Ar 2011

Driven by Growth Sustained by Values
MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011
CONTENTS 1 3 5 7 9 10 12 Our Goal, Mission, Core Purpose and Core Values About Mercator Lines (Singapore) Performance Highlights Fleet at a Glance Awards and Recognitions Chairmans Message Chief Executive Ofcers Message 14 16 24 35 36 37 86 Board of Directors Year in Review Corporate Governance Report Corporate Social Responsibility Investor Relations Report and Financial Statements Statistics of Shareholdings
Our Goal
To become a dominant player in the International Shipping Industry.
Mission
To be a global leader in dry bulk shipping by offering customised and value added services to our customers. To create an organisation known for its high service standards, strong growth orientation, pool of superior talent and innovative approach.
Core Purpose
Creating the best solutions and offering outstanding value and service to our customers.
Core Values
Honouring commitments towards all the stakeholders. Continuous growth in knowledge and performance. Ensuring that every employee takes pride in being called a Mercatorian. Innovation we believe in doing things differently!
COMMITMENT
As a company committed to creating value and delivering growth, we believe in incorporating professionalism and diligent stewardship of our reputation in every aspect of our operations.
Honouring commitments towards all stakeholders.
About Mercator Lines (Singapore)
Incorporated in Singapore in 2005, Mercator Lines (Singapore) Limited is a leading Indian-owned international dry bulk shipping Company focusing on high growth markets such as India and China. The companys positioning in the Indian markets helps maximise the capacity usage efciencies by using its ships on the triangular route of Indonesia India China Indonesia. With exposure to the infrastructure sectors like Steel and Power of India and China, Mercator is well positioned to benet from the strong growth of these countries. With the unstinted support of its ultimate parent Company, Mercator Lines Limited (MLL India), the second largest private sector shipping Company in India (by aggregate eet tonnage capacity), Mercator also provides its customers with complete and customised logistics solutions from the load port to the point of usage. Some of its reputed customers include Tata Power, Arcelor Mittal Group, Vale, COSCO, a state owned Company in Sri Lanka and Cargill.
Mercator operates a eet of fourteen owned and three chartered-in vessels, with an aggregate capacity of approximately 1.5 million dwt. Its eet of Panamaxes, Post Panamaxes, Kamsarmaxes and a VLOC is young and versatile with a mix of geared and gearless vessels averaging about seven years of age. It continues to strengthen its position as the largest eet owner of Geared Panamaxes amongst the Indian-owned shipping companies through prudent eet expansion plans. With its strategy to deploy a large part of its eet on long-term contracts, specically time charters and contracts of affreightment (COAs)/consecutive voyage (CV) contracts, the Company aspires to capitalise on this strength in order to build relationships and benet from repeat businesses with reputed customers. Lead by an experienced management team with in-depth understanding of the shipping industry and a wide network of reputable customers and diligent risk management practices, Mercator has been able to make proactive business decisions and well-timed eet expansion to achieve continuous growth since inception.
Mercator Lines Limited India
100%
Mercator International Pte. Ltd. Singapore

19%
Target Ship Management Pte Ltd(4) Singapore

71.95%(1) 81%
Mercator Lines (Singapore) Limited Singapore
100%
100%
100%
100%
Varsha Marine Pte. Ltd.(2) Singapore

(1) (2) (3) (4)
Vidya Marine Pte. Ltd.(2) Singapore
Mercator Lines (Panama) Inc. Panama
Chitra Prem Pte. Ltd.(3) Singapore
As at March 31, 2011. Varsha Marine Pte. Ltd. owns the vessel Prem Varsha and Vidya Marine Pte. Ltd. owns the vessel Prem Vidya. Chitra Prem Pte. Ltd. owns the vessel Chitra Prem. Target Ship Management Pte. Ltd. oversees technical management of vessels.
Note: Mercator Lines Limited (India) and Mercator International Pte. Ltd. (Singapore) have other subsidiaries in India and Singapore that are not included in the above structure.
GROWTH
The constant desire to excel and exceed expectations thats what inspires and drives all our actions. We believe our unswerving determination will bring us to higher levels of achievement.
Continuous growth in knowledge and performance.
Performance Highlights
FY2011 US$ million RESULTS Revenue Net Prot Dividend (Singapore cent) Payout Ratio (%) Basic EPS (Singapore cents) BALANCE SHEET Net Book Value of Fixed Assets Borrowings Shareholders Equity Cash and Bank Balances RATIOS Gearing: Debt to Equity (times) Return on Equity (%)
1 2
FY2010 US$ million
FY2009 US$ million
155.4 31.1 0.73 23.0 3.2
144.5 40.7 1.16 25.4 4.6
186.1 75.8 1.16 12.5 9.1
644.5 294.6 386.4 17.1
570.8 243.5 371.3 35.1
485.4 271.6 339.6 41.7
0.76 8 6
0.66 11 8
0.80 25 15
Return on Average Capital Employed (%)

1 2
Return on Equity = Net Prot After Tax and Extraordinary Items/Average Equity Return on Average Capital Employed = Net Prot Before Interest but After Tax and Extraordinary Items/(Average Equity + Average Borrowings)
Revenue (US$ million)

155.4 144.5
Net Prot (US$ million)
Time Charter Equivalent (TCE) Rate (US$/day)
27,605 40.7 31.1
26,049
FY2010
FY2011
FY2010
FY2011
FY2010
FY2011
Fleet Tonnage Capacity (million dwt)
Revenue Proportion
0.28 0.26 1.03 1.27 FY2011
76% Long Term Contracts 24% Short Term Contracts
Owned Chartered-in
March 2010 March 2011
PRIDE
We believe that a good company is dened by the people who stand by it. With a collective aspiration to take Mercator Lines (Singapore) to the next phase of growth, we continue to cultivate a culture of empowerment and sense of ownership.
Ensuring that every employee takes pride in being called a Mercatorian.
Fleet at a Glance
With a eet of young and modern vessels, the Company enjoys the dual benets of fewer and shorter downtime for repairs and maintenance, and higher operating efciency. It furthers our competitive advantage as the largest private eet owner of geared Panamaxes amongst Indian-owned shipping companies.
Capacity (dwt) 73,461 82,379 82,459 73,901 74,444 82,273 74,456 69,186 69,221 279,022 73,652 74,483 69,087 93,200 Age (in years) 10 5 4 6 5 5 4 14 14 18 11 4 17 1 Book Value (US$ million) 27.55 51.96 54.31 43.08 49.87 52.27 52.27 53.57 54.23 76.37 25.71 36.58 21.18 45.15
OWNED VESSELS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Prem Aparna Prem Varsha Prem Veena Gaurav Prem Garv Prem Prem Vidya Garima Prem Kesari Prem Kanak Prem Prem Putli Kalpana Prem Gauri Prem Aarti Prem Chitra Prem
Type Geared Panamax Geared Kamsarmax Gearless Kamsarmax Gearless Panamax Gearless Panamax Geared Kamsarmax Gearless Panamax Geared Panamax Geared Panamax Very Large Ore Carrier (VLOC) Geared Panamax Gearless Panamax Gearless Panamax Gearless Post Panamax
Shipyard Tsuneishi Corp., Japan Tsuneishi Corp., Japan Tsuneishi Corp., Japan Jiangnan, China Hudong, China Tsuneishi Corp., Japan Hudong, China Tsuneishi Corp., Japan Hashihama, Japan Yiulian Yard, China Imabari Shipyard, Japan Hudong, China Imabari Shipyard, Japan New Yangzijiang, China
CHARTERED VESSELS 1 2 3 Chaitali Prem Chanchal Prem Maria Laura Prem
Type Gearless Post Panamax Gearless Post Panamax Gearless Post Panamax
Capacity (dwt) 93,270 93,270 91,800
Age (in years) 2 2 1
Country Built China China South Korea
Charter Period Sep 2009 Sep 2014 Oct 2009 Oct 2014 Jul 2010 Jul 2020
As on 1 June 2011
INNOVATION
In a business such as ours, having an innovative mindset spells the difference we make to our clients and end-users. We believe that our pioneering attitude enables us to further boost our strong client rapport.
We believe in doing things differently!
Awards and Recognitions
Shalabh Mittal receiving GLOBAL ENTREPRENEUR OF YEAR 2010
Mercator Lines (Singapore) continues to strive to maintain its high standards for good performance and corporate governance.
We are proud to have been presented the prestigious Emerging India Awards (EIA) under the category of Global Entrepreneur of the Year 2010 award organised by CNBC-TV18 and ICICI Bank, India. The EIA recognises and showcases the top value creating Emerging Companies in various sectors of the Indian economy. The awards are based on a rigorous evaluation of the entries by CRISIL, the Indian subsidiary of Standard & Poors, and a panel of eminent personalities. The awards seek to identify and honour Emerging companies who are competing and winning in the global marketplace. We ranked 23rd amongst 680 public listed companies in the Governance and Transparency Index (GTI) in April 2010 jointly conducted by the Business Times and the Corporate Governance and Financial Reporting Centre at NUS in April 2010. In June 2010 we ranked 29th in overall performance amongst listed shipping companies in the world by Marine Money Survey and we continue to be ranked by the DP Information Group as amongst the Singapore 1000, Singapore SME 500 and Singapore International 100 Companies. The latter ranking identies Singapores top performing rms covering 12 key industries based on performance in Sales/Turnover, Net Prot and Return on Equity and rank companies based on actual annual nancial performance.
Chairmans Message
Dear Shareholders, At the outset, I would like to congratulate our Singapore team for the resilience it has shown in the past year and for the good results it has managed to achieve despite high volatility in the market. Congratulations are also in order for the team as Mercator Singapore is the proud winner of the prestigious Emerging India Awards (EIA) under the category of Global Entrepreneur of the Year award organised by CNBC-TV18 and ICICI Bank, India by CRISIL, the Indian subsidiary of Standard & Poors. This is a remarkable achievement for a young company for competing and winning in the global marketplace. The year commenced with the continued positive albeit cautious note witnessed towards the end of FY2010 with freight rates rising to post-crisis highs in May 2010 backed by strong tonnage demand. However, this did not last long and the freight rates came plummeting down due to extensive eet growth resulting
in oversupply of capacity. Nevertheless, the freight market performed better than expected due to economic recovery and strong upward movement in Chinas coastal trade. Despite the economic recovery and positive demand indicators, excess capacity continues to be the biggest challenge facing the freight markets in the near future. In view of our business environment, our performance has been one of an aware and responsible player. In anticipation of challenging times, we have ensured a significant portion of fleet days locked in tonnage so as to increase revenue visibility. A disciplined risk management strategy has helped us achieve a good set of results and grow our fleet through a combination of chartered-in and owned vessels thereby supporting consistent growth. The Groups revenues for the full year FY2011 increased by 8% to US$155.4 million from US$144.5 million in FY2010 and despite volatile market conditions, we achieved a net prot of US$ 31.1 million.
10
Chairmans Message
We are a group driven by growth and sustained by values. Though growth motivates us, it is values that cultivate us.
I am happy to report that we achieved substantial expansion in our eet in FY2011. Acquisition of tonnage was combined with long term contracts which helped ensure steady and positive cash ows even when the dry bulk markets were in gloom. Three owned and one chartered-in vessel joined our eet in FY2011 strengthening our diversied eet to 14 owned and three chartered-in vessels. Our group has always had a conservative yet practical outlook towards risk management and hence, in the existing tough times, our philosophy of deploying majority of our eet on long term charters has proved to be tremendously useful. At every given point in time, we as a group, ensure that we have a business continuity plan in place for all our processes. This has been one of the reasons why we have managed to overcome unfavourable times successfully. We are a group driven by growth and sustained by values. Though growth motivates us, it is values that cultivate us. We are aware of our environment and appreciate that with business success is coupled responsibility towards all our stakeholders and the society in which we thrive. I take great pride in the fact that Mercator Singapore, since its inception has not only strictly adhered to all requirements of Corporate Governance but striven to continually exceed these requirements. I am happy to say that the Singapore business community has recognised and appreciated our Companys efforts in this direction. As regards responsibility towards society, we assure all that we will consciously try to make a difference wherever we can. As we move ahead in to the future, given the oversupply of tonnage, we are bound to face challenging times. I am certain our risk management strategy and healthy balance sheet will help us overcome these challenges. I am also sure the company will be able to take advantage of these and nd opportunities for growth in order to achieve good results in the next year and years to come.
HARISH KUMAR MITTAL Chairman and Non-executive Director
11
Chief Executive Ofcers Message
Dear Shareholders, The shipping industry has faced some rough times in the last couple of years and as one of its players, we have not remained isolated from these. However, the struggles that we have endured have made us stronger and more aware and ready to face future market idiosyncrasies. Volatility and uncertainty seen in FY2010, continued into FY2011 but despite a fall in the freight rates, market performance was better than envisaged. We saw a revenue increase of 8% and a net prot of US$31.1 million even under challenging market conditions. During the year, we incurred a capex of US$105.5 million for acquisition of three vessels. As at March 31, 2011, the Group maintained a healthy balance sheet with a net worth of US$386.4 million and a debt-equity ratio of 0.76 times. Freight markets started with the Baltic Dry Index (BDI) at 2,991 points on April 1, 2010 and thereafter witnessed a huge fall with the BDI ending at 1,530 points as on March 31, 2011. The BDI averaged to 2,339 levels in FY2011; a fall of 22% from the previous year. It continued to remain volatile reaching peaks of 4,209 points in May 2010, highest since the nancial crisis and hitting a one year low of 1,043 points in February 2011. On the positive side, the year saw a substantial recovery in tonnage demand
due to Chinese imports and growth in ton-miles. However, the fall in the rates was mainly attributable to excessive tonnage as a result of record number of deliveries in 2010. Besides, measures taken by governments to curb ination, boost energy efciency and severe weather conditions in Australia also plagued the BDI during the second half of FY2011. Mercator Singapore though, performed well beating the average market by achieving Time Charter Equivalent of US$26,049/day versus US$21,277/day for the market. This was possible due to our long standing policy of long term contracts, our better competitive positioning and customer relationships. During the year, we increased our cargo base by securing long term contracts with reputed clientele including a four year contract of affreightment (COA) with a state owned company in Sri Lanka. We gained a rst-mover advantage by becoming the rst international dry bulk company to transport coal from Indonesia to Sri Lanka. We, along with our parent company MLL, India are offering customised logistics solution to the Company in Sri Lanka. We expanded our owned eet capacity by 23% by acquiring 3 more vessels. Our acquisitions were supported by long term contracts with reputed clientele. Today, we control a tonnage
12
Chief Executive Ofcers Message
Customer focus has been our key driver and we as an organisation, are always working towards providing time bound, innovative solutions of superior quality to our customers.
capacity of 1.5 million tons with a young and modern eet base comprising 14 owned and three chartered-in vessels, averaging an age of seven years. Our eet now is a diversied mix of six geared and six gearless Panamaxes/Kamsarmaxes, four Post Panamaxes and one Very Large Ore Carrier. During the year, we incorporated a subsidiary, Target Ship Management Pte. Ltd. to take charge of the technical management of our eet from Singapore. The strategic intention behind this move is to ensure delivering high quality service to our customers together with minimising operating expenses and maximising operational efciencies. Having put together a capable team to manage this company, we are condent this move will bring greater advantages to the company in the long term. To safeguard against unpredictability of business conditions, we have in place a multi dimensional risk management strategy encompassing key industry specic risks namely, freight volatility, fuel costs, accidents and foreign exchange losses. Our business model has an inbuilt risk management edge, mitigating its exposure to the freight volatility. We deploy a substantial portion of our eet on long term contracts, thereby minimising our exposure to the spot market. Additionally, Freight Derivatives are also used to shield the revenues from freight volatility. Our revenue and the bulk of cost, with the exception of general administration expenses, including reporting, is in US dollars. Hence, we are naturally hedged against currency risk. Even though the markets have performed better than expected and we have braced ourselves against all possible risks, challenges for this sector continue to be many. The demand side looks promising with robust activity expected in China and India driven by growth in their steel and power sectors. Japanese imports are also slated to increase following the aftermath of the tragic and unfortunate tsunami which wrecked the nation. Despite rm demand prospects from Asian economies, it cannot be denied that growth may not be strong enough to absorb an oversized order book. There is a clear imbalance between the demand and supply growth. Unless this demand-supply gap is restored, freight rates will continue to remain pressured. Continuance of a prolonged low freight rate regime could impact our earnings adversely. Our eet coverage for FY2012 is around 60%. Despite challenges in dry bulk market going forward, our proven business strategy and strong focus on identifying and developing new opportunities together with our positioning in the Asian markets will certainly help us ride through difcult times. Our strong balance sheet is an encouraging support as we look at newer prospects and areas of growth and diversication. We are committed towards creating value by growth and honouring our commitments to our stakeholders. Customer focus has been our key driver and we as an organisation, are always working towards providing time bound, innovative solutions of superior quality to our customers. Today, in our relentless pursuit for excellence we have developed a strong rapport with our customers resulting in repeat orders from them. Good business can only be sustained by a good organisation driven by good people. Our people focus is strong and we are sincere and serious in our initiatives of training and empowerment of our employees. We are also keenly driven towards achieving high levels of technological advancement in our systems and procedures so as to improve our work environment and the quality of internal and external efciencies. As regards our stand on Corporate Governance, we have always believed it as one of our primary responsibilities to maintain high standards of accountability and disclosures. This is also reected in our steady move up the rankings of companies that practice good Corporate Governance and will always remain an area of importance to us. As a responsible business citizen of Singapore, we are doing our best towards fullling our social responsibilities and our dedicated Corporate Social Responsibility team dwells on identifying areas in which we can add value. It would be incomplete if I did not acknowledge the role of our team in the companys achievements. I feel privileged to lead a team that is goal driven and relentless in its commitment and sense of responsibility. I would like to thank all our shareholders, bankers and customers for always believing in us and our companys aspirations and for reinforcing their trust in us through continued support. I look forward to receiving this support in future as well.
SHALABH MITTAL Managing Director and Chief Executive Ofcer
13
Board of Directors
HARISH KUMAR MITTAL 1 Chairman and Non-executive Director He has served on our Board of Directors as Chairman since October 2007 and acted as Chairman and Managing Director of Mercator Lines Limited (MLL) India since 1992. Currently, Mr Mittal is the Executive Chairman of MLL India. He has successfully rolled out more than a dozen projects since his tryst with business in 1974 covering a wide array of industries including Chemicals, Shipping, Offshore Oil & Gas, Exploration and Production, Coal Mining and Dredging. He holds a Masters degree from Indian Institute of Technology (IIT) Roorkee India. The institute conferred to Mr Mittal with Distinguished Alumnus Award in November 2010 in due recognition of his achievements and contribution to the industry over the last 3 decades. Under Mr Mittals leadership MLL India has grown to become the 2nd largest private shipping company of India in terms of tonnage. He has been recognised as Entrepreneur of the Year by Ernst & Young, The Economic Times and Trade Winds in recent past. Lloyds List, the world renowned Shipping Publication, has also awarded him with Newsmaker of the year Award in 2007. Trade Winds acknowledge Mr Mittal amongst the Top 100 Most Inuential people in Shipping today.
2000 and May 2004, Mr Mittal founded and held the post of Managing Director of Mercator Healthcare Ltd., during which time, he was responsible for overall management strategic, nancial and production planning. He serves on the Boards of other group companies as well. He graduated from Sydenham College, University of Mumbai with a Bachelor of Commerce degree and attended the S. P. Jain Institute of Management and Research, Mumbai, India for a post graduation diploma in Business Administration.
ARUL CHANDRAN 3 Independent Director He has served our Board from July 2008. He has been a Director of many private shipping Companies. He has served as Magistrate and Deputy Public Prosecutor in Singapore Legal Service. He served as a partner of law rm Rodyk & Davidson until 1977. He was also a partner in Karthigesu & Arul till 1974. He is now a partner of law rm C Arul & Partners. He also practiced as Advocate and Solicitor in the Supreme Court of Malaysia from 1964 to 1978. Other credentials of Mr Arul are that he served as member in Council of Law Society of Singapore, Council member and former Deputy Secretary General of the International Bar Association (IBA), represented The Law Society of Singapore on the IBA Council for 15 years, Founding President of the Maritime Law Association of Singapore (MLAS), former council member of the Singapore Institute of Arbitrators. Presently he is a panel member of the Singapore International Arbitration Centre (SIAS) Singapore Chamber of Maritime Arbitration Centre (SCMA) and the Indonesian Arbitration centre (BANI). He is a founding and present President of the Singapore Maritime Arbitrators Association (MAA). Mr C Arul is a Barrister at Law, Middle Temple, London, 1959.
SHALABH MITTAL 2 Managing Director and Chief Executive Ofcer He has served as our Managing Director and Chief Executive Ofcer since Companys inception in October 2005 with primary responsibility for strategic planning, nance and our overall management. Between May 2004 and October 2005, he was a Director of Mercator Lines Limited, India, responsible for managing day-to-day affairs of the Company. Between March
14
Board of Directors
ATUL J. AGARWAL 4 Non-executive Director He has served on our Board of Directors since October 2007. Between 1983 and 1988, he practiced as auditor and tax consultant for A. J. Agarwal & Co., of which he was the proprietor. Since 1988, Mr Agarwal has served as a full time director and is currently the Managing Director of MLL India, with responsibility for day-to-day management, nance, accounts and taxation matters. He is a Director of several private companies, viz., Thirumalai Chemicals Ltd since 2003, Indian National Shipowners Association since 2004 and AAAM Properties Pvt. Ltd since 2006. He is also the Director of Oorja Group of Companies in Indonesia. Mr Agarwal has been accredited with memberships of various committees formed by the Government of India to consider shipping reforms. In addition, Mr Agarwal is a qualied chartered accountant, awarded by the Institute of Chartered Accountants of India.
JOHN WALTER SINDERS JR. 6 Independent Director Mr Sinders formed consortium and led buyout of Aston Martin from Ford in 2007. He served as Chairman of the Board for Aston Martin of North America and was a Board member on Aston Martin until he sold his shares in 2008. Mr Sinders is a Board member of Mercator Lines (Singapore) Ltd. and is also the Chief Executive Ofcer of Arabian Capital Partners, a maritime consulting rm, and Senior Executive Ofcer of Clarkson Investment Services (DIFC) Ltd, a Dubai based investment banking subsidiary of Clarksons, a prominent ship broking company. Prior to joining Arabian Capital Partners, Mr Sinders worked with Jefferies & Company, an investment banking rm between 1994 and 1999 and again between 2001 and 2007. While serving with Jefferies & Company, Mr Sinders was responsible for the overall protability of its Houston, London, New York maritime and oil service investment banking ofces as well as its ofces in Dubai and Singapore. In between his spells with Jefferies & Company, Mr Sinders served as Managing Director and co-head of Global Energy of RBC Dain Rauscher, a subsidiary of the Royal Bank of Canada between 2000 and 2001. Mr Sinders obtained a Bachelor of Arts with Honors and a Law degree from the University of Virginia, United States. He also holds a professional membership of the American Bureau of Shipping (USA).
HUANG YUAN CHIANG 5 Lead Independent Director Mr Huang has served on our Board of Directors since October 2007. He is our Lead Independent Director, chairs the Audit Committee and serves as a member of our Compensation and Nominating Committee. Mr Huang is a lawyer by training and was an investment banker by vocation. During his banking career he held senior managerial positions with various banking institutions including Standard Chartered Bank, HSBC, Bankers Trust and Deutsche Bank. His areas of specialisation were in the areas of mergers and acquisitions and equity capital markets. His last position at Bankers Trust was that of Managing Director overseeing the Mergers & Acquisitions Division of Bankers Trust in South Asia. In addition to our board, Mr Huang also serves on the Boards of several other listed companies including MTQ (Singapore) Ltd, Kuchai Development Berhad, Kluang Rubber Company (Malaya) Berhad and Sungai Bagan Rubber Company (Malaya) Berhad. He is also a director of Omega Navigation Enterprises Inc., a company whose shares are quoted on NASDAQ.
PUSHPATRAJ SHIVLAL SHAH 7 Non-executive Director He has served on our board of directors since July 2006. He is a practicing chartered accountant and consultant through his proprietary rm P. Raj & Co, India and advices on nancial and strategic matters to various large corporations in India as well as overseas, including MLL India. He has expertise in various industries including real estate, shipping, power and media & entertainment. In addition to our Board, Mr Shah serves on the Board of several other companies, viz., I-Ven Reality Limited, Lokmat Media Limited, (India) and few Associated Companies of Mercator Group. Mr Shah obtained a Bachelor of Science degree from University of Bombay and is a qualied Chartered Accountant, awarded by the Institute of Chartered Accountants of India.
15
Year in Review
OPERATIONS REVIEW FY2011 (April 2010 March 2011) was another volatile year for dry bulk shipping with continued uncertainty that was witnessed in the latter half of the year. The dry bulk eet experienced extensive eet growth in 2010 which has put severe pressure on freight rates. After a volatile and somewhat perplexing year in 2009, when the market hit rock bottom before making a surprising and spectacular recovery, 2010 was a transition year for the dry bulk market, characterised by relatively stable rates. Even though, the average rate of 4 Time Charter routes for Panamaxes fell almost 50% between the start and end of the nancial year, the average rate of FY2011 was nonetheless US$21,277/day, as against US$24,251/day in FY2010. The BDI witnessed lows of 1,043 and highs of 4,209 during FY2011. However, on a yearly average basis, dry bulk market performed better than expectations in 2010. This was possible thanks to a substantial recovery in tonnage demand, which in addition to a signicant growth in ton-miles, was also fuelled by higher port congestion, an increased ballast factor and, not least, by a dramatic upturn in Chinese coastal trade. With continued recovery in global markets, the year was signicantly better than envisaged earlier. Mercator, through its conscious effort, secured a signicant portion of eet days locked in tonnage so as to increase revenue visibility. Its disciplined risk
management strategy helped it to achieve a good set of results and grow its eet through a combination of chartered-in/owned vessels thereby supporting consistent growth. The Groups revenues for the full year FY2011 increased by 8% to US$155.4 million from US$144.5 million in FY2010. FY2011 witnessed a long term contract cover at 76% vis--vis 63% in FY2010 and despite the challenging and volatile market conditions, our net prot was US$31.1 million. The Company achieved revenue Compounded Annual Growth Rate (CAGR) of 16% and a net prot CAGR of 24% (FY2007 FY2011). The Groups total vessel operating days rose to 5,543 days, up by 18% from 4,703 days in FY2010, which helped us maintain our eet utilisation rate at 98.8% for FY2011. However, the market volatility was reected in the Time Charter Equivalent (TCE) rate per vessel per day, decreasing it to US$26,049 for FY2011; down by 6% from US$27,605 in the previous corresponding period. As of March 31, 2011, the Group maintained healthy cash and bank balances, with operating cash ows of US$61.7 million for FY2011. To express our gratitude to our loyal shareholders for their support, we declared an interim dividend (now considered as the nal dividend) of 0.73 Singapore cent per share paid during the third quarter of FY2011, representing a total payout ratio of 23%.
Revenue (US$ million) CAGR
Net Prot (US$ million) CAGR

144.5 155.4 52.2 40.7
16%
146.2
186.1
24%
75.8
85.1
31.1 12.9
FY2007
FY2008
FY2009
FY2010
FY2011
FY2007
FY2008
FY2009
FY2010
FY2011
16
Year in Review
Fleet Expansion In FY2011, the Group achieved signicant eet expansion. The Group maintained its vessel delivery schedule and had three owned vessels named Gauri Prem, Aarti Prem and Chitra Prem delivered in May 2010, November 2010 and January 2011 respectively and one chartered-in vessel named Maria Laura Prem delivered in July 2010. Taking opportunistic advantage of the healthy cash position of the Group, the aggregate value of the owned vessels acquired amount to US$105.5 million and with these acquisitions, our capacity in tonnage of owned vessels has grown by 0.2 million tonnes. Reinforcing our strategy of deploying vessels on long term contracts, all the three acquisitions made in FY2011 are deployed on long term contracts with reputed clients which will give us a minimum revenue of US$38.05 million from Gauri Prem and Aarti Prem over a period of three years and a minimum revenue of US$46.87 million from Chitra Prem over a period of six years. Gauri Prem is a young and modern vessel with a capacity of 74,483 dwt and has been xed on a long term contract for three years. Aarti Prem has a capacity of 69,087 dwt and has been deployed on a four year bareboat (including option period of one year) charter contract. The acquisition of Aarti Prem was funded entirely through internal accruals. Chitra Prem is a 2010 built Post Panamax vessel with a capacity of 93,200 dwt and has been deployed on a six year long term contract. Due to these acquisitions, the Groups total number of owned vessels has increased to 14 with a gross tonnage capacity of about 1.3 million dwt. Apart from these acquisitions, the Group also took delivery of a chartered-in Post Panamax vessel, Maria Laura Prem in July 2010. As of June 1, 2011, the Group operates a eet of 17 dry bulk vessels, 14 owned and three chartered in comprising six geared and six gearless Panamaxes/Kamsarmaxes, four Post Panamaxes and a Very Large Ore Carrier (VLOC) with an aggregate capacity of around 1.5 million dwt. The Groups young and modern eet of vessels has an impressive average age of about seven years.
The table below highlights the key performance indicators used to evaluate our business: Operating Data Owned Vessels Number of Vessels Operating Days Fleet Utilisation (%) Chartered-in Vessels* Number of Vessels Operating Days Fleet Utilisation (%) Total Fleet Number of Vessels Operating Days Fleet Utilisation (%) TCE Revenue (US$000) TCE Rate (US$ per day) 22 5,543 98.8 144,389 26,049 18# 4,703 98.9 129,815 27,605 8 1,228 99 8 880 96.8 14 4,315 98.7 11 3,823 99.4 FY2011 FY2010
TCE Revenue is dened as revenue less voyage expenses before taking into account revenues attributable to vessels chartered- in on a voyage charter. * Company charters in vessels on short term basis to maximize earnings out of its contract. # Includes a vessel chartered-in during the year but subsequently acquired in 2009-10.
Diversied Customer Base In FY2011, with the acquisition of three vessels and deploying them on long term contracts, we signicantly diversied our customer base by adding leading European and Chinese shipping companies as our clients. While nurturing strong relations with reputed end-user customers such as Arcelor Mittal Group, Tata Power and Vale, we have further developed
17
Year in Review
MERCATOR TOTAL LOGISTICS SOLUTIONS Together with MLL India, we provide logistics solutions from load port to point of usage to customers. MERCATOR LINES (SINGAPORE) MERCATOR LINES (INDIA)
Iron Ore/ Coal
Ship Voyage
Barges
Trucks/Rail
Trucks/Rail
Port loading with geared vessels
Port unloading with geared vessels
Jetty
Stock Yard
User Site
relations with new geographically diversied customers. Thus, during the nancial year in review, our revenues were drawn from a diversied customer base namely, Cargill, Noble, Bunge and others in addition to Tata, Arcelor Mittal Group, Vale, Oldendorff and Rened Success (performance guaranteed by COSCO (HK) Shipping Company Limited). During FY2011 we further fortied our customer base with the inclusion of a COA with a state owned company in Sri Lanka. The contract is a four year COA deploying the Groups geared panamaxes for transportation of coal from Indonesia to Sri Lanka. The contract also includes logistics customised solutions along with MLL, India providing barging from the transshipment point up to the jetty of the plant. With this Mercator has become the rst international dry bulk shipping group to transport Coal into the growing market of Sri Lanka which would enable us gain a rst-mover advantage for transportation of coal from Indonesia to Sri Lanka. Apart from ensuring geographic diversication, the contract is structured to enable regular cash ows reinforcing the Companys strategy of deploying substantial capacity of its vessels in long term contracts. This contract is structured on the lines of an existing contract which the company has successfully serviced for about six years with growing volumes. Sound business fundamentals together with a customer centric approach and emphasis on value added services have rewarded us with repeat business from our existing customers. The same has been demonstrated by deployment of one of our Gearless Kamsarmaxes, Prem Veena on a long term contract of two years from April 2010 with one of our existing premier customers and gaining repeat business from another reputed client for one of our geared Panamax vessels, Kalpana Prem for a two year period starting April 2010. Mercator thus continued to focus on building long term relationships with its customers and ensuring that their requirements are met.
Offering Value and Customised Services Together with our ultimate parent company, MLL, India, we continue to offer end-to-end customised logistic solutions to our customers for transportation of dry bulk commodities from load port to the point of usage. This key strength has helped us to maintain an advantageous position and has enabled us to gain high revenue earning contracts with Tata Power and a state owned company in Sri Lanka. As a Group belief, we are constantly researching on areas to enrich our end-to-end value added service approach. Risk Management Strategy The Group practices a multi dimensional risk management strategy encompassing key industry specic risks namely, freight volatility, fuel costs, accidents and foreign exchange losses. The Groups business model has an inbuilt risk management edge, mitigating its exposure to the freight volatility. We deploy a substantial portion of our eet on long term contracts, thereby minimising our exposure to the spot market. Additionally, Freight Derivatives are used to shield the revenues from freight volatility. All our long-term COA/CV contracts operate with a clause of Bunker Adjustment Factor, by which we are able to pass on the increase in bunker fuel cost to our customers, thus hedging the Company against changes to fuel costs. To safeguard our vessels from losses arising from accidents or natural disasters, we have insured the value of all our vessels appropriately. As on March 31, 2011, the insured value of all our vessels stands at US$660.6 million. Our revenue and the bulk of cost, with the exception of general administration expenses, including reporting, is in US dollars. Hence we are naturally hedged against currency risk.
18
Year in Review
Baltic Dry Index (BDI) (Index)

14,000 12,000 10,000 8,000 2,000 6,000 4,000 2,000 0 0 1,000 BDI during FY2011 High 4,209 (May 2010) Low 1,043 (February 2011) 3,000 4,000
Seaborne Dry Bulk Trade (Million Tonnes)

n Coal n Iron Ore n Grain n Minor Bulks
6/4/2007
28/4/2008
21/5/2009
13/6/2010
31/3/2011
2006
2007
2008
2009
2010 (Est.)
Source: Bloomberg
Source: Clarksons
MARKET REVIEW Dry Bulk Seaborne Trade Overview The dry bulk market saw record-high deliveries of new ships in 2010. The BDI reached close to the levels seen during the 2008 financial crisis. Despite this, the market turned out to be stronger than expected in 2010 calculated on a yearly average basis. The recovery seen in the dry bulk markets in 2009 continued into 2010 with international dry bulk seaborne trade exceeding three billion tons over the course of the year. About 77 million dwt of new ships were delivered from yards and four million dwt of converted tankers entered dry bulk operation. The net growth in active dry bulk fleet was 12.1% from the year before on the basis of number of ships. World seaborne dry bulk trade rose by an estimated 10% from 2009 to 2010. Chinese demand for raw materials continued to drive growth, with resurgence in demand for dry goods from the Western World further underpinning activity in the first half of the year. Coal trade was particularly strong with trade growth in excess of 13% on a year-on-year basis as Asian demand for coal far exceeded the reduced requirements of Western economies. The dry bulk market in 2010 was characterised by a relatively strong first half and a weaker second half. The economic recovery is proceeding broadly as expected, although downside risks remain elevated. The IMF expects the world output to grow by around 4.4%. Activity in the advanced economies is projected to expand by around 2.5% during 2011 which is a 0.5% decline from the 2010 levels. The growth in emerging and developed economies is expected to be around 6.5% in 2011 which was around 7% in 2010. Overall, the baseline projections as per IMF assume that current policy actions manage to keep the financial turmoil and its real effects contained in the periphery of the euro area, resulting in only a modest drag on the global recovery. With recovery being seen in the global economy, world steel production rose 15% from 2009 to 2010, thereby exceeding 2008s production level. This robust upturn should
Dry Bulk Seaborne Trade 2010 (Est.) (Million Tonnes)
Total: 3,296 n 27% Coal n 30% Iron Ore n 11% Grain n 32% Minor Bulk
Source: Clarksons
naturally be viewed in light of the severe setback in 2009. In 2010, all regions increased production, with the strongest gains seen in the United States, Japan and the EU, where output rose by 39%, 25% and 24%, respectively. China raised its output by 9% and India by 7%. The tonnage demand was also influenced positively by a substantial increase in port congestion during 2010. On an average, nearly 2% more tonnage was constantly waiting in ports compared with the previous year. Around 140 million dwt of new ships are scheduled for delivery in 2011. The net fleet growth is expected to be around 16.8% in 2011. The supply and demand situation indicates the fleet will grow more than tonnage demand, resulting in weaker market conditions in 2011. Due to the lower fleet utilisation rate, we believe that freight rates would continue to be volatile in 2011. However, given the resilience in domestic demand, industrial production continues to remain strong in China and India. Robust activity in these countries in turn is helping power growth in the rest of Asia. Further, Chinas strong and sustained growth over the past several years has served as a linchpin for global trade, benefiting exporters of commodities (for example, Australia, Indonesia, New Zealand) and capital goods (for example, Germany, Japan, Korea and Taiwan). With the mission of the Indian government to have sufficient power capacities in the near future, import of coal is
Mercator Lines (singapore) LiMited Annual Report 2011
19
Year in Review
China Iron Ore Imports by Source (Million Tonnes/Month)

80 South Africa India Brazil Australia Others Total 1,200 1,000 60 800 40 600 400 20 200 0 1/4/2005 1/4/2006 1/4/2007 1/4/2008 1/4/2009 1/4/2010 1/4/2011 0 2006
Global Iron Ore Imports (Million Tonnes)

Western Europe China Asia others Others
2007
2008
2009
2010 (Est.)
Source: Bloomberg
Source: Clarksons
slated to increase year on year. With a voracious increase in capacity augmentation, Indias coal imports are expected to quadruple over the next 15 to 20 years. With its strong foothold in India and China, Mercator will continue to benet from the growth in these economic power houses. Demand Drivers Iron ore Iron ore, a major constituent of steel production, accounts for a large part of the dry bulk sea borne trade. The major iron ore producers include Australia, Brazil, Canada, China, India, Russia, South Africa, Sweden and the United States. Another important development relating to iron ore is the rapidly evolving pricing system, which will make the annually negotiated xed contract prices less relevant in the future. Short-term quarterly benchmark prices are introducing a more dynamic pricing system and are replacing the annual contracts which prevailed for over 40 years. In 2010, global iron ore imports are estimated to have increased by 10%. Major exporters included Australia, Brazil, India and South Africa. Surging iron ore imports into Asia more than offset the falling imports in other regions, and they help to explain the resilience shown by the dry bulk market in 2009 and 2010. Chinas crude steel production grew by 9.2% in 2010 as against 14.7% in 2009. With the Chinese governments effort to cool down the real estate sector and ongoing production control, Chinas apparent steel use growth rate will come down to 3.5% with a weak real estate sector and the phasing out of stimulus packages. While the forecast for China is for a fairly low growth rate compared to other countries, its apparent steel use in 2011 will be 42% above 2007 level. China will account for about 45% of world apparent steel use in 2011. Indias steel demand is expected to grow by 13.6% in 2011. With 68 mmt of apparent steel use in 2011, India will become the third largest steel using country in the world after China and the US. Indias steel use will be 32% above its 2007 level.
Global Coal Imports (Million Tonnes)

1,000 Europe China Asia others Others
800
600
400
200
0 2006 2007 2008 2009 2010 (Est.)
Source: Clarksons
Coal Coal demand is driven by steel production and energy consumption. Coking coal is used for steel production while steam coal for power generation. Together they account for about 25% of the dry bulk seaborne trade. Coking coal, in addition to iron ore is a major component in steel production, thus demand is mainly driven by the prospects of steel sector. Growing domestic energy requirements and low international coal prices have prompted China and other Asian countries, including India, to increase their imports. The surge in coal exports from Australia to China caused port congestion and shipping delays. Steam coal is a major constituent of the dry bulk seaborne trade, a primary component for coal based power plants sensitive to the demand for power. The power needs of the developing countries such as China and India are largely coal based. Majority of the power in China and India originates from coal, indicating the fundamental demand for the commodity. With the rising demand for power, the coal red power generation is likely to rise in future in Asian region which will bring a strong demand for steam coal. Due to coal powered plants being built in India and declining production of existing and completed mines, India
20
Year in Review
India Domestic Coal Production and Imports (Million Tonnes)

600 500 400 300 200 100 0 2006-07 2007-08 2008-09 2009-10 2010-11 (Est.) Production Imports
Mega Power Plants coming up in the country which will warrant increased imports to meet the increased demand. Despite Indias dominance as one of the leading producers of coal, it faces signicant coal decit in comparison to its rising coal demand from steel and power generating units. This may require India to import coal from Australia, South Africa and Indonesia. India is the worlds third-biggest supplier of iron ore after Australia and Brazil. With annual production exceeding 200 million tonnes, India exports half of the commodity to China, its biggest importer. Chinas geographical proximity to India helps China to secure the commodity at low freight costs. Very recently, the Indian Supreme Court lifted the ban on export of iron ore from the state of Karnataka which accounts for 30% of Indias iron ore exports. This decision will signicantly increase the iron ore shipments from India in the coming months. China As for China, 2010 witnessed some interesting trends: Chinas imports grew less than expected, while imports to the rest of the world were signicantly stronger than anticipated. Chinas
Source: Coal Controller of India
is set to experience an unprecedented growth in coal imports. According to reports, the coal imports of India are expected to grow at a CAGR of 61.5% between 2009 and 2013. These emerging trends, affecting the direction of coal shipments as well as their scale, are likely to shape the demand for bulk carriers and to alter bulk trade ows. World coal shipments are forecast to increase in 2011, with thermal coal volumes expected to increase at a slower rate than coking coal. An issue to monitor is the pricing system, which is rapidly evolving. Differential pricing is gaining ground, and an increasing share of sales is being priced on quarterly terms rather than annual benchmarks. India Indias lead as the worlds fth largest steel producing country and its inadequacy of power underlines its growing need for coal. Indian Governments mission of achieving sufcient power capacities in the near future, has been a key driver in Indias power expansion plans. Several thermal power projects announced by the Indian Government in the process are underway, with some of its Thermal power projects scheduled for generating power in coming years. In addition, there are a number of Ultra
China Iron Ore Imports and Crude Steel Production (Million Tonnes)
700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 (Est.) Crude Steel Production Iron Ore Imports
Source: Clarksons
INDIA COAL HIGHLIGHTS

Major Acquisition of Coal Assets by Indian Companies in 2010-11 Name of the Company Adani Enterprises Lanco Infratech Essar Group Essar Group Ultra Mega Power Plants in India Promoter Tata Power Company Ltd/Coastal Gujarat Power Ltd Reliance Power Ltd/Sasan Power Ltd Reliance Power Ltd/Coastal Andhra Power Ltd Reliance Power Ltd/Jharkhand Integrated Power Ltd
Source: Various
Coal Asset Acquired Galilee basin coal asset Grifn Coal Mining and Carpenter Mine Management Trinitiy Coal East Kalimantan Commissioning Schedule First Unit September 2011 First Unit December 2011 First Unit 2012-2013 First Unit 2015
Estimated Reserves 7.8 billion tonnes 1.1 billion tonnes 200 million tonnes 100 million tonnes Location Mundra, Gujarat Sasan, Madhya Pradesh Krishnapatnam, Andra Pradesh Tilaiyya, Jharkhand
21
Year in Review
Co-relation Between Dry Bulk and GDP Growth Rates (%)

10 8 6 4 2 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 -2 -4 -6 Dry Bulk Demand World GDP Growth Rates 100 90 80 70 60 50 40 30 20 10 0
Panamax Newbuilding and Second Hand Value (US$ million)

New Building Price Second Hand Value 5 Years Old
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: Fearnleys
Source: Clarkson
total dry bulk imports rose 6%, but iron ore imports fell by 1.5%. This was, however, compensated for to some extent by a 30% rise in coal imports as well as a signicant jump in imports of soybeans. The drop in Chinese iron ore imports was the result of inventory depletions and a ramp-up of domestic production, which became more competitive along with rising world market prices of iron ore. Port statistics suggest that Chinese coastal trade rose by about 25% last year. This was to a large extent caused by more coal moving from the producing regions in the north to the consuming areas in southeast. Estimates indicate that the huge jump in trade within China created a nearly 2% extra rise in global tonnage demand in 2010. World market prices for iron ore will be of vital importance for how much China will source from the international market. Currently, iron ore prices are at a level where most of the domestic iron ore capacity in China is protable. If this continues, China may utilise its domestic resources to a greater extent, thereby reducing its relative dependence on overseas imports. In the coal sector, China is also expected to increase its imports in 2011 because the expansion of domestic production should be less than the growth in coal demand. Dry Bulk Trade and Economic Growth Dry bulk trade is inuenced by the underlying demand for the dry bulk commodities which, in turn, is inuenced by the level of worldwide economic activity. This leads to the evolution of trade patterns and the need for seaborne transportation. Generally, growth in Gross Domestic Product (GDP), and industrial production correlate with peaks in demand for marine dry bulk transportation services. The above chart demonstrates the change in world dry bulk trade between 1999 and 2010.
Panamax Sector Panamax, a classication of the dry bulk vessels, denotes the maximum size of a vessel that can transit the Panama Canal. It is a vessel of about LOA 294.1 m X beam 32.3 m. Panamax vessels range within the capacity of 60,000 dwt to 83,000 dwt with the post Panamaxes measuring up to 92,000 dwt. The Baltic Panamax Index (BPI), representative index of Panamax sector, in lines with BDI, touched a low of 1296 in February 2011 from the high of 4622 in May 2010. The decrease in the index can be mainly attributed to the oversupply of vessels in the market. During 2010, demand for new tonnage was signicantly higher compared with the low activity seen in the aftermath of the nancial crisis. In 2010, we saw more than a two-fold increase in the number of orders for new bulk carriers. In total, 84 million dwt worth of new contracts were signed. One third was scheduled for delivery already in 2011, indicating they were either old or cancelled orders that were resold. In the two years since the nancial crisis, 56 million dwt of bulk carrier orders have been cancelled and thus removed from the order book. The order book fell by 8%, ending the year at 51% of the existing eet. A high order book is mainly attributable to reasons such as newbuilding prices for bulk carriers being 40% lower in 2010 than during the peak two years earlier, shipowners have been able to charter out new tonnage on long contracts at levels that justied these new lower prices and a number of Chinese shipowners reportedly ordering new ships for domestic coastal trade. However, despite the oversupply, prices for 5 year old panamax vessels have remained almost the same as compared to 2009 levels.
22
Year in Review
Baltic Panamax Index (BPI) (Index)

14,000 12,000 10,000 8,000 6,000 4,000 BPI during FY2011 High 4,622 (May 2010) Low 1,296 (February 2011)
Supply, Demand: Impact on BDI (%)

20 Growth in Dry Bulk Trade Growth in Fleet dwt BDI Average
(Index)
8,000 7,000
15
6,000 5,000 4,000
10
3,000 2,000 2006 2007 2008 2009 2010 1,000 0
0 2,000 0 6/4/2007 28/4/2008 21/5/2009 13/6/2010 31/3/2011 -5
Source: Bloomberg
Source: Clarksons
Outlook Based on the prevailing forecast for the world economy in 2011 and 2012, world trade in dry bulk commodities could increase 6 7% p.a. Market prices for iron ore and coal will be important determinant of the quantum of seaborne dry bulk trade. It is expected that Australian coal export gradually will return back to full capacity in the second half of this year, which probably will reduce world coal prices somewhat. The Indian ban on iron ore export was lifted on April 21, 2011 and combined with expanding Australian and Brazilian iron ore export capacity later this year, a gradual softening in iron ore prices seems realistic. Lower international prices than domestic Chinese production costs, should give incentives to source from abroad. The tragic events in Japan could lead to some additional demand for bulk carriers. More use of coal in electricity production and higher demand for construction materials during the build-up period should result in higher imports of certain dry bulk commodities. But even though tonnage demand is expected to increase signicantly over the next few years, the vessel order book remains oversized. Therefore, the demand growth is expected to be strong, but not strong enough to create healthy market conditions over the next 12 18 months. In terms of capacity, Japanese and Korean shipyards are not expected to increase their deliveries signicantly. A more likely scenario is for them to withdraw some of the extra capacity they activated before the nancial crisis. This new and highcost capacity came from overtime, hiring subcontractors and building ships on at land or in oating docks. It became evident in 2010 that this capacity had become too expensive given the fall in prices. China, on the other hand, is expected to continue to expand capacity. Although expansion was stopped after the nancial crisis, the huge potential to improve productivity at these new yards should result in a signicant increase in
Dry Bulk Fleet Orderbook Prole Total Fleet Orderbook on January 1, 2011 Percentage of Fleet Order book for delivery in 2011 Net Fleet growth in 2010 Net eet growth in 2011 (Est.)
Source: Clarksons
Million (dwt) 279 51% 139 16.6% 16.8%
No. of Ships 3,262 40% 1695 12.0% 12.1%
Chinese deliveries also in 2011. Hence, in sum, a small increase is expected in deliveries from shipyards building vessels over 30,000 dwt. Despite rm demand prospects from Asian economies in particular, the growth may not be strong enough to absorb an oversized order book. Based on the present order book the existing eet size is expected to grow by around 35 40% in the 2011 and 2012. Even if we consider scrapping of 10 20%, there is clearly an oversupply. This creates a clear imbalance between the demand and supply growth. Unless this demandsupply gap is restored, freight rates will continue to be pressured. Continuance of a prolonged low freight rate regime would impact our earnings adversely. The groups eet coverage for FY2012 is around 60%. Notwithstanding the challenges in dry bulk market going forward, We will continue to focus on our proven business strategy and our strengths and positioning in Asian markets to face these challenging times. With our strong balance sheet we will continue to explore new opportunities which may emerge from these tough market conditions.
Source: Bloomberg, RS Platou, Clarksons, World Steel Association, IMF, UNCTAD
23
Corporate Governance Report
The Board of Directors (the Board) and the management of Mercator Lines (Singapore) Limited (the Company) is committed to high standards of corporate governance and has adhered to the principles and guidelines of Singapores Code of Corporate Governance 2005 (Code) ensuring greater transparency and protection of shareholders interests. These practices include having a sound system of internal controls as well as a system of continuous improvements. This report sets out the main corporate governance practices that were in place throughout the nancial year. The Company continually reviews its corporate governance processes in consistent with the best practices as outlined in the Code, New Audit Committee Guidance Committee (ACGC) Guidebook and the Governance & Transparency Index (GTI), Singapore. The Board conrms that for the nancial year ended March 31, 2011, the Company has adhered to the principles and guidelines as set out in the Code.
BOARD MATTERS 1. The Boards Conduct of Affairs (Principle 1) The Boards Role The Company is led by a dynamic Board which engages actively in the business of the Company. The Board is responsible for the overall policies of the Company and for providing direction for corporate action which includes reviewing business plans, providing entrepreneurial leadership, evaluating the adequacy of the internal controls and internal audit, risk management and effective controls on managing the same, nancial reporting and compliance, review management performance, setting Companys values and standards. The Board also assumes the responsibility of Corporate Governance framework of the Company. All Directors objectively take decisions in the interests of the Company. Adoption of Internal Guidelines The Board has adopted a set of internal controls through the manuals namely, Internal Control and Risk Management System (ICRM) and Code of Corporate Governance Manual (CCG) as revised to include best practices from the ACGC Guide Book which set out the policies, viz., IPT Policy, Information Technology Policy, Standard Operating Procedures (SOPs) on different departments and the terms of reference of various committees. These manuals state the approval limits for transactions, risk management guidelines, hedging policy, capital expenditure, investments, bank borrowings and cheque signatories arrangements from the department level to the Board level. Approval sub-limits are also provided at management levels to facilitate operational efciency to indicate that the policies are reviewed on an annual basis to ensure that they are in line with the Companys objectives and changes to the relevant legislation. The Company has Business Continuity Plan in place to respond beyond the initial crisis / emergency and to prepare for recovery of business processes with minimal disruption of its facility, data and assets. Board Committees Certain functions of the Board have been delegated to various Board Committees to ensure efcient discharge of responsibilities. These Committees are the Executive Committee, Audit Committee, Compensation Committee and Nominating Committee. Membership in the different committees is carefully managed to ensure that there is equitable distribution of responsibilities among Board Members to maximise the effectiveness of the Board and foster active participation and contribution. Diversity of experiences and appropriate skills are also considered. These committees are constituted mostly by Independent and/or Nonexecutive Directors. The Chairman of each Committee is an independent Director. The terms of reference of each Committee as well as the Committee structure and membership are reviewed from time to time by the Board. Executive Committee The Board delegates to the Executive Committee the discretion to approve acquisition and disposal of vessels, strategic nancing/ investment proposal with respect to such acquisition and disposal of vessels through short term & long term loans upto a specied limit as approved by the Board and to approve business plans on chartering-in of vessels. The members of the Executive Committee are Mr Shalabh Mittal, Mr Huang Yuan Chiang, Mr Atul J. Agarwal, Mr Pushpatraj Shivlal Shah and Mr Arul Chandran. Matters delegated to the Board Committees are reported and monitored by the Board.
24
Board Meetings The Board meetings are scheduled quarterly for the purpose of, inter alia, approving the release of the Groups nancial results. Adhoc and non-scheduled Board meetings are also held, apart from the scheduled Board meetings, whenever the Boards guidance or approval is required for specic activities of the Company and/or to provide important business updates. Dates of the Board, Board Committees are scheduled well in advance in consultation with the Board to assist the Directors in planning their attendance. To ensure active participation by all members, the management ensures that the Board may meet in person or through video conferencing or by teleconferencing, which is permitted under the Companys Articles of Association. Decisions of the Board and the Board Committees may also be obtained via circular resolutions as necessary for quick / timely conduct of some business transactions. The number of Board and Committee meetings during the year as well as Board members attendance thereat is set out below: Attendance of Board members in the Board and Committee meetings: Audit Committee No. of Meetings held No. of Meetings attended Nominating Committee No. of Meetings held No. of Meetings attended Compensation Committee No. of Meetings held 3 3 3 3 3 3 3 No. of Meetings attended 3 Board Meeting No. of Meetings held 5 5 5 5 4 4 4 4 4 4 3 3 2 2 3 3 3 1 5 5 5 No. of Meetings attended 4 5 5 4 4 3 5
Name Harish Kumar Mittal Shalabh Mittal Arul Chandran Atul J. Agarwal Huang Yuan Chiang John Walter Sinders Jr. Pushpatraj Shivlal Shah
Orientation and Training Programme The Board members are given an orientation programme at the time of joining the Board and appropriate training on Continuing Directors Responsibilities and Continuing Listing Requirements as and when they are appointed to the Board to ensure that Directors are familiar with the Companys business and governance practices. No new Director was appointed during FY2011. As part of providing continuous update on the regulatory requirements to the Directors to keep them abreast of the new laws and regulations under current scenario, they are updated regularly on such changes. The Directors are briefed at every Board meeting by the Management on the business activities and its adherence to the Companys Corporate Governance policies and practices. Further during the year, the Directors are taken through detailed presentation on Understanding Freight Forward Agreements (FFA) as risk management tool Upon appointment and/or re-appointment, Directors are given a formal letter of appointment from the Managing Director and Chief Executive Ofcer (CEO) explaining their roles, duties and responsibilities as members of the Board including a copy of the Code of Corporate Governance. CEO signs a service contract for the tenure of his position. The Directors who are members of specic committees will also be given the Terms of Reference of such committee. 2. Board Composition and Guidance (Principle 2) Strong and Independent Element on the Board There is a strong and independent element on the Board. The Board comprises of seven Directors with a majority of six Nonexecutive Directors and one Executive Director. Three of the Non-executive Directors are independent. The criterion of independence is based on the denition given by the Code, i.e., an Independent Director is one who has no relationship with the Company, its related Companies or its ofcers that could interfere or be reasonably perceived to interfere with the exercise of the Directors independent judgment in the conduct of the Companys affairs.
25
The Nominating Committee of the Board determines the independence of each Director. Annually, each Director is required to submit a Conrmation of Independence Form based on the guidelines provided in the Code and as per the additional factors governing the independence under the best practices and guidelines provided in the ACGC Guidebook. For FY2011, Nominating Committee has determined that three Directors are independent. They are Mr Huang Yuan Chiang, Mr John Walter Sinders Jr. and Mr Arul Chandran. Disclosure as to the Relationship on Independency Our Chaiman, Mr Harish Kumar Mittal is also the brother-in-law of our Non-executive Director, Mr Atul J. Agarwal. Our parent Company Mercator International Pte. Ltd. is a wholly owned subsidiary of Mercator Lines Limited, India. Mr Harish Kumar Mittal and Mr Atul J. Agarwal are Executive Chairman and Managing Director respectively, of our ultimate parent Company Mercator Lines Limited, India. In addition, Mr Shalabh Mittal and our Non-executive Director Mr Pushpatraj Shivlal Shah are Directors of our parent Company, Mercator International Pte. Ltd. Except otherwise, there are no arrangements or understandings with any person pursuant to which any of our Directors or executive ofcers were selected nor are there any other family relationships among any of our Directors, executive ofcers or substantial shareholders. Any conict of interest of the Directors are also taken into consideration as necessary. Boards Size The size of the Board is reviewed from time to time by the Nominating Committee in compliance of the Corporate Governance to ensure that the size of the Board is conducive to effective discussion and decision making. The current Board size of seven members is appropriate for the size of Companys business. The Board takes into account the scope and nature of the Companys operations and feels that the size is ideal to facilitate for effective deliberations and decision making of the Board. Balanced Mix of Core Competencies The Board comprises of balanced mix of Directors with core competencies and expertise in Accounting, Finance, Business Management, Industry knowledge, Strategic Planning and Customer Based Knowledge. The Board also collectively provides competencies in the areas of Operations, Industry Strategies, Risk Management, Legal and Regulatory Matters and Human Resource Management. Active participation by all the members of the Board and their inputs on strategy has been helpful to the Company to fulll its functions particularly in times of the challenging economic climate. Role of Non-executive Directors The Non-executive Directors actively and constructively participate in developing and setting proposals on business strategies for the Company. Their role is particularly important as they provide unbiased and independent views, advice and judgement to take care of the interests, not only of the Company but also shareholders, employees and customers. 3. Chairman and Chief Executive Ofcer (CEO) (Principle 3) The Non-executive Chairman Mr Harish Kumar Mittal and the Managing Director and CEO Mr Shalabh Mittal are two separate persons, to ensure appropriate balance of power, authority and clear division of responsibilities for independent decision making. The Chairman and the CEO are related to each other as father and son respectively. Role of the Chairman The Chairman of the Board is responsible for proper functioning of the Board. He facilitates effective contribution of Nonexecutive Directors, encourages constructive relations among the Directors, ensures effective and timely ow of information from the management to the Board and promotes high standards of Corporate Governance process. He also ensures appropriate remuneration policies are in place.
26
Role of the CEO As the highest ranking executive ofcer of the Company, the primary role of the CEO is to effectively manage and supervise the day to day business operations of the Company in accordance with the overall strategies and policies as enumerated and approved by the Board. Principal duties of the CEO are as follows: improve, develop, extend, maintain, advise and promote the Companys business and to protect and further the reputation, interests and success of the Company, in the discharge of such duties and in the exercise of such powers, observe and comply with all regulations and directions from time to time made or given by the Company or the Board; devote so much of his time and attention and ability to the discharge of his duties hereunder; and perform such services for any Group Company and accept such ofces in such Group Company as the Board may from time to time reasonably require.
4.
Board Membership (Principle 4) The Company has a formal and transparent process for the appointment and reappointment of Directors through the recommendations of Nominating Committee. Nominating Committee Nominating Committee comprises of four Directors, majority of whom including the Chairman are independent and are not associated with the substantial shareholder. The Nominating Committee members are: Mr John Walter Sinders Jr. (Chairman) (Non-executive/Independent) Mr Shalabh Mittal (Executive/Non-independent) Mr Huang Yuan Chiang (Non-executive/Independent) Mr Arul Chandran (Non-executive/Independent)
Nominating Committee has a written terms of reference that describes the responsibilities of the members. The principal duties of Nominating Committee include: Reviewing the Board structure, its size and composition having regard to the scope and nature of the operations and the core competencies of the Directors. Reviewing and assessing candidates for Directorships (including executive Directorships, if any) before making recommendations to the Board for appointment of Directors. Reviewing and recommending to the Board the retirement or re-election of Directors in accordance with the Articles of Association at each general meeting. Determining annually the Directors independence. Deciding whether or not a Director is able to and has been adequately carrying out his duties as a Director.
Appointments to the Board are made on the basis of merit, track record, experience, age, capabilities and against objective criteria. The Nominating Committee ensures that appointees have enough time available to devote to their Directorship roles. The Nominating Committee assesses and recommends to the Board whether retiring Directors are suitable for re-election and it also considers that the multiple Board representations held presently by some Directors do not impede their respective performance in carrying out their duties towards the Company.
27
The Board reviews its composition to ensure that the Company has an appropriate mix of expertise and experience. Committee Membership Name, Age, Date of Appointment Harish Kumar Mittal, 62, October 25, 2007* Shalabh Mittal, 32, August 18, 2005 Arul Chandran, 76, July 29, 2008# Atul J. Agarwal, 52, October 25, 2007* Huang Yuan Chiang, 52, October 25, 2007 John Walter Sinders Jr., 57, October 25, 2007 Pushpatraj Shivlal Shah, 46, July 7, 2006
*
#
Nature of Board Membership Chairman, Non-executive and Non-independent Director Managing Director and CEO Independent Director Non-executive and Non-independent Director Independent Director Independent Director Non-executive and Non-independent Director
Audit Committee
Nominating Committee
Compensation Committee Member
Executive Committee
Member Member Member
Member Member Member
Chairman Member Member
Member Chairman
Member Chairman
Member
Member
Re-elected pursuant to Article 91 of the Articles of Association of the Company at the last AGM held on July 23, 2010. Re-appointed pursuant to Section 153(6) of the Companies Act, cap 50 to hold ofce until the next AGM to be held on July 28, 2011.
According to the Articles of Association of the Company, at each Annual General Meeting (AGM) one-third of the Directors retire and are eligible for re-appointment. For the time being, in accordance with Article 91, Mr Shalabh Mittal and Mr John Walter Sinders Jr. shall retire from ofce by rotation, being one-third and longest in ofce and submit themselves to re-election at the Companys forthcoming AGM, to be held on July 28, 2011. Mr Arul Chandran will be subject to re-appointment pursuant to Section 153(6) of the Companies Act Cap. 50. Key Information regarding the Directors can be found under Board of Directors on pages 14 and 15 in this Annual Report. 5. Board Performance (Principle 5) With the approval of the Board, the Nominating Committee has established performance criteria and evaluation procedures for the assessment of the effectiveness and performance of the Board. The evaluation process is carried out by each Director to assess the Boards overall effectiveness. The Board evaluation questionnaire considers factors such as Board Composition, its size, Board information, Board process, Accountability, about CEO/Top management, Standards of conduct etc. The ndings are collated and reported by the Nominating Committee Chairman to the Board. The Board Chairman will review and discuss the feedback with the Board members to help the Board to discharge its duties more effectively. During the year, Nominating Committee reviewed the adequacy and relevance of the assessment criteria for the evaluation of the Board as well as the performance evaluation process and consequent revision to the evaluation questionnaire was made. This would help the Board to reveal the strength & challenges to further improve on the discharge of its oversight duties. 6. Access to Information (Principle 6) Information to the Board Board members are provided with complete, accurate and adequate management information. Management furnishes the Board with timely operational and nancial reports of the Groups performance and prospects including disclosure documents on a quarterly basis. Agenda for the Board and Committee Meetings are sent to the Directors in advance to prepare for the effective discussions. Information on areas like Corporate Highlights, Financial Data, Market Review and Corporate Developments are provided in the Board meetings to help the Board members carryout their responsibilities effectively. Board members are aware that they can take professional advice, if necessary. Senior managerial personnel who can provide additional insight into the matters are invited to be present at the relevant time during the Board / Committee meetings.
28
Access to Senior Management and Company Secretary The Board members have unrestricted, independent access to the Companys CEO, senior management, the Company Secretary and the Internal and External Auditors via telephone, e-mail and personal meetings. The Company Secretaries are responsible for ensuring that the Board procedures are followed and that applicable rules and regulations, including the requirements of the Companies Act, are complied with. The Company Secretaries assist with professional development programmes to the Directors to keep them abreast of the new developments in the regulatory environment. Either one of the Company Secretaries attends all Board and Committee meetings and prepares the minutes of the meetings. The appointment and removal of the Company Secretaries are subject to approval of the Board.
REMUNERATION MATTERS 1. Procedures for Developing Remuneration Policies (Principle 7) The Compensation Committee develops remuneration policies as recommended by the Code. The aim of Compensation Committee is to motivate and retain Directors and executives with best talent to support and drive growth in business and thereby maximise long-term shareholder value. No member of the Compensation Committee nor any other Director will be involved in the deliberations in respect of any remuneration or any form of benets to be granted to him. Compensation Committee The Compensation Committee comprises of four Non-executive Directors, majority of whom are independent. Mr John Walter Sinders Jr. (Chairman) (Non-executive/Independent) Mr Harish Kumar Mittal (Non-executive/Non-independent) Mr Huang Yuan Chiang (Non-executive/Independent) Mr Arul Chandran (Non-executive/Independent)
Compensation Committee has a written Terms of Reference that describes the responsibilities of the members.The principal duties of Compensation Committee include: To recommend to the Board in consultation with the Chairman, a comprehensive remuneration policy, framework and guidelines for remunerating members of the Board and Key Managerial Personnel, deciding specic remuneration packages for each of the Executive Directors and the CEO. In the case of Service Contracts, to consider compensation commitments entitled for Directors or Executive Ofcers contracts of service, in the event of early termination with a view to be fair and to avoid rewarding poor performance. To approve performance targets for assessing the performance of each of the Key Managerial Personnel and recommend targets as well as employee specic remuneration packages for each such Key Managerial Personnel, for endorsement by the Board.
2.
Level and Mix of Remuneration (Principle 8) All aspects of remuneration of the Board, including but not limited to Directors fees, salaries, allowances, bonuses, options, and benets-in-kind are considered by the Compensation Committee. The packages are reviewed by the Compensation Committee annually including if required, with the help of the External Professional Agency by its Market Survey on the benchmarking of the remuneration packages prevailing in the market specic to the Industry to which the Company belongs, identifying suitable samples in the Industry segment. Compensation Committees recommendations are submitted for Boards endorsement.
29
The Managing Director and CEO does not receive Directors fees from the Company or from its subsidiaries/associate Companies, where he is appointed to such Boards. Compensation Committee also reviews the remuneration of the Key Managerial Personnel annually. The CEO and Key Managerial Personnels compensation comprises of salary as a xed component, bonus as variable component and benets in kind. The Non-executive Directors are paid a xed fee called Directors fees. The Directors fees consists of basic fees and additional fees for Committee membership considering the time and effort on serving the Board and Committees. To facilitate timely payment of Director fees, the same is paid quarterly in advance for the current FY once approval is obtained from the shareholders at the AGM. The Compensation Committee is of the view that the remuneration of the Directors is appropriate considering the effort and the responsibilities of the Directors. Compensation Committee also considers exible compensation package which may be required to adapt itself with market conditions. No employee of the Company and its subsidiaries is an immediate family member of any Director. 3. Disclosure on Remuneration (Principle 9) Members of the Compensation Committee abstain from voting on any resolutions in respect of their own remuneration package. No. of Directors Remuneration Bands Below S$250,000 Between S$250,000 and S$500,000 Beyond S$500,000 FY2011 6 1 FY2010 6 1
No. of Executives Remuneration Bands Below S$250,000 Between S$250,000 and S$500,000 Remuneration Table Name Executive Director Shalabh Mittal* Managing Director and CEO Non-executive Directors Harish Kumar Mittal Atul J. Agarwal Pushpatraj Shivlal Shah Independent Directors Huang Yuan Chiang John Walter Sinders Jr. Arul Chandran Executive Ofcers K. Srivastava Vice President, Accounts and Finance@
*
@
FY2011 1
FY2010 2
Directors Fee (%)
Salary (%)
Variable (%)
Benets in Kind (%)
Total (%)
Remuneration Band (S$)
Nil
26
73
100
Beyond S$500,000
100 100 100
Nil Nil Nil
Nil Nil Nil
Nil Nil Nil
100 100 100 Below S$250,000
100 100 100
Nil Nil Nil
Nil Nil Nil
Nil Nil Nil
100 100 100 Below S$250,000
Nil
100
Nil
Nil
100
Less than S$250,000
Subject to annual review process to be nalised in July 2011. Resigned on March 4, 2011, hence partial remuneration is considered.
Company does not operate Employees Share Option Scheme.
30
ACCOUNTABILITY AND AUDIT 1. Assessment of Companys Performance (Principle 10) The Board provides a balanced assessment of the Companys performance, its position and prospects to the shareholders and investors through release of the Companys quarterly and full year nancial results. The Board reviews and approves the nancial results before its release. The Board is accountable to the shareholders and provides them with a balanced and understandable assessment of the Groups performance and prospects through periodical and adequate reports/announcements with regard to the Companys business. 2. Audit Committee (Principle 11) The Audit Committee comprises of the following members, all of whom are Non-executive Directors and the majority of whom, including the Chairman are independent. Mr Huang Yuan Chiang (Chairman) (Non-executive/Lead Independent) Mr Pushpatraj Shivlal Shah (Non-executive/Non-independent) Mr John Walter Sinders Jr. (Non-executive/Independent)
Members of the Audit Committee are appropriately qualied to discharge their responsibilities. Two of these Directors have accounting and related nancial management expertise. The Audit Committee has explicit authority to investigate any matter within its Terms of Reference, have full access to and cooperation by management and discretion to invite any Director or Executive Ofcer to attend its meeting and reasonable resources to enable it to discharge its functions properly. As part of discharging its duties independently, the Audit Committee also meets the External Auditors and the Internal Auditors with and without the presence of management. In addition, Audit Committee reviews the independence and objectivity of the External Auditors as well as the External Auditors conrmation to not undertake any nonaudit services . The Audit Committee reviews quarterly and full year results prior to the submission to the Board for approval. Audit Committee meets at quarterly intervals. Management reports to the Audit Committee all Interested Person Transactions (IPTs) in accordance with the Companys Shareholder Mandate for IPTs. The Internal Auditors conduct audit on IPTs and submit the report to the Audit Committee. The Audit Committee recommends the re-appointment of the External Auditors, having been satised with the independence and objectivity of the External Auditors. External and Internal Auditors present their Audit Plan and ndings to the Audit Committee for its review to ensure the adequacy and effectiveness of the Accounting systems and Internal controls of the Company. The Audit Committee is satised with the standard of the External Auditorswork and has recommended their re-appointment. The Audit Committee reviews annually its charter to ensure that it remains relevant and is in line with best practices. The Terms of Reference of the Audit Committee is revised to include many aspects as suggested in the new ACGC Guidebook. The principal duties of Audit Committee include: To review annually the independence and objectivity of the External Auditors. To review with the External Auditors before commencing the audit, the audit plan, the nature and scope of the audit, the results of the audit, the reports, the letter to the management and related response. To oversee nancial reporting process, review the quarterly and annual nancial statements to ensure integrity of the said nancial statements before submission to the Board for approval. To meet with the External Auditors and with the Internal Auditors with and without the presence of management, at least annually, to discuss any problems and concerns they may have. To ensure co-ordination between the internal and External Auditors and management. To review the adequacy of the Companys internal controls. To select and appoint Internal Auditors, x their remuneration, to review the scope and assess their performance, results of the internal audit procedures including the effectiveness of the internal audit functions and ensure that the internal audit function is adequately resourced and has appropriate standing within the Company and to review and ensure annually the adequacy of the internal audit function. To review IPTs falling within the scope of the SGX-ST Listing Manual.
31
3.
Internal Controls (Principle 12) The Board of Directors has ultimate responsibility for the companys Internal Control and Risk Management System. The Board believes in the importance of maintaining a sound system of internal control to safeguard the interest of the shareholders and the assets of the Company. Audit Committee reviews annually, the adequacy of the Companys internal controls, operational and compliance control and risk management policies and systems established by the management. The system of internal controls is designed to provide reasonable and not absolute assurance or guarantee for achieving certain internal control criteria or guarantee against material misstatement or loss. The Board has established an Internal Control Committee which will assist the Board by providing it with advice and proposals on the Internal Control System through periodic reports to ensure identication and proper handling of the principal risks faced by the company. The Company has a clearly dened operating structure with lines of responsibility and delegated authority, as well as adequate reporting mechanisms to Senior Management and to the Board. The Manual on Code of Conduct for Ethical Behaviour of the Company provides for values which the employees are expected to adhere to with respect to integrity, honesty, care, due diligence, accountability and fairness. Company Manuals The ICRM manual and CCG manual include the best practices as contained in the ACGC Guidebook. Board is of the opinion that the present system of internal control is adequate to the size and complexity of the business. Companys key internal controls are detailed in formal procedures under the above said manuals. These manuals contain policies relating to Information Technology, IPTs, Business Continuity Plan, Whistleblowing, Internal Code of Conduct for Ethical Behaviour and Code of Best Practices on Dealing with Companys Securities. The Company has developed, implemented and maintained a system called Safety Management System (SMS) under a manual which complies with the requirements of the International Management Code for the Safe Operation of Ships and pollution Prevention (ISM Code) and Environmental Management System. Through SMS, the Company clearly establishes and maintains the quality of eet management and promotes the concept of safety quality, health and environmental management processes. Companys Business Continuity Plan helps ensure that the Company has the resources and information needed to deal with the crisis or emergencies with an objective to ensure that maximum possible service levels are maintained, to ensure recovery from interruptions as quickly as possible and to minimise the likelihood and impact (risk) of interruptions. MIS Reports Management Information System (MIS) Reports on nancial, operational and technical reviews submitted to the top management at specied frequency acts as primary source of information to identify need for internal controls. Check list on Code of Corporate Governance, Listing Manual provisions and Companies Act provisions are also reviewed in Internal Control Committee on quarterly basis to keep the standards of Corporate Governance and Transparency high. Risk Management Enterprise Risk Management is done by the Internal Auditors and the risk assessment criteria is dened with respect to nancial, operational, reputational and environmental impacts. Risks perceived will be escalated to Management and Audit Committee based on ratings of inherent risks as evaluated by them. The Audit Committee provides oversight of the nancial reporting risk and the adequacy and effectiveness of the Companys internal control and compliance systems. Details of the Groups nancial instrument risks, nancial risks and capital risks management measures are outlined in Note 4 to the Financial Statements. Insurance Coverage All the company assets are adequately covered. The asset values and risks for coverage are reviewed annually. The Vessels are kept fully covered for hull and Machinery damage, Freight Demurrage and Defense cover insurances at all time during their life period and for war Risk, Loss of Hire, Freight interest Insurances as applicable depending upon the area of trading and contracts respectively from reputed underwriters. The seafarers and company employees are also fully covered under Personal accident insurance for the period of tenure on board vessels. The subsequent claims as a result of marine adventure are settled using underwriters and Protection & Indemnity clubs claim settlement instruments.
32
Whistleblowing The Company has in place a Whistleblowing Policy to reinforce a culture of good business ethics and governance and to encourage all staff to raise concerns about possible improprieties. The policy contains the contact details for sending the report and the same has been made available to all the employees. This enables reporting in good faith of any suspected improper conduct, at the same time protecting the whistleblowers from reprisals within the limits of law. Audit Committee is reported on quarterly basis on the whistleblowing matters. Since the Companys inception, there has been no case of whistleblowing. 4. Internal Audit (Principle 13) The Company had outsourced to perform internal audit function during the year under review. Internal Audit function is committed to meet the standards for the Professional Practice of Internal Auditing set by the Institute of Internal Auditors. Internal Auditors submit their report to the Audit Committee. Based on its review, the Audit Committee is of the opinion that Internal Audit function is independent, adequately resourced and has appropriate standing within the Company. The scope of Internal Audit is reasonably comprehensive to enable the effective and regular review of all operational, nancial and related activities. The internal audit coverage extends to areas viz., Enterprise Risk Assessment, Fleet Marine maintenance, Vendor management, MIS and Audit on Compliance of various Statutory regulations. Audit Committee assesses the effectiveness of the Internal Auditors as to its scope and quality of audit reports.
COMMUNICATION WITH SHAREHOLDERS 1. Effective and Fair Communication (Principle 14) In compliance with continuous disclosure obligations under the listing rules of SGX-ST, the Company releases its price sensitive nancial results and other material information to the shareholders in a timely manner through announcements via SGXNET system and the same are made available on Companys website, www.mllsg.com. Facts sheets are released in the Companys website to provide shareholders with better insight into the Companys performance. Apart from the mandatory announcements, the Management provides shareholders with presentations every quarter in order to facilitate shareholders assessment of the Companys nancial performance, acquisition of vessels, the Companys position in the Industry and its future prospects. Committed to high standards of corporate transperancy and disclosure, the Company concurrently disseminates these informations in both SGX-ST website and Company website on a non-selective basis. The date of release of quarterly results is disclosed atleast 10 days prior to the announcement through SGXNET. Led by the CEO, the Companys Investor Relations (IR) team is responsible for regular and effective communication with Investor community, fund managers and media. The Company holds quarterly conference calls / meetings with analysts, shareholders and investors to facilitate understanding of the Companys business and growth strategies. The Company addresses all the shareholders queries and concerns immediately and conveys pertinent information to them on a timely basis. Through these efforts we continue to embrace strong principles in Corporate Governance & transperancy. The contact detail of IR (ir@mllsg.com) is also available on the Companys website, which allows the shareholders and the investors to contact the Company in case of need. The Companys website provides corporate information, nancial information, stock information, investor relations, corporate governance, presentations, announcements, press releases and other information pertaining to the Company. More information on IR related activities are given in detail on page 36 in this Annual Report. 2. Greater shareholder participation (Principle 15) Annual Report, Circulars, notices of Annual General Meetings and Extraordinary General Meetings are dispatched to the shareholders together with explanatory notes on items of special business well before the required statutory period before the AGM i.e. 28 days in advance, as per the best practices of GTI, Singapore. Notice of all General Meetings along with Book Closure Date is published in The Business Times.
33
The Company encourages the shareholders to participate actively in general meeting. As per the Companys Articles of Association, Shareholders are entitled to attend and vote and to appoint one or two proxies to attend the general meetings. Proxies need not be a shareholder of the Company. Shareholders present are given an opportunity to clarify or ask questions on a resolution as proposed before the same is voted on. The Company practices voting by way of a show of hands at general meetings as this is equitable to minority shareholders. Nonetheless, polls may be conducted upon the request of the Chairman or any shareholder. Voting in absentia by mail, facsimile or e-mail is currently not permitted which requires cautious evaluation. Company complies with the Codes principle with respect to the bundling of resolution and separate resolutions are passed individually on separate issues. External Auditors are present and assist in addressing the queries relating to the conduct of audit and on Auditors report. The Chairmen/member of the Audit Committee, Nominating Committee and Compensation Committee are available to address the questions at the general meetings.
DEALING IN SECURITIES Company adopts its own internal code of best practices to provide guidance to all Directors and ofcers with regard to dealing in shares of the Company in compliance with Chapter 12, Rule 1207(18) of the Listing Manual of the SGX-ST. Directors and the executives observe insider-trading laws at all times. They are reminded to be mindful of the law and are not allowed to deal in the Companys shares during the period commencing two weeks before the announcement of the Companys nancial results for each of the rst three quarters in a nancial year and one month before the announcement of Companys full nancial year results and ending on the date of the announcements of the relevant results. All the Directors and the key ofcers conrm annually that they have complied with and are not in breach of the provisions of the code of conduct.
MATERIAL CONTRACTS There are no material contracts, not being contracts entered into in the ordinary course of business, entered into by the Company or any of its subsidiaries involving the interest of any Director or controlling shareholders during the year under review.
INTERESTED PERSON TRANSACTIONS (IPTS) The Company has an IPT policy and sets out procedures for review and approval of Companys IPTs. Internal control procedures ensure that all the IPTs are conducted at arms length and on commercial terms. The Audit Committee reviews the shareholder mandate on IPTs annually and ensures that these are not prejudicial to the interests of the Company or its minority shareholders. The aggregate values of interested persons transactions entered into during the nancial year ended March 31, 2011 and the corresponding nancial year were as follows:
Aggregate value of all interested person transactions during the nancial year under review (excluding transactions less than S$100,000 and transactions conducted under shareholders mandate pursuant to Rule 920) Name of interested person and nature of transaction Year ended March 31, 2011
Technical Management fees US$0.3 million Reimbursable expenses for technical management US$6.3 million Other expenses US$0.2 million Lighterage sub-contract USD1.0million *
Aggregate value of all interested person transactions conducted under shareholders mandate pursuant to Rule 920 (excluding transactions less than S$100,000) Year ended March 31, 2011
Year ended March 31, 2010

Technical Management fees US$1.0 million Reimbursable expenses for technical management US$13.9 million Other expenses US$0.2 million

Payment for VLOC US$17.0 million
Mercator Lines Limited
MCS Holdings Pte Ltd Mercator International Pte. Ltd.

*
Charter Income US$0.6 million
Freight Commission Income US$0.4 million
Freight Commission Income US$0.1 million
Mercator International Pte. Ltd. has pledged US$15 million of its xed deposits with a bank to secure short term borrowings of the Company.
34
Corporate Social Responsibility
Bull Charge 2010
COMMUNITY AND ENVIRONMENT At Mercator we like to inculcate in our staff, the importance of being responsible and committed towards society and the environment. Through our CSR committee, we conduct, coordinate and keep staff informed of some of the worthwhile causes that they can participate in. Some of our staff participated in The Deaf Associations Flag Day on March 16, 2011 to help the association raise funds to provide essential services such as interpretation services, hearing aid and devices, counseling & care services and nancial assistance to meet some of the needs of the hearing impaired in our society. Our CSR policy allows for our staff to use one working day a year to volunteer their services towards the community or environment. In addition for the past two years, the Company has partnered with our staff and contributed dollar-for-dollar, funds contributed by them towards a chosen charity like the Childrens Society. The Company continues to sponsor and donate to causes that are close to heart. We were very proud to have sponsored and participated in the Bull Charge 2010 for the second time, which is organised by the SGX in collaboration with other partners to raise funds to support the less fortunate groups in our society such as the elderly, youth, disabled and families in need. Towards the world wide community, Mercator is proud to have partnered with Daeyang Shipping and have sponsored two nursing students at the Daeyang Nursing college in Malawi. The Nursing college was set up to address the shortage of health care workers in
Malawi and we are very honoured to be able to participate in Daeyangs humanitarian projects. As a shipping enterprise, we have not forgotten our own and contributed towards The Asian Challenge 2011 Mount Kinabalu which was organised by the Sailors Society to raise funds to support Seafarers and their families ashore. The Company is committed to protecting the environment from all types of pollution caused by its activities both on board our vessels and ashore. On board we adopt good working practices to ensure safe, secure and healthy working environment by training our ship staff continuously with the latest technology to ensure high levels of maintenance on board our vessels. Internal audits and checks are held regularly to ensure that our vessels comply with international regulations to protect the environment. We continue to impress on our employees the need to do their part to contribute towards a more sustainable future by conserving energy and using less non-biodegradable items such as plastic in ofce. On a lighter note, as a reminder and to instill a passion for conservation of the environment, we held a Best Costume contest to our employees to come up with the most environmentally friendly fancy dress to celebrate our designated GO GREEN DAY on May 26, which is the Companys incorporation date.
35
Investor Relations
Creating value for shareholders is the sine qua non of our business model. While focusing on our operational performance and business strategies we also recognise the importance of communicating our progress to our investor community. We, thus, foster an active investor relations structure steered by our Managing Director and CEO. We aim to maintain high levels of transparency and disclosure through regular communication with our investors. On a timely basis we disseminate our nancial information through SGX NET in due compliance with SGX-ST listing rules. Additionally, we also disclose our quarterly and annual nancial results through a detailed presentation along with the announcement. The Company also organises teleconferences and lunch briengs/ results brieng periodically. Further we practice prompt and timely disclosure of any developments in the Company that inuence the share prices. Mercator ranks amongst Singapore 1000, Singapore SME 100 and Singapore International 100 Companies as per DP Information Group. Mercators endeavors in maintaining high corporate governance was recently recognised by its 23rd ranking amongst 680 public listed companies in Governance and Transparency Index (GTI) in the Issue-3 exercise jointly conducted by The Business Times and the Corporate Governance and Financial Reporting Centre (CGFRC) at National University of Singapore (NUS), released in April 2010. The award and the ranking emphasise our drive for excellence and our commitment towards better corporate governance. With this, we strive to extend and enhance our accountability and responsibility towards all our shareholders and to become an organisation of world class practices. The company was awarded the prestigious Emerging India Awards (EIA) under the category of Global Entrepreneur of the
Year award organised by CNBC-TV18 and ICICI Bank, India. The awards are based on a rigorous evaluation of the entries by CRISIL, the Indian subsidiary of Standard & Poors, and a panel of eminent personalities and seek to identify and honor Emerging companies who are competing and winning in the global marketplace.
With a base of more than 6,000 shareholders spanning around institutional and individual investors, we are committed to explore and practice innovative methods to reach out to our investors. Meetings through teleconferences, one-to-one meetings, road shows, and such others means, are deployed to maintain regular and effective communication with our investors. During FY2011, we actively participated in select road shows organised by reputed Investment Banks and Research Houses, communicating with a select spectrum of the investor community. We participated in several one-to-one meetings with investors to apprise them on the Companys performance and its developments. Additionally, we use our website as a vehicle to interact with our investors, providing regular updates of Investors interest. The website offers information on Companys background, its business, corporate governance, risk management strategy, safety and quality measures practiced etc. Also a specic page for investor relations is allotted providing an archive of investor specic information such as announcements, press releases, annual reports. The website is designed interactively encouraging investors to subscribe for alerts on Companys updates. Investor queries are attached prime importance and are addressed promptly. To facilitate better accessibility for investor queries or concerns we provide our contact details in our website, annual reports, press releases, etc released by the Company. We are focused to strengthen our investor relations framework to better serve the needs of the investor community.
Share Price Movement and Trading Volume FY2011

Share Price (S$) 0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 1/4/2010 1/5/2010 1/6/2010 1/7/2010 1/8/2010 1/9/2010 1/10/2010 1/11/2010 1/12/2010 1/1/2011 1/2/2011 1/3/2011 1/4/2011 1/5/2011 0 10 15 25 Volume Share Price (Close) Volume (millions) 30
20
Source: Bloomberg
36
MERCATOR LINES (SINGAPORE) LIMITED AND ITS SUBSIDIARIES
Report and Financial Statements

CONTENTS 38 41 42 43 44 45 46 48 Report of the Directors Statement of Directors Independent Auditors Report Statements of Financial Position Consolidated Statement of Comprehensive Income Statements of Changes in Equity Consolidated Statement of Cash Flows Notes to Financial Statements
MERCATOR LINES (SINGAPORE) LIMITED AND ITS SUBSIDIARIES Annual Report 2011
37
Report of the Directors
The directors present their report together with the audited consolidated nancial statements of the Group and the statement of nancial position and statement of changes in equity of the Company for the nancial year ended March 31, 2011.
DIRECTORS The directors of the Company in ofce at the date of this report are: Harish Kumar Mittal Shalabh Mittal Arul Chandran Atul J. Agarwal Huang Yuan Chiang John Walter Sinders Jr. Pushpatraj Shivlal Shah
ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE BENEFITS BY MEANS OF THE ACQUISITION OF SHARES AND DEBENTURES Neither at the end of the nancial year nor at any time during the nancial year did there subsist any arrangement whose object is to enable the directors of the Company to acquire benets by means of the acquisition of shares or debentures in the Company or any other body corporate.
DIRECTORS INTERESTS IN SHARES AND DEBENTURES The directors of the Company holding ofce at the end of the nancial year had no interests in the share capital and debentures of the Company and related corporations as recorded in the register of directors shareholdings kept by the Company under section 164 of the Singapore Companies Act except as follows: Shareholdings Name of directors and companies in which interests are held registered in name of director At beginning of year Mercator Lines (Singapore) Limited (Ordinary shares) Shalabh Mittal Harish Kumar Mittal John Walter Sinders Jr. 181,548 189,972 181,548 640,000 189,972 640,000 At end of year Shareholdings in which directors are deemed to have an interest At beginning of year At end of year
38
DIRECTORS INTERESTS IN SHARES AND DEBENTURES (continued) Shareholdings Name of directors and companies in which interests are held registered in name of director At beginning of year Mercator Lines Limited (Ultimate holding company) (Ordinary shares) Shalabh Mittal Atul J. Agarwal Harish Kumar Mittal (Issuance of new warrants*) Harish Kumar Mittal Shalabh Mittal Atul. J.Agarwal 361,250 5,460,966 46,654,200 361,250 5,460,966 46,654,200 1,194,000 36,274,900 1,194,000 45,174,900 At end of year Shareholdings in which directors are deemed to have an interest At beginning of year At end of year
10,000 1,000,000
14,270,000 30,000
* Warrants with an option to subscribe to equivalent number of shares. By virtue of Section 7 of the Singapore Companies Act, Mr Harish Kumar Mittal is deemed to have an interest in all shares in Mercator International Pte Ltd (intermediate holding company) held by Mercator Lines Limited and in all shares in the Company held by Mercator International Pte Ltd. The directors interest in the shares of the Company at April 21, 2011 were the same as those as at March 31, 2011.
DIRECTORS RECEIPT AND ENTITLEMENT TO CONTRACTUAL BENEFITS Since the beginning of the nancial year, no director has received or become entitled to receive a benet which is required to be disclosed under Section 201(8) of the Singapore Companies Act, by reason of a contract made by the Company or a related corporation with the director or with a rm of which he is a member, or with a company in which he has a substantial nancial interest except for salaries, bonuses and other benets as disclosed in the nancial statements. Certain directors received remuneration from related corporations in their capacity as directors and/or executives of those related corporations.
SHARE OPTIONS (a) Options to take up unissued shares During the financial year, no options to take up unissued shares of the Company or any corporation in the Group were granted. (b) Options exercised During the 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. (c) Unissued shares under option At the end of the nancial year, there were no unissued shares of the Company or any corporation in the Group under options, except for the option granted to holders of convertible bonds to convert to a maximum of 30,568,964 ordinary shares in the Company.
39
AUDIT COMMITTEE The Audit Committee of the Company is chaired by Huang Yuan Chiang and includes Pushpatraj Shivlal Shah and John Walter Sinders Jr., all of whom are non-executive directors. Mr Huang Yuan Chiang and Mr John Walter Sinders Jr. are independent directors. The Audit Committee meets periodically and has reviewed the following, where relevant, with the executive directors and external and internal auditors of the Company: (a) the audit plans and results of the internal auditors examination and evaluation of the Groups systems of internal accounting controls; the Groups nancial and operating results and accounting policies; the consolidated nancial statements of the Group and the statement of nancial position and statement of changes in equity of the Company before their submission to the directors of the Company and the external auditors report on those nancial statements; the quarterly, half-yearly and annual announcements as well as the related press releases on the results and nancial position of the Group and the Company; the co-operation and assistance given by the management to the Groups external auditors; and the re-appointment of the external auditors of the Group.
(b) (c)
(d)
(e) (f)
The Audit Committee has full access to and has the co-operation of the management and has been given the resources required for it to discharge its function properly. It also has full discretion to invite any director and executive ofcer to attend its meetings. The external and internal auditors have unrestricted access to the Audit Committee. The Audit Committee has recommended to the directors the nomination of Deloitte & Touche LLP for re-appointment as external auditors of the Group at the forthcoming Annual General Meeting of the Company.
AUDITORS The auditors, Deloitte & Touche LLP, have expressed their willingness to accept re-appointment.
ON BEHALF OF THE DIRECTORS
Shalabh Mittal Managing Director and Chief Executive Ofcer May 12, 2011
Arul Chandran Director
40
Statement of Directors
In the opinion of the directors, the consolidated nancial statements of the Group and the statement of nancial position and statement of changes in equity of the Company as set out on pages 43 to 85 are drawn up so as to give a true and fair view of the state of affairs of the Group and the Company as at March 31, 2011 and of the results, changes in equity and cash ows of the Group and the changes in equity of the Company for the nancial year then ended and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due.
ON BEHALF OF THE DIRECTORS
Shalabh Mittal Managing Director and Chief Executive Ofcer May 12, 2011
Arul Chandran Director
41
Independent Auditors Report

To the members of Mercator Lines (Singapore) Limited
REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying nancial statements of Mercator Lines (Singapore) Limited (the Company) and its subsidiaries (the Group) which comprise the statements of nancial position of the Group and the Company as at March 31, 2011, and the statement of comprehensive income, statement of changes in equity and statement of cash ows of the Group and the statement of changes in equity of the Company for the year then ended, and a summary of signicant accounting policies and other explanatory notes, as set out on pages 43 to 85. Managements Responsibility for the Financial Statements Management is responsible for the preparation of nancial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the Act) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufcient to provide reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair prot and loss accounts and balance sheets and to maintain accountability of assets. Auditors Responsibility Our responsibility is to express an opinion on these 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 about whether the nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the nancial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation of nancial statements that give a true and fair view 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 entitys 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 nancial statements. We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated nancial statements of the Group and the statement of nancial position 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 March 31, 2011 and of the results, changes in equity and cash ows of the Group and changes in equity of the Company for the year ended on that date.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In our opinion, the accounting and other records required by the Act to be kept by the Company and 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 LLP Public Accountants and Certied Public Accountants Singapore May 12, 2011
42
Statements of Financial Position

March 31, 2011
Note
Group 2011 2010 US$000 US$000
Company 2011 2010 US$000 US$000
ASSETS Current assets Cash and bank balances Trade receivables Other receivables and deposits Inventories Total current assets Non-current assets Other receivables and deposits Subsidiaries Available-for-sale investments Property and equipment Total non-current assets Total assets LIABILITIES AND EQUITY Current liabilities Trade payables Other payables and accruals Borrowings Income tax payable Derivative nancial instruments Total current liabilities Non-current liabilities Derivative nancial instruments Borrowings Total non-current liabilities Capital, reserves and non-controlling interest Share capital Capital reserve Fair value adjustment reserve Accumulated prots Equity attributable to owners of the Company Non-controlling interest Total equity Total liabilities and equity
7 8 9
17,125 22,172 8,150 3,412 50,859
35,127 10,237 3,664 3,517 52,545
6,753 17,789 6,733 2,184 33,459
19,857 9,028 3,165 3,517 35,567
9 11 12 13
4,964 644,462 649,426 700,285
4,203 3,508 570,843 578,554 631,099
61,684 4,964 494,931 561,579 595,038
4,203 46,571 3,508 462,608 516,890 552,457
14 15 16 10
14,553 4,685 70,508 46 29 89,821
11,599 4,187 30,712 56 46,554
10,680 3,990 61,307 24 29 76,030
10,508 4,088 19,372 40 34,008
10 16
224,043 224,043
510 212,761 213,271
149,800 149,800
510 163,074 163,584
17 18 12
202,885 2,634 971 179,928 386,418 3 386,421 700,285
202,244 2,634 (299) 166,695 371,274 371,274 631,099
202,885 2,634 971 162,718 369,208 369,208 595,038
202,244 2,634 (299) 150,286 354,865 354,865 552,457
See accompanying notes to nancial statements.
43
Consolidated Statement of Comprehensive Income

Note
2011 US$000 155,360 (8,852) (34,999) (32,830) (37,279) (4,420) 823 332 (7,007) 31,128 (28) 31,100
2010 US$000 144,470 (13,563) (19,807) (25,436) (31,710) (3,621) (2,599) 341 (7,295) 40,780 (33) 40,747
Revenue Voyage expenses Vessel hire expenses Direct vessel operating expenses Depreciation expense Employee costs and other expenses Net gain (loss) on derivative nancial instruments Other operating income Finance cost Prot before income tax Income tax Prot for the year Other comprehensive income, net of tax: Gain on available-for-sale investments Total comprehensive income for the year Prot attributable to: Owners of the Company Non-controlling interest
19 20
13 21 22 23 24 25
12
1,270 32,370
217 40,964
31,097 3 31,100
40,747 40,747
Total comprehensive income attributable to: Owners of the Company Non-controlling interest
32,367 3 32,370
40,964 40,964
Earnings per share (US$): Basic Diluted
27
0.025 *
0.033 *
* There is no dilutive potential ordinary share and no corresponding diluted earnings per share (Note 27).
44
Statements of Changes in Equity

Share capital US$000
Capital reserve US$000
Fair value adjustment Accumulated reserve prots US$000 US$000
Attributable to owners of the Company US$000
Noncontrolling interest US$000
Total US$000
Group Balance at April 1, 2009 Total comprehensive income for the year Dividends (Note 26) Issuance of new shares pursuant to scrip dividend scheme (Note 17) Balance at March 31, 2010 Total comprehensive income for the year Dividends (Note 26) Issuance of new shares pursuant to scrip dividend scheme (Note 17) Balance at March 31, 2011 Company Balance at April 1, 2009 Total comprehensive income for the year Dividends (Note 26) Issuance of new shares pursuant to scrip dividend scheme (Note 17) Balance at March 31, 2010 Total comprehensive income for the year Dividends (Note 26) Issuance of new shares pursuant to scrip dividend scheme (Note 17) Balance at March 31, 2011
201,503
2,634
(516) 217
135,966 40,747 (10,018)
339,587 40,964 (10,018)
339,587 40,964 (10,018)
741 202,244
2,634
(299) 1,270
166,695 31,097 (17,864)
741 371,274 32,367 (17,864)
741 371,274 32,370 (17,864)
641 202,885
2,634
971
179,928
641 386,418
641 386,421
201,503
2,634
(516) 217
102,135 58,169 (10,018)
305,756 58,386 (10,018)
305,756 58,386 (10,018)
741 202,244
2,634
(299) 1,270
150,286 30,296 (17,864)
741 354,865 31,566 (17,864)
741 354,865 31,566 (17,864)
641 202,885
2,634
971
162,718
641 369,208
641 369,208
45
Consolidated Statement of Cash Flows

2011 US$000 Operating activities Prot before income tax Adjustments for: Amortisation of advance charter hire [Note 9(a)] Depreciation expense Interest income Finance cost (Note A) Provision for onerous contracts Provision for incentive bonus Net (gain) loss on fair value changes of derivative nancial instruments (Note 21) Operating cash ows before movements in working capital Trade receivables Other receivables and deposits Inventories Trade payables Other payables and accruals Derivative nancial instruments Cash generated from operations Tax paid Net cash from operating activities Investing activities Purchase of property and equipment (Note B) Advance payment for dry docking expenses Deposits paid for acquisition of marine vessels (Note 9) Deposit relating to purchase of motor vehicle for a director Purchase of available-for-sale investments (Note 12) Net cash used in investing activities Financing activities Interest expenses paid Interest received Dividends paid (Note C) Proceeds from bank loans Repayment of bank loans Pledged xed deposits with a bank Restricted deposits with a bank Net cash from (used in) nancing activities Net decrease in cash and bank balances Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (Note D)
2010 US$000
31,128 344 37,279 (332) 7,007 673 (200) (651) 75,248 (11,935) (4,627) 105 2,954 (171) 170 61,744 (38) 61,706
40,780 2,203 31,710 (341) 7,295 183 (700) 2,293 83,423 (501) (1,093) (2,650) 9,012 (194) 87,997 (198) 87,799
(106,203) (186) (106,389)
(44,904) (225) (3,800) (178) (589) (49,696)
(4,768) 171 (17,223) 90,283 (41,782) (49) 26,632 (18,051) 26,558 8,507
(4,937) 296 (9,277) 10,000 (40,712) (34) (46) (44,710) (6,607) 33,165 26,558
46
Consolidated Statement of Cash Flows

NOTE A The nance cost for the year includes the following non-cash items: 2011 US$000 Amortisation of borrowing costs Non-cash interest expense for convertible bonds 743 1,834 2010 US$000 770 1,781
NOTE B The cash used in the purchase of property and equipment as reected in the consolidated statement of cash ows is arrived at as follows: 2011 US$000 Additions to property and equipment (Note 13) Deposits paid in the preceding year (Note 9) Unpaid sum as included in other payables 110,898 (4,203) (492) 106,203 2010 US$000 113,455 (68,551) 44,904
NOTE C Part of the US$17,864,000 dividends declared and paid during the year was settled through issuance of shares in the Company for US$641,000 under a scrip dividend scheme (Note 17). Part of the US$10,018,000 dividends declared and paid during the preceding year was settled through issuance of shares in the Company for US$741,000 (Note 17).
NOTE D Cash and cash equivalents at the end of the year is determined as follows: 2011 US$000 Cash and bank balances (Note 7) Less: Pledged deposits (Note 7) Less: Restricted deposits (Note 7) 17,125 (1,334) (7,284) 8,507 2010 US$000 35,127 (1,285) (7,284) 26,558
47
Notes to Financial Statements

March 31, 2011
GENERAL The Company (Registration No. 200507205N) is incorporated in Singapore with its registered address and principal place of business at 9 Temasek Boulevard, #42-01B, Suntec City Tower 2, Singapore 038989. The Company is listed on the Main Board of Singapore Exchange Securities Trading Limited. The nancial statements are expressed in United States dollars. The principal activities of the Company are those of chartering of maritime vessels (bulk carriers) to customers on short-term and long-term contracts and the provision of marine transportation services. The principal activities of the subsidiaries are disclosed in Note 11. At March 31, 2011, total current liabilities of the Company and of the Group exceeded total current assets of the Company and of the Group by US$42,571,000 and US$38,962,000 respectively. Management has projected net cash ows and borrowings plans for the next nancial year ending March 31, 2012, details of which are provided in Note 4(c) under the caption Liquidity risk management. Management is condent that borrowing can be obtained when required and the Group will be able to discharge its obligations as and when they fall due within the next nancial year. Consequently, the nancial statements have been prepared on a going concern basis. The consolidated nancial statements of the Group and statement of nancial position and statement of changes in equity of the Company for the nancial year ended March 31, 2011 were authorised for issue by the Board of Directors on May 12, 2011.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING The nancial statements have been prepared in accordance with the historical cost basis, except as disclosed in the accounting policies below, and are drawn up in accordance with the provisions of the Singapore Financial Reporting Standards (FRS) and Singapore Companies Act. ADOPTION OF NEW AND REVISED STANDARDS In the current nancial year, the Group has adopted all the new and revised FRS and Interpretations of FRS (INT FRS) that are relevant to its operations and effective for annual periods beginning on or after April 1, 2010. The adoption of these new/revised FRSs and INT FRSs does not result in changes to the Groups and the Companys accounting policies except for the adoption of FRS 103(2009) Business Combinations and FRS 27 (2009) Consolidated and Separate Financial Statements as disclosed below. However, the adoption has no material effect on the amounts reported for the current or prior years. FRS 103 (2009) Business Combinations FRS 103 (2009) has been adopted in the current year and is applied prospectively to business combinations for which the acquisition date is on or after January 1, 2010. The main impact of the adoption of FRS 103 (2009) Business Combinations on the Group has been: to allow a choice on a transaction-by-transaction basis for the measurement of non-controlling interests (previously referred to as minority interests) either at fair value or at the non-controlling interests share of the fair value of the identiable net assets of the acquiree; to change the recognition and subsequent accounting requirements for contingent consideration. Under the previous version of the Standard, contingent consideration was recognised at the acquisition date only if payment of the contingent consideration was probable and it could be measured reliably; any subsequent adjustments to the contingent consideration were recognised against goodwill. Under the revised Standard, contingent consideration is measured at fair value at the acquisition date; subsequent adjustments to the consideration are recognised against goodwill only to the extent that they arise from better information about the fair value at the acquisition date, and they occur within the measurement period (a maximum of 12 months from the acquisition date). All other subsequent adjustments are recognised in prot or loss;
48

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) FRS 103 (2009) Business Combinations (continued) where the business combination in effect settles a pre-exisiting relationship between the Group and the acquiree, to require the recognition of a settlement gain or loss; and to require that acquisition-related costs can be accounted for separately from the business combination, generally leading to those costs being recognised as an expense in consolidated prot or loss as incurred, whereas previously they were accounted for as part of the cost of the acquisition.
FRS 27 (2009) Consolidated and Separate Financial Statements FRS 27 (2009) has been adopted for periods beginning on or after January 1, 2010. Previously, in the absence of specic requirements in FRSs, any increase in interest in existing subsidiaries would be treated in the same manner as the acquisition of subsidiaries, with goodwill or a bargain purchase gain being recognised where appropriate; for decreases in interests in existing subsidiaries that did not involve a loss of control, the difference between the consideration received and the carrying amount of the share of net assets disposed of was recognised in prot or loss. Under FRS 27 (2009), any such increases or decreases would be dealt within equity reserve, with no impact on goodwill or prot or loss. When control of a subsidiary is lost as a result of a transaction, event or other circumstance, the revised Standard requires that the Group derecognise all assets, liabilities and non-controlling interests at their carrying amount. Any retained interest in the former subsidiary is recognised at its fair value at the date control is lost, with the gain or loss arising recognised in prot or loss. At the date of authorisation of these nancial statements, the following FRSs, INT FRSs and amendments to FRSs that are relevant to the Group and the Company were issued but not effective: Improvements to Financial Reporting Standards (issued in October 2010) FRS 24 (Revised) Related Party Disclosures
Consequential amendments were also made to various standards as a result of these revised standards. FRS 24 (Revised) Related Party Disclosures FRS 24 (Revised) Related Party Disclosures is effective for annual periods beginning on or after January 1, 2011. The revised Standard claries the denition of a related party and consequently additional parties may be identied as related to the reporting entity. In the period of initial adoption, the changes to related party disclosures, if any, will be applied retrospectively with restatement of the comparative information. Preliminary assessment by management indicates that the adoption of the FRS will have no material impact on the nancial statements of the Group and the Company in the period of initial adoption. The management anticipates that the adoption of the above FRSs, INT FRSs and amendments to FRSs that were issued at the date of authorisation for these nancial statements but effective only in future periods will not have a material impact on the nancial statements of the Group and of the Company in the period of their initial adoption.
49

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) BASIS OF CONSOLIDATION The consolidated nancial statements incorporate the nancial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved when the Company has the power to govern the nancial and operating policies of an entity so as to obtain benets from its activities. The Company acquired the entire equity interest in the subsidiary Mercator Lines (Panama) Inc. from its ultimate holding company Mercator Lines Limited on January 17, 2006. The common control of both the Company and Mercator Lines (Panama) Inc. remained the same before and after the transfer of the shares of Mercator Lines (Panama) Inc. to the Company. Consequently, merger accounting was used in combining the nancial statements of Mercator Lines (Panama) Inc. with the consolidated nancial statements of the Group. The effective date of the merger accounting purposes is the date of incorporation of that subsidiary. Except for one subsidiary, the other subsidiaries were incorporated by the Company (Note 11). The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments will be made to the nancial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Non-controlling interests in subsidiaries are identied separately from the Groups equity therein. The interest of non-controlling shareholders may be initially measured (at date of original business combination) either at fair value or at the non-controlling interests proportionate share of the fair value of the acquirees identiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a decit balance. Changes in the Groups interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Groups interests and the non-controlling interests are adjusted to reect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the prot or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassied to prot or loss or transferred directly to accumulated prots) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under FRS 39 Financial Instruments: Recognition and Measurement. In the Companys nancial statements, investments in subsidiaries are carried at cost less any impairment in net recoverable value that has been recognised in prot or loss.
50

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) BUSINESS COMBINATIONS Except for the acquisition of the subsidiary, Mercator Lines (Panama) Inc, which is accounted for under merger accounting as explained under Basis of Consolidation in the preceding paragraphs, the acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values of assets given, liabilities incurred by the Group to the former owners of the acquiree, and equity interests issued by the Group in exchange for control of the acquiree at the acquisition date. Acquisition-related costs are recognised in prot or loss as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classied. Contingent consideration that is classied as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classied as an asset or a liability is remeasured at subsequent reporting dates in accordance with FRS 39 Financial Instruments: Recognition and Measurement, or FRS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in prot or loss. Where a business combination is achieved in stages, the Groups previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in prot or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassied to prot or loss, where such treatment would be appropriate if that interest were disposed of. The acquirees identiable assets, liabilities and contingent liabilities that meet the conditions for recognition under the FRS are recognised at their fair value at the acquisition date, except that: deferred tax assets or liabilities and liabilities or assets related to employee benet arrangements are recognised and measured in accordance with FRS 12 Income Taxes and FRS 19 Employee Benets respectively; liabilities or equity instruments related to the replacement by the Group of an acquirees share-based payment awards transactions with share-based payment awards are measured in accordance with FRS 102 Share-based Payment; and assets (or disposal groups) that are classied as held for sale in accordance with FRS 105 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date and is subject to a maximum of one year from acquisition date. The accounting policy for initial measurement of non-controlling interests is described above.
51

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) FINANCIAL INSTRUMENT Financial assets and nancial liabilities are recognised on the Groups statement of nancial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and nancial liabilities are initially measured at fair value. Effective interest method The effective interest method is a method of calculating the amortised cost of a 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 nancial instrument, or where appropriate, a shorter period. Income or expense are recognised on an effective interest basis for debt instruments other than those nancial instruments at fair value through prot or loss. Financial assets All nancial assets 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 nancial assets classied as at fair value through prot or loss which are initially measured at fair value. Financial assets are classied into the following specied categories: trade and other receivables and available-for-sale nancial assets. The classication depends on the nature and purpose of nancial assets and is determined at the time of initial recognition. Trade and other receivables Trade and other receivables are non-derivative nancial assets with xed or determinable payments that are not quoted in an active market. Trade and other receivables are carried at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest method, except for short-term receivables when the recognition of interest is immaterial. Available-for-sale investments Certain equity investments held by the Group are classied as being available for sale and are stated at fair value. Fair value is determined in the manner as described in Note 12. Gains and losses arising from changes in fair value are recognised directly in other comprehensive income with the exception of impairment losses, which are recognised directly in prot or loss. Where the investment is disposed or is determined to be impaired, the cumulative gain or loss previously recognised in other comprehensive income and accumulated in fair value adjustment reserve is reclassied to prot or loss. Dividends on available-for-sale equity instruments are recognised in prot or loss when the Groups right to receive payments is established. Impairment of nancial assets Financial assets are assessed for indicators of impairment at the end of each reporting period. 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 nancial asset, the estimated future cash ows of the nancial assets have been impacted. For available-for-sale equity instruments, a signicant or prolonged decline in the fair value of the investment below its cost is considered to be objective evidence of impairment.
52

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) FINANCIAL INSTRUMENT (continued) Financial assets (continued) Impairment of nancial assets (continued) For all other nancial assets, objective evidence of impairment could include: signicant nancial difculty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or nancial re-organisation.
For certain categories of nancial asset, such as trade and other receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Groups past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. For nancial assets carried at amortised cost, the amount of the impairment is the difference between the assets carrying amount and the present value of estimated future cash ows, discounted at the original effective interest rate. The carrying amount of the nancial asset is reduced by the impairment loss directly for all nancial assets with the exception of trade and other receivables where the carrying amount is reduced through the use of an allowance account. When a trade or other 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 prot or loss. When an available-for-sale nancial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassied to prot or loss. 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 prot or loss 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, impairment losses previously recognised in prot or loss are not reversed through prot or loss. Any subsequent increase in fair value after an impairment loss is recognised in other comprehensive income. Derecognition of nancial assets The Group derecognises a nancial asset only when the contractual rights to the cash ows from the asset expire, or it transfers the 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 nancial asset, the Group continues to recognise the nancial asset and also recognises a collateralised borrowing for the proceeds received. Financial liabilities and equity instruments Classication as debt or equity Financial liabilities and equity instruments issued by the Group are classied according to the substance of the contractual arrangements entered into and the denitions of a nancial liability and an equity instrument.
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March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) FINANCIAL INSTRUMENT (continued) Financial liabilities and equity instruments (continued) 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 method, with interest expense recognised on an effective yield basis except for short-term payables where interest is immaterial. Loans Interest-bearing loans are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest 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 Groups accounting policy for borrowing costs (see below). Derecognition of nancial liabilities The Group derecognises nancial liabilities when, and only when, the Groups obligations are discharged, cancelled or they expire. Convertible bonds and embedded derivatives Bonds which are convertible to equity at the option of the bond holders are segregated into the fair value of the debt instrument (host contract) and the fair value of the conversion option (embedded derivative) at inception date, when the risks and characteristics of the embedded derivative are not closely related to those of the host contract. The fair value of the option is recorded as a liability when the ratio for conversion to equity is not predetermined. At the date of issue of the bonds, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis until extinguished upon conversion or at the instruments maturity date. The fair value of the option granted to the holders of the bonds is determined at the end of each reporting period and the fair value changes are taken to prot or loss. Derivative nancial instruments and hedge accounting Derivatives such as forward freight agreements and contracts for options on forward freight agreements are initially recognised at fair value at the date the derivative contract are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in prot or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in prot or loss depends on the nature of the hedge relationship. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
54

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) FINANCIAL INSTRUMENT (continued) Financial liabilities and equity instruments (continued) Hedge accounting Hedges which include derivatives, embedded derivatives and non-derivatives in respect of price risk, are designated as either hedges of fair value of recognised assets or liabilities or commitments (fair value hedges) or hedges of highly probable forecast transactions (cash ow hedges). At the inception of the hedge relationship, the relationship between the hedging instrument and hedged item is determined, along with its risk management objectives and the strategy for undertaking the hedge. At the inception of the hedge and on a quarterly basis, the effectiveness of the hedging relationship in offsetting changes in fair values or cash ows of the hedged item is determined. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in prot or loss immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the statement of comprehensive income relating to the hedged item. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to prot or loss from that date. Cash ow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash ow hedges are recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in prot or loss as part of other gains and losses. Amounts deferred in other comprehensive income and accumulated in equity are reclassied to prot or loss in the periods when the hedged item is recognised in prot or loss in the same line of the statement of comprehensive income as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-nancial asset or a non-nancial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualies for hedge accounting. Any gain or loss accumulated in equity at that time remains in equity and when the forecast transaction is ultimately recognised in prot or loss, such gains and losses are recognised in prot or loss, or transferred from equity and included in the initial measurement of the cost of the asset or liability as described above. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was accumulated in equity is recognised immediately in prot or loss. LEASES Leases are classied as nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classied as operating leases. Rentals payable under operating leases are charged to prot or loss 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 benets from the leased asset are consumed. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benet 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 benets from the leased asset are consumed.
55

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) INVENTORIES Inventories comprising consumable bunker fuel used in the Groups operations are stated at lower of cost and net realisable value. Cost includes expenses that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the First-In, First-Out method. PROPERTY AND EQUIPMENT Property 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 over their estimated useful lives after allowing for residual values estimated by the management, using the straight-line method. The estimated useful lives of the asset are summarised as follows: Marine vessels Motor vehicle Ofce equipment Furniture and ttings 30 years from date of initial delivery from the shipyard for a very large ore carrier and 25 years from date of initial delivery from the shipyard for all other vessels 5 years 5 years 5 years
The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any signicant change in estimate accounted for on a prospective basis. The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in prot or loss. Dry docking expenses, comprising cost of materials and services deployed during the dry docking, are capitalised and depreciated over the period to the next scheduled dry docking, which approximates 2.5 years. If the vessel is disposed before the next dry docking, the carrying amount of dry docking expenses is included in determining the gain or loss on disposal of the vessel and taken to prot or loss. If the period to the next dry docking is shorter than expected, the unamortised balance of the deferred dry docking cost is charged immediately as an expense before the next dry docking. IMPAIRMENT OF ASSETS At the end of each reporting period, 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 cashgenerating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identied, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cashgenerating units for which a reasonable and consistent allocation basis can be identied. 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 ows are discounted to their present value using a pre-tax discount rate that reects current market assessments of the time value of money and the risks specic to the asset for which the estimates of future cash ows have not been adjusted. 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 prot or loss. 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 prot or loss.
56

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash ows estimated to settle the present obligation, its carrying amount is the present value of those cash ows. When some or all of the economic benets 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. Dividends to shareholders are recognised as a liability in the period in which the dividends are approved by the Companys shareholders. REVENUE RECOGNITION Revenue is measured at the fair value of the consideration received or receivable. Rendering of services Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The stage of completion of the contract is determined as follows: Revenue from time chartering contracts (charter hire income) is recognised on a time proportionate basis; Revenue from voyage charter (freight income) is recognised on a percentage completion basis based on elapsed length of time for each voyage expressed as a percentage of the estimated total length of time for each voyage; and Demurrage income represents payments by the charterer when loading or discharging time exceeded the stipulated time in the voyage charter and is recognised when the income can be measured reliably and it is probable that the economic benets will ow to the Group. Lighterage income refers to fee charged for unloading of cargo with use of a barge over short distances and is recognised on a percentage completion basis based on elapsed length of time for each lighterage operations.
Interest income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Dividend income Dividend income from investments is recognised when the shareholders rights to receive payment have been established. BORROWING COSTS Borrowing costs include interest, amortisation of discounts or premiums relating to borrowing and amortisation of ancillary costs incurred in connection with arrangement of borrowings. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specic borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in prot or loss in the period in which they are incurred.
57

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) RETIREMENT BENEFIT COSTS Payments to dened contribution retirement benet plans are charged as an expense when employees have rendered the services entitling them to the contributions. Payments made to state-managed retirement benet schemes, such as the Singapore Central Provident Fund, are dealt with as payments to dened contribution plans where the Groups obligations under the plan are equivalent to those arising in a dened contribution retirement benet plan. INCOME TAX Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable prot for the year. Taxable prot differs from prot as reported in the statement of comprehensive income 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 Groups liability for current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised on the differences between the carrying amounts of assets and liabilities in the nancial statements and the corresponding tax bases used in the computation of taxable prot, and is 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 prots 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 prot nor the accounting prot. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufcient taxable prots 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 or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reects the tax consequences that would follow from the manner in which the Group expects at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. 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 prot or loss, except when they relate to items credited or debited outside prot or loss (either in other comprehensive income or directly in equity), in which case the tax is also recognised outside prot or loss (either in other comprehensive income or directly in equity, respectively), or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirers interest in the net fair value of the acquirees identiable assets, liabilities and contingent liabilities over cost. FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION The consolidated nancial statements and the individual nancial statements of each group entity are prepared and presented in United States dollars (US$), the currency of the primary economic environment in which the entities operate (the functional currency). In preparing the nancial statements of the individual entities, transactions in currencies other than the entitys functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the end of the reporting period. 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 prot or loss for the period.
58

March 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) CASH AND CASH EQUIVALENTS Cash and cash equivalents in the consolidated statement of cash ows comprise cash on hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignicant risk of changes in value.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTIES In the application of the Groups 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. (a) Critical judgements in applying the Groups accounting policies Management has not made critical judgements in the application of accounting policies that have signicant effect in the amounts recognised in the nancial statements, except for judgements as stated below. (i) Expectations regarding net cash ows and borrowings As disclosed in Notes 1 and 4(c), management considers that the use of going concern basis of preparing nancial statements remain appropriate as projected net cash ows from operations and new loans will enable the Group to discharge its obligations as and when they fall due within the next nancial year. (ii) Recoverable amounts of marine vessels (Note 13) In view of the volatility in dry bulk freight rates during the last quarter of the nancial year, management has estimated the recoverable amount of marine vessels to determine whether there is impairment loss. For this purpose, the recoverable amounts are the discounted present values of estimated net cash ows using the following bases: The 10 year historical charter rate is considered as the more appropriate basis of estimating the charter rates over the remaining useful lives of the marine vessels and is used in place of current charter rates. The weightage of funding from capital and from borrowings existing as at March 31, 2011 and 2010 is assessed by management as appropriate for the purpose of calculating the risk weighted average cost of capital and borrowings of approximately 9.5% (2010: 8.5%) per annum. This rate is used to discount projected net cash ows from deployment of the marine vessels to their net present values. The recoverable amounts of marine vessels of similar classication are aggregated for comparison with the aggregate net book values of the marine vessels in contrast with comparison on an individual marine vessel basis. In adopting this basis, management took into account the interchangeability of the pool of marine vessels of similar classication when deploying vessels. The pools of marine vessels of similar classication is dened by management as the Cash Generating Units (CGU) as dened in FRS 36 Impairment of Assets. The CGUs comprise: Panamax and Kamsarmax; and Very large ore carrier.
59

March 31, 2011
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTIES (continued) (a) Critical judgements in applying the Groups accounting policies (continued) (ii) Recoverable amounts of marine vessels (Note 13) (continued) As at March 31, 2011, any reasonably possible change to the key assumptions applied is not likely to cause the recoverable amounts to be below the carrying amounts of the marine vessels. On the basis of the key assumptions above, management determined that the estimated aggregate recoverable amounts of the pools of marine vessels (CGU) exceed the respective aggregate net book values at March 31, 2011 and 2010. (iii) Accounting for demurrage income (Note 19) Demurrage income recognised in FY2011 (nancial year ended March 31, 2011) amounted to US$4,956,000 (2010: US$5,505,000) which relates to FY2011 events as agreed with charterers. Demurrage claims arising from events in the year ended March 31, 2011 for which no reliable estimate can be made up to the date of this report will be recorded subsequently as and when the state of negotiations result in the ability to estimate reliably or to nalise the claims. (b) Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a signicant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next nancial year, are discussed below. (i) Useful lives and residual values of marine vessels (Note 13) The net book values of marine vessels amounting to US$644,096,000 for the Group and US$494,721,000 for the Company at March 31, 2011 (2010: US$570,756,000 for the Group and US$462,521,000 for the Company) are affected by managements estimate of the period over which the Group can derive future economic benets from the use of the vessels and their estimated residual values. The Group has adopted a policy of depreciating the cost of its vessels, after allowing for residual values, over an assumed economic life span of 30 years from the date of initial delivery from the shipyard for a very large ore carrier and 25 years from the date of initial delivery from the shipyard for all other vessels. The assumptions regarding economic life spans and the estimated residual values are reviewed annually. If expectation of economic life spans and the residual values differ from the original estimate, such difference will impact depreciation prospectively from the year in which the estimated economic useful life or the residual value changes. (ii) Provision for onerous contracts (Note 15) The Group and the Company has a provision for onerous contracts amounting to US$856,000 (2010: US$183,000) at the end of the reporting period. In making the provision, management applies signicant judgement in making accounting estimates of the economic benet expected to be received from the charter-out contracts compared to the unavoidable cost of meeting obligations under vessel charter-in contracts. Should adverse developments occur relative to managements judgement on projections, further losses maybe incurred, the effect of which will be included in the results of the next reporting period. (iii) Recoverability of trade and other receivables (Notes 8 and 9) Allowance for doubtful receivables of the Group is based on ongoing evaluation of collectibility and on managements judgement. Allowance for trade and other receivables as at March 31, 2011 amounted to US$480,000 and US$9,692,000 (2010: US$480,000 and US$9,692,000) respectively.
60

March 31, 2011
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTIES (continued) (b) Key sources of estimation uncertainty (continued) (iv) Fair value of available-for-sale (AFS) investments (Note 12) The unquoted equity investment in Note 12 comprises investment in an entity which invests in infrastructure funds. The carrying amount of the investment of US$4,954,000 (2010: US$3,498,000) is determined on the basis of unaudited net asset value of the funds at the end of the reporting period. Fair value gain of US$1,270,000 (2010: US$217,000) on the AFS investment for the year is included in other comprehensive income. (v) Fair value of derivative nancial instruments (Note 10) The fair value of the option granted to holders of Bonds-B [Note 16(a)] has been determined using Monte Carlo simulation, after making certain assumptions relating to the timing when the bond holders may exercise the option, risk-free interest rate and volatility of the nancial instrument. The fair value of the option on Bonds-B is estimated at US$Nil at March 31, 2011 (2010: US$510,000).
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT Categories of nancial instruments The following table sets out the nancial instruments as at the end of the reporting period: Group 2011 2010 US$000 US$000 Financial assets Loans and receivables (including cash and bank balances) Available-for-sale investments Financial liabilities Liabilities at amortised cost Derivative instruments in designated hedge accounting relationships Company 2011 2010 US$000 US$000
43,048 4,964
46,117 3,508
27,651 4,964
29,539 3,508
307,579 29
254,530 510
220,941 29
192,743 510
The nancial risk management policies and objectives are stated below: The Groups activities expose it to a variety of nancial risks: market risk (including price risk, interest rate risk and foreign exchange risk), credit risk and liquidity risk. The Groups overall risk management program focuses on the unpredictability of freight and nancial markets and seeks to minimise potential adverse effects on the Groups nancial performance. The Group may use derivative nancial instruments to hedge certain risk exposures and not for speculative purposes. Risk management is carried out by management under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specic areas, such as foreign exchange risk, interestrate risk, use of derivative nancial instruments and non-derivative nancial instruments. There has been no change to the Groups exposure to these nancial risks or the manner in which it manages and measures the risk. Market risk exposures are measured using sensitivity analysis indicated below.
61

March 31, 2011
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) (a) Market risk (i) Price risk management Market price risk refers to the risk of the changes in the market for freight rates which are adverse to the Group. To manage price risk and vessel utilisation, the Group enters into a mix of long term and short term charters. The long term charters provide stability to the Groups revenues and cash ows. The short term charters provide the Group with exibility to take advantage of periods of higher spot market pricing to improve prot margins. As part of managing price risk, the Group may enter into Forward Freight Agreements (FFAs) with other shipping companies or commodity traders, with the objective of economically hedging the risks on eet, specic vessels or freight commitments and to take advantage of uctuations in the freight market. Generally any hedge position taken would be for the period between the expiry of the existing charter contract and the deployment of the vessel on a new charter contract. Upon entering into a new physical charter, an arrangement is usually entered into to neutralise the FFA position for the remainder of the hedged period by entering into an FFA in the opposite direction to the original FFA. Economic hedges are undertaken to lock in margins or improve the margins to be earned between cost of freight capacity and revenue from selling such freight capacity. To minimise counterparty risk, all of the FFAs require periodic cash settlement (typically on a monthly basis), based on the movement of the underlying index. The Groups hedging policy is approved by the Board of Directors. The Board of Directors sets a limit on freight uctuation risk based on its determination of freight contracts priced at spot rates. Various factors are taken into consideration in the determination of such exposure, including the following: expectation of short-term and long-term uctuations in demand in the shipping market; and trends with respect to freight contracts priced at spot rates.
Management reviews FFAs on a quarterly basis or more frequently, depending on the circumstances. All trade approvals and major decisions are made by the Managing Director. All outstanding positions of FFAs are subject to fair value adjustments and accordingly would impact the Groups operating results or its equity. The effectiveness of an FFA in achieving the desired objectives would be affected by managements predictions regarding the freight market. In the event that the predictions regarding the freight market are incorrect, there will be exposure to market risk in relation to the FFAs. As at March 31, 2011 and 2010, all FFAs have matured and there were no outstanding FFAs. Information on the unexpired freight option contract at March 31, 2011 is disclosed in Note 10 to the nancial statements.
62

March 31, 2011
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) (a) Market risk (continued) (ii) Interest rate risk management The Group is exposed to interest rate risk arising from the volatility of benchmark interest rates for United States dollars as borrowings are arranged on oating rate basis. The Group generally does not take a speculative view on the movement in interest rates and therefore, does not actively use interest rate derivative instruments to hedge interest rate risks. The Group may use interest rate derivative instruments in the future to mitigate the risk arising from potential uctuations in interest rates. Management is of the view that the impact of changes in interest rates on fixed deposits (Note 7) is unlikely to be material. The Groups and Companys borrowings are all denominated in United States dollar and the effective interest rates at the end of the reporting period were as follows: 2011 US$000 Groups borrowings: Variable rate Fixed rate Companys borrowings: Variable rate Fixed rate Effective interest rate US$000 2010 Effective interest rate
274,747 19,804
1.79% 12.50%
225,615 17,858
2.00% 13.20%
191,303 19,804
1.89% 12.50%
164,588 17,858
2.13% 13.20%
Each increase of 0.5% in the benchmark interest rates applicable to oating rate borrowings would result in a decrease in prot by US$1,374,000 (2010: US$1,128,000) for the Group and a decrease in prot by US$957,000 (2010: US$823,000) for the Company. Conversely, each 0.5% reduction in the benchmark interest rates would result in an increase in prot by US$1,374,000 (2010: US$1,128,000) for the Group and an increase in prot by US$957,000 (2010: US$823,000) for the Company. (iii) Foreign exchange risk management The vast majority of the Groups revenue and operating expenses are denominated in United States dollar. The Groups vessels are purchased in United States dollars. The Groups borrowings are also denominated in United States dollars. The Groups foreign exchange risks comprise transaction risks which arise from day-to-day requirements to pay administrative expenses and certain operating expenses in currencies other than United States dollar.
63

March 31, 2011
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) (a) Market risk (continued) (iii) Foreign exchange risk management (continued) The carrying amounts of monetary assets and monetary liabilities denominated in currencies other than the Group entities functional currency at the end of the reporting date are as follows: Group Assets Liabilities 2011 2010 2011 2010 US$000 US$000 US$000 US$000 SGD JPY EUR 417 132 85 798 410 94 844 Company Assets Liabilities 2011 2010 2011 2010 US$000 US$000 US$000 US$000 350 132 67 388 110 7 844
No sensitivity analysis is prepared as the Group does not expect any material effect on the Groups prot or loss and equity arising from the effects of reasonably possible changes to the exchange rates of relevant foreign currencies against the United States dollars. (b) Credit risk management Credit risk refers principally to the risk that debtors may default on their obligations to pay amounts due and the risk that counterparties to nancial derivative contracts may default on payment obligations. The Group manages this risk by selection of creditworthy customers and counterparties; and by monitoring compliance of debtors and counterparties with their payment obligations. Cash deposits are placed with nancial institutions of good credit standing. The maximum exposure to credit risk in the event that the counterparties fail to perform their obligations as at the end of the nancial year in relation to each class of recognised nancial assets is the carrying amount of those assets as stated in the statements of nancial position. As at March 31, 2011, the Group has signicant concentration of credit risk as its top ve customers accounted for 70% (2010: 89%) of the customer receivables. The Group follows up on the payment status of each customer through the finance department, which actively monitors customers payments relative to credit period extended to them and highlight matters requiring follow up action by management. (c) Liquidity risk management Prudent liquidity risk management implies maintaining sufcient cash and marketable securities, and the ability to close out market positions and meet capital expenditure and trade commitments. Generally, borrowing for acquisition of marine vessels are for relatively longer periods as compared to the estimated payback so that commitments for repayment of bank loans are lower than the potential cash earnings for the relevant periods. However, the Group may at times purchase vessels using internal resources. As part of the liquidity risk management process, management evaluates cash ows on committed contracts and cash ows from projected revenue and costs for the next nancial year.
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March 31, 2011
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) (c) Liquidity risk management (continued) At March 31, 2011, total current liabilities of the Company and of the Group exceeded total current assets of the Company and of the Group by US$42,571,000 and US$38,962,000 respectively. Management has projected net cash ows for the next nancial year ending March 31, 2012. This net cash ow projections includes the net cash inow from operations, projections for payment of Bonds-B (Note 16) in March 2012 and projection of additional borrowings. Management is condent that borrowings can be obtained when required and the Group will be able to discharge its obligations as and when they fall due within the next nancial year. Financial liabilities The following tables detail the remaining contractual maturity for nancial liabilities and net-settled derivative nancial liabilities. The tables have been drawn up based on the undiscounted cash ows of nancial liabilities based on the earliest date on which the Group and Company can be required to pay. The table includes both interest and principal cash ows. The adjustment column represents the possible future cash ows attributable to the instrument included in the maturity analysis which is not included in the carrying amount of the nancial liability on the statements of nancial position. Between 1 and 2 years US$000 Between 2 and 5 years US$000
Less than 1 year US$000 Group As at March 31, 2011 Borrowings Derivative nancial instruments Trade and other payables As at March 31, 2010 Borrowings Derivative nancial instruments Trade and other payables Company As at March 31, 2011 Borrowings Derivative nancial instruments Trade and other payables As at March 31, 2010 Borrowings Derivative nancial instruments Trade and other payables
Over 5 years US$000
Adjustment US$000
Total US$000
77,578 29 13,028
32,280
98,547
110,246
(24,100)
294,551 29 13,028
33,921 11,057
50,330 510
84,241
95,037
(20,056)
243,473 510 11,057
66,809 29 9,834
23,091
71,764
64,713
(15,270)
211,107 29 9,834
21,887 10,297
42,729 510
66,202
67,871
(16,243)
182,446 510 10,297
65

March 31, 2011
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) (c) Liquidity risk management (continued) Financial assets The following tables detail the expected maturity for the nancial assets. The inclusion of this set of information is necessary in order to understand the Groups and the Companys liquidity risk management as the liquidity risk is managed on a net asset and liability basis. The tables below have been drawn up based on the undiscounted contractual maturities of the nancial assets including interest that will be earned on those assets except where the company anticipates that the cash ow will occur in a different period. The adjustment column represents the possible future cash ows attributable to the instrument included in the maturity analysis which are not included in the carrying amount of the nancial asset on the statements of nancial position. Between 1 and 2 years US$000 Between 2 and 5 years US$000
Less than 1 year US$000 Group As at March 31, 2011 Non-interest bearing Fixed interest rate instruments As at March 31, 2010 Non-interest bearing Fixed interest rate instruments Company As at March 31, 2011 Non-interest bearing Fixed interest rate instruments As at March 31, 2010 Non-interest bearing Fixed interest rate instruments
Over 5 years US$000
Adjustment US$000
Total US$000
38,781 2,174
7,459
(402)
38,781 9,231
17,509 25,318
350
7,459
(1,011)
17,509 32,116
31,281 1,370
(36)
31,281 1,334
15,523 17,867
(343)
15,523 17,524
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March 31, 2011
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) (d) Fair value of nancial assets and nancial liabilities The carrying amounts of cash and cash equivalents, trade and other current receivables and payables and other liabilities approximate their respective fair values due to the relatively short-term maturity of these nancial instruments. The fair values of other classes of nancial assets and liabilities are disclosed in the respective notes to nancial statements. The Group classies fair value measurements using a fair value hierarchy that reects the signicance of the inputs used in making the measurements. The fair value hierarchy has the following levels: a. b. quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
c.
The fair value hierarchy adopted in fair value measurements of the Groups and Companys derivative nancial instruments (Note 10) and available-for-sale investments (Note 12) is Level 2 and Level 3 respectively. (e) Capital risk management The Groups objectives when managing capital are to safeguard the Groups ability to continue as a going concern in order to provide returns for shareholders and benets for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital, and to ensure that all externally imposed capital requirements are complied with. There is no change in objectives, policies and procedures for managing capital risk relative to those in the preceding nancial year. The capital structure of the Group consists of issued capital, reserves, accumulated prots and the borrowings disclosed in Note 16. The Group is required to comply with nancial covenants in the form of specied nancial ratios and security coverage in its borrowings with the banks. The Group monitors and ensures that the Group is in compliance with these requirements and will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt. The Group is in compliance with externally imposed capital requirements as at March 31, 2011 and 2010. As part of the review, the Group also monitors capital on the basis of the Debt to Equity ratio and Term Borrowing Repayment Commitment vis-a-vis Gross Cash Earnings of the Company. Debt to Equity ratio is calculated as Total Borrowings divided by Equity. Total Borrowings is as shown in the Groups statement of nancial position, which includes both current and non-current borrowings and Equity is as shown in the Groups statement of nancial position. Term Borrowing Repayment Commitment means term borrowings repayable within 1 year as shown in current liabilities in the Groups statement of nancial position; and Gross Cash Earnings represents Prot after tax after adding back depreciation and amortisation for the current year as shown in the statement of comprehensive income.
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March 31, 2011
FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS MANAGEMENT (continued) (e) Capital risk management (continued) The Debt to Equity ratio and Term Borrowing Repayment Commitment to Gross cash earnings as at March 31, 2011 and March 31, 2010 were as follows: Group 2011 2010 US$000 US$000 Debt to Equity Ratio Current borrowings Non-current borrowings Total borrowings Equity Debt to Equity Ratio Term Borrowing Repayment Commitment to Gross Cash Earnings Current borrowings Prot after tax Depreciation Amortisation of advance charter hire [Note 9(a)] Gross Cash Earnings
70,508 224,043 294,551 386,421 0.76
30,712 212,761 243,473 371,274 0.66
70,508 31,100 37,279 344 68,723 103%
30,712 40,747 31,710 2,203 74,660 41%
Repayment commitments expressed as a percentage of Gross Cash Earnings
The increase in Debt to Equity ratio during the year ended March 31, 2011 results primarily from the increase in borrowings (Note 16) for purchase of two marine vessels during the year. The increase in percentage of Term Borrowing Repayment Commitment to Gross Cash Earnings results from the increase in current borrowings and decrease in prot after tax. Additionally, two vessels were acquired during the year and did not yield a full years of prot.
HOLDING COMPANY AND RELATED COMPANY TRANSACTIONS The Company is a subsidiary of Mercator International Pte. Ltd., a company incorporated in the Republic of Singapore. The ultimate holding company is Mercator Lines Limited, a company incorporated in India. Related companies in these nancial statements refer to members of the ultimate holding companys group of companies. Some of the Companys transactions and arrangements are between members of the Group and the effect of these on the basis determined between the parties is reected in these nancial statements. The inter-company balances are unsecured, interest-free and repayable on demand unless otherwise stated.
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March 31, 2011
HOLDING COMPANY AND RELATED COMPANY TRANSACTIONS (continued) Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related companies are disclosed below: Group 2011 2010 US$000 US$000 Ultimate holding company Technical ship management fee Reimbursement of technical expenses Reimbursement of crew wages Reimbursement of other expenses Amount paid for acquisition of vessel [Note 9(b)] Charges payable (Lighterage expenses) Immediate holding company Commission income Related company (fellow subsidiaries of ultimate holding company) Charter hire income Bunker sold
300 6,304 159 956
1,189 9,658 4,214 72 17,000
357
128
391 160
In addition to the above transactions, the ultimate holding company has provided comfort letters to a bank for credit facilities granted to the Group and US$15,000,000 (2010: US$Nil) of the immediate holding companys deposits with a bank have been pledged to secure US$15,000,000 (2010: US$Nil) of short term borrowings of the Company (Note 16). Related company balances are disclosed in Notes 8, 9, 14 and 15 to the nancial statements.
OTHER 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 signicant inuence over the other party in making nancial and operating decisions. Compensation of directors and key management personnel The remuneration of directors and other members of key management during the year was as follows: Group 2011 2010 US$000 US$000 Short-term benets 1,306 1,272
The remuneration of directors and key management is determined by the Compensation Committee having regard to the Groups nancial performance. The expense charged in the year ended March 31, 2010 was stated net of US$360,000 reversal of excess provision for incentive for the year ended March 31, 2009.
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March 31, 2011
CASH AND BANK BALANCES Group 2011 2010 US$000 US$000 Cash at bank Fixed deposits 7,807 9,318 17,125 3,011 32,116 35,127 Company 2011 2010 US$000 US$000 5,419 1,334 6,753 2,333 17,524 19,857
The carrying amounts of these assets approximate their fair values. Fixed deposits earn interest at rates ranging from 2.25% to 2.71% (2010: 0.2% to 3.71%) per annum. As at the end of the reporting period, the tenures of the xed deposits are: Group 2011 2010 US$000 US$000 Less than 1 month 1 month to 6 months 6 months to 1 year More than 1 year 2,034 7,284 9,318 12,373 12,459 7,284 32,116 Company 2011 2010 US$000 US$000 1,334 1,334 7,141 10,383 17,524
Fixed deposits of the Group and the Company amounting to US$1,334,000 (2010: US$1,285,000) are pledged as security for banking facilities granted to the Company amounting to Indian Rupees 50,000,000 (Note 28). In addition, a xed deposit amounting to US$7,284,000 (2010: US$7,284,000) is a cash collateral used to secure obligations for instalment payments of bank borrowings. Except for the pledged and restricted deposits, the xed deposits may be uplifted by the Group prior to maturity date if necessary or used to pay instalments due on bank loans and are included in cash and cash equivalents in the consolidated statement of cash ows. The Groups and the Companys cash and bank balances which are not denominated in the functional currency are as follows: Group 2011 2010 US$000 US$000 Singapore dollar 372 85 Company 2011 2010 US$000 US$000 335 67
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March 31, 2011
TRADE RECEIVABLES Group 2011 2010 US$000 US$000 Ultimate holding company (Note 5) Immediate holding company (Note 5) Subsidiaries (Note 5) Outside parties Less: Allowance for demurrage claims due from third parties 77 22,575 22,652 (480) 22,172 3 10,714 10,717 (480) 10,237 Company 2011 2010 US$000 US$000 77 7 18,185 18,269 (480) 17,789 7 9,501 9,508 (480) 9,028
The average credit period granted for charter receivables is 39 days (2010: 30 days). No interest is charged on outstanding trade receivables during the year. Analysis of trade receivables: Group 2011 2010 US$000 US$000 Not past due and not impaired Past due but not impaired(i)(ii) 19,372 2,800 22,172 480 (480) 22,172 4,305 5,932 10,237 480 (480) 10,237 Company 2011 2010 US$000 US$000 15,068 2,714 17,782 487 (480) 7 17,789 3,106 5,915 9,021 487 (480) 7 9,028
Impaired receivables collectively assessed(iii) Less: Allowance for doubtful debts
Trade receivables, net of allowance (i) Ageing of receivables that are past due but not impaired Less than 3 months 3 months to 6 months 6 months to 12 months(iv) More than 12 months(iv)
1,349 1,246 136 69 2,800
833 1,367 2,478 1,254 5,932
1,317 1,192 136 69 2,714
830 1,357 2,478 1,250 5,915
(ii)
These receivables are not secured by any collateral or credit enhancements. No allowance for impairment is made as there has not been a signicant change in credit quality and management expects these amounts to be recoverable. These amounts are stated before any deduction for impairment losses. At March 31, 2011, the amounts in the age categories of 6 months to 12 months and more than 12 months include US$Nil (2010: US$2,478,000 and US$1,148,000) of instalment payments to be made by a charterer to the Company and the Group.
(iii) (iv)
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March 31, 2011
TRADE RECEIVABLES (continued) Movement in the allowance for doubtful receivables: Group 2011 2010 US$000 US$000 Balance at the beginning of the year and end of the year 480 480 Company 2011 2010 US$000 US$000 480 480
Management believes that trade receivables that are neither past due nor impaired are with creditworthy counterparties.
OTHER RECEIVABLES AND DEPOSITS Group 2011 2010 US$000 US$000 Other receivables Prepayments Advance charter hire(a) Advance to subsidiary Deposits Accrued income Ultimate holding company (Note 5) Less: Non-current portion* Current portion * The non-current amount is made up as follows: Group 2011 2010 US$000 US$000 Advance payment for dry docking expenses to be added to the cost of the marine vessel on completion of work Deposit paid on acquisition of a marine vessel(b) Deposit paid for purchase of motor vehicle for a director Company 2011 2010 US$000 US$000 2,446 3,341 1,058 668 315 322 8,150 8,150 307 2,792 344 4,270 154 7,867 4,203 3,664 Company 2011 2010 US$000 US$000 2,085 1,556 1,058 1,010 666 36 322 6,733 6,733 559 2,392 344 4,019 54 7,368 4,203 3,165
225 3,800 178 4,203
225 3,800 178 4,203
The Groups and Companys other receivables which are not denominated in the functional currency are as follows: Group 2011 2010 US$000 US$000 Singapore dollar Euro 45 132 Company 2011 2010 US$000 US$000 15 132
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March 31, 2011
OTHER RECEIVABLES AND DEPOSITS (continued) (a) The balances at March 31, 2011 and at March 31, 2010 for the Group and the Company represent the unamortised amounts relating to periods subsequent to the respective year-ends. They are stated net of allowance of US$9,692,000 which represented unamortised charter hire for the period from June 1, 2006 to May 15, 2012 for a vessel which had grounded at a port in India in May 2006 and was considered a total loss. Notice had been given to the party from whom the vessel was chartered, stating the intent to claim for losses suffered, including but not limited to loss of earnings and loss of the Companys ability to exercise the option to purchase the vessel. There was no signicant progress in respect of this matter during the nancial year. In 2010, advance charter paid for one marine vessel was amortised over the respective charter periods of the marine vessel inclusive of the extended charter term. As at March 31, 2011, no advance for charter hire was made. The advance charter hire amortised during the year and included as vessel hire expenses in the consolidated statement of comprehensive income amounted to US$344,000 (2010: US$2,203,000). (b) The deposit paid to a third party represented 10% of the purchase consideration for a marine vessel which has been subsequently delivered in May 2011 [Note 29 (a)].
10
DERIVATIVE FINANCIAL INSTRUMENTS 2011 Assets US$000 Group and Company At fair value: Current: Option on forward freight agreement Liabilities US$000 Assets US$000 2010 Liabilities US$000
(29) (29)
Non-current: Option on convertible bonds Gains (Losses) arising from fair value changes of forward freight agreements and options on forward freight agreements options on convertible bonds Net gains (losses) recorded in statement of comprehensive income (Note 21)
(510)
141 510 651
(2,018) (275) (2,293)
141 510 651
(275) (275)
The Group and Company enter into forward freight agreements (FFA) and freight option contracts relating to sea freight. Forward purchase or sale of freight are contracted at xed daily rates for a specied class of marine vessels. Mark to market gains and losses for these derivative contracts are recorded respectively as assets and liabilities. These derivative contracts are denominated in United States dollars. The notional amount unexpired of freight option contract at the end of the reporting period amounted to US$171,000 (2010: US$Nil). There was no outstanding FFAs as at March 31, 2011 and 2010. The Company has granted options to the holders of its bonds to convert the debt instrument to equity in the Company [Note 16(a)] and the fair value of the options on convertible bonds are estimated to be US$Nil (2010: US$510,000).
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March 31, 2011
11
SUBSIDIARIES Company 2011 2010 US$000 US$000 Unquoted equity shares, at cost Less: Impairment loss recognised Funds contributed to subsidiaries 10 (10) 61,684 61,684 10 (10) 46,571 46,571
These subsidiaries have limited share capital and the funds contributed by the Company to the subsidiaries are deemed to be contributions of additional capital to the subsidiaries. The funds are used by 3 of its subsidiaries to purchase a marine vessel each. The subsidiaries have no obligations to return such funds to the Company but may return such proportion of net cash inow from chartering the vessels, which are surplus to its requirements. The funds are unsecured, interest-free and denominated in United States dollars. The details of the subsidiaries are as follows: Proportion of ownership interest Country of incorporation Name of subsidiary and operation % Varsha Marine Pte. Ltd.(1) Singapore 100 and voting power held 2011 2010 % 100 Chartering of vessels and provision of marine transportation services Chartering of vessels and provision of marine transportation services Dormant Chartering of vessels and provision of marine transportation services Provision of integrated marine services Principal activity
Vidya Marine Pte. Ltd.(1)
Singapore
100
100
Mercator Lines (Panama) Inc. Chitra Prem Pte. Ltd.(1)(2)
Panama Singapore
100 100
100
Target Ship Management Pte. Limited(1)(3)
Singapore
81
The impairment loss relates to the dormant subsidiary. (1) (2) (3) Audited by Deloitte & Touche LLP, Singapore. Newly incorporated on November 22, 2010. Newly incorporated on November 25, 2010. The remaining equity interest is held by Mercator International Pte Ltd (immediate holding company).
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March 31, 2011
12
AVAILABLE-FOR-SALE INVESTMENTS Group and Company 2011 2010 US$000 US$000 Unquoted equity investment at fair value(a) Quoted equity investments at fair value 4,954 10 4,964 3,498 10 3,508
The investment in quoted and other unquoted investments offer the Company the opportunity for return through dividend and capital gain. (a) The unquoted equity investment comprises investment in an entity which invests in Indian infrastructure funds. The Company had committed to US$6,000,000 of investment of which US$3,983,000 (2010: US$3,797,000) has been invested and US$2,017,000 (2010: US$2,203,000) remains as an outstanding commitment [Note 29 (b)]. The carrying amount includes fair value gain of US$1,270,000 (2010: loss of US$299,000) recorded in fair value adjustment reserve (a component of equity). The estimated fair value is derived from the unaudited net asset value of the investee at the end of the reporting period, provided by the investee entity. Financial instruments measured at fair value based on Level 3 Group and Company 2011 2010 US$000 US$000 Opening balance Additional investment Fair value changes during the year Closing balance 3,498 186 1,270 4,954 2,692 589 217 3,498
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March 31, 2011
13
PROPERTY AND EQUIPMENT Marine vessels US$000 Group Cost: At April 1, 2009 Additions Transfer from advance charter hire(a) At March 31, 2010 Additions At March 31, 2011 Accumulated depreciation: At April 1, 2009 Depreciation At March 31, 2010 Depreciation At March 31, 2011 Carrying amount: At March 31, 2011 At March 31, 2010 Company Cost: At April 1, 2009 Additions Transfer from advance charter hire(a) At March 31, 2010 Additions At March 31, 2011 Accumulated depreciation: At April 1, 2009 Depreciation At March 31, 2010 Depreciation At March 31, 2011 Carrying amount: At March 31, 2011 At March 31, 2010 (a) Motor vehicle US$000 Ofce equipment US$000 Furniture and ttings US$000
Total US$000
520,646 113,451 3,712 637,809 110,543 748,352
51 51 172 223
45 4 49 74 123
84 84 109 193
520,826 113,455 3,712 637,993 110,898 748,891
35,378 31,675 67,053 37,203 104,256
29 10 39 45 84
12 9 21 12 33
21 16 37 19 56
35,440 31,710 67,150 37,279 104,429
644,096 570,756
139 12
90 28
137 47
644,462 570,843
398,586 113,451 3,712 515,749 64,285 580,034
51 51 172 223
45 4 49 13 62
84 84 11 95
398,766 113,455 3,712 515,933 64,481 580,414
26,275 26,953 53,228 32,085 85,313
29 10 39 45 84
12 9 21 12 33
21 16 37 16 53
26,337 26,988 53,325 32,158 85,483
494,721 462,521
139 12
29 28
42 47
494,931 462,608
In March 2009, the Company exercised the option to purchase one vessel and took delivery of the vessel on June 2, 2009. Accordingly, the unamortised advance charter hire amount of US$3,712,000 relating to the period from delivery in June 2009 to May 2011 is capitalised as part of the cost of the delivered vessel.
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March 31, 2011
13
PROPERTY AND EQUIPMENT (continued) Except for 3 (2010: 2) marine vessels with carrying amount of US$101,112,000 (2010: US$86,066,000), all other marine vessels of the Group and the Company are mortgaged to banks for credit facilities granted (Note 16). The aggregate net book value of mortgaged marine vessels of the Group and the Company as at March 31, 2011 is US$542,984,000 (2010: US$484,690,000) and US$393,609,000 (2010: US$376,455,000) respectively.
14
TRADE PAYABLES Group 2011 2010 US$000 US$000 Ultimate holding company (Note 5) Subsidiaries (Note 5) Outside parties Deferred revenue 2,013 7,986 4,554 14,553 3,625 4,428 3,546 11,599 Company 2011 2010 US$000 US$000 1,536 831 5,133 3,180 10,680 3,175 4,217 3,116 10,508
The average credit period on purchase of services is 30 days (2010: 30 days). The Groups and Companys trade payables which are not denominated in the functional currency are as follows: Group 2011 2010 US$000 US$000 Singapore dollar Japanese yen Euro 593 410 94 7 Company 2011 2010 US$000 US$000 183 110 7 7
15
OTHER PAYABLES AND ACCRUALS Group 2011 2010 US$000 US$000 Subsidiary (Note 5) Directors Fees due to a company related to a director Provision for onerous contracts Outside parties Provision for incentive bonus Accrued expenses 163 630 856 1,359 800 877 4,685 322 630 183 498 1,000 1,554 4,187 Company 2011 2010 US$000 US$000 163 630 856 1,151 800 390 3,990 200 322 630 183 348 1,000 1,405 4,088
The Groups and Companys other payables and accruals which are not denominated in the functional currency are as follows: Group and Company 2011 2010 US$000 US$000 Singapore dollars 205 837
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March 31, 2011
16
BORROWINGS Group 2011 2010 US$000 US$000 Convertible bonds (Bonds-B) Less: Unamortised bonds issue expenses Convertible bonds (net) Bank loans, net of arrangement fees Total Less: Borrowings expected to be settled within 12 months Amounts due after 12 months (a) Convertible Bonds The principal terms of Bonds-B, which are unsecured, are as follows: (i) (ii) (iii) 5 year tenure commencing from March 28, 2007; coupon of 2.5% per annum payable annually in arrears on December 31 with yield to maturity of 8.59%; redeemable at the option of the Company at the accreted principal amount together with accrued interest in whole or in part, at any time after 2 years from the IPO date (December 6, 2007), and on or prior to one month from the maturity date; and convertible to ordinary equity shares of the Company at the option of the holders of the Bonds-B on or before March 14, 2012; at a xed price of 76 Singapore cents per share based on the nominal issued amount of the bonds totaling US$16,000,000. Arising from the increase in shares upon issue of new shares in September 2010 (September 2009) to shareholders who have opted for scrip dividends (Note 17), the conversion price was adjusted from 75.79 (2010: 76) Singapore cents to 75.58 (2010: 75.79) Singapore cents in accordance with the terms of Bonds-B. If Bonds-B holders decide to exercise their option in full and convert into ordinary equity shares of the Company, the total number of shares to be issued on conversion will be 30,568,964 (2010: 30,484,233) shares. (b) Bank loans The bank loans are secured by mortgage of marine vessels belonging to the Group, assignment of earnings from the vessels and xed deposits of the immediate holding company (Note 5). They are also subject to the following: negative pledge provisions for the Company and its subsidiaries; other than creating of security over vessels by the bank; compliance with nancial covenants in the form of specied nancial ratios and security coverage; and covered by a comfort letter from the ultimate holding company and in the case of loans taken by subsidiaries, covered by corporate guarantee from the Company. 19,916 (112) 19,804 274,747 294,551 (70,508) 224,043 18,082 (224) 17,858 225,615 243,473 (30,712) 212,761 Company 2011 2010 US$000 US$000 19,916 (112) 19,804 191,303 211,107 (61,307) 149,800 18,082 (224) 17,858 164,588 182,446 (19,372) 163,074
(iv)
Interest is chargeable on the loans at margins above LIBOR / rate on deposit pledged as security. The bank borrowings are repayable in monthly, quarterly or semi-annual instalments. The timing of payments for borrowings is disclosed in Note 4(c). The fair values of borrowings approximate the carrying amounts in the statement of nancial position.
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March 31, 2011
17
SHARE CAPITAL Group and Company 2011 2010 2011 Number of ordinary shares US$000 Issued and paid up: At the beginning of the year Issued under a scrip dividend scheme At the end of the year
2010 US$000
1,248,599,576 1,245,155,161 3,480,098 3,444,415 1,252,079,674 1,248,599,576
202,244 641 202,885
201,503 741 202,244
The Company has one class of ordinary shares with no par value, which are fully paid and carry one vote per share. These shares carry a right to dividends as and when declared by the Company. The Company implemented a scrip dividend scheme (the Scheme) which enables shareholders to elect to receive new ordinary shares credited as fully paid in lieu of cash dividends declared. 3,480,098 (2010: 3,444,415) new ordinary shares were subsequently issued in lieu of cash dividends pursuant to the Scheme.
18
CAPITAL RESERVE The capital reserve of the Group and of the Company relates to the fair values of the interest-free loans given by the immediate holding company in the past. These were deemed to be equity contributions and recorded as capital reserve.
19
REVENUE Group 2011 2010 US$000 US$000 Charter hire income Freight income Demurrage income Lighterage income Others 108,165 41,167 4,956 1,014 58 155,360 93,173 45,792 5,505 144,470
20
VOYAGE EXPENSES Group 2011 2010 US$000 US$000 Bunker cost Port expenses Lighterage expenses 6,349 1,650 853 8,852 11,557 2,006 13,563
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March 31, 2011
21
NET GAIN (LOSS) ON DERIVATIVE FINANCIAL INSTRUMENTS Group 2011 2010 US$000 US$000 Gain (Loss) arising from change in fair value of option on convertible bond Reversal of unrealised gains recognised in the preceding nancial period arising from changes in fair value of forward freight agreements Unrealised gain arising from change in fair value of option on forward freight agreement Gain (Loss) from changes in fair values of the above derivative nancial instruments Net gain (loss) from cash settlement of forward freight agreements and option on forward freight agreement 510 141 651 172 823 (275) (2,018) (2,293) (306) (2,599)
Additional information relating to derivative nancial instruments are provided in Note 10.
22
OTHER OPERATING INCOME Group 2011 2010 US$000 US$000 Interest income 332 341
23
FINANCE COST Group 2011 2010 US$000 US$000 Arising from: Convertible bonds [Note 16(a)] Bank loans [Note 16(b)]
2,234 4,773 7,007
2,293 5,002 7,295
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March 31, 2011
24
INCOME TAX The total tax charge for the year can be reconciled to the accounting prot as follows: Group 2011 2010 US$000 US$000 Prot before tax Tax at the Singapore statutory income tax rate of 17% (2010: 17%) Tax-exempt income Tax charge for the year 31,128 5,292 (5,264) 28 40,780 6,933 (6,900) 33
The Groups and the Companys qualifying shipping prots from its Singapore registered vessels operating outside the limits of the port of Singapore are not taxable under Section 13A of Singapore Income Tax Act. Additionally, the Company has been awarded the Approved International Shipping Enterprise Incentive (AIS) for an initial period of 10 years commencing from November 1, 2005, subject to review of performance at the end of the fth year. At the end of the tenth year, the exemption may be extended upon the Ministers approval. The AIS incentive exempts from tax, income from qualifying shipping activities of foreign registered vessels conducted outside the limits of the port of Singapore. Prots, other than the exempt shipping prots (primarily interest income), are taxed at the Singapore statutory income tax rate of 17% (2010: 17%).
25
PROFIT FOR THE YEAR Prot for the year has been arrived at after charging: Group 2011 2010 US$000 US$000 Directors remuneration and fees Staff costs (excluding directors remuneration) Costs of dened contribution plans included in staff costs Depreciation of property and equipment Foreign exchange adjustment loss Cost of inventories included in voyage expenses 1,134 1,968 58 37,279 196 6,349 900 837 51 31,710 261 11,557
In 2010, the directors remuneration and fee of US$900,000 is stated net of reversal of overprovision of US$360,000 for 2009 directors remuneration (Note 6). There are no non-audit fees paid to the auditors of the Company.
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March 31, 2011
26
DIVIDENDS Group and Company 2011 2010 US$000 US$000 Declared and paid during the year One-tier tax-exempt interim dividend in respect of the year ended March 31, 2011: US$ 0.0058 (S$ 0.0073) per share Declared subsequent to preceding year end and paid during the following year One-tier tax-exempt rst and nal dividend in respect of the year ended March 31, 2010: US$ 0.0083 (S$ 0.0116) per share [March 31, 2009: US$0.0076 (S$0.0116) per share]
7,182
10,682 17,864
10,018 10,018
Proposed but not recognised as a liability as at the end of the reporting period Dividends on ordinary shares, subject to shareholders approval at the Annual General Meeting: nal dividend in respect of the year ended March 31, 2011: US$Nil per share [March 31, 2010: US$0.0083 (S$0.0116) per share]
10,352
The Companys scrip dividend scheme (Note 17) under which shareholders may elect to receive dividends in the form of new shares in lieu of cash will apply to the FY2011 and FY2010 dividend.
27
EARNINGS PER SHARE (a) The calculation of the basic earnings per share attributable to the owners of the Company is based on the following data: Group 2011 US$000 Prot for the year attributable to owners of the Company Weighted average number of fully paid ordinary shares in issue Basic earnings per share (US$) 31,097 1,250,506,479 0.025
2010 US$000 40,747
1,246,938,707 0.033
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March 31, 2011
27
EARNINGS PER SHARE (continued) (b) The calculation of the adjusted earnings per share attributable to owners of the Company assuming full conversion of Bonds-B to ordinary shares is based on the following data: Group 2011 US$000 Prot for the year attributable to owners of the Company Adjustment for nance costs on convertible Bonds-B (Note 23) Adjusted prot Weighted average number of ordinary shares used for calculation of adjusted earnings per share Adjusted earnings per share (US$) 31,097 2,234 33,331
2010 US$000 40,747 2,293 43,040
1,279,168,540 0.026
1,277,422,939 0.034
The adjusted earnings per share assuming full conversion of Bonds-B to ordinary shares are higher than the basic earnings per share for both nancial years. Consequently, there is no dilutive potential ordinary share and no corresponding diluted earnings per share for both years.
28
COMMITMENTS AND CONTINGENT LIABILITIES Group and Company A bank has provided a performance guarantee of Indian Rupees 50,000,000 (2010: Indian Rupees 50,000,000) to a customer on behalf of the Company. The customer is not a related party. The performance guarantee is secured by pledge of the Companys xed deposits amounting to US$1,334,000 (2010: US$1,285,000) (Note 7). Company In addition to the above, as at March 31, 2011, guarantees totaling US$84,017,000 (2010: US$61,650,000) have been given by the Company to banks in respect of bank loans totaling US$84,017,000 (2010: US$61,650,000) drawn down by the subsidiaries. No deemed guarantee fee is accounted for by the Company under FRS 39 Financial Instruments: Recognition and Measurement, as management is of the view that the interest rate for the loan and the quantum of the loan are not signicantly inuenced by the Companys guarantee.
29
CAPITAL COMMITMENTS Group 2011 2010 US$000 US$000 Committed and approved amounts for purchase of marine vessels(a) Committed and approved amount for investment in an available-for-sale investment(b) Total (a) 2,017 2,017 34,200 2,203 36,403
The amount committed for purchase of vessel at March 31, 2010 represents the remaining 90% of the purchase consideration for a marine vessel [Note 9(b)]. The commitment to invest in available-for-sale equity investment relates to an entity which invests in Indian infrastructure funds. The Company is obliged to make the investment when called upon within a period of 5 years from the initial subscription date of July 7, 2008, up to the aggregate of US$6,000,000. As at March 31, 2011, the Company has invested US$3,983,000 (2010: US$3,797,000) (Note 12).
(b)
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March 31, 2011
30
OPERATING LEASE ARRANGEMENTS (a) Group 2011 2010 US$000 US$000 Minimum lease payments recognised under operating leases recognised as an expense in the nancial year: ofce premise charter hire of marine vessels Amortisation of advance charter hire [Note 9(a)]
236 32,088 344 32,668
292 16,643 2,203 19,138
(i)
At the end of the reporting period, the Group has outstanding commitments under non-cancellable operating leases for ofce premises, which fall due as follows: Group 2011 2010 US$000 US$000 Within one year In the second to fth year inclusive The rental for the ofce premises is xed for a term of 2 to 3 years (2010: 3 years). 281 171 200 317
(ii)
At the end of the reporting period, the Group has outstanding commitments under non-cancellable contracts for charter hire of marine vessels, which fall due as follows: Group 2011 2010 US$000 US$000 Within one year In the second to fth year inclusive After the fth year 28,324 82,253 41,877 23,112 104,038 55,134
The charter hire rates are xed over the period of the charter which ranged from 60 months to 120 months (2010: 60 months to 120 months). (b) At the end of the reporting period, the Group also has long-term time charter contracts for which charter income are receivable as follows: Group 2011 2010 US$000 US$000 Within one year In the second to fth year inclusive More than ve years 55,052 54,643 13,461 63,306 51,594
84

March 31, 2011
31
SEGMENT INFORMATION (a) The Group provides to customers dry bulk marine vessels on time charter or contracts of affreightment which can be short term or long term (dened by management as contracts of 11 months or more). The Group engages in a mix of short term and long term contracts for the reasons stated in Note 4(a)(i). In monitoring this mix, management uses the aggregate number of contract days for the entire eet of marine vessels in the year which are derived from short term and long term contracts. Dollar amounts are not attributed to the contract days for the purpose of this monitoring. The products carried are largely coal and iron ore. (b) The Groups revenue from external customers is detailed below. 2011 US$000 Switzerland India Luxembourg Hong Kong Italy Others (individually less than 10%) 33,132 29,260 23,359 19,148 18,656 31,805 155,360 2010 US$000 21,378 39,996 24,462 8,738 10,539 39,357 144,470
Revenue from external customers are attributed to the countries based on the registered addresses of charterers. (c) The Groups revenue derived from customers who individually account for 10% or more of the Groups revenue are detailed below. 2011 Percentage of Groups US$000 revenue (%) Customer 1 Customer 2 Customer 3 (d) 29,097 23,359 19 15 2010 Percentage of Groups US$000 revenue (%) 34,178 24,162 1,000 24 17 1
The Groups signicant non-current assets comprise marine vessels which are deployed in international waters. Assets and capital expenditure are therefore not analysed by geographical segment.
85
Statistics of Shareholdings
As at June 2, 2011
No. of ordinary shares issued (excluding treasury shares) Class of Shares Voting Rights Treasury Shares
: 1,252,079,674 : Ordinary : One vote per share : Nil
DISTRIBUTION OF SHAREHOLDINGS Number of Shareholders 98 2,731 3,293 17 6,139 Number of Shares 41,858 15,067,159 179,636,186 1,057,334,471 1,252,079,674
Size of Shareholdings 1 1,000 10,001 1,000,001 TOTAL 999 10,000 1,000,000 and above
% 1.60 44.48 53.64 0.28 100.00
% 0.00 1.20 14.35 84.45 100.00
TWENTY LARGEST SHAREHOLDERS Number of Shares 900,850,000 60,118,148 19,892,516 18,359,239 12,986,362 11,243,384 5,084,486 4,851,700 4,251,214 4,067,460 3,858,127 2,919,669 2,319,400 1,793,530 1,777,985 1,758,312 1,202,939 991,418 922,722 913,000 1,060,161,611
Name 1. Mercator International Pte. Ltd. 2. Citibank Nominees Singapore Pte Ltd 3. BNP Paribas Nominees Singapore Pte Ltd 4. Merrill Lynch (Singapore) Pte. Ltd. 5. OCBC Securities Private Ltd 6. UOB Kay Hian Pte Ltd 7. DBS Nominees Pte Ltd 8. Phillip Securities Pte Ltd 9. HSBC (Singapore) Nominees Pte Ltd 10. CIMB Securities (SIngapore) Pte Ltd 11. Kim Eng Securities Pte. Ltd. 12. DBS Vickers Securities (Singapore) Pte Ltd 13. DBSN Services Pte. Ltd. 14. Chua Sok Koon 15. Rafes Nominees (Pte) Ltd 16. Chng Seng Chye @ Chng Hung Seng 17. Bank of Singapore Nominees Pte Ltd 18. Lim & Tan Securities Pte Ltd 19. Wang Ying Shu 20. Mohamad ZailanI Bin M Ismail TOTAL
% 71.95 4.80 1.59 1.47 1.04 0.90 0.41 0.39 0.34 0.32 0.31 0.23 0.19 0.14 0.14 0.14 0.10 0.08 0.07 0.07 84.68
86
Statistics of Shareholdings
As at June 2, 2011
PERCENTAGE OF SHAREHOLDINGS HELD IN THE HANDS OF PUBLIC Based on the information available as at June 2, 2011 approximately 28.03% of the Companys shares listed on the SGX ST are held in the hands of public. Therefore, the Company has complied with Rule 723 of the Listing Manual of SGX ST.
SUBSTANTIAL SHAREHOLDER AS AT JUNE 2, 2011 Direct Interest Number of Shares 900,850,000 Deemed Interest Number of Shares 900,850,000
Name Mercator International Pte. Ltd. Mercator Lines Limited (India) Note:
% 71.95
71.95
The deemed interest of Mercator Lines Limited (India) is derived from its interest in its wholly owned subsidiary, Mercator International Pte. Ltd.
87
Notes
Corporate Information
BOARD OF DIRECTORS Harish Kumar Mittal Chairman and Non-executive Director Shalabh Mittal Managing Director and Chief Executive Ofcer Arul Chandran Independent Director Atul J. Agarwal Non-executive Director Huang Yuan Chiang Lead Independent Director John Walter Sinders Jr. Independent Director Pushpatraj Shivlal Shah Non-executive Director AUDIT COMMITTEE Huang Yuan Chiang (Chairman) Pushpatraj Shivlal Shah John Walter Sinders Jr. NOMINATING COMMITTEE John Walter Sinders Jr. (Chairman) Shalabh Mittal Huang Yuan Chiang Arul Chandran COMPENSATION COMMITTEE John Walter Sinders Jr. (Chairman) Harish Kumar Mittal Huang Yuan Chiang Arul Chandran
NOMINEE COMPANY SECRETARIES Ong Eng Hin & Tan Siew Ping Nicole Date of Appointment: June 6, 2011 INVESTOR RELATIONS Mercator Lines (Singapore) Limited Email: ir@mllsg.com SHARE REGISTRAR/SHARE TRANSFER OFFICE Boardroom Corporate & Advisory Services Pte. Ltd. 50 Rafes Place, #32-01 Singapore Land Tower, Singapore 048623 AUDITORS Deloitte & Touche LLP 6 Shenton Way, #32-00 DBS Building, Tower Two, Singapore 068809 AUDIT PARTNER-IN-CHARGE Wong-Yeo Siew Eng (Certied Public Accountant) Date of Appointment: October 22, 2007 PRINCIPAL BANKERS DBS Bank Ltd 6 Shenton Way, DBS Building, Tower One, Singapore 068809 ICICI Bank Limited 9 Rafes Place, #50-01 Republic Plaza, Singapore 048619 REGISTERED OFFICE 9 Temasek Boulevard, #42-01B Suntec Tower 2, Singapore 038989 Tel: (65) 6220 9320 Fax: (65) 6220 9310 Email: mercator@mllsg.com Website: www.mllsg.com
MERCATOR LINES (SINGAPORE) LIMITED

(Company Registration No. 200507205N) (Incorporated in the Republic of Singapore) 9 Temasek Boulevard, #42-01B Suntec Tower 2, Singapore 038989 Tel: (65) 6220 9320 Fax: (65) 6220 9310 Email: mercator@mllsg.com Website: www.mllsg.com

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Driven by Growth Sustained by Values

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

Honouring commitments towards all stakeholders.

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

About Mercator Lines (Singapore)

Mercator Lines Limited India

Mercator International Pte. Ltd. Singapore

Target Ship Management Pte Ltd(4) Singapore

Mercator Lines (Singapore) Limited Singapore

Varsha Marine Pte. Ltd.(2) Singapore

Vidya Marine Pte. Ltd.(2) Singapore

Mercator Lines (Panama) Inc. Panama

Chitra Prem Pte. Ltd.(3) Singapore

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

Continuous growth in knowledge and performance.

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

FY2010 US$ million

FY2009 US$ million

155.4 31.1 0.73 23.0 3.2

144.5 40.7 1.16 25.4 4.6

186.1 75.8 1.16 12.5 9.1

644.5 294.6 386.4 17.1

570.8 243.5 371.3 35.1

485.4 271.6 339.6 41.7

Return on Average Capital Employed (%)

Revenue (US$ million)

Net Prot (US$ million)

Time Charter Equivalent (TCE) Rate (US$/day)

27,605 40.7 31.1

Fleet Tonnage Capacity (million dwt)

0.28 0.26 1.03 1.27 FY2011

76% Long Term Contracts 24% Short Term Contracts

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

Ensuring that every employee takes pride in being called a Mercatorian.

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

CHARTERED VESSELS 1 2 3 Chaitali Prem Chanchal Prem Maria Laura Prem

Capacity (dwt) 93,270 93,270 91,800

Age (in years) 2 2 1

Country Built China China South Korea

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

We believe in doing things differently!

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

Awards and Recognitions

Shalabh Mittal receiving GLOBAL ENTREPRENEUR OF YEAR 2010

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

HARISH KUMAR MITTAL Chairman and Non-executive Director

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

Chief Executive Ofcers Message

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

Chief Executive Ofcers Message

SHALABH MITTAL Managing Director and Chief Executive Ofcer

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

Revenue (US$ million) CAGR

Net Prot (US$ million) CAGR

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

MERCATOR LINES (SINGAPORE) LIMITED Annual Report 2011

Iron Ore/ Coal

Port loading with geared vessels

Port unloading with geared vessels