broadening our horizon - sembcorp · pdf file• construction of 37,000 dwt bulk carriers...

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Corporate Profile, Vision & Core Values 2

Letter to Shareholders 4

At A Glance• Group Financial Highlights 10• Group Quarterly Results 12• Financial Calendar 14• Corporate Directory 15• Corporate Structure 16• Organisation Structure 18• Significant Events 20• Awards & Accolades 26

Corporate Governance & Transparency• Corporate Governance Report 28• Board of Directors 40• Key Management Profile 46• Investor Relations 48• Shareholders’ Information 52• Share Prices and Monthly Volumes 53

Financial Review• Group Five-Year Performance 54• Group Five-Year Financial Summary 56• Simplified Group Financial Position 62• Value Added Statement & Productivity Ratios 64• Statement of Computation of Economic Value Added 66• Risk Management 67• Sensitivity Analysis 68• Accounting Policies 69

Market Review & Outlook• Singapore Economy & Outlook 70• The Marine Industry 71• SembCorp Marine: Sectorial Performance & Outlook 73

- Ship Repair- Shipbuilding- Ship Conversion & Offshore- Rig Building

• SembCorp Marine: Summary of Order Book 83

Growing and Expanding the Business 86

Research, Innovation & Technology 90

Corporate Enhancement & Social Responsibility 94

Human Capital 98

Health, Safety, Security & Environment 104

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Ship Repair

Shipbuilding

Rig Building

Ship Conversion & Offshore Offshore Production& Floating Facilities

BROADENINGOUR HORIZON

29 Tanjong Kling Road,

Singapore 628054

Tel: (65) 6265 1766

Fax: (65) 6261 0738 / 6265 0201

Website: www.sembcorpmarine.com.sg

Company Reg. No: 196300098Z

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• Simple ship repair• Vessel size less than 40,000 dwt• Building of barges, tugs, water boats

• Repair of LNG & LPG tankers• Chemical tankers• C.O.W. (crude oil washing) and IGS (Inert Gas

System) installations

• Vessels size increased – over 40,000 dwt• Repair of VLCCs, bulk carriers• Steelwork renewals• 1st VLCC: the 210,822 dwt Bulford

1970 – 1975 1976 – 19941963 – 1969

• Building of standard IHI design vessels• Construction of 14,000 dwt

Freedom Class vessel• 1st vessel, Neptune Ruby

• Construction of 90,000 dwt tankers• Building of IHI design vessels• Construction of tugs, barges and

product tankers

• Jumboisation• Reconstruction of tankers• Conversion of general cargo to container vessel• Reefer ship conversion

Shipbuilding

Ship Conversion & Offshore

Ship Repair

• Replacement of engine bedplates• Gas tankers, passenger vessels & navy vessels• Repair of double-hull VLCCs

• Fabrication of topsides production modules• JVs with SMOE on mega FPSO

• Proprietary design of container vessels : 1,078 to2,600 TEUs

• Design and construction of 1,078 TEUs container vessels• Design and construction of 2,600 TEUs container vessels

Rig Building

• FPSO, FSO and FPU conversions• EPIC (Engineering, Procurement, Installation &

Commissioning) FPSO conversion

• Construction of Friede & Goldman Ex-D 5th Generation semi-submersibles

• Proprietary design of Baker Marine Pacific Class (BMC) 375 DeepDrilling Jack-up rig

• Repair of war-damaged tankers• Repair of passenger vessels• Repair of navy vessels

• Niche shipbuilding• Construction of 37,000 dwt bulk carriers &

product tankers• Design & construction of 830 TEU

container vessel

• Specialised conversion– power barge conversion– tanker to lightering vessel

• Offshore conversion– Conversion of tanker to FPSO– Conversion of tanker to FSO

• Repair and upgrades of jack-ups• Repair and upgrades of semi-submersibles

1995 – 2000 2001 – 2005 2006 & Beyond

• Design and construction of BMC 375 Deep Drilling Jack-up rig• Construction of 6th Generation Friede & Goldman Ex-D (DP)

semi-submersible rigs

• JVs with SMOE on mega FPSOs and topsides production modules

• LPG FPSO conversion• Specialised FPSO conversions• Heavy Lift Derrick Pipelay vessel

• LNG tankers• Container vessels• FPSO upgradings• Offshore upgradings

• Building of customised and specialised vessels• Design and construction of 2,600 TEUs container vessels

Offshore Production & Floating Facilities

Offshore Engineering

• Fixed Production Platforms• Floating Production Facilities : FPSO, FPU, TLPs, SPARSGrowing and expanding our business

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C O R P O R A T E P R O F I L E

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CORPORATE VISIONSembCorp Marine aims to be the worldleader in ship repair, shipbuilding, shipconversion, rig building and offshoreengineering, providing innovativesolutions that exceed its customers'expectations. While anchoring itselffor future growth, the Group continuesto commit itself to fulfilling thechanging needs and aspirations of itsemployees.

INTEGRITYWe believe in and perform our duties with honesty,dedication and responsibility. We value loyalty,trustworthiness, reliability and openness asessential personal attributes in our corporateculture.

HEALTH, SAFETY, SECURITY ANDENVIRONMENTAL PRESERVATIONWe are committed to continuously promote a safeand healthy work environment for our customers,employees, contractors and the community. Wetake responsibility for our own safety, security andfor others both on and off the job.

INNOVATIVENESSWe believe that innovation and creativity are crucialto stay ahead of the competition and bring aboutbetter efficiency in the organisation. We secureindustry leadership through constant innovativetechnological and engineering solutions andencouraging entrepreneurship.

QUALITYWe constantly and consciously strive to achieveworld-class quality standards in everything wedo for our customers, to improve our quality oflife and to add value for our shareholders. Webelieve in continuous improvement and enhancingour competencies to meet rapid global changes.

PEOPLE-CENTREDNESSWe respect and value every individual regardlessof his or her position in our organisation. Weprovide equal opportunities and a conduciveenvironment for employees to attain their fullpotential. We reward all employees fairly,benchmarking their performance to best practices.We believe in building a learning organisation forour people to acquire knowledge and skills toachieve professionalism.

TEAMWORKWe are committed to working together and havingtrust on one another to achieve commonorganisational goals and results. We believe inpromoting closer relationships and developingteam spirit among our people to encouragespeedy and open communication and to care foreach other.

CUSTOMER SERVICEOur customer is the key to our success. Wecontinue to provide innovative solutions that addvalue to our customers and to build lastingrelationships with our customers based on trustand shared purpose.

COMMUNITY RESPONSIBILITYWe view our business as being an integral partof society. We are committed to be a responsiblecorporate citizen, both locally and globallycontributing to community improvements, andto create a caring organisation.

CORE VALUES

SembCorp Marine is a leading global marine engineering group specialising in a fullspectrum of integrated solutions, ranging from ship repair, shipbuilding, shipconversion, rig building to offshore engineering & production facilities. As one ofthe largest marine engineering leaders in Asia, the Group has a global networkspanning four strategic hubs – Singapore, China, Brazil and USA. SembCorp Marine’sSingapore hub consists of Jurong Shipyard, Sembawang Shipyard, PPL Shipyard,SMOE and Jurong SML Shipyard, supported by P.T. Karimun Sembawang Shipyardand P.T. SMOE in Indonesia. SembCorp Marine strives to fulfil the needs andaspirations of its employees, by giving them opportunities to learn and excel to theirfullest potential. The Group believes in rewarding its employees fairly by benchmarkingtheir performances to best practices, and in providing a conducive environment forgrowth and all-round development.

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04-09 letter to share.20mar 4/1/07 11:12 AM Page 1

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L E T T E R T O S H A R E H O L D E R S

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Record Earnings in 2006Net profit registered a record high at $238.4million in 2006, climbing by an outstanding 96per cent over 2005. Excluding the non-operatingitems of $20.5 million, the Group’s attributableprofits increased by 83 per cent to $217.8 million.

Group turnover grew 67 per cent from $2.12billion in 2005 to $3.55 billion in 2006, whileEBITDA rose 68 per cent from $162.6 million to$273.8 million in 2006, driven by the buoyantship repair business and rig building activities.

Group operating profits recorded an increase of83 per cent from $124.5 million in 2005 to $228.2million in 2006. Group pre-tax profits rose 95per cent from $159.9 million in 2005 to $310.9million in 2006. This increase came mainly fromhigher operating margins from the rig buildingand ship repair businesses, gains on disposal ofinvestments as well as improved contributionsfrom associated companies.

Net asset value per share, at 91.4 cents, was 24per cent higher as compared with 73.5 cents pershare in 2005. Earnings per share increased 94per cent to 16.39 cents in 2006. Return on equity(ROE) improved 67 per cent from 12 per cent in2005 to 20 per cent, surpassing management’starget of 15 per cent for the year.

Commitment to Shareholder ValueIn tandem with the strong financial performancein 2006, the Board of Directors is recommendinga final gross dividend of 11.5 cents per sharecomprising 10.0 cents plus 1.5 cents one-tiertax-exempt dividend per share. Together with theinterim gross dividend payment of 3.5 cents pershare, total gross dividend for 2006 will be15 cents per share, comprising 13.5 cents and1.5 cents one-tier tax-exempt dividend per share.This represents a dividend payout of 77 per cent.It also represents an increase of 64 per cent ascompared with 2005.

Strong, Resilient Core BusinessesThe Group has strong and resilient corebusinesses. In 2006, rig building constituted 49per cent of the total turnover of $3.55 billionfollowed by ship conversion/offshore at 26 percent, ship repair at 17 per cent, shipbuilding at6 per cent and others at 2 per cent.

The star performer was the rig building sectorwhere turnover rose by 353 per cent from $381.3million in 2005 to $1,728.9 million in 2006. Thisincrease was attributable to the progressiverecognition of more jack-up and semi-submersiblerigs. Ten units of the jack-up rigs were at work-in-progress stages of production, with two unitsdelivered in 2006 and another six units still in the

4

Dear Shareholders

SembCorp Marine achieved an outstandingyear of solid growth in 2006, posting recordhighs in revenue and profit.

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engineering and early stages of production. Forsemi-submersible rigs, two units were at work-in-progress stages and three other units still inthe engineering and early stages.

The ship repair segment also performed well, withturnover increasing by 15.4 per cent from $530.6million to $612.1 million in 2006. A total of 314vessels were docked for repairs as compared with309 in 2005. Average revenue per vessel edgedup from $1.72 million to $1.95 million in 2006.Tankers comprised 37 per cent of vessels repairedfollowed by LPG/LNG tankers at 15 per cent, bulkcarriers at 11 per cent, container vessels at 10per cent, floating production storage offloading(FPSO) upgrading at 6 per cent, offshore upgradingat 5 per cent and the remaining 16 per centcomprising a mix of different vessels such as carcarriers, cargo vessels and dredgers.

The shipbuilding sector also registered an increaseof 11.7 per cent from $188.6 million in 2005 to$210.6 million in 2006. Four units of the 2,600TEU container vessels were delivered within theyear with the remaining three units of 2,600 TEUcontainer vessels to be delivered in 2007. Twounits of 4,950 dwt tanker will be delivered insecond quarter of 2007 instead of the fourthquarter of 2006 due to changes to the vessel type.

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The acquisition allows SembCorp Marine tooptimise its capacity and resources with anadditional 86 hectares of land equipped with afabrication yard in Singapore, adjacent toSembawang Shipyard, and a 30-hectarefabrication yard in Batam in Indonesia. The timelyacquisition of SMOE’s expertise and track recordin the offshore production facilities had positionedthe Group to expand its capabilities and capacityin anticipation of the expected growth in theoffshore production market. To date, SMOE andits Indonesian subsidiary, P.T. SMOE Indonesia,had successfully clinched US$380 million worthof contracts for production platforms.

Outlook for 2007In 2006, the Group secured contracts worth $3.1billion compared with $4.2 billion in 2005, adifference attributable mainly to the timing of thecontracts. As at February 2007, total contractssecured totaled $1.8 billion, representing morethan half the amount secured in 2006. The totaloutstanding order book, excluding ship repairand including new contracts secured up to

February 2007, stood at $7.1 billion with deliveriesand completions until 2010.

Based on the scheduled completion of theseprojects, the SembCorp Marine Group expects2007 to be a better year than 2006. In addition,the Group projects that the market outlook for allsectors in the offshore and marine industry wouldremain healthy. Ship repair demand is expectedto be strong especially in the specialised marketof LNG/LPG gas tankers, VLCC (very-large crudecarriers) tankers and container vessels.

Global demand for energy continues to grow withexploration and production activities remainingpositive despite the volatility in oil prices whichat these levels underpin the high level of activities.Correspondingly, prospects for FPSO vessels,floating storage and offloading (FSO) vessels andoffshore platforms are likely to remain strong.Equally strong is the outlook on the rig buildingsector backed by high charter rates, near 100per cent utilisation levels and an aging fleetworldwide.

Turnover from the offshore ship conversion sectorregistered a modest growth of 3.1 per cent from$886.3 million in 2005 to $913.4 million in 2006.Major completions for the year comprised themarine portion of Petrobras 54 project, BWEnterprise FPSO conversion and the RJS FPSOconversion. Other projects underway includedthree new FPSO conversions, a heavy lift derrickpipelay conversion and a semi-submersible rigconversion.

Associates’ ContributionsSembCorp Marine’s stake in the Cosco ShipyardGroup contributed a significant $39.1 millionto pre-tax profits, while other associatedcompanies recorded improved profit growth.Total contributions from associates were$44.4 million, an increase of 127 per cent from$19.5 million in 2005.

Strategy for Sustainable GrowthTo enhance its capabilities and capacity togrow its rig building and offshore engineeringbusiness, SembCorp Marine acquired SMOE andSembawang Bethlehem from SembCorpUtilities and Sembawang Corporation Limitedrespectively in August 2006 for a total of $183.7million, including the assumption of a loan ofapproximately $117.0 million.


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The Group will continue to benefit from the furthergrowth in all these sectors.

Board and ManagementOn behalf of the Board of Directors, we wouldlike to thank Mr Haruo Kubota for his invaluableservices as a board member representingIshikawajima-Harima Heavy Industries Co. Ltd(IHI) of Japan since July 2004. Mr Kubota steppeddown as a board member in June 2006.

The Board would also like to welcome Mr RonFoo and Mr Joseph Kwok, appointed asindependent directors to the Board in June 2006.Mr Foo had more than 22 years extensiveexperience and in-depth knowledge in accounting,before retiring as a Partner in PricewaterhouseCoopers in December 2005. Mr Joseph Kwokbrought with him more than 25 years of shipping

experience, having served in Neptune Orient Lines(NOL) and American Eagle Tankers Inc (AET).

Finally, on behalf of the Board, we would like tothank all our valued clients and businessassociates for their continuous support. We wouldalso like to thank all our employees for their hardwork, dedication and contributions to ourachievements in this past year. And in closing,we would like to add our appreciation to all ourshareholders for their continued interest andsupport for the SembCorp Marine Group.

Goh Geok Ling Tan Kwi KinChairman Group President & CEO

1 March 2007

10-11 group financial.20mar 4/1/07 11:15 AM Page 1

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GROUP FINANCIAL HIGHLIGHTSFor the year (S$’000) 2006 2005 % Change

Group Profit & Loss AccountRevenue 3,545,049 2,119,279 67Profits EBITDA 273,831 162,614 68 Operating Profit 228,233 124,549 83 Profit Before Tax 310,871 159,855 95 Attributable Profit 238,388 121,398 96

Group Balance SheetTotal Assets 3,429,501 2,326,137 47Total Liabilities 2,059,278 1,210,440 70Net Tangible Assets 1,324,682 1,061,944 25

Shareholders' Funds 1,338,339 1,065,545 26Minority Interests 31,884 50,152 (36)Capital Employed 1,370,223 1,115,697 23

Fixed Deposits, Bank & Cash Balances 503,488 531,457 (5)Borrowings (390,988) (149,720) 161Net Cash 112,500 381,737 (71)

Financial RatiosEarnings Per Share (EPS) EPS, before tax (cents) 21.38 11.13 92 EPS, after tax (cents) 16.39 8.45 94

Dividend Per Share Net Dividend (cents) 12.50 7.60 64 Gross Dividend (cents) 15.00 9.50 58

Net Assets Value per share (cents) 91.42 73.47 24Net Tangible Assets per share (cents) 90.49 73.22 24

Return on Turnover (%) 6.72 5.73 17Return on Total Assets (%) 8.28 5.80 43Return on Equity (%) 19.83 11.93 66

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A T A G L A N C E

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GROUP QUARTERLY RESULTS2006 (S$'000) 1Q 2Q 3Q 4Q Total

Turnover 499,107 1,041,207 673,275 1,331,460 3,545,049Operating Profit 50,741 49,537 39,720 88,235 228,233EBITDA 60,804 60,033 51,710 101,284 273,831Profit before Tax 56,100 71,350 54,861 128,560 310,871Attributable Profit 40,833 57,543 44,713 95,299 238,388Earnings per share (cents)-Year-to-date 2.81 6.77 9.85 16.39Earnings per share (cents)-In-quarter 2.81 3.96 3.08 6.54 16.39

2005 (S$'000) 1Q 2Q 3Q 4Q Total

Turnover 447,735 470,354 451,224 749,966 2,119,279Operating Profit 23,570 32,577 35,283 33,119 124,549EBITDA 31,766 41,100 44,529 45,219 162,614Profit before Tax 30,510 44,601 41,861 42,883 159,855Attributable Profit 23,813 34,585 32,735 30,265 121,398Earnings per share (cents)-Year-to-date 1.67 4.08 6.35 8.45Earnings per share (cents)-In-quarter 1.67 2.41 2.27 2.10 8.45

Profit before TaxAttributable Profit

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Profit before TaxAttributable Profit

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A T A G L A N C E

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Registered Office29 Tanjong Kling Road, Singapore 628054

Telephone : (65) 6265 1766

Fax : (65) 6265 0201/ (65) 6261 0738

Website : www.sembcorpmarine.com.sg

E-mail : [email protected]

Share RegistrarKCK Corpserve Pte Ltd

47 Hill Street, #06-02

Singapore Chinese Chamber of Commerce& Industry Building

Singapore 179365

AuditorErnst & Young

Certified Public Accountants

Singapore

Audit Partner: Daniel Soh

(appointed during financial year ended 31December 2003)

Principal BankersBank of America NT & SA

DBS Bank Ltd

Mizuho Corporate Bank Ltd

Oversea-Chinese Banking Corporation Limited

Standard Chartered Bank

Sumitomo Mitsui Banking Corporation

The Hongkong and Shanghai Banking CorporationLimited

United Overseas Bank Limited

Share ListingSembCorp Marine’s shares are listed on the

Singapore Exchange Securities Trading Limited

Company SecretaryMs Tan Yah Sze

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FINANCIAL CALENDARFinancial Year 2007

2007 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Financial YearAnnouncements ofResults & Dividends2006 Full YearQuarter 1, 2007Quarter 2, 2007Quarter 3, 20072006 Final DividendPaymentDelivery ofAnnual Report

Annual GeneralMeeting/ ExtraordinaryMeeting

Financial Year 2006

2006 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Feb 14May 3

Aug 1Nov 2

May 18

Apr 7

Mar 30

Apr 24

Financial YearAnnouncements ofResults & Dividends2005 Full YearQuarter 1, 2006Quarter 2, 2006Quarter 3, 20062005 Final DividendPaymentDelivery ofAnnual Report

Delivery of EGM NoticeAnnual GeneralMeeting/ ExtraordinaryMeeting

CORPORATE DIRECTORY

Feb 15May 2

Aug 2Nov 1

May 18

Apr 4

Apr 20

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A T A G L A N C E

CORPORATE STRUCTUREas at 15 March 2007

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SembCorp-Sabine Industries

Inc (USA)

85%Jurong SML Pte Ltd

100%

Jurong Shipyard Pte Ltd

100%

Sembawang Shipyard

Pte Ltd

100%Mauá Jurong SA (Brazil)

35%

Cosco Shipyard Group (China)

30%

P.T. Karimun Sembawang

Shipyard (Indonesia)

100%

SembCorp Marine Ltd

Singapore Shipyards

Overseas Shipyards

Supporting Companies

Jurong Marine Services

Pte Ltd

100%

JPL Industries Pte Ltd

60.1%

Jurong Clavon Pte Ltd

55%

Bulk Trade Pte Ltd

100%

Jurong Integrated

Services Pte Ltd

100%

Jurong Machinery

and Automation Pte Ltd

100%

JPL Services Pte Ltd

70%

Jurong Marine

Contractors Pte Ltd

100%

P.T. SMOE (Indonesia)

90%

SMOE Pte Ltd

100%

PPL Shipyard Pte Ltd

85%

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A T A G L A N C E

ORGANISATIONSTRUCTUREas at 15 March 2007

Staff Support Group

Shipyards (Singapore)

Supporting Companies

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Internal Audit

Toh Chin Hock, Asst Vice President

[email protected]

Investor Relations &

Communications

Judy Han, Senior Vice President

[email protected]

Finance & Administration

Wee Sing Guan, Director, Group Finance

[email protected]

Tan Cheng Tat, Chief Financial Officer

Low Siew Lian, Deputy CFO

Corporate Development

Wee Keng Hwee, Senior Vice President

[email protected]

Engineering

Seow Tan Hong, Senior Vice President

[email protected]

Marketing

Chua Teck Lian

Senior Vice President

[email protected]

Don Lee Fook Kang


Ong Tian Khiam


Sembawang Shipyard

Chairman : Tan Kwi Kin

Managing Director : Ong Poh Kwee

Executive Director : Wong Lee Lin

General Manager (Business) : K. K. Wee

General Manager (Operations) : Simon Kuik

Email: [email protected]

Human Resource

Wong Peng Kin, Director, Group HR

[email protected]

Board of Directors

Group President & CEO : Tan Kwi Kin

President & COO : Wong Weng Sun

Deputy President : Ong Poh Kwee

Mauá Jurong SA (Brazil)

Director & CEO : Chang King


P.T. Karimun Sembawang

Shipyard (Indonesia)

President Director : Ng Thiam Poh

Email : [email protected]

Cosco Shipyard Group (China)

Deputy General Manager: Liu Chin Peng


Shipyards (Overseas)

Jurong Integrated Services

Executive Director : Chang King


Jurong Machinery & Automation

Executive Director : Chew Yam Poey


JPL Services

Director : Yu Ching Ong


Jurong Marine Contractors

Executive Director : Wong Peng Kin


SembCorp-Sabine

Industries Inc (USA)

CEO : Chan Nai Eng


Jurong Shipyard


Managing Director : Wong Weng Sun

Executive Director : Lee Yeok Hoon

Senior General Manager (Offshore) : Don Lee

Asst General Manager

(Ship Repair) : Tey Chin Tiong


[email protected]

SMOE


Managing Director : Ho Nee Sin

General Manager : Aw Chin Leng

General Manager (Business Dev.

& Commercial) : Chew Sang Mon


Jurong SML


Deputy Chairman : Ng Thiam Poh

Executive Director : Freddie Woo


PPL Shipyard


Deputy Chairman : Benety Chang

Managing Director : Ong Tian Khiam

General Manager

(Engineering & Operations) : Royce Lim

General Manager

(Special Construction) : Cheong Kok Mun


P.T. SMOE (Indonesia)

General Manager: D.T. Loy

Risk Management

Ng Thiam Poh, Chief Risk Officer

[email protected]

Legal

Tan Yah Sze, Vice President

[email protected]

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SIGNIFICANT EVENTSJanuary• Delivery and naming of Wan Hai 312, the second

2,646 TEU proprietary-designed Jubilee Classcontainership by Jurong Shipyard.

• Award of S$88 million contract to SembawangShipyard by Bergesen Worldwide Offshore toconvert ULCC tanker BW Enterprise into anFPSO for Mexico’s PEMEX.

• Award of US$175 million contract to PPLShipyard by Aban Singapore, a subsidiary ofAban Lloyd Chiles Offshore of India, to build aBaker Marine Pacific Class 375 (BMC Pacific375) jack-up rig.

• Signing of a Favoured Customer Contractbetween Sembawang Shipyard andConocoPhillips, a leading oil major and thelargest refiner in USA.

February• Award of a US$141.1 million jack-up building

contract to PPL Shipyard by Deep Drilling 7Pte Ltd, a subsidiary of Sinvest ASA of Norway,for a second Baker Marine Pacific Class 375jack-up rig unit.

• Award of a refurbishment and upgradingcontract for the drillship Discoverer 534 toSembawang Shipyard from a subsidiary ofTransocean Inc.

• Sailaway ceremony of livestock carrier MVTorrens (ex Farid F) at Sembawang Shipyardafter completing major upgrading andrefurbishment.

• Appointment of Mr Goh Geok Ling as Chairmanand Director of SembCorp Marine.

• Announcement of full-year 2005 financial results.

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• Launching of WilPower (Hull No. P2007), aBaker Marine Pacific Class 375 jack-up rigconstructed for Awilco Offshore ASA, at PPLShipyard.

• Keel-laying of Hull No. P2008 Baker MarinePacific Class 375 jack-up rig, constructed atPPL Shipyard for Deep Drilling 4.

• Participation in the launch of NTUC’s Effortson the Re-employment of Older Workers.

• Participation in MediaCorp Channel 8’s “Madein Singapore” info-ta inment ser ies,commissioned by the Economic DevelopmentBoard to promote awareness of Singapore’smarine industry.

• Participation by Sembawang Shipyard in premiercruise exhibition Seatrade Cruise Conventionin Miami, USA.

March• Naming of Deep Driller 1, a Baker Marine Pacific

Class 375 jack-up rig built by PPL Shipyard forKristiansand Drilling, a joint venture betweenSembawang Shipyard (S) Pte Ltd and DeepDrilling 1 Pte Ltd, a wholly-owned subsidiaryof Sinvest ASA.

• Load-out of the Third Transmission PipelinePTT Riser Platform by SMOE, which undertookthe project’s engineering, procurement,installation and construction for PTT Public Co.

• Award of Letter of Intent to Jurong Shipyard byNorway’s PetroMena AS for a second unit ofFriede & Goldman ExD designed semi-submersible drilling rig for US$480 million.

• Participation by SembCorp Marine inSingapore’s Asia Pacific Maritime 2006, abiennial maritime fair.

• Sailaway of Petrobras 54 to Mauá Jurong (Brazil)for topsides phase of its FPSO conversion oncompletion of marine hull conversion of the280,000 dwt VLCC Barao de Mauá at JurongShipyard.

• Production commencement of FPSO Petrobras50 on the Albacora Leste field in the Camposbasin, offshore Brazil, after completing topsidesintegration and commissioning at Mauá Jurongin Brazil.

• 43rd Annual General Meeting and ExtraordinaryGeneral Meeting of shareholders.

May• Delivery of Independence Hub deep-draft semi-

submersible hull by Jurong Shipyard to AtlantiaOffshore.

• Participation in the world’s leading offshore oiland gas exhibition Offshore TechnologyConference in Houston, USA.

• Divestment of SembCorp Marine’s entire 82per cent interest in Kristiansand Drilling, a single-purpose joint-venture company formed for theconstruction of jack-up rig Deep Driller 1, toSinvest ASA’s subsidiary Deep Drilling 1 for anet profit of S$13.3 million.

• Participation in Choice Careers Fair 2006 torecruit talent for the Group’s yards.

April• Award of US$165.5 million rig building contract

to Jurong Shipyard by JackInvest I for one unitof Baker Marine Pacific Class 375 jack-up rig,managed by Norway’s Larson Oil and Gas AS.

• Award of US$142 million contract to PPLShipyard for the construction of one unit ofBaker Marine Pacific Class 375 jack-up rig, thefourth unit to be ordered by Awilco OffshoreASA.

• Strike steel ceremony of Hull No. P2010 BakerMarine Pacific Class 375 jack-up rig for JapanDrilling Co. at PPL Shipyard.

• Strike steel ceremony of P2013 Baker MarinePacific Class 375 jack-up rig for Aban LloydChiles Offshore, a project undertaken jointlyby PPL Shipyard and Sembawang Shipyard.

• Naming of Wan Hai 313, the third 2,646 TEUJubilee Class containership unit built by JurongShipyard for Taiwan’s Wan Hai Lines.


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June• Delivery of Deep Driller I, the first Baker Marine

Pacific 375 jack-up rig series, by PPL Shipyardto Norway’s Sinvest ASA, which had earlierexercised an option in May to acquire fullownership of the rig.

• Naming ceremony of WilPower, the first of fourBMC Pacific 375 jack-up rigs built by PPLShipyard for Awilco Offshore ASA.

• Official Inauguration of P.T. SMOE Indonesiaby the President of the Republic of Indonesia,His Excellency Dr Susilo Bambang Yudhoyono.

• Participation in one of the world’s largestshipping trade exhibitions, Posidonia 2006 inGreece.

• Participation in the Marine Learning Carnival,co-organised by Association of SingaporeMarine Industries and Ngee Ann Polytechnicto promote the marine industry to students.

• Presentation on rig building in Singapore byMr Ong Tian Khiam, Managing Director of PPLShipyard, at the Institute of Southeast AsianStudies, National University of Singapore.

• Participation in Maritime and Port Authority ofSingapore’s Maritime Open House by JurongShipyard and Sembawang Shipyard.

July• Award of US$550 million contract to Mauá Jurong

by Companhia Mexilhão do Brazil for theengineering, procurement and construction of afixed gas production platform named PMXL-1.

• Award to Sembawang Shipyard by Aban Lloydof India for the upgrading and repair works ofdrill ship Aban Abraham, ex-Peregrine.

• Completion and naming of FPSO Brotojoyooffshore conversion by Sembawang Shipyardfor FCC partner TESMA (Singapore) and ownerPT Berlian Laju Tankers from Indonesia

• Keel-laying of Petrojack II (Hull No 11-1082)and steel striking of Petrojack III (Hull No 11-1083) at Jurong Shipyard

• Signing of two conditional sale and purchaseagreements for the strategic acquisitions ofSembawang Bethlehem and SMOE.

• Increase in SembCorp Marine’s effectiveshareholding in JPL Industries from 53.8 percent to 60.1 per cent.

August• Delivery of WilPower, the first of four BMC

Pacific 375 jack-up rigs ordered by AwilcoOffshore ASA from PPL Shipyard.

• Delivery of Pontremoli (re-named Gulf Bridge),the first of two 2,646 TEU Jubilee Classcontainerships built by Jurong Shipyard forReederei F Laeisz.

• Announcement of first-half 2006 financial results.

• Shareholder approval for SembCorp Marine’sacquisitions of SMOE and SembawangBethlehem’s land and assets as well as110,400,000 Cosco Corporation shares atExtraordinary General Meeting.

• National Day Observance Ceremony with MrsLim Hwee Hua, Minister of State for Financeand Transport, as guest-of-honour.

September• Launching of Hull No. P2005 for PT Apexindo

Pratama Duta TBK at PPL Shipyard.

• Strike steel ceremony of Hull No. P2016 BakerMarine Pacific Class 375 jack-up rig for AwilcoOffshore ASA at PPL Shipyard.

• Delivery and naming of Wan Hai 315, the fourthof Wan Hai Lines’ six 2,646 TEU containershipsbuilt by Jurong Shipyard.

• Completion of fabrication, construction andload-out of Kerisi wellhead platform by SMOEfor ConocoPhillips Indonesia.

• Participation by Sembawang Shipyard inthe biennial Shipbuilding, Machinery &Marine Technology exhibition in Hamburg,Germany.

• Presentation of the SHARE ProgrammeDistinguished Gold Award 2006 to SembawangShipyard by Dr Vivian Balakrishnan, Ministerfor Community Development, Youth & Sports.

• Presentation of the Singapore Civil DefenceForce Strategic Partners Award to SembawangShipyard at the Force’s 25th anniversarycelebrations.

October• Award of US$155 million contract to PPL

Shipyard for the construction of a Baker MarinePacific Class 375 jack-up rig (Hull No. P2017)by Offshore Group Corp.

• Delivery of FPSO Cidade do Rio de Janeiro MV14, converted from the 264,148 dwt VLCCBright Jewel, by Jurong Shipyard for MODECInternational LLC.

• Award of S$30 million contract to SembawangShipyard for the upgrading and reactivation ofdrillship Neptune Explorer for Neptune MarineOil & Gas Limited, Scotland.

• Participation in MARTECH 2006 at SingaporePolytechnic, organised by Singapore MaritimeFoundation and Maritime and Port Authority ofSingapore.

• Participation in the Economic DevelopmentBoard’s Manufacturing Exhibition @ EnterpriseExchange, Global Entrepolis 2006.


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November• Renaming of FPSO Yùum K’ak’Náab upon

conversion from the 360,700 dwt ULCCBW Enterprise at Sembawang Shipyard forBergesen Worldwide Offshore.

• Keel-laying of Hull No. P2011 Baker MarinePacific Class 375 jack-up rig constructed forSeadrill Management at PPL Shipyard.

• Steel-striking ceremonies at Jurong Shipyardfor Noble Danny Adkins semi-submersible andDeep Driller 7 jack-up rig building projects.

• SembCorp Marine’s SchoolBAG chequepresentation ceremony at Lakeside PrimarySchool.

December• Award of two offshore conversion contracts

worth US$58 million to Jurong Shipyard byTanker Pacific Offshore Terminals for the FPSOconversions of 92,802 dwt tanker M.T. AndamanSea and 148,255 dwt tanker M.T. Freeway, tobe renamed FPSO Raroa and FPSO MontaraVenture respectively.

• Award of an approximate US$180 million contractto Jurong Shipyard for the design, constructionand delivery of a self-elevating heavy-lift jack-up barge by Saudi Aramco Overseas CompanyB.V., a subsidiary of the Saudi Arabian OilCompany.

• Award of a contract to Jurong Shipyard for theconstruction, conversion and outfitting ofbaredeck hull Bingo 9000 into an ultra-deepwater semi-submersible drilling unit, to

be named Noble Danny Adkins, by NobleDrilling Holding LLC of USA.

• Steel-striking ceremonies for Petrojack IV jack-up rig building project and PetroRig I semi-submersible newbuilding project at JurongShipyard.

• Contribution of $222,450 to 1,064 needy studentsunder SembCorp Marine’s SchoolBAG Scheme.

• Participation in the 1st Anniversary Celebrationsof the Super V Trainee Supervisor Programmeat NTUC Centre.

January 2007• Sembawang Shipyard’s organisation of Green

Wave Environmental Care Project 2007 forSchools, graced by Dr Yaacob Ibrahim, Ministerfor the Environment and Water Resources.

• Award of US$524 million ultra-deepwater semi-submersible rig-building contract to JurongShipyard by PetroRig III Pte Ltd, a subsidiaryof PetroMena AS of Norway.

• Award of US$190 million repeat jack-up buildingcontract to PPL Shipyard by Offshore GroupCorp. for the construction of a Baker MarinePacific Class 375 deep-drilling jack-up rig.

February 2007• Award of US$300 million contract to SMOE for

the construction of an offshore platformintegrated deck by Carigali-PTTEPI OperatingCompany Sdn Bhd, Malaysia.

• Award of US$80 million turnkey contract toP.T. SMOE Indonesia to build two offshoreplatforms for Total E&P Indonesie.

• Award of S$150 million FPSO conversioncontract to Sembawang Shipyard fromBluewater Energy Services B.V., Holland.

• Strike steel of PetroRig II newbuild semi-submersible constructed by Jurong Shipyardfor PetroRig II Pte Ltd.

• Announcement of full-year 2006 financial results.

• Learning journey at Jurong Shipyard by Mr LimSwee Say, NTUC Secretary-General andMinister, Prime Minister’s Office, and NTUCunion leaders.

26-27 awards & accolades.20mar 4/1/07 11:27 AM Page 1

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Productivity and Innovation Board Singaporein January 2006. The award recognisesorganisations with an integrated innovationexcellence framework and is an affirmation ofJurong Shipyard’s continuous commitment andstrong leadership support towards sustainedinnovation.

Ministry of Manpower Innovationfor Occupational Safety and HealthAwardGold Award: Sembawang ShipyardSembawang Shipyard’s “Hull Plannerz” baggedthe top prize for their innovative “Safe Swinger”Revolution Accommodation Ladder TurningDevice. The award recognises teams that havedeveloped innovative solutions to enhanceoperational performance, efficiency and safety.

IDEA (Innovate, Discover, Engineerand Achieve) AwardsPinnacle Award: Jurong ShipyardMerit & Special Mention Awards:Sembwang ShipyardAt SembCorp Industries’ IDEA (Innovate, Discover,Engineer and Achieve) Awards, a team fromJurong Shipyard won the prestigious PinnacleAward for its “Method of ContemporaneouslyConstructing More Than One Semi-SubmersibleRig Using Transverse Skidding”. Two teams fromSembawang Shipyard clinched the Merit Awardsfor “Universal Lock for Breakers” and “PipeRotator”, while another two teams bagged theSpecial Mention Awards for “Prototype of RumahDayak” and “Spanner Lock”.

Singapore H.E.A.L.T.H AwardsGold Award: Jurong Shipyard, SembawangShipyard, Jurong SML ShipyardIn recognition of their comprehensive WorkplaceHealth Promotion programmes, Jurong Shipyard,Sembawang Shipyard and Jurong SML Shipyardwere honoured during the Health PromotionBoard’s Singapore HEALTH (Helping EmployeesAchievement Life-time Health) Award 2006 inOctober.

Ministry of Manpower AnnualSafety Performance AwardsSilver Award: SMOEThe Ministry of Manpower conferred SMOE theSilver Award for achieving good safety performancein its Third Transmission Pipeline Project.

Community Chest of SingaporeAwardsDistinguished Gold Award: Sembawang ShipyardSembawang Shipyard was presented the SHAREProgramme Distinguished Gold Award for itscontinuous support and generous contributionstowards helping the less fortunate members insociety.

May Day AwardsMedal of Commendation: Mr Wong Peng Kin,Group Director of Human Resource, SembCorpMarine / Senior General Manager of HumanResource, Jurong ShipyardFor his continuous efforts in the fostering ofgood union-management relations as well as

employees’ welfare, training and development,Mr Wong received this highly-regarded award atthe May Day Dinner 2006.

National Day AwardsPublic Service Medal: MrWong Peng Kin, GroupDirector of Human Resource,SembCorp Marine / SeniorGeneral Manager of HumanResource, Jurong ShipyardIn recognition of his significantcontributions to the nation in thearena of workplace safety andhealth in the marine industry,Mr Wong was conferred thePingat Bakti Masyarakat (PublicService Medal) by PresidentS R Nathan.

IR Magazine SEA AwardsBest Investor Relations Officer Award (Smallor Mid-cap Category): Ms Judy Han, SeniorVice President, Investor Relations &Communications, SembCorp MarineMs Han garnered this prestigious award for herprofessionalism and excellence in the field ofInvestor Relations. Recognised globally as thedefinitive measure of superior investor relationsperformance, the IR Magazine SEA Awardshonours the best from IR communities inSingapore, Indonesia, Malaysia, Thailand and thePhilippines.

Most Transparent Company Award(Non-Electronics Manufacturing Category)Runner-up Award: SembCorp MarineSembCorp Marine was accorded the Runner-upAward for Most Transparent Company (Non-Electronics Manufacturing Category) during theSecurities Investors Association's (Singapore) 7thInvestors’ Choice Awards Ceremony.

Best Annual Report AwardBronze Award: SembCorp MarineDuring the inaugural Singapore Corporate Awards,SembCorp Marine’s 2004 Annual Report clinchedthe Best Annual Report Bronze Award (Main Boardlisted companies with a market capitalisation of morethan $500 million category) for its high standards ofcorporate transparency, clarity in financial reportingpresentation and wide scope of disclosures beyondthe minimum regulatory requirement.

Breakthrough AwardSembCorp MarineThe Breakthrough Award, conferred by NationalTrades Union Congress and WorkforceDevelopment Agency, is a tribute to the outstandingefforts of organisations in redesigning jobs andimproving work conditions to create betteremployment and advancement opportunities forlocals under the Job Re-creation Programme.

Singapore Innovation ClassJurong ShipyardJurong Shipyard became the first shipyard toachieve the certification awarded by the Standards

28-39 corporate govern.23mar 4/1/07 11:50 AM Page 1

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OverviewSembCorp Marine Group is committed to meetinghigh standards of corporate governance. Itscorporate governance principles reflect its strongbelief in protecting and enhancing shareholders'value in a sustainable way. The Group firmlybelieves that the professionalism, integrity andcommitment of its Board Members andemployees, supported by a sound system ofpolicies, practices and internal controls are thecornerstones that will enable it to preserve long-term value and returns for its shareholders.

SembCorp Marine endorses the principles of theCode of Corporate Governance issued by theSingapore Exchange Securities Trading Ltd. Thisreport outlines SembCorp Marine’s corporategovernance processes and activities for thefinancial year with reference to the principles setout in the Code.

Board of DirectorsEffective Board to Lead and Effect Controls:Principle 1: Every Company should be headedby an effective Board to lead and control thecompany. The Board is collectively responsiblefor the success of the company. The Board workswith the Management to achieve this and theManagement remains accountable to the Board.

The Board’s responsibility is to oversee thebusiness, affairs and performance of theSembCorp Marine Group in the best interests ofits shareholders. The Board focuses its activitieson the Group’s key requirements such as:

• Providing entrepreneurial leadership anddirections for the Group

• Ensuring prudent and effective controls

• Setting values and standards to ensureobligations to shareholders are met

• Overseeing the proper conduct of the Group’sbusiness

The full Board meets quarterly each year to reviewand discuss reports by management on theperformance of the Group, its plans andprospects. Additional Board meetings are alsoheld where required. A total of five Board meetingswere held in the year, with Board attendancesshown in the chart below.

To ensure efficient discharge of its responsibilitiesand to provide independent oversight ofManagement, the Board has established a numberof Board committees, including the AuditCommittee, Executive Resource & CompensationCommittee, Nominating Committee and Board

Risk Committee. These committees are made upmostly of independent and/or non-executivedirectors. Other ad-hoc committees can beformed from time to time to look into specificareas when the need arises.

Membership in the different committees is carefullymanaged to ensure that there is equitabledistribution of responsibilities among BoardMembers, to maximise the effectiveness of theBoard and foster active participation andcontribution. Diversity of experiences andappropriate skills are also considered.

In addition, the Board has adopted a set of internalcontrols which sets out approval limits fortransactions, procurement of goods and services,capital expenditure, investments and divestments,bank borrowings and cheque signatories’arrangements at Board level. Approval sub-limitsare also provided at Management levels tofacilitate operational efficiency.

Strong and Independent Board exercisingObjective JudgmentPrinciple 2: There should be a strong andindependent element on the Board, which is

able to exercise objective judgment on corporateaffairs independently, in particular, fromManagement. No individual or small group ofindividuals should be allowed to dominate theBoard’s decision making.

Chaired by Mr Goh Geok Ling, the Board hasnine directors of whom eight are non-executivedirectors, and five are independent directors. MrTan Kwi Kin who is the Group President and CEOof SembCorp Marine is the executive director. MrWong Weng Sun, alternate director to Mr Tan, isthe President and COO of SembCorp Marine.

The Board is composed of a majority of non-executive directors, independent of managementand independent in terms of character andjudgement. The criterion of independence is basedon the definition given by the Code, ie anindependent director is one who has norelationship with the Company, its relatedcompanies or its officers that could interfere orbe reasonably perceived to interfere with theexercise of the directors’ independent judgmentin the conduct of the Company’s affairs. Thisenables the Management to benefit from anexternal and objective perspective on issues thatare brought before the Board.

Directors’ Attendance at Board Meetings

* the number of meetings held during the period the director was a member of the Board1. Mr Haruo Kubota stepped down as director from 30 June 20062. Mr Ron Foo Siang Guan was appointed to the Board on 30 June 20063. Mr Joseph Kwok Sin Kin was appointed to the Board on 30 June 20064. One of the meetings was attended by Mr Hirohiko Sakurai, the alternate director for Mr Kiyotaka Matsuzawa

Name of Director Scheduled Board Meetings Ad Hoc Board Meetings

Number of Number of Number of Number ofMeetings held* Meetings Attended Meetings held* Meetings Attended

Goh Geok Ling 3 3 1 1

Tan Kwi Kin 4 4 1 1

Tan Pheng Hock 4 3 1 -

Kiyotaka Matsuzawa 4 34 1 1

Tan Tew Han 4 4 1 1

Ajaib Haridass 4 4 1 1

Tang Kin Fei 4 4 1 -

Haruo Kubota1 2 1 1 1

Ron Foo Siang Guan2 2 2 - -

Joseph Kwok Sin Kin3 2 2 - -

The Board members for 2006:

Goh Geok Ling Chairman 14 February 2006 24 April 2006 Non-Executive/Non-Independent

Tan Kwi Kin Group President & CEO 1 April 1990 24 April 2006 Executive/Non-Independent

Tan Pheng Hock Director 16 April 2001 28 April 2004 Non-Executive/Non-Independent

Kiyotaka Matsuzawa Director 30 September 2001 21 April 2005 Non-Executive/Independent

Tan Tew Han Director 17 April 2003 24 April 2006 Non-Executive/Independent

Ajaib Haridass Director 31 October 2003 28 April 2004 Non-Executive/Independent

Tang Kin Fei Director 1 May 2005 24 April 2006 Non-Executive/Non-Independent

Haruo Kubota* Director 15 July 2004 21 April 2005 Non-Executive/Independent

Ron Foo Siang Guan Director 30 June 2006 Not Applicable Non-Executive/Independent

Joseph Kwok Sin Kin Director 30 June 2006 Not Applicable Non-Executive/Independent

Wong Weng Sun Alternate Director toTan Kwi Kin 3 May 2006 Not Applicable Executive/Non-Independent

Hirohiko Sakurai Alternate Director toKiyotaka Matsuzawa 30 June 2006 Not Applicable Non-Executive/Independent

* Mr Haruo Kubota stepped down as director on 30 June 2006


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The directors consider that the Board is of theappropriate size and with the right mix of skillsand experience given the size of SembCorpMarine. The Board members comprise businessleaders, current or retired CEOs, professionalswith financial background and a practising lawyer.Profiles of the Directors are found on pages 42to 45 of this Annual Report.

Board CommitteesSembCorp Marine has four Board committees:-

• Audit Committee

• Executive Resource & Compensation Committee

• Nominating Committee

• Risk Committee

The Executive Resource & CompensationCommitteeThe Executive Resource & CompensationCommittee ("ERCC") was chaired by Mr GohGeok Ling and includes Mr Tan Tew Han, Mr AjaibHaridass and Mr Tang Kin Fei as members.

The Committee oversees executive compensationand development with the aim of building capableand committed senior management throughfocused management and progressive policieswhich can attract, motivate and retain talentedexecutives to meet the current and future needsof the Group. To this end, it reviews and approvesremuneration and promotion of key executivesas well as to decide on issues pertaining to theirdevelopment and succession. Hence, it alsoestablishes guidelines on share options and otherlong term incentives plans and approves the grantof such incentives to key executives. Theunderlying philosophy is to motivate executivesto maximise operating and financial performanceand shareholders’ value.

On an annual basis, the Committee conducts asuccession planning review of the Group President& CEO, all his direct reports, and selected keypositions in SembCorp Marine. Potential internaland external candidates for succession arereviewed for different time horizons of immediate,medium-term and longer-term needs.

The Committee further reviews the remunerationof its non-executive directors, executive directorand senior executives, as well as major humanresource management and compensation policiesand practices for the rest of the Group. While theCommittee’s Chairman is not independent, he isa non-executive director independent ofManagement with a clear separation of his rolefrom Management in deliberations of theCommittee. No ERCC member or any Directoris involved in deliberations in respect of anyremuneration, compensation, options or any formof benefits to be granted to him.

The Committee also has access to expertprofessional advice on human resource matterswhenever there is a need to consult externally.In its deliberations, it takes into considerationindustry practices and norms in compensation.The Group President & CEO is not present duringthe discussions relating to his own compensation,terms and conditions of service, and the reviewof his performance.

The Committee meets among its memberswithout the presence of Management, at leastonce a year. For the year in review, it held threemeetings and achieved full attendance.

Nominating CommitteeThe Nominating Committee was chaired byMr Goh Geok Ling and includes Mr Tan Tew Han,Mr Ajaib Haridass and Mr Tang Kin Fei asmembers.

Although the Nominating Committee and theERCC do not comprise of a majority ofindependent directors within the definition ofthe Code, the Chairman is independent ofManagement. The Committee is thereforeindependent as a whole.

The primary purpose of this Committee is tosupport and advise SembCorp Marine, itsunlisted subsidiaries and, where applicable,unlisted associated companies by nominatingsuitable candidates who are best able todischarge their responsibilities as directors. Thismeans evaluating the balance of skills, knowledgeand experience of these boards and assessingthe candidates for their regard for the law andthe high standards of governance practised bythe Group. Appointments to these boards aremade on merit and against objective criteria.The Nominating Committee ensures thatappointees have enough time available to devoteto their directorship roles. The independenceof each director is reviewed annually by theNominating Committee.

Board Composition and Committees at a glance

Board Members Audit Committee Executive Resource & Nominating Committee Risk CommitteeCompensation Committee

Goh Geok Ling1 Chairman Chairman

Tan Kwi Kin

Tan Pheng Hock

Kiyotaka Matsuzawa

Tan Tew Han Chairman Member Member Member

Ajaib Haridass Member Member Member Chairman

Tang Kin Fei Member Member Member

Ron Foo Siang Guan2 Member

Joseph Kwok Sin Kin3 Member

1 Appointed on 14 February 20062 Appointed on 30 June 20063 Appointed on 30 June 2006

The Audit CommitteePrinciple 11: The Board should establish an AuditCommittee with written terms of reference whichclearly set out its authority and duties.

The Audit Committee comprises threeindependent directors: Mr Tan Tew Han asChairman, Mr Ajaib Haridass and Mr Ron FooSiang Guan as members. During the year underreview, the Committee held six meetings,where all members participated actively at allthe meetings.

The main responsibility of the Audit Committeeis to review with the external auditor, internalauditor and Management, the Group’s generalpolicies and control procedures, interestedpersons transactions, as well as any matters orissues that affect the performance of the Group.It reviews the quarterly, half-yearly and annualresults announcements as well as the financial

statements at Group and company levels beforethey are submitted to the Board for approval. TheCommittee also recommends the appointmentof the external auditors.

In its role, the Audit Committee assists the Boardof Directors in fulfilling its fiduciary responsibilitiesrelating to corporate accounting and reportingpractices of the Group, and in respect of interestedperson transactions, its responsibility to act inthe interest of the shareholders as a whole. TheCommittee meets with the external and internalauditors, without the presence of Management,at least once a year to review the cooperationand assistance given by Management to them.

The Audit Committee has reviewed the non-auditservices provided by its external auditors to theGroup, and is satisfied that the provision of non-audit services by the external auditors did notimpair their independence as external auditors.


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Risk CommitteeThe Risk Committee was formed in April 2005 aspart of SembCorp Marine’s effort to formaliseand strengthen its risk management frameworkand processes. Prior to its formation, its role andfunctions were carried out by the Audit Committee.

Currently, the Risk Committee comprises fourmembers, namely Mr Ajaib Haridass as Chairman,Mr Tan Tew Han, Mr Tang Kin Fei and Mr JosephKwok Sin Kin as members.

The Committee’s primary role and function is toassist the Board of Directors in fulfilling itsoversight responsibilities in risk management byreviewing:-

• The adequacy and effectiveness of the Group’srisk management plans, systems, processesand procedures of the Group

• Group-wide risk policies, guidelines and controlsand procedures

• The risk portfolio and risk levels including thetreatment of identified risks

During the year in review, the Risk Committeeheld four meetings, and all members participatedactively at all the meetings.

Chairman and Chief Executive OfficerPrinciple 3: There should be clear division ofresponsibilities at the top of the company – theworking of the Board and the executiveresponsibility of the Company’s business –which will ensure a balance of power and authority,such that no one individual represents aconsiderable concentration of power.

There is a clear separation of the roles andresponsibilities between the Chairman and theGroup President. The Group President is notrelated to the Chairman, Mr Goh Geok Ling.

The Chairman, who is non-executive, takes aleading role in the SembCorp Marine Group’sdrive to achieve and maintain a high standard ofcorporate governance with the full support of thedirectors, Company Secretary and Management.

He is responsible for the leadership of the Board,ensuring its effectiveness on all aspects of itsrole and setting its agenda. He acts independentlyin the best interests of the Group andshareholders. Meanwhile, the Group Presidentis charged with the executive responsibility ofrunning the Group’s business. The Chairmanfacilitates the contribution of non-executivedirectors in particular and ensures constructiverelations between executive and non-executivedirectors. He also ensures that the members ofthe Board work together with the Managementin constructive debate on various matters,including strategic issues and operational issues.

Formal Appointment and Re-Election ofDirectorsPrinciple 4: There should be a formal andtransparent process for the appointment of newdirectors to the Board.

The Board does not believe it is possible tocompile a list of criteria which are appropriate tocharacterise, in all circumstances, whether a non-executive director is independent. It is theapproach and attitude of each non-executivedirector which is important. The Board aims fordiversity of knowledge and experienceamong its members in relation to the variousbusinesses of the Group and the internationalnature of the Group.

The Board, through the delegation of its authorityto the Nominating Committee, has used its bestefforts to ensure that directors appointed to theBoard possess the background, experience andknowledge in technology, business, financeand management skills critical to the Group’s

businesses and that each director brings to theBoard an independent and objective perspectiveto enable balanced and well-considered decisionsto be made.

SembCorp Marine believes that all directorsshould be submitted for re-election at regularintervals, subject to continued satisfactoryperformance. The Group President, while also aboard member, is also required to retire and offerhimself for re-election by shareholders as part ofboard renewal. As nominations and election ofBoard members are the prerogatives andproper rights of all shareholders, the Boardensures the planned and progressive refreshingof its members.

The Company’s Articles of Association requireone-third of directors to retire and subjectthemselves for re-election by shareholders atevery Annual General Meeting (AGM) (“one-thirdrotation rule”). In other words, no director staysin office for more than three years withoutbeing re-elected by shareholders. At theforthcoming AGM, Mr Tan Pheng Hock, MrKiyotaka Matsuzawa and Mr Ajaib Haridass willeach submit themselves for retirement and re-election by shareholders pursuant to the one-third rotation rule.

In addition, newly-appointed directors will submithimself for retirement and election at the AGMimmediately following his appointment. Thereafter,he is subject to the one-third rotation rule. MrRon Foo Siang Guan and Mr Joseph Kwok SinKin, who were both appointed to the Board on30 June 2006, will each submit themselves forretirement and re-election by shareholders at theforthcoming AGM.

Board performance and conduct of its affairsActive Participation and Valuable Contributionsare key to Overall Effectiveness of the BoardPrinciple 5: There should be a formal assessmentof the effectiveness of the Board as a whole and

the contribution by each director to theeffectiveness of the Board.

Newly-appointed directors are given briefings bythe Management. Facility visits to the premisesare also arranged to enable them to acquire anunderstanding of the Group, its business activitiesand its strategic directions. Existing directors arealso invited to such facility visits and orientationprogrammes.

Changes to regulations and accounting standardsare monitored closely by Management. To keeppace with regulatory changes, where thesechanges have an important bearing on the Group’sor directors’ disclosure obligations, Directors arebriefed either during Board meetings, or atspecially-convened sessions, including at trainingsand seminars conducted by external professionals.Where necessary, the Group also sponsors itsDirectors to training, courses and seminars suchas new or changes in laws, regulations andaccounting standards, which are of relevance tothe Group.

Informal reviews of a Board’s performance areundertaken on a continual basis by the NominatingCommittee with inputs from the other Boardmembers and the Group President. The Boardcomposition is constantly reviewed to ensurestrong, independent and sound leadership for thecontinued success of the Group’s business. TheBoard recognizes the contribution of directorswho over time have developed deep insights intothe Group’s businesses and would exercise itsdiscretion to retain the services of such directors.

Full access to Information and ResourcesDirectors have Complete, Adequate and TimelyInformation and ResourcesPrinciple 6: In order to fulfil their responsibilities,the Board members should be provided withcomplete, adequate and timely information priorto board meetings and on an on-going basis.


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As a general rule, Board papers are sent todirectors a week before a board meeting so thatthey have the relevant information forconsideration and deliberation at the meeting.Managers who can provide additional insight intothe matters at hand would be present at therelevant time during the board meeting.

Management provides adequate and monthlymanagement and other financial statements tothe Board on business issues that require theBoard’s decision as well as ongoing reportsrelating to the Group’s operational and financialperformance. Where a physical Board meetingis not possible, timely communication withmembers of the Board is effected throughelectronic means which include electronic mail,teleconferencing and videoconferencing.Alternatively, Management will arrange to meetand brief each director personally before seekingthe Board’s approval.

The Board has separate and independent accessto the Group President, members of seniormanagement and the Company Secretary at alltimes. Directors are also provided with the namesand contact details of senior management andthe Company Secretary to facilitate direct accessto them. Where necessary, independentprofessional advice and consultations will bemade available to directors to ensure that fullinformation and advice are available beforeimportant decisions are made by the Board. Allissues are actively debated by the Board andproperly recorded.

Likewise, the Audit Committee must also meetthe external and internal auditors separately atleast once a year, without the presence of theGroup President and other senior managementmembers, in order to have the free and unfilteredaccess to information that it may require.

The Company Secretary assists the Chairman bypreparing meetings’ agenda, attending andpreparing minutes of Board proceedings, ensuringgood information flows within the Board and its

committees. She assists the Board on compliancewith the Company’s Memorandum andArticles of Association, laws and regulations,including requirements of the Companies Act,Securities Futures Act, the Singapore ExchangeSecurities Trading Ltd (SGX-ST), the Accountingand Corporate Regulatory Authority andshareholders. The Company Secretary assiststhe Board to upkeep and implement goodcorporate governance and best practicesacross the Group.

Competitive Remuneration ReportRemuneration of Directors Adequate and notExcessivePrinciple 7: There should be a formal andtransparent procedure for developing policy onexecutive remuneration and for fixing theremuneration packages of individual directors.No director should be involved in deciding hisown remuneration.

The Group President, as Executive Director, doesnot receive director’s fees. He is a lead memberof Management. His compensation consists ofhis salary, allowances, bonuses, performanceshare and restricted share awards conditionalupon his meeting certain performance targets(details are available on page 138 to 140 of theAnnual Report) and options. Details on shareplans granted and its fair value are available onpages 135 to 140 and page 201 of the AnnualReport, respectively.

Non-executive directors have remunerationpackages that consist of a directors’ feecomponent according to SembCorp Marine’sDirectors’ Fee Policy, an attendance feecomponent and a share options componentaccording to SembCorp Marine’s Employee ShareOption Plan. SembCorp Marine does not havea retirement plan for non-executive directors. TheDirectors’ Fee Policy is based on a scale of feesdivided into basic retainer fees as director andadditional fees for attendance and service onBoard committees (details are available on page30 of the Annual Report). Details on share options

granted and its fair value are available on pages135 to 140 and page 201 of the Annual Report,respectively.

The basis of allocation of the number of shareoptions takes into account a director’scontributions and additional responsibilities atboard committees. The report on directors’remuneration is found on page 209 of the AnnualReport.

The fee structure for the directors had beenrevised by the Board in 2006 after benchmarkingthe directors fees against those in the public andprivate sectors. SembCorp Marine believes thatthe fees are competitive and its directors areadequately compensated and in line withmarket norms.

The directors’ fee for 2006 is $767,125 ($353,832in 2005) and is derived using the following rates:

The detai led breakdown of Directors’remunerations are found at page 209 of theAnnual Report.

Competitive Reward System to Ensure HighestPerformance and Retention of Best Talentsand Key ExecutivesPrinciple 8: The level of remuneration should beappropriate to attract, retain and motivate the

directors needed to run the Company successfullybut companies should avoid paying more than isnecessary for this purpose. A significant proportionof executive directors’ remuneration should bestructured so as to link rewards to corporate andindividual performance.

Disclosure on RemunerationPrinciple 9: Each company should provide cleardisclosure of its remuneration policy, level andmix of remuneration, and the procedure for settingremuneration in the company’s annual report. Itshould provide disclosure in relation to itsremuneration policies to enable investors tounderstand the link between remuneration paidto directors and key executives, and performance.

SembCorp Marine adopts an incentivecompensation plan for key executives tied to thecreation of economic value add, as well as theattainment of individual performance goals. Anindividual’s incentive compensation is linked tothe economic-value-add created by SembCorpMarine Group and its subsidiaries.

A “bonus bank” is used to hold incentivecompensation credited in any year. Typically, one-third of the available balance is paid out in casheach year, with the balance being carried forwardto the following year. Such carried forwardbalances may either be reduced or increased infuture, based on the yearly economic-value-addperformance of the SembCorp Marine Group andits subsidiaries.

The Board has decided not to prepare a separateremuneration report as most of the informationis found in the directors’ report. This Annual Reporthas indicated where the information required tobe disclosed can be found.

To provide a macro perspective of theremuneration patterns of key executives, whilemaintaining confidentiality, the following tableshows the numbers of key employees inremuneration bands of S$250,000 from S$100,000.

Type of appointment $

(i) Board of Directors - Basic Fee 50,000 - Chairman’s allowance 45,000 - Vice Chairman’s allowance 25,000(ii) Audit Committee

- Chairman’s allowance 40,000 - Members’ allowance 25,000(iii)Risk Committee

- Chairman’s allowance 25,000 - Members’ allowance 15,000(iv)Executive Resource & Compensation

Committee/ Nominating Committee- Chairman’s allowance 25,000- Members’ allowance 15,000

Notes:Mr Tan Kwi Kin, as an Executive Director, does not receive director’s fee


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Internal Controls and RiskManagementPrinciple 12: The Board should ensure that theManagement maintains a sound system of internalcontrols to safeguard the shareholders’investments and the company’s assets.

Internal ControlsThe Company’s controls are implemented throughtheir risk assessment and evaluation processesand internal audit processes for key businessactivities. Whistle blowing procedures have alsobeen set up to add another avenue for controls.

Risk ManagementSince the introduction of the Enterprise RiskManagement ("ERM") programme in 2004, all themajor shipyards in the Group have integrated thisprogramme into their management systems. Thelatest business unit addition to the Group, SMOEPte Ltd, has also adopted this programme.

Through the ERM programme, the Group reviewedthe risks register and have identified key risks.The Group has established policies, guidelinesand control procedures, including monitoring andreporting systems across its business units, tomanage its exposure to such risks.

The management has developed the risktreatment plans and the status of the top threerisk categories are reported and monitored at theBoard Risk Committee ("BRC") meetings.

The top three risk categories are:

• Project management risks

Inadequate control and management of

engineering, procurement and construction,including contract and variation ordersmanagement, resulting in unprofitable projects

• Health, safety, security and environment risks(“HSSE”)

Inadequate HSSE management, resulting inbodily harm and property damages, in particular,from fire and explosion hazards, falling fromheight and pollution of the environment.

• Financial risks

Inadequate attention and mitigation measuresagainst risks associated with foreign exchangeand interest rates fluctuations and provision ofguarantees, resulting in financial losses.

In addition to the BRC proceedings, the GroupPresident & CEO chairs the Project Managementmeetings, which focus on the execution ofthe major projects. The Project Managementmeetings monitor, in particular, the engineering,procurement and construction schedules andresource allocations.

For HSSE risks, the Group Safety Committeefocused on 5 major programmes: Risk Management,Group HSE conference, Health Managementprogramme, Fatigue Management and the BestPractice Manual.

For Financial Risks, the focus was on managingthe rapidly declining US$ vis-à-vis the S$. Theforward net US$ flow was closely monitored andthe hedging proposal, approved by the Board, wasexecuted. In addition, the procedure for adoptionof the US$:S$ rate for contract tendering and costmonitoring was formalised for Group-wideimplementation. The Group's financial riskmanagement is covered in greater detail in thenotes to the financial statements.

SembCorp Marine's Risk Management unit worksclosely with the business units to review andupdate the ERM framework and methodology. This

includes the tools developed to facilitate reportingand monitoring such as the project riskmanagement reporting templates. The next majorstep in the ERM process is to conduct complianceaudits in areas where no existing audit frameworkis in place for example, Project Management. Theaudit protocol was developed and is being appliedin one of the business units.

For Business Continuity Plan ("BCP") management,the focus has been on crisis handling proceduresin relations to Flu Pandemic and terrorism. Thebusiness units’ Flu Pandemic BCP has beenaligned within the Group via the SembCorp Marinechecklist for Flu Pandemic BCP. The businessunits’ International Ship and Port Facility Security(ISPS) status continues to keep current theirresponse plans against possible terrorism threats.

The Group's risk management systems andprocesses are constantly reviewed and updatedto be current with the dynamic businessenvironment. Where applicable, the various riskmanagement initiatives are embedded into thework systems and processes at the various levelsof the Group, so that the related risks are detectedand flagged out timely, for effective mitigationand control actions. This will enable the Groupto remain on track to achieve its business goalsand growth plans.

Whistle-Blowing PolicyThe Group has adopted a constructive whistle-blowing culture to detect and deter wrongdoingin preparing and implementing accurate andcomplete financial policies, reports and materialsas well as the internal controls essential to supportits financial and accounting systems.

Demonstrating its pledge to good corporategovernance, the Group provides an avenue foremployees to bring their complaints responsiblyto report any possible improprieties in mattersof financial reporting or other matters that theymay encounter to the Audit Committee or any

other committees established by the AuditCommittee for such purposes without fear ofreprisal. The establishment of the whistle-blowingstructure also augments the Group’s ability todetect potential fraud, providing another level ofcomfort and assurance to investors.

Internal AuditIndependent Internal Audit FunctionPrinciple 13: The Company should establish aninternal audit function that is independent of theactivities it audits.

SembCorp Marine’s internal audit function issupported by the Internal Audit Department whichreports on audit matters directly to the AuditCommittee Chairman and administratively to theGroup President. This department plans its internalaudit schedules in consultation with, butindependent of, Management. Its plan is submittedto the Audit Committee for approval at thebeginning of each year.

To ensure that the internal audits continue to beperformed by competent professionals, InternalAudit Department continues to recruit and employsuitably qualified staff. The internal audit functionprovided by the department continues to meetwith the standards set by the Institute of InternalAuditors.

Communication withShareholdersThe Board is accountable to the shareholdersPrinciple 10: The Board should present a balancedand understandable assessment of the company’sperformance, position and prospects.

Regular, Effective and Equal Communicationsto ShareholdersPrinciple 14: Companies should engage inregular, effective and fair communication withshareholders.

Remuneration Band No. of Employees

$500,000 to $749,999 7

$250,000 to $499,999 -

$100,000 to $249,999 1

Remuneration Band for Key Executives


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SembCorp Marine strives to provide a fair andaccurate view on the affairs of the company onan ongoing basis. As co-owners of SembCorpMarine, shareholders are entitled to timely andcomplete information on financial data, materialdevelopments as well as an understanding ofbusiness directions and prospects. The Boardprovides shareholders with an assessment of theCompany’s performance, position and prospectson a quarterly basis via quarterly announcementsof results and announcements on significanttransactions as required by the SGX-ST.

All SembCorp Marine’s price-sensitive informationis disseminated to its shareholders via theSGXNET so as to ensure all shareholders haveaccess to material information at the same time.Financial and other performance data of the Groupas a whole as well as by business segments aregiven at the release of quarterly results. Thisallows shareholders to gain better insight into theearnings drivers within SembCorp Marine.

During the release of earnings results, theannouncement is first released by SGXNET ontothe SGX-ST website. Thereafter a briefing orteleconference by Management is held for themedia and analysts. All materials used at thebriefing will be available on SGXNET as well asthe corporate website at www.sembcorpmarine.com.sg.

Following any release of earnings or price-sensitivedevelopments, investor relations personnel areavailable by email or telephone to answerquestions from shareholders and the media aslong as the information requested does not conflictwith the SGX-ST’s rules of fair disclosure.

Apart from the regular briefings provided to mediaand analysts, the investors’ relations team andManagement also travel regularly to attendoverseas road shows and conferences to reachout to institutional investors.

Greater Shareholder Participation at GeneralMeetingsPrinciple 15: Companies should encouragegreater shareholder participation at AGMs,and allow shareholders the opportunity tocommunicate their views on various mattersaffecting the company.

SembCorp Marine recognises that good corporategovernance requires active participation ofshareholders in the decision-making at thegeneral meetings of shareholders. Shareholderparticipation is encouraged at general meetings.Information on meetings of shareholders are madethrough notices published in the newspaper andreports or circulars sent to all shareholders. Allregistered shareholders are invited to participatein shareholder meetings. If they do not wish toattend in person, they can issue instructions toaccept, reject or abstain on each individual itemon the meeting agenda by giving instructions totheir proxy. He or she is allowed to appoint up totwo proxies to vote on his or her behalf at themeeting through proxy forms sent in advance.

SembCorp Marine also allows CPF Investors toattend General Meetings as observers. TheChairman, Group President as well as theChairman of the Audit Committee will be presenttogether with the Chief Financial Officer, theCompany Secretary and external auditors toanswer questions raised by shareholders. Minutesof shareholder meetings are available on requestby registered shareholders.

For further details on SembCorp Marinecommunications with its shareholders, see the“Investor Relations” section of the Annual Report.

Dealings in SecuritiesSembCorp Marine has adopted a Code ofCompliance on Dealing in Securities, whichprohibit dealings in the Company’s securities by

its officers during the period commencingtwo weeks prior to the announcement of theCompany’s quarterly results. Directors andexecutives are also expected to observe insidertrading laws at all times even when dealing insecurities within the permitted trading period.

Interested person transactionsShareholders have adopted a shareholdersMandate (“Mandate”) relating to interested persontransactions of the Group. The Mandate sets out

the levels and procedures to obtain approval forsuch transactions. Information regarding theMandate is available on the corporate website atwww.sembcorpmarine.com.sg. All strategicbusiness units are required to be familiar with theMandate and report any such transactions to theFinance Department. The Finance Departmentkeeps a register of the SembCorp Marine’sinterested person transactions. Information oninterested person transactions for 2006 is foundin page 210.


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Mr Ajaib HaridassIndependent Director

Mr Ron Foo Siang GuanIndependent Director

Mr Joseph Kwok Sin KinIndependent Director

Mr Tan Tew HanIndependent Director

Mr Tan Kwi KinGroup President,CEO& Non-IndependentDirector

Mr Goh Geok LingChairman & Non-Independent Director

Mr Tan Pheng HockNon-IndependentDirector

Mr Wong Weng SunPresident & COOAlternate Director toMr Tan Kwi Kin

Mr Tang Kin FeiNon-IndependentDirector

BOARD OF DIRECTORS

Mr Hirohiko SakuraiAlternate Director to Mr KiyotakaMatsuzawa, Independent Director(Not in the picture)


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Mr Goh Geok LingChairman and Non-Independent DirectorMr Goh Geok Ling was appointed the Chairmanand Director of SembCorp Marine on 14 February2006. Mr Goh worked in the electronic industryfor 29 years before retiring from active businessmanagement in October 1999. He last worked asthe Managing Director of Micron SemiconductorAsia Pte Ltd. Prior to that, he was the ManagingDirector of Texas Instruments Singapore Pte Ltdwhere he worked for 28 years.

Currently, Mr Goh serves as a board member ofDBS Bank Ltd, DBS Bank Holdings Ltd, SembCorpIndustries Ltd, Venture Corporation Ltd and02Micro International Ltd. He is also a Member ofthe Board of Trustee of Nanyang TechnologicalUniversity. His past directorships in listedcompanies included Tuas Power Ltd, ASTI HoldingLtd and Singapore Technologies Pte Ltd. Mr Gohgraduated from Sydney University with a Bachelorof Engineering Degree.

Mr Tan Kwi KinGroup President and Non-Independent DirectorMr Tan Kwi Kin, currently the Group President andChief Executive Officer of SembCorp Marine, hasbeen a Director of the Board since 1 April 1990. Aveteran in the marine industry in Singapore, Mr Tanhas 41 years of working experience in JurongShipyard. He started his career with JurongShipyard in 1966 as a Junior Engineer in the DesignDepartment. He was promoted to Manager in chargeof Production Control in 1975 and General Managerin 1981. In 1990, he was appointed ManagingDirector. When Sembawang Shipyard merged withJurong Shipyard in 1997, Mr Tan was appointedPresident of the Jurong Shipyard group of companies.

Following a restructuring and a name change inNovember 1999, Mr Tan became the President andChief Executive Officer of SembCorp Marine andalso the Chairman of Jurong Shipyard. He also chairsthe boards of Sembawang Shipyard, PPL Shipyard,JPL Corporation, Jurong Integrated Services andJurong Machinery and Automation. Mr Tan graduatedfrom Tokyo University, Japan, in 1965 with a Bachelorof Engineering (Mechanical).

Mr Tan Pheng HockNon-Independent DirectorMr Tan Pheng Hock is the President & CEO ofSingapore Technologies (ST) Engineering and anExecutive Director. He was appointed Director of

SembCorp Marine on 16 April 2001 and was lastre-elected as Director on 28 April 2004. Mr Tan isthe Chairman of the Nanyang Polytechnic Board ofGovernors, Deputy Chairman of Singapore WorkforceDevelopment Agency and also a member of theTemasek Defence Systems Institute, the SingaporeTraining and Development Association AdvisoryCouncil, the Building and Construction Authority,and the Singapore Quality Award Governing Council.

Mr Tan began his career as an engineer at ST Marinein 1981. He later became Executive Vice Presidentof ST Marine, President of ST Kinetics, President &COO of ST Engineering and ST Engineering GroupPresident. His past directorships in listed companiesinclude Unicorn International. Mr Tan holds aBachelor of Science (First Class Honours) in MarineEngineering from the University of Surrey, UK, anda Masters of Science in Management from StanfordUniversity, USA.

Kiyotaka MatsuzawaIndependent DirectorMr Kiyotaka Matsuzawa was appointed Directorof SembCorp Marine on 30 September 2001.Mr Matsuzawa has had a distinguished career inIHI. He was the former General Manager of Ships& Offshore Department of IHI. He is presently theDirector and General Manager of IHI Marine UnitedInc. Japan prior to his previous position as ManagingDirector of IHI Marine Engineering (Singapore)

since July 2001. In 1978, he was assigned to IHI'sBrazilian subsidiary company ISHIBRAS as theGeneral Manager for eight years where he initiatedand promoted ship exports from Brazil to clientsworldwide under the Brazilian Government PromotionProgram. His past directorships included IHIMarine Engineering (S) Pte Ltd. Mr Matsuzawagraduated from the Hitotsubashi University, Japan,in 1971 with a Bachelor of Economics. He also holdsa Diploma in Business Administration from theFederal University of Bahia, Brazil.

Mr Richard Tan Tew HanIndependent DirectorMr Richard Tan was appointed Director of SembCorpMarine on 17 April 2003. He brought with him animpressive 25 years of banking experience. He heldseveral senior positions in Citibank, Banque Paribas,Bank of America, International Bank of Singaporeand Overseas Union Bank. Prior to his retirementin 2001, he was the Executive Vice Presidentand Head of Investment Banking and CorporateFinance Division in OUB since 1993. His other boardappointments are at ST Asset Management, FullApex (Holdings) Limited, Asia Water TechnologyLtd, Lux King Group Holdings Ltd and C&OPharmaceutical Technology (Holdings) Ltd. Mr Tangraduated from the University of Singapore with aBachelor of Science (Honours) in 1970 and obtainedan MBA in 1978 from the University of BritishColumbia, Canada.


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Mr Ajaib HaridassIndependent DirectorMr Ajaib Haridass was appointed a Director ofSembCorp Marine on 31 October 2003. He iscurrently the Managing Partner of Haridass Ho &Partners, a legal firm he set up in 1985. With morethan 30 years of legal experience, Mr Haridassspecialises in all admiralty matters, both litigiousand non-litigious, from ship sale and purchase,the financing aspects of such transactions,marine insurance, to general commercial andbanking litigation.

Mr Haridass is also an accredited mediator of theSingapore Mediation Centre, a member of theAdvisory Committee of the Singapore Chamber ofMaritime Arbitration, an arbitrator of the KoreanCommercial Arbitration Board, President of theMaritime Law Association of Singapore, a memberof the Singapore Maritime Arbitrators Associationand a panel member for Disciplinary Inquiries at thePublic Service Commission. Mr Haridass is also amember of the Board of Visiting Justices, Board ofInspection (Prisons Department) and Board of Visitors(Welfare Homes), Ministry of CommunityDevelopment, Youth & Sports. In addition, he is theVice Chairman of the Home Detention AdvisoryCommittee, Ministry of Home Affairs in Singapore,Mediator at Small Claims Tribunal and CriminalRelational Disputes, Subordinate Courts and aCommissioner for Oaths, Notary Public and Justiceof Peace.

Graduating from the University of London in 1974with a Bachelor of Law (Honours), Mr Haridass wascalled to the English Bar at the Middle Temple in1975 and admitted as an Advocate & Solicitor ofthe Supreme Court of Singapore in 1976.

Mr Tang Kin FeiNon-Independent DirectorMr Tang Kin Fei was appointed a Director ofSembCorp Marine on 1 May 2005, and is currentlythe Group President & CEO of SembCorp Industries.Mr Tang first joined the SembCorp Group in 1987and was appointed President & CEO of SembCorpUtilities in 1998, where he was responsible fortransforming the unit from a process engineeringbusiness into a leading centralised utilities andenergy provider and expanding its presence toChina, UAE, UK and Vietnam.

Mr Tang also serves as a director of InternationalEnterprise Singapore and is its Chairman of its 2006Finance & Investment Committee and a member ofits Network China Steering Committee. He is also adirector of BIL International and an Advisory Committeemember of the ENV-NTU Environmental EngineeringResearch Centre. Mr Tang’s past directorships in listedcompanies include positions on the Boards of CamerlinGroup and SembCorp Logistics. He holds a FirstClass Honours degree in Mechanical Engineering fromthe National University of Singapore and underwentthe Advanced Management Programme at INSEAD.

Mr Ron Foo Siang GuanIndependent DirectorAppointed a Director of SembCorp Marine on June30, 2006, Mr Ron Foo brings with him more than 35years of extensive auditing, accounting and financialexperience in Singapore and overseas. He has beena partner in PricewaterhouseCoopers, Singapore for22 years before retiring from active service in December2005. Mr Foo is presently a director of the SingaporeDeposit Insurance Corporation and NTUC IncomeInsurance Co-Operative Limited and a member of theCompetition Appeal Board.

Mr Foo has also been actively involved as a councilmember in the Institute of Certified Public Accountantsof Singapore (ICPAS) and was awarded the ICPASGold Medal 2004 in recognition of his outstandingcontributions and distinguished service to theaccounting profession and the community. Presentlyhe is a Fellow of the Institute of Certified PublicAccountants of Singapore and a member of theCanadian Institute of Chartered Accountants, Canada.

Mr Joseph Kwok Sin KinIndependent DirectorMr Joseph Kwok was appointed a Director ofSembCorp Marine on June 30, 2006. Currently theCEO of Carlisle Leasing International and SeacastleInc., Mr Kwok's distinguished career in the marineindustry includes several key appointments in theNeptune Orient Lines (NOL) Group from 1981 to 2003.During his 22-year tenure with NOL, Mr Kwok hadserved as Group COO, CEO of Chartering Division,CEO of Enterprises Division, and Chairman of NeptuneShipmanagement Services Pte Ltd (NSSPL). Followingthat, he led American Eagle Tankers Inc (AET), awholly-owned subsidiary of MISC Berhad, as President& CEO between 2003 and 2005.

Mr Kwok is currently a director of Elmida Pte Ltd, acouncil member of American Shipping Bureau "ABS"and the Chairman of ABS South East Asia RegionalCommittee. His past appointments includeddirectorships in MPA Venture Pte Ltd and AET Bhd,as well as various subsidiaries and associatedcompanies of NOL and AET. He was previously anExecutive Committee member of INTERTANKO anda board member of ABS, BIMCO, UK P&I Club, andInternational Tanker Owner Pollution Federation Ltd.

Mr Wong Weng SunAlternate DirectorMr Wong Weng Sun was appointed Alternate Directorto Mr Tan Kwi Kin on 3 May 2006. He is the President& COO of SembCorp Marine and the ManagingDirector of Jurong Shipyard. Prior to this, he servedas Deputy President of SembCorp Marine fromJanuary 2005 to January 2006 and was the ExecutiveDirector of Jurong Shipyard from January 2002 toJune 2004. Mr Wong joined the company in 1988 asan engineer and was later appointed General Managerin charge of project management. Mr Wong graduatedfrom the University of Technology, Malaysia, in 1986with a Bachelor of Mechanical Engineering (Marine).

He also obtained a Masters in Business Administrationfrom Oklahoma City University in 1993.

Mr Hirohiko SakuraiAlternate DirectorMr Hirohiko Sakurai was appointed Alternate Directorto Mr Kiyotaka Matsuzawa on 30 June 2006. He iscurrently the Managing Director of IHI MarineEngineering (S) Pte Ltd. Prior to that, he was theGeneral Manager of Ship Sales, IHI Marine United,from 2004 to 2006 and Ship Sales Manager of IHITokyo Head Office from 1999 to 2004.

Mr Sakurai joined Ishikawajima-Harima HeavyIndustries Co. Ltd (IHI) in 1981 as a BusinessAdministration Executive of IHI Aioi No. 1 Worksbefore progressing on to the Ship Sales Departmentof IHI Tokyo Head Office in 1986. He moved on tobecome manager of IHI Europe’s Marine Departmentin 1994, and was later appointed Marine DepartmentGeneral Manager and Chief Representative of IHIGreece Office between 1995 and 1999. Mr Sakuraigraduated from the Yokohama National Universityof Japan with a Bachelor of Economics in 1981.


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KEY MANAGEMENT PROFILETan Kwi Kin

Mr Tan Kwi Kin is the Group President and CEO ofSembCorp Marine and a Director of SembCorpMarine Board. (Mr Tan’s profile can be found onpage 42).

Wong Weng Sun

Mr Wong Weng Sun is the President and COO ofSembCorp Marine. (Mr Wong’s profile can be foundon page 45).

Ong Poh Kwee

Mr Ong is the Deputy President of SembCorp Marine.He has been the Managing Director of SembawangShipyard since July 2004. He formerly held thepositions of Executive Director of SembawangShipyard and General Manager and ManagingDirector of Karimun Sembawang Shipyard. He joinedthe company in 1987 as an engineer, the same yearhe graduated from the University of Newcastle-Upon-Tyne, United Kingdom, with a Bachelor ofMarine Engineering. He also abtained a Masters ofBusiness Administration from the Sloan School ofManagement, Massachusetts Institute of Technology,United States in 2000.

Wee Sing Guan

Mr Wee is the Director of Group Finance. He wasthe Chief Financial Officer of SembCorp Marinefrom February 2000 to March 2006. He first joinedthe company as an accountant in 1974 and laterheld the position of Financial Controller beforeassuming his current appointment. Mr Wee graduatedfrom Nanyang University in 1972 with a Bachelorin Commerce.

Wong Peng Kin

Mr Wong has been a Director of Group HumanResource at SembCorp Marine since July 2004.From February 2000 to June 2004, he was the SeniorVice President of Human Resources. He joined thecompany in 1970 as an officer in the PersonnelDepartment. Mr Wong graduated from the Universityof Singapore with a Bachelor of BusinessAdministration (Honours) in 1970.

Lee Yeok Hoon

Mr Lee has been the Executive Director of JurongShipyard since July 2004. From February 2000 toJune 2004, he was the General Manager in charge ofproduction in Jurong Shipyard. He joined the companyin 1970 as a design engineer after graduating fromSingapore Polytechnic with a Diploma in MechanicalEngineering.

Wong Lee Lin

Ms Wong has been the Executive Director ofSembawang Shipyard since July 2004. Prior to that,she was the General Manager at Sembawang Shipyardsince January 2002. Ms Wong graduated from theUniversity of Singapore with a Bachelor of SocialSciences (Honours) in 1974 and joined the companyas an officer in 1975.

Ong Tian Khiam

Mr Ong has been the Managing Director of PPLShipyard since November 1997. Prior to that, he heldpositions as Deputy Managing Director and ManagingDirector in Sembawang Maritime and SembawangBethlehem respectively. He was also the ManagingDirector in charge of the development of KarimunShipyard. When Mr Ong graduated from the Universityof Singapore with a Bachelor in MechanicalEngineering in 1969, he joined Sembawang Shipyardas a graduate management trainee. He then movedto hold several positions at Far East LevingstonShipbuilding between 1970 and 1979 and at PrometPrivate Limited between 1978 and 1989 beforerejoining the Group.

Ho Nee Sin

Mr Ho Nee Sin has been the Managing Director ofSMOE since October 2006. Prior to that, he was theCEO of SembCorp Utilities China from 2004. Mr Hostarted his career in Jurong Shipyard in 1969. He wastransferred to Jurong Engineering when the companywas first established in 1971 where he was laterpromoted to the position of General Manager. Heheld other senior positions in several companies,including Pacific Dunlop Company in Australia in 1989,Sembawang Projects Engineering Company in 1991and Oriental Petrochemical Corporation of Hong Kongin 2003. Mr Ho graduated from Imperial College,University of London with a Masters of Science degree.

Wee Sing GuanDirector,

Group Finance

Wong Peng KinDirector,

Group Human Resource

Lee Yeok HoonExecutive DirectorJurong Shipyard

Wong Lee LinExecutive Director

Sembawang Shipyard

Ong Tian KhiamManaging Director

PPL Shipyard

Tan Kwi KinGroup President & CEO

Wong Weng SunPresident & COO

Managing Director, Jurong Shipyard

Ong Poh KweeDeputy President

Managing Director, Sembawang Shipyard

Ho Nee SinManaging Director

SMOE


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Regular meetings with analystsand fund managersIn addition to the briefing and presentationmeetings held as part of the mandatory reportingcycle, regular meetings on a one-on-one basiswere held at the requests of the analysts,investors and fund managers, both local andforeign. Senior management continued to playan active role in these meetings with the GroupPresident, President, Deputy President, ChiefFinancial Officer, business unit heads and theSenior Vice President of Investor Relations &Communications often in attendance.

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INVESTOR RELATIONSYard tours for analysts andinvestment communityTo provide analysts and investors with deeperinsights into the dynamics of the different corebusinesses, SembCorp Marine’s investor relationsteam organised periodic site tours of the shipyardfacilities. Representatives from the analyst, mediaand investment communities were also invitedto christening ceremonies for the benefit ofunderstanding the nature of the business, touringof the vessels or rigs, interacting with managementand listening to customers views on the outlookof the respective sectors of the industry.

2006 Investor Relations CalendarDate Event

23 January Participation in BNP Paribas Conference in Singapore

14 February Full Year 2005 Financial Results

Analysts and media briefing and presentation

15 February Post-results briefing and luncheon meeting with institutional funds organisedby CIMB in Singapore

16 - 17 February Non-deal road show with Nomura in Hong Kong

23 March Tour of PPL Shipyard & Jurong Shipyard by Macquarie

4 - 5 April Non-deal road show with Nomura in Dubai and Abu Dhabi

24 April Annual General Meeting & Extraordinary General Meeting

1 - 3 June Non-deal road show with JP Morgan in Europe

22 - 24 June Non-deal road show with DBS Vickers in London and Edinburgh

25 - 27 June Participation in Citigroup Corporate Day in London and New York

28 - 29 June Non-deal road show with DBS Vickers in New York and Boston

10 - 11 July Participation in Nomura Corporate Day in Singapore

Tour of Jurong Shipyard and PPL Shipyard for fund managers by Nomura Singapore

7 - 17 August JP Morgan non-deal road show in Singapore

JP Morgan non-deal road show in Europe, U.S. and Hong Kong

23 August Extraordinary General Meeting

25 August Yard tour organised by Cazenove

28 September Participation in DBS Vickers Oil & Gas Corporate Day in Singapore

16 - 17 October Non-deal road show with Nomura Singapore in Tokyo

16 November Participation in Morgan Stanley Conference in Singapore

28 November - Participation in Goldman Sachs Shipping Conference in New York

1 December Non-deal road show with Goldman Sachs in New York and Boston

Commitment to EnhancingShareholder ValueSembCorp Marine maintained its commitment tocreating and enhancing shareholder value. In its fullyear 2006 results announcement, it proposed a finaldividend of 11.5 cents per share comprising 10.0cents and 1.5 cents one-tier tax-exempt dividendper share, an increase of 73 per cent over 2005.Together with the interim dividend payment of 3.5cents per share, total gross dividend for 2006 wouldbe 15 cents per share, comprising 13.5 cents and1.5 cents one-tier tax-exempt dividend per share.This would translate to an increase of 64 per centcompared with 2005. It would represent a dividendpayout of 77 per cent, confirming management scommitment of the guideline of dividend payoutsof not lower than 75 per cent in payout ratio.

Record FY 2006 Dividend Payout at15.0 cents per share (13.5 cents + 1.5cents one-tier tax exempt dividend)

versus 9.5 cents in FY 2005Management Guidance : Not lower

than 75% in payout ratio

0.75

0.75

1.00

0.75

0.75

1.00

4.00

6.5078%

0.75

1.50

1.00

1.00

1.002.500.751.38

0.38

57%

16

14

12

10

8

6

4

2

0C

om

mit

men

t to

Sha

reho

lder

Val

ue cents

2.25

5.0072%

0.75

1.50

1.00

2.75

6.00

79%

3.20

84%6.45

0.75

0.75

1.00

4.00

6.5086%

2.50

5.0072%

6.00

7.50

91%

2.50

7.00

9.50

91%

97 98 99 00 01 02 03 04 05 06

Interim Dividend

Final

One-Tier

0.75

3.50

11.50

15.00

77%

Interim Special

Final Special

0.75

0.75


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5150

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Shareholder Participation atCompany MeetingsEncouraging the full participation of shareholdersat the Annual General Meeting and ExtraordinaryGeneral Meeting, SembCorp Marine arrangedfor buses to transport shareholders fromconvenient MRT stations to its registered officeat 29 Tanjong Kling Road. The Group has alwayspreferred holding the meetings at its registeredoffice to offer shareholders the opportunity tovisit the shipyard and acquaint themselveswith the shipyard operations besides theopportunity to interact with the Chairman, Boardmembers and senior management of the

Group. More than 200 shareholders attendedthe AGM and EGM held on 24 April 2006. Thesession saw lively exchanges and insightfulsharing among shareholders, the Group s directorsand top management.

In another EGM held on 23 August 2006, minorityshareholders gave the thumbs-up for SembCorpMarine s acquisitions of SMOE, land and assetsbelonging to Sembawang Bethlehem and theCosco Corporation shares.

Recognition for High Standard ofDisclosureFor the second year running, high standards ofcorporate transparency and governance haveearned SembCorp Marine the Runner-up Awardfor Most Transparent Company (non-electronicsmanufacturing category). Conferred by theSecurities Investors Association of Singapore inSeptember 2006, the Most Transparent CompanyAward recognises public-listed companies fromvarious industry categories for demonstratingexcellence in corporate governance andexemplary disclosure practices in enhancingshareholder value.

At the inaugural Singapore Corporate Awards,SembCorp Marine s 2004 Annual Report wasawarded the Bronze Award, under the Best AnnualReport category for Main Board listed companieswith a market capitalisation of more than $500million. The report was recognised for its financialreporting presentation and its wider scope ofdisclosures beyond the minimum regulatoryrequirements in tandem with the needs ofinvestors and other stakeholders.

Pioneer in Investor RelationsMovementSembCorp Marine is one of the 15 founding chartermembers of the Investor Relations ProfessionalsAssociation (Singapore) or IRPAS. Launchedduring the IR Magazine Awards in October 2006,IRPAS aims to enhance awareness of theethical and professional standards of the industry.The Group s Senior Vice President of InvestorRelations and Communications, Ms Judy Han,won the Best Investor Relations Officer (Small orMid-cap Company category) accolade at this event.


Composite


Location No. of % No. of Shares %Shareholders

Singapore 8,566 96.83 1,459,406,632 99.57

Malaysia 117 1.32 1,773,183 0.12

Hong Kong 21 0.24 254,000 0.02

Japan 4 0.05 2,030,000 0.14

US 14 0.16 105,000 0.01

UK 9 0.10 108,000 0.01

Europe 2 0.02 3,000 0.00

Australia/New Zealand 51 0.58 611,000 0.04

Others 62 0.70 1,343,750 0.09

Total: 8,846 100.00 1,465,634,565 100.00

Shareholders Distribution By Location


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Distribution of ShareholdingsSize of No. of % No. of Shares %Shareholdings Shareholders

1 - 999 93 1.05 36,302 0.00

1,000 - 10,000 7,215 81.56 32,497,302 2.22

10,001 - 1,000,000 1,514 17.12 67,399,830 4.60

1,000,001 and above 24 0.27 1,365,701,131 93.18

Total: 8,846 100.00 1,465,634,565 100.00

SHAREHOLDERS’ INFORMATION

Statistics of Shareholdings as at 10 March 2007

Share CapitalAuthorised Share Capital : $500,000,000.00Issued and Fully Paid-up Capital : $146,563,456.50Number of Shareholders : 8,846Class of Shares : Ordinary SharesVoting Rights : One vote per share

Shareholding Held in Hands of PublicBased on information available to the Company as at 10 March 2007, 37.69% of the issued ordinaryshares of the Company is held by the public and therefore, Rule 723 of the Listing Manual issued bySGX-ST is complied with.

¥ Shares held by public @ 8 March 2007 is approximately 37.69%¥ Temasek Holdings (Private) Limited is deemed to be interested in the 900,231,260 shares held by SembCorp Industries as well as the balance of 9,032,000 shares held by its other subsidiaries.

Share Prices and Monthly Volumes

List of 20 Largest ShareholdersNo. Name No. of Shares %1 SembCorp Industries Ltd 900,231,260 61.422 DBS Nominees Pte Ltd 178,048,509 12.153 DBSN Sevices Pte Ltd 67,409,822 4.604 Citibank Nominees Singapore Pte Ltd 63,476,389 4.335 HSBC (Singapore) Nominees Pte Ltd 58,777,007 4.016 Raffles Nominees Pte Ltd 37,288,659 2.547 United Overseas Bank Nominees Pte Ltd 13,103,265 0.898 Morgan Stanley Asia (S’pore) Pte Ltd 7,952,346 0.549 DB Nominees (S) Pte Ltd 6,108,399 0.4210 Merrill Lynch (Singapore) Pte Ltd 4,359,910 0.3011 UOB Kay Hian Pte Ltd 3,820,000 0.2612 Societe Generale Singapore Branch 3,069,008 0.2113 Tan Kwi Kin 2,891,200 0.2014 Lee Seng Tee 2,500,000 0.1715 OCBC Nominees Singapore Pte Ltd 2,233,424 0.1516 Amex Nominees (S) Pte Ltd 2,100,000 0.1417 Macquarie Securities (S) Pte Ltd 2,026,352 0.1418 IHI Marine United Inc 2,000,000 0.1419 OCBC Securities Private Ltd 1,878,506 0.1320 Leck Tin Hong 1,600,000 0.11

Total: 1,360,874,056 92.85

Substantial ShareholdersDirect Interest Deemed Interest

Substantial Shareholders Number of Shares % Number of Shares %

SembCorp Industries Ltd 900,231,260 61.42 - -Temasek Holdings (Private) Limited - - 909,263,260 62.04

* till ??? 14, 2007.

Turnover

High

Low

ST index

280

270

260

250

240

230

220

210

200

190

180

170

160

150

140

130

120

110

100

90

80

70

60

50

40

30

20

10

0

Turn

over

(milli

on)

Share Price / ST Index

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0J F M A M J J A S O N D02

J F M A M J J A S O N D03




J F07

Investor Data

2002 2003 2004 2005 2006

Earnings per share (cents) 6.54 5.55 6.68 8.45 16.39

Gross Dividend per share (cents) 6.50 5.00 7.50 9.50 15.00

Net Dividend per share (cents) 5.07 3.97 6.00 7.60 12.50

Share price ($)

High 1.10 1.06 1.36 3.20 3.56

Low 0.79 0.88 0.865 1.33 2.65

Close 0.905 0.96 1.36 2.76 3.40

Turnover

Volume (Million share) 783 346 278 1,227 933

Value ($Million) 732 338 285 3,118 2,927

Average P/E 16.40 14.50 17.80 27.80 19.84

Net Tangible Assets per share 65.65 64.60 67.20 73.22 90.49(cents)

54-69 finalcial review.23mar 4/1/07 8:36 PM Page 1

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F I N A N C I A L R E V I E W

5554

2006 PERFORMANCE

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The SembCorp Marine Group achieved another record turnover and profits in 2006.

Group turnover recorded a compounded annual growth rate (CAGR) of 29 per cent from$1.01 billion in 2002 to $3.55 billion in 2006. Group profit after tax and minority items(PATMI) reached a record high of $238.4 million while return on equity (ROE) improvedfrom 12 per cent to 20 per cent.

Economic value-added (EVA) attributable to shareholders was $139.9 million, a 121per cent improvement from 2005.

The Board of SembCorp Marine is proposing a final and gross dividend of 10.0 centsper share (less income tax) and a one-tier tax exempt dividend of 1.5 cents per share.Together with the interim gross dividend of 3.5 cents per share, total gross dividend for2006 would be 15.0 cents per share. This significant dividend payout ratio at 77 percent, demonstrates the Group’s commitment to shareholder value.

GROUP FIVE-YEAR PERFORMANCE2002SembCorp Marine’s revenue hit a high of $1.012billion, 18 per cent higher than that achieved in2001. The improvement was due mainly to increasedrevenue from new building and ship conversionprojects. Group pre-tax profit rose to a record $116.3million. Exceptional items contributed $6.7 million,while the associated companies and joint venturecontributed $6.1 million. Group PATMI includingexceptional items grew by 12 per cent to $92.1million.

2003This was a record year for the SembCorp MarineGroup. Despite the difficult operating environment,Group revenue attained a record high of $1.068billion, 6 per cent higher than 2002’s S$1.012 billion.This performance was attributable mainly to volumeincreases in ship-conversion and new buildingprojects, which more than offset the decline in ship-repair revenue. Ship repair had been affected bythe Severe Acute Respiratory Syndrome (SARS)outbreak in the region during the first half of theyear as well as the postponement of vessel repairsas a result of high freight rates.

Group PATMI including exceptional items declined15 per cent to $78.5 million, compared to $92.1million in 2002. The decline was mainly due tosubdued performance in ship repair as well as lowerexceptional gains of $1.3 million, compared to $6.7million in 2002. If exceptional items and the effectof prior year tax over-provision were excluded, theGroup’s PATMI would have declined by just 8 percent from $80.8 million in 2002 to $74.0 million in2003.

2004This was another record year for SembCorp Marine.Group turnover was at its record of $1.36 billion,a growth of 28 per cent from $1.07 billion in 2003. This growth was driven mainly by increased revenuefrom both the ship conversion and ship repairsectors. The shipbuilding and rig building sectorsrecorded declines as most of the projects werepending take-up or in the early stages of productionas at end of 2004.

Group operating profit increased 26 per cent from$74.3 million to $93.9 million. Group pre-tax profit

increased 20 per cent from $95.2 million to $114.0million due to improvements in the ship conversionand ship repair sectors as well as increasedcontributions from a joint venture and associatedcompanies. Net profit for 2004 reached a recordhigh of $95.0 million, an increase of 21 per centfrom $78.5 million in 2003. Excluding exceptionalitems, net profit grew by 27 per cent to $98.1 million.

2005Group turnover registered a record high at $2.12billion, an increase of 56 per cent attributable togrowth across all business segments, in particularthe offshore conversion and rig building segments.

Group operating profits increased by 34 per centto $124.5 million, while Group pre-tax profits grewby 41 per cent to $159.9 million. The increase wasdue mainly to better operating profits andcontribution from the associated company acquiredduring the year. Group tax charge was higher in2005 mainly resulting from a $4.2 million write-backof prior years’ tax over-provision, arising from a 2per cent reduction in corporate income tax rate in

2004. Excluding the prior year tax provisions, Groupattributable profits in 2005 actually increased by 36per cent from $89.9 million to $122.0 million.

2006Group turnover increased by 67 per cent from $2.12billion to $3.55 billion with growth mainly attributableto the rig building and ship repair businesses.

Group operating profits increased by 83 per centfrom $124.5 million in 2005 to $228.2 million in2006. Group pre-tax profits also climbed by 95 percent from $159.9 million to $310.9 million. Thisimprovement was attributable mainly to higheroperating margins from the rig building and shiprepair businesses, gain on disposal of investmentsas well as better contribution from associatedcompanies. Group attributable profits increased by96 per cent from $121.4 million to $238.4 million.Excluding the non-operating items of $20.5 million,Group attributable profits rose by 83 per cent to$217.8 million.


Composite



5756

GROUP FIVE-YEAR FINANCIAL SUMMARYFor the year 2002 2003 2004 2005 2006

($’000) ($’000) ($’000) ($’000) ($’000)

Turnover 1,011,512 1,067,986 1,362,764 2,119,279 3,545,049Operating Profit 89,883 74,308 92,933 124,549 228,233Profit Before Tax 116,291 95,186 113,089 159,855 310,871PATMI 92,098 78,540 94,087 121,398 238,388

Dividend – Interim 16,507 16,584 17,067 28,880 40,867Dividend – Final 55,159 39,814 69,157 81,495 141,999

Dividend – Total 71,666 56,398 86,224 110,375 182,866

Group Balance SheetFixed Assets 447,886 452,720 460,020 579,584 679,024Associated Companies & JVs 101,778 58,700 67,487 106,880 147,255Other Investments 92,759 71,776 23,666 77,931 346,987Other Long Term Assets 203,913 172,254 88,258 68,628 69,583Current Assets 642,219 769,665 1,219,934 1,493,114 2,186,652Current Liabilities (492,123) (531,173) (651,692) (982,871) (1,690,896)Long Term Liabilities (46,128) (52,069) (204,963) (227,569) (368,382)

950,304 941,873 1,002,710 1,115,697 1,370,223

Share Capital 141,432 142,005 142,761 145,036 418,631Capital, Foreign Currency Translation & Other Reserves 257,049 236,741 240,772 318,271 209,093Retained Profits 541,527 548,381 585,367 602,238 710,615Minority Interests 10,296 14,746 33,810 50,152 31,884

950,304 941,873 1,002,710 1,115,697 1,370,223

Per Share Data (cents)EPS – Before Tax 8.26 6.72 7.96 11.13 21.38EPS – After Tax 6.54 5.55 6.62 8.45 16.39Net Tangible Assets 65.65 64.60 67.20 73.22 90.49Net Asset Value 66.46 65.29 67.87 73.47 91.42

Financial RatiosReturn on Equity (%) 9.90 8.41 9.92 11.93 19.83Return on Total Assets (%) 6.30 5.21 5.56 5.80 8.28Operating Margin (%) 8.89 6.96 6.82 5.88 6.44Operating Profit/Equity (%) 9.66 7.96 9.80 12.24 18.99Current Ratio 1.30 1.45 1.87 1.52 1.29Gearing Ratio (%) 2.95 10.90 15.44 14.05 29.21Dividend Cover 1.29 1.39 1.10 1.10 1.30

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Shareholders’ ReturnsReturn on Equity, EVA, Dividends and Earningsper SharesThe Group’s return on equity (ROE) grew by 67per cent to 20 per cent in 2006 as a result of therecord profit achieved for the year under review.Economic value-added (EVA) attributable toshareholders was $140 million, an outstanding121 per cent improvement from 2005.

The Board of Directors of SembCorp Marine isproposing a final and gross dividend of 10 centsper share (less income tax) to optimise utilisationof the section 44 balance and a one-tier taxexempt dividend of 1.5 cents per share, makinga total annual dividend of 15.0 cents per share.This significant dividend payout ratio at 77 percent shows the Group’s commitment toshareholder value.

The recommended dividend for 2006 took intoconsideration the Group’s present cash flowposition, positive cash flow generated fromoperations and projected capital requirement.Payment of the final proposed dividend is subjectto the approval of shareholders of SembCorpMarine at the forthcoming Annual General Meeting.

To maximise shareholder value, SembCorp Marinewill continue its policy of paying high level of finaldividends to return excess cash generation fromoperations where possible, as long as the cashis not required for investments in the future. Somecash resources will be required for the set up ofnew facilities and capabilities to expand theexisting operations and any potential mergersand acquisitions.

Share Purchase MandateApart from the distribution of dividend toshareholders, the Share Purchase Plan providesthe Company an alternate avenue to rewardshareholders. The Company will again seekshareholders’ approval to renew the SharePurchase Mandate for the purchase of up to 10%of the number of ordinary shares in the capitalof the Company in the coming ExtraordinaryGeneral Meeting.

This will give the Company the flexibilityto undertake the share purchase exerciseexpeditiously.


5958

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238.4

121.4

159.9

Pro

fit B

efo

re T

ax, P

AT

MI

$'m

350

300

250

200

150

100

50

0

113.1116.3

92.178.5

95.2

94.1

Profit before Tax

PATMI

310.9

2002 2003 2004 2005 2006

2002 2003 2004 2005 2006

250

200

150

100

50

0

$'m

4000

3500

3000

2500

2000

1500

1000

500

0

Turn

ove

r an

d O

per

atin

g P

rofit $'m

Operating Profit

Turnover

89.9

74.3

92.9

228.2

1,012 1,068

1,363

3,545

124.5

2,119

5.96.8 6.4

20

18

16

14

12

10

8

6

4

2

0

Op

erat

ing

Pro

fit M

arg

in %

Operating Profit Margin

Operating Profit/Equity

8.9

7.0

9.7

8.0

9.8

12.2

19.0

2002 2003 2004 2005 2006

2002 2003 2004 2005 2006

140

120

100

80

60

40

20

0

-20

Eco

nom

ic V

alue

Ad

ded

(EVA

)

$'m

EVA attributable to Shareholders (excl El)

Weighted Average Cost of Capital

63.4

11.3

-9.2

19.4

16

14

12

10

8

6

4

2

0

%

8.3

5.46.2

139.9

2002 2003 2004 2005 2006

11.9

9.9

8.4

19.8

Ret

urn

On

Eq

uity

and

Ret

urn

On

Tota

l Ass

ets %

Return On Equity

Return On Total Assets

9.9

20

18

16

14

12

10

8

6

4

2

0

6.3

5.2

5.65.8

8.3

21.38

11.13

Ear

ning

Per

Sha

re cents

7.968.26

6.72

EPS - before tax

EPS - after tax

25

20

15

10

5

0

2002 2003 2004 2005 2006

16.39

8.45

6.545.55

6.62

5.35.9


Composite


15.00


6160

CASH FLOW2006 2005

$'million $'million

Cash flow from operating activitiesOperating profit 228 125Depreciation, amortisation and non-cash items 53 39

Operating income before reinvestment in working capital 281 164Working capital changes (364) 143Net interest received and payment of income tax (17) (4)

Net cash (used in)/provided by operating activities (100) 303

Cash flow used in investing activities (66) (173)

Dividend paid (124) (99)Cash flow from other financing activities 252 31Cash flow provided by/(used in) financing activities 128 (68)

Net (decrease)/increase in cash flow (38) 62Cash and cash equivalents at beginning of year 531 469Cash and cash equivalents at end of year 493 531

Operating ActivitiesDuring the year, the Group continued to generatehealthy cash flow from its operations. Thisamounted to $281 million before changes inworking capital. Working capital increased by$364 million due mainly to increased activitiesin the core businesses of ship repair, shipbuilding,rig building and ship conversion.

After accounting for interest and income taxpayments, net cash used in operating activitiesamounted to $100 million due mainly to financingof work-in-progress for its record order book ofrig building and conversion projects.

Investing ActivitiesNet cash used in investing activities amountedto $66 million. During the year, the Group acquiredthe entire equity interest in SMOE andSembawang Bethlehem from SembCorpIndustries. The two acquisitions would strengthenand enhance the Group’s position as a globalplayer in the offshore oil and gas sector.

The Group also purchased additional fixed assetsof $126 million, comprising mainly additionalfacilities, cranes and machineries to execute theexisting order book more efficiently and effectively.

Dividend PaidDividend paid to SembCorp Marine shareholdersamounted to $124 million or 10.5 cents per sharein 2006. This included the final and specialdividend of 7.0 cents per share in respect of thefinancial year ended 2005 and an interim dividendof 3.5 cents per share for 2006.

The Directors are recommending a final dividendof 10.0 cents per share and a one-tier tax exemptdividend of 1.5 cents per share in respect of thefinancial year ended 2006 and an interim dividendof 3.5 cents per share for 2006. The total dividendfor the financial year ended 2006 will be a record15.0 cents per share. The dividend payout ratioat 77 per cent shows the Group’s commitmentto shareholder value.

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Cas

h $'m

531

469

162

203

Fixed Deposits, Bank and Cash Balances

Net Cash

700

600

500

400

300

200

100

0

503

2002 2003 2004 2005 2006

102

135

382

320

113

71.7

16.5

110.4

86.3

56.4

Tota

l Div

iden

d, N

et $'m

Interim

Final

250

200

150

100

50

0

28.916.6 17.1

182.9

2002 2003 2004 2005 2006

40.9

Gro

ss D

ivid

end

vs

Net

Div

iden

d cents

7.60

9.50

6.00

7.50

5.07

6.50

5.00

3.97

Gross Dividend

Net Dividend

16

14

12

10

8

6

4

2

0

12.50

2002 2003 2004 2005 2006 2002 2003 2004 2005 2006

15.00

3.50

9.50

2.50

7.50

0.750.75

1.00

6.50

0.750.75

1.00

Div

iden

d P

ayo

ut R

eco

rd cents

Interim Dividend

Interim Special

16

14

12

10

8

6

4

2

0

5.00

0.750.75

1.00

Final

Final Special

DividendPayout Ratio

78

100

90

80

70

60

50

40

30

20

10

0

72

91 91

77

55.2

81.5

69.2

39.8

142.0

%

4.002.50

5.007.00

11.50


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6362

SIMPLIFIED GROUP FINANCIAL POSITION

Financial PositionThe financial position of the Group continued tobe strong for the year in review. The change infinancial position between the two years reflectedthe Group’s efforts to invest in its core businessesto further strengthen and enhance its position asa global player in the offshore oil and gas sector.

Working capital of the Group increased in linewith the higher activities of the core business.Total assets of the Group increased 47 per centfrom $2.33 billion to $3.43 billion.

Capital EmployedTotal capital employed as at 31 December 2006was $1.4 billion comprising shareholders fundsof $1,338 million and minority interests of $32million. The Group’s shareholders fund increasedby 26 per cent.

Minority interests of the Group were decreasedfrom $50 million to $32 million in 2006. This wasprincipally due to the divestment of KristiansandDrilling, the Group’s 82 per cent subsidiarycompany owning the first Baker Marine PacificClass 375 deep-drilling offshore jack-up rig.

BorrowingsGross debts of the Group as at 31 December2006 was $390 million comprising a medium-term note amounting to $210 million and otherexternal bank borrowings for working capitalfinancing and acquisition of properties at AdmiraltyRoad. After deducting fixed deposits, bank andcash balances of $503 million, the Group endedthe year in a net cash position of $113 million.

Financial ResourcesThe Group maintained sufficient cash and cashequivalent, internal generated cash flow and theavailability of funding resources through anadequate amount of committed credit facilities.A mixture of short-term money market borrowingsand medium-term loans was obtained to fundworking capital requirements, capital expenditureand investments. Due to the dynamic nature ofthe business, the Group maintained flexibility infunding by ensuring that ample working capitallines were available at any one time.

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Fixed Assets

Associated Companies & JVs

Other Investments

Other Long Term Assets

Current Assets

2002 2003 2004 2005 2006

679.0

3500

3000

2500

2000

1500

1000

500

0

Ass

ets $'m

642.2

203.9

447.9

92.8101.8

769.7

172.3

452.7

71.858.7

1,219.9

88.3

460.0

23.767.5

1,493.1

68.6

579.6

77.9106.9

2,186.7

147.2

347.069.6

Net Assets Value

Net Tangible Assets

90.49

91.42

73.22

73.47

Net

Ass

et V

alue

and

Net

Tan

gib

le A

sset

s P

er S

hare cents

67.8766.46

65.65 64.60

65.29

67.20

90

80

70

60

50

40

30

20

10

0

2002 2003 2004 2005 2006

Current Liabilities

Long Term Liabilities

2002 2003 2004 2005 2006

1,690.9

2500

2000

1500

1000

500

0

Liab

iliti

es $'m

46.2

492.1

52.0

531.2

205.0

227.5

982.9

368.4

651.7

1,488.6 1,525.1

1,859.4

2,326.1

3,429.5

538.3538.2

856.7

1,210.4

2,059.3

Issued Capital

Capital, Foreign Currency Translation & Other Reserves

Retained Profits

Minority Interest

Return on Equity

2002 2003 2004 2005 2006

20

18

16

14

12

10

8

6

4

2

0

%

1400

1200

1000

800

600

400

200

0

Sha

reho

lder

s Fu

nd $'m

541.5 548.4585.4

10

8

20

257.0

141.4

236.7

142.0

240.8

142.8

318.3

209.1

12

602.2

710.6

145.0

31.9

10

50.2

10.3 14.733.8

418.6

950.3 941.91,002.7

1,115.7

1,370.2


Composite



6564

VALUE ADDED STATEMENT &PRODUCTIVITY RATIOS

2002 2003 2004 2005 2006$'000 $'000 $'000 $'000 $'000

Turnover 1,011,512 1,067,986 1,362,764 2,119,279 3,545,049Less: Bought In Materials (731,489) (802,765) (1,062,339) (1,734,961) (2,957,566)

Gross Value Added From Operation 280,023 265,221 300,425 384,318 587,483

Investment, Interest and Other Income 54,604 38,936 49,654 42,917 79,514Share of Associated Companies' Results 5,819 7,930 12,208 12,313 40,923Share of Joint Ventures' Results 243 73 1,070 1,011 3,441Other Non-Operating Expenses (21,490) (5,327) (14,307) (12,409) (30,792)

319,199 306,833 349,050 428,150 680,569Distribution:To Employees : Salaries, Wages & Benefits 157,048 165,360 180,833 216,533 299,052To Government : Income & Other Taxes 27,418 21,836 21,844 41,888 73,880To Providers of Capital : -

Interest Paid on Borrowings 822 2,663 2,822 4,785 10,549Dividends 71,470 71,842 56,881 98,036 122,362

Retained in Business :Depreciation and Amortisation 33,462 35,294 37,497 37,766 45,514Retained Profits 20,627 6,699 38,121 23,362 116,026Minority Interests 1,110 (316) 3,017 4,186 10,143

Non-Production Costs 7,242 3,455 8,035 1,594 3,043

Total Distribution 319,199 306,833 349,050 428,150 680,569

Average Number of Employees 5,272 5,302 5,572 6,241 7,592Employment Costs 157,048 165,360 180,833 216,533 299,052

Value added per Employee 53.12 50.02 53.92 61.58 77.38Employment Cost Per Employee 29.79 31.19 32.45 34.70 39.39

Value Added Per Employment Costs 1.78 1.60 1.66 1.77 1.96Value Added Per Dollar Investment

in Fixed Assets 0.63 0.59 0.65 0.66 0.87Value Added Per Dollar Turnover 0.28 0.25 0.22 0.18 0.17

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2002 2003 2004 2005 2006

0.17

0.87

0.18

0.66

Pro

duc

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atio

s

0.650.63

0.28 0.25

0.59

0.22

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

Value Added Per $ Investment in Fixed Assets

Value Added Per $ Turnover

2002 2003 2004 2005 2006

132.9

73.972.3

299.1

216.5

Dis

trib

utio

n o

f Va

lue

Ad

ded

180.8

157.1

27.4

165.4

300

250

200

150

100

50

0

Distribution to Employees

Distribution to Providers of Capital

Distribution to Government

74.5

21.8

59.7

21.8

102.8

41.9

$'m

2002 2003 2004 2005 2006

1.96

1.77

Pro

duc

tivi

ty R

atio

s

1.66

1.78

1.60

2.0

1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0

Value Added Per $ Employment Costs

Value Added Per Employee

80

70

60

50

40

30

20

10

0

53.9

61.6

53.1

50.0

77.4

$'000


Composite



6766

STATEMENT OF COMPUTATIONOF ECONOMIC VALUE ADDED

2006 2005S$'000 S$'000

Net Profit before Tax 266,507 146,531

Adjust for:

Share of Associated and Joint Venture Companies' Results 44,364 13,324

Interest Expense 12,822 7,778

Others 1,761 6,764

Adjusted Profit Before Interest and Tax 325,454 174,397

Cash Operating Taxes (Note 1) (59,919) (29,067)

NOPAT 265,535 145,330

Average Capital Employed (Note 2) 1,504,342 1,339,437

Weighted Average Cost of Capital (Note 3) 5.9% 5.3%

Capital Charge 88,756 70,990

Group EVA 176,779 74,340

Less: Minority Share of EVA 7,622 1,746

Group EVA Attributable to Ordinary Shareholders 169,157 72,594Unusual Items (UI) Gains (Note 4) 29,292 9,214

Group EVA Attributable to Shareholders (exclude UI) 139,865 63,380

Note 1 : The reported current tax is adjusted for the statutory tax impact of interest expense.

Note 2: Monthly average total assets less non-interest bearing liabilities plus timing provision, goodwill written off / amortised/ impaired and present value of operating leases.

Note 3: The Weighted Average Cost of Capital is calculated in accordance with SembCorp Industries Ltd Group EVA Policyas follows:

i) Cost of Equity using Capital Asset Pricing Model with market risk premium at 6.0% (2005: 6.0%)ii) Risk-free rate of 3.31% (2005: 2.62%) based on yield-to-maturity of Singapore Government 10 years Bonds;iii) Ungeared beta 0.5 (2005: 0.5) based on SembCorp Industries risk categorisation; andiv) Cost of Debt rate at 4.04% (2005: 3.03%) using 5-year Singapore Dollar Swap Offered rate plus 75 basis

point. (2005: 5-year Singapore Dollar Swap Offered rate plus 75 basis point)

Note 4: Unusual Items (UI) refer to divestment of subsidiaries and associates, long-term investments and disposal of majorfixed assets.

RISK MANAGEMENT1. Operational RiskThe Group operates in 10 countries with assetsand activities spreading across Asia Pacific andBrazil. As part of its plan to grow its businessinternationally, the Group will continue to focuson increasing its operating activities and presencein Brazil, Greater China and Middle East. Seniormanagers are posted overseas to oversee theoperational risk. The Group expects that as partof its business strategy, the percentage of itsoverseas-sourced assets and customers willincrease moving forward, thereby achieving theeffects of greater geographical diversification.Likewise, a broader base of significant customerswill reduce the risk of customer concentration.

2. Investment RiskThe Group seeks to grow its business throughorganic growth of its existing capabilities,development of new capabilities and acquisitionof business entities or operating assets.Investment activities, ranging from theidentification of targets to the conducts of duediligence exercises, are supported by a dedicatedteam of experienced managers and augmentedby external professionals for specialised services.The business proposals are guided by a givenset of internal investment criteria, evaluated bysenior management before seeking final Boardof Directors’ approval.

3. Treasury & Financial RiskThe Group has in place an established treasurypolicy and guidelines for managing treasury andfinancial risks. The treasury policy seeks tooptimise the Group’s cost of capital, minimisethe adverse effects of fluctuations in currencyand interest rates on income and ensure sufficientfunds are available to meet financial obligationsand operational needs. The Group’s treasuryactivities are centrally managed in Singapore. Asa policy, the Group does not undertake speculativepositions for trading purposes.

4. Interest Rate RiskThe Group’s policy is to maintain an efficientoptimal interest cost structure using a mix offixed- and variable-rate debt, where workingcapital is financed by variable-rate loans whilelong-term investments are financed by fixed-rateloans. Surplus funds, if any, are placed withreputable banks and/or investment in bonds. TheGroup obtains additional funding through bankborrowings and leasing arrangements. TheGroup’s policy is to obtain the most favorableinterest rate available without increasing itsforeign-currency exposure.

5. Foreign Exchange RiskThe Group incurs foreign-exchange risk on salesand purchases that are denominated in variouscurrencies other than Singapore dollars, primarilythe US dollar, Euros and Japanese yen. Tominimise exposures on foreign-currency risks,the Group usually arranges for natural hedgingby matching costs in the same currency as salescollections.

6. Derivative Financial InstrumentRiskThe Group also utilises forward exchangecontracts and swaps with maturities of less than12 months to hedge foreign-currency-denominated financial assets, liabilities and firmcommitments. Under this arrangement, increasesor decreases in the Group’s foreign-currency-denominated financial assets, liabilities and firmcommitments partially offset gains and losses onthe hedging instruments. The Group only usesforeign-currency forward contracts and swapsfor hedging purposes.

7. Liquidity RiskTo measure liquidity risks, the Group monitors itsnet operating cash flow, maintains a level of cashand cash equivalents and secures committedfunding facilities from financial institutions. Inassessing the adequacy of these facilities,

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6968

management rev iews working capita lrequirements so as to mitigate the effects offluctuations in cash flows. Short-term funding isobtained from overdraft facilities and bank loans.

8. Credit RiskThe Group has no significant concentration ofcredit risk with any single counterparty andmonitors its exposure to credit risks arising fromsales to customers on an on-going basis wherecredit evaluations are done on customers thatrequire credit. The Group only deals with pre-approved counterparties with good credit ratingand imposes a cap on the amount to betransacted with any counterparty so as to reducethe concentration of risk. Cash terms, advancepayments and letters of credit or bank guaranteesare required for customers of lower credit standing.

9. Market RiskThe Group is exposed to market risk and the riskof impairment in the value of its investments held.The Group manages the risk of unfavourablechanges by cautious review of the investmentsbefore investing and continuous monitoring ofthe performance of investments held andassessing market risk relevent to which theinvestments operate.

10. Reputation RiskThe Group values its reputation in the market andhas put in place a communication programmeto ensure timely and effective communication ofkey information to our stakeholders at all times.

11. Insurance RiskWhere appropriate, the Group manages itsinsurance risks on a Group basis to leverage itsposition with the general insurance market.

The Group reviews its insurable risk profilecontinually and makes the necessary adjustmentson risk retention to optimize the coverage andcost. This is done with advice and support from

1. Interest RateThe Group’s cash and cash equivalents are largelyinvested in fixed deposits. Movement in interestrates will have significant impacts on the interestand investment income for the Group. Based onthe cash and cash equivalents for the Group of$503 million at the end of 2006, a one percentagepoint movement in effective fixed deposit interestrate is estimated to result in an annual $5.03million change in interest income for the Group.

2. Gross Profit MarginBased on the turnover of $3.55 billion in 2006,a one percentage point movement in the grossprofit margin of the Group would lead to a $35.5million change in gross profit for the Group. Thereare many different programmes undertaken acrossthe Group to smoothen out specific projectsfluctuations.

3. OthersOther risk factors that will have an impact onturnover and net profits tends to be sector-specific, hence it is not practical to performsensitivity analysis in such an instance.

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selected insurance brokers. Major Groupinsurance policies include Industry All Risk andLiabilities and Workmen Compensation, designedto protect the Group against properties risk,liabilities for its products and services, and workplace accidents respectively. The marine industryhas specialised insurance programmes.

The Group adopts a proactive strategy, withadvice and recommendations from insurancebrokers, to manage the insurance risk with specificrisk management programmes covering theprevention of fire and the adoption of behaviour-based safety practices, amongst others.

FRS 32 (revised) Financial Instruments: Disclosure and Presentation

FRS 39 (revised) Financial Instruments: Recognition and Measurementon Financial guarantee contracts

The effects of adoption of the above FRS did notresult in substantial changes to the Group'saccounting policies and did not give rise to anyadjustments to the opening balances of revenuereserve or changes to comparatives.

ACCOUNTING POLICIESThe Group’s significant accounting policies arepresented in Note 2 in the Notes to the FinancialStatements (pages 154 to 163). The Group hasapplied the same accounting policies andmethods of computation in the financialstatements for the current reporting yearcompared with the audited financial statementsas at 31 December 2005, except for the adoption,with effect from financial year 2006, of thefollowing new Singapore Financial ReportingStandards (FRS) issued by the Council onCorporate Disclosures and Governance (CCDG)that are mandatory for the financial yearsbeginning on or after 1 January 2006:

SENSITIVITYANALYSIS

70-85 market review.23mar 4/1/07 8:39 PM Page 1

Composite


M A R K E T R E V I E W & O U T L O O K

71

The Singapore economy did well for the thirdyear in a row. Gross Domestic Product (GDP)grew by 7.9 per cent in 2006, up from 6.4 percent in 2005. Both the manufacturing and servicessectors continued to enjoy good growth. Overall,the economy is expected to grow between 4.5and 6.5 per cent in 2007.

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2003 2004 2005 20063.0% 13.8% 9.5% 11.5%-8.9% -5.5% 0.7% 2.7%10.6% 17.4% 9.6% 10.3%

-9.9% 11.7% 4.3% 5.1%

-1.7% 10.4% 4.2% 4.3%

4.6% 6.0% 5.5% 4.6%

9.3% 4.4% 7.6% 9.2%-1.4% 1.0% 5.9% 5.8%

GDP by Industries

ManufacturingConstructionWholesale andRetail TradeHotels andRestaurantsTransport andStorageInformation andCommunicationsFinancial ServicesBusiness Services

Source : Singapore Department of Statistics

Singapore GDP Growth Rate

($ billion)

The

Sin

gap

ore

Mar

ine

Ind

ustr

y R

even

ue, 1

981-

2005

Ship Repair & Conversion Offshore Shipbuilding Source : Association of Singapore Marine Industries *Estimated

11.010.510.0

9.59.08.58.07.57.06.56.05.55.04.54.03.53.02.52.01.51.00.5

081 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

2.4 b

3.1 b

3.8 b4.4 b

5.3 b

7.4 b

9.0 b*

7.9

6.64.5 to6.5 *

9

8

7

6

5

4

3

2

1

0

Sin

gap

ore

GD

P G

row

th R

ate Per

Cent

8.8

2003 2004 2005 2006 2007

3.1

The Singapore Marine IndustryThe Singapore marine industry is estimated toturn in another year of sterling performance ofmore than $9 billion in 2006. Its total turnoverof $7.43 billion in 2005 was a record high withindustry players clinching numerous contractsto bring order books to an all-time high in 2005and 2006.

The stellar performance was led by the industry’soffshore sector which continued to see stronggrowth in 2005 and 2006 driven by higher oil

*EstimatedSource : Ministry of Manpower

60,000

55,000

50,000

45,000

40,000

35,000

30,000

25,000

20,000

Mar

ine

Ind

ustr

yE

mp

loym

ent

1990

-200

5 No. ofperson

26,39327,719 27,360

23,581

25,62226,933 27,262 26,940

31,81030,716

30,067

34,871 34,44734,977

37,716

48,516

Source : Ministry of Manpower *Estimated

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

55,000*

prices and demand for energy. Apart from theoffshore sector, the ship repair and conversionas well as shipbuilding sectors also strengthenedand contributed to an overall increase in totalturnover in 2005 and 2006.

The increase in the marine industry’s turnoveralso saw a correspondingly increase in industrymanpower from 37,716 in 2004 to 48,516 in 2005.This is expected to increase further to anestimated 55,000 in 2006.

Singapore Economy & Outlook


Composite


Rig building registered strongest growthcontributing 49% of total revenue

Safety PerformanceThe industry’s continuous focus and relentlessefforts in promoting safety awareness, instillinga safe work culture and implementing safe workpractices have resulted in better safety records


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over the years. The industry will continue to furtherstrengthen safety awareness in the marineindustry.

SembCorp Marine delivered a strong performancein 2006. Turnover grew 67 per cent from $2.12billion in 2005 to $3.55 billion in 2006. The rigbuilding sector registered the highest revenuegrowth to reach $1.7 billion, an improvement of353 per cent from $381 million in 2005. This wasfollowed by ship repair which saw revenuesclimbing from $531 million to $612 million for thecorresponding period.

In percentage terms, the rig building sectorconstituted 49 per cent of total revenue in 2006,followed by ship conversion and offshore at 26per cent, ship repair at 17 per cent, shipbuilding6 per cent and others at 2 per cent.

OVERALL SECTORIAL PERFORMANCE

Source : Ministry of Manpower

8

7

6

5

4

3

2

1

0

Acc

iden

t Fr

eque

ncy

&S

ever

ity

Rat

es 1

991-

2005

No. of AccidentsPer Million Man-hours Worked

1000

900

800

700

600

500

400

300

200

100

0

No. of Man-daysLost Per MillionMan-hours Worked

940

840

708 680

552

724

394454

830

175

96 97 98 99 00 01 02 03 04 05

SEMBCORP MARINE:

5.1

7.3

6.1

3.0 2.8

3.4

3.8

4.13.1

7.9

Frequency Rates Severity Rates

FY 2006$3,545m

Ship Conversion/OffshoreShip RepairRig Building

ShipbuildingOthers

FY 2005$2,119m

42%886

25%531

18%381

9%189

6%133

26%913

49%1,729

17%612

6%211

2%80


Composite


FY 2005

17%

46%

3%

10%

16%

2%3%

3%

TankerContainerBulk CarrierLPG/LNG

FPSO UpgradingPassengerOffshore UpgradingOthers

Average value per vessel increased from$1.72 million to $1.95 million


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Turnover contributed by the ship repair segmentrose 15.4 per cent to $612 million. A total of 314vessels were repaired in the Group’s shipyardsin 2006 compared to 309 in 2005. Revenue pervessel edged up from $1.72 million per vessel to$1.95 million.

High value repairs to tankers, container vesselsand bulk carriers as well as upgrading of floatingproduction-storage-offloading (FPSO) vesselsand offshore jack-ups continued to dominate thevessel mix, accounting for 84 per cent of the shiprepair revenue.

Long-term strategic alliances continued to providea steady and growing baseload in 2006. Togetherwith regular customers, they accounted for 82per cent of total ship repair turnover.

Market Outlook for Ship RepairSectorThe Group expects ship repair demand to remainstrong especially in the specialised market ofLNG/LPG gas tankers, VLCC tankers andcontainer vessels.

Turnover for the shipbuilding segment rose by 12per cent to $211 million in 2006. During the year,the Group completed and delivered three 2,646TEU containerships for Wan Hai Lines and onefor Reederei F Laeisz in 2006 and 15 floatingpontoons.

Market Outlook for theShipbuilding SectorThe shipyards in Singapore continued to enjoy aniche market position for customised andspecialised vessels. Buoyed by the robust marketfundamentals, strong demand is expected fornew builds of offshore supply vessels as well asfeeder container vessels in the future.

Year

DescriptionFY 2006 FY 2005 % change

Revenuecontributions 612.1 530.6 15.4

No. of vessels 314 309 1.6

Average valueper vessel ($m) 1.95 1.72 13.4

FY 2006

11%

37%

15%

10%

16%

6%5%

SHIP REPAIR SECTORSEMBCORP MARINE:

SHIPBUILDING SECTORSEMBCORP MARINE:

Projects in WIP Stages : 5

Projects Completed & Delivered in FY 2006 : 5

Project Name/Type Customer Delivery Schedule

• 2nd unit 2,600 TEU container Wan Hai Lines 1Q 2006

• 3rd unit 2,600 TEU container Wan Hai Lines 2Q 2006

• 4th unit 2,600 TEU container Wan Hai Lines 4Q 2006

• 1st unit 2,600 TEU container Reederei F Laeisz 3Q 2006

• 15 units floating pontoons - 4Q 2006

• 2 units 4,950 dwt tanker Kuwait Oil Tanker 2Q 2007



• 2nd unit 2,600 TEU container Reederei F Laeisz 3Q 2007

FY 2006 Percentage completion ($ m) $210.6

Shipbuilding activities from 2007onwards will scale down


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Turnover for the ship conversion and offshoresegment registered a modest growth of 3.1 percent to $913 million in 2006, contributing 26 percent to total revenue.

Outlook for the Ship Conversionand Offshore SectorThe Group foresees that global demand forenergy will continue to grow. Although oil priceshave fallen, they remain in the $60 range.Exploration and production spending is generallypositive, and drill rig demand continues to bevery strong. Also, order intake for new floatershas spiked at an all-time high.

Global oil demand continues to growIn its latest Oil Market Report, the IEA sawdemand for oil growing at a rate of 1.1 per centin 2006, averaging 84.5 Mb/d in 2006 versus83.6 Mb/d in 2005. Demand in 2007 is expectedto average 85.9 Mb/d, an increase of 1.7 percent over 2006.


Project Name/Type Customer Delivery Schedule

• P-50 Topsides installation Petrobras 1Q 2006

• P-54 marine conversion Petrobras 2Q 2006

• RJS FPSO conversion Modec 3Q 2006

• BW Enterprise FPSO conversion Bergesen 4Q 2006

• P-54 Topsides fabrication Petrobras 3Q 2006

• P-54 Compressor modules Petrobras 3Q 2006

Projects in WIP stages : 8

• P-54 Integration & commissioning Petrobras 3Q 2007

• Heavy Lift Derrick Pipelay Vessel Sapura Crest 1Q 2007

• ConocoPhillips topsides ConocoPhillips 3Q 2008

• PRA-1 FSO conversion Modec 1Q 2007

• Raroa FPSO conversion Tanker Pacific 4Q 2007

• Montara FPSO conversion Tanker Pacific 2Q 2008

• Aoka Mizu FPSO conversion Bluewater Energy 4Q 2007

• Semi-submersible conversion Noble Drilling 1Q 2009

FY 2006 Percentage Completion ($ m) $913.4

Almost 40 per cent of the projected increase inoil consumption in 2007 results from increasedAsian oil demand. China oil consumption isprojected to continue to grow at a strong pace,increasing by 6.2 per cent in 2006 and 5.4 percent in 2007. By end 2007, China is expectedto account for 8.6 per cent of total world oildemand. Five years ago, China represented only6.5 per cent of global oil demand.

Longer term, the IEA sees primary energy demandincreasing by 53 per cent between 2006 and2030. More than 70 percent of this increase willresult from demand growth in developingcountries, particularly China and India. To satisfyenergy requirements, the latest IEA forecast callsfor world oil demand to reach 116 Mb/d in 2030,up from 84.5 Mb/d in 2006. A more bullish U.S.EIA sees global consumption rising to 118 Mb/din 2030.

Meeting this long-term growth will be atremendous challenge. It will require new sourcesof oil, conventional and non-conventional, to befound and produced. Central to this entire scenariois the increasing role of floating production as asource of oil supply.

Region 2002 2003 2004 2005 2006 2007

North America 0.4 1.7 3.5 0.5 -0.3 1.4

Europe -0.1 1.0 0.3 0.2 -0.2 -0.1

Pacific OECD -0.4 1.5 -1.6 1.2 -1.2 -0.3

FSU -5.5 3.2 4.7 1.3 2.7 0.8

Europe 1.4 3.8 2.2 1.9 1.8 1.4non-OECD

China 6.3 11.1 15.8 2.8 6.2 5.4

Other Asia 3.5 1.3 6.8 1.8 1.0 2.4

Latin America -0.9 -1.7 5.8 2.7 1.9 2.0

Middle East 3.3 2.0 6.9 5.6 5.4 5.4

Africa 2.9 1.2 4.1 3.0 2.4 2.4

World 0.8 2.0 3.9 1.4 1.1 1.7

Source: IEA, Oil Market Report, November 2006

Regional Growth in Oil Consumption(% growth per year)

Oil and natural gas prices remain strongReflecting the drop in spot prices, the futuresprice for crude has fallen slightly over the pastseveral months. But the futures price remainsvery strong, with light sweet crude trading closeto $69 for December 2008 delivery and just under$66 for December 2012 delivery.

Industry analysts largely agree with the futuresmarket on the expected price of crude.Bloomberg’s survey of 29 industry analysts inOctober 2006 produced a median forecast of $64per barrel in 2007. Outside of this range, BarclaysCapital expects oil to average $76.70 per barrel.

The futures price for natural gas has also remainedstrong. As of late November 2006, Henry Hubgas for December 2007 delivery is trading justover $9 per MMBtu. Gas for delivery in December2011 is trading around $7.50.

Actual and Futures Price of Crude($ per BBL)

Source: Wall Street Journal

Henry Hub Natural Gas Price and Nymex Futures($ per MMBtu)

Source: Wall Street Journal

75.4

90

80

70

60

50

40

30

20

10

0

Incr

easi

ng G

lob

al O

il D

eman

d

76.2 76.8 77.879.3

82.4 83.6 84.5 85.9

99 00 01 02 03 04 05 06 07

+1.4%+1.1%

+1.7%

SHIP CONVERSION AND OFFSHORE SECTORSEMBCORP MARINE:

Source: IEA, Oil Market Report, November 2006 IEA Forecast

Ship conversion activities expectedto remain strong in 2007


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18

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2

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4


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Exploration and production spending outlookremains generally positiveLehman Brothers’ capital spending survey of 308oil and gas companies as at mid-year indicatedthey were planning to commit $261 billion to capitalexpenditures in 2006, an increase of 21.3 per centover the previous year.

Despite the recent drop in spot prices, majoroffshore field operators have given no indicationthat they plan to change spending plans forexploration and production significantly over theforeseeable future. At an API conference in October2006, the CEO of ExxonMobil said the companywould hold capital expenditures at about$20 billion for the next two or three years. Similarly,Shell indicated at the same conference that itwould continue with its planned offshore projectseven if oil prices were half the current level.

However, the recent weakness in spot oil and gasprices has created some uncertainty over activitiesin the Gulf of Mexico. ODS says only 355 drillingplans have been submitted to MMS so far thisyear, compared to 404 the same period last year.Also, the most recent UBS’ PatchWork Surveyfound that spending for exploration and production

will be relatively flat in the Gulf of Mexico, andrig activity is expected to soften from currentlevels over the next few months. According tothe survey, about one-third of the respondentsexpected to increase spending, another one-thirdexpected to decrease spending, and the remainingone-third expected no change in spending.However, this softness appeared to be largelylimited to the shallow water activity in the Gulf ofMexico. Deepwater projects appeared to beunaffected.

Perhaps the best barometer of offshore spendingexpectations as they impact the floatingproduction sector is the project pipeline list. Thereare now 108 such projects in the list, which isjust one less than the number of projects reportedin July. This is despite a dozen projects movingfrom the projects list to development over thelast four months and nine projects being deletedfrom the previous pipeline list. They were replacedby an almost equal number of new projects thatemerged during the same period, reflecting thecontinuing pursuit of new projects. More generally,IMA in its November 2006 report observed thatthere was absolutely no indication of softness inthe floating production sector. To the contrary,the sector was extremely strong.

Production floater orders have spikedTo say the sector is booming is not an exaggeration.Since the July 2006 report, 17 production floatershave been ordered, at an ordering pace of 3.6units per month. This ordering pace is far higherthan the average order intake of about 1.5 unitsper month over the past ten years.

Over the past 12 months there have been ordersfor 36 production floaters. This is considerably

higher than the range of 20 to 26 annual ordersin the five-year forecast since March 2005.However, 10 of the 36 orders have beenspeculatively placed. Essentially, these speculativehulls are pre-positioned candidates for meetingfuture production floater requirements. The hullswill eventually find field employment and becompleted as production floaters, likely for fieldsthat are in the planning pipeline.

34

43

5960

50

40

30

20

10

0Nov '04 Nov '05 Nov '06

30

25

20

15

10

5

0

108

Pro

duc

tion

Flo

ater

s ar

e P

lann

ed o

rU

nder

Stu

dy

as o

f N

ove

mb

er 2

006

* Fl

oat

ing

Pro

duc

tio

n S

ecto

r E

xtre

mel

y S

tro

ng No. ofunits

Ultra-Deepwater >1500m Deep water 1000 - 1500m <1000m water depth

Gulf ofMexico

W.Africa SE Asia Brazil Australia/NZ

N. Europe China Mediterranean Other

695

3,6983,800

863

8,060

Fixe

d P

latf

orm

Cap

ex B

yR

egio

n 20

07 -

2009 US $M

Africa Asia Australasia Europe LatinAmerica

Middle East& Caspian

NorthAmerica

5,077

8000

7000

6000

5000

4000

3000

2000

1000

0

4,695

Source : International Maritime Associates, Inc

110

6

7

8

5 3

21

4

5

9

11

6

312

6

8

1

Source : Infield Fixed Platform Market Outlook Report for 2005 -2009

Increasing ordersfor floaters


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Semi-submersible rig activities expectedto be strong from 2007 onwards


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The rig building sector registered the highestgrowth at $1.7 billion, up 353 per cent from the$381 million revenue in 2005.

Market Outlook for RigsDrill rig demand and utilisation are very strongDrill rig demand and utilisation remain extremelystrong. According to Rigzone, overall utilisationfor the entire competitive worldwide rig fleet iscurrently 88.5 per cent, an improvement from87.3 per cent a year ago. Within this average,drill ship utilisation stands at 79.4 per cent, semi-submersibles at 91.6 per cent and jack-ups at94.4 per cent.

Day rates reflect the high utilisation. Deepwaterdrill rigs are now averaging day rates of close toUS $220,000. But while these average rates areimpressive, individual rates that are now beingnegotiated are far more impressive. Two recentfour-year contracts negotiated by Global SantaFe for deepwater rigs starting in 2008 and 2009are in excess of US $500,000. Equally impressiveis the impact that day rates are having on ordersfor new equipment. According to Noble Drilling,there were 105 new drill rigs on order worldwideas of early November 2006. They included 10drill ships, 30 semi-submersibles and more than60 jack-ups.

One of the better indicators of market conditionsin the offshore exploration and production sectoris the SCORE index compiled by Global SantaFe. This index tracks the profitability of rigcontracts over time. The base is set at a levelthat equals the sum of the daily cash operatingcost plus approximately $700 per day per$1 million invested. The higher the index, themore profitable is the current market. The indexnow stands at 132 compared to 94 a year agoand 48 two years back.

Rig Building Semi-submersible : Review

Rig Building Jack-up : Review

RIG BUILDING SECTORSEMBCORP MARINE:

Projects in Engineering & Early Stages : 3

• 3rd unit Semi-submersible PetroRig I 1Q 2009

• 4th unit Semi-submersible PetroRig II 2Q 2009

• 5th unit Semi-submersible PetroRig III 1Q 2010

FY 2006 Percentage Completion ($ m) $521.3


• 1st unit Semi-submersible West Sirius 3Q 2008

• 2nd unit Semi-submersible West Taurus 4Q 2008


Project Type Customer / Project Name Delivery Schedule

• Lower Hull Atlantia Offshore 1Q 2006


• 3rd unit Jack-Up Soehanah 1Q 2007

• 4th unit Jack-Up Deep Drilling 4 3Q 2007

• 5th unit Jack-Up WilSuperior 3Q 2007

• 6th unit Jack-Up Petrojack I 2Q 2007

• 7th unit Jack-Up Petrojack II 1Q 2008

• 8th unit Jack-Up Sea Drill 2 4Q 2007

• 9th unit Jack-Up Hakuryu X 1Q 2008

• 10th unit Jack-Up Petrojack III 3Q 2008

• 11th unit Jack-Up WilForce 4Q 2007

• 12th unit Jack-Up Aban 4Q 2008

Projects in Engineering & Early Stages : 6

• 13th unit Jack-Up Deep Driller 7 4Q 2008

• 14th unit Jack-Up JackInvest 1 4Q 2008

• 15th unit Jack-Up WilSeeker 3Q 2008

• 16th unit Jack-Up Offshore Group 2Q 2009

• 17th unit Jack-Up Barge Aramco 1Q 2010

• 18th unit Jack-Up Offshore Group 4Q 2008

FY 2006 Percentage Completion ($ m) $1,207.6

Project Completed & Delivered in FY 2006 : 2

Project Type Customer / Project Name Delivery schedule

• 1st unit Jack-Up Deep Driller I 2Q 2006

• 2nd unit Jack-Up WilPower 3Q 2006

Jack-up rig activities expectedto be strong in 2007


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The Group has a strong net order book of $7.1billion as at 15 February 2007 with completionand deliveries till 2010. New contracts securedin 2007 to-date amount to $1.7 billion.

Offs

hore

Rig

Sco

re Index

7,145

3,000 (42%)

2,530 (36%)

948 (13%)

86 (1%)

Ship Building


Jack-up

2003 2004 2005 2006 15 Feb07

8000

7000

6000

5000

4000

3000

2000

1000

0

Net

Ord

er B

oo

k $'m

1,081

228 (21%)

2,288

5,3415,472

584 (54%)

192 (18%)77 (7%) 1,212 (53%)

589 (26%)

487 (21%) 298 (6%)

992 (18%)

2,018 (38%)

2,033 (38%) 2,198 (40%)

2,240 (41%)

948 (17%)

86 (2%)

581 (8%)

Offshore Platform

Semi-submersible

Source : Global Santa Fe

140

120

100

80

60

40

20

01982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Oct 06 132

Oct 05 94

Oct 04 48

Conversion/offshore

Rig Building: jack-up

Ship Building

Offshore Platform

Rig Building:semi-submersible

SUMMARY OF ORDER BOOKSEMBCORP MARINE:

More than 140 units wereordered & delivered from mid seventies to mid-eighties

Semi market is expected to be strong &ordering momentum to continue

So far 30 units ordered with deliveries till 2010

Source : ODS - Petrodata

1

22

20

18

16

14

12

10

8

6

4

2

0

No. ofunits

Sem

i-su

bm

ersi

ble

s : F

und

amen

tals

for

rig

bui

ldin

g r

emai

n st

rong

70 72 74 76 78 98 00 1082 8480 86 88 90 92 94 96 02 06 0804

1 1

10

1314

16

11

43

2

4

1819

11

5 56

5

1

3

1 12

1

4

6

12

12

1

1213

3

Source : ODS –'D0 Petrodata/companyAs at 2 Nov 2006

90

80

70

60

50

40

30

20

10

0

No. ofunits

Jack

-up

: Fun

dam

enta

ls fo

rri

g b

uild

ing

rem

ain

stro

ng

05 07 0970 71 73 75 9777 79 81 83 9585 87 89 91 93 99 01 03

4 4

20

28

11

11

So far 75 jack-up rigs ordered with deliveries till 2010

Ordering momentum picks up from 2004onwards & is expected to continue

More than 300 were ordered & delivered from late

seventies to mid-eighties

6 4 5 3

10

19 20

1317

24

33

66

83

29

129

4 51 1 1 2 2 3 1 3 4 4

1 4 310

2

4500

4000

3500

3000

2500

2000

1500

1000

500

0

Con

trac

ts S

ecur

ed (e

xclu

de s

hip

repa

ir) S$'000

2,055

4,197

244700 657 757

335(16%)

601(30%)

1,119(54%)

3,0081,697(40%)

00 01 02 03 04 05 06 15 Feb07

411(10%)

2,089(50%)

1534(49%)

1,009(33%)

545(18%)

802(47%)

295(18%)

581(35%)

1,678

(65%)

(35%)(16%)

(84%)

(43%)

(57%)(50%)(50%)

• Contracts secured for 2007to-date stand at $1.7 billion

• We expect contract flowsto be strong for 2007

Strong Net Order Book at$7.1 billion as at 15 Feb 07

• Aging rig fleet worldwide• World oil supply remains tight• Supply of rigs well regulated due to certain constraints


Composite


YearProjects 2005 2006 2007 2008 2009 2010

Shipbuilding

1st unit 2,600 TEU container (Wan Hai Lines)

2nd unit 2,600 TEU container (Wan Hai Lines)

3rd unit 2,600 TEU container (Wan Hai Lines)

4th unit 2,600 TEU container (Wan Hai Lines)



1st unit 2,600 TEU container (R F Laeisz)

2nd unit 2,600 TEU container (R F Laeisz)

1st unit 4,950 dwt tanker (Kuwait Tanker)

2nd unit 4,950 dwt tanker (Kuwait Tanker)

Fabrication of 15 units floating pontoons

Completion 1 5 5


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YearProjects 2005 2006 2007 2008 2009 2010


P-50 Integration & Commissioning

P-54 Marine Conversion

P-54 Topside Fabrication

P-54 Compressor Modules

P-54 Integration and Commissioning

ConocoPhillips Topsides

Heavy Lift Derrick Pipelay Vessel

PRA-1 FPSO Conversion

RJS FSO Conversion

BW Enterprise FPSO Conversion

FPSO Conversion: Raroa

FPSO Conversion: Montara Venture

Aoka Mizu FPSO Conversion

Semi-submersible Conversion* (Noble Danny Adkins)

Completion 6 5 2 1

Schedule of Delivery & Completion (exclusive of ship repair)

( )* denotes with contract

Delivered



YearProjects 2005 2006 2007 2008 2009 2010

Semi-submersible Rigs

Lower semi-submersible hull (Atlantia)

1st Semi-submersible (West Sirius)* Devon Energy

2nd Semi-submersible (West Taurus)

3rd Semi-submersible (PetroRig I)* Petrobras

4th Semi-submersible (PetroRig II)* Petrobras

5th Semi-submersible (PetroRig III)

Completion (5 units on order) (0) ( 1)* (0) (2) (2) (1)

Offshore Platform

CPOC : Offshore Platform Integrated Deck

Offshore Platforms for Tunu Field

Completion (2)

YearProjects 2005 2006 2007 2008 2009 2010

Jack-Up

1st Jack-Up (Deep Driller I)* Hardy

2nd Jack-Up (WilPower)* Aramco

3rd Jack-Up (Petrojack I)* Maersk

4th Jack-Up (Soehanah)* Total

5th Jack-Up (Deep Driller 4)

6th Jack-Up (WilSuperior)* Thang Long

7th Jack-Up (SeaDrill 2)

8th Jack-Up (Petrojack II)

9th Jack-Up* (Hakuryu X)

10th Jack-Up (Petrojack III)* Maersk

11th Jack-Up (WilForce)

12th Jack-Up (Aban)

13th Jack-Up (Deep Driller 7)

14th Jack-Up (JackInvest 1)

15th Jack-Up (WilSeeker)

16th Jack-Up (Offshore Grp)

17th Jack-Up Barge* (Aramco)

18th Jack-Up (Offshore Grp)

Completion (18 units on order) (0) (2) (6) (8) (1) (1)

Delivered

Delivered

Delivered

Completed

Completed

Completed

Completed

Completed

Delivered

Delivered

Delivered

Delivered

Delivered

Delivered

Shipbuilding activities expected to scale down from 2007 onwards

Ship conversion & offshore order book expected to grow from 2007 onwards

Jack-up rig activities expected to be strong in 2007

Semi-submersible rig activities expected to be strong from 2007onwards, Offshore platform activities expected to be stronger

Shipbuilding Sector

Ship Conversion & Offshore Sector

Rig Building : Jack Up

Rig Building : Semi-submersible & Offshore Platform

Delivered

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GROWING AND EXPANDING THE BUSINESS

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The year under review had been an outstanding year of solid growth. The SembCorpMarine Group consolidated its leading position in the marine and offshore industryin 2006 with strategic acquisitions, facility developments and innovation focus aimedat achieving sustained growth and enhanced shareholder value. As the marketremains strong, supported by sound fundamentals, the Group is poised to grow itsbusiness further and to capture an increasing market share.

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Strengthening Rig-Building andOffshore ActivitiesA major step forward in strengthening SembCorpMarine’s strategic positioning in the offshoreindustry were the acquisitions of SMOE fromSembCorp Utilities, as well as the land and assetsof Sembawang Bethlehem from SembawangCorporation. The acquisitions were unanimouslyapproved by shareholders during the ExtraordinaryGeneral Meeting on 23 August 2006.

The S$55 million acquisition of SMOE – arecognised leader in the engineering andconstruction of offshore platforms, floatingfacilities, and topside production modules – wouldstrengthen the Group’s position as a leadingplayer in the offshore oil and gas sector. It wouldalso enhance synergy among the Group’s yardsin providing turnkey offshore and marineengineering solutions. Sembawang Shipyard andSMOE had partnered in various conversionprojects in the past, including one of the world’slargest converted floating-production-storage-

offloading (FPSO) vessels. Both parties arecurrently working jointly on the ConocoPhillipsChina Inc.’s FPSO project for the Bohai Phase IIDevelopment Project (China).

With the inclusion of SMOE, the Group’s capacitywas expanded to include a 25-hectare fabricationyard located adjacent to Sembawang Shipyardwith clear access to the open sea, and a 30-hectare fabrication facility with 275 metres ofwaterfront on Indonesia’s Batam island.

Likewise, the S$128.73 million SembawangBethlehem acquisition would increase the Group’sflexibility to meet market demands and to growits rig building and offshore engineering business.The acquisition included 86 hectares of land,workshops, quays and docks located longAdmiralty Road East and Admiralty Road West.By owning these land and assets, the Groupwould be in a better position to reorganise itsresources and infrastructure for optimal utilisationand cost savings.

Increasing Production Capabilityand CapacityJurong Shipyard further increased its productioncapabilities and capacity with the installation ofseveral new state-of-the-art equipment andfacilities.

Expanding its steel fabrication capabilities andproduction capacity, the yard added two high-specification steel-cutting machines, a CNC

plasma-cutting machine for precision slicing ofsteel plates and a CNC plasma pipe-cuttingmachine used mainly for the production of jack-up legs.

Significant additions to the yard included newcovered workshops dedicated to jack-up rigproduction as well as movable covered workshopsallowing for greater operational versatility andmovement flexibility during block and jack-upassembly operations.

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GROWING AND EXPANDING THE BUSINESS

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Expanding Rig-Building CapacityThe Group’s subsidiary PPL Shipyard developeda new yard at Tuas Crescent, at the western partof Singapore, to expand its capacity to cater togrowing rig building activity. The new Tuas yardcame into operation in September 2006 with akick-off strike steel ceremony for the P2016 jack-up building project.

With a shoreline frontage of 700 metres, awharf of 100 metres with water depth of5.5 metres, the new yard included two blastingchambers, two concrete-floored fabricationslabs and two 280-ton crawler cranes. Planswere underway to mobilise a large-capacity cranefor installation of leg sections, heavy modulesand structures.

These new facilities at the Tuas yard wouldcomplement PPL Shipyard’s existing PandanRoad yard, which has 700 metres of sea frontage

and 250 metres of wharf with a water depth of7 metres, two large workshops and two concretefabrication slabs. With the expansion, PPLShipyard’s combined yard capacity now comprisefour launchways for rigs assembly and erection,six blasting chambers and painting chambers,16 cranes (crawler cranes, crawler ringer cranesand platform ringer cranes) with capacities rangingfrom 15 to 800 tons.

Improving LNG Capabilities andFacilitiesSembawang Shipyard continued to build uponand improve its LNG repair capabilities andfacilities to provide world-class services to LNGcarrier owners and operators. The strong supportfrom the world’s leading LNG owners andoperators served as a strong affirmation of theshipyard’s capabilities in the highly specialisedLNG refit market, allowing the shipyard to be oneof the world’s leaders in this niche market.

Under the technical services agreement with GazTransport Technigaz, the shipyard’s dedicatedLNG team would be trained on membrane repairtechniques, design, repair procedures and allenvironmental, safety and preparatory worksrequired for LNG carriers, especially for the cargotanks repairs. The collaboration also covered the

training and requalification of welders and platersaccording to Gaz Transport Technigaz procedures.

In 2006, improvement to the shipyard’s LNGfacilities and capabilities included the addition ofnew fully air-conditioned cryogenic workshop toits comprehensive facilities. The new workshop,which came into operation in June 2006, wasequipped with a 5-ton overhead crane, two 2-tonhoists and dedicated tools used only for cryogenicrepair work. The workshop, the second of itskind at Sembawang Shipyard, would provide adust-free environment for the repairs of cryogenicmachinery such as valves and pumps at anambient temperature of 22°C. The first workshop,which was opened in early 2002, had two 2-tonwall jib cranes and a 5-ton hoist.

Embracing InnovationContinuous innovation and research anddevelopment activities would build greater valueand gear the Group for further growth and marketleadership.

Since the development of well-received proprietarydesigns in the Baker Marine Pacific Class 375deep drilling jack-up rig and the Jubilee Class2,586 to 2,646 TEU containerships, the Groupplanned to invest in the research and developmentof next-generation rig components and systems.

A strategic alliance between PPL Shipyard andthe Institute of High Performance Computingwould further strengthen the innovation focus bybringing researchers and engineers together toexchange ideas on design improvements.

At the same time, yards had been continuallyinnovating to improve process design, productivityand safety. A new Transverse Skidding Methoddeveloped during the year had added to thebenefits of the Load-out and Mating-in Dockprocess to build sophisticated deep-watersubmersible rigs more quickly, efficiently andsafely. Other innovations initiated by employeeshad been adopted at the Group’s yards to enhanceefficiency and safety throughout its operations.

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RESEARCH, INNOVATION & TECHNOLOGY

91

Continuous innovation helped the Group to stay ahead in today’s competitiveenvironment. To further strengthen its leading edge, the Group maintained itscommitment to nurturing a proactive culture of innovation in all aspects of itsoperations.

90

Culture of InnovationSembCorp Marine focused on creating aconducive environment for innovation andcreativity to flourish. Promoted at all levels ofworkshops and office, innovation excellence sawimprovements in productivity, efficiency and safetyduring the year.

To inspire employees to embrace the spirit ofinnovation and generate novel ideas for workplaceimprovements, a variety of programmes suchas Innovation Exhibitions, Safety InnovationTeam competitions, creativity retreats andworkshops were organised throughout the yearacross the Group.

Singapore Innovation ClassJurong Shipyard had the honour of being the firstshipyard to be presented the Singapore InnovationClass certification by the Standards Productivityand Innovation Board Singapore in January 2006.The award recognised the yard’s efforts for havingthe 4Cs – Conditions, Culture, Competencies andConnectivity – in place as part of its integratedframework for innovation excellence. It also served

as an endorsement of Jurong Shipyard’scontinuous commitment and strong leadershipsupport towards sustained innovation.

Innovation in Design &EngineeringThe Group’s focus on R&D by the yards has ledto the development of several proprietary productdesigns, including the Baker Marine Pacific Class375 deep drilling jack-up rig design by PPLShipyard and the Jubilee Class 2,586 to 2,646TEU containership design by Jurong Shipyard.

PPL Shipyard also has strong expertise in thedesign of proprietary jacking systems for new-generation rigs. These engineering designs andsystems are continually refined and enhanced tocater to the changing needs and requirements ofcustomers. As part of its Technology Roadmap,PPL Shipyard is also investing in the R&D of next-generation rig components and systems as partof a strategic thrust to drive competitive growthin the industry.

R&D Alliances with PartnersThe Group continued to emphasise R&D allianceswith governmental and higher learning institutionsto enable mutual sharing of ideas as well as thedevelopment of innovative product designs andengineering systems for customers.

Lab-in-RI ProgrammePPL Shipyard broke new ground at the end of2006 by partnering the Institute of HighPerformance Computing in setting up an R&Dlaboratory within the Institute under a new “Lab-in-RI” programme. In doing so, the yard becamethe first maritime offshore and marine engineering

company to take the lead in the programme andto partner an A*STAR research institute (RI) in theestablishment of an R&D research facility.

The “Lab-in-RI” programme was spawned froman earlier collaboration between PPL Shipyard,the Institute and the Maritime & Port Authority in2005 on the “Design Analysis and Improvementof a New Generation Jack-up System” projectunder the “Tri-R&D” Programme. This projectembodied the yard’s strategy to further strengthenits competitive edge through R&D into proprietarydesigns and optimisation of new-generation jack-up rigs.

Under the “Lab-in-RI” initiative, which is expectedto continue until December 2007, threeresearchers from the Institute and three engineersfrom the yard would work together on a rotationalbasis to exchange ideas that would lead to newinnovations and better designs.

Innovation in Process DesignTransverse Skidding Semi-SubmersibleConstructionIn 2006, Jurong Shipyard took its successfulpatent-pending Load-out and Mating-in-Dockinnovation further by developing the ingeniousTransverse Skidding Method. The combinationof these two methods would allow multiple rigs

to be constructed simultaneously and assembledsequentially in a safe, secure manner at a relativelylow cost. Prior to that, only one semi-submersiblecould be constructed at any one time.

Combining Transverse Skidding with Load-outand Mating-in-Dock, one upper hull of a rig iserected on a skidding truss near the end of thedry dock, and another on a skid way beside thefirst. The lower hulls of both rigs are thenconstructed concurrently at a separate locationand towed to the dry dock. Once there, the upperhull is skidded longitudinally into position, whilethe lower hull is floated to be aligned and weldedpermanently with it. The fully assembled first rigcan then be floated out of the dry dock to preparefor the second rig-mating operation.

The innovative “Transverse Skidding” process isapplied at this juncture to skid the upper hull ofthe second rig transversely into position. Theupper hull is then jacked up to the requiredheight to sit on the withdrawn skid truss afterthe first rig mating operation. The load-out andmating sequence is then repeated to completethe second rig.

The Transverse Skidding process leads tosubstantially greater productivity and efficiencyas more rigs can be built at one time. Otherbenefits include the more effective usage of thedry dock and the skidding structures. Buildingthe upper hull of the second rig on temporarysupporting blocks at a much lower level alsoleads to a safer work environment and minimisesthe requirements on heavy lift operations.

The innovative Transverse Skidding methodfurther reinforces Jurong Shipyard’s leadingposition in the niche market of buildingsophisticated deep water semi-submersible rigs.It also clinched the Pinnacle Award, the mostprestigious recognition conferred by SembCorpIndustries’ annual Innovate, Discover, Engineer,Achieve (IDEA) Awards.

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RESEARCH, INNOVATION & TECHNOLOGY

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Shopfloor Productivity and SafetyThe Group thrived on innovation to ensure thecontinuous improvement of its operations. Allemployees within the Group were encouraged toidentify opportunities for innovation in their dailywork operations through monthly suggestionschemes. Innovation-related events, such as theSafety Innovation Teams Convention, were alsoorganised to recognise staff who proposedinnovative ideas of performing everyday tasks in amore effective, efficient and safer way.

Safe SwingerWinning a gold at ASMI’s Innovation forOccupational Safety and Health awards wasSembawang Shipyard’s Hull Plannerz who haddeveloped the Safe Swinger. It also clinched a Meritaward at Sembcorp Industries’ IDEA Awards in2006.

The traditional process of turning accommodationladders during repairs relied heavily on overheadcranes to lift the weighty ladder for the turningprocess, causing wastage of manpower andelectricity and exposing workers to the risk of fallinghazards from heavy equipment.

The Safe Swinger, however, borrows the conceptof a pulley system and turns the ladders in asmooth horizontal motion that reduces falling riskhazards, eliminates electricity wastage and freesup the overhead lifting crane for other usages.Work efficiency has since increased five times,with approximately 30 per cent savings in manhours.

C-paratorThe C-parator, conceived by SembawangShipyard’s Health, Safety and EnvironmentDepartment, is a simple colour-coded cable hangerthat elevates hoses and cables to reduce the risksof tripping and falling, blocking emergency exitpassages, as well as fire, explosions andelectrocution accidents. The device won a goldaward at ASMI’s Innovation for Occupational Safetyand Health awards ceremony.

Combination Earth Cable Stripper and CrimperSembCorp Marine’s subsidiary Jurong Machineryand Automation accelerated the process of cablestripping and lug crimping with the CombinationEarth Cable Stripper and Crimper. Integrating apneumatic stripping device and hydraulic-operated

crimping component to deliver a quality finishwithout strenuous physical exertion, it eliminatesworkers’ exposure to injuries of the hands andfingers. It also ensures standardised quality andspeeds up earth cable production time by overthree folds. The project was awarded a silver atASMI’s Innovation for Occupational Safety andHealth awards ceremony.

Packing Quick Fitting DeviceJurong Shipyard’s Piping and Outfitting Sectiondeveloped the Packing Quick Fitting Device as asafer alternative for the renewal of rubber packing,the watertight lining below cargo hatch covers,during containership repairs. The previous methodof using a crowbar to compress and hammer thepacking into place exposed workers to the risk ofhand, finger, neck and back injuries. The use ofthe new versatile and lightweight device eliminatesdirect hand contact during installation. This hasresulted in higher accuracy and improvedproductivity, leading to cost-savings of about 56per cent due to fewer manpower requirementsand reduced time exposure to injury hazards.

Auto Pot Control PanelA more efficient system of controlling grit and airflow to blasting guns was conceived by JurongShipyard’s Hull Painting Section in the form of theAuto Pot Control Panel. In contrast to theconventional manual system, which was prone to

slow response and unnecessary grit wastage, thenew integrated system links the blasting gundirectly to the grit pot via automated pneumaticvalves. This new system drastically reduces thereaction time, enabling more efficient usage ofmanpower and grit. The improved and streamlinedcabling system also minimises electrical andhousekeeping hazards.

Bolt Hole Alignment ToolSembCorp Marine’s subsidiary Jurong MarineContractors devised the Bolt Hole Alignment Toolas a more productive and safer way of aligningbolt holes in a variety of fitting processes performedduring ship repair. With this cost-effective anduser-friendly device, less manpower is required tocomplete the task. Safety is also enhanced asworkers’ exposure to hand and finger injury isgreatly reduced.

Winch Wire HandlerThe Winch Wire Handler was conceived by JurongShipyard’s Hull Painting Section to enhance thesafety of air winch operations during the lifting ofscaffold materials from tanks. Serving as aprotective barrier, the Winch Wire Handlereliminates direct hand contact as the winch wireis passed through the device's durable copperinner core, thus minimising the occurrence of handand finger injuries. Designed with a tough rubberouter core and an end stopper, the device is alsonon-slippery, thus reducing the risks of incidentsassociated with material slippages.

Quick Ladder Install DeviceSembCorp Marine’s subsidiary Jurong IntegratedServices invented the Quick Ladder Install Deviceto provide secure ladder access to steel blocksduring assembly and outfitting works. This portabledevice is fitted firmly to the steel block by a clampnut and angle-lock nut, with two brackets tosecure each end of the ladder. With a properand more secure means of accessing the steelblocks, potential falling and tripping hazards aregreatly reduced, resulting in improved safetywithin the yard.

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CORPORATE ENHANCEMENT &SOCIAL RESPONSIB IL ITY

95

The SembCorp Marine Group recognises its close affiliation and connections withthe community and its people. While growing its business, the Group remainssteadfast in its commitment to make a positive difference to society – by supportingvarious social and philanthropic causes in the areas of education, community andthe environment through its community care and responsibility programmes.

94

COMMUNITY CAREAs a responsible corporate citizen, SembCorpMarine demonstrated its commitment for the lessprivileged by supporting various philanthropicand charitable causes such as the National ArthritisFoundation and the Chua Chor Teck MemorialFund during the year.

Contributions to the NeedyEmployees from the Group’s subsidiariescontinued to put their generosity and charitablenature into action. During the year, SMOEemployees contributed $20,032 in aid of theChildren’s Cancer Foundation in 2006, while stafffrom Sembawang Shipyard did their bit for charityby purchasing t-shirts from the SingaporeChildren’s Society to raise funds for orphans inCambodia.

Canberra Family DayReflecting its close ties with the community,Sembawang Shipyard sponsored Canberra FamilyDay 2006, a full-day event aimed at strengtheningfamily bonding and communal relations withinCanberra Constituency. A contribution of $3,000was made towards the event, which featuredfamily-oriented activities such as Family BriskWalk, Family Kids Idol and Family Treasure Hunt.

PSLE HotlineSembawang Shipyard contributed $1,000 to helpYishun’s Student Care Services in setting up andpromoting a Primary School Leaving Examinations(PSLE) hotline to provide advice to students andparents going through this major exam. Part ofthe donation went to the printing of bookmarks,featuring the hotline number and practical tips tocope with the examination stress.

Community Engagement ActivitiesThroughout the year, Sembawang Shipyard alsoorganised several activities together with theStudent Care Services at Yishun Branch.

A two-day zoo camp was organised for 35 childrenbetween the ages of 5 to 12 years old. Led by11 yard volunteers, the camp was a fun-filledexperience for the children who had a chance toset-up their own tents and experience nature outin the ‘wild’.

Both parties also collaborated to hold a specialChristmas party for the children of the centre aswell as children of yard employees. Whilepromoting the spirit of volunteerism in employees,the party allowed children to share their talentsand celebrate Christmas in a fun-filled way.Activities such as magic performances, games,sing-a-long session, talent time, and group projectworks were organised.

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EDUCATIONSembCorp Marine and its shipyards worked inclose partnership with various organisations tonurture and engage youths during the year. Thepurpose was to broaden their knowledge andunderstanding of the Group’s marine and offshoreengineering operations and correspondingly, itspromising career prospects.

School Book Assistance Grant ProgrammeReflecting its strong support for education,SembCorp Marine continued its sponsorshipof the School Book Assistance Grant(SchoolBAG) scheme to provide financialassistance to needy families with schoolingchildren. This year, a total of $222,450 in grantswere given out to 1,064 needy students underthe programme, which aimed to help suchhouseholds defray the cost of purchasingschooling essentials such as school books,stationery and uniforms.

Through this programme, SembCorp Marine hopedto extend a helping hand to lighten the financialburden on lower-income families as well as toencourage students to excel in their studies andachieve success in their life-long educational journey.

Since the programme was introduced in 2001,SembCorp Marine had contributed close to $1million in SchoolBAG grants. From 61 schoolswhen the programme first started, the scheme hadsince been extended to 87 schools, located in thevicinity of subsidiaries Jurong Shipyard andSembawang Shipyard.

Grants and Bursaries for Employees’ ChildrenEmployees who required financial help with theirchildren’s education were also supported by theSchoolBAG scheme. Sembawang Shipyard furthergave out an additional $31,100 in bursaries tochildren of its employees during the annual BursaryAwards ceremony.

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Building Brand EquityFurther promoting its brand name and capabilitiesinternationally, the Group participated actively inseveral of the world’s largest maritime and offshoretrade fairs. These included the OffshoreTechnology Conference in Houston (USA),Posidonia in Greece, the Seatrade CruiseConvention in Miami (USA), the Asia PacificMaritime Exhibition in Singapore and Shipbuilding,Machinery & Marine Technology in Hamburg(Germany). The Group also made a strongshowing at local trade and industry exhibitionslike the Asia Pacific Maritime Exhibition andMARTECH held in March and October 2006respectively.

By participating, the Group renewed old andcurrent business relationships and paved the wayfor potential business opportunities. The Group’srepresentatives could also expand their businesscontacts and explore collaborative partnerships

INDUSTRY PROMOTIONTo promote the local marine and offshore industryto schooling children and youths, SembCorpMarine participated in several student outreachexhibitions together with its industry partners.

Outreach ProgrammesIn June 2006, the Group and its subsidiaryshipyards gave their full support to the MarineLearning Carnival, organised by the Associationof Singapore Marine Industries at Ngee AnnPolytechnic. The event saw students from 26schools participating in a series of activities,ranging from a boat race to quizzes.

The Group also partnered Singapore’s Maritimeand Port Authority in its Maritime Open House,which aimed to promote the marine industry asa highly promising field with abundantopportunities for advancement and growth. Theevent, held in June 2006, was attended by morethan 1,000 students and teachers from varioussecondary schools, junior college, polytechnicsand tertiary institutions across Singapore.

Then, taking industry promotion further into theheartlands, SembCorp Marine supported theSingapore Maritime Foundation in its MaritimeExhibition at the National Library in October 2006.

with key industry players and associates fromthe maritime sector.

To network further with overseas stakeholdersand partners, SembCorp Marine and its yardssupported several international networking events.In September 2006, the Group co-sponsored theLatinAsia Business Forum 2006, a three-dayprogramme that brought together businessleaders and key decision makers from Singapore,Asia and Latin America.

The Group also participated in “Made inSingapore” – a Mandarin info-tainmentprogramme commissioned by the EconomicDevelopment Board and aired on Singapore’smainstream television. As part of the industry andGroup promotion programme, events such asthese were aimed at nurturing a sustainable brandvalue and to sow the seeds for future recruitmentactivities.

The exhibition sought to portray the maritimeindustry as a buoyant sunrise industry with amyriad of career opportunities by profilingsuccessful young personalities in their field,including an assistant project manager fromSembawang Shipyard.

Student InternshipsThe Group also showed its strong support foreducation by providing internship opportunitiesto students from various institutions of learning,including polytechnics, universities and theInstitute of Technical Education. Both JurongShipyard and Sembawang Shipyard playedhost to industrial attachment studentswho were assigned duties based on theirspecialisations.

Educational Yard VisitsEnriching the learning experience, yards organisedstudent visits regularly to provide insights intokey shipyard processes and the wide-rangingcareer options available. During the year,SembCorp Marine’s yards hosted several toursfor students from all levels, ranging from primaryschools to polytechnics and universities. Theseincluded visits from Admiralty Primary School,Ngee Ann Polytechnic, Singapore Polytechnicand a Japanese international school.

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Profile of Workforce (Category)

Category No. of Employees PercentageManagement 2543 27.8%

Support Staff 639 7.0%

Production Workers 5949 65.2%

Total 9131 100.0%

The quality of its people at every tier continued to drive the success of SembCorpMarine. In order to attract, retain and value its people, the Group maintained its strongdedication to providing competitive remuneration and benefits, professional development,retraining as well as enhancing its internal systems and processes. Fostering a thinkingand innovative workforce was the focus in 2006. Towards this end, strategic initiativeslaunched during the year were aimed at delivering results, upholding quality human-resource principles and furthering the Group’s progress into the future.

Workforce StrengthThe Group’s total workforce stood at 9,131 as at31 December 2006, a 35 per cent increase from6,765 in 2005. This increase was attributable toan active recruitment strategy which saw 2,366being recruited in 2006 in view of the Group'sgrowing order books, as well as various companyacquisitions during the year. Due to the boomingoffshore and marine engineering business and agrowing need for more engineers, the Group

projects that there will be a further increase inthe workforce in the coming year.

Recruitment & DevelopmentCareer Fairs and RoadshowsSembCorp Marine was proactive in its efforts torecruit new talent to ensure a sustainable sourceof human talent during the year. Besidesparticipating in the annual Choice Careers fair atSuntec City Convention Centre, the Group alsocollaborated with education institutions, such asuniversities, polytechnics and Institutes ofTechnical Education, as well as governmentinstitutions like the Republic of Singapore Navyto hold career talks and roadshows for theircharges.

ScholarshipsTo attract a diverse range of promising talent,SembCorp Marine funded several scholarshipprogrammes for aspiring individuals to pursuehigher education. During the year, scholarshipswere given out to 43 aspiring individuals to studyat local and overseas educational institutes.

Apart from enabling employees to pursue highereducation, the scholarships formed part of theGroup’s strategy to recruit top talent in preparationfor future leadership roles.

Job Re-DesignTo make the industry attractive to locals, SembCorpMarine re-designed jobs and improved workconditions under the Marine Industry Job Re-creation Programme. This had the effect of creatingbetter employment and advancement opportunitiesfor locals. Even those who did not have priorexperience in the marine industry, includingindividuals undergoing career transitions from otherindustries, were taken in and trained.

In recognition of its commitment to job re-creationand re-design, SembCorp Marine was presentedthe Breakthrough Award for Job Re-creation by theNational Trades Union Congress and the WorkforceDevelopment Authority on 24 February 2006.

EducationalLevel 2005

39%33%

12%

8% 2%6%

Length ofService 2005

Less than 1 year1 to 3 years4 to 6 years

EducationalLevel 2006

40%30.9%

12.8%

8.5% 2%5.8%

24%

26%

10%

14%

26%

Length ofService 2006

Degree & aboveDiplomaGCE "A" Level

GCE "O" LevelTrade CertificateOthers

7 to 9 years10 years & above

29%

22%

25%

10%

14%


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Manpower Training & SkillsDevelopmentThe Super V SchemeThe Super V Scheme had a dual purpose ofrecruiting and training talents. It was one avenuewhere locals, with secondary school educationand were physically fit, could be given theopportunity to make the switch into the marineindustry. Under the scheme, successful applicantsfirst joined as trainee supervisors with a basicstarting pay of $1,200.

The Scheme, an offshoot of the TraineeChargehand scheme, was first initiated by JurongShipyard in July 2005. Through NITEC trainingcourses and structured on-the-job training, thesetrainee supervisors under the programme weregradually re-skilled for supervisory and leadershippositions within the Group.

Retraining ex-RSN SpecialistsThe Group also continued to retrain and provideoutgoing Republic of Singapore Navy (RSN)specialists a smooth career transition under theASMI-RSN Servicemen Career Transition Scheme.This scheme recognises fully the years of workingexperience and ship-related technical trainingthat personnel had accumulated. Further trainingwas provided to ensure that the new recruitswere equipped with the necessary skills andcompetencies to excel in their new jobs.

In-House TrainingTo ensure the high standards in various marinetrades, shipyards such as Jurong Shipyard andSembawang Shipyard continued to operatetraining facilities to equip personnel withspecialised skills in various trades. In 2006, theaverage in-house training hours per employeewas 21.56 hours.

Opportunities & ExposureA wide variety of training courses and programmeswere provided to further develop employees’knowledge, skills and leadership capabilities. Inone area, the Group would invest in scholarshipsand sponsored courses for selected employeesto ensure they had solid foundations required forgrowth in their respective career paths.

In addition, the Group would provide opportunitiesto promising employees with leadership potentialto be exposed to international business practicesin countries such as Japan, America, Brazil andChina. The exposure aimed to groom employeesfor future leadership roles and to keep the Groupat the forefront of global competitiveness.

Talent RetentionSembCorp Marine continued to accordrecognition for employees’ hard work anddedicated service in its drive to be a best-choiceemployer. Through various forms of motivationand rewards, the Group and its yards aimed toincrease employee work satisfaction and inspirebetter morale on the job.

The Group used a competency framework forstaff training and development for effectiveperformance and career development. In addition,Group would review employees' compensationand benefits structures regularly to ensure marketcompetitiveness for the retention of capabletalents.

Recognition for Outstanding PerformanceEmployees who del ivered exceptionalperformance in their respective trades wererecognised through awards and accolades, such

as Best Safety Performance Supervisor,Model Worker, and Model Trainee Awards. Theseawards served to reward employees for goodwork, to spur them on to better performanceand to identify positive role models for the othersto follow.

Exit Assessment for ImprovementIn 2006, the Group embarked upon refining exitmanagement procedures and re-designing theexit interview and survey. The purpose of thisexercise was to capture critical informationin order to improve the work environment for


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management would be able to assess areas forimprovements to create a better workingexperience for employees.

Long Service AwardsThis year, a total of 124 employees from JurongShipyard who had dedicated 10, 15, 20, 25, 30,35 and 40 years of service were awarded withLong Service Awards. To show its appreciation,Jurong Shipyard rewarded each long-servingstaff with a 999.9 gold coin as well as cash awardsaccording to his or her length of service. AtSembawang Shipyard, a total amount of $83,650was given out to 181 Long Service Awardrecipients.

Re-employment of Older WorkersThe re-hiring of post-retirement employees hadbeen an established practice at SembCorp Marinefor years. As such, senior employees who werewilling, able and fit were encouraged to staybeyond the retirement age of 62 years old. Thepresence of older employees ensured thetransferability of knowledge and skills to their

younger cohort. With their wealth of experience,these individuals continued to make valuablecontributions to the company while serving asmentors and imparting their expertise to the nextgeneration.

In February 2006, SembCorp Marine and itssubsidiary shipyards reaffirmed their commitmenttowards the re-employment of retired workersby pledging their support during the launch ofNTUC’s Efforts on Re-employment of OlderWorkers. To-date, there are about 180 employeesaged 62 and above in active service within theGroup’s shipyards.

Festive Cheer for EmployeesOrganised celebrations of Hari Raya Puasa,Deepavali and Chinese New Year aimed toimprove welfare for employees. Besides providinggood company for employees who were unableto spend the time with their family, these festivitieshelped to foster deeper bonds among employeeswithin the yards.

Union-management RelationsStrong synergy between management and unioncontinued to play an important role in the smoothoperation and continual success of the Group.Working together for the collective good ofemployees, this close relationship wasdemonstrated through various union-managementinitiatives, such as the School Book AssistanceGrant scheme and Bursary Awards.

May Day TributeThis shared commitment between union andmanagement towards enhancing employees’welfare was recognised during the May DayDinner organised by the National Trade UnionCongress in April 2006.

At the dinner, tributes were accorded to JurongShipyard’s key management and unionrepresentatives. Mr Wong Peng Kin, SembCorpMarine’s Director of Group Human Resource andJurong Shipyard’s Senior General Manager ofHuman Resource, received the Medal ofCommendation Award for his continuous effortsin the promotion of good union-managementrelations as well as employees’ welfare, trainingand development. Also receiving an accoladewas Mr Tan Ah Chye, Chairman of theShipbuilding and Marine Engineering Employees’Union (Jurong Shipyard Branch), who wasconferred the Comrade of Labour Award forchampioning workers’ welfare and benefit andpromoting good industrial relations through closecommunication and dialogue with management.

National Day CelebrationsIn a strong show of tripartite unity, themanagement, union and employees of JurongShipyard came together to celebrate Singapore’s43rd year of independence. This significantoccasion was commemorated on 12 August2006 with a National Day Observance Ceremonygraced by Mrs Lim Hwee Hua, Minister ofState for Finance and Transport, and attendedby more than 3,000 employees and residentsubcontractors.

The close ties between Sembawang Shipyard’sunion, management and employees were alsoapparent during the Road Run 2006 event, whichwas organised by the Sembawang ShipyardEmployees’ Union to commemorate Singapore’sNational Day. Featuring exciting races and ahilarious fancy dress contest, the event was anexcellent interaction platform to forge strongerlinks between the yard’s management andemployees. This year, the yard’s managementalso handed out cakes to employees,subcontractors and project partners as a tokenof appreciation for their hardwork, commitment,and continuous support.

Learning Visit by Union LeadersTo provide union leaders with a clearerunderstanding of the growth prospects and thestrategic importance of the marine and offshoreindustry, SembCorp Marine and Jurong Shipyardplayed host to about 80 delegates during NTUC’sSecond Learning Journey on 13 February 2007.The delegation was led by Mr Lim Swee Say,NTUC’s Secretary-General and Minister, PrimeMinister’s Office, and Mr John de Payva, Chairmanof NTUC.

Through insightful presentations, the delegateslearnt more about the good career prospectsavailable for Singaporeans both in the yard andat the industry level. A tour of the yard’s high-tech facilities and workshops gave the visitorsdeeper knowledge of the industry and its operations.

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HEALTH, SAFETY, SECURITY & ENVIRONMENT

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As a caring employer, SembCorp Marine focused on creating a culture of healthand fitness, initiating many programmes during the year, for the well-being of itsemployees. Underlying its efforts was the recognition that health went hand in handwith productivity and performance.

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HEALTHY LIFESTYLE

Recognition in GoldAs active advocates of health and fitness in theworkplace, Jurong Shipyard, SembawangShipyard and Jurong SML Shipyard wererecognised with Gold Honours at the HealthPromotion Board’s Singapore H.E.A.L.T.H(Helping Employees Achieve Life-time Health)2006 Awards for their comprehensive and holisticWorkplace Health Promotion Programmes.

Health Screening & InterventionHealth assessments continued to be conductedon a yearly basis for employees across the yards.Such assessments kept employees updated ontheir health status in addition to providing earlywarnings for possible chronic medical conditions.Employees identified with chronic health problemsor were assessed to be in the high-risk categoryunderwent follow-up sessions or treatmentsubsequently with medical professionals.

The “Take Charge of Your Health” ChronicDisease Management Programme in JurongShipyard was one such follow-up programmeinitiated during the year. The sessions were aimedat helping employees keep illnesses such asdiabetes, high cholesterol, and hypertension,under control. The first session held betweenJune to August was conducted in English, whilethe second session was organised in Mandarinbetween November and December.

Hearing ConservationA Hearing Conservation Programme wasconducted at PPL Shipyard, where a total of 987employees were screened for signs andsymptoms of noise-induced deafness. They werealso educated on the precautionary measures toprotect their hearing and prevent the onset ofrelated ailments.

Health SeminarsYards with the Group organised regular healthtalks on wide-ranging topics to promote greaterwellness among their employees. During the year,these talks provided insights on subjects rangingfrom AIDS prevention, hand-related injuries andosteoporosis to hair loss, anxiety disorders andcholesterol management.

Healthy DietsThe Group’s yards embarked on several healthinitiatives to encourage good dietary habits amongemployees. Throughout the year, fresh fruits weredistributed to employees during major healthevents to reinforce the healthy eating message.

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In its relentless pursuit of excellence, SembCorp Marine continued to benchmarkitself against the highest standards of health, safety, security and environmentalexcellence in its service performance and daily operations.

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A Healthy Food Trail was organised by JurongShipyard together with the Health PromotionBoard in November to help participants be morediscerning about their choice and selectionof food. Employees also learnt about thelesser-known topic of enzyme nutrition during aworkshop in September.

Smoking CessationSupport was given to employees who wantedto quit smoking. A five-month-long SmokingCessation Programme was held at JurongShipyard from May to October to help smokerstake their most difficult first steps towards asmoke-free lifestyle. Programme participantswere given advice, guidance and support by theiremployers in their quest to quit smoking. Thosewho stopped successfully were rewarded for theirdetermination and identified as role models forothers to follow.

Active LifestylesSporting calendars were packed with activitiesat all yards. From mass aerobics, hi-lo exercisesessions and workplace fitness programmes toA.C.T.I.V.E (All Employees Together in VariousExercises) Day workout, employees were keptphysically fit throughout the year.

With the aim of firing up its employees’ passionfor exercise, Jurong Shipyard continued itsworkplace fitness line-up of fun-filled and novelexercise classes in yoga, pilates, aerobics, linedance, salsa and Latin dance. Another fitnesspromotion initiative was Sembawang Shipyard’s“Get Fit With Your Feet” workout in November,which saw more than 100 employees walkingand jogging for 2 km around the Yio Chu KangStadium track. The purpose of the activity wasfor participants to assess their heart rates andgain a better awareness of their fitness level.

Friendly tournaments initiated by the sports andrecreation committees of the various shipyardsalso provided employees with a means keep fitand healthy. Sporting events in bowling, soccer,volleyball, badminton, basketball, table-tennis,darts, snooker and paintball served to strengthenindividual physiques and team camaraderie.

Yard employees also participated in variousexternal sporting health and recreationprogrammes. Winning honours for the Group,Jurong Shipyard’s team defeated 12 otherteams in the Singapore 3-on-3 BasketballChallenge to clinch second place in the Men’sCorporate Challenge in November. A duo fromSembawang Shipyard’s Hull Department alsowon accolades by being placed seventhat the Bintan Triathlon, which saw 900participants competing in a challenging racecomprising a 1.5km swim, a 40km cyclingand a 10km run held in May. Other notableexternal events included the Launch of theNational Healthy Lifestyle 2006, ShearesBridge Run & Army Half Marathon, Mizuno Wave

Run, National Runway Cycling, and Children’sCancer Foundation Walk-a-Jog.

Work-Life BalanceThe Group continued to encourage employeesto strike a healthy balance between work andother areas of life. While talks on improving familyrelationships and stress management had beenvery well-received amongst employees, socialevents, such as outings to Sentosa and getawaysto Vietnam, provided them with more opportunitiesto interact with their family and friends. Othersocial activities such as dance classes also servedto encourage employees to adopt new hobbiesoutside of work.

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Safety had always been of paramount importance throughout SembCorp Marine’soperations. The Group's Shipyards maintained their comprehensive and stringentsafety management systems to promote and enforce proactive “safety-first” cultureamong employees and subcontractor partners and to achieve zero-incidents.

108

Safety

Safety AchievementsAmong the many safety achievements for theyear, SMOE attained 1.526 million man hourswithout lost-time injuries for the Third TransmissionPipeline Project – a turnkey offshore platformsystem. In recognition of this achievement,the Ministry of Manpower awarded SMOEthe Silver award at the Annual Safety andHealth Performance Award 2006 for itssound management system and good safetyperformance.

SMOE also recorded an accumulative 16 millionlost-time-injury-free work hours, a commendablesafety performance by industry standards.

Also significant was PPL’s milestone achievementof 1 million man-hours without lost-time accidentfor its jack-up building project P2009. As a result,the yard received an incentive of US$10,000 fromAwilco Offshore ASA. In addition, Jurong SML’sBenoi yard achieved zero-incidents from August2006 to-date, translating to 693,129 man hourswithout lost-time injury.

Safety EducationYard employees underwent various forms ofsafety training and safety education programmesto ground them with the requisite knowledge andskills to carry out safe and sound operations.These included Ministry of Manpower registeredprogrammes, such as the safety instructioncourse, safety officers training course, shipyardsupervisor safety course and shipyard safetyassessor course for hot work certification.

Safety induction courses continued to be carriedout for new employees, and trade-specific safetytraining for various sections to educate employeeson their exposure to hazards. Employees werealso sent to safety-related courses to equip themwith a range of skills including forklift and overheadcrane handling, fire-fighting, first-aid and noisemonitoring. Where relevant, training was extendedto selected employees to undertake specific rolessuch as marine signalmen, rigger, environmentalcontrol officer, lifting supervisor, scaffoldingsupervisor, SMS auditor and OHSAS 18001internal auditor.

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ShipyardsJurong Shipyard

Sembawang Shipyard

PPL Shipyard

Jurong SML

SMOE

ISO 9001CertificationISO 9001:2000ABS Quality EvaluationsInc. 2004 RecertificationISO 9001:2000Det Norske Veritas2006 RecertificationMaintained Level 9ISO 9001:2000ABS QualityEvaluations Inc2005 RecertificationISO 9001:2000ABS QualityEvaluations Inc2006 RecertificationISO 9001:2000Lloyd's Register QualityAssurance Ltd2006 Recertification

OHSAS 18001CertificationOHSAS 18001:1999ABS Quality EvaluationsInc 2005 RecertificationOHSAS 18001:1999Det Norske Veritas2006 Recertification

-

-

OHSAS 18001:1999ABS QualityEvaluations Inc2004 Recertification

ISO 14001Certification

-

ISO 14001: 2004Det Norske Veritas2006 Recertification

-

-

ISO 14001:1996Det Norske Veritas2004 Recertification

International CertificationThe high standards of quality, safety and environment upheld by SembCorp Marine's yards are evidentfrom the quality, safety and environmental re-certifications accorded by renowned internationalaccreditation bodies.

Safety PerformanceBased on the number of accidents per million man-hours worked in 2006, the Group recorded anAccident Frequency Rate (AFR) of 2.1. The Severity Frequency Rate (SFR), the number of man-dayslost per million man-hours worked, was at 583.3.

583.3

4.5

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3.5

3.0

2.5

2.0

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1200

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800

600

400

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SFR AFR

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3.43.2

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Best Practices across the GroupJoint workshops and seminars had alwaysencouraged the sharing of best safety practicesand safety improvement insights across theGroup’s subsidiary yards. In September, theGroup held its inaugural Safety Convention, whichfeatured a mini-exhibition showcasing innovativeworkplace and safety inventions, in addition tolively exchanges and discussion.

The convention also saw the launching of theyard's Best Practice Safety Manual. The manualleveraged the Group’s network of shared expertiseand experience by consolidating recommendedregulations from subsidiaries to serve as abenchmark of safety excellence for employees.The launch was marked by a signing ceremonyinvolving Mr Hawazi Daipi, Senior ParliamentarySecretary, Ministry of Manpower, and Mr W.S.Wong, SembCorp Marine’s President and ChiefOperating Officer.

Safety Induction DVDsJurong Shipyard officially launched the Permit-to-Work Safety DVD in August 2006 to improveits employees’ understanding of the yard’s safetycontrol framework. The DVD systematicallycovered the necessary safety precautions andstandard operating procedures under the Permit-

to-Work system, which required employeesand subcontractors to submit forms and obtainmanagement approval for potentially hazardousjobs such as hot work, spray painting, work inconfined spaces and the acquisition and use ofchemicals and hazardous materials.

Since then, the DVD became part of the yard’ssafety induction training programme for newemployees. A second safety induction DVD onforklift safety would be launched in 2007.

Safety PromotionVarious activities were held throughout the yearto foster greater safety consciousness. Toheighten safety awareness among employeesand sub-contractors, safety campaigns,exhibitions and workshops were organised todrive home the importance of conforming to goodsafety practices.

At SembCorp Marine’s subsidiary, JurongIntegrated Services, a “Zero Accident SafetyCampaign” was launched in March. Thecampaign, which included a 30-day exhibitionfor employees and contractors, successfully

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reinforced participants’ knowledge of steelfabrication and hot work safety as well as properequipment handling on the job.

PPL Shipyard’s annual safety week campaignwas held in November to educate employees onsafety and health issues. Participated by 1,100employees, the campaign featured an interestingline-up of programmes, from seminars and talkson basic first aid, fire-fighting techniques, PersonalProtective Equipment usage, handling of eyetrauma and emergencies, depression and stressmanagement. Free health screening sessionswere also made available for employees to learnabout their current health situations.

Safety-Conscious CultureThe Employee Safety Consciousness CultureProgramme was initiated at Jurong Shipyard inJanuary 2006. Using a two-pronged approach,the programme involved a Safety PerformanceAward and the ALERT Programme to achievegood safety record.

Under the Safety Performance Award, employeeswould be collectively rewarded by sections forattaining an incident-free track record. Bymaintaining zero-incident for consecutive periods

of six and 12 months, they could convert theirsafety merits into cash or bonus points. Safetycertificate awards would also be given outquarterly to sections that remained incident-freefor a continuous period of at least three months.Sections or yards with considerable incidentswould be given demerit points, which could beconverted into cash equivalents for deduction.

As a counteractive measure, sections andsubsidiaries that had incurred lost-timeinjuries would then be required to participate inthe ALERT Programme. This programme wasdesigned with an individual rehabilitationprogramme for the injured employee to be trained,a safety performance record tracking the injuredemployee’s performance, monitoring and closersupervision of the injured employee by thesection manager for a year and a bonus deductionof the injured employee’s bonus in line withexisting practice. Subsequent incidencerecurrence could double or triple the employee’srehabilitation period.

Safety Programmes for ContractorPartnersBesides employee programmes, the Group didnot neglect to promote good safety performanceto its contractors and subcontractors.

At Jurong Shipyard, a new Safety MentoringScheme was introduced in August to motivateand encourage contractor partners to raise thebar in safety to meet targeted key performanceindicators. Under the scheme, subcontractorpartners with poor safety performance would becoached by a mentor from the yard. The mentorwould discuss and advise on safety issues withsubcontractors and help them address legal,technological, cultural and economical constraints.

Jurong Shipyard also continued with the SafetyPerformance Awards Programme and STARSafety Programme introduced in 2005 forcontractor partners. The Safety Performance

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would include an individual rehabilitationprogramme for the injured worker, a temporarysuspension of the company from safety meritpoints and awards and a safety performancebond of $5,000 by the company as a promise toremain incident-free for three months. It alsorequired close monitoring by yard safetyengineers and a safety briefing by the sub-contractors’ bosses to their employees.

BRISK ProgrammeThe BRISK Programme, launched by Jurong SMLShipyard in September, was another programmethat brought employees and subcontractorstogether to take greater ownership of safety.

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BRISK represented the five strategic thrusts –the Bond, Rehabilitation for injured, Incentive,Stick Strategy, and Key Persons programmes.

It was designed with a unique incentive strategy.Individuals would earn merit points throughsticker cards for participating in safety quizzes,safety poster and slogan competitions andhazard observations as well as for proposinginnovative safety ideas. These merit pointscould be exchanged for NTUC vouchers.Conversely, demerit points would be meted outto companies for safety violations and lost-timeincidents occurred.

In addition, points collected by employeesand subcontractor workers would be addedup by sections and companies to win furthercash awards. However, companies with negative

points would be required to participate in othersafety programmes.

Safety Enhancement at HeightsTo enhance safety standards while workingat heights, Jurong Shipyard introduced arope grab system in February. From then on,employees were required to secure a lanyard tolife line using a rope grab while working onhanging scaffolds. To complement the system,body harness lanyards were also changed fromdouble hooks to single hooks. Employeeswere also trained on the precautionary measuresand the proper usage of the system.

Technical engineers and above were also requiredto don body harness as part of the yard’sessential Personal Protective Equipment, togetherwith the safety helmet, safety glasses and safety

Awards Programme was introduced to rewardcontractors for achieving zero lost-time injury(LTI). Merit points could be converted to cashawards every quarter, and safety certificateswould be given to subcontractors that remainedincident-free over a continuous period ofthree, six, nine and 12 months. As a specialcommendation, companies who achieved1,000,000 man-hours without lost-time injury wouldbe conferred the “Million Man-Hour Gold Award”.

Similar to the employee ALERT Programme,sub-contractor companies that had incurredlost-time injuries were required to participatein the STAR Safety Programme. This programme

Temporary Suspensionfrom Safety Merit Points

& AwardsThe company will be

temporarily suspendedfrom participating in theSafety Merit Point and

Safety Certification Awardprogrammes.

Safety Performance BondTo discourage further LTI* cases,subcontractor companies are to

provide a safety performancebond of at least $5000, dependingon their incident record. The bondwill expire without payment if thecompany remains incident-free

during the next 3 months.Otherwise, the bond must be paid

up in one lump sum.

Close Monitoring by YardSafety Engineers

For the next three months,safety checks will be steppedup on these companies toraise safety awareness and

avoid further LTI*.

Safety Briefing by Sub-contractor Boss

To reflect joint commitmenttowards safety, subcontractorbosses are to conduct a safety

induction and briefing forworkers in the presence of the

yard’s management.

Individual RehabilitationProgramme

On recovery, the injured workerhas to report to the safety

department for 1 hour everyworking day. Supervisors arenot allowed to assign work

beyond normal working hoursbefore the programme is

completed.

STARProgramme

*LTI: Lost-time Injury

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boots while working onboard vessels. Previously,only the body harness was required when workingon hanging scaffolds.

Risk Management ProgrammeIn quick response to the new Workplace Safety& Health (Risk Management) Regulations thatcame into effect on 1 September 2006, theGroup rolled out a Risk Management Systemand managers’ education programme. Risk-assessment trainings were also conductedregularly on a Group-wide level to ensure thatmanagers and supervisors from all yards werewell-instructed on SembCorp Marine's riskmanagement system.

Emergency PreparednessSembCorp Marine's yards continued to holdnumerous fire and evacuation drills to ensure

activities included a demonstration on the useof thermoscan and N95 masks at PPL Shipyard.

In addition, joint safety and evacuation mockexercises were conducted jointly with theSingapore Civil Defence Force to foster betterrapport and synergy. In recognition of this closecooperation, the Force presented SembawangShipyard with the Strategic Partners Awardin September during its 25th anniversarycelebrations.

swift and efficient employee response in the eventof emergency. These drills were held at variouslocations, such as workshops, offices and onboardvessels. A total of 101 drills were held in 2006by the Group's yards.

In the wake of recent bird flu cases in the region,emergency response plans were drawn up acrossthe yards to ensure that employees would be wellprepared to handle possible outbreaks. FluPandemic Preparation Programmes were alsoheld to equip employees with the necessaryknowledge to protect themselves. One of these

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117

Round the clock, SembCorp Marine remained alert and vigilant against potentialsecurity and safety threats. A proactive approach was adopted during the yearto constantly identify and address potential threats to protect the well-beingof all employees.

116

SECURITY

International Code for Security ofShips and Port FacilitiesIn recognition of their comprehensive securitymeasures and systems, Jurong Shipyardand Jurong SML were certified in compliancewith the International Code for the Securityof Ships and Port Facilities (ISPS Code).The Maritime & Port Authority endorsed thecertifications in October following IntermediateISPS Verification Audits by STET ST Education& Training, an approved Recognised SecurityOrganisation. Sembawang Shipyard and PPLShipyard similarly achieved the necessarycertifications.

Entry ChecksTo protect against security breaches and acts ofterrorism, stringent security measures continuedto be in place to control and prevent unauthorisedentry during the year. Vehicular inspections andpersonnel checks served as the first line ofdefence in keeping yards safe from potentiallydangerous characters and items. When necessary,item searches would be carried out on suspiciouspersons to ensure that security was notcompromised.

Controlled AccessThe SMARTime system, leveraging RFIDsmartcard technology, was another way Groupyards tracked the movements of employees andresident subcontractor workers.

Building on the success of this system, JurongShipyard began pilot-testing a new BiometricVascular Control System to further assess controlsecurity. In addition to smartcards, the newsystem would require employees to undergobiometric scanning of their veins to allow moreaccurate identification before entry. Over 20biometric machines had been installed for thepilot programme.

Security Surveillance andEnforcementYards within the Group continued to step up theirsurveillance through conducting regular securitypatrols. CCTV surveillance cameras also monitoredthe safety of strategic areas such as the waterfrontas well as key assets and property. JurongShipyard further made plans for the upgrading ofits CCTV system to enhance security within itspremises in the coming year.

In the area of security enforcement, subcontractorswho violated security rules and regulations wouldhave levy charges imposed as a deterrent toprevent repeat offences from taking place.

Shipyards Security Watch GroupBeyond the yard, Jurong Shipyard continued tobe an active member of the Shipyards SecurityWatch Group – a partnership formed in November2004 together with the Maritime & Port Authority,Police Coast Guard, Jurong Police Division

Headquarters and two other shipyards – as partof continuous efforts to enhance communitysafety and security in the South West DistrictCommunity.

Among the many programmes under the watchgroup, the yard took part in a modus operandiCombined ISPS Security Exercise in August toensure operational readiness and swift responsein an emergency. The watch group also organisedthe annual Shipyards Security Seminar in January,where Jurong Shipyard shared its anti-terrorismstrategies with other members. The yard further

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participated in the Corporate First ResponderScheme, in which responsible authorisedrepresentatives from the Singapore Police Forceand Singapore Civil Defence Force were givenaccess to the yard's premises to simulate anemergency.

For its outstanding contribution to the community,the Shipyards Security Watch Group wasrecognised with an Excellence Award during theSouth West District Community Safety andSecurity Programme Awards 2006 PresentationCeremony in May.

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119118

ENVIRONMENTThe SembCorp Marine Group upheld its responsibility to conserve the environmentfor future generations. Where possible, the Group implemented operationalimprovements to minimise pollution and waste and to conserve natural resources.

Environment Friendly OperationsThe Group encouraged the use of environmentallyfriendly options such as hydro-jet blastingand enclosed blasting chambers wherepossible. In fact, Jurong Shipyard expandedits enclosed-blasting capacity in 2006, allowingthe yard to better control the environmentalimpact of its blasting and painting activities.These blasting chambers improved the yard’sefficiency by decreasing the yard’s reliance ongood weather.

In addition, copper slag recycling continued tobe practised at Jurong Shipyard through its

subsidiary JPL Industries, which had beenoperating a specialised recycling plant to convertthe copper slag from grit blasting into pavementbricks for sale as well as for in-house use.

Also respecting the environment, SembawangShipyard had successfully phased out theusage of all ozone-depleting substances from itsfire-fighting systems in 2005. For its efforts,Sembawang Shipyard was the first shipyard inSouth East Asia to be certified with the ISO14001 Environment Management SystemCertification in 2004. This certification was recentlyrenewed in March 2006 by Det Norske VeritasCertification Ltd.

Green Wave Environmental CareCompetitionOrganised by Sembawang Shipyard together withthe Ministry of Education, the annual Green WaveEnvironmental Care Competition continued toengage and influence young minds to think andact for environmental protection and improvement.Since 2003, students from primary to universitylevels had been encouraged to think proactivelyabout today’s environmental issues.

Extending its reach, Sembawang Shipyard hadbeen encouraging its customers to participate inthe project. During the year, its alliance partnersShell Trading and BP Shipping became joint-sponsors, offering month-long work attachmentsto winners in the post-secondary categories ofthe competition.

Since 2005, the yard had also been reviewing theviability of developing students’ projects and

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prototypes for household and commercial useunder its Green Wave IDEA ImplementationCommittee.

Other Green InitiativesContinuing its support in spreading theawareness of environmental care, the Groupparticipated in the annual Clean & Green Weeklaunch and exhibition through its subsidiarySembawang Shipyard. Its Green WaveEnvironment Competition was also showcasedto reach out to more students.

Sembawang Shipyard also began a Tree PlantingProgramme to integrate more greenery into itsinfrastructure and facilities and to decreasethe impact of greenhouse effects. Phase 1 ofthis three-phase programme was completedin November with the planting of more than70 trees.

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General Information 122

Report of the Directors 123

Statement by Directors 142

Independent Auditors' Report 143

Profit and Loss Accounts 144

Balance Sheets 145

Statements of Changes in Equity 147

Consolidated Statement of Cash Flows 150

Notes to the Financial Statements 154

Supplementary Information 209

Major Properties 211

Notice of Annual General Meeting 213

Proxy Form 215

Contents

121

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G E N E R A L I N F O R M A T I O N

122

SembCo rp Ma r i ne L t d and Subs i d i a r y Compan i es

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Directors

Goh Geok Ling Chairman

Tan Kwi Kin Group President and CEO

Tan Pheng Hock

Kiyotaka Matsuzawa

Tan Tew Han

Ajaib Haridass

Tang Kin Fei

Ron Foo Siang Guan (Appointed on 30 June 2006)

Joseph Kwok Sin Kin (Appointed on 30 June 2006)

Wong Weng Sun (Alternate to Tan Kwi Kin, appointed on 3 May 2006)

Hirohiko Sakurai (Alternate to Kiyotaka Matsuzawa, appointed on 30 June 2006)

Haruo Kubota (Resigned on 30 June 2006)

Secretary

Tan Yah Sze (Appointed on 29 December 2006)

Kwong Sook May (Resigned on 29 December 2006)

Registrar

KCK Corpserve Pte Ltd

47 Hill Street #06-02

Singapore Chinese Chamber of

Commerce & Industry Building

Singapore 179365

Registered Office

29 Tanjong Kling Road

Singapore 628054

Auditors

Ernst & Young

Audit Partner

Daniel Soh (with effect from 2003)

The Directors present their report to the members together with the audited financial statements of the Company and of theGroup for the year ended 31 December 2006.

Directors of the CompanyThe names of the Directors of the Company in office at the date of this report are:

Goh Geok Ling ChairmanTan Kwi Kin Group President and CEOTan Pheng HockKiyotaka MatsuzawaTan Tew HanAjaib HaridassTang Kin FeiRon Foo Siang Guan (Appointed on 30 June 2006)Joseph Kwok Sin Kin (Appointed on 30 June 2006)Wong Weng Sun (Alternate to Tan Kwi Kin, appointed on 3 May 2006)Hirohiko Sakurai (Alternate to Kiyotaka Matsuzawa, appointed on 30 June 2006)

Arrangements to enable Directors to acquire shares and debenturesOther than the SembCorp Marine Share Plans and SembCorp Industries Share Plans, neither at the end of the financial year,nor at any time during the financial year was the Company a party to any arrangement whose object is to enable the Directorsof the Company to acquire benefits by means of the acquisition of shares or debentures of the Company or any other bodycorporate.

Directors’ interests in shares, share options and debenturesThe following Directors who held office at the end of the financial year had, according to the register required to be kept underSection 164 of the Singapore Companies Act, Cap. 50, an interest in shares, share options, or debentures of the ultimate holdingcompany, SembCorp Industries Ltd ("SCI"), or any other related corporations as stated below:

R E P O R T O F T H E D I R E C T O R SSembCo rp Ma r i ne L t d and Subs i d i a r y Compan i es

Name of Directorand Corporation inwhich interest held

Description ofinterests

Exerciseperiod

Shareholdings registered inthe name of Director

Other shareholdings inwhich the Director is

deemed to have an interestAt beginningof the year

At endof the year

At beginningof the year

At endof the year

Goh Geok Ling #SembCorp Marine Options to subscribeLtd for ordinary shares

- at $3.33 per share 03/10/2007 - 140,000 - -to

02/10/2011

123


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124


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125




Exerciseperiod




At endof the year


At endof the year

Goh Geok Ling #SembCorp Ordinary shares - 147,500 197,500 131,600 131,600Industries Ltd

Options to subscribefor ordinary shares *- at $1.35 per share 20/4/2002 50,000 - - -

to19/4/2006

- at $1.39 per share 8/5/2003 25,000 25,000 - -to

7/5/2007- at $0.78 per share 18/10/2003 12,500 12,500 - -

to17/10/2007

- at $0.94 per share 3/6/2004 18,750 18,750 - -to

2/6/2008- at $1.09 per share 19/11/2004 18,750 18,750 - -

to18/11/2008

- at $1.15 per share 18/5/2005 25,000 25,000 - -to

17/5/2009- at $1.32 per share 23/11/2005 25,000 25,000 - -

to22/11/2009

- at $2.53 per share 2/7/2006 35,000 35,000 - -to

1/7/2010- at $2.52 per share 22/11/2006 35,000 35,000 - -

to21/11/2010

- at $2.68 per share 10/6/2007 - 70,000 - -to

9/6/2011

Directors' interests in shares, share options and debentures (cont'd)



Exerciseperiod




At endof the year


At endof the year

Tan Kwi KinSembCorp Marine Ordinary shares - 2,787,200 2,891,200 - -Ltd

Options to subscribefor ordinary shares- at $0.66 per share 28/9/2002 200,000 - - -

to27/9/2011

- at $0.90 per share 8/11/2003 800,000 400,000 - -to

7/11/2012- at $0.99 per share 9/8/2004 800,000 800,000 - -

to8/8/2013

- at $1.04 per share 11/8/2005 700,000 700,000 - -to

10/8/2014- at $2.96 per share 12/8/2006 700,000 700,000 - -

to11/8/2015

- at $3.33 per share 3/10/2007 - 300,000 - -to

2/10/2016Conditional award of - 0 to 760,000 - - -380,000 performanceshares to be deliveredafter 2005 (Note 1a)

Conditional award - 0 to 760,000 0 to 760,000 - -of 380,000 performanceshares to be deliveredafter 2006 (Note 2)

Conditional award of - 0 to 450,000 0 to 450,000 - -300,000 performanceshares to be deliveredafter 2007 (Note 3a)

R E P O R T O F T H E D I R E C T O R S


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At endof the year


At endof the year

Tan Kwi KinSembCorp Marine Conditional award - - 0 to 375,000 - -Ltd (cont'd) of 250,000

performance sharesto be delivered after2008 (Note 3b)

Conditional award - - 0 to 81,900 - -of 63,000 restrictedshares to bedelivered after 2007(Note 4)

SembCorp Ordinary shares - 5,875 99,625 - -Industries Ltd

Options to subscribefor ordinary shares *- at $1.79 per share 27/6/2001 25,000 - - -

to26/6/2010

- at $1.35 per share 20/4/2002 25,000 - - -to

19/4/2011- at $1.39 per share 8/5/2003 12,500 - - -

to7/5/2012

- at $0.78 per share 18/10/2003 6,250 - - -to

17/10/2012- at $0.94 per share 3/6/2004 12,500 3,125 - -

to2/6/2013

- at $1.09 per share 19/11/2004 12,500 6,250 - -to

18/11/2013- at $1.15 per share 18/5/2005 12,500 6,250 - -

to17/5/2014

127




Exerciseperiod




At endof the year


At endof the year

Tan Kwi KinSembCorp - at $1.32 per share 23/11/2005 12,500 9,375 - -Industries Ltd (cont'd) to

22/11/2014- at $2.53 per share 2/7/2006 12,500 12,500 - -

to1/7/2015

- at $2.52 per share 22/11/2006 12,500 12,500 - -to

21/11/2015- at $2.68 per share 10/6/2007 - 25,000 - -

to9/6/2016

Tan Pheng HockSembCorp Marine Ordinary shares - - 20,000 - -Ltd

Options to subscribefor ordinary shares- at $0.66 per share 28/9/2002 20,000 - - -

to27/9/2006

- at $0.90 per share 8/11/2003 40,000 40,000 - -to

7/11/2007- at $0.99 per share 9/8/2004 50,000 50,000 - -

to8/8/2008

- at $1.04 per share 11/8/2005 50,000 50,000 - -to

10/8/2009- at $2.96 per share 12/8/2006 35,000 35,000 - -

to11/8/2010

- at $3.33 per share 3/10/2007 - 35,000 - -to

2/10/2011




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At endof the year


At endof the year

Kiyotaka MatsuzawaSembCorp Marine Options to subscribeLtd for ordinary shares

- at $0.90 per share 8/11/2003 100,000 100,000 - -to

7/11/2007- at $0.99 per share 9/8/2004 130,000 130,000 - -

to8/8/2008

- at $1.04 per share 11/8/2005 100,000 100,000 - -to

10/8/2009- at $2.96 per share 12/8/2006 35,000 35,000 - -

to11/8/2010

- at $3.33 per share 3/10/2007 - 35,000 - -to

2/10/2011

Tan Tew HanSembCorp Marine Ordinary shares - 18,000 18,000 - -Ltd

Options to subscribefor ordinary shares- at $0.99 per share 9/8/2004 57,000 57,000 - -

to8/8/2008

- at $1.04 per share 11/8/2005 150,000 150,000 - -to

10/8/2009- at $2.96 per share 12/8/2006 140,000 140,000 - -

to11/8/2010

- at $3.33 per share 3/10/2007 - 140,000 - -to

2/10/2011

129




Exerciseperiod




At endof the year


At endof the year

Ajaib HaridassSembCorp Marine Ordinary shares - 32,500 90,000 - -Ltd


to10/8/2009

- at $2.96 per share 12/8/2006 100,000 75,000 - -to

11/8/2010- at $3.33 per share 3/10/2007 - 100,000 - -

to2/10/2011

SembCorp Ordinary shares - 47,000 - - -Industries Ltd

Tang Kin FeiSembCorp Marine Options to subscribeLtd for ordinary shares

- at $2.96 per share 12/8/2006 20,000 20,000 - -to

11/8/2010- at $3.33 per share 3/10/2007 - 70,000 - -

to2/10/2011



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Exerciseperiod




At endof the year


At endof the year

Tang Kin FeiSembCorp Ordinary shares - 688,355 1,121,105 - -Industries Ltd

Options to subscribefor ordinary shares *- at $2.06 per share 20/5/2001 150,000 150,000 - -

to19/5/2009

- at $1.79 per share 27/6/2001 260,000 260,000 - -to

26/6/2010- at $1.35 per share 20/4/2002 75,000 75,000 - -

to19/4/2011

- at $1.39 per share 8/5/2003 87,500 87,500 - -to

7/5/2012- at $0.78 per share 18/10/2003 87,500 43,750 - -

to17/10/2012

- at $0.94 per share 3/6/2004 150,000 50,000 - -to

2/6/2013- at $1.09 per share 19/11/2004 150,000 100,000 - -

to18/11/2013

- at $1.15 per share 18/5/2005 200,000 100,000 - -to

17/5/2014

131




Exerciseperiod




At endof the year


At endof the year

Tang Kin FeiSembCorp - at $1.32 per share 23/11/2005 200,000 150,000 - -Industries Ltd (cont'd) to

22/11/2014- at $2.53 per share 2/7/2006 300,000 300,000 - -

to1/7/2015

- at $2.52 per share 22/11/2006 300,000 300,000 - -to

21/11/2015 - at $2.68 per share 10/6/2007 - 300,000 - -

to9/6/2016

Conditional award of - 0 to 200,000 - - -100,000 performanceshares to bedelivered after 2005(Note 1b)

Conditional award of - 0 to 400,000 0 to 418,800 - -209,400 performanceshares to bedelivered after 2006(Note 2) *

Conditional award of - 0 to 600,000 0 to 628,800 - -419,200 performanceshares to bedelivered after 2007(Note 3a) *

Conditional award of - - 0 to 629,400 - -419,600 performanceshares to be

delivered after 2008(Note 3b) *

Conditional award of - - 0 to 89,404 - -68,772 restrictedshares to bedelivered after 2007(Note 4) *



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Exerciseperiod




At endof the year


At endof the year

Wong Weng Sun #SembCorp Marine Ordinary shares - 92,500 92,500 - -Ltd


to27/9/2011

- at $0.90 per share 8/11/2003 140,000 140,000 - -to

7/11/2012- at $0.99 per share 9/8/2004 165,000 165,000 - -

to8/8/2013

- at $1.04 per share 11/8/2005 180,000 180,000 - -to

10/8/2014- at $2.96 per share 12/8/2006 250,000 250,000 - -

to11/8/2015

- at $3.33 per share 3/10/2007 - 125,000 - -to

2/10/2016

Conditional award - 0 to 225,000 0 to 225,000 - -of 150,000performance sharesto be delivered after2007 (Note 3a)

Conditional award - - 0 to 150,000 - -of 100,000performance sharesto be delivered after2008 (Note 3b)

Conditional award - - 0 to 35,100 - -of 27,000 restrictedshares to bedelivered after 2007(Note 4)

133




Exerciseperiod




At endof the year


At endof the year

Wong Weng Sun #SembCorp Options to subscribeIndustries Ltd for ordinary shares *

- at $1.35 per share 20/4/2002 10,000 10,000 - -to

19/4/2011- at $1.39 per share 8/5/2003 5,000 5,000 - -

to7/5/2012

- at $0.78 per share 18/10/2003 2,500 2,500 - -to

17/10/2012- at $0.94 per share 3/6/2004 3,750 3,750 - -

to2/6/2013

- at $1.09 per share 19/11/2004 3,750 3,750 - -to

18/11/2013- at $1.15 per share 18/5/2005 5,000 5,000 - -

to17/5/2014

- at $1.32 per share 23/11/2005 15,000 15,000 - -to

22/11/2014- at $2.53 per share 2/7/2006 10,000 10,000 - -

to1/7/2015

- at $2.52 per share 22/11/2006 10,000 10,000 - -to

21/11/2015- at $2.68 per share 10/6/2007 - 14,000 - -

to9/6/2016



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At endof the year


At endof the year

Ron Foo Siang Guan #SembCorp Marine Ordinary shares - - - 30,000 30,000Ltd

Options to subscribefor ordinary shares- at $3.33 per share 3/10/2007 - 20,000 - -

to2/10/2011

SembCorpIndustries Ltd Ordinary shares - 32,820 17,820 - -

Joseph Kwok Sin Kin #SembCorp Marine Options to subscribeLtd for ordinary shares

- at $3.33 per share 3/10/2007 - 20,000 - -to

2/10/2011

135


# At date of appointment of Director.* Adjustments to the option exercise price and conditional award of performance shares were due to Capital Reduction and Cash Distribution Exercise of

SembCorp Industries Ltd in 2006.

Note 1: The actual number delivered will depend on the achievement of set targets over a 3-year period from 2003 to 2005. Achievement of targets below targetslevel will mean no performance shares will be delivered, while achievement up to 200% will mean up to twice the number of conditional performanceshares awarded could be delivered.(a) For this period, 304,000 shares were awarded and the balance of the conditional awards has thus lapsed.(b) For this period, 89,000 shares were awarded and the balance of the conditional awards has thus lapsed.

Note 2: The actual number delivered will depend on the achievement of set targets over a 3-year period from 2004 to 2006. Achievement of targets below targetslevel will mean no performance shares will be delivered, while achievement up to 200% will mean up to twice the number of conditional performanceshares awarded could be delivered.

Note 3: The actual number delivered will depend on the achievement of set targets over a 3-year period as indicated below. Achievement of targets below targetslevel will mean no performance shares will be delivered, while achievement up to 150% will mean up to 1.5 times the number of conditional performanceshares awarded could be delivered.(a) Period from 2005 to 2007(b) Period from 2006 to 2008

Note 4: The actual number delivered will depend on the achievement of set targets at the end of the 2-year performance period from 2006 to 2007. Achievementof targets below targets level will mean no restricted shares will be delivered, while achievement up to 130% will mean up to 1.3 times the number ofconditional restricted shares awarded could be delivered.


Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares, debentures,warrants or share options of the Company, or of related corporations, either at the beginning of the financial year, or date ofappointment, if later, or at the end of the financial year.

There were no changes in the Directors’ interest in the Company between the end of the financial year and 21 January 2007,except for Mr. Tang Kin Fei whose shareholdings in the ordinary shares of SCI increased from 1,121,105 as at 31 December2006 to 1,427,355 as at 21 January 2007 due to the exercise of the SCI share options during such period as follows:

Directors’ contractual benefitsSince the end of the previous financial year, no Director of the Company has received or become entitled to receive a benefitby reason of a contract made by the Company or a related corporation with the Director, or with a firm of which the Director isa member, or with a company in which the Director has a substantial financial interest, except:

a) As disclosed in Note 4 to the financial statements on the payment of professional fees to a firm in which Mr Ajaib Haridass,a Director of the Company, is a member; and

b) Certain Directors have employment relationships with the holding companies and received remuneration in those capacities.

Share-based Incentive PlansThe Company’s Share Option Plan, Performance Share Plan and Restricted Stock Plan (collectively, the “Share Plans”) wereapproved and adopted by the shareholders at an Extraordinary General Meeting of the Company held on 31 May 2000.

The Executive Resource and Compensation Committee (the “Committee”) of the Company has been designated as the Committeeresponsible for the administration of the Share Plans. The Committee comprises the following members, all of whom are directors:

Goh Geok Ling (Chairman)Tan Tew HanAjaib HaridassTang Kin Fei

Description of interests Exercise period Shareholdings registered in the name of Director

At 31December 2006

Exercised duringthe period

At 21January 2007

SCI options to subscribefor ordinary shares- at $1.35 per share 20/4/2002 75,000 (75,000) -

to19/4/2011

- at $1.39 per share 8/5/2003 87,500 (87,500) -to

7/5/2012

- at $0.78 per share 18/10/2003 43,750 (43,750) -to

17/10/2012

- at $1.09 per share 19/11/2004 100,000 (50,000) 50,000to

18/11/2012

- at $1.32 per share 23/11/2005 150,000 (50,000) 100,000to

22/11/2014


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Share-based Incentive Plans (cont'd)

The Share Option Plan is the incentive scheme for directors and employees of the Company and its subsidiary companies (the“Group”) whereas the Performance Share Plan and Restricted Stock Plan are aimed primarily at key executives of the Group.

The Share Option Plan provides the Company with means whereby non-executive directors and employees of the Group, andcertain categories of persons who can make significant contributions through their close working relationship with the Group,such as employees of the Company’s Parent Group and non-executive directors and employees of the Company’s associates,are given an opportunity to participate in the equity of the Company.

Under the rules of the Share Option Plan, participants who ceased to be employed by the Group, Parent Group or AssociatedCompany by reason of ill health, injury or disability, redundancy, retirement at or after the legal retirement age, retirement beforethe legal retirement age, death, etc, or any other event approved by the Committee, may be allowed by the Committee to retaintheir unexercised Options. The Committee may determine the number of Shares comprised in that Option which may beexercised and the period during which such Option shall be exercisable, being a period not later than the expiry of the ExercisePeriod in respect of that Option. Such Option may be exercised at any time notwithstanding that the date of exercise of suchOption falls on a date prior to the first day of the Exercise Period in respect of such Option.

The Company designates SembCorp Industries Ltd as the Parent Group.

The Performance Share Plan and Restricted Stock Plan award fully-paid shares to participants to achieve pre-determined targetsthat create and enhance economic values for shareholders of the Company, and/or to accomplish time-based service conditions.Awards will be released to participants as fully-paid shares, or their equivalent cash value or combinations thereof, free-of-chargeprovided that the conditions of the awards are achieved and subject to approval by the Committee.

Awards granted under the Performance Share Plan are released at the end of the performance period only when the pre-determined targets have been achieved. Awards granted under the Restricted Stock Plan vest only after the satisfactorycompletion of time-based service conditions, or where the award is performance related, after a further period of service beyondthe performance target completion date. No minimum vesting period is prescribed under the Restricted Stock Plan and thelength of the vesting period in respect of each award will be determined on a case-by-case basis.

The Share Plans are intended to attract, retain and incentivise participants to higher standards of performance and encouragegreater dedication and loyalty by enabling the Company to give recognition to past contributions and services; as well asmotivating participants to contribute to the long-term prosperity of the Group.

Other information regarding the Share Option Plan is as follows:(i) The exercise price of the options can be set at market price or a discount to the market price not exceeding 20% of the

market price in respect of options granted at the time of grant. Market price is the volume-weighted average price for theshares on the Singapore Exchange for three consecutive trading days, prior to grant date of that Option. For all optionsgranted to date, the exercise prices are set at market price.

(ii) The options can be exercised 12 months after the grant for market price options and 24 months for discounted options.For employee retention purposes, the Group further imposed a vesting condition, in which the options are vested equallyover a four-year period, commencing from the first anniversary of the date of grant.

(iii) In 2006, all options are settled by issuance of new shares.

(iv) The options granted expire after 5 years for non-executive directors, associated companies employees and 10 years forthe employees of Group and Parent Group.

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Optionparticipants

Optionsgranted during

the year

Aggregateoptionsgranted

The details of options of the Company granted during the year and granted/exercised since commencement of the Schemeup to 31 December 2006 were as follows:

139

In the 2005 performance share award, the performance criteria were changed and performance levels re-calibrated based onthe new measures, namely Wealth Added and Total Shareholders’ Return. For each performance measure, three distinctperformance levels are set. A minimum of threshold performance must be achieved to trigger an Achievement Factor, whichin turn determines the number of shares to be finally awarded.

Based on the new criteria, performance shares to be delivered for awards granted in 2005 will range between 0% to 150% ofthe original award.

In 2006, performance share awards granted were based on the same type of criteria as those issued in 2005.

Participants are also required to hold a minimum percentage of the shares released to them under the Performance Share Planto maintain a beneficial ownership stake in the Group, for the duration of their employment or tenure with the Group. A maximumcap is set based on a multiple of the individual participant’s Annual Base Salary. Any excess can be sold off, but in the event ofa short fall, they have a two calendar year period to meet the minimum percentage requirement.

During the year, a total of 444,000 (2005: 487,200) performance shares were released by the Committee to the participantsfor the performance period 2003 to 2005 (2005: 2002 to 2004).

The details of performance shares of the Company awarded since commencement of the Performance Plan up to 31 December2006 were as follows:


Directors of the CompanyGoh Geok Ling 140,000 140,000 - - 140,000Tan Kwi Kin 300,000 5,900,000 - (3,000,000) 2,900,000Tan Pheng Hock 35,000 230,000 - (20,000) 210,000Kiyotaka Matsuzawa 35,000 400,000 - - 400,000Tan Tew Han 140,000 505,000 - (18,000) 487,000Ajaib Haridass 100,000 330,000 - (90,000) 240,000Tang Kin Fei 70,000 90,000 - - 90,000Ron Foo Siang Guan 20,000 20,000 - - 20,000Joseph Kwok Sin Kin 20,000 20,000 - - 20,000Wong Weng Sun 125,000 1,006,000 - (114,500) 891,500

Former Directorsof the Company - 6,050,000 (75,000) (5,055,000) 920,000

Other executivesGroup 8,803,075 105,213,375 (9,727,715) (59,496,185) 35,989,475Executives of Parent Group 87,000 1,780,000 (129,500) (956,250) 694,250

9,875,075 121,684,375 (9,932,215) (68,749,935) 43,002,225

Aggregate optionscancelled/lapsed/

not accepted

Aggregateoptions

exercised

Aggregateoptions

outstanding

Since the commencement of the Share Option Plan, no options have been granted to the controlling shareholders of the Companyor their associates. No participant under the Share Option Plan has been granted 5% or more of the total options available.No options have been offered at a discount.

The options granted by the Company do not entitle the holders of the options, by virtue of such holdings, to any right to participatein any share issue of any other company.

SembCorp Marine Performance Share PlanUnder the Performance Share Plan, the awards granted conditional on performance targets are set based on medium-termcorporate objectives at the start of each rolling three-year performance qualifying period. A specific number of performanceshares shall be awarded at the end of the 3-year performance cycle depending on the extent of the achievement of theperformance conditions established at the onset.

In 2005, the Committee, with advice and assistance from an independent compensation consultant, redesigned its approachto the share-based incentive awards, with particular focus on establishing new standards for share-based incentive grants. Theredesigned share-based incentive grants took into account evolving practices at other major public-listed companies, as wellas the Company’s objective of further enhancing linkages between employee performance and long term shareholder valuecreation objectives. The redesign was completed and implemented in 2005.

For awards granted before 2005, recipients who do not achieve at least 80% of the targets set at the end of the performanceperiod will not be granted the performance shares. If the achievement of the targets exceeds 100%, more performance sharesthan the original award could be delivered up to a maximum of 200% of the original award.

Performance SharesParticipants

Conditionalshares awardedduring the year

Aggregateconditional

shares awarded

Director of the Company- Tan Kwi Kin 250,000 2,070,000 (790,400) (349,600) 930,000

Alternate director of theCompany- Wong Weng Sun 100,000 250,000 - - 250,000

Former alternate directorof the Company- Heng Chiang Gnee * - 800,000 (396,000) (204,000) 200,000

Key Management andExecutives of the Group 250,000 575,000 - - 575,000

600,000 3,695,000 (1,186,400) (553,600) 1,955,000

Aggregateconditional shares

released


shares lapsed


sharesoutstanding

* Mr Heng Chiang Gnee was transferred to a related company, SembCorp Environmental Management Pte Ltd on 15 August 2005 and he was not awarded anyconditional shares for the period. The conditional awards already granted (for the performance period 2003 to 2005 and 2004 to 2006) to him prior to 2005 wouldbe subjected to the achievement of the performance criteria and the number to be awarded will be determined accordingly when the performance criteria aremet for the completed period of service with the Company.

The total number of performance shares in awards granted conditionally and representing 100% of targets achieved, but notreleased as at end 2006, was 1,955,000. Based on the multiplying factor, the actual release of the awards could range fromzero to a maximum of 3,222,500 performance shares.



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SembCorp Marine Restricted Stock PlanIn 2006, as part of the redesigned approach, restricted shares were awarded to managerial employees of the Group, with theobjective to eventually replace share options as a long term incentive for them. The grants under the Share Option Plan to thisgroup of employees were reduced by 50%, and these were replaced by restricted shares of an equivalent fair value, asrecommended by the independent compensation consultant and approved by the Committee.

Under the Restricted Stock Plan, the awards granted conditional on performance targets are set based on corporate objectivesat the start of each rolling two-year performance qualifying period. The performance criteria are set and performance levels forthe restricted shares are calibrated based on Return on Equity and Total Shareholders’ Return. For each performance measure,three distinct performance levels are set. A minimum of threshold performance must be achieved to trigger an AchievementFactor, which in turn determines the number of shares to be finally awarded. Based on the criteria, restricted shares to bedelivered for awards granted in 2006 will range from 0% to 130% of the original award.

A specific number of restricted shares shall be awarded at the end of the two-year performance cycle depending on the extentof the achievement of the performance conditions established at the onset. There is a further vesting of three years after theperformance period, during which one-third of the awarded shares are released each year.

Senior management participants are also required to hold a minimum percentage of the shares released to them under theRestricted Stock Plan to maintain a beneficial ownership stake in the Group, for the duration of their employment or tenure withthe Group. A maximum cap is set based on a multiple of the individual participant’s Annual Base Salary. Any excess can besold off, but in the event of a shortfall, they have a two calendar year period to meet the minimum percentage requirement.

A total of 1,222,400 restricted shares of SembCorp Marine Ltd’s were awarded on 2 October 2006 for the performance period2006 to 2007. No SembCorp Marine Ltd's restricted shares were awarded to Directors of the Company, except as disclosedelsewhere in the Report of the Directors.

The total number of SembCorp Marine Ltd’s restricted shares in awards granted conditionally and representing 100% of targetsachieved, but not released as at end 2006, was 1,212,320. Based on the multiplying factor, the actual release of the awardscould range from zero to a maximum of 1,576,016 restricted shares.

The maximum number of performance shares and restricted shares which could be delivered, when aggregated with the numberof new shares issued and issuable in respect of all options granted, is within the 15% limit of the share capital of the Companyon the day preceding the relevant date of the grant.


Audit CommitteeThe Audit Committee comprises 3 independent non-executive directors, one of whom is also the Chairman of the Committee. The members of the Audit Committee at the date of this report are:

Tan Tew Han (Chairman)Ajaib HaridassRon Foo Siang Guan

The Audit Committee held 6 meetings during the financial year. In performing its functions, the Audit Committee met with theCompany’s external and internal auditors to discuss the scope of their work, the results of their examination and evaluation ofthe Company’s internal accounting control system.

The Audit Committee performs the functions specified in Section 201B of the Singapore Companies Act, Cap. 50, the ListingManual of the Singapore Exchange, and the Code of Corporate Governance.

The Audit Committee also reviewed the following:

• assistance provided by the Company’s officers to the internal and external auditors;• financial statements of the Group and the Company prior to their submission to the directors of the Company for

adoption; and• interested person transactions (as defined in Chapter 9 of the Listing Manual of the Singapore Exchange).

The Audit Committee has full access to management and is given the resources required for it to discharge its functions. It hasfull authority and the discretion to invite any director or executive officer to attend its meetings. The Audit Committee alsorecommends the appointment of the external auditors and reviews the level of audit and non-audit fees.

The Audit Committee is satisfied with the independence and objectivity of the external auditors and has recommended to theBoard of Directors that the auditors, Ernst & Young, be nominated for re-appointment as auditors at the forthcoming AnnualGeneral Meeting of the Company.

AuditorsErnst & Young have expressed their willingness to accept re-appointment as auditors.

On behalf of the Board,

GOH GEOK LINGDirector

TAN KWI KINDirector

Singapore15 February 2007



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We, Goh Geok Ling and Tan Kwi Kin, being two of the Directors of SembCorp Marine Ltd, do hereby state that, in the opinionof the Directors:

(i) the accompanying balance sheets, profit and loss accounts, statements of changes in equity of the Company and the Groupand consolidated cash flow statement together with notes thereto are drawn up so as to give a true and fair view of the stateof affairs of the Company and of the Group as at 31 December 2006, and of the results of the business, changes in equityof the Company and of the Group and cash flows of the Group for the year ended on that date; and

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

On behalf of the Board,

GOH GEOK LINGDirector

TAN KWI KINDirector


S T A T E M E N T B Y D I R E C T O R SSembCo rp Ma r i ne L t d and Subs i d i a r y Compan i es

INDEPENDENT AUDITORS’ REPORT TO THEMEMBERS OF SEMBCORP MARINE LTD

Report on the Financial StatementsWe have audited the accompanying financial statements of SembCorp Marine Ltd (the “Company”) and its subsidiary companies(collectively, the “Group”) as set out on pages 144 to 208, which comprise the balance sheets of the Group and the Companyas at 31 December 2006, the profit and loss accounts and the statements of changes in equity of the Group and the Company,and the cash flow statement of the Group for the year then ended, and a summary of significant accounting policies and otherexplanatory notes.

Directors’ Responsibility for the Financial StatementsThe Company’s Directors are responsible for the preparation and fair presentation of these financial statements in accordancewith the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. Thisresponsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentationof financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriateaccounting 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 performthe audit to obtain reasonable assurance whether the financial statements are free from 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 auditors’ judgment, including the assessment of the risks of material misstatement ofthe financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal controlrelevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internalcontrol. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by Directors, 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.

OpinionIn our opinion,(a) the consolidated financial statements of the Group and the profit and loss account, balance sheet and statement of changes

in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial ReportingStandards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2006,the results and changes in equity of the Group and of the Company and cash flows of the Group for the year ended on thatdate; and

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

ERNST & YOUNGCertified Public Accountants



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Note Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Turnover 3 3,545,049 2,119,279 31,305 29,433Cost of sales (3,250,039) (1,949,783) (18,554) (16,841)

Gross profit 295,010 169,496 12,751 12,592Other operating income 24,356 19,461 3,378 3,907Other operating expense (17,023) (9,850) (5,088) (72)General and administrative expenses (74,110) (54,558) (12,812) (12,352)

Operating profit/(loss) 4 228,233 124,549 (1,771) 4,075Dividend and interest income 5 20,960 16,534 137,436 75,082Finance costs 6 (10,549) (4,785) (4,500) (4,500)Non-operating income 7 36,616 11,196 - 11,117Non-operating expense 8 (8,753) (7,177) - (313)Share of results of associated

companies and joint ventures 9 44,364 19,538 - -

Profit before taxation 310,871 159,855 131,165 85,461Taxation 10 (62,340) (34,271) (11,364) (8,681)

Profit after taxation 248,531 125,584 119,801 76,780

Attributable to:Shareholders of the Company 238,388 121,398 119,801 76,780Minority interests 10,143 4,186 - -

248,531 125,584 119,801 76,780

Earnings per share (cents) 11Basic 16.39 8.45Diluted 15.99 8.25

The accompanying accounting policies and explanatory notes form an integral part of the financial statements.

145


for the year ended 31 December 2006B A L A N C E S H E E T S

as at 31 December 2006


Non-current assetsFixed assets 12 679,024 579,584 172,557 177,679Investments in subsidiary companies 13 - - 311,379 252,668Investments in associated companies

and joint ventures 14 147,255 106,880 92,445 66,259Other long term investments 15 346,987 77,931 162,262 77,438Long term trade debtors 16 39,952 47,390 36,952 41,602Long term other debtors 17 15,974 16,765 276,892 238,184Intangible assets 18 13,657 3,601 122 122Deferred tax assets 26 - 872 - -

Total non-current assets 1,242,849 833,023 1,052,609 853,952

Current assetsStocks and work-in-progress 19 1,192,057 632,990 - -Trade debtors 16 426,182 239,199 37,450 44,278Other debtors, deposits, and

prepayments 17 64,925 37,238 35,471 101,033Asset held for sale 20 - 52,230 - -Fixed deposits 380,051 457,468 59,619 51,746Bank and cash balances 123,437 73,989 13,223 10,381

Total current assets 2,186,652 1,493,114 145,763 207,438

Current liabilitiesTrade creditors 21 922,835 556,994 14,569 11,248Other creditors and provisions 22 23,006 17,719 36,561 3,226Progress billings in excess of

work-in-progress 23 542,744 375,299 - -Borrowings 24 140,443 - - -Derivative financial instruments 25 7,970 7,027 - -Provision for taxation 53,898 25,832 2,722 801

Total current liabilities 1,690,896 982,871 53,852 15,275

Net current assets 495,756 510,243 91,911 192,163


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STATEMENTS OF CHANGES IN EQUITYfor the year ended 31 December 2006


Total assets less current liabilities 1,738,605 1,343,266 1,144,520 1,046,115

Non-current liabilitiesBorrowings 24 250,545 149,720 149,795 149,720Deferred taxation 26 109,535 69,567 58,184 41,872Hire purchase creditors 27 303 213 - -Other provisions 28 7,999 8,069 2,895 2,895

Total non-current liabilities 368,382 227,569 210,874 194,487

1,370,223 1,115,697 933,646 851,628

Capital and reservesShare capital 29 418,631 145,036 418,631 145,036Reserves 30 919,708 920,509 515,015 706,592

1,338,339 1,065,545 933,646 851,628Minority interests 31,884 50,152 - -

1,370,223 1,115,697 933,646 851,628


B A L A N C E S H E E T S as at 31 December 2006

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2006 2005$’000 $’000

Cash flow from operating activitiesOperating profit 228,233 124,549Adjustments for:

Gain on disposal of fixed assets (1,679) (1,268)Share-based payment expenses 8,570 2,537Amortisation 137 88Negative goodwill (677) (224)Fair value adjustment of financial instruments (27) -Depreciation of fixed assets 45,461 37,977Fixed assets written-off 881 8

Operating income before reinvestment in working capital 280,899 163,667Increase in stocks and work-in-progress (291,174) (2,834)(Increase)/decrease in debtors (47,265) 67,125(Decrease)/increase in creditors (25,858) 79,187

Cash (used in)/generated from operations (83,398) 307,145Investment and interest income received 20,557 16,533Income taxes paid (28,481) (15,806)Interest paid (9,185) (4,785)

Net cash (used in)/provided by operating activities (100,507) 303,087

Cash flow from investing activitiesAcquisition of subsidiary companies, Note (a) (26,697) (8,581)Investment in associated companies and joint ventures - (47,456)Purchase of fixed assets (126,278) (139,615)Capital refund from an associated company 329 -Capital contribution to associated companies (8,731) -Dividends from associated companies 2,070 6,265Proceeds from disposal of fixed assets 3,668 2,201Proceeds from disposal of a subsidiary company , Note (b) 151,926 -Proceeds from sale of other long term investments 58,310 14,310Purchase of other long term investments (120,464) -

Net cash used in investing activities (65,867) (172,876)

CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2006

151


2006 2005$’000 $’000

Cash flow from financing activitiesDividends paid

- by the Company (122,362) (98,037)- to minority shareholders (1,162) (1,303)

Proceeds on issue of new shares- by the Company 14,055 19,004- to minority shareholders 6,415 13,374

Repayment to hire purchase creditors (269) (1,276)Loan from hire purchase creditors 543 -Repayment of borrowings (145,606) -Proceeds from borrowings 376,451 -

Net cash provided by /(used in) financing activities 128,065 (68,238)

Net (decrease)/increase in cash and cash equivalents (38,309) 61,973Cash and cash equivalents at beginning of year 531,457 469,484

Cash and cash equivalents at end of year (Note 34) 493,148 531,457

The acquisitions and disposal of the following subsidiary companies have been shown as a single item:

Name of subsidiary companies Effective interest Effective datesacquired/(disposed)

2006Acquisitions during the yearJurong Marine Services Pte Ltd 50% 1 July 2006SMOE Pte Ltd 100% 1 August 2006Sembawang Bethlehem Pte Ltd 100% 1 August 2006

Disposal during the yearKristiansand Drilling Pte Ltd (81.82%) 1 May 2006

2005Acquisition in prior yearSembCorp Holdings, LLC (Formerly known as Chut

Kee, LLC) 85% 4 October 2005


152-183 account notes.294.faced 4/2/07 10:57 AM Page 1

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(a) Acquisitions of subsidiary companiesThe effect on the individual assets and liabilities is set out below:

Acquisition of subsidiary companies#2006 2005$’000 $’000

Fixed assets 164,411 12,074Investment in associated company 400 -Intangible asset - 75Stocks and work-in-progress 100,448 331Debtors 157,089 7,793Bank and cash balances 42,023 741Creditors (404,069) (4,721)Deferred taxation - (3,047)

Net assets acquired+ 60,302 13,246Minority interests (838) -Amount taken up as investment - (3,700)Amount taken up as associated company (859) -Goodwill/(negative goodwill) on acquisition 10,115 *(224)

Purchase consideration paid 68,720 9,322

+ Represents both book values and fair values of assets and liabilities acquired.# Provisionally determined, pending final valuation report from the independent valuer.* There was no material adjustments to the negative goodwill that was provisionally determined in 2005 based on the final valuation report received during the

year.

The acquisitions of subsidiary companies, net of cash, are represented by:

2006 2005$’000 $’000

Cash paid (68,720) (9,322)Less: Bank and cash balances acquired 42,023 741

Net cash outflow (26,697) (8,581)


153


(b) Disposal of a subsidiary companyThe effect on the individual assets and liabilities is set out below:

Disposal of a subsidiary company2006 2005$’000 $’000

Fixed assets (175,657) -Debtors (28) -Bank and cash balances (1,076) -Amount due to shareholders 3,196 -Creditors 29 -

Net assets disposed (173,536) -Minority interests 31,552 -Gain on disposal (11,018) -

Disposal consideration received (153,002) -

The disposal of a subsidiary company, net of cash, is represented by:

2006 2005$’000 $’000

Cash received 153,002 -Less: Bank and cash balances disposed (1,076) -

Net cash inflow 151,926 -




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NOTES TO THE FINANCIAL STATEMENTS

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2.3 Significant accounting estimates and judgementsEstimates, assumptions concerning the future and judgements are made in the preparation of the financial statements.They affect the application of the Group's accounting policies, reported amounts of assets, liabilities, income and expenses,and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors,including expectations of future events that are believed to be reasonable under the circumstances.

Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet datethat have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the nextfinancial year are discussed below.

Impairment of goodwillThe Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the valuein use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group tomake an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discountrate in order to calculate the present value of those cash flows. The carrying amount of the Group's goodwill at 31 December2006 was $13,467,000 (2005: $3,352,000). More details are given in Note 18a.

Depreciation of fixed assetsFixed assets are depreciated on a straight-line basis over their estimated useful lives. Management estimates the usefullives of these fixed assets to be within 1 to 60 years. The carrying amount of the Group's fixed assets at 31 December2006 was $679,024,000 (2005: $579,584,000). Changes in the expected level of usage and technological developmentscould impact the economic useful lives and the residual values of these assets, therefore future depreciation charges couldbe revised.

Income taxThe Group has exposure to income taxes in various jurisdictions. Significant judgement is involved in determining theGroup-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 different fromthe amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in theperiod in which such determination is made. The carrying amount of the Group's provision for taxation at 31 December2006 was $53,898,000 (2005: $25,832,000). The carrying amounts of the Group's deferred tax assets and liabilities at31 December 2006 were $Nil (2005: $872,000) and $109,535,000 (2005: $69,567,000) respectively.

2.4 Foreign currencyFunctional and presentation currencyItems included in the financial statements of each company in the Group are measured using the currency of the primaryeconomic environment in which the company operates ("the functional currency"). The consolidated financial statementsare presented in Singapore Dollars, which is the Company's functional and presentation currency.

Foreign currency transactions and balancesTransactions in foreign currencies are translated into the functional currency at foreign exchange rates ruling at the datesof the transactions. At each balance sheet date:

• Foreign currency monetary items are translated into the functional currency using foreign exchange rate ruling at thatdate.

• Non-monetary assets and liabilities measured at historical cost in foreign currencies are translated into the functionalcurrency using foreign exchange rates at the dates of the transactions.

• Non-monetary assets and liabilities measured at fair value in foreign currencies are translated into the functional currencyat foreign exchange rates ruling at the dates the fair value was determined.

Foreign exchange differences arising on the settlement or from translation of monetary items are recognised in the profitand loss account except for exchange differences arising from monetary items that form part of the Group's net investment

31 December 2006NOTES TO THE FINANCIAL STATEMENTS

31 December 2006

1. GeneralThe Company is a limited liability company, which is incorporated in the Republic of Singapore and publicly traded on theSingapore Exchange. Its immediate holding company is SembCorp Industries Ltd ("SCI") and the ultimate holding companywas Temasek Holdings (Private) Limited ("THPL") during the financial period up to November 2006. Both holding companiesare incorporated in the Republic of Singapore. With effect from December 2006, the ultimate holding company is SCI.Related companies in these financial statements refer to subsidiary and associated companies of SCI. Related parties inthese financial statements refer to subsidiary and associated companies of THPL prior to THPL's cessation as the ultimateholding company.

The Company domiciles in Singapore and its registered office and principal place of business is located at 29 Tanjong KlingRoad, Singapore 628054.

The principal activities of the Company are the provision of management services and investment holding. The principalactivities of the subsidiary, associated and joint venture companies are stated in Note 40. There have been no significantchanges in the nature of these activities of the Company and its subsidiary companies during the year.

2. Summary of significant accounting policies2.1 Basis of preparation of financial statements

The financial statements are presented in Singapore Dollars ("SGD" or "$") and all values are rounded to the nearestthousand ("$'000") except when otherwise indicated. The financial statements have been prepared in accordance withSingapore Financial Reporting Standards ("FRS") as required by the Singapore Companies Act, Cap.50.

The financial statements have been prepared on a historical cost basis except for certain fixed assets, derivative financialinstruments, financial assets at fair value through profit and loss and available-for-sale financial assets that have beenmeasured at their fair values.

With effect from 1 January 2006, the Group and the Company adopted the following FRS which are relevant to their operations:

FRS 32 (revised) Financial Instruments: Disclosure and PresentationFRS 39 (revised) Financial Instruments: Recognition and Measurement on Financial guarantee contracts

The effects of adoption of the above FRS did not result in substantial changes to the Group's accounting policies and didnot give rise to any material adjustments to the opening balances of revenue reserve or changes to comparatives. Exceptfor the above changes, the accounting policies have been consistently applied by the Group and the Company and areconsistent with those used in the previous financial year.

2.2 FRS not yet effectiveThe Group and the Company have not applied the following FRS, which are relevant to their operations, that have beenissued but are not yet effective:

Effective date (Annual periods beginning on or after)FRS 1 Amendment to FRS 1 (revised) Presentation 1 January 2007

of financial statements (Capital Disclosures)FRS 107 Financial Instruments: Disclosures 1 January 2007

The effects of adopting FRS 107 and the amendment to FRS 1 are as indicated below.

(i) FRS 107, Financial Instruments: DisclosuresFRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosureof qualitative and quantitative information about exposure to risks arising from financial instruments, including specifiedminimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk.

(ii)Amendment to FRS 1 (revised), Presentation of financial statements (Capital Disclosures)The amendment to FRS 1 requires the Group and the Company to make new disclosures to enable users of the financialstatements to evaluate the Group's and the Company's objectives, policies and processes for managing capital.

The Group and the Company will apply FRS 107 and the amendment to FRS 1 from the financial year beginning 1January 2007.


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in a foreign subsidiary companies, which are recognised in the Company's profit and loss account and reclassified toforeign currency translation reserve in the consolidated financial statements. Such exchange differences are released tothe profit and loss account upon disposal of the investment as part of the gain or loss on disposal.

Foreign operationsThe results and financial positions of foreign operations (none of which has the currency of hyperinflationary economy)that have a functional currency different from the presentation currency are translated into presentation currency as follows:

• assets and liabilities are translated at foreign exchange rate ruling at the date of balance sheet,• revenues and expenses are translated at average rates, and• all resulting foreign exchange differences are taken to the foreign currency translation reserve.

On disposal, accumulated foreign currency translation differences are recognised in the consolidated profit and loss accountas part of the gain or loss on sale.

2.5 Subsidiary companiesA subsidiary company is an entity over which the Group has the power to govern the financial and operating policies soas to obtain benefits from its activities. The Group generally has such power when it, directly or indirectly, holds morethan 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of theboard of directors.

In the Company's separate financial statements, investments in subsidiary companies are accounted for at cost lessimpairment losses.

2.6 Principles of consolidationThe accounting year of the Company and all its subsidiary companies ends on 31 December and the consolidated financialstatements incorporate the financial statements of the Company and all its subsidiary companies after the elimination ofall material intercompany transactions and balances. Consistent accounting policies are applied for like transactions andevents in similar circumstances.

The purchase method of accounting is used to account for the acquisition of subsidiary companies by the Group. Thecost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurredor assumed at the date of exchange, plus costs directly attributable to the acquisition.

Minority interests represent the portion of profit or loss and net assets in subsidiary companies not held by the Group.They are presented in the consolidated balance sheet within equity, separately from the parent shareholders' equity, andare separately disclosed in the consolidated profit and loss account. Any losses applicable to the minority interest inexcess of the minority interest are allocated against the interests of the parent.

The results of subsidiary companies acquired or disposed of during the year are included in or excluded from the Groupresults from the respective dates of acquisition or disposal, as applicable.

2.7 Associated companies and joint venturesAn associated company is defined as a company, not being a subsidiary company, in which the Group has a long terminterest of not less than 20% nor more than 50% of the equity and in whose financial and operating policy decisions theGroup exercises significant influence.

A joint venture, not being a subsidiary or associated company, is one in which the Group has a long term interest andcontractual arrangement whereby parties in the joint venture undertake an economic activity whose operational and financialaffairs are subject to the joint control of the Group and the contractual parties.

The Group's share of the results of associated companies and joint ventures that are jointly controlled entities are includedin the consolidated profit and loss account under the equity method. The Group's share of post-acquisition reserves of

31 December 2006

157


associated companies and joint ventures that are jointly controlled entities are included in the investments in associatedcompanies and joint ventures, respectively, in the consolidated balance sheet. Where the audited financial statements arenot available, the share of results is arrived at from unaudited management financial statements made up mainly to theend of the accounting year to 31 December. Goodwill arising on acquisition which represents the excess of the cost ofacquisition over the fair value of the Group's share of the identifiable net assets acquired is accounted on the basis outlinedin Note 2.8 below.

The associated companies and joint ventures are equity accounted for from the date the Group obtains significant influenceor joint control until the date the Group ceases to have significant influence or joint control over the associated companyand joint venture respectively.

When the Group's share of losses exceeds the carrying amount of the investment, the investment is reported at nil valueand recognition of losses is discontinued except to the extent of the Group's commitments.

For joint ventures that involve jointly controlled operations or assets, the proportionate share in these joint ventures' individualincome, expenses, assets and liabilities are included in financial statements of the Group with items of a similar nature ona line by line basis.

Investments in associated companies and joint ventures are stated in the Company's balance sheet at cost less impairmentlosses.

2.8 Goodwill on consolidationGoodwillGoodwill arising on acquisition represents the excess of the cost of acquisition over the fair value of the Group's share ofthe identifiable assets, liabilities and contingent liabilities acquired. Goodwill on acquisitions of subsidiary companies isincluded in intangible assets. Goodwill on acquisition of associated companies and joint ventures is included in investmentsin associated companies and joint ventures.

Goodwill is stated at cost less impairment losses.

Negative goodwillNegative goodwill arising on acquisition represents the excess of the net fair value of the Group's share of the identifiableassets, liabilities and contingent liabilities acquired over the cost of acquisition and is credited to profit and loss accountin the period of acquisition.

2.9 Revenue recognitionRevenue from ship and rig repair, building and conversion are recognised on the percentage of completion method, providedthe work is at least 20% completed and the outcome of the contract can be reliably estimated. The percentage of completionis measured by reference to the percentage of costs incurred to-date to the estimated total costs for each contract, withdue consideration made to include only those costs that reflect works performed.

Income on goods sold and other services rendered is recognised on completion of delivery. Charter hire income is takento the profit and loss account on an accrual basis over the charter hire period.

Interest income is recognised as interest accrues (using the effective interest method) unless collectability is in doubt.

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

2.10 Fixed assetsFixed assets are stated at cost or valuation less accumulated depreciation and impairment losses. The cost of an assetcomprises its purchase price and any directly attributable costs of bringing the asset to working condition for its intendeduse. Expenditure for additions, improvements and renewals are capitalised and expenditure for maintenance and repairsare charged to the profit and loss account.

NOTES TO THE FINANCIAL STATEMENTS31 December 2006

2. Summary of significant accounting policies (cont’d)


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Where fixed assets are revalued, any surplus on revaluation is credited to the asset revaluation reserve. A decrease in netcarrying amount arising on revaluation of fixed assets is charged to the profit and loss account to the extent that it exceedsany surplus held in reserve relating to previous revaluation of the same asset.

2.11 DepreciationDepreciation of an asset begins when it is available for use and is computed on the straight-line method to write off thecost or valuation of fixed assets over their estimated useful lives. Construction-in-progress is not depreciated as theseassets are not available for use. The estimated useful lives of fixed assets are as follows:

Freehold and leasehold land and buildings 45 years or remaining period of leaseQuays and dry docks 60 years or remaining period of leasePlant, machinery and tools 3 to 10 yearsMotor vessels, launches, cranes and floating docks 3 to 20 yearsMotor vehicles 3 to 5 yearsFurniture and office equipment 3 to 5 yearsUtilities and fittings 30 yearsComputer equipment 1 to 5 years

The residual value, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount,method and period of depreciation are consistent with previous estimates and the expected pattern of consumption ofthe future economic benefits embodied in the items of fixed assets.

Fully depreciated assets are retained in the financial statements until they are no longer in use and no further charge fordepreciation is made in respect of these assets. Fixed assets are derecognised upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in theprofit and loss account in the year the asset is derecognised.

2.12 Financial assetsFinancial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. Financial assets are recognised on the balancesheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not atfair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financialassets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end.

Financial assets at fair value through profit or lossFinancial assets are included in the category 'financial assets at fair value through profit or loss' if they are acquired forthe purpose of selling in the near term. Derivative financial instruments are also classified as 'financial assets at fair valuethrough profit or loss' unless they are designated as effective hedging instruments. Gains or losses on 'financial assetsat fair value through profit or loss' are recognised in the profit and loss account.

Held-to-maturity investmentsNon-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturitywhen the Group has the positive intention and ability to hold the assets to maturity. Such assets are subsequently measuredat amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account whensuch assets are derecognised or impaired, as well as through the amortisation process.

Loans and receivablesNon-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classifiedas loans and receivables. Such assets are carried at amortised cost using the effective interest method, less impairmentlosses. Gains and losses are recognised in profit and loss account when the loans and receivables are derecognised orimpaired, as well as through the amortisation process.

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The Group classifies the following financial assets as loans and receivables:

• bank and cash balances and fixed deposits• trade and other debtors, including loans and amounts due from subsidiary, associated and related companies, joint

ventures, and related parties

Available for sale financial assetsAvailable for sale financial assets are those non-derivative financial assets that are designated as available-for-sale or arenot classified in any of the three preceding categories. After initial recognition, available for sale financial assets aremeasured at fair value with gains or losses being recognised in the available for sale reserve until the investment isderecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previouslyreported in equity is included in the profit and loss account.

The fair value of investments that are actively traded in organised financial markets is determined by reference to therelevant Exchange's quoted market bid prices at the close of business on the balance sheet date. For investments wherethere is no active market, fair value is determined using valuation techniques.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannotbe reliably measured are measured at cost less impairment losses.

2.13 Cash and cash equivalentsCash and cash equivalents comprise cash on hand, bank balances and fixed deposits which are subject to an insignificantrisk of changes in value. These also include bank overdrafts that form an integral part of the Group's cash management.

2.14 Impairment of financial assetsThe Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or groupof financial assets is impaired.

Assets carried at amortised costIf there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, theamount of the loss is measured as the difference between the asset's carrying amount and the present value of estimatedfuture cash flows discounted at the financial asset's original effective interest rate. The carrying amount of the asset isreduced through the use of an allowance account. The amount of the loss is recognised in the profit and loss account.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively toan event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Anysubsequent reversal of an impairment loss is recognised in the profit and loss account, to the extent that the carrying valueof the asset does not exceed its amortised cost at the reversal date.

Assets carried at costIf there is objective evidence that an impairment loss on a financial asset carried at cost has been incurred, the amountof the loss is measured as the difference between the asset's carrying amount and the present value of estimated futurecash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are notreversed in subsequent periods.

Available-for-sale financial assetsIf an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principalpayment and amortisation) and its current fair value, less any impairment loss previously recognised in the profit and lossaccount, is transferred from equity to the profit and loss account. Reversals of impairment loss in respect of equityinstruments are not recognised in the profit and loss account. Reversals of impairment losses on debt instruments arereversed through the profit and loss account, if the increase in fair value of the instrument can be objectively related toan event occurring after the impairment loss was recognised in the profit and loss account.




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2.15 Derecognition of financial assetsA financial asset is derecognised when the contractual rights to receive cash flows from the asset have expired.

On derecognition of a financial asset, the difference between the carrying amount and the sum of (a) the considerationreceived (including any new asset obtained less any new liability assumed) and (b) any cumulative gain or loss that hasbeen recognised directly in equity is recognised in the profit and loss account.

2.16 Stocks and work-in-progressStocks consist mainly of steel and other materials used for ship and rig repair, building and conversion and are stated atthe lower of cost and net realisable value. Cost is principally determined on the weighted average method. Allowance ismade for all deteriorated, obsolete and slow-moving items.

Work-in-progress comprises mainly uncompleted ship and rig repair, building and conversion jobs. It is stated at the lowerof cost and net realisable value. Cost includes materials, direct labour, sub-contractors' costs and appropriate allocationof fixed and variable production overheads. Allowance is made for anticipated losses, if any, on work-in-progress whenthe possibility of loss is ascertained.

2.17 Financial liabilitiesFinancial liabilities include trade creditors on normal trade terms, other creditors, amount due from subsidiary, associatedand related companies, joint ventures and 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 contractualprovisions of the financial instrument. Financial liabilities are initially recognised at fair value of consideration received lessdirectly attributable transaction costs and subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in the profit and loss account when the liabilities are derecognised as well as throughthe amortisation process. The liabilities are derecognised when the obligation under the liability is discharged or cancelledor expired.

2.18 Borrowing costsBorrowing costs are generally expensed as incurred. Borrowing costs are capitalised if they are directly attributable tothe acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when theactivities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs arebeing incurred. Borrowing costs are capitalised until the assets are ready for their intended use. If the resulting carryingamount of the asset exceeds its recoverable amount, an impairment loss is recorded.

2.19 LeasesFinance lease and hire purchase assetsFinance leases are those leasing agreements including hire purchases that give rights approximating to ownership. Assetsfinanced under such leases are treated as if they had been purchased outright and are capitalised at the inception of thelease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. The correspondingleasing commitments are shown as obligations to the lessor. Depreciation of the relevant assets is provided for as in Note2.11 above. Lease payments are treated as consisting of capital and interest elements and the interest is amortised onthe reducing balance basis over each lease term and charged to the profit and loss account.

Operating leaseWhere the Group has the use of assets under operating leases, payments made under the leases are recognised in theprofit and loss account on a straight-line basis over the term of the lease. Lease incentives received are recognised inthe profit and loss account as an integral part of the total lease payments made.

2.20 Employee benefitsDefined contribution planThe Group participate in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund ("CPF") in Singapore,

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a defined contribution pension scheme. Contributions to national pension schemes are recognised as compensationexpense in the period in which the related services are performed.

Employee leave entitlementEmployee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for theestimated liability for leave as a result of services rendered by employees up to the balance sheet date.

Employee stock optionThe share option programme allows the Group's employees to acquire shares of the Group companies. The fair valueis measured at grant date and spread over the period during which the employees become unconditionally entitled to theoptions (the "vesting date"). The fair value of options granted is recognised as an employee expense with a correspondingincrease in equity using the Binomial Option-Pricing model. At each balance sheet date, the Group revises its estimatesof the number of options that are expected to become exercisable. It recognises the impact of the revision of originalestimates in employee expense and in a corresponding adjustment to equity over the remaining vesting period.

The proceeds received net of any directly attributable transactions costs are credited to share capital when the optionsare exercised.

Retirement gratuityRetirement benefits payable to certain categories of employees upon their retirement are provided for in the financialstatements based on their entitlement under the staff benefit plan or, in respect of unionised employees who joined onor before 31 December 1988, based on an agreement with the Union.

The Group's net obligation in respect of retirement benefit is the amount of future benefits that employees had earned inreturn for their service in the current and prior periods. The obligation is calculated using the projected salary increaseand is discounted to its present value and the fair value of any related assets is deducted.

Performance share planFor performance share plan granted prior to 1 January 2005, an initial estimate is made for the cost of compensationunder the Group's performance share plan based on the number of shares expected to be awarded at the end of theperformance period, valued at market price at the date of the grant of the award. The cost is charged to the profit andloss account on a basis that fairly reflects the manner in which the benefits will accrue to the employee under the planover the service period to which the performance criteria relate.

At each reporting date, the compensation cost is re-measured based on the latest estimate of the number of shares thatwill be awarded considering the performance criteria and the market price of the shares at the reporting date. Any increaseor decrease in compensation cost over the previous estimate is recorded in the profit and loss account for that reportingperiod.

The final measure of compensation cost is based on the number of shares ultimately awarded and the market price atthe date the performance criteria are met.

For performance share plan granted after 1 January 2005, the fair value of equity related compensation is measured usingthe Monte Carlo Simulation method. The method involves projecting future outcomes using on statistical distributions ofkey random variables including share price and volatility of returns.

In estimating the fair value of the compensation cost, market based performance conditions shall be taken in account.Therefore, for performance share grants with market based performance conditions, the compensation cost shall becharged to the profit and loss account with a corresponding increase in equity on a basis that fairly reflects the mannerin which the benefits will accrue to the employee under the plan over the service period to which the performance periodrelates, irrespective of whether this performance condition is satisfied.




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Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Services rendered to external parties:- Ship and rig repair, building and conversion 3,482,274 2,018,386 - -- Others 2,654 7,731 - -

Services rendered to subsidiary companies:- Rental income - - 19,631 17,478- Management fee - - 11,674 11,955

Sale of goods to external parties 60,121 93,162 - -

3,545,049 2,119,279 31,305 29,433


2.23 Income taxesCurrent taxCurrent tax assets and liabilities for the current and prior periods are measured at the amount expected to be recoveredfrom or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enactedor substantively enacted by the balance sheet date.

Deferred taxDeferred taxation is provided, using the liability method, on all temporary differences at the balance sheet date betweenthe tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets andliabilities are measured using the tax rates expected to apply to taxable income in the years on which those temporarydifferences are expected to be recovered or settled based on the tax rates enacted or substantively enacted at the balancesheet date.

Deferred tax liabilities are recognised for all taxable temporary differences associated with investments in subsidiarycompanies, associated companies and joint ventures, except where the timing of reversal of the temporary difference canbe controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unusedtax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporarydifferences, carry-forward of unused tax assets and unused tax losses can be utilised.

Deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged, in the sameor different period, directly to equity.

2.24 Derivative financial instrumentsDerivative financial instruments are used to manage exposures to foreign exchange and interest rate risks arising fromoperational, financing and investment activities. Derivative financial instruments are not used for trading purposes.

Derivative financial instruments are classified as financial assets or liabilities at fair value through profit or loss and are initiallyrecognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured atfair value at each balance sheet date.

Any gains or losses arising from changes in fair value on derivative financial instruments are taken to the profit and lossaccount for the year.

2.25 Segment ReportingA segment is a distinguishable component of the Group that is engaged either in providing products or services (businesssegment), or in providing products or services within a particular economic environment (geographical segment), whichis subject to risks and rewards that are different from those of other segments.

3. TurnoverTurnover represents sales from the various activities described in Note 1 and Note 40, including the revenue recognisedon contracts relating to the ship and rig repair, building and conversion which are at least 20% completed.

Restricted stock planSimilar to Performance Share Plan, the fair value of equity related compensation is measured using the Monte CarloSimulation method as at date of grant. The method involves projecting future outcomes using statistical distributions ofkey random variables including the share price and the volatility of returns. This model takes into the account the probabilityof achieving the performance conditions in the future.

For performance-based restricted share grants, the fair value of the compensation cost is measured at grant date andspread over the service period to which the performance criteria relate and the period during which the employees becomeunconditionally entitled to the shares. The compensation cost is charged to the profit and loss account with a correspondingincrease in equity on a basis that fairly reflects the manner in which the benefits will accrue irrespective of whether thisperformance condition is satisfied.

At balance sheet date, the Group revises its estimates of the number of performance-based restricted shares that theemployees are expected to receive based on the achieving of non-market performance conditions and number of sharesultimately given. It recognises the impact of the revision of original estimates in employee expense and a correspondingadjustment to equity over the remaining vesting period.

2.21 ProvisionsA provision is recognised when there is a present obligation (legal or constructive) as a result of a past event and it isprobable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliableestimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjustedto reflect the current best estimate.

2.22 Impairment of non-financial assetsThe Group assesses at each balance sheet date whether there is any indication that an asset may be impaired. If anysuch indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of theasset's recoverable amount.

An asset's recoverable amount is the greater of the asset's net selling price and value in use. In assessing value in use,the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset. For an asset that does not generatecash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generatingunit to which the asset belongs.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds itsrecoverable amount. All impairment losses are recognised in the profit and loss account or treated as a revaluationdecrease for assets carried at revalued amount to the extent that the impairment loss does not exceed the amount heldin the asset revaluation reserve for that same asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairmentlosses recognised for an asset may no longer exist or may have decreased. If such indication exists, the recoverableamount is estimated. A previously recognised impairment loss is reversed if there has been a change in the estimatesused to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carryingamount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, ifno impairment loss had been recognised. Reversal of an impairment loss is recognised in the profit and loss accountunless the asset is carried at revalued amount, in which case the reversal in excess of impairment loss previously recognisedthrough the profit and loss account is treated as a revaluation increase. After such a reversal, the depreciation charge isadjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basisover its remaining useful life.

An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external event of anexception nature that is not expected to recur, and the increase in recoverable amount relates clearly to the reversal ofthe effect of that specific event.


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Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Directors’ remuneration -Directors of the Company 2,702 2,232 2,702 2,232Other directors of subsidiary companies 3,929 3,322 - -

Professional fees paid to a firm in which aDirector is a member 186 409 61 74

Foreign currency exchange loss/(gain) 15,140 2,858 4,843 (1,168)Gain on disposal of fixed assets (1,679) (1,268) (1,511) -Negative goodwill (677) (224) - -Operating lease expenses 24,812 22,479 9,102 7,920Non-audit fees paid/payable to

auditors of the Company 186 88 112 77

Staff costs, which include Directors’ remuneration for the year, are as follows:

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Salaries and bonus 255,124 189,109 7,157 9,640Defined contribution plan 11,981 9,066 63 82Share-based compensation 8,570 2,537 2,641 457Directors’ fee -

Directors of the Company 767 354 767 354Other directors of subsidiary companies - 15 - -

Other employees benefits 22,610 15,452 295 338

299,052 216,533 10,923 10,871

4. Operating profit/(loss)Operating profit/(loss) is stated after charging/(crediting):

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Gross dividend from:Unquoted subsidiary companies - - 106,695 60,822Unquoted associated companies - - 20,904 5,712Quoted equity shares 1,430 813 1,413 813Unquoted equity shares - 107 - 106

1,430 920 129,012 67,453

Interest income from:Subsidiary company - - 5,007 4,650Related parties 1,713 2,057 1,713 2,057Trade debtors 653 1,443 200 346Fixed deposits and bank balances 14,808 10,487 1,499 548Loan to related companies 1,840 756 - -Others 516 871 5 28

19,530 15,614 8,424 7,629

20,960 16,534 137,436 75,082

6. Finance costsGroup Company

2006 2005 2006 2005$’000 $’000 $’000 $’000

Finance costs:Related company (805) (68) - -Borrowings (9,334) (4,717) (4,500) (4,500)Interest rate swap – fair value through

profit and loss (410) - - -

(10,549) (4,785) (4,500) (4,500)

5. Dividend and interest income


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(a) In 2005, a Memorandum of Agreement had been signed with a buyer to sell the vessel and an impairment loss of $1.0million was taken up to write-down the asset to its recoverable amount. During the current year, the offer to buy thevessel had not materialised and a further impairment loss of $6.1 million was taken up based on an independentexternal valuation at that time.

Following the lapse of the above offer in March 2006, the vessel was being reclassified from asset held for sale to fixedassets during the current year and a depreciation charge of $2.6 million was taken up in respect of the vessel.

(b) In 2005, an associated company group made losses for that year and based on the recoverable amount as reflectedin the associated company group’s balance sheet, an impairment of $6.2 million was taken up.

9. Share of results of associated companies and joint ventures

Group2006 2005$’000 $’000

Share of profit for the year 44,364 19,538Share of taxation for the year (Note 10) (4,978) (2,528)

39,386 17,010

10. Taxation

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

In respect of profit for the year:Current taxation 52,146 24,386 11,969 7,325Deferred taxation 4,307 6,750 (628) 1,356

56,453 31,136 11,341 8,681

Under provision in respect of prior years:Current taxation 231 597 23 -Deferred taxation 678 10 - -

909 607 23 -

Share of taxation of associatedcompanies and joint ventures (Note 9) 4,978 2,528 - -

62,340 34,271 11,364 8,681

As at 31 December 2006, certain subsidiary companies have unutilised tax losses of $74,491,000 (2005: $65,083,000)and capital allowances of $228,000 (2005: $5,374,000) available for set-off against future taxable income subject to theincome tax provisions and agreement by the relevant tax authorities of the various jurisdictions.

The unutilised tax losses and capital allowances in a subsidiary company amounting to $11,826,000 (2005: $14,783,000)will expire between 2007 to 2011 (2005: 2006 to 2010).

The amounts of tax losses and capital allowances previously carried forward at the beginning of the year and which havebeen utilised in the year to arrive at the computation of tax liabilities for the year are as disclosed below.

7. Non-operating income

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Gain on disposal of:Available for sale investments

- Long term quoted equity 25,598 9,911 - 9,911 - Long term unquoted equity - 733 - 733

Subsidiary company 11,018 - - -Associated companies - 552 - 473

36,616 11,196 - 11,117

8. Non-operating expenses

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Impairment loss:Asset previously held for sale, Note (a) (6,127) (963) - -Associated companies, Note (b) - (6,214) - -

(6,127) (7,177) - -Allowance for impairment in value of

loan to an associated company - - - (313)Depreciation of asset previously

held for sale, Note (a) (2,626) - - -

(8,753) (7,177) - (313)


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A reconciliation between the tax expense and the product of accounting profit multiplied by the applicable tax rate forthe years ended 31 December was as follows:

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Tax at 20% (2005: 20%) 53,301 29,306 26,233 17,092Exempt income, capital gains and tax incentives (1,177) (92) (16,581) (8,616)Effect of different tax rate in foreign jurisdiction 159 (440) - -Effect of unremitted overseas losses (844) (1,355) - -Effect on utilisation of deferred tax assets not

previously recognised (3,204) (52) - -Non deductible expenses 7,738 1,871 1,684 228Under provision in respect of prior years 909 607 23 -Deferred tax assets not recognised 321 1,990 - -Others 159 (92) 5 (23)

Effective tax 57,362 31,743 11,364 8,681

Share of taxation of associated companiesand joint ventures 4,978 2,528 - -

62,340 34,271 11,364 8,681

11. Earnings per share(a) Basic earnings per share (“EPS”) is calculated by dividing the profit attributable to shareholders after deducting minority

interests of $238,388,000 (2005: $121,398,000) by the weighted average number of ordinary shares in issue duringthe year of 1,454,242,320 (2005: 1,436,843,784).

(b) Diluted EPS is calculated after adjusting for those shares not yet exercised under the SembCorp Marine Share OptionPlan as follows:

Group2006 2005

Weighted average number of ordinary shares in issue during the year 1,454,242,320 1,436,843,784Effects of dilutive share options 36,855,000 35,454,000

Weighted average number of ordinary shares outstanding used in thecalculation of diluted EPS 1,491,097,320 1,472,297,784

(c) The basic and diluted EPS are as follows:Group

2006 2005Cents Cents

Basic EPS 16.39 8.45Diluted EPS 15.99 8.25

Land and buildings

Construction-in-progress

$’000

Plant,machineryand tools

$’000Total$’000

Cost or valuationBalance at 1 January 2005At cost 4,393 137,257 62,568 424,878 184,133 40,389 853,618At valuation - - - 25,152 - - 25,152

4,393 137,257 62,568 450,030 184,133 40,389 878,770Currency re-alignment 98 - - - 8 10 116Additions - 2,287 102,822 1,740 24,182 8,584 139,615Acquisition of subsidiary companies 10,003 261 - 904 446 460 12,074Transfers - 1,873 (7,763) (2,228) 8,027 91 -Transfer from associated company - 9,349 - - 244 - 9,593Disposals (29) - (22) (9,987) (5,234) (378) (15,650)Write-off - (184) - - (668) (167) (1,019)

At 31 December 2005 14,465 150,843 157,605 440,459 211,138 48,989 1,023,499

Balance at 31 December 2005At cost 14,465 150,843 157,605 415,307 211,138 48,989 998,347At valuation - - - 25,152 - - 25,152

14,465 150,843 157,605 440,459 211,138 48,989 1,023,499

Balance at 1 January 2006At cost 14,465 150,843 157,605 415,307 211,138 48,989 998,347At valuation - - - 25,152 - - 25,152

14,465 150,843 157,605 440,459 211,138 48,989 1,023,499Currency re-alignment (890) (1,266) (7,373) (72) (3,817) (1,150) (14,568)Additions 214 24,321 44,077 6,376 45,615 5,675 126,278Acquisition of subsidiary companies 13 97,019 14,818 38,808 12,857 896 164,411Transfer from asset held for sale - - - 46,103 - - 46,103Transfers - (4,918) (6,432) 9,411 1,126 813 -Disposals (116) - (259) (948) (4,269) (2,507) (8,099)Disposal of subsidiary company - - (175,657) - - - (175,657)Write-off - (600) - (135) (2,199) (1,504) (4,438)

At 31 December 2006 13,686 265,399 26,779 540,002 260,451 51,212 1,157,529

Balance at 31 December 2006At cost 13,686 265,399 26,779 514,850 260,451 51,212 1,132,377At valuation - - - 25,152 - - 25,152

13,686 265,399 26,779 540,002 260,451 51,212 1,157,529

Freehold$’000

Short termleasehold

$’000Group Others

$’000

Docks, quays,launches,

cranes andmarine vessels

$’000

12. Fixed assets

10. Taxation (cont’d)


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Land and buildings

Construction-in-progress

$’000

Plant,machineryand tools

$’000Total$’000

Accumulated depreciation andallowance for impairment loss

At 1 January 2005 483 62,424 - 190,375 130,011 35,457 418,750Currency re-alignment 11 - - - 8 10 29Charge for the year 162 4,192 - 12,364 17,060 4,199 37,977Transfers - 17 - - 11 (28) -Transfer from associated company - 2,716 - - 171 - 2,887Disposals - - - (9,614) (4,755) (348) (14,717)Write-off - (184) - - (663) (164) (1,011)

At 31 December 2005 andat 1 January 2006 656 69,165 - 193,125 141,843 39,126 443,915

Currency re-alignment (22) (757) - (4) (2,204) (843) (3,830)Charge for the year 771 6,532 - 17,856 18,191 4,737 48,087Transfers - 741 - 1,014 (2,411) 656 -Disposals (74) - - (232) (3,417) (2,387) (6,110)Write-off - (161) - (63) (2,017) (1,316) (3,557)

At 31 December 2006 1,331 75,520 - 211,696 149,985 39,973 478,505

Net book valueAt 31 December 2006 12,355 189,879 26,779 328,306 110,466 11,239 679,024

At 31 December 2005 13,809 81,678 157,605 247,334 69,295 9,863 579,584

Freehold$’000

Short termleasehold

$’000Group Others

$’000



$’000

12. Fixed assets (cont’d)

Land and buildingsPlant,

machineryand tools

$’000Total$’000

Cost or valuationBalance at 1 January 2005At cost 1,553 42,837 178,783 7,365 734 231,272At valuation - - 25,152 - - 25,152

1,553 42,837 203,935 7,365 734 256,424Additions - - - - 50 50Disposals (35) - - - - (35)Transfer from associated company - 9,349 - 244 - 9,593

At 31 December 2005 1,518 52,186 203,935 7,609 784 266,032

Balance at 1 January 2006At cost 1,518 52,186 178,783 7,609 784 240,880At valuation - - 25,152 - - 25,152

1,518 52,186 203,935 7,609 784 266,032Additions - - - - 524 524Disposals (116) - - - (76) (192)

At 31 December 2006 1,402 52,186 203,935 7,609 1,232 266,364

Balance at 31 December 2006At cost 1,402 52,186 178,783 7,609 1,232 241,212At valuation - - 25,152 - - 25,152

1,402 52,186 203,935 7,609 1,232 266,364

Accumulated depreciationAt 1 January 2005 167 18,300 57,230 3,663 615 79,975Charge for the year 34 1,069 3,435 864 89 5,491Transfer from associated company - 2,716 - 171 - 2,887

At 31 December 2005 and at 1 January 2006 201 22,085 60,665 4,698 704 88,353Charge for the year 31 1,070 3,435 857 180 5,573Disposal (74) - - - (45) (119)

At 31 December 2006 158 23,155 64,100 5,555 839 93,807

Net book valueAt 31 December 2006 1,244 29,031 139,835 2,054 393 172,557

At 31 December 2005 1,317 30,101 143,270 2,911 80 177,679

Freehold$’000

Short termleasehold

$’000Company Others

$’000



$’000


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(a) The carrying amounts of docks, quays, launches, cranes and marine vessels include certain docks and quays statedat Directors’ valuation of $25,152,000 in the year 1973. Subsequent additions to these docks and quays were statedat cost. The revaluation was done on a one-off basis and accordingly, the transitional provision in FRS 16 – Property,Plant and Equipment was adopted to continue with its existing policy of stating these docks and quays at cost andrevalued amounts. If the following re-valued assets of the Group and Company have been included in the financialstatements at cost less accumulated depreciation, the net written down value would have been:

Group and Company2006 2005$’000 $’000

Docks and quays 5,997 6,245

The re-valued net book value of the docks and quays is $10,134,000 (2005: $10,554,000).

(b) As at balance sheet date, the net book value of fixed assets under “Others” acquired under hire purchase agreementsamounted to $837,000 (2005: $565,000) for the Group.

(c) Others comprise motor vehicles, furniture and office equipment, utilities and fittings and computer equipment.

13. Investments in subsidiary companiesCompany

2006 2005$’000 $’000

Unquoted shares, at cost 326,630 267,919Allowance for impairment loss (15,251) (15,251)

311,379 252,668

Allowance for impairment loss of a subsidiary company

Balance at 1 January and 31 December 15,251 15,251

The Company’s subsidiary companies are set out in Note 40.

The effect of the acquisitions of subsidiary companies on the financial position of the Group at 31 December and its resultsfor the year since the dates of acquisition is shown below:

2006 2005$’000 $’000

Contribution to the Group for the period since the dates of acquisition:

Turnover 72,348 1,316

Profit before taxation 4,785 424Negative goodwill - 224

4,785 648Taxation (698) (140)

Profit after taxation 4,087 508Minority interests - (76)

4,087 432

Total assets at 31 December 333,894 18,437Total liabilities at 31 December (317,327) (18,191)

If the combination had taken place at the beginning of the year, the profit and revenue contributed by the acquired entitiesto the Group for the year would have been $46,431,000 (2005: loss of $594,000) and $253,732,000 (2005: $17,660,000)respectively. The profit consists mainly of non-operating income not expected to recur in the financial year 2007.

14. Investments in associated companies and joint ventures

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Associated companiesUnquoted shares, at cost 93,747 68,521 92,445 66,259

Share of net post-acquisition reserves 47,477 36,167 - -

141,224 104,688 92,445 66,259

12. Fixed assets (cont’d)


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The aggregate amounts of each of current assets, non-current assets, current liabilities, non-current liabilities, incomeand expenses related to the Group’s interest in the joint ventures are as follows:

Group2006 2005$’000 $’000

Results of the joint ventures:Turnover 7,940 3,545

Profit before taxation 3,442 1,011Taxation (3) -

Profit for the year 3,439 1,011

Balance sheet of the joint ventures:Non-current assets 34,307 24,772Current assets 4,321 2,404Current liabilities (16,002) (8,388)Non-current liabilities (16,595) (16,596)

Net assets 6,031 2,192

15. Other long term investments

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Available for sale financial assetsQuoted equity securities, at fair value 344,699 75,861 160,557 75,846Unquoted non-equity securities, at fair value 360 247 360 247Unquoted equity securities, at cost 1,430 1,352 1,345 1,345

Financial assets at fair value through profit and lossQuoted equity securities, at fair value 498 471 - -

346,987 77,931 162,262 77,438

Other investments are mainly denominated in Singapore Dollars.

Unquoted equity securities which are stated at cost have no market prices and the fair value cannot be reliably measuredusing valuation techniques.

14. Investments in associated companies and joint ventures (cont d)

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Joint venturesUnquoted shares, at cost 650 250 - -Share of net post-acquisition reserves 5,381 1,942 - -

6,031 2,192 - -

147,255 106,880 92,445 66,259

The Group’s associated companies and joint ventures are set out in Note 40.

The summarised financial information of the associated companies are as follows:

Group2006 2005$’000 $’000

Results of the associated companies:Turnover 1,482,397 1,100,577

Profit before taxation 138,711 78,336Taxation (15,747) (8,592)

Profit for the year 122,964 69,744

Balance sheet of the associated companies:Non-current assets 856,490 641,621Current assets 793,704 475,699Current liabilities (1,040,026) (500,705)Non-current liabilities (190,732) (311,065)

Net assets 419,436 305,550


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16. Trade debtors

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Under current assetsTrade debtors, Note (a) 436,286 246,767 38,101 44,929Less: Allowance for doubtful debts,

Note (b) (10,104) (7,568) (651) (651)

426,182 239,199 37,450 44,278Under non-current assetsLong term trade debtors, Note (c) 39,952 47,390 36,952 41,602

466,134 286,589 74,402 85,880

(a) Current assetsAssociated companies 192 108 - 12Related companies 369 11,071 - -Related parties 1,958 991 - -Subsidiary companies - - 32,029 35,051Joint ventures 225 1,000 - -External parties 427,680 227,975 1,422 5,409Lease receivables, Note (d) 5,862 5,622 4,650 4,457

436,286 246,767 38,101 44,929

Other than lease receivables as explained in Note (d), the remaining balances shown above are interest free. All the amountsdue from subsidiary, associated and related companies, joint ventures, and related parties are unsecured, repayable ondemand and to be settled in cash.

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

(b) Allowance for externalparty doubtful debtBalance at 1 January 7,568 8,774 651 651Charge for the year 2,894 - - -Write-back for the year (813) (982) - -Acquisition of subsidiary companies 3,057 - - -Bad debts written off (2,524) (123) - -Currency re-alignment (78) (101) - -

Balance at 31 December 10,104 7,568 651 651

Net bad debts written off directly to profit and loss account 205 503 - -

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

(c) Long term trade debtorsExternal parties - 1,576 - -Lease receivables, Note (d) 39,952 45,814 36,952 41,602

39,952 47,390 36,952 41,602

(d) Lease receivablesRelated parties - 4,457 - 4,457External parties 5,862 1,165 4,650 -

Total under “Current assets”, Note (a) 5,862 5,622 4,650 4,457

Related parties - 41,602 - 41,602External parties 39,952 4,212 36,952 -

Total under “Long term trade debtors”, Note (c) 39,952 45,814 36,952 41,602

Under the terms of the lease agreements, no contingent rents are recognised. Interest rates for the Group and theCompany ranged from 4% to 4.25% (2005: 4% to 4.25%) per annum and 4.25% (2005: 4.25%) per annum respectively.These lease receivables relate to the leases of marine vessels for which the lessees have the option to purchase themarine vessels during the term of the leases. Additional information on lease receivables is set out in Note (e).

(e)Additional information on lease receivables

Receivable within 1 year 7,686 - 7,686 (1,824) 5,862Receivable after 1 year but within 5 years 25,313 3,000 28,313 (4,608) 23,705Receivable after 5 years 12,657 4,500 17,157 (910) 16,247

45,656 7,500 53,156 (7,342) 45,814

2005

Receivable within 1 year 7,687 - 7,687 (2,065) 5,622Receivable after 1 year but within 5 years 26,672 3,000 29,672 (5,615) 24,057Receivable after 5 years 18,985 4,500 23,485 (1,728) 21,757

53,344 7,500 60,844 (9,408) 51,436

Minimumlease

payment$’000

Total grossinvestment

in lease$’000

Present valueof minimum

leasepayment

$’000

Unearnedinterestincome$’000

Estimatedresidual

value$’000

Group2006


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16. Trade debtors (cont d)

Receivable within 1 year 6,328 - 6,328 (1,678) 4,650Receivable after 1 year but within 5 years 25,313 - 25,313 (4,608) 20,705Receivable after 5 years 12,657 4,500 17,157 (910) 16,247

44,298 4,500 48,798 (7,196) 41,602

2005

Receivable within 1 year 6,328 - 6,328 (1,871) 4,457Receivable after 1 year but within 5 years 25,313 - 25,313 (5,468) 19,845Receivable after 5 years 18,985 4,500 23,485 (1,728) 21,757

50,626 4,500 55,126 (9,067) 46,059

Minimumlease

payment$’000

Total grossinvestment

in lease$’000


leasepayment

$’000


Estimatedresidual

value$’000

Company2006

(f) Gross trade debtors are denominated in the following foreign currencies

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

United States Dollar 290,779 104,000 1,422 5,409Euro 1,725 788 - -Singapore Dollar 182,446 189,068 73,631 81,122Others 1,288 301 - -

476,238 294,157 75,053 86,531

17. Other debtors, deposits, and prepayments

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Under current assetsDeposits and recoverables, Note (a) 39,399 23,004 2,166 685Non-trade receivables, Note (b) 17,734 8,320 33,223 100,323Prepayments 5,628 3,536 - -Staff loans, Note (c) 2,164 2,378 82 25

64,925 37,238 35,471 101,033Under non-current assetsLong term other debtors, Note (d) 15,974 16,765 276,892 238,184

80,899 54,003 312,363 339,217

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

(a) Deposits and recoverablesGST refundable 16,947 11,725 - -Interest receivable 404 1 1 1Recoverable amount 8,668 8,858 114 243Tax recoverable 2,185 496 1,688 -Withholding tax recoverable, Note (g) 6,957 - - -Sundry deposits 4,238 1,924 363 441

39,399 23,004 2,166 685

Recoverable amount for the Group includes $198,000 (2005: $190,000) which bears interest of 4% to 8% (2005: 4%to 8%) per annum.

(b) Non-trade receivablesAssociated companies

and joint-ventures 343 1 - -Related company 691 8,319 - -Subsidiary companies - - 33,223 100,323Immediate holding company 16,700 - - -

17,734 8,320 33,223 100,323

All amounts due from associated, related, and subsidiary companies, joint ventures and the immediate holding company,which comprise mainly advances and payments on behalf, are unsecured, interest-free, repayable on demand andto be settled in cash, with the exception of the following:

(i) related company balances amounting to $Nil (2005: $8,319,000), which were interest bearing unsecured fixeddeposits bearing interest at Nil% (2005: 1.1% to 4.47%) per annum; and

(ii) balances due from subsidiary companies amounting to $29,467,000 (2005: $Nil), which bear interest ranging from0.8% to 2.68% (2005: Nil) per annum.

(c) Staff loansStaff loans bear interest at 3.00% (2005: 3.00%) per annum.

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

(d) Long term other debtorsLoans to subsidiary companies,

Note (e) - - 276,892 238,184Loans and advances to joint

ventures, Note (f) 15,974 16,765 - -

15,974 16,765 276,892 238,184


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(e) Loans to subsidiary companiesOther than loan to a subsidiary company of $149,625,000 (2005: $149,625,000) which bears interest at a fixed rateof 3.1% (2005: 3.1%) per annum, the remaining loans to subsidiary companies are interest free. All the loans tosubsidiary companies are unsecured, not trade related, to be settled in cash and not expected to be repaid within thenext twelve months.

(f) Loans and advances to joint venturesLoans and advances to a joint venture company are unsecured, interest-free, to be settled in cash, and are not expectedto be repaid within the next twelve months.

(g) Withholding tax recoverableThis amount arose mainly due to the acquisitions of subsidiary companies during the current year and have beenwarranted by the seller to the Group.

18. Intangible assetsGroup Company

2006 2005 2006 2005$’000 $’000 $’000 $’000

Goodwill on consolidation, Note (a) 13,467 3,352 - -Other intangible assets, Note (b) 3 62 - -Club memberships, Note (c) 187 187 122 122

13,657 3,601 122 122

(a) Goodwill on consolidationBalance at 1 January 3,352 3,352 - -Acquisition of subsidiary companies 10,115 - - -

Balance at 31 December 13,467 3,352 - -

Carrying amount of goodwill allocated to each of the Group’s cash-generating units are as follows:

Ship and rig repair, buildingand conversion 12,444 3,130 - -

Others 1,023 222 - -

Total 13,467 3,352 - -

For goodwill impairment testing, the recoverable amounts of the cash generating units of the Group have been determinedbased on a value in use calculation using cash flow projections based on financial budgets approved by senior managementfor the next financial year.

As at balance sheet date, no impairment assessment was performed for goodwill of $9,314,000 (2005: $Nil) which wasdetermined provisionally due to acquisitions of subsidiary companies during the year.

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

(b) Other intangible assetsCostBalance at 1 January 75 - - -Acquisition of subsidiary companies - 75 - -

Balance at 31 December 75 75 - -

Accumulated amortisationBalance at 1 January 13 - - -Charge for the year 59 13 - -

Balance at 31 December 72 13 - -

Net book valueBalance at 31 December 3 62 - -

(c) Club membershipsClub memberships are stated at cost and after deducting allowance for impairment loss of $653,000 (2005: $653,000)for the Group and $468,000 (2005: $468,000) for the Company.

19. Stocks and work-in-progressGroup

2006 2005$’000 $’000

CostMaterials, Note (a) 35,571 41,268Finished goods, Note (a) 1,812 3,050Work-in-progress, Note (b) 1,154,674 588,672

1,192,057 632,990

(a) Materials and finished goods are stated afterdeducting allowance for stock obsolescence of:

Materials 1,443 998Finished goods 247 399

1,690 1,397

Allowance for obsolete stock obsolescence:Balance at 1 January 1,397 872Charge for the year 735 525Write-back for the year (442) -

Balance at 31 December 1,690 1,397

17. Other debtors, deposits, and prepayments (cont d)


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Group2006 2005$’000 $’000

(b) Work-in-progressCosts and attributable profits less allowance for foreseeable losses 3,269,543 2,206,803Less: Progress billings (2,114,869) (1,618,131)

1,154,674 588,672

20. Asset held for saleThe asset held for sale is a vessel which was acquired in June 2004 when a subsidiary company exercised its rights asmortgagee to take possession of an asset when the owners defaulted on their payment under the financing term grantedin respect of the vessel’s repairs. The legal title of this vessel was transferred to a subsidiary company upon the possessionof the vessel. During the year, this vessel was reclassified to fixed assets. See further details in Note 8(a).

21. Trade creditors

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Associated companies and joint-ventures 1,017 1,488 - -Immediate holding company 254 250 250 250Related companies 1,309 9,416 686 145Related parties 72 527 - -Subsidiary companies - - 9 25External parties 920,183 545,313 13,624 10,828

922,835 556,994 14,569 11,248

All the amounts due to immediate holding company, subsidiary, associated and related companies, joint-ventures andrelated parties are interest-free, unsecured, repayable on demand and to be settled in cash.

Trade creditors are denominated in the following foreign currencies:

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

United States Dollar 133,405 73,365 - -Euro 29,846 9,176 - -Singapore Dollar 722,369 469,876 14,569 11,248Others 37,215 4,577 - -

922,835 556,994 14,569 11,248

22. Other creditors and provisionsGroup Company

2006 2005 2006 2005$’000 $’000 $’000 $’000

Deposits received 1,748 3,953 26 26GST payables 1,732 1,811 1,184 147Hire purchase creditors (Note 27) 393 209 - -Non-trade payables, Note (a) 13,975 9,045 35,117 1,869Provisions for warranty, Note (b) 3,020 1,517 - -Interest payable 2,138 1,184 234 1,184

23,006 17,719 36,561 3,226

(a) Non-trade payablesSubsidiary companies - - 33,000 67Associated companies and joint-ventures 1,825 - 1,780 -Related company 78 - - -External parties 12,072 9,045 337 1,802

13,975 9,045 35,117 1,869

The non-trade payables to the associated, related and subsidiary companies and joint ventures are unsecured, interestfree, repayable on demand and to be settled in cash.

Group2006 2005$’000 $’000

(b) Provision for warrantyBalance at 1 January 1,517 1,632Charge/(write-back) to profit and loss account 1,503 (115)

Balance at 31 December 3,020 1,517

23. Progress billings in excess of work-in-progressGroup

2006 2005$’000 $’000

Costs and attributable profits 592,506 50,464Less: Progress billings (1,135,250) (425,763)

Progress billings in excess of work-in-progress (542,744) (375,299)

19. Stocks and work-in-progress (cont d)

184-210 account notes.294.faced 4/2/07 1:48 PM Page 1

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24. BorrowingsGroup Company

2006 2005 2006 2005$’000 $’000 $’000 $’000

Current liabilitiesBank overdrafts, Note (a) 10,340 - - -Short term bank loans, Note (b) 58,119Term loan, Note (c) 12,000 - - -Medium term notes, Note (d) 59,984 - - -

140,443 - - -

Non-current liabilitiesTerm loan, Note (c) 44,000 - - -Medium term notes, Note (d) 149,795 149,720 149,795 149,720Revolving credit loan, Note (e) 56,750 - - -

250,545 149,720 149,795 149,720

Total borrowings 390,988 149,720 149,795 149,720

All borrowings are denominated in Singapore Dollars except for an amount of $37,470,000 (2005: Nil) which are denominatedin United States Dollars. Non-current borrowings are due after 1 year but within 5 years.

(a) Bank overdrafts are unsecured and bears interest rate ranging from 5.0% to 7.0% (2005: Nil) per annum.

(b) The unsecured short term bank loans are repayable between January to March 2007 and bear interest rate rangingfrom 3.73% to 5.6% (2005: Nil) per annum.

(c) The term loan is repayable in 60 equal monthly instalments of $1 million each and shall be fully repaid on 30 August2011. The term loan bears interest at a rate fixed at 3.93% (2005 :Nil) per annum and is secured by a corporateguarantee from a subsidiary company.

(d) During 2004, the Company established a $500,000,000 Multicurrency Multi-issuer Debt Issuance Programme (the“MTN”) pursuant to which the Company, together with its subsidiary companies Jurong Shipyard Pte Ltd and SembawangShipyard Pte Ltd (“Issuing Subsidiary Companies”), may from time to time issue the Notes (as defined below). Theobligations of Issuing Subsidiary Companies under the Notes will be fully guaranteed by the Company.

Under the MTN, the Company or any of the Issuing Subsidiary Companies may from time to time issue notes in seriesor tranches in Singapore Dollars and/or any other currency.

The 1st series of $150,000,000 5-year fixed rate notes issued by the Company on 27 September 2004, are redeemableat par on 26 September 2009 and bear fixed interest rate of 3.0% per annum and are listed on the Singapore ExchangeSecurities Trading Limited and will be cleared through the Central Depository (Pte) Ltd.

The $60,000,000 1-year fixed rate notes issued by a subsidiary company on 30 August 2006, are redeemable at paron 30 August 2007 and bear fixed interest rate of 3.71% per annum and are listed on the Singapore Exchange SecuritiesTrading Limited and will be cleared through the Central Depository (Pte) Ltd.

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

MTN borrowings- current 60,000 - - -- non-current 150,000 150,000 150,000 150,000

Less: Capitalised issue expenses (221) (280) (205) (280)

209,779 149,720 149,795 149,720

Capitalised issue expenses

Balance at 1 January 280 355 280 355Amount paid 24 - - -Amortised during the year (83) (75) (75) (75)

Balance at 31 December 221 280 205 280

(e) The revolving credit loan is repayable not later than 30 August 2011 and bears interest at floating rate which rangesfrom 3.81% to 3.87% (2005: Nil) per annum and is secured by a corporate guarantee from a subsidiary company.

25. Derivative financial instruments

Group 2006 2006 2005 2005Notional Assets/ Notional Assets/amount (Liabilities) amount (Liabilities)

$’000 $’000 $’000 $’000

Forward currency contract:- Bought contracts 20,272 (190) 816,384 (8,833)- Sold contracts - - 464,045 1,806

Interest rate swap 56,750 (410) - -Foreign exchange swap contracts 1,107,300 (7,370) - -

Balance at 31 December (7,970) (7,027)

As at 31 December 2006, the settlement dates on open derivative contracts ranged between 1 to 5 months (2005: 1 to6 months). The fixed interest rate on interest rate swap is 3.93% (2005: Nil) per annum and is used to hedge the interestrate risk arising from the revolving credit loan as disclosed in Note 24(e).


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26. Deferred taxationGroup Company

2006 2005 2006 2005$’000 $’000 $’000 $’000

Balance at 1 January 68,695 46,510 41,872 28,137Currency re-alignment (374) - - -Charge/(write-back) for the year 4,985 6,760 (628) 1,356Acquisition of subsidiary companies - 3,046 - -Charge to equity 36,229 12,379 16,940 12,379

Balance at 31 December 109,535 68,695 58,184 41,872

Deferred taxation recognised arises as a result of:

Deferred tax liabilitiesDifferences in depreciation 61,812 56,901 28,865 29,493Fair value adjustments 48,608 12,379 29,319 12,379Other 3,355 2,792 - -

113,775 72,072 58,184 41,872

Deferred tax assetsAllowance for doubtful debts (129) (179) - -Unutilised tax losses, capital and investment allowance likely to be utilised (2,498) (2,302) - -Employee benefits (1,544) (804) - -Other deferred tax assets (69) (92) - -

(4,240) (3,377) - -

109,535 68,695 58,184 41,872

Classified in the balance sheet as follows:Deferred tax asset - (872) - -Deferred tax liability 109,535 69,567 58,184 41,872

109,535 68,695 58,184 41,872

Deferred tax assets not recognised as a result of:Group

2006 2005$’000 $’000

Doubtful debts (2,097) (1,047)Unutilised tax losses, capital and investment allowance unlikely to be utilised (13,721) (17,895)

(15,818) (18,942)

Deferred tax assets have not been recognised because it is not probable that future taxable profit will be available againstwhich the subsidiary companies can utilise the benefit therefrom.

27. Hire purchase creditors

Payable after 1 year but within 5 years 328 (25) 303Payable within 1 year, under “Other creditors

and provisions” (Note 22) 419 (26) 393

747 (51) 696

2005

Payable after 1 year but within 5 years 255 (42) 213Payable within 1 year, under “Other creditors

and provisions” (Note 22) 229 (20) 209

484 (62) 422

The hire purchase agreements do not contain any escalation clauses and do not provide for contingent rents. The implicitinterest rates range from 5.23% to 6.81% (2005: 5.19% to 6.81%) per annum. The net book value of assets acquiredunder hire purchase agreements are disclosed in Note 12. Lease terms do not contain restrictions concerning dividend,additional debt or further leasing.

Minimumlease

payment$’000


leasepayment

$’000


Group2006

28. Other provisionsGroup Company

2006 2005 2006 2005$’000 $’000 $’000 $’000

Provision for retirement gratuities, Note (a) 3,209 3,202 - -Provision for restoration of fixed assets, Note (b) 4,790 4,867 2,895 2,895

7,999 8,069 2,895 2,895

(a) Provision for retirement gratuitiesBalance at 1 January 3,202 3,110 - -Charge for the year 252 149 - -Utilised during the year (245) (57) - -

Balance at 31 December 3,209 3,202 - -

b) Provision for restoration of fixed assetsBalance at 1 January 4,867 3,895 2,895 2,895Currency re-alignment (77) - - -Charge for the year - 972 - -

Balance at 31 December 4,790 4,867 2,895 2,895


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29. Share capitalGroup and Company

2006 2005$’000 $’000

Issued and fully paid up ordinary shares:Balance at 1 January

1,450,357,615 (2005: 1,427,607,630) shares 145,036 142,761

Transfer from share premium to share capital 259,540 -

Issued during the yearExercise of share options of 13,551,200 (2005: 22,749,985) shares 14,055 2,275

Balance at 31 December1,463,908,815 (2005: 1,450,357,615) shares 418,631 145,036

On 30 January 2006, in accordance with the Companies (Amendment) Act 2005, the concept of “par value” and “authorisedcapital” was abolished and on that date, the shares of the Company ceased to have a par value and the amount standingin the share premium reserve became part of the Company’s share capital.

The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary sharescarry one vote per share without restriction. During the year, other than the issue of new shares upon the exercise of shareoptions under the SembCorp Marine Share Option Plan (the “Plan”) there was no other issue of new shares.

(a) Share Option PlanShare options were granted in 2006 (the “2006 Options”) and in 2005 (the “2005 Options”) pursuant to the Plan in respectof 9,875,075 (2005: 15,557,000) unissued ordinary shares to 1,291 (2005: 1,174) full time executives of the Group, 10(2005: 9) Directors of the Company and 13 (2005: 16) executives of the immediate holding company, SembCorp IndustriesLtd, who are not substantial shareholders of the Company. In respect of options granted to executives of the immediateholding company, a total of 87,000 (2005: 140,000) options were granted to executives during the financial year, makingit a total of 1,780,000 (2005: 1,693,000) options granted to those executives from the commencement of the Plan tothe end of the financial year.

The fair values of options of the Company granted at the date of the grant during the year are estimated using the BinomialOption-Pricing model as follows:

2006 Options1 Oct 2007 to 1 Oct 2011 560,000 $3.33 $0.611 Oct 2007 to 1 Oct 2016 9,315,075 $3.33 $0.61

2005 Options12 Aug 2006 to 11 Aug 2010 530,000 $2.96 $0.4712 Aug 2006 to 11 Aug 2015 15,027,000 $2.96 $0.47

Number of sharesoptions granted

Fair value of optionsat date of grant

Exerciseprice

Option period(both dates inclusive)

The fair value of share options (including both equity and cash-settled options) as at the date of grant, is estimated byan external valuer using the Binomial Option-Pricing model, taking into account the terms and conditions upon whichthe options were granted. The inputs to the model used for the 2006 Options and 2005 Options are shown below.

Date of grant 2.10.2006 11.8.2005Dividend yield (%) 2.8 2.6Expected volatility (%) 25.6 – 28.5 25.5 - 30.4Historical volatility (%) 25.6 – 28.5 25.5 - 30.4Risk-free interest rate (%) 1.5 – 4.4 2.0 - 2.4Expected life of option (years) 1.5 – 4.5 1.5 - 4.5Weighted average share price ($) 3.40 2.90

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that mayoccur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which mayalso not necessarily be the actual outcome. No other features of the option grant were incorporated into the measurementof fair value.

During the year, the Group has charged $4,857,000 (2005: $1,605,000) to the profit and loss account based on fair valueof share options at grant date. The details of the options granted under the Option Plans on unissued shares of theCompany are as follows:


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(a) Share Option Plan (cont’d)SembCorp Marine Ltd’s options exercised in 2006 resulted in 13,551,200 (2005: 22,749,985) ordinary shares beingissued at a weighted average price of $1.04 (2005: $0.84). SembCorp Marine Ltd’s options were exercised on aregular basis throughout the year. The weighted average share price during the year was $3.12 (2005: $2.51).

(b) Performance Share PlanUnder the Performance Share Plan, the awards granted conditional on performance targets are set based on medium-term corporate objectives at the start of each rolling three-year performance qualifying period. A specific number ofperformance shares shall be awarded at the end of the three-year performance cycle depending on the extent of theachievement of the performance conditions established at the onset.

In 2005, the Executive Resource and Compensation Committee (“the Committee”), with advice and assistance froman independent compensation consultant, redesigned its approach to the share-based incentive awards, with particularfocus on establishing new standards for share-based incentive grants. The redesigned share-based incentive grantstook into account evolving practices at other major public-listed companies, as well as the Company’s objective offurther enhancing linkages between employee performance and long-term shareholder value creation objectives. Theredesign was completed and implemented in 2005.

For awards granted before 2005, participants who do not achieve at least 80% of the targets set at the end of theperformance period will not be granted the performance shares. If the achievement of the target exceeds 100%, moreperformance shares than the original award could be delivered up to a maximum of 200% of the original award.

In the 2005 performance share award, the performance criteria were changed and performance levels re-calibratedbased on the new measures, namely Wealth Added and Total Shareholders’ Return. For each performance measure,three distinct performance levels are set. A minimum of threshold performance must be achieved to trigger anAchievement Factor, which in turn determines the number of shares to be finally awarded. Based on the new criteria,performance shares to be delivered for awards granted in 2005 will range between 0% to 150% of the original award.

In 2006, performance share awards granted were based on the same type of criteria as those issued in 2005.

Participants are also required to hold a minimum percentage of the shares released to them under the PerformanceShare Plan to maintain a beneficial ownership stake in the Group, for the duration of their employment or tenure withthe Group. A maximum cap is set based on a multiple of the individual participant’s Annual Base Salary. Any excesscan be sold off, but in the event of a shortfall, they have a two calendar year period to meet the minimum percentagerequirement.


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Director of the Company- Tan Kwi Kin 250,000 2,070,000 (790,400) (349,600) 930,000

Alternate director of the Company- Wong Weng Sun 100,000 250,000 - - 250,000

Former alternate directorof the Company- Heng Chiang Gnee * - 800,000 (396,000) (204,000) 200,000

Key Management andExecutives of the Group 250,000 575,000 - - 575,000

600,000 3,695,000 (1,186,400) (553,600) 1,955,000


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Conditionalshares

awardedduring the year


sharesreleased


sharesoutstanding


shareslapsed


sharesawarded

PerformanceShares

Participants

* Mr Heng Chiang Gnee was transferred to a related company, SembCorp Environmental Management Pte Ltd on 15 August 2005 and he was not awardedany conditional shares for the period. The conditional awards already granted (for the performance period 2003 to 2005 and 2004 to 2006) to him prior to2005 would be subjected to the achievement of the performance criteria and the number to be awarded to determined accordingly when the performancecriteria are met for the completed period of service with the Company.

The total number of performance shares in awards granted conditionally and representing 100% of targets achieved, butnot released as at end 2006, was 1,955,000. Based on the multiplying factor, the actual release of the awards couldrange from zero to a maximum of 3,222,500 performance shares.

During the year, a total of 600,000 (2005: 775,000) performance shares in awards were granted conditionally to theparticipants for the performance period 2006 to 2008 (2005: 2005 to 2007).

Fair value of Performance SharesThe fair value of the performance shares are estimated using a Monte Carlo simulation methodology at the measurementdates, which are grant dates for equity-settled awards. The assumptions used under the model and fair values ofperformance shares granted in 2006 and 2005 are as follows:

Date of grant 2 October 2006 11 August 2005Fair value at measurement date $2.20 $3.61

Assumptions under the Monte-Carlo modelShare price $3.38 $2.70Expected volatility:

SembCorp Marine Ltd 23.3% 22.0%Morgan Stanley Capital International (“MSCI”) AC

Asia Pacific excluding Japan Industrials Index 14.2% 14.7%Correlation with MSCI 28.3% 14.1%Risk-free interest rate 2.9% 3.0%Expected dividend 3.7% 3.3%

The expected volatility is based on the historical volatility over the most recent period that commensurates with theexpected life of the performance shares.

For performance share plan awarded prior to 1 January 2005, an initial estimate is made for the cost of compensationand based on the number of shares expected to be awarded at the end of the performance period, valued at marketprice at the date of the grant of the award.

During the current financial year, the Group has written back $521,000 (2005: charged $2,739,000) to the profit andloss account in respect of performance shares awarded prior to 1 January 2005 based on the market values of theshares at reporting date. The balance of $1,578,000 (2005: $3,324,000) in liabilities as at 31 December 2006 representsthe compensation cost for performance shares granted prior to 2005. The final measure of compensation cost is basedon the number of shares ultimately awarded and the market price at the date the performance criteria are met.

For performance shares awarded from 1 January 2005 onwards, the Group has charged $2,302,000 (2005: $932,000)to the profit and loss account based on fair value of performance shares at grant date.

(c) Restricted Stock PlanIn 2006, as part of the redesigned approach, restricted shares were awarded to managerial employees of the Group,with the objective to eventually replace share options as a long term incentive for them. The grants under Share OptionPlan to this group of employees were reduced by 50%, and these were replaced by restricted shares of an equivalentfair value, as recommended by the independent compensation consultant and approved by the Committee.

Under the Restricted Stock Plan, the awards granted conditional on performance targets are set based on corporateobjectives at the start of each rolling two-year performance qualifying period. The performance criteria are set andperformance levels for the restricted shares are calibrated based on Return on Equity and Total Shareholders’ Return.For each performance measure, three distinct performance levels are set. A minimum of threshold performance mustbe achieved to trigger an Achievement Factor, which in turn determines the number of shares to be finallyawarded. Based on the criteria, restricted shares to be delivered for awards granted in 2006 will range from 0% to130% of the original award.

A specific number of restricted shares shall be awarded at the end of the two-year performance cycle depending onthe extent of the achievement of the performance conditions established at the onset. There is a further vesting ofthree years after the performance period, during which one-third of the awarded shares are released each year.

Senior management participants are also required to hold a minimum percentage of the shares released to them underthe Restricted Stock Plan to maintain a beneficial ownership stake in the Group, for the duration of their employmentor tenure with the Group. A maximum cap is set based on a multiple of the individual participant’s Annual Base Salary.Any excess can be sold off, but in the event of a shortfall, they have a two calendar year period to meet the minimumpercentage requirement.

A total of 1,222,400 restricted shares of SembCorp Marine Ltd’s shares were awarded on 2 October 2006 for theperformance period 2006 to 2007. No SembCorp Marine Ltd’s restricted shares were awarded to directors of theCompany, except as disclosed in the Report of the Directors.

The total number of SembCorp Marine Ltd’s restricted shares in awards granted conditionally and representing 100%of targets achieved, but not released as at end 2006, was 1,212,320. Based on the multiplying factor, the actual releaseof the awards could range from zero to a maximum of 1,576,016 restricted shares.

Fair value of Restricted SharesThe fair value of the restricted shares are estimated using a Monte Carlo simulation methodology at the measurementdates, which are grant dates for equity-settled awards.

29. Share Capital (cont d)

The details of the Company’s performance shares awarded since commencement of the Performance Share Plan (aggregate)up to 31 December 2006 were as follows:-


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The assumptions used under the model and fair values of restricted shares granted during the year are as follows:

Date of grant 2 October 2006Fair value at measurement date $2.71

Assumptions under the Monte-Carlo modelShare price $3.38Expected volatility:

SembCorp Marine Ltd 23.3%Straits Time Index 9.7%

Correlation vs STI 24.5%Risk-free interest rate 2.9% - 3.0%Expected dividend 3.7%

The expected volatility is based on the historical volatility over the most recent period that commensurates with theexpected life of the restricted shares. During the year, the Group has charged $1,411,000 (2005: $Nil) to the profitand loss account based on fair value of restricted shares at grant date.

30. ReservesGroup Company

2006 2005 2006 2005$’000 $’000 $’000 $’000

Revenue reserve 710,615 602,238 393,335 395,896Share premium account - 259,540 - 259,540Foreign currency translation reserve(1) (12,055) (1,209) - -Asset revaluation reserve 960 960 960 960Share-based compensation reserve(2) 12,162 3,647 3,322 681Available for sale reserve(3) 194,567 49,523 117,398 49,515Other capital reserves(4) 13,459 5,810 - -

919,708 920,509 515,015 706,592

Made up of:Distributable 710,615 602,238 393,335 395,896Non-distributable 209,093 318,271 121,680 310,696

919,708 920,509 515,015 706,592

(1) The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operationswhose functional currencies are different from that of the Group s presentation currency. It is also used to record the effect of hedging net investmentsin foreign operations.

(2) Share-based compensation reserve represents the equity-settled share options, and/or restricted shares and performance shares awarded to employees. The reserve is made up of the cumulative value of services received from employees relating to such awards.

(3) Available for sale reserve records the cumulative fair value changes of available-for-sale financial assets until they are derecognised or impaired.(4) Other capital reserves mainly relate to the transfer from revenue reserve in accordance with the foreign jurisdiction in which the Group s subsidiary

and associated companies operate.

31. Dividends(a) The proposed net dividends of $141,999,000 for 2006 (2005: $81,220,000) comprise:

Company2006 2005$’000 $’000

A final dividend of 10.0 cent per share less tax of 18% (2005: 7.0 cent per share less tax of 20%) 120,040 81,220

A one-tier tax-exempt dividend of 1.5 cent per share (2005: Nil) 21,959 -

141,999 81,220

(b) Dividends paidInterim dividend of 3.5 cent per share less tax of 20% (2005: 2.5 cent per share less tax of 20%) 40,867 28,880

2005 final dividend of 7.0 cent per share less tax of 20% (2005: 2004 final dividend of 6.0 cent per share less tax of 20%) 81,495 69,157

122,362 98,037

32. Contingent liabilitiesGroup Company

2006 2005 2006 2005$’000 $’000 $’000 $’000

Bankers’ guarantees - unsecured 104,306 49,604 - -Unsecured corporate guarantees granted in respect of:Performance of subsidiary companies - - 3,561,771 2,610,027Banking facilities provided to:- associated companies 51,664 56,002 51,664 56,002- others - 157,274 - 157,274

29. Share Capital (cont d)


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33. CommitmentsAt year end, future commitments of the Group are as follows:

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

(a) Approved capital commitment:

Capital expenditure approved and committed 68,615 - - -Uncalled capital and commitment on investments 17,218 76,980 17,218 76,779

85,833 76,980 17,218 76,779

b) Minimum lease rental payable in respect of land and buildings:

Within 1 year 16,698 19,151 7,728 7,778After 1 year but within 5 years 38,715 53,204 19,831 27,715After 5 years 22,422 14,684 - -

77,835 87,039 27,559 35,493

The leases do not contain escalation clauses and do not provide for contingent rents. Lease terms do not containrestrictions on the Group activities concerning dividends, additional debt or further leasing.

Certain leases include renewal options for additional lease period of 10 to 15 years and at rental rates based on prevailingmarket rates.

34. Cash and cash equivalentsCash and cash equivalents comprise:

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Fixed deposits 380,051 457,468 59,619 51,746Cash and bank balances 123,437 73,989 13,223 10,381Bank overdrafts (Note 24) (10,340) - - -

493,148 531,457 72,842 62,127

Fixed deposits of the Group and the Company placed with financial institutions have maturity periods ranging from 1day to 33 months (2005: 1 day to 45 months) and 1 to 4 days (2005: 1 to 7 days) respectively from the financial year-end. Interest rate of fixed deposits of the Group and the Company range from 2.34% to 3.62% (2005: 1.00% to 3.90%)and 3.05% (2005: 2.83%) per annum respectively, which are also the effective interest rates.

Cash and cash equivalents are denominated in the following foreign currencies:

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

United States Dollar 149,771 144,903 5,959 8,462Euro 59,402 92,101 - -Singapore Dollar 249,720 288,778 65,340 52,218Others 34,255 5,675 1,543 1,447

493,148 531,457 72,842 62,127

35. Significant related party transactionsSignificant transactions during the year between the Group and its related parties on terms as agreed between therespective parties and which are not otherwise disclosed elsewhere in these financial statements consist of:

Group Company2006 2005 2006 2005$’000 $’000 $’000 $’000

Related partiesSales 4,317 3,734 - -Purchases - 1,700 - -Purchase of investment 120,336 - - -Disposal of investment - 2,498 - 2,498

Immediate holding companyManagement fee payable 250 250 250 250

Related companiesSales 6,000 14,380 - -Purchases 32,712 25,457 - -Rental payable 4,772 8,000 - -Purchase of subsidiary companies 66,747* - 55,000 -

Associated companies and joint venturesSales 807 960 - -Purchases 350,398 347,834 - -

* In addition to a loan amount of $116,983,000 assumed by a subsidiary company for the purpose of acquisition of properties at Admiralty Road, Singapore.

Compensation of key management personnelDirectors of the Company, Managing Directors and Executive Directors of Jurong Shipyard Pte Ltd, Sembawang ShipyardPte Ltd, PPL Shipyard Pte Ltd and SMOE Pte Ltd, Group Human Resource Director and Director, Group Finance areconsidered to be key management personnel in accordance with FRS 24 – Related Parties. These persons have theauthority and responsibility for planning, directing and controlling the activities of the Group.


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The key management personnel compensation are as follows:Company

2006 2005$’000 $’000

Directors’ remuneration 3,492 2,634Other key management personnel remuneration 3,102 2,466

6,594 5,100

Fair value of share-based compensation 2,225 1,348

Remuneration of key management personnel includes salary, annual bonus, contributions to CPF, allowances,variable bonuses and performance shares.

CPF contributions for Directors and key management personnel amounted to $45,000 (2005:$51,000).

The Company adopts an incentive compensation plan, which ties to the creation of Economic Value Added ("EVA"), aswell as to attainment of individual performance goals for its key executives. A "bonus bank" is used to hold incentivecompensation credited in any year. Typically, one-third of the available balance is paid out in cash each year, with thebalance being carried forward to the following year. Such carried forward balances of the bonus bank may either bereduced or increased in future, based on yearly EVA performance of the Group.

Fair value of share-based compensation relates to share options, performance shares and restricted shares granted after1 January 2005. The amount charged is determined in accordance with FRS 102 – Share-based Payment.

36. Information by segment on Group operations(a) By business segmentThe Group has 3 main business segments that are organised and managed separately according to their respectivebusiness activities. The 3 business segments are ship and rig repair, building and conversion, ship chartering and others.The activities of these business segments are described in Note 1 and Note 40.

Segment accounting policies are the same as the policies described in Note 2 with inter-segment sales and transferscarried out on an arm’s length basis. Segment assets consist primarily of fixed assets, current assets, interest-bearingassets, tax assets and exclude inter-segment balances. Segment liabilities comprise mainly of operating liabilities, interest-bearing liabilities, tax liabilities and exclude inter-segment balances.

TurnoverSales to external parties 3,482,274 - 62,775 - 3,545,049Inter-segment sales 160 - 136,112 (136,272) -

Consolidated sales 3,482,434 - 198,887 (136,272) 3,545,049

ResultsSegment results 220,925 (949) 8,257 - 228,233Dividend and interest income 20,262 209 489 - 20,960Finance costs (10,546) - (3) - (10,549)Non-operating income 36,616 - - - 36,616Non-operating expense (8,753) - - - (8,753)Share of results of associated

companies and joint ventures 40,166 3,432 766 - 44,364

Profit before taxation 298,670 2,692 9,509 - 310,871Taxation (60,651) (9) (1,680) - (62,340)

Profit after taxation 238,019 2,683 7,829 - 248,531

Other informationCapital expenditure 280,204 - 1,966 - 282,170Depreciation 46,694 141 1,252 - 48,087Amortisation 137 - - - 137Impairment losses 6,127 - - - 6,127

Other segment assets 2,726,221 526 33,882 - 2,760,629Interest-bearing assets 490,962 4,603 7,893 - 503,458Investment in associated companies

and joint ventures 139,507 21,621 2,101 - 163,229Tax recoverable 1,689 - 496 - 2,185

Total segment assets 3,358,379 26,750 44,372 - 3,429,501

Other segment liabilities 1,489,453 56 14,652 - 1,504,161Interest-bearing liabilities 391,216 - 468 - 391,684Deferred taxation 108,573 - 962 - 109,535Provision for taxation 51,834 66 1,998 - 53,898

Total segment liabilities 2,041,076 122 18,080 - 2,059,278

Ship and rigrepair, buildingand conversion

$’000Others$’000

Total$’000

Eliminations$’000

Shipchartering

$’0002006

35. Significant related party transactions (cont d)


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TurnoverSales to external parties 2,018,386 - 100,893 - 2,119,279Inter-segment sales 122 - 176,294 (176,416) -

Consolidated sales 2,018,508 - 277,187 (176,416) 2,119,279

ResultsSegment results 119,531 1 5,017 - 124,549Dividend and interest income 16,009 323 202 - 16,534Finance costs (4,785) - - - (4,785)Non-operating income 11,196 - - - 11,196Non-operating expense (7,177) - - - (7,177)Share of results of associated

companies and joint ventures 15,513 1,433 2,592 - 19,538

Profit before taxation 150,287 1,757 7,811 - 159,855Taxation (32,159) (866) (1,246) - (34,271)

Profit after taxation 118,128 891 6,565 - 125,584

Other informationCapital expenditure 195,183 - 440 - 195,623Depreciation 35,890 155 1,932 - 37,977Amortisation 88 - - - 88Impairment losses 7,177 - - - 7,177

Other segment assets 1,551,957 574 40,066 - 1,592,597Asset held for sale 52,230 - - - 52,230Interest-bearing assets 537,375 6,017 12,905 - 556,297Investment in associated joint

venture companies 99,744 18,985 4,916 - 123,645Deferred tax assets 865 - 7 - 872Tax recoverable - - 496 - 496

Total segment assets 2,242,171 25,576 58,390 - 2,326,137

Other segment liabilities 942,895 18 21,940 - 964,853Interest-bearing liabilities 150,188 - - - 150,188Deferred taxation 68,331 59 1,177 - 69,567Provision for taxation 22,557 946 2,329 - 25,832

Total segment liabilities 1,183,971 1,023 25,446 - 1,210,440

Ship and rigrepair, buildingand conversion

$’000Others$’000

Total$’000

Eliminations$’000

Shipchartering

$’0002005

(b) By geographical areaThe Group operates in 10 (2005: 10) countries and principally in the Republic of Singapore. Pricing of inter-segmentsales and transfers are carried out on an arm’s length basis.

In presenting information on the basis of geographical segments, segment revenue is based on the geographicallocation of customers. Segment assets are based on the geographical location of the assets.

2006 Singapore Rest of Asia Europe Others Elimination Total$’000 $’000 $’000 $’000 $’000 $’000

Revenue from externalcustomers 541,338 671,597 1,956,876 375,238 - 3,545,049

Segment assets 3,209,095 191,798 - 28,608 - 3,429,501

Capital expenditure 280,242 1,413 - 515 - 282,170

2005

Revenue from externalcustomers 181,432 413,636 1,265,747 258,464 - 2,119,279

Segment assets 2,144,461 150,180 - 31,496 - 2,326,137

Capital expenditure 195,167 456 - - - 195,623

37. Directors’ remunerationThe remuneration of Directors of the Company fell within the following ranges:

2006 2005$500,000 and above 1 2$250,000 to $499,000 - -Below $250,000 12 9

13 11

The Directors’ remuneration of the Company included market value of 444,000 (2005: 487,200) performance sharesawarded and an amount of $1,803,000 (2005: $2,772,000) relating to taxable benefit arising from the exercise of shareoptions during the year. This amount has not been charged to the profit and loss account.

During the current financial year, the Group has written back $521,000 (2005: charged $2,739,000) to the profit and lossaccount in respect of performance shares for performance period prior to 1 January 2005 based on the market valuesof the shares at reporting date. The balance of $1,578,000 (2005: $3,324,000) in liabilities as at 31 December 2006represents the compensation cost for performance shares granted prior to 2005.

For performance period from 1 January 2005 onwards, the Group has charged $617,000 (2005: $361,000) and $104,000(2005:Nil) to the profit and loss account based on fair values of performance shares and restricted shares respectively,at the grant date for such awards to the Directors.

36. Information by segment on Group operations (cont d)


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38. Financial risk management objectives and policiesThe main risks arising from the Group’s financial instruments are credit risk, foreign currency risk, interest rate risk, liquidityrisk and market risk. The Board of Directors reviews and agrees policies for managing each of these risks and they aresummarised below:

Credit riskThe Group has no significant concentration of credit risk with any single counterparty and monitors its exposure to creditrisks arising from sales to customers on an on-going basis where credit evaluations are done on customers that requirecredit. The Group only deals with pre-approved counterparties with good credit rating and imposes a cap on the amountto be transacted with any counterparty so as to reduce its concentration of risk.

The carrying amounts of trade and other debtors and cash and cash equivalents represent the Group’s maximum exposureto credit risk.

Foreign currency riskThe Group incurs foreign currency risk on sales and purchases that are denominated in a currency other than the SingaporeDollar, primarily the United States Dollar and the Euro. To minimise exposure on foreign currency risks, the Group usuallysettles such transactions within 30 days terms.

The Group also utilises forward exchange contracts and swaps with maturities of less than twelve months to hedge foreigncurrency denominated financial assets, liabilities and firm commitments. Under this programme, increases or decreasesin the Group’s foreign currency denominated financial assets, liabilities and firm commitments are partially offset by gainsand losses on the hedging instruments. The Group does not use foreign currency forward contracts and swaps for tradingpurpose.

Interest rate riskThe Group’s policy is to maintain an efficient optimal interest cost structure using a mix of fixed and variable rate debts,where working capital is financed mainly by variable rate loans while long term investments are financed mainly by fixedrate loans. To manage this mix in a cost-efficient manner, the Group enters into interest rate swaps, in which the Groupagrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated byreference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations.After taking into account the effect of an interest rate swap, the Group’s borrowings are substantially at a fixed rate ofinterest. Surplus funds, if any, are placed with reputable banks and/or investment in bonds.

The Group obtains additional financing through bank borrowings and leasing arrangements. The Group’s policy is toobtain the most favourable interest rates available without increasing its foreign currency exposure.

Liquidity riskShort-term funding is obtained from overdraft facilities and bank borrowings.

Market RiskThe Group is exposed to market risk and the risk of impairment in the value of its investments held. The Group managesthe risk of unfavourable changes by cautious review of the investments before investing and continuous monitoring ofthe performance of investments held and assessing market risk relevant to which the investments operate.

39. Fair value of financial instrumentsThe 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.

Financial instruments whose carrying amount approximates fair valueManagement has determined that the carrying amounts of the Group’s and Company’s cash and cash equivalents, debtorsand creditors (including related party balances which are expected to be repaid in accordance with normal credit terms),and short-term borrowings, based on their notional amounts, reasonably approximate their fair values because these aremostly short term in nature or are repriced frequently.

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Set out below is a comparison by category of carrying amounts and fair values of the Group’s and Company’s significantfinancial instruments that are carried in the financial statements at other than fair values as at 31 December.

2006 2006 2005 2005Group Carrying amount Fair value Carrying amount Fair value

$’000 $’000 $’000 $’000

Non-current portion of:- Medium Term Notes 149,795 147,270 149,720 147,678- Term loans 44,000 44,000 - -

CompanyNon-current portion of:- Medium Term Notes 149,795 147,270 149,720 147,678

No disclosure of fair value is made for related party balances (including associated, related and subsidiary companiesand any other related parties) which are in the nature of loans as it is not practicable to determine their fair values withsufficient reliability since these balances have no fixed terms of repayment although these are not expected to be settledwithin twelve months from the balance sheet date.

It is not practicable to determine the fair values of unquoted equity investments held as long term investments and thelong term trade debtors carried at cost. In the opinion of the Directors, the expected cash flows from these unquotedequity investments and long-term trade debtors are believed to be in excess of their carrying amounts.

Methods and assumptions used to determine fair valueThe methods and assumptions used by management to determine fair values of financial instruments other than thosewhose carrying amounts reasonably approximate their fair values as mentioned earlier, are as follows:

Financial assets and liabilities- Investment in quoted equity shares- Medium Term Notes (quoted)

- Hire purchase creditors- Bank borrowings (non-current)

- Foreign currency contracts- Foreign exchange and

interest rate swap contracts

Methods and assumptionsFair value has been determined by reference to published market bid prices atthe balance sheet date without factoring in transaction costs.

Fair value has been determined using discounted estimated cash flows. Whererepayment terms are not fixed, future cash flows are projected based onmanagement’s best estimates. The discount rates used are the current marketincremental lending rates for similar types of lending, borrowing and leasingarrangements.

Fair value of forward currency contracts is calculated by reference to currentforward exchange rates for contracts with similar maturity profiles. The fair valuesof foreign exchange and interest rate swap contracts are determined by referenceto market values for similar instruments.


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Subsidiary companiesBulk Trade Pte Ltd (Singapore) Bulk trading (Singapore) 1,764 1,764 100 100

Dolphin Shipping CompanyPrivate Limited (Singapore) Ship owning and chartering (Singapore) 500 500 100 100

JPL Corporation Pte Ltd (Singapore) Investment holding (Singapore) 5,100 5,100 70 70

Jurong Clavon Pte Ltd (Singapore) Engineering work (Singapore) 594 594 55 55

Jurong Integrated Services Pte Ltd(Singapore) Steel fabrication work (Singapore) 5,000 5,000 100 100

Jurong Machinery and Automation Marine and general electronicPte Ltd (Singapore) and electrical works (Singapore) 2,000 2,000 100 100

Jurong Marine Contractors PrivateLimited (Singapore) Provision of contract services (Singapore) 25 25 100 100

Jurong Shipbuilders Private Limited Investment holding (Singapore)(Singapore) 30,000 30,000 100 100

Jurong Shipyard Pte Ltd (Singapore) Ship and rig repair, building, conversionand related services (Singapore) 50,000 50,000 100 100

Jurong SML Pte Ltd (Singapore) Shipbuilding, ship repair and relatedservices (Singapore) 28,305 28,305 100 100

Karimun Shiprepair and Investment holding (Singapore)Engineering Pte Ltd (Singapore) 22,565 22,565 100 100

PPL Shipyard Pte Ltd (Singapore) Rig building, repair and related services(Singapore) 30,276 30,276 85 85

Sembawang Shipyard Pte Ltd Ship repair and related services(Singapore) (Singapore) 54,230 54,230 100 100

Sembawang Shipyard (S) Pte Ltd Investment holding (Singapore)(Singapore) 25,560 25,560 100 100

SML Shipyard Pte Ltd (Singapore) Ship repair and related services(Singapore) 12,000 12,000 100 100

SembMarine Investment Pte Ltd Investment holding (Singapore)(Singapore) # - 100 -

SCM Investment Holdings Pte Ltd Investment holding (Singapore)(Singapore) # - 100 -

Jurong Marine Services Pte Ltd Provision of tugging and sea(Singapore) transportation services (Singapore) 2,710 (a) 100 (a)

SMOE Pte Ltd (Singapore) Engineering, construction andfabrication of offshore structures(Singapore) 56,001 - 100 -

326,630 267,919

Name of Company(Country of incorporation)

Principal activities(Place of business)

CostPercentage of equity

held by the Group

2006$’000

2005$’000

2006%

2005%

40. Group companiesDetails of the Group’s subsidiary and associated companies and joint ventures are as follows:

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CostPercentage of equity

held by the Group

2006$’000

2005$’000

2006%

2005%

Subsidiary and associated companies of Sembawang Shipyard Pte LtdSES Maine Services (Pte) Ltd Marine Services 100 100(Singapore) (Singapore)

SES Engineering (M) Sdn Bhd* Fabrication of metal 100 100(Malaysia) structures (Malaysia)

World Adventurer Pte Ltd Marine services 100 100(Singapore) (Singapore)

OmixAsia.com Pte Ltd (Singapore) Liquidated (Singapore) - 30

Sembawang Bethelehem Pte Ltd Building of rigs, vessels and specialised 100 -(Singapore) marine equipment (Singapore)

Subsidiary and associated companies of PPL Shipyard Pte LtdBaker Marine Pte Ltd (Singapore) Rig enhancement and upgrading services, engineering 85 85

consultancy and project management, and supplyof rig equipment and parts (Singapore)

Baker Marine Services (HK) Provision of rig designs (Hong Kong) 85 85Limited * (Hong Kong)

Baker Marine Technology Inc. Engineering design, research and development, 85 85(United States of America) *** marketing and client services support centre

(United States of America)

SembCorp Holdings, LLC (formerly Investment holding (United States of America) 85 85known as Chut Kee LLC) ***(United States of America)

SembCorp-Sabine Industries Inc Investment holding (United States of America) 85 85(formerly known as Sabine-PPLIndustries Inc) *** (United Statesof America)

SembCorp-Sabine Inc (formerly Rig and vessel enhancement and upgrading 85 85known as Sabine-PPL Shipyard Inc) services (United States of America)*** (United States of America)



Percentage of equityheld by the Group

2006%

2005%

Associated companiesCosco Shipyard Group Co. Ltd ** Ship repair and related services(People’s Republic of China) (People’s Republic of China) 90,654 63,089 30 30

Joint Shipyard Investment Pte Ltd ** Investment holding (Singapore) 1,791 2,120 50 50(Singapore)

Joint Shipyard Management Managing dormitories (Singapore) # # 32 32Services Pte Ltd (Singapore)

Jurong Marine Services Pte Ltd Provision of tugging and sea(Singapore) transportation services (Singapore) (a) 1,050 (a) 50

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Subsidiary company of Sembawang Shipyard (S) Pte LtdKristiansand Drilling Pte Ltd Rig owning and chartering (Singapore) - 81.82(Singapore) Note (b)

Subsidiary and associated companies of Jurong Clavon Pte LtdAswell (F.E.) Pte Ltd (Singapore) Dealers in blasting and painting equipment, 55 55

accessories and consumable materials (Singapore)

Cosco Shipyard Jurong Clavon Co., Corrosion control (People’s Republic of China) 22 22Ltd ** (People’s Republic of China)

Joint venture company of Dolphin Shipping Company Private LimitedPacific Workboats Pte Ltd ** Ship leasing and marine surveying services (Singapore) 50 50(Singapore)

Subsidiary and joint venture companies of SMOE Pte LtdSMOE Indonesia Pte Ltd Investment holding (Singapore) 100 -(Singapore)

SCE Pte Ltd (Singapore) Engineering, construction and fabrication 51 -of offshore structures (Singapore)

Subsidiary company of SMOE Indonesia Pte LtdPT SMOE Indonesia (Indonesia) * Engineering, construction and fabrication of offshore 90 -

structures (Indonesia)




2006%

2005%

(a) The Company acquired additional 50% equity interest in Jurong Marine Services Pte Ltd (“JMS”) in July 2006 for aconsideration of $1,660,000. JMS became a wholly-owned subsidiary company subsequent to the acquisition.

(b) In prior year, Sembawang Shipyard (S) Pte Ltd (“SSSPL”) has granted a call option (the “Call Option”) to the minorityshareholder (the “Minority Shareholder”) of Kristiansand Drilling Pte Ltd (“Kristiansand”) to acquire all (but not someonly) the shares of Kristiansand (the “Call Option Shares”) held by SSSPL. The Minority Shareholder had also beengranted a put option (the “Put Option”) to require SSSPL to acquire the shares of Kristiansand (the “Put Option Shares”)held by them.

During the current year, prior to the expiry of both Options, the Minority Shareholder had exercised the Call Option toacquire the Call Option Shares held by SSSPL. Refer to the details of the disposal of Kristiansand in the consolidatedstatement of cash flows.

* Audited by other member firms of Ernst & Young** Audited by other firms*** These companies are not required to be audited under the laws of their country of incorporation# Denotes less than $1,000

40. Group companies (cont d)

Subsidiary and associated companies of PPL Shipyard Pte LtdSembCorp-Sabine Offshore Inactive (United States of America) 85 85Services Inc (formerly known asSabine Offshore Services Inc) ***(United States of America)

Sabine Vessels Inc *** Liquidated (United States of America) - 21(United States of America)

Subsidiary and associated companies of Jurong Shipbuilders Private LimitedJurong Shipping Company Private Inactive (Singapore) 100 100Limited (Singapore)

Jurong Shipping Company Inactive (Singapore) 100 100Gamma Pte Ltd (Singapore)

Tridex Investment Inc. *** Investment holding (British Virgin Islands) 100 100(British Virgin Islands)

Oslo Gas I LP *** (Republic of Liberia) Under liquidation (Norway) 33.3 33.3

Oslo Gas II LP *** (Republic of Liberia) Under liquidation (Norway) 33.3 33.3

Subsidiary and associated companies of Jurong Shipyard Pte LtdJurong Brazil-Singapore Pte Ltd Investment holding (Singapore) 100 100(Singapore)

Jurong Shipyard Inc. *** Investment holding (Bahamas) 35 35(Bahamas)

Maua Jurong S.A. ** (Brazil) Shipbuilding, ship repair, and conversion (Brazil) 35 35

Subsidiary companies of Karimun Shiprepair and Engineering Pte LtdP.T. Karimun Sembawang Shipyard Ship repair and related services (Indonesia) 100 100* (Indonesia)

Sinna Services Pte Ltd (Singapore) Liquidated (Singapore) - 100

Subsidiary companies of JPL Corporation Pte LtdJPL Services Pte Ltd (Singapore) Equipment rental services and trading in copper

slag (Singapore) 70 70

JPL Industries Pte Ltd (Singapore) Processing and distribution of copper slag (Singapore) 60.1 53.8

JPL Concrete Products Pte Ltd Production of concrete products (Singapore) 60.1 53.8(Singapore)




2006%

2005%


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41. Comparative figuresThe following comparative figures relating to the previous year have been reclassified to conform to current year’spresentation, so as to better reflect the nature of the balances.

Group Company2005 2005 2005 2005

As restated As previously As restated As previouslystated stated

$’000 $’000 $’000 $’000

Subsidiary companies - - 252,668 490,852Associated companies and joint ventures 106,880 123,645 - -Long term other debtors 16,765 - 238,184 -

42. Authorisation of financial statementsThe financial statements of SembCorp Marine Ltd for the year ended 31 December 2006 were authorised for issue inaccordance with a resolution of the Directors on 15 February 2007.

209

(A) Directors’ Remuneration

The remuneration of Directors of the Company falls within the following ranges:-

2006$500,000 and above 1$250,000 to $499,999 -Below $250,000 12

13

Summary compensation table for the year ended 31 December 2006:

Names of Director Salary(1) Bonus(2) Taxable income Directors’ Fees Total Number offrom exercise of share optionshare options(3) granted(4)

$’000 $’000 $’000 $’000 $’000 ’000Goh Geok Ling - - - 120 120 140Lua Cheng Eng - - - 15 15 -Tan Kwi Kin 644 1,831 1,652 - 4,127 300Tan Pheng Hock - - 44 #56 100 35Kiyotaka Matsuzawa - - - 60 60 35Tan Tew Han - - - 143 143 140Ajaib Haridass - - 90 139 229 100Haruo Kubota - - 17 54 71 -Tang Kin Fei - - - #94 94 70Ron Foo Siang Guan - - - 48 48 20Joseph Kwok Sin Kin - - - 38 38 20Wong Weng Sun* 331* 455* - - 786* 125Hirohiko Sakurai - - - - - -Company* 975* 2,286* 1,803 767 5,831* 985

(1) Salary amount shown includes allowances, CPF, all fees other than directors’ fee, and other emolument.(2) Bonus amount shown includes employer CPF, AWS, discretionary bonus, performance target bonus and performance shares released

during the year.

In addition, the following Directors were conditionally awarded an aggregate of 1,380,000 performance shares:

Aggregate Conditional Aggregate ConditionalShares Outstanding Shares Released in 2006

Director Mr Tan Kwi Kin 930,000 304,000Alternate Director Mr Wong Weng Sun 250,000 -Former alternate Director Mr Heng Chiang Gnee 200,000 140,000

1,380,000 444,000

The actual number delivered will depend on the achievement of set targets over a 3-year period from 2004 to 2006, 2005 to 2007and 2006 to 2008.

(3) Taxable income from exercise of share options includes gains on exercise of SembCorp Industries Ltd and the Company’s shareoptions during the year amounting to $1,803,000. This amount has not been charged to the profit and loss account.

(4) Relates to share options granted during the year by the Company.* Amount included salary of $109,000 and bonus of $432,000, totalling $541,000 paid to Mr Wong Weng Sun before his appointment

as an alternate Director to Mr Tan Kwi Kin on 3 May 2006.# Fees payable to Mr Tan Pheng Hock and Mr Tang Kin Fei are payable to Singapore Technologies Engineering Ltd and SembCorp

Industries Ltd respectively.


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B. Interested Person Transactions

Aggregate value of all transactionsconducted under a shareholders'

mandate pursuant to Rule 920of the SGX Listing Manual

2006 2005$'000 $'000

Transaction for the Sales of Goods and ServicesKeppel Corporation Ltd and its associates 1,191 39,628Neptune Orient Lines Ltd and its associates 4,508 1,543SembCorp Industries Limited and its associates 1,123 3,272PSA International Pte Ltd and its associates (191) 2,191

Transaction for the Purchase of Goods and ServicesKeppel Corporation Ltd and its associates 3,564 -SembCorp Industries Limited and its associates 28,242 23,718

Management and Support ServicesSembCorp Industries Limited 250 250

Total Interested Person Transactions 38,687 70,602

Treasury Transactions –

Placement of Funds with - as at 31 DecemberSembCorp Industries Limited and its associates - 8,319

Aggregate value of all transactionsexcluding transactions conducted

under a shareholders' mandatepursuant to Rule 920 of the

SGX Listing Manual2006 2005$'000 $'000

Transaction for the Purchase of Goods and ServicesNeptune Orient Lines Ltd and its associates - 1,700

Transaction for Acquisition/(Disposal) of InvestmentsSembCorp Industries Limited and its associates *66,747 -Temasek Holdings (Private) limited and its associates 120,336 -SembCorp Logistics Ltd - (2,498)

* In addition to a loan amount of $116,983,000 assumed by a subsidiary company for purpose of acquisition of the properties at Admiralty Road, Singapore.

SUPPLEMENTARY INFORMAT ION31 December 2006


M A J O R P R O P E R T I E S- As at March 12, 2007

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Held by Location Description & Tenure UsageApproximate Land Area

SembCorp Jalan Samulun Land area: 198,098m2 10 years leasehold Ship repairs includingMarine Ltd Buildings, workshops, 10 years renewal drydock, berthage

drydocks and quays & workshops

Tanjong Kling Road Land area: 491,054.57m2 10 years leasehold Ship repairs, shipBuildings, workshops, 10 years renewal conversion, offshoredrydocks and quays engineering, shipbuilding

and rig building including drydock, berthage & workshops

Mendon Spring 9 units of 3-room Freehold Residential propertiesapartment with built-inarea of 99m2 per unit

Sembawang Admiralty Road East/ Land area: 860,939m2 22 years leasehold Ship repairs, shipShipyard Project Admiralty Road West Buildings, workshops, conversion, offshoreServices Pte Ltd docks and quays engineering and rig

building including docks, berthage & workshops

PPL Shipyard Pandan Road Land area : 118,749m2 15 years leasehold Rig repairs, upgradings, Pte Ltd fabrication and rig

building including berthage and workshops

Pandan Road Land area : 9,182m2 30 years leasehold Leg component fabrication

Tuas Crescent Land area : 58,255m2 5 years leasehold Fabrication facilities

Jurong SML Shipyard Road Land area: 63,141m2 6 years leasehold Ship repairs and Pte Ltd Buildings, workshops, shipbuilding including

drydocks drydocks, berthage & workshops

Tuas Road Land area : 60,760m2 14 years leasehold Shipbuilding andBuildings, workshops, fabrication including

docks and quays berthage & workshops

P.T. Karimun Karimun Island Land area: 150,000m2 30 years leasehold Ship repair andSembawang Indonesia Buildings, workshops with option for 20 fabrication includingShipyard and wharves years plus another berthage and workshops

option for 30 years

JPL Industries Jurong Pier Road Land area: 27,783m2 20 years leasehold Copper slag recyclingPte Ltd

SES Engineering No. 15 Land area : 5,235m2 Freehold Metal fabricationSdn Bhd Jalan Lambak Workshop and 3-storey workshop

Kawasan office buildingPerindustrianTaman Johor81200 Johor Bahru

P.T. SMOE Batam Island Land area : 299,001m2 30 years leasehold Workshops &Indonesia fabrication facilities


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Company Registration No. 196300098Z(Incorporated in the Republic of Singapore)

NOTICE OF ANNUAL GENERAL MEETING

213

NOTICE IS HEREBY GIVEN THAT the 44th Annual General Meeting of the Company will be held onFriday, April 20, 2007 at 11.00 a.m. at 29 Tanjong Kling Road, Singapore 628054 to transact thefollowing business:-

Ordinary Business1 To receive and adopt the Directors’ Report and Audited Accounts for the year ended December

31, 2006.2 To approve the payment of a final dividend of 10.0 cents per ordinary share less income tax and

1.50 cents one-tier tax exempt dividend per ordinary share for the year ended December 31, 2006.3 To re-elect the following directors, each of whom will retire by rotation pursuant to Article 91 of the

Company’s Articles of Association and who, being eligible, will offer themselves for re-election:(a) Mr Tan Pheng Hock(b) Mr Kiyotaka Matsuzawa(c) Mr Ajaib Haridass (independent director & Chairman of Board Risk Committee)

4 To re-elect the following directors, each of whom will cease to hold office pursuant to Article 97of the Company’s Articles of Association and who, being eligible, will offer themselves for re-election:

(a) Mr Ron Foo Siang Guan(b) Mr Joseph Kwok Sin Kin

5 To approve the sum of S$767,125 as Directors’ Fees for the year ended December 31, 2006.(2005: S$353,832)

6 To re-appoint Messrs Ernst & Young as Auditors of the Company and authorise the Directors tofix their remuneration.

Special BusinessTo consider and, if thought fit, to pass the following resolutions which will be proposed as OrdinaryResolutions:-7 That authority be and is hereby given to the Directors of the Company to:

(a) (i) issue shares in the capital of the Company (“shares”) whether by way of rights, bonus orotherwise; and/or

(ii) make or grant offers, agreements or options (collectively, “Instruments”) that might or wouldrequire shares to be issued, including but not limited to the creation and issue of (as well asadjustments to) warrants, debentures or other instruments convertible into shares,

at any time and upon such terms and conditions and for such purposes and to such personsas the Directors may in their absolute discretion deem fit; and

(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force)issue shares in pursuance of any Instrument made or granted by the Directors while thisResolution was in force,

provided that:(1) the aggregate number of shares to be issued pursuant to this Resolution (including shares to

be issued in pursuance of Instruments made or granted pursuant to this Resolution) does notexceed 50% of the issued shares in the capital of the Company (as calculated in accordancewith sub-paragraph (2) below), of which the aggregate number of shares to be issued otherthan on a pro rata basis to shareholders of the Company (including shares to be issued inpursuance of Instruments made or granted pursuant to this Resolution) does not exceed 20%of the issued shares in the capital of the Company (as calculated in accordance with sub-paragraph (2) below);

(2) (subject to such manner of calculation as may be prescribed by the Singapore ExchangeSecurities Trading Limited ("SGX-ST")) for the purpose of determining the aggregate numberof shares that may be issued under sub-paragraph (1) above, the percentage of issued sharesshall be based on the number of issued shares in the capital of the Company as at the timethis Resolution is passed, after adjusting for:(i) new shares arising from the conversion or exercise of any convertible securities or share

options or vesting of share awards which are outstanding or subsisting at the time thisResolution is passed; and

(ii) any subsequent consolidation or subdivision of shares;

SEMBCORP MARINE LTD

Resolution 1

Resolution 2

Resolution 3Resolution 4Resolution 5

Resolution 6Resolution 7Resolution 8

Resolution 9

Resolution 10

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NOTICE OF ANNUAL GENERAL MEETINGSEMBCORP MARINE LTD

(3) in exercising the authority conferred by this Resolution, the Company shall comply with theprovisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliancehas been waived by the SGX-ST) and the Articles of Association for the time being of theCompany; and

(4) (unless revoked or varied by the Company in General Meeting) the authority conferred by thisResolution shall continue in force until the conclusion of the next Annual General Meeting ofthe Company or the date by which the next Annual General Meeting of the Company is requiredby law to be held, whichever is the earlier.

8 That approval be and is hereby given to the Directors to:(a) offer and grant options in accordance with the provisions of the SembCorp Marine Share Option

Plan (the “Share Option Plan”) and/or to grant awards in accordance with the provisions ofthe SembCorp Marine Performance Share Plan (the “Performance Share Plan”) and/or theSembCorp Marine Restricted Stock Plan (the “Restricted Stock Plan”) (the Share Option Plan,the Performance Share Plan and the Restricted Stock Plan, together the “Share Plans”); and

(b) allot and issue from time to time such number of shares in the capital of the Company as maybe required to be issued pursuant to the exercise of options under the Share Option Plan and/orsuch number of fully paid shares as may be required to be issued pursuant to the vesting ofawards under the Performance Share Plan and/or the Restricted Stock Plan,

provided that the aggregate number of ordinary shares to be issued pursuant to the Share Plansshall not exceed 15% of the total number of issued shares in the capital of the Company from timeto time.

9 To transact any other business.

By Order of the Board

Tan Yah SzeCompany Secretary

April 4, 2007

Explanatory Notes:Resolution 5 – if re-elected, Mr Ajaib Haridass will remain as the Chairman of the Board Risk Committee. Mr Ajaib Haridass is an independent director.

Statement pursuant to Article 54 of the Articles of Association of the Company:Resolution 10 – is to empower the Directors to issue shares in the capital of the Company and to make or grant instruments (such as warrants or debentures)convertible into shares, and to issue shares in pursuance of such instruments, up to an amount not exceeding in total 50% of the issued shares in the capital ofthe Company, with a sub-limit of 20% for issues other than on a pro rata basis to shareholders. For the purpose of determining the aggregate number of sharesthat may be issued, the percentage of issued shares shall be based on the number of issued shares in the capital of the Company at the time that Resolution 10 ispassed, after adjusting for (a) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards whichare outstanding or subsisting at the time that Resolution 10 is passed, and (b) any subsequent consolidation or subdivision of shares.

Resolution 11 - is to empower the Directors to offer and grant options and/or grant awards and to issue ordinary shares in the capital of the Company pursuant tothe SembCorp Marine Share Option Plan, the SembCorp Marine Performance Share Plan and the SembCorp Marine Restricted Stock Plan (collectively, the “SharePlans") provided that the aggregate number of ordinary shares issued pursuant to the Share Plans shall not exceed 15% of the total number of issued shares inthe capital of the Company for the time being.

Note:1.A member of the Company entitled to attend and vote at the Annual General Meeting is entitled to appoint not more than two (2) proxies to attend and vote on

his behalf and where a member appoints more than one (1) proxy, he shall specify the proportion of his shareholdings to be represented by each proxy. A proxyneed not be a member of the Company.

2.The instrument appointing a proxy or proxies must be lodged at 29 Tanjong Kling Road, Singapore 628054 not later than 48 hours before the time of the meeting.

Notice of Books Closure and Dividend Payment DateNOTICE IS HEREBY GIVEN that the Register of Members and Share Transfer Books of the Company will be closed from May 8, 2007 to May 9, 2007, both datesinclusive, for the preparation of dividend warrants.

Duly completed transfers in respect of ordinary shares in the capital of the Company together with all relevant documents of title received by the Company’s ShareRegistrar, KCK Corpserve Pte Ltd, 47 Hill Street #06-02, Chinese Chamber of Commerce & Industry Building Singapore 179365, up to 5 p.m. on May 7, 2007(the “Book Closure Date”) will be registered to determine members’ entitlements to the proposed dividend. Subject as aforesaid, members whose securities accountswith The Central Depository (Pte) Limited are credited with ordinary shares in the capital of the Company as at 5.00 p.m. on the Book Closure Date will be entitledto the dividend.

The proposed dividend, if approved by the members at the 44th Annual General Meeting, will be paid on May 18, 2007.

Resolution 11

No. Resolutions For Against

Ordinary Business

1 Adoption of Directors’ Report and Accounts

2 Declaration of Final Dividend

3 Re-election of Tan Pheng Hock

4 Re-election of Kiyotaka Matsuzawa

5 Re-election of Ajaib Haridass

6 Re-election of Ron Foo Siang Guan

7 Re-election of Joseph Kwok Sin Kin

8 Approval of Directors’ Fees

9 Re-appointment of Auditors

Special Business

10 Approval for Directors to issue shares

11 Authority for Directors to grant options and/or grant awards and issue shares inaccordance with SembCorp Marine’s Share Plans


PROXY FORMIMPORTANT1. For investors who have used their CPF monies to buy SembCorp Marine

Ltd’s shares, this document is forwarded to them at the request of theirCPF Approved Nominees solely FOR INFORMATION ONLY.

2. This Proxy Form is not valid for use by CPF investors and shall beineffective for all intents and purposes if used or purported to be usedby them.

I/We (Name)

of (Address)

being a member/members of SEMBCORP MARINE LTD hereby appoint:-

Name Address NRIC/Passport Number Proportion ofShareholdings (%)

and/or (delete as appropriate)

as my/our proxy/proxies to attend and vote for me/us on my/our behalf and, if necessary, to demand a poll, at the 44th Annual General Meetingof the Company to be held at 29 Tanjong Kling Road, Singapore 628054 on Friday, April 20, 2007 at 11.00 a.m. and at any adjournment thereof.

(Please indicate with an X in the spaces provided whether you wish your vote(s) to be cast for or against the Resolutions as set out in the Notice of Annual General Meeting. In the absenceof specific directions, the proxy/proxies will vote or abstain as he/they may think fit, as he/they will on any other matter arising at the Annual General Meeting.)

Notes:

1. Please insert the total number of shares held by you. If you have shares entered against your name in the Depository Register (as defined in Section 130A of the Companies Act, Chapter50 of Singapore), you should insert that number of shares. If you have shares registered in your name in the Register of Members, you should insert that number of shares. If you haveshares entered against your name in the Depository Register and shares registered in your name in the Register of Members, you should insert the aggregate number of shares enteredagainst your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument appointing a proxy or proxies shall be deemedto relate to all the shares held by you.

2. A member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint one or two proxies to attend and vote instead of him. Such proxy need not be amember of the Company.

3. Where a member appoints two proxies, the appointments shall be invalid unless he specifies the proportion of his shareholding (expressed as a percentage of the whole) to be representedby each proxy.

4. The instrument appointing a proxy or proxies must be deposited at 29 Tanjong Kling Road, Singapore 628054, not less than 48 hours before the time appointed for holding the AnnualGeneral Meeting.

5. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where the instrument appointing a proxy or proxies isexecuted by a corporation, it must be executed either under its seal or under the hand of an officer or attorney duly authorised.

6. A corporation which is a member may authorise by a resolution of its directors or other governing body such person as it thinks fit to act as its representative at the Annual General Meetingin accordance with its Articles of Association and Section 179 of the Companies Act, Chapter 50 of Singapore.

General:

The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where the true intentions of the appointor are notascertainable from the instructions of the appointor specified in the instrument appointing a proxy or proxies. In addition, in the case of shares entered in the Depository Register, the Companymay reject any instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have shares entered against his name in the Depository Register as at 48hours before the time appointed for holding the Annual General Meeting, as certified by The Central Depository (Pte) Limited to the Company.

Total Number ofShares HeldDated this day of 2007.

Signature(s) of Member(s) or Common Seal


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The Company SecretarySembCorp Marine Ltd29 Tanjong Kling Road

Singapore 628054

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