2011 · 6 2011 nnua report chairman’s statement results the group’s revenue for the year 2011...

Annual Report2011

Titan Petrochemicals Group Limited, listed on the

Hong Kong Stock Exchange (Stock Code: 1192), is

a provider of oil logistic and marine services in the

Asia Pacific region, in particular, in China. The Group

operates the strategically located onshore and offshore

storage facilities and a multi-functional ship-repair

and shipbuilding yard, which is one of the largest in

Asia. Titan operates in China, Hong Kong, Singapore

and Malaysia.

ABOUT TITAN PETROCHEMICALS GROUP

Financial Highlights

Chairman’s Statement

Directors

Senior Management

Events of the Year

Management Discussion and Analysis

Financial Review

Corporate Governance Report

Report of the Directors

Independent Auditors’ Report

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Statement of Financial Position

Notes to Financial Statements

Five Year Financial Summary

Corporate Information

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CONTENTS

2 2011 Annual Report

FINANCIAL HIGHLIGHTS

HK$ Million 2011 2010

Revenue — Continuing Operations 2,108 1,924 — Discontinued Operation 89 187

2,197 2,111

Loss attributable to shareholders — Continuing Operations (570) (503) — Discontinued Operation (213) (78)

(783) (581)

Business Highlights• The continued bad markets in all business sectors, other than Onshore Storage, has had a

continuingsignificantnegativeimpactonGroupresults

• On 18March 2012, theGroup announced that GrandChina LogisticsHolding (Group) CompanyLimited (“Grand China”) had not fulfilled its payment obligations in accordance with the agreedscheduleand,therefore,theShipyardDisposaltransactionhasnotyetbeenconsummated

• On27March2012, theGroupannounced theappointmentofNomura International (HongKong)Limitedas itssole financialadviser inconnectionwith the restructuringand implementationof itsrefinancingplans

• Shanghai Futures Exchange awarded A* Standard Delivery Point status and designated anadditional 50,000 cubicmeters capacity at Nansha Terminal, bringing the total physical deliveryterminalcapacityto300,000cubicmeters

• Fujian Terminal became the only dangerous liquid bonded storage in Quanzhou and alsocompletedconstructionofPhaseIIcomprisedof339,000cubicmetersofoilandproductsfueloilstoragetankstogetherwitha100,000DWTjettyinAugust2011

• Shanghai Yangshan Terminal completed construction of Phase II of its 47,000 cubic metersaviationkeroseneanddieseloiltanksandstartedtrialoperationsinMarch2011

• JPMorganrecognisesShanghaiYangshanTerminalasahighstandardstoragefacilitywithqualitymanagement

• ShandongYantaiTerminalbegantrialoperationswith360,000cubicmetersand2jettiesandit iscurrentlyoneofChina’snationalstrategicoilreservebasesforcrudeoil

3Titan Petrochemicals Group Limited

FINANCIAL HIGHLIGHTS

2009

2009 2010 2011

2010 2011

(502)

(430)

(570)

1,620

1,924

2,108

HK$ Million HK$ Million

Revenue – continuing operations

Loss for the year – continuing operations


Titan will continue with the expansion of its core businesses at the opportune time in order to remain as one of the largest independent storage operators in China

TSOI Tin ChunChairman

“

”


CHAIRMAN’S STATEMENT

On 18 March 2012, the Group announced that Grand China had not fully complied with its paymentobligations under the sale and purchase agreement for the disposal of its 95% equity interest in TitanQuanzhouShipyardCo.Ltd(“QZShipyard”).TheGrouphasnotyet receivedtheresidualpaymentsandthe payments for the subscription of 500,000,000 ordinary shares at HK$0.61 per subscription price(which has now lapsed) for approximately HK$898,307,000 and HK$305,000,000, respectively. Theseproceedswouldhavebeensufficient toenabletheGrouptomeet itsdebtrepaymentobligations infixedrateguaranteedseniornotes(“SeniorNotesDue2012”)andtheCompany’sconvertiblepreferredshares.

In the above circumstances, the Group has been unable to repay the overdue principal and intereston the Senior Notes Due 2012 which were due on 19 March 2012 amounting to approximatelyHK$825,786,000 and approximately HK$35,092,000, respectively. As a result, a cross default wastriggered in respect of a bilateral loan with a financial institution in the outstanding principal amountof approximately HK$10,140,000 and an early redemption event was also triggered in respect of theCompany’sanditsjointly-controlledentity’sconvertiblepreferredshares.

Havinggivencarefulconsideration to the future liquidityandperformanceof theGroupand itsavailablesourcesoffinance,theGrouphavetakenthefollowingmeasurestomitigatetheliquidity issuesfacedaswellastoimproveitsfinancialposition:

(i) Actively working to require Grand China to honor its obligations under the sale and purchaseagreement;

(ii) Negotiating with potential strategic investors in respect of a possible equity investment in theCompany;

(iii) Appointment of independent financial advisor(s) to restructure thedebts and equity status of theGroup;

(iv) RefinancetheexistingbankloanstomatchtheGroup’sbankrepaymentswhentheyfalldue;and

(v) Review the Group’s financial and operational position and take steps to improve cash flowmanagementwithaviewtoconservingproductiveassetsandoperations.



ResultsThe Group’s revenue for the year 2011 was HK$2,197million, which is a 4.1% increase compared totheprioryear,anda9.6%increaseincontinuingoperationsrevenueover2010.TheGroup’soperationsrecorded losses before interest expenses, tax, depreciation and amortisation (LBITDA) of HK$209millionascomparedtoLBITDAofHK$120million in2010.The lossfor theyearwasHK$783millionascomparedtoalossofHK$580millionin2010.

TheBoardhasdecidednottodeclareadividendfortheyear.

Financial ResourcesTheGroup’scashpositionstoodatHK$1,354million,ofwhichHK$1,132millionwaspledged,asat31December2011comparedtoHK$506million,ofwhichHK$252millionwaspledged,twelvemonthsago.TheGroup’sgearingwas0.60attheendof2011,comparedto0.57attheendof2010.

General Business ReviewTitan was listed on the Hong Kong Stock Exchange in 2002. Subsequently, we acquired an interestin the Fujian Terminal, started the floating storage unit (“FSU”) business and entered into the oil anddistribution market in Singapore. Over the years, the Group continued to expand its onshore terminalbusiness by signing joint-venture contracts for the Shanghai Yangshan Terminal and the NanshaTerminal.We further expanded in this business sector by increasing our stakes in the Fujian Terminaland the Nansha Terminal to 100% in 2006 and 2008, respectively. Soon after Nansha Terminalcommenced operations, it was recognised by the Shanghai Futures Exchange as a designated physicaldeliverypointforitsfueloil.

We are one of the leading onshore storage terminals in China with over 2.7 million cubic metersstrategically located along the coastline at Guangdong Nansha, Fujian Quanzhou, Shanghai YangshanandShandongYantai.Wewillcontinuetofocusonthestoragebusinesseswhichhavebeenseeingstablerevenuegrowth.

In 2011, the Group operated seven FSUs and commercially managed one other in Singapore andMalaysiawhichpermitship-to-shipoperationswith fully ladenvery largecrudecarriers(VLCC)andhaveacombinedcapacityof2.5millioncubicmeters.ItisimportanttoalsonotethatwewerethefirstinAsia,andremaintheonlyfleettooperatedouble-hulledFSUs.

Our Storage businesses have been affected by the global economic uncertainties, the tightermonetarypoliciesimplementedbytheChinesegovernmentin2011,thesocialunrestintheMiddleEastandNorthAfricawhich resulted in an unforeseen oil price spike, and the continued volatilemarkets in oil prices.Despite this, our business plans for expansion of our storage terminals remain on track. By the end of2011, we had become one of the largest independent onshore storage operators in China with a totaloperating capacity of over 2.7 million cubic meters. Developments in our onshore storage operationsduringtheyearincludedasfollows:



• TheShanghaiFuturesExchangedesignatedanadditional50,000cubicmeterscapacityatNanshaTerminal, bringing the total physical delivery terminal capacity to 300,000 cubicmeters.NanshawasalsoawardedA*StandardDeliveryPointstatusbytheExchange.

• Fujian Terminal, the only dangerous liquid bonded storage inQuanzhou, completed constructionof Phase II comprised of 339,000 cubicmeters of oil product and fuel oil storage tank facilitiesanda100,000DWTjettywhichwereputintotrialoperationinAugust2011.

• Shandong Yantai Terminal, our newly established facility with a total of 360,000 cubicmeters ofoperatingcapacityand50,000DWTand5,000DWT jetties,commencedoperations in2011. It iscurrentlyoneofChina’snationalstrategicoilreservebasesforcrudeoil.

• Shanghai Yangshan Terminal, recognised by JP Morgan as a high standard storage facility withquality management, completed construction of Phase II for a total of 47,000 cubic meters ofaviationkeroseneanddieseloiltankswhichstartedtrialoperationsinMarch2011.

Floating Storage Units (Offshore Storage)

Revenue for the year was HK$497 million as compared to HK$514 million in 2010 and the segmentLBITDAslightlydecreasedtoHK$50millionascomparedtoHK$53millionintheprioryear.

Bytheendof2011,theGroupwasoperatingsevenFSUswithatotaloperatingcapacityofapproximately2.2million cubicmeters, as compared to five FSUswith approximately 1.6million cubicmeters whichoperated during the same period last year.We continued to be the leading FSU operator in SoutheastAsiaattheendof2011.OurbondedstoragebusinessstatusinMalaysiaandSingaporeaswellashavingapproval status as a designated physical delivery point by Platts, together with our ability to provideheatingandblendingservices,allowsTitantocontinuetohaveanedgeovercompetitorsandcatertothedemandstandardsofinternationaloiltradingcompanies.

China Terminals (Onshore Storage)

Revenue forourOnshoreStoragebusiness fromChinaTerminalsdecreasedby3.7%toHK$192millioncompared toHK$200million in 2010 and segment earningsbefore interest expenses, tax, depreciationand amortisation (EBITDA) dropped fromHK$156million toHK$122million during the year. This dropwasmainlyattributedtotheoilpricespikeinmid-2011which,inturn,resultedinlowerutilisationrates,aswellasthecontinuedvolatilemarketinoilprices.

In 2011, the overall utilisation rate for the Nansha Terminal dropped from 73% to 65% in contrast to2010,with the average utilisation rate for fuel oil storage facilities decreasing to 64%, and the averageutilisationrateforthechemicalstoragefacilitiesdroppingslightlyto73%ascomparedto2010.

Overall, the average utilisation rate for the Fujian Terminal decreased from 89% to 77% in 2011 ascomparedtothesameperiodlastyear,withtheaverageutilisationrateforthechemicalstoragefacilitiesdropping from89% to78%.During2011,ourFujianchemical jetty recordeda totalofup to55milliontons,an increaseof35%ascompared to lastyear,accounting formore than70%of the totalchemicalmovementsintheregion.



The average utilisation for the Shanghai Yangshan Terminal, consisting of 1,067,000 cubic metersstoragecapacity,reached97%,aremarkableachievementintheshortlifeoftheoperations.

The first phase of our newly established Shandong Yantai Terminal, consisting of 360,000 cubicmetersof storagecapacity togetherwitha50,000DWT jettyanda5,000DWT jettywascompletedandcommencedoperations in2011andachievedanutilisation rateof43%by theendof theyear.Despitebeing in trial operations, we have successfully secured a number of long term storage agreements. Bymid-2011, the utilisation rate for our bonded storage of 100,000 cubic meters reached almost 100%.In order tomeet the demands of valued customers, we successfully received approval to increase ourbondedstorageby130,000cubicmeterstherebyraisingourbondedcapacityto230,000cubicmeters.

Transportation and Supply/Distribution

Revenues from transportation in 2011 totalled HK$351 million, an increase of 96.9% as compared to2010.This increasewasa resultof the increase in theGroup’s transportation fleetcapacity toa totaloftwelvevesselsor187,309DWT.

During the year, we faced several challenges from high bunker prices and competition from newemerging owners in Malaysia, China, and Vietnam. However, we have continued to offer competitiveandconsistentqualityservices toourvaluedclientsandourvesselshavemetall localand internationalrequirementsincludingthoseoftheoilmajors.

Revenues in our supply/distribution business increased by 3.4% to HK$1,067million, however, thesegmentEBITDAdecreasedfromHK$26milliontoHK$4millionduringtheyear.

Shipyard

Due to the adverse shipbuildingmarket conditions during the year, the revenues for the ShipyardwereonlyHK$89millionascomparetoHK$187millionin2010andsegmentLBITDAwasHK$170millionascomparedtoHK$31millionin2010.

During the year, theShipyardcontinuedwith theconstructionwork onbunker tankers and started shiprepairwork towards the endof the year. InMarch2012,we successfullydelivered twobunker tankers.As publicly announced on 18 March 2012, Grand China have not fulfilled its payment obligations inaccordance with the agreed schedule and, therefore, the Shipyard Disposal transaction has not yetbeenconsummated.TheGrouphasbeenactivelyworkingwithGrandChinaandwillcontinuetoseektofinalisetheShipyardDisposaltransaction.

The Shipyard is a unique multifunctional facility that will be one of the largest ship repair, offshoreengineering and specialised shipbuilding yards in Asia when fully operational. Since its shipbuildingoperationsbeganin2007,theShipyardhassuccessfullydeliveredatotalofsixteenvessels.



OutlookTheworldeconomycontinues to faceexceptionaluncertaintiesas itenters2012andmarketsentimentswill most likely remain weak during the ensuring year. As previously announced, we face certaindifficultiesinourfinancialstatusduetothedelaysinconsummationoftheShipyardDisposaltransaction.Wearenowworkingdiligentlytoseekoptimumalternativestoresolvethesituationinordertostrengthenitsfinancialpositiontomeetthemarketneedsandchallengesinthefuture.

Despite the challenges ahead, Titan, will continue with the expansion of its core businesses at theopportune time in order to remain as one of the largest independent storage operators in China. Inrespect of these commercial activities, we will step up the Group’s efforts to extend our reach tomoreinternational customers for our terminals and thereby pursue higher utilisation and seek to securemore long term leases.Webelieveour good strategic locations, togetherwitha strongcustomer serviceculture,competitivepricing,agoodsafety track record,andhighqualify terminal facilitieswillgiveusacompetitiveadvantageinthemediumtermandinthelongrun.

Being one of the largest offshore facility operators in Southeast Asia, Titan will continue to offer bothdirtyandcleanpetroleumproductstorageservices toourcustomers.Wewillalsocontinue toworkwithcustomers who have a preferential demand for double-hulled FSUs and attract term leases by offeringflexibleandtailoredstoragesolutionsinordertomeetcustomerneeds.

SummaryWe are aware that the mission ahead is full of challenges and obstacles, however, we will not bedisheartenedbytherecentsetbacks.Withthesupportofourvaluablecustomers,suppliers,bondholdersand, most importantly, our shareholders, we are determined to recuperate from our current financialproblems.

Tsoi Tin ChunChairman

HongKong,11May2012


DIRECTORS

Mr. Tsoi, aged 49, founder of Titan Petrochemicals GroupLimited (listed on the Hong Kong Stock Exchange as HK1192),hasbeentheGroup’sChairmansinceits inceptioninMay2002.HeisamemberoftheremunerationcommitteeandwasalsotheChiefExecutivefromJanuary2008toJanuary2012.

From the early 1980s until the Group’s emergence,Mr. Tsoi, anativeofFujian,hasbeen involved in thestorage, transportationanddistributionofoilproducts inChina.Thisperiodmarkedthebeginning ofChina’s economic transformation and the transitionfrom exporting to importing oil. It was also a time when Mr.Tsoi’s innovative concept of “integrated oil logistics” began totake shape. To realise this concept, Mr. Tsoi moved to HongKong and later to Singapore where, in 1996, he establishedTitan Oil Pte Ltd, a substantial shareholder of the Companywithin the meaning of Part XV of the Securities and FuturesOrdinance. Through the gradual development of the oil supply,transportation,storageanddistributionbusinesses,theCompanysucceeded in establishing an integrated oil logistics platform toprovidecustomersone-stopservice.

Mr. TSOI Tin ChunChairman of the Board

In 2005, theGroupwas awarded the “Global Trader Programme Status” by the SingaporeGovernmentandinthefollowingyearTitanOilPteLtdwasnamedoneoftheTop100EnterprisesinSingapore.

While fully engaged in the international market, Mr. Tsoi has, nevertheless, been most concernedabout economic developments in China. He has brought back to China his successful experience ininternationalmarketingaswell asmanagementpracticesdeveloped inSingapore.Underhis leadership,theGroup,whiledevelopingitsbusinessinSingapore,alsoactivelyinvestedinoillogisticsfacilitiesandashipyardinChina.TheGroupisnowbuildinglargemodernpetrochemicalterminalsinstrategiclocationsatkeycoastalareasofChina,namely,NanshainGuangdong;QuanzhouinFujian;YangshanatShanghaiandYantaiatShandong.

Mr.Tsoi firmlybelieves thatentrepreneursandenterpriseshave responsibilities tocontribute to society.Thus, in June 2006, Titan Oil Pte Ltd initiated construction of Quanzhou Titan Maritime Institute inFujian, China. This institute is committed in developing itself into a first-class comprehensive full-timehigher vocational educational establishment, and aimed at giving supports to injectmaritime talents tothedomesticandinternationalmarineindustry.Phaseoneconstructionwascompletedin2009,andtheschool commenced its full time teaching since September the same year with 431 students admitted.These431studentswillbegraduating inJune2012whichsignifiesahistoricalmilestone forQuanzhouMaritime Institute. Currently, over 1,000 full-time students are studying in the institute, and upon fullcompletionoftheconstruction,thenumberoffull-timestudentswillgraduallyincreaseto5,000,offeringawiderangeofmaritime,shipbuilding/repairrelatedvocationaltrainingcoursestostudents.

Mr.Tsoi,aSingaporean,ismarriedandhasfivechildren.


DIRECTORS

Mr. Wong, aged 56, has been an Executive Director ofthe Company since May 2008 and is also the President,Corporate Office who is responsible for strategic andoperational leadership for all of theCompany’s business andoperations.Heisalsoamemberofthenominationcommittee.Mr. Wong has 30 years of working experience in banking,finance, commodity trading and project development. Hehas held several key positions in theCompany from2002 to2005. Prior to joining the Company as President, Mr. Wongwas senior vice president of Commodity and Trade Financeat Societe Generale in Singapore and worked at commoditytrading firms such as Louis Dreyfus where he was chiefexecutiveofficerofChina.Mr.Wong isanAssociateMemberof the Chartered Institute of Bankers, United Kingdom andholds a master degree in Applied Finance from MacquarieUniversity,Australia.

Mr. Crawford, aged 70, has been an Independent Non-executive Director of the Company since February 2006and is also the chairman of the audit committee. He wasa founding partner of Ernst & Young, Hong Kong and vicechairmanof the firmuntil his retirement in 1997.Duringhis25 years in public accounting, he was also the chairman oftheauditdivisionandwasactive inanumberof largeprivateand public company takeover and/or restructuring exercises.Mr.Crawfordhasbeeninvolvedinvariouscommunityserviceareas such as being a founding member of UNICEF HongKong Committee and the Hong Kong Institute of Directors.In 1997,Mr.Crawfordwas appointed a Justice of thePeaceinHongKong.He isamemberandwasagovernor formanyyears of the Canadian International School of Hong Kongand continues to be active in thepromotion of pre-universityeducation. Mr. Crawford is an independent non-executivedirector and chairman of the audit committees of e-KongGroupLimitedandRegalPortfolioManagementLimitedwhichis the manager of Regal Real Estate Investment Trust, theshares and units, respectively, of which are listed in HongKong. He is also an independent non-executive director ofEntertainment Gaming Asia Inc., a company listed on theAmericaStockExchange.

Mr. Patrick WONG Siu HungExecutive Director and President, Corporate Office

Mr. John William CRAWFORD, JPIndependent Non-executive Director


DIRECTORS

Ms. Tam, aged 66, has been an IndependentNon-executiveDirector of the Company since August 2004 and is also thechairman of the remuneration committee and a member ofthe audit committee and the nomination committee. She isa barrister and a Deputy to the National People’s Congressof the People’s Republic of China. She is a member of theCommittee for the Basic Law of the Hong Kong SAR underthe Standing Committee of the National People’s Congress,Basic LawPromotionSteeringCommittee,OperationsReviewCommitteeandWitnessProtectionReviewBoardoftheICAC.Ms. Tam currently serves as an independent non-executivedirectorofWingOnCompanyInternationalLimited,MinmetalsLand Limited, Sinopec Kantons Holdings Limited, Guangnan(Holdings)Limited,TongRenTangTechnologiesCo.Ltd.,SaSa International Holdings Limited and Nine Dragons Paper(Holdings) Limited.Ms. Tam was educated at the UniversityofLondonandisamemberofGray’sInn,London.

Mr. Shek, aged66,hasbeenan IndependentNon-executiveDirector of the Company since February 2006 and is alsothe chairman of the nomination committee and a memberof the audit committee and the remuneration committee.Hegraduated from the University of Sydney with a Bachelor ofArtsdegree.Mr.Shek isamemberof theLegislativeCouncilfor the Hong Kong SAR, a vice chairman of IndependentPolice Complaints Council and a Courtmember of the HongKongUniversityofScienceandTechnologyandtheUniversityof Hong Kong. He is also an independent non-executivedirector and audit committee member of NWS HoldingsLimited, Midas International Holdings Limited, PaliburgHoldings Limited, Lifestyle International Holdings Limited,Chuang’s Consortium International Limited, ITC CorporationLimited, Country Garden Holdings Company Limited, SJMHoldings Limited, Kosmopolito Hotels International Limitedand China Resources Cement Holdings Limited. He also sitsin the board of Eagle Asset Management (CP) Limited andRegalPortfolioManagementLimitedwhich is themanagerofChampionRealEstateInvestmentTrustandRegalRealEstateInvestmentTrust(theunitsofwhicharelistedinHongKong),respectivelyasan independentnon-executivedirectoraswellas an audit committee member. He serves as independentnon-executive director to Hop Hing Group Holdings Limited,HsinChongConstructionGroupLimitedandMTRCorporationLimited.Mr.Shekisalsothechairmanandindependentnon-executive director of Chuang’s China Investments Limited,vice chairman, independentnon-executivedirector and auditcommittee member of ITC Properties Group Limited and adirectorofTheHongKongMortgageCorporationLimited.

Mr. Abraham SHEK Lai Him,SBS, JPIndependent Non-executive Director

Ms. Maria TAM Wai Chu, GBS, JPIndependent Non-executive Director


SENIOR MANAGEMENT

Mr. Henry CAI Jian JunChief Executive

Mr.Cai,aged53,hasbeentheChiefExecutiveoftheCompanysinceJanuary2012.HewasapresidentofPanAmericanUnionOil&GasInc.,andhadactivelyparticipated in several large-scale petrochemicalprojects inChina from2006 to2011.From2004 to2006,Mr.CaiwasGeneralManagerofBeijingChinaPost Heng Ren Investment Company Ltd and wasmainly responsible for restructuring and assessingnon-core assets of ChinaPost. From1993 to 2004,he was General Manager of Shen Zhen Yi HengInvestment Company Ltd, which investors includeICBC,CCB,ChinaInvestmentBankandaMalaysianinvestment fund, and was responsible for financialinvestmentsforseverallargeconstructionprojectsinChinaonports,highways,cityinfrastructuretogetherwithwater and gasutilities. From1988 to 1993, hewas the head of Southern China Office (Shenzhen),Hua Zong Economic Development Centre afterhavingworkedforWuhanMotorCycleManufacturingCompanyLtdasaFactoryManager.Mr.CaiholdsadegreeinMachineryDesign&ManufacturefromtheWuhanUniversityofTechnology.

Mr. Allen TU Chung ToChief Financial Officer

Mr. Tu, aged 50, has over 20 years experience inthe finance, accounting and auditing fields. Hehas been acting as Chief Financial Officer sinceDecember 2008. He was previously the GroupFinancialControllerandCompanySecretaryofTitanfrom June 2002 until June 2008. Prior to joiningTitan, hewasProject FinancialManagerwithNobleGroup from 2001 to 2002. Before that, he was aSenior AuditManager with Ernst & Young, focusingoninitialpublicofferingexercises.Mr.Tuisafellowmember of the Hong Kong Institute of CertifiedPublic Accountants and amember of the AmericanInstituteofCertifiedPublicAccountants.HeholdsaBachelor’sDegree inCommerce from theUniversityofToronto.

Mr. LI BinChief Executive Officer – China Terminals

Mr. Li, aged 47, joined Titan in February 2011as Head of Group Commercia l and StrategyDevelopment and Executive Vice-President of ChinaTerminal. In April 2012,Mr. Li has been appointedastheChiefExecutiveOfficerofChinaTerminals.Hehas over 13 years of experience working in variousSinochem Group of companies spanning acrossBeijing, Los Angeles, Hong Kong and Singaporecovering crude oil and products and and movedup to hold the position of Managing Director ofSinochem International Oil (Hong Kong) Co. Ltdand Managing Director of Sinochem InternationalOil (Singapore) Pte Ltd. He moved on to HuahaiSingapore to become the Managing Director andwas accountable for themanagement and businessdevelopmentofpetroleumandchemicalproducts inthe region. In 2008, he was the Executive Directorat J.P.MorganAsiaPacific andheaded theGreaterChina Team responsible for themarketing of globalcommodities,riskmanagementandhedgingservicesas well. During his stint, he established manynetworks with global energy companies such asPetro-china, Sinochem and Unipec. Prior to joiningTitan,hewasapartner inB&JPartnersLawFirminBeijing and focused on corporate legal affairs andprovided investment advice for Chinese and foreigncompanies leveraging on his extensive experienceinMaritimeLawand InternationalBusinessLaw.Heholds a Master of Law and Bachelor of Economicsfrom the University of International Business andEconomics, Beijing, China. He has been a licensedlawyerinChinasince1999.


SENIOR MANAGEMENT

Mr. TAN Mong SengSenior Consultant, Shipyard

Mr.Tan,aged60,hasworkedinthemarineindustryfor more than 30 years (particularly in the areas ofship repair, shipbuilding and offshore engineering).Since his appointment in April 2007 as SeniorConsultant for Titan, he has been helping to steerthe overall business strategy of Titan QuanzhouShipyard,aswellasprovidingexpertiseanddirectiontotheshipyard’slayoutdesignanddevelopment.Mr.Tan joined Sembawang Shipyard Ltd, Singapore in1976 and rapidlymoved up themanagement ranksduring his career there. In 1987 he was appointedManaging Director and, in 1994, President ofSembawang Shipyard Group. In 1996, he becamePresidentofSembawangEngineering&ConstructionGroup, responsible for the Group’s onshore andoffshore engineering and construction activities.Mr.Tan subsequently joined Singapore TechnologiesMarine Ltd in 1998, and was appointed President(Commercial Business) in 1999. After leavingSingapore Technologies Ltd in 2004, he started hisown consultancy business. Mr. Tan graduated fromGlasgowUniversityinUnitedKingdomwith1stClassHonours inNavalArchitecture. In1993heattendedthe Advanced Management Programme in HarvardBusinessSchool,USA.

Mr. Jeremy TAN Kok LiannHead, Human Resources

Mr. Tan, aged 37, re-joined Titan in October 2007as Head, Human Resources. He was previouslythe HR Director at Titan. Prior to re- joining, hewas the Asean HR Head for Mercer HR Consultingwherehewas responsible forHR functionscoveringSingapore, Malaysia, Thailand, Indonesia andthe Philippines. Previously, he held HR managerposit ions at Network for Electronic Transfers(NETS) and United Overseas Bank (UOB), andworked as aHRconsultantwith Ernst&Young andPricewaterhouseCoopers. Mr. Tan has a GraduateDiplomainHRManagementfromSingaporeInstituteof Management (SIM), a Graduate Diploma inMarketing from the Chartered Institute ofMarketing(CIM), United Kingdom and a Bachelor’s Degree ofAccountancyfromNanyangTechnologicalUniversity(NTU). He is also a non-practising Certified PublicAccountant(CPA)inSingapore.

Mr. Fred SHI Fang MingDeputy Chief Financial Officer – China Terminals

Mr. Shi, aged 41, joined Titan in April 2007 asSenior Finance Manager – PRC Tax. He wasappointed as Chief Financial Officer of ChinaTerminals in September 2010 and is responsiblefor accounting and finance management of ChinaTerminals. In April 2012, Mr. Shi has been re-designated as Deputy CFO of China Terminals.Before joining Titan, he was Taxation Managerat CNOOC and Shell Petrochemicals Co. Ltd. forfour years. Prior to this, he served as Finance andAccounts Manager at BP Zhuhai Chemical Co. Ltd.from 1997 to 2003, and Finance Supervisor atZhuhai FuhuaGroup from1995 to1997.Mr. Shi isthe member of Chinese Institute of Certified PublicAccountants (CICPA). He graduated from TsinghuaUniversitywithaBachelordegreeinEnglishandalsoholds a Bachelor’s degree in Financial Accountingfrom Changsha Communications University. Mr. Shihas been studying the postgraduate courses at SunYat-SenUniversitysinceMay2011.

Mr. LI Xi XinFinance Director, Fujian– Fujian Titan Petrochemical Storage Development

Mr. Li, aged 47, has been Finance Director ofTitan Quanzhou Shipyard since April 2008 and hasbeen appointed Finance Director of Fujian TitanPetrochemical Storage Development in 2011. Hehas more than 20 years working experience inshipyard operations and finance. Previous positionsheld by Mr. Li include Deputy Finance Head ofDalian New Shipbuilding Heavy Industry, Head ofFinance of Dalian Marine Propeller Plant, FinanceManager of COSCO (Dalian) Shipyard Co. Ltd, andDeputy General Manager – Finance of the COSCOShipyard Group Co. Ltd. Mr. Li is a graduate ofTianjin University with a Degree in Engineeringand completed postgraduate studies at DongbeiUniversity of Finance and Economics and ShanghaiNationalAccountingInstitute.


SENIOR MANAGEMENT

Mr. Saad TAYYABHead, Shipping

Mr. Saad, aged 52, has served in the Group’sshipping divis ion since March 2005. He waspreviously a consultant in Singapore from 2001 to2005,wherehewasresponsiblefortheinspectionofthirdpartyvesselsonbehalfofcompanieslikeShell,ExxonMobil and ChevronTexaco. He supervisedinsurance surveys including P&I with respect toclient claims and disputes, and was a pioneer inestablishing and providing training to shore-basedestablishments like Vopak terminals in Singaporeand other leading brands in the oil and chemicalindustries. He also served as Senior Auditor andconducted various technical audits for majorclients. From 1999 to 2001,Mr. Saadwas involvedin operation and chartering of crude and producttankers, based inGreece.Prior to this, he had over15 years of sailing experience on oil and chemicaltankers with major companies based in the UnitedKingdom, Greece and Hong Kong. He has MasterClass I status fromAustralia, and is currently doinghisMBA.

Mr. ZHANG Hai QuanGeneral Manager, Shipyard

Mr. Zhang, aged 42, i s respons ib le for theshipbuilding operations and business at TitanQuanzhou Shipyard, since his appointment asGeneral Manager of Shipyard in June 2008. Heis well-versed in modern shipbuilding technologyand work processes, equipped with deep industryknowledge, practical and management experiencein safety, quality, design, procurement, projectmanagement, workshop fabrication and overalltechnology standards process controls. Prior tojoining Titan, Mr. Zhang worked for 17 years atDalian Shipbuilding Industry Co, holding variouspositions including Chief Processing Engineer ofthe Research Institute’s Engineering faculty, DeputyHead of the Manufacture Supervision Division inthe Production Department, Project Manager –Product Oil Tanker and Deputy Project Manager –Floating Production Storage and Offloading (FPSO).Mr. Zhang graduated with a Bachelor’s degree inShipbuilding Engineering from Dalian University ofTechnologyin1991.

Mr. Lawrence LUIHead, Internal Audit

Mr. Lui, aged 37, has been responsible for theGroup’s internal control improvements and specialfinance projects since his appointment as SeniorManager, Internal Controls in March 2010. He hassince been redesignated as Head of the InternalAudit upon the establishment of Internal AuditDepartment. He has over 15 years of experiencein auditing and commercial accounting acrossHong Kong, China and the U.S. Prior to joiningTitan, he headed the internal audit function atEton Group, where he covered various locationsin China spanning multi- industrial businessesincluding hotels, properties, finance and banking,manufacturing and airlines. He also worked atKPMG from 2000 to 2004 and led audits for listedcompanies including infrastructure, property andenergy companies. Mr. Lui is a full member of theAmerican Institute of Certified Public Accountants,a member of Hong Kong Institute of Certif iedPublic Accountants and a Certified Internal Auditorawarded by Institute of Internal Auditors. He wasalso appointed as Advisor at International FinancialManagement Association. Mr. Lui holds a MBAdegreefromUniversityofSouthAustralia.


EVENTS OF THE YEAR

January• Guangzhou Nansha Terminal Phase III

commencestrialoperations

• Shandong Yan ta i Te rm ina l beg insoperations and is appointed as one of China’s national strategic oil reservebasesforcrudeoil

2011

March• Shanghai Yangshan Terminal completes

constructions of Phase II development of47,000 m3 Aviation Kerosene and Dieseloiltanksandstartstrialoperations

February• Shanghai Futures Exchange designates

an addit ional 50,000 m3 capacity atGuangzhouNanshaTerminal,bringing thetotal physical delivery terminal capacity to300,000m3

April• Fujian Quanzhou Terminal becomes the

only liquid dangerous bonded storage inQuanzhou


EVENTS OF THE YEAR

August• Fujian Quanzhou Terminal completes

constructions of Phase II developmentcomprisedof339,000m3productoilandfuel oil storage tanks and a 100,000dwtjetty

October• Floating storage unit business starts

handling clean petroleum productsstorage services

December• Shanghai Futures Exchange grades

Guangzhou Nansha Terminal the A*standarddeliverypoints

May• J P Mo r g a n r e c o g n i s e s S h a n g h a i

Yangshan Terminal as a high standardstoragefacilitywithqualitymanagement


MANAGEMENT DISCUSSION AND ANALYSIS

OPERATIONS Review

During the year, Titan continued

to focus on its core businesses

namely Floating Storage and

China Terminals.



Floating Storage Units(Offshore Storage)TheGroupprovidesyear-roundoilstorage,transitand blending services and physical deliveryservicesusingVLCCsasFSUsatTanjungPelapasAnchorage in Malaysia. Strategically located atthe juncture of Singapore and Malaysia on themajor shipping route between Indian Ocean andthe Pacific Ocean, our FSUs serve a range ofinternationalclientsandvessels tradingalong theroute. Titan is the first in Asia and remains theonlyfleettooperatedouble-hulledFSUs.

Titan’s FSU (as at 1 May 2012)

Ship Name DWT (mt)

1 TICENOCEAN 284,497

2 TITANARIES(Ex-EDINBURGH) 302,493

3 TITANVENUS(Ex-CAMDEN) 298,306

4 TITANRUCHIRA 284,317

5 TITANTULSHYAN 299,718

Total dwt (mt) 1,469,331

Transportationdivisionandre-deliveredoneVLCCinearly2012.ThisresultedinatotaloffiveFSUsin operation, providing approximately 1.6 millioncubicmetersofstoragecapacityinearly2012.

Dueto the internationaloilmarketconditionsandmarket uncertainties having a negative impacton this segment, there has been a decline inthe average utilisation over the year from 76%to 67%. Segment LBITDA was HK$50 million,a slight decrease from the segment LBITDA ofHK$53millionin2010.

Apart from offering dirty petroleum products, ourFSU business has also commenced providingclean petroleum product storage services inOctober 2011. We have diversified our servicesin order to broaden our client base as well asseekingtosecuremorelong-termleases.

By the end of 2011, the Group had seven FSUsin operation with a total capacity approximately2.2 million cubic meters, as compared to fiveFSUs with approximately 1.6 mil l ion cubicmeters in 2010. Due to market uncertainties,we have strategically deployed one VLCC to our



China Terminals (Onshore Storage)Our Storage Terminals, Guangdong Nansha, Fujian Quanzhou, Shanghai Yangshan and ShandongYantai,withatotaloperatingcapacityofover2.7millioncubicmeters,arestrategicallylocatedalongthecoastline and built next to deepwater berths. They are connected to China’s vast road and rail systemandareof immensestrategic value toChina’snationaloil reserves.Once fullycompleted,our terminalswillofferacombinedcapacityofupto8.5millioncubicmeters.

China Terminals Table

Guangdong, Nansha

Fujian, Quanzhou

Shanghai, Yangshan

Shandong, Yantai

Existing Terminals and Facilities (as of May 2012)

Total Capacity 918,300m3 429,000m3 1,067,000m3 360,000m3

Phase I 410,000m3 90,000m3 420,000m3 360,000m3

Phase II 305,300m3 339,000m3 647,000m3 –

Phase III 203,000m3 – – –

Number of Berths 11 3 5 2

Current Maximum Berth Capacity 120,000dwt 100,000dwt 125,000dwt 100,000dwt

Products FuelOil,Chemicals,PetroleumProducts

CrudeOil,FuelOil,Chemicals,

PetroleumProducts

FuelOil,Chemicals,PetroleumProducts

FuelOil,Chemicals,PetroleumProducts

Future Developments

Total Planned Capacity 1,800,000m3 2,000,000m3 2,370,000m3 2,330,000m3

Number of Berths to be built 21 7 16 6 to 10

Planned Maximum Berth Capacity 120,000dwt 300,000dwt 300,000dwt 300,000dwt



The utilization rate has been affected during theyearbythecontinuedvolatilemarketsinoilpricesas well as the unforeseen oil spike inmid-2011.Our revenues from China Terminals decreasedfrom HK$200million to HK$192million in 2011and segment EBITDA dropped from HK$156milliontoHK$122millionin2011.

Nansha Terminal, a designed physical deliverystoragebyShanghaiFuturesExchange,hasatotaloperatingcapacityof918,300cubicmeterswhichis comprised of Phases I and II with 590,000cubic meters of fuel oil storage, together with125,300 cubic meters of chemical storage andPhase III with 203,000 cubic meters of refinedoil storage which commenced trial operationsin early 2011. Nansha Terminal has achieved asafety milestone of over 1,900 days without anyincidentsinitsoperations.

In2011, theoverallutilisation rateat theNanshaTerminal dropped from 73% to 65% comparedto 2010, with the average utilisation rate of fueloil storage decreasing to 64%, and the averageutilisation rate of the chemical storage facilitydroppingto73%ascomparedto2010.

In early 2011, with the approval from ShanghaiFutures Exchange to increase its capacity from250,000 cubic meters to 300,000 cubic meters,Nansha Terminal continues to be the largestphysicaldeliverystoragefacilityforthesettlementof theExchange’s fueloil futurescontracts in thePRC.

Being the largest third-party storage terminalin Fujian, we have received recognition for thequality of our storage facilities and its operationby our customers. Phase I, with a 90,000 cubicmeters storage capacity has been in operationsince 2007 and Phase II, with a 339,000 cubicmetersstoragecapacityanda100,000DWTjettywere put into operation in August 2011. FujianTerminal has achieved safety milestone of over1,800dayswithoutanyincidentsinitsoperations.



Overall, the average utilisation rate at the FujianTerminal decreased from 89% to 77% in 2011as compared to the same period last year, withchemical storage dropping from 89% to 78%.Our chemical jetty showed an increase of 35%as compared to last year recording of up to 55milliontonsduringtheyear.

Shanghai Yangshan Terminal, recognised by JPMorgan as a high standard storage facility withquality management in 2011, further increasedits storage capacity to a total of 1,067,000 cubicmeters upon completion of its Phase II facilityfor aviation kerosene and diesel oil tanks whichcommenced operations in March 2011. With thealmost 100% lease-out of tanks and recognitionfromJPMorgan, itconfirmswearedeliveringthehighstandardservicesand facilities thatwehavebeenstrivingtoachieve.

ShandongYantai Terminal, our newly establishedfacility, lies within the Yantai Economic andTechnological Development Zone in ShandongPeninsula. The Terminal occupies 200 acresincluding 2 kilometers of coastline, and has acurrent vessel accommodation of up to 100,000DWT. Yantai Terminal is one of China’s national

strategic oil reserve bases for crude oil and westrive to become a delivery platform for China’sdomesticand internationaloilexchangeactivities.PhaseIofYantaiTerminal,consistingof360,000cubic meters of storage capacity together witha 50,000 DWT and a 5,000 DWT jetty, werecompleted and commenced operations in 2011and had a utilisation rate of 43% by the end ofthe year. By mid-2011, the utilisation rate forour bonded storage of 100,000 cubic metersreached almost 100%. In order to meet thedemandofourvaluedcustomers,YantaiTerminalhas successfully received approval to increaseits bonded storage capacity to a total of 230,000cubicmeters.

From the north down to the south, Titan offersclients a choice of storage facilities and one-stop access to a logistical network that covers allthe key ports and trading centres along China’seasterncoast and theeconomically thrivingcitiesin thePearlRiverDelta region.Our terminals arebonded warehouses and offer services designedto meet client needs at strategic points of entryinto China.With good strategic locations and ourcontinuedeffortstomaintainhighquality,efficientand safe terminals, we are able to excel in theChinastoragemarket.

Shipping Lanes

Terminals

China

Hong Kong

Singapore

Malaysia



Transportation and Supply/DistributionThe transportation market remains challengingand competitive with new emerging owners inAsiaaswellashigherbunkerprices.

At the end of 2011, our Transportation fleet wascomprised of six double-hulled product tankers,four chemical tankers, one bunker barge andone Aframax tanker with a capacity of 187,309DWT. In early 2012, we deployed a VLCC fromourFSUtoTransportationdivisionduetoafreightrate spike in the tanker dirty products route.We, subsequent to year end, re-delivered threedouble-hulled product tankers early this year.These resulted our total capacity to 460,835DWT in early 2012. Titan’s modern maritimefleet of varying tonnages, which meets localand international requirements and oil majorsapprovals, offer transportation of crude and oilproducts effectively and efficiently to all regionalportsforourcustomersbase.

The revenue for the Transportation divisionwere by 96.9% to HK$351 million as comparedto HK$178 million in the prior year while theoperations made a segment LBITDA of HK$177million. Revenues for the distribution business,increasedby3.4%toHK$1,067millioncomparedto the previous year while the segment EBITDAwas HK$4 million as compared to a segmentEBITDAofHK$26millionfor2010.

Since 2010, the Group’s bunkering operationshavemainlyonlyproviderefuelingservices toourownfleet.

ShipyardTitan Quanzhou Shipyard is a unique multi-functional facility that will be one of the largestship repair, offshore engineering and specialisedshipbuildingyardsinAsiawhenfullyoperational.Since its shipbuildingoperationsbegan in2007,

the Shipyard has successfully delivered a total ofsixteenvessels.

During the year, the Shipyard continued withconstruction work on bunker tankers and startedship repair work towards the end of the year.We successfully delivered two bunker tankers inMarch2012.

Aspubliclyannouncedon18March2012,GrandChina has not fulfilled its payment obligationsin accordance with the agreed schedule, andtherefore, the Shipyard Disposal transactionhas not yet been consummated. The Group hasbeen actively working with Grand China and willcontinue to seek to finalise these transaction forthemutualbenefitofallparties.

The revenues for the Shipyard were only HK$89million as compared to HK$187 million in 2010and segment LBITDA was HK$170 mi l l ionas compared to HK$31 million in 2010. Thedecreaseinrevenueswasattributedtotheadverseshipbuildingmarketconditionsduringtheyear.


FINANCIAL REVIEW

Financial ResultsTheGroup’s total turnover for the year increasedby 4.1% to HK$2,197 million with a continuingfocusonthedevelopmentofthestoragebusinessas part of the Group’s strategy. The Group’srevenue from continuing operations was up9.6% to HK$2,108 million. The revenue fromdiscontinued operation, shipbuilding, dropped52.4% to HK$89 million. The loss before taxfrom continuing operations was HK$563 millioncomparedtoHK$508millioninthepreviousyear.TheGroup’scontinuingoperationsrecordedalossbefore interest expenses, tax, depreciation andamortisation(LBITDA)ofHK$39millioncomparedto HK$90 million in 2010. Finance costs for theGroup reflectedan increase fromHK$285millionto HK$348million as a result of the issuance ofConvertible Notes Due 2015 and PIK Notes Due2015 on 27 July 2010.With the inclusion of thediscontinuedoperation,thelossbeforetaxfortheyear increasedtoHK$777million(2010:HK$586million). The loss for the year attributable to theowners of the Company increased from HK$581milliontoHK$783millionforthecurrentyear.

Offshore Oil StorageThe offshore oil storage business recorded aturnoverofHK$498millionin2011,ascomparedto HK$514 mil l ion for 2010. The segmentLBITDAdecreased slightly fromHK$53million toHK$50million in2011. Theoffshoreoil storagebusinessaccountedfor22.7%ofGroup’srevenuein2011.

Onshore StorageThe onshore s torage business recorded aturnoverofHK$192millionin2011,ascomparedto HK$200 mil l ion for 2010. The earningsbefore interest expenses, tax, depreciation andamortisation (EBITDA) of this segment decreasedby 21.8% to HK$122 million as compared toHK$156 million for the prior year as a resultof lower utilisation rates. The onshore storagebusiness accounted for 8.7% of Group’s revenuein2011.

TransportationThis business turnover increased to HK$351million in 2011 from HK$178 million recordedin 2010. Due to high bunker prices, and theintensified competition in the freight market,segment LBITDA from the oil transportationbusiness increased from HK$114 mill ion toHK$177 million. The transportation businessaccountedfor16%ofGroup’srevenuein2011.

Supply and DistributionThis business turnover increased by 3.4% toHK$1,067million fromHK$1,032million in2010while the segment EBITDA decreased by 84.6%to HK$4 million as compared to HK$26 millionin 2010. The supply and distribution businessaccountedfor48.6%ofGroup’srevenuein2011.

ShipbuildingThe contribution of the discontinued operation,shipbuilding, to the Group’s turnover decreasedby 52.4% to HK$89 million as compared toHK$187millionin2010andthesegmentLBITDAwas HK$170 million in 2011 while in 2010 wasHK$31 mill ion. The discontinued operation,shipbuilding, accounted for 4% of Group’srevenuein2011.

Titan Petrochemicals Group Limited 25

FINANCIAL REVIEW

Liquidity, Financial Resources, Charges On Assets And GearingTheGroup finances itsoperations largely throughinternally generated resources, term loans andtradefinancefacilitiesprovidedbybanksinHongKong, Singapore and Mainland China. As at 31December2011,

a) TheGrouphad:

• Cash and bank balances of HK$222mil l ion (2010: HK$254 mil l ion) ofwhich HK$62 million (2010: HK$72million) was from the discontinuedopera t i on ; p ledged depos i t s andrestricted cash of HK$1,132 million(2010:HK$252million)ofwhichHK$7million (2010: HK$8million) was fromthediscontinuedoperation.Thesewerecomprisedof:

— an equivalent of HK$38 million( 2 0 1 0 : H K $ 5 6 m i l l i o n o fwhich HK$15 million was fromthe d iscont inued opera t ion) ,denominatedinUSdollars

— a n e q u i v a l e n t o f H K $ 1mi l l ion (2010: HK$2 mi l l ion)denominatedinSingaporedollars

— anequivalentofHK$1,313million(2010: HK$445 million) of whichHK$69 mil l ion (2010: HK$65million)wasfromthediscontinuedoperation,denominatedinRMB

— HK$2 m i l l i o n ( 2010 : HK$3million)inHongKongdollars

• I n t e r e s t - b e a r i n g b a n k l o a n s o fHK$4,838 million (2010: HK$3,790mil l ion), of which HK$544 mil l ion(2010: HK$18 million) were floatingrate loans denominated in US dollars.TheGroup’sbankloanshavematuritieswithin one year was HK$3,948 million(2010: HK$2,283 million) of whichHK$2,338 million (2010: HK$1,482million) was from the discontinuedoperation.

b) The Group’s banking and other facilities,including those classified as held for saleweresecuredorguaranteedby:

• Construct ion in progress wi th anaggregate carrying value of HK$902million(2010:HK$716million)

• Bank ba l ances and depos i t s o fHK$1,065 mil l ion (2010: HK$135million)

• Machinery wi th an aggregate netcarry ing value of HK$218 mi l l ion(2010:HK$194million)

• Bu i ld ings w i th an aggrega te ne tcarry ing value of HK$480 mi l l ion(2010:HK$443million)

• Prepaid land/seabed lease paymentswith an aggregate net carrying valueof HK$915 mill ion (2010: HK$945million)

• Storage facilities with an aggregate netcarrying value of HK$1,563 million(2010:HK$1,384million)

• Accounts receivable with an aggregatecarrying value of HK$56 million in2010butsuchsecuritywasreleasedin2011.


FINANCIAL REVIEW

• Corporate guarantees executed by theCompany

• Personal guarantees executed by arelated party and a director of theCompany

c) The Senior Notes Due 2012 of HK$845mi l l i on (2010 : HK$840 mi l l i on ) , theConvertible Notes Due 2015 of HK$328million (2010:HK$409million) and the PIKNotes Due 2015 of HK$84 million (2010:HK$84million) were secured by the sharesofcertainsubsidiaries.

d) TheGroup,includingthoseclassifiedasheldforsale,hadthefollowing:

• Current assets of HK$6,438 million(2010: HK$5,318 million) and totalassets of HK$10,623 million (2010:HK$9,517 million) of which HK$4,834mil l ion was from the discontinuedoperation

• Total bank loans of HK$4,838 million(2010: HK$3,790 million) of whichHK$2,338 million (2010: HK$1,482million) was from the discontinuedoperation

• Senior Notes Due 2012 of HK$845million(2010:HK$840million)

• ConvertibleNotesDue 2015 as a non-current liability to the extent of thel iabil i ty portion of HK$328 mil l ion(2010:HK$409million)

• PIK Notes Due 2015 of HK$84million(2010:HK$84million)

• Convert ible preferred shares as acurrent liability to the extent of theliability portion of HK$363 million andas a non-current liability to the extentof the l iabi l i ty port ion of HK$399million (2010: a non-current liability ofHK$719million)

• K Line Notes Due 2013 as a currentliability to the extent of the liabilityport ion of HK$216 mi l l ion (2010:HK$210million)

• TGILNotesDue2014asanon-currentliability to the extent of the liabilityportionofHK$92million(2010:HK$83million)

The Group’s current ratio was 0.84 (2010:1.30). The gearing of the Group, calculatedas the total bank loans, Senior Notes Due2012, Convertible Notes Due 2015, PIKNotes Due 2015, K Line Notes Due 2013and TGIL Notes Due 2014 to total assets,hasincreasedto0.60(2010:0.57).

e) TheGroupoperatesinHongKong,Singaporeand Mainland China and primarily usesUS dollars for its businesses in Singapore,Renminbi for the s torage business inMainland China and Hong Kong dollars inHong Kong for both income and expenses.Therefore, the Group’s foreign currencyexposuresareminimal inviewof thenaturalhedge between costs and revenues. TheGrouphasnotusedanyfinancialinstrumentsforspeculativepurposes.


CORPORATE GOVERNANCE REPORT

The Company is committed to maintaining goodcorporate governance to effectively oversee/guideoperations and to enhance long term shareholdervalue,withanemphasisonhavingaqualityboard,transparency, independence and accountability.The Board acknowledges the proven importanceand benefits of promoting and maintaining highstandardsofcorporategovernance.

Compliance with the CorporateGovernance CodeThe Company has applied the principles andcomplied with the code provisions set out in theCode on Corporate Governance Practices (“CGCode”) contained in Appendix 14 of the RulesGoverning the Listing of Securities on The StockExchange ofHong Kong Limited (“ListingRules”)throughout the year ended 31 December 2011,except for a deviation as required under codeprovision A.2.1 of the CG Code which providesthat the role of Chairman and Chief Executiveshould be separate and should not be performedbythesameindividual.Duringtherelevantperiod,Mr.TsoiTinChunhelddualpositionsofChairmanandGroupChiefExecutive.

On 3 January 2012, Mr. Tsoi Tin Chun resignedand Mr. Cai Jian Jun Henry was appointed asGroup Chief Executive. After segregation ofthe roles of Chairman and Chief Executive, theCompany has been in compliance with codeprovision A.2.1 of the CG Code. Further detailsareprovidedinthesectionheaded“ChairmanandChiefExecutive”below.

The key corporate governance practices adoptedbytheGrouparesummarisedbelow.

The BoardThe Board of Directors (the “Board”), led bythe Chairman, is collectively responsible for themanagement of the business and affairs of theGroup with the overall objective of protectingand enhancing shareholder value. It is alsoresponsible for the formulation of the Group’soverallstrategiesandpolicies,settingofcorporatevalues and management targets and operationalinit iatives, monitoring and evaluating Groupperformance,andtheapprovalofannualbudgets,business plans, major capital expenditures,major investments and material acquisitions anddisposalsofassets.

As at 31 December 2011, the Board wascomprised of f ive d i rectors, inc luding twoexecutive directors and three independent non-executive directors. Biographical details of thedirectors and their respective roles in the Grouparesetout in theDirectors’sectionof thisAnnualReport.

Indetermining the independenceofdirectors, theBoardfollowstheindependenceguidelinessetoutin theListingRules.TheBoardhasreceived fromeachindependentnon-executivedirectorawrittenconfirmation of his/her independencepursuant toRule3.13oftheListingRulesandconsiderseachofthemtobeindependent.



Non-executive directors, including independentnon-executivedirectors,areappointedfortermsoftwo years. In addition, all directors are subject tore-election by shareholders at the annual generalmeetingat leasteverythreeyearsonaprescribedrotationalbasis.According to theCompany’sbye-laws, directors appointed to fill casual vacanciesshall hold office only until the next followingannualgeneralmeetingandcanbeeligibleforre-appointmentatthattime.

The Company has arranged insurance coveragefor director and officer liabilities including coverfor senior management of the Company anddirectorsandofficersofsubsidiaries.

Chairman and Chief ExecutiveSince3 January2012, the rolesofChairmanandChiefExecutivehavebeensegregatedwithacleardivisionofresponsibilities.

Mr. Tsoi Tin Chun, Chairman of the Board,is responsible for providing leadership to andoverseeing the functioningof theBoard toensurethat it acts in the best interests of the Group.With the support of the seniormanagement teamand the company secretary, Mr. Tsoi seeks toensure that all directors are properly briefed onissues arising at board meetings and receiveadequate and reliable information in a timelymanner. He also actively encourages directorsto be fully engaged in Board affairs and makecontributions to theBoard in the fulfillment of itsresponsibilities.

Mr. Cai Jian Jun Henry, Group Chief Executive,is responsible for the day-to-day managementand operations of the Group, attending to theformulation and successful implementation ofGroup policies and assuming full accountabilityto the Board for al l Group operat ions andperformance.Theholderofthispositionmaintainsan ongoing dialogue with Chairman on majorbusiness developments and issues and theadoption/execution of Group strategies, policiesand objectives by the various business units. Heis also responsible for building and maintaininganeffectiveexecutive team tosupporthim in thisrole.

Board MeetingsThe Board meets at least four times a year andhas formal procedures to include matters to bereferred to it for consideration and decisions.Betweenscheduledmeetings,seniormanagementprovides information to the directors on theactivities of and developments in the businessesof the Group. As and when deemed necessary,additional Board meetings may be convened. Inaddition, any director may request the companysecretary to arrange for independent professionaladvice to assist the directors to effectivelydischargetheirduties.



Notice of at least 14 days is served for regular Boardmeetings. During 2011, four full Boardmeetingswereheldatwhichtheindividualattendancerecordsofthedirectorswereasfollows:

Attendance

Executive directorsMr.TsoiTinChun(Chairman) 3/4Mr.PatrickWongSiuHung 4/4

Independent non-executive directorsMr.JohnWilliamCrawford 4/4Ms.MariaTamWaiChu 4/4Mr.AbrahamShekLaiHim 4/4

Nomination of DirectorsDuring the review period, the appointment ofnew director is a collective decision of the Boardafter taking into consideration the expertise,experience, integrity and commitment of thatappointeetotheGroup.

A Nomination Committee was established on 28March2012 to takeup the functionsofassessingthe adequacy of the Board composition and thenomination of directors from 2012 onwards.The Nominat ion Commit tee compr ises twoindependent non-executive directors and anexecutivedirector,namely,Mr.AbrahamShekLaiHim(Chairman),Ms.MariaTamWaiChuandMr.PatrickWongSiuHung.

The Committee has specific written terms ofreferenceanditsprimarydutiesinclude:

• Review the structure, size and composition oftheBoardannuallyandmakerecommendationson any proposed changes to the Boardto complement the Company’s corporatestrategy;

• Identify individuals suitably qualified tobecomeBoardmembers;

• Assess the independence of independentnon-executivedirectors;

• Make recommendations to the Board onthe appointment and re-appointment ofdirectors and the succession planning fordirectors and, in particular, the chairmanandthechiefexecutive;and

• Review the time required from directors toperformtheirresponsibilitiesanddeterminetheir training and continuous professionaldevelopmentrequirements.

Audit CommitteeThe Audit Committee comprises three independentnon-executive directors, namelyMr. JohnWilliamCrawford (Chairman), Ms. Maria Tam Wai ChuandMr.AbrahamShekLaiHim.

The Audit Committee has specific written termsof reference, including amongst other duties thefollowingkeyresponsibilities:

• Make recommendations to the Board onthe appointment and, if necessary, thereplacement/resignation of the externalauditors and assess their independence,performanceandfeelevels;



• Review the completeness, accuracy andfairness of the Company’s interim andannualfinancialstatementsandreports;

• Ensure compliance with the applicableaccount ing s tandards and lega l andregu la tory requi rements on f inanc ia lreportinganddisclosures;

• ReviewthearrangementsfortheCompany’s

employeestoraiseconcernsaboutfinancialreportingandanyotherimproprieties;

• Oversee the effectiveness of f inancialreportingsystems;and

• EnsureongoingassessmentsoftheGroup’sinternal control systems over financial,operational, compliance and broad riskmanagementprocesses.

Duringtheyear,fourAuditCommitteemeetingswereheldandtheindividualattendancerecordswereasfollows:

Attendance

Mr.JohnWilliamCrawford–Chairman 4/4Ms.MariaTamWaiChu 4/4Mr.AbrahamShekLaiHim 4/4

Financial StatementsThe Audit Committee met and held discussionswith the Chief Financial Officer and other seniormanagement on the Company’s interim andannual financial reports, and discussed the auditapproach and significant audit and accountingissueswiththeGroup’sprincipalexternalauditors,Ernst & Young (“E&Y”), including the financialimpact of the adoption of applicable new/revisedaccountingstandards.

Directors’ Responsibility for Preparing Financial StatementsThe Directors acknowledge their responsibility forpreparing financial statements which give a trueandfairviewofthestateofaffairsoftheCompanyanditssubsidiaries.

The statement of the auditors with respect totheir reporting responsibilities on the financials tatements of the Group is set out in theindependentauditors’reportonpages44to46ofthisAnnualReport.

External AuditorsTheAuditCommittee reviewedandconfirmed theexternal auditors’ independence and objectivity,together with the scope of audit services andfees in connection therewith. TheCommittee alsomade recommendations to the Board for the re-appointment of E&Y as the Group’s principalexternal auditors. The Group has not employedany staff fromE&Ywhowere formerly involved intheGroup’sstatutoryaudit.

During the year ended 31 December 2011,the audit fees paid/payable to E&Y amountedto HK$3,700,000 and the fees paid/payableto them for non-audit services amounted toapproximately HK$693,000 which was comprisedoftaxationservicesfeesofHK$261,000andotherprofessional fees in relation to the interim resultsreview and special/one-off corporate reportingexercisesofHK$432,000.



Review of Risk Management and Internal Control SystemsAs more fully described in the Internal ControlEnvi ronment sect ion, the Audi t Commit teeassisted the Board in meeting its responsibilitiesfor ensuring and overseeing effective systems ofinternalcontrol.

Internal Control EnvironmentSystem and ProceduresThe Board acknowledges i ts responsib i l i tyto ensure that sound and effective internalcontrol systems are maintained, which includecomprehensive systems for reporting informationto the division heads of each business unit andthe executive directors. The internal controlsystemsaredesignedto:

• Achieve the Group’s business objectivesof attaining opt imal performance andsafeguarding assets against unauthoriseduseordisposition;

• Ensu r e t h e ma i n t enance o f p r ope raccounting records for the provision ofreliable financial information for internaluseandforpublication;and

• Ensure compl iance wi th the re levantlegislationandregulations.

TheBoardhasstrivedtoensurethatmanagementdevelops and exercises effective internal controlsystems and procedures suitable for the variousbusinesses in which the Group is engaged. Inthis regard, key areas covered have included thefollowing:

• Having a distinct organization structure inplace with defined lines of authority andcontrolresponsibilities.

• Development of comprehensive accountingsys tems to prov ide f inanc ia l and bys egmen t pe r f o rmance i nd i ca t o r s t omanagement and the relevant financialinformation for reporting and disclosurepurposes.

• Preparation of annual budgets by themanagement of each business unit whichare subject to review and approval bythe executive directors. Such budgetsare compared with actual results andr e v i ewed on a mon th l y b a s i s . TheExecutive Committee reviews the monthlymanagemen t r epo r t s , key ope ra t i ngstatistics and performance analyses ofeach business unit, and variances againstbudgets a re ana lyzed/exp la ined andappropriateactiontaken.

• Guidelinesandprocedureswereestablishedfortheapprovalandcontrolofexpenditures.Bothoperatingandcapitalexpendituresaresubject toanoverallbudgetmonitoringandapproval process. More specific controlsand approvals, prior to commitment by theappropriate executives, are required formaterial expenditures andacquisitions, andanyunbudgeteditems.

• Adopt ion and implementat ion of SAPapplications to headquarters and businessunits to enhance operating processes andfinancialreporting.

• AnInternalAuditDepartmentwasestablishedduring the year to take over the rolepreviously outsourced to monitor theinternal governance of the Group and toprovide objective assurance to the Boardthat sound internal control systems aremaintained and operated by managementin compliance with agreed processes andstandards.



• Meetings were held between directors,management and the Audit Committeeto discuss the amendments to the codep rov i s i ons ( “New Code P rov i s i ons” )under Appendix 14 of Listing Rules andconsidered the alternatives to be proposedto the Board to streamline and ensurethe current policies are in line with therequirementsunderNewCodeProvisions.

Internal AuditThe Internal Audit Department (“IA”) independentlyreviews the Group’s internal control systemsand evaluates their adequacy, effectiveness andcompliance. The Head of IA works closely withAudit Committee on audit matters and presentsits findings and responses from managementon a regular basis and makes recommendationsto management for rectifications, as deemednecessary. Regular reviews of the progressof rectifications are conducted to ensure theeffectivenessoftheinternalcontrolsystems.

The annual audit plan, which is reviewed by theAudit Committee, is based on a riskmethodologyprocess which assists in determining businessrisksandestablishingauditfrequencies.

TheAuditCommitteeassessestheeffectivenessofthe internalcontrolsystemsbyreviewingtheworkofIAanditsfindingsperiodically.

TheIAhasspecificwrittentermsofreferenceanditsprimarydutiesinclude:

(i) Reviewing the reliability and integrity offinancialandoperatinginformation.

(ii) Reviewing the systems establ ished toensure compliance with those policies,plans, procedures, laws and regulationswhich could have a significant impact onoperations and reports and whether theGroupisincompliance.

(iii) Reviewingthemeansofsafeguardingassetsand, as appropriate, verifying the existenceofsuchassets.

(iv) Reviewing and appraising the economyand efficiency with which resources areemployed.

(v) Reviewing operat ions or programs toascertain whether results are consistentwith established objectives and goals andwhether the operations or programs arebeingcarriedoutasplanned.

The Board recognises the need to continue tomake improvements and/or upgrades thereonin a number of areas. Various initiatives wereundertaken during the year to achieve suchobjectives, including but not l imited to thefollowing:

• Besides performing regular audits, IAcarried out in-house fieldwork reviews tofollow up the improvement implementationstatus on audit issues identified during previous program exercises. Internal auditreports on findings, recommendations andmanagement responses on the audit areaswere circulated to the Audit Committeeperiodically.

• Meetings were held between the AuditCommittee, management and the Headof IA to discuss and review the internalaudit process to ensure optimum controls,policies and procedures are in place.The Head of IA reported on the progresso f recommendat ion imp lementa t i onsand highlighted other control issues forrectification. Management recognised theneed to address the matters reported andindicated these had already been rectifiedorthatstepswerebeingtakentoimplementimprovements to s t rengthen in terna lcontrolsbasedonIA’srecommendations.



• Streamlining the Company’s corporategovernance process and updating certain po l i c i es in l i ne w i th the New CodeProvisionstostrengtheninternalcontrols.

Annual AssessmentThe Board together with the Audit Committeereviewed theeffectivenessof theGroup’ssystemsof internal control over financial, operational,compl iance i ssues , and broad-based r i skmanagement processes as well as the adequacyof resources, staff qualifications and experience,t ra in ing programmes and budgets fo r theCompany’s accounting and financial reportingfunctionand,asaresult,believesthattheinternalcontrols and accounting systems of the Groupwereinplaceandfunctioningeffectively.

Nosuspectedfraudsorirregularities,orsuspectedinfringement of laws, rules and regulations cameto the Audit Committee’s attention. As a result ofits review efforts and the new initiatives taken todate,theBoardissatisfiedthattheGroupin2011complied with the code provisions on internalcontrolsassetforthintheCGCode.

Remuneration CommitteeTheRemunerationCommitteecurrentlycomprisestwo independent non-executive directors and theChairman of the Board, namely, Ms. Maria TamWai Chu (Chairman),Mr. Abraham Shek Lai HimandMr.TsoiTinChun.

The Committee has specific written terms ofreferenceanditsprimarydutiesinclude:

• Ongoing review of the Group’s overallremunerationpoliciesandstructure;

• Make recommendations to the Board onthe administration of fair and transparentprocedures for setting policies on theremunerat ion of d irectors and seniormanagement;

• Rev i ew and app rove managemen t ’ sremuneration proposals with reference totheBoard’s corporategoals andobjectives;and

• Re v i ew and app r o v e c ompensa t i o npayable to executive directors and seniormanagement for any loss or termination ofoffice.

The remuneration policies of the Group seek toattract, retain and motivate the best availabletalentaswellastoaligntheinterestsofexecutiveswith achieving shareholder value and promotingsustainedimprovementsinbusinessperformance.Remuneration packages include basic salaries,performancebonuses,shareoptionsandbenefits-in-kind, which are structured by reference tomarket terms and individual merit, and arereviewed on an annual basis based on objectiveperformance appraisals. No directors or seniormanagementareinvolvedindeterminingtheirownremuneration.

During 2011, the Remuneration Committee heldone meeting and the attendance record was asfollows:

Attendance

Ms.MariaTamWaiChu—Chairman 1/1Mr.AbrahamShekLaiHim 1/1Mr.TsoiTinChun 0/1



In the meeting, the Committee discussed andreviewed, with the Head of Human Resources,the Group’s overall compensation philosophy, themarket statistics, the remuneration policies andstructureandhumancapitalissues,aswellastheremunerationpackagesforexecutivedirectorsandsenior management and the annual fees to non-executivedirectorsfor2012.

Details of the emoluments of each director ofthe Company for the year ended 31 December2011aresetoutonpages92to93ofthisAnnualReport.

Securities Transactions by Directors and EmployeesThe Company has adopted the Model Code forSecurities Transactions by Directors of ListedIssuers contained in Appendix 10 to the ListingRules (“Model Code”) as the Company’s code ofconduct regarding director securities transactions and has set up relevant procedures to ensurecompliance.Havingmadespecificenquiriesofthedirectors, all directors confirmed that they havecomplied with the required standards set out intheModelCodethroughouttheyear.Furthermore,the Company also adopted corporate guidelinesfor securities transactions to regulate employeeconductonsecuritiesdealings.

Investor & Shareholder RelationsThe Group keeps investors, analysts and fundmanagersupdatedonkeybusinessdevelopments,C ompan y n ews a nd m i l e s t o n e s t h r o u ghannouncements, media releases, direct emailalertsandletterstotheshareholders.

Tofostereffectivecommunicationswithshareholders,theCompany’scorporatewebsite (www.petrotitan.com) is available in English, traditional andsimplified Chinese to cater to different languageneeds and, through the website, the Company’sannualandinterimreports,announcements,newsand other investor-related information are easilyaccessible. In addition to responding to phone-in enquiries, the Company has a dedicated emailaddress ([email protected]) to handleinvestor enquiries, especially for the convenienceofoverseasinvestorsandvariousstakeholders.

TheBoardwelcomestheviewsofshareholdersonmatters affecting the Company and encouragesthem to attend shareholders’ meetings like theAnnualGeneralMeeting, to communicate directlywiththeBoardandmanagementinrespectofanyconcernstheymaywishtoraise.


REPORT OF THE DIRECTORS

The directors present their report and the audited financial statements of the Company and itssubsidiaries(the“Group”)fortheyearended31December2011.

PRINCIPAL ACTIVITIESThe principal activity of the Company is investment holding. Details of the principal activities of thesignificant subsidiaries are set out in note 18 to the financial statements. There were no significantchangesinthenatureoftheGroup’sprincipalactivitiesduringtheyear.

RESULTS AND DIVIDENDSTheGroup’s lossfor theyearended31December2011andthestateofaffairsof theCompanyandtheGroupatthatdatearesetoutinthefinancialstatementsonpages47to150.

Thedirectorsdonotrecommendthepaymentofanydividendfortheyear.

SUMMARY FINANCIAL INFORMATIONA summary of thepublished results and assets, liabilities andnon-controlling interests of theGroup forthelastfivefinancialyears,asextractedfromtheauditedfinancialstatements,issetoutonpages151to152.Thissummarydoesnotformpartoftheauditedfinancialstatements.

PROPERTY, PLANT AND EQUIPMENTDetails ofmovements in the property, plant and equipment of theGroupduring the year are set out innote14tothefinancialstatements.

SHARE CAPITAL, SHARE OPTIONS AND CONVERTIBLE PREFERRED SHARESDetailsofthemovementsintheCompany’ssharecapital,shareoptionsandconvertiblepreferredsharesduringtheyeararesetoutinnotes35,36and31tothefinancialstatements,respectively.

PRE-EMPTIVE RIGHTSThere are no provisions for pre-emptive rights under the bye-laws of the Company or the laws ofBermuda, being the jurisdiction in which the Company was incorporated, which would oblige theCompanytooffernewsharesonaproratabasistoexistingshareholders.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIESDuring the year ended 31 December 2011, the Company purchased a number of its PIK Notes Due2015 (the “Notes”) in an aggregate principal amount ofUS$1,040,000 (approximatelyHK$8,112,000).TheNotes are listed on theSingaporeStockExchange and further details are set out in note30 to thefinancialstatements.

Save asdisclosedabove, therewerenopurchases, sales or redemptionsby theCompany, or any of itssubsidiaries,oftheCompany’slistedsecuritiesduringtheyear.



RESERVESDetailsofmovements in the reservesof theCompanyand theGroupduring theyeararesetout innote37tothefinancialstatements.

DISTRIBUTABLE RESERVESAt 31 December 2011, the Company did not have reserves available for distribution as calculated inaccordance with the provisions of the laws of Bermuda. Under the laws of Bermuda, the Company’ssharepremiumaccountofapproximatelyHK$2,473,241,000asat31December2011maybedistributedintheformoffullypaidbonusshares.

MAJOR CUSTOMERS AND SUPPLIERSIntheyearunderreview,salestotheGroup’sfivelargestcustomersaccountedfor41%oftotalsalesfortheyearandsalestothelargestcustomerincludedthereinamountedto21%.

PurchasesfromtheGroup’sfivelargestsuppliersaccountedfor lessthan30%ofthetotalpurchasesfortheyear.

DIRECTORSThedirectorsoftheCompanyduringtheyearanduptothedateofthisreportwere:

Executive directorsMr.TsoiTinChunMr.PatrickWongSiuHung

Independent non-executive directorsMr.JohnWilliamCrawfordMr.AbrahamShekLaiHimMs.MariaTamWaiChu

InaccordancewiththeCompany’sbye-laws,Mr.JohnWilliamCrawfordandMs.MariaTamWaiChuwillretire by rotation at the forthcoming annual general meeting and be eligible for re-election. Ms. MariaTamWaiChuhas informed theCompany thatshewillnotofferherself for re-electiondue to the reasonthatshewould like to focusonherotherbusinesscommitments.Thenon-executivedirectors (includingthe independent non-executive directors) are appointed for periods of two years and are subject toretirementbyrotationandre-electioninaccordancewiththeCompany’sbye-laws.

TheCompanyhasreceivedfromeachoftheindependentnon-executivedirectorsanannualconfirmationofhisorherindependencepursuanttoRule3.13oftheRulesGoverningtheListingofSecuritiesonTheStockExchangeofHongKongLimited(the“ListingRules”)andtheCompanyconsiderssuchdirectorstobeindependent.



BIOGRAPHICAL DETAILS OF THE DIRECTORS AND SENIOR MANAGEMENTBiographicaldetailsofthedirectorsoftheCompanyandtheseniormanagementoftheGrouparesetoutonpages10to15oftheAnnualReport.

DIRECTORS’ SERVICE CONTRACTSNo director proposed for re-election at the forthcoming annual general meeting has a service contractwith the Company which is not determinable by the Company within one year without payment ofcompensation,otherthanstatutorycompensation.

DIRECTORS’ REMUNERATIONDetailsofthedirectors’remunerationaresetoutinnote9tothefinancialstatements.

DIRECTORS’ INTERESTS IN CONTRACTSSave as disclosed in note 41 to the financial statements, no director had a material interest, eitherdirectlyor indirectly, inanycontractofsignificance to thebusinessof theGroup towhich theCompanyoranyofitsholdingcompanies,subsidiariesorfellowsubsidiarieswasapartyduringtheyear.

CONNECTED TRANSACTIONContinuing Connected Transaction

On1September2010,SinoVenusPte.Ltd (“SinoVenus”,awholly-ownedsubsidiaryof theCompany),enteredinto5charteragreements(the“CharterAgreements”)withOceanicShippingPte.Ltd.(“OceanicShipping”, a company wholly-owned byMr. Tsoi Tin Chun (Chairman and director of the Company), aconnectedpersonoftheCompanyundertheListingRules),underwhich,SinoVenuschartered5vesselsforatermofthreeyearscommencingfrom1September2010to31August2013.Thetotalcharterfeespayable by Sino Venus are subject to annual caps of US$4,089,440, US$12,268,320, US$12,268,320and US$8,178,880 for the years 2010, 2011, 2012 and 2013, respectively. Details of the transactionwere disclosed in the Company’s announcement dated 1 September 2010. During the year ended 31December 2011, US$12,234,800 (approximately HK$95,431,000) was paid by Sino Venus to OceanicShipping.

The aforesaid continuing connected transaction has been reviewed by the independent non-executivedirectors of the Company who have confirmed that the transaction had been entered into (a) in theordinaryandusualcourseofbusinessof theGroup; (b)eitheronnormalcommercial termsoron termsno less favourable to the Group than terms available to or from independent third parties; and (c) inaccordancewiththerelevantagreementsgoverningthetransactionsontermsthatarefairandreasonableandintheinterestsoftheshareholdersoftheCompanyasawhole.



The independentauditorsof theCompanywereengaged to reporton theGroup’scontinuingconnectedtransactions in accordance with Hong Kong Standard on Assurance Engagements 3000 “AssuranceEngagements Other Than Audits or Reviews of Historical Financial Information” and with reference toPracticeNote740“Auditor’sLetteronContinuingConnectedTransactionsunder theHongKongListingRules” issuedby theHongKong InstituteofCertifiedPublicAccountants.Theauditorsof theCompanyissued their unqualified letter containing their findings and conclusions in respect of the continuingconnected transaction disclosed above in accordancewithRule 14A.38 of the ListingRules. A copy oftheauditors’letterhasbeenprovidedbytheCompanytoTheStockExchangeofHongKongLimited.

SignificantrelatedpartytransactionsenteredbytheGroupduringtheyearended31December2011aredisclosedinnote41tothefinancialstatements.

MANAGEMENT CONTRACTSNocontractsconcerning themanagementandadministrationof thewholeoranysubstantialpartof thebusinessoftheCompanywereenteredintoorinexistenceduringtheyear.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURESAt 31December 2011, the interests and short positions of the directors and the chief executive in theshares, underlying shares and debentures of the Company or its associated corporations (within themeaning of Part XV of the Securities and Futures Ordinance (the “SFO”)), as recorded in the registerrequired tobekeptby theCompanypursuant toSection352of theSFO,orasotherwisenotified to theCompanyandTheStockExchangeofHongKongLimited(the“StockExchange”)pursuanttoDivisions7and8ofPartXVoftheSFOandtheModelCodeforSecuritiesTransactionsbyDirectorsofListedIssuers(the“ModelCode”),wereassetoutbelow.

Long positions in ordinary shares of the Company:

Approximate % of shareholdingName of director Capacity Number of shares (Note4)

Mr.TsoiTinChun Interestofcontrolled 3,733,557,083 47.74 corporations (Notes1and5)



Options outstanding under the 2002 Share Option Scheme of the Company:

Number of Approximate % of underlying shares shareholdingName of director Capacity (options granted) (Note4)

Mr.PatrickWongSiuHung Beneficialowner 20,000,000 0.26 (Note2)

Interest in associated corporation:

Interest in Associated associated % interest inName of director Capacity corporation corporation shareholding

Mr.TsoiTinChun Interestofcorporation FujianShishiTitan US$40,000,000 100 controlledbydirector SailorAdministerCo.Ltd. (Capitalcontribution) (Note3)

Note1: Titan Shipyard Investment Company Limited (“TSICL”) and Vision Jade Investments Limited (“Vision Jade”) are

wholly-ownedsubsidiariesofGreatLogisticsHoldingsLimited (“GreatLogistics”)which, in turn, isawholly-owned

subsidiaryofTitanOilPteLtd(“TitanOil”).TitanOil isownedasto95%byMr.TsoiTinChun(“Mr.Tsoi”)andas

to5%byMs.TsoiYukYi(“Ms.Tsoi”),thespouseofMr.Tsoi.Mr.TsoiisadirectorofTitanOil,GreatLogisticsand

TSICL.

By virtue of the SFO,Mr. Tsoi is deemed to be interested in the shares of the Company held by TitanOil, Great

Logistics,TSICLandVisionJade.

Note2: Share options carrying rights to subscribe for ordinary shares of the Company were granted on 1 February 2008

pursuanttothe2002ShareOptionScheme.

Note3: Mr.Tsoi isdeemed tobe interested in the shareholdingofFujianShishiTitanSailorAdministerCo., Ltd. (“Fujian

Shishi”)asaresultofhisshareholdinginTitanOil,theholdingcompanyofFujianShishi.Mr.Tsoiisalsoadirector

ofFujianShishi.

Note4: Basedon7,820,554,682ordinarysharesoftheCompanyissuedasat31December2011.

Note5: Based on a disclosure of interests notice filed with the Stock Exchange on 20 January 2012, as at 17 January

2012,Mr.Tsoiisinterestedin3,556,353,661sharesoftheCompany.

Save as disclosed above, at 31 December 2011, none of the directors or the chief executive hadregisteredanyinterestsorshortpositionsintheshares,underlyingsharesordebenturesoftheCompanyor any of its associated corporations (within the meaning of Part XV of the SFO) as required to berecorded pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the StockExchangepursuanttoDivisions7and8ofPartXVoftheSFOandtheModelCode.



DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBENTURESSave as disclosed under the heading “Directors’ and chief executive’s interests and short positions inshares,underlyingsharesanddebentures”aboveandintheshareoptionschemedisclosuresinnote36to the financial statements, at no time during the year were rights to acquire benefits bymeans of theacquisitionofshares inordebenturesof theCompanygrantedtoanydirectoror theirrespectivespouseorminorchildren,orwereanysuchrightsexercisedby them;orwas theCompanyoranyof itsholdingcompanies, subsidiaries or fellow subsidiaries a party to any arrangements to enable the directors toacquiresuchrightsinanyotherbodycorporate.

SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARESAt31December2011, so far as is known to thedirectors and thechief executiveof theCompany, thefollowing persons had interests or short positions in the shares and underlying shares of the Companywhichwererecordedintheregisterof interestsrequiredtobekeptbytheCompanypursuanttoSection336oftheSFO:

Long positions:

Number of Approximate % shares and of shareholdingName Capacity underlying shares (Note12)

Ms.TsoiYukYi Interestofspouse 3,733,557,083 47.74 (Notes6and13)

TitanOil Interestofacontrolledcorporation/ 3,733,557,083 47.74 Beneficialowner (Notes7and13)

GreatLogistics Interestofcontrolledcorporations/ 3,349,857,497 42.83 Beneficialowner (Notes8and13)

MoralBaseInvestmentLimited Beneficialowner 1,000,000,000 12.79

Mr.WongChiLeung Interestofacontrolledcorporation/ 1,000,000,000 12.79 Interestofspouse (Note9)

Mr.WongKwokYing Interestofacontrolledcorporation/ 1,000,000,000 12.79 Interestofspouse (Note9)

SaturnPetrochemical Beneficialowner 857,795,031 10.97 HoldingsLimited

WarburgPincus&Co. Interestofacontrolledcorporation 857,795,031 10.97 (Note10)



Number of Approximate % shares and of shareholdingName Capacity underlying shares (Note12)

WarburgPincusIX,LLC Interestofacontrolledcorporation 857,795,031 10.97 (Note10)

WarburgPincusPartnersLLC Interestofacontrolledcorporation 857,795,031 10.97 (Note10)

WarburgPincusPrivate Interestofacontrolledcorporation 857,795,031 10.97 EquityIX,L.P. (Note10)

GrandChinaLogisticsHolding Beneficialowner 500,000,000 6.39 (Group)CompanyLimited (Note11)

HaikouMeilanInternational Interestofcontrolledcorporations 500,000,000 6.39 AirportCo.,Ltd. (Note11)

HainanDevelopment Interestofcontrolledcorporations 500,000,000 6.39 HoldingsCo.,Ltd. (Note11)

TSICL Beneficialowner 395,369,018 5.05 (Note13)

Note6: TSICL and Vision Jade are wholly-owned subsidiaries of Great Logistics which, in turn, is a wholly-owned

subsidiary of TitanOil. TitanOil is ownedas to5%byMs. Tsoi and as to95%byMr. Tsoi, the spouse ofMs.

Tsoi.Ms.TsoiisadirectorofVisionJade.ByvirtueoftheSFO,Ms.Tsoiisdeemedtobeinterestedintheshares

oftheCompanyheldbyTitanOil,GreatLogistics,TSICLandVisionJade.

Note7: Titan Oil owns the entire issued share capital of Great Logistics which, in turn, holds the entire issued share

capitalofeachofTSICLandVisionJade.ByvirtueoftheSFO,TitanOilisdeemedtobeinterestedintheshares

oftheCompanyheldbyGreatLogistics,TSICLandVisionJade.

Note8: GreatLogisticsownstheentireissuedsharecapitalofeachofTSICLandVisionJade.ByvirtueoftheSFO,Great

LogisticsisdeemedtobeinterestedinthesharesoftheCompanyheldbyTSICLandVisionJade.

Note9: Pursuant to theSFO,Mr.WongChiLeung(“Mr.Wong”)andMs.WongKwokYing(“Ms.Wong”),spouseofMr.

Wong, are deemed to be interested in shares of the Company held byMoral Base Investment Limited (“Moral

Base”),whichislegallyandbeneficiallyownedasto50%byMr.Wongandasto50%byMs.Wong.

Note10: Pursuant to the SFO, as Warburg Pincus & Co., Warburg Pincus Partners LLC, Warburg Pincus IX, LLC and

WarburgPincusPrivateEquity IX,L.P.have100%controloverSaturnPetrochemicalHoldingsLimited,Warburg

Pincus & Co., Warburg Pincus Partners LLC, Warburg Pincus IX, LLC and Warburg Pincus Private Equity IX,

L.P. are deemed to be interested in the shareholding interest of Saturn Petrochemical Holdings Limited in the

Company.



Note11: Pursuant to theSFO, asHaikouMeilan InternationalAirportCo., Ltd. (“HaikouMeilan”) togetherwith its fellow

corporations, namely, Yangtze River Investment Holding Co., Ltd. and Bohai International Trust Co., Ltd. are

interested in more than one-third of the equity interest in Grand China Logistics Holding (Group) Company

Limited (“Grand China Logistics”), Haikou Meilan is deemed to be interested in the shareholding interest of

GrandChinaLogisticsintheCompany.

Pursuant to theSFO,asHainanDevelopmentHoldingsCo.,Ltd (“HainanDevelopment”) togetherwith its fellow

corporations, namely, Grand China Air Co., Ltd andHainan Airlines Co., Ltd., which, in turn, are interested in

more thanone-thirdof theequity interest inHaikouMeilan,HainanDevelopment isdeemed tobe interested in

theshareholdinginterestofGrandChinaLogisticsintheCompany.

Grand China Logistics, Haikou Meilan and Hainan Development ceased to have interests in the shares of the

Company following the lapse of subscription agreement dated 11 December 2010 entered into between the

CompanyandGrandChinaLogisticsinrelationtothesubscriptionfor500,000,000newsharesoftheCompany.

Note12: Basedon7,820,554,682ordinarysharesoftheCompanyissuedasat31December2011.

Note13: Based on the disclosure of interests notices filed with the Stock Exchange on 20 January 2012, as at 17

January 2012, Ms. Tsoi, Titan Oil, Great Logistics and TSICL is interested in 3,556,353,661, 3,556,353,661,

3,224,477,760and332,514,799sharesoftheCompany,respectively.

Save as disclosed above, at 31 December 2011, no person, other than the directors and the chiefexecutive of the Company, whose interests are set out in the section “Directors’ and chief executive’sinterests and short positions in shares, underlying shares and debentures” above, had an interest orshortpositioninthesharesorunderlyingsharesoftheCompanythatwasrequiredtoberecordedintheregisterrequiredtobekeptunderSection336oftheSFO.

SUFFICIENCY OF PUBLIC FLOATBasedoninformationthatispubliclyavailabletotheCompanyandwithintheknowledgeofthedirectors,at least 25% of the Company’s total issued share capital was held by the public as at the date of thisreport.

CORPORATE GOVERNANCEThe Company is committed to maintaining good corporate governance to effectively oversee/guideoperations and to enhance long term shareholder value, with an emphasis on having a quality board,transparency, independence and accountability. A detailed Corporate Governance Report is set out onpages27to34oftheAnnualReport.

CHARITABLE CONTRIBUTIONSDuringtheyear,theGroupmadecharitablecontributionstotallingapproximatelyHK$183,000.



MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORSThe Company has adopted the Model Code contained in Appendix 10 to the Listing Rules as theCompany’scodeofconductregardingdirectorsecuritiestransactions.Havingmadespecificenquiriesofthe directors, all directors confirmed that they have compliedwith the required standard set out in theModelCodethroughouttheyear.

EVENTS AFTER THE REPORTING PERIODDetailsofsignificanteventsafterthereportingperiodoftheGrouparesetout innote46tothefinancialstatements.

AUDIT COMMITTEETheCompanyhasestablishedanauditcommitteeforthepurposesofreviewingandprovidingsupervisionover the financial reporting process and internal controls of theGroup. The audit committee comprisesthree independent non-executive directors. The audit committee has reviewed theGroup’s consolidatedfinancial statements for the year ended 31 December 2011 and discussed the same with the externalauditorsandisoftheopinionthatsuchstatementscomplywiththeapplicableaccountingstandards,theListingRulesandotherreportingrequirements,andthatadequatedisclosureshavebeenmade.

AUDITORSErnst&YoungretireandaresolutionfortheirreappointmentasauditorsoftheCompanywillbeproposedattheforthcomingannualgeneralmeeting.

ONBEHALFOFTHEBOARD

Tsoi Tin ChunChairman

HongKong11May2012


INDEPENDENT AUDITORS’ REPORT

To the shareholders of Titan Petrochemicals Group Limited(Incorporated in Bermuda with limited liability)

We were engaged to audit the consolidated financial statements of Titan Petrochemicals Group Limited (the“Company”) and its subsidiaries (together, the “Group”) set out on pages 47 to 150, which comprise theconsolidated and company statements of financial position as at 31 December 2011, and the consolidatedincome statement, the consolidated statement of comprehensive income, the consolidated statement ofchanges in equity and the consolidated statement of cash flows for the year then ended, and a summary ofsignificantaccountingpoliciesandotherexplanatoryinformation.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of consolidated financial statements thatgive a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the HongKong Institute of Certified Public Accountants and the disclosure requirements of theHongKongCompaniesOrdinance, and for such internal control as thedirectors determine is necessary to enable thepreparation ofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

AUDITOR’S RESPONSIBILITY

Ourresponsibility is toexpressanopinionon theseconsolidated financialstatementsbasedonouraudit.Ourreport ismadesolely toyou,asabody, inaccordancewithSection90of theBermudaCompaniesAct1981,and for no other purpose.Wedonot assume responsibility towards or accept liability to any other person forthecontentsofthisreport.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong KongInstituteofCertifiedPublicAccountants.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceastowhetherthefinancialstatementsarefreefrommaterialmisstatement.Becauseof themattersdescribed in theBasis forDisclaimerofOpinionparagraphs, itis not possible to forman opinion on the consolidated financial statementsdue to thepotential interaction oftheuncertaintiesandtheirpossiblecumulativeeffectontheconsolidatedfinancialstatements.

BASIS FOR DISCLAIMER OF OPINION

Uncertainties relating to going concernAs set out in note 2.1 to the consolidated financial statements concerning the adoption of the going concernbasis on which the financial statement have been prepared, the Group incurred a loss of HK$783,332,000for theyearended31December2011and,asof thatdate, theGroup’sand theCompany’scurrent liabilitiesexceed its current assets by HK$1,243,237,000 and HK$2,131,051,000 respectively. In addition, the GroupwasindefaulttorepaycertainsecuredbankborrowingsofRMB111,000,000(approximatelyHK$137,407,000)as at the year end. Subsequent to the year end, the Company was unable to repay the overdue principaland interest of the Senior Notes Due 2012 of US$105,870,000 (approximately HK$825,786,000) andUS$4,499,000(approximatelyHK$35,092,000)whichweredueon19March2012.Asaresult,acrossdefaultwasalsotriggeredinrespectofabilateralloanwithafinancialinstitutioninanoutstandingprincipalamountofUS$1,300,000(approximatelyHK$10,140,000).



As set out in note 2.1 to the consolidated financial statements, Grand China Logistics Holding (Group)Company Limited (“Grand China”) has failed to comply with its payment obligations relating to the sale andpurchaseagreement for theGroup’sdisposalof its95%equity interest inTitanQuanzhouShipyardCompanyLimited (“QZ Shipyard”) at a consideration of RMB1,865,670,000 (approximately HK$2,309,513,000) or amaximum reduced consideration of RMB1,465,670,000 (approximately HK$1,814,353,000) if QZ Shipyard’sprofit targets for the twoyearsending31December2012arenotmet.At thedateofapprovalof the financialstatements, the Company had not received the balances of the stage payments in the aggregate amountof RMB725,670,000 (approximately HK$898,307,000) that were due in accordance with the terms of theagreement and, accordingly, the equity interests in QZ Shipyard have not been transferred to Grand China.Asfurtherexplainedinthatnote, theabilityof theGrouptomeet itsdebtrepaymentobligationsfor theSeniorNotes due on 19 March 2012 and the Company’s preferred shares redeemable on 22 June 2012 (at theelection of the holder or the Company), based on the current liquidity of the Group, is dependent upon thereceiptoftheQZShipyardsalestagepayments.

Asfurtherexplainedinnote2.1,thedirectorsoftheCompanyaretakingstepstoimprovetheGroup’sliquidityand solvencyposition. These stepsmainly include (i) negotiationswithpotential strategic investors in respectof a possible equity investment in the Company; (ii) actively working to require Grand China to comply withits obligations under the sale and purchase agreement; and (iii) negotiations with the Senior Notes holdersandothercreditorstodeferorrenewtheGroup’sbankandotherborrowings.Asatthedateofapprovalofthefinancialstatements,thesemeasureshadnotyetbeenconcluded.

These events indicate the existence of material uncertainties which cast significant doubt about the Group’sabilitytocontinueasagoingconcern.

The validity of the going concern assumption on which the consolidated financial statements are preparedis dependent on the successful and favourable outcomes of the steps being taken by the directors of theCompany as described above. The consolidated financial statements have been prepared on the assumptionthat the Group will continue as a going concern and, therefore, do not include any adjustments relating tothe realisationandclassificationofnon-currentassetsandnon-current liabilities thatmaybenecessary if theGroupisunabletocontinueasagoingconcern.

Should the going concern assumption be inappropriate, adjustments may have to be made to reflect thesituationthatassetsmayneedtoberealisedatotherthantheamountsatwhichtheyarecurrentlyrecordedinthestatementof financialposition. Inaddition, theGroupmayhave toprovide for further liabilities thatmightarise,andtoreclassifynon-currentassetsandnon-currentliabilitiesascurrentassetsandcurrentliabilities.

Uncertainty relating to the carrying amount of a disposal group classified as held for saleThe assets and liabilities of the shipbuilding operations of the aforementioned QZ Shipyard were classifiedas a disposal groupheld for sale in theGroup’s consolidated statement of financial position at 31December2011 and stated at the net carrying amount of HK$1,990,666,000. The recovery in full of the carryingamount isheavilydependentonGrandChinahonouringitsobligations.Dependingonthefinaloutcomeofthenegotiations,aprovisionfor impairmenttostatethenetassetstotherecoverableamountmayberequired.Asat thedateofapprovalof thefinancialstatements,pendingtheconclusionof thenegotiations,thedirectorsoftheCompanyareunabletodetermine,ifany,provisionforimpairmentmayberequired.



DISCLAIMER OF OPINION

Because of the potential interaction and possible cumulative effect of thematters described in the basis fordisclaimerofopinionparagraphs,wedonotexpressanopinionontheconsolidatedfinancialstatementsas towhethertheygiveatrueandfairviewinaccordancewithHongKongFinancialReportingStandardsorwhethertheyhavebeenproperlypreparedinaccordancewiththedisclosurerequirementoftheHongKongCompaniesOrdinance.

Ernst & YoungCertified Public Accountants22ndFloorCITICTower1TimMeiAvenueCentralHongKong

11May2012


Year ended 31 December 2011CONSOLIDATED INCOME STATEMENT

2011 2010 Notes HK$’000 HK$’000

CONTINUING OPERATIONS

Revenue 6 2,108,012 1,924,169Costofsales (2,312,382) (1,987,032)

Gross loss (204,370) (62,863)

Otherrevenue 65,321 18,776Changeinfairvalueofderivativefinancialinstrumentnot qualifyingashedges 103,682 –Gainsonrestructuringoffixedrateguaranteedseniornotes 28 – 476,495Generalandadministrativeexpenses (208,742) (229,268)Financecosts 8 (342,138) (273,943)Shareofprofitsofassociates,net 22,778 9,336Lossesondisposalsofvessels,net 14 – (446,649)

LOSS BEFORE TAX FROM CONTINUING OPERATIONS 7 (563,469) (508,116)

Tax 11 (6,292) 6,076

Lossfortheyearfromcontinuingoperations (569,761) (502,040)

DISCONTINUED OPERATION

Lossfortheyearfromdiscontinuedoperation,shipbuilding 5 (213,571) (78,348)

LOSS FOR THE YEAR (783,332) (580,388)

Attributable to: OwnersoftheCompany 12 (783,332) (580,800) Non-controllinginterests – 412

(783,332) (580,388)

BASIC LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY 13

Continuing operations (HK7.31 cents) (HK7.11cents)Discontinuedoperation,shipbuilding (HK2.74 cents) (HK1.11cents)

Total (HK10.05 cents) (HK8.22cents)


Year ended 31 December 2011CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

2011 2010 Notes HK$’000 HK$’000

Loss for the year (783,332) (580,388)

Othercomprehensiveincome: Exchangedifferencesontranslationofforeignoperations 161,931 80,666 Gainonacquisitionofnon-controllinginterests ofasubsidiary – 1,026

Othercomprehensiveincomefortheyear,netoftax 161,931 81,692

Total comprehensive loss for the year, net of tax (621,401) (498,696)

Attributable to: OwnersoftheCompany 12&37(a) (621,401) (498,983) Non-controllinginterests – 287

(621,401) (498,696)


31 December 2011CONSOLIDATED STATEMENT OF FINANCIAL POSITION

2011 2010 Notes HK$’000 HK$’000

NON-CURRENT ASSETSProperty,plantandequipment 14 2,960,620 2,745,611Prepaidland/seabedleasepayments 15 435,137 464,776Licenses 16 21,133 32,383Goodwill 17 434,571 470,371Interestsinassociates 19 324,768 330,647Deposits for construction in progress 8,273 155,887

Totalnon-currentassets 4,184,502 4,199,675

CURRENT ASSETSBunkeroil 36,846 48,196Inventories 21 2,891 12,506Accountsreceivable 22 83,501 81,424Prepayments,depositsandotherreceivables 170,724 463,535Amountduefromajointly-controlledentity 25,184 –Contracts in progress 23 – 10,104Pledgeddepositsandrestrictedcash 25 1,124,918 243,997Cashandcashequivalents 25 159,782 182,280

1,603,846 1,042,042Assetsofadisposalgroupclassifiedasheldforsale 5 4,834,243 4,275,495

Totalcurrentassets 6,438,089 5,317,537

CURRENT LIABILITIESInterest-bearingbankloans 26 1,609,849 801,061Accountsandbillspayable 27 469,839 205,421Otherpayablesandaccruals 27 1,321,970 650,758Amountduetoajointly-controlledentity 12,303 –Fixedrateguaranteedseniornotes 28 844,690 –Liabilityportionofconvertiblepreferredshares 31 363,176 –Notespayable 32 197,464 191,341Taxpayable 18,458 11,885

4,837,749 1,860,466Liabilitiesdirectlyassociatedwiththeassets classifiedasheldforsale 5 2,843,577 2,225,014

Totalcurrentliabilities 7,681,326 4,085,480

NET CURRENT ASSETS/(LIABILITIES) (1,243,237) 1,232,057

TOTAL ASSETS LESS CURRENT LIABILITIES 2,941,265 5,431,732


CONSOLIDATED STATEMENT OF FINANCIAL POSITION31 December 2011

2011 2010 Notes HK$’000 HK$’000

NON-CURRENT LIABILITIESInterest-bearingbankloans 26 889,688 1,506,873Fixedrateguaranteedseniornotes 28 – 840,333Guaranteedseniorconvertiblenotes 29 328,215 408,734Guaranteedseniorpayment-in-kindnotes 30 84,483 84,360Liabilityportionofconvertiblepreferredshares 31 398,932 719,331Liabilityportionofconvertibleunsecurednotes 33 92,901 83,081Deferredtaxliabilities 34 40,455 45,618

Totalnon-currentliabilities 1,834,674 3,688,330

Net assets 1,106,591 1,743,402

EQUITYEquity attributable to owners of the CompanyIssuedcapital 35 78,206 77,667Equityportionofconvertiblepreferredshares 31 75,559 75,559Reserves 37(a) 390,728 980,062

544,493 1,133,288Equityportionofconvertibleunsecurednotesina jointly-controlledentity 33 85,015 92,277Contingentlyredeemableequityinajointly-controlledentity 31 477,083 517,837

Total equity 1,106,591 1,743,402

Patrick Wong Siu Hung Tsoi Tin Chun Director Director


Year ended 31 December 2011CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to owners of the Company

Equity portion of convertible Contingently unsecured redeemable notes equity Issued Convertible in a jointly- in a jointly- Non- capital preferred Reserves controlled controlled controlling Total (note 35) shares (note 37(a)) Sub-total entity entity interests equity Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At1January2011 77,667 75,559 980,062 1,133,288 92,277 517,837 – 1,743,402

Lossfortheyear – – (783,332) (783,332) – – – (783,332)Othercomprehensiveincome fortheyear: Exchangedifferenceson translationofforeignoperations – – 161,931 161,931 – – – 161,931

Totalcomprehensiveloss fortheyear – – (621,401) (621,401) – – – (621,401)Equity-settledshareoption arrangements – – 2,470 2,470 – – – 2,470Exerciseofshareoptions 36 103 – 4,488 4,591 – – – 4,591Conversion of guaranteed seniorconvertiblenotes 29 436 – 29,912 30,348 – – – 30,348Realisedondeemeddisposalsof partialinterestina jointly-controlledentity – – (4,803) (4,803) (7,262) (40,754) – (52,819)

At31December2011 78,206 75,559 390,728 544,493 85,015 477,083 – 1,106,591 At1January2010 65,625 75,559 976,148 1,117,332 92,277 517,837 8,629 1,736,075

Lossfortheyear – – (580,800) (580,800) – – 412 (580,388)Othercomprehensiveincome/(loss) fortheyear: Exchangedifferenceson translationofforeignoperations – – 80,791 80,791 – – (125) 80,666 Gainonacquisitionof non-controllinginterestsof asubsidiary – – 1,026 1,026 – – – 1,026

Totalcomprehensiveincome/(loss) fortheyear – – (498,983) (498,983) – – 287 (498,696)Issueofordinaryshares 10,000 – 360,000 370,000 – – – 370,000Shareissueexpenses – – (784) (784) – – – (784)Exerciseofshareoptions 36 222 – 10,383 10,605 – – – 10,605Equity-settledshareoption arrangements – – 9,193 9,193 – – – 9,193Conversion of guaranteed senior convertiblenotes 29 1,820 – 124,105 125,925 – – – 125,925Dividendspaidtonon-controlling shareholders – – – – – – (1,701) (1,701)Acquisitionofnon-controlling interests – – – – – – (7,215) (7,215)

At31December2010 77,667 75,559 980,062 1,133,288 92,277 517,837 – 1,743,402


Year ended 31 December 2011CONSOLIDATED STATEMENT OF CASH FLOWS

2011 2010 Notes HK$’000 HK$’000

CASH FLOWS FROM OPERATING ACTIVITIESLossbeforetaxfrom: Continuing operations (563,469) (508,116) Discontinuedoperation,shipbuilding 5 (213,571) (78,348)Adjustmentsfor: Lossesondisposalsofvessels,net 14 – 446,649 Gainsonrestructuringoffixedrateguaranteed senior notes 28 – (476,495) Lossesonrepurchasesofguaranteed seniorconvertiblenotes 29 – 61 Losses/(gains)onrepurchasesofguaranteedsenior payment-in-kindnotes 30 214 (43) Depreciation 205,266 174,226 Amortisationofprepaidland/seabedleasepayments 3,571 4,485 Amortisationoflicences 11,250 2,516 Impairmentofitemsofproperty,plantandequipment 14 – 3,822 Lossondisposalofitemsofproperty,plantandequipment 104 217 Impairment/(reversalofimpairment)ofaccountsreceivable 22 (668) 3,541 Gainondeemeddisposalsofpartialinterestin ajointly-controlledentity (7,559) – Shareofprofitsofassociates,net (22,778) (9,336) Lossondisposalofanassociate 19 – 16,312 Writedownofinventoriestonetrealisablevalue 71,797 – Changeinfairvalueofderivativefinancialinstrument notqualifyingashedges (103,682) – Interestincome (27,885) (4,750) Financecosts 8 347,947 284,770 Equity-settledshareoptionexpenses 37(a) 2,470 9,193

(296,993) (131,296)Increaseinamountsduefromassociates – (6,085)Decrease/(increase)inbunkeroil 11,350 (24,947)Decrease/(increase)ininventories (59,301) 258,621Decrease/(increase)inaccountsreceivable 185,357 (68,785)Decrease/(increase)inprepayments,deposits andotherreceivables 288,337 (239,088)Decrease/(increase)incontractsinprogress (156,408) 309,502Increaseinaccountsandbillspayable 301,282 43,559Increase/(decrease)inotherpayablesandaccruals (286,141) 262,282Increaseinbalanceswithajointly-controlledentity (12,881) –

Cash generated from/(used in) operations (25,398) 403,763Interestreceived 27,784 4,750Interestpaid (179,720) (233,346)Overseasprofitstaxpaid (1,418) (6)

Net cash flows from/(used in) operating activities (178,752) 175,161


CONSOLIDATED STATEMENT OF CASH FLOWSYear ended 31 December 2011

2011 2010 Notes HK$’000 HK$’000

CASH FLOWS FROM INVESTING ACTIVITIESIncreaseintimedepositswithoriginalmaturities ofmorethanthreemonths (973,481) (30,031) Additionstoproperty,plantandequipment (723,824) (1,286,716)Additionstoprepaidland/seabedleasepayments – (1,684)Depositspaidforacquisitionofvessels – (950)Deposits paid for construction in progress (6,436) (147,160)Interestcapitalised 8 (165,966) (115,037)Proceedsfromdisposalsofproperty,plantandequipment 23,485 2,463Netproceedsfromdisposalsofvessels 31,200 556,011Acquisitionofnon-controllinginterestsofasubsidiary – (6,189)Acquisitionofajointly-controlledentity (120,364) –Dividendsreceivedfromassociates 7,361 5,590Disposalofanassociate 19 – 84,287Dissolutionofanassociate 19 – 2,238Partialconsiderationreceivedfromdisposalofshipyard 5 916,050 –

Netcashflowsusedininvestingactivities (1,011,975) (937,178)

CASH FLOWS FROM FINANCING ACTIVITIESInceptionofnewbankloans 1,995,197 1,633,387Repaymentsofbankloans (978,888) (895,535)Proceedsfromexerciseofshareoptions 4,591 10,605Restructuringoffixedrateguaranteedseniornotes 28 – (336,609)Repurchasesofguaranteedseniorconvertiblenotes 29 – (76,299)Repurchasesofguaranteedseniorpayment-in-kindnotes 30 (8,112) (26,893)Proceedsfromissueofordinaryshares 35&37(a) – 370,000Shareissueexpenses 37(a) – (784)Dividendspaidtonon-controllingshareholders – (1,701)Decrease/(increase)inrestrictedcash (16) 63,699

Netcashflowsfromfinancingactivities 1,012,772 739,870

NET DECREASE IN CASH AND CASH EQUIVALENTS (177,955) (22,147)

Cashandcashequivalentsatbeginningofyear 403,451 393,292Effectofforeignexchangeratechanges,net 29,230 32,306

CASH AND CASH EQUIVALENTS AT END OF YEAR 254,726 403,451


CONSOLIDATED STATEMENT OF CASH FLOWSYear ended 31 December 2011

2011 2010 Notes HK$’000 HK$’000

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTSCashandbankbalances 159,782 181,130Bankbalancespledgedassecurityforbankfacilities 33,318 82,643Timedepositswithoriginalmaturitiesoflessthan threemonthswhenacquired,pledged assecurityforbankfacilities – 68,235Cashandbankbalancesattributableto thediscontinuedoperation 5 61,626 71,443

Cash and cash equivalents as stated in the consolidated statement of cash flows 254,726 403,451

RECONCILIATION OF CASH AND CASH EQUIVALENTSCashandcashequivalentsperconsolidated statementofcashflows 254,726 403,451Amountspledgedforbankfacilitieswithoriginalmaturities oflessthanthreemonthswhenacquired (33,318) (150,878)Non-pledgedtimedepositswithoriginalmaturitiesof morethanthreemonthswhenacquired – 1,150Cashandbankbalancesattributabletothediscontinuedoperation 5 (61,626) (71,443)

Cash and cash equivalents as stated in the consolidated statement of financial position 159,782 182,280


31 December 2011STATEMENT OF FINANCIAL POSITION

2011 2010 Notes HK$’000 HK$’000

NON-CURRENT ASSETSInterestsinsubsidiaries 18 3,631,161 5,163,591

CURRENT ASSETSDuefromsubsidiaries 18 – 93,600Prepayments,depositsandotherreceivables 2,935 624Cashandcashequivalents 25 847 2,262

Totalcurrentassets 3,782 96,486

CURRENT LIABILITIESDuetosubsidiaries 18 – 53,857Otherpayablesandaccruals 918,418 27,716Financialguaranteecontracts 24 8,549 8,549Fixedrateguaranteedseniornotes 28 844,690 –Liabilityportionofconvertiblepreferredshares 31 363,176 –

Totalcurrentliabilities 2,134,833 90,122

NET CURRENT ASSETS/(LIABILITIES) (2,131,051) 6,364

TOTAL ASSETS LESS CURRENT LIABILITIES 1,500,110 5,169,955

NON-CURRENT LIABILITIESFixedrateguaranteedseniornotes 28 – 840,333Guaranteedseniorconvertiblenotes 29 328,215 408,734Guaranteedseniorpayment-in-kindnotes 30 84,483 84,360Liabilityportionofconvertiblepreferredshares 31 – 325,321Duetosubsidiaries 18 – 1,815,278

Totalnon-currentliabilities 412,698 3,474,026

Net assets 1,087,412 1,695,929

EQUITYIssuedcapital 35 78,206 77,667Equityportionofconvertiblepreferredshares 31 75,559 75,559Reserves 37(b) 933,647 1,542,703

Total equity 1,087,412 1,695,929

Patrick Wong Siu Hung Tsoi Tin Chun Director Director


31 December 2011NOTES TO FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

TitanPetrochemicalsGroupLimited(the“Company”)wasincorporatedinBermudaon24April1998asanexemptedcompanywithlimitedliabilityundertheBermudaCompaniesAct1981.

TheregisteredofficeoftheCompanyislocatedatClarendonHouse,2ChurchStreet,HamiltonHM11,Bermuda.During the year, theprincipal place of business of theCompanywas locatedat Suite4902,SunHungKaiCentre,30HarbourRoad,Wanchai,HongKong.

Duringtheyear,theCompanyanditssubsidiaries(the“Group”)wereinvolvedinthefollowingprincipalactivities:

(i) provision of logistic services (including offshore oil storage and onshore storage and oiltransportation);

(ii) supplyofoilproductsandprovisionofbunkerrefuelingservices;and

(iii) shipbuildingandbuildingofshiprepairfacilities.

The Group discontinued its shipbuilding and building of ship repair facilities operations in 2010 asdetailedinnote5.

In the opinion of the Company’s directors, Great Logistics Holdings Limited (“Great Logistics”) is theimmediate holding company of the Company while the parent and ultimate holding company of theGroupisTitanOilPteLtd(“TitanOil”),whichwasincorporatedinSingapore.

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial ReportingStandards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong KongAccounting Standards (“HKASs”) and Interpretations), issued by the Hong Kong Institute of CertifiedPublic Accountants (the “HKICPA”), accounting principles generally accepted in Hong Kong and thedisclosure requirements of theHongKongCompaniesOrdinance.Theyhavebeenpreparedunder thehistoricalcostconvention,exceptforderivativefinancialinstruments,whichhavebeenmeasuredatfairvalue.All theassetsandliabilitiesasat31December2011includedinthedisposalgroupclassifiedasheld forsale, representing theshipbuildingandbuildingofship repair facilitiesoperations,werestatedat the lowerof theircarryingamountsandfairvalues lesscosts tosellas furtherexplained innote2.4.These financial statements are presented inHongKong dollars (“HK$”) and all values are rounded tothenearestthousandexceptwhenotherwiseindicated.


NOTES TO FINANCIAL STATEMENTS31 December 2011

2.1 BASIS OF PREPARATION (Continued)

Going concern basisDuring the year ended 31 December 2011, the Company and its subsidiaries (the “Group”) incurredlosses ofHK$783,332,000and, as of thedate, theGroupand theCompanyhadnet current liabilitiesofHK$1,243,237,000andHK$2,131,051,000 respectively. Inaddition,aggregateoutstanding interest-bearingbankloansincontinuingoperationsofHK$1,609,849,000weredueforpaymentwithinthenexttwelvemonthsafter31December2011ofwhichRMB111,000,000(approximatelyHK137,407,000)felldueasat31December2011.

Due to the failure of Grand China Logistics Holding (Group) Company Limited (“Grand China”) tocomplywith its payment obligations under the sale andpurchase agreement regarding the disposal oftheGroup’s95%equityinterestinTitanQuanzhouShipyardCo.,Ltd(“QZShipyard”),theCompanyhasnot received, at the date of this report, the outstanding obligations of stage payments of an aggregateof RMB725,670,000 (approximately of HK$898,307,000) and the payments for the subscription for500,000,000ordinarysharesatthesubscriptionpriceofHK$0.61pershareforanaggregateamountofHK$305,000,000(thelatterofwhichhasnowlapsed).

These proceeds would have been sufficient to enable the Company to meet its debt repaymentobligations in fixed rate guaranteed senior notes (“Senior Notes Due 2012”) and the Company’sconvertiblepreferredshares,whichbecomeredeemableattheelectionoftheholderortheCompanyatanytimefrom22June2012.

In these circumstances, the Company was unable to repay overdue principal and interest on theSenior Notes Due 2012 of US$105,870,000 (approximately HK$825,786,000) and US$4,499,000(approximatelyHK$35,092,000)whichbecamedueon19March2012.Asaresult,acrossdefaultwasalsotriggeredinrespectofabilateralloanwithafinancialinstitutioninanoutstandingprincipalamountofUS$1,300,000 (approximatelyHK$10,140,000)andanearly redemptioneventwasalso triggered inrespectoftheCompany’sandTitanGroupInvestmentLimited(“TGIL”)’sconvertiblepreferredsharesassetoutinnote46.

The above conditions raise uncertainty about the Group’s ability to continue as a going concern. Inviewofsuchcircumstance, thedirectorsof theCompanyhavegivencarefulconsiderationto the futureliquidity and performance of the Group and its available sources of finance in assessing whether theGroupwillhavesufficientfinancialresourcestocontinueasagoingconcern.

ThedirectorsoftheCompanyhavetakenthefollowingmeasurestomitigatetheliquidityissuesfacedbytheGroupandtheCompanyandimproveitsfinancialpositionwhichinclude,butarenotlimitedto,thefollowing:

(i) TheCompany’smanagement is activelyworking to requireGrandChina to honor its obligationsunderthesaleandpurchaseagreement;

(ii) TheCompany is in negotiationswith potential strategic investors in respect of a possible equityinvestmentintheCompanywhichmayresultinchangeincontroloftheCompany;

(iii) TheCompanyhasappointedanindependentfinancialadvisor,NomuraInternational(HongKong)Limited, toadvise the restructuringof itsdebtsandequity structure tohelp theGroup to returntoasolventpositionandcontinuewiththedevelopmentandenhancementofitsbusinesses;

(iv) TheCompanyhasappointedFTI(HongKong)Limitedtoundertakearealisationanalysis;

(v) The Company has reviewed the Group’s financial and operational position, and is taking stepsto improve cash flowmanagement of the Group with a view to conserve productive assets andoperations;and

(vi) TheCompanyintendstorefinancetheexistingbankloanstomatchtheGroup’sbankrepaymentswhentheyfalldue.



2.1 BASIS OF PREPARATION (Continued)

Going concern basis (Continued)Based on the aforesaid factors, the directors of the Company consider that the Group will havesufficientworkingcapital to finance itsoperationsand/orsettleorarrange its financialobligationsuponthe collection of outstanding balance of stage payments for QZ Shipyard disposal and the successfulimplementationofdebtsrestructuringand,accordingly,aresatisfiedthatitisappropriatetopreparethefinancial statements on a going concernbasis.On this basis, the consolidated financial statements donotincludeanyadjustmentsrelatingtothecarryingamountsandreclassificationofassetsandliabilitiesthatmightbenecessaryshouldtheGroupbeunabletocontinueasagoingconcern.

Basis of consolidationThe consolidated financial statements include the financial statements of the Group for the yearended 31 December 2011. The financial statements of the subsidiaries are prepared for the samereporting period as the Company, using consistent accounting policies. The results of subsidiariesare consolidated from the date of acquisition, being the date on which the Group obtains control,and continue to be consolidated until the date that such control ceases. All intra-group balances,transactions, unrealised gains and losses resulting from intra-group transactions and dividends areeliminatedonconsolidationinfull.

Total comprehensive loss within a subsidiary is attributed to the non-controlling interest even if thatresultsinadeficitbalance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as anequitytransaction.

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill)and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii)the cumulative translation differences recorded in equity; and recognises (i) the fair value of theconsideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus ordeficit inprofitor loss.TheGroup’sshareofcomponentspreviouslyrecognisedinothercomprehensiveincomeisreclassifiedtoprofitorlossorretainedprofits/accumulatedlosses,asappropriate.



2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

TheGrouphasadoptedthefollowingnewandrevisedHKFRSsforthefirsttimeforthecurrentyear’sfinancialstatements:

HKFRS1Amendment AmendmentstoHKFRS1 First-time Adoption of Hong Kong Financial Reporting Standards – Limited Exemption from Comparative HKFRS 7 Disclosures for First-time AdoptersHKAS24(Revised) Related Party DisclosuresHKAS32Amendment AmendmenttoHKAS32Financial Instruments: Presentation – Classification of Rights IssuesHK(IFRIC)-Int14Amendments AmendmentstoHK(IFRIC)-Int14Prepayments of a Minimum Funding RequirementHK(IFRIC)-Int19 Extinguishing Financial Liabilities with Equity InstrumentsImprovements to HKFRSs 2010 AmendmentstoanumberofHKFRSsissuedinMay2010

Other thanas furtherexplainedbelowregardingthe impactofHKAS24(Revised),andamendmentstoHKFRS3,HKAS1andHKAS27 included in Improvements to HKFRSs 2010, theadoptionof thenewandrevisedHKFRSshashadnosignificantfinancialeffectonthesefinancialstatements.

TheprincipaleffectsofadoptingtheseHKFRSsareasfollows:

(a) HKAS24(Revised)Related Party Disclosures

HKAS24 (Revised)clarifiesandsimplifies thedefinitionsof relatedparties.Thenewdefinitionsemphasise a symmetrical view of related party relationships and clarify the circumstances inwhich persons and key management personnel affect related party relationships of an entity.The revised standard also introduces an exemption from the general related party disclosurerequirementsfortransactionswithagovernmentandentitiesthatarecontrolled,jointly-controlledorsignificantlyinfluencedbythesamegovernmentasthereportingentity.Theaccountingpolicyfor related parties has been revised to reflect the changes in the definitions of related partiesundertherevisedstandard.TheadoptionoftherevisedstandarddidnothaveanyimpactonthefinancialpositionorperformanceoftheGroup.



2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Continued)

(b) Improvements to HKFRSs 2010 issued in May 2010 sets out amendments to a number ofHKFRSs.Thereareseparatetransitionalprovisionsforeachstandard.Whiletheadoptionofsomeoftheamendmentsmayresultinchangesinaccountingpolicies,noneoftheseamendmentshashada significant financial impact on the financialpositionorperformanceof theGroup.DetailsofthekeyamendmentsmostapplicabletotheGroupareasfollows:

• HKFRS 3 Business Combinations: The amendment clarifies that the amendmentsto HKFRS 7, HKAS 32 and HKAS 39 that eliminate the exemption for contingentconsiderations do not apply to contingent considerations that arose from businesscombinationswhose acquisitiondates precede the application ofHKFRS3 (as revised in2008).

In addition, the amendment limits the scope ofmeasurement choices for non-controllinginterests. Only the components of non-controlling interests that are present ownershipinterests and entitle their holders to a proportionate share of the acquiree’s net assetin the event of liquidation aremeasured either at fair value or at the present ownershipinstruments’ proportionate share of the acquiree’s identifiable net assets. All othercomponentsofnon-controlling interestsaremeasuredat their acquisitiondate fair value,unlessanothermeasurementbasisisrequiredbyanotherHKFRS.

The amendment also adds explicit guidance to clarify the accounting treatment for non-replacedandvoluntarilyreplacedshare-basedpaymentawards.

• HKAS1Presentation of Financial Statements:Theamendmentclarifiesthatananalysisofeachcomponentofothercomprehensiveincomecanbepresentedeitherinthestatementofchanges inequityor inthenotestothefinancialstatements.TheGrouphaselectedtopresent theanalysisofeachcomponentofothercomprehensive income in thestatementofchangesinequity.

• HKAS27Consolidated and Separate Financial Statements: The amendment clarifies thatthe consequential amendments from HKAS 27 (as revised in 2008) made to HKAS 21,HKAS28andHKAS31shallbeappliedprospectively forannualperiodsbeginningonorafter1July2009orearlierifHKAS27isappliedearlier.



2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

TheGroup has not applied the following new and revisedHKFRSs, that have been issued but are notyeteffective,inthesefinancialstatements.

HKFRS1Amendments AmendmentstoHKFRS1 First-time Adoption of Hong Kong Financial Reporting Standards – Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters1

HKFRS1Amendments AmendmentstoHKFRS1First-time Adoption of Hong Kong Financial Reporting Standards – Government Loans4

HKFRS7Amendments AmendmentstoHKFRS7 Financial Instruments: Disclosures – Transfers of Financial Assets1

HKFRS7Amendments AmendmentstoHKFRS7 Financial Instruments: Offsetting Financial Assets and Financial Liabilities4

HKFRS9 Financial Instruments6

HKFRS10 Consolidated Financial Statements4

HKFRS11 Joint Arrangements4

HKFRS12 Disclosure of Interests in Other Entities4

HKFRS13 Fair Value Measurement4

HKAS1Amendments Presentation of Financial Statements – Presentation of Items of Other Comprehensive Income3

HKAS12Amendments AmendmentstoHKAS12Income Taxes – Deferred Tax: Recovery of Underlying Assets2

HKAS32Amendments AmendmentstoHKAS32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities5

HKAS19(2011) Employee Benefits4

HKAS27(2011) Separate Financial Statements4

HKAS28(2011) Investments in Associates and Joint Ventures4

HK(IFRIC)-Int20 Stripping Costs in the Production Phase of a Surface Mine4

1 Effectiveforannualperiodsbeginningonorafter1July20112 Effectiveforannualperiodsbeginningonorafter1January20123 Effectiveforannualperiodsbeginningonorafter1July20124 Effectiveforannualperiodsbeginningonorafter1January20135 Effectiveforannualperiodsbeginningonorafter1January20146 Effectiveforannualperiodsbeginningonorafter1January2015

TheGroup is in theprocessofmakinganassessmentof the impactof thesenewandrevisedHKFRSsupon initial application. Other than further explained below, the Group considers that these new andrevised HKFRSs are unlikely to have a significant impact on the Group’s results of operations andfinancialposition.

HKFRS10establishesasinglecontrolmodelthatappliestoallentitiesincludingspecialpurposeentitiesor structured entities. It includes a newdefinition of controlwhich is used to determinewhich entitiesareconsolidated.Thechanges introducedbyHKFRS10 requiremanagementof theGroup toexercisesignificant judgement to determine which entities are controlled, compared with the requirementsin HKAS 27 and HK(SIC)-Int 12 Consolidation – Special Purpose Entities. HKFRS 10 replaces theportionofHKAS27Consolidated and Separate Financial Statements thataddresses theaccounting forconsolidatedfinancialstatements.ItalsoincludestheissuesraisedinHK(SIC)-Int12.



2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

(Continued)

HKFRS11replacesHKAS31Interests in Joint VenturesandHK(SIC)-Int13Jointly Controlled Entities – Non- Monetary Contributions by Venturers. Itdescribes theaccounting for jointarrangementswith jointcontrol. Itaddressesonly two formsof jointarrangements, i.e., jointoperationsand joint ventures,andremovestheoptiontoaccountforjointventuresusingproportionateconsolidation.

HKFRS 12 includes the disclosure requirements for subsidiaries, joint arrangements, associates andstructured entities that are previously included in HKAS 27 Consolidated and Separate Financial Statements, HKAS 31 Interests in Joint Ventures and HKAS 28 Investments in Associates. It alsointroducesanumberofnewdisclosurerequirementsfortheseentities.

ConsequentialamendmentsweremadetoHKAS27andHKAS28asaresultoftheissuanceofHKFRS10,HKFRS11andHKFRS12.TheGroupexpectstoadoptHKFRS10,HKFRS11,HKFRS12,andtheconsequentialamendmentstoHKAS27andHKAS28from1January2013.

AmendmentstoHKAS1changethegroupingofitemspresentedinothercomprehensiveincome.Itemsthat could be reclassified (or recycled) to profit or loss at a future point in time (for example, uponderecognitionorsettlement)wouldbepresentedseparately from itemswhichwillneverbereclassified.TheGroupexpectstoadopttheamendmentsfrom1January2013.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SubsidiariesA subsidiary is an entity whose financial and operating policies the Company control, directly orindirectly,soastoobtainbenefitsfromitsactivities.

The results of subsidiaries are included in theCompany’s income statement to the extent of dividendsreceivedandreceivable.TheCompany’s interests insubsidiaries thatarenotclassifiedasheld forsaleinaccordancewithHKFRS5arestatedatcostlessanyimpairmentlosses.

Joint venturesA joint venture is an entity set up by contractual arrangement, whereby the Group and other partiesundertakeaneconomicactivity.The jointventureoperatesasaseparateentity inwhichtheGroupandtheotherpartieshaveinterests.

The joint venture agreement between the venturers stipulates the capital contributions of the jointventure parties, the duration of the joint venture and the basis onwhich the assets are to be realiseduponitsdissolution.Theprofitsorlossesfromjointventure’soperationsandanydistributionsofsurplusassets are shared by the venturers, either in proportion to their respective capital contributions, or inaccordancewiththetermsofthejointventureagreement.



2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Joint ventures (Continued)Ajointventureistreatedas:

(a) asubsidiary,iftheGrouphasunilateralcontrol,directlyorindirectly,overthejointventure;

(b) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control,directlyorindirectly,overthejointventure;or

(c) an associate, if the Group does not have unilateral or joint control, but holds, directly orindirectly,generallynotlessthan20%ofthejointventure’sregisteredcapitalandisinapositiontoexercisesignificantinfluenceoverthejointventure.

Jointly-controlled entitiesA jointly-controlled entity is a joint venture that is subject to joint control, resulting in none of theparticipatingpartieshavingunilateralcontrolovertheeconomicactivityofthejointly-controlledentity.

The Group’s investments in its jointly-controlled entities are accounted for by the proportionateconsolidation method, which involves recognising its share of the jointly-controlled entities’ assets,liabilities, income and expenses with similar items in the financial statements on a line-by-line basis.Unrealised gains and losses resulting from transactions between the Group and its jointly-controlledentities are eliminated to the extent of theGroup’s investments in the jointly-controlledentities, exceptwhereunrealisedlossesprovideevidenceofanimpairmentoftheassettransferred.

AssociatesAn associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Group hasa long term interestofgenerallynot less than20%of theequity voting rightsandoverwhich it is inapositiontoexercisesignificantinfluence.

TheGroup’s interests inassociatesare stated in theconsolidatedstatementof financialpositionat theGroup’s share of net assets under the equity method of accounting, less any impairment losses. TheGroup’s shareof thepost-acquisition resultsand reservesofassociates is included in theconsolidatedincome statement and consolidated reserves, respectively. Unrealised gains and losses resultingfrom transactions between the Group and its associates are eliminated to the extent of the Group’sinterests in the associates, except where unrealised losses provide evidence of an impairment of theasset transferred.Goodwill arising from theacquisitionof associates is includedaspart of theGroup’sinterestsinassociatesandisnotindividuallytestedforimpairment.

Business combinations and goodwillBusiness combinations are accounted for using the acquisitionmethod. The consideration transferredis measured at the acquisition date fair value which is the sum of the acquisition date fair values ofassets transferredby theGroup, liabilitiesassumedby theGroup to the formerownersof theacquireeandtheequityinterestsissuedbytheGroupinexchangeforcontroloftheacquiree.Foreachbusinesscombination,theGroupelectswhetheritmeasuresthenon-controllinginterestsintheacquireethatarepresentownership interestsandentitle theirholders toaproportionateshareofnetassets in theeventofliquidationeitheratfairvalueorattheproportionateshareoftheacquiree’sidentifiablenetassets.Allothercomponentsofnon-controllinginterestsaremeasuredatfairvalue.Acquisitioncostsareexpensedasincurred.




Business combinations and goodwill (Continued)When the Group acquires a business, it assesses the financial assets and liabilities assumed forappropriate classification and designation in accordance with the contractual terms, economiccircumstances and pertinent conditions as at the acquisition date. This includes the separation ofembeddedderivativesinhostcontractsbytheacquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’spreviously held equity interest in the acquiree is remeasured to fair value as at the acquisition datethroughprofitorloss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at theacquisitiondate.Subsequentchangestothefairvalueofthecontingentconsiderationwhichisdeemedto be an asset or liability will be recognised in accordancewithHKAS 39 either in profit or loss or asa change to other comprehensive income. If the contingent consideration is classified as equity, itwill not be remeasured. Subsequent settlement is accounted for within equity. In instanceswhere thecontingentconsiderationdoesnot fallwithin thescopeofHKAS39, it ismeasured inaccordancewiththeappropriateHKFRS.

Goodwill is initiallymeasuredatcostbeingtheexcessof theaggregateof theconsiderationtransferred,the amount recognised for non-controlling interests and any fair value of the Group’s previously heldequity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If thesumofthisconsiderationandother itemsis lowerthanthefairvalueofthenetassetsofthesubsidiaryacquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargainpurchase.

After initial recognition,goodwill ismeasuredatcost lessanyaccumulated impairment losses.Goodwillistestedforimpairmentannuallyormorefrequentlyifeventsorchangesincircumstancesindicatethatthe carrying valuemay be impaired. The Group performs its annual impairment test of goodwill as at31December. For the purpose of impairment testing, goodwill acquired in a business combination is,from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective ofwhetherotherassetsorliabilitiesoftheGroupareassignedtothoseunitsorgroupsofunits.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (groupof cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generatingunit(groupofcash-generatingunits) is lessthanthecarryingamount,animpairmentlossisrecognised.Animpairmentlossrecognisedforgoodwillisnotreversedinasubsequentperiod.

Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of theoperation within that unit is disposed of, the goodwill associated with the operation disposed of isincluded in the carrying amount of the operationwhendetermining the gain or loss ondisposal of theoperation. Goodwill disposed of in this circumstance is measured based on the relative values of theoperationdisposedofandtheportionofthecash-generatingunitretained.




Impairment of non-financial assetsWhere an indication of impairment exists, or when annual impairment testing for an asset is required(other than inventories, financial assets, goodwill and a disposal group classified as held for sale), theasset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’sor cash-generating unit’s value in use and its fair value less costs to sell, and is determined for eachindividual asset, unless the assetdoesnot generate cash inflows that are largely independent of thosefromotherassetsorgroupsofassets,inwhichcasetherecoverableamountisdeterminedforthecash-generatingunittowhichtheassetbelongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverableamount.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscount rate that reflects currentmarket assessmentsof the time valueofmoneyandthe risksspecific to theasset.An impairment loss ischarged to the incomestatement in theperiod inwhichitarises.

An assessment is made at the end of each reporting period as to whether there is any indicationthat previously recognised impairment lossesmay no longer exist or may have decreased. If such anindication exists, the recoverable amount is estimated. A previously recognised impairment loss of anassetotherthangoodwillisreversedonlyiftherehasbeenachangeintheestimatesusedtodeterminetherecoverableamountof thatasset,butnottoanamounthigherthanthecarryingamountthatwouldhave been determined (net of any depreciation/amortisation) had no impairment loss been recognisedfortheassetinprioryears.Areversalofsuchanimpairmentlossiscreditedtotheincomestatementintheperiodinwhichitarises.

Related partiesApartyisconsideredtoberelatedtotheGroupif:

(a) thepartyisapersonoraclosememberofthatperson’sfamilyandthatperson,(i) hascontrolorjointcontrolovertheGroup;(ii) hassignificantinfluenceovertheGroup;or(iii) isamemberofthekeymanagementpersonneloftheGrouporofaparentoftheGroup;

or

(b) thepartyisanentitywhereanyofthefollowingconditionsapplies:(i) theentityandtheGrouparemembersofthesamegroup;(ii) oneentity isanassociateor jointventureof theotherentity (orofaparent,subsidiaryor

fellowsubsidiaryoftheotherentity);(iii) theentityandtheGrouparejointventuresofthesamethirdparty;(iv) oneentityisajointventureofathirdentityandtheotherentityisanassociateofthethird

entity;(v) the entity is a post-employment benefit plan for the benefit of employees of either the

GrouporanentityrelatedtotheGroup;(vi) theentityiscontrolledorjointlycontrolledbyapersonidentifiedin(a);and(vii) apersonidentifiedin(a)(i)hassignificantinfluenceovertheentityorisamemberofthe

keymanagementpersonneloftheentity(orofaparentoftheentity).




Property, plant and equipment and depreciationProperty,plantandequipment,otherthanconstructioninprogress,arestatedatcostlessaccumulateddepreciationandanyimpairmentlosses.Whenanitemofproperty,plantandequipmentisclassifiedasheld for saleorwhen it ispartofadisposalgroupclassifiedasheld for sale, it isnotdepreciatedandis accounted for in accordancewithHKFRS5, as further explained in the accountingpolicy for “Non-currentassetsanddisposalgroupsheldforsale”.Thecostofanitemofproperty,plantandequipmentcomprises its purchase price and any directly attributable costs of bringing the asset to its workingconditionandlocationforitsintendeduse.

Expenditure incurred after items of property, plant and equipment have been put into operation, suchas repairs andmaintenance, is normally charged to the income statement in the period in which it isincurred.Insituationswheretherecognitioncriteriaaresatisfied,theexpenditureforamajorinspectioniscapitalised inthecarryingamountof theassetasareplacement.Wheresignificantpartsofproperty,plant and equipment are required to be replaced at intervals, the Group recognises such parts asindividualassetswithspecificusefullivesanddepreciatesthemaccordingly.

Depreciation iscalculatedon thestraight-linebasis towriteoff thecostofeach itemofproperty,plantandequipmenttoitsresidualvalueoveritsestimatedusefullife.Theestimatedusefullivesusedforthispurposeareasfollows:

Buildings 20to45yearsMachinery 5to20yearsLeaseholdimprovements Theshorteroftheleasetermsand6yearsVessels Theshorteroftheremainingageand30yearsStoragefacilities 20to50yearsFurniture,equipmentandmotorvehicles 5to10years

Wherepartsofanitemofproperty,plantandequipmenthavedifferentusefullives,thecostofthatitemisallocatedonareasonablebasisamongthepartsandeachpartisdepreciatedseparately.

Costs incurred for dry-docking of vessels are included in costs of vessels. They are capitalised anddepreciatedover theperiod to thenextestimateddry-dockingdate.Whensignificantdry-dockingcostsare incurred prior to the expiry of the depreciation period, the remaining costs of the previous dry-dockingarewrittenoffimmediately.

Residualvalues,useful livesand thedepreciationmethodare reviewedandadjusted, ifappropriate,atleastateachfinancialyearend.

An itemofproperty,plantandequipmentandanysignificantpart initially recognisedarederecognisedupondisposal orwhenno futureeconomicbenefits areexpected from itsuseordisposal.Anygainorlossondisposalorretirementrecognisedintheincomestatement intheyeartheasset isderecognisedisthedifferencebetweenthenetsalesproceedsandthecarryingamountoftherelevantasset.

Construction in progress represents shipyard, ship repair, oil berthing and storage facilities underconstruction, is stated at cost less any impairment losses, and is not depreciated. Cost comprises thedirectcostsofconstructionandcapitalisedborrowingcostsonrelatedborrowedfundsduringtheperiodof construction. Construction in progress is reclassified to the appropriate category of property, plantandequipmentwhencompletedandreadyforuse.




Non-current assets and disposal groups held for saleNon-current assets anddisposal groupsareclassifiedasheld for sale if their carryingamountswill berecoveredprincipally throughasales transactionrather than throughcontinuinguse.For this tobe thecase, the assets or a disposal group must be available for immediate sale in their present conditionsubjectonly to terms thatareusualandcustomary for thesaleofsuchassetsoradisposalgroupandits salemustbehighlyprobable.All assetsand liabilitiesof a subsidiaryclassifiedasadisposalgroupare reclassifiedasheld forsale regardlessofwhether theGroupretainsanon-controlling interest in itsformersubsidiaryafterthesale.

Non-current assets and disposal groups (other than financial assets) classified as held for sale aremeasured at the lower of their carrying amounts and fair values less costs to sell. Property, plant andequipmentclassifiedasheldforsalearenotdepreciatedoramortised.

LicencesLicencesrepresent the rightsacquired toundertake floatingstorageoperations.Theyarestatedatcostlessanyimpairment lossesandareamortisedonthestraight-linebasisovertheirestimateduseful livesof 20 years, and assessed for impairment whenever there is an indication that the licences may beimpaired.Theamortisationperiodand theamortisationmethod for the licenceswitha finiteuseful lifearereviewedatleastateachfinancialyearend.

LeasesLeaseswhere substantially all the rewards and risks of ownership of assets remainwith the lessor areaccounted for as operating leases. Where the Group is the lessor, assets leased by the Group underoperating leases are included in non-current assets, and rentals receivable under the operating leasesare credited to the income statement on the straight-linebasis over the lease terms.Where theGroupis the lessee, rentals payable under the operating leases are charged to the income statement on thestraight-linebasisovertheleaseterms.

Prepaid land/seabed leasepaymentsunderoperating leasesare initially statedatcostor valuationandsubsequentlyrecognisedonthestraight-linebasisovertheremainingleaseterms.

Financial assetsInitial recognition and measurement

Financial assets within the scope of HKAS 39 are classified as financial assets at fair value throughprofit or loss and loans and receivables as appropriate. The Group determines the classification of itsfinancialassetsatinitialrecognition.Whenfinancialassetsarerecognisedinitially,theyaremeasuredatfairvalue,plustransactioncosts.

Allregularwaypurchasesandsalesoffinancialassetsarerecognisedonthetradedate,thatis,thedatethat the Group commits to purchase or sell the asset. Regular way purchases or sales are purchasesor sales of financial assets that require delivery of assets within the period generally established byregulationorconventioninthemarketplace.

TheGroup’s financialassets includecashandbankbalances,accountsandother receivables,amountduefromajointly-controlledentity,contractsinprogress,depositsandderivativesfinancialinstruments.




Financial assets (Continued)Subsequent measurement

Thesubsequentmeasurementoffinancialassetsdependsontheirclassificationasfollows:

(a) Financialassetsatfairvaluethroughprofitorloss

Financial assets at fair value through profit or loss include financial assets held for trading.Financial assets are classified as held for trading if they are acquired for the purpose of salein the near term. Derivatives, including separated embedded derivatives, are also classified asheldfortradingunlesstheyaredesignatedaseffectivehedginginstrumentsasdefinedbyHKAS39. Financial assets at fair value through profit or loss are carried in the statement of financialposition at fair valuewith net changes in fair value recognised in the income statement. Thesenet fairvaluechangesdonot includeanydividendsor interestearnedonthese financialassets,whicharerecognisedinaccordancewiththepoliciessetoutfor“Revenuerecognition”below.

The Group evaluates its financial assets at fair value through profit or loss (held for trading)to assess whether the intent to sell them in the near term is still appropriate. When, in rarecircumstances, theGroup is unable to trade these financial assets due to inactivemarkets andmanagement’s intent tosell themin the foreseeable futuresignificantlychanges, theGroupmayelect to reclassify these financial assets. The reclassification from financial assets at fair valuethrough profit or loss to loans and receivables, available-for-sale financial assets or held-to-maturityinvestmentsdependsonthenatureoftheassets.

Derivatives embedded in host contracts are accounted for as separate derivatives and recordedat fair value if their economic characteristics and risks are not closely related to those of thehostcontractsandthehostcontractsarenotheldfor tradingordesignatedat fairvaluethroughprofitor loss.Theseembeddedderivativesaremeasuredat fair valuewithchanges in fair valuerecognisedinthe incomestatement.Reassessmentonlyoccurs if there isachangeinthetermsofthecontractthatsignificantlymodifiesthecashflowsthatwouldotherwiseberequired.

(b) Loansandreceivables

Loans and receivables are non-derivative financial assets with fixed or determinable paymentsthatarenotquotedinanactivemarket.After initialmeasurement,suchassetsaresubsequentlymeasured at amortised cost using the effective interest rate method less any allowances forimpairment. Amortised cost is calculated by taking into account any discount or premium onacquisitionand feesorcosts thatarean integralpartof theeffective interest rate.Theeffectiveinterestrateamortisationisincludedinfinanceincomeintheincomestatement.Thelossarisingfromimpairmentisrecognisedintheincomestatement.




Impairment of financial assetsTheGroupassessesat theendofeach reportingperiodwhether there isanyobjectiveevidence thatafinancialassetoragroupoffinancialassets is impaired.Afinancialassetoragroupoffinancialassetsis deemed to be impaired if, and only if, there is objective evidence of impairment as a result of oneor more events that occurred after the initial recognition of the asset (an incurred “loss event”) andthat losseventhasan impacton theestimated futurecash flowsof the financial asset or thegroupoffinancial assets that can be reliably estimated. Evidence of impairment may include indications thata debtor or a group of debtors is experiencing significant financial difficulty, default or delinquencyin interest or principal payments, the probability that they will enter bankruptcy or other financialreorganisation and observable data indicating that there is a measurable decrease in the estimatedfuturecashflows,suchaschangesinarrearsoreconomicconditionsthatcorrelatewithdefaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses individually whether objectiveevidence of impairment exists for financial assets that are individually significant, or collectively forfinancialassets thatarenot individually significant. If theGroupdetermines thatnoobjectiveevidenceof impairment exists for an individually assessed financial asset,whether significant or not, it includesthe asset in a groupof financial assetswith similar credit risk characteristics andcollectively assessesthemfor impairment.Assetsthatare individuallyassessedfor impairmentandforwhichan impairmentlossis,orcontinuestobe,recognisedarenotincludedinacollectiveassessmentofimpairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss ismeasured as the difference between the asset’s carrying amount and the present value of estimatedfuturecashflows(excludingfuturecredit losses thathavenotbeen incurred).Thepresentvalueof theestimatedfuturecashflows isdiscountedat thefinancialasset’soriginaleffective interestrate(i.e., theeffectiveinterestratecomputedat initialrecognition).Ifa loanhasavariableinterestrate,thediscountrateformeasuringanyimpairmentlossisthecurrenteffectiveinterestrate.

Thecarryingamountof theasset is reducedeitherdirectlyor throughtheuseofanallowanceaccountand the amount of the loss is recognised in the income statement. Interest income continues to beaccruedonthereducedcarryingamountand isaccruedusingtherateof interestusedtodiscount thefuturecashflowsforthepurposeofmeasuringtheimpairmentloss.Loansandreceivablestogetherwithanyassociatedallowancearewrittenoffwhenthereisnorealisticprospectoffuturerecovery.

If,inasubsequentperiod,theamountoftheestimatedimpairmentlossincreasesordecreasesbecauseof an event occurring after the impairmentwas recognised, the previously recognised impairment lossis increasedor reducedbyadjusting theallowanceaccount. If a futurewrite-off is later recovered, therecoveryiscreditedtotheotherrevenue/expensesintheincomestatement.




Derecognition of financial assetsA financialasset (or,whereapplicable,apartofa financialassetorpartofagroupofsimilar financialassets)isderecognisedwhen:

• therightstoreceivecashflowsfromtheassethaveexpired;or

• the Group has transferred its rights to receive cash flows from the asset or has assumed anobligation to pay the received cash flows in full withoutmaterial delay to a third party under a“pass-through” arrangement; and either (a) theGrouphas transferred substantially all the risksand rewards of the asset, or (b) theGrouphas neither transferrednor retained substantially alltherisksandrewardsoftheasset,buthastransferredcontroloftheasset.

WhentheGrouphastransferreditsrightstoreceivecashflowsfromanassetorhasenteredintoapass-througharrangement,itevaluatesifandtowhatextentithasretainedtheriskandrewardsofownershipof theassets.When ithasneither transferrednor retainedsubstantiallyall therisksandrewardsof theassetnortransferredcontroloftheasset,theassetisrecognisedtotheextentoftheGroup’scontinuinginvolvementintheasset.Inthatcase,theGroupalsorecognisesanassociatedliability.ThetransferredassetandtheassociatedliabilityaremeasuredonabasisthatreflectstherightsandobligationsthattheGrouphasretained.

Continuinginvolvementthattakestheformofaguaranteeoverthetransferredassetismeasuredatthelower of the original carrying amount of the asset and themaximum amount of consideration that theGroupcouldberequiredtorepay.

Financial liabilitiesInitial recognition and measurement

FinancialliabilitieswithinthescopeofHKAS39areclassifiedasfinancialliabilitiesatfairvaluethroughprofit or loss or loans and borrowings as appropriate. The Group determines the classification of itsfinancialliabilitiesatinitialrecognition.

All financial liabilities are recognised initially at fair value plus, in the case of loans and borrowings,directlyattributabletransactioncosts.

TheGroup’s financial liabilities includeaccountsandotherpayables,amountduetoa jointly-controlledentity, interest-bearing bank loans, fixed rate guaranteed senior notes, guaranteed senior convertiblenotes (“Convertible Notes Due 2015”), guaranteed senior payment-in-kind notes (“PIK Notes Due2015”), notes payable (“K Line Notes Due 2013”), convertible unsecured notes (“TGIL Notes Due2014”),convertiblepreferredshares,andderivativefinancialinstruments.




Financial liabilities (Continued)Subsequent measurement

Thesubsequentmeasurementoffinancialliabilitiesdependsontheirclassificationasfollows:

(a) Financialliabilitiesatfairvaluethroughprofitorloss

Financialliabilitiesatfairvaluethroughprofitorlossincludesfinancialliabilitiesheldfortrading.

Financial liabilities are classified as held for trading if they are acquired for the purpose ofselling in the near term. This category includes derivative financial instruments entered into bytheGroup that are not designated as hedging instruments in hedge relationships as defined byHKAS39.Separatedembeddedderivativesarealsoclassifiedasheldfortradingunlesstheyaredesignated as effective hedging instruments. Gains or losses on liabilities held for trading arerecognised in the income statement. The net fair value gain or loss recognised in the incomestatementdoesnotincludeanyinterestchargedonthesefinancialliabilities.

(b) Loansandborrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured atamortised cost, using the effective interest rate method unless the effect of discounting wouldbe immaterial, in which case they are stated at cost. Gains and losses are recognised in theincome statementwhen the liabilities are derecognised aswell as through the effective interestrate amortisation process. Amortised cost is calculated by taking into account any discount orpremiumon acquisition and fees or costs that are an integral part of the effective interest rate.Theeffectiveinterestrateamortisationisincludedinfinancecostsintheincomestatement.

(c) Financialguaranteecontracts

FinancialguaranteecontractsissuedbytheCompanyarethosecontractsthatrequireapaymenttobemadetoreimbursetheholderforalossitincursbecausethespecifieddebtorfailstomakea paymentwhen due in accordancewith the terms of a debt instrument. A financial guaranteecontractisrecognisedinitiallyasaliabilityatitsfairvalue,adjustedfortransactioncoststhataredirectlyattributabletotheissuanceoftheguarantee.Subsequenttoinitialrecognition,theGroupmeasuresthefinancialguaranteecontractatthehigherof:(i)theamountofthebestestimateoftheexpenditurerequiredtosettlethepresentobligationattheendofthereportingperiod;and(ii)theamountinitiallyrecognisedless,whenappropriate,cumulativeamortisation.




Derecognition of financial liabilitiesAfinancial liability isderecognisedwhentheobligationunderthe liability isdischargedorcancelled,orexpires.

Whenanexistingfinancialliabilityisreplacedbyanotherfromthesamelenderonsubstantiallydifferentterms,orthetermsofanexistingliabilityaresubstantiallymodified,suchanexchangeormodificationistreatedasaderecognitionof theoriginal liabilityandarecognitionofanew liability,andthedifferencebetweentherespectivecarryingamountsisrecognisedintheincomestatement.

Fair value of financial instrumentsThe fair value of financial instruments that are traded in activemarkets is determined by reference toquoted market prices or dealer price quotations (bid price for long positions and ask price for shortpositions), without any deduction for transactions costs. For financial instrument where there is noactive market, the fair value is determined using appropriate valuation techniques. Such techniquesincludeusingrecentarm’s lengthmarkettransactions,referencetothecurrentmarketvalueofanotherinstrumentwhichissubstantiallythesame,andadiscountedcashflowanalysis.

Offsetting of financial instrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the statement offinancial position if, and only if, there is a currently enforceable legal right to offset the recognisedamountsandthereisanintentiontosettleonanetbasis,ortorealisetheassetsandsettletheliabilitiessimultaneously.

Derivative financial instrumentsInitial recognition and subsequent measurement

Derivative financial instruments are initially recognised at fair value on the date on which a derivativecontract is entered into and are subsequently premeasured at fair value. Derivatives are carried asassetswhenthefairvalueispositiveandasliabilitieswhenthefairvalueisnegative.

Any gains or losses arising from changes in fair value of derivatives are taken directly to theincome statement, except for the effective portion of cashflow hedges, which is recognised in othercomprehensiveincome.

Forthepurposeofhedgeaccounting,hedgesareclassifiedas:

• fair valuehedgeswhenhedging theexposure tochanges in the fair valueof a recognisedassetorliabilityoranunrecognisedfirmcommitment;or

• cashflowhedgeswhenhedgingtheexposuretovariabilityincashflowsthatiseitherattributableto a particular risk associated with a recognised asset or liability or a highly probable forecasttransaction,oraforeigncurrencyriskinanunrecognisedfirmcommitment;or

• Hedgeofanetinvestmentinaforeignoperation.




Derivative financial instruments (Continued)

Initial recognition and subsequent measurement (Continued)

At the inception of a hedge relationship, the Group formally designates and documents the hedgerelationship to which the Group wishes to apply hedge accounting, the risk management objectiveand its strategy for undertaking the hedge. The documentation includes identification of the hedginginstrument, the hedged item or transaction, the nature of the risk being hedged and how the Groupwill assess the hedging instrument’s effectiveness of changes in the hedging instrument’s fair valuein offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to thehedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fairvalues or cash flows and are assessed on an ongoing basis to determine that they actually have beenhighlyeffectivethroughoutthefinancialreportingperiodsforwhichtheyweredesignated.

Current versus non-current classification

Derivativeinstrumentsthatarenotdesignatedaseffectivehedginginstrumentsareclassifiedascurrentornon-currentor separated intoacurrentornon-currentportionbasedonanassessmentof the factsandcircumstances(i.e.,theunderlyingcontractedcashflows).

• Where the Group will hold a derivative as an economic hedge (and does not apply hedgeaccounting) for a periodbeyond12months after the end of the reportingperiod, thederivativeisclassifiedasnon-current(orseparatedintocurrentandnon-currentportions)consistentlywiththeclassificationoftheunderlyingitem.

• Embeddedderivatives thatarenotclosely related to thehostcontractareclassifiedconsistentlywiththecashflowsofthehostcontract.

• Derivative instruments that are designated as, and are effective hedging instruments, areclassified consistently with the classification of the underlying hedged item. The derivativeinstruments are separated into current portions and non-current portions only if a reliableallocationcanbemade.

Convertible preferred shares and TGIL Notes Due 2014The components of convertible preferred shares and TGIL notes Due 2014 that exhibit characteristicsof a liability are recognisedas liabilities in the statement of financial position, net of transaction costs.On issuanceof theconvertiblepreferredsharesandTGILNotesDue2014, thefairvalueof the liabilityportion is determined by using amarket rate for an equivalent non-convertible share/note to discountfuture expected cash flows; and this amount is carried as a non-current financial liability on theamortisedcostbasisuntilextinguishedonconversionorredemption.

The component of TGIL Notes Due 2014 that exhibit characteristics of an embedded derivative isrecognised as part of the TGIL Notes Due 2014. On initial recognition, the derivative component ofthe TGIL Notes Due 2014 is measured at fair value and presented as a part of derivative financialinstruments.




Convertible preferred shares and TGIL Notes Due 2014 (Continued)The remainder of the proceeds is allocated to the equity component of the convertible preferred shares and TGIL Notes Due 2014 is recognised and included in the equity portion of convertible unsecured notes in a jointly-controlled entity. The carrying amount of the conversion option is not remeasured in subsequent years. The transaction costs are apportioned between the liability, derivative and equity components of the convertible preferred shares and TGIL Notes Due 2014 based on the allocation of proceeds to the liability, derivative and equity components when the instruments were first recognised.

Convertible Notes Due 2015 and K Line Notes Due 2013If the conversion option of notes exhibits characteristics of an embedded derivative, it is separated from its liability component. On initial recognition, the derivative component of the notes is measured at fair value and presented as part of the notes. Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the liability component. Transaction costs are apportioned between the liability and derivative components of the notes based on the allocation of proceeds to the liability and derivative components when the instruments are initially recognised. The portion of the transaction costs relating to the liability component is recognised initially as part of the liability and the portion relating to the derivative component is recognised immediately in the income statement.

Bunker oil, ship stores and spare partsBunker oil is stated at cost less any provisions considered necessary by the directors. Cost is determined on the weighted average cost basis.

Ship stores and spare parts are charged as operating expenses when purchased.

InventoriesInventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct materials, direct labor and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Contracts in progress/Excess of progress billings over contract costsVoyage chartering and shipbuilding are accounted for in the statement of financial position as all direct costs incurred plus recognised profits, less recognised losses and progress billings. Voyage chartering revenue and shipbuilding revenue comprise the agreed contract amount while the direct costs incurred comprise the amount of bunker oil consumed and other overheads for voyage chartering, direct material costs and other overheads for shipbuilding.

Revenue from the rendering of services is recognised based on the percentage of completion of the transaction, provided that the revenue, the costs incurred and the estimated costs to completion can be measured reliably. The percentage of completion is established by reference to the costs incurred to date as compared to the total costs to be incurred under the transaction. Where the outcome of a contract cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered.




Contracts in progress/Excess of progress billings over contract costs (Continued)Provisionismadeforforeseeablelossesassoonastheyareanticipatedbymanagement.

Where direct costs incurred to date plus recognised profits less recognised losses exceed progressbillings,thesurplusistreatedascontractsinprogress.

Where progress billings exceed direct costs incurred to date plus recognised profits less recognisedlosses,thesurplusistreatedasexcessofprogressbillingsovercontractcosts.

Cash and cash equivalentsFor thepurposeof theconsolidatedstatementofcashflows,cashandcashequivalentscomprisecashon hand and demand deposits, and short term highly liquid investments that are readily convertibleintoknownamountsof cash,are subject toan insignificant riskof changes in value,andhavea shortmaturity of generallywithin threemonthswhen acquired, less bank overdraftswhich are repayable ondemandandformanintegralpartoftheGroup’scashmanagement.

For the purpose of the statements of financial position, cash and cash equivalents comprise cash onhandandatbanks,includingtermdeposits,whicharenotrestrictedastouse.

ProvisionsA provision is recognised when a present obligation (legal or constructive) has arisen as a result of apasteventand it isprobable thata futureoutflowof resourceswillbe required tosettle theobligation,providedthatareliableestimatecanbemadeoftheamountoftheobligation.

When the effect of discounting ismaterial, the amount recognised for a provision is the present valueat the end of the reporting period of the future expenditures expected to be required to settle theobligation. The increase in the discounted present value amount arising from the passage of time isincludedinfinancecostsintheincomestatement.

Provisions for productwarranties grantedby theGroup on shipbuilding are recognisedbased on salesvolumeandpastexperienceofthelevelofrepairsdiscountedtotheirpresentvaluesasappropriate.

A contingent liability recognised in a business combination is initially measured at its fair value.Subsequently, it ismeasured at the higher of (i) the amount that would be recognised in accordancewith the general guidance for provisions above; and (ii) the amount initially recognised less, whenappropriate, cumulative amortisation recognised in accordance with the guidance for revenuerecognition.




Income taxIncometaxcomprisescurrentanddeferredtax.Incometaxrelatingtoitemsrecognisedoutsideprofitorlossisrecognised,eitherinothercomprehensiveincomeordirectlyinequity.

Current tax assets and liabilities for the current and prior periods are measured at the amountsexpected to be recovered from or paid to taxation authorities, based on tax rates (and tax laws) thathavebeenenactedorsubstantivelyenactedbytheendofthereportingperiod,takingintoconsiderationinterpretationsandpracticesprevailinginthecountriesinwhichtheGroupoperates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of thereportingperiodbetween the taxbasesofassetsand liabilitiesand theircarryingamounts for financialreportingpurposes.

Deferredtaxliabilitiesarerecognisedforalltaxabletemporarydifferences,except:

• whenthedeferredtax liabilityarisesfromtheinitialrecognitionofgoodwilloranassetor liabilityin a transaction that is not a business combination and, at the time of the transaction, affectsneithertheaccountingprofitnortaxableprofitorloss;and

• inrespectoftaxabletemporarydifferencesassociatedwithinvestmentsinsubsidiaries,associatesandjointventures,whenthetimingofthereversalofthetemporarydifferencescanbecontrolledanditisprobablethatthetemporarydifferenceswillnotreverseintheforeseeablefuture.

Deferred taxassetsare recognised foralldeductible temporarydifferences, thecarryforwardofunusedtaxcreditsandanyunusedtaxlosses.Deferredtaxassetsarerecognisedtotheextentthatitisprobablethat taxableprofitswillbeavailableagainstwhichthedeductibletemporarydifferences,carryforwardofunusedtaxcreditsandunusedtaxlossescanbeutilised,except:

• whenthedeferredtaxassetrelatingtothedeductibletemporarydifferencesarisesfromtheinitialrecognitionofanassetor liability ina transactionthat isnotabusinesscombinationand,at thetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss;and

• in respect of deductible temporary differences associated with investments in subsidiaries,associates and joint ventures, deferred tax assets are only recognised to the extent that it isprobable that the temporarydifferenceswill reverse in the foreseeable futureand taxableprofitswillbeavailableagainstwhichthetemporarydifferencescanbeutilised.

Thecarryingamountofdeferredtaxassetsisreviewedattheendofeachreportingperiodandreducedto the extent that it is no longer probable that sufficient taxable profits will be available to allow all orpartofthedeferredtaxassettobeutilised.Unrecogniseddeferredtaxassetsarereassessedattheendofeachreportingperiodandarerecognisedtotheextentithasbecomeprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartofthedeferredtaxassetstoberecovered.




Income tax (Continued)Deferredtaxassetsandliabilitiesaremeasuredatthetaxratesthatareexpectedtoapplytotheperiodswhen the asset is realised or the liability is settled, based on tax rates (and tax laws) that have beenenactedorsubstantivelyenactedbytheendofthereportingperiod.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set offcurrent taxassetsagainstcurrent tax liabilitiesand thedeferred taxes relate to thesame taxableentityandthesametaxationauthority.

Revenue recognitionRevenue is recognisedwhen it isprobable that theeconomicbenefitswill flow to theGroupandwhentherevenuecanbemeasuredreliably,onthefollowingbases:

(a) from the sale of goods, when the significant risks and rewards of ownership have beentransferredtothebuyer,providedthattheGroupmaintainsneithermanagerialinvolvementtothedegreeusuallyassociatedwithownership,noreffectivecontroloverthegoodssold;

(b) revenuefromtheprovisionoflogisticservices:

(i) from voyage chartering, on the percentage of completion basis, which is determined onthe time proportionmethod of each individual vessel voyage, as further explained in theaccounting policy for “Contracts in progress/Excess of progress billings over contractcosts”above;

(ii) from time chartering, in the period in which the vessels are let and on the straight-linebasisovertheleaseterms;and

(iii) fromtheleaseofstoragefacilities,onthestraight-linebasisovertheleaseterms;

(c) fromshipbuilding,onthepercentageofcompletionbasis,whichisdeterminedonthecompletionproportionmethodofeachindividualshipbuildingcontract,asfurtherexplainedintheaccountingpolicyfor“Contractsinprogress/excessofprogressbillingsovercontractcosts”above;

(d) interestincome,onanaccrualbasisusingtheeffectiveinterestmethodbyapplyingtheratethatdiscountstheestimatedfuturecashreceiptsthroughtheexpectedlifeofthefinancialinstrumentorashorterperiod,whenappropriate,tothenetcarryingamountofthefinancialasset;and

(e) dividendincome,whentheshareholders’righttoreceivepaymenthasbeenestablished.




Share-based payment transactionsThe Company operates a share option scheme for the purpose of providing incentives and rewards toeligible participants who contribute to the success of the Group’s operations. Employees (includingdirectors)oftheGroupreceiveremunerationintheformofshare-basedpaymenttransactions,wherebyemployeesrenderservicesasconsiderationforequityinstruments(“equity-settledtransactions”).

The cost of equity-settled transactions ismeasured by reference to the fair value at the date atwhichtheyaregranted.Thefairvalueisdeterminedbyanexternalvaluerusingabinomialmodel.

The cost of equity-settled transactions is recognised, togetherwith a corresponding increase in equity,overtheperiodinwhichtheperformanceand/orserviceconditionsarefulfilled.Thecumulativeexpenserecognised for equity-settled transactions at the end of each reporting period until the vesting datereflectstheextenttowhichthevestingperiodhasexpiredandtheGroup’sbestestimateofthenumberofequityinstrumentsthatwillultimatelyvest.Thechargeorcredittotheincomestatementforaperiodrepresentsthemovementincumulativeexpenserecognisedasatthebeginningandendofthatperiod.

No expense is recognised for awards that do not ultimately vest, except for equity-settled transactionswhere vesting is conditional upon a market or non-vesting condition, which are treated as vestingirrespective of whether or not the market or non-vesting condition is satisfied, provided that all otherperformanceand/orservicesconditionsaresatisfied.

Where the terms of an equity-settled award aremodified, as aminimum, an expense is recognised asif the termshadnotbeenmodified, if theoriginal termsof theawardaremet. Inaddition,anexpenseis recognised for any modification that increases the total fair value of the share-based paymenttransactionsorisotherwisebeneficialtotheemployeeasmeasuredatthedateofmodification.

Whereanequity-settledaward iscancelled, it is treatedas if ithadvestedon thedateofcancellation,andanyexpensenot yet recognised for theaward is recognised immediately.This includesanyawardwhere non-vesting conditions within the control of either the Group or the employee are not met.However, if a new award is substituted for the cancelled award, and is designated as a replacementaward on the date that it is granted, the cancelled and new awards are treated as if they were amodificationoftheoriginalaward,asdescribedinthepreviousparagraph.

Other employee benefits

Paid leave carried forward

TheGroupprovidespaidannualleavetoitsemployeesundertheiremploymentcontractsonacalendaryearbasis.Undercertaincircumstances,suchleavewhichremainsuntakenasattheendofareportingperiodispermittedtobecarriedforwardandutilisedbytherespectiveemployeesinthefollowingyear.An accrual is made at the end of a reporting period for the expected future cost of such paid leaveearnedduringtheyearbytheemployeesandiscarriedforward.




Other employee benefits (Continued)Pension schemes

The Group operates a defined contributionMandatory Provident Fund retirement benefit scheme (the“MPFScheme”)undertheMandatoryProvidentFundSchemesOrdinance,forthoseemployeesinHongKongwhoareeligibletoparticipateintheMPFScheme.Contributionsaremadebasedonapercentageof the employees’ basic salaries and are charged to the income statement as they becomepayable inaccordancewiththerulesoftheMPFScheme.TheassetsoftheMPFSchemeareheldseparatelyfromthose of the Group in an independently administered fund. The Group’s employer contributions vestfullywiththeemployeeswhencontributedintotheMPFScheme.

Theemployeesof theGroup’ssubsidiarieswhichoperate inMainlandChinaare required toparticipatein a central pension scheme (the “CP Scheme”) operated by the local municipal government. Thesesubsidiaries are required to contribute a certain percentage of their payroll to the CP Scheme. ThecontributionsarechargedtotheincomestatementastheybecomepayableinaccordancewiththerulesoftheCPScheme.

The employees of subsidiaries in Singapore are members of the Central Provident Fund (the “CPF”)operated by the government of Singapore. These subsidiaries and the employees are required tocontribute a certain percentage of their payroll to the CPF. The contributions are charged to theincome statement as they become payable in accordance with the rules of the CPF. The subsidiarieshave no further obligations for the actual pension payments or post-retirement benefits beyond theircontributions.

Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of qualifying assetsthat necessarily take a substantial period of time to get ready for their intended use or sale, arecapitalisedaspart of thecost of thoseassets.Thecapitalisationof suchborrowingcosts ceaseswhenthe assets are substantially ready for their intended use or sale. Investment income earned on thetemporary investmentofspecificborrowingspending theirexpenditureonqualifyingassets isdeductedfromtheborrowingcostscapitalised.Allotherborrowingcostsareexpensedintheperiodinwhichtheyareincurred.Borrowingcostsconsistofinterestandothercoststhatanentityincursinconnectionwiththeborrowingoffunds.




Foreign currenciesThese financial statements are presented in Hong Kong dollars, which is the Company’s functionalandpresentationcurrency.Eachentity in theGroupdetermines its own functional currency and itemsincludedinthefinancialstatementsofeachentityaremeasuredusingthatfunctionalcurrency.Foreigncurrency transactions recordedby theentities in theGroupare initially recordedusing their respectivefunctional currency rates ruling at the dates of the transactions. Monetary assets and liabilitiesdenominated in foreign currencies are retranslated at the functional currency rates of exchange rulingat theendof thereportingperiod.Alldifferencesarisingonsettlementor translationofmonetary itemsaretakentotheincomestatement.Non-monetaryitemsthataremeasuredintermsofhistoricalcost ina foreigncurrencyare translatedusing theexchange ratesat thedatesof the initial transactions.Non-monetary itemsmeasuredat fairvalue ina foreigncurrencyare translatedusing theexchange ratesatthedatewhenthefairvaluewasdetermined.Thegainorlossarisingonretranslationofanon-monetaryitemistreatedinlinewiththerecognitionofthegainorlossonchangeinfairvalueoftheitem.

Thefunctionalcurrenciesofcertainsubsidiaries,jointly-controlledentitiesandassociatesarecurrenciesotherthantheHongKongdollar.Asattheendofthereportingperiod,theassetsandliabilitiesoftheseentities are translated into the presentation currency of the Company at the exchange rates ruling atthe end of the reporting period and their income statements are translated into Hong Kong dollars atthe weighted average exchange rates for the year. The resulting exchange differences are recognisedin other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal ofa foreign operation, the component of other comprehensive income relating to that particular foreignoperationisrecognisedintheincomestatement.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to thecarryingamountsofassetsandliabilitiesarisingonacquisitionaretreatedasassetsandliabilitiesoftheforeignoperationandtranslatedattheclosingrate.

For thepurposeof theconsolidatedstatementofcash flows, thecash flowsofsubsidiariesand jointly-controlledentitieswithfunctionalcurrenciesotherthanHongKongdollararetranslatedintoHongKongdollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows ofthesesubsidiariesandjointly-controlledentitieswhicharisethroughouttheyeararetranslatedintoHongKongdollarsattheweightedaverageexchangeratesfortheyear.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

ThepreparationoftheGroup’sfinancialstatementsrequiresmanagementtomakejudgments,estimatesandassumptionsthataffect thereportedamountsofrevenues,expenses,assetsandliabilities,andthedisclosureofcontingent liabilities,at theendof the reportingperiod.However,uncertaintyabout theseassumptionsandestimatescould result inoutcomes that requireamaterial adjustment to thecarryingamountsoftheassetsorliabilitiesaffectedinthefuture.



3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)

JudgementsIn the process of applying the Group’s accounting policies, management has made the followingjudgements, apart from those involving estimations, which have the most significant effect on theamountsrecognisedinthefinancialstatements:

Depreciation of vessels

Depreciation of vessels constitutes a portion of the Group’s operating costs. The cost of vessels ischarged as depreciation expense over the estimated useful lives of the respective assets using thestraight-line method. The Group periodically reviews changes in market conditions, asset retirementactivities and salvage values to determine adjustments to the estimated remaining useful lives andresidualvaluesofthevessels.

Actual economic lives may differ from the estimated useful lives. Periodic reviews could result inchangesinresidualvaluesand,therefore,depreciationchargesinfutureperiods.

Impairment of assets

In determiningwhether an asset is impaired or the event previously causing the impairment no longerexists, theGrouphas to exercise judgements in theareaof asset impairment,particularly in assessing(1) whether an event has occurred that may affect the asset value or such event affecting the assetvaluehasnotbeeninexistence;(2)whetherthecarryingvalueofanassetcanbesupportedbythenetpresent value of future cash flowswhich are estimated based upon the continued use of the asset orderecognition;and(3)theappropriatekeyassumptionstobeappliedinpreparingcashflowprojections,includingwhether these cash flow projections are discounted using an appropriate rate. Changing theassumptions selected by management to determine the level of impairment, including the discountratesorthegrowthrateassumptionsinthecashflowprojections,couldmateriallyaffectthenetpresentvaluesusedinimpairmenttests.

Income tax

Deferred tax is provided, using the liability method, on all temporary differences at the end of thereportingperiodbetween the taxbasesofassetsand liabilitiesand theircarryingamounts for financialreportingpurposes.

Deferredtaxassetsarerecognisedforunusedtaxlossescarriedforwardtotheextentthatit isprobable(that is, more likely than not) that future taxable profits will be available against which the unusedtax losses can be utilised, based on all available evidence. Recognition primarily involves judgementsregarding the future performance of the particular legal entity or tax group in which the deferred taxassethasbeenrecognised.Avarietyofother factorsarealsoevaluated inconsideringwhether there isconvincingevidencethat it isprobable thatsomeportionorallof thedeferredtaxassetswillultimatelybe realised, such as the existence of taxable temporary differences, tax planning strategies and theperiods inwhich estimated tax losses can be utilised. The carrying amount of deferred tax assets andrelatedfinancialmodelsandbudgetsarereviewedattheendofeachreportingperiodandtotheextentthat there is insufficient convincing evidence that sufficient taxable profits will be available within theutilisationperiodstoallowutilisationofthetaxlossescarriedforward,theassetbalancewillbereducedandchargedtotheincomestatement.




Estimation uncertaintyThekeyassumptionsconcerning the futureandotherkeysourcesofestimationuncertaintyat theendof thereportingperiod, thatcouldhavesignificantrisksofcausingmaterialadjustments to thecarryingamountsofassetsandliabilitieswithinthenextfinancialyear,aredescribedbelow.

Impairment of goodwill

The Group determines whether goodwill is impaired, at least, on an annual basis. This requires anestimationof thevalue inuseof thecash-generatingunit towhich thegoodwill isallocated.EstimatingthevalueinuserequirestheGrouptomakeestimatesoftheexpectedfuturecashflowsfromthecash-generating unit and also to choose a suitable discount rate in order to calculate the present values ofthosecashflows.

Impairment of non-financial assets (other than goodwill)

TheGroup assesses whether there are any indicators of impairment for all non-financial assets at theendofeach reportingperiod. Indefinite life intangibleassetsare tested for impairmentannuallyandatother times when such an indicator exists. Other non-financial assets are tested for impairment whenthereare indicationsthat thecarryingamountsmaynotberecoverable.Animpairmentexistswhenthecarryingvalueofanassetoracash-generatingunitexceedsitsrecoverableamount,whichisthehigherof its fairvalue lesscosts toselland itsvalue inuse.Thecalculationof the fairvalue lesscosts tosellis based on available data from binding sales transactions in an arm’s length transaction of similarassetsorobservablemarketprices less incrementalcosts fordisposingof theasset.Whenvalue inusecalculationsareundertaken,managementmustestimate theexpected futurecash flows fromtheassetor cash-generatingunit and choose a suitable discount rate in order to calculate thepresent value, ofthosecashflows.

Impairment of loans and receivables

TheGroupassessesat theendofeach reportingperiodwhether there isanyobjectiveevidence thataloan/receivable is impaired.Todeterminewhether there isobjectiveevidenceof impairment, theGroupconsiders factors including, inter alia, theprobability of insolvencyor significant financialdifficultiesofthedebtorsanddefaultorsignificantdelaysinpayments.

TheGroupmaintains an allowance for the estimated loss arising from the inability of its customers tomake the required payments. The Group makes its estimates based on the ageing of its receivablebalances, customers’ creditworthiness, andhistoricalwrite-off experience. If the financial conditions ofits customerswere to deteriorate so that the actual impairment lossesmight be higher than expected,theGroupwouldberequiredtorevisethebasisofmakingtheallowance.




Estimation uncertainty (Continued)Contract for services

TheGroup recognisescontract revenueby reference to the stageof completionof thecontract activityat the financial yearenddate,when theoutcomeofacontractcanbeestimated reliably.Thestageofcompletion ismeasuredby reference to theproportion thatcontractcosts incurred forworkperformedtodatebeartotheestimatedtotalcontractcosts,orservicesperformedtodateasapercentageoftotalservices tobeperformed.Significantassumptionsarerequired toestimate the totalcontractcostsand/or thestageofcompletion,and the recoverablevariationworks thatwillaffect thestageofcompletion.Theestimatesaremadebasedonpastexperienceandknowledgeofmanagement.

Useful lives and residual values of property, plant and equipment

TheGroup determines the estimated useful lives, residual values and related depreciation charges foritsproperty,plant andequipment.TheGrouphas toconsider various factors, suchasexpectedusageof the asset, expected physical wear and tear, the care and maintenance of the asset, and legal orsimilar limits on the use of the asset. These estimates are based on the historical experience of theactualuseful livesofassetsofsimilarnatureand functions.Theycouldchangesignificantlyasa resultof technical innovationsandcompetitor actions in response to severe industry cycles.Useful lives andresidualvaluesarereviewed,andadjusted ifappropriate,at theendofeachreportingperiodbasedonchanges incircumstances.TheGroupwill increase thedepreciationchargewhereuseful livesare lessthan previously estimated lives, or it will write-off or write-down technically obsolete or non-strategicassets that have been abandoned. Additional or reduction to depreciation is made if the estimatedresidualvaluesofitemsofproperty,plantandequipmentaredifferentfromthepreviousestimations.

Net realisable value of inventories

Net realisable value of inventories is based on estimated selling prices less any estimated costs to beincurred to completion anddisposal. These estimates arebased on the currentmarket conditions andthe historical experience in selling goods of a similar nature. It could change significantly as a resultof changes in market conditions. The Group reassesses the estimations at the end of each reportingperiod.

Fair value of financial instruments

Theunlisted financial instrumentshavebeenvaluedbyusingvaluation techniques includingestimateddiscountedcash flows andbasedon information froma variety of sources, including the fair values oftheunderlyingassetsoftheinvestments.



4. OPERATING SEGMENT INFORMATION

For management purposes, the Group is organised into business units based on their products andservices andareprincipally engaged in (a)provisionof logistic services (includingoffshore oil storage,onshorestorageandoil transportation);and(b)supplyofoilproductsandprovisionofbunkerrefuelingservices.In2010,theGroupdiscontinueditsshipbuildingoperationasdetailedinnote5.

Management monitors the results of its operating segments separately for the purposes of makingdecisionsabout resourceallocationsandperformanceassessments.Segmentperformance isevaluatedbased on reportable segment profit/(loss), which is ameasure of adjusted profit/(loss) before tax fromcontinuing operations. The adjusted profit/(loss) before tax from continuing operations is measuredconsistently with the Group’s profit/(loss) before tax from continuing operations except that interestincome, other gains, finance costs, as well as head office and corporate expenses are excluded fromsuchmeasurement.

Intersegmentsalesandtransfersaretransactedwithreferencetothesellingpricesusedforsalesmadetothirdpartiesatthethenprevailingmarketprices.

Provision of logistic services Supply of oil products

and provision of Total continuing Discontinued operation, Adjustments Offshore oil storage Onshore storage Oil transportation bunker refueling services operations shipbuilding and eliminations Consolidated 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Segment revenue–Revenuefromexternal

customers 497,450 514,388 192,126 199,610 351,460 178,514 1,066,976 1,031,657 2,108,012 1,924,169 89,021 187,330 – – 2,197,033 2,111,499

–Intersegmentrevenue – – – – – – 224,117 129,025 224,117 129,025 – – (224,117)* (129,025)* – –

Total 497,450 514,388 192,126 199,610 351,460 178,514 1,291,093 1,160,682 2,332,129 2,053,194 89,021 187,330 (224,117) (129,025) 2,197,033 2,111,499

Segment results (133,791) (89,093) 27,750 83,569 (191,779) (146,187) 3,237 26,106 (294,583) (125,605) (207,899) (68,138) – – (502,482) (193,743)

Adjustedfor:

–Interestincomeand

otherrevenue – – – – – – – – – – 137 617 35,486 482,779 35,623 483,396

–Otherexpenses – – – – – – – – – – – – (88,694) (154,034) (88,694) (154,034)

Shareofprofits/(losses)

of associates, net – – 22,877 9,160 – – (99) 176 22,778 9,336 – – – – 22,778 9,336

(133,791) (89,093) 50,627 92,729 (191,779) (146,187) 3,138 26,282 (271,805) (116,269) (207,762) (67,521) (53,208) 328,745 (532,775) 144,955

Add:Depreciationand

amortisation 83,509 36,325 71,489 63,268 14,869 31,867 379 165 170,246 131,625 37,505 36,784 12,336 12,818 220,087 181,227

OperatingEBITDA/

(LBITDA) (50,282) (52,768) 122,116 155,997 (176,910) (114,320) 3,517 26,447 (101,559) 15,356 (170,257) (30,737) (40,872) 341,563 (312,688) 326,182

Lossesondisposalsof

vessels,net – – – – – – – – – – – – – (446,649) – (446,649)

Changeinfairvalueof

derivativefinancial

instrumentnotqualifying

ashedges – – – – – – – – – – – – 103,682 – 103,682 –

EBITDA/(LBITDA) (50,282) (52,768) 122,116 155,997 (176,910) (114,320) 3,517 26,447 (101,559) 15,356 (170,257) (30,737) 62,810 (105,086) (209,006) (120,467)

Depreciation and

amortisation (83,509) (36,325) (71,489) (63,268) (14,869) (31,867) (379) (165) (170,246) (131,625) (37,505) (36,784) (12,336) (12,818) (220,087) (181,227)

Financecosts – – – – – – – – – – (5,809) (10,827) (342,138) (273,943) (347,947) (284,770)

Profit/(loss) before tax (133,791) (89,093) 50,627 92,729 (191,779) (146,187) 3,138 26,282 (271,805) (116,269) (213,571) (78,348) (291,664) (391,847) (777,040) (586,464)

* Intersegmentrevenuesareeliminatedonconsolidation.



4. OPERATING SEGMENT INFORMATION (Continued)

Provision of logistic services Supply of

oil products and Discontinued

provision of bunker Total continuing operation,

Offshore oil storage Onshore storage Oil transportation refueling services operations shipbuilding Consolidated

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Other segment information

Depreciationandamortisation 83,509 36,325 71,489 63,268 14,869 31,867 379 165 170,246 131,625 37,505 36,784 207,751 168,409

Unallocateddepreciation

andamortisation 12,336 12,818 – – 12,336 12,818

182,582 144,443 37,505 36,784 220,087 181,227

Capitalexpenditures 109,784 101,736 392,584 480,582 9,770 133,948 2,023 15 514,161 716,281 498,887 815,678 1,013,048 1,531,959

Unallocatedcapitalexpenditures 2,299 339 – – 2,299 339

516,460 716,620 498,887 815,678 1,015,347 1,532,298

Impairment/(reversalofimpairment)

ofaccountsreceivable – 1,451 – – (412) 1,933 (33) – (445) 3,384 – – (445) 3,384

Unallocatedimpairment/(reversalof

impairment)ofaccountsreceivable (223) 157 – – (223) 157

(668) 3,541 – – (668) 3,541

Unallocatedimpairmentofproperty,

plantandequipment – 3,822 – – – 3,822



4. OPERATING SEGMENT INFORMATION (Continued)

Geographical information Mainland China Other Asia Pacific countries Consolidated 2011 2010 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(a) Revenue Revenuefromexternalcustomers 1,317,161 1,397,985 879,872 713,514 2,197,033 2,111,499 Attributabletodiscontinued operation,shipbuilding (89,021) (187,330) – – (89,021) (187,330)

Revenuefromcontinuingoperations 1,228,140 1,210,655 879,872 713,514 2,108,012 1,924,169

(b) Other information Segmentnon-currentassets 4,015,116 4,008,935 31,441 51,627 4,046,557 4,060,562 Unallocatednon-currentassets 137,945 139,113

4,184,502 4,199,675

Capitalexpenditures 893,665 1,296,275 2,128 375 895,793 1,296,650 Unallocatedcapitalexpenditures 119,554 235,648

1,015,347 1,532,298

Impairment/(reversalof impairment)of accountsreceivable – – (668) 3,541 (668) 3,541

Impairmentofproperty, plantandequipment – – – 3,822 – 3,822

The revenue information above is based on the location of the customers. The other information isbasedonthelocationoftheassetsandimpairmentofaccountsreceivablerecorded/reversed.

Information about major customersRevenues of approximately HK$463,612,000 from a single customer reported under the supply ofoil products and provision of bunker refueling services segment exceeded 10% of the Group’s totalrevenue.



5. DISCONTINUED OPERATION, SHIPBUILDING

On11December2010, theCompanyentered into (i)asaleandpurchaseagreement in relation to thedisposalof its95%equity interest inQZShipyard; (ii)asubscriptionagreement in relation to the issueofsubscriptionsharestoGrandChina;and(iii)amanagementagreementinrelationtotheengagementof theCompany tomanage thebusinessoperationsofQZShipyard for the termcommencing from thecompletion of the sale and purchase agreement until 31 December 2012. The consideration for theproposed disposal is RMB1,865,670,000 (approximately HK$2,309,513,000) or a maximum reducedconsideration of RMB1,465,670,000 (approximatelyHK$1,814,353,000) if QZ Shipyard’s profit targetsforthetwoyearsending31December2012arenotmet.

While the requisite regulatory and shareholder approvals for the first two stage payments totalingRMB800,000,000 (approximatelyHK$990,320,000) have been obtained, as at the date of this report,onlyRMB740,000,000 (approximatelyHK$916,050,000)hasbeen receivedand theequity interestsofQZShipyardhavenotbeentransferredtoGrandChina.

As at 31 December 2011 and 2010, the assets and liabilities related to the discontinued operation,shipbuilding, arepresented in theconsolidated statement of financialpositionas “Assets of adisposalgroupclassifiedasheldforsale”and“Liabilitiesdirectlyassociatedwiththeassetsclassifiedasheldforsale”andtheresults for theyearsended31December2011and2010arepresentedseparately intheconsolidatedincomestatementas“Lossfortheyearfromdiscontinuedoperation,shipbuilding”.CapitalcommitmentsinrespectofQZShipyardaresetoutinnote39.

TheresultsofQZShipyardfortheyeararepresentedbelow.

2011 2010 Notes HK$’000 HK$’000

Revenue 6 89,021 187,330Costofsales (196,657) (222,690)

Gross loss (107,636) (35,360)

Otherrevenue 638 1,128Generalandadministrativeexpenses (100,764) (33,289)Financecosts 8 (5,809) (10,827)

Loss before tax (213,571) (78,348)Tax 11 – –

Loss for the year from discontinued operation, shipbuilding (213,571) (78,348)



5. DISCONTINUED OPERATION, SHIPBUILDING (Continued)

Themajorclassesofassetsand liabilitiesofQZShipyardclassifiedasheld forsaleasat31December2011and2010areasfollows:

2011 2010 Notes HK$’000 HK$’000

Assets:Property,plantandequipment 14 3,099,607 2,515,315Prepaidland/seabedleasepayments 15 516,477 513,827Goodwill 17 570,618 570,618Inventories 21 133,671 136,742Accountsreceivable 22 98,540 285,719Prepayments,depositsandotherreceivables 142,362 136,165Contracts in progress 23 203,876 37,364Pledgeddepositsandrestrictedcash 7,466 8,302Cashandcashequivalents 61,626 71,443

Assetsofadisposalgroupclassifiedasheldforsale 4,834,243 4,275,495

Liabilities:Interest-bearingbankloans 2,338,177 1,482,125Accountsandbillspayable 92,701 55,846Otherpayablesandaccruals 300,519 574,863Deferredtaxliabilities 34 112,180 112,180

Liabilitiesdirectlyassociatedwiththeassetsclassified asheldforsale 2,843,577 2,225,014

Net assets directly associated with the disposal group 1,990,666 2,050,481



5. DISCONTINUED OPERATION, SHIPBUILDING (Continued)

ThenetcashflowsincurredbyQZShipyardareasfollows:

2011 2010 HK$’000 HK$’000

Operating activities (296,703) 346,647Investingactivities (492,091) (785,629)Financingactivities 781,397 294,123

Net cash outflow (7,397) (144,859)

6. REVENUE

Revenue, under continuing operations, represents the gross income from offshore oil storage andonshore storage services, gross freight income from the provision of oil transportation services, netinvoiced value of oil products sold (after allowances for returns and tradediscounts) and income fromtheprovision of bunker refueling services,while gross income from shipbuilding is includedunder therevenueofdiscontinuedoperation,shipbuildingassetout innote5.All significant transactionsamongthecompaniescomprisingtheGrouphavebeeneliminatedonconsolidation.

2011 2010 HK$’000 HK$’000

Provisionofoffshoreoilstorageandonshorestorageservices 689,576 713,998Provisionofoiltransportationservices 351,460 178,514Supplyofoilproductsandprovisionofbunkerrefuelingservices 1,066,976 1,031,657

Attributabletocontinuingoperations 2,108,012 1,924,169Attributabletodiscontinuedoperation,shipbuilding(note5) 89,021 187,330

2,197,033 2,111,499



7. LOSS BEFORE TAX

The Group’s loss before tax is arrived at after charging/(crediting) the amounts as set out below.The disclosures presented in this note include those amounts charged/(credited) in respect of thediscontinuedoperation,shipbuilding.

Group 2011 2010 Notes HK$’000 HK$’000

Costofinventoriessold 1,258,989 1,102,904Cost of services rendered 1,250,050 1,106,818Depreciation* 205,266 174,226Amortisationofprepaidland/seabedleasepayments 3,571 4,485Amortisationoflicences* 16 11,250 2,516Minimumleasepaymentsunderoperatingleases: Vessels 487,159 387,263 Leaseholdbuildings 12,902 13,631Employeebenefitexpenses(excludingdirectors’ remuneration–note9): Wagesandsalaries 230,635 210,894 Equity-settledshareoptionexpenses 2,440 8,781 Pensionschemecontributions 6,690 4,912

239,765 224,587

Auditors’remuneration 4,029 4,359Lossondisposalofitemsofproperty,plantandequipment 104 217Gainondeemeddisposalsofpartialinterestin ajointly-controlledentity (7,559) –Writedownofinventoriestonetrealisablevalue 71,797 –Impairmentofitemsofproperty,plantandequipment** 14 – 3,822Lossondisposalofanassociate 19 – 16,312Foreignexchangedifferences,net** (3,767) 4,692Impairment/(reversalofimpairment)ofaccountsreceivable 22 (668) 3,541Bankinterestincome (27,885) (4,750)

* These items are included in “Cost of sales” in the consolidated income statement. Depreciation of vessels

andvesselequipmentofHK$87,127,000(2010:HK$65,663,000)areincludedin“Costofsales”.

** Theseitemsareincludedin“Generalandadministrativeexpenses”intheconsolidatedincomestatement.



8. FINANCE COSTS

Group 2011 2010 HK$’000 HK$’000

Intereston: Bankloanswhollyrepayablewithinfiveyears 99,077 69,012 Bankloansnotwhollyrepayablewithinfiveyears 175,001 128,923 SeniorNotesDue2012 74,549 75,249 ConvertibleNotesDue2015 52,754 16,472 PIKNotesDue2015 7,842 4,288 KLineNotesDue2013 6,124 6,003 TGILNotesDue2014 17,149 14,817Dividendsonconvertiblepreferredshares: Titanpreferredshares(note31) 37,855 35,225 TGILpreferredshares(note31) 37,721 39,000Otherfinancecosts 5,841 10,818

Totalinterestexpenses 513,913 399,807Less:Interestcapitalised (165,966) (115,037)

347,947 284,770

Attributabletocontinuingoperations 342,138 273,943Attributabletodiscontinuedoperation,shipbuilding(note5) 5,809 10,827

347,947 284,770



9. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year, disclosed pursuant to the Listing Rules and Section 161 of theHongKongCompaniesOrdinance,isdetailedasfollows:

Group 2011 2010 HK$’000 HK$’000

Fees 880 810

Otheremoluments: Salaries,allowancesandbenefits-in-kind 3,711 3,557 Equity-settledshareoptionexpenses 31 412 Pensionschemecontributions 34 56

3,776 4,025

4,656 4,835

(a) Independent non-executive directorsThefeespaidtoindependentnon-executivedirectorsduringtheyearwereasfollows:

2011 2010 HK$’000 HK$’000

Mr.AbrahamShekLaiHim 250 230Mr.JohnWilliamCrawford 370 340Ms.MariaTamWaiChu 260 240

880 810

Therewerenootheremolumentspaidorpayabletotheindependentnon-executivedirectorsduringtheyear(2010:Nil).



9. DIRECTORS’ REMUNERATION (Continued)

(b) Executive directors Salaries, allowances Equity-settled Pension and benefits- share option scheme Total in-kind expenses contributions emoluments HK$’000 HK$’000 HK$’000 HK$’000

2011Executive directorsMr.PatrickWongSiuHung 3,711 31 34 3,776Mr.TsoiTinChun – – – –

3,711 31 34 3,776

2010Executive directorsMr.PatrickWongSiuHung 3,557 412 56 4,025Mr.TsoiTinChun – – – –

3,557 412 56 4,025

Therewerenoarrangementsunderwhichadirectorwaivedoragreedtowaiveanyremunerationduringtheyear.

Theaboveexecutivedirectors’remunerationisinlinewiththecompensationofkeymanagementpersonneloftheGroup.



10. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included one (2010: one) director, details of whoseremuneration is disclosed in note 9 above. Details of the remuneration of the remaining four (2010:four)non-director,highestpaidemployeesfortheyearareasfollows:

Group 2011 2010 HK$’000 HK$’000

Salaries,allowancesandbenefits-in-kind 10,890 8,797Equity-settledshareoptionexpenses 79 82Pensionschemecontributions 323 126

11,292 9,005

The number of non-director, highest paid employees whose remuneration fell within the designatedbandsisasfollows:

Number of employees 2011 2010

HK$1,500,001toHK$2,000,000 – 2HK$2,000,001toHK$2,500,000 3 1HK$2,500,001toHK$3,000,000 1 –HK$3,000,001toHK$3,500,000 – 1

4 4

11. TAX

Taxesonprofitshavebeencalculatedat theratesof taxprevailing in the jurisdictionswheretheGroupoperates.

Theprevailingtaxratesinthejurisdictionswherethesubsidiariesaredomiciledareasfollows:

2011 2010

HongKong 16.5% 16.5%Singapore 17.0% 17.0%MainlandChina 25.0% 25.0%



11. TAX (Continued)

Hong KongNo provision forHong Kong profits tax has beenmade as theGroup did not generate any assessableprofitsinHongKongduringthecurrentandprioryear.

SingaporeUnder Section 13A of the Singapore Income Tax Act, charter and freight income derived from certainSingaporeincorporatedsubsidiarieswhosevesselsareallsea-goingSingaporeflaggedshipsisexemptedfrom corporate income tax in Singapore. No provision for taxation has been made on the estimatedassessableprofitsgeneratedfromcharterandfreightincomeduringthecurrentandprioryear.

Mainland ChinaOn 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed theCorporate Income Tax Law of the People’s Republic of China (“PRC”)which took effect on 1 January2008, pursuant to which the PRC income tax rate thereby became unified to 25% for all enterprises.The State Council of the PRC passed an implementation guidance note (“Implementation Guidance”)on 26 December 2007 which set out details of how existing preferential income tax rates were to beadjustedtothestandardrateof25%.AccordingtotheImplementationGuidance,certainsubsidiariesoftheGroup inMainlandChinawhichhavenot fullyutilised their five-year taxholidayswillbeallowed tocontinuetoenjoy fullentitlement toreductions in incometaxratesuntilexpiryof the taxholidays,afterwhich,the25%standardratewillapply.

Group 2011 2010 HK$’000 HK$’000

HongKong: Currentchargefortheyear – –

Elsewhere: Currentchargefortheyear 5,023 455 Underprovision/(overprovision)inprioryears 3,227 (6,531)

8,250 (6,076)

Deferredtaxation(note34) (1,958) –

Total tax charge/(credit) for the year, continuing operations 6,292 (6,076)



11. TAX (Continued)

A reconciliation of the tax charge/(credit) applicable to the loss before tax at the statutory rate forthe jurisdiction in which the Company and the majority of its subsidiaries are domiciled to the taxcharge/(credit)attheeffectivetaxrateisasfollows:

Group 2011 2010 HK$’000 HK$’000

Lossbeforetax (777,040) (586,464)

TaxattheHongKongtaxrateof16.5%(2010:16.5%) (128,212) (96,767)Highertaxratesforspecificprovincesorlocalauthorities (20,812) (8,566)Adjustmentsinrespectofcurrenttaxofpreviousperiods 3,227 (6,531)Profitsandlossesattributabletoassociates (3,759) (1,540)Incomenotsubjecttotax (389,254) (430,303)Expensesnotdeductiblefortax 545,102 537,631

Taxcharge/(credit)attheGroup’seffectiverate 6,292 (6,076)

Representedby:Taxcharge/(credit)attributabletocontinuingoperations 6,292 (6,076)Taxcreditattributabletodiscontinuedoperation,shipbuilding(note5) – –

6,292 (6,076)

TheshareoftaxattributabletoassociatesamountingtoHK$608,000(2010:HK$69,000)isincludedin“Shareofprofitsofassociates,net”onthefaceoftheconsolidatedincomestatement.

12. LOSS ATTRIBUTABLE TO OWNERS OF THE COMPANY

TheconsolidatedlossattributabletotheownersoftheCompanyfortheyearended31December2011includesalossofHK$645,926,000(2010:HK$554,853,000)whichhasbeendealtwithinthefinancialstatementsoftheCompany(note37(b)).

13. LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

Thecalculationof basic lossper share is basedon the total consolidated loss for the year attributableto ordinary equity holders of the Company of HK$783,332,000 (2010: HK$580,800,000) representedbythe loss fromcontinuingoperationsofHK$569,761,000(2010:HK$502,452,000)andthe loss fromdiscontinued operation, shipbuilding of HK$213,571,000 (2010: HK$78,348,000), and the weightedaverageof7,798,175,987(2010:7,068,392,864)ordinarysharesinissueduringtheyear.

No adjustment has beenmade to the basic loss per share amounts presented for the years ended31December 2011 and 2010 in respect of a dilution as the share options, ConvertibleNotes Due 2015,warrants and convertible preferred shares outstandinghad an anti-dilutive effect on thebasic loss pershareamountspresented.



14. PROPERTY, PLANT AND EQUIPMENT

Group Furniture, equipment Leasehold Storage and motor Construction Buildings Machinery improvements Vessels* facilities vehicles in progress Total31 December 2011 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At31December2010and at1January2011:Cost 87,644 75,418 8,935 167,991 1,542,068 133,897 1,016,578 3,032,531Accumulateddepreciation andimpairment (13,639) (11,163) (7,065) (35,593) (133,428) (86,032) – (286,920)

Netcarryingamount 74,005 64,255 1,870 132,398 1,408,640 47,865 1,016,578 2,745,611

At1January2011,netof accumulateddepreciation andimpairment 74,005 64,255 1,870 132,398 1,408,640 47,865 1,016,578 2,745,611Additions – 1,127 38 102,641 108,847 25,084 278,723 516,460Deemeddisposalsofpartial interestinajointly-controlled entity (5,814) (6,616) (25) – (128,333) (1,304) (81,357) (223,449)Disposals – – – (22,329) – (1,260) – (23,589)Depreciation provided during theyear (3,968) (4,150) (647) (79,494) (56,636) (35,382) – (180,277)Transfers 4,156 28,196 – – 465,056 – (497,408) –Exchangerealignment 3,557 3,072 17 – 68,102 1,570 49,546 125,864

At31December2011,net ofaccumulateddepreciation andimpairment 71,936 85,884 1,253 133,216 1,865,676 36,573 766,082 2,960,620

At31December2011:Cost 89,011 100,755 7,629 219,249 2,050,284 154,872 766,082 3,387,882Accumulateddepreciation andimpairment (17,075) (14,871) (6,376) (86,033) (184,608) (118,299) – (427,262)

Netcarryingamount 71,936 85,884 1,253 133,216 1,865,676 36,573 766,082 2,960,620



14. PROPERTY, PLANT AND EQUIPMENT (Continued)

Group (Continued) Furniture, equipment Leasehold Storage andmotor Construction Buildings Machinery improvements Vessels* facilities vehicles inprogress Total31December2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At31December2009and at1January2010:Cost 368,676 280,778 8,371 1,600,716 1,495,239 191,247 1,720,258 5,665,285Accumulateddepreciation andimpairment (24,771) (41,343) (5,588) (633,736) (80,632) (79,798) – (865,868)


At1January2010,netof accumulateddepreciation andimpairment 343,905 239,435 2,783 966,980 1,414,607 111,449 1,720,258 4,799,417Additions – 1,340 274 227,537 17 11,788 1,289,658 1,530,614Disposals – – – (995,261) – (10,079) – (1,005,340)Impairment – – – (3,822) – – – (3,822)Depreciation provided during theyear (15,107) (22,726) (1,224) (63,036) (49,228) (25,808) – (177,129)Transfers 189,127 4,061 – – 417 (30,994) (162,611) –Reclassifiedasheldforsale (note5) (454,266) (164,789) – – – (12,716) (1,883,544) (2,515,315)Exchangerealignment 10,346 6,934 37 – 42,827 4,225 52,817 117,186

At31December2010,netof accumulateddepreciation andimpairment 74,005 64,255 1,870 132,398 1,408,640 47,865 1,016,578 2,745,611

At31December2010:Cost 87,644 75,418 8,935 167,991 1,542,068 133,897 1,016,578 3,032,531Accumulateddepreciationand impairment (13,639) (11,163) (7,065) (35,593) (133,428) (86,032) – (286,920)


* In the prior year, the Group disposed of twelve vessels and bunker barges for a total cash consideration

of US$71,500,000 (equivalent to approximately HK$557,700,000) and recorded losses on disposals of

HK$446,649,000. During the year, the Group disposed of a bunker barge for a total cash consideration of

US$4,000,000 (equivalent to approximately HK$31,200,000) and nomaterial gain or loss on disposal was

recorded.



14. PROPERTY, PLANT AND EQUIPMENT (Continued)

Intheprioryear,theGroup’svesselwasimpairedwithreferencetotherecoverableamountsdeterminedbasedon latestmarket values for similar vessels.Due tochanges in themarketenvironment in theoiltransportationbusiness,animpairmentamountofHK$3,822,000waschargedtotheincomestatement.

At 31 December 2011, including certain property, plant and equipment items classified underassets of a disposal group classified as held for sale, the Group’s storage facilities, construction inprogress, buildings and machinery with net carrying values of approximately HK$1,562,576,000(2010: HK$1,384,078,000), HK$901,532,000 (2010: HK$716,328,000), HK$480,354,000 (2010:HK$443,492,000)andHK$218,405,000(2010:HK$193,752,000),respectively,werepledgedtosecurecertainbankingfacilitiesgrantedtotheGroup(note26).

15. PREPAID LAND/SEABED LEASE PAYMENTS

Group 2011 2010 HK$’000 HK$’000

Carryingamountat1January 464,776 985,707Additions – 1,684Amortisationprovidedduringtheyear (3,077) (4,485)Amortisationcapitalisedinconstructioninprogress (7,003) (16,489)Reclassifiedasheldforsale(note5) – (513,827)Deemeddisposalsofpartialinterestinajointly-controlledentity (34,727) –Exchangerealignments 15,168 12,186

Carryingamountat31December 435,137 464,776

Prepaid land/seabed leasepayments representoutlays in respectof theacquisitionof land/seabeduserights that are accounted for as operating leases. These land/seabed are held under long term leasesandsituatedinMainlandChina.

At 31 December 2011, including the prepaid land/seabed lease payments classified under assets ofa disposal group classified as held for sale, the Group’s prepaid land/seabed lease payments with anaggregate net carrying value of HK$914,917,000 (2010: HK$944,843,000) were pledged to securecertainbankingfacilitiesgrantedtotheGroup(note26).



16. LICENCES

Group

HK$’000

31 December 2011Costat1January2011,netofaccumulatedamortisation 32,383Amortisationprovidedduringtheyear (11,250)

At31December2011 21,133

At31December2011:Cost 51,935Accumulatedamortisation (30,802)

Netcarryingamount 21,133

31December2010Costat1January2010,netofaccumulatedamortisation 34,899Amortisationprovidedduringtheyear (2,516)


At31December2010:Cost 51,935Accumulatedamortisation (19,552)


Licencesrepresent therightsacquiredtoundertakefloatingstorageoperationswithin theport limitsoffthe west coast of theMalaysia peninsula, pursuant to licences issued by theMinistry of Transport ofMalaysia.



17. GOODWILL

Group

HK$’000

31 December 2011Costat1January2011,netofaccumulatedimpairment 470,371Deemeddisposalsofpartialinterestinajoinly-controlledentity (35,800)


At31December2011:Cost 453,529Accumulatedimpairment (18,958)


31December2010Costat1January2010,netofaccumulatedimpairment 1,086,197Disposalofanassociateunderanonshorestorageunit (45,208)Reclassifiedasheldforsale(note5) (570,618)


At31December2010:Cost 489,329Accumulatedimpairment (18,958)


Thecarryingamountofgoodwill(netofimpairment)allocatedtoeachofthecash-generatingunitsisasfollows:

Shipbuilding Oil supply Onshore storage and ship repair Total 2011 2010 2011 2010 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Carryingamount ofgoodwill 16,568 16,568 418,003 453,803 –* –* 434,571 470,371

* At31December2011and2010,goodwill ofHK$570,618,000allocated to theshipbuildingandship repair

cash-generating unit was included in assets of a disposal group classified as held for sale as disclosed in

note5.



17. GOODWILL (Continued)

Goodwill acquired through business combinations has been allocated to the following cash-generatingunitsforimpairmenttesting:

• Oilsupplycash-generatingunit;

• Onshorestoragecash-generatingunit;and

• Shipbuildingandshiprepaircash-generatingunit.

Impairment testing of goodwillOil supply cash-generating unit

The recoverable amount of the oil supply cash-generatingunit hasbeendeterminedbased on a valuein use calculation using cash flow projections beyond the five-year period based on financial budgetsapproved by senior management. The pre-tax discount rate applied to the cash flow projections was13.2%.

Onshore storage cash-generating unit

The recoverable amount of the onshore storage cash-generating unit has been determined based ona value in use calculation using cash flow projections based on financial budgets approved by seniormanagement covering the period equivalent to the lease term of the land where the onshore storagefacilitiesareerected.Thepre-taxdiscountrateappliedto thecashflowprojectionswas13.2%andthecash flows beyond the five-year period were projected by using an average growth rate of 3% for theonshorestoragerevenues.

Shipbuilding and ship repair cash-generating unit

Discontinuing of the shipbuilding business resulted in a transfer of the goodwill in relation to theshipbuilding and ship repair cash-generating unit to assets held for sale. No impairment loss wasrecognisedasthenetproceedsofsaleareexpectedtoexceedthecarryingamountof thenetassetsoftheshipbuildingbusiness.

The key assumptions for all of the above cash flow projections are the budgeted grossmarginswhichuse the average grossmargins achieved in the year immediately before the budgeted years, increasesfor expected market development, and the pre-tax discount rate of 13.2%, which is before tax andreflectsspecificrisksrelatingtotherespectivecash-generatingunits.

Asat31December2011,no impairmentprovisionshavebeenmadeagainst thegoodwill arising fromthe acquisitions of the oil supply business, onshore storage businesses or the shipbuilding and shiprepairbusinesses.



18. INTERESTS IN SUBSIDIARIES

Company 2011 2010 HK$’000 HK$’000

Unlistedshares,atcost 234,008 234,008Deemedinvestmentcost* 8,549 8,549Duefromsubsidiaries 3,388,604 5,014,634

3,631,161 5,257,191Portionofamountsduefromsubsidiariesclassified as current assets – (93,600)

Non-currentportion 3,631,161 5,163,591

* Thedeemed investmentcost represented the fair valueof financial guaranteesprovidedby theCompany to

banksforaloangrantedtoasubsidiary.

Theamountsduefromsubsidiariesareunsecured, interest-freeandhavenofixedtermsofrepayment,except in 2010where the amounts due from the subsidiaries ofHK$93,600,000were expected to besettledwithinthenexttwelvemonths.

The amounts due to subsidiaries are unsecured, interest-free and have no fixed terms of repayment,except in 2010 where the amounts due to the subsidiaries of HK$53,857,000 were expected to besettledwithinthenexttwelvemonths.



18. INTERESTS IN SUBSIDIARIES (Continued)

Particularsoftheprincipalsubsidiariesareasfollows:

Place of Percentage incorporation/ Nominal value of equity registration and of issued/ attributable toName operations registered capital the Company Principal activities

Directly heldTitanOil(Asia)Ltd. BritishVirginIslands Ordinary 100 Investmentholding (“BVI”) US$1

TitanFSUInvestmentLimited BVI Ordinary 100 Investmentholding US$1,000

TitanOilStorageInvestment BVI Ordinary 100 Investmentholding Limited(“TOSIL”) US$1

TitanOilTrading(Asia)Limited BVI Ordinary 100 Investmentholding US$1

TitanBunkeringInvestment BVI Ordinary 100 Investmentholding Limited US$1

HarbourSkyInvestmentsLimited BVI Ordinary 100 Investmentholding US$1

TitanShipyardHoldingsLimited BVI Ordinary 100 Investmentholding (“ShipyardHoldings”) US$1

TitanPetrochemicals MainlandChina US$30,000,000 100 Investmentholding (Fujian)Ltd.*#




Particularsoftheprincipalsubsidiariesareasfollows: (Continued)


Indirectly heldTitanBunkeringPte.Ltd. Singapore/Malaysia Ordinary 100 Provisionofbunker SG$13,825,000 refuelingservices

EstoniaCapitalLtd. BVI/Singapore Ordinary 100 Provisionoffloating US$1 storageservices

TitanLibraPte.Ltd.* Singapore Ordinary 100 Provisionof SG$1,000,000 financingservices

SinoVenusPte.Ltd. Singapore Ordinary 100 Provisionofoil SG$1,000,000 transportation services

WynhamPacificLtd. BVI/Singapore Ordinary 100 Provisionofoil US$1 transportation services

SinoOceanDevelopmentLimited BVI/Singapore Ordinary 100 Provisionofoil US$1 transportation services

TitanOceanPteLtd Singapore Ordinary 100 Provisionofship SG$2,900,000 managementand agencyservices

TitanMarsLimited BVI/Malaysia Ordinary 100 Holdingafloating US$1,000 storagelicence






Indirectly held (Continued)TitanStorageLimited BVI/Malaysia Ordinary 100 Provisionoffloating US$1,000 storageservices

TitanOrientLinesPte.Ltd.* Singapore Ordinary 100 Investmentholding SG$2

TitanResourcesManagement BVI/HongKong Ordinary 100 Provisionof Limited US$1 consultancyservices

TitanResourcesManagement Singapore Ordinary 100 Provisionof (S)Pte.Ltd. SG$100,000 consultancyservices

AscendSuccessInvestments HongKong Ordinary 100 Provisionof Limited HK$1 financingservices

廣州華南石化交易中心 MainlandChina RMB60,000,000 100 Provisionof 有限公司* commodityexchange services

石獅市益泰潤滑油脂 MainlandChina RMB28,000,000 100 Investmentholding 貿易有限責任公司*

嵊泗海鑫石油有限公司* MainlandChina RMB50,000,000 100 Supplyofoilproducts






Indirectly held (Continued)TitanTQSLHolding BVI Ordinary 100 Investmentholding CompanyLtd(“TQSLHolding”) US$10,000

TitanQuanzhouShipyard MainlandChina RMB1,040,879,823 100 Shipbuildingand Co.,Ltd*†(“QZShipyard”) shiprepair

廣州泰山石化有限公司* MainlandChina RMB50,000,000 100 Supplyofoil products

廣東泰山石化有限公司*# MainlandChina US$10,000,000 100 Provisionof management services

* The statutory financial statements of these companies were not audited by Ernst & Young, Hong Kong or

anothermemberfirmoftheErnst&Youngglobalnetwork.# Registeredasawhollyforeign-ownedenterpriseunderPRClaw.† Registeredasasino-foreignownedenterpriseunderPRClaw.

Theabove table lists thesubsidiariesof theCompanywhich, in theopinionof thedirectors,principallyaffected the results for theyearor formedasubstantialportionof thenetassetsof theGroup.Togivedetails of other subsidiaries would, in the opinion of the directors, result in particulars of excessivelength.

On11December2010,theCompanyenteredintoasaleandpurchaseagreementtodisposeofits95%equity interest in a subsidiary, QZ Shipyard. As separately disclosed, this disposal has not yet beencompletedatthedateofthisreport.

Sharesofcertainsubsidiariesheldby theGroupwerepledged to thenoteholdersofSeniorNotesDue2012(note28),ConvertibleNotesDue2015(note29)andPIKNotesDue2015(note30).



19. INTERESTS IN ASSOCIATES

Group 2011 2010 HK$’000 HK$’000

Shareofnetassets 327,875 299,793Goodwillonacquisition 26,448 26,448Deemeddisposalsofpartialinterestinajointly-controlledentity (29,555) –

324,768 326,241Duefromassociates – 4,406

324,768 330,647

Theamountsduefromassociatesareunsecured,interest-freeandhavenofixedtermsofrepayment.

Thegoodwillonacquisitionasat31December2011isattributabletotheGroup’s27.6%equityinterestin GZ Xiaohu (as defined below). The Group has performed impairment tests on the goodwill and itsinterests in the associate and no impairment provision is deemed to be necessary. The recoverableamounthasbeendeterminedbasedonvalue inusecalculationsusingcash flowprojectionsbasedonfinancial budgets approved by seniormanagement covering the period equivalent to the lease term ofthe land where the terminal facilities are erected. The pre-tax discount rate applied to the cash flowprojections is13.2%and thecash flowsbeyond the five-yearperiodareprojectedbyusinganaveragegrowthrateof3%forterminalfacilitiesrevenues.



19. INTERESTS IN ASSOCIATES (Continued)

Particularsoftheassociatesasat31December2011areasfollows:

Percentage of ownership Particulars Place of interest of registered Business registration attributable PrincipalName capital held structure and operations to the Group activities

YangshanShenGang US$73,460,000 Corporate MainlandChina 34.1 Operationof InternationalOil oilberthing LogisticsCo.,Ltd.* andstorage (“YangshanShenGang”) facilities

GuangzhouXiaohu RMB157,500,000 Corporate MainlandChina 27.6 Terminal PetrochemicalTerminal facilities Co.,Ltd*(“GZXiaohu”) services

* Heldunderajointly-controlledentity(note20).

TheaboveassociatesarenotauditedbyErnst&Young,HongKongoranothermemberfirmoftheErnst&Youngglobalnetwork.

The following table sets out the summarised combined financial information in respect of the Group’sassociatesextractedfromtheirmanagementaccounts:

2011 2010 HK$’000 HK$’000

Assets 2,370,851 2,300,231Liabilities 1,449,145 1,448,386Revenue 379,246 505,343Profitfortheyear 62,574 30,799

福建石獅中油油品銷售有限公司 and 嵊泗縣同盛石油有限公司 were dissolved in June 2011 andDecember2010respectivelyandnomaterialgainsorlosseswasresultedfromthedissolutions.

In December 2010, the Group disposed of its 30% interest in福建中油油品倉儲有限公司 for net saleproceeds of RMB73,114,000 (approximately HK$84,287,000) which resulted in a loss on disposal ofHK$16,312,000.



20. INVESTMENTS IN JOINTLY-CONTROLLED ENTITIES

Particularsofthejointly-controlledentitiesareasfollows:

Ownership Place of interest/ Issued share registration percentage capital/registered and of voting Profit PrincipalName capital operations power sharing@ activities

TitanGroupInvestmentLimited Ordinary BVI 50.1 50.1 Investmentholding (“TGIL”) US$475,800and Preferred US$399,200

GuangzhouNanshaTitan US$87,790,000 MainlandChina 50.1 50.1 Provisionof PetrochemicalDevelopment onshorestorage CompanyLimited*† services

TitanWPStorageLtd. Ordinary Bermuda 50.1 50.1 Investmentholding US$240,800

TitanGroupYangshan Ordinary BVI 50.1 50.1 Investmentholding InvestmentLimited US$40

SkySharpInvestments Ordinary BVI 50.1 50.1 Investmentholding Limited US$16,000

ForeverFortuneHoldings Ordinary HongKong 50.1 50.1 Investmentholding Limited HK$10,000 andNon-voting Deferred HK$10,000

FujianTitanPetrochemical US$44,000,000 MainlandChina 50.1 50.1 Provisionof StorageDevelopment onshorestorage Co.,Ltd.*# services

QuanzhouTitanPetrochemical US$40,000,000 MainlandChina 50.1 50.1 Provisionof TerminalDevelopment onshorestorage Co.,Ltd*# services

TitanGroupNansha Ordinary HongKong 50.1 50.1 Investmentholding InvestmentLimited HK$1



20. INVESTMENTS IN JOINTLY-CONTROLLED ENTITIES (Continued)

Particularsofthejointly-controlledentitiesareasfollows:(Continued)

Ownership Place of interest/ Issued share registration percentage capital/registered and of voting Profit PrincipalName capital operations power sharing@ activities

TitanGroupYantai Ordinary BVI 50.1 50.1 Investmentholding InvestmentLimited US$1

TitanInvestmentGroupLimited Ordinary HongKong 50.1 50.1 Investmentholding (“TIGL”) HK$1

YantaiTitanPetrochemical RMB198,000,000 Mainland 25.1 25.1 Provisionof PortDevelopmentCompany China onshorestorage Limited(“Yantai”)*†^ services

Alloftheaboveinvestmentsinjointly-controlledentitiesareindirectlyheldbytheCompany.

* NotauditedbyErnst&Young,HongKongoranothermemberfirmoftheErnst&Youngglobalnetwork.† Registeredasasino-foreignownedenterpriseunderPRClaw.# Registeredasawhollyforeign-ownedenterpriseunderPRClaw.@ Pursuant to the liquidation order of preference requirements for the TGIL preferred shares, as detailed in

note31(b)tothefinancialstatements,100%ofaccumulatedlossesincurredbyTGILgroupwillbeborneby

theGroup.

During the year, TOSIL, Warburg Pincus and TGIL entered into a subscription agreement by which TGIL

alloted and issued an aggregate of 37,575 and 37,425 new ordinary shares to TOSIL andWarburg Pincus

for considerations of US$9,459,000 (approximately HK$73,780,000) and US$9,422,000 (approximately

HK$73,492,000) respectively. These allotments of new shares to Warburg Pincus resulted in a dilution of

7.87%totheGroup‘sequityinterestinjointly-controlledentities.

^ On 17 October 2011, TIGL signed an agreement with Yantai Port Western Port Co., Ltd. (“Western Port

Company”) for an investment in Yantai, which TIGL and Western Port Company each holds a 50% equity

interests.TheGroupshares jointcontrolwithWesternPortCompanyandhas recognisedYantaiasa jointly-

controlledentityduringtheyear.

All the above jointly-controlledentities, except forTGIL andYantai, arewholly-owned subsidiariesheldbyTGILdirectlyorindirectly.



20. INVESTMENTS IN JOINTLY-CONTROLLED ENTITIES (Continued)

The following table sets out the summarised financial information in respect of the Group’s jointly-controlledentities:

2011 2010 HK$’000 HK$’000

Shareofjointly-controlledentities’assetsandliabilities:

Non-currentassets 4,326,766 3,978,638Non-currentliabilities (2,071,915) (2,025,200)Current assets 502,199 473,894Currentliabilities (1,274,229) (1,113,495)

Netassets 1,482,821 1,313,837

Shareofjointly-controlledentities’results:

Revenue 197,640 199,610Costofsales (109,458) (85,006)

Grossprofit 88,182 114,604Otherrevenue 6,821 7,893Expenses (67,004) (37,674)Financecosts (159,415) (126,308)Shareofprofitsofassociates,net 23,557 9,160

Lossbeforetax (107,859) (32,325)Tax (594) (423)

Lossaftertax (108,453) (32,748)

21. INVENTORIES

At31December2011,theGrouphadsuppliesforonshorestorageoperationsofHK$2,231,000(2010:HK$1,523,000)andoilproductsofHK$660,000(2010:HK$10,983,000).

Inaddition, theGrouphadsuppliesofHK$133,671,000(2010:HK$136,742,000) forshipbuildingandbuildingofshiprepair facilitiesoperations,which is included inassetsofadisposalgroupclassifiedasheldforsaleat31December2011.



22. ACCOUNTS RECEIVABLE

Group 2011 2010 HK$’000 HK$’000

Accountsreceivable 99,073 97,664Impairments (15,572) (16,240)

83,501 81,424

The Group normally allows credit terms to well-established customers ranging from 30 to 90 days.Efforts are made to maintain strict control over outstanding receivables and overdue balances arereviewed regularly by senior management. On this basis and the fact that the Group’s accountsreceivable relate to a large number of diversified customers, there are no significant concentrations ofcreditrisk.Accountsreceivablearenon-interest-bearing.

An aged analysis of accounts receivable as at the end of the reporting period, based on the dates ofrecognitionofthesalesandnetofprovisions,isasfollows:

Group 2011 2010 HK$’000 HK$’000

1to3months 57,019 49,9574to6months 19,211 6,0817to12months 5,058 8,214Over12months 2,213 17,172

83,501 81,424



22. ACCOUNTS RECEIVABLE (Continued)

As at 31 December 2011, accounts receivable in a disposal group (note 5) included HK$98,540,000whichwasagedovertwelvemonths,andwasmorethanthreemonthspastdue.

Asat31December2010,accountsreceivable inadisposalgroupincludedHK$32,518,000whichwasagedwithin one to threemonths andHK$253,201,000agedover twelvemonths. TheHK$32,518,000wasneitherpastduenorimpairedwhiletheHK$253,201,000wasmorethanthreemonthspastdue.

Themovementsintheprovisionforimpairmentofaccountsreceivableareasfollows:

Group 2011 2010 HK$’000 HK$’000

At1January 16,240 14,956Impairmentlossesrecognised/(reversed)(note7) (668) 3,541Amountswrittenoffasuncollectible – (2,257)

At31December 15,572 16,240

Included in the above balance is a provision for impairment for customers with an aggregate grossreceivable balance of HK$17,448,000 (2010: HK$32,451,000). The net accounts receivable inrespect of these customers after the provision for impairment amounted to HK$1,877,000 (2010:HK$16,211,000).Thesereceivablesrelate tocustomers indefaultandonlyaportionof thereceivablesisexpectedtoberecovered.TheGroupdoesnotholdanycollateralorothercreditenhancementsoverthesebalances.

Theagedanalysis of theaccounts receivable that arenot individuallynor collectively considered tobeimpairedisasfollows:

Group 2011 2010 HK$’000 HK$’000

Neitherpastduenorimpaired 57,019 49,957Lessthan3monthspastdue 19,211 6,081Morethan3monthspastdue 5,394 9,175

81,624 65,213



22. ACCOUNTS RECEIVABLE (Continued)

Receivables that were neither past due nor impaired relate to a number of diversified customers forwhomtherehasbeennorecenthistoryofdefault.

Receivablesthatwerepastduebutnotimpairedrelatetoanumberofindependentcustomersthathavegood track recordswith theGroup.Basedonpastexperience, thedirectorsof theCompanyareof theopinionthatnoprovisionsforimpairmentsarenecessaryinrespectofthesebalancesastherehavenotbeen significant changes in credit quality and the balances are still considered fully recoverable. TheGroupdoesnotholdanycollateralorothercreditenhancementsoverthesebalances.

At 31 December 2011, included in the accounts receivable of assets of a disposal group classifiedas held for sale are accounts receivable from Titan Oil for sales of vessels of HK$98,540,000 (2010:HK$213,987,000)(note41(iv)).

23. CONTRACTS IN PROGRESS

Group 2011 2010 HK$’000 HK$’000

Contracts in progress

Directcostsincurredplusrecognisedprofitsless recognisedlossestodate 203,876 47,468

Less:Directcostsincurredplusrecognisedprofitsless recognisedlossestodate,reclassifiedasassetsheld forsale(note5) (203,876) (37,364)

– 10,104

24. FINANCIAL GUARANTEE CONTRACTS

In 2011, the carrying value of financial guarantee contracts arising from financial guarantees grantedby theCompany to a bank for a loan to a subsidiary of theGroup amounted toHK$8,549,000 (2010:HK$8,549,000).



25. CASH AND CASH EQUIVALENTS, PLEDGED DEPOSITS AND RESTRICTED CASH

Group Company 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000

Cashandbankbalances 193,197 263,891 847 2,262Timedeposits 1,091,503 162,386 – –

1,284,700 426,277 847 2,262

Less:Amountspledgedfor bankingfacilities(note26(ii)) andrestrictedcash: Bankbalances (33,415) (82,761) – – Timedeposits (26,412) (94,610) – – Timedepositswith originalmaturitiesof morethanthreemonths (1,065,091) (66,626) – –

(1,124,918) (243,997) – –

Cashandcashequivalents 159,782 182,280 847 2,262

Attheendofthereportingperiod, includingthoseclassifiedunderassetsofadisposalgroupclassifiedas held for sale, the cash and bank balances of the Group denominated in Renminbi (“RMB”)amountedtoHK$1,312,630,000(2010:HK$445,127,000).TheRMBisnotfreelyconvertibleintoothercurrencies,however,underMainlandChina’sForeignExchangeControlRegulationsandAdministrationofSettlement,SaleandPaymentofForeignExchangeRegulations, theGroup ispermitted toexchangeRMBforothercurrenciesthroughbanksauthorisedtoconductforeignexchangebusiness.

Cashatbankearnsinterestatfloatingratesbasedondailybankdepositrates.Shorttermtimedepositsaremade forvaryingperiodsofbetweenonedayand threemonths,dependingon the immediatecashrequirements of the Group, and earn interest at the market short term time deposit rates. The bankbalancesandpledgeddepositsaredepositedwithcreditworthybankswithnorecentdefaulthistory.



26. INTEREST-BEARING BANK LOANS

2011 2010 Effective Effective interest rate interest rateGroup (%) Maturity HK$’000 (%) Maturity HK$’000

CurrentBankloans–secured 2.16-5.94 2012 1,400,954 3.19–5.76 2011 483,814Bankloans–unsecured 4.74-6.94 2012 208,895 4.74–6.12 2011 317,247

1,609,849 801,061

Non-currentBankloans–secured 5.91-5.94 2013-2019 889,688 5.35–5.94 2012–2019 1,177,098Bankloans–unsecured – – – 5.35 2018 329,775

889,688 1,506,873

2,499,537 2,307,934

Group 2011 2010 HK$’000 HK$’000

Bankloansrepayable:Withinoneyear 1,609,849 801,061Inthesecondyear 143,188 265,716Inthethirdtofifthyears,inclusive 527,001 907,710Beyondfiveyears 219,499 333,447

2,499,537 2,307,934

As at 31December2011, theGroupwas in default on repayment of certain securedbankborrowingswith the overdue portion in principal amount of RMB111,000,000 (approximately HK$137,407,000).Accordingly,theportionofthosebankborrowingsofRMB316,273,000(approximatelyHK$391,520,000)thatare repayableafteroneyearhavebeenclassifiedascurrent liabilitiesgiven thebanks’entitlementtodemandrepaymentoftheoutstandingbalancesatanytimeattheirdiscretion.



26. INTEREST-BEARING BANK LOANS (Continued)

CertainoftheGroup’sbankloans,includingthoseclassifiedasheldforsalearesecuredby:

(i) construction in progress with an aggregate carrying value of HK$901,532,000 (2010:HK$716,328,000);

(ii) bankbalancesanddepositsofHK$1,065,091,000(2010:HK$134,861,000);

(iii) machinerywithanaggregatenetcarryingvalueofHK$218,405,000(2010:HK$193,752,000);

(iv) buildingswithanaggregatenetcarryingvalueofHK$480,354,000(2010:HK$443,492,000);

(v) prepaid land/seabed lease payments with an aggregate net carrying value of HK$914,917,000(2010:HK$944,843,000);

(vi) storage facil i t ies with an aggregate net carrying value of HK$1,562,576,000 (2010:HK$1,384,078,000);

(vii) accounts receivable with an aggregate carrying value of HK$56,319,000 in 2010 but suchsecuritywasreleasedin2011;

(viii) corporateguaranteesexecutedbytheCompany;and

(ix) personalguaranteesexecutedbyarelatedpartyandadirectoroftheCompany.

ThecarryingamountsoftheGroup’scurrentandfloatingrateloansapproximatetotheirfairvalues.ThecarryingamountsandthefairvaluesoftheGroup’snon-currentandfixedrateloansareasfollows:

Carrying amount Fair value 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000

Bankloans–secured 889,688 1,177,098 815,120 1,112,448Bankloans–unsecured – 329,775 – 319,526

889,688 1,506,873 815,120 1,431,974

ThefairvaluesofthebankloansoftheGroupareestimatedbydiscountingtheexpectedfuturecashflowsatprevailinginterestrates.



27. ACCOUNTS AND BILLS PAYABLE/OTHER PAYABLES AND ACCRUALS

TheGroupnormallyobtainscredittermsrangingfrom30to90daysfromitssuppliers.

Anagedanalysisof theaccountsandbillspayableasat theendof the reportingperiod,basedon thedateofreceiptofgoodspurchased,isasfollows:

Group 2011 2010 HK$’000 HK$’000

1to3months 176,942 71,3174to6months 109,681 67,8777to12months 101,767 49,235Over12months 81,449 16,992

469,839 205,421

Otherpayablesandaccruals 1,321,970 650,758

1,791,809 856,179

Accounts and bills payable are non-interest-bearing. Other payables and accruals are non-interest–bearingandhaveanaverage termof threemonths.Apartial consideration fordisposalofQZshipyardofHK$916,050,000isincludedintheotherpayablesassetoutinnote5.

Provision for product warranties 2011 2010Group HK$’000 HK$’000

At1January – 1,684

Amountsutilisedduringtheyear – (1,684)

At31December – –

TheGroupprovidesone yearwarranties to its customerson vesselsdelivered,underwhichany vesseldefaultsare repaired.Theamountof theprovision forwarranties is estimatedbasedon thenumberofvessels delivered and past experience on the level of repairs. The estimation basis is reviewed on anongoingbasisandrevisedwhereappropriate.



28. FIXED RATE GUARANTEED SENIOR NOTES (“SENIOR NOTES DUE 2012”)

Pursuant to an indenture dated 17 March 2005 entered into by the Company, together with certainsubsidiariesof theCompany,whichguaranteethe issueof theSeniorNotesDue2012(the“SubsidiaryGuarantors”) with Deutsche Bank Trust Company Americas as the trustee, the Company issuedthe Senior Notes Due 2012 in the aggregate principal amount of US$400 million (equivalent toapproximately HK$3,120 million) with directly attributable transaction costs of HK$90,709,000. TheSenior Notes Due 2012 are due on 18 March 2012 with a lump sum repayment, unless redeemedearlier pursuant to specified terms. The Senior Notes Due 2012 bear interest at the rate of 8.5% perannum, payable semi-annually in arrears on 18March and 18 September each year, commencing on18September2005,andarelistedontheSingaporeExchangeSecuritiesTradingLimited.

The obligations of the Company under the Senior Notes Due 2012 are guaranteed by the SubsidiaryGuarantors and the pledge of shares of certain Subsidiary Guarantors. The list of subsidiariescomprisingtheSubsidiaryGuarantorsandthesharespledgedaremorefullydescribedintheCompany’sannouncement dated 11March 2005 together with details of the principal terms of the Senior NotesDue2012.

On 28 July 2010 (27 July 2010, New York City Time), the Company issued US$78,728,000(approximately HK$614,078,000) aggregate principal amount of Convertible Notes Due 2015 andUS$14,193,000 (approximatelyHK$110,705,000) aggregateprincipal amount ofPIKNotesDue2015,and paid US$43,154,940 (approximately HK$336,609,000) in cash, in exchange for an aggregateprincipal amount of Senior Notes Due 2012 for US$209,490,000 (approximately HK$1,634,022,000).As a result, the Company recognised a gain on the restructuring of Senior Notes Due 2012 ofHK$476,495,000in2010.

At 31 December 2011, the effective interest rate on the Senior Notes Due 2012 was 9.27% perannum. The outstanding principal of the Senior Notes Due 2012 as at 31 December 2011 and 2010wereUS$105,870,000 (approximatelyHK$825,786,000), while the fair value of the Senior Notes Due2012 as at 31 December 2011 and 2010 was US$75,962,000 (approximately HK$592,504,000) andUS$66,698,000(approximatelyHK$520,244,000),respectively.

The Senior Notes Due 2012 was due for repayment on 19March 2012 and, therefore, are classifiedascurrent liabilitiesasat31December2011.On19March2012andasof thedateof thisreport, theCompanywasunabletorepaysuchSeniorNotesDue2012assetoutinnote46.



29. GUARANTEED SENIOR CONVERTIBLE NOTES (“CONVERTIBLE NOTES DUE 2015”)

The Company issued US$78,728,000 (approximately HK$614,078,000) aggregate principal amountof ConvertibleNotes Due 2015 on 28 July 2010 (27 July 2010,New York City Time) in exchange fortendered Senior Notes Due 2012. The Convertible Notes Due 2015 are due on 13 July 2015 witha single repayment at 151.621% of its principal amount, unless earlier redeemed, repurchased orpurchased by the Company or converted. The Convertible Notes Due 2015 bear no interest, and arelisted on the Singapore Exchange Securities Trading Limited. Holders of the Convertible Notes Due2015 are entitled to convert their Convertible Notes Due 2015 with a minimum principal amount ofUS$1,000 or integral multiples of US$500 in excess thereof based on an initial conversion rate of10,915 conversion shares per US$1,000 in principal amount of Convertible Notes Due 2015, subjectto adjustments. This implies an initial conversion price (subject to adjustments) of approximatelyUS$0.0916(approximatelyHK$0.7145)perconversionshare.Conversionmayoccuronanydaypriorto(andincluding)theseventhbusinessdaypriortothematuritydateoftheConvertibleNotesDue2015.

Pursuant to the terms of the Convertible Notes Due 2015 indenture, the obligations of the CompanyundertheConvertibleNotesDue2015areguaranteedbycertainsubsidiaryguarantorsandapledgeofthe subsidiary guarantors shares.Details of theprincipal termsof theConvertibleNotesDue2015aremorefullydescribedintheCompany’sannouncementdated9June2010.

During the year, Convertible Notes due 2015 with an aggregate principal amount of US$3,991,000(approximately HK$31,130,000) (2010: US$16,680,000 (approximately HK$130,104,000)) wasconverted into 43,561,764 ordinary shares (2010: 182,062,197) of HK$0.01 each in the Company attheconversionpriceofapproximatelyUS$0.0916(approximatelyHK$0.7145)pershare.

In prior year, an aggregate principal amount of US$10,097,000 (approximately HK$78,757,000)were repurchased by the Company at an aggregate consideration of US$9,782,000 (approximatelyHK$76,299,000),resultinginanetlossonrepurchases,afterwrittenoffunamortisedtransactioncosts,ofHK$61,000.

The Convertible Notes Due 2015 comprise a financial liability at amortised cost and an embeddedderivative. The effective interest rate on the Convertible Notes Due 2015 was 18.66% per annum. At31December2011and2010, the fair valueof the embeddedderivatives liabilityHK$27,212,000andHK$123,632,000respectively.

At 31 December 2011, the outstanding principal and fair value of the Convertible Notes Due2015 was US$47,960,000 (approximately HK$374,088,000) and US$18,033,000 (approximatelyHK$140,657,000), respectively. At 31December 2010, the outstanding principal and fair value of theConvertibleNotesDue2015wasUS$51,951,000(approximatelyHK$405,218,000)andUS$50,285,000(approximatelyHK$392,223,000),respectively.



30. GUARANTEED SENIOR PAYMENT-IN-KIND NOTES (“PIK NOTES DUE 2015”)

The Company issuedUS$14,193,000 (approximately HK$110,705,000) aggregate principal amount ofPIK Notes Due 2015 on 28 July 2010 (27 July 2010, New York City Time) in exchange for tenderedSenior Notes Due 2012. The PIK Notes Due 2015 are due on 13 July 2015 with a single repaymentof the principal, unless earlier repurchased pursuant to the terms of the PIK Notes indenture. ThePIK Notes Due 2015 bear interest at the rate of 8.5% per annum payable semi-annually in arrearscommencingon13January2011eitherbycashor in the formofadditionalPIKNotesDue2015,andarelistedontheSingaporeExchangeSecuritiesTradingLimited.

Pursuant to the termsof thePIKNotesDue2015 indenture, theobligationsof theCompanyunder thePIKNotesDue2015areguaranteedbycertainsubsidiaryguarantorsandapledgeofthesharesofsuchsubsidiaries.Details of the principal terms of thePIKNotesDue2015 aremore fully described in theCompany’sannouncementdated9June2010.

During the year, PIK Notes Due 2015 with an aggregate principal amount of US$1,040,000(approximately HK$8,112,000) (2010: US$3,539,500 (approximately HK$27,608,000)) wererepurchased by the Company at an aggregate consideration of US$1,040,000 (approximatelyHK$8,112,000) (2010: US$3,448,000 (approximately HK$26,893,000)), resulting in a net loss onrepurchases, after written off unamortised transaction costs, of HK$214,000 (2010: net gain ofHK$43,000).

The PIK Notes Due 2015 are carried at amortised cost with an effective interest rate of 11.03% perannum. At 31 December 2011 and 2010, the outstanding principal of the PIK Notes Due 2015 wasUS$10,467,868 (approximately HK$81,649,000) and US$10,653,500 (approximately HK$83,097,000)respectively.



31. CONVERTIBLE PREFERRED SHARES

Group Company Equity Liability Equity Liability portion portion portion portion HK$’000 HK$’000 HK$’000 HK$’000

(a) Titan preferred shares At1January2010 75,559 290,096 75,559 290,096 Add: Dividendsonconvertible preferredshares (classifiedasfinancial liabilities)(note8) – 35,225 – 35,225

At31December2010 75,559 325,321 75,559 325,321 Add: Dividendson convertiblepreferred shares(classifiedas financialliabilities) (note 8) – 37,855 – 37,855

At31December2011 75,559 363,176 75,559 363,176

(b) TGIL preferred shares At1January2010 517,837 355,010 – – Add: Dividendsonconvertible preferredshares (classifiedasfinancial liabilities)(note8) – 39,000 – –

At31December2010 517,837 394,010 – – Add: Dividendson convertiblepreferred shares(classifiedas financialliabilities) (note 8) – 37,721 – – Less: Deemeddisposalsof partialinterestina jointly-controlledentity (40,754) (32,799) – –

At31December2011 477,083 398,932 – –

In 2007, theCompany issued 555,000,000Titan preferred shares at the stated value ofHK$0.56 pershare and TGIL, a jointly-controlled entity, issued HK$780,000,000 (US$100,000,000) TGIL preferredshares.The fair valuesof the liabilityportionofTitanpreferredsharesandTGILpreferredshareswereestimated at the issuance date. The residual amount of Titan preferred shares and TGIL preferredshares were assigned as the equity portion and included in shareholders’ equity of the Company andcontingentlyredeemableequityinajointly-controlledentity,respectively.



31. CONVERTIBLE PREFERRED SHARES (Continued)

Titan preferred shares are redeemable (1) at any time on or after the fifth anniversary of the date ofissue at a price equal to 100% of their initial subscription price (if redeemed at the election of theholders)or175%oftheirinitialsubscriptionprice(ifredeemedattheelectionoftheCompany)ineachcase togetherwithanyaccruedandunpaiddividends;or (2)on theoccurrenceofa redemptioneventandat theelectionof theholdersof theTitanpreferredsharesatapriceequal to thehigherof175%of their initial subscriptionpriceor theaggregatemarketpriceof thenumberof theCompany’ssharesinto which those Titan preferred shares being redeemed can be converted, if they were converted onthedateofthenoticeofredemption,togetherwithanyaccruedandunpaiddividendsprovidedthatthisredemptionrightcannotbeexercisedsolongasanyoftheSeniorNotesDue2012remainsoutstandingexceptinthecaseofchangeofcontrolredemptionevent,butonlyifachangeofcontroltriggeringeventhas occurredand theCompanyhas compliedwith its obligationsunder theSeniorNotesDue2012 inrespectofsuchanevent.

Theredemptionevents(the“RedemptionEvents”)included

(a) TitanOil ceasingdirectlyor indirectly through its subsidiariesornominees toown35%ormoreoftheCompany’sordinaryshares;*

(b) TitanOilceasingdirectlyorindirectlythroughitssubsidiariesornomineestobethesinglelargestshareholderoftheCompany(otherthanincircumstanceswhereWarburgPincusoritsassociates(asthattermisdefinedintheListingRules)isoraretogethersuchsinglelargestshareholder);*

(c) thechairmanoftheCompany,Mr.TsoiTinChun,ceasingtobeacontrollingshareholderofTitanOil (other thanasa resultofa temporary reductionof shareholding to facilitateavendor topupplacingbytheCompany);*

(d) theCompany ceasingdirectly or indirectly through its subsidiaries or nominees tobe the singlelargestshareholderofTGIL(otherthanasaresultoftheexerciseoftheTGIL’swarrant);

(e) the occurrence of specified events which are related to the insolvency of the Company or theinitiationof insolvencyor liquidationproceedingsbyoragainst theCompanyoreventsofdefaultunder theSeniorNotesDue2012occurring;andanequity instrument(theconversionright, i.e.theholder’srighttocallforsharesoftheissuer).

* Since those redemption events were related to the change of significant shareholding of the

substantial shareholder in the Company, the substantial shareholder (Titan Oil andMr. Tsoi) of the

Companyhassignedadeedofundertakingpursuant towhich thesubstantial shareholder (TitanOil

andMr. Tsoi) hasundertaken to indemnify theCompany in respect of any loss to theCompany (as

definedinthedeedofundertaking)arisingfromtheexerciseoftheredemptionrightoftheholdersof

theTitanPreferredSharesontheoccurrenceoftheRedemptionEvents.



31. CONVERTIBLE PREFERRED SHARES (Continued)

TGIL preferred shares are redeemable on the occurrence of a Redemption Event and at the electionof theholdersofTGILpreferredshares (provided thatTGIL’swarrant isnotexercised)atapriceequalto the higher of 175% of their initial subscription price or the market value (to be determined by anindependent investment bank) of TGIL’s ordinary shares intowhich those TGIL preferred shares beingredeemed can be converted (subject to a cap of HK$2,730million upon the full redemption of TGILpreferredshares),as if theywereconvertedon thedateof thenoticeof redemption, togetherwithanyaccruedandunpaiddividends.

At the end of the reporting period, Titan preferred shares are redeemable at any time on or after 22June2012and,therefore,classifiedascurrentliabilitiesat31December2011.

As described in note 46 to the financial statements, following the default on repayment of the SeniorNotesDue2012 on19March2012, an early redemption eventwas triggered, and theTGILpreferredshareholdersexercisedtheirwarrantrightstosubscribefor3,507ordinaryshares.

32. NOTES PAYABLE (“K LINE NOTES DUE 2013”)

On 5 August 2008, the Group signed an agreement with Kawasaki Kisen Kaisha Ltd (“K Line”) for KLine to purchase notes for US$25million (approximately HK$195million) with an interest rate of 1%perannum.Priorto31March2013,atthesoleoptionoftheCompany,thenotesareexchangeableforupto5%of the issuedsharecapitalofoneof itssubsidiaries,TQSLHolding,whichholdsQZShipyardinMainlandChina.

Atmaturity, the notes are required to be repaid in full in cash equal to the greater of (i) 110%of theprincipal amount plus all accrued but unpaid interest; and (ii) the fair market value of 5.5% of theissued share capital of TQSL Holding on a fully diluted basis (the “Applicable Redemption Amount”).TheGrouphastherighttoredeemthenotesinfullpriortomaturitydateattheApplicableRedemptionAmount,whileKLinehas the right toearly redeemat theApplicableRedemptionAmount in theeventofachangeofcontrol.

Change of control means (i) the sale of all or substantially all the assets of Shipyard Holdings, TQSLHoldingorQZShipyardtoanotherperson;(ii)anytransactionresulting invotingrightsof50%ormoreof total voting rights of either ShipyardHoldings, TQSLHolding orQZ Shipyard being held other than,directly or indirectly, by theCompanyandShipyardHoldings; or (iii) the adoption of aplan relating totheliquidation,windingupordissolutionofeitherShipyardHoldings,TQSLHoldingorQZShipyard.

TheproposeddisposalofQZshipyardasmentioned innote5may trigger theearly redemptionclauseunderwhichKLinehastherighttoearlyredeemthenotesattheApplicableRedemptionAmount.Asaresult,KLineNotesDue2013becamerepayableondemandandwereclassifiedascurrentliabilitiesat31December2010.Thedirectorsof theCompanydonot expectKLinehasany intention towithdrawor recall their investment in QZ Shipyard and their K Line Notes Due 2013, because the Companycontinues tomanage the business operation of QZ Shipyard subsequent to the disposal until the yearended31December2012asdescribedinnote5.



32. NOTES PAYABLE (“K LINE NOTES DUE 2013”) (Continued)

QZShipyardandKLinealsosignedastrategicallianceagreementunderwhichKLinewillappointQZShipyardasitsprimaryshiprepairpartnerinMainlandChinaand,accordingly,KLineagreedtoengagethe shipyard for certain future ship repair business. This agreement is for an initial term of ten yearsandcanberenewedthereafterforsuccessivefiveyearterms.

The K Line Notes Due 2013 comprised a financial liability at amortised cost and an embeddedderivative. As at 31 December 2011, the fair value of the embedded derivatives asset wasHK$18,286,000(2010:HK$18,286,000).

33. CONVERTIBLE UNSECURED NOTES (“TGIL NOTES DUE 2014”)

On14July2009, theCompany,TOSIL,WarburgPincusandTGILentered intoanagreementbywhichTOSILandWarburgPincusbecameentitled toprovide,prorata to theirshareholdings inTGIL, fundingofup toHK$312,600,000(approximatelyUS$40,100,000) through thesubscriptionofTGILNotesDue2014.

Interestaccruesat1%perannum,but ifTOSILdoesnotexercise itsoption tosubscribe for thenotes,interestat5%perannumwillbecharged from thedateonwhichTOSIL’soption tosubscribeexpires.The notes will mature five years after the date of issue. Holders of the notes are entitled to convertthewhole of the notes into TGIL’s shares at the initial conversion price ofHK$1,953.90 (US$250.50),subjecttoadjustmentsatanytimefromthefirstanniversaryofthedateofissue.

On the same date,Warburg Pincus exercised its option to subscribe for TGIL Notes Due 2014 in theprincipal amount of HK$156,000,000 (US$20,000,000). The fair values of the liability portion andembedded derivative of the TGIL Notes Due 2014 were estimated at the issuance date. The residualamount of HK$85,015,000 of TGIL Notes Due 2014 was assigned as the equity portion and wasincludedintheequityportionofconvertibleunsecurednotesinajointly-controlledentity.

On 13 January 2011, TOSIL exercised its right to subscribe for TGILNotesDue 2014 in the principalamountofHK$156,600,000(approximatelyUS$20,100,000)andthesubscriptionwascompletedwhentherelevantTGILNotesDue2014wereissuedon21January2011.Furtherdetailsare includedintheCompany’sannouncementdated13January2011.

The liability portion of TGIL Notes Due 2014 comprises a financial liability at amortised cost and anembeddedderivative.As at 31December2011, the fair value of the embeddedderivative liabilitywasHK$348,000(2010:HK$348,000).



34. DEFERRED TAX LIABILITIES

Themovementsindeferredtaxliabilitiesduringtheyearareasfollows:

Fair value adjustments Accelerated arising from capital acquisition of allowances subsidiaries TotalGroup HK$’000 HK$’000 HK$’000

At1January2010 4,026 153,416 157,442Reclassifiedasheldforsale(note5) – (112,180) (112,180)Exchangerealignments 356 – 356

At31December2010and1January2011 4,382 41,236 45,618Deferredtaxcreditedtotheconsolidated incomestatementduringtheyear(note11) (1,958) – (1,958)Deemeddisposalsofpartialinterestin ajointly-controlledentity – (3,245) (3,245)Exchangerealignments 40 – 40

Grossdeferredtaxliabilitiesrecognised intheconsolidatedstatementoffinancial positionat31December2011 2,464 37,991 40,455

There are no income tax consequences attaching to the payment of dividends by the Company to itsshareholders.

Pursuant toPRCCorporate IncomeTaxLaw, a10%withholding tax is leviedondividendsdeclared toforeigninvestorsfromforeigninvestmententerprisesestablishedinMainlandChina.Therequirementiseffectivefrom1January2008andappliestoearningsafter31December2007.Alowerwithholdingtaxratemaybeapplied if there is a tax treatybetweenChinaand the jurisdictionof the foreign investors.For theGroup, theapplicable rate is5%or10%.TheGroup thereforebecame liable towithhold taxeson dividends distributed by those subsidiaries and jointly-controlled entities established in MainlandChinainrespectofearningsgeneratedfrom1January2008.

At31December2011and2010,nodeferredtaxhasbeenrecognisedforwithholdingtaxesthatwouldbepayableontheunremittedearningsthataresubjecttowithholdingtaxesoftheGroup’ssubsidiaries,associatesandjointly-controlledentitiesestablishedinMainlandChina.Intheopinionofthedirectors,itisunlikely that thesesubsidiaries,associatesand jointly-controlledentitieswilldistributesuchearningsin the foreseeable future. At 31 December 2011 and 2010, there were no significant unrecogniseddeferred tax liabilities for taxes that would be payable on the unremitted earnings of certain of theGroup’s subsidiaries, associatesor jointly-controlledentities as theGrouphadnomaterial liabilities foradditionaltaxesshouldsuchamountsberemitted.



35. SHARE CAPITAL

Shares 2011 2010 Nominal value Nominalvalue Number of of shares Numberof ofshares shares HK$’000 shares HK$’000

Authorised: OrdinarysharesofHK$0.01each at31December(note(a)) 14,445,000,000 144,450 14,445,000,000 144,450

Convertiblepreferredsharesof HK$0.01eachat31December 555,000,000 5,550 555,000,000 5,550

Issued and fully paid: OrdinarysharesofHK$0.01each at1January 7,766,732,918 77,667 6,562,460,721 65,625 Issueofsharesuponexerciseof shareoptions(note36) 10,260,000 103 22,210,000 222 Issueofsharesbyshare subscription(note(b)) – – 1,000,000,000 10,000 ConversionofConvertible NotesDue2015(note(c)) 43,561,764 436 182,062,197 1,820

OrdinarysharesofHK$0.01each at31December 7,820,554,682 78,206 7,766,732,918 77,667

Convertiblepreferredsharesof HK$0.01eachat1January and31December 555,000,000 5,550 555,000,000 5,550



35. SHARE CAPITAL (Continued)

Shares (Continued)Notes:

(a) Pursuant to an ordinary resolution passed on 16 April 2010, the authorised share capital of the Company

was increased from HK$100,000,000 divided into 9,445,000,000 ordinary shares of HK$0.01 each and

555,000,000convertiblepreferredsharesofHK$0.01eachtoHK$150,000,000dividedinto14,445,000,000

ordinary shares of HK$0.01 each and 555,000,000 convertible preferred shares of HK$0.01 each by the

creationofanadditional5,000,000,000ordinarysharesofHK$0.01each,rankingparipassu inall respects

withtheexistingordinarysharesoftheCompany.

(b) On 24 May 2010, the Company entered into a subscription agreement with a subscriber under which the

Company conditionally agreed to allot and issue, and the subscriber conditionally agreed to subscribe for

1,000,000,000 new ordinary shares at a price ofHK$0.37 per new subscription share. The subscription of

shareswascompletedon23July2010.

FurtherdetailsinrespectoftheaboveareincludedintheCompany’sannouncementsdated24May2010,8

June2010,15June2010,7July2010and23July2010andacirculardated31May2010.

(c) During the year, Convertible Notes Due 2015 with an aggregate principal amount of US$3,991,000

(approximately HK$31,130,000) (2010: US$16,680,000 (approximately HK$130,104,000)) were converted

into 43,561,764 ordinary shares (2010: 182,062,197) of HK$0.01 each in the Company at the conversion

priceofapproximatelyUS$0.0916(approximatelyHK$0.7145)pershare.

(d) Allnewordinarysharesrankparipassuinallrespectswithotherordinarysharesinissue.

Share option schemeDetails of the Company’s share option schemes and the movements in share options issued by theCompanyareincludedinnote36tothefinancialstatements.



36. SHARE OPTION SCHEME

The Company adopted a share option scheme pursuant to an ordinary resolution passed on 31 May2002(asamendedon24June2010)(the“2002ShareOptionScheme”).

Pursuant to an ordinary resolution passed at the annual generalmeeting of the Company held on 20June2011, theCompany adopted anew share option scheme (the “NewShareOptionScheme”) andterminatedthe2002ShareOptionScheme(the2002ShareOptionSchemeandtheNewShareOptionScheme,collectively,arereferredtoasthe“Schemes”).

(a) Summary of the Schemesi. Purposes of the Schemes

The purposes of the Schemes are to provide a flexiblemeans of attracting and retainingtalent together with giving incentive to, rewarding and motivating the participants whohavemadeormaymakecontributionstothelongtermsuccessoftheGroup.

ii. Participants in the Schemes

Pursuant to the 2002 Share Option Scheme, the Company may grant options to (i) fulltimeemployeesanddirectorsof theCompanyand itssubsidiaries;and(ii)anysuppliers,consultants,agentsandadvisorsoftheGroup.

PursuanttotheNewShareOptionScheme,theparticipantsinclude(i)directors(includingexecutivedirectors,non-executivedirectorsorindependentnon-executivedirectors)ofanymemberof theGroupor any investedentity; (ii) employeesandexecutives (whether full-timeorpart-time)ofanymemberoftheGrouporanyinvestedentity;and(iii)consultants,advisers,businesspartners,jointventurepartners,agents,suppliersandcustomerstoanymemberoftheGrouporanyinvestedentity.

iii. Total number of ordinary shares available for issue under the SchemesThe total number of ordinary shares of the Company (“Shares”) which may be issuedupon exercise of all options to be granted under the Schemes shall not in aggregateexceed10%of the totalnumberofShares in issueasat thedateofapprovalof theNewShareOptionScheme(i.e.780,240,218Shares,whichrepresentsapproximately9.98%oftheissuedsharecapitalofCompanyatthedateofapprovalofthefinancialstatements).

The maximum number of Shares which may be issued upon exercise of outstandingoptionsgrantedandyet tobeexercisedunder theSchemesshallnotexceed30%of thetotalnumberofSharesinissuefromtimetotime.

iv. Maximum entitlement of each participantPursuant to theSchemes, themaximumnumberofShares issuedand tobe issueduponexerciseofoptionsgranted toeachparticipant (includingbothexercisedandoutstandingoptions) in any 12-month period shall not exceed 1% of the total number of Shares inissue.



36. SHARE OPTION SCHEME (Continued)

(a) Summary of the Schemes (Continued)v. Time of exercise of options

Pursuant to the Schemes, an option may be exercisable at any time during the optionperiod,which to be determinedby theBoard at its absolute discretion, but in any eventnolaterthan10yearsfromthedateoftheoffer.

vi. Amount payable on acceptancePursuant to theSchemes,anon-refundablenominalconsiderationofHK$1.00 ispayablebythegranteeuponacceptanceofanoption.

vii. Basis of determining the subscription pricePursuant to the Schemes, the subscription price shall be determined by the board ofdirectorsatitsdiscretionandshallnotbelessthanthehighestof:

i) the closing price of the Shares as stated in the Stock Exchange’s daily quotationsheetsonthedateoftheoffer;

ii) the average of the closing price of the Shares as stated in the Stock Exchange’sdaily quotation sheets for the five trading days immediately preceding the date oftheoffer;and

iii) thenominalvalueofaShare.

viii. Remaining life of the SchemesThe 2002 Share Option Scheme has no remaining life as no further options may begranted but the provisions of the 2002 Share Option Scheme shall in all other respectsremaininfull forceandeffectandoptionswhichweregrantedduringthelifeofthe2002Share Option Scheme may continue to be exercisable in accordance with its respectivetermsofissue.

TheNewShareOptionSchemewill continue tobe in full forceandeffect foraperiodof10yearscommencingon20June2011.




(b) Share Option Movementi. 2002 Share Option Scheme

Thefollowingshareoptionsunderthe2002ShareOptionSchemewereoutstandingattheendofthereportingperiod:

Number of share options Exercise

At Granted Lapsed Exercised At Exercise price ofName or category 1 January during during during 31 December Date of grant of period of share options**of participant 2011 the year the year the year*** 2011 share options* share options HK$

Director

Mr.PatrickWongSiuHung 10,000,000 – – – 10,000,000 1February2008 1February2010to 0.45

31January2015

10,000,000 – – – 10,000,000 1February2008 1February2011to 0.45

31January2016

20,000,000 – – – 20,000,000

Other employees

Inaggregate 9,580,000 – – – 9,580,000 20February2006 20February2007to 0.72

19February2012

9,580,000 – – – 9,580,000 20February2006 20February2008to 0.72

19February2013

15,920,000 – – (630,000) 15,290,000 1February2008 1February2010to 0.45

31January2015

85,850,000 – (1,700,000) (9,630,000) 74,520,000 1February2008 1February2011to 0.45

31January2016

51,100,000 – (3,980,000) – 47,120,000 1February2008 1February2012to 0.45

31January2017

47,000,000 – (4,400,000) – 42,600,000 1February2008 1February2013to 0.45

31January2018

219,030,000 – (10,080,000) (10,260,000) 198,690,000

239,030,000 – (10,080,000) (10,260,000) 218,690,000




(b) Share Option Movement (Continued)i. 2002 Share Option Scheme (Continued)

* Optionsgrantedon20February2006werevested tograntees in two tranches.50%ofsuchoptions

were vested on 20 February 2007 with an exercise period from 20 February 2007 to 19 February

2012 and the remaining 50% were vested on 20 February 2008 with an exercise period from 20

February2008to19February2013.TheclosingpriceoftheCompany’sshareson17February2006

wasHK$0.72.

Optionsgrantedon1February2008werevested tograntees in four tranches.20%of suchoptions

werevestedon1February2010withanexerciseperiod from1February2010to31January2015;

40%ofsuchoptionswerevestedon1February2011withanexerciseperiodfrom1February2011

to 31 January 2016; 20%of such optionswere vested on1 February 2012with an exercise period

from 1 February 2012 to 31 January 2017 and 20% of such options will be vested on 1 February

2013 with an exercise period from 1 February 2013 to 31 January 2018. The closing price of the

Company’sshareson31January2008wasHK$0.435.

** Theexercisepriceoftheshareoptionsissubjecttoadjustmentsinthecaseofrightsorbonusissues,

orothersimilarchangesinthesharecapitaloftheCompany.

*** The weighted average closing price of the shares of the Company immediately before the date on

whichtheoptionswereexercisedwasHK$0.615.

Duringtheyear,noshareoptionswerecancelledunderthe2002ShareOptionScheme.

At the end of the reporting period, the Company had outstanding share options for thesubscriptionof218,690,000ordinarysharesunderthe2002ShareOptionScheme.Theexerciseinfulloftheseshareoptionswould,underthepresentcapitalstructureoftheCompany,resultintheissueof218,690,000additionalordinarysharesoftheCompanyandadditionalsharecapitalofHK$2,186,900andsharepremiumofHK$101,396,800(beforeissueexpenses).

ii. New Share Option Scheme

Noshareoptionshavebeengrantedpursuant to theNewShareOptionSchemesince itsadoption.




(c) Movements in the number of shares issuable under options granted and their related weighted average exercise prices were as follows:

2011 2010 Weighted Weighted average Number of average Numberof exercise price shares issuable exerciseprice sharesissuable per share under options pershare underoptions HK$ granted HK$ granted

Outstandingat1January 0.472 239,030,000 0.472 283,890,000Exercised 0.450 (10,260,000) 0.478 (22,210,000)Lapsed 0.450 (10,080,000) 0.467 (22,650,000)

Outstandingat31December 0.474 218,690,000 0.472 239,030,000

At 31 December 2011, out of the 218,690,000 outstanding options (31 December 2010:239,030,000), 128,970,000 options (31 December 2010: 45,080,000) were vested andexercisable at aweighted average exercise price ofHK$0.490 (31December 2010:HK$0.565)pershare.



37. RESERVES

(a) Group Share Share PRC Asset Exchange premium Contributed option statutory revaluation fluctuation Accumulated account surplus reserve reserve reserve reserve losses Total Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At1January2010 1,940,136 18,261 32,838 – 57,399 193,332 (1,265,818) 976,148Totalcomprehensiveincome/ (loss)fortheyear – – – – – 80,791 (579,774) (498,983)Equity-settledshareoption arrangements – – 9,193 – – – – 9,193Transfertoaccumulatedlosses uponlapseofshareoptions aftervestingperiod – – (453) – – – 453 –Exerciseofshareoptions 36 13,767 – (3,384) – – – – 10,383Issueofordinaryshares 35(b) 360,000 – – – – – – 360,000Shareissueexpenses (784) – – – – – – (784)ConversionofConvertible NotesDue2015 29 124,105 – – – – – – 124,105TransfertoPRCstatutoryreserve – – – 559 – 3 (562) –

At31December2010and 1January2011 2,437,224 18,261 38,194 559 57,399 274,126 (1,845,701) 980,062Totalcomprehensiveincome/(loss) fortheyear – – – – – 161,931 (783,332) (621,401)Equity-settledshareoption arrangements – – 2,470 – – – – 2,470Transfertoaccumulatedlossesupon lapseofshareoptionsafter vesting period – – (269) – – – 269 –Exerciseofshareoptions 36 6,105 – (1,617) – – – – 4,488ConversionofConvertible NotesDue2015 29 29,912 – – – – – – 29,912Realisedondeemeddisposals ofpartialinterestina jointly-controlledentity – – – – – (4,803) – (4,803)

At31December2011 2,473,241 18,261 38,778 559 57,399 431,254 (2,628,764) 390,728

The contributed surplus arose as a result of the Group reorganisation carried out on 18 May1998andrepresents theexcessof thenominalvalueof thesharesof thesubsidiariesacquired,pursuant to theGroupreorganisation,over thenominalvalueof theCompany’sshares issued inexchangetherefor.



37. RESERVES (Continued)

(b) Company Share Share premium Contributed option Accumulated account surplus reserve losses Total Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At1January2010 1,940,136 60,916 32,838 (439,231) 1,594,659Totalcomprehensiveloss fortheyear 12 – – – (554,853) (554,853)Equity-settledshareoption arrangements – – 9,193 – 9,193Transfertoaccumulatedlosses uponlapseofshareoptions aftervestingperiod – – (453) 453 –Exerciseofshareoptions 36 13,767 – (3,384) – 10,383Issueofordinaryshares 35(b) 360,000 – – – 360,000Shareissueexpenses (784) – – – (784)ConversionofConvertible NotesDue2015 29 124,105 – – – 124,105

At31December2010and 1January2011 2,437,224 60,916 38,194 (993,631) 1,542,703Totalcomprehensiveloss fortheyear 12 – – – (645,926) (645,926)Equity-settledshareoption arrangements – – 2,470 – 2,470Transfertoaccumulated lossesuponlapseofshare options after vesting period – – (269) 269 –Exerciseofshareoptions 36 6,105 – (1,617) – 4,488ConversionofConvertible NotesDue2015 29 29,912 – – – 29,912

At31December2011 2,473,241 60,916 38,778 (1,639,288) 933,647

The contributed surplus of the Company represents the excess of the fair value of the sharesof the subsidiaries acquired,pursuant to the sameGroup reorganisation referred to above, overthe nominal value of the Company’s shares issued in exchange therefore. Under the BermudaCompaniesAct1981,theCompanymaymakedistributionstoitsmembersoutofthecontributedsurplusundercertaincircumstances.

The share option reserve comprises the fair value of share options grantedwhich are yet to beexercised,as furtherexplained in theaccountingpolicy forshare-basedpayment transactions innote2.4to thefinancialstatements.Theamountwilleitherbetransferredto thesharepremiumaccountwhentherelatedoptionsareexercised,orbetransferredtoretainedprofits/accumulatedlossesshouldtherelatedoptionsexpireorlapse.



38. OPERATING LEASE ARRANGEMENTS

(a) As lessorAt 31 December 2011, the Group leased vessels and certain leasehold land and buildingsunder operating leasearrangements,negotiated for one year and four years, respectively.At31December2010,theGroupdidnotleaseoutanyvesselsandleaseholdlandandbuildingsunderoperatingleasearrangementstothirdparties.

At theendof the reportingperiod, theGrouphad total futureminimum lease receivablesundernon-cancellableoperatingleasesfallingdueasfollows:

Group 2011 2010 HK$’000 HK$’000

VesselsWithinoneyear 9,929 –

Leasehold land and buildingsWithinoneyear 3,908 –Inthesecondtofifthyears,inclusive 4,885 –

8,793 –

18,722 –



38. OPERATING LEASE ARRANGEMENTS (Continued)

(b) As lesseeThe Group leases vessels and certain office premises under operating lease arrangements.Leases for the vessels are negotiated for terms ranging from one to five years, and leases forofficepremisesarenegotiatedfortermsrangingfromonetotwentyyears.

At the end of the reporting period, the Group had total futureminimum lease payments undernon-cancellableoperatingleasesfallingdueasfollows:

Group 2011 2010 HK$’000 HK$’000

VesselsWithinoneyear 365,348 431,326Inthesecondtofifthyears,inclusive 437,544 610,961

802,892 1,042,287

Office premisesWithinoneyear 11,704 12,665Inthesecondtofifthyears,inclusive 17,933 29,290Beyondfiveyears 61,605 67,821

91,242 109,776

894,134 1,152,063



39. COMMITMENTS

Group 2011 2010 HK$’000 HK$’000

Capitalcontributioncommitmentsforassociates inMainlandChina – 70,531Commitmentsforconstructionofoilberthingand storagefacilitiesofjointly-controlledentitiesinMainlandChina 14,084 20,111Commitmentforshipbuildingandshiprepairfacilities inMainlandChina* 867,397 939,102

881,481 1,029,744

* At31December2011and2010,suchcommitmentwasassociatedwiththedisposalgroupclassifiedasheld

forsale.

Company 2011 2010 HK$’000 HK$’000

Capitalcontributioncommitmentsforasubsidiary inMainlandChina 234,000 234,000

40. CONTINGENT LIABILITIES

At 31 December 2011, guarantees aggregating HK$10,140,000 (2010: HK$22,230,000) had beengivenbytheCompanytobanksinconnectionwithbankingfacilitiesgrantedtosubsidiaries.Anamountof HK$10,140,000 (2010: HK$19,460,000) of the facilities had been utilised by a subsidiary of theCompany.

Other than the contingent liabilities as disclosed above, the Group and the Company had no othermaterialcontingentliabilitiesasattheendofthereportingperiod.



41. RELATED PARTY TRANSACTIONS

Asreferredtoelsewhereinthesefinancialstatements,theGrouphadthefollowingmaterialtransactionswithrelatedpartiesduring2011and2010:

(i) Tenancy agreement with Titan OilIn 2011, the Group entered into a tenancy agreement with Titan Oil for the lease of officepremises for a termof three years commencing from1 January2011until 31December2013.During theyear, theGrouppaid total rentofSG$328,000(approximatelyHK$2,042,000)(2010:SG$608,000 (approximately HK$3,486,000)) to Titan Oil for the lease of the office premises,whichwaschargedbasedonprevailingmarketrates.

(ii) Chartering vessels with Oceanic Shipping Pte. Ltd. (“Oceanic Shipping”)On 1 September 2010, a subsidiary of the Group entered into five charter agreements withOceanic Shipping, a company incorporated in Singapore and wholly-owned by a director,to charter five vessels for a term of three years commencing from 1 September 2010 to 31August2013.During theyear, theGrouppaida totalamountofUS$12,235,000 (approximatelyHK$95,433,000) (2010: US$4,089,000 (approximately HK$31,894,000)) in charter feesto Oceanic Shipping. The amount is comparable to the prevailing market rates for similarbareboat charters and terms. As at 31 December 2011, the unpaid charter hire expense wasUS$4,209,000(approximatelyHK$32,830,000)(2010:Nil).

(iii) Bank guaranteesAsat31December2011,aguaranteewasgrantedbyoneof thedirectorsof theCompany toabank in connection with bank loans of RMB1,199,497,000 (approximately HK$1,484,880,000)(2010:RMB1,095,497,000(approximatelyHK$1,290,241,000))grantedtoQZShipyard.

(iv) Building and sale of vesselsAs at 31 December 2011, the shipbuilding subsidiary of the Group had an amount due fromTitanOil ofHK$98,540,000,whichwas included in accounts receivable of assets of a disposalgroupclassifiedasheldforsale(2010:HK$213,987,000)relatingtobuildingandsaleofvesselstoTitanOil.Theamountsin2011areunsecured,interest-freeandwithfixedtermsofrepaymentschedule of HK$98,540,000. The amounts in 2010 are unsecured, interest-free and have nofixed terms of repayment, except for an amount of HK$132,867,000 with a fixed repaymentschedule.TherewasnosaleofvesselstoTitanOilduringtheyear(2010:HK$78,778,000).



41. RELATED PARTY TRANSACTIONS (Continued)

(v) Advances from/to Titan Oil and its subsidiariesAs at 31December 2010, theGroup had an amount due from TitanOil of HK$133,000whichwas unsecured, interest-free and had no fixed terms of repayment. Such amount was settledduringtheyear.

As at 31 December 2011, the Group had an amount due from a subsidiary of Titan Oil ofRMB874,000 (approximatelyHK$1,082,000) and an amount due to a subsidiary of TitanOil ofUS$141,000 (approximately HK$1,098,000) (2010: an amount due to a subsidiary of Titan OilofRMB135,000,000(approximatelyHK$158,999,000))whichwereunsecured, interest-freeandhadnofixedtermsofrepayment.

42. FINANCIAL INSTRUMENTS BY CATEGORY

Thecarryingamountsofeachofthecategoriesoffinancialinstrumentsasattheendofthereportingperiodareasfollows:

GroupFinancial assets Financial assets at fair value through profit or loss Loans and receivables Total 2011 2010 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Duefromassociates – – – 4,406 – 4,406Duefromajointly-controlledentity – – 25,184 – 25,184 –Accountsreceivable – – 83,501 81,424 83,501 81,424Financialassetsincluded inprepayments,depositsand otherreceivables – – 170,724 463,535 170,724 463,535Contracts in progress – – – 10,104 – 10,104Pledgeddepositsandrestrictedcash – – 1,124,918 243,997 1,124,918 243,997Cashandcashequivalents – – 159,782 182,280 159,782 182,280

– – 1,564,109 985,746 1,564,109 985,746



42. FINANCIAL INSTRUMENTS BY CATEGORY (Continued)

Group (Continued)Financial liabilities

Financial liabilities at fair Financial liabilities value through profit or loss at amortised cost Total 2011 2010 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Duetoajointly-controlledentity – – 12,303 – 12,303 –Accountsandbillspayable – – 469,839 205,421 469,839 205,421Financialliabilitiesincluded – – 1,321,970 650,758 1,321,970 650,758 inotherpayablesandaccrualsInterest-bearingbankloans – – 2,499,537 2,307,934 2,499,537 2,307,934SeniorNotesDue2012 – – 844,690 840,333 844,690 840,333ConvertibleNotesDue2015 27,212 123,632 301,003 285,102 328,215 408,734PIKNotesDue2015 – – 84,483 84,360 84,483 84,360Liabilityportionofconvertible preferredshares – – 762,108 719,331 762,108 719,331KLineNotesDue2013 (18,286) (18,286) 215,750 209,627 197,464 191,341TGILNotesDue2014 321 348 92,580 82,733 92,901 83,081

9,247 105,694 6,604,263 5,385,599 6,613,510 5,491,293

CompanyFinancial assets Financial assets at fair value through profit or loss Loans and receivables Total 2011 2010 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Duefromsubsidiaries – – 3,388,604 5,014,634 3,388,604 5,014,634Financialassetsincluded inprepayments,deposits andotherreceivables – – 2,935 624 2,935 624Cashandcashequivalents – – 847 2,262 847 2,262

– – 3,392,386 5,017,520 3,392,386 5,017,520



42. FINANCIAL INSTRUMENTS BY CATEGORY (Continued)

Company (Continued)Financial liabilities

Financial liabilities at fair Financial liabilities at value through profit or loss amortised cost Total 2011 2010 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Financialliabilitiesincluded inotherpayablesandaccruals – – 918,418 27,716 918,418 27,716Duetosubsidiaries – – – 1,869,135 – 1,869,135Financialguaranteecontracts – – 8,549 8,549 8,549 8,549SeniorNotesDue2012 – – 844,690 840,333 844,690 840,333ConvertibleNotesDue2015 27,212 123,632 301,003 285,102 328,215 408,734PIKNotesDue2015 – – 84,483 84,360 84,483 84,360Liabilityportionofconvertible preferredshares – – 363,176 325,321 363,176 325,321

27,212 123,632 2,520,319 3,440,516 2,547,531 3,564,148

43. FAIR VALUE AND FAIR VALUE HIERARCHY

The fairvaluesof the financialassetsand liabilitiesare includedat theamountatwhichan instrumentcouldbeexchangedinacurrenttransactionbetweenwillingparties,otherthaninaforcedorliquidationsale.Thefollowingmethodsandassumptionswereusedtoestimatethefairvalues:

The fair values of accounts receivable, accounts and bills payables, financial assets included inprepayments, deposits and other receivables, financial liabilities included in other payables andaccruals, amounts due from/to subsidiaries, contracts in progress, pledged deposits and restrictedcash, cash and cash equivalents approximate to their carrying amounts largely due to the short termmaturitiesoftheseinstruments.

The fair values of the non-current portion of interest-bearing bank loans, Senior Notes Due 2012,ConvertibleNotes Due 2015, PIKNotes Due 2015 and K LineNotes Due 2013 have been calculatedbydiscounting theexpected futurecash flowsusing ratescurrentlyavailable for instrumentsonsimilarterms, credit risks and remaining maturities. The fair values of the liability portion of the convertiblepreferred shares and TGIL Notes Due 2014 are estimated using equivalent market interest rates forsimilarinstruments.

ThefairvaluesofembeddedderivativefinancialinstrumentsincludedunderConvertibleNotesDue2015, K Line Notes Due 2013 and TGIL Notes Due 2014 are measured using valuation techniquesincorporatedwithmarketobservableinputs.



43. FAIR VALUE AND FAIR VALUE HIERARCHY (Continued)

Fair value hierarchyThe Group uses the following hierarchy for determining and disclosing the fair value of financialinstruments:

Level1:fairvaluesmeasuredbasedonquotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities

Level2:fairvaluesmeasuredbasedonvaluationtechniquesforwhichallinputswhichhaveasignificanteffectontherecordedfairvalueareobservable,eitherdirectlyorindirectly.

Level3:fair values measured based on valuation techniques for which any inputs which havea significant effect on the recorded fair value are not based on observable market data(unobservableinputs)

Assets measured at fair value:

GroupAs at 31 December 2011:

Level 1 Level 2 Level 3 Total HK$’000 HK$’000 HK$’000 HK$’000

Embeddedderivativefinancial instruments,includedunder KLineNotesDue2013 – 18,286 – 18,286

Asat31December2010:

Level1 Level2 Level3 Total HK$’000 HK$’000 HK$’000 HK$’000

Embeddedderivativefinancial instruments,includedunder KLineNotesDue2013 – 18,286 – 18,286

TheCompanydidnothaveanyfinancialassetsmeasuredatfairvalueasat31December2010and2011.



43. FAIR VALUE AND FAIR VALUE HIERARCHY (Continued)

Fair value hierarchy (Continued)Liabilities measured at fair value:

GroupAs at 31 December 2011:


Embeddedderivativefinancial instruments,includedunder: ConvertibleNotesDue2015 – 27,212 – 27,212 TGILNotesDue2014 – 321 – 321

Total – 27,533 – 27,533

Asat31December2010:


Embeddedderivativefinancial instruments,includedunder: ConvertibleNotesDue2015 – 123,632 – 123,632 TGILNotesDue2014 – 348 – 348

Total – 123,980 – 123,980

CompanyAs at 31 December 2011:


Embeddedderivativefinancial instruments,includedunder: ConvertibleNotesDue2015 – 27,212 – 27,212

Asat31December2010:


Embeddedderivativefinancial instruments,includedunder ConvertibleNotesDue2015 – 123,632 – 123,632



44. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

TheGroup’s principal financial instruments, other thanderivatives, comprisebank loans, SeniorNotesDue 2012, Convertible Notes Due 2015, PIK Notes Due 2015, K Line Notes Due 2013, TGIL NotesDue2014,cashandbankbalances,andshort termtimedeposits.Themainpurposeof thesefinancialinstruments is to raise and/or retain funds for the Group’s operations. The Group has various otherfinancialassetsand liabilitiessuchasaccounts receivableandaccountsandbillspayable,whicharisedirectlyfromitsoperations.

TheGroup is principally exposed to interest rate risks, credit risks, liquidity risks and foreign currencyrisks.Theboardofdirectorsreviewsandagreespolicies formanagingeachof theserisksandtheyaresummarisedbelow.

Interest rate risksTheGroup’sexposuretotherisksofchangesinmarketinterestratesrelatesprimarilytotheGroup’slongtermdebtobligationswithfloatinginterestrates.

TheGroup’streasurydepartmentcontinuallymonitorsthepositionsandexploresotherwaystoreduceinterestcosts.

The following tabledemonstrates thesensitivity toa reasonablypossiblechange in interest rates in thecurrent year,with all other variables held constant, of theGroup’s loss before tax (through the impactonfloatingrateborrowings).

Increase/ Increase/ (decrease) in (decrease) in loss before basis points tax HK$’000

2011HongKongdollar 4-6 126HongKongdollar (4-6) (126)

2010HongKongdollar 4-28 48HongKongdollar (4-28) (48)



44. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

Credit risksCredit risks arise from the inability of a counterparty to meet the payment terms. It is the Group’spolicy to minimise such credit exposures by careful assessment of customer credit worthiness. TheGroup further lowers its credit exposurebyobtainingexport lettersof credit andbankguarantees, etc.Therefore,theGroupdoesnotexpecttoincuranymaterialcreditlossesonitsriskmanagement.

Thecredit risksof theGroup’sother financialassets,whichcomprisecashandcashequivalents,otherreceivables, deposits and certain derivative instruments, arise from default of the counterparty, with amaximumexposure equal to the carrying amounts of such instruments. TheCompany is also exposedtocreditrisksthroughthegrantingoffinancialguarantees,furtherdetailsofwhicharedisclosedinnote24tothefinancialstatements.

There are no significant concentrations of credit risk within the Group as the customer bases of theGroup’saccountsreceivablearewidelydispersed.

Further quantitative data in respect of the Group’s exposure to credit risks arising from accountsreceivablearedisclosedinnote22tothefinancialstatements.

Liquidity risksTheGroup’s treasurydepartmentmonitors theGroup’scash flowpositionsonaregularbasis toensurethecashflowoftheGroupispositiveandcloselycontrolled.




Liquidity risks (Continued)Thematurity profile of the Group’s financial liabilities as at the end of the reporting period, based oncontractualundiscountedpayments,isasfollows:

Group On demand or within one year Over one year Total 2011 2010 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Duetoajointly-controlledentity 12,303 – – – 12,303 –Accountsandbillspayable 469,839 205,421 – – 469,839 205,421Financialliabilitiesincludedin otherpayablesandaccruals 1,312,843 646,942 – – 1,312,843 646,942Interest-bearingbankloans 1,838,984 978,348 1,291,253 2,079,334 3,130,237 3,057,682SeniorNotesDue2012 860,882 70,192 – 860,882 860,882 931,074ConvertibleNotesDue2015 35,180 33,779 499,035 578,670 534,215 612,449PIKNotesDue2015 7,088 6,927 100,158 118,667 107,246 125,594Liabilityportionofconvertible preferredshares 310,800 – 718,614 1,090,800 1,029,414 1,090,800KLineNotesDue2013 204,072 199,381 – – 204,072 199,381TGILNotesDue2014 4,973 1,560 145,942 159,968 150,915 161,528

5,056,964 2,142,550 2,755,002 4,888,321 7,811,966 7,030,871

Company On demand or within one year Over one year Total 2011 2010 2011 2010 2011 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Financialliabilitiesincludedin otherpayablesandaccruals 918,418 27,716 – – 918,418 27,716Duetosubsidiaries – 53,857 – 1,815,278 – 1,869,135SeniorNotesDue2012 860,882 70,192 – 860,882 860,882 931,074ConvertibleNotesDue2015 35,180 33,779 499,035 578,670 534,215 612,449PIKNotesDue2015 7,088 6,927 100,158 118,667 107,246 125,594Liabilityportionofconvertible preferredshares 310,800 – – 310,800 310,800 310,800Guaranteesgiventobanks inconnectionwithfacilities grantedtosubsidiaries 10,140 19,460 – – 10,140 19,460

2,142,508 211,931 599,193 3,684,297 2,741,701 3,896,228




Foreign currency risksThe Group’s foreign currency exposures are minimal in view of the natural hedge between costs andrevenueswhichareprimarily inUnitedStatesdollar forbusinesses inSingaporeandprimarily inRMBforstoragebusiness inChina.TheGroupdonothaveanysignificantexchangerateexposures toHongKongdollarorSingaporedollar.

The following table demonstrates the sensitivity at the end of the reporting period to a reasonablypossiblechangeintheUnitedStatesdollartoRMBexchangerate,withallothervariablesheldconstant,oftheGroup’slossbeforetaxduetochangesinthefairvaluesofmonetaryassetsandliabilities.

Increase/ (decrease) in loss before tax % HK$’000

2011IfUnitedStatesdollarweakensagainstRMB 4.36 3,851IfUnitedStatesdollarstrengthensagainstRMB 4.36 (3,851)

2010IfUnitedStatesdollarweakensagainstRMB 1.24 1,557IfUnitedStatesdollarstrengthensagainstRMB 1.24 (1,557)

Capital managementThe primary objectives of the Group’s capital management are to safeguard its ability to continue asa going concern and tomaintain healthy capital ratios in order to support its business andmaximiseshareholders’value.

The Group manages its capital structure and makes adjustments to it, in the light of changes ineconomic conditions. To maintain or adjust the capital structure, the Group may adjust the dividendpayment to shareholders, returncapital to shareholdersor issuenewshares.TheGroup isnot subjectto any externally imposed capital requirements. No changes were made in the objectives, policies orprocessesformanagingcapitalduringtheyearsended31December2011and2010.




Capital management (Continued)The Group monitors capital using a gearing ratio, which is total debts divided by total assets. Thegearingratiosasattheendofthereportingperiodswereasfollows:

Group 2011 2010 HK$’000 HK$’000

Interest-bearingbankloans 4,837,714 3,790,059SeniorNotesDue2012 844,690 840,333ConvertibleNotesDue2015 328,215 408,734PIKNotesDue2015 84,483 84,360KLineNotesDue2013 197,464 191,341TGILNotesDue2014 92,901 83,081

Totaldebts 6,385,467 5,397,908

Totalassets 10,622,591 9,517,212

Gearingratio 60% 57%

45. COMPARATIVE AMOUNTS

The presentation of certain items in the financial statements have been revised. Certain comparativeamountshavebeenreclassifiedandrestatedtoconformwiththecurrentyear’spresentation.

46. EVENTS AFTER THE REPORTING PERIOD

On19March2012andasofthedateofthisreport,theCompanywasunabletorepayoverdueprincipaland interest on the SeniorNotesDue2012 ofUS$105,870,000 (approximatelyHK$825,786,000) andUS$4,499,000 (approximatelyHK$35,092,000) respectively.The failure to repay theSeniorNotesDue2012 will not, in and of itself, constitute an event of default under the PIK Notes Due 2015 and theConvertible Notes Due 2015. However, actions taken by creditors or the trustee of the Senior NotesDue 2012 to enforce the security over the Senior Notes Due 2012, as well as any actions taken bycreditorsof theCompany,couldresult in theaccelerationof therequirement topay thePIKNotesDue2015 and theConvertibleNotesDue2015.A cross defaultwas also triggered in respect of a bilateralloan with a financial institution in an outstanding principal amount of US$1,300,000 (approximatelyHK$10,140,000) and an early redemption event was also triggered in respect of the Company’s andTGIL’sconvertiblepreferredshares.

On 2May 2012,Warburg Pincus, the other shareholder of the jointly-controlled entity, fully exerciseditswarrantontheordinarysharesofTGIL.Uponexercise,theshareholdinginterest inTGILheldbytheGroupdroppedfrom50.1%to49.9%.

Furtherdetails in respectof theaboveare included in theCompany’sannouncementsdated18March2012and6May2012.

47. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statementswere approved and authorised for issue by the board of directors on 11May2012.


FIVE YEAR FINANCIAL SUMMARY

Asummaryoftheresultsandoftheassets,liabilitiesandnon-controllinginterestsoftheGroupforthelastfivefinancialyears,asextractedfrompublishedauditedfinancialstatements,issetoutbelow.

Year ended 31 December 2011 2010 2009 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

REVENUE Continuing operations 2,108,012 1,924,169 1,619,815 7,238,059 7,734,473 Discontinued operations 89,021 187,330 385,434 3,854,885 9,269,845

2,197,033 2,111,499 2,005,249 11,092,944 17,004,318

PROFIT/(LOSS) BEFORE TAX Continuing operations (563,469) (508,116) (429,085) (425,823) (97,502) Discontinued operations (213,571) (78,348) (105,828) (1,182,402) 73,024

(777,040) (586,464) (534,913) (1,608,225) (24,478)

Tax Continuing operations (6,292) 6,076 (488) 2,664 (12,458) Discontinued operations – – – 36 5,964

(6,292) 6,076 (488) 2,700 (6,494)

LOSS FOR THE YEAR (783,332) (580,388) (535,401) (1,605,525) (30,972)

Attributableto: OwnersoftheCompany (783,332) (580,800) (536,087) (1,600,557) (29,104) Non-controllinginterests – 412 686 (4,968) (1,868)

(783,332) (580,388) (535,401) (1,605,525) (30,972)


FIVE YEAR FINANCIAL SUMMARY

ASSETS, LIABILITIES AND NON-CONTROLLING INTERESTS

At 31 December 2011 2010 2009 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

TOTALASSETS 10,622,591 9,517,212 9,446,295 8,998,992 12,774,943

TOTALLIABILITIES (9,516,000) (7,773,810) (7,710,220) (6,826,211) (9,089,734)

EQUITYPORTIONOF CONVERTIBLEUNSECURED NOTESINAJOINTLY- CONTROLLEDENTITY (85,015) (92,277) (92,277) – –

CONTINGENTLYREDEEMABLE EQUITYINAJOINTLY- CONTROLLEDENTITY (477,083) (517,837) (517,837) (517,837) (517,837)

NON-CONTROLLINGINTERESTS – – (8,629) (23,751) (115,487)

544,493 1,133,288 1,117,332 1,631,193 3,051,885

DIRECTORSExecutive DirectorsTsoi Tin Chun, ChairmanPatrick Wong Siu Hung

Independent Non-executive DirectorsJohn William Crawford, JPMaria Tam Wai Chu, GBS, JPAbraham Shek Lai Him, SBS, JP

AUDIT COMMITTEEJohn William Crawford, JP, Committee ChairmanMaria Tam Wai Chu, GBS, JPAbraham Shek Lai Him, SBS, JP

REMUNERATION COMMITTEEMaria Tam Wai Chu, GBS, JP, Committee ChairmanAbraham Shek Lai Him, SBS, JPTsoi Tin Chun

NOMINATION COMMITTEEAbraham Shek Lai Him, SBS, JP, Committee ChairmanMaria Tam Wai Chu, GBS, JPPatrick Wong Siu Hung

COMPANY SECRETARYShirley Hui Wai Man

REGISTERED OFFICEClarendon House2 Church StreetHamilton HM11Bermuda

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS4902 Sun Hung Kai Centre30 Harbour RoadWanchaiHong Kong

PRINCIPAL BANKERSBank of ChinaChina Construction BankCitibank, N.A.Industrial and Commercial Bank of ChinaShanghai Pudong Development BankShenzhen Development Bank

AUDITORSErnst & Young

SOLICITORSReed Smith Richards ButlerSkadden, Arps, Slate, Meagher & Flom LLPTSMP Law CorporationConyers, Dill & PearmanHolman Fenwick WillanRajah & Tann LLPConcord & Partners Shanghai Office

PRINCIPAL REGISTRARSHSBC Securities Services (Bermuda) Limited6 Front StreetHamilton HM11Bermuda

HONG KONG BRANCH REGISTRARSTricor Tengis Limited26/F, Tesbury Centre28 Queen’s Road EastHong Kong

WEBSITEwww.petrotitan.com

STOCK CODE1192

CORPORATE INFORMATION

4902 Sun Hung Kai Centre30 Harbour Road, Wanchai, Hong KongTel: (852) 2116 1388 Fax: (852) 3107 1899

Website: www.petrotitan.com

2011 · 6 2011 nnua report chairman’s statement results the group’s revenue for the year 2011...

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