-controlling interests (4,614) (1,995) Total comprehensive loss for the year (158,060) (154,121) The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 9

13 Statements of Financial Position as at 31 December 2011 Company Note US$'000 US$'000 US$'000 US$'000 ASSETS Current assets Cash and cash equivalents ,055 52,951 36,894 11,592 Pledged deposits 11 94,252 19,600 Trade and other receivables , , , ,027 Amounts due from subsidiaries 13 98,225 Inventories , ,370 47,321 16,496 Vessels under construction , , , ,221 Construction work-in-progress in excess of progress billings 16 10, ,029 50,251 Derivative financial instruments 40 1,202 13,439 1,070 11,677 Investment securities 17 10,953 Assets classified as held for sale 18 2,500 2,500 Other current assets , ,362 2,024 62,725 1,732,496 1,194, , ,989 Non-current assets Amounts due from subsidiaries , ,660 Financial assets, available-for-sale 20 1,238 1,376 Investment in subsidiaries ,792 81,833 Investment in joint ventures 22 Investment in associates 23 2,954 6,324 2,500 Property, plant and equipment , , Land and sea use rights 25 67,107 57,609 Intangible assets 26 18,634 15, ,136 Deferred tax assets 27 24,961 26,883 17,594 17,791 Prepayments ,619 22, , , , ,244 Total assets 2,444,192 1,851, , ,233 LIABILITIES Current liabilities Progress billings in excess of construction work-in-progress 16 65,763 1,785 85,864 54,881 Advances from customers 88, ,800 Derivative financial instruments , ,966 Trade and other payables , ,862 55, ,504 Borrowings 30 1,059, , , ,031 Amounts due to subsidiaries ,891 3,325 Income tax payable 2,666 4,511 2,665 2,725 Provision for other liabilities 31 24,698 16,606 24,698 16,606 1,975,794 1,214, , ,038 Non-current liabilities Borrowings , , Deferred tax liabilities 27 2,802 7, , , Total liabilities 2,116,617 1,469, , ,664 Net assets 327, , , ,569 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 10

14 Statements of Financial Position as at 31 December 2011 (cont'd) EQUITY Equity attributable to owners of the Company Company Note US$'000 US$'000 US$'000 US$'000 Share capital , , , ,966 Other reserves 33 23,659 28,233 3,969 10,385 Accumulated losses (327,374) (179,012) (185,265) (102,782) 320, , , ,569 Non-controlling interests 6,748 11,560 Total equity 327, , , ,569 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 11

15 Statements of Changes in Equity for the financial year ended 31 December 2011 Note Attributable to owners of the Company Share Other Noncontrolling Accumulated Total capital reserves losses interests equity US$'000 US$'000 US$'000 US$'000 US$'000 As at 1 January ,966 28,233 (179,012) 11, ,747 Loss net of tax (155,188) (5,105) (160,293) Other comprehensive income for the year 1, ,233 Total comprehensive income/ (loss) for the year 1,742 (155,188) (4,614) (158,060) Transaction with owners, recognised directly in equity Contributions by owners Issue of shares ,576 (198) 102,378 Provision of equity-settled share options to employees Transfer to PRC statutory reserve (100) Transfer from reserve 33 (6,926) 6,926 Total transactions with owners 102,576 (6,316) 6,826 (198) 102,888 As at 31 December ,542 23,659 (327,374) 6, ,575 As at 1 January ,431 22,068 (21,431) 13, ,595 Loss net of tax (158,220) (2,425) (160,645) Other comprehensive income for the year 6, ,524 Total comprehensive income/ (loss) for the year 6,094 (158,220) (1,995) (154,121) Transaction with owners, recognised directly in equity Contributions by owners Issue of shares , ,733 Provision of equity-settled share options to employees Transfer to PRC statutory reserve (787) Transfer from reserve 33 (1,426) 1,426 Dividend appropriation (170) (170) Total transactions with owners 100, ,273 As at 31 December ,966 28,233 (179,012) 11, ,747 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 12

16 Statements of Changes in Equity for the financial year ended 31 December 2011 (cont'd) Note Share Other Accumulated Total Capital reserves losses equity US$'000 US$'000 US$'000 US$'000 Company As at 1 January ,966 10,385 (102,782) 429,569 Net loss for the financial year, representing total comprehensive loss for the financial year (87,582) (87,582) Total comprehensive loss for the year (87,582) (87,582) Transaction with owners, recognised directly in equity Contributions by owners Issue of shares , ,576 Provision of equity-settled share options to employees Transfer from reserve 33 (6,926) 5,099 (1,827) Total transactions with owners 102,576 (6,416) 5, ,259 As at 31 December ,542 3,969 (185,265) 443,246 As at 1 January ,431 11,101 (29,498) 403,034 Net loss for the financial year, representing total comprehensive loss for the financial year (74,710) (74,710) Total comprehensive loss for the year (74,710) (74,710) Transaction with owners, recognised directly in equity Contributions by owners Issue of shares , ,535 Provision of equity-settled share options to employees Transfer from reserve 33 (1,426) 1,426 Total transactions with owners 100,535 (716) 1, ,245 As at 31 December ,966 10,385 (102,782) 429,569 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 13

17 Consolidated Statement of Cash Flows for the financial year ended 31 December 2011 Note US$'000 US$'000 Cash flow from operating activities Loss before income tax (166,146) (173,389) Adjustments for: - Amortisation of intangible assets 7 1,270 2,431 - Amortisation of land and sea use rights 7 1,570 1,074 - Depreciation on property, plant and equipment 7 19,529 16,329 - Loss on disposal of property, plant and equipment Impairment loss on property, plant and equipment Fair value gain on investment securities 5 (1,450) (2,578) - Fair value gain on acquisition of a subsidiary 5 (1,227) - Reversal of provision for liquidated damages and foreseeable losses, net 7 (6,435) (1,197) - Provision for warranty costs 7 8,457 12,535 - Inventories written-down 6 2, Inventories written-off Allowance for doubtful receivables 6 19,000 6,005 - Share options expense Interest expenses charged to profit or loss 9 39,765 32,478 - Interest income 9 (1,198) (1,271) - Share of results of associates 23 (23) (794) - Gain on forward contracts 5 (3,665) (6,127) - Loss/(gain) on embedded derivatives 5,6 9,799 (4,055) - Loss on interest rate swap contracts ,361 - Impairment of goodwill 6 2,971 - Translation difference (1,656) 5,996 Operating cash flows before working capital changes (74,622) (107,644) Change in operating assets and liabilities - Inventories (24,415) (25,356) - Vessels under construction (256,719) (227,515) - Construction work-in-progress and excess progress billings 159, ,807 - Trade and other receivables 32,146 (239,805) - Other current assets (25,463) 76,975 - Advances from customers 88,700 (7,940) - Trade and other payables 164, ,802 - Provision for other liabilities (365) (20,970) - Other non-current liabilities (593) - Pledged deposits 5,597 Cash used in operations 63,522 (213,642) Interest received 1,198 1,402 Interest paid (64,073) (35,081) Income tax paid (1,428) (5,561) Net cash (outflow)/inflow on pledged cash for performance bonds and trade facilities (74,652) 15,397 Net cash inflow/(outflow) on settlement of derivatives 4,599 (1,839) Net cash used in operating activities (70,834) (239,324) The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 14

18 Consolidated Statement of Cash Flows for the financial year ended 31 December 2011 (cont'd) Note US$'000 US$'000 Cash flows from investing activities Proceeds from disposal of property, plant and equipment Net cash outflow on acquisition of a subsidiary 21 (3,947) (27,016) Prepayment in relation to acquisition of a subsidiary (2,991) Advance to a third party 28 (22,145) Investment in an associate (1,250) Purchase of property, plant and equipment and intangible assets (73,761) (66,024) Proceed from sales of investment securities 12,403 Prepayments of land and sea use rights 28 (226) Net cash used in investing activities (64,546) (119,495) Cash flows from financing activities Proceeds from issue of shares 102, ,733 Proceeds from borrowings 1,246,710 1,651,158 Repayment of borrowings (1,038,833) (1,421,137) Net cash from financing activities 310, ,754 Net increase/(decrease) in cash and cash equivalents 175,073 (28,065) Cash and cash equivalents at beginning of financial year 52,951 79,672 Effect of exchange rate fluctuations on cash hold 4,031 1,344 Cash and cash equivalents at end of financial year ,055 52,951 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 15

19 These notes form an integral part of the financial statements. 1(a). Domicile and activities CIMC Raffles Offshore (Singapore) Limited (the Company ) is a limited liability company incorporated and domiciled in Singapore. The address of its registered office is No.1 Claymore Drive, #08-04 Orchard Towers, Rear Block Apartment, Singapore The immediate and ultimate holding companies are CIMC Offshore Holdings Limited and China International Marine Containers () Co., Ltd. respectively. The Company has obtained approval from the Norwegian Securities Dealers Association ( NSDA ) for the proposed removal ( Removal ) of the Company from the Norwegian Over- The-Counter system ( NOTC ). On 28 February 2011 (Norwegian time), the Company was officially removed from the NOTC after the close of trading. The financial statements of the Company as at and for the year ended 31 December 2011 comprise the Company and its subsidiaries (together referred to as the and individually as entities ) and the s interest in associates and joint ventures. The principal activities of the Company are to carry on the business of provision of project management services, the construction and conversion of vessels, rigs and offshore facilities and investment holding. The principal activities of its subsidiaries and associates are set out in Notes 21 and 23 respectively to the financial statements. 1(b). Fundamental accounting concept The incurred a net loss of US$160,293,000 (2010: net loss of US$160,645,000) during the financial year ended 31 December 2011 and as that date, the s current liabilities exceeded its current assets by US$243,298,000 (2010: current liabilities exceeded its current assets by US$20,014,000). In addition, as described in Note 30(e) to the financial statements, the Company and a subsidiary have not complied with the loan covenants of certain credit facilities agreement with a bank. The bank has not exercised its rights under the credit facilities agreements to recall the facilities and maintained the credit facilities as status quo. In the event that the breach of covenants is not rectified, the bank may exercise its rights under the credit facilities agreement and the credit facilities may then be repayable at the bank s demand. These factors indicate the existence of a material uncertainty which may cast significant doubt on the s ability to continue as a going concern. Despite its operating cash outflow in the financial year ended 31 December 2011, the is confident of its ability to generate cash flows from its operations, as well as from the continuing support of its bankers. On the basis that the ultimate holding company has provided and will be providing continuing financial support to the, the directors are of the view that the use of the going concern assumption is appropriate for the preparation of the consolidated financial statements. If the is unable to continue in operational existence for the foreseeable future, the may be unable to discharge its liabilities in the normal course of business and adjustments may have to be made to reflect the situation that assets may need to be realised other than in the normal course of business and at amounts which would differ significantly from the amounts at which they are currently recorded in the statement of financial position. In addition, the may have to reclassify certain non-current assets and non-current liabilities as current assets and current liabilities. No such adjustments have been made to these financial statements. 16

20 2. Summary of significant accounting policies 2.1 Basis of preparation The financial statements have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ). The financial statements have been prepared on the historical cost basis, except as disclosed in the accounting policies below. The financial statements are presented in United State Dollars ( USD or US$ ), which is the Company s functional currency. All values are rounded in the tables to the nearest thousand ( US$ 000 ) except when otherwise indicated. The preparation of the financial statements in conformity with FRS requires management to make judgements in the process of applying the s accounting policies. It also requires the use of certain critical accounting estimates and assumptions. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year except in the current financial year, the has adopted all the new and revised standards and Interpretations of FRS ( INT FRS ) that are effective for annual periods beginning on or after 1 January The adoption of these standards and interpretations did not have any effect on the financial performance or position of the and the Company except as disclosed below: (a) Measurement of non-controlling interests in business combinations From 1 January 2011, the has applied the amendments to FRS 103 Business Combinations resulting from Improvements to FRSs 2010 in measuring at the acquisition date, non-controlling interests that are not present ownership interests and do not entitle their holders to a proportionate share of the acquiree s net assets in the event of liquidation. Such non-controlling interests are now measured at fair value (see Note 2.4(a)). Previously, the has elected on a transaction-by-transaction basis whether to measure non-controlling interests that are not present ownership interests and do not entitle holders to proportionate share of the acquiree s net assets on liquidation at fair value, or at the non-controlling interests proportionate share of the recognised amounts of the acquiree s identifiable net assets, at the acquisition date. The change in accounting policy has been applied prospectively to new business combinations occurring on or after 1 January 2011 and has no material impact on the financial performance or position of the. (b) Identification of related party relationships and related party disclosures From 1 January 2011, the has applied the revised FRS 24 Related Party Disclosures (2010) to identify parties that are related to the and to determine the disclosures to be made on transactions and outstanding balances, including commitments, between the and its related parties. FRS 24 (2010) improved the definition of a related party in order to eliminate inconsistencies and ensure symmetrical identification of relationships between two parties. 17

21 2. Summary of significant accounting policies (cont d) 2.2 Changes in accounting policies (cont d) (b) Identification of related party relationships and related party disclosures (cont d) 2.3 Revenue recognition The addition of FRS 24 (2010) has not resulted in additional parties being identified as related to the. Transactions and outstanding balances, including commitments, with related parties for the current and comparative years have been disclosed according in Note 36 to the financial statements. The adoption of FRS 24 (2010) affects only the disclosures made in the financial statements. There is no financial effect on the results and financial position of the for the current and previous financial years. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the and the revenue can be reliably measured, regardless of when the payment is made. Revenue is measured at the fair value of consideration received or receivable, excluding discounts, rebates and sales taxes or duty, and after eliminating sales within the. The assesses its revenue arrangements to determine if it is acting as principal or agent. The has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognised: (a) Revenue from construction contracts Revenue from ship and rig conversion and building is recognised on percentage of completion method when the outcome of the construction contracts can be reliably ascertained. Please refer to Note 2.7 Construction contracts for more detailed accounting policies. (b) Revenue from sales contracts Revenue from ship and rig sales contracts is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risk and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of vessels can be estimated reliably, there is no continuing management involvement with the vessels, and the amount of revenue can be measured reliably. (c) Revenue from ship and rig repairs Revenue from short-term ship and rig repairs is recognised upon completion and acceptance by customers. Ship and rig repairs projects are classified as short-term when the project completion period does not exceed one year. For ship and rig repairs for which project completion period exceeds one year, revenue is recognised on percentage of completion method. Please refer to Note 2.3(a) and Note 2.7 for more detailed accounting policies on revenue recognition based on percentage of completion. 18

22 2. Summary of significant accounting policies (cont d) 2.3 Revenue recognition (cont d) (d) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues amortising the discount as interest income on the recoverable amount. (e) Chartering and rental income Chartering and rental income are recognised on a time proportion basis. The aggregate costs of incentives provided to lessees are recognised as a reduction of rental income over the lease term on a straight-line basis. (f) Dividend income 2.4 accounting Dividend income is recognised in profit or loss on the date that the s right to receive payment in established, which in the case of quoted securities, is normally the ex-dividend date. (a) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the end of the reporting period. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Consistent accounting policies are applied to like transactions and events in similar circumstances. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the. In preparing the consolidated financial statements, transactions, balances and unrealised gains on transactions between companies are eliminated in full. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the s interest in the investee. Unrealised losses are also eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Business combinations are accounted for by applying the acquisition method as at the acquisition date, which is the date on which control is transferred to the. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the takes into consideration potential voting rights that are currently exercisable. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. 19

23 2. Summary of significant accounting policies (cont'd) 2.4 accounting (cont d) (a) Basis of consolidation (cont d) The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in the profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the incurs in connection with a business combination are expensed as incurred. When the acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with FRS 39 either in profit or loss or as change to other comprehensive income. If the contingent consideration is classified as equity, it is not be remeasured until it is finally settled within equity. In business combinations achieved in stages, previously held equity interests in the acquiree are re-measured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss. For non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the acquiree s net assets in the event of liquidation, the elects on a transaction-by-transaction basis whether to measure them at fair value, or at the non-controlling interests proportionate share of the recognised amounts of the acquiree s identifiable net assets, at the acquisition date. All other non-controlling interests are measured at acquisitiondate fair value, or where applicable, on the basis specified in another standard. When share-based payment awards (replacement awards) are exchanged for awards held by the acquiree s employees (acquiree s awards) and relate to past services, then all or a portion of the amount of the acquirer s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree s awards and the extent to which the replacement awards relate to past and/or future service. 20

24 2. Summary of significant accounting policies (cont'd) 2.4 accounting (cont d) (a) Basis of consolidation (cont d) Business combinations before 1 January 2010 In comparison to the above mentioned requirements, the following differences applied: Business combinations are accounted for by applying the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree s identifiable net assets. Business combinations achieved in stages were accounted for as separate steps. Adjustments to those fair values relating to previously held interests are treated as a revaluation and recognised in equity. When the acquires a business, embedded derivatives separated from the host contract by the acquiree are not reassessed on acquisition unless the business combination results in a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required under the contract. Contingent consideration was recognised if, and only if, the had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent measurements to the contingent consideration affected goodwill. (b) Subsidiaries Subsidiaries are entities over which the has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights, so as to obtain benefits from their activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (c) Transactions with non-controlling interests Non-controlling interest represents the equity in subsidiaries not attributable, directly or indirectly, to owners of the parent, and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from equity attributable to owners of the parent. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Changes in the Company owners ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the parent. 21

25 2. Summary of significant accounting policies (cont'd) 2.4 accounting (cont d) (d) Loss of control Upon the loss of control, the derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. (e) Associates and joint venture companies An associate is an entity, not being a subsidiary or joint venture company, in which the has significant influence. This generally coincides with the having 20% or more of the voting power or has representation on the board of directors. A joint venture company is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, where the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. The s investments in associates and joint venture companies are accounted for using the equity method. Under the equity method, the investments in associates and joint venture companies are carried in the statement of financial position at cost plus post-acquisition changes in the s share of net assets of the associates and joint venture companies. The cost of investments in associates and joint venture companies includes transaction costs. The s share of the results of operations of the associates and joint venture companies are recognised in the consolidated profit or loss. Where there has been a change recognised in other comprehensive income by the associates and joint venture companies, the recognises its share of such changes in other comprehensive income. The s share of the profit or loss of its associates is shown on the face of profit or loss after tax and non-controlling interests in the subsidiaries of associates and joint venture companies. The profit or loss reflects the share of the results of operations of the associates and joint venture companies. Unrealised gains resulting from transactions between the and the associates and joint venture companies are eliminated to the extent of the interest in the associates and joint venture companies. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no indication of impairment. Goodwill relating to associates and joint venture companies is included in the carrying amount of the investments and is neither amortised nor tested individually for impairment. 22

26 2. Summary of significant accounting policies (cont'd) 2.4 accounting (cont d) (e) Associates and joint venture companies (cont d) Any excess of the s share of the net fair value of the associates and joint venture companies identifiable assets, liabilities and contingent liabilities over the cost of the investment is deducted from the carrying amount of the investment and is instead recognised as income in the determination of the s share of the associates and joint venture companies profit or loss in the period in which the investment is acquired. When the s share of losses in associates and joint venture companies equals or exceeds its interest in the associates and joint venture companies, including any other unsecured receivables, the does not recognise further losses, except to the extent that the has obligations or has made payments on behalf of the associates and joint venture companies. After application of the equity method, the determines whether it is necessary to recognise an additional impairment loss on the s investment in associates and joint venture companies. The determines at the end of each reporting period whether there is any objective evidence that the investment in the associates or joint venture companies is impaired. If this is the case, the calculates the amount of impairment as the difference between the recoverable amount of the associates or joint venture companies and its carrying value and recognises the amount in the profit or loss. The financial statements of the associates and joint ventures companies are prepared as of the same reporting date as the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the. Upon loss of significant influence over the associates or the joint control on the joint venture companies, the measures any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence or carrying amount of the former joint venture entity upon loss of joint venture control and the fair value of the aggregate of the retained investment and proceeds from disposal is recognised in profit or loss. 2.5 Property, plant and equipment (a) Recognition and measurement All items of property, plant and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying property, plant and equipment. The accounting policy for borrowing costs is set out in Note 2.11 Borrowings/borrowing costs. 23