Rising Above

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Rising Above

21 August 2007“Taisun” reaches final phase of constructionwith its second 4,800 metric-tonne beamsuccessfully hoisted to its final position at 118metres above the dock floor. This milestonesignals the commencement of a series of tests,as required by the Chinese authorities, whichwill assess the gantry crane’s capability to lift20 percent above its designed lifting capacityusing ready-cast concrete blocks.In line with its stature as the world’s largestcrane with a total lifting capacity of 20,000metric tones, YRS names its revolutionary heavylift device “Taisun” (), after ShandongProvince’s famous mountain.2 November 2007“Taisun’s” first beam is successfully tested andcommissioned. The test was witnessed by theAmerican Bureau of Shipping (ABS) and thedeflection of the 120 metre wide beam wasmeasured by 175 millimetre. Besides ABS, thetest was also witnessed by “Yantai LabourSafety Supervision Station”, a department ofthe Yantai provincial government.Up until then, “Taisun” had test lifted a totalweight of 12,600 metric tons.19 November 2007“Taisun’s” second beam is successfully tested,marking the final completion of the series oftests for the gantry crane. The test was carriedout with the beam lifting water-filled concreteblocks, weighing a total of 13,000 metrictons, which was 30% above the designedlifting capacity.Up till then, “Taisun” had performed a totaltest load of 25,600 metric tons.With this milestone completed, “Taisun” isbooked to lift 9 deck boxes of over 10,000metric tons each, over the next 24 months.ANNUAL REPORT 2007 3


AT A GLANCEDELIVERED PROJECTS ORDER BOOKS8 NovemberDelivery of Floating ProductionStorage and Offloading (FPSO)vessel, The Sevan VoyageurClient: Sevan Marine, NorwayValue: US$30 millionSpecifications: Width - 60 metres;Main deck height – 27 metres; Topheight – 45.8 metresCapacity: Oil storage capacity -300,000 barrels; Offloading capacity- 3,600 cubic metres per hourDistinctive qualities:• Round FPSO (Less sensitive to waveinducedmotions)• Suitable for harsh weather andenvironment conditions10 OctoberDelivery of Yacht Carrier,The Yacht ExpressClient: Dockwise Transport B.V.,NetherlandsValue: US$53.6 millionSpecifications: Length - 209 metresCapacity: 5,000 metric tonnesDistinctive qualities:• The largest of its kind in theworld and is capable of reducing atransatlantic voyage by half, from15 to 8 days with a service speed of18 knots• Purpose-built with a semisubmersibledock bay that allowsyachts of any size to be safelyfloated on and off as cargo8 MarchDelivery of Floating ProductionStorage and Offloading (FPSO)vessel, The Sevan HummingbirdClient: Sevan Marine, NorwayValue: US$30 millionSpecifications: Width - 64.3 metres;Main deck height – 27 metres; Topheight – 45.8 metresCapacity: Oil storage capacity -300,000 barrels; Offloading capacity- 3,600 cubic metres per hour.Distinctive qualities:• Round FPSO (Less sensitive to waveinducedmotions)• Suitable for harsh weather andenvironment conditionsSummary Table of Order Book Secured in 2007:1 2 3MonthSecuredVessel Type Client Expected CompletionNovember Fall Pipe Vessel Royal Boskalis Westminster NV 4Q 2010June Accommodation Barge Marine Subsea AS 1Q 2008*June Accommodation Barge Marine Subsea AS 4Q 2008May Semi-submersible Crane Vessel Consafe MSV AB 1 2Q 2009April DP3 Pipe Lay Vessel Saipem 2 1Q 2010April Semi-submersible Drilling Rig Awilco Offshore Semi ASA 4Q 2009March Rock Dumping Bulk Carrier Van Oord 3 1Q 2009Total:USD 691.0 million4 YANTAI RAFFLES SHIPYARD LIMITED*The 350-man accommodation barge was taken delivery on 19 February 2008.


AT A GLANCECORPORATE HIGHLIGHTS IN 200724 May 2007Yantai Raffles and Dockwise celebrate the christening of the “Yacht Express” during a ribbon cutting ceremony at the shipyard in Yantai, China.19 NovemberYRS announces the full deployment of “Taisun” upon the successful test lift of its second beam.9 NovemberYRS successfully places out 21.3 million new ordinary shares in a private placement exercise, representing 7.8% of the enlarged share capital of theCompany, at NOK31.00 per share. The move raised gross proceeds of NOK 660,300,000 (approximately US$124 million) and boosted YRS’ sharecapital increasing to approximately S$591.6 million from S$417.6 million pre- placement.5 NovemberYRS reports revenue of S$205.8 million and net profit of S$18.0 million for the 8 months ended 31 August 2007, an improvement of 12% and 35%as compared to S$183.5 million and S$13.3 million respectively for the corresponding period in 2006.2 NovemberYRS is pleased to announce the successful testing and commissioning of “Taisun’s” first beam.1 OctoberYRS announces its gantry crane, “Taisun”, is now undergoing testing and commissioning and is expected to complete within the next four weeks.13 SeptemberYRS announces the resignation of Non-executive Director, Surin Upatkoon, effective 10 September 2007.22 JuneYantai Raffles Offshore Limited was awarded the Foreign Investment Advanced Technology Enterprise Certificate by the Ministry of Commerce ofThe People’s Republic of China.30 MarchYRS achieves a financial turnaround, reporting a net profit of S$17.2 million for the 12 months ended 31 December 2006 from a net loss of S$53.7million in FY2005. Revenue surged to S$272.3 million, from S$245.8 million previously.26 JanuaryYRS appoints Sum Soon Lim, an ex-banker, as a Non-Executive Director on our Board, effective from 24 January 2007. Mr Sum is currently theChairman and Director of Times Development Pte Ltd.22 JanuaryYRS announces the successful skidding and floating off of the ‘Yacht Express’ at our yard in Yantai, Shandong, China – our 45th skid-off in 10 years.Weighing 15,000 metric tons, the US$54 million ‘Yacht Express’ is the heaviest vessel to be built on land and skidded onto launching barges in China.ANNUAL REPORT 2007 5


AT A GLANCEFINANCIAL HIGHLIGHTSRevenue(S$ million)Net Profit/(Loss) attributable to equityholders of the Company (S$ million)35040300250200258.5323.430201020.635.9150196.9010050-10-20(26.6)0-302005(Restated)2006(Restated)20072005(Restated)2006(Restated)2007Net Assets(S$ million)600Earnings/(Loss) Per Share (Basic)attributable to equity holders of the Company(in Singapore cents)20500400565.11009.514.1300316.6-10200100066.4-20-30(25.4)2005(Restated)2006(Restated)20072005(Restated)2006(Restated)2007in S$’ million 2005 (Restated) 2006 (Restated) 2007Current Assets 277.3 517.9 959.1Non-current Assets 202.5 263.4 403.4Total Assets 479.8 781.3 1,362.5Current Liabilities 360.7 447.0 777.8Non-current Liabilities 52.7 17.7 19.6Total Liabilities 413.4 464.7 797.4Total Equity 66.4 316.6 565.16 YANTAI RAFFLES SHIPYARD LIMITED


AT A GLANCEFINANCIAL REVIEWReview of financial performanceIn 2007, and in preparation for a corporateexercise, YRS engaged Ernst & Young, oneof the Big Four auditors to carry out reauditof its FY2004 to FY2006 financialsof the Group. As a result of the re-audit,certain prior year adjustments were made tothe previously audited figures. The majorprior year adjustments were explainedin our Group’s announcement of the reauditedresults on 5 November 2007.The re-audited accounts were preparedon a basis consistent with the accountingpractices commonly adopted in the industryand better reflect our Group’s continuousimproved performance over the years ofsignificant expansion and development.Revenue from vessel and rig building grewby 25% from S$258.5 million to S$323.4million in 2007, generated from an orderbook value of approximately S$2.5 billionas of 31 December 2007. Net profit aftertax and minority interest for the year wasregistered at S$35.9 million, reflecting a74.3% increase from S$20.6 million in theprevious year. Earnings per share for theyear was at 14.1 cents, up from 9.5 centsin 2006.Despite the increase in revenue, the grossprofit decreased by S$11.6 million toS$52.6 million in 2007. Our Group adoptsthe percentage-of-completion method forrevenue recognition. Revenue and costs ofconstruction contracts are recognized basedon the percentage of completion of thevessels or rigs as referenced by costs incurredas a percentage of estimated total costs ofthe project. For accounting purposes, theGroup has adopted a conservative approachof not recognizing the profit elementof projects which have not reached thethreshold of 20%, which is deemed to bethe threshold before the outcome of theprojects can be ascertained reliably. Mostof our on-going projects have a highengineering content and hence, requirelong period of design and engineering timebefore the commencement of production.Costs incurred during the engineering phaseare generally less significant as comparedto material, equipment and productionlabor costs incurred in the latter part ofthe project life cycle. As a result, projectswhich are in the engineering stage aregenerally less than 20% completed basedon costs accumulation, and hence havenot contributed to 2007 profits under theaccounting policy adopted. The gross profitmargin for 2007 was 16.3%, substantiallylower than 24.8% achieved in 2006, mainlydue to the reason stated above. A numberof projects are expected to complete theengineering work in 2008 and contributemore significantly to profits thereafter.In 2007, our Group recorded a miscellaneousgain of S$32.7 million, as opposed to amiscellaneous loss of S$15.1 million inthe comparative period. The loss in 2006was mainly due to a foreign exchange lossof S$11.8 million. In 2007, despite theincreased value of our order book and thecontinuing depreciation of the US Dollar, ourGroup reported a smaller foreign exchangeloss of S$9.3 million, primarily attributable toa translation loss. In addition, we recordeda fair value gain of S$21.8 million (vs S$2.6million in 2006), arising from derivativesembedded in our sales contracts. We seekto enter into contracts with customerswhereby the progress payments are in amix of various currencies such as USD, EUR,NOK and RMB, which are required to payfor our purchases for imported equipmentand operating costs of our shipyard inPRC. This is an effective foreign exchangemanagement which seeks to match thecurrencies of payments and receipts,without entering into foreign currencyforward or option contracts. Such multicurrencycontracts have been accounted foras embedded derivatives under SingaporeFinancial Reporting Standards 39, FinancialInstruments.Other than the fair value gain, our Groupalso benefited from gain from sales ofinvestment in a quoted equity amounting toS$9.6 million and net reversal of provisionfor liquidated damages of S$1.9 million dueto successful negotiation with a customerout of such potential obligations.Operating expenses increased 58% to S$39.9million in 2007, driven by rapid expansionof the operation. The majority of theseexpenses are payroll related, including shareoptions costs. The shipbuilding industry iscurrently facing worldwide labor shortagesand our Group has been closely reviewingand proactively managing this situation toensure we are able to recruit and retain astable workforce, especially skilled labor andsenior management staff. We also incurredhigher compliance and consultation costsdue to our continuing effort to improveour corporate governance and corporateefficiency as a public company.Net financing income rose by S$4.6 millionto S$6.9 million for the year 2007 as aresult of efficient cash management. InNovember 2007, our Group successfullyraised USD$124 million from a privateplacement in Norway Over-The-Counter.The proceeds are being utilised to fund ourGroup’s on-going expansion and shipyarddevelopment.Income tax expenses increased by S$6.6million to S$9.4 million for year 2007,representing an effective tax rate of 18%.Our two major operating PRC subsidiarieswere taxed at 24% and 12% in the year2007. The new Corporate Income Tax Lawissued during the 5th Session of the 10thNational People’s Congress has introduceda wide range of changes which includethe unification of the income tax rate fordomestic-invested and foreign-investedenterprises at 25%. As a result of thechange, we expect higher tax charges in thecoming years.Review of financial positionTotal assets of our Group were up by 74%to S$1,362.5 million as of 31 Dec 2007,made up of both an increase in workingcapital and investments in fixed assets,available-for-sales financial assets andacquisition of land and sea use rights. Theindustry is facing a tight supply market andwe have been active in planning for earlyprocurement of materials and equipment tomitigate the risks of both costs increase andbottlenecks in production due to long leadtime for supplies.Similarly, total liabilities increased by 71% toS$797.4 million as of 31 December 2007.The increased requirement for workingcapital has been met by positive progressreceipts from customers.Shareholders’ funds increased by 78% toS$565.1 million as of 31 December 2007,attributable to both earnings generatedduring the year and additional capital raisedin November 2007. YRS is confident of itsability to maintain and improve its strongfinancial position, from a combinationof increasing operational profits, capitalinjection and/or banking arrangements atappropriate times.ANNUAL REPORT 2007 7


4th Generation DP 3Semi-Submersible Drilling RigA GM 4000D DesignREACHING FURTHER


CHAIRMAN’ S MESSAGEDear Shareholders,Yantai Raffles Shipyard Limited (the Company)had an eventful year in 2007, posting higherearnings and achieving many successes whilstfacing many challenges.Highlights for 2007Revenue and net profit were higher at S$323.4million and S$35.9 million respectively, anincrease of 25.1% and 74.3% over 2006.Earnings Per Share for 2007 was S$0.141, upfrom S$0.095 the previous year.The year saw a 40% worldwide growthin shipbuilding, resulting in shortages ofmanpower and facilities. These shortageswill extend into 2008 and 2009 for the wholeindustry. Furthermore, demand for materialand equipment is under pressure, resultingin delays and price increases. The weaknessof the USD is expected to continue bringinghigh commodity prices and higher oil prices.While this demand for oil continues to grow,the industry we are in will be strong for someyears to come.With the expected price increases in materialand equipment, our company is careful notto secure orders higher than necessary, whilsthedging against these increases by makingarrangements to secure critical long lead itemsimportant to our continuing business.Our new orders for the year totaled S$1.0billion bringing the order book to approximatelyS$2.5 billion at the end of the year.With this high demand, our company hasstrengthened its relationship with its existingsuppliers and partners, and is activelydeveloping other facilities. We started fournew facilities under our control to ensure thatour fabrication needs can be met for year 2008and on into the future.Demand for skilled workers in the year resultedin salary increases by as much as 40% insome critical categories. Our company hasimplemented a programme to directly recruitand retain 500 additional welders to addressthis challenge.Strong business fundamentalsThe outlook for the offshore industry remainshighly positive. Global demand for oil has beengrowing relentlessly for the past few years. Ifoil prices continue to hold at elevated levels,operators will continue to invest in explorationand production in order to secure new reservesand to meet rising demands for reliable energy.This generates tremendous demand for drillingand completion equipment. This is evident fromthe high rig ulitisation rates. The buoyancy ofthe offshore industry will also drive demand forall offshore type support vessels.The emergence of China as a leadingshipbuilding nation creates a favourable andsustainable environment within the country formarine and offshore projects. In 2007, Chinasecured 29.2 million Compensated Gross Tons(CGTs) in new orders, far surpassing Japan’s 6.5million CGTs, and only slightly behind SouthKorea’s 32.0 million CGTs. While South Korearemained the top shipbuilding nation, in termsof new orders, order backlogs and volumeof vessels built, it is clear that the industry isshifting to China. In time, so will its resources,expertise and talents.YRS is uniquely positioned to capitalise onthese opportunities by combining Koreanexpertise, Singaporean flexibility and Chineseefficiency to deliver the best value propositionsto our customers.Sustaining our growthOver the past year, our company has investedheavily to develop world class offshorefabrication and assembly facilities. I ampleased to report the completion of “Taisun”,the world’s largest gantry crane with a certifiedlifting capacity of 20,000 metric tons. Deckboxes can now be built on land and bemated onto the hulls/pontoons in one singleoperation using “Taisun”. This improves theoverall product quality. Since operations arecarried out in sheltered conditions withinthe drydock, this improves the overall safetylevel. A conservative estimate today is thatour company will save more than 2,000,000manhours in building each semi-submersibleby using “Taisun”, compared to the moretraditional construction method. The resultof this single revolutionary activity will put ourcompany into the category of one of the mostinnovative and cost effective rig builders inthe World.“Taisun” has already re-written the worldrecord in lifting static loads, with each of itstwo beams successfully lifting test loads of12,500 metric tons. With its unprecedentedlifting capacity, “Taisun” will create an entirelynew construction methodology, changing theway that large offshore structures are built andassembled.I am delighted to announce that our companyand “Taisun” will receive the “Spotlight onNew Technology Award” by the OffshoreTechnology Conference (OTC) in Houston thiscoming May. The award showcases leadingtechnologies for the offshore oil and gasindustry. These technologies must be newand innovative; proven through full-scaletesting; have broad interest and appeal forthe industry; and provide significant benefitsbeyond existing technologies. This is a cleartestimony to the enormous potential of ournew crane “Taisun”.“Taisun” marks our transition from aconventional offshore fabricator to acomprehensive offshore solution providercapable of executing large scale lifting andassembly operations. The key is to maximisethe turnover of this massive asset.Going forward, we will outsource half of ourproduction requirements. We will collaboratewith qualified fabricators to develop fullyoutfitted,high quality mega blocks for10 YANTAI RAFFLES SHIPYARD LIMITED


1995 Presentassembly at our yard by “Taisun”. We willmarket “Taisun” as a facility to all othershipyards and owners. At the same time, wewill fully develop strategic competencies in thehigh value areas of engineering, procurement,assembly and commissioning. As our statureas an international offshore solution providergrows, we will leverage on our offshorefabrication expertise to design, build andlease out new-builds. I believe that this newbusiness model will drive sustainable growthand deliver greater value to all of you for manyyears to come.In 2007, the tremendous demand forshipbuilding in China resulted in a severeshortage in labour, material, equipment inall shipbuilding-related services. We movedquickly to develop facilities to meet productionneeds and to secure our supply chain throughlong term investments for new fabricationyards at Longkou Sanlian, Haiyang Offshoreand Haiyang Landao. These world-classfacilities will be operational in 2008. Ourintention is to meet at least 50% of our ownproduction needs through our wholly-ownedand co-owned facilities. YRS will also continueto maintain our long-term relationship withcurrent outsourcing partners DOPCO andGaya for production of blocks and megablocks. Going forward, we will continuethis disciplined approach of expanding ourproduction capacity.The growth of shipbuilding had also led to aserious shortage of qualified design engineersworldwide, particularly in this region. Toaddress this, we have outsourced engineeringto houses in Singapore, Holland, the USA andSouth Korea to fulfill our short and mediumtermobligations. Internally, we have made astrong push to train our 200 Chinese designengineers. It is our intention to work withreliable internationally-known engineeringcompanies and, at the same time, fully developour own resources. We aim to build up anengineering department of over 600 engineerswithin the next three years.We had foreseen a strong increase in costs ofmaterial, equipment and labour and factoredthese expectations in our plans going forward.Currency fluctuations have the potential tomake a significant impact on the Company’sbottom line and therefore we will continue tobe vigilant in this aspect. We expect the RMBto continue to rise against the USD at the rateof 8 to 10% a year. While this is affecting ourcompany’s competitiveness, we remain fullyconfident that by driving efficiencies in all areasof engineering, procurement and production,our company will be able to remain in theforefront of the industry. Our contracts arepriced in multiple currencies.With “Taisun”, our company should beable to complete 10 major projects a year.Our supporting facilities like engineering,procurement and production are not yet inplace to meet such demands at this time. Ourcompany is aiming to meet such a target withinthe next 3 years. At today’s prices, that wouldequate to an annual order book of betweenUS$2 – 3 billion.New major shareholderOn 12 March 2008, I entered into an agreementto sell 29.9% of the Company’s sharesto China International Marine Containers(Group) Ltd (CIMC). The transaction is goingthrough the necessary approval process by theauthorities in China. As a world leader in thedesign and manufacturing of transportationequipment, CIMC has extensive experiencein managing large-scale facilities. Togetherwith CIMC, we have identified several keyareas where YRSL will benefit significantlyfrom CIMC’s expertise. These areas includefinance, procurement, outsourcing, advancedmanufacturing processes and broadenedopportunities for domestic sales. I believe thatthis CIMC-YRSL partnership will afford CIMCthe opportunity to add tremendous value toYRS’s business, which will ultimately enhanceoverall shareholder value.After completion of this transaction inSeptember 2008, I will retain a 14.4% interestin the Company. I will also continue with thecompany, with significant responsibilitiesthrough 2012. I had battled within myself aboutthe future of our company and the absenceof any firm succession plan, and determinedthat I should not let this situation continue foranother day if possible. The final decision wasemotional and exciting. I am now very confidentthat we can achieve our medium term targets,and my vision to make our company the “Yardof Choice”, much faster with CIMC as apartner, with no ongoing worries about beingrun over by the proverbial bus.A word of thanksTo staff of YRS, I would like to thank you forputting in really hard work for our Company.There have been many challenges that youhave come across, faced up to and conquered.There is little doubt these and other challengeswill continue, but I have every confidence that,working as a team, we will persevere.To shareholders, I say thank you for believing inthe Company. I have sold some of my sharesbut I will be working as hard as ever to bringout the full value of our company. With CIMCthis will be achieved sooner than later.To the members of the Board of Directors,friends and supporters, I would also like tothank you for your contributions, your supportand excellent ideas over the past years.We will work together in 2008 towardsfulfilling the Company’s vision to become the“Yard of Choice” for the offshore industry.Brian ChangExecutive ChairmanANNUAL REPORT 2007 11


OPERATIONS REVIEWBY THE CEODear Shareholders,It is my pleasure to present our 2007achievements and to share with you my viewof the future for YRS.Achievements in 2007Following the successful delivery of the world’sfirst cylindrical Floating Production, Storageand Offloading Vessel (FPSO) in 2006, YRSdelivered the second and third cylindrical FPSOsto Sevan Marine. We were delighted to deliverthe world’s first semi-submersible yacht carrierto Dockwise Shipping, as we continue to breaknew ground in the offshore industry.We continued to pursue an ambitious yarddevelopment programme, which includes theupgrading of many existing yard facilities andthe erection of new facilities equipped withstate-of-the-art technologies. The highlightis the completion of construction and testingof the world’s largest gantry crane, the“Taisun”, which has a certified lifting capacityof 20,000 metric tons. We also continued tomodernise our business processes, includingthe introduction of new engineering designsoftware and production methodologies.For the innovative deployment of technologyin offshore fabrication, YRS was certified asan Advanced Technology Enterprise by theChinese government.Building for the futureThe gradual transformation of our yardlandscape and modernisation of our processeshas greatly enhanced our position as a specialistoffshore fabricator. YRS was able to securea significant portion of semi-submersibledrilling rigs and other offshore support vesselscontracted in the past 2 years, reflectingstrong client confidence in our ability to delivertechnologically superior solutions. The year2007 saw the commencement of many newprojects. We must therefore focus our effortson creating the best production system tocomplement our new facilities and processes.This starts with developing world-classengineering capabilities and resources that willenable us to take on prototype and sophisticatedoffshore projects. Besides new engineeringsoftware and design methodologies, we havealso invested substantially over the past fewyears to attract, train and retain engineeringtalent. This includes both local and expatriatestaff from different countries. At present,while the industry is facing a dire shortage ofengineers and other skilled workers, YRS has onits own developed a robust corps of engineers,with a healthy mix of experience and acrossdifferent disciplines. In addition, we have alsodeveloped strategic partnerships with qualifiedspecialist engineering firms. Collectively,these engineering capabilities and resourceswill enable YRS to provide unique, innovativesolutions to many engineering challenges.We will continue to refine our purchasingprogramme to ensure on-time placementof orders and delivery of equipment andmaterials, hence minimising equipment idletime in the yard. We will not only broaden oursourcing channels to provide more options,but also develop strategic partnerships withselected vendors to ensure quality and reliabledelivery at lower cost, particularly within theregion i.e. China and Korea. Where marketand internal conditions allow, we will sourceand purchase ahead of schedule. Theseinitiatives will allow us to better mitigate therisk of price fluctuations and contribute tobetter cost management.To address limitations in yard fabricationspace, YRS had already established long-termpartnerships with several qualified in-countryfabricators such as DOPCO and GAYA. Wepurchase fully-outfitted, high quality blocksfrom these partners, before they are assembled,tested and commissioned for delivery in ouryard. More recently, we have embarked on twonew joint ventures with Chinese partners todevelop world-class block fabrication facilitiesin two Shandong locations. These fulfil ourtwin objectives of increasing our productioncapacity and securing our supply chain.The inception of “Taisun” will take the conceptof lifting to a whole new level. A lifting deviceof such capacity creates a new business modelfor YRS, in terms of lifting and assembly ofmega-blocks which could be outsourced to ourpartners, and provides a massive competitiveadvantage. We will seek to optimise ourproduction flow in such a new system, basedon our considerable facilities and resources.The new production system will be supportedby strong planning and project management.For each project, we will develop master anddetailed schedules to manage engineering,purchasing, warehousing and production, withparticular attention to the interface betweenthese functions. We will focus on greatercollaboration with owners and classificationsocieties for mutually beneficial outcomes.We will also seek continuous improvementsby learning from past project experiences.To enhance the production environment, wehave started to implement Quality, Health &Safety, and Environment (QHSE) managementsystems, or 3-in-1 management system. Thiswill complement the existing 5S managementpractices in the yard, with all our workerstaking greater ownership in managing andcleaning their immediate work spaces.12 YANTAI RAFFLES SHIPYARD LIMITED


As we develop our yard facilities and systems,we will continue to attract, develop andretain talent in different areas. As part ofour management development efforts, YRSconducted its first Management TrainingProgramme (MTP) in October 2007. Theinaugural batch of 12 Management Traineesfrom China, Malaysia and Singaporeunderwent an intensive 2-month trainingprogramme to familiarise themselves withour operations, and are now deployed to ourengineering and project management teams ina 2-year rotational programme where they willbe tested and assessed for suitability to take onhigher responsibilities at an early stage. Theintention is for the MTP to be conducted on anannual basis to provide a continuous stream oftalents and fresh ideas.Strategic priorities for 2008The entire yard, and indeed the whole world,eagerly anticipates the first commercial lift by“Taisun” which will take place this year. Thiswill begin a new chapter in YRS’ journey to bethe “Yard of Choice”, as we continue to leadbreakthroughs and challenge the boundariesin offshore engineering and construction.A word of thanksWe will continue to strive to deliver greatervalue to all our shareholders. I would like toexpress my deepest appreciation to all of youfor your unwavering support and confidence.Cho Yong JinChief Executive Officer2008 promises to be an exciting year as wefocus on achieving our deliverables for ouroutstanding projects and embark on newprojects underpinned by our refined businessmodel. The key focus is on creating the bestproduction system through effective planningand utilisation of our resources.We will also continue to stabilise and implementeffective internal management systems toenhance our engineering and production.These include working with strategic partnerssuch as Dassault Systemes to implementnew software and methodologies, as well asimplementing the 3-in-1 management system.A company is only as good as its people. Wewill focus on teambuilding and creating a highperformance culture among our staff that willdrive results.ANNUAL REPORT 2007 13


30,000 DWTSelf Unloading Bulk CarrierEXPANDING BEYOND


BOARD OF DIRECTORS12 3 41 2 4MR BRIAN CHANGExecutive ChairmanMR JULIAN CHANGExecutive DirectorMR MICHAEL LINDSAY SHARPExecutive DirectorMr Brian Chang, our Executive Chairmanfounded YRS in 1994. With over 40years of experience in the shipbuildingindustry, he pioneered the constructionof Singapore’s first jack-up drilling rig atFar East Levingston Shipbuidling Limited(currently known as Keppel FELS Limited).In 1971, Mr Chang started the Prometshipyard (known today as PPL Shipyard)and has implemented and supervised awide spectrum of marine projects rangingfrom offshore tugs and supply boats tosophisticated offshore vessels includingextreme environment semi-submersibledrilling platforms. To date, he has overseenmore than 600 marine constructionprojects and has led YRS to the forefrontof the shipbuilding and marine fabricationsector. Mr Chang received a scholarshipfor an Honors degree in ElectricalEngineering at the City University, Londonand graduated in 1965.3Mr Julian Chang was appointed as aDirector on the Board in September 1997and helms the procurement, estimationand marketing departments in YRS. MrChang brings with him more than 30years of experience in the shipbuilding andoffshore marine industry and was involvedin establishing the Group’s main office inSingapore. Mr Chang holds Certificatesin Shipping, Procurement Strategy andAdvance Procurement, and was awarded aDiploma in Business Studies in 1975, fromTottenham College in the United Kingdom.MR MALCOLM CHANGExecutive DirectorMr Malcolm Chang was appointedto the Board in October 2000 and iscurrently overseeing the Group’s ContractsDepartment. Mr Chang holds directorshipsin several oil and gas infrastructureinstallation companies and was awardedan Honors degree in Science (Economics),Brunel University, United Kingdom, in 1995.Mr Michael Lindsay Sharp joined the Boardin October 2006 and leads YRS’ corporatefinance, investment and investor relationsactivities. Mr Sharp brings with him close to30 years of experience in the internationalbanking sector. His expertise covers theareas of equity and debt funding; fixedincome and money markets; foreignexchange; and private banking. Prior tojoining YRS, Mr Sharp was the Head ofPrivate Bank, South Island, at ANZ BankingGroup in New Zealand from 1999 to 2006.Mr Sharp completed his A-levels at KingEdward VI Grammar School, East Retford,Nottinghamshire, England.16 YANTAI RAFFLES SHIPYARD LIMITED


56 7 85 86MR FRANCIS JAMES REIDYIndependent DirectorMr Francis James Reidy was appointedas an Independent Director to the Boardin 2003. He is currently a Director andshareholder of Pennsylvania GeneralEnergy, an oil and natural gas exploration,drilling and production company startedin 1984, with annual sales amounting toUS$60 million. From 1973 to 1984, hewas the managing director of GeneralDiesel, which in 1984 was sold toUnilever PLC. Mr Reidy currently holdsdirectorships at Mc Clees Associates, NavyLeague of the United States, OperationSmile International and Research Centrefor Bio-Electrics. He holds a Bachelor ofCivil Engineering from Villanova Universityand a Diploma in Far East Studies from theUniversity of Minnesota.MR LIU CHEE MINGNon-Executive DirectorMr Liu Chee Ming was appointed aNon-Executive Director to the Board inDecember 2005. Mr Liu brings with himover 30 years of experience within thefinancial services sector. He has been theManaging Director of Platinum HoldingsCompany Limited since 1996, prior towhich he held senior-level positions atvarious Jardine Fleming entities for over17 years. Mr Liu is an independent nonexecutivedirector of several public-listedcompanies, including StarHub Ltd, and7Robinson & Company Ltd in Singapore;and Kader Holdings Company Ltdin Hong Kong. Since May 1995, hehas been a member of the TakeoversAppeal Committee and the Takeoversand Mergers Panel of the Securities andFutures Commission in Hong Kong. Heis also currently a Governor of SingaporeInternational School. Mr Liu holds aBachelor of Business Administration fromthe former University of Singapore.MR ANG KONG HUAIndependent DirectorMr Ang Kong Hua, a well-knowncorporate figure in Singapore, wasappointed to the Board as an IndependentDirector in September 2006. He is theExecutive Director of NATSTEEL Ltd, aleading industrial group in Asia Pacific, inwhich he had served as Chief ExecutiveOfficer for 28 years. He started hiscareer in August 1966 at the EconomicDevelopment Board before joining DBSBank in 1968. Mr Ang also serves on theBoards of The Government of SingaporeInvestment Corporation Pte Ltd, GICSpecial Investments Pte Ltd and DBS BankLimited. Mr Ang graduated from theUniversity of Hull, UK, with a Bachelorof Science (Economics) Upper II Honorsdegree in 1966.MR SUM SOON LIMIndependent DirectorMr Sum Soon Lim, an ex-banker, wasappointed to the Board in January 2007 asan Independent Director. Mr Sum bringsto the Board his expertise in the financialindustry, having worked with the SingaporeEconomic Development Board, DBS Bank,J.P. Morgan Inc., Overseas Union Bankand Nuri Holdings (S) Pte Ltd, a privateequity investment company, and hadserved as a corporate adviser to TemasekHoldings and Singapore Technologies.Currently the Chairman and Director ofTimes Development, Mr Sum also sits onthe boards of Singapore Press HoldingsLimited, Singapore Health Services Pte Ltd.and Singapore Technologies Telemedia PteLtd. He was a member of the SecuritiesIndustry Council from 1998 to 2005.Outside of Singapore, he is a commissionerof PT Indosat Tbk and the Chaiman of itsrisk management committee. Mr Sumholds a Bachelor of Science (Honors) inProduction Engineering from the Universityof Nottingham in England.ANNUAL REPORT 2007 17


CORPORATE INFORMATIONBoard of DirectorsExecutiveBrian Chang (Chairman)Julian ChangChang Yee Meng, MalcolmMichael Lindsay SharpNon-ExecutiveAng Kong HuaFrancis James ReidyLiu Chee MingSum Soon LimAudit CommitteeSum Soon Lim (Chairman)Ang Kong HuaFrancis James ReidyLiu Chee MingNominating CommitteeAng Kong Hua (Chairman)Brian ChangSum Soon LimRemuneration CommitteeAng Kong Hua (Chairman)Francis James ReidyLiu Chee MingCorporate SecretaryYap Wai Ming, LLB (Hons)Lean Min-Tze, LLB (Hons)AuditorsErnst & YoungCertified Public AccountantsOne Raffles QuayLevel 18, North TowerSingapore 048583Partner-in-charge : Tan Peck Yen(Appointed since financial yearended 31 December 2007)Principal BankersABN AMRO Bank N.V.One Raffles QuaySouth Tower, Level 26Singapore 048583Bangkok Bank Public Co Ltd180 Cecil StreetSingapore 069546China Construction BankNo.9 Nan Da StreetYantai, Shandong, PRCIndustrial and CommercialBank of ChinaNo. 1 Haigang RoadYantai, Shandong, PRCKBC Bank N.VSingapore Branch30 Cecil Street #12-01Prudential TowerSingapore 049712VTB Bank Europe Plc50 Robinson RoadVTB BuildingSingapore 068882Registered OfficeNo. 1 Claymore Drive#08-04 Orchard TowersSingapore 229594Tel: (65) 6735 8690Fax: (65) 6734 544918 YANTAI RAFFLES SHIPYARD LIMITED


CORPORATE STRUCTURE100%Raffles Yacht Limited36.0%Consafe MSV ABYantai RafflesShipyard Limited100%85.2%YRS Shiplease Pte LtdYantai Raffles Offshore Ltd100.0%Borneo Offshore LimitedCoral Offshore Limited12.8%71.6%Yantai Raffles Shipyard Co. LtdDeep Water Offshore Limited100%YRS Investments LimitedEvolution Offshore LtdFar East Drilling LtdAsiatic Offshore LimitedBaratpur LimitedOffshore Accomodation Pte LtdPelican Waters Investment Ltd49.0%Haiyang Blue Island Offshore LtdANNUAL REPORT 2007 19


ORGANIZATION CHARTBOARD OF DIRECTORSCompanySecretaryBrian ChangExecutive ChairmanYantai Raffles Offshore LtdYantai Raffles Shipyard Company LimitedChinaCho Yong JinChief Executive OfficerWang Zhen YangDirector, Yard General ManagerBusinessDevelopmentOperationsLogistics /AdministrativeMichaelAmtmannSenior ManagerKim IgyuChief OperatingOfficerGeorge LeeActing ChiefTechnology OfficerYeong Seok KimChief InnovationOfficerMatthew KohCorporatePlanning DirectorGeorge Lee /D.H KimProject DirectorAnnie ChangDirectorProposalsHealth, Safety& EnvironmentalLifecycleFabrication &OutfittingEngineeringAdministrativeYard FacilityCorporatePlanningProjectManagementWarehouseMarketingProductionPlanningProjectEngineeringGroupConstructionTechnologyPurchasingBusinessDevelopmentQA & QCProduct LifecycleManagementOutsourcingSecurity / IT /AdminPiping &ConstructionEngineeringAdvisory GroupPlanning CenterImport & ExportLogisticHullLaunching20 YANTAI RAFFLES SHIPYARD LIMITED


Yantai Raffles Shipyard LimitedSingaporeFinance /Investor Relations/ Internal AuditBusiness Development / Marketing /Procurement / Estimation / Technical SupportHuman Resources/ IT / Legal /ContractsInternal AuditMichael SharpExecutive DirectorJulian ChangExecutive DirectorMalcolm ChangExecutive DirectorDeloitte &ToucheInternal AuditProcurement /Technical SupportInformationTechnologyFinance ChinaBusinessDevelopmentContractsMISMarketingLegalGroup FinanceEstimationGroup HumanResource(China/Sin)InvestorRelationsANNUAL REPORT 2007 21


Jack-Up Drilling RigA Super M2 DesignBy Friede & GoldmanACHIEVING SUCCESS


SUPPORT INFRASTRUCTUREHUMAN RESOURCEAt Yantai Raffles Shipyard, we believethat people are the foundation of ourCompany. Equipping employees with theright skill sets is the way to maximise theirfull potential and as such, we providea well-rounded training and learningplatform for all workers.For the year under review, we dedicatedmore than 24,000 training hours toimprove and develop the skill sets of ouremployees. Our employees are able tohave theoretical and practical hands-onexperience from basic programmes suchas Excel to more complicated softwareprogramming in the designing, buildingand fabrication of offshore marine facilities.This year, we initiated the Company’sfirst Management Trainee Programme(MTP), where 12 fresh graduates fromSingapore, Malaysia and China werecarefully handpicked after a series ofinterviews. These fresh young talentsare employed in various departments inYRS, ranging from corporate services toengineering departments.The MTP is a 2-year developmentprogramme that grooms graduatesfor future leadership positions at YRS.Through a specially-tailored trainingstructure, it provides a broad-based,hands-on learning experience for themto have an in-depth understanding ofthe Group, and equally important, thebusiness and cultural environments inwhich it operates.24 YANTAI RAFFLES SHIPYARD LIMITED


SUPPORT INFRASTRUCTUREINFORMATION TECHNOLOGYEngineering and technology play a big partin the construction of our offshore marinefacilities. To address these challenges,Yantai Raffles has selected DassaultSystemes Product Lifecycle Management(DS PLM) solutions: CATIA for the designof offshore structures, DELMIA forproduction and simlation, and ENOVIAVPLM for creating digital 3D mock-ups,facilitating multi-discipline collaboration,and standardizing virtual productmodeling best practices. Customersnow have greater visibility at thedesign, construction and commissioningphases of their vessels. DS PLM alsoprovides critical information to us andour customers during the deploymentphase. The information generatedduring the construction phases facilitatestroubleshooting, which enhances costssavings and minimises downtime.We have commenced implementing theproduct lifecycle management softwareof Enovia Matrix One, a subsidiary ofDassault Systèmes. With this state-ofthe-artsoftware, our work processes areautomated and streamlined, thus enablingus to work more efficiently and effectivelyby reducing errors, expediting correctionsand providing adequate data analysisfor future engineering improvements.Enovia provides an improved betterfeedback channel between us and ourcustomers, thereby improving the qualityof our engineering works. We expectthe implementation to complete in themiddle of this year.On an IT-related note, YRS is delightedto announce that “Taisun”, our 20,000MT gantry crane, has been selectedas a winner for the Spotlight on NewTechnology Award at the upcomingOffshore Technology Conference (OTC)Event. The OTC is an annual offshoreindustry event with a strong focus oninnovative technologies, economic, socialand political aspects of ocean resourcedevelopment. As one of the largest eventsin the industry, it has a global audienceof more than 60,000 industry leaders.YRS’ winning technology will be honoredat the Spotlight On New Technologypresentation on 5 May 2008 at 16:00 pmduring OTC 2008 at the Reliant Centre atReliant Park in Houston, USA.ANNUAL REPORT 2007 25


SUPPORT INFRASTRUCTUREQUALITY ASSURANCEAt YRS, quality and safety is paramountand we apply stringent checks to ourquality assurance and monitoringprocedures in all of our building processes.Demonstrating how committed YRS is tothese two values, our senior managementtakes on an active role in ensuring a safeworking environment for all workers. Forinstance, both our Chairman and CEOmake daily rounds in inspecting the yardto check that all safety regulations arein place.To reinforce the importance of safety inour yard, all new employees must attenda Safety Instruction Course (S.I.C) tofamiliarize themselves with the Company’ssafety programmes, rules and regulationsbefore embarking on any assignments.The S.I.C also covers health trainingprogrammes where employees undergospecial training to prepare themselvesduring times of emergency.We are equipped with a qualitymanagement system and are currentlyworking towards an ISO9001 certificationfrom the American Bureau of Shipping,a certificate awarded to companieswho comply with standards for design,construction and operational maintenanceof marine-related facilities or equipment.In addition, YRS is currently in the processof enhancing our ISO9001 with the ENISO14001 certification for EnvironmentManagement System and the OHSAS18001 certification for OccupationalHealth and Safety Management System.The EN ISO14001 certification will enablethe Company to efficiently manage theenvironmental aspects of our activitieswhilst the OHSAS18001 certification , byinstilling greater work safety awarenessamongst workers, will help us bettermanage health and safety risks. At thebottomline, these certificates translateinto substantial improvements in overallwork performance at YRS.26 YANTAI RAFFLES SHIPYARD LIMITED


SUPPORT INFRASTRUCTURECORPORATE SOCIAL RESPONSIBILITY (CSR)YRS has recently set up a CommunityService Department as part of ourcommitment to Corporate SocialResponsibility (CSR). As the Companycontinues to grow, we have become aprominent corporate citizen in Yantai,directly employing nearly 3,000 workersand indirectly influencing the livestheir families, a majority of whom hailfrom the Yantai area. Our philanthropicvision is to focus on community projectsthat will bring positive changes to theunderprivileged.On the same note, plans for a Yantai-Raffles Fund is currently in the works andwe hope to get our employees, businesspartners and associates to contributegenerously through fund-raising activitieswhere the money raised will be channeledto charitable causes.Going forward, we intend to focus ourCSR efforts mainly in the Zhifu District inYantai, as well as in Longkou and Haiyangwhere we plan to have substantialoperations in the near future.In our efforts to do our part for the cityof Yantai, the Company has initiatedcommunity projects such as food andcash donations to the elderly folks ofZhifu district in Yantai. We have alsodistributed food donations to retirees ofYRS as a token of our appreciation fortheir hard work over the years. Throughour Yantai Welfare Centre, we distributedcash donations to needy people duringChina’s harsh winter season in 2007.As part of our CSR outreach this year, weare offering scholarships to the top 20students of each grade from ShandongProvince Yantai No. 1 Middle School.The scholarship will greatly benefit theawardees and hopefully encourage themto advance to higher studies in the future.ANNUAL REPORT 2007 27


FINANCIAL CONTENTSCORPORATE GOVERNANCE29DIRECTORS’ REPORT34STATEMENT BY DIRECTORS37INDEPENDENT AUDITORS’ REPORT38CONSOLIDATED INCOME STATEMENT40BALANCE SHEETS41STATEMENTS OF CHANGES IN EQUITY42CONSOLIDATED CASH FLOW STATEMENT44NOTES TO FINANCIAL STATEMENTS45SHAREHOLDING STATISTICS102NOTICE OF ANNUAL GENERAL MEETING10328 YANTAI RAFFLES SHIPYARD LIMITED


CORPORATE GOVERNANCE REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007The Board of Directors (the “Board”) is committed to ensure that high standards of corporate governance are practised by YantaiRaffles Shipyard Limited (the “Company”) and its subsidiaries (together the “Group”), as a fundamental part of its responsibilities toprotect and enhance shareholders value and the financial performance of the Group.The Board uses the Code of Corporate Governance, issued by Singapore Council on Corporate Disclosure and Governance in July 2005(the “2005 Code”) which is applicable to listed companies in Singapore, as a guide for the Group’s corporate governance practices.This report describes the Group’s corporate governance processes, activities and structures that were in place during the financial yearended 31 December 2007, with specific reference to the principles and guidelines of the 2005 Code.BOARD MATTERSPrinciple 1: Effective Board to lead and control the companyPrinciple 2: Strong and independent BoardPrinciple 3: Clear division of Chairman and Chief Executive Officer (“CEO”) to ensure a balance of power and authorityPrinciple 6: Provision of complete, adequate and timely information prior to board meetings and on an on-going basisThe Board comprises the following directors as of 25 March 2008:Mr. Brian ChangMr. Julian ChangMr. Chang Yee Meng, MalcolmMr. Michael Lindsay SharpMr. Ang Kong HuaMr. Francis James ReidyMr. Liu Chee MingMr. Sum Soon Lim(Chairman and Executive Director)(Executive Director)(Executive Director)(Executive Director)(Independent Non-executive Director)(Independent Non-executive Director)(Non-executive Director)(Independent Non-executive Director)The principal functions of the Board are:• Approving the Group corporate policies and authorization matrix;• Approving annual budgets, key operational matters, major acquisitions and disposals, major investment funding;• Supervising the management of business and affairs of Group;• Overseeing the processes for evaluating the adequacy of internal controls, risk management, financial reporting andcompliance;• Reviewing the financial performance of the Group;• Approving nominations to the Board of Directors and, appointment of the various Board Committees and key executives; and• Assuming responsibility for corporate governance.The Board regularly reviews the business plans and the financial performance of the Group. The Board has overall responsibilityfor putting in place a framework of good corporate governance in the Group, including the processes for financial reporting andcompliance. As a group, the Board members bring with them their independent judgment, a broad range of industry knowledge,expertise and experience to bear on issues of strategy, performance, resources and standards of conduct. The profiles of the directorsare set out at http://www.yantai-raffles.com/?page_id=23. The Board is of the view that the current board size is appropriate, takinginto account the nature and scope of the Group’s operation. Newly appointed directors are provided with background informationabout the Group and Company, and are invited to visit the Group’s operations to enrich their understanding of its business operation.To keep pace with new laws, regulations and changing commercial risks, directors are encouraged to attend relevant and usefulseminars conducted by external organizations.The Board is scheduled to meet at least four times a year. Ad-hoc meetings may be convened when there are matters requiring theBoard’s consideration and decision in between the scheduled meetings.The Board has delegated certain specific responsibilities to three Committees, namely the Audit Committee, the RemunerationCommittee and the Nomination Committee. More information on these Committees is set out below. The Board accepts thatwhile these Committees have the authority to examine particular issues and will report back to the Board with their decisions andrecommendations, the ultimate responsibility for the final decision on all matters lies with the Board.ANNUAL REPORT 2007 29


CORPORATE GOVERNANCE REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007The Group has operations in Singapore and the People’s Republic of China (“PRC”). The Chairman oversees the Group operation. Theexecutive responsibilities of various head office functions in Singapore are carried out by the executive directors of the Company whilethe CEO is primarily responsible for operations in the PRC subsidiaries. These roles are separated to ensure an appropriate balance ofpower, increased accountability and greater capacity of the Board for independent decision making.The Chairman has nearly 40 years of experiences in the shipbuilding industry. He is responsible for strategic business developmentdecisions, leading the Board and facilitating its effectiveness. The CEO was appointed in June 2006. He brings with him more than20 years of industry experiences in design, production and management of offshore projects and bears executive responsibility for thePRC operation. The Chairman and the CEO are not related.The Board is provided with quarterly management accounts, project progress and operational reports. The annual budget, quarterlyfinancial results and updated forecasts are presented to the Board for approval. As a general rule, board papers are sent to directorsat least three working days in advance in order for directors to be adequately prepared for each meeting. Senior management attendsboard meetings to answer any queries from the Board. The directors also have unrestricted access to the Group’s senior managementat all times.The Company Secretary attends all Board meetings and ensures the Board procedures are followed. It is the Company Secretary’sresponsibility to ensure that the Company complies with the requirements of the Companies Act. The Company’s Articles of Association(“Articles”) provide that the appointment or removal of the Company Secretary is subject to approval of the Board.The directors, whether as a group or individually, seek independent professional advice relating to the Group’s affairs when necessaryin the furtherance of their duties, at the Group’s expense.Nomination Committee (“NC”)Principle 4: Formal and transparent process for appointment of new directorsPrinciple 5: Formal assessment of the effectiveness of the Board and contribution of each directorThe Nomination Committee is set up in January 2008 and had one meeting since then. It is chaired by Mr. Ang Kong Hua. The otherNC members are Mr. Brian Chang and Mr. Sum Soon Lim. The NC has a written Terms of Reference endorsed by the Board that setsout its duties and responsibilities.The appointments and re-appointments of directors are done through a transparent process. The NC ascertains whether all nonexecutivedirectors are independent and that directors have devoted sufficient time and attention to the Group’s affairs. The NCevaluates the Board’s performance as a whole, and the performance of individual directors, based on certain performance criteria,including qualitative and quantitative factors such as performance of principal functions and fiduciary duties, level of participation inmeetings, guidance provided to management, and attendance at meetings.Under the Articles, each director is required to retire at least once in every three years by rotation and all newly appointed directors haveto retire at the Annual General Meeting (“AGM”) following their appointment. The retiring directors are eligible to offer themselvesfor re-election.The NC is also responsible for determining annually, the independence of the directors. In doing so, the NC takes into account thecircumstances set forth in Guideline 2.1 of the 2005 Code and any other salient factors. Following the annual review, Mr. Ang KongHua, Mr. Francis James Reidy and Mr. Sum Soon Lim are endorsed to be independent.The NC is satisfied that sufficient time and attention are being given by the directors to the affairs of the Group, notwithstandingthat some of the directors have multiple board representations, and there is no need to implement internal guidelines to address theircompeting time commitments. The matter is reviewed on an annual basis by the NC.30 YANTAI RAFFLES SHIPYARD LIMITED


CORPORATE GOVERNANCE REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007Remuneration Committee (“RC”) and Disclosure on remunerationPrinciple 7: Formal and transparent procedures for fixing remuneration package of directorsPrinciple 8: Appropriate remuneration to attract, retain and motivate directorsPrinciple 9: Clear disclosure of remuneration policy, level and mixThe RC was set up in March 2007 and comprises three non-executive and independent directors. It is chaired by Mr. Ang Kong Hua.The other RC members are Mr. Francis James Reidy and Mr. Liu Chee Ming.The principal responsibilities of RC are:• Recommending to the Board for endorsement, a framework of computation of Board’s fees, as well as remuneration of executivedirectors and senior management to ensure that they are competitive and sufficient to attract, retain and motivate key executivesof the required quality to run the Group successfully;• Recommending the specific remuneration package for each director and for senior management of the Group; and• Administering the Yantai Raffles Executive Share Option Scheme (“ESOS”).The RC reviews and determines the remuneration packages of the executive directors and key executive to ensure that directors areadequately remunerated. The RC also considers, in consultation with the Chairman, key executives’ responsibilities, skills, expertiseand contribution to the Group’s performance and whether remuneration packages are competitive to ensure that the Group is able toattract and retain the best available executive talent. No individual director is involved in fixing his own remuneration.Non-executive directors are paid fees annually on a standard fee basis. The fees proposed to the paid to the non-executive directorsfor the current financial year are determined based on the following formula:Proposed Fee (FY2007)SGDChairman MemberRetainer fee for non-executive directors NA 45,000Audit Committee 30,000 20,000Remuneration Committee 10,000 10,000Nomination Committee 10,000 10,000If a Board or committee member occupies a position for part of the financial year, the fee or allowance payable will be proratedaccordingly. Such fees will be approved by the shareholders of the Company as a lump sum payment at the AGM.The level and mix of each executive director’ remuneration package for the current financial year is as follows:Fees(%)Basic salary(%)Variablebonus / profitsharing(%)Benefits inkind(%)Fair value ofstock options(%)Executive directorsAbove S$1,000,000Brian Chang - 23 77* - - 100Julian Chang 33 3 5 59 100Total(%)Between S$500,000 to S$999,999Michael Lindsay Sharp - 53 4 23 20 100Chang Yee Meng, Malcolm - 30 2 3 65 100* Subject to approval of the Remuneration Committee.Three immediate family members of certain directors have employment relationships with the Group and have received remunerationaggregating less than S$250,000 in those capacities during the financial year.ANNUAL REPORT 2007 31


CORPORATE GOVERNANCE REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007Audit Committee (“AC”)Principal 11: Establishment of an Audit Committee (AC) with written terms of reference.The AC was established in March 2007 and comprises 4 non-executive directors, out of whom three are independent directors. Mr.Sum Soon Lim is the chairman and the other three members are Mr. Ang Kong Hua, Mr. Francis James Reidy and Mr. Liu Chee Ming.The Board is of the view that the members of AC have sufficient financial management expertise and experiences to discharge theAC’s function.The AC has written Terms of Reference endorsed by the Board, setting out its duties and responsibilities as follows:• Reviewing the scope and results of the audit and its cost effectiveness, including the external auditors’ audit plan, audit report andevaluation of the system of internal accounting control, as well as assistance given by management to the external auditors;• Reviewing the nature and extent of the external auditors’ non-audit services to the Group, seeking to balance the maintenanceof objectivity and value for money;• Reviewing any significant financial reporting issues and judgment so as to ensure the integrity of the financial statements of theGroup and the formal announcement relating to the Group’s financial performance;• Reviewing the quarterly and full year financial statements of the Group, prior to submission to the Board for approval, and forrelease to FINFO;• Reviewing the adequacy of the Group’s internal control, operational and compliance controls, and risk management policies andsystems;• Reviewing the adequacy and effectiveness of the Group’s internal audit function at least annually, including the adequacy of theinternal audit resources as well as the scope and results of the internal audit procedures;• Making recommendation to the Board on the appointment, re-appointment and removal of the external auditors, and approvingthe remuneration and terms of engagement of the external auditors; and• To review interested person transactions.The AC is authorized by the Board to investigate any matters within its Terms of Reference and has full access to the Group’smanagement.Internal Control and Internal AuditPrincipal 10: Board to present balanced and understandable assessment of the Group’s performancePrincipal 12: Sound system of internal controlPrincipal 13: Establishment of an internal audit function that is independent of the functions it auditsThe Board recognizes the importance of sound internal controls and risk management practices to good corporate governance. TheBoard affirms its overall responsibilities for the Group’s systems of internal controls and risk management, and for reviewing theadequacy and integrity of those systems on an annual basis. The Board also recognizes that no internal control systems will precludeall errors and irregularities. The system is designed to manage rather than to eliminate the risk of failure to achieve business objectives.The controls are to provide reasonable, but not absolute, assurance to safeguard shareholders’ investments and the Group’s assets.With effect from January 2007, the Internal Audit (“IA”) function is principally outsourced to Deloitte & Touche Enterprise RiskServices Pte Ltd. With the assistance of IA, the AC and Board review the effectiveness of the key internal controls, including financial,operational and compliance controls, and risk management on an on-going basis. There are formal procedures in place for bothinternal and external auditors to report independently their findings and recommendations to the AC. The AC also reviews andapproves the annual IA plans and resources to ensure that IA has the necessary resources to adequately perform its functions. Thescope of the IA covers all business and support functions within the Group and IA reports to AC on a quarterly basis.32 YANTAI RAFFLES SHIPYARD LIMITED


CORPORATE GOVERNANCE REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007Communication with shareholdersPrincipal 14: Regular, effective and fair communication with shareholders.Principal 15: Greater shareholders participation at AGMsThe Group has a dedicated investor relations team which communicates with its shareholders and analysts on a regular basis andattends to their queries and concerns. It also manages the dissemination of corporate information to the media, the public as well asthe institutional investors and public shareholders to ensure it is made publicly available on a timely and non-selective basis. Materialinformation including significant contracts, half year results and full year results are published on FINFO and the Company’s websitewww.yantai-raffles.com and where appropriate, through media release.The Articles allow a shareholder to appoint one or two proxies to attend and vote at an AGM. Articles currently do not allow ashareholder to vote in absentia.All directors, including the Chairman of the Board, AC, NC and RC and senior management are in attendance at AGMs and ExtraordinaryGeneral Meetings to address shareholders’ queries. The external auditors are also invited to attend the AGM to address shareholders’queries on the conduct of audit and auditors’ report. Resolutions are as far as possible, structured separately and may be voted onindependently.Dealing in securitiesThe Group provides guidance and internal regulation with regard to dealing in the Group’s securities by its directors and officers. Itprohibits its directors and officers from dealing in securities of the Group while in possession of unpublished material price-sensitiveinformation in relation to such securities and during the “closed period”, which is defined as two weeks before the date of announcementof results for each of the first three quarters of the Group’s financial year and one month before the date of announcement of fullyear results.ANNUAL REPORT 2007 33


DIRECTORS’ REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007The directors are pleased to present their report to the members together with the audited consolidated financial statementsof Yantai Raffles Shipyard Limited (the “Company”) and its subsidiaries (collectively, the “Group”) and the balance sheet andstatement of changes in equity of the Company for the financial year ended 31 December 2007.1. DirectorsThe directors of the Company in office at the date of this report are as follows:Brian ChangJulian ChangChang Yee Meng MalcolmMichael Lindsay SharpAng Kong HuaFrancis James ReidyLiu Chee MingSum Soon Lim (appointed on 24 January 2007)2. Arrangements to enable directors to acquire shares and debenturesExcept as described in paragraph 5 in this report, neither at the end of nor at any time during the financial year was the Companya party to any arrangement whose objects, or one of whose objects is, to enable the directors of the Company to acquire benefitsby means of the acquisition of shares or debentures of the Company or any other body corporate.3. Directors’ interests in shares or debenturesAccording to the register of directors’ shareholdings required to be kept under section 164 of the Singapore Companies Act,Cap. 50, the following directors, who held office at the end of the financial year, had an interest in shares and share options ofthe Company and related corporations (other than wholly-owned subsidiaries) as stated below:Name of directorAt the beginningof financialyear or date ofappointmentDirect InterestAt the end offinancial yearAt the beginningof financialyear or date ofappointmentDeemed InterestAt the end offinancial yearOrdinary shares of the CompanyBrian Chang 37,556,250 12,976,087 85,225,850 111,210,013Julian Chang - - 1,000,000 1,050,000Chang Yee Meng Malcolm - - 1,000,000 1,033,146Michael Lindsay Sharp - - - 120,000Ang Kong Hua - - 2,005,000 2,056,000Francis James Reidy 2,744,000 2,744,000 1,257,000 171,000Liu Chee Ming - - 4,093,700 3,698,700Sum Soon Lim - - 300,000 400,00034 YANTAI RAFFLES SHIPYARD LIMITED


DIRECTORS’ REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20073. Directors’ interests in shares or debentures (Continued)Name of directorDirect InterestAt the beginning of financial yearor date of appointment At the end of financial yearShare options of the CompanyBrian Chang - -Julian Chang - 2,000,000Chang Yee Meng Malcolm - 1,600,000Michael Lindsay Sharp - 300,000Ang Kong Hua - 50,000Francis James Reidy - 50,000Liu Chee Ming - 50,000Sum Soon Lim - 50,000Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, shareoptions, warrants or debentures of the Company, or of related corporations, either at the beginning of the financial year, or dateof appointment if later, or at the end of the financial year.Mr Brian Chang, who by virtue of his interest of not less than 20% of the issued capital of the Company, is deemed to have aninterest in the whole of the share capital of the Company’s wholly owned subsidiaries and in the shares held by the Company inthe following subsidiaries that are not wholly owned by the Group.At the beginning of financial yearAt the end of financial yearYantai Raffles Offshore Ltd- Registered and issued capital RMB 234,690,000 RMB 234,690,000Yantai Raffles Shipyard Co., Ltd- Registered and issued capital RMB 125,980,000 RMB 125,980,0004. Directors’ contractual benefitsSince the end of the previous financial year, no director of the Company has received or become entitled to receive a benefit byreason of a contract made by the Company or a related corporation with the director, or with a firm of which the director is amember, or with a company in which the director has a substantial financial interest, except as disclosed in the accompanyingfinancial statements and in this report, and except that certain directors have employment relationship with the Company andhave received remuneration in those capacities.5. Share optionsAt an Extraordinary General Meeting held on 21 June 2006, shareholders approved the Yantai Raffles Executive Share OptionScheme (the “Scheme”) for the granting of non-transferable options that are settled by physical delivery of the ordinary sharesof the Company, to eligible directors, senior executives and employees respectively.The Scheme is operated at the discretion of the Remuneration Committee, subject to a maximum period of 10 years from thedate on which the Scheme was adopted, beyond which is subject to approval of the members by way of ordinary resolutions ingeneral meetings and any relevant authorities which may then be required. The maximum aggregated number of shares whichmay be issued and/or transferred pursuant to all options shall not exceed 10% of the issued share capital of the Company onthe day preceding the date of grant.ANNUAL REPORT 2007 35


DIRECTORS’ REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20075. Share options (Continued)Under the Scheme, share options are granted to employees of the Group selected by the Remuneration Committee. The exerciseprice of the granted options is based on the arithmetic average of the daily volume weighted average price in Norwegian Kroner(“NOK”) of the Company’s shares traded on the Norwegian OTC during the period of three trading days ending on the daybefore the date of grant. Where they are issued in currency other than NOK, it is based on the prevailing spot exchange ratequoted by the Company’s bank. Share options shall be exercisable in whole or in part in respect of 1,000 shares or any multiplethereof, subject to the vesting period as described by the Remuneration Committee in its absolute discretion.During the financial year ended 31 December 2007, share options in respect of 6,890,289 were granted to certain seniormanagement staff and employees, including certain directors, at an exercise price between NOK10.50 to NOK26.00 per share(the “2007 Share Options”). The 2007 Share Options are exercisable from 16 January 2009 to 18 September 2017.Details of all the share options to subscribe for ordinary shares of the Company pursuant to the Scheme as at 31 December 2007are as follows:Expiry date Exercise price Number of share options31 July 2010 $2.54 to $2.80 525,00016 January 2011 US$1.64 100,0001 February 2011 NOK 10.50 100,00013 April 2011 NOK 16.50 600,00022 May 2011 US$1.64 to US$3.05 1,186,78918 September 2012 NOK 26.00 1,103,50018 September 2017 NOK 26.00 3,600,000Total 7,215,289Since the commencement of the Scheme till the end of the financial year:• No share options that entitle the holder to participate, by virtue of the options, in any share issue of any other corporationhave been granted, and• Other than 1,154,003 share options that were granted to certain senior executives, none of whom are directors, ata discount of 46% to market average price at time of grant, there were no other share options that were issued at adiscount.The number of share options granted to directors of the Company pursuant to the Scheme and which remain outstanding as at31 December 2007 are as disclosed in paragraph 3 in this report.6. AuditorsErnst & Young have expressed their willingness to accept reappointment as auditors.On behalf of the board of directors,CHANG YEE MENG, MALCOLMDirectorMICHAEL LINDSAY SHARPDirector25 March 200836 YANTAI RAFFLES SHIPYARD LIMITED


STATEMENT BY DIRECTORSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007We, Chang Yee Meng, Malcolm and Michael Lindsay Sharp, being two of the directors of Yantai Raffles Shipyard Limited, do herebystate that, in the opinion of the directors,(i)(ii)the accompanying balance sheets, consolidated income statement, statements of changes in equity, and consolidated cash flowstatement together with notes thereto are drawn up so as to give a true and fair view of the state of affairs of the Group and ofthe Company as at 31 December 2007 and the results of the business, changes in equity and cash flows of the Group and thechanges in equity of the Company for the financial year ended on that date, andat the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and whenthey fall due.On behalf of the board of directors,CHANG YEE MENG, MALCOLMDirectorMICHAEL LINDSAY SHARPDirector25 March 2008ANNUAL REPORT 2007 37


INDEPENDENT AUDITORS’ REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007To the members of Yantai Raffles Shipyard LimitedWe have audited the accompanying financial statements of Yantai Raffles Shipyard Limited (the “Company”) and its subsidiaries(collectively, the “Group”) set out on pages 40 to 101, which comprise the balance sheets of the Group and the Company as at 31December 2007, the statements of changes in equity of the Group and the Company, the income statement and cash flow statementof the Group for the financial year then ended, and a summary of significant accounting policies and other explanatory notes. Thefinancial statements for the financial year ended 31 December 2006 were audited by BSPL & Associates whose report dated 28 March2007 expressed an unqualified opinion on these statements.Management’s responsibility for the financial statementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with the provisions ofthe Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes devisingand maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguardedagainst loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary topermit the preparation of true and fair profit and loss account and balance sheets and to maintain accountability of assets; selectingand applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordancewith Singapore Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance whether the financial statements are free of material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of thefinancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevantto the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriatein the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An auditalso includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.38 YANTAI RAFFLES SHIPYARD LIMITED


INDEPENDENT AUDITORS’ REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007OpinionIn our opinion,(i)(ii)the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Companyare properly drawn up in accordance with the provisions of the Act and the Singapore Financial Reporting Standards so as to givea true and fair view of the state of affairs of the Group and of the Company as at 31 December 2007 and the results, changesin equity and cash flows of the Group and the changes in equity of the Company for the year ended on that date; andthe accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated inSingapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.Yours faithfully,Ernst & YoungPublic Accountants and Certified Public AccountantsSingapore25 March 2008ANNUAL REPORT 2007 39


CONSOLIDATED INCOME STATEMENTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007GroupNote 2007 2006$’000 $’000(Restated)Revenue 5 323,448 258,537Cost of sales (270,800) (194,311)Gross profit 52,648 64,226Other gains/(losses), net 7 32,697 (15,103)Expenses- Distribution and marketing expenses (503) (383)- Administrative expenses (39,419) (24,898)Profit from operating activities 8 45,423 23,842Finance income 10 10,790 7,649Finance costs 10 (3,935) (5,381)Net finance income 10 6,855 2,268Share of results of an associated company 23 (190) -Profit before income tax 52,088 26,110Income tax expense 11 (9,399) (2,843)Profit for the year 42,689 23,267Attributable to:Equity holders of the Company 35,907 20,571Minority interests 6,782 2,69642,689 23,267Earnings per share attributable to equity holders of the Company- Basic (cents per share) 12 14.08 9.45- Diluted (cents per share) 12 13.99 9.45The accompanying accounting policies and explanatory notes form an integral part of the financial statements.40 YANTAI RAFFLES SHIPYARD LIMITED


BALANCE SHEETSAS AT 31 DECEMBER 2007GroupCompanyNote 2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)ASSETSCurrent assetsCash and bank balances 13 335,082 295,786 251,969 194,952Trade and other receivables 14 76,502 107,329 50,321 98,039Amounts due from subsidiaries (non-trade) 15 - - 2,622 5,368Inventories 16 106,276 17,400 - -Vessels under construction 17 114,506 - 180,374 -Construction work-in-progress in excess of progress billings 18 70,633 50,623 499,376 45,369Derivative financial instruments 37 24,400 2,600 24,400 2,600Other current assets 19 231,731 44,127 920 37959,130 517,865 1,009,982 346,365Non-current assetsAdvance payment 20 - 5,437 - 5,437Amounts due from subsidiaries (non-trade) 15 - - 74,134 64,708Financial assets, available-for-sale 21 58,872 12,008 - -Investment in subsidiaries 22 - - 81,608 75,944Investment in an associated company 23 579 - - -Investment in a joint venture company 23 2,894 - - -Property, plant and equipment 24 297,286 220,401 683 194Prepayments 25 8,697 590 - -Land and sea use rights 25 3,839 3,363 - -Intangible assets 26 20,428 15,844 3,174 1,366Deferred tax assets 27 10,778 5,828 - 580403,373 263,471 159,599 148,229Total assets 1,362,503 781,336 1,169,581 494,594LIABILITIESCurrent liabilitiesProgress billings in excess of construction work-in-progress 18 508,617 261,293 479,681 98,370Advances from customers 28 40,145 1,853 172 1,718Trade and other payables 29 148,123 71,131 35,118 6,621Borrowings 30 55,400 98,218 24,302 15Amounts due to subsidiaries (trade) 15 - - 82,870 30,946Income tax payable 7,511 4,064 1,600 -Provision for other liabilities 31 17,969 10,439 11,922 10,439777,705 446,998 635,665 148,109Non-current liabilitiesBorrowings 30 16,550 15,943 188 -Deferred tax liabilities 27 1,692 - 1,692 -Other long term liabilities 1,394 1,752 - -19,636 17,695 1,880 -Total liabilities 797,401 464,693 637,545 148,109Net assets 565,102 316,643 532,036 346,485EQUITYEquity attributable to equity holders of the CompanyShare capital 32 591,246 417,608 591,246 417,608Other reserves 33 39,672 4,671 2,691 137Accumulated losses (80,740) (116,647) (61,901) (71,260)550,178 305,632 532,036 346,485Minority interests 14,924 11,011 - -Total equity 565,102 316,643 532,036 346,485The accompanying accounting policies and explanatory notes form an integral part of the financial statements.ANNUAL REPORT 2007 41


STATEMENTS OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007GroupNoteAttributable to equityholders of the CompanySharecapitaland sharepremiumOtherreservesAccumulatedlossesMinorityinterests Total equity$’000 $’000 $’000 $’000 $’000As at 1 January 2007 417,608 4,671 (116,647) 11,011 316,643Net gain on available-for-sale financial assets 33 - 32,828 - - 32,828Currency translation differences 33 - (381) - (12) (393)Net income recognised directly in equity - 32,447 - (12) 32,435Profit for the year - - 35,907 6,782 42,689Total recognised income and expense - 32,447 35,907 6,770 75,124Acquisition of minority interests in subsidiaries 4 - - - (2,857) (2,857)Grant of equity-settled share options to employees 33 - 2,554 - - 2,554Issue of shares 32 178,077 - - - 178,077Share issue expense 32 (4,439) - - - (4,439)As at 31 December 2007 591,246 39,672 (80,740) 14,924 565,102As at 1 January 2006, as previously reported 182,617 (2,580) (59,499) 18,171 138,709Prior year adjustments 6 - 10,443 (73,347) (9,416) (72,320)As at 1 January 2006, as restated 182,617 7,863 (132,846) 8,755 66,389Net loss on available-for-sale financial assets 33 - (6,836) - - (6,836)Currency translation differences 33 - (865) - (440) (1,305)Net loss recognised directly in equity - (7,701) - (440) (8,141)Profit for the year - - 20,571 2,696 23,267Total recognised income and expense - (7,701) 20,571 2,256 15,126Transfer to capital reserve 33 - 3,041 (3,041) - -Transfer to PRC statutory surplus reserve 33 - 1,331 (1,331) - -Grant of equity-settled share options to employees 33 - 137 - - 137Issue of shares 32 250,802 - - - 250,802Share issue expense 32 (15,811) - - - (15,811)As at 31 December 2006 417,608 4,671 (116,647) 11,011 316,643The accompanying accounting policies and explanatory notes form an integral part of the financial statements.42 YANTAI RAFFLES SHIPYARD LIMITED


STATEMENTS OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007CompanyNoteShare capitaland sharepremiumAttributable to equityholders of the CompanyOtherreservesAccumulatedlossesTotal equity$’000 $’000 $’000 $’000As at 1 January 2007 417,608 137 (71,260) 346,485Profit for the year, representing total recognised income andexpense - - 9,359 9,359Grant of equity-settled share options to employees 33 - 2,554 - 2,554Issue of shares 32 178,077 - - 178,077Share issue expense 32 (4,439) - - (4,439)As at 31 December 2007 591,246 2,691 (61,901) 532,036As at 1 January 2006, as previously reported 182,617 - (29,807) 152,810Prior year adjustments 6 - - (50,879) (50,879)As at 1 January 2006, as restated 182,617 - (80,686) 101,931Profit for the year, representing total recognised income andexpense - - 9,426 9,426Grant of equity-settled share options to employees 33 - 137 - 137Issue of shares 32 250,802 - - 250,802Share issue expense 32 (15,811) - - (15,811)As at 31 December 2006 417,608 137 (71,260) 346,485The accompanying accounting policies and explanatory notes form an integral part of the financial statements.ANNUAL REPORT 2007 43


CONSOLIDATED CASH FLOW STATEMENTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007Group2007 2006$’000 $’000(Restated)Cash flow from operating activitiesProfit before income tax 52,088 26,110Adjustments for:- Amortisation of intangible assets 918 428- Amortisation of sea use rights 101 97- Depreciation and impairment loss on property, plant and equipment 6,755 6,185- Loss on disposal of property, plant and equipment 1,092 6,343- Impairment loss on financial assets, available for sale 1,649 -- Gain on sale of financial assets, available-for-sale (9,625) -- Translation differences 563 1,248- Share options expense 2,554 137- Interest expense 3,935 5,381- Interest income (10,790) (7,649)- Share of loss of an associated company 190 -- Fair value gain on derivative financial instruments, net (21,800) (2,600)Operating cash flow before working capital changes 27,630 35,680Change in operating assets and liabilities- Inventories (88,876) 26,872- Vessel under construction (114,506) -- Construction work-in-progress and excess progress billings 232,836 187,018- Trade and other receivables 30,827 (31,687)- Other current assets (187,604) (22,762)- Advances from customers 38,292 (1,098)- Trade and other payables 76,992 (12,981)- Other long term liabilities (358) (487)- Notes payable - (1,468)- Provision for other liabilities 7,530 (17,637)Cash generated from operations 22,763 161,450Interest received 10,790 7,649Interest paid (3,935) (5,381)Income tax paid (9,163) (1,978)Cash pledged for performance bonds and bank overdrafts (15,561) (98,509)Net cash generated from operating activities 4,894 63,231Cash flows from investing activitiesProceeds from disposal of property, plant and equipment 402 1,105Purchase of property, plant and equipment and intangible assets (93,596) (65,038)Purchase of land and sea use rights (601) -Prepayments (8,107) (590)Advance payment for acquisition of minority interests of subsidiaries - (5,437)Proceeds from sales of financial assets, available-for-sale 27,011 41Purchase of financial assets, available-for-sale (33,848) (19,597)Investment in an associated company and a joint venture company (3,663) -Net cash used in investing activities (112,402) (89,516)Cash flows from financing activitiesProceeds from issuance of ordinary shares 178,077 250,802Share issue expenses (4,439) (15,811)Proceeds from borrowings from banks 168,461 102,677Net repayment from related party balances - (31,866)Net repayment of trust receipts - (256)Repayment of borrowings from banks (210,841) (148,213)Net cash provided by financing activities 131,258 157,333Net increase in cash and cash equivalents 23,750 131,048Cash and cash equivalents at beginning of financial year 185,123 54,075Cash and cash equivalents at end of financial year (Note 13) 208,873 185,123The accompanying accounting policies and explanatory notes form an integral part of the financial statements.44 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007These notes form an integral part of and should be read in conjunction with the accompanying financial statements.1. CORPORATE INFORMATIONYantai Raffles Shipyard Limited (the “Company”) is incorporated and domiciled in Singapore. The address of its registered officeis No.1 Claymore Drive, #08-04 Orchard Towers, Singapore 229594.The principal activities of the Company are to carry on the business of providing of project management services, the constructionand conversion of vessels, rigs and marine structures and investment holding. The principal activities of its subsidiaries and anassociated company and a joint venture company are set out in Note 22 and 23 respectively to the financial statements.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES2.1 Basis of PreparationThe consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Companyhave been prepared in accordance with Singapore Financial Reporting Standards (“FRS”).The financial statements have been prepared on a historical cost basis, except as disclosed in the accounting policies below.The consolidated financial statements are presented in Singapore Dollars (“SGD” or “$”) and all values are rounded in the tablesto the nearest thousand ($’000) except when otherwise indicated.The preparation of financial statements in conformity with FRS requires management to exercise its judgment in the processof applying the Group’s accounting policies. It also requires the use of certain critical accounting estimates and assumptions.The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to thefinancial statements are disclosed in Note 3.Prior year adjustmentsDuring the financial year, the Group changed the method that measures the stage of construction work performed, that is,percentage of completion, from by reference to (a) the physical progress of each construction project as determined by theproject management team, to (b) the proportion that contract costs incurred for work performed to date bear to the estimatedtotal contract costs.In accordance with FRS 8, Effects of Changes in Accounting Policies, the change in the method that measures reliably the workperformed of construction contracts have been accounted for retrospectively and the comparative figures for 2006 have beenrestated accordingly. The main effect of the resulting adjustments has increased gross profit of the Group by $9,221,000. Pleaserefer to Note 6 for details of prior year comparatives as restated.2.2 New and Revised FRS(i)Adoption of new and revised FRSThe Group adopted the following revised FRS and INT FRS which did not result in any significant change in accountingpolicies:Effective date(Annual years beginnings on or after)FRS 32 (revised) Financial Instruments: Disclosure and Presentation 1 January 2007FRS 33 (revised) Earnings Per Share 1 January 2007INT FRS 108 Scope of FRS102, Share-based Payments 1 May 2006INT FRS 109 Reassessment of Embedded Derivatives 1 June 2006INT FRS 110 Interim Financial Reporting and Impairment 1 November 2006FRS 40: Investment Properties effective for annual year beginning on or after 1 January 2007 does not apply to the activitiesof the Group.ANNUAL REPORT 2007 45


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.2 New and Revised FRS (Continued)(ii)FRS and INT FRS not yet effectiveThe Group has not adopted FRS 107, Financial Instruments: Disclosures and Amendment to FRS 1 (revised) Presentation ofFinancial Statements (Capital Disclosures). FRS 107 introduces new disclosures to improve the information about financialinstruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising fromfinancial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, includingsensitivity analysis to market risk. The amendment to FRS 1 requires the Group to make new disclosures to enable users ofthe financial statements to evaluate the Group’s objectives, policies and processes for managing capital.The adoption of FRS 107 will result in additional disclosures in the financial statements. The Group will apply FRS 107 andthe amendment to FRS1 from annual years beginning 1 January 2008.The Group has not applied the following FRS and INT FRS that have been issued but not yet effective.Effective date(Annual years beginnings on or after)FRS 23 Amendments to FRS 23, Borrowing costs 1 January 2009FRS 108 Operating segments 1 January 2009INT FRS 111 Group and treasury share transactions 1 March 2007INT FRS 112 Service concession arrangements 1 January 2008The directors expect that the adoption of the above pronouncements will have no material impact to the financial statementsin the year of initial application, except for FRS 108 as indicated below.FRS 108 requires entities to disclose segment information based on the information reviewed by the entity’s chief operatingdecision maker. The impact of this standard on the other segment disclosures is still to be determined. As this is a disclosurestandard, it will have no impact on the financial position or financial performance of the Group when implemented in2009.2.3 Revenue recognitionRevenue comprises the fair value of the consideration received or receivable for the sale of goods and rendering of services inthe ordinary course of the Group’s activities. Revenue is presented, net of value-added tax, rebates and discounts, and aftereliminating sales within the Group. Revenue is recognised as follows:(a)Revenue from construction contractsRevenue from ship and rig conversion and building is recognised on percentage of completion method when the outcomeof the construction contracts can be reliably ascertained. Please refer to paragraph “2.7 Construction Contracts” for moredetailed accounting policies.(b)Revenue from sales contractsRevenue from ship and rig sales contracts is recognised upon delivery of the vessels.(c)Interest incomeInterest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired,the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted atthe original effective interest rate of the instrument, and continues amortising the discount as interest income on therecoverable amount.46 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 Group accounting(a)SubsidiariesSubsidiaries are entities (including special purpose entities) over which the Group has power to govern the financial andoperating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence andeffect of potential voting rights that are currently exercisable or convertible are considered when assessing whether theGroup controls another entity.The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of anacquisition is measured as the fair value of the assets acquired, equity instruments issued or liabilities incurred or assumedat the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities andcontingent liabilities assumed in a business combination are measured initially at their fair value on the date of acquisition,irrespective of the extent of any minority interest. Please refer to the paragraph “2.6 Intangible assets - Goodwill” for theaccounting policy on goodwill on acquisition of subsidiaries. Any excess of the Group’s share in the net fair value of theacquired subsidiary’s identifiable assets, liabilities and contingent liabilities over cost of business combination is recognisedas income in the income statement on the date of acquisition.Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated fromthe date on which control ceases.The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at thebalance sheet date. In preparing the consolidated financial statements, transactions, balances and unrealised gains ontransactions between Group companies are eliminated. Unrealised losses are also eliminated but are considered animpairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary toensure consistency with the policies adopted by the Group.Minority interests are that part of the net results of operations and of net assets of a subsidiary attributable to interestswhich are not owned directly or indirectly by the Group. They are measured at the minorities’ share of the fair value of thesubsidiaries’ identifiable assets and liabilities at the date of acquisition by the Group and the minorities’ share of changesin equity since the date of acquisition, except when the losses applicable to the minority interests in a subsidiary exceedthe minority interests in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minorityinterests are attributed to the equity holders of the Company, unless the minority interests have a binding obligation to,and are able to, make good the losses. When that subsidiary subsequently reports profits, the profits applicable to theminority interests are attributed to the equity holders of the Company until the minority interests’ share of losses previouslyabsorbed by the equity holders of the Company have been recovered.Minority interests are presented in the consolidated balance sheet within equity, separately from the parent shareholders’equity, and are separately disclosed in the consolidated income statement.Please refer to the paragraph “2.8 Investment in subsidiaries, an associated company and a joint venture company” for theaccounting policy on investment in subsidiaries in the separate financial statements of the Company.(b)Transactions with minority interestsThe Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group.Disposals to minority interests, which result in gains and losses for the Group, are recorded in the income statement. Thedifference between any consideration paid to minority interests for purchases of additional equity interest in a subsidiaryand the incremental share of the carrying value of the net assets of the subsidiary is recognised as goodwill.ANNUAL REPORT 2007 47


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.4 Group accounting (Continued)(c)Associated company and joint venture companyAn associated company is an entity, not being a subsidiary or a joint venture company, in which the Group has significantinfluence. This generally coincides with the Group having 20% or more of the voting power or has representation on theboard of directors.A joint venture company is a contractual arrangement whereby two or more parties undertake an economic activity that issubject to joint control, where the strategic financial and operating decisions relating to the activity require the unanimousconsent of the parties sharing control.The Group’s investment in an associated company and a joint venture company are accounted for using the equity method.Under the equity method, the investments in an associated company and joint venture company are carried in the balancesheet at cost plus post-acquisition changes in the Group’s share of net assets of the associated company and joint venturecompany. The Group’s share of the profit or loss of the associated company and joint venture company are recognised inthe consolidated income statement. Where there has been a change recognised directly in the equity of the associatedcompany and joint venture company, the Group recognises its share of such changes. After application of the equitymethod, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s netinvestment in the associated company and joint venture company. The associated company and joint venture companyare equity accounted for from the date the Group obtains significant influence until the date the Group ceases to havesignificant influence over the associated company and joint venture company.Goodwill relating to an associated company and a joint venture company is included in the carrying amount of theinvestment.Any excess of the Group’s share of the net fair value of the associated company’s and joint venture company’s identifiableassets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of theinvestment and is instead included as income in the determination of the Group’s share of the associated company’s andjoint venture company’s profit or loss in the year in which the investment is acquired.When the Group’s share of losses in an associated company and a joint venture company equals or exceeds its interestin the associated company and joint venture company, including any other unsecured receivables, the Group does notrecognise further losses, unless it has incurred obligations or made payments on behalf of the associated company andjoint venture company.The most recent available audited financial statements of the associated company and joint venture company are usedby the Group in applying the equity method. Where the dates of the audited financial statements used are not coterminouswith those of the Group, the share of results is arrived at from the last audited financial statements availableand management financial statements to the end of the accounting year. Consistent accounting polices are applied for liketransactions and events in similar circumstances.2.5 Property, plant and equipment(a)Measurement(i)(ii)All items of property, plant and equipment are initially recognised at cost and subsequently carried at cost lessaccumulated depreciation and accumulated impairment losses.Components of costsThe cost of an item of property, plant and equipment includes its purchase price and any cost that is directlyattributable to bringing the asset to the location and condition necessary for it to be capable of operating in themanner intended by management. The projected cost of dismantling, removal or restoration is also included as partof the cost of property, plant and equipment if the obligation for the dismantling, removal or restoration is incurred asa consequence of acquiring or using the asset. Cost may also include any gains/losses on qualifying cash flow hedgesof foreign currency purchases of property, plant and equipment that are transferred from the hedging reserve.48 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.5 Property, plant and equipment (Continued)(b)DepreciationDepreciation of property, plant and equipment is calculated using the straight-line method to allocate their depreciableamounts over their estimated useful lives as follows:Useful lives (Years)Buildings 20 – 30Quays and dry docks 50Barges 25Machinery and equipment 3 – 15Office equipment 3 – 15Motor vehicles 5The residual values and useful lives of property, plant and equipment are reviewed, and adjusted as appropriate, at eachbalance sheet date. The effects of any revision of the residual values and useful lives are included in the income statementfor the financial year in which the changes arise.(c)Subsequent expenditureSubsequent expenditure relating to property, plant and equipment that has already been recognised is added to thecarrying amount of the asset only when it is probable that future economic benefits associated with the item will flow tothe Group and the cost of the item can be measured reliably. Other subsequent expenditure is recognised as repair andmaintenance expense in the income statement during the financial year in which it is incurred.(d)DisposalOn disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and its carryingamount is taken to the income statement. An item of property, plant and equipment is also derecognised when no futureeconomic benefits are expected from its use.(e)Construction in progressConstruction in progress is intended to be held as property, plant and equipment upon the completion of construction andis stated at cost. These amounts include all expenditure incurred in developing the fixed assets. Assets under constructionincluded in property, plant and equipment are not depreciated as they are not available for use.2.6 Intangible assets(a)GoodwillGoodwill represents the excess of the cost of acquisition of subsidiaries over the fair value of the Group’s share of theidentifiable net assets of the acquired subsidiaries at the date of acquisition. Goodwill on acquisitions of subsidiaries isincluded in intangible assets.Goodwill recognised separately as intangible assets is tested at least annually for impairment and carried at cost lessaccumulated impairment losses. Gains and losses on the disposal of the subsidiaries include the carrying amount ofgoodwill relating to the entity sold.(b)Computer software licensesAcquired computer software licenses are initially capitalised at cost which includes the purchase price net of any discountsand rebates.ANNUAL REPORT 2007 49


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.6 Intangible assets (Continued)(b)Computer software licenses (Continued)Following initial recognition, computer software licenses are subsequently carried at cost less accumulated amortisationand accumulated impairment losses. These costs are amortised to the income statement using the straight-line methodover their estimated useful lives of 3 to 10 years.(c)The amortisation year and amortisation method of intangible assets other than goodwill are reviewed at least at eachbalance sheet date. The effects of any revision of the amortisation year or amortisation method are included in the incomestatement for the financial year in which the changes arise.2.7 Construction contractsA construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that areclosely inter-related or inter-dependent in terms of their design, technology and functions or their ultimate purpose or use.Contract costs are recognised when incurred.When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognisedas revenue and expenses respectively by reference to the stage of completion of the contract activity at the balance sheetdate (percentage-of-completion method). When the outcome of a construction contract cannot be estimated reliably, contractrevenue is recognised to the extent of contract costs incurred that are likely to be recoverable. When it is probable that totalcontract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.Contract revenue comprises the initial amount of revenue agreed in the contract and variations in the contract work and claimsthat can be measured reliably. A variation or a claim is only included in contract revenue when it is probable that the customerwill approve the variation or negotiations have reached an advanced stage such that it is probable that the customer will acceptthe claim.The percentage of completion is measured by reference to the contract costs incurred to date to the estimated total costs forthe contract. Costs incurred during the financial year in connection with future activity on a contract are shown as constructioncontract work-in-progress on the balance sheet unless it is not probable that such contract costs are recoverable from thecustomers, in which case, such contract costs incurred are recognised as an expense immediately.Construction work-in-progress at the balance sheet date is recorded in the balance sheet at cost plus attributable profitless recognised losses, net of progress claims, and is presented in the balance sheet as “construction work-in-progress inexcess of progress billings” (as an asset) or “progress billing in excess of construction work-in-progress” (as a liability), asapplicable. Construction costs include cost of direct materials, direct labour and overhead costs incurred in connection with theconstruction.2.8 Investment in subsidiaries, an associated company and a joint venture companyInvestment in subsidiaries, an associated company and a joint venture company are stated at cost less accumulated impairmentlosses in the Company’s balance sheet. On disposal of investment in subsidiaries, an associated company and a joint venturecompany, the difference between net disposal proceeds and the carrying amounts of the investment are taken to the incomestatement.50 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.11 Financial assets(a)ClassificationThe Group classifies its financial assets as either financial assets at fair value through profit and loss, loans and receivables,held to maturity investments or available-for-sale financial assets, as appropriate. The classification depends on the purposefor which the assets were acquired. Management determines the classification of its financial assets at initial recognitionand where allowed and appropriate, re-evaluates this designation at every reporting date.(i)Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted inan active market. They are included in current assets, except those maturing later than 12 months after the balancesheet date which are classified as non-current assets. Loans and receivables are classified within “trade and otherreceivables” and “cash and bank balances” on the balance sheet.(ii)Available-for-sale financial assetsAvailable-for-sale financial assets are non-derivative financial assets that are either designated in this category ornot classified in any of the other categories as prescribed in FRS 39. They are included in non-current assets unlessmanagement intends to dispose of the assets within 12 months after the balance sheet date.(b)Recognition and derecognitionFinancial assets are recognised on the balance sheet when, and only when, the Group becomes a party to the contractualprovisions of the financial instrument.Purchases and sales of financial assets, available-for-sale, are recognised on trade-date – the date on which the Companycommits to purchase or sell the asset.Financial assets are derecognised when the right to receive cash flows from the financial assets have expired or have beentransferred and the Company has transferred substantially all risks and rewards of ownership.On sale of a financial asset classified as available-for-sale, the difference between the net sale proceeds and its carryingamount is taken to the income statement. Any amount in the fair value reserve relating to that asset is also taken to theincome statement.(c)MeasurementLoans and receivables and available-for-sale financial assets are initially recognised at fair value plus transaction costs.Loans and receivables are subsequently carried at amortised cost using the effective interest method. Financial assets,available-for-sale, are subsequently carried at fair value. Changes in the fair value of financial assets classified as availablefor-saleare recognised in the fair value reserve within equity. When financial assets classified as available-for-sale are soldor impaired, the accumulated fair value adjustments in the fair value reserve within equity are included in the incomestatement.Interest and dividend income on financial assets, available-for-sale are recognised separately in the income statement.Changes in the fair values of available-for-sale debt securities (i.e. monetary items) denominated in foreign currenciesare analysed into currency translation differences on the amortised cost of the securities and other changes; the currencytranslation differences are recognised in the income statement and other changes are recognised in the fair value reserve.Changes in fair values of available-for-sale equity securities (i.e. non-monetary items) are recognised in the fair valuereserve, together with the related currency translation difference.52 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.11 Financial assets (Continued)(d)ImpairmentThe Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group offinancial assets is impaired.(i)Loans and receivablesAn allowance for impairment of loans and receivables including trade and other receivables is recognised when thereis objective evidence that the Group will not be able to collect all amounts due according to the original terms ofthe loans or receivables. The amount of the allowance is the difference between the asset’s carrying amount andthe present value of estimated future cash flows, discounted at the original effective interest rate. The amount ofallowance for impairment is recognised in the income statement within “Administrative expenses”.If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectivelyto an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed.Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carryingvalue of the asset does not exceed its amortised cost at the reversal date.(ii)Available-for-sale financial assetsIn the case of an equity security classified as available-for-sale, a significant or prolonged decline in the fair value ofthe security below its cost is considered an indicator that the security is impaired.When there is objective evidence that an available-for-sale financial asset is impaired, the cumulative loss that hasbeen recognised directly in the fair value reserve is removed from the fair value reserve within equity and recognisedin the income statement. The cumulative loss is measured as the difference between the acquisition cost and thecurrent fair value, less any impairment loss on that financial asset previously recognised in the income statement.Impairment losses on equity instruments classified as available-for-sale financial assets are not reversed through theincome statement.2.12 Borrowings/ Borrowing costsBorrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortisedcost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the incomestatement over the year of the borrowings using the effective interest method.Borrowings which are due to be settled within 12 months after the balance sheet date are presented as current borrowings eventhough the original term was for a year longer than 12 months and an agreement to refinance, or to reschedule payments, ona long-term basis is completed after the balance sheet date and before the financial statements are authorised for issue. Otherborrowings due to be settled more than 12 months after the balance sheet date are presented as non-current borrowings in thebalance sheet.Borrowings costs are generally expensed as incurred.Borrowing costs incurred to finance the construction of vessels and rigs are capitalised during the period of time that is requiredto complete the construction. Other borrowing costs are recognised on a time-proportion basis in the income statement usingthe effective interest method.ANNUAL REPORT 2007 53


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.13 Financial liabilitiesFinancial liabilities include trade payables, which are normally settled on 30 to 90 days’ terms, other amount payable, payablesto related parties and interest-bearing loans and borrowings. Financial liabilities are recognised on the balance sheet when,and only when, the Group becomes a party to the contractual provisions of the financial instrument. Financial liabilities areinitially recognised at fair value of consideration received less directly attributable transaction costs and subsequently measuredat amortised cost using the effective interest method.Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisationprocess. The liabilities are derecognised when the obligation under the liability is discharged or cancelled or expired.2.14 Fair value estimationThe carrying amounts of current financial assets and liabilities, carried at amortised cost, are assumed to approximate their fairvalues.The fair values of financial instruments traded in active markets (such as exchange-traded and over-the-counter securities andderivatives) are based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets heldby the Group are the current bid prices; the appropriate quoted market prices for financial liabilities are the current ask prices.The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques.The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheetdate. Where appropriate, quoted market prices or dealer quotes for similar instruments are used. Valuation techniques, such asestimated discounted cash flows, are also used to determine the fair values of the financial instruments.The fair values of financial liabilities carried at amortised cost are estimated by discounting the future contractual cash flows atthe current market interest rates that are available to the Group for similar financial liabilities.2.15 Operating leasesThe Group leases certain property, plant and equipment from third parties.Leases of property, plant and equipment where a significant portion of the risks and rewards of ownership are retained by thelessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor)are taken to the income statement on a straight-line basis over the year of the lease.Contingent rents are recognised as an expense in the income statement in the financial year in which they are incurred.When an operating lease is terminated before the lease year has expired, any payment required to be made to the lessor by wayof penalty is recognised as an expense in the financial year in which termination takes place.2.16 InventoriesInventories are carried at the lower of cost and net realisable value. Cost is determined using the weighted average method. Netrealisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.2.17 Income taxes(a)Current TaxCurrent income tax liabilities (and assets) for current and prior years are recognised at the amounts expected to be paid to(or recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantially enactedby the balance sheet date.54 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.17 Income taxes (Continued)(b)Deferred TaxDeferred tax assets/liabilities are recognised for all deductible and taxable temporary differences arising between the taxbases of assets and liabilities and their carrying amounts in the financial statements except when the deferred tax assets/liabilities arise from the initial recognition of an asset or liability in a transaction that is not a business combination and atthe time of the transaction, affects neither accounting nor taxable profit or loss.Deferred tax liability is recognised on temporary differences arising on investment in subsidiaries, except where the Groupis able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference willnot reverse in the foreseeable future.Deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against whichthe temporary differences can be utilised.Deferred tax assets and liabilities are measured at:(i)(ii)the tax rates that are expected to apply when the related deferred tax asset is realised or the deferred tax liability issettled, based on tax rates (and tax laws) that have been enacted or substantially enacted by the balance sheet date;andthe tax consequence that would follow from the manner in which the Group expects, at the balance sheet date, torecover or settle the carrying amounts of its assets and liabilities.Current and deferred taxes are recognised as income or expenses in the income statement for the year, except to the extentthat the tax arises from a business combination or a transaction which is recognised directly in equity.(c)Sales Tax2.18 ProvisionsRevenue, expenses and assets are recognised net of the amount of sales tax except where the sales tax incurred on apurchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised aspart of the cost of acquisition of the asset or as part of the expense item as applicable, and receivables and payables thatare stated with amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxationauthority is included as part of receivables or payables in the balance sheet.Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is morelikely than not that an outflow of economic resources will be required to settle the obligation and the amount has been reliablyestimated.Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probablethat an outflow of economic resources will be required to settle the obligation, the provision is reversed.Provision for warrantiesThe Group recognises the estimated liability to repair or rectify any defect caused by faulty design done. A provision is recognisedat the balance sheet date for expected warranty claims based on estimate from technical engineers and past experience of theprobable level of repairs and rectifications.Provision for liquidated damages on construction contractsThe Group recognises provision for liquidated damages in respect of anticipated claims from project owners for constructioncontracts of which deadlines are overdue or are not expected to be delivered on time in accordance with contractualobligations.ANNUAL REPORT 2007 55


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.19 Employee compensation(a)Defined contribution plansDefined contribution plans are post-employment benefit plans under which the Group pays fixed contributions intoseparate entities such as the Central Provident Fund in Singapore and social security insurance in the People’s Republic ofChina (the “PRC”) on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once thecontributions have been paid. The Group’s contributions are recognised as employee compensation expense when theyare due.In accordance with the relevant regulations in the PRC, the premiums and welfare benefit contributions borne by theGroup are calculated based on percentage of the total salary of employees, subject to a certain ceiling, and are paid tothe labour and social welfare authorities. The applicable percentage used to provide for insurance premium and welfarebenefits funds are listed below:Basic pension insurance 20%Basic medical insurance 7%Unemployment insurance 2%Maternity fund 1%Accident insurance 1.1%Housing fund 6%(b)Share-based compensationThe Group operates an equity-settled, share-based compensation plan. The fair value of the employee services receivedin exchange for the grant of the share options is recognised as an expense in the income statement with a correspondingincrease in the share option reserve over the vesting period. The total amount to be recognised over the vesting periodis determined by reference to the fair value of the share options granted on the date of the grant. Non-market vestingconditions are included in the estimation of the number of shares under share options that are expected to becomeexercisable on the vesting date. At each balance sheet date, the Group revises its estimates of the number of shares undershare options that are expected to become exercisable on the vesting date and recognises the impact of the revision ofthe estimates in the income statement, with a corresponding adjustment to the share option reserve over the remainingvesting period.When the share options are exercised, the proceeds received (net of any directly attributable transaction costs) and therelated balance previously recognised in the share option reserve are credited either to share capital, when new ordinaryshares are issued, or to the “treasury shares” account within equity, when treasury shares purchased are re-issued to theemployees.(c)Employee leave entitlementEmployee entitlements to annual leave are recognised as a liability when they accrue to employees. A provision is made forthe estimated liability for leave as a result of services rendered by employees up to the balance sheet date.(d)Termination benefitsTermination benefits are payable when employment is terminated before the normal retirement date or whenever anemployee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when itis demonstrably committed to either terminate the employment of current employees according to a detailed plan withoutpossibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.In the case of an offer made to encourage voluntary redundancy, the measurement of termination benefits is based on thenumber of employees expected to accept the offer. Benefits falling due more than 12 months after balance sheet date arediscounted to present value.56 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.20 Currency translation(a)Functional and presentation currencyItems included in the financial statements of each entity in the Group are measured using the currency of the primaryeconomic environment in which the entity operates (“functional currency”). The financial statements are presented inSingapore Dollar, which is the Company’s functional currency.(b)Transactions and balancesTransactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currencyusing the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting fromthe settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreigncurrencies at the closing rates at the balance sheet date are recognised in the income statement, except for currencytranslation differences on the net investment in foreign operations, borrowings in foreign currencies and other currencyinstruments qualifying as net investment hedges for foreign operations, which are included in the currency translationreserve within equity in the consolidated financial statements.Non-monetary items that are measured at fair values in foreign currency are translated using the exchange rates at the datewhen the fair values are determined. Currency translation differences on non-monetary items whereby the gains or lossesare recognised directly in equity, such as equity investments classified as available-for-sale financial assets, are included inthe fair value reserve.(c)Translation of Group entities’ financial statementsThe results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy)that have a functional currency different from the Singapore Dollar are translated into the Singapore Dollar as follows:(i)(ii)(iii)Assets and liabilities are translated at the closing rates at the date of the balance sheet;Income and expenses are translated at average exchange rates (unless the average is not a reasonable approximationof the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses aretranslated using the exchange rates at the dates of the transactions); andAll resulting exchange differences are taken to the currency translation reserve within equity.(d)Consolidation adjustmentsOn consolidation, currency translation differences arising from the net investment in foreign operations, borrowings inforeign currencies, and other currency instruments designated as hedges of such investments, are taken to the currencytranslation reserve. When a foreign operation is sold, such currency translation differences recorded in the currencytranslation reserve are recognised in the income statement as part of the gain or loss on sale.2.21 Segment reportingA business segment is a distinguishable component of the Group engaged in providing products or services that are subjectto risks and returns that are different from those of other business segments. A geographical segment is a distinguishablecomponent of the Group engaged in providing products or services within a particular economic environment that is subject torisks and returns that are different from those of segments operating in other economic environments.2.22 Cash and cash equivalentsCash and cash equivalents include cash on hand, deposits with financial institutions and bank overdrafts.2.23 Bank overdraftsBank overdrafts are shown within borrowings in current liabilities on the balance sheet.ANNUAL REPORT 2007 57


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.24 Share capitalProceeds from issuance of ordinary shares are recognised as share capital in equity.Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the share capital account.2.25 DividendsInterim dividends are recorded in the financial year in which they are declared payable. Final dividends are recorded in thefinancial year in which the dividends are approved by the shareholders.2.26 Derivative financial instruments and hedging activitiesDerivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into andare subsequently remeasured at fair value. Derivative financial instruments are carried as assets when the fair value is positive andas liabilities when the fair value is negative.Any gains or losses arising from changes in fair value on derivative financial instruments that do not qualify for hedge accountingare taken to the income statement for the financial year.The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts withsimilar maturity profiles. The fair value of interest rate derivative contracts is determined by reference to market values for similarinstruments.Embedded derivativesThe Group assesses when it first becomes a party to a contract whether any embedded derivatives contained in the contract arerequired to be separated from the host contract and accounted for as derivatives.An embedded derivative is to be separated from the host contract and accounted for as a derivative if, and only if:(a)(b)(c)the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristicsand risks of the host contract;a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; andthe hybrid (combined) instrument is not measured at fair value with changes in fair value recognised in income statement(that is, a derivative that is embedded in a financial asset or financial liability at fair value through income statement).Embedded derivatives identified and separately accounted for are fair value through income statement.Hedge accountingThe Group applies hedge accounting for certain hedging relationships which qualify for hedge accounting.For the purpose of hedge accounting, hedges are classified as:- fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognisedfirm commitment; or- cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associatedwith a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognisedfirm commitment; or- hedges of a net investment in a foreign operation.58 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2.26 Derivative financial instruments and hedging activities (Continued)At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which theGroup wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. Suchhedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on anongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for whichthey were designated.Hedges which meet the strict criteria for hedge accounting are accounted for as follows:Cash flow hedgesThe effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portionis recognised immediately in the income statement.Amounts taken to equity are transferred to the income statement when the hedged transaction affects the income statement,such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedgeditem is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carryingamount of the non-financial asset or liability.If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity aretransferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacementor rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecasttransaction or firm commitment occurs.Derivatives that are not designated or do not qualify for hedge accountingFair value changes on these derivatives are recognised in the income statement when the changes arise.Hedging reserveHedging reserve records the portion of the fair value changes on derivatives that are designated as hedging instruments in cashflow hedges that are determined to be effective.3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATESEstimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances.Critical accounting estimates and assumptionsThe Group on its own or in reliance on third party experts makes estimates and assumptions concerning the future. The resultingaccounting estimates, by definition, will seldom equal the related actual results. The estimates and assumptions that have asignificant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial yearare discussed below.(i)Impairment of goodwillDetermining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to whichthe goodwill is allocated. This requires the Group to estimate the future cashflows expected from the cash-generating unitsand an appropriate discount rate in order to calculate the present value of the future cashflows. The carrying amount ofgoodwill at the balance sheet date is disclosed in Note 26.ANNUAL REPORT 2007 59


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20073. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)Critical accounting estimates and assumptions (Continued)(ii)Impairment of available-for-sale financial assetsDetermining whether available-for-sale financial assets are other than temporarily impaired requires evaluation regardingthe duration and extent to which the fair value of an investment is less than its cost, and the financial health of and neartermbusiness outlook for the investee, including factors such as industry and sector performance, changes in technologyand operational and financing cashflow. The fair value of available-for-sale financial assets is disclosed in Note 21.(iii)Revenue recognitionThe Group uses the percentage of completion method to account for its contract revenue where it is probable that contractcosts are recoverable. The stage of completion is measured in accordance with the accounting policy stated in Note 2.7.Significant judgement is required in determining the stage of completion, the extent of the contract costs incurred, theestimated total contract revenue and contract cost and the recoverability of the contracts. In making the assumption, theGroup evaluates by relying on past experience and the work of the project management team. Revenue from constructioncontracts is disclosed in consolidated income statement.The stage of completion of each construction contract is assessed on a cumulative basis in each accounting year. Changesin estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contractcould impact the amount of revenue and expenses recognised in the income statement in the year in which the change ismade and in subsequent years. Such impact could potentially be significant.(iv)Income taxesThe Group has exposure to income taxes in more than one jurisdiction. Significant judgement is required in determiningthe group-wide provision for income taxes. There are certain transactions and computations for which the ultimate taxdetermination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issuesbased on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is differentfrom the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions inthe year in which such determination is made. The carrying amount of taxation and deferred taxation is disclosed in theconsolidated balance sheet.(v)Useful lives of property, plant and equipmentThe Group’s management determines the estimated useful lives and related depreciation charges for its plant andequipment. This estimate is based on the historical experience of the actual useful lives of plant and equipment of similarnature and functions. It could change significantly as a result of technical innovations and competitor actions in responseto severe industry cycles. Management will increase the depreciation charge where useful lives are less than previouslyestimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandonedor sold.(vi)Fair value of Executive Share OptionThe Group determines the fair value of the share options granted under its Executive Share Option Scheme as disclosed inNote 32, using the Binomial and Trinomial Valuation models with significant inputs estimated by management.(vii)Provision for liquidated damages on construction contractsThe Group recognises provision for liquidated damages in respect of anticipated claims from project owners for constructioncontracts of which deadlines are overdue or where vessels are not expected to be delivered on time in accordance withcontractual obligations.60 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20073. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)Critical accounting estimates and assumptions (Continued)(viii) Provision for warranties on construction contractsThe Group has exposure to warranties arising from warranty obligations stated in its construction contracts. Managementestimates the related provision for future warranty claims based on available knowledge and historical warranty claiminformation, as well as recent trends that suggest that past cost information may differ from future claims.Factors that could impact the estimated claim information include the quality of the Group’s products as well as the partsand labour costs.The Group recognises provision for warranties to the extent that it has a present legal or constructive obligation as a resultof past event; it is more likely than not that an outflow of resources will be required to settle the obligation; and that theamount has been reliably estimated.The carrying amount of the provision for warranties is disclosed in Note 31.Critical judgements in applying the Group’s accounting policiesThe following judgement is made by management in the process of applying the Group’s accounting policies that have the mostsignificant effect on the amounts recognised in the financial statements.(i)Revenue recognitionIn the process of applying the Group’s accounting policies, the directors are of the opinion that the application of judgementsto the determination of the stage of percentage of completion which in turn affects contract revenue recognised, has themost significant effect on the amounts recognised in the financial statements.(ii)Reclaimed land and buildings without ownership certificatesThe Group is in the process of applying for the State-owned Land Use Right Certificate in respect of land reclaimed fromthe sea as well as Building Ownership Certificates for certain buildings and premises of the PRC subsidiaries. The carryingamount of the buildings without the relevant ownership certificates amounted to $15,038,000 as of 31 December 2007(2006: $8,892,000). The Group has made the necessary applications to the relevant authorities. The directors expectto obtain the relevant approvals in due course and are of the opinion that the PRC subsidiaries can continue to use thebuildings and premises in the meantime without any penalty. The buildings and premises have been recognised as assetsof the Group pending obtaining the ownership certificates.No contingent liabilities in connection with any possible breach or non-compliance with the relevant laws and regulationsin respect of the buildings without ownership certificates have been provided for in the financial statements as the directorsare of the opinion that the risk associated thereof is low.(iii)Sea use rightsThe Group is in the process of applying for the transfer of sea use rights from the Sea and Fishery Bureau of Yantai inrespect of two sea areas in Yantai. As at 31 December 2007, prepayments relating to the sea use rights amounted to$8,465,000 (2006: $Nil). The Group has made the necessary application to the relevant authorities. The directors are of theopinion that the PRC subsidiary will be able to obtain the relevant sea use rights in due course. In the unlikely event thatthe relevant approval is not obtained, the Group may need to expense the amount to the income statement.ANNUAL REPORT 2007 61


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20074. ACQUISITIONS OF MINORITY INTERESTS OF SUBSIDIARIESOn 8 March 2007, the Company obtained approval for the purchase of equity interests in the PRC subsidiaries, Yantai RafflesShipyard Co., Ltd (“YRSCL”) and Yantai Raffles Offshore Ltd (“YROL”), from a minority interest as disclosed in Note 20. Thedetails of the purchase are as follows:Paid in capital acquired ConsiderationNet assetsacquiredGoodwill arising onconsolidation (Note 26)% RMB’000 $’000 $’000 $’000YRSCL 8.69 10,945 4,049 2,655 1,394YROL 2.00 4,689 1,388 202 1,18615,634 5,437 2,857 2,580The goodwill arising on the acquisition of minority interests in YRSCL and YROL amounted to $2,580,000 as disclosed in Note26.5. REVENUERevenue comprises revenue earned on construction contracts, including variation orders in the contract works and claims.6. PRIOR YEAR ADJUSTMENTSThe prior year adjustments, as disclosed in the Statements of Changes in Equity, related to the following:(i)(ii)(iii)(iv)(v)(vi)cut-off errors relating to costs incurred on construction contracts which resulted in changes in recognised profits and/orlosses of the contracts;adjustments for under- and/or over-recognition of income and/or expenses;impairment allowance for trade receivables, inventory obsolescence and property, plant and equipment;corresponding tax impact arising from the adjustments;corresponding impact on amount to be transferred to statutory surplus reserve, currency translation reserve and revaluationreserve arising from the adjustments; andcorresponding impact on share of profits by minority interests arising from the adjustments.62 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20076. PRIOR YEAR ADJUSTMENTS (Continued)The details of the prior year adjustments are as follows:Group Company$’000 $’000Accumulated lossesAs at 1 January 2006, as previously reported (59,499) (29,807)Prior year adjustments:Recognised losses on construction contracts (32,943) (14,780)Allowance for doubtful receivables (3,256) -Allowance for unrecoverable advances to suppliers (1,154) -Stamp duty (148) -Income from sale of scrap materials 332 -Allowance for obsolescence of inventories (45) -Termination benefits (2,745) -Employee compensation (30) (30)Amortisation of intangible assets (244) -Foreign exchange loss, net (4,281) (979)Provision for liquidated damages on construction contracts (23,032) (23,032)Provision for warranties on construction contracts (5,043) (5,043)Provision for expected loss on construction contracts (2,164) (2,164)Withholding tax expense (3,351) (3,351)Interest expense (1,809) (1,104)Impairment of property, plant and equipment (2,992) (396)Income tax expense 2,180 -Deferred tax income 2,196 -Transfer to PRC statutory surplus reserve (2,628) -Transfer from revaluation reserve 235 -Share of profits by minority interests 7,575 -(73,347) (50,879)As at 1 January 2006, as restated (132,846) (80,686)ANNUAL REPORT 2007 63


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20076. PRIOR YEAR ADJUSTMENTS (Continued)Group$’000Profit for the yearFor the financial year ended 31 December 2006, as previously reported 17,156Prior year adjustments:Allowance for doubtful receivables (2,032)Fair value gain on derivative financial instruments, net 2,600Foreign exchange loss, net (438)Income from waiver of debt 802Income tax expense (2,201)Interest expense 2,450Provision for expected loss on construction contracts 2,164Provision for liquidated damages on construction contracts 18,967Provision for warranties on construction contracts 3,513Recognised losses on construction contracts (17,521)Withholding tax expense (1,418)Others (775)6,111For the financial year ended 31 December 2006, as restated 23,26764 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20077. OTHER GAINS/(LOSSES), NETGroup2007 2006$’000 $’000(Restated)Allowance for doubtful trade and other receivables (930) (2,042)Foreign exchange losses, net (9,251) (11,770)Gain on sale of financial assets, available-for-sale 9,625 -Impairment loss on property, plant and equipment (413) (865)Impairment loss on financial assets, available-for-sale (1,649) -Loss on disposal of property, plant and equipment (1,092) (6,343)Provision reversed/(made) for liquidated damages on construction contracts 1,890 (4,065)Rental income from machinery and office premises 683 -Gain on sale of scrap materials 3,336 2,605Waiver of payment of remittance from a related party (Note 35) - 4,385Compensation income arising from project termination 7,507 -Fair value gain on derivative financial instruments, net 21,800 2,600Miscellaneous gains, net 1,191 39232,697 (15,103)8. PROFIT FROM OPERATING ACTIVITIESProfit from operating activities is derived after charging/(crediting) the following items and those as disclosed in Note 7:Group2007 2006$’000 $’000(Restated)Depreciation on property, plant and equipment (Note 24) 6,342 5,320Employee compensation (Note 9) 35,304 21,169Operating leases expenses 656 206Amortisation of sea use rights (Note 25) 101 97Amortisation of intangible assets (Note 26) 918 428ANNUAL REPORT 2007 65


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 20079. EMPLOYEE COMPENSATIONGroup2007 2006$’000 $’000(Restated)Wages, salaries and bonuses 26,320 16,312Employer’s contribution to defined contribution plans including Central Provident Fund andsocial security insurance 4,241 3,025Welfare expenses 2,189 1,695Share options expense (Note 32) 2,554 13735,304 21,16910. NET FINANCE INCOMEGroup2007 2006$’000 $’000(Restated)Interest income 10,790 7,649Finance costs:Interest on early retirement benefits (79) (97)Interest on bank loans and overdrafts (7,029) (7,918)Interest paid to related parties - (581)Less: Amount included in cost of sales 3,173 3,215(3,935) (5,381)Net finance income 6,855 2,26866 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200711. INCOME TAX EXPENSEIncome tax expenseTax expense attributable to profit is made up of:Group2007 2006$’000 $’000(Restated)Current income tax 12,586 4,215Underprovision in respect of prior years 92 1212,678 4,227Deferred tax (Note 27) (3,279) (1,384)9,399 2,843The tax expense on profit before tax differs from the amount that would arise using the Singapore standard rate of income taxis as follows:Group2007 2006$’000 $’000(Restated)Profit before income tax 52,088 26,110Tax calculated at a tax rate of 18% (2006: 20%) 9,376 5,222Effects of:Different tax rates (3,563) (310)Effect of reduction in tax rate (229) -Effects of partial tax exemption (55) -Expenses not deductible for tax purposes 4,062 2,557Utilisation of previously unrecognised tax losses and capital allowances (33) (695)Deferred tax assets not recognised 1,422 1,712Recognition of deferred tax assets on prior year unrecognised losses (1,673) (5,655)Underprovision of income tax in respect of prior year 92 12Income tax expense recognised in the income statement 9,399 2,843Yantai Raffles Shipyard Limited, YRS Shiplease Pte Ltd and Offshore Accomodation Pte Ltd are incorporated in Singapore andaccordingly, are subject to the income tax laws of Inland Revenue Authority of Singapore (“IRAS”) and the income tax rate is18% (2006: 20%) for the financial year ended 31 December 2007.YRS Investments Limited and Raffles Yacht Limited are incorporated in Hong Kong and are subject to the income tax laws in HongKong at corporate tax rate of 17.5% for the financial year ended 31 December 2007 (2006: 17.5%).Pelican Waters Investment Ltd, Asiatic Offshore Limited, Borneo Offshore Limited, Baratpur Limited, Coral Offshore Limited,Deep Water Offshore Limited, Evolution Offshore Ltd and Far East Drilling Ltd are incorporated under the International BusinessCompanies Act of the British Virgin Islands (“BVI”) and accordingly, are exempted from payment of BVI income taxes.Hence, the tax charge for the financial year ended 31 December 2007 relates entirely to the Company, YRS Investments Limited,YRS Shiplease Pte Ltd and its PRC subsidiaries, namely Yantai Raffles Offshore Ltd. (“YROL”) and Yantai Raffles Shipyard Co.,Ltd. (“YRSCL”)ANNUAL REPORT 2007 67


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200711. INCOME TAX EXPENSE (Continued)Pursuant to the Income Tax Law of the PRC Concerning Foreign Investment Enterprises and Foreign Enterprises and various localincome tax laws (the “PRC Income Tax Laws”), the Group’s PRC subsidiaries, YRSCL and YROL, are subject to statutory incometax rate of 33% (30% state income tax plus 3% local income tax) unless the enterprise is located in specially designated regionsor cities for which more favourable effective tax rates apply.YRSCL and YROL are located in a region where a preferential tax rate applies and currently qualify for a reduced rate of taxationof 24%. In addition, pursuant to the PRC Income Tax Laws, YRSCL and YROL are exempted from corporate income tax for thetwo years commencing from the first profitable year, determined for income tax purpose, and a 50% tax exemption for thefollowing three years.YRSCL commenced its first profit making year in 1995 and is thus required to provide for tax at the rate of 24% for the financialyear under review (2006: 24%). YROL commenced its first profit making year in 2002. In June 2007, YROL was granted theTechnology Advance Enterprise Status (“TAE”). The TAE status entitles YROL for a 50% reduction in the applicable income taxrate. Accordingly, it was required to provide for income tax at rate of 12% for the financial year ended 31 December 2007(2006: 12%).During the 5th Session of the 10th National People’s Congress, which was concluded on 16 March 2007, the PRC CorporateIncome Tax Law (“the New Corporate Income Tax Law”) was approved and became effective on 1 January 2008. The NewCorporate Income Tax Law introduces a wide range of changes which include, but are not limited to, the unification of theincome tax rate for domestic-invested and foreign-invested enterprises at 25%. Based on the implementation and administrativerules and regulations relating to the New Corporate Income, YRSCL and YROL will be subjected to income tax at the rate of 25%from the financial year ending 31 December 2008.12. EARNINGS PER SHARE(a)Basic earnings per shareBasic earnings per share are calculated by dividing the net profit attributable to equity holders of the Company by theweighted average number of ordinary shares outstanding during the financial year.Group2007 2006(Restated)Net profit attributable to equity holders of the Company ($’000) 35,907 20,571Weighted average number of ordinary shares in issuefor basic earnings per share (‘000) 254,952 217,685Basic earnings per share (cents) 14.08 9.45(b)Diluted earnings per shareFor the purpose of calculating diluted earnings per share, the weighted average number of ordinary shares outstanding areadjusted for the effects of all dilutive potential ordinary shares. The Company has only one category of dilutive potentialordinary shares, that is, share options.For the share options, the weighted average number of shares in issue is adjusted as if all share options that are dilutive wereexercised. The number of shares that could have been issued upon the exercise of all dilutive share options less the numberof shares that could have been issued at fair value (determined as the Company’s average share price for the financial year)for the same total proceeds is added to the denominator as the number of shares issued for no consideration, with noadjustment to earnings (numerator).68 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200712. EARNINGS PER SHARE (Continued)(b)Diluted earnings per share (Continued)Diluted earnings per share attributable to equity holders of the Company is calculated based on the following data:Group2007 2006(Restated)Net profit attributable to equity holders of the Company ($’000) 35,907 20,571Weighted average number of ordinary shares in issuefor basic earnings per share (‘000) 254,952 217,685Adjustment for share options (‘000) 1,673 -Weighted average number of ordinary shares adjustedfor diluted earnings per share (‘000) 256,625 217,685Diluted earnings per share (cents) 13.99 9.45For the financial year ended 31 December 2006, the share options have anti-dilutive effect. Accordingly, the dilutedearnings per share is the same as the basic earnings per share.13. CASH AND BANK BALANCESGroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Cash at bank and on hand 115,954 154,039 32,841 53,205Fixed deposits 219,128 141,747 219,128 141,747335,082 295,786 251,969 194,952At the balance sheet dates, the carrying amounts of cash and bank balances approximate their fair values. Cash and bankbalances were denominated in the following currencies:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Chinese Renminbi 63,057 58,284 - -Euro 35,717 3,576 29,656 2,525Norwegian Kroner 92,248 - 92,248 -Singapore Dollar 1,078 1,046 1,077 1,046Sterling Pound - 8,813 - 8,813United States Dollar 142,982 224,067 128,988 182,568335,082 295,786 251,969 194,952ANNUAL REPORT 2007 69


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200713. CASH AND BANK BALANCES (Continued)Fixed deposits at the balance sheet dates had an average maturity of 1 day to 6 months (2006: 1 day to 3 months) from the endof the financial year. The range of interest rates of fixed deposits and cash at bank are as follows:GroupCompany2007 2006 2007 2006% % % %Chinese Renminbi 0.81 to 1.53 0.71 to 0.72 - -Euro 0.10 to 4.00 0.10 to 1.00 0.55 to 4.00 1.00 to 1.00Norwegian Kroner 3.00 to 5.56 - 3.00 to 5.56 -Singapore Dollar 1.86 to 3.31 0.33 to 3.44 1.86 to 3.31 0.33 to 3.44Sterling Pound - 4.71 to 5.03 - 4.71 to 5.03United States Dollar 0.25 to 5.48 0.25 to 5.26 0.25 to 5.48 0.25 to 5.23The exposure of cash and bank balances to interest rate risks is disclosed in Note 37(c).For the purposes of the consolidated cash flow statements, the consolidated cash and cash equivalents comprised thefollowing:Group2007 2006$’000 $’000(Restated)Cash and bank balances (as shown) 335,082 295,786Less: Bank overdrafts (Note 30) - (15)Less: Balances pledged in respect of performance bonds and bank overdrafts (126,209) (110,648)Cash and cash equivalents per consolidated cash flow statement 208,873 185,123As at 31 December 2007, the Group secured short term bank loans of $24,266,000 (2006: $Nil) by way of a charge over certainbank balances amounting to $10,397,000 as disclosed in Note 30.14. TRADE AND OTHER RECEIVABLESGroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Trade receivables 46,582 79,731 46,095 79,216Less : Allowance for doubtful receivables (1,625) (1,508) (1,138) (1,138)Trade receivables, net 44,957 78,223 44,957 78,078Tax recoverable 21,308 4,720 303 13Other receivables 10,044 10,623 1,989 3,401Contract collateral deposits - 13,497 - 13,497Deposits 3,707 3,929 3,707 3,929Less: Allowance for doubtful receivables (3,514) (3,663) (635) (879)Other receivables, net 31,545 29,106 5,364 19,96176,502 107,329 50,321 98,03970 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200714. TRADE AND OTHER RECEIVABLES (Continued)Trade receivables are non-interest bearing and generally on 5 to 30 days’ terms. These are recognised at the original invoiceamounts which represent their fair values on initial recognition.Trade and other receivables were denominated in the following currencies:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Chinese Renminbi 23,537 6,542 156 -Euro 4 25,095 4 25,095Norwegian Kroner 140 7,753 140 7,753Singapore Dollar 187 18,823 187 18,823United States Dollar 52,634 49,116 49,834 46,36876,502 107,329 50,321 98,03915. AMOUNT DUE FROM/(TO) SUBSIDIARIESAmounts due from subsidiaries (non-trade) (current) and amounts due to subsidiaries (trade) are unsecured, non-interest bearing,and are repayable on demand.Amounts due from subsidiaries (non-trade) (non-current) are unsecured, non-interest bearing and are not expected to be repaidwithin the next 12 months.16. INVENTORIESInventories are stated at the lower of cost and net realisable value and comprise of materials and supplies held for construction.GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)Inventories, at cost 106,276 17,400 - -17. VESSELS UNDER CONSTRUCTIONGroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Vessels under construction 114,506 - 180,374 -Vessels under construction as at 31 December 2007 are committed for sale within one year from balance sheet date. Subsequentto 31 December 2007, there were further costs incurred in respect of the construction of the vessels.ANNUAL REPORT 2007 71


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200718. CONSTRUCTION WORK-IN-PROGRESSGroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Aggregate contract costs recognised and recognisedprofits (less recognised losses) to date 423,130 216,704 919,729 372,477Less: Progress billings received and receivable (861,114) (427,374) (900,034) (425,478)Amount due to customers for contract work, net (437,984) (210,670) 19,695 (53,001)Comprising:Construction work-in-progress in excess of progressbillings 70,633 50,623 499,376 45,369Progress billings in excess of construction work-inprogress(508,617) (261,293) (479,681) (98,370)(437,984) (210,670) 19,695 (53,001)Borrowings costs of $3,173,000 (2006: $3,215,000) arising from financing the construction contracts were capitalised duringthe financial year and included in the “aggregate contract costs recognised”.Bank borrowings are secured by construction work-in-progress of a project with a balance of $11,141,000 (2006: $4,460,000)as disclosed in Note 30(a).Included in “aggregate contract costs recognised” of the Company is an amount of $408,541,000 (2006: $172,079,000) ofadvances to subsidiaries in relation to ongoing construction contracts.As at 31 December 2006, certain steel plates of the Group with net carrying amount of $9,856,000, value-added tax inclusive,were pledged to a financial institution to secure a short term bank loan of $7,860,000 as disclosed in Note 30(a). Thesesteel plates have been issued for construction contracts (included in aggregate contract costs recognised) and vessels underconstruction as disclosed in Note 24. The pledge of these steel plates has been released during the financial year ended 31December 2007.19. OTHER CURRENT ASSETSGroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Prepayments 2,199 107 920 37Advances to suppliers, net 229,532 44,020 - -Total 231,731 44,127 920 3772 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200720. ADVANCE PAYMENTGroup and Company2007 2006$’000 $’000Payment for purchase of equity interests from a minority shareholder of subsidiaries - 5,437The above transaction has been approved by the relevant authorities on 8 March 2007 as disclosed in Note 4.21. FINANCIAL ASSETS, AVAILABLE-FOR-SALEGroup2007 2006$’000 $’000(Restated)At beginning of the financial year 12,008 -Additions 33,848 19,597Disposal (17,386) -Allowance for impairment (1,649) -Currency translation difference (777) (753)Fair value and exchange differences gains/(losses) recognised in equity [Note 33(b)(iv)] 32,828 (6,836)At end of the financial year 58,872 12,008The available-for-sale investments are denominated in the following currencies:Group2007 2006$’000 $’000(Restated)Quoted securities:- Australian Dollars 5,282 1,310- Hong Kong Dollars 42,401 -- Norwegian Kroner 11,189 10,69858,872 12,008ANNUAL REPORT 2007 73


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200722. INVESTMENT IN SUBSIDIARIESCompany2007 2006$’000 $’000Shares, at cost 75,944 75,944Additional investment 5,438 -Capital contribution in the form of share options issued to employees of subsidiaries 226 -81,608 75,944As at 31 December 2007, the details of the subsidiaries of the Group are as follows:Name of companiesPrincipal activitiesCountry ofincorporationEffective equity interestholding by the Group31 December200731 December2006Held by the Company• Yantai Raffles Offshore Ltd. (b)Offshore and marine projectconstruction and supply ofengineering works and materialsPeople’s Republic ofChina94.38% (a) 91.27% (a)• Yantai Raffles Shipyard Co.,Ltd. (b)Offshore and marine projectconstruction and supply ofengineering works and materialsPeople’s Republic ofChina71.63% 62.95%• YRS Investments Limited (c) Investment holding Hong Kong SAR 100% 100%• YRS Shiplease Pte Ltd (d)Offshore and marine vessel leasingoperator (including chartering)Singapore 100% 100%• Raffles Yacht Limited (e) Construction and sale of mega yachts Hong Kong SAR 100% -Held through YRS Shiplease Pte Ltd• Pelican Waters InvestmentLtd (f)Ownership and chartering of selfunloading bulk carrierBritish Virgin Islands 100% 100%• Asiatic Offshore Limited (f) Investment holding British Virgin Islands 100% 100%• Borneo Offshore Limited (f) Dormant British Virgin Islands 100% 100%• Baratpur Limited (f)Ownership and chartering of semisubmersibledrilling platformBritish Virgin Islands 100% 100%• Coral Offshore Limited (f) Dormant British Virgin Islands 100% 100%74 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200722. INVESTMENT IN SUBSIDIARIES (Continued)Name of companiesPrincipal activitiesCountry ofincorporationEffective equity interestholding by the Group31 December 31 December2007 2006Held through YRS Shiplease Pte Ltd (Continued)• Deep Water Offshore Ltd (f) Dormant British Virgin Islands 100% 100%• Offshore Accomodation PteLtd (formerly known as GMCOffshore Pte Ltd) (d)Ownership and chartering ofaccommodation bargeSingapore 100% 100%• Evolution Offshore Ltd (f) Dormant British Virgin Islands 100% 100%• Far East Drilling Ltd (f) Dormant British Virgin Islands 100% 100%(a) Effective equity interest stated is inclusive of indirect interests held by a subsidiary company, Yantai Raffles Shipyard Co.,Ltd.(b) Audited by Shandong Zhengyuan Hexin Certified Public Accountants, a firm of certified public accountants in the PRC forPRC statutory audit purpose and audited by Ernst & Young, Shanghai for purposes of consolidation.(c) Auditors are to be appointed in 2008.(d) Audited by Ernst & Young, Singapore.(e) Incorporated on 21 September 2007.(f) Not required to be audited under the laws of the country of incorporation.23. INVESTMENT IN AN ASSOCIATED COMPANY AND A JOINT VENTURE COMPANYGroup2007 2006$’000 $’000Associated companyUnquoted shares, at cost 769 -Share of post-acquisition loss (190) -579 -Joint venture companyUnquoted shares, at cost 2,894 -2,894 -Commitments in relation to future financial support to a joint venture company 23,623 -ANNUAL REPORT 2007 75


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200723. INVESTMENT IN AN ASSOCIATED COMPANY AND A JOINT VENTURE COMPANY (Continued)NameCountry ofincorporationPrincipal activitiesEffective equity interestholding by the Group31 December 31 December2007 2006Held through YRS Shiplease Pte LtdAssociated companyConsafe MSV AB (a) Sweden Ownership and chartering of semisubmersiblecrane/accommodationvessel36% -Held through Yantai Raffles Offshore Ltd.Joint venture companyHaiyang Blue Island Offshore Ltd (b) People’sRepublic of ChinaDesign, construct, sale and repairoffshore marine facilities46% -(a)Incorporated on 23 February 2007 and audited by Ohrlings PricewaterhouseCoopers AB.(b) Incorporated on 3 December 2007 and auditors are to be appointed in 2008.The summarised financial information of the associated company and joint venture company, not adjusted for the proportion ofownership interest held by the Group, is as follows:Group2007 2006$’000 $’000Assets and liabilities of the associated company:Total assets 110,414 -Total liabilities 108,717 -Results of the associated company:Revenue 4,817 -Loss for the financial year (529) -Group2007 2006$’000 $’000Assets and liabilities of the joint venture company:Total assets 5,906 -Total liabilities - -Results of the joint venture company:Revenue - -Profit for the financial year - -76 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200724. PROPERTY, PLANT AND EQUIPMENTBuildingsQuaysand drydocksMachineryandequipment BargesOfficeequipmentMotorvehiclesConstructionin progressGroup $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000CostAt 1 January 2006 (Restated) 17,406 95,257 40,841 8,690 1,108 - 35,675 198,977Currency translation differences (821) (4,485) (2,007) (406) - - (1,970) (9,689)Additions, at cost 147 90 3,851 - 170 - 58,991 63,249Transfer 2,089 3,357 12,809 3 - - (18,258) -Disposals (1,575) - (957) - - - (5,741) (8,273)At 31 December 2006 and 1 17,246 94,219 54,537 8,287 1,278 - 68,697 244,264January 2007Currency translation differences (6) 145 1 22 - - (172) (10)Additions, at cost 817 681 6,510 56 158 463 81,989 90,674Transfer 6,769 123 10,880 (1,617) - - (16,155) -Disposals (1,372) - (1,979) - (2) - (215) (3,568)Transfer to “construction workin-progress”- - - - - - (5,522) (5,522)At 31 December 2007 23,454 95,168 69,949 6,748 1,434 463 128,622 325,838TotalAccumulated depreciation andimpairment lossAt 1 January 2006 (Restated) 1,513 3,011 12,928 864 1,028 - - 19,344Currency translation differences (72) (160) (566) (43) - - - (841)Depreciation charge 367 2,383 2,215 299 56 - - 5,320Impairment loss - - 862 - - - 3 865Disposals (215) - (610) - - - - (825)At 31 December 2006 and 1 1,593 5,234 14,829 1,120 1,084 - 3 23,863January 2007Currency translation differences 2 (6) 16 (1) - - (3) 8Depreciation charge 447 2,587 2,734 444 110 20 - 6,342Impairment loss - - 413 - - - - 413Disposals (300) - (1,774) - - - - (2,074)At 31 December 2007 1,742 7,815 16,218 1,563 1,194 20 - 28,552Net carrying amountAt 31 December 2007 21,712 87,353 53,731 5,185 240 443 128,622 297,286At 31 December 2006 15,653 88,985 39,708 7,167 194 - 68,694 220,401ANNUAL REPORT 2007 77


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200724. PROPERTY, PLANT AND EQUIPMENT (Continued)Machinery andequipmentOfficeequipment Motor vehicles TotalCompany $’000 $’000 $’000 $’000CostAt 1 January 2006 (Restated) 1,368 1,107 - 2,475Additions, at cost - 170 - 170At 31 December 2006 and 1 January 2007 1,368 1,277 - 2,645Additions, at cost - 158 463 621Disposals - (2) - (2)At 31 December 2007 1,368 1,433 463 3,264Accumulated depreciation and impairment lossAt 1 January 2006 (Restated) 1,368 1,028 - 2,396Depreciation charge - 55 - 55At 31 December 2006 and 1 January 2007 1,368 1,083 - 2,451Depreciation charge - 110 20 130At 31 December 2007 1,368 1,193 20 2,581Net carrying amountAt 31 December 2007 - 240 443 683At 31 December 2006 - 194 - 194Depreciation of property, plant and equipmentDepreciation on property, plant and equipment of $5,589,000 (2006: $4,478,000) arising from construction work were capitalisedduring the financial year, and included in the aggregate contract costs.Property, plant and equipment pledged as securityBank borrowings of $62,982,000 (2006: $3,931,000) are secured by certain property, plant and equipment as follows:(i) 20,000T crane (included in construction in progress) with a carrying amount of $52,059,000 (2006: $Nil); and(ii) certain construction in progress with carrying amount of $18,923,000 (2006: $9,722,000)As at 31 December 2006, certain steel plates of the Group with net carrying amount of $9,856,000, value-added tax inclusive,were pledged to a financial institution to secure a short term bank loan of $7,860,000 as disclosed in Note 30(a). The steel plateshave been issued for construction contracts and vessels under construction. The pledge has been released during the financialyear ended 31 December 2007.Property, plant and equipment held under finance leaseDuring the financial year, the Group acquired a motor vehicle with an aggregate cost of $288,000 (2006: $Nil) by means of afinance lease as disclosed in Note 30. The cash outflow on acquisition of the motor vehicle amounted to $58,000 (2006: $Nil).The carrying amount of the motor vehicle held under finance lease at the balance sheet date was $278,000 (2006: $Nil).Construction in progressConstruction in progress mainly relates to cranes, barge and buildings with carrying amounts of $68,798,000 (2006: $44,206,000),$23,288,000 (2006: $9,731,000) and $8,228,000 (2006: $3,607,000) respectively.78 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200724. PROPERTY, PLANT AND EQUIPMENT (Continued)Building ownership certificatesThe Group is in the process of applying for the Building Ownership Certificates for certain buildings and premises of the PRCsubsidiaries. The carrying amount of the buildings without the relevant ownership certificates amounted to $15,038,000 as at31 December 2007 (2006: $8,892,000). The Group has made the necessary applications to the relevant authorities. The directorsexpect to obtain the relevant approvals in due course and are of the opinion that the PRC subsidiaries can continue to use thebuildings and premises in the meantime without any penalty. The buildings and premises have been recognised as assets of theGroup pending obtaining the ownership certificates.No contingent liabilities in connection with any possible breach or non-compliance with the relevant laws and regulations inrespect of the buildings without ownership certificates have been provided for in the financial statements as the directors are ofthe opinion that the risk associated thereof is low.25. PREPAYMENTS AND LAND AND SEA USE RIGHTSGroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)PrepaymentsCost associated with purchase of sea use rights (a) 8,465 - - -Land use right 166 590 - -Others 66 - - -Total 8,697 590 - -(a) This pertains to compensation cost incurred in connection with the acquisitions of sea use rights. As of 31 December 2007,the Group is in the process of applying for approval for the transfer of sea use rights from the Sea and Fishery Bureau ofYantai.ANNUAL REPORT 2007 79


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200725. PREPAYMENTS AND LAND AND SEA USE RIGHTS (Continued)Land and sea use rightsThe Group’s land and sea use rights are located in the People’s Republic of China (“PRC”) where the Group’s PRC shipbuildingand storage facilities reside.Group Land use rights Sea use rights Total$’000 $’000 $’000CostAt 1 January 2006 (Restated) - 4,055 4,055Currency translation differences - (190) (190)At 31 December 2006 and 1 January 2007 - 3,865 3,865Additions 551 50 601Currency translation differences (3) (24) (27)At 31 December 2007 548 3,891 4,439Accumulated amortisationAt 1 January 2006 (Restated) - 425 425Amortisation - 97 97Currency translation differences - (20) (20)At 31 December 2006 and 1 January 2007 - 502 502Amortisation - 101 101Currency translation differences - (3) (3)At 31 December 2007 - 600 600Net carrying amountAt 31 December 2007 548 3,291 3,839At 31 December 2006 - 3,363 3,363Average remaining amortisation period (years) 19 33Land use rights agreementsIn accordance with the relevant PRC laws, the land use rights agreements relating to the land on which the property, plant andequipment of the PRC subsidiaries is residing allow the PRC government to expropriate the land with 30 days’ notice to thesubsidiaries.In addition, the land on which the property, plant and equipment of the PRC subsidiaries is residing is held on a leasehold basis.Accordingly, the PRC subsidiaries have to obtain the approval of the relevant authorities before they can sell or mortgage certainproperties on their land.The Group is in the process of applying for the State-owned Land Use Right Certificate in respect of land reclaimed from thesea.80 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200726. INTANGIBLE ASSETSGroupComputerGoodwillsoftwarelicenses Total$’000 $’000 $’000CostAt 1 January 2006 (Restated) 13,817 1,513 15,330Additions - 1,789 1,789Currency translation differences - (36) (36)At 31 December 2006 and 1 January 2007 13,817 3,266 17,083Arising from acquisition of equity interests from minority interests 2,580 - 2,580Additions - 2,922 2,922At 31 December 2007 16,397 6,188 22,585Accumulated amortisation and impairment lossAt 1 January 2006 (Restated) - 822 822Amortisation - 428 428Currency translation differences - (11) (11)At 31 December 2006 and 1 January 2007 - 1,239 1,239Amortisation - 918 918At 31 December 2007 - 2,157 2,157Net carrying amountAt 31 December 2007 16,397 4,031 20,428At 31 December 2006 13,817 2,027 15,844Average remaining amortisation period (years) - 4ANNUAL REPORT 2007 81


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200726. INTANGIBLE ASSETS (Continued)CompanyComputersoftware licenses Total$’000 $’000CostAt 1 January 2006 (Restated) 813 813Additions 1,466 1,466At 31 December 2006 and 1 January 2007 2,279 2,279Additions 2,600 2,600At 31 December 2007 4,879 4,879Accumulated amortisation and impairment lossAt 1 January 2006 (Restated) 606 606Additions 307 307At 31 December 2006 and 1 January 2007 913 913Additions 792 792At 31 December 2007 1,705 1,705Net carrying amountAt 31 December 2007 3,174 3,174At 31 December 2006 1,366 1,366Average remaining amortisation period (years) 4Impairment test for goodwillThe recoverable amount is determined based on a value in use calculation using cash flow projections based on financial budgetsapproved by management covering a period of three financial years ending 31 December 2010 (the “Projection Periods”). Thepre-tax discount rate applied to the cash flow projections is 5.33%. The financial budget is prepared based on potential contractsto be granted to the CGU for the Projection Periods. The Group has not projected a growth rate beyond the Projection Periods.The following described each key assumption on which management has based on its cash flow projections to undertakeimpairment testing of goodwill.- Budgeted gross margins – management determined the budgeted gross margin based on operational plans for the CGUand the expected margin to be achieved which is reasonable in view of the scope of services provided by the CGU.- Growth rates – management forecasted growth rates based on order book on hand as well as published industryresearch.82 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200727. DEFERRED TAXDeferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against currenttax liabilities and when the deferred taxes relate to the same fiscal authority. The amounts, determined after appropriate offsetting,are shown on the balance sheets as follows:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Deferred tax assets 10,778 5,828 - 580Deferred tax liabilities (1,692) - (1,692) -Deferred tax, net 9,086 5,828 (1,692) 580Deferred tax assets are recognised for tax losses carried forward to the extent that realisation of the related tax benefits throughfuture taxable profits is probable. The Group had unrecognised tax losses of $13,200,000 (2006: $6,874,000) at the balancesheet date which can be carried forward and used to offset against future taxable income subject to meeting certain statutoryrequirements by the companies of the Group in Singapore.The movement in the deferred tax assets and liabilities during the financial year is as follows:GroupDeferred tax (liabilities)/assetsInterestreceivablesFair value ofderivativefinancialinstrumentsAmortisationof preoperatingexpensesImpairment anddepreciation ofproperty, plantand equipment ProvisionsAccruedexpensesRecognisedprofits onconstructioncontractsTotal$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000At 1 January 2006 (Restated) (587) - 520 445 1,400 609 2,283 4,670Currency translationdifferences - - (24) (16) (44) (30) (112) (226)(Charge)/credit to incomestatement (Note 11) (132) (64) (13) 220 706 182 485 1,384At 31 December 2006 and 1January 2007 (719) (64) 483 649 2,062 761 2,656 5,828Currency translationdifferences - - - (4) (7) 2 (12) (21)(Charge)/credit to incomestatement (Note 11) (123) (2,323) 15 696 1,151 102 3,761 3,279At 31 December 2007 (842) (2,387) 498 1,341 3,206 865 6,405 9,086ANNUAL REPORT 2007 83


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200727. DEFERRED TAX (Continued)CompanyDeferred tax (liabilities)/assetsInterestreceivablesFair value ofderivativefinancialinstrumentsImpairment anddepreciation ofproperty, plantand equipment Provisions Total$’000 $’000 $’000 $’000 $’000At 1 January 2006 (Restated) (587) - 131 456 -(Charge)/credit to income statement (132) (64) 73 703 580At 31 December 2006 and 1 January2007 (719) (64) 204 1,159 580(Charge)/credit to income statement (123) (2,323) 142 32 (2,272)At 31 December 2007 (842) (2,387) 346 1,191 (1,692)28. ADVANCES FROM CUSTOMERSThis relates to advances received on construction contracts.29. TRADE AND OTHER PAYABLESGroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Trade payables:- third parties 102,458 33,704 16,780 227Other payables 22,586 18,049 11,968 5,438Accrued costs of sales 13,910 16,943 - -Accrued operating expenses 9,169 2,435 6,370 95645,665 37,427 18,338 6,394Total 148,123 71,131 35,118 6,621The carrying amounts of current trade and other payables approximate their fair values at the balance sheet date.84 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200729. TRADE AND OTHER PAYABLES (Continued)Trade and other payables were denominated in the following currencies:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Chinese Renminbi 99,262 59,932 - -Euro 15,294 - 6,578 -Singapore Dollar 13,165 6,168 13,129 6,114Sterling Pound 121 - - -United States Dollar 20,157 4,624 15,287 506Others 124 407 124 1148,123 71,131 35,118 6,62130. BORROWINGSGroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)CurrentFinance lease 36 - 36 -Loans from banks:- Secured 46,839 21,619 24,266 -- Unsecured 8,525 76,584 - -55,364 98,203 24,266 -Bank overdrafts - 15 - 1555,400 98,218 24,302 15Non-currentFinance lease 188 - 188 -Loans from banks:- Secured 16,142 - - -- Unsecured - 15,723 - -16,142 15,723 - -Loans from third party 220 220 - -16,550 15,943 188 -Total borrowings 71,950 114,161 24,490 15ANNUAL REPORT 2007 85


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200730. BORROWINGS (Continued)As at 31 December 2007, certain directors of the Company have provided personal guarantees amounting to $40,637,000(2006: $140,056,000) in respect of certain credit facilities granted to the Group.(a)Securities grantedSecured loans from banksThe secured loans from banks bear effective interest at 5.85% to 12.02% (2006: 5.85% to 7.34%). Certain bankborrowings are secured by the following:(i) construction work-in-progress as disclosed in Note 18;(ii) certain construction in progress in property, plant and equipment as disclosed in Note 24; and(iii) charge over certain bank balances as disclosed in Note 13.Unsecured loans from banksThe unsecured bank loans bear effective interest at 6.51% to 8.02% (2006: 5.85% to 7.34%) and are guaranteed bycertain subsidiaries.Non-current loans from third party are interest-free and unsecured.Bank overdraftsFor the financial year ended 31 December 2006, bank overdrafts of the Group are secured by way of a pledge of theGroup’s fixed deposits amounting to $1,000,000.(b)Maturity of borrowingsThe current borrowings have an average maturity of 3 months as at 31 December 2007 (2006: 5 months), from the end ofthe financial year. The non-current borrowings as at 31 December 2007 had maturity of between two and six years (2006:one to five years).(c)Currency riskThe carrying amounts of total borrowings were denominated in the following currencies at balance sheet date:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Chinese Renminbi 36,465 103,403 - -Euro 369 - - -Singapore Dollar 224 15 224 15United States Dollar 34,892 10,743 24,266 -71,950 114,161 24,490 1586 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200730. BORROWINGS (Continued)(d)Interest rate risksThe range of the interest rates of total borrowings at the balance sheet date was as follows:GroupCompany2007 2006 2007 2006% % % %Bank overdraftsSingapore Dollar - 7.82 - 7.82Bank borrowingsChinese Renminbi 5.85 to 8.02 5.85 to 7.34 - -Euro Dollar 6.09 to 6.20 - - -United States Dollar 6.36 to 12.02 5.76 to 6.97 6.36 to 6.87 -Finance leaseSingapore Dollar 4.85 - 4.85 -The exposure of current and non-current borrowings to interest rate risks is disclosed in Note 37(c).(e)Carrying amounts and fair valuesThe carrying amounts of current and non-current borrowings approximated their fair values.(f)Defaults or breachesDuring the current financial year, the Company breached a covenant of a bank loan. The Company did not fulfil therequirement to maintain an equity ratio of at least 0.45 times for a credit line of $47,388,000. The amount drawdown as at31 December 2007 is $19,958,000 and is presented as a current liability at the balance sheet date. The bank is contractuallyentitled to request for immediate repayment of the outstanding loan amount in the event of breach of covenant.Subsequent to 31 December 2007, at management’s request, the bank has waived the Company’s non-compliance withthis covenant.ANNUAL REPORT 2007 87


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200731. PROVISION FOR OTHER LIABILITIESGroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Other liabilities 8,394 - 2,347 -Provision for liquidated damages on constructioncontracts 2,175 4,065 2,175 4,065Provision for warranties on construction contracts 7,400 6,374 7,400 6,37417,969 10,439 11,922 10,439The Group normally gives a one-year warranty on certain defects and undertakes to repair or rectify such defects resultingfrom faulty design. A provision was recognised at the balance sheet date for possible warranty claims based on an estimate bytechnical engineers and past experience of the possible level of repairs and rectifications.Movements in provision for liquidated damages on construction contracts and provision for warranties on construction contractsare as follows:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Provision for liquidated damages on constructioncontractsAt beginning of the financial year 4,065 23,032 4,065 23,032Provision made during the financial year 2,175 4,065 2,175 4,065Provision utilised during the financial year - (23,032) - (23,032)Provision reversed during the financial year (4,065) - (4,065) -At end of the financial year 2,175 4,065 2,175 4,065GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Provision for warranties on construction contractsAt beginning of the financial year 6,374 5,044 6,374 5,044Provision made during the financial year 2,046 1,330 2,046 1,330Provision reversed during the financial year (1,020) - (1,020) -At end of the financial year 7,400 6,374 7,400 6,37488 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200732. SHARE CAPITAL AND SHARE OPTIONS(a)Share capitalNo. of sharesAuthorisedsharecapitalIssuedsharecapitalGroup and CompanyAmountAuthorisedshare capitalIssued sharecapitalSharepremiumTotal‘000 ‘000 $’000 $’000 $’000 $’0002007At 1 January 2007 - 252,200 - 417,608 - 417,608Issue of shares - 21,300 - 178,077 - 178,077Share issue expenses - - - (4,439) - (4,439)At 31 December 2007 - 273,500 - 591,246 - 591,2462006At 1 January 2006 180,000 152,200 180,000 152,200 30,417 182,617Effect of Companies (Amendment) Act2005 (180,000) - (180,000) 30,417 (30,417) -Issue of shares - 100,000 - 250,802 - 250,802Share issue expenses - - - (15,811) - (15,811)At 31 December 2006 - 252,200 - 417,608 - 417,608Under the Companies (Amendment) Act 2005 that came into effect on 30 January 2006, the concepts of par value andauthorised share capital were abolished and the amount in the share premium account as at 30 January 2006 became partof the Company’s share capital.All issued shares are fully paid.For the financial year ended 31 December 2007, the Company issued 21,300,000 (2006: 100,000,000) ordinary shares fora total consideration of $178,077,000 (2006: $250,802,000) for cash to provide funds for the expansion of the Group’soperations. The newly issued shares rank pari passu in all respects with the previously issued shares.(b)Share optionsFair value of share options grantedThe fair value of share options granted under the Scheme during the financial year is determined using the Binomial andTrinomial valuation models, taking into account the terms and conditions upon which the instruments were granted.$2,554,000 (2006: $137,000) was charged to the income statement during the financial year.At an Extraordinary General Meeting held on 21 June 2006, shareholders approved the Yantai Raffles Executive ShareOption Scheme (the “Scheme”) for the granting of non-transferable share options that are settled by physical delivery ofthe ordinary shares of the Company, to eligible directors, senior executives and employees respectively.The Scheme is operated at the discretion of the Remuneration Committee, subject to a maximum period of 10 years fromthe date on which the Scheme was adopted, beyond which is subject to approval of the members by way of ordinaryresolutions in general meetings and any relevant authorities which may then be required. The maximum aggregatednumber of shares which may be issued and/or transferred pursuant to all share options shall not exceed 10% of the issuedshare capital of the Company on the day preceding the date of grant.ANNUAL REPORT 2007 89


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200732. SHARE CAPITAL AND SHARE OPTIONS (Continued)(b)Share options (Continued)Under the Scheme, share options are granted to employees of the Group selected by the Remuneration Committee. Theexercise price of the granted share options is based on the arithmetic average of the daily volume weighted average pricein Norwegian Kroner (“NOK”) of the Company’s shares traded on the Norwegian OTC during the period of three tradingdays ending on the day before the date of grant. Where they are issued in currency other than NOK, it is based on theprevailing spot exchange rate quoted by the Company’s bank. Share options shall be exercisable in whole or in part inrespect of 1,000 shares or any multiple thereof, subject to the vesting period as described by the Remuneration Committeein its absolute discretion.During the financial year ended 31 December 2007:Between January 2007 to September 2007, share options in respect of 6,890,289 were granted to certain seniormanagement staff, including certain directors at an exercise price between NOK10.50 to NOK26.00 per share (the “2007Share Options”). The 2007 Share Options are exercisable from 16 January 2009 to 18 September 2017.Since the commencement of the Scheme till the end of the financial year:• No share options that entitle the holder to participate, by virtue of the options, in any share issue of any othercorporation have been granted, and• Other than 1,154,003 share options that were granted to certain senior executives, none of whom are directors, ata discount of 46% to market average price at time of grant, there were no other share options that were issued ata discount.Details of all share options to subscribe for ordinary shares of the Company pursuant to the Scheme as at 31 December2007 are as follows:Beginning ofthe financialyearShareoptionsgrantedduring thefinancialyearNumber ofshare optionscancelledduring thefinancial yearAggregateshare optionsoutstandingas at end offinancial year Exercise price Exercise period2006 Share Options 802,500 - 277,500 525,000$2.54to$2.801 August 2008to31 July 20102007 Share Options - 6,890,289 200,000 6,690,289As at 31 December 2007, none of the share options are exercised.NOK 10.50toNOK 26.0016 January 2009to18 September 2017The fair value of share options granted during the financial year ended 31 December 2007 determined using valuationmodel and the charge to the income statement during the period was $2,554,000. The significant inputs into the modelwere share price of NOK 10.50 to NOK 26.50, at the respective grant dates, exercise price shown above, standard deviationof expected share price returns of 45%, the option life shown above and annual risk-free interest rate of between 4.41%to 4.76%. The volatility measured at the standard deviation of expected share price returns is based on statistical analysisof volatility of market comparables.90 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200732. SHARE CAPITAL AND SHARE OPTIONS (Continued)(b)Share options (Continued)The following table lists the inputs to the share option pricing model for the financial years ended 31 December 2007 and31 December 2006:2007 ShareOptions2006 ShareOptionsStandard deviation of expected share returns (%) 45 40Option life (years) 4 to 10 4Annual risk-free rate (%) 4.41 to 4.76 5Share price NOK 10.50 to NOK 26.50 $2.62The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of volatilityof market comparables.33. OTHER RESERVES(a)Composition:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)Capital reserve 2,567 2,567 - -PRC statutory surplus reserve 3,789 3,789 - -Share option reserve 2,691 137 2,691 137Fair value reserve 25,992 (6,836) - -Currency translation reserve 4,633 5,014 - -39,672 4,671 2,691 137(b)Movements:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(i)Capital reserveAt beginning of financial year 2,567 (474) - -Transfer from retained earnings - 3,041 - -At end of financial year 2,567 2,567 - -(ii)PRC statutory surplus reserveAt beginning of financial year 3,789 2,458 - -Transfer from retained earnings - 1,331 - -At end of financial year 3,789 3,789 - -ANNUAL REPORT 2007 91


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200733. OTHER RESERVES (Continued)GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(b)Movements (Continued):(iii)Share option reserveAt beginning of financial year 137 - 137 -Employee share option scheme- Value of employee service 2,554 137 2,554 137At end of financial year 2,691 137 2,691 137(iv)Fair value reserveAt beginning of financial year (6,836) - - -Financial assets, available-for-sale- Fair value gain/(losses) (Note 21) 32,828 (6,836) - -At end of financial year 25,992 (6,836) - -(v)Currency translation reserveAt beginning of financial year 5,014 5,879 - -Net currency translation differencesof financial statements of foreignsubsidiaries (393) (1,305) - -Minority interests 12 440 - -(381) (865) - -At end of financial year 4,633 5,014 - -(c)Share option reserveShare option reserve represents the equity-settled share options granted to employees. The reserve is made up of thecumulative value of services from employees recorded over the vesting period commencing from the grant date of equitysettledshare options, and is reduced by the expiry of the share option. When the option is exercised, the amount fromthe share option reserve is transferred to share capital. When the share option expires, the amount from the share optionreserve is transferred to accumulated gains/(losses).(d)Non-distributable statutory reservesSubsidiaries established in the PRC (the “PRC subsidiaries”) are required to maintain certain statutory reserves by transferringfrom their profit after taxation in accordance with the relevant laws and regulations and, if applicable, Articles of Associationof the PRC subsidiaries, before any dividend is declared and paid.92 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200733. OTHER RESERVES (Continued)(d)Non-distributable statutory reserves (Continued)(i)PRC Statutory Surplus ReserveThe PRC subsidiaries are required to transfer at their directors’ recommendation a certain percentage of their profitafter taxation to the statutory surplus reserve until the balance reaches 50% of their respective registered capital,where further transfers will be at their directors’ recommendation. The statutory surplus reserve can only be usedto make up prior year losses or to increase share capital, provided that the fund does not fall below 25% of theregistered capital.For the current financial year, the board of directors of the PRC subsidiaries have not approved to appropriate any oftheir profit after taxation to statutory surplus reserve (2006: $1,331,000).(ii)Staff and workers’ bonus and welfare fundThe PRC subsidiaries are required to appropriate staff and workers’ bonus and welfare fund from their profit aftertaxation calculated in accordance with the PRC accounting standards and systems. The percentage to be appropriatedis determined by the board of directors of the companies. The staff and workers’ bonus and welfare fund can onlybe used for special bonuses and collective welfare benefits to staffs and workers. The fund may not be reversed ordistributed to the owners. The staff and workers’ bonus and welfare fund, due to its nature, is classified as otherliabilities in the consolidated balance sheet and correspondingly debited to staff costs in the consolidated incomestatement.For the financial year ended 31 December 2007 and 31 December 2006, the board of directors of the PRC subsidiarieshave not approved the appropriation of staff and workers’ bonus and welfare fund.(iii)Enterprise expansion fundThe PRC subsidiaries are required to appropriate the enterprise expansion fund from their profit after taxationcalculated in accordance with the PRC accounting standards and systems. The percentage to be appropriated isdetermined by the board of directors of the PRC subsidiaries. Upon approval from the board of directors, theenterprise expansion fund can be used to expand production or to increase capital.For the financial year ended 31 December 2007 and 31 December 2006, the board of directors of the PRC subsidiarieshave not approved the appropriation of enterprise expansion fund.(iv)Capital reserveCapital reserve represents contribution to paid-in capital in excess of the registered capital of the PRC subsidiaries andappropriation from retained earnings in respect of waiver of debts in accordance with the PRC rules and regulations.The reserve is non-distributable under the PRC laws.ANNUAL REPORT 2007 93


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200734. SEGMENT INFORMATIONReporting formatThe primary segment reporting format is determined to be business segments as the Group’s risks and rates of return are affectedpredominantly by differences in the products and services produced. Secondary information is reported geographically. Theoperating businesses are organised and managed separately accordingly to the nature of the products and services provided,with each segment representing a strategic business unit that offers different products and serves different markets.Primary reporting format - Business segmentsThe Group currently has only one business segment. The principal activities of the Group are to carry on the business ofconstruction and conversion of offshore and marine projects and investment holding. Accordingly, it is not meaningful to discloseinformation by business segments for the current financial year.Secondary reporting format - Geographical segmentsThe Group’s revenue by geographical segments is based on the location of its customers.Segment assets of the Group are based on the geographical location of the assets and are located in Asia, namely People’s ofRepublic of China and Singapore.The following table shows the Group’s revenue by geographical markets:Total revenue2007 2006$’000 $’000(Restated)Asia 562 15,018Europe 282,551 242,283North America - 55South America 40,335 1,181323,448 258,53794 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200735. RELATED PARTY TRANSACTIONSIn addition to the related party information disclosed elsewhere in the financial statements, the following significant transactionsbetween the Group and related parties took place at terms agreed between the parties during the financial years:(a)ExpenseGroup2007 2006$’000 $’000(Restated)Directors’ remuneration 1,824 1,440Director’s fee 316 -Waiver of payment of remittance from a related party (Note i) - (4,385)Interest paid to firms connected with a director (Note ii) 132 581Consultancy fees paid to a firm connected with a director 409 371Commission paid to a firm connected with a director in connection with issue ofshares of the Company - 4,769Note:(i)(ii)In 2005, remittances from Magnum Investment Ltd, a related party, amounting to $4,385,000 (approximately RMB22.1 million) was received. It represented a non-refundable down-payment for the proposed construction of a yacht.In 2006, the order was cancelled and the remittance was waived as disclosed in Note 7.This relates to interest paid on amounts due to related parties. The balances were fully settled as at financial yearend.(b)Key management personnel compensationKey management personnel compensation is analysed as follows:Group2007 2006$’000 $’000(Restated)Salaries and other short-term employee benefits 3,722 2,614Share options expense 1,761 135,483 2,627The remuneration of key management personnel is determined by the board of directors having regards to the performanceof individuals and market trends. During the financial year ended 31 December 2007, 4,100,000 (2006: Nil) share optionshave been granted to the Company’s directors.ANNUAL REPORT 2007 95


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200735. RELATED PARTY TRANSACTIONS (Continued)(c) Personal guarantees by directorsAs at 31 December 2007, certain directors of the Company have provided personal guarantees amounting to $40,637,000(2006: $140,056,000), to secure certain credit facilities of the Group.36. COMMITMENTS AND CONTINGENCIES(a)Capital commitmentsCapital expenditures contracted for at the balance sheet date but not recognised in the financial statements, excludingthose relating to investment in an associated company as disclosed in Note 23, are analysed as follows:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Land and sea use rights 1,969 1,211 - -Property, plant and equipment 40,783 31,681 - -Vessels built for sales or charter 475,044 193,794 249,061 158,461517,796 226,686 249,061 158,461During the financial year, a PRC subsidiary of the Group, Yantai Raffles Offshore Ltd (“YROL”), entered into a compensationagreement in connection with the acquisition of sea use rights as disclosed in Note 25. Under this arrangement, YantaiXing Yang is given priority to tender for YROL’s subcontract works on the condition that all terms are equal and Yantai XingYang has the capacity to undertake such subcontract works.(b)Operating lease commitments - where a group company is a lesseeThe future aggregate minimum lease payable under non-cancellable operating leases contracted for at the balance sheetdate but not recognised as liabilities, are analysed as follows:GroupCompany2007 2006 2007 2006$’000 $’000 $’000 $’000(Restated)(Restated)Not later than one year 2,391 546 356 267Between two and five years 5,983 1,042 26 166Later than five years 9,193 7,405 - -17,567 8,993 382 433(c)Performance guaranteesAs of 31 December 2007, performance guarantees issued by financial institutions for contracts awarded to the Companyand its subsidiaries amounted to $364,985,000 (2006: $155,096,000).(d)Contingent liabilitiesAs of 31 December 2007, the Company has provided corporate guarantees to a financial institution for performanceguarantees issued for contracts awarded to a PRC subsidiary amounting to $71,425,000 (2006: $Nil).As of 31 December 2007, the Company has provided corporate guarantees to banks for loans taken by the PRC subsidiariesamounting to $Nil (2006: $58,891,000). The loans have been repaid during the financial year.96 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200737. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe Group’s activities expose it to a variety of financial risks include market risk (including currency risk, interest rate risk and pricerisk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management programme focuses on theunpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.Risk management is carried out under policies approved by the board of directors. The board provides general principles foroverall risk management such as currency risk, market risk, cash flow and fair value interest rate risk, credit risk and liquidityrisk.(a)Currency riskThe Group operates mainly in Asia and is exposed to foreign exchange risk arising from various currencies combinations.The Group’s sales are mainly denominated in United States Dollar (“USD”), Sterling Pound and Euro. The Group’s purchasesare mainly denominated in United States Dollar, Chinese Renminbi (“RMB”), Norwegian Kroner (“NOK”) and Euro whilstits operating costs are denominated mainly in RMB and Singapore Dollar (“SGD”).To the extent that the Group’s sales, purchases and operating costs are not naturally matched in the same currency andthat there is timing differences between collections and payments, the Group will be exposed to any adverse fluctuationsof the various currencies against the SGD. Restrictions over the conversion or remittance of foreign currencies such as RMBmay also expose the Group to adverse fluctuations in exchange rates. As a result, the Group’s earnings may be materiallyand adversely affected.The Group closely monitors exchange rate movements and cash flow requirements for various currencies. It seeks to enterinto contracts with customers whereby progress settlements are in a mix of various currencies which it requires to pay forits purchases and operating costs. It also obtains bank borrowings in the currencies that are required for operation. Goingforward, the Group may consider the use of derivative financial instruments such as foreign currency contracts and foreigncurrency options to hedge material exchange exposures.The financial statements of certain subsidiaries are prepared in their respective functional currencies, namely RMB and USD.This represents a translation risk in that any material fluctuation in the RMB and USD against SGD will have an effect onthe Group’s consolidated financial statements which are presented in SGD. Translation exposure is not normally hedged asthese investments are intended to be held on a long term basis and the translation risk arising from the investments cannotbe appropriately hedged by short-term hedging instruments available. Furthermore, the cost of entering into such hedgingactivities outweighs the benefits.Currently, the PRC government imposes control over foreign currencies. RMB, the official currency of the PRC, is not freelyconvertible. Enterprises operating in the PRC can enter into exchange transactions through the People’s Bank of China orother authorised financial institutions.Payments for imported materials or services, which are outside of the PRC, are subject to the availability of foreign currencywhich depends on the foreign currency denominated earnings of the enterprises. Exchanges of RMB for foreign currencymust be arranged through the People’s Bank of China or other authorised financial institutions and is granted to enterprisesin the PRC for valid reasons such as purchase of imported materials and remittance of earnings. While conversion ofRMB into SGD or other currencies can generally be effected at the People’s Bank of China or other authorised financialinstitutions, there is no guarantee that it can be effected at all times.The Group’s currency exposure is disclosed in the respective notes to the financial statements relating to the financial assetsand financial liabilities.(b)Price riskThe Group is exposed to equity securities price risk because of the investments held by the Group classified as “financialassets, available-for-sale”. The securities are listed on the stock exchanges in Hong Kong, Australia and Norwegian OTC.ANNUAL REPORT 2007 97


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200737. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)(c)Cash flow and fair value interest rate risksCash flow interest rate risk is the risk that the future cash flows of financial instrument will fluctuate because of changesin market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due tochanges in market interest rates. The Group’s borrowings are predominantly variable rate loans and are expected to repricein less than one year from the financial year end.The financial assets and liabilities of the Group are non-interest bearing except for cash and bank balances and borrowingsas set out in the table below, categorised by the earlier of contractual repricing or maturity date.Group Variable rates Fixed ratesLess than6 months6 to 12months1 to 5yearsLess than6 months6 to 12months1 to 5yearsOver 5yearsNoninterestbearingTotal$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000At 31 December 2007AssetsCash and bank balances 90,539 - - 219,263 - - - 25,280 335,082LiabilitiesBorrowings 24,266 5,375 16,142 1,496 24,263 - 188 220 71,950At 31 December 2006(Restated)AssetsCash and bank balances 209,436 - - 76,703 - - - 9,647 295,786LiabilitiesBorrowings 15,670 3,931 15,723 56,211 22,406 - - 220 114,161The Group’s borrowings at variable rates are denominated in RMB and USD as disclosed in Note 30(d).Company Variable rates Fixed ratesLess than6 months6 to 12months1 to 5yearsLess than6 months6 to 12months1 to 5yearsOver 5yearsNoninterestbearingTotal$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000At 31 December 2007AssetsCash and bank balances 7,564 - - 219,128 - - - 25,277 251,969LiabilitiesBorrowings 24,266 - - - 36 - 188 - 24,490At 31 December 2006(Restated)AssetsCash and bank balances 108,611 - - 76,703 - - - 9,638 194,952LiabilitiesBorrowings 15 - - - - - - - 15The Group’s and Company’s borrowings at variable rates are denominated in RMB and USD as disclosed in Note 30(d).98 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200737. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)(d)Credit riskCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to theGroup. For trade receivables, the Group adopts the policy of assessing credit worthiness and credit history of customersand obtaining sufficient security where appropriate to mitigate credit risk.The Group’s major classes of financial assets are bank deposits and trade and other receivables.As at 31 December 2007, 96% (2006: 73%) of trade receivables relate to 3 major customers of the Group. The Group haspolicies in place to ensure its dealings are with customers with an acceptable credit history.(e)Liquidity riskThe Group monitors its risks to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturityof its financial assets and liabilities and projected cash flows from operations. The Group’s objective is to maintain a balancebetween continuity of funding and flexibility through the use of stand-by credit facilities.(f)Fair valuesThe fair value of a financial instrument is the amount at which the instrument could be exchanged or settled betweenknowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale.Management has determined that the carrying amounts of cash and short term deposits, current trade and otherreceivables, bank overdrafts, current trade and other payables, other liabilities, current bank loans and non-current floatingrate loans based on their notional amounts, reasonably approximate their fair values because these are mostly short termin nature or are repriced frequently.(g)Derivative financial instrumentsCash flow hedges – Embedded foreign currency forward contractsThe Group closely monitors exchange rate movements and cash flows for the various currencies in which the Grouptransacts its business. The Group seeks to enter into contracts with customers where progress payments are made ina mix of various currencies (such as USD, EUR, NOK and RMB) which the Group requires to pay for its purchases andoperating costs. Whereas the Group has not entered into any traditional foreign currency forward contracts or options tohedge these foreign exchange exposures with its bankers, contractual payments due from customers and denominated incurrencies other than the currency in which the ship-building contracts are routinely expressed are deemed to be contractswith embedded derivatives which are required to be accounted for separately under FRS 39 as if the Group had enteredinto foreign currency forward contracts.Under these arrangements, as of balance sheet date, the fair value and notional amount of derivative financial instruments(namely net embedded foreign currency forward contracts) of the Group as at 31 December are as follows:Group and Company2007 2006$’000 $’000(Restated)Fair value of net foreign currency forward contracts 24,400 2,600Notional amount of net foreign currency forward contracts (2007: EUR, RMB andNOK; 2006: EUR, RMB and NOK) 693,789 922,107ANNUAL REPORT 2007 99


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200737. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)(g)Derivative financial instruments (Continued)Hedging reserveHedging reserve records the portion of the fair value changes on derivatives that are designated as hedging instruments incash flow hedges that are determined to be effective.As at 31 December 2007 and 2006, the embedded derivative financial instruments of the Group and the Company are notdesignated nor qualify for hedge accounting. Fair value changes are recognised in the income statement and hence, nohedging reserve is recorded as at 31 December 2007 and 2006.38. RESTATEMENT OF COMPARATIVEThe prior year’s comparative figures have been restated due to the prior year adjustments as disclosed in Note 6.Group2006 2006$’000 $’000As previously reportedAs restatedConsolidated income statementRevenue 272,278 258,537Cost of sales (217,273) (194,311)Other gains/(losses), net (15,049) (15,103)Expenses- Distribution and marketing expenses (2,410) (383)- Administrative expenses (19,566) (24,898)Finance income 5,830 7,649Finance costs (6,012) (5,381)Income tax expense (642) (2,843)Attributable to:- Equity holders of the Company 14,872 20,571- Minority interests 2,284 2,696Earnings per share attributable to equity holders of theCompany- Basic (cents per share) 6.83 9.45- Diluted (cents per share) 6.83 9.45GroupCompany2006 2006 2006 2006$’000 $’000 $’000 $’000As previously reported As restated As previously reported As restatedBalance sheetsASSETSCurrent assetsCash and bank balances 298,107 295,786 194,937 194,952Trade and other receivables 134,467 107,329 117,791 98,039Amounts due from subsidiaries (non-trade) - 5,368Inventories 21,625 17,400Construction work-in-progress in excess of progressbillings 101,890 50,623 54,767 45,369Derivative financial instruments - 2,600 - 2,600Other current assets 17,534 44,127 17,462 37100 YANTAI RAFFLES SHIPYARD LIMITED


NOTES TO FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 200738. RESTATEMENT OF COMPARATIVE (Continued)GroupCompany2006 2006 2006 2006$’000 $’000 $’000 $’000As previously reported As restated As previously reported As restatedNon-current assetsAmounts due from subsidiaries (non-trade) - 64,708Advances to subsidiaries 75,537 -Financial assets, available-for-sale 11,999 12,008Property, plant and equipment 210,874 220,401 1,559 194Prepayments - 590Land and sea use rights - 3,363Intangible assets 13,462 15,844 - 1,366Deferred tax assets 1,100 5,828 1,100 580LIABILITIESCurrent liabilitiesProgress billings in excess of construction work-inprogress258,605 261,293 122,541 98,370Advances from customers - 1,853 - 1,718Trade and other payables 55,925 71,131 33,195 6,621Borrowings 71,696 98,218 - 15Amounts due to subsidiaries (trade) - 30,946Income tax payable 2,100 4,064Provision for other liabilities 4,843 10,439 4,843 10,439Non-current liabilitiesBorrowings 42,672 15,943Other long term liabilities - 1,752EQUITYEquity attributable to equity holders of the CompanyOther reserves (7,908) 4,671Accumulated losses (46,242) (116,647) (33,790) (71,260)Minority interests 17,196 11,01139. SUBSEQUENT EVENTS AFTER BALANCE SHEET DATEOn 31 January 2008, a wholly-owned subsidiary of the Group, Haiyang Raffles Offshore Equipment Ltd was incorporated andheld through Yantai Raffles Offshore Ltd. The registered and paid-in capital is RMB100,000,000. The principal activities of thesubsidiary are design, construct, sale and repair offshore marine facilities.On 22 February 2008, the State Administration of Taxation of China issued a circular Caishui [2008] No. 001, which statesthat distribution of dividends after 1 January 2008 from Pre-2008 profits will be exempt from withholding tax on distributionto foreign investors. As a result, there should be no deferred liabilities arising from undistributed profits of China subsidiariesaccumulated up till 31 December 2007. The provision of deferred tax liabilities however, would be required to the extent per FRS12.39 on profits accumulated from 1 January 2008 onwards.40. AUTHORISATION OF FINANCIAL STATEMENTSThe consolidated financial statements for the financial year ended 31 December 2007 were authorised for issue in accordancewith a resolution of the board of directors of Yantai Raffles Shipyard Limited on 25 March 2008.ANNUAL REPORT 2007 101


SHAREHOLDINGS STATISTICSAS AT 3 APRIL 2008No. Shareholder No. of shares %1 DNB Nor Bank ASA 105,957,000 38.74%2 Leung Kee Holdings Limited 51,758,207 18.92%3 Bright Touch Investment Limited 36,877,806 13.48%4 Platinum Nominees Limited 20,200,900 7.39%5 Yantai Shipyard Pte Ltd 19,200,000 7.02%6 Brian Chang 12,976,087 4.74%7 Kintube Business Inc. 7,770,000 2.84%8 Magnum Investment Limited 5,810,000 2.12%9 Airtrust (Singapore) Pte Limited 3,715,000 1.36%10 Francis James Reidy 2,744,000 1.00%11 James W. Reidy 1,257,000 0.46%12 Lotus Jong 1,040,000 0.38%13 Annie Yap Foi Fong @ Mrs Annie Chang 1,000,000 0.37%14 Tracy Chang 1,000,000 0.37%15 Chang Wynnie 1,000,000 0.37%16 Walker Beach Ltd 569,000 0.21%17 Merrilyn Wai Lye Fong 250,000 0.09%18 Carolyn Fong Wai Lyn 250,000 0.09%19 Lim Ho kee 60,000 0.02%20 John McDonald Green-Armytage 55,000 0.02%21 Yeoh Cheng Ee 10,000 0.00%273,500,000 100.00%102 YANTAI RAFFLES SHIPYARD LIMITED


NOTICE OF THE ANNUAL GENERAL MEETINGNOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at the Pan Pacific Orchard, Picasso 1, Level3, 10 Claymore Road, Singapore 229540 on Thursday, 15 May 2008 at 4:00 p.m. (Singapore Time) for the following purposes:As Ordinary Business1. To receive and adopt the Directors’ Report and the Audited Accounts for the financial year ended 31 December 2007, togetherwith the Auditors’ Report thereon. (Resolution 1)2. To re-elect Mr Julian Chang, being a Director who retires by rotation pursuant to Article 91 of the Articles of Association of theCompany. (Resolution 2)3. To re-elect Mr Chang Yee Meng, Malcolm, being a Director who retires by rotation pursuant to Article 91 of the Articles ofAssociation of the Company. (Resolution 3)4. To re-elect Mr Liu Chee Ming, being a Director who retires by rotation pursuant to Article 91 of the Articles of Association of theCompany. (Resolution 4)5. To approve the payment of Directors’ fees of S$316,000 for the financial year ended 31 December 2007. (Resolution 5)6. To re-appoint Messrs Ernst & Young as Auditors and to authorise the Directors to fix their remuneration. (Resolution 6)As Special Business7. To consider and if thought fit to pass the following resolution as an ordinary resolution, with or without modification:-“AUTHORITY TO ISSUE SHARESTHAT pursuant to the provisions of Section 161 of the Companies Act, Cap. 50 (the “Act”) and the listing rules (if any) uponwhich the Company is listed, the Directors be and are hereby authorised to (i) allot and issue shares in the Company; and (ii) issueconvertible securities and any shares in the Company pursuant to the conversion of such convertible securities, (whether by wayof rights, bonus or otherwise) at any time and from time to time upon such terms and conditions whether for cash or otherwisewith such rights and restrictions and for such purposes and to such persons as the Directors shall in their absolute discretiondeem fit to impose and that such authority shall continue in force until the conclusion of the next Annual General Meeting or theexpiration of the period within which the next Annual General Meeting of the Company is required by law to be held, whicheveris the earlier.” (Resolution 7)8. To consider and if thought fit to pass the following resolution as an ordinary resolution, with or without modification:-“AMENDMENT TO THE RULES OF YANTAI RAFFLES EXECUTIVE SHARE OPTION SCHEMETHAT the maximum duration of the Yantai Raffles Executive Share Option Scheme be extended from five to ten years from itsadoption date of 21 June 2006 and that Rule 17.1 of the Rules Yantai Raffles Executive Share Option Scheme be amendedaccordingly.” (Resolution 8)9. To transact any other business that may properly be transacted at an Annual General Meeting.By Order of the BoardYap Wai Ming / Lean Min-TzeJoint Company SecretariesSingapore, 30 April 2008Notes:1. A member of the Company entitled to attend and vote at the Annual General Meeting of the Company is entitled to appointone or two proxies to attend in his stead. A proxy need not be a member of the Company.2. A member of the Company which is a corporate is entitled to appoint its authorised representatives or proxies to vote on itsbehalf.3. The instrument appointing a proxy must be deposited at the Registered Office of the Company, Stamford Law Corporation at9 Raffles Place, #32-00 Republic Plaza, Singapore 048619 not less than 48 hours before the time appointed for holding ofthe Annual General Meeting.ANNUAL REPORT 2007 103


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