SINGAPORE Annual Report 2007 Of World-Class Excellence COSCO Corporation (Singapore) Limited Our vision is to become one of the world leaders in ship repair, ship building and marine engineering. This drives all our endeavours and our mission to build a value-driven world- class enterprise that maximises growth and quality earnings, provides excellent value-added services that satisfy a global customer base, and creates sustainable returns for our equity holders.
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Excellence - 联合早报网ir.zaobao.com.sg/cosco/cosco_ar2007.pdf · 2013-05-13 · COSCO was awarded “Golden Brand Award 2007” by the International Brand Summit. COSCO Zhoushan
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SINGAPORE
Annual Report 2007
Of World-ClassExcellence
COSCO Corporat ion (Singapore) L imited
Our vision is to become one of the world
leaders in ship repair, ship building and marine
engineering. This drives all our endeavours
and our mission to build a value-driven world-
class enterprise that maximises growth and
quality earnings, provides excellent value-added
services that satisfy a global customer base, and
creates sustainable returns for our equity holders.
020406
1012
18202834
38505455566062
Inside COSCO and Corporate Citizenship Human Resource and Corporate Social Responsibility
Financial Statements
Directors’ ReportStatement by DirectorsIndependent Auditors’ ReportConsolidated Income Statement Balance SheetsConsolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Financial StatementsFive-Year Summary Shareholding Statistics Notice of Annual General Meeting Proxy Form for Annual General Meeting Notes for Proxy Form
64
6975767778798183145146148
CO
NTE
NTS
COSCO Overview
Corporate Profile and StructureFinancial HighlightsSignificant Events 2007
Key Messages
Chairman’s Message Vice Chairman and President’s Message
Operations Review
Our Strengths and CapabilitiesShip Repair, Ship Building & Marine EngineeringDry Bulk Shipping and Shipping Agency Group Financial Review
Corporate Governance and Transparency
Corporate Governance Board of Directors Key Management Corporate InformationInvestor Relations COSCO in the NewsRisk Management
SPIN Capital Asia (Investor Relations Consultant)Mr. Michael Tan / Ms. Dawn SooTel: (65) 6227 7790 / (65) 9742 2800Email: [email protected]
Over the years, COSCO Corporation (Singapore) Limited had taken bold strides
towards these goals. In 2007, we delivered yet again on value creation with
the fourth straight year of record earnings, while the repute of our customers
and their satisfaction with our performance bear testament to our capabilities
to take on higher value-added projects. As we excel in these areas, we place
the interests of our equity holders as first and foremost, and uphold the integrity
of our business. In more ways than one, we have risen to the challenge, as an
enterprise that is of world-class excellence.
COSCO Corporation (Singapore) Limited (“COSCO” or the “Company”) has the largest Ship Repair, Ship Building & Marine Engineering operation in China. A diversified group with activities also in Dry Bulk Shipping, Shipping Agency and other sectors, it is the SGX Mainboard-listed subsidiary of China Ocean Shipping (Group) Company (“COSCO Group”), China’s largest shipping group and one of the top shipping conglomerates in the world.
COSCO has achieved significant progress in growing its Ship Repair, Ship Building & Marine Engineering capacity and capabilities. The completion of its acquisition of a 51% stake in one of the largest shipyards in China, COSCO Shipyard Group (“COSCO Shipyard”), on 1 January 2005 had propelled COSCO into the premier league in the ship repair industry. COSCO is poised to continue in its dynamic growth momentum for further breakthrough in its core businesses and global coverage. COSCO has an equity market capitalisation of S$12.9 billion as of 31 December 2007. The Company is a component stock of the Straits Times Index (since 1 March 2004), constituent of the London benchmark FTSE All-World Asia Pacific Index (since 19 March 2004) and MSCI Singapore (since 1 June 2005). The Company has been included as a component stock of Prime Partners China Index and Nomura Asia-Pacific Major Index in October 2006 and June 2007 respectively.
This chart only includes major subsidiaries of COSCO Corporation (Singapore) Limited
Shipping Agency & Others
04
Revenue by Activities (%)
Turnover
Operating Profit before Tax
Share of Profit of Associated Companies
Taxation
Profit from Ordinary Activities
Minority Interest
Net Profit Attributable to Equity Holders of the Company
5-Year Profit and Loss Accounts
92
13
15
3
25
1
24
2003S$’m
116
35
31
1
65
1
64
2004S$’m
873
225
1
19
207
47
160
2005S$’m
1,215
301
1
23
279
74
205
2006S$’m
2,262
497
1
19
479
142
337
2007S$’m
Number of Shares (million)
Basic Earnings per Share (cents) *
Dividend per Share (cents)
Dividend Cover (times)
Net Tangible Assets per Share (cents) *
Gearing Ratio (net of cash)(times)
Return on Equity (%)
Return on Assets (%)
Other Key Statistics
898.2#
1.4
1.0#
2.7
12.4
0.5
10.7
4.3
2003
1,085.1#
3.0
2.0#
2.9
14.7
0.2
22.3
11.8
2004
1,098.8#
7.4
2.0#
3.6
23.2
0.5
38.1
11.4
2005
2,214.0
9.3
4.0
2.3
29.8
0.2
34.5
10.9
2006
2,237.7
15.1
7.0
2.1
41.2
Nil
41.8
8.5
2007
* Basic Earnings per share and Net Tangible Assets per share have been adjusted to account for the bonus shares issued in 2004 and sub-division of one ordinary share
of $0.20 each into two ordinary shares of $0.10 each in 2006
# Based on shares of 20-cents par value each
Return on equity is calculated as Net Profit Attributable to Equity Holders of the Company divided by average shareholders’ equity
COSCO Shipyard won a contract to convert 10 Very Large Crude Carrier (VLCC) to Very Large Ore Carrier (VLOC).
August
COSCO Shipyard continued to win bulk carriers building and conversion contract.
September
COSCO Shipyard won its first contract to build 80,000 dwt and 92,500 dwt bulk carriers.
October
COSCO was awarded “SIAS Most Transparent Company Award”.
November
COSCO won the best performance award of Global Chinese Corporation. This independent award was organised by the Hong Kong-based media Yazhou Zhoukan. It evaluated 1,000 Chinese Corporations in the world based on their consecutive annual performance since 2004. COSCO is the only Singapore-based corporation awarded at this event.
COSCO was awarded “Golden Brand Award 2007” by the International Brand Summit.
COSCO Zhoushan Shipyard was nominated as 2007 Lloyd’s List Asia Shiprepair Award finalist.
December
COSCO Shipyard formed JV with COSCO Lianyungang Shipyard Co., Ltd to expand ship repair & conversion and offshore capacity.
A strategic focus on high value projects run in tandem with the
capacity boost at our shipyards. Abuzz with round the clock
activity, it is full steam ahead at COSCO’s shipyards.
Dear Shareholders
2007 - A YEAR OF EXCELLENCE
Financial year ended 31 December 2007 (FY2007) has been a year of excellence for everyone at COSCO Corporation (Singapore) Limited. Buoyed by strong contributions from our ship repair, ship building and marine engineering operations, I am pleased to announce that we have turned in a set of sterling results for the year. As we move up the value chain to focus on high-yield projects, our revenue correspondingly rose 86% and we recorded a 64% higher full year earnings of S$336.6 million. On the back of our robust performance, earnings per share rose by 62% to 15.02 cents.
This also marks the fourth straight year of record earnings for the Company, three years since we purchased a 51% stake in the China-based COSCO Shipyard Group to strategically move into the shipyard business. As a sign of our appreciation to our shareholders for the support, the Board of Directors is pleased to recommend an ordinary dividend of 4 cents per ordinary share and a special dividend of 3 cents for FY2007. This translates to a total dividend of 7 cents per ordinary share, a 75% increase over FY2006 dividends payout.
INDuSTRY OuTLOOK AND PROSPECTS
Our FY2007 performance offered a glimpse into an even more robust market outlook for the industry in the coming year. In January 2008, the price of crude oil reached a historic high at uS$100 (S$143) a barrel as booming economic expansion in countries such as China and India added to the rising global demand for oil and spurred investments into the exploration and production sectors.
According to industry watchers, utilisation rates have been hovering close to 100% worldwide and across rig types, a phenomenon that has persisted since 2006. Despite this, orders for old oil rigs to be refurbished so they can be re-used are not showing any sign of tapering off.
At COSCO, we remain sanguine about the future. Global trade growth coupled with China’s surging commodities imports are boosting demand for ships. As global orders flow in, they expand the pool of business opportunities for those in the ship repair, ship building and marine engineering sector in the region. Therefore, we can anticipate more orders in these areas. COSCO shipyards have orders to be delivered beyond 2010. This is a boon for us, as we still have capacity to meet the growing demand at our six shipyards in China, all located near the high-traffic shipping routes along China’s seaboard.
2008 - STARTING ON A HIGH NOTE
We would like to take this opportunity to welcome Mr Ang Swee Tian, who came on board on 13 November 2007. We look forward to working together to further strengthen our Board.
On behalf of the Board of Directors, I would like to express my gratitude to all shareholders, customers and business associates for the trust and support over the years. To our staff, thank you for your dedication, professionalism and contributions made to our Company. Our excellent financial results are expected to continue with its buoyant performance in the current year. We look forward to contribute significantly with a continued high growth performance and uphold standards of world-class excellence in all aspects of our businesses.
COSCO posted a 64% hike in profit to a record S$336.6 million, as turnover surged 86% to S$2.26 billion. The strong performance for the year ended 31 December 2007 came as our shipyard group repaired and converted more ships and began building vessels and rigs for the strong offshore marine sector.
We started the year with the announcement of our maiden oil rig and new building & conversion contracts valued at uS$200 million (S$310 million) and uS$250 million (S$385 million) respectively. Two months later, we scored another first, by winning a uS$170 million (S$243 million) drilling rig contract from Sevan Drilling, a subsidiary of Norwegian-listed Sevan Marine.
These are significant breakthroughs for our shipyard group. For instance, the Sevan contract, in addition to being our first drilling rig project, raised our order book 18% to uS$1.1 billion (S$1.57 billion) and raised our new contract wins to uS$1,272 million (S$1,820 million), in just the first quarter of 2007. More significantly, it shows the confidence customers have in our technical competence and project management capabilities.
Our contracts have been sealed with world-renowed global industry players. As we advance our shipyard competencies and enlarge our marine engineering base to include a broad range of high-value work, such as rig building, ship building and VLCC (Very Large Crude Carrier) conversions, we are heartened by the substantial progress made in diversifying our customer base of world-class corporations.
I am also pleased to highlight that in additional to proving our competency in the construction of 80,000 dwt and 92,500 dwt vessels, our focus on 57,000 dwt vessels also met with high demand from global customers. This not only solidifies our position and track record in the ship building arena, but also strengthens our resolve to forge ahead in building this part of our business.
FOCuSING ON STRATEGIC DIRECTION
Putting into action our intent to grow our shipyard business and in preparation for our foray into the lucrative offshore rig market, our shipyard group has been building up offshore and new building expertise over the past two years. Initially, we undertook sub-contract fabrication work to raise our standards, capability and capacity to take on more technically demanding projects.
Over the past year, the types of orders and the significance of our customers have become testament to the high precision engineering and technical skills of our shipyard group. We will continue to drive top line growth by charting our move into the higher value offshore marine engineering projects. Our shipyards are placing their priority on oil related businesses, followed by ship repair and conversions; therefore, presently we do not plan to extend into a fuller range of new building.
In ship repairs, bulk carrier repairs generally have a lower profit margin compared with other repairs. Corresponding to our focus to move into higher margin businesses, we might consider to divest other businesses to focus our energy and resources on the higher margin shipyard business.
SuSTAINING FuTuRE GROWTH
We have identified future growth drivers for COSCO. The aim for our China-based shipyard subsidiaries is to build up the areas of new building and offshore marine engineering, which includes offshore rig building, and for these two businesses to contribute 30% each, to total revenue by 2010. The traditional area of ship repair and conversion will eventually comprise 40% of the shipyard group’s revenue.
Driven by rising energy demand and new shipping regulations, we expect more high yielding orders for our shipyard group. Such contracts will give us greater confidence in executing technically complex and demanding projects. Furthermore, with new facilities and significant capacity increases coming on stream, we can make further inroads into the niche markets of offshore marine engineering work. Going forward, our shipyards will continue to build new special purpose vessels designed to meet the specific needs of our customers.
“We have identified future growth drivers for COSCO. The aim for our China-based shipyard subsidiaries is to build up the areas of new building and offshore marine engineering, which includes offshore rig building, and for these two businesses to contribute 30% each, to total revenue by 2010.”
“We started the year with the announcement of our maiden oil rig and new building & conversion contracts valued at US$200 million (S$310 million) and US$250 million (S$385 million) respectively.”
It is my pleasure to share that during the year, the Company received the “Global Chinese Business 1000 – Best Business Performance Company” award in the Singapore region from Hong Kong-based Yazhou Zhoukan. COSCO was also ranked by the DP Information Group, Singapore’s leading credit and business information bureau, as the “Best Singapore-Listed China Company” at the Times Awards 2007.
More importantly, our commitment extends beyond operational and financial excellence to achieving high standards in corporate governance. In October 2007, we received another fillip when we won the award for most transparent company in the foreign listings category at the SIAS Investors Choice Awards, organised by the Securities Investors Association (Singapore). This is an encouragement and recognition for our efforts to always keep in
mind the interests of our shareholders. As we continue to focus on growing our business and increasing shareholder value, we stay committed to communicating effectively, clearly, fairly and concisely in a timely manner, to facilitate well-informed investment decisions.
On this note, I would like to thank my fellow board members, colleagues and staff of COSCO, who have made it possible for us to accomplish so much over the past year. To our customers, business partners and shareholders, we appreciate your unstinting support and together, let us look forward to more good years.
A class act in performance and expertise
Exemplifying excellence in capabilities, from ship repairs to marine
engineering and new ship buildings, we have shown our mettle in
executing technically complex and demanding projects.
Commencement of work
Keel laying ceremony
Construction work in progress
16 November 2007
Floating, Storage and Offloading Vessel (FSO)
Our Strengths and Capabilities
We are a major ship repair, ship building and marine engineering company. Headquartered in Singapore, we have three main business units namely, Ship Repair, Ship Building & Marine Engineering, Dry Bulk Shipping and Shipping Agency.
Dry dock x 3(80,000 dwt, 230,000 dwt and 300,000 dwt)
Quay x 5 (total 1.4 km)
Workshop x 10 (total 123,751 sqm)
Total Capacity - 710,000 dwtutilised Land Area - 1,000,000 sq m
Floating dock x 1 (35,000 dwt)
Quay x 2 (total 280 m)
Workshop x 11 (total 4,759 sq m)
Total Capacity - 35,000 dwtutilised Land Area - 47,000 sq m
Guangdong
No.1 Quay No.2 Quay No.3 Quay No.4 Quay
Floating Dock
Floating Dock
Floating dock x 2 (80,000 dwt and 150,000 dwt)
Quay x 4 (915 m)
Workshop x 5 (total 24,861 sq m)
Total Capacity - 230,000 dwtutilised Land Area -147,700 sq m
LianyungangFloating dock x 1 (80,000 dwt)
Quay x 3 (total 660 m)
Total Capacity - 80,000 dwt
Workshop Workshop
Workshop Workshop
Workshop
No.1 Quay No.2 Quay No.3 Quay
Floating Dock
No.3 Dry Dock
No.1 Dry Dock
No.2 Dry Dock
OVERVIEW AND OuTLOOK
COSCO holds a 51% stake in the COSCO Shipyard Group (“COSCO Shipyard”), with a stable of five China-based shipyards strategically situated along major coastal cities, including Nantong, Dalian, Zhoushan, Guangzhou and Shanghai. On 29 December 2007, it announced that the sixth shipyard, a 60% joint venture shipyard located at Lianyungang would be added to the group. Over the past year, the shipyard group has been riding high on a wave of strong demand for new ships and yard services.
China’s reputation as an emerging global ship repair hub offers tremendous growth potential for COSCO. While over 20,000 ships call at Chinese ports each year, less than 2,000 ships can be repaired in the yards as there is insufficient capacity to meet the demand. Being a major player in the industry and with potential competitors facing high barriers of entry, COSCO is well-positioned to harness the business opportunities.
As the shipyard group secures a slew of offshore marine engineering projects in FY2007, the three key yards in Nantong, Dalian and Zhoushan will continue to undertake projects such as rig building.
Despite having only embarked on its ship building ventures in the first half of the year, the advances it has made in its nascent ship building business has been massive and accelerating.
DELIVERING A STRONG ORDER BOOK AND PERFORMANCE
The combination of quality and technical capability, efficiency and cost advantages has enabled COSCO to win and profitably execute some large, sophisticated projects. In the year under review, its shipyard operations saw a boom in orders for new builds, conversions and repairs. As of 31 December 2007, the Company’s order book stood at a total of uS$6.5 billion (S$9.3 billion), comprising ship building and ship conversion contracts from ship owners in Germany, Taiwan, Greece, Turkey, Liberia, India and the uSA.
Efforts to beef up capabilities to meet the demand for the high-yield marine engineering and conversion work have shown results. Revenue from the Ship Repair, Ship Building & Marine Engineering business improved 97% to S$2,032 million in FY2007, accounting for 90% of COSCO’s turnover for the year.
As of 31 December 2007, the Company’s order book stood at a total of US$6.5 billion (S$9.3 billion), comprising ship building and ship conversion contracts from ship owners in Germany, Taiwan, Greece, Turkey, Liberia, India and the USA.
COSCO, through its China-based shipyard subsidiaries, has been winning more orders to repair and convert vessels that give high quality margins. Consequently, the Company’s key shipyards in Zhoushan, Dalian and Nantong have been concentrating on the new areas of ship new building and offshore marine engineering. Compared with shipyards in Singapore, COSCO shipyard’s net repair margins for FY2007 were higher.
In 2007, COSCO Shipyard Group sealed several landmark deals, mostly notably the first new building contract of six bulk carriers and a semi-submersible vessel worth over uS$250 million (S$385 million) and uS$200 million (S$310 million) respectively. Scheduled for delivery in 2010, the GM4000 semi-submersible oil rig will be built at the Zhoushan Shipyard for Norwegian-based
Marine Accurate Well ASA (Maracc) for use on the Norwegian Continental Shelf when completed.
COSCO Nantong Shipyard also signed a uS$34.6 million (S$49.5 million) contract in the same month to convert a cable-laying vessel into a pipe layer, while COSCO Dalian Shipyard inked a uS$16.1 million (S$23 million) contract to lengthen a dredger.
In February, the shipyard group won a four-vessel order worth uS$185.2 million (S$287 million) from Chinese-Polish Joint Stock Co. Work on building the 30,000 dwt vessels commenced in mid 2007 with target delivery dates between March 2009 and April 2010.
In March, COSCO Shipyard Group won its first Jack-up rig and Cylindrical rig building contracts valued at uS$124 million
(S$192 million) and uS$170 million (S$263 million) respectively. Equipped with three thrusters and heavy lift cranes, the Jack-up is a self-elevating rig designed for 325 feet water depth. The Cylindrical rig on the other hand, is a drilling unit based on the SEVAN 650 design. The rig, to be deployed by Petrobras in the Gulf of Mexico, has oil storage capacity of 150,000 barrels and can drill wells up to 40,000 feet deep at water depths of up to 12,500 feet. Both projects have commenced with works carried out at the Nantong Shipyard and all of the other offshore marine projects are also progressing on schedule.
The shipyard group added another five new contracts in July worth a total of uS$563 million (S$853 million). Four of the deals are conversion of VLCC (Very Large Crude Carrier) to VLOC (Very Large Ore Carrier), while the other is for eight bulk carriers. The projects have commenced in 2008 with work carried out at the yards in Zhoushan, Dalian and Nantong. Progressive deliveries of the VLCC conversions are expected by the third quarter of 2008, while the bulk carriers will be delivered progressively from May 2009 to March 2010.
Reinforcing the shipyard group’s exceptional progress were ship building and conversion contracts totaling uS$708.1 million (S$1,012 million) secured in August. The ship building contracts
were inked with customers from Greece, Turkey and Liberia, whereas the conversion contracts were with from the uSA, Taiwan and India.
In September, another slew of contracts worth uS$724.36 million (S$1,090 million) from German, Taiwanese and Greek ship owners were sealed. The contracts are to build 16 bulk carriers that range in price from uS$38.5 million (S$57.8 million) to uS$49.54 million (S$74.31 million) each. The carriers are targetted to be delivered between March 2010 and July 2011.
The biggest batch of contracts worth uS$1.34 billion (S$2.013 billion) was inked in October to construct 29 bulk carriers slated for delivery between October 2009 and December 2011. Work will be undertaken at the Dalian and Guangdong shipyards.
BOOSTING CAPACITY
In a strategic move to further strengthen ship repair, marine engineering and ship building capacity, the shipyard group expanded its capacity to 1.73 million dwt at the end of FY2007, 28% more than that at the start of the year.
A key focus is the COSCO Shipyard (Group) Co., Ltd - Zhoushan Branch, which became a fully-owned subsidiary of the shipyard group on 1 January 2007. The principal activities of the new company, known as COSCO (Zhoushan) Shipyard Co., Ltd, will be on ship repair, marine engineering and ship building.
As such, the shipyard group has embarked on Zhoushan Shipyard Phase III. Overall, Phase III expansion will increase total docking capacity by 57% from the current 1.73 million dwt to 2.73 million dwt. This involves an expansion of 1 million sq m of land with three new berths and three dry docks.
Over the year, an 80,000 dwt (280m by 40m) Panamax-size dry dock was completed and commenced operations on 19 March and a new 300,000 dwt (460m by 65m) VLCC-size dry dock was completed on 18 June, 15 days ahead of schedule, at COSCO Zhoushan.
1. Conakry (Guinea)2. Lagos (Nigeria)3. Hamburg (Germany)4. Cape Town (South Africa)5. Ventspils (Latvia)6. Odessa (ukraine)7. Suez Canal (Egypt)8. Aqaba (Jordan)9. Novorossivsk (Russia)10. Aden (Yemen)11. Mumbai (India)12. Singapore13. Bangkok (Thailand)14. Penang (Malaysia)15. Shanghai (China)16. Hong Kong (China)17. Albany (Australia)
18. Lianyungang (China)19. Taichung (China)20. Onahama (Japan)21. Nagoya (Japan)22. Tokyo (Japan)23. Gladstone (Australia)24. Portland (uSA)25. Los Angeles (uSA)26. New Orleans (uSA)27. Panama Canal28. Antofagasta (Chile)29. Seven Island (Canada)30. Maracaibo (Venezuela)31. Santos (Brazil)
COSCO’s Dry Bulk Shipping business is managed by the Company’s wholly-owned subsidiary, COSCO (Singapore) Pte Ltd. After COSCO (Singapore) went through a rationalisation exercise in 2006, it now has a fleet of 12 vessels, with an average age of 5.5 years and total capacity of close to 700,000 dwt. These carriers transport dry bulk cargo such as iron ore, coal, steel, cement and fertiliser along international shipping routes
from major ports in China, the uSA, Europe, South America and South Africa.
COSCO (Singapore) also charters its vessels to other ship owners, which mainly comprise large and established international shipping companies based in Germany, Norway, Denmark, Greece, Switzerland, the uK and the uSA, among other countries.
The fleet has been certified to have met the most stringent of international quality and safety standards, having obtained the ISO9002 certification - awarded only to companies that have shown a consistent and unparalleled commitment to quality. Furthermore, the Company has received the united Coast Guards’ “Quality 21: Certificate of Eligibility”, which is widely recognised as the most rigorous and prestigious award in the international shipping industry. The certification enables marine vessels to enter uS waters for two years without the need for uS Coast Guard clearance.
MAINTAINING STATuS QuO
With a firmer Baltic Dry Index, which reached 11,000 points since its recovery in 2006, our turnover from the Dry Bulk Shipping business generate a modest growth of 40% to S$207.9 million in FY2007 from S$148.1 million in FY2006. As of end of 2007, COSCO has no intention to increase its dry bulk fleet size.
Costar Shipping has the capabilities to transport almost all types of containers, including Out-of-Gauge (OOG) containers, general purpose units (GP), reefer containers and hazardous containers, from over 1,300 ports in more than 160 countries.
Overview and OutlOOk
the entire COSCO fleet of vessels calling at Singapore is solely represented by COSCO’s 70%-owned COStar Shipping Pte ltd. COStar Shipping canvasses for cargo from existing and potential clients and maximises the tonnage capacity of COSCO’s vessels transiting through Singapore.
COStar Shipping also provides comprehensive agency services for full containers and breakbulk cargo. the services include document preparation, collection of freight, cargo operation, vessel husbanding, customs declaration, port authority coordination, administration and settlement of cargo claims, transshipment management, bunkering services and container handling.
COStar Shipping’s business mainly stems from containerisation services for COSCO Container lines’ customers. Costar Shipping has the capabilities to transport almost all types of containers, including Out-of-Gauge (OOG) containers, general
purpose units (GP), reefer containers and hazardous containers, from over 1,300 ports in more than 160 countries. in addition, COStar Shipping offers value-added services, for instance, recommending trucking, freight forwarding, stuffing, container depot, and warehouse and storage services.
in Malaysia, COSlink (M) Sdn. Bhd. serves as the general shipping agent for COSCO’s entire fleet of vessels that call at Malaysian ports and provides a similar range of services as COStar Shipping in Singapore.
COSCO has, over the years, sustained strong relationships with a diverse clientele that includes key international corporations. in response to the high demand for global shipping logistics services, COSCO’s fleets continue to maximise their tonnage capacity and to capitalise on the positive market demand, COSCO focuses on delivering cost-efficient, high-quality and value-added services.
Continuing to attract more growth opportunities remains one of COSCO’s key priorities. in the pipeline are plans to boost
marketing and promotion efforts and leverage on the network of agents and industry partners worldwide to reach a wider customer base.
With favorable trade conditions in the areas COSCO operate and a slew of business prospects, among other factors, COSCO is confident that the shipping agency services will remain in top form.
ACHIEVING STABILITY
In FY2007, the shipping agency handled approximately 600 vessels mainly COSCO’s fleet of vessels. The performance of the shipping agency business has been relatively stable over the past four years. In FY2007, the Shipping Agency business turned in profit before tax of S$7.4 million, on the back of S$21.2 million in turnover, an increase of 12% from S$18.9 million in FY2006.
In FY2007, the Shipping Agency business turned in profit before tax of S$7.4 million, on the back of S$21.2 million in turnover, an increase of 12% from S$18.9 million in FY2006.
The COSCO group of companies achieved a sterling set of results for the year with turnover and profits surpassing the previous year’s performance. With a burgeoning order book, turnover increased 86% to S$2.26 billion, exceeding the S$1.21 billion recorded in FY2006. Furthermore, backed by strong expansion across the major revenue segments, net profit attributable to equity holders climbed to a record S$336.6 million, or 15.02 cents a share for the year ended 31 December 2007, from S$205.4 million or 9.27 cents a share, the year before.
Since COSCO acquired 51% of COSCO Shipyard on 1 January 2005, the financial statements of COSCO Shipyard had been consolidated under the COSCO group of companies. The successful expansion and focus on the shipyard business contributed significantly to the financial results and set the stage for COSCO to harness the huge growth potential and business opportunities the ship repair and conversion industry brings.
TuRNOVER
Spurred on by the strong contributions from the Ship Repair, Ship Building & Marine Engineering and Dry Bulk Shipping businesses COSCO registered a record turnover in FY2007.
Turnover rose 86% to S$2.26 billion in FY2007 from S$1.21 billion the previous year. With the successful expansion drive to boost the Ship Repair, Ship Building & Marine Engineering business, the segment recorded an exceptional S$2.03 billion contribution in FY2007, compared to S$1.03 billion in FY2006.
In terms of revenue contribution, Ship Repair, Ship Building & Marine Engineering , which made up 90% of turnover, rose 97% to S$2.03 billion. Dry Bulk Shipping accounted for 9%, while Shipping Agency accounted for the remaining 1%.
PROFITABILITY
Gross profit rose 62.1% to S$610.2 million in FY2007 from S$377.6 million in FY2006, backed by a higher turnover. Gross profit margin was lower at 27.0% in FY2007 compared with 31% achieved in FY2006 as the Company changed its revenue mix by focusing on ship repair, marine engineering and new building.
There was no exceptional gain in FY2007, compared to an exceptional gain of S$24.1 million in FY2006, which stemmed mainly from the disposal of four old dry bulk carriers. Distribution and administrative costs rose in line with the expanding ship repair and marine engineering business volume.
In all, net profit attributable to equity holders was lifted by the robust offshore marine engineering business and rose 64% to S$336.6 million in FY2007 from S$205.4 million in FY2006.
CASH FLOWS
Strong cash surplus of S$1,586.8 million was generated from operating activities in FY2007, a significant increase from S$385.3 million in FY2006. This is due to profitability of the various business segments and advance deposits collected from shipbuilding contracts.
Net cash used in investing activities of S$447.5 million was recorded, compared with S$250.7 million in FY2006. This was due to substantial resources deployed during the year to expand and upgrade shipyard facilities and capitalise on China’s rise as the ship repair hub of the world.
Net cash used in financing activities increased to S$334 million in FY2007 from S$19.9 million in FY2006.
The result was an improvement in cash and cash equivalents to S$1,078.6 million as of 31 December 2007 from S$273.6 million as of 31 December 2006.
As COSCO forges ahead on an expansion growth path, all its plans are supported by sound financial management. As COSCO continues to grow and generate good cash surpluses for repayment of loans, COSCO’s gearing ratio decreased to 0.18 times as of 31 December 2007, from 1.18 times as of 31 December 2002, the year COSCO embarked on its restructuring exercise.
FINANCIAL RESOuRCES
In addition to sustaining good financial results, COSCO places equal emphasis on strengthening the close relationships nurtured over the years with local and international bankers. As a result, COSCO enjoys dependable financial support in the form of borrowings and secured credit facilities, which facilitate the funding of new investments and other capital requirements. COSCO is rigorous in meeting payments and honouring loan obligations.
CORPORATE TAX
The effective tax rate in FY2007 decreased from 7.6% to 3.9% due to tax incentive rebates from the PRC tax authorities relating to purchase of property, plant and equipment made in the PRC for ship repair, ship building and marine engineering operations. Lower effective tax rate is also attributable to the exemption of shipping income under the “Approved International Shipping” scheme (applicable for a 10-year period with effect from August 2003), and preferential income tax rates enjoyed by COSCO’s shipyards.
EARNINGS PER SHARE
The successful restructuring drive which started in FY2002 continued to be the basis of COSCO’s success. The Company is encouraged by the consistent earnings growth achieved over the past six years. Earnings per share rose steadily from 0.3 cents in FY2002 to 15.02 cents in FY2007. More significantly, the quality earnings were generated from the Company’s core businesses. COSCO will continue to deliver sustainable quality earnings and enhance equity holders’ value.
DIVIDENDS AND DIVIDEND COVER
Consistent with the aim of rewarding equity holders for their continued support, the Board of Directors have proposed a first and final exempt (one tier) ordinary dividend of 4 cents per ordinary share (2006: 2.5 cents per ordinary share) and a special dividend of 3 cents per ordinary share (2006: 1.5 cents per ordinary share). This represents an increase of 75% over FY2006. The dividend payout, amounting to S$156.6 million (2006: S$89.3 million), based on the number of shares issued on 31 December 2007, is subject to equity holders’ approval at the Annual General Meeting scheduled on 15 April 2008.
NET ASSET VALuE PER SHARE
Based on strong profits registered for the year, net asset value per ordinary share increased to 42.00 cents in FY2007 from 30.26 cents in FY2006. This is another indication of the Company’s ability to enhance returns for equity holders.
SHARE CAPITAL
COSCO’s share capital increased from S$239.9 million at the beginning FY2007 to S$266.9 million at the close of the year on the issue of new shares upon conversion of employees’ share options.
EQuITY HOLDERS FuNDS
In line with the Company’s growth, equity holders’ funds leaped to S$939.9 million as of 31 December 2007 from S$670.1 million at the start of the year.
RETuRN ON EQuITY HOLDERS’ FuNDS
COSCO yielded a 41.8% return on average equity holders’ funds for FY2007, up from 34.5% for FY2006.
Our vision guides us to keep on course and leads the way to
stellar results for the world to see. We define excellence in terms of
performance, reliability and responsibility, core qualities that enable us
to raise our potential to even greater heights.
Corporate Governance
COSCO Corporation (Singapore) Limited (“COSCO Corporation” or “the Company”) believes that governance is not an exercise in compliance nor is it a higher form of management. The Company believes that governance has a clear objective: ensuring the pursuit of the Company’s purpose. The Board’s activities are focused on this task: ensuring the pursuit of the Company’s purpose and this task is discharged by the board through undertaking such activities as are necessary for the effective promotion of long-term shareholder interest.
COSCO Corporation is committed to good corporate governance and adheres to the principles and guidelines set out in the new Code of Corporate Governance 2005 (“Code 2005”).
A. BOARD MATTERS
Principle 1: The Board’s Conduct of Affairs
As a company, COSCO CORPORATION recognises the importance of good governance and that it is a discrete task from management. Clarity of roles is key to our approach. Policies and processes depend on the people who operate them. Governance requires distinct skills and processes. Governance is overseen by the COSCO Corporation Board, while management is delegated to the Group President and Executive Directors. Our Board exercises judgement in carrying out its work in policy-making, in monitoring executive action and in its active consideration of Group strategy. The Board’s judgements seek to maximise the expected value of shareholders’ interest in the Company, rather than eliminate the possibility of any adverse outcomes.
The Board oversees the business affairs of the Company and is collectively responsible for its success. The principal functions of the Board apart from its statutory responsibilities are to:
set values and standards of the Company and ensure that obligations to shareholders and others are understood and met;
provide entrepreneurial leadership, approve the strategic and financial objectives, corporate policies and authorisation matrix of the Company;
oversee the processes for risk management, financial reporting and compliance and evaluate the adequacy of internal controls; approve annual budget, key operational matters, major acquisition and divestment proposals, major funding proposals of the Company;
review management performance;
approve the nominations to the Board of Directors and appointment of key management, as may be recommended by the Nominating Committee;
assume responsibility for corporate governance framework of the Company.
To facilitate effective management, certain functions of the Board have been delegated to various Board committees, namely Audit, Nominating, Remuneration and Enterprise Risk Management Committees. Further information regarding the details of the terms of reference of the respective Board committees are set out in the later part of the Report.
The Board of Directors comprises eleven Directors with eight Non-Executive Directors (of which four are independent) and three Executive Directors. The Directors’ academic and professional qualifications are set out on pages 52 and 53 of this Annual Report.
The efficiency and effectiveness of the Board are of paramount importance. Our Board’s size is necessary to allow sufficient Executive Director representation to cover the breadth of the Group’s business activities and sufficient Non-Executive Independent Director representation to reflect the scale and complexity of COSCO Corporation and to staff our Board committees. A board of this size allows orderly succession planning for key roles.
The current size of the Board is appropriate and will facilitate effective decision making. The Board will continue to review the size of the Board on an ongoing basis. As a team, the Board collectively provides core competencies in the areas of accounting, finance, business and management experience, as well as industry knowledge.
Directors also receive regular updates on relevant new laws and regulations, and evolving commercial risks and business conditions from the Company’s relevant advisors. Newly appointed directors are provided with background information about the Company and the Group. Occasional visits are arranged for Non-Executive Directors to acquaint them with important operations overseas.
The Board conducts regular scheduled meetings on quarterly basis. Ad-hoc meetings are convened when circumstances require. The Company’s Articles of Association (the “Articles”) provides for Board meetings to be conducted by way of telephone and video conferencing. The attendance of the Directors at meetings of the Board and Board committees as well as number of such meetings is set out in the table below:
Wei Jia Fu
Ji Hai Sheng
Li Jian Hong
Sun Yue Ying
Min Jian Guo
Ma Gui Chuan (1)
Wang Xing Ru
Tom Yee Lat Shing
Wang Kai Yuen
Er Kwong Wah
Ang Swee Tian (2)
Lu Cheng Gang (Alternate to Wei Jia Fu)
Li Jian Xiong (Alternate to Li Jian Hong)
Ye Bin Lin (Alternate to Sun Yue Ying)
Liu De Tian (Alternate to Wang Xing Ru)
Name
5
7
5
5
4
7
5
7
6
7
NA
6
6
7
6
Board
Number of Meetings held: 7
NA
NA
NA
NA
NA
NA
NA
8
8
8
NA
NA
NA
NA
NA
Audit Committee
Number of Meetings held: 8
NA
2
NA
NA
NA
NA
NA
2
2
2
NA
NA
NA
NA
NA
Nominating Committee
Number of Meetings held: 2
NA
2
NA
NA
NA
NA
NA
3
3
3
NA
NA
NA
NA
NA
Remuneration Committee
Number of Meetings held: 3
Number of Meetings
Attended
Number of Meetings
Attended
Number of Meetings
Attended
Number of Meetings
Attended
NA: Not Applicable
Note:
(1) Ma Gui Chuan was appointed on 10 January 2007
(2) Ang Swee Tian was appointed on 13 November 2007.
The roles of Chairman and the President are undertaken by separate persons so as to create a clear division of responsibilities and maintain an effective oversight.
The Chairman is responsible for the workings of the Board, ensuring the integrity and effectiveness of its governance process. In his absence, his appointed alternate and/or the President would act on his behalf.
The President is the most senior executive in the Company and has full executive responsibilities over the business directions and operational decisions of the Group. He works closely with the Board to implement the policies set by the Board to realise the Group’s vision.
Principle 4: Board Membership
Recommendations for nominations of new directors and retirement of directors are made by the Nominating Committee and considered by the Board as a whole.
The Nominating Committee (“NC”) reviews and assesses candidates for directorship before making recommendations to the Board. The NC takes into consideration the skills and experience required and the existing composition of the Board and strives to ensure that the Board has an appropriate balance of independent directors as well as directors with the right profile of expertise, skills, attributes and abilities when recommending new directors to the Board.
The process for the appointment of new directors begins with the NC, together with the Chairman and Vice Chairman of the Company, conducting a needs analysis and identifying the critical requirement in terms of expertise and skills that are needed in the context of the strengths and weaknesses of the existing Board. The NC then defines a profile for the new director to serve as a brief for recruitment. When a candidate has been endorsed by the NC, the NC will then make a recommendation to the Board for the approval of his appointment.
The NC assesses and recommends to the Board whether retiring directors are suitable for re-nomination for re-election. In evaluating a director’s contribution and performance for the purpose of re-nomination, the NC takes into consideration a variety of factors such as attendance, preparedness, participation and candour.
In accordance with the provisions of the Articles, one-third of the Directors retire by rotation and subject themselves to re-election at every Annual General Meeting (“AGM”) of the Company. The President who is a member of the Board must also subject himself to retirement by rotation and re-election by the Shareholders. New directors who were appointed by the Board during the year will hold office only until the next AGM and will be eligible for re-election.
NOMINATING COMMITTEE
The Nominating Committee (“NC”) comprises five Directors, majority of whom, including the Chairman is independent. The NC members are:
Dr. Wang Kai Yuen (Chairman) (Non-Executive and Independent)Mr. Ji Hai Sheng (Executive)Mr. Tom Yee Lat Shing (Non-Executive and Independent)Mr. Er Kwong Wah (Non-Executive and Independent)Mr. Ang Swee Tian (Non-Executive and Independent; appointed on 13 November 2007)
The principal functions of the NC are to:
identify, review and recommend candidates for appointment as Directors of the Company and appointment to the Board committees as well as to senior management positions in the Company;
evaluate the effectiveness of the Board as a whole and assess the contribution by each Director, to the effectiveness of the Board;
determine annually whether or not a Director is independent; and
make recommendations to the Board on re-appointment of Board and Board committee members.
During the financial year the NC held two meetings. The NC met and determined the independence of the Directors is in line with the undertakings described in the Code 2005. It also reviewed the composition of the Board and the Board Committees in relation to the needs of the Group.
The NC is of the opinion that the Board is able to exercise objective judgement on corporate affairs independently and no individual or small group of individuals dominates the Board’s decision making process.
The NC assesses and recommends to the Board whether retiring Directors are suitable for re-election. The NC considers that the multiple board representations held presently by some Directors do not impede their respective performance in carrying out their duties to the Company.
Principle 5: Board Performance
A formal assessment process is in the place to asses the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board. The NC uses objective and appropriate quantitative and qualitative criteria to assess the performance of the Board as a whole and the contribution of each Director to the effectiveness of the Board. Assessment parameters include evaluation of the Board’s access to information, risk management, accountability, the Board’s performance in relation to discharging its principle functions, communication with management and stakeholders, the business performance of the Company, the quality of Board processes, the attendance records of the Directors at Board and Committee meetings and the level of participation at such meetings.
The evaluation of the Board is conducted annually. As part of the process, the Directors will complete appraisal forms which are collated by the Company Secretary. The Company Secretary will then reviews the results of the appraisal and present the results to the Chairman of the NC who will then present a report to the Board.
An individual assessment of each Director is also undertaken annually. The process of the assessment is through self-assessment where each Director will complete appraisal forms which are collated by the Company Secretary. The Company Secretary consolidated the appraisal forms and presented the results to the Chairman of the NC who will then present a report to the Board.
Principle 6: Assess to Information
The Board is provided with management information pertaining to such areas as detailed divisional performance, variance analysis, budget, forecast, funding positions and cash flow projections of the Group, to help them carry out their responsibilities effectively. In addition, all relevant information on material events and transactions are circulated to Directors as and when they arise.
All Board members have separate and independent access to the advice and services of the Company Secretary. The Company Secretary attends Board and Board committee meetings and is responsible for ensuring that Board procedures are followed. Together with the other management staff of the Company, the Company Secretary is also responsible for compliance with the SGX-ST Listing Manual and all other applicable rules and regulations. All Board members also have separate and independent access to the senior management of the Company and the Group.
Board members are aware that they, whether as a group or individually, in the furtherance of their duties, can take independent professional advice, if necessary, at the Company’s expense.
B. REMUNERATION MATTERS
Principle 7: Procedures for Developing Remuneration Policies
The Remuneration Committee (“RC”) meets yearly to discuss the performance assessment of the Executive Directors as well as to discuss the level of emoluments to pay. The recommendations are forwarded to the Board for approval of the remuneration of the Executive Director. The Committee also reviews and approves the remuneration of senior management, as well as the total annual increment and variable bonus for employees.
Directors’ fees are recommended by the Committee and are submitted for endorsement by the Board. Directors’ fees are subjected to approval by shareholders at the AGM.
All the members of the RC are Non-Executive, Independent Directors except for Mr. Ji Hai Sheng, who is the Vice Chairman and President of the Company. The RC is of the view that Mr. Ji’s presence would help the RC by providing intimate knowledge of the remuneration policies in the industry the Company is in. No Director is involved in deciding his own remuneration.
Principle 8: Level and Mix of Remuneration
In setting the remuneration packages of the Executive Directors, the Remuneration Committee (“RC”) takes into account the respective performance of the Group and the individual. In its deliberation, the RC takes into consideration, remuneration packages and employment conditions within the industry and benchmarked against comparable companies.
Non-Executive Independent Directors are paid a basic fee and an additional fee for serving on any of the committees. The Chairman of each of these committees is compensated for his additional responsibilities. Such fees are approves by the shareholders of the Company as a lump sum payment at the AGM of the Company.
REMuNERATION COMMITTEE
The Remuneration Committee (“RC”) comprises five Directors, majority of whom including the Chairman is independent. The RC members are as follows:
Mr. Er Kwong Wah (Chairman) (Non-Executive and Independent)Mr. Ji Hai Sheng (Executive)Mr. Tom Yee Lat Shing (Non-Executive and lndependent)Dr. Wang Kai Yuen (Non-Executive and lndependent)Mr. Ang Swee Tian (Non-Executive and Independent, appointed on 13 November 2007)
The principal functions of the RC are to:
recommend to the Board base salary level, benefits and incentive programs, and identify components of salary which can best be used to focus management staff on achieving corporate objectives;
approve the structure of compensation programme (including but not limited to Directors’ fees, salaries, allowances, bonuses, options and benefits in kind) for the Directors and senior management to ensure that the programme is competitive and sufficient to attract, retain and motivate senior management of the required quality to run the Company successfully;
review, on annual basis, the compensation package of the Company’s Directors and senior management personnel and determine appropriate adjustments; and
administer the COSCO Group Employees’ Share Option Scheme 2002.
The Company currently adopts a remuneration policy for staff consisting of a fixed component and a variable component. The fixed component is in the form of a base/ fixed salary. The variable component is in the form of a variable bonus that is linked to the Company and individual performance. Another element of the variable component is the grant of share options under the COSCO Group Employees’ Share Option Scheme 2002.
Information on the COSCO Group Employees’ Share Option Scheme 2002 such as size of grants, exercise price of options that were granted as well as outstanding and vesting period of options are set out on pages 72, 73 and 74 of the Annual Report.
The RC held three meetings during the financial year.
No employee of the Company and its subsidiary companies was an immediate family member of a Director and whose remuneration exceeded S$150,000 during the financial year ended 31 December 2007.
Executives’ Remuneration
The Company adopts a remuneration strategy that supports a pay-for-performance philosophy. Executives participate in an annual performance review process that assesses the individual’s performance and contributions.
The remuneration structure for the Group President and other key executives consists of the following components:
Salary
Fixed pay comprises basic salary and Annual Wage supplement (AWS) and the Company’s contribution towards the Singapore Central Provident Fund where applicable.
Bonus
Bonus is paid based on the Company’s and individual’s performance.
Other Benefits
Other benefits comprise of usage of Company’s car and club membership.
Benefits From Stock Option
Share options are granted to align staff’s interests with that of shareholders’. These options are granted with reference to the desired remuneration structure target and valued based on the Binomial Valuation Model. Details of the share option scheme can be found in the “Directors Report” section of the Annual Report.
C. ACCOUNTABILITY AND AUDIT
Principle 10: Accountability
The Board has overall responsibility to shareholders for ensuring that the Group is well managed and guided by its strategic objectives. In presenting the Group’s annual and quarterly financial results to shareholders, the Board aims to provide shareholders with a balance and understandable assessment of the Group’s performance, position and prospects. Management provides the Board with management accounts and other financial statements on a monthly basis.
Principle 11: Audit Committee
The Audit Committee (“AC”) comprises the following:
Mr. Tom Yee Lat Shing (Chairman) (Non-Executive and Independent)Dr. Wang Kai Yuen (Non-Executive and Independent)Mr. Er Kwong Wah (Non-Executive and Independent)Mr. Ang Swee Tian (Non-Executive and Independent, appointed on 13 November 2007)
reviews with the external auditors, their audit plan, evaluation of the accounting controls, audit reports and any matters which the external auditors wish to discuss;
reviews with the internal auditors, their audit plan, the adequacy of the internal audit procedures and their evaluation of the effectiveness of the overall internal control systems, including financial, operational and compliance controls and risk management;
reviews the quarterly and annual financial statements, including announcements to shareholders and the SGX-ST prior to submission to the Board so as to ensure the integrity of the Company’s financial statements;
reviews any significant findings and recommendations of the external and internal auditors and related management response and assistance given by the management to auditors;
reviews interested person transactions to ensure that internal control procedures approved by the shareholders are adhered to; and
conducts annual review of the independence and objectivity of the external auditors, including the volume of non-audit services provided by the external auditors, to satisfy itself that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors before confirming their re-nomination.
The AC and the Board of Directors, with the assistance of internal audit and external audit, reviews the effectiveness of the key internal controls, including financial, operational and compliance controls, and risk management on an on-going basis. There are formal procedures in place for both the internal and external auditors to report independently their findings and recommendations to the AC.
The AC has full access to, and cooperation from the Management including internal and external auditors, and has full discretion to invite any Director and executive officer to attend its meetings. The AC has also express power to investigate any matter brought to its attention, within its terms of reference, with the power to retain professional advice at the Company’s expense.
The Group recognises the importance of the internal audit function which, being independent of Management is one of the principal means by which the AC is able to carry out its responsibilities effectively. Messrs Deloitte & Touche Enterprise Risk Services Pte Ltd are the internal auditors of the Group.
The internal auditor plans its internal audit schedules in consultation with Management and submits its plan to the AC for approval. The Internal Auditors report directly to the AC.
The AC conducts regular meetings scheduled on quarterly basis. Apart from the quarterly meetings, the AC meets with the external and internal auditors, without the presence of the management at least once a year. Ad-hoc meetings may be carried out from time to time, as circumstances require. The AC held 8 meetings during the financial year.
The AC, having reviewed the non-audit services provided by the external auditors to the Group, is satisfied with the independence and objectivity of the external auditors and recommends to the Board of Directors, the nomination of the external auditors for re-appointment.
Whistle-blowing Policy
The Company has in place a whistle-blowing policy and arrangements by which staff may, in confidence, raise concerns about possible corporate improprieties in matters of financial reporting or other matters. To ensure independent investigation of such matters and for appropriate follow up action, all whistle-blowing reports are to be sent to the internal audit function. The Chairman of the Audit Committee and the Vice-Chairman of the Board will be informed immediately of all whistle-blowing reports received. Details of the whistle-blowing policy and arrangements are given to all staff for their easy reference. New staff are briefed on these during the orientation programme.
a)
b)
c)
d)
e)
f)
Principle 12: Internal Controls
The Group maintains a system of internal controls for all companies within the Group, but recognises that no internal control system will preclude all errors and irregularities. The system is designed to manage rather than to eliminate the risk of failure to achieve business objectives. The controls are to provide reasonable, but not absolute, assurance to safeguard shareholders’ investments and the Group’s assets.
The Group’s key internal controls include:
establishment of risk management policies and systems;
establishments of policies and approval limits for key financial and operational matters, and issues reserved for the Board;
documents of key processes and procedures;
segregation of incompatible functions which give rise to a risk of errors or irregularities not being promptly detected;
maintenance of proper accounting records;
safeguarding of assets;
ensuring compliance with appropriate legislation and regulations; and
engaging qualified and experience persons to take charge of important functions.
Operational risks management measures implemented by the Group include the implementation of safety, security and internal control measures and taking up appropriate insurance coverage.
Details of the Group’s financial risks management measures are outlined in Note 36 to the Financial Statements.
Based on internal controls established by the Group, work performed by the internal and external auditors, and reviews conducted by the Audit Committee and the Management Risk Committee, the Board is of the opinion that the Group has adequate internal controls.
ENTERPRISE RISK MANAGEMENT COMMITTEE
The Enterprise Risk Management Committee (“ERMC”) comprises five Directors, the majority of whom including the Chairman is independent. The ERMC members are:
Mr. Ang Swee Tian (Chairman) (Non-Executive and independent)Mr. Ji Hai Sheng (Executive)Mr. Tom Yee Lat Shing (Non-Executive and independent)Dr. Wang Kai Yuen (Non-Executive and independent)Mr. Er Kwong Wah (Non-Executive and independent)
The Committee assists the Board in fulfilling its oversight responsibilities on risk management. The responsibilities of the Committee include the following:
reviews the overall risk management system and process and makes recommendations on changes as and when considered appropriate
reviews the Group’s risk policies, guidelines and limits; and
reviews periodically the Group’s material risk exposures and evaluates the adequacy and effectiveness of the mitigating measures implemented by management.
The internal audit function’s primary line of reporting is to the Chairman of the Audit Committee. Messrs. Deloitte & Touche Enterprise Risk Services Pte Ltd is the internal auditors of the Group. Based on its review, the Audit Committee believes that the internal auditors are independent and has the appropriate standing to perform its function effectively and objectively.
D. COMMUNICATION WITH SHAREHOLDERS
Principle 14: Communication with Shareholders
COSCO Corporation strives for timeliness and transparency in its disclosures to the shareholders and the public. All information on the Company’s new initiatives will be first disseminated via SGXNET followed by a news release, where appropriate. The Company currently holds media and analyst briefing upon the release of its quarterly financial results. Management regularly receives visiting fund managers and shareholders to provide them an insight to the Company’s business and developments, as well as to better understand and address their concerns. In addition to the media and analyst briefings, the Company has taken part in various road shows.
COSCO Corporation in 2007 won the award for the most transparent company in the foreign listings category at the SIAS Investors Choice Awards organised by the Securities Investors Association (Singapore).
The Company does not practice selective disclosure. Price-sensitive information is first publicly released via SGXNET, either before the Company meets with any group of investors or analyst or simultaneously with such meetings. Results and annual reports are announced or issued within the period prescribed by the SGX-ST.
Principle 15: Greater Shareholders Participation
COSCO Corporation encourages shareholders to participate actively in general meetings. At general meetings of the Company, shareholders are given the opportunity to express their views and ask questions regarding the Company and the Group.
The Company’s Article of Association allow a shareholder entitled to attend and vote to appoint a proxy who need not to be a shareholder of the Company to attend and vote at the meetings.
The Board members and chairpersons of the Audit, Nominating, Remuneration and Enterprise Risk Management Committees are present and available to address shareholders’ questions at general meetings. The external auditors are also present to address shareholders’ queries relating to the conduct of the audit and the preparation and conduct of the auditor’s report.
E. INTERESTED PERSON TRANSACTIONS (“IPTS”) POLICY
The Company has adopted an internal policy in respect of any transactions with interested persons and has set out the procedures for review and approval of the Company’s interested person transactions with the China Ocean Shipping (Group) Company and its associates, which are covered by a Shareholders’ Mandate approved at each general meeting.
The AC reviews the Shareholders’ Mandate at regular intervals, and is satisfied that the review procedures for IPTs and the reviews to be made periodically by the AC in relation thereto are adequate to ensure that the IPTs will be transacted on normal terms and will not be prejudicial to the interests of the Company and its minority shareholders.
In line with Chapter 12 Rule 1207(18) of the Listing Manual of SGX-ST on dealings in securities, the Company has adopted an internal compliance code which mirrors substantially the provisions of the said rule to provide guidance to its Directors and officers in relation to dealings in its securities.
The Company’s Code prohibits securities dealings by the Directors and employees while in possession of price-sensitive information. The Company issues regular circulars to its Directors, principal officers and relevant officers who have access to unpublished material price-sensitive information to remind them of the aforementioned prohibition and to remind them of the requirement to report their dealings in shares of the Company. The Directors and employees are also prohibited from dealing in the securities of the Company during the period commencing two weeks before the announcement of financial results of the Company for each of the first, second and third quarters of its financial year or one month before the financial year, as the case may be, and ending on the date of the announcement of the relevant results.
Capt. Wei Jia Fu Chairman and Non-Executive Director
Ji Hai Sheng Vice Chairman, President and
Executive Director
Li Jian Hong Non-Executive Director
Board of Directors
Corporate Governance and Transparency
50
Ma Gui Chuan Executive Director
Wang Xing Ru Non-Executive Director
Tom Yee Lat Shing Non-Executive Independent Director
Capt. Wei Jia Fu Chairman and Non-Executive Director
Capt. Wei is currently the President of COSCO Group. He is also the Chairman of China COSCO Holdings Co., Ltd., COSCO Pacific Ltd., COSCO International Holdings Limited, COSCO (Hong Kong) Group Limited, COSCO Container Lines Co., Ltd., Boao COSCO Co., Ltd., COSCO Finance Co., Ltd., COSCO Pacific Investment Holdings Limited; Vice Chairman of China Merchants Bank Co., Ltd.; Honorary Chairman of Beijing Highlander Digital Record Tech. Co., Ltd. Captain Wei is concurrently the Chairman of the China Shipowners’ Association, China Shipowners’ Mutual Assurance Association, China Group Companies Promotion Association, China Federation of Industrial Economics, China Association of Trade in Services; Director of the Board of Boao Forum for Asia; international advisor for Panama Canal Authority; Member of the International Committee for Distinguished Shipping Personages under the American Bureau of Shipping (ABS); commissioner of National Guidance Commission of MBA Education; Honorary Dean of School of Economic Management at Shanghai Maritime university; Honorary Dean and part-time Professor of School of Navigation at Wuhan university of Technology. Captain Wei joined COSCO Group in 1967 and has successively held the posts of Captain for ocean ships, General Manager of Chinese-Tanzanian Joint Shipping Company, President of COSCO Holdings (Singapore) Pte. Ltd., General Manager of Tianjin Ocean Shipping Company and COSCO Bulk Carrier Co., Ltd., etc. Captain Wei obtained his Doctorate Degree from Tianjin university, Master Degree in Transportation Planning and Management from Dalian Maritime university. He is a Senior Engineer with vast experience in international shipping management and capital operation.
Ji Hai Sheng Vice Chairman, President and Executive Director
Mr. Ji has been the President of both COSCO Corporation (S) Ltd and COSCO Holdings (S) Pte Ltd since November 2000. He has been appointed as the Vice Chairman of COSCO effective from 14 February 2006. A graduate from the Sichuan Institute of Foreign Languages, Mr. Ji was employed at China Ocean Shipping Company in 1975, specialising in Container Operation and Management. From 1983 to 1988, he was appointed the Company Representative in the united States. Subsequently, Mr. Ji was posted to COSCO Beijing as Director of Sino-European (Container Service) and Deputy General Manager (Freight Service Department). In 1992, Mr. Ji became the Managing Director of COSCO-HIT Terminals (Hong Kong) Ltd and Assistant President of COSCO (Hong Kong) Group Company. He proceeded to become the Deputy Managing Director of COSCO Container Lines in Beijing four years later. From 1998 to 2000, Mr. Ji was appointed Managing Director of the Asia Pacific Regional Headquarters of COSCO Container Lines.
Li Jian Hong Non-Executive Director
Mr. Li is currently the Vice President of COSCO Group. He is also the Chairman of COSCO Shipyard Group Co., Ltd., COSCO International Ship Trading Co., Ltd., Dalian COSCO Shipbuilding Industry Co., Ltd.; Vice Chairman of China International Marine Containers (Group) Co., Ltd., Sino-Ocean Land Holdings Limited, Suzhou Industrial Park Co., Ltd., Nantong COSCO KHI Ship Engineering Co., Ltd.; Non-Executive Director of China COSCO Holdings Co., Ltd.; Executive Director of COSCO Pacific Ltd., Director of COSCO International Holdings Limited, COSCO Logistics Co., Ltd., Boao COSCO Co., Ltd. and COSCO Pacific Investment Holdings Limited. Mr. Li is concurrently the Vice Chairman of the Chinese Society of Naval Architects and Marine Engineers and China Association of the National Shipbuilding Industry. Mr. Li joined the COSCO Group in 1989, and has successively held the posts of Factory Director of COSCO (Nantong) Shipyard, General Manager of COSCO Industry Co., Ltd. and COSCO Real Estate Development Co., Ltd.; Assistant to the President and Chief Economist of COSCO Group. Mr. Li obtained his Master Degrees in Business Administration from university of East London, England and in Economic Management from Jilin university respectively. He is a Senior Economist with vast experience in business management and capital operation.
Mdm. Sun Yue Ying Non-Executive Director
Mdm. Sun is currently the Chief Financial Officer of COSCO Group. She is also the Chairman of COSCO (Cayman) Fortune Holding Co., Ltd., COSCO (Cayman) Venus Co., Ltd. and COSCO Line (Cayman) Ltd.; Vice Chairman of COSCO Finance Co., Ltd.; Non-Executive Director of China COSCO Holdings Co., Ltd.; Executive Director of COSCO Pacific Ltd., Director of COSCO Container Lines Co., Ltd., COSCO Logistics Co., Ltd., COSCO Bulk Carrier Co., Ltd., Qingdao Ocean Shipping Co., Ltd., Nantong COSCO KHI Ship Engineering Co., Ltd., China Merchants Bank Co., Ltd., China Merchants Securities Co., Ltd., ICBC Credit Suisse Asset Management Co., Ltd., Dalian COSCO Shipbuilding Industry Co., Ltd., COSCO Pacific Investment Holdings Limited and COSCO (Hong Kong) Group Ltd., and Supervisor of COSCO Japan Co., Ltd. Mdm. Sun joined COSCO Group in 1982 and has successfully held the posts of Deputy Director of the Finance Department of Tianjin Ocean Shipping Company, Manager of the General Affairs Department of COSCO Japan Co., Ltd., General Manager and Deputy Chief Accountant of the Finance Department of COSCO Group. Mdm. Sun has extensive experience in finance and corporate financial management.
Min Jian Guo Vice President and Executive Director
Mr. Min joined COSCO Holdings (S) Pte Ltd as the Vice President on 5 April 2006, responsible for the personnel aspects of the Company as well as in charge of a few subsidiaries and agency units under the Company. Before his arrival to Singapore, Mr. Min was based in Beijing, China as Deputy Managing Director of COSCO Logistics Co., Ltd in January 2002. Prior to that, he had been appointed as the Deputy General Manager of China Ocean Shipping Agency head offi ce from September 2000 to December 2001, the Vice General Manager of COSCO International Freight Company from September 1995 to September 2000, and Deputy General Manager in China Road Transportation Company from November 1994 to September 1995. Mr. Min has extensive experience in the international freight forwarding and strategic management of modern logistics. He was conferred his master’s degree by Capital university of Economics and Business. Mr. Min was awarded the “Golden Anchor Prize” by China Seaman’s Association in September 2002.
Mr. Ma was elected as Executive Director on 10 January 2007. He joined COSCO Group in 1978 and was the Chairman of the union of COSCO in 1998. Currently he is the Chairman of COSCO Holdings (S) Pte Ltd. He had been involved in the management of the Qingdao Ocean Shipping Company for many years and became the person-incharge of Qingdao Ocean Mariner’s College in 1994. From 2001 to 2003, he was a standing member of C & C committee and deputy mayor of Yinchuan, Ningxia. In 2003, Mr. Ma was elected an executive committee member of the 14th national representatives congress of All-China Federation of Trade unions. With nearly 30 years of experience in the shipping industry and extensive experience in ship and crew management, Mr. Ma graduated from Dalian Maritime university majoring in engineering management and Capital university of Economics and Business in postgraduate studies in administration business.
Wang Xing Ru Non-Executive Director
Mr. Wang was appointed as a Non-Executive Director of COSCO Corporation in February 2006. He has been the General Manager of COSCO Shipyard Group Ltd. since 2001. Prior to that, Mr. Wang was Executive Director of COSCO Co-Developement (Tianjin) Co., Ltd & Vice President of COSCO Industry Co. A graduate from Engineering School of Shandong university, Mr. Wang has a Master of Engineering in 1991. He has a wealth of experience in ship-repair business and assets management.
Tom Yee Lat Shing Non-Executive Independent Director
Mr. Yee was appointed to the Board on 15 December 1993. He is a Non-Executive and Independent Director and was last re-elected as Director on 18 April 2007. He is Chairman of the Company’s Audit Committee and member of the Nominating and Remuneration Committees. Mr. Yee is a Certified Public Accountant and was a partner of an international public accounting firm from 1974 to 1989. He has more than 35 years of experience in the field of accounting and auditing and extensive experience in handling major audit assignments of public listed an private companies in various industries, including insurance, manufacturing and retailing. He is currently a consultant. Mr. Yee also sits on the boards of several listed companies, and is a fellow member of the Institute of Chartered Accountants in Australia, CPA (Australia), FCPA (Singapore), associate member of the Institute of Chartered Secretaries and Administrators, and Council Member of the Institute of Certified Public Accountants of Singapore.
Dr. Wang Kai Yuen Non-Executive Independent Director
Dr. Wang was appointed as an Independent Director on 2 May 2001. He chairs the Nominating Committee and is a member of the Audit Committee and the Remuneration Committee. Dr. Wang served as a Member of Parliament for the Bukit Timah Constituency from December 1984 till April 2006. He was the Chairman of Feedback unit from 2002 till his retirement from politics. He is currently the Center Manager of Fuji Xerox Singapore Software Centre. In that capacity, he has built up the software centre and assisted in the establishment of similar centres in uK, India, China, Brazil and Ireland. Dr. Wang also holds directorships at ComfortDelgro Group Ltd, Asian Micro Holdings Ltd, Nylect Technology, Xpress Holdings Ltd, China Lifestyle Foods and Beverages, Matex International, and others. He graduated from the National university of Singapore with a degree in Bachelor Engineering, First Class Honours in Electrical and Electronics in 1972. Dr. Wang holds a Master of Science in Electrical Engineering, a Master of Science in Industrial Engineering and a PhD in Engineering from Stanford university, uS. He received a Friends of Labour Award in 1988 for his contributions to the Singapore labour movement.
Er Kwong Wah Non-Executive Independent Director
Mr. Er is an Independent Director of COSCO Corporation (Singapore) Limited. A Colombo Plan and Bank of Tokyo Scholar, he obtained a first class honours degree in Electrical Engineering at the university of Toronto, Canada, in 1970 and an MBA from the Manchester Business School, university of Manchester in 1978. A former Permanent Secretary in the Singapore Civil Service, he had served in various ministries before his retirement. He is currently the Chairman of the Toa Payoh Central Citizens Consultative Committee and a member of the Bishan-Toa Payoh Town Council.
Ang Swee Tian Non-Executive Independent Director
Mr. Ang was appointed to the Board on 13 November 2007. He is a Non-Executive and Independent Director of COSCO Corporation (Singapore) Limited. He is also a member of the Audit Committee, Nominating Committee and Remuneration Committee of COSCO Corporation (Singapore) limited. Mr. Ang graduated from the Nanyang university in Singapore with a First-Class Honours Degree in Accountancy in 1970. He was conferred a Master Degree in Business Administration with distinction by the Northwestern university in 1973. After his return from the States, Mr. Ang served in several departments in the Monetary Authority of Singapore (MAS). He was the Head of the Money Market Division in the Banking Department in 1976/1977 and was the Deputy Insurance Commissioner in the Insurance Commissioner’s Department. Mr. Ang played a pivotal role in placing Singapore on the world map as home to Asia’s first financial futures exchange. under his stalwart leadership as the Chief Executive Officer, Mr. Ang helped establish the Singapore International Monetary Exchange (SIMEX) in 1984 and built it into a well-respected futures exchange. Mr. Ang’s illustrious career included the successful merger of SIMEX with Stock Exchange of Singapore (SES) in 1999 which became the internationally recognised Singapore Exchange (SGX) of today. He served as the President of SGX from 1999 to 2005 during which he played an active role in successfully promoting SGX as a preferred listing and capital-raising venue for Chinese enterprises. He was also instrumental in establishing SGX AsiaClear which started offering the OTC clearing facility in 2006. On his retirement in January 2006, Mr. Ang took on a new role as Senior Advisor to SGX until December 2007. In March 2007, Mr. Ang became the first from an Asian Exchange to be inducted into the Futures Industry Association (“FIA”) Futures Hall of Fame which was established to honour and give recognition to outstanding individuals for their contributions to the futures and options industry.
COSCO holds a deep-rooted commitment to the interests of its stakeholders and the key fundamentals of leadership and governance, stakeholder relations and performance reporting are firmly entrenched in its business practices. It is COSCO’s intent to create and enhance business value as well as establish long-term relationships built on trust and understanding. As such, COSCO’s commitment to achieving excellence in creating value extends to fostering good investor relations. The belief in maintaining a high level of transparency as well as keeping in mind the interests of its shareholders at all times, permeates the entire organisation.
Over the past year, COSCO has been a star performer. Its value more than tripled over 2007, making it the Morgan Stanley Capital International World Index’s third best performer, amongst the Index’s 1,862 members. While the exceptional performance of COSCO’s operations, to a certain extent, drove the robust performance of its share value, good investor relations initiatives also contributed to COSCO’s success, by helping investors understand the Company better.
While the Company places utmost importance on generating shareholder value, it also espouses transparency that comes with effective, clear, concise and timely communications, which
facilitate well-informed investment decisions. These are evident and backed by the accolades its stocks have garnered from key indices and fund managers over the years.
Since 1 March 2004, COSCO has been included as a component stock of the Straits Times Index (STI), making it the first Chinese blue chip stock in Singapore. In the same month on 19 March, it was added as a new component stock of the FTSE All-World Asia-Pacific Index. On 1 June 2005, it was selected as a component stock of the Morgan Stanley Far East Index (Ex-Japan) and the Morgan Stanley Composite Index Singapore.
Admitted to the Nomura Asia-Pacific Major Index in June 2007, COSCO was also included as a component stock of Prime Partners China Index, the first index that tracks the performance of Chinese enterprises listed on SGX. From January 2008, COSCO became a part of the new FTSE ST China Index, created to reflect the increasing significant representation of China-based companies in the Singapore stock market.
COSCO believes that timely and useful disclosures are to its advantage. It works with the media and the investment community to disseminate information to the public at large. The practices it has established include providing timely disclosure of contracts won, making prompt announcements of quarterly results and giving as much detailed information as possible. These are achieved through various media, such as media interviews, news reports in print or on television or news wires, dialogues with investors and minority shareholders during the Company’s AGMs and EGMs, the Company’s homepage and the SGX website.
In FY2007, it organised roadshows, including in Europe, the uS and other parts of the world and held regular meetings and dialogues to brief analysts and investors, in addition to yard tours, to give them a first-hand update of developments taking place. Going a step further, the contact details of key management and investor relations are made known to the media, so that they can contact the relevant personnel for information or clarification when the need arises.
In FY2007, the Company participated in more than 100 international and local investment promotional conferences. We take these opportunities to share updates about the Company.
Corporate Governance and Transparency
58
230Total investor conference and analyst briefing organised in FY2007
The Company received the “Global Chinese Business 1000 – Best Business Performance Company” award in the Singapore region from Hong Kong-based Yazhou Zhoukan. On 4 October 2007, COSCO also won the award for most transparent company in the foreign listings category at the SIAS Investors Choice Awards, organised by the Securities Investors Association (Singapore). The winner was selected from nominations received from investment analysts, heads of research, fund managers and journalists.
This achievement is testimony to the Company’s success in achieving best practices in corporate governance and disclosure. Winning the award means that it has met the stringent standards
for timeliness, substantiality and clarity of its news releases, ease of media access, frequency of corporate results, availability of segmented information and the quality of its communication channels, such as the website.
COSCO will continue with these good practices and strive to better improve its investor relations efforts and to set a good corporate example.
COSCO is well followed by the above reputable analysts. Please note that any opinions, estimates or forecasts regarding COSCO’s performance made by these analysts are theirs alone and do not represent opinions, forecasts or predictions of COSCO or its management.
Singapore Press Holdings LimitedThe EdgeYoung Times
Source:
RiskManagementWe are an enterprise with more than 40 years of experience in the industry. Within the Group, we have put in place a risk management system that adheres strictly to approved policies from the Board of Directors.
OVERVIEW
COSCO is a name that has an established track record backed by over 40 years in the industry. Within the companies under COSCO, there is a risk management system in place that ensures procedures adhere strictly to approved policies from the Board of Directors.
MANAGING INVESTMENTS
The Company studies the outlook for any investment beyond the next five years. Research is also conducted to study the feasibility of and verify that any proposed expansion plan meets the Company’s timeline for generating returns. Since 2005, COSCO’s shipyard group has been expanding its business activities. Prior to embarking on the new area of ship repair, ship building and marine engineering, it underwent a large-scale shipyard upgrading. This was conducted in preparation for the expansion as COSCO consciously takes measures to prevent overstretching its resources on projects it undertakes.
The current utilisation of COSCO’s shipyards is full; similar to other competing shipyards in China. This exemplifies the current situation in the Chinese market where demand exceeds supply. As such, it is conservative to put COSCO’s estimate of its annual production growth at 25%.
Oil prices have, to a large extent, repercussions on the offshore oil and gas industry. For example, a fall in oil prices to below uS$40 per barrel (S$57) will affect the exploration and development activities of petroleum companies. However, oil prices have hit uS$100 per barrel (S$143) in January 2008 and based on an objective analysis, oil prices are not expected to plunge in the short-term. Therefore, petroleum companies are likely to continue to push exploration for new oil fields. In addition, ageing oil rigs worldwide will consequently increase the market’s demand for new marine engineering services.
Moreover, as robust economic activities and burgeoning global trades with China are sustained, more merchant ships are calling at Chinese ports and supporting a strong demand for COSCO’s services in ship repair, building and marine engineering.
COSCO has established a management system to address financial risks. Fluctuations in currency rates are closely monitored in the industry COSCO operates in. The Company employs simple forward hedging on a systematic approach to mitigate risks.
COSCO does not engage in speculative foreign exchange investments. Strict compliance controls are in place with a risk management committee in Singapore that ensures procedures are adhered to and management decisions are not made unilaterally. COSCO monitors its foreign currency exchange risks closely and where appropriate, enters into forward currency contracts to manage the currency exposure.
MANAGING COST OF RAW MATERIALS
COSCO’s exposure to risks that relate to the cost of raw materials pertains particularly to steel. However, such expense is limited as usage of steel is not high. A third of the steel that is used is pre-ordered at pre-determined prices. The remaining two thirds are purchased one to two months in advance. This is due to differing requirements for the ship repair and ship building industries, where the time period required for ship repair is generally short. Even if a project involves ship conversion, it takes between four to six months. If there is any increase in material cost, the Company can adjust charges to customers accordingly.
MANAGING COST OF WAGES
Ship repair is a labour-intensive industry and an increase in wages will have a significant impact on the Company. COSCO had, in the past, encountered an increase in labour cost in China, particularly Guangzhou and Shenzhen. During the peak periods, COSCO shipyards employ about 40,000 workers. In a move to reduce the impact of rising labour costs, COSCO adopts a contract hiring system. Other than retaining only about 6,000 permanent staff on the payroll, unskilled manpower is hired on a contractual basis and paid according to projects undertaken. This system decreases the fixed wage costs incurred each year.
Human Resource and Corporate Social Responsibility
The Company has established various schemes to build loyalty and harness the full potential of its people. Therefore, its performance and achievement appraisal system links work-related goals with personal career development and remuneration.
HUMAN RESOURCE
OVERVIEW
COSCO Shipyard operates in a labour-intensive industry, where employees play a crucial role to the performance of the Company. The Company’s core competitive advantage lies in China’s relatively lower labor cost. While labour cost can account for 70% of the total operating cost in developed countries, it constitutes about 40% at COSCO.
The Company does not take this competitive advantage for granted. It understands the need to continuously upgrade the skills of its workforce in order to meet the increasing demands of customers. It is also a necessity to enhance the productivity and efficiency of its workers to sustain growth and profitability, in addition to creating greater value for the shareholders.
At COSCO, the Company takes a four-prong approach to strengthen the manpower capabilities, namely recruitment, training, a succession scheme and a reward scheme. COSCO aims to attract and retain talents through an attractive reward scheme, while placing a great emphasis on education and training to motivate the workforce.
RECRuITMENT AND TRAINING
In line with COSCO’s new offshore rig building focus, the Company has been hiring experienced technical staff from shipyards in Japan, Korea as well as Singapore to boost manpower capabilities for its China-based shipyards. In order for the shipyard group to make the key transition from repairing and converting vessels to undertaking more sophisticated and lucrative new building projects for the offshore oil and gas sector, it is necessary to hire the external expertise, especially in offshore marine engineering. In FY2007, COSCO Shipyard hired 36 engineers and senior technicians from abroad.
Furthermore, following COSCO’s strategy of injecting new blood into the Company and to generate fresh ideas, COSCO recruits top graduates from leading Chinese universities yearly and train them to take on management roles.
Internal courses are conducted as part of ongoing training to improve the skills and knowledge of its staff. New employees attend a compulsory training course, which lasts from one to three months, where they acquire the necessary skills to perform their jobs. Technical staff must fulfill the course requirements before they can work on board a ship, with annual assessments conducted to ascertain the work standards of all employees.
The Company conducts training for its staff in China as well as on-the-job-training carried out in Singapore. Striking a collaborative partnership with Singapore’s SembCorp Marine, which has a 30% stake in the COSCO Shipyard Group, personnel from the shipyard group also underwent training at SembMarine’s PPL Shipyard. The close cooperation with SembCorp and PPL helps the shipyard group to speed up its move into the new areas of offshore marine engineering. Areas of training cover international standards and safety measures, as well as technical, engineering and management skills. The Company also engages experts in the marine engineering field from Singapore, Japan and Korea to beef up the shipyard’s skills and competencies in the area.
COSCO invests in the Company’s next generation of leaders, by providing opportunities for middle management staff to further their studies in institutes of higher learning such as the Nanyang Technological University in Singapore. Senior management from key departments is also posted to countries such as Norway, which have a long history in the marine industry, to learn from the experts.
The Company believes that the success of an enterprise depends largely on the calibre of its leaders. Employees who show potential are identified and tested by putting them through rigorous tasks. Those who prove themselves are recommended for senior management positions. This succession scheme helps groom able employees to become future leaders of the Company.
REwARd ANd RETENTION
The Company has established various schemes to build loyalty and harness the full potential of its people. Therefore, its performance and achievement appraisal system links work-related goals with personal career development and remuneration.
Under COSCO’s annual “Model Employee Reward” scheme, the Company picks the best-performing employees from its subsidiaries and arranges for them to visit the Company’s overseas subsidiaries. Other than being an incentive trip for the employees, the visits are also an opportunity for them to experience the work cultures of other COSCO companies.
The shipyards also hold a variety of competitions to inculcate the spirit of embracing challenges as well as enhance interaction among workers. For motivating the senior management and experienced employees, the Company offers them share options.
wORKPLACE SAFETy
COSCO places great emphasis on workplace safety as part of staff welfare. The Company’s three core businesses adhere to the highest safety standards that have been established internationally. Besides equipping staff with the latest technical skills, they are also made aware of the importance of safety. Through demonstrations, training and supervision, employees are educated on the potential hazards and taught safety measures to prevent accidents from occurring. Specifically, courses on safety form the bulk of the mandatory training for new employees.
At COSCO’s five shipyards, an internal safety audit team performs regular as well as random checks to ensure they meet all safety requirements at all times. COSCO has obtained the ISO9002
certification and the uS Coast Guard 21st Century Vessel Quality Certification for its impeccable safety records in shipping. The latter is the highest standard achievable and it enables COSCO’s vessels to enter uS waters without prior approval from the authorities within two years of receiving the certification.
COSCO’s safety culture is aimed at eliminating all accidents. Safety is of utmost importance in its operations and COSCO stands firm in the belief that a healthy and safe working environment is as important as environmental protection, operational efficiency, customer service and profitability. It deems health and safety as related and the Company encourages all employees to take part in activities that promote healthy living.
The Company has in place a comprehensive healthcare programme for employees. under staff welfare, employees are entitled to benefits such as annual health checks, medical insurance, dental treatment and immunisation against influenza. Medical staff is also on-board each of the Company’s vessels and on-site medical facilities are available at all shipyards.
CORPORATE SOCIAL RESPONSIBILITY
OVERVIEW
COSCO is a responsible corporate citizen with businesses worldwide. The Company believes it has a responsibility to make the world a more conducive place to live, preserve the environment and improve the community’s living standards. COSCO’s core value is to be responsible to society at large. The Company is committed to enhancing the welfare of the community and adopting practices that keep environmental damage to a minimum.
ENVIRONMENTAL RESPONSIBILITY
As a public listed company, COSCO’s primary objective is to generate profits for its shareholders. However, besides achieving profit targets, the Company constantly strives to ensure that the environment is protected. COSCO complies with international and local environmental legislations when carrying out its operations. Through the use of technology and managing work procedures, the Company seeks to improve its environmental protection measures and minimises any harm to the environment.
In collaboration with the government and environmental organisations, COSCO reviews environmental policies and issues related to the Company. Company policies and work processes are also continually assessed through internal and external audits. These ensure that the Company is up-to-date with the latest environmental protection standards.
Inside COSCO and Corporate Citizenship
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COSCO is a responsible corporate citizen with businesses worldwide. The Company believes it has a responsibility to make the world a more conducive place to live, preserve the environment and improve the community’s living standards.
With regard to materials usage, the Company’s stringent selection criteria and design ensure minimal environmental damage. Wastage is also kept to a minimum by attempts to optimise material consumption. In terms of operations, COSCO’s employees adhere to stringent ISO safety procedures. The Company enforces rigorous environmental safety standards that not only meet but exceed international standards. These have been internationally certified and truly reflect the Company’s commitment to pollution control and upholding environmental safety standards.
COnTrIbuTIOnS TO SOCIeTy
being a socially responsible corporate entity, COSCO puts in practice its belief in giving back to the society. As a Chinese enterprise that is publicly listed in Singapore, the Company has generously made monetary contributions and actively supported charity events in both China and Singapore. Over the past year, COSCO has played an active role in charitable activities.
In China, COSCO has sponsored schemes to lift communities out of poverty as well as educational development programmes and relief aid. Other than monetary contributions, the Company also lent a hand in manpower support when it appointed local assistant governors in China, in response to the government’s call for support.
Since COSCO built its success in Singapore, it gives back to the business community by sharing its experience with other Chinese enterprises operating in Singapore. COSCO’s Vice-Chairman and President Mr Ji Hai Sheng is also the Chairman of the Chinese enterprises Association (CeA). Through seminars on corporate governance, Mr Ji encourages Chinese firms that are listed in Singapore to be more transparent, at the same time espouse good corporate governance practices to safeguard the interests of shareholders.
Directors’ ReportStatement by DirectorsIndependent Auditors’ ReportConsolidated Income StatementBalance SheetsConsolidated Statement of Changes in EquityConsolidated Cash Flow StatementNotes to the Financial StatementsFive-Year SummaryShareholding StatisticsNotice of Annual General MeetingProxy Form for Annual General MeetingNotes for Proxy Form
LIABILITIESCurrent liabilitiesTrade and other payables 27 2,416,393 529,707 7,021 5,846Current income tax liabilities 11 24,040 11,891 969 293Borrowings 28 111,528 128,246 – –Provisions for other liabilities 30 5,064 6,309 – –
2,557,025 676,153 7,990 6,139
Non-current liabilitiesForward currency contracts 14 42,264 – – –Borrowings 28 64,910 283,806 – –Provisions for other liabilities 30 65 3,571 65 76Deferred income tax liabilities 31 152 189 – –
107,391 287,566 65 76
Total liabilities 2,664,416 963,719 8,055 6,215
NET ASSETS 1,302,754 919,947 452,717 356,664
EQUITYCapital and reserves attributable to equity holders of the CompanyShare capital 32 266,852 239,947 266,852 239,947Statutory and other reserves 33 82,806 70,855 24,554 11,931Retained earnings 590,249 359,256 161,311 104,786
The Group The Company Contract/ Contract/Notional Fair value Notional Fair valueAmount Assets Liabilities Amount Assets Liabilities$’000 $’000 $’000 $’000 $’000 $’000