building vision - morningstar, inc

VISIONannual report 2008

ON YOURBUILDING

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CORPORATEPROFILE

We have a specialised focus on complex, sophisticated and environment friendly offshore support vessels

Corporate Profile

Business Segments

Corporate MIlestones

Executive Chairman’s Statement

CEO’s Statement

Financial Highlights

Board of Directors

Executive Officers

Group Structure

Financial Contents

C O N T E N T S

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Headquartered and listed in Singapore, Otto Marine Limited (“Otto Marine”) is an offshore marine group engaged in shipbuilding, ship repair and conversion and ship chartering, with a specialised focus on complex, sophisticated and environment friendly offshore support vessels.

Otto Marine has established a track record in shipbuilding, repair and conversion since the 1980s. In 2004, we started to focus on the higher margin offshore marine sector and built our first Anchor Handling Tug Supply (“AHTS”) vessel, which was successfully delivered in the following year. Led by an experienced management team, we have developed strong engineering and technical capabilities and gained recognition in the construction of high-specification offshore support vessels ever since, especially in the construction of AHTS vessels and Platform Supply Vessels (“PSV”s) that comply with the technical specifications required to operate in the North Sea. Indeed, Braemar Seascope Offshore lists Otto Marine as one of the top ten major players in the global market for AHTS vessels.

Our customers are primarily fleet operators who provide logistics support to offshore services and equipment companies operating globally in the oil and gas industry. We offer customers a total solutions approach, whereby customers are provided with turnkey solutions from the selection of design to project specification, procurement, construction, system installation and integration, testing, commissioning to warranty support. By combining in-house expertise and third party specialists’ support, we also provide ship repair and conversion services for a wide range of vessels including offshore support vessels, ocean-going tugs, car ferries, general cargo ships and others.

Otto Marine’s well-equipped and strategically located shipyard in Batam, Indonesia, plays an instrumental role in our ability to offer turnkey solutions to our customers. Due to its proximity to Singapore and highly accessible location in Batam, the shipyard provides us with a strategic advantage by allowing us to combine the management talent and expertise from Singapore and a ready supply of workers from Indonesia. One of the largest shipbuilding yards in Batam, with land area of 40 hectares and 450 metres of usable waterfront, the shipyard is well-equipped with some of the latest technology and facilities within the industry. It is currently the only shipyard in Asia which builds 21,000 Brake Horsepower (“bhp”) AHTS vessels on a turnkey basis using the latest design from renowned Norwegian ship design house Vik-Sandvik. Currently there are four such vessels on Otto Marine’s order book, a strong testament of customers’ confidence in us.

We remain committed to ensuring the smooth delivery of vessels to our customers even as we forge ahead with our plans to expand our ship chartering business to provide Otto Marine with a more stable source of income moving forward.

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OTTO MARINE LIMITED

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BUSINESSSEGMENTS

Strategic focus on the construction of complex, sophisticated and environment friendly offshore support vessels

Capability to build offshore support vessels that comply with technical specifications required to operate in the North Sea

Ability to provide customers with value-added and customised turnkey solutions

Capability to build a range of small, medium and large offshore support vessels:

Anchor Handling Tug Supply (“AHTS”) vesselsPlatform Supply Vessels (“PSV”)Work barges with accommodation for 300 peopleWork maintenance boats

Order book of S$799.2 million as at 31 December 2008, comprising 22 offshore support vessels

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Shipbuilding

We have diversified sources

of income that enable us to

capture opportunities and sail

through challenges in the global

marine and offshore industry

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Commenced in April 2007Focused largely on the chartering of offshore support vesselsTwo types of business models:

Own chartersCurrent fleet: five tugboats and five barges11 vessels being built, to be completed by 2009

Strategic partnershipsHold minority interests in the vessels One vessel currently in operationNine vessels under construction, sold to strategic partnersEight vessels under construction, intended for sale to strategic partners

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Offering comprehensive “one stop” facilities for both ship repair and conversion works through our Batam shipyard

Comprehensive work instruction procedure followed and strict quality control procedures via internal testing and checking of workmanship imposed by us

Wide range of vessels serviced, such as:Offshore support vesselsOcean-going tugsCar ferries and General cargo ships

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Ship Chartering Ship Repair &Conversion

OTTO MARINE LIMITED


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Successfully listed on the Mainboard of the Singapore Stock Exchange on 28 November 2008

Entered into agreement to build the Group’s first offshore construction vessel

Established a representative office in China

Secured the Group’s first orders for 21,000 bhp AHTS vessels and diesel electric driven PSVs

Commenced strategic partnerships with fleet operators for the chartering business

Commenced chartering operations with five tugs and five barges

Established a branch in the UAE to further support Middle East chartering business

Secured orders for 10,800 bhp AHTS vessels, the Group’s first orders of sophisticated deep water offshore vessels

Delivered first AHTS vessel

Divested Tuas Shipyard, began focusing on production of offshore vessels

Invested in additional facilities and equipment for shipbuilding, including the construction of the Syncrolift®

Incorporated PT Batamec and expanded shipyard

Established JV to develop and operate a shipyard in Batam

Established a shipyard in Tuas, Singapore

Company incorporated as Otto Industrial Co (Pte) Ltd, focused on ship repair and building of tugboats and barges

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CORPORATEMILESTONES

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BROADER HORIZONSREACHING

WE INTEND TO CONSOLIDATE OUR CURRENT MARKET POSITION BY CAPITALISING ON OPPORTUNITES IN THE GLOBAL MARINE AND OFFSHORE INDUSTRY AND TO ENHANCE OUR COMPETITIVENESS.

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EXECUTIVE CHAIRMAN’SSTATEMENT

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Dear Shareholders,

2008 has been an exciting year for us, which culminated with the listing of Otto Marine on the Main Board of the Singapore Stock Exchange in November. Being a listed company has enabled Otto Marine to further distinguish ourselves as a strong and formidable player in the offshore and marine industry, and positioned us well for long-term growth.

Delivering strong growth

Our Group achieved 54% growth in revenue to S$483.6 million and 12% rise in net profit to S$60.0 million for the full year ended 31 December 2008 (“FY2008”). FY2008 net profit attributable to shareholders was S$56.8 million, up 36% from S$41.9 million in FY2007. Our performance attests to the success of our Group’s strategic focus on the more complex and sophisticated offshore vessels, together with our strategy of diversifying our sources of income by expanding our ship chartering business.

The construction of complex and sophisticated offshore vessels which comply with technical specifications required to operate in the North Sea generally produces better margins for us. Our strong engineering and technical capabilities, coupled with our solid track record of delivering vessels that meet our customers’ expectations,

has enabled our Group to gain recognition in the construction of high-specification offshore support vessels. In fact,

our Group is considered one of the top ten major players in the global market of Anchor Handling Tug Supply (“AHTS”) vessels by industry analyst Braemar Seascope Offshore and as at 31 December 2008, we

have a forward order book to construct 22 vessels worth a total of S$799.2 million.

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We believe that the demand for offshore support vessels will continue to shift towards vessels that are larger and more sophisticated in terms of their engine capacity, bollard pull and navigational equipment as the search for, and production of, offshore oil and gas become more demanding both in terms of increasing water depths and severe weather conditions. In addition, current industry trends call for vessels with improved design on stability capabilities and inherently safer and environment friendly operation. We believe these trends will provide strong support for the vessels that we build.

Ship chartering is another key area of business for our Group and we aim to grow this business into a major pillar of our Group income. A long-term stable source of income from ship chartering will complement our shipbuilding business. We either own charter vessels directly, or jointly with experienced operators with a stable presence in buoyant offshore areas through strategic partnerships. Our strategic partnerships enable us not only to leverage on our partners’ strengths in marketing and operations, but also allow us to penetrate new and developing markets. As at 31 December 2008, we have a charter fleet of 11 vessels, which include vessels owned directly and through strategic partnerships.

Focusing on execution

In 2009, the timely execution of our order book will continue to be a key focus. This includes the completion of two Norwegian-design MT6009 DNV-class diesel electric Platform Supply Vessels (“PSVs”), which represent our very first Norwegian-design DNV-class vessels to our JV partner, GC Rieber. We are also working on four AHTS vessels for our Norwegian customer that are highly-specialised 21,000 Brake Horsepower (“bhp”) AHTS vessels which adopt the latest VS491 design from renowned Norwegian ship design house Vik-Sandvik. To expand our chartering fleet

in FY2009, we have secured a new loan of US$26.8 million to finance the construction of two offshore support vessels. Our shipbuilding yard in Batam, Indonesia, is the only one in Asia which builds these AHTS vessels on a turnkey basis.

The offshore marine sector, together with many industries, has been affected negatively by the turbulence in the economic environment and the industry has experienced a significant slowdown in new shipbuilding order in recent months and these adverse external market and economic conditions are expected to remain for the rest of the year 2009. We will actively and cautiously review our long term strategies in this market place to deliver value to our shareholders.

Appreciation to All

The listing of Otto Marine on the Main Board of the Singapore Stock Exchange is indeed a major milestone for us and it signifies another fresh chapter in our business.

On behalf of the Board of Directors, I would like to thank our customers, business partners, bankers and suppliers for your support; our employees for your hard work, dedication and sacrifice; and our shareholders and investors for your confidence in us.

Otto Marine will remain dedicated to our quest to continue building our business, building vessels that meet our customers’ exacting standards, and of course, building shareholders’ value.

OTTO MARINE LIMITED


Yours Sincerely,

Yaw Chee SiewExecutive Chairman

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CEO’SSTATEMENT

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Dear Shareholders,

I am pleased to present the first Otto Marine annual report, and to report that in our first year as a listed company, we have turned in a strong performance for the full year ended 31 December 2008 (“FY2008”).

Review of FY2008 financial performance

The Group achieved 54% growth in revenue in FY2008 to S$483.6 million from S$314.0 million in FY2007. The increase was contributed by the shipbuilding business, which benefited from an increase in the number of vessels constructed, particularly from the larger and more complex vessels, which are of higher value; as well as the chartering business, which benefited from the recognition of the full twelve months of revenue in FY2008 compared to FY2007 as our Group only commenced our ship chartering business in April 2007. Revenue from shipbuilding rose 58% from S$286.0 million in FY2007 to S$453.1 million in FY2008, whilst revenue from chartering increasing 74% from S$9.3 million in FY2007 to S$16.1 million in FY2008. The increase in Group revenue was however partially offset by a 23% decrease in revenue from the ship repair and conversion business from S$18.8 million in FY2007 to S$14.4 million in FY2008 as we shifted our focus away from ship repair and conversion to shipbuilding.

Gross profit margin in FY2008 remained stable at approximately 26%. However net profit margin was impacted by higher foreign exchanges losses, finance costs, administrative expenses and reversal of unrealised profit on sale of vessels. Notwithstanding the decline in net profit margin, net profit for FY2008 was up 12% from S$53.7 million in FY2007 to S$60.0 million in FY2008. Meanwhile, earnings per share in FY2008 rose 33% to 5.72 Singapore cents, from 4.30 Singapore cents in FY2007.

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OTTO MARINE LIMITED


Our balance sheet remained strong with S$248.7 million of cash and cash equivalents and Group net asset value per share of 18.55 Singapore cents as at 31 December 2008.

Our shipbuilding business

We build a range of small, medium and large offshore support vessels, including Anchor Handling Tug Supply (“AHTS”) vessels, Platform Supply Vessels (“PSV”), work barges with accommodation for 300 people, and work maintenance boats. We have a strategic focus on higher value, higher margin, complex and sophisticated offshore vessels which comply with technical specifications required to operate in the North Sea. We selectively outsource the construction of small to medium offshore support vessels to third party shipyards in China whilst the higher value offshore support vessels are constructed at our shipyard in Batam, Indonesia, which is one of the largest shipyards in Batam with approximately 40 hectares of land area and 450 metres of usable waterfront.

We adopt a total solutions approach to shipbuilding, which means we provide our customers with turnkey solutions from the selection of design to project specification, procurement, construction, system installation and integration, testing, commissioning to warranty support. Our turnkey approach enables us to provide greater value-added customised solutions to our customers.

In the fourth quarter of FY2008, new ship orders have slowed due to the global economic downturn but none of our orders were cancelled. As at 31 December 2008, the Group’s order book stood at S$799.2 million, comprising of 22 vessels, which include 14 AHTS vessels, four PSVs, two utility vessels, one offshore construction vessel and one accommodation work barge. Cash deposits of between 20% to 30% have been collected for all vessels in the order book.

Our focus in 2009 for our shipbuilding business will be on the execution and completion of vessels in our order book, which will translate to sales proceeds that will help to boost our cash inflows and further strengthen our financial position. We are off to a good start, having already completed delivery of, and received full payment for a vessel in the first two months of 2009.

Our ship chartering business

Our chartering business is largely focused on the chartering of offshore support vessels and we operate the business via our wholly-owned fleet as well as through strategic partnerships in which we own a minority stake. Entering into such strategic partnerships enable us to tap into the expertise of our strategic partners, who are involved in chartering of different types of offshore vessels in different markets and locations, thereby allowing us to penetrate new markets faster and at higher charter rates than if we go alone.

Our chartering business provide our Group with a long term steady flow of income, and is in line with our business strategy of broadening our revenue base. As at 31 December 2008, our fleet comprises five 3,600 Horsepower tugboats, and five 10,000 Deadweight Tonnes (“dwt”) high-deck loading barges, all of which are on time charter. We also own one work barge with accommodation for 300 people through our strategic partnership that is on time charter. In addition, we have entered into time charter contracts for two 61m maintenance vessels, and bareboat charter agreements for two 6,000 bhp AHTS vessels, all of which are currently under construction.

In 2009 our emphasis for our ship chartering business will be on expanding our chartering fleet. We have 11 vessels, which comprise two maintenance vessels, five tugs, two 6,000 bhp AHTS vessels and two work barges with accommodation for

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300 people, that will be completed in 2009 to add to our chartering fleet. Also under construction are nine vessels that have been sold to our strategic partners, and eight vessels that are intended for sale to our strategic partners.

Our ship repair and conversion business

Our Batam shipyard offers comprehensive “one stop” facilities for both ship repair and conversion works. We service a wide range of vessels including offshore support vessels, ocean-going tugs, car ferries and general cargo ships.

Whilst we have shifted our focus away from the ship repair and conversion business in FY2008, the business is important to our strategy of broadening our revenue base. In the event of a slowdown in the shipbuilding business, we will be able to diversify our sources of income by reallocating our resources and capacity to increase our ship repair and conversion business.

Business outlook

Although market and economic conditions are expected to remain difficult in 2009, we are optimistic that we will perform despite the environment. We will continue to be conscious of costs, and plan to review and further streamline our production process this year in line with our continuing and ongoing efforts to improve efficiency and productivity. Nonetheless, we believe that the long term outlook for the offshore marine industry remains positive, and are cautiously confident that we will be able to ride through the current economic situation and emerge stronger and well-positioned for growth.

Lee Kok WahChief Executive Officer and

Group Managing Director

We believe that the long term outlook for the offshore marine

industry remains positive, and are cautiously confident that we

will be able to ride through the current economic situation and

emerge stronger and well-positioned for growth.

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Profit Attributable to Shareholders (SGD millions)

FINANCIALHIGHLIGHTS

Revenue (SGD millions)

14.4

Net Profit (SGD millions)

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080706 080706

16.1

453.1

18.8

9.2

286.0

15.7

131.6

Shipbuilding Ship Chartering

Ship Repair and Conversion

81%CAGR

60.0

53.7

13.7

109%CAGR

080706

56.8

41.9

20.2

S$’ millions FY2006 FY2007 FY2008

Current Assets 134.4 477.0 732.6

Non-current Assets 19.4 104.9 245.8

Total Assets 153.8 581.9 978.4

Current Liabilities 120.0 412.2 617.8

Non-current Liabilities 28.0 111.9 141.6

Total Liabilities 148.0 524.1 759.4

Equity attributable to Otto Marine’s shareholders 23.5 61.8 219.0

S$’ millions FY2006 FY2007 FY2008

Net cash from/(used in) operating activities 43.0 71.9 (81.6)

Net cash used in investing activities (7.9) (76.9) (98.9)

Net cash from financing activities 21.9 165.5 216.0

Net increase in cash and cash equivalent 57.0 160.5 35.5

Effects of exchange rate changes on the balance of cash held in foreign currencies

- - (0.7)

Cash and cash equivalent (overdrawn) at beginning of year (3.6) 53.4 213.9

Cash and cash equivalent at end of year 53.4 213.9 248.7

Consolidated Balance Sheet

Consolidated Cashflow Statement

68%CAGR

OTTO MARINE LIMITED

147.3

314.0

483.6

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BOARD OFDIRECTORS

Front L to R: Yaw Chee Siew, Lee Kok Wah, William Edward Alastair Morrison, Back L to R: Craig Foster Pickett, Reggie Thein and Ng Chee Keong

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OTTO MARINE LIMITED

annual report 2008 ��

Yaw Chee SiewExecutive Chairman

Mr Yaw Chee Siew is our Executive Chairman, and is responsible for our overall strategy and corporate governance. Prior to joining us in 2001, Mr Yaw founded SunChase Holdings Inc, a USA-based real estate investment and development company in 1986 and divested all his interests in 2006. Mr Yaw is also the founding chairman of Perdana Parkcity Sdn Bhd, a real estate company that is currently developing a 500-acre master planned community in Kuala Lumpur, Malaysia.

Lee Kok WahChief Executive Officer and Group Managing Director

Mr Lee Kok Wah is our Chief Executive Officer and Group Managing Director, and is primarily responsible for developing and implementing the strategic plan for the entire Group, as well as the day-to-day running of our Company. He started his career in the early 1970s working as a corporate finance executive with the Singapore International Merchant Bankers Ltd, before joining Neptune Orient Lines Limited in 1974 and rising through the ranks until he was running their Straits/Australia and Europe/South Asia liner services in 1982. In 1984, he joined Envi Holdings Pte Ltd, which has subsidiaries operating in the shipping, hotels, trading and mining sectors, as its general manager, before moving on to his own business consultancy firm in 1988.

William Edward Alastair MorrisonNon-executive and Non-independent Director

Mr William Edward Alastair Morrison is our Non-executive and Non-independent Director, and is a member of our Audit Committee. He has more than 25 years of experience in the financial industry, and is currently the Co-Global Head and Managing Director at Standard Chartered Private Equity Limited, which he joined in 2002. Mr Morrison has extensive experience in direct investment roles, having previously been with 3i Group plc since 1981, where he left as Director of 3i Asia Pacific Ltd.

Craig Foster PickettNon-executive & Non-independent Director

Mr Craig Foster Pickett is our Non-executive and Non-independent Director, and a member of our Remuneration Committee and Nominating Committee. He currently provides investment advisory services through Sunchase Investments LLC. Mr Pickett also had a career in public accounting for over 35 years and was a managing partner for Ernst and Young

LLP for over 21 years. He was particularly focused on publicly registered companies, as well as those backed by venture capital or private equity and other fast growing enterprises during his tenure with Ernst and Young LLP. Mr Pickett is a Certified Public Accountant, has a Bachelor of Science degree in Economics from University of Utah and a Masters in Business Administration degree from UCLA.

Ng Chee KeongIndependent Director

Mr Ng Chee Keong is our Independent Director, the chairman of our Nominating Committee and Remuneration Committee and a member of our Audit Committee. He is currently an independent director of Mermaid Maritime Public Company Limited; a board member of the Centre for Maritime Studies, National University of Singapore; and a non-executive director and special advisor of PSA International Pte Ltd. Mr Ng joined PSA in 1971 and held various positions, including group president and chief executive officer, before retiring from his executive roles in 2005. Mr Ng was awarded the Public Administration Silver Medal in 1992 and the Public Administration Gold Medal in 1997 by the Singapore Government.

Reggie TheinIndependent Director

Mr Reggie Thein is our Independent Director. He is also a Director of United Overseas Bank Limited; a Board member and Chairman of the Audit Committee of several listed companies in Singapore, among them GuocoLand Limited, Haw Par Corporation Limited, GuocoLeisure Limited (formally known as BIL International Limited), MobileOne Ltd, Keppel Telecommunications & Transportation Limited, MFS Technology Ltd, FJ Benjamin Holdings Ltd and Grand Banks Yachts Limited.

Mr Thein is a member of the Governing Council of the Singapore Institute of Directors, a fellow of the Institute of Chartered Accountants in England and Wales and member of the Institute of Certified Public Accountants of Singapore. He was previously a Senior Partner of PricewaterhouseCoopers, Vice Chairman of Coopers & Lybrand, and Managing Partner of its management consulting services firm. He was awarded the Public Service Medal by the President of Singapore in 1999.

Mr Thein attended and chaired the Audit Committee meeting of Otto Marine held on 18 December 2008.

BOARD OFDIRECTORS

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EXECUTIVEOFFICERS

Chua Peng ChuaGeneral Manager (PT Batamec)

Mr Chua Peng Chua is our General Manager of PT Batamec and is in charge of its day-to-day operations. Prior to joining us in 2007, Mr Chua was a general manager with Pan-United Marine Limited, as well as a director and general manager with PT Pan United Shipyard Indonesia, and was responsible for shipbuilding and ship repair. Before that, he was a director at Mondo Beni (Singapore) Co. Pte. Ltd. in charge of trading activities of the company for 2 years. Mr Chua started his marine profession with Keppel Shipyards in 1969 and rose through the ranks to attain the position of general manager.

Koh Keng Teck @ Koh Gan PinGeneral Manager (OM Offshore)

Mr Koh Keng Teck @ Koh Gan Pin is our General Manager of OM Offshore since 2007. Mr Koh has more than 30 years of experience in project management for the construction of offshore drilling rigs. Mr Koh’s previous experience includes working as the senior project manager with PPL Shipyard Pte. Ltd. and the general manager of Offshore Procurement Management Pte. Ltd. Mr Koh was also with Far East Levingston Shipbuilding Limited (presently known as Keppel FELS Limited) for 20 years, where his responsibilities included supervising the turnkey floating production, storage and offloading projects. Mr Koh started his offshore career in 1973 with Sembawang Shipyard, where he was a technical assistant in the area of construction of offshore projects.

Lum Kin WahGroup General Manager (Operation)

Mr Lum Kin Wah is our Group General Manager (Operation) and is responsible for the general management of all our shipyard and shipbuilding activities. Mr Lum joined Otto Marine in 2003 as the Senior General Manager of PT Batamec before his appointment to the present position in 2007. Mr Lum has more than 35 years of experience in the marine industry in various roles ranging from apprentice to general manager and director in companies including Keppel Shipyard subsidiary (Keppel Philippines) and PT Pan-United Shipyard Indonesia. He was also the managing director of Nexus Engineering Pte.

Ltd., which is a member of the Labroy engineering group. Mr Lum joined our Group from Marine CadCam Pte. Ltd where he held the position as executive director where he specialised in ship modeling services utilising the TRIBON software. He is a Chartered Engineer registered in the UK, a member of the Royal Institution of Naval Architecture and a member of the Society of Naval Architects and Marine Engineers in Singapore.

Ong Tian KhiamManaging Director (OM Offshore)

Mr Ong Tian Khiam is the Managing Director of OM Offshore since 2007, which spearheads our offshore division and development projects. He has over 37 years of working experience in shipbuilding and rigbuilding industries, during which he undertook managerial and executive roles at companies such as Far East Levingston Shipbuilding Limited (presently known as Keppel FELS Limited), Promet Private Limited and Sembawang Shipyard and its group of companies. Before joining us, Mr Ong was the Managing Director of PPL Shipyard Pte Ltd, where he assisted to expand its oil rig related business. Mr Ong is a registered member of the Singapore Professional Engineers Board and a member of the Institute of Engineers, Singapore.

See Kian HengChief Financial Officer

Mr See Kian Heng joined us in 2007 as our Chief Financial Officer and is responsible for our financial control matters. Mr See has comprehensive experience in managing public listed companies both in Singapore and overseas. His appointments include being the financial controller of the Hong Leong group of companies, the group managing director of Falmac Limited, the chief financial officer and chief operating officer of Ghim Li Holdings Pte. Ltd. and the executive director and financial controller of Aussino International Corporation Pte Ltd in Perth, Australia. He also held the post of general manager in finance and administration at Quill Stationery Manufacturers Pty Ltd in Sydney, Australia. Mr See is currently an Independent Director of Nippecraft Limited. Mr See is a Certified Practising Accountant registered with the Australian Society of Certified Practising Accountants, a member of the Institute of Certified Public Accountants of Singapore, the Marketing Institute of Singapore and the Singapore Institute of Directors.

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Standing L to R: Lum Kin Wah, Chua Peng Chua and See Kian Heng

OTTO MARINE LIMITED

Seated L to R: Koh Keng Teck @ Koh Gan Pin and Ong Tian Khiam

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GROUPSTRUCTURE

Otto Marine Limited UAE Branch

10 SPCs PL100%

Otto Fleet PL100%

Otto Investments (L) 100%

Otto Ventures PL

5 Tarpon SPCs PL100%

Aries Offshore Singapore PL

49%

W.A.I.L. 49%

Otto Strategic PL 100%

Sea Dolphin Finance Limited BVI1

100%

Otto Offshore (L)100%

PT Lestari95%

PT Batamec95.22%

Otto MarineRepresentative Office

(Foshan)

OM Offshore PL 100%

Otto Offshore(Qidong) Limited

100%

Own Fleet

Strategic Partnership

Global Sales

Shipyard

China Operations

Otto 2 Ltd 100%

Otto 1 Ltd 100%

Chartering Shipbuilding and Ship Repairs Note: (1) Currently dormant

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FINANCIAL CONTENTS

18................................CORPORATE GOVERNANCE REPORT

30.......................................................... DIRECTORS’ REPORT

34..................................INDEPENDENT AUDITORS’ REPORT

35...............................................................BALANCE SHEETS

37............. CONSOLIDATED PROFIT AND LOSS STATEMENT

38............................ STATEMENTS OF CHANGES IN EQUITY

40....................... CONSOLIDATED CASH FLOW STATEMENT

42.................................NOTES TO FINANCIAL STATEMENTS

95...............................................STATEMENT OF DIRECTORS

96...................................... STATISTICS OF SHAREHOLDINGS

99........................NOTICE OF ANNUAL GENERAL MEETING

PROXY FORM

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CORPORATEGOVERNANCE REPORT

The Board of Directors of Otto Marine Limited (“Board”) recognises the importance of corporate governance and is

committed to setting and maintaining a high standard thereof. The Company is guided in its corporate governance

practices by the Code of Corporate Governance 2005 (the “Code”) issued by the Singapore Council on Corporate

Disclosure and Governance so as to protect shareholders’ interests and enhance long-term shareholders’ value and

corporate transparency. This Corporate Governance Report outlines the Group’s corporate governance processes

and activities during the fi nancial year ended 31 December 2008 with specifi c reference to the Code.

PRINCIPLE 1: BOARD’S CONDUCT OF ITS AFFAIRS

The Board is responsible for the overall direction and management of the Group. Its role involves the protection

and enhancement of long-term Shareholders’ value through the enhancement of corporate performance and

accountability. The Board oversees and approves the formulation of our Group’s overall long-term strategic objectives

and directions, and sets its values and standards. It is responsible for our Group’s overall performance objectives,

fi nancial plans and annual budget; major investments, divestment and funding proposals; fi nancial performance

reviews, risk management, and corporate governance practices; and ensuring our Group’s compliance with all laws

and regulations as may be relevant to our Group’s business. The Board also approves the policies and guidelines

for the Board and our Senior Management remuneration as well as the appointment of Directors. In line with

best practices in corporate governance, the Board also oversees long-term succession planning for our Senior

Management.

The Board has adopted a set of internal controls and guidelines for our Management to operate within. These

internal controls and guidelines set authorisation and approval limits for operating matters. Apart from matters that

specifi cally require the Board’s approval, such as investments, acquisitions, disposals, borrowings, issue of shares,

dividend distributions and other returns to Shareholders, the Board approves operational matters where the value of a

transaction exceeds these limits.

To assist in the execution of its responsibilities, the Board has established three committees as follows:

a. Audit Committee (“AC”);

b. Nominating Committee (“NC”); and

c. Remuneration Committee (“RC”).

Each committee functions within clearly defi ned terms of reference and operating procedures. The effectiveness of

each committee is also constantly reviewed by the Board.

The Board conducts regular scheduled meetings on a quarterly basis. Ad-hoc meetings can also be convened when

circumstances require. If necessary, Board meetings may be conducted by way of telephone or video conferencing as

permitted under Article 116 of the Company’s Articles of Association.

The Company was listed on the SGX-ST on 28 November 2008 and except for the fi rst AC meeting on 18 December

2008, where all members of the AC, Mr Reggie Thein, Mr Ng Chee Keong and Mr William Edward Alastair Morrison

attended, there were no meetings of the Board or the NC and RC in the fi nancial year ended 31 December 2008.

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OTTO MARINE LIMITED

annual report 2008 19


Our Directors are provided with regular updates on changes in the relevant laws and regulations to enable them to

make well-informed decisions and to ensure that our Directors are competent in carrying out their expected roles and

responsibilities. Our Management also conduct orientation programme and briefi ngs, where necessary, to familiarise

newly appointed Directors with the various businesses, operations and processes of the Group. Mr Yaw Chee Siew

and Mr Lee Kok Wah, who are acting as directors of a listed company in Singapore for the fi rst time, have also

undertaken training on the roles and responsibilities of being a director of a listed company. Mr Craig Foster Pickett,

who is also acting as Director of a listed company in Singapore for the fi rst time, has been briefed by the Company’s

legal advisers on the responsibilities and obligations of a director of a public listed company in Singapore and he will

in due course undergo training on the same.

The Board may also request for further explanations, briefi ngs or information on any aspect of the Company’s

operations or business issues from our Management.

PRINCIPLE 2: BOARD COMPOSITION AND GUIDANCE

The Board currently has six Directors, comprising two Executive Directors, two Non-executive Directors and two Independent Directors, namely: -

(i) Mr Yaw Chee Siew (Executive Chairman)

(ii) Mr Lee Kok Wah (Chief Executive Offi cer/Group Managing Director)

(iii) Mr Craig Foster Pickett (Non-executive Director)

(iv) Mr William Edward Alastair Morrison (Non-executive Director)

(v) Mr Ng Chee Keong (Independent Director)

(vi) Mr Reggie Thein (Independent Director)

Both Mr Ng Chee Keong and Mr Reggie Thein, who are our Independent Directors, do not have any existing business

or professional relationship with our Group, our Directors or Substantial Shareholders.

Mr Craig Foster Pickett is a Non-executive Director of our Company, owing to his ongoing business relationship with

our Executive Chairman, Mr Yaw Chee Siew. Mr Craig Foster Pickett does not provide us any professional services

other than being a Director of the Board.

Mr William Edward Alastair Morrison is a Non-executive Director of our Company. He was appointed by our Company

pursuant to our Substantial Shareholder, Business Companion Investments’ obligation under an agreement with

Standard Chartered Private Equity Limited. Mr William Edward Alastair Morrison is also a director of Standard

Chartered Private Equity Limited. For more details, please see the section entitled “Substantial Shareholders and

Vendors — Exchangeable Loan Agreement” in pages 145 to 147 of the Company’s Prospectus dated 21 November

2008.

The Board from time to time examines its size and considers the appropriateness of the size and number of Board

committees. The Board considers that the current Board size (6) and number of Board committees are appropriate for

effective decision-making, taking into account the scope and nature of the operations of the Group.

Our Management and our Company benefi t from the Board’s varied and objective perspectives on issues brought

before it. The Board considers that its Directors possess the necessary experience and knowledge to lead our Group

effectively. The profi le of each of the Directors is provided in the “Board of Directors” section on pages 13 of this

annual report.

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Our Non-executive Directors and our Independent Directors participate actively in the Board committees. They are

free to request for further clarifi cation and independent access to our Senior Management. When necessary, our Non-

executive Directors and/or our Independent Directors may initiate meetings to address any specifi c matter involving

any other member of our Management, if required.

PRINCIPLE 3: CHAIRMAN AND CHIEF EXECUTIVE OFFICER

There is a clear separation of the roles and responsibilities between our Executive Chairman and our Chief Executive

Offi cer. Our Executive Chairman and our Chief Executive Offi cer are not related.

Our Executive Chairman is responsible for charting the strategic direction and growth of our Group. He also facilitates

and ensures active and comprehensive Board discussions on Company matters and monitors the translation of the

Board’s decisions into executive actions. He exercises control over the quality, quantity and timeliness of information

fl ow between the Board, the Management and the Shareholders. Our Executive Chairman encourages interactions

between the Board and the Senior Management, as well as between the Executive Directors and Non-executive

Directors. Our Chief Executive Offi cer executes the Board’s decisions and is responsible for implementing our Group’s

strategies and policies, and the conduct of our Group’s business.

PRINCIPLE 4: BOARD MEMBERSHIP

The Board has set up the NC to ensure that there is a formal and transparent process for the appointment of new

directors to the Board. The NC consists of two Independent Directors and a Non-executive Director. Its members are

Mr Ng Chee Keong, Mr Reggie Thein and Mr Craig Foster Pickett. The chairman of the NC is Mr Ng Chee Keong.

The NC is responsible for, inter-alia:

(i) reviewing and making recommendations to the Board on all candidates nominated (whether by the Board,

Shareholders or otherwise) for appointment to the Board and re-nomination of our Directors having regard to

their contribution and performance;

(ii) determining annually whether or not a Director is independent;

(iii) deciding whether or not a Director is able to and has been adequately carrying out his duties as a Director; and

(iv) evaluating the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness

of the Board.

The Board is subject to assessment by the NC for evaluation of its effectiveness as a whole. The NC will decide how

the Board’s performance is to be evaluated and will propose objective performance criteria, subject to the approval

of the Board, which will address how the Board has enhanced long-term Shareholders’ value. The NC is also

responsible for assessing the contribution by each individual Director to the effectiveness of the Board. Each member

of the NC is required to abstain from voting on any resolutions and making any recommendations and/or participating

in any deliberations of the NC in respect of the assessment of his own performance or re-nomination as Director.

The Company’s Articles of Association require one-third of our Directors to retire and subject themselves to re-election

by Shareholders at every Annual General Meeting of the Company (“AGM”) (“one-third rotation rule”). Retiring Directors

are selected on the basis of their length of service since their last re-election, failing which they shall be selected by

agreement or by lot. Under Article 89 of the Company’s Articles of Association, the one-third rotation rule does not

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apply to the person holding the position of Managing Director and he shall not be subject to retirement or rotation or taken into account in determining the rotation or retirement of Directors. The NC considers the provision adequate and does not recommend any change to the Company’s Articles of Association. Pursuant to the one-third rotation rule, Mr Yaw Chee Siew and Mr William Edward Alastair Morrison will submit themselves for retirement and re-election by Shareholders at the forthcoming AGM.

The directorships, both present and those held over the preceding three years in other listed companies by the Directors are as follows:

Name Present directorships Past directorships

Yaw Chee Siew Otto Marine Limited

Lee Kok Wah Otto Marine Limited

Craig Foster Pickett Otto Marine Limited

William Edward Alastair Morrison Otto Marine Limited NatSteel Ltd (now known as

Amtek Engineering Limited

Straits Resources Limited

NSL Ltd)

Reggie Thein Otto Marine Limited Lindeteves – Jacoberg Limited

F J Benjamin Holdings Ltd

GuocoLeisure Limited

Guocoland Limited

Haw Par Corporation Limited

Keppel Telecommunications &

Transportation Ltd

Mobileone Ltd

United Overseas Bank Limited

Grand Banks Yachts Limited

MFS Technology Ltd

Ng Chee Keong Otto Marine Limited CWT Limited

Mermaid Maritime Public Company

Limited

Frontline Technologies Corporation

Limited (now known as BT

Frontline Pte. Ltd.)

STX Pan Ocean Co., Ltd

PRINCIPLE 5: BOARD PERFORMANCE

All Directors will assess the effectiveness of the Board as a whole and the results of each assessment will be considered by the NC, which has the responsibility of assisting the Board in the evaluation of the Board’s effectiveness. Factors such as the structure and size of the Board, the manner in which the Board meetings are conducted, the Board’s access to information, access to the Management and external experts outside the meetings are considered to evaluate the Board’s performance as a whole. The assessment of both our Executive Chairman and our Chief Executive Offi cer’s performance is undertaken by the NC. Each member of the NC will abstain from making any recommendation and/or participating in any deliberation of the NC and from voting on any resolution, in respect of the assessment of his own performance or re-nomination as a Director.

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PRINCIPLE 6: ACCESS TO INFORMATION

The Board is free to request for further clarifi cation and also has separate and independent access to our Senior

Management, as well as to a Company Secretary. In the furtherance of their duties, Directors may consult independent

professional advice, if necessary, at the Group’s expense.

The Directors are provided with Board Papers before each meeting of the Board to enable them to be properly

informed of matters to be discussed and/or approved. Board Papers will contain both regular items such as budget,

quarterly management reports and year-end fi nancial statements, as well as matters for the decision or information

of the Board. In respect of the budget, any material variance between the budget, the latest forecast and the actual

results will be disclosed and explained. From time to time, our Management will brief our Directors at Board meetings

when there are changes in regulation and/or accounting standards, which would have an impact on the disclosure

obligations or the fi nancial position of our Company. Directors will also be given analysts’ reports so that they are

apprised of analysts’ views on our Company’s performance.

As a general rule, Board and Board committee papers will be distributed to our Directors three days before the

meeting. When necessary, our Senior Management participate in Board meetings to provide additional insights. A

Company Secretary attends all Board and committee meetings and is responsible for, among other things, ensuring

that Board procedures are observed and that applicable rules and regulations are complied with.

PRINCIPLE 7: PROCEDURES FOR DEVELOPING REMUNERATION POLICIES

The RC consists of two Independent Directors and one Non-executive Director. Its members are Mr Ng Chee Keong,

Mr Reggie Thein and Mr Craig Foster Pickett. The chairman of the RC is Mr Ng Chee Keong.

The RC is responsible for recommending to the Board a framework of remuneration for our Directors, Chief Executive

Offi cer, Chief Financial Offi cer, Group General Manager and other members of our Senior Management who the RC

may decide from time to time, and determining specifi c remuneration packages for each of them. Recommendations

of the RC will be submitted for endorsement by the entire Board. All aspects of remuneration, including but not

limited to directors’ fees, salaries, allowances, bonuses, options and benefi ts in kind shall be covered by the RC.

Each member of the RC is required to abstain from voting on any resolutions and making recommendations and/or

participating in any deliberations of the RC in respect of his remuneration package. If a member of the RC has an

interest in a matter being deliberated by the committee, he will abstain from participating in the review and approval

process of the RC in relation to that matter.

In setting remuneration packages, the RC takes into account the respective performance of our Group and the

individual. In its deliberation, the RC takes into consideration, remuneration packages and employment conditions

within the industry and benchmarked against comparable companies.

Share Award Scheme

The Company has in place a share-based incentive plan (“Share Award Scheme”) which allow certain of its employees

to participate in the Company’s growth. It was introduced in order for our Company to provide our Directors (excluding

Mr Lee Kok Wah and Controlling Shareholders or associates of Controlling Shareholders), executives and full-time

employees (the “Participants”), a stronger and more lasting sense of identifi cation with our Company, whereby the

Participants are conferred rights to be issued or transferred Shares in our Company (“Award Shares”) or their cash

equivalent or a combination of both (collectively, the “Award”). It also strengthens our Company’s competitiveness

in attracting and retaining talented key executives, aligns the interests of key executives with that of Shareholders

towards improving performance and achieving sustainable growth for our Company, and fosters an ownership culture

amongst key executives. Up until 31 December 2008, our Company has not issued any Awards pursuant to the

Share Award Scheme. Details of the Share Award Scheme can be found in the Directors’ Report.

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PRINCIPLE 8: LEVEL AND MIX OF REMUNERATION

The Company’s remuneration policy is to provide remuneration packages which will reward performance and attract,

retain and motivate Directors and key executives to run the business successfully.

Our Executive Directors have service contracts for an initial period of three years which include performance bonuses.

The RC shall review the drafts of all service contracts between an Executive Director and the Company before giving

its recommendations to the Board. Our Company has issued appointment letters to our Non-executive Directors

and Independent Directors. Our Non-executive Directors and Independent Directors receive directors’ fees for their

responsibilities and contributions to the Board. Our Executive Directors do not receive any directors’ fees. The

payment of directors’ fees to our Non-executive Directors and Independent Directors is subject to the approval of

shareholders at the AGM.

No Director or member of the RC shall be involved in deciding his own remuneration, compensation, options or any

form of benefi ts to be granted to him, except for providing information and documents specifi cally requested by the

RC to assist it in its deliberations.

PRINCIPLE 9: DISCLOSURE OF REMUNERATION

There is no employee of our Group who is an immediate family member of a Director or Substantial Shareholder

whose remuneration exceeds S$150,000 for the fi nancial year ended 31 December 2008.

The following table shows the breakdown of remuneration of our Executive Directors, Non-executive Directors and top

fi ve key executives in percentage terms which falls within bands of S$250,000:

Remuneration Bands Salary Bonus Other Benefi ts Fees Total

Executive Directors

Above S$1,000,000

Mr Yaw Chee Siew 42% 57% 1% – 100%

Mr Lee Kok Wah 42% 57% 1% – 100%

Non-executive Directors

Up to S$250,000

Mr Craig Foster Pickett – – – 100% 100%

Mr William Edward Alastair Morrison – – – 100% 100%

Mr Ng Chee Keong – – – 100% 100%

Mr Reggie Thein – – – 100% 100%

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Remuneration Bands Salary Bonus Other Benefi ts Fees Total

Executives

Above S$1,000,000

Mr Lum Kin Wah 27% 71% 2% – 100%

S$500,000 to S$750,000

Mr Ong Tian Khiam 57% 37% 6% – 100%

S$250,000 to S$500,000

Mr Chua Peng Chua 43% 57% – – 100%

Mr Koh Keng Teck @ Koh Gan Pin 63% 37% – – 100%

Mr See Kian Heng 51% 49% – – 100%

PRINCIPLE 10: ACCOUNTABILITY

The Board provides Shareholders with quarterly and annual fi nancial reports. Results for the fi rst three quarters are

released to Shareholders within 45 days of the end of the quarter. Annual results are released within 60 days of the

fi nancial year-end. In presenting our annual and quarterly fi nancial statements to Shareholders, the Board aims to

provide Shareholders with a balanced and clear assessment of our Group’s position and prospects.

PRINCIPLE 11 : AUDIT COMMITTEE

The AC consists of two Independent Directors and a Non-executive Director. Its members are Mr Reggie Thein, Mr

Ng Chee Keong and Mr William Edward Alastair Morrison. The chairman of the AC is Mr Reggie Thein. The Audit

Committee is required to meet periodically to perform the following functions:

(i) assisting the Board in the discharge of its responsibilities on fi nancial and accounting matters;

(ii) reviewing the audit plans, scope of work and results of the Company’s audits compiled by the Company’s

internal and external auditors;

(iii) reviewing the co-operation given by the Company’s offi cers to the external auditors;

(iv) nominating external auditors for re-appointment;

(v) reviewing the integrity of any fi nancial information presented to our Shareholders;

(vi) reviewing interested person transactions, if any, and approving any repayments or prepayments, as the case

may be, to certain interested persons;

(vii) reviewing potential confl icts of interest, if any;

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(viii) approving and reviewing all hedging policies and instruments to be implemented by the Company, if any;

(ix) approving all investment instruments that are not principal protected;

(x) reviewing and evaluating the Company’s administrative, operating and internal accounting controls and

procedures;

(xi) reviewing the Company’s risk management structure and any oversight of the Company’s risk management

processes and activities to mitigate and manage risk at acceptable levels determined by the Board; and

(xii) reviewing the repayment of entrusted loans monthly to ensure that the Company’s fi nancial performance and

position are not compromised.

Apart from the duties listed above, the AC is required to commission and review the fi ndings of internal investigations

into matters where there is any suspected fraud or irregularity, or failure of internal controls or infringement of any law,

rule or regulation which has or is likely to have a material impact on our results of operations and/or fi nancial position.

Each member of the AC must abstain from voting on any resolution in respect of matters in which he is interested.

The AC has full access to our Management and also full discretion to invite any Director or members of our

Management to attend its meetings, and has been given reasonable resources to enable it to discharge this function.

The AC meets with the external auditors, without the presence of our Management, at least once a year.

The AC has reviewed the services provided by the external auditors during the current fi nancial year, including the

non-audit services and is satisfi ed that the fi nancial, professional and business relationships between the Company

and the external auditors will not prejudice the independence and objectivity of the external auditors. It recommends

the reappointment of the external auditors at the forthcoming Annual General Meeting of the Company.

The total amount of non-audit fee billed by the external auditors for the fi nancial year ended 31 December 2008 is

approximately S$423,000.

In the opinion of the Directors, our Group complies with the Code’s guidelines on audit committees.

The Company has adopted a whistle-blowing policy. Upon its implementation in FY2009, it will provide well-defi ned

and accessible channels within the Group through which employees may raise concerns in the event that they may

encounter any improper conduct within the Group.

PRINCIPLE 12 : INTERNAL CONTROLS

The Board is responsible for the overall internal control framework and is fully aware of the need to put in place a

system of internal controls within our Group to safeguard Shareholders’ interests and our Group’s assets, and to

manage risks. The Board recognizes that, in the absence of evidence to the contrary, the internal control system

maintained by our Management and that was in place throughout the fi nancial year and up to the date of this report

provides reasonable, but not absolute assurance against material fi nancial misstatements or losses, and includes the

safeguard of assets, the maintenance of proper accounting records, the reliability of fi nancial information, compliance

with appropriate legislation, regulations and best practices, and the identifi cation and containment of fi nancial,

operational and compliance risks. The Board notes that all internal control systems contain inherent limitations and no

system of internal controls could provide absolute assurance against the occurrence of material errors, poor judgment

in decision-making, human error losses, fraud or other irregularities. The Board is satisfi ed that currently there are

adequate internal controls within our Group.

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The external auditors have reported the observations noted during the course of the audit in their management letter

and have discussed and agreed with the management that none of the matters described in the management letter is

believed to be a material weakness. The management letter, which included management responses and action plans

on each matter noted, has also been presented to the AC.

PRINCIPLE 13: INTERNAL AUDIT

The AC has the responsibility to establish an independent internal audit function, review the internal audit program and

ensure coordination between internal auditors, external auditors and our Management, and ensure that the internal

auditor meets or exceeds the standards set by nationally or internationally recognised professional bodies.

The Company has appointed Horwath First Trust Risk Advisory Pte. Ltd. as its internal auditors to carry out the

internal audit covering the review of key internal controls in selected areas in light of key business and fi nancial risks

affecting the operations, as advised by the AC and our Management. The internal auditors report directly to the AC

on audit matters and to our Chief Executive Offi cer on administrative matters. Internal auditors will assist the AC

and the Board by performing regular evaluations on the Group’s internal controls, fi nancial and accounting matters,

compliance, business and risk management policies and procedures and ensuring that internal controls are adequate

to meet the Group’s requirement. The AC will have to be satisfi ed that our Company’s internal audit function is

supported by adequate resources and has respectable standing within our Company.

The internal auditor will plan its audit schedules annually in consultation with, but independent of our Management. Its

plans will be submitted to the AC for approval.

The Standards for the Professional Practice of Internal Auditing set by the Institute of Internal Auditors are used as a

reference and guide by the Company’s internal auditors.

The AC will assess annually the adequacy of the internal audit function.

PRINCIPLE 14: COMMUNICATION WITH SHAREHOLDERS

The Company adopts the practice of regularly communicating major developments in its businesses and operations

through SGXNET and, where appropriate, directly to Shareholders, other investors, analysts, the media, the public

and its employees. Our Management is committed to regular and proactive communication with Shareholders in

line with continuous disclosure obligations of the Group according to the Listing Manual of the SGX-ST. Pertinent

information will be disclosed to Shareholders in a timely, fair and equitable manner.

Information is disseminated to Shareholders on a timely basis through:

SGXNET announcements and news release

Annual Report prepared and issued to all Shareholders

Our website at www.ottomarine.com which Shareholders can access for information and corporate profi le of

the Group.

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PRINCIPLE 15: GREATER SHAREHOLDER PARTICIPATION

Shareholders of the Company receive notices of general meetings which are also advertised in the newspapers

and issued via SGXNET. The Board recognises that the AGM is an important forum at which Shareholders have the

opportunity to communicate their views and raise any queries with the Board and the Management regarding the

Company and its operations. The participation of Shareholders is encouraged at the Company’s AGM. The chairman

of the AC, RC and NC will be available at the forthcoming AGM to answer questions.

A Shareholder may appoint one or two proxies to attend the AGM and vote. Voting in absentia by mail, facsimile

or email is not currently permitted to ensure proper authentication of the identity of Shareholders and their voting

intentions.

At general meetings, separate resolutions will be set out on distinct issues for approval by shareholders.

The Board and the Management will be in attendance at the Company’s general meetings to address questions by

shareholders.

PRINCIPLE 16: CODE ON DEALING IN SECURITIES, INTERESTED PERSON TRANSACTIONS POLICY, ETC.

16.1 Dealings in Securities

Our Group has adopted a set of guidelines in relation to dealings in our Company’s securities to be followed

by all our offi cers pursuant to the SGX-ST Listing Manual. These guidelines state that our offi cers should not

deal in the Company’s shares on short term considerations and our Company and our offi ces are not allowed

to deal in our Company’s shares during the period commencing two weeks before the announcement of

our Group’s fi nancial results for each of the fi rst three quarters of its fi nancial year, or one month before the

announcement of our Group’s full year fi nancial results, and ending on the date of the announcements of the

relevant results or when they are in possession of any unpublished price sensitive information of our Group.

16.2 Interested Person Transactions

Our Group has established procedures to ensure that all transactions with interested persons are reported in a

timely manner to the AC and that transactions are conducted on an arm’s length basis that are not prejudicial

to the interests of our shareholders.

Shareholders have adopted a Shareholders’ Mandate (“Mandate”) in respect of certain interested person

transactions of the Company. The Mandate defi nes the levels and procedures to obtain approval for such

transactions. The interested person transactions that will be covered by the mandate relate to purchases of

sawn timber from Rimalco Sdn.Bhd. (“Rimalco”) which may occur in the ordinary course of business or as they

are necessary for the Company’s day to day operations. Information on interested person transactions for the

fi nancial year ended 2008 is set out below.

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Particulars of interested person transactions for the period from 1 January 2008 to 31 December 2008 as

required under Rule 907 of the SGX Listing Manual:

Aggregate value of all Interested

person transactions conducted

under shareholders’ mandate

pursuant to Rule 920 (excluding

transactions less than $100,000)

FY 2008

S$’000

Purchase of timber from Rimalco Nil

Aggregate value of all transactions

excluding transactions conducted

under shareholders’ mandate

pursuant to Rule 920 of the

SGX Listing Manual

FY 2008

S$’000

Transactions with Samling Singapore Pte Ltd

Rent expense 437

Transactions with Brizill International Limited

Term loan from Brizill International Limited entered into during the year 52,0002

Interest expense to Brizill International Limited 1,9172

Transactions with PT Batamec

Shipbuilding agreements with PT Batamec 20,2821

Sale of materials and other supplies to PT Batamec 11,7961

Rent received under lease of shipyard machinery and

equipment to PT Batamec 1051

Rent received under lease for Land and Buildings to PT Batamec 601

Total 86,597

1 This fi gure refl ects total transactions from period from 1 January 2008 up to 26 March 2008 only when

PT Batamec ceased to be an Interested Person.

2 Please refer to page 161 of the Prospectus dated 21 November 2008 issued by the Company for

details.

16.3 Risk Management

Our Management regularly reviews our Group’s business and operational activities to identify areas of signifi cant

business risks as well as appropriate measures to control and mitigate these risks. Our Management reviews all

signifi cant control policies and procedures and highlights all signifi cant matters to our Directors and the AC.

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16.4 Use of IPO Proceeds

From the IPO on 28 November 2008, our Company raised a total net proceeds of S$97.7 million from the

issuance of 206,045,000 new ordinary shares of S$0.51 each. As at the date of this report, the total net

proceeds of S$97.7 million (after deducting IPO expenses as disclosed on pages 30 and 31 of our Company’s

Prospectus) were utilised as follows:

Use of Proceeds

Amount

Allocated

Amount

Utilised Balance

S$ million S$ million S$ million

Funding of strategic investments 43.4 34.0 9.4

Funding of the expansion of the Company’s

fl eet of vessels for charter 27.2 18.4 8.8

Capital expenditure 23.1 0 23.1

General working capital requirements 4.0 4.0 0

Total 97.7 56.4 41.3

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DIRECTORS’REPORT

The directors present their report together with the audited consolidated fi nancial statements of the Group and

balance sheet and statement of changes in equity of the Company for the fi nancial year ended December 31, 2008.

1 DIRECTORS

The directors in offi ce at the date of this report are:

Yaw Chee Siew

Lee Kok Wah

Craig Foster Pickett (Appointed on September 3, 2008)

Ng Chee Keong (Appointed on September 3, 2008)

Reggie Thein (Appointed on September 3, 2008)

William Edward Alastair Morrison (Appointed on April 14, 2008)

2 ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITS BY MEANS OF THE ACQUISITION OF SHARES AND DEBENTURES

Neither at the end of the fi nancial year nor at any time during the fi nancial year did there subsist any

arrangement whose object is to enable the directors to acquire benefi ts by means of the acquisition of shares

or debentures in the Company or any other body corporate.

3 DIRECTORS’ INTERESTS IN SHARES AND DEBENTURES

The directors holding offi ce at the end of the fi nancial year had no interests in the share capital of the Company

and related corporations as recorded in the Register of Directors’ Shareholdings kept by the Company under

Section 164 of the Companies Act, Chapter 50 of Singapore (the “Companies Act”) except as follows:

Shareholdings registered

in name of director

Shareholdings in which directors

are deemed to have an interest

Name of directors and companies

in which interests are held

At beginning

of year

At end

of year

At beginning

of year

At end

of year

The Company

(Ordinary shares)

Yaw Chee Siew 27,225,000 –(1) 1,625,000 858,000,000(1)

Lee Kok Wah 3,250,000 87,750,000(1) – –(1)

(1) The interests held by the directors at end of year have been adjusted for the sub-division of the Company’s share capital from 1

ordinary share into 30 ordinary shares on September 2, 2008.

By virtue of section 7 of the Companies Act, Mr Yaw Chee Siew is deemed to have an interest in the Company

and all the related corporations of the Company.

There were no changes in the interest held by directors in the Company and related corporations between the

end of the fi nancial year and January 21, 2009.

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DIRECTORS’REPORT

4 DIRECTORS’ RECEIPT AND ENTITLEMENT TO CONTRACTUAL BENEFITS

Since the beginning of the fi nancial year, no director has received or become entitled to receive a benefi t which

is required to be disclosed under Section 201(8) of the Companies Act, by reason of a contract made by the

Company or a related corporation with the director, or with a fi rm of which he is a member, or with a Company

in which he has a substantial fi nancial interest except for salaries, bonuses and other benefi ts as disclosed in

the fi nancial statements.

5 DIRECTORS’ INTEREST IN MATERIAL CONTRACTS

Save as disclosed in the Prospectus dated November 21, 2008, there are no other material contracts entered

into by the Group or its subsidiaries involving the interests of any Directors or Controlling Shareholders

subsisting in the fi nancial year ended December 31, 2008. A “Controlling Shareholder” is defi ned as a person

who (i) holds directly or indirectly 15% or more of the voting shares in the Company, or (ii) in fact exercises

control over the Company.

In particular, during the fi nancial year, the Group and the Company converted $52,000,000 out of the total

amount due to a company in which one of the directors, Mr Yaw Chee Siew, has controlling interest into a fi ve

year interest bearing term loan. The details of this loan is disclosed in Note 22 to the fi nancial statements.

6 OPTIONS TO TAKE UP UNISSUED SHARES

During the fi nancial year, no options to take up unissued shares of the Company or any corporation in the

Group was granted.

7 OPTIONS EXERCISED During the fi nancial year, there were no shares of the Company or any corporation in the Group issued by virtue

of the exercise of an option to take up unissued shares.

8 UNISSUED SHARES UNDER OPTION

At the end of the fi nancial year, there were no unissued shares of the Company or any corporation in the Group

under options.

9 AUDIT COMMITTEE

The Audit Committee carries out its functions in accordance with the principles of corporate governance

as prescribed in the Code of Corporate Governance 2005 issued by the Singapore Council on Corporate

Disclosure and Governance. The functions carried out are detailed in the Corporate Governance Report.

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DIRECTORS’REPORT

10 SHARE-BASED INCENTIVE SCHEME

On September 2, 2008, the Company adopted an employee share-based incentive scheme known as the

Otto Marine Share Award Scheme (the “Share Award Scheme”). Directors, executives and full time employees

(except for Mr. Lee Kok Wah and Controlling Shareholders or associates of Controlling Shareholders) are

eligible to participate in the Share Award Scheme. The Share Award Scheme administered by the Share

Award Committee provided that no member of the Share Award Committee shall participate in any deliberation

or decision in respect of shares granted or to be granted to him. The Share Award Committee comprises

directors, which at all times shall include an independent director, duly authorised and appointed by the Board

of Directors. At the balance sheet date, members of the Share Award Committee have yet to be appointed.

Meanwhile, the Remuneration Committee is tasked with the interim administration of the Share Award Scheme.

The Share Award Scheme awards to participants fully paid shares, their equivalent cash value or combinations

thereof free-of-charge, upon the participants achieving prescribed performance targets and upon expiry of the

prescribed vesting periods. The Share Award Scheme is intended to attract, retain and motivate participants to

achieve performance targets which will create and enhance economic value for the Company and to encourage

greater commitment, dedication and loyalty.

The total number of award shares which may be issued pursuant to the Share Award Scheme shall not exceed

15% of the issued share capital of the Company on the day preceding the relevant date of the award. The

Scheme shall continue in force at the discretion of the Share Award Committee, subject to a maximum period

of 10 years commencing on the date the Share Award Scheme is adopted by the Company in the general

meeting.

During and at the end of the fi nancial year, no shares have been issued or awarded under the Share Award

Scheme.

On January 23, 2009, the Directors have approved to grant 6,240,000 award shares at the market price of

$0.425 per share pursuant to the Share Award Scheme. On January 30, 2009, the Company issued 3,120,000

shares to certain employees of the Group as award shares.

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OTTO MARINE LIMITED


DIRECTORS’REPORT

11 AUDITORS

The external auditors, Deloitte & Touche LLP, have expressed their willingness to accept re-appointment.

ON BEHALF OF THE BOARD OF DIRECTORS

Yaw Chee Siew

Director

Lee Kok Wah

Director

March 20, 2009

Global Reports LLC

INDEPENDENTAUDITORS’ REPORTTO THE MEMBERS OF OTTO MARINE LIMITED

03434

We have audited the accompanying fi nancial statements of Otto Marine Limited (the “Company”) and its subsidiaries (the “Group”) which comprise the balance sheets of the Group and the Company as at December 31, 2008, the profi t and loss statement, statement of changes in equity and cash fl ow statement of the Group and the statement of changes in equity of the Company for the fi nancial year then ended, and a summary of signifi cant accounting policies and other explanatory notes, as set out on pages 35 to 94.

Management’s Responsibility

Management is responsible for the preparation and fair presentation of these fi nancial statements in accordance with the provisions of the Singapore Companies Act, Cap 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes: devising and maintaining a system of internal accounting controls suffi cient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they recorded as necessary to permit the preparation of true and fair profi t and loss accounts and balance sheets and to maintain accountability of assets; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion,

(a) the consolidated fi nancial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at December 31, 2008 and of the results, changes in equity and cash fl ows of the Group and changes in equity of the Company for the fi nancial year ended on that date; and

(b) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act.

Deloitte & Touche LLPPublic Accountants andCertifi ed Public Accountants

Ng Peck HoonPartner

SingaporeMarch 20, 2009

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OTTO MARINE LIMITED


BALANCESHEETSDECEMBER 31, 2008

Group Company

Note 2008 2007 2008 2007

$’000 $’000 $’000 $’000

ASSETS

Current assets

Cash and bank balances 6 120,526 18,186 116,841 10,142

Pledged deposits 6 128,143 195,718 128,143 195,718

Trade receivables 7 12,730 25,538 248,234 226,677

Gross amount due from customers for contract

work 8 216,278 94,300 – –

Deposits, prepayments and other receivables 9 106,995 61,757 106,101 36,468

Current portion of loan receivables 10 – – 3,134 3,134

Inventories 11 147,907 81,465 – –

Total current assets 732,579 476,964 602,453 472,139

Non-current assets

Loan receivables 10 – – 11,010 14,143

Investment in subsidiaries 12 – – 54,490 20,030

Investment in associates 13 53,327 4,709 – –

Available-for-sale investments 14 2,930 4,080 – –

Goodwill 15 40,370 5,101 – –

Property, plant and equipment 16 149,239 91,011 893 532

Total non-current assets 245,866 104,901 66,393 34,705

Total assets 978,445 581,865 668,846 506,844

Global Reports LLC

BALANCESHEETSDECEMBER 31, 2008

03636

Group Company

Note 2008 2007 2008 2007

$’000 $’000 $’000 $’000

LIABILITIES AND EQUITY

Current liabilities

Borrowings from fi nancial institutions 17 259,302 136,847 198,672 93,317

Trade payables 18 227,004 168,765 176,524 178,958

Gross amount due to customers for contract

work 8 104,842 97,341 – –

Other payables 19 14,635 6,561 7,293 65,273

Deferred gain- short-term 20 482 482 – –

Current portion of fi nance leases 21 85 80 85 80

Loan from related parties 22 10,400 – 10,400 –

Income tax payable 1,028 2,122 1,028 2,122

Total current liabilities 617,778 412,198 394,002 339,750

Non-current liabilities

Borrowings from fi nancial institutions 17 53,312 47,516 51,412 14,143

Deferred gain- long-term 20 12,137 12,619 – –

Finance leases 21 263 347 263 347

Loan from related parties 22 75,926 51,381 75,926 121,790

Total non-current liabilities 141,638 111,863 127,601 136,280

Capital, reserves and minority interests

Share capital 23 134,693 32,500 134,693 32,500

Capital reserves 24 766 1,656 1,553 1,194

Translation losses (6,182) (5,249) (28) –

Accumulated profi ts (losses) 89,752 32,904 11,025 (2,880)

Equity attributable to equity holders of the

Company 219,029 61,811 147,243 30,814

Minority interests 25 – (4,007) – –

Total equity 219,029 57,804 147,243 30,814

Total liabilities and equity 978,445 581,865 668,846 506,844

See accompanying notes to fi nancial statements.

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OTTO MARINE LIMITED


CONSOLIDATEDPROFIT AND LOSS STATEMENT

FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2008

Group

Note 2008 2007

$’000 $’000

Revenue 26 483,599 314,024

Cost of sales (360,315) (232,326)

Gross profi t 123,284 81,698

Other expenses (net) 27 (31,375) (8,045)

Administrative expenses (19,784) (12,356)

Share of profi ts (losses) of associates 13 6,450 (268)

Finance costs 28 (17,295) (5,905)

Profi t before income tax 61,280 55,124

Income tax expense 29 (1,235) (1,449)

Profi t for the year 30 60,045 53,675

Attributable to:

Equity holders of the Company 56,848 41,927

Minority interests 3,197 11,748

60,045 53,675

Earnings per share (Cents)

Basic and diluted 31 5.72 4.30


Global Reports LLC

STATEMENTSOF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2008

03838

Share

capital

Capital

reserves

(Note 24)

Translation

losses

Accumulated

profi ts

(losses)

Attributable

to equity

holders of

the Company

Minority

interests Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Group

Balance at January 1, 2007 32,500 1,162 (1,158) (9,023) 23,481 (17,679) 5,802

Gain on available-for-sale

investment – 462 – – 462 – 462

Currency translation differences – – (4,091) – (4,091) – (4,091)

Net income (expense) recognised

directly in equity – 462 (4,091) – (3,629) – (3,629)

Profi t for the year – – – 41,927 41,927 11,748 53,675

Total recognised income (expense)

for the year – 462 (4,091) 41,927 38,298 11,748 50,046

Acquisition of additional shares

from minority interest – – – – – 1,898 1,898

Arising from acquisition of

subsidiary (Note 32) – – – – – 26 26

Waiver of interest on related party

loans – 32 – – 32 – 32

Balance at December 31, 2007 32,500 1,656 (5,249) 32,904 61,811 (4,007) 57,804

Loss on available-for-sale

investment – (1,249) – – (1,249) – (1,249)

Currency translation differences – – (933) – (933) – (933)

Net income (expense) recognised

directly in equity – (1,249) (933) – (2,182) – (2,182)

Profi t for the year – – – 56,848 56,848 3,197 60,045

Total recognised income (expense)

for the year – (1,249) (933) 56,848 54,666 3,197 57,863

Issue of shares, net of expenses

(Note 23) 102,193 – – – 102,193 – 102,193

Acquisition of additional shares

from minority interest – – – – – 810 810

Waiver of interest on related party

loans – 359 – – 359 – 359

Balance at December 31, 2008 134,693 766 (6,182) 89,752 219,029 – 219,029

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OTTO MARINE LIMITED


STATEMENTSOF CHANGES IN EQUITY


Share

capital

Capital

reserves

(Note 24)

Translation

losses

Accumulated

profi ts

(losses) Total

$’000 $’000 $’000 $’000 $’000

Company

Balance at January 1, 2007 32,500 1,162 – (5,688) 27,974

Waiver of interest on related party loans – 32 – – 32

Profi t for the year – – – 2,808 2,808

Balance at December 31, 2007 32,500 1,194 – (2,880) 30,814

Issue of shares, net of expenses (Note 23) 102,193 – – – 102,193

Currency translation differences – – (28) – (28)

Waiver of interest on related party loans – 359 – – 359

Profi t for the year – – – 13,905 13,905

Balance at December 31, 2008 134,693 1,553 (28) 11,025 147,243


Global Reports LLC

CONSOLIDATEDCASH FLOW STATEMENTFOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2008

04040

Group

2008 2007

$’000 $’000

Operating activities


Adjustments for:

Share of (profi ts) losses of associates (6,450) 268

Depreciation of property, plant and equipment 2,758 1,054

Interest expense 17,295 5,905

Interest income (4,579) (6,934)

Reversal of unrealised profi t for sale of vessels to associates 25,402 13,101

Loss arising from the changes in the fair value of forward contracts 1,478 –

Share award expense 1,326 –

Write-off of property, plant and equipment 12 –

Gain on disposal of property, plant and equipment – (17)

Operating cash fl ows before movements in working capital 98,522 68,501

Trade receivables 12,465 (36,568)

Other receivables (44,580) (44,604)

Inventories (110,383) (60,748)

Construction work-in-progress (99,581) 9,810

Trade payables 56,276 129,345

Other payables 3,424 (573)

Cash (used in) generated from operations (83,857) 65,163

Income tax paid (2,329) (232)

Interest received 4,579 6,934

Net cash (used in) from operating activities (81,607) 71,865

Investing activities

Investment in associates (42,493) (4,977)

Acquisition of a subsidiary (Note 32) – (2,186)

Acquisition of additional shares in a subsidiary (Note A) – (564)

Purchases of available-for-sale investments – (3,618)

Purchases of property, plant and equipment (Note B) (56,419) (65,904)

Proceeds on disposal of property, plant and equipment – 387

Net cash used in investing activities (98,912) (76,862)

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OTTO MARINE LIMITED


CONSOLIDATEDCASH FLOW STATEMENT


Group

2008 2007

$’000 $’000

Financing activities

Proceeds on borrowings from fi nancial institutions 257,572 179,349

Proceeds from issue of shares (Note 23) 102,193 –

Loan from a related party 34,689 86,709

Repayment of borrowings from fi nancial institutions (129,190) (31,472)

Repayment of fi nance lease obligations (79) (56)

Repayment of loans from a related party (34,204) (63,200)

Interest paid (14,981) (5,873)

Net cash from fi nancing activities 216,000 165,457

Net increase in cash and cash equivalents 35,481 160,460

Cash and cash equivalents at beginning of year 213,904 53,456

Effects of exchange rate changes on the balance of cash held in foreign currencies (716) (12)

Cash and cash equivalents at end of year 248,669 213,904

Cash and cash equivalents of year include the following:

Cash (Note 6) 120,526 18,186

Pledged deposits (Note 6) 128,143 195,718

Total 248,669 213,904

Note A:

The consideration of $34,460,000 (2007 : $Nil) for the acquisition of additional 44% equity interest in a subsidiary is

recorded as payable to a related party (Note 22).

Note B:

During the fi nancial year, the Group acquired property, plant and equipment with an aggregate cost of approximately

$56,419,000 (2007 : $66,192,000) of which approximately $Nil (2007 : $288,000) was acquired under fi nance lease

arrangements.


Global Reports LLC

NOTES TOFINANCIAL STATEMENTSDECEMBER 31, 2008

04242

1 GENERAL

The Company (Registration No. 197902647M) was a private limited Company incorporated in Singapore,

with its principal place of business and registered offi ce at 9 Temasek Boulevard #33-01 Suntec Tower Two,

Singapore 038989. On March 17, 2008, the Company converted to a public limited Company and changed its

name to Otto Marine Limited. The Company was listed on the mainboard of the Singapore Stock Exchange on

November 28, 2008. The fi nancial statements are expressed in Singapore dollars.

The principal activities of the Company and the Group consist of the construction, fabrication, repair and

conversion, and chartering of ships. The Company operates through a branch in United Arab Emirates.

The principal activities of the subsidiaries and associates are disclosed in Note 12 and 13 to the fi nancial

statements respectively.

The consolidated fi nancial statements of the Group and balance sheet and statement of changes in equity

of the Company for the fi nancial year ended December 31, 2008 were authorised for issue by the Board of

Directors on March 20, 2009.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING - The fi nancial statements are prepared in accordance with the historical cost

convention, except as disclosed in the accounting policies below, and are drawn up in accordance with the

provision of the Singapore Companies Act and Singapore Financial Reporting Standards (“FRS”).

ADOPTION OF NEW AND REVISED STANDARDS - In current fi nancial year, the Group and Company have

adopted all the new and revised FRSs and Interpretations of FRS (“INT FRS”) that are relevant to its operations

and effective for the annual periods beginning on or after January 1, 2008. The adoption of these new/revised

FRSs and INT FRSs does not result in changes to the Group’s and Company’s accounting policies and has no

material effect on the amounts reported for the current or prior years except as disclosed below.

FRS 107 - Financial Instruments: Disclosures and amendments to FRS 1 Presentation of Financial Statements

relating to capital disclosures

The Group and Company have adopted FRS 107 with effect from annual periods beginning on or after January

1, 2008. The new Standard has resulted in an expansion of the disclosures in these fi nancial statements

regarding the Group and the Company’s fi nancial instruments. The Group and the Company have also

presented information regarding their objectives, policies and processes for managing capital (see Note 4) as

required by the amendments to FRS 1 which are effective from annual periods beginning on or after January 1,

2008.

At the date of authorisation of these fi nancial statements, the following FRSs, INT FRSs and amendments to

FRS that are relevant to the Group and the Company were issued but not effective:

FRS 1 - Presentation of Financial Statements (Revised)

FRS 23 - Borrowing Costs (Revised)

FRS 108 - Operating Segments

Consequential amendments were also made to various standards as a result of these new/revised standards.

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OTTO MARINE LIMITED


NOTES TOFINANCIAL STATEMENTS

DECEMBER 31, 2008

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

The management anticipates that the adoption of the above FRSs and INT FRSs and amendments to FRS in

future periods will have no material impact on the fi nancial statements of the Company and the Group in the

period of their initial adoption except for the following:

FRS 1 – Presentation of Financial Statements (Revised)

FRS 1 (Revised) will be effective for annual periods beginning on or after January 1, 2009, and will change

the basis for presentation and structure of the fi nancial statements. It does not change the recognition,

measurement or disclosure of specifi c transactions and other events required by other FRSs.

FRS 108 – Operating Segments

FRS 108 will be effective for annual fi nancial statements beginning on or after January 1, 2009 and supersedes

FRS 14 – Segment Reporting. FRS 108 requires operating segments to be identifi ed on the basis of internal

reports about components of the Group that are regularly reviewed by the chief operating decision maker in

order to allocate resources to the segment and to assess its performance. In contrast, FRS 14 requires an

entity to identify two sets of segments (business and geographical), using a risks and rewards approach, with

the entity’s system of internal fi nancial reporting to key management personnel serving only as the starting point

for the identifi cation of such segments. As a result, following the adoption of FRS 108, the identifi cation of the

Group’s reportable segments may change.

FRS 23 – Borrowing Costs (Revised)

FRS 23 (Revised) will be effective for annual periods beginning on or after January 1, 2009 and eliminates

the option available under the previous version of FRS 23 to recognise all borrowing costs immediately as an

expense. An entity shall capitalise borrowing costs that are directly attributable to the acquisition, construction

or production of a qualifying asset as part of the cost of that asset. As the change in the accounting policy is to

be applied prospectively, there will be no impact on amounts reported for 2008.

BASIS OF CONSOLIDATION - The consolidated fi nancial statements incorporate the fi nancial statements of the

Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control

is achieved when the Company has the power to govern the fi nancial and operating policies of an entity so as

to obtain benefi ts from its activities.

The results of subsidiaries acquired during the fi nancial year are included in the consolidated profi t and loss

statement from the effective date of acquisition.

Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring the accounting

policies used in line with those used by other members of the Group.

All signifi cant intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Investments in subsidiaries and associates are carried at cost less any impairment in net recoverable value

that has been recognised in the profi t and loss statement in the Company’s and Group’s fi nancial statements

respectively.

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04444


MINORITY INTERESTS - Minority interests in the net assets of consolidated subsidiaries are identifi ed separately

from the Group’s equity therein. Minority interests consist of the amount of those interests at the date of the

original business combination (see below) and the minority’s share of changes in equity since the date of the

combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are

allocated against the interests of the Group except to the extent that the minority has a binding obligation and

is able to make an additional investment to cover its share of those losses.

BUSINESS COMBINATIONS - The acquisition of subsidiaries is accounted for using the purchase method. The

cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets

given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the

acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifi able assets,

liabilities and contingent liabilities that meet the conditions for recognition under FRS 103 are recognised at

their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of

the cost of the business combination over the Group’s interest in the net fair value of the identifi able assets,

liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value

of the acquiree’s identifi able assets, liabilities and contingent liabilities exceeds the cost of the business

combination, the excess is recognised immediately in the profi t and loss statement.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net

fair value of the assets, liabilities and contingent liabilities recognised.

FINANCIAL INSTRUMENTS - Financial assets and fi nancial liabilities are recognised on the Group’s balance

sheet when the Group becomes a party to the contractual provisions of the instrument.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a fi nancial instrument and of

allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash receipts or payments (including all fees on points paid or received that form

an integral part of the effective interest rate, transaction costs and other premiums or discounts) through

the expected life of the fi nancial instrument, or where appropriate, a shorter period. Income and expense is

recognised on an effective interest rate basis for debt instruments other than those fi nancial instruments “at fair

value through profi t or loss”.

Financial assets

Investments are recognised and de-recognised on a trade date where the purchase or sale of an investment is

under a contract whose terms require delivery of the investment within the timeframe established by the market

concerned, and are initially measured at fair value, plus transaction costs except for those fi nancial assets

classifi ed as at fair value through profi t or loss which are initially measured at fair value.

Other fi nancial assets are classifi ed into the following specifi ed categories: fi nancial assets “available-for-sale”

and “loans and receivables”. The classifi cation depends on the nature and purpose of fi nancial assets and is

determined at the time of initial recognition.

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DECEMBER 31, 2008


Financial assets (Cont’d)

Available-for-sale fi nancial assets

Certain equity shares held by the Group are classifi ed as being available for sale and are stated at fair

value. Fair value is determined in the manner described in Note 4. Gains and losses arising from changes

in fair value are recognised directly in the valuation reserve with the exception of impairment losses and

foreign exchange gains and losses on monetary assets which are recognised directly in the profi t and

loss statement. Where the investment is disposed of or is determined to be impaired, the cumulative gain

or loss previously recognised in the valuation reserve is included in the profi t and loss statement for the

period. Dividends on available-for-sale equity instruments are recognised in the profi t and loss statement when

the Company’s right to receive payments is established. The fair value of available-for-sale monetary assets

denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at

reporting date. The change in fair value attributable to translation differences are recognised in equity.

Loans and receivables

Trade, other and loan receivables that have fi xed or determinable payments that are not quoted in an active

market are classifi ed as “loans and receivables”. Loans and receivables are measured at initial recognition at fair

value, and are subsequently measured at amortised cost using the effective interest method less impairment.

Interest is recognised by applying the effective interest rate method, except for short-term receivables when the

recognition of interest would be immaterial.

Impairment of fi nancial assets

Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are

impaired where there is objective evidence that, as a result of one or more events that occurred after the initial

recognition of the fi nancial asset, the estimated future cash fl ows of the investment have been impacted.

For fi nancial assets carried at amortised cost, the amount of the impairment is the difference between the

asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the original

effective interest rate.

The carrying amount of the fi nancial asset is reduced by the impairment loss directly for all fi nancial assets

with the exception of trade receivables where the carrying amount is reduced through the use of an allowance

account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent

recoveries of amounts previously written off are credited against the allowance account. Changes in the

carrying amount of the allowance account are recognised in the profi t and loss statement.

With the exception of available-for-sale equity instruments, if in a subsequent period, the amount of the

impairment loss decreases and the decrease can be related objectively to an event occurring after the

impairment loss was recognised, the previously recognised impairment loss is reversed through the profi t and

loss statement to the extent the carrying amount of the investment at the date the impairment is reversed does

not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss

is recognised directly in equity.

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04646


Financial assets (Cont’d)

Derecognition of fi nancial assets

The Group derecognises a fi nancial asset only when the contractual rights to the cash fl ows from the asset

expire, or it transfers the fi nancial asset and substantially all the risks and rewards of ownership of the asset

to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership

and continues to control the transferred asset, the Group recognises its retained interest in the asset and an

associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards

of ownership of a transferred fi nancial asset, the Group continues to recognise the fi nancial asset and also

recognises a collateralised borrowing for the proceeds received.

Financial liabilities and equity instruments

Classifi cation as debt or equity

Financial liabilities and equity instruments issued by the Group are classifi ed according to the substance of the

contractual arrangements entered into and the defi nitions of a fi nancial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting

all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.

Financial liabilities

Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently

measured at amortised cost, using the effective interest rate method, with interest expense recognised on an

effective yield basis.

Interest-bearing borrowings are initially measured at fair value, and are subsequently measured at amortised

cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs)

and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance

with the Group’s accounting policy for borrowing costs (see below).

Financial guarantee contract liabilities are measured initially at their fair values and subsequently at the higher of

the amount of obligation under the contract recognised as a provision in accordance with FRS 37 - Provisions,

Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation in

accordance with FRS 18 - Revenue.

Derivative fi nancial instruments

The Group enters into derivative fi nancial instruments i.e. foreign exchange forward contracts to manage its

exposure to foreign exchange rate risk. Details of derivative fi nancial instruments are disclosed in Note 33(ii) to

the fi nancial statements.

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are

subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised

in the profi t and loss statement immediately unless the derivative is designated and effective as a hedging

instrument, in which event the timing of the recognition in the profi t and loss statement depends on the nature

of the hedge relationship.

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OTTO MARINE LIMITED



DECEMBER 31, 2008


Financial liabilities and equity instruments (Cont’d)

Derecognition of fi nancial liabilities

The Group derecognises fi nancial liabilities when, and only when, the Group’s obligations are discharged,

cancelled or they expire.

CONSTRUCTION CONTRACTS - Where the outcome of a long-term construction contract can be estimated

reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at

the balance sheet date, as measured by the completion of a physical proportion of the contract work. For

fi xed price contract, the outcome of a construction contract can be estimated reliably when all the following

conditions are satisfi ed:

a) total contract revenue can be measured reliably;

b) it is probable that the economic benefi ts associated with the contract will fl ow to the Group;

c) both the contract costs to complete the contract and the stage of contract completion at the balance

sheet date can be measured reliably; and

d) the contract costs attributable to the contract can be clearly identifi ed and measured reliably so that

actual contract costs incurred can be compared with prior estimates.

Variations in contract work, claims and incentive payments are included to the extent that they have been

agreed with the customer.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to

the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as

expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised

as an expense immediately.

LEASES - Leases are classifi ed as fi nance leases whenever the terms of the lease transfer substantially all the

risks and rewards of ownership to the lessee. All other leases are classifi ed as operating leases.

The Group as lessee

Assets held under fi nance leases are recognised as assets of the Group at their fair value at the inception

of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to

the lessor is included in the balance sheet as a fi nance lease obligation. Lease payments are apportioned

between fi nance charges and reduction of the lease obligation so as to achieve a constant rate of interest on

the remaining balance of the liability. Finance charges are charged directly to the profi t and loss statement,

unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with

the Group’s general policy on borrowing costs (see below). Contingent rentals are recognised as expenses in

the period in which they are incurred.

Rentals payable under operating leases are charged to the profi t and loss statement on a straight-line basis

over the term of the relevant lease unless another systematic basis is more representative of the time pattern in

which economic benefi ts from the leased asset are consumed.

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The Group as lessee (Cont’d)

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as

a liability. The aggregate benefi t of incentives is recognised as a reduction of rental expense on a straight-line

basis, except where another systematic basis is more representative of the time pattern in which economic

benefi ts from the leased asset are consumed.

INVENTORIES - Inventories are stated at the lower of cost and net realisable value. Cost comprises direct

materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing

the inventories to their present location and condition. Cost is calculated using the weighted average method.

Work-in-progress comprises vessels under construction for future sale. Cost is made up of direct materials,

direct labour cost, subcontractors cost, appropriate allocation of fi xed and variable production overheads.

Net realisable value represents the estimated selling price less all estimated costs to completion and costs to

be incurred in marketing, selling and distribution.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost less accumulated

depreciation and any accumulated impairment losses.

Depreciation is charged so as to write off the cost of assets, other than property, plant and equipment under

construction, over their estimated useful lives, using the straight-line method, on the following bases:

Leasehold land and building - Over the remaining term of lease which is between 20 to 30 years

Vessels - 25 years, net of the residual value

Offi ce equipment, furniture and fi ttings - 4 to 20 years

Motor vehicles - 4 to 5 years

Machinery and equipment - 2 to 8 years

No depreciation is charged in respect of property, plant and equipment under construction-in-progress, which

includes yard development costs and costs for vessels under construction.

The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the

effect of any changes in estimate accounted for on a prospective basis.

Assets held under fi nance leases are depreciated over their expected useful lives on the same basis as owned

assets or, if there is no certainty that the lessee will obtain ownership by the end of the lease term, the asset

shall be fully depreciated over the shorter of the lease term and its useful life.

The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as

the difference between the sales proceeds and the carrying amounts of the asset and is recognised in the profi t

and loss statement.

GOODWILL - Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition

over the Group’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities of

the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is

subsequently measured at cost less any accumulated impairment losses.

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Goodwill (Cont’d)

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units

expected to benefi t from the synergies of the combination. Cash-generating units to which goodwill has been

allocated are tested for impairment annually, or more frequently when there is an indication that the unit may

be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit,

the impairment loss is allocated fi rst to reduce the carrying amount of any goodwill allocated to the unit and

then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An

impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profi t or

loss on disposal.

IMPAIRMENT OF ASSETS EXCLUDING GOODWILL - At each balance sheet date, the Group reviews the

carrying amounts of its assets to determine whether there is any indication that those assets have suffered

an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order

to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable

amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to

which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,

the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects

current market assessments of the time value of money and the risks specifi c to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount,

the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment

loss is recognised immediately in the profi t and loss statement.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is

increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does

not exceed the carrying amount that would have been determined had no impairment loss been recognised for

the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the

profi t and loss statement.

ASSOCIATES - An associate is an entity over which the Group has signifi cant infl uence and that is neither a

subsidiary nor an interest in a joint venture. Signifi cant infl uence is the power to participate in the fi nancial and

operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these fi nancial statements using the equity

method of accounting. Under the equity method, investments in associates are carried in the consolidated

balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the

associate. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-

term interests that, in substance, form part of the Group’s net investment in the associate) are not recognised,

unless the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Where a Group entity transacts with an associate of the Group, profi ts and losses are eliminated to the extent

of the Group’s interest in the relevant associate.

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PROVISIONS - Provisions are recognised when the Group has a present obligation (legal or constructive) as

a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable

estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the

present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the

obligation. Where a provision is measured using the cash fl ows estimated to settle the present obligation, its

carrying amount is the present value of those cash fl ows.

When some or all of the economic benefi ts required to settle a provision are expected to be recovered from a

third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received

and the amount of the receivable can be measured reliably.

Provisions for warranty costs are recognised at the date of sale of the vessel, at the management’s best

estimate of the expenditure required to settle the Group’s obligation.

SHARE-BASED PAYMENTS – The Group issues equity-settled share-based payments to certain employees.

Equity-settled share-based payments are measured at fair value of the equity instruments (excluding the effect

of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the

equity-settled share-based payments is charged to the profi t and loss statements.

REVENUE RECOGNITION - Revenue is measured at fair value of the consideration received or receivable.

Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Revenue from long-term construction contracts

Revenue from long-term construction contracts is recognised in accordance with the Group’s accounting policy

on construction contracts (see above).

Sale of vessels (other than those constructed under long-term construction contracts above)

Revenue from the sale of vessels (other than those constructed under long-term construction contracts above)

is recognised when all the following conditions are satisfi ed:

the Group has transferred to the buyer the signifi cant risks and rewards of ownership of the barges;

the Group retains neither continuing managerial involvement to the degree usually associated with

ownership nor effective control over the barges sold;

the amount of revenue can be measured reliably;

it is probable that the economic benefi ts associated with the transaction will fl ow to the Group; and

the costs incurred or to be incurred in respect of the transaction can be measured reliably.

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Revenue from ship repairs and conversion

Revenue from rendering of ship repair and conversion services is recognised when the services have been

rendered.

Charter hire income

Charter hire income is recognised based on a time proportion basis in accordance with the daily or per voyage

charter rate stated in the charter hire agreement for the number of days under charter.

Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest

rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life

of the fi nancial asset to that asset’s net carrying amount.

BORROWING COSTS - Borrowing costs are recognised in the profi t and loss statement in the period in which

they are incurred.

RETIREMENT BENEFIT COSTS - Payments to defi ned contribution retirement benefi t plans are charged as

an expense as they fall due. Payments made to state-managed retirement benefi t schemes, such as the

Singapore Central Provident Fund, are dealt with as payments to defi ned contribution plans where the Group’s

obligations under the plans are equivalent to those arising in a defi ned contribution retirement benefi t plan.

EMPLOYEE LEAVE ENTITLEMENT - Employees’ entitlements to annual leave are recognised when they accrue

to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by

employees up to the balance sheet date.

INCOME TAX - Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profi t for the year. Taxable profi t differs from profi t as reported in

the profi t and loss statement because it excludes items of income or expense that are taxable or deductible in

other years and it further excludes items that are not taxable or tax deductible. The Group’s liability for current

tax is calculated using tax rates (and tax laws) that have been enacted in countries where the Company and its

subsidiaries operate by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the fi nancial

statements and the corresponding tax bases used in the computation of taxable profi t, and are accounted

for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable

temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable

profi ts will be available against which deductible temporary differences can be utilised. Such assets and

liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other

than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable

profi t nor the accounting profi t.

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Deferred tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries

and associates, except where the Group is able to control the reversal of the temporary difference and it is

probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent

that it is no longer probable that suffi cient taxable profi ts will be available to allow all or part of the asset to be

recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled

or the asset realised based on the tax rates (and tax laws) that have been enacted by the balance sheet date.

Deferred tax is charged or credited to the profi t and loss statement.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets

against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the

Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax are recognised as an expense or income in the profi t and loss statement.

FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION - The individual fi nancial statements of each

Group entity are measured and presented in the currency of the primary economic environment in which the

entity operates (its functional currency). The consolidated fi nancial statements of the Group and the balance

sheet of the Company are presented in Singapore dollars, which is the functional currency of the Company and

the presentation currency for the consolidated fi nancial statements.

In preparing the fi nancial statements of the individual entities, transactions in currencies other than the entity’s

functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At each

balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing

on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies

are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items

that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are

included in the profi t and loss statement for the period. Exchange differences arising on the retranslation of

non-monetary items carried at fair value are included in the profi t and loss statement for the period except

for differences arising on the retranslation of non-monetary items in respect of which gains or losses are

recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is

also recognised directly in equity.

For the purpose of presenting consolidated fi nancial statements of the Group and balance sheet of the

Company, the assets and liabilities of the Group’s and Company’s foreign operations (including comparatives)

are expressed in Singapore dollars using exchange rates prevailing on the balance sheet date. Income and

expense items (including comparatives) are translated at the average exchange rates for the period. Exchange

differences arising, if any, are classifi ed as equity and transferred to the Group’s and Company’s translation

reserve. Such translation differences are recognised in the profi t and loss statement in the period in which the

foreign operation is disposed of.

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On consolidation, exchange differences arising from the translation of the net investment in foreign entities

(including monetary items that, in substance, form part of the net investment in foreign entities), and of

borrowings are taken to the foreign currency translation reserve.

Goodwill and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and

liabilities of the foreign operation and translated at the closing rate.

CASH AND CASH EQUIVALENTS - Cash and cash equivalents comprise cash on hand and demand deposits

that are readily convertible to a known amount of cash and are subject to an insignifi cant risk of changes in

value.

3 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in Note 2, management is required

to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are

not readily apparent from other sources. The estimates and associated assumptions are based on historical

experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or

in the period of the revision and future periods if the revision affects both current and future periods.

(i) Critical judgements in applying the Group’s accounting policies

The critical judgement, apart from those involving estimations, which the directors have made in the

process of applying the Group’s accounting policies, and that has the most signifi cant effect on the

amounts recognised in the fi nancial statements is as follows:

Estimation of percentage of completion for construction contracts

The Group recognised revenue and costs of construction contracts by reference to the stage of

completion of the contract activity at the balance sheet date. The stage of completion is measured

by the completion of a physical proportion of the contract work. Management exercises judgement in

determining the percentage of completion assigned to each physical milestone achieved. The physical

milestone is supported by either internally generated engineering reports or surveys performed by

independent surveyors. Management reviews the internally generated engineer reports and are satisfi ed

that the percentage of completion used for revenue recognition on construction contracts is reasonable.

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3 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Cont’d)

(ii) Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the

balance sheet date, that have a signifi cant risk of causing a material adjustment to the carrying amounts

of assets and liabilities within the next fi nancial year, are discussed below.

Provision for losses on vessels with sales contracts and vessels held for sales or for charter

As at December 31, 2008, the Group’s net amount due from (to) customers for contract work,

inventories and plant and equipment included $111,436,000, $111,025,000 and $65,059,000

respectively (December 31, 2007: $(3,041,000), $61,871,000 and $21,689,000) in respect of vessels

projects. Determining the net realisable value of the vessel projects included in the gross amount due

from customers for contract work, inventories and plant and equipment is a matter of management’s

estimate. Such estimates may be highly judgemental due to the current volatile market conditions.

Management is not aware that any of the customers may not be able to meet their contractual

payment obligations in a timely manner or customers who may amend or cancel the existing contracts.

Accordingly, no provision for losses on vessels with sales contracts and vessels held for sales or charter

is required as at year end.

Impairment of goodwill

The Group tests goodwill annually for impairment or more frequently if there are indications that the

goodwill might be impaired. The goodwill relates primarily to two cash generating units (“CGU”).

During the current fi nancial year, the management uses the fair value less cost to sell of the two CGUs to

assess the impairment of goodwill amounting to $40,370,000.

In 2007, in determining the recoverable amounts of the CGUs, the management used value in use for

one CGU and fair value less cost to sell for another CGU. The value in use calculation required the Group

to estimate the future cash fl ows expected to arise from the cash-generating unit and a suitable discount

rate in order to calculate present value. The carrying amount of goodwill for which the management

used the value in use and fair value less cost to sell to assess the impairment as at December 31, 2007

was $3,384,000 and $1,717,000 respectively.

Useful lives and residual values of property, plant and equipment

The management exercises their judgement in estimating the useful lives and residual values of the

depreciable assets.

Depreciation is provided to write off the cost of property, plant and equipment, adjusted for residual

value, over their estimated useful lives, using the straight-line method. The carrying amounts of property,

plant and equipment are disclosed in Note 16 to the fi nancial statements.

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DECEMBER 31, 2008

4 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT

(a) Financial risk management policies and objectives

The Group operates internationally and is exposed to a variety of fi nancial risks, comprising market risk

(including foreign currency risk and interest rate risk), credit risk and liquidity risk.

The global fi nancial and capital markets have experienced severe credit crunch and volatility resulting

in changes of the Group’s exposure to these fi nancial risks or the manner in which it manages and

measures the risk. Market risk exposures are measured using sensitivity analysis indicated below.

i) Foreign currency risk

The Group’s foreign currency exposures arise primarily from the exchange rate movement of

foreign currencies, namely United States dollars, Singapore dollars, Euro and other currencies,

vis-a-vis the Singapore dollars and United States dollars, which are the functional currencies of

respective entities within the Group.

The Group assesses and monitors its current and projected foreign currency cash fl ows and

insofar as possible, reduces the exposure of the net position in each currency by borrowing in

those foreign currencies and utilises forward foreign currency contracts to manage the volatility of

future cash fl ows caused by fl uctuation in foreign currency exchange rates. The Group does not

hold or issue derivative fi nancial instruments for speculative purpose.

As at the end of the current fi nancial year, the outstanding forward foreign exchange contracts

are to buy Euro 7,500,000 (2007: Euro 1,000,000) and to sell US dollars 11,576,100 (2007: US

dollars 1,445,000). A loss of approximately $1,478,000 arising from the current fi nancial year

changes in the fair value of the forward contracts has been charged to the profi t and loss for the

current fi nancial year.

In 2007, the fair value of the derivative fi nancial instruments and the fair value changes of the

outstanding forward exchange contracts were not recognised on the balance sheet and profi t and

loss statement respectively as such adjustments were not material.

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4 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (Cont’d)

(a) Financial risk management policies and objectives (Cont’d)

i) Foreign currency risk (Cont’d)

At the reporting date, the foreign currency exposure of fi nancial assets and fi nancial liabilities

denominated in currencies other than the respective entities’ functional currencies are as follows:

2008 2007

S$–equivalent of amounts denominated in

US$ S$ Euro Others US$ S$ Euro Others

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Group

Financial Assets

Cash and bank balances 120,712 162 39,496 137 173,514 – 31,742 1,073

Trade receivables 1,081 – 5,126 – 6,181 50,877 – –

Other receivables,

prepayment and other

current assets 4,326 – 17 96 4,217 – – 146

Loan receivables 14,144 – – – 17,277 – – –

Available-for-sale

instrument – – – 2,930 – – – 4,080

Total 140,263 162 44,639 3,163 201,189 50,877 31,742 5,299

Financial Liabilities

Trade payables 46,078 171,126 40,372 24,088 177,720 198,110 28,844 7,068

Other payables 1,373 70,663 1,107 1,014 1,719 57,915 – 2,108

Borrowings from fi nancial

institutions 287,057 2,500 – – 181,305 – – –

Total 334,508 244,289 41,479 25,102 360,744 256,025 28,844 9,176

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2008 2007

S$–equivalent of amounts denominated in

US$ S$ Euro Others US$ S$ Euro Others

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Company

Financial Assets

Cash and bank balances 119,235 – 39,434 34 172,965 – 31,682 17

Trade receivables 170 – – – 132 – – –

Other receivables,

prepayment and other

current assets 3,891 – 17 – 575 – – –

Loan receivables 14,144 – – – 17,277 – – –

Total 137,440 – 39,451 34 190,949 – 31,682 17


Trade payables 44,227 1,322 40,372 10,534 19,700 – 28,844 5,399

Other payables 1,365 – – – – – – –

Borrowings from fi nancial

institutions 227,026 – – – 104,400 – – –

Total 272,618 1,322 40,372 10,534 124,100 – 28,844 5,399

The above fi nancial assets and fi nancial liabilities of the Group include the following intercompany

balances denominated in various currencies other than the functional currencies of the respective

entities within the Group:

Group

2008 2007

$’000 $’000

Financial Assets

Trade receivables 911 52,798

Other receivables, prepayment and other current assets – 523

Loan receivables 14,144 17,277


Trade payables 170,837 349,671

Other payables 70,618 57,154

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Accordingly, the effects of the foreign currency risk from the above intercompany balances have

been included in the sensitivity analysis for currency risk.

In management’s opinion, the sensitivity analysis is not representative of the Group’s inherent

foreign currency risk as the exposure as at the reporting date does not refl ect the exposure during

the fi nancial year.

Sensitivity analysis for currency risk

If the relevant foreign currency rates vis-a-vis the functional currencies of the respective entities

within the Group fl uctuate by 5% (2007 : 5%) with all other variables held constant, the effects will

be as follows:

(1) Group

If foreign currency of the United States dollars are to strengthen/weaken by 5% against the

functional currency of Singapore dollars, net profi t will decrease/increase by approximately

$9,769,000 (2007 : decrease/increase by approximately $7,941,000).

If foreign currency of the Singapore dollars are to strengthen/weaken by 5% against

the functional currency of United States dollars, net profi t will decrease/increase by

approximately $11,379,000 (2007 : decrease/increase by approximately $10,253,000).

Considering the net effect, the net profit of the Group will increase/decrease by

approximately $1,610,000 (2007 : increase/decrease by approximately $2,312,000) if the

United States dollars are to strengthen/weaken by 5% against the Singapore dollars.

Based on the same analysis in relation to foreign currency of United States dollars and

Singapore dollars against the functional currency of Indonesia rupiah, any impact on profi t

or loss is not material.

If foreign currency of the Euro are to strengthen/weaken by 5% against the functional

currencies of the respective entities, net profi t will increase/decrease by approximately

$153,000 (2007 : increase/decrease by approximately $145,000).

(2) Company

If the United States dollars are to strengthen/weaken by 5% against the

Singapore dollars, net profit will decrease/increase by approximately $6,759,000

(2007 : increase/decrease by approximately $3,342,000).

If the Euro are to strengthen/weaken by 5% against the Singapore dollars, net profi t will

decrease/increase by approximately $46,000 (2007 : increase/decrease by approximately

$145,000).

The foreign currency risk has limited impact on equity of the Group and Company.

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ii) Interest rate risk

The Group’s interest rate risks arise primarily from its pledged deposits and borrowings with

fi nancial institutions and related parties.

The interest rate for pledged deposits is disclosed in Note 6.

The interest rates and terms of repayment of the Group’s fl oating rate borrowings are disclosed as

follows:

Principal

Interest

rate range

$’000

Group

2008:

Borrowings from fi nancial institutions 312,614 3.7% - 8.5%

Term loan from related parties 46,800 7.5%

2007:

Borrowings from fi nancial institutions 184,363 6% - 11.8%

Company

2008:

Borrowings from fi nancial institutions 250,084 3.7% - 6.2%

Term loan from related parties 46,800 7.5%

2007:

Borrowings from fi nancial institutions 107,460 6% - 11.8%

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ii) Interest rate risk (Cont’d)

Sensitivity analysis for interest rate risk

If interest rates increase/decrease by 0.5% (2007 : 0.5%) with all other variables

held constant, the Group’s and Company’s profit for the year after tax would have

been lower/higher by approximately $1,473,600 (2007 : $756,000) and $1,217,226

(2007 : $441,000) respectively as a result of higher/lower interest expense on fl oating rate bank

borrowings.

iii) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting

in a loss to the Group.

The Group’s principal fi nancial assets are bank balances and cash, trade and other receivables.

The credit risk on liquid funds is limited because the Group has cash balances placed with

reputable international fi nancial institutions.

The Group’s credit risk is primarily attributable to its trade receivables. The Group has adopted

a policy of dealing with creditworthy counterparties and when necessary, will require advance

payments from customers with no track record of credit history.

For shipbuilding revenue, the Group generally requires a down payment of 20% of the contract

value within 10 days of signing the memorandum of sale agreement. The Group provides a

refund guarantee for the down-payment paid, if required. A further 10% of the contract value

may be required to be paid as progress payment upon achievement of certain milestones. The

remainder of the contract price is typically paid after trial and commissioning and before delivery

of the vessel. As a policy, the Group only commences negotiations with customers of good

repute. Before signing the sales contract with the customers, the Group screens the fi nancial

standing of the customers and deal with customers of sound fi nancial standing. In addition, prior

to the release of the vessels from the shipyard, the Group would collect the full amount billed in

relation to shipbuilding projects and the majority of the amount billed in relation to ship repair and

conversion projects.

There is no credit term for shipbuilding customers. The average credit term on ship repair,

conversion and chartering to customer is 30 days (2007 : 30 days).

Concentrations of credit risk exist when changes in economic, industry or geographic factors

similarly affect Groups of counterparties where aggregate credit exposure is signifi cant in relation

to the Group’s total credit exposure.

At the balance sheet date, the Group’s top 3 customers for which invoices have been raised

account for 82.3% (2007 : 78.5%) of the Group’s outstanding trade receivables from outside

parties. In addition, 90% (2007: 90%) of the Group’s future revenue for which sales contracts

have been entered will be contributed by 3 (2007: 2) of its customers and their associates.

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iii) Credit risk (Cont’d)

The gross carrying amount of fi nancial assets recorded in the fi nancial statements represents the

Group’s maximum exposure to credit risk.

(i) Financial assets that are neither past due nor impaired

Bank deposits are mainly deposits with reputable banks in Singapore. The Group’s trade

receivables are all neither past due nor impaired as these amounts are due from customers

which the Group has assessed to be creditworthy.

(ii) Financial assets that are past due and/or impaired

There is no fi nancial asset that is past due and/or impaired. Majority of trade receivables

have a good collection history because of the progress billing and payments are made by

customers in accordance with sales memorandum.

(iii) Financial assets that are past due and not impaired

There is fi nancial asset that is past due not impaired as a result of quality credit worthiness

of the customers.

iv) Liquidity risk

In line with its liquidity risk management policies, the Group maintains suffi cient cash via internally

generated cash fl ow and adequate amount of committed credit facilities. The Group’s treasury

function prepares the periodic cash fl ow projection of the Group for the next 12 months to assess

and monitor the ability of the Group to repay the borrowings from fi nancial institutions as and when

they are fall due and also maintains a mixture of short-term revolving borrowings and medium/

long term loans to fund working capital requirements. Due to the Group’s nature of business, it

maintains fl exibility in funding by ensuring that adequate working capital lines are available at any

one time.

With the reduced credit availability as a consequence of the global credit crunch, the Group has

stepped up its liquidity risk management approach as compared to prior years as outlined below:

(i) The Group has built a more comprehensive cash fl ow forecasts model to enable it to

evaluate the impact of the changes in various assumptions on projected cash fl ow.

(ii) The Group has continued in its effort to secure additional credit line, if necessary, to fi nance

the Group’s growth.

(iii) The Group has increased its scrutiny over its compliance with fi nancial covenants outlined

in agreements with fi nancial institutions.

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iv) Liquidity risk (Cont’d)

As at December 31, 2008, the Group has $46.2 million (2007 : $Nil million) of available and

undrawn committed bank credit facilities in respect of which all precedent conditions had been

met.

The table below analyses the maturity profi le of the Group’s and Company’s fi nancial liabilities,

based on the undiscounted cash fl ows.

Non-derivative fi nancial liabilities

On demand or

within 1 year

Within 2 to

5 years

After 5

years Total

Group $’000 $’000 $’000 $’000

As at 31 December 2008

Floating rate - borrowings from

fi nancial institutions 272,427 54,739 – 327,166

Floating rate - loans from related

parties 13,616 41,515 – 55,131

Fixed rate - fi nance lease 103 287 – 390

Trade payables 227,004 – – 227,004

Accruals, other payables and other

current liabilities 14,635 – 39,526 54,161

527,785 96,541 39,526 663,852



fi nancial institutions 147,139 49,912 1,628 198,679

Fixed rate - fi nance lease 103 374 15 492

Trade payables 168,765 – – 168,765



322,568 50,286 53,024 425,878

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008



iv) Liquidity risk (Cont’d)

Non-derivative fi nancial liabilities (Cont’d)

On demand or

within 1 year

Within 2 to

5 years

After 5

years Total

Company $’000 $’000 $’000 $’000



fi nancial institutions 207,768 52,715 – 260,483

Floating rate - loans from related

parties 13,616 41,515 – 55,131

Fixed rate - fi nance leases 103 287 – 390

Trade payables 176,524 – – 176,524



405,304 94,517 39,526 539,347



fi nancial institutions 97,457 14,537 1,628 113,622

Fixed rate - fi nance leases 103 374 15 492

Trade payables 178,958 – – 178,958



341,791 14,911 123,433 480,135

Non-derivative fi nancial assets

Substantially all fi nancial assets of the Group and Company are on demand or due within one year.

Derivative fi nancial instruments

On demand or

within 1 year

Within 2 to

5 years

After 5

years Total

Group and Company $’000 $’000 $’000 $’000


Gross settled:

Foreign exchange forward contracts 1,478 – – 1,478


Gross settled:

Foreign exchange forward contracts – – – –

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v) Fair value of fi nancial assets and fi nancial liabilities

The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other

payables and short-term borrowings from fi nancial institutions approximate their respective fair

values due to the relatively short-term maturity of these fi nancial instruments.

The carrying amounts of certain other fi nancial assets approximate their fair values. The fair value

of publicly traded instruments is based on quoted market values.

The fair values of borrowings and fi nance leases from fi nancial institutions and loans from related

parties are stated in Notes 17, 21 and 22 to the fi nancial statements respectively.

(b) Capital risk management policies and objectives

The Group’s capital risk management objectives are to safeguard the Group’s ability to continue as a

going concern and to maintain an optimal capital structure so as to maximise shareholder value. To

achieve its capital risk management’s objectives, the Group may adjust the amount of dividend payment,

return capital to shareholders, issue new shares, obtain new borrowings or sell assets to reduce

borrowings.

The Group monitors capital via the debt-to-equity ratio and the net debt-to-equity ratio which are

calculated as total debt divided by equity and total debt net of cash and bank balances and pledged

deposits (“Net debt”) divided by equity. Total debt comprises “Borrowing from fi nancial institutions”,

“Finance leases” and “Loan from related parties” as shown in the consolidated balance sheet. Equity is

the “equity attributable to equity holders of the Company” as shown in the consolidated balance sheet.

In addition, the Group also specifi cally monitors the debt-to-equity ratio of its fi nancial covenants stated

in the agreements with the fi nancial institutions providing the facilities to the Group.

The debt-equity ratio as at December 31, 2008 and 2007 is as follows:

Group

2008 2007

$’000 $’000

Total debt 399,288 236,171

Cash and bank balances and pledged deposits (248,669) (213,904)

Net debt 150,619 22,267

Equity 219,029 61,811

Debt-to-equity ratio 1.82 3.82

Net debt-to-equity ratio 0.69 0.36

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008

5 RELATED PARTY TRANSACTIONS

Related parties are entities with common direct or indirect shareholders and/or directors. Parties are considered

to be related if one party has the ability to control the other party or exercise signifi cant infl uence over the other

party in making fi nancial and operating decisions.

Some of the transactions and arrangement of the Group are with related parties and the effects of these

transactions on the basis determined between the parties are refl ected in these fi nancial statements. The

balances are unsecured, interest-free and repayable on demand unless otherwise stated.

(A) Related party transactions

Group

2008 2007

$’000 $’000

Associates

Sale of vessels built under long-term contracts 185,238 65,785

Other related parties - common shareholders/directors

Sale of barges (Note) 102 23,938

Sale of steel plates (Included in ship repair) – 250

Proceeds on sale of motor vehicle – 86

Purchase of barges (Note) – 33,618

Purchase of goods and materials – 5,077

Acquisition of additional shares from minority interest of a subsidiary

(Note 15) 34,460 –

Interest expense paid and payable (Note 28) 1,917 –

Interest expense –deemed capital contribution (Note 24 and 28) 359 32

Rental expense (Note 34) 437 305

Note: In 2007, the sale of barges to other related parties amounted to $23,938,000. These barges,

together with another barge, were repurchased by the Group at cost of $33,618,000 to accommodate

certain fi nancing arrangements.

Certain bank loans are secured by personal guarantee granted from a director as disclosed in Note 17 to

the fi nancial statements

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5 RELATED PARTY TRANSACTIONS (Cont’d)

(B) Compensation of directors and key management personnel

The remuneration of directors and other members of key management during the fi nancial year was as

follows:

Group

2008 2007

$’000 $’000

Director’s fee 102 –

Short-term benefi ts 4,398 2,310

Post-employment benefi ts 43 105

Equity-settled share-based payment 740 –

Total 5,283 2,415

6 CASH AND BANK BALANCES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Fixed deposits 119 121 – –

Cash at bank 120,378 18,010 116,821 10,132

Cash on hand 29 55 20 10

Total 120,526 18,186 116,841 10,142

Fixed deposits - pledged 128,143 195,718 128,143 195,718

Cash on hand and cash at bank balances comprise cash held by the Group and short-term bank deposits

with an original maturity of three months or less. The carrying amounts of these assets approximate their fair

values.

Fixed deposits bear interest at an average rate of 3.03% (2007 : 4.49%) per annum and for an average tenure

of approximately 31 days (2007 : 30 days).

Fixed deposits relating to advances collected from customers are pledged to a bank for performance refund

guarantees issued by the bank.

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008

7 TRADE RECEIVABLES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Related parties (Note 5) – 497 – –

Subsidiaries (Note 12) – – 245,464 225,304

Outside parties 12,730 25,041 2,770 1,373

Total 12,730 25,538 248,234 226,677

8 CONSTRUCTION CONTRACTS

Group

2008 2007

$’000 $’000

Contract cost incurred 303,193 181,787

Profi t recognised 87,530 73,113

390,723 254,900

Progress billings (279,287) (257,941)

Work-in-progress 111,436 (3,041)

Gross amount due from customers for contract work 216,278 94,300

Gross amount due to customers for contract work (104,842) (97,341)

111,436 (3,041)

Advances received from customers for contract work amounted to approximately $43,780,000

(2007 : $93,349,000).

9 DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Subsidiaries (Note 12) – – 100,043 32,854

Related parties (Note 5) 6 – 6 –

Deposits 2,143 1,396 27 52

Prepaid expenses 97,972 59,481 2,206 3,269

Other receivables 6,874 880 3,819 293

Total 106,995 61,757 106,101 36,468

Prepaid expenses comprise primarily of prepayments for equipment to be used for construction of vessels.

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10 LOAN RECEIVABLES

Company

2008 2007

$’000 $’000

Subsidiaries (Note 12) 14,144 17,277

Less: Current portion (3,134) (3,134)

Non-current portion 11,010 14,143

The terms of the loan receivables mirror the underlying terms of the bank loan obtained by the Company to

fi nance the acquisition of vessels by the subsidiaries (Note 17b).

The effective interest on the loan receivables is 4.2% (2007 : 6.5%) per annum.

11 INVENTORIES

Group

2008 2007

$’000 $’000

Raw materials 36,882 19,594

Work-in-progress - vessels 111,025 61,871

Total 147,907 81,465

Raw materials include $574,000 (2007 : $2,061,000) held at third party for blasting work.

12 INVESTMENT IN SUBSIDIARIES

Company

2008 2007

$’000 $’000

Unquoted equity shares at cost 60,209 25,749

Less: Impairment loss (5,719) (5,719)

Net 54,490 20,030

The amounts due from/to subsidiaries are unsecured, interest-free and repayable on demand unless stated

otherwise.

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008

12 INVESTMENT IN SUBSIDIARIES (Cont’d)

Details of the Company’s subsidiaries at December 31, 2008 are as follows:

Name of subsidiary

Place of

incorporation/

(or registration)

and operation

Proportion of ownership

interest/voting power held Principal activities

2008 2007

% %

Blue Fin I Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

Blue Fin II Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

Blue Fin III Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

Blue Fin IV Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

Blue Fin V Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

OM Offshore Pte. Ltd. (a) Singapore 100 100 Investment holdings

Otto Fleet Pte. Ltd. (a) (d) Singapore 100 – Investment holdings

Otto Investment Limited (b) Malaysia, Labuan 100 100 Investment holdings

Otto Offshore Limited (b) Malaysia, Labuan 100 100 Procurement and sale

of vessels

Otto Offshore (Qidong)

Company Limited (c)

People’s Republic

of China

100 100 Dormant

Otto Strategic Pte. Ltd. (a) (d) Singapore 100 – Investment holdings

Otto Venture Pte. Ltd. (a) (f) Singapore 100 – Investment holdings

PT Batamec (b) (e) Indonesia, Batam 95 51 Ship repair and ship

building

PT Lestari Utama Nusamtara (b) Indonesia,

Jakarta

(Operations:

Batam)

95 95 Land rental

Sea Dolphin Finance Limited (b) British Virgin

Islands

100 100 Dormant

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12 INVESTMENT IN SUBSIDIARIES (Cont’d)

Details of the Company’s subsidiaries at December 31, 2008 are as follows: (Cont’d)

Name of subsidiary

Place of

incorporation/

(or registration)

and operation



2008 2007

% %

Tarpon 1 Pte. Ltd. (c) (d) Singapore 100 – Dormant





Tetra I Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

Tetra II Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

Tetra III Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

Tetra IV Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

Tetra V Pte. Ltd. (a) Singapore 100 100 Owning and chartering

of vessels

(a) Audited by Deloitte & Touche LLP, Singapore.

(b) Audited by Deloitte & Touche LLP, Singapore for consolidation purposes only.

(c) Not audited for consolidation purposes as the management is of the opinion that the results of the subsidiaries for the year are

insignifi cant.

(d) Incorporated during the fi nancial year.

(e) During the current fi nancial year, the Group acquired an additional 44% equity interest in a subsidiary from a related party for a

consideration of $34,460,000 (Note 15).

(f) Acquired during the fi nancial year and was previously known as Rig Ventures Pte. Ltd.

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OTTO MARINE LIMITED



DECEMBER 31, 2008

13 INVESTMENT IN ASSOCIATES

Group

2008 2007

$’000 $’000

Cost of investment in associates 49 49

Quasi capital 47,421 4,928

Share of post-acquisition equity 5,857 (268)

Net 53,327 4,709

Quasi capital pertains to the loans to associates, which is an extension of the Company’s net investment in

associates. The balance is stated at cost less accumulated impairment. The settlement of the amount is

neither planned nor likely to occur in the foreseeable future.

Details of the Group’s associates at December 31, 2008 are as follows:

Name of subsidiary

Place of

incorporation/

(or registration)

and operation



2008 2007

% %

Aries Offshore Singapore Pte Ltd Singapore 49 49 Ship chartering

West African Invest Ltd (a) St. Vincent and

the Grenadines 49 49 Investment holding

Polar Marine 1 Pte. Ltd.(b) Singapore 49 – Ship chartering

Polar Marine 2 Pte. Ltd. (b) Singapore 49 – Ship chartering

Subsidiaries of associates

Otto 1 Limited (a) St. Vincent and

the Grenadines 49 49 Ship chartering

Otto 2 Limited (a) St. Vincent and

the Grenadines 49 49 Ship chartering

(a) Audited by other auditors for consolidation purposes only.

(b) Incorporated during the year.

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13 INVESTMENT IN ASSOCIATES (Cont’d)

Summarised fi nancial information in respect of the Group’s associates is set out below:

2008 2007

$’000 $’000

Total assets 139,589 51,379

Total liabilities (30,758) (41,769)

Net assets 108,831 9,610

Group’s share of associates’ net assets 53,327 4,709

Revenue 30,291 3,842

Profi ts (Losses) for the year 12,181 (548)

Group’s share of associates’ profi ts (losses) for the year 5,968 (268)

Add: Amortisation of deferred gain (Note 20) 482 –

Total Group’s share of associates’ profi ts (losses) for the year 6,450 (268)

14 AVAILABLE-FOR-SALE INVESTMENTS

Group

2008 2007

$’000 $’000

Quoted equity shares, at fair value 2,930 4,080

Quoted equity shares offer the Group opportunity for return through dividend income and fair value gains. They

have no fi xed maturity or coupon rate. The fair values of these shares are based on the quoted closing market

prices on the last market day of the fi nancial year.

The Group’s available-for-sale investments are denominated in Norwegian Kroner.

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OTTO MARINE LIMITED



DECEMBER 31, 2008

15 GOODWILL

Group

$’000

Cost:

At January 1, 2007 922

Arising on acquisition of a subsidiary (Note 32) 1,717

Arising on acquisition of additional interest in a subsidiary 2,462

At December 31, 2007 5,101

Arising on acquisition of additional interest in a subsidiary 35,269

At December 31, 2008 40,370

Carrying amount:

At December 31, 2008 40,370

At December 31, 2007 5,101

During the current fi nancial year, the Group acquired an additional 44% equity interest in a subsidiary from a

related party for a consideration of $34,460,000 resulting in an increase in goodwill of $35,269,000.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might

be impaired.

The goodwill relates primarily to two cash generating units (“CGU”).

In 2008, in determining the recoverable amounts of the CGUs, management uses fair value less cost to sell

for both CGUs, which is based on the independent valuation report dated December 2008 for one CGU with

goodwill arising amounting to $37,731,000, using the sales comparison approach.

In 2007, in determining the recoverable amounts of the CGUs, management used value in use for one CGU

and market value for another CGU. The value in use method was used for the fi rst CGU as it had been

controlled and actively managed by the Company for more than one year and as such, the Company was able

to reasonably estimate the future cash fl ows from this CGU. The market value for the other CGU was used to

assess the impairment of goodwill in relation to this CGU as it is acquired and managed by the Company from

December 2007. The management was not able to reasonably estimate the future cash fl ows of this CGU. For

the CGU where its recoverable amounts were determined from value in use calculations, the key assumptions

for the value in use calculations were those regarding the discount rates, growth rates and expected changes

to selling prices and direct costs during the period. Management estimated discount rates using pre-tax rates

that refl ect current market assessments of the time value of money and the risks specifi c to the CGUs. The

growth rates were based on industry growth forecasts. Changes in selling prices and direct costs were based

on past practices and expectations of future changes in the market. The Group prepared cash fl ow forecasts

derived from the expected project revenue based on the completion date as estimated by management for the

next fi ve years. The rate used to discount the forecast cash fl ows from the CGU was 12% per annum.

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16 PROPERTY, PLANT AND EQUIPMENT

Group Vessels

Leasehold

land and

building

Offi ce

equipment,

furniture

and fi ttings

Motor

vehicles

Machinery

and

equipment

Construction

in-progress Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Cost:

At January 1, 2007 – 7,701 897 610 39,992 2,050 51,250

Acquisition of subsidiary – 6,342 – – 3,489 – 9,831

Additions 35,559 – 326 479 1,479 28,349 66,192

Transfers – 2,710 – – 1,231 (3,941) –

Disposals – – (311) (186) (30,128) – (30,625)

At December 31, 2007 35,559 16,753 912 903 16,063 26,458 96,648

Additions – – 639 106 2,052 53,622 56,419

Transfers – 11,231 – – 2,727 (13,958) –

Transfer from inventory – – – – – 8,222 8,222

Written off – – (20) – – – (20)

Translation adjustments 5 (945) – – (519) 2 (1,457)

At December 31, 2008 35,564 27,039 1,531 1,009 20,323 74,346 159,812

Accumulated depreciation:

At January 1, 2007 – 1,507 356 183 30,677 – 32,723

Acquisition of subsidiary – 379 – – 436 – 815

Depreciation 200 336 207 190 1,429 – 2,362

Disposals – – (280) (119) (29,856) – (30,255)

Translation adjustments (8) – – – – – (8)

At December 31, 2007 192 2,222 283 254 2,686 – 5,637

Depreciation 1,174 1,056 283 203 2,400 – 5,116

Written off – – (8) – – – (8)

Translation adjustments 31 (94) – – (109) – (172)

At December 31, 2008 1,397 3,184 558 457 4,977 – 10,573

Carrying amount:

At December 31, 2008 34,167 23,855 973 552 15,346 74,346 149,239

At December 31, 2007 35,367 14,531 629 649 13,377 26,458 91,011

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008

16 PROPERTY, PLANT AND EQUIPMENT (Cont’d)

Company Vessels

Leasehold

land and

building

Offi ce

equipment,

furniture

and fi ttings

Motor

vehicles

Machinery

and

equipment

Construction

in-progress Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Cost:

At January 1, 2007 – – 17 393 – – 410

Additions – – 42 359 – – 401

Disposals – – – (155) – – (155)

At December 31, 2007 – – 59 597 – – 656

Additions – – 455 88 – – 543

At December 31, 2008 – – 514 685 – – 1,199

Accumulated depreciation:

At January 1, 2007 – – 1 90 – – 91

Depreciation – – 6 115 – – 121

Disposals – – – (88) – – (88)

At December 31, 2007 – – 7 117 – – 124

Depreciation – – 56 126 – – 182

At December 31, 2008 – – 63 243 – – 306

Carrying amount:

At December 31, 2008 – – 451 442 – – 893

At December 31, 2007 – – 52 480 – – 532

Certain motor vehicles held by the Company with carrying amount of $360,000 (2007 : $480,000) are under

fi nance lease arrangements (Note 21).

The carrying amounts of the Group’s property, plant and equipment mortgaged as security for borrowings from

fi nancial institutions (Note 17) are as follows:

Vessels

Leasehold

land and

building

Offi ce

equipment,

furniture

and fi ttings

Motor

vehicles

Machinery

and

equipment

Construction

in-progress Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000

At December 31, 2008 34,167 7,874 330 92 8,339 38,728 89,530

At December 31, 2007 31,984 8,568 553 169 10,324 4,769 56,367

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17 BORROWINGS FROM FINANCIAL INSTITUTIONS

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Bank loan 1 (Note a) 60,030 76,903 – –

Bank loan 2 (Note b) 14,144 17,277 14,144 17,277

Bank loan 3 (Note c) 30,984 90,183 30,984 90,183

Bank loan 4 (Note d) 2,500 – – –

Bank loan 5 (Note e) 53,204 – 53,204 –

Bank loan 6 (Note f) 7,105 – 7,105 –

Bank loan 7 (Note g) 95,403 – 95,403 –

Bank loan 8 (Note h) 20,000 – 20,000 –

Bank loan 9 (Note i) 29,244 – 29,244 –

Total 312,614 184,363 250,084 107,460

Presented as:

On demand or within one year 259,302 136,847 198,672 93,317

Within 2 to 5 years 53,312 45,909 51,412 12,536

After 5 years – 1,607 – 1,607

Total 312,614 184,363 250,084 107,460

Pledged Assets

The following assets have been pledged or mortgaged for the bank loans:

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Pledged deposits 128,143 195,718 128,143 195,718

Cash at bank 235 2,476 – –

Trade receivables 2,960 – – –

Inventories 36,882 19,594 – –

Gross amount due from customers for

contract work 213,880 93,198 – –

Carrying value of property, plant and equipment 89,530 56,367 – –

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008

17 BORROWINGS FROM FINANCIAL INSTITUTIONS (Cont’d)

Note a:

Bank loan 1 is arranged at fl oating interest rates which are subject to change at the bank’s discretion and

exposes the Group to cash fl ow interest rate risk. The effective borrowing interest rate averages 8.5%

(2007 : 8.0%) per annum. Out of the total bank loan of $60,030,000 (2007 : $76,903,000), $60,030,000

(2007 : $43,530,000) is contracted to be repaid within 12 months from the balance sheet date and $Nil (2007 :

$33,373,000) is contracted to be repaid after 12 months from the balance sheet date.

The bank loan is secured by a deed of encumbrance for land and building located at the subsidiary’s premise,

fi duciary transfer of machineries and equipment located at the subsidiary’s premise, fi duciary transfer of

inventory located at the subsidiary’s premise, a charge over one of the subsidiary’s receivables rising from

contracts entered into or to be entered into in relation to the vessels construction and/or repairs and corporate

guarantee from the Company.

Note b:

Bank loan 2 is drawn down to fi nance the acquisition of vessels by certain subsidiaries. The loan is arranged at

fl oating interest rates which are subject to change at the bank’s discretion and exposes the Group to fair value

interest rate risk. The bank loan bears interest at fl oating rate at 1% below the bank’s Prime Lending Rate. The

average interest rate approximates 4.2% (2007 : 6.5%). Bank loan 2 is repayable in 84 monthly instalments of

US$180,000 commencing from November 2007.

The bank loan is secured by a charge over related parties’ interest in quoted and unquoted shares, personal

guarantee from a director, legal mortgages over the vessels under fi nance (“mortgaged vessels”) and

assignment of all income, sales and purchase agreement, shipyard contracts, insurance proceeds taken over

the mortgaged vessels, charge over operating accounts of its subsidiaries and fi xed deposits of related parties.

Note c:


exposes the Group to cash fl ow interest rate risk. The bank loan bears interest at fl oating rate at 0.5% below

the bank’s Prime Lending Rate and the average interest rate approximates 5.0% (2007 : 6% to 11.8%). The

loan is expected to be repaid within 12 months from the balance sheet date.

The security of the loan is disclosed in Note b above.

Note d:


exposes the Company to cash fl ow interest rate risk. The bank loan bears fl oating interest at the bank’s prime

lending rate and the effective interest rate averages 4.5% (2007 : Nil%) per annum. The loan is repayable in 60

monthly instalments of $50,000 commencing March 2008.

This loan is secured by a personal guarantee from a director, all monies legal mortgages over the vessel under

fi nance (“mortgaged vessel”), an assignment of charter agreement and insurances taken over the mortgaged

vessel and a deed of corporate guarantee of the Company.

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Note e:


exposes the Company to cash fl ow interest rate risk. The bank loan bears fl oating interest at 1.85% above

bank’s monthly US$ LIBOR rate and the effective interest rate averages 4.5% (2007 : Nil%). The loan is

repayable upon the delivery of the vessels mortgaged which is expected to be within 12 months from the

balance sheet date.

The bank loan is secured by a personal guarantee from a director, an assignment of shipyard contracts and

insurance taken over the mortgaged vessels, and refund guarantee provided by the shipyards to a subsidiary,

and, corporate guarantee from a subsidiary. The loan granted is subject to the condition that one of the

Company’s directors maintains no less than 30% interest in the Company.

Note f:

Bank loan 6 is arranged at fl oating interest rates which are subject to change at the bank’s discretion. The

bank loan bears interest at fl oating rate at 1.5 % above the bank’s monthly US$ LIBOR rate and the effective

interest rate averages 4.8% (2007 : Nil%) per annum. The loan is repayable upon the delivery of the mortgaged

vessels, which is expected to be within 12 months from the balance sheet date.

The bank loan is secured by an assignment of corporate guarantee from a supplier and an assignment of

shipyard contracts. The loan granted is subject to the condition that one of the Company’s directors maintains

no less than 30% interest in the Company.

Note g:

Bank loan 7 is arranged at fl oating interest rates which are subject to change at the bank’s discretion.

The bank loan bears interest at floating rate at 1.75% above the bank’s monthly US$ SIBOR rate

and the effective interest rate averages 5.1% (2007 : Nil%). The loan is repayable upon the delivery

of the mortgaged vessels. Out of the total bank loan of $95,403,000 (2007 : $Nil), $55,000,000

(2007 : $Nil) is expected to be repaid within 12 months from the balance sheet date and $40,403,000 (2007 :

$Nil) is expected to be repaid after 12 months from the balance sheet date.

The bank loan is secured by a charge over certain of pledge deposits and an assignment to the bank of the

relevant shipbuilding contracts, sale proceeds and proceeds from builder risk insurance policies. The loan

granted is subject to the condition that one of the Company’s directors maintains no less than 30% interest in

the Company.

Note h:

Bank loan 8 is arranged at fl oating interest rates which are subject to change at the bank’s discretion. The

bank loan bears interest at fl oating rate at 2.38% above the bank’s monthly SIBOR rate and the effective

interest rate averages 3.7% (2007 : Nil%) per annum. The loan is repayable upon demand.

The bank loan is secured by a personal guarantee provided by one of the Company’s directors.

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008


Note i:


exposes the Group to cash fl ow interest rate risk. The bank consists of two revolving credit which bears

interest at 1.75% and 2% respectively above the bank’s monthly US$ LIBOR rate and the effective interest rate

averages 6.2% (2007 : Nil%) per annum. The loan is repayable within 12 months from the balance sheet date.

This loan is secured by a personal guarantee from a director, a statutory mortgage over the vessels to be

constructed and Deed of Covenants, legal assignment of all rights and benefi ts under the Shipbuilding Contract

in relation to the vessels, an assignment of all insurance policies, a charge and set off in respect of all money

deposited with the bank.

The carrying amount of borrowings from fi nancial institutions approximates their fair values due to the relatively

short term maturity of these borrowings. For the non-current borrowings the interest rates approximate the

market rates prevailing at balance sheet date and accordingly the carrying amount approximate fair value.

18 TRADE PAYABLES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Related parties (Note 5) 15 4,646 15 –

Subsidiaries (Note 12) – – – 24,907

Accruals - trade 40,476 63,953 18,569 61,207

Outside parties 186,513 100,166 157,940 92,844

Total 227,004 168,765 176,524 178,958

The average credit period on purchases of goods from third parties is 90 to 180 days (2007 : 90 to 180 days).

Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs.

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08080

19 OTHER PAYABLES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Related parties (Note 5) – 2,201 – –

Subsidiaries (Note 12) – – 205 64,969

Advance received from customers 2,177 – – –

Other creditors 4,691 2,783 294 5

Interest payable 1,955 – 1,951 –

Salary related accruals 5,812 1,577 4,843 299

Total 14,635 6,561 7,293 65,273

Salary related accruals include $793,000 (2007 : $288,000) due to directors. The amount due to directors is

unsecured, interest-free and repayable within 12 months from the balance sheet date.

20 DEFERRED GAIN

Group

2008 2007

$’000 $’000

Deferred gain 12,619 13,101

Current portion (482) (482)

Non-current portion 12,137 12,619

The deferred gain relates to the Group’s share of the unrealised profit from the sale of vessels to

associates. The deferred gain will be amortised over the remaining useful life of the vessels against the results

of the associates in the profi t and loss statement.

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008

21 FINANCE LEASES

Group and Company

Minimum lease

payments

Present value of

minimum lease

payments

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Amounts payable under fi nance leases:

Within one year 103 103 85 80

In the second to fi fth year inclusive 287 374 263 332

More than fi ve years – 15 – 15

390 492 348 427

Less: Future fi nance charges (42) (65) NA NA

Present value of lease obligations 348 427 348 427

Less: Amount due for settlement within

12 months (shown under current liabilities) (85) (80)

Amount due for settlement after 12 months 263 347

The average effective interest rate was 5.8% (2007 : 5.8%) per annum. Interest rates are fi xed at the contract

date and thus expose the Group and Company to fair value interest rate risk.

The fair value of the Group’s and Company’s lease obligations approximates their carrying amount.

The Group’s and Company’s obligation under fi nance leases are secured by the lessors’ title to the leased

assets (Note 16).

22 LOANS FROM RELATED PARTIES

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Term loan (46,800) – (46,800) –

Trade and other receivables – 94,911 – 24,502

Other payables (39,526) (146,292) (39,526) (146,292)

Loans at amortised cost - net (86,326) (51,381) (86,326) (121,790)

Presented as:

Current (10,400) – (10,400) –

Non-current (75,926) (51,381) (75,926) (121,790)

Total (86,326) (51,381) (86,326) (121,790)

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08282

22 LOANS FROM RELATED PARTIES (Cont’d)

The entities in the Group and the related party have entered into an offsetting arrangement to set-off the

receivables and payables balances.

In 2007, the trade and other receivables balances included amounts collected by related parties on behalf of

the Group and receivables arising from the sales of barges to a related party while the other payables balance

related to amount paid to suppliers by the related party on behalf of the Group and advances to the Group.

In 2008, the other payables balance includes advances extended by the related party to the Group and

Company. Out of the total loan payable to the related party, the Group and Company converted $52,000,000

of the total loan amount from a related party into a fi ve-year interest bearing term loan.

As at the balance sheet date, the term loan amounting to $46,800,000 (2007 : $Nil) is unsecured and bears

interest at 2% (2007 : Nil%) per annum above the prime lending rate or 7% (2007 : Nil%) per annum whichever

is higher with an effective interest rate of 7.5%. It is repayable in 20 equal quarterly instalments of $2,600,000

commencing September 2008.

The remaining loan from related parties amounting to S$39,526,000 (2007 : $51,381,000) has an average

credit period of 180 days and bears interest at 4% (2007 : 4%) per annum on overdue balances. These loans

are unsecured, interest-free and are not repayable within the 12 months from the balance sheet date. The

imputed interest expense on the interest-free related party loan amounting to $359,000 (2007: $32,000) has

been waived and recorded as capital reserves (Note 24).

These loans are initially measured at fair value and are subsequently measured at amortised cost using the

effective interest method, with interest expense recognised on an effective yield basis. The carrying amounts

of these loans approximate their fair value as interest rates approximate the market rates prevailing at balance

sheet date.

23 SHARE CAPITAL

Group and Company

2008 2007 2008 2007

’000 ’000 $’000 $’000

Number of ordinary shares

Issued and paid-up:

At beginning of year 32,500 32,500 32,500 32,500

Sub-division of shares (Note a) 942,500 – – –

Issue of ordinary shares pursuant to the initial

public offering (Note b) 206,045 – 105,083 –

Share issue expenses – – (2,890) –

At end of year 1,181,045 32,500 134,693 32,500

Fully paid ordinary shares, which have no par value, carry one vote per share and carry a right to dividends as

and when declared by the Company.

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OTTO MARINE LIMITED



DECEMBER 31, 2008

23 SHARE CAPITAL (Cont’d)

Note a:

On September 2, 2008, the shareholders passed resolutions to approve the sub-division of every one ordinary

share in the share capital of the Company into 30 shares.

Note b:

On November 21, 2008, the shareholders passed resolutions to approve the allotment and issue of

206,045,000 ordinary shares at $0.51 each pursuant to the Company’s Initial Public Offering. Share issue

expenses directly attributable to new share issues amounting to $2,890,000 were charged against the share

capital.

24 CAPITAL RESERVES

Valuation

reserve

Deemed capital

contribution Total

$’000 $’000 $’000

Group

At January 1, 2007 – 1,162 1,162

Arising during the fi nancial year 462 32 494

At December 31, 2007 462 1,194 1,656

Arising during the fi nancial year (1,249) 359 (890)

At December 31, 2008 (787) 1,553 766

Company

At January 1, 2007 – 1,162 1,162

Arising during the fi nancial year – 32 32

At December 31, 2007 – 1,194 1,194

Arising during the fi nancial year – 359 359

At December 31, 2008 – 1,553 1,553

The capital reserves relating to valuation reserve arises on the valuation of available-for-sale fi nancial assets to

market value.

The capital reserves relating to deemed capital contribution arises from the waiver of interest on related party

loans.

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08484

25 MINORITY INTERESTS

In 2007, one of the Company’s subsidiaries, PT Batamec, was in a capital defi cit position and is dependent on

the Company and a shareholder with 44% equity interest for continuing fi nancial support. As the shareholder

has provided such undertaking, the shareholder continued to share net losses of PT Batamec beyond its

capital contribution which resulted in a minority interest receivable balance.

During the financial year, the Group acquired the 44% equity interest from the shareholder

(Note 15).

26 REVENUE

Group

2008 2007

$’000 $’000

Long-term construction contracts 453,058 262,066

Ship repairs and conversion 14,399 18,761

Sale of barges – 23,938

Charter income 16,142 9,259

Total 483,599 314,024

27 OTHER EXPENSES (NET)

Group

2008 2007

$’000 $’000

Net foreign exchange loss 10,650 1,937

Interest income (4,579) (6,934)

Reversal of unrealised profi t for sale of vessels to associates 25,402 13,101

Gain on disposal of property, plant and equipment – (17)

Write-off of property, plant and equipment 12 –

Other income (110) (42)

Net 31,375 8,045

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OTTO MARINE LIMITED



DECEMBER 31, 2008

28 FINANCE COSTS

Group

2008 2007

$’000 $’000

Interest expense to related parties:

Interest paid and payable (Note 5) 1,917 –

Deemed capital contribution (Note 5 and 24) 359 32

Interest expense to outside parties:

Borrowings from fi nancial institutions 14,996 5,852

Finance leases 23 21

Total 17,295 5,905

29 INCOME TAX EXPENSE

Group

2008 2007

$’000 $’000

Current - Singapore 208 1,449

Under provision in prior years 1,027 –

1,235 1,449

Domestic income tax is calculated at 18% (2007 : 18%) of the estimated assessable profi t for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

The income tax expense for the year can be reconciled to the accounting profi t as follows:

Group

2008 2007

$’000 $’000


Tax at statutory tax rate 11,030 9,922

Tax effects of:

Non-deductible expenses 8,274 7,777

Non-taxable income (2,258)* (1,198)*

Partial tax exemption and rebate (28) (40)

Effect of different tax rates of subsidiaries reporting in other jurisdictions (16,810) (15,012)

Under provision in prior year 1,027 –

Net 1,235 1,449

* Certain of the non-taxable income relates to income derived from shipping operations which is exempted from income tax under

Section 13A of the Singapore Income Tax Act, Cap. 134.

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08686

29 INCOME TAX EXPENSE (Cont’d)

As at the balance sheet date, deferred tax liability arising from undistributed profi ts of subsidiaries have not

been recognised because the Group controls the dividend policy of the subsidiaries and has determined that

profi ts will not be distributed in the foreseeable future. The amount of undistributed profi ts, that may give rise to

deferred tax liabilities, amounted to $149,435,000 (2007 : $86,419,000).

30 PROFIT FOR THE YEAR

Profi t for the year has been arrived at after charging (crediting):

Group

2008 2007

$’000 $’000

Depreciation of property, plant and equipment:

Included in cost of sales 2,571 927

Included in administrative expenses 187 127

Capitalised in construction in progress 2,358 1,308

Total depreciation expenses 5,116 2,362

Directors’ remuneration:

Directors of the Company 2,317 1,040

Directors’ fees 102 –

Employee benefi ts expense (including directors’ remuneration):

Defi ned contribution plans 438 410

Share award expense 1,326 –

Others 17,316 8,794

Total employee benefi ts expense 19,080 9,204

Included in cost of sales 8,114 2,378

Included in administrative expenses 10,966 6,826

Total 19,080 9,204

Cost of inventories recognised as expense 6,906 5,083

Bad debts written off – 1,333

Non-audit fees paid to auditors 423 224

Bad debts recovered (807) –

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OTTO MARINE LIMITED



DECEMBER 31, 2008

31 EARNINGS PER SHARE

The calculation of the basic earnings per share is based on the net profi t attributable to equity holders of the

Company for the fi nancial years ended December 31, 2008 and 2007 over the weighted average number of

ordinary shares of 994,140,792 (2007 : 975,000,000) respectively is adjusted for the share sub-division as if it

had taken place at January 1, 2007.

There were no signifi cant dilution of earnings for the fi nancial years ended December 31, 2008 and 2007 as

there were no signifi cant potential ordinary shares outstanding.

32 ACQUISITION OF A SUBSIDIARY

In 2007, the Company acquired a subsidiary, incorporated in Indonesia for a cash consideration of $2,190,000.

The fair value of the net assets acquired in the transaction, and the goodwill arising, are as follow:

2007

$’000

Net assets acquired:

Cash and bank balances 4

Other receivables 227

Property, plant and equipment 9,016

Trade payables (7,983)

Other payables (765)

Minority interests (26)

Goodwill 1,717

Total consideration, satisfi ed by cash 2,190

Net cash outfl ow arising on acquisition:

Cash consideration 2,190

Cash and bank balances of subsidiary acquired (4)

Net 2,186

The subsidiary did not contribute to the Group’s profi t before tax between the date of acquisition and December

31, 2007.

If the acquisition had been completed on January 1, 2007, the impact will be a reduction of the Group’s profi t

for the year for 2007 by $491,000. There would have been no impact to the Group’s revenue as the subsidiary

derived solely from the Group.

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08888

33 COMMITMENTS

Group Company

2008 2007 2008 2007

$’000 $’000 $’000 $’000

(i) Capital commitments

Capital expenditure contracted but not

provided for in the consolidated fi nancial

statements in respect of acquisition of

property, plant and equipment 32,517 39,186 – –

(ii) Outstanding forward foreign exchange contracts

Group and Company

2008 2007

$’000 $’000

Notional Principal:

Buy Euro 7,500,000 (2007 : 1,000,000) 15,321 2,105

Sell US$ 11,576,100 (2007 : 1,445,000) 16,799 2,097

Loss arising from the changes in the fair value of the forward contract

recognised in profi t and loss statement 1,478 –

In 2007, the fair value of the derivative fi nancial instruments and the fair value changes of the outstanding

forward exchange contracts were not recognised on the balance sheet and profi t and loss statement

respectively as such adjustments are not material.

34 OPERATING LEASE ARRANGEMENTS

The Group as lessee

Group

2008 2007

$’000 $’000

Minimum lease payments under operating leases recognised as an expense

in the year (Note 5) 437 305

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OTTO MARINE LIMITED



DECEMBER 31, 2008

34 OPERATING LEASE ARRANGEMENTS (Cont’d)

At the balance sheet date, the Group and the Company have outstanding commitments under non-cancellable

operating leases which fall due as follows:

Group and Company

2008 2007

$’000 $’000

Within one year 437 582

In the second to fi fth year inclusive 182 703

Total 619 1,285

Operating lease payments represent rentals payable by the Group and the Company for its offi ce premises.

Leases are negotiated and rentals are fi xed for an average of 2 years.

The Group as lessor

The Group charters out its vessels under operating leases. At the balance sheet date, the Group has

outstanding commitments under non-cancellable operating leases which substantially fall due within one year.

35 CONTINGENT LIABILITIES

Group and Company

2008 2007

$’000 $’000

Guarantee given to banks in respect of facilities utilised by a related party

with common shareholders/directors – 2,097

In November 2007, the Group received a notice of arbitration from a supplier. The supplier alleged that

pursuant to an agreement, the Group was required to make an additional payment of RM4.4 million in

connection with services rendered by the supplier prior to 2005. On September 10, 2008, the Group entered

into a settlement with the supplier for full and fi nal settlement of all claims made by them against the Group in

the arbitration proceedings. In accordance with the indemnity provided by a related party, the related party has

reimbursed the Group for all costs and expenses incurred pursuant to the settlement agreement and all legal

expenses arising out of the arbitration proceedings.

As at December 31, 2008, the Company has provided a corporate guarantee to a bank in respect of banking

facilities granted to subsidiaries amounting to $62,530,000 and another subsidiary has provided a corporate

guarantee to a bank in respect of the banking facility granted to the Company amounting to $53,204,000.

The management is of the view that the fair values of the fi nancial guarantee provided by the Group and the

Company are not signifi cant.

Global Reports LLC


09090

36 BUSINESS AND GEOGRAPHICAL SEGMENTS

A business segment is a Group of assets and operations engaged in providing products or services that are

subject to risks and returns that are different from those of other business segments. A geographical segment

is engaged in providing products or services within a particular economic environment that are subject to risks

and return that are different from those of segments operating in other economic environments.

Business segment

The Group is primarily engaged in the operating division of ship building, ship repair and conversion, and

chartering of vessels. The principal activities are as follows:

Ship building - Construction of small, medium and large offshore and other support vessels.

Ship repair and conversion - Servicing and conversion of wide range of vessels.

Ship chartering - Chartering of offshore support vessels.

a) Segment revenue and expenses

Segment revenue and expenses are revenue and expenses reported in the consolidated fi nancial

statements that are either directly attributable to a segment or can be allocated on a reasonable basis to

a segment.

b) Segment assets and liabilities

Segment assets are all operating assets that are employed by a segment in its operating activities and

are either directly attributable to the segment or can be allocated to the segment on a reasonable basis.

Segment liabilities are all operating liabilities that are employed by a segment in its operating activities

and are either directly attributable to the segment or can be allocated to the segment on a reasonable

basis.

Segment information for the fi nancial years ended December 31, 2008 and 2007 are as follows:

Consolidated Profi t and Loss Statement and Balance Sheet

Chartering Shipbuilding

Ship Repair

and Conversion Total

$’000 $’000 $’000 $‘000

December 31, 2008

Revenue

External revenue 16,142 453,058 14,399 483,599

External cost of sales (6,665) (344,794) (8,856) (360,315)

Segment results 9,477 108,264 5,543 123,284

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008

36 BUSINESS AND GEOGRAPHICAL SEGMENTS (Cont’d)

b) Segment assets and liabilities (Cont’d)

Consolidated Profi t and Loss Statement and Balance Sheet (Cont’d)


Ship Repair


$’000 $’000 $’000 $‘000

December 31, 2008

Other expenses (31,375)

Unallocated expenses (19,784)

Share of profi ts of associates 6,450 6,450

Finance costs (17,295)

Profi t before income tax 61,280

Income tax expense (1,235)

Profi t for the year 60,045

Assets

Segment assets 36,418 712,300 3,370 752,088

Investment in associates 53,327 – – 53,327

Unallocated corporate assets 173,030

Total assets 978,445

Liabilities

Segment liabilities 20,171 622,275 3,930 646,376

Unallocated corporate liabilities 113,040

Total liabilities 759,416

Other information

Capital expenditure

Allocated 639 55,366 74 56,079

Unallocated 340

56,419

Depreciation:

Allocated 1,177 3,650 116 4,943

Unallocated 173

5,116

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09292



Consolidated Profi t and Loss Statement and Balance Sheet (Cont’d)


Ship Repair


$’000 $’000 $’000 $‘000

December 31, 2007

Revenue

External revenue 9,259 286,004 18,761 314,024

External cost of sales (6,011) (214,060) (12,255) (232,326)

Segment results 3,248 71,944 6,506 81,698

Other expenses (8,045)

Unallocated expenses (12,356)

Share of losses of associates (268) (268)

Finance costs (5,905)

Profi t before income tax 55,124

Income tax expense (1,449)

Profi t after income tax 53,675

Assets

Segment assets 40,619 504,360 8,009 552,988

Investment in associates 4,709 – – 4,709

Unallocated corporate assets 24,168

Total assets 581,865

Liabilities

Segment liabilities 23,156 437,728 5,464 466,348

Unallocated corporate liabilities 57,713

Total liabilities 524,061

Other information

Capital expenditure

Allocated 35,559 29,678 524 65,761

Unallocated 431

66,192

Depreciation:

Allocated 200 1,911 125 2,236

Unallocated 126

2,362

Global Reports LLC

OTTO MARINE LIMITED



DECEMBER 31, 2008



Geographical segments

The Group’s business segments operate mainly in four geographical areas namely Singapore, Indonesia,

Middle East and Europe.

The revenue by geographical segments is based on location of the customers. Segment assets and

capital expenditure are based on the geographical location of the assets and capital expenditure.

2008 2007

$’000 $’000

Revenue

Asia Pacifi c 348,778 228,991

North America 33,837 48,096

Europe 57,433 27,678

Middle East 43,551 9,259

483,599 314,024

Carrying amount of segment assets

People’s Republic of China 66,260 21,689

Singapore 779,267 460,182

Middle East 35,655 37,902

Indonesia 97,263 62,092

978,445 581,865

Capital expenditure

People’s Republic of China 35,146 21,689

Singapore 469 430

Middle East 74 35,559

Indonesia 20,730 8,514

56,419 66,192

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09494

37 EVENTS AFTER THE BALANCE SHEET DATE

On January 20, 2009, the Company entered into two bareboat charter agreement in respect of two 6000 BHP

vessels with a customer, which were recorded as “Inventories” on balance sheet as at December 31, 2008.

Following signing of the charter agreement, the two vessels will be transferred from “Inventories” to “Property,

plant and equipment” subsequent to year end.

On January 23, 2009, the directors of the Company have approved to grant 6,240,000 award shares at the

market price of $0.425 per share pursuant to the Otto Marine Share Award Scheme which was approved by

the shareholders of the Company on September 2, 2008, where participants are awarded fully paid shares,

their equivalent cash value or combination thereof free-of-charge, upon the participants achieving prescribed

performance targets and upon expiry of the prescribed vesting period. The vesting periods are January 30,

2009 for 3,120,000 award shares and April 30, 2009 for 3,120,000 award shares. The Group has accrued

$1.3 million for the shares vesting on January 30, 2009 in the results for the year ended December 31, 2008

and will account the shares vesting on April 30, 2009 in the results for the year ending December 31, 2009.

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OTTO MARINE LIMITED


STATEMENT OF DIRECTORS

In the opinion of the directors, the consolidated fi nancial statements of the Group and the balance sheet and

statement of changes in equity of the Company as set out on pages 35 to 94 are drawn up so as to give a true

and fair view of the state of affairs of the Group and of the Company as at December 31, 2008 and of the results,

changes in equity and cash fl ows of the Group and changes in equity of the Company for the year ended on that

date and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay

its debts when they fall due.

ON BEHALF OF THE BOARD OF DIRECTORS

Yaw Chee Siew

Lee Kok Wah

March 20, 2009

Global Reports LLC

STATISTICS OFSHAREHOLDINGSAS AT 2 MARCH 2009

09696

Issued and fully paid-up shares : 1,184,165,000 ordinary shares

Class of shares : Ordinary shares

Voting rights : One vote per share

PUBLIC SHAREHOLDERS

Based on the register of Directors’ shareholdings and the Register of Substantial Shareholders maintained by the

Company as at the Latest Practicable Date, approximately 179,365,000 Shares, representing 15.1% of the issued

Shares, are in the hands of the public.

INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the direct and deemed interests and voting rights of the Directors and the

Substantial Shareholders before the purchase of Shares pursuant to the Share Buyback Mandate will be as follows:

Direct Interests Deemed Interests Total Interests

Directors No of Shares % No of Shares % No of Shares %

Yaw Chee Siew – – 858,000,0001 72.5 858,000,0001 72.5

Lee Kok Wah2 87,750,000 7.4 – – 87,750,000 7.4

William Edward Alastair Morrison – – – – – –

Craig Foster Pickett – – – – – –

Reggie Thein – – – – – –

Ng Chee Keong – – – – – –

Direct Interests Deemed Interests Total Interests

Substantial Shareholder No of Shares % No of Shares % No of Shares %

CEO Technology Asia Limited 29,250,000 2.5 – – 29,250,000 2.5

Business Companion Investments

Limited

828,750,000 70.0 – – 828,750,000 70.0

Standard Chartered Private Equity

Limited (“SCPEL”)

58,000,000 4.9 –3 –3 4 4

1 Yaw Chee Siew is deemed to have interest in Shares held by CEO Technology Asia Limited (“CEO Technology Asia”) and Business

Companion Investments Limited (“Business Companion Investments”).

2 Lee Kok Wah is also a Substantial Shareholder.

3. Under a loan agreement entered into between Yaw Chee Siew, Business Companion Investments and SCPEL (the “Exchangeable Loan

Agreement”), under which SCPEL granted a loan to Business Companion Investments (the “Exchangeable Loan”), SCPEL has been granted

certain options over Shares owned by Business Companion Investments. Pursuant to the terms of the Exchangeable Loan Agreement,

SCPEL may acquire Shares owned by Business Companion Investments by electing to be transferred Shares owned by Business

Companion Investments in exchange for the Exchangeable Loan in two tranches of S$35.0 million each, along with the applicable accrued

interest on each tranche owing to SCPEL (the “Applicable Interest”), at certain pre-determined periods of time and at exchange prices based

on certain pre-determined exchange formulas. For more information on the Exchangeable Loan Agreement, please see pages 143 to 147 of

the Company’s Prospectus.

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OTTO MARINE LIMITED


STATISTICS OFSHAREHOLDINGS

AS AT 2 MARCH 2009

By virtue of Section 7 of the Companies Act, SCPEL is deemed to be interested in certain Shares owned by Business Companion

Investments as a result of the rights of exchange granted by Business Companion Investments over Shares owned by it to SCPEL as

follows:

(a) In relation to the fi rst tranche of S$35.0 million, SCPEL can elect to convert it, together with the Applicable Interest, as at the point of

the fi rst exchange, at an exchange price per Share of $0.4743, in accordance with the terms of the Exchangeable Loan Agreement. As

the Applicable Interest for this tranche (which value depends on the date SCPEL chooses to exchange) is currently unascertainable, it

is not possible to ascertain the full extent of SCPEL’s deemed interests in those Shares for this tranche. Purely for illustrative purposes

only, on the basis that SCPEL only elects to exchange this fi rst tranche of S$35.0 million into Shares (without taking into account the

Applicable Interest in relation to this tranche), SCPEL is deemed to be interested in 73,792,958 Shares which represent 6.2% of the

Company’s issued share capital as at the Latest Practicable Date. Such fi gures are subject to change to the extent that the Applicable

Interest accrued in relation to this tranche pursuant to the terms and conditions of the Exchangeable Loan Agreement is converted

into Shares as well.

(b) In relation to the second tranche of S$35.0 million, SCPEL can elect to convert it, together with the Applicable Interest as at the point

of the second exchange at an exchange price per Share which will be an amount equivalent to 10 times the fully diluted earnings per

Share, i.e S$0.572 based on the Company’s audited consolidated accounts for FY2008. As the Applicable Interest for this tranche

(which value depends on the date SCPEL chooses to exchange) is currently unascertainable, it is not possible to ascertain the full

extent of SCPEL’s deemed interests in the Shares for this tranche. Purely for illustrative purposes only, on the basis that SCPEL only

elects to exchange this second tranche of S$35.0 million into Shares (without taking into account the Applicable Interest in relation to

this tranche), SCPEL is deemed to be interested in 61,188,811 Shares which represent 5.2% of the Company’s issued share capital.

Such fi gures are subject to change to the extent that the Applicable Interest accrued in relation to this tranche pursuant to the terms

and conditions of the Exchangeable Loan Agreement is converted into Shares as well.

4. The total interests of SCPEL is currently unascertainable for the reasons set out in note 3. above.

BREAKDOWN OF SHAREHOLDINGS BY RANGE

SIZE OF SHAREHOLDINGS

NO. OF

SHAREHOLDERS

% OF

SHAREHOLDERS

NO. OF

SHARES

% OF ISSUED

SHARE CAPITAL

1 - 999 0 0.00 0 0.00

1,000 - 10,000 596 81.09 1,757,000 0.15

10,001 - 1,000,000 127 17.28 10,971,000 0.92

1,000,001 AND ABOVE 12 1.63 1,171,437,000 98.93

TOTAL 735 100.00 1,184,165,000 100.00

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STATISTICS OFSHAREHOLDINGSAS AT 2 MARCH 2009

09898

TWENTY LARGEST SHAREHOLDERS

No. Name of Shareholder No. of Shares

% of Issued

Share Capital

1 BUSINESS COMPANION INVESTMENTS LIMITED 828,750,000 69.99

2 LEE KOK WAH 87,750,000 7.41

3 RAFFLES NOMINEES PTE LTD 87,411,000 7.38

4 UNITED OVERSEAS BANK NOMINEES PTE LTD 39,247,000 3.31

5 DBS NOMINEES PTE LTD 39,215,000 3.31

6 CEO TECHNOLOGY ASIA LIMITED 29,250,000 2.47

7 UOB KAY HIAN PTE LTD 28,927,000 2.44

8 PHILLIP SECURITIES PTE LTD 23,249,000 1.96

9 CHAN KWAN BIAN 2,552,000 0.22

10 ZENG LIREN 2,000,000 0.17

11 SHANMUGA RETHENAM S/O RATHAKRISHNAN 1,958,000 0.17

12 ANG KIM CHOON ERIC 1,128,000 0.10

13 KOH LAY YEN 1,000,000 0.08

14 LUM KIN WAH 1,000,000 0.08

15 ONG TIAN KHIAM 550,000 0.05

16 LEO MENG SI 500,000 0.04

17 FIRSTLINK CAPITAL PTE. LTD. 400,000 0.03

18 OOI KOK CHYE 360,000 0.03

19 CHIAM HENG HIM 330,000 0.03

20 TAN SIANG SENG 300,000 0.03

TOTAL 1,175,877,000 99.30

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OTTO MARINE LIMITED


NOTICE OFANNUAL GENERAL MEETING

OTTO MARINE LIMITED(Incorporated in the Republic of Singapore)

(UEN: 197902647M)

NOTICE IS HEREBY GIVEN that the Twenty-Ninth Annual General Meeting of Otto Marine Limited (the “Company”)

will be held at Pisces/Aquarius Room, Level 1 Marina Mandarin Hotel, 6 Raffl es Boulevard, Marina Square, Singapore

039594, on Friday, 24 April 2009 at 4.00 p.m. for the following purposes:

AS ORDINARY BUSINESS

1. To receive and adopt the Directors’ Report and the Audited Financial Statements of the Company for the year

ended 31 December 2008 together with the Auditors’ Report thereon. (Resolution 1)

2. To re-elect Mr Yaw Chee Siew, retiring by rotation under Article 89 of the Company’s Articles of Association and

who, being eligible, offers himself for re-election. (Resolution 2)

Mr Yaw Chee Siew will, upon re-election as Director of the Company, remain as Executive Chairman of the

Company.

3. To re-elect Mr William Edward Alastair Morrison retiring by rotation under Article 89 of the Company’s Articles of

Association and who, being eligible, offers himself for re-election. (Resolution 3)

Mr William Edward Alastair Morrison will, upon re-election as Director of the Company, remain as a member of

the Audit Committee of the Company.

4. To approve the payment of Directors’ fees of S$102,268.00 for the Non-Executive Directors for the fi nancial

year ended 31 December 2008. [See Explanatory Note (i)] (Resolution 4)

5. To re-appoint Deloitte & Touche LLP as the Auditors of the Company and to authorise the Directors of the

Company to fi x their remuneration. (Resolution 5)

AS SPECIAL BUSINESS

To consider and if thought fi t, to pass the following resolutions as Ordinary Resolutions, with or without any

modifi cations:

6. Mandate to issue shares in the capital of the Company

That authority be and is hereby given to the Directors to:

(a) (i) issue shares in the Company (“shares”) whether by way of rights, bonus or otherwise; and/or

(ii) make or grant offers, agreements or options (collectively, the “Instruments”) that might or would

require shares to be issued, including but not limited to the creation and issue of (as well as

adjustments to) options, warrants, debentures or other instruments convertible into shares,

at any time and upon such terms and conditions and for such purposes and to such persons as the

Directors of the Company may in their absolute discretion deem fi t; and

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(b) (notwithstanding the authority conferred by this Resolution may have ceased to be in force) issue shares

in pursuance of any Instrument made or granted by the Directors of the Company while this Resolution

was in force,

provided that:

(1) the aggregate number of shares to be issued pursuant to this Resolution (including shares to be issued

in pursuance of Instruments made or granted pursuant to this Resolution):

(A) by way of renounceable rights issues on a pro rata basis to shareholders of the Company

(“Renounceable Rights Issues”) shall not exceed 100 per cent of the total number of issued shares

in the capital of the Company excluding treasury shares (as calculated in paragraph (3) below);

and

(B) otherwise than by way of Renounceable Rights Issues (“Other Share Issues”) shall not exceed 50

per cent of the total number of issued shares in the capital of the Company excluding treasury

shares (as calculated in accordance with paragraph (3) below), of which the aggregate number

of shares to be issued other than on a pro rata basis to shareholders of the Company shall not

exceed 20 per cent of the total number of issued shares in the capital of the Company excluding

treasury shares (as calculated in accordance with paragraph (3) below);

(2) the Renounceable Rights Issues and Other Share Issues shall not, in aggregate, exceed 100 per cent of

the total number of issued shares in the capital of the Company excluding treasury shares (as calculated

in paragraph (3) below);

(3) (subject to such manner of calculation as may be prescribed by the SGX-ST) for the purpose of

determining the aggregate number of shares that may be issued under paragraphs (1)(A) and (1)(B)

above, the percentage of issued shares shall be based on the total number of issued shares in the

capital of the Company excluding treasury shares at the time this Resolution is passed, after adjusting

for:

(i) new shares arising from the conversion or exercise of any convertible securities or share options or

vesting of share awards which are outstanding or subsisting at the time this Resolution is passed;

and

(ii) any subsequent bonus issue or consolidation or subdivision of shares;

(4) in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of

the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived

by the SGX-ST) and the Articles of Association for the time being of the Company; and

(5) (unless revoked or varied by the Company in General Meeting) the authority conferred by this Resolution

shall continue in force until the conclusion of the next Annual General Meeting of the Company or the

date by which the next Annual General Meeting of the Company is required by law to be held, whichever

is the earlier.

[See Explanatory Note (ii)] (Resolution 6)

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OTTO MARINE LIMITED



7. Authority to grant awards under the Share Award Scheme

That the Directors be and are hereby authorised to:

a) offer and grant awards (the “Awards”) in accordance with the provisions of the Otto Marine Share Award

Scheme (the “Share Award Scheme”); and

b) allot and issue from time to time such number of Shares in the capital of the Company as may be

required to be issued pursuant to the vesting of Awards under the Share Award Scheme, provided

always that the aggregate number of Shares to be issued pursuant to the Awards granted under the

Share Award Scheme shall not exceed fi fteen per centum (15.0%) of the Company’s issued share capital

on the day preceding the relevant date of the Award.

Such authority shall, unless revoked or varied by the Company in a general meeting, continue in force until the

conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General

Meeting of the Company is required by law to be held, whichever is earlier.

[See Explanatory Note (iii)] (Resolution 7)

By Order of the Board

Mr See Kian Heng

Company Secretary

Singapore

2 April 2009

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Explanatory Notes:

(i) The breakdown of the Directors’ fees is as follows:

William Edward Alastair Morrison S$19,667

Craig Foster Pickett S$19,667

Ng Chee Keong S$31,467

Reggie Thein S$31,467

(ii) The Resolution 6 in item 6 above empower the Directors to issue shares in the capital of the Company and

to make or grant instruments (such as warrants or debentures) convertible into shares, and to issue shares in

pursuance of such instruments, up to a number not exceeding (i) 100% for Renounceable Rights Issues and (ii)

50% for Other Share Issues, of which up to 20% may be issued other than on a pro rata basis to shareholders,

provided that the total number of shares which may be issued pursuant to (i) and (ii) shall not exceed 100% of

the issued shares (excluding treasury shares) in the capital of the Company. For the purpose of determining the

aggregate number of shares that may be issued, the percentage of issued shares shall be based on the total

number of issued shares (excluding treasury shares) in the capital of the Company at the time that Resolution 6

is passed, after adjusting for (a) new shares arising from the conversion or exercise of any convertible securities

or share options or vesting of share awards which are outstanding or subsisting at the time that Resolution 6 is

passed, and (b) any subsequent bonus issue or consolidation or subdivision of shares.

The authority for 100% Renounceable Rights Issues is proposed pursuant to the SGX-ST news release of 19

February 2009 (“News Release”) which introduced further measures to accelerate and facilitate listed issuers’

fund raising efforts.

(iii) The Resolution 7 in item 7 above if passed, will empower the Directors of the Company, from the date of

this Annual General Meeting until the next Annual General Meeting of the Company, or the date by which

the next Annual General Meeting of the Company is required by law to be held or such authority is varied or

revoked by the Company in a general meeting, whichever is earlier to issue shares in the Company pursuant

to the exercise of Awards granted or to be granted under the Scheme up to fi fteen per centum (15.0%) of the

Company’s issued share capital on the day preceding the relevant date of the Award.

Notes:

1. A Member entitled to attend and vote at the Annual General Meeting is entitled to appoint a proxy to attend

and vote in his/her stead. A proxy need not be a Member of the Company.

2. The instrument appointing a proxy must be deposited at the registered offi ce of the Company’s share registrar

M&C Services Private Limited, 138 Robinson Road, #17-00 The Corporate Offi ce, Singapore 068906, not less

than forty-eight (48) hours before the time appointed for holding the Annual General Meeting.

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OTTO MARINE LIMITED (Incorporated in the Republic of Singapore)

(UEN: 197902647M)

PROXY FORM

I/We

of

being a member/members of Otto Marine Limited (the “Company”) hereby appoint:

NAME ADDRESS

NRIC/

PASSPORT NO.

PROPORTION OF

SHAREHOLDINGS (%)

and/or (delete as appropriate)

NAME ADDRESS

NRIC/

PASSPORT NO.

PROPORTION OF

SHAREHOLDINGS (%)

as my/our proxy/proxies to attend and vote for me/us on my/our behalf and, if necessary, to demand a poll, at the

Annual General Meeting of Otto Marine Limited to be held at 4.00 p.m. on 24 April 2009 at Pisces/Aquarius Room,

Level 1 Marina Mandarin Hotel, 6 Raffl es Boulevard, Marina Square, Singapore, 039594, and at any adjournment

thereof. I/We have indicated with an “X” against the Resolutions set out in the Notice of Annual General Meeting

and summarised below how I/we wish my/our proxy/proxies to vote. If no specifi c direction as to voting is given, the

proxy/proxies may vote or abstain from voting at his/her/their discretion.

RESOLUTIONS

TO BE USED ON

A SHOW OF HANDS

TO BE USED IN THE EVENT

OF A POLL

Ordinary Resolutions: For* Against*

Number of

Votes For**

Number of

Votes Against**

1 To adopt the Audited Accounts and Reports

2 To approve the re-election of Yaw Chee Siew as Director

3To approve the re-election of William Edward Alastair Morrison as

Director

4 To approve the payment of Directors’ fees

5To approve the re-appointment of Deloitte & Touche LLP as the

Auditors of the Company

6To approve the mandate to issue shares in the capital of the

Company

7To approve the authority to grant awards under the Share Award

Scheme

* Please indicate your vote “For” or “Against” with a tick within the box provided.

** If you wish to exercise all your votes “For” or “Against”, please tick within the box provided. Alternatively, please

indicate the number of votes as appropriate.

Dated this day of 2009.

Signature(s) of Member(s) or Common Seal

Important: Please read notes below

IMPORTANT

1. For investors who have used their CPF monies to buy Otto Marine Limited’s

shares, this Circular is forwarded to them at the request of their CPF Approved

Nominees and is sent solely FOR INFORMATION ONLY.

2. This proxy form is not valid for use by CPF investors and shall be ineffective for

all intents and purposes if used or purported to be used by them.

3. CPF investors who wish to vote should contact their CPF Approved Nominees.

Total Number of Shares

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First fold

Second fold

Third fold

The Company Secretary

OTTO MARINE LIMITEDM&C Services Private Limited

138 Robinson Road

#17-00 The Corporate Offi ce

Singapore 068906

Apply glue here

Please

affi x

postage

stamp

NOTES:

1. Please insert the total number of Shares held by you. If you have Shares entered against your name in the Depository Register (as defi ned in

Section 130A of the Companies Act, Cap. 50 of Singapore), you should insert that number of Shares. If you have Shares registered in your

name in the Register of Members, you should insert that number of Shares. If you have Shares entered against your name in the Depository

Register and Shares registered in your name in the Register of Members, you should insert the aggregate number of Shares entered against

your name in the Depository Register and registered in your name in the Register of Members. If no number is inserted, the instrument

appointing a proxy or proxies shall be deemed to relate to all the Shares held by you.

2. A member of the Company entitled to attend and vote at the Annual General Meeting of the Company is entitled to appoint not more than

two proxies to attend and vote on his/her behalf. A proxy need not be a member of the Company.

3. Where a member appoints two proxies, the appointments shall be invalid unless he specifi es the proportion of his shareholding (expressed

as a percentage of the whole) to be represented by each proxy.

4. A corporation which is a member may appoint an authorised representative or representatives in accordance with Section 179 of the

Companies Act, Cap. 50 of Singapore to attend and vote for and on behalf of such corporation.

5. The instrument appointing a proxy or proxies must be under the hand of the appointor or of his attorney duly authorised in writing. Where

the instrument appointing a proxy or proxies is executed by a corporation, it must be executed either under its common seal or signed on its

behalf by an offi cer or attorney duly authorised in writing.

6. Where an instrument appointing a proxy is signed on behalf of the appointor by the attorney, the letter or power of attorney or a duly certifi ed

copy thereof must (failing previous registration with the Company) be lodged with the instrument of proxy, failing which the instrument may

be treated as invalid.

7. The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or

where the true intentions of the appointor are not ascertainable from the instructions of the appointor specifi ed in the instrument appointing

a proxy or proxies. In addition, in the case of members of the Company whose shares are entered against their names in the Depository

Register, the Company may reject any instrument appointing a proxy or proxies lodged if such members are not shown to have shares

entered against their names in the Depository Register as at 48 hours before the time appointed for holding the Annual General Meeting as

certifi ed by The Central Depository (Pte) Limited to the Company.

8. The instrument appointing a proxy or proxies must be deposited at the registered offi ce of the Company’s share registrar M&C Services

Private Limited, 138 Robinson Road, #17-00 The Corporate Offi ce, Singapore 068906, not less than 48 hours before the time appointed for

holding the Annual General Meeting of the Company.

General:

The Company shall be entitled to reject the instrument appointing a proxy or proxies if it is incomplete, improperly completed or illegible or where

the true intentions of the appointor are not ascertainable from the instructions of the appointor specifi ed in the instrument appointing a proxy or

proxies. In addition, in the case of members whose Shares are deposited with The Central Depository (Pte) Limited, the Company may reject any

instrument appointing a proxy or proxies lodged if the member, being the appointor, is not shown to have Shares entered against his name in the

Depository Register as at 48 hours before the time appointed for holding the Annual General Meeting, as certifi ed by The Central Depository (Pte)

Limited to the Company.

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CORPORATEINFORMATION

Board of Directors Yaw Chee Siew (Executive Chairman)Lee Kok Wah (Chief Executive Officer and Group Managing Director)William Edward Alastair Morrison (Non-executive Director)Craig Foster Pickett (Non-executive Director)Reggie Thein (Independent Director)Ng Chee Keong (Independent Director)

Audit CommitteeReggie Thein (Chairman)William Edward Alastair MorrisonNg Chee Keong

Nominating CommitteeNg Chee Keong (Chairman)Reggie TheinCraig Foster Pickett

Remuneration CommitteeNg Chee Keong (Chairman)Reggie TheinCraig Foster Pickett

Joint Company SecretariesLeon Yee Kee Shian See Kian Heng

Registered Office and Principal Place of Business9 Temasek Boulevard#33-01 Suntec Tower TwoSingapore 038989Tel: +65 6863 2366Fax: +65 6863 1127

Company Registration Number197902647M

Share Registrar and Share Transfer Agent M&C Services Private Limited138 Robinson Road#17-00 The Corporate OfficeSingapore 068906

Independent Auditors Deloitte & Touche LLP6 Shenton Way#32-00 DBS Building Tower 2Singapore 068809Partner-in-charge: Ng Peck Hoon (since financial year ended 31 December 2005)

Legal Advisers Arfat Selvam Alliance LLC55 Market Street #08-01Singapore 048941

Principal Bankers Bangkok Bank Public Company LimitedThe HongKong & Shanghai Banking CorporationStandard Chartered BankCIMB Bank BerhadUnited Overseas Bank LimitedPT Bank CIMB Niaga, TbkRHB Bank Berhad

Corporate Websitewww.ottomarine.com

The initial public offering of the shares of Otto Marine was sponsored by United Overseas Bank Limited and Credit Suisse (Singapore) Limited.

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9 Temasek Boulevard#33-01 Suntec Tower TwoSingapore 038989Tel +65 6863 2366Fax +65 6863 1127

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