SINGAPORE New Dynamic - listed company

COSCO Corporation (Singapore) Limited

SINGAPORE

Annual Report 2004

A New DynamicCOSCO Corporation (Singapore) Limited

RCB Reg. No: 196100159G


CO

SC

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orp

ora

tion

(Sin

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ited

Annual R

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rt 2004

SINGAPORE

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While every effort has been taken to carry out instruction to customers satisfactionNO RESPONSIBILITY liablilty will be accepted for errorsCUSTOMERSARE THEREFOREURGEDTO CHECK THOROUGHLY BEFOREAUTHORISINGPRINT RUNSDALIM

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VISION STATEMENT

Our vision is to become one of the world leaders in shipping and ship repair. We are committed to building a value-driven enterprise that maximises quality earnings for the growth of the company, provides excellent services that satisfy a global customer base, and creates sustainable returns for our shareholders.

Contents 01 Corporate Profi le

02 Building Scale

04 Increasing Value

06 Growing Opportunities

08 COSCO At A Glance

10 Financial Highlights

12 Signifi cant Events

13 Chairman’s Letter

14 President’s Statement

18 Operations Review &

Geographical Footprint

20 Shipping

22 Ship Repair and Marine

Engineering

26 Shipping Agency

28 Inside COSCO Corporation

32 Board of Directors

34 Board of Directors’ Profi le

36 Management Team

37 Corporate Structure

38 Financial Review

41 Corporate Governance/

Investor Relations

49 Financial Statements

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While every effort has been taken to carry out instruction to customers satisfactionNO RESPONSIBILITY liablilty will be accepted for errorsCUSTOMERSARE THEREFOREURGEDTO CHECKTHOROUGHLY BEFOREAUTHORISINGPRINT RUNSDALIM

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COSCO Corporation (Singapore) Limited Annual Report 2004

A New DynamicEstablished in 1993, COSCO Corporation (S) Ltd (“COSCO Corporation” or the “Group”) is the Singapore Exchange-listed subsidiary of China Ocean Shipping (Group) Company (“COSCO Group”), one of the top ten major shipping conglomerates in the world. COSCO Corporation has three core businesses, embracing ship repair and marine engineering, dry bulk shipping and shipping agency. Recent restructuring initiatives have seen the company transformed, and engaged on a dynamic new growth path. COSCO Corporation has successfully positioned itself to be a major shipping and shipping related group and one of the world leaders in ship repair through its ongoing dry bulk shipping fl eet expansion and recent investments in seven major shipyards in China.

COSCO Corporation is poised to continue seizing growth opportunities, and deliver sustainable shareholder returns. The fi rm Baltic Dry Bulk Index (BDI), growth of China trade and expanding international market in ship repair will fuel further growth for the Group in the new dynamic.

01Corporate Profi le


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7Shipyards, no. 1 in China

654

3

2

1

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02Building ScaleCOSCO Corporation (Singapore) Limited



Building Scale

In a booming market where demand outstrips supply, scale enables us to capture more growth. We are expanding the size and the scope of our operations to provide greater breadth and depth in our core business offerings, and broaden our earnings base. In our shipping business, we are expanding our dry bulk carrier fl eet by four ships over the next two years, which will increase our total fl eet capacity to 1,000,000 dwt.

In ship repair, we will become one of the largest ship repair and conversion companies in China, and one of the largest worldwide after our recent acquisition of 51% of COSCO Shipyard Group with its 7 shipyards. Our planned expansion in these yards will add another 1 million dwt to our capacity and include the largest dry dock in China. The scale of these facilities will enable us to attract not only more work but higher value projects, including oil rigs and major ship conversions.

03Building Scale


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Share price

Up

124%

in one year

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04Increasing ValueCOSCO Corporation (Singapore) Limited



Increasing Value

Our fundamental goal is to build shareholder value by creating a business which delivers sustainable, long-term growth. In this respect, the ultimate evidence of our ability to create value lies in the performance of our share price. In large part as a result of our restructuring initiatives, our share price has risen an impressive 500% over the last two years. This performance refl ects the increase in top line growth we have created in all our core businesses, particularly ship repair and engineering. It is also due to improving our bottom line performance, by investing in IT to create cost effi ciencies across the group and by deploying our capital as effi ciently as possible. We are committed to maintaining this impressive performance by expanding our facilities and services to capture more growth, and by increasing the proportion of higher-yield contracts in our earnings base moving forward.

05Increasing Value


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China Imports Grew

40%

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06Growing OpportunitiesCOSCO Corporation (Singapore) Limited



Growing Opportunities

The current health of global trading activity as evidenced by the increase in the Baltic Dry Bulk Index (BDI) and the high volume of raw material imports into China promises a wealth of shipping and ship repair opportunities for us in the near future. In shipping, the consolidation of the BDI at last year’s high average levels combined with the increased capacity coming on stream in our dry bulk carrier fl eet promises robust earnings growth through 2005. In ship repair, with the ageing nature of the global merchant fl eet requiring the regular maintenance and repairs made mandatory by international shipping regulations, we are well positioned to capture a major slice of this growing market. To maximise our gains, we are augmenting our capacity and our capabilities in high value-added areas of repair and conversion that command a price premium. The growing offshore market, for one, will give us a niche opportunity in oil rig repair. Our strategic alliances with partners such as SembCorp Marine further open up new opportunities for us, such as skill upgrades through technology transfer, and access to new customers.

07Growing Opportunities


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08At A GlanceCOSCO Corporation (Singapore) Limited

COSCO Corporation’s dry bulk shipping

business is undertaken by its wholly-owned

subsidiary, COSCO (Singapore) Pte Ltd. COSCO

(Singapore) owns and operates a fl eet of 13 dry

bulk carriers with a total combined carrying

capacity of in excess of 700,000 dwt.

The fl eet transports dry bulk cargo such as

iron ore, coal, steel, cement and fertiliser

along international routes mostly in a tramping

capacity, usually from China to key ports in

the US, Europe, South America and South

Africa, via Singapore. COSCO (Singapore) also

charters its ships out to charterers or other

ship owners. Its customers are mainly large,

established international shipping companies

based in Germany, Norway, Denmark, Greece,

Switzerland, UK, USA and other countries.

Two 74,000 dwt new dry bulk carriers are slated

for delivery in FY2005, and two 55,000 dwt

vessels are due in FY2006. With these four new

vessels, the total tonnage capacity of COSCO

Corporation’s fl eet will jump 42% to almost

1,000,000 dwt.

Shipping

COSCO Corporation offers ship repairing and

marine engineering services through COSCO

Nantong and COSCO Dalian and 90%-owned

COSCO Marine Engineering (Singapore) Pte Ltd,

which offers onsite and onboard engineering

and repairs at its shipyard in Jurong, Singapore.

On 1 January 2005, the company completed its

acquisition of COSCO Shipyard Group which

has seven shipyards strategically located in

the most important sites along China’s eastern

seaboard in Nantong, Dalian, Guangzhou,

Shanghai, Tianjin, Xiamen and Zhoushan.

COSCO Shipyard Group has, amongst

others, the two largest cape size fl oating

docks and four Panamax size docks in China

which provide ship repair, ship conversion

and jumbolisation, new builds, and oil rig

manufacture and repair services.

COSCO Shipyard Group will add substantially to

the future growth of COSCO Corporation. The

ship repair business is currently undergoing

a massive expansion programme designed

to increase COSCO Corporation’s ship repair

capabilities and capacities. With this, the seven

shipyards’ total docking capacity stand at

955,000 dwt.

Ship Repair and Marine Engineering

COSCO Corporation (Singapore) Ltd is a major ship repair, shipping and shipping related conglomerate. Headquartered in Singapore, COSCO Corporation has three main business units namely, ship repair and marine engineering, dry bulk shipping and shipping agency. COSCO Corporation owns major stakes in 7 leading ship repair yards in China, a marine engineering yard in Singapore, and an expanding fl eet of 13 dry bulk carriers plying their trade between China’s ports and the rest of the world. COSCO Corporation is 55.07%-owned by the China Ocean Shipping (Group) Company, the largest shipping group and one of the top conglomerates in China.

70% owned by COSCO Corporation, Costar

Shipping Pte Ltd solely represents COSCO

Corporation and the entire COSCO Group

fl eet that calls at Singapore.

Costar Shipping canvasses for cargo from

existing and potential clients to ensure that

the COSCO Group’s vessels transiting through

Singapore are loaded to maximum tonnage

capacity. In addition, Costar Shipping provides

agency services for full container and break-

bulks. These include document preparation, the

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. The agency handles virtually all types

of containers and provides services to about

100 to 110 vessels a month. Costar Shipping

also offers value-added services such as the

recommendation of trucking, freight forwarding,

stuffi ng, container depot, warehousing and

storage services. Coslink (M) Sdn. Bhd.

functions as the general shipping agent in

Malaysia for the COSCO group’s entire fl eet of

ships, and provides the same comprehensive

range of services as Costar in Singapore.

Shipping Agency

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09At A Glance


No. of dry bulk carriers : 13

Total fl eet capacity : 700,000 dwt

Services : The global transport of dry bulk cargo,

typically, iron ore, coal, steel, cement, fertiliser

Strengths : Extensive global network, high service

standards

Client base : Over 90% international, established

shipping companies.

Growth plans : Four large-capacity vessels slated for

delivery in FY2005 and FY2006 to increase

fl eet capacity to almost 1,000,000 dwt in

FY2006

No. of shipyards : 2

Total docking capacity : 640,000 dwt

Services : Ship repair, ship conversion and jumbolisation,

new builds, oil rig manufacture and repair,

marine engineering

Locations : Nantong and Dalian

Strengths : Strategic locations, high service standards,

high and increasing capacity and capabilities,

internationally competitive prices


shipping companies.

No. of offi ces : 2

Services : Document preparation, the 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,

cargo canvassing, and value-added services

Strengths : Extensive global network, high service

standards, high and increasing capacity of

COSCO (Singapore)’s fl eet


shipping companies.

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Profi t and Loss Account 2000 2001 2002 2003 2004

S$`m S$`m S$`m S$`m S$`m

Turnover 162 152 102 92 116

Operating Profi t before Tax 5 17 2 13 37

Share of Associate companies - - 4 17 36

Taxation 4 3 1 5 6

Profi t from Ordinary Activities 10 14 5 25 67

Minority Interest 1 1 1 1 1

Profi t for the year 9 13 4 24 66

Profi t and Loss Account 2000 2001 2002 2003 2004

Other Data :

Earnings per share (cents) 1.7 2.4 0.6 3.2 6.1

Dividend per share (%) 2.5 3.0 3.5 5.0 10.0

Dividend per share (cents) 0.5 0.6 0.7 1.0 2.0

Dividend cover (times) 4.4 4.5 1.1 3.4 3.0

Net Tangible Assets (cents) 28.5 31.6 28.7 25.17 29.67

Gearing Ratio (Net of Cash) 1.5 1.7 1.6 0.5 0.2

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10Financial HighlightsCOSCO Corporation (Singapore) Limited



11Financial Highlights


Net Assets $’m

162.8

180.7 186.9273.9

323.5

00 01 02 03 04

After-Tax Profi t $’m

9

13

4

24

66

00 01 02 03 04

Dividends Per Share (cents) andEarnings Per Share (cents)

Turnover $’m

152

102

116

00 01 02 03 04

162

92

Dividends Per Share (cents)

Earnings Per Share (cents)

1.7

6.1

2.0

3.2

1.0

2.4

0.6 0.6

00 01 02 03 04

0.5 0.7

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2004

Acquisition of 51% of COSCO Shipyard Group

Co. Ltd completed.

December

COSCO Corporation awarded the Gold

Award, the top prize among 15 companies, for

entrepreneurship and commitment to good

enterprise values. The competition was organised

by Global Entrepolis Singapore as part of its

inaugural International Brand Summit.

October

Two Panama-incorporated subsidiaries, COS

Orchid Shipping Inc. and COS Prosperity

Shipping Inc. were dissolved.

November

EGM approved acquisition of 51% of COSCO

Shipyard Group Co Ltd.

Entered conditional agreement to sell M.V.

Sea Swan for US$11,150,000 as part of ongoing

shipping fl eet renewal exercise.

September

Entered conditional agreement to acquire 51% of

COSCO Shipyard Group Co Ltd, owner of 7 major

shipyards in China, at a cost of RMB578m.

COSCO Group (China Ocean Shipping Group

Companies) became a direct controlling

shareholder of the Company with the transfer

of 55.07% stake from COSCO Holdings

(Singapore) Pte Ltd.

180,757,078 new ordinary shares listed and

quoted on SGX Mainboard pursuant to

1-for-5 Bonus Shares issue.

May

Increased stake in COSCO Marine Engineering

Pte Ltd from 60% to 90%

April

MarchCOSCO Corporation won the honour of becoming

a blue chip component stock of the Straits Times

Index (STI), the SGX’s main benchmark index.

COSCO Corporation met stringent criteria to

become a constituent of the London benchmark

FTSE All-World Asia Pacifi c (Ex-Japan) Index.

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12Signifi cant EventsCOSCO Corporation (Singapore) Limited



Captain Wei Jia FuChairman

From an offshoot of the COSCO Group 10 years ago to a growing conglomerate in its own right, COSCO Corporation is emerging today as a major player in the international shipping and ship repair industry.

The company’s overall performance this fi nancial year was very encouraging. The excellent results we have achieved to date have demonstrated that the company is on target with its restructuring initiatives, and that focusing on shipping and ship repair is the right strategy to deliver sustainable profi t growth in the years ahead.

13Chairman’s Letter


While economic cycles may change, I believe the competitive strengths

we possess in both core businesses will enable us to create shareholder

value on an ongoing basis.

With the growth of raw materials imports into China and the positive

global trading environment, the outlook is good, and the investments we

are making to expand both core businesses over the next two years will

position us to capture even more growth in the near future. Assuming that

global economic conditions do not materially change over the next twelve

months, we can look forward to another year of positive results in FY2005.

I wish to express my deep appreciation to our parent, the COSCO Group

for their strong support, and to the management of COSCO Corporation

for their unstinting efforts in leading the company forward. I would also

like to thank our Board members for their invaluable contributions, and

the staff for their hard work over the last year.

Lastly I would like to extend my gratitude to our loyal shareholders

for your strong support over the years. Here’s to charting a successful

future together.

Captain Wei Jia FuChairman

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Two milestones in particular, which are connected, stand out.

The fi rst was the acquisition of a 51% stake in our sister company

the COSCO Shipyard Group. This move has literally transformed

the company, pushing us immediately into the premier league of

the world’s ship repairers, a subject I will return to later. The second

related milestone was the boosting of our market capitalisation to

S$1.2 billion, and the consequent inclusion of COSCO Corporation

shares on the Strait Times Index and the London Financial Times

Asia Pacifi c (excluding Japan) Index. A new dynamic is at work,

and the evidence is plain for all to see.

Overall performance

Overall Group performance was excellent in 2004, exceeding

expectations in several important respects, with profi t margins

having expanded across all businesses. Group turnover increased

to S$116.3 million in FY2004, or 27% higher than the S$91.9 million

achieved in 2003.

On behalf of the Board of Directors, I am pleased to present to you the Group’s annual report for the fi nancial year ended 31 December 2004.

The year in review FY2004 was a rewarding year for COSCO Corporation in many ways, and I am proud of the results we have achieved. Given our vision of becoming one of the world leaders in ship repair and a major regional shipping group, and our promise to deliver sustainable income over the long term, this year marks the fi nal stage on a journey of restructuring which began in 2002. The carefully considered restructuring efforts of the last two years have fi nally borne fruit, and I believe we have built a solid platform for future growth.

Ji Hai ShengPresident

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14President’s StatementCOSCO Corporation (Singapore) Limited



15President’s Statement


Net profi t rose by 173% to S$66.2 million versus S$24.3 million in

2003, and was close to 16 times higher than the profi t achieved in

2002 when we embarked on the restructuring exercise. Net profi t

would have been even higher if not for a one-off provision we made

for the revaluation of our remaining property interests. Likewise

turnover and profi t in all our remaining core businesses continued

to register strong growth, underpinned by strong fundamentals.

Since assuming the leadership of the company in 2001, my intention has been to reshape the Group to focus more on its core business of shipping, and to enhance its ability to generate what I call “Quality Income”... This strategy is what has driven our disposal of non-core assets, and to intensify our focus on ship repair and dry bulk shipping, which will become our future growth drivers.

Our dry bulk shipping business posted a sterling performance,

boosted by strong demand and the high freight rates secured on

the renewals of charter hire contracts.

Shipping turnover was S$92.2 million or 36.8% up compared to

the S$67.4 million achieved in 2003. Gross profi t likewise rose 62%

to S$57.5 million on the back of the excellent margins, versus

S$35.6 million in 2003.

Due to the late-in-the-year fi nalisation of our investment in COSCO

Shipyard Group in FY2004, turnover contributions from our shipyard

subsidiaries will only be consolidated from the next fi nancial year.

Consequently, this year’s turnover comprises mainly revenue from

our shipping business. However, share of profi ts from the shipyards

soared 107% to S$36.4 million, exceeding full year forecasts and

dramatically underscoring the potential in our ship repair business

for future turnover and profi t growth.

Earnings per share was 6.1 cents compared to 2.7 cents the

previous year. Net asset value per share increased to 29.7 cents,

versus 25.2 cents in 2003.

Dividend and bonus issue

Bearing in mind another year of record performance and the

positive outlook of the company, your board has proposed to

reward shareholders for their support yet again with a fi rst and

fi nal gross (one tier) dividend of 2 cent per share. This represents

a payout ratio of approximately 32% of the profi ts attributable to

the shareholders.

Our growth strategy

Since assuming the leadership of the company in 2001, my intention

has been to reshape the Group to focus more on its core business

of shipping, and to enhance its ability to generate what I call “Quality

Income”. By this I mean higher value-added income where we have

a niche advantage, and which is less vulnerable to the vagaries

of economic cycles and market forces. This strategy is what has

driven our disposal of non-core assets, and to intensify our focus

on ship repair and dry bulk shipping, which will become our future

growth drivers.

China has become one of the major ship repair centres of the world.

The quality and scope of the work available combined with its low

cost base mean that this competitive advantage will remain for the

foreseeable future. COSCO Shipyard Group is the largest shipyard

company in China, and two out of its seven shipyards are the top

two ship repair yards in China. All of them are strategically located

alongside all the major ports on the eastern seaboard. With the

growth of China trade and the ageing nature of the global merchant

fl eet requiring the regular maintenance and repairs made mandatory

by international shipping regulations, we are in pole position to

capture a bigger slice of this market.

Currently more than 90% of the vessels repaired by the COSCO

Shipyard Group are foreign owned, and this trend is increasing.

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Of even greater signifi cance, the investments we have planned to

improve the capabilities and scale of these yards will position us for

much higher value added work commanding a price premium, such

as oil rig repairs and ship conversions. In particular, the expansion we

have planned at Dalian and Zhoushan will beef up current capacity

overall from 955,000 dwt to 2.2 million dwt, and will augment the

facilities at Zhoushan with the largest dry dock in China. This

500,000 dwt dry dock, when completed by the second quarter of

FY2006, will enable us to handle two VLCCs (Very Large Crude

Carriers) simultaneously, and oil rigs.

Underpinning our business endeavours are a commitment to the highest quality in our products and customer services, the highest standards of integrity and transparency in our business practices, and the highest sense of responsibility to our staff, the community and the environment...we benchmark ourselves against the best international standards, and are building a reputation for delivering on our commitments and promises.

Shipping, our traditional mainstay, will remain a major contributor

to our total revenue. Although this year saw the disposal of one

vessel, “MV Sea Swan” from our fl eet of 14 dry bulk carriers, we are

expanding the fl eet over the next two years, with two new dry bulk

carriers planned for delivery in 2005 and two in 2006. These will

greatly increase our shipping capacity and the income contributions

from this business unit.

At present, with the Baltic Dry Bulk Index consolidating near last

year’s high due to the accelerating rate of trading activity globally,

and the robust growth in demand for raw materials to support

China’s expanding infrastructure needs and manufacturing sector,

the demand for dry bulk shipping vessels is exceeding the supply.

As most of our dry bulk carriers have been locked into long term

contracts of one year with an option to renew for another year, our

shipping income will remain high and stable over the coming year.

With good market conditions expected to continue, any renewal

of shipping contracts at the newly increased renewal rates will be

benefi cial to us.

General fi nancial position

With all the investments described above, including the acquisition

of 51% of the COSCO Shipyard Group, capital commitments are

not expected to increase signifi cantly. In the ship repair arm, the

investments will be self-fi nancing as the shipyards will fund the

expansion of their operations and facilities out of their own cashfl ow

and bank borrowings. Similarly in the shipping arm, the expansion of

the dry bulk carrier fl eet by four new vessels over the next two years

will likewise be funded from the shipping unit’s own cashfl ow and

bank borrowings.

The overall increase in Group borrowings, and hence the gearing

ratio, will therefore remain within a comfortable range, and

the Group will be able to meet all its obligations. There is no

requirement or need to raise or issue any share capital.

Building to last

We intend to build our growth on foundations that go beyond the

material. Underpinning our business endeavours are a commitment

to the highest quality in our products and customer services, the

highest standards of integrity and transparency in our business

practices, and the highest sense of responsibility towards our staff,

the community and the environment. From the best practices we are

committed to in corporate governance to the stringent operating and

safety procedures we rigorously apply in our ships and shipyards, we

benchmark ourselves against the best international standards, and

are building a reputation for delivering on our commitments

and promises.

In terms of our staff team, I consider our people to be the real growth

drivers of the business. We are therefore putting in place programmes

both to recruit top talent from the industry and to nurture our existing

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16President’s StatementCOSCO Corporation (Singapore) Limited



17President’s Statement


talent in both technical and management areas to realise their full

potential with us. Within the parameters of the heavy industry in

which we are now major players, we aim to provide the best career

prospects for their future development, and the safest and healthiest

environment possible to work in.

We also believe in the value of relationships, which is refl ected in the

strategic alliances we have established with industry partners and

co-investors such as SembCorp Marine Limited, which has a 30%

stake in COSCO Shipyard Group. It is also evident in the excellent

relationship and support we enjoy with our parent, the COSCO

Group. Both these relationships benefi t us in terms of industry

support, technology transfer and networking for enhanced

business opportunities.

Prospects and outlook

With such fundamentals as a springboard, I believe that we are well

poised for robust growth in the future. We will continue to focus on

strengthening our two core businesses in shipping and ship repair

and engineering, through organic growth and strategic acquisitions.

Besides strengthening our current capabilities, we will expand them

so as to broaden our scope of services for a wider range of clients.

Of key importance is our building up of value-added services such

as oil rig repair, ship conversions and new builds. In addition to

increasing our opportunities in existing markets, we will explore

new markets with potential for growth, and thus enhance value for

customers and shareholders alike.

In terms of prospects, we expect shipyard contributions from our

subsidiary companies will remain strong in 2005, and with high

charter rates, the profi t momentum in our dry bulk shipping business

will also continue to rise. The ship repair sector in China will continue

to grow owing to the low cost base and the growth of China’s foreign

trade. We expect more vessels will call at China’s ports needing

repairs, and with our planned capacity expansions, we will be able to

capture this growth.

Likewise in our shipping business, growing raw materials imports into

China will be refl ected in fi rmer freight rates, which will benefi t charter

renewals for the Group’s bulk carriers. The higher renewal rates we

expect combined with the additional capacity coming on-stream over

the next two years will add substantially to Group revenue in 2005.

In conclusion, barring unforeseen circumstances, we expect the

current positive growth trend to continue in FY 2005.

Besides strengthening our current capabilitties, we will expand them so as to broaden our scope of services for a wider range of clients. Of key importance is our building up of value-added services such as oil rig repair, ship conversions and new builds. In addition to increasing our opportunities in existing markets, we will explore new markets with potential for growth, and thus enhance value for customers and shareholders alike.

In appreciation

On behalf of the management and Board of Directors, I would

like to record my sincere gratitude to all our stakeholders – our

shareholders, customers, bankers, business associates, and our loyal

staff – for your ongoing support. It has been a very rewarding year,

and it is your commitment that has made our success possible.

I look forward to your continuing support as we progress together

in the years ahead.


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In September 2004, the Company announced its proposed In September 2004, the Company announced its proposed acquisition of seven shipyards in China, all strategically acquisition of seven shipyards in China, all strategically located along China’s coast in close proximity to the main located along China’s coast in close proximity to the main shipping routes. Sited in the Nantong, Dalian, Guangzhou, shipping routes. Sited in the Nantong, Dalian, Guangzhou, Shanghai, Tianjin, Xiamen and Zhoushan regions, the Shanghai, Tianjin, Xiamen and Zhoushan regions, the shipyards boost the COSCO Corporation’s leadership shipyards boost the COSCO Corporation’s leadership position in China’s ship repair sector.position in China’s ship repair sector.

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1. Tianjin1. Tianjin2. Dalian2. Dalian3. Nantong3. Nantong4. Shanghai4. Shanghai5. Zhoushan5. Zhoushan6. Xiamen6. Xiamen7. Guangzhou7. Guangzhou

18Operations Review & Geographical FootprintCOSCO Corporation (Singapore) Limited



COSCO’s vast shipping network serves an extensive base of international clients, which make up over 90% of its shipping customers. Its dry bulk shipping fl eet transports dry bulk cargo in a tramping capacity, often along the main trading sea routes from China to major ports in the US, Europe, South America and South Africa via Singapore.

1. Conakry (Guinea) 1. Conakry (Guinea) 2. Lagos (Nigeria)2. Lagos (Nigeria)3. Hamburg (Germany) 3. Hamburg (Germany) 4. Cape Town (South Africa)4. Cape Town (South Africa)5. Ventspils (Latvia) 5. Ventspils (Latvia) 6. Odessa (Ukraine) 6. Odessa (Ukraine) 7. Suez (Canal)7. Suez (Canal)8. Aqaba (Saudi Arabia)8. Aqaba (Saudi Arabia)

9. Novorossivsk (Russia)9. Novorossivsk (Russia)10. Aden (Yemen)10. Aden (Yemen)11. Bombay (India)11. Bombay (India)12. Singapore12. Singapore13. Bangkok (Thailand)13. Bangkok (Thailand)14. Kuantan (Malaysia)14. Kuantan (Malaysia)15. Shanghai (China)15. Shanghai (China)16. Hong Kong16. Hong Kong

17. Albany (Australia)17. Albany (Australia)18. Lianyungang (China)18. Lianyungang (China)19. Taichung (Taiwan)19. Taichung (Taiwan)20. Onahama (Japan)20. Onahama (Japan)21. Nagoya (Japan)21. Nagoya (Japan)22. Tokyo (Japan) 22. Tokyo (Japan) 23. Gladstone (Australia)23. Gladstone (Australia)24. Portland (USA)24. Portland (USA)

25. Los Angeles (USA)25. Los Angeles (USA)26. New Orleans (USA)26. New Orleans (USA)27. Panama Canal27. Panama Canal28. Antofagasta (Chile)28. Antofagasta (Chile)29. Seven Island (Canada)29. Seven Island (Canada)30. Puerto Quetzal (Venezuela)30. Puerto Quetzal (Venezuela)31. Santos (Brazil)31. Santos (Brazil)

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19Operations Review & Geographical Footprint



COSCO Corporation’s dry bulk shipping business is undertaken by

COSCO (Singapore) Pte Ltd, a wholly-owned subsidiary of COSCO

Corporation. COSCO (Singapore) currently owns and operates a fl eet

of 13 dry bulk carriers with a total combined deadweight tonnage

capacity of 700,000 dwt, and an average age of 10 years.

These vessels transport dry bulk cargo such as iron ore, coal, steel,

cement and fertiliser along international routes for global trade in

a tramping capacity, or along main shipping routes. These are usually

from China to the key ports in the US, Europe, South America and

South Africa, with Singapore as a transshipment stopover.

Shipping

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20Operations ReviewCOSCO Corporation (Singapore) Limited



21Operations Review


COSCO (Singapore) also charters ships out to chartering operators or other ship owners. The bulk of the company’s customers are large, established international ship owners and operators based in Germany, Norway, Denmark, Greece, Switzerland, the UK, USA and other countries. With these customers COSCO (Singapore) enjoys a good reputation and strong business relationships forged over many years.

The year in reviewCOSCO (Singapore) continued to deliver solid turnover and profi t growth in FY2004, driven by increasing global trading activity, in particular the rising demand for dry bulk imports into China such as iron ore, cement, coal and grain. As a result, the Baltic Dry Bulk Index (BDI), which hit a historic high in FY2003, consolidated at around the same average level throughout FY2004.

FY2004 therefore saw a strong increase in total revenue at S$92.2 million, or 36.8% more than FY2003. Profi t before tax (PBT) however more than doubled during the year, rising to S$51.9 million from S$26.5 million in FY2003. This outstanding performance was in part due to an increase in freight rates during the year in review, with COSCO (Singapore) able to renew 8 charter contracts at the higher charter rates. Most of the vessels were locked into one year contracts, with an option to renew for another year. Another factor was the maximum asset utilisation achieved during the year, with the good market conditions enabling full employment of the fl eet’s total tonnage capacity.

Overall, the shipping business remained the main contributor to COSCO Corporation’s turnover, providing a good and steady fl ow of quality income amounting to 79% of COSCO Corporation’s total turnover, and 70% of profi t before tax.

Delivering operational excellenceIn order to maintain its competitive edge at the forefront of the industry, the company is committed to sustaining the highest levels of quality in service, operations and fl eet condition. As part of its ongoing fl eet renewal exercise, COSCO (Singapore) sold an ageing vessel, the “M.V. Sea Swan”, in December this year. However, the fl eet is being expanded by four new dry bulk carriers, each with a tonnage capacity larger than the M.V. Sea Swan. The ships are currently being constructed and will be delivered over the next two years. The fi rst two vessels, each with a capacity of 74,000 dwt, will be delivered in FY2005, with two more 55,000 dwt vessels expected in the following year. With their delivery, the total tonnage capacity of COSCO Corporation’s dry bulk carrier fl eet will be boosted to a record capacity of almost 1,000,000 dwt.

COSCO (Singapore)’s commitment to standards of quality are refl ected in many other ways too. Having received ISO9002 certifi cation in 1998, the exceptional standard of the Company’s operations and vessels is also evident in the recent awarding of the highly coveted United States Coast Guard “Qualship 21: certifi cate of eligibility” to three COSCO (Singapore)’s fl eet this year. Awarded to COS Cherry, COS Intrepid and COS Joy for their high quality practices in sustaining marine safety and environmental protection, this certifi cation enables marine vessels to enter US territorial waters without the need for US Coastguard clearance.

Outlook and prospectsGiven China’s rapid pace of growth and development and its resultant accelerating demand for dry bulk imports, the good market conditions in global trade and shipping are expected to improve further in FY2005. While the Baltic Dry Bulk Index is

anticipated to fl uctuate a little in the short term, the average is expected to remain at the current high levels throughout next year, which is good news for shipping income.

Charter renewals are therefore expected to be high, with the majority of vessels locked into one-plus-one contracts. Furthermore, with the anticipated increase in cargo volume globally, the additional capacity coming on stream over the next two years will enable COSCO (Singapore) to capture maximum income from the rising demand of on-board cargo space.

In addition to rising cargo volume, signifi cant increases in bulk freight rates secured on renewals of charter hire contracts are expected to benefi t COSCO (Singapore) in the coming year.

DRY BULK FLEET

Name of vessel Capacity Age

(years)

Handymax: M.V. Sea Phoenix 40,473 dwt 19M.V. Cos Fair 46,689 dwt 5M.V. Sea Crane 46,040 dwt 19M.V. Cos Hero 45,547 dwt 5M.V. Cos Bonny 46,864 dwt 8M.V. Cos Cherry 46,840 dwt 8M.V. Cos Knight 52,341 dwt 2M.V. Cos Lucky 52,341 dwt 1M.V. Cos Glory 46,680 dwt 5

Panamax:M.V. Jurong Sea 69,203 dwt 21M.V. Cos Angel 65,029 dwt 21M.V. Cos Intrepid 74,061 dwt 3M.V. Cos Joy 74,073 dwt 3

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Ship Repair and Marine EngineeringCOSCO Corporation’s ship repair operations began ten years ago with

the foundation of its subsidiary, COSCO Marine Engineering (Singapore)

Pte Ltd, which provides 24-hour marine engineering and ship repair

services in Singapore. COSCO Corporation subsequently increased

its ship repair capabilities with the acquisition of signifi cant stakes in

two of the largest shipyards in the COSCO Shipyard Group, COSCO

(Nantong) Shipyard Co Ltd and COSCO (Dalian) Shipyard Co Ltd in 2002

and 2003 respectively. This expansion culminated in September 2004,

when COSCO Corporation announced its proposed acquisition of a

51% stake in the entire COSCO Shipyard Group.

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23Operations Review


Established in 1994, COSCO Shipyard Group is one of the largest ship repairing groups in China, with approximately 18% of the China market in 2003. It has seven ship yards, of which COSCO (Nantong) Shipyard and COSCO (Dalian) Shipyard are the top two ship repairing yards in China, in terms of earnings. With the acquisition, COSCO Corporation’s stakes in the Nantong and Dalian shipyards have risen to 75.5% and 70.60% respectively. All seven shipyards are strategically located along China’s busy coastline in Nantong, Dalian, Guangzhou, Shanghai, Tianjin, Xiamen and Zhoushan. Together, they have a total docking capacity of 955,000 dwt.

Currently, COSCO Corporation offers ship repair, marine engineering and related services, of which ship repair contributes about 91% of total earnings. Other services include specialised work such as ship conversion (including the conversion of dry bulk carriers to Ro-Ro vessels) and jumbolisation. They also include high value-added services such as oil rig manufacture and repair, a sector recently identifi ed as having good potential growth. New-builds are also undertaken, such as the building of four 250 dwt river barges for a US company in 2003.

In addition to the above, through its subsidiary COSCO Marine Engineering (Singapore), COSCO Corporation offers marine engineering services and ship repair onsite as well as onboard ships at its 6,571sqm waterfront shipyard in Jurong. Services provided include engine-room work, steel work, automation and hydraulic system repair, air-conditioning and refrigeration work, electrical work, workshop machining, precision engineering and the supply of spare parts.

Over the past decade, COSCO Shipyard Group has repaired or converted thousands of ships from all over the world. The

shipyards enjoy long-standing relationships with some of the most established shipping companies worldwide, the majority of whom are in the global top ten. International clients represent 90% of shipyard turnover, including major shipping companies in Greece, Germany, Norway, Denmark, UK, USA and Japan. The loyalty of these customers is testament to the quality of service and competitive pricing they receive, combined with timely delivery.

The year in reviewCOSCO Corporation’s ship repair business performed extremely well during the year in review, as expected. Specifi cally, total earnings from the associate ship repair and engineering companies increased over FY2003. Profi t before tax soared to S$35.8 million, or 107% higher than the S$17 million achieved in FY 2003.

The income contributed by the ship repair and engineering business this year represented 3% of COSCO Corporation’s total turnover. However, as earnings from the newly acquired shipyards will only be consolidated and refl ected in FY2005, the contribution from ship repair will increase signifi cantly, as will the turnover of the whole Group. It is anticipated that ship repair and engineering will contribute to 70-80% of COSCO Corporation’s total turnover in the future, while the shipping business will contribute about 20%.

In terms of number of ships repaired and converted, a total of 499 ships were repaired and converted at COSCO Shipyard Group shipyards in FY2004. This was an increase of 8.9% compared to the 458 ships handled in the previous year. Considering the fact that the expansion programme is still underway and not all the shipyards were fully operational during the period of review, the total number of ships repaired or converted next year is expected to rise signifi cantly.

Types of vessels repaired or converted in FY2004

Number of ships repaired at COSCO Shipyard Group shipyards in 2003 and 2004

2003 2004

COSCO SHIPYARD GROUP 458 499COSCO Nantong 141 144COSCO Dalian 175 180

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Expansion initiativesCOSCO Corporation is currently engaged in an aggressive expansion programme aimed at propelling its ship repair business to the top of the industry. The company is also developing its capabilities in higher-yield, value-added services such as oil rig manufacture and repair, a promising growth driver in COSCO Corporation’s future.

At COSCO (Dalian) Shipyard, work on a 300,000 dwt fl oating dock commenced this year and is expected to be completed in October 2005. This new VLCC dock slated for completion in FY2005 will further boost the shipyard’s capacity by 31%. At COSCO (Zhoushan) Shipyard, work began on two additional berths and a 500,000 dwt dry dock early this year, which will come on stream in second quarter of FY2005 and second quarter of FY2006 respectively. These will be followed by the building of two smaller capacity dry docks in FY2006 and 2007. By 2007, there will be a total of 6 berths and four dry docks in Zhoushan.

Upon completion, the Zhoushan shipyard will be the largest in China. Of even greater signifi cance, its dry dock capacity will also be the greatest in China, with the ability to accommodate two VLCCs (“Very Large Crude Carriers”) for repair concurrently, and oil rigs. This increased capacity combined with the ability to undertake oil manufacture and repair will propel COSCO Corporation to the forefront of the still-underdeveloped offshore repair industry in China. It will also enable COSCO Corporation to charge premium prices, as Zhoushan shipyard will be the only shipyard in mainland China capable of repairing oil rigs.

In the meantime, COSCO Corporation’s other shipyards under the COSCO Shipyard Group are also undergoing upgrading to enhance their capacities. This includes COSCO (Shanghai) Shipyard Co., Ltd which acquired a 30,000 dwt fl oating dock during the year in review.

When all expansion works are completed and the shipyards are fully operational, it is expected that earnings from ship repair and engineering will grow by an average double digit growth per year, and will form the largest portion of the COSCO Corporation’s total revenue for the foreseeable future.

Honing operational excellenceCOSCO Corporation’s increasing ship repair capabilities and capacities are paired with consistently high quality service standards. These are maintained through rigorous quality control checks and service training, as well as the application of the industry’s best practices in ensuring operational excellence. Additionally, our shipyards’ staff’s expertise is regularly upgraded to SembCorp Marine’s standards in terms of management training and technology transfer. All the shipyards’ operating units have ISO9000 series accreditation. COSCO (Dalian) is the fi rst shipyard in China to have been awarded ISO9001 certifi cation for quality management across its operations.

EXPANSION PLAN ANDCAPACITIES OF SHIPYARDS

COSCO Nantong – 2 fl oating docks (150,000 dwt, 80,000 dwt), 3 berths (1.1km total) – Total 230,000 dwt

COSCO Dalian – 2 fl oating docks (180,000 dwt, 80,000 dwt), 1 dry dock (150,000 dwt), 6 berths (1.6km total) – Total 410,000 dwt

COSCO Guangzhou – 1 fl oating dock (Panamax size, 80,000 dwt), 1 berth (405m) – Total 80,000 dwt

COSCO Shanghai – 1 fl oating dock (30,000 dwt), 1 berth (235m) – Total 30,000 dwt

COSCO Xiamen – 1 fl oating dock (20,000 dwt) – 1 dry dock (35,000 dwt) – Total 55,000dwt

COSCO Tianjin – 1 workshop

COSCO Zhoushan – 1 dry dock (150,000 dwt) – 1 berth (500m)– Total 150,000 dwt

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25Operations Review


COSCO Corporation’s shipyards are equipped with top-of-the-line facilities. Besides being supported by excellent infrastructure, advanced IT systems and superb communications networks, the shipyards have generous sea frontage conducive to berthing operations. In addition to the current expansion programme, all shipyards undergo regular upgrading and enhancement.

Timing is another attraction factor with COSCO Corporation. The strategic location of all its seven shipyards, in particular, the Zhoushan Shipyard, along China’s bustling coastline and the international shipping routes places COSCO Corporation’s shipyards in prime position to service ships requiring repairs and fast turnaround times. This gives it a competitive edge over other Chinese shipyards.

Outlook and prospectsThe expected increase in global trade and shipping activity over the next few years as the Chinese economy grows promises a positive outlook for the ship repair industry in China. Combined with the inevitable ageing of the world’s fl eet, and the increasingly stringent seaworthy standards imposed by insurers and international maritime industry regulations, the opportunity this represents for COSCO Corporation’s shipyards is enormous, and growing. COSCO Corporation’s increased ship repair capabilities and capacities will simply allow it to seize the advantage and capture more growth.

China’s share of the global ship repair market is approximately 3.8%, of which the COSCO Shipyard Group represented 18.5% in FY2003. With China’s low cost base and its growing reputation for quality work, all signs point to a further rise in global market share in the coming year, with COSCO Shipyard Group in pole position to capture an even bigger slice. Beyond organic growth however, COSCO Corporation will also be sourcing for M&A opportunities to strengthen the ship repair business even more.

The oil rig manufacture and repair business is anticipated to become one of the key revenue drivers in the future. Three factors for this inference are a perceived rising need for such specialised services in the future with the inevitable deterioration of oil rigs around the world, COSCO Corporation’s relative lack of major competitors in this fi eld in the region, and COSCO Corporation’s increasing and as yet unrivalled capacity in oil rig manufacture and repair.

It is therefore anticipated that as the global demand for ship and oil rig repair increases and China grows to become one of the major ship repair hubs of the world, COSCO Corporation will benefi t from this trend, with another year of signifi cant income and profi t growth expected in FY2005.

COSCO Corporation’s stakes in shipyards as of 31 Dec 2004

COSCO Nantong 50% COSCO Dalian 40%


Costar Shipping Pte Ltd was established as the sole shipping

agent of COSCO Corporation and its parent, the COSCO Group,

in Singapore. Costar Shipping acts on behalf of the entire COSCO

Group fl eet, including all vessels owned and operated by the

COSCO Group’s various subsidiaries.

Shipping Agency

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Costar Shipping canvasses for cargo from both existing and potential clients to ensure that the COSCO Group’s vessels transiting through Singapore are loaded to maximum tonnage capacity. On average, about 80 percent of the total shipments handled by Costar Shipping are transshipment consignments.

In addition to its key role in cargo brokerage on behalf of COSCO Group’s vessels, Costar Shipping provides a full suite of agency services for full container and break-bulks. Costar Shipping’s comprehensive range of services covers document preparation including bills of lading and delivery orders, 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.

The bulk of Costar Shipping’s business is the provision of containerisation services to COSCO Container Lines’ customers. The agency handles virtually any type of containers from OOG (out-of-gauge) containers and GP or general purpose units also called dry containers, to reefer containers and hazardous containers (for dangerous cargo). Together with COSCO’s partner vessels from other carrier companies, Costar Shipping provides containerisation services of about 100 to 110 vessels a month.

In addition, Costar Shipping provides value-added services such as trucking, freight forwarding, stuffi ng, container depots, warehousing and storage.

The year in reviewFY2004 was certainly a good year for Costar Shipping, with cargo demand outstripping supply globally, leading to rising freight rates. As a result, Costar Shipping achieved a 9% increase in profi t to S$2.5 million in FY2004 from S$2.3 million in FY2003. Revenue remained steady at S$15.7 million in FY2004, compared to S$15.8 million in FY2003.

Enhancing competitiveness with ITCostar Shipping always seeks to maintain its edge in a competitive market through the combined offering of attractive costs and high-quality, value-added services. In order to enhance its customer services, Costar Shipping launched a new e-commerce online platform during the year. This platform enables customers to track their cargo and access other customer-specifi c information online, at any time of the day, anywhere in the world.

Outlook and prospectsCostar Shipping’s business objectives are aligned with COSCO Corporation’s business strategies and corporate vision, and that of the parent COSCO Group. Bearing in mind that COSCO Group capacity in FY2004 was not enough to meet demand, revenue would have been even higher if the capacity was available. In order to capture this revenue growth, in addition to the planned expansion of COSCO Corporation’s dry bulk carrier fl eet over the next two years, COSCO Group has also been gradually expanding its fl eet of container ships by eight more 5,500 TEU vessels during the current year. These container ships will be phased in by second quarter 2005.

Costar Shipping will therefore be ramping up its marketing efforts in FY2005 to canvass for more cargo to fi ll the new capacity. Currently, Costar Shipping maintains long-term and mutually benefi cial business relationships with a stable of clients consisting of large, international corporations in key industries worldwide. The company will expand this client base through marketing and promotion efforts, and by leveraging its network of agents and industry partners worldwide.

With demand for containerised and dry bulk cargo in the international shipping industry still on the rise, the prospects for FY2005 look very promising. Global demand for capacity is likely to outstrip supply for the foreseeable future, which means that the current strong freight rates are likely to remain fi rm. Combined with the scheduled capacity expansions by COSCO Corporation and COSCO Group, and the growing volume of trade with China, we expect another year of revenue and profi t growth for Costar Shipping in 2005.

Coslink (M) Sdn. Bhd. functions as the general shipping agent in Malaysia for the COSCO Group’s entire fl eet of ships, and provides the same comprehensive range of services as Costar in Singapore.

27Operations Review


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Inside COSCO Corporation

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28Inside COSCO CorporationCOSCO Corporation (Singapore) Limited



29Inside COSCO Corporation


HUMAN RESOURCESDeveloping our peopleCOSCO Corporation fi rmly believes that in order to realise its aspiration to become a world-class shipping and ship repair company, it has to attract, nurture and retain highly talented and committed people. COSCO Corporation seeks to continually build up its human capital in four fundamental ways – recruitment, training, succession planning and motivation.

The fi rst way is through the recruitment of quality staff, and in this respect COSCO Corporation seeks to source the kind of human talent that will propel the organisation forward in the future. Every year, COSCO Corporation carries out recruitment drives at the top universities in China to source for excellent graduates from a range of disciplines. In this way the business is enriched by the fresh perspectives and dynamism of young minds.

The second is through training and skills development, which is imparted through a mix of in-house courses, professional courses in institutions of technical or higher learning, and training from international industry partners.

Internally, regular in-house training courses are conducted for all levels of staff, to upgrade their skills and knowledge base. Prior to their commencement of work in shipping and ship repair operations, technical workers receive one to three months of prerequisite training in their areas of specialisation to equip them with the required technical skills. To maintain a rigorous quality standard across the organization, all technical workers are required to pass technical examinations in order to qualify for a permit that allows them to work on the ships. Their skills are then upgraded and honed on an ongoing basis through further in-house training for two weeks to one month each year. In addition, appraisals of all staff members are conducted every year to facilitate the evaluation of individual work performance.All staff receive regular upgrading of their information technology skills through in-house training or system training conducted by our vendors. When COSCO Group adopted the universal SAP system Group-wide this year, we sent several staff

members to China for a month to learn about the new system so that they could help both in the implementation of the SAP system within COSCO Corporation and in the training of its use by all staff. Similarly, during the year, management level and key operational staff underwent training in the use of the IRIS-2 system which was introduced recently to better manage our electronic data. Likewise our fi nancial staff received training from certifi ed accounting fi rm Price Waterhouse Coopers.

COSCO Corporation also leverages the international expertise of its partners to introduce new capabilities or train staff in a number of areas including engineering, management and safety. A prime example is COSCO Corporation’s strategic collaboration with Singapore’s SembCorp Marine to train and nurture key personnel in the management of the ship repair and engineering business.

Middle management members are offered opportunities to further their knowledge and skills in institutions of higher learning such as the Nanyang Technological University in Singapore. Key senior management members are sent to countries with a strong maritime tradition such as Norway, in order to learn from the best in the industry.

COSCO Corporation recognizes that the future success of the enterprise depends largely on the quality of the leadership, which in turn is dependent on effective succession planning. The individuals at the helm of COSCO Corporation are specially identifi ed and selected in an ongoing succession planning programme. Potential leaders are then specifi cally groomed for top management roles via training programmes with strategic partners, as well as institutions of higher learning.

Motivating our workforceThe fi nal way in which COSCO Corporation seeks to build the kind of committed workforce that will project its future growth, is through motivation. A motivated workforce is a productive workforce. Thus, besides fi nancial incentives, COSCO Corporation has several programmes that aim to enhance staff loyalty and boost the productivity of the workforce.

One such programme is the “Model Employee of the Company” award, open to all employees. Every year, model employees are selected to receive this award, based on their work performances for the year. Among other incentives, the selected employees are each given a week-long visit to China comprising of a visit to the COSCO Group’s Beijing headquarters.

Another incentive is the Employee Share Options Plan (ESOP). Introduced in 1994, the ESOP is offered to key staff members such as senior management members and senior staff members as a tool for motivation. During the year in review, most of the options were exercised, demonstrating the high level of commitment there is to the company’s well-being.

Ensuring staff welfareCOSCO Corporation places the highest importance on staff well-being and several policies have been put in place to ensure that its staff keep in the best of health, and safe.

Health benefi ts include yearly health checks and comprehensive medical insurance covering incidentals like dental charges and fl u vaccinations. All COSCO Corporation’s ships carry medical personnel, and the shipyards have medical facilities on site.

In terms of safety, COSCO Corporation has a reputation for maintaining the highest possible levels of safety throughout its three core business units. Safety standards are aligned with the industry’s best practices such as the International Safety Programme, and rigorously applied with stringent checks, as our ISO9002 accreditations demonstrate. In the ship repair unit, an internal safety audit team regularly conducts random spot checks at COSCO Corporation’s seven shipyards in China to ensure that safety standards are kept at high levels at all times. In the shipping business, COSCO Corporation’s high standards of safety recently received recognition through both ISO9002 certifi cation and the United States Coastguards’ “Qualship 21: certifi cate of eligibility”. Widely considered the most rigorous and prestigious award in the international shipping industry, the latter was awarded to three of COSCO (Singapore)’s

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fl eet this year – COS Cherry, COS Intrepid and COS Joy – for their high quality practices in sustaining marine safety and environmental protection. This certifi cation enables marine vessels to enter US waters without the need for US Coastguard clearance, for up to two years.

INFORMATION TECHNOLOGYAlong with its parent, the COSCO Group, COSCO Corporation is constantly looking at ways to leverage modern technology to enhance its services and business processes. Within the international shipping industry, more and more shipping transactions are being handled online, as are internal administrative functions. COSCO Corporation is therefore committed to keeping ahead in the new economy through the regular upgrading and enhancement of its information technology infrastructural and support systems.

In order to enhance and streamline Group-wide communication and business processes, COSCO Group initiated a programme two years ago to introduce SAP software systems across the Group. This system creates a single integrated platform for management information, business analysis, fi nancial management, human capital management, operations and corporate services.

As part of this Group-wide technology enablement process, in FY2004 COSCO Corporation upgraded its corporate fi nance management system by integrating it with the Group SAP system. During the year, it also expanded its communications capabilities and business networking opportunities through the creation and implementation of new and improved e-commerce platforms.

The advanced network now created enables seamless information integration, management and delivery, a critical component in the enabling of smooth transportation and logistics operational processes for COSCO Corporation and the COSCO Group. A main network links COSCO Group and its subsidiaries, delivering secure digital information across the Group.

Our e-commerce platforms open up a world of business opportunities to us, bringing us closer to the customer and enabling us to conduct business electronically. In our shipping agency business unit, Costar Shipping introduced IRIS, a user-friendly information system enabling our customers to obtain real-time tracking information about their cargo at their own convenience.

These information technology systems are developed by the COSCO Group’s in-house IT department. Staffed by IT professionals, the IT department is responsible for the maintenance and regular upgrading of all IT systems in the COSCO Group and its subsidiaries, as well as for the development of new, advanced IT support systems and functions. COSCO Corporation also has a dedicated IT department, responsible for the integration, maintenance and ongoing upgrading of the Group systems in order to improve work productivity internally and to provide increasing convenience to customers.

CORPORATE SOCIAL RESPONSIBILITYAt COSCO Corporation, a sense of responsibility to society as a whole is enshrined as a core value. We are committed to enhancing the welfare of the community at large, as well as adopting practices in our operations that cause the least possible damage to the natural environment.

Caring for the less fortunateIn FY2004, as part of our annual charity donations, COSCO Corporation donated more than S$50,000 in total to a variety of charity organisations. These included cash donations, fundraising and the sponsorship of charity events, and participation in charity fundraisers.

Specifi cally, during the year, COSCO Corporation sponsored and participated in the SGX Bull Run. COSCO Corporation donated S$25,000 in total in order to support the running of the event. A management member from COSCO Corporation took part in the event, which involved a run to raise a donations for ten charity organisations.

COSCO Corporation also donated money to the Community Chest through the Singapore Police Force’s charity drive as well as the Community Chest in FY2004.

Protecting the environmentIn order to minimise the environmental impact of its shipping and ship repair and engineering businesses, COSCO Corporation applies rigorous standards of environmental safety in its operational processes. The US Coastguard “Qualship 21: certifi cate of eligibility” and ISO9002 certifi cation mentioned above in the HR section include stringent environmental standards as part of the evaluation criteria. Above and beyond conformity to international environmental standards, the award of these certifi cations demonstrates the consistently high standards of pollution control and environmental safety achieved by COSCO Corporation.

Nurturing the business communityAbove and beyond its commitment to the best international practices of its own industry, COSCO Corporation has a sense of responsibility to encourage and share best practice with the Chinese business community in Singapore as a whole. Its President, Mr Ji, in his recent appointment as the acting Chairman of the Chinese Enterprises Association (CEA), has undertaken the task of providing courses in corporate governance to publicly-listed Chinese fi rms in Singapore. Through these courses, Mr Ji hopes to encourage greater transparency and good corporate governance practices among Chinese enterprises so that the interests of shareholders would be better protected.

As a board member of the Singapore International Chamber of Commerce, Mr Ji also seeks to promote good commercial practices by enterprises across industries, including COSCO Corporation.

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30Inside COSCO CorporationCOSCO Corporation (Singapore) Limited



31Inside COSCO Corporation


HUMAN RESOURCES

Staff profi le by age groupBelow 25 yrs 24 (12%)26-35 yrs 61 (32%)36-50 yrs 82 (43%)Above 50 yrs 25 (13%)Total 192 (100%)

Staff profi le by qualifi cationMaster’s degree 10 (5%)Degree 43 (22%)A levels (high school) 95 (50%)O levels (middle school) 34 (18%)Primary schl (below middle) 10 (5%)Total 192 (100%)

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Ji Hai ShengPresident &

Executive Director

Yao HongVice President &

Executive Director

Capt. Wei Jia FuChairman &

Non-Executive Director

Li Jian HongNon-Executive

Director

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32Board of DirectorsCOSCO Corporation (Singapore) Limited



Wang Kai YuenNon-Executive &

Independent Director

Tom Yee Lat ShingNon-Executive &


Zhou Lian Cheng Non-Executive Director

Er Kwong WahNon-Executive &


irector

33Board of Directors


Sun Yue YingNon-Executive

Director

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Capt. Wei JiafuChairman and Non-Executive Director

Capt. Wei Jiafu, President and CEO of COSCO, has headed the China Ocean Shipping (Group) Company (COSCO) since November 1998. Prior to that, he was in charge of COSCO’s asset operations and management as a senior executive in many COSCO subsidiaries in China and abroad. During his tenure as the President of COSCO (Singapore) Ltd, he turned it into a public listed company in 1993, marking COSCO’s entrance into the international capital market.

With over ten years of seafaring experience as a captain and a PhD in ship and ocean structural design and manufacture and a master’s in shipping, Capt. Wei has a wealth of knowledge in international shipping management and operations. Capt. Wei has won awards for his contributions to the international shipping industry such as the ‘Economic Booster Award’ by the Massachusetts Alliance for Economic Development (MAED) in November 2004, and ‘Port Pilot Award’ by the Port Authority of Long Beach in March 2004. Capt Wei is also a member of the Panama Canal Authority Advisory Board, the International Advisory Council of PSA Corporation and the China Shipowners’ Association, as well as a chairman for the China Shipowners Mutual Assurance Association, the China Federation of Industrial Economics and China Group Companies Promotion Association, among others.

Mr Ji Hai ShengPresident and Executive Director

Mr Ji has been the President of both COSCO Corporation (S) Ltd and COSCO Holdings (S) Pte Ltd since November 2000. 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 Pacifi c Regional Headquarters of COSCO Container Lines.

Mdm Yao HongVice President and Executive Director

Mdm Yao has been the Vice President of COSCO Holdings (S) Pte Ltd and COSCO Corporation since November 2000. Born in Beijing, Mdm Yao Hong graduated from Qingdao Marine College with a Bachelor in Shipping Management. She additionally holds a Certifi cate for professional and technical competence in

Business Management from the Ministry of Communications. In 1984, Mdm Yao joined the COSCO Group as the Section Head in the Management Division. Nine years later, she became the Section Head of the Executive Division in COSCO Group and in 1998, was promoted to Assistant Division Head.

Mr Li Jian HongNon-Executive Director

Mr Li was appointed the Executive Vice President of COSCO Group in 2000. Before that, he was the General Manager of Nantong Shipyard, Nantong Steel Company, and Nantong Shipping Company, and the Chairman of China International Marine Containers Co., Ltd.

In 1995, Mr. Li took charge of the establishment of COSCO Industry Company and became its General Manager. He was also assistant to COSCO’s (COSCO Group) President and the company’s chief economist. Mr. Li has years of expertise in corporate operations and management, particularly in newbuilding, ship repairing and assets operating and management. Mr. Li has an MBA from University of East London, England, and a Master’s in Economic Management from Jilin University, China.

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34Board of Directors’ Profi leCOSCO Corporation (Singapore) Limited



Mdm Sun Yue YingNon-Executive Director

Mdm Sun joined COSCO Group in 1982, and became its Chief Financial Offi cer in December 2000 and a Party Committee Member of COSCO Group in April 2004. Prior to that, she was the Deputy Director of the Financial Department of COSCO Tianjin, the Financial Director of COSCO Japan ,the General Manager of the Finance & Capital Division of the COSCO Group, and the Deputy Chief Financial Offi cer of COSCO Group. A 1982 maritime accounting graduate from the Shanghai Maritime University, Mdm Sun has years of professional experience in accounting, assets-operating and fi nancing.

Mr Zhou Lian ChengNon-Executive Director

Mr Zhou has been a Non-Executive Director of COSCO Corporation since April 2001. He is also a Director and Vice President of COSCO (Hong Kong) Group Limited, a Director of COSCO Pacifi c Limited and a Director of COSCO International Holdings Limited. Prior to that, Mr Zhou was the General Manager of China Ocean Shipping Agency, Nanjing, and the Deputy General Manager of COSCO Asia Development Limited and COSCO (H.K.) Industry & Trade Holdings Limited. A graduate from Dalian Maritime University, Mr Zhou has extensive experience in corporate management.

Mr Tom Yee Lat ShingNon-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 24 February 2003. He is Chairman of the Company’s Audit Committee and member of the Nominating and Remuneration Committees. Mr Yee is a Certifi ed Public Accountant and was a partner of an international public accounting fi rm from 1974 to 1989. He has more than 35 years of experience in the fi eld of accounting and auditing and extensive experience in handling major audit assignments of public listed and private companies in various industries, including insurance, manufacturing and retailing. He is currently a consultant. Mr Yee also sits on the boards of several listed companies, and is a fellow member of the Institute of Chartered Accountants in Australia, CPA (Australia), CPA (Singapore), associate member of the Institute of Chartered Secretaries and Administrators, and Council Member of CPA (Australia) – Singapore Division and the Institute of Certifi ed Public Accountants of Singapore.

Dr Wang Kai YuenNon-Executive & Independent Director

Dr Wang was appointed a Non-Executive Independent Director in 2001. Dr Wang has been a Member of Parliament for the Bukit Timah Constituency since 1984. Dr Wang was previously the Assistant Director for Research at the Institute of

Systems Science at the National University of Singapore which he joined in 1982. Subsequently, he was the Director of Xerox Singapore Software Centre and Managing Director of Fuji Xerox Asia Pacifi c. In his latter capacity, Dr Wang was built up the software centre and assisted in the establishment of similar software centres in UK, India, China, Brazil and Ireland. Dr Wang’s directorships include ComfortDelgro Group Ltd, Asian Micro Holdings Ltd, Nylect Technologies, SuperBowl Holdings and Hiap Hoe Ltd.

Mr Er Kwong WahNon-Executive & Independent Director

Mr Er is an Independent Director of fi ve public listed companies, including COSCO Corporation (Singapore) Ltd. A Colombo Plan and Bank of Tokyo Scholar, he obtained a fi rst 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. He is a Board Member of the National Environment Agency, and Chairman of its Audit Committee. 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.

35Board of Directors’ Profi le


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Li Jian XiongVice President

Teo Chuan TeckFinancial Controller

Finance Controller

Ye Bin LinFinance Director


Yao HongVice President

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36Management TeamCOSCO Corporation (Singapore) Limited



Serene Sky Shipping Inc.

Dynamism Shipping Corporation S.A.

Greenery Shipping Corporation S.A.

Hanbo Shipping Limited

Cos Glory Shipping Inc.

Cos Knight Shipping Inc.

Sanbo Shipping Limited

Cos Orchid Shipping Pte Ltd

Cos Lucky Shipping Inc.

Cos Prosperity Shipping Pte Ltd

COSCO Container Depot Pte Ltd

Costar Agencies (M) Sdn. Bhd.

CNF Shipping (M) Sdn. Bhd.

CNF Shipping Agencies Pte Ltd

COSCO (Nantong) Shipyard Co., Ltd ( 50% )

COSCO (Dalian) Shipyard Co., Ltd ( 40% )

COSLINK (M) Sdn. Bhd. ( 82.6% )

Harington Property Pte Ltd ( 100% )

Marlene International Ltd ( 100% )

COSCO (Singapore) Pte Ltd( 100% )

COSEM Pte Ltd ( 50% )

COSTAR Shipping Pte Ltd ( 70% )

COSCO Marine Engineering (Singapore) Pte Ltd ( 90% )

COSCO Engineering Pte Ltd

COSCO Corporation (Singapore) Ltd

37Corporate StructureCOSCO Corporation (Singapore) Limited

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OverviewIn FY2004, COSCO Corporation underwent further expansion to extend its focus beyond its traditional shipping business to ship repair as another major growth driver for the Company. At the same time, the Company continued building up its shipping business in order to keep at the forefront of the international shipping industry.

Overall, FY2004 was an excellent year for bulk shipping, producing the best results attained since the Company’s inception. With the Baltic Dry Index reaching a historic high and averaging above 4,000 points throughout the year, COSCO Corporation’s shipping arm reaped excellent profi ts. These will be sustained in the long-term by the Company’s adherence to its strategy of locking in profi ts by chartering its dry bulk carrier fl eet on a long term basis. This mitigates the risk of the Company being adversely affected by the wide swing in the conventional shipping cycle.

Long term stability and growth were additionally ensured by the Company’s strengthening of its stake in the ship repair business in China, a thriving industry with tremendous potential for growth. Previously, the Company owned 50% of the COSCO Nantong shipyard and 40% of COSCO Dalian, acquired on 1 February 2002 and 15 August 2003 respectively.

In September 2004, the Company signed a sale and purchase agreement to acquire 51% of the COSCO Shipyard Group Co Ltd to further develop this core business and bring the Company closer to realising its aspiration of being the largest ship repair company in China and one of the biggest in the world.

TurnoverThe Company recorded a turnover of S$116.3 million for FY2004. This was an increase of 27% or S$24.4 million compared to FY2003 which recorded S$91.9. This was due to better charter rates.

Specifi cally, in the shipping business arm, turnover grew by 36.0% from S$67.4 million in FY2003 to S$92.2 million in FY2004 due to better charter rates.

Cash fl ow from operating activitiesThe cash fl ow generated from the Company’s operating activities exceeded that of the previous year. While S$62.8 million was generated in FY2003, the cash fl ow generated in FY2004 was higher at S$70.1 million. This was due to the extraordinary cash surplus that was derived from the fi rmer charter hire contracts.

Cash fl ow from investing activitiesBoth COSCO Nantong and COSCO Dalian shipyards continued to do well in FY2004. An increase in the number of ships requiring repair

as well as the shipyards’ provision of higher value, high-tech repairs which enabled them to generate increased revenue resulted in better dividends from the two associated companies.

DividendsA dividend of 1 cent per share was approved at the Company’s AGM and EGM on 20 April 2004. A special one-time bonus issue of 1 for every 5 held was also approved. This was a signifi cant improvement in dividend payouts, and refl ected the Company’s expansion of its capital base to enhance the liquidity of the company’s shares.

For FY2004, the directors are recommending a fi rst and fi nal dividend of 2 cents per share. This represents a payout ratio of approximately 32% of the profi ts attributable to the shareholders.

Net borrowingsThe Company enjoyed a cash surplus as a result of a strong cash fl ow from its shipping business and the dividends income derived from its two ship repair associates, COSCO Nantong and COSCO Dalian. The Company’s periodic shipping loans were paid down according to the repayment schedules in order to trim the Company’s borrowings. The sale of an aged dry bulk carrier in the third quarter of FY2004 additionally enabled the Company to reduce its bank borrowings.

Issued capitalThe capital issued in the year under review was S$217 million, an increase of S$38 million from S$179.6 million employed in FY2003. The return on issued capital was 30.5% as compared to 13.5%

38Financial ReviewCOSCO Corporation (Singapore) Limited



39Financial Review


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attained in FY2003. This improvement in return on capital employed is refl ective of the Company’s ability to sustain its yield despite its expansion in the capital base during the year under review.

Financial resourcesBesides good fi nancial health, the Company has established good relations with both local and global fi nancial institutions. As such, the Company enjoys both a good borrowing ability and secured credit facilities, available to the Company for the funding of new investments and other capital requirements. The Company is rigorous in its meeting of payments and honouring of obligations.

Corporation taxIn August 2003, the Company was awarded another ten years of tax exemption by the International Enterprise Singapore (iE Singapore) for its shipping profi ts under the “Approved International Shipping” scheme. Together with the concessionary tax rates enjoyed by COSCO Nantong and COSCO Dalian, this has enabled the Company to enjoy an effective rate much lower than the statutory corporate tax rate of 20%. The Company anticipates that these tax incentives will be sustained in the future.

Redeemable convertible cumulative preference shares (RCCPS)The Company issued 33 million Redeemable Convertible Cumulative Preference Shares (RCCPS) in November 1999. These RCCPS were redeemable at the end of the fi fth year. By the end of the tenor in November 2004, all the RCCPS had been either converted or redeemed. During 2004, a total of 256,548 RCCPS were converted to 1,282,740 Ordinary Shares at the approved conversion ratio of 1 RCCPS to 5 Ordinary Shares of 20 cents each.

Basic earnings per share (EPS)FY2004 recorded an EPS of S$6.1 cents. This was a signifi cant increase of 125% as compared to S$2.7 in FY2003. This was the result of healthy profi ts from both the chartering of the dry bulk carrier fl eet and sustainable profi ts from the ship repair business operated by the Company’s associated shipyard companies. The Company will continue to strive in the generation of quality earnings from its shipping and ship repair businesses in order to deliver strong EPS by developing its ship repair business strategically located along China’s trading coast.

Net asset value per shareIn May 2004, the Company also issued a bonus issue of 1 share for every 5 held, resulting in an expansion of capital base from S$179.6 million to S$217 million The net asset value per share was 29.67 cents on 1,085,471,000 shares. This was a 17.9% increase over a NAV of 25.17 cents per share in 2003. This increase was due to the retained profi ts the Company had built up over the year FY2004.

Gross dividends and dividend coverOver the years, from FY2000 to FY2004, the Company’s paid dividends has progressively increased from 2.5% to 5% with the par value of twenty cent each. Despite a higher dividend payout in the last fi ve years, the Company also improved on its dividend cover over the last three years from 1.1 to 3.0 times. This indicates that the Company is able to deliver quality earnings and distribute more dividends to the shareholders.

Although there is no stated dividend payout policy, the Company endeavours to pay out as much as it can after taking into account the cash fl ow needed to fund its expansion plans.

Bonus issueIn the EGM held on 18 May 2004, the Company’s shareholders approved a bonus issue for 1 share for every 5 held. This rewarded loyal shareholders and compensated them for the low dividend payouts over the past years. Shareholders’ funds and net assetsAt the start of FY2004, shareholders’ funds were S$271.2 million. This grew to S$321.9 million by the end of FY2004. Similarly, over the year under review, the net assets of the Company consolidating from S$273.9 million to S$323.6 million. The increase in shareholders’ funds and total assets are indicators of the Company’s growth.

Return on shareholders’ fundsThe Company fared well, yielding a healthy return of 20.56% on shareholders’ funds in FY2004. This was a remarkable increase as compared to the yield of 8.9% registered in FY2003.


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Simplifi ed group fi nancial positionThe fi nancial position of the company during the year under review was stronger than in the previous year. This refl ects the Company’s effort to divest itself of its non-core businesses and concentrate in its shipping and ship repair activities.

BorrowingsThe total amount of debts owed by the Company as of 31 December 2004 consisted mainly of long term borrowings of S$135.8 million and short term borrowings of S$26.6 million. After deducting cash and near cash equivalents of S$94 million, the Company has a net debt of S$68.4 million.

GearingWith the strong cash fl ow and a net cash balance of S$68.4 million, the gearing ratio stands at 0.2 times over the shareholders’ fund. This is lower than 0.5 times in FY2003.

Financial resourcesThe Group maintained suffi cient cash and cash equivalent, internal generated cash fl ow and access to funding resources through committed banking facilities. The Company maintained fl exibility in funding by ensuring that suffi cient working capital lines were available for its use as and when needed.

RISK MANAGEMENT OPERATIONThe Company takes its operations’ safety measures very seriously. The Company ensures that all safety measures are always in compliance with ISO standards and audits. Spot checks and dialogues at all workplaces are conducted on a regular basis to help maintain high standards of safety.

FinancialRisk management is carried out under policies approved by the Board of Directors. The Board approve guidelines for overall risk management, including policies covering these areas:

Foreign currencies rate riskThe Company monitors its foreign currency exchange risks closely and will use derivative fi nancial instruments to hedge their exposure when the exposure is signifi cant.

Interest rate riskThe Company monitors the interest rates on borrowings closely to ensure that the borrowings are maintained at favourable rates, and will use derivative fi nancial instruments to hedge the exposure when the exposure is signifi cant.

Credit riskThe Company has policies in place to ensure that customers are of adequate fi nancial standing and have appropriate credit history.

Prudent liquidity risk management involves maintaining suffi cient cash and funding through adequate and available credit facilities. Due to the dynamic nature of the Company’s businesses, the Company maintains fl exibility in funding by keeping adequate credit facilities secured with established fi nancial institutions.

40Financial ReviewCOSCO Corporation (Singapore) Limited



41Corporate Governance

COSCO Corporation(Singapore) Limited

CORPORATE GOVERNANCE STATEMENTThis statement describes the corporate governance policies and practices of Cosco Corporation (Singapore) Limited (the “Company”) during the fi nancial year under review. This is in line with the Singapore Exchange Securities Trading Limited (“SGX-ST”) requirement that issuers describe their corporate governance practices with specifi c reference to the Code of Corporate Governance (the “Code”) in their annual reports.

Cosco Corporation (Singapore) Limited (the “Company”) is committed to practising good standards of corporate governance within the Company and its subsidiaries (the “Group”). The Group’s policies and practices are developed in full compliance with statutory and regulatory requirements to enhance transparency and accountability as well as to protect the interests of stakeholders. This is ensured by various self-regulatory and monitoring mechanisms implemented within the Group.

BOARD MATTERSPrinciple 1: The Board’s conduct of its affairs

The principal functions of the Board are to guide the corporate strategy and direction of the Company; to ensure effective management and safeguard the quality and integrity of the leadership, and to provide oversight in the proper conduct of the Company’s business.

The Board comprises nine directors of whom two are executive directors, four are non-executive and three are non-executive independent directors. It also has four alternate directors to represent directors who are stationed overseas. The profi le of the Directors are found on pages 34 and 35 of this Annual Report.

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 Board meets regularly to review the business strategies of the Group, and deliberate upon the tactical decisions of the Company and its subsidiaries including acquisitions and disposals. It also meets to review and approve the annual budget, the performance of the business, and the release of the quarterly and year-end results. . Where necessary, additional board meetings are also held on an ad hoc basis to address signifi cant issues and transactions. The Board also meets to review the internal controls of the company and its subsidiaries, the internal and external audit reports, and executive directors’ remuneration. The Board members’ attendance at Board meetings and Board Committee meetings is shown on page 42.

Besides attendance at formal meetings, a director’s contribution includes the guidance he provides the Management with, as well as the strategic relationships he brings to the Group. Changes to regulations and accounting standards are monitored closely by Management. Directors 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, and are invited to visit the Group’s operations to enrich their understanding of its business operations. The Company’s Articles of Association also provide for at least one third of the Directors to retire from offi ce by rotation at each Annual General Meeting (“AGM”). Retiring directors are eligible for re-election at the AGM.

BOARD COMPOSITION AND BALANCEPrinciple 2: Strong and independent element on the Board

The Board comprises the following members:

1. Capt. Wei Jia Fu (Non-Executive)2. Mr Ji Hai Sheng (Executive)3. Mdm Yao Hong (Executive)4. Mr Li Jian Hong (Non-Executive)5. Mdm Sun Yue Ying (Non-Executive)6. Mr Zhou Lian Cheng (Non-Executive)7. Mr Tom Yee Lat Shing (Non-Executive/Independent)8. Dr Wang Kai Yuen (Non-Executive/Independent)9. Mr Er Kwong Wah (Non-Executive/Independent)10. Mr Gu Qi Chang (Alternate to Mr Wei Jia Fu) Resigned on 31/12/200411. Mr Li Jian Xiong (Alternate to Mr Li Jian Hong)12. Mr Ye Bin Lin (Alternate to Ms Sun Yue Ying)13. Mr Liu De Tian (Alternate to Mr Zhou Lian Cheng)

The majority of the directors are non-executive and independent of management. Together with a clear distinction between the roles of the Chairman and the President, this ensures an appropriate balance of power and authority at the top of the Group.

The current size of the Board is appropriate for the facilitation of decision making. The Board will continue to review the size of the Board on an ongoing basis.

The Board has three board committees, namely an Audit Committee, a Nominating Committee and a Remuneration Committee to assist in the effective discharge of specifi c functions in the Company. All Committees are chaired by an independent Director and consist mainly of independent directors.

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As a team, the Board collectively provides core competencies in the areas of accounting, fi nance, business and management, as well as industry knowledge. The Directors’ academic and professional qualifi cations are shown on pages 34 and 35.

During the year, the Board met, formally, a total of nine times, and also as warranted by particular circumstances or deemed appropriate by the Board members.

Directors’ attendance at meetings of the Board and other Committees during the year is as follows:

Name Board Audit Nominating Remuneration

Committee Committee Committee

Number of Meetings held: 9 Number of Meetings held: 5 Number of Meetings held: 1 Number of Meetings held: 2

Number of Meetings attended Number of Meetings attended Number of Meetings attended Number of Meetings attended

Wei Jia Fu – NA NA NA

Sun Yue Ying – NA NA NA

Ji Hai Sheng 9 NA 1 2

Yao Hong 8 NA NA NA

Zhou Lian Cheng – NA NA NA

Li Jian Hong – NA NA NA

Tom Yee Lat Shing 8 5 1 2

Dr Wang Kai Yuen 8 5 1 2

Er Kwong Wah 7 5 1 2

Gu Qi Chang

(Alternate to Wei Jia Fu) 4 NA NA NA

Ye Bin Lin

(Alternate to Sun Yue Ying) 9 4 NA NA

Liu De Tian

(Alternate to Zhou Lian Cheng) 9 NA NA NA

Li Jian Xiong

(Alternate to Li Jian Hong) 8 NA NA NA

NA: Not Applicable

CHAIRMAN AND CHIEF EXECUTIVE OFFICERPrinciple 3: Clear division of responsibilities at the top of the Company

There is a clear division of responsibility between the Chairman and the President.

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.

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42Corporate Governance COSCO Corporation (Singapore) Limited





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BOARD MEMBERSHIPPrinciple 4: Formal and transparent process for appointment of new directors

To create a formal and transparent process for the appointment of new directors, the Board has formed a Nominating Committee. This comprises the following members, a majority of whom, including the Chairman, are independent:

Dr Wang Kai Yuen (Chairman) (Non-executive/Independent)Mr Ji Hai Sheng (Executive/Non-Independent)Mr Tom Yee Lat Shing (Non-executive/Independent)Mr Er Kwong Wah (Non-executive/Independent)

The role of the Nominating Committee is to make recommendations to the Board on all Board appointments. The Nominating Committee is responsible for re-nominating directors after reviewing their performance and contribution to the effectiveness of the Board. In addition, the Nominating Committee reviews and determines annually whether or not a director is independent, and makes the appropriate disclosures.

In accordance with the Company’s Articles of Association, one-third of our directors retire by rotation and subject themselves to re-election at every AGM. The President who is a member of the Board must also subject himself to retirement by rotation and re-election by shareholders. This is to ensure that no director stays in offi ce for more than three years without being re-elected by shareholders, and to enable shareholders to exercise their right to scrutinise and select all Board members.

The Nominating Committee held one meeting during the year under review.

BOARD PERFORMANCEPrinciple 5: Formal assessment of the effectiveness of the Board and contributions of each director

The Board’s performance is ultimately refl ected in the performance of the Company. In addition to its fi duciary duties, the Board is charged with setting the strategic direction of the Company, and ensuring that the Company is ably managed.

The Nominating Committee uses objective and appropriate quantitative and qualitative criteria to assess the performance of individual directors, and the Board as a whole. Assessment parameters include the attendance records of the directors at Board or Committee meetings, the level of participation at such meetings,the quality of Board processes and the business performance of the Group.

ACCESS TO INFORMATIONPrinciple 6: Provision of Board members with complete, adequate and timely information

Board members are provided with management information pertaining to such areas as detailed divisional performance, variance analysis, budgets, forecasts, the funding positions and cashfl ow 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, who is responsible to the Board for ensuring that board procedures are followed and that applicable rules and regulations are complied with. The Company Secretary is present at all Board meetings. 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.

REMUNERATION MATTERSPrinciple 7: Procedures for developing remuneration policiesPrinciple 8: Level and mix of remunerationPrinciple 9: Disclosure on remuneration

The Board has formed a Remuneration Committee comprising the following members, a majority of whom are independent of management and free from any business or other relationship:

Mr Er Kwong Wah (Chairman) (Non-executive/Independent)Mr Ji Hai Sheng (Executive/Non-Independent)Mr Tom Yee Lat Shing (Non-executive/Independent)Dr Wang Kai Yuen (Non-executive/Independent)

The Remuneration Committee held two meetings during the year under review.

The Remuneration Committee is also responsible for the administration of the Cosco Group Employees’ Share Option Schemes of the Company.

Details of the Cosco Group Employees’ Share Option Schemes are found in the Directors’ Report.

The role of the Remuneration Committee is to recommend to the Board, in consultation with the Chairman of the Board, a framework of remuneration for the Board and key executives, and to determine specifi c remuneration packages for each executive director.


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In its review, the Remuneration Committee’s objective is to establish and maintain a level of remuneration that would be appropriate to attract, retain and motivate the directors and key executives to run the Company successfully.

The Company currently adopts a remuneration policy for staff consisting of a fi xed component and a variable component. The fi xed component is in the form of a base 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 Schemes.

The remuneration of non-executive directors is determined by the Chairman together with the other executive directors, and is based on the effort and time spent and the responsibilities of the non-executive directors.

Non-executive directors are paid a basic fee and additional fees for serving on any of the Board Committees. The Chairman of each of these committees is compensated for his additional responsibilities. Such fees are approved by the shareholders of the Company as a lump sum payment at the AGM of the Company.

The details of the remuneration of the Directors and key executives are as follows:

DIRECTORS’ REMUNERATION Benefi ts

Other from Stock

Fees Salary Bonus Benefi ts Option Total Remark

Executive Director above the Band of S$750,000 Note 2

Ji Hai Sheng 16.75% 22.91% 12.08% 16.94% 31.32% 100%

Executive Directors in the Band of S$500,000 to S$750,000

Li Jian Xiong 8.97% 25.04% 13.55% 16.79% 35.65% 100%Ye Bin Lin 14.36% 25.34% 13.00% 11.23% 36.07% 100% Yao Hong 1.88% 27.05% 13.89% 18.67% 38.51% 100%

Executive Director above the Band of S$250,000

Liu De Tian – 29.00% 17.50% 15.00% 38.50% 100%

Non Executive Director in the Band of S$250,000 to S$500,000 Zhou Lian Cheng NA NA NA NA 100% 100% 500,000 shares were exercised in 2004

Non Executive Directors below the Band of S$250,000

Wei Jia Fu NA NA NA NA Note 1 NA Has not exercised the share options

Sun Yue Ying NA NA NA NA Note 1 NA Has not exercised the share options

Li Jian Hong NA NA NA NA Note 1 NA Has not exercised the share options

Independent Directors in the Band Below S$250,000

Tom Yee Lat Shing 100% NA NA NA Note 1 100% Has not exercised the share options

Dr Wang Kai Yuen 100% NA NA NA Note 1 100% Has not exercised the share options

Er Kwong Wah 100% NA NA NA Note 1 100% Has not exercised the share options

Executive in the Band of S$250,000 – S$500,000 Teo Chuan Teck – 39.10% 15.30% 2.60% 43.00% 100%

Note 1No benefi ts have been received as the stock options were not exercised in the year.Note 2Share options granted and accepted in 2004 are not refl ected as they exercisable after 2004.






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ACCOUNTABILITY AND AUDITPrinciple 10: Accountability of the Board and management

The Company has adopted quarterly results reporting since the fi rst quarter of 2003. The Company holds a media and analysts briefi ng of its quarterly, half-year and full-year results. The results are published through MASNET/SGXNET and news releases. All information on the Company’s new initiatives is fi rst disseminated via MASNET/SGXNET, and subsequently via press releases.

The Company communicates with its investors on a regular basis through press releases. All shareholders of the Company receive the annual report and notice of AGM. Notices for shareholders meetings are advertised in newspapers and made available on MASNET/SGXNET.

At General Meetings, shareholders are given the opportunity to express their views and ask Directors or the Management questions regarding the Company and the Group.

AUDIT COMMITTEEPrinciple 11: Establishment of Audit Committee with written terms of reference

The Audit Committee comprises the following members:

Mr Tom Yee Lat Shing (Non-executive/Independent)(Chairman) Dr Wang Kai Yuen (Non-executive/Independent)Mr Er Kwong Wah (Non-executive/Independent)Mdm Sun Yue Ying (Non-executive)(Alternate: Ye Bin Lin)

The role of the Audit Committee is to assist the Board of Directors in the execution of its corporate governance responsibilities within the established Board references and requirements.

The fi nancial statements, accounting policies and system of internal accounting controls are the responsibilities of the Board of Directors acting through the Audit Committee. In performing its functions during the year under review, the Audit Committee reviewed thesope of work of both internal and external auditors and the assistance given by the Company’s offi cers to the audits. It met with the Company’s internal and external auditors, without the presence of the Management, to review their audit plans and discuss the results of their respective examinations and their evaluation of the Group’s system of internal accounting controls. The Audit Committee also reviewed the fi nancial statements of the Group for

the fi nancial year ended 31 December 2004 as well as the auditors’ report thereon and the fi rst quarter, half-yearly, third quarter and annual results announcements, before they were submitted to the Board for approval. The Audit Committee also, on a quarterly basis, reviewed the recurrent interested persons transactions of the Group. This was to ensure that the methods or procedure for determining the transaction prices have not changed since the last shareholder approval and that the methods or procedures are suffi cient to ensure that the transactions are carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its shareholders.

The Audit Committee has full access to, and cooperation from the Management including internal and external auditors, and has fulldiscretion to invite any director and executive offi cer to attend itsmeetings. The Audit Committee 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 Audit Committee met a total of fi ve times during the year under review. All members were present during these meetings.

The Audit Committee, having reviewed the amount of non-audit services to the Group by the external auditors, is satisfi ed 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.

INTERNAL CONTROLSPrinciple 12: Sound system of 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.

With the assistance of Internal Audit, the Audit Committee and the Board of Directors review the effectiveness of the key internal controls, including fi nancial, 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 fi ndings and recommendations to the Audit Committee.

The Board is satisfi ed that there are adequate internal controls in the Group.


INTERNAL AUDITPrinciple 13: Internal Audit

The Group recognises the importance of the internal audit function which, being independent of Management, is one of the principal means by which the Audit Committee is able to carry out its responsibilities effectively.

The Group outsources its internal audit functions to the fi rm Foo, Kon & Tan Consultants Pte Ltd. Based on its review, the Audit Committee believes that the internal auditor is independent and has the appropriate standing to perform its function effectively.The internal auditor plans its internal audit schedules in consultation with Management and submits its plan to the Audit Committee for approval.

The Audit Committee meets with the internal auditor at least once a year without the presence of Management.

The Internal Auditors report directly to the Audit Committee.

COMMUNICATION WITH SHAREHOLDERSPrinciple 14: Regular, effective and fair communication with shareholdersPrinciple 15: Shareholder participation at General Meetings

The Group strives for timeliness and transparency in its disclosures to the shareholders and the public. In addition to the regular dissemination of information through MASNET/SGXNET, the Company also responds to enquiries from investors, analysts, fund managers and the press. Price-sensitive information is always released on MASNET/SGXNET after the trading hours of the Singapore Exchange Securities Trading Limited.

At General Meetings, shareholders are given the opportunity to express their views and ask the Board questions regarding the operations of the Group.

Securities transactions and compliance with the Best Practices GuideIn line with SGX Best Practices Guide on dealings in securities, the Company has adopted an internal compliance code which mirrors substantially the provisions of the Best Practices Guide in the Listing Manual to provide guidance to its directors and offi cers in relation to dealings in its securities.

The Company issues circulars to its Directors, principal offi cers and relevant offi cers who have access to unpublished material price-sensitive information to remind them that they are required to report on their dealings in shares of the Company. They are also reminded of the prohibition in dealings in shares of the Company the month before the release of the quarterly, half yearly and year-end fi nancial results and ending on the date of the announcement of the relevant results, and if they are in possession of unpublished material price-sensitive information.

The Board of Directors confi rms that for the fi nancial year ended 31 December 2004, the Company complied with the principal corporate governance recommendations set out in the Best Practices Guide issued by SGX.

Interested Person Transactions (IPT)The Audit Committee having considered, amongst others, the scope guidelines, review procedures and benefi ts of the IPT Mandate, is satisfi ed that the procedure for determining the transactions prices have not changed since the last shareholders’ approval on 20 April 2004, and are also adequate in ensuring that the IPTs will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders.

The Committee reviewed the IPT Mandate which is subject to renewal, and is satisfi ed that the review procedures for IPTs and the reviews to be made periodically by the Audit Committee 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.

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Interested person transactions for FY2004 are as follows:

Name of Interested Person Aggregate value of all interested

person transactions conducted

under shareholders’ mandate

pursuant to Rule 920 (excluding

transactions less than $100,000)

S$’000

FY2004

Between Subsidiaries and:

Cosco Container Lines 13,674 Cosco Bulk Carrier Co. 208Cosco Chartering and Shipbroking (UK) Ltd 9,007 Guangzhou Ocean Crew Co. 1,759 Nantong Cosco KHI Engineering Co., Ltd 9,390Qingdao Ocean Crew Co. 1,289 Shanghai Ocean Crew Co. 2,199 Chimbusco (S) Pte Ltd 113 37,639

Between Associated companies of the Group and:

Cosco Shipyard Group Co., Ltd 3,635 Cosco Nantong Steel Co., Ltd 470Cosco Bulk Carrier Co. 2,980Cosco Dalian 1,850Cosco Hongkong 1,367Cosco Container Lines 1,029 Rikky Ocean Governor Nantong Co. Ltd 258Diesel Marine Nantong Ltd 114Nantong Cosco Clavon 852 Antisepsis Engineering Ltd 12,555

Risk ManagementThe Group regularly reviews and improves its business and operational activities to identify areas of signifi cant business risk as well as take appropriate measures to control and mitigate these risks. The Group reviews all signifi cant control policies and procedures and highlights all signifi cant matters to the Audit Committee and the Board. The fi nancial risk management objectives and policies are outlined in Note 32 of the notes to the fi nancial statements.

COSCO CORPORATION (SINGAPORE) LIMITIED REPORT OF CORPORATE GOVERNANCE ACTIVITIES IN 2004The Board of Directors of the Company held a total of nine board meetings during the year. These meetings were held to approve the release of the full year and the quarterly results, to review interested person transactions as well as to consider major acquisitions.

The Audit Committee, chaired by Mr Tom Yee Lat Shing, held fi ve meetings during the year. It reviewed and recommended to the Board the release of the year-end and quarterly fi nancial results, considered and approved the 2004 External and Internal Audit Plans and reviewed, on a quarterly basis, the details of Interested Persons Transactions and ensured that the relevant rules under Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited were complied with.

The Audit Committee met with the external and internal auditors in the absence of Management to discuss issues relating to the audit of the 2004 accounts.

The Audit Committee reviewed the non-audit services provided by the external auditors which comprises tax services and is satisfi ed with the independence of the external auditors.

The Nominating Committee, chaired by Dr Wang Kai Yuen, held one meeting during the year to consider the form and guidelines to evaluate the performance of the Board as a whole as well as the performance of the individual Directors, to recommend to the Board the re-nomination of Directors who are retiring by rotation and to recommend the re-appointment of Mr Tom Yee Lat Shing, pursuant to Section 153 (6) of the Companies Act, Cap. 50 for shareholders approval at the AGM.

The Remuneration Committee, chaired by Mr Er Kwong Wah, held two meetings during the year to consider, determine and recommend to the Board the matrix for Directors’ fees and the compensation packages and incentive plans for key executive positions. As part of the incentive package, the Committee also granted share options under the Cosco Group Employees’ Share Option Scheme 2002.

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INVESTOR RELATIONSCOSCO Corporation is committed to providing timely, accurate and clear information to investors, analysts and fund managers. This is to enable them to effectively evaluate the investment merits of the Company. The Company is focused on achieving the highest standards in corporate governance and transparency.

COSCO Corporation’s senior management takes an active interest in investor relations and communicates regularly with investors, analysts and fund managers through a variety of means. These include frequently updated corporate brochures, corporate and fi nancial results announcements and news releases distributed by fax and mail. These are also made available on the COSCO Corporation website for convenient access and downloading. The media, fund managers and analysts are invited to our quarterly results presentations. At these meetings, our senior management provides updates on the Company’s plans, fi nancial and operational performance, and business environment.

AGMs and EGMs additionally provide an opportunity to gather feedback from investors through question-and-answer sessions that facilitate discussions between the directors and management of COSCO Corporation and the investment community.

The Company’s annual report aims to give investors a deeper understanding of the Company’s business, growth strategies and fi nancial and operational performance. To ensure the timely reception of the annual report by our overseas investors, the annual report is posted online on our corporate website in tandem with its distribution in Singapore.

During the year under review, COSCO Corporation participated in 82 investor meetings. The Company also participated in investor conferences in New York, Boston, Chicago, Washington DC, Arlington, San Francisco, Frankfurt, Luxembourg, Amsterdam, London, Hong Kong, Beijing and Singapore. Analysts and fund managers also visited our shipyards in China for a better understanding of our operations.

In addition, COSCO Corporation’s President was frequently interviewed on television news and business programmes on Bloomberg TV and MediaCorp’s Channel News Asia, as well as newspapers and magazines such as The Edge, The Straits Times, Business Times and Lianhe Zaobao, and newswire services, Reuters and Dow Jones.

Looking ahead, COSCO Corporation will continue to maintain clear dialogue with its investors, analysts and fund managers so as to sustain high standards of corporate governance and transparency, and to ensure that the Company consistently acts in the best interests of its shareholders.

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Contents 50 Directors’ Report

55 Statement by Directors

56 Auditors’ Report to The Members of


57 Consolidated Income Statement

58 Balance Sheets

59 Consolidated Statement of Changes in Equity

60 Consolidated Cash Flow Statement

62 Notes to the Financial Statements

113 Five-Year Summary

114 Disclosure Requirements Under Listing Manual

116 Notice of Annual General Meeting

119 Proxy Form for Annual General Meeting

49Financial StatementsCOSCO Corporation(Singapore) Limited

For the fi nancial year ended 31 December 2004

Reg. No: 196100159G


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The directors present their report to the members together with the audited fi nancial statements of the Group for the fi nancial year ended 31 December 2004 and the balance sheet of the Company as at 31 December 2004.

DirectorsThe directors of the Company in offi ce at the date of this report are:

Wei Jia FuLi Jian HongSun Yue YingJi Hai ShengYao HongZhou Lian ChengYe Bin Lin (alternate director to Sun Yue Ying)Wang Kai YuenTom Yee Lat ShingLi Jian Xiong (alternate director to Li Jian Hong)Er Kwong WahLiu De Tian (alternate director to Zhou Lian Cheng)

Arrangements to enable directors to acquire shares and debenturesNeither at the end of nor at any time during the fi nancial year was the Company a party to any arrangement whose object is to enable the directors of the Company to acquire benefi ts by means of the acquisition of shares in, or debentures of, the Company or any other body corporate, other than as disclosed in the paragraph on “Share Options”.

Directors’ interests in shares and debentures(a) According to the register of directors’ shareholdings, none of the directors holding offi ce at the end of the fi nancial year had

any interest in the share capital of the Company and related corporations, except as follows:

Holdings registered Holdings in which in the name of a director is deemed director or nominee to have an interest

At 31.12.2004 At 1.1.2004 At 31.12.2004 At 1.1.2004

The Company (ordinary shares of $0.20 each)

Ji Hai Sheng 720,000 300,000 – – Yao Hong 300,000 – – – Ye Bin Lin 600,000 250,000 – – Wang Kai Yuen – – 340,000 200,000 Li Jian Xiong 600,000 250,000 – – Er Kwong Wah – – 12,000 10,000 Liu De Tian 354,000 120,000 – –


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50Directors’ ReportFor the fi nancial year ended 31 December 2004



Directors’ interests in shares and debentures (continued)

(b) According to the register of directors’ shareholdings, certain of the directors holding offi ce at the end of the fi nancial year had interests in options to subscribe for ordinary shares of the Company granted pursuant to the Cosco Group Employees’ Share Option Schemes as set out below and in the paragraphs on “Share Options”.

Number of unissued ordinary shares of $0.20 each under option held by director

At 31.12.2004 At 1.1.2004

2002 Options

Wei Jia Fu 350,000 350,000 Li Jian Hong 200,000 200,000 Sun Yue Ying 250,000 250,000 Zhou Lian Cheng – 250,000 2003 Options

Wei Jia Fu 350,000 350,000 Li Jian Hong 250,000 250,000 Sun Yue Ying 250,000 250,000 Ji Hai Sheng – 300,000 Yao Hong – 250,000 Zhou Lian Cheng – 250,000 Ye Bin Lin – 250,000 Li Jian Xiong – 250,000 Liu De Tian – 175,000 2004 Options

Wei Jia Fu 700,000 – Li Jian Hong 500,000 – Sun Yue Ying 500,000 – Ji Hai Sheng 600,000 – Yao Hong 500,000 – Zhou Lian Cheng 500,000 – Ye Bin Lin 500,000 – Li Jian Xiong 500,000 – Liu De Tian 500,000 – Tom Yee Lat Shing 500,000 – Er Kwong Wah 500,000 – Wang Kai Yuen 500,000 –

(c) The directors’ interests in the shares of the Company at 21 January 2005 were the same as 31 December 2004.

Directors’ contractual benefi tsSince the end of the previous fi nancial year, no director has received or become entitled to receive a benefi t by reason of a contract made by the Company or a related corporation with the director or with a fi rm of which he is a member or with a company in which he has a substantial fi nancial interest, other than as disclosed in the fi nancial statements and in this report, and except that certain directors have employment relationships with the ultimate holding corporation or related corporations and have received remuneration in those capacities.

51Directors’ Report



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Share options

(a) Cosco Group Employees’ Share Option Scheme (“Scheme”) (i) The Cosco Group Employees’ Share Option Scheme (the “Scheme”) was approved by the members of the Company at an

Extraordinary General Meeting on 13 May 1995.

(ii) Particulars of the options granted pursuant to the Scheme in 1999 known as the “1999 Options” were set out in the Directors’ Report for the fi nancial year ended 31 December 1999. The 1999 Options expired on 30 September 2004.

(iii) No share options were granted in 2000 and 2001. (b) Cosco Group Employees’ Share Option Scheme (“Scheme 2002”) (i) The Cosco Group Employees’ Share Option Scheme (the “Scheme 2002”) was approved by the members of the Company at an

Extraordinary General Meeting on 8 May 2002.

(ii) Particulars of the options granted pursuant to the Scheme 2002 in 2002 and 2003 known as “2002 Options” and “2003 Options” respectively were set out in the Directors’ Report for the fi nancial years ended 31 December 2002 and 31 December 2003

respectively.

(iii) During the fi nancial year, options were granted pursuant to the Scheme 2002 in respect of 15,340,000 unissued ordinary shares of $0.20 each in the Company hereinafter called the “2004 Options” at an exercise price of $0.735 per share to eligible employees of the Group.

Statutory information regarding the 2004 Options is as follows:

– The options are exercisable from 24 May 2005 and expires on 23 May 2014. – The options may be exercised in full or in multiples of 1,000 shares, on the payment of the exercise price. – The persons to whom the options have been issued have no right to participate by virtue of the options in any share issue of

any other company.

(iv) The Remuneration Committee administering the share option schemes comprises the following directors: Er Kwong Wah (Chairman) Ji Hai Sheng Wang Kai Yuen Tom Yee Lat Shing


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Share options (continued)

(b) Cosco Group Employees’ Share Option Scheme (“Scheme 2002”) (continued) (v) Options granted to directors of the Company (as defi ned in the Singapore Exchange Limited Listing Manual) are as follows:

Aggregate Aggregate Aggregate Options options options options Aggregate granted for granted since exercised since lapsed since options fi nancial year commencement commencement commencement outstanding ended of scheme to of scheme to of scheme to as at

Name of participant 31.12.2004 31.12.2004 31.12.2004 31.12.2004 31.12.2004

Directors of the Company

Wei Jia Fu 700,000 1,400,000 – – 1,400,000 Li Jian Hong 500,000 950,000 – – 950,000 Sun Yue Ying 500,000 1,000,000 – – 1,000,000 Ji Hai Sheng 600,000 1,200,000 600,000 – 600,000 Yao Hong 500,000 750,000 250,000 – 500,000 Zhou Lian Cheng 500,000 1,000,000 500,000 – 500,000 Ye Bin Lin 500,000 1,000,000 500,000 – 500,000 Wang Kai Yuen 500,000 500,000 – – 500,000 Tom Yee Lat Shing 500,000 500,000 – – 500,000 Li Jian Xiong 500,000 1,000,000 500,000 – 500,000 Er Kwong Wah 500,000 500,000 – – 500,000 Liu De Tian 500,000 935,000 435,000 – 500,000

6,300,000 10,735,000 2,785,000 – 7,950,000

No employee has received 5% or more of the total options available under the Scheme and Scheme 2002.

No option has been granted to controlling shareholders of the Company or their associates.

No option has been granted at a discount during the fi nancial year.

53Directors’ Report



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Share options (continued)

(b) Cosco Group Employees’ Share Option Scheme (“Scheme 2002”) (continued) There were no unissued shares of the subsidiaries under option at the end of the fi nancial year.

(c) Options outstanding The options on ordinary shares of the Company outstanding at the end of the fi nancial year were as follows:

Number Options relating Number Number cancelled/ to Cosco Group Number issued exercised lapsed Number Employees’ outstanding during the during the during the outstanding Share Option at fi nancial fi nancial fi nancial at Exercise Scheme 1.1.2004 year year year 31.12.2004 price Exercise period

$

1999 Options 80,000 – 80,000 – – 0.2288 30.9.2000 – 29.9.2004 2002 Options 1,395,000 – 595,000 – 800,000 0.20 12.8.2003 – 11.8.2012 2003 Options 5,115,000 – 4,195,000 – 920,000 0.20 1.4.2004 – 31.3.2013 2004 Options – 15,340,000 – 930,000 14,410,000 0.735 24.5.2005 – 23.5.2014

6,590,000 15,340,000 4,870,000 930,000 16,130,000

Auditors The auditors, PricewaterhouseCoopers, have expressed their willingness to accept re-appointment.

On behalf of the directors

JI HAI SHENG YAO HONGDirector Director

23 March 2005


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In the opinion of the directors,

(a) the balance sheet of the Company and the consolidated fi nancial statements of the Group as set out on pages 57 to 112 are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group at 31 December 2004 and of the results of the business, changes in equity and cash fl ows of the Group for the fi nancial year then ended; and

(b) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.

On behalf of the directors

JI HAI SHENG YAO HONGDirector Director

23 March 2005

55Statement By Directors



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We have audited the accompanying fi nancial statements of Cosco Corporation (Singapore) Limited set out on pages 57 to 112 for the fi nancial year ended 31 December 2004, comprising the balance sheet of the Company and the consolidated fi nancial statements of the Group. These fi nancial statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on these fi nancial statements based on our audit.

We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan and perform our audit to obtain reasonable assurance whether the fi nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by the directors, as well as evaluating the overall fi nancial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion,

(a) the accompanying balance sheet of the Company and the consolidated fi nancial statements of the Group are properly drawn up in accordance with the provisions of the Companies Act, Cap. 50 (“the Act”) and Singapore Financial Reporting Standards so as to

give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2004, and the results, changes in equity and cash fl ows of the Group for the fi nancial year ended on that date; and

(b) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

PricewaterhouseCoopersCertifi ed Public Accountants

Singapore,

23 March 2005


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56Auditors’ Report To The Members of COSCO Corporation (Singapore) Limited



The Group

2004 2003 Notes $ $

Revenue 3 116,345,552 91,942,280Cost of sales (58,841,620) (56,337,269)

Gross profi t 57,503,932 35,605,011 Other operating income 3 3,999,888 1,496,283Distribution costs (1,052,586) (1,272,555)Administrative expenses (12,526,996) (11,155,114)Other operating expenses (289,790) (1,164,927)Exceptional gain 4 448,307 340,363

Profi t from operations 5 48,082,755 23,849,061 Finance costs-net 6 (10,766,596) (10,781,180)Share of results of associated companies before tax 16 36,433,865 17,577,661Amortisation of goodwill on acquisition of an associated company 16 (578,154) (578,154)

Profi t before tax 73,171,870 30,067,388 Income tax expense 9 (6,142,167) (4,918,626)

Profi t from ordinary activities after tax 67,029,703 25,148,762 Minority interest (830,616) (862,128)

Net profi t for the fi nancial year 66,199,087 24,286,634

Earnings per share (cents) 10 – Basic 6.11 2.70– Diluted 6.10 2.69

The accompanying notes form an integral part of these fi nancial statements.

Auditors’ Report – Page 56.

57Consolidated Income Statement



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The Group The Company

Notes 2004 2003 2004 2003 $ $ $ $

ASSETS Current assets Cash and cash equivalents 11 94,046,358 86,124,150 41,953,900 53,406,818Trade and other receivables 12 20,082,302 22,199,567 16,941,287 2,356,438Trading property 13 23,215,000 615,000 – –Income tax recoverable 9 73,338 271,920 – –

137,416,998 109,210,637 58,895,187 55,763,256

Non-current assets Non trade receivables 14 1,676,711 1,064,245 846,921 200,000Other investments 15 503,371 557,542 150,000 200,000Investments in associated companies 16 83,167,698 69,809,936 55,966,592 58,211,632Investments in subsidiaries 17 – – 141,307,704 171,054,249Investment properties 18 – 30,275,361 – –Property, plant and equipment 19 321,293,726 352,773,945 381,298 472,794Deferred income tax assets 20 – 201,001 – –

406,641,506 454,682,030 198,652,515 230,138,675

Total assets 544,058,504 563,892,667 257,547,702 285,901,931

LIABILITIES Current liabilities Trade and other payables 21 49,599,673 54,170,128 9,097,939 20,398,224Borrowings 22 26,597,873 43,316,530 500,000 5,068,203Provision for other liabilities and charges 26 2,466,343 2,288,361 – –Current income tax liabilities 9 1,670,470 1,519,246 655,354 616,248

80,334,359 101,294,265 10,253,293 26,082,675

Non-current liabilities Provision for other liabilities and charges 26 4,125,325 4,493,525 96,800 107,360Borrowings 22 135,805,044 183,921,909 – 26,868,854Deferred income tax liabilities 20 229,906 251,628 – –

140,160,275 188,667,062 96,800 26,976,214

Total liabilities 220,494,634 289,961,327 10,350,093 53,058,889

NET ASSETS 323,563,870 273,931,340 247,197,609 232,843,042

EQUITY Share capital 27 217,029,495 179,647,532 217,029,495 179,647,532Translation Reserves (13,845,047) (4,643,236) – –Other Reserves 28 3,435,180 30,423,224 537,215 27,498,759Retained earnings 115,308,141 65,866,031 29,630,899 25,696,751

Shareholders’ equity 321,927,769 271,293,551 247,197,609 232,843,042Minority interest 1,636,101 2,637,789 – –

323,563,870 273,931,340 247,197,609 232,843,042




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58Balance SheetsAt at 31 December 2004



Share Translation Other Retained Notes capital reserves reserves profi ts Total $ $ $ $ $

Balance at 1 January 2004 179,647,532 (4,643,236) 30,423,224 65,866,031 271,293,551 Net loss not recognised in income statement– foreign currency translation differences – (9,695,711) – – (9,695,711)Net profi t for the fi nancial year – – – 66,199,087 66,199,087 Total recognised losses and gains for the fi nancial year – (9,695,711) – 66,199,087 56,503,376 Transfer from retained profi ts to statutory reserve 28 – 493,900 (26,500) (467,400) – Dividend for 2003 29 – – – (7,230,284) (7,230,284) Issuance of share capital 27, 28 974,000 – 2,304 – 976,304 Bonus issue of 1 ordinary share for every 5 existing ordinary shares of $0.20 each 27, 28 36,151,415 – (27,092,122) (9,059,293) – Conversion of Redeemable Convertible Cumulative Preference Shares (“RCCPS”) 27, 28 256,548 – 128,274 – 384,822

Balance at 31 December 2004 217,029,495 (13,845,047) 3,435,180 115,308,141 321,927,769

Balance at 1 January 2003 124,945,462 (228,784) 11,253,514 48,372,809 184,343,001 Net loss not recognised in income statement – foreign currency translation differences – (4,414,452) – – (4,414,452)Net profi t for the fi nancial year – – – 24,286,634 24,286,634 Total recognised losses and gains for the fi nancial year – (4,414,452) – 24,286,634 19,872,182 Transfer from retained profi ts to statutory reserve 28 – – 3,382,401 (3,382,401) – Dividend for 2002 29 – – – (3,411,011) (3,411,011) Issuance of share capital 27, 28 21,542,000 – (426,160) – 21,115,840 Conversion of Redeemable Convertible Cumulative Preference Shares (“RCCPS”) 27, 28 33,160,070 – 16,213,469 – 49,373,539

Balance at 31 December 2003 179,647,532 (4,643,236) 30,423,224 65,866,031 271,293,551



59Consolidated Statement of Changes in Equity



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2004 2003 Notes $ $

Cash fl ows from operating activities Profi t before tax and share of results of associated companies 37,316,159 13,067,881Adjustments for: – Depreciation of property, plant and equipment 23,535,368 23,461,588– Depreciation of investment properties 113,550 151,400– Impairment in value of transferable country club memberships 50,000 35,785– Gain on disposal of property, plant and equipment (8,010,118) (46,195)– Property, plant and equipment written off 239,790 7,683– Preference shares dividend (fi nancing) 5,723 1,041,004– Interest expense (fi nancing) 9,854,093 9,766,899– Interest income (investing) (597,104) (202,746)– Impairment in value on completed properties for sale – 9,368,000– Impairment in value of trading properties 1,200,000 15,000– Impairment in value of investment properties 6,361,810 –– Goodwill written off (273,586) –– Gain on disposal of subsidiaries – (23,132)

Operating cash fl ow before working capital changes 69,795,685 56,643,167Changes in operating assets and liabilities, net of effects from disposal of subsidiaries: – Trade and other receivables (3,725,018) 7,275,742– Trade and other payables 7,175,884 1,724,307– Exchange differences (2,262,040) (1,294,271)

Cash generated from operations 70,984,511 64,348,945Income tax paid (863,257) (1,543,900)

Net cash from operating activities 70,121,254 62,805,045

Cash fl ows from investing activities Net cash outfl ow from disposal of subsidiaries – (2,181,006)Proceeds from disposal of property, plant and equipment 18,411,590 187,336Purchase of property, plant and equipment (8,586,702) (31,546,425)Purchase of associated companies – (18,244,742)Deferred expenditure incurred (215,375) –Interest received 598,700 204,127Purchase of transferable club memberships – (115,743)Dividend income received from associated companies 14,543,433 3,777,711Payment to minority shareholder for acquisition of additional investment in subsidiary (800,000) –

Net cash from/(used in) investing activities 23,951,646 (47,918,742)




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60Consolidated Cash Flow StatementFor the fi nancial year ended 31 December 2004



2004 2003 Notes $ $

Cash fl ows from fi nancing activities Repayments of borrowings (56,977,996) (48,343,537)Proceeds from borrowings 13,000,000 26,852,100Repayments of fi nance lease liabilities (23,328) (20,328)Decrease in cash collateral 87,206 564,807(Payment in settlement of non-trade payables to related corporations)/ repayments of loans by related corporations (13,956,929) 58,691,472Dividends paid to shareholders of the Company (7,230,284) (3,411,011)Dividends paid to holders of RCCPS (6,459) (1,228,568)Dividends paid to minority shareholders of subsidiaries (746,429) (738,326)Repayment of loan from previous immediate holding company – (6,924,430)Proceeds from issuance of ordinary shares 976,304 21,115,840Interest paid (8,612,411) (8,747,571)Redemption of RCCPS (54,997) –

Net cash (used in)/from fi nancing activities (73,545,321) 37,810,448

Net increase in cash and cash equivalents held 20,527,577 52,696,751Cash and cash equivalents at beginning of fi nancial year 70,798,613 18,101,862

Cash and cash equivalents at end of fi nancial year 11 91,326,190 70,798,613



61Consolidated Cash Flow Statement



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These notes form an integral part of and should be read in conjunction with the accompanying fi nancial statements.

1. General

Cosco Corporation (Singapore) Limited, (the “Company”) is incorporated and domiciled in Singapore and its shares are publicly traded on the Singapore Exchange. The address of its registered offi ce is as follows:

9 Temasek Boulevard, #07-00 Suntec City Tower 2, Singapore 038989.

The principal activities of the Company are those of investment holding and provision of management services to the subsidiaries. The principal activities of its subsidiaries are set out in note 17(b) to the fi nancial statements.

2. Signifi cant accounting policies

(a) Basis of preparation The fi nancial statements have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”). The fi nancial

statements have been prepared under the historical cost convention.

The preparation of fi nancial statements in conformity with FRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the fi nancial statements and the reported amounts of revenues and expenses during the fi nancial year. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates.

(b) Revenue recognition

(1) Rendering of services Revenue comprises time charter revenue and voyage freight, shipping agency income, ship repairs and fabrication service

income and rental income, net of goods and services tax, rebates and discounts, and after eliminating sales within the Group.

(i) Shipping

Income from voyage charter is recognised when a voyage is completed based on the complete discharge of cargoes at the last port of call whilst income from time charter is recognised over the period of the time charter agreement on an accrual basis. Any losses arising from voyage or time charters are provided for in full as soon as they are anticipated.

Booking commissions, agency and transhipment fees are recognised upon the rendering of services to vessels.

Revenue from freight forwarding, transport agency and feeder services are recognised when the service is rendered.

(ii) Ship repairing and marine related activities

Revenue from ship repairing, marine engineering, container repairs and services, fabrication work services and production of marine outfi tting components for short-term project is recognised upon completion of the job as certifi ed by the service engineers. For long-term project, revenue is recognised on the percentage of completion method based on progress of the contract work, where the outcome of the contract can be estimated reliably. If the contract covers a number of projects and

the cost and revenue of such individual projects can be identifi ed within the terms of the overall contract, each such project is treated as a separate contract. Provision is made in full where applicable for anticipated losses on contracts in progress.

(iii) Interest income

Interest income is recognised on a time proportion basis using the effective interest method.

(iv) Dividend income

Dividend income is recognised when the right to receive payment is established.


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62Notes to the Financial Statements For the fi nancial year ended 31 December 2004



2. Signifi cant accounting policies (continued)

(b) Revenue recognition (continued)

(1) Rendering of services (continued)

(v) Rental income

Revenue from the sale of trading and completed properties is recognised when title passes to the buyer.

Rental income from operating leases on trading, investment and leasehold properties are recognised over the lease term on an accrual basis.

(c) Group accounting

(1) Subsidiaries Subsidiaries are entities over which the Group has power to govern the fi nancial and operating policies, generally accompanying

a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifi able assets acquired and liabilities assumed in a business combination are measured initially at their fair values on the date of acquisition, irrespective of the extent of any minority interest. Please refer to note 2(e) for the accounting policy on goodwill on acquisition of subsidiaries.

Subsidiaries are consolidated from the date on which control is transferred to the Group to the date on which that control ceases. In preparing the consolidated fi nancial statements, intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the fi nancial statements of subsidiaries to ensure consistency of accounting policies with those of the Group.

Minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are

not owned directly or indirectly by the parent. It is measured at the minorities’ share of post-acquisition fair values of the subsidiaries’ identifi able assets and liabilities, except when the losses applicable to the minority in a subsidiary exceed the minority interest in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minority are taken to the consolidated income statement, unless the minority has a binding obligation to, and is able to, make good the losses. When that subsidiary subsequently reports profi ts, the profi ts applicable to the minority are taken to the consolidated income statement until the minority’s share of losses previously taken to the consolidated income statement is fully recovered.

Please refer to note 2(i) for the Company’s accounting policy on investments in subsidiaries.

(2) Associated companies Associated companies are entities over which the Group has signifi cant infl uence, but not control, generally accompanying

a shareholding of between and including 20% and 50% of the voting rights. Investments in associated companies are accounted for in the consolidated fi nancial statements using the equity method of accounting. Investments in associated companies in the consolidated balance sheet includes goodwill (net of accumulated amortisation) identifi ed on acquisition, where applicable. Please refer to note 2(e) for the Group’s accounting policy on goodwill.

Equity accounting involves recording investments in associated companies initially at cost, and recognising the Group’s share of its associated companies’ post-acquisition results and its share of post-acquisition movements in reserves against the carrying amount of the investments. When the Group’s share of losses in an associated company equals or exceeds its investment in the associated company, the Group does not recognise further losses, unless it has incurred obligations or

made payments on behalf of the associated company.

63Notes to the Financial Statements



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(c) Group accounting (continued)

(2) Associated companies (continued) In applying the equity method, unrealised gains on transactions between the Group and its associated companies are eliminated

to the extent of the Group’s interest in the associated companies. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the fi nancial statements of associated companies to ensure consistency of accounting policies with those of the Group.

Please refer to note 2(i) for the Company’s accounting policy on investments in associated companies.

(3) Joint ventures Joint ventures are entities over which the Group has contractual arrangements to jointly share the control with one or more

parties. The Group’s interest in joint ventures is accounted for in the consolidated fi nancial statements by proportionate consolidation.

Proportionate consolidation involves combining the Group’s share of joint ventures’ individual income and expenses, assets and liabilities and cash fl ows on a line-by-line basis with similar items in the Group’s fi nancial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture to the extent that it is attributable to the other venturers. The Group does not recognise its share of results from the joint ventures that arose from the Group’s purchase of assets from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets or an

impairment loss.

Please refer to note 2(i) for the Company’s accounting policy on investments in joint ventures.

(4) Transaction costs Costs directly attributable to an acquisition are included as part of the cost of acquisition.

(d) Property, plant and equipment

(1) Land and buildings Land and buildings are initially recorded at cost. Buildings are subsequently stated at cost less accumulated depreciation and

accumulated impairment losses (note 2(j)). (2) Motor vessels Cost of motor vessels includes actual interest incurred on borrowings used to fi nance the motor vessels while under

construction and other direct relevant expenditure incurred in bringing the vessels into operation. For this purpose, the interest rate applied to funds provided for constructing the motor vessels is arrived at by reference to the actual rate payable on borrowings for construction purposes. The capitalisation of interest charges will cease upon the completion and delivery of the motor vessels.

The inherent components of the vessel which are subject to major overhauls at the drydocking of vessels, are determined based on their estimated costs and are depreciated over a period of 2 1/2 years in order to refl ect their useful lives. Drydocking expenditure incurred are capitalised as additions when incurred.

(3) Other property, plant and equipment Motor vehicles and other plant and equipment are stated at cost less accumulated depreciation and accumulated impairment

losses (note 2(j)).


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2. Signifi cant accounting policies (continued) (d) Property, plant and equipment (continued)

(4) Depreciation Depreciation on motor vessels is calculated on a straight line method to write off the cost less estimated residual value on a

straight line basis over their estimated useful lives of 25 years from the date the vessels were put to use or the remaining useful lives from the date of acquisition.

Depreciation on other property, plant and equipment is calculated on a straight line method to allocate the depreciable amounts of other property, plant and equipment over their estimated useful lives. The estimated useful lives are as follows:

Buildings on freehold and leasehold land 26 - 50 years Plant, machinery and equipment 3 - 8 years Offi ce renovation, furniture, fi xtures and equipment 3 - 5 years Motor vehicles 10 years (5) Subsequent Expenditure Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying

amount of the asset when it is probable that future economic benefi ts, in excess of the originally assessed standard of performance of the existing asset, will fl ow to the Group and the cost can be reliably measured. Other subsequent expenditure is recognised as an expense during the fi nancial year in which it is incurred.

(6) Disposal On disposal of a property, plant and equipment, the difference between the net disposal proceeds and its carrying amount is

taken to the income statement; any amount in revaluation reserve relating to that asset is transferred to retained earnings.

(e) Intangible assets

Goodwill Goodwill represents the excess of the cost of an acquisition of subsidiaries or associated companies over the fair value of the Group’s

share of their identifi able net assets at the date of acquisition.

Goodwill on acquisitions of subsidiaries occurring on or after 1 January 2001 is included as intangible assets. Goodwill on acquisitions of associated companies occurring on or after 1 January 2001 is included in investments in associated companies. Goodwill on acquisitions that occurred prior to 1 January 2001 has been transferred in full to the retained earnings; such goodwill

has not been retrospectively capitalised and amortised.

Goodwill recognised as intangible assets is stated at cost less accumulated amortisation and accumulated impairment losses (note 2(j)). Goodwill is amortised using the straight-line method over its estimated useful life. Management determines the estimated useful life of goodwill based on its evaluation of the respective companies at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired companies. Goodwill arising on acquisition of associated companies is amortised over a maximum period of 10 years.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold, but exclude those

goodwill previously taken to retained earnings (pre-1 January 2001 acquisitions).

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisition.

Negative goodwill arising from the acquisition of subsidiaries is presented in the same balance sheet classifi cation as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identifi ed in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifi able liabilities, that portion of negative goodwill is recognised in the consolidated income statement when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the non-monetary assets acquired, is recognised in the consolidated income statement over the remaining average useful life of those assets; negative goodwill in excess of the fair values of those assets is recognised in the consolidated income statement immediately.




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(e) Intangible assets (continued) Goodwill (continued) Negative goodwill arising from the acquisition of associated companies is included in investments in associated companies. To

the extent that negative goodwill relates to expectations of future losses and expenses that are identifi ed in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifi able liabilities, that portion of negative goodwill is recognised in the consolidated income statement as part of the Group’s share of the results of associated companies when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the Group’s share of the non-monetary assets acquired, is recognised in the consolidated income statement as part of the Group’s share of the results of associated companies over the remaining average useful life of those assets; negative goodwill in excess of the fair values of those assets is recognised in the consolidated income statement as part of the Group’s share of the results of associated companies immediately.

On the acquisition of a foreign subsidiary or associated company, the goodwill arising is translated at the exchange rate prevailing at the date of acquisition.

The gain or loss on disposal of an entity includes the carrying amount of goodwill relating to the entity sold but exclude those goodwill previously taken to retained earnings (pre-1 January 2001 acquisitions).

(f) Borrowing costs

Borrowing costs incurred to fi nance the construction of motor vessels are capitalised during the period of time that is required to complete and prepare the motor vessels for its intended use. Other borrowing costs are taken to the income statement over the period of borrowing using the effective interest method.

(g) Investment properties

Investment properties are held for long-term rental yields and for the generation of rental income and are not occupied by the Group or its related companies. These properties are stated at cost and are depreciated on a straight line basis over the expected useful lives of the properties of 50 years.

Where an indication of impairment exists, the carrying amount of the investment properties is assessed and written down immediately to its recoverable amount.

On disposal of an investment property, the difference between the net disposal proceeds and its carrying amount is taken to the income statement.

If investment properties become owner-occupied, it is classifi ed as property, plant and equipment and its fair value at the date of reclassifi cation becomes its cost for accounting purposes.

(h) Trading properties

Trading properties are held for sale in the ordinary course of business and are stated at the lower of cost and estimated net realisable value. Cost of the trading properties comprises its purchase price.

Cost of completed properties includes cost of land and other direct and related development expenditure, including interest on borrowings, incurred on developing the property.

Provision is made when the carrying amount of the trading and completed properties or its cash generating unit exceeds its net realisable value.


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(i) Investments

(1) Long-term and other non-current investments Investments in subsidiaries and associated companies are stated at cost less accumulated impairment losses in the Company’s

balance sheet. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount.

Other investments comprise long-term equity and club memberships. They are stated at cost less allowance for diminution in value based on a review at the balance sheet date. An allowance for diminution is made where, in the opinion of the Directors, there is a decline other than temporary in the value of such investments; such reduction being determined and made for each investment individually. Where there has been a decline other than temporary in the value of an investment, such a decline is recognised as an expense in the period in which the decline is identifi ed.

On disposal of an investment, including subsidiaries and associated companies, the difference between net disposal proceeds and its carrying amount is taken to the income statement.

(2) Short-term investments Short-term investments are stated at the lower of cost and market value determined on a portfolio basis. Cost is determined on

the fi rst-in fi rst-out method. Profi ts or losses on disposal of short-term investments are taken to the income statement. (j) Impairment of assets

Assets including property, plant and equipment and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifi able cash fl ows (cash-generating units).

(k) Trade and other receivables

Trade and other receivables including receivables from related corporations and immediate holding corporation are stated at cost less allowance made for doubtful receivables based on a review of all outstanding amounts at the balance sheet date. An allowance for doubtful receivables is made when there is objective evidence that the Group will not be able to collect amounts due according to original terms of receivables. Bad debts are written off when identifi ed.

(l) Borrowings

(1) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at

amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is taken to the income statement over the period of the borrowings using the effective interest method.

(2) Redeemable preference shares Preference shares, which are mandatorily redeemable on a specifi c date, are classifi ed as liabilities. The dividends on these

preference shares are taken to the income statement as interest expense.




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(m) Financial instruments

Interest rate swap contracts Interest rate swap contracts are used to hedge the Group’s exposure to interest rate risks. These contracts entitle the Group to

receive interest at fl oating rates on notional principal amounts and oblige the Group to pay interest at fi xed rates on the same notional principal amounts.

Under the interest rate swaps, the Group agrees with other parties to exchange, at specifi ed intervals (mainly quarterly), the difference between fi xed rate and fl oating rate interest amounts calculated by reference to the agreed notional principal amounts. This difference is taken to the income statement on an accrual basis. The excess of fi xed rate interest payables over fl oating rate interest receivables is recorded as current payables; the excess of fl oating rate interest receivable over fi xed rate interest payable is recorded as current receivables.

The notional principal amounts of the interest rate swap contracts are recorded as off-balance sheet items. The fair values of the interest rate swap contracts are not recognised in the fi nancial statements.

(n) Leases

(1) When a group company is the lessee:

Finance leases

Leases of assets in which the Group assumes substantially the risks and rewards of ownership are classifi ed as fi nance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and fi nance charges so as to achieve a constant rate on the fi nance balance outstanding. The corresponding rental obligations, net of fi nance charges, are included in borrowings. The interest element of the fi nance cost is taken to the income statement over the lease period so

as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Operating leases

Leases of assets in which a signifi cant portion of the risks and rewards of ownership are retained by the lessor are classifi ed as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are taken to the income statement on a straight line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

(2) When a group company is the lessor:

Operating leases

Assets leased out under operating leases are included in trading properties, investment properties and property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised over the lease term on an accrual basis.


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(o) Deferred income taxes

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the fi nancial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profi t will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associated companies, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

(p) Provisions for other liabilities and charges

Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, it is probable that an outfl ow of resources will be required to settle the obligation and a reliable estimate of the amount can be made.

(q) Employee benefi ts

(1) Defi ned contribution plans Defi ned contribution plans are post-employment benefi t plans under which the Group pays fi xed contributions into separate

entities such as Central Provident Fund, and will have no legal or constructive obligation to pay further contributions if any of the funds does not hold suffi cient assets to pay all employee benefi ts relating to employee service in the current and preceding fi nancial years. The Group’s contribution to defi ned contribution plans are recognised in the fi nancial year to which they relate.

(2) Employee leave entitlements Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated

liability for annual leave as a result of services rendered by employees up to the balance sheet date.

(3) Equity compensation benefi ts No compensation expense is recognised when share options are issued under the Cosco Group Employees’ Share Option

Scheme. When the options are exercised, the proceeds received net of any transaction costs are taken to share capital (nominal value) and share premium.

(r) Foreign currency translation

(1) Measurement currency Items included in the fi nancial statements of each entity in the Group are measured using the currency that best refl ects

the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated fi nancial statements of the Group and the balance sheet of the Company are presented in Singapore Dollars, which is the measurement currency of the Company.

(2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the date of

transactions. Foreign currency monetary assets and liabilities are translated into the measurement currency at the rates of exchange prevailing at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at fi nancial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are taken to the income statement.




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(r) Foreign currency translation (continued)

(3) Translation of Group entities’ fi nancial statements The results and fi nancial position of group entities (none of which has the currency of a hyperinfl ationary economy) that are in

measurement currencies other than Singapore Dollars are translated into Singapore Dollars as follows:

(i) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(ii) Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(iii) All resulting exchange differences are taken to the foreign currency translation reserve.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities (including monetary items that, in substance, form part of the net investment in foreign entities), and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is

disposed of, such exchange differences are taken to the income statement as part of the gain or loss on disposal.

Goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as non-monetary foreign currency assets and liabilities of the acquirer and recorded at the exchange rate at the date of the transaction.

(s) Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments.

(t) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits with fi nancial institutions and bank overdrafts. Bank overdrafts are included under borrowings on the balance sheet.

(u) Share capital

Ordinary shares are classifi ed as equity. Preference shares, which are redeemable on a specifi c date or at the option of the shareholders or which carry non-discretionary dividend obligations, are classifi ed as liabilities. The dividends on these preference shares are recognised in the income statement as fi nance costs.

Incremental costs directly attributable to the issuance of new equity instruments, other than for the acquisition of businesses, are taken to equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issuance of new equity instruments for the acquisition of businesses are included in the cost of acquisition as part of the purchase consideration.

(v) Dividends

Interim dividends are recorded during the fi nancial year in which they are declared payable. Final dividends are recorded during the fi nancial year in which the dividends are approved by the shareholders.


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3. Revenue The Group

2004 2003 $ $

Rental income from investment and leasehold properties 1,225,455 2,825,113 Time charter revenue and voyage freight 92,229,859 67,403,436 Shipping agency income 19,012,020 18,874,716 Ship repair and fabrication service income 3,878,218 2,839,015

116,345,552 91,942,280

Other operating income: Storage rental income 213,476 298,763 Dividend income received from unquoted equity investments (gross) 36,000 15,600 Bareboat termination compensation received 1,441,061 – Insurance claims 826,620 294,514 Sundry income 1,482,731 887,406 Total other operating income 3,999,888 1,496,283 Interest income 597,104 202,746

120,942,544 93,641,309

4. Exceptional gain The Group

2004 2003 $ $

Gain on disposal of subsidiaries to previous immediate holding company – 23,132 Profi t on disposal of property, plant and equipment 8,010,118 46,195 Reimbursement from previous immediate holding company for share of loss on completed properties for sale – 9,654,036 Impairment losses of: – investment properties (note 18) (6,361,811) – – trading properties (note 13) (1,200,000) (15,000) – completed properties for sale – (9,368,000)

448,307 340,363




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5. Profi t from operations The following items have been included in arriving at profi t from operations: The Group

2004 2003 $ $

Charging/(crediting): Amortisation charge: – goodwill (included in share of results of associated companies) (note 16) 578,154 578,154 Auditors’ remuneration paid/payable to: – auditors of the Company 398,672 410,772 – other auditors 18,698 12,293 Other fees paid/payable to auditors of the Company 436,870 324,478 Depreciation of property, plant and equipment (note 19) – Buildings on freehold land 99,309 99,309 – Leasehold land and buildings 870,573 875,329 – Offi ce renovations, furniture, fi xtures and equipment 463,449 504,100 – Plant, machinery and equipment 8,831 14,068 – Motor vehicles 331,906 355,341 – Motor vessels 21,761,300 21,613,441 Total depreciation charges 23,535,368 23,461,588

Depreciation of investment properties (note 18) 113,550 151,400 Goodwill written off 273,586 – Foreign exchange losses – net 1,503,884 176,023 Provision for off-hire claim on freight and hire income (note 26) 292,083 506,014 Operating leases – apartment rental 195,600 456,763 – offi ce rental 582,597 708,752 – time and bareboat charter hire 4,593,800 4,940,601

Fees for non-audit services paid to auditors of the Company in connection with the market due diligence, fi nancial due diligence and professional services rendered to the Company and the Group as reporting accountant for the acquisition of Cosco Shipyard (Group) Co. , Ltd amounting to $398,000 had been included in deferred expenditure [note 14(ii)].

6. Finance costs-net The Group

2004 2003 $ $

Income Interest Income from : – Fixed Deposits 578,561 104,138 – Related Corporations – 71,943 – Others 18,543 26,665

597,104 202,746


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6. Finance costs-net (continued) The Group

2004 2003

$ $

Cost Interest expense on : – Other borrowings including cost of interest rate swaps 9,854,093 9,759,194 – Loans from immediate holding company – 7,705 Dividend on RCCPS – Fixed dividend on RCCPS of 5.7 cents (2003: 5.7 cents) per share per annum net of tax at 20%(2003: 22%) 5,723 1,041,004 Net foreign exchange loss 1,503,884 176,023

11,363,700 10,983,926

Net fi nance costs 10,766,596 10,781,180

7. Remuneration bands of directors of the Company 2004 2003

Number of directors of the Company in remuneration bands: Above $500,000 5 1 $250,000 to below $500,000 2 4 Below $250,000 6 9

Total 13 14

8. Staff costs The Group

2004 2003 $ $

Wages, salaries and staff benefi ts 11,580,747 11,254,947 Employer’s contribution to defi ned contribution plans including Central Provident Fund 709,892 788,943

12,290,639 12,043,890

Key management remuneration is disclosed in note 35.

Average number of persons employed during the fi nancial year:

The Group

2004 2003

Full time 236 244 Part time 9 1

245 245




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9. Income tax

(a) Income tax expense

The Group

2004 2003 $ $

Tax expense attributable to profi t is made up of: Current income tax – Singapore 814,006 1,643,310 – Foreign 262,076 200,434

1,076,082 1,843,744 Deferred income tax – Singapore (note 20) (13,213) (940,427) Share of tax of associated companies (note 16) 4,748,816 2,345,286

5,811,685 3,248,603 Under/(over) provision in prior fi nancial years: – Current income tax – Singapore 144,873 1,295,310 – Foreign (7,892) (3,083) 136,981 1,292,227 – Deferred income tax – Singapore (note 20) 193,501 377,796

6,142,167 4,918,626

The tax expense on profi t differs from the amount that would arise using the Singapore standard rate of income tax due to the following:

The Group

2004 2003 $ $

Profi t before tax 73,171,870 30,067,388

Tax calculated at a tax rate of 20% (2003: 22%) 14,634,374 6,614,825 Effect of different tax rates in other countries (1,715,574) (780,414) Effect of tax concessions applicable to associated companies (685,070) (523,788) Singapore stepped income exemption (42,000) (49,825) Exempt income under AIS and Section 13A of Singapore Income Tax Act (18,100,054) (3,901,882) Income not subject to tax (14,825) (2,240,293) Expenses not deductible for tax purposes 10,368,564 2,274,402 Utilisation of previously unrecognised deferred tax asset (2,374) (733,471) Deferred tax asset not recognised 1,368,644 2,589,049

5,811,685 3,248,603


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9. Income tax (continued)

(b) Movements in current income tax liabilities


2004 2003 2004 2003

$ $ $ $

At the beginning of fi nancial year: Current tax liabilities/(income tax recoverable) 1,247,326 (344,745) 616,248 (1,029,309) Income tax paid (863,257) (1,543,900) (502,976) (1,431,209) Current fi nancial year’s income tax expense 1,076,082 1,843,744 542,082 1,705,031 Under provision in prior fi nancial years 136,981 1,292,227 – 1,371,735

At the end of fi nancial year 1,597,132 1,247,326 655,354 616,248

Included in: Current tax liabilities 1,670,470 1,519,246 655,354 616,248 Income tax recoverable (73,338) (271,920) – –

1,597,132 1,247,326 655,354 616,248

10. Earnings per share

Basic earnings per share is calculated by dividing the net profi t attributable to members of Cosco Corporation (Singapore) Limited by the weighted average number of ordinary shares in issue during the fi nancial year. The Group

2004 2003

$ $ Net profi t attributable to members of Cosco Corporation (Singapore) Limited ($) 66,199,087 24,286,634 Weighted average number of ordinary shares of $0.20 each in issue for basic earnings per share 1,083,181,948 899,483,222 Basic earnings per share (cents) 6.11 2.70

The weighted average number of shares for both 2004 and 2003 has been adjusted to refl ect the bonus issue in 2004.




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10. Earnings per share (continued)

The diluted earnings per share is adjusted for the effects of all dilutive potential ordinary shares. The Company has two categories of dulitive potential ordinary shares: RCCPS and outstanding share options. The RCCPS are assumed to have been converted into ordinary shares and the net profi t is adjusted to eliminate the interest expense less the tax effect. For the share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market price of the Company’s shares) based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. The differences is added to the denominator as an issuance of ordinary shares for no consideration. No adjustment is made to earning (numerator).

The Group

2004 2003

$ $

Net profi t attributable to members of Cosco Corporation (Singapore) Limited ($) 66,199,087 24,286,634

Dividend on RCCPS ($) – 13,036

Net profi t used to determine diluted earnings per share ($) 66,199,087 24,299,670

Weighted average number of ordinary shares of $0.20 each in issue for basic earnings per share 1,083,181,948 899,483,222 Adjustments for – assumed conversion of RCCPS – 1,466,065 – share options 2,765,100 1,825,671

Weighted average number of ordinary shares of $0.20 each for diluted earnings per share 1,085,947,048 902,774,958

Diluted earnings per share (cents) 6.10 2.69

11. Cash and cash equivalents The Group The Company

2004 2003 2004 2003

$ $ $ $

Cash at bank and on hand 63,356,614 73,222,414 41,953,900 53,406,818 Short-term bank deposits 30,689,744 12,901,736 – –

94,046,358 86,124,150 41,953,900 53,406,818

The carrying amounts of cash and cash equivalents approximate their fair value.


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11. Cash and cash equivalents (continued)

Cash and cash equivalents are denominated in the following currencies:


2004 2003 2004 2003

$ $ $ $ Singapore Dollar 2,935,328 5,867,115 664,194 4,380,635 United States Dollar 78,073,865 71,898,783 41,287,106 49,025,090 Others 13,037,165 8,358,252 2,600 1,093

94,046,358 86,124,150 41,953,900 53,406,818

Short-term bank deposits have an average maturity of 1.7 months (2003: 1 month) from the end of the fi nancial year with the following weighted average effective interest rates:


2004 2003 2004 2003

Singapore Dollar 0.45% 0.66% – – United States Dollar 1.43% 0.37% – – Others 3.54% 3.15% – –

The exposure of cash and cash equivalent to interest rate risks is disclosed in note 32(ii).

For the purposes of the consolidated cash fl ow statement, the consolidated cash and cash equivalents comprise the following: The Group

2004 2003

$ $ Cash and bank balances (as above) 94,046,358 86,124,150 Less bank overdrafts (note 22) – (12,518,163) Less cash collateral (2,720,168) (2,807,374)

Cash and cash equivalents per consolidated cash fl ow statement 91,326,190 70,798,613

Bank and cash balances and bank deposits of the Group to the extent of $1,594,974 (2003: $1,672,023) were pledged as security for the following:

(i) long-term bank loans obtained to fi nance the purchases of certain motor vessels; and

(ii) the issuance of banker’s guarantees in favour of third parties.

In addition, bank and cash balances and bank deposits with a fi nancial institution of the Group to the extent of $1,125,194 (2003: $1,135,351) are jointly held with a third party, China Shipbuilding Trading Co., Ltd (“CSTCL”) and are earmarked for the repayment

of loan principal and interest due to CSTCL (note 23).




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12. Trade and other receivables The Group The Company

2004 2003 2004 2003

$ $ $ $ Trade receivables: – third parties 11,615,410 11,807,213 – – – related corporations 7,564,607 3,382,577 – – – subsidiaries – – 318,539 190,320

19,180,017 15,189,790 318,539 190,320

Less: Allowance for doubtful receivables – third parties – (195,000) – –

19,180,017 14,994,790 318,539 190,320

Short-term loan to a subsidiary – – – 2,000,000 Other receivables – related corporations 3,314 12,884 1,646 12,884 – subsidiaries – – 6,764 29,359 – previous immediate holding corporation (note 34) – 11,955 – 11,885

3,314 24,839 8,410 54,128

Deposits and prepayments 357,742 6,857,517 96,868 98,279 Staff loans and advances (see note below) 210,290 87,185 200,000 9,409 Interest receivable – 1,595 – – Sundry debtors 330,939 233,641 – 4,302 Dividend receivables from subsidiaries – – 16,317,470 –

Total 20,082,302 22,199,567 16,941,287 2,356,438

Staff loans and advances The Group The Company

2004 2003 2004 2003

$ $ $ $ Not later than one year 210,290 87,185 200,000 9,409 Later than one year but not later than fi ve years – 200,000 – 200,000

210,290 287,185 200,000 209,409

The carrying amounts of current trade and other receivables approximate their fair value. The currency denomination and exposure to interest rate risks of current trade and other receivables are disclosed in notes 14 and 32(ii) respectively, together with non-current trade and other receivables.


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13. Trading properties

The Group

2004 2003

$ $ Cost At 1 January 977,223 977,223 Transfer from investment properties (note 18) 31,108,062 –

At 31 December 32,085,285 977,223

Accumulated depreciation and accumulated impairment losses At 1 January 362,223 347,223 Transfer from investment properties (note 18) 7,308,062 – Impairment loss 1,200,000 15,000

At 31 December 8,870,285 362,223

Net realisable value 23,215,000 615,000

The Group’s trading properties as at 31 December 2004 are set out below:

Address Held by Title Description Gross fl oor area

(Square metres)

Grangeford Apartment, Harington Property 99 years leasehold 1 unit of service apartment 109 Leonie Hill Road (i) Pte Ltd commencing 1974 Telok Ayer Street (ii) Harington Property 999 years leasehold 8 units of shop houses 3,939 Pte Ltd commencing 1884

(i) This trading property is stated at net realisable value, which is lower than cost. This property has been mortgaged to a bank as security for a long-term bank loan and bank facilities (note 22). The net book value of this trading property is $615,000 as at 31 December 2004.

(ii) During the fi nancial year, this property was reclassifi ed from investment properties to trading properties (note 18). These properties were written down by $6,361,810 to its estimated recoverable amounts prior to the reclassifi cation from investment property. The amount written down was based on an independent professional valuation carried out by CB Richard Ellis (Pte) Ltd on 8 October 2004 on the basis of open market value for existing use. Subsequent to its reclassifi cation as a trading property, management made a further impairment charge of $1.2 million to this property.

As at the balance sheet date, this property which has a net book value of $22,600,000 is mortgaged to a bank to secure long-term bank loans (note 22).




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14. Non-trade receivables The Group The Company

2004 2003 2004 2003

$ $ $ $

Staff loans and advances (note 12) – 200,000 – 200,000 Non-trade receivables (i) 829,790 864,245 – – Deferred expenditure (ii) 846,921 – 846,921 –

1,676,711 1,064,245 846,921 200,000

(i) This represents the operating loss incurred in operating a motor vessel which is recoverable from a third party. In 1997, a subsidiary of the Company entered into an agreement with a third party (“Charterer”) to bareboat charter a motor vessel for a period of 15 years commencing on 12 January 1999. During the period of the bareboat charter, any operating loss incurred on the motor vessel at the end of a fi nancial year shall be carried forward from year to year until the sale of the motor vessel or the termination of the bareboat charter arrangement, whichever is earlier.

The operating loss incurred on the motor vessel will be recovered via the sale proceeds derived from the sale of the motor vessel. In the event that the proceeds of such sale are insuffi cient to discharge any operating loss brought forward, the Charterer shall bear and be fully responsible for all outstanding undischarged amounts thereunder. Accordingly, the operating loss mentioned above has been refl ected as an amount recoverable from the Charterer.

(ii) Deferred expenditure relates to costs incurred on the acquisition of 51% interest in the registered capital of Cosco Shipyard

(Group) Co.,Ltd (“Cosco Shipyard”), a company registered in the People’s Republic of China. These costs will be capitalized as part of the cost of acquisition upon completion of the acquisition. See note 31 to the fi nancial statements.

Included in deferred expenditure are fees for non-audit services paid to auditors of the Company of $398,000 (2003: Nil) in connection with the market due diligence, fi nancial and tax due diligence and professional services rendered as reporting accountant for the acquisition of Cosco Shipyard.

Trade and other receivables (current (note 12) and non-current) are denominated in the following currencies: The Group The Company

2004 2003 2004 2003

$ $ $ $ Singapore Dollar 9,775,105 9,974,604 1,467,130 2,551,727 United States Dollar 8,259,036 11,461,344 16,321,078 4,711 Ringgit Dollar 3,701,787 1,808,259 – – Others 23,085 19,605 – –

21,759,013 23,263,812 17,788,208 2,556,438

The weighted average effective interest rates for current and non-current receivables are as follows:


2004 2003 2004 2003

Staff loans and advances 1% 1% 1% 1%

The exposure of non-current trade and other receivables to interest rate risks is disclosed in note 32(ii), together with current trade and other receivables.


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15. Other investments


2004 2003 2004 2003

$ $ $ $ Unquoted equity shares in corporations, at cost 120,000 120,000 – –

Transferable country club memberships, at cost 918,201 961,709 454,820 497,820 Exchange rate adjustments (5,559) (507) – – Less: Impairment of transferable country club memberships (529,271) (523,660) (304,820) (297,820)

383,371 437,542 150,000 200,000

Total 503,371 557,542 150,000 200,000

Transferable country club membership, at market value 410,000 420,000 156,000 178,000

It is not practical to estimate the fair value of the Company’s non-current unquoted equity investments in corporations because of the lack of quoted market prices and liabilities to estimate fair value without incurring excessive costs.

The exposure of other investments to interest rate risks is disclosed in note 32(ii).

16. Investments in associated companies


2004 2003 2004 2003

$ $ $ $ Investment at cost – – 55,966,592 58,211,632

At the beginning of fi nancial year 69,809,936 28,229,115

Share of net assets of an associated company acquired during the fi nancial year – 32,541,312 Share of results before tax 36,433,865 17,577,661 Amortisation of goodwill (578,154) (578,154) Share of tax (note 9) (4,748,816) (2,345,286) Share of results after tax 31,106,895 14,654,221 Dividends received, net of tax (14,543,433) (3,777,711) Exchange rate adjustments (3,205,700) (1,837,001)

At the end of fi nancial year 83,167,698 69,809,936




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16. Investments in associated companies (continued)

(a) Investment in associated companies includes the following goodwill: The Group

2004 2003

$ $ Cost 5,781,539 5,781,539 Accumulated amortisation (1,686,282) (1,108,128)

4,095,257 4,673,411

(b) Information relating to the associated companies is set out below: % of paid-up capital Name of associated company Principal activities Country of incorporation/country of business held by the Company

2004 2003

% %

Cosem Pte Ltd (i) Investment holding Singapore 50 50 Cosco (Nantong) Shipyard Ship repairing People’s Republic of China (“PRC”) 50 50 Co., Ltd (ii)

Cosco (Dalian) Shipyard Ship repairing PRC 40 40 Co., Ltd (ii) (i) Audited by KPMG, Singapore. (ii) Audited by BDO Reanda Certifi ed Public Accountants, Republic of China

17. Subsidiaries

(a) Investments in subsidiaries comprise: The Company

2004 2003

$ $ Unquoted equity shares, at cost 64,732,072 63,932,072 Less: Impairment charge for the fi nancial year and accumulated impairment charge at the end of the fi nancial year (i) (21,824,508) _ Loans to subsidiaries (ii) 98,400,140 107,122,177

141,307,704 171,054,249

(i) An impairment charge of $21,824,508 (2003 : Nil) was recognized for the Company’s investment in one of the subsidiaries, being the difference between the carrying amount of the investment and its recoverable amount. The recoverable amount

(the higher of value in use or net selling price) was determined for the subsidiary and represents the net tangible assets of the subsidiary as at 31 December 2004.


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17. Subsidiaries (continued)

(ii) The loans to subsidiaries are unsecured and have no fi xed terms of repayment but substantial repayments are not expected within the next twelve months from the balance sheet date. The loan amount of $98,400,140 (2003: $101,499,953) due from wholly-owned subsidiaries is interest free. The weighted average effective interest rate for the remaining loans at 31 December 2003 was 2.44%.

Included in loans to subsidiaries is an amount of $74,655,140 (2003: $77,754,953) which the Company deemed as part of its net investment in a subsidiary.

In April 2004, the Company acquired an additional 30% interest in the share capital of one of its subsidiaries Cosco Marine Engineering (Singapore) Pte Ltd from Tong Foong Holdings Pte Ltd. The purchase consideration amounted to $800,000.

(b) The subsidiaries are:

Country of

incorporation/

Name of country of % of paid-up capital held by

subsidiary Principal activities business Cost of investment The Company Subsidiaries

2004 2003 2004 2003 2004 2003

$ $ % % % %

Cosco Ship owning, ship Singapore 5,000,000 5,000,000 100 100 – – (Singapore) chartering and Pte Ltd (i) investment holding

Cosco Ship repairing, Singapore 2,242,400 1,442,400 90 60 – – Marine marine engineering, Engineering container repairs (Singapore) and services, Pte Ltd (i) fabrication works services and production of marine outfi tting components Harington Trading and Singapore 52,700,730 52,700,730 100 100 – – Property investing in Pte Ltd (i) properties, provide property management services and investment holding Coslink (M) Shipping Malaysia 770,950 770,950 70 70 18 18 Sdn. Bhd. (ii) agency and related activities Costar Shipping agents Singapore 4,017,990 4,017,990 70 70 – – Shipping and investment Pte Ltd (i) holding




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(b) The subsidiaries are: (continued)

Country of

incorporation/

Name of Principal country of % of paid-up capital held by

subsidiary activities business Cost of investment The Company Subsidiaries

2004 2003 2004 2003 2004 2003

$ $ % % % %

Marlene Investment British Virgin 2 2 100 100 – – International holding Islands Ltd (iii) Serene Sky Ship owning Liberia/ – – – – 100 100 Shipping Inc. and ship Worldwide (i) chartering Greenery Ship owning Panama/ – – – – 100 100 Shipping and ship Worldwide Corporation chartering S.A. (i) Dynamism Ship owning Panama/ – – – – 100 100 Shipping and ship Worldwide Corporation chartering S.A. (i) Cos Glory Ship owning Panama/ – – – – 100 100 Shipping Inc. and ship Worldwide (i) chartering Cos Knight Ship owning Panama/ – – – – 100 100 Shipping Inc. and ship Worldwide (i) chartering Cos Lucky Ship owning Panama/ – – – – 100 100 Shipping Inc. and ship Worldwide (i) chartering Cos Orchid Ship owning Panama/ – – – – – 100 Shipping Inc. and ship Worldwide (i), (v) chartering Cos Ship owning Panama/ – – – – – 100 Prosperity and ship Worldwide Shipping Inc. chartering (i), (v)

Hanbo Ship owning Hong Kong/ – – – – 100 100 Shipping and ship Worldwide Limited (ii) chartering


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(b) The subsidiaries are: (continued)

Country of

incorporation/

Name of Principal country of % of paid-up capital held by

subsidiary activities business Cost of investment The Company Subsidiaries

2004 2003 2004 2003 2004 2003

$ $ % % % %

Sanbo Ship owning and Hong Kong/ – – – – 100 100 Shipping ship chartering Worldwide Limited (ii) Cos Orchid Ship owning and Singapore/ – – – – 100 - Shipping Pte ship chartering Worldwide Ltd (vi), (i)

Cos Prosperity Ship owning and Singapore/ – – – – 100 - Shipping Pte ship chartering Worldwide Ltd (vi), (i) Costar Shipping agent Malaysia – – – – 100 100 Agencies (M) Sdn. Bhd. (iv) CNF Shipping Vessel chartering, Malaysia – – – – 60 60 (M) Sdn. Bhd. feedering, freight (iv) forwarders, transport agents, warehousing and other related services CNF Shipping Shipping agent Singapore – – – – 100 100 Agencies Pte Ltd (i) Cosco Provision of Singapore – – – – 100 100 Engineering support services Pte Ltd (i) to shipping companies

64,732,072 63,932,072

(i) Audited by PricewaterhouseCoopers, Singapore. (ii) Audited by PricewaterhouseCoopers fi rms outside Singapore. (iii) Not required by the law of the country of its incorporation to be audited. The company has not commenced operations since the date of incorporation. (iv) Audited by Deloitte KassimChan, Malaysia. (v) Liquidated during the fi nancial year. (vi) Incorporated during the fi nancial year.




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18. Investment properties The Group

2004 2003

$ $ Leasehold investment properties, at cost At the beginning of fi nancial year 31,108,062 31,108,062 Transfer to trading properties (note 13) (31,108,062) –

At the end of fi nancial year – 31,108,062

Accumulated depreciation and impairment losses At the beginning of fi nancial year 832,701 681,301 Depreciation charge for the fi nancial year 113,550 151,400 Impairment loss 6,361,811 – Transfer to trading properties (note 13) (7,308,062) –

At the end of fi nancial year – 832,701

Net book value at the end of fi nancial year – 30,275,361

Market value – 23,500,000

(a) The open market value of the investment properties as at 31 December 2003 was based on an independent professional valuation carried out by CB Richard Ellis (Pte) Ltd, on the basis of open market value for existing use.

(b) On 30 September 2004, the directors of the Company resolved to sell the investment properties of the Company. The carrying amounts of the investment properties have been reduced to their recoverable amount, which is the net selling price based on the properties market prices in an active market, through recognition of an impairment loss of $6,361,811. The investment properties have been transferred to trading properties (note 13).

The details of the investment properties are disclosed in note 13.


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19. Property, plant and equipment

(a) The Group Offi ce renovations, Plant, Leasehold furniture, machinery Vessel Buildings on land and fi xtures and and Motor Motor under freehold land buildings equipment equipment vehicles vessels construction Total

$ $ $ $ $ $ $ $

Cost At 1 January 2004 4,955,556 36,242,068 4,020,673 1,584,942 4,034,323 439,561,199 – 490,398,761 Exchange rate adjustments – (208,462) (50,215) (10,909) (55,026) (17,523,736) – (17,848,348) Additions – – 494,562 6,600 45,092 5,063,656 9,059,420 14,669,330 Disposals – (836,759) (1,217,781) (262,724) (373,709) (29,302,615) – (31,993,588)

At 31 December 2004 4,955,556 35,196,847 3,247,239 1,317,909 3,650,680 397,798,504 9,059,420 455,226,155

Accumulated depreciation At 1 January 2004 833,152 5,279,454 3,198,616 1,544,458 1,914,793 124,854,343 – 137,624,816 Exchange rate adjustments – (39,083) (41,670) (10,909) (33,546) (5,750,220) – (5,875,428) Depreciation charge 99,309 870,573 463,449 8,831 331,906 21,761,300 – 23,535,368 Disposals – (157,583) (1,200,793) (262,724) (308,485) (19,422,742) – (21,352,327)

At 31 December 2004 932,461 5,953,362 2,419,602 1,279,656 1,904,668 121,442,681 – 133,932,429

Net book value at 31 December 2004 4,023,095 29,243,486 827,637 38,253 1,746,012 276,355,823 9,059,420 321,293,726

Net book value at 31 December 2003 4,122,404 30,962,614 822,057 40,484 2,119,530 314,706,856 – 352,773,945

(i) As at the balance sheet date, the net book value of property, plant and equipment of the Group amounted to $213,151,743 (2003: $283,378,107) is mortgaged to banks to secure long-term bank loans and bank facilities. The details of these property, plant and equipment are disclosed in note 22.

(ii) As at the balance sheet date, the net book value of property, plant and equipment of the Group amounted to $57,892,211 (2003: $62,398,502) is mortgaged to a third party, China Shipbuilding Trading Co., Ltd, to secure term loans. The details of these property, plant and equipment are disclosed in note 23.

(iii) As at the balance sheet date, the net book value of property, plant and equipment of the Group under fi nance leases included in motor vehicles amounted to $148,713 (2003: $124,811).

(iv) The interest capitalised in motor vessels during the fi nancial year amounted to $Nil (2003: $131,501).




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19. Property, plant and equipment (continued)

(a) The Group (continued)

(v) The open market values of the following assets were valued by independent professional valuers at 31 December 2004: The Group

2004 2003

$ $

Buildings on freehold land 2,851,000 3,603,979 Leasehold land and buildings 19,670,000 21,980,000 Motor vessels 323,085,906 328,343,400

345,606,906 353,927,379

(b) The Company Offi ce renovations, furniture, fi xtures and Motor equipment vehicles Total

$ $ $

Cost At 1 January 2004 483,649 389,302 872,951 Additions 38,043 – 38,043 Disposals (63,629) – (63,629)

At 31 December 2004 458,063 389,302 847,365

Accumulated depreciation At 1 January 2004 227,780 172,377 400,157 Disposals (59,522) – (59,522) Depreciation charge 86,673 38,759 125,432

At 31 December 2004 254,931 211,136 466,067

Net book value at 31 December 2004 203,132 178,166 381,298

Net book value at 31 December 2003 255,869 216,925 472,794


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19. Property, plant and equipment (continued)

(c) The Group’s properties as at 31 December 2004, which are all located in Singapore are set out below:

Address Held By Title Description

(i) Riverwalk Apartment, Harington Property Pte Ltd 99 years leasehold commencing Residential apartment Upper Circular Road 15 December 1980 (ii) Grangeford Apartments, Harington Property Pte Ltd 99 years leasehold commencing Residential apartment Leonie Hill Road December 1974 (iii) Suntec City, Harington Property Pte Ltd 99 years leasehold commencing 3 units of offi ce space Temasek Boulevard 1 March 1989 (iv) Roxy Square, Cosco (Singapore) Pte Ltd 9,999 years leasehold commencing 5 units of residential East Coast Road 3 April 1848 apartments

(v) 52 Penjuru Lane Cosco Marine Engineering 30 years leasehold commencing Leasehold industrial land (Singapore) Pte Ltd 15 April 1992 and building for ship repair workshops and production of marine outfi tting components

(vi) Amber Park Garden Costar Shipping Pte Ltd Freehold Residential apartment

(vii) Sarhad Ville, Costar Shipping Pte Ltd Freehold Residential apartment Lorong Sarhad (viii) Buona Vista Garden, Costar Shipping Pte Ltd Freehold Residential apartment Zehnder Road (ix) Margate Mansion, Costar Shipping Pte Ltd Freehold 2 units of residential Margate Road apartments

20. Deferred income taxes

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fi scal authority.

The movements in the deferred income tax account are as follows:


2004 2003 2004 2003

$ $ $ $

At the beginning of the fi nancial year 50,627 613,761 – 888,371 Exchange differences (1,009) (503) – – Tax charged /(credited) to income statement (note 9) 180,288 (562,631) – (888,371)

At the end of fi nancial year 229,906 50,627 – –




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20. Deferred income taxes (continued)

The movements in the Company and the Group’s deferred tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) during the fi nancial year are as follows:

The Group

Deferred income tax liabilities Accelerated tax Interest depreciation receivable Total $ $ $

At 1 January 2004 251,885 – 251,885 Exchange rate adjustments (1,009) – (1,009) Credited to income statement (20,970) – (20,970)

At 31 December 2004 229,906 – 229,906

At 1 January 2003 224,867 1,854,051 2,078,918 Exchange rate adjustments (503) – (503) Charged/(credited) to income statement 27,521 (1,854,051) (1,826,530)

At 31 December 2003 251,885 – 251,885

Deferred tax assets available for offsetting of deferred tax liabilities within the same tax jurisdiction (257)

251,628

Deferred income tax assets Accumulated loss and capital allowances available for Provisions future offsetting Total

$ $ $

At 1 January 2004 42,900 158,358 201,258 Charged to income statement (42,900) (158,358) (201,258)

At 31 December 2004 – – –

At 1 January 2003 20,900 1,444,257 1,465,157 Credited/(charged) to income statement 22,000 (1,285,899) (1,263,899)

At 31 December 2003 42,900 158,358 201,258

Deferred tax assets available for offset against deferred tax liabilities within the same tax jurisdiction (257)

201,001


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20. Deferred income taxes (continued)

The Company

Deferred income tax liabilities

Interest receivable

2004 2003

$ $

At the beginning of fi nancial year – 888,371 Credited to income statement – (888,371)

At the end of fi nancial year – –

21. Trade and other payables The Group The Company

2004 2003 2004 2003

$ $ $ $ Trade payables to: – third parties 15,290,715 8,387,477 – – – ultimate holding corporation (note 34(a)) 12,117,406 9,929,600 – – – related corporations 4,398,928 5,007,203 – – – associated company – 255,696 – –

31,807,049 23,579,976 – –

Advances from: – ultimate holding corporation (note 34(b)) 3,293,755 4,248,750 – – – customers and third parties 244,061 930,810 – –

3,537,816 5,179,560 – –

Non-trade payables to : – related corporations 19,735 13,824,928 – 13,809,048 – subsidiary – – 5,007,593 4,290,334

19,735 13,824,928 5,007,593 18,099,382

Dividend payable on RCCPS (note 25 (b)) – 736 – 736 Rental deposits 300,374 326,566 – – Accrued operating expenses 13,934,699 11,258,362 4,090,346 2,298,106

Total 49,599,673 54,170,128 9,097,939 20,398,224




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21. Trade and other payables (continued)

Trade and other payables are denominated in the following currencies:


2004 2003 2004 2003

$ $ $ $ Singapore 12,190,494 9,034,159 6,750,077 5,147,368 United States Dollar 23,716,844 36,800,046 2,347,862 15,250,856 Others 13,692,335 8,335,923 – –

49,599,673 54,170,128 9,097,939 20,398,224

22. Borrowings The Group The Company

2004 2003 2004 2003

$ $ $ $

Current Bank overdrafts – Secured (See note (a) below) – 8,389,779 – – – Unsecured – 4,128,384 – 4,128,384

– 12,518,163 – 4,128,384

Short-term loans: – associated company (See note(b) below) 500,000 500,000 500,000 500,000 Bank loans - Secured 19,721,504 23,224,514 – – Other term loans (note 23) 6,350,041 6,613,706 – – Finance lease liabilities (note 24) 26,328 20,328 – – Preference shares (note 25) – 439,819 – 439,819

Total 26,597,873 43,316,530 500,000 5,068,203

Non-current Bank loans – Secured 100,810,908 133,376,525 – 19,368,854 – Unsecured – 7,500,000 – 7,500,000

100,810,908 140,876,525 – 26,868,854

Other term loans (note 23) 34,925,162 42,989,022 – – Finance lease liabilities (note 24) 68,974 56,362 – –

Total 135,805,044 183,921,909 – 26,868,854

162,402,917 227,238,439 500,000 31,937,057


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22. Borrowings (continued) (a) Bank overdraft facilities of the Group to the extent of $Nil (2003: $8,389,780) are secured by way of a fi rst legal mortgage on the

leasehold properties at Telok Ayer Street and an assignment over all rental/lease income generated by these properties.

(b) The short-term loan from an associated company is unsecured and repayable on demand.

(c) The Group’s secured long-term bank loans comprise the following: The Group

2004 2003

$ $ Taken up by the Company (i) Secured by a fi rst preferred mortgage over the motor vessels MV Sea Crane, MV Sea Phoenix and – 13,250,654 MV Sea Swan (disposed off in 2004) belonging to certain subsidiaries, an assignment of the time charter agreements of the motor vessels and earnings accounts pledged to the lending bank. The term loan was fully repaid in 2004. The loan bears interest at Nil% (2003: 1.25%) per annum over US Dollar Singapore Inter-bank Offer Rate (SIBOR). (ii) Secured by a fi rst preferred mortgage over the motor vessels MV Cos Angel and MV Jurong Sea – 6,118,200 and a second preferred mortgage over MV Sea Crane, MV Sea Phoenix and MV Sea Swan (after the discharge of (i) above) belonging to certain subsidiaries, an assignment of the time charter agreements of the motor vessels and earnings accounts pledged to the lending bank. The term loan was fully repaid in 2004. The loan bears interest at Nil% (2003: 1.25%) per annum over US Dollar SIBOR.

– 19,368,854

Taken up by subsidiaries (iii) Secured by a fi rst mortgage over the motor vessel MV Cos Cherry and an assignment of the – 11,471,625 vessel’s earnings, fi xed deposit of US$Nil (2003: US$469,176) equivalent to $Nil (2003: $797,365) and insurance coverage. The loan bears interest at Nil% (2003: 0.9%) per annum over three, six or twelve months’ US Dollar SIBOR. The loan was fully repaid during the fi nancial year. (iv) Secured by a fi rst legal mortgage over the motor vessel MV Cos Bonny and an assignment of 14,343,235 16,850,729 the vessel’s earnings, fi xed deposit of US$269,034 (2003: US$265,360) equivalent to $438,995 (2003: $450,979) and insurance coverage. The loan is repayable in 48 equal quarterly instalments of US$281,250 equivalent to $458,929 (2003: $477,984) each and a fi nal instalment of US$4,290,110 (2003: US$4,290,110) equivalent to $7,000,374 (2003: $7,291,042). The fi rst quarterly repayment commenced in February 1997. The loan bears interest at 1% (2003: 1%) per annum over three, six or twelve months’ US Dollar LIBOR. (v) Secured by a fi rst legal mortgage on a subsidiary’s leasehold property at Riverwalk Apartment. 40,207 132,255 The loan is repayable over 10 years at a monthly instalment of $8,336 (2003: $8,336) each. The loan will expire on 1 April 2005. The loan bears interest at 6% (2003: 6%) per annum and is subject to fl uctuations at the lending bank’s discretion. (vi) Secured by a fi rst legal mortgage on a subsidiary’s leasehold properties at Telok Ayer Street and 11,500,000 –

an assignment of all rental/lease income generated by these properties, assignment of insurance policy taken on leasehold properties at Suntec City and corporate guarantees from the immediate holding company. The loan is repayable over 26 equal quarterly instalments of $500,000 (2003: $Nil) each, which commenced in March 2004. The loan bears interest at 1.5% (2003: Nil) per annum over three months S$ Swap Offer rate.




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22. Borrowings (continued)

The Group

2004 2003

$ $

(vii) Secured by a fi rst legal mortgage on a subsidiary’s leasehold properties at Suntec City, 7,620,726 9,636,652 Temasek Boulevard and an assignment of the lease proceeds generated by these properties and insurance policies taken on these properties. The loan is repayable over 31 quarterly instalments of US$250,000 equivalent to $407,937 (2003: $424,875) each, which commenced in September 1997, and a fi nal repayment of US$4,750,000 equivalent to $7,750,798 (2003: $8,072,625). The loan bears interest at 1.25% (2003: 1.25%) per annum over three months’ US Dollar SIBOR.

(viii) Secured by a fi rst legal mortgage on a subsidiary’s leasehold land and building at 52 Penjuru 1,690,000 1,930,000 Lane. The bank loan is repayable in 19 quarterly instalments of $60,000 each, which commenced in January 2002, and a fi nal repayment of $1,210,000. The loan bears interest at the rate of 4.28% (2003: 4.28%) per annum. (x) Secured by a fi rst legal mortgage on a subsidiary’s leasehold and trading properties at Leonie – 589,394 Hill Road and an assignment of the rental proceeds generated by these properties. The loan is repayable over 15 years at a monthly instalment of $5,777 (2003: $5,777) each, which commenced in June 1997, and a fi nal repayment of $5,917. The loan bears interest at 5% per annum for the fi rst year, 5.25% per annum for the second year and 0.5% per annum over the bank’s prime lending rate from the third year onwards. The loan was fully repaid during the fi nancial year.

(xi) Secured by a fi rst and second preferred Panamanian Mortgage over the motor vessel MV Cos 18,686,964 21,678,167 Fair, an assignment of the time charter agreements of the motor vessel, an earnings account and a contract and refund guarantee assignment pledged to the lending banks. The loans are repayable in two tranches. The fi rst tranche which represents 70% of the loan drawn down is repayable over 40 consecutive quarterly instalments of equal amounts of US$325,873, equivalent to $531,742 (2003: $553,821) each, commencing from July 1999 and the second tranche of 30% of US$5,586,400 equivalent to $9,115,591 (2003: $9,494,087) is repayable in one fi nal instalment together with the 40th instalment. The loan bears interest at 1.1125% (2003: 1.1125%) per annum over three months’ US Dollar LIBOR.

Included in the loans is an amount of up to US$1,818,856 (2003: US$2,025,880) equivalent to $2,967,913 (2003: $3,442,983) from a lending fi nancial institution for which the repayment is

subordinated to other lending banks as a second priority lender. (xii) Secured by a fi rst and second preferred Panamanian Mortgage over the motor vessel MV Cos 18,244,721 21,165,134 Glory, an assignment of the time charter agreements of the motor vessel and an earnings account pledged and a contract and refund guarantee assignment to the lending banks. The loans are repayable in two tranches. The fi rst tranche which represents 70% of the loan drawn down is repayable over 40 consecutive quarterly instalments of equal amounts of US$318,161 equivalent to $519,158 (2003: $540,715) each and the second tranche of 30% of US$5,454,193 equivalent to $8,899,863 (2003: $9,269,401) is repayable in one fi nal instalment together with the 40th instalment. The fi rst repayment commenced in September 1999. The loan bears interest at 1.1125% (2003: 1.1125%) per annum over three months’ US Dollar LIBOR.

Included in the loans is an amount of up to US$1,776,158 (2003: US$1,978,322) equivalent to $2,898,240 (2003: $3,362,158) from a lending fi nancial institution for which the repayment is subordinated to other lending banks as a second priority lender.


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22. Borrowings (continued) The Group

2004 2003

$ $ (xiii) Secured by a fi rst preferred Panamanian Mortgage over the motor vessel MV Cos Knight, an 23,737,052 26,651,974 assignment of the time charter agreement of the motor vessel pledged to the lending bank. The loan is repayable in two tranches, where the fi rst tranche which represents 18% of the loan drawn down is repayable over 28 consecutive quarterly instalments commencing from 31 January 2003 and the second tranche of 82% of US$16,787,500, equivalent to $27,392,953 (2003: $28,530,356) is repayable over 40 consecutive instalments plus a fi nal payment of US$4,200,000, equivalent to $6,853,337 (2003: $7,137,900) together with the 40th instalment. The loan bears interest at 1.2% (2003: 1.2%) per annum over three months’ US Dollar LIBOR. (xiv) Secured by a fi rst preferred mortgage over the motor vessel MV Cos Lucky, an assignment 24,669,507 27,126,255 of the time charter agreement of the motor vessel pledged to the lending bank. The loan is repayable in two tranches, where the fi rst tranche which represents 18% of the loan drawn down is repayable over 28 consecutive quarterly instalments commencing from 31 January 2003 and the second tranche of 82% of US$16,787,500, equivalent to $27,392,953 (2003: $28,530,356) is repayable over 40 consecutive instalments plus a fi nal payment of US$4,200,000, equivalent to $6,853,337 (2003: $7,137,900) together with the 40th instalment. The loan bears interest at 1.2% (2003: 1.2%) per annum over three months’ US Dollar LIBOR.

120,532,412 156,601,039

Included in: – Current liabilities 19,721,504 23,224,514 – Non-current liabilities 100,810,908 133,376,525

120,532,412 156,601,039

The loans taken up by subsidiaries set out in note (c)(iii) to (xiv) above are guaranteed by the Company. In addition, the loans taken up by subsidiaries set out in note (c)(xi) to (xiv) above are guaranteed by the previous immediate holding company

[note 34(a)].

(d) The remaining unsecured term loans of the Group and the Company amounting to Nil (2003: $7,500,000) bear interest at Nil (2003: 1.25% to 1.5%) per annum over US Dollar SIBOR and has no fi xed terms of repayment but substantial repayments are

not expected within the next twelve months from the balance sheet date. (e) Interest rate risks

The weighted average effective interest rates at the balance sheet date are as follows:

The Group 2004 2003

SGD USD Others SGD USD Others

Bank overdrafts – – – 5.92% 2.09% – Bank loans 2.43% 3.33% – 2.43% 2.16% – Other term loans – 3.30% – – 2.58% – Redeemable preference shares – – – 3.80% – – Loan from associate company 1.00% – – 1.00% – –




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(e) Interest rate risks (continued)

The weighted average effective interest rates at the balance sheet date are as follows:

The Company 2004 2003

SGD USD Others SGD USD Others

Bank overdrafts – – – 5.60% 2.10% – Bank loans – – – 2.43% 2.40% – Redeemable preference shares – – – 3.80% – – Loan from associate company 1.00% – – 1.00% – –

The exposure of current and non-current borrowings to interest rate risks is disclosed in note 32(ii).

(f) Maturity of borrowings

The current borrowings have an average maturity of 7 months (2003: 7.4 months) from the end of the fi nancial year.

The repayment of non-current borrowings [excluding fi nance lease liabilities (note 24) and preference shares (note 25)] are as follows:


2004 2003 2004 2003

$ $ $ $ Between 1 and 2 years 18,516,511 38,746,740 – 13,618,200 Between 2 and 5 years 81,131,492 66,117,859 – 13,250,654 Over 5 years 36,088,067 79,000,948 – –

135,736,070 183,865,547 – 26,868,854

(g) Fair value of non-current borrowings

The carrying amounts of current borrowings approximate their fair values.

The fair values of non-current borrowings (as defi ned in note 22(f)) approximate their carrying amounts at balance sheet date.

The fair values are based on discounted cash out fl ows using a discount rate which the directors expect would be available to the Group at the balance sheet date.


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(h) Currency risk

The carrying amounts of total borrowings are denominated in the following currencies: The Group The Company

2004 2003 2004 2003

$ $ $ $ Singapore Dollar 13,825,503 26,457,814 500,000 15,339,695 United States Dollar 148,577,414 200,780,625 – 16,597,362 Others – – – –

162,402,917 227,238,439 500,000 31,937,057

23. Other term loans

(a) This represents loans obtained from a third party, China Shipbuilding Trading Co., Ltd (“CSTCL”) for the construction of motor vessels and are repayable by quarterly instalments from 2003 to 2011. The loans bear interest at a rate of 1% (2003: 1%) over US Dollar

LIBOR per annum.

The loans are secured by the following:

(i) a fi rst legal mortgage over the motor vessels MV Cos Joy and MV Cos Intrepid;

(ii) an assignment of the charter earnings, requisition compensation and insurance coverage relating to the above vessels;

(iii) corporate guarantees from related corporations; and

(iv) bank fi xed deposits with a fi nancial institution of the Group jointly held with CSTCL (note 11).

24. Finance lease liabilities

(a) The Group

2004 2003

$ $ Minimum lease payments due: – not later than one year 31,728 24,384 – later than one year but not later than fi ve years 83,357 67,422

115,085 91,806 Less: Future fi nance charges (19,783) (15,116)

Present value of fi nance lease liabilities 95,302 76,690

The present value of fi nance lease liabilities may be analysed as follows: – not later than one year (note 22) 26,328 20,328 – later than one year but not later than fi ve years (note 22) 68,974 56,362

95,302 76,690

(b) The weighted average effective interest rate at the balance sheet date is 5.7% (2003: 5.41%) per annum.




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25. Preference shares

(a) Information relating to the preference shares as required by the Singapore Companies Act is as follows: The Group and the Company

2004 2003

$ $

Authorised preference share capital: 37,829,333 (2003: 37,829,333) 3.8% RCCPS of $0.01 each 378,293 378,293

Issued and fully paid preference share capital: Nil (2003: 293,213) RCCPS of $0.01 each – 2,932 Share premium account – 436,887

Obligation on redemption of RCCPS – 439,819

(b) In 1999, the Company issued 33,453,283 of RCCPS of $0.01 each at $1.50. The RCCPS holders have the right to receive a fi xed gross preferential dividend of 5.7 cents (3.8% of the issue price) per annum for each RCCPS, payable annually in arrears on each dividend payment date in priority to any dividend or distribution in favour of any other classes of shares.

As a result of the share split in 2000, the RCCPS holders are entitled to convert all or any of their RCCPS into fully paid ordinary shares of $0.20 each based on the conversion ratio of fi ve ordinary shares of $0.20 each for every one RCCPS held subject to adjustment under certain circumstances in accordance with the Articles of Association (“AA”) of the Company, or such other ratio as may be prescribed by the directors of the Company for a new issue of preference shares, commencing on and including the date of the fi rst anniversary of the issue date of the RCCPS (15 November 2000) up to the fi nal redemption date which is on 15 November 2004.

The RCCPS holders are not entitled to attend or vote at any General Meeting other than under the circumstances set out in the AA of the Company.

The share premium account cannot be used except for payment of premium on the redemption of RCCPS.

During the fi nancial year, 256,548 RCCPS of $0.01 each were converted to 1,282,740 ordinary shares of $0.20 each (note 27), while 36,665 RCCPS of $0.01 each were redeemed by the Company at $1.50 per RCCPS on the fi nal redemption on 15 November 2004.

(c) Dividend paid and payable on RCCPS

The Group and the Company

2004 2003

$ $

At the beginning of fi nancial year 736 188,300 Fixed dividend on RCCPS of 5.7 cents (2003: 5.7 cents) per share per annum net of tax at 20% (2003: 22%) 5,723 1,041,004 Dividends paid (6,459) (1,228,568)

At the end of fi nancial year – 736


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26. Provision for the liabilities and charges


2004 2003 2004 2003

$ $ $ $

Current Provision for off hire claim on freight and hire income (note (a)) 2,466,343 2,288,361 – –

Non-current Club membership payable 96,800 107,360 96,800 107,360 Income received in advance (note (b)) 4,028,525 4,386,165 – – 4,125,325 4,493,525 96,800 107,360

6,591,668 6,781,886 96,800 107,360

(a) Movements in provision for off hire claim on freight and hire income are as follows:

The Group

2004 2003

$ $

At the beginning of fi nancial year 2,288,361 1,883,339 Provision made during the fi nancial year 292,083 506,014 Amount utilised during the fi nancial year – (49,625) Exchange rate adjustments (114,101) (51,367)

At the end of fi nancial year 2,466,343 2,288,361

(b) Income received in advance represents amounts received from a lessee of the Group’s motor vessels. The income received in advance is recognised on a straight line basis over the lease period. In the event of pre-mature termination of the lease, the amount of outstanding income received in advance is repayable to the lessee.

27. Share capital of the Company

(a) Authorised ordinary share capital

The total authorised number of ordinary shares is 1.25 billion shares (2003: 1.25 billion shares) with a par value of $0.20 per share (2003: $0.20 per share).




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27. Share capital of the Company (continued)

(b) Issued ordinary share capital 2004 2003 2004 2003

Shares Shares $ $

At the beginning of fi nancial year 898,237,659 624,727,309 179,647,532 124,945,462 Issue of fully paid ordinary shares of $0.20 each on the exercise of options granted under the Cosco Group Employees’ Share Option Scheme comprising, Nil (2003: 2,115,000) 1998 Options at $0.20 (2003:$ 0.20) each, 80,000 (2003: 2,160,000) 1999 Options at $0.2288 2003: $0.2288) each, 595,000 (2003: 3,435,000) 2002 Options at $0.20 (2003: $0.20) each, and 4,195,000 (2003: Nil) 2003 options at $0.20 (2003: $0.20) each, for cash 4,870,000 7,710,000 974,000 1,542,000 Issue of fully paid ordinary shares of $0.20 each for private placement – 100,000,000 – 20,000,000 Issue of fully paid ordinary shares of $0.20 each on conversion of RCCPS 1,282,740 165,800,350 256,548 33,160,070 Issue of fully paid ordinary shares of $0.20 each on bonus issue of 1 ordinary share for every 5 existing ordinary share 180,757,078 – 36,151,415 –

At the end of fi nancial year 1,085,147,477 898,237,659 217,029,495 179,647,532

All issued shares are fully paid. The newly issued ordinary shares rank pari passu in all respects with the previously issued ordinary shares.

(c) Share Options

Share options are granted to management and key employees under Cosco Employees’ Share Option Schemes. Options are exercisable beginning one year from the date of grant and have a contractual option term of 10 years. Movements in the number of share options on ordinary shares outstanding at the end of the fi nancial year and their exercise prices are as follows:

The Group and the Company Financial year ended 31 December 2004

Options relating to Cosco Group At the Granted Exercised Lapsed At the Employees’ Share beginning during the during the during the end of the Exercise Option Scheme of the year fi nancial year fi nancial year fi nancial year fi nancial year Price Exercise Period

$

1999 Options 80,000 – (80,000) – – 0.2288 30.9.2000 – 29.9.2004 2002 Options 1,395,000 – (595,000) – 800,000 0.20 12.8.2003 –11.8.2012 2003 Options 5,115,000 – (4,195,000) – 920,000 0.20 1.4.2004 – 31.3.2013 2004 Options – 15,340,000 – (930,000) 14,410,000 0.735 24.5.2005 – 23.5.2014

6,590,000 15,340,000 (4,870,000) (930,000) 16,130,000


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27. Share capital of the Company (continued)

On 24 May 2004, 15,340,000 share options were granted to directors and employees with an exercise price of $0.735 pursuant to the 2004 Options to 2 executive directors, 10 non-executive directors and 55 employees of the Group and its parent company. These options are exercisable from 24 May 2005 to 23 May 2014.

Financial year ended 31 December 2003

Options relating to Cosco Group At the Granted Exercised Lapsed At the Employees’ Share beginning during the during the during the end of the Exercise Option Scheme of the year fi nancial year fi nancial year fi nancial year fi nancial year Price Exercise Period

$

1998 Options 3,000,000 – (2,115,000) (885,000) – 0.20 9.11.1999 – 8.11.2003 1999 Options 3,190,000 – (2,160,000) (950,000) 80,000 0.2288 30.9.2000 – 29.9.2004 2002 Options 5,860 ,000 – (3,435,000) (1,030,000) 1,395,000 0.20 12.8.2003 – 11.8.2012 2003 Options – 5,435,000 – (320,000) 5,115,000 0.20 1.4.2004 – 31.3.2013

12,050,000 5,435,000 (7,710,000) (3,185,000) 6,590,000

28. Other reserves


2004 2003 2004 2003

$ $ $ $

Non-distributable reserves: Share premium At the beginning of fi nancial year 26,972,043 11,184,734 26,972,043 11,184,734 Premium on the exercise of options granted under the Cosco Group Employees’ Share Option Scheme 2,304 62,208 2,304 62,208 Expenses incurred for the issue of ordinary shares through a private placement – (628,368) – (628,368) Premium arising from issue of ordinary shares through a private placement – 140,000 – 140,000 Premium arising from issue of ordinary shares on conversion of RCCPS 128,274 16,213,469 128,274 16,213,469 Bonus issue of 1 ordinary share for every 5 existing ordinary shares of $0.20 each (27,092,122) – (27,092,122) –

At the end of fi nancial year 10,499 26,972,043 10,499 26,972,043

Statutory reserve At the beginning of fi nancial year 3,382,401 – – – Transfer (to)/from retained profi ts (26,500) 3,382,401 – –

At the end of fi nancial year 3,355,901 3,382,401 – –




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28. Other reserves (continued)


2004 2003 2004 2003

$ $ $ $

Distributable reserve: Realised surplus on long-term investments 68,780 68,780 526,716 526,716

Total other reserves 3,435,180 30,423,224 537,215 27,498,759

Statutory reserve represents the amount set aside in compliance with the local laws in the PRC where the associated companies of the Group reside.

29. Dividends The Group and the Company

2004 2003

$ $ First and fi nal dividend paid in respect of the previous fi nancial year of 1.0 (2003: 0.7) cent per ordinary share 7,230,284 3,411,011

At the Annual General Meeting on 20 April 2005, a fi nal and exempt (one-tier) dividend of 2 cents per share amounting to a total of $21,703,000 (2003 : $7,230,000), based on current number of shares issued as of 31 December 2004, will be recommended. These fi nancial statements do not refl ect this dividend, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the fi nancial year ending 31 December 2005.

30. Contingent liabilities (unsecured)

As at the balance sheet date, the Company had given the following unsecured guarantees and indemnities:

The Company

2004 2003

$ $

(i) Guarantees given to banks in connection with bank facilities provided to subsidiaries 225,343,774 220,973,814 (ii) Counter-indemnity given to a related corporation in respect of banking facilities entered into by an associated company 30,533,297 29,561,775 (iii) Counter-indemnity given to a related corporation in respect of banking facilities entered into by subsidiaries 57,150,306 59,523,288 (iv) Guarantees given to banks in connection with bank facilities provided to related companies 9,124,901 36,503,783 (v) Guarantee given to third party in connection with services provided to a subsidiary 200,000 –

322,352,278 346,562,660

The directors are of the view that no losses are anticipated in respect of the above guarantees and indemnities.


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31. Commitments

(a) Capital and investment commitments Capital and investment expenditure contracted for at the balance sheet date but not recognised in the fi nancial statements are as follows: The Group The Company

2004 2003 2004 2003

$ $ $ $

Motor vessel under construction 60,374,638 – – – Acquisition of COSCO Shipyard Group Co. Ltd 113,955,590 – – –

174,330,228 – – –

Motor vessel under construction On 26 November 2003, two wholly owned subsidiaries of Cosco (Singapore) Pte Ltd, (“the subsidiaries”) each signed a conditional shipbuilding contract with Nantong Cosco KHI Shipping Inc. (“Nantong Cosco”) to purchase a new 55,000 metric ton deadweight type motor bulk carrier at a purchase consideration of US$18,500,000 (equivalent to $30,187,319) for each vessel. The conditional shipbuilding contracts were approved by the shareholders of the Company at an Extra-ordinary General Meeting held on 20 April 2004.

The construction of the two vessels by Nantong Cosco is expected to be completed by the third quarter of 2006. Under the conditional shipbuilding contracts, Cosco (Singapore) Pte Ltd has issued letters of guarantee to Nantong Cosco to undertake to perform the obligations of the subsidiaries in the event that the subsidiaries fail to do so.

Acquisition of COSCO Shipyard Group Co. Ltd On 11 September 2004, the Company entered into a conditional acquisition agreement with China Ocean Shipping (Group) Company, Guangzhou Ocean Shipping Company, Shanghai Ocean Shipping Company and Tianjin Ocean Shipping Company for the acquisition of an aggregate of 51% interest in the registered capital in Cosco Shipyard Group Co., Ltd. The purchase consideration amounts to RMB578,000,000 equivalent to $113,955,590 is to be satisfi ed by three instalments after the Company obtained the business licence from the PRC regulatory authority. The required business licence was issued on 1 January 2005.

(b) Operating lease commitments – where a group company is a lessee

The Group leases various warehouses and motor vessels under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights.

The Group also leases various offi ce premises and staff apartments under cancellable operating lease agreements. The lease expenditure charged to the income statement during the fi nancial year is disclosed in note 5.

The future aggregate minimum lease payments under non-cancellable operating leases contracted for at the reporting date but not recognised as liabilities, are as follows:


2004 2003 2004 2003

$ $ $ $

Not later than 1 year 4,057,793 3,977,223 – – Later than 1 year but not later than 5 years 15,731,740 16,039,619 – – Later than 5 years 17,990,078 18,095,684 – –

37,779,611 38,112,526 – –

Included in the above lease commitments is an arrangement whereby a subsidiary of the Company has entered into an agreement with a third party to bareboat charter a motor vessel for fi fteen years from the date of delivery of the motor vessel, which was on 12 January 1999, at a fi xed rate of Yen 620,000 per day equivalent to $9,858 (2003: $9,828). The bareboat charter rental can be revised from time to time upon mutual consent by both parties.




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31. Commitments (continued)

(c) Operating lease commitments – where a group company is a lessor

The future aggregate minimum lease receivables under non-cancellable operating leases contracted for at the reporting date but not recognised as receivables, are as follows:


2004 2003 2004 2003

$ $ $ $

Not later than 1 year 56,428,337 61,060,065 – – Later than 1 year but not later than 5 years 35,954,623 14,683,668 – – Later than 5 years 67,053,244 55,277,303

159,436,204 131,021,036 – –

(d) Others

The Company has given undertaking to continue to provide fi nancial support to certain subsidiaries for at least the next twelve months from the balance sheet date.

32. Financial risk management

Financial risk factors

The Group’s activities expose it to a variety of fi nancial risks: price risk (including currency risk, fair value interest risk and market risk), credit risk, liquidity risk and cash fl ow interest rate risk.

Risk management is carried out under policies approved by the Board of Directors. The Board approves guidelines for overall risk management, as well as policies covering these specifi c areas.

(i) Foreign exchange risk Foreign currency exchange rate risks arise from borrowings in foreign currencies.

The Group monitors its foreign currency exchange risks closely and will use derivative fi nancial instruments to hedge their exposure when the exposure is signifi cant.

(ii) Interest rate risk Cash fl ow interest rate risk is the risk that the future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a fi nancial instrument will fl uctuate due to changes

in market interest rates. As the Group has no signifi cant interest-bearing assets, the Group’s income and operating cash fl ows are substantially independent of changes in market interest rates.

The Group’s interest risk mainly arises from non-current borrowings. The Group monitors the interest rates on borrowings closely to ensure that the borrowings are maintained at favourable rates and will use derivative fi nancial instruments to hedge their exposures when the exposure is signifi cant.


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32. Financial risk management (continued)

(ii) Interest rate risk (continued)

The tables below set out the Group and the Company’s exposure to interest rate risks. Included in the tables are the assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.

The Group Variable rates Fixed rates Less than 6 to 12 Less than 6 to 12 1 to 5 Over Non-interest 6 months months 6 months months years 5 years bearing Total

$ $ $ $ $ $ $ $

At 31 December 2004 Assets Cash and cash equivalents – – 30,689,744 – – – 63,356,614 94,046,358 Trade and other receivables and other assets – – – 200,000 – – 21,632,351 21,832,351 Investments – – – – – – 428,179,795 428,179,795

Total assets – – 30,689,744 200,000 – – 513,168,760 544,058,504

Liabilities Borrowings 160,077,408 – 729,509 120,000 1,476,000 – – 162,402,917 Other liabilities – – – – – – 58,091,717 58,091,717

Total liabilities 160,077,408 – 729,509 120,000 1,476,000 – 58,091,717 220,494,634

At 31 December 2003 Assets Cash and cash equivalents – – 12,901,736 – – – 73,222,414 86,124,150 Trade and other receivables and other assets – – – 9,000 200,000 – 23,527,733 23,736,733 Investments – – – – – – 454,031,784 454,031,784

Total assets – – 12,901,736 9,000 200,000 – 550,781,931 563,892,667

Liabilities Borrowings 211,052,118 – 12,724,083 666,067 2,622,720 173,451 – 227,238,439 Other liabilities – – – – – – 62,722,888 62,722,888

Total liabilities 211,052,118 – 12,724,083 666,067 2,622,720 173,451 62,722,888 289,961,327




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The Company

Variable rates Fixed rates Less than 6 to 12 Less than 6 to 12 1 to 5 Over Non-interest 6 months months 6 months months years 5 years bearing Total

$ $ $ $ $ $ $ $

At 31 December 2004 Assets Cash and cash equivalents – – – – – – 41,953,900 41,953,900 Trade and other receivables and other assets – – – 200,000 – – 17,588,208 17,788,208 Investments – – – – – – 197,805,594 197,805,594

Total assets – – – 200,000 – – 257,347,702 257,547,702

Liabilities Borrowings – – – 500,000 – – – 500,000 Other liabilities – – – – – – 9,850,093 9,850,093

Total liabilities – – – 500,000 – – 9,850,093 10,350,093

At 31 December 2003 Assets Cash and cash equivalents – – – – – – 53,406,818 53,406,818 Trade and other receivables and other assets – – 2,000,000 9,000 200,000 – 347,438 2,556,438 Investments – – 5,622,224 – – – 224,316,451 229,938,675

Total assets – – 7,622,224 9,000 200,000 – 278,070,707 285,901,931

Liabilities Borrowings 26,868,854 – 4,128,384 939,819 – – – 31,937,057 Other liabilities – – – 13,809,048 – – 7,312,784 21,121,832

Total liabilities 26,868,854 – 4,128,384 14,748,867 – – 7,312,784 53,058,889


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The exposure of current and non-current borrowings to interest rate risks is as follows:

Variable rates Fixed rates Less than 6 to 12 Less than 6 to 12 1 to 5 Over 6 months months 6 months months years 5 years Total $ $ $ $ $ $ $

The Group At 31 December 2004 Borrowings 160,077,048 – 729,869 120,000 1,476,000 – 162,402,917

At 31 December 2003 Borrowings 211,052,118 – 12,724,105 666,067 2,622,720 173,429 227,238,439

The Company At 31 December 2004 Borrowings – – – 500,000 – – 500,000

At 31 December 2003 Borrowings 26,868,854 – 4,128,384 939,819 – – 31,937,057

(iii) Credit risk The Group has no signifi cant concentration of credit risk. The Group has policies in place to ensure that customers are of adequate fi nancial standing and appropriate credit history.

(iv) Liquidity risk Prudent liquidity risk management implies maintaining suffi cient cash and the availability of funding through an adequate

amount of available credit facilities. Due to the dynamic nature of the underlying businesses, the Group aims at maintaining fl exibility in funding by keeping credit lines available.

33. Derivative fi nancial instruments

(a) At 31 December 2003, the Company held an interest rate swap for a notional amount of US$60,000,000 (equivalent to $97,904,820) which expires in August 2005. In 2003, the Company reviewed the effective interest rate which it pays on the Group’s US$60,000,000 (equivalent to $97,904,820) bank loans taking into account the above interest rate swap contract. Arising from the review and management’s discussions with the bankers of the Company, the Company entered into an interest rate swap of the same amount which effectively unwound the original interest rate swap and at the same time, it entered into another interest rate swap of US$60,000,000 (equivalent to $97,904,820).

(b) In 2003, the Company also entered into another interest rate swap for a notional amount of US$120,000,000 (equivalent to $195,809,640). This interest rate swap will cover the period from August 2005 (on the expiry of the interest rate swap contracts as described in (a) above ) to November 2005.




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33. Derivative fi nancial instruments (continued)

The table below sets out the favourable and unfavourable fair values of the outstanding interest rate swap contracts of the Group and the Company at the balance sheet date:

The Group and the Company

2004 2003

$ $ Favourable fair value of interest rate swap contracts 226,643 95,259

Unfavourable fair value of interest rate swap contracts 4,282,992 7,922,318

The fair values of the interest rate swap contracts have been calculated using the rates quoted by the Company’s bankers to determine the cost to the Company should these contracts be terminated at the balance sheet date.

At 31 December 2004, the fi xed interest rates of the outstanding interest rate swap contracts vary from 2.55% to 3.3% (2003: 3.0% to 3.3%), while the fl oating interest rates are mainly linked to the London Interbank Offered Rates.

34. Holding and ultimate holding corporations

(a) The Company’s immediate and ultimate holding corporation is China Ocean Shipping (Group) Company, registered in the People’s Republic of China. The Company’s previous immediate holding company is Cosco Holdings (Singapore) Pte Ltd, incorporated in Singapore.

(b) Advance from ultimate holding corporation

The advance from ultimate holding corporation of $3,293,755 (2003: $4,248,750) is unsecured, interest free and repayable on demand (note 21).

35. Related party transactions

(a) Other than as disclosed elsewhere in the fi nancial statements, the Group had the following related party transactions with related corporations and related parties on terms agreed by the parties concerned:


2004 2003 2004 2003

$ $ $ $ Subsidiaries: Revenue Sales to related corporations 13,476,312 12,466,762 – – Rental income received from related corporations 558,764 1,037,057 – – Rental income received from immediate holding corporation – 167,694 – – Vessel rental income received from a related corporation 9,007,260 7,072,267 – – Service income received from a related corporation 436,142 501,751 – – Gain on sale of subsidiaries to immediate holding company – 23,132 – – Consultancy fee received from related corporation 134,368 – – –


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35. Related party transactions (continued) The Group The Company

2004 2003 2004 2003

$ $ $ $ Subsidiaries: Expenditure Purchases from related corporations 2,788,007 2,580,184 – – Rental paid to subsidiaries – – 502,597 497,286 Vessel rental paid to a related corporation 1,032,627 1,532,787 – – Management fee paid to related parties 357,544 326,989 – – Crew wages paid to related corporations 5,247,938 5,446,272 – – Loss on sale of subsidiaries/subsidiary to immediate holding company – – – 1 Agency fees paid to related corporations 68,215 – – – Ship construction costs paid to a related corporation 9,389,612 – – – Associated companies: Revenue Sales to related corporations 14,137,823 6,869,631 – – Expenditure Management fee paid to a related corporation 4,983,984 1,220,370 – –

(b) The related parties refer to corporations in which certain directors of subsidiaries have substantial fi nancial interests. (c) Share options granted to key management

The aggregate number of share options granted to key management of the Group during the fi nancial year was 7,590,000 (2003: 3,965,000). The share options were given on the same terms and conditions as those offered to other employees of the Company (note 27). The outstanding number of share options granted to key management of the Group at the end of fi nancial year was 9,310,000 (2003: 5,165,000).

(d) Key management’s remuneration

The key management’s remuneration includes fees, salary, bonus, commission and other emoluments (including benefi ts-in-kind) computed based on the cost incurred by the Group and the Company, and where the Group or Company did not incur any costs, the value of the benefi t. The key management’s remuneration is as follows:

The Group

2004 2003

$ $ Key management of the Group: – directors of the Company 3,746,701 1,757,723 – directors of subsidiaries 1,869,150 1,540,211

5,615,851 3,297,934

(e) Loans to subsidiaries

The loans to subsidiaries amounting to $Nil (2003:$2,000,000), as set out in note 12, are unsecured, bear interest at the three-month deposit rate plus 1.5%.




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36. Group segmental information

(a) Primary reporting format – business segments Ship Rental repairing and of property marine related and property Investment Shipping activities trading holding The Group

$ $ $ $ $

Year ended 31 December 2004 Revenue 111,241,879 3,878,218 1,225,455 – 116,345,552 Segment result 51,913,182 205,415 41,290 (4,525,439) 47,634,448 Exceptional gain 448,307 Finance costs – net (10,766,596) Share of results of associated companies 36,433,865 Amortisation of goodwill on acquisition of an associated company (578,154)

Profi t before tax 73,171,870 Income tax expense (6,142,167)

Group profi t from ordinary activities 67,029,703 Minority interest (830,616)

Net profi t after tax and minority interests 66,199,087

Segment assets 364,755,588 7,101,613 45,402,971 43,630,634 460,890,806 Investments in associated companies 83,167,698

Consolidated total assets 544,058,504

Segment liabilities 50,211,952 1,346,348 445,730 4,187,311 56,191,341 Borrowings 162,402,917 Current income tax liabilities 1,670,470 Deferred income tax liabilities 229,906

Consolidated total liabilities 220,494,634

Other segment items Capital expenditure 14,565,283 57,994 8,010 38,043 14,669,330 Depreciation of property, plant and equipment 22,587,830 264,518 557,588 125,432 23,535,368 Depreciation of investment properties – – 113,550 – 113,550

The division of the Group’s results, assets and liabilities into activities has been ascertained by reference to direct identifi cation of assets, liabilities and revenue/cost centres.


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36. Group segmental information (continued)

(a) Primary reporting format – business segments (continued) Ship Rental repairing and of property marine related and property Investment Shipping activities trading holding The Group

$ $ $ $ $

Year ended 31 December 2003 Revenue 86,278,152 2,839,015 2,825,113 – 91,942,280 Segment result 26,476,641 474,521 905,357 (4,347,821) 23,508,698 Exceptional gain 340,363 Finance costs – net (10,781,180) Share of results of associated companies 17,577,661 Amortisation of goodwill on acquisition of an associated company (578,154)

Profi t before tax 30,067,388 Income tax expense (4,918,626)

Group profi t from ordinary activities 25,148,762 Minority interest (862,128)

Net profi t after tax and minority interests 24,286,634

Segment assets 379,441,448 6,498,328 53,525,583 54,416,371 493,881,730 Investments in associated companies 69,809,936 Deferred income tax assets 201,001

Consolidated total assets 563,892,667

Segment liabilities 43,749,608 521,060 466,094 16,215,252 60,952,014 Borrowings 227,238,439 Current income tax liabilities 1,519,246 Deferred income tax liabilities 251,628

Consolidated total liabilities 289,961,327

Other segment items Capital expenditure 31,507,532 2,999 28,597 7,297 31,546,425 Depreciation of property, plant and equipment 22,452,610 269,059 617,284 122,635 23,461,588 Depreciation of investment properties – – 151,400 – 151,400

The division of the Group’s results, assets and liabilities into activities has been ascertained by reference to direct identifi cation of assets, liabilities and revenue/cost centres.




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36. Group segmental information (continued)

(a) Primary reporting format – business segments (continued)

There are no sales or other transactions between the business segments. Segment assets consist primarily of trading properties, investment properties, property, plant and equipment, inventories, receivables and operating cash, and mainly exclude investments in associated companies. Segment liabilities comprise operating liabilities and exclude items such as current and deferred tax liabilities, provision and borrowings. Capital expenditure comprises additions to property, plant and equipment.

(b) By geographical locations

The Company and its subsidiaries operate principally in Singapore and Malaysia except for the Group’s shipping companies which cover the world’s shipping routes. As such, it would not be meaningful to allocate revenue, total assets and capital expenditure to specifi c geographical segments for the Group’s shipping activities.

37. Comparatives

Where necessary, comparatives have been adjusted to conform with changes in presentation in the current fi nancial statements.

38. Authorisation of fi nancial statements

These fi nancial statements were authorised for issue in accordance with a resolution of the Board of Directors of Cosco Corporation (Singapore) Limited on 23 March 2005.


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113Five-Year Summary

Notes 2000 2001 2002 2003 2004

$’000 $’000 $’000 $’000 $’000

Income StatementTurnover 161,931 152,145 102,441 91,942 116,346

Operating profi t before taxation and extraordinary items 13,979 16,639 2,298 13,067 37,316

Share of (loss)/profi t of associated companies before tax 1 (35) (54) 4,178 17,000 35,856

13,944 16,693 6,476 30,067 73,172

Income tax expense (3,556) (2,770) (1,467) (4,918) (6,142)

Profi t from ordinary activities after tax 10,388 13,923 5,009 25,149 67,030Minority interest (1,035) (684) (1,110) (862) (831)

Net profi t for the fi nancial year 9,353 13,239 3,899 24,287 66,199

Gross dividend 2,784 3,744 4,373 8,982 21,703Net dividend 2,102 2,921 3,411 7,186 21,703

Balance SheetShare Capital 111,360 111,485 124,945 179,648 217,029Capital reserves 15,813 18,376 11,025 25,780 (10,409)Retained earnings 31,749 47,395 48,373 65,866 115,308Minority interest 3,911 3,429 2,553 2,637 1,636

162,833 180,685 186,896 273,931 323,564

Deferred income tax assets – – 494 201 – Property, plant and equipment 246,480 329,712 350,773 352,774 321,294Investment properties 95,937 97,345 30,427 30,275 –Investment in associated companies 886 928 28,229 69,810 83,168Loan to related companies 22,011 23,419 22,791 – –Club memberships 676 355 358 437 383Other investments 1,855 7,810 7,348 120 120Deferred expenditure – 1,314 – – 847Non-trade receivables 1,091 938 882 1,064 830Net current assets/(liabilities) (4,375) (365) 32,812 7,917 57,083Non-current liabilities (201,728) (280,771) (287,218) (188,667) (140,161)

162,833 180,685 186,896 273,931 323,564

RatioBasic earning per share (cents) 2 1.41 1.98 0.53 2.70 6.11Dividend per share – gross (%) 2.5 3.0 3.5 5.0 10.0Dividend cover (times) 3 4.4 4.5 1.1 3.4 3.1Net tangible assets per share (cents) 23.8 26.3 23.9 24.8 29.3Gearing Ratio (Net of Cash) 4 1.5 1.7 1.6 0.5 0.2

Notes1 The equity method of accounting has been applied as from 1979. The share of (loss)/profi t of associated companies is net of amortisation

of goodwill.2 Earnings per share is calculated on the consolidated profi t after tax, minority interest and preference dividend by the weighted average

number of ordinary shares in issue during the year.3 The dividend cover is calculated on the consolidated profi t after tax and minority interest divided by the amount of equity dividend.4 Gearing ratio is derived by taking total indebtedness (net of cash) over the shareholders’ funds.5 Basic earning per share and net tangible assets per share have been adjusted to account for the bonus shares issued in 2004.


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Authorised Share Capital S$250,000,000 comprising 1,250,000,000 ordinary shares of S$0.20 each

Class of Shares : Ordinary Shares of S$0.20 each, fully paid Voting Rights : One vote per share

Substantial shareholders as at 9 March 2005 as shown in the Register of Substantial Shareholders

Name of Substantial Shareholder Number of shares of $0.20 each fully paid Direct Deemed Total %

China Ocean Shipping (Group) Company 597,282,744 – 597,282,744 55.04 Seletar Investments Pte Ltd 55,200,000 – 55,200,000 5.09 Temasek Holdings (Pte) Ltd – 116,365,000 116,365,000 10.72

SHAREHOLDERS DISTRIBUTION AS AT 9 MARCH 2005 Size of Holdings No. of Holders % No. of Shares %

1 – 999 135 2.69 51,748 0.011,000 – 10,000 2,984 59.55 16,281,161 1.5010,001 – 1,000,000 1,865 37.22 84,210,115 7.761,000,001 and above 27 0.54 984,604,453 90.73

Grand Total 5,011 100.00 1,085,147,477 100.00


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114Disclosure Requirements Under Listing Manual



115Disclosure Requirements

Under Listing Manual

20 LARGEST REGISTERED SHAREHOLDERS AS AT 9 MARCH 2005 No. Name of Shareholder Shareholdings %

1. China Ocean Shipping (Group) Company 597,282,744 55.042. DBS Nominees Pte Ltd 57,261,895 5.283. Seletar Investments Pte Ltd 55,200,000 5.094. Raffl es Nominees Pte Ltd 47,354,772 4.365. Citibank Nominees Singapore Pte Ltd 44,140,200 4.076. SembCorp Marine Ltd 39,600,000 3.657. DB Nominees (S) Pte Ltd 28,716,000 2.648. HSBC (Singapore) Nominees Pte Ltd 24,713,318 2.289. Morgan Stanley Asia (Singapore) Sec. Pte Ltd 24,393,303 2.2510. United Overseas Bank Nominees Pte Ltd 15,439,700 1.4211. Merrill Lynch (Singapore) Pte Ltd 9,302,720 0.8612. Hui Shune Ming @ Hui Shun Meng 5,380,000 0.49 13. OCBC Securites Private Ltd 4,984,800 0.46 14. Overseas Union Bank Nominees Pte Ltd 4,428,000 0.41 15. Lee Fook Choy 3,500,000 0.32 16. DBS Vickers Securities (S) Pte Ltd 2,843,600 0.26 17. UOB Kay Hian Pte Ltd 2,469,400 0.23 18. Citibank Consumer Nominees Pte Ltd 2,455,800 0.23 19. Mark Bowden 2,400,000 0.22 20. OCBC Nominees Singapore Private Limited 1,960,200 0.18

Total: 973,826,452 89.74

Based on information available to the Company as at 9 March 2005, approximately 34.24% of the issued ordinary shares of the Company are held in the hands of the public. This in compliance with Rule 723 of the Listing Manual of the SGX-ST.


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COSCO CORPORATION (SINGAPORE) LIMITED(Incorporated in the Republic of Singapore)

Registration No. 196100159G

NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at Pan Pacifi c Singapore, 7 Raffl es Boulevard, Marina Square, Singapore 039595, Pacifi c Ballroom 3, Level 1, on Wednesday, 20 April 2005, at 11.00 a.m., to transact the following businesses:

Ordinary Business1. To receive and adopt the Directors’ Report and Audited Financial Statements for the fi nancial year ended 31 December 2004 and the

Auditors’ Report thereon. (Resolution 1).

2. To declare a fi nal dividend of S$0.02 per ordinary share of S$0.20 (one-tier tax) as recommended by the Directors. (Resolution 2)

3. To approve payment of Directors’ Fees of S$140,000 (2003: S$140,000) for the year ended 31 December 2004. (Resolution 3)

4. To re-elect the following directors who are retiring under Article 98 of Articles of Association of the Company and has offered themselves for re-election:

a) Mdm Sun Yueying (Resolution 4)

Note: Mdm Sun Yueying is a member of the Audit Committee. Mdm Sun will, upon re-election as a Director of the Company, remain to hold such offi ce and will be considered by the Board of Directors to be non-independent for the purposes of

Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited.

b) Mdm Yao Hong (Resolution 5)

5. To consider and if thought fi t, to pass the following Resolution:

“That pursuant to Section 153 (6) of the Companies Act, Cap. 50, Mr Tom Yee Lat Shing be and is hereby re-appointed as a Director of the Company to hold offi ce until the next Annual General Meeting.” (Resolution 6)

Note: Mr Tom Yee Lat Shing is Chairman of the Audit Committee and a member of the Nominating and Remuneration Committees and upon his re-appointment as a director, will continue to hold such offi ce. Mr Tom Yee is considered by the Board of Directors to be independent for the purposes of Rule 704(8) of the Listing Manual of the Singapore Exchange Securities Trading Limited.

6. To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the Directors to fi x their remuneration. (Resolution 7)

7. To transact any other business which may properly be transacted at an Annual General Meeting.


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116Notice of Annual General MeetingFor the fi nancial year ended 31 December 2004



117Notice of Annual General Meeting


Special BusinessTo consider and, if thought fi t, to pass the following resolutions as Ordinary Resolutions:-

8. Authority to issue shares

“THAT the Directors be and are hereby authorised pursuant to the provisions of Section 161 of the Companies Act, Chapter 50 and Rule 806 of the Listing Manual of the Singapore Exchange Securities Trading Limited to allot and issue shares and convertible securities of the Company on such terms and conditions and with such rights or restrictions as they may deem fi t PROVIDED ALWAYS THAT the aggregate number of shares and convertible securities to be issued pursuant to this resolution shall not exceed fi fty per centum (50%) of the issued share capital of the Company, of which the aggregate number of shares and convertible securities to be issued other than on a pro rata basis to existing shareholders shall not exceed twenty per centum (20%) of the issued share capital of the Company and that such authority shall continue in force until the conclusion of the next Annual General Meeting or the expiration of the period within which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier, unless the authority is previously revoked or varied at a general meeting. For the purposes of this resolution, the percentage of issued share capital shall be based on the Company’s issued share capital at the time this resolution is passed after adjusting for:

a) new shares arising from the conversion of convertible securities or employee share options on issue when this resolution is passed; and

b) any subsequent consolidation or subdivision of shares.” (Resolution 8)

Note: Ordinary Resolution 8 proposed in item 8 above, if passed, will empower the Directors from the date of this meeting until the next Annual General Meeting or the date by which the next Annual General Meeting is required by law to be held or when varied or revoked by the Company in general meeting, whichever is the earlier, to allot and issue shares and convertible securities in the Company. The number of shares and convertible securities that the Director may allot and issue under this resolution would not exceed fi fty per centum (50%) of the issued capital of the Company at the time of the passing of this resolution. For issue of shares and convertible securities other than on a pro rata basis to all shareholders, the aggregate number of shares and convertible securities to be issued shall not exceed twenty per centum (20%) of the issued capital of the Company.

For the purposes of this resolution, the percentage of issued capital is based on the Company’s issued capital at the time this proposed Ordinary Resolution is passed after adjusting for new shares arising from the conversion or exercise of convertible securities, the exercise of share options or the vesting of shares awards outstanding or subsisting at the time when this proposed Ordinary Resolution is passed and any subsequent consolidation or subdivision of shares.

9. Authority to allot and issue shares under the Cosco Group Employees’ Share Option Scheme 2002

“THAT pursuant to Section 161 of the Companies Act, Cap.50, the Directors be authorised and empowered to allot and issue shares in the capital of the Company to all the holders of options granted by the Company, whether granted during the subsistence of this authority or otherwise, under the Cosco Group Employees’ Share Option Scheme 2002 (the “Scheme”), upon the exercise of such options and in accordance with the terms and conditions of the Scheme, PROVIDED ALWAYS THAT the aggregate number of additional ordinary shares to be allotted and issued pursuant to the Scheme shall not exceed fi fteen per centum (15%) of the issued share capital of the Company from time to time. (Resolution 9)

Note: Ordinary Resolution 9 proposed in item 9 above, if passed, will empower the Directors of the Company, from the date of this Meeting until the next Annual General Meeting, to allot and issue shares in the Company of up to a number not exceeding in total fi fteen per centum (15%) of the issued share capital of the Company from time to time pursuant to the exercise of the options under the Scheme.


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10. Proposed Renewal of Shareholders’ Mandate for Recurrent Interested Persons Transactions

(i) “THAT approval be and is hereby given for renewal of the mandate, for the purposes of Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited, for the Company, its subsidiaries and target associated companies

or any of them to enter into any of the transactions falling within the types of Interested Person Transactions, particulars of which are set out in the Company’s Appendix A of the Company’s Addendum to Members dated 5 April 2005 (being an addendum to the Annual Report of the Company for the fi nancial year ended 31 December 2004) (“the Addendum”) with any party who is of the class of Interested Persons described in the Addendum provided that such transactions are made on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders and in accordance with the review procedures set out in the Addendum;

(ii) THAT the Audit Committee of the Company be and is hereby authorised to take such actions as it deems proper in respect of such procedures and/or to modify or implement such procedures as may be necessary to take into consideration any amendment to Chapter 9 of the Listing Manual which may be prescribed by the SGX-ST from time to time; and

(iii) THAT the Directors of the Company be and are hereby authorised to complete and do all such acts and things (including all such documents as may be required) as they may consider expedient or necessary or in the interests of the Company to give effect to this Resolution; and

(iv) THAT such approval shall, unless earlier revoked or varied by the Company in general meeting, continue to be in force until the next Annual General Meeting of the Company is held or is required by law to be held, whichever is earlier.” (Resolution 10)

Note: Resolution (10), if passed, will renew the General Mandate to allow the Company, its subsidiaries and target associated companies or any of them to enter into certain Recurrent Interested Person Transactions with person

who are considered “Interested Persons” (as defi ned in Chapter 9 of the Listing Manual of the Singapore Exchange Securities Trading Limited).

The Company’s Audit Committee has confi rmed that the methods and procedures for determining the transaction prices have not changed since the last renewal of the Shareholders’ Mandate on 20 April 2004 and that the said

methods and procedures are suffi cient to ensure that the Recurrent Interested Person Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders.

By Order of the Board Lawrence Kwan Secretary Singapore, 5 April 2005

Note: A member of the Company entitled to attend and vote at the above meeting may appoint a proxy to attend and vote on his behalf

and such proxy need not be a member of this Company. The instrument appointing a proxy, together with the power of attorney (if any) under which it is signed or a notarially certifi ed or offi ce copy thereof must be lodged at the Registered Offi ce of the Company at 9 Temasek Boulevard, #07-00 Suntec Tower Two, Singapore 038989, not less than 48 hours before the Meeting.

Closure of Books

NOTICE IS HEREBY GIVEN that the Transfer Books and the Register of Members of the Company will be closed from 16 June 2005 to 17 June 2005, both dates inclusive, for the preparation of dividend warrants for shareholders of ordinary shares registered

in the books of the Company. Duly completed transfers received by the Share Registrar, KCS Corporate Services Pte. Ltd., 6 Battery Road, #39-01, Singapore 049909 up to 5.00 p.m. on 15 June 2005 will be registered before entitlements to the dividend

are determined. The dividend, if approved at the Annual General Meeting, will be paid on 30 June 2005.

By Order of the Board Lawrence Kwan Secretary Singapore, 5 April 2005


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118Notice of Annual General MeetingFor the fi nancial year ended 31 December 2004



IMPORTANT:1. This Annual Report is also forwarded to investors who have used their CPF monies to buy shares in the

Company at the request of their CPF Approved Nominees, and is sent solely for their information only.

2. The Proxy Form is, therefore, not valid for use by CPF Investors and shall be ineffective for all intents

and purposes if used or purported to be used by them.

COSCO CORPORATION (SINGAPORE) LIMITED(Incorporated in the Republic of Singapore)

Registration No. 196100159G

I/We (Name)

of (Address)

being a member/members of COSCO CORPORATION (SINGAPORE) LIMITED hereby appoint:

Name

Address

NRIC/Passport Number Proportion of Shareholdings (%)

and/or (delete as appropriate)

Name

Address

NRIC/Passport Number Proportion of Shareholdings (%)

or failing him/her, the Chairman of the meeting as my/our proxy/proxies to attend and to vote for me/us and on my/our behalf at theAnnual General Meeting of the Company to be held on 20 April 2005, and at any adjournment thereof. I/We direct my/our proxy/proxies to vote for or against the resolutions to be proposed at the Meeting as indicated hereunder. If no specifi c direction as to voting is given, the proxy/proxies will vote or abstain from voting at his/their discretion, as he/they will on any other matter arising at the Meeting.

No. Resolutions To be used on a show of hands To be used in the event of a poll

ORDINARY BUSINESS For* Against* For** Against**1 To receive and consider the audited Financial Statements and Reports for the year ended 31 December 2004. 2 To declare a fi nal dividend of S$0.02 per ordinary share of S$0.20 (one-tier tax). 3 To approve payment of Directors’ Fees. 4 To re-elect Mdm Sun Yueying, who is retiring under Article 98 of the Articles of Association of the Company. 5 To re-elect Mdm Yao Hong, who is retiring under Article 98 of the Articles of Association of the Company. 6 To re-elect Mr Tom Yee Lat Shing, who is retiring pursuant to Section 153(6) of the Companies Act, Cap. 50. 7 To re-appoint Messrs PricewaterhouseCoopers as Auditors of the Company and to authorise the Directors to fi x their remuneration.

SPECIAL BUSINESS 8 To authorise Directors to issue shares pursuant to Section 161 of the Companies Act, Cap. 50 9 To authorise Directors to issue shares pursuant to the Cosco Group Employees’ Share Option Scheme 2002. 10 To approve the renewal of Shareholders’ Mandate for Recurrent Interested Persons Transactions.

* Please indicate your vote “For” or “Against” with a “•” within the box provided.

** If you wish to exercise all your votes “For” or “Against”, please tick (•) within the box provided. Alternatively, please indicate the number of votes as appropriate.

Dated this day of 2005.

Signature(s) of Member(s)/Common SealIMPORTANT: PLEASE READ NOTES FOR PROXY FORM

Total number of Shares held

119Proxy Form For

Annual General Meeting


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NOTES FOR PROXY FORM

1. A member entitled to attend and vote at a meeting of the Company is entitled to appoint not more than two proxies to attend and vote on his behalf.

2. Where a member appoints more than one proxy, the appointments shall be invalid unless he specifi es the proportion of his holding (expressed as a percentage of the whole) to be represented by each proxy.

3. A proxy need not be a member of the Company.

4. A member should insert the total number of shares held. If the member has shares entered against his name in the Depository Register (as defi ned in Section 130A of the Companies Act, Chapter 50), he should insert that number of shares. If the member has shares registered in his name in the Register of Members of the Company, he should insert that number of shares. If the member has shares entered against his name in the Depository Register and registered in his name in the Register of Members, he should insert the aggregate number of shares. If no number of shares is inserted, this form of proxy will be deemed to relate to all the shares held by the member.

5. The instrument appointing a proxy or proxies must be deposited at the Company’s registered offi ce at 9 Temasek Boulevard, #07-00 Suntec Tower 2, Singapore 038989 not less than 48 hours before the time set for the Meeting.

6. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies is executed by a corporation, it must be executed under its common seal or under the hand of its offi cer or attorney duly authorised.

7. Where an instrument appointing a proxy is signed on behalf of the appointor by an attorney, the power of attorney (or other authority) or a duly certifi ed copy thereof must (failing previous registration with the Company) be lodged with the instrument of proxy, failing which the instrument may be treated as invalid.

8. The Company shall be entitled to reject an instrument of proxy which is incomplete, improperly completed, illegible or where the true intentions of the appointor are not ascertainable from the instructions of the appointor specifi ed on the instrument of proxy. In addition, in the case of shares entered in the Depository Register, the Company may reject an instrument of proxy if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48 hours before the time appointed for holding the meeting, as certifi ed by The Central Depository (Pte) Limited to the Company.


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120Notes For Proxy Form


SINGAPORE New Dynamic - listed company

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