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2010Annual Report

Titan Petrochemicals Group Limited, listed on the Hong

Kong Stock Exchange (Stock Code: 1192), is a provider

of oil logistic and marine services in the Asia Pacific

region, in particular, in China. The Group operates

the strategically located onshore and offshore storage

facilities and provides management services for a multi-

functional ship-repair and shipbuilding yard, which is

one of the largest in Asia. Titan operates in China, Hong

Kong, Singapore and Malaysia.

ABOUT TITAN PETROCHEMICALS GROUP

Financial Highlights

Chairman’s Statement

Directors

Senior Management

Events of the Year

Management Discussion and Analysis

Financial Review

Corporate Governance Report

Report of the Directors

Independent Auditors’ Report

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Statement of Financial Position

Notes to Financial Statements

Five Year Financial Summary

Corporate Information

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CONTENTS

2 2010 Annual Report

FINANCIAL HIGHLIGHTS

HK$ Million 2010 2009

Revenue 2,111 2,005 — Continuing Operations 1,924 1,620 — Discontinued Operation 187 385

Loss attributable to owners of the Company (581) (536) — Continuing Operations (503) (430) — Discontinued Operation (78) (106)

Business Highlights• Our core business, China Terminals, has continued growth with rises in

revenues by 23% and operating earnings before interest, tax, depreciationandamortisation(EBITDA)by44.3%

• The Group is the first and only double-hulled Floating Storage Unit (FSU)operatorinMalaysianwaters

• Thecompletionofbondexchangeoffer reduced theGroup’s long termdebtbyapproximatelyHK$900millionandgreatly improvedtheGroup’scashflowandlongtermloanprofile

• Saleof theshipyardfurtherstrengthentheGroup’s liquiditypositionandwillgenerateadditional freecashflow to fund theGroup’soperationsandcapitalexpenditure

• Rationalisation of the Group’s fleet with all double-hulled vessels for thetransportationbusiness

• Introduction of two strategic partners, Moral Base Investment Limited andGrandChinaLogisticsHolding(Group)CompanyLimited

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FINANCIAL HIGHLIGHTS

Titan Petrochemicals Group Limited

Revenue – continuing operations

HK$Million

Loss for the year – continuing operations

HK$Million

(423) (430)

(502)

7,238

1,9241,620


TSOI Tin ChunChairman

Further increments in storage capacity and expansion of China Terminals will enable

us to benefit from the current and anticipated growth in

demand for oil products and chemical storage

“

”

5Titan Petrochemicals Group Limited

CHAIRMAN’S STATEMENT

In the wake of the recent financial turmoil, global markets havemanaged topickupslowlybutsurely.OurStoragebusiness inChinahas continued to performwellwith expanded capacity and improvedutilisation although the shipping industry remained challenging withfreightratescontinuingtobelow.

The Group realigned its business during the year by disposing of the Titan Quanzhou Shipyard(“Shipyard”) and focusing on the Storage business which has been seeing stable revenue growth.Throughourprogramfor theconversionof thesingle-hulledfleet intodouble-hulledvessels,webecamethefirstandonlydouble-hulledFSUoperatorinMalaysianwaters.Wealsomanagedtosuccessfullyraisefunds,bringinstrategicinvestorswithashareplacement,maintainourcashflowwiththebondexchangeoffer, and overall improve our capital structure to enable us to successfully preserve capital and tocontinuegrowthinthesedifficulttimes.

At the end of 2010, the Group operated five FSU and commerciallymanaged four others in SingaporeandMalaysia. As reported previously, in compliancewith the phasing out by the InternationalMaritimeOrganization of most single-hulled tankers and to service the needs of our customers, we disposedof our remaining three single-hulled FSU in the first quarter of 2010 for a combined realised value ofHK$370.5 million and we have upgraded and/or replaced most of our other single-hulled FSU into/with double-hulled FSU. Although the conversion and replacement process has been costly and hascauseddisruption toouroperations, ithas reduced theGroup’sexposure tosingle-hulledFSU.With thecompletion of upgrading and replacement,we arenow the leading serviceprovider inMalaysianwatersoperatingthefirstdouble-hulledFSU.

OurStoragebusinesscontinuestoperformwelldespitethestagnantglobaloildemand.Withthe600,000cubic meters at Yangshan Terminal Phase II having come onstream in July 2010, together with the203,000 cubicmeters at Nansha Terminal Phase III and the 339,000 cubicmeters at Fujian TerminalPhase II as well as its 100,000 dwt jetty which is expected to be fully operational in mid 2011, thecombined capacity of these three terminals are expected to increase to 2.367million cubicmeters thisyear. We believe that continued growth of the Chinese economy offers significant opportunities for ourstoragesegmentsoverthemediumandlongterm.

Duringtheyear,wemadeseveralbreakthroughstostrengthentheGroup’sliquiditypositionandgenerateadditionalcashflowtofundtheGroup’soperationsandcapitalexpenditureneeds.

In July 2010, we successfully completed the bond exchange offer which facilitated in reduction of theGroup’s longtermdebtbyapproximatelyHK$900million,andalsoextendedthematurityof theGroup’slongtermdebtwhichallowsustopreservecashflow.

On 13 December 2010, we announced the sale of a 95% equity interest in the Shipyard to GrandChina Logistics Holding (Group) Company Limited (“Grand China Logistics”) for RMB1,866 million(approximately HK$2,175million) and the issue of 500million new ordinary shares of Titan at a priceofHK$0.61each toGrandChinaLogistics.Uponcompletion,with thedisposal of theShipyardand thenetproceedsfromtheshareplacement,theGroupwillhavereduceditsdebtssignificantlyandprovidedcapital for itsChinaTerminalsand futurebusinessdevelopment, i.e.allows theGroup toconsolidate itsresourcestosupportthegrowthofitsexistingcoreactivities.

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2010 Annual Report

ResultsTheGroup’srevenuefortheyear2010wasHK$2,111million,whichisan5.3%increaseover2009,andan18.8%increaseinrevenueovercontinuingoperationsin2009.

The Group’s operations recorded losses before interest, tax, depreciation and amortisation (LBITDA) ofHK$120million,whichtakesintoaccountthegainsfromthecompletionofthebondexchangeofferandthelossesfromthedisposalsofvessels.ThisisincontrasttotheEBITDAofHK$88millionin2009.

The loss for the year was HK$580 million which reflects the fact that our core business is still indevelopmentalstages.

TheBoardhasdecidednottodeclareadividendfortheyear.

Financial ResourcesThe Group’s cash position stood at HK$506 million as at 31 December 2010 compared to HK$530milliontwelvemonthsago.Cashgeneratedfortheyearwasmainlyusedforthecontinuedinvestmentsintheconstructionof theChinaprojectsandrepaymentof loans.TheGroup’sgearingwas0.57at theendof2010,comparedto0.60attheendof2009.

Business ReviewFloating Storage Units (Offshore Storage)

At the end of 2010, the Groupwas operating five FSUwith a total operating capacity of approximately1.45million tons or 1.59million cubicmeters, as compared to six FSU with approximately 1.6milliontonsor1.78millioncubicmeterswhichoperatedinthesameperiodlastyear.RevenuefortheyearwasHK$514million while results decreased to a segment LBITDA of HK$53million due to the higher costofcharteringvesselsandthedisturbanceofoperationalcapacityduring theyearasaresultofdisposalsand replacements.However, the timely completion of the conversion to double-hulled vesselswill allowustoleveragetheupsideopportunitiesthatmayariseinthefuture.

Consistentwithitsgoaltobealeadingserviceprovider,Titanhasledothercompetitorsandbecamethefirst and only operator to offer double-hulledFSU inMalaysianwaters. In addition, twomore FSUhavereceivedapproval fromPlatts as itsphysicaldeliverypoint for fuel oil inSingapore.Now,witha total offourdesignatedphysicaldeliverypoints, it featuresTitan’squalityservice in thesectorandhighlights itsleadershippositioninthemarket.

China Terminals (Onshore Storage)

The strategic locations, planned expansion and development of our three onshore storage terminalsenableus tobenefit fromthecurrentandanticipatedgrowth indemandforstorageandrelatedservicesin China’s oil and petrochemicals markets. Our storage facilities are well positioned to serve as keylogisticspointsinChina’sexpandingoilandpetrochemicalssupplychain.

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Our onshore Storage business continued to gain momentum in 2010 with revenues from the ChinaTerminals increasing 23% to HK$200 million compared to HK$162 million in 2009. Segment EBITDAcorrespondingly rose by 44.3% fromHK$108million toHK$156million. The steady growthwasmainlyattributed tohigherutilisation ratesand increasedcapacityatourstorage facilities inChina,andalso tothesuccessofsecuringlong-termleasesfromadiversifiedgroupofcustomers.

Although the annual utilisation rate of the Nansha Terminal Phases I & II fuel oil storage facility stoodat73%,aslightdropcomparedto78%in thepreviousyear, themonthlyutilisationratehasreboundedto 97% as of the end of December 2010. In December 2010, we received approval from ShanghaiFuturesExchange foranadditional50,000cubicmeterscapacity inNanshaTerminal for itsdesignatedphysical delivery storage capacity and, hence, the total designated physical delivery storage capacity isnow250,000cubicmeters,makingNanshaTerminal the largestphysicaldeliverystorage facility for thesettlementoftheExchanges’fueloilfuturescontracts.

The125,300cubicmeterchemicalstoragefacilityinNanshaachievedanaverageutilisationrateof80%in2010sinceitscommencementofoperationinJune2009.

Theoverallutilisationrate,basedon the total715,300cubicmeterscombinedcapacityofPhases IandII on an annualised average, is 74%, i.e. has been held at the same level as last year. Phase III with203,000cubicmetersstorageatourNanshaTerminalopenedfortrialoperationsinFebruarythisyear.

At the Fujian Terminal, the annualised utilisation based on 90,000 cubic meters of Phase I chemicalstorage capacity, rose from 67% to 89% during 2010 as compared to the previous year. The averagemonthly utilisation ratemarked a notable record of 100% in the second quarter of 2010. ThePhase II339,000 cubic meter product oil and fuel oil storage tank and the 100,000 dwt jetty are expected tocommenceoperationsinthemiddleofthisyear.

The total storage capacity of Shanghai Yangshan Terminal surged by 143% driven by the additional600,000 cubic meters at its Phase II facility which started operations in July 2010 and raised theterminal’s total oil storage capacity to 1,020,000 cubic meters. Although this is only the second yearsinceitsfulloperation,themonthlyaverageutilisationrateimprovedfrom73%to97%duringtheyear,aremarkableachievementinsuchashortperiodofoperation.

Transportation and Supply/Distribution

The Transportation business recorded a loss in 2010 and revenues decreased by 30.7% to HK$178million,comparedtoHK$258millionin2009,withsegmentLBITDAhavingHK$114millionfortheyear.This was mainly due to the disruption of operations and the costs incurred during the process of thefleetupgrade including,butnot limited to, the charteringcosts, andalso thepoor freightmarketwhichcontinuedtobechallengingfortheyear.

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2010 Annual Report

Inordertoreduceitsriskexposureasowners,Titansoldall itsownedtankersandcharteredinaVLCC,an Aframax and tankers thereby increasing the total fleet capacity from 57,119 dwt to 481,474 dwt asof theendof2010.Theadditional tonnagenowallows theGroup to offer chemical aswell as crudeoiltransportationservices,whichwerenotavailableinthepastfewyearstoourcustomers.

Revenues inour supply/distributionbusiness roseby49.5% toHK$1,032millionand reportedsegmentEBITDAincreasedby10.5%fromHK$24milliontoHK$26million.

Shipyard

Although the Group has sold the Shipyard to Grand China Logistics in December 2010, Titan willcontinuetomanagethebusinessoperationsoftheShipyardforanothertwoyearsinaccordancewiththeoriginalbusinessplan.Therepairbusinessiswellsupportedbythetwopartners–GrandChinaLogisticsandKawasakiKisenKaisha (“KLine”)of Japan– inaddition to strong interest indicatedbymajor ship-owners.K Line is one of theworld’s largest ship-owners andhas appointed theShipyard as its primaryship repair provider in China. We believe that, with a quality management team, strong support frompartnersanditsgoodgeographicallocation,theShipyardwillcontinuetodevelopandgrow.

Weexpectshiprepairfacilitytobeoperationalinthefirsthalfof2011.Astrongqualityassurancesystemhasbeenputinplaceandseasonedinternationalmanagementteaminpreparationforthelaunchofshiprepairbusinesses.WeareconfidentthatthefinancialperformanceoftheShipyard,henceby,supportingcontinuedoperationsandsustainablegrowth.

Following the above disposal, the Group will focus on developing its core Storage business with betterallocationofitsresources.WebelievethatthecontinuedgrowthoftheChineseeconomyofferssignificantopportunitiesforourStoragebusiness.Inaddition,ourstrategiccollaborationwithGrandChinaLogisticsis in line with the Group’s strategy to become the largest independent petrochemical storage operatorin China aswell as a first-class integrated petrochemical logistics service provider in theworld.We areconfidentthatwewillbeabletobuildonourstrengthstogrowintheChineseandoverseasmarketsand,thereby,bringinnewprofitableventurestoprovideasolidplatformforTitan’sfuturegrowth.

OutlookWe saw amarked improvement in the storage segment of our businesses in the second half of 2010,reflecting that the global economic environment is gradually recovering. While the Storage businessremains thekeyofdrivingprofitability, theGroupwillcontinuetohavea flexiblestrategy in therecoveryprogram ahead. Nevertheless, certain adverse factors such as freight rate fluctuations and excessshippingcapacitymayprotractthedifficultconditionsintheshippingindustryoverthecomingyear.

The construction work on the China Terminals continues to proceed with more capacity rolling outthis year. For Fujian Terminal, the 100,000 dwt jetty will be completed in 2011 and is expected to beoperationalby themiddleof thisyear.Meanwhile, its339,000cubicmeterPhaseIIoilstoragefacility isscheduledtocommenceoperationsinthemiddleofthisyearaswell.

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TheShanghaiYangshanTerminalisprogressingwellandweexpectfurthercapacityexpansionfortheoilstoragefacilitiesin2011.Hence,Titan’scombinedstoragecapacityof1.825millioncubicmeterswillbeincreasedto2.367millioncubicmetersbytheendof2011.WewillstepuptheGroup’seffortstoextendour reach into international customers for our terminals while still pursuing higher utilisation andmoretermleases.

Titan currently is the leading services provider with nine VLCCs for FSU operations or commercialmanagement andwill continuewith theprogramof double-hulledFSUconversions.Wewill continue toworkwith customerswhohave apreferential demand for double-hulledFSUandattract term leasesbyofferingflexibleandtailoredstoragesolutionsinadditiontocompetitiverates.

Shipyard is a well located, high quality and first-class infrastructure. Together with Titan’s expertise inshiprepairandshipbuilding,weareconfidentthattheShipyardbusinesswillrunsmoothlyandbecomeaforefrontintheindustryuponfullcompletion.Constructionworkisprogressingandtheearlyphasesofshiprepairfacilitiesareexpectedtocommenceoperationsearlythisyear.

SummaryWiththesuccessfulcompletionofthebondexchangeofferandthesaleoftheShipyardcoupledwiththeshare placement, the Group has been able to reduce its debt positionwhile consolidating resources topursueexpansionoftheChinaTerminals.FurtherincrementsinstoragecapacityandexpansionofChinaTerminalswill enable us to benefit from the current and anticipated growth in demand for oil productsandchemicalstorageandrelatedservicesinChina.Webelievesuchstablebusinesswillhavesignificantprospectsinthenearfuture.

Apart from the cooperation in the Shipyard business, there are several complementary businesses wecan work together with our strategic partner, Grand China Logistics. By sharing our business platform,resources and strengths in China and in international markets, it will be mutually beneficial to bothparties to furtherexpandourcollaboration,which in turn,canbuildasolid foundation forTitan’s futuregrowth.

To continue to ride out the bumpy economy recovery, the Group will maintain a prudent approach tomanage our key business assets and strengthen our core business. While gearing up for sustainedgrowth,wewillalsocontinuetoseekopportunitiestocreatenewsynergiesandbringoptimumreturnstoallshareholders.

Tsoi Tin ChunChairman & Chief Executive

HongKong,24March2011


DIRECTORS

Mr. Tsoi, aged 48, founder of Titan Petrochemicals GroupLimited (listed on the Hong Kong Stock Exchange as HK1192),hasbeentheGroup’sChairmansince its inception inMay2002.InJanuary2008,healsoassumedthepostofChiefExecutive.

From the early 1980s until the Group’s emergence, Mr. Tsoi, anativeofFujian,hasbeen involved in thestorage, transportationanddistributionofoilproducts inChina.Thisperiodmarked thebeginning of China’s economic transformation and the transitionfromexportingtoimportingoil.ItwasalsoatimewhenMr.Tsoi’sinnovative concept of “integrated oil logistics” began to takeshape. To realise this concept, Mr. Tsoi moved to Hong Kongand later to Singapore where, in 1996, he established Titan OilPte Ltd, a substantial shareholder of the Company within the

meaningofPartXVoftheSecuritiesandFuturesOrdinance.Throughthegradualdevelopmentoftheoilsupply, transportation, storage and distribution businesses, the Company succeeded in establishing anintegratedoillogisticsplatformtoprovidecustomersone-stopservice.

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

While fully engaged in the international market, Mr. Tsoi has, nevertheless, been most concernedabout economic developments in China. He has brought back to China his successful experience ininternationalmarketingaswell asmanagementpracticesdeveloped inSingapore.Underhis leadership,theGroup,whiledevelopingitsbusinessinSingapore,alsoactivelyinvestedinoillogisticsfacilitiesandashipyardinChina.TheGroupisnowbuildinglargemodernpetrochemicalterminalsinstrategiclocationsat key coastal areas of China, namely, Nansha in Guangdong; Quanzhou in Fujian and Yangshan atShanghai. It is also providing management services for a multi-functional ship-repair and shipbuildingyard,whichisoneofthelargestinAsia.

Mr.Tsoi firmlybelieves thatentrepreneursandenterpriseshave responsibilities tocontribute to society.Thus, in June2006, TitanOil Pte Ltd initiated construction of TitanMaritime Institute in Fujian,China.Thisinstituteiscommittedindevelopingitself intoafirst-classcomprehensivefull-timehighervocationaleducational establishment, and aimed at giving supports to inject maritime talents to the domesticand international marine industry. Phase one construction has completed, and school commenced inSeptember 2009with 431 students admitted. Currently, nearly 1,000 full-time students are studying intheinstitute,anduponfullcompletionoftheconstruction,thenumberoffull-timestudentswillgraduallyincrease to 5,000, offering a wide range of maritime, ship building/repair related vocational trainingcoursestostudents.

Mr.Tsoi,aSingaporean,ismarriedandhasfivechildren.

Mr. TSOI Tin ChunChairman of the Board andChief Executive

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DIRECTORS


Mr. Wong, aged 55, has been an Executive Director of theCompany since May 2008 and is also the President, CorporateOfficewhoisresponsibleforstrategicandoperational leadershipforallof theCompany’sbusinessandoperations.Mr.Wonghas30 years of working experience in banking, finance, commoditytrading and project development. He has held several keypositionsintheCompanyfrom2002to2005.PriortojoiningtheCompany as President, Mr. Wong was senior vice president ofCommodityandTradeFinanceatSocieteGenerale inSingaporeand worked at commodity trading firms such as Louis Dreyfuswhere he was chief executive officer of China. Mr. Wong is anAssociateMember of theChartered Institute ofBankers,UnitedKingdom and holds a master degree in Applied Finance fromMacquarieUniversity,Australia.

Mr. Crawford,aged68,hasbeenanIndependentNon-executiveDirector of the Company since February 2006 and is also thechairman of the audit committee.Hewas a founding partner ofErnst & Young, Hong Kong and vice chairman of the firm untilhisretirementin1997.Duringhis25yearsinpublicaccounting,he was also the chairman of the audit division and was activein a number of large private and public company takeover and/or restructuring exercises. Mr. Crawford has been involved invarious community service areas such as being a foundingmember of UNICEF Hong Kong Committee and the Hong KongInstitute of Directors. In 1997, Mr. Crawford was appointed aJustice of thePeace inHongKong.He is amember andwas agovernor for many years of the Canadian International Schoolof Hong Kong and continues to be active in the promotionof pre-university education. Mr. Crawford is an independentnon-executive director and chairman of the audit committeeof e-KONG Group Limited and Regal Portfolio ManagementLimited which is the manager of Regal Real Estate InvestmentTrust, the shares and units, respectively, of which are listed inHong Kong. He is also an independent non-executive directorof Entertainment Gaming Asia Inc., a company listed on theAmericaStockExchange.

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

Mr. John William CRAWFORD, JPIndependent Non-executive Director

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DIRECTORS

2010 Annual Report

Ms. Tam, aged 65, has been an Independent Non-executiveDirector of the Company since August 2004 and is also thechairman of the remuneration committee and a member of theauditcommittee.She isabarristerandaDeputy to theNationalPeople’s Congress of the People’s Republic of China. She is amember of the Committee for the Basic Law of the Hong KongSAR under the Standing Committee of the National People’sCongress, Basic Law Promotion Steering Committee, OperationsReview Committee andWitness Protection Review Board of theICAC.Ms.Tamcurrentlyservesasanindependentnon-executivedirector of Wing On Company International Limited, MinmetalsLand Limited, Sinopec Kantons Holdings Limited, Guangnan(Holdings) Limited, Tong Ren Tang Technologies Co. Ltd., SaSa International Holdings Limited and Nine Dragons Paper(Holdings) Limited. Ms. Tam was educated at the University ofLondonandisamemberofGray’sInn,London.

Mr. Shek, aged 65, has been an Independent Non-executiveDirector of the Company since February 2006 and is also amember of audit committee and remuneration committee. Hegraduated from the University of Sydney with a Bachelor ofArts degree. Mr. Shek is a member of the Legislative Councilfor theHongKong SAR, a vice chairman of IndependentPoliceComplaints Council and a Court member of the Hong KongUniversity of Science and Technology and the University ofHong Kong. He is also an independent non-executive directorand audit committee member of NWS Holdings Limited,Midas International Holdings Limited, Paliburg HoldingsLimited, Lifestyle International Holdings Limited, Chuang’sConsortium International Limited, ITC Corporation Limited,Country Garden Holdings Company Limited, SJM HoldingsLimited, Kosmopolito Hotels International Limited and ChinaResources Cement Holdings Limited. He also sits in the boardof Eagle Asset Management (CP) Limited and Regal PortfolioManagement Limited which is the manager of Champion RealEstate Investment Trust and Regal Real Estate InvestmentTrust (the units of which are listed in Hong Kong), respectivelyas an independent non-executive director as well as an auditcommittee member. He serves as independent non-executivedirector to Hop Hing Group Holdings Limited, Hsin ChongConstruction Group Limited and MTR Corporation Limited.Mr. Shek is also the chairman and independent non-executivedirector of Chuang’s China Investments Limited, vice chairman,independentnon-executivedirectorandauditcommitteememberofITCPropertiesGroupLimitedandadirectorofTheHongKongMortgage Corporation Limited. He was an independent non-executivedirectorofSeeCorporationLimitedfrom2005to2008.

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

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


SENIOR MANAGEMENT

Mr. Allen TU Chung ToChief Financial Officer

Mr.Tu,aged49,hasover20yearsexperience inthe finance, accounting and auditing fields. Hehas been acting as Chief Financial Officer sinceDecember 2008. He was previously the GroupFinancial Controller and Company Secretary ofTitan from June 2002 until June 2008. Prior tojoining Titan, he was Project Financial Managerwith Noble Group from 2001 to 2002. Beforethat, he was a Senior Audit Manager with Ernst& Young, focusing on initial public offeringexercises.Mr.Tu isa fellowmemberof theHongKongInstituteofCertifiedPublicAccountantsanda member of the American Institute of CertifiedPublicAccountants.HeholdsaBachelor’sDegreeinCommercefromtheUniversityofToronto.

Mr. TAN Mong SengSenior Consultant, Shipyard

Mr. Tan, aged 59, has worked in the marineindustry for more than 30 years (particularlyin the areas of ship repair, shipbuilding andoffshore engineering). Since his appointmentin April 2007 as Senior Consultant for Titan, hehas been helping to steer the overall businessstrategy of Titan Quanzhou Shipyard, as well asprovidingexpertiseanddirectiontotheshipyard’slayout design and development. Mr. Tan joinedSembawangShipyardLtd,Singapore in1976andrapidly moved up the management ranks duringhis career there. In 1987 he was appointedManaging Director and, in 1994, President of Sembawang Shipyard Group. In 1996, hebecame President of Sembawang Engineering& Construct ion Group, responsible for theGroup’s onshore and offshore engineering andconstruction activities. Mr. Tan subsequentlyjoined Singapore Technologies Marine Ltd in1998, and was appointed President (CommercialBusiness) in 1999. After leaving SingaporeTechnologies in 2004, he star ted his ownconsultancy business. Mr. Tan graduated fromGlasgow University in United Kingdom with 1stClass Honours in Naval Architecture. In 1993 heattended the Advanced Management ProgrammeinHarvardBusinessSchool,USA.

Mr. WANG WeiHead of the Singapore office andGeneral Manager, Floating Storage Units (FSU)

Mr. Wang Wei, aged 46, has served as Head oftheSingaporeoffice sinceOctober2009andhasbeen General Manager of FSU since September2005. He has 18 years of extensive experiencein theoil trading industry.HewaspreviouslywithSinocheminBeijingwherehewasresponsibleforthe trading of fuel oils. Prior to that, he acted asa trader forMitsui&Co. Ltd inChina, trading oilproducts. Mr. Wang graduated with a Bachelor’sDegree in Science from Peking University in1986.

Mr. Jeremy TAN Kok LiannHead, Human Resources

Mr. Tan, aged 36, re-joined Titan in October2007 as Head, Human Resources. He waspreviously the HR Director at Titan. Prior to re-joining, he was the Asean HR head for MercerHR Consulting where he was responsible for HRfunctionscoveringSingapore,Malaysia,Thailand,Indonesia and the Philippines. Previously, heheld HR manager posit ions at Network forElectronic Transfers (NETS), Media Corp andUnited Overseas Bank (UOB), and workedas a HR consultant with Ernst & Young andPricewaterhouseCoopers.Mr.TanhasaGraduateDiploma in HR Management from SingaporeInstitute of Management (SIM), a GraduateDiplomainMarketingfromtheCharteredInstituteof Marketing (CIM), United Kingdom and aBachelor’s Degree of Accountancy fromNanyangTechnological University (NTU). He is also anon-practising Certified Public Accountant (CPA)inSingapore.

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SENIOR MANAGEMENT

2010 Annual Report

Mr. LIU Hui JunDeputy Managing Director – Guangdong,Guangzhou Nansha Petrochemicals Development

Mr . L i u , a g ed 54 , j o i n ed t h e G r oup i nFebruary 2007 and is responsible for the dailyadministration of all businesses and handlinggovernment relations in the Guangdong region.Before joining Titan, he was Vice Presidentat Guangzhou Nansha Assets ManagementInvestment Co. for five years. Prior to this, hewas General Manager of The Ministry of WaterResources (HK) Investment Co., from 1996 to2002, and Vice Director of Zhuhai City WestConstruction Committee from 1992 to 1996. HehasservedastheHeadofProductionDepartmentand Vice President of the Survey and DesignInstitute of Water Conservancy and HydropowerinAnhuisince1986.Mr.Liu isagraduateof theBeijing Normal University where he majored ineconomics.

Mr. LI JunVice President of Operations – China Terminals

Mr. Li, aged 50, joined the Group in July2006 and is responsible for the daily businessoperations of ChinaTerminals.Hehasworked inthe oil terminal industry for over 31 years, withextensive experience in operations management.Before joining Titan, he served as ProductionOfficer at Dalian Western Pacific PetrochemicalsCo. Ltd. for 10 years. Prior to this, he wasProduction Officer at Dalian PetrochemicalsCo., a subsidiary of China National PetroleumCorporation(CNPC),from1981to1996.Mr.Li isa graduate of the Dalian Petrochemical Workers’University.

Mr. Fred SHI Fang MingChief Financial Officer – China Terminals

Mr. Shi, aged 40, joined Titan in April 2007 asSenior Finance Manager – PRC Tax. He wasappointed as Chief Financial Officer of ChinaTerminals in September 2010 and is responsibleforaccountingand financemanagementofChinaTerminals. Before joining Titan, he was TaxationManager at CNOOC and Shell PetrochemicalsCo. Ltd. for four years. Prior to this, he servedas Finance and AccountsManager at BP ZhuhaiChemical Co. Ltd. from 1997 to 2003, andFinance Supervisor at Zhuhai Fuhua Group from1995 to1997.Mr.Shi is thememberofChineseInstitute of Certified Public Accountants (CICPA).He graduated from Tsinghua University witha Bachelor degree in English and also holds aBachelor’s degree in Financial Accounting fromChangshaCommunicationsUniversity.

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

Mr. Li, aged 46, has been Finance Director ofTitan Quanzhou Shipyard since April 2008 andhas recently been appointed Finance Director ofFujian Titan Petrochemical Storage Developmentin 2011. He has more than 20 years workingexperience in shipyard operations and finance.Previous positions held byMr. Li include DeputyFinance Head of Dalian New Shipbuilding HeavyIndustry, Head of Finance of Dalian MarinePropeller Plant, Finance Manager of COSCO(Dalian) Shipyard Co. Ltd, and Deputy GeneralManager–FinanceoftheCOSCOShipyardGroupCo. Ltd.Mr. Li is a graduate of TianjinUniversitywith a Degree in Engineering and completedpostgraduate studies at Dongbei University ofFinance and Economics and Shanghai NationalAccountingInstitute.

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SENIOR MANAGEMENT


Mr. Saad TAYYABHead, Shipping

Mr. Saad, aged 51, has served in the Group’sshipping division since March 2005. He waspreviously consulting in Singapore from 2001 to2005,wherehewasresponsiblefortheinspectionof third party vessels on behalf of companieslike Shell, ExxonMobil and ChevronTexaco. Hesupervised insurance surveys including P&I withrespect to client claims and disputes, and was apioneer in establishing and providing training toshore-based establishments like Vopak terminalsin Singapore and other leading brands in the oilandchemicalindustries.HealsoservedasSeniorAuditor and conducted various technical auditsfor major clients. From 1999 to 2001, Mr. Saadwas involved inoperationandcharteringofcrudeand product tankers, based in Greece. Prior tothis, he had over 15 years of sailing experienceonoilandchemicaltankerswithmajorcompaniesbased in the United Kingdom, Greece and HongKong.HehasMasterClassIstatusfromAustralia,andiscurrentlydoinghisMBA.

Mr. ZHANG Hai QuanGeneral Manager, Shipyard

Mr. Zhang, aged 41, is responsible for theshipbuilding operations and business at TitanQuanzhou Shipyard, since his appointment asGeneral Manager of Shipyard in June 2008. Heis well-versed in modern shipbuilding technologyandworkprocesses,equippedwithdeep industryknowledge,practicalandmanagementexperiencein safety, quality, design, procurement, projectmanagement, workshop fabrication and overalltechnology standards process controls. Prior tojoining Titan, Mr. Zhang worked for 17 years atDalian Shipbuilding Industry Co, holding variouspositions including Chief Processing Engineerof the Research Institute’s Engineering faculty,Deputy Head of the Manufacture SupervisionDivision in the Production Department, ProjectManager–ProductOilTankerandDeputyProjectManager – Floating Production Storage andOffloading (FPSO). Mr. Zhang graduated with aBachelor’s degree in Shipbuilding EngineeringfromDalianUniversityofTechnologyin1991.

Mr. Lawrence LUIHead, Internal Audit

Mr. Lui, aged 36, has been responsible for theGroup’sinternalcontrolimprovementsandspecialfinance projects since his appointment as SeniorManager,InternalControlsinMarch2010.Hehassince been redesignated as Head of the InternalAudit upon the establishment of Internal AuditDepartment. He has over 14 years of experiencein auditing and commercial accounting acrossHong Kong, China and the U.S. Prior to joiningTitan, he headed the internal audit function atEton Group, where he covered various locationsin China spanning multi-industrial businessesincludinghotels,properties, financeandbanking,manufacturing and airlines. He also workedat KPMG from 2000 to 2004 and led auditsfor listed companies including infrastructure,property and energy companies.Mr. Lui is a fullmember of the American Institute of CertifiedPublic Accountants, a member of Hong KongInstitute of Certified Public Accountants and aCertified Internal Auditor. He was also appointedasAdvisorat InternationalFinancialManagementAssociation.Mr. Lui graduated fromUniversity ofHawaii at Manoa, USA with a Bachelor’s Degreein Business Administration, double majoring inAccountingandFinance.


EVENTS OF THE YEAR

JulyBond exchange offer completes successfully and TitanissuesUS$78.7million in convertible notes, andUS$14.2million in payment in kind notes, both due in 2015,togetherwithacashpaymentofUS$43.2million.

AugustTitanbecomesthefirstFSUoperatortoofferdouble-hulledFSUinMalaysiawithTitanVenuscommencesoperation.

JanuaryTwomoreFSUaredesignatedbyPLATTSasitsphysicaldeliverypointforfueloilinSingapore,namelyTicen Sun and Titan Gemini,whichbringstoatotaloffourFSUfortheGroupasPLATTSphysicaldeliveryterminals.

MarchSells the remaining three owned VLCC Titan Mercury, Titan Chios and Titan ScorpioforHK$370.5million.

AprilFujian terminal’s utilisation rate marks 99.3%, whichmeansallthestoragetanksarefullyutilised.Inaddition,more than75%of theutilisation comes from long termcontracts.

SeptemberCharter-in four 9,000 dwt chemical tankers to capture theriseindemandforchemicalstorage.

17

EVENTS OF THE YEAR


DecemberTitan Nansha Petrochemical Terminal receivesapproval from Shanghai Futures Exchange for anadditional50,000m3capacity,bringing totalphysicaldelivery terminal capacity to 250,000 m3, making itthe largest physical delivery storage facility for thesettlementofitsfueloilfuturescontracts.

DecemberTitan Quanzhou Maritime Institute successfully passestheon-site inspectionbyMaritimeSafetyAdministrationof PRC and achieves the permission and certificate forseafarers’training.

DecemberTitan Quanzhou Shipyard is sold to Grand ChinaLogistics Holding (Group) Company Limited (“GrandChina Logistics”) for RMB1,866million, however, Titancontinues tomanage thebusinessoperations.Followingthesaleofshipyard,theGroupfocusesthecorestoragebusiness.

DecemberGrand China Logistics, a member of the Hainan AirGroup, subscribes for 500 million Titan’s new ordinarysharesatapriceofHK$0.61each.

MANAGEMENT DISCUSSION AND ANALYSIS

Titan has made a significant

stride in restructuring the

Group’s core business by

focusing on its Floating Storage

and China Terminals businesses,

while maintaining its Transportation

and Distribution businesses and

disposing of its shipyard.

OPERATIONS REVIEW

OPERATIONS REVIEW


Floating Storage Units (Offshore Storage)The Group’s Float ing Storage Unit (FSU) operations provide oil storage, transit, blending and physical delivery services at Pasir Gudang and Tanjung Pelapas Anchorage in Malaysia. Titan is the first and sole FSU operator to offer double-hulled FSU in Malaysia. Strategically located at the juncture of Singapore and Malaysia, our FSU serves a range of international clients and vessels trading along the major shipping route between the Indian Ocean and the Pacific Ocean.

FSU List (as at 31 March 2011)Titan’s FSU

Ship Name DWT (mt)

1 TICEN OCEAN 284,497

2 TITAN ARIES(Ex-EDINBURGH)

302,493

3 TITANVENUS(Ex-CAMDEN)

298,306

4 TITAN ORION 284,480

5 MAYFAIR 298,405

Total dwt (mt) 1,468,181 FSU managed by Titan

Ship Name DWT (mt)

1 TITAN NEPTUNE 265,243

2 TITAN CHIOS 239,783

3 TITAN SCORPIO 265,551

4 TITAN GEMINI 261,068

Total dwt (mt) 1,031,645

The Group’s FSU operations had gone through ayear of major renewal program. We had disposedo f the remain ing th ree owned VLCCs andchartered-in double-hulled vessels. The numberof FSU in operation has decreased from six unitsat thebeginningof2010 to fiveunitsasofendof

2010. This caused the total FSU capacity to dropfrom 1.78 million cubic meters in 2009 to 1.59millioncubicmetersin2010.

As the plan of converting our fleet into double-hulledcarriedon,operationsweredisruptedduringthe conversion and replacement process, thusresulting in a temporary reduction in the capacityin the middle of the year. In addition, the strongcompetition, international oil market conditionsandpreferential demand for double-hulled vesselsposed a negative impact on this segment, whichled to a decline of the average utilisation overthe year from 92% to 76%. Segment LBITDAwas HK$53 million, down from segment EBITDAHK$192millionin2009.

With the Group’s first double-hulled vessel, TitanVenus, commenced operation in August 2010,Titan became the first and only FSU operatorto of fer double-hul led FSU in Malaysia. Inaddition, twomore FSUwere approved as Platts’sdesignateddeliverypoint,resultinginatotaloffourFSU being included into Platts Singapore Fuel OilAssessments. Furthermore, Titan has entered intoalongtermstorageagreementwithConocoPhillips,an international oil major. This shows that Titanis strongly recognised and aff i rmed by theinternational shipping industry and the oil tradingcommunity.

We wi l l consider increasing i ts capacity bychar ter ing addi t iona l VLCCs when su i tab leopportunityarises.

20


2010 Annual Report

China Terminals (Onshore Storage)Located at strategic locations in China, the three China terminals of Titan are undergoing dynamic growth and expansion. Phases I and II of Titan Nansha Petrochemical Terminal, Phase I of Titan Fujian Petrochemical Terminal and Phases I & II of Yangshan Terminal are currently in operation. Together, they provide a combined storage capacity of 1,825,300 cubic meters, of which 1,610,000 cubic meters are oil storage and 215,300 cubic meters are chemical storage.

China Terminals Project Table

Nansha, Guangdong Quanzhou, Fujian Yangshan, Shanghai

Existing Terminals and Facilities (as of 2011)

Total Capacity 918,300m3 429,000m3 1,020,000m3

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

Phase II 305,300m3 339,000m3(mid2011) 600,000m3

Phase III 203,000m3 – –

Number Of Berths 11 3 5

Current Maximum Berth Capacity

120,000dwt 13,000dwt(current)100,000dwt(mid2011)

120,000dwt

Products FuelOil,Chemicals,PetroleumProducts

CrudeOil,FuelOil,Chemicals,Petroleum

Products

FuelOil,Chemicals,PetroleumProducts

Future Developments

Total Planned Capacity 1,800,000m3 1,599,000m3 2,370,000m3

Number Of Berths To Be Built

10 5 11

Planned Maximum Berth Capacity

120,000dwt 300,000dwt 300,000dwt

21



Underpinned by the strong demand for onshorestorage,ouronshorebusinesscontinuestoperformwell. Revenues from Titan’s China Terminalsboosted from HK$162 million to HK$200 millionand segment EBITDA has risen from HK$108milliontoHK$156millionfortheyear.

Aswereportedsixmonthsago,the590,000cubicmeter fuel oil storage utilisation slumped in thefirst half of 2010. However, business picked upstrongly during the second half. Therefore, thisresults in a slight drop of the average utilisationratefrom78%in2009to73%forthepasttwelve-monthperiod.

For the 125,300 cubic meter chemical storagefacility ofNansha Terminal, the average utilisationsoaredfrom31%in2009to80%in2010.

Phase IIIofNanshaTerminal,capableofhandling203,000 cubic meter refined oil, was completedby end of 2010. The average annual utilisation

rate in 2010 for the combined Phases I and IIcapacity at Nansha Terminal maintained as in2009 at 74%. The operations ofNansha Terminalarenotonlyefficientbutalsosafe,andthismakesus standout among thecompetitors.The terminalachieved safety milestone of 1,535 days withoutanyincidentsinitsoperations.

Duringtheyear,withShanghaiFuturesExchange’sapproval for an additional 50,000 cubic meterscapacity, the designated physical delivery storagefacility in Nansha Terminal had increased to250,000 cubic meters. In the beginning of 2011,the total capacity further rose to 300,000 cubicmeters. Nansha Terminal is now the largestphysical delivery storage facility for the settlementof its fuel oil futures contracts. This is the thirdtime for Shanghai Futures Exchange to lift thecapacity. It reflectsonthehighqualitystandardofTitan’sassetsandourabilitytoprovidesatisfactoryservices to meet the needs of the Exchange andthetradingcommunity.

22


2010 Annual Report

On the other hand, the utilisation of chemicalstorage facility in Fujian grew significantly duringthe year. The average annual utilisation of thechemical storage facility was increased to 89%in 2010 compared to 67% in 2009. The averagemonthly utilisation rate also marked a notablerecordof100%inthesecondquarterof2010.

The total storage capacity of Shanghai YangshanPetrochemical Terminal nearly tripled due to theadditional 600,000 cubic meters of its Phase IIwhich commenced operation in July 2010. The

additional capacity was all taken up even whenthey were not fully completed. The utilisationrate rose to 97%, compared to 73% for 2009.Amongst the total capacity of 1,020,000 cubicmeters,100,000cubicmetershadbeenapprovedas physical delivery facility of Shanghai FuturesExchange for settlement of the Exchange’s fuel oilfuturescontracts.

Whi le the construct ion of China Terminalsprogressed, the 100,000 dwt jetty and the PhaseII 339,000 cubic meter product oil and fuel oilstorage tanks at Fujian facility are expected tobe in operation in the second half of 2011. Webelieve that our onshore storage will generatestable income as storage demand is expected torisecontinuouslydue to thegrowthof theChineseeconomy.

23



single-hulledcoastal tankers in2009.Providingacombinedcapacity481,474dwt,Titan’s renewedfleet will be able to offer services in differentsegments wi thin the t ransportat ion market ,delivering competitive and quality transportationsolution to our valued customers with double-hulledvessels.

During the year, our transportation business wasinterrupted when upgrading program took place.The revenue for transportationsegmentdecreasedby30.7%toHK$178million,comparedtoHK$258million the yearbefore,while theoperationsmadeasegmentLBITDAatHK$114million.

Transportation and Supply/DistributionThe t ranspor ta t i on marke t rema ined so f t ,characterisedbybunkerprice variance, fluctuatedfreight rate and inclination to double-hulledtankers. We continued our plan to convert theentire fleet into double-hulled by disposing of thesingle-hulledvessels.

At the end of 2010, our transportation fleetwas comprised of six double-hulled producttankers, four chemical tankers, one VLCC andone Aframax tanker, as compared to the eight

24


2010 Annual Report

Revenues for the distribution business, climbed49.5% to HK$1,032 million compared to thepreviousyear.SegmentEBITDAwasHK$26millionas compared to a segment EBITDA of HK$24millionfor2009.

The Group’s bunkering operations were furtherscaleddownwithonlySingaporeoffering refuelingservicestoourownfleet.

ShipyardThe Group had been operating and developingTitan Quanzhou Shipyard since 2007. Recently,Titan decided to sell this business to GrandChina Logistics andwill only providemanagementservices in order to streamline the Group’sbusiness. Under the sale agreement signedon 13 December 2010, Titan will continue tomanage the business operations of the Shipyardtill 31 December 2012. With the good qualitiesof the shipyard allied with Titan’s expertise, thismultifunctional facility will be one of the largestship repair, offshore engineering and specialisedbuildingyardsinAsiawhenfullyconstructed.

In addition to our partnership with one of theworld’slargestship-owners,KawasakiKisenKaisha(“K Line”) of Japan, which appointed Shipyardas its China’s primary ship repair partner in2008, a sheer volume of ship repair business willbe provided in the future. The Shipyard is wellpositioned to support the demand for ship repairservices andhas alreadyhold strongattraction forthemajorship-owners.

TitanQuanzhou Shipyard had delivered four 9,000dwt chemical tankers since early 2010. Anothertwo 7,000dwt bunker/ transportation dual purposetankers are currently under construction andexpected to be delivered later in this year. As ofthe end of 2010, a total of 14 vessels had beendelivered.All vesselshavebeencertifiedbyLloyd’sList.

As the construction of the ship repair facilityprogresses,weexpect theearlierphaseconsistingof two largerdrydocksandup to1,000metersofrepair berths to begin operations during the firsthalf of this year.The remaining twodrydockswillbecompletedin2012.


FINANCIAL REVIEW

Financial ResultsThe Group’s total turnover for the year increasedby5.3%toHK$2,111millionwithcontinuedfocusonstoragebusinessaspartoftheGroup’sstrategy.The Group’s revenue from continuing operationswereup18.8% toHK$1,924million. The revenuefromdiscontinuedoperation,shipbuildingdropped51.4% to HK$187 million. The loss before taxfrom continuing operations was HK$508 millioncompared toHK$429million in theprevious year.The Group’s continuing operations recorded lossbefore interest expenses, tax, depreciation andamortisation (LBITDA) of HK$90 million whilein 2009 was earnings before interest expenses,tax, depreciation and amortisation (EBITDA) ofHK$147 million. This included an exceptionalnet loss from the disposal of vessels of HK$447million (2009: HK$138 million) and gains onrestructuring/repurchases of fixed rate guaranteedsenior notes amounted to HK$476 million (2009:HK$91 million). Finance costs for the Groupreflected a decrease from HK$383 million toHK$285millionasaresultofrestructuringoffixedrate guaranteed senior notes. With the inclusionof the discontinued operation, the loss before taxfor theyear increasedtoHK$586million.The lossfor theyearattributable toownersof theCompanyincreased fromHK$536million toHK$581millionthisyear.

Offshore Oil StorageThe offshore oil storage business recorded aturnover ofHK$514million in 2010, as comparedto HK$510 million for 2009. Due to higher costof charter-in vessels and the disturbance ofoperational capacity resulted from disposal andreplacementduring theyear, thesegmentEBITDAdecreased from HK$192 million to LBITDA ofHK$53 million in 2010. The offshore oil storagebusinessaccounted for24.4%ofGroup’s revenuein2010.

Onshore Oil and Chemical StorageThe onshore oil and chemical storage businessrecorded a turnover of HK$200 million in 2010,as compared to HK$162 million for 2009. TheEBITDA of this segment increased by 44.3% toHK$156millionascomparedtoHK$108millionfortheprior yearasa resultofhigherutilisation ratesand an increase in storage capacity. The onshoreoil and chemical storage business accounted for9.4%ofGroup’srevenuein2010.

TransportationThisbusiness turnoverdropped toHK$178millionin 2010 from HK$258 million recorded in 2009.Due to the vessels being off hire and the costsincurred during the conversion of tankers todouble-hulled, and the adverse market conditionsin freight market, the segment LBITDA from theoil transportation business increased from HK$46million to HK$114 million. The transportationbusiness accounted for 8.5% of Group’s revenuein2010.

Supply and DistributionThis business turnover increased by 49.5% toHK$1,032 million from HK$690 million in 2009while the segment EBITDA increased by 10.5%to HK$26 million as compared to HK$24 millionin 2009. The business accounted for 48.8% ofGroup’srevenuein2010.

ShipbuildingThe contribution of the discontinued operation,shipbuilding to theGroup’s turnover decreasedby51.4%toHK$187millionascomparedtoHK$385million in 2009 and the segment LBITDA wasHK$31million in 2010 while in 2009 was HK$59million. The business accounted for 8.9% ofGroup’srevenuein2010.

26

FINANCIAL REVIEW

2010 Annual Report

Liquidity, Financial Resources, Charges on Assets and GearingThe Group finances its operations largely throughinternally generated resources, term loans andtrade finance facilities provided by banks inHongKong, Singapore and Mainland China. As at 31December2010,

a) TheGrouphad:

• Cash and bank balances of HK$182mi l l ion (2009: HK$358 mi l l ion),pledged deposits and restricted cashof HK$244 million (2009: HK$172million) from continuing operations.Thesewerecomprisedof:

— a n e q u i v a l e n t o f HK$41million (2009: HK$98 million)denominatedinUSdollars

— a n e q u i v a l e n t o f H K $ 2million (2009: HK$4 million)denominated in S ingaporedollars

— an equ i va l en t o f HK$380million (2009:HK$422million)denominatedinRMB

— HK$3 mil l ion (2009: HK$6million)inHongKongdollars

• In t e res t -bea r i ng bank l oans o fHK$2,308 million (2009: HK$2,963mil l ion), of which HK$18 mil l ion(2009: HK$72 million) were floatingrateloansdenominatedinUSdollars.HK$801 million of the Group’s bankloans at 31 December 2010 havematuritieswithinoneyear.

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

• Vesselswithanaggregatenetcarryingvalue of HK$612million in 2009 butsuchsecuritywasreleasedin2010

• Construction in progress with anaggregate carrying value of HK$716million(2009:HK$478million)

• Bank ba lances and depos i ts o fHK$135 m i l l i on (2009 : HK$82million)

• Machinery with an aggregate netcarrying value of HK$194 mill ion(2009:HK$209million)

• Bui ldings with an aggregate netcarrying value of HK$443 mill ion(2009:HK$58million)

• Prepaid land/seabed lease paymentswith an aggregate net carrying valueof HK$945 million (2009: HK$906million)

• Storage facilities with an aggregatenet carry ing value of HK$1,384million(2009:HK$1,059million)

• Con t r ac t s i n p r og r e s s w i t h anaggregate carrying value of HK145millionin2009butsuchsecuritywasreleasedin2010

27

FINANCIAL REVIEW


• A c c oun t s r e c e i v a b l e s w i t h a naggregate carrying value of HK$56million(2009:Nil)

• CorporateguaranteesexecutedbytheCompany

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

c) The Senior Notes Due 2012 of HK$840mil l ion (2009: HK$2,491 mil l ion), theConvertible Notes Due 2015 of HK$409mil l ion (2009: Nil) and the PIK NotesDue 2015 of HK$84 million (2009: Nil)were secured by the shares of certainsubsidiaries.

d) TheGrouphad:

• Current assets of HK$5,318 million(2009: HK$2,044 million) and totalassets of HK$9,517 million (2009:HK$9,446million)

• Totalbank loansofHK$2,308million(2009:HK$2,963million)

• Senior Notes Due 2012 of HK$840million(2009:HK$2,491million)

• Convertible Notes Due 2015 as anon-current liability to the extent ofthe liabilityportionofHK$285millionissuedduringtheyear

• PIKNotesDue2015ofHK$84millionissuedduringtheyear

• Convertible preferred shares as anon-current liability to the extent ofthe liabilityportionofHK$719million(2009:HK$645million)

• K Line Notes Due 2013 as a currentliability to the extent of the liabilityportion of HK$210 million (2009:a non-current liability of HK$204million)

• TGIL Notes Due 2014 as a non-current liability to the extent of thel iabil i ty portion of HK$83 mill ion(2009:HK$68million)

The Group’s current ratio was 1.30 (2009:0.73). The gearing of theGroup, calculatedas the total bank loans, Senior Notes Due2012, Convertible Notes Due 2015, PIKNotes Due 2015, K Line Notes Due 2013and TGIL Notes Due 2014 to total assets,hasdecreasedto0.57(2009:0.60).

e) The G roup ope ra t e s i n Hong Kong ,Singapore and Mainland China. As i tsbusiness contracts aremostly settled in USdollars and its reporting currency is HongKongdollars, thedirectorsconsider that theGrouphasnosignificantexposuretoforeignexchange, except for currency translationrisksonthenetassetsinforeignoperations,in particular inMainland China. The Grouphas not used any financial instruments forspeculativepurposes.


CORPORATE GOVERNANCE REPORT

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

Compliance with the Corporate Governance CodeThe Company has applied the principles andcompliedwithcodeprovisionssetout in theCodeon Corporate Governance Practices (“CG Code”)contained inAppendix14 of theRulesGoverningthe Listing of Securities on The Stock Exchangeof Hong Kong Limited (“Listing Rules”) duringthe year ended 31 December 2010, except fordeviationssetoutbelow.

As requiredundercodeprovisionA.2.1of theCGCode, the roles of Chairman and Chief ExecutiveOfficer should be separate and should not beperformed by the same individual. Currently,Mr. Tsoi Tin Chun, Chairman of the Board, alsoholds the position of theGroup’sChief Executive.Furtherdetailsareprovidedinthesectionheaded“ChairmanandChiefExecutive”below.

Pursuant tocodeprovisionE.1.2of theCGCode,the Chairman of the Board should attend theannual general meeting of the Company. Due tobusinessmeetingcommitmentsoverseas,Mr.TsoiTinChunwasunabletoattendtheannualgeneralmeeting of the Company held on 24 June 2010.Mr.PatrickWongSiuHung,theexecutivedirectorof the Company, chaired the annual generalmeeting in accordance with the provisions of theCompany’sbye-laws.

The key corporate governance practices adoptedbytheGrouparesummarizedbelow.

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

As at 31 December 2010, the Board wascomprised of f ive d i rectors, inc luding twoexecutive directors and three independent non-executive directors. Biographical details of thedirectors and their respective roles in the Grouparesetout in theDirectors’sectionof thisAnnualReport.

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

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

29



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

Chairman and the Chief ExecutiveThe Chairman is responsible for providingleadershiptoandoverseeingthefunctioningoftheBoardtoensurethatitactsinthebestinterestsoftheGroup.Withthesupportoftheotherexecutivedirectorandthecompanysecretary,theChairmanseeks to ensure that all directors are properlybriefed on issues arising at board meetings andreceive adequate and reliable information ina timely manner. The Chairman also activelyencouragesdirectors tobefullyengaged inBoardaffairsandmakecontributionstotheBoardinthefulfillmentofitsresponsibilities.

The Ch i e f E x ecu t i v e r o l e , s uppo r t ed b ythe other executive director and the seniormanagement team, is responsible for the day-to-day management and operations of the Group,attending to the formulation and successfulimplementation of Group policies and assumingfull accountability to the Board for all Groupoperations and performance. The holder of thisposition maintains an ongoing dialogue with alldirectors, directly or through his support team,to keep them fully informed of major businessdevelopments and issues and the adoption/execution of Group strategies, pol icies andobjectives by the various business units. He isalso responsible for building and maintaining aneffective executive team to support him in thisrole.

Currently, Mr. Tsoi Tin Chun, Chairman of theBoard, also fulfills the functions/responsibilitiesof the Chief Executive. He is responsible forand assumes full accountability to the Board forall Group operations and performance results.AlthoughtheroleofChairmanandChiefExecutiveareperformedby the sameperson, thePresidentoftheCorporateOffice,whoprovidesstrategicandoperationalleadershipfortheGroup,togetherwiththeseniormanagementteam,assisttheChairmanin managing the Group’s day-to-day operations.The Board periodically reviews the effectivenessof this arrangement andwill take any appropriateactionshouldcircumstancesnecessitate.

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

30


2010 Annual Report

Noticeof at least14days is served for regularBoardmeetings.During2010,eight fullBoardmeetingswereheldatwhichtheindividualattendancerecordsofthedirectorswereasfollows:

Attended/Eligible to Attend

Executive directorsMr.TsoiTinChun(Chairman) 1/7Mr.PatrickWongSiuHung 8/8

Independent non-executive directors Mr.JohnWilliamCrawford 8/8Ms.MariaTamWaiChu 8/8Mr.AbrahamShekLaiHim 8/8

Nomination of DirectorsThe Company does no t have a sepa ra t enomination committee. The Board regularlyreviews i ts structure, size and composit ionand, when deemed necessary, the Chairman,assisted by the executive directors, identifiessuitable candidates for consideration by theBoard. The appointment of a new director is acollective decision of the Board after taking intoconsideration the expertise, experience, integrityandcommitmentofthatappointeetotheGroup.

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

The statement of the auditors with respect totheir reporting responsibilities on the financials tatements of the Group is set out in theindependentauditors’reportonpages43to44ofthisAnnualReport.

Audit CommitteeT h e A u d i t C omm i t t e e c omp r i s e s t h r e eindependent non-executive directors, namelyMr. JohnWilliamCrawford (Chairman),Ms.MariaTamWaiChuandMr.AbrahamShekLaiHim.

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

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

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

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

• oversee the effect iveness of f inancialreportingsystems;and

31



• ensure ongoing assessments of theGroup’sinternal control systems over financial,operational, compliance and broad riskmanagementprocesses.

During the year, three Audit Committee meetingswere held and the individual attendance recordswereasfollows:

Attendance

Mr.JohnWilliamCrawford–Chairman 3/3Ms.MariaTamWaiChu 3/3Mr.AbrahamShekLaiHim 3/3

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

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

During the year ended 31 December 2010,the audit fees paid/payable to E&Y amountedto approximately HK$4,000,000 and the feespaid/payable to them for non-audit servicesamounted to approx imate ly HK$1,949,000which was comprised of taxation services feesof HK$577,000 and other professional feesin relation to interim results review and otherspecial/one-off corporate reporting exercises ofHK$1,372,000.

Review of Risk Management and Internal Control SystemsAs more fully described in the Internal ControlEnvi ronment sect ion, the Audi t Commit teeassisted the Board in meeting its responsibilitiesfor ensuring and overseeing effective systemsof internal control. During the year, the Groupcontinued to carry out its 3-year internal auditprogram through an independent consultantapproved by the Audit Committee. Moreover,an in-house team was set up to carry out in-house fieldwork review to follow up the externalconsultant’s f indings, recommendations andimprovement implementation on various auditareas.

Internal Control Environment

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

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

32


2010 Annual Report

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

• ensure compl iance wi th the re levantlegislationandregulations.

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

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

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

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

• Guidelines and procedures were establishedfortheapprovalandcontrolofexpenditures.Bothoperatingandcapitalexpendituresaresubjecttoanoverallbudgetmonitoringandapproval process. More specific controlsand approvals, prior to commitment by theappropriate executives, are required formaterialexpendituresandacquisitions,andanyunbudgeteditems.

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

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

• The Company engaged an e x t e rna lconsul tant in 2008 to undertake theinternal audit function and to execute aninternal audit program through to andincluding2010.Audit areaswere identifiedon a priority risk basis, with an emphasison the shipyard operations and oil storagebusinesses in the PRC. Following thecompletionofauditreviewsontheshipyardoperations, theoilstoragebusinessunits inNanshaandFujianand the floatingstorageunits in Malaysia in 2009, the externalconsultant carried out follow-up reviewson the abovementioned areas as well asauditreviewsonITimplementation,financeand human resource functions - all werecompletedin2010.

• During the year, the Audit Committee,management, in-house internal controlteam together with the external consultantdiscussed and reviewed the internal auditreports on f indings, recommendationsand managemen t r e sponses on theaudit reviews covering the audit areas.The internal audit reports highl ightedsome cont ro l i ssues wh ich prov ideduseful recommendations and guidelinesto management and in-house internalcontrol team to implement improvementsa n d t o e n s u r e o p t im um c o n t r o l s ,pol ic ies and procedures are in placein future. Management recognized the

33



need to address the matters reportedand have already rectif ied or initiateds teps to implement improvements tostrengthen internal controls based on therecommendations.

• During the year, an in-house internalcontrol team was established to carryout in-house fieldwork review to followup the external consultant’s f indings,r ecommenda t i ons and improvemen timplementation on audit areas. The teamreported the implementation status andother improvement plans on each of theabovementioned audit areas to the AuditCommittee, management and the externalconsultant. Moreover, the team assistedmanagementtostreamlinethedelegationofauthority process andupdate its respectivepoliciesandprocedures.

• With the completion of 3-year programperformed by external consultant, theCompany has set up its own internal auditdepartment in2011toperformtheGroup’songoinginternalauditfunctionsinfuture.

Annual AssessmentThe Board together with the Audit Committeereviewed theeffectivenessof theGroup’ssystemsof internal control over financial, operational,compl iance i ssues , and broad-based r i skmanagement processes as well as the adequacyof resources, staff qualifications and experience,trainingprogrammesandbudgetoftheCompany’saccountingandfinancialreportingfunction.

Nosuspectedfraudsorirregularities,orsuspectedinfringement of laws, rules and regulations cameto the Committee’s attention. As a result of itsreview efforts and the new initiatives taken todate,theBoardissatisfiedthattheGroupin2010complied with the code provisions on internalcontrolsassetforthintheCGCode.

Remuneration CommitteeThe Remuneration Committee was established inaccordance with the Listing Rules and currentlycompr ises two independent non-execut ivedirectorsand theChairmanof theBoard,namely,Ms.MariaTamWaiChu(Chairman),Mr.AbrahamShekLaiHimandMr.TsoiTinChun.

The Committee has specific written terms ofreferenceanditsprimarydutiesinclude:

• ongoing review of the Group’s overal lremunerationpoliciesandstructure;

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

• reviews of and determinations on thespec i f i c r emunera t i on packages f o rexecutivedirectorsandseniormanagement;and

• reviews of and approvals on performance–based remunera t ion by re ference tocorporategoals.

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

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2010 Annual Report

During2010,theRemunerationCommitteeheldonemeetingandtheattendancerecordwasasfollows:

Attendance

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

In the meeting, the Committee discussed andreviewed with the Head of Human Resourcesthe Group’s overall compensation philosophy,the remuneration policies and structure andhumancapital issues,aswellastheremunerationpackages for executive directors and seniormanagementandtheannualfeestonon-executivedirectorsfor2011.

Details of the emoluments of each director ofthe Company for the year ended 31 December2010aresetoutonpages92to93ofthisAnnualReport.

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

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

To f o s t e r e f f ec t i v e commun ica t i ons w i t hshareholders, the Company’s corporate website(www.petrotitan.com) is available in English,traditional and simplified Chinese to cater todi f ferent language needs and, through thewebsite, the Company’s annual and interimreports,announcements,newsandotherinvestor-related information are easily accessible. Inaddition to responding to phone-in enquiries,the Company has a dedicated email to handleinvestor enquiries, especially for the convenienceof overseas investors and various stakeholders.([email protected]).

TheBoardwelcomestheviewsofshareholdersonmatters affecting the Company and encouragesthem to attend shareholders’ meetings like theAnnual General Meeting, to communicate anyconcerns they may have with the Board andmanagementdirectly.


REPORT OF THE DIRECTORS

The directors present their report and the audited financial statements of the Company and itssubsidiaries(the“Group”)fortheyearended31December2010.

PRINCIPAL ACTIVITIESThe principal activity of the Company is investment holding. Details of the principal activities of theprincipalsubsidiariesaresetout innote18tothefinancialstatements.Exceptforthediscontinuanceofshipbuildingandthebuildingoftheshiprepairfacilitiesoperations,therewerenosignificantchangesinthenatureoftheGroup’sprincipalactivitiesduringtheyear.

RESULTS AND DIVIDENDSTheGroup’s lossfortheyearended31December2010andthestateofaffairsof theCompanyandtheGroupatthatdatearesetoutinthefinancialstatementsonpages45to150.

Thedirectorsdonotrecommendthepaymentofanydividendfortheyear.

SUMMARY FINANCIAL INFORMATIONAsummary of thepublished results andassets, liabilities andnon-controlling interests of theGroup forthe last five financial years, as extracted from theaudited financial statements, is set out onpage151.Thissummarydoesnotformpartoftheauditedfinancialstatements.

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

SHARE CAPITAL, SHARE OPTIONS AND CONVERTIBLE PREFERRED SHARESDetailsofthemovementsintheCompany’ssharecapital,shareoptionsandconvertiblepreferredsharesduringtheyeararesetoutinnotes37,38and33tothefinancialstatements,respectively.

GUARANTEED SENIOR NOTES DUE 2015On 28 July 2010 (27 July 2010, New York City Time), the Company issued (i) guaranteed seniorconvertible notes due 2015 (“Convertible Notes Due 2015”) for an aggregate principal amount ofUS$78,728,000 (approximately HK$614,078,000) and (ii) guaranteed senior payment-in-kind notesdue2015 (“PIKNotesDue2015”) foranaggregateprincipalamountofUS$14,193,000(approximatelyHK$110,705,000) as part of the consideration in exchange for a certain number of 8.5% guaranteedsenior notes due 2012 (“SeniorNotesDue 2012”) tendered pursuant to theCompany’s final exchangeoffermade on 9 June2010 (8 June2010,NewYorkCity Time). TheConvertibleNotesDue2015 andPIKNotesDue2015willmatureon13July2015.

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

36


2010 Annual Report

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIESDuring the year ended 31December 2010, the Company purchased a number of its ConvertibleNotesDue 2015 andPIKNotesDue 2015 (the “Notes”) in an aggregate principal amount ofUS$10,097,000(approximately HK$78,757,000) and US$3,539,500 (approximately HK$27,608,000), respectively. TheNotesare listedon theSingaporeStockExchangeand furtherdetails are set out innotes31and32 tothefinancialstatements.

Save as disclosed above, therewerenopurchases, sales or redemptionsby theCompany, or any of itssubsidiaries,oftheCompany’slistedsecuritiesduringtheyear.

RESERVESDetailsofmovements in the reservesof theCompanyand theGroupduring theyeararesetout innote39tothefinancialstatements.

DISTRIBUTABLE RESERVESAt 31 December 2010, the Company did not have reserves available for distribution, calculated inaccordancewiththeprovisionofthelawsofBermuda.UnderthelawsofBermuda,theCompany’ssharepremium account of approximately HK$2,437,224,000 as at 31 December 2010may be distributed intheformoffullypaidbonusshares.

MAJOR CUSTOMERS AND SUPPLIERSIntheyearunderreview,salestotheGroup’sfivelargestcustomersaccountedfor35%oftotalsalesfortheyearandsalestothelargestcustomerincludedthereinamountedto9%.

PurchasesfromtheGroup’sfive largestsuppliersaccountedfor lessthan30%oftotalpurchasesfortheyear.

DIRECTORSThedirectorsoftheCompanyduringtheyearanduptothedateofthisreportwere:

Executive directorsMr.TsoiTinChunMr.PatrickWongSiuHung

Independent non-executive directorsMr.JohnWilliamCrawfordMr.AbrahamShekLaiHimMs.MariaTamWaiChu

In accordance with the Company’s bye-laws, Mr. Tsoi Tin Chun and Mr. Abraham Shek Lai Him willretireby rotationat the forthcomingannual generalmeetingand,beingeligible, offer themselves for re-election. Thenon-executive directors (including the independent non-executive directors) are appointedforperiodsof twoyearsandaresubject to retirementby rotationandre-election inaccordancewith theCompany’sbye-laws.

37



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

BIOGRAPHICAL DETAILS OF THE DIRECTORS AND SENIOR MANAGEMENTBiographicaldetailsofthedirectorsoftheCompanyandtheseniormanagementoftheGrouparesetoutonpages10to15oftheAnnualReport.

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

DIRECTORS’ REMUNERATIONDetailsofthedirectors’remunerationaresetoutinnote9tothefinancialstatements.

DIRECTORS’ INTERESTS IN CONTRACTSSave as disclosed in note 44 to the financial statements, no director had a material interest, eitherdirectlyor indirectly, inanycontractofsignificance to thebusinessof theGroup towhich theCompanyoranyofitsholdingcompanies,subsidiariesorfellowsubsidiarieswasapartyduringtheyear.

CONNECTED TRANSACTIONContinuing Connected TransactionOn1September2010,SinoVenusPte.Ltd (“SinoVenus”,awholly-ownedsubsidiaryof theCompany),enteredinto5charteragreements(the“CharterAgreements”)withOceanicShippingPte.Ltd.(“OceanicShipping”, a company wholly-owned byMr. Tsoi Tin Chun (Chairman and director of the Company), aconnectedpersonoftheCompanyundertheListingRules),underwhich,SinoVenuschartered5vesselsforatermofthreeyearscommencingfrom1September2010to31August2013.Thetotalcharterfeespayable by Sino Venus are subject to annual caps of US$4,089,440, US$12,268,320, US$12,268,320and US$8,178,880 for the years 2010, 2011, 2012 and 2013, respectively. Details of the transactionwere disclosed in the Company’s announcement dated 1 September 2010. During the year ended 31December 2010, US$4,089,000 (approximately HK$31,894,000) was paid by Sino Venus to OceanicShipping.

The aforesaid continuing connected transaction has been reviewed by the independent non-executivedirectors of the Company who have confirmed that the transaction had been entered into (a) in theordinary and usual course of business of the Group; (b) either on normal commercial terms or onterms no less favourable to the Group than terms available to or from independent third parties; and(c) in accordance with the relevant agreements governing the transactions on terms that are fair andreasonableandintheinterestsoftheshareholdersoftheCompanyasawhole.

38


2010 Annual Report

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

SignificantrelatedpartytransactionsenteredbytheGroupduringtheyearended31December2010aredisclosedinnote44tothefinancialstatements.

MANAGEMENT CONTRACTSNocontractsconcerning themanagementandadministrationof thewholeoranysubstantialpartof thebusinessoftheCompanywereenteredintoorinexistenceduringtheyear.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURESAt 31December 2010, the interests and short positions of the directors and the chief executive in theshares, underlying shares and debentures of the Company or its associated corporations (within themeaning of Part XV of the Securities and Futures Ordinance (the “SFO”)), as recorded in the registerrequired tobekeptby theCompanypursuant toSection352of theSFO,orasotherwisenotified to theCompanyandTheStockExchangeofHongKongLimited(the“StockExchange”)pursuanttoDivisions7and8ofPartXVoftheSFOandtheModelCodeforSecuritiesTransactionsbyDirectorsofListedIssuers(the“ModelCode”),wereassetoutbelow.

Long positions in ordinary shares of the Company:

Approximate % of shareholdingName of director Capacity Number of shares (Note 4)

Mr.TsoiTinChun Interestofcontrolledcorporations/ 3,733,557,083 48.07 Interestofspouse (Note1)

Options outstanding under the share option scheme of the Company:

Number of Approximate % of underlying shares shareholding Name of director Capacity (options granted) (Note 4)

Mr.PatrickWongSiuHung Beneficialowner 20,000,000 0.26 (Note 2)

39



Interest in an associated corporation:

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

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

Note1: Mr.TsoiTinChun (“Mr.Tsoi”) isdeemed tobe interested in thesharesof theCompanyheldbyTitanOilPteLtd (“TitanOil”) and Great Logistics Holdings Limited (“Great Logistics”) as a result of his shareholding in Titan Oil, the ultimateholdingcompanyofGreatLogistics.TheissuedsharecapitalofGreatLogisticsisbeneficiallyandwholly-ownedbyTitanOilwhichis, inturn,ownedasto95%byMr.Tsoiandasto5%byMs.TsoiYukYi(“Ms.Tsoi”), thespouseofMr.Tsoi.Mr.Tsoi is furtherdeemedtobe interested in thesharesof theCompanyheldbyTitanShipyardInvestmentCompanyLimited(“TSICL”) as TSICL is beneficially and wholly-owned by Mr. Tsoi. Mr. Tsoi is a director of Titan Oil, Great Logistics andTSICL.Mr. Tsoi is also deemed to be interested in the shareholding interests of Vision Jade Investments Limited (“VisionJade”)intheCompanyasVisionJadeisbeneficiallyandwholly-ownedbyMs.Tsoi.

Note2: Shareoptionscarrying rights tosubscribe forordinarysharesof theCompanyweregrantedon1February2008pursuanttotheshareoptionschemeadoptedbytheCompanyon31May2002.

Note3: Mr.Tsoi isdeemed tobe interested in theshareholdingofFujianShishiTitanSailorAdministerCo.Ltd. (“FujianShishi”),asaresultofhisshareholdinginTitanOil,theholdingcompanyofFujianShishi.Mr.TsoiisalsoadirectorofFujianShishi.

Note4: Basedon7,766,732,918ordinarysharesoftheCompanyissuedasat31December2010.

Save as disclosed above, at 31 December 2010, none of the directors or the chief executive hadregisteredanyinterestsorshortpositionsintheshares,underlyingsharesordebenturesoftheCompanyor any of its associated corporations (within the meaning of Part XV of the SFO) as required to berecorded pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the StockExchangepursuanttoDivisions7and8ofPartXVoftheSFOandtheModelCode.

DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBENTURESSave as disclosed under the heading “Directors’ and chief executive’s interests and short positions inshares,underlyingsharesanddebentures”aboveandintheshareoptionschemedisclosuresinnote38to the financial statements, at no time during the yearwere rights to acquire benefits bymeans of theacquisitionofshares inordebenturesof theCompanygrantedtoanydirectoror theirrespectivespouseorminorchildren,orwereanysuchrightsexercisedby them;orwas theCompanyoranyof itsholdingcompanies, subsidiaries or fellow subsidiaries a party to any arrangements to enable the directors toacquiresuchrightsinanyotherbodycorporate.

40


2010 Annual Report

SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARESAt31December2010,sofarasisknowntothedirectorsandthechiefexecutiveoftheCompany,thefollowingpersonshadinterestsorshortpositionsinthesharesandunderlyingsharesoftheCompanywhich were recorded in the register of interests required to be kept by the Company pursuant toSection336oftheSFO:

Long positions:

Approximate % Number of shares of shareholdingName Capacity and underlying shares (Note 11)

Ms.TsoiYukYi Interestofspouse/ 3,733,557,083 48.07 Interestofacontrolledcorporation (Note5)

TitanOil Interestofacontrolledcorporation/ 3,244,399,788 41.77 Beneficialowner (Note6)

GreatLogistics Beneficialowner 2,860,700,202 36.83 (Note 7)

MoralBaseInvestmentLimited Beneficialowner 1,000,000,000 12.87

Mr.WongChiLeung Interestofacontrolledcorporation/ 1,000,000,000 12.87 Interestofspouse (Note8)

Ms.WongKwokYing Interestofacontrolledcorporation/ 1,000,000,000 12.87 Interestofspouse (Note8)

SaturnPetrochemical Beneficialowner 857,795,031 11.04 HoldingsLimited

WarburgPincus&Co. Interestofacontrolledcorporation 857,795,031 11.04 (Note 9)

WarburgPincusIX,LLC Interestofacontrolledcorporation 857,795,031 11.04 (Note 9)

WarburgPincusPartnersLLC Interestofacontrolledcorporation 857,795,031 11.04 (Note 9)

WarburgPincusPrivate Interestofacontrolledcorporation 857,795,031 11.04 EquityIX,L.P. (Note9)

GrandChinaLogisticsHolding Beneficialowner 500,000,000 6.44 (Group)CompanyLimited

41



Approximate % Number of shares of shareholdingName Capacity and underlying shares (Note 11)

HaikouMeilanInternational Interestofcontrolledcorporations 500,000,000 6.44 AirportCo.,Ltd. (Note10)

HainanDevelopment Interestofcontrolledcorporations 500,000,000 6.44 HoldingsCo.,Ltd. (Note10)

TSICL Beneficialowner 395,369,018 5.09 (Note 5)

Note5: Ms.Tsoiisbeneficiallyinterestedin5%oftheissuedsharecapitalofTitanOilwhich,inturn,holdstheentireissuedsharecapital of Great Logistics.Mr. Tsoi is beneficially interested in 95% of the issued share capital of Titan Oil. AsMs. Tsoiis the spouseofMr.Tsoi, she isdeemed tobe interested in theCompany’s sharesheldbyGreat LogisticsandTitanOil.AsTSICL is beneficially andwholly-ownedbyMr. Tsoi,Ms. Tsoi is deemed tobe interested in the shareholding interestsof TSICL in the Company. Ms. Tsoi is also deemed to be interested in the shareholding interests of Vision Jade in theCompanyasaresultofhershareholdinginVisionJade.

Note6: Titan Oil is beneficially interested in the entire issued share capital of Great Logistics and, therefore, is deemed to beinterestedintheCompany’ssharesheldbyGreatLogistics.

Note7: Mr.TsoiisdeemedtobeinterestedinsuchordinarysharesheldbyGreatLogisticsasaresultofhisshareholdinginTitanOil, theultimateholdingcompanyofGreatLogistics.The issuedsharecapitalofGreatLogistics isbeneficiallyandwholly-ownedbyTitanOilwhich, in turn, isownedasto95%byMr.Tsoiandasto5%byMs.Tsoi, thespouseofMr.Tsoi.Mr.TsoiisalsoadirectorofTitanOilandGreatLogistics.

Note8: Pursuant to theSFO, eachofMr.WongChi Leung (“Mr.Wong”) andMs.WongKwokYing (“Ms.Wong”), spouse ofMr.Wong,isdeemedtobeinterestedinsharesoftheCompanyheldbyMoralBaseInvestmentLimited(“MoralBase”),whichislegallyandbeneficiallyownedasto50%byMr.Wongandasto50%byMs.Wong.

Note9: PursuanttotheSFO,asWarburgPincus&Co.,WarburgPincusPartnersLLC,WarburgPincusIX,LLCandWarburgPincusPrivate Equity IX, L.P. have 100% control over Saturn Petrochemical Holdings Limited,Warburg Pincus & Co., WarburgPincusPartnersLLC,WarburgPincus IX, LLCandWarburgPincusPrivateEquity IX, L.P.aredeemed tobe interested intheshareholdinginterestofSaturnPetrochemicalHoldingsLimitedintheCompany.

Note10: PursuanttotheSFO,asHaikouMeilanInternationalAirportCo.,Ltd.(“HaikouMeilan”)togetherwithitsfellowcorporationsnamelyYangtzeRiverInvestmentHoldingCo.,Ltd.andBohaiInternationalTrustCo.,Ltd.areinterestedinmorethanone-third of the equity interest inGrandChina LogisticsHolding (Group)Company Limited (“GrandChina Logistics”),HaikouMeilanisdeemedtobeinterestedintheshareholdinginterestofGrandChinaLogisticsintheCompany.

Pursuant to the SFO, as Hainan Development Holdings Co., Ltd (“Hainan Development”) together with its fellowcorporations namely Grand China Air Co., Ltd andHainan Airlines Co., Ltd., which, in turn, are interested inmore thanone-third of the equity interest in Haikou Meilan, Hainan Development is deemed to be interested in the shareholdinginterestofGrandChinaLogisticsintheCompany.

Note11: Basedon7,766,732,918ordinarysharesoftheCompanyissuedasat31December2010.

Save as disclosed above, at 31 December 2010, no person, other than the directors and the chiefexecutive of the Company, whose interests are set out in the section “Directors’ and chief executive’sinterests and short positions in shares, underlying shares and debentures” above, had an interest orshortpositioninthesharesorunderlyingsharesoftheCompanythatwasrequiredtoberecordedintheregisterrequiredtobekeptunderSection336oftheSFO.

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2010 Annual Report

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

CORPORATE GOVERNANCEThe Company is committed to maintaining good corporate governance to effectively oversee/guideoperations and to enhance long term shareholder value, with an emphasis on having a quality board,transparency, independence and accountability. A detailed Corporate Governance Report is set out onpages28to34oftheAnnualReport.

CHARITABLE CONTRIBUTIONSDuringtheyear,theGroupmadecharitablecontributionstotallingapproximatelyHK$360,000.

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

EVENTS AFTER THE REPORTING PERIODDetailsofsignificanteventsafterthereportingperiodoftheGrouparesetout innote49tothefinancialstatements.

AUDIT COMMITTEETheCompanyhasestablishedanauditcommitteeforthepurposesofreviewingandprovidingsupervisionover the financial reporting process and internal controls of theGroup. The audit committee comprisesthree independent non-executive directors. The audit committee has reviewed theGroup’s consolidatedfinancial statements for the year ended 31 December 2010 and discussed the same with the externalauditorsandisoftheopinionthatsuchstatementscomplywiththeapplicableaccountingstandards,theListingRulesandotherreportingrequirements,andthatadequatedisclosureshavebeenmade.

AUDITORSErnst&YoungretireandaresolutionfortheirreappointmentasauditorsoftheCompanywillbeproposedattheforthcomingannualgeneralmeeting.

ONBEHALFOFTHEBOARD

Tsoi Tin ChunChairman and Chief Executive

HongKong24March2011


INDEPENDENT AUDITORS’ REPORT

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

WehaveauditedtheconsolidatedfinancialstatementsofTitanPetrochemicalsGroupLimited(the“Company”)and itssubsidiaries(together, the“Group”)setoutonpages45 to150,whichcomprise theconsolidatedandcompany statements of financial position as at 31 December 2010, and the consolidated income statement,theconsolidatedstatementofcomprehensiveincome,theconsolidatedstatementofchangesinequityandtheconsolidatedstatementofcashflowsfortheyearthenended,andasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of these consolidated financial statementsthatgiveatrueandfairviewinaccordancewithHongKongFinancialReportingStandardsissuedbytheHongKong Institute of Certified Public Accountants and the disclosure requirements of theHongKongCompaniesOrdinance, and for such internal control as thedirectors determine is necessary to enable thepreparation ofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

AUDITORS’ RESPONSIBILITY

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

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong KongInstituteofCertifiedPublicAccountants.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreefrommaterialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in theconsolidated financial statements. The procedures selected depend on the auditors’ judgement, includingthe assessment of the risks of material misstatement of the consolidated financial statements, whether dueto fraud or error. In making those risk assessments, the auditors consider internal control relevant to theentity’spreparationofconsolidated financial statements thatgivea trueand fair view inorder todesignauditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by the directors, as well asevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ourauditopinion.

44

INDEPENDENT AUDITORS’ REPORT

2010 Annual Report

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of theCompanyandoftheGroupasat31December2010,andoftheGroup’slossandcashflowsfortheyearthenended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared inaccordancewiththedisclosurerequirementsoftheHongKongCompaniesOrdinance.

Without qualifying our opinion, we draw attention to note 2.1 to the financial statements concerning theadoption of the going concern basis on which the financial statements have been prepared. The Groupincurreda lossofHK$580,388,000during theyearended31December2010.Thiscondition,alongwith thetimeliness of settlement of the balance of the consideration to be received upon completion of the disposalof95%equity interest inTitanQuanzhouShipyardCo. Ltd, as set forth innote2.1, indicate theexistenceofmaterial uncertaintieswhichmay cast doubt about theGroup’s andCompany’s ability to continue as a goingconcern.

Ernst & YoungCertified Public Accountants18thFloorTwoInternationalFinanceCentre8FinanceStreet,CentralHongKong

24March2011

45

Year ended 31 December 2010


CONSOLIDATED INCOME STATEMENT

2010 2009 Notes HK$’000 HK$’000 (Restated)

CONTINUING OPERATIONS

Revenue 6 1,924,169 1,619,815Costofsales (1,987,032) (1,446,762)

Gross profit/(loss) (62,863) 173,053

Otherrevenue 18,776 48,546Gainsonrestructuring/repurchasesoffixed rate guaranteed senior notes 30 476,495 90,522Generalandadministrativeexpenses (229,268) (233,650)Financecosts 8 (273,943) (368,540)Shareofprofits/(losses)ofassociates,net 9,336 (1,393)Lossesondisposalsofvessels,net 14 (446,649) (137,623)

LOSS BEFORE TAX FROM CONTINUING OPERATIONS 7 (508,116) (429,085)

Tax 11 6,076 (488)

Lossfortheyearfromcontinuingoperations (502,040) (429,573)

DISCONTINUED OPERATION

Lossfortheyearfromdiscontinuedoperation, shipbuilding 5 (78,348) (105,828)

LOSS FOR THE YEAR (580,388) (535,401)

Attributable to: OwnersoftheCompany 12 (580,800) (536,087) Non-controllinginterests 412 686

(580,388) (535,401)

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

Continuing operations (HK7.11 cents) (HK6.62cents)Discontinuedoperation,shipbuilding (HK1.11 cents) (HK1.62cents)

Total (HK8.22 cents) (HK8.24cents)

46


2010 Annual Report

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

2010 2009 Notes HK$’000 HK$’000

Loss for the year (580,388) (535,401)

Othercomprehensiveincome: Exchangedifferencesontranslationofforeignoperations 80,666 7,989 Gainonacquisitionofnon-controllinginterestsof asubsidiary 1,026 —

Othercomprehensiveincomefortheyear,netoftax 81,692 7,989

Total comprehensive loss for the year, net of tax (498,696) (527,412)

Attributable to: OwnersoftheCompany 12& 39(a) (498,983) (528,109) Non-controllinginterests 287 697

(498,696) (527,412)

47

31 December 2010


CONSOLIDATED STATEMENT OF FINANCIAL POSITION


NON-CURRENT ASSETSProperty,plantandequipment 14 2,745,611 4,799,417Prepaidland/seabedleasepayments 15 464,776 985,707Licences 16 32,383 34,899Goodwill 17 470,371 1,086,197Interests in associates 19 330,647 369,013Depositsforconstructioninprogress 155,887 118,196Otherdeposits 21 – 9,150

Totalnon-currentassets 4,199,675 7,402,579

CURRENT ASSETSBunkeroil 48,196 23,249Inventories 22 12,506 407,869Accountsandbillsreceivable 23 81,424 301,899Prepayments,depositsandotherreceivables 24 463,535 424,198Contracts in progress 25 10,104 356,970Pledgeddepositsandrestrictedcash 27 243,997 171,706Cashandcashequivalents 27 182,280 357,825

1,042,042 2,043,716Assetsofadisposalgroupclassifiedasheldforsale 5 4,275,495 –

Totalcurrentassets 5,317,537 2,043,716

CURRENT LIABILITIESInterest-bearingbankloans 28 801,061 1,586,679Notespayable 34 191,341 –Accountsandbillspayable 29 205,421 217,708Otherpayablesandaccruals 29 650,758 962,513Taxpayable 11,885 17,577

1,860,466 2,784,477Liabilitiesofadisposalgroupclassifiedasheldforsale 5 2,225,014 –

Totalcurrentliabilities 4,085,480 2,784,477

NET CURRENT ASSETS/(LIABILITIES) 1,232,057 (740,761)

TOTAL ASSETS LESS CURRENT LIABILITIES 5,431,732 6,661,818

48

CONSOLIDATED STATEMENT OF FINANCIAL POSITION31 December 2010

2010 Annual Report


NON-CURRENT LIABILITIESFixedrateguaranteedseniornotes 30 840,333 2,491,264Guaranteedseniorconvertiblenotes 31 408,734 –Guaranteedseniorpayment-in-kindnotes 32 84,360 –Liabilityportionofconvertiblepreferredshares 33 719,331 645,106Notespayable 34 – 185,336Liabilityportionofconvertibleunsecurednotes 35 83,081 68,265Interest-bearingbankloans 28 1,506,873 1,375,830Deferredtaxliabilities 36 45,618 157,442Vesseldepositreceived – 2,500

Totalnon-currentliabilities 3,688,330 4,925,743

Net assets 1,743,402 1,736,075

EQUITYEquity attributable to owners of the CompanyIssuedcapital 37 77,667 65,625Equityportionofconvertiblepreferredshares 33 75,559 75,559Reserves 39(a) 1,072,339 1,068,425

1,225,565 1,209,609Contingentlyredeemableequityinajointly-controlledentity 33 517,837 517,837Non-controlling interests – 8,629

Totalequity 1,743,402 1,736,075

Patrick Wong Siu Hung Tsoi Tin Chun Director Director

49



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to owners of the Company

Contingently redeemable equity in a Issued Convertible jointly- Non- capital preferred Reserves controlled controlling Total (note 37) shares (note 39(a)) Sub-total entity interests equity Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At1January2010 65,625 75,559 1,068,425 1,209,609 517,837 8,629 1,736,075

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

Totalcomprehensive income/(loss)fortheyear – – (498,983) (498,983) – 287 (498,696)Issueofordinaryshares 10,000 – 360,000 370,000 – – 370,000Shareissueexpenses – – (784) (784) – – (784)Exerciseofshareoptions 38 222 – 10,383 10,605 – – 10,605Equity-settledshareoption arrangements – – 9,193 9,193 – – 9,193Conversionofguaranteed seniorconvertiblenotes 31 1,820 – 124,105 125,925 – – 125,925Dividendspaidtonon-controlling shareholders – – – – – (1,701) (1,701)Acquisitionofnon-controlling interests – – – – – (7,215) (7,215)

At31December2010 77,667 75,559 1,072,339 1,225,565 517,837 – 1,743,402

At1January2009 64,739 75,559 1,490,895 1,631,193 517,837 23,751 2,172,781

Lossfortheyear – – (536,087) (536,087) – 686 (535,401)Othercomprehensiveincome fortheyear: Exchangedifferenceson translationofforeignoperations – – 7,978 7,978 – 11 7,989

Totalcomprehensive income/(loss)fortheyear – – (528,109) (528,109) – 697 (527,412)Acquisitionofnon-controlling interests – – – – – (14,600) (14,600)Disposalofasubsidiary 40 – – (171) (171) – (1,219) (1,390)Issueofearn-outshares 886 – (886) – – – –Equity-settledshareoption arrangements – – 14,419 14,419 – – 14,419Issueofconvertibleunsecured notes 35 – – 92,277 92,277 – – 92,277

At31December2009 65,625 75,559 1,068,425 1,209,609 517,837 8,629 1,736,075

50


2010 Annual Report

CONSOLIDATED STATEMENT OF CASH FLOWS

2010 2009 Notes HK$’000 HK$’000

CASH FLOWS FROM OPERATING ACTIVITIESLossbeforetaxfrom: Continuing operations (508,116) (429,085) Discontinuedoperation,shipbuilding 5 (78,348) (105,828)Adjustmentsfor: Lossesondisposalsofvessels,net 14 446,649 137,623 Gainsonrestructuring/repurchasesoffixed rate guaranteed senior notes 30 (476,495) (90,522) Lossesonrepurchasesofguaranteed seniorconvertiblenotes 31 61 – Gainsonrepurchasesofguaranteedsenior payment-in-kindnotes 32 (43) – Depreciation 174,226 233,590 Amortisationofprepaidland/seabedleasepayments 4,485 3,888 Amortisationoflicences 2,516 2,517 Impairmentofitemsofproperty,plantandequipment 14 3,822 – Lossondisposalofitemsofproperty,plantandequipment 217 1,444 Impairment/(reversalofimpairment)of accountsandbillsreceivable 23 3,541 (415) Shareof(profits)/lossesofassociates,net (9,336) 1,393 Lossondisposalofanassociate 19 16,312 – Netchangeinfairvalueofderivativeinstruments notqualifyingashedges – (14,656) Excessoverthecostofanacquisitionof non-controllinginterests – (2,000) Gainondisposalofasubsidiary 40 – (1,607) Impairmentofgoodwill 17 – 13,055 Interestincome (4,750) (5,441) Financecosts 8 284,770 382,739 Equity-settledshareoptionexpenses 39(a) 9,193 14,419

(131,296) 141,114Increaseinamountsduefromassociates (6,085) –Decrease/(increase)inbunkeroil (24,947) 10,533Decrease/(increase)ininventories 258,621 (205,905)Increaseinaccountsandbillsreceivable (68,785) (67,635)Decrease/(increase)inprepayments,deposits andotherreceivables (239,088) 170,565Decrease in contracts in progress 309,502 158,022Increase/(decrease)inaccountsandbillspayable 43,559 (160,672)Increaseinotherpayablesandaccruals 262,282 126,853Decreaseinexcessofprogressbillingsovercontractcosts – (8,294)

Cash generated from operations 403,763 164,581Interest received 4,750 8,232Interest paid (233,346) (293,072)Overseasprofitstaxrefunded/(paid) (6) 214

Net cash flows from/(used in) operating activities 175,161 (120,045)

51


CONSOLIDATED STATEMENT OF CASH FLOWS


2010 2009 Notes HK$’000 HK$’000

CASH FLOWS FROM INVESTING ACTIVITIESDecrease/(increase)intimedepositswithoriginalmaturities ofmorethanthreemonths (30,031) 53,087Additionstoproperty,plantandequipment (1,286,716) (788,135)Additionstoprepaidland/seabedleasepayments (1,684) (77,085)Depositspaidforacquisitionofvessels (950) (950)Depositspaidforconstructioninprogress (147,160) (196,692)Interestcapitalised 8 (115,037) (53,446)Proceedsfromdisposalsofproperty,plantandequipment 2,463 2,373Netproceedsfromdisposalsofvessels 556,011 153,094Acquisitionofnon-controllinginterestsofasubsidiary (6,189) –Capitalcontributionstoanassociate – (108,107)Dividendsreceivedfromassociates 5,590 2,544Disposalofanassociate 19 84,287 –Dissolutionofanassociate 19 2,238 –Disposalofasubsidiary 40 – (173,446)

Netcashflowsusedininvestingactivities (937,178) (1,186,763)

CASH FLOWS FROM FINANCING ACTIVITIESInceptionofnewbankloans 1,633,387 2,757,777Repaymentsofbankloans (895,535) (1,576,113)Proceedsfromexerciseofshareoptions 10,605 –Issueofconvertibleunsecurednotes – 154,344Restructuring/repurchasesoffixedrateguaranteedseniornotes 30 (336,609) (44,364)Repurchasesofguaranteedseniorconvertiblenotes 31 (76,299) –Repurchasesofguaranteedseniorpayment-in-kindnotes 32 (26,893) –Proceedsfromissueofordinaryshares 37&39(a) 370,000 –Shareissueexpenses 39(a) (784) –Dividendspaidtonon-controllingshareholders (1,701) –Capitalelementoffinanceleaserentalpayments – (722)Decrease/(increase)inrestrictedcash 63,699 (37,995)

Netcashflowsfromfinancingactivities 739,870 1,252,927

NET DECREASE IN CASH AND CASH EQUIVALENTS (22,147) (53,881)Cashandcashequivalentsatbeginningofyear 393,292 442,729Effectofforeignexchangeratechanges,net 32,306 4,444

CASH AND CASH EQUIVALENTS AT END OF YEAR 403,451 393,292

52

CONSOLIDATED STATEMENT OF CASH FLOWSYear ended 31 December 2010

2010 Annual Report

2010 2009 Notes HK$’000 HK$’000

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTSCashandbankbalances 181,130 355,285Non-pledgedtimedepositswithoriginalmaturitiesof lessthanthreemonthswhenacquired – 59Bankbalancespledgedassecurityforbankfacilities 82,643 33,607Timedepositswithoriginalmaturitiesoflessthan threemonthswhenacquired,pledgedassecurity forbankfacilities 68,235 4,341Cashandbankbalancesattributabletothe discontinued operation 5 71,443 –

Cash and cash equivalents as stated in the consolidated statement of cash flows 403,451 393,292

RECONCILIATION OF CASH AND CASH EQUIVALENTSCashandcashequivalentsperconsolidatedstatement ofcashflows 403,451 393,292Amountspledgedforbankfacilitieswithoriginal maturitiesoflessthanthreemonthswhenacquired (150,878) (37,948)Non-pledgedtimedepositswithoriginalmaturitiesof morethanthreemonthswhenacquired 1,150 2,481Cashandbankbalancesattributabletothe discontinued operation 5 (71,443) –

Cash and cash equivalents as stated in the consolidated statement of financial position 182,280 357,825

53

31 December 2010


STATEMENT OF FINANCIAL POSITION

2010 2009 Notes HK$’000 HK$’000

NON-CURRENT ASSETSInterestsinsubsidiaries 18 5,163,591 5,359,741

CURRENT ASSETSDuefromsubsidiaries 18 93,600 752,949Prepayments,depositsandotherreceivables 624 13,058Cashandcashequivalents 27 2,262 3,237

Totalcurrentassets 96,486 769,244

CURRENT LIABILITIESDuetosubsidiaries 18 53,857 –Otherpayablesandaccruals 27,716 3,856Financialguaranteecontracts 26 8,549 8,549

Totalcurrentliabilities 90,122 12,405

NET CURRENT ASSETS 6,364 756,839

TOTAL ASSETS LESS CURRENT LIABILITIES 5,169,955 6,116,580

NON-CURRENT LIABILITIESFixedrateguaranteedseniornotes 30 840,333 2,491,264Guaranteedseniorconvertiblenotes 31 408,734 –Guaranteedseniorpayment-in-kindnotes 32 84,360 –Liabilityportionofconvertiblepreferredshares 33 325,321 290,096Duetosubsidiaries 18 1,815,278 1,599,377

Totalnon-currentliabilities 3,474,026 4,380,737

Net assets 1,695,929 1,735,843

EQUITYIssuedcapital 37 77,667 65,625Equityportionofconvertiblepreferredshares 33 75,559 75,559Reserves 39(b) 1,542,703 1,594,659

Totalequity 1,695,929 1,735,843

Patrick Wong Siu Hung Tsoi Tin Chun Director Director

54

31 December 2010

2010 Annual Report

NOTES TO FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

TitanPetrochemicalsGroupLimited(the“Company”)wasincorporatedinBermudaon24April1998asanexemptedcompanywithlimitedliabilityundertheBermudaCompaniesAct1981.

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

Duringtheyear,theCompanyanditssubsidiaries(the“Group”)wereinvolvedinthefollowingprincipalactivities:

(i) provisionoflogisticservices(includingoilandchemicalstorageandoiltransportation);

(ii) supplyofoilproductsandprovisionofbunkerrefuelingservices;and

(iii) shipbuildingandbuildingofshiprepairfacilities.

TheGroupdiscontinued itsshipbuildingandbuildingofshiprepair facilitiesoperationsduring theyearasdetailedinnote5.

In the opinion of the Company’s directors, Great Logistics Holdings Limited (“Great Logistics”) is theimmediateholdingcompanyoftheCompanyandtheparentandultimateholdingcompanyoftheGroupisTitanOilPteLtd(“TitanOil”),whichwasincorporatedinSingapore.

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial ReportingStandards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong KongAccounting Standards (“HKASs”) and Interpretations), issued by the Hong Kong Institute of CertifiedPublic Accountants (the “HKICPA”), accounting principles generally accepted in Hong Kong and thedisclosure requirements of theHongKongCompaniesOrdinance.Theyhavebeenpreparedunder thehistoricalcostconvention,exceptforderivativefinancialinstruments,whichhavebeenmeasuredatfairvalue.Alltheassetsandliabilitiesasat31December2010includedinthedisposalgroupheldforsale,representingtheshipbuildingandbuildingofshiprepairfacilitiesoperations,werestatedattheloweroftheircarryingamountsandfairvalueslesscoststosellasfurtherexplainedinnote2.4.Thesefinancialstatements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearestthousandexceptwhenotherwiseindicated.

55

31 December 2010



2.1 BASIS OF PREPARATION (continued)

Going concern basisDuring the year ended 31 December 2010, the Group incurred a loss of HK$580,388,000. ThisconditionraisesuncertaintyabouttheGroup’sabilitytocontinueasagoingconcern.InordertoimprovetheGroup’sfinancialposition,liquidityandcashflowsandtosustaintheGroupasagoingconcern,theGrouphas realigned itsbusinessesbydisposingof its95%equity interest inTitanQuanzhouShipyardCo. Ltd (“QZShipyard”) for a consideration ofRMB1,865,670,000 (approximatelyHK$2,175,371,000)or a maximum reduced consideration of RMB1,465,670,000 (approximately HK$1,708,971,000) ifQZ Shipyard’s profit targets for the two years ending 31 December 2012 are notmet. As of the dateof this report, RMB380,000,000 (approximately HK$447,553,000) has been received. Concurrently,the Company has entered into a subscription agreement with the purchaser of QZ Shipyard wherebythe Company has conditionally agreed to allot and issue, and the purchaser has conditionally agreedto subscribe for500,000,000newordinary sharesat apriceofHK$0.61per subscriptionshare in theCompany upon completion of the disposal of QZ Shipyard. As of the date of this report, the proposeddisposal of QZ Shipyard had been duly approved by shareholders of the Company and the requisiteapprovals from the relevant authorities in Mainland China were obtained as set out in note 49(b).The completion of the registration of the transfer of equity interest to the purchaser has not yet beencompleted.Furtherdetailsinrelationtotheabovetransactionsaresetoutinnote5.

As a result of the above transactions, the directors of the Company consider that the Groupwill havesufficient working capital to finance its operations and meet its financial obligations as and whenthey fall due and, accordingly, are satisfied that it is appropriate to prepare the financial statementson a going concern basis. On this basis, the consolidated financial statements do not include anyadjustments relating to the carrying amounts and reclassification of assets and liabilities thatmight benecessaryshouldtheGroupbeunabletocontinueasagoingconcern.

Basis of consolidationBasis of consolidation from 1 January 2010

The consolidated financial statements include the financial statements of the Group for the yearended 31 December 2010. The financial statements of the subsidiaries are prepared for the samereporting period as the Company, using consistent accounting policies. The results of subsidiariesare consolidated from the date of acquisition, being the date on which the Group obtains control,and continue to be consolidated until the date that such control ceases. All intra-group balances,transactions, unrealised gains and losses resulting from intra-group transactions and dividends areeliminatedonconsolidationinfull.

Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficitbalance.

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

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

56

NOTES TO FINANCIAL STATEMENTS31 December 2010

2010 Annual Report

2.1 BASIS OF PREPARATION (continued)

Basis of consolidation (continued)Basis of consolidation prior to 1 January 2010

Certain of the above-mentioned requirements have been applied on a prospective basis. The followingdifferences,however,arecarriedforwardincertaininstancesfromthepreviousbasisofconsolidation:

(a) Acquisitionsofnon-controllinginterests(formerlyknownasminorityinterests),priorto1January2010, were accounted for using the parent entity extension method, whereby the differencebetween the consideration and the book value of the share of the net assets acquired wererecognisedingoodwill.

(b) Losses incurred by the Group were attributed to the non-controlling interest until the balancewas reduced to nil. Any further excess losses were attributable to the parent, unless the non-controlling interesthadabindingobligation tocover these.Lossesprior to1January2010werenotreallocatedbetweennon-controllinginterestandtheparentshareholders.

(c) Upon lossofcontrol, theGroupaccounted for the investment retainedat itsproportionateshareof net asset value at the date control was lost. The carrying amount of such investment at 1January2010hasnotbeenrestated.

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

TheGrouphas adopted the followingnew and revisedHKFRSs for the first time for the current year’sfinancialstatements:

HKFRS1(Revised) First-time Adoption of Hong Kong Financial Reporting StandardsHKFRS1Amendments AmendmentstoHKFRS1 First-time Adoption of Hong Kong Financial Reporting Standards – Additional Exemptions for First-time AdoptersHKFRS2Amendments AmendmentstoHKFRS2Share-based Payment – Group Cash-settled Share-based Payment TransactionsHKFRS3(Revised) Business CombinationsHKAS27(Revised) Consolidated and Separate Financial StatementsHKAS39Amendment AmendmenttoHKAS39Financial Instruments: Recognition and Measurement – Eligible Hedged ItemsHK(IFRIC)-Int17 Distributions of Non-cash Assets to OwnersHKFRS5Amendments AmendmentstoHKFRS5Non-current Assets Held for Sale and includedinImprovements Discontinued Operations – Plan to sell the controlling interest in to HKFRSs issued in a subsidiary October2008Improvements to HKFRSs 2009 AmendmentstoanumberofHKFRSsissuedinMay2009HKInterpretation4Amendment AmendmenttoHKInterpretation4Leases – Determination of the Length of Lease Term in respect of Hong Kong Land LeasesHKInterpretation5 Presentation of Financial Statements – Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause

57

31 December 2010



2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)

Otherthanasfurtherexplainedbelowregardingthe impactofHKFRS3(Revised),HKAS27(Revised),amendments to HKAS 7 included in Improvements to HKFRSs 2009 and HK Interpretation 5, theadoption of the new and revised HKFRSs has had no significant financial effect on these financialstatements.

TheprincipaleffectsofadoptingthesenewandrevisedHKFRSsareasfollows:

(a) HKFRS 3 (Revised)Business Combinations andHKAS 27 (Revised)Consolidated and Separate Financial Statements

HKFRS3(Revised)introducesanumberofchangesintheaccountingforbusinesscombinationsthat affect the initial measurement of non-controlling interests, the accounting for transactioncosts, the initial recognition and subsequent measurement of a contingent consideration andbusiness combinations achieved in stages. These changes will impact the amount of goodwillrecognised, the reported results in the period that an acquisition occurs, and future reportedresults.

HKAS27 (Revised) requires thatachange in theownership interestofasubsidiarywithout lossofcontrolisaccountedforasanequitytransaction.Therefore,suchachangewillhavenoimpactongoodwill,norwill itgiverise toagainor loss.Furthermore, therevisedstandardchanges theaccounting for losses incurredby the subsidiary aswell as the loss of control of the subsidiary.Consequentialamendmentsweremade tovariousstandards, including,butnot limited toHKAS7 Statement of Cash Flows,HKAS12Income Taxes,HKAS21The Effects of Changes in Foreign Exchange Rates, HKAS28Investments in AssociatesandHKAS31Interests in Joint Ventures.

The changes introduced by these revised standards are applied prospectively and affect theaccountingof acquisitions, loss of control and transactionswithnon-controlling interests after1January2010.

(b) Improvements to HKFRSs 2009 issued in May 2009 sets out amendments to a number ofHKFRSs.Thereareseparatetransitionalprovisionsforeachstandard.Whiletheadoptionofsomeof the amendments results in changes in accounting policies, none of these amendments hashadasignificantfinancialimpactontheGroup.DetailsofthekeyamendmentmostapplicabletotheGroupisinrespectofHKAS7Statement of Cash Flowswhichrequiresthatonlyexpendituresthatresultinarecognisedassetinthestatementoffinancialpositioncanbeclassifiedasacashflowfrominvestingactivities.

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2010 Annual Report

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)

(c) HK Interpretation 5 Presentation of Financial Statements – Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause

HK Interpretation 5 clarifies that term loans that include a clause that gives the lender theunconditional right to call the loans at any time (“repayment on demand clause”) should beclassified by the borrower as current liabilities. The Group has applied HK Interpretation 5for the first time in the current year. HK Interpretation 5 requires retrospective application. Inorder to comply with the requirements set out in HK Interpretation 5, the Group has changedits accounting policy on classification of term loans with a repayment on demand clause byreclassifying them as current liabilities. In the past, the classification of such term loans wasdeterminedbasedontheagreedscheduledrepaymentdatessetoutintheloanagreements.

As a result, bank loans that contain a repayment ondemandclausewith an aggregate carryingamount of HK$825,213,000 have been reclassified from non-current liabilities to currentliabilitiesasat31December2009.TheapplicationofHKInterpretation5hashadno impactontheclassificationofbankloansasat1January2009and31December2010becausetherewerenobank loans as at 1 January2009and31December2010, other than an aggregate carryingamount of HK$850,819,000 classified as held for sale as at 31 December 2010, containing arepayment on demand clause as defined in HK Interpretation 5. In addition, the application ofHKInterpretation5hashadnoimpactonthereportedresultsforthecurrentandprioryears.

Such term loans have been presented in the earliest time band in the maturity analysis forfinancialliabilitiesthatreflecttheremainingcontractualmaturities(seenote28).

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

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

HKFRS1Amendment AmendmenttoHKFRS1First-time Adoption of Hong Kong Financial Reporting Standards – Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters2

HKFRS1Amendments AmendmentstoHKFRS1 First-time Adoption of Hong Kong Financial Reporting Standards – Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters4

HKFRS7Amendments AmendmentstoHKFRS7 Financial Instruments: Disclosures – Transfers of Financial Assets4

HKFRS9 Financial Instrument 6

HKAS12Amendments AmendmentstoHKAS12Income Taxes – Deferred tax: Recovery of Underlying Assets5

HKAS24(Revised) Related Party Disclosures3

59

31 December 2010



2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

(continued)

HKAS32Amendment AmendmenttoHKAS32 Financial Instruments: Presentation – Classification of Rights Issues1

HK(IFRIC)-Int14Amendments AmendmentstoHK(IFRIC)–Int14Prepayments of a Minimum Funding Requirement 3

HK(IFRIC)-Int19 Extinguishing Financial Liabilities with Equity Instruments2

Apart from the above, the HKICPA has issued Improvements to HKFRSs 2010 which sets outamendments to a number of HKFRSs primarily with a view to removing inconsistencies and clarifyingwording. The amendments toHKFRS3 andHKAS27 are effective for annual periodsbeginning on orafter1July2010,whereastheamendmentstoHKFRS1,HKFRS7,HKAS1,HKAS34andHK(IFRIC)-Int13areeffectiveforannualperiodsbeginningonorafter1January2011althoughthereareseparatetransitionalprovisionsforeachstandardorinterpretation.

1 Effectiveforannualperiodsbeginningonorafter1February20102 Effectiveforannualperiodsbeginningonorafter1July20103 Effectiveforannualperiodsbeginningonorafter1January20114 Effectiveforannualperiodsbeginningonorafter1July20115 Effectiveforannualperiodsbeginningonorafter1January20126 Effectiveforannualperiodsbeginningonorafter1January2013

TheGroup is in theprocessofmakinganassessmentof the impactof thesenewandrevisedHKFRSsupon initialapplication.So far, theGroupconsiders that thesenewandrevisedHKFRSsareunlikely tohaveasignificantimpactontheGroup’sresultsofoperationsandfinancialposition.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The results of subsidiaries are included in theCompany’s income statement to the extent of dividendsreceived and receivable. TheCompany’s investments in subsidiaries that are not classified as held forsaleinaccordancewithHKFRS5arestatedatcostlessanyimpairmentlosses.

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

The joint venture agreement between the venturers stipulates the capital contributions of the jointventure parties, the duration of the joint venture and the basis onwhich the assets are to be realisedupon itsdissolution.Theprofitsor losses from jointventureoperationsandanydistributionsofsurplusassets are shared by the venturers, either in proportion to their respective capital contributions, or inaccordancewiththetermsofthejointventureagreement.

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2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Joint ventures (continued)Ajointventureistreatedas:

(a) asubsidiary,iftheGrouphasunilateralcontrol,directlyorindirectly,overthejointventure;

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

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

(d) anequity investmentaccounted for inaccordancewithHKAS39, if theGroupholds,directlyorindirectly, less than20%of the jointventure’sregisteredcapitalandhasneither jointcontrolof,norisinapositiontoexercisesignificantinfluenceover,thejointventure.

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

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

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

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

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Business combinations and goodwillBusiness combinations from 1 January 2010

Business combinations are accounted for using the acquisitionmethod. The consideration transferredis measured at the acquisition date fair value which is the sum of the acquisition date fair values ofassets transferredby theGroup, liabilitiesassumedby theGroup to the formerownersof theacquireeandtheequityinterestsissuedbytheGroupinexchangeforcontroloftheacquiree.Foreachbusinesscombination, the acquirermeasures the non-controlling interest in the acquiree either at fair value orat the proportionate share of the acquiree’s identifiable net assets. Acquisition costs are expensed asincurred.

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

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

Any contingent consideration to be transferred by the acquirer is recognised at fair value at theacquisitiondate.Subsequentchangestothefairvalueofthecontingentconsiderationwhichisdeemedto be an asset or liability is recognised in accordance with HKAS 39 either in profit or loss or as achange to other comprehensive income. If the contingent consideration is classified as equity, it shallnotberemeasureduntilitisfinallysettledwithinequity.

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

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

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Business combinations and goodwill (continued)Business combinations from 1 January 2010 (continued)

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

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

Business combinations prior to 1 January 2010 but after 1 January 2005

In comparison to the above-mentioned requirements which were applied on a prospective basis, thefollowingdifferencesappliedtobusinesscombinationspriorto1January2010:

Business combinations were accounted for using the purchase method. Transaction costs directlyattributable to the acquisition formed part of the acquisition costs. The non-controlling interest wasmeasuredattheproportionateshareoftheacquiree’sidentifiablenetassets.

Business combinations achieved in stages were accounted for as separate steps. Any additionalacquiredshareofinterestdidnotaffectpreviouslyrecognisedgoodwill.

When the Group acquired a business, embedded derivatives separated from the host contract by theacquiree were not reassessed on acquisition unless the business combination resulted in a changein the terms of the contract that significantlymodified the cash flows that otherwisewould have beenrequiredunderthecontract.

Contingent consideration was recognised if, and only if, the Group had a present obligation, theeconomic outflow was more likely than not and a reliable estimate was determinable. Subsequentadjustmentstothecontingentconsiderationwererecognisedaspartofgoodwill.

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

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

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

Related partiesApartyisconsideredtoberelatedtotheGroupif:

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlledby, or is under common control with, the Group; (ii) has an interest in the Group that gives itsignificantinfluenceovertheGroup;or(iii)hasjointcontrolovertheGroup;

(b) thepartyisanassociate;

(c) thepartyisajointly-controlledentity;

(d) thepartyisamemberofthekeymanagementpersonneloftheGrouporitsparent;

(e) thepartyisaclosememberofthefamilyofanyindividualreferredtoin(a)or(d);

(f) thepartyisanentitythatiscontrolled,jointlycontrolledorsignificantlyinfluencedbyorforwhichsignificant votingpower in suchentity resideswith, directly or indirectly, any individual referredtoin(d)or(e);or

(g) theparty isapost-employmentbenefitplan for thebenefitof theemployeesof theGroup,orofanyentitythatisarelatedpartyoftheGroup.

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Property, plant and equipment and depreciationProperty,plantandequipment,otherthanconstructioninprogress,arestatedatcostlessaccumulateddepreciation and any impairment losses.When an item of property, plant and equipment is classifiedas held for sale or when it is part of a disposal group classified as held for sale, it is not depreciatedand is accounted for in accordance with HKFRS 5, as further explained in the accounting policy for“Non-current assets and disposal groups held for sale”. The cost of an item of property, plant andequipment comprises its purchase price and any directly attributable costs of bringing the asset to itsworkingconditionand location for its intendeduse.Expenditure incurredafter itemsofproperty,plantand equipment have been put into operation, such as repairs and maintenance, is normally chargedto the income statement in the period in which it is incurred. In situations where the recognitioncriteriaaresatisfied, theexpenditure foramajor inspection iscapitalised in thecarryingamountof theasset as a replacement. Where significant parts of property, plant and equipment are required to bereplacedatintervals,theGrouprecognisessuchpartsasindividualassetswithspecificusefullivesanddepreciation.

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

Buildings 20to45yearsLeaseholdimprovements Theshorteroftheleasetermsand6yearsVessels Theshorteroftheremainingageand30yearsStoragefacilities 20to50yearsMachinery 5to20yearsFurniture,equipmentandmotorvehicles 5to10years

Wherepartsofanitemofproperty,plantandequipmenthavedifferentusefullives,thecostofthatitemisallocatedonareasonablebasisamongthepartsandeachpartisdepreciatedseparately.

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

Residualvalues,useful livesand thedepreciationmethodare reviewedandadjusted, ifappropriate,atleastateachfinancialyearend.

An item of property, plant and equipment and any significant part initially recognised is derecognisedupondisposal orwhenno futureeconomicbenefits areexpected from itsuseordisposal.Anygainorlossondisposalorretirementrecognisedintheincomestatement intheyeartheasset isderecognisedisthedifferencebetweenthenetsalesproceedsandthecarryingamountoftherelevantasset.

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

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

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

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

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

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

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Financial assetsInitial recognition and measurement

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

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

The Group’s financial assets include cash and bank balances, accounts, bills and other receivables,contractsinprogress,depositsandderivativesfinancialinstruments.

Subsequent measurement

Thesubsequentmeasurementoffinancialassetsdependsontheirclassificationasfollows:

(a) Financialassetsatfairvaluethroughprofitorloss

Financial assets at fair value through profit or loss include financial assets held for trading.Financial assets areclassifiedasheld for trading if theyareacquired for thepurposeof sale inthenear term.Thiscategory includesderivative financial instrumentsentered intoby theGroupthat are not designated as hedging instruments in hedge relationships as defined byHKAS 39.Derivatives, including separated embedded derivatives, are also classified as held for tradingunless they are designated as effective hedging instruments. Financial assets at fair valuethroughprofitor lossarecarried in thestatementof financialpositionat fairvaluewithchangesinfairvaluerecognisedintheincomestatement.Thesenetfairvaluechangesdonotincludeanydividendsor interest earnedon these financial assets,whichare recognised inaccordancewiththepoliciessetoutfor“Revenuerecognition”below.

TheGroup evaluates its financial assets at fair value through profit or loss (held for trading) toassess whether the intent to sell them in the near term is still appropriate.When the Group isunable to trade these financial assets due to inactivemarkets andmanagement’s intent to sellthem in the foreseeable future significantly changes, the Group may elect to reclassify thesefinancial assets in rare circumstances. The reclassification from financial assets at fair valuethrough profit or loss to loans and receivables, available-for-sale financial assets or held-to-maturityinvestmentsdependsonthenatureoftheassets.

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Financial assets (continued)Subsequent measurement (continued)

(a) Financialassetsatfairvaluethroughprofitorloss(continued)

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

(b) Loansandreceivables

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

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

Financial assets carried at amortised cost

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

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Impairment of financial assets (continued)Financial assets carried at amortised cost (continued)

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

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

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

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

• therightstoreceivecashflowsfromtheassethaveexpired;or

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

When the Group has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, and has neither transferred nor retained substantially all the risks andrewards of the asset nor transferred control of the asset, the asset is recognised to the extent of theGroup’s continuing involvement in the asset. In that case, the Group also recognises an associatedliability.ThetransferredassetandtheassociatedliabilityaremeasuredonabasisthatreflectstherightsandobligationsthattheGrouphasretained.

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

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Financial liabilitiesInitial recognition and measurement

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

Allfinancialliabilitiesarerecognisedinitiallyatfairvalueand,inthecaseofloansandborrowings,plusdirectlyattributabletransactioncosts.

The Group’s financial liabilities include accounts and other payables, interest-bearing bank loans,fixed rate guaranteed senior notes (“Senior Notes Due 2012”), guaranteed senior convertible notes(“Convertible Notes Due 2015”), guaranteed senior payment-in-kind notes (“PIK Notes Due 2015”),notes payable (“K Line Notes Due 2013”), convertible unsecured notes (“TGIL Notes Due 2014”),convertiblepreferredshares,andderivativefinancialinstruments.

Subsequent measurement

Themeasurementoffinancialliabilitiesdependsontheirclassificationasfollows:

(a) Financialliabilitiesatfairvaluethroughprofitorloss

Financialliabilitiesatfairvaluethroughprofitorlossincludesfinancialliabilitiesheldfortrading.

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

(b) Loanandborrowings

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

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Financial liabilities (continued)Subsequent measurement (continued)

(c) Financialguaranteecontracts

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

Derecognition of financial liabilitiesAfinancial liability isderecognisedwhentheobligationunderthe liability isdischargedorcancelled,orexpires.

Whenanexistingfinancialliabilityisreplacedbyanotherfromthesamelenderonsubstantiallydifferentterms,orthetermsofanexistingliabilityaresubstantiallymodified,suchanexchangeormodificationistreatedasaderecognitionof theoriginal liabilityandarecognitionofanew liability,andthedifferencebetweentherespectivecarryingamountsisrecognisedintheincomestatement.

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

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

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Derivative financial instrumentsInitial recognition and subsequent measurement

Derivative financial instruments are initially recognised at fair value on the date on which a derivativecontractisenteredintoandaresubsequentlyremeasuredatfairvalue.Derivativesarecarriedasassetswhenthefairvalueispositiveandasliabilitieswhenthefairvalueisnegative.

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

Forthepurposeofhedgeaccounting,hedgesareclassifiedas:

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

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

• hedgeofanetinvestmentinaforeignoperation.

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

Current versus non-current classification

Derivativeinstrumentsthatarenotdesignatedaseffectivehedginginstrumentsareclassifiedascurrentornon-currentorseparatedintocurrentornon-currentportionbasedonanassessmentofthefactsandcircumstances(i.e.,theunderlyingcontractedcashflows).

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

• Embeddedderivatives thatarenotclosely related to thehostcontractareclassifiedconsistentlywiththecashflowsofthehostcontract.

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Derivative financial instruments (continued)Current versus non-current classification (continued)

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

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

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

The remainder of the proceeds is allocated to the equity component of the convertible preferredshares and TGIL Notes Due 2014 that is recognised and included in shareholders’ equity, net oftransaction costs. The carrying amount of the conversion option is not remeasured in subsequentyears.The transactioncostsareapportionedbetween the liability,derivativeandequitycomponentsofthe convertiblepreferred shares andTGILNotesDue2014based on the allocation of proceeds to theliability,derivativeandequitycomponentswhentheinstrumentsarefirstrecognised.

Convertible Notes Due 2015 and K Line Notes Due 2013Iftheconversionoptionofnotesexhibitscharacteristicsofanembeddedderivative,it isseparatedfromits liabilitycomponent.On initial recognition, thederivativecomponentof thenotes ismeasuredat fairvalue andpresented aspart of thenotes.Any excess of proceeds over the amount initially recognisedasthederivativecomponentisrecognisedastheliabilitycomponent.Transactioncostsareapportionedbetween the liabilityandderivativecomponentsof thenotesbasedon theallocationofproceeds to theliability and derivative components when the instruments are initially recognised. The portion of thetransaction costs relating to the liability component is recognised initially as part of the liability. Theportionrelatingtothederivativecomponentisrecognisedimmediatelyintheincomestatement.

Bunker oil, ship stores and spare partsBunkeroilisstatedatcostlessanyprovisionsconsiderednecessarybythedirectors.Costisdeterminedontheweightedaveragecostmethodbasis.

Shipstoresandsparepartsarechargedasoperatingexpenseswhenpurchased.

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InventoriesInventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in,first-outbasisand,inthecaseofworkinprogressandfinishedgoods,comprisesdirectmaterials,directlabour and an appropriate proportion of overheads. Net realisable value is based on estimated sellingpriceslessanyestimatedcoststobeincurredtocompletionanddisposal.

Contracts in progress/Excess of progress billings over contract costsVoyagecharteringandshipbuildingareaccountedfor in thestatementof financialpositionasalldirectcosts incurred plus recognised profits, less recognised losses and progress billings. Voyage charteringrevenueandshipbuildingrevenuecomprise theagreedcontractamountwhile thedirectcosts incurredcomprisetheamountofbunkeroilconsumedandotheroverheadsforvoyagechartering,directmaterialcostsandotheroverheadsforshipbuilding.

Revenue from the rendering of services is recognised based on the percentage of completion of thetransaction, provided that the revenue, the costs incurred and the estimated costs to completion canbemeasured reliably. The percentage of completion is established by reference to the costs incurredto date as compared to the total costs to be incurred under the transaction. Where the outcome ofa contract cannot be measured reliably, revenue is recognised only to the extent that the expensesincurredareeligibletoberecovered.

Provisionismadeforforeseeablelossesassoonastheyareanticipatedbymanagement.

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

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

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

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

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

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

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

Income taxIncometaxcomprisescurrentanddeferredtax.Incometaxrelatingtoitemsrecognisedoutsideprofitorlossisrecognisedoutsideprofitorloss,eitherinothercomprehensiveincomeordirectlyinequity.

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

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

Deferredtaxliabilitiesarerecognisedforalltaxabletemporarydifferences,except:

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

• in respect of taxable temporary differences associated with investments in subsidiaries,associates and joint ventures,where the timingof the reversal of the temporarydifferencescanbecontrolledandit isprobablethatthetemporarydifferenceswillnotreverseintheforeseeablefuture.

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Income tax (continued)Deferred tax assets are recognised for all deductible temporary differences, carryforward of unusedtax credits andunused tax losses, to the extent that it is probable that taxableprofitswill be availableagainst which the deductible temporary differences, and the carryforward of unused tax credits andunusedtaxlossescanbeutilised,except:

• where the deferred tax asset relating to the deductible temporary differences arises from theinitial recognitionofanassetor liability ina transaction that isnotabusinesscombinationand,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss;and

• in respect of deductible temporary differences associated with investments in subsidiaries,associatesandjointventures,deferredtaxassetsareonlyrecognisedtotheextent it isprobablethat the temporary differences will reverse in the foreseeable future and taxable profits will beavailableagainstwhichthetemporarydifferencescanbeutilised.

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

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

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

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

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

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Revenue recognition (continued)(b) revenuefromtheprovisionoflogisticservices:

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

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

(iii) fromtheleaseofstoragefacilities,onthestraight-linebasisovertheleaseterms;

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

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

(e) dividendincome,whentheshareholders’righttoreceivepaymenthasbeenestablished.

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

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

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

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

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

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

Other employee benefitsPaid leave carried forward

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

Pension schemes

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

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

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

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

Foreign currenciesThese financial statements are presented in Hong Kong dollars, which is the Company’s functionalandpresentationcurrency.Eachentity in theGroupdetermines its own functional currency and itemsincludedinthefinancialstatementsofeachentityaremeasuredusingthatfunctionalcurrency.Foreigncurrency transactions recordedby theentities in theGroupare initially recordedusing their respectivefunctional currency rates ruling at the dates of the transactions. Monetary assets and liabilitiesdenominatedinforeigncurrenciesareretranslatedatthefunctionalcurrencyratesofexchangerulingattheendof thereportingperiod.Alldifferencesare takento the incomestatement.Non-monetary itemsthat aremeasured in terms of historical cost in a foreign currency are translated using the exchangerates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreigncurrencyaretranslatedusingtheexchangeratesatthedatewhenthefairvaluewasdetermined.

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

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

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

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3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s financial statements requires management to make judgements,estimates and assumptions that affect the reported amounts of revenues, expenses, assets andliabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However,uncertainty about these assumptions and estimates could result in outcomes that require a materialadjustmenttothecarryingamountsoftheassetsorliabilitiesaffectedinthefuture.

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

Depreciation of vessels

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

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

Impairment of assets

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

Income tax

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

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3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Judgements (continued)Income tax (continued)

Deferredtaxassetsarerecognisedforunusedtaxlossescarriedforwardtotheextentthatit isprobable(that is, more likely than not) that future taxable profits will be available against which the unusedtax losses can be utilised, based on all available evidence. Recognition primarily involves judgementsregarding the future performance of the particular legal entity or tax group in which the deferred taxassethasbeenrecognised.Avarietyofother factorsarealsoevaluated inconsideringwhether there isconvincingevidencethat it isprobable thatsomeportionorallof thedeferredtaxassetswillultimatelybe realised, such as the existence of taxable temporary differences, tax planning strategies and theperiods inwhich estimated tax losses can be utilised. The carrying amount of deferred tax assets andrelated financial models and budgets are reviewed at the end of each reporting period and to theextent there is insufficientconvincingevidence thatsufficient taxableprofitswillbeavailablewithin theutilisationperiodstoallowutilisationofthetaxlossescarriedforward,theassetbalancewillbereducedandchargedtotheincomestatement.

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

Impairment of goodwill

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

Impairment of non-financial assets (other than goodwill)

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

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Estimation uncertainty (continued)Impairment of loans and receivables

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

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

Contract for services

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

Useful lives and residual values of property, plant and equipment

TheGroupdeterminestheestimatedusefullives,residualvaluesandrelateddepreciationchargesforitsproperty, plant and equipment. TheGrouphas to consider various factors, such as expectedusage oftheasset,expectedphysicalwearandtear, thecareandmaintenanceof theasset,and legalorsimilarlimits on the use of the asset. This estimate is based on the historical experience of the actual usefullives of assets of similar nature and functions. It could change significantly as a result of technicalinnovations and competitor actions in response to severe industry cycles. Useful lives and residualvaluesarereviewed,andadjustedifappropriate,at theendofeachreportingperiodbasedonchangesin circumstances. The Group will increase the depreciation charge where useful lives are less thanpreviously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assetsthathavebeenabandoned.Additionalorreductiondepreciationismadeiftheestimatedresidualvaluesofitemsofproperty,plantandequipmentaredifferentfromthepreviousestimation.

Net realisable value of inventories

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

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Estimation uncertainty (continued)Fair value of financial instruments

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

4. OPERATING SEGMENT INFORMATION

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

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

Intersegmentsalesandtransfersaretransactedwithreferencetothesellingpricesusedforsalesmadetothirdpartiesatthethenprevailingmarketprices.

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4. OPERATING SEGMENT INFORMATION (continued) Provision of logistic services Supply of oil products and Discontinued Onshore oil and provision of bunker Total continuing operation, Adjustments Offshore oil storage chemical storage Oil transportation refueling services operations shipbuilding and eliminations Consolidated 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Segment revenue–Revenuefrom external customers 514,388 509,939 199,610 162,258 178,514 257,643 1,031,657 689,975 1,924,169 1,619,815 187,330 385,434 – – 2,111,499 2,005,249–Intersegment revenue – – – 881 – – 129,025 92,623 129,025 93,504 – – (129,025)1 (93,504)1 – –

Total 514,388 509,939 199,610 163,139 178,514 257,643 1,160,682 782,598 2,053,194 1,713,319 187,330 385,434 (129,025) (93,504) 2,111,499 2,005,249

Segment results (89,093) 99,577 83,569 60,778 (146,187) (91,697) 26,106 21,574 (125,605) 90,232 (68,138) (91,989) – – (193,743) (1,757)

Adjustedfor:–Interestincome andotherrevenue – – – – – – – – – – 617 360 482,779 121,221 483,396 121,581–Otherexpenses – – – – – – – – – – – – (154,034) (132,982) (154,034) (132,982)Shareofprofits/(losses) ofassociates,net – – 9,160 (1,859) – – 176 466 9,336 (1,393) – – – – 9,336 (1,393)

(89,093) 99,577 92,729 58,919 (146,187) (91,697) 26,282 22,040 (116,269) 88,839 (67,521) (91,629) 328,745 (11,761) 144,955 (14,551)Add:Depreciationand amortisation 36,325 92,221 63,268 49,163 31,867 45,816 165 1,901 131,625 189,101 36,784 32,850 12,818 18,044 181,227 239,995

Operating EBITDA/ (LBITDA) (52,768) 191,798 155,997 108,082 (114,320) (45,881) 26,447 23,941 15,356 277,940 (30,737) (58,779) 341,563 6,283 326,182 225,444Lossesondisposals ofvessels,net – – – – – – – – – – – – (446,649) (137,623) (446,649) (137,623)

EBITDA/(LBITDA) (52,768) 191,798 155,997 108,082 (114,320) (45,881) 26,447 23,941 15,356 277,940 (30,737) (58,779) (105,086) (131,340) (120,467) 87,821Depreciation and amortisation (36,325) (92,221) (63,268) (49,163) (31,867) (45,816) (165) (1,901) (131,625) (189,101) (36,784) (32,850) (12,818) (18,044) (181,227) (239,995)Financecosts – – – – – – – – – – (10,827) (14,199) (273,943) (368,540) (284,770) (382,739)

Profit/(loss) before tax (89,093) 99,577 92,729 58,919 (146,187) (91,697) 26,282 22,040 (116,269) 88,839 (78,348) (105,828) (391,847) (517,924) (586,464) (534,913)

1. Intersegmentrevenuesareeliminatedonconsolidation.

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4. OPERATING SEGMENT INFORMATION (continued)

Provision of logistic services Supply of oil products and Discontinued Onshore oil and provision of bunker Total continuing operation, Offshore oil storage chemical storage Oil transportation refueling services operations shipbuilding Consolidated 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Other segment informationDepreciation and amortisation 36,325 92,221 63,268 49,163 31,867 45,816 165 1,901 131,625 189,101 36,784 32,850 168,409 221,951Unallocateddepreciation andamortisation 12,818 18,044 – – 12,818 18,044

144,443 207,145 36,784 32,850 181,227 239,995

Capitalexpenditures 101,736 88,297 480,582 444,707 133,948 4,351 15 9 716,281 537,364 815,678 579,789 1,531,959 1,117,153Unallocatedcapital expenditures 339 335 – – 339 335

716,620 537,699 815,678 579,789 1,532,298 1,117,488

Impairment/(reversalof impairment)of accountsandbills receivable 1,451 (2,170) – – 1,933 388 – 602 3,384 (1,180) – – 3,384 (1,180)Unallocatedimpairment/ (reversalof impairment)of accountsandbills receivable 157 765 – – 157 765

3,541 (415) – – 3,541 (415)

Unallocatedimpairment ofproperty,plantand equipment 3,822 – – – 3,822 –

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4. OPERATING SEGMENT INFORMATION (continued)

Geographical information Mainland China Other Asia Pacific countries Consolidated 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

(a) Revenue Revenuefromexternal customers 1,397,985 1,219,347 713,514 785,902 2,111,499 2,005,249 Attributabletodiscontinued operation,shipbuilding (187,330) (385,434) – – (187,330) (385,434)

Revenuefromcontinuing operations 1,210,655 833,913 713,514 785,902 1,924,169 1,619,815

(b) Other information Segmentnon-currentassets 4,008,935 6,352,255 51,627 93,127 4,060,562 6,445,382 Unallocatednon-current assets 139,113 957,197

4,199,675 7,402,579

Capitalexpenditures 1,296,275 1,024,425 375 350 1,296,650 1,024,775 Unallocatedcapital expenditures 235,648 92,713

1,532,298 1,117,488

Impairment/(reversalof impairment)ofaccounts andbillsreceivable – – 3,541 (415) 3,541 (415)

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

Therevenueinformationaboveisbasedonthelocationofthecustomers.

Theotherinformationaboveisbasedonthelocationoftheassetsandimpairmentofaccountsandbillsreceivablerecorded/reversed.

Information about major customersRevenuesfromtransactionswitheachexternalcustomerarelessthan10%oftheGroup’stotalrevenue.

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5. DISCONTINUED OPERATION, SHIPBUILDING

On 11 December 2010, the Company entered into (i) a sale and purchase agreement in relation tothe disposal of its 95% equity interest in QZ Shipyard; (ii) a subscription agreement in relation to theissue of subscription shares to Grand China Logistics Holding (Group) Company Limited; and (iii)a management agreement in relation to the engagement of the Company to manage the businessoperations of QZ Shipyard for the term commencing from the completion of the sale and purchaseagreementuntil31December2012.TheconsiderationfortheproposeddisposalisRMB1,865,670,000(approximately HK$2,175,371,000) or a maximum reduced consideration of RMB1,465,670,000(approximatelyHK$1,708,971,000)ifQZShipyard’sprofittargetsforthetwoyearsending31December2012arenotmet.TheabovetransactionsweresubsequentlyapprovedbyshareholdersoftheCompanyafteryearendassetoutinnote49(b).

The registration of the transfer of equity interests in QZ Shipyard to the purchaser is still in progress.The directors of the Company have assessed the profit projections for QZ Shipyard for the two yearsending31December2012subsequent to thedisposal,andexpect theprofit targetscanbemetunderthemanagement of the Group. Thus, the full amount of the consideration is expected to be receivedaccordingly.

QZ Shipyard carried out all of theGroup’s shipbuilding operations. The disposal is consistentwith theGroup’s long-term policy to focus its activities on its storage business. The net proceeds of sale areexpected toexceed thecarryingamountof the relatednetassetsand,accordingly,no impairment losshavebeenrecognised.

The proposed disposal constitutes amajor transaction of the Company pursuant to Chapter 14 of theRulesGoverning the Listing Securities on the Stock Exchange (the “ListingRules”) and further detailsare included in theCompany’sannouncementsdated13December2010and20January2011andacirculardated4January2011.

Onthisbasis,asat31December2010, theassetsand liabilitiesrelated to thediscontinuedoperation,shipbuilding and building of ship repair facilities, are presented in the consolidated statement offinancialpositionas“Assetsofadisposalgroupclassifiedasheldforsale”and“Liabilitiesofadisposalgroupclassifiedasheld for sale”and the results for theyearended31December2010arepresentedseparately in the consolidated income statement as “Loss for the year from discontinued operation,shipbuilding”.CapitalcommitmentsinrespectofQZShipyardaresetoutinnote42.

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5. DISCONTINUED OPERATION, SHIPBUILDING (continued)

TheresultsofQZShipyardfortheyeararepresentedbelow.

2010 2009 Notes HK$’000 HK$’000

Revenue 6 187,330 385,434Costofsales (222,690) (434,607)

Gross loss (35,360) (49,173)

Otherrevenue 1,128 2,047Generalandadministrativeexpenses (33,289) (44,503)Financecosts 8 (10,827) (14,199)

Loss before tax (78,348) (105,828)Tax 11 – –

Loss for the year from discontinued operation, shipbuilding (78,348) (105,828)

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2010 Annual Report


Themajorclassesofassetsand liabilitiesofQZShipyardclassifiedasheld forsaleasat31December2010areasfollows:

2010 2009 Notes HK$’000 HK$’000

Assets:Property,plantandequipment 14 2,515,315 –Prepaidland/seabedleasepayments 15 513,827 –Goodwill 17 570,618 –Inventories 22 136,742 –Accountsandbillsreceivable 23 285,719 –Prepayments,depositsandotherreceivables 136,165 –Contracts in progress 25 37,364 –Pledgeddepositsandrestrictedcash 8,302 –Cashandcashequivalents 71,443 –

4,275,495 –

Liabilities:Interest-bearingbankloans 1,482,125 –Accountsandbillspayable 55,846 –Otherpayablesandaccruals 574,863 –Deferredtaxliabilities 36 112,180 –

2,225,014 –

Net assets directly associated with the disposal group 2,050,481 –

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31 December 2010




ThenetcashflowsincurredbyQZShipyardareasfollows:

2010 2009 HK$’000 HK$’000

Operating activities 346,647 (880,630)Investing activities (785,629) (400,357)Financingactivities 294,123 1,450,830

Net cash inflow/(outflow) (144,859) 169,843

6. REVENUE

Revenue,whichisalsotheGroup’sturnover,representsthegrossincomefromoilandchemicalstorageservices,gross freight income from theprovisionofoil transportationservices,net invoicedvalueofoilproducts sold, after allowances for returns and trade discounts, income from the provision of bunkerrefuelingservicesandgrossincomefromshipbuilding.AllsignificanttransactionsamongthecompaniescomprisingtheGrouphavebeeneliminatedonconsolidation.

2010 2009 HK$’000 HK$’000

Provisionofoilandchemicalstorageservices 713,998 672,197Provisionofoiltransportationservices 178,514 257,643Supplyofoilproductsandprovisionofbunkerrefuelingservices 1,031,657 689,975

Attributabletocontinuingoperations 1,924,169 1,619,815Attributabletodiscontinuedoperation,shipbuilding(note5) 187,330 385,434

2,111,499 2,005,249

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2010 Annual Report

7. LOSS BEFORE TAX

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

Group 2010 2009 Notes HK$’000 HK$’000

Costofinventoriessold 1,102,904 746,827Costofservicesrendered 1,106,818 1,134,542Depreciation* 174,226 233,590Amortisationofprepaidland/seabedleasepayments 15 4,485 3,888Amortisationoflicences* 16 2,516 2,517Minimumleasepaymentsunderoperatingleases: Vessels 387,263 226,682 Leaseholdbuildings 13,631 11,360Employeebenefitexpenses(excludingdirectors’ remuneration–note9): Wagesandsalaries 210,894 196,368 Equity-settledshareoptionexpenses 8,781 13,548 Pensionschemecontributions 4,912 5,520

224,587 215,436

Auditors’remuneration 4,359 5,060Lossondisposalofitemsofproperty,plantand equipment 217 1,444Impairmentofitemsofproperty,plantandequipment** 14 3,822 –Impairmentofgoodwill** 17 – 13,055Lossondisposalofanassociate 19 16,312 –Foreignexchangedifferences,net 4,692 (7,392)Impairment/(reversalofimpairment)ofaccountsand billsreceivable 23 3,541 (415)Bankinterestincome (4,750) (5,441)Netchangeinfairvalueofderivativeinstruments notqualifyingashedges – (14,656)Excessoverthecostofanacquisitionof non-controllinginterests – (2,000)Gainondisposalofasubsidiary 18&40 – (1,607)

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

andvesselequipmentofHK$65,663,000(2009:HK$136,892,000)isincludedin“Costofsales”.

** Theseitemsareincludedin“Generalandadministrativeexpenses”intheconsolidatedincomestatement.

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8. FINANCE COSTS

Group 2010 2009 HK$’000 HK$’000

Intereston: Bankloanswhollyrepayablewithinfiveyears 69,012 57,016 Bankloansnotwhollyrepayablewithinfiveyears 128,923 78,222 Financeleasepayables – 19 Senior Notes Due 2012 75,249 217,282 ConvertibleNotesDue2015 16,472 – PIKNotesDue2015 4,288 – KLineNotesDue2013 6,003 5,616 TGIL Notes Due 2014 14,817 6,002Dividendsonconvertiblepreferredshares: Titanpreferredshares(note33) 35,225 32,712 TitanGroupInvestmentLimited(“TGIL”)preferredshares(note33) 39,000 39,001Otherfinancecosts 10,818 315

Totalinterestexpenses 399,807 436,185Less:Interestcapitalised (115,037) (53,446)

284,770 382,739

Attributabletocontinuingoperations 273,943 368,540Attributabletodiscontinuedoperation,shipbuilding(note5) 10,827 14,199

284,770 382,739

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2010 Annual Report

9. DIRECTORS’ REMUNERATION

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

Group 2010 2009 HK$’000 HK$’000

Fees 810 810

Otheremoluments: Salaries,allowancesandbenefits-in-kind 3,557 3,100 Equity-settledshareoptionexpenses 412 871 Pensionschemecontributions 56 44

4,025 4,015

4,835 4,825

(a) Independent non-executive directorsThefeespaidtoindependentnon-executivedirectorsduringtheyearwereasfollows:

2010 2009 HK$’000 HK$’000

Mr.AbrahamShekLaiHim 230 230Mr.JohnWilliamCrawford 340 340Ms.MariaTamWaiChu 240 240

810 810

There were no other emoluments paid or payable to the independent non-executive directorsduringtheyear(2009:Nil).

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9. DIRECTORS’ REMUNERATION (continued)

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

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

3,557 412 56 4,025

2009Executive directorsMr.PatrickWongSiuHung 3,100 871 44 4,015Mr.TsoiTinChun – – – –

3,100 871 44 4,015

Therewerenoarrangementsunderwhichadirectorwaivedoragreedtowaiveanyremunerationduringtheyear.

Theaboveexecutivedirectors’remunerationisinlinewiththecompensationofkeymanagementpersonneloftheGroup.

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2010 Annual Report

10. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included one (2009: one) director, details of whoseremuneration is disclosed in note 9 above. Details of the remuneration of the remaining four (2009:four)non-director,highestpaidemployeesfortheyearareasfollows:

Group 2010 2009 HK$’000 HK$’000

Salaries,allowancesandbenefits-in-kind 8,797 9,580Equity-settledshareoptionexpenses 82 65Pensionschemecontributions 126 40

9,005 9,685

Thenumberofnon-director,highestpaidemployeeswhoseremunerationfellwithindesignatedbandsisasfollows:

Number of employees 2010 2009

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

4 4

11. TAX

Taxesonprofitshavebeencalculatedat theratesof taxprevailing in the jurisdictionswheretheGroupoperates.

Theprevailingtaxratesinthejurisdictionswherethesubsidiariesaredomiciledareasfollows:

2010 2009

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

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11. TAX (continued)

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

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

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

Group 2010 2009 HK$’000 HK$’000

HongKong: Underprovisioninprioryears – 1

Elsewhere: Currentchargefortheyear 455 678 Overprovisioninprioryears (6,531) (111)

(6,076) 567

Deferredtaxation(note36) – (80)

Total tax charge/(credit) for the year, continuing operations (6,076) 488

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

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2010 Annual Report

11. TAX (continued)

Group 2010 2009 HK$’000 HK$’000

Lossbeforetax (586,464) (534,913)

TaxattheHongKongtaxrateof16.5%(2009:16.5%) (96,767) (88,261)Highertaxratesforspecificprovincesorlocalauthorities (8,566) (6,754)Adjustmentsinrespectofcurrenttaxofpreviousperiods (6,531) (110)Profitsandlossesattributabletoassociates (1,540) 230Incomenotsubjecttotax (430,303) (354,150)Expensesnotdeductiblefortax 537,631 449,533

Taxcharge/(credit)attheGroup’seffectiverate (6,076) 488

Representedby:Taxcharge/(credit)attributabletocontinuingoperations (6,076) 488Taxcreditattributabletodiscontinuedoperation, shipbuilding(note5) – –

(6,076) 488

TheshareoftaxattributabletoassociatesamountingtoHK$69,000(2009:HK$323,000)isincludedin“Shareofprofits/(losses)ofassociates,net”onthefaceoftheconsolidatedincomestatement.

12. LOSS ATTRIBUTABLE TO OWNERS OF THE COMPANY

TheconsolidatedlossattributabletotheownersoftheCompanyfortheyearended31December2010includesalossofHK$554,853,000(2009:HK$486,202,000)whichhasbeendealtwithinthefinancialstatementsoftheCompany(note39(b)).

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

Thecalculationof basic lossper share is basedon the total consolidated loss for the year attributabletoordinaryequityholdersof theCompanyofHK580,800,000(2009:HK$536,087,000)representedbythe loss from continuing operations of HK$502,452,000 (2009: HK$430,259,000) and the loss fromdiscontinued operation, shipbuilding of HK$78,348,000 (2009: HK$105,828,000), and the weightedaverageof7,068,392,864(2009:6,503,473,828)ordinarysharesinissueduringtheyear.

No adjustment has beenmade to the basic loss per share amounts presented for the years ended31December 2010 and 2009 in respect of a dilution as the earn-out shares, share options, ConvertibleNotesDue2015,warrants andconvertiblepreferred shares outstandinghave an anti-dilutive effect onthebasiclosspershareamountspresented.

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31 December 2010



14. PROPERTY, PLANT AND EQUIPMENT

Group Furniture, equipment Leasehold Storage and motor Construction Buildings Machinery improvements Vessels* facilities vehicles in progress Total31 December 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

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

Netcarryingamount 343,905 239,435 2,783 966,980 1,414,607 111,449 1,720,258 4,799,417

At1January2010,netof accumulateddepreciation andimpairment 343,905 239,435 2,783 966,980 1,414,607 111,449 1,720,258 4,799,417Additions – 1,340 274 227,537 17 11,788 1,289,658 1,530,614Disposals – – – (995,261) – (10,079) – (1,005,340)Impairment – – – (3,822) – – – (3,822)Depreciation provided during theyear (15,107) (22,726) (1,224) (63,036) (49,228) (25,808) – (177,129)Transfers 189,127 4,061 – – 417 (30,994) (162,611) –Reclassifiedasheldforsale (note 5) (454,266) (164,789) – – – (12,716) (1,883,544) (2,515,315)Exchangerealignment 10,346 6,934 37 – 42,827 4,225 52,817 117,186

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

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


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2010 Annual Report

14. PROPERTY, PLANT AND EQUIPMENT (continued)

Group (continued) Furniture, equipment Leasehold Storage andmotor Construction Buildings Machinery improvements Vessels* facilities vehicles inprogress Total31December2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At31December2008and at1January2009:Cost 353,336 245,561 16,883 1,878,797 700,092 185,049 1,621,690 5,001,408Accumulateddepreciation andimpairment (12,734) (20,110) (8,917) (572,190) (44,796) (54,835) – (713,582)

Netcarryingamount 340,602 225,451 7,966 1,306,607 655,296 130,214 1,621,690 4,287,826

At1January2009,netof accumulateddepreciation andimpairment 340,602 225,451 7,966 1,306,607 655,296 130,214 1,621,690 4,287,826Additions 3,301 21,069 447 85,634 80 11,354 918,518 1,040,403Disposals – – (310) (290,717) (1,173) (2,334) – (294,534)Disposalofasubsidiary(note40) – – (272) – – (515) – (787)Depreciation provided during theyear (12,019) (21,204) (5,053) (134,544) (35,776) (27,889) – (236,485)Transfers 11,707 13,919 – – 795,583 271 (821,480) –Reclassifiedfromheldforsale – – – – – 14 – 14Exchangerealignment 314 200 5 – 597 334 1,530 2,980

At31December2009,netof accumulateddepreciation andimpairment 343,905 239,435 2,783 966,980 1,414,607 111,449 1,720,258 4,799,417

At31December2009:Cost 368,676 280,778 8,371 1,600,716 1,495,239 191,247 1,720,258 5,665,285Accumulateddepreciation andimpairment (24,771) (41,343) (5,588) (633,736) (80,632) (79,798) – (865,868)


* Duringtheyear, theGroupdisposedof twelvevesselsandbunkerbarges(2009:onevessel) fora totalcash

consideration of US$71,500,000 (equivalent to approximately HK$557,700,000) (2009: US$21,400,000

(equivalenttoapproximatelyHK$166,920,000))andrecordedlossesondisposalsofHK$446,649,000(2009:

HK$137,623,000).

ThreevesselsdisposalswereconstituteddiscloseabletransactionsundertheListingRules,andfurtherdetails

aresetoutintheCompanyannouncementsdated14March2010and16March2010.

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14. PROPERTY, PLANT AND EQUIPMENT (continued)

During the year ended 31 December 2010, the Group’s vessel was impaired with reference to therecoverable amounts determined based on latestmarket values for similar vessels. Due to changes inthemarketenvironmentintheoiltransportationbusiness,animpairmentamountofHK$3,822,000waschargedtotheincomestatementduringtheyear.

In the prior year, the residual values of the Group’s vessels were reassessed with reference to avaluation by Ritchie & Bitsset (Far East) Pte. Ltd, independent professionally qualified valuers, andthedepreciationchargesonvessels for theyearended31December2009werecalculated taking intoconsideration the revised estimated residual values. This representeda change in accounting estimateand the depreciation charge for the year ended 31December 2009was reduced byHK$13,632,000,accordingly.

At 31 December 2010, including certain property, plant and equipment items classified underassets of a disposal group classified as held for sale, the Group’s storage facilities, constructionin progress, buildings and machinery with carrying values of approximately HK$1,384,078,000(2009: HK$1,058,704,000), HK$716,328,000 (2009: HK$477,848,000), HK$443,492,000 (2009:HK$57,753,000)andHK$193,752,000(2009:HK$208,568,000), respectively,werepledged tosecurecertain banking facilities granted to the Group. At 31December 2009, vessels with carrying values ofapproximatelyHK$612,321,000werepledgedtosecurecertainbankingfacilitiesgrantedtotheGroup.

15. PREPAID LAND/SEABED LEASE PAYMENTS

Group 2010 2009 HK$’000 HK$’000

Carryingamountat1January 985,707 928,326Additions 1,684 77,085Amortisationprovidedduringtheyear (4,485) (3,888)Amortisationcapitalisedinconstructioninprogress (16,489) (15,998)Reclassifiedasheldforsale(note5) (513,827) –Exchangerealignments 12,186 182

Carryingamountat31December 464,776 985,707

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2010 Annual Report

15. PREPAID LAND/SEABED LEASE PAYMENTS (continued)

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

At 31 December 2010, including the prepaid land/seabed lease payments classified under assets ofa disposal group classified as held for sale, the Group’s prepaid land/seabed lease payments with anaggregatecarrying valueofHK$944,843,000 (2009:HK$905,900,000)werepledged to securecertainbankingfacilitiesgrantedtotheGroup(note28).

16. LICENCES

Group HK$’000

31 December 2010Costat1January2010,netofaccumulatedamortisation 34,899Amortisationprovidedduringtheyear (2,516)

At31December2010 32,383

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

Netcarryingamount 32,383

31December2009Costat1January2009,netofaccumulatedamortisation 37,416Amortisationprovidedduringtheyear (2,517)


At31December2009:Cost 51,935Accumulatedamortisation (17,036)


Licences represent the rights acquired to undertake floating storage operations within the port limitsoff the east andwest coasts of theMalaysia peninsula, pursuant to licences issued by theMinistry ofTransportofMalaysia.

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31 December 2010



17. GOODWILL

Group HK$’000

31 December 2010Costat1January2010,netofaccumulatedimpairment 1,086,197Disposalofanassociateunderanonshoreoilandchemicalstorageunit (45,208)Reclassifiedasheldforsale(note5) (570,618)


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


31December2009Costat1January2009,netofaccumulatedimpairment 1,103,564Impairmentattributabletooiltransportationservices (13,055)Disposalofasubsidiary(notes18and40) (4,312)

At31December2009 1,086,197

At31December2009:Cost 1,105,155Accumulatedimpairment (18,958)

Netcarryingamount 1,086,197

Thecarryingamountofgoodwill(netofimpairment)allocatedtoeachofthecash-generatingunitsisasfollows:

Onshore oil and Shipbuilding Oil supply chemical storage and ship repair Total 2010 2009 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Carryingamount ofgoodwill 16,568 16,568 453,803 499,011 –* 570,618 470,371 1,086,197

* At 31 December 2010, goodwill of HK$570,618,000 allocated to the shipbuilding and ship repair cash-

generatingunitwasincludedinassetsofadisposalgroupclassifiedasheldforsale.

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2010 Annual Report

17. GOODWILL (continued)

According to the agreement for the acquisition of Titan TQSLHolding Company Ltd (“TQSLHolding”)and its subsidiary,QZShipyard (the “ShipyardGroup”), thereare three tranchesof earn-out shares tobe issued for 2008, 2009 and 2010. If the Shipyard Groupmet specified target net profit before tax(“NPBT”)foreachoftheyearsassetoutbelow,theCompanywouldbeobligatedtoissuethemaximumnumberofearn-outsharestoTitanOiloritsnominees(note44(v)).

Maximum number of earn-out sharesTranche in each tranche Target NPBT

2008 88,601,711 US$7.5million2009 88,601,711 US$20million2010 177,203,422 US$50million

If the targetNPBT foranyof theyears2008,2009or2010wasnotmet, then thenumberofearn-outsharestobeissuedintherelevanttranchewastobereducedrateablybyapplyingtheformulaofactualNPBTover targetNPBT. Ifnoprofitwasmade inanyof the relevant financialyears, then,noearn-outshareweretobeissuedinrespectofthatyear.

In accordance with HKFRS 3, the earn-out shares are a contingent consideration and should berecorded as goodwill when achieving the target NPBT is probable. The target NPBT for 2008 wasachieved so themarket price of themaximumnumber of earn-out shares at the acquisitiondatewererecordedasan increase ingoodwillwith thecorrespondingcreditbeingchargedto theearn-outsharesreserve.Sincenoprofitswerereportedforeither2010or2009,theCompanywasnotobligatedtoissuethe2010and2009trancheearn-outshares.

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

• Oilsupplycash-generatingunit;

• Onshoreoilandchemicalstoragecash-generatingunit;and

• Shipbuildingandshiprepaircash-generatingunit.

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31 December 2010



17. GOODWILL (continued)

Impairment testing of goodwillOil supply cash-generating unit

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

Onshore oil and chemical storage cash-generating unit

The recoverable amount of the onshore oil and chemical storage cash-generating unit has beendeterminedbasedonavalue inusecalculationusingcash flowprojectionsbasedon financialbudgetsapproved by senior management covering the period equivalent to the lease term of the land wherethe onshore oil berthing and oil and chemical storage facilities are erected. The pre-tax discount rateapplied to the cash flow projections was 13.2% and the cash flows beyond the five-year period wereprojectedbyusinganaveragegrowthrateof3%fortheonshoreoilandchemicalstoragerevenues.

Shipbuilding and ship repair cash-generating unit

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

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

As at 31 December 2010, no impairment provisions have been made against the goodwill arisingfrom the acquisitions of the oil supply business, onshore oil and chemical storage businesses or theshipbuildingandshiprepairbusinesses.

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18. INTERESTS IN SUBSIDIARIES

Company 2010 2009 HK$’000 HK$’000

Unlistedshares,atcost 234,008 234,008Deemedinvestmentcost* 8,549 8,549Duefromsubsidiaries 5,014,634 5,870,133

5,257,191 6,112,690Portionofamountsduefromsubsidiariesclassified as current assets (93,600) (752,949)

Non-currentportion 5,163,591 5,359,741

* Thedeemed investmentcost represented the fair valueof financial guaranteesprovidedby theCompany to

banksforaloangrantedtoasubsidiary.

Theamountsduefromsubsidiariesareunsecured, interest-freeandhavenofixedtermsofrepayment,except for the current amount of HK$93,600,000 (2009: HK$752,949,000) which is expected to besettledwithinthenexttwelvemonths.

The amounts due to subsidiaries are unsecured, interest-free and have no fixed terms of repayment,except for an amount of HK$53,857,000 (2009: Nil) which is expected to be settled within the nexttwelvemonths.

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31 December 2010



18. INTERESTS IN SUBSIDIARIES (continued)

Particularsoftheprincipalsubsidiariesareasfollows:

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

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

TitanFSUInvestmentLimited BVI Ordinary 100 Investmentholding US$1,000

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

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

TitanBunkeringInvestment BVI Ordinary 100 Investmentholding Limited US$1 andchartering ofavessel

HarbourSkyInvestmentsLimited BVI Ordinary 100 Investmentholding US$1

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

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

Indirectly heldTitanBunkering(HK)Limited HongKong Ordinary 100 Owningand HK$1 charteringofvessels

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

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

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

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2010 Annual Report


Particularsoftheprincipalsubsidiariesareasfollows:(continued)


Indirectly held (continued)SinoVenusPte.Ltd. Singapore Ordinary 100 Provisionofoil SG$1,000,000 transportation services

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

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

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

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

TitanStorageLimited BVI/Malaysia Ordinary 100 Provisionoffloating US$1,000 storageservices

TitanSolarPteLtd Singapore Ordinary 100 Holdingafloating SG$2 storagelicence

RoswellPacificLtd. BVI/Malaysia Ordinary 100 Provisionoffloating US$1 storageservices

BrookfieldPacificLtd. BVI/Malaysia Ordinary 100 Provisionoffloating US$1 storageservices

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31 December 2010






Indirectly held (continued)TitanOrientLinesPte.Ltd.* Singapore Ordinary 100 Investmentholding SG$2

NeptuneAssociatedShipping Singapore/ Ordinary 100 Owningand PteLtd South-EastAsia SG$60,000,000 charteringofvessels

PetroTitan(H.K.)Limited HongKong Ordinary 100 Provisionof HK$3,000,000 financingservices

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

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

AscendSuccessInvestments HongKong Ordinary 100 Provisionof Limited HK$1 financingservices

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

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

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

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2010 Annual Report




Indirectly held (continued)TitanTQSLHolding BVI Ordinary 100 Investmentholding CompanyLtd US$10,000

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

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

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

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

anothermemberfirmoftheErnst&Youngglobalnetwork.# Registeredaswhollyforeign-ownedenterprisesunderPRClaw.

† Registeredasasino-foreignownedenterpriseunderPRCLaw.

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

On 11 December 2010, the Company entered into a sale and purchase agreement to dispose of its95%equityinterestinasubsidiary,QZShipyard.Thedisposalwasnotyetcompletedatthedateofthisreport.Furtherdetailsaresetoutinnotes5and49(b).

On 3 December 2009, the Group disposed of the entire 80% equity interest in Shenzhen DongerPetroleum&ChemicalsCo. Ltd. (“SZDonger”) to an independent third party for a cash considerationof RMB9,600,000 (equivalent to approximately HK$10,966,000) and recorded a gain on disposal ofHK$1,607,000(note40).

Sharesofcertainsubsidiariesheldby theGroupwerepledged to thenoteholdersofSeniorNotesDue2012(note30),ConvertibleNotesDue2015(note31)andPIKNotesDue2015(note32).

109

31 December 2010



19. INTERESTS IN ASSOCIATES

Group 2010 2009 HK$’000 HK$’000

Shareofnetassets 299,793 333,558Goodwillonacquisition 26,448 36,448

326,241 370,006

Duefrom/(to)associates 4,406 (993)

330,647 369,013

Theamountsduefrom/(to)associatesareunsecured,interest-free,havenofixedtermsofrepayment.

Thegoodwill onacquisitionasat31December2010 isattributable to theGroup’s30%equity interestin GZ Xiaohu (as defined below). The Group has performed impairment tests on the goodwill and itsinterests in the associate and no impairment provision is deemed to be necessary. The recoverableamounthasbeendeterminedbasedonvalue inusecalculationsusingcash flowprojectionsbasedonfinancial budgets approved by seniormanagement covering the period equivalent to the lease term ofthe land where the terminal facilities are erected. The pre-tax discount rate applied to the cash flowprojections is13.2%and thecash flowsbeyond the five-yearperiodareprojectedbyusinganaveragegrowthrateof3%forterminalfacilitiesrevenues.

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19. INTERESTS IN ASSOCIATES (continued)

Particularsoftheassociatesasat31December2010areasfollows:

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

福建石獅中油油品 RMB6,000,000 Corporate MainlandChina 30 Oilproduct 銷售有限公司 saleservices

YangshanShenGang US$73,460,000 Corporate MainlandChina 37 Operationof InternationalOilLogistics oilberthingand Co.,Ltd.* storagefacilities (“YangshanShenGang”)

GuangzhouXiaohu RMB157,500,000 Corporate MainlandChina 30 Terminalfacilities PetrochemicalTerminal services Co.,Ltd*(“GZXiaohu”)

* Heldunderjointly-controlledentities(note20).

TheaboveassociatesarenotauditedbyErnst&Young,HongKongoranothermemberfirmoftheErnst&Youngglobalnetwork.

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

2010 2009 HK$’000 HK$’000

Assets 2,300,231 2,432,723Liabilities 1,448,386 1,465,031Revenue 505,343 377,740Profit/(loss)fortheyear 30,799 (776)

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

HK$16,312,000.Anotherassociate,嵊泗縣同盛石油有限公司,wasdissolvedinDecember2010andnomaterialgainorlosswasresultedfromthedissolution.

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31 December 2010



20. INVESTMENTS IN JOINTLY-CONTROLLED ENTITIES

Particularsofthejointly-controlledentitiesareasfollows:

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

TitanGroupInvestmentLimited Ordinary BVI 50.1 50.1 Investmentholding (“TGIL”) US$400,800and Preferred US$399,200

GuangzhouNansha US$87,790,000 MainlandChina 50.1 50.1 Provisionofoil TitanPetrochemical andchemical DevelopmentCompany storageservices Limited*†

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

TitanGroupYangshan Ordinary BVI 50.1 50.1 Investmentholding InvestmentLimited US$40

SkySharpInvestmentsLimited Ordinary BVI 50.1 50.1 Investmentholding US$16,000

ForeverFortuneHoldingsLimited Ordinary HongKong 50.1 50.1 Investmentholding HK$10,000and Non-votingDeferred HK$10,000

FujianTitanPetrochemical US$40,000,000 MainlandChina 50.1 50.1 Provisionofoil StorageDevelopment berthingand Co.,Ltd.*# storage services

QuanzhouTitanPetrochemical US$40,000,000 MainlandChina 50.1 50.1 Provisionofoil TerminalDevelopment berthingandchemical Co.,Ltd*# storage services

TitanGroupNansha Ordinary HongKong 50.1 50.1 Investmentholding InvestmentLimited* HK$1

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20. INVESTMENTS IN JOINTLY-CONTROLLED ENTITIES (continued)

Alloftheaboveinvestmentsinjointly-controlledentitiesareindirectlyheldbytheCompany.

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

33(b) to the financial statements,100%ofaccumulated losses incurredbyTGILgroupwillbeborneby the

Group.

^ Theassociates,YangshanShenGangandGZXiaohu,areheldunderthejointly-controlledentities(note19).

All the above jointly-controlled entities except for TGIL are wholly-owned subsidiaries held by TGILdirectlyorindirectly.

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

2010 2009 HK$’000 HK$’000

Shareofjointly-controlledentities’assetsandliabilities:

Non-currentassets 3,978,638 3,442,413Non-currentliabilities (2,025,200) (1,840,716)Current assets 473,894 552,492Currentliabilities (1,113,495) (927,281)

Net assets 1,313,837 1,226,908

Shareofjointly-controlledentities’results:

Revenue 199,610 163,139Costofsales (85,006) (67,752)

Grossprofit 114,604 95,387Otherrevenue 7,893 5,014Expenses (37,674) (38,525)Financecosts (126,308) (97,928)Shareofresultsofassociates 9,160 (2,148)

Lossbeforetax (32,325) (38,200)Tax (423) –

Lossaftertax (32,748) (38,200)

113

31 December 2010



21. OTHER DEPOSITS

Intheprioryear,theGrouphadaservicedepositofHK$2,500,000forcharteringavesselanddepositsofHK$6,650,000forpurchasesofcertainproperty,plantandequipment.

22. INVENTORIES

At 31 December 2010, the Group had supplies for onshore storage operations of HK$1,523,000(2009:HK$1,557,000)andoilproductsofHK$10,983,000(2009:HK$151,396,000).At31December2009, the Group also had supplies of HK$192,154,000 and work in progress of HK$62,762,000 forshipbuildingandbuildingofshiprepairfacilitiesoperations.

In addition, the Group had supplies of HK$136,742,000 for shipbuilding and building of ship repairfacilities operations, which is included in assets of a disposal group classified as held for sale at 31December2010.

23. ACCOUNTS AND BILLS RECEIVABLE

Group 2010 2009 HK$’000 HK$’000

Accountsandbillsreceivable 97,664 316,855Impairments (16,240) (14,956)

81,424 301,899

The Group normally allows credit terms to well-established customers ranging from 30 to 90 days.Efforts are made to maintain strict control over outstanding receivables and overdue balances arereviewedregularlybyseniormanagement.OnthisbasisandthefactthattheGroup’saccountsandbillsreceivable relate to a large number of diversified customers, there are no significant concentrations ofcreditrisk.Accountsandbillsreceivablearenon-interest-bearing.

An aged analysis of accounts and bills receivable as at the end of the reporting period, based on thedatesofrecognitionofthesalesandnetofprovisions,isasfollows:

Group 2010 2009 HK$’000 HK$’000

1to3months 49,957 57,2814to6months 6,081 95,5927to12months 8,214 49,695Over12months 17,172 99,331

81,424 301,899

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23. ACCOUNTS AND BILLS RECEIVABLE (continued)

As at 31 December 2010, accounts receivable in a disposal group (note 5) included HK$32,518,000which was aged within one to three months and HK$253,201,000 aged over twelve months. TheHK$32,518,000 was neither past due nor impaired while the HK$253,201,000 was more than threemonthspastdue.

Themovementsintheprovisionforimpairmentofaccountsandbillsreceivableareasfollows:

Group 2010 2009 HK$’000 HK$’000

At1January 14,956 15,371Impairmentlossesrecognised/(reversed)(note7) 3,541 (415)Amountswrittenoffasuncollectible (2,257) –

At31December 16,240 14,956

Included in the above balance is a provision for impairment for customers with an aggregate grossreceivable balance of HK$32,451,000 (2009: HK$18,944,000). The net accounts receivable inrespect of these customers after the provision of impairment amounted to HK$16,211,000 (2009:HK$3,988,000). These receivables relate to customers in default and only a portion of the receivablesisexpectedtoberecovered.TheGroupdoesnotholdanycollateralorothercreditenhancementsoverthesebalances.

The aged analysis of the accounts and bills receivable that are not individually nor collectivelyconsideredtobeimpairedisasfollows:

Group 2010 2009 HK$’000 HK$’000

Neitherpastduenorimpaired 49,957 57,281Lessthan3monthspastdue 6,081 95,592Morethan3monthspastdue 9,175 145,038

65,213 297,911

115

31 December 2010



23. ACCOUNTS AND BILLS RECEIVABLE (continued)

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

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

At 31 December 2010, included in the accounts and bills receivable of assets of a disposal groupclassifiedasheldforsaleareaccountsreceivablefromTitanOilforsalesofvesselsofHK$213,987,000(2009:HK$142,951,000includedintheaccountsandbillsreceivable)(note44(iv)).

24. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

As at 31 December 2009, prepayments for supplies in respect of the shipbuilding operations in theaggregate amount of HK$97,439,000 and input tax recoverable in Mainland China for purchases ofshipbuildingsuppliesintheaggregateamountofHK$60,708,000areincludedinprepayments,depositsandotherreceivables.

Other receivables were neither past due nor impaired as at 31 December 2010. As at 31 December2009,includedinotherreceivablesaggregatingHK$40,370,000whichwerepastduebutnotimpaired,andagedoversevenbutlessthantwelvemonths.TheGroupdoesnotholdanycollateralorothercreditenhancementsoverthesebalances.Otherthantheabove,noneofthefinancialassetsiseitherpastdueorimpairedandthesefinancialassetsrelatetoreceivableforwhichtherehavebeennorecenthistoriesofdefault.

25. CONTRACTS IN PROGRESS

Group 2010 2009 HK$’000 HK$’000

Contracts in progress

Directcostsincurredplusrecognisedprofitsless recognisedlossestodate 47,468 356,970

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

10,104 356,970

Intheprioryear,aforeseeablelossofHK$1,262,000wasrecordedincontractsinprogress.

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26. FINANCIAL GUARANTEE CONTRACTS

In 2010, the carrying value of financial guarantee contracts arising from financial guarantees grantedby theCompany to a bank for a loan to a subsidiary of theGroup amounted toHK$8,549,000 (2009:HK$8,549,000).

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

Group Company 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000

Cashandbankbalances 263,891 426,827 2,262 3,237Timedeposits 162,386 102,704 – –

426,277 529,531 2,262 3,237

Less:Amountspledgedfor bankfacilities(note28(iii))and restrictedcash: Bankbalances (82,761) (71,542) – – Timedeposits (94,610) (56,598) – – Timedepositswithoriginal maturitiesofmorethan threemonths (66,626) (43,566) – –

(243,997) (171,706) – –

Cashandcashequivalents 182,280 357,825 2,262 3,237

Attheendofthereportingperiod, includingthoseclassifiedunderassetsofadisposalgroupclassifiedas held for sale, the cash and bank balances of the Group denominated in Renminbi (“RMB”)amounted toHK$445,127,000 (2009:HK$421,814,000). TheRMB is not freely convertible into othercurrencies,however,underMainlandChina’sForeignExchangeControlRegulationsandAdministrationofSettlement,SaleandPaymentofForeignExchangeRegulations, theGroup ispermitted toexchangeRMBforothercurrenciesthroughbanksauthorisedtoconductforeignexchangebusiness.

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

117

31 December 2010



28. INTEREST-BEARING BANK LOANS

2010 2009 Effective Effective interest rate interest rateGroup (%) Maturity HK$’000 (%) Maturity HK$’000 (Restated) (Restated) (Restated)

CurrentBankloans–secured 3.19–5.76 2011 483,814 1.44–7.56 2010–2019 1,197,577Bankloans–unsecured 4.74–6.12 2011 317,247 4.37–5.84 2010 389,102

801,061 1,586,679

Non-currentBankloans–secured 5.35–5.94 2012–2019 1,177,098 2.82–6.24 2011–2019 1,135,942Bankloans–unsecured 5.35 2018 329,775 5.40 2011–2017 239,888

1,506,873 1,375,830

2,307,934 2,962,509

Group 2010 2009 HK$’000 HK$’000 (Restated)

Bankloansrepayable:Withinoneyear 801,061 1,586,679Inthesecondyear 265,716 210,661Inthethirdtofifthyears,inclusive 907,710 836,888Beyondfiveyears 333,447 328,281

2,307,934 2,962,509

As a result of the adoption of HK Interpretation 5, a term loan of HK$825,213,000 which contains arepayment ondemandclausewas reclassified to current portion of bank loans at 31December2009.Such term loan is callable by the lender, but management does not expect the lender to exercise itsrighttodemandrepaymentinnormalcircumstances.

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28. INTEREST-BEARING BANK LOANS (continued)

CertainoftheGroup’sbankloans,includingthoseclassifiedasheldforsalearesecuredby:

(i) vesselswithanaggregatenetcarryingvalueofHK$612,321,000 in2009but suchsecuritywasreleasedin2010;

(ii) construction in progress with an aggregate carrying value of HK$716,328,000 (2009:HK$477,848,000);

(iii) bankbalancesanddepositsofHK$134,861,000(2009:HK$81,514,000);

(iv) machinerywithanaggregatenetcarryingvalueofHK$193,752,000(2009:HK$208,568,000);

(v) buildingswithanaggregatenetcarryingvalueofHK$443,492,000(2009:HK$57,753,000);

(vi) prepaid land/seabed lease payments with an aggregate net carrying value of HK$944,843,000(2009:HK$905,900,000);

(vii) storage facil i t ies with an aggregate net carrying value of HK$1,384,078,000 (2009:HK$1,058,704,000);

(viii) contracts in progress with an aggregate carrying value of HK$144,584,000 in 2009 but suchsecuritywasreleasedin2010;

(ix) accountsreceivableswithanaggregatecarryingvalueofHK$56,319,000(2009:Nil);

(x) corporateguaranteesexecutedbytheCompany;

(xi) personalguaranteesexecutedbyarelatedpartyandadirectoroftheCompany.

ThecarryingamountsoftheGroup’scurrentandfloatingrateloansapproximatetotheirfairvalues.ThecarryingamountsandthefairvaluesoftheGroup’snon-currentandfixedrateloansareasfollows:

Carrying amounts Fair value 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000

Bankloans–secured 1,177,098 1,130,899 1,112,448 1,072,633Bankloans–unsecured 329,775 239,888 319,526 226,938

1,506,873 1,370,787 1,431,974 1,299,571

The fair values of the bank loans of theGroup are estimated by discounting the expected future cashflowsatprevailinginterestrates.

119

31 December 2010



29. ACCOUNTS AND BILLS PAYABLE/OTHER PAYABLES AND ACCRUALS

TheGroupnormallyobtainscredittermsrangingfrom30to90daysfromitssuppliers.

Anagedanalysisof theaccountsandbillspayableasat theendof the reportingperiod,basedon thedateofreceiptofgoodspurchased,isasfollows:

Group 2010 2009 HK$’000 HK$’000

1to3months 71,317 125,1354to6months 67,877 39,8787to12months 49,235 29,420Over12months 16,992 23,275

205,421 217,708

Otherpayablesandaccruals 650,758 962,513

856,179 1,180,221

Accounts and bills payable are non-interest-bearing. Other payables and accruals are non-interest-bearingandhaveanaveragetermofthreemonths.

Provision for product warranties

2010 2009Group HK$’000 HK$’000

At1January 1,684 1,682

Amountsutilisedduringtheyear (1,684) –Exchangerealignment – 2

At31December – 1,684

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

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2010 Annual Report

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

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

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

TheCompanyenteredintonegotiationswithcertainholdersoftheSeniorNotesDue2012inconnectionwith an exchange offer and consent solicitations proposed on 8 December 2009 (7 December 2009,NewYorkCityTime)andrevisedon23April2010(22April2010,NewYorkCityTime).Eventually,on9June2010(8June2010,NewYorkCityTime),theCompanymadeafinalexchangeoffertoexchangeanyandallof itsoutstandingSeniorNotesDue2012properly tendered(andnotvalidlywithdrawn) forup to US$118,575,360 (approximately HK$924,888,000) aggregate principal amount of ConvertibleNotes Due 2015, up to US$21,444,480 (approximately HK$167,267,000) aggregate principalamount of PIKNotes Due 2015 and a cash payment of approximatelyUS$65,000,000 (approximatelyHK$507,000,000)(the“FinalExchangeOffer”).

TheFinalExchangeOfferwascompletedonthesettlementdate,28July2010(27July2010,NewYorkCityTime)(the“SettlementDate”).Accordingly,thetransactionscontemplatedinthememorandumhavebeenconsummated.TheaggregateprincipalamountofSeniorNotesDue2012accepted forexchangeby the Company on the Settlement Date was US$209,490,000 (approximately HK$1,634,022,000).The Company issuedUS$78,728,000 (approximately HK$614,078,000) aggregate principal amount ofConvertibleNotesDue2015andUS$14,193,000 (approximatelyHK$110,705,000)aggregateprincipalamountofPIKNotesDue2015,andpaidUS$43,154,940(approximatelyHK$336,609,000)incash,inexchange for the tenderedSeniorNotesDue2012.Asa result, theCompany recognisedagainon theFinalExchangeOfferofHK$476,495,000.

In 2009, the Company repurchased an aggregate principal amount of US$17,816,000 (approximatelyHK$138,965,000)inSeniorNotesDue2012andrecognisedagainonrepurchaseofHK$90,522,000.

At 31 December 2010, the effective interest rate on the Senior Notes Due 2012 was 9.27% (2009:9.27%) per annum. The outstanding principal and fair value of the Senior Notes Due 2012 at 31December 2010 was US$105,870,000 (approximately HK$825,786,000) (2009: US$315,360,000(approximately HK$2,459,808,000)) and US$66,698,000 (approximately HK$520,244,000) (2009:US$71,744,000(approximatelyHK$559,606,000)),respectively.

121

31 December 2010



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

As a result of the Final Exchange Offer detailed in note 30, the Company issued US$78,728,000(approximatelyHK$614,078,000)aggregateprincipalamountofConvertibleNotesDue2015on28July2010(27July2010,NewYorkCityTime)inexchangefortenderedSeniorNotesDue2012.

TheConvertibleNotesDue2015aredueon13July2015witha single repaymentat151.621%of itsprincipal amount, unless earlier redeemed, repurchased or purchased by the Company or converted.TheConvertibleNotesDue2015bearno interest,andare listedon theSingaporeExchangeSecuritiesTrading Limited. Holders of the Convertible Notes Due 2015 are entitled to convert their ConvertibleNotes Due 2015 with a minimum principal amount of US$1,000 or integral multiples of US$500in excess thereof based on an initial conversion rate of 10,915 conversion shares per US$1,000in principal amount of Convertible Notes Due 2015, subject to adjustments. This implies an initialconversionprice (subject to adjustments)of approximatelyUS$0.0916 (approximatelyHK$0.7145)perconversion share.Conversionmayoccur onanydayprior to (and including) the seventhbusinessdaypriortothematuritydateoftheConvertibleNotesDue2015.

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

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

In addition, during the year, an aggregate principal amount of US$16,680,000 (approximatelyHK$130,104,000) Convertible Notes Due 2015 was converted into 182,062,197 ordinary shares ofHK$0.01 each in the Company at the conversion price of US$0.0916 (approximatelyHK$0.7145) pershare.

The Convertible Notes Due 2015 comprise a financial liability at amortised cost and an embeddedderivative.Theeffective interest rateon theConvertibleNotesDue2015was9.11%perannum.At31December2010,thefairvalueoftheembeddedderivativesliabilitywasHK$123,632,000.

At 31 December 2010, the outstanding principal and fair value of the Convertible Notes Due2015 was US$51,951,000 (approximately HK$405,218,000) and US$50,285,000 (approximatelyHK$392,223,000),respectively.

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2010 Annual Report

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

As a result of the Final Exchange Offer detailed in note 30, the Company issued US$14,193,000(approximatelyHK$110,705,000)aggregateprincipal amountofPIKNotesDue2015on28July2010(27July2010,NewYorkCityTime)inexchangefortenderedSeniorNotesDue2012.

The PIK Notes Due 2015 are due on 13 July 2015 with a single repayment of the principal, unlessearlier repurchased pursuant to the terms of the PIKNotes indenture. The PIKNotes Due 2015 bearinterest at the rate of 8.5% per annum payable semi-annually in arrears commencing on 13 January2011eitherbycashor in the formof additionalPIKNotesDue2015,andare listedon theSingaporeExchangeSecuritiesTradingLimited.

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

During the year, an aggregate principal amount ofUS$3,539,500 (approximatelyHK$27,608,000)PIKNotes Due 2015 were repurchased by the Company at an aggregate consideration of US$3,448,000(approximately HK$26,893,000), resulting in a net gain on repurchases, after write off unamortisedtransactioncosts,ofHK$43,000.

The PIK Notes Due 2015 is carried at amortised cost with an effective interest rate of 10.91%per annum. At 31 December 2010, the outstanding principal of the PIK Notes Due 2015 wasUS$10,653,500(approximatelyHK$83,097,000).

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31 December 2010



33. CONVERTIBLE PREFERRED SHARES

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

(a) Titan preferred shares At1January2009 75,559 257,384 75,559 257,384 Add: Dividendsonconvertible preferredshares (classifiedasfinancialliabilities) – 32,712 – 32,712

At31December2009 75,559 290,096 75,559 290,096 Add: Dividendsonconvertible preferredshares (classifiedasfinancial liabilities)(note8) – 35,225 – 35,225

At31December2010 75,559 325,321 75,559 325,321

(b) TGIL preferred shares At1January2009 517,837 316,009 – – Add: Dividendsonconvertible preferredshares (classifiedasfinancial liabilities) – 39,001 – –

At31December2009 517,837 355,010 – –

Add: Dividendsonconvertible preferredshares (classifiedasfinancial liabilities)(note8) – 39,000 – –

At31December2010 517,837 394,010 – –

In 2007, theCompany issued 555,000,000Titan preferred shares at the stated value ofHK$0.56 pershare andTGIL issuedHK$780million (US$100million) TGIL preferred shares. The fair values of theliability portion of Titan preferred shares and TGIL preferred shares were estimated at the issuancedate. The residual amount of Titan preferred shares of HK$75,559,000 and TGIL preferred sharesof HK$517,837,000 were assigned as the equity portion and included in shareholders’ equity of theCompanyandcontingentlyredeemableequityinajointly-controlledentity,respectively.

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2010 Annual Report

34. NOTES PAYABLE (“K LINE NOTES DUE 2013”)

On 5 August 2008, the Group signed an agreement with Kawasaki Kisen Kaisha Ltd (“K Line”) for KLine to purchase notes for US$25million (approximately HK$195million) with an interest rate of 1%perannum.Priorto31March2013,atthesoleoptionoftheCompany,thenotesareexchangeableforupto5%of the issuedsharecapitalofoneof itssubsidiaries,TQSLHolding,whichholdsQZShipyardinMainlandChina.

Atmaturity, the notes are required to be repaid in full in cash equal to the greater of (i) 110%of theprincipal amount plus all accrued but unpaid interest; and (ii) the fair market value of 5.5% of theissued share capital of TQSL Holding on a fully diluted basis (the “Applicable Redemption Amount”).TheGrouphastherighttoredeemthenotesinfullpriortomaturitydateattheApplicableRedemptionAmount,whileKLinehas the right toearly redeemat theApplicableRedemptionAmount in theeventofachangeofcontrol.

Change of control means (i) the sale of all or substantially all the assets of Shipyard Holdings, TQSLHoldingorQZShipyardtoanotherperson;(ii)anytransactionresulting invotingrightsof50%ormoreof total voting rights of either ShipyardHoldings, TQSLHolding orQZ Shipyard being held other than,directly or indirectly, by theCompanyandShipyardHoldings; or (iii) the adoption of aplan relating totheliquidation,windingupordissolutionofeitherShipyardHoldings,TQSLHoldingorQZShipyard.

TheproposeddisposalofQZshipyardasmentioned innote5may trigger theearly redemptionclauseunderwhichKLinehastherighttoearlyredeemthenotesattheApplicableRedemptionAmount.Asaresult,KLineNotesDue2013becomerepayableondemandandareclassifiedascurrent liabilitiesat31December2010.Thedirectorsof theCompanydonot expectKLinehasany intention towithdrawor recall their investment in QZ Shipyard and their K Line Notes Due 2013, because the Companycontinues tomanage the business operation of QZ Shipyard subsequent to the disposal until the yearended31December2012asdescribedinnote5.

QZShipyardandKLinealsosignedastrategicallianceagreementunderwhichKLinewillappointQZShipyardasitsprimaryshiprepairpartnerinMainlandChinaand,accordingly,KLineagreedtoengagethe shipyard for certain future ship repair business. This agreement is for an initial term of ten yearsandcanberenewedthereafterforsuccessivefiveyearterms.

TheKLineNotesDue2013comprisedafinancial liabilityatamortisedcostandembeddedderivatives.Asat31December2010, the fairvalueof theembeddedderivativesassetwasHK$18,286,000(2009:HK$18,286,000).

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35. CONVERTIBLE UNSECURED NOTES (“TGIL NOTES DUE 2014”)

On14July2009, theCompany,TOSIL,WarburgPincusandTGILentered intoanagreementbywhichTOSILandWarburgPincusbecameentitled toprovide,prorata to theirshareholdings inTGIL, fundingofuptoHK$312.6million(US$40.1million)toTGILthroughthesubscriptionofTGILNotesDue2014.

Interestaccruesat1%perannum,but ifTOSILdoesnotexercise itsoption tosubscribe for thenotes,interestat5%perannumwillbecharged from thedateonwhichTOSIL’soption tosubscribeexpires.The notes will mature five years after the date of issue. Holders of the notes are entitled to convertthewhole of the notes into TGIL’s shares at the initial conversion price ofHK$1,953.90 (US$250.50),subjecttoadjustmentsatanytimefromthefirstanniversaryofthedateofissue.

On the same date, Warburg Pincus exercised its option to subscribe for TGIL Notes Due 2014 inthe principal amount of HK$156 million (US$20 million). The fair values of the liability portion andembedded derivative of the TGIL Notes Due 2014 were estimated at the issuance date. The residualamount of HK$92.3 million of TGIL Notes Due 2014 was assigned as the equity portion and wasincludedintheshareholders’equityoftheGroup.

On28December2010, theCompanyannouncedthat theoptionperiodforTOSIL’soptiontosubscribefor TGIL Notes Due 2014 was extended to 30 June 2011. On 13 January 2011, TOSIL exercised itsrighttosubscribeforTGILNotesDue2014intheprincipalamountofHK$156.6million(approximatelyUS$20.1 million) and the subscription was completed when the relevant TGIL Notes Due 2014 wereissuedon21January2011.Furtherdetailsaresetoutinnote49(b).

The liability portion of TGIL Notes Due 2014 comprises a financial liability at amortised cost and anembeddedderivative.Asat31December2010, the fairvalueof theembeddedderivatives liabilitywasHK$348,000(2009:HK$348,000).

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36. DEFERRED TAX LIABILITIES

Themovementsindeferredtaxliabilitiesduringtheyearareasfollows:

Fair value adjustments Accelerated arising from capital acquisition of allowances subsidiaries TotalGroup HK$’000 HK$’000 HK$’000

At1January2009 4,027 153,416 157,443Deferredtaxcreditedtotheconsolidated incomestatementduringtheyear(note11) (80) – (80)Exchangerealignments 79 – 79

At31December2009and1January2010 4,026 153,416 157,442Reclassifiedasheldforsale(note5) – (112,180) (112,180)Exchangerealignments 356 – 356

Grossdeferredtaxliabilitiesrecognised intheconsolidatedstatementoffinancial positionat31December2010 4,382 41,236 45,618

There are no income tax consequences attaching to the payment of dividends by the Company to itsshareholders.

Pursuant toPRCCorporate IncomeTaxLaw, a10%withholding tax is leviedondividendsdeclared toforeigninvestorsfromforeigninvestmententerprisesestablishedinMainlandChina.Therequirementiseffectivefrom1January2008andappliestoearningsafter31December2007.Alowerwithholdingtaxratemaybeapplied if there is a tax treatybetweenChinaand the jurisdictionof the foreign investors.For theGroup, theapplicable rate is5%or10%.TheGroup thereforebecame liable towithhold taxeson dividends distributed by those subsidiaries and jointly-controlled entities established in MainlandChinainrespectofearningsgeneratedfrom1January2008.

At31December2010and2009,nodeferredtaxhasbeenrecognisedforwithholdingtaxesthatwouldbepayableontheunremittedearningsthataresubjecttowithholdingtaxesoftheGroup’ssubsidiaries,associatesandjointly-controlledentitiesestablishedinMainlandChina.Intheopinionofthedirectors,itisunlikely that thesesubsidiaries,associatesand jointly-controlledentitieswilldistributesuchearningsin the foreseeable future. At 31 December 2010 and 2009, there were no significant unrecogniseddeferred tax liabilities for taxes that would be payable on the unremitted earnings of certain of theGroup’s subsidiaries, associatesor jointly-controlledentities as theGrouphadnomaterial liabilities foradditionaltaxesshouldsuchamountsberemitted.

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31 December 2010



37. SHARE CAPITAL

Shares 2010 2009 Nominal value Nominalvalue Number of of shares Numberof ofshares shares HK$’000 shares HK$’000

Authorised: OrdinarysharesofHK$0.01each at31December(note(a)) 14,445,000,000 144,450 9,445,000,000 94,450

Convertiblepreferredsharesof HK$0.01eachat31December 555,000,000 5,550 555,000,000 5,550

Issued and fully paid: OrdinarysharesofHK$0.01each at1January 6,562,460,721 65,625 6,473,859,010 64,739 Issueofsharesuponexercise ofshareoptions(note38) 22,210,000 222 – – Issueofsharesbyshare subscription(note(b)) 1,000,000,000 10,000 – – ConversionofConvertible Notes Due 2015 (note (c)) 182,062,197 1,820 – – Issueofearn-outshares (note 44(v)) – – 88,601,711 886

OrdinarysharesofHK$0.01each at31December 7,766,732,918 77,667 6,562,460,721 65,625

Convertiblepreferredsharesof HK$0.01eachat1January and31December 555,000,000 5,550 555,000,000 5,550

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2010 Annual Report

37. SHARE CAPITAL (continued)

Shares (continued)Notes:

(a) Pursuant to an ordinary resolution passed on 16 April 2010, the authorised share capital of the Company

was increased from HK$100,000,000 divided into 9,445,000,000 ordinary shares of HK$0.01 each and

555,000,000convertiblepreferredsharesofHK$0.01eachtoHK$150,000,000dividedinto14,445,000,000

ordinary shares of HK$0.01 each and 555,000,000 convertible preferred shares of HK$0.01 each by the

creationofanadditional5,000,000,000ordinarysharesofHK$0.01each,rankingparipassu inall respects

withtheexistingordinarysharesoftheCompany.

(b) On 24 May 2010, the Company entered into a subscription agreement with a subscriber under which the

Company conditionally agreed to allot and issue, and the subscriber conditionally agreed to subscribe for

1,000,000,000 new ordinary shares at a price ofHK$0.37 per new subscription share. The subscription of

shareswascompletedon23July2010.

FurtherdetailsinrespectoftheaboveareincludedintheCompany’sannouncementsdated24May2010,8

June2010,15June2010,7July2010and23July2010andacirculardated31May2010.

(c) During the year, Convertible Notes Due 2015 with an aggregate principal amount of US$16,680,000

(approximatelyHK$130,104,000)wereconverted into182,062,197ordinary sharesofHK$0.01eachat the

conversionpriceofapproximatelyUS$0.0916(approximatelyHK$0.7145)pershare.

(d) Allnewordinarysharesrankparipassuinallrespectswithotherordinarysharesinissue.

Share option schemeDetails of the Company’s share option scheme and the movements in share options issued by theCompanyareincludedinnote38tothefinancialstatements.

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38. SHARE OPTION SCHEME

(a) AsummaryoftheshareoptionschemeoftheCompany(the“Scheme”)issetoutbelow.

Purpose To provide incentives and rewards to eligibleparticipants who contribute to the success oftheoperationsoftheGroup.

Participants (i) Full time employees and directors oftheCompanyanditssubsidiaries;and

(ii) Any suppliers, consultants, agents andadvisorsoftheGroup.

Total number of ordinary shares availablefor issueand thepercentageof the issuedshares of the Company that it representsas at the date of approval of the financialstatements

647,385,901 ordinary shares, representing8.31% of the issued shares of the Companyat the date of approval of the f inancialstatements.

Maximumentitlementofeachparticipant The maximum number of shares issuableunde r sha r e op t i ons t o each e l i g i b l epart icipant within any 12-month period,including exercised and outstanding options,is limited to1%of thesharesof theCompanyinissueatanytime.

Period within which the ordinary sharesmustbetakenupunderanoption

The period to be determined and notified bythe directors at the time of making an offerprovidedthatsuchperiodshallnotexceedtheperiodof10yearsfromthedateoftheoffer.

Minimumperiod forwhich an optionmustbeheldbeforeitcanbeexercised

None

Amountpayableonacceptance HK$1.00

Period within which payments/calls/loansmustbemade/repaid

Notapplicable

Basisofdeterminingtheexerciseprice Determined by the board of directors at theirdiscretionbasedonthehigherof:

(i) theclosingpriceof theordinaryshareson the Stock Exchange at the date oftheoffer;

(ii) the average c los ing pr ice o f theordinary shares of the Company asstated in the daily quotation sheets oftheStockExchange for the five tradingdays immediatelyprecedingthedateoftheoffer;or

(iii) the nominal value of the ordinarysharesoftheCompany.

RemaininglifeoftheScheme The Scheme remains in force until 31 May2012.

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38. SHARE OPTION SCHEME (continued)

(b) The following share options under the Scheme were outstanding at the end of the reportingperiod:

Number of share options Exercise

At Granted Lapsed Exercised At Exercise price ofName or category 1 January during during during 31 December Date of grant of period of share options**of participant 2010 the year the year the year*** 2010 share options* share options HK$

Director

Mr.PatrickWongSiuHung 10,000,000 – – – 10,000,000 1February2008 1February2010to 0.45

31January2015

10,000,000 – – – 10,000,000 1February2008 1February2011to 0.45

31January2016

20,000,000 – – – 20,000,000

Other employees

Inaggregate 11,225,000 – (500,000) (1,145,000) 9,580,000 20February2006 20February2007to 0.72

19February2012

11,225,000 – (500,000) (1,145,000) 9,580,000 20February2006 20February2008to 0.72

19February2013

250,000 – (250,000) – – 24April2007 24April2008to 0.70

23April2013

250,000 – (250,000) – – 24April2007 24April2009to 0.70

23April2014

38,600,000 – (2,760,000) (19,920,000) 15,920,000 1February2008 1February2010to 0.45

31January2015

94,320,000 – (8,470,000) – 85,850,000 1February2008 1February2011to 0.45

31January2016


31January2017


31January2018

263,890,000 – (22,650,000) (22,210,000) 219,030,000

283,890,000 – (22,650,000) (22,210,000) 239,030,000

131

31 December 2010




(b) (continued)* Optionsgrantedon20February2006werevested tograntees in two tranches.50%ofsuchoptions

were vested on 20 February 2007 with an exercise period from 20 February 2007 to 19 February

2012 and the remaining 50% were vested on 20 February 2008 with an exercise period from 20

February2008to19February2013.TheclosingpriceoftheCompany’sshareson17February2006

wasHK$0.72.

Options granted on 24 April 2007 were vested to grantees in two tranches. 50% of such options

were vestedon24April 2008with anexerciseperiod from24April 2008 to23April 2013and the

remaining50%werevestedon24April2009withanexerciseperiodfrom24April2009to23April

2014.TheclosingpriceoftheCompany’sshareson23April2007wasHK$0.70.

Optionsgrantedon1February2008werevested tograntees in four tranches.20%of suchoptions

werevestedon1February2010withanexerciseperiod from1February2010to31January2015;

40%ofsuchoptionswerevestedon1February2011withanexerciseperiodfrom1February2011

to31January2016;20%ofsuchoptionswillbevestedon1February2012withanexerciseperiod

from 1 February 2012 to 31 January 2017 and 20% of such options will be vested on 1 February

2013 with an exercise period from 1 February 2013 to 31 January 2018. The closing price of the

Company’sshareson31January2008wasHK$0.435.

** Theexercisepriceoftheshareoptionsissubjecttoadjustmentinthecaseofrightsorbonusissues,

orothersimilarchangesinthesharecapitaloftheCompany.

*** The weighted average closing price of the shares of the Company immediately before the date on

whichtheoptionswereexercisedwasHK$0.718.

Duringtheyear,noshareoptionswerecancelled.

At the end of the reporting period, the Company had outstanding share options for thesubscription of 239,030,000 ordinary shares under the Scheme. The exercise in full of theseshare options would, under the present capital structure of the Company, result in the issueof 239,030,000 additional ordinary shares of the Company and additional share capital ofHK$2,390,300andsharepremiumofHK$110,346,400(beforeissueexpenses).

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(c) Movements in the number of shares issuable under options granted and their relatedweightedaverageexercisepriceswereasfollows:

2010 2009 Weighted Weighted average Number of average Numberof exercise price shares issuable exerciseprice sharesissuable per share under options pershare underoptions HK$ granted HK$ granted

Outstandingat1January 0.472 283,890,000 0.476 349,560,000Exercised 0.478 (22,210,000) – –Lapsed 0.467 (22,650,000) 0.497 (65,670,000)

Outstandingat31December 0.472 239,030,000 0.472 283,890,000

At 31 December 2010, out of the 239,030,000 outstanding options (31 December 2009:283,890,000), 45,080,000 options (31 December 2009: 22,950,000) were vested andexercisable at aweighted average exercise price ofHK$0.565 (31December 2009:HK$0.720)pershare.

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31 December 2010



39. RESERVES

(a) Group Equity component Share PRC Asset Exchange Earn-out of TGIL premium Contributed Share option statutory revaluation fluctuation shares Notes Accumulated account surplus reserve reserve reserve reserve reserve Due 2014 losses Total Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At1January2009 1,888,747 18,261 20,815 – 57,399 185,525 52,275 – (732,127) 1,490,895Totalcomprehensive lossfortheyear – – – – – 7,978 – – (536,087) (528,109)Equity-settledshare optionarrangements – – 14,419 – – – – – – 14,419Disposalofasubsidiary 18&40 – – – – – (171) – – – (171)Transfertoaccumulated lossesuponlapseofshare optionsaftervestingperiod – – (2,396) – – – – – 2,396 –Transferofearn-outshares reservestosharepremium 51,389 – – – – – (52,275) – – (886)IssueofTGILNotesDue2014 35 – – – – – – – 92,277 – 92,277

At31December2009 and1January2010 1,940,136 18,261 32,838 – 57,399 193,332 – 92,277 (1,265,818) 1,068,425Totalcomprehensiveloss fortheyear – – – – – 80,791 – – (579,774) (498,983)Equity-settledshareoption arrangements – – 9,193 – – – – – – 9,193Transfertoaccumulatedlosses uponlapseofshareoptions aftervestingperiod – – (453) – – – – – 453 –Exerciseofshareoptions 38 13,767 – (3,384) – – – – – – 10,383Issueofordinaryshares 37(b) 360,000 – – – – – – – – 360,000Shareissueexpenses (784) – – – – – – – – (784)ConversionofConvertible Notes Due 2015 31 124,105 – – – – – – – – 124,105TransfertoPRCstatutory reserve – – – 559 – 3 – – (562) –

At31December2010 2,437,224 18,261 38,194 559 57,399 274,126 – 92,277 (1,845,701) 1,072,339

The contributed surplus arose as a result of the Group reorganisation carried out on 18 May1998andrepresents theexcessof thenominalvalueof thesharesof thesubsidiariesacquired,pursuant to theGroupreorganisation,over thenominalvalueof theCompany’sshares issued inexchangetherefor.

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2010 Annual Report

39. RESERVES (continued)

(b) Company Retained Share Earn-out profits/ premium Contributed Share option shares (accumulated account surplus reserve reserve losses) Total Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At1January2009 1,888,747 60,916 20,815 52,275 44,575 2,067,328Totalcomprehensiveloss fortheyear 12 – – – – (486,202) (486,202)Equity-settledshareoption arrangements – – 14,419 – – 14,419Transfertoretainedprofits uponlapseofshareoptions aftervestingperiod – – (2,396) – 2,396 –Issueofearn-outshares 51,389 – – (52,275) – (886)

At31December2009 and1January2010 1,940,136 60,916 32,838 – (439,231) 1,594,659Totalcomprehensiveloss fortheyear 12 – – – – (554,853) (554,853)Equity-settledshareoption arrangements – – 9,193 – – 9,193Transfertoaccumulatedlosses uponlapseofshareoptions aftervestingperiod – – (453) – 453 –Exerciseofshareoptions 38 13,767 – (3,384) – – 10,383Issueofordinaryshares 37(b) 360,000 – – – – 360,000Shareissueexpenses (784) – – – – (784)ConversionofConvertible Notes Due 2015 31 124,105 – – – – 124,105

At31December2010 2,437,224 60,916 38,194 – (993,631) 1,542,703

The contributed surplus of the Company represents the excess of the fair value of the sharesof the subsidiaries acquired,pursuant to the sameGroup reorganisation referred to above, overthe nominal value of the Company’s shares issued in exchange therefore. Under the BermudaCompaniesAct1981,theCompanymaymakedistributionstoitsmembersoutofthecontributedsurplusundercertaincircumstances.

The share option reserve comprises the fair value of share options grantedwhich are yet to beexercised,as furtherexplained in theaccountingpolicy forshare-basedpayment transactions innote2.4to thefinancialstatements.Theamountwilleitherbetransferredto thesharepremiumaccountwhen the related options are exercised, or be transferred to retainedprofits should therelatedoptionsexpireorlapse.

135

31 December 2010



40. DISPOSAL OF A SUBSIDIARY

As further detailed in note 18 to the financial statements, in the prior year, the Group disposed of its80% equity interest in SZ Donger to an independent third party. The details of the disposal are asfollows:

2009 Notes HK$’000

Netassetsdisposedof: Property,plantandequipment 14 787 Cashandcashequivalents 184,412* Amountduetotheimmediateholdingcompany (179,104)* Non-controllinginterests (1,219) Releasefromexchangefluctuationreserve 39(a) 171 Goodwillonacquisition 17 4,312

Totalnetassetsdisposedof 9,359

Gainondisposalofasubsidiary 7&18 1,607

10,966

Satisfiedbycash 10,966

Ananalysisof thenetoutflowofcashandcashequivalents inrespectof thedisposalofasubsidiary isasfollows:

2009 HK$’000

Cashconsideration 10,966Cashandbankbalancesdisposedof (184,412)*

Netoutflowofcashandcashequivalentsinrespectofthedisposalofasubsidiary (173,446)*

* The cash and cash equivalentsmainly represented a cash deposit of HK$179,000,000 paid by the Group,

giving rise to the amount due to the immediate holding company, for the purchase of fuel oil which was

deliveredsubsequenttothedisposalofthesubsidiary.

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2010 Annual Report

41. OPERATING LEASE ARRANGEMENTS

(a) As lessorAt 31 December 2010, the Group did not lease out any vessels under operating leasearrangements to thirdparties.At31December2009, theGroup leasedvesselsunderoperatingleasearrangements,negotiatedforoneyearandfiveyears.

At theendof the reportingperiod, theGrouphad total futureminimum lease receivablesundernon-cancellableoperatingleasesfallingdueasfollows:

Group 2010 2009 HK$’000 HK$’000

VesselsWithinoneyear – 16,576Inthesecondtofifthyears,inclusive – 17,795

– 34,371

(b) As lesseeThe Group leases vessels and certain office premises under operating lease arrangements.Leases for the vessels are negotiated for terms ranging from one to five years, and leases forofficepremisesarenegotiatedfortermsrangingfromonetotwentyyears.

At the end of the reporting period, the Group had total futureminimum lease payments undernon-cancellableoperatingleasesfallingdueasfollows:

Group 2010 2009 HK$’000 HK$’000

VesselsWithinoneyear 431,326 146,668Inthesecondtofifthyears,inclusive 610,961 194,396

1,042,287 341,064

Office premisesWithinoneyear 12,665 9,508Inthesecondtofifthyears,inclusive 29,290 19,035Beyondfiveyears 67,821 71,095

109,776 99,638

1,152,063 440,702

137

31 December 2010



42. COMMITMENTS

Group 2010 2009 HK$’000 HK$’000

Capitalcontributioncommitmentsforassociates inMainlandChina 70,531 68,408Commitmentsforconstructionofoilberthingand storagefacilitiesofjointly-controlledentitiesinMainlandChina 20,111 213,487Commitmentforshipbuildingandshiprepairfacilities inMainlandChina* 939,102 1,241,065Commitmentforconversionofvessels – 60,840

1,029,744 1,583,800

* At31December2010,suchcommitmentwasassociatedwiththedisposalgroupclassifiedasheldforsale.

Company 2010 2009 HK$’000 HK$’000

Capitalcontributioncommitmentsforasubsidiary inMainlandChina 234,000 234,000

43. CONTINGENT LIABILITIES

At 31 December 2010, guarantees aggregating HK$22,230,000 (2009: HK$114,617,000) had beengivenbytheCompanytobanksinconnectionwithbankingfacilitiesgrantedtosubsidiaries.Anamountof HK$19,460,000 (2009: HK$110,716,000) of the facilities had been utilised by subsidiaries of theCompany.

At31December2009,aguaranteeofHK$39,000,000hadbeengivenbytheCompanytoasupplierofa subsidiaryof theCompany inconnectionwith the floatingstoragebusinessbutnoamounthadbeenutilisedandtheguaranteewasreleasedduringtheyear.

In 2009, certain subsidiaries of the Company (collectively the “Claimants”) initiated arbitrationproceedings against a ship management company for claims relating to certain ship managementagreements.Theshipmanagementcompanysubsequentlyfiledadefenceandcounterclaimsubmissionin which it alleged that the Claimants repudiated the agreements and that it has a counterclaim fordamages.TheproceedingsweresettledinthecurrentyearandtheGrouphasnoliabilitiesinrelationtothiscaseat31December2010.

Other than the contingent liabilities as disclosed above, the Group and the Company had no othermaterialcontingentliabilitiesasattheendofthereportingperiod.

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44. RELATED PARTY TRANSACTIONS

Asreferredtoelsewhereinthesefinancialstatements,theGrouphadthefollowingmaterialtransactionswithrelatedpartiesduring2010and2009:

(i) Tenancy agreement with Titan OilIn 2007, the Group entered into a tenancy agreement with Titan Oil for the lease of officepremises for a termof three years commencing from1 January2008until 31December2010.During the year, the Group paid a total amount of SG$608,000 (approximately HK$3,486,000)(2009: SG$608,000 (approximately HK$3,247,000)) to Titan Oil for the lease of the officepremises,whichiscomparabletotheprevailingmarketrentalforsimilarproperties.

(ii) Chartering vesselsOn 1 September 2010, a subsidiary of the Group entered into five charter agreements withOceanic Shipping Pte. Ltd. (“Oceanic Shipping”), a company incorporated in Singapore andwholly-owned by a director, to charter five vessels for a term of three years commencing from1 September 2010 to 31 August 2013. During the year, the Group paid a total amount ofUS$4,089,000 (approximately HK$31,894,000) in charter fees to Oceanic Shipping, whichis comparable to the prevailing market rates for similar bareboat charters and terms. Thistransaction constituted a continuing connected transaction as defined in Chapter 14A of theListing Rules, further details are included in the Company’s announcement dated 1 September2010.

(iii) Bank guaranteesAsat31December2010,aguaranteewasgrantedbyoneof thedirectorsof theCompany toabank in connection with bank loans of RMB1,095,497,000 (approximately HK$1,290,241,000)(2009: RMB722,400,000 and US$3,308,000 (in aggregate approximately HK$851,018,000))grantedtoasubsidiaryoftheCompany.

(iv) Build and sale of vesselsAs at 31 December 2010, the shipbuilding subsidiary of the Group had an amount duefrom Titan Oil of HK$213,987,000, which was included in accounts and bills receivable ofassets of a disposal group classified as held for sale (2009: a net amount due to Titan Oil ofHK$138,287,000, of which HK$142,951,000 and HK$281,238,000 were included in accountsand bills receivable and other payables and accruals, respectively) relating to build and saleof vessels to Titan Oil. These amounts are unsecured, interest-free and have no fixed termsof repayment, except for an amount of HK$132,867,000 (2009: Nil) with a fixed repaymentschedule.ThesaleofvesselstoTitanOilinthecurrentyearamountedtoHK$78,778,000(2009:HK$192,801,000).

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31 December 2010



44. RELATED PARTY TRANSACTIONS (continued)

(v) Issue of earn-out sharesAsdetailed innote17tothefinancialstatements,earn-outsharesweretobe issuedtoTitanOiloritsnomineeswhenitwasprobablethattheShipyardGroupcouldmeetspecifiedtargetNPBT.Sincenoprofitswere reported foreither2010or2009, theCompanywasnotobligated to issuethe2010and2009trancheearn-outshares.

(vi) Other advances with Titan Oil and its subsidiariesAsat 31December2010, theGrouphadanamountdue fromTitanOil ofHK$133,000 (2009:anamountduetoTitanOilofHK$9,720,000)whichisunsecured,interest-freeandhasnofixedtermsofrepayment.

As at 31 December 2010, the Group had an amount due to a subsidiary of Titan Oil ofRMB135,000,000 (approximately HK$158,999,000) (2009: RMB700,000 (approximatelyHK$800,000))whichisunsecured,interest-freeandhasnofixedtermsofrepayment.

45. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the reportingperiodareasfollows:

GroupFinancial assets Financial assets at fair value through profit or loss Loans and receivables Total 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Duefromassociates – – 4,406 – 4,406 –Otherdeposits – – – 9,150 – 9,150Accountsandbillsreceivable – – 81,424 301,899 81,424 301,899Financialassetsincluded inprepayments,deposits andotherreceivables – – 463,535 313,715 463,535 313,715Contracts in progress – – 10,104 356,970 10,104 356,970Pledgeddepositsandrestrictedcash – – 243,997 171,706 243,997 171,706Cashandcashequivalents – – 182,280 357,825 182,280 357,825

– – 985,746 1,511,265 985,746 1,511,265

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2010 Annual Report

45. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

Group (continued)Financial liabilities Financial liabilities at fair Financial liabilities value through profit or loss at amortised cost Total 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Due to associates – – – 993 – 993Accountsandbillspayable – – 205,421 217,708 205,421 217,708Financialliabilitiesincluded inotherpayablesandaccruals – – 650,758 960,829 650,758 960,829Interest-bearingbankloans – – 2,307,934 2,962,509 2,307,934 2,962,509Senior Notes Due 2012 – – 840,333 2,491,264 840,333 2,491,264ConvertibleNotesDue2015 123,632 – 285,102 – 408,734 –PIKNotesDue2015 – – 84,360 – 84,360 –Liabilityportionofconvertible preferredshares – – 719,331 645,106 719,331 645,106KLineNotesDue2013 (18,286) (18,286) 209,627 203,622 191,341 185,336TGIL Notes Due 2014 348 348 82,733 67,917 83,081 68,265Vesseldepositreceived – – – 2,500 – 2,500

105,694 (17,938) 5,385,599 7,552,448 5,491,293 7,534,510

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45. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

CompanyFinancial assets Financial assets at fair value through profit or loss Loans and receivables Total 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Duefromsubsidiaries – – 5,014,634 5,870,133 5,014,634 5,870,133Financialassetsincluded inprepayments,depositsand otherreceivables – – 624 14 624 14Cashandcashequivalents – – 2,262 3,237 2,262 3,237

– – 5,017,520 5,873,384 5,017,520 5,873,384

Financial liabilities Financial liabilities at fair Financial liabilities at value through profit or loss amortised cost Total 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Financialliabilitiesincluded inotherpayablesandaccruals – – 27,716 3,856 27,716 3,856Duetosubsidiaries – – 1,869,135 1,599,377 1,869,135 1,599,377Financialguaranteecontracts – – 8,549 8,549 8,549 8,549Senior Notes Due 2012 – – 840,333 2,491,264 840,333 2,491,264ConvertibleNotesDue2015 123,632 – 285,102 – 408,734 –PIKNotesDue2015 – – 84,360 – 84,360 –Liabilityportionofconvertible preferredshares – – 325,321 290,096 325,321 290,096

123,632 – 3,440,516 4,393,142 3,564,148 4,393,142

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46. FAIR VALUE AND FAIR VALUE HIERARCHY

The fairvaluesof the financialassetsand liabilitiesare includedat theamountatwhichan instrumentcouldbeexchangedinacurrenttransactionbetweenwillingparties,otherthaninaforcedorliquidationsale.Thefollowingmethodsandassumptionswereusedtoestimatethefairvalues:

Other deposits, accounts and bills receivable, accounts and bills payables, financial assets includedin prepayments, deposits and other receivables, financial liabilities included in other payables andaccruals, amounts due from/to subsidiaries, contracts in progress, pledged deposits and restrictedcash, cash and cash equivalents approximate to their carrying amounts largely due to the short termmaturitiesoftheseinstruments.

The fair values of the non-current portion of interest-bearing bank loans, Senior Notes Due 2012,Convertible Notes Due 2015, PIK Notes Due 2015, K Line Notes Due 2013 and vessels depositsreceived have been calculated by discounting the expected future cash flows using rates currentlyavailable for instruments on similar terms, credit risks and remaining maturities. The fair values ofthe liability portion of the convertible preferred shares and TGILNotes Due 2014 are estimated usingequivalentmarketinterestratesforsimilarinstruments.

The fair values of embedded derivative financial instruments included under Convertible Notes Due2015, K Line Notes Due 2013 and TGIL Notes Due 2014 are measured using valuation techniquesincorporatedwithmarketobservableinputs.

Fair value hierarchyThe Group uses the following hierarchy for determining and disclosing the fair value of financialinstruments:

Level1: fair valuesmeasuredbasedonquotedprices (unadjusted) inactivemarkets for identicalassetsorliabilities

Level2: fair values measured based on valuation techniques for which all inputs which have asignificanteffectontherecordedfairvalueareobservable,eitherdirectlyorindirectly.

Level3: fair values measured based on valuation techniques for which all inputs which have asignificant effect on the recorded fair value are not based on observable market data(unobservableinputs)

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46. FAIR VALUE AND FAIR VALUE HIERARCHY (continued)

Fair value hierarchy (continued)Assets measured at fair value:

GroupAsat31December2010:

Level 1 Level 2 Level 3 Total HK$’000 HK$’000 HK$’000 HK$’000

Embeddedderivativefinancial instruments,includedunder KLineNotesDue2013 – 18,286 – 18,286

Asat31December2009:

Level1 Level2 Level3 Total HK$’000 HK$’000 HK$’000 HK$’000

Embeddedderivativefinancial instruments,includedunder KLineNotesDue2013 – 18,286 – 18,286

The Company did not have any financial assetsmeasured at fair value as at 31 December 2009 and2010.

Liabilities measured at fair value:

GroupAsat31December2010:


Embeddedderivativefinancial instruments,includedunder: ConvertibleNotesDue2015 – 123,632 – 123,632 TGIL Notes Due 2014 – 348 – 348

Total – 123,980 – 123,980

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46. FAIR VALUE AND FAIR VALUE HIERARCHY (continued)

Fair value hierarchy (continued)Liabilities measured at fair value: (continued)

Group (continued)Asat31December2009:

Level1 Level2 Level3 Total HK$’000 HK$’000 HK$’000 HK$’000

Embeddedderivativefinancialinstruments, includedunderTGILNotesDue2014 – 348 – 348

CompanyAsat31December2010:


Embeddedderivativefinancial instruments,includedunder ConvertibleNotesDue2015 – 123,632 – 123,632

TheCompanydidnothaveanyfinancialliabilitiesmeasuredatfairvalueasat31December2009.

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47. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

TheGroup’s principal financial instruments, other thanderivatives, comprisebank loans, SeniorNotesDue 2012, Convertible Notes Due 2015, PIK Notes Due 2015, K Line Notes Due 2013, TGIL NotesDue2014,cashandbankbalances,andshort termtimedeposits.Themainpurposeof thesefinancialinstruments is to raiseand/or retain funds forGroupoperations.TheGrouphas variousother financialassetsand liabilitiessuchasaccountsandbills receivableandaccountsandbillspayable,whicharisedirectlyfromitsoperations.

TheGroup is principally exposed to interest rate risks, credit risks, liquidity risks and foreign currencyrisks.Theboardofdirectorsreviewsandagreespolicies formanagingeachof theserisksandtheyaresummarisedbelow.

Interest rate risksThe Group’s exposure to the risks of changes inmarket interest rates relates primarily to the Group’slongtermdebtobligationswithfloatinginterestrates.

TheGroup’s treasurydepartment continuallymonitors thepositions andexplores otherways to reduceinterestcosts.

The following tabledemonstrates thesensitivity toa reasonablypossiblechange in interest rates in thecurrent year,with all other variables held constant, of theGroup’s loss before tax (through the impactonfloatingrateborrowings).

Increase/ Increase/ (decrease) in (decrease) in loss before basis points tax HK$’000

2010HongKongdollar 4-28 48HongKongdollar (4-28) (48)

2009HongKongdollar 15–56 505HongKongdollar (15–56) (505)

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47. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Credit risksCredit risks arise from the inability of a counterparty to meet the payment terms. It is the Group’spolicy to minimise such credit exposures by careful assessment of customer credit worthiness. TheGroup further lowers its credit exposurebyobtainingexport lettersof credit andbankguarantees, etc.Therefore,theGroupdoesnotexpecttoincuranymaterialcreditlossesonitsriskmanagement.

Thecredit risksof theGroup’sother financialassets,whichcomprisecashandcashequivalents,otherreceivables, deposits and certain derivative instruments, arise from default of the counterparty, with amaximumexposure equal to the carrying amounts of such instruments. TheCompany is also exposedtocreditrisksthroughthegrantingoffinancialguarantees,furtherdetailsofwhicharedisclosedinnote26tothefinancialstatements.

There are no significant concentrations of credit risk within the Group as the customer bases of theGroup’saccountsandbillsreceivablearewidelydispersed.

Further quantitative data in respect of the Group’s exposure to credit risks arising from accounts andbillsreceivablearedisclosedinnote23tothefinancialstatements.

Liquidity risksTheGroup’s treasurydepartmentmonitors theGroup’scash flowpositionsonaregularbasis toensurethecashflowoftheGroupispositiveandcloselycontrolled.

Thematurity profile of the Group’s financial liabilities as at the end of the reporting period, based oncontractualundiscountedpayments,isasfollows:

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Liquidity risks (continued)Group On demand or within one year Over one year Total 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Due to associates – 993 – – – 993Accountsandbillspayable 205,421 217,708 – – 205,421 217,708Financialliabilitiesincludedin otherpayablesandaccruals 646,942 957,039 – – 646,942 957,039Interest-bearingbankloans 978,348 916,748 2,079,334 2,689,235 3,057,682 3,605,983Senior Notes Due 2012 70,192 209,084 860,882 2,773,434 931,074 2,982,518ConvertibleNotesDue2015 33,779 – 578,670 – 612,449 –PIKNotesDue2015 6,927 – 118,667 – 125,594 –Liabilityportionofconvertible preferredshares – – 1,090,800 1,090,800 1,090,800 1,090,800KLineNotesDue2013 199,381 4,691 – 199,381 199,381 204,072TGIL Notes Due 2014 1,560 1,560 159,968 161,528 161,528 163,088Vesseldepositreceived – – – 2,500 – 2,500

2,142,550 2,307,823 4,888,321 6,916,878 7,030,871 9,224,701

Company On demand or within one year Over one year Total 2010 2009 2010 2009 2010 2009 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Financialliabilitiesincludedin otherpayablesandaccruals 27,716 3,856 – – 27,716 3,856Duetosubsidiaries 53,857 – 1,815,278 1,599,377 1,869,135 1,599,377Senior Notes Due 2012 70,192 209,084 860,882 2,773,434 931,074 2,982,518ConvertibleNotesDue2015 33,779 – 578,670 – 612,449 –PIKNotesDue2015 6,927 – 118,667 – 125,594 –Liabilityportionofconvertible preferredshares – – 310,800 310,800 310,800 310,800Guaranteesgiventobanksin connectionwithfacilitiesgranted tosubsidiaries 19,460 110,716 – – 19,460 110,716

211,931 323,656 3,684,297 4,683,611 3,896,228 5,007,267

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Foreign currency risksThe Group’s foreign currency exposures are minimal in view of the natural hedge between costs andrevenueswhichareprimarily inUnitedStatesdollar forbusinesses inSingaporeandprimarily inRMBforstoragebusiness inChina.TheGroupdonothaveanysignificantexchangerateexposures toHongKongdollarorSingaporedollar.

The following table demonstrates the sensitivity at the end of the reporting period to a reasonablypossiblechangeintheUnitedStatesdollartoRMBexchangerate,withallothervariablesheldconstant,oftheGroup’slossbeforetaxduetochangesinthefairvaluesofmonetaryassetsandliabilities.

Increase/ (decrease) in loss before tax % HK$’000

2010IfUnitedStatesdollarweakensagainstRMB 1.24 1,557IfUnitedStatesdollarstrengthensagainstRMB 1.24 (1,557)

2009IfUnitedStatesdollarweakensagainstRMB 1.11 2,939IfUnitedStatesdollarstrengthensagainstRMB 1.11 (2,939)

Capital managementThe primary objectives of the Group’s capital management are to safeguard its ability to continue asa going concern and tomaintain healthy capital ratios in order to support its business andmaximiseshareholders’value.

The Group manages its capital structure and makes adjustments to it, in the light of changes ineconomic conditions. To maintain or adjust the capital structure, the Group may adjust the dividendpayment to shareholders, returncapital to shareholdersor issuenewshares.TheGroup isnot subjectto any externally imposed capital requirements. No changes were made in the objectives, policies orprocessesformanagingcapitalduringtheyearsended31December2010and2009.

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Capital management (continued)The Group monitors capital using a gearing ratio, which is total debts divided by total assets. Thegearingratiosasattheendofthereportingperiodswereasfollows:

Group 2010 2009 HK$’000 HK$’000

Interest-bearingbankloans 3,790,059 2,962,509Senior Notes Due 2012 840,333 2,491,264ConvertibleNotesDue2015 408,734 –PIKNotesDue2015 84,360 –KLineNotesDue2013 191,341 185,336TGIL Notes Due 2014 83,081 68,265

Totaldebts 5,397,908 5,707,374

Totalassets 9,517,212 9,446,295

Gearing ratio 57% 60%

48. COMPARATIVE AMOUNTS

As further explained in note 2.2 to the financial statements, due to the adoption of new and revisedHKFRSs during the current year, the accounting treatment and presentation of certain items andbalances in the financial statements have been revised to comply with the new requirements.Accordingly, certain comparative amounts have been reclassified and restated to conform with thecurrent year’s presentation and accounting treatment. In addition, the comparative income statementhasbeen re-presentedas if theoperationdiscontinuedduring thecurrent yearhadbeendiscontinuedat thebeginning of the comparativeperiod.Certain comparative amounts innote4under theheading“Segment Information” have been reclassified to conform with the current year presentation. In theopinionoftheCompany’sdirectors,suchreclassificationprovideamoreappropriatepresentationontheGroup’sbusinesssegments.

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49. EVENTS AFTER THE REPORTING PERIOD

(a) Subscription of TGIL Notes Due 2014On 13 January 2011, TOSIL exercised its right to subscribe for TGIL Notes Due 2014 in theprincipal amount of approximately HK$156.6 million (approximately US$20.1 million) and thesubscriptionwascompletedwhentherelevantTGILNotesDue2014were issuedon21January2011.

Further details in respect of the above are included in the Company’s announcement dated 13January2011.

(b) Disposal of QZ ShipyardAs described in note 5, the proposed disposal of QZ Shipyard were duly approved byshareholders ina specialgeneralmeetingheldon20January2011and the requisiteapprovalsfromtherelevantauthorities inMainlandChinahavebeendulyobtained.Theproposeddisposalhasyet tobecompletedat thedateof thisreportandwillbecompleteduponregistrationof thetransferoftheequityinterestsinQZShipyard.

Further details in respect of the above are included in the Company’s announcement dated 20January2011.

50. APPROVAL OF THE FINANCIAL STATEMENTS

Thefinancialstatementswereapprovedandauthorisedforissuebytheboardofdirectorson24March2011.


FIVE YEAR FINANCIAL SUMMARY

Asummaryoftheresultsandoftheassets,liabilitiesandnon-controllinginterestsoftheGroupforthelastfivefinancialyears,asextractedfrompublishedauditedfinancialstatements,issetoutbelow.

Year ended 31 December 2010 2009 2008 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

REVENUE Continuing operations 1,924,169 1,619,815 7,238,059 7,734,473 6,637,088 Discontinued operations 187,330 385,434 3,854,885 9,269,845 4,822,892

2,111,499 2,005,249 11,092,944 17,004,318 11,459,980

PROFIT/(LOSS)BEFORETAX Continuing operations (508,116) (429,085) (425,823) (97,502) 62,778 Discontinued operations (78,348) (105,828) (1,182,402) 73,024 47,711

(586,464) (534,913) (1,608,225) (24,478) 110,489

Tax Continuing operations 6,076 (488) 2,664 (12,458) (10,748) Discontinued operations – – 36 5,964 (3,229)

6,076 (488) 2,700 (6,494) (13,977)

PROFIT/(LOSS)FORTHEYEAR (580,388) (535,401) (1,605,525) (30,972) 96,512

Attributableto: OwnersoftheCompany (580,800) (536,087) (1,600,557) (29,104) 100,333 Non-controllinginterests 412 686 (4,968) (1,868) (3,821)

(580,388) (535,401) (1,605,525) (30,972) 96,512

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FIVE YEAR FINANCIAL SUMMARY

2010 Annual Report

ASSETS, LIABILITIES AND NON-CONTROLLING INTERESTS

At 31 December 2010 2009 2008 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

TOTAL ASSETS 9,517,212 9,446,295 8,998,992 12,774,943 8,947,036

TOTALLIABILITIES (7,773,810) (7,710,220) (6,826,211) (9,089,734) (6,795,131)

CONTINGENTLYREDEEMABLEEQUITY INAJOINTLY-CONTROLLEDENTITY (517,837) (517,837) (517,837) (517,837) –

NON-CONTROLLINGINTERESTS – (8,629) (23,751) (115,487) (102,997)

1,225,565 1,209,609 1,631,193 3,051,885 2,048,908

DIRECTORSExecutive Directors

Tsoi Tin Chun, Chairman & Chief ExecutivePatrick Wong Siu Hung

Independent Non-executive Directors

John William Crawford, JPMaria Tam Wai Chu, GBS, JPAbraham Shek Lai Him, SBS, JP

AUDIT COMMITTEEJohn William Crawford, JP, Committee ChairmanMaria Tam Wai Chu, GBS, JPAbraham Shek Lai Him, SBS, JP

REMUNERATION COMMITTEEMaria Tam Wai Chu, GBS, JP, Committee ChairmanAbraham Shek Lai Him, SBS, JPTsoi Tin Chun

COMPANY SECRETARYShirley Hui Wai Man

REGISTERED OFFICEClarendon House2 Church StreetHamilton HM11Bermuda

HEAD OFFICE AND PRINCIPALPLACE OF BUSINESS4902 Sun Hung Kai Centre30 Harbour RoadWanchaiHong Kong

PRINCIPAL BANKERSThe Royal Bank of ScotlandBank of ChinaChina Construction BankIndustrial and Commercial Bank of ChinaShanghai Pudong Development BankShenzhen Development Bank

AUDITORSErnst & Young

SOLICITORSReed Smith Richards ButlerSkadden, Arps, Slate, Meagher & Flom LLPTSMP Law CorporationConyers, Dill & PearmanHolman Fenwick WillanConcord & Partners Shanghai Office

PRINCIPAL REGISTRARSHSBC Securities Services (Bermuda) Limited6 Front StreetHamilton HM11Bermuda

HONG KONG BRANCH REGISTRARSTricor Tengis Limited26/F, Tesbury Centre28 Queen’s Road EastHong Kong

WEBSITEwww.petrotitan.com

STOCK CODE1192

CORPORATE INFORMATION

4902 Sun Hung Kai Centre30 Harbour Road, Wanchai, Hong KongTel: (852) 2116 1388 Fax: (852) 3107 1899

Website: www.petrotitan.com

2010

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