sembcorp marine...sembcorp marine aims to be the world leader in ship repair, shipbuilding, ship...

29 Tanjong Kling Road, Singapore 628054Tel: (65) 6265 1766 Fax: (65) 6261 0738 / 6265 0201Website: www.sembcorpmarine.com.sgCompany Reg. No: 196300098Z

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From Vision to Reality 4 Sembcorp Marine Annual Report 2010

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Aerial view of Jurong Shipyard.

CORPORATE VISIONSembcorp Marine aims to be the world leader in ship repair, shipbuilding, ship conversion, rig building and offshore engineering & construction, providing innovative solutions that exceed its customers’ expectations. While anchoring itself for future growth, the Group continues to commit itself to fulfilling the changing needs and aspirations of its employees.

CORPORATE PROFILE• A leading global marine and offshore engineering group for more than 48 years.

• Comprehensive portfolio encompassing the full spectrum of integrated solutions ranging from ship repair, shipbuilding, ship conversion and rig building to offshore engineering & construction.

• Strong track record for quality and timely delivery as well as proven expertise to handle complex turnkey projects and repairs while meeting high standards of health, safety, security and environment.

• Development and ownership of proprietary designs catering to rigs, drillships and vessels as well as innovative capabilities in fast-track semi-submersible construction.

• Continuous research and development as well as process improvements to further raise operational efficiency and productivity for greater competitiveness.

• Long-term strategic alliances with international ship operators that provide a steady and growing base-load in ship repair.

ContentsGroup Quarterly Results 02

Corporate Stewardship 04Letter to Shareholders 05Board of Directors 12Senior Management 18Corporate Governance and Transparency 20Risk Management 32Investor Relations and Communications 36Shareholders’ Information 40Financial Calendar 42Corporate Directory 43Corporate Structure 45Awards and Accolades 46

Financial and Operations Review 48Financial Review 49Group Five-Year Performance Review 52Economic Value Added 57Value Added Statement 58Operations Review and Market Outlook 60Significant Events 68

Innovation and Productivity 72Corporate and Social Responsibility 76Workplace Safety and Security 77People-Centredness 81Workplace Health Promotion 85Contributions to the Community 88Caring for the Environment 91

Financial Statements 93

HIGHLIGHTS OF THE YEAR• Held ground-breaking ceremony for the 73.3-hectare

Phase I Integrated New Yard Facility.

• Announced plans to build a new shipyard in the State of Espirito Santo in Brazil to cater directly to one of the world’s fastest growing offshore oil and gas exploration and production markets.

• Net order book of $4.8 billion, with completion and deliveries stretching till the second quarter of 2013.

FY 2010 KEY FIGURES

38%Return on Equity

$4.6 billionTurnover

36 centsTotal Dividend Per Share

$943 millionOperating Profit

$740 millionEconomic Value Added

$860 million Net Profit

$12 billionMarket Capitalisationas at 8 March 2011

$1.25 Net Asset Value Per Share

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Group Quarterly Results

2010 ($’000) 1Q 2Q 3Q 4Q Total

Turnover 1,359,383 1,097,943 1,114,651 982,886 4,554,863 Operating Profit 159,581 202,306 282,870 297,807 942,564 EBITDA 180,121 223,437 303,552 318,651 1,025,761 Profit Before Tax 184,891 224,778 354,648 313,571 1,077,888 Net Profit 148,811 176,127 295,965 239,363 860,266

Earnings Per Share (cents)Year-to-date 7.21 15.72 30.01 41.55 In-quarter 7.21 8.51 14.29 11.54 41.55

2009 ($’000) 1Q 2Q 3Q 4Q Total

Turnover 1,363,494 1,497,618 1,520,411 1,343,219 5,724,742 Operating Profit 134,603 166,731 173,985 387,035 862,354 EBITDA 152,175 184,794 192,029 408,604 937,602 Profit Before Tax 151,285 178,864 182,638 394,848 907,635

Net Profit 120,199 138,053 144,618 297,248 700,118

Earnings Per Share (cents)Year-to-date 5.85 12.56 19.58 34.02 In-quarter 5.85 6.71 7.02 14.44 34.02

QUARTERLY OPERATING PROFIT

$’million

500 _

400 _

300 _

200 _

100 _

0 _

387

1Q 2Q 3Q 4Q

20102009

283298

174202

167160135

QUARTERLY TURNOVER

$’million

1800 _

1500 _

1200 _

900 _

600 _

300 _

0 _

1,343

983

1,359 1,363

1Q 2Q 3Q 4Q

20102009

1,115

1,520

1,098

1,498


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QUARTERLY EBITDA

$’million

500 _

400 _

300 _

200 _

100 _

0 _

409

319

1Q 2Q 3Q 4Q

20102009

304

192223

185180152

QUARTERLY PROFIT BEFORE TAX

$’million

500 _

400 _

300 _

200 _

100 _

0 _

395

1Q 2Q 3Q 4Q

20102009

355

314

183

225

179185

151

QUARTERLY NET PROFIT

$’million

400 _

300 _

200 _

100 _

0 _

297

149

120

1Q 2Q 3Q 4Q

20102009

296

145

239

176

138

QUARTERLY EARNINGS PER SHARE

cents

16 _

12 _

8 _

4 _

0 _

14.4

11.5

1Q 2Q 3Q 4Q

20102009

14.3

7.0

8.5

6.77.2

5.9

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“ To sharpen our competitive edge

for sustainable growth of our business

and to serve our customers better,

we continued to build on our core

competencies and capabilities,

investing in research and people

development as well as maintaining

emphasis on raising health, safety

and environment standards. ”

Corporate Stewardship

Mr Wong Weng SunPresident & CEO

Mr Goh Geok LingChairman


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Letter to Shareholders

Financial PerformanceIn 2010, our net profit grew by 23 per cent to a new high of $860 million. Excluding the one-off credit of $53 million arising from the settlement of the disputed foreign exchange transactions with Societe Generale in the third quarter of 2010, the Group’s net profit increased by 13 per cent to $807 million in 2010.

Group turnover in 2010, at $4,555 million, marked a decline of 20 per cent from $5,725 million in 2009. This was attributed mainly to lower progressive revenue recognition for rig building, ship conversion & offshore projects as well as lower variation order settlement.

Group operating profit increased 9 per cent to $943 million due to the resumption of margin recognition arising from the sale of the Gusto MSC CJ70 harsh-environment jack-up rig as well as the execution of repeat rig orders for customers during the year.

At pre-tax level, Group profit increased 19 per cent to surpass the $1 billion mark for the first time, at $1,078 million from $908 million in 2009. The increase was attributed to the higher profit margin and the receipt of settlement of thedisputed foreign exchange transactions with Societe Generale during the year.

The Group’s earnings per share rose by 22 per cent to 41.55 cents. The return on equity was at 38.4 per cent, while economic value-added attained a high of $740 million.

Foreign Exchange Transactions SettlementDuring the year, subsidiary Jurong Shipyard reached an agreement, made strictly on a commercial basis, with Societe Generale for a full and final amicable settlement of the disputed foreign exchange transactions. This settlement was also the last and final amicable settlement with all banks involved.Arising from the settlement, Societe Generale made a payment of US$40 million ($52.64 million) to Jurong Shipyard on the basis that there was no admission of liability by either party. This amount was credited to the consolidated income statement in 2010.

Non-controlling InterestOn 15 May 2010, Sembcorp Marine commenced proceedings in the High Court of Singapore against PPL Holdings and its wholly-owned subsidiary E-Interface Holdings to seek the transfer of the remaining 15 per cent share in PPL Shipyard. Pending the outcome of the Court’s decision, we have continued to consolidate the Group’s 85 per cent interest in PPL Shipyard and separately accounted for the 15 per cent as a “non-controlling interest”.

Sharing the exciting possibilities ahead for the Integrated New Yard.

Dear ShareholdersWe are happy to have delivered another year of record profits in 2010. This was achieved amid challenging economic conditions and mixed recovery rates in the global markets. Our focus on executing and delivering our projects on time or ahead of schedule while raising operational efficiency through innovation, production process improvements and productivity enhancement initiatives has contributed to this record performance.

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Rewarding ShareholdersIn view of the record performance in 2010, the Board of Directors is recommending a final ordinary one-tier tax-exempt cash dividend of 6 cents per share and a special one-tier tax-exempt cash dividend of 25 cents per share, to reward shareholders for their continued interest and unwavering support of the Group amid the challenging economic environment during the past year. The total final and special one-tier tax-exempt cash dividend will be 31 cents per share for the financial year ended 31 December 2010.

Including the interim one-tier tax-exempt cash dividend of 5 cents per share paid on 31 August 2010, the total dividend for 2010 will be 36 cents per share, an increase of 140 per cent as compared with 15 cents per share paid for financial year 2009.

The proposed final and special cash dividend, if approved at the Annual General Meeting to be held on 20 April 2011, will be paid on 11 May 2011.

Review of Business Operations2010 had been a busy year for the Group with a total of fourteen deliveries, comprising seven jack-up rigs, three semi-submersible rigs, three floating production storage offloading (FPSO) units and one offshore platform project. Operating profit margin increased from 15.1 per cent in 2009 to 20.7 per cent in 2010 due mainly to operational efficiencies and project execution ahead of schedule.

Although the global economy was looking up, recovery remained uneven across different regions. Despite this, the Group was able to secure a total of $3.04 billion in new contract orders in 2010.

Business SegmentThe Group’s turnover for 2010 was $4,555 million. The rig building sector was the largest contributor, accounting for 67 per cent in total turnover, followed by ship conversion & offshore at 18 per cent, ship repair at 14 per cent and others at 1 per cent.

Successful delivery of West Orion, the third turnkey F&G ExD semi-submersible by Jurong Shipyard for Seadrill.

West Elara, a Gusto MSC CJ70 harsh-environment jack-up rig under construction in Jurong Shipyard.


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Rig Building The rig building sector contributed $3,048 million to total turnover in 2010, as compared with $3,635 million in 2009. The 16 per cent decline was due to lower contributions from jack-up rigs at $1,108 million, as compared with $2,127 million in 2009. Contributions from semi-submersible rigs registered an increase from $1,508 million to $1,940 million in 2010. Seven jack-up rigs were delivered in the year with only three units in work-in-progress stages, while three semi-submersible rigs were delivered in 2010 with six units in work-in-progress stages.

The third quarter of 2010 saw the resumption of margin recognition for the sale of a Gusto MSC CJ70 harsh-environment jack-up rig by Jurong Shipyard to a subsidiary of Seadrill. The rig was originally

contracted for construction by Petroprod, which later went into liquidation in 2009. Jurong Shipyard had terminated the contract with Petroprod when no further payments were received.

The last quarter of 2010 saw renewed interest in shallower waters and market demand for newer, safer and more efficient rigs. This had the effect of sparking off a strong pick-up in orders, with a total of eight high-specification jack-up rig orders worth a total of $2.0 billion, excluding a further ten units of options secured for these high-specification jack-up rigs.

Ship Conversion & OffshoreTurnover for the ship conversion & offshore sector, at $820 million, was 39 per cent lower as compared to the $1,343 million achieved in 2009. This was

A harsh-environment North Sea Process Platform delivered by SMOE to Maersk Oil and Gas for its Halfdan Field.

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attributed mainly to timing issues as there was no major initial revenue recognition during the year although there were four successful project deliveries with five other projects still in various work-in-progress stages.

Ship conversion & offshore projects secured during 2010 and 2011 to-date stood at $1,229 million.These included four FPSO conversion projects, one accommodation topside project secured in 2010 and one dynamically positioned blue-water research vessel secured in 2011.

Ship RepairThe ship repair sector registered a decline of 9 per cent, at $646 million, as compared with $706 million in 2009. The decline was due to timing in recognition of some major ship repair contracts. A total of 282 vessels were repaired within the year, with an average value per vessel of $2.29 million. Tankers accounted for 29 per cent of total repair, followed by drillship and FPSO upgrading at 24 per cent, passenger ships at 9 per cent, LNG gas tankers at 9 per cent, bulkers at 7 per cent, containerships at 6 per cent and other vessels at 16 per cent. Alliance/FCC partners and regular customers, who continued to support the Group with a steady base-load, accounted for 85 per cent of our ship repair revenue in 2010.

Strengthening Core Competencies and CapabilitiesTo sharpen our competitive edge for sustainable growth of our business and to serve our customers better, we continued to build on our core competencies and capabilities, investing in research and people development as well as maintaining emphasis on raising health, safety and environment standards. We maintained our ability to execute our projects on time and ahead of schedule, building upon our solid track record. At the same time, we continued to offer our customers a full spectrum of product lines, encompassing shallow-water to deepwater drilling rigs, shallow-water production platforms and deepwater production units.

During the year, we launched our proprietary Pacific Class 400 jack-up design, an extension of our Pacific Class 375 design. This new rig design represented the latest generation of high-specification jack-up drilling rigs with greater capacities and capabilities than current conventional units. It was designed to operate in waters of 400 feet and drill to depths of 30,000 feet with improved drilling efficiencies and off-line pipe handling simultaneous operations support. It could also accommodate 150 persons, which compared favourably to the Pacific Class 375 design which could house 120 persons. To-date, four jack-up


Dapeng Moon, a LNG carrier successfully repaired by Sembawang Shipyard.


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rigs were secured based on this Pacific Class 400 design with options for an additional two units.

In yet another demonstration of partnership with our customers, we jointly developed the JU3000N jack-up design, suitable for operations in many challenging environments, including high-temperature areas such as the Middle East and the harsh North Sea region. The JU3000N was the brainchild of Jurong Shipyard and Noble, working in close partnership with designer Friede & Goldman to create an enlarged hull that would offer more operational benefits. These included ergonomic and efficient accommodation layout, increased deck space and strategic placement of equipment for safe and efficient operations. Two jack-up rigs were secured based on this JU3000N design with options for an additional four units.

For the deepwater drilling market, the Group offered its clients alternative designs in addition to the eight units of Friede & Goldman Ex-D design deepwater semi-submersible rigs that Jurong Shipyard had successfully delivered to-date. As a testament of its versatility and flexibility in rig construction, the Group successfully built a total of four ultra-deepwater semi-submersible rigs based on the Moss Maritime ultra-deepwater design. Two units of these had been delivered. Working in close collaboration with a leading consultant, the Group also developed the exclusive Espadon Jurong drillship design to meet the industry’s most stringent operating requirements in deepwater drilling.

Upholding health, safety, security and the environment – a core value of the Group – remained a key priority with the heightening of safety standards to ensure a safe and healthy workplace for employees, contractors and stakeholders. Recognising that people are the DNA of the Group, we also continued to nurture their talents and capabilities to boost the Group’s competitiveness and business success.

In active corporate citizenry, Sembcorp Marine remained committed to giving back to the community by supporting a host of initiatives in education, community development, national unity, industry outreach and the arts as well as embracing eco-friendly practices at the workplace to build a greener future.

Strategic Positioning for Sustainable GrowthIn November 2009, Sembcorp Marine announced its plan to develop a modern and work-efficient

Integrated New Yard facility to position the Group for long-term sustainable growth in its ship repair, ship conversion & offshore activities.

A ground-breaking ceremony for the first phase of the facility was held in June 2010. This phase would comprise four very large crude carrier (VLCC) drydocks with a total dock capacity of 1,550,000 dwt and quays measuring 3,408 metres in length. Construction of the Integrated New Yard facility progressed on schedule, with two drydocks, measuring 350 metres by 66 metres and 410 metres by 66 metres, related quays, workshops and dormitory on track for operations in the second half of 2012. By the second half of 2013, the remaining two docks of 350 metres by 66 metres and 360 metres by 89 metres, quays, workshops and offices would be fully operational.

In Brazil, we announced our plans to build a new shipyard in the Municipal of Aracruz, located in the state of Espirito Santo to cater directly to one

Delivery of Tam Dao 02, a proprietary Pacific Class 375 design jack-up rig built by PPL Shipyard for Vietsovpetro.

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of the world’s fastest growing offshore oil and gas exploration and production markets. With our track record and operating experience in Brazil, we are confident that the new shipyard will be well-positioned to meet the needs of the vibrant market for drilling rig construction, FPSO integration, topsides module fabrication, as well as ship and rig repairs. The shipyard, when fully operational, would also provide ample employment and training opportunities for the local workforce in Espirito Santo.

Outlook and ProspectsThe Group has a net order book of $4.8 billion, with completion and deliveries stretching till the second quarter of 2013.

Although global recovery has improved in the past year, recent events in the Middle East, North Africa and Japan may create uncertainties in the world economy which may have impact on businesses.

For the oil and gas industry, the fundamentals remain intact with oil prices expected to sustain above US$80 per barrel. Exploration and production spending budgets continue to show positive development as oil companies report their intention to increase spending in exploration and production further in 2011.

Given the highly skewed ageing rig fleet and the bifurcation in the jack-up market with oil companies increasingly focused on new, safer and efficient rigs, demand for premium and high-specification rigs is expected to remain strong. The Group has since the fourth quarter of 2010 secured eight firm orders of jack-up rigs amounting to $2.0 billion with options for another ten units.

The Group is also mindful that since the

oil spill in 2010, activities in the Gulf of Mexico have slowed pending finalisation of new deepwater drilling regulations. The recent issue of the first deepwater drilling permit in the United States’ portion of the Gulf could have the effect of spurring optimism of deepwater activity returning to the Gulf. Nevertheless, deepwater drilling activities for the rest of the world are expected to increase. This optimism is reflected in the number of newbuild orders, in particular for drillships, by drilling contractors since the last quarter of 2010. Sembcorp Marine, with its proven track record in deepwater rigs, will be well-positioned to capture new orders and meet the industry’s most stringent operating requirements.

Although overall enquiries have improved, competition remains keen.

The ship repair market continues to improve with continued demand for bigger docks. The Group has secured several long-term contracts from its customers, in particular in the niche segments for the repair, upgrading and life extension of LNG carriers and passenger and cruise vessels. These long-term customers will continue to provide a stable base-load for the Group’s ship repair sector.

Board & ManagementMr Joseph Kwok Sin Kin, who was appointed a director of Sembcorp Marine since 30 June 2006, retired by rotation pursuant to Article 91 of the

The Integrated New Yard facility will further position the Group for long-term sustainable growth.


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Company’s Article of Association. He had opted not to stand for re-election at the 47th Annual General Meeting held on 20 April 2010. The Board would like to thank him for his invaluable contributions during his tenure as director, Chairman of Nominating Committee and member of the Executive Resource and Compensation Committee.

The Board would also like to take the opportunity to welcome Mr Koh Chiap Khiong, who was appointed alternate director to Mrs Lim Joke Mui with effect from 1 July 2010. Mr Koh is the Chief Financial Officer of Sembcorp Industries and has extensive experience in finance, tax, treasury management and audit in various industries.

On behalf of the Board, we would like to express our heartfelt gratitude to our valued customers, partners and business associates for their steadfast support and continued trust in us. We would like to thank the Board of Directors for their counsel and guidance as well as our dedicated team of management,

employees, union and subcontractor partners for their hard work and commitment in contributing to the growth of the Group. We look forward to working together as a united and resilient team to further enhance our operational efficiencies and build a globally competitive Group for sustainable growth.

Finally, we would like to express our sincere appreciation to all our valued shareholders for your continued interest and unwavering confidence in us. We look forward to your relentless support and will continue to deliver on our commitment to grow more value for our shareholders.

Goh Geok Ling Wong Weng SunChairman President & CEO

8 March 2011

Atwood Osprey, an ultra-deepwater semi-submersible built by Jurong Shipyard for Atwood Oceanics Pacific.

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Board of Directors

Mr Goh Geok LingChairman Non-Executive/Non-Independent DirectorAppointed 14 February 2006Chairman, Executive Committee and Executive Resource & Compensation Committee

Mr Goh has been appointed the Chairman of Sembcorp Marine with effect from 14 February 2006. A non-independent director, he heads the Board’s Executive Committee and Executive Resource & Compensation Committee as well as serves as a member in the Nominating Committee.

Currently the Chairman of Jurong Shipyard, Sembawang Shipyard and SMOE, Mr Goh also serves as a director of Sembcorp Industries. In addition, he is a member of the Board of Trustees of Nanyang Technological University and an advisor of 02Micro International.

Mr Goh holds a Bachelor of Engineering from the University of Sydney, Australia. His past directorships in listed companies and major appointments between 2008 and 2010 were with DBS Bank, DBS Group Holdings, 02Micro International and Venture Corporation.

Mr Richard Hale, OBEDeputy ChairmanNon-Executive/Non-Independent DirectorAppointed 22 April 2008, Deputy Chairman 7 May 2008

Mr Hale is a non-independent director who serves on the Board’s Audit and Risk Committees.

He is a director in the board of Sembcorp Industries and heads its Audit and Risk Committees. He is also the Chairman of CapitaCommercial Trust Management and a director of CapitaLand. Previously, he was a director and CEO Singapore of The Hongkong and Shanghai Banking Corporation.

Mr Hale was educated at Radley College, Abingdon, United Kingdom. He is a Fellow of the Chartered Institute of Bankers, London. His past directorships in listed companies and major appointments between 2008 and 2010 were with The Ascott Group, BM Trust Management and Wheelock Properties (Singapore).


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Mr Wong Weng SunPresident & Chief Executive OfficerExecutive/Non-Independent DirectorAppointed 1 May 2009

Mr Wong was appointed the President & Chief Executive Officer of Sembcorp Marine since 1 May 2009. He is also the Managing Director of Jurong Shipyard.

He first joined Jurong Shipyard in 1988 as an engineer before rising to the position of General Manager in charge of project management. He was subsequently promoted to Deputy President of Sembcorp Marine in 2004 and assumed the position of President & Chief Operating Officer in 2006. He was also appointed as an alternate director to Mr Tan Kwi Kin from 3 May 2006 to April 2009. His current directorships in Sembcorp Marine’s subsidiaries include Jurong Shipyard, Sembawang Shipyard and PPL Shipyard.

Mr Wong is the President of the Association of Singapore Marine Industries and sits on the boards of the Maritime and Port Authority of Singapore and the Singapore Maritime Foundation. Apart from serving as a member of the Workplace Safety and Heath Council (WSHC), he is also the Chairman of the WSHC (Work at Height Safety) Taskforce and the Deputy Chairman of the WSHC (Marine Industries) Committee. In addition, he co-chairs the Advisory Committee of the Centre of Innovation, Marine and Offshore Technology, Ngee Ann Polytechnic.

Mr Wong holds a Bachelor of Mechanical Engineering (Marine). He also obtained a Master in Business Administration from Oklahoma City University, United States.

Mr Tan Kwi KinSenior AdvisorNon-Executive/Non-Independent DirectorAppointed 1 April 1990

Mr Tan was appointed Senior Advisor of Sembcorp Marine following his retirement as Group President & Chief Executive Officer from 1 May 2009.

A veteran in the industry, Mr Tan has more than 43 years of extensive experience in the marine and offshore sector. He began his career with Jurong Shipyard in 1966 as a junior engineer in the Design Department before rising to the positions of manager in charge of production control in 1975, General Manager in 1981 and Managing Director in 1990. When Sembawang Shipyard merged with Jurong Shipyard in 1997, Mr Tan was appointed President of the Jurong Shipyard group of companies. Following the restructuring and name change in November 1999, he became the President & Chief Executive Officer of Sembcorp Marine.

Mr Tan currently serves on the boards of Jurong Shipyard, Sembawang Shipyard, PPL Shipyard, SMOE, Karimun Shiprepair & Engineering, Sembcorp Marine Technology and Zhen Hua (Singapore) Engineering.

He graduated from Tokyo University, Japan, in 1965 with a Bachelor of Engineering (Mechanical).

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Board of Directors

Mr Ajaib HaridassNon-Executive/Independent DirectorAppointed 31 October 2003Chairman, Board Risk Committee

Mr Haridass is an independent director. He heads the Board’s Risk Committee and serves as a member of the Special Committee and the Executive Committee.

He is currently the Managing Partner of Haridass Ho & Partners, a legal firm he set up in 1985. With more than 34 years of legal experience, Mr Haridass specialises in all admiralty matters, both litigious and non-litigious, from ship sale and purchase, the financing aspects of such transactions, marine insurance to general commercial and banking litigation.

Mr Haridass is also an accredited mediator of the Singapore Mediation Centre, a General Committee member of the Singapore Chamber of Maritime Arbitration, an arbitrator of the Korean Commercial Arbitration Board, a member of the SIAC Panel of Arbitrators, a member of the Singapore Maritime Arbitrators Association and a panel member for Disciplinary Inquiries at the Public Service Commission. He is a member of the Board of Visiting Justices and Board of Inspection (Prisons Department). In addition, he is the Vice Chairman of the Home Detention Advisory Committee, Ministry of Home Affairs in Singapore, Magistrate of the Subordinate Courts, Referee at Small Claims Tribunal and Mediator at Criminal Relational Disputes, Subordinate Courts, a Commissioner for Oaths, Notary Public and a Justice of Peace. Graduating from the University of London in 1974 with a Bachelor of Law (Honours) degree, Mr Haridass was called to the English Bar at the Middle Temple in 1975 and admitted as an Advocate & Solicitor of the Supreme Court of Singapore in 1976.

Mr Lim Ah DooNon-Executive/Independent DirectorAppointed 7 November 2008Chairman, Audit Committee

Mr Lim is an independent director and heads the Board’s Audit Committee. He brings with him vast experience and wide knowledge as a former senior banker and corporate executive. He is currently an independent director of ARA-CWT Trust Management (Cache), EDB Investments, GP Industries, PST Management, SM Investments Corporation and U Mobile Sdn Bhd. He also chairs the audit committees of ARA-CWT Trust Management (Cache), GP Industries and PST Management.

During his 18-year distinguished banking career in Morgan Grenfell, he held several key positions including chairing Morgan Grenfell (Asia) Limited. He also chaired the Singapore Investment Banking Association in 1994. From 2003 to 2008, he was President and then Vice Chairman of the RGM group, a leading global resource-based group. He was also formerly an independent Commissioner and Chairman of the Audit Committee of PT Indosat, Indonesia, a council member of Singapore-Shandong Business Council and Singapore-Jiangsu Co-operation Council and served as Chairman of EDBV Management from 2005 to 2006.

Mr Lim holds an honours degree in Engineering from the Queen Mary College, University of London in 1971, and a Master in Business Administration from the Cranfield School of Management in 1976.


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Mr Tang Kin FeiNon-Executive/Non-Independent DirectorAppointed 1 May 2005

Mr Tang is a non-independent director and serves as a member on the Board’s Executive Resource & Compensation, Nominating, Risk, Special and Executive Committees.

He is Group President and Chief Executive Officer of Sembcorp Industries. With over 20 years at Sembcorp, he is credited with spearheading its growth into a focused energy, water and marine group with operations spanning six continents around the world.

His board appointments in the Sembcorp Marine Group include chairing the board of PPL Shipyard and directorships at Jurong Shipyard, Sembawang Shipyard, SMOE and Baker Marine. Mr Tang is also Deputy Chairman of International Enterprise Singapore, a member of the APEC Business Advisory Council and President of the Singapore Water Association. A council member of the Singapore Business Federation and the Singapore Chinese Chamber of Commerce and Industry, Mr Tang also serves on several China-Singapore as well as Saudi-Singapore and Abu Dhabi-Singapore business councils. In addition, he is a member of Singapore’s Climate Change Network, a council member of Ngee Ann Polytechnic, as well as a board member and trustee of the Kwong Wai Shiu Hospital, a charitable hospital which provides care for needy patients.

Mr Tang holds a First Class Honours degree in Mechanical Engineering from the University of Singapore and underwent the Advanced Management Programme at INSEAD. He held a previous directorship in GuocoLeisure.

Mr Ron Foo Siang GuanNon-Executive/Independent DirectorAppointed 30 June 2006Chairman, Special Committee

Mr Foo is an independent director who heads the Board’s Special Committee and serves as a member in the Risk Committee and the Audit Committee.

He brings with him more than 36 years of extensive auditing, accounting and financial experience in Singapore and overseas. Mr Foo was a partner of PricewaterhouseCoopers, Singapore for 22 years before retiring from active service in December 2005. Mr Foo is presently a director of NTUC Income Insurance Co-Operative and SIA Engineering Company.

Mr Foo has also been actively involved as a council member in the Institute of Certified Public Accountants of Singapore (ICPAS) and was awarded the ICPAS Gold Medal 2004 in recognition of his outstanding contributions and distinguished service to the accounting profession and the community. Presently, he is a member of the Canadian Institute of Chartered Accountants, Canada and a fellow of the Institute of Certified Public Accountants of Singapore.

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Board of Directors

Mr Tan Pheng HockNon-Executive/Independent DirectorAppointed 16 April 2001Chairman, Nominating Committee

Mr Tan is an independent director and serves as Chairman on the Board’s Nominating Committee and a member of the Executive Resource and Compensation Committee.

He is the President and Chief Executive Officer of public-listed Singapore Technologies Engineering (ST Engineering). He is Chairman of the Singapore Airshow & Events, Nanyang Polytechnic International, Nanyang Polytechnic Board of Governors and Singapore Workforce Development Agency. Mr Tan is also Deputy Chairman of the Singapore Quality Award Governing Council. Mr Tan began his career with the ST Engineering Group as an engineer in ST Marine in 1981. He held various senior appointments in ST Engineering Group including that of Executive Vice President of ST Marine, President of ST Kinetics, and President and Chief Operating Officer of ST Engineering before assuming his current position.

In 2010, he was appointed an Advisory member of the Singapore-China Association for Advancement of Science and Technology, a member of the Singapore Economic Development Board and the School of Mechanical & Aerospace Engineering (NTU School Advisory Committee) and Director of the International Institute for Strategic Studies (Asia).

He holds a Bachelor of Science (First Class Honours) in Marine Engineering from the University of Surrey, United Kingdom and a Master of Science in Management from Stanford University, USA.

Mrs Lim Joke Mui (nee Ngiam Joke Mui)Non-Executive/Non-Independent DirectorAppointed 24 November 2007

Mrs Lim is a non-independent director and serves as a member on the Board’s Special Committee.

Prior to her retirement, she was the Group Chief Financial Officer of Sembcorp Industries from 1 June 2002 to 30 June 2010 overseeing the corporate finance and treasury, accounts, tax, information technology and risk management functions across the group. Mrs Lim has more than 30 years of experience in various finance and other corporate functions. During her career with DBS Land, she managed large financing transactions via the equity and debt markets and was involved in major corporate merger and acquisition exercises and initial public offerings.

In 2010, Mrs Lim was appointed Director of the National Healthcare Group and Chairman of its Finance & Audit Committee as well as Chairman of the NHG Endowment Fund Management Committee. She was also appointed Audit Committee member and Investment Committee member of MOH Holdings (MOHH).


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Mr Koh Chiap KhiongNon-Executive/Non-Independent Alternate DirectorAppointed 1 July 2010

Mr Koh is the Alternate Director to Mrs Lim Joke Mui and currently serves as the Group Chief Financial Officer (CFO) of Sembcorp Industries. He is responsible for the corporate finance & treasury, reporting, accounts, tax, information technology and risk management of Sembcorp Industries and oversees these functions across the Group. He also handles investor relations matters as Group CFO and is a director on the boards of various Sembcorp companies. His board appointments in the Sembcorp Marine Group include directorships in Jurong Shipyard, Sembawang Shipyard and SMOE.

Mr Koh brings with him extensive expertise in finance, tax, treasury management and audit in various industries, over 10 years’ of experience in managing infrastructure businesses and a very strong knowledge of the energy and water sectors. He rejoined Sembcorp in 2008 after a three-year stint with Power Seraya as its Chief Financial Officer. Prior to that, he spent seven years in Sembcorp and served as the Utilities business’ Head of Finance and Chief Risk Officer.

Mr Koh holds a First Class Honours degree in Accountancy from the National University of Singapore.

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Senior Management

SHIPYARDS (Strategic Business Units)

Mr Wong Weng SunPresident & CEO, Sembcorp MarineManaging Director, Jurong Shipyard

Mr Ong Poh KweeDeputy President, Sembcorp Marine Managing Director, Sembawang Shipyard

Mr Lee Yeok HoonExecutive Director, Jurong Shipyard

Ms Wong Lee LinExecutive Director, Sembawang Shipyard

Mr Ho Nee Sin Managing Director, SMOE

Mr Douglas Tan Ah HwaManaging Director, PPL Shipyard

Mr Freddie WooExecutive Director, Jurong SML


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CORPORATE FUNCTIONS

Mr Tan Cheng TatChief Financial Officer

Mr Chua San LyeDirector, Group Human Resource

Mr Wong Peng KinDirector, Security Planning & Special Projects

Ms Judy HanSenior Vice President, Investor Relations & Communications

Mr Ng Thiam PohChief Risk Officer

Mr Wee Keng HweeSenior Vice President, Corporate Development

Ms Chionh Keat YeeSenior Vice President, Group Performance Management & Group Mergers & Acquisitions

Mr Tan Heng JackVice President, Internal Audit

Mr Chia Chee HingVice President, Management Information Systems

Ms Jessie LauVice President, Administration

Ms Tan Yah SzeVice President, Legal & Joint Company Secretary

Ms Kwong Sook MayJoint Company Secretary

as at 15 March 2011

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Corporate Governance and Transparency

# The number of meetings held during the period the director was a member of the Board, or when he was a member of a committee. There were 5 scheduled Board meetings, 4 scheduled Audit Committee, Board Risk Committee and Executive Resource & Compensation Committee meetings. The rest are ad hoc meetings.1 Mr Joseph Kwok Sin Kin retired as director on 20 April 2010.2 Mr Koh Chiap Khiong was appointed alternate director to Mdm Ngiam Joke Mui on 1 July 2010.

Name of Director Board Meetings

Audit Committee Meetings

Board Risk Committee Meetings

ExecutiveCommitteeMeetings

NominatingCommitteeMeetings

ExecutiveResource &CompensationCommitteeMeetings

SpecialCommittee Meetings

No. of Meetings No. of Meetings No. of Meetings No. of Meetings No. of Meetings No. of Meetings No. of MeetingsHeld# Attendance Held# Attendance Held# Attendance Held# Attendance Held# Attendance Held# Attendance Held# Attendance

Goh Geok Ling 12 12 - - - - 4 4 2 2 4 4 - -Richard Hale, OBE 12 11 6 6 4 4 - - - - - - - -Wong Weng Sun 12 12 - - - - 4 4 - - - - - -Tan Kwi Kin 12 11 - - - - - - - - - - - -Tan Pheng Hock 12 5 - - - - - - 2 2 4 4 - -Ajaib Haridass 12 12 - - 4 4 4 4 - - - - 3 3Tang Kin Fei 12 12 - - 4 2 4 4 1 1 2 2 3 1Ron Foo Siang Guan 12 11 6 6 4 4 - - - - - - 3 3Joseph Kwok Sin Kin1 5 - - - - - - - 1 1 2 - - -Ngiam Joke Mui 12 11 - - - - - - - - - - 3 2Lim Ah Doo 12 12 6 6 - - - - - - - - - -Koh Chiap Khiong2 4 4 - - - - - - - - - - - -

Attendance at Board and Committee Meetings

The Sembcorp Marine Group is committed to meeting high standards of corporate governance. Its corporate governance principles reflect its strong belief in protecting and enhancing shareholder value in a sustainable way. The Group firmly believes that the professionalism, integrity and commitment of its Board members and employees, supported by a sound system of policies, practices and internal controls are the cornerstones that will enable it to preserve long-term value and returns for its shareholders.Sembcorp Marine adopts corporate governance practices which are in conformity with the Code of Corporate Governance 2005 (the “Code”). This report describes Sembcorp Marine’s corporate governance practices with specific reference to the principles and guidelines of the Code as required under the Listing Manual of the Singapore Exchange Securities Trading Limited.

Board of DirectorsEffective Board to Lead and Effect ControlsPrinciple 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 the management to achieve this and the management remains accountable to the Board.

The Board’s responsibility is to oversee the business, affairs and performance of the Sembcorp Marine Group in the best interests of its shareholders. The Board focuses its activities on the Group’s key requirements such as:• Providing entrepreneurial leadership and directions of the Group• Ensuring prudent and effective controls• Setting values and standards to ensure obligations to shareholders are met• Overseeing the proper conduct of the Group’s business

Board of Directors and management at the 47th Annual General Meeting.


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To ensure efficient discharge of its responsibilities and to provide independent oversight of the management, the Board has established a number of Board committees, including the Audit Committee, Executive Resource & Compensation Committee, Nominating Committee, Board Risk Committee and the Executive Committee. These committees comprise mostly independent and/or non-executive directors. Other ad-hoc committees can be formed from time to time to look into specific areas when the need arises such as the Special Committee established in 2007.

Membership in the different committees is carefully managed to ensure that there is equitable distribution of responsibilities among Board members, to maximise the effectiveness of the Board and foster active participation and contribution. Diversity of experiences and appropriate skills are also considered.

In addition, the Board has adopted a set of internal controls which sets out approval limits for transactions, procurement of goods and services, capital expenditure, investments and divestments, bank borrowings and management of foreign exchange. Approval sub-limits are also provided at management levels to facilitate operational efficiency.

Strong and Independent Board Exercising Objective Judgment Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgment 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.

Chaired by Mr Goh Geok Ling, the Board has ten directors of whom nine are non-executive directors, and four are independent directors. Mr Wong Weng Sun who was appointed the President & CEO and Director of Sembcorp Marine on 1 May 2009, is the executive director.

The Board is composed of a majority of non-executive directors, four of whom are independent directors, independent of management and independent in terms of character and judgment. The criterion of independence is based on the definition given by the Code, which stipulates that an independent director is one who has no relationship with the Company, its related companies or its officers that could interfere or be reasonably perceived to interfere with the exercise of the directors’ independent business judgment with a view to decide in the best interests of the Company in the conduct of the Company’s affairs.

Directors Position held on the BoardDate of first appointment to the Board

Date of lastre-election/ re-appointment as director

Nature of appointment

Goh Geok Ling Chairman 14 February 2006 17 April 2009 Non-Executive/ Non-Independent

Richard Hale, OBE Deputy Chairman 22 April 2008 20 April 2010 Non-Executive/ Non-Independent

Wong Weng Sun Director/President & CEO 1 May 2009 20 April 2010 Executive/ Non-Independent

Tan Kwi Kin Director/Senior Advisor 1 April 1990 20 April 2010 Non-Executive/ Non-Independent

Tan Pheng Hock Director 16 April 2001 17 April 2009 Non-Executive/ Independent

Ajaib Haridass Director 31 October 2003 17 April 2009 Non-Executive/ Independent

Tang Kin Fei Director 1 May 2005 22 April 2008 Non-Executive/ Non-Independent

Ron Foo Siang Guan Director 30 June 2006 20 April 2010 Non-Executive/ Independent

Joseph Kwok Sin Kin1 Director 30 June 2006 Not Applicable Non-Executive/ Independent

Ngiam Joke Mui Director 24 November 2007 20 April 2010 Non-Executive/ Non-Independent

Lim Ah Doo Director 7 November 2008 17 April 2009 Non-Executive/ Independent

Alternate DirectorKoh Chiap Khiong2 Alternate to Ngiam Joke Mui 1 July 2010 Not Applicable Non-Executive/ Non-Independent

Board Members for 2010

1 Mr Joseph Kwok Sin Kin retired as Director on 20 April 2010.2 Mr Koh Chiap Khiong was appointed as Alternate Director to Mdm Ngiam Joke Mui on 1 July 2010.

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This enables the management to benefit from an external and objective perspective on issues that are brought before the Board.

To facilitate a more effective check on management, the non-executive directors have also met without the presence of management to discuss the performance of management.

The Nominating Committee considers Mr Ajaib Haridass, a non-executive director, as an independent director, although he is a partner in a law firm rendering professional services to the Group. Notwithstanding this, the Nominating Committee assesses him to be independent due to his manifest ability to exercise strong independent judgment in his deliberations and act in the best interests of the Company, and that the nature and scope of the business relationships are not significant in the context of the Group’s earnings or operations, and therefore do not undermine his independence.

The directors consider that the Board is of the appropriate size and with the right mix of skills and experience given the size of Sembcorp Marine. The Board members comprise business leaders, current or retired CEOs, bankers, professionals with financial background and a practising lawyer. Profiles of the Board’s directors are found on pages 12 to 17 of this Annual Report.

Board CommitteesSembcorp Marine has six Board committees: • Audit Committee• Executive Resource & Compensation Committee• Nominating Committee• Board Risk Committee• Special Committee• Executive Committee

The Audit CommitteePrinciple 11: The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties.

The Audit Committee (AC) currently comprises two independent directors, Mr Lim Ah Doo as Chairman of the AC and Mr Ron Foo Siang Guan as member, and one non-independent director, Mr Richard Hale, OBE as member.

The main responsibility of the AC is to review the Group’s general policies and control procedures relating to financial statements and reporting, internal control systems, interested person transactions as well as any matters or issues that affect the performance of the Group. These reviews are done with the external auditors, internal auditors and the management. The AC reviews the quarterly, half-yearly and annual results announcements in addition

1 Appointed as Chairman of the Nominating Committee on 20 April 2010.2 Appointed as a Member of the Executive Resource & Compensation Committee and Nominating Committee on 20 April 2010.3 Stepped down as Chairman of the Nominating Committee and Member of Executive Resource & Compensation Committee upon his retirement as director with effect from 20 April 2010.

Board Members Audit Committee

(AC)

Executive Resource& Compensation

Committee (ERCC)

NominatingCommittee

(NC)

Board Risk Committee

(BRC)

Special Committee

(SC)

Executive Committee

(EXCO)

Goh Geok Ling Chairman Member Chairman

Richard Hale, OBE Member Member

Wong Weng Sun Member

Tan Kwi Kin

Tan Pheng Hock1 Member Chairman

Ajaib Haridass Chairman Member Member

Tang Kin Fei2 Member Member Member Member Member

Ron Foo Siang Guan Member Member Chairman

Joseph Kwok Sin Kin3

Ngiam Joke Mui Member

Lim Ah Doo Chairman

Board Composition and Committees



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to the financial statements at Group and Company levels before they are submitted to the Board for approval. The AC also recommends the appointment of the external auditors.

In its role, the AC assists the Board of Directors in fulfilling its fiduciary responsibilities relating to corporate accounting and reporting practices of the Group, and in respect of interested person transactions. Its responsibility is to act in the interest of the shareholders as a whole. The AC meets with the external and internal auditors, without the presence of the management, at least once a year to review the cooperation and assistance given by the management to its members.

The AC has reviewed the non-audit services provided by its external auditors to the Group, and is satisfied that the provision of non-audit services by the external auditors did not impair their independence as external auditors.

The Executive Resource & Compensation CommitteeThe Company’s Executive Resource & Compensation Committee (ERCC) at the date of this report comprisesthree directors, namely Mr Goh Geok Ling as ERCC Chairman, Mr Tang Kin Fei and Mr Tan Pheng Hock. Although the ERCC does not comprise a majority of independent directors within the definition of the Code, all its members are non-executive and independent of management of the Company with a clear separation of their role from management in deliberations of the ERCC.

Notwithstanding that the ERCC Chairman is regarded as non-independent with reference to the definition of “independence” under the Code, given his directorship on the board of Sembcorp Industries Ltd, the Board believes that the ERCC Chairman’s ability to exercise strong independent judgment in his deliberations and to act in the best interest of the Company is not compromised as his role in Sembcorp Industries board is non-executive in nature and does not entail involvement in the day-to-day conduct of Sembcorp Industries’ business.

The primary purpose of the ERCC is to support and advise the Company on remuneration matters and leadership development by:

• Overseeing development of leadership and management talent

• Ensuring that the Group has appropriate remuneration policies

• Designing compensation packages with focus on long term shareholders’ returns

The ERCC reviews and approves remuneration and promotion of key executives and decides on issues pertaining to their development and succession. It also establishes guidelines on share plans and other long-term incentives plans and approves the grant of such incentives to key executives. The underlying philosophy is to motivate executives to maximise operating and financial performance and shareholders’ value.

In addition, the ERCC also reviews the remuneration of non-executive directors and executive director and senior executives, as well as major human resource management and compensation policies and practices for the rest of the Group.

On an annual basis, a comprehensive talent management programme and the succession plans were presented to the ERCC for review. The ERCC reviews the succession plans for key and critical positions to align the business goals and the Group’s human capital needs. This enables the Company to identify the talent pool and allow focus and devotion of time and resources to leverage the full value and potential of identified successors.

The ERCC currently involves and consults with human resource and compensation consultants to ensure inclusiveness in its deliberations and decisions and to keep in line with pay and employment conditions within the industry and in comparable companies.

The President & CEO is not present during the discussions relating to his own compensation, terms and conditions of service, and the review of his performance.

No ERCC member or any director is involved in deliberations on any remuneration, compensation, options or any form of benefits to be granted to himself. Hence, the Board believes the ability of the ERCC to exercise considered judgment in its deliberations and act in the best interest of the Company.

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Nominating Committee Mr Tan Pheng Hock, an independent director and an existing Nominating Committee (NC) member was appointed as NC Chairman in place of Mr Joseph Kwok Sin Kin who retired as Director at the last Annual General Meeting on 20 April 2010. On the same day, Mr Tang Kin Fei was made a member of the NC. The Company’s NC at the date of this report comprises Mr Tan Pheng Hock, Mr Tang Kin Fei and Mr Goh Geok Ling.

Although the NC does not comprise a majority of independent directors within the definition of the Code, the Chairman is independent, and all members of the NC are non-executive and independent of management of the Company. The Board is of the view that the NC is able to exercise strong independent judgment in their deliberations in the interest of the Company.

The primary purpose of the NC is to support and advise Sembcorp Marine, its unlisted subsidiaries and, where applicable, unlisted associated companies by nominating suitable candidates who are best able to discharge their responsibilities as directors. This means evaluating the balance of skills, knowledge and experience of these boards and assessing the candidates for their regard for the law and the high standards of governance practised by the Group. Appointments to these boards are made on merit and against objective criteria. The NC ensures that appointees have enough time available to devote to their directorship roles. The independence of each director is reviewed annually by the NC.

Board Risk CommitteeThe Board Risk Committee (BRC) was formed in April 2005 with written terms of reference, stating clearly its mandate to oversee the Group’s risk management framework which comprises systems of internal controls and risk management policies, guidelines, procedures, processes and limits.

At present, the BRC comprises four members, namely Mr Ajaib Haridass as Chairman, Mr Tang Kin Fei, Mr Richard Hale, OBE and Mr Ron Foo Siang Guan.

The BRC’s main responsibility is to assist the Board of Directors to review the adequacy and effectiveness of the Group’s risk management philosophy, strategies, plans, policies and guidelines; Group-wide risk

management systems, processes controls and procedures; and the Group’s risk portfolio and risk assessment including the treatment of identified key risks.

Special CommitteeThe Special Committee (SC) was formed on 22 October 2007 in response to the discovery of the unauthorised foreign exchange transactions (“Unauthorised Transactions”) undertaken by the former Director, Group Finance of Sembcorp Marine. Its primary role was to assist the Board in the investigations and to deal with issues and legal proceedings arising out of these Unauthorised Transactions.

The SC is currently comprised of four members: Mr Ron Foo Siang Guan as Chairman, Mr Ajaib Haridass, Mr Tang Kin Fei and Mdm Ngiam Joke Mui as members.

Executive CommitteeThe Executive Committee (EXCO) was formed on 7 May 2008 to assist the Board in developing the overall strategy for the Group and supervises, on behalf of the Board, the management of the Group’s business and affairs.

The EXCO comprises four members: Mr Goh Geok Ling as Chairman, Mr Wong Weng Sun, Mr Ajaib Haridass and Mr Tang Kin Fei as members.

Chairman and Chief Executive OfficerPrinciple 3: There should be 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.

There is a clear separation of the roles and responsibilities between the Chairman and the President & CEO. The President & CEO is not related to the Chairman.

The Chairman, who is non-executive, takes a leading role in Sembcorp Marine Group’s drive to achieve and maintain a high standard of corporate governance with the full support of the directors and the management.



25

He is responsible for the leadership of the Board, setting its agenda and ensuring its effectiveness in all aspects of its work. He acts independently in the best interests of the Group and shareholders. The Chairman facilitates the contribution of non-executive directors in particular and ensures constructive relations between executive and non-executive directors. He also ensures that the members of the Board work together with the management in constructive debate on various matters, including strategic and operational issues. Meanwhile, the President & CEO is charged with the executive responsibility of running the Group’s business.

Formal Appointment and Re-Election of DirectorsPrinciple 4: There should be a formal and transparent process for the appointment of new directors to the Board.

The Board does not believe it is possible to compile a list of criteria which are appropriate to characterise, in all circumstances, whether a non-executive director is independent. It is the approach and attitude of each non-executive director which is important. The Board aims for diversity of knowledge and experience among its members in relation to the various businesses of the Group and the international nature of the Group.

The Board, through the delegation of its authority to the NC, has used its best efforts to ensure that directors appointed to the Board possess the background, experience and knowledge in technology, business, finance and management skills critical to the Group’s businesses and that each director brings to the Board an independent and objective perspective to enable balanced and well-considered decisions to be made.

Sembcorp Marine believes that all directors should retire and offer themselves for re-election at regular intervals, subject to continued satisfactory performance. The President & CEO, while also a board member, is also required to retire and offer himself for re-election. As nomination and election of board members is the prerogative and proper right of all shareholders, this ensures the planned and progressive renewal of the Board.

The Company’s Articles of Association requires one-third of directors to retire and subject themselves to re-election by shareholders at every Annual General Meeting (AGM). In other words, no director stays in office for more than three years without being re-elected by shareholders. At the forthcoming AGM, Mr Tang Kin Fei, Mr Tan Pheng Hock and Mr Ajaib Haridass will retire by rotation pursuant to the one-third rotation rule.

In addition, any newly-appointed director will submit himself for retirement and election at the AGM immediately following his appointment. Thereafter, he is subject to the one-third rotation rule.

Further, pursuant to the Companies Act, directors who are over the age of 70 would vacate their offices at the conclusion of every AGM, and be subject to re-appointment. Mr Tan Kwi Kin and Mr Richard Hale will vacate their offices pursuant to Section 153(6) of the Companies Act.

Board Performance and Conduct of its Affairs 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.

The Sembcorp Marine Group believes that active participation and valuable contributions are essential to the overall effectiveness of the Board. Newly-appointed directors are given briefings by the

Chairman of Sembcorp Marine Mr Goh Geok Ling interacting with shareholders at the AGM.

26

management on the Group’s business activities, the financial performance of the Group and its subsidiaries and the Group’s governance policies and practices. Facility visits to the premises are also arranged to enable them to acquire an understanding of the Group, its business activities and its strategic directions. Existing directors are also invited to such facility visits and orientation programmes.

Changes to regulations and accounting standards are monitored closely by the management. To keep pace with regulatory changes, which have an important bearing on the Group’s or directors’ disclosure obligations, the directors are briefed during Board meetings or at specially-convened sessions, including training sessions and seminars conducted by external professionals. Where necessary, the Group also sponsors its directors to training sessions, courses and seminars on new developments or changes in laws, regulations and accounting standards, which are of relevance to the Group.

Informal reviews of the Board composition and performance are undertaken on a continual basis by the NC with inputs from the other Board members and the President & CEO to ensure strong, independent and sound leadership for the continued success of the Group’s business. In addition, to enhance Sembcorp Marine’s corporate governance practice, a yearly exercise was introduced to obtain feedback from each Director on the effectiveness of the Board as a whole. Directors are required to complete a questionnaire which includes factors such as the size and composition of the Board, the Board’s access to information, Board processes and accountability as well as Board performance in relation to communication with senior management. Feedback from the Directors would be collated for discussion and used to highlight areas of strengths and weaknesses for future development of the Board and its committees as well as to further improve performance.

The NC feels that the financial indicators set out in the Code as guides for evaluation of directors are more for the measurement of management’s performance and thus, less applicable to directors. The NC recognises the contribution of directors who, over time, have developed deep insights into the Group’s businesses and would exercise its discretion to retain the services of such directors.

Full Access to Information and Resources 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.

Directors at Sembcorp Marine have access to complete, adequate and timely information and resources. As a general rule, board papers are sent to directors at least three days before a board meeting so that they have the relevant information for consideration and deliberation at the meeting. Managers who can provide additional insight into the matters at hand would be present at the relevant time during the Board meetings.

The management further provides monthly management and other financial statements to the Board on business issues that require the Board’s decision in addition to ongoing reports relating to the Group’s operational and financial performance. Where a physical board meeting is not possible, timely communication with members of the Board is effected through electronic means which include electronic mail and teleconferencing. Alternatively, the management will arrange to meet and brief each director personally before seeking the Board’s approval.

The Board has separate and independent access to the President & CEO, members of senior management and the Company Secretaries at all times. Where necessary, independent professional advice and consultations will be made available to directors to ensure that full information and advice are available before important decisions are made by the Board. All issues are actively debated by the Board and properly recorded.

The Company Secretaries assist the Chairman by preparing meeting agenda, attending, preparing minutes of board proceedings and ensuring good information flows within the Board and its committees. They assist the Board on compliance with the Company’s Memorandum and Articles of Association, laws and regulations, including requirements of the Companies Act, Securities and Futures Act, the Singapore Exchange Securities Trading Limited (SGX-ST), the Accounting and Corporate Regulatory Authority and shareholders. The Company Secretaries assist the Board to upkeep and implement good corporate governance and best practices across the Group.



27

Competitive Board Remuneration 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.

Sembcorp Marine believes that the remuneration of its directors is adequate and competitive, in line with market norms. The fee structure for the directors had been revised by the Board in 2006 after benchmarking the directors’ fees against those in the public and private sectors.

The President & CEO, as Executive Director, does not receive any director’s fees. As a lead member of the management, he draws a compensation consisting of a salary, allowances, bonuses, share-based incentives conditional upon meeting certain performance targets (details are available on page 196 of the Annual Report). Details on the share-based incentives and its fair value are available on pages 173 to 178 and page 180 of the Annual Report, respectively.

Non-executive directors have remuneration packages that consist of a directors’ fee component according to Sembcorp Marine’s Directors’ Fee Policy, an attendance fee component and a share-based incentives component according to the Company’s Employee Share Plan. Sembcorp Marine does not have a retirement plan for non-executive directors. The Directors’ Fee Policy is based on a scale of fees divided into basic retainer fees as director and additional fees for attendance and service on Board committees (as set out in the table herein). Details on share options granted and its fair value are available on pages 173 to 178 and page 180 of the Annual Report, respectively.

The basis of allocation of the share-based incentives takes into account a director’s contributions and additional responsibilities at Board committees. The report on directors’ remuneration is found on page 196 of the Annual Report.

The Directors’ fee for 2010 is $1,170,625.00 which is derived from the following guidelines approved and adopted by the Board since Year 2007:

The detailed breakdown of Directors’ remuneration is found on page 196 of the Annual Report.

Competitive Reward System and Disclosure on 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 so as to link rewards to corporate and individual performance.

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.

Type of appointment Remuneration$

(i) Board of Directors- Basic Fee- Chairman’s allowance- Deputy Chairman’s allowance

50,00045,00025,000

(ii) Audit Committee- Chairman’s allowance- Members’ allowance

40,000 25,000

(iii) Board Risk Committee- Chairman’s allowance- Members’ allowance

25,00015,000

(iv) Executive Resource & Compensation Committee- Chairman’s allowance- Members’ allowance

25,00015,000

(v) Nominating Committee - Chairman’s allowance- Members’ allowance

25,00015,000

(vi) Executive Committee- Chairman’s allowance- Members’ allowance

40,00025,000

Notes:(1) Mr Wong Weng Sun, as an Executive Director, does not receive any director’s fee.(2) The Directors also receive attendance fee of $2,000 (in-country) and $5,000

(out-country) for each board meeting, $1,000 (in-country) and $5,000 (out-country) for each Committee meeting and $1,000 (in-country) and $1,000 (during office hours) or $2,000 (outside office hours) (out-country) for each teleconference.

(3) The chairman and members of the Special Committee have waived their allowances for their appointment to the Special Committee.

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Sembcorp Marine adopts a competitive remuneration and reward system that ensures good performance and retention of required talents and key executives. The Company’s remuneration and rewards system is anchored on individual performance, performance of the Group and its business units.

The incentive compensation plan for key executives is tied to the creation of Economic Value Added (EVA), as well as the attainment of individual performance goals. An individual’s incentive compensation is linked to the EVA created by Sembcorp Marine Group and its subsidiaries. A “bonus bank” is used to hold incentive compensation credited in any year. Typically, one-third of the available balance is paid out in cash each year, with the balance being carried forward to the following year. The balances carried forward may be reduced or increased in future, based on the yearly EVA performance of the Group and its subsidiaries.

Key executives are also rewarded based on actual performance relative to pre-agreed performance targets, which include financial and non-financial performance indicators such as EVA, total shareholder return as well as promoting and maintaining health, safety and environment issues. The Board believes that the current reward systems are in line with market norms and formulated to motivate executives to give their best to the Group. Rewards include long-term share-based incentives, which would further ensure the retention of the most talented and high performing executives in the Group. In view of the evolving practices at major public listed companies and to enhance linkages between employee performance and long-term shareholder value creation, a review of the Group’s share-based incentives was carried out in 2005.

The Company ceased to grant new share options since 2007. Instead, employees were awarded restricted shares under the restricted share plan. For further details on the share-based incentives and performance targets, please refer to pages 173 to 178 of this Report.

With respect to executive remuneration, the Board has decided not to prepare a separate remuneration report as most of the information is found in the directors’ report. This Annual Report has indicated where the information required to be disclosed can be found.

Key executives include the Managing Directors of Sembawang Shipyard Pte Ltd, SMOE Pte Ltd and PPL Shipyard Pte Ltd, the Executive Director of Jurong SML Pte Ltd and the Chief Financial Officer of Sembcorp Marine.

The detailed breakdown of the key executives’ remuneration is found on page 196 of the Annual Report.

Internal Controls and Risk Management 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 Board delegates its oversight responsibility for internal controls and risk management to the BRC and AC which, in close co-operation and co-ordination, ensures effectiveness and adequacy of the system set out to meet the requirements of Principle 12. This system of internal controls comprises the Group’s financial, operational and compliance controls, and risk management policies and processes.

The effectiveness of the Group’s internal controls is reviewed annually via the Enterprise Risk Management (ERM) programme and involves management, the Strategic Business Units (SBUs), Group Risk Management, Group Internal Audit, relevant personnel from the corporate office and external consultants, where required.

The Group ERM programme is currently into its 8th year since its inception in 2004. The programme is regularly reviewed, updated and improved to ensure that it remains capable of identifying, assessing and managing key risks faced by the Group as it continues to seek sustainable growth in today’s uncertain and volatile business environment.

For more information on the Group’s ERM programme, please refer to pages 32 to 35.



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Whistle-Blowing PolicyThe Group has adopted a constructive whistle-blowing culture to detect and deter wrongdoing in preparing and implementing accurate and complete financial policies, reports and materials as well as the internal controls essential to support its financial and accounting systems and operations.

Demonstrating its pledge to good corporate governance, the Group provides an avenue for employees or any person to report any possible improprieties in matters of financial reporting or other matters that they may encounter to the AC or any other committees established by the AC for such purposes without fear of reprisal. The AC provides an oversight role in ensuring that the appropriate actions (including independent investigations) are undertaken to address any whistle-blow complaints.

The establishment of the whistle-blowing structure also augments the Group’s ability to detect potential fraud, providing another level of comfort and assurance to investors.

Independent Internal Audit FunctionPrinciple 13: The company should establish an internal audit function that is independent of the activities it audits.

Sembcorp Marine’s internal audit function is supported by the Internal Audit Department which reports on audit matters directly to the AC Chairman and administratively to the President & CEO. This department plans its internal audit schedules in consultation with, but independent of, the management. Its plan is submitted to the AC for approval at the beginning of each year.

To ensure that internal audit continues to be performed by competent professionals, the Internal Audit Department continues to recruit and employ suitably qualified staff. The internal audit practices of the Department are established with reference to the standards set by the Institute of Internal Auditors (IIA). Continual efforts are being made to align the Department’s practices with the mandatory and strongly recommended guidance set forth in the International Professional Practices Framework of the IIA. A quality assurance and improvement programme has also been established, comprising both internal and external assessments of the internal audit function and an ongoing process to improve its practices.

Shareholders approving resolutions at the Annual General Meeting.

30

Communication with ShareholdersPrinciple 10: The Board should present a balanced and understandable assessment of the company’s performance, position and prospects.

Principle 14: Companies should engage in regular, effective and fair communication with shareholders.

Sembcorp Marine strives to provide fair and accurate communication with shareholders on its affairs on an ongoing basis through its comprehensive investor relations (IR) programme. Sembcorp Marine’s shareholders are entitled to regular, timely and comprehensive reports on financial information, material developments as well as an understanding of business directions and prospects.

The Board provides shareholders with an assessment of the Group’s performance, position and prospects on a quarterly basis via quarterly announcements of results and timely announcements of significant transactions and developments as required by the SGX-ST. All price-sensitive information on Sembcorp Marine is disseminated to its shareholders via the SGXNET so as to ensure that all shareholders have access to material information at the same time.

Financial and other performance information of the Group as a whole as well as by business segments are given at the release of quarterly results. This allows shareholders to gain better insight into the earning drivers within Sembcorp Marine.

During the release of earnings results, the announcement is first released by SGXNET onto the SGX-ST website. The management team then holds a briefing or teleconference for the media and analysts. All materials used at the briefing are made available on SGXNET and on the Group’s corporate website at www.sembcorpmarine.com.sg. Following any release of earnings or price-sensitive developments, investor relations personnel are available by email or telephone to answer questions from shareholders and the media as long as the information requested does not conflict with the SGX-ST’s rules of fair disclosure.

Apart from the regular meetings, email communicationand teleconferences with investors and analysts, the management team also travels regularly to attend overseas road shows and conferences to reach out to institutional investors.

Directors’ visit to the telepresence facility at P.T. SMOE Indonesia.



31

Greater Shareholder Participation at General Meetings 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.

Sembcorp Marine recognises that good corporate governance requires active participation of shareholders in the decision-making at the general meetings of shareholders and encourages such participation.

Information on meetings of shareholders are made through notices published in the newspaper and reports or circulars sent to all shareholders. All registered shareholders are invited to participate in shareholders’ meetings. If they do not wish to attend in person, they can issue instructions to accept, reject or abstain on each individual item on the meeting agenda by giving instructions to their proxy. He or she is allowed to appoint up to two proxies to vote on his or her behalf at the meeting through proxy forms sent in advance.

Sembcorp Marine also allows CPF Investors to attend General Meetings as observers. The Chairman, President & CEO, Chairman of the AC as well as other directors will be present together with the Chief Financial Officer, the Company Secretaries and external auditors to answer questions raised by shareholders. Minutes of shareholders’ meetings are available on request by registered shareholders. Sembcorp Marine ensures that there are separate resolutions at general meetings on each substantially separate issue and avoids “bundling” separate resolutions.

To facilitate attendance of shareholders at the Annual General Meeting and Extraordinary General Meeting, Sembcorp Marine arranged for buses to transport shareholders from convenient MRT stations to its registered office at 29 Tanjong Kling Road. The Group has always preferred holding the meetings at its registered office to offer shareholders the opportunity to visit the shipyard and acquaint themselves with the shipyard operations besides the opportunity to interact with the Chairman, Board of Directors and senior management of the Group. About 200 shareholders attended the AGM and EGM held on 20 April 2010.

For further details on Sembcorp Marine’s communications with its shareholders, refer to the “Investor Relations” section of the Annual Report.

Dealings in SecuritiesSembcorp Marine has adopted a Code of Compliance on Dealing in Securities, which prohibits dealings in the Company’s securities by its officers during the period commencing one month prior to the announcement of its full-year results and two weeks prior to the quarterly results. Directors and executives are also expected to observe insider trading laws at all times even when dealing in securities within the permitted trading period.

Interested Person Transactions (“IPT”)Shareholders have adopted an IPT mandate relating to interested person transactions of the Group. The IPT mandate sets out the levels and procedures to obtain approval for such transactions. Information regarding the mandate is available on the corporate website at www.sembcorpmarine.com.sg. All SBUs are required to be familiar with the IPT mandate and report any such transactions to the finance department. The finance department keeps a register of Sembcorp Marine’s interested person transactions. Information on interested person transactions for 2010 is found on page 197.

32

Risk Management

Sembcorp Marine adopts an integrated enterprise risk management (ERM) framework which comprises systems of internal controls and risk management policies, guidelines, procedures, processes and limits. The Group’s Directors and management staff are actively involved in various risk committees to set the direction and oversight for risk management in the Group.

Risk Management StructureThe Board Risk Committee (BRC) is delegated the authority by the Board of Directors to oversee the Group’s risk management strategies and key activities. To achieve this, the BRC conducts periodic reviews and discussions with management on major decisions in managing risks and in the process, adds rigour to the Group’s ERM framework. There were four BRC meetings held in the year, attended by key management staff from the Corporate Office and the strategic business units.

The ERM Committee is a management committee chaired by the President & Chief Executive Officer (CEO) and supported by the Chief Risk Officer who serves as the secretary. The ERM Committee comprises the strategic business unit heads and their chief risk officers as well as the corporate function heads. It updates the BRC regularly on material risk issues such as policy formulation as well as reviews risk profiles and treatment plans. The ERM Committee is supported by sub-committees, including the Group Health, Safety, Security and Environment (HSSE) Committee, Project Risk Management Committee and Finance Committee, which explore in-depth critical risk issues in their respective areas of specialisation.

A robust risk management framework and concerted efforts by Sembcorp Marine helped to ensure that the Group continues to deliver sustainable value to its shareholders in the year.

Safety and security drills as part of HSSE risk management.

Board of Directors

Board Risk Committee

Enterprise Risk Management Committee

Enterprise Risk Management

Sub-Committees


33

Risk Management SystemA Group risk management workplan was set at the start of the year and key activities that were carried out include:

• Reviewed and benchmarked the Group’s internal controls, risk and crisis management policies (against relevant principles and guidelines from the Committee of Sponsoring Organisations of the Treadway Commission, ‘COSO’ ERM Framework, ISO 31000 standard for risk management and SS540 - Singapore Standard for Business Continuity Management)

• Discussed recent risk-related case studies that are relevant to or have impact on the Group

• Reviewed Business Continuity Plans of strategic business units

• Discussed updates on market and industry trends and developments

• Shared best practices and topics of interest including presentations by external consultants

In addition, the Group reviewed its top risk profile as part of its annual risk management workplan. As a result of considerable changes in the overall global economic situation as well as industry-specific conditions, the annual review of the Group’s risk profile saw a re-shuffling of previously established key risks and identification of new and emerging ones. The identified key risks and their mitigation strategies are discussed in the following sections.

Key Risks and Mitigation StrategiesExternal Environment RisksExternal environment risks that are significant to the Group include volatility in the commodity markets particularly oil, the state of the global economy and trade, the stability of the global financial and banking systems, foreign exchange fluctuations, government policies and actions, regulatory landscape, and natural disasters.

The Group has emerged largely unscathed from the global economic crisis. While the crisis had cast doubt over some of the Group’s projects due to customers running into financial difficulties, these projects have since been resolved satisfactorily with new buyers coming onboard. Further signs of the global economic recovery include the increasing risk appetites of industry players and the easing of the

credit crunch situation. As a result, there was a pick up in new orders for the Group in the later part of the year.

To address the trend of stricter transfer pricing enforcement in an increasing number of tax jurisdictions, the Group embarked on a transfer pricing exercise in 2010. The transfer pricing exercise, scheduled for completion in 2011, seeksto defend the Group’s cross-border related partytransactions and pricing by demonstrating compliance with the arm’s length principle and involves all strategic business units.

Through the risk management process, the Group continuously monitors its risk exposures along with changes in the external environment and assesses the potential threats and impacts to its business. However, it recognises that such risks are inherently volatile and unpredictable and cannot be eliminated. The Group thus adopts a balanced risk management approach to mitigate these risks to reasonable levels, taking into account its risk appetite.

Strategic RisksStrategic risks pertaining to the Group’s performance, customers, markets, industry trends, competition and new business initiatives are discussed at both the BRC and ERM Committee meetings.

In the annual strategic planning meeting at the Board level, these risks are considered in the strategies formulated to steer the Group to the next level of growth.

Health, Safety, Security and Environment RisksThe Group continues to place paramount importance in promoting a safe and healthy work environment for its customers, employees, contractors and the community. This is championed by the Group HSSE Committee, a sub-committee of the ERM Committee, involving key health, safety, security and environment personnel from all the yards. The HSSE Committee sets the direction and ensures adoption of leading industry practices across the Group. Among other things, it also closely monitors the Group’s safety performance and reports regularly to the BRC and ERM Committee.

34

To foster a strong safety culture, the Group has put in place a performance appraisal system which includes safety as an integral part of management’s key performance indicators. This demonstrates the importance of safety across the Group. The Workplace Safety and Security section of this annual report further illustrates the activities carried out in the year to mitigate HSSE risks.

Project Management RisksAs the Group’s main business activities relate to its projects, a significant proportion of the risks reside in the day-to-day operational activities of project management and construction execution. The Group’s ability to deliver its projects on time or ahead of schedule, within budget and meeting quality standards, demonstrates the effectiveness of risk management actions embedded in the systems and processes. This way, contractual obligations can be met and yard defaults avoided.

Another aspect lies with third-party stakeholders such as suppliers, vendors and contractors which the Group relies on for their services and goods. Should they fail to fulfil their obligations, the Group’s ability to honour its own contractual obligations to

customers on a timely basis will be compromised. This is especially so if there are limited substitutes, in particular for specialised equipment. Such shortfalls will in turn, subject the Group to claims and liabilities. While the Group continues to work with third parties, the stringent selection criteria and processes, coupled with constant monitoring and assessment, allow for warning signs to be flagged out timely.

The Project Risk Management Committee is another sub-committee of the ERM Committee. Chaired by the President & CEO, it provides a platform for the strategic business units across the Group to report and discuss project-related issues such as progress, costs, work variations, financial and contractual matters. Where circumstances allow, the strategic business units will collaborate to realise synergies such as the rationalisation of resources for better performance of contracts.

Financial RisksThe Group’s wide range and scale of core businesses and supporting activities expose it to various financial counterparties and risks which are intrinsically linked to the global financial market landscape. Policies and procedures covering key areas – treasury,

Successful upgrading and refurbishment of cruise ship Pacific Pearl for Carnival Australia.

Risk Management


35

foreign exchange hedging, credit, accounting, inter-company transactions and approval limits for various transactions – have been established and implemented throughout the Group.

These policies set out guidelines to minimise the Group’s cost of capital, adverse effects of fluctuations in foreign currencies and interest rates on income as well as to ensure that sufficient funds are available to meet financial obligations and operational needs.

The Finance Committee (a sub-committee of the ERM Committee) is tasked to look into areas of financial system integrity, regulatory reporting, accounting, risk management and compliance systems, including internal and external audit issues. It is chaired by the Chief Financial Officer and comprises key finance personnel from the strategic business units and corporate functions of treasury, tax, internal audit and risk management.

The Group’s financial risk management is discussed in detail in Note 40 to the financial statements.

Human Resource RisksIt is important to have the right people with the requisite qualifications, skills and expertise to realise the Group’s strategic business plans. Recognising this, the Group actively recruits and retains talent to maintain and enhance its competitive edge. In this respect, there are comprehensive human resource policies and procedures in place for recruitment, compensation and staff development. Key risk areas include management succession, staff turnover, work-life balance as well as compensation and benefits. The Group’s human resource activities are discussed in detail in the People-Centredness section of this report.

Investment RisksThe Group seeks to grow its business through acquisition of business entities or operating assets, development of new capabilities and expanding its existing capabilities and activities. Investment activities, ranging from the identification of targets to the undertaking of due diligence exercises, are supported by a team of experienced managers and augmented by external professionals for specialised services. Business proposals are risk assessed and evaluated by senior management before seeking Board of Directors’ approval.

New investments, such as the Integrated New Yard Facility at Tuas View Extension, the new shipyard in Espirito Santo, Brazil and the joint-venture partnership with Kakinada Seaports, India, are continuously monitored and followed up against plans and budgets, for smooth execution and implementation.

Other Group-wide Risk-based ActivitiesArising from the annual risk review and regular risk assessments to manage key risks, other risk mitigation activities are Control Self Assessment (CSA) and Insurance Programmes:

Control Self Assessment The Group started its CSA programme in 2008. It is principled on risk-based governance with the following goals:• raise awareness amongst staff for the risks and

controls they are responsible for• promote ownership and accountability through

identifying the process and control owners in the selected CSA processes

• establish a verifiable framework for management to gauge the effectiveness of internal controls and subsequently enable improvements on control weaknesses identified

Currently, all the strategic business units have embarked on this programme, each with their CSA managers working closely with the Group in terms of implementation for new CSA areas and processes, training, reporting and auditing. The Group will continue to report to the BRC and ERM Committee on its implementation and progress.

InsuranceThe Group uses insurance as a risk transfer tool against possible losses in the normal course of its business. Where possible, to benefit from economies of scale and bargaining power, insurance is procured on a Group basis.

The Group works closely with its insurance brokers to achieve optimal coverage at the best prices available based on its risk profile, risk management capabilities and self-insuring capacity.

36

Investor Relations and Communications

Proactive Communication with Shareholders The Group’s management and Investor Relations (IR) team continued to maintain regular two-way communication with the investment community. On top of quarterly results announcements, one-on-one meetings, conference calls, roadshows, conferences, post-results luncheon meetings and yard tours involving analysts and fund managers were held during the year. These provided the investors with a better understanding of the Group’s financial results, the dynamics of the business, group performance and outlook of the industry.

In the year, the Group held about 90 one-on-one and group meetings with local and foreign institutional fund managers. These meetings excluded the Group’s participation at 13 conferences in Singapore and conference calls with investors. To stay in touch with institutional investors, non-deal road shows were held in Hong Kong, Tokyo, London and USA.

In addition, 12 shipyard tours were conducted for local and foreign fund managers and analysts to give them a better understanding of the Group’s operations. The event calendar on page 38 details the events participated by the Group in the year.

Research reports written by analysts, as well as feedback from investor meetings, provided management with insights into the investment community’s views of Sembcorp Marine, which were useful for managing market expectations and formulating corporate policies.

Sembcorp Marine adopted a pro-active approach in reaching out to investors and shareholders, and ensuring regular, fair and timely communication at all times. The Group was also committed to fostering long-term relationships with the investment community while upholding high corporate transparency standards.

Interaction with analysts at a results briefing.

Fund managers at a yard tour to gain a better understanding of the Group’s operations.


37

It is important to reach out to Sembcorp Marine’s retail investor base. The last Annual General Meeting (AGM), which took place on 20 April, was wellattended by about 200 shareholders and observers. The Chairman, Board members and senior management were in attendance at the AGM to respond to questions and feedback from shareholders. Shareholders present had the opportunity to clarify or pose questions on issues pertaining to the proposed resolutions before the resolutions were voted on. At the luncheon reception held after the event, the Board of Directors and management also mingled and interacted with the shareholders to address further concerns or issues.

Timely and Fair DisclosureDuring the year, Sembcorp Marine continued to communicate with shareholders in a timely and fair manner as well as provide comprehensive information disclosure. Since FY2003, the Group has been announcing quarterly financial results within 45 days of the close of the previous quarter to provide timely information to investors.

Press and analyst briefings were organised on the dates in line with the half-year and full-year results announcements. All the meetings were chaired by the President & CEO who, together with the senior management team in attendance, replied to queries with regard to the Group’s performance and industry outlook.

All material information including quarterly results announcements are disclosed regularly and on a timely basis via SGXNET and the Group’s website. These announcements include the award of key contracts, significant milestones such as opening of new yards and investments or acquisitions.

The Group also maintains a dedicated IR section within the corporate website, www.sembcorpmarine.com.sg,to ensure timely and fair disclosure. The corporate website serves as a key resource for stakeholders as it offers a breadth of information including an overview of the Group’s business, company newsletters, and press releases as well as current and past annual reports and SGX announcements. To obtain prompt updates on the announcements by the Group, retail investors can also sign up for investor alerts on the website.

Diverse Shareholder BaseAs set forth in the Shareholders’ Information on page 40, there are 17,201 registered shareholders as at 3 March 2011. The actual number of investors is likely to be greater due to shares being held through nominees, investment funds and other share schemes.

Based on an analysis of Sembcorp Marine’s share register, besides Sembcorp Industries as a major shareholder, about 30.5 per cent of the Group’s

Combined analyst and media results briefing in progress.

38

Investor Relations and Communications

2010 INVESTOR RELATIONS CALENDAR

First Quarter (Jan – Mar) Second Quarter (Apr – Jun) Third Quarter (Jul – Sep) Fourth Quarter (Oct – Dec)

•

•

•

•

•

•

Announcement of full year 2009 results with media and analysts briefing at corporate office at 29 Tanjong Kling Road, SingaporePost-results luncheon meeting with fund managers organised by CLSAParticipation in DBS Vickers Pulse of Asia Conference in SingaporeParticipation in Nomura Day Conference in SingaporeParticipation in Macquarie Investors’ Conference in SingaporeParticipation in Pareto Conference in Singapore

•

•

•

•

Announcement of 1Q 2010 results by conference callParticipation in Merrill Lynch Conference in SingaporeParticipation in Deutsche Bank Asia Conference in Singapore47th Annual General Meeting & Extraordinary General Meeting at corporate office at 29 Tanjong Kling Road, Singapore

•

•

•

•

•

Announcement of first half 2010 results with media and analysts briefingParticipation in Merrill Lynch Luncheon presentationParticipation in DBS Vickers Pulse of Asia ConferenceParticipation in BNP Paribas Conference in SingaporeParticipation in UBS Investors Conference in Singapore

•

•

Announcement of 3Q 2010 results by conference callParticipation in Morgan Stanley Conference in Singapore

shareholding was held by institutional investors and 7.3 per cent held by retail shareholders and others as at December 2010. The institutional investors were well distributed across more than 29 cities in the United States of America, Europe, United Kingdom, Canada, Australia, New Zealand, Japan, Hong Kong, Malaysia and Singapore.

This diversification in the shareholdings improves liquidity and helps ensure fair valuation by reference to market conditions and the Group’s operating performance.

Strong Shareholder ReturnSembcorp Marine continued to deliver sustained value to its shareholders in the year. For the financial year 2010, the total shareholder return was 56 per cent, comprising a dividend yield of 10 per cent and capital gains of 47 per cent.

As at 8 March 2011, the market capitalisation of Sembcorp Marine was approximately $12 billion, based on a closing share price of $5.89. In 2010, the highest share price was $5.40, with the lowest share

price at $3.23 and the closing share price at $5.37. Average daily turnover was 5.6 million shares in 2010and 6.2 million shares from January 2011 to 16 March 2011. The graph on page 41 shows the share price and turnover in 2010 and from January to February 2011.

Awards and AccoladesThe Group’s investor relations efforts were again recognised by the investment community. At the 11th Investors’ Choice Awards organised by the Securities Investors Association of Singapore in October 2010, Sembcorp Marine was honoured for its continuous commitment in upholding high standards of corporate transparency. The Group was accorded the Most Transparent Company (Non-electronics Manufacturing category) Runner-up Award in recognition of the company’s open communication and voluntary disclosure to shareholders.

Investor Relations (IR) Magazine also recognised Sembcorp Marine with a Certificate of Excellence for Investor Relations at the annual IR Magazine South East Asia Conference & Awards.


The delivery of West Orion ahead of original contract schedule is another steadfast testimony of Jurong Shipyard’s global leadership position in the turnkey construction of ultra-deepwater semi-submersible rigs.

West Orion marks the sixth unit of a series of 6th generation Friede & Goldman ExD Millennium Class dynamic positioning semi-submersible rigs that Jurong Shipyard has delivered on or ahead of schedule. Capable of operating in harsh-environment drilling conditions in most of the world’s challenging deepwater arenas, the state-of-the-art rig is bound for development drilling operations offshore Brazil under a 6-year charter with Petrobras.

DELIVERED AHEAD OF ORIGINAL CONTRACT SCHEDULE • BOUND FOR BRAZIL

Another Milestone Achievement

BOP crane equipped with Offline Casing Capabilities• Allows casing building

activities off the main load path for greater efficiency during drilling operations.

Direct Acting Riser Tensioners with Tripsaver• For tripping of the riser string off

the well centre.

Well Centre• Fully-automated well centre.

Vertical Riser Storage• More efficient usage of deck space.

Drillers’ Control Cabin• Equipped with advanced zone

management system for safer and more efficient drilling operations.

Galley & Mess Hall• Full-service kitchen facilities.

Thrusters & Dynamic Positioning Capabilities• Equipped with eight thrusters for

propulsion and station keeping.• DP2 enhanced.

Key Features of the West Orion:

40

Shareholders’ Information

Statistics of Shareholdings as at 3 March 2011 Share CapitalIssued and Fully Paid Up Capital : S$460,582,400.03Number of Issued Shares : 2,080,274,596Number of Shareholders : 17,201Class of Shares and Voting Rights : Ordinary shares with equal voting rights

Shareholding Held in Hands of PublicBased on information available to the Company as at 3 March 2011, 37.58% of the issued ordinary shares of the Company (excluding ordinary shares held in treasury) is held in the hands of the public and therefore, Rule 723 of the Listing Manual issued by SGX-ST is complied with.

Substantial Shareholders

Substantial ShareholdersNumber of Shares

Direct Interest %1 Deemed Interest %1

Sembcorp Industries Ltd (SCI) 1,265,370,764 61.00 – – Temasek Holdings (Private) Limited – – 1,275,257,208 2 61.48

List of 20 Largest Registered ShareholdersNo. Name No. of Shares %**

1 Sembcorp Industries Ltd 1,265,370,764 61.00

2 Citibank Nominees S'pore Pte Ltd 248,253,234 11.97

3 HSBC (Singapore) Nominees Pte Ltd 92,596,667 4.46

4 DBSN Services Pte Ltd 91,830,735 4.43

5 DBS Nominees Pte Ltd 77,505,103 3.74

6 Raffles Nominees (Pte) Ltd 35,994,331 1.74

7 United Overseas Bank Nominees 28,934,517 1.39

8 Morgan Stanley Asia (S’pore) 12,231,740 0.59

9 DB Nominees (S) Pte Ltd 10,324,177 0.50

10 BNP Paribas Secs Svcs S’pore 9,308,428 0.45

11 Tan Kwi Kin 8,653,010 0.42

12 Royal Bank of Canada (Asia) Ltd 4,362,000 0.21

13 IHI Marine Co., Ltd 4,000,000 0.19

14 Merrill Lynch (S’pore) Pte Ltd 3,040,952 0.15

15 OCBC Nominees Singapore 3,018,100 0.15

16 UOB Kay Hian Pte Ltd 2,757,800 0.13

17 OCBC Securities Pte Ltd 2,698,847 0.13

18 Phillip Securities Pte Ltd 2,605,644 0.13

19 BNP Paribas Nominees S’pore Pte Ltd 2,596,842 0.13

20 IHI Marine United Inc 1,800,000 0.09

Total 1,907,882,891 91.97

Location of ShareholdersLocation of Shareholders

No. of Shareholders % No. of

Shares %

Singapore 16,632 96.69 2,066,781,352 99.35

Malaysia 300 1.74 3,075,716 0.15

Hong Kong 33 0.19 359,100 0.02

Japan 4 0.02 5,842,000 0.28

US 25 0.15 143,200 0.01

UK 17 0.10 221,000 0.01

Europe 3 0.02 10,200 0.00

Australia/New Zealand 60 0.35 1,088,000 0.05

Others 127 0.74 2,754,028 0.13

Total 17,201 100.00 2,080,274,596 100.00

Distribution of ShareholdingsSize of Shareholdings

No. of Shareholders % No. of Shares %

1 – 999 681 3.96 313,463 0.02

1,000 – 10,000 13,653 79.37 49,115,185 2.36

10,001 – 1,000,000 2,840 16.51 110,021,634 5.29

1,000,001 and above 27 0.16 1,920,824,314 92.34

Total 17,201 100.00 2,080,274,596 100.00

** The percentage of issued ordinary shares is calculated based on the number of issued ordinary shares of the Company as at the LPD on 3 March 2011 excluding 5,311,000 ordinary shares held as treasury shares and 572,168 ordinary shares purchased or acquired by the Company before the LPD which, on settlement, are held as treasury shares after the LPD.

Notes1 Based on 2,080,274,596 Shares in issue as at the Latest Practicable Date (“LPD”) on 3 March 2011 excluding 5,311,000 ordinary shares held as treasury shares

and 572,168 ordinary shares purchased or acquired by the Company before the LPD which, on settlement, are held as treasury shares after the LPD.2 Temasek is deemed to be interested in the 1,265,370,764 Shares held by SCI and 9,886,444 Shares held by companies in the Temasek group.

@ Ordinary shares purchased and held as treasury shares by the Company will have no voting rights.


41

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490

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Share Price / ST Index (’000)

J F M A M J J A S O N D2006




J F M A M J J A S O N D J F2010 2011

Turnover High Low ST index

SHARE PRICES AND MONTHLY VOLUMES

Investor Data

2006* 2007* 2008 2009 2010

Earnings Per Share (cents) 11.71 11.72 20.83 34.02 41.55

Total Dividend Per Share

(cents)8.93 8.73 11.01 15.00 36.00

Share price ($)

High 2.56 4.64 4.73 3.76 5.40

Low 1.89 2.30 1.15 1.30 3.23

Close 2.27 3.54 1.68 3.70 5.37

Turnover

Volume (Million share) 1,305 2,257 2,159 1,939 1,292

Value ($Million) 2,906 7,936 6,271 4,697 5,463

Net Tangible Asset Per Share (cents)

64.64 80.76 63.81 90.97 124.80

*Adjusted for 2 bonus shares for every 5 ordinary shares.

42

Financial Calendar

Financial Year 2011Announcements of Results & Dividends

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

2010 Full Year Feb 23

Quarter 1, 2011 May 9

Quarter 2, 2011 Aug 2

Quarter 3, 2011 Nov 3

2010 Final Dividend Payment May 11

Delivery of Annual Report Mar 31

Delivery of EGM Notice Mar 31

Annual General Meeting/ Extraordinary Meeting Apr 20

Financial Year 2010Announcements of Results & Dividends

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

2009 Full Year Feb 22

Quarter 1, 2010 May 7

Quarter 2, 2010 Aug 3

Quarter 3, 2010 Nov 4

2009 Final Dividend Payment May 10

Delivery of Annual Report Mar 25

Delivery of EGM Notice Mar 25

Annual General Meeting/ Extraordinary Meeting Apr 20


43

Corporate Directory

Registered Office29 Tanjong Kling Road, Singapore 628054Telephone : (65) 6265 1766Fax : (65) 6265 0201/ (65) 6261 0738Website : www.sembcorpmarine.com.sgE-mail : [email protected]

Share RegistrarKCK Corpserve Pte Ltd333 North Bridge Road#08-00 KH Kea BuildingSingapore 188721

AuditorKPMG LLPPublic Accountants and Certified Public AccountantsSingaporeAudit Partner : Tan Wah Yeow(appointed during the financial year ended 31 December 2008)

Principal BankersDBS Bank LtdOversea-Chinese Banking Corporation LimitedStandard Chartered BankThe Hongkong and Shanghai Banking Corporation LimitedUnited Overseas Bank Limited

Share ListingSembcorp Marine’s shares are listed on the Singapore Exchange Securities Trading Limited

Joint Company SecretariesTan Yah SzeKwong Sook May

Corporate Office Building at 29 Tanjong Kling Road.

44

Corporate Structure

West Elara, a work-in-progress CJ70 harsh-environment jack-up rig at Jurong Shipyard.


45

Singapore Shipyards

100%

100%

100%

85%

100%

100%

85%

Supporting Companies Research & DevelopmentOverseas Shipyards

100%

90%

30%

100%

19.9%

100%

Sembcorp Marine

Jurong Marine Contractors Pte Ltd

Dolphin Shipping Company Pte Ltd

Shanghai Jurong Marine Engineering & Technology Co. Ltd (People’s Republic

of China)

Bulk Trade Pte Ltd

JPL Industries Pte Ltd

Jurong Marine Services Pte Ltd

Shenzhen Chiwan Offshore Petroleum Equipment Repair & Manufacture Co. Ltd (People’s Republic of China)

100%

100%

70%

100%

85.8%

100%

35%

Estaleiro Jurong Aracruz Ltda (Brazil)

P.T. SMOE Indonesia(Indonesia)

Cosco Shipyard Group Co Ltd(People’s Republic of

China)

P.T. Karimun Sembawang Shipyard(Indonesia)

Sembmarine Kakinada Ltd (India)

Sembcorp-Sabine Industries Inc.(USA)

Jurong SML Pte Ltd

Jurong Shipyard Pte Ltd

Sembawang Shipyard Pte Ltd

PPL Shipyard Pte Ltd

SMOE Pte Ltd

Sembcorp Marine Technology Pte Ltd

Baker Marine Pte Ltd

as at 8 March 2011

46

Awards and Accolades

In 2010, Sembcorp Marine received a number of awards and accolades. These honours were testament to the high standards of business excellence and corporate transparency upheld by the Group as well as its steadfast commitment to safety, innovation and corporate social responsibility.

Corporate Governance and TransparencySIAS Investors’ Choice AwardsMost Transparent Company Award (Non-Electronics Manufacturing) Runner-up: Sembcorp Marine Award by Securities Investors Association of Singapore (SIAS) in recognition of Sembcorp Marine’s high standards of corporate governance and transparency.

Investor Relations (IR) Magazine South East Asia AwardsCertificate of Excellence: Sembcorp Marine Award by IR Magazine in recognition of Sembcorp Marine’s excellence in investor relations.

Corporate Social ResponsibilityWork-Life Excellence AwardWinner: Sembcorp MarineAward conferred by the Tripartite Committee on Work-Life Strategy in recognition of Sembcorp Marine’s achievement in driving work-life harmony across the Group.

Business ExcellenceSingapore International 100 13th place: Sembcorp MarineRanking based on foreign revenue contribution in DP Information Group’s 2010 Singapore 100 Ranking, supported by IE Singapore and SPRING Singapore.

Seatrade Asia AwardsRepair Yard Award Winner: Sembawang ShipyardAward by Seatrade Asia to Sembawang Shipyard for its achievement as a world leader in ship repair and proven expertise in delivering timely cost-competitive solutions.

Repair Yard Award Finalist: Jurong ShipyardRecognition for Jurong Shipyard’s vast expertise in ship repair and upgrading, strong quality focus and commitment to health, safety, security and environment.

Offshore Yard Award Finalists: Jurong Shipyard and PPL ShipyardRecognition for Jurong Shipyard’s and PPL Shipyard’s strong expertise in offshore and marine engineering as well as commitment to delivering quality, timely and innovative solutions.

SME Fastest Growing 5035th place: PPL Shipyard Ranking based on three-year compounded annual growth rate in DP Information Group’s 2010 SME Fastest Growing 50 ranking, supported by IE Singapore and SPRING Singapore.


47

Safety, Health and Innovation

National Workplace Safety and Health (WSH) AwardsSafety and Health Award Recognition for Projects Winners: Jurong Shipyard and Sembawang Shipyard

Recognition by the Ministry of Manpower for excellent safety and health performance achieved by Jurong Shipyard’s projects (ARB-3, Atwood Osprey, FPSO PSVM, FPSO Kwame Nkrumah MV21, Noble Jim Day, PetroRig III, SeaDragon I, Songa Eclipse, West Elara, West Orion) and Sembawang Shipyard’s projects (ARV 1, Dynamic Producer, Flintstone).

WSH Innovation Award (Marine) Winners: Jurong Shipyard, Sembawang Shipyard and PPL Shipyard Awards to Jurong Shipyard’s Super Trolley project, Sembawang Shipyard’s High Definition Lifeboat/ Rescue Boat Cradle project and PPL Shipyard’s Claminator project, for improving safety and health standards in the workplace.

WSH Practices Award (Outstanding Achievement and Innovation) Winner: Sembawang Shipyard WSH Practices Award (Innovation)Winner: PPL Shipyard Recognition for Sembawang Shipyard’s Safe Swinger project and PPL Shipyard’s Pipe Transporter project, which reflect the yards’ commitment in eliminating or controlling WSH hazards and promoting innovation.

ASMI WSH Innovation Award for Marine Industry Gold Award: Jurong Shipyard (LIFE Team)Silver Awards: Sembawang Shipyard (CSI: Next Gen 2 Team and Hull Team B) Awards by the Association of Singapore Marine Industries to recognise Jurong Shipyard’s OctoMaster project as well as Sembawang Shipyard’s Emergency Evacuation System and Safe Access Handler projects for enhancing WSH standards.

National Safety and Security Watch Group Award Cluster Award Category Winner: Jurong ShipyardRecognition at the annual National Safety and Security Watch Group Symposium organised by the Singapore Police Force for Jurong Shipyard’s active involvement in safeguarding community safety and security.

H.E.A.L.T.H. Award

Platinum Award: Sembawang ShipyardAward by the Health Promotion Board to Sembawang Shipyard for demonstrating tangible results from its workplace health promotion programme and achieving at least two Gold Awards consecutively.

Financial and Operations Review

48

Aerial view of Sembawang Shipyard.


49

TurnoverThe Group registered a turnover of $4.6 billion in 2010, 20 per cent lower than $5.7 billion in 2009. The decline in revenue was due mainly to lower progressive recognition for rig building, ship conversion & offshore projects as well as lower variation order settlement in 2010 as compared to 2009.

EarningsGroup operating profit grew 9 per cent from $862 million to $943 million, attributable to the resumption of margin recognition arising from the sale of a harsh-environment jack-up rig as well as the execution of repeat rig orders for customers during the year.

Group net profit achieved a new high of $860 million. The 23 per cent growth was attributable to higher profit margin and the receipt of settlement of the disputed foreign exchange transactions with Societe Generale during 2010.

Financial Position

Total capital employed grew from $2.0 billion as at 31 December 2009 to $2.7 billion as at 31 December 2010. Of the total capital employed, shareholders’ funds amounted to $2.6 billion, 38 per cent higher than 2009, while non-controlling interests amounted to $88 million. Net asset value per share grew 37 per cent to $1.25.

Bank balances, fixed deposits and cash increased significantly to $2.9 billion mainly due to receipts from completed rig building projects.

Shareholder ReturnsEarnings per share increased to 41.55 cents in 2010 from 34.02 cents in 2009. Return on equity, at 38 per cent, was lower in 2010 as compared to 44 per cent in 2009.

Subject to approval by shareholders at the 48th Annual General Meeting, a final one-tier tax-exempt dividend of 31 cents per ordinary share has been proposed by the Board of Directors for the financial year ended December 31, 2010. The final dividend per share comprised a final ordinary dividend of 6 cents and a special dividend of 25 cents. Including the interim one-tier tax-exempt dividend of 5 cents per share, total dividend per share for 2010 will be 36 cents per share.

Economic Value AddedThe Group generated a 12 per cent rise in economic value added (EVA) to $740 million in 2010, mainly driven by better Group earnings.

Sembcorp Marine delivered strong performance in 2010 – with a record high net profit of $860 million as compared to $700 million in 2009.

$4.6b Turnover

$943m Operating Profit

$860m Net Profit

$1.25 Net Asset Value

Per Share

$2.9b Net Cash

38% Return on Equity

36 cents Total Dividend

Per Share

$740m Economic

Value Added

Financial Review

50

$’000 2010 2009 % ChangeGroup Income StatementTurnover 4,554,863 5,724,742 (20)Profit

EBITDA 1,025,761 937,602 9 Operating Profit 942,564 862,354 9 Profit Before Tax 1,077,888 907,635 19 Net Profit 860,266 700,118 23

Group Balance SheetTotal Assets 5,279,170 4,687,548 13 Total Liabilities 2,592,244 2,727,140 (5)Net Tangible Assets 2,593,276 1,877,943 38

Shareholders’ Funds 2,599,403 1,884,070 38 Non-controlling Interests 87,523 76,338 15 Capital Employed 2,686,926 1,960,408 37

Fixed Deposits, Bank Balances & Cash 2,915,097 1,978,548 47 Interest-bearing Borrowings (8,000) (20,000) (60)Net Cash 2,907,097 1,958,548 48

Economic Value Added (EVA)NOPAT 899,085 782,220 15 Capital Charge 158,766 120,233 32 EVA 740,319 661,987 12 EVA Attributable to Ordinary Shareholders 711,629 608,099 17

Financial RatiosEarnings Per Share (EPS)

Basic (cents) 41.55 34.02 22 Diluted (cents) 41.43 33.93 22

Dividend Per Share One-tier Tax-exempt (cents) 36.00 15.00 140

Net Asset Value Per Share (cents) 125.10 91.27 37 Net Tangible Asset Per Share (cents) 124.80 90.97 37 Return on Turnover (%) 18.89 12.23 54 Return on Total Assets (%) 17.26 15.06 15 Return on Equity (%) 38.37 43.73 (12)

GROUP FINANCIAL HIGHLIGHTS

Financial Review


51

TURNOVER ($M)

20%4,555

5,725

2010

2009

OPERATING PROFIT ($M)

9%943

862

2010

2009

NET PROFIT ($M)

23%860

700

2010

2009

EVA ($M)

12%

740

662

2010

2009

BASIC EARNINGS PER SHARE (CENTS)

22%41.55

34.02

2010

2009

TOTAL DIVIDEND PER SHARE (CENTS)

140%36

15

2010

2009

SHAREHOLDERS’ FUNDS ($M)

38%2,599

1,884

2010

2009

43.73

RETURN ON EQUITY (%)

12%

2010

2009

38.37

52

Financial Review

2006Group turnover grew by 67 per cent from $2.1 billion to $3.5 billion driven mainly by growth in the rig building and ship repair businesses.

Group operating profit increased by 83 per cent from $125 million in 2005 to $228 million in 2006, while Group pre-tax profit rose by 95 per cent from $160 million to $311 million. This improvement was attributable mainly to better operating margins from the rig building and ship repair businesses, gain on disposal of investments as well as higher contribution from associates. Group net profit increased by 96 per cent from $121 million to $238 million. Excluding the non-operating items of $21 million, Group net profit rose by 83 per cent to $218 million.

2007Group turnover for 2007 grew by 27 per cent from $3.6 billion in 2006 to $4.5 billion in 2007 with growth attributable mainly to the rig building, ship repair, offshore and conversion businesses.

Group operating profit grew by 53 per cent from $228 million in 2006 to $349 million in 2007. Group pre-tax profit increased by 17 per cent from $311 million in 2006 to $365 million in 2007. The increase was mainly attributable to higher turnover and operating margin from rig building and ship repair businesses, better contribution from associates, and gain on sale of other long-term equity investment amounting to $230 million. This was offset by the $308 million charged to the income statement arising from the Unauthorised Transactions and its related expenses (“the Charge”). Excluding the effect arising from the Unauthorised Transactions, pre-tax profit increased 117 per cent to $673 million.

Notwithstanding the Charge of $308 million to the fourth quarter 2007 income statement, net profit increased from $238 million in 2006 to $241 million in 2007. Excluding the Charge and non-operating items, Group net profit reported a 66 per cent increase to $362 million.

2008Group turnover rose 12 per cent from $4.5 billion in 2007 to $5.1 billion in 2008 driven mainly by rig building, ship conversion & offshore and ship repair businesses.

Group operating profit increased by 44 per cent from $349 million in 2007 to $502 million in 2008. Group pre-tax profit grew 49 per cent from $365 million in 2007 to $545 million in 2008. The increase was attributable to the higher revenue and operating margin from rig building and ship repair businesses, offset by the lower contributions from Cosco Shipyard Group.

Group net profit increased by 78 per cent from $241 million to $430 million in 2008. Excluding the one-off charge of $44 million arising from the commercial settlement with BNP Paribas of foreign exchange transactions in 2008, Group net profit at $474 million was 31 per cent higher than the net profit in 2007.

2009Group turnover registered a high at $5.7 billion in 2009, an increase of 13 per cent attributable mainly to growth from the rig building sector.

Group operating profit increased by 72 per cent to $862 million in 2009 from $502 million in 2008 mainly due to better operational efficiency and execution of repeat rig orders. Group pre-tax profit grew by 67 per cent from $545 million in 2008 to $908 million in 2009, attributable mainly to the higher operating margin from rig building projects.

Group net profit increased by 63 per cent to $700 million in 2009 from $430 million in 2008.

2010Group turnover of $4.6 billion was 20 per cent lower than that of the previous year due mainly to lower progressive revenue recognition for the rig building, ship conversion & offshore projects as well as lower variation order settlement in 2010 versus 2009.

Group operating profit grew by 9 per cent to $943 million, from $862 million in 2009. The increase was due to the resumption of margin recognition arising from the sale of a harsh-environment jack-up rig as well as the execution of repeat rig orders for customers during the year. Group pre-tax profit rose 19 per cent from $908 million to $1.1 billion, the highest achieved by the Group. The increase was attributable to higher profit margin and the receipt of settlement of the disputed foreign exchange transactions with Societe Generale during the year.

Group net profit increased by 23 per cent to a record $860 million, from $700 million in 2009.

GROUP FIVE-YEAR PERFORMANCE REVIEW


53

For the year 2006 2007 2008 2009 2010$’000 $’000 $’000 $’000 $’000

Turnover 3,545,049 4,513,123 5,063,948 5,724,742 4,554,863

Operating Profit 228,233 349,029 501,837 862,354 942,564 Profit Before Tax 310,871 364,721 544,958 907,635 1,077,888 Net Profit 238,388 240,989 429,918 700,118 860,266

Dividend - Interim 40,867 73,783 102,906 103,124 103,795 Dividend - Final 142,483 106,353 123,542 124,486 124,674 Dividend - Final Special - - - 82,990 519,476

Dividend - Total 183,350 180,136 226,448 310,600 747,945

Group Balance SheetProperty, Plant and Equipment 679,024 675,585 697,702 678,361 681,948 Associates & Joint Ventures 147,255 205,502 269,609 267,774 306,956 Other Long Term Investments 346,987 689,554 138,376 165,783 286,856 Other Long Term Assets 69,583 45,990 70,611 57,789 103,258 Current Assets 2,186,652 2,846,216 3,435,519 3,517,841 3,900,152 Current Liabilities (1,690,896) (2,397,423) (3,111,640) (2,635,282) (2,448,773)Long Term Liabilities (368,382) (359,708) (140,218) (91,858) (143,471)

1,370,223 1,705,716 1,359,959 1,960,408 2,686,926

Share Capital 418,631 442,549 443,347 443,347 456,561 Capital, Foreign Currency Translation and Other Reserves 209,093 502,173 (81,359) 22,515 175,888

Retained Profits 710,615 735,338 955,997 1,418,208 1,966,954 Non-controlling Interests 31,884 25,656 41,974 76,338 87,523

1,370,223 1,705,716 1,359,959 1,960,408 2,686,926

Per ShareEPS - basic (cents) 11.71* 11.72 20.83 34.02 41.55 EPS - diluted (cents) 11.42* 11.63 20.72 33.93 41.43 Net Tangible Asset (cents) 64.64* 80.76 63.81 90.97 124.80 Net Asset Value (cents) 65.30* 81.13 64.11 91.27 125.10

Financial RatiosReturn on Equity (%) 19.83 15.97 28.68 43.73 38.37 Return on Total Assets (%) 8.28 6.11 9.48 15.06 17.26 Operating Profit/Equity (%) 18.99 23.13 33.48 53.86 42.05 Current Ratio (times) 1.29 1.19 1.10 1.33 1.59 Net Gearing (times) Net cash Net cash Net cash Net cash Net cash Dividend Cover (times) 1.30 1.34 1.90 2.25 1.15

* Adjusted for two bonus shares for every five existing ordinary shares.

GROUP FIVE-YEAR FINANCIAL SUMMARY

54

Financial Review

TURNOVER AND OPERATING PROFIT

Op Profit$’million

TurnoverOperating Profit

Turnover$’million

7000 _

6000 _

5000 _

4000 _

3000 _

2000 _

1000 _

0 _

_ 1200

_ 1000

_ 800

_ 600

_ 400

_ 200

_ 0

2006 2007 2008 2009 2010

5,725

4,555

5,064

3,545

228.2

349.0

4,513

501.8

862.4942.6

OPERATING AND GROSS PROFIT

% $’million

30 _

25 _

20 _

15 _

10 _

5 _

0 _

_ 1200

_ 900

_ 600

_ 300

_ 0

2006

8.36.4

228

295

2007

9.17.7

349411

2008

12.9

9.9

655

2009

17.2

15.1

862

986

2010

24.8

20.7

943

1,129

Operating Profit MarginGross Profit MarginOperating ProfitGross Profit

502

PROFIT BEFORE TAX ANDNET PROFIT

Profit Before Tax Net Profit

2006 2007 2008 2009 2010

$’million

310.9364.7

238.4

1200 _

1000 _

800 _

600 _

400 _

200 _

0 _

241.0

545.0

430.0

907.6

700.1

1,077.9

860.3

ECONOMIC VALUE ADDED (EVA)

$’million %

800 _

600 _

400 _

200 _

0 _

EVAWeighted Average Cost of Capital

_10

_ 8

_ 6

_ 4

_ 2

_ 0

2006 2007 2008 2009 2010

176.8152.5

355.7

662.0

740.3

5.96.3

6.6

6.06.3


55

RETURN ON EQUITY AND RETURN ON TOTAL ASSETS

Return on Equity (ROE)Return on Total Assets (ROTA)

ROE % ROTA %

50 _

40 _

30 _

20 _

10 _

0 _

_ 20

_ 15

_ 10

_ 5

_ 0

2006 2007 2008 2009 2010

19.8

16.0

28.7

43.7

38.4

8.3

6.1

15.1

17.3

9.5

Net Tangible Asset Per ShareNet Asset Value Per Share

NET ASSET VALUE ANDNET TANGIBLE ASSET PER SHARE

2006 2007 2008 2009 2010

cents

150 _

120 _

90 _

60 _

30 _

0 _

91.0

124.8

91.3

125.1

63.8 64.164.6 65.3

80.8 81.1

*FY dividend adjusted for two bonus shares for every five ordinary shares

DIVIDEND PER SHARE

cents

40 _

30 _

20 _

10 _

0 _ 2.00

6.93

2006

8.93*

2007

8.73

2008

11.00

2009

15.00

2010

5.00

6.00

25.00

36.00

5.00

6.00

5.00

6.00

4.00

3.57*

5.16

Interim Dividend Per ShareFinal Dividend Per ShareFinal Special Dividend Per Share

EARNINGS PER SHARE

cents

60 _

50 _

40 _

30 _

20 _

10 _

0 _

2006 2007 2008 2009 2010

11.71

15.2711.72

17.7420.83

26.40

34.02

44.10

41.55

52.06

EPS - After TaxEPS - Before Tax

56

Financial Review

LIABILITIES

$’million

4000 _

3000 _

2000 _

1000 _

0 _

20102006

2,059.3

2,757.1

3,251.8

2,727.22,592.3

2007 2008 2009

Current Liabilities Long Term Liabilities

1,690.9

2,397.43,111.6 2,635.3 2,448.8

91.9143.5

140.2

368.4

359.7

ASSETS

$’million

Property, Plant and EquipmentAssociates & Joint VenturesOther Long Term InvestmentsOther Long Term AssetsCurrent Assets

5500 _

5000 _

4500 _

4000 _

3500 _

3000 _

2500 _

2000 _

1500 _

1000 _

500 _

0 _

679.0 675.6

205.5

689.6

46.0

2,846.2

147.2

347.0

69.6

2,186.7

4,687.5

5,279.3

4,611.8

3,429.5

4,462.9

20102006 2007 2008 2009

697.7 678.4

269.6

138.470.6

3,435.5 3,517.8 3,900.2

57.8 286.9

103.3

307.0

681.9

165.8

267.8

Issued CapitalCapital, Foreign Currency Translation & Other ReservesRetained ProfitsNon-controlling InterestsReturn on Equity

SHAREHOLDERS’ FUNDS

20102006 2007 2008 2009

$’million

3000 _

2500 _

2000 _

1500 _

1000 _

500 _

0 _

-500 _

_ 50

_ 40

_ 30

_ 20

_ 10

_ 0

ROE%

456.5443.3443.3442.5

502.2

735.3710.6

31.9

209.1

418.6

25.7

956.0

42.0

-81.4

175.922.5

1,967.0

1,418.2

87.5

76.3

1,960.4

2,686.9

1,360.01,370.2

20

16

29

44

38

1,705.7


57

Note 1: The reported current tax is adjusted for the statutory tax impact of interest expense.

Note 2: Monthly average total assets less non-interest bearing liabilities plus timing provision, goodwill written off / amortised / impaired and present value of operating leases.

Note 3: The Weighted Average Cost of Capital is calculated in accordance with Sembcorp Industries Ltd Group EVA Policy as follows:

i) Cost of Equity using Capital Asset Pricing Model with market risk premium at 6.0% (2009: 6.0%);ii) Risk-free rate of 2.61% (2009: 2.08%) based on yield-to-maturity of Singapore Government 10 years Bonds; iii) Ungeared beta 0.7 (2009: 0.7) based on Sembcorp Industries risk categorisation; and iv) Cost of Debt rate at 4.15% (2009: 4.98%) using 5-year Singapore Dollar Swap Offered rate plus 175 basis point.

(2009: 5-year Singapore Dollar Swap Offered rate plus 300 basis point)

ECONOMIC VALUE ADDED2010 2009$’000 $’000

Net Operating Profit Before Tax 1,020,249 882,236Adjust for:

Share of Associates and Joint Ventures' Results 57,639 25,399 Interest Expenses 5,492 7,997 Others (4,605) 21,984

Adjusted Profit Before Interest and Tax 1,078,775 937,616

Cash Operating Taxes (Note 1) (179,690) (155,396)

NOPAT 899,085 782,220

Average Capital Employed (Note 2) 2,405,551 1,908,465

Weighted Average Cost of Capital (Note 3) 6.6% 6.3%

Capital Charge 158,766 120,233

EVA 740,319 661,987

Less: Non-controlling Interests 28,690 53,888

EVA Attributable to Ordinary Shareholders 711,629 608,099

58

VALUE ADDED STATEMENT2006 2007 2008 2009 2010$’000 $’000 $’000 $’000 $’000

Turnover 3,545,049 4,513,123 5,063,948 5,724,742 4,554,863

Less: Bought In Materials (2,957,566) (3,722,062) (3,993,848) (4,297,115) (3,001,594)

Gross Value Added From Operation 587,483 791,061 1,070,100 1,427,627 1,553,269

Investment, Interest & Other Income 79,514 292,629 67,140 67,222 60,025

Share Of Associates’ Results 40,923 74,075 56,995 17,549 53,648

Share Of Joint Ventures’ Results 3,441 7,718 8,305 7,850 3,991

Other Non-Operating Expenses (30,792) (20,143) (78,108) (31,836) (55,152)

Foreign Exchange Transactions – (302,922) (43,749) – 52,640

680,569 842,418 1,080,683 1,488,412 1,668,421

Distribution:

To Employees : Salaries, Wages & Benefits 299,052 379,897 429,895 482,128 481,267

To Government : Income & Other Taxes 73,880 130,198 111,677 166,809 202,335

To Providers of Capital :

Interest Paid on Borrowings 10,549 13,692 11,370 5,329 7,134

Dividends 122,362 216,266 209,259 226,666 311,271

Retained in Business :

Depreciation and Amortisation 45,514 66,353 70,592 75,248 83,197

Retained Profits 116,026 24,723 220,659 473,452 548,995

Non-controlling Interests 10,143 10,738 21,324 56,647 33,613

Non-Production Costs 3,043 551 5,907 2,133 609

Total Distribution 680,569 842,418 1,080,683 1,488,412 1,668,421

Average Number of Employees 7,592 9,570 10,330 9,515 9,233

Employment Costs 299,052 379,897 429,895 482,128 481,267

Value Added Per Employee 77.38 82.66 103.59 150.04 168.23

Employment Cost Per Employee 39.39 39.70 41.62 50.67 52.12

Value Added Per Employment Costs 1.96 2.08 2.49 2.96 3.23

Value Added Per Dollar Investment in 0.87 1.17 1.53 2.10 2.28

Property, Plant and Equipment

Value Added Per Dollar Turnover 0.17 0.18 0.21 0.25 0.34

Financial Review


59

PRODUCTIVITY RATIOS

Value Added Per $ Employment CostsValue Added Per Employee

PRODUCTIVITY RATIOS

Value Added Per $ Investment in Property, Plant EquipmentValue Added Per $ Turnover

DISTRIBUTION OF VALUE ADDED

Distribution to EmployeesDistribution to Providers of CapitalDistribution to Government

$’million

600 _

500 _

400 _

300 _

200 _

100 _

0 _

2006 2007 2008 2009 2010

73.9

130.2

230.0

379.9

429.9

482.1

220.6

111.7

166.8202.3

318.4

481.3

232.0

132.9

299.1

GROSS VALUE ADDED

$’million

1800 _

1500 _

1200 _

900 _

600 _

300 _

0 _

20102006

587

791

1,070

1,428

1,553

2007 2008 2009

0.87

_ 3.0

_ 2.5

_ 2.0

_ 1.5

_ 1.0

_ 0.5

_ 0

20102006

0.17

2007

0.18

1.17

2008

0.21 1.53

2009

0.25

2.10

0.34

2.280.40 _

0.30 _

0.20 _

0.10 _

0 _

VA Per $ Investment in PPE

VA Per $ Turnover

$’000

4.0 _

3.0 _

2.0 _

1.0 _

0 _

_ 200

_ 150

_ 100

_ 50

_ 0

2006 2007 2008 2009 2010

1.962.08

2.49

2.96

3.23

77.4 82.7

150.0

168.2

103.6

VA Per $ Employment Costs

VA PerEmployee

60

Operations Review and Market Outlook

Sembcorp Marine delivered another set of strong results in 2010 underpinned by its rig building, ship conversion & offshore as well as ship repair sectors. Turnover for the Group was $4.6 billion with the rig building sector contributing $3.0 billion, followed by the ship conversion & offshore sector at $820 million, the ship repair sector at $646 million, and others at $41 million.

Rig BuildingThe rig building sector remained the largest contributor, at 67 per cent, to the Group’s turnover in 2010. As one of the world’s leading builders of jack-up rigs and semi-submersibles, Sembcorp Marine delivered a total of ten rigs – seven jack-ups and three semi-submersibles.

Six proprietary Pacific Class 375 design jack-ups were delivered by PPL Shipyard, comprising the El Qaher I to Egyptian Offshore Drilling Company, Sneferu and Setty to Egyptian Drilling Company, Tam Dao 02 to Vietsovpetro, Kan Tan 6 to SINOPEC and West Leda to Seadrill; while Jurong Shipyard completed a newbuild heavy-lift jack-up barge, ARB-3, for Aramco Overseas Company. Three semi-submersible rigs were delivered during the year. These comprised two turnkey ultra-deepwater sixth-generation Friede & Goldman semi-submersibles – West Orion and PetroRig III – delivered by Jurong Shipyard to Seadrill and Grupo R respectively and Noble Jim Day, a Bingo 9000 semi-submersible rig built from a bare-deck hull for Noble Drilling.

During the year, Jurong Shipyard sold a CJ70 harsh-environment jack-up rig that was under construction to a subsidiary of Seadrill for US$356 million. The rig was originally ordered by another owner which went into liquidation in 2009.

Jurong Shipyard clinched two contracts during the year, comprising a US$384 million order by Seadrill for two turnkey jack-up rigs based on the Friede & Goldman JU2000E design and a US$400 million contract by Noble Corporation for two turnkey jack-up rigs based on the Friede & Goldman

TURNOVER BY SECTORS

Rig BuildingShip Repair Ship Conversion & Offshore Others

FY2010

$4.6 Billion

$5.7 Billion

FY2009

1%1%

14%18%

67%

23%

12%

64%


61

Delivery of PetroRig III, an ultra-deepwater semi-submersible, by Jurong Shipyard to Grupo R.Noble Jim Day, the second Bingo 9000 semi-submersible delivered by Jurong Shipyard to Noble Drilling.

2006

612

211

913

80

1,729

3,545

2007

73182

2,499

71

1,131

4,514

2008

795

2

1,354

2,840

73

5,064

2009

706

3,635

41

1,343

5,725

Ship Repair Ship Building Ship Conversion/Offshore Rig Building Others

$’million

6000 _

5000 _

4000 _

3000 _

2000 _

1000 _

0 _

2010

646

820

3,048

41

4,555

TURNOVER FROM CORE BUSINESSES (2006 – 2010)

62


JU3000N design. PPL Shipyard also secured four jack-up rig orders based on its latest proprietary Pacific Class 400 design, an extension of the yard’s Pacific Class 375 design. These included a US$195 million jack-up rig for Transocean and two newbuild jack-up rigs contracted by Atwood Oceanics at up to US$364 million. In January 2011, Atwood Oceanics exercised the first of its three jack-up options with PPL Shipyard at US$182 million.

Overall, the last quarter of 2010 and as at February 2011, the Group secured orders for eight jack-up rigs worth a total of $2.0 billion as well as ten jack-up rig options.

Ship Conversion & OffshoreThe ship conversion & offshore sector contributed $820 million in revenue, accounting for 18 per cent of the Group’s turnover. As a leading provider for the conversion of floating, production, storage and offloading (FPSO) systems and the turnkey engineering and construction of offshore platforms, the Group delivered three offshore conversions and one offshore platform project during the year.

Offshore conversions delivered by Jurong Shipyard included the FPSO Kwame Nkrumah MV21 – Ghana’s first FPSO vessel – to MODEC and the FPSO Montara Venture to Tanker Pacific Offshore Terminals. Another Milestone delivery of FPSO Kwame Nkrumah MV21, Ghana’s first FPSO,

by Jurong Shipyard to MODEC.

delivery was Sembawang Shipyard’s successful conversion of the Dynamic Producer, a dynamic positioning floating drilling production storage and offloading (FDPSO) vessel, within schedule to Petroserv S.A. Brazil. SMOE also completed the delivery of a harsh-environment platform project for the Halfdan B Phase IV Development at the North Sea, following its turnkey construction.

Pacific Class 375 jack-ups – (from left) El Qaher I, Setty and Kan Tan 6 – successfully delivered by PPL Shipyard.


63

Successful FDPSO conversion of Dynamic Producer by Sembawang Shipyard for Petroserv, Brazil.

The Group’s shipyards won another five FPSO contracts and one accommodation topside contract in 2010 and 2011. The FPSO conversion contracts awarded to Jurong Shipyard comprised a contract at approximately $130 million by Petrobras Netherlands for the pre-conversion of a Very Large Crude Carrier into the P62 FPSO vessel and a $351 million contract by Teekay Petrojarl Production for the conversion of the FPSO Petrojarl Cidade de Itajai from a tanker.

Sembawang Shipyard also won two contracts worth $75 million involving the floating production unit (FPU) conversion of a tanker for BW Offshore and the upgrading of the FPSO Glas Dowr for Bluewater Energy Services. In January 2011, Sembawang Shipyard won a $123 million contract for the engineering, procurement, construction and commissioning of the RV Investigator, a dynamically positioned blue-water research vessel, for Teekay Shipping (Australia). SMOE secured a $550 million contract by ConocoPhillips Skandinavia to build the Ekofisk accommodation topside for 552 personnel.

Ship Repair The ship repair business was the third largest sector with a revenue of $646 million, accounting for 14 per cent of the Group’s turnover in 2010. The Group reaffirmed its position as an industry leader in ship repair with a total of 282 vessels calling on its yards for repairs and maintenance during 2010.

The average value per vessel was $2.3 million. In terms of the vessel mix, repairs for tankers contributed to 29 per cent of ship repair turnover, followed by the upgrading of drillships and FPSOs at 24 per cent, passenger ships at 9 per cent, bulk carriers at 7 per cent, LNG gas tankers at 9 per cent, containerships at 6 per cent and other vessels at 16 per cent. Alliance/Favoured Customer Contract (FCC) partners and regular customers continued to support the Group with a steady base-load, accounting for 85 per cent of all repairs in 2010.

Reinforcing its status as a world leader for LNG repairs, Sembawang Shipyard was awarded several repair contracts for LNG carriers by China

64


LNG Shipping (International) Company and K Line Shipmanagement as well as an LNG carrier longevity contract from FCC partner North West Shelf LNG Venture during the year. Other upgrading and repair orders secured comprised the life-extension of a cargo ship owned by Bluescope Steel and managed by Teekay Shipping (Australia), a ship repair contract from a regular Taiwanese customer, a contract for lengthening and dry-docking repairs from Interislander, as well as upgrading and repair jobs for both Star Cruises (Malaysia) and PT Pelayaran Nasional Indonesia.

More long-term contracts were established in the year. Eitzen Group, which controlled about 100 ships trading worldwide, renewed its long-term contract

with Sembawang Shipyard to send its ships for scheduled and upgrading repairs. As a further step to increase its market share for cruise-ship repairs and upgrading, Sembawang Shipyard signed another long-term contract in the year with Carnival Corporation, the world’s largest cruise operator. This contract would commit the repairs, refurbishment and upgrading of Carnival Corporation’s passenger ships cruising in the Far East to Sembawang Shipyard.

In early 2011, three more contracts worth $92 million were won by Sembawang Shipyard. These comprised an upgrade of a dynamically positioned heavy-lift and pipelay vessel, an LNG carrier longevity project and an upgrade of a drillship.

Alliance partner Chevron’s tanker, Regulus Voyager, ready to set sail after an overhaul in Jurong Shipyard.

Sail-away of cruise ship Seabourn Pride after undergoing repairs in Sembawang Shipyard.

SHIP REPAIR BY VESSEL TYPES (2009 – 2010)

Tanker Drillship/FPSO Upgrading Bulk Carrier LNG/LPG Container Cargo OthersPassenger

FY2010

$’million

FY2009

$’million

8%5%

34%

13%

11%

18%

8%

3%29%

24%9%

7%

9%6%

16%


65

Market Outlook and Underlying Market DriversWorld Economic OutlookThe two-speed economic recovery is expected to continue into the future, according to the January 2011 report by the International Monetary Fund (IMF). In advanced economies, activity has moderated at a lower rate than expected, and growth remains subdued. The high rates of unemployment and renewed stresses in the euro area periphery are contributing to the downside risks. While activity remains buoyant in many emerging economies, inflationary pressures are emerging with some signs of overheating, driven in part by strong capital inflows. Most developing countries, particularly in sub-Saharan Africa, are also growing strongly. Global output is projected to expand by 4.5 per cent in 2011, an upward revision of about 0.25 percentage point relative to IMF’s World Economic Outlook (WEO) in October 2010.

Activity in advanced economies is projected to expand by 2.5 per cent during 2011–12, which is still sluggish considering the depth of the 2009 recession. This is insufficient to make a significant dent in high unemployment rates. Nevertheless, the 2011 growth projection is an upward revision of 0.25 percentage point relative to the October 2010 WEO. The updated forecast is attributed to stronger-than-expected activity in the second half of 2010 as well as new policy initiatives in the United States that are expected to boost activity in 2011.

In both 2011 and 2012, growth in emerging and developing economies is projected to remain buoyant at 6.5 per cent, a modest slowdown from the 7 per cent growth registered last year. Developing Asia is expected to grow most rapidly, with other emerging regions continuing their strong rebound.

However, significant risks still remain. Downside risks arise from the possibility of tensions in the euro area periphery spreading to the core of Europe; the lack of progress in formulating medium-term fiscal consolidation plans in major advanced economies; the continued weakness of the United States real estate market; high commodity prices overheating; the potential for boom-bust cycles in emerging markets; and possible economic spillovers arising from regional events such as the tensions in the Middle East, North Africa and the earthquake in Japan.

Moderation of Singapore EconomyReversing a contraction of 2 per cent in 2009, Singapore’s economy grew 14.5 per cent in the whole of 2010. In fact, according to the IMF, Singapore’s economy rebounded from the crisis by the second quarter of 2010, recovering faster than most economies.

The growth outlook for Singapore remains positive in 2011 with the continuing recovery of the global economy. The Ministry of Trade and Industry expects the Singapore economy to grow by 4.0 to 6.0 per cent in 2011.

To sustain such growth for Singapore over the next five to 10 years, the Budget 2010 measures focused on growing productivity, supporting the growth of more globally competitive Singapore companies and raising the income levels of its people. The measures aimed to further help the country seize opportunities amid a recovering economy by enhancing support for companies to invest in workers’ skills and productivity improvements as well as to raise competitiveness.

Demand for Oil at High LevelsThe International Energy Agency (IEA) estimates global oil demand to rise to 89.3 million bpd in 2011, 1.7 per cent higher than its forecast for oil demand in 2010, on the back of higher-than-expected submissions in non-OECD Asia and improved economic prospects for OECD North America.

Based on the New Policies Scenario, world primary energy demand is expected to increase by 36 per cent between 2008 and 2035, or 1.2 per cent per year on average. The previous 27-year period had recorded a 2 per cent growth per year. The projection assumes cautious implementation of the policy commitments and plans announced by countries around the world, including the national pledges to reduce greenhouse-gas emissions and plans to phase out fossil-fuel subsidies.

In the New Policies Scenario, non-OECD countries account for 93 per cent of the projected increase in global energy demand, reflecting mainly faster rates of growth of economic activity. Energy demand in China, which has surged over the past decade, is forecasted to rise by 75 per cent between 2008 and 2035, contributing about 36 per cent to the projected growth in global energy use. Aggregate energy demand in OECD countries, however, is projected

66


to rise very slowly. Nonetheless, by 2035, the United States is expected to remain the world’s second largest energy consumer behind China.

Exploration and Production Spending on the RiseThrough a recent survey of 402 companies, Barclays Capital predicts global exploration and production spending to rise by 11 per cent to $490 billion in 2011 on the back of investment boosts in Latin America, South-East Asia, the Middle East and North Africa.

In the survey, oil companies had based their spending projections for 2011 on an average oil price estimate of US$77.32 per barrel, up from the US$73.56 level they had forecasted when surveyed in mid-2010.

Unlike in recent years when National Oil Companies accounted for the majority of spending gains, super-majors are likely to show the largest increases in spending, going forward into 2011.

Positive Outlook for Production FloatersAccording to a November 2010 report by the International Maritime Associates (IMA), there are 250 floating production units in service or available worldwide. The units consist of 155 FPSO vessels,

42 production semis, 22 tension leg platforms, 18 production spars, eight production barges and five floating storage regasification (FSRU) vessels.

Another 49 production floaters make up the current order backlog, which comprises 35 FPSOs, six production semis, one tension leg platform, three FSRUs and four floating gas liquefaction (FLNG) vessels. Brazil continues to dominate orders for production floaters. Of the 49 production floaters on order, 19 units are being built for use offshore Brazil, constituting about 40 percent of the order backlog.

With strong fundamentals driving the floating production market, IMA has identified 196 offshore projects at various stages of design or planning that potentially require a floating production or storage system.

Market DevelopmentThe fundamentals for the oil industry remain intact with the Brent oil price exceeding US$100/bbl. In addition, the world economy shows steady improvement, providing support for increasing longer-term energy demand although short-term demand is likely to be affected by recent events in Middle East, North Africa and Japan.

Percentage Change 2009 2010 Projections 2011 Projections 2012

World Output -0.6 5.0 4.4 4.5Advanced Economies -3.4 3.0 2.5 2.5

United States -2.6 2.8 3.0 2.7Euro Area -4.1 1.8 1.5 1.7Japan -6.3 4.3 1.6 1.8

Emerging and Developing Economies 2.6 7.1 6.5 6.5Developing Asia 7.0 9.3 8.4 8.4

China 9.2 10.3 9.6 9.5India 5.7 9.7 8.4 8.0ASEAN 1.7 6.7 5.5 5.7

Latin America and the Caribbean -1.8 5.9 4.3 4.1Brazil -0.6 7.5 4.5 4.1Mexico -6.1 5.2 4.2 4.8

Source: International Monetary Fund

OVERVIEW OF WORLD ECONOMIC OUTLOOK PROJECTIONS


67

Premium Jack-up RigsThe market for premium jack-up rigs continues to show improvement. The utilisation rate of premium jack-up rigs is still holding above 90 percent. The risk to the supply-demand balance caused by the possible reactivation of stacked jack-up rigs appears to be decreasing over time as the significant investments that are needed to put many of these units back in operational mode cannot be justified by the returns. Oil companies remain attracted to the safety and efficiency gains offered by the newer and higher specification units.

The bifurcation in utilisation and pricing between older jack-ups and newer premium jack-ups is expected to continue. Likewise, the trend of replacing older equipment with new equipment is holding strong, with 30 firm orders world-wide of new jack-up rigs since October 2010. The number of jack-ups under construction still corresponds to less than 5 percent of the existing jack-up fleet, which already has an average age of more than 20 years.

Ultra-deepwater FloatersThe demand for ultra-deepwater units continues to be impacted by the low activity in the United States Gulf of Mexico in spite of the moratorium being lifted in October 2010. However, the recent issue of the

PROJECTS INVOLVING FLOATING PRODUCTION OR STORAGE SYSTEMS PLANNED OR UNDER STUDY (AS OF NOVEMBER 2010)

4

13

29

1713 18

49

11

5

2

7

21

3

3

13

11

6

12

50 _

40 _

30 _

20 _

10 _

0 _

Gulf of Mexico

22

3735

45

Africa S.E.Asia Brazil Australia/N.Z.

15

N.Europe

23

S.W.A/M.East

4

Mediterranean

9

2 13

Canada China Others

1 3

<1000m Water Depth Deepwater 1000-1500m Ultra-deepwater >1500m Source: International Maritime Associates, Inc

first deepwater drilling permit could have the effect of spurring optimism of deepwater activity returning to the United States Gulf of Mexico.

Nevertheless, deepwater drilling activities for the rest of the world are expected to increase. The strong growth in demand for development drilling in Brazil and West Africa will be the main new driver in the market, which will further accelerate in the years to come. However, activity growth is also expected from additional countries in West Africa, East Africa and Southeast Asia as well as emerging new frontier markets, such as Greenland and Australia.

Oil companies continue to focus on new technically superior dynamically positioned deepwater units. Since October 2010, 21 new ultra-deepwater units world-wide have been ordered with deliveries scheduled in 2013 and 2014.

68

March• Award of $550 million turnkey contract by

ConocoPhillips Skandinavia to SMOE to build the Ekofisk accommodation topside for 552 personnel.

• Award of approximately $130 million contract by Petrobras Netherlands to Jurong Shipyard for the pre-conversion of a Very Large Crude Carrier into a Floating Production Storage and Offloading (FPSO) vessel to be renamed P62.

• Delivery of PetroRig III, a sixth-generation Friede & Goldman ExD-design semi-submersible rig built by Jurong Shipyard for Grupo R.

• Delivery of Montara Venture, a FPSO converted by Jurong Shipyard for Tanker Pacific Offshore Terminals.

• Keel-laying of the first of 12 offshore support vessels by Sembcorp Marine’s partner Pipavav Shipyard for Oil and Natural Gas Corp.

• Participation by Sembawang Shipyard in Seatrade Cruise Convention in Miami, USA.

January• Delivery of Sneferu, a Pacific Class 375 jack-up rig built by PPL

Shipyard for Egyptian Drilling Company.

• Launch of annual Green Wave Environmental Care Competition 2010 and presentation of awards to 2009 winners.

• Sembcorp Marine and its subsidiaries updated and upsized their multicurrency, multi-issuer debt issuance programme from $500 million to $2 billion.

• Annual Long Service Award Ceremony.

February• Establishment of new yard, Estaleiro Jurong Aracruz, to

further strengthen the Group’s operations in Brazil.

• Award of major longevity, upgrading and damage repair contracts worth $130 million by international customers to Sembawang Shipyard.

• Renewal of long-term contract by Eitzen Group with Sembawang Shipyard.

• Keel-laying of the second Moss Maritime CS50 MK II design ultra-deepwater semi-submersible drilling rig by Jurong Shipyard for Seadrill.

• Announcement of full-year 2009 financial results.

Significant Events


69

April• Delivery of West Orion, the third of four sixth-generation

Friede & Goldman ExD-design semi-submersible rigs built by Jurong Shipyard for Seadrill.

• Naming of Flintstone, a fallpipe rock-dumping vessel built by Sembawang Shipyard for Tideway.

• Keel-laying of the second sixth-generation Friede & Goldman ExD-design semi-submersible rig built by Jurong Shipyard for Atwood Oceanics Pacific.

• 47th Annual General Meeting and Extraordinary General Meeting.

June• Ground-breaking of the Integrated New Yard facility

at Tuas View Extension, officiated by Guest-of-Honour Mr Lim Hng Kiang, Minister for Trade and Industry.

• Delivery and sail-away of Noble Jim Day, the second Bingo 9000 semi-submersible rig converted from a bare-deck hull by Jurong Shipyard for Noble Drilling.

• Participation in Posidonia 2010, a leading tradeshow for the international shipping and maritime community in Greece.

May• Delivery of FPSO Kwame Nkrumah MV21, Ghana’s first

FPSO vessel, converted by Jurong Shipyard for MODEC.

• Announcement of first quarter 2010 financial results.

• Participation in the Offshore Technology Conference 2010, one of the world’s largest oil and gas events in Houston, United States.

70

Significant Events

September• Award of upgrading and repair contracts worth $110

million by international customers to Sembawang Shipyard.

August• Delivery of West Leda, a Pacific

Class 375 jack-up rig built by PPL Shipyard for Seadrill Management.

• Announcement of first half 2010 results.

• Participation in the National Day Parade 2010.

• Award of two FPSO contracts worth $75 million by BW Offshore and Bluewater Energy Services to Sembawang Shipyard.

• Delivery of the 2,000-metric-tonne Wellhead Platform by PT SMOE Indonesia and its partner, PT Saipem Indonesia, to Premier Oil Natuna Sea for its Gajah Baru Field Development.

• Strike-steel of Aratere, a ro-pax ferry being upgraded by Sembawang Shipyard for Interislander.

• Participation in the Shipbuilding, Machinery and Marine Technology International Trade Fair in Hamburg, Germany.

• Participation in the 7th LatinAsia Business Forum in Singapore.

• Participation in the inaugural Singapore Workplace Safety and Health Conference.

• Sponsorship of the Arts – the ‘Beija Flor Escola de Samba: Best of Rio Carnival’ Brazilian performance.

July• Sale of the CJ70 harsh-environment jack-up drilling rig by

Jurong Shipyard to a subsidiary of Seadrill for US$356 million.

• Delivery of an approximately 18,000-metric-tonne harsh-environment platform project by SMOE to Maersk Oil and Gas for its Halfdan B Phase IV Development at the North Sea.

• Delivery of Pacific Class 375 jack-up rigs, Tam Dao 02 and Setty, by PPL Shipyard to Vietsovpetro and Egyptian Drilling Company respectively.

• Delivery of Dynamic Producer, a dynamic positioning Floating Drilling Production Storage and Offloading (FDPSO) vessel converted by Sembawang Shipyard for Petroserv.

• Launching of El Qaher II, a Pacific Class 375 jack-up rig built by PPL Shipyard for Egyptian Offshore Drilling Company.


71

November• Announcement of a US$195 Pacific Class

400 jack-up rig order by Transocean to PPL Shipyard.

• Naming of SeaDragon I, the first of two Moss Maritime CS50 MK II design ultra-deepwater semi-submersible units built up from a bare-deck hull by Jurong Shipyard for Seadrill.

• Strike-steel of the Ekofisk accommodation topside by SMOE for ConocoPhillips Skandinavia.

• Announcement of third quarter 2010 results.

• Contribution of $317,700 in SchoolBAG grants by Sembcorp Marine to 1,573 needy students.

December• Award of US$400 million contract by Noble Corporation to

Jurong Shipyard to build two turnkey jack-up rigs based on the Friede & Goldman JU3000N design.

• Delivery of two Pacific Class 375 jack-up rigs, El Qaher I and Kan Tan 6, by PPL Shipyard to Egyptian Offshore Drilling Company and SINOPEC respectively.

• Naming of Atwood Osprey, the first of two sixth-generation Friede & Goldman ExD-design semi-submersible rigs built by Jurong Shipyard for Atwood Oceanics Pacific.

October• Award of US$384 million order by Seadrill

Management to Jurong Shipyard to build two turnkey jack-up rigs based on the Friede & Goldman JU2000E design.

• Award of $351 million contract by Teekay Petrojarl Production to Jurong Shipyard to convert a tanker to a FPSO vessel to be renamed FPSO Petrojarl Cidade de Itajai.

• Award of US$364 million contract by Atwood Oceanics Pacific to PPL Shipyard to build two turnkey jack-up rigs based on the Pacific Class 400 design.

• Award of long-term contract by Carnival Corporation to Sembawang Shipyard to provide ship repair, refurbishment and upgrading services for some of its cruise vessels.

• Delivery of the first heavy-lift newbuild jack-up barge ARB-3 by Jurong Shipyard to Aramco Overseas Company.

Innovation andProductivity

PPL Shipyard’s latest proprietary Pacific Class 400 jack-up design.

72


73

Innovation and Productivity

Sembcorp Marine continued to drive R&D efforts, process innovation initiatives and facilities development across the Group, leading to enhanced capabilities and efficiencies for the customers, as well as significant cost savings and productivity improvements for the yards.

JU3000N jack-up design, the brainchild of Jurong Shipyard, Noble and Friede & Goldman.

President & CEO Mr Wong Weng Sun interacting with employees at an innovation carnival.

Proprietary Designs and CapabilitiesSembcorp Marine Technology, the subsidiary tasked with driving the Group’s research and development efforts in marine and offshore technology, completed the SMT-2 semi-submersible design in 2010. Complementing other market-leading designs offered by the Group, the SMT-2 rig is capable of drilling with dynamic positioning (DP3) capabilities in waters of up to 10,000 feet under harsh environmental conditions.

In the year, Jurong Shipyard jointly developed the Friede & Goldman JU3000N jack-up rig design in partnership with Noble Corporation and designer Friede & Goldman. The new JU3000N design features an enlarged hull with enhanced operational benefits, including an ergonomic and efficient accommodation layout, increased deck space and strategic placement of equipment that will allow the crew to carry out maintenance duties efficiently and safely. The rig will be capable of operating in waters of 400 feet and drilling to depths of 30,000 feet.

74

Innovation and Productivity

The latest proprietary jack-up design by PPL Shipyard, the Pacific Class 400, was also launched in the year. It is designed to operate in waters of 400 feet and drill to depths of 30,000 feet, with increased accommodation for 150 men. Equipped with the latest drilling equipment, the rig will have improved drilling efficiencies with offline pipe handling simultaneous operations support.

Innovative ProcessesEmployees and contractor partners actively embracedinnovation as they sought ways to continuously improve their daily work processes. Some of these innovations not just improved workplace safety and health but also increased productivity and reduced operational costs. In 2010, three projects were duly recognised – with one gold award and two silver awards – at the 13th Marine Industry Workplace Safety and Health Innovation Convention organised by the Association of Singapore Marine Industries on 2 September.

The gold award winner, OctoMaster, was the brainchild of the LIFE Team from Jurong Shipyard. It provided a systematic and one-stop solution for the safe and efficient overhaul of butterfly valves. By using two remotely operated jacking systems to assemble the butterfly valve, this innovation eliminated manual hammering and the strenuous use of physical strength, resulting in a three-fold increase in productivity, manpower savings of 60 per cent and cost savings of about 85 per cent.

Sembawang Shipyard’s CSI: Next Gen 2 Team and Hull Team B both clinched silver awards for the Emergency Evacuation System and the Safe Access

Handler respectively. The Emergency Evacuation System, resulting from a joint collaboration with students from National University of Singapore (NUS), integrated various alarm and lighting systems to create a more effective warning and response system that improved evacuation time and efficiency of confined space rescue operations.

The Safe Access Handler provided a simple yet innovative way of removing and refitting access plates onboard vessels and enabling easy installation of guardrails to secure the opening, significantly enhancing workplace safety. By not relying on cranes to perform the tasks, the innovation helped to boost productivity with projected cost savings of over $150,000.

Industry CollaborationsIn its search for innovative solutions, Sembcorp Marine Technology worked closely with tertiary institutions to leverage their capabilities in areas relevant to the Group’s strategies and operations. In 2010, it continued to partner with tertiary institutions on various projects, which included three undertaken with NUS.

One of these was the Underwater Monitoring Device, developed jointly with the University’s Mechanical Engineering students. This device adopted a less risky process of inspecting and monitoring a ship’s position relative to the keel blocks during dry-docking, without the need for divers. Instead, it employed a remote-controlled wireless monitoring device to feedback information to personnel on land. The prototype for the device was built and tested successfully during the year.

Safe Access Handler – an in-house innovation for removing and refitting access plates safely and effectively.

OctoMaster, an in-house innovation for the safe and efficient overhaul of butterfly valves.


75

Another project involving the Mechanical Engineering students was a device which ran on wave energy, with the ability to convert wave energy into electrical energy. When tested in a wave tank, the project achieved positive results and had the potential for further development.

The third collaborative project with NUS was to develop a software programme to optimise offshore production schedules, taking into account unforeseen disturbances in the production line. Having completed the first phase of the project, the software was being implemented in the assembly planning process at Jurong Integrated Services, one of Sembcorp Marine’s subsidiaries. The teams involved planned to enhance and optimise the design further in the second phase.

Such collaborative efforts with tertiary institutions also extended to research in environmental friendly marine and offshore technologies. Demonstrating its commitment towards environmental protection, Sembcorp Marine pledged its support towards the Maritime Clean Energy Research Programme, an initiative jointly launched by the Maritime and Port Authority of Singapore and Nanyang Technological University (NTU).

This research programme would leverage research platforms found within the Energy Research Institute at NTU (ERI@N) to develop capabilities in clean energy and environment technology that would promote green, carbon-neutral, energy management solutions for shipping and port management.

In conjunction with the programme, Sembcorp Marine and NTU inked a Memorandum of Understanding to explore collaborations with the Centre for Maritime Energy Research, a new centre under ERI@N. As one of six industry partners, Sembcorp Marine would lend its expertise to enhance and test-bed some of the technologies, which could eventually be adopted within its yards.

Other Innovation ActivitiesSembcorp Marine Technology continued to push the innovation frontier further by publishing technical papers in several mediums including the 31st Society of Naval Architects and Marine Engineers Singapore Annual Journal 2009/2010. It was also a major sponsor of the Advanced Maritime Engineering Conference, a learning event held concurrently with the 4th Pan Asian Association of Maritime Engineering Societies Forum.

Yard Developments To improve work efficiency, the Group’s yards expanded their capabilities through the addition and upgrading of new facilities in the year. SMOE saw the official opening of its new 1,400 sqm Admirax Office Building on 3 August. The new engineering premises, which could accommodate about 170 staff, was fully equipped with basic office facilities, conference rooms and a telepresence facility.

SMOE further completed a purpose-built climatically controlled 1,900 sqm warehouse – to provide efficient, clean and dry storage for its existing Ekofisk Accommodation Topside Project – and embarked upon building an enclosed facility dedicated for titanium welding.

Its subsidiary, PT SMOE Indonesia, officially opened a 1,600 sqm workers’ cafeteria as part of the second phase of its yard development programme. The new dining facility could seat up to 1,000 people, in anticipation of the yard’s growing needs.

Signing of MOU with NTU to collaborate on maritime clean energy research.

Corporate and Social Responsibility

76 Sembcorp Marine’s contingent marching with pride during Singapore’s National Day Parade 2010.


77

Workplace Safety and Security

Sembcorp Marine remained fully committed to ensuring a safe and secure work environment at all times. To achieve this, it sought to instill a culture of pro-active individual involvement, personal accountability and continuous improvement among all employees, customers and subcontractors.

Safety CertificationsIn line with the Group’s safety commitment, the yards continually benchmark themselves against the leading international safety standards and practices. The five Singapore yards were certified to OHSAS 18001:2007, an internationally recognised standard for managing occupational health and safety. Every three years, the yards also subjected themselves to re-certifications to ensure that their processes continued to be in line with the standards. In 2010, both SMOE and Jurong SML were successfully re-certified to OHSAS 18001:2007 by leading certification bodies Det Norske Veritas and ABS Quality Evaluations respectively.

The yards also sought to raise the bar in safety standards in the course of their projects. In its execution of the harsh-environment Halfdan Phase IV Process Platform Project, SMOE received Certificates of Conformity from Det Norske Veritas for compliance to the Danish Offshore Safety Act and to the Council Directive 97/23/EC on Pressure Equipment for CE Marking. Recognitions for Safety EffortsAt the National Workplace Safety and Health (WSH) Awards organised by the National WSH Council and supported by the Ministry of Manpower, the Group’s yards clinched a total of 20 awards across various categories.

In the WSH Performance Awards (Safety and Health Award Recognition for Projects category), Jurong Shipyard won ten awards and Sembawang Shipyard garnered three awards for various rig building, ship conversion and ship repair projects that had achieved good workplace safety and health performance.

Theme for 2010 WSH Campaign.

Management, employees and partners of the Group declaring their support for WSH excellence.

78


Jurong Shipyard, Sembawang Shipyard and PPL Shipyard were honoured with WSH Innovation Awards in the Marine category for three innovative projects that improved safety and health standards in the workplace.

For its achievement and innovation in minimising workplace safety and health hazards, Sembawang Shipyard won an award in the WSH Practices Awards (Outstanding Achievement & Innovation) category for its Safe Swinger project. PPL Shipyard also clinched an award in the WSH Practices Awards (Innovation)category for its Pipe Transporter project, an innovative and safer alternative for transferring pipes.

Two supervisors from Sembawang Shipyard and PPL Shipyard were also honoured with individual safety awards in recognition of their commitment in caring for workers under their charge and improving workplace safety and health.

At another event organised by the Association of Singapore Marine Industries, several individuals from Jurong Shipyard and Sembawang Shipyard – including Jurong Shipyard’s Chief Health Safety and Environment Manager Mr Richard Tuan and 21 supervisors – were accorded recognition for their commitment and contributions to WSH excellence.

Safety PerformanceBased on the number of considerable accidents per million man-hours, Sembcorp Marine attained an accumulative frequency rate (AFR) of 0.4 in 2010, as compared to 0.6 a year ago. The accumulative severity rate (ASR), which records the number of man-days lost per million man-hours, improved from 237.1 in 2009 to 68.3 in 2010. The Group will continue to heighten safety standards by refining its WSH management framework to pro-actively prevent incidents at the workplace.

Robust Safety FrameworkSembcorp Marine adopted a robust safety framework which focused on building a pro-active safety culture as well as raising WSH excellence among employees and contractor partners. To reinforce safety and minimise risks, the Group implemented the REV (Review, Evaluate and Validate) programme which involved regular safety audits, evaluations and risk assessments to ensure health, safety and environmental compliance in addition to comprehensive safety inspections onboard and at project sites.

The Group and its yards also worked closely with the Ministry of Manpower and the WSH Council to build a strong safety culture among contractors. A key area

SEMBCORP MARINE'S SAFETY PERFORMANCEAccumulative Frequency Rate Per Million Man-hours

Accumulative Severity Rate

Per Million Man-hours

4.0 _

3.0 _

2.0 _

1.0 _

0 _

2001 2006

583.3

2002

342.9

2007

260.0

2003

277.4

2008

67.0

2004

678.3

2009

237.1

2005

147.3

2010

68.3

_ 1600

_ 1200

_ 800

_ 400

_ 0

ASR AFR

3.8

3.0

3.43.2

2.8

1.1

0.70.6

0.4

2.1

1416.1


79

of collaboration was the bizSAFE programme to assist contractor partners in boosting their workplace safety and health capabilities. As certified bizSAFE partners, the yards put in place a number of initiatives, including training workshops and direct dialogue sessions with senior executives, for contractor partners to enhance their WSH and risk management systems. These were further supplemented with timely updates on safety procedures as well as regular inspections to ensure compliance. Awards were also presented to reward and affirm sub-contractors for their good safety performance.

Resulting from these efforts, all 400 of Sembcorp Marine’s contractors received bizSAFE Level 3 certification and above, an indication that they had the necessary competencies to fulfil the risk management regulatory requirements of the industry’s Workplace Safety and Health Act. More than 70 of the contractors went on to achieve the distinction of bizSAFE Star, having been audited by an independent third-party certification company for compliance to international standards.

Promoting Safety CultureTo emphasise safety ownership, Sembcorp Marine and its group of yards launched a number of

campaigns to reach out to employees. One of the key events was the annual Health, Safety and Environment (HSE) Convention, which was graced by Guest-of-Honour Mr Hawazi Daipi, Senior Parliamentary Secretary for Health and Manpower. During the convention, senior management of Sembcorp Marine and its yards came together to reaffirm their commitment towards WSH excellence. With the theme ‘Safety Is In My Hand’, the event sought to further reinforce among employees, contractors and stakeholders the importance of taking personal responsibility for workplace safety and health.

The yards also focused on specific themes for their safety events and initiatives. During the year, Jurong Shipyard launched the inaugural ‘Hook for Life’ Safety Campaign to communicate the importance of observing risk management procedures and best practices during work-at-height operations. At Sembawang Shipyard, the six-month ‘Handle with Care’ HSE campaign was launched in October with the aim of preventing hand and finger injuries. To effectively reach out to employees, key safety messages were also conveyed through various mediums. For example at Jurong Shipyard, eachworker received a HSE diary highlighting safe work

Top management pledging their commitment to WSH excellence.

80

practices to encourage pro-active safety behaviour. Safety DVDs were also given out to advocate safe forklift handling. PPL Shipyard extended its safety outreach to its clients by distributing handbooks covering Singapore’s legislative requirements on health and safety as well as in-house safety practices.

Safety Promotion at a National LevelSembcorp Marine and its yards renewed their commitment to health, safety, security and environment excellence by sponsoring the National Workplace Safety & Health Campaign 2010. The campaign was organised by the WSH Council and launched by the Minister for Manpower Mr Gan Kim Yong to raise awareness of the important role played by all stakeholders in ensuring a safe, healthy and incident-free work environment.

In the lead-up to the national campaign launch, Sembcorp Marine organised a ‘Safety Is In My Hand’ pledging ceremony. The event witnessed more than 100 representatives from the Group’s yards and stakeholder partners endorsing their commitment towards WSH excellence by stamping and signing on a mural wall dedicated to the campaign.

Sembcorp Marine was also a major sponsor of the inaugural Singapore Workplace Safety & Health Conference. Organised by the WSH Council and supported by the International Labour Organisation, the conference was officially opened by Senior Minister Professor S Jayakumar. With the theme ‘Embracing Challenges, Pushing WSH Frontiers’, the event sought to highlight how workplace safety and health could advance business and economic development.

Security ControlsDuring the year, Sembcorp Marine’s yards, which are compliant to the International Ship and Port Facility Security (ISPS) Code, continued to mitigate the risk of security threats and maintain high levels of vigilance. To safeguard against any security breaches, the yards conducted round-the-clock patrols and surveillance at strategic access points. Stringent security checks on employees, contractors and visitors entering the premises continued to be carried out, with the assistance of RFID and biometric authentication systems. Audit exercises were also conducted at the yards to ensure continued compliance to the ISPS Code.

Emergency PreparednessThe yards conducted several emergency response drills throughout 2010 to prepare employees to handle various scenarios, including fire, confined space evacuation, rescue at height and other environment-related hazards. These exercises were conducted internally and also in collaboration with external agencies and partners such as the Singapore Police Force and the Singapore Civil Defence Force.

Yard facilities were also enhanced during the year to further improve emergency preparedness. At Jurong Shipyard, the facilities at two medical clinics were upgraded and primed for faster emergency medical response. The clinics were fitted with biometric temperature scan systems to speed up the screening process and could be easily reconfigured to segregate employees who are unwell should the need arise. At the same time, the yards continued to equip themselves with sufficient personal protection equipment and medical supplies in preparation for possible outbreaks.

Emergency response drill in action.


Employees and contractor partners learning about work-at-height safety.


81

People-Centredness

Recognising human capital as the 'DNA' of the Group, Sembcorp Marine sought to harness the talents of its people as well as create a supportive and motivating work environment for employees to realise their full potential.

Human Capital StrategySembcorp Marine’s human resource (HR) strategy is aligned to the Group’s business objectives and strategic goals. Apart from focusing on three HR dimensions to further strengthen the full potential of its human capital, the Group also leverages six levers in formulating its plans. The strategic HR framework is illustrated in the diagram below.

HR AS KEY BUSINESS LEVERS

Employee ProfileThe Group employed a total of 9,335 staff as at end December 2010, 1.7 per cent more than 2009. The table and accompanying graphs present a detailed staff profile of the Group for the year.

2010 2009

Category No. of employees % No. of employees %

Management 3076 33.0 3083 33.6

Non-management staff 729 7.8 727 7.9

Workers 5530 59.2 5370 58.5

Total 9335 100 9180 100

Christmas celebration at PPL Shipyard.

Aligning People and Business Strategies

HR Efficiency

OPE

RAT

ION

AL H

R

TACTICAL HR

STRATEG

IC H

R

HR Programme

and Excellence

“Enhance and Accelerate Training and Skills

Development”

HR LEVERS

“Getting the Right People for the Right Job at the Right Time”

“Reward and Retain a Committed, Skilled and

Conscientious Workforce”

“Develop Organisational Systems and Structures to

Align with Company’s Vision & Business Strategies”

“Inculcate and Promote Sense of Belonging to

Corporate Values”

“Provide a Healthy, Safe and Secure Working and Learning Environment”

STRATEGIC GOALS

Organisation Culture

Manpower Retention

Organisation Development

Manpower Availability

Manpower Development

Conducive Working

Environment

82

People-Centredness

Manpower AvailabilityThe Group recruited new employees through a number of channels, to ensure the shipyards were well-staffed for their needs. A total of 11 career fairs and talks were held at major tertiary and vocational institutions in Singapore during the year.

Sembcorp Marine and its yards continued to offer scholarships to bright young individuals with excellent academic and co-curricular track records. The Group offered 32 scholarships in 2010, compared to 23 scholarships in 2009. There were also 22 scholars who returned in the year to pursue their careers in the Group’s subsidiaries.

Industrial attachments were also another avenue to attract students to the marine and offshore industry. The Group’s yards saw 92 students attached to

various projects and work functions in the year. To showcase the exciting career opportunities and the growth potential of the Group, yard tours were further organised for 554 students and visitors last year.

Since 2005, Jurong Shipyard, Sembawang Shipyard and PPL Shipyard have been actively promoting the Super V series of programmes to attract recruits with non-marine qualifications. The programme is aimed at identifying and grooming local workers for supervisory positions within the marine and offshore industry. Under the scheme, suitable recruits underwent structured skills training leading to National Institute of Technical Education Certificate (NITEC) qualifications. Between 2005 and 2010, the Group had successfully recruited a total of 332 Super V and V2 trainee supervisors.

LENGTH OF SERVICE

EDUCATIONAL LEVEL

2010 2009

1 to 3 yearsLess than 1 year 4 to 6 years 7 to 9 years 10 years & above

13%

6.8%

35.6%

20.3%21.5%

15.8

%

22.8%

46%

11.5

%6.

8%

2010 2009

Degree & above Diploma Others

72.5%

10.5%10%

17.5

%

17.4

%

72.1%


83

Manpower DevelopmentSembcorp Marine continued to develop employees and equip them with essential knowledge and skills to perform to their best ability. This was achieved through competency-based training, training programmes in collaboration with academic institutions, management development programmes, overseas attachments, mentoring and coaching as well as job rotation.

One of the highlights in 2010 was the signing of a Memorandum of Understanding between Sembcorp Marine and Institute of Technical Education (ITE) on 23 July to set up the Marine Engineering and Quality Centre at ITE College Central. In this five-year collaboration, both parties would combine their expertise to provide a platform for the mutual sharing of best practices in marine and offshore technology and pedagogy, to train the Institute’s students in the field of marine and offshore engineering as well as to strengthen the competencies and skills of the Group’s workforce.

Sembcorp Marine also collaborated with other tertiary institutions on several fronts. Notably, the Group partnered the Singapore Institute of Technology in 2010 in the area of marine and offshore curriculum development. At the same time, the Group’s employees could also leverage this partnership to upgrade themselves with a range of specialised degree courses.

Apart from skills-based courses, employees also attended personal enrichment and development programmes on a wide range of topics such as customer service excellence, positive relationshipbuilding, change management and time management.

During the year, Sembcorp Marine also rolled out the second wave of the Mentoring Programme, following its successful launch in 2009, to promote knowledge sharing and skills transfer among employees. To facilitate the mentoring process, a series of briefings and meetings were organised to foster closer ties between the mentors and mentees.

Another area of focus in the year was on productivity and continuous improvement. Using the Value Stream Analysis approach, teams from across the five yards learnt how to do work better, faster and more cost-effectively through an internal friendly competition.

Manpower RetentionAt Sembcorp Marine, a robust performance management system combined with an effective reward and recognition framework helped to retain talented employees. The Group uses an objective appraisal system to ensure all employees are appraised on measurable key performance indicators and desirable behavioural traits required for effective performance in their jobs.

Apart from offering competitive salary packages which commensurate with work experience and industry benchmarks, high-performance employees were rewarded and recognised through salary increments and promotion opportunities. In addition, employees who showed exemplary contribution – such as proactive participation in innovation, safety, quality and teamwork – were recognised through special awards.

Signing of MOU with ITE.

Employees in active discussion during a learning workshop.

84

As a further incentive, annual Long Service Awards were presented to recognise long-serving staff. In 2010, the Awards honoured 421 loyal employees, including 190 who had served more than 30 years with the Group.

Organisation DevelopmentSembcorp Marine also sought to ensure that various internal systems were in place to allow its people to maximise organisational effectiveness. Aligned to the Group’s vision and business strategies, these structures and processes were aimed at motivating employees to take ownership over organisational outcomes.

One of the key initiatives rolled out in the year was the launch of Sembcorp Marine’s first group-wide employee satisfaction survey. A total of 2,242 employees, or about 73 per cent of the target group, responded to the survey. Overall, 86.5 per cent of the employees who responded were satisfied with their jobs and the company. The survey findings, which were disseminated to the staff, would also help Sembcorp Marine review and refine its policies and programmes to improve employee engagement.

Information technology was also harnessed to reach out and engage employees across the Group. In early September 2010, the Employee Stock Option

System was launched and made available via intranet for staff to view their allotted shares and transactions. During the year, Jurong Shipyard also upgraded its ‘J-Link’ intranet portal into a convenient gateway for employees to obtain various documentations and forms as well as information on the latest news, policies and procedures applicable at the workplace.

Organisation Culture & Working EnvironmentSembcorp Marine continued to build a supportive and engaging work environment, with strong family-like bonds. In addition to caring for employees’ welfare in the areas of work-life harmony and workplace health, the Group organised festive celebrations and community outreach activities to foster interaction and build camaraderie.

Strengthening ties with the Unions was also an important part of creating a harmonious work environment. To further reinforce tripartite synergy and union-management cohesiveness, several events were organised by the Group together with its yards and their Unions during the year, including a National Day Observance Ceremony at Jurong Shipyard and Sembawang Shipyard’s ‘Run for the Union, Run for the Nation’ event.

Bonding with colleagues through outdoor activities.

People-Centredness


85

Workplace Health Promotion

Recognising the importance of enhancing employees’ total well-being, the Group offered a wide range of programmes to promote work-life balance as well as healthy and active lifestyles.

Awards and AccoladesAs an endorsement of its commitment to workplace health promotion, the Group won several national health and wellness awards in 2010. Sembcorp Marine was conferred the prestigious Work-Life Excellence Award by the Tripartite Committee on Work-Life Strategy in recognition of its active efforts to foster work-life synergy.

At the Health Promotion Board’s National HEALTH (Helping Employees Achieve Life-time Health) Awards during the year, Sembawang Shipyard clinched the prestigious Platinum HEALTH award for its commendable workplace health promotion programmes.

Active LifestyleThe Group promotes active living among employees through a range of workplace fitness programmes. In addition to a daily five-minute morning exercise routine practiced by all staff, the shipyards organised other mass exercises regularly. In 2010, Jurong Shipyard’s ACTIVE (All Companies Together in Various Exercises) Day programme involved a half-hour mass workout session on the first Monday each month. During these ACTIVE Day events, staff enjoyed a fusion of yoga stretches and boxercise moves before commencing their work. Nutritious snacks were also handed out to encourage them to embrace a healthy lifestyle.

For their recreation, employees from Sembcorp Marine’s yards could choose from a variety of workplace exercise classes, ranging from yoga, pilates and hip-hop fitness to tai-chi and belly-dancing. To further encourage them in their sporting endeavours, the Group sponsored staff participation in sports competitions and fitness events, including the Safari Zoo Run, Dow Live Earth Run for Water, Sundown Marathon and National Runway Cycling & Skating.

Monthly ACTIVE Day workout at Jurong Shipyard.

Employees embracing healthy and active living.

86

Workplace Health Promotion

In addition, the yards were active in organising a range of social and recreational activities to foster bonding and interaction among the staff. Apart from the regular soccer competitions, bowling tournaments and beach volleyball events, the clubs also enriched their programme line-up with novel activities during the year. At Sembawang Shipyard, a group of employees participated in an inaugural 72-hour non-stop cricket tournament organised by the Ceylon Sports Club, a record-breaking event acknowledged by the Singapore Book of Records.

Sembcorp Marine’s management demonstrated strong support at these recreational events. The Southern Ridges Nature Walk, involving more than 250 Jurong Shipyard participants, was flagged off by the Group’s President & CEO Mr Wong Weng Sun. At the inaugural Sembcorp Marine Futsal Tournament, Deputy President Mr Ong Poh Kwee kicked off the event which brought together 16 teams from across the Group’s yards.

The Group also strengthened ties with the maritime community through its active participation in games and competitions at the industry level. These sporting events included the Singapore International Sportsweek for Seafarers and the Singapore Futsal

Tournament for Seafearers organised by the Maritime and Port Authority of Singapore as well as the 15th Seven-a-side Soccer Tournament held by the Association of Singapore Marine Industries.

Healthy LivingTo encourage healthy living among employees, the Group rolled out a wide variety of workplace health promotion activities in the year. These included wellness talks and workshops covering diverse topics such as cancer prevention, healthy grocery choices, hypertension, prostate cancer prevention and relaxation techniques.

There were other group-wide efforts to spread the healthy eating message. Sembcorp Marine and its subsidiaries marked Health & Wellness Day on 12 May with the dissemination of healthy snack packs to all staff. Each pack contained samples of healthier snack choices as well as a booklet by the Health Promotion Board (HPB) on good dietary habits.

Sembcorp Marine also continued to work closely with government agencies to improve employees’ health and fitness. Following its participation in HPB’s ‘Lose to Win’ competition in 2009, the Group went on to support the ‘Lose to Win Reunion Challenge’ in 2010,

Nature walk flagged off by President & CEO Mr Wong Weng Sun.


87

MOU signing ceremony between Sembawang Shipyard and Alexandra Health.

Health screening at the yards.

which reunited fellow contestants in a further effort to lose weight. In this challenge, two staff won nation-wide honours for achieving the highest percentage of weight loss.

Healthcare at WorkReflecting its commitment to employee care, Sembcorp Marine provides a full range of programmes to promote health and wellness among staff. These include annual health screenings for employees to enable early detection of chronic conditions such as diabetes, high blood pressure, stroke, hypertension and high cholesterol. Participation in the health screenings increased this year with growing awareness among employees of the importance of regular health checks.

Sembcorp Marine continued to lead the way in workplace healthcare with the JCare scheme, which was launched in 2007 as a pilot project in Jurong Shipyard in partnership with Alexandra Health. The first of its kind to be implemented in Singapore, this revolutionary care delivery programme brings personal healthcare to the workplace through on-site health checks, tele-consultation as well as facilitated networks to provide greater convenience and accessibility to employees.

During the year, Sembawang Shipyard signed its first workplace health Memorandum of Understanding (MOU) with Alexandra Health in 2010. The MOU signing ceremony on 26 April was graced by Mr Khaw Boon Wan, Minister for Health, Member of Parliament for Sembawang GRC and Advisor to Sembawang Shipyard Union. Under the agreement,

Khoo Teck Puat Hospital would provide health screening, chronic disease management and partnered healthcare services to employees. Staff could also look forward to faster treatment of worksite injuries through the tele-consultation services available. Earlier in 2007, Jurong Shipyard had signed a MOU with Alexandra Health to provide enhanced health programmes for its employees.

In the area of diabetic care, Jurong Shipyard continued to provide bi-monthly on-site health checks as part of its ‘Diabetes Programme at Workplace’ initiative. The yard was the first to launch this innovative scheme in 2009 to make diabetes intervention, management and education more convenient and cost-efficient for employees. At Sembawang Shipyard, employees in need of diabetic care could better manage their health condition through the ‘Diabetics Management Programme’, which was implemented in early 2010.

Continuing its successful ‘Diabetes Champion Programme’, Jurong Shipyard encouraged several diabetic employees who had shown marked improvements in their health conditions to motivate their peers to follow their examples. During the year, their journey towards better health was documented in a video produced by Khoo Teck Puat Hospital for the general public.

88

Contributions to the Community

Committed to making a positive difference to the community, Sembcorp Marine directed its corporate responsibility efforts in the areas of education, community development, national unity, industry outreach and the arts.

Youths and EducationSembcorp Marine actively supported educational causes in an effort to help youths fulfil their potential, develop their talents and pursue their dreams.

For the past decade, Sembcorp Marine had been helping needy students in the community through its School Book Assistance Grant (SchoolBAG) scheme. Part of the Group’s community care and responsibility programme, the SchoolBAG scheme was aimed at helping students from low-income families subsidise the cost of their basic education expenses, such as school textbooks, uniforms and stationery items.

Since its launch in 2001, Sembcorp Marine’s SchoolBAG programme had contributed more than $2.16 million in grants to more than 10,498 student beneficiaries. In 2010, $317,700 in SchoolBAG grants went out to 1,573 students, the highest grant amount and largest number of recipients in the history of the scheme. This is an increase of about 6.5 per cent compared to the contribution in 2009, in terms of both grant amount as well as number of recipients. The cheque presentation ceremony was graced by Mr Lim Boon Heng, Minister, Prime Minister’s Office, and Member of Parliament for Jurong GRC.

Bursary awards totaling $35,350 were also presented by Sembawang Shipyard to the children of employees in need of financial assistance to motivate them to achieve good academic performance.

Community Care and DevelopmentReflecting its commitment to the community, Sembcorp Marine and its yards supported various charitable organisations and projects, including the President’s Challenge, Singapore Police Force Charity Drive, Bernhard

Volunteers from Sembawang Shipyard celebrating Christmas with children from Students Care Service (Yishun Centre).

Student recipients waving their SchoolBAG grants.


89

Schulte Shipmanagement Charity in aid of the Children’s Cancer Foundation and the Ong Teng Cheong Institute. In addition, the Group also sponsored the Assumption Pathway School’s Charity Golf Tournament, an event to raise funds to further upgrade the school’s facilities and holistic education curriculum.

The Group’s yards and their employees gave generously to the cause of charity during the year. At Sembawang Shipyard, employees’ charitable donations to the Community Chest of Singapore were matched dollar-for-dollar.

Sembcorp Marine’s yards were also active in their community care and volunteerism efforts. Employees from Jurong Shipyard extended their friendship and care to the elderly residents of Bethany Nursing Home during festive occasions such as the Moon Cake Festival.

Sembawang Shipyard continued to be a stalwart supporter of the Students Care Service (Yishun Centre) through its contributions and volunteer assistance. A key event sponsored by the yard was the EMIT! (Excite, Motivate, Interest and Transmit) Finale Carnival, which was launched in conjunction with the inaugural Youth Olympic Games with the aim of engaging youths in healthy activities. Employees from the yard also helped to organise various events held by the Centre, such as the annual Christmas party and other festive celebrations.

In addition, Sembawang Shipyard supported the Centre’s relief efforts to help victims of the Haiti earthquake which struck last year. To raise funds, students and volunteers led a donation drive and sold handmade handicrafts to various organisations. The funds were then distributed to affected families in Haiti through the International Federation of Red Cross and Red Crescent Societies.

National Unity and Community BondingShowcasing its steadfast commitment towards the nation, Sembcorp Marine continued to sponsor and participate in Singapore’s National Day Parade (NDP) 2010, which was held for the first time at the Padang since 2005.

More than 90 staff from across the Group and its yards volunteered their time and effort to represent Sembcorp Marine in the parade’s Economic Defence

marching contingent. The participants also took part in a city march-past, which brought them past iconic landmarks and spectators beyond the parade grounds.

Support for the ArtsSembcorp Marine demonstrated its support for the arts and Brazilian culture by sponsoring the one-night only ‘Beija Flor Escola de Samba: Best of Rio Carnival’ performance on 8 September at the Esplanade Concert Hall. Performing for the first time in Asia, the performance brought the carnival spirit to life with a vivacious showcase of Brazilian music and dance.

Sponsorship of Beija Flor Brazilian performance.

Sembcorp Marine’s NDP contingent during the city march-past.

90

The Group also backed the Marsiling Chinese Orchestra’s efforts to promote Chinese orchestra education and appreciation within the community. The Orchestra held the ‘Ling III – Time Rhapsody’ Concert on 14 January 2011, graced by Senior Minister Mr Goh Chok Tong, at the Singapore Conference Hall. The Group also lent support to the National Museum of Singapore’s ‘A Night in Pompeii’ gala event during the year.

Industry OutreachSembcorp Marine and its yards embarked on a number of initiatives to strengthen ties with other industry partners. Apart from participating in leading marine and offshore engineering tradeshows, the Group also channelled its efforts to promote the development of the industry in Singapore.

Together with its subsidiaries, Sembcorp Marine showcased its capabilities at several key overseas events in 2010, including the Posidonia tradeshow in Greece, the Offshore Technology Conference and the Seatrade Cruise Convention in the United States as well as the Shipbuilding, Machinery & Marine Technology International Trade Fair in Germany.

To foster closer collaboration between Asia and Latin America, Sembcorp Marine also gave its full support to International Enterprise Singapore through its platinum sponsorship of the 7th LatinAsia Business Forum on 29 September. Officiated by Guest-of-Honour Mr Lim Hng Kiang, Minister for Trade and Industry, the event sought to provide delegates from Latin America and Asia opportunities to explore potential areas of collaboration across varied industry sectors.

To further raise the profile of Singapore’s maritime industry, the Group was a key sponsor of the first-ever Amazing Maritime Race, an island-wide competition jointly organised by the Maritime and Port Authority of Singapore, the Singapore Maritime Foundation, the Association of Singapore Marine Industries and the Singapore Shipping Association. Some 144 Sembcorp Marine employees joined other participants in the four-hour race to solve fun and interactive puzzles on the country’s maritime culture and heritage.

Sembcorp Marine was also a major sponsor of the Third Asian Maritime Law Conference, which was organised by the Maritime Law Association of Singapore to promote maritime law awareness among industry professionals.

Networking at Offshore Technology Conference.

Contributions to the Community

Support for the arts - Marsiling Chinese Orchestra.


91

Caring for the Environment

Green Commitment High standards of environmental management continued to be upheld by Sembcorp Marine and its yards. Certified to the internationally recognised ISO 14001:2004 standard, Sembawang Shipyard and SMOE maintained stringent systems and processes to minimise the environmental impact of their operations. During the year, SMOE was successfully re-certified by Det Norske Veritas, a leading certification body.

Green MindsetTo foster a green mindset among employees, Sembcorp Marine and its yards held regular briefings during the year to encourage recycling and resource conservation. Housekeeping efforts were also carried out by the yards on a regular basis to ensure that work areas were clean and tidy. The opening of a garden within Sembawang Shipyard helped to further heighten green awareness and promote environmental care.

To engage the young generation in protecting the environment, Sembawang Shipyard continued to organise the Green Wave Environmental Care Competition for Schools in collaboration with its alliance partners Shell International Trading and Shipping Company and BP Shipping. Now in its ninth year, the competition achieved a breakthrough level of participation, with a record 312 project entries involving more than 1,250 students from primary and secondary schools, junior colleges, the Institute of Technical Education and tertiary institutions. This translated to a more than two-fold increase in participation rate since the competition’s first year in 2003.

To build a sustainable and greener future, Sembcorp Marine continued its efforts to protect and conserve the environment. Besides adopting green practices, the Group also reached out to promote environmental care and protection among employees, stakeholders and the community.

Green corner within Sembawang Shipyard.

Launch of Green Wave Environmental Care Competition 2011.

92

Caring for the Environment

Out of the entries received, 49 teams were honoured for their outstanding green projects at an awards presentation ceremony, with winners receiving attractive cash prizes of up to $10,000. Winners of the junior college and tertiary categories were also offered development attachments at Shell, BP and their affliate companies as well as Sembawang Shipyard.

JPL Industries, a Sembcorp Marine subsidiary, demonstrated its commitment to the environment through its continued sponsorship of the Semakau Run 2010 held at Singapore’s only landfill island. Jointly organised by National Environment Agency and MediaCorp, the event was held in support of several beneficiaries, including the Singapore Environment Council, Singapore Institute of International Affairs, Nature Society (Singapore), HCA Hospice Care and Rainbow Centre (Yishun Park School).

Eco-friendly OperationsSembcorp Marine’s yards continued to adopt eco-friendly practices in their operations in the areas of water management, energy conservation and waste management.

The Group worked at reducing water wastage across its yards. Wherever possible, water-saving devices like thimbles and flow regulators were installed. NEWater continued to be used in the yards for cooling towers and toilet flushing systems as well as the washing of ship hulls and tanks.

Sembcorp Marine remained committed to reducing its carbon footprint generated from energy consumption. Automatic timers were installed in the yards to regulate power usage for utilities and equipment. Energy-efficient lighting systems and air-conditioning units were also used for conserving power. At Jurong Shipyard, the workshops were further fitted with transparent roofing sheets to maximise the use of natural lighting.

During the year, Sembcorp Marine took a step further to minimise paper-based waste by launching its first eco-friendly annual report. The 2009 annual report and other shareholders’ circulars were delivered via CDs to recipients. As the initiative was well received, the Group continued to adopt this green approach in the distribution of its 2010 annual report.

Green FutureSembcorp Marine’s Integrated New Yard facility currently under construction at Tuas View Extension was designed with environmentally friendly features. In addition to meeting the Green Mark certification, the workshops in the new yard would incorporate energy-monitoring systems to regulate and fine-tune electricity usage, resulting in cost savings and energy efficiencies.

JPL Industries Chairman and Director Mr Lee Yeok Hoon receiving a memento during Semakau Run 2010.

Energy conservation through using natural lighting at the workshops.


93

General Information 94

Directors’ Report 95

Statement by Directors 118

Independent Auditors’ Report 119

Balance Sheets 121

Income Statements 122

Statements of Comprehensive Income 123

Consolidated Statement of Changes in Equity 124

Statement of Changes in Equity 128

Consolidated Cash Flow Statement 130

Notes to the Financial Statements 132

Supplementary Information 196

Major Properties 198

Notice of Annual General Meeting 199

Proxy Form 203

Contents

94

General Information

DirectorsGoh Geok Ling ChairmanRichard Hale, OBE Deputy Chairman Wong Weng Sun President and CEO Tan Kwi Kin Tan Pheng HockAjaib HaridassTang Kin FeiRon Foo Siang Guan Joseph Kwok Sin Kin (Retired on 20 April 2010) Ngiam Joke Mui Lim Ah DooKoh Chiap Khiong (Appointed on 1 July 2010 as alternate director to Ngiam Joke Mui)

Joint Company SecretariesTan Yah Sze Kwong Sook May

RegistrarKCK Corpserve Pte Ltd333 North Bridge Road#08-00 KH Kea BuildingSingapore 188721

Registered Office29 Tanjong Kling RoadSingapore 628054

AuditorsKPMG LLPAudit PartnerTan Wah Yeow (Appointed since 2008)


95

We are pleased to submit this annual report to the members of the Company together with the audited financial statements for the financial year ended 31 December 2010.

DirectorsThe directors in office at the date of this report are as follows:

Goh Geok Ling ChairmanRichard Hale, OBE Deputy ChairmanWong Weng Sun President and CEOTan Kwi KinTan Pheng HockAjaib HaridassTang Kin FeiRon Foo Siang Guan Ngiam Joke Mui Lim Ah DooKoh Chiap Khiong (Appointed on 1 July 2010 as alternate director to Ngiam Joke Mui)

Directors’ interests in shares, share options and debenturesAccording to the register kept by the Company for the purposes of Section 164 of the Singapore Companies Act, Chapter 50 (the Act), particulars of interests of directors who held office at the end of the financial year (including those held by their spouses and infant children) in shares, debentures, warrants and share options in the Company and in related corporations are as follows:

Name of director and corporation in which interests are held

Description of interests

Exercise period

Shareholdings registered in the name of director,

spouse or infant children

Other shareholdings in which the director is deemed

to have an interest

At beginning of the year

/ date of appointment

At endof the year

At 21/01/2011



At end of the year

At 21/01/2011

Goh Geok LingSembcorp Marine Ltd Ordinary shares – 13,347 127,694 127,694 – – –

Options to subscribe for ordinary shares

- at $2.38 per share 03/10/2007 to 02/10/2011

196,000 106,000 106,000 – – –

Conditional award of30,800 restricted shares to be delivered after 2008 (Note 4a)

– 26,693 13,346 13,346 – – –

Conditional award of 22,000 restricted shares to be delivered after 2009 (Note 5a)

– 0 to 33,000 22,000 22,000 – – –


– 0 to 43,500 0 to 43,500 0 to 43,500 – – –

Directors’ Report

96



Exercise period




to have an interest



At end of the year

At 21/01/2011



At end of the year

At 21/01/2011

Goh Geok Ling (cont’d)Sembcorp Marine Ltd(cont’d)

Conditional award of 20,500 restricted shares to be delivered in 2011 (Note 7)

– – 20,500 20,500 – – –

Sembcorp Industries Ltd

Ordinary shares – 327,630 440,136 440,136 47,000 47,000 47,000


- at $2.37 per share 02/07/2006 to 01/07/2010

26,250 – – – – –

- at $2.36 per share 22/11/2006 to 21/11/2010

26,250 – – – – –

- at $2.52 per share 10/06/2007 to 09/06/2011

70,000 17,500 17,500 – – –

Conditional award of 13,982 restricted shares to be delivered after 2008 (Note 4b)

– 6,058 3,028 3,028 – – –


– 0 to 20,550 8,950 8,950 – – –


– 0 to 20,550 0 to 20,550 0 to 20,550 – – –


– – 13,700 13,700 – – –

Richard Hale, OBESembcorp Marine Ltd Conditional award of

22,000 restricted shares to be delivered after 2010 (Note 6a)

– 0 to 33,000 0 to 33,000 0 to 33,000 – – –


– – 14,700 14,700 – – –


Ordinary shares – 238,760 309,324 309,324 – – –


- at $2.37 per share 02/07/2006 to 01/07/2010

26,250 – – – – –

Directors’ Report


97



Exercise period




to have an interest



At end of the year

At 21/01/2011



At end of the year

At 21/01/2011

Richard Hale, OBE (cont’d)Sembcorp Industries Ltd (cont’d)


- at $2.36 per share 22/11/2006 to 21/11/2010

35,000 – – – – –

- at $2.52 per share 10/06/2007 to 09/06/2011

140,000 140,000 140,000 – – –

Conditional award of 17,350 restricted shares to be delivered after 2008 (Note 4c)

– 7,518 3,758 3,758 – – –


– 0 to 25,500 11,106 11,106 – – –


– 0 to 25,500 0 to 25,500 0 to 25,500 – – –


– – 17,000 17,000 – – –

Wong Weng SunSembcorp Marine Ltd Ordinary shares – 1,115,040 1,403,502 1,403,502 – – –


- at $0.71 per share 09/08/2004 to 08/08/2013

57,750 57,750 57,750 – – –

- at $0.74 per share 11/08/2005 to 10/08/2014

126,000 126,000 126,000 – – –

- at $2.11 per share 12/08/2006 to 11/08/2015

350,000 350,000 350,000 – – –

- at $2.38 per share 03/10/2007 to 02/10/2016

175,000 175,000 175,000 – – –

Conditional award of 175,000 performance shares to be delivered after 2009 (Note 1a)

– 0 to 262,500 – – – – –


– 0 to 187,500 0 to 187,500 0 to 187,500 – – –

Conditional award of 150,000 performance shares to be delivered after 2011 (Note 2b)

– 0 to 225,000 0 to 225,000 0 to 225,000 – – –

Directors’ Report

98

Directors’ Report



Exercise period




to have an interest



At end of the year

At 21/01/2011



At endof the year

At 21/01/2011

Wong Weng Sun (cont’d)

Sembcorp Marine Ltd (cont’d)

Conditional award of 250,000 performance shares to be delivered after 2012 (Note 2c)

– – 0 to 375,000 0 to 375,000 – – –


– 16,128 – – – – –

Conditional award of 70,000 restricted shares to be delivered after 2008 (Note 4d)

– 60,666 30,332 30,332 – – –


– 0 to 75,000 50,000 50,000 – – –


– 0 to 112,500 0 to 112,500 0 to 112,500 – – –


– – 0 to 150,000 0 to 150,000 – – –


Ordinary shares – 37,500 79,000 79,000 – – –


- at $0.78 per share 03/06/2004 to 02/06/2013

1,250 – – – – –

- at $0.93 per share 19/11/2004 to 18/11/2013

1,250 – – – – –

- at $0.99 per share 18/05/2005 to 17/05/2014

2,500 – – – – –

- at $1.16 per share 23/11/2005 to 22/11/2014

7,500 – – – – –

- at $2.37 per share 02/07/2006 to 01/07/2015

7,500 – – – – –

- at $2.36 per share 22/11/2006 to 21/11/2015

7,500 – – – – –

- at $2.52 per share 10/06/2007 to 09/06/2016

14,000 – – – – –


99

Directors’ Report



Exercise period




to have an interest



At end of the year

At 21/01/2011



At end of the year

At 21/01/2011

Tan Kwi Kin

Sembcorp Marine Ltd Ordinary shares – 6,570,711 7,873,010 7,873,010 – – –


- at $0.71 per share 09/08/2004 to 08/08/2013

520,000 – – – – –

- at $0.74 per share 11/08/2005 to 10/08/2014

980,000 780,000 780,000 – – –

- at $2.11 per share 12/08/2006 to 11/08/2015

980,000 980,000 980,000 – – –

- at $2.38 per share 03/10/2007 to 02/10/2016

420,000 420,000 420,000 – – –


– 0 to 525,000 – – – – –


– 0 to 375,000 0 to 375,000 0 to 375,000 – – –


– 37,632 – – – – –

Conditional award of 140,000 restricted shares to be delivered after 2008 (Note 4e)

– 121,333 60,666 60,666 – – –

Conditional award of 100,000 restricted shares to be delivered after 2009 (Note 5e)

– 0 to 150,000 100,000 100,000 – – –


– – 6,400 6,400 – – –


Ordinary shares – 127,750 174,625 174,625 – – –


- at $1.16 per share 23/11/2005 to 22/11/2014

3,125 – – – – –

- at $2.37 per share 02/07/2006 to 01/07/2015

9,375 – – – – –

- at $2.36 per share 22/11/2006 to 21/11/2015

9,375 – – – – –

- at $2.52 per share 10/06/2007 to 09/06/2016

25,000 – – – – –

100

Directors’ Report



Exercise period




to have an interest



At end of the year

At 21/01/2011



At end of the year

At 21/01/2011

Tan Pheng Hock

Sembcorp Marine Ltd Ordinary shares – 303,870 328,490 340,740 – – –


- at $2.38 per share 03/10/2007 to 02/10/2011

24,500 12,250 – – – –

Conditional award of 14,700 restricted shares to be delivered after 2008 (Note 4f)

– 12,740 6,370 6,370 – – –


– 0 to 18,000 12,000 12,000 – – –


– 0 to 18,000 0 to 18,000 0 to 18,000 – – –


– – 8,300 8,300 – – –

Ajaib Haridass



- at $2.38 per share 03/10/2007 to 02/10/2011

70,000 35,000 – – – –

Conditional award of 28,700 restricted shares to be delivered after 2008 (Note 4g)

– 24,873 12,436 12,436 – – –

Conditional award of 19,000 restricted shares to be delivered after 2009 (Note 5g)

– 0 to 28,500 19,000 19,000 – – –


– 0 to 28,500 0 to 28,500 0 to 28,500 – – –


– – 12,800 12,800 – – –


101

Directors’ Report



Exercise period




to have an interest



At end of the year

At 21/01/2011



At end of the year

At 21/01/2011

Tang Kin Fei



- at $2.11 per share 12/08/2006 to 11/08/2010

7,000 – – – – –

- at $2.38 per share 03/10/2007 to 02/10/2011

73,500 24,500 – – – –

Conditional award of 18,900 restricted shares to be delivered after 2008 (Note 4h)

– 16,380 8,190 8,190 – – –


– 0 to 18,000 12,000 12,000 – – –


– 0 to 25,500 0 to 25,500 0 to 25,500 – – –


– – 11,500 11,500 – – –


Ordinary shares – 2,782,084 3,024,405 3,024,405 – – –


- at $2.37 per share 02/07/2006 to 01/07/2015

150,000 150,000 150,000 – – –

- at $2.36 per share 22/11/2006 to 21/11/2015

150,000 150,000 150,000 – – –

- at $2.52 per share 10/06/2007 to 09/06/2016

300,000 300,000 300,000 – – –


– 0 to 612,360 – – – – –


– 0 to 600,000 0 to 600,000 0 to 600,000 – – –


– 0 to 600,000 0 to 600,000 0 to 600,000 – – –

102

Directors’ Report



Exercise period




to have an interest



At end of the year

At 21/01/2011



At end of the year

At 21/01/2011

Tang Kin Fei (cont’d)

Sembcorp Industries Ltd (cont’d)


– – 0 to 600,000 0 to 600,000 – – –


– 30,414 – – – – –

Conditional award of 128,596 restricted shares to be delivered after 2008 (Note 4i)

– 55,724 27,861 27,861 – – –

Conditional award of 126,000 restricted shares to be delivered after 2009 (Note 5h)

– 0 to 189,000 82,320 82,320 – – –


– 0 to 189,000 0 to 189,000 0 to 189,000 – – –


– – 0 to 189,000 0 to 189,000 – – –

Sembcorp Financial Services Pte Ltd

Fixed Rate Notes issued under the $1.5 Billion Multicurrency Medium Term Note Programme (Note 8) :

- Due 2014 – Principal Amount:

$500,000

Principal Amount:

$500,000

Principal Amount:

$500,000

– – –

- Due 2020 – – Principal Amount:

$500,000

Principal Amount:

$500,000

– – –

Ron Foo Siang Guan

Sembcorp Marine Ltd Ordinary shares – 36,494 60,488 60,488 28,000 28,000 28,000


- at $2.38 per share 03/10/2007 to 02/10/2011

14,000 7,000 7,000 – – –

Conditional award of 19,600 restricted shares to be delivered after 2008 (Note 4j)

– 16,986 8,492 8,492 – – –


103

Directors’ Report



Exercise period




to have an interest



At end of the year

At 21/01/2011



At end of the year

At 21/01/2011

Ron Foo Siang Guan (cont’d)

Sembcorp Marine Ltd (cont’d)

Conditional award of 17,000 restricted shares to be delivered after 2009 (Note 5i)

– 0 to 25,500 17,000 17,000 – – –


– 0 to 25,500 0 to 25,500 0 to 25,500 – – –


– – 11,500 11,500 – – –


Ordinary shares – 52,820 52,820 52,820 – – –

Ngiam Joke Mui



- at $2.38 per share 03/10/2007 to 02/10/2016

14,000 7,000 7,000 – – –

Conditional award of 9,000 restricted shares to be delivered after 2009 (Note 5j)

– 0 to 13,500 9,000 9,000 – – –


– 0 to 13,500 0 to 13,500 0 to 13,500 – – –


– – 6,400 6,400 – – –


Ordinary shares – 720,626 1,005,294 1,005,294 – – –


- at $2.37 per share 02/07/2006 to 01/07/2015

62,500 – – – – –

- at $2.36 per share 22/11/2006 to 21/11/2015

62,500 – – – – –

- at $2.52 per share 10/06/2007 to 09/06/2016

93,750 – – – – –

104



Exercise period




to have an interest



At end of the year

At 21/01/2011



At end of the year

At 21/01/2011

Ngiam Joke Mui (cont’d)

Sembcorp Industries Ltd (cont’d)

Conditional award of 81,648 performance shares to be delivered after 2009 (Note 1d)

– 0 to 122,472 – – – – –


– 0 to 120,000 0 to 100,000 0 to 100,000 – – –


– 0 to 120,000 0 to 60,000 0 to 60,000 – – –


– – 0 to 20,000 0 to 20,000 – – –


– 12,673 – – – – –

Conditional award of 53,582 restricted shares to be delivered after 2008 (Note 4k)

– 23,218 – – – – –

Conditional award of 52,500 restricted shares to be delivered after 2009 (Note 5k)

– 0 to 78,750 – – – – –


– 0 to 78,750 0 to 59,063 0 to 59,063 – – –


– – 0 to 19,687 0 to 19,687 – – –

Sembcorp Financial Services Pte Ltd

Fixed / Floating Rate Notes issued under the $1.5 Billion Multicurrency Medium Term Note Programme Due 2020 (Note 8)

– – Principal Amount:

$250,000

Principal Amount:

$250,000

– – –

Directors’ Report


105

Directors’ Report



Exercise period




to have an interest



At end of the year

At 21/01/2011



At end of the year

At 21/01/2011

Lim Ah Doo

Sembcorp Marine Ltd Conditional award of 9,000 restricted shares to be delivered after 2010 (Note 6a)

– 0 to 13,500 0 to 13,500 0 to 13,500 – – –


– – 11,500 11,500 – – –


Ordinary shares – 9,768 9,768 9,768 – – –

Koh Chiap Khiong


Ordinary shares – 13,067 13,067 13,067 – – –


– 0 to 75,000 0 to 75,000 0 to 75,000 – – –


– 0 to 75,000 0 to 75,000 0 to 75,000 – – –

Conditional award of 40,000 restricted shares to be delivered after 2009 (Note 5l)

– 26,133 26,133 26,133 – – –


– 0 to 47,250 0 to 47,250 0 to 47,250 – – –


– 0 to 47,250 0 to 47,250 0 to 47,250 – – –

106

Directors’ Report

Note 1: The actual number delivered will depend on the achievement of set targets over a 3-year period from 2007 to 2009. Achievement of targets below threshold level will mean no performance shares will be delivered, while achievement up to 150% will mean up to 1.5 times the number of conditional performance shares awarded could be delivered.

(a) For this period, 217,000 shares were released on 12 March 2010.

(b) For this period, 434,000 shares were released on 12 March 2010.

(c) For this period, 142,884 shares were released on 10 March 2010.

(d) For this period, 28,577 shares were released on 10 March 2010.

Note 2: The actual number delivered will depend on the achievement of set targets over a 3-year period as indicated below. Achievement of targets below threshold level will mean no performance shares will be delivered, while achievement up to 150% will mean up to 1.5 times the number of conditional performance shares awarded could be delivered.

(a) Period from 2008 to 2010

(b) Period from 2009 to 2011

(c) Period from 2010 to 2012

Note 3: The actual number to be released will depend on the achievement of set targets over a 2-year period from 2006 to 2007. Achievement of targets below threshold level will mean no restricted shares will be delivered, while achievement up to 130% will mean up to 1.3 times the number of conditional restricted shares awarded could be delivered.

(a) For this period, 16,128 shares (final release of 1/3 of the 48,384 shares) were released under the award on 12 March 2010. The 1st and 2nd release of 16,128 shares each have been released in 2008 and 2009 respectively.

(b) For this period, 37,632 shares (final release of 1/3 of the 112,896 shares) were released under the award on 12 March 2010. The 1st and 2nd release of 37,632 shares each have been released in 2008 and 2009 respectively.

(c) For this period, 30,414 shares (final release of 1/3 of the 91,246 shares) were released under the award on 10 March 2010. The 1st and 2nd release of 30,416 shares each have been released in 2008 and 2009 respectively.

(d) For this period, 12,673 shares (final release of 1/3 of the 38,019 shares) were released under the award on 10 March 2010. The 1st and 2nd release of 12,673 shares each have been released in 2008 and 2009 respectively.


(a) For this period, 13,347 shares (2nd release of 1/3 of the 40,040 shares) were released under the award on 12 March 2010 and the remaining 13,346 shares will be vested in year 2011. The 1st release of 13,347 shares has been released on 30 March 2009.

(b) For this period, 3,030 shares (2nd release of 1/3 of the 9,088 shares) were released under the award on 10 March 2010 and the remaining 3,028 shares will be vested in year 2011. The 1st release of 3,030 shares has been released on 27 March 2009.

(c) For this period, 3,760 shares (2nd release of 1/3 of the 11,278 shares) were released under the award on 10 March 2010 and the remaining 3,758 shares will be vested in year 2011. The 1st release of 3,760 shares has been released on 27 March 2009.

(d) For this period, 30,334 shares (2nd release of 1/3 of the 91,000 shares) were released under the award on 12 March 2010 and the remaining 30,332 shares will be vested in year 2011. The 1st release of 30,334 shares has been released on 30 March 2009.

(e) For this period, 60,667 shares (2nd release of 1/3 of the 182,000 shares) were released under the award on 12 March 2010 and the remaining 60,666 shares will be vested in year 2011. The 1st release of 60,667 shares has been released on 30 March 2009.

(f) For this period, 6,370 shares (2nd release of 1/3 of the 19,110 shares) were released under the award on 12 March 2010 and the remaining 6,370 shares will be vested in year 2011. The 1st release of 6,370 shares has been released on 30 March 2009.

(g) For this period, 12,437 shares (2nd release of 1/3 of the 37,310 shares) were released under the award on 12 March 2010 and the remaining 12,436 shares will be vested in year 2011. The 1st release of 12,437 shares has been released on 30 March 2009.

(h) For this period, 8,190 shares (2nd release of 1/3 of the 24,570 shares) were released under the award on 12 March 2010 and the remaining 8,190 shares will be vested in year 2011. The 1st release of 8,190 shares has been released on 30 March 2009.

(i) For this period, 27,863 shares (2nd release of 1/3 of the 83,587 shares) were released under the award on 10 March 2010 and the remaining 27,861 shares will be vested in year 2011. The 1st release of 27,863 shares has been released on 27 March 2009.

(j) For this period, 8,494 shares (2nd release of 1/3 of the 25,480 shares) were released under the award on 12 March 2010 and the remaining 8,492 shares will be vested in year 2011. The 1st release of 8,494 shares has been released on 30 March 2009.

(k) For this period, 11,610 shares (2nd release of 1/3 of the 34,828 shares) were released under the award on 10 March 2010 and the remaining 11,608 shares were released on 1 July 2010.* The 1st release of 11,610 shares has been released on 27 March 2009.


107

Directors’ Report


(a) For this period, 11,000 shares (1/3 of the 33,000 shares) were released under the award on 12 March 2010 and the remaining 22,000 shares will be vested in year 2011/2012.

(b) For this period, 4,476 shares (1/3 of the 13,426 shares) were released under the award on 10 March 2010 and the remaining 8,950 shares will be vested in year 2011/2012.

(c) For this period, 5,554 shares (1/3 of the 16,660 shares) were released under the award on 10 March 2010 and the remaining 11,106 shares will be vested in year 2011/2012.

(d) For this period, 25,000 shares (1/3 of the 75,000 shares) were released under the award on 12 March 2010 and the remaining 50,000 shares will be vested in year 2011/2012.

(e) For this period, 50,000 shares (1/3 of the 150,000 shares) were released under the award on 12 March 2010 and the remaining 100,000 shares will be vested in year 2011/2012.

(f) For this period, 6,000 shares (1/3 of the 18,000 shares) were released under the award on 12 March 2010 and the remaining 12,000 shares will be vested in year 2011/2012.

(g) For this period, 9,500 shares (1/3 of the 28,500 shares) were released under the award on 12 March 2010 and the remaining 19,000 shares will be vested in year 2011/2012.

(h) For this period, 41,160 shares (1/3 of the 123,480 shares) were released under the award on 10 March 2010 and the remaining 82,320 shares will be vested in year 2011/2012.

(i) For this period, 8,500 shares (1/3 of the 25,500 shares) were released under the award on 12 March 2010 and the remaining 17,000 shares will be vested in year 2011/2012.

(j) For this period, 4,500 shares (1/3 of the 13,500 shares) were released under the award on 12 March 2010 and the remaining 9,000 shares will be vested in year 2011/2012.

(k) For this period, 17,150 shares (1/3 of the 51,450 shares) were released under the award on 10 March 2010 and the remaining 34,300 shares were released on 1 July 2010.*

(l) For this period, 13,067 shares (1/3 of the 39,200 shares) were released under the award on 10 March 2010 and the remaining 26,133 shares will be vested in year 2011/2012.

Note 6: The actual number to be released will depend on the achievement of set targets at the end of the 2-year performance period as indicated below. Achievement of targets below threshold level will mean no restricted shares will be delivered, while achievement up to 150% will mean up to 1.5 times the number of conditional restricted shares awarded could be delivered.

(a) Period from 2009 to 2010

(b) Period from 2010 to 2011

Note 7: Shares granted will be vested 1 year from the date of grant.

Note 8: Fixed Rate Notes and Floating Rate Notes issued under the $1.5 Billion Multicurrency Medium Term Note Programme of Sembcorp Financial Services Pte Ltd, a related company of Sembcorp Industries Group.

* This arose as a result of retirement.

108

Directors’ Report

Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, debentures or share options 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.

Except as disclosed under the “Share-based Incentive Plans” section of 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 in or debentures of the Company or any other body corporate.

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 he is a member, or with a company in which he has a substantial financial interest, except:

(a) As disclosed in Note 25 to the financial statements on the payment of professional fees to a firm in which Mr Ajaib Haridass, a Director of the Company, is a member;

(b) As disclosed in Note 38 to the financial statements on the key management personnel compensation; and

(c) Certain Directors who have employment relationships with the holding company and received remuneration in those capacities.

Share-based Incentive Plans

The Company’s Share Option Plan, Performance Share Plan and Restricted Stock Plan (collectively, Share Plans) were approved and adopted by the shareholders at an Extraordinary General Meeting of the Company held on 31 May 2000 and modified at the Extraordinary General Meeting of the Company held on 21 April 2005.

The Executive Resource and Compensation Committee (the Committee) of the Company has been designated as the Committee responsible for the administration of the Share Plans. The Committee comprises the following members, all of whom are directors:

Goh Geok Ling ChairmanTan Pheng HockJoseph Kwok Sin Kin (Retired on 20 April 2010)Tang Kin Fei (Appointed on 20 April 2010)

The Share Option Plan and Restricted Stock Plan are the incentive schemes for directors and employees of the Company and its subsidiaries (the Group) whereas the Performance Share Plan is aimed primarily at key executives of the Group.

The Share Plans are intended to attract, retain and incentivise participants to higher standards of performance and encourage greater dedication and loyalty by enabling the Company to give recognition to past contributions and services; as well as motivating participants to contribute to the long-term prosperity of the Group.

The Share Option Plan provides the Company with means whereby non-executive directors and employees of the Group, and certain categories of persons who can make significant contributions through their close working relationship with the Group, such as employees of the Company’s Parent Group and non-executive directors and employees of the Company’s associates, are given an opportunity to participate in the equity of the Company. From 2007 onwards, no share options were granted.


109

Directors’ Report

The Company designates Sembcorp Industries Ltd as the Parent Group.

During the year, the Share Plans expired and the new Share Plans comprising Performance Share Plan (SCM PSP 2010) and Restricted Stock Plan (SCM RSP 2010) (collectively referred to as the New Share Plans) were approved and adopted by the share holders at an Extraordinary General Meeting of the Company held on 20 April 2010. The Share Option Plan was not replaced. The New Share Plans are proposed to increase the Company’s flexibility and effectiveness in its continuing efforts to reward, retain and motivate employees to achieve superior performance. The New Share Plans will strengthen the Company’s competitiveness in attracting and retaining talented key senior management and senior executives. The SCM RSP 2010 is intended to apply to a broad base of senior executives as well as to the non-executive directors, while the SCM PSP 2010 is intended to apply to a select group of key senior management. Generally, it is envisaged that the range of performance targets to be set under the SCM RSP 2010 and the SCM PSP 2010 will be different, with the latter emphasising stretched or strategic targets aimed at sustaining longer term growth. The New Share Plans will provide incentives to high performing key senior management and senior executives to excel in their performance and encourage greater dedication and loyalty to the Company. Through the New Share Plans, the Company will be able to motivate key senior management and senior executives to continue to strive for the Group’s long-term shareholder value. In addition, the New Share Plans aim to foster a greater ownership culture within the Group which align the interests of Participants with the interests of Shareholders, and to improve performance and achieve sustainable growth for the Company in the changing business environment. The New Share Plans use methods fairly common among major local and multinational companies to incentivise and motivate key senior management and senior executives to achieve pre-determined targets which create and enhance economic value for Shareholders. The Company believes that the New Share Plans will be effective tools in motivating key senior management and senior executives to strive to deliver long-term shareholder value. While the New Share Plans cater principally to Group Executives, it is recognised that there are other persons who can make significant contributions to the Group through their close working relationship with the Group. Such persons include employees of associates over which the Company has operational control. A Participant’s Awards under the New Share Plans will be determined at the sole discretion of the Committee. In considering an Award to be granted to a Participant, the Committee may take into account, inter alia, the Participant’s performance during the relevant period, and his capability, entrepreneurship, scope of responsibility and skill set. As at 31 December 2010, no new shares were granted under the New Share Plans. All shares granted during the year were awarded under the Share Plans approved and adopted by the shareholders at an Extraordinary General Meeting of the Company held on 31 May 2000. Other information regarding the Share Plan is as follows:

110

Directors’ Report

Sembcorp Marine Share Option Plan

Under the rules of the Share Option Plan, participants who ceased to be employed by the Group, Parent Group or associate by reason of ill health, injury or disability, redundancy, retirement at or after the legal retirement age, retirement before the legal retirement age, death, etc, or any other event approved by the Committee, may be allowed by the Committee to retain their unexercised options. The Committee may determine the number of shares comprised in that option which may be exercised and the period during which such option shall be exercisable, being a period not later than the expiry of the exercise period in respect of that option. Such option may be exercised at any time notwithstanding that the date of exercise of such option falls on a date prior to the first day of the exercise period in respect of such option.

Other information regarding the Share Option Plan is as follows:

(i) The exercise price of the options can be set at market price or a discount to the market price not exceeding 20% of the market price in respect of options granted at the time of grant. Market price is the volume-weighted average price for the shares on the Singapore Exchange Limited (Singapore Exchange) over the three consecutive trading days prior to grant date of that option. For all options granted to date, the exercise prices are set at market price.

(ii) After the first 12 months of lock-out period, the Group imposed a further vesting of 4 years for managers and above for retention purposes.

(iii) In 2010 and 2009, all options were either settled by the issuance of treasury shares or by the issuance of new shares.

(iv) The options granted expire after 5 years for non-executive directors and employees of the Company’s associates, and 10 years for the employees of Group and Parent Group.


111

Directors’ ReportSe

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01$0

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2,00

0)(2

,800

)54

,810

999

,610

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9/20

02 to

27/

09/2

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02$0

.64

308,

450

(142

,550

)(4

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)16

1,70

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308,

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161,

700

9108

/11/

2003

to 0

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(661

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/08/

2004

to 0

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/08/

2005

to 1

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(203

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)–

––

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–42

812

/08/

2006

to 1

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)(3

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239

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213,

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/08/

2006

to 1

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(396

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)–

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/10/

2007

to 0

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,311

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)(1

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orp

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as $

4.12

(200

9: $

2.67

).

112

Directors’ Report

Sembcorp Marine Share Option Plan (cont’d)

The details of options of the Company granted/exercised since commencement of the Scheme up to 31 December 2010 were as follows:

Option participantsAggregate

options granted

Aggregate options

cancelled/lapsed/

not accepted

Aggregate options

exercised

Aggregate options

outstanding

Directors of the Company

Goh Geok Ling 196,000 – (90,000) 106,000

Wong Weng Sun 1,208,500 – (499,750) 708,750

Tan Kwi Kin 6,900,000 – (4,720,000) 2,180,000

Tan Pheng Hock 269,500 – (257,250) 12,250

Ajaib Haridass 403,000 – (368,000) 35,000

Tang Kin Fei 124,000 – (99,500) 24,500

Ron Foo Siang Guan 28,000 – (21,000) 7,000

Ngiam Joke Mui 122,000 – (115,000) 7,000

Former Directors of the Company 7,424,300 – (7,417,300) 7,000

Other executives 115,977,395 (13,945,191) (93,638,730) 8,393,474

At 31 December 2010 132,652,695 (13,945,191) (107,226,530) 11,480,974

Sembcorp Marine Performance Share Plan

Under the Performance Share Plan, the awards granted conditional on performance targets are set based on medium-term corporate objectives at the start of each rolling three-year performance qualifying period. A specific number of performance shares shall be awarded at the end of the three-year performance cycle depending on the extent of the achievement of the performance conditions established at the onset.

The performance levels were calibrated based on Wealth Added and Total Shareholder Return. A minimum threshold performance must be achieved to trigger an achievement factor, which in turn determines the number of shares to be finally awarded. Performance shares to be delivered will range between 0% to 150% of the conditional performance shares awarded.


113

Directors’ Report

Sembcorp Marine Performance Share Plan (cont’d)

From 2009 onwards, the Performance Share Plan was enhanced to create alignment between senior management and other employees at the time of vesting by introducing a plan trigger. Under this trigger mechanism, the performance shares for the performance period 2010 to 2012 will be vested to the senior management participants only if the restricted shares for the performance period 2011 to 2012 are vested, subject to the achievement of the performance conditions for the respective performance periods.

Senior management participants are required to hold a minimum percentage of the shares released to them under the Performance Share Plan to maintain a beneficial ownership stake in the Group, for the duration of their employment or tenure with the Group. A maximum cap is set based on a multiple of the individual participant’s Annual Base Salary. Any excess can be sold off, but in the event of a shortfall, they have a two calendar year period to meet the minimum percentage requirement.

The details of performance shares of the Company awarded since commencement of the Performance Share Plan up to 31 December 2010 were as follows:

Performance Shares participants

Conditional performance

shares awarded

during the year

Aggregate conditional

performance shares

awarded


performance shares

released


performance shares lapsed

Additional performance

shares awarded

arising from targets met

during the year


performance shares

outstandingDirectors of the Company

- Wong Weng Sun 250,000 1,155,000 (600,600) (71,400) 42,000 525,000

- Tan Kwi Kin – 3,100,000 (2,329,900) (604,100) 84,000 250,000

Former alternate director of the Company

– 800,000 (461,000) (339,000) – –

Key management and executives of the Group

385,000 2,682,500 (1,418,200) (178,500) 109,200 1,195,000

At 31 December 2010 635,000 7,737,500 (4,809,700) (1,193,000) 235,200 1,970,000

With the Committee’s approval on the achievement factor for the achievement of the performance targets for the performance period 2007 to 2009, a total of 1,215,200 (2009: 411,600) performance shares were released via the issuance of treasury shares.

In 2010, there were additional 235,200 (2009: nil) performance shares awarded for over-achievement of the performance targets.

The total number of performance shares in awards granted conditionally and representing 100% of targets to be achieved, but not released as at 31 December 2010, was 1,970,000 (2009: 2,315,000). Based on the multiplying factor, the actual release of the awards could range from zero to a maximum of 2,955,000 (2009: of 3,472,500) performance shares.

114

Directors’ Report

Sembcorp Marine Restricted Stock Plan

Under the Restricted Stock Plan, the awards granted conditional on performance targets are set based on corporate objectives at the start of each rolling two-year performance qualifying period. The performance criteria for the restricted shares are calibrated based on Return on Equity and Earnings Before Interest and Taxes for awards granted in 2010.

A minimum threshold performance must be achieved to trigger an achievement factor, which in turn determines the number of shares to be finally awarded. Based on the criteria, restricted shares to be delivered will range from 0% to 150% of the conditional restricted shares awarded.

The managerial participants of the Group will be awarded restricted shares under the Restricted Stock Plan, while the non-managerial participants of the Group will receive their awards in an equivalent cash value. This cash-settled notional restricted shares award for non-managerial participants is known as the Sembcorp Marine Challenge Bonus.

A specific number of restricted shares shall be awarded at the end of the two-year performance cycle depending on the extent of the achievement of the performance conditions established at the onset. There is a further vesting of three years after the performance period, during which one-third of the awarded shares are released each year to managerial participants. Non-managerial participants will receive the equivalent in cash at the end of the two-year performance cycle, with no further vesting conditions.

Senior management participants are required to hold a minimum percentage of the shares released to them under the Restricted Stock Plan to maintain a beneficial ownership stake in the Group, for the duration of their employment or tenure with the Group. A maximum cap is set based on a multiple of the individual participant’s Annual Base Salary. Any excess can be sold off, but in the event of a shortfall, they have a two calendar year period to meet the minimum percentage requirement.

There is no performance condition for the conditional award of the restricted shares granted to non-executive directors in 2010. Shares granted will be vested 1 year from the date of grant.


115

Sembcorp Marine Restricted Stock Plan (cont’d)

The details of restricted shares of the Company awarded since commencement of the Restricted Stock Plan up to 31 December 2010 were as follows:

Restricted Shares participants

Conditional restricted

shares awarded

during the year

Aggregate conditional restricted

shares awarded

Aggregateconditional restricted

shares lapsed

Additional restricted

shares awarded

arising from targets met during the

year


shares released


shares outstanding


Goh Geok Ling 20,500 111,540 – 11,000 (37,694) 84,846

Richard Hale, OBE 14,700 36,700 – – – 36,700

Wong Weng Sun 100,000 364,384 – 25,000 (134,052) 255,332

Tan Kwi Kin 6,400 401,296 – 50,000 (284,230) 167,066

Tan Pheng Hock 8,300 51,410 – 6,000 (18,740) 38,670

Ajaib Haridass 12,800 88,110 – 9,500 (34,374) 63,236

Tang Kin Fei 11,500 65,070 – 6,000 (22,380) 48,690

Ron Foo Siang Guan 11,500 70,980 – 8,500 (25,488) 53,992

Ngiam Joke Mui 6,400 24,400 – 4,500 (4,500) 24,400

Lim Ah Doo 11,500 20,500 – – – 20,500

Former Directors of the Company – 126,480 (24,805) 20,000 (109,675) 12,000

Other executives 3,290,600 16,698,278 (1,006,651) 1,534,750 (6,651,506) 10,574,871

At 31 December 2010 3,494,200 18,059,148 (1,031,456) 1,675,250 (7,322,639) 11,380,303

With the Committee’s approval on the achievement factor for the achievement of the performance targets for the performance period 2008 to 2009, a total of 1,791,238 restricted shares were released. For awards in relation to the performance period 2007 to 2008, a total of 1,561,953 (2009: 1,956,117) restricted shares were released in 2010. For awards in relation to the performance period 2006 to 2007, a total of 575,764 (2009: 729,439) restricted shares were released in 2010. The restricted shares were either released via the issuance of treasury shares or the issuance of new shares.

In 2010, additional 1,675,250 (2009: 1,182,233) restricted shares were awarded for the over-achievement of the performance targets for the performance period 2008 to 2009 (2009: 2007 to 2008).

Directors’ Report

116

Sembcorp Marine Restricted Stock Plan (cont’d)

The total number of restricted shares outstanding, including awards achieved but not released, as at 31 December 2010, was 11,380,303 (2009: 10,406,962). Of this, the total number of restricted shares in awards granted conditionally and representing 100% of targets to be achieved, but not released was 6,615,930 (2009: 6,709,730). Based on the multiplying factor, the actual release of the awards could range from zero to a maximum of 9,923,895 (2009: 10,064,595) restricted shares.

Sembcorp Marine Challenge Bonus

With the Committee’s approval on the achievement factor for the achievement of the performance targets for the performance period 2008 to 2009 (2009: 2007 to 2008), a total of $3,785,714 (2009: $1,678,905), equivalent to 1,030,600 (2009: 1,203,602) notional restricted shares, were paid.

A total of 1,234,400 (2009: 1,130,050) notional restricted shares were awarded on 19 April 2010 (2009: 13 April 2009) for the Sembcorp Marine Challenge Bonus.

The total number of notional restricted shares in awards for the Sembcorp Marine Challenge Bonus granted conditionally and representing 100% of targets to be achieved, but not released as at 31 December 2010, was 2,149,950 (2009: 1,928,700). Based on the multiplying factor, the number of notional restricted shares to be converted into the funding pool could range from zero to a maximum of 3,224,925 (2009: 2,893,050).

Directors’ Report


117

Directors’ Report

Audit Committee

The members of the Audit Committee during the year and at the date of this report are:

Lim Ah Doo ChairmanRichard Hale, OBERon Foo Siang Guan

The Audit Committee held six meetings during the financial year. In performing its functions, the Audit Committee met with the Company’s external and internal auditors to discuss the scope of their work, the results of their examination and evaluation of the Company’s internal accounting control system.

The Audit Committee performs the functions specified in Section 201B of the Act, the SGX Listing Manual and the Code of Corporate Governance and its Terms of Reference.

The Audit Committee also reviewed the following:

• assistance provided by the Company’s officers to the internal and external auditors;

• quarterly financial information and annual financial statements of the Group and the Company prior to their submission to the directors of the Company for adoption;

• interested person transactions (as defined in Chapter 9 of the SGX Listing Manual);

• internal audit plans and internal audit reports; and

• whistle-blowers’ disclosures.

The Audit Committee has full access to the management and is given the resources required for it to discharge its functions. It has full authority and the discretion to invite any director or executive officer to attend its meetings. The Audit Committee also recommends the appointment of the external auditors and reviews the level of audit and non-audit fees.

The Audit Committee is satisfied with the independence and objectivity of the external auditors and has recommended to the Board of Directors that the auditors, KPMG LLP, be nominated for re-appointment as auditors at the forthcoming Annual General Meeting of the Company.

Auditors

The auditors, KPMG LLP, have indicated their willingness to accept re-appointment.

On behalf of the Board of Directors

GOH GEOK LINGDirector

WONG WENG SUNDirector

Singapore25 February 2011

118

In our opinion:

(a) the financial statements set out on pages 121 to 195 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results and changes in equity of the Group and of the Company and cash flows of the Group 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

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

The Board of Directors has, on the date of this statement, authorised these financial statements for issue.

On behalf of the Board of Directors

GOH GEOK LINGDirector

WONG WENG SUNDirector


Statement by Directors


119

Independent Auditors’ Report

Report on the financial statements

We have audited the accompanying financial statements of Sembcorp Marine Ltd (the Company) and its subsidiaries (the Group), which comprise the balance sheets of the Group and the Company as at 31 December 2010, the income statements, statements of comprehensive income and statements of changes in equity of the Group and of the Company, and statement of cash flows of the Group for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 121 to 195.

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 from 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 judgment, 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.

Independent Auditors’ Report Members of the CompanySembcorp Marine Ltd

120

Opinion

In our opinion, the consolidated financial statements of the Group and the income statement, balance sheet, statement of comprehensive income 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 to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2010 and the results and changes in equity of the Group and of the Company and cash flows of the Group 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 LLPPublic Accountants andCertified Public Accountants


Independent Auditors’ Report


121

Group CompanyNote 2010 2009 2010 2009

$’000 $’000 $’000 $’000Non-current assetsProperty, plant and equipment 4 681,948 678,361 120,892 107,584Investment properties 5 – – 44,616 51,360Investments in subsidiaries 6 – – 482,616 629,076Investments in associates and joint ventures 7 306,956 267,774 107,369 107,369Other long term investments 8 286,856 165,783 195,561 113,377Long term trade receivables 9 10,845 14,701 10,832 14,505Other long term receivables 10 54,525 36,733 59,573 65,702Intangible assets 11 6,127 6,127 122 122Deferred tax assets 12 47 47 – – Derivative financial assets 13 31,714 181 – –

1,379,018 1,169,707 1,021,581 1,089,095

Current assetsInventories and work-in-progress 14 750,749 1,252,500 – – Trade receivables 9 153,397 228,881 17,903 30,404Other receivables, deposits and prepayments 10 40,104 55,308 8,381 9,142Derivative financial assets 13 40,805 2,604 – – Bank balances, fixed deposits and cash 15 2,915,097 1,978,548 169,011 15,846

3,900,152 3,517,841 195,295 55,392

Current liabilitiesTrade payables 16 1,453,815 1,565,550 43,023 33,117Other payables 17 8,429 26,682 60,481 45,561Provisions 18 55,383 60,601 – – Progress billings in excess of work-in-progress 14 645,704 696,031 – – Derivative financial liabilities 13 101 21,200 – – Provision for taxation 277,341 253,218 1,993 1,017Interest-bearing borrowings 19 8,000 12,000 – –

2,448,773 2,635,282 105,497 79,695

Net current assets/(liabilities) 1,451,379 882,559 89,798 (24,303)

Non-current liabilitiesDeferred tax liabilities 12 103,909 66,748 43,842 34,873Derivative financial liabilities 13 – 10,912 – – Other long term payables 17 8,804 – – 32,987Interest-bearing borrowings 19 – 8,000 – – Other provisions 20 30,758 6,198 27,895 2,895

143,471 91,858 71,737 70,755

2,686,926 1,960,408 1,039,642 994,037

Equity attributable to shareholders of the CompanyShare capital 21 456,561 443,347 456,561 443,347Reserves 22 2,142,842 1,440,723 583,081 550,690

2,599,403 1,884,070 1,039,642 994,037

Non-controlling interests 87,523 76,338 – –

Total equity 2,686,926 1,960,408 1,039,642 994,037

Balance Sheets As at 31 December 2010

The accompanying notes form an integral part of these financial statements.

122


$’000 $’000 $’000 $’000

Turnover 24 4,554,863 5,724,742 64,326 52,063

Cost of sales (3,426,068) (4,738,692) (31,620) (17,450)

Gross profit 1,128,795 986,050 32,706 34,613

Other operating income 20,534 21,811 73 94

Other operating expenses (44,730) (4,230) (343) (110)

General and administrative expenses (162,035) (141,277) (35,173) (34,693)

Operating profit/(loss) 25 942,564 862,354 (2,737) (96)

Finance income 26 32,179 36,607 251,852 256,407

Finance costs 27 (7,134) (5,329) – (3,316)

Foreign exchange transactions 28 52,640 – – –

Non-operating income 29 – 368 5,265 1,625

Non-operating expenses 29 – (11,764) – –

Share of results of associates and joint ventures 30 57,639 25,399 – –

Profit before income tax 1,077,888 907,635 254,380 254,620

Income tax (expense)/credit 31 (184,009) (150,870) 426 606

Profit for the year 893,879 756,765 254,806 255,226

Attributable to:

Shareholders of the Company 860,266 700,118 254,806 255,226

Non-controlling interests 32 33,613 56,647 – –


Earnings per share (cents) 33

Basic 41.55 34.02

Diluted 41.43 33.93

Income StatementsYear ended 31 December 2010



123


$’000 $’000 $’000 $’000


Foreign currency translation differences (39,254) (30,161) – –

Net fair value changes of cash flow hedges 68,839 52,593 – –

Net fair value changes of cash flow hedges transferred to income statement

– 8,581 – –

Net fair value changes of available-for-sale financial assets

101,099 22,125 70,868 13,639

Net fair value changes of available-for-sale financial assets transferred to income statement on impairment

– 11,764 – –

Other comprehensive income for the year, net of income tax 23 130,684 64,902 70,868 13,639

Total comprehensive income for the year 1,024,563 821,667 325,674 268,865

Attributable to:

Shareholders of the Company 996,164 767,586 325,674 268,865

Non-controlling interests 28,399 54,081 – –

Total comprehensive income for the year 1,024,563 821,667 325,674 268,865

Statements of Comprehensive IncomeYear ended 31 December 2010


124

Consolidated Statement of Changes in EquityYear ended 31 December 2010

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, re

cord

ed d

irect

ly in

equ

ityC

ontr

ibut

ions

by

and

dist

ribut

ions

to o

wne

rsIs

sue

of n

ew s

hare

s13

,214

–

–

–

(592

)–

–

–

12

,622

–

12,6

22

Issu

e of

trea

sury

sha

res

–

25,4

49–

–

(2

2,20

1)–

–

–

3,

248

–

3,24

8

Div

iden

ds p

aid

to

- C

ompa

ny’s

sha

reho

lder

s (N

ote

34)

–

–

–

–

–

–

–

(311

,271

) (3

11,2

71)

–

(311

,271

)

- no

n-co

ntro

lling

inte

rest

s–

–

–

–

–

–

–

–

–

(1

6,49

6)(1

6,49

6)

Shar

e-ba

sed

paym

ent

trans

actio

ns

–

–

–

–

14,5

70–

–

–

14

,570

–

14,5

70

Rea

lisat

ion

of re

serv

e up

on

liqui

datio

n of

a s

ubsi

diar

y–

–

–

–

–

–

–

–

–

(7

18)

(718

)

Tota

l con

tribu

tions

by

and

dist

ribut

ions

to o

wne

rs13

,214

25,4

49–

–

(8

,223

)–

–

(3

11,2

71)

(280

,831

)(1

7,21

4)

(298

,045

)

At 3

1 D

ecem

ber 2

010

456,

561

–

25,5

74(6

5,14

7)(1

,047

)55

,456

161,

052

1,96

6,95

42,

599,

403

87,5

232,

686,

926

The

acco

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g no

tes

form

an

inte

gral

par

t of t

hese

fina

ncia

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tem

ents

.

126


Attr

ibut

able

to s

hare

hold

ers

of th

e C

ompa

ny

Shar

eca

pita

l

Res

erve

fo

r ow

n sh

ares

Cap

ital

rese

rves

Fore

ign

curr

ency

tr

ansl

atio

n re

serv

e

Shar

e-ba

sed

com

pens

atio

n re

serv

eH

edgi

ng

rese

rve

Fair

valu

e re

serv

eR

even

ue

rese

rve

Tota

l

Non

-co

ntro

lling

in

tere

sts

Tota

leq

uity

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up$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

At 1

Jan

uary

200

944

3,34

7(5

5,85

5)14

,084

(3,1

43)

12,0

49(7

4,55

8)26

,064

955,

997

1,31

7,98

541

,974

1,35

9,95

9

Tota

l com

preh

ensi

ve in

com

e fo

r the

yea

rPr

ofit f

or th

e ye

ar–

–

–

–

– –

–

700,

118

700,

118

56,6

4775

6,76

5

Oth

er c

ompr

ehen

sive

inco

me

Fore

ign

curr

ency

tran

slat

ion

diffe

renc

es–

–

–

(26,

963)

– –

–

–

(26,

963)

(3,1

98)

(30,

161)

Effe

ctiv

e po

rtio

n of

cha

nges

in

fair

valu

e of

cas

h flo

w

hedg

es, n

et o

f tax

–

–

– –

–

51,9

61–

–

51,9

6163

252

,593

Net

cha

nge

in fa

ir va

lue

of c

ash

flow

hed

ges

trans

ferr

ed to

in

com

e st

atem

ent,

net o

f ta

x

–

–

– –

–

8,58

1–

–

8,58

1–

8,

581

Net

cha

nge

in fa

ir va

lue

of

avai

labl

e-fo

r-sal

e fin

anci

al

asse

ts, n

et o

f tax

–

–

– –

–

–

22,1

25–

22

,125

–

22,1

25

Net

cha

nge

in fa

ir va

lue

of

avai

labl

e-fo

r-sal

e fin

anci

al

asse

ts tr

ansf

erre

d to

inco

me

stat

emen

t on

impa

irmen

t, ne

t of

tax

–

–

– –

–

–

11,7

64–

11

,764

–

11,7

64

Tran

sfer

from

reve

nue

rese

rve

to c

apita

l res

erve

s–

–

11

,241

–

– –

–

(11,

241)

–

–

–

Tota

l oth

er c

ompr

ehen

sive

in

com

e–

–

11

,241

(2

6,96

3)–

60,5

4233

,889

(11,

241)

67,4

68(2

,566

)64

,902

Tota

l com

preh

ensi

ve in

com

e fo

r the

yea

r–

–

11

,241

(2

6,96

3)–

60,5

4233

,889

688,

877

767,

586

54,0

8182

1,66

7

The

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an

inte

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hese

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l sta

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ents

.


127


Attr

ibut

able

to s

hare

hold

ers

of th

e C

ompa

ny

Shar

eca

pita

l

Res

erve

fo

r ow

n sh

ares

Cap

ital

rese

rves

Fore

ign

curr

ency

tr

ansl

atio

n re

serv

e

Shar

e-ba

sed

com

pens

atio

n re

serv

eH

edgi

ng

rese

rve

Fair

valu

e re

serv

eR

even

ue

rese

rve

Tota

l

Non

-co

ntro

lling

in

tere

sts

Tota

leq

uity

Gro

up$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

Tran

sact

ions

with

ow

ners

, re

cord

ed d

irect

ly in

equ

ityC

ontr

ibut

ions

by

and

dist

ribut

ions

to o

wne

rsIs

sue

of tr

easu

ry s

hare

s–

30

,406

–

–

(20,

318)

–

–

–

10,0

88–

10

,088

Div

iden

ds p

aid

to

- C

ompa

ny’s

sha

reho

lder

s (N

ote

34)

–

–

–

–

–

–

–

(226

,666

)(2

26,6

66)

–(2

26,6

66)

- no

n-co

ntro

lling

inte

rest

s–

–

–

–

–

–

–

–

–

(5

,991

)(5

,991

)

Shar

e-ba

sed

paym

ent

trans

actio

ns

–

–

–

–

15,4

45–

–

–

15

,445

–

15

,445

Rea

lisat

ion

of re

serv

e up

on

liqui

datio

n of

a s

ubsi

diar

y–

–

–

(3

68)

–

–

–

–

(368

) –

(3

68)

Tota

l con

tribu

tions

by

and

dist

ribut

ions

to o

wne

rs–

30

,406

–

(368

)(4

,873

)–

–

(2

26,6

66)

(201

,501

)(5

,991

)(2

07,4

92)

Cha

nges

in o

wne

rshi

p in

tere

sts

in s

ubsi

diar

ies

that

do

not r

esul

t in

a lo

ss

of c

ontr

olA

cqui

sitio

n of

non

-con

trolli

ng

inte

rest

–

–

–

–

–

–

–

–

–

(13,

726)

(13,

726)

Tota

l cha

nges

in o

wne

rshi

p in

tere

sts

in s

ubsi

diar

ies

–

–

–

–

–

–

–

–

–

(13,

726)

(13,

726)

Tota

l tra

nsac

tions

with

ow

ners

–

30,4

06–

(3

68)

(4,8

73)

–

–

(226

,666

)(2

01,5

01)

(19,

717)

(221

,218

)

At 3

1 D

ecem

ber 2

009

443,

347

(25,

449)

25,3

25(3

0,47

4)7,

176

(14,

016)

59,9

531,

418,

208

1,88

4,07

076

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1,96

0,40

8

The

acco

mpa

nyin

g no

tes

form

an

inte

gral

par

t of t

hese

fina

ncia

l sta

tem

ents

.

128

Statement of Changes in EquityYear ended 31 December 2010

Attr

ibut

able

to s

hare

hold

ers

of th

e C

ompa

ny

Shar

eca

pita

lR

eser

ve fo

r ow

n sh

ares

Cap

ital

rese

rve

Shar

e-ba

sed

com

pens

atio

n re

serv

eFa

ir va

lue

rese

rve

Rev

enue

re

serv

eTo

tal

Com

pany

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0

At 1

Jan

uary

201

044

3,34

7(2

5,44

9)96

08,

009

56,5

3251

0,63

899

4,03

7

Tota

l com

preh

ensi

ve in

com

e fo

r the

yea

r

Profi

t for

the

year

–

–

–

–

–

254,

806

254,

806

Oth

er c

ompr

ehen

sive

inco

me

Net

cha

nge

in fa

ir va

lue

of a

vaila

ble-

for-s

ale

finan

cial

ass

ets,

net

of t

ax–

–

–

–

70

,868

–

70

,868

Tota

l oth

er c

ompr

ehen

sive

inco

me

–

–

–

–

70,8

68–

70

,868

Tota

l com

preh

ensi

ve in

com

e fo

r the

yea

r–

–

–

–

70

,868

254,

806

325,

674

Tran

sact

ions

with

ow

ners

, rec

orde

d di

rect

ly in

equ

ityC

ontr

ibut

ions

by

and

dist

ribut

ions

to

owne

rsIs

sue

of n

ew s

hare

s13

,214

–

–

(592

)–

–

12

,622

Issu

e of

trea

sury

sha

res

–

25,4

49–

(2

1,46

9)–

–

3,

980

Div

iden

ds p

aid

to C

ompa

ny’s

sha

reho

lder

s (N

ote

34)

–

–

–

–

–

(311

,271

)(3

11,2

71)

Shar

e-ba

sed

paym

ent:

- ch

arge

d to

inco

me

stat

emen

t–

–

–

3,

056

–

–

3,05

6

- is

sued

to e

mpl

oyee

s of

sub

sidi

arie

s–

–

–

11

,544

–

–

11,5

44

Tota

l con

tribu

tions

by

the

dist

ribut

ors

and

trans

actio

ns w

ith o

wne

rs13

,214

25

,449

–

(7,4

61)

–

(311

,271

)(2

80,0

69)

At 3

1 D

ecem

ber 2

010

456,

561

–

960

548

127,

400

454,

173

1,03

9,64

2

The

acco

mpa

nyin

g no

tes

form

an

inte

gral

par

t of t

hese

fina

ncia

l sta

tem

ents

.


129

Statement of Changes in EquityYear ended 31 December 2010

Attr

ibut

able

to s

hare

hold

ers

of th

e C

ompa

ny

Shar

eca

pita

lR

eser

ve fo

r ow

n sh

ares

Cap

ital

rese

rve

Shar

e-ba

sed

com

pens

atio

n re

serv

eFa

ir va

lue

rese

rve

Rev

enue

re

serv

eTo

tal

Com

pany

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0

At 1

Jan

uary

200

944

3,34

7(5

5,85

5)96

012

,378

42,8

9348

2,07

892

5,80

1

Tota

l com

preh

ensi

ve in

com

e fo

r the

yea

r

Profi

t for

the

year

–

–

–

–

–

255,

226

255,

226

Oth

er c

ompr

ehen

sive

inco

me

Net

cha

nge

in fa

ir va

lue

of a

vaila

ble-

for-s

ale

finan

cial

ass

ets,

net

of t

ax–

–

–

–

13

,639

–

13,6

39

Tota

l oth

er c

ompr

ehen

sive

inco

me

–

–

–

–

13,6

39–

13

,639

Tota

l com

preh

ensi

ve in

com

e fo

r the

yea

r–

–

–

–

13

,639

255,

226

268,

865

Tran

sact

ions

with

ow

ners

, rec

orde

d di

rect

ly in

equ

ityC

ontr

ibut

ions

by

and

dist

ribut

ions

to

owne

rsIs

sue

of tr

easu

ry s

hare

s–

30

,406

–

(20,

371)

–

–

10,0

35

Div

iden

ds p

aid

to C

ompa

ny’s

sha

reho

lder

s (N

ote

34)

–

–

–

–

–

(226

,666

)(2

26,6

66)

Shar

e-ba

sed

paym

ent:

- ch

arge

d to

inco

me

stat

emen

t–

–

–

3,

253

–

–

3,25

3

- is

sued

to e

mpl

oyee

s of

sub

sidi

arie

s–

–

–

12

,749

–

–

12,7

49

Tota

l con

tribu

tions

by

the

dist

ribut

ors

and

trans

actio

ns w

ith o

wne

rs–

30

,406

–

(4,3

69)

–

(226

,666

)(2

00,6

29)

At 3

1 D

ecem

ber 2

009

443,

347

(25,

449)

960

8,00

956

,532

510,

638

994,

037

The

acco

mpa

nyin

g no

tes

form

an

inte

gral

par

t of t

hese

fina

ncia

l sta

tem

ents

.

130

2010 2009$’000 $’000

Cash Flows from Operating Activities

Operating profit 942,564 862,354

Adjustments for:

Gain on disposal of property, plant and equipment, net (1,923) (150)

Share-based payment expenses 22,993 17,858

Amortisation – 55

Fair value adjustment of hedging instruments (6,613) (3,160)

Depreciation of property, plant and equipment 83,197 75,193

Impairment loss on property, plant and equipment 3,950 6,145

Property, plant and equipment written off 332 2,459

Negative goodwill – (298)

Operating income before reinvestment in working capital 1,044,500 960,456

Inventories and work-in-progress 451,424 (688,670)

Trade and other receivables 76,900 265,074

Trade and other payables (152,409) (81,392)

Cash generated from operations 1,420,415 455,468

Investment and interest income received 32,070 36,986

Income taxes paid (144,717) (57,869)

Interest paid (2,870) (7,046)

Net cash inflow from operating activities 1,304,898 427,539

Net receipt from bank relating to foreign exchange transactions 52,640 –

1,357,538 427,539

Cash Flows from Investing Activities

Investment in joint venture (1,166) –

Purchase of property, plant and equipment (73,150) (66,994)

Purchase of other investment (1,994) (32)

Dividend from associate 48 12,842

Acquisition of non-controlling interest – (13,428)

Cash paid to non-controlling interest upon liquidation of a subsidiary (542) –

Proceeds from sale of property, plant and equipment 4,492 7,052

Net cash outflow from investing activities (72,312) (60,560)

Consolidated Cash Flow StatementYear ended 31 December 2010



131

Consolidated Cash Flow StatementYear ended 31 December 2010

Note 2010 2009$’000 $’000

Cash Flows from Financing Activities

Dividends paid to shareholders of the Company (311,271) (226,666)

Dividends paid to non-controlling interests of subsidiaries (16,496) (5,991)

Proceeds from share options exercised 16,391 10,035

Payments on finance leases – (3,758)

Repayment of borrowings (14,224) (647,873)

Proceeds from borrowings 2,224 445,580

Net cash outflow from financing activities (323,376) (428,673)

Net increase/(decrease) in cash and cash equivalents 961,850 (61,694)

Cash and cash equivalents at beginning of year 1,978,548 2,054,032

Effect of exchange rate changes on balances held in foreign currency (25,301) (13,790)

Cash and cash equivalents at end of year 15 2,915,097 1,978,548


132

These notes form an integral part of the financial statements.

The financial statements were authorised for issue by the Board of Directors on 25 February 2011.

1 Domicile and Activities

Sembcorp Marine Ltd (the Company) is a company incorporated in the Republic of Singapore. The address of the Company’s registered office is 29 Tanjong Kling Road, Singapore 628054.

The financial statements of the Company as at and for the year ended 31 December 2010 comprise the Company and its subsidiaries (together referred to as the Group and individually as Group entities) and the Group’s interest in associates and joint ventures.

The principal activities of the Company are the provision of management services and investment holding. The principal activities of the subsidiaries, associates and joint ventures are stated in Note 43.

2 Basis of preparation

2.1 Basis of preparationThe financial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS).

The financial statements are presented in Singapore dollars, which is the Company’s functional currency. All financial information presented in Singapore dollars has been rounded to the nearest thousand, unless otherwise stated. They are prepared on the historical cost basis except where otherwise described in the accounting policies below.

The preparation of the financial statements in conformity with FRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are discussed in Note 42.

With effect from 1 January 2010, the Group adopted the new or amended FRS that are mandatory for application from that date. Changes to the Group’s accounting policies have been made as required, in accordance with the transitional provisions in the respective FRS.

The adoption of these new or amended FRS did not result in substantial changes to the Group’s and Company’s accounting policies and had no material effect on the amounts reported for the current or prior financial years except as disclosed below. The accounting policies used by the Group have been applied consistently to all periods presented in these financial statements.

(i) FRS 103 (revised 2009) Business Combinations

The Group applies FRS 103 (revised 2009) Business Combinations, which became effective for annual periods beginning on or after 1 July 2009. The revised accounting policy on business combinations is set out in Note 3.1.

As the changes have been implemented prospectively, no adjustments were necessary to any of the amounts previously recognised in the financial statements.

Notes to the Financial StatementsYear ended 31 December 2010


133

(ii) FRS 27 (revised 2009) Consolidated and Separate Financial Statements

The Group applies FRS 27 (revised 2009) Consolidated and Separate Financial Statements, which became effective for annual periods beginning on or after 1 July 2009. The revisions to FRS 27 principally changed the accounting for acquisitions of non-controlling interests. The revised accounting policies on changes in ownership interest that results in a loss of control and the accounting policy on changes in ownership interests that do not result in loss of control are set out in Note 3.1.

As the changes have been implemented prospectively, no adjustments were necessary to any of the amounts previously recognised in the financial statements and this has no impact to earnings per share.

3 Significant accounting policies

3.1 Basis of Consolidation

Business combinations

Acquisitions on or after 1 January 2010

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. 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 Group takes into consideration potential voting rights that are currently exercisable.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in the income statement.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in the income statement.

Acquisitions prior to 1 January 2010

All business combinations are accounted for using the purchase method. Under the purchase method, the cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Acquisition of non-controlling interests

Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are based on a proportionate amount of the fair value of net assets of the subsidiary. Prior to 1 January 2010, goodwill was recognised on the acquisition of non-controlling interests in a subsidiary, which represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the transaction.


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Subsidiaries

Subsidiaries are those companies that are controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of a company so as to obtain benefits from its 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.

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

Loss of control

Upon the loss of control, the Group 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 the income statement. If the Group 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.

Associates

Associates are companies in which the Group has significant influence, but not control, over the financial and operating policies.

The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group has significant influence over another company. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another company.

In the Group’s financial statements, they are accounted for using the equity method of accounting from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds the carrying amount of the associate (including any other unsecured receivables, that in substance, form part of the Group’s net investment in the associate), recognition of further losses is discontinued unless the Group has incurred obligations or made payments on its behalf to satisfy obligations of the associate that the Group has guaranteed or otherwise committed on behalf of.

Where the audited financial statements are not available, the share of results is arrived at from unaudited management financial statements made up mainly to the end of the accounting year to 31 December.

Joint ventures

Joint ventures are those enterprises whose activities the Group has joint control over, established by contractual agreement and requiring unanimous consent for strategic financial operating decisions.

The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group has joint control over the enterprise.

For incorporated joint ventures, the Group accounts for the joint ventures in the same manner as associates, from the date joint control commences until the date that the joint control ceases.



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For unincorporated joint ventures, the proportionate share in the unincorporated joint ventures’ individual income, expenses, assets and liabilities are included in financial statements of the Group with items of a similar nature on a line-by-line basis.

Where the audited financial statements are not available, the share of results is arrived from unaudited management financial statements made up mainly to the end of the accounting year to 31 December.

Associates and joint ventures in the Company’s financial statements

Investments in associates and joint ventures are stated in the Company’s balance sheet at cost less impairment losses.

The results of the associates and joint ventures are included in the Company’s income statement to the extent of dividends received and receivable, provided the Company’s right to receive the dividend is established before the balance sheet date.

Transactions eliminated on consolidation

All intra-group transactions, balances and unrealised gains or losses are eliminated on consolidation. Unrealised gains resulting from transactions with associates and joint ventures are eliminated to the extent of the Group’s interest in the enterprise. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Accounting policies of subsidiaries, associates and joint ventures

Where necessary, accounting policies for subsidiaries and material associates and joint ventures have been adjusted on consolidation to be consistent with the policies adopted by the Group.

3.2 Foreign currencies

Functional and presentation currency

Items included in the financial statements of each company in the Group are measured using the currency of the primary economic environment in which the company operates (the functional currency).

Foreign currency transactions and balances

Transactions in foreign currencies are translated into the functional currency at foreign exchange rates ruling at the dates of the transactions. At each reporting date:

• Foreign currency monetary items are translated into the functional currency using foreign exchange rates ruling at that date.

• Non-monetary assets and liabilities measured at historical cost in foreign currencies are translated into the functional currency using foreign exchange rates at the dates of the transactions.

• Non-monetary assets and liabilities measured at fair value in foreign currencies are translated into the functional currency at foreign exchange rates ruling at the dates the fair value was determined.

Foreign exchange differences arising from the settlement or from translation of monetary items are recognised in the income statement except for exchange differences arising from monetary items that form part of the Group’s net investment in foreign subsidiaries, which are recognised in the Company’s income statement and reclassified to foreign currency translation reserve in the consolidated financial statements. Such exchange differences are released to the income statement upon disposal of the investment as part of the gain or loss on disposal.


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Foreign exchange differences arising from non-monetary items are recognised directly in equity when non-monetary items’ gains or losses are recognised directly in equity. Conversely, when non-monetary items’ gains or losses are recognised directly in the income statement, foreign exchange differences arising from these items are recognised directly in the income statement.

Foreign operations

The results and financial positions of foreign operations (none of which have the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• Assets and liabilities are translated at foreign exchange rates ruling at the date of the balance sheet.

• Revenues and expenses are translated at average foreign exchange rates.

• All resulting foreign exchange differences are taken to the foreign currency translation reserve.

On disposal, accumulated foreign currency translation differences are recognised in the consolidated income statement as part of the gain or loss on disposal.

Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to the income statement as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to the income statement.

3.3 Property, plant and equipment

Owned assets

Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset.

The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of productions overheads.

Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment.

Revaluation surplus

Any increase in revaluation is credited to the revaluation reserve unless it offsets a previous decrease in values recognised in the income statement. A decrease in value is recognised in the income statement where it exceeds the increase previously recognised in the valuation surplus of the same asset.



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Subsequent expenditure

Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Group. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.

Disposals

Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised in the income statement on the date of retirement or disposal.

For property, plant and equipment carried at revalued amounts, any related revaluation surplus is transferred from the revaluation reserve to revenue reserve and is not taken into account in arriving at the gain or loss on disposal.

Provision for restoration costs

A provision is recognised for the costs expected to be incurred to dismantle, remove and restore the asset upon expiry of the lease agreement. The estimated costs form part of the cost of the property, plant and equipment and are depreciated over the useful life of the asset.

Depreciation

Depreciation is calculated using the straight-line method to allocate the cost less its residual values so as to write off items of property, plant and equipment over their estimated useful lives. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of an item is depreciated separately. The estimated useful lives are as follows:

Leasehold land 45 years or lease period of 3 to 30 yearsBuildings 45 years or lease period of 3 to 30 yearsQuays and dry docks 60 years or lease period of 6 to 22 yearsPlant, machinery and tools 3 to 15 yearsMotor vessels, launches, cranes and floating docks 3 to 20 yearsMotor vehicles 3 to 5 yearsFurniture and office equipment 3 to 5 yearsUtilities and fittings 30 yearsComputer equipment 1 to 5 years

The assets’ depreciation method, useful lives and residual values are reviewed, if not insignificant, annually, and adjusted if appropriate.

No depreciation is provided on freehold land or construction-in-progress. Fully depreciated assets are retained in the financial statements until they are no longer in use and no further charge for depreciation is made in respect of these assets.

Investment properties

Investment properties comprise significant portions of land and buildings and quays that are held for long-term rental yields or capital appreciation, or both.


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Investment properties are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses. Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives ranging from 45 to 60 years or the lease period of 15 to 16 years. The assets’ depreciation method, useful lives and residual values of investment properties are reviewed, if not insignificant, annually and adjusted if appropriate.

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

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

3.4 Intangible assets

Goodwill

Goodwill represents the excess of:• the fair value of the consideration transferred; plus• the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved

in stages, the fair value of the existing equity interest in the acquire; less• the net amount recognised (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in the income statement.

Goodwill is stated at cost less accumulated impairment losses. Goodwill on acquisition of associates and joint ventures is included in investments in associates and joint ventures, respectively.

Acquisition of non-controlling interest

Goodwill arising from the acquisition of non-controlling interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange.

Goodwill is tested for impairment on an annual basis in accordance with Note 3.11.

Negative goodwill

Negative goodwill arising on acquisition represents the excess of the net fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired over the cost of acquisition and are credited to income statement in the period of acquisition.

Fair values assigned to the identifiable assets, liabilities and contingent liabilities can be estimated provisionally in the initial accounting for a business combination. The Group will recognise adjustments to those provisional fair values upon finalising the fair values within twelve months from the acquisition date (the measurement period). The corresponding adjustment, if any, will be made by restating the previously reported goodwill or negative goodwill. After the measurement period, any adjustments to the goodwill will be recognised in the income statement in the year in which the adjustments are identified.



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3.5 Financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, or available-for-sale financial assets, as appropriate.

The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. The designation of financial assets at fair value through profit or loss is irrevocable.

Financial assets at fair value through profit or loss

A financial asset is classified in this category if the Group manages such assets and makes purchase and sale decisions based on their fair value. Derivative financial instruments are also classified as ‘financial assets at fair value through profit or loss’ unless they are designated as effective hedging instruments. Upon initial recognition, attributable transaction costs are recognised in the income statement when incurred. Assets in this category are classified as current assets and are stated at fair value, with any resultant gain or loss recognised in the income statement.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date for which they are classified as non-current assets. Loans and receivables are recognised initially at fair value plus any directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method, less impairment losses. Receivables with a short duration are not discounted.

Available-for-sale financial assets

Other financial assets held by the Group that are either designated in this category or not classified in any other category, are classified as being available-for-sale. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see Note 3.6) and foreign currency differences on available-for-sale monetary items (see Note 3.2), are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to income statement.

Financial assets classified as available-for-sale are recognised by the Group on the date it receives the financial asset and derecognised on the date it delivers the financial asset. Other financial assets are derecognised when the rights to receive cash flows from the investments have expired or all risks and rewards of ownership have been substantially transferred.


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3.6 Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flow of that asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Group, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost are considerations to determine whether there is objective evidence of impairment.

The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in income statement and reflected in an allowance against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through income statement.

Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to income statement. The cumulative loss that is removed from other comprehensive income and recognised in income statement is the difference between the acquisition cost, net of any principal payment and amortisation, and the current fair value, less any impairment loss previously recognised in income statement. Changes in impairment attributable to time value are reflected as a component of interest income. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income and presented within equity in the fair value reserve.

3.7 Derivative financial instruments

Derivative financial instruments are used to manage exposures to foreign exchange and interest rate risks arising from operational, financing and investment activities. Derivative financial instruments are not used for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are recognised initially at fair value; attributable transaction costs are recognised in the income statement as incurred. Subsequent to initial recognition, derivative financial instruments are remeasured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged as described below:



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Fair value hedges

Where a derivative financial instrument hedges the changes in fair value of a recognised asset or liability or an unrecognised firm commitment (or an identified portion of such asset, liability or firm commitment), any gain or loss on the hedging instrument is recognised in the income statement. The hedged item is also stated at fair value in respect of the risk being hedged, with any gain or loss recognised in the income statement.

Cash flow hedges

Where a derivative financial instrument is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. The ineffective part of any gain or loss is recognised immediately in the income statement. When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or the forecast transaction for a non-financial asset or non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or financial liability, the associated gains and losses that were recognised directly in equity are reclassified into the income statement in the same period or periods during which the asset acquired or liability assumed affects the income statement.

When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in the income statement.

3.8 Inventories and work-in-progress

Inventories consist mainly of steel and other materials used for ship and rig repair, building and conversion and are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Work-in-progress represents the gross unbilled amount expected to be collected from customers for contract work completed to date. This comprises mainly uncompleted ship and rig repair, building and conversion jobs. It is measured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes materials, direct labour, sub-contractors’ costs and an appropriate allocation of fixed and variable production overheads. Allowance is made for anticipated losses, if any, on work-in-progress when the possibility of loss is ascertained.

Work-in-progress is presented as part of inventories in the balance sheet. If payments received from customers exceed the profit recognised, the difference is presented as progress billings in excess of work-in-progress on the balance sheet.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised.

The amount of any allowance for write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any allowance for write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.


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3.9 Government grants

Government grants

Government grants are recognised initially as deferred income at fair value when there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. Grants that compensate the Group, for expenses incurred are recognised in income statement as other income on a systematic basis in the same periods in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised in income statement on a systematic basis over the useful life of the asset.

Jobs Credit Scheme

Cash grants received from the government in relation to the Jobs Credit Scheme are recognised upon receipt. Such grants are provided to defray the wage costs incurred by the Company and are offset against staff costs in the financial statements.

3.10 Cash and cash equivalents

Cash and cash equivalents comprise cash balances and bank deposits.

3.11 Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

Calculation of recoverable amount

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit, or CGU). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

An impairment loss is recognised whenever the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.



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Reversals of impairment

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets’ carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Goodwill that forms part of the carrying amount of an investment in an associate is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired.

3.12 Financial liabilities

Financial liabilities include trade payables on normal trade terms, other payables, amounts due to subsidiaries, associates, related companies, joint ventures and related parties, and interest-bearing liabilities.

Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. Financial liabilities are initially recognised at fair value of consideration received less directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in the income statement when the liabilities are derecognised when the obligation under the liability is discharged or cancelled or has expired.

3.13 Employee benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts.

Obligations for contributions to defined contribution plans are recognised as an expense in the income statement as incurred.

Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related employment service is provided.

The amount expected to be paid are accrued when the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Staff retirement benefits

Retirement benefits payable to certain categories of employees upon their retirement are provided for in the financial statements based on their entitlement under the staff benefit plan or, in respect of unionised employees who joined on or before 31 December 1988, based on an agreement with the union.

The Group’s net obligation in respect of retirement benefits is the amount of future benefits that employees have earned in return for their service in current and prior periods. The obligation is calculated using projected salary increases and is discounted to its present value, and the fair value of any related assets is deducted.


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Equity and equity-related compensation benefits

Share Option Plan

The share option programme allows the Group’s employees to acquire shares of the Group companies. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options (the vesting period). The fair value of options granted is recognised as an employee expense with a corresponding increase in equity using the binomial option-pricing model. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates in employee expense and in a corresponding adjustment to equity over the remaining vesting period.

The proceeds received net of any directly attributable transaction costs are credited to reserve for own shares when the options are exercised and treasury shares are issued, or credited to share capital when new shares are issued.

Performance Share Plan

The fair value of equity-related compensation is measured using the Monte Carlo simulation method as at the date of the grant. The method involves projecting future outcomes using statistical distributions of key random variables including share prices and volatility of returns.

In estimating the fair value of the compensation cost, market based performance conditions are taken into account. Therefore, for performance share grants with market-based performance conditions, the compensation cost is charged to the income statement with a corresponding increase in equity on a basis that fairly reflects the manner in which the benefits will accrue to the employee under the plan over the service period to which the performance period relates, irrespective of whether this performance condition is satisfied.

Restricted Stock Plan

Similar to the Performance Share Plan, the fair value of equity-related compensation is measured using the Monte Carlo simulation method as at the date of the grant. The method involves projecting future outcomes using statistical distributions of key random variables including share prices and the volatility of returns. This model takes into the account the probability of achieving the performance conditions in the future.

The fair value of the compensation cost is measured at grant date and spread over the service period to which the performance criteria relates and the period during which the employees become unconditionally entitled to the shares. The compensation cost is charged to the income statement with a corresponding increase in equity on a basis that fairly reflects the manner in which the benefits will accrue irrespective of whether this performance condition is satisfied.

At balance sheet date, the Group revises its estimates of the number of performance-based restricted stocks that the employees are expected to receive based on the achieving of non-market performance conditions and the number of shares ultimately given. It recognises the impact of the revision of the original estimates in employee expense and a corresponding adjustment to equity over the remaining vesting period.

In the Company’s separate financial statements, the fair value of options, performance shares and restricted stocks granted to employees of its subsidiaries is recognised as an increase in the cost of the Company’s investment in subsidiaries, with a corresponding increase in equity over the vesting period.



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Cash-related compensation benefits


The Group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the share price of the Company. The Group recognises a provision when it is contractually obliged to pay or where there is a past practice that has created a constructive obligation to pay.

The compensation cost is measured at the fair value of the liability at each balance sheet date and spread over the service period to which the performance criteria relates and the period during which the employees become unconditionally entitled to the bonus. The liability takes into account the probability of achieving the performance conditions in the future.

Until the liability is settled, the Group will re-measure the fair value of the liability at each balance sheet date and at the date of settlement, with any changes in fair value recognised in the income statement for the period.

3.14 Provisions

A provision is recognised when there is a legal or constructive obligation as a result of a past event, the obligation can be reliably estimated and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

3.15 Leases

When entities within the Group are lessors of a finance lease

Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

When entities within the Group are lessees of a finance lease

Leased assets in which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, property, plant and equipment acquired through finance leases are capitalised at the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Leased assets are depreciated over the shorter of the lease term and their useful lives.

Lease payments are apportioned between finance expense and reduction of the lease liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

When entities within the Group are lessees of an operating lease

Where the Group has the use of assets under operating leases, payments made under the leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease payments made.


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3.16 Revenue recognition

Revenue from ship and rig repair, building, conversion and offshore are recognised on the percentage of completion method, provided the work is at least 20% completed and the outcome of the contract can be reliably estimated. The percentage of completion is assessed by reference to the ratio of costs incurred to-date to the estimated total costs for each contract, with due consideration given to the inclusion of only those costs that reflect work performed.

When an outcome of a contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that can probably be recovered and contract costs are recognised as an expense in the period in which they are incurred.

Income on goods sold and services rendered

Income on goods sold is recognised when the significant risks and rewards by ownership have been transferred to the buyer. Revenue on other service work is recognised when the work is completed.

Rental income

Charter hire income is taken to the income statement on an accrual basis over the charter hire period. Rental income receivable under operating leases is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as a reduction of rental income over the lease term on a straight-line basis. Contingent rentals are recognised as income in the accounting period in which they are earned.

Dividend and interest income

Dividend income is recognised when the Group’s right to receive payment is established.

Interest income is recognised as interest accrues (using the effective interest method).

3.17 Income tax expense

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries, associates and joint ventures to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.



147

3.18 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares and share options are deducted against the share capital account, net of any tax effects.

Where the Company’s ordinary shares are repurchased (treasury shares), the consideration paid, including any directly attributable incremental costs, net of any tax effects, is deducted from equity attributable to the Company’s equity holders and presented as “reserve for own shares” within equity, until they are cancelled, sold or reissued.

When treasury shares are cancelled, the cost of treasury shares is deducted against the share capital account, if the shares are purchased out of capital of the Company, or against the accumulated profits of the Company, if the shares are purchased out of profits of the Company.

When treasury shares are subsequently sold or reissued pursuant to the Share-based incentive Plans, the cost of the treasury shares is reversed from the reserve for own shares account and the realised gain or loss on sale or reissue, net of any directly attributable incremental transaction costs and related income tax, is recognised as a change in equity of the Company. No gain or loss is recognised in the income statement.

3.19 Finance costs

Interest expense and similar charges expensed in the income statement in the period in which they are as incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to prepare the asset for its intended use or sale are in progress. The interest component of finance lease payments is recognised in the income statement using the effective interest rate method.

3.20 Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit attributable to ordinary shareholders of the company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

3.21 Financial guarantee contractsFinancial guarantee contracts are accounted for as insurance contracts and treated as contingent liabilities until such time as they become probable that the Company will be required to make a payment under the guarantee. A provision is recognised based on the Group’s estimate of the ultimate cost of settling all claims incurred but unpaid at the balance sheet date. The provision is assessed by reviewing individual claims and tested for adequacy by comparing the amount recognised and the amount that would be required to settle the guarantee contract.


148

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149


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150


Docks, launches, cranes and marine

vessels

Plant,machineryand tools Others Total

Company $’000 $’000 $’000 $’000Cost or valuation

Balance 1 January 2009

At cost 138,709 7,609 3,325 149,643

At valuation 25,152 – – 25,152

163,861 7,609 3,325 174,795

Additions – – 482 482

Balance at 31 December 2009 163,861 7,609 3,807 175,277

Balance at 1 January 2010

At cost 138,709 7,609 3,807 150,125

At valuation 25,152 – – 25,152

163,861 7,609 3,807 175,277

Additions 25,000 – 83 25,083

Disposals – – (59) (59)


Balance at 31 December 2010

At cost 163,709 7,609 3,831 175,149

At valuation 25,152 – – 25,152

188,861 7,609 3,831 200,301

Accumulated depreciation

Balance at 1 January 2009 54,951 6,511 1,801 63,263

Depreciation for the year 3,740 86 604 4,430


Depreciation for the year 11,068 75 632 11,775

Disposals – – (59) (59)


Carrying amounts

At 1 January 2009 108,910 1,098 1,524 111,532

At 31 December 2009 105,170 1,012 1,402 107,584

At 31 December 2010 119,102 937 853 120,892


151


(a) The carrying amounts of docks, launches, cranes and marine vessels included certain docks stated at Directors’ valuation of $25,152,000 in the year 1973. Subsequent additions to these docks were stated at cost. The revaluation was done on a one-off basis and accordingly, the transitional provision in FRS 16 – Property, Plant and Equipment was adopted to continue with its existing policy of stating these docks at cost and revalued amounts. If the following re-valued assets of the Group and Company had been included in the financial statements at cost less accumulated depreciation, the net written down value would have been:

Group and Company2010 2009$’000 $’000

Docks 3,782 5,078

The re-valued net book value of the docks is $6,390,000 (2009: $8,581,000).

(b) Others comprise motor vehicles, furniture and office equipment, utilities and fittings and computer equipment.

5 Investment propertiesCompany

2010 2009$’000 $’000

Cost

Balance at 1 January 95,862 95,862

Write-offs (501) –

Balance at 31 December 95,361 95,862

Accumulated depreciationBalance at 1 January 44,502 41,825

Depreciation for the year 6,616 2,677

Write-offs (373) –


Carrying amounts 44,616 51,360

The investment properties of the Company are used by the Group in carrying out its principal activities and are accounted for as property, plant and equipment at the Group.

The following amounts are recognised in the income statement:

Company2010 2009$’000 $’000

Rental income (33,458) (18,365)

Operating expenses arising from rental of investment properties 31,800 17,444

152


6 Investments in subsidiaries

Company2010 2009$’000 $’000

Unquoted shares, at cost 497,867 644,327

Allowance for impairment loss (15,251) (15,251)

482,616 629,076

Details of the Company’s subsidiaries are set out in Note 43.

7 Investments in associates and joint venturesGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

AssociatesUnquoted shares, at cost 111,688 111,688 107,369 107,369

Share of net post-acquisition reserves 163,087 128,433 – –

274,775 240,121 107,369 107,369

Joint venturesUnquoted shares, at cost 2,056 890 – –

Share of net post-acquisition reserves 30,125 26,763 – –

32,181 27,653 – –

306,956 267,774 107,369 107,369

Details of the Group’s associates and joint ventures are set out in Note 43. Summary financial information for associates, not adjusted for the percentage ownership held by the Group:

Group2010 2009$’000 $’000

Combined results of associates:

Turnover 3,744,525 2,675,974

Profit before income tax 180,214 135,841

Income tax expense (33,001) (34,111)

Profit for the year 147,213 101,730

Combined assets and liabilities of associates

Non-current assets 2,213,607 2,179,431

Current assets 3,327,327 3,434,499

Current liabilities (3,632,989) (3,355,332)

Non-current liabilities (545,423) (1,092,311)

Net assets 1,362,522 1,166,287


153


The aggregate amounts of each of current assets, non-current assets, current liabilities, non-current liabilities, income and expenses relating to the Group’s interest in joint ventures are as follows:

Group2010 2009$’000 $’000

The Group’s share of combined results of joint ventures:Turnover 14,464 16,326

Profit before income tax 3,989 7,850

Income tax expense (627) (632)

Profit for the year 3,362 7,218

The Group’s share of combined assets and liabilities of joint ventures:

Non-current assets 92,540 58,468

Current assets 9,263 11,234

Current liabilities (17,005) (4,422)

Non-current liabilities (52,617) (37,627)

Net assets 32,181 27,653

8 Other long term investments Group Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Available-for-sale financial assetsQuoted equity securities, at fair value 285,089 163,997 193,884 111,704

Unquoted non-equity securities, at fair value 347 343 347 343

Unquoted equity securities, at cost 1,408 1,408 1,330 1,330

Financial assets at fair value through profit or loss

Quoted equity securities, at fair value 12 35 – –

286,856 165,783 195,561 113,377

Unquoted equity securities which have no market prices and whose fair value cannot be reliably measured using valuation techniques are stated at cost less impairment.

154


9 Trade receivables Group Company

Note 2010 2009 2010 2009$’000 $’000 $’000 $’000

Current assetsTrade receivables (a) 155,411 231,900 17,903 30,404

Allowance for doubtful receivables (b) (2,014) (3,019) – –

153,397 228,881 17,903 30,404

Non-current assetsExternal parties 13 196 – –

External lease receivables (c) 10,832 14,505 10,832 14,505

10,845 14,701 10,832 14,505

Loans and receivables 164,242 243,582 28,735 44,909

(a) Current assetsGroup Company

Note 2010 2009 2010 2009$’000 $’000 $’000 $’000

Related companies 75 5,798 – 5,583

Subsidiaries – – 14,220 21,301

Associates and joint ventures 5,398 213 10 –

External parties 146,265 222,369 – –

External lease receivables (c) 3,673 3,520 3,673 3,520

155,411 231,900 17,903 30,404

Other than lease receivables as explained in Note (c), the remaining balances shown above are interest-free. All the amounts due from related companies, subsidiaries, associates and joint ventures are unsecured, repayable on demand and to be settled in cash.

(b) Allowance for external party doubtful receivablesGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Balance at 1 January 3,019 7,789 – 651

Currency translation difference (4) (4) – –

Allowance made 351 1,857 – –

Allowance written back (1,069) (627) – –

Allowance utilised (283) (5,996) – (651)

Balance at 31 December 2,014 3,019 – –


155


(c) Additional information on finance lease receivables

Group and CompanyMinimum lease

paymentEstimated

residual value

Total gross investment in

lease

Unearned interest income

Present value of minimum

lease payment$’000 $’000 $’000 $’000 $’000

2010Receivable within 1 year 4,218 – 4,218 (545) 3,673

Receivable after 1 year but within 5 years

8,439 3,000 11,439 (607) 10,832

12,657 3,000 15,657 (1,152) 14,505

2009Receivable within 1 year 4,218 – 4,218 (698) 3,520

Receivable after 1 year but within 5 years

12,657 3,000 15,657 (1,152) 14,505

16,875 3,000 19,875 (1,850) 18,025

Under the terms of the lease agreements, no contingent rents were recognised. Interest rate is 4.25% (2009: 4.25%) per annum. These lease receivables relate to the leases of marine vessels for which the lessees have the option to purchase the marine vessels during the term of the leases.

The Group’s and the Company’s maximum exposure to credit risk for loans and receivables at the balance sheet date is as follows:

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

By business activityShip and rig repair, building and conversion 230,608 292,643 94,901 119,753

Ship chartering 14,744 15,175 – –

Others 3,348 14,630 – –


Loans and receivables comprise the following: Group Company

Note 2010 2009 2010 2009$’000 $’000 $’000 $’000

Current assetsTrade receivables 153,397 228,881 17,903 30,404

Other receivables and deposits 10 29,933 42,133 6,593 9,142

183,330 271,014 24,496 39,546

Non-current assetsTrade receivables 10,845 14,701 10,832 14,505

Other receivables 10 54,525 36,733 59,573 65,702

65,370 51,434 70,405 80,207

248,700 322,448 94,901 119,753

156


The age analysis of trade and other receivables past due for the Group is as follows:

Gross Impairment Gross Impairment2010 2010 2009 2009$’000 $’000 $’000 $’000

GroupPast due 0 to 3 months 48,537 – 75,769 2

Past due 3 to 6 months 8,310 103 4,035 549

Past due 6 to 12 months 4,517 230 3,850 376

More than 1 year 7,106 1,681 3,923 2,084

68,470 2,014 87,577 3,011

There is no trade and other receivables that is past due for the Company.

The allowance account in respect of trade and other receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible. At that point, the financial asset is considered irrecoverable and the amount charged to the allowance account is written off against the carrying amount of the impaired financial asset.

Based on historical default rates, the Group believes that the amount of impairment allowance made is adequate in respect of trade and other receivables. These receivables are mainly arising by customers that have a good collection track record with the Group.

Trade receivables that are individually determined to be impaired at the balance sheet date relate to receivables that are in significant financial difficulty and have defaulted on payments.

10 Other receivables, deposits and prepayments


$’000 $’000 $’000 $’000

Current assetsDeposits and recoverables (a) 28,882 38,146 1,310 896

Non-trade receivables (b) 364 2,902 5,283 8,246

Staff loans (c) 687 1,085 – –


Prepayments 10,171 13,175 1,788 –

40,104 55,308 8,381 9,142

Non-current assetsOther long term receivables (d) 54,525 36,733 59,573 65,702

94,629 92,041 67,954 74,844


157


(a) Deposits and recoverablesGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

GST refundable 21,355 28,540 129 –

Interest receivable 310 212 – –

Recoverables 4,311 4,535 1,059 814

Tax recoverable – 1,705 – –

Withholding tax recoverable 739 750 – –

Sundry deposits 2,167 2,404 122 82

28,882 38,146 1,310 896

Recoverables are stated after deducting allowance for doubtful debts amounting to nil (2009: $97,000).

Withholding tax recoverable arose from the acquisition of subsidiaries in prior years and is guaranteed by the vendor.

(b) Non-trade receivablesGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Non interest-bearingAssociates and joint ventures 364 2,886 – –

Related company – 16 – –

Subsidiaries – – 4,165 7,234

Interest-bearing

Loans to subsidiaries – – 1,118 1,012

364 2,902 5,283 8,246

All non interest-bearing amounts due from associates, joint ventures, related company, subsidiaries and the immediate holding company, which comprise mainly advances and payments on behalf, are unsecured, repayable on demand and to be settled in cash.

Loans to subsidiaries are unsecured, bear interest at fixed rate of 2.27% (2009: 2.27% to 3.1%) per annum and are to be settled in cash.

(c) Staff loans

Staff loans bear interest at 3.0% (2009: 3.0%) per annum.

158


(d) Other long term receivablesGroup Company

Note 2010 2009 2010 2009$’000 $’000 $’000 $’000

Non interest-bearingLoans to subsidiaries – – 58,748 63,743Loans and advances to joint ventures 15,228 15,175 – –

Interest-bearingLoans to subsidiary – – 825 1,959Loan to joint venture 39,172 21,359 – – Staff loans (c) 125 199 – –


Interest-bearing loans to subsidiary are unsecured, and to be settled in cash.

Loan to a joint venture of $39,172,000 (2009: $21,359,000) bears weighted-average interest rate of 0.56% (2009: 1.01%) per annum. The settlement of all loans and advances to joint ventures and non interest-bearing loans to subsidiaries is neither planned nor likely to occur in the foreseeable future. As these are, in substance, a part of the Company’s net investment in these entities, they are stated at cost.

11 Intangible assetsGroup Company

Note 2010 2009 2010 2009$’000 $’000 $’000 $’000

Goodwill on consolidation (a) 5,940 5,940 – –

Club memberships (b) 187 187 122 122

6,127 6,127 122 122

(a) Goodwill on consolidationGroup

2010 2009$’000 $’000

Balance at 1 January and 31 December 5,940 5,940

Carrying amounts of goodwill allocated to each of the Group’s cash-generating units are as follows:Group

2010 2009$’000 $’000

Ship and rig repair, building and conversion 4,917 4,917

Others 1,023 1,023

Total 5,940 5,940

For goodwill impairment testing, the recoverable amounts of cash-generating units of the Group are determined based on a value in use calculation using cash flow projections from financial budgets approved by senior management for the next financial year.

(b) Club memberships

Club memberships are stated at cost and after deducting allowance for impairment loss of $653,000 (2009: $653,000) for the Group and $468,000 (2009: $468,000) for the Company.


159


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160


Deferred tax liabilities and assets are set off when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxation authority. The amounts determined after appropriate offsetting included in the balance sheet are as follows:

Group CompanyGroup 2010 2009 2010 2009

$’000 $’000 $’000 $’000

Deferred tax assets (47) (47) – –

Deferred tax liabilities 103,909 66,748 43,842 34,873

103,862 66,701 43,842 34,873

Deferred tax assets not recognised in respect of the following items:Group

2010 2009$’000 $’000

Unutilised tax losses and capital and investment allowances unlikely to be utilised

(1,423) (2,064)

Others (3,163) (3,214)

(4,586) (5,278)

Deferred tax assets have not been recognised in respect of the above temporary differences in accordance with Note 3.17.

13 Derivative financial assets and liabilities2010 2009

Group Notional amount

Assets/(Liabilities)

Notional amount

Assets/(Liabilities)

$’000 $’000 $’000 $’000

Forward foreign currency contracts:Bought contracts 1,768,566 72,519 1,671,896 (28,800)

Interest rate swap 8,000 (101) 20,000 (527)

Balance at 31 December 1,776,566 72,418 1,691,896 (29,327)

Comprises:

Current derivative financial assets 1,020,624 40,805 98,206 2,604

Non-current derivative financial assets 747,942 31,714 5,405 181

Current derivative financial liabilities 8,000 (101) 916,822 (21,200)Non-current derivative financial liabilities – – 671,463 (10,912)

1,776,566 72,418 1,691,896 (29,327)

As at 31 December 2010, the settlement dates on open derivative contracts ranged between 1 to 27 months (2009: 1 to 31 months). The fixed interest rate on the interest rate swap is 3.93% (2009: 3.93%) per annum and is used to hedge the interest rate risk arising from the term loan as disclosed in Note 19 (a).


161


Details of the forward foreign currency contracts and foreign exchange swap contracts are as follows:

Group2010 2009$’000 $’000

Contracts to deliver USD and receive SGD 1,766,081 1,624,126

Contracts to deliver USD and receive EUR – 5,011

Contracts to deliver EUR and receive SGD 2,485 42,759

1,768,566 1,671,896

14 Inventories and work-in-progressGroup

Note 2010 2009$’000 $’000

Materials (a) 19,203 25,330

Finished goods (a) 1,978 2,498

Work-in-progress (b) 729,568 1,224,672

750,749 1,252,500

(a) Materials and finished goods are stated after deducting allowance for inventories obsolescence of:Group

2010 2009$’000 $’000

Allowance for inventories obsolescence:Balance at 1 January 4,137 4,132

Charge for the year 329 189

Write-back for the year (1,250) (184)


Materials 2,908 3,823

Finished goods 308 314

3,216 4,137

(b) Work-in-progressGroup

2010 2009$’000 $’000

Costs and attributable profits less allowance for foreseeable losses 4,293,600 6,341,128

Progress billings (4,209,736) (5,812,487)

83,864 528,641

Comprising:

Work-in-progress 729,568 1,224,672

Progress billings in excess of work-in-progress (645,704) (696,031)

83,864 528,641

162


15 Bank balances, fixed deposits and cash

Bank balances, fixed deposits and cash comprise:Group Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Fixed deposits 2,452,496 1,638,158 155,337 –

Bank balances and cash 462,601 340,390 13,674 15,846Cash and cash equivalents in the cash

flow statement2,915,097 1,978,548 169,011 15,846

Fixed deposits of the Group placed with financial institutions have maturity periods ranging from 3 days to 185 days (2009: 4 days to 97 days) from the financial year-end and interest rates ranging from 0.01% to 1.6% (2009: 0.03% to 1.3%) per annum, which are also the effective interest rates.

16 Trade payablesGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Associates and joint ventures 3,834 2,103 – –

Immediate holding company 268 250 268 250

Related companies 133 114 – 17

External parties 1,449,580 1,563,083 42,755 32,850

1,453,815 1,565,550 43,023 33,117

All the amounts due to associates, joint ventures, immediate holding company and related companies are interest-free, unsecured, repayable on demand and to be settled in cash.

17 Other payables Group Company

Note 2010 2009 2010 2009$’000 $’000 $’000 $’000

Current payablesDeposits received 2,104 1,992 26 26

GST payables 455 3,704 – 233

Non-trade payables (a) 5,467 20,986 60,455 45,302

Interest payable 403 – – –

8,429 26,682 60,481 45,561

Non-current payables

Non-trade payables 8,804 – – –

Non-trade payables to a subsidiary (b) – – – 32,987

8,804 – – 32,987

17,233 26,682 60,481 78,548


163


Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

(a) Non-trade payablesSubsidiaries – – 60,372 45,219

Related company 63 11,789 – –

External parties 5,404 9,197 83 83

5,467 20,986 60,455 45,302

The non-trade payables to subsidiaries and a related company are unsecured, interest-free, repayable on demand and to be settled in cash.

(b) Non-trade payables to a subsidiary

The non-trade payables to a subsidiary are unsecured, interest-free and to be settled in cash. The settlement of this amount is neither planned nor likely to occur in the foreseeable future. As this amount is, in substance, a return of capital to the holding company, it is stated at cost.

18 Provisions Note Group

2010 2009$’000 $’000

Provision for retirement gratuities (a) 479 480

Provision for warranty (b) 54,904 60,121

55,383 60,601

(a) Provision for retirement gratuities

Balance at 1 January 480 470

Charge to income statement 90 62

Utilised during the year (481) (448)

Reclassification 20 390 396

Balance at 31 December 479 480

(b) Provision for warranty


Currency translation differences (1,050) (239)

(Write-back)/charge to income statement (4,167) 22,642


164


19 Interest-bearing borrowingsGroup

Note 2010 2009$’000 $’000

Current liabilitiesTerm loan (a) 8,000 12,000

8,000 12,000

Non-current liabilitiesTerm loan (a) – 8,000

– 8,000

Total interest-bearing borrowings 8,000 20,000

(a) The term loan is repayable in 60 equal monthly instalments of $1 million each and is to be fully repaid on 30 August 2011. The term loan bears interest at 0.25% per annum above the SWAP rate. An interest rate swap was entered to repay the interest of this loan at a fixed rate of 3.93% (2009: 3.93%) per annum. The term loan is secured by a corporate guarantee from a subsidiary.

(b) In 2004, the Company established a $500,000,000 Multicurrency Multi-issuer Debt Issuance Programme (the MTN) pursuant to which the Company, together with its subsidiaries Jurong Shipyard Pte Ltd and Sembawang Shipyard Pte Ltd (Issuing Subsidiaries), may from time to time issue the Notes (as defined below), subject to availability of funds from the market. The obligations of Issuing Subsidiaries under the Notes are fully guaranteed by the Company. In 2010, the Company increased its current MTN from $500,000,000 to $2,000,000,000 with the inclusion of SMOE Pte Ltd as one of the Issuing Subsidiaries.

Under the MTN, the Company or any of the Issuing Subsidiaries may from time to time issue notes in series or tranches in Singapore dollars or any other currency (the Notes). Such Notes are listed on the Singapore Exchange Securities Trading Limited and are cleared through the Central Depository (Pte) Ltd. The Notes are redeemable at par.

There were no outstanding medium term notes as at 31 December 2010.

20 Other provisionsGroup Company

Note 2010 2009 2010 2009$’000 $’000 $’000 $’000

Provision for retirement gratuities (a) 1,110 1,500 – –

Provision for restoration of property, plant and equipment

(b) 29,648 4,698 27,895 2,895

30,758 6,198 27,895 2,895


165


(a) Provision for retirement gratuitiesNote Group

2010 2009$’000 $’000


Reclassification 18 (390) (396)


(b) Provision for restoration of property, plant and equipmentGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Balance at 1 January 4,698 4,727 2,895 2,895

Currency translation differences (50) (29) – –

Provision made 25,000 – 25,000 –

Balance at 31 December 29,648 4,698 27,895 2,895

21 Share capital Group and Company

No. of ordinary shares2010 2009

Issued and fully paid, with no par value:Balance at 1 January 2,071,371,470 2,071,371,470

Exercise of share options 6,531,509 –

Balance at 31 December 2,077,902,979 2,071,371,470

The Company reissued 7,082,545 (2009: 8,461,822) treasury shares during the year pursuant to its share based incentive plans (Note 35). As at 31 December 2010, the Company did not hold any treasury shares (2009: 7,082,545).

The holders of ordinary shares (excluding treasury shares) are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares (excluding treasury shares) rank equally with regard to the Company’s residual assets.

166


22 Reserves

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

DistributableReserve for own shares (1) – (25,449) – (25,449)

Revenue reserve 1,966,954 1,418,208 454,173 510,638

Non-distributableForeign currency translation reserve (2) (65,147) (30,474) – –

Share-based compensation reserve (3) (1,047) 7,176 548 8,009

Fair value reserve (4) 161,052 59,953 127,400 56,532

Hedging reserve(5) 55,456 (14,016) – –

Other capital reserves (6) 25,574 25,325 960 960

2,142,842 1,440,723 583,081 550,690

(1) Reserve for own shares comprises the cost of the Company’s shares held by the Company.

(2) The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from that of the Group’s presentation currency. It is also used to record the effect of hedging net investments in foreign operations.

(3) Share-based compensation reserve represents the equity-settled share options, restricted shares and performance shares awarded to employees. The reserve is made up of the cumulative value of services received from employees relating to such awards.

(4) Fair value reserve records the cumulative fair value changes of available-for-sale financial assets until they are derecognised or impaired. The increase in the fair value reserve during the year mainly arose from fair value changes in the Group’s long term quoted investments.

(5) Hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments relating to hedged transactions that have not yet occurred.

(6) Included in other capital reserves are asset revaluation reserve of $960,000 (2009: $960,000) for both the Group and Company and transfers from revenue reserve in accordance with the regulations of the foreign jurisdiction in which some of the Group’s subsidiaries and associates operate.


167

23 Other comprehensive income

Tax effects relating to each component of other comprehensive income are set out below:

2010 2009Before

taxTax

expense Net of taxBefore

taxTax

expense Net of tax$’000 $’000 $’000 $’000 $’000 $’000

GroupTranslation differences (39,254) – (39,254) (30,161) – (30,161)

Fair value changes of available-for-sale financial assets

119,091 (17,992) 101,099 27,374 (5,249) 22,125

Fair value changes of available-for-sale financial assets transferred to the income statement on impairment

– – – 11,764 – 11,764

Fair value changes of cash flow hedges

83,065 (14,226) 68,839 64,334 (11,741) 52,593

Fair value changes of cash flow hedges transferred to the income statement

– – – 10,465 (1,884) 8,581

Other comprehensive income 162,902 (32,218) 130,684 83,776 (18,874) 64,902

CompanyFair value changes of available-for-

sale financial assets 82,173 (11,305) 70,868 16,029 (2,390) 13,639

Other comprehensive income 82,173 (11,305) 70,868 16,029 (2,390) 13,639

24 Turnover

Turnover represents sales from the various activities described in Note 1 and Note 43, including the revenue recognised on contracts relating to ship and rig repair, building, conversion and offshore.

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Services rendered to external parties: Ship and rig repair, building and conversion 4,537,483 5,705,156 – –

Others 3,131 1,774 – –

Services rendered to subsidiaries:

Rental income – – 33,458 18,365

Management fee – – 30,868 33,698

Sale of goods to external parties 14,249 17,812 – –

4,554,863 5,724,742 64,326 52,063


168

25 Operating profit/(loss)

Operating profit/(loss) is stated after charging/(crediting):

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Professional fees paid to a firm in which a director is a member

130 165 119 125

Fees paid/payable to auditors of the Company:

Audit fees 466 459 68 65

Non-audit fees 35 26 – 5

Foreign currency exchange loss 43,577 3,458 198 21

Gain on disposal of property, plant and equipment, net

(1,923) (150) – –

Impairment loss on property, plant and equipment

3,950 6,145 – –

Property, plant and equipment written off 332 2,459 – –

Investment properties written off – – 128 –

Negative goodwill – (298) – –

Fair value adjustment on hedging instruments (6,613) (3,160) – –

Operating lease expenses 18,173 14,539 9,857 7,923

Staff costs 481,267 482,128 28,657 32,037

Staff costs, which include Directors’ remuneration for the year, are as follows:

Salaries and bonus 408,442 418,197 23,826 27,238

Government grants - Jobs Credit Scheme (2,327) (11,875) (24) (117)

Defined contribution plan 21,176 20,164 173 172

Share-based compensation 22,993 17,858 3,110 3,266

Directors’ fee:

Directors of the Company 1,460 1,423 1,171 1,157

Other employee benefits 29,523 36,361 401 321

481,267 482,128 28,657 32,037



169

26 Finance incomeGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Net dividend from:

Unquoted subsidiaries – – 248,868 235,000

Unquoted associates – – 48 12,077

Quoted equity shares 3,384 7,801 2,142 4,902

3,384 7,801 251,058 251,979

Interest income from:

Subsidiary – – 51 3,535

Trade receivables 18,705 22,666 702 845

Fixed deposits and bank balances 9,913 6,051 41 47

Related companies 6 88 – –

Joint venture 171 – – –

Others – 1 – 1

28,795 28,806 794 4,428

32,179 36,607 251,852 256,407

27 Finance costsGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Finance costs:

Borrowings 571 5,803 – 3,316

Facility fee 4,258 – – –

Commitment fee 2,731 – – –

Interest rate swap - fair value through profit and loss (426) (474) – –

7,134 5,329 – 3,316

28 Foreign exchange transactions

The Company’s subsidiary, Jurong Shipyard Pte Ltd (“JSPL”) has reached an agreement, strictly on a commercial basis with Societe Generale (“SG”) for a full and final amicable settlement of the disputed foreign exchange transactions.

Arising from this settlement, SG had made a payment of US$40 million ($52.64 million) to JSPL on the basis that there is no admission of liability by either party and $52.64 million had been recognised in the consolidated income statement.


170

29 Non-operating income/expensesGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Non-operating income: Surplus on return of capital from a

subsidiary – – 5,040 –

Gain on disposal of subsidiaries – – 225 1,625

Gain on liquidation of subsidiary – 368 – –

– 368 5,265 1,625

Non-operating expenses:

Impairment of other investments – 11,764 – –

30 Share of results of associates and joint venturesGroup

Note 2010 2009$’000 $’000

Share of profit for the year 57,639 25,399

Share of taxation for the year 31 (10,787) (6,103)

46,852 19,296

31 Income tax expense/(credit)Group Company

Note 2010 2009 2010 2009$’000 $’000 $’000 $’000

Current tax expenseCurrent year 171,974 151,088 2,339 1,019

(Over)/underprovided in prior years (4,006) (2,526) (429) 55

167,968 148,562 1,910 1,074

Deferred tax expenseMovement in temporary differences 2,538 (578) (2,335) (722)

Under/(overprovided) in prior years 2,716 (474) (1) 305

Reduction in tax rate – (2,743) – (1,263)

5,254 (3,795) (2,336) (1,680)

Share of income tax of associates and joint ventures 30 10,787 6,103 – –

Total income tax expense/(credit) 184,009 150,870 (426) (606)



171

Reconciliation of effective tax rate Group Company

2010 2009 2010 2009$’000 $’000 $’000 $’000


Total income tax expense/(credit) 184,009 150,870 (426) (606)

Share of results of associates and joint ventures (57,639) (25,399) – –

Profit before share of results of associates and joint ventures and income tax expense 1,020,249 882,236 254,380 254,620

Tax calculated using Singapore tax rate of 17% (2009: 17%) 173,442 149,980 43,245 43,285

Exempt income, capital gains and tax incentives/ concessions (6,101) (6,669) (45,084) (43,784)

Effect of changes in tax rate – (2,743) – (1,263)

Effect of different tax rate in foreign jurisdictions 4,991 1,795 – –

Effect on utilisation of deferred tax assets not previously recognised (1,258) (3,369) – –

Non deductible expenses 8,841 8,402 1,843 796

Foreign exchange transactions* (8,949) – – –

(Over)/under provision in respect of prior years (1,290) (3,000) (430) 360

Deferred tax assets not recognised 570 2,167 – –

Others 2,976 (1,796) – –

Share of taxation of associates and joint ventures 10,787 6,103 – –

184,009 150,870 (426) (606)

As at 31 December 2010, certain subsidiaries have unutilised tax losses and capital and investment allowances of $6,589,000 (2009: $9,118,000) and other temporary differences of $17,775,000 (2009: $17,065,000) available for set-off against future taxable income subject to the income tax provisions and agreement by the relevant tax authorities of the various jurisdictions.

* The Group has brought the amount of $52,640,000 arising from the foreign exchange transactions (Note 28) to tax in the revised tax return for year ended 31 December 2007 (Year of Assessment 2008) and therefore not taxable in the current year (Year of Assessment 2011). The amount is separately disclosed, pending Inland Revenue Authority of Singapore’s confirmation that the net losses arising from the foreign exchange transactions will be allowed. The tax return for the financial year ended 31 December 2007 and 2008 (Year of Assessment 2008 and 2009 respectively) had been prepared on the same basis.


172

32 Non-controlling interests

On 15 May 2010, the Company commenced proceedings in the High Court of Singapore against PPL Holdings Pte Ltd and its wholly owned subsidiary, E-Interface Holdings Limited to seek the transfer the remaining 15 per cent of the shares in PPL Shipyard Pte Ltd (“PPLS”) to the Company. Pending the outcome of the Court’s decision, the Group has continued to consolidate its 85 per cent interest in PPLS and separately accounted for the 15 per cent as a "non-controlling interest".

33 Earnings per share

(a) Basic earnings per share (EPS) is calculated by dividing the profit attributable to shareholders after deducting non-controlling interests of $860,266,000 (2009: $700,118,000) by the weighted average number of ordinary shares in issue during the year of 2,070,638,122 (2009: 2,058,239,106).

(b) Diluted EPS is calculated after adjusting for those shares not yet exercised under the Sembcorp Marine Share Option Plan as follows:

Group2010 2009$’000 $’000

Profit attributable to shareholders of the Company 860,266 700,118

No. of shares No. of shares

Weighted average number of ordinary shares in issue during the year 2,070,638,122 2,058,239,106

Effect of dilutive share options 5,995,000 5,425,000

Weighted average number of ordinary shares outstanding used in the calculation of diluted EPS 2,076,633,122 2,063,664,106

(c) Basic and diluted EPS are as follows:Cents Cents

Basic EPS 41.55 34.02

Diluted EPS 41.43 33.93



173

34 Dividends

The proposed net dividend of $644,150,000 (2009: $206,429,000) represents a final one-tier tax-exempt dividend of 6.00 cents per share (2009: final one-tier tax-exempt dividend of 6.00 cents per share) and a special one-tier tax-exempt dividend of 25.00 cents per share (2009: special one-tier tax-exempt dividend of 4.00 cents per share).

Group and Company2010 2009$’000 $’000

Dividends paid

Interim one-tier tax-exempt dividend of 5.00 cents per share (2009: 5.00 cents per share)

103,795 103,124

2009 final one-tier tax-exempt dividend of 6.00 cents per share (2009: 2008 final one-tier tax-exempt dividend of 6.00 cents per share)

124,486 123,542

2009 special one-tier tax-exempt dividend of 4.00 cents per share 82,990 –

311,271 226,666

35 Share-based incentive plans

The Company’s Share Option Plan, Performance Share Plan and Restricted Stock Plan (collectively, the Share Plans) were approved and adopted by the shareholders at an Extraordinary General Meeting of the Company held on 31 May 2000 and modified at the Extraordinary General Meeting of the Company held on 21 April 2005.

During the year, the Share Plans expired and the new Share Plans comprising Performance Share Plan (SCM PSP 2010) and Restricted Share Plan (SCM RSP 2010) were approved and adopted by the shareholders at an Extraordinary General Meeting of the Company held on 20 April 2010. The Share Option Plan was not replaced.

During the year, the Group has charged to the income statement the fair value of the awards at grant date made under the Share Plans:

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Share Option Plan 281 1,024 52 185

Performance Share Plan 1,880 2,105 1,062 1,286

Restricted Stock Plan 12,430 12,465 1,942 1,782

Sembcorp Marine Challenge Bonus 8,417 2,413 54 13

23,008 18,007 3,110 3,266


174

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175

(b) Performance Share Plan

Under the Performance Share Plan, the awards granted conditional on performance targets are set based on medium-term corporate objectives at the start of each rolling three-year performance qualifying period. A specific number of performance shares shall be awarded at the end of the three-year performance cycle depending on the extent of the achievement of the performance conditions established at the onset.

The performance levels were calibrated based on Wealth Added and Total Shareholder Return. A minimum threshold performance must be achieved to trigger an achievement factor, which in turn determines the number of shares to be finally awarded. Performance shares to be delivered will range between 0% to 150% of the conditional performance shares awarded.

From 2009, the Performance Share Plan was enhanced to create alignment between senior management and other employees at the time of vesting by introducing a plan trigger. Under this trigger mechanism, the performance shares for the performance period 2010 to 2012 will be vested to the senior management participants only if the restricted shares for the performance period 2011 to 2012 are vested, subject to the achievement of the performance conditions for the respective performance periods.

Senior management participants are required to hold a minimum percentage of the shares released to them under the Performance Share Plan to maintain a beneficial ownership stake in the Group, for the duration of their employment or tenure with the Group. A maximum cap is set based on a multiple of the individual participant’s Annual Base Salary. Any excess can be sold off, but in the event of a shortfall, they have a two calendar year period to meet the minimum percentage requirement.

The details of performance shares of the Company awarded since commencement of the Performance Share Plan up to 31 December 2010 were as follows:

Performance Shares participants

Conditional performance

shares awarded

during the year


performance shares

awarded


performance shares

released


performance shares lapsed

Additional performance

shares awarded


year


performance shares

outstanding


- Wong Weng Sun 250,000 1,155,000 (600,600) (71,400) 42,000 525,000

- Tan Kwi Kin – 3,100,000 (2,329,900) (604,100) 84,000 250,000

Former alternate director of the Company

– 800,000 (461,000) (339,000) – –

Key management and executives of the Group

385,000 2,682,500 (1,418,200) (178,500) 109,200 1,195,000

At 31 December 2010 635,000 7,737,500 (4,809,700) (1,193,000) 235,200 1,970,000

With the Committee’s approval on the achievement factor for the achievement of the performance targets for the performance period 2007 to 2009, a total of 1,215,200 (2009: 411,600) performance shares were released via the issuance of treasury shares.

In 2010, there were additional 235,200 (2009: nil) performance shares awarded for over-achievement of the performance targets.


176

The total number of performance shares in awards granted conditionally and representing 100% of targets to be achieved, but not released as at 31 December 2010, was 1,970,000 (2009: 2,315,000). Based on the multiplying factor, the actual release of the awards could range from zero to a maximum of 2,955,000 (2009: 3,472,500) performance shares.

Fair value of Performance Shares

The fair values of the performance shares are estimated using a Monte Carlo simulation methodology at the grant dates.

The fair values of performance shares granted during the year are as follows:

Date of grant 19 April 2010 13 April 2009

Fair value at measurement date $3.62 $2.28

Assumptions under the Monte Carlo model

Share price $4.36 $2.26

Expected volatility:

Sembcorp Marine Ltd 31.8% 50.3%

Morgan Stanley Capital International (“MSCI”) AC Asia Pacific excluding Japan Industrials Index

21.4% 33.9%

Correlation with MSCI 79.5% 76.2%

Risk-free interest rate 0.7% 0.7%

Expected dividend 3.4% 5.3%

The expected volatility is based on the historical volatility over the most recent period that is close to the expected life of the performance shares.

(c) Restricted Stock Plan

Under the Restricted Stock Plan, the awards granted conditional on performance targets are set based on corporate objectives at the start of each rolling two-year performance qualifying period. The performance criteria for the restricted shares are calibrated based on Return on Equity and Earnings Before Interest and Taxes for awards granted in 2010.

A minimum threshold performance must be achieved to trigger an achievement factor, which in turn determines the number of shares to be finally awarded. Based on the criteria, restricted shares to be delivered will range from 0% to 150% of the conditional restricted shares awarded.

The managerial participants of the Group will be awarded restricted shares under the Restricted Stock Plan, while the non-managerial participants of the Group will receive their awards in an equivalent cash value. This cash-settled notional restricted shares award for non-managerial participants is known as the Sembcorp Marine Challenge Bonus.

A specific number of restricted shares shall be awarded at the end of the two-year performance cycle depending on the extent of the achievement of the performance conditions established at the onset. There is a further vesting of three years after the performance period, during which one-third of the awarded shares are released each year to managerial participants. Non-managerial participants will receive the equivalent in cash at the end of the two-year performance cycle, with no further vesting conditions.

Senior management participants are required to hold a minimum percentage of the shares released to them under the Restricted Stock Plan to maintain a beneficial ownership stake in the Group, for the duration of their employment or tenure with the Group. A maximum cap is set based on a multiple of the individual participant’s Annual Base Salary. Any excess



177

can be sold off, but in the event of a shortfall, they have a two calendar year period to meet the minimum percentage requirement.

There is no performance condition for the conditional award of the restricted shares granted to non-executive directors in 2010. Shares granted will be vested 1 year from the date of grant.

The details of restricted shares of the Company awarded since commencement of the Restricted Stock Plan up to 31 December 2010 were as follows:

Restricted Shares participants

Conditional restricted

shares awarded

during the year


shares awarded

Aggregateconditional restricted

shares lapsed

Additional restricted

shares awarded


year


shares released


shares outstanding


Goh Geok Ling 20,500 111,540 – 11,000 (37,694) 84,846

Richard Hale, OBE 14,700 36,700 – – – 36,700

Wong Weng Sun 100,000 364,384 – 25,000 (134,052) 255,332

Tan Kwi Kin 6,400 401,296 – 50,000 (284,230) 167,066

Tan Pheng Hock 8,300 51,410 – 6,000 (18,740) 38,670

Ajaib Haridass 12,800 88,110 – 9,500 (34,374) 63,236

Tang Kin Fei 11,500 65,070 – 6,000 (22,380) 48,690

Ron Foo Siang Guan 11,500 70,980 – 8,500 (25,488) 53,992

Ngiam Joke Mui 6,400 24,400 – 4,500 (4,500) 24,400

Lim Ah Doo 11,500 20,500 – – – 20,500

Former Directors of the Company

– 126,480 (24,805) 20,000 (109,675) 12,000

Other executives 3,290,600 16,698,278 (1,006,651) 1,534,750 (6,651,506) 10,574,871

At 31 December 2010 3,494,200 18,059,148 (1,031,456) 1,675,250 (7,322,639) 11,380,303

With the Committee’s approval on the achievement factor for the achievement of the performance targets for the performance period 2008 to 2009, a total of 1,791,238 restricted shares were released. For awards in relation to the performance period 2007 to 2008, a total of 1,561,953 (2009: 1,956,117) restricted shares were released in 2010. For awards in relation to the performance period 2006 to 2007, a total of 575,764 (2009: 729,439) restricted shares were released in 2010. The restricted shares were either released via the issuance of treasury shares or the issuance of new shares.

In 2010, additional 1,675,250 (2009: 1,182,233) restricted shares were awarded for the over-achievement of the performance targets for the performance period 2008 to 2009 (2009: 2007 to 2008).

The total number of restricted shares outstanding, including awards achieved but not released, as at 31 December 2010, was 11,380,303 (2009: 10,406,962). Of this, the total number of restricted shares in awards granted conditionally and representing 100% of targets to be achieved, but not released was 6,615,930 (2009: 6,709,730). Based on the multiplying factor, the actual release of the awards could range from zero to a maximum of 9,923,895 (2009: 10,064,595) restricted shares.


178


With the Committee’s approval on the achievement factor for the achievement of the performance targets for the performance period 2008 to 2009 (2009: 2007 to 2008), a total of $3,785,714 (2009: $1,678,905), equivalent to 1,030,600 (2009: 1,203,602) notional restricted shares, were paid.

A total of 1,234,400 (2009: 1,130,050) notional restricted shares were awarded on 19 April 2010 (2009: 13 April 2009) for the Sembcorp Marine Challenge Bonus.

The total number of notional restricted shares in awards for the Sembcorp Marine Challenge Bonus granted conditionally and representing 100% of targets to be achieved, but not released as at 31 December 2010, was 2,149,950 (2009: 1,928,700). Based on the multiplying factor, the number of notional restricted shares to be converted into the funding pool could range from zero to a maximum of 3,224,925 (2009: 2,893,050).

Fair value of Restricted Shares

The fair values of the restricted shares are estimated using a Monte Carlo simulation methodology at the grant dates.

The fair values of restricted shares granted during the year are as follows:

Date of grant 19 April 2010 13 April 2009

Fair value at measurement date $2.62 $1.98

Assumptions under the Monte Carlo model

Share price $4.36 $2.26

Expected volatility:

Sembcorp Marine Ltd 31.8% 50.3%

Risk-free interest rate 0.5% - 0.8% 0.4% - 1.0%

Expected dividend 3.4% 5.3%

The expected volatility is based on the historical volatility over the most recent period that is close to the expected life of the restricted shares.

Fair value of Sembcorp Marine Challenge Bonus

The fair value of the compensation cost is based on the notional number of restricted shares awarded for the Sembcorp Marine Challenge Bonus and the market price at the vesting date.

36 Contingent liabilitiesCompany

2010 2009$’000 $’000

Unsecured corporate guarantees granted in respect of:

Performance of subsidiaries 3,382,157 3,513,769



179

37 CommitmentsGroup Company

2010 2009 2010 2009$’000 $’000 $’000 $’000

Commitments not provided for in the financial statements are as follows:

(a) Approved capital commitment:

Approved capital expenditure commitment 511,302 443,781 – – Uncalled capital and commitment

on investments – 45,543 – 45,543

511,302 489,324 – 45,543

(b) Minimum lease rental payable in respect of land and buildings:

Within 1 year 15,189 10,556 9,811 5,126

After 1 year but within 5 years 50,570 15,240 35,029 –

After 5 years 298,915 238,640 70,874 –

364,674 264,436 115,714 5,126

(c) Share of joint ventures’ approved and contracted capital commitments 20,286 34,811 – –

The leases do not provide for contingent rents and lease terms do not contain restrictions on the Group activities concerning dividends, additional debt or further leasing. Certain leases contain escalation clauses to reflect market rentals.

Certain leases include renewal options for additional lease period of 10 to 30 years and at rental rates based on prevailing market rates.

38 Related parties

Significant transactions during the year between the Group and its related parties on terms as agreed between the respective parties and which are not otherwise disclosed elsewhere in these financial statements consist of:

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Immediate holding companyManagement fee payable 250 250 250 250

Related companiesSales 1,859 1,817 – –

Purchases 38,789 59,293 – –

Others 4 49 – –

Associates and joint venturesSales 2,366 524 – –

Purchases 8,679 4,531 – – Sale of property, plant and equipment 3,400 – – –

Others 30 593 – –


180

Compensation of key management personnel

Directors of the Company, President & Chief Executive Officer/Managing Director of Jurong Shipyard Pte Ltd, Deputy President/Managing Director of Sembawang Shipyard Pte Ltd, Chief Financial Officer of the Company, Managing Director of PPL Shipyard Pte Ltd, Managing Director of SMOE Pte Ltd and Executive Director of Jurong SML Pte Ltd are considered to be key management personnel. They have the authority and responsibility for planning, directing and controlling the activities of the Group.

The key management personnel compensation is as follows:Group

2010 2009$’000 $’000

Directors’ fees and remuneration 8,739 6,673

Other key management personnel remuneration 7,356 3,690

16,095 10,363

Fair value of share-based compensation 2,446 2,972

Remuneration includes salary (which includes allowances, fees and other emoluments) and bonuses.

In addition to the above, the Company provides medical benefits to all employees including key management personnel.

The Group adopts an incentive compensation plan, which is tied to the creation of Economic Value Added (EVA), as well as to attainment of individual and Group performance goals for its key executives. A “bonus bank” is used to hold incentive compensation credited in any year. Typically, one-third of the available balance is paid out in cash each year, with the balance being carried forward to the following year. The balances of the bonus bank in future will be adjusted by the yearly EVA performance of the Group and its subsidiaries and the payouts made from the bonus bank.

The fair value of share-based compensation relates to share options, performance shares and restricted shares granted that were charged to the income statement.

39 Operating segments

(a) Business segments

The Group has two reportable segments, which are the Group’s strategic business units. The strategic business units are managed separately because of their different business activities. The two reportable segments are (i) ship and rig repair, building and conversion and (ii) ship chartering.

The accounting policies are described in Note 2. Inter-segment sales and transfers are carried out on an arm’s length basis. Segment assets consist primarily of property, plant and equipment, current assets and exclude inter-segment balances. Segment liabilities comprise mainly operating liabilities and exclude inter-segment balances. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group’s CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.

Other operations include bulk trading in marine engineering related products; provision of harbour tug services to port users; collection and treatment of used copper slag, and the processing and distribution of copper slag for blast cleaning purposes.



181

(a) Business segmentsShip &

rig repair, building,

conversion and offshore

Ship chartering Others Eliminations Total

$’000 $’000 $’000 $’000 $’0002010TurnoverSales to external parties 4,537,483 – 17,380 – 4,554,863

Inter-segment sales – – 82,119 (82,119) –

Total 4,537,483 – 99,499 (82,119) 4,554,863

ResultsSegment results 941,777 (223) 1,010 – 942,564

Finance income 32,148 – 31 – 32,179

Finance costs (7,134) – – – (7,134)

Foreign exchange transactions 52,640 – – – 52,640

Share of results of associates and joint ventures

53,417 4,179 43 – 57,639

Profit before income tax expense 1,072,848 3,956 1,084 – 1,077,888

Income tax expense (183,671) (104) (234) – (184,009)

Profit for the year 889,177 3,852 850 – 893,879

AssetsSegment assets 4,907,346 14,807 50,014 – 4,972,167

Investments in associates and joint ventures

275,473 30,961 522 – 306,956

Deferred tax assets – – 47 – 47

Total assets 5,182,819 45,768 50,583 – 5,279,170

LiabilitiesSegment liabilities 2,197,672 5 13,317 – 2,210,994

Deferred tax liabilities 103,354 – 555 – 103,909

Provision for taxation 276,465 – 876 – 277,341

Total liabilities 2,577,491 5 14,748 – 2,592,244

Capital expenditure 102,181 – 18 – 102,199

Significant non-cash itemDepreciation 82,028 – 1,169 – 83,197


182

Ship & rig repair, building,

conversion and offshore

Ship chartering Others Eliminations Total

$’000 $’000 $’000 $’000 $’0002009TurnoverSales to external parties 5,705,156 – 19,586 – 5,724,742

Inter-segment sales – – 125,584 (125,584) –

Total 5,705,156 – 145,170 (125,584) 5,724,742

ResultsSegment results 856,801 (145) 5,698 – 862,354

Finance income 36,586 – 21 – 36,607

Finance costs (5,329) – – – (5,329)

Non-operating income 368 – – – 368

Non-operating expenses (11,764) – – – (11,764)

Share of results of associates and joint ventures

17,503 7,856 40 – 25,399

Profit before income tax expense 894,165 7,711 5,759 – 907,635

Income tax expense (149,425) (632) (813) – (150,870)

Profit for the year 744,740 7,079 4,946 – 756,765

AssetsSegment assets 4,352,194 15,496 50,332 – 4,418,022

Investments in associates and joint ventures

239,831 27,411 532 – 267,774

Deferred tax assets – – 47 – 47

Tax recoverable 1,705 – – – 1,705

Total assets 4,593,730 42,907 50,911 – 4,687,548

LiabilitiesSegment liabilities 2,393,503 10 13,661 – 2,407,174

Deferred tax liabilities 66,201 – 547 – 66,748

Provision for taxation 251,317 525 1,376 – 253,218

Total liabilities 2,711,021 535 15,584 – 2,727,140

Capital expenditure 66,981 – 13,473 – 80,454

Significant non-cash itemsDepreciation 73,965 – 1,228 – 75,193

Amortisation 55 – – – 55



183

(b) Geographical segments

The Group operates in 8 (2009: 6) countries and principally in the Republic of Singapore. Pricing of inter-segment sales and transfers are carried out on an arm’s length basis.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets.

Singapore Rest of Asia Europe Others Total$’000 $’000 $’000 $’000 $’000

2010

Revenue from external customers 601,387 922,635 2,072,609 958,232 4,554,863

Segment assets 4,808,118 150,231 3,644 10,174 4,972,167

Total assets 4,839,648 425,704 3,644 10,174 5,279,170

Capital expenditure 93,021 8,021 – 1,157 102,199

2009

Revenue from external customers 574,053 2,236,593 2,166,215 747,881 5,724,742

Segment assets 4,269,369 140,966 – 7,687 4,418,022

Total assets 4,299,064 380,797 – 7,687 4,687,548

Capital expenditure 74,085 6,276 – 93 80,454


184

(c) Reconciliation of reportable segment revenues, profit, assets and liabilities and other material items:

Group2010 2009$’000 $’000

RevenuesTotal revenue for reportable segments 4,537,483 5,705,156

Other revenue 99,499 145,170

Elimination of inter-segment revenue (82,119) (125,584)

Consolidated revenue 4,554,863 5,724,742

ProfitTotal profit for reportable segments 1,076,804 901,876

Other profit 1,084 5,759

Consolidated profit before income tax 1,077,888 907,635

AssetsTotal assets for reportable segments 5,228,587 4,636,637

Other assets 50,583 50,911

Consolidated total assets 5,279,170 4,687,548

LiabilitiesTotal liabilities for reportable segments 2,577,496 2,711,556

Other liabilities 14,748 15,584

Consolidated total liabilities 2,592,244 2,727,140

Reportable segment totals Adjustments

Consolidated totals

$’000 $’000 $’000Other material items 2010Finance income (32,148) (31) (32,179)

Finance costs 7,134 – 7,134

Depreciation and amortisation 82,028 1,169 83,197

Impairment losses of property, plant and equipment 3,950 – 3,950

Capital expenditure 102,181 18 102,199

Other material items 2009Finance income (36,586) (21) (36,607)

Finance costs 5,329 – 5,329

Depreciation and amortisation 74,020 1,228 75,248

Impairment losses of property, plant and equipment 6,145 – 6,145

Capital expenditure 66,981 13,473 80,454



185

40 Financial risk management

The main risks arising from the Group’s financial instruments are credit risk, foreign currency risk, interest rate risk, liquidity risk and market risk. The Board of Directors reviews and agrees policies for managing each of these risks and they are summarised below:

Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations.

The Group’s objective is to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure. The Group manages credit risk arising from sales to customers through a stringent credit evaluation process and regular monitoring thereafter. The management of credit risk is on an aggregate basis by including all existing relationships with a particular customer or related entities of the same corporate organisation. There is no significant concentration of credit risk on the outstanding financial instruments as at year end.

The carrying amounts of trade and other receivables, cash and cash equivalents and derivatives with positive fair values represent the Group’s maximum exposure to credit risk.

Cash and fixed deposits are placed in banks and financial institutions which are regulated. The Group limits its credit risk exposure in respect of investments by only investing in liquid securities and only with counterparties that have a sound credit rating.

Foreign currency risk

The Group incurs foreign currency risk on sales and purchases that are denominated in a currency other than the Singapore dollar, primarily the United States dollar (USD) and the Euro (EUR). To minimise exposure on foreign currency risks, the Group usually settles such transactions within 30 day terms.

The Group also utilises forward foreign currency contracts to hedge foreign currency denominated financial assets, liabilities and firm commitments. Under this programme, increases or decreases in the Group’s foreign currency denominated financial assets, liabilities and firm commitments are partially offset by gains and losses on the hedging instruments. The Group does not use forward foreign currency contracts for trading purpose.


186

The Group’s and Company’s foreign currency exposures are as follows:

Group SGD USD EUR Others Total $’000 $’000 $’000 $’000 $’000At 31 December 2010Financial assetsBank balances, fixed deposits and cash 32,473 358,200 65,301 8,603 464,577

Trade and other receivables 12,837 45,610 578 2,999 62,024

Other investments – – – 46,705 46,705

45,310 403,810 65,879 58,307 573,306

Financial liabilitiesTrade and other payables (83,387) (79,030) (19,104) (12,412) (193,933)

(83,387) (79,030) (19,104) (12,412) (193,933)

Net financial (liabilities)/assets (38,077) 324,780 46,775 45,895 379,373

Forward foreign currency contracts* 111,000 1,577,110 (2,485) – 1,685,625

Net exposure 72,923 1,901,890 44,290 45,895 2,064,998

At 31 December 2009Financial assetsBank balances, fixed deposits and cash 61,058 154,211 106,000 12,294 333,563

Trade and other receivables 18,980 66,158 507 985 86,630

Other investments – – – 28,438 28,438

80,038 220,369 106,507 41,717 448,631

Financial liabilitiesTrade and other payables (177,052) (175,930) (61,693) (10,041) (424,716)

(177,052) (175,930) (61,693) (10,041) (424,716)

Net financial (liabilities)/assets (97,014) 44,439 44,814 31,676 23,915

Forward foreign currency contracts* 247,148 1,265,772 (37,476) – 1,475,444

Net exposure 150,134 1,310,211 7,338 31,676 1,499,359

Company USD Others Total$’000 $’000 $’000

At 31 December 2010Financial assetsBank balances, fixed deposits and cash 1,029 – 1,029

Other investments – 44,084 44,084

Net financial assets 1,029 44,084 45,113

At 31 December 2009Financial assetsBank balances, fixed deposits and cash 549 – 549

Other investments – 28,403 28,403

Net financial assets 549 28,403 28,952


* Forward foreign currency contracts are entered to hedge future forecasted transactions.


187

Sensitivity analysis

A 10% strengthening of the following currencies against the functional currencies of the Company and its subsidiaries at the balance sheet date for the Group’s and Company’s monetary items, including forward foreign exchange contracts, would have increased/(decreased) equity and profit before income tax by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009.

Group Company

EquityProfit before income tax Equity

Profit before income tax

2010 2009 2010 2009 2010 2009 2010 2009$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

USD (132,756) (110,110) 30,244 (1,641) – – 103 55

EUR (169) (3,500) 4,634 5,058 – – – –

SGD (9,213) (20,513) (9,808) (9,701) – – – –

Others 3,660 2,354 182 334 3,659 2,357 – –

(138,478) (131,769) 25,252 (5,950) 3,659 2,357 103 55

A 10% weakening of the above currencies against the functional currencies of the Company and its subsidiaries at the balance sheet date would have equal but opposite effects on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of the Group’s and the Company’s financial instruments will fluctuate because of changes in market interest rates.

The Group’s policy is to maintain an efficient optimal interest cost structure using a mix of fixed and variable rate debts, where working capital is financed mainly by variable rate loans while long term investments are financed mainly by fixed rate loans. To manage this mix in a cost-efficient manner, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specific intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. After taking into account the effect of an interest rate swap, the Group’s borrowings are substantially at a fixed rate of interest. Surplus funds, if any, are placed with reputable banks.

The Group obtains additional financing through bank borrowings and leasing arrangements. The Group’s policy is to obtain the most favourable interest rates available without increasing its foreign currency exposure.


Based on the cash and cash equivalents for the Group of $2,915,097,000 (2009: $1,978,548,000), it is estimated that a one percentage point increase in interest rate would increase the Group’s profit before taxation by approximately $29,151,000 (2009: $19,785,000). The analysis is performed on the same basis for 2009.

Liquidity risk

Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group’s and the Company’s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. Short term funding is obtained from overdraft facilities and bank borrowings. The Group’s and the Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities.


188

The table below analyses the maturity profile of the Group’s and Company’s financial liabilities (including derivative financial liabilities) based on contractual undiscounted cash flows.

Cash flowsCarrying amount

Contractual cash flow

Less than 1 year

Between 1 and 5 years

Group $’000 $’000 $’000 $’0002010Derivative financial liabilitiesInterest rate swaps (101) (101) (101) –

Derivative financial assetsForward foreign currency contracts

- Inflow 72,519 1,768,567 1,020,625 747,942

- Outflow – (1,696,048) (979,820) (716,228)

Non-derivative financial liabilitiesTrade and other payables (1,467,556) (1,467,556) (1,459,631) (7,925)

Interest-bearing borrowings (8,000) (8,117) (8,117) –

(1,403,138) (1,403,255) (1,427,044) 23,789

2009Derivative financial liabilitiesInterest rate swaps (527) (527) (527) –

Forward foreign currency contracts

- Inflow – 1,568,285 896,822 671,463

- Outflow (31,585) (1,599,870) (917,495) (682,375)

Derivative financial assetsForward foreign currency contracts

- Inflow 2,785 103,611 98,206 5,405

- Outflow – (100,826) (95,602) (5,224)

Non-derivative financial liabilitiesTrade and other payables (1,589,919) (1,589,919) (1,589,919) –

Interest-bearing borrowings (20,000) (20,686) (12,569) (8,117)

(1,639,246) (1,639,932) (1,621,084) (18,848)

Company2010Non-derivative financial liabilities

Trade and other payables (103,478) (103,478) (103,478) –

2009Non-derivative financial liabilities

Trade and other payables (111,639) (111,639) (111,639) –

* Excludes deposits and advance payment from customers.



189

Market Risk

Market price risk is the risk that the fair value of future cash flows of the Group’s financial instruments will fluctuate because of changes in market prices (other than interest or exchange rates). The Group is exposed to equity price risk arising from its investments held. The Group manages the risk of unfavourable changes by cautious review of the investments before investing and continuous monitoring of the performance of investments held and assessing market risk relevant to which the investments operate.


If prices for equity securities increase by 10% with all other variables being held constant, the profit before income tax and equity will increase by:

Group Company2010 2009 2010 2009$’000 $’000 $’000 $’000

Equity 28,509 16,400 19,388 11,170

Profit before income tax 1 4 – –

A 10% decrease in the underlying equity prices would have equal but opposite effects on the amounts shown above. The analysis is performed on the same basis for 2009 and assumes that all other variables remain constant.

Estimation of fair values

FRS 107 establishes a fair value hierarchy that prioritises the inputs used to measure fair value. The three levels of the fair value input hierarchy defined by FRS 107 are as follows:

• Level 1 – Fair values are measured based on quoted prices (unadjusted) from active markets for identical financial instruments.

• Level 2 – Fair values are measured using inputs, other than those used for Level 1, that are observable for the financial instruments either directly (prices) or indirectly (derived from prices).

• Level 3 – Fair values are measured using inputs which are not based on observable market data (unobservable input).

Securities

The fair value of financial assets at fair value through profit or loss, and available-for-sale financial assets, is based on quoted market prices (bid price) at the balance sheet date without any deduction for transaction costs. If the market for a quoted financial asset is not active, and for unquoted financial assets, the Group establishes fair value by using valuation techniques.

Derivatives

Forward exchange contracts are either marked to market using listed market prices at the balance sheet date or, if a listed market price is not available, the fair value is estimated by discounting the difference between the contractual forward price and the current spot rate.

The fair value of interest rate swaps, based on current interest rates curves, is the estimated amount that the Group is expected to receive or pay to terminate the swap with the swap counterparties at the balance sheet date.

Non-derivative financial liabilities

Fair values are calculated based on discounted expected future principal and interest cash flows at the market rate of interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements.


190

Other financial assets and liabilities

The carrying amounts of financial assets and liabilities with a maturity of less than one year (including trade and other receivables, cash and cash equivalents, and trade and other payables) are assumed to approximate their fair values because of the short period to maturity. All other financial assets and liabilities are discounted to determine their fair values.

Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market-related rate for a similar instrument at the balance sheet date. Where other pricing models are used, inputs are based on market-related data at the balance sheet date.

Fair value hierarchy

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for fair value on a recurring basis at the balance sheet date. These financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgement, and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.

Fair value measurement using: Level 1 Level 2 Level 3 Total

Group $’000 $’000 $’000 $’000At 31 December 2010Available-for-sale financial assets 285,089 347 – 285,436

Financial assets designated at fair value through profit or loss 12 – – 12

Derivatives financial assets – 72,519 – 72,519

285,101 72,866 – 357,967

Derivatives financial liabilities – (101) – (101)

Total 285,101 72,765 – 357,866

At 31 December 2009Available-for-sale financial assets 163,997 343 – 164,340

Financial assets designated at fair value through profit or loss 35 – – 35

Derivatives financial assets – 2,785 – 2,785

164,032 3,128 – 167,160

Derivatives financial liabilities – (32,112) – (32,112)

Total 164,032 (28,984) – 135,048

CompanyAt 31 December 2010

Available-for-sale financial assets 193,884 347 – 194,231

At 31 December 2009

Available-for-sale financial assets 111,704 343 – 112,047



191

41 Capital management

The Group aims to maintain a sound capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business, while at the same time maintaining an appropriate dividend policy to reward shareholders. The Group monitors Economic Value Added attributable to shareholders, which the Group defines as net operating profit after tax less capital charge excluding non-controlling interests. The Group also monitors the level of dividends to ordinary shareholders.

The Group seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. Capital is defined as equity attributable to the equity holders.

There were no changes in the Group’s approach to capital management during the year.

The Group is required to maintain consolidated net borrowings to consolidated net assets (less dividends, goodwill and other intangible assets) ratio of not more than 1.75. This externally imposed capital requirement has been complied with at each quarter in the financial year ended 31 December 2010.

42 Significant accounting estimates and judgements

Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Revenue recognition

The Group has recognised revenue on construction contract, ship and rig repair, building and conversion based on the percentage of completion method in proportion to the stage of completion. The percentage of completion is assessed by reference to surveys of work performed. Significant judgement is required in determining the appropriate stage of completion and estimating a reasonable contribution margin for revenue and costs recognition.

Provisions

The provision for warranty is based on estimates from known and expected warranty work and contractual obligation for further work to be performed after completion. The warranty expense incurred could be higher or lower than the provision made. Movements in provision for warranty are detailed in Note 18.

Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these property, plant and equipment to be within 1 to 60 years. The carrying amount of the Group’s property, plant and equipment at 31 December 2010 was $681,948,000 (2009: $678,361,000). Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised.


192

Income tax

The Group has exposure to income taxes in various jurisdictions. Significant judgement is involved in determining the Group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of the Group’s provision for taxation at 31 December 2010 was $277,341,000 (2009: $253,218,000). The carrying amounts of the Group’s deferred tax assets and liabilities at 31 December 2010 were $47,000 (2009: $47,000) and $103,909,000 (2009: $66,748,000) respectively.

43 Group companies

Details of the Group’s subsidiaries, associates and joint ventures are as follows:

Name of company

Place of incorporationand business Principal activities

Effective equity held

by the Group2010 2009

% %SubsidiariesBulk Trade Pte Ltd Singapore Bulk trading 100 100

Dolphin Shipping Company Private Limited Singapore Ship owning and chartering 100 100

JPL Corporation Pte Ltd Singapore Under liquidation 100 100

JPL Industries Pte Ltd # Singapore Processing and distribution of copper slag 85.8 85.8

Jurong Integrated Services Pte Ltd Singapore Steel fabrication work 100 100

Jurong Machinery and Automation Pte Ltd Singapore Marine and general electronic and electrical works

100 100

Jurong Marine Services Pte Ltd Singapore Provision of tugging and sea transportation services

100 100

Jurong Shipbuilders Private Limited Singapore Investment holding 100 100

Jurong Shipyard Pte Ltd Singapore Ship and rig repair, building, conversion and related services

100 100

Jurong SML Pte Ltd Singapore Shipbuilding, ship repair and related services 100 100

Karimun Shiprepair and Engineering Pte Ltd Singapore Investment holding 100 100

PPL Shipyard Pte Ltd (Note 32) Singapore Rig building, repair and related services 85 85

SCM Investment Holdings Pte Ltd Singapore Investment holding 100 100

Sembawang Shipyard Pte Ltd Singapore Ship repair and related services 100 100

Sembcorp Holdings, LLC *** United States of America

Investment holding 100 100

Sembcorp Marine Technology Pte Ltd Singapore Research & development in offshore and marine technology

100 100

SembMarine Investment Pte Ltd Singapore Investment holding 100 100

SembMarine (Middle East) Pte Ltd Singapore Investment holding 60 60

SML Shipyard Pte Ltd Singapore Ship repair and related services 100 100

SMOE Pte Ltd Singapore Engineering, construction and fabrication of offshore structures

100 100



193

Name of company




% %AssociatesCosco Shipyard Group Co Ltd ** People’s

Republic of China

Ship repair and related services 30 30

Joint Shipyard Management Services Pte Ltd Singapore Managing dormitories 32 32

Joint ventures of Dolphin Shipping Company Private LimitedDolphin Workboats Pte Ltd Singapore Ship owning and charter 50 50

Pacific Workboats Pte Ltd ** Singapore Ship leasing and marine surveying services 50 50

Subsidiary of JPL Corporation Pte LtdJPL Services Pte Ltd Singapore Under liquidation 100 100

Subsidiary of JPL Industries Pte LtdJPL Concrete Products Pte Ltd Singapore Production of concrete products 85.8 85.8

Subsidiaries and joint venture of Jurong Shipyard Pte LtdEstaleiro Jurong Aracruz Ltda * Brazil Render services for engineering,

construction, assembling, installation, maintenance, conservation, conversion, modernisation and repairs of vessels, FPSOs and any other floating structures

100 –

Jurong Autoblast Services Pte Ltd Singapore Surface preparation of steel plates, structures and marine engineering services

100 100

Jurong Brazil-Singapore Pte Ltd Singapore Investment holding 100 100

Jurong do Brasil Prestacao de Servicos Ltda * Brazil Render services for engineering, construction, assembling, installation, maintenance, conservation, conversion, modernisation and repairs of equipment, machinery, systems, piping, structures and accessories in the marine and offshore fields

100 –

Jurong Marine Contractors Private Limited Singapore Provision of contract services 100 100

Jurong Netherlands B.V. *** Netherlands Investment holding 100 –

Marine Housing Services Pte Ltd ** Singapore Provision of dormitory housing services 50 50

Shanghai Jurong Marine Engineering & Technology Co Ltd **

People’s Republic of

China

Research and development of technologies for civil ships and equipment for oceanics industries and provision of related technical consultation services

70 70

Subsidiary of Karimun Shiprepair and Engineering Pte Ltd

P.T. Karimun Sembawang Shipyard ** Indonesia Ship repair and related services 100 100


194

Name of company




% %Subsidiaries of PPL Shipyard Pte LtdBaker Marine Pte Ltd Singapore Rig enhancement and upgrading

services, engineering consultancy and project management, and supply of rig equipment and parts

85 85

Baker Marine Services (HK) Limited * Hong Kong Provision of rig designs 85 85

Baker Marine Technology Inc. *** United States of America

Engineering design, research and development, marketing and client services support centre

85 85

Subsidiaries and joint venture of Sembawang Shipyard Pte LtdSembawang Shipyard Project Services Pte Ltd Singapore Marine services and rental of premises 100 100

Sembawang Shipyard (S) Pte Ltd ## Singapore Investment holding 100 100

Sembawang Shipyard Services Pte Ltd Singapore Marine services 100 100

Sembmarine Kakinada Limited ** India Ship repair, conversion, building and related activities

19.9 –

SES Engineering (M) Sdn Bhd * Malaysia Fabrication of metal structures 100 100

SES Marine Services (Pte) Ltd Singapore Marine services 100 100

Subsidiaries of Sembcorp Holdings, LLCSabine Offshore Services Inc *** United States

of AmericaInactive 100 100

Sembcorp-Sabine Industries Inc *** United States of America

Investment holding 100 100

Sembcorp-Sabine Shipyard Inc *** United States of America

Rig and vessel enhancement and upgrading services

100 100

Subsidiaries and associates of SMOE Pte LtdHQSM Engineering Pte Ltd ** Singapore Engineering, procurement and construction

for oil and gas related business49 49

PT SMOE Indonesia* Indonesia Engineering, construction and fabrication of offshore structures

90 90

SCE Pte Ltd Singapore Liquidated – 51

Shenzhen Chiwan Offshore Petroleum Equipment Repair & Manufacture Co. Ltd **

People’s Republic of

China

Equipment inspection, repair and maintenance services for oil reconnoiter and exploitation in South China Sea

35 35

Straits Offshore Pte Ltd Singapore Offshore oil and gas production facilities, manufacturing

100 100

Straits Overseas Pte Ltd Singapore Engineering, construction and fabrication of offshore structures

100 100

* Audited by other member firms of KPMG LLP** Audited by other firms*** These companies are not required to be audited under the laws of their country of incorporation

# During the year, JPL Industries Pte Ltd, a subsidiary of JPL Corporation Pte Ltd, was transferred to the Company.

## During the year, Sembawang Shipyard (S) Pte Ltd, a wholly owned subsidiary of the Company, was transferred to Sembawang Shipyard Pte Ltd.



195

44 New or Revised Accounting Standards and Interpretations

Below are the mandatory standards, amendments and interpretations to existing standards that have been published, and are relevant for the Group’s accounting period beginning on or after 1 January 2011 or later periods and which the Group has not early adopted:

Amendments to FRS 24 – Related party disclosures Amendments to FRS 32 Financial instruments: Presentation – classification of rights issuesAmendments to INT FRS 114 – Prepayments of a minimum funding requirement INT FRS 119 Extinguishing financial liabilities with equity instrumentsImprovements to FRSs 2010

The management anticipates that the adoption of the above FRSs, INT FRS, amendments and improvements to FRS in the future periods will not have a material impact on the financial statements of the Group and of the Company in the period of their initial adoption, except for the amendments to FRS 24 – Related party disclosures.

The amendments to FRS 24 will become effective for the Group’s financial statements for the year ending 31 December 2011. The amendment simplifies the disclosure requirements for government-related entities. It also clarifies and simplifies the definition of a related party. However, the revised definition of a related party will also mean that some entities will have more related parties and will be required to make additional disclosures.

Management is currently considering the revised definition to determine whether any additional disclosures will be required.


196

Supplementary InformationYear ended 31 December 2010

(Under SGX-ST Listing Manual requirements)A. Directors’ and Key Executives’ Remuneration Earned for the Year

Summary compensation table for the year ended 31 December 2010

Name of Director Salary 1Bonus Earned

Fair value of share-based compensation granted

for the year 2Directors’

Fees 3

Brought Forward Bonus

Bank 4

$’000 $’000 $’000 $’000 $’000Payable by the Company:Goh Geok Ling – – 54 210 –Richard Hale, OBE – – 39 148 –Wong Weng Sun 704 9,101 1,167 – 7,380Tan Kwi Kin 360 – 17 73 2,749Tan Pheng Hock3 – – 22 104 –Lim Ah Doo – – 30 121 –Ajaib Haridass – – 34 136 –Tang Kin Fei3 – – 30 146 –Ron Foo Siang Guan – – 30 126 –Ngiam Joke Mui3 – – 17 75 –Koh Chiap Khiong3 – – – 2 –Joseph Kwok Sin Kin – – – 30 –(retired on 20 April 2010)

Payable by Subsidiaries:Goh Geok Ling – – – 84 –Tan Kwi Kin – – – 70 –Tang Kin Fei3 – – – 79 –Ngiam Joke Mui3 – – – 28 –Koh Chiap Khiong3 – – – 28 –

Name of Key Executive Salary 1Bonus Earned

Fair value of share-based compensation granted

for the year 2Directors’

Fees 3

Brought Forward Bonus

Bank 4

$’000 $’000 $’000 $’000 $’000

Ong Poh Kwee 363 3,042 413 – 3,510Tan Cheng Tat 294 1,332 167 – 388Ho Nee Sin 304 1,409 157 – 426Douglas Tan Ah Hwa 572 1,400 – – –Freddie Woo Fong Wah 174 350 39 – –

Notes:

1. The amount shown is inclusive of basic salary, fixed allowances, AWS and other emoluments.

2. The fair value of the share plans granted for the year is disclosed. The shares granted to key executives are contingent upon meeting performance measures. If these performance measures are not met, the key executive will not be vested with any shares. There is no performance condition for the conditional award of the restricted shares granted to non-executive directors in 2010. Shares granted will be vested 1 year from the date of grant.

3. Director’s fee for Mr Tan Pheng Hock is payable to Singapore Technologies Engineering Ltd. Directors’ fees for Mr Tang Kin Fei and Mr Koh Chiap Khiong are payable to Sembcorp Industries Ltd. Part of the director’s fee for Ms Ngiam Joke Mui is payable to Sembcorp Industries Ltd, for the tenure she had served from 1 January 2010 to 30 June 2010 as an employee of Sembcorp Industries Ltd. Ms Ngiam Joke Mui remains as a director, while Mr Koh Chiap Khiong is the alternate director.

4. The Brought Forward Bonus Bank is the outstanding balance of bonus as at 31 December 2010 (excluding the bonus earned during the financial year). Typically, one-third of the accumulated bonus comprising Bonus Earned in the financial year and the Brought Forward Bonus is paid out in cash each year, with the balance being carried forward to the following year. The balances of the bonus bank in future will be adjusted by the yearly EVA performance of the Group and its subsidiaries and the payouts made from the Bonus Bank.

Details on the share options, performance shares and restricted shares granted to the directors are set out in the Share-based Incentive Plans of the Directors’ Report.


197

Supplementary InformationYear ended 31 December 2010

(Under SGX-ST Listing Manual requirements)B. Interested Person Transactions

Aggregate value of all interested person transactions conducted under a shareholders’

mandate pursuant to Rule 920 of the SGX-ST Listing Manual

2010 2009$’000 $’000

Transaction for the Sales of Goods and ServicesNeptune Orient Lines Ltd and its associates 2,333 –

PSA International Pte Ltd and its associates 2,246 4,495

Transaction for the Purchase of Goods and ServicesPSA International Pte Ltd and its associates 130 –

Sembcorp Industries Limited and its associates 29,758 28,450

Management and Support ServicesSembcorp Industries Limited 250 250

Total Interested Person Transactions 34,717 33,195

198

Major PropertiesAs at 8 March 2011

LocationDescription & Approximate Land Area Tenure Usage

Jurong Shipyard• Jalan Samulun Land area: 198,098m2

Buildings, workshops, drydocks and quays

Leasehold expiringupon relocation to New Yard Facility at Tuas View Extension Phase I (JTC land)

Ship repairs including drydock, berthage & workshops

• Tanjong Kling Road Land area: 491,055m2

Buildings, workshops, drydocks and quays

10 years leasehold 10 years renewal (JTC Land)

Ship repairs, ship conversion, offshore engineering, shipbuilding and rig building including drydock, berthage & workshops

Sembawang Shipyard• Admiralty Road East/Admiralty

Road WestLand area: 860,939m2 Buildings, workshops, docks and quays

22 years leasehold Ship repairs, ship conversion, offshore engineering and rig building including docks, berthage & workshops

PPL Shipyard• Pandan Road Land area: 141,791m2 15 years leasehold

(JTC Land)Rig repairs, upgradings, fabrication and rig building including berthage and workshops

• Pandan Road Land area: 9,182m2 30 years leasehold (JTC Land)

Leg component fabrication

• Tuas Crescent Land area: 57,890m2 5 years leasehold (JTC Land)

Fabrication facilities

Jurong SML• Shipyard Road Land area: 63,300m2

Buildings, workshops, drydocks

6 years leasehold (JTC Land)

Ship repairs and shipbuilding including drydocks, berthage & workshops

• Tuas Road Land area: 59,942m2 Buildings, workshops, docks and quays

14 years leasehold (JTC Land)

Shipbuilding and fabrication including berthage & workshops

P.T. Karimun Sembawang Shipyard• Karimun Island, Indonesia Land area: 307,000m2

Buildings, workshops and wharves

30 years leasehold with option for 20 years plus another option for 30 years

Ship repair and fabrication including berthage and workshops

JPL Industries• Jurong Pier Road Land area: 27,783m2 20 years leasehold

(JTC Land)Copper slag recycling

SES Engineering Sdn Bhd• Perindustrian Taman Johor,

Johor BahruLand area: 5,235m2

Workshop and 3-storey office building

Freehold Metal fabrication workshop

P.T. SMOE• Batam Island, Indonesia Land area: 521,964m2

Workshops, quayside and skidway

30 years leasehold Workshops & fabrication facilities

New Yard Facility• Tuas View Extension Phase I

(under development, completion in 2013)

Land area: 733,104m2

Docks, quays, workshops, buildings and berthage

30 plus 30 years leasehold (JTC land)

Ship repairs, rig repairs & upgrading, ship conversion and offshore activities

Estaleiro Jurong Aracruz• Municipal of Aracruz,

State of Espirito Santo, Brazil (under planning)

Land area: 825,000m2 Slipways, berthing quays, drydock, ancillary steel and piping facilities

Freehold Drillships construction, building of semi-submersible rigs, FPSO integration, fabrication of topside modules, PSVs construction, drilling rig repairs and modification works

Mendon Spring• Pasir Panjang 9 units of 3-room apartment

with built-in area of 99m2 per unit

Freehold Residential properties

199

Notice of Annual General MeetingCompany Registration No. 196300098Z(Incorporated in the Republic of Singapore)

Sembcorp Marine Ltd

NOTICE IS HEREBY GIVEN THAT the 48th Annual General Meeting of the Company will be held on Wednesday, April 20, 2011 at 11.00 a.m. at 29 Tanjong Kling Road, Singapore 628054 to transact the following business:-

ORDINARY BUSINESS

1 To receive and adopt the Directors’ Report and Audited Accounts for the year ended December 31, 2010 and the Auditors’ Report thereon.

Resolution 1

2 To declare a final one-tier tax exempt ordinary dividend of 6 cents per ordinary share and a final one-tier tax exempt special dividend of 25 cents per ordinary share for the year ended December 31, 2010.

Resolution 2

3 To re-elect the following directors, each of whom will retire by rotation pursuant to Article 91 of the Company’s Articles of Association and who, being eligible, will offer themselves for re-election:

(a) Mr Ajaib Haridass(b) Mr Tang Kin Fei

Mr Tan Pheng Hock is also retiring under Article 91 of the Company’s Articles of Association, but will not be offering himself for re-election

Resolution 3Resolution 4

4 To re-appoint Mr Richard Hale, OBE (member of the Audit Committee), a Director retiring under Section 153(6) of the Companies Act, Cap. 50, to hold office from the date of this Annual General Meeting until the next Annual General Meeting.

Mr Tan Kwi Kin is also retiring under Section 153(6) of the Companies Act, Cap. 50, but will not be offering himself for re-appointment

Resolution 5

5 To approve the sum of S$1,170,625 as Directors’ Fees for the year ended December 31, 2010. (2009: S$1,157,833)

Resolution 6

6 To re-appoint KPMG LLP as Auditors of the Company and authorise the Directors to fix their remuneration.

Resolution 7

SPECIAL BUSINESS

To consider and, if thought fit, to pass the following resolutions which will be proposed as Ordinary Resolutions:-

7 That authority be and is hereby given to the Directors of the Company to: Resolution 8

(a) (i) issue shares in the capital of the Company (“shares”) whether by way of rights, bonus or otherwise; and/or

(ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares,

at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may, in their absolute discretion deem fit; and

200


Sembcorp Marine Ltd

(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this Resolution was in force,

provided that:

(1) the aggregate number of shares to be issued pursuant to this Resolution (including shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution) does not exceed 50% of the total number of issued shares in the capital of the Company excluding treasury shares (as calculated in accordance with paragraph (2) below), of which the aggregate number of shares to be issued other than on a pro rata basis to shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution) shall not exceed 5% of the total number of issued shares in the capital of the Company excluding treasury shares (as calculated in accordance with paragraph (2) below);

(2) (subject to such manner of calculation as may be prescribed by the Singapore Exchange Securities Trading Limited (“SGX-ST”)) for the purpose of determining the aggregate number of shares that may be issued under paragraph (1) above, the percentage of issued shares shall be based on the total number of issued shares in the capital of the Company (excluding treasury shares) at the time this Resolution is passed, after adjusting for:-

(i) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this Resolution is passed; and

(ii) any subsequent bonus issue or consolidation or subdivision of shares;

(3) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and

(4) (unless revoked or varied by the Company in General Meeting) the authority conferred by this Resolution shall continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier.

8 That approval be and is hereby given to the Directors to:

(a) grant awards in accordance with the provisions of the Sembcorp Marine Performance Share Plan 2010 (the “Performance Share Plan”) and/or the Sembcorp Marine Restricted Share Plan 2010 (the “Restricted Share Plan”) (the Performance Share Plan and the Restricted Share Plan, together the “Share Plans”); and

Resolution 9

201


Sembcorp Marine Ltd

(b) allot and issue from time to time such number of ordinary shares in the capital of the Company as may be required to be delivered pursuant to the vesting of awards under the Share Plans,

provided that:

(i) the aggregate number of (i) new ordinary shares allotted and issued and/or to be allotted and issued, (ii) existing ordinary shares (including shares held in treasury) delivered and/or to be delivered, and (iii) ordinary shares released and/or to be released in the form of cash in lieu of shares, pursuant to the Share Plans, shall not exceed 7% of the total number of issued shares in the capital of the Company (excluding treasury shares) from time to time; and

(ii) the aggregate number of ordinary shares under awards to be granted pursuant to the Share Plans during the period commencing from this Annual General Meeting and ending on the date of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier, shall not exceed 1% of the total number of issued shares in the capital of the Company (excludng treasury shares) from time to time.

9 To transact any other business.

By Order of the Board

Kwong Sook May/Tan Yah SzeJoint Company Secretaries

March 31, 2011

Explanatory Notes:

Resolutions 3 to 5 – Detailed information on these Directors can be found under Board of Directors and Corporate Governance Report in the Annual Report 2010.

Resolution 5 – If re-appointed, Mr Richard Hale, OBE, a non-independent Director, will remain as a member of the Audit Committee.

Statement pursuant to Article 54 of the Articles of Association of the Company:

Resolution 8 - is to empower the Directors to issue shares in the capital of the Company and to make or grant instruments (such as warrants or debentures) convertible into shares, and to issue shares in pursuance of such instruments, up to a number not exceeding 50% of the the total number of issued shares in the capital of the Company excluding treasury shares, of which up to 5% may be issued other than on a pro rata basis to shareholders. The aggregate number of shares which may be issued shall be based on the total number of issued shares in the capital of the Company excluding treasury shares at the time that Resolution 8 is passed, after adjusting for (a) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time that Resolution 8 is passed, and (b) any subsequent bonus issue or consolidation or subdivision of shares.

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Sembcorp Marine Ltd

Resolution 9 – is to empower the Directors to offer and grant awards pursuant to the Sembcorp Marine Performance Share Plan 2010 and the Sembcorp Marine Restricted Share Plan 2010 (collectively, the “Share Plans”) and to issue ordinary shares in the capital of the Company pursuant to the vesting of awards granted pursuant to the Share Plans provided that: (a) the aggregate number of (i) new ordinary shares allotted and issued and/or to be allotted and issued, (ii) existing ordinary shares (including shares held in treasury) delivered and/or to be delivered, and (iii) ordinary shares released and/or to be released in the form of cash in lieu of shares, pursuant to the Share Plans, shall not exceed 7% of the total number of issued shares in the capital of the Company (excluding treasury shares) from time to time; and (b) the aggregate number of ordinary shares under awards to be granted pursuant to the Share Plans during the period commencing from this Annual General Meeting and ending on the date of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier, shall not exceed 1% of the total number of issued shares in the capital of the Company (excluding treasury shares) from time to time. Approval for the adoption of the Share Plans was given by shareholders at an Extraordinary General Meeting of the Company held on April 20, 2010. The grant of awards under the Share Plans will be made in accordance with their respective provisions.

Notes: 1. A member of the Company entitled to attend and vote at the Annual General Meeting is entitled to appoint not more than two

(2) proxies to attend and vote in his stead. A proxy need not be a member of the Company.

2. The instrument appointing a proxy or proxies must be lodged at the registered office of the Company at 29 Tanjong Kling Road, Singapore 628054 not later than 48 hours before the time of the Annual General Meeting.

NOTICE OF BOOKS CLOSURE AND DIVIDEND PAYMENT DATE

NOTICE IS HEREBY GIVEN that the Register of Members and Share Transfer Books of the Company will be closed on April 29, 2011 to determine the members’ entitlements to the proposed dividend.

Duly completed transfers in respect of ordinary shares in the capital of the Company together with all relevant documents of title received by the Company’s Share Registrar, KCK Corpserve Pte Ltd, 333 North Bridge Road, #08-00 KH KEA Building, Singapore 188721, up to 5.00 p.m. on April 28, 2011 (the “Book Closure Date”) will be registered to determine members’ entitlements to the proposed dividend. Subject as aforesaid, members whose securities accounts with The Central Depository (Pte) Limited are credited with ordinary shares in the capital of the Company as at 5.00 p.m. on the Book Closure Date will be entitled to the proposed dividend.

The proposed dividend, if approved by the members at the 48th Annual General Meeting, will be paid on May 11, 2011.

203

Company Registration No. 196300098Z(Incorporated in the Republic of Singapore)

PROXY FORMIMPORTANT

1. For investors who have used their CPF monies to buy shares in the capital of Sembcorp Marine Ltd, the Annual Report to Shareholders dated 31 March 2011 is forwarded to them at the request of their CPF Approved Nominees sent FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF Investors and shall be ineffective for all intents and purposes if used or purported to be used by them.

3. CPF Investors who wish to vote should contact their CPF Approved Nominees.

I/We (Name) (NRIC/Passport No.)

of (Address)

being a member/members of Sembcorp Marine Ltd, hereby appoint:-

Name Address NRIC/Passport Number Proportion ofShareholdings (%)

and/or (delete as appropriate)

as my/our proxy/proxies to attend and vote for me/us on my/our behalf and, if necessary, to demand a poll, at the 48th Annual General Meeting of the Company to be held at 29 Tanjong Kling Road, Singapore 628054 on Wednesday, April 20, 2011 at 11.00 a.m. and at any adjournment thereof.

(Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for or against the Resolutions as set out in the Notice of Annual General Meeting. In the absence of specific directions, the proxy/proxies will vote or abstain as he/they may think fit, as he/they will on any other matter arising at the Annual General Meeting.)

No. Resolutions For Against

Ordinary Business 1 To adopt the Directors’ Report and Accounts

2 To declare Final Dividend

3 To re-elect Ajaib Haridass

4 To re-elect Tang Kin Fei

5 To re-appoint Richard Hale, OBE

6 To approve Directors’ Fees

7 To re-appoint KPMG LLP as Auditors and to fix their remuneration

Special Business8 To approve Share Issue Mandate

9 To authorize the Directors to grant awards and issue shares under Sembcorp Marine’s Share Plans

Total Number of Shares Held

Signature(s) and/or Common Seal of Member(s) Date IMPORTANT: PLEASE READ NOTES BELOW

Notes:

1. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter 50 of Singapore), you should insert that number of shares. If you have shares registered in your name in the Register of Members, you should insert that number of shares. If you have shares entered against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert the aggregate number of shares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemed to relate to all the shares held by you.

2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote instead of him. A proxy need not be a member of the Company.

3. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of his shareholding (expressed as a percentage of the whole) to be represented by each proxy.

4. The instrument appointing a proxy or proxies must be lodged at the registered office of the Company at 29 Tanjong Kling Road, Singapore 628054 not later than 48 hours before the time appointed for the Annual General Meeting. The sending of a proxy form by a shareholder does not preclude him from attending and voting in person at the Annual General Meeting if he finds that he is able to do so. In such event, the relevant proxy forms will be deemed to be revoked.

5. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised.

6. A corporation which is a member may authorise by a resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Annual General Meeting in accordance with Section 179 of the Companies Act, Chapter 50 of Singapore.

7. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of shares entered in the Depository Register, the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the Annual General Meeting, as certified by The Central Depository (Pte) Limited to the Company.

204

The Company SecretarySembcorp Marine Ltd29 Tanjong Kling Road

Singapore 628054

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... to REALITY

29 Tanjong Kling Road, Singapore 628054Tel: (65) 6265 1766 Fax: (65) 6261 0738 / 6265 0201Website: www.sembcorpmarine.com.sgCompany Reg. No: 196300098Z

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