Rising Above

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