System1
Annual Report 2013

Plain-text annual report

Contents Brief Profile of Steamships Trading Company Limited . . . 2 Financial Highlights . . . . . . . . . . . . . . . . . . . . 4 Chairman’s Report . . . . . . . . . . . . . . . . . . . . . 6 Directors’ Economic Analysis . . . . . . . . . . . . . . . 8 Directors’ Review . . . . . . . . . . . . . . . . . . . . 12 Division Review Review of Operations - Logistics . . . . . . . . . . . 15 Steamships Shipping . . . . . . . . . . . . . . . . 16 Consort Express Lines Ltd . . . . . . . . . . . . . 18 East West Transport . . . . . . . . . . . . . . . . 20 Review of Operations - ProPerty and HoteLs . . . . 23 Pacific Palms Property . . . . . . . . . . . . . . . 24 Coral Sea Hotels . . . . . . . . . . . . . . . . . . 26 Review of Operations - commerciaL . . . . . . . . . 28 Laga Industries . . . . . . . . . . . . . . . . . . . 29 Datec . . . . . . . . . . . . . . . . . . . . . . . 31 Review of Operations - Joint Ventures . . . . . . . . 33 Pacific Towing . . . . . . . . . . . . . . . . . . . 34 Colgate Palmolive . . . . . . . . . . . . . . . . . 35 sUstAinABiLitY A Message from the Board of Directors . . . . . . . . . . 37 Selected Group Performance Highlights . . . . . . . . . 39 Steamships’ Sustainability Focus Areas . . . . . . . . . . 40 Our People . . . . . . . . . . . . . . . . . . . . 40 Our Environment . . . . . . . . . . . . . . . . . 47 Our Community . . . . . . . . . . . . . . . . . . 50 CoRPoRAte GoveRnAnCe Corporate Governance Statement . . . . . . . . . . . . 53 FinAnCiAL seCtion Statements of Comprehensive Income . . . . . . . . . . 60 Statement of Changes in Equity . . . . . . . . . . . . . . 61 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 62 Statements of Cash Flows . . . . . . . . . . . . . . . . 63 Notes to the Financial Statements . . . . . . . . . . . . 64 Independent Auditor’s Report . . . . . . . . . . . . . . 98 Directors’ Report . . . . . . . . . . . . . . . . . . . . .100 Stock Exchange Information . . . . . . . . . . . . . . .104 Company Directory . . . . . . . . . . . . . . . . . . . IBC PioneeRinG sUstAinABLe PRoGRess Steamships Trading Company has a 95-year tradition of investing in Papua New Guinea’s growth, development and progress. Its transition from pioneer coastal trader to a diversified leader in shipping, transport, property, manufacturing, hotels and information technology has been integral to, and part of, Papua New Guinea’s development into a modern and formative leader within the Asia Pacific region. That tradition continues today. Committed to our people, the sustainability of our operations, and the future of Papua New Guinea, Steamships Trading Company is pioneering sustainable progress in PNG into the twenty-first century. Steamships Annual Report 2013 1 BRieF PRoFiLe oF steAmshiPs tRADinG ComPAnY LtD Steamships Trading Company (Steamships) has a long history in Papua New Guinea and is one of the country’s leading businesses. Today Steamships is a well-established business conglomerate with diverse commercial interests and listings on both the Australian and Port Moresby Stock Exchanges. Steamships has a vision to build a valuable and profitable business that is widely respected as being the best company to work for and with which to do business. Integral to this vision are the following business strategies: • • • • • The long-term development of a diversified range of businesses in which shareholder value can be created; Employment of staff who we believe will further our strategic objectives and will be committed to the Group for the long term and providing them with rewarding careers; Operational excellence in the way we conduct our business; Doing business in a sustainable manner; and Commitment to the highest standards of corporate governance. The Group employs close to 4,000 PNG citizens and non-citizens in seven diverse Divisions grouped under the three operating categories of Logistics, Property and Hotels, and Commercial. Steamships has redefined its values to include the following: • Integrity – Taking the more ethical and honest path; honouring our commitments and delivering on our promises; creating a bond of trust that sustains relationships with our staff, customers, shareholders, business partners and the communities in which we do business. • • • • • • Excellence – Our customers and colleagues expect us to deliver high quality goods and services. If something is to be done, we believe it should be done in the best possible way. Humility – We believe in the need to respect and to learn from others. To do this we must be aware of our own limitations and to seek to understand other perspectives. Humility guides our approach to colleagues, customers and partners. This does not mean that we lack self-confidence but that we act with humble pride. Continuity – We take a long term view. We grow our business sustainably and create enduring value that earns the respect of our customers, our staff, our communities and our shareholders. Customer Focus – Our customers are the final judges of our success or failure. We understand and respond to the needs of our customers. Safety – We prioritise safety awareness and compliance to ensure our business operations are conducted safely. People Development – We value a working environment that fosters innovation and encourages personal development and learning. 2 Steamships Annual Report 2013 Brief Profile of Steamships Trading Company Ltd Steamships is aware of its pre-eminent position in the community and its responsibility to serve that community. The Group continues to be one of PNG’s largest private sector employers and one of the largest supporters of community initiatives in education, health, environment and social welfare. Steamships ensures that core sustainability concepts are embedded in its business models and systems. The Group is wholly aware that its business goals cannot be achieved unless this is the case. Steamships cannot succeed without the engagement and support of the people it employs, the loyalty of and satisfaction of its customers, the local communities and the environment in which it operates. With ninety-five years of service to the PNG community, Steamships is still showing it has the resources and capacity, vision and capability to meet the dynamic needs of a growing country. steAmshiPs’ oRGAnisAtionAL stRUCtURe steamsHiPs Head oFFice Logistics diVision ProPerty diVision commerciaL diVision Key Joint Ventures Steamships Shipping Coral Sea Hotels Datec Colgate- Palmolive (PNG) Stevedoring Companies Pacific Palms Property Laga Industries Pacific Towing* Coastal Shipping Consort Express Lines East West Transport * The remaining interest in Pacific Towing was acquired by Steamships on the 21st November 2013. Steamships Annual Report 2013 3 FinAnCiAL hiGhLiGhts 2013 FinanCial HigHligHts Revenue Operating profit Profit attributable to shareholders Cash generated from operations Net cash inflow/(outflow) before financing Shareholders’ funds External Borrowings Earnings per share Dividends per share Shareholders’ funds per share 2013 K’000 969,652 114,868 117,050 236,608 (73,984) 717,016 640,284 377 185 2,312 2012 K’000 1,038,195 296,509 177,700 266,866 28,452 677,178 491,700 573 285 2,184 Underlying profit attributable to shareholders (see page 12) Underlying earnings per share 128,367 414 156,213 504 Gearing ratio Interest cover Dividend cover 46.4% 7.5 2.0 39.2% 14.2 2.0 Change % -7% -61% -34% -11% -360% 6% 30% -34% -35% 6% -18% -18% 18% -47% 0% 4 Steamships Annual Report 2013 summary oF Past PeFormanCe 2004 K’000 2005 K’000 2006 K’000 2007 K’000 2008 K’000 2009 K’000 2010 K’000 2011 K’000 2012 K’000 2013 K’000 Financial Highlights inCome statement Revenue Operating profit before tax Share of associates profit Income tax expense Minority interests Net profit attributable to shareholders Depreciation transfer Equity adjustment Dividends paid or provided Earnings retained this year 328,880 370,037 336,302 53,502 45,434 13,590 15,115 13,389 11,118 (18,357) (16,589) (6,969) (2,781) (2,026) (3,036) 47,479 40,208 14,703 1,467 1,467 1,467 0 0 0 (31,008) (20,157) (5,583) 17,938 21,518 10,587 406,757 465,750 499,415 800,333 934,717 1,038,195 969,652 80,674 91,208 111,615 120,602 180,834 233,967 265,574 14,188 11,416 16,732 15,029 9,697 13,859 16,837 (81,414) (11,930) (53,935) (67,727) (34,637) (27,869) (32,808) (6,137) (5,418) (4,211) (20,648) 38,609 (21,870) (21,838) 96,560 116,445 158,261 177,700 117,050 90,226 74,157 0 (1,061) 159 1,467 (8,994) 0 0 0 (88,373) (57,365) (31,008) (58,916) (38,760) (45,272) 50,691 89,327 98,284 85,437 45,113 36,864 0 0 (45,272) 51,288 0 0 0 0 Underlying profit attributable to shareholders (adjusted for significant items) 13,848 28,696 35,067 49,926 67,770 85,120 113,597 153,566 156,213 128,367 BalanCe sHeet shARe CAPitAL & ReseRves Issued Capital Retained Earnings Shareholders’ funds Minority Shareholder’s Interest eQuity Fixed Assets Investments in Associated Companies Future Income Tax Benefit Goodwill Current assets total assets 24,200 24,200 24,200 254,230 302,595 353,883 428,157 554,349 24,200 24,200 24,200 24,200 24,200 162,157 196,161 218,833 652,978 692,816 186,357 220,361 243,033 278,430 326,795 378,083 452,357 578,549 677,178 717,016 22,907 192,788 230,417 254,127 292,114 345,131 421,937 515,208 653,914 761,500 739,923 10,056 75,365 62,851 84,322 24,200 24,200 43,854 13,684 18,336 11,094 6,431 173,858 193,639 227,773 16,839 10,572 11,181 12,944 24,207 9,885 3,568 3,068 0 98,006 98,588 95,308 263,276 353,261 664,196 786,510 938,709 1,023,861 1,066,393 31,471 15,416 22,225 38,687 0 9,282 5,358 0 17,183 93,514 17,183 3,568 411,920 353,916 290,232 330,074 359,130 432,050 552,834 910,103 1,122,595 1,283,971 1,491,651 1,545,294 28,445 17,939 0 7,305 17,183 17,183 137,623 154,508 203,480 294,203 299,634 33,337 4,150 7,578 Current Liabilities Non-Current Liabilities total liaBilities 90,786 6,658 97,444 90,867 8,790 98,517 6,486 370,396 230,727 359,755 574,644 99,657 105,003 139,936 207,703 488,166 607,386 630,057 730,151 805,371 134,941 122,562 236,847 273,055 283,445 85,141 251,319 334,331 346,612 4,995 net assets 192,788 230,417 254,127 292,114 345,131 421,937 515,208 653,914 761,500 739,923 ratios Current assets to current liabilities Borrowings to shareholders funds Gearing Tangible net asset backing per share (toea) Net profit to revenue % Net profit to shareholders’ funds % Underlying profit to shareholders’ funds % Dividends per share (toea) Earnings per share (toea) Underlying earnings per share (toea) Earnings retained % 1.05 15.5% 13.0% 6.22 4.5% 7.9% 7.4% 18 47 45 72.0% 1.08 13.7% 11.6% 7.33 10.9% 18.2% 13.0% 65 130 93 53.5% 0.99 10.6% 9.2% 8.08 14.1% 19.5% 14.4% 100 153 113 37.8% 1.02 13.6% 11.5% 9.31 18.2% 26.6% 17.9% 125 239 161 49.7% 1.26 34.8% 24.8% 10.89 19.4% 27.6% 20.7% 146 291 219 50.0% 0.86 89.1% 44.4% 13.05 19.3% 25.5% 22.5% 146 311 275 53.1% 1.08 89.7% 44.0% 16.06 14.5% 25.7% 25.1% 100 376 366 73.4% 1.06 70.1% 38.3% 20.53 16.9% 27.4% 26.5% 190 510 495 62.1% 1.11 72.6% 39.2% 24.00 17.1% 26.2% 23.1% 285 573 504 50.3% 1.53 89.3% 46.4% 20.85 12.1% 16.3% 17.9% 185 377 414 43.3% Notes Earnings per share = profit attributable to shareholders / average shares in issue Gearing = debt / debt plus equity Interest cover = earnings before interest and tax / net finance charge Dividend cover = profit attributable to shareholders / total dividend paid and provided Steamships Annual Report 2013 5 ChAiRmAn’s RePoRt 2013 was a challenging year for PNG. The wind down in the construction phase of the PNG LNG project and slowing investment in the country’s mining sector, a weakening Kina, declining exports, lower commodity prices and falling domestic consumption all led to a weaker-than-expected year for Steamships. However, the return to political stability following the 2012 election has sustained business confidence in PNG. Similarly, improving budget management and increases in government spending offset to a limited extent other negative impacts. Steamships remain committed to investment in PNG having spent K435 million in capital expenditure in 2012 and 2013, with a further K222 million expected for 2014. Steamships’ trading revenue (excluding other income) for the year declined by 5.6 per cent to K931 million, with profit after tax attributed to shareholders declining by 34.1 per cent to K117 million. Excluding the impact of significant items profit after tax attributed to shareholders declined by 17.8 per cent. The performance of Steamships’ logistics businesses was weaker in 2013 as PNG’s economy slowed, domestic consumption flagged and the resource and commodity sectors slowed. Unscheduled out-of- service periods for vessels and lower than anticipated growth in the Highlands and Islands also had adverse effects. In November 2013 Steamships acquired its joint venture partner’s interest in Pacific Towing. The Division continued to invest in fleet capacity with the notable addition of the Kiwai Chief, a 70 meter double skinned landing craft, with another on order, and 90 trucks and 61 trailers (inclusive of the acquisition of the fleet of Kimbe Shipping & Transport). During the year the Steamships Board approved an impairment of Consort Express Lines vessels with a net non- cash negative impact to shareholders of K32 million. The Property and Hotels Division had a mixed year. Pacific Palms Property recorded solid year on year revenue growth and successfully navigated a downturn in the rental property market to maintain an average occupancy rate of 98 per cent across existing properties. 6 Steamships Annual Report 2013 Significant property developments continued with eight ‘Captain Fitch’ town houses commissioned in Port Moresby early in the year, twelve ‘Blaikie Apartments’ commissioned in Lae in November and forty ‘Windward East’ apartments commissioned in Port Moresby in December. There are a number of other industrial, retail and commercial developments nearing completion. Coral Sea Hotels fared less well; slowing economic activity coupled with an increase in hotel room supply saw the Hotel group’s room occupancy and rates fall below expectation for the year. Steamships’ manufacturing business, Laga Industries, transformed its business model to focus on ice cream and vegetable oil production and distribution. In September 2013 Steamships acquired the remaining minority interest in the business. Revenues for the IT Division remained largely static however margin was lower as increased competition and exchange rate movements reduced margins. Steamships’ broader performance was built upon a Group-wide focus on operational efficiencies, improved cost management and strategies for new business development. Improved customer service, and a sharper focus on training, health, safety and community relations across the year all contributed to the maintenance of a strong company culture. Chairman’s Report The PNG economy expanded again in 2013, but this fact belies the significant challenges it faces. Growth was slower, as the construction phase of the PNG LNG project wound down, prices for PNG commodity exports declined and investment in the country’s mining sector slowed. PNG is entering a transition period in which its main source of growth will shift from construction and related activities to resource export earnings from LNG. However, with LNG production not set to start until late 2014, the Government faces a challenge to encourage economic vibrancy. The O’Neill Government’s commitment to fund national infrastructure projects and other development enablers such as education and health initiatives in the 2013 and 2014 budgets targets sustained growth. This will be a challenge. Responsibility will fall on PNG’s national and provincial Governments to prudently manage public revenues and invest appropriately to generate long term, broad-based economic growth. The challenges this environment presents for companies operating in PNG are examined in the economic analysis elsewhere in this annual report. Steamships strongly supports Government measures in priority development sectors - infrastructure, education, health and law and order. In 2013 the Group again supported staff and community initiatives on health, safety and security, training and development, environmental education and sustainability reporting. We remain committed to working with Government and non- governmental organisations to improve the skills and living conditions of our employees and local communities and to conducting business in a manner which minimises any adverse impacts on the environment. The 2013 Annual Report demonstrates an important commitment by Steamships to operate its businesses in PNG sustainably. This year the Group will report to shareholders and stakeholders its performance against selected sustainability indicators for the first time. In 2011, Steamships trialled a framework to demonstrate performance against some representative indicators developed by the Global Reporting Initiative (GRI), the world’s leading sustainability benchmark. Baseline data was collected in 2012 against eleven indicators relating to our economic contribution to society, environmental stewardship and the development of our employees. In 2013, data collection was expanded, bringing the total number of chosen indicators to twelve. The presentation of this aggregated data this year enables Steamships to demonstrate its commitment to providing accurate and relevant data from across the Group. Our systems for doing this will improve and mature over time. On behalf of the Board I would like to acknowledge the efforts and commitment in 2013 of the 4,000 employees in Steamships’ many divisions and diverse locations. Their contribution ensured the Group is well placed to meet the challenges that lie ahead. WL rothery Chairman February 2014 Steamships Annual Report 2013 7 DiReCtoRs’ eConomiC AnALYsis Papua New Guinea’s economy expanded for the 11th consecutive year in 2013; a product of several years of political stability, improved economic management and growth in the Asia Pacific region. The projected GDP growth rate of 5.2 per cent though reveals the economy has slowed from the stellar 8 per cent growth recorded in 2012. The winding down of the PNG LNG Project construction, retreating prices for PNG commodity exports and shrinking foreign direct investment in the mineral sector all adversely impacted on PNG’s economic activity during 20131 . World Bank representatives in PNG estimate that the level of construction activity value added in PNG tripled between 2009 and 2013. The PNG LNG project was the key driver. Now that it is 90 per cent complete the PNG Department of Treasury estimates PNG’s non-extractive GDP growth will halve from 2012 levels, falling to 4.7 per cent. The nearing completion of the PNG LNG facility marks the beginning of an important transition period for the PNG economy; one in which the underlying driver of PNG’s economic growth will shift from construction of the project to resource export earnings from its LNG. Sustaining economic activity and domestic demand throughout this period, while maintaining fiscal discipline, looms as a key challenge. LNG exports are on track to begin in the second half of 2014 and are expected to raise the level of GDP by one-third or more by 2015. However, in the near 1 Source material related to the content of this report is available upon request from Steamships’ Public Relations unit. 8 Steamships Annual Report 2013 Directors’ Economic Analysis As a result, PNG’s trade surplus narrowed to K382 million in 2013 from K1,621 million in 2012. This led the Bank of PNG to dramatically revise its current account forecast for 2013 from a deficit of K2.7 billion (7.7% of GDP) to K6.9 billion (19.9 % of GDP) in September. International prices for PNG’s mineral commodity exports retreated considerably in 2013. The Asian Development Bank estimates the international price of gold fell 20 per cent, while copper and oil fell by 12 and 6 per cent respectively. International agricultural commodity prices were also flat or weaker with benchmark coffee prices falling by 25 per cent, and palm oil and rubber prices by 15 per cent, while copra and cocoa prices remained flat. Weaker prices, poor extension services, aging coffee, copra and cocoa trees, poor harvests and high logistical and processing costs have translated into lower returns for PNG farmers. They have responded by cutting back production, further reducing export receipts and income flows to rural communities. Annual export volumes of coffee to the June quarter 2013 were down 50 per cent on the previous year; cocoa exports were 30 per cent lower. Export receipts for coffee and cocoa were the lowest since 2007 and 2002 respectively. Palm oil export volumes have weakened since 2011, but are still 10 per cent above long term averages. In 2013, this impacted strongly on Steamships’ logistics businesses. Transport services between Lae and the Highlands region were reduced because of low coffee volumes for a second consecutive year; tonnages across the Group’s coastal shipping operations were down again on 2012 figures. Lower international prices and slower economic growth in PNG’s major trading partner, Australia, contributed to a 14.4 per cent drop in the value of PNG’s exports (mainly gold, petroleum, silver and platinum and coffee) in 2013. This was in line with a general fall in Pacific region exports to Australia during the year. With import prices remaining high on the back of mineral fuels, PNG’s terms of trade continue to decline. The ANZ Bank warns that the current account deficit is likely to persist into 2014, placing pressure on the Kina, until export receipts improve as LNG shipments begin late in the year. term the impact on gross national income, the current account and government revenues is expected to be far more modest due to the need to service international debts, which funded 75 per cent of the project’s construction costs. One short term challenge presented by slow economic activity is finding employment for the large skilled workforce to be discharged from the PNG LNG Project. The PNG Government’s 2013 and 2014 budgets seek to address these challenges through greater public spending on development projects. The aim is to boost domestic activity in non-mining sectors, especially the construction sector, and provide alternative employment streams for former PNG LNG workers. The Bank of PNG estimates that fiscal stimulus may add as much as 2 per cent to real output growth in 2013 if these projects can be effectively implemented. Beyond PNG, the worst of the global economic crisis appears to be over although global growth remains slow. Subdued demand has impacted on the Pacific region, largely through lower commodity prices which have reduced agriculture, mineral and forestry export earnings in some Pacific economies. In PNG the depreciation of the Kina, which dropped 25 per cent in nominal terms against the US Dollar over 2013, cushioned the economy from weaker export prices to some extent by supporting incomes for farmers and exporters and improving PNG’s competiveness. This depreciation reflected a general strengthening of the US Dollar and was in line with the weakening of other currencies. Inflation remained subdued with the headline rate expected to average 5.5 per cent in 2013. trade Steamships’ performance directly reflects fluctuations in PNG trade and business as dictated by developments in the macroeconomic environment. Its considerable interests in shipping, transport, logistics, retail and manufacturing are directly affected. In 2013, lower international commodity prices lowered export earnings for PNG. A fall in export values of 9.1 per cent through the first six months of the year was reported in the Bank of PNG’s June Economic Bulletin. In the same period, despite easing economic growth, robust domestic demand saw import prices climb some 13.4 per cent. Steamships Annual Report 2013 9 Directors’ Economic Analysis PROSPECTS AND CHALLENGES FOR 2014 While LNG production is expected to boost economic growth after 2015, the country’s economic outlook for 2014 remains soft. To stimulate growth in 2014, the Government plans fiscal stimulus. 45 per cent of the 2014 budget is allocated to spending on infrastructure, education, health and law and order. Most expenditure will focus on major projects to enhance road, civil aviation, shipping and port infrastructure networks. When implemented, these will increase domestic demand. The IMF has forecast economic growth of 6.3 per cent in 2014. Year on year GDP growth is forecast to surge to 21.5 per cent of GDP in 2015 as LNG production peaks, before slowing to around 3.5 per cent over the medium term to converge with growth in the non-mineral sector and as output growth in mature mines continues to slow. Despite the large increase in GDP, World Bank officials in PNG warn the impact of LNG exports on the broader PNG economy will be limited in the near term. They note that only a fraction of receipts will be retained in the domestic economy and the need to service international debts will adversely impact on gross national income. They also point to forecasts that employment on the PNG LNG project will be less than 10 per cent of the level during construction. To generate longer term growth, the World Bank advises that PNG’s national and provincial Governments will need to implement development projects and ensure public revenue streams are carefully managed and funds strategically reinvested across the economy. Fiscal challenges Fiscal challenges lie ahead for the PNG Government. Growth in Government expenditure of nearly 25 per cent combined with lower global commodity prices, a mixed Government revenue performance and a significant slowdown in non-mining growth will widen the fiscal deficit in the 2013 budget to a projected 7.2 per cent of GDP from 4.3 per cent in 2012. The PNG Government has forecast increased revenue collections will reduce the budget deficit to 5.9 per cent of GDP in 2014. Total revenue collections are forecast to grow by a record 23 per cent in 2014 and to outpace planned expenditure in following years, allowing the Government to project a declining budget deficit of 2.5 per cent of GDP in 2015, 2.2 per cent of GDP in 2016 and below 2 per cent of GDP from 2017. A return to modest fiscal deficits will assist the Government in managing its debt burden. Financing recent budget deficits has already seen central Government debt rise from 22 per cent of GDP in 2011, to 31 per cent in 2013 and an expected 35 per cent in 2014. These liabilities are in line with PNG’s medium term debt strategy. However there are significant risks that ratios could be exceeded unless fiscal management is prudent. In particular, expenditure plans will have to be carefully managed. improving quality of life Despite strong growth in recent years average living standards for Papua New Guineans have changed very little between 1996 and 2010. Ensuring that economic growth translates into tangible benefits for the people of Papua New Guinea remains a great challenge. According to recently released 2009-10 PNG Household Income Expenditure Survey (HIES) data, 40 per cent of Papua New Guineans consumed less than a minimum basket of food and other goods and services in 2010. Life expectancy at birth is 63 years, considerably below the Pacific Islands average of 70 years and the infant mortality rate is 48 per thousand compared to a regional average of 26.5. PNG’s composite Human Development Index (HDI) was 0.462 in 2011, placing it 153 out of 187 countries. PNG still lags behind many of its peers in the region in the provision of infrastructure and basic education and health services. Despite a significant growth in funding for these sectors, the capacity to implement projects remains a key challenge for public agencies. This is particularly so for national infrastructure projects, which the Asian Development Bank claims are often funded before feasibility and preparatory design studies are completed and often suffer from weak oversight. The PNG Government has put in place a number of measures to improve the effectiveness of government spending in the 2014 Budget. These include an enhanced project screening and review process; continuation of the move toward a multiyear budgeting process; integration of the previously separate “recurrent” and “development budgets” into a single national budget; further rollout of the integrated financial management system; and some strengthened accountability measures for public servants. 10 Steamships Annual Report 2013 supporting growth in Png’s agriculture sector Steamships commends Government plans to improve agricultural extension services and market access (both domestic and international) and provide education, training and logistics services such as distribution and storage. Boosting non-resource economic activity, particularly in PNG’s large agriculture sector, is a key objective of the O’Neill Government’s 2014 Budget strategy. The 2014 Budget commits K313 million in 2014 and around K1.4 billion over four years to initiatives focused on developing the economic potential of the agriculture sector and better integrating it with the wider economy. Agriculture is the key source of income for some 80 per cent of PNG’s population. World Bank representatives in PNG estimate there are around 270,000 households in which the main activity is growing coffee, 140,000 growing cocoa and roughly 18,500 households mainly involved in smallholder production of oil palm. Income from tree crops typically comprises a significant share of total income for these households. Further development of PNG’s agricultural industries will bring many PNG farmers into the formal economy, provide productive employment and income to the rural majority, and help counteract “Dutch Disease” phenomena. In September 2013, the Bank of PNG Governor Loi Bakani, called for greater effort to put structures in place which support the development of agriculture export industries in oil palm, cocoa, coffee, rubber, tea and coconut. Mr Bakani argued for the introduction of an incentive framework which encourages investment in the agriculture sector and noted the importance of the Government’s tuition free education program as a means to improve technical skills and ensure the development of more sophisticated agricultural industries. Promoting the private sector and inclusive growth Steamships supports the Government’s efforts to develop an environment conducive to private sector growth. A competitive and dynamic private sector promotes inclusive growth, delivering benefits to all Papua New Guineans in the form of more jobs and better goods and services. The World Bank’s 2013 Doing Business survey found that it was more difficult for entrepreneurs to set-up, invest, employ and operate in PNG than most other countries. PNG’s overall ranking slipped five places compared with 2012, to 113 out of 189 countries surveyed. Directors’ Economic Analysis Difficulty enforcing contracts was highlighted as a particular challenge, while businesses regularly cite law and order, corruption, internet access, telecommunications and electricity and transport infrastructure as key impediments to operating, investing and expanding employment in the country. International experience shows that sustainable investment and development is only possible where the integrity of property rights and contractual obligations are strong and regulatory actions are consistent, transparent and predictable. Improving access to market entry and establishing a robust regulatory framework is also important. The PNG Government has successfully addressed some impediments to investment in recent times through relatively low-cost adjustments in market conditions and regulatory reforms. Liberalisation of PNG’s mobile phone market allowed the country’s ICT sector to experience significant growth in the last decade, providing numerous social benefits to Papua New Guineans. Recent reforms to the wholesale broadband internet market have already led to price decreases and service improvements. In late November 2013, PNG’s Investment Promotion Authority launched an online business registry which allows users to register and maintain details of companies online. The registry has greatly sped up the processing of new business registrations and will help to attract new investment. Recent efforts to reduce the costs of business and encourage greater competition should be commended. Further opportunity for reform exists in sectors including telecommunications, power generation, aviation and petroleum products. Steamships Annual Report 2013 11 DiReCtoRs’ Review 2013 was not without its challenges as slowing economic activity and lower trade volumes across PNG affected the individual performances of Steamships’ Divisions to varying degrees. The following significant items have impacted the results in the year: Net profit attributable to shareholders 117,050 177,700 -34.1% 2013 K’000s 2012 K’000s Change Add back/(less) impact of significant items (post tax & minority interest) Property sales Inventory impairment (Laga) Asset impairments (Laga, East West Transport, Consort) Steamships Agency closure Pacific Towing equity gain on gaining control Bemobile investment write off Net other Total impact of significant items 0 3,500 42,795 0 (35,467) 0 490 11,318 (48,387) 0 0 2,100 0 24,800 0 (21,487) Underlying profit attributable to shareholders 128,368 156,213 -17.8% Due to weaker trading conditions and a falling Kina, the Directors performed an impairment review of inventory and assets across all divisions which resulted in write downs in Laga Industries (K5.2m), East West Transport (K8.1m) and Consort Express Lines (K33m). In late November 2013 Steamships acquired the remaining interest in Pacific Towing for PGK 51.1 million. Fair value accounting on the business acquisition resulted in a gain on the previous equity accounted portion. In the Logistics category, Steamships Shipping had a difficult year. Both project cargo and liner trade volumes were impacted by reduced activity in PNG’s key commodity and resource industries. Charter activity was an exception, performing above expectations throughout the year. The Division did however expand activities, with the development of two new liner trades, and added a new vessel to its fleet. 2014 will see the addition of a third new 70 metre Landing Craft (LCT) sister and two new 45 metre LCT’s. 12 Steamships Annual Report 2013 Steamships’ JV Stevedoring businesses were also affected by the general slowdown of the PNG economy in 2013. Throughput was lower across all operations, including those at the major ports of Port Moresby and Lae. Businesses at the smaller ports were strongly affected by the lower levels of activity. In addition to cost reductions, Steamships JV Stevedoring will explore expansion opportunities in 2014 in an effort to counter slower economic activity, beginning with the establishment of new operations in Alotau, Milne Bay Province. Despite the best efforts of management and staff the Division’s ship repair facility, Steamships Marine Engineering Services (MES), was an unfortunate casualty of the economic slowdown with Steamships’ Board of Directors deciding it would cease operations on 1 November 2013. Consort Express Lines also experienced another challenging year. The tighter management of costs and strong Steamships Annual Report 2013 13 in corporate activity resulted in falling demand for hotel rooms and food and beverage services. This, coupled with an increase in hotel room supply, especially in Port Moresby and Lae, put significant pressure on CSH to maintain market share. Hotel room occupancy and rates fell below expectation for the year. The apartments portfolio however exceeded expectations. In the Commercial category, 2013 was a year of transformation for Laga Industries with the Division implementing a series of strategic changes it expects will set a platform for positive growth and development in the coming years. Laga Industries changed its business model during the year to focus primarily on increased ice cream and vegetable oil production and distribution. The strategic shift towards ice cream production is designed to capitalise on latent demand in PNG. On the 30 September 2013, Steamships acquired the remaining shareholding in Laga. Datec performed satisfactorily in 2013 with revenues for the year matching those from 2012. However contribution was lower as increased competition and a fluctuating exchange rate put pressure on product margins. Datec was pleased to report the corporate sales division recorded double digit revenue growth in 2013 . Steamships’ remaining major joint venture Colgate-Palmolive (PNG), a manufacturer of personal and home care products, saw revenue and margin figures fall below expectations in 2013, with the slowing economic conditions weighing heavily on demand for consumer goods in PNG for much of the year. Directors’ Review performances from Riback Stevedoring as well as Consort’s depot services made solid contributions to Consort’s 2013 result. There are plans to introduce two replacement vessels in 2014 as part of a fleet replacement program to lower operational costs and improve reliability. East West Transport (EWT) performed below expectations for the financial year. Downward pressure on rates from increased competition, the loss of a key haulage and materials handling contract in Lae and a lack of anticipated business growth in the Highlands region contributed significantly to this result. A medium term economic rebound is anticipated when LNG royalties begin to flow and as the agricultural sector recovers. EWT is well positioned with facilities, equipment and knowledge to accommodate this renewed growth. The development of the Highlands Highway business will be a key focus. During the year EWT acquired the trade and assets of Kimbe Shipping & Transport for K18.0 million. Pacific Towing suffered from a downturn in job numbers at the main ports in 2013 as project traffic supporting mineral, oil and gas projects eased. However, this was offset to a degree by the arrival of larger vessels, both tanker and dry cargo types, providing uplift to towage revenues on a per movement basis. The Property & Hotels category had a mixed performance in 2013. Pacific Palms Property recorded solid year on year revenue growth in 2013 due to increased residential and warehousing rental capacity. However, falling demand and increased supply put pressure on occupancy and rates. 2013 was a challenging year for Coral Sea Hotels (CSH). The general slump 14 Steamships Annual Report 2013 Review of Operations LoGistiCs Steamships Annual Report 2013 15 steAmshiPs shiPPinG Steamships has been a leader in coastal shipping in PNG since 1919. Through its Steamships Shipping Division, the Group today operates a fleet of 16 coastal vessels focused on the Papuan coast. Designed for shallow water and river passage, their safety and technical specifications are maintained to international standards. The fleet includes landing craft, bulk carriers, tankers, tugs and barges. While the Division specialises in river shipping, it also has vessels fully certified for international trading, which regularly operate charters to Australia. Steamships Shipping provides short and long term vessel charters, as well as reliable scheduled cargo liner services to the shores and rivers of the Gulf of Papua. It also develops, implements and supports intermodal logistics solutions linked to land based services such as road transport, cargo handling, storage, customs clearance, lay down areas and warehousing. In addition to owning vessels, Steamships JV Stevedoring businesses offer a full range of stevedoring and handling facilities. They operate in the ports of Port Moresby, Lae, Oro, Madang, Kimbe, Kavieng and Kiunga. With a fleet of specialist equipment the businesses handle all types of containers, as well as project cargo, break-bulk, RO- RO, LO-LO and grains. Local trucking businesses are also operated at several 16 Steamships Annual Report 2013 locations. The stevedoring companies are joint ventures between Steamships Shipping and local landowner groups at the respective ports. Each joint venture employs a local workforce and is structured in a manner so that earnings are able to filter back into the community. Performance in 2013 Steamships Shipping had a challenging year. Both project cargo and liner trade volumes were impacted by reduced activity in PNG’s key commodity and resource industries. Charter activity was an exception, performing above expectations throughout the year. The liner trade to Kiunga was affected by the continuous silting of the town wharf, which blocked vessels from docking until river levels had increased. This was identified as a priority issue and by the end of November a 200 ton crawler crane was in place to dredge the wharf and assist loading and discharging of cargo. Steamships Shipping expects improved turnaround times throughout 2014. Steamships Shipping expanded activities during 2013 with the development of two new liner trades: one to Balimo in Western Province and another, operated via a joint arrangement by Consort Express Lines, on the North coast between Lae and Manus. The Kiwai Chief, Steamships’ newest vessel, joined the fleet in October 2013. The vessel is a fully double-skinned landing craft identical to the Kopi Chief, which was delivered at a similar time last year. Both vessels comply with the highest safety, accommodation and environmental standards. Steamships Marine Engineering Services (MES), the Division’s ship repair facility has been an important business unit for many years. Unfortunately in recent times and despite the best efforts of management and staff, MES has been making losses. The current economic slowdown in PNG has added to these losses and it is with great sadness that the Board of Directors of Steamships Trading Company decided to close MES on the 1 November 2013. Steamships’ JV Stevedoring businesses experienced a particularly challenging year in 2013 due in large part to the general slowdown of the PNG economy. Throughput was lower across all operations, including those at the major ports of Port Moresby and Lae. Businesses at the smaller ports were strongly affected by the lower levels of activity. A robust training program and the ongoing implementation of strategies to improve the management of Steamships JV Stevedoring businesses have led to significant advances in productivity. The adoption of IT software “CargoPro” has improved accuracy, efficiency and debtor settlement. A new stevedoring award was signed with the PNG Maritime Union in October 2013. This represents a significant development for waterfront activities. Amongst other changes, the stevedoring award reduces the number of hours per shift increases the maternity allowance, and includes a new category of permanent worker. Health and Safety were again a major focus for Steamships Shipping throughout 2013. All business units observed major improvements in staff awareness, attitude and the reporting of safety matters. Steamships Shipping is proud of these efforts and is aware that continuous training is required to ensure high health, safety, security and environmental (HSSE) standards are maintained. Steamships Shipping Future aims growth Steamships Shipping has in place a fleet renewal and replacement program which will see a number of new vessels added to the coastal shipping operations in 2014. A new Tug boat, the OK Tarim, will be delivered in February and the Kerema Chief, a sister vessel to the Kopi Chief and Kiwai Chief, will be delivered in October. Two new 45 metre Landing Craft (LCTs) will be delivered at the end of 2014. These vessels have been designed for use on oil and gas projects (especially for initial exploratory work), but can also be used to establish new liner trades. With these continuing investments Steamships Shipping is well positioned to capitalise on both renewed resource activity as a logistics supplier of choice, and general liner growth in PNG expanding upon the Division’s strong service offerings in coastal shipping and stevedoring. Steamships JV Stevedoring will establish new operations in Alotau, Milne Bay Province in early January 2014. The new business, Palm Stevedores, is a joint venture between Steamships Shipping, Consort Express Lines and local landowners. Steamships JV Stevedoring will continue to explore new expansion opportunities in 2014. Process improvements Steamships Shipping aims to be at the forefront of industry progress in PNG over the coming years. To achieve this, the Division must ensure it has processes in place which enable it to operate efficiently and effectively and which prepare it for future growth. A major review of all systems and processes will be conducted in 2014 with a view to streamlining operations. New technological solutions will be explored and adopted. Health and safety initiatives A number of health and safety initiatives launched in 2013 will continue in 2014, including “Monthly Safety Themes” and “Safety Awareness Days”. These activities allow all office based staff to take part in tasks which improve their awareness of the environment at the waterfront and in vessels, and provide them with the tools to assess and evaluate all types of potential risks. Steamships Shipping actively participates in the Coastal Ship Owner’s Association and at the National Maritime Safety Authority, seeking to lead by example. Steamships Annual Report 2013 17 ConsoRt eXPRess Lines LtD As a complementary business to Steamships Shipping, Consort Express Lines Limited (Consort), established in 1978, provides the most comprehensive network of scheduled liner shipping services in PNG focused on the New Guinea coast. Operating from its hub in Lae, Consort connects 15 ports in PNG and provides an international service to Townsville, Australia. The Division has scheduled services to the North Coast (Madang, Basamuk, Wewak, Vanimo), South Coast (Port Moresby, Oro Bay, Alotau), New Guinea Islands (Kimbe, Rabaul, Kavieng), Bougainville (Buka, Kieta), Australia (Townsville) and Western Province (Daru, Kiunga). Consort proudly serves the people of PNG by providing the sole supply link to many of the communities on its routes. Consort owns nine geared, multi- purpose vessels (PNG flagged and manned) with all safety and technical specifications maintained according to international standards. The Division can carry a range of cargoes including containerised, break-bulk, reefer, LCL and project cargo. Consort transports cargo for a diverse customer base from domestic manufacturers and wholesalers to international liner carriers transhipping cargoes to outports. In addition to owning and operating ships, Consort provides complementary depot services to customers at its Lae hub (including bond yard, container storage and wash bay facilities) and is a shareholder and manager of stevedoring operations at five PNG ports (Riback Stevedoring, Lae; United Stevedoring Limited, Lae; United Stevedoring Limited, Port Moresby; Makerio Stevedoring, Buka; Nikana Stevedoring, 18 Steamships Annual Report 2013 Consort Express Lines Ltd Kieta). These stevedoring companies are partnerships between Consort and local landowner companies and provide significant employment opportunities for the nearby communities. Performance in 2013 Consort’s shipping services experienced another difficult year in 2013. Two vessels endured unscheduled out of service periods linked to their dry-docking in 2012, which required the charter of a third party vessel for an additional two months this year. The planned disposal of one of the smaller vessels in the fleet, Morobe Coast, following the purchase of Nakanai Coast, was delayed by twelve months. The vessel was eventually disposed of in October 2013 reducing the fleet to eight. Tonnage volumes were negatively affected by agricultural commodity prices, which remained depressed throughout the year, reducing disposable income and suppressing demand for consumer goods in the New Guinea Islands and Bougainville. However volumes improved in the second half of 2013 due to increased Kina returns as a consequence of the currency’s depreciation against the US dollar. The impact of a reduction in the Gold price was also felt, as mining operations in PNG reduced staffing levels and initiated severe cost cutting. Meanwhile, the Townsville Service was particularly hard hit by floods in Queensland in the early months of 2013 and ran reduced services throughout the year in an effort to support schedule integrity on the coast. Despite these challenges, the tighter management of costs resulted in a 2013 contribution that was similar to that of the 2012 result. Consort’s depot services and JV Stevedoring Associates performed well and made a solid contribution to Consort’s final 2013 result. Riback Stevedoring continued to benefit from favourable cargo volumes to Lae associated with the PNG LNG project. Consort offered nine scholarships for the Consort Express Lines PNG Officer Cadetship Program in 2013. These scholarships offer high performing PNG nationals a structured, four-year training and development program. Twenty-seven Consort officers and crew attended programs at the Madang Centre of Excellence during the year. Future aims Improving Efficiencies Given the current economic climate, Consort will dedicate significant time and effort to improving efficiencies and reducing the cost of operations in 2014 . Consort expects to achieve improved fleet efficiencies by continuing to prioritise services on competitive trades. The Division will reduce port calls on the North Coast through the introduction of a larger vessel to this service, while it anticipates the renovation of the Kimbe Coastal Wharf in West New Britain will aid turnaround times. Consort’s land transport service in Port Moresby will be fully operational in 2014, while the planned upgrade of the Division’s Lae depot will provide better efficiencies and new opportunities for growth. Business development Business development plans for 2014 include commencement of Landing Craft Operations from Lae and the launch of a joint venture to operate terminal facilities in Lae and Madang. Consort also plans to strengthen its joint venture agency and stevedoring operations at the ports of Buka and Kieta in Bougainville and will expand agency services to two additional ports, Kimbe and Alotau, during the year. Consort will continue to pursue strategic partnerships with resource companies in an effort to sustain the Australia service. Depot operations will be expanded and upgraded as necessary throughout the year. capital investment Capital investment will be in line with approved fleet renewal plans for 2013-2015. These aim to reduce structural and operating costs, provide additional capacity and ensure the reliability of services to customers. Consort will continue with the expansion and upgrade of the container fleet in 2014 through the purchase of 1,000 new 20ft dry containers, 100 new 20ft reefer containers and 240 units of 9m3 and 4m3 containers. Consort also plans to replace its heavy container handling equipment for ongoing stevedoring operations and will make new purchases for joint venture operations as necessary. Steamships Annual Report 2013 19 eAst west tRAnsPoRt East West Transport (EWT) is one of Papua New Guinea’s largest multifaceted transport and logistics companies. Based in Lae, it also has a significant presence in Port Moresby, Kimbe, Mt Hagen, Goroka, Rabaul, Madang, Wewak and Kavieng. With 720 employees, the Division has a growing fleet of 150 prime movers, 46 heavy trucks, 10 light trucks and 53 forklifts and reachstackers ranging from 2.5 to 45 tons in capacity. All equipment is supported by localised workshop facilities, safety and emergency vehicles and in house training programs. EWT operates across a wide spectrum of transport-related activities including bulk fuel, containerised cargoes, bulk grain, sawdust and coffee along with break- bulk cargoes and depot services such as equipment hire, warehousing and yard storage. EWT also offers a licensed customs cargo clearance service in Lae and Port Moresby and operates a large export coffee processing facility in Lae. The Division capitalises on its close relationships with sister companies in shipping and stevedoring by offering specialised project solutions for the mining, oil and gas sectors. Performance in 2013 EWT performed below expectations for the financial year. The slowing of the PNG economy, lower commodity 20 Steamships Annual Report 2013 prices, downward pressure on rates from increased competition and the loss of a key haulage and materials handling contract in Lae contributed significantly to this result. Contribution was also affected by a lack of anticipated business growth in the Highlands region. Haulage of reagents to the Hidden Valley mine site continued in steady volumes for the majority of the year. However the significant reduction in the gold price impacted heavily on activity levels in the fourth quarter of 2013. Additionally, the 2013 coffee harvest was the smallest in many years. This along with a return to traditional price levels saw a large reduction in eastbound freight from the Highlands and a reduction in coffee bulking at the Lae facility. East West Transport The general transport business in Port Moresby and Lae has been impacted by increased competition and lower import volumes. Low hard and soft commodity prices, together with an expected weakening in the exchange rate, will continue to influence imports and place additional pressure on rates. The new Port Moresby warehouse facility at Baruni has attracted encouraging initial interest and is strategically positioned for future growth, close to the expected new port location at Motukea. The empty container depot in Port Moresby experienced lower throughput in the earlier part of the year, but showed signs of recovery as 2013 closed. Space is available at the facility to accommodate third parties and a range of services can be tailored to customer’s requirements. Fuel delivery volumes remained strong in Port Moresby but were lower in Lae and most outer ports. The InterOil Momase contract, covering operations in Lae, Madang and Wewak, was renewed for a period of two years. Exxon Mobil fuel haulage continued successfully in Port Moresby, Lae and Madang. A new joint venture partnership in West New Britain, branded EWT Kimbe, commenced in March under parent company New Britain Shipping Ltd, offering integrated logistics solutions. The EWT fleet grew with the arrival of additional equipment, predominantly from China. The Shacman brand of highway trucks has been a successful addition to the fleet, servicing all highway destinations including Bulolo and the Hidden Valley mine site. Carrier audits for dangerous goods handling and haulage in Port Moresby and Lae were conducted in the fourth quarter of 2013 for which positive results were attained. The process contributes to the Division’s strategic objective of achieving full ISO compliance in the coming years. Steamships Annual Report 2013 21 Future aims growth on the Highlands Highway EWT anticipates a number of challenges in 2014. Rates will continue to be squeezed as surplus truck capacity, decommissioned from construction of the LNG plant, enters the open market. This will primarily impact the highway sector of the business, but local cartage services are also expected to be affected. Additionally, low investment in coffee replanting coupled with the damage resulting from an abnormally wet 2013 season suggests another poor crop could be anticipated for 2014. Road conditions remain very poor. Landslides and security incidents are regular occurrences. Government plans have been announced to upgrade the Highlands Highway, but competing priorities for government funding and capacity limitations for delivery may hinder progress in the short to medium term. However, a medium term economic rebound is anticipated when LNG royalties begin to flow and as the agricultural sector recovers. Infrastructure spending should also improve road conditions over the longer term, reducing costs and allowing more frequent use of B Double combination trailers. Despite the current challenging environment, EWT is well positioned with facilities, equipment and experience to accommodate growth and any change in demand in the major commercial centres. The development of the Highlands Highway business will be a key focus next year and beyond. Improving Efficiencies Improving the efficiency of operations will again be a priority in 2014 with an emphasis on innovative thinking and the adoption of emerging sustainable technologies. EWT will continue to develop an end to end supply chain service which is fully supported by management systems, providing visibility and tracking capabilities for all products and services. Driver simulator technology will be operational in Lae in early 2014. This technology will support the in house training program and allow EWT to test and train drivers in a range of equipment and a variety of environmental conditions. Business development Bulk fuel haulage will continue to be a very important specialised service within the Division. Growth in this area will be supported by the innovative development of new equipment and the turnover of existing equipment. This has commenced and will continue in 2014. The waste management business will be grown in Port Moresby and Lae in 2014 along with the commencement of passenger bus services for corporate clients in those cities. EWT will continue to add value to its key service offerings, particularly for high volume clients and project related activities. Continuing focus remains on cargo traceability, on time performance and loss or damage mitigation as EWT presents value added premium door to door (including customs) and complex handling (dangerous goods) services. These efforts will be supported by improved technology and communications, in-house staff training and development, the use of external security services and equipment tracking as required. 22 Steamships Annual Report 2013 Review of Operations PRoPeRtY AnD hoteLs Steamships Annual Report 2013 23 PACiFiC PALms PRoPeRtY Pacific Palms Property is one of the largest and most dynamic property developers in PNG. The Division provides residential, commercial, retail and industrial property throughout the country. Pacific Palms Property has two separate streams of business activity. The development team manages land acquisition, investment assessment and construction management, while the lettings team manages marketing, tenant placements, rental collections and property maintenance. Building and land assets are located in Port Moresby, Lae, Madang, Wewak, Goroka, Mt Hagen, Popondetta and Rabaul. The Division currently holds a total lettable space of 13,745m2 of commercial property, 180,479m2 of industrial property, 21,942m2 of retail property and 160 residential townhouses and apartments. Performance in 2013 Pacific Palms Property recorded solid year on year growth in 2013, capping off another successful year. 2013 was not without its difficulties however as a down turn in the rental property market increased the pressure to maintain occupancy. This was especially the case in the residential portfolio where the market experienced weaker demand as contractors were decommissioned from construction of the PNG LNG project. Through vigorous marketing efforts Pacific Palms Property was able to successfully maintain an average occupancy rate of 98 per cent across existing properties. 24 Steamships Annual Report 2013 Pacific Palms Property had a range of developments ongoing during 2013. In the Residential category, construction of the prestigious Windward Apartments East was completed in December 2013. Construction also finished on the 12-unit Blaikie Apartment complex located in Lae at the end of October with occupancy commencing in November. In the Retail category, construction of the 5,300m2 SVS supermarket and commercial complex in Lae and the 9,300m2 Waigani Central Development incorporating the new Stop n Shop supermarket and Paradise Cinema complex in Port Moresby both neared completion at the end of 2013. In the Commercial category, construction continued on the 18,864m2 Harbourside Office Complex, which is to be the first Green Star rated building of its kind in Papua New Guinea. Pre- leasing of the high quality waterfront property will commence in 2014 with construction due for completion in January 2015. In the Industrial category, development work continues at Baruni stage 3, a 3.3 hectare subdivision, while construction of a new estate in Madang, incorporating 12 mixed-use tenancies, is expected to be completed in March 2014. Elsewhere, the construction of eight warehouses at Six Mile in Port Moresby is expected to be completed in March 2014. Future aims new developments 2014 will see the completion of many ongoing projects, while the property development team will review various future development options including support for Coral Sea Hotels’ expansion. At this stage no new projects have been formally endorsed by the Steamships Board. customer service & risk management Pacific Palms Property has committed to a shift from re- active to pro-active customer service in order to be a rental provider of choice in a compressed market. Various initiatives are underway to lift performance. The Division has budgeted for an investment in external audits to ensure a continuing and enhanced focus on property risk management. Land acquisition Historically-high property prices coupled with capacity constraints brought on by PNG’s land tenure system continue to restrict the Division’s ability to acquire strategic properties to add to its significant land banks. Pacific Palms Property is however committed to further land acquisition for property development and, to this end, has employed an officer to liaise with statutory bodies that deal with land matters to improve relations, participate in town planning lobbying and enhance opportunities for strategic land and property acquisitions. Pacific Palms Property Steamships Annual Report 2013 25 CoRAL seA hoteLs Coral Sea Hotels (CSH) operates nine properties offering full hotel facilities and serviced apartments as well as extensive meeting, conference and banqueting facilities. CSH remains the largest hotel group in PNG, offering 646 hotel rooms and 136 apartments. The Group comprises the Grand Papua Hotel, the Gateway Hotel and Apartments, the Ela Beach Hotel and Whittaker Apartments in Port Moresby; the Huon Gulf Hotel and Apartments and Melanesian Hotel and Apartments in Lae; the Highlander Hotel and Apartments in Mount Hagen; the Bird of Paradise Hotel and Apartments in Goroka, and the Coastwatchers Hotel in Madang. Performance in 2013 2013 was a challenging but satisfactory year for CSH. The completion of construction activities at the PNG LNG project, tighter controls on Government spending and a general decline in corporate activity resulted in falling demand for hotel rooms, apartments, conferences and food and beverage services. This, coupled with an increase in hotel room supply, especially in Port Moresby and Lae, put significant pressure on CSH to maintain market share. Both hotel room occupancy and rates fell below budget for the year. The apartments portfolio however exceeded budget expectations. 26 Steamships Annual Report 2013 CSH put in place a number of initiatives during the year to maintain market share and drive margin. All expenditure (including capital expenditure) and existing contracts were reviewed to reduce costs. Rates in all properties were reduced in response to increased competitive pressure. The sales team was expanded and electronic marketing and social media efforts were improved. A new corporate website was launched with an updated online booking system allowing for real time direct bookings at all CSH hotels. The reservation department was centralised for Port Moresby hotels to improve efficiencies in yield management and allow cross selling. CSH became a member of the Qantas Frequent Flyer program during the year and remains the only hotel partner for the Air Niugini Destinations rewards program. Opened in 2012, the Grand Papua Hotel further established itself as PNG’s Premier “Five Star Hotel” in 2013 and continues to improve service standards and product offerings to maintain its position as a market leader. Coral Sea Hotels training and development CSH expects that pressure to retain experienced staff will increase in 2014 due to the increased supply of hotel rooms in the market. To uphold its reputation as an employer of choice, CSH will launch a number of staff initiatives to improve benefits. Training and career development will continue to be a high priority. An arrangement has been entered into with The Australian Pacific Training College to train and provide Australian certification for Food Service Graduates. This will be expanded in 2014 to include cookery and apprenticeship development and the Division is exploring the establishment of a hospitality school in Mt Hagen. CSH will employ a Group Training Chef to monitor the development of all kitchen staff; to introduce new innovative food and beverage options; and to ensure all proper food handling practices are being followed. Future aims maintaining market share CSH expects 2014 to be another challenging year. To meet these challenges, the Division is committed to ongoing internal and external reviews aimed at improving operational standards and ensuring that product offerings capitalise on CSH’s considerable “points of difference” in the market. Brand standards are being reviewed and a phased rollout of these will begin in January 2014 together with the commencement of a three year program, “Project Cambridge,” to upgrade and standardise all hotel rooms across the Group. Maintaining business levels in an increasingly competitive market will be a difficult task. Flexible rate structures, new sales and marketing initiatives, improvements in product and service offerings and the continued training and development of all staff will continue to position CSH as a quality, preferred supplier of all accommodation needs. growth opportunities New opportunities for business growth will be pursued in 2014. Plans include the development of new bar and gaming facilities for the Gateway Hotel in Port Moresby. Steamships Annual Report 2013 27 Review of Operations CommeRCiAL 28 Steamships Annual Report 2013 LAGA inDUstRies Headquartered in Lae, Laga Industries is PNG’s premier consumer goods business and the country’s leading manufacturer of ice creams, vegetable oils, drink powders, condiments and spirits. The Division is also a distributor for international consumer goods companies including Diageo and Constellation Wines. Performance in 2013 Laga Industries experienced a tough year in 2013. The reduced PNG LNG activity, coupled with falling commodity prices, low agricultural output and a weakening Kina have led to falling disposable incomes and consequently suppressed retail demand generally for PNG. This has prompted a transformation with the Division implementing a series of strategic changes it expects will set a platform for positive growth and development in the coming years. Laga Industries changed its business model during the year to focus primarily on increased ice cream and vegetable oil production and distribution. The strategic focus on ice cream production is designed to capitalise on latent demand in PNG where the average annual consumption of ice cream is one litre per person compared to Fiji, where it is five litres per person. Laga Industries is confident the proposed strategic changes will be of significant benefit to the Division as a whole. In September, Steamships purchased Laga Industries’ remaining interests from a minority party. Just prior to this, a new General Manager was appointed to the Division. In October, Laga Industries had its HACCP accreditation renewed, reinforcing the Division’s high standards and commitment to food safety. Steamships Annual Report 2013 29 Laga Industries 30 Steamships Annual Report 2013 Future aims Business innovation Targeting opportunities for rapid growth in PNG and developing the systems and infrastructure required to support this growth will be key aims for Laga Industries in 2014. Specific areas of focus will be product development, maintenance improvements and increased investment in ice cream sales, distribution and marketing. increased investment in sales and marketing Laga Industries plans to expand its sales and marketing team to provide significantly increased coverage in the PNG market. Forty new sales staff will be recruited in 2014, representing a 45 per cent increase in numbers on previous years. expanding and upgrading ice cream production and freezer facilities In early 2014 Laga Industries will install a new ice cream molding machine - a Rollo R 29 - which will significantly increase capacity and the quality of products. The Division will also expand its ice cream freezer facilities in Lae by 50 per cent and increase its production and mixing capacity by 60 per cent to support increased sales and distribution of ice cream. DAteC Datec (PNG) Limited (Datec) has operated in PNG since 1985 and is the country’s premier information and communications technology (ICT) solutions provider and internet service provider (ISP). The Division provides a suite of ICT solutions to assist companies, from network consultancy and remote server management to application development and training. Datec NGN (Next Generation Network), which predominantly services the corporate sector, offers the fastest internet service of any ISP in PNG. Datec operates a data centre in Port Moresby, the largest computer retail store in the country (the Datec Megastore) as well as corporate and degree-level training and education through Datec Learning Centres (an accredited academic certificate and diploma IT program). Datec has established partnerships with international companies including IBM, HP, Apple, Microsoft, Oracle, Sony, Canon, Cisco, Lenovo and Eaton. In addition, the Division has developed a closed-circuit TV (CCTV) and cabling business that designs, installs and services CCTV and electronic surveillance systems, as well as full service project management capability. Performance in 2013 Datec performed satisfactorily in 2013 with revenues for the year matching those from 2012, however, increased competition and a falling exchange rate brought margin compression. Key objectives for 2013 were an increase in corporate market share and an expansion into regional Highland areas through new agency partnerships. The corporate sales division recorded double digit revenue growth in 2013. However, regional expansion plans were less successful, due in large part to the challenging economic conditions. Poor net results led Datec to focus in the second quarter of 2013 on consolidating operating costs to ensure business sustainability. As part of these changes Datec Learning Centre’s academic training rooms were relocated to the education hub at the Jubilee University campus. Datec NGN continued to establish itself as the leading ISP in PNG and led the market when wholesale prices changes were announced by Telikom during the year. Datec NGN also introduced fixed price internet service plans to customers and saw data usage increase by more than 100 per cent. The Datec Megastore recorded lower revenues in 2013, affected, as many retailers were, by a downturn in consumer demand. A number of key senior positions were localised during the year in line with Datec’s strategic objectives for human resources. Steamships Annual Report 2013 31 Datec Future aims growth in internet services The rollout of value-added data products and services for internet customers will be a major focus in 2014. Datec expects that downward pressure on the cost of data, driven by Vsat and O3B service offerings, will allow Datec NGN to deliver internet services at more competitive pricing than ever before. with the launch of its New Horizons Learning Centre franchise partnership. New Horizons are a leading global training solutions provider specialising in the development of IT technical, graphics, desktop applications and business skills. Datec Learning Centres will also establish two provincial centres in 2014 in the Eastern Highlands and Southern Highlands. sales and marketing Improved efficiencies Datec’s corporate sales and service division will focus on improving efficiencies through cost reduction, improved margins and the continued training and development of staff to ensure the effective delivery of ICT solutions. Datec will further embed sales and marketing resources for all products and services in 2014. Informed sales strategies and accurate target market analysis will drive revenue growth and ensure Datec’s leading market position is retained. expansion of datec Learning centres Datec Learning Centres will pioneer a new era of education services in PNG 32 Steamships Annual Report 2013 Review of Operations Joint ventURes Steamships Annual Report 2013 33 PACiFiC towinG Pacific Towing became a wholly owned Steamships subsidiary at the end of November 2013. The Division is the leading provider of harbour towage and mooring services in PNG and offers coastal and ocean towage services. It also retains a fast responder salvage capability complimented by a comprehensive range of commercial dive services. Pacific Towing is headquartered in Port Moresby and operates 22 vessels, including tugs and line boats, in five ports across PNG (Port Moresby, Lae, Rabaul, Kimbe and Madang). Dedicated harbour towage services were extended to the Solomon Islands in 2013 through a newly formed subsidiary company operating in Honiara. Performance in 2013 There was a downturn in job numbers at the main ports in 2013 as project traffic supporting mineral, oil and gas projects eased. This was offset to a degree by the arrival of larger vessels, both tanker and dry cargo types, providing uplift to towage revenues on a per movement basis. Two new mooring boats were introduced at Lae in September to upgrade service levels, lower operating costs and increase reliability at the port. Accordingly revenues in harbour exceeded the 34 Steamships Annual Report 2013 prior year. Tug charter activity was significantly higher than forecast and provided strong cash flows. Two major salvage operations were successfully completed in 2013. The stranded refrigerated carrier ASIAN LILY was safely refloated in January in association with SVITZER Salvage. In March extensive unconventional underwater repairs were carried out on the POAVOSA WISDOM VIII in association with Nippon Salvage. Two 50tbp ASD tugs were purchased from Australia during the year in accordance with fleet renewal plans. They will increase service capacity and enable manning reductions to be introduced. Training was a focus in 2013. Experienced overseas officers were engaged to mentor PNG counterparts at a senior level. This initiative is designed to ensure that command, technical and environmental awareness skills do not fall behind the operational requirements of a modernising fleet. Future aims Improving crewing standards will continue to be a priority in 2014. The development of effective on-board leadership skills will be addressed through a comprehensive crewing strategy including the recruitment of high calibre cadet officers. This is combined with a continued fleet renewal program which seeks to reduce the average age of tugs over five years. Pacific Towing plans to upgrade services at the Port of Lae in 2014 to coincide with the completion of the Lae Basin project. CoLGAte PALmoLive Steamships holds a 50 per cent beneficial interest in Colgate- Palmolive (PNG) Ltd (Colgate), a company that markets and distributes oral, personal, home, and fabric care products in PNG. Joint control is exercised by the board however day to day management is performed by Colgate-Palmolive Australia. Performance in 2013 Colgate had a challenging year in 2013 with revenue and margin figures falling below the prior year. The slowing economic conditions weighed heavily on demand for consumer goods in PNG for much of the year. Despite the challenging economic environment, progress was made on Colgate’s key educational programs with increased participation during the year in the Oral care program, Colgate “Bright Smiles, Bright Futures,” and the hand hygiene program, Protex “Clean Hands, Good Health.” Both programs were buoyed by the increased cooperation of Non- Government Organisations (NGOs). Colgate expects participation to expand further in 2014 and beyond. A strategic focus on in-store execution in 2013 saw significant improvement in on-shelf and display presentations in key retail outlets. Future aims Business simplification will be a key focus for Colgate in 2014. Plans and strategies to increase the efficiency and effectiveness of the PNG operation will be developed and implemented throughout the year. Colgate will continue to leverage relationships with other emerging market operations, particularly in Fiji and other Pacific Island countries, to ensure best practice in all areas. Steamships Annual Report 2013 35 sUstAinABiLitY 36 Steamships Annual Report 2013 sUstAinABiLitY: A Message from the Board of Directors “Sustainability to Steamships represents a meaningful investment in our people’s future, a fundamental commitment to the highest standards of health and safety at work, practical efforts to improve the lives of the communities in which we operate and genuine measures to ensure we minimise any negative environmental impacts from our diverse activities. Only by focusing on these areas will Steamships be able to ensure that our long term growth, along with the economic and social development of Papua New Guinea, is truly sustainable.” Steamships continues to strengthen and expand its commitment to sustainability through the implementation of strategic initiatives in three broad areas: Our People, Our Environment and Our Community. The establishment of a strong corporate governance policy framework, to act as a foundation for the Group’s sustainability efforts and initiatives, was a major strategic goal in 2013. In October, the Steamships Board adopted a formal Sustainable Development Policy. The policy outlines the Group’s commitment to sustainable business practices and establishes the conduct expected of all Steamships employees, contractors and customers. A Sustainability Committee was established to provide strategic Steamships Annual Report 2013 37 Sustainability: A Message from the Board of Directors direction and governance on key sustainability issues and initiatives. The committee is comprised of Steamships Executive management and includes a representative from the John Swire and Sons Group of Australia. There was progress on sustainability issues across the Group in 2013. Further adjustments were made to improve the reliability of the Group’s sustainability data. Data sources were regularly audited and information capturing processes were improved at the Division level. The rollout of the Health, Safety, Security and Environment (HSSE) Portal in 2013 further improved HSSE management systems, which contribute to the sustainability reporting process. As a consequence of these improvements, Steamships will for the first time report sustainability data related to its chosen GRI indicators in 2013. Staff continued to embrace a wide variety of awareness programs on issues including women’s health, malaria, cancer, HIV/AIDS, domestic violence and general wellbeing. In a major development for staff health, Steamships launched a Group Medical Insurance Scheme for all permanent employees during the year. Staff training and development was again a major focus, with the Group investing over K5 million to deliver 138,336 hours of staff training in 2013. The launch of the Graduate Management Development Program and a highly successful Leadership Skills workshop initiative were highlights. In the community, Steamships contributed close to K2 million to initiatives and projects covering health and social welfare, education, the environment and sports. Steamships commits considerable time, effort and resources to the development of its Sustainability Strategy and the strengthening of key initiatives. It does this because it understands that its long term business goals can only be achieved if its business operations are imbued with the principles of sustainable development. Steamships Trading Company and The Global Reporting Initiative Steamships utilises the Global Reporting Initiative’s (GRI) G3.1 Guidelines as a framework for its sustainability monitoring and reporting. Steamships has based its reporting on a C level of application of the GRI indicators. This year Steamships has presented sustainability data and disclosed the Group’s performance on select GRI indicators to shareholders and stakeholders for the first time. The primary sustainability data disclosed for 2013 was collected by all Steamships Divisions and reported to the Steamships Board on a quarterly basis throughout the year. Year on year comparisons are made with baseline data collected in 2012 . The Group has adopted a multi- format approach to reporting this performance, which more effectively targets communication to the needs of different stakeholders. In addition to the sustainability information published in this Annual Report and on our website, Steamships publishes an annual Sustainable Development Statistics Report and a GRI Content Index to help stakeholders better understand our performance and compliance with the GRI 3.1 Guidelines. This information is available at http:// www.steamships.com.pg/sustainability/ sustainability-reporting. Steamships is committed to providing an accurate and relevant set of data from across the Group and improving this as its systems mature over time. The achievement of a C+ level of GRI reporting remains a strategic goal. 38 Steamships Annual Report 2013 Selected Group Performance Highlights 2012 % Change Total employees Citizens in senior roles Female employees as a proportion of total workforce % Staff turnover % Staff representation on health & safety committees LTIIR (number of injuries per 100 full-time equivalent employees) LTISR (average number of days off per injury) Employee attendance at health programs Average hours of training per employee Direct Energy consumed (GJ) Indirect Energy consumed (GJ) Water withdrawl (KL) Energy consumed (CO2 tons) Expenditure on community programs (k’000) 2013 4,000 47.0% 24.1% 37.1% 9.4% 0.93 11.0 1,488 34.6 4,166 51.6% 26.8% 41.1% 9.8% 0.70 7.4 1,008 23.9 1,052,091 915,116 93,441 84,705 576,028 475,095 93,098 1,941 81,499 1,608 -4% -9% -10% -10% -4% 33% 49% 48% 45% 15% 10% 21% 14% 21% Further details can be found in Steamships’ annual Sustainable Development Statistics Report at http://www.steamships.com.pg/sustainability/sustainability-reporting Steamships Annual Report 2013 39 steAmshiPs sUstAinABiLitY FoCUs AReAs oUR PeoPLe As one of the largest and most diverse private employers in PNG, Steamships recognises the importance of its people and the significant contribution they make to the success of the Group. ‘People’ are one of the three major pillars of the Group’s Sustainability Strategy and a key focus of its corporate governance policies. In 2013 Steamships formally adopted corporate governance policies which outline the Group’s commitment to, and expectations of, its people. Steamships’ Sustainable Development Policy commits the Group to being an employer of choice and to providing an environment in which all employees are treated fairly and encouraged to realise their full potential. Its Diversity Policy commits Steamships to fostering an inclusive culture, improving talent management, enhancing recruitment practices and aspiring to pay equity. The Group’s Code of Conduct calls for its people to operate with the highest standards of business ethics and to conduct all business with integrity and fairness. Steamships understands that an effective, engaged and diverse workforce will contribute to improved operating performance, the achievement of strategic objectives and the delivery of continued value to customers and shareholders. steamships’ People strategy Steamships’ ‘People’ strategy focuses heavily on implementing staff initiatives in occupational health and safety, security, diversity and training and development. Through these, it aims to create an environment that promotes an engaged, safe and diverse workforce, encourages ongoing skill development and facilitates an emerging generation of leaders. In doing so, the Group understands that it can help employees succeed while generating continued value to customers and shareholders. The provision of clear performance 40 Steamships Annual Report 2013 objectives and regular feedback are crucial components in the process. In 2013 Steamships’ main hub for human resources administration, the People and Culture (P&C) Portal, was fully implemented and rolled out to the wider Group. An administrative database accessible to all staff, the P&C Portal encourages transparency and accountability and houses the Human Resources (HR) and HSSE Portals. In 2014, Steamships will launch and implement its Performance Management System and use the P&C Portal as the administration tool for the compilation of personal objectives and performance appraisals. Steamships successfully carried out its second consecutive “People Compass Survey”. The survey is an essential tool in engaging staff. Two initiatives were implemented in 2013 as a direct result of feedback to the 2012 survey: a Group Staff Medical Insurance Scheme for all permanent employees was launched in July, while the Steamships minimum wage for entry level operational staff was also raised during the year taking it to 26% more than the governments legislated minimum wage level. Other initiatives including minor alterations to company policy and the implementation of additional training and development initiatives continue to be pursued as a result of staff feedback. 1,430 employees responded to the 2013 survey. It was encouraging to see that the company culture remains strong, with 94 per cent of employees claiming they were proud to work for Steamships. There was also a positive response to the 2013 implementation of the medical insurance scheme. Key focus areas identified include a competitive benefits review, further development of leadership skills and more variety of personal development training including safety. Corporate Human Resources has plans in place to address these areas in 2014 . Steamships Sustainability Focus Areas - OUR PEOPLE oUR PeoPLe: Review of Activities and Objectives Highlights Future aims Introduced a number of corporate governance policies including a Steamships Corporate Code of Conduct, Sustainable Development Policy, Diversity Policy, Remuneration Policy and a Performance Evaluation process. Review the HR function within Steamships Divisions and ensure appropriate resources are in place to deliver required outcomes. Standardise the HR function across the Group through the introduction of relevant new policies and Board and Management Committees. Minimum wage for entry level operational staff increased and Medical Insurance Scheme for all permanent employees launched as a direct result of feedback from the 2012 Survey. Survey will be conducted for a third consecutive year. Results and feedback from the 2013 ‘People Compass’ Survey will be addressed and recommendations considered. 2013 ‘People Compass’ survey conducted. Launched inaugural Graduate Management Development Program (GMDP) in 2013 with the intake of two graduates, together with another three candidates for the ongoing Graduate Accountant Program. Launched the Steamships “Leadership Skills” program. Saw improved reporting for accidents/incidents, hazards and near misses and a heightened awareness of proactive safety measures. Continue to roll out the “Leadership Skills” program to supervisory and management staff, together with the re- launch of a GRID program for senior management. HSSE audits will be conducted to ensure effectiveness of action tracking and reporting. Gaps in HSSE Management system documentation will be identified and addressed through the HSSE Portal. Commenced job mapping and job evaluation as part of a total job grading exercise to be completed in 2014. Continue with job mapping and job evaluation to complete a fully functional job grading model in 2014. HSSE Portal rolled out, providing a centralised depository for all reporting data and documentation. Established a formal Occupational Health and Safety (OH&S) Committee with clear reporting lines to Sustainability Committee. Fully engage the HSSE Portal for all HR administration work. Continue staff training on Portal use and review systems to optimise functionality. Implement plans and programs initiated through Sustainability & OH&S Committees. Implement Division management training and awareness programs. Worked with external partners to provide health services to Steamships employees including dental services, eye care, reproductive health, first aid training and PAP smear tests. Organise and provide more basic health checks for Staff in partnership with respective Government and non- Government organisations. External provider completed a partial employee and business asset security review. Implemented recommendations as appropriate. Continuation of external review and conduct focused audit of OH&S systems and activities. Ongoing implementation of key recommendations from external security audit. Implemented Group-wide training and health awareness programs aimed at fostering a health and safety culture Increase health awareness training programs in all business units (especially outside Port Moresby). Steamships Annual Report 2013 41 Steamships Sustainability Focus Areas - OUR PEOPLE HeaLtH Steamships’ approach to health focuses on the provision of general medical services for all staff and the implementation of education programs to improve staff awareness of health issues. These initiatives were extremely well supported in 2013. There was a marked increase in staff participation levels in awareness programs with attendance up 47 per cent on 2012 levels. The number of programs held also increased to meet growing interest. For instance, a new initiative to educate staff on the impacts of depression was successfully added to existing programs for HIV/AIDs, Malaria, Alcohol and Drug Abuse, TB and Cancer. In October, Steamships held a week-long cancer awareness program for staff at Head Office and the Shipping and Hotel Divisions to coincide with international Cancer Awareness month. The initiative was a first of its kind for Steamships, featuring presentations from those living with cancer or affected by it. Steamships staff were given the opportunity to undergo medical tests for various conditions during the year. A highlight for a number of Port Moresby- based staff was a visit to the ‘floating surgery’ of Steamships’ community engagement partner, Youth with a Mission Medical Ships Australia (YWAM MSA), for dental and optical treatment. YWAM MSA was one of a number of individual and organisational health service providers engaged by Steamships in 2013. saFety Steamships’ approach to safety focuses on the development of a “Wok Seif” culture and the adoption of a “Zero Harm” mandate at all levels of operation. The Group strives to be an incident-free organisation by implementing robust safety management systems and improving staff awareness of safety issues. Steamships’ safety management systems require that all safety incidents are recorded, reported and analysed. This allows for the identification and implementation of corrective actions and the reduction of repeat 42 Steamships Annual Report 2013 occurrences. Safety Committees at the Division and Group level regularly scrutinise workplace behavior and safety performance to ensure reporting is robust and accurate. Steamships continued to update and refine these systems during 2013. The HSSE Portal will serve as a centralised depository for all reporting data and documentation. The portal is expected to be fully implemented in 2014. During 2013 an increased number of internal and external audits were carried out along with risk assessments on all Group-owned buildings. Fire and electrical exposures were a key focus. The HSSE scorecard was revised to include new measurables, while a number of HSSE risk assessment tools, including job safety analysis tools, were identified and rolled out for implementation. Steamships Sustainability Focus Areas - OUR PEOPLE The establishment of a Group Occupational Health and Safety (OH&S) Committee was a particular highlight. The Committee supports Steamships management in pursuing major safety objectives and reports directly to the Sustainability Committee on health and safety performance across the Group. Members of the committee include the Managing Director, the General Manager for Corporate Affairs, the Group HSSE Manager, and two Divisional HSSE Managers. Safety data collected for 2013 shows an increase in the number of reportable safety incidents, lost time injuries and lost days over 2012 levels. Steamships’ Lost Time Injury Incidence Rate was down 7 per cent to 0.92 (number of LTI’s per 100 employees) in 2013, while the Lost Time Injuries Severity rate was up 48.6 per cent to 11 days. Statistical increases in 2013 can be attributed to two factors: (i) the successful implementation of new safety management and reporting systems has improved safety awareness across the Group and (ii) the unfortunate occurrence of several serious Lost Time Injuries in which employees were hospitalised for more than a month. The health and safety of staff is paramount and Steamships has ensured these incidents were investigated and that best practice back-to-work programs are implemented for all staff. 2014 will be Steamships’ “Year of Safety”. Various plans are in place to build on existing initiatives and ensure “best in class” safety behavior across the Group. These include: • • • • • • • A safety poster competition for Steamships employees’ children will be run every six months to build safety awareness. The new HSSE Portal will be fully implemented and is expected to drive an improvement in health and safety management systems. Steamships will partner with businesses in PNG to share OH&S best practices. Management will drive commitment across the Group to close audit action items. General safety awareness will be promoted through newsletters, staff meetings and community safety awareness programs. Greater emphasis on OH&S training across the Group. Competent trainers will be sought to deliver training and build capacity. Risk assessments at respective locations and worksites will be carried out to reduce and/or eliminate OH&S exposures. security Security is a fundamental area of concern for all businesses operating in PNG. Steamships has established policies and processes to ensure that risks to the security of the Group’s people and assets are minimised. Staff training and education programs have increased awareness of security issues. In 2013 Steamships implemented a comprehensive system for reporting, recording and monitoring security- related incidents across the Group’s operations. The reporting system has successfully increased awareness of security incidents and allowed the Group to better address operational weaknesses. Steamships’ data shows the number of incidents recorded each quarter remained relatively stable across 2013. The most prevalent security issues were theft and alcohol-related incidents. Steamships commissioned an external security audit by a leading security firm during the year. This exposed several operational weaknesses requiring further attention. In response, Steamships implemented new staff security initiatives and consulted all external service providers to ensure appropriate levels of vigilance and protection are maintained. Security enhancements to Group property and vehicles were implemented inclusive of panic response systems. The Employee Assistance Program (EAP), which assists employees affected by increased levels of theft, robbery and public violence, was successfully implemented in 2013. Steamships will review the EAP in 2014, including a proposal to extend pick up/drop off transport arrangements to a wider staff audience. Steamships Annual Report 2013 43 Steamships Sustainability Focus Areas - OUR PEOPLE training and deVeLoPment Steamships is committed to implementing training and development programs which assist in the development of a strong pool of skilled and experienced Board and executive management candidates. In particular, Steamships aims to provide its PNG citizen employees with the necessary skills and experience to assume leadership positions across the Group. Steamships continues to invest significant time and resources into staff educational initiatives. In 2013, the Group invested over K5 million to deliver 138,336 hours of staff training, roughly 35 hours of training per employee. This is an additional eight hours of training per employee than was provided in 2012 and an investment of an additional K1 million in training and development initiatives. The Group launched its Graduate Management Development Program (GMDP) in 2013 with the intake of two graduates. The GMDP is a three year program during which graduates will rotate through Divisions every six months. The program is designed to give candidates operational training while developing skills in sales and marketing, human resource management, finance and ICT. The Graduate Accountant Program continued in 2013. Graduates attended phase one of an external personal development course and received support to undertake professional accountancy certification courses through the chartered accountants body. Steamships also piloted a Leadership Skills training program and workshop for Division supervisors and management staff. The program had 15 participants from two Divisions and the Head Office. The overwhelmingly positive response to this initiative by participants will see a more extensive rollout of the program in 2014 . Mandatory seafarer training, heavy equipment operations training and the cadetship program continued for employees in logistics Divisions. Steamships also invested in technical skills upgrading courses for support systems related to the Group’s products and services. 44 Steamships Annual Report 2013 Steamships is proud of the role it plays in assisting promising young Papua New Guineans to further their education. Steamships and Swire fund an annual Chevening Scholarship which provides candidates with the opportunity to undertake postgraduate study in the UK. The 2013/2014 Chevening scholarship recipient is Karen Hiawalyer, an employee of the Department of Planning and Monitoring. She will be studying a Master’s degree in Climate Change and Environmental Development at the University of East Anglia. 2012/2013 Scholarship recipient, Misika Rea, is studying for an MSc Applied Management and Sustainability at the Bradford School of Management and returns to PNG in early 2014 . Steamships remains committed to training and development initiatives and plans to implement the following programs in 2014: • Graduate Accountant and Graduate Management Development Programs – Personal Development Courses • Leaderships Skills Training • GRID Senior Management Training • Soft Skills Training • HSSE Training • Frontline Management Courses Customer Service and Business • Etiquette Workshops Information Technology Applications Training • • Technical Upgrading Courses Steamships Sustainability Focus Areas - OUR PEOPLE diVersity Steamships is committed to fostering diversity at all levels of the organisation. The Group strives to create a work environment inclusive of all people regardless of gender, age, race, disability, sexual orientation, cultural background, religion, family responsibilities or any other area of potential difference. In 2013, the Steamships Board approved a Diversity Policy for the Group that commits it to being an employer of choice; complying with all applicable equal opportunity and anti-discrimination laws; facilitating equal employment opportunities; adopting and applying best practice human resource processes; building and maintaining a safe work environment; training and development; and continuous disclosure regarding gender diversity. Steamships also formalised a Group Anti-Violence Policy during the year. The Group seeks to provide an environment that is free from violence or threats of violence against individuals or groups of employees or threats against Steamships property, including partner violence, which may occur on any of its properties. The policy requires that all individuals on Steamships’ premises or while representing Steamships, conduct themselves in a professional manner consistent with good business practice and in conformity with non-violent principles and standards. In a bid to further strengthen its ties with employees, Steamships began to establish Worker Welfare Committees in 2013. These committees provide a regular forum for employees, through nominated department representatives, to discuss with management issues affecting them in the work place. The committees represent a mature, open and transparent approach to recognising, discussing and acting on employee concerns. They are intended to build trust, eliminate status differentials and reinforce management’s belief in the involvement of employees. Committee members are elected from each Division department. One representative is elected to oversee issues of seasonal, casual and disadvantaged groups of employees. The committees are chaired by an employee representative. Agenda items typically include listening to grievances from all workers without bias or discrimination for improving employees’ conditions of service. Steamships’ workforce continued to grow in 2013. There was a slight increase in PNG citizens in senior management roles from 116 in 2012 to 126 in 2013 despite the overall percentage declining from 52% to 47%. Steamships aims to continue to implement training and development programs to ensure positions are filled from within the Group. The number of female employees at Steamships decreased in 2013, constituting 24 per cent of the total workforce. This was due to an increase in male hires at Laga Industries and EWT which corresponded to the operational requirements of those Divisions. The Group is committed to addressing this decrease in 2014 through diversity initiatives and specialised hiring strategies. Employee turnover increased again in 2013. The impact of PNG LNG construction on the PNG workforce and Steamships’ tighter controls and higher expectations of employee performance were key influences. Steamships will continue to analyse employment data to determine the reasons for employees leaving by age group and gender and customise retention programs accordingly. case study 1: Png Passes Family Protection Legislation In September 2013, PNG’s Family Protection Bill was tabled and passed on the floor of Parliament having been endorsed by the National Executive Council some months earlier. The event was a landmark day for PNG as the Bill made domestic violence an offence under PNG law. Steamships is proud to have played a part in this historic process through its relationship with the Coalition for Change PNG Inc. (CFC PNG), a community-based not for profit advocacy group launched in 2008 to address the issue of gender based violence, particularly in the home. Chaired by Lady Winifred Kamit CBE, a non-executive director on the Steamships board, CFC PNG has been the lead advocate for legislative reform of PNG’s pre independence Family legislation. The Group engaged international consultants to review measures against domestic violence and found there was widespread support for revised Family Protection legislation. CFC PNG was responsible for commissioning the drafting of new legislation for the Protection of Families. It was supported in its work by PNG’s Secretary to the Attorney General in a working group comprising private and public stakeholders. Steamships is proud to continue to support CFC PNG through funding and staff participation in building awareness for White Ribbon Day, which promotes the elimination of violence against women and girls. Steamships Annual Report 2013 45 Steamships Sustainability Focus Areas - OUR PEOPLE case study 2: graduate management development trainees sebastian negints: “I am currently at Coral Sea Hotels having rotated from East West Transport. I have been going through the operations and administration departments, learning about the products and services offered and observing under senior management. I also took part in Steamships’ organised sporting events and enjoyed bonding with work mates during training and the build up to the games. It made me feel truly part of the team. I knew the staff and management better and it made my learning experience more effective and enjoyable. “It is a challenge to learn and understand everything about these Divisions’ operations in very competitive industries, but from what I have learnt so far I anticipate the next few years in Steamships will be a highly rewarding experience.” danmon Pangali: “The Steamships Graduate Management Program provides a career development opportunity in management which very few companies can compare with in PNG. Having the opportunity to be exposed to the different commercial activities Steamships is involved in through its various Divisions is a privilege and continues to be one of the greatest draw cards for me. “My first attachment with the Hotels Division under the mentorship of the General Manager, Mr Glen Murphy has been a positive experience. I found myself involved in a number of activities that required me to further develop skills in communication, team work, problem solving, and to be more self-directed. The close contact with senior management has been the highlight of the program for me. It has allowed great insight into the nature of the business and also exposed me to different styles of coordinating the efforts of people to accomplish goals and objectives using available resources. “I am currently attached with East West Transport and I look forward to new experiences and continued growth in my career under the Steamships Graduate Management Development Program.” 46 Steamships Annual Report 2013 steAmshiPs sUstAinABiLitY FoCUs AReAs oUR enviRonment Steamships appreciates Papua New Guinea’s remarkably diverse environment and strives to be a good steward of the natural resources under its influence. Environmental sustainability is a pillar of Steamships’ Sustainability Strategy and a high priority Key Performance Indicator at every operational level across the Group. Steamships is committed to conducting business in a manner which fosters the sustainable use of the earth’s resources and minimises any adverse impacts on the environment. approach to environmental sustainability Steamships firmly believes that environmental education is one of the most effective ways to ensure the principles of environmental sustainability are understood and adopted. Steamships’ ‘Environment’ strategy aims to increase environmental awareness within the Group and the community, through environmental education workshops and community engagement initiatives. Steamships continues to develop comprehensive systems and procedures to ensure that all environmental impacts of operations are identified, monitored and appropriately managed. The consolidation of these systems and continued staff education were key sustainability goals in 2013 . Environmental Aspects and Impacts Registries (EAIR) were rolled out to a selection of Steamships’ Divisions during the year. These registries support the identification of specific and potential environmental impacts from business operations and assist in the development of measures to eliminate or minimise these. All Divisions are expected to have EAIR’s in place during 2014. A comprehensive Waste Management Plan was developed in 2013. The plan aims to identify the different waste streams generated at Steamships facilities and potential environmental impacts and develop methods to avoid, reduce, capture and store waste where practical. The plan also builds staff awareness on the impacts of different waste types. Work will continue with Divisions in 2014 to ensure implementation across the Group. Steamships engages extensively with the community in the area of environmental sustainability. The Group successfully celebrated the 2013 World Environment Day in the National Capital District (NCD) by supporting a series of competitions for school children from seventeen local schools. This was complemented by a ‘mangrove planting’ exercise in which Steamships staff and the community planted 500 seedlings at Pari Village outside Port Moresby. Steamships plans to introduce similar initiatives to additional schools and communities in 2014. Steamships continued support for the Swire Papua New Guinea Rainforest Study (SPRS) in the Wanang Conservation Area during the year. Funding was provided for conservation activities and the Wanang elementary and primary school, which serves six local villages. The inaugural recipient of the Swire Conservation Scholarship in Forest Science and Conservation took up post graduate studies in Forest Science at the University of Minnesota in the United States of America in 2013. The scholarship, funded by the Swire Educational Trust, aims to support individuals of exceptional promise in developing leadership roles in forest science and management in PNG. Steamships Annual Report 2013 47 Steamships Sustainability Focus Areas - OUR ENVIRONMENT oUR enviRonment: Review of Activities and Objectives Highlights Future aims Implemented an initial rollout of Environmental Aspects and Impacts Registries (EAIR) to some Divisions. EAIR’s to be rolled out to remaining Divisions and reporting systems to be implemented. HSSE Portal was rolled out, providing a centralised depository for all reporting data and documentation. Steamships will conduct reviews and focused audits on individual Divisional EAIR’s throughout the year. Ensure HSSE Portal is used as a one stop shop for environmental data and continue to train portal users as and when required. Sponsored a post graduate scholarship for a student to study forest science in the United States of America. A further scholarship will be offered in 2014 to assist citizens wishing to pursue a Master course. Environmental Awareness training and education programs held internally and in local communities. Continue support for staff and community level environmental awareness education programs. Supported World Environment Day activities in Port Moresby by sponsoring Schools competition and mangrove planting initiative. Providing funding of K50,000. Expand World Environment Day school contest to schools in Morobe Province. Increase budget for support to K100,000. Continue mangrove planting project. Waste Management Plan developed and implementation begun. Initiated training to increase awareness of different waste streams. Implement Waste Management plan across the Group. Review Division plans and continue awareness training for Division staff. Consolidated system for collection of data for energy consumption, CO2 emissions and water use. Ongoing consolidation of reporting systems. Pronto to be used to extract all energy consumption and water use data. Continued support for the Swire PNG Rainforest Study (SPRS) including funds for conservation activities and the educational facilities in local communities. Continue to provide funding and support for the SPRS. energy use, Water use and environmental emissions Steamships is strongly committed to reducing energy use, water use and environmental emissions at every operational level. Environmental training and education programs held in 2013 focused on the planning and implementation of sustainable workplace practices and the adoption of processes aimed at reducing energy and water use and lowering emissions. Continued staff education on Steamships’ systems for monitoring and reporting usage and emissions data was also carried out throughout the year with the aim of improving data quality. Steamships has been collecting and internally reporting data on direct and indirect energy consumption by primary source, greenhouse gas emissions and water usage since 2012. Reporting efforts and data quality improved significantly in 2013. Diesel and electricity consumption were the primary sources of CO2 emissions during 2013. Overall emissions rose by around 14 per cent over 2012 levels. Data shows that water usage rose 21 per cent on 2012 levels. At this 48 Steamships Annual Report 2013 stage the increases are primarily attributed to better data capture discipline in 2013 as overall activity levels in the group were static if not slightly down. Steamships continues to prioritise efforts to improve the accuracy of data and efficiency of reporting across the Group. The continued rollout of Division EAIR’s provides significant support to this process by helping Steamships staff to identify, monitor and address action items to lower resource usage and emissions. Steamships believes this comprehensive system of reporting and monitoring will manage and improve long term environmental impacts from operations. The Group will regularly review EAIR’s and reporting systems to ensure accurate data is consistently reported and housed on Steamships’ HSSE Portal. In 2014 the Group will also explore opportunities to expand the use of the Pronto IT management system to collect data on energy and water usage and associated costs. Steamships anticipates this will improve reporting efficiencies by reducing the time and effort required by Divisions to collect data. Steamships Sustainability Focus Areas - OUR ENVIRONMENT case study 3: improving the understanding of Png’s tropical Forests • An International Course of Ecology was held at Swire Station for three weeks in July. Participants included ten European and twenty PNG students (including Wanang community members and BRC staff, as well as students and researchers from several PNG universities, NARI, FRI, NAQUIA). • PNG Department of Environment and Conservation visited and continued work on establishing the Wanang Conservation Area. Steamships has a long standing commitment to support scientific research on PNG’s tropical forests, the third-largest tract of rainforest in the world. Since 2008 Steamships’ majority shareholder, John Swire & Sons Limited, has committed USD6000,000 (USD100,000 in 2013) to the Swire PNG Rainforest Study (SPRS). In 2010 the Swire Research Centre at Wanang in Madang Province was officially launched. The project has made good progress since its launch and a number of important community and research activities took place in 2013. These included: • • • • • • • Continuing work on 50-ha forest survey: tagging of approximately 300,000 trees completed, identification and data basing of some 400 species nearing completion. Conducting research of forest canopy using a hot air balloon. Funded with a EUR40,000 grant from the Belgium Lottery Fund. Developing a seed project, butterfly monitoring, and bird study. A PhD student was supported to work in Wanang Conservation Area with five well trained assistants. Funded by the Czech Science Foundation. MSc student project on soil chemistry and an Honours project on ethnobiology were carried out in Wanang, along with part of an MSc project on ant ecology from the University of PNG. Seacology primary school classroom built and opened. Continued construction of the EUR 50,000 project for solar equipment at Swire Station, funded by the Prince of Monaco Foundation (who visited in December 2012). This project will also supply lights to Wanang School. Established the Darwin Initiative project to estimate carbon stock in Wanang Conservation Area. A UK expert, Dr Mika Peck, started training at the site in late 2013. The project aims to gain Verified Carbon Standards and Carbon Community Biodiversity Standards accreditation. • Swire funds continued to support the Wanang elementary and primary school, which serves six villages. Steamships Annual Report 2013 49 steAmshiPs sUstAinABiLitY FoCUs AReAs oUR CommUnitY Community is the third and final pillar of Steamships’ Sustainability Strategy. The Group has a considerable footprint in PNG and considers it essential to have a positive impact on the various communities in which it operates. Steamships’ Sustainable Development Policy commits the Group to playing an active role as a responsible corporate citizen; to being involved in community engagement programs; and to encouraging staff to participate in these initiatives. These commitments guide the Group’s approach to community engagement and development activities. approach to community development Steamships adds value to the communities in which the Group operates, over and above the economic benefits derived from employment, taxes and levies and associated businesses. The Group’s community program prioritises four key areas: health and social welfare, education, sports and culture. Funding to these areas was over K1.94 million in 2013, an increase of some 20 per cent on 2012. The Group expects to increase funding for community development activities by an additional 15 per cent in 2014. Steamships’ community strategy focuses financial support on a select group of larger, high impact activities to ensure funds are most effectively utilised. Steamships Divisions continue to provide additional support to local initiatives related directly to the communities in which they operate. 50 Steamships Annual Report 2013 Highlights Future aims Assisted the Coalition for Change PNG Inc. (CFC PNG) to create awareness about violence against women and children. Continue to promote efforts to reduce gender based inequality and violence by supporting groups such as the CFC PNG and the newly constituted Business Coalition for Women (BCW). Worked with the CFC PNG and government agencies to promote the Family Protection Act. Provided support to Youth with a Mission (YWAM), which contributed to YWAM receiving Government funding for a new vessel. Increase support to K50, 000. Continue to assist YWAM to expand operations to Milne Bay, Morobe and Central Province. Staff visited both the Port Moresby Children’s Hospital and the Tembari Child Care Orphanage to present gifts. Increase staff involvement in community-based projects and activities and complement with funding where appropriate. Donated prime land to the 2015 Pacific Games Commission for the construction of facilities for the Games. Appointed a General Manager Corporate Affairs. Assist in the purchase of vital equipment for Cancer Facility at the Port Moresby General Hospital Establish a committee to manage community investment program and identify communities and charities to assist. Invested K1.94 million in community initiatives, an increase of 20% from 2012. Increase funding for community initiatives by 15% to K2.25 million. area 2013 spending (Kina) 2014 Budget (Kina) Health & Social Welfare 1,210,153 Education & Environment Sports & Culture TOTAL 497,190 234,000 1,941,343 1,270,480 462,919 130,000 1,863,399 Steamships Sustainability Focus Areas - OUR COMMUNITY major recipients of steamships community engagement Funds in 2013: yWam medical ship salvation army World environment day Purpose Helps people in rural areas and urban settlement areas improve living conditions, raise skill levels, increase productivity and instill self- confidence. steamships 2013 contribution: K220,000 Purpose Buk Bilong Pikinini Purpose Delivers medical services into the remote rural areas of the Gulf and Western provinces. steamships 2013 contribution: K400,000 BaHa Encourages school children to understand the importance of taking care of the environment. steamships 2013 contribution: K50,000 susu mama inc Purpose Helps to reduce maternal and infant morbidity and mortality in PNG. steamships 2013 contribution: K120,000 Purpose Assists the private & public sector to develop workplace policies on HIV/AIDS and provides training & awareness on the disease. Purpose Provides young children access to books and reading materials to develop their basic literacy and numeracy skills before entering the school system. steamships 2013 contribution: steamships 2013 contribution: K50,000 K196,000 steamships also supported the following charitable organisations in 2013: • • • • • • coalition for change Png: Creates awareness about violence against women and children. Png Paralympics: Gives people with disability the opportunity to achieve their dreams and aspirations. operation open Heart: Flies in doctors from Australia to carry out open heart surgery on patients where procedures are not possible due to a lack of necessary technical or financial means. cheshire disability services: The only organisation in PNG that takes care of, and trains, people living with disabilities. Halfway House and tembari children care: Gives women and children who are victims of violence and abuse a place to take shelter. steamships make a child smile Project: Steamships’ staff visit hospitals and other institutions over Christmas Season to donate gifts to children. • • • Kone Kanu Klub: A rowing club based in Port Moresby which represents the country and participates in competitions in Australia. crocodile Prize/Literary sponsorship: PNG’s only National Literature Contest. Steamships sponsor the Short Story Prize. international course of ecology was held at Swire Station for three weeks in July. Participants included ten European and twenty PNG students (including Wanang community members and BRC staff, as well as students and researchers from several PNG universities, NARI, FRI, NAQUIA). • Png department of environment and conservation visited and continued work on establishing the Wanang Conservation Area. Steamships Annual Report 2013 51 Steamships Sustainability Focus Areas - OUR COMMUNITY case study 4: supporting the development of Literacy and numeracy skills Steamships is proud to support Buk Bilong Pikinini (BBP), an independent not-for-profit organisation which aims to establish children’s libraries and encourage reading and learning in PNG. In addition to financial support for BBP, Steamships provides rent-free space at its Bird of Paradise Hotel to house BBP’s Goroka library, along with providing toilet facilities for children and staff. There are few functioning libraries outside the school system in PNG and most children do not have access to books. Only half of school age children go to school and in many places the literacy rate is well under the official rate of 50 per cent; in some it is as low as five per cent. BBP libraries give young children access to books and reading materials to develop basic literacy and numeracy skills, before entering the school system. These libraries are a very important resource, deliberately built in community-based localities such as settlements, clinics and market places. Steamships is a platinum founder and sponsor of BBP and currently supports three BBP libraries. Steamships will be providing financial support to the Lawes Road (Port Moresby), Lae and Goroka Libraries until at least 2017 . case study 5: steamships expands support for World environment day Steamships is a major sponsor of PNG’s activities to celebrate ‘World Environment Day’ on the 5 June each year. In 2013 the Group was the sole private sector sponsor of the World Environment Day School contest, in partnership with the Department of Environment and Conservation (DEC). Three activities were organised - the Clean School contest (Best Environmentally Friendly School Award), an Essay competition and a Debate contest – and all were based on the 2013 theme “Think, Eat, Save”. The day was regarded as a great success with a total of seventeen schools participating in organised activities. Steamships’ involvement was the first time a company had partnered with the DEC to organise and host a program on World Environment Day. Complementing the schools initiative was a ‘mangrove planting’ exercise involving Steamships staff and the community from Pari Village outside Port Moresby. Staff and their families planted a total of 500 seedlings along the shoreline to stop erosion. Steamships is considering proposals to expand these activities for the 2014 World Environment Day. 52 Steamships Annual Report 2013 CoRPoRAte GoveRnAnCe stAtement CoRPoRAte GoveRnAnCe stRUCtURe Steamships formalised the above governance structure in 2013. During the year an independent Internal Audit department was established to report to the Audit & Risk Committee, together with the following executive committees to support the Executive Directors in their duties: Sustainability, ICT, Property Development and Legal. The formation of these additional committees adds further integrity to the Group’s risk management processes. Director’s attendance at the relevant Board and Board Committee meetings is outlined below. Board and committee attendance Board meeting audit and risk committee remuneration and nomination committee strategic Planning committee W.L. Rothery G. Aopi, CBE T. Blackburn Sir M. Bromley, KBE D. Cox, OL G. Cundle G.J. Dunlop J. Hughes Hallett, CMG Lady W. Kamit, CBE S. Pelling 3/4 4/4 4/4 4/4 4/4 4/4 4/4 2/4 4/4 4/4 4/4 4/4 4/4 2/2 2/2 2/2 1/1 1/1 1/1 1/1 1/1 Steamships Annual Report 2013 53 CoRPoRAte GoveRnAnCe stAtement a commitment to good governance Steamships and its Board are committed to achieving and demonstrating the highest standards of corporate governance and ethical behaviour, and they expect these standards from all employees. The Group believes that the maximisation of long term returns to shareholders is best achieved by acting in a socially responsible manner that recognises the interests of community stakeholders. Steamships is committed to: • • • Providing high-quality products and services to meet customers’ needs; Maintaining high standards of business ethics and corporate governance; Ensuring the safety and wellbeing of employees and others with whom the Group has contact; and • Promoting sustainable business practice. Steamships believes it complied with the 2010 Australian Stock Exchange Corporate Governance Principles and Recommendations with 2010 amendments during the twelve months ended 31 December 2013, except where noted in the following pages. Steamships reports against the Australian Stock Exchange (ASX) recommendations by addressing each key principle in the order it is listed in the ASX guidelines. Each section addressing a key principle includes references to relevant information that appears elsewhere in the 2013 Annual Report or on Steamships’ website. Lay solid foundations for management and oversight Steamships focuses on the long-term development and growth of business where it can add value through its industry-specific expertise, its partnerships and its knowledge of Papua New Guinea, gained through its long history in the country. In order to achieve this, the Group combines the efforts of dedicated management teams in the individual Divisions, supported by a small Corporate Office management team, to provide services such as strategic direction, investment and performance review, treasury, legal support, health & safety development, human resources management and people development services. Steamships’ Board of Directors, together with Divisional advisory boards, has the responsibility to set the strategic direction of the Group; to review the operational and financial performance of the Group’s activities; to monitor the achievements of the Group against its objectives; to review the management of business risk; and to report to the shareholders. Steamships has formalised and defined the functions reserved for the Board and those delegated 54 Steamships Annual Report 2013 to management in a formal Board Charter. This Charter defines Board duties to facilitate accountability to the Group and its shareholders. Steamships has adopted a structured approach to strategic business planning across all Divisions. The Group has implemented a key performance indicator monitoring system to ensure it remains focused on core strategies and the action plans outlined to achieve them. Progress against the strategies and indicators are measured on a quarterly basis. The Board has formed a Strategic Planning Committee that meets annually and provides a detailed review of the annual budget and the three-year planning process in discussion with the Division General Managers. This review in no way diminishes the responsibility of the full Board to review and approve the Group’s strategy at a more macro level. Core strategies are implemented by means of programs, budgets and procedures. Implementation involves the organisation of the Group’s resources and motivation of the staff to achieve objectives. The Managing Director reviews the performance of senior Executives regularly and at least annually. These reviews address individual and corporate key performance indicators and compliance with the Group code of conduct and ethics. A written report on the annual reviews is prepared and sent to the Remuneration and Nomination Committee which provides feedback to the Board and Managing Director on senior management succession plans. The Board assesses the performance of the Managing Director, and other Executive Directors, according to the formal performance evaluation process. Performance evaluations for all senior Executives were carried out during 2013 in accordance with this process. The Group is committed to the development of its employees by ensuring its succession program is appropriate and monitored. Although the expertise and skills of expatriate staff are still required, an active program of training and skills transfer seeks to enable the Group to promote citizen staff and to build a strong, long-term workforce for the future. Copies of the Board Charter, Board Committee Charters and Terms of Reference and the formal process for Senior Management Performance Evaluation can be found on Steamships’ website in the corporate governance section. structure the Board to add value The Steamships Board currently comprises two Executive Directors, two independent Non-Executive Directors (Lady Winifred Kamit and Mr Gerea Aopi), and six Non- Executive Directors, of whom three are also Directors of other John Swire & Sons’ subsidiary companies. The roles of Chairman and Managing Director are performed by separate individuals. Steamships notes the ASX recommendations and comments concerning Director independence and advises that the Group departs from these recommendations due to the nature of its shareholdings and its location. Steamships currently has 98 per cent of its shares held by three major shareholders, one of which holds 72 per cent of the shares. The pool of available independent representatives in Papua New Guinea is small, and it would be very difficult to find an adequate number of truly independent Directors qualified to serve on the Board. To disqualify existing Directors on the grounds of lack of independence would deprive the Group of valuable experience in the management of its affairs. While recognising the importance of the ASX recommendations, the Board feels that, under current circumstances, the recommendations are not practicable, and would not serve the interest of the Group or its shareholders. All Non-Executive Directors retire on a rotational basis at least every three years. Retiring Directors are eligible for re-election. The Board has a Remuneration and Nomination Committee comprising three Directors. The members of the Remuneration and Nomination Committee and their attendance at meetings of the Committee during 2013 are detailed above and in the Directors’ Report. The responsibilities of the Remuneration and Nomination Committee include reviewing, monitoring and making recommendations to the Board regarding the composition of the Board, Board Committees and senior management team. Steamships believes that its Board should consist of Directors with an appropriate mix of skills and experience to understand, critique and contribute to the Group’s financial performance, strategic direction, risk management, operations, sustainability, values and culture. The skills, expertise, experience of each Director and term of office at the date of this report are detailed in the Directors’ Report. The Steamships Board has adopted a formal performance evaluation process which reviews the performance of the Board, Board Committees and individual Directors on an annual basis. The process is conducted by the Chairman of the Board, who meets with each Non-Executive Director and specifically addresses key performance indicators and compliance with the Group Code of Conduct and ethics. In reviewing the performance of Board Committees, the Chairman conducts meetings with the Chairperson of each Board Committee addressing key performance criteria and compliance with Committee charters and terms of reference. CoRPoRAte GoveRnAnCe stAtement Both formal review processes were completed in 2013. A more detailed explanation of Steamships’ formal performance evaluation processes for the Board, Board Committees and individual Directors is available on Steamships’ website in the corporate governance section. In exercising their duties as Directors, the Board, and individual members of it, can seek independent professional advice at the Group’s expense. Requests for the provision of such advice are directed to the Chairman. Steamships’ Board Charter and the Remuneration and Nomination Committee Charter are available on Steamships’ website in the corporate governance section. Promote ethical and responsible decision making Steamships promotes ethical and responsible decision- making in all its Divisions. This commitment falls within the Group’s strong focus on ensuring the sustainability of its business operations, described separately in this Annual Report. The Group’s evolving sustainability strategy promotes ethical and responsible behaviour in three key focus areas: People, Environment and Community. In early 2013, Steamships adopted a formal Group Code of Conduct. The Code embodies previously informal practice and is supported by a training module and periodic monitoring of compliance. Among matters addressed, the Code of Conduct details Steamships’ requirements regarding monetary payments and gifts offered by third parties to Steamships’ personnel. The following Board committees assist the Board in promoting ethical and responsible decision making: • Strategic Planning Committee • Audit and Risk Committee • Remuneration and Nomination Committee Steamship began to consider some key benchmarks from the global standard on sustainability reporting – the Global Reporting Initiative (GRI) - in its 2011 Annual Report for the first time. By establishing systems to collect relevant data and monitor progress against these benchmarks, Steamships continues to promote ethical and responsible decision making, improve operations and increase transparency. Commentary on Group performance in health and safety, security, training and development, labour relations, diversity, in addition to environmental measures on energy, water, effluent and waste emissions and the Group’s approach to community development can be found in the sustainability section of this Annual Report and on the Steamships website. Steamships Annual Report 2013 55 CoRPoRAte GoveRnAnCe stAtement diversity ASX recommendations focus heavily on gender diversity. While Steamships is committed to fostering diversity at all levels, gender diversity has been and continues to be a priority for the Group. Its approach to gender diversity is based on fostering an inclusive culture, improving talent management, enhancing recruitment practices and ensuring pay equity. Notwithstanding ASX recommendations, Steamships believes that for a Group operating entirely in Papua New Guinea, diversity must go further and incorporate culture. This country of just over seven million people is widely reported as having around 800 unique languages. The challenges of its mountainous and island terrain contribute to its highly traditional tribal and rural societies (less than 20 per cent of PNG citizens live in urban centres). Steamships operates in 12 of PNG’s 20 provinces, consistent with its broad range of business interests. Having operated successfully in PNG since 1919, Steamships recognises the social and commercial value of diversity and strives to create a work environment which is inclusive of all people regardless of gender, age, race disability, sexual orientation, cultural background, religion, family responsibilities or any other area of potential difference. In 2013, the Board approved a Diversity Policy for the Group that reflects this commitment and includes the requirement for reviewing and providing recommendations to the Board on the Group’s performance development initiatives aimed at promoting diversity. Commentary on adopted measures is included in the sustainability section of the 2013 Annual Report and on the Steamships’ website. Steamships’ Code of Conduct and Diversity Policy are available on the Steamships website in the corporate governance section. Safeguard integrity in financial reporting While the Board maintains overall responsibility for the systems of internal control and monitors their effectiveness, it is assisted in discharging its responsibilities by the Audit and Risk Committee, which is composed of an independent Non-Executive Chairman and two Non- Executive Directors who are representatives of major shareholders. The Audit and Risk Committee recommends the appointment and remuneration of the external auditors, reviews the Group’s financial statements and the adequacy and effectiveness of existing internal and external audit arrangements. It also considers management of the Group’s risk. The findings and recommendations of the Committee are reported to the Board. The Committee meets quarterly, at which time it receives and discusses reports from senior 56 Steamships Annual Report 2013 management and from external auditors. The Audit and Risk Committee has formal terms of reference which detail its role and responsibilities, composition, structure and membership requirements. The members of the Audit and Risk Committee, their qualifications and their attendance at meetings of the Committee held during 2013 are shown above and in the Directors’ Report. Divisions within the Group have established their own internal audit and monitoring functions. Regular reviews of monthly accounts and balance sheets conducted by senior management seek to ensure that internal control is properly managed throughout the Group. In the opinion of the Board, this has been the most efficient and cost-effective means of managing internal control, given the diversity of the business and the nature of the risk. However, to enhance the internal system of control and business risk, the Board approved the establishment of a standardised corporate office internal audit process in 2013. The Audit and Risk Committee Terms of Reference is available on Steamships’ website in the corporate governance section. make timely and balanced disclosure Steamships promotes timely and balanced disclosure of all material matters concerning the Group. The Board seeks to inform shareholders of issues affecting the Group through comprehensive Annual Reports, the Steamships website and the release of reports to the Port Moresby Exchange, the Australian Securities Exchange and appropriate media. These detail the Group’s financial and operating performance. Steamships has written policies designed to ensure compliance with the continuous public disclosure and external communications requirements of the Port Moresby Stock Exchange and Australian Securities Exchange, and the Board will ensure these are met at all times. Steamships has explored methods to more effectively inform shareholders. While many local smallholders still rely solely on the postal system, an increasing number have access to the internet. By relaunching its corporate website in early 2013, Steamships has further developed the mechanisms designed to ensure compliance with the ASX listing rule requirements, such that: • • All investors have equal and timely access to material information concerning the Group, including its financial position, performance, ownership and governance. Group announcements are factual and presented in a clear and balanced way, including disclosure of both positive and negative information. respect the rights of shareholders As mentioned earlier, some 98 per cent of Steamships shares are held by three major shareholders, two of which are represented on the Board. Steamships is nonetheless very aware that it has smaller shareholders and seeks to ensure they are fully empowered. The Steamships website is regularly updated to give all shareholders ready access to balanced and easy to understand information about the Group and its business activities. Steamships is incorporated in Papua New Guinea and accordingly holds its Annual General Meeting in Port Moresby, with shareholders encouraged to attend and participate. Steamships’ Public Disclosure and External Communications Policy is available on Steamships’ website in the corporate governance section. Steamships’ website details how investors may contact the Group’s investor relations team. In addition, the website contains contact details for the Group’s external share registry, including a general enquiry line, fax number and email details. recognise and manage risk Steamships has identified its material business risks and actively manages those risks. The Group is committed to the management of risks throughout its operations to protect its employees, the environment, Group assets, earnings and reputation. Certain risks occur in the normal course of Steamships’ business and include foreign exchange and interest rate risks. Steamships has policies and standards in place covering the oversight and management of these inherent material business risks. The Group has adopted an Enterprise Risk Management process that enables it to identify, assess and manage factors that threaten the Group’s ability to achieve its long term strategic objectives. Under this system all material business risks that arise in the course of the Group’s activities have clearly defined management ownership and accountability for reporting to the Board. The Board requires management to continually and at least annually assess, prioritise, mitigate and manage its existing risks and the emerging risks it faces. The General Manager of each Division draws up and manages each organisation’s corporate risk register and mitigation plans and is required to present these to the Board on an annual basis. During 2013, management reported to the Board on the effectiveness of its risk management systems and CoRPoRAte GoveRnAnCe stAtement performance in managing material business risks. Steamships’ Strategic Planning Committee formally reviews Divisional risks as part of its annual strategic review. Steamships’ Risk Management program utilises a risk management tool and database to assist in monitoring and enforcement of compliance with the Group’s risk management procedures and policies. The Group also uses other risk management techniques, including insurance, to reduce the financial impact of any uncontrollable or catastrophic losses. The Board is responsible for reviewing the Group’s policies on risk oversight and management. In doing so, the Board satisfies itself that management has developed and implemented a sound system of risk management and internal control. Steamships has an Audit and Risk Committee responsible for monitoring and reviewing the risk management system. While the Audit and Risk Committee assists the Board to fulfil its risk oversight obligations, ultimate responsibility for risk oversight and risk management rests with the full Board. Minutes of all Board committee meetings are made available to all Directors. The members of the Audit and Risk Committee, their qualifications and attendance at meetings of the Committee during 2013 are detailed above and in the Directors report. Steamships is incorporated in Papua New Guinea and is not generally subject to the Australian Corporations Act, hence the Board does not require the Managing Director and the Finance Director to provide a declaration that is consistent with section 295A of the Australian Corporations Act 2001. A summary of Steamships’ policies on risk oversight and management is available on Steamships’ website in the corporate governance section. remunerate fairly and responsibly Steamships’ policy is to ensure that the level and composition of remuneration for all employees is competitive and reasonable and that the relationship between remuneration and performance is clearly defined. Steamships’ Board has established a Remuneration and Nomination Committee comprising the Steamships Chairman, the Managing Director and a Non- Executive Director. Steamships acknowledges the ASX recommendations that suggest this committee be chaired by an independent Director, however the Board considers this committee structure appropriate given Steamships’ shareholder structure. The Remuneration and Nomination Committee meets annually to review, monitor and make recommendations Steamships Annual Report 2013 57 CoRPoRAte GoveRnAnCe stAtement to the Board regarding the remuneration and incentive framework for non-executive Directors, the Managing Director and other executive Directors, and senior executives at the General Manager level. Steamships’ remuneration policy is designed to attract and retain the talent necessary to create value for shareholders; to motivate senior executives to pursue long term growth and success for the Group; to reward key management personnel and other employees fairly and responsibly; and to comply with all relevant legal and regulatory provisions. Steamships’ executive remuneration policy, which applies to the Managing Director, other executive Directors, and senior executives at the general manager level, comprises three components: Fixed remuneration, incentives and salary packaging and other benefits. Incentive-based remuneration is aligned with individual and corporate objectives with performance against these evaluated annually. Non-executive Directors are remunerated by way of fees and do not receive options, bonus payments or retirement benefits. Further details of Steamships’ approach to remuneration can be found in the Groups’ Remuneration Policy, which is available on Steamships’ website in the corporate governance section. The members of the Remuneration and Nomination Committee, their qualifications and attendance at meetings of the Committee during 2013 are detailed above and in the Director’s Report. The Remuneration and Nomination Committee’s charter is available on Steamships’ website in the corporate governance section. Steamships is incorporated in Papua New Guinea and is not generally subject to the Australian Corporations Act, hence section 300A the Australian Corporations Act 2001 concerning remuneration disclosure does not apply. Steamships reports company remuneration details in accordance with the Papua New Guinea Companies Act 1997 . 58 Steamships Annual Report 2013 Steamships Annual Report FinAnCiAL Contents Statements of Comprehensive Income . . . . . . . . . . 60 Statement of Changes in Equity . . . . . . . . . . . . . . 61 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 62 Statements of Cash Flows . . . . . . . . . . . . . . . . 63 Notes to the Financial Statements . . . . . . . . . . . . 64 Independent Auditor’s Report . . . . . . . . . . . . . . 98 Directors’ Report . . . . . . . . . . . . . . . . . . . . .100 Stock Exchange Information . . . . . . . . . . . . . . .104 Company Directory . . . . . . . . . . . . . . . . . . . IBC Steamships Annual Report 2013 59 stAtements oF ComPRehensive inCome Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) Consolidated Parent Entity note 2013 2012 2013 2012 Continuing Operations Revenue Other income Operating expenses oPeRAtinG PRoFit Finance costs – net Share of profit of associates and joint ventures PRoFit BeFoRe inCome tAX 3(a) 3(a) 3(b) 3(e) 4(b) 930,934 38,718 986,310 51,885 56,971 6,103 (871,288) (751,111) (6,001) 98,364 287,084 57,073 78,346 7,441 (5,581) 80,206 72 (17,690) (21,510) 14,188 9,697 90,371 72 - - 279,762 57,145 80,278 Income tax expense 5(a) (11,930) (81,414) (572) (59) PRoFit FRom ContinUinG oPeRAtions 78,441 198,348 56,573 80,219 Other comprehensive income - - - - totAL ComPRehensive inCome FoR the YeAR 78,441 198,348 56,573 80,219 Attributable to: Non-controlling interests Shareholders (38,609) 117,050 78,441 20,648 177,700 198,348 - - 56,573 56,573 80,219 80,219 Basic and Diluted Earnings per share continuing (toea) 3(f) 377t 573t - - These statements of comprehensive income are to be read in conjunction with the accompanying notes. 60 Steamships Annual Report 2013 stAtement oF ChAnGes in eqUitY Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) Share Capital Retained Earnings Other Total Capital Controlling Reserves & Reserves Interest Total Equity non- BALANCE AT 1 JANUARY 2012 24,200 554,349 Profit from continuing operations Other comprehensive income Dividends paid 2012 - - - 177,700 - (79,071) BALANCE AT 31 DECEMBER 2012 24,200 652,978 Profit from continuing operations Other comprehensive income Dividends paid 2013 Change in ownership interests not resulting in a change in control (note 22b) - - - - 117,050 - (68,218) - - - - - - - - 578,549 75,365 653,914 177,700 20,648 198,348 - - - (79,071) (11,691) (90,762) 677,178 84,322 761,500 117,050 (38,609) 78,441 - - - (68,218) (5,702) (73,920) - (8,994) (8,994) (17,104) (26,098) BALAnCe At 31 DeCemBeR 2013 24,200 701,810 (8,994) 717,016 22,907 739,923 This statement of changes in equity is to be read in conjunction with the accompanying notes. No statement of changes in equity is presented for the Parent Entity as the only movement in equity is represented by the retained earnings as shown in the statement of comprehensive income and dividend movements as reflected above for the Group. Steamships Annual Report 2013 61 BALAnCe sheets Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) Current assets Cash and cash equivalents Trade and other receivables Inventories Non-current assets classified as held for sale Financial assets at fair value through profit and loss Loans to related companies Non-current assets Property, plant and equipment Investment properties Investments in related companies Loans to related companies Intangible assets Deferred tax asset total assets Current liabilities Trade and other payables Provisions for other liabilities and charges Loans from related company Loan from shareholder Borrowings Income tax payable Non-current liabilities Deferred tax liability Provisions for other liabilities and charges Borrowings total liaBilities net assets eQuity Issued capital Retained earnings Capital and reserves attributable to the Company’s shareholders Non-controlling interests total eQuity Consolidated Parent Entity note 2013 2012 2013 6 7(a) 8 9 10 11 12 13 4(a) 11 14 5(c) 15 16 11 17 17 5(c) 16 17 18 11,640 178,996 59,878 - - 337 250,851 722,735 343,658 31,471 103,065 93,514 21,081 1,315,524 1,566,375 130,662 10,176 16,335 15,160 50,681 7,713 230,727 25,598 12,019 558,108 595,725 826,452 739,923 24,200 692,816 717,016 22,907 739,923 21,508 242,553 68,381 8,426 20,307 2,455 363,630 755, 349 268,512 38,687 48,290 17,183 - 1,128,021 1,491,651 149,007 12,658 14,314 16,133 144,381 33,903 370,396 32,898 9,985 316,872 359,755 730,151 761,500 24,200 652,978 677,178 84,322 761,500 643 1,056 - - - - - - - - 1,699 28,944 - - 146,395 5,712 - - 771 181,822 183,521 213 - - 155,234 - - - - (604) 154,843 - - - - - - - - 154,843 28,678 24,200 4,478 28,678 - - 28,678 2012 3,225 4,680 7,905 32,478 68,676 5,715 905 107,774 115,679 150 76,248 (1,042) 75,356 75,356 40,323 24,200 16,123 40,323 40,323 These statements of balance sheets are to be read in conjunction with the accompanying notes. For and on behalf of the Board: 28 March 2014 W. L. Rothery Chairman G.L. Cundle Managing Director 62 Steamships Annual Report 2013 stAtements oF CAsh FLows Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) Consolidated Parent Entity note 2013 2012 2013 2012 CasH FloWs From oPerating aCtiVities Receipts from customers 962,288 990,355 1,206 Payments to suppliers and employees (643,060) (626,171) (1,177) Interest received Interest and other finance costs paid Income tax paid 106 (17,796) (64,930) 135 (21,645) (75,808) 72 - - - Net cash provided by operating activities 20 236,608 266,866 101 CAsh FLows FRom investinG ACtivities Purchase of property, plant & equipment (224,734) (202,646) Proceeds from sales of property, plant & equipment 52,463 4,917 Loans made (to)/repaid by associated companies (51,609) (44,620) Dividends received 5,921 3,935 (497) - - 86,780 56,971 Acquisition of subsidiaries and non-controlling interests(net of cash acquired) (92,633) - (77,719) 1,885 (1,435) 72 (219) 303 (510) 4,157 78,346 - Net cash (used in)/provided by investing activities (310,592) (238,414) 65,535 81,993 220,000 145,000 (51,319) - - - - CAsh FLows FRom FinAnCinG ACtivities Proceeds from borrowings Repayments of borrowings Dividends paid Net cash provided by/(used in) financing activities NET INCREASE/(DECREASE) IN CASH HELD CAsh At BeGinninG oF the YeAR CAsh At enD oF the YeAR CAsh ComPRises: Cash and cash equivalents Bank overdrafts 6 17 (86,401) (73,920) 59,679 (14,305) (15,673) (29,978) 11,640 (41,618) (29,978) (90,762) (68,218) (79,071) 2,919 (68,218) (79,071) 31,371 (2,582) 3,225 (47,044) (15,673) 3,225 643 21,508 (37,181) (15,673) 643 - - 643 - 3,225 3,225 3,225 Steamships Annual Report 2013 63 These statements of cash flows are to be read in conjunction with the accompanying notes. notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 1. Summary of significant accounting policies The Company is a company limited by shares and is incorporated and domiciled in Papua New Guinea. These group consolidated financial statements were authorised for issue by the Board of Directors on 28 March 2014. The Board of Directors has the power to amend the financial statements after their issue. The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). changes in accounting policy and disclosures i. Standards, amendment and interpretations effective in the year ended 31 December 2013 The following new standards and amendments were applicable for the first time during the accounting period beginning 1 January 2013: • • • Amendment to IAS 1, ‘Financial statement presentation’ (effective 1 July 2012) regarding other comprehensive income requires entities to separate items presented in other comprehensive income into two groups, based on whether they may be recycled to profit or loss in the future. This does not effect the measurement of any items recognised in the balance sheet or profit and loss in the current period. Amendments to IAS 19, ‘Employee benefits’ (effective 1 January 2013) require the recognition of all re-measurements of defined benefit liabilities/assets immediately in other comprehensive income and the calculation of a net interest expense or income by applying the discount rate to the net defined benefit liability or asset. The entity does not have a defined benefit pension scheme. IFRS 10, ‘Consolidated Financial Statements’ (effective 1 January 2013) replaces all of the guidance on control and consolidation in IFRS 27 Consolidated and Separate Financial Statements, and SIC 12 Consolidation – Special Purpose Entities. The standard introduces a single definition of control that focuses on the need to have both power and rights or exposure to variable returns before control is present. The Group early adopted the standard in 2011 resulting in two entities being consolidated. • IFRS 11, ‘Joint arrangements’ (effective 1 January 2013) introduces a principles based approach to accounting for joint arrangements. 64 Steamships Annual Report 2013 The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account for their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. This has resulted in the reclassification of certain interests from associates to joint ventures. IFRS 12, ‘Disclosures of interests in other entities’ (effective 1 January 2013) includes the disclosure requirements for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. The Group adopted the standard in 2012 but did not require any significant additional disclosures. IFRS 13, ‘Fair value measurement’ (effective 1 January 2013) aims to improve the consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The entity does not use fair value measurement extensively apart from certain investments and its impairment reviews. Additional disclosure requirements come with the standard which have been adopted by the Group. IAS 27 (revised 2011) ‘Separate financial statements’ (effective 1 January 2013) is now a standard dealing solely with separate financial statements. Application of this standard has not affected any of the amounts recognised in the consolidated or parent entity financial statements. IAS 28 (revised 2011), ‘Associates and joint ventures’ (effective 1 January 2013) includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. The standard does not have any impact on the existing group. Amendment to IFRS 7, ‘Financial instruments: Disclosures’ on offsetting financial assets and financial liabilities (effective 1 January 2013) enhance current offsetting disclosures. This does not affect the accounting for any of the Group’s current offsetting arrangements. • • • • • notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) ii. Standards, amendment and interpretations issued but not yet effective for the year ended 31 December 2013 or adopted early The following standards, amendments and interpretations to existing standards have been published and are mandatory for the entity’s accounting periods beginning on or after 1 January 2014 or later periods, but the entity has not early adopted them: • • • • • IFRS 9, ‘Financial Instruments’ (effective date is open) is the first phase of replacing IAS 39, ‘Financial Instrument” with a standard that is less complex and principles based. The new standard addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not expected to change the entity’s existing accounting policy for its financial assets and liabilities. IASB has also amended IFRS 9 to allow entities to early adopt the requirement to recognise in OCI the changes in fair value attributable to changes in an entity’s own credit risk (from financial liabilities that are designated under the fair value option). This can be applied without having to adopt the remainder of IFRS 9. Amendments to IAS 36 “Impairment of assets” (effective 1 January 2014) address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The Group has early adopted these requirements. Amendments to IAS 32, “Financial Instrument: Presentation” (effective 1 January 2014). These amendments are to the application guidance in IAS 32 and clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. IFRIC 21 “Levies” . This is an interpretation to IAS 37, “provisions, contingent liabilities and contingent assets. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have present obligation as a result of past event (known as obligating event). The interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. IFRS 9 “Hedge Accounting” (no effective date – the standard is available for immediate application”). IFRS 9 relaxes the requirements for hedge effectiveness and, consequently to apply hedge accounting. IFRS 9 replaces the 80%-125% hedge effectiveness test with a requirement for an economic relationship between the hedged item and hedging instrument, and for the ‘hedged ratio’ to be the same as the one that the entity actually uses for risk management purposes. Hedge ineffectiveness will continue to be reported in profit or loss (P&L). The new requirements change what qualifies as a hedged item. The standard provides an accounting policy choice for an entity to continue to apply hedge accounting (and hedge accounting only) under IAS 39 instead of IFRS 9 until the IASB completes its separate macro hedging project. There are no other IFRS’s or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. (a) Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations. The consolidated financial statements have been prepared under the historical cost convention as modified by financial assets and liabilities at fair value through profit and loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 1(y). (b) Foreign currency The Company’s functional and presentation currency is the Papua New Guinea Kina. Transactions in foreign currencies have been translated into the functional currency at rates ruling at the date of the transaction. Amounts payable to and by the Group in foreign currencies have been translated to the functional currency at rates of exchange ruling at the year end. Gains and losses arising from movements in foreign exchange rates are recognised in the statement of comprehensive income when they arise. (c) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Steamships Trading Company Limited as at 31 December 2013 and the results of all Steamships Annual Report 2013 65 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) subsidiaries for the year then ended. Steamships Trading Company Limited and its subsidiaries together are referred to as the Group or the consolidated entity. Subsidiaries are all entities over which the Group has control, that is when the Group is exposed to or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group (refer to note 1d). Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet respectively. (ii) Associates Associates are all entities over which the Group has significant influence but not control generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill identified on acquisition (refer to note 14). The Group’s share of its associates’ post- acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised as a reduction in the carrying amount of the investment. 66 Steamships Annual Report 2013 When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. (iii) Joint ventures Joint venture entities The interest in a joint venture is accounted for using the equity method after initially being recognised at cost as for associates. (iv) Changes in ownership interests The Group treats transactions with non- controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to shareholders. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in a jointly-controlled entity or an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) (d) Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition- related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, measured initially at their fair values at the acquisition date. On an acquisition- by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in determining profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. (e) revenue recognition The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised for the major business activities as follows: sale of goods - Revenue from the sale of goods is recognised when the entity sells a product to the customer and all significant risks and rewards have been transferred. services - Service revenue is recognised when the service has been rendered. interest income - Interest income is recognised using the effective interest method. dividend income - Dividends are recognised as revenue when the right to receive payment is established. rental income - Rental income is recognised on a straight line basis over the term of the lease. (f) income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the notional income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred income tax is provided in full, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that the future taxable profit will be available, against which the temporary differences can be utilised. (g) cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with banks and Treasury Bills with a maturity less than 90 days. Bank overdrafts are shown in current liabilities in the statement of financial position. (h) receivables Trade receivables are amounts due from customers for merchandise sold or services provided in the ordinary course of business. There are classified as current assets if collection is expected within one year. Receivables are recognised initially at fair value and subsequently Steamships Annual Report 2013 67 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) measured at amortised cost using the effective interest method, less provision for impairment. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. (i) inventories Inventories are valued at the lower of cost and net realisable value. In general, cost is determined on the weighted average basis and, where appropriate, includes a proportion of variable overhead expenditure. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling costs. (j) non-current assets held for resale Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement. An impairment loss is recognised for any initial or subsequent write down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition. Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised. Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet. 68 Steamships Annual Report 2013 A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the income statement. (k) Financial assets Classification The Group classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The Group does not hold any held to maturity investments or available for sale financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non- current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ and ‘cash and cash equivalents’ in the balance sheet. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade date – the date on which the Group commits to purchase or sell the asset. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables are carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within ‘other (losses)/gains – net’ in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group’s right to receive payments is established. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment testing of trade receivables is described in note 1(h). (l) Property, plant and equipment All property, plant and equipment are initially recorded at cost. Borrowing costs directly attributable to the acquisition or construction of qualifying assets are added to the cost of those assets until the assets are ready for their intended use. Depreciation is calculated on the straight- line method to write off the cost of each asset to their residual values using the below rates which is reflective of their estimated useful life as follows: 0 - 10% 5 - 10% Properties Ships Plant and fittings 10 - 33% 20 - 33% Motor vehicles Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are taken into account in determining operating profit. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statements of comprehensive income during the financial period in which they are incurred. (m) investment properties Investment properties include land held for long- term capital appreciation and buldings leased out under operating leases. Properties that comprise a portion held to earn rentals and a portion for own use or occupation will only be classified as investment property if an insignificant portion is held for own use of occupation. Investment properties are recognised when it is probable that future economic benefits associated with the property will flow to the Group and the cost of the investment property can be reliably measured. Investment properties are stated at cost less accumulated depreciation and accumulated impairment losses. Transaction costs are included on initial measurement. Borrowing costs directly attributable to the acquisition or construction of qualifying assets are added to the cost of those assets until the assets are ready for their intended use. The fair values of investment properties are disclosed in Note 13. These are assessed using internationally accepted valuation methods, such as taking comparable properties as a guide to current market prices or by applying the discounted cash flow method. Like property, plant and equipment, investment properties are normally depreciated using the straight-line method over similar useful lives (n) goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired business at the date of acquisition. Goodwill is capitalised and assessed for impairment annually or more frequently if events or changes in circumstances indicate a potential for impairment and is carried at cost less impairment losses. Any impairment is recognised immediately as an expense and is not subsequently reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash- generating units for the purpose of impairment testing. (o) trade and other payables These amounts represent obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. They are classified as current liabilities if payment is due within one year or less. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. The amounts are unsecured and are usually paid within 30 days of recognition. Steamships Annual Report 2013 69 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) (p) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resource embodying economic benefits will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. A liability for annual leave is recognised and measured at the amount of unpaid leave at amounts expected to be paid to settle the present entitlements. A liability for long service leave is recognised taking into consideration expected future wage and salary levels, experience of employee departures and periods of service, discounted to present values. A provision for estimated ship dry docking costs is only recognised where the Group has a contractual obligation under a Bare Boat charter agreement in from a third party. Dry docking costs relating to ships not under third party long term charter agreements are only recognised as incurred, and are capitalised to the extent that the previously assessed economic benefits associated with the asset are restored. (q) Employee benefits (i) Short term obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and accumulating sick leave is recognised in the provision for employee benefits. All other short term employee benefit obligations are presented as payables. (ii) Other long-term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of period in which the employees render the related service is recognised in the provision for the employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departments and periods of service. Expected future payments are discounted using 70 Steamships Annual Report 2013 the market yields at the end of the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. (r) Borrowings Borrowings are recognised initially at fair value, net of any transaction costs incurred, and are subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. (s) impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its fair value less costs to sell. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flow (cash generating units). (t) Borrowing costs Borrowing costs incurred for the construction of qualifying assets which are assets that take a substantial period of time to get ready for their intended use or sale, are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s outstanding borrowings during the year, in this case 6.8% (2012 – 8.2%). (u) segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker who is responsible for allocating resources and assessing performance of the operating segments, has been identified as notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) the Strategic Steering Committee. (v) earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group, by the weighted average number of ordinary shares outstanding during the financial year. There are no potential ordinary shares on issue and hence the diluted earnings per share is equal to the basic earnings per share. agreement from a third party and where the Group has a contractual obligation for dry docking costs, the cost of future dry docking is provided. The cost of dry docking is not accurately known until the vessels are surveyed and assessed at the commencement of docking. Estimates are based on the dry docking interval (ie Special or Interim), repairs considered necessary identified at balance date, its age, and docking history. (w) goods and services tax (gst) Docking intervals are assumed to be 5 years. Revenues, expenses and assets are recognised net of the amount of associated GST. Receivables and payables are stated inclusive of GST. The amount of GST recoverable from, or payable to, the Taxation authority is included with other receivables or payables in the balance sheet. (x) rounding of amounts Amounts in the financial statements have been rounded off to the nearest thousand Kina. (y) critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: (i) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. (ii) Estimated fair values of investments The Group carries an indirect investment in an unlisted entity with changes in fair value being recognised in profit or loss. At the end of each reporting period, a future maintainable earnings calculation is performed, or if available, non observable market information is used to determine the appropriate fair value of the investment. (iii) Provision for dry docking For vessels on long term bare boat charter Docking costs are often incurred in either AUD, USD or SGD currencies. The costings are updated monthly for the foreign exchange rate. (iv) Estimated impairment of ships and other plant and equipment Impairment losses have been recognised in relation to ships and plant and vehicles. The impairment of these ships arose from changes in expectations of future freight volumes and pricing and changes in ship replacement strategy. A change in the vehicle replacement policy and review of vehicle conditions has given rise to an impairment charge for vehicles, while a change in manufacturing strategy has resulted in an impairment charge for plant. Recoverable amounts have been determined using the higher of fair value less cost to sell and its value in use. Fair value has been determined using market based information while value in use has been determined using a post-tax discount rate of 15.9% During the year the directors performed an impairment review on all key assets of the Group given the economic slowdown. As a result of this assessment the depreciation charge on ships includes an additional K92.4M(2012:4.0M) due to impairment. The effect to shareholders post tax and minority interest is K47.1M. The depreciation charge on plant and vehicles includes an additional K11.5M impairment on Vehicles and K2.4M on plant. (z) changes in accounting policies and comparatives. Where necessary, comparative figures have been adjusted to conform with changes in presentation and accounting policies in the current year. In an effort to simplify its legal structure, the Company has been working through a process of amalgamating non-core and dormant entities into Steamships Trading Company. As a result of these amalgamations, some of which were legally approved in 2012, the 2012 parent numbers have been amended to reflect the changes to the legal Steamships Annual Report 2013 71 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) structure. The impact on the previously reported 2012 parent numbers is as follows: higher, mainly as a result of higher/lower interest expense on floating rate borrowings. Increase in revenue of K1.5M Increase in net profit after tax of K1.5M Increase in total assets of K8.5M Increase in total liabilities of K11.8M Decrease in equity of K3.3M 2. Financial risk management The Group’s activities expose it to a variety of financial risks including market risk (including currency, and interest rate risk), credit risk, liquidity risk and capital risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is carried out under policies approved by the Board of Directors. (a) market risk (i) Foreign exchange risk The Group engages in international purchase transactions and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Australian dollar. Foreign exchange risk arises from recognised assets and liabilities. The Group’s foreign currency purchases do not represent a significant proportion of the Group’s costs and as such exposure to foreign currency risk is minimal. It is not the Group’s policy to hedge foreign currency risk. As the foreign currency exposure is minimal no sensitivity analysis is provided. (ii) Price risk The Group is not significantly exposed to equity securities or commodities price risk. (iii) Cash flow interest rate risk The Group’s interest rate risk arises from long- term borrowings. Borrowings issued at variable rates expose the Group to cash flow and fair value interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Long term borrowings are at a fixed rate of interest. It is not the Group’s policy to hedge cash flow and interest rate risk. At 31 December 2013, if interest rates on PNGKina-denominated borrowings had been 1% higher/lower with all other variables held constant, post-tax profit for the year would have been K1,350,000 (2012: K1,311,000) lower/ 72 Steamships Annual Report 2013 (b) credit risk The Group has no significant concentration of credit risk and it is not the Group’s policy to hedge credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and has policies that limit the amount of credit exposure to any one customer. No credit limits were exceeded during the reporting period and management does not expect any losses from non-performance by counterparties. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group manages liquidity risk by maintaining sufficient bank balances to fund its operations and the availability of funding through committed credit facilities. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flows. Undrawn finance facilities as of 31 December 2013 were as follows: 2013 K’000 2012 K’000 Undrawn Facilities 26 102,819 The table below analyses the Group’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Between Between Over 5 2 & 5 Less than 1 & 2 Years Years Years K’000 K’000 K’000 1Year K’000 At 31 December 2013 Borrowings Trade and other payables Income tax payable At 31 December 2012 Borrowings Trade and other payables Income tax payable (85,007) (42,849) (575,897) - (130,662) - (7,713) - - - - - (171,288) (25,365) (262,117) (89,212) - - (149,007) - - (33,903) - - The Group does not hold derivative financial instruments. notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) (d) capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as external borrowings and unsecured loans less cash and cash equivalents. Total capital is calculated as capital and reserves attributable to the Company’s shareholders plus net debt. The gearing ratios at each balance date were as follows: 2013 K’000 2012 K’000 Total external borrowing & unsecured loans 640,284 491,700 Less: Cash & Cash equivalents 11,640 21,508 Net debt Total equity Total capital 628,644 470,192 739,923 761,500 1,368,567 1,231,692 Gearing ratio 46% 38% (e) Fair value estimation IFRS 7 ”Financial Instruments: Disclosures” requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2013. Level 1 Level 2 Level 3 K’000 K’000 K’000 at 31 December 2013 Assets Financial assets at fair value through profit & loss Total Assets at 31 December 2012 Assets Financial assets at fair value through profit & loss Total Assets - - - - - - - - - - 20,307 20,307 If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. The following table presents the change in level 3 instruments for the year ended 31 December 2013. Financial asset at fair value through profit and loss (consolidated). 2013 K’000 Opening balance Additions Losses recognised in profit and loss Closing Balance 20,307 - - (20,307) - 2012 K’000 45,107 (24,800) 20,307 Total losses for the period included in other operating expenses that relate to assets held at the end of the reporting period 20,307 24,800 Minority Interest in share of loss (20,307) 24,800 - 24,800 The parent entity does not hold any financial assets. Steamships Annual Report 2013 73 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 3. operating results (a) Revenue and other income comprises: Revenue from sale of goods Revenue from provision of service Dividend income Total Revenue Other income * Consolidated Parent Entity 2013 2012 2013 2012 196,990 733,944 - 224,685 761,625 - 930,934 986,310 - - - - 56,971 56,971 78,346 78,346 38,718 51,885 6,103 7,441 * Other income principally represents a gain of K35.5M on re-measuring to fair value the existing interest in Pacific Towing Limited on acquiring a controlling interest (2012: includes the gain on sale of a property of K48.4M). (b) Expenses comprise: Cost of sales Staff costs (note 3c) Depreciation and amortisation Impairment of fixed assets (refer note 12b) Electricity and fuel Other operating expenses Total Operating expense (c) Staff costs: Wages and salaries Retirement benefit contributions Accommodation and other benefits Number of staff employed by the Group at year end: 217,611 188,035 106,653 106,427 72,728 179,834 871,288 130,252 7,835 49,948 188,035 244,504 180,258 94,379 4,000 67,223 160,747 751,111 124,938 8,853 46,467 180,258 - - - - 3,995 4,100 1,481 5,581 - - - - 2,006 6,001 - - - - - - - - Full Time 4,000 4,166 - - 74 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 3. operating results (continued) Consolidated Parent Entity 2013 2012 2013 2012 (d) The operating profit before income tax is arrived at after charging and crediting the following specific items: After charging: Audit fees Fees for non-audit services to Auditors Bad and doubtful debts Donations Fair value impairment on financial assets * Loss on sale of property plant and equipment After crediting: Gain on acquiring a controlling interest (net) (refer note 25) Net foreign exchange transaction gains Profit on sale of property plant and equipment 1,033 462 2,420 1,887 20,307 919 35,467 1,801 - 948 688 1,962 2,201 24,800 - - 3,567 48,937 * 2013 impairment is wholly attributable to Minority Interests (refer note 2e). 28 10 - - - - - - - - - - - - - - - - (e) Cost of financing – net: Expense Income Net finance costs (f) Earnings per share 17,796 (106) 17,690 21,645 (135) 21,510 - - (72) (72) (72) (72) Basic earnings per share are calculated by dividing the net profit attributable to shareholders by the average number of ordinary shares on issue during the year. There is no difference between the basic and diluted earnings per share. Net profit attributable to shareholders Average number of ordinary shares on issue (thousands) Basic earnings per share (continuing operations) 117,050 31,008 377t 177,700 31,008 573t - - - - - - Steamships Annual Report 2013 75 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 4. investments in subsidiaries, associates and joint ventures Consolidated Parent Entity 2013 2012 2013 2012 (a) Investments are accounted for in accordance with the policy set out in Note 1(c) and relate to: Investments in subsidiary companies (note 22) - - 126,344 48,486 Investments in associates (note 23) Investments in joint ventures (note 24) 16,449 15,022 31,471 12,177 26,510 38,687 - - 20,051 146,395 20,190 68,676 (b) Share of profit in associates and joint venture Share of profit in associates Share of profit in joint ventures 5. income tax (a) Income tax expense Current tax Deferred tax 4,354 5,343 9,697 5,468 8,720 14,188 - - - - - - Consolidated Parent Entity 2013 2012 2013 2012 40,311 (28,381) 11,930 56,180 25,234 81,414 465 107 - 572 59 59 (b) The income tax in the Statement of Comprehensive Income is determined in accordance with the policy set out in note 1(f). The effective rate of tax charged differs from the statutory rate of 30% for the following reasons. Prima facie tax payable on operating profit 24,202 79,672 Tax effect of rebateable dividends Expenses not deductible for tax Deductible expenses not recognised for accounting purposes Income not assessable for tax Prior year (over)/under provisions (c) The deferred tax (liability)/ asset comprises: Provisions Prepayments Property, plant and equipment Comprising of Deferred tax asset Deferred tax liability 76 Steamships Annual Report 2013 - 7,269 (666) (10,640) (8,235) 11,930 16,264 (3,296) (17,485) (4,517) 21,081 (25,598) (4,517) - 8,952 (533) (14,519) 7,842 81,414 9,112 (2,840) (39,170) (32,898) - (32,898) (32,898) 17,144 (17,091) 24,083 (23,504) (26) - - - - 545 - 572 65 - - 706 771 771 - - 771 (520) 59 149 756 905 905 905 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 5. income tax (continued) (d) The gross movement on the deferred tax account is as follows: At January 1 Tax effect of: Provisions Prepayments Tax depreciable assets At December 31 (e) The ageing analysis of the deferred tax balance is as follows: Net deferred tax asset/(liability) expected to be recovered within 12 months Net deferred tax asset/(liability) expected to be recovered after more than 12 months 6. cash and cash equivalents Cash and short term deposits Consolidated Parent Entity 2013 2012 2013 2012 (32,898) (7,664) 905 1,604 7,152 (456) 21,685 (4,517) 324 632 (26,190) (32,898) 217 (549) (4,734) (4,517) (32,349) (32,898) (84) - - (50) 771 65 706 771 190 (889) 905 149 756 905 Consolidated Parent Entity 2013 2012 2013 11,640 11,640 21,508 21,508 643 643 2012 3,225 3,225 The maximum exposure to credit risk at the reporting date is the fair value of cash and cash equivalents on the balance sheet. Cash and short term deposits are held with the Bank of South Pacific and Westpac PNG who have Standard and Poor’s long term credit ratings of B+ and AA- respectively. 7. trade and other receivables Trade and other receivables Trade receivables Provision for impairment Other receivables & prepayments (see (iii) below) Consolidated Parent Entity 2013 2012 2013 2012 114,132 (6,415) 107,717 71,279 178,996 107,528 (5,102) 102,426 140,127 242,553 - - - - - - 1,056 1,056 4,680 4,680 Steamships Annual Report 2013 77 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 7. trade and other receivables (continued) Consolidated Parent Entity 2013 2012 2013 2012 (i) Impaired trade receivables As at 31 December 2013, trade receivables of K6.4M (2012:K5.1M) relating to trade debtors were considered impaired and were provided for by management. The ageing of these receivables is as follows: 3 to 6 months Over 6 months 704 5,711 6,415 Movement in the provision for impairment of trade receivables is as follows: Opening balance Impairments recognised during the year Provision utilised Total 5,102 2,420 (1,107) 6,415 2,095 3,007 5,102 4,186 1,962 (1,046) 5,102 - - - - - - - - - - - - - - The creation and release of the provision for impaired receivables is included in operating expenses in the statement of comprehensive income. Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash. (ii) Past due but not impaired As at 31 December 2013, trade receivables of K2.1M (2012: K7.3M) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: 3 to 6 months Over 6 months 1,692 416 2,108 7,226 91 7,317 - - - - - - The other classes within trade and other receivables do not contain impaired assets and are not past due. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security in relation to these receivables. (iii) Other receivables and prepayments Other receivables generally arise from transactions outside the usual operating activities of the Group. Interest may be charged at commercial rates where the terms of repayment exceed six months. Collateral is not normally obtained. Prepayments relate to advance payments for expenses not yet incurred. 78 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 8. inventories Raw materials Work in progress Finished goods Provision for obsolescence Consolidated Parent Entity 2013 2012 2013 2012 21,407 31 40,127 (1,687) 59,878 29,000 3 41,494 (2,116) 68,381 - - - - - - - - - - Inventories recognised as an expense during the year ended 31 December 2013 and included in cost of sales and cost of providing services amounted to K76.9M (2012: K53.6M). A reduction in the provision for obsolescence of inventories to net realisable value resulted in a credit during the year ended 31 December 2013 of K0.4M (2012: K0.7M). 9. Non-current assets classified as held for sale At 31 December 2012, two properties were presented as held for sale following the approval of the Group’s management and directors in August 2012 to sell the properties. The transactions were expected to be completed within twelve months from balance sheet date. However, during 2013 both sales didn’t eventuate and the properties were withdrawn from the market, and the assets have been reinstated to non-current property, plant and equipment. Consolidated Parent Entity 2013 2012 2013 2012 Property plant and equipment Accumulated depreciation Carrying value - - - 22,383 (13,957) 8,426 - - - - - - 10. Financial assets at fair value through profit and loss Consolidated Parent Entity 2013 2012 2013 2012 Opening balance Additional investment Fair value loss recorded in the profit and loss * Closing balance 20,307 - (20,307) - 45,107 - (24,800) 20,307 - - - - - - - - The financial asset represents an Investment in GEMS PNG Limited, which holds an interest in Bemobile Ltd. *Refer to note 2e Steamships Annual Report 2013 79 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 11. Loans to/(from) related companies Loans to associates and joint ventures: Current Consort Express Lines Limited’s associates Non-Current Harbourside Development Limited Colgate Palmolive (PNG) Limited Kelton Investments Limited Loans to subsidiaries Loans from associates and joint ventues: Consort Express Lines Limited’s associates Loans from subsidiaries Consolidated Parent Entity 2013 2012 2013 2012 337 337 2,455 2,455 101,775 47,000 500 790 103,065 - 103,065 500 790 48,290 - 48,290 - - - - - - 500 - - 500 5,212 5,712 500 500 5,215 5,715 (16,335) (16,335) - (14,314) (14,314) - - - - - (155,234) (16,335) (14,314) (155,234) (76,248) (76,248) 80 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 12. Property, plant & equipment Property Ships Plant and Vehicles Total Consolidated December 31, 2013 Cost or valuation Accumulated depreciation (including impairment losses) Net book value Opening value Additions Business combinations Disposals Transfer from asset held for sale Transfer to investment property(note13) Depreciation Impairment losses Closing value December 31, 2012 Cost or valuation Accumulated depreciation Net book value Opening value Additions Disposals Transfer to asset held for sale Depreciation Impairment losses Closing value Parent December 31, 2013 Cost or valuation Accumulated depreciation Net book value Opening value Additions Disposals Depreciation Closing value 471,550 (94,945) 376,605 358,444 29,323 124 - 8,426 (730) (18,982) - 394,758 478,197 1,344,505 (280,192) (246,633) (621,770) 114,566 231,564 722,735 178,015 41,038 15,683 218,890 70,333 755,349 140,694 11,197 27,004 (121) (4,431) (4,552) - - - - (27,617) (92,432) (50,430) (13,995) 8,426 (730) (97,029) (106,427) 376,605 114,566 231,564 722,735 418,202 (59,758) 358,444 338,152 44,649 - (8,426) (15,931) - 325,180 438,283 1,181,665 (147,165) (219,393) (426,316) 178,015 218,890 755,349 175,649 32,413 (2,459) - (23,588) (4,000) 196,488 67,159 710,289 144,221 (919) (3,378) - (8,426) (43,838) (83,357) - (4,000) 358,444 178,015 218,890 755,349 75,540 (48,244) 27,296 30,646 105 - (3,455) 6,474 (6,474) - - - - - 27,296 - 5,822 (4,174) 87,836 (58,892) 1,648 28,944 1,832 392 32,478 497 (35) (35) (541) 1,648 (3,996) 28,944 Steamships Annual Report 2013 81 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 12. Property, plant & equipment (continued) Property Ships Plant and Vehicles Total Parent December 31, 2012 Cost or valuation Accumulated depreciation Net book value Opening value Additions Disposals Depreciation Closing value 75,452 (44,806) 30,646 34,275 75 (86) (3,618) 30,646 6,474 (6,474) - - - - - - 7,382 (5,550) 1,832 89,308 (56,830) 32,478 1,891 36,166 435 (12) 510 (98) (482) (4,100) 1,832 32,478 (a) Assets in the course of construction The carrying amounts of the assets disclosed above include the following expenditure recognised in relation to property, plant and equipment and investment properties which is in the course of construction: Consolidated Parent Entity 2013 2012 2013 2012 Property (classified as investment properties, note 13) Ships Plant and vehicles 243,348 15,954 569 156,406 4,730 - Total assets in the course of construction 259,871 161,136 - - - - - - - - The cost of additions in 2013 includes capitalised borrowing costs of K16.5M (2012: K9.4M) in relation to qualifying assets. (b) Impairment losses Impairment losses have been recognised in relation to ships and plant and vehicles. The impairment of these ships arose from changes in expectations of future freight volumes and pricing and changes in ship replacement strategy. A change in the vehicle replacement policy and review of vehicle conditions has given rise to an impairment charge for vehicles, while a change in manufacturing strategy has resulted in an impairment charge for plant. Recoverable amounts have been determined using the higher of fair value less cost to sell and its value in use. Fair value has been determined using market based information while value in use has been determined using a post-tax discount rate of 15.9%. The directors performed an impairment review on all key assets of the group given the economic slowdown. As a result of this assessment the depreciation charge on ships includes an additional K92.4M(2012:4.0M) due to impairment. The effect to shareholders post tax and minority interests is K47.1M. The depreciation charge on plant and vehicles includes an additional K11.5M impairment on vehicles and K2.4M on plant. There are no other conditions that indicate impairment of property, plant and equipment as at 31 December 2013. 82 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 13. investment properties Investment properties represent the group’s residential and commercial properties that are available for external lease rather than internal use. Properties used by the group are shown as ‘Property’ within note 12. Non-current assets – at cost Cost Accumulated depreciation Net book value Opening value Additions Disposals Transfers from property (note 12) Depreciation Closing value (a) Amounts recognised in profit/loss for investment properties Consolidated Parent Entity 2013 2012 2013 2012 426,146 (82,488) 343,658 268,512 84,040 - 730 (9,624) 343,658 343,559 (75,047) 268,512 228,420 52,545 (1,431) - (11,022) 268,512 - - - - - - - - - - - - - - - - - - Consolidated Parent Entity 2013 2012 2013 2012 Rental income Repairs and maintenance attributable to rental properties under non-cancellable leases Operating expenses directly attributable to rental properties under non-cancellable leases 90,069 93,597 (3,675) (2,770) (8,249) (7,556) - - - - - - (b) Valuation basis Properties include commercial and residential properties occupied by Group businesses together with commercial and residential investment properties which are available for external lease. An analysis of the carrying amount and estimated range of fair values for each category of property is shown below. Fair values have been estimated internally, based on market evidence of property values, supported by independent professional valuations as at December 2013 for a selected sample of representative properties. Included in properties are the following: Investment properties Other properties (note 12) Total NBV Valuation Lower Range Higher 343,658 376,605 720,263 865,497 851,001 1,716,498 1,041,218 1,044,768 2,085,986 The independent valuer utilised certain historical facts and relevant market data available up to the date of valuation in reaching their opinion to the valuation of the properties. (c) Non-current assets pledged as security Refer to note 17 for information on non-current assets pledged as security by the group. (d) Contractual receivables Minimum lease receivables under non-cancellable operating leases of investment properties not recognised in the financial statements are receivable as follows: 2013 2012 2013 2012 Within one year Later than one year but not later than five years Later than five years 76,989 141,079 145,059 363,127 92,066 245,279 - 337,345 - - - - - - - - Steamships Annual Report 2013 83 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 14. intangible assets Goodwill opening value Additions Impairment Closing value Impairment tests for goodwill Consolidated Parent Entity 2013 2012 2013 2012 17,183 76,331 - 93,514 17,183 - - 17,183 - - - - - - - - Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to operating segment. The goodwill balance of K93.5M (2012: K17.2M) is attributable to Datec (K9.2M), Consort (K0.5M), Laga Industries (K7.5M), Pacific Towing (K67.3M) and New Britain Shipping (K9M). The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a three-year period. Growth beyond year three for the purpose of the impairment testing is set at 0%. A post-tax discount rate of 15.92% (2012: 18.3%) has been used and reflects specific risks relating to the operating segment. No goodwill is considered to be impaired as at 31 December 2013. 15. trade and other payables Trade Payables Accruals Other payables Consolidated Parent Entity 2013 2012 2013 2012 50,177 57,281 23,204 74,098 43,134 31,775 130,662 149,007 - - - - 213 213 All trade and other payables are due and payable within 12 months and are recorded at their carrying value. 16. Provisions for other liabilities and charges Opening value Charged to profit & loss Transferred in on business combination Utilised during year Closing value Current Non-current Employee 17,224 9,014 1,445 (8,379) 19,304 7,285 12,019 19,304 Dry Dock 4,397 - - Other 1,022 304 - 2013 Total 22,643 9,318 1,445 (1,955) (877) (11,211) (22,712) 2,442 2,442 - 2,442 449 449 - 449 22,195 10,176 12,019 22,195 22,643 12,658 9,985 22,643 150 150 2012 Total 30,623 14,732 - A description of employee and dry dock provisions is disclosed in note 1(p). 84 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 17. Borrowings Current: Bank overdrafts (secured) Bank loans (secured) Other loans (unsecured) Non-current: Other loans (secured) Bank loans (secured) Total Borrowings Consolidated Parent Entity 2013 2012 2013 2012 41,618 9,063 15,160 65,841 135,000 423,108 558,108 623,949 37,181 107,200 16,133 160,514 135,000 181,872 316,872 477,386 - - - - - - - - - - - - - - - - Mortgages over certain of the Group’s properties and a registered equitable charge over the remainder of the Group’s assets, undertakings and uncalled capital are held by the Group’s bankers as security for the bank overdrafts and secured loans. Interest is paid on all loans at commercial rates at a discount to Indicator Lending Rates. The effective interest rate on bank facilities at the balance sheet date was 6.8% (2012: 8.2%). Bank overdrafts are interest-only with no agreed repayment schedule. Bank loans are secured loans with varying terms. The fair value of borrowings approximates their carrying amounts. Borrowing terms, margins and credit risk factors approximate currently obtainable levels for similar facilities. 18. issued capital Consolidated Parent Entity 2013 2012 2013 2012 (a) Issued and paid up capital Ordinary shares 24,200 24,200 24,200 24,200 Balance brought forward Share issue Balance carried forward (b) Issued and paid up capital Number of shares Ordinary shares Balance brought forward Share issue Balance carried forward 24,200 - 24,200 24,200 24,200 24,200 - - - 24,200 24,200 24,200 31,008 31,008 31,008 31,008 31,008 - 31,008 31,008 31,008 31,008 - - - 31,008 31,008 31,008 In accordance with the Papua New Guinea Companies Act 1997 the shares have no par value. The Company’s securities consist of ordinary shares which have equal participation and voting rights. Steamships Annual Report 2013 85 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 19. related party disclosures (a) Parent entity The Group is controlled by John Swire & Sons (PNG) Limited, which owns 72.12% of the Company’s shares. The ultimate Holding Company is John Swire & Sons Limited, incorporated in England. (b) Interest in subsidiaries, associates and joint ventures: These are set out in notes 22, 23 and 24. (c) Directors: G.J. Dunlop, W.L.Rothery, T. Blackburn and S.C.Pelling are directors of John Swire & Sons (PNG) Limited. Dividends were received by those directors holding an interest in the Company as set out in the Directors’ Report. (d) Remuneration: Income received or due and receivable both by Directors and senior managers in connection with the management of the Group companies is shown in the Directors’ Report. The Group paid NIL (2012:K5.9M) to SCL Nominees Limited for management services. Key management personnel disclosure Consolidated Parent Entity 2013 2012 2013 2012 Wages and salaries Other short term benefits Long-term benefits Termination benefits Share-based payments (e) Material transactions: Sales of goods and services Associates & joint ventures Key Management Shareholders of associated companies Lease and rental income Associates & joint ventures Shareholders of associated companies Dividends received 9,386 1,126 313 - - 951 17 11,662 4,067 4,536 11,718 1,444 391 - - 4,818 - 29,507 4,146 - - - - - - - - - - - - - - - - - - - - - Subsidiaries, associates & Joint ventures 5,922 3,935 56,971 78,346 Management fees income Associates & joint ventures Royalty/license income Associates & joint ventures Purchase of goods and services Associates & joint ventures Other shareholders Shareholders of associated companies Management fees paid Other shareholders Container/charter hire fees Other shareholders 86 Steamships Annual Report 2013 868 843 1,206 1,460 (20,979) - (12,313) (25,272) (1,200) (4,184) (99) (259) - (8,340) - - - - - - - - - - - - - - notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 19. related party disclosures (continued) Consolidated Parent Entity 2013 2012 2013 2012 Finance cost Associates & joint ventures Other shareholders Fellow subsidiary of ultimate shareholder Dividends paid Other shareholders Shareholders of associated companies Loans to/(from) related companies Associates & joint ventures Other shareholders Shareholders of associated companies (504) - (1,169) (5,702) (49,198) (50,636) - 973 (367) (916) - (11,691) (57,025) (42,293) 5,000 (7,327) All transactions with related parties are made on normal commercial terms and conditions. Balances with related companies: Associates and joint ventures: Consort associates (note 11) Consort shareholders (note 17) Collins and Leahy (note 17) Basilok Ltd (note 17) Loans to related Companies: Colgate Pamolive Ltd (note 11) Harbourside Development Limited (note 11) Kelton Investments (note 11) (15,998) (15,000) - (160) 500 101,775 790 (11,859) (15,000) (973) (160) 500 47,000 790 - - - - - - - - - - - - - - - - - - - - - - - - 500 500 - - - - Subsidiary Companies (note 11) - - 5,212 5,215 Steamships Annual Report 2013 87 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 20. Reconciliation of profit after income tax to net cash inflow from operating activities Consolidated Parent Entity 2013 2012 2013 2012 Profit for the year Depreciation and impairment Dividend and interest income Net loss (gain) on sale of non-current asset Fair value adjustment on acquisition Fair value adjustment on financial assets Share of profit after tax of associates Change in operating assets and liabilities, net of effects from purchase of controlled entity (Increase)/decrease in trade debtors (Increase)/decrease in inventory (Increase)/decrease in deferred tax asset (Increase)/decrease in operating assets Increase/(decrease) in trade creditors (Decrease)/increase in other operating liabilities (Decrease)/increase in provision for income tax payable Increase/(decrease) in deferred tax liability 78,441 213,080 - 919 (35,467) 20,307 (9,697) (1,053) 9,487 (19,509) 36,029 (26,070) 3,631 (26,190) (7,300) 198,348 98,379 56,573 3,995 80,219 4,100 - (56,971) (78,346) (48,937) - 24,800 (14,188) 26,847 (18,047) - (14,048) 16,278 (8,172) (19,628) 25,234 - - - - - - - - - - - 134 - - 62 (4,130) 438 - - (4,841) 848 (668) - (1,009) Net cash inflow from operating activities 236,608 266,866 101 303 21. Retirement benefit plans The total cost of retirement benefits of the Group in 2013 was K11.1M (2012:11.1M). The Group participates in the National Superannuation Fund of Papua New Guinea, a multi-employer defined contribution fund, on behalf of all citizen employees with minimum employer and employee contribution rates established by legislation. The Group also contributes to a defined contribution superannuation plan on behalf of senior management. The defined contribution superannuation plan was established in 2002. The parent entity does not employ staff directly; consequently there was no charge during the year. 88 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 22. subsidiaries and transactions with non-controlling interests (a) Significant investments in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1 (c): Name of Entity Country of Incorporation Class of Shares Consort Express Lines Limited Papua New Guinea Ordinary Datec (PNG) Limited Papua New Guinea Ordinary Kavieng Port Services Limited Papua New Guinea Ordinary Kiunga Stevedoring Company Limited Papua New Guinea Ordinary Lae Port Services Limited Papua New Guinea Ordinary Laga Industries Limited Papua New Guinea Ordinary Madang Port Services Limited Papua New Guinea Ordinary Middle Fly Shipping Limited** Papua New Guinea Ordinary New Britain Shipping Limited** Papua New Guinea Ordinary Oro Agencies Limited Papua New Guinea Ordinary Pacific Rumana Limited** Papua New Guinea Ordinary Pacific Rumana Mobile Investments Limited Papua New Guinea Ordinary Pacific Towing (PNG) Limited Papua New Guinea Ordinary Port Services PNG Limited Papua New Guinea Ordinary Steamships Limited Papua New Guinea Ordinary Windward Apartments Limited Papua New Guinea Ordinary Equity Holdings* 2013 Equity Holdings* 2012 51 100 60 100 51 100 60 50 50 100 50 80 100 54 100 100 51 100 60 100 51 68 60 50 50 100 50 80 50 54 100 100 *The portion of ownership is equal to the proportion of voting power held. ** Consolidated by virtue of control over the operating decisions and returns. Shares in subsidiary companies have been stated at cost or fair value on acquisition less dividends received from pre-acquisition profits. The major non-controlling interest is in Consort Express Lines Limited. The loss after tax attributable to non controlling interest in this entity was K26.1M (2012:K5.4M profit) and the accumulated non-controlling interest in the entity at 31 December 2013 was K16.8M (2012:K43.0M). Consort Express Lines Limited paid a total dividend during 2013 of K0.6M (2012:K0.6M). Steamships Annual Report 2013 89 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 22. subsidiaries and transactions with non-controlling interests (continued) (b) Transactions with non-controlling interests On 1 October 2013, Steamships Trading Company Limited acquired the remaining 32% shares of Laga Industries Limited for a purchase consideration of K26.1M. The carrying amount of the non-controlling interest in Laga Industries on the date of acquisition was K17.1M. The group recognised a decrease in non-controlling interest of K17.1M. and a decrease in equity attributable to owners of the parent of K9.0M. The effect of changes in the ownership interest of Laga Industries on the equity attributable to owners of Steamships Trading Company Limited during the year is summarised as follows: Consolidated Parent Entity 2013 2012 2013 2012 Carrying amount of non-controlling interests acquired Consideration paid to non-controlling interests Excess of consideration paid recognised in the transactions with non-controlling interests reserve within equity 17,104 26,098 8,994 - - - - - - - - - 23. investment in associates (a) Movement in carrying amounts Opening value Share of profits before tax Income tax expense Dividends received/receivable Transfers/sales Closing value Consolidated Parent Entity 2013 2012 2013 2012 12,177 6,538 (2,184) (82) - 16,449 6,905 7,946 (2,478) (185) (11) 12,177 - - - - - - - - - - - - The equity method is used to account for all interests in associates on a consolidated basis. 90 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 23. investment in associates (continued) (b) Summarised financial information of equity accounted associates. The Group’s share of the results of its principal associates and its aggregated assets (including goodwill) and liabilities are as follows: 2013 Makerio Stevedoring Limited Nikana Stevedoring Limited Riback Stevedoring Limited United Stevedoring Limited 2012 Makerio Stevedoring Limited Nikana Stevedoring Limited Riback Stevedoring Limited United Stevedoring Limited Ownerships Interest % 23 23 25 12 Ownerships Interest % 23 23 25 12 Assets Liabilities Carrying Value Revenue Profit 842 1,247 182 110 660 1,137 462 329 118 207 17,499 2,881 14,618 10,997 4,014 172 138 34 2,022 15 19,760 3,311 16,449 13,810 4,354 Assets Liabilities Carrying Value Revenue Profit 937 1,090 330 158 607 932 580 442 287 175 14,732 4,124 10,608 10,242 4,997 403 373 30 2,551 9 17,162 4,985 12,177 13,815 5,468 The Stevedoring Companies provide stevedoring services to various shipping entities in the Group. All associated companies are incorporated and operate in Papua New Guinea. There are no contingent liabilities relating to the Group’s interest in the associates. Steamships Annual Report 2013 91 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 24. investment in joint ventures (a) Movement in carrying amounts Opening value Share of profits before tax Income tax expense Dividends received/receivable Transfers/sales (note 25) Closing value Consolidated Parent Entity 2013 2012 2013 2012 26,510 7,634 (2,291) (5,840) (10,991) 15,022 21,540 12,480 (3,760) (3,750) - 26,510 20,190 20,190 - - - - - - (139) - 20,051 20,190 The interest in joint ventures are accounted for in the financial statements using the equity method of accounting. (b) Information relating to the joint ventures are set out below. 2013 Assets Liabilities Ownerships Interest % Pacific Towing Limited (note 25) 100 - - Colgate Palmolive (PNG) Limited Harbourside Development 50 50 16,844 9,681 61,067 53,208 Carrying Value - 7,163 7,859 Revenue Profit - 4,637 32,766 - 706 - 77,911 62,889 15,022 32,766 5,343 2012 Pacific Towing Limited Colgate Palmolive (PNG) Limited Harbourside Development Ownerships Interest % Assets Liabilities Carrying Value Revenue Profit 50 50 50 14,238 16,652 3,544 8,695 51,671 43,812 10,694 17,508 7,957 7,859 35,627 - 4,733 3,987 - 82,561 56,051 26,510 53,135 8,720 Pacific Towing Limited became a wholly owned subsidiary during the year. Colgate Palmolive (PNG) Limited is a long held investment providing investment returns to the Group. Harbourside Development is a property development company that is currently developing a commercial investment property in Port Moresby. The Group’s share of the capital commitments at 31 December 2013 is K43.5M (2012:K89.1M). There are no contingent liabilities arising from the Group’s interests in joint ventures. Joint ventures have been presented separately from associates consistent with IFRS 11 and 12 which became effective 1 January 2013. 92 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 25. Business combinations 2013 Acquisition of the remaining shares of Pacific Towing Limited On 1 December 2013, the Group acquired a further 50% of the issued share capital, and obtained control, of Pacific Towing Limited. Together with the 50% of the issued share capital already held, this gave Steamships Trading Company Limited control of 100% of Pacific Towing Limited. Pacific Towing Limited is a company incorporated in Papua New Guinea whose business includes harbor tug boat operations, tug boat charter, diving and marine salvage activities. Recognised amounts of identifiable assets acquired and liabilities assumed Cash Trade & other receivables Inventories Property, ships and equipment Deferred tax asset Trade payables Accruals and provisions Net identifiable assets acquired Goodwill arising Total consideration Satisfied by: Cash consideration Existing interest at fair value Net cash outflow arising on acquisition: Cash consideration Less: cash and cash equivalents acquired Cash outflow per cash flow statement Fair value 3,086 20,250 984 18,004 1,572 (2,149) (10,997) 30,750 67,331 98,081 51,621 46,460 98,081 51,621 3,086 48,535 The carrying value of the Group’s 50% interest in Pacific Towing Limited before the acquisition was K11.0M. The Group recognised a gain of K35.5M as a result of remeasuring this interest, which is included in other income in the consolidated income statement. The goodwill arising on the acquisition of Pacific Towing Limited amounting to K67.3M (which is not tax-deductible) consists of the benefit of port access and relationships with customers, none of which is subject to contractual arrangements. Acquisition related costs (included in operating expenses) in the consolidated statement of comprehensive income for the year ended December 31, 2013 amounted to K0.7M. The acquisition of the controlling interest in Pacific Towing Limited contributed K2.6M revenue and K0.5M profit before tax to the Group’s results for the period between the date of acquisition and 31 December 2013. Steamships Annual Report 2013 93 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 25. Business combinations (continued) Acquisition of Kimbe Shipping and Transport On 1 March 2013, the Group acquired, through New Britain Shipping Ltd, the trade and fixed assets of Kimbe Shipping and Transport Limited, as road transport operator and container storage, equipment hire and workshop services provider. The acquisition complimented the Group’s presence in Kimbe. Recognised amounts of identifiable assets acquired and liabilities assumed Property and equipment Net identifiable assets acquired Goodwill arising Total consideration Satisfied by: Cash consideration Contingent consideration Total purchase consideration Net cash outflow arising on acquisition: Cash consideration Less: cash and cash equivalents acquired Cash outflow per cash flow statement Fair value 9,000 9,000 9,000 18,000 18,000 - 18,000 18,000 - 18,000 The goodwill of K9.0M is attributable to the increased market access in New Britain. It is not tax-deductible. The acquisition contributed K7.5M in revenue and K0.2M in profit before tax to the Groups results for the period between the date of acquisition and 31 December 2013. other If the acquisition of the additional shares in Pacific Towing Limited and the acquisition of the Kimbe Shipping and Transport business had occurred at the beginning of the year, the consolidated revenue and profit before tax of the Group would have been higher by K31.7M and K6.7M respectively. 2012 There were no acquisitions in the year ending 31 December 2012. 94 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 26. segmental reporting (a) Description of segments The Board considers the business from a product perspective and have identified four reportable segments. A brief description of each segment is outlined below: • • • • Commercial – consists of the retail arm of the Group and is involved in the manufacture and distribution of food products and general IT retail sales and service. Hotels and property – consists of the hotels owned and operated by the Group and also its property leasing division. The assets are stated at historical cost net of accumulated depreciation and includes new assets in the course of construction. Logistics – consists of shipping and land based freight transport and related services divisions. Finance and investment – consists of the head office administration function. (b) Segment information The segment information provided to the Board for the reportable segments for the year ended 31 December 2013 is as follows: 2013 External revenue Intersegmental revenue Interest revenue Interest expense Depreciation and amortisation Impairment losses Gain on sale of properties Fair value loss on financial asset Commercial Hotels & Property Logistics Finance & Investment Total 229,434 995 - (8) (7,023) (2,487) - - 260,270 39,564 - (7) (40,808) - - - 441,093 12,502 34 (5,773) (57,364) (103,940) - - 137 - 72 930,934 53,061 106 (12,008) (17,796) (1,458) (106,653) - - (106,427) - (20,307) (20,307) Segment results (16,456) 133,160 (57,707) 21,677 Share of joint ventures and associate’s profit Total tax expense Profit from continuing operations Segment assets Segment liabilities Net assets 706 4,057 (11,693) 122,155 21,599 100,556 - (35,807) 97,353 822,810 40,699 782,111 8,991 19,122 - 698 (29,594) 22,375 80,674 9,697 (11,930) 78,441 443,560 122,754 320,806 177,850 641,400 (463,550) 1,566,375 826,452 739,923 Total assets includes investments in joint ventures and associates of 7,162 - 16,450 7,859 31,471 Capital expenditure 13,425 118,297 117,998 926 250,646 Steamships Annual Report 2013 95 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 26. segmental reporting (continued) Commercial Hotels & Property Logistics Finance & Investment Total 2012 External revenue Intersegmental revenue Interest revenue Interest expense 259,003 2,748 72 (30) 261,546 36,878 - (718) Depreciation and amortisation (7,643) (38,416) Impairment Losses Gain on sale of properties Fair value loss on financial asset Segment results Share of joint ventures and associate’s profit Total tax expense Profit from continuing operations Segment assets Segment liabilities Net assets - 97 - 13,706 3,988 (4,112) 13,582 143,056 24,336 118,720 - 48,465 - 227,305 - (68,191) 159,114 669,796 7,759 662,037 465,761 18,995 63 (5,593) (46,931) (4,000) 211 - 36,808 10,200 (11,042) 35,966 480,609 164,516 316,093 - - - (15,304) (1,389) - 164 (24,800) (12,245) - 1,931 (10,314) 986,310 58,621 135 (21,645) (94,379) (4,000) 48,937 (24,800) 265,574 14,188 (81,414) 198,348 198,190 533,540 (335,350) 1,491,651 730,151 761,500 Total assets includes investments in joint ventures and associates of 7,957 - 22,871 7,859 38,687 Capital expenditure 13,670 101,382 85,116 2,478 202,646 These figures include non-controlling interests share of operating profits and assets. (c) Geography The Group operates almost wholly in Papua New Guinea. It is not practical to provide a segment analysis by geographical region within Papua New Guinea. The Group has one insignificant business operation in the Solomon Islands. 96 Steamships Annual Report 2013 notes to the FinAnCiAL stAtements Steamships Trading Company Limited Year ended 31 December 2013 (Amounts in Kina 000’s) 27. contingent liabilities There were contingent liabilities at the Balance Sheet date as follows: (a) The parent entity has given a secured guarantee in respect of the bank overdrafts of certain subsidiaries. (b) The parent entity has given letters of continuing financial support in respect of certain subsidiaries, associates and joint ventures. No losses are anticipated in respect of these guarantees. 28. commitments (a) Capital commitments Contracts outstanding for capital expenditure: - less than 12 months - 1-5 years (b) Lease commitments: group as lessee Consolidated Parent Entity 2013 2012 2013 2012 47,400 - 47,400 127,126 3,716 130,842 - - - - - - The Group leases various properties under non-cancellable operating leases. The leases have varying terms and renewal rights. On renewal, the terms of the lease are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years 5,075 449 - 5,524 6,390 24 - 6,414 - - - - - - - - 29. subsequent events On 1 January 2014 Palm Stevedoring and Transport Limited was established with operations in Alotau, of which Steamships Trading Company holds a 33% share, Consort Express Lines Limited a 33% share and an external party 33%. In February 2014 the Directors declared a final dividend of 135 toea per share payable immediately after the Annual General Meeting on 19 May 2014. Steamships Annual Report 2013 97 inDePenDent AUDitoR’s RePoRt to the shareholders of Steamships Trading Company Limited Report on the financial statements We have audited the accompanying financial statements of Steamships Trading Company Limited (the Company), which comprise the balance sheets as at 31 December 2013, the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 December 2013 or from time to time during the financial year. Directors’ responsibility for the financial statements The Directors are responsible for the preparation of these financial statements such that they give a true and fair view in accordance with generally accepted accounting practice in Papua New Guinea and the Companies Act 1997 and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal controls relevant to the Company and the Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. opinion In our opinion, the accompanying financial statements: 1. 2. comply with International Financial Reporting Standards and other generally accepted accounting practice in Papua New Guinea; and give a true and fair view of the financial position of the Company and the Group as at 31 December 2013, and their financial performance and cash flows for the year then ended. 98 Steamships Annual Report 2013 inDePenDent AUDitoR’s RePoRt to the shareholders of Steamships Trading Company Limited report on other legal and regulatory requirements The Companies Act 1997 requires in carrying out our audit we consider and report on the following matters. We confirm in relation to our audit of the financial statements for the year ended 31 December 2013: 1. we have obtained all the information and explanations that we have required; 2. 3. in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records; and we have no relationship with, or interests in, the Company or any of its subsidiaries other than in our capacities as auditor, taxation advisor, and reviewer on specific human resources matter. These services have not impaired our independence as auditor of the Company and the Group. restriction on distribution or use This report is made solely to the Company’s shareholders, as a body, in accordance with the Companies Act 1997. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditor’s report and for no other purpose. We do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed. PricewaterhouseCoopers Grant Burns Partner Port Moresby 28 March 2014 Stephen Beach Partner Registered under the Accountants Registration Act 1996 Steamships Annual Report 2013 99 DiReCtoRs’ RePoRt Steamships Trading Company Limited Year ended 31 December 2013 steamships trading company Limited and subsidiary companies The Directors submit their Annual Report for the year ended 31 December 2013 for the Company and its subsidiaries. Principal activities and review of operations Full details of the Group’s activities are given in the Directors’ Review on page 12. The Group continues to operate in the segments of Commercial, Hotels and Property and Logistics. The Directors believe that there will be no significant changes in the Group’s activities for the foreseeable future. changes in accounting Policies There are no changes in Accounting Policies in the year. result The Group operating profit for the year attributable to shareholders was K117,050,000 (2012: K177,700,000). dividend The Directors advise that a final dividend of 135 toea per share will be paid immediately after the Annual General Meeting on 19 May 2014. The exchange rate Kina to Australian Dollar applying on 1 May 2014 will be used to calculate the dividends to shareholders resident outside Papua New Guinea. rounding off Amounts in the Directors’ Report and accounts have been rounded off to the nearest thousand Kina. 100 Steamships Annual Report 2013 DiReCtoRs’ RePoRt Steamships Trading Company Limited Year ended 31 December 2013 experience & interests register Directors have disclosed the following experience and interests in shares in the Company and provided general disclosure of companies in which the Director is to be regarded as interested as set out below: W.L. rothery Member of the Remuneration Committee Member of the Strategic Planning Committee Director since 1997 Chairman since 2006 Mr Rothery is Chief Executive and a Chairman of John Swire & Sons Pty Ltd, as well as a Director of several other Swire subsidiary companies. He has been with the Swire Group for 34 years and has been based in Asia, the Middle East and for 24 years in Australia. g. aopi cBe Director since 1997 Mr Aopi is an Executive Director of Oil Search Ltd, where he is also Executive General Manager of External & Government Affairs and Sustainability. He has substantial public service and corporate experience in Papua New Guinea currently serving as the Chairman of the PNG Chamber of Mines and Petroleum. He is a Director of Port Moresby Stock Exchange Ltd, Marsh Ltd, Bank of South Pacific Limited, CDI Foundation, Wahinemo Ltd and various other private companies. He is a former Chairman of Telikom PNG Ltd and Independent Public Business Corporation. t. Blackburn Director since 2011 Mr Blackburn is Managing Director of The China Navigation Company Pte Ltd (a Swire Group company) and Chairman of Mandarin Shipping Ltd and a Director of Altus Logistics Pte Ltd. He was Director & General Manager (2009-2011) of Hong Kong Aero Engine Services, a Director of James Finlay Ltd (2005-2009) and from 1994 to 2005 worked for various subsidiaries and associates of John Swire & Sons Ltd, including Steamships Shipping & Transport. sir michael Bromley KBe Member of the Audit and Risk Committee Member of the Remuneration Committee Member of the Strategic Planning Committee Director, 1986 to 1996 Director since 2000 Sir Michael Bromley has extensive international business experience from over 40 years of operating and advising companies in countries including Singapore, Indonesia, Australia, Russia, China and Papua New Guinea, principally in retail and logistics operations. He is Chairman of Heli Niugini Ltd and AAB Holdings Pty Ltd, and a Director of Pegasus Print Group Pty Ltd, Fasteners & More Pty Ltd, New Guinea Energy Limited, Sonway Asia Ltd, Chemica Ltd, Sig No.1 Ltd, Glock No. 1 Ltd, Broman Ltd, Maps Tuna Ltd, Sek No. 35 Ltd, Hoia Investment Ltd and Venture Ltd. Beneficial Shares Held: 5% d.H. cox oL Managing Director 2004 to 2012 Director since 2003 Mr Cox joined Steamships as a Manager in 1992, rising to become Managing Director from 2004-2012. He has extensive experience in the PNG business environment. He is also a Director of Telikom PNG Ltd. Steamships Annual Report 2013 101 DiReCtoRs’ RePoRt Steamships Trading Company Limited Year ended 31 December 2013 g.L. cundle Managing Director from 2013 Director from 2013 Mr Cundle was appointed Steamships Managing Director on 1 January 2013. He joined the Swire Group in 1979 and has extensive corporate experience having worked with the Group in various divisions in Hong Kong, Australia, Korea, Japan and Papua New Guinea. He was a Non-Executive Director of Steamships in 2006-2007 and Steamships Shipping General Manager from 1989-1992. He is a director of various Steamships Trading Company subsidiaries, joint ventures and associated companies. g.J. dunlop Member of the Audit and Risk Committee Member of the Strategic Planning Committee Managing Director 2000 to 2003 Director since 1995 Mr Dunlop is a chartered accountant with extensive experience in the Pacific region. He is a Director of John Swire & Sons (PNG) Ltd and Group companies, City Pharmacy Group Ltd, Credit Corporation (PNG) Ltd, Hardware Haus Pty Ltd and Mainland Holdings Ltd. J.W.J. Hughes-Hallett cmg, sBs Director since 2010 Mr Hughes-Hallet originally joined the Swire Group in 1976 and has extensive corporate experience through working with the Group in Hong Kong, Taiwan, Japan, Australia and London. He is Chairman of John Swire & Sons Ltd and a Director of Swire Pacific Ltd, Cathay Pacific Ltd, Swire Properties Ltd and HSBC Holdings Ltd. Lady Winifred Kamit cBe Chairperson of the Audit and Risk Committee Director since 2005 Lady Winifred Kamit is a former Senior Partner, and currently a consultant at Gadens Lawyers in Port Moresby. She is a Councillor of the Papua New Guinea Institute of National Affairs and Chairperson of Coalition for Change PNG. She is a Director & Secretary of Bunowen Services Ltd and Gadens Administration Services Ltd, and a Director of Newcrest Mining Ltd, Nautilus Minerals Niugini Ltd, Kamchild Ltd and ANZ Banking Group (PNG) Ltd. s.c. Pelling Finance Director & Company Secretary Mr Pelling is a chartered accountant who was previously Finance Director for agricultural operations in Africa with James Finlay Ltd, a wholly-owned subsidiary of John Swire & Sons Ltd. He is a Director of John Swire & Sons (PNG) Ltd and various Steamships Trading Company subsidiaries, joint ventures and associated companies. 102 Steamships Annual Report 2013 DiReCtoRs’ RePoRt Steamships Trading Company Limited Year ended 31 December 2013 remuneration of directors Directors remuneration received or receivable from the Company as directors during the year, is as follows: W.L. Rothery D.H. Cox OL G. Aopi, CBE T Blackburn Sir Michael Bromley, KBE G.L Cundle * G.J. Dunlop J.W.J Hughes- Hallett CMG, SBS Lady Winifred T. Kamit, CBE S. C. Pelling * 2013 K’000 211 84 - 84 84 211 - - 169 84 148 - - 2012 K’000 211 84 84 211 169 84 148 * Managing Director and Finance Director receive no fees for their service as Directors during the year. remuneration of employees The number of employees whose remuneration and other benefits was within the specified bands are as follows: Remuneration K’000 2013 no. 2012 no. Remuneration K’000 2013 no. 2012 no. Remuneration K’000 2013 no. 2012 no. 110-120 120-130 130-140 140-150 150-160 160-170 170-180 180-190 190-200 200-210 210-220 220-230 230-240 240-250 250-260 260-270 270-280 280-290 290-300 300-310 310-320 330-340 350-360 - 12 12 9 9 6 3 5 8 5 1 6 3 8 4 5 3 2 2 1 1 5 3 1 1 5 3 9 4 5 6 3 4 2 4 5 6 2 - 3 2 5 1 - 1 1 360-370 370-380 380-390 390-400 400-410 410-420 420-430 430-440 440-450 450-460 460-470 470-480 480-490 490-500 510-520 520-530 530-540 540-550 550-560 560-570 570-580 590-600 600-610 1 3 4 - 3 2 2 1 - 1 1 3 - - 3 2 - 1 3 - 2 - - 3 1 2 4 5 2 1 5 2 3 2 - 3 2 1 1 3 - - 1 - 2 4 610-620 630-640 650-660 660-670 670-680 680-690 690-700 740-750 750-760 770-780 790-800 830-840 840-850 880-890 890-900 920-930 940-950 1,020-1,030 1,050-1,060 1,120-1,130 1,660-1670 1 1 1 2 - 2 - 1 3 1 - 1 1 1 - - 1 - 1 - 1 - - 1 - 1 2 1 - - 1 1 - - - 1 1 - 1 - 1 - In addition, an amount of NIL (2012:5.9M) was paid to SCL Nominees Limited for management services. Details of auditors’ remuneration and donations are shown in Note 3 to the accounts. For and on behalf of the Board: Port Moresby 28 March 2014 W. L Rothery Chairman G.L. Cundle Managing Director Steamships Annual Report 2013 103 STOCK ExCHANGE INFORMATION Steamships Trading Company Limited Year ended 31 December 2013 Shares are listed on the Australian Securities Exchange and the Port Moresby Stock Exchange. All shares carry equal voting rights. shareholdings At 15 February 2014, there were 422 shareholders. 315 Holding Holding 80 Holding 14 Holding 13 1 1,001 5,001 10,001 - - - - 1,000 units 5,000 units 10,000 units and over 6 shareholders held less than a marketable parcel. The 20 largest shareholders were: Number of shares John Swire & Sons (PNG) Limited Bell Potter Nominees Ltd National Superannuation Fund Ltd John E Gill Operations Pty Ltd Kelvinside Pty Ltd Malcolm Burns Reid Mr Ramesh Mahtani Hylec Investments Pty Ltd Intercontinental Assets Pty Ltd Capital Nominees Limited Bryce Family Super Fund Engoordina Pty Ltd Derrick Charles Whitaker Jennifer May Forbes Miss Shirin Moayyad Custodial Services Limited Mary Patricia Haughton Mrs Judith Scottholland Citicorp Nominees Pty Limited Mrs Robyn A Gostelow 22,362,651 6,201,000 1,859,446 54,727 25,000 22,867 21,700 20,494 15,000 12,767 12,243 11,078 10,348 10,000 10,000 8,768 8,161 8,161 8,112 7,393 30,689,916 % 72.12 20.00 6.00 0.18 0.08 0.07 0.07 0.07 0.05 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.02 98.97 applicable Legislation The Company is incorporated in Papua New Guinea and is not generally subject to Australian Corporations Law including, in particular, Chapter 6 of the Australian Corporations Law dealing with the acquisition of shares (including substantial shareholdings and takeovers). The Company is subject to the requirements of the Papua New Guinea Companies Act 1997, Securities Act 1997 and the Takeovers Code. The Companies Act and the Securities Act regulate the issue and buy-back of shares and contain provisions as to the trading in securities, provisions as to financial benefits to related parties, substantial shareholders provisions, remedies in cases of oppression or injustice and actions by, and access to, records by shareholders. The Takeovers Code regulates offers where a person already holds more than 20% of the voting rights in a company or where a person becomes the holder of more than 20% of the voting rights in a manner permitted by the Code. A code offer, which can either be a full offer or a partial offer, must be extended to all holders of voting securities in the Company. The Code also contains compulsory purchase and sale provisions if more than 90% of the shares are acquired under an offer. 104 Steamships Annual Report 2013 Steamships Annual Report ComPAnY DiReCtoRY cHairman W. L. Rothery §& executiVe directors managing director G. L. Cundle, § Finance director S. C. Pelling non-executiVe directors G. Aopi, CBE T. Blackburn Sir Michael Bromley, KBE §+& G. J. Dunlop +& J.W.J Hughes- Hallett CMG, SBS Lady W. T. Kamit, CBE + D. Cox OL (Managing director to 31/12/12) + Member of the Audit and Risk Committee § Member of the Remuneration Committee & Member of the Strategic Planning Committee secretary S. C. Pelling registered oFFice Champion Parade Telephone: +675 322 0222 P.O. Box 1 Port Moresby Papua New Guinea auditors PricewaterhouseCoopers P.O. Box 484 Port Moresby Papua New Guinea sHare registrars Computershare Investor Services Pty Limited GPO Box 2975 Melbourne VIC 3001 AUSTRALIA Telephone: (Aus) 1300 85 05 05 (Overseas) Fax: +61 (0)3 9415 4000 +61 3 9473 2500 stocK excHange Shares are listed on both the Port Moresby Stock Exchange Limited and the Australian Securities Exchange Limited. a. r. B. n. 055 836 952 Steamships Annual Report 2013 105 106 Steamships Annual Report 2013 

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