Financial Performance• Group Five-Year Performance 44• Simplified Group Financial Position 49• Group Value Added Statement 51• Economic Value Added Statement 52• Risk Management 53
Sector Review & Market Outlook• The Singapore Economy and World Economy & Outlook 56• The Singapore Marine Industry 57• Sectorial Performance & Outlook 60
- Ship Repair- Shipbuilding- Ship Conversion & Offshore- Rig Building- Summary of Order Book
Innovation & Technology• Ship Repair Innovations 76• Rig Construction Innovation 76• Shipbuilding Innovations 78• Intellectual Properties in Designs and Solutions 79• Innovative Business Alliances 80
People, Community & The Environment
People• Manpower 84• Recruitment and Selection 84• Management-Union Partnership 85• Manpower Training and Development 86
Supporting the Community• Community Care with SchoolBAG 88• Corporate Volunteerism 89• Charitable Fund Raising 89• Promoting the Arts 89
Health, Safety & The Environment• Health and Employee Wellness 90• Safety 92• Environmental Preservation and Protection 92
• Jumboisation• Reconstruction of tankers• Conversion of general cargo to container vessel• Reefer ship conversion
CorporateMilestones &StrategyOver the years, thegroup has grown froma single yard to aglobal marine hubwith seven shipyardsserving customersworldwide.
• Construction of 5th generation deepwatersemi-submersible drilling rigs
• Construction of Jack-up• Proprietary design in Jack-up:
Baker Marine Pacific Class 375 DeepDrilling Offshore Jack-up
• 1976 : Merger of Jurong Shipbuilders with Jurong Shipyard• 1987 : Public Listing of Jurong Shipyard
• 2001 : Acquisition of 50% of PPL Shipyard• 2001 : Acquisition of 35% of Mauá Jurong (Brazil)• 2002 : Acquisition of 20% of Cosco (Dalian) Shipyard (China)• 2003 : Acquisition of additional 35% of PPL Shipyard
• 1996 : Inauguration of new ULCC Drydock• 1997 : Merger of Sembawang Shipyard with Jurong Shipyard• 1999 : Acquisition of SML Shipyard• 2000 : Name change to SembCorp Marine
• 1963 : Incorporation of Jurong Shipyard• 1968 : Incorporation of Jurong Shipbuilders
Shipbuilding
Ship Conversion
Ship Repair
“...we have diversified our business. From a pure ship repair business, we have
moved up the value chain by including shipbuilding services and subsequently,
ship conversion and offshore engineering services. We also moved up the
technology value chain by developing intellectual properties in designs and
solutions, including our own proprietary designs for building 2,600 TEU container
ships and deepwater jack-ups.”
Mr Wong Kok Siew/Tan Kwi KinChairman/President & CEO
Letter to Shareholders2003 Annual Report
Milestones
• Repair & upgrade of jack-ups• Repair & upgrade of semi-submersibles
Offshore Engineering
• 1972 : Opening of the largest Drydock No.2: 300,000 dwt
Technological Ladder
• Repair of war-damaged tankers• Repair of passenger vessels• Repair of navy vessels
• Replacement of engine bedplates• Gas tankers, passenger vessels & navy vessels• Repair of double-hull VLCCs
• Upgrade of jack-ups & semi-submersibles• Fabrication of topside modules• Installation & commissioning of topside modules
1995 – 2000 2001 – 2004 & Beyond...
• Niche shipbuilding• Construction of 37,000 dwt bulk carriers &
product tankers• Design & construction of 830 TEU
container vessel
• Proprietary design for container vessels• Design & construction of 1,078 TEU container vessels• Design & construction of 2,500 and 2,600 TEU
container vessels
Rig Building
• Specialised conversion– power barge conversion– tanker to lightering vessel
• Offshore conversion– Conversion of tanker to FPSO– Conversion of tanker to FSO
• Construction of 5th generation deepwatersemi-submersible drilling rigs
• Construction of Jack-up• Proprietary design in Jack-up:
Baker Marine Pacific Class 375 DeepDrilling Offshore Jack-up
• 2001 : Acquisition of 50% of PPL Shipyard• 2001 : Acquisition of 35% of Mauá Jurong (Brazil)• 2002 : Acquisition of 20% of Cosco (Dalian) Shipyard (China)• 2003 : Acquisition of additional 35% of PPL Shipyard
• 1996 : Inauguration of new ULCC Drydock• 1997 : Merger of Sembawang Shipyard with Jurong Shipyard• 1999 : Acquisition of SML Shipyard• 2000 : Name change to SembCorp Marine
• Repair & upgrade of jack-ups• Repair & upgrade of semi-submersibles
Offshore Engineering
Technological Ladder
SembCorp Marine 2003 3
INTEGRITYWe believe in and perform our duties with honesty,dedication and responsibility. We value loyalty,trustworthiness, reliability and openness as essentialpersonal attributes in our corporate culture.
HEALTH, SAFETY AND ENVIRONMENTPRESERVATIONWe are committed to continuously promote a safe andhealthy work environment for our customers, employees,contractors and the community. We take responsibilityfor our own safety and of others both on and off the job.
INNOVATIVENESSWe believe that innovation and creativity are crucial tostay ahead of the competition and bring about betterefficiency in the organisation. We secure industryleadership through constant innovative technologicaland engineering solutions and encouragingentrepreneurship.
QUALITYWe constantly and consciously strive to achieve world-class quality standard in everything we do for ourcustomers, to improve our quality of life and to addvalue for our shareholders. We believe in continuousimprovement and enhancing our competencies to meetrapid global changes.
CORPORATE VISION
PEOPLE CENTREDNESSWe respect and value every individual regardless of hisor her position in our organisation. We provide equalopportunities and conducive environment for employeesto attain their full potential. We reward all employeesfairly, benchmarking their performance to best practices.We believe in building a learning organisation for ourpeople to acquire knowledge and skills to achieveprofessionalism.
TEAMWORKWe are committed to working together and having trustfor one another to achieve common organisational goalsand results. We believe in promoting closer relationshipand developing team spirit among our people toencourage speedy and open communication and tocare for each other.
CUSTOMER SERVICEOur customer is the key to our success. We continue toprovide innovative solutions that add value to ourcustomers and to build lasting relationship with ourcustomers based on trust and shared purpose.
COMMUNITY RESPONSIBILITYWe view business as being an integral part of society.We are committed to be a responsible corporate citizen,both locally and globally contributing to communityimprovements, and to create a caring organisation.
In our drive towards our vision, we uphold the following eight core values:
We aim to be the world leader in ship repair, ship conversion andoffshore engineering, providing innovative solutions that exceedcustomers’ expectations. While anchoring ourselves for futuregrowth and global expansion, we continue to commit ourselves tofulfilling the changing needs and aspirations of our employees.
CORPORATE PROFILESembCorp Marine is a leading global marine engineering group specialisingin ship repair, shipbuilding, ship conversion, rig building and offshore engineering.With a combined docking capacity of 2.3 million dwt, we offer one of thelargest ship repair, ship conversion and offshore and marine-related facilitiesin East Asia. Our global hub now spans seven shipyards strategically locatedaround the world – four in Singapore, one each in China, Indonesia and Brazil– which operate as distinct brand names focusing their expertise to fulfill theunique needs of their respective market niches. As the marine engineeringarm of SembCorp Industries, we will capitalise on the strong branding andreputation of our shipyards to globalise our core capabilities across segmentsof the global marine industry.
SembCorp Marine 2003 5
Dear Shareholders
The year 2003 was a challenging one for the SembCorpMarine Group. Our ship repair business was affectedby the Severe Acute Respiratory Syndrome outbreak inthe region during the first half of the year as well as thepostponement of vessel repairs as a result of high freightrates.
Financial Performance
Despite the difficult operating environment, our revenueattained a record high of $1.068 billion in 2003. Thiswas 6 per cent higher than the previous year’s revenueof $1.012 billion, attributable mainly to volume increasesin ship conversion and new building projects, whichmore than offset the decline in ship repair revenue.
However, our profit after tax and including exceptionalitems declined by 14.7 per cent to $78.5 million,compared to $92.1 million in 2002. The decline wasmainly due to the subdued performance in ship repairas well as lower exceptional gains of $1.3 million,compared to $6.7 million in 2002. If exceptional itemsand the effect of prior year’s tax over-provision wereexcluded, the Group’s attributable profits would havedeclined by just 8.4 per cent from $80.8 million in 2002to $74.0 million in 2003.
Net asset value per share was 65.3 cents as comparedwith 66.5 cents per share in 2002. Earnings per share were5.6 cents, while our return on equity was 8.4 per cent.
Our Board of Directors is recommending a final grossdividend of 1.0 cents per share and a special grossdividend of 2.5 cents per share, totaling up to 3.5 centsper share. Together with the interim gross dividendpayment of 1.5 cents per share, our total gross dividendpayment for 2003 will be 5.0 cents per share, which is1.5 cents less than in 2002. The dividend payout ratiois 71.7 per cent based on the 20 per cent tax rate, withgross dividend yield at 5.1 per cent.
Business Review
Ship RepairIn 2003, the ship repair sector suffered from the SevereAcute Respiratory Syndrome outbreak in the first halfand the high freight rates, which led to postponement
of repairs by vessel owners. As a result, our ship repairsegment’s contribution to total revenue dropped by 18per cent to $345.5 million, compared to $423 million or42 per cent of total revenue in 2002.
The number of vessels repaired in 2003 increasedmarginally to 341, as compared with 332 vessels in 2002.However, average value per vessel declined from $1.27million to $1.01 million in 2003. Gross tonnage alsodeclined from 16.3 million to 13.3 million in 2003.
Repairs on container vessels increased to 15 per centof ship repair revenue, as compared with 5 per cent in2002, in line with Singapore’s status as a major containerhub. However, this was insufficient to offset the declinein tanker repairs, which was the traditional mainstay ofour ship repair business. Revenue contributions fromtanker repairs dropped from 58 per cent in 2002 to 50per cent in 2003. Navy vessels and gas tankers accountedfor 7 per cent and 6 per cent respectively of ship repairrevenue, followed by passenger vessels at 5 per cent,cargo vessels at 4 per cent and bulk carriers at 3 percent. Other vessel types accounted for the remaining10 per cent.
ShipbuildingShipbuilding improved its contribution to total revenueby 3 per cent. It earned $92 million or 9 per cent of ourtotal revenue in 2003, compared to the $89 million and9 per cent recorded in 2002.
We achieved a major break-through this year in reviewwhen Wan Hai Lines awarded us $220 million worth ofshipbuilding contracts to design and construct four unitsof 2,600 TEU container vessels. These vessels would bebuilt from our very own proprietary design, which hadbeen developed over the years by our subsidiary, JurongShipyard. Engineering works commenced in late 2003with deliveries expected from the first quarter 2005through the second quarter 2006.
We also completed and delivered four vessels in 2003.This comprised one unit of 2,500 TEU container vesseland three units of fast boat.
Work continues on other projects comprising one unitof fast boat and the second unit of the 2,500 TEUcontainer vessels, with completion due in the first quarterand fourth quarter of 2004 respectively.
Ship Conversion and OffshoreThe ship conversion and offshore sector registered a
LETTER TOSHAREHOLDERS
SembCorp Marine 20036 SembCorp Marine 2003 7
significant improvement in revenue contributions from$337 million or 33 per cent in 2002 to $391 million or 37per cent in 2003. The increase was due to the highervalue in the ship conversion projects that wereundertaken in 2003.
During the year, we secured two new vessels forconversion to floating production storage offloading(FPSO) units in the third quarter of 2003. They werethe T. T. Nina, a 366,000 dwt ultra large crude carrierand M. T. Fairway, a 149,686 dwt tanker. Deliveries ofthese two FPSOs are scheduled for the fourthquarter of 2004.
In 2003, we completed seven projects, comprising twoFPSO conversions, one floating storage offloading (FSO)conversion, one crane ship conversion, one suctionhopper dredger conversion and two units of shuttletanker conversions.
We continue to work on the P-50 FPSO conversion, theErha field topside fabrication and installation projectand the Jascon 5 pipelay construction barge.
Rig BuildingWe also experienced better performance from our rigbuilding sector in 2003. Its revenue contribution increasedby $56 million to $150.5 million in 2003. This constituted 14per cent of our total revenue in 2003, as compared with 9per cent in 2002. One unit of jack-up was completed by oursubsidiary, PPL Shipyard, during the year.
PPL Shipyard also secured an engineering, procurementand construction contract to construct one unit of BakerMarine Pacific Class 375 deep drilling offshore jack-upfor a total price of US$110 million from KristiansandDrilling in January 2004. The jack-up would be builtaccording to a proprietary design developed by PPLShipyard and would be due for delivery in the firstquarter of 2006. The contract included an option for anadditional jack-up, which must be exercised within 18months from the date of signing the contract.
Work-in-progress projects from 2003 to 2004 comprisetwo units of fifth-generation dynamic positioning semi-submersible rigs and one unit of jack-up for our majorcustomer, GlobalSantaFe. Expected delivery dates wouldbe the first quarter of 2004 for the jack-up, secondquarter of 2004 for the first unit of the semi-submersiblerig and the last quarter of 2004 for the second unit.
Associates’ ContributionsOur strategy in investing in China and Brazil continuedto reap rewards as our associated companies,Mauá Jurong in Brazil and Cosco (Dalian) Shipyard inChina, provided steady and growing contributionsof $4.66 million profit before tax in 2003. Thiscompares favourably with the contributions of $3.91million in 2002.
Mauá Jurong completed the fabrication of the topsideproduction modules for P-43 and P-48 FPSOs in 2003.Projects carried over into 2004 were the topsideintegration and commissioning works for the P-43 andthe fabrication of the topside production modules forthe P-50. Integration and commissioning for the P-43would be completed in the third quarter of 2004. Thefabrication of P-50 topside modules is due for completionin second quarter of 2004, with integration andcommissioning of the topsides due in the first quarterof 2005.
Significant Events
DivestmentsAs part of our plans to exit from our non-core businesses,we divested our entire 19.78 per cent equity interest inJurong Engineering for $10.7 million, recording a netgain of $297,000.
We also streamlined our investments in China with thedisposal of our entire 50 per cent equity share of theregistered capital in Bohai Sembawang Shipyard(Tianjin) Co to our joint-venture partner, China OffshoreOil Bohai Corporation for $25.3 million with a net gainof $2.0 million. This move would position us to focuson enhancing our participation in the growing shiprepair market in China through our COSCO partnership,and possibly the taking up of a bigger ownership stakein the COSCO Shipyard Group.
AcquisitionsIn line with our concerted efforts to enter into the rigbuilding and offshore businesses, we increased ourstake in PPL Shipyard from 50 per cent to 85 per cent,making it an 85 per cent subsidiary of SembCorp Marine.This majority stake in PPL Shipyard, complemented byour Group’s other facilities and capabilities, wouldstrengthen our position to grow our offshore businesses.
In August 2003, Dolphin Shipping Company, a wholly-owned subsidiary of SembCorp Marine, formed a jointventure with Pacific Carriers to operate and serviceoffshore supply boats in the Southeast Asian region.Dolphin Shipping and Pacific Carriers would each own50 per cent equity shares in the company, which wasnamed Pacific Workboats.
In January 2004, Sembawang Shipyard (S), ourwholly-owned subsidiary, formed a single-purposesubsidiary company known as Kristiansand Drillingwith Sinvest, a subsidiary of Skeie Group of Norway.SembCorp Marine would hold 82 per cent (US$90 million)of the equity stake in Kristiansand Drilling, while Sinvestwould hold the remaining 18 per cent (US$20 million).
Strategy for Sustained Growth
Looking ahead, we will adopt a two-pronged approachin sustaining growth for the SembCorp Marine Group.Firstly, we will continue to strengthen our home-basedshipyards to provide complementary facilities andcapabilities within the Group. And secondly, we will
SembCorp Marine 20038 SembCorp Marine 2003 9
strengthen our global presence through a network ofstrategically located shipyards.
To date, our two strategic hubs in China and Brazil havemade steady contributions, which are expected to growby a further 20 per cent in 2004. To achieve this, we areexploring possibilities of increasing our equity stake inthese two hubs. Brazil is well-placed to serve the marketneeds of the offshore and conversion markets in theGulf of Mexico, South America and the West Africanregion. Our China hub also enjoys a strategic location,enabling us to participate in the growing ship repairmarket in the Asia-Pacific region.
At the same time, we have diversified our business. Froma pure ship repair business, we have moved up the valuechain by including shipbuilding services and subsequently,ship conversion and offshore engineering services. Wealso moved up the technology value chain by developingintellectual properties in designs and solutions, includingour own proprietary designs for building 2,600 TEUcontainer ships and deepwater jack-ups.
Outlook for 2004
Our orderbook carried over into 2004 remains strong at$1.1 billion including shipbuilding, ship conversion,offshore and rig building projects with deliveries andcompletion from 2004 to the second quarter of 2006.
deepwater rig utilisation remains strong, particularly inthe West Africa, Brazil and Asia Pacific regions. Due tothe ageing rig fleets, there is ongoing demand for therepair and upgrading of existing rig fleets as well asopportunities for newbuilding. With this market scenario,we expect to grow our offshore businesses by 10 to 15per cent in 2004.
Board and Management
Mr Chee Keng Soon, Mr Giam Chin Toon and Mr ErKwong Wah stepped down from the Board in 2003. MrChee was a Board member since 1983 and Chairmanof the Audit Committee since 1990. We would like tothank him for his dedicated services and manycontributions to the Board. We would also like to recordour deepest appreciation to Mr Giam and Mr Er fortheir contributions and invaluable services during theirtenure of directorship with the Group since 1997.
The Board also extends a warm welcome to two newindependent directors, Mr Tan Tew Han and Mr AjaibHaridass. Mr Tan brings with him 25 years of bankingexperience and he succeeds Mr Chee as director andChairman of the Audit Committee. Mr Haridass, whohas 27 years legal experience, succeeds Mr Giam asdirector, member of the Audit Committee and memberof the Executive Resource and CompensationCommittee.
Based on the scheduled completion of these projects,we expect to improve our operating profit in 2004.
Ship repair will remain competitive with increasingcompetition from low-cost centres around the region.This, together with the strong freight rates, will continueto put pressure on our ship repair activities for 2004.Despite such factors, ship owners will continue to repairtheir vessels due to more stringent requirements. Ourlong-term strategic alliances with our customers willenable us to improve our systems and cost structuresto better serve our customers. The advanced blockbookings that we have secured so far will cushion usfrom such effects and provide us with a steady andgrowing base load for 2004.
Shipbuilding for all categories of vessels remains strong.There is continual demand for our niche market infeeder container vessels and supply vessels. The 2,500TEU container vessel that we designed, built anddelivered recently has received favourable feedbackfrom owners on its overall performance. We are alsoconfident that the successful marketing of the four unitsof our 2,600 TEU proprietary design of the containervessels to Wan Hai Lines will lead to more of suchshipbuilding contracts in 2004.
Market fundamentals for FPSOs and FSOs remainbuoyant despite short-term geopolitical uncertaintiesarising from terrorism and viral diseases. The offshore
In closing, the Board would like to thank our valuedclients and business associates for their continuoussupport. Our appreciation also goes out to ouremployees whose hard work, dedication and loyaltyhave contributed to our achievements in the past year.Finally, we would like to thank all our shareholders fortheir continued interest and support for the SembCorpMarine Group.
Wong Kok Siew Tan Kwi KinChairman President
March 5, 2004
SembCorp Marine 2003 11
Group Financial Highlights
For the year 2003 2002 % Change
Group Profit & Loss Account ($’000)Turnover 1,067,986 1,011,512 5.58Profit
Net Assets Value Per Share (cents) 65.29 66.46 (1.76)Net Tangible Assets Per Share (cents) 64.60 65.65 (1.60)
Return on Turnover (%) 7.23 8.45 (14.44)Return on Total Assets (%) 5.21 6.30 (17.30)Return on Equity (%) 8.41 9.90 (15.05)
AT A GLANCE
SembCorp Marine 200312 SembCorp Marine 2003 13
In compliance with the mandatory quarterly reporting for listed companies in Singapore with effect from 2003, theGroup commenced its first quarterly reporting on April 28, 2003
Earnings per share (cents) - Year-to-date 2.09 3.77 5.14 6.54Earnings per share (cents) – In Quarter 2.09 1.68 1.37 1.40 6.54
Group Quarterly Results
2003 QuarterlyProfit Before Taxand Attributable Profit
40
35
30
25
20
15
10
5
0
Profit before Tax
Attributable Profit
40
35
30
25
20
15
10
5
0
2002 QuarterlyProfit Before Taxand Attributable Profit
Profit before Tax
Attributable Profit
$m$m
2003 QuarterlyTurnoverContributions
350
300
250
200
150
100
50
0
$m
1Q
2Q
3Q
4Q
195.4
294.4
339.2 239.0
2002 QuarterlyTurnoverContributions
350
300
250
200
150
100
50
0
$m
1Q
2Q
3Q
4Q
202.1
289.9
256.2
263.3
2003 QuarterlyOperating Profit
35
30
25
20
15
10
5
0
$m
1Q
2Q
3Q
4Q
17.8
23.0
17.8
15.8
2002 QuarterlyOperating Profit
35
30
25
20
15
10
5
0
$m
1Q
2Q
3Q
4Q
17.4
21.2
20.7
30.6
1Q
2Q
3Q
4Q
23.7
18.5
27.2
21.6
24.4
18.9
19.919.5
1Q
2Q
3Q
4Q34.7
29.4
25.1
23.6
25.7
19.4
30.8
19.7
SembCorp Marine 200314 SembCorp Marine 2003 15
January• Launch of “Green Wave” Environmental Care Project for
Schools by Sembawang Shipyard• Presentation of Long Service Awards in Jurong Shipyard• Ministerial visit of the Republic of Kazarkhstan led by his
Excellency, Deputy Prime Minister of Kazakhstan,Mr Karim Massinmov
• Presentation of Commendation Award at the 29th AnnualReport Award Ceremony
February• Announcement of Financial Results 2002• Award of $34 million contract to Sembawang Shipyard for
the complete outfitting and commissioning for an offshoredynamic pipelay construction barge
• Visit to Jurong Shipyard by officials from the Ministry ofManpower and Economic Development Board
March• Delivery of Saipem 3000, a sophisticated heavy lift crane by
Sembawang Shipyard to Saipem (Italy)• Implementation of comprehensive SARS prevention and
management systems in Jurong and Sembawang Shipyards
April• Commencement of first quarterly earnings reporting in
compliance with the mandatory quarterly reporting for listedcompanies in Singapore
• 40th Annual General Meeting and Extraordinary OrdinaryMeetings for shareholders
• Delivery of FSO Kome-Kribi 1 by Jurong Shipyard to ModecInternational LLC
• Delivery of W. D. Fairway, the world’s largest trailing suctionhopper dredger by Sembawang Shipyard to BoskalisWestminster BV (the Netherlands)
• Delivery of FPSO Fluminense by Jurong Shipyard to ModecInternational LLC
• Presentation of Grand Award and four other awards to Jurong Shipyard at SembCorp Industries’ Idea AwardCeremony
May• Disposal of the entire 19.78% equity interests in Jurong
Engineering
June• Delivery of Constellation I, an Ultra-Premium class jack-up
drilling rig by PPL Shipyard to GlobalSantaFe• Start of 40th Anniversary celebrations for SembCorp Marine
through a series of inter-shipyards games• Milestone in Rig Construction for Jurong Shipyard
July• Acquisition of additional 35% equity interest in PPL Shipyard
making it an 85% subsidiary of SembCorp Marine• Award of $110 million shipbuilding contract to Jurong
Shipyard to design and construct two units of 2,600 TEUcontainer vessels for Wan Hai Lines with options for twomore units
• Presentation of the Annual Safety Performance Awards 2003to Jurong Shipyard by the Ministry of Manpower’sOccupational Safety and Health Training Centre
• Launch of Health and Hygiene Campaign in Jurong Shipyard
August• Announcement of Interim Results 2003• 38th National Day Observance Ceremony at Jurong Shipyard
with guest-of-honour Mr Tharman Shanmugaratnam, ActingMinister for Education
• National Day Celebrations at Sembawang Shipyard withguest-of-honour Dr Tony Tan, Deputy Prime Minister andCo-ordinating Minister for Security and Defence and Adviserto Sembawang Shipyard Employees Union
September• Award of $110 million shipbuilding contract to Jurong
Shipyard to design and construct two additional units of2,600 TEU container vessels for Wan Hai Lines
• Signing of joint venture agreement between DolphinShipping Company and Pacific Carriers Limited to operateand service offshore supply vessels
• Presentation of Gold Award and Silver Awards to JurongShipyard and Gold Awards to Sembawang Shipyard at theSIT Conventions organised by the Association of SingaporeMarine Industries
• Presentation of the 2003 Singapore H.E.A.L.T.H. Award(Silver) to Jurong Shipyard, Sembawang Shipyard andJurong SML Shipyard
• Job awareness fair at the National University of Singapore
October• Announcement of Third-Quarter Results 2003
November• Presentation of the Innovation of the Year Award to Jurong
Shipyard by SPRING Singapore for its innovative Load-outand Mating Operations
• Christening of the 1st 2,500 TEU container vessel, ThomasMann at Jurong Shipyard
Significant Events
• Presentation of the Gold Award to Sembawang Shipyard and Silver Award to Jurong Shipyard at the SIT Conventionorganised by the Ministry of Manpower’s OccupationalSafety and Health (Training and Promotion Centre)
• Acquisition of the entire shareholding in Sinna Services• Inaugural Green Wave Environmental Care Project for Schools
Award Presentation Ceremony by Sembawang Shipyard with guest-of-honour Mr Lim Swee Say, Minister forthe Environment
• Participation in the Learning Expo organised by the Ministryof Manpower
• Visit by Mr Matthias Yao, Deputy General Secretary of NTUC and his delegation to Jurong Shipyard
December• Delivery of newbuilt container vessel, Thomas Mann, to
owner by Jurong Shipyard• Contribution of $214,805 to 1,094 needy students from 63
schools located within the vicinity of Jurong and SembawangShipyards with guest-of-honour Mr Hawazi Daipi,Parliamentary Secretary, Ministry of Education and Ministryof Manpower
• Disposal of entire interest in joint-venture company, BohaiSembawang Shipyard (Tianjin)
January 2004• Long Service Award presentation in Jurong Shipyard
February• Announcement of Financial Results 2003• Media and Analysts’ Briefing• Presentation of Provisional Statement of Compliance of a
Port Facility to Jurong SML and SML Shipyard• Presentation of Provisional Statement of Compliance of a
Port Facility to Sembawang Shipyard
March• Presentation of Merit Award to SembCorp Marine at the
30th Annual Report Awards Ceremony• Presentation of Provisional Statement of Compliance of a
Port Facility to Jurong Shipyard
SembCorp Marine 200316 SembCorp Marine 2003 17
Innovation of the Year Award 2003: Jurong ShipyardProject: “Load-out and Mating-in-Dock”Rig Building TechniqueSingapore Innovation Awards 2003Awarded by SPRING Singapore in recognition of theinnovative load-out and mating-in-dock rig buildingtechnique, a first of its kind in this region.
Commendation Award: SembCorp Marine29th Annual Report Awards 2002Organised by the Institute of Public Accountants ofSingapore, Securities Investors Association, Institute ofManagement, Singapore Institute of Directors,Singapore Exchange Limited and Business Times, thisaward is presented to listed companies whose annualreports have reached a high standard of disclosurebeyond the minimum regulatory requirements, basedon stringent criteria set by the organising committee.
Merit Award: SembCorp Marine30th Annual Report Awards 2003Organised by the Institute ofPublic Accountants ofSingapore, InvestmentManagement Association ofSingapore, Securities InvestorsAssociation, Institute ofManagement, SingaporeInstitute of Directors, SingaporeExchange Limited and BusinessTimes, this award is presentedto listed companies whoseannual reports have reached ahigh standard of excellence indisclosure.
Awards and Accolades
Grand Award: Jurong ShipyardProject: SMARTime Management SystemIDEA (Innovate, Discover, Engineer and Achieve)Award Ceremony 2003Organised by SembCorp Industries and presented tocompanies for innovation and creativity at work.
Gold Award: Sembawang ShipyardProject: Safe-T-Guide for WinchesNational Safety Innovation Team 2003Organised by the Ministry of Manpower in recognitionof innovative companies.
Gold Awards: Jurong Shipyard and Sembawang ShipyardProject: Dust Purifier (Jurong); Safe-T-Guide forWinches (Sembawang)6th Safety Innovation Team (SIT) ConventionOrganised by the Association of Marine Industries andpresented to companies for innovation.
Silver Award: Jurong Shipyard (3rd consecutiveyear); Sembawang Shipyard; Jurong SML ShipyardSingapore H.E.A.L.T.H. Awards 2003Presented to companies with comprehensive wellnessprogrammes.
Silver Awards (2) and Merit Awards (8): Jurong ShipyardAnnual Safety Performance Awards Ceremony 2003Organised by Ministry of Manpower Occupational Safetyand Health Training Centre. Presented on project basisto companies that have achieved good safety records.
IDEA Awards (4): Jurong ShipyardProject: Flat Plate Clamping Jig, Portable T Clamp, NewCradle Roller and Robust Welding Cable ConnectorIDEA Award Ceremony 2003Organised by SembCorp Industries and presented tocompanies for innovation and creativity at work.
35%
Group Corporate Structureas at March 12, 2004
100%
SembCorp Marine 200318 SembCorp Marine 2003 19
100%
Jurong SML Pte Ltd
85%
PPL Shipyard Pte Ltd
70%
100%
Jurong Machinery &Automation Pte Ltd
100%
Jurong Shipyard Pte Ltd
20%
100%
Jurong IntegratedServices Pte Ltd
JPL Services Pte Ltd
100%
50%
Shipyards (Overseas)
Supporting Companies
P.T. Karimun Sembawang
Shipyard (Indonesia)
Cosco (Dalian)
Shipyard Co. Ltd (China)
Shipyards (Singapore)
100%
Bulk Trade Pte Ltd
55%
Jurong Marine ServicesPte Ltd
Jurong MarineContractors Pte Ltd
Jurong Clavon Pte Ltd
53.8
%
JPL Industries Pte Ltd
100%
Sembawang Shipyard Pte Ltd
Mauá Jurong SA (Brazil)
SembCorp Marine 200320 SembCorp Marine 2003 21
Board of Directors
Wong Kok Siew• Chairman & Non-Independent Director• Non-Executive Director• Appointed Director on May 20, 1998• Re-elected at AGM on May 30, 2002• Chairman, Executive Resource & Compensation Committee• Chairman, Nominating Committee
Tan Kwi Kin• President & Independent Director• Executive Director• Appointed Director on April 17,1990• Re-elected at AGM on April 17, 2003 1 2
347
68
9
1 2
Tan Pheng Hock• Non-Independent Director• Non-Executive Director• Appointed Director on April 16, 2000• Re-elected at AGM on May 30, 2002
3
Kiyotaka Matsuzawa• Independent Director• Non-Executive Director• Appointed Director on September 30, 2001• Re-elected at AGM on May 30, 2002• Member, Audit Committee
4
Heng Chiang Gnee• Alternate Director to Tan Kwi Kin• Appointed Alternate Director on April 6, 2001
9
Ajaib Haridass• Independent Director• Non-Executive Director• Appointed Director on October 31, 2003• Member, Audit Committee• Member, Executive Resource & Compensation Committee• Member, Nominating Committee
8
Tan Tew Han• Independent Director• Non-Executive Director• Appointed Director on April 17, 2003• Chairman, Audit Committee• Member, Executive Resource & Compensation Committee• Member, Nominating Committee
7
Low Sin Leng• Non-Independent Director• Non-Executive Director• Appointed Director on November 14, 2002• Re-elected at AGM on April 17, 2003
6
Naoteru Tsuda• Independent Director• Non-Executive Director• Appointed Director on May 30, 2002• Re-elected at AGM on May 30, 2003
Sembawang ShipyardChairman: Heng Chiang GneeExecutive Director: Ong Poh KweeGeneral Manager: Wong Lee LinAsst General Mgr (Business): K. K.WeeAsst General Mgr (Conversion): Samuel Wong
Share RegistrarKon Choon Kooi Pte Ltd47 Hill Street, #06-02Chinese Chamber of Commerce & Industry BuildingSingapore 179365
AuditorErnst & YoungCertified Public AccountantsSingaporeAudit Partner: Daniel Soh(Appointed during the financial year endedDecember 31, 2003)
BankersBank of America NT & SACitibank N.A.DBS Bank LtdMizuho Corporate Bank LtdOversea-Chinese Banking Corporation LimitedStandard Chartered BankSumitomo Mitsui Banking CorporationThe Bank of Tokyo-Mitsubishi, LtdUnited Overseas Bank Limited
Share ListingSembCorp Marine’s shares are listed on theSingapore Exchange Securities Trading Limited
Company SecretaryMs Lim Seh LiMs Kwong Sook May (effective March 15, 2004)
Financial Calendar
End of Financial YearDecember 31, 2003
Announcement of 2003 FinancialResultsFebruary 5, 2004
Despatch of Annual ReportApril 13, 2004
Annual General MeetingApril 28, 2004
2003 Proposed Final DividendBook ClosureMay 6, 2004 to May 7, 2004
Entitlement DateMay 5, 2004
Payment DateMay 18, 2004
Corporate Directory
Sound corporate governance is the fruit of a culture of corporate integrityand accountability and it is the key to a disclosure-based ethos. Meaningfulcorporate governance lies deep within the integrity of the corporation –whether it is true to itself, its stakeholders and the public.
Dr Richard Hu, Chairman, GIC Real Estate Pte Ltd30th Annual Report Awards Presentation, March 11, 2004
CORPORATEGOVERNANCE
Sound corporate governance is the fruit of a culture of corporate integrityand accountability and it is the key to a disclosure-based ethos. Meaningfulcorporate governance lies deep within the integrity of the corporation –whether it is true to itself, its stakeholders and the public.
Dr Richard Hu, Chairman, GIC Real Estate Pte Ltd30th Annual Report Awards Presentation, March 11, 2004
SembCorp Marine 200328 SembCorp Marine 2003 29
SembCorp Marine is committed to maintaining highstandards of corporate conduct and placesimportance on its corporate governance processes andsystems so as to enhance shareholder value. Wecontinue to devote our resources in building acorporation, which our shareholders, staff, customers,suppliers and other stakeholders can be proud of.We seek to operate with the highest standardsof integrity.
This report outlines SembCorp Marine’s corporategovernance processes and activities for the financial year.
1. BOARD OF DIRECTORS
Effective Board To Lead and Effect Controls
The key roles of the Board include:
• Providing entrepreneurial leadership and directionsof the Group
• Ensuring prudent and effective controls• Setting values and standards to ensure obligations
to shareholders are met• Overseeing the proper conduct of the Group’s
business
The Board meets to review the business strategiesand activities of the Group. Regular Board meetingsare held quarterly to deliberate strategic policiesof the Group, including significant acquisitions anddisposals, the annual budget, review the performanceof the business and endorse the release of thequarterly results. Where necessary, additional boardmeetings are also held to address significanttransactions or issues. A total of four board meetingswere held in the year and we achieved an averageof 81.9% board attendances in the year.
The Board has adopted a set of internal controlswhich sets out approval limits for capital expenditure,investments and divestments, bank borrowingsand cheque signatories’ arrangements at boardlevel. Approval sub-limits are also provided atmanagement levels to facil itate operationalefficiency.
To give effect to the efficient discharge of itsresponsibilities and to provide independentoversight of Management, the Board has establisheda number of Board Committees, including the Audit
Corporate Governance Report
Committee and Executive Resources & CompensationCommittee / Nominating Committee. These keycommittees are made up of independent or non-executive directors. Other ad hoc committees canbe formed from time to time to look into specificareas as and when the need arises.
Membership in the different committees is carefullymanaged to ensure that there is equitable distributionof responsibilities among board members, to maximisethe effectiveness of the board and foster activeparticipation and contribution from board members.Diversity of experiences and appropriate skills are alsoconsidered.
Strong and Independent Board Exercising ObjectiveJudgement
The Board comprises eight directors and onealternate director of whom seven are non-executiveDirectors. The Board’s Chairman is Wong Kok Siew.The Executive Director is Tan Kwi Kin who is alsothe President of SembCorp Marine. Mr Heng ChiangGnee, alternate director to Tan Kwi Kin, is theDeputy President.
The Board comprises business leaders, professionalswith financial backgrounds, a practising lawyerand members of the public sector. Profiles of theDirectors are found on pages 20 to 21 and pages34 to 36 of this Annual Report. The Board is favourablycomposed by a majority of non-executive directors,independent of management and independent interms of character and judgement. This enables theManagement to benefit from an external and objectiveperspective on issues that are brought before the Board.
The Board considers non-executive director,Ajaib Haridass, an independent non-executive director,although he has a relationship with the Group by virtueof his position as a managing partner of Haridass Horendering professional services to the Group.Notwithstanding this relationship, the Board assesseshim as an independent director due to his manifestability to exercise strong independent judgement in hisdeliberations in the interests of the Group.
Formal and Transparent Appointment and Re-electionof Directors
SembCorp Marine believes that all directors shouldbe submitted for re-election at regular intervals, subject
to continued satisfactory performance. The President,while he is also a board member, is also subjectto retirement and re-election by shareholders as partof board renewal. Nominations and election of boardmembers are the prerogatives and proper rights of allshareholders and the Board ensures the planned andprogressive refreshing of its members.
The Company’s Articles of Association require one-thirdof directors to retire and subject themselves tore-election by shareholders at every AnnualGeneral Meeting (AGM) (“one-third rotation rule”).In other words, no director stays in office formore than three years without being re-elected byshareholders.
In addition, a newly-appointed director will submithimself for retirement and election at theAGM immediately following his appointment.Thereafter, he is subject to the “one-third rotation rule”.
The Board through the delegation of its authorityto the Nominating Committee, has used its bestefforts to ensure that directors appointed to theBoard possess the background, experience andknowledge in technology, business, finance andmanagement skills critical to the Group’s businessesand that each director with his special contributionbrings to the Board an independent and objectiveperspective to enable balanced and well-considereddecisions to be made.
Renewals or replacement of board members do notnecessarily reflect their contributions to date, but maybe driven by the need to position and shape the boardin line with the medium term needs of the Group andits businesses.
Clear Division of Responsibilities at the Top
There is a clear separation of the roles and responsibilitiesbetween the Chairman and the President.
The Chairman, who is non-executive, is responsible forthe leadership of the Board, ensuring its effectivenesson all aspects of its role and setting its agenda. He actsindependently in the best interests of the Group andshareholders. The President is charged with theexecutive responsibility of running the Group’sbusiness. The Chairman actively facilitates theeffective contribution of non-executive directors inparticular and ensures constructive relations between
executive and non-executive directors. He also ensuresthat the members of the Board work together with theManagement in constructive debate on various matters,including strategic issues and business planningprocesses.
Active Participation and Valuable Contribution by EachDirector to the Overall Effectiveness of the Board
To ensure that Directors are well equipped and trained,Directors’ training needs are addressed by Management.Newly-appointed Directors are given briefings by theManagement on the business activities of the Groupand its strategic directions, and these may include facilityvisits, where necessary.
Changes to regulations and accounting standards aremonitored closely by Management. To keep pace withregulatory changes, where these changes have animportant bearing on the Group’s or directors’ disclosureobligations, Directors are briefed either during boardmeetings, or at specially-convened sessions, includingat trainings and seminars conducted by externalprofessionals.
Where necessary, further external advice and consultantsare made available to directors to ensure that fullinformation and advice are available before importantdecisions are made by the Board.
Informal reviews of a Board’s performance areundertaken on a continual basis by the NominatingCommittee with inputs from the other Board membersand the President. The Board is constantly reviewed toensure strong, independent and sound leadership atthe Board level for the continued success of the businessof the Group.
Directors have Complete, Adequate and TimelyInformation and Resources
Management provides adequate and timelyinformation to the Board on Board affairs and issuesthat require the Board’s decision as well as on-goingreports relating to operational and financial performanceof the Group. Where a physical Board meeting isnot possible, timely communication with members ofthe Board is effected through electronic means whichinclude electronic mail, teleconferencing andvideoconferencing. Alternatively, Management willarrange to personally meet and brief each directorbefore seeking the Board’s approval.
SembCorp Marine 200330 SembCorp Marine 2003 31
The Board has separate and independent access to thePresident, members of senior management and theCompany Secretary at all times. The Board also hasaccess to independent professional advice whereappropriate.
Likewise, the Audit Committee must also meetthe external and internal auditors separately atleast once a year, without the presence of the Presidentand other senior management members, in order tohave free and unfiltered access to information that itmay require.
The Company Secretary assists the Chairman withthe preparation of meetings agenda, attends andprepares minutes of board proceedings, ensuringgood information flows within the Board andits Committees. She assists the Board on the complianceby the Company with its Memorandum andArticles of Association, requirements of theCompanies Act and the Singapore Exchange SecuritiesTrading Limited (“SGX-ST”). She is also the primarychannel of communication between SembCorp Marineand the SGX-ST, the Registry of Companies andBusinesses and Shareholders.
2. BOARD COMMITTEES
The Company has three board committees:-(a) Audit Committee;(b) Executive Resource & Compensation Committee;(c) Nominating Committee
The Audit Committee
The Audit Committee consists of all independentdirectors, comprising Tan Tew Han as Chairman,Kiyotaka Matsuzawa and Ajaib Haridass as members.During the year under review, the Committee held sevenmeetings. All members of the Audit Committeeparticipated actively at all the meetings.
The main responsibility of the Audit Committee isto review with the external auditor, internal auditorand Management, the Group’s general policies andcontrol procedures, interested persons transactions,as well as any financial information presented toshareholders. The Audit Committee reviews thequarterly and annual announcements as well asthe financial statements of the Group and Companybefore they are submitted to the Board for approval.
The Audit Committee may direct matters to beincluded for special review by the external and internalauditors. It may, as necessary, discuss other matters thatthe Committee or auditors may wish to bring up.The Committee also recommends the appointment orre-appointment of external auditors.
The Audit Committee meets with the external andinternal auditors, without the presence of Management,at least once a year to review the cooperation andassistance given by Management to them.
The Audit Committee has reviewed the non-auditservices provided by its external auditors to the Group,and is satisfied with the independence and objectivityregarding the provision of non-audit services by theexternal auditors.
The Executive Resource & Compensation Committee
The Executive Resource & Compensation Committee(ERCC) is chaired by Wong Kok Siew and itsmembers are Tan Tew Han and Ajaib Haridass. TheERCC oversees executive compensation anddevelopment with the aim of building capable andcommitted senior management through focusedmanagement and progressive policies which can attract,motivate and retain talented executives to meet thecurrent and future needs of the Group.
The ERCC reviews and approves remuneration andpromotion of key executives as well as to decideon issues pertaining to their development andsuccession. The Committee also establishesguidelines on share options and other long-termincentives plans and approves the grant of suchincentives to key executives. The underlying philosophyis to motivate executives to maximise financial returnsand shareholder value.
The ERCC conducts, on an annual basis, a successionplanning review of the President, all his direct reports,and selected key positions in SembCorp Marine.Potential internal and external candidates for successionare reviewed for different time horizons of immediate,medium-term and longer-term needs.
The ERCC reviews the remuneration of its non-executivedirectors, executive director and senior executives,as well as major human resource management andcompensation policies and practices for the restof the Group.
While the Chairman of the ERCC is not regardedas independent within the context of the definitionof “independence” in the Code, he is a non-executivedirector independent of Management with a clearseparation of his role from Management indeliberations of the ERCC. The ERCC has access toexpert professional advice on human resourcematters whenever there is a need to consultexternally. In its deliberations, the ERCC takes intoconsideration industry practices and norms incompensation. The President is not present duringthe discussions relating to his own compensation,terms and conditions of service, and the review ofhis performance.
The ERCC meets among its members without thepresence of Management, at least once a year.The ERCC held its first meeting in July 2003.
Nominating Committee
The Nominating Committee is chaired by Wong KokSiew and its members are Tan Tew Han and AjaibHaridass.
The primary purpose of the Nominating Committee isto support and advise the Company, its unlistedsubsidiaries and, where applicable, unlisted associatedcompanies by nominating suitable candidates whoare best able to discharge their responsibilities asdirectors having regard to the law and the highstandards of governance practised by the Group andevaluating the balance of skills, knowledge andexperience of these Boards. Appointments to theseboards are made on merit and against objective criteria.The Nominating Committee takes care to ensure thatappointees have enough time available to devote totheir directorship roles.
Board Composition and Committees Chairman
Tan Tew Han
Audit Committee
Members
K. Matsuzawa
Ajaib Haridass
Chairman
Wong Kok Siew
Nominating Committee
Members
Tan Tew Han
Ajaib Haridass
Executive Resource &
Compensation Committee
Chairman
Wong Kok Siew
Members
Tan Tew Han
Ajaib Haridass
Chairman
Wong Kok Siew
Tan Kwi Kin
Tan Pheng Hock
K. Matsuzawa
N. Tsuda
Low Sin Leng
Tan Tew Han
Ajaib Haridass
Heng Chiang Gnee
(Alternate Director)
Directors
Board of Directors
SembCorp Marine 200332 SembCorp Marine 2003 33
3. COMMUNICATION WITH SHAREHOLDERS
Regular, Effective and Fair Communication withShareholders
We believe that our shareholders must be given afair and accurate view on the affairs of our company onan ongoing basis. As co-owners of SembCorpMarine, they are entitled to timely and completeinformation on financial data, material developmentsas well as an understanding of our business directionsand prospects.
All SembCorp Marine price-sensitive information aredisseminated publicly so as to be available to allshareholders at the same time and not on a selectivebasis. Financial and other performance data is givenfor the Group as well as by business unit or divisionwhere appropriate. This would allow our shareholdersbetter insight into the earnings drivers withinSembCorp Marine.
During the release of earnings results, the announcementis first released by MASNET onto the SGX website.Thereafter a briefing or teleconference by Managementis held for the media and analysts. All materials used atthe briefing will be available on MASNET as well as theCompany website at www.sembcorpmarine.com.sg.
Following any release of earnings or price-sensitivedevelopments, our Investor Relations staff are availableby email or telephone to answer questions fromshareholders as long as the information requested doesnot conflict with the SGX’s rules of fair disclosure.
Greater Shareholder Participation at GeneralMeetings
SembCorp Marine encourages shareholder participationat company meetings. Information on meetings ofshareholders are made through notices published inthe newspaper and reports or circulars sent to allshareholders. If any shareholder is unable to attend, heor she is allowed to appoint up to two proxies to voteon his or her behalf at the meeting through proxy formssent in advance.
The Chairman, President as well as the Chairman of theAudit Committee would be present together with theChief Financial Officer, the Company Secretary and ourexternal auditors and legal advisor to answer questionsraised by shareholders. Minutes of shareholder meetingswould be available on request by registeredshareholders.
For further details on SembCorp Marine communicationswith its shareholders, see the “Investor Relations” sectionof the Annual Report.
4. DEALINGS IN SECURITIES
The Company has adopted a Code of Compliance onDealing in Securities, which prohibit dealings in theCompany’s securities by its officers during the periodcommencing two weeks prior to the announcement ofthe Company’s quarterly results. Directors and executivesare also expected to observe insider trading laws at alltimes even when dealing in securities within thepermitted trading period.
5. INTERESTED PERSON TRANSACTIONS
Shareholders have adopted a shareholders mandate(“Mandate”) in respect of interest person transactionsof the Group. The Mandate sets out the levels andprocedures to obtain approval for such transactions.Information regarding the Mandate is available on theCompany’s website at www.sembcorpmarine.com.sg.All strategic business units are required to befamiliar with the Mandate and report any suchtransactions to the Group Finance Department. TheFinance Department keeps a regis ter ofthe Group’s interested person transactions.Information on interested person transactions for 2003is found in page 179.
6. INTERNAL CONTROL AND AUDIT
A Sound and Independent System of Internal Controland Audit
The internal audit function of the Group is supportedby the Internal Audit Department. Internal Audit directlyreports to the Audit Committee Chairman on auditmatters and administratively to the President. InternalAudit plans its internal audit schedules in consultationwith, but independent of Management, and its plan issubmitted to the Audit Committee for approval at thebeginning of each year.
To ensure that the internal audits continue to be performedby competent professionals, Internal Audit continues torecruit and employ suitably qualified staff. The internalaudit function provided by Internal Audit meets with thestandards set by the Institute of Internal Auditors.
7. RISK MANAGEMENT
During the year, we maintained a strong riskmanagement perspective in our continuousimprovement of key processes, including business,finance, human resource, quality and health, safety andthe environment. This involved assessing the risks,reviewing adequacy of existing controls and takingappropriate risk treatments.
Concurrently, in our Enterprise Risk Management (ERM)programme, we have formulated the ERM framework,guidelines and worksheets. We are rolling this ERMprogramme in phases, starting with a major shipyardin our Group. Using the first phase as a model, theprogramme would roll out to all the other business unitswithin the Group.
8. REMUNERATION REPORT
Transparent Disclosure Policy on Remuneration
The President, as executive director, does not receivedirector’s fees. He is a lead member of Management. Hiscompensation consists of his salary, allowances, bonuses,performance share awards conditional upon his meetingcertain performance targets (details are available on page178 of the Annual Report) and options. Details on shareoptions granted and its fair value are available on pages120 to 121 and page 178 of the Annual Report, respectively.
Non-executive Directors have remuneration packageswhich consist of a directors’ fee component pursuantto the Company’s Directors’ Fee policy, an attendancefee component and a share options component pursuantto the Company’s Employee Share Option Plan. TheDirectors’ Fee policy is based on a scale of fees dividedinto basic retainer fees as director and additional feesfor attendance and serving on board committees (detailsare available on page 31 of the Annual Report). Detailson share options granted and its fair value are availableon pages 120 to 121 and page 178 of the Annual Report,respectively.
The basis of allocation of the number of share optionstakes into account a director’s contributions andadditional responsibilities at board committees.The report on Directors’ Remuneration is found on page178 of the Annual Report.
SembCorp Marine adopts an incentive compensationplan which ties to the creation of economic value add(“EVA”), as well as to attainment of individualperformance goals for its key executives. Individual’sincentive compensation is linked to the EVA created bythe Company and its subsidiaries.
A “bonus bank” is used to hold incentive compensationcredited in any year. Typically, one-third of the availablebalance is paid out in cash each year, with the balancebeing carried forward to the following year. Such carried-forward balances of the bonus bank may either bereduced or increased in future, based on the yearly EVAperformance of the Group and subsidiary.
The Board has decided not to prepare a separateRemuneration Report as most of the information isfound in the Directors’ Report. We have indicated inthis Report where the information required to bedisclosed can be found.
Rather than set out the names of the top key executiveswho are not also directors of the Company, we haveshown the number of key employees in remunerationbands of S$250,000 from S$100,000. This should give amacro perspective of the remuneration pattern in theCompany, while maintaining the confidentiality of staffremuneration matters.
$250,000 to $499,999 6
$100,000 to $249,999 -
Remuneration Band for Key Executives
Remuneration Band No. of employees
SembCorp Marine 200334 SembCorp Marine 2003 35
Naoteru TsudaIndependent Director
Mr Naoteru Tsuda was appointed a director ofSembCorp Marine on May 30, 2002. He is currently thePresident of IHI Marine United Inc. He is also a directorof Ishikawajima-Harima Heavy Industry Co (IHI) of Japan.Prior to that, he was IHI’s Managing Director and GeneralManager of Shipbuilding and Offshore. Mr Tsuda heldseveral senior positions including Technical Advisor toRENAVE in Brazil, Manager of Ship RepairingDepartment in Aioi Shipyard, Manager of ConstructionDepartment in Kure Shipyard and Director and DeputyGeneral Manager of Shipbuilding and Offshore in IHI.
Mr Tsuda graduated from Tokyo University with aBachelor of Naval Architecture in 1964.
Wong Kok Siew - ChairmanNon-Independent Director
Mr Wong has been a director since May 20, 1998 andhas served as Chairman of SembCorp Marine since June1999. He is also the Chief Executive Officer of SembCorpIndustries since the company’s formation in 1998. Hewas President of Singapore Technologies IndustrialCorporation from 1989 to 1995 and was Chairman ofthe company until its merger with SembawangCorporation, resulting in the formation of SembCorpIndustries in October 1998. Mr Wong is also theChairman (non-executive) of Nomura Singapore, andwas executive Chairman of Nomura from 1995 to 1998.Concurrently, Mr Wong is Chairman of InternationalEnterprise Singapore (formerly known as the TradeDevelopment Board of Singapore) since August 2002.Mr Wong is also a director of the Port of SingaporeAuthority Corporation Ltd and British-American Tobaccoplc (London).
Mr Wong graduated from McGill University in Canadain 1970 with a Bachelor of Engineering (Distinction)under a Colombo Plan Scholarship. He also holds anMBA from McMaster University, Canada and attendedHarvard University’s Advanced Management Program.
Tan Kwi Kin - PresidentIndependent Director
Mr Tan Kwi Kin, currently the President and ChiefExecutive Officer of SembCorp Marine, has been adirector of the Board since April 1, 1990. A veteran inthe marine industry in Singapore, Mr Tan has 38 yearsof working experience in Jurong Shipyard. He startedhis career with Jurong Shipyard in 1966 as a young andenergetic Junior Engineer in the Design Department.He was promoted to Manager in charge of ProductionControl in 1977 and General Manager in 1981. In 1990,he was appointed Managing Director. When SembawangShipyard merged with Jurong Shipyard in 1997, Mr Tanwas appointed President of the Jurong Shipyard groupof companies. Following a restructuring and a namechange in November 1999, Mr Tan became the Presidentand Chief Executive Officer of SembCorp Marine andalso the Chairman of Jurong Shipyard. His also chairsthe boards of PPL Shipyard, JPL Corporation, JurongIntegrated Services and Jurong Machinery andAutomation.
Mr Tan graduated from Tokyo University, Japan, in 1965with a Bachelor of Engineering (Mechanical).
Tan Pheng HockNon-Independent Director
Mr Tan Pheng Hock was appointed a director ofSembCorp Marine on April 16, 2001. Currently, he isthe President and Chief Executive Officer of SingaporeTechnologies Engineering. Mr Tan had 16 years ofshipyard experience with Singapore Technologies Marinewhere he led in the computerisation of the company’sprocesses and operations and the building of a shipyard.Prior to his current appointment, he held several keyappointments including Executive Vice President ofSingapore Technologies Marine and President ofSingapore Technologies Kinetics. Mr Tan’s other boardappointments are with Singapore Technologies Kinetics,Singapore Technologies Electronics, SingaporeTechnologies Aerospace and Singapore TechnologiesMarine.
Mr Tan graduated with a Bachelor of Marine Engineering(First Class) from the University of Surrey under aColombo Plan Scholarship. He holds a Masters ofScience in Management from Stanford University andattended the Advanced Management Program atHarvard University in 1999.
Kiyotaka MatsuzawaIndependent Director
Mr Kiyotaka Matsuzawa was appointed a director ofSembCorp Marine on September 30, 2001. MrMatsuzawa has had a distinguished career in IHI. Hewas the former General Manager of Ships & OffshoreDepartment of IHI. He is presently the Managing Directorof IHI Marine Engineering prior to his current positionas Managing Director of IHI Marine Engineering(Singapore) since July 2001. In 1978, he was assignedto IHI’s Brazilian subsidiary company ISHIBRAS as theGeneral Manager for eight years where he initiated andpromoted ship exports from Brazil to clients worldwideunder the Brazilian Government Promotion Program.
Mr Matsuzawa graduated from the HitotsubashiUniversity, Japan in 1971 with a Bachelor of Economics.He also holds a Diploma in Business Administrationfrom the Federal University of Bahia, Brazil.
Directors’ Profile
Low Sin LengNon-Independent Director
Ms Low Sin Leng was appointed a director of SembCorpMarine on November 14, 2002. She is currently theGroup Chief Operating Officer of SembCorp Industrieswhere she leads the implementation of strategic allianceand merger programmes and is responsible fordeveloping and implementing operating strategiesacross the Group. Prior to her appointment at SembCorpIndustries in August 2000, she was the Executive Vice-President of Singapore Power from 1995 and ManagingDirector of SP Telecommunications from 1998. From1979 to 1995, Ms Low held several key senior positionsin the civil service including Deputy Secretary in Ministryof Finance and Ministry of Trade and Industry andDirector of the Ministry of Education. Ms Tan is alsoChairman of SemHotel and Pacific Internet; DeputyChairman of SembCorp Utilities and SingaporeComputer Systems, and holds other boardappointments with SembCorp Parks Holdings andSembCorp Parks Management.
Ms Low graduated with a Bachelor of Science in ElectricalEngineering (Honours with Distinction) from the Universityof Alberta, Canada under a Colombo Plan Scholarship.She further obtained an MBA degree with high distinctionfrom the Catholic University of Leuven, Belgium in 1986.She attended the Advanced Management Program at theHarvard Business School in 1994.
SembCorp Marine 200336 SembCorp Marine 2003 37
Tan Tew HanIndependent Director
Mr Tan Tew Han was appointed a director of SembCorpMarine on April 17, 2003. He brought with him animpressive 25 years of banking experience. He heldseveral senior positions in Citibank, Banque Paribas,Bank of America, International Bank of Singapore andOverseas Union Bank. Prior to his retirement in 2001,he was the Executive Vice President and Head ofInvestment Banking and Corporate Finance Division inOUB since 1993. His other board appointments includehis appointments at PanPac Media Group and ST AssetManagement.
Mr Tan graduated from the University of Singapore witha Bachelor of Science (Honours) in 1970 and obtainedan MBA in 1978 from the University of British Columbia,Canada.
Ajaib HaridassIndependent Director
Mr Ajaib Haridass was appointed as a director ofSembCorp Marine on October 31, 2003. He set up alegal firm, Haridass Ho & Partners in 1985 where he isnow a partner. He brings with him more than 27 yearsof legal experience specialising in all admiralty matters,both litigious and non-litigious. These include mattersrelating to ship sale and purchase, the financing aspectsof such transactions. as well as marine insurance andgeneral commercial and banking litigation. Mr Haridasssits as an arbitrator and mediator and is an accreditedmediator of the Singapore Mediation Centre and theSingapore Academy of Law. He is also a referee of theSingapore Small Claims Tribunal and a mediator at theSubordinate Courts, Criminal Relational Disputes. Heis also a Commissioner for Oaths, a Notary Public anda Justice of Peace.
Mr Haridass graduated from the University of Londonin 1974 with a Bachelor of Law (Honours) and was calledto the English Bar at the Middle Temple in 1975. He wasadmitted as an Advocate and Solicitor of the SupremeCourt of Singapore in 1976.
Heng Chiang GneeAlternate Director
Mr Heng Chiang Gnee was appointed as an AlternateDirector of SembCorp Marine on April 6, 2001. Currently,he is the Deputy President of SembCorp Marine andChairman of Sembawang Shipyard. Prior to his currentappointment, Mr Heng was involved with businessdevelopment and project management in SembawangShipyard. His previous employment with the SingaporeTechnologies Group involved businesses coveringshipbuilding, ship repairing, ordnance, aircraft enginemanufacturing and lifestyle entertainment. He is alsothe President of the Association of the Singapore MarineIndustries and Chairman of the Shipbuilding andOffshore Engineering Advisory Committee of NgeeAnn Polytechnic.
Mr Heng graduated form the University of Newcastle-Upon-Tyne, United Kingdom in 1977 with a Bachelor ofMarine Engineering (First Class). He also obtained aMaster of Science (Management) from the Sloan Schoolof Management, Massachusetts Institute of Technology,United States in 1990 and attended the HarvardUniversity’s Advanced Management Program in 2000.
Wee Sing Guan
Mr Wee has been the Chief Financial Officer ofSembCorp Marine since February 2000. He first joinedthe company as an accountant in 1974 and later heldthe position of Financial Controller before assuming hiscurrent appointment. Mr Wee graduated from NanyangUniversity in 1972 with a Bachelor of Commerce.
Wong Peng Kin
Mr Wong has been the Senior Vice President of HumanResources at SembCorp Marine since February 2000.Prior to his current appointment, Mr Wong was theGeneral Manager in charge of Human Resources. Hejoined the company in 1970 as an officer in the PersonnelDepartment. Mr Wong graduated from the Universityof Singapore with a Bachelor of Business Administration(Hons) in 1970.
Wong Weng Sun
Mr Wong has been the Executive Director of JurongShipyard since January 2002. He joined the companyin 1988 as an engineer and was later appointed GeneralManager in charge of project management. Mr Wonggraduated from the University Technology of Malaysiain 1986 with a Bachelor of Mechanical Engineering(Marine). He also obtained a Master in BusinessAdministration degree from the Oklahoma City Universityin 1994.
Key Management Profile
Lee Yeok Hoon
Mr Lee has been the General Manager in charge ofproduction at Jurong Shipyard since February 2000.Prior to his current appointment, Mr Lee was the DeputyGeneral Manager in charge of production development.He joined the company in 1970 as a Design Engineer.Mr Lee graduated from the Singapore Polytechnic witha Diploma in Mechanical Engineering in 1970.
Wong Lee Lin
Ms Wong has been the General Manager at SembawangShipyard since January 2002. Since joining the companyin 1975 as an officer, she has also held the position ofDeputy General Manager before her currentappointment. Ms Wong graduated from the Universityof Singapore with a Bachelor of Social Sciences (Hons)in 1974.
Ong Poh Kwee
Mr Ong has been the Executive Director of SembawangShipyard since January 2002. Prior to his currentappointment, Mr Ong was the General Manager andthe Managing Director of Karimun Sembawang Shipyard.Mr Ong was appointed the Deputy Managing Directorof PPL Shipyard in July 2003. He joined the company in1987 as an engineer, the same year he graduated fromthe University of Newcastle-Upon-Tyne, United Kingdom,with a Bachelor of Marine Engineering.
Besides Mr Tan Kwi Kin (President and CEO) and Mr Heng Chiang Gnee (Deputy President), the other key membersof the management team are:
by MASNET onto the SGX website. Thereafter a briefingor teleconference by Management was held for themedia and the analysts. All presentation materialsfor analysts and media and press releases weresubsequently posted at the company’s website atwww.sembcorpmarine.com.sg under the InvestorRelations subsection. Analysts and media conferenceswere held during the full year and half year results
announcement and teleconferencesfor quarterly results.
Top Management RepresentativesAccessible to Investor CommunityThroughout the year, top managementrepresentatives of SembCorp Marine
were accessible to the investor community. One-on-one meetings with analysts and the fund managers,both local and overseas were held frequently. Tours ofthe shipyard facilities were also conducted for theanalysts and fund managers for a better understandingof shipyard operations. This direct contact allowed theManagement to update the investor community ofdevelopments, provide a better understanding of thecompany’s rationale for its undertakings and addressany concerns being brought up by analysts and investorsimmediately.
SembCorp Marine 200338 SembCorp Marine 2003 39
Investor Relations
2004/2003 Financial and Investor Relations Calendar
The Company continued to strengthen investorconfidence by promoting greater corporate transparency.In compliance with the mandatory quarterly reportingfor listed companies in Singapore with effect from 2003,the company commenced its first quarterly reportingon April 28, 2003.
Interaction with ShareholdersSembCorp Marine’s 40th Annual General Meeting andExtraordinary General Meeting were well attended byshareholders at the company’s registered office inTanjong Kling Road. To ensure safety and well-being ofall attendees in the light of the Severe Acute RespiratorySyndrome (SARS) outbreak, stringent entry checks anddeclaration were in place as part of the company’scontinuous efforts in SARS prevention. The companyalso provided pick-up service at the Buona Vista MRTStation to ferry shareholders to the venue of the AGMat the corporate office located in Jurong Shipyard. Themeetings also enabled shareholders to learn more ofthe company’s strategic directions as they shared afruitful interaction with the Chairman, the directors andsenior management of SembCorp Marine. At the sametime, shareholders were able to experience and obtainhands-on knowledge of shipyard operations.
Shareholders who wish to obtain more informationabout the company can also contact us at the followingemail address for investor relations:[email protected]
Communication with ShareholdersMuch care was taken during our quarterly and full yearresult announcements to ensure that the investorcommunity and members of the media had a goodgrasp of the company’s businesses. We believe inconveying accurate and timely information to ourshareholders and that shareholders must be given a fairand accurate view on the affairs of our company on anongoing basis. In disseminating material information,we take care to ensure that the information is madepublicly available on a timely and non-selective basis toall shareholders.
Presentation Materials & Press Releases Availableat WebsitesDuring the release of the respective quarterly, half-yearlyand full year results, the announcement was first released
2004 Calendar 2003 Calendar Details
February 5, 2004 February 18, 2003 Full Year Results Announcement
April 28, 2004 May 30, 2003 Annual General Meeting
May 4, 2004 April 28, 2003 1st Quarter Results Announcement
August 2, 2004 July 24, 2003 2nd Quarter Results Announcement
October 29, 2004 October 31,2003 3rd Quarter Results Announcement
Recognition for High Standard of DisclosureSembCorp Marine’s 2002 and 2003 Annual Reportsreceived commendation and Merit Awards for their highstandards of reporting and disclosure at the AnnualReport Awards. The annual awards were organised bythe Institute of Public Accountants of Singapore,Investment Management Association of Singapore, theSecurities Investors Association, the Institute ofManagement, Singapore Institute of Directors, SingaporeExchange Limited and Business Times.
Shareholders’ InformationStatistics of Shareholdings as at March 18, 2004
SembCorp Marine 200340 SembCorp Marine 2003 41
Share Prices and Monthly Volumes
Turnover
High
Low
ST index
Investor Data
1999 2000 2001 2002 2003
Earnings per share (cents) 5.62 5.72 5.89 6.54 5.55
Gross Dividend per share (cents) 6.00 6.44 6.50 6.50 5.00
Net Dividend per share (cents) 4.46 4.84 5.03 5.07 3.97
Value ($million) 312.50 184.50 266.80 731.90 338.21
Average P/E 14.80 12.70 14.10 16.40 14.50
Net Tangible Assets per share 62.47 63.72 64.41 65.65 64.60(cents)
Share CapitalAuthorised Share Capital : $500,000,000Issued and Fully Paid-up Capital : $142,112,608Number of Shareholders : 5,363Class Shares : Ordinary Share of $0.10 each with equal voting rights
Shareholding Held in Hands of PublicBased on information available to the Company as at March 18, 2004, 32.53% of the issued ordinary shares of theCompany is held by the public and therefore, Rule 723 of the Listing Manual issued by SGX-ST is complied with.
Notes:(1) Temasek Holdings (Private) Limited is deemed to be interested in the 898,818,260 Shares held by SembCorp Industries as well as the balance of 1,772,000 Shares held by its other subsidiaries.(2) Singapore Technologies Pte Ltd is also deemed to be interested in the 898,818,260 Shares held by SembCorp Industries.
The year 2003 was a challenging one for theSembCorp Marine Group. Our ship repair businesswas affected by the Severe Acute RespiratorySyndrome outbreak in the region during the firsthalf of the year as well as the postponement ofvessel repairs as a result of high freight rates.
Despite the difficult operating environment, ourrevenue attained a record high of $1.068 billion in2003. This was 6 per cent higher than the previousyear’s revenue of $1.012 billion, attributable mainlyto volume increases in ship conversion and new-building projects, which more than offset thedecline in ship repair revenue.
Mr Wong Kok Siew/Tan Kwi Kin,Chairman/President & CEO, SembCorp Marine LtdChairman’s & President’s Letter to Shareholders, 2003 Annual Report
The year 2003 was a challenging one for theSembCorp Marine Group. Our ship repair businesswas affected by the Severe Acute RespiratorySyndrome outbreak in the region during the firsthalf of the year as well as the postponement ofvessel repairs as a result of high freight rates.
Despite the difficult operating environment, ourrevenue attained a record high of $1.068 billion in2003. This was 6 per cent higher than the previousyear’s revenue of $1.012 billion, attributable mainlyto volume increases in ship conversion and new-building projects, which more than offset thedecline in ship repair revenue.
Mr Wong Kok Siew/Tan Kwi Kin,Chairman/President & CEO, SembCorp Marine LtdChairman’s & President’s Letter to Shareholders, 2003 Annual Report
SembCorp Marine 200344 SembCorp Marine 2003 45
Group Five-Year Performance
The SembCorp Marine Group achieved strong compounded annual growth rates(CAGRs) in revenue and attributable profits (PATMI) for the five year period from1999 to 2003.
Group revenue recorded a CAGR of 5.5 per cent from $818 million (excluding adivested company) in 1999 to $1.068 billion in 2003. Group PATMI and Return onEquity (ROE) also attained record high CAGR of 5.2 per cent and 9.9 per centrespectively in 2002.
For 2003, ROE stood at 8.4 per cent while Economic Value Added was $23.3 million.
The Board of Directors is recommending a final and special dividend of 3.5 centsper share (less income tax), making a total annual dividend of 5.0 cents per share(less income tax) or payout ratio of 71.7 per cent of 2003 earnings.
1999SembCorp Marine’s PATMI grew 9.1 per cent to $78.4million on a 1.4% lower turnover of $921 million. Arestructuring programme was unveiled in late 1999 toentrench SembCorp Marine as the leading marine-engineering group in an increasingly competitivemarket.
2000 In 2000, SembCorp Marine reported 1.8 per cent growthin PATMI to $79.8 million despite a 17.2 per cent declinein turnover to $763.0 million. The lower turnover wasthe result of the deconsolidation of a subsidiary whenit became a public-listed company in March 2000coupled with lower revenue contribution from our shiprepair business due to strong competition from localand regional shipyards.
2001Revenue increased 12.0 per cent to $854.5 million dueto an improvement in ship repair activities. Our PATMIincreased 3.2 per cent to $82.4 million. The improvementin profitability came from an increase in ship repairvolume and maiden contributions from our newlyassociated companies in Brazil and PPL Shipyard.
2002SembCorp Marine’s revenue hit a record high of $1.012billion, 18.4 per cent higher than that achieved in 2001.The improvement was due mainly to increased revenue
from new building and ship conversion projects. Grouppre-tax profit set a new record at $116.3 million.Exceptional items contributed $6.7 million, while theassociated companies and joint venture contributed$6.1 million. Group PATMI including exceptional itemsgrew by 11.7 per cent to $92.1 million.
2003This was another record year for SembCorp MarineGroup. Despite the difficult operating environment,Group revenue attained a record high of $1.068 billion,6 per cent higher than 2002’s $1.012 billion. The increasewas attributed mainly to volume increases in shipconversion and new building projects, which more thanoffset the decline in ship repair revenue. Our ship repairbusiness was affected by the Severe Acute RespiratorySyndrome (SARS) outbreak in the region in the first halfof the year as well as the postponement of vessel repairsas a result of high freight rates.
Group PATMI including exceptional items declined 14.7per cent to $78.5 million, compared to $92.1 million in2002. The decline was mainly due to subduedperformance in ship repair as well as lower exceptionalgains of $1.3 million, compared to $6.7 million in 2002.
If exceptional items and the effect of prior year tax over-provision were excluded, the Group’s PATMI would havedeclined by just 8.4 per cent from $80.8 million in 2002to $74.0 million in 2003.
For the year 1999 2000 2001 2002 2003($’000) ($’000) ($’000) ($’000) ($’000)
Turnover 921,036 763,008 854,461 1,011,512 1,067,986Operating Profit 96,866 79,159 84,496 89,883 74,308Profit Before Tax 111,072 96,075 103,392 116,291 95,186PATMI Before EI 78,395 79,848 81,218 85,445 77,265PATMI After EI 78,395 79,848 82,419 92,098 78,540
Per Share Data (cents)EPS – Before Tax 7.96 6.89 7.39 8.26 6.72EPS – After Tax After EI 5.62 5.72 5.89 6.54 5.55Net Tangible Assets 62.47 63.72 64.41 65.65 64.60Net Asset Value 62.49 63.75 65.52 66.46 65.29
Financial RatiosReturn on Equity 9.11 9.07 9.10 9.90 8.41Return on Total Assets 5.90 5.92 5.97 6.30 5.21Operating Margin (%) 10.5 10.4 9.9 8.9 7.0Operating Profit/Equity (%) 11.3 9.0 9.3 9.7 8.0Current Ratio 1.50 1.65 1.42 1.30 1.45Gearing Ratio 2.3% 0.9% 2.8% 2.9% 10.9%Dividend Cover 1.26 1.18 1.16 1.29 1.39
Group Five-Year Financial Summary
SembCorp Marine 200346 SembCorp Marine 2003 47
Cash FlowThe consolidated statement of cash flows of the Group is summarised below:
2003 ($m) 2002 ($m)
Cash flow from operating activities
Operating profit 74 90
Depreciation, amortisation and non-cash items 31 33
Operating income before reinvestment in working capital 105 123
Working capital changes (22) 81
Interest received and payment of interest expense and tax (24) (10)
Net cash provided by operating activities 59 194
Cash flow from investing activities (16) ( 22)
Dividend paid to shareholders of the company and subsidiary companies (72) ( 71)
Cash flow from financing activities 68 (48)
Cash flow from financing activities (4) (119)
Free cash flow 39 53
Cash Flow from Operating Activities
During the year, the Group continued to generatehealthy cash flow from its operations. This amountedto $105 million before changes in working capital.Working capital increased by $22 million mainly becauseof increased activities in our core businesses of shiprepair, shipbuilding, rig building and ship conversion.After accounting for interest and income tax payments,net cash from operating activities amounted to $59million.
Cash Flow from Investing Activities
Net cash used in investing activities amounted to $16million. During the year, SembCorp Marine acquired anadditional 35 per cent interest in PPL Shipyard, makingit an 85 per cent owned subsidiary company. The Groupalso purchased additional fixed assets of $33 million toenhance its core businesses of ship repair, shipbuilding,ship conversion, rig building and offshore engineering.
Turnover andOperating Profit
120
100
80
60
40
20
0
Operating Profit
1,200
1,000
800
600
400
200
0Turnover
$'m
$'m
79.2
1999
2000
2001
2002
96.92003
84.5
89.974.3
921763
854
1012
1068
Profit before Taxand PATMI
140
120
100
80
60
40
20
0
PBT
PATMI
95.2
78.5
116.3
92.1103.4
82.496.1
79.8
1999
2000
2001
2002
111.1
78.4
2003
$'m
Return On Equity
10
9
8
7
6
5
4
3
2
1
0
9.10
9.908.41
1999
2000
2001
2002
2003
9.07
9.11
%
Operating ProfitMargin
12
10
8
6
4
2
0
Operating Profit Margin
Operating Profit/Equity
9.9
8.97.0
1999
2000
2001
2002
2003
10.4
10.5
8.09.7
9.3
9.011.3
%
Net Asset Valueand Net TangibleAssets Per Share
70
60
50
40
30
20
10
0
Net Asset Value
Net Tangible Assets
1999
2000
2001
2002
62.472003
62.49
63.7263.75
64.4165.52
65.6566.46
64.6065.29
cents
SembCorp Marine 200348 SembCorp Marine 2003 49
Dividend Paid
Dividend paid to the SembCorp Marine's shareholdersamounted to $72 million or 6.5 cents per share, in 2003.This included a final dividend of 1.0 cents per share anda special dividend of 4.0 cents per share, making a finaldividend of 5.0 cents per share. Adding the interimdividend of 1.5 cents per share, total gross dividendpaid in the financial year ended 2003 was 6.5 cents pershare.
For 2003, the Directors are recommending a finaldividend of 1.0 cents per share and a special grossdividend of 2.5 cents per share, totaling up to 3.5 centsper share in respect of the financial year ended 2003.Including the interim gross dividend of 1.5 cents pershare, total dividend for financial year ended 2003 willbe 5.0 cents per share. The dividend payout ratio is 71.7per cent is in line with the Company’s dividend policy.
Financial Position
The financial position of the Group continued to bestrong. The change in financial position between thetwo years reflected the Group’s efforts in divesting itsnon-core assets and investing in its core businesses ofship repair, shipbuilding, ship conversion, rig buildingand offshore engineering. Acquisition of businesses andcapital expenditures of operational assets within thenew core business of rig building were made in 2002and 2003. The Group also progressed in the divestmentof non-core freehold residential property and investmentin Jurong Engineering. Working capital of the Groupincreased in line with the higher activities of our corebusinesses.
Total assets of the Group increased by 2.7 per cent from$1.49 billion to $1.53 billion in 2003.
Capital Employed
Total capital employed as at December 31, 2003 was$942 million comprising shareholders’ funds of $927million and minority interests of $15 million.
The Group’s shareholders’ fund decreased marginallyin 2003 mainly due to the dividend distribution of $72million and realisation of capital and foreign currencytranslation reserves upon divestment of JurongEngineering and Bohai Sembawang Shipyard.
Minority interests of the Group increased from $10million in 2002 to $15 million in 2003. This was due mainlyto the acquisition of an additional 35 per cent interestin PPL Shipyard, making it an 85 per cent subsidiarycompany of the Group.
Simplified Group Financial Position
Borrowings
Gross debts of the Group as at December 31, 2003comprised mainly short-term money market borrowingsamounting to $101 million. After deducting cash andcash equivalent of $203 million, the Group was in a netcash position of $102 million.
Financial Resources
The Group maintained sufficient cash and cashequivalent, internal generated cash flow and access tofunding resources through an adequate amount ofcommitted credit facilities. A mixture of short-termmoney market borrowings was obtained to fund workingcapital requirements and capital expenditure andinvestments. Due to the dynamic nature of the business,the Group maintained flexibility in funding by ensuringthat ample working capital lines were available at anyone time.
Gross Value Added From Operation 299,355 233,847 259,554 280,023 265,221
Investment, Interest & Other Income 29,383 42,872 40,031 54,604 38,936Share of Associated Companies’ Results (876) (7,162) (1,707) 5,819 7,930Share of Joint Ventures’ Results (1,516) 371 (30) 243 73Other Non-operating Expenses (1,011) (578) (4,049) (21,490) (5,327)
325,335 269,350 293,799 319,199 306,833DistributionTo Employees : Salaries, Wages & Benefits 168,010 135,518 151,822 157,048 165,360To Government : Income & Other Taxes 37,802 25,042 27,090 27,418 21,836To Providers of Capital : Interest Paid on Borrowings 817 1,329 291 822 2,663 Dividends 56,805 62,364 60,356 71,470 71,842Retained in Business : Depreciation and Amortisation 34,882 27,280 29,117 33,462 35,294 Retained Profits 21,545 17,414 22,389 20,627 6,699 Minority Interests (1,569) (4,820) (1,892) 1,110 (316)Non-production Costs : 7,043 5,223 4,626 7,242 3,455
Total Distribution 325,335 269,350 293,799 319,199 306,833
Average Number of Employees 5,662 4,774 4,737 5,272 5,302Value Added Per Employee 52.87 48.98 54.79 53.12 50.02Employment Cost Per Employee 29.67 28.39 32.05 29.79 31.19Value Added Per Dollar Turnover 0.33 0.31 0.30 0.28 0.25Value Added Per Dollar Investment in Fixed Assets 0.65 0.57 0.60 0.63 0.59Value Added Per Employment Costs 1.78 1.73 1.71 1.78 1.60
Liabilities -Total Liabilities
600
500
400
300
200
100
0
Current Liabilities
Long Term Liabilities
57.0
46.1
1999
2000
2001
2002
2003
411.9
56.7
58.2
531.2
369.0
446.9
492.1
52.1
$'m
Issued Capital
Capital Reserves
Retained Profits
Minority Interest
Return on Equity
ShareholdersFund
1000
800
600
400
200
0
10
8
6
4
2
0
%
$'m
1999
2000
2001
2002
2003
69.8
321.6
480.5
30.1
139.5
254.7
495.2
10.9
140.6
263.3
517.3
10.0
141.4
257.0
541.5
10.3
142.0
236.7
548.414.7
9.11
9.07
9.10
9.908.41
ProductivityRatios
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
Per $ Turnover
Per $ Investment in Fixed Assets
Per $ Employment Costs
1999
2000
2001
2002
0.65
0.33
2003
1.78
1.73
0.57
0.31
1.71
0.60
0.30
1.78
0.63
0.28
1.60
0.59
0.25
Value Added
Economic Value Added (EVA) Statement
Note 1:The reported current tax is adjusted for the statutory tax impact of interest expense.
Note 2:Monthly average total assets less non-interest bearing liabilities plus timing provision, goodwill amortised and present value of operating leases.
Note 3:The Weighted Average Cost of Capital is calculated in accordance with SembCorp Industries Ltd Group EVA Policy as follows:i) Cost of Equity using Capital Asset Pricing Model with market risk premium at 6.0% (2002: 7.0%)ii) Risk-free rate of 2.78% (2002: 3.94%) based on yield-to-maturity of Singapore Government 10 years Bondsiii) Ungeared beta 0.5 (2002: 0.5) based on SembCorp Industries risk categorisation andiv) Cost of Debt rate at 2.68% (2002: 4.30%) using 5-year Singapore Dollar Swap Offered rate plus 75 basis point. (2002: 5-year Singapore Dollar
Swap Offered rate plus 75 basis point)
Note 4:Unusual items (UI) refer to divestment of subsidiaries and associates, long-term investments and disposal of major fixed assets.
SembCorp Marine 200352 SembCorp Marine 2003 53
1. Operational Risk
The Group operates in 10 countries with assets andactivities spreading across Asia Pacific and Brazil. Aspart of its plan to grow its business internationally, theGroup will continue to focus on increasing its operatingactivities and presence in Brazil, Greater China andMiddle East. Senior managers are posted overseas tooversee the operational risk.
The Group expects that as part of its business strategy,the percentage of its overseas sourced assets andcustomers will increase moving forward, therebyachieving the effects of greater geographicaldiversification. Likewise, a broader base of significantcustomers will reduce the risk of customer concentration.
2. Investment Risk
The Group seeks to grow its businesses through threefronts:• organic growth of its existing capabilities• development of new capabilities• acquisition of business entities or operating assets
Investment activities, ranging from the identification oftargets to the conduct of due diligence exercises, aresupported by a dedicated team of experiencedmanagers and augmented by external professionals forspecialised services. The business proposals are guidedby a given set of internal investment criteria, evaluatedby senior management before seeking final Board ofDirectors’ approval.
3. Interest Rate Risk
The Group’s policy is to maintain an efficient optimalinterest cost structure using a mix of fixed and variablerate debts where working capital is financed by variablerate loans while long-term investments are financed byfixed rate loans. Surplus funds, if any, are placed withreputable banks and/or investment in bonds.
The Group obtained additional funding through bankborrowings and leasing arrangements. The Group’spolicy is to obtain the most favourable interest rateavailable without increasing its foreign currencyexposure.
4. Foreign Exchange Risk
The Group incurs foreign exchange risk on purchasesthat are denominated in various currencies other thanSingapore dollars, primarily in US dollar and Japaneseyen. To minimise exposure on foreign currency risks,the Group usually arranges for natural hedging bymatching costs in the same currency as sales collections.
5. Derivative Financial Instrument Risk
The Group also utilises forward exchange contracts withmaturities of less than twelve months to hedge foreigncurrency denominated financial assets, liabilities andfirm commitments. Under this arrangement, increasesor decreases in the Group’s foreign currencydenominated financial assets; liabilities and firmcommitments partially offset gains and losses on thehedging instruments. The Group only uses foreigncurrency forward contracts for hedging purposes.
6. Liquidity Risk
To measure liquidity risks, the Group monitors its netoperating cash flow, maintains a level of cash and cashequivalents and secures committed funding facilitiesfrom financial institutions. In assessing the adequacy ofthese facilities, management reviews working capitalrequirements so as to mitigate the effects of fluctuationsin cash flows. The Group expects short term funding isobtained from overdraft facilities and bank loans.
Short term funding is obtained from overdraft facilitiesand bank loans.
7. Credit Risk
The Group has no significant concentration of creditrisk with any single counter party and monitors itsexposure to credit risks arising from sales to customerson an on-going basis where credit evaluations are doneon customers that require credit. The Group only dealswith pre-approved counterparties with good creditrating and imposes a cap on the amount to betransacted with any counterparty so as to reduce theconcentration of risk.
Cash terms, advance payments and letters of credit orbank guarantees are required for customers of lowercredit standing.
Risk Management
Note 2003 2002 $’000 $’000
Net Profit before Tax 87,183 104,901
Adjust for:
Share of Associated Companies’ Profits 8,003 11,390
Interest Expense 5,350 4,937
Others ( 841) 13,440
Adjusted Profit Before Interest and Tax 99,695 134,668
Cash Operating Taxes 1 (13,569) ( 31,872)
Net Operating Profit After Tax (NOPAT) - (a) 86,126 102,796
Average Capital Employed 2 1,182,964 1,140,942
Weighted Average Cost of Capital 3 5.4% 8.3%
Capital Charge - (b) 63,880 94,698
Group Economic Value Added (EVA) - [(a) - (b)] 22,246 8,098
Less: Minority Share of EVA (1,055) 154
Group EVA Attributable to Ordinary Shareholders 23,301 7,944
Unusual Items (UI) Gains 4 3,913 17,156
Group EVA Attributable to Shareholders (exclude UI) 19,388 (9,212)
SECTOR REVIEW &MARKET OUTLOOK
Two decades ago, the marine sector was tagged as a “sunsetindustry” by various people…. the “sunset” label continuesto be echoed by those who have not kept pace with thedevelopment and transformation of the marine industry inSingapore. However, I am pleased that the marine industryhad defied these doomsayers’ predictions … It is by no meansa sunset industry. Indeed, yours is a growth industry.
Dr Ng Eng Hen, Acting Minister for Manpowerat the 35th Anniversary of the Association ofSingapore Marine Industries, October 23, 2003
Singapore’s Marine Industry Revenue, 1981-2003($ million)
The Singapore economy expanded by 1.1 per centin 2003, half the pace of 2002. Economic growthin the first half was affected by the Iraq war andthe SARS outbreak. As a result, all major sectors exceptwholesale and retail trade and financial servicesdeteriorated from 2002, with the construction
sector contracted by a significant 11 per cent.However, the economy rebounded in the second halfof 2003 in tandem with the improvements in theexternal environment. The recovery was expected tobe sustained in 2004. Accordingly, the Ministryof Trade and Industry raised the 2004 economicgrowth forecast from 3 to 5 per cent to 3.5 to5.5 per cent.
Main Indicators of the Singapore Economy
Source: Singapore Department of Statistics
National Income 1999 2000 2001 2002 2003
GDP at 1995 Market Prices (Change in %)
Total 6.4 9.4 -2.4 2.2 1.1
Goods Producing Industries 6.6 10.8 -9.2 4.0 0.2
Manufacturing 13.0 15.1 -11.5 8.3 2.8
Construction -9.0 -1.8 -3.2 -10.8 -10.7
Services Producing Industries 5.6 7.7 2.0 1.5 1.0
Wholesale & Retail Trade 6.5 14.8 -3.3 2.7 6.7
Hotels & Restaurants 3.6 8.2 -2.2 -2.9 -12.2
Transport & Communications 7.0 7.6 2.6 5.0 -2.0
Financial Services 5.2 2.1 3.7 -4.8 3.7
Business Services 2.9 6.3 3.1 0.4 -1.8
WORLD ECONOMY DRIVING THEBUSINESS UPSWING
The world economy continued to be the driving forcebehind the business upswing as experienced by theshipping industry in 2003, especially in Asia. The USeconomy was expected to experience robust growthfor the first half of 2004. In Japan, optimism amongmanufacturers and consumers also rose to the highestin recent years. Confidence also returned in the EU withexports rebounding to add another source of strengthfor the world economy.
Within Asia, China had become the world’s fastestgrowing major economy registering a GDP growth of9.1 per cent in 2003. As the world’s sixth-largest economy,China had become an increasingly important source ofdemand for exports from Asia and the rest of the world.Other Asian economies also experienced a sharpturnaround following the containment of SARS. However,the recent outbreak of bird flu, while still on a relativelysmall scale, could hamper economic recovery in Asia.
World & Asian Economic Outlook
Compiled by BT dated February 27, 2004* estimated
THE SINGAPORE MARINE INDUSTRY
Like the Singapore economy, the marine industry wasalso affected by the world economy and the Asianeconomies.
Strengths and Comparative AdvantagesSingapore continued to be a leading one-stop maritimehub, having emerged over the past four decades as theworld’s premier ship repair, ship conversion and offshorecentre. The island nation was home to the world’s busiestport in terms of shipping tonnage, the world’s second-busiest transshipment port (80 per cent of containertraffic in Singapore is for transshipment), the world’s topbunkering port, a key shipbuilding and repair centre, asingle most important jack-up, rig construction andFPSO conversion centre. It was also home to the seventh-largest merchant fleet in the world. The maritime centrecontributed 6 per cent to Singapore’s GDP andemployed more than 50,000 workers.
The three main sectors in Singapore’s marine industrywere ship repair and conversion, shipbuilding and theoffshore engineering sectors. The supporting sectorswere marine equipment manufacturers, suppliers andstockists of marine-related products/services, specialisedcontractors, classification societies, marine supportcompanies and labour suppliers.
Over the years, the marine industry had gradually evolvedfrom largely a ship repair and shipbuilding centre intoa world-class industry providing high value-addedproducts and services like specialised ship repairs,
conversions of tankers to floating production storageoffloading platforms, rig building and offshoreengineering. In 2002, the marine industry in Singaporeachieved a record turnover of $4.4 billion, with $2,726million (or 62 per cent) from ship repair and conversion,$528 million (12 per cent) from shipbuilding and $1,143million (26 per cent) from the offshore sector. Preliminaryestimate for 2003 showed a decrease in revenue at$3.8 billion.
Real GDP
Country 2002 2003 2004 Forecast
Singapore 2.2 1.1 3.5 – 5.5
China 8.0 9.9 8.3
Hong Kong 2.3 2.9 * 5.5
India 4.3 7.5 – 8.0 6.5
Indonesia 3.7 4.2 4.6
Japan -0.4 2.7 2.1
Malaysia 4.1 5.2 5.6
Philippines 4.4 4.5 4.3
South Korea 6.3 2.5 * 5.3
Taiwan 3.6 3.3 4.9
Thailand 5.4 6.2 * 6.8
USA 2.4 3.1 4.4
EU 1.1 0.8 2.0
World 3.0 3.5 4.2
Source: ASMI* estimated
3.8*
Ship Repair &Conversion Sector
62%
Shipbuilding Sector12%
Offshore Sector26%
Main Sectors of SingaporeMarine Industry 2002
Ship Repair &Conversion Sector
63%
Shipbuilding Sector14%
Offshore Sector23%
Main Sectors of SingaporeMarine Industry 2001
Talent Pool and Retention of SkillsThe increase in the volume of activities in the industryalso saw a corresponding increase in the number ofpeople employed in the marine industry. The talentpool and the retention of skills across the variousdisciplines in engineering and production continued toenhance Singapore’s reputation in delivering projects
successfully. Many companies thus stepped up theirrecruitment efforts during the year to augment existingmanpower to work on new projects secured. In 2002,the marine industry recorded a total of 500 vacancies.The total manpower in the marine industry stood at37,447 that year. Estimate manpower for 2003 was 35,000.
The maturity of the Health Safety and Environment (HSE)management system had become a competitiveadvantage for Singapore against other low cost centresin the region. Singapore’s marine industry madesignificant safety improvement over the last 12 years.The Accident Frequency Rate (AFR) in 2002 surpassed
the targets set for the industry by the AdvisoryCommittee on Occupational Safety and Health in theshipbuilding and ship repairing industry. For 2003, theindustry reported AFR at 3.4 and ASR at 453. Health,safety and the environment would continue to be keyareas of focus for the marine industry.
Maturity of the Health Safety and Environment (HSE) Management System
SembCorp Marine 200358
Source: Ministry of Manpower
Source: Ministry of Manpower
Accident Frequency & Severity Rates 1991 - 2003
91 92 93 94 95 96 97 98 99 00 01 02 03
16
14
12
10
8
6
4
2
0
2,500
2,000
1,500
1,000
500
0
Frequency Rates Severity Rates
14.2
13.212.5
9.68.8
7.97.3
5.13.8
4.1
3.1
6.1
1,898 1,958
1,765
2,174
707
940840
708 680 652
724
394
No. of Man-daysLost Per MillionMan-hours Worked
No. of AccidentPer Million Man-
hours Worked
Total Employment 1990 to 2003(No. of persons)
90 91 92 93 94 95 96 97 98 99 00 01 02 03
40,000
38,000
36,000
34,000
32,000
30,000
28,000
26,000
24,000
22,000
20,000
26,393
27,71927,360
25,581
25,622
26,933 27,262 26,940
31,81030,716
30,067
34,871
37,447
* estimated
35,000*
3.4
453
Ship Repair32%
Ship Conversion/offshore37%
Shipbuilding9%
Rig Building14%
Others8%
Main Sectors of SembCorpMarine’s Revenue 2003
Ship Repair42%
Ship Conversion/offshore33%
Shipbuilding9%
Rig Building9%
Others7%
Main Sectors ofSembCorp Marine’s
Revenue 2002
SembCorp Marine 200360 SembCorp Marine 2003 61
SembCorp Marine: Sectorial Performance
Like the marine industry in Singapore, SembCorpMarine’s revenue was derived from four main sectors,namely ship repair, shipbuilding, ship conversion andoffshore and rig building. A leader in marine engineering,we had an established global presence with sevenstrategically located shipyards in Brazil, China, Indonesiaand Singapore. With a combined docking capacity of2.3 million dead weight tones (dwt), we also maintainedthe largest ship repair, offshore and marine-relatedfacilities east of the Suez.
SembCorp Marine’s revenue increased from $1.012billion to $1.068 billion in 2003, marking an increase of6 per cent. For the year, our ship repair revenue declined18 per cent from $423.0 million to $345.5 million in 2003.Shipbuilding revenue, however, increased 3 per centfrom $89.0 million to $92.0 million in 2003. The shipconversion and offshore sector saw an increase of 16per cent from $337.0 million to $391.0 million in 2003.
As an emerging sector contributing a substantial portionof revenue, rig building was separated from shipbuildingas an independent sector from 2003. For the year, therig building sector accounted for $150.5 million of ourtotal revenue, an increase of 59 per cent from $94.5million in 2002. Other businesses comprising bulk volumepurchases recorded an increase of 31 per cent from $68million in 2002 to $89.0 million in 2003.
Sector 2003 Overseas Singapore($’m) (%) (%)
Ship Repair 345.5 90.3 9.7
Shipbuilding 92.0 100.0 -
Ship conversion/offshore 391.0 100.0 -
Rig Building 150.5 100.0 -
Others 89.0 - 100.0
Total 1,068.0 88.5 11.5
Turnover by Customers
Turnover by Overseas and Singapore CustomersBreaking down by customer base, 88.5 per cent of ourrevenue contributions came from overseas customers,with 11.5 per cent from Singapore-based customers.
SembCorp Marine: Ship Repair Sector
By sector contributions, ship repair accounted for 32per cent of our total revenue in 2003 at $345.5 million.For the first time, our ship repair revenue declined belowour benchmark level of $400 million mainly due to SARSoutbreak experienced during the first half of 2003 aswell as the postponement of vessel repairs as a resultof high freight rates.
Despite a marginal increase in number of vessels repairedfrom 332 in 2002 to 341 vessels in 2003, average valueper vessel declined from $1.27 million to $1.01 millionin 2003. This decline was in line with the total declinein ship repair revenue. Similarly, gross tonnage repairsdeclined from 16.3 million in 2002 to 13.3 million in 2003due to a reduction in number of tankers repaired in2003. The number of Very Large Crude Carriers remainedstable at 40 compared with 41 in 2002.
By vessel types, tanker repairs - the mainstay in our shiprepair sector – reduced its revenue contributions from58 per cent in 2002 to 50 per cent in 2003. Repairs oncontainer vessels increased its contributions from 5 percent in 2002 to 15 per cent in 2003. Navy vessels, gastankers accounted for 7 per cent and 6 per centrespectively followed by passenger vessels at 5 per cent,cargo vessels at 4 per cent and bulk carriers at 3 percent. Other vessel types contributed the remaining 10per cent.
Ship Repair: By Alliance Partners & Regular Customers
Type 2003 2002
Alliance Partners 20% 19%
Regulars 62% 68%
Others 18% 13%
Total 100% 100%
We maintained our efforts to foster strategic allianceswith our customers. Our long-term strategic allianceswith customers continued to provide us with thebaseload order book, which in 2003 made up about 20per cent of our ship repair revenue. Together with ourregular customers, they accounted for 82 per cent ofour total ship repair revenue for 2003.
Tanker58%
Others8%
Passenger8%
Navy2%
Dredger7%
Cargo1%
Bulk Carrier5%Container5%
LPG/LNG6%
Vessel Types 2002
Tanker50%
Others10%
Passenger5%
Navy7%
Cargo4%
Bulk Carrier3%
Container15%
LPG/LNG6%Vessel Types 2003
Ship Repair Summary
Description 2003 2002 % change
Revenuecontributions ($m) 345.5 423.0 (18)
No. of vessels 341 332 3
Gross tonnage (m) 13.3 16.3 (18)
Average valueper vessel ($m) 1.01 1.27 (20)
No. of VLCCs 40 41 (2)
SembCorp Marine 200362 SembCorp Marine 2003 63
Year Effective 1989 1998 1999 2000 2001 2002 2003
ChevronTexaco Shipping
Kumaiai Senpaku
NOL Shipping
P.T. Humpuss Intermoda
Shell Shipping
BP Shipping
BHP & T- Billiton
JO Tankers
Primorsk Shipping of CIS
Tschudi & Eitzen
Alaska Tanker Co
V Ships of Monaco
Ship Repair - Alliance Partners
This trend would continue into the future as evidencedby the signing of a Favoured Customer Contract withV Ships, Monaco, in March 2003. The contract wouldcommit the retrofitting and drydocking of all vesselsowned and managed by V Ships’ companies toSembawang Shipyard and our affiliated shipyards inSingapore and China for the foreseeable future. V Shipsis the world’s largest ship management company owningand managing more than 350 ships and operatingoffices in United Kingdom, United States of America,Cyprus, Norway, Dubai, Singapore and China.
Other existing exclusive alliance partners maintainedby Jurong Shipyard and Sembawang Shipyard includedChevronTexaco Shipping in USA, Kumaiai Sempaku inJapan, NOL Shipping in Singapore, P.T. HumpussIntermoda in Indonesia, Shell Shipping and BP Shippingin UK, Jo Tankers, Primorsk Shipping of CIS, USSR,Tschudi & Eitzen and Alaska Tanker.
Apart from the baseload orderbook these customersprovided, our partnerships enabled both the ship owneras well as our shipyards to develop and improve on oursystems and cost structures, and helped us to serve ourcustomers better.
Order Book: Ship Repair• S$180 million, including from
Alliance/FCC partners• Nan Hai Fa Xian - major upgrading
Market Outlook forShip Repair SectorThe global shipping industry performed well in 2003despite the war in the Middle East, disputes among thedeveloped countries and the viral outbreaks. It was, infact, a record year for many shipowners of bulkers,tankers and boxships, as they benefited from the surgein demand fuelled by China’s fast growing economy.
Competitive ChallengesThe ship repair industry in Singapore would remaincompetitive, with external competition coming fromlower-cost shipyards around the region to challengethe industry with increased ship repair capacities, lowerprice and improved quality and capabilities. Togetherwith the strong freight rates experienced by tankers,bulk carriers and container vessels from 2003, the trendwould continue to put pressure on our ship repairactivities in 2004 as shipowners would defer their dockingschedules in the short term.
Freight Rates
Source: Clark Research*Average as at January 2004
Phase-out Rules by IMODespite the strong freight rates enjoyed by shipowners,classification societies responsible for marine safetywould not allow indefinite deferment of repairs. This,together with regulatory requirements by theInternational Maritime Organisation when the phase-out rules kicked in for vessels above 25 years to bephased out by April 2005 would bode well for ship repairyards in the longer term.
The number of large tankers over 25 years old fell from40 to just 16. As at December 31, 2003, there were 193single-hull and 241 double-hull VLCCs and ULCCs inservice. As there would be insufficient building capacityto replace the single-hull fleet before the 2010 deadline,which applies to many single-hull tankers, the two tiertanker market would be likely to continue for some timedespite the calls from Europe for the rapid replacementof single hull tankers. This means that single-hull tankerswould tend to operate outside the European trades.As such, South-East Asian yards will be in a good positionto dock these vessels, which would still typically requireat least two more special surveys before reaching theend of their careers.
Conversions of Single-hull Tankers to Double-hullConfigurationThere was a strong possibility of future conversions ofsingle-hull tankers to double-hull configuration. Withnewbuilding prices of VLCC at about US$75 million,owners of good single-hull ships might consider suchconversions to be economically feasible. This possibilitywould provide new opportunities for shipyards with therequisite conversion facilities and skill.
Strong Shipping MarketsIncreasing pressure on older tonnage generally heraldincreased scrapping levels but the current strongshipping markets seemed to encourage owners of olderships to pay out for the costs of docking and passingspecial surveys. As with the tanker fleet, the older bulkcarriers were coming under greater scrutiny. But if themarket held at its current rates for the coming year,repair yards could look forward to more work on oldervessels.
Large Amount of Tonnage due from the Cruise IndustryEven the cruise industry, which took a big hit after theSeptember 11 terror attacks, showed signs of pickingup again. While operators were still cautious aboutordering newbuildings, the large amount of tonnagebuilt in the 1990s would be reaching the age whererefurbishments and upgrades would be in order. Thistrend would boost the conversion market.
Types of Vessels Average Earnings US$ Per Day
2002 2003 2004*
VLCC
2000/01- built 23,293 52,474 94,454
1990/91- built 21,978 48,170 85,457
Suezmax
1998/99-built 19,765 41,633 97,268
1990/91-built 18,695 36,065 79,463
Aframax
1999/00-built 19,377 34,201 60,639
1990/91-built 18,967 33,250 59,067
Capsize (Bulkers)
1999/00-built 11,654 37,536 92,986
1990/91-built 10,024 34,410 76,996
Panamax (Bulkers)
1997/98-built 7,284 19,091 44,387
1980’s built 6,406 17,451 38,209
Container
Sub-P’max, 10,700 22,125 20,0002,750 teu g’less
Panamax, 14,275 22,125 30,0003,500 teu g’less
SembCorp Marine 200364 SembCorp Marine 2003 65
SembCorp Marine: Shipbuilding Sector
Shipbuilding contributed $92 million or 9 per cent of ourtotal revenue in 2003, an increase of 3 per cent from$89.0 million in 2002. A total of four vessels were deliveredin 2003. This comprised 3 units of the fast boats for DMLOverseas and one unit of 2,500 TEU container vessel“Thomas Mann” to German shipping company, ReedereiKarl Schlüter. Thomas Mann was the largest and mostsophisticated newbuild containership our subsidiaryJurong Shipyard had built to date.
Description 2003 2002 % change
No. of vesselsdelivered 4(3) 4 -
No. of vessels (WIP) 2(1) 4 (50)
Percentagecompletion ($m) 92 89 3
Shipbuilding: Summary
WIP - work in process( ) no. of fast boats
Work-in-progress for shipbuilding from 2003 carriedforward to 2004 comprised the second unit of 2,500TEU container for Reederei Karl Schlüter and the fourthunit of the fast boat for DML Overseas. The containervessel was scheduled for delivery in the third quarterof 2004 while the fast boat was due for delivery in thefirst quarter in 2004.
Order BookSembCorp Marine had been focusing on marketing itsown proprietary design in container ship, in particularthe 2,600 TEU series of container vessels. In 2003, wesecured four contracts worth a total of $220 millionfrom Wan Hai Lines to design and build four units of
Market Outlook for theShipbuilding SectorThe year in review was a record year for shipyards withorders exceeding their best expectations. Worldshipbuilding output would be expected to climb to anew record level of 22.5 million cgt, just beating theprevious record of 21.2 million cgt in 1977.
Singapore Shipyards as Niche PlayersDespite their smaller sizes compared to their NorthAsian counterparts, shipbuilding yards in Singaporeenjoyed a position as niche players. They engagedmainly in the building of customised and specialisedvessels such as barges, tugs, supply vessels, pleasurecraft and yachts, with fewer container ships, cable-layingships and tankers. Demand for new builds of offshoresupply vessels would thus be expected to stay strongdue to ageing fleet.
Strong Demand for Feeder Container Vessels andSupply VesselsDemand for feeder container vessels would also remainstrong. The filling up of North Asian shipyards’ orderbooks until 2007 would be expected to benefitSingapore yards which could offer shorter lead times.
Shipbuilding: Outlook• Shipbuilding for all categories
remains good• Continual demand for niche
market in feeder container vessels& offshore supply vessels
our proprietary design of 2,600 TEU container vessels.Engineering works on these container vessels hadcommenced with deliveries due from first quarter 2005to the second quarter 2006. Contract for four unitsof 3,200 hp tug was also secured in the lastquarter of 2003. Total order book for shipbuilding stoodat $267 million.
Shipbuilding: Order book
Project Name/Type Customer DeliverySchedule
1st unit 2,600 TEUcontainer vessel Wan Hai Lines 1Q05
2nd unit 2,600 TEUcontainer vessel Wan Hai Lines 2Q05
3rd unit 2,600 TEUcontainer vessel Wan Hai Lines 4Q05
4th unit 2,600 TEUcontainer vessel Wan Hai Lines 2Q06
4 units 3,200 hp tug - 4Q04
SembCorp Marine 200366
SembCorp Marine: Ship Conversion and Offshore Sector
Our ship conversion and offshore sector accounted for37 per cent of our total revenue in 2003. We deliveredseveral key projects this year. We completed conversionson the 356,400 dwt Floating Production StorageOffloading (FPSO) Fluminense and the 357,023 dwtFloating Storage Offloading (FSO) Kome-Kribi 1 forMODEC International. The Saipem 3000, a crane bargeconversion, and W.D. Fairway, the largest trailing suctionhopper dredger, were delivered to owners Saipem SPAand Boskalis Westminster respectively during the year.We also completed the marine hull conversion on the270,000 dwt VLCC Stena Continent to a FPSO P-43 fordeepwater Barracuda oilfield in the Campos Basinoffshore Brazil for Kellogg Brown & Root Inc of UnitedStates. The converted vessel was towed to Brazil in thethird quarter 2003 where the process topside modules’integration and commissioning works would commencein Mauá Jurong.
Description 2003 2002 % change
No. of vesselsCompleted 7 9 (22)
No. of vessels (WIP) 5 7 (28)
Percentagecompletion ($m) 391 337 16
Ship Conversion & Offshore Summary
WIP - work in process
Projects Completed & Delivered in 2003
On-going projects carried over from 2003 to 2004included:
• Conversion of the 280,000 dwt Very Large CrudeCarrier (VLCC) Felipe Camarao into a giant FPSO forPetrobras Netherlands, entailing engineering,procurement and construction to be executed in
Petrobras 43 FPSO marine Kellogg Brown &conversion Root Halliburton
Shuttle Tankers 2 units for Ugland Nordicconversion Shipping
parts. The marine conversion is currently undertakenin Jurong Shipyard and the engineering, fabrication,installation, integration and commissioning of thetopside modules would be carried out byMauá Jurong in Brazil. When completed in the secondquarter of 2004, it will be renamed Petrobras 50 andwould be one of the largest converted FPSO unitsin the world with a production capacity of180,000 barrels of oil per day and 6 million m3/d.It would be deployed in the Albacora Lesteoilfield in Brazil’s biggest oil-producing area, theCampos Basin.
• Conversion of the Erha FPSO for Bouygues OffshoreSA for Esso Exploration and Production, Nigeria.The project involved a partnership betweenSembawang Shipyard, who would undertakeinstallation and commissioning and SembawangMarine Offshore and Engineering, a division ofSembCorp Utilities. The topside facilities would havea total weight of 22,000 metric tons with processingfacilities capable of an initial production capacity of165,000 barrels of oil per day. The new hull would beexpected to arrive at the shipyard in the secondquarter of 2004 with redelivery to owners in the firstquarter of 2005.
• Completion, outfitting and commissioning of Jascon5, an Offshore Dynamic Positioning Class 3self-propelled pipe-laying/construction barge, forConsolidated Projects. The new hull, underconstruction in China arrived at the shipyard in thesecond quarter of 2003 to undergo eight andhalf months of completion work. On completion inthe first quarter of 2004, Jascon 5 would beoperated by Offshore Contractors and deployedworldwide, sailing to jobsites at 8 knots under its ownpower.
• Topside modules’ integration and commissioningworks on the P-43. Work commenced in Mauá Jurongin Brazil and would be scheduled for completion inthe third quarter of 2004.
• The P-50 topside production modules currentlyunder fabrication in Mauá Jurong with completionscheduled in the second quarter of 2004.Integration and commissioning of the topsidesmodules on the P-50 were scheduled in the thirdquarter of 2004.
SembCorp Marine 200368 SembCorp Marine 2003 69
On-going projects carried forward from 2003 to 2005
Project Name Type Customer Delivery Schedule
P-50 FPSO conversion (marine) Petrobras 2Q04
Erha project FPSO - new hull (JV with SMOE) Bouygues Offshore for Esso 1Q05Exploration and Production
Jascon 5 Dynamic Positioning Class 3 Pipe-lay/ Consolidated Project 1Q04 construction barge
P-50 Topside production modules fabrication Petrobras 2Q04
P-50 Integration & Commissioning Petrobras 1Q05
Order BooksWe secured two new FPSO conversion contracts in thethird quarter of 2003 from MODEC International.
• T. T. Nina, a 366,000 dwt ULCC arrived in JurongShipyard in August 2003 for conversion to an FPSO.The FPSO will have a processing capacity of 70,000barrels of oil per day and 75 million cubic feet ofnatural gas and storage capacity of 2 million barrelsof oil per day. Scheduled for completion in the fourthquarter of 2004, the FPSO would be deployed in theBaobab Field, offshore Cote d’lvoire in West Africa.
• M. T. Fairway, a 149,685 dwt VLCC, arrived in JurongShipyard in mid-February 2004 for conversion to anFPSO. The FPSO would have a processing capacityof 100,000 barrels of oil per day and storage capacityof 930,000 barrels of oil per day. Scheduled forcompletion in the fourth quarter of 2004, the FPSOwould be deployed at Santos’ Mutineer-Exeter fielddevelopment, off Western Australia.
Market Outlook for the ShipConversion & Offshore SectorThe fundamentals driving the floating productionsector remained positive. With world demandfor oil continuing to grow and with oil prices staying inthe upper US$20s or low $30s, the outlook foroffshore Exploration and Development wouldremain favourable.
Growing World Demand for OilThe IEA, in its most recent Oil Market Report,saw world oil demand growing 1.4 per cent in 2003and 1.3 percent in 2004. These percentage increaseswere consistent with the longer-term trend.Oil demand had increased at an average rate of about1.2 per cent since 1990.
Longer term, there was a widespread expectationthat oil demand would continue to grow at a rate of1 to 2 per cent annually. The bulk of this demandgrowth would be in developing countries,particularly in populous China and India. China’seconomy grew 9.1 per cent in 2003 while India wasexpected to grow between 4 to 5 per cent. Theexpected population and economic growth in thesetwo countries would continue to be a major driver offuture oil demand.
World GDP GrowthIn its latest economic forecast, the IMF saw world GDPgrowing at about 4 per cent annual rate over the nextfour years. Assuming the historical average wouldcontinue, this growth would generate an increase inworld oil consumption of about 1.6 per cent annually,which would be consistent with the long-term oildemand growth projected by IEA.
Global Oil Demand(Millions of b/d)
80.0
79.0
78.0
77.0
76.0
75.0
74.0
73.0
72.0
71.0
70.0
99 00 01 02 03 04Estimate Forecast
75.4
76.2
76.977.3
78.4
79.4+ 1.3%
World Economic Growth(% increase in world GDP)
5%
4%
3%
2%
1%
0%
01 02 03 04 05 06 07
Forecast
Strong Oil and Gas PricesAnother contributing factor to the strong fundamentalswas the continued strength of the oil and gas prices.Oil spot prices had remained in the upper US$20s orlow $30s since mid-2003. Light sweet crude was tradingat about US$30 per barrel and oil futures trading atUS$26.50 for December 2009 delivery. Gas prices hadalso been strong with the Henry Hub gas trading atUS$4.60 per MMBtu.
Actual and Future Price of Crude (US$ per BBL)
Source: IEA, Oil Market Report, October 2003.
Source: IMF, World Economic Outlook
Source: International Maritime Associates
Project Name/Type Customer Deliveryschedule
Jack-up
Constellation II - Jack-up GlobalSantaFe 1Q04
- Option 1 : expired
- Option 2 : expired August 03
- Option 3 : expired January 04
- Option 4 : expiry January 05
Semi-submersible
Development Driller I GlobalSantaFe 2Q04
Development Driller II GlobalSantaFe 4Q04
- Option 1 : expiry mid 04
- Option 2 : expiry mid 05
SembCorp Marine 200370 SembCorp Marine 2003 71
Increase in Total Oil Exploration and ProductionSpendingLooking forward, there were anecdotal indications andindustry analyst projections that oil exploration andproduction spending would be expected to rise by4 per cent worldwide. Lehman Brothers’ survey of 335oil companies predicted their oilfield expenditure wouldtotal US$144 billion in 2004, an increase from the US$138billion estimated for 2003. Spending by oil companiesoutside North America would also increase by 6.1 percent to US$98 billion.
Total E & P Spending (US$)
2004E$ 2003E$ Year-to-Year Companies Surveyed
U.S. Spending by Non Majors 19,868 19,387 2.5 259
U.S. Spending by Majors 12,718 13,231 (3.9) 11
Total U.S. Spending 32,586 32,618 (0.1) 270
Canadian Spending 13,644 13,672 (0.2) 58
International Spending 98,081 92,418 6.1 92
Worldwide Spending 144,311 138,707 4.0 335
Source: Lehman Brothers
Floating Production Units Planned or Under StudyAnother factor contributing to the optimism in the shipconversion and offshore sector was that between 62and 89 further floating production units - includingproduction ships, semi-submersibles, tension legsplatforms and spars - would be needed to supply theincreasing demand for floaters. The floating productionmarket had been consistently growing. By 2008, therecould be between 245 and 270 operating units. Therewere now 154 floaters operating around the world.
Around 60 per cent of these were floating productionstorage and offloading vessels and 25 per cent weresemi-submersibles. There were 15 TLPs and nine spars.IMA identified a further 87 floating production unitsplanned or under study. Of these, about 25 were in thefinal stage or in the tendering process, while the restwere under study. The majority of these were fordeepwater oil fields in four regions – Gulf of Mexico,Brazil, West Africa and Southeast Asia.
SembCorp Marine: Rig Building Sector
The rig building sector contributed $150.5 million or14 per cent of our total revenue in 2003. We deliveredone unit of jack-up under PPL Shipyard (associatedcompany previously) to GlobalSantaFe in the secondquarter of 2003.
Description 2003 2002 % change
No. of Rigsdelivered 1(1) 0 100
No. of Rigs (WIP) 3(1) 2 50
Percentagecompletion ($m) 150.5 94.5 59
Rig Building Summary
WIP - work in process( ) Jack-up undertaken by PPL Shipyard
Rig Building: Project Completed in 2003
Project Name Type Customer
Constellation 1* Jack-up GlobalSantaFe
*PPL Shipyard
Projects carried forward from 2003 to 2004 included thefollowing:
• Construction of two units of Friede & Goldman ExD-designed deepwater semi-submersible drilling rigsfor GlobalSantaFe International, the largest drillingcontractor in the world. These two units of dynamicpositioning semi-submersibles, currently underconstruction in Jurong Shipyard, would be capableof drilling at 7,500 feet of water. The first unit wouldbe due for delivery in the second quarter of 2004,and the second unit due in the fourth quarter of 2004.
• The second unit of Jack-up drilling rig by PPL Shipyardfor GlobalSantaFe was due for delivery in the firstquarter of 2004.
Work-In-Progress in 2004
Order BookOur subsidiary, PPL Shipyard, secured an engineering,procurement and construction contract to constructone unit of Baker Marine Pacific Class 375 Deep DrillingOffshore Jack-up for a total price of US$110 million fromKristiansand Drilling in January 2004. The contractincluded an additional jack-up, which could be exercisedwithin 18 months from date of signing the contract.
Jack-up: US$110 million• EPC Construction contract to construct 1 unit of
Baker Marine Pacific Class 375 Deep Drilling Offshore Jack-up
• 1 option with expiry 18 months from date of signing(January 04)
• Proprietary design developed by PPL Shipyard• Construction to commence 2Q04 with completion
in 1Q06
FeaturesDrill depth : 30,000 feetCantilever : 70 ft no skid offDrawworks : 3,000 HPConstruction : 24 months
“...the design and capabilities of this proprietarydesign could lead to the emergence of more Bakerdesigned rigs being built.”
Source: International Maritime Association.
Floating Production Systems Planned or Understudy as at October 2003
Gulf of Mexico W. Africa SE Asia Brazil Australia N. Europe China Canada Others
22
20
18
16
14
12
10
8
6
4
2
0
16
22
11
16
56
4
1
2
Rig Fleet Age(No. of unit)
Semi-submersibleJack-up
<1 1 to 5 6 to 10 11 to 15 16 to 20 21 to 25 26 to 30 >30 Age
220
200
180
160
140
120
100
80
60
40
20
0
Drill BargeDrill Ship Tender
SembCorp Marine 200372 SembCorp Marine 2003 73
Market Outlook for the Rig SectorThe prospects for rig building and related services wouldremain positive. Offshore exploration and productionhad been moving towards deeper waters and deeperreservoirs that would require a new generation of deep-well drilling rigs to replace existing ageing drilling fleet.The current fleet of drilling rigs was rapidly ageing, with
SembCorp Marine: Summaryof Order BookOur orderbook carried over into 2004 remained strongat $1.1 billion (exclusive of ship repair) with deliveriesand completions from 2004 to the second quarter of2006. Based on the scheduled completion of projects,SembCorp Marine expects to improve its operatingprofit in 2004.
Contracts Secured in 2003 and To-date (February 2004)(excluding ship repair and options)
Sector Value Projects
Conversion & $270m Erha Field Project
Offshore Jascon 5
Shuttle tankers
TT Nina
MT Fairway
Shipbuilding $267m 4 units fast boat
4 units 2,600 TEUcontainership
4 units tug
Topsides & Utility $220m P-50 utility &Modules production modules
Rig Building $186m 1 unit Pacific Class375 Jack-up
Total $943m
Sector 2003 2004 2005 2006
Shipbuilding
2,500 TEU (2nd unit)
Fast Boat (4th unit)
2,600 TEU (1st unit)
2,600 TEU (2nd unit)
2,600 TEU (3rd unit)
2,600 TEU (4th unit)
4 units Tug
Ship Conversion
P-50
Erha Project
Jascon 5
T. T. Nina
M. T. Fairway
Rig Building
Jack-up (2nd unit)
Semi-submersible (1st unit)
Semi-submersible (2nd unit)
Baker Marine Pacific Class 375 Jack-up
Topsides
P-43 Integration & Commissioning
P-50 Topsides Fabrication
P-50 Integration & Commissioning
Total Order Book (exclusive of Ship Repair)
Sector Contract Value ($m) Balance as atDec 31, 2003 ($m)
Shipbuilding 352 259
Ship Conversion& Offshore 947 424
Rig Building 615 269
Topsides &Utility Modules 648 160
Total 2,562 1,112
most jack-ups now at 21 years old and semi-submersiblesat 20 years old. Only 14 new competitive jack-ups hadbeen built in the past five years representing only 3.5per cent of the current fleet. New jack-ups wouldcertainly be needed not only to replace an ageing fleet,but to meet the increasing demands for more powerfuland automated equipment that reduced costs andimproved safety. In addition, existing fleet would requirerepairs and upgrading.
Source: Rig Zone
Summary of Shipbuilding, Ship Conversion, Rig Building and Offshore Projects Schedule
I am pleasantly surprised to see the amount ofmechanisation on the production floors and how theseyards had leveraged technology to revamp various workprocesses in the shipyards. I was told that JurongShipyard achieved a major milestone in June this yearwhen it successfully executed a new rig-buildingtechnique, the first of its kind, to skid and mate a 14,000tonne upper hull over the lower hull of a new semi-submersible rig. This is a great testimony of the processinnovation techniques employed in the industry.
Dr Ng Eng Hen, Acting Minister for Manpower at the 35th Anniversary of theAssociation Of Singapore Marine Industries, October 23, 2003
INNOVATION& TECHNOLOGY
SembCorp Marine 200376 SembCorp Marine 2003 77
As part of our strategy for sustainable growth, wecontinued to differentiate ourselves in new products,innovative processes, better services, superb quality,timely delivery as well as new and specialised capabilities.
SHIP REPAIR INNOVATIONS
Stablisher StudsDuring the year, Jurong Shipyard’s Machinery andElectrical Section invented the Stablisher Studs. Byproviding ground support during lifting, Stablisher Studsreduced the risk of piston damage and accidentscompared to the traditional method of using twooverhead cranes to manoeuvre the piston rod via wireropes and shackles at both ends. Apart from safetyimprovements, this simple yet innovative inventionwould yield savings of $32,000 a year from improvedproductivity and reductions in man-hour cost andmachine breakdown time. It also won the second prizein the first Marine Innovation Awards (InnovativeSuggestion Category) jointly organised by the MarineGroup Local Industries Upgrading Programme.
Flare Method for Heating CoilsA handy flare device was invented by employees inJurong Shipyard’s Machinery & Electrical Section toperform flaring work inside the cargo oil tank. This wasa more effective way than the previous brazing sleevemethod which was more difficult to control and proneto overheating leading to flare joint leakage and sleevefailure caused by air pockets. Productivity increasedand repair schedule shortened by 30 per cent, withestimated savings of $50,000 per year.
New Cradle RollerThe new Cradle Roller, a device developed by JurongShipyard’s Machinery & Electrical Section for the removalof damaged main engine bedplates, had dramaticallyshortened the work time from two days to just a fewhours. Unlike special skidding rollers previously usedwhich were more prone to damage from the tremendousrubbing forces exerted by the bedplate and skiddingplatform, the New Cradle Roller was more sturdy anddurable. Made of high tensile materials and locked tothe shaft by pins, this innovative invention was able tomove freely and withstand the weight exerted. Theimproved productivity from the fast set-up andcompletion time resulted in savings of about $177,800per annum.
Leveraging in Technology & Nurturing a Culture of Innovation
RIG CONSTRUCTION INNOVATION
Innovative Load-out and Mating-in-Dock MethodA significant rig construction milestone was achievedby Jurong Shipyard when it developed an innovative“Dry-Dock Load-Out and Mating Process” forconstructing semi-submersible oil drilling rigs. Thisachievement won national acclaim when it clinched theprestigious Innovation of the Year 2003 Award conferredby SPRING Singapore, which recognised outstandinginnovations that had resulted in significant operationalimprovements.
This innovative method allowed the shipyard to constructthe upper and lower hulls simultaneously and to load-out and mate them safely in a drydock. In contrast,conventional methods involved the building and stackingof the different parts of the rig either on the high seasor on land. Such methods carried inherent safety risksand involved a longer production time. Instead of usingheavy lift cranes, Jurong Shipyard’s new method allowedfor the creative use of water energy and floatationtechniques to assemble the upper and lower hulls. Asa result, the hulls could be perfectly aligned, somethingthat was difficult to achieve for work carried out at sea.
In conceptualising the innovative method, themanagement teams comprising key members fromproject management, engineering and offshoredepartments brainstormed and identified the constraintsand potential problems of the project. The teams alsocollaborated with PPL Shipyard and external consultants.Research and development were also conducted onthe load-out and mating operation, and structureresponses collected and analysed. Different engineeringsoftwares were used and external expertise tapped.
The semi-submersible mating in dry-dock method wasnew to the offshore and marine industry. Some of theunique features included no welding between upperand skidding truss, skidding beams and supportingtruss and minimum installation and removal time ofsupporting structure. This was also the fastest matingprocess in the region with a high level of quality andaccuracy. The innovation also addressed the customers’needs for safety, delivery, quality and cost-effectivenessand efficiency. Since its introduction, this innovationenabled Jurong Shipyard to expand into the nichemarket as a world leader in building sophisticated deep-water semi-submersible oil rigs and enhancedSingapore’s competitiveness in the global marineindustry.
Load-out operation completed with the upperand lower hulls ready for mating. During matingoperation, the lower hulls were floated to mergewith the upper hull.
1 Simultaneous Construction of Upper and Lower Hulls
2 Floating of Lower Hulls into Position
3 Load-Out Operation
4 Mating Operation
The load-out of the upper hull over the lower hulls usingfour computer-controlled hydraulic-operated strand jacks.
Mating operation completed with upperhull fully connected with the lower hulls.
The lower hulls, consisting of two pairs of pontoonsand columns, were built separately in JSPL’s No. 5Drydock.
The semi-submersible’s upper hull, measuring 8.6metres in height and 75 metres in length and width,was built over a skid truss on reinforced land infront of the No.3 ULCC Drydock. It was fully outfittedwith installations, including a drilling tower.
The lower hulls shifted into position at No.3ULCC Drydock prior to load-out and matingoperations.
The lower hulls being towed to the No.3 ULCCDrydock, which measures 380 metres in length,80.2 metres in width and 14 metres in depth.
Construction of the world’s most advanced &sophisticated 5th generation deepwater semi-submersible drilling rig for GlobalSantaFe Corporationusing the Load-Out & Mating-in-Dock Method.
• Dimension: 98.82m (length) x 80.2m (width) x 36m (main deck height)• Lightship weight (gross): 28,000 metric tons• Operating water depth: 2286m
To facilitate the load-out operation, the upper hull and skidtruss were connected to 12 skid shoes. The keel blocks andsupporting truss were then laid on the ULCC Drydock. Theskidding beam on which the upper hull was skidded on hada length of 188 metres, inclusive of land and drydock area.
The successful development of this method is the result of thecross-fertilization of ideas and collaborative efforts of themanagement, employees, partners and consultants.
Our People. Our Pride.
The Load-Out & Mating-in-Dock Methodfor Construction of Drilling Rigs
Innovation At Its Best
In the search for a unique and innovative technique of building drilling rigs, the Jurong Shipyard management and project teams developedthe world’s first Load-Out & Mating-in-Dock Method for building a semi-submersible within the controlled environment of a drydock.
This innovative method puts Jurong Shipyard at the technological forefront of the offshore engineering and rig construction industries,and consolidates our position as one of the premier yards in Asia.
SembCorp Marine 200378 SembCorp Marine 2003 79
SHIPBUILDING INNOVATIONS
Bulb Plate Fitting DeviceThe introduction of a special fitting jig developed byemployees in the Hull Steel Construction Section helpedto facilitate the installation of bulb plates that resultedin productivity gains. The Bulk Plate Fitting Devicesimplified the work process by eliminating the need toweld lug pieces and wedges during operations, leadingto savings of about $20,000 per newbuilding projectfrom the reduction in man-hour cost.
Flat Plate Clamping JigThe process of plate-joining was simplified through theuse of the Flat Plate Clamping Jig, a device whichautomatically aligns the plates. This innovative inventioneliminated the need to weld and remove strong-backs,a more time-consuming and inefficient method ofaligning as it left marks on the plate that requiredadditional grinding. Conceived by Jurong Shipyard’sProduction Control/Production DevelopmentDepartment and its subsidiary Jurong MarineContractors, this relatively low-cost set-up was estimatedto yield significant savings of $126,000 annually.
Adjustable Lifting LugEfficiency was enhanced when employees of JurongIntegrated Services implemented a new AdjustableLifting Lug for the fabrication and lifting of bulk platepanels. Replacing the use of eye-pieces, the deviceeliminated the need for welding and sped up the workprocess, leading to cost-savings of $30,000 per year.
Dust Purifier for Environmental ControlTo increase productivity and better control of dust levelsduring tank blasting operations, a team from JurongShipyard’s Pipefitting Section developed the Dust Purifier.This device, securely positioned over the entrance hatch,contained the dust generated and absorbed it via anair-jet vacuum to a purifying unit where it would bewashed and drained away. The introduction of this DustPurifier led to a cleaner working environment andreduced health risks for workers. Production efficiencyalso improved as workers could now perform othertasks simultaneously while tank blasting was in progress.The Dust Purifier clinched the Gold award at the 2003Marine Industry Safety Innovation Team conventionorganised by the Association of Singapore Marine Industriesand Silver award at the Ministry of Manpower’s NationalSafety Innovation Team Convention. More research wouldbe carried out to adapt this innovative invention for openblasting and shipside blasting operations.
Safety Improvement: Portable T-clampFurther safety improvements resulted from the use ofthe Portable T-clam to secure panel sections duringsteel panel assembly, a process in shipbuildingoperations. Developed by Jurong Shipyard’s ProductionControl/Production Development Department andJurong Marine Contractors, this innovative inventionwon Gold awards at two Safety Innovation Teamconventions organised by Association of SingaporeMarine Industries and the Ministry of Manpower. Thisdevice greatly reduced the risks of safety hazardsassociated with traditional methods, such as supportunpredictably giving way, wedges slipping off and crackwelds forming at the support end. With itsimplementation, Jurong Shipyard achieved a 97 percent reduction in accident occurrences and total actualcost savings of $70,000 yearly.
SMARTime Management SystemThe time management system that employees at JurongShipyard used to clock-in and out of work was operatedby a common Palm IIIc personal digital assistant.However, this PDA ran on a totally different technologyknown as SMARTime. It combined the Palm operatingsystem with Clarinet Infrared networking and radiofrequency identification (RFIS) technology. Since theinstallation of SMARTime, the process for employeesand contractors to clock-in and out of the shipyardbecame more efficient. The previous system, made upof barcodes and infrared readers, took 45 to 60 minutesto register the total workforce clock-in per day.SMARTime completed the process in just less than 10minutes. SMARTime could also be used to set andrecord complex schedule of activities. This highlyaccurate system offered time attendance tracking thatwas virtually paperless and did not require manual dataprocessing. And because it was easy to troubleshoot,it was less costly to maintain as well.
INTELLECTUAL PROPERTIES IN DESIGNS ANDSOLUTIONS
Proprietary Design in Container ShipLeveraging its experience and heritage in building smallto medium-sized container ships, Jurong Shipyarddeveloped its own proprietary design in container ships.The shipyard’s foray into the building of container shipsbegan in 1997 with an order of four units of the 830 TEUseries container ships that the shipyard designed andbuilt in-house. The 830 TEU series had the ability tocarry 568 TEU containers on deck and 263 TEU in thecargo hold. Following its earlier success, the shipyardbuilt on its experience to construct six 1,078 TEUcontainerships. Each of these vessels measured 154mx 25m x 13.6m and had a service speed of 19.5 knots,with the ability to accommodate up to 200 FEU of reefercontainers, with 124 FEU on deck and 76 FEU in hold.
Jurong Shipyard then progressed to modify and enhanceits design to build more sophisticated container vesselsunder the 2,500 TEU series. Two such units were builtfor Reederei Karl Schlüter during the year. One unit,Thomas Mann was delivered in November 2003 andanother unit would be due in October 2004. At 2,500TEU, Thomas Mann represented a milestoneachievement for Jurong Shipyard as it was the largestand most advanced of its kind developed and builtlocally in Singapore. Designed for quality, durability andperformance, the container ships in this series werecapable of carrying high container intake at fast speedof up to 23 knots. Even at an economic speed of 21.6knots, they were able to outperform the best of theirequals in transportation efficiency.
In 2004, the Shipyard would be building four containerships for Wan Hai Lines under the 2,600 TEU series.The latest 2,600 TEU vessels represented a milestonefor the shipyard. While similar in dimension and speedto the 2,500 version, the 2,600 TEU featured designenhancements such as the addition of a lashing bridgeand an increase in container carrying capacity. Theimproved 2,600 TEU series would have the ability toload two tiers of high-cube containers in hold, ascompared to one tier in the earlier design. While bothcould stow 958 TEU in hold, the 2,600 TEU would becapable of accommodating up to 2,646 TEU, including1,688 TEU on deck and 958 TEU in hold in contrast to1628 TEU for the 2,500 TEU series.
Proprietary Design in Jack-upThe Baker Marine Pacific Class 375 Deep DrillingOffshore Jack-up Rig was a proprietary designdeveloped by PPL Shipyard. Incorporated in the designof the Rig was the Baker Marine Time Tested ProprietaryJacking System that could withstand storms withoutthe use of a Rack Chock System. The Rig was equippedto drill high pressure and high temperature wells ofmore than 30,000 feet.
One such jack-up drilling unit had since been orderedby Kristiansand Drilling with delivery scheduled for firstquarter of 2006. When completed, the ultra deep drillingjack-up rig would be capable of operation in waterdepth of 375 feet and drilling depths of 30,000 feet.
The latest jack-up design was not a first for PPL Shipyard,which saw the commissioning of 57 Baker designed jack-up rigs, the largest of any design back then in the 1980s.
INNOVATIVE BUSINESS ALLIANCES
More than 15 years ago, Jurong Shipyard mooted theinnovative idea of an “alliance” with its customers. Itwas recognised then that capitalising on sucharrangement would lead to benefits such as marketenlargement, quality improvement, reasonable pricingand better service. Since then, the development of longterm partnerships and alliances have provided a stableclientele base which contribute an average 25 to 35 percent of our ship repair revenues each year. Apart fromthe baseload orderbook, these partnerships enableboth parties to develop and improve on our systemsand cost structures, and helps us to serve our customersbetter.
ChevronTexaco and Jurong Shipyard 15-Year AllianceThe management of ChevronTexaco (previously knownas Chevron Shipping Company) shared Jurong Shipyard’sbelief in alliances for mutual benefits. Based on itspremise: “You cannot repair ships with adversaries”,ChevronTexaco became Jurong Shipyard’s alliancepartner on November 30, 1989, deepening a businessrelationship that started in May 1966.
Since then, ChevronTexaco’s had found a staunchalliance partner in the Far East, docking and overhaulingmore than 200 ships in a variety of sizes at JurongShipyard. Its commitment to Jurong Shipyard wasdemonstrated on July 22, 1996 when it docked theworld’s largest Ultra Large Crude Carrier, the 413,159dwt S.S. Chevron South America, in support of theShipyard’s newly opened ULCC drydock.
SembCorp Marine 200380 SembCorp Marine 2003 81
The relationship which started in May 1966 when thevery first vessel Chevron Brisbane drydocked in JurongShipyard was cemented with the signing of the alliance,has seen more than 250 ships in a variety of sizes dockedand overhauled in Jurong Shipyard.
STASCo and Sembawang Shipyard e-collaborationPortalSembawang Shipyard and Shell International Tradingand Shipping Company Limited (STASCo) also enteredinto a highly innovative evergreen alliance agreementon ship repair. In December 1998 Sembawang Shipyardwas chosen as STATCo’s alliance partner for the refit ofits fleet trading in the Far East. With the alliance, bothcompanies transformed the conventional owner-shipyardrelationship into a forward-looking partnership with aclear focus on achieving both short and long termmutually compatible goals.
Resulting from this partnership was the jointdevelopment of the first-ever ship-repair alliance e-collaboration portal – an innovative web-basedapplication designed to facilitate ship refits betweenSembawang Shipyard and its alliance partners. Its key
features included increased visibility, rapid notificationand response to refit project management. It alsoenabled integration with Shipyards’ Enterprise ResourcePlanning backend and specialised project managementapplications such as scheduling, budgeting, costmanagement. It also featured an on-line inventorymanagement application and integration with marineand offshore e-procurement hubs, which enabled themanagement of the procurement and logistics aspectsof the refits from anywhere in the world.
“Chevron is proud to have developed a verysuccessful business relationship with JurongShipyard, which began in May 1966 … we willcontinue to bring our vessels to this veryproductive, customer-focused, and well equippedfacility, with its highly skilled workforce andresponsive management. Chevron and Jurongare committed to similar values in our businessperspectives, most notably in protecting peopleand the environment. Our focus on safety andenvironmental protection will always takeprecedence over expediency and economics.”
Mr M.V. Short, Shipping Manager of Pacific Region, Repair& Maintenance Division, ChevronTexaco at the S.S. ChevronSouth America ceremony.
“STASCo is pleased that our alliance partnershipwith Sembawang Shipyard has resulted in saferrepairs, reduced refit time and improved qualityof repairs thus achieving greater end user valueat reduced cost. This shows how innovativethinking can create value for both partners. Weare indeed pleased to be the first in the marineworld to launch such a Portal.”
Mr Jan Kopernicji, Vice President of Shipping in STASCo
PEOPLE, COMMUNITY& THE ENVIRONMENT
A strong health, safety and environmentmanagement culture can make all thedifference in winning that critical deal.
Straits Times Annual Safety Performance Awards SpecialJuly 24, 2003
A strong health, safety and environmentmanagement culture can make all thedifference in winning that critical deal.
Straits Times Annual Safety Performance Awards SpecialJuly 24, 2003
SembCorp Marine 200384 SembCorp Marine 2003 85
Manpower
Category No. of Employees Percentage
Management 1,565 29
Support Staff 380 7
Production Workers 3,524 64
Total 5,469 100
In its role to support the company’s strategic thrust, ourHuman Resource Department strove to ensure that wecould recruit and retain sufficient people with therequired competence to achieve the Group’s objectives.As at December 31, 2003 Group manpower stood at5,469.
People
SELECTION AND RECRUITMENT
As a large and established company, we continued to seekcapable and dynamic individuals to join our team, bothlocally and overseas. During the year in review, we steppedup our efforts to attract and recruit promising youngSingaporeans to join our group of companies. Previousefforts in this area had not been successful as local talentswere either overwhelmed with the many career options orcontinued to hold misconceptions of the industry.
At company level and at industry level, we thus focusedon creating awareness and image enhancementprogrammes during the year. We participated at jobfairs at the North West CDC at Chong Pang. We alsogave talks on job opportunities at tertiary institutionsand encouraged students to visit the shipyards.
To draw new talent into our group of shipyards,SembCorp Marine participated in the Learning Expo2003 in December 2003. Organised by the SingaporeWorkforce Development Agency and the Ministry ofManpower, the exhibition, which attracted 42,612 visitors,was graced by guest-of-honour Dr Ng Eng Hen, ActingMinister for Manpower and Minister of State forEducation. SembCorp Marine was among theparticipating marine engineering companies under theexhibition’s “Find a Job” section. Through the variousmultimedia presentation and exhibits on display,interested visitors had the opportunity to gain a betterunderstanding of our operations and career opportunitieswithin the group.
MANAGEMENT-UNION PARTNERSHIP
Our Management continued to work in partnership withthe Union in developing and maintaining harmoniousindustrial relations at all times. Both parties participatedjointly in several events during the year.
Recognition Accorded to Employees and SubcontractorsMore than 3,000 employees and resident contractorsgathered at Jurong Shipyard to celebrate Singapore’sNational Day on August 11, 2003. The event, which wasorganised jointly by Jurong Shipyard and the Shipbuildingand Marine Engineering Employees’ Union, was gracedby guest-of-honour, Mr Tharman Shanmugaratnam, ActingMinister for Education and Member of Parliament forJurong GRC.
At the ceremony, Jurong Shipyard also recognisedemployees and contractors who had made significantcontributions in innovation and safety. The GrandInnovation Award was given to the Project ManagementOffice for devising an innovative and ingeniousprocedure to increase the usage rate of grinding disc,resulting in cost savings of about $190,000 per year.Teams from the Pipefitting Section, Jurong IntegratedServices and Hull Steel Construction were alsorecognised for developing the “Flare Method forHeating Coil”, the “Adjustable Lifting Lug” and the“Bulk Plate Fitting Device” respectively.
The Safety Innovation Team Award Challenge Trophywas clinched by the DOME team from the PipefittingSection who had developed the Dust Purifier, a devicethat reduced dust generated during tank blasting. TheBest Safety Performance Award for the section andsubsidiary company categories was presented to HullPainting Section and JPL Services for achieving a zeroaccident frequency rate throughout the year. And the
Long Service Awards
Service Years No of Recipients
10 years 31
15 years 46
20 years 5
25 years 36
30 years 67
35 years 143
40 years 1
Total 329
Tradecertificate
46%
Others23%
Degree & above10%
Diploma6%
GCE ‘A’ Level2%
GCE ‘O’ Level13%
Educational Level 2002
Tradecertificate
42%
Others28%
Degree & above11%
Diploma7%
GCE ‘A’ Level2%
GCE ‘O’ Level10%
Educational Level 2003
1 to 3 years31%
7 to 9 years11%
10years &above27%
Lessthan 1year13%
Length of Service 2002
4 to 6 years18%
Length of Service 2003
1 to 3 years32%
7 to 9 years13%
10 years & above26%
Less than 1 year9%
4 to 6 years20%
Mechanical and Electrical trade excelled in thesubcontractor trade category with the lowestaccumulative accident frequency rate of 1.2.
Deputy Prime Minister, Dr Tony Tan was guest-of-honourat Sembawang Shipyard’s National Day dinnercelebration on August 26, 2003. Dr Tan was also theadviser to the Union, who organised the dinner tocommemorate the shipyard’s 35th Anniversary.
Festivities for Foreign EmployeesNot forgetting the efforts and contributions of foreignemployees, SembCorp Marine held festive luncheonsand dinners in conjunction with the unions during theDeepavali, Hari Raya and Chinese New Year season.The luncheons provided an ideal platform for interaction,further reinforcing the relationship betweenmanagement, union and the workers.
Long Service AwardsThe 2003 Long Service Awards saw a total 329 employeesbeing recognised for their contributions and long serviceto the Group. The largest group comprised 143 recipientsof the 35-year award. One employee was rewarded forthe longest service of 40 years. In addition, 31 employeesreceived the 10-year awards, 46 employees the 15-yearawards, five employees the 20-year awards and 67employees the 30-year awards.
SembCorp Marine 200386 SembCorp Marine 2003 87
MANPOWER TRAINING AND DEVELOPMENT
Recognising people as our greatest asset, trainingand development continued to be a priority inhuman resource management. As a People-Developer-Standard organisation, we maintained structuredtraining and development plans and programmes to ensurethe continued relevance of our employees’ competenciesand skills to the changing nature of our core businesses.
To meet the future challenges and business directionsof the Group, we introduced the Manpower StrategicDevelopment Model to align training skills andcompetencies with current and future business needs.This Model would ensure employee compensationwould be closely linked to skills and competencies. Itwould also provide career mapping to create careerpaths for employees with the potential to be nurturedwith the Group’s business expansion.
The Skills and Competencies MixMatching skills to needs would apply to all levels ofemployees from production floor to senior management.The process would first involve outlining present andnew skills, and test standards and job competencies.From there, we would identify gaps and provide thenecessary training and development programmes toreach the predetermined skills and competencies mixesrequired.
In early 2003, we introduced a pilot project to identifykey leadership and functional competencies formanagement staff, and the skills and certificationrequired. At the production floor level, we commencedskills identification and development in five key trades- welding, steelwork, pipework, electrical and mechanical– and their requisite skills and test standards. Relatedcompensation packages would be restructured to meetthese new standards. Scholarships up to Masters leveland skills-upgrading programmes were developed andintroduced to further bring our employees to higherlevels of competencies.
These projects would be completed by end-2005, andtraining would be carried out concurrently with thecurriculum development.
Group Training ProgrammeGroup training programmes continued to drawparticipation mostly from employees of Jurong Shipyardand Sembawang Shipyard. We planned to encouragemore participation from subsidiaries in 2004.
Courses Participation
6 technical programs from Jurong Shipyard &SEC-1 and 2, NTC-2, NITEC Sembawang Shipyardand SSIC
People Developer CertificationThe People Developer Standard awarded to us in June1999 was renewed in 2003. The audit team highlighted11 areas of our key strengths and eight areas forimprovement. As our next challenge, we began workingon these areas for improvement in order to strive forthe People Excellence Award in 2004. To this end, werolled out an intranet training site, individual trainingplans and competency-based corporate plans duringthe year.
Technical Skills UpgradingSkill-grading matrices were developed for welding,pipework, steelwork and electrical and mechanical. Anexample is shown in the table below.
Skill Grade Description Skill Standard Skill Certification Knowledge Standard Knowledge Certification
1-8 From From Oxy-fuel From Class 3G Leadership, supervisory SSICGeneral gas cutting NITEC/SEC 1 to Welding procedure (GT/HWT) to CMSWelder to Arc air gouging Class 6GR Welding qualityMaster SMAW-3G Master NITEC Welding productivityWelder 10mm plate to Welding consumables
SMAW-6GR
Skill Grading Matrix for Welder
Scholarship ManagementIn line with the Group’s career enhancement development program, we identified and sponsored a total of 23employees to local and overseas universities for further studies.
Customer-Focused ProgrammesThree classes of the Customer Relations Managementprogramme were conducted during the year, resulting ina customer satisfaction rating of 84 per cent, which washigher than the target of 80 per cent. More training classeswere planned for 2004 to maintain and improve this customersatisfaction rating.
Training of Contractors: 5S Housekeeping and Cost ofQualityAll subcontractors were trained in 5S Housekeeping. Weconducted monthly housekeeping inspection to assess and
maintain the 5S standard. As part of the promotionalactivities, subcontractors continued to maintain theirhousekeeping standards with the “before” and “after”visuals.
We further enrolled four subcontractors for the NationalCost of Quality Programme, who were now at differentstages of implementation. Upon their completion targetedin early 2004, they would receive grants from SPRINGSingapore of up to 70 per cent if they were able to show asaving of three times their investment in the programme.
Ngee Ann Polytechnic 3 1 2 6
Singapore Polytechnic 2 2 2 1 7
University College London 1 1 2
University of Strathclyde 6 6
Newcastle University 1 1
Monash University 1 1
Total 3 3 2 4 1 7 1 2 23
MOT Electrical Mechanical Marine Mechatronics
NavalArchitecture
& MarineEngineering
OSH BizAdmin Total
DevelopingTest
Standards
TrainingProviders
TestingInstitutes
Skills Grading Matrix[Required Competencies &
Modules]
Training Systems and Structure
Evaluation SystemsSkills Standards
DevelopingTradeSkills
Competencies
Skilled Tradesman
Apprentice
GradedApprent-iceshipSystem
toDegreeLevel
Diploma
AdvancedDiploma
Degree
Career Mapping
Bene
fits
Scholarships
Group CentralTraining
MOM
Others
Yard
ASMI
ITE
NITEC ABS SECNSRS ASMI
PayStructure
Empl
oyer
of C
hoic
e
Com
pens
atio
n
Competencies Development
Scholarship Managem
entApprenticeship Program
mesDeveloping
TradeSkills
Standards
WageStructure
ManpowerStrategic
DevelopmentModel
SembCorp Marine 200388 SembCorp Marine 2003 89
Recognising our responsibilities as a good corporatecitizen, we contributed actively to the community atlarge through various support programmes and initiativesin 2003.
Community Care with SchoolBAGThe Group demonstrated its commitment to communitycare and welfare when it contributed $214,805 to 1,094students in 2003 under its ongoing School BookAssistance Grant (SchoolBAG) Scheme. This comparedfavourably to the $175,600 donated to 811 students theyear before.
This scheme offered one-off lump sum financial assistanceto low-income households supporting students fromschools in close proximity to Jurong and SembawangShipyards. These students could use the sum, whichranged from $150 to $300 per student, to defray the costof purchasing school textbooks, uniforms and stationeryfor each new academic year.
In 2003, our contributions went out to 406 students fromPrimary 1 to Primary 3, 393 students from Primary 4 to 6,269 students from secondary schools and 26 students atpre-university level.
Supporting the Community
Seeing Red for a Good CauseTwo Blood Donation Drives were held at our shipyardsas part of the Group’s anniversary celebrations and inconjunction with the Annual Health, Safety andEnvironment Exhibition. A total of 150 employees joinedin the blood donation drives organised by the RedCross.
Corporate VolunteerismThe Group advanced its support for the under-privilegedin Singapore by adopting the Student Care Services -Yishun branch during the year. Student Care Servicesprovided direct social work services to students andfamilies by serving the needs of students from low-income families, students with behavioural and attitudeproblems and students facing some learning difficulties.Our employees volunteered their services for the “Readwith me”, “Homework clinic” and “WebsiteMaintenance” programmes.
Charitable Fund RaisingA series of charitable fund raising activities wereorganised throughout the year. One such activity wasthe Share Programme organised by SembawangShipyard in which the shipyard would contribute $5 forevery $3 donated by employees. A “pasar malam” eventfeaturing stalls selling food and second-hand items,bazaars and auctions was also organised, raising $50,000for Student Care Services - Yishun Branch.
Promoting the ArtsIn our effort to promote the fine arts and bringingBrazilian music to the local Singapore community,SembCorp Marine co-sponsored the Gilberto Gil inConcert in Singapore. Gilberto Gil is a famous and highprofile Brazilian musician. He has been an icon of Brazilianmusic for decades. It was also the first time that hevisited Singapore. We also sponsored the NationalUniversity of Singapore Raffles Hall production and thePeace Concert.
SembCorp Marine’s commitmentto the community, their care andconcern for the well-being of theless advantaged is an echo oftheir core value of CommunityResponsibility. I would like tocommend SembCorp Marine forits commitment as a corporatecitizen in making a difference in thelives of the students who arereceiving the grant. With theirneeds taken care of by the grants,the students can focus on theirschooling and achieve their fullestpotential.
Mr Hawazi Daipi, Parliamentary Secretary, Ministryof Education & Ministry of Manpower at SchoolBAGPresentation Ceremony, December 5, 2003 atJiemin Primary School.
SembCorp Marine 200390 SembCorp Marine 2003 91
Health, Safety and Environment (HSE) System
A strong health, safety andenvironment managementculture can make all thedifference in winning that criticaldeal.
Straits Times Annual Safety PerformanceAwards Special July 24, 2003.
We retained our unwavering commitment to promotea safe and healthy work environment for our customers,employees, contractors and the community.
HEALTH & EMPLOYEE WELLNESS
Throughout the year, we organised various recreationalactivities – including soccer, volleyball, bowling andbadminton competition - involving employees,contractors and our customers. These activities help tofoster team spirit and teamwork while encouragingbalanced and healthy lifestyles.
Other activities were organised under the Group’sworkplace health promotion programme. We continuedwith our morning exercise regime involving alllevels of its employees and subcontractors. Apart frompromoting a healthy lifestyle, these morning rituals alsoallowed supervisors to conduct briefings with their workgroups on safety along with the day’s job distribution.
Stay Healthy, Be Happy CampaignIn conjunction with the “Stay Healthy, Be Happy”campaign, Mr Hawazi Daipi, Parliamentary Secretary forMinistry of Education and Ministry of Manpowerofficiated at the launch of Jurong Shipyard’s healthpromotion programme on July 25, 2003.
The launch helped to kick off a series of fun andmeaningful activities to encourage healthy living.Highlights of the campaign included health talks onsmoking cessation, stress management, personalhygiene, food and nutrition and top killer diseases.Health screenings were also conducted for employeesabove 30 years of age. Supporting exhibitions sought
to further educate employees on important healthmatters and to increase employee awareness andknowledge. A “No Smoking Day” was also held onJuly 28 where smokers were encouraged to stub out.To get employees into the momentum of exercise, alow-impact aerobics workout was also organised onSeptember 20, 2003 as part of A.C.T.I.V.E. (All CompaniesTogether In Various Exercises) Day.
Prevention Better than CureDemonstrating our commitment towards employeewelfare and health, a vaccination exercise againstHepatitis A & B was conducted for employees inFebruary 2003. The vaccination exercise was organisedto promote greater awareness of the risks and preventivemeasures of Hepatitis A and B. In March 2003,employees also participated in the health-screeningprogramme conducted by the National KidneyFoundation. Employees underwent several medicaltests, including an examination of their blood cholesterol,indicative of the risk for heart and kidney diseases andurinalysis to assess the chances of contracting diabetes.
Celebrating through GamesVarious friendly tournaments were held to celebrate theGroup’s 40th anniversary and to attract sports enthusiastsamong our employees. Taking part in the matches wereemployees from Jurong Shipyard, Sembawang Shipyard,Jurong Machinery and Automation, Jurong SMLShipyard, Jurong Integrated Services and JPL Services,who trained hard and competed in good spirit.
A volleyball competition was the inaugural event forthe celebrations. Eight teams vied for the Tan Kwi KinVolleyball Challenge Trophy at the Hougang Stadiumheld in April 2003. The following month saw employeespitting their soccer skills for the Heng Chiang GneeChallenge Trophy held at the Ngee Ann PolytechnicCamp David field. The final competition was the bowlingtournament held in July 2003 for different teams viedfor the Lau Cheng Eng Challenge Trophy at the Victor’sSuperbowl. More than just a test of strength and skill,the games were an excellent opportunity for fosteringstronger camaraderie and greater interaction amongGroup employees.
Alert & Vigilant Against SARSProactive action was the best protection against SevereAcute Respiratory Syndrome (SARS). That was whyJurong Shipyard and Sembawang Shipyard and its groupof companies initiated a comprehensive SARS preventionand management system to guard against this potentiallydeadly virus since its outbreak in March 2003. Led bya high-level SARS Management Task Force, the Group
charted out various strategies and action plans to keepthe virus in check.
From there, the shipyards sought to create greaterawareness of SARS through employee education andinformation dissemination as part of its “Educate-Control-Prevent-Monitor” strategy. A series of stringentprecautionary measures were also put in place to protectcustomers, employees, subcontractor employees andstakeholders. These included strict entry checks forpeople and ships entering the yard, daily temperaturemonitoring for all personnel, controls on staff travel,leave and overseas recruitment, implementation of amonitoring, tracking and contact tracing system as wellas daily disinfecting of premises.
SembCorp Marine 200392 SembCorp Marine 2003 93
SAFETY
Safety-first at all times continued to be our corporatepolicy as safety performances were constantly used asa proxy indicator of a shipyard’s productivity. This yearin review saw the Group maintaining its efforts to ensuresafe practices, procedures and equipment, enhancingconfidence and work satisfaction among employees.
Adopting International Best PracticesTo achieve the desired HSE standards, our shipyards adoptedinternational best practices, taking its cue from oil majorssuch as ChevronTexaco, Shell, BP, BHP and ExxonMobil.It also benchmarked against international standards.
Sembawang Shipyard, for example, continued to adoptthe International Safety Rating System by Det NorskeVeritas, a management system testing, certification andverification agency, for 10 years. Audited annually,Sembawang Shipyard attained a Level 8 rating (Level 10is the best attainable) in March 2003. Rating requirementsestablished clear standards for staff, and the annual auditsencouraged vigilance. Under the OHSAS 18001, twosurveillance audits were carried out in Jurong Shipyard byABS Quality Evaluation Inc. The OHSAS 18001 was anoccupational health and safety assessment series,complying with the Singapore legislation and internationalstandards related to the Oil Companies InternationalMarine Forum. These certifications demonstrated ourshipyards’ commitment to ensuring quality managementin a safe and healthy working environment through closesupervision and periodic auditing.
Shipyards ISO 14001 Certification ISO 9001 Certification OHSAS 18001 Certification
Sembawang Shipyard 2002 Det Norske Veritas 1996 Det Norske Veritas Safety Rating System Level 8 rating2003 Recertification 2003 Recertification by Det Norske Veritas
Jurong SML/SML Shipyard - 1994 Det Norske Veritas -2003 Recertification
Jurong Marine Contractors - 1995 ISO 9002 -Certification International2003* Recertification
* previously ISO 9002: 1994
ENVIRONMENTAL PRESERVATION AND PROTECTION
Sembawang Shipyard was the first shipyard in South EastAsia to achieve the ISO 14001 Environmental System Awardby Det Norske Veritas in 2002. In March 2003, it receivedthe recertification. The recertification was a firmendorsement of the shipyard’s commitment and effortstowards environmental preservation and protection.
“Green Wave” Environmental Care Project for SchoolsOur “Green Wave” Environmental Care Project launchedin January 2003 for students at primary schools up totertiary levels. The project, organised by SembawangShipyard in conjunction with the Ministry of Education,sought to influence young minds to think and act forenvironmental protection and improvement. Moreimportantly, it aimed to set students on a life-longinterest and concern for the environment.
A total of 17 awards were presented by Mr Lim SweeSay, Minister for the Environment to the winning teamsin November 2003. Expanding on the programme,prize sponsorships in the next year would draw theparticipation of Shell Trading and BP Shipping. Winnersat the junior college up to tertiary levels would enjoymonth-long development attachments at one of thesponsoring companies and at Sembawang Shipyard.
Recycling of Used Copper SlagAt industry level, JPL Industries, the environmental armof SembCorp Marine was set up with the objective ofpioneering the collection and recycling of used copperslag, the single source of waste generated from shipyardsin Singapore. Each year some 300,000 tonnes of copperslag would be used for abrasive blasting in shipyards.During blasting process, copper slag grit would break
into smaller particles and gets contaminated or mixedwith rusts and paints. Prior to setting up of JPL Industries,the waste copper slag with all the contaminants wereremoved by licensed disposal contractors for dumpingand these posed problems in land scarce Singapore.The company had succeeded in recycling the usedcopper slag to the extent that it no longer posed anenvironmental problem.
Security: International Port and Ship Security Code (ISPS)During the year, our group of shipyards began workingtowards International Port and Ship Security codecertification. So far approval of Jurong SML, SMLShipyard, Sembawang Shipyard and Jurong Shipyard’sfacility security procedures and plans were certified bythe Maritime and Port Authority of Singapore well aheadof Singapore’s earlier deadline of April 1, 2004 and theofficial International Maritime Organisation’s deadlineof July 1, 2004. The achievement of the ISPS certificationsdemonstrated our shipyards’ security preparedness andpro-activity as security was an important aspect of ourbusiness deliverables especially our customer clienteleincluded oil majors and major international shippingcompanies.
Shipyard Recognised Security Organisation Date of Award of Certification
Jurong SML Control Risk Group February 26, 2004
SML Shipyard Control Risk Group February 26, 2004
Sembawang Shipyard CISCO Singapore February 27, 2004
Jurong Shipyard CISCO Singapore March 12, 2004
SHIPYARDSOPERATION REVIEW
Looking ahead, we will adopt a two-prongedapproach in sustaining growth for the SembCorpMarine Group. Firstly, we will continue to strengthenour home-based shipyards to provide complementaryfacilities and capabilities within the Group. Andsecondly, we will strengthen our global presencethrough a network of strategically located shipyards.
Mr Wong Kok Siew/Tan Kwi Kin,Chairman/President & CEO, SembCorp Marine LtdChairman’s & President’s Letter to Shareholders, 2003 Annual Report
PPL Shipyard (Singapore)
Mauá Jurong Shipyard (Brazil)
Cosco (Dalian) Shipyard (China)
Jurong Shipyard (Singapore)
Sembawang Shipyard (Singapore)
Jurong SML Shipyard (Singapore)
Karimun Sembawang Shipyard (Indonesia)
SembCorp Marine 200396 SembCorp Marine 2003 97
Jurong Shipyard had a busy year in 2003, having achieved a dock utilisation rate of 85 per cent.
Notable Projects 2003
Vessel Type Customer
Kome-Kribi 1 Conversion to FSO Modec International LLC
ISO 9001:2000 and OHSAS RecertificationFor its commitment to occupational safety and health,Jurong Shipyard was accredited with OHSAS 18001:1999surveillance audit in April 2003 by ABS QualityEvaluation, Inc, an independent third party registrar.OHSAS was an occupational health and safetyassessment series, which complied with the Singaporelegislation and international standards related to theOil Companies International Marine Forum.
SafetyWith its continual emphasis on safety, the shipyard sawa lower accident frequency rate of 2.7 in 2003 ascompared to 2.99 in 2002. To encourage greater safetyawareness among employees and subcontractors,several activities were held during the year includingbi-monthly poster displays, monthly safety quiz contestsand Safety Poster Competition. A multi-lingual in-houseDVD was developed to educate employees on currentsafety legislation, yard rules and regulations and safetyprecautions.
Ministry of Manpower Safety Registered Courses
Other Safety Courses
Jurong Shipyard
Course No. Trained
Safety Instruction Course 6for Repair Managers
Safety Instruction Course for 141Direct Employees (SIC)
Safety Officers Training Course 1
Shipyard Supervisor 30Safety Course (SSSC)
Shipyard Safety Assessors Course 3(Hot Work Certification)
Total 181
Course No. Trained
Behavioural Based Safety (BBS) 70
In-house Fire Watchman/ 5Fire-fighting Course
Marine Signalmen/Rigger Course 18
Safety Orientation Course (SOC) 433for New Contractor Workers
Safety Induction Programme Briefing 180
Lifting Supervisor Course 10
Safety Legislation Workshop 3
Fire & Rescue Training 5
First Aid Course 62
OSHAS 18001 Internal Auditor Course 54
Risk Assessment Course 67
Total 907
The Safety and Fire Section also conducted a total of28 fire and evacuation drills in 2003 to fine tune its fire-fighting and evacuation system. The drills alsofamiliarised all our direct employees and subcontractors– including ship crew, security guards and utilitiespersonnel - with emergency preparedness on boardvessels.
Various courses, workshops and seminars were alsoconducted to equip employees with knowledge ofproper procedures and best practices. These includedMinistry of Manpower Safety Registered Courses andother in-house training courses.
To ensure that high standards of quality prevailed in allaspects of its operations, the shipyard further underwentthe ISO 9001:2000 surveillance audit by ABS QualityEvaluation Inc. in September 2003. It also achieved re-certification of Singapore Quality Class accorded bySPRING (Singapore Productivity and Innovation Board)Singapore.
Security: Achieving International Ship and PortFacility Code ComplianceJurong Shipyard was certified by MPA in accordanceto IMO’s International Ship and Port Facility Code. Theshipyard was presented a Provisional Statement ofCompliance of a Port Facility for meeting IMO’sInternational Code for the Security of Ships and PortFacilities at its facility in Jurong Shipyard on March 12,2004. The approval of the shipyard’s facility securityprocedures and plans was well ahead of Singapore’searlier deadline of April 1, 2004 and the official IMO’sJuly 1, 2004 deadline. This achievement of an earlyISPS certification demonstrated the shipyard’s securitypreparedness and pro-activity. Security constituted animportant aspect of our business deliverables in viewof the shipyard’s business clientele such as the oil majorsand the major international shipping community.
Frequency Rates(Per million man-hours)
6.00
5.00
4.00
3.00
2.00
1.00
0
Source: Ministry of Manpower
6.00
5.00
4.00
3.00
2.00
1.00
0
97 98 99 00 01 02 03
5.19
3.88
3.15
2.17
2.902.70
2.99
SembCorp Marine 200398 SembCorp Marine 2003 99
Sembawang Shipyard had an eventful year in 2003,having achieved a dock utilisation rate of 50 per cent.
ISO 14001 RecertificationAs an endorsement of Sembawang Shipyard’s soundQuality, Safety and Environment management systems,several recertifications were accorded to the yard duringthe year. In March 2003, the shipyard receivedrecertification on ISO 14001 Environmental ManagementSystems and maintained its Advanced Level 8 standardsin the International Safety Rating System andInternational Quality Rating System for businessexcellence, accredited by Det Norske Veritas Ltd.
Notable Projects 2003
Vessel Type Customer
Prince William Sound Tanker Repair Alaska Tanker Company
Iron Monarch Cargo Repair BHP Biliton
Jo Mrevik Chemical Tanker Repair Jo Tankers AS
Murex Tanker Shell International Trading and Shipping
Superstar Capricorn Passenger vessel repair Star Cruises
W.D. Fairway Ship conversion Boskalis Westminster
Saipem 3000 Crane barge conversion Saipem SPA
Sembawang Shipyard
EnvironmentFor better workplace management, Jurong Shipyardcontinued to adopt the 5S Housekeeping approach, aJapanese system based on the acronyms Seiri, SeitonSeiso, Seiketsu and Shitsuke (sorting, arranging, cleaning,maintaining and self-discipline). As an incentive foremployees and subcontractors to maintain goodhousekeeping standards, the 5S Housekeeping Awardswere presented to deserving sections and stores yearly.In 2003, the workshop, store and best sub-contractorstores with the best housekeeping record wererecognised. The Best Canteen Stall Awards were alsopresented to stalls that achieved high standards ofhygiene and nutritional value in the food served.
Frequency Rates(Per million man-hours)
6.00
5.00
4.00
3.00
2.00
1.00
0
Source: Ministry of Manpower
Facilities UpgradingTo meet increasing project demands, the shipyardincrease its cranage capacity during the year with theaddition of two new cranes – a 40-ton crane and a10-ton crane at West Quay and South Quay respectively.With the new additions, Jurong Shipyard would have atotal of 25 level-luffing cranes with a lifting capacity ofup to 150 tons servicing its 2,728-metre berthing quaysand four graving docks of total capacity 1,100,000 dwt.The 40-ton crane would have a maximum outreach of80m at 15 tons and 50m at 40 tons, with the ability todirectly transport materials from vessels at the WestQuay to the workshop without the additional use oftransport. It would also be capable of lifting a 40-tonload from ships including double banking vessels dockingat South Quay West. The 10-ton crane, which wouldhave a maximum outreach of 45-tons at 10 tons and100m at 5 tons, would serve vessels at South Quay Eastand South Quay.
97 98 99 00 01 02 03
4.70
4.30
3.10
4.104.30
2.902.99
SembCorp Marine 2003100 SembCorp Marine 2003 101
SafetySembawang Shipyard reported an accident frequencyrate of 2.9 in 2003, which was lower than the industryaverage of 3.4 for the year. Adopting a total approachto safety management, the shipyard launched thebehaviour-based safety comic book and video in October2003 to reach out and to educate its employees andsubcontractors. The shipyard also implemented the“SSPL Accident Classification Format” and formulatedSafe Work procedures pertaining to “Entry into FixedElectrical Installation” and the “Lockout Tagout” systeminto the Permit-To-Work System and EmergencyProcedures with regards to Dock and PontoonEvacuation, Environmental Emergency and HazardousSubstance Fire-fighting. To ensure emergencypreparedness in the shipyard, a total of 54 fire and rescueemergency exercises were conducted during the year.The shipyard was also awarded the Certificate ofParticipation in the Mass Evacuation Drill organised bythe Singapore Defence Force in November 2003.
EnvironmentEnsuring more effective waste management is a constantchallenge for the shipyard especially with increasingwaste tonnage from bigger projects. Rising to thischallenge, the shipyard’s Housekeeping Committeecontinued with its mission of keeping waste disposalcosts low with centralised bays for general waste, emptyoil drums and used anodes as well as anti-crow bins topromote housekeeping. The yard also adopted a moresystematic approach including disseminating bulletinsto educate employees on proper disposal andhousekeeping practices, conducting regular zoneinspections around the yard and onboard vessels andimplementing a “fine chit” system to subcontractorswith poor housekeeping performances.
Jurong SML Shipyard’s two yards experienced abusy year in 2003. Dock utilisation rates were 76 percent at Jurong SML Shipyard and 77 per cent atSML Shipyard. Combined steel throughput for bothyards per year stood at 1,524 tons, mainly forsteel erection and fabrication for repairs andnewbuilt projects.
Major projects undertaken during the yearcomprised four units of fast boat - KP Kolibri, KPEnggang, KP Balam and KP Murai - which were deliveredto the owner two months ahead of schedule. Threeunits of the fast boat were delivered in 2003 with thelast unit due in the first quarter of 2004.
Both yards received thei r ISO 9001-2000recertification by Det Norske Veritas in 2003. Accidentfrequency rates were recorded at 2.7 at Jurong SMLShipyard and 14 at SML Shipyard in 2003, compared to5.0 and 7.7 respectively in 2002. As a people-orientedorganisation, the company continued to promote safetytraining and healthy lifestyles. Jurong SML Shipyardwas awarded the Singapore Health Award (Silver)from the Health Promotion Board in recognition of itseffort in promoting and improving the lifestyle ofits employees.
ISPS Code CertificationJurong SML was the first medium-sized shipyard to beawarded the Provisional Statement of Compliance of aPort Facility (ISPS Code) on February 26, 2004 by theMaritime and Port Authority of Singapore. SML Shipyard,located in Shipyard Road was also awarded theProvisional Statement of Compliance under the ISPSCode on February 26, 2004.
PPL Shipyard, an 85 per cent owned shipyard,continued to focus on repairs of mobile rigs andrig construction. In 2003, it delivered one unit ofJack-up rig to GlobalSantaFe International. The secondunit of jack-up is due for delivery in the first quarterof 2004.
In January 2004, the shipyard secured a US$110 millionEPC construction project to construct one unit of BakerMarine Pacific Class 375 Deep Drilling Offshore Jack-up for Kristiansand Drilling. Construction of the jack-upis based on PPL Shipyard’s proprietary design – theBaker Marine Pacific Class 375. The contract includedan option for an additional jack-up, if exercised within18 months from date of signing.
Jurong SML Shipyard PPL Shipyard
Security: Achieving International Ship and PortFacility Code ComplianceSembawang Shipyard was the first major shipyard inSingapore to achieve IMO’s International Ship and PortFacility Code Compliance. The shipyard was presenteda Provisional Statement of Compliance of a Port Facilityfor meeting IMO’s International Code for the Securityof Ships and Port Facilities at its facility in Sembawang.The approval of the shipyard’s facility security proceduresand plans was well ahead of Singapore’s earlier deadlineof April 1, 2004 and the official IMO’s July 1, 2004deadline. This achievement of an early ISPS certificationdemonstrated the shipyard’s security preparedness andpro-activity. Security constituted an important aspectof the business deliverables. In view of the shipyard’sbusiness clientele such as the oil majors and majorinternational shipping companies.
SembCorp Marine 2003102 SembCorp Marine 2003 103
Restructuring of Karimun Sembawang Shipyard’soperations continued into 2003 following SembCorpMarine’s acquisition of the remaining 35 per cent interestin the shipyard in 2002. Following the restructuring, thefloating dock located in Karimun was moved toSembawang Shipyard in February 2003.
The shipyard operated primarily from its 20-hectare siteon Karimun Island in Indonesia, approximately 40kilometres southwest of Singapore. Its business was re-focused on new fabrication (steel and pipe work), tankcleaning and other layout and afloat repair.
In 2003, a total of 13 vessels undergone afloat repairsand 6,100 ton sludge cleaned. Two units of crane barges,each about 780 ton were under construction in theshipyard. The yard was also building the forward bodyof the 2,500 TEU container ship and two units of 2,600TEU containership steel sub-block fabrication of about1,800 ton each for delivery by the fourth quarter of 2004.It also engaged in the construction of four sets of 2,600TEU container ship hatch cover, each 800 ton to bedelivered by third quarter of 2004.
Cosco (Dalian) Shipyard enjoyed a fruitful year in 2003,repairing a total of 175 vessels in the shipyard and 16vessels at anchorage at an estimated value ofRMB3,500,000 per vessel. Foreign vessels accountedfor 90 per cent of the vessels repaired. Productionoutput comprised 1,600,000 m2 of grit blasting, including120,000m2 of tank coating and 25,000 tons of steelrenewal.
Significant projects undertaken by the shipyard duringthe year included the construction of a 125 metre longand 15,500-ton barge in March 2003. Its crane-steel-legand pontoon-fabrication projects were completed inNovember 2003. The shipyard was further awarded twoship repair projects by Sinopec and CNOOC duringthe year.
The shipyard’s capabilities were further enhanced withthe completion of a new 100,000 dwt pier, which wouldincrease its production output significantly. The pierwas built in only five months and was officially openedon August 1, 2003. Preliminary work also began for theconstruction of another 300,000 dwt dock to betterserve the offshore and VLCC market.
Mauá Jurong in Brazil had a busy year in 2003. Itsrevenue in 2003 was US$146 million, 98 per cent higherthan the US$74 million achieved in 2002. Manpower asat December 31, 2003 stood at 1,671.
Contributions from ship repair were higher as theshipyard took on several major offshore repairs for drill-ships, jack-ups and conversion of research ships forPetrobras, Transocean, Pan Marine, AP Moller and BJServices. During the year, the shipyard delivered theP-48 production modules to owner. P-43, which hadundergone marine conversion at Jurong Shipyard inSingapore, arrived at Mauá Jurong in October 28, 2003for integration and commissioning which were scheduledfor completion due in the third quarter of 2004.
Jurong Marine Contractors
Jurong Marine Contractors maintained a pool of residentskilled subcontractors to complement SembCorpMarine’s shipyards’ direct workforce. Playing an importantrole in the marine industry, these subcontractors providedspecialised services not normally performed by shipyardsand supplemented the skilled manpower of theshipyard’s direct workforce.
In 2003, the number of registered subcontractorsincreased to 71 groups in tandem with the increase inshipyard workload. Total workforce stood at an averageof about 4,000. The company continued to coordinatethe training and upgrading of skills, work quality, safetyand supervisory standards of these subcontractors.Such efforts were vital in sustaining and improving theoverall productivity of the shipyards.
For 2003, the safety performance of the subcontractorsat 2.78 per million man-hours was higher than the 2.62frequency rate recorded in 2002. This increase wasattributed to the higher number of relatively new foreignworkers, who suffered mainly hand and finger injuries.Addressing this problem, the company together withJurong Shipyard’s Safety Department, devised newmeasures for 2004 to reduce the finger-and hand-relatedincidences.
Manpower training and development
In anticipation of higher demand for 4G and 6G weldersfor offshore projects, Jurong Marine Contractorsimplemented the “skill-mix” formula for all steelworkand pipefitting subcontractors. Under this formula, 50
per cent of the steelwork contractors’ workforce wouldbe trained for 4G skill, while 30 per cent of the pipefittingsubcontractors would be trained at 6G level skill. Theskill-mix formula resulted in 87 steelwork contractorsachieving the 6G level and 142 pipefitting contractorsachieved the 4G level in 2003.
Partners in Innovation
As partner to Jurong Shipyard, the contractor groupsunder Jurong Marine Contractors also participated inthe Safety Innovation Team and IDEA awardcompetitions. The team won two IDEA awards andreceived cash prices of $1,000 each. Ten contractorgroups were shortlisted to test bed the new radio-frequency identification system, which could monitorthe workers’ punctuality and attendance. Each of theten contractors was given a palm and a radio frequencyidentification reader and would be trained on usage bythe shipyard.
EDB SME LIUP Affiliate Programme
To boost standards of marine excellence, JurongShipyard worked with the Economic Development Boardto strengthen the capabilities of its resident contractorsunder the newly initiated Marine Group Local IndustriesUpgrading Programme and Small and Medium Enterprise
Karimun Sembawang Shipyard
Cosco (Dalian) Shipyard
Mauá Jurong Supporting Services
Frequency Rates(Per million man-hours)
6.00
5.00
4.00
3.00
2.00
1.00
0
Source: Ministry of Manpower
97 98 99 00 01 02 03
4.28
2.99
2.582.34 2.21
2.782.62
SembCorp Marine 2003104
Affiliate Programme. The programme was a new initiativein which big and small players in the marine sectorwould work together towards greater excellence for theindustry. It aimed to develop promising marine-small and medium-sized enterprises in the areas ofentrepreneurship promotion, innovation, managementand human capital development. Jurong Shipyardselected five of its affiliates for participation in theprogramme.
Jurong Machinery & Automation
Jurong Machinery & Automation continued to engagein the manufacture and repair of ship parts and engine.Total revenue in 2003 was $23 million drawn mainly fromHVAC project and electrical and instrumentation workson newship and ship repair projects. During the year,the company also upgraded its equipment with thepurchase of three sets of HVAC Leakage Test Equipment,the E & I Loop checkers, cable laying stands and newhydraulic cable cutting and clamping tools.
In 2003, the company received a safety award of $4,200for achieving the lowest frequency rate of 1.9 per millionman-hours. The company trained 30 electrical fitterswith 3G welding pass, upgraded six 3G welders to 4Gand 20 general fitters to be electrical terminators.
Jurong Clavon
Jurong Clavon’ s main activities included the provisionof a wide range of blasting and painting services forshipyards. Its turnover for 2003 was $26 million. To meetthe stringent requirements of customers, Jurong Clavonimplemented the quality management system thatwould cover the entire blasting and coating process,starting from inspection of the purchased materials toprocess control and inspection. Employees were sentfor training on a regular basis to update themselves onthe blasting and painting technology.
Moving forward, the company planned to expand intothe design and fabrication of blasting and coatingequipment and system business by becoming a specialistin turnkey projects for complete system design andequipment and hardware supply and fabrication to thesurface preparation, coating application and corrosioncontrol services industries.
JPL Industries
JPL Industries was set up as the environmental arm ofSembCorp Marine. In 2003, a breakthrough was achievedwhen the recycled copper slag was approved by theauthority for use in structural works. Recycled copperslag could now be used as partial replacement of sandin concrete for the Changi water reclamation project.Due to market acceptance, sales of the processed recycledslag increased by 21 per cent in 2003.
To promote further market awareness, JPL Industriesparticipated in ENVIRO ASIA 2003 organised by the WasteManagement and Recycling Association of Singapore andco-organised by the National Environmental Agency. JPLIndustries’ representative was elected as a committeemember in Waste Management and Recycling Associationfrom 2003 to 2004.
Bulk Trade
Bulk Trade had a profitable year in 2003 with a turnoverof $53.6 million. This was contributed by the buoyantmarine sector from shipyards in Singapore as well asshipyards in Middle East, Malaysia and Indonesia. Mainitems supplied included ship plates, steel pipes, pipefittings, diesel oil, welding electrodes and safety shores.Bulk Trade expected further growth in sales in 2004 withthe continued buoyant marine sector.
Bulk Trade - being the sole agent of Douglas Equipmentof United Kingdom for the Douglas Tugmaster rangeof aircraft towing tractors – would continue to promoteDouglas’ new TBL-600 Aircraft Towbarless Tractor to SIAEngineering Company for the new A380 Airbus aircraft.The company had supplied four units of TBL-400Towbarless Tractors for the B747 range of aircraft in 2001and 2002. Trading activities with Myanmar commencedonly in 2003 with volumes expected to increase in 2004.
Contents
General Information 106
Report of the Directors 107
Statement by Directors 125
Report of the Auditors 126
Profit and Loss Accounts 127
Balance Sheets 128
Statements of Changes in Equity 130
Cash Flow Statement of the Group 132
Notes to the Financial Statements 135
Supplementary Information 178
Major Properties 180
Notice of Annual General Meeting 181
Proxy Form 183
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
SembCorp Marine 2003106
DirectorsWong Kok Siew ChairmanTan Kwi Kin PresidentTan Pheng HockKiyotaka MatsuzawaNaoteru TsudaLow Sin LengTan Tew Han (Appointed on 17 April 2003)Ajaib Haridass (Appointed on 31 October 2003)Heng Chiang Gnee (Alternate to Tan Kwi Kin)Chee Keng Soon (Resigned on 17 April 2003)Giam Chin Toon (Resigned on 31 October 2003)Er Kwong Wah (Resigned on 17 April 2003)
SecretaryLim Seh Li
RegistrarKon Choon Kooi Pte Ltd47 Hill Street #06-02Chinese Chamber of Commerce & Industry BuildingSingapore 179365
The Directors present their report to the members together with the audited financial statements of the Company and ofthe Group for the year ended 31 December 2003.
Directors of the CompanyThe names of the Directors of the Company in office at the date of this report are:
Wong Kok Siew ChairmanTan Kwi Kin PresidentTan Pheng HockKiyotaka MatsuzawaNaoteru TsudaLow Sin LengTan Tew Han (Appointed on 17 April 2003)Ajaib Haridass (Appointed on 31 October 2003)Heng Chiang Gnee (Alternate to Tan Kwi Kin)
Arrangements to enable Directors to acquire shares and debenturesOther than the SembCorp Marine Share Option Plan, neither at the end of the financial year, nor at any time during thefinancial year was the Company a party to any arrangement whose object is to enable the Directors of the Company to acquirebenefits by means of the acquisition of shares or debentures of the Company or any other body corporate.
Directors’ interests in shares, share options and debenturesThe following Directors who held office at the end of the financial year had, according to the register required to be keptunder Section 164 of the Companies Act, an interest in shares or debentures of the ultimate holding company, TemasekHoldings (Private) Limited or any other related corporations as stated below:
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Wong Kok SiewSembCorp Marine Ordinary shares of - 75,000 212,500 - -Ltd $0.10 each
Options to subscribefor ordinary shares of$0.10 each- at $0.70 per share 8/9/2001 to 225,000 150,000 - -
7/9/2005
- at $0.66 per share 28/9/2002 to 250,000 187,500 - -27/9/2006
- at $0.90 per share 8/11/2003 to 250,000 250,000 - -7/11/2007
- at $0.99 per share 9/8/2004 to - 250,000 - -8/8/2008
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
SembCorp Marine 2003108
R eport of the Directors
Directors’ interests in shares, share options and debentures (cont’d)
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Wong Kok SiewSembCorp Ordinary shares of - 636,446 836,446 - -Industries Ltd $0.25 each
Options to subscribefor ordinary shares of$0.25 each- at $2.26 per share 20/5/2001 to 500,000 500,000 - -
19/5/2009
- at $1.99 per share 27/6/2001 to 500,000 500,000 - -26/6/2010
- at $1.55 per share 20/4/2002 to 500,000 500,000 - -19/4/2011
- at $1.59 per share 8/5/2003 to 400,000 400,000 - -7/5/2012
- at $0.98 per share 18/10/2003 to 400,000 400,000 - -17/10/2012
- at $1.14 per share 3/6/2004 to - 400,000 - -2/6/2013
- at $1.29 per share 19/11/2004 to - 400,000 - -18/11/2013
Conditional award of - up to 560,000 - - -280,000 performanceshares to be deliveredafter 2002 (Note 1a)
Conditional award of - up to 600,000 up to 600,000 - -300,000 performanceshares to be deliveredafter 2003 (Note 1b)
Conditional award of - up to 800,000 up to 800,000 - -400,000 performanceshares to be deliveredafter 2004 (Note 1c)
Conditional award of - - up to 800,000 - -400,000 performanceshares to be deliveredafter 2005 (Note 1d)
Conditional award of - 800,000 600,000 - -1,000,000 restrictedshares (Note 2)
109SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
R eport of the Directors
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Wong Kok SiewSembCorp Options to subscribeLogistics Ltd for ordinary shares
of $0.25 each- at $2.50375 per 29/6/2001 to 80,000 80,000 - - share 28/6/2005
- at $1.8375 per 16/5/2002 to 120,000 120,000 - share 15/5/2006
- at $2.01 per 28/2/2003 to 200,000 200,000 - - share 27/2/2007
- at $1.50 per 6/2/2004 to - 200,000 - - share 5/2/2008
Singapore Food Ordinary shares of - 80,000 180,000 - -Industries Limited $0.05 each
Options to subscribefor ordinary sharesof $0.05- at $0.78 per share 30/10/2001 to 100,000 100,000 - -
29/10/2009
- at $0.55 per share 24/8/2001 to 200,000 100,000 - -23/8/2005
- at $0.69 per share 28/7/2002 to 120,000 120,000 - -27/7/2006
- at $0.78 per share 9/8/2003 to 120,000 120,000 - -8/8/2007
Directors’ interests in shares, share options and debentures (cont’d)
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Tan Kwi KinSembCorp Marine Ordinary shares of - 950,000 950,000 - -Ltd $0.10 each
Options to subscribefor ordinary sharesof $0.10 each
- at $0.79 per share 27/4/2000 to 200,000 - - -26/4/2003
- at $0.70 per share 8/9/2001 to 750,000 750,000 - -7/9/2010
- at $0.66 per share 28/9/2002 to 800,000 800,000 - -27/9/2011
- at $0.90 per share 8/11/2003 to 800,000 800,000 - -7/11/2012
- at $0.99 per share 9/8/2004 to - 800,000 - -8/8/2013
Conditional award of - up to 760,000 up to 760,000 - -380,000 performanceshares to be deliveredafter 2003 (Note 1b)
Conditional award of - up to 760,000 up to 760,000 - -380,000 performanceshares to be deliveredafter 2004 (Note 1c)
Conditional award of - - up to 760,000 - -380,000 performanceshares to be deliveredafter 2005 (Note 1d)
SembCorp Options to subscribeIndustries Ltd for ordinary shares of
$0.25 each- at $1.99 per share 27/6/2001 to 25,000 25,000 - -
26/6/2010
- at $1.55 per share 20/4/2002 to 25,000 25,000 - -19/4/2011
- at $1.59 per share 8/5/2003 to 12,500 12,500 - -7/5/2012
- at $0.98 per share 18/10/2003 to 12,500 12,500 - -17/10/2012
- at $1.14 per share 3/6/2004 to - 12,500 - -2/6/2013
- at $1.29 per share 19/11/2004 to - 12,500 - -18/11/2013
111SembCorp Marine 2003
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R eport of the Directors
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Tan Kwi KinSingapore Food Ordinary shares of - 18,000 18,000 - -Industries Limited $0.05 each
Options to subscribefor ordinary shares of$0.10 each- at $1.29 per share 8/8/2000 to 5,000 5,000 - -
7/8/2008
- at $1.418 per share 10/2/2001 to 400,000 400,000 - -9/2/2009
- at $2.00 per share 11/8/2001 to 5,000 5,000 - -10/8/2009
- at $2.26 per share 10/2/2002 to 400,000 400,000 - -9/2/2010
- at $2.72 per share 20/2/2002 to 225,000 225,000 - -19/2/2011
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
SembCorp Marine 2003112
R eport of the Directors
Directors’ interests in shares, share options and debentures (cont’d)
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Tan Pheng HockSingapore Options to subscribeTechnologies for ordinary shares ofEngineering Ltd $0.10 each
- at $2.68 per share 11/8/2002 to 227,500 227,500 - -10/8/2011
- at $2.29 per share 8/2/2003 to 175,000 175,000 - -7/2/2012
- at $1.92 per share 13/8/2003 to 175,000 175,000 - -12/8/2012
- at $1.79 per share 7/2/2004 to - 200,000 - -6/2/2013
- at $1.86 per share 12/8/2004 to - 200,000 - -11/8/2013
Conditional award of - up to 220,000 - - -110,000 performanceshares to be deliveredafter 2002 (Note 1a)
Conditional award of - up to 300,000 up to 300,000 - -150,000 performanceshares to be deliveredafter 2003 (Note 1b)
Conditional award of - up to 400,000 up to 400,000 - -200,000 performanceshares to be deliveredafter 2004 (Note 1c)
Conditional award of - - up to 500,000 - -250,000 performanceshares to be deliveredafter 2005 (Note 1d)
ST Assembly Test Ordinary shares of - 6,000 6,000 - -Services Ltd $0.25 each
Raffles Holdings Ordinary shares of - 8,000 8,000 - -Limited $0.50 each
Vertex Technology Ordinary shares of - - - 5 units 5 unitsFund (II) Ltd US$1.00 each
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Tan Pheng HockChartered Ordinary shares of - 7,000 7,000 - -Semiconductor $0.26 eachManufacturing Ltd
Kiyotaka MatsuzawaSembCorp Marine Options to subscribeLtd for ordinary shares of
$0.10 each- at $0.90 per share 8/11/2003 to 100,000 100,000 - -
7/11/2007- at $0.99 per share 9/8/2004 to - 130,000 - -
8/8/2008
Naoteru TsudaSembCorp Marine Options to subscribeLtd for ordinary shares of
$0.10 each- at $0.90 per share 8/11/2003 to 20,000 20,000 - -
7/11/2007- at $0.99 per share 9/8/2004 to - 50,000 - -
8/8/2008
Low Sin LengSembCorp Marine Ordinary shares of - - 12,500 - -Ltd $0.10 each
Options to subscribefor ordinary shares of$0.10 each
- at $0.66 per share 28/9/2002 to 50,000 37,500 - -27/9/2011
- at $0.90 per share 8/11/2003 to 50,000 50,000 - -7/11/2012
- at $0.99 per share 9/8/2004 to - 50,000 - -
8/8/2008
SembCorp Ordinary shares of - 100,000 100,000 - -Industries Ltd $0.25 each
Options to subscribefor ordinary shares of$0.25 each- at $1.55 per share 20/4/2002 to 300,000 300,000 - -
19/4/2011
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R eport of the Directors
Directors’ interests in shares, share options and debentures (cont’d)
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Low Sin LengSembCorp Options to subscribeIndustries Ltd for ordinary shares of
$0.25 each- at $1.59 per share 8/5/2003 to 250,000 250,000 - -
7/5/2012
- at $0.98 per share 18/10/2003 to 250,000 250,000 - -17/10/2012
- at $1.14 per share 3/6/2004 to - 200,000 - -2/6/2013
- at $1.29 per share 19/11/2004 to - 150,000 - -18/11/2013
Conditional award of - up to 300,000 up to 300,000 - -150,000 performanceshares to be deliveredafter 2003 (Note 1b)
Conditional award of - up to 300,000 up to 300,000 - -150,000 performanceshares to be deliveredafter 2004 (Note 1c)
Conditional award of - - up to 300,000 - -150,000 performanceshares to be deliveredafter 2005 (Note 1d)
SembCorp Options to subscribeLogistics Ltd for ordinary shares of
$0.25 each- at $1.8375 per share 16/5/2002 to 40,000 40,000 - -
15/5/2011
- at $2.01 per share 28/2/2003 to 20,000 20,000 - -27/2/2012
- at $1.50 per share 6/2/2004 to - 20,000 - -5/2/2013
Singapore Food Ordinary shares of - 20,000 20,000 - -Industries Limited $0.05 each
CapitaLand Ordinary shares of - 2,000 2,000 - -Limited $1.00 each
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R eport of the Directors
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Low Sin LengSingapore Options to subscribeComputer Systems for ordinary shares ofLimited $0.25 each
- at $1.55 per share 8/3/2003 to 5,000 5,000 - -7/3/2007
- at $0.86 per share 22/2/2004 to - 5,000 - -21/2/2008
Singapore Airlines Ordinary shares of - 3,000 3,000 4,000 4,000Ltd $0.50 each
Directors’ interests in shares, share options and debentures (cont’d)
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Heng Chiang GneeSembCorp Marine Ordinary shares of - 500,000 725,000 - -Ltd $0.10 each
Options to subscribefor ordinary shares of$0.10 each- at $0.79 per share 27/4/2000 to 150,000 - - -
26/4/2003
- at $0.70 per share 8/9/2001 to 450,000 300,000 - -7/9/2010
- at $0.66 per share 28/9/2002 to 500,000 375,000 - -27/9/2011
- at $0.90 per share 8/11/2003 to 500,000 500,000 - - 7/11/2012
- at $0.99 per share 9/8/2004 to - 500,000 - -8/8/2013
Conditional award of - up to 400,000 up to 400,000 - -200,000 performanceshares to be deliveredafter 2003 (Note 1b)
Conditional award of - up to 400,000 up to 400,000 - -200,000 performanceshares to be deliveredafter 2004 (Note 1c)
Conditional award of - - up to 400,000 - -200,000 performanceshares to be deliveredafter 2005 (Note 1d)
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R eport of the Directors
Name of Directorand Corporation Other shareholdings inin which interest Description of Exercise Shareholdings registered in which the Director isheld interests period the name of Director deemed to have an interest
At beginning At end of At beginning At end ofof the year the year of the year the year
Heng Chiang GneeSembCorp Ordinary shares of - - - 12,715 12,715Industries Ltd $0.25 each
Options to subscribefor ordinary shares of$0.25 each
- at $1.99 per share 27/6/2001 to 12,000 12,000 - -26/6/2010
- at $1.55 per share 20/4/2002 to 12,000 12,000 - -19/4/2011
- at $1.59 per share 8/5/2003 to 7,000 7,000 - -7/5/2012
- at $0.98 per share 18/10/2003 to 7,000 7,000 - -17/10/2012
- at $1.14 per share 3/6/2004 to - 10,000 - -2/6/2013
- at $1.29 per share 19/11/2004 to - 10,000 - -18/11/2013
SembCorp Ordinary shares of - - - - 2,000Logistics Ltd $0.25 each
Singapore Food Ordinary shares of - 18,000 18,000 - -Industries Limited $0.05 each
Note 1: The actual number delivered will depend on the achievement of set targets over a 3 year period as indicated below. Achievement of target below80%, level will mean no performance shares will be delivered, while achievement up to 200% will mean up to twice the number of conditionalperformance shares awarded could be delivered.
(a) Period from 2000 to 2002∆
(b) Period from 2001 to 2003(c) Period from 2002 to 2004(d) Period from 2003 to 2005
∆ For this period, Tan Pheng Hock was awarded 9,000 new shares on 12 March 2003. Upon the partial achievement of one of 3 targets set. Thebalance of the conditional awards covering the period from 2000 to 2002 has thus lapsed.
Note 2: 1,000,000 SembCorp Industries shares are comprised in conditional award of restricted stocks granted to Wong Kok Siew pursuant to the SembCorpIndustries Restricted Stock Plan subject to completion of the vesting period referred to below and Wong Kok Siew continuing to be in the employmentof the SembCorp Industries Group at the time of the vesting. Of the 1,000,000 SembCorp Industries Shares:
(i) 200,000 SembCorp Industries shares have been vested on 20 August 2002;(ii) 200,000 SembCorp Industries shares have been vested on 20 August 2003;(iii) 200,000 SembCorp Industries shares will vest on 20 August 2004;(v) 200,000 SembCorp Industries shares will vest on 20 August 2005; and(vi) 200,000 SembCorp Industries shares will vest on 20 August 2006;
If Wong Kok Siew ceases to be in the employment of the SembCorp Industries Group before the completion of each vesting date, his awards of allunvested SembCorp Industries Shares will lapse with immediate effect and become null and void but he will be entitled to retain all SembCorpIndustries Shares which have vested on or before the date of his cessation of employment.
Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares,debentures, warrants or share options of the Company, or of related corporations, either at the beginning of the financialyear, or date of appointment, if later, or at the end of the financial year.
There were no changes in the Directors’ interests in the Company between the end of the financial year and 21 January2004.
Directors’ contractual benefitsExcept as disclosed in Note 4 to the financial statements on the payment of professional fees to a firm in which Mr AjaibHaridass, a Director of the Company, is a member, since the end of the previous financial year, no Director of the Companyhas received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporationwith the Director, or with a firm of which the Director is a member, or with a company in which the Director has a substantialfinancial interest.
Share PlansThe Company’s Share Option Plan, Performance Share Plan and Restricted Stock Plan (collectively, the “Share Plans”) wereapproved and adopted by the shareholders at an Extraordinary General Meeting of the Company held on 31 May 2000.
The Executive Resource and Compensation Committee (the “Committee”) of the Company has been designated as theCommittee responsible for the administration of the Share Plans. The Committee comprises the following members, all ofwhom are directors:Wong Kok Siew (Chairman)Tan Tew Han (Appointed on 17 April 2003)Ajaib Haridass (Appointed on 31 October 2003)
The Share Option Plan is the incentive scheme for directors and employees of the Company and its subsidiaries (the“Group”) whereas the Performance Share Plan and Restricted Stock Plan are aimed primarily at key executives of theGroup.
R eport of the Directors
Directors’ interests in shares, share options and debentures (cont’d)
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SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
The Share Option Plan provides the Company with means whereby non-executive directors and employees of the Group,and certain categories of persons who can make significant contributions through their close working relationship with theGroup, such as non-executive directors and employees of the Company’s Parent Group and non-executive directors andemployees of the Company’s associates, are given an opportunity to participate in the equity of the Company.
Under the rules of the Share Option Plan, participants who ceased to be employed by the Group, Parent Group or AssociatedCompany by reason of ill health, injury or disability, redundancy, retirement at or after the legal retirement age, retirementbefore the legal retirement age, death, etc, or any other event approved by the Committee, may be allowed by the Committeeto retain their unexercised Options. The Committee may determine the number of Shares comprised in that Option whichmay be exercised and the period during which such Option shall be exercisable, being a period not later than the expiry ofthe Exercise Period in respect of that Option. Such Option may be exercised at any time notwithstanding that the date ofexercise of such Option falls on a date prior to the first day of the Exercise Period in respect of such Option.
The Company designates SembCorp Industries Limited as the Parent Group.
The Performance Share Plan and Restricted Stock Plan award fully-paid shares to participants to achieve pre-determinedtargets that create and enhance economic values for shareholders of the Company, or to accomplish time-based serviceconditions. Awards will be released to participants as fully-paid shares, or their equivalent cash value or combinationsthereof, free-of-charge provided that the conditions of the awards are achieved and subject to approval by the Committee.
Awards granted under the Performance Share Plan are released at the end of the performance period only when the pre-determined targets have been achieved. There are no vesting periods beyond the performance achievement periods.Awards granted under the Restricted Stock Plan vest only after satisfactory completion of time-based service conditions, orwhere the award is performance related, after a further period of service beyond the performance target completion date.No minimum vesting period is prescribed under the Restricted Plan and the length of the vesting period in respect of eachaward will be determined on a case-by-case basis. Performance-based restricted awards differ from awards granted underthe Performance Plan in that an extended vesting period is imposed beyond the performance target completion date.
Share Incentive PlansThe Share Plans are intended to attract, retain and incentivise participants to higher standards of performance and encouragegreater dedication and loyalty by enabling the Company to give recognition to past contributions and services; as well asmotivating participants to contribute to the long-term prosperity of the Group.
Other information regarding the Share Option Plan is as follows:(i) The exercise price of the options can be set at a discount to the market price not exceeding 20% of the market price
in respect of options granted at the time of grant.(ii) The options can be exercised 12 months after the grant for market price options and 24 months for discounted
options. Further vesting period for the exercise of the options may be set.(iii) The options granted expire after 5 years for non-executive directors, associates employees and 10 years for the
employees of Group and parent Group.
R eport of the Directors
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R eport of the Directors
Share Plans (cont’d)
SembCorp Marine Share Option PlanAt the end of the financial year, details of the options granted under the Option Plan on unissued shares of $0.10 each of theCompany are as follows:
At 31 December 2003 - 404 8,523 10,218 15,199 15,450
The details of the Plan (which was started in 1991 as the Jurong Shipyard Limited Executives’ Share Option Scheme) wereset out in the financial statements of that year.
The fair values of options of the Company granted at the date of the grant are estimated using the Black-Scholes Option-pricing model are as follows:
Option period Number of shares Fair value of option(both dates inclusive) options granted Exercise price at date of grant
9 Aug 2004 to 8 Aug 2008 735,000 $0.99 $0.209 Aug 2004 to 8 Aug 2013 14,884,000 $0.99 $0.20
121SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
R eport of the Directors
The details of options of the Company granted during the year and granted/exercised since commencement of the Schemeto 31 December 2003 were as follows:
Since the commencement of the Share Option Plan, no options have been granted to the controlling shareholders of theCompany or their associates. No participants under the Share Option Plan has been granted 5% or more of the totaloptions available. No options have been offered at a discount.
The options granted by the Company do not entitle the holders of the options, by virtue of such holdings, to any right toparticipate in any share issue of any other company.
Save as disclosed, there were no other unissued shares of the Company or its subsidiary companies under options as at theend of the financial year.
Proforma financial effect under United States Financial Accounting Standard No. SFAS 123
Strictly for information purposes only, the proforma consolidated profit after taxation and minority interests and the earningsper share would have been as follows had the Company accounted for the fair value of the options granted under UnitedStates Financial Accounting Standard No. 123.
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R eport of the Directors
Share Plans (cont’d)
2003$’000
Profit after taxation and minority interests:- As reported 78,540- Proforma 76,031
2003Cents
Earnings per share (in cents) :- As reported 5.55- Proforma 5.37
Diluted earnings per share (in cents) :- As reported 5.52- Proforma 5.34
These proforma amounts may not be representative of future disclosures as the estimated fair value of share options areonly determined in respect of options granted since the financial year ended 31 December 1999 and which is amortisedover the vesting period.
SembCorp Marine Performance Share PlanUnder the Performance Share Plan, the awards granted conditional on performance targets are set based on medium-termcorporate objectives at the start of each rolling three-year performance qualifying period. The final number of shares givenwill depend on the level of achievement of those targets over the three-year performance period. A specific number ofperformance shares shall be released by the Committee to the recipient at the end of the performance period provided theminimum level of targets achieved is not less than 80% of the targets set.
Recipients who do not meet at least 80% of the targets set at the end of the performance period will not be granted theperformance shares. If the achievement of the targets exceeds 100%, more performance shares than the original awardcould be delivered up to a maximum of 200% of the original award.
The details of performance shares of the Company awarded since commencement of the Performance Plan were as follows:
ConditionalShares Aggregate Aggregate Aggregate
Awarded Conditional Conditional ConditionalPerformance Shares During the Shares Shares SharesParticipants Year Awarded Lapsed Outstanding
Director of the CompanyTan Kwi Kin 380,000 1,140,000 - 1,140,000Heng Chiang Gnee 200,000 600,000 - 600,000
580,000 1,740,000 - 1,740,000
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SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
R eport of the Directors
The total number of performance shares in awards granted conditionally and representing 100% of targets achieved, butnot released as at end 2003, was 1,740,000. Based on the multiplying factor, the actual release of the awards could rangefrom zero to a maximum of 3,480,000 performance shares.
In accordance with the accounting policy of the Group, during the current financial year, the Group has provided $831,000(2002: $495,000) in respect of performance shares based on the market values of the shares at reporting date.
SembCorp Marine Restricted Stock PlanUnder the Restricted Plan, awards granted vest only after the satisfactory completion of time-based service conditions orwhere the award is performance-related, after a further period of service beyond the performance target completion date(performance-based restricted awards). No minimum vesting period is prescribed under the Restricted Plan and the lengthof the vesting period in respect of each award will be determined on a case-by-case basis. Performance-based restrictedawards differ from awards granted under the Performance Plan in that an extended vesting period is imposed beyond theperformance target completion date.
The maximum number of performance shares and restricted stock which could be delivered, when aggregated with thenumber of new shares issued and issuable in respect of all options granted, is within the 15% limit of the share capital of theCompany on the day preceding the relevant date of the grant.
No awards have been granted under the Restricted Plan during the year.
No participants, other than those disclosed under the directors’ interests in share options, received 5% or more of the totalnumber of options available.
Audit CommitteeThe Audit Committee comprises 3 independent non-executive directors, one of whom is also the Chairman of the Committee.The members of the Audit Committee at the date of this report are:
Tan Tew Han (Chairman) (appointed on 17 April 2003)Kiyotaka MatsuzawaAjaib Haridass (appointed on 31 October 2003)
The Audit Committee has held 4 meetings since the last directors’ report. In performing its functions, the Audit Committeemet with the Company’s external and internal auditors to discuss the scope of their work, the results of their examinationand evaluation of the Company’s internal accounting control system.
The Audit Committee performs the functions specified in Section 201B of the Companies Act, the Listing Manual of theSingapore Exchange, and the Code of Corporate Governance.
The Audit Committee also reviewed the following:• assistance provided by the Company’s officers to the internal and external auditors;• financial statements of the Group and the Company prior to their submission to the directors of the Company for
adoption; and• interested person transactions (as defined in Chapter 9 of the Listing Manual of the Singapore Exchange).
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SembCorp Marine 2003124
The Audit Committee has full access to management and is given the resources required for it to discharge its functions. Ithas full authority and the discretion to invite any director or executive officer to attend its meetings. The Audit Committeealso recommends the appointment of the external auditors and reviews the level of audit and non-audit fees.
The Audit Committee is satisfied with the independence and objectivity of the external auditors and has recommended tothe Board of Directors that the auditors, Ernst & Young, be nominated for re-appointment as auditors at the forthcomingAnnual General Meeting of the Company.
AuditorsErnst & Young have expressed their willingness to accept re-appointment as auditors.
On behalf of the Board,
WONG KOK SIEWChairman
TAN KWI KINPresident
Singapore11 February 2004
R eport of the Directors
Audit Committee (cont’d)
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SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
S tatement by Directors Pursuant to Section 201(15)
We, Wong Kok Siew and Tan Kwi Kin, being two of the Directors of SembCorp Marine Ltd, do hereby state that, in theopinion of the Directors:
(i) the accompanying balance sheets, profit and loss accounts, statements of changes in equity of the Company andthe Group and consolidated cash flow statement together with notes thereto are drawn up so as to give a true andfair view of the state of affairs of the Company and of the Group as at 31 December 2003, and of the results of thebusiness, changes in equity of the Company and of the Group and cash flows of the Group for the year ended onthat date; and
(ii) at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debtsas and when they fall due.
On behalf of the Board,
WONG KOK SIEWChairman
TAN KWI KINPresident
Singapore11 February 2004
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R eport of the Auditors to the Members of SembCorp Marine Ltd
We have audited the accompanying financial statements of SembCorp Marine Ltd (the “Company”) and its subsidiarycompanies (the “Group”) set out on pages 127 to 177 for the year ended 31 December 2003. These financial statements arethe responsibility of the Company’s Directors. Our responsibility is to express an opinion on these financial statementsbased on our audit.
We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by the Directors, as well asevaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion,
(a) the consolidated financial statements of the Group and the profit and loss account, balance sheet and statements ofchanges in equity of the Company are properly drawn up in accordance with the provisions of the Companies Act(the Act) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of theCompany and of the Group as at 31 December 2003, the results and changes in equity of the Company and of theGroup and cash flows of the Group for the financial year ended on that date; and
(b) the accounting and other records (excluding registers) required by the Act to be kept by the Company and by thesubsidiary companies incorporated in Singapore, of which we are the auditors, have been properly kept in accordancewith the provisions of the Act.
We have considered the financial statements and, where they are required by the laws of the country of incorporation,auditors’ reports of all subsidiary companies of which we have not acted as auditors, being financial statements included inthe consolidated financial statements. The names of those subsidiary companies audited by our associated firms are statedin Note 37 to the financial statements.
We are satisfied that the financial statements of the subsidiary companies that have been consolidated with the financialstatements of the Company are in form and content appropriate and proper for the purposes of the preparation of theconsolidated financial statements, and we have received satisfactory information and explanation as required by us forthose purposes.
The auditors’ reports on the financial statements of the subsidiary companies were not subject to any qualification,and in respect of subsidiary companies incorporated in Singapore did not include any comment made under Section 207(3)of the Act.
ERNST & YOUNGCertified Public Accountants
Singapore11 February 2004
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SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
P rofit and Loss Accounts for the year ended 31 December 2003
The accompanying notes form an integral part of the financial statements.
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S tatements of Changes in Equity for the year ended 31 December 2003
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000
Issued capital - ordinary shares (1)
Balance at 1 January1,414,322,480 (2002: 1,406,140,980) shares of $0.10 each 141,432 140,614 141,432 140,614Issue of 5,729,400 (2002: 8,181,500) shares of $0.10 each upon exercise of share options 573 818 573 818
Balance at 31 December1,420,051,880 (2002: 1,414,322,480) shares of $0.10 each 142,005 141,432 142,005 141,432
Revenue reserveBalance at 1 January 541,527 517,299 411,916 375,403Profit for the year 78,540 92,098 79,669 107,983Dividends on ordinary shares Note 28(b) (71,841) (71,470) (71,841) (71,470)Transfer from other capital reserve upon:- disposal of an associated company - 3,600 - -- redemption of redeemable convertible loan stock 155 - - -
Balance at 31 December 548,381 541,527 419,744 411,916
Foreign currency translation reserveBalance at 1 January 4,595 5,580 - -Realisation upon disposal of:- associated company - 195 - -- joint venture (5,310) - - -Translation differences for the year (1,851) (1,180) - -
Balance at 31 December (2,566) 4,595 - -
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S tatements of Changes in Equity for the year ended 31 December 2003
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000
Share premium accountBalance at 1 January 234,471 229,329 234,471 229,329Premium on shares issued on exercise of share options 3,479 5,142 3,479 5,142
Balance at 31 December 237,950 234,471 237,950 234,471
Asset revaluation reserveBalance at 1 January and 31 December 960 960 960 960
Other capital reservesBalance at 1 January 17,023 27,463 - -Share of an associated company’s capital reserves - 16 - -Deferred tax on redeemable convertible loan stocks of a subsidiary company - (70) - -Transfer to the profit and loss account upon disposal of:- associated company - (6,786) - -- other long term investment (16,471) - - -Transfer to revenue reserve upon:- disposal of an associated company - (3,600) - -- redemption of redeemable convertible loan stock (155) - - -
Balance at 31 December 397 17,023 - -
Total shareholders’ equity 927,127 940,008 800,659 788,779
Net change in equity from non-owner sources excluding net profits (1,851) (1,234) - -
(1) The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinaryshares carry one vote per share without restriction.
The accompanying notes form an integral part of the financial statements.
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C ash Flow Statement of the Group for the year ended 31 December 2003
2003 2002$’000 $’000
Cash flow from operating activitiesOperating profit 74,308 89,883Adjustments for: Gain on disposal of fixed assets (4,735) (159) Amortisation of goodwill on consolidation of subsidiary companies 1,260 935 Amortisation of redeemable convertible loan stock discount 91 98 Redeemable convertible loan stock discount write-off - 10 Depreciation of fixed assets 33,945 32,429 Fixed assets write-off 7 89
Operating income before reinvestment in working capital 104,876 123,285Decrease/(increase) in stocks and work-in-progress 24,686 (32,125)Decrease in debtors 4,936 205,003Decrease in creditors (51,420) (91,805)
Cash generated from operations 83,078 204,358Investment and interest income received 13,865 15,487Income taxes paid (34,695) (24,836)Interest paid (2,654) (843)
Net cash provided by operating activities 59,594 194,166
Cash flow from investing activitiesAcquisition of subsidiary companies (4,607) (18,635)Investment in associated companies and joint venture (250) (27,526)Purchase of fixed assets (32,627) (14,435)Purchase of other long term investments (1,641) (3,020)Capital refund from associated companies 510 3,075Dividends from associated companies 3,440 3,214Proceeds from disposal of fixed assets 471 4,010Proceeds from disposal of associated and joint venture companies 7,349 28,069Proceeds from sale of other long term investments 11,290 3,084
Net cash used in investing activities (16,065) (22,164)
Cash flow from financing activitiesDividends paid- by the Company (71,841) (71,470)- to minority shareholders (241) -Proceeds on issue of new shares by the Company 4,052 5,960Additional/(repayment of) short term bank loan 65,577 (246)Repayment to hire purchase creditors (729) (279)Fixed deposit pledged with a bank for banking facilities (1,120) (53,259)
Net cash used in financing activities (4,302) (119,294)
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C ash Flow Statement of the Group for the year ended 31 December 2003
2003 2002$’000 $’000
Net increase in cash and cash equivalents 39,227 52,708Cash and cash equivalents at beginning of year 109,180 56,472
Cash and cash equivalents at end of year (Note 31) 148,407 109,180
The acquisitions of the following subsidiary companies have been shown as a single item:
Name of subsidiary companies Effective interestacquired Effective dates
PPL Shipyard Pte Ltd and its subsidiary companies 35% 1 July 2003Jurong SML Pte Ltd 50% 1 January 2002
15% 1 March 2002The effect on the individual assets and liabilities is set out below:
Acquisition of subsidiarycompanies
2003 2002$’000 $’000
Fixed assets 8,881 43,997Other long term unquoted investment 3,700 -Stocks and work-in-progress 34,260 5,642Debtors 26,227 30,228Bank and cash balances 11,267 52Bank overdrafts, unsecured (1,174) (6,787)Bank loans (7,652) (2,800)Creditors (40,398) (50,410)Current taxation (642) (690)Deferred taxation (335) -
Net assets acquired 34,134 19,232Minority interests (5,120) (52)Amount taken up as associated company (17,067) (6,731)Goodwill on acquisition 2,753 1,851
Purchase consideration 14,700 14,300Amount reflected as non-trade payable - (2,400)
Cash paid 14,700 11,900
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C ash Flow Statement of the Group for the year ended 31 December 2003
The acquisition subsidiary companies, net of cash is represented by:
2003 2002$’000 $’000
Cash paid (14,700) (11,900)Less: Bank and cash balances acquired 11,267 52Add: Bank overdrafts, unsecured acquired (1,174) (6,787)
Net cash outflow (4,607) (18,635)
The effect of the acquisitions of subsidiary companies on the financial position of the Group at 31 December and its resultsfor the year is shown below:
2003 2002$’000 $’000
Contribution to the Group for the period:Turnover 80,192 32,687
(Loss)/profit before taxation (7,381) 35Goodwill amortisation (276) (586)
Loss before taxation (7,657) (551)Taxation 888 (48)
Loss after taxation (6,769) (599)Minority interests 974 52
(5,795) (547)
Total assets at 31 December 78,519 51,905Total liabilities at 31 December 50,931 32,686
The accompanying notes form an integral part of the financial statements.
135SembCorp Marine 2003
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Notes to the Financial Statements - 31 December 2003
1. GeneralThe financial statements of SembCorp Marine Ltd for the year ended 31 December 2003 were authorised for issuein accordance with a resolution of the Directors on 11 February 2004.
The Company is a limited liability company incorporated in the Republic of Singapore. Its immediate holdingcompany is SembCorp Industries Ltd and the ultimate holding company is Temasek Holdings (Private) Limited.Both holding companies are incorporated in the Republic of Singapore. Related companies and related parties inthese financial statements refers to subsidiary and associated companies of SembCorp Industries Ltd and TemasekHoldings (Private) Limited respectively.
The registered office and principal place of business of the Company is located at 29 Tanjong Kling Road, Singapore628054.
The principal activities of the Company are provision of management services and investment holding. The principalactivities of subsidiary companies and associated companies are stated in Note 37. There have been no significantchanges in the nature of these activities of the Company and its subsidiary companies during the year.
2. Significant accounting policies(a) Basis of preparation of financial statements
The financial statements are presented in Singapore dollars. The financial statements have been prepared inaccordance with Singapore Financial Reporting Standards (“FRS”) as required by the Companies Act. Inprevious years, the financial statements were prepared in accordance with Singapore Statements of AccountingStandard (SAS). The transition from SAS to FRS did not result in any significant change in accounting policies.
The financial statements have been prepared under the historical cost basis modified by the revaluation ofcertain fixed assets. The accounting policies have been consistently applied with those used in the previousyear.
(b) Principles of consolidationThe accounting year of the Company and all its subsidiary companies ends on 31 December and theconsolidated financial statements incorporate the financial statements of the Company and all its subsidiarycompanies after the elimination of all material intercompany transactions. The equity and net profit attributableto majority shareholders’ interests are shown separately in the consolidated balance sheet and consolidatedprofit and loss account, respectively. The results of subsidiary companies acquired or disposed of during theyear are included in or excluded from the Group results from the respective dates of acquisition or disposal,as applicable.
Goodwill arising on acquisition which represents the excess of the cost of acquisition over the fair value of theGroup’s share of the identifiable net assets acquired is amortised on the basis outlined in paragraph (e)below.
The consolidated financial statements are prepared using uniform accounting policies for like transactionsand other events in similar circumstances.
Assets, liabilities and results of the overseas subsidiary companies are translated into Singapore dollars onthe basis outlined in paragraph (s) below.
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SembCorp Marine 2003136
(c) Subsidiary companiesShares in subsidiary companies are stated at cost and provision is made for impairment in value. Dividendincome is accrued on the basis of dividends declared.
(d) Associated companies and joint venturesAn associated company is defined as a company, not being a subsidiary company, in which the Group has along term interest of not less than 20% nor more than 50% of the equity and in whose financial and operatingpolicy decisions the Group exercises significant influence.
A joint venture, not being a subsidiary or associated company, is one in which the Group has a long terminterest and contractual arrangement whereby parties in the joint venture undertake an economic activitywhose operational and financial affairs are subject to the joint control of the Group and the contractualparties.
The Group’s share of the results of associated companies and joint ventures that are jointly controlled entitiesare included in the consolidated profit and loss account under the equity method. The Group’s share of post-acquisition reserves of associated companies and joint ventures that are jointly controlled entities are includedin the investments in associated companies and joint ventures, respectively, in the consolidated balancesheet. Where the audited financial statements are not available, the share of results is arrived at from unauditedmanagement financial statements made up mainly to the end of the accounting year to 31 December. Goodwillarising on acquisition which represents the excess of the cost of acquisition over the fair value of the Group’sshare of the identifiable net assets acquired is amortised on the basis outlined in paragraph (e) below.
When the Group’s share of losses exceeds the carrying amount of the investment, the investment is reportedat nil value and recognition of losses is discountinued except to the extent of the Group’s commitments.
For joint ventures that involves jointly controlled operations or assets, the proportionate share in these jointventures’ individual income, expenses, assets and liabilities are included in financial statements of the Groupwith items of a similar nature on a line by line basis.
Shares in associated companies and joint ventures are stated in the Company’s balance sheet at cost andprovision is made for impairment in value.
Dividend income is accrued on the basis of dividends declared.
(e) Goodwill on ConsolidationGoodwillGoodwill arising on acquisition represents the excess of cost of acquisition over the fair value of the Group’sshare of the identifiable net assets acquired. Goodwill is stated at cost less accumulated amortisation andimpairment losses. Goodwill is amortised from the date of initial recognition over its estimated useful life ofnot more than 20 years.
During the year, the Group extended the useful life of goodwill in the investment in an associated companyfrom 3 years to 4.25 years. This extension was made to coincide the goodwill amortisation with the expectedcompletion of a major conversion project by that associated company.
Notes to the Financial Statements - 31 December 2003
2. Significant accounting policies (cont’d)
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SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
This change in accounting estimate was accounted prospectively. The effect of the change is to decrease thecurrent year goodwill amortisation charge and increase profit for the year by $2,220,000.
Negative GoodwillNegative goodwill arising on acquisition represents the fair value of the Group’s share of the identifiable netassets acquired over the cost of acquisition.
To the extent that negative goodwill relates to an expectation of future losses and expenses, that are identifiedin the plan of acquisition and can be measured reliably, but which have not yet been recognised, it is recognisedin the profit and loss account when the future losses and expenses are recognised. Any remaining negativegoodwill, but not exceeding the fair values of the non-monetary assets acquired, is recognised in the profitand loss account over the weighted average useful life of those assets that are depreciable or amortisable.Negative goodwill in excess of the fair values of the non-monetary assets acquired is recognised immediatelyin the profit and loss account.
(f) Revenue recognitionRevenue from ship and rig repair, building and conversion are recognised on the percentage of completionmethod in proportion to the stage of completion, provided the work is at least 20% completed and theoutcome of the contract can be reliably estimated. The percentage of completion is measured by referenceto the percentage of costs incurred to-date to the estimated total costs for each contract, with dueconsideration made to include only those costs that reflect works performed.
Income on goods sold and other services rendered is recognised on completion of delivery. Charter hireincome is taken to the profit and loss account on an accrual basis over the charter hire period.
(g) Fixed assetsFixed assets are stated at cost or valuation less accumulated depreciation. The cost of an asset comprises itspurchase price and any directly attributable costs of bringing the asset to working condition for its intendeduse. Expenditure for additions, improvements and renewals are capitalised and expenditure for maintenanceand repairs are charged to the profit and loss account. When assets are sold or retired, their cost andaccumulated depreciation are removed from the financial statements and any gain or loss resulting fromtheir disposal is included in the profit and loss account.
Where fixed assets are revalued, any surplus on revaluation is credited to the asset revaluation reserve. Adecrease in net carrying amount arising on revaluation of fixed assets is charged to the profit and loss accountto the extent that it exceeds any surplus held in reserve relating to previous revaluation of the same class ofassets.
Notes to the Financial Statements - 31 December 2003
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(h) DepreciationDepreciation is calculated on the straight-line method to write off the cost or valuation of fixed assets overtheir estimated useful lives. No depreciation is provided on freehold land. The estimated useful lives of fixedassets are as follows:
Freehold and leasehold buildings 45 years or remaining period of leaseQuays and dry docks 60 years or remaining period of leasePlant, machinery and tools 3 to 10 yearsMotor vessels, launches, cranes and floating docks 3 to 20 yearsMotor vehicles 3 to 5 yearsFurniture and office equipment 3 to 5 yearsUtilities and fittings 30 yearsComputer equipment 1 to 5 years
Fully depreciated assets are retained in the financial statements until they are no longer in use and no furthercharge for depreciation is made in respect of these assets.
(i) InvestmentsInvestments held on a long-term basis are stated at average cost. Provision is made for impairment in value.
Dividend income is recognised in the profit and loss account upon actual receipt. Interest income is accruedon the day-to-day basis.
(j) Stocks and work-in-progressStocks consist mainly of steel and other materials used for ship and rig repair, building and conversion andare stated at the lower of cost and net realisable value. Cost is principally determined on the weightedaverage method. Provision is made for all deteriorated, obsolete and slow-moving items.
Work-in-progress comprises mainly uncompleted ship and rig repair, building and conversion jobs. It is statedat the lower of cost and net realisable value. Cost includes materials, direct labour, sub-contractors’ costs andappropriate allocation of fixed and variable production overheads. Provision is made for anticipated losses,if any, on work-in-progress when the possibility of loss is ascertained.
(k) Trade and other debtorsTrade and other debtors, including related companies and related parties, on normal trade terms, arerecognised and carried at original invoiced amount less an allowance for any uncollectible amounts. Anestimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts arewritten off as incurred.
(l) Trade and other creditorsLiabilities for trade and other creditors, including related companies and related parties, on normal tradeterms, are carried at cost which is the fair value of the consideration to be paid in the future of goods andservices received, whether or not billed to the Group.
Notes to the Financial Statements - 31 December 2003
2. Significant accounting policies (cont’d)
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(m) Finance leases and hire purchase assetsFinance leases are those leasing agreements including hire purchases that give rights approximating toownership. Assets financed under such leases are treated as if they had been purchased outright at thepresent value of the minimum lease payments during the periods of leases and the corresponding leasingcommitments are shown as obligations to the lessor. Depreciation of the relevant assets is provided for as inparagraph (h) above. Lease payments are treated as consisting of capital and interest elements and theinterest is amortised on the reducing balance basis over each lease term and charged to the profit and lossaccount.
(n) Employee benefitsDefined contribution planThe Group’s companies in Singapore make contributions to the state pension scheme, the Central ProvidentFund, as required by Singapore law. Contributions to this fund are recognised as compensation expense inthe same period as the employment that gives rise to the contribution.
Employee leave entitlementEmployee entitlements to annual leave are recognised when they accrue to employees. An accrual is madefor the estimated liability for leave as a result of services rendered by employees up to the balance sheetdate.
Employee Stock OptionThe Group has an employee share incentive plan for the granting of non-transferable share options. Nocompensation cost or obligations are recognised. When the options are exercised, equity is increased by theamount of the proceeds received.
Retirement gratuityRetirement benefits payable to certain categories of employees upon their retirement are provided for in thefinancial statements based on their entitlement under the staff benefit plan or, in respect of unionisedemployees who joined on or before 31 December 1988, based on an agreement with the Union.
The Group’s net obligation in respect of retirement benefit is the amount of future benefits that employeeshad earned in return for their service in the current and prior periods. The obligation is calculated using theprojected salary increase and is discounted to its present value and the fair value of any related assets isdeducted.
Performance share planAn initial estimate is made for the cost of compensation under the Group’s performance share plan based onthe number of shares expected to be awarded at the end of the performance period, valued at market priceat the date of the grant of the award. The cost is charged to the profit and loss account on a basis that fairlyreflects the manner in which the benefits will accrue to the employee under the plan over the service periodto which the performance criteria relate.
At each reporting date, the compensation cost is remeasured based on the latest estimate of the number ofshares that will be awarded considering the performance criteria and the market price of the shares at thereporting date. Any increase or decrease in compensation cost over the previous estimate is recorded in theprofit and loss account for that reporting period.
Notes to the Financial Statements - 31 December 2003
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SembCorp Marine 2003140
The final measure of compensation cost is based on the number of shares ultimately awarded and the marketprice at the date the performance criteria are met.
Restricted stock planAn initial estimate is made for the cost of compensation under the Group’s restricted stock plan based on thenumbers of shares expected to be awarded upon satisfactory completion of time-based service condition,valued at market price at the date of the grant of the award. The cost is charged to the profit and loss accounton a basis that fairly reflects the manner in which the benefits will accrue to the employee under the plan overthe service period to which the performance criteria relate.
At each reporting date, the compensation cost for remaining shares to be released under the restricted stockplan in remeasured based on the market price of shares at the reporting date. Any increase or decrease incompensation cost over the previous estimate is recorded in the profit and loss account for that reportingperiod.
(o) BorrowingsInterest bearing loansInterest bearing loans are recognised at cost.
Redeemable convertible loan stockThe components of the loan stock are split using the incremental method, where the value of the equitycomponent is the difference between the total proceeds at the date of issue and the present value of asimilar liability instrument without conversion right.
The equity component of the loan is included in the redeemable convertible loan stock reserve. The financialcomponent is initially recognised at fair value and subsequently at amortised cost. Amortised cost is calculatedby taking into account the discounts on settlement. The discount is amortised over the life of the redeemableconvertible loan stock and charged directly to the profit and loss account.
(p) ProvisionsA provision is recognised when there is a present obligation (legal or constructive) as a result of a past eventand it is probable that an outflow of resources embodying economic benefits will be required to settle theobligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed ateach balance sheet date and adjusted to reflect the current best estimate.
(q) ImpairmentThe carrying amounts of the Group’s assets, other than stocks and work-in-progress, are reviewed at eachbalance sheet date to determine whether there is any indication of impairment. If any such indication exists,the asset’s recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceedsits recoverable amount. All impairment losses are recognised in the profit and loss account.
Notes to the Financial Statements - 31 December 2003
2. Significant accounting policies (cont’d)
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SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Calculation of recoverable amountThe recoverable amount is the greater of the asset’s net selling price and value in use. In assessing value inuse, the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risks specific to the asset. For an assetthat does not generate cash inflows largely independent of those from other assets, the recoverable amountis determined for the cash-generating unit to which the asset belongs.
Reversal of impairment lossAn impairment loss is reversed if there has been a change in the estimates used to determine the recoverableamount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceedthe carrying amount that would have been determined, net of depreciation or amortisation, if no impairmentloss had been recognised. A reversal of an impairment loss in respect of land and buildings carried at revaluedamount is recognised in the same way as a revaluation increase. All other reversals of impairment are recognisedin the profit and loss account.
An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific externalevent of an exception nature that is not expected to recur, and the increase in recoverable amount relatesclearly to the reversal of the effect of that specific event.
(r) Deferred taxationDeferred taxation is provided, using the liability method, on all temporary differences at the balance sheetdate between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income inthe years on which those temporary differences are expected to be recovered or settled based on the taxrates enacted or substantively enacted at the balance sheet date.
Deferred tax liabilities are recognised for all taxable temporary differences associated with investments insubsidiary companies, associated companies and joint ventures, except where the timing of reversal of thetemporary difference can be controlled and it is probable that the temporary differences will not reverse inthe foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused taxassets and unused tax losses, to the extent that it is probable that taxable profit will be available againstwhich the deductible temporary differences, carry-forward of unused tax assets and unused tax losses can beutilised.
Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that arecredited or charged, in the same or different period, directly to equity.
(s) Foreign currenciesForeign currency transactions are recorded in Singapore dollars at rates of exchange approximating thoseruling at transaction dates. Foreign currency monetary assets and liabilities are translated at rates ruling atthe balance sheet date. All exchange differences are dealt with in the profit and loss account.
Notes to the Financial Statements - 31 December 2003
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Notes to the Financial Statements - 31 December 2003
2. Significant accounting policies (cont’d)
For inclusion in the consolidated financial statements, all assets and liabilities of the foreign subsidiarycompanies, associated companies and joint ventures are translated into Singapore dollars at the exchangerates ruling at the balance sheet date and the results of foreign subsidiary companies, associated companiesand joint ventures are translated into Singapore dollars at the average exchange rates. Exchange differencesdue to such currency translations are included in the foreign currency translation reserve.
(t) Cash and cash equivalentsCash and cash equivalents consist of cash at bank and in hand and fixed deposits less bank overdrafts butexclude secured fixed deposits and bank overdrafts which are used for financing activities.
(u) Derivative financial instrumentsDerivative financial instruments are used to manage exposure to foreign exchange risks arising fromoperational, financing and investment activities. Derivative financial instruments are not used for tradingpurposes.
Gains and losses from forward exchange contracts used to hedge anticipated future currency transactionsare deferred until the forecasted transaction occurs. Where the hedged item is a recognised asset or liability,it is translated at the contracted forward rates.
3. TurnoverTurnover represents sales from the various activities described in Note 1 and Note 37, including the revenuerecognised on contracts relating to the ship and rig repair, building and conversion which are at least 20%completed.
Notes to the Financial Statements - 31 December 2003
4. Operating profitOperating profit is stated after charging/(crediting):
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000
Directors’ remuneration - Directors of the Company 1,390 1,400 1,390 1,400 Other directors of subsidiary companies 2,129 1,230 - -Directors’ fee - Directors of the Company 332 317 332 317 Other directors of subsidiary companies 17 13 - -Professional fees paid to a firm in which a Director is a member 10 - 10 -Foreign currency exchange loss/(gain) 3,342 2,156 (1,077) (1,624)Gain on disposal of fixed assets 4,735 159 4,625 -Rental expenses 19,353 18,190 7,200 6,947Auditors’ remuneration - Auditors of the Company Statutory audit 464 398 73 76 Other services 31 296 27 279 Other auditors of subsidiary companies Statutory audit 52 50 - -
As at 31 December 2003, the Group and Company had 5,469 and 14 (2002: 5,155 and 12) employees, respectively. Staffcosts, which include Directors’ remuneration for the year, amounted to $166,470,000 (2002: $158,211,000) and $3,565,000(2002: $3,927,000) for the Group and Company, respectively. Central Provident Fund contributions which amounted to$8,843,000 (2002: $8,153,000) and $79,000 (2002: $79,000) for the Group and Company, respectively, were included as part ofstaff costs for the year.
Interest expense: Redeemable convertible loan stock (1,760) (92) - - Subsidiary companies - - (189) (553) Related company (19) - - - Bank borrowings (884) (730) (407) (312)
(2,663) (822) (596) (865)
11,600 13,693 86,402 105,890
6. Exceptional itemsGroup Company
2003 2002 2003 2002$’000 $’000 $’000 $’000
Gain on disposal of: Associated companies, Note (a) - 18,295 - 25,086 Joint venture company 1,951 - - - Long term equity investments, Note (a) 337 557 1,744 123 Sale of redeemable convertible loan stocks of a subsidiary company - - - 500Dilution of interest in a subsidiary company to minority interest - (163) - 600Quoted warrants written off - (225) - (225)
2,288 18,464 1,744 26,084
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Notes to the Financial Statements - 31 December 2003
Writeback/(provision) for impairment in value of:Associated company - (1,309) - (1,194)Other long term equity investments 1,391 (4,391) 1,391 (1,391)Other long term non-equity investments (291) (2,111) (201) (2,016)Loan to an associated company - - (365) (1,769)
1,100 (7,811) 825 (6,370)
1,275 6,653 2,569 19,714
(a) Gain on disposal is stated after consideration of realisation of other capital reserves and foreign currencytranslation reserve as follows:
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000
Other capital reserveAssociated company - 6,786 - -Other long term equity investments 16,471 - - -
(b) Due to the continued difficult operating environment in Karimun, the impairment loss for fixed assets in the“Ship and rig repair, building and conversion” business segment of $2 million (2002: $4 million) representsthe write-down of certain fixed assets to recoverable amount. This recoverable amount was determinedbased on the value-in-use at the cash generating unit level. In determining the value-in-use at the cashgenerating unit level, the cashflows were discounted at rate of 6% per annum on a pre-tax basis.
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Notes to the Financial Statements - 31 December 2003
7. Share of results of associated companies and joint venturesGroup
2003 2002$’000 $’000
Share of net profit for the year 11,111 11,390Amortisation of goodwill on acquisition of an associated company (3,108) (5,328)
8,003 6,062Share of taxation 154 (2,288)
8,157 3,774
8. TaxationGroup Company
2003 2002 2003 2002$’000 $’000 $’000 $’000
In respect of profit for the year: Current taxation 15,569 28,152 19,637 24,671 Deferred taxation 4,814 (2,664) (200) (982)
20,383 25,488 19,437 23,689
(Over)/under-provision in respect of prior years: Current taxation (3,022) 220 (1,732) 199 Deferred taxation (246) (4,912) (220) (3,771)
(3,268) (4,692) (1,952) (3,572)
Share of taxation of associated companies and joint venture (154) 2,288 - -
16,961 23,084 17,485 20,117
The Group and the Company have exempt profits amounting to approximately $127,800,000 (2002: $123,500,000)and $26,200,000 (2002: 26,100,000), respectively. Of this amount, $106,700,000 (2002: $113,500,000) for the Grouphas been agreed with the Comptroller of Income Tax.
As at 31 December 2003, certain subsidiary companies have unutilised tax losses of $40,441,000 (2002: $32,846,000),capital allowances of $20,398,000 (2002: $19,196,000) and investment allowance of $Nil (2002: $467,000) availablefor set-off against future taxable income subject to the provisions of the Income Tax Act and agreement by theComptroller of Income Tax.
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Notes to the Financial Statements - 31 December 2003
The unutilised tax losses and capital allowance in a subsidiary company amounting $40,818,000 (2002: $40,049,000)expire between 2004 to 2009 (2002: 2003 to 2008).
The amounts of tax losses and capital allowances previously carried forward at the beginning of the year and whichhave been utilised in the year to arrive at the computation of tax liabilities for the year are not significant.
A reconciliation between the tax expense and the product of accounting profit multiplied by the applicable taxrate for the years ended 31 December was as follows:
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000
Tax at 22% (2002: 22%) 19,180 24,250 21,374 28,182Exempt income, capital gains and tax incentives (3,884) (3,562) (2,252) (4,795)Effect of different tax rate in foreign jurisdiction 241 1,470 - -Effect on tax losses utilised (445) (69) - -Non deducible expenses 1,268 1,975 315 302Effect on changes in tax rates - (4,912) - (3,771)(Over)/under provision in respect of prior years (3,268) 220 (1,952) 199Deferred tax assets not recognised 3,905 1,268 - -Others 118 156 - -
Effective tax 17,115 20,796 17,485 20,117
Share of taxation of associated companies and joint venture (154) 2,288 - -
16,961 23,084 17,485 20,117
9. Earnings per share
(a) Basic earnings per share (“EPS”) is calculated by dividing the profit attributable to shareholders after deductingminority interests of $78,540,000 (2002: $92,098,000) by the weighted average number of ordinary shares inissue during the year of 1,415,768,518 (2002: 1,408,050,448).
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Notes to the Financial Statements - 31 December 2003
9. Earnings per share (cont’d)
(b) Diluted EPS is calculated after adjusting for those shares not yet exercised under the SembCorp Marine ShareOption Plan as follows:
Group2003 2002
Weighted average number of ordinary shares in issue during the year 1,415,768,518 1,408,050,448Effects of dilutive share options 7,034,000 8,224,000
Weighted average number of ordinary shares outstanding used in the calculation of diluted EPS 1,422,802,518 1,416,274,448
(c) The basic and diluted EPS are as follows:Group
2003 2002Cents Cents
Basic EPS 5.55 6.54Diluted EPS 5.52 6.50
10. Fixed assetsDocks,quays,
launches, PlantLand & buildings cranes and machinery
Short term Construction marine andFreehold leasehold in-progress vessels tools Others Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000GroupCost or valuationBalance at 1 January 2003At cost 5,194 118,983 7,305 451,491 134,404 24,939 742,316At valuation - - - 25,152 - - 25,152
At 31 December 2003 1,553 43,984 203,035 4,023 677 253,272
Balance at 31 December 2003At cost 1,553 43,984 177,883 4,023 677 228,120At valuation - - 25,152 - - 25,152
1,553 43,984 203,035 4,023 677 253,272
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10. Fixed assets (cont’d)
Notes to the Financial Statements - 31 December 2003
Docks,quays,
launches, PlantLand & buildings cranes and machinery
Short term marine andFreehold leasehold vessels tools Others Total
$’000 $’000 $’000 $’000 $’000 $’000CompanyAccumulated depreciationAt 1 January 2003 335 16,769 50,413 2,226 514 70,257Charge for the year 44 965 3,382 133 45 4,569Disposals (247) - - - - (247)
At 31 December 2003 132 17,734 53,795 2,359 559 74,579
Charge for 2002 44 964 3,383 133 19 4,543
Net book valueAt 31 December 2003 1,421 26,250 149,240 1,664 118 178,693
At 31 December 2002 1,958 27,215 152,622 1,797 70 183,662
(a) Docks and quays are stated at Directors’ valuation of 1973 of $25,152,000 with subsequent additions stated at cost.If the following re-valued assets of the Group and Company have been included in the financial statements at costless accumulated depreciation, the net written down value would have been:
Group and Company2003 2002
$’000 $’000
Docks and quays 6,741 6,989
The re-valued net book value of docks and quays is $11,392,000 (2002: $11,811,000).
(b) Net book value of fixed assets acquired under hire purchase agreements as at balance sheet date amounted to$2,954,000 (2002: $499,000) in respect of the Group only.
(c) Others comprise motor vehicles, furniture and office equipment, utilities and fittings and computer equipment.
151SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Notes to the Financial Statements - 31 December 2003
11. Subsidiary companiesCompany
2003 2002$’000 $’000
Unquoted shares, at cost 267,325 237,049Provision for impairment in value (5,385) (5,385)
261,940 231,664Loans to subsidiary companies 88,559 101,462
350,499 333,126
Provision for impairment in value of a subsidiary companyBalance at 1 January and 31 December 5,385 5,385
The loans to subsidiary companies are unsecured, interest free and is not expected to be repaid within thenext twelve months.
The Company’s subsidiary companies are set out in Note 37.
12. Associated companies and joint ventureGroup Company
2003 2002 2003 2002$’000 $’000 $’000 $’000
Associated companiesUnquoted shares, at cost 19,491 35,919 18,531 34,432Provision for impairment in value, Note (a) - - - -Share of net post-acquisition profits 22,254 16,302 - -Goodwill on acquisition, Note (b) 6,214 9,322 - -
47,959 61,543 18,531 34,432Loans and advances to associated companies, Note (c) 10,630 10,630 8,495 8,860
58,589 72,173 27,026 43,292
Joint venturesUnquoted shares, at cost 250 24,337 - -Share of net post-acquisition reserves (139) 5,268 - -
111 29,605 - -
58,700 101,778 27,026 43,292
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12. Associated companies and joint venture (cont’d)
Notes to the Financial Statements - 31 December 2003
(a) Provision for impairment in value of an associated companyGroup Company
2003 2002 2003 2002$’000 $’000 $’000 $’000
Balance at 1 January - - - 615Charge for the year - 1,309 - 1,194Write-off - (1,309) - (1,809)
Balance at 31 December - - - -
(b) Goodwill on acquisition
CostBalance at 1 January and 31 December 15,982 15,982 - -
Accumulated depreciationBalance at 1 January 6,660 1,332 - -Charge for the year 3,108 5,328 - -
Balance at 31 December 9,768 6,660 - -
Net book value 6,214 9,322 - -
(c) Loans and advances to associated companiesLoans and advances to associated companies are stated after deducting provision for impairment in valueof $2,134,000 (2002: $1,769,000).
Balance at 1 January - - 1,769 -Charge for the year - - 365 1,769
Balance at 31 December - - 2,134 1,769
The loans and advances to associated companies are unsecured, interest free and is not expected to berepaid within the next twelve months.
The Group’s associated companies are set out in Note 37.
153SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Notes to the Financial Statements - 31 December 2003
The Group’s share of results and balance sheet of the joint ventures are as follows:
Group2003 2002
$’000 $’000Results of the joint ventures: Revenue 5,897 8,766 Expenses (5,824) (8,523)
Profit before taxation 73 243
Balance sheet of the joint ventures: Non-current assets 1,325 23,050 Current assets 382 9,705 Current liabilities (1,596) (3,150)
Market value of quoted securities 8,409 12,192 8,409 12,192
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
SembCorp Marine 2003154
Notes to the Financial Statements - 31 December 2003
13. Other long term investments (cont’d)
(a) The investment in Jurong Engineering Ltd (“JEL”) is stated after deducting the provision for impairment invalue as follows:
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000
Balance at 1 January 3,000 - - -Amount written off (2,703) - - -(Write-back)/charge for the year (297) 3,000 - -
Balance at 31 December - 3,000 - -
JEL was disposed during the year.
(b) Quoted equity securities are stated at cost and after deducting provision for impairment in value analysedas follows:
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000
Balance at 1 January 1,391 - 1,391 1,391(Write-back)/charge for the year (1,391) 1,391 (1,391) -
Balance at 31 December - 1,391 - 1,391
(c) The unquoted bonds expire in 2009. The bonds’ effective interest rate is 7.25% per annum up toFebruary 2004, and from March 2004 to 2009, 7.50% per annum.
The indicative fair value of unquoted bonds at 31 December 2003 was $60,000,000 (2002: $63,000,000).
(d) Included in unquoted equity securities is investment in unquoted Class B redeemable preference sharesof Sabine Industries Inc., a former joint venture held by a subsidiary company. These shares have novoting rights and are redeemable on demand. The holders are entitled to receive quarterly cumulativedividends at the rate of 12% (2002: 12%) per annum. On redemption, the preference shares will beconverted into a promissory note that will bear interest at 6% (2002: 6%) per annum.
(e) The indicative fair value of the unquoted non-equity securities at 31 December 2003 was $338,000(2002: $247,000). Unquoted non-equity securities are stated at cost and after deducting provision for impairmentin value of $1,753,000 (2002: $1,753,000) analysed as follows:
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000
Balance at 1 January 1,753 - 1,753 -Charge for the year - 1,753 - 1,753
Balance at 31 December 1,753 1,753 1,753 1,753
155SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Notes to the Financial Statements - 31 December 2003
(f) Club memberships are stated at cost and after deducting provision for impairment in value of $649,000(2002: $358,000) for the Group and $464,000 (2002: $263,000) for the Company analysed as follows:
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000
Balance at 1 January 358 - 263 -Charge for the year 291 358 201 263
Balance at 31 December 649 358 464 263
14. Trade debtorsGroup Company
2003 2002 2003 2002$’000 $’000 $’000 $’000
Trade debtors under “Current assets”, Note (a) 221,891 217,453 82,091 77,142Less: Provision for doubtful debts (11,436) (16,421) (651) (6,413)
Balance at 1 January 16,421 13,909 6,413 7,050(Write-back)/charge for the year (1,811) 3,066 (2,681) 44Bad debts written off (3,177) (683) (3,081) (681)Acquisition of subsidiary company 3 129 - -
11,436 16,421 651 6,413
Bad debts written off directly to profit and loss account 72 1,069 - -
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14. Trade debtors (cont’d)
Notes to the Financial Statements - 31 December 2003
Group Company2003 2002 2003 2002$’000 $’000 $’000 $’000
(b) Long term trade debtorsExternal parties 111,812 137,924 16,455 22,923Lease receivables, Note (c) 56,827 63,867 50,331 54,426
168,639 201,791 66,786 77,349
With the exception of $4,597,000 (2002: $6,660,000) for the Group and Company, all the debts due from externalparties are interest-bearing with interest rates for the Group and the Company ranging from 2.4% to 6%(2002: 2.4% to 6%) per annum and 6% (2002: 6%) respectively.
Group Company2003 2002 2003 2002$’000 $’000 $’000 $’000
Total under “Long term trade debtors”, Note (b) 56,827 63,867 50,331 54,426
Under the terms of the lease agreements, no contingent rents are recognised. Interest rates for the Group andthe Company ranged from 4% to 18% (2002: 4% to 18%) per annum and 4% (2002: 4%) per annum respectively.These lease receivables relate to the leases of marine vessels which the lessees have the option to purchasethe marine vessels during the term of the leases. Additional information on lease receivables are set out inparagraph (d).
(d) Additional information on lease receivables:Presentvalue of
Minimum Estimated Total gross Unearned minimumlease residual investment interest lease
Group payment value in lease income payment2003 $’000 $’000 $’000 $’000 $’000Receivable within 1 year 7,887 - 7,887 (2,528) 5,359Receivable after 1 year but within 5 years 29,389 3,000 32,389 (7,663) 24,726Receivable after 5 years 31,642 4,500 36,142 (4,041) 32,101
68,918 7,500 76,418 (14,232) 62,186
157SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Notes to the Financial Statements - 31 December 2003
Presentvalue of
Minimum Estimated Total gross Unearned minimumlease residual investment interest lease
payment value in lease income payment2002 $’000 $’000 $’000 $’000 $’000Receivable within 1 year 10,815 - 10,815 (3,292) 7,523Receivable after 1 year but within 5 years 32,801 3,000 35,801 (8,887) 26,914Receivable after 5 years 37,970 4,500 42,470 (5,517) 36,953
81,586 7,500 89,086 (17,696) 71,390
Company2003Receivable within 1 year 6,328 - 6,328 (2,234) 4,094Receivable after 1 year but within 5 years 25,313 - 25,313 (7,083) 18,230Receivable after 5 years 31,642 4,500 36,142 (4,041) 32,101
63,283 4,500 67,783 (13,358) 54,425
2002Receivable within 1 year 6,328 - 6,328 (2,404) 3,924Receivable after 1 year but within 5 years 25,313 - 25,313 (7,840) 17,473Receivable after 5 years 37,970 4,500 42,470 (5,517) 36,953
69,611 4,500 74,111 (15,761) 58,350
15. Goodwill on consolidationGroup
2003 2002$’000 $’000
CostAt 1 January 3,245 1,105Additions 2,753 2,140
At 31 December 5,998 3,245
Accumulated amortisationAt 1 January 1,123 188Charge for the year 1,260 935
At 31 December 2,383 1,123
Net book valueAt 31 December 3,615 2,122
Amortisation of goodwill on consolidation are included in the line “General and administrative expenses” on theprofit and loss account.
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
SembCorp Marine 2003158
Notes to the Financial Statements - 31 December 2003
(a) Stocks at cost are stated after deducting provision for stock obsolescence of:
Materials 745 728Finished goods 150 18
895 746
Analysis of provision for obsolete stocks:Balance at 1 January 746 1,130Charge/(write-back) to profit and loss account 192 (79)Stocks written off (43) (305)
Balance at 31 December 895 746
(b) Work-in-progressCosts and attributable profits less provision for foreseeable losses 931,034 493,932Less: Progress billings (692,862) (268,373)
238,172 225,559
(c) Analysis of provision for foreseeable losses:Balance at 1 January 300 100Charge to profit and loss account 282 200Amount written off (300) -
The cash collateral pertains to deposits placed with certain insurance companies to obtain performance bonds forconstruction contracts and bears interest of 0.86% per annum.
Recoverable amount for the Group includes $31,704,000 (2002: $Nil) in respect of financing provided to a vesselrepaired. It carries an interest rate at 4% per annum and this receivable together with the trade receivable of$20,933,000 (2002: $27,498,000) is secured by the first legal mortgage over the vessel repaired.
Recoverable amount for the Group also includes $1,093,000 (2002: $1,885,000) which bears interest ranging from1.02% to 4% (2002: 1.025% to 4%) per annum.
(b) Non-trade receivablesGroup Company
2003 2002 2003 2002$’000 $’000 $’000 $’000
Associated companies 939 1,242 938 1,243Joint venture 1,164 - - -Related company 17,773 6,894 - 72Subsidiary companies - - 81,426 120,917External parties- sale of fixed asset 4,796 - 4,796 -- sale of a joint venture 17,999 - - -- sale of a subsidiary company - 3,000 - 3,000
42,671 11,136 87,160 125,232
All amounts are repayable on demand.
All amounts due from associated and subsidiary companies and joint venture are unsecured and interest-free andcomprise mainly advances and payments on behalf. The related company balance is an unsecured loan whichbears interest ranging from 0.335% to 1.03% (2002: 0.4% to 2.0%) per annum. Advances to and payments on behalfof subsidiary companies are unsecured and also interest-free.
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
SembCorp Marine 2003160
Notes to the Financial Statements - 31 December 2003
17. Other debtors (cont’d)
The amount due from external party on the sale of a joint venture is repayable in three instalments and will be fullyrepaid by 31 December 2004.
The external party balances are interest-free except for $3,000,000 in 2002 for the Group and Company whichbears interest at 4% per annum.
(c) Staff loans bear interest at 3.00% (2002: 2.25% to 3.00%) per annum.
18. Fixed depositsIncluded in the fixed deposits balance are fixed deposits of $54,379,000 (2002: $53,259,000) pledged with a bankfor banking facilities of a subsidiary company.
Notes to the Financial Statements - 31 December 2003
With the exception of unsecured interest bearing amounts owing to:(i) a related company of $1,501,000 in 2003 with interest rate ranging from 0.4375% to 0.65% per annum;(ii) a subsidiary company of $35,674,000 in 2002 with interest ranging from 0.63% to 1.3% per annum;
the other non-trade amounts payable to the associated and subsidiary companies and related parties are unsecuredand interest free. All amounts are payable on demand.
Group2003 2002$’000 $’000
(b) Provision for warrantyBalance at 1 January 4,996 3,075(Writeback)/charge to profit and loss account (333) 1,921Amounts utilised (719) -
Balance at 31 December 3,944 4,996
21. Progress billings in excess of work-in-progressGroup
2003 2002$’000 $’000
Costs and attributable profits less losses 20,695 4,232Less: Progress billings (40,267) (25,212)
Progress billings in excess of work-in-progress (19,572) (20,980)
(a) The unsecured bank loan of the Company for $30,000,000 is repayable on 21 January 2004 and bears interestof 0.98% per annum. In 2002, amounts comprises of two loans of $15,000,000 and $8,000,000 which arerepayable on 6 January 2003 and 27 January 2003. The 2002 loans bear interest of 1.39% and 1.26% per annumrespectively.
The unsecured bank loans of a subsidiary company totalling $50,000,000 comprise four loans of $15,000,000,$5,000,000, $5,000,000 and $25,000,000 repayable on 9 January 2004, 15 January 2004, 29 January 2004 and29 January 2004 respectively and bear interest ranging from 0.91% to 0.98% per annum.
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
SembCorp Marine 2003162
Notes to the Financial Statements - 31 December 2003
22. Borrowings (cont’d)
The unsecured bank loans of a subsidiary company totalling $8,000,000 comprise three loans of $5,000,000,$1,000,000 and $2,000,000 repayable on 9 January 2004, 9 January 2004 and 16 January 2004 respectively andbear interest ranging from 1.58% to 1.62% per annum.
The unsecured bank loan of a subsidiary company totalling USD7,625,000 is repayable on 30 January 2004 andbears interest of 1.519% per annum.
(b) The redeemable convertible loan stocks were redeemed on 31 October 2003. The cumulative interest chargedat 4% to 6% per annum amounting to $1,760,000 were paid on the same date.
Group2003 2002
$’000 $’000
At cost - 4,800Less: Loan discount - (91)
Amortised cost/fair value - 4,709
Analysis of loan discount:Balance at 1 January (91) (199)Write-off during the year - 10Amortisation during the year 91 98
Balance at 31 December - (91)
23. Deferred taxationGroup Company
2003 2002 2003 2002$’000 $’000 $’000 $’000
Balance at 1 January 42,775 50,251 32,201 36,953Charge to equity relating to redeemable convertible loan stock - 100 - -Charge/(write-back) for the year 4,568 (7,576) (420) (4,752)Acquisition of subsidiary company 335 - - -
Balance at 31 December 47,678 42,775 31,781 32,201
Deferred taxation recognised arises as a result of:Group Company
Notes to the Financial Statements - 31 December 2003
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000Deferred tax assetsDoubtful debts (1,142) (1,195) - -Unutilised tax losses, capital allowance and investment allowance likely to be utilised (702) (1,298) - -Employee benefits (710) (725) - -Other deferred tax assets (93) (2,007) - (317)
(2,647) (5,225) - (317)
47,678 42,775 31,781 32,201
Deferred taxation not recognised as a result of:Group
2003 2002$’000 $’000
Deferred tax (assets)/liabilitiesDifferences in depreciation 263 (486)Doubtful debts (1,087) (841)Unutilised tax losses, capital allowance and investment allowance likely to be utilised (17,002) (14,949)Other deferred tax liabilities/(assets) 7 (226)
(17,819) (16,502)
Deferred tax assets have not been recognised because it is not probable that future taxable profit will be availableagainst which the subsidiary companies can utilise the benefit therefrom.
24. Hire purchase creditorsPresentvalue of
Minimum Unearned minimumlease interest lease
Group payment income payment2003 $’000 $’000 $’000Payable after 1 year but within 5 years 1,216 (51) 1,165Payable within 1 year, under “Other creditors and provisions” (Note 20) 1,338 (108) 1,230
2,554 (159) 2,395
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SembCorp Marine 2003164
Notes to the Financial Statements - 31 December 2003
24. Hire purchase creditors (cont’d)
Presentvalue of
Minimum Unearned minimumlease interest lease
payment income payment2002 $’000 $’000 $’000Payable after 1 year but within 5 years 71 (14) 57Payable within 1 year, under “Other creditors and provisions” (Note 20) 218 (26) 192
289 (40) 249
The hire purchase agreements do not contain any escalation clauses and do not provide for contingent rents. Theimplicit interest rates range from 4.42% to 6.81% (2002: 6.58% to 6.81%) per annum. The net book value of assetsacquired under hire purchase agreements is disclosed in Note 10. Lease terms do not contain restrictions concerningdividend, additional debt or further leasing.
25. Provision for retirement gratuitiesGroup
2003 2002$’000 $’000
Balance at 1 January 3,296 1,699Charge for the year - 1,647Utilised during the year (70) (50)
Balance at 31 December 3,226 3,296
26. Share capitalGroup and Company2003 2002
$’000 $’000Authorised:5,000,000,000 ordinary shares of $0.10 each 500,000 500,000
Issued and fully paid up ordinary shares:Balance at 1 January 1,414,322,480 (2002: 1,406,140,980) shares of $0.10 each 141,432 140,614Issued during the year Exercise of share options of 5,729,400 (2002: 8,181,500) shares of $0.10 each 573 818
Balance at 31 December 1,420,051,880 (2002: 1,414,322,480) shares of $0.10 each 142,005 141,432
165SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Notes to the Financial Statements - 31 December 2003
During the year, other than the issue of new shares upon the exercise of share options under the SembCorpMarine Share Option Plan (the “Plan”) there was no other issue of new shares.
Share options were granted in 2003 (the “2003 Options”) pursuant to the Plan in respect of 15,619,000 unissuedordinary shares of $0.10 each to 1,095 full time executives of the Group, 9 Directors of the Company and 20executives and one non-executive director of the immediate holding company, SembCorp Industries Ltd, who arenot substantial shareholders of the Company. In respect of options granted to executives and non executivedirector of the immediate holding company, a total of 279,000 options were granted during the financial year,making it a total of 1,270,000 options granted to those executives and non executive director from thecommencement of the Plan to the end of the financial year. The 2003 Options are exercisable from 9 August 2004to 8 August 2013 (9 August 2004 to 8 August 2008 for non-executive Directors of the Company) and the exerciseprice is $0.99 per share for cash.
The details of the Plan (which was started in 1991 as the Jurong Shipyard Limited Executives’ Share Option Scheme)were set out in the financial statements of that year.
The options granted, exercised and cancelled under the Plan during the year and the options outstanding at theend of the year are as follows:
Made up of:Distributable 548,381 541,527 419,744 411,916Non-distributable 236,741 257,049 238,910 235,431
785,122 798,576 658,654 647,347
28. Dividends(a) The proposed net dividend of $38,767,000 for 2003 (2002: $55,159,000) comprises:
Group and Company2003 2002
$’000 $’000A final dividend of 1.0 cent per share less tax of 22%(2002: 1.0 cent per share less tax of 22%) 11,076 11,032A special dividend of 2.5 cents per share less tax of 22%(2002: 4.0 cents per share less tax of 22%) 27,691 44,127
38,767 55,159
(b) Interim dividend of 0.75 cents per share less tax of 22%(2002: 0.75 cents per share less tax of 22%) 8,292 8,253
Interim special dividend of 0.75 cents per share less tax of 22%(2002: 0.75 cents per share less tax of 22%) 8,292 8,254
2002 Final dividend of 1.0 cent per share less tax of 22%(2002: 2001 Final dividend of 1.0 cent per share less tax of 22%) 11,051 10,993
2002 Special dividend of 4.0 cents per share less tax of 22%(2002: 2001 Special dividend of 4.0 cents per share less tax of 22%) 44,206 43,970
71,841 71,470
167SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Notes to the Financial Statements - 31 December 2003
29. Contingent liabilitiesGroup Company
2003 2002 2003 2002$’000 $’000 $’000 $’000
Bankers’ guarantees:- secured by fixed deposits (Note 31) 54,379 53,259 - -- unsecured 115,879 115,221 - -Unsecured guarantees given to others in respect of:- an associated company - 34,856 - 34,856- subsidiary companies - - 991,160 525,776
30. CommitmentsAt year end, future commitments of the Group are as follows:
Group Company2003 2002 2003 2002
$’000 $’000 $’000 $’000(a) Approved capital commitment:
Amounts approved by Directors but not committed 154,924 6,200 153,810 6,200Amounts approved and committed - 240 - -
As at 31 December 2003, the Group had entered into foreign currency forward exchange buy contractsamounting to $1,808,000 (2002: $8,336,000) and foreign currency forward exchange sell contracts amountingto $102,908,000 (2002: $1,387,000). The fair value adjustments of the buy contracts and sell contracts (which isthe difference between the notional principal amounts and market value of the contracts) resulted a net gainof $1,310,000 (2002: $89,000) which was not adjusted in the financial statements.
(c) Minimum lease rental payable to JTC Corporation and a related company in respect of land and buildings:Group Company
2003 2002 2003 2002$’000 $’000 $’000 $’000
Within 1 year 17,607 12,205 6,637 9,773After 1 year but within 5 years 91,229 63,350 54,057 53,076After 5 years 25,115 52,089 12,618 34,325
133,951 127,644 73,312 97,174
The leases do not contain escalation clauses and do not provide for contingent rents. Lease terms do notcontain restrictions on the Group activities concerning dividends, additional debt or further leasing.
Certain leases include renewal options for additional lease period of 10 to 15 years and at rental rates basedon prevailing market rates.
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SembCorp Marine 2003168
Notes to the Financial Statements - 31 December 2003
31. Cash and cash equivalentsCash and cash equivalents included in the consolidated statement of cash flows comprise:
Group2003 2002
$’000 $’000
Fixed deposits, bank and cash balances 202,786 162,439Less: Fixed deposits pledged with a bank for bankingfacilities of a subsidiary company (54,379) (53,259)
148,407 109,180
Fixed deposits placed with financial institutions has maturity periods ranging from 1 day to 51 months(2002: 3 days to 6 months) from the financial year-end. Interest rate of fixed deposits range from 0.25% to 3.9%(2002: 0.5% to 3.7%) per annum, which are also the effective interest rates.
32. Significant related party transactionsSignificant transactions during the year between the Group and its related parties on terms as agreed between therespective parties and which are not otherwise disclosed in these financial statements consist of:
33. Information by segment on Group operationsBusiness segmentsThe Group has 3 main business segments that are organised and managed separately according to their respectivebusiness activities. The 3 business segments are ship and rig repair, building and conversion, ship chartering andothers. The activities of these business segments are described in Note 1 and Note 37.
169SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Notes to the Financial Statements - 31 December 2003
Segment accounting policies are the same as the policies described in Note 2 with inter-segment sales and transferscarried out on an arms’ length basis. Segment assets consist primarily of fixed assets, current assets and excludeinterest-bearing assets, inter-segment balances and tax assets. Segment liabilities comprise mainly of operatingliabilities and exclude interest-bearing liabilities, inter-segment balances and tax liabilities.
(a) By business segmentShip & rig
repair,building and Shipconversion chartering Others Eliminations Total
Consolidated total liabilities 519,810 2,466 15,975 - 538,251
171SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Notes to the Financial Statements - 31 December 2003
(b) By geographical areaThe Group operates in 10 (2002: 8) countries and principally in the Republic of Singapore. Pricing of inter-segment sales and transfers are carried out on an arm’s length basis.
34. Directors’ remunerationThe remuneration of Directors of the Company fell within the following ranges:
2003 2002$500,000 and above 2 2$250,000 to $499,999 - -Below $250,000 10 8
12 10
The Directors’ remuneration of the Company included an amount of $307,000 (2002: $135,000) relating to taxablebenefit arising from the exercise of share options during the year. This amount has not been charged to the profitand loss account.
35. Financial risk management objectives and policiesThe main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, liquidityrisk and credit risk. The Board of Directors reviews and agrees policies for managing each of these risks and theyare summarised below:
Credit riskThe Group has no significant concentration of credit risk with any single counter party and monitors its exposure tocredit risks arising from sales to customers on an on-going basis where credit evaluations are done on customersthat require credit. The Group only deals with pre-approved counterparties with good credit rating and imposes acap on the amount to be transacted with any counterparty so as to reduce its concentration of risk.
The carrying amounts of investments, trade and other debtors and cash and cash equivalents represent the Group’smaximum exposure to credit risk.
Foreign currency riskThe Group incurs foreign currency risk on purchases that are denominated in a currency other than Singaporedollars, primarily the US dollar. To minimise exposure on foreign currency risks, the Group usually settles suchtransactions within 30 days terms.
Foreign currency riskThe Group also utilises forward exchange contracts with maturities of less than twelve months to hedge foreigncurrency denominated financial assets, liabilities and firm commitments. Under this programme, increases ordecreases in the Group’s foreign currency denominated financial assets, liabilities and firm commitments are partiallyoffset by gains and losses on the hedging instruments. The Group does not use foreign currency forward contractsfor trading purpose.
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
SembCorp Marine 2003172
35. Financial risk management objectives and policies (cont’d)
Notes to the Financial Statements - 31 December 2003
Interest rate riskThe Group’s policy is to maintain an efficient optimal interest cost structure using a mix of fixed and variable ratedebts where working capital is financed by variable rate loans while long term investments are financed by fixedrate loans. Surplus funds, if any, are placed with reputable banks and/or investment in bonds.
The Group obtains additional financing through bank borrowings and leasing arrangements. The Group’s policy isto obtain the most favourable interest rates available without increasing its foreign currency exposure.
Liquidity riskShort-term funding is obtained from overdraft facilities and bank loans.
36. Fair value of financial instrumentsThe following methods and assumptions are used to estimate the fair value of each class of financial instrumentsfor which it is practicable to estimate that value:
Cash and cash equivalents, debtors, creditors and short-term borrowingsThe carrying amounts of cash and cash equivalents, debtors and creditors (including related party balances whichare expected to be repaid in accordance with normal credit terms), and short-term borrowings approximate theirfair values due to the short term nature of these balances.
Related party balancesNo disclosure of fair value is made for related party balances (including associated, related and subsidiary companiesand any other related parties) which are in the nature of loans as it is not practicable to determine their fair valueswith sufficient reliability since these balances have no fixed terms of repayment although these are not expectedto be settled within twelve months from the balance sheet date.
Unquoted equity investments and long term trade debtorsOther than the disclosures made in Note 13 and Note 14, it is not practicable to determine the fair values of theremaining unquoted equity investments held as long term investments and the long term trade debtors carried atcost. In the opinion of the Directors, the expected cash flows from these unquoted equity investments and long-term trade debtors are believed to be in excess of their carrying amounts.
Hire purchase creditorsThe fair value of the hire purchase creditors is determined by discounting the relevant cash flow using currentinterest rate for similar instruments at balance sheet date.
There are no significant differences between the fair values and the carrying amounts of the hire purchase creditors.
Unrecognised financial instrumentsThe valuation of financial instruments not recognised in the balance sheet reflects amounts which the Groupexpects to pay or receive to terminate the contracts or replace the contracts at their current market rates at thebalance sheet dates.
Other than the disclosure made in Note 30, there are no other unrecognised financial instruments.
173SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Notes to the Financial Statements - 31 December 2003
37. Group companiesDetails of the Group’s subsidiary and associated companies are as follows:
Name of Company Percentage of(Country of Principal activities equity held by
incorporation) (Place of business) Cost the Group2003 2002 2003 2002$’000 $’000 % %
SML Shipyard Pte Ltd Ship repair and related services 12,000 12,000 100 100(Singapore) (Singapore)
267,325 237,049
Associated companiesCosco (Dalian) Shipyard Co Ltd** Ship repair and related services 15,161 15,286 20 20(previously known as Dalian (People’s Republic of China)Cosco Marine EngineeringCo. Ltd)(People’s Republic of China)
JPL Industries Pte Ltd (Singapore) Processing and distribution of copper slag 53.8 53.8(Singapore)
JPL Concrete Products Pte Ltd (Singapore) Production of concrete products (Singapore) 53.8 53.8
Joint venture company of Sembawang Shipyard (S) Pte Ltd
Bohai Sembawang Shipyard (Tianjin) Repairs and conversion of all types of marine - 50Co. Ltd ** vessels, production of quayside and container(People’s Republic of China) cranes and installation and repair of
mechanical and electronic equipment(People’s Republic of China)
Joint venture company of Dolphin Shipping Company Private Limited
Notes to the Financial Statements - 31 December 2003
(a) PPL Shipyard Pte Ltd and its subsidiary companies is held by the Group as follows:2003 2002
% %
The Company 85.0 50.0
(b) Joint Shipyard Technologies Pte Ltd was liquidated during the year and was held by the Group as follows:2003 2002
% %
The Company - 14.3Held through a wholly-owned subsidiary company - 14.3
- 28.6
The above transactions does not have a material impact on the results and financial position of the Group.
* Audited by other member firms of Ernst & Young** Audited by other firms*** These companies are not required to be audited under the laws of their country of incorporation
38. Subsequent events(a) A wholly owned subsidiary company, Sembawang Shipyard (S) Pte Ltd (“SSSPL”) has established a subsidiary
company, Kristiansand Drilling Pte Ltd (“Kristiansand”), with Deep Drilling 1 Pte Ltd (“DD1”) on 16 January 2004.SSSPL holds 81.82% of the equity stake in Kristiansand while DD1 holds 18.18%. SSSPL and DD1 shall pay US$90million and US$20 million respectively for their equity capital in Kristiansand.
Kristiansand has entered into an EPC Construction Contract with PPL Shipyard Pte Ltd to construct one unit ofBaker Marine Pacific Class 375 Deep Drillling Offshore Jack-up rig for a total price of US$110m. During theconstruction period, the jack-up will be owned by Kristiansand.
(b) The Company acquired an additional 5% equity interest in Jurong Clavon Pte Ltd (“Jurong Clavon”) comprisingan additional 50,000 ordinary shares of par value S$1 each for a total consideration of S$394,000. With the completionof this acquisition, Jurong Clavon will become a 55% owned subsidiary company of the Company.
39. Comparative figuresThe following comparative figures relating to the previous year have been reclassified to conform with thepresentation in the current year and to better reflect the nature of the balance sheet items.
Group CompanyAs previously As previously
As restated stated As restated stated$’000 $’000 $’000 $’000
S upplementary Information 31 December 2003 (Under SGX-ST Listing Manual Requirements)
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
A. Directors’ RemunerationThe remuneration of directors of the Company falls within the following ranges:-
2003$500,000 and above 2$250,000 to $499,999 -Below 250,000 10
12
Summary compensation table for the year ended 31 December 2003:
Names of Director *Salary #Bonus Directors’ Total ^Number of shareFees option granted
$’000 $’000 $’000 $’000 $‘000
Wong Kok Siew - 43 83 126 250
Tan Kwi Kin 714 239 - 953 800
Tan Pheng Hock - - 21 21 50
Kiyotaka Matsuzawa - - 48 48 130
Naoteru Tsuda - - 21 21 50
Low Sin Leng - 4 22 26 50
Tan Tew Han - - 52 52 75
Ajaib Haridass - - 9 9 -
Chee Keng Soon - 85 23 108 -
Giam Chin Toon - - 47 47 130
Er Kwong Wah - - 6 6 -
Heng Chiang Gnee 369 243 - 612 500
Total 1,083 614 332 2,029 2,035
In addition, the following directors were conditionally awarded an aggregate of 1,740,000 performance shares:Tan Kwi Kin 1,140,000Heng Chiang Gnee 600,000
The actual number delivered will depend on the achievement of set targets over a 3-year period from 2001 to 2003, 2002to 2004 and 2003 to 2005. Achievement of targets below 80% level will mean no performance shares will be delivered,while achievement of targets exceeding 100% will mean up to a maximum of 200% of the conditional performanceshares could be delivered.
* The salary amount shown is inclusive of allowances, CPF, all fees other than directors’ fee, and other emolument.# The bonus amount shown is inclusive of CPF and the taxable benefit arising from the exercise of share options during the year amounting to $307,000.
The latter amount has not been charged to the profit and loss account.^ Relates to share options granted during the year by the Company.
179SembCorp Marine 2003
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
S upplementary Information 31 December 2003 (Under SGX-ST Listing Manual Requirements)
B. Interested Person TransactionsAggregate value of all transactions
conducted under a shareholders’mandate pursuant to Rule 920
of the SGX Listing Manual2003 2002$’000 $’000
Transaction for the Sales of Goods and ServicesKeppel Corporation Ltd and its associates 769 -Neptune Orient Lines Ltd and its associates 5,755 7,704SembCorp Industries Limited and its associates 3,241 6,693
Transaction for the Purchase of Goods and ServicesKeppel Corporation Ltd and its associates 2,104 2,824Neptune Orient Lines Ltd and its associates 5,612 6,368SembCorp Industries Limited and its associates 22,946 23,933
Management and Support ServicesSembCorp Industries Limited 900 1,136Total Interested Person Transactions 41,327 48,658
Treasury Transactions - Placement of Funds with/(from) as at 31 DecemberSembCorp Industries Limited and its associates 17,773 10,827SembCorp Industries Limited and its associates (1,501) -
Aggregate value of all transactionsexcluding transactions conducted
under a shareholders’ mandatepursuant to Rule 920 ofthe SGX Listing Manual2003 2002$’000 $’000
Investment TransactionsNeptune Orient Lines Ltd and its associates - 11,000Singapore Technologies Engineering Ltd and its associates - 3,300
- 14,300
SembCorp Marine 2003180
M ajor Properties As at March 12, 2004
SEMBCORP MARINE LTD AND SUBSIDIARY COMPANIES
Held by Location Description & Tenure UsageApproximate Land Area
SembCorp Jalan Samulun Land area: 198,098m2 10 years leasehold Ship repairs includingMarine Building, workshop, 10 years renewal drydock, berthage
drydocks and quays option (expiry in 2020) & workshops
Tanjong Kling Land area: 491,054.57m2 10 years leasehold Ship repairs, shipBuilding, workshop, 10 years renewal conversion, offshore,drydocks and quays option (expiry in 2020) shipbuilding and rig
building includingdrydock, berthage &workshops
Mendong Spring 9 units of 3-room apartment Freehold Residential propertieswith built-in area of 99m2
per unit
Hilton Tower Apartment with Freehold Residential propertiesat Grange Road built-in area of 131m2
P.T. Karimun Karimun Island 150,000m2 30 years leasehold Ship repairing andSembawang Indonesia Building, workshop with option for 20 fabricationShipyard and wharves years plus another
option for 30 years
SES Engineering No. 15 56,348 sq ft Freehold Metal fabricationSdn Bhd Jalan Lambak Workshop and 3-storey workshop
Kawasan office buildingPerindustrianTaman Johor81200 Johor Bahru
181SembCorp Marine 2003
N otice of Annual General Meeting
NOTICE IS HEREBY GIVEN THAT the 41st Annual General Meeting of the Company will be held on Wednesday, April 28, 2004 at 11.00 a.m.at 29 Tanjong Kling Road, Singapore 628054 to transact the following business:-
Ordinary Business1 To receive and adopt the Directors’ Report and Audited Accounts for the year ended December 31, 2003.2 To approve the payment of a final dividend of 1.0 cent per share less income tax and a special dividend of 2.5 cents
per share less income tax for the year ended December 31, 2003.3 To re-elect the following Directors, each of whom will retire by rotation pursuant to Article 91 of the Company’s
Articles Association and who, being eligible, will offer themselves for re-election:(a) Wong Kok Siew(b) Tan Pheng Hock
4 To re-elect the following Directors, each of whom will retire pursuant to Article 97 of the Company’s Articles ofAssociation and who, being eligible, will offer themselves for re-election:
(a) Tan Tew Han (independent Chairman of the Audit Committee)
(b) Ajaib Haridass (independent member of the Audit Committee)
5 To approve the sum of S$332,332 as Directors’ Fees for the year ended December 31, 2003. (2002: S$316,500)6 To re-appoint Messrs Ernst & Young as Auditors of the Company and authorise the Directors to fix their remuneration.
Special BusinessTo consider and, if thought fit, to pass the following resolutions which will be proposed as Ordinary Resolutions:-7 That authority be and is hereby given to the Directors of the Company to:
(a) (i) issue shares in the capital of the Company (“shares”) whether by way of rights, bonus or otherwise; and/or (ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or would require
shares to be issued, including but not limited to the creation and issue of (as well as adjustments to)warrants, debentures or other instruments convertible into shares,
at any time and upon such terms and conditions and for such purposes and to such persons as the Directorsmay in their absolute discretion deem fit; and
(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue sharesin pursuance of any Instrument made or granted by the Directors while this Resolution was in force,
provided that:(1) the aggregate number of shares to be issued pursuant to this Resolution (including shares to be issued
in pursuance of Instruments made or granted pursuant to this Resolution) does not exceed 50% of theissued share capital of the Company (as calculated in accordance with sub-paragraph (2) below), ofwhich the aggregate number of shares to be issued other than on a pro rata basis to shareholders ofthe Company (including shares to be issued in pursuance of Instruments made or granted pursuant tothis Resolution) does not exceed 20% of the issued share capital of the Company (as calculated inaccordance with sub-paragraph (2) below);
(2) (subject to such manner of calculation as may be prescribed by the Singapore Exchange SecuritiesTrading Limited (“SGX-ST”)) for the purpose of determining the aggregate number of shares that maybe issued under sub-paragraph (1) above, the percentage of issued share capital shall be based on theissued share capital of the Company as at the time this Resolution is passed, after adjusting for:
(i) new shares arising from the conversion or exercise of any convertible securities or share optionsor vesting of share awards which are outstanding or subsisting at the time this Resolution ispassed; and
(ii) any subsequent consolidation or subdivision of shares;(3) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions
of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has beenwaived by the SGX-ST) and the Articles of Association for the time being of the Company; and
(4) (unless revoked or varied by the Company in General Meeting) the authority conferred by this Resolutionshall continue in force until the conclusion of the next Annual General Meeting of the Company or thedate by which the next Annual General Meeting of the Company is required by law to be held, whicheveris the earlier.
8 That:(1) approval be and is hereby given, for the purposes of Chapter 9 of the listing manual (“Chapter 9”) of
the SGX-ST, for the Company, its subsidiaries and associated companies that are entities at risk (as thatterm is used in Chapter 9), or any of them, to enter into any of the transactions falling within the typesof interested person transactions described in the Appendix to the Letter to Shareholders datedApril 13, 2004 (the “Letter”) with any party who is of the class of interested persons described in theAppendix to the Letter, provided that such transactions are made on normal commercial terms and inaccordance with the review procedures for such interested person transactions;
SEMBCORP MARINE LTD (INCORPORATED IN THE REPUBLIC OF SINGAPORE)
Resolution 1Resolution 2
Resolution 3Resolution 4
Resolution 5Resolution 6Resolution 7Resolution 8
Resolution 9
Resolution 10
SembCorp Marine 2003182
N otice of Annual General MeetingSEMBCORP MARINE LTD (INCORPORATED IN THE REPUBLIC OF SINGAPORE)
Resolution 11
(2) the approval given in paragraph (1) above (the “Shareholders Mandate”) shall, unless revoked orvaried by the Company in general meeting, continue in force until the conclusion of the next AnnualGeneral Meeting of the Company; and
(3) the Directors of the Company be and are hereby authorised to complete and do all such acts andthings (including executing all such documents as may be required) as they may consider expedient ornecessary or in the interests of the Company to give effect to the Shareholders Mandate and/or thisResolution.
9 That approval be and is hereby given to the Directors to:(a) offer and grant options in accordance with the provisions of the SembCorp Marine Share Option Plan
(the “Share Option Plan”) and/or to grant awards in accordance with the provisions of the SembCorpMarine Performance Share Plan (the “Performance Share Plan”) and/or the SembCorp Marine RestrictedStock Plan (the “Restricted Stock Plan”) (the Share Option Plan, the Performance Share Plan and theRestricted Stock Plan, together the “Share Plans”); and
(b) allot and issue from time to time such number of shares of $0.10 each in the capital of the Company asmay be required to be issued pursuant to the exercise of options under the Share Option Plan and/orsuch number of fully paid shares as may be required to be issued pursuant to the vesting of awardsunder the Performance Share Plan and/or the Restricted Stock Plan,
provided that the aggregate number of shares to be issued pursuant to the Share Plans shall not exceed 15% of theissued share capital of the Company from time to time.
10 To transact any other business.
By Order of the Board
Kwong Sook MayCompany Secretary
April 13, 2004
Explanatory Notes:Resolution 5 - if re-elected, Tan Tew Han will remain as the Chairman of the Audit Committee. Tan Tew Han is an independent Director.
Resolution 6 - if re-elected, Ajaib Haridass will remain as a member of the Audit Committee. Ajaib Haridass is an independent Director.
Statement pursuant to Article 54 of the Articles of Association of the Company:Resolution 9 - is to empower the Directors to issue shares in the capital of the Company and to make or grant instruments (such as warrants or debentures) convertible intoshares, and to issue shares in pursuance of such instruments, up to an amount not exceeding in total 50% of the issued share capital of the Company, with a sub-limit of 20%for issues other than on a pro rata basis to shareholders. For the purpose of determining the aggregate number of shares that may be issued, the percentage of issuedshare capital shall be based on the issued share capital of the Company at the time that Resolution 9 is passed, after adjusting for (a) new shares arising from the conversionor exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time that Resolution 9 is passed, and (b) anysubsequent consolidation or subdivision of shares.
Resolution 10 - is to renew the mandate to enable the Company, its subsidiaries and associated companies which are considered to be “entities at risk” within the meaningof Rule 904(2) of the listing manual of the Singapore Exchange Securities Trading Limited, in their ordinary course of businesses, to enter into categories of transactionswith specified classes of the Company’s interested persons, provided that such transactions are entered into on an arm’s length basis and on normal commercial terms.Please see the Letter to Shareholders dated April 13, 2004 for details.
Resolution 11 - is to empower the Directors to offer and grant options and/or grant awards and to issue shares in the capital of the Company pursuant to the SembCorpMarine Share Option Plan, the SembCorp Marine Performance Share Plan and the SembCorp Marine Restricted Stock Plan (collectively, the “Share Plans”) provided thatthe aggregate number of shares issued pursuant to the Share Plans shall not exceed 15% of the issued share capital of the Company for the time being.
Note:A member of the Company entitled to attend and vote at the Annual General Meeting is entitled to appoint not more than two (2) proxies to attend and vote on his behalfand where a member appoints more than one (1) proxy, he shall specify the proportion of his shareholdings to be represented by each proxy. A proxy need not be amember of the Company. The instrument appointing a proxy or proxies must be lodged at 30 Hill Street #05-04 Singapore 179360 not later than 48 hours before the timeof the meeting.
Notice of Books Closure and Dividend Payment DateNOTICE IS HEREBY GIVEN that the Register of Members and Share Transfer Books of the Company will be closed from May 6, 2004 to May 7, 2004, both dates inclusive,for the preparation of dividend warrants.
Duly completed transfers in respect of ordinary shares in the capital of the Company together with all relevant documents of title received by the Company’s ShareRegistrar, Kon Choon Kooi Pte Ltd, 47 Hill Street #06-02, Chinese Chamber of Commerce & Industry Building Singapore 179365, up to 5 p.m. on May 5, 2004 (the “BookClosure Date”) will be registered to determine members’ entitlements to the proposed dividend. Subject as aforesaid, members whose securities accounts with TheCentral Depository (Pte) Limited are credited with ordinary shares in the capital of the Company as at 5.00 p.m. on the Book Closure Date will be entitled to the dividend.
The proposed dividend, if approved at the 41st Annual General Meeting, will be paid on May 18, 2004.
PROXY FORM
(INCORPORATED IN THE REPUBLIC OF SINGAPORE)
IMPORTANT1. For investors who have used their CPF monies to buy SembCorp Marine Ltd’s shares,
this document is forwarded to them at the request of their CPF Approved Nomineessolely FOR INFORMATION ONLY.
2. This Proxy Form is not valid for use by CPF investors and shall be ineffective for allintents and purposes if used or purported to be used by them.
(Name)
(Address)
I/We of
being a member/members of SEMBCORP MARINE LTD hereby appoint:-
Name Address NRIC/Passport Number Proportion ofShareholdings (%)
and/or (delete as appropriate)
as my/our proxy/proxies to attend and vote for me/us on my/our behalf and, if necessary, to demand a poll, at the 41st AnnualGeneral Meeting of the Company to be held at 29 Tanjong Kling Road, Singapore 628054 on Wednesday, April 28, 2004 at11.00 a.m. and at any adjournment thereof.
(Please indicate with an “X” in the spaces provided whether you wish your vote(s) to be cast for or against the Resolutions as set out in the Notice ofAnnual General Meeting. In the absence of specific directions, the proxy/proxies will vote or abstain as he/they may think fit, as he/they will on anyother matter arising at the Annual General Meeting.)
No. Resolutions For Against
Ordinary Business1 Adoption of Directors’ Report and Accounts
2 Declaration of Final Dividend and Special Dividend
3 Re-election of Wong Kok Siew
4 Re-election of Tan Pheng Hock
5 Re-election of Tan Tew Han
6 Re-election of Ajaib Haridass
7 Approval of Directors’ Fees
8 Re-appointment of Auditors
Special Business9 Approval for the renewal of Share Issue Mandate
10 Approval for the renewal of the Shareholders Mandate
11 Authority for Directors to grant options and/or grant awards and issue sharesin accordance with SembCorp Marine’s Share Plans
Dated this day of 2004. Total Number of Shares Held
Signature(s) of Member(s) or Common Seal
Notes:1. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act,
Chapter 50 of Singapore), you should insert that number of shares. If you have shares registered in your name in the Register of Members, you should insert that number of shares. Ifyou have shares entered against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert the aggregate number ofshares entered against your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy orproxies shall be deemed to relate to all the shares held by you.
2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote instead of him. Such proxy need notbe a member of the Company.
3. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of his shareholding (expressed as a percentage of the whole) to berepresented by each proxy.
4. The instrument appointing a proxy or proxies must be deposited at 30 Hill Street #05-04, Singapore 179360, not less than 48 hours before the time appointed for holding the AnnualGeneral Meeting.
5. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy orproxies is executed by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised.
6. A corporation which is a member may authorise by a resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Annual GeneralMeeting in accordance with its Articles of Association and Section 179 of the Companies Act, Chapter 50 of Singapore.
General:The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointorare not ascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of shares entered in the Depository Register,the Company may reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have shares entered against his name in the DepositoryRegister as at 48 hours before the time appointed for holding the Annual General Meeting, as certified by The Central Depository (Pte) Limited to the Company.
The Company SecretarySembCorp Marine Ltdc/o 30 Hill Street #05-04
