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Annual Report 2019

Plain-text annual report

ANNUAL REPORT | 2019 CONTENTS Brief Profile of Steamships Group . . . . . . . . . . . . . 2 Financial Highlights . . . . . . . . . . . . . . . . . . . . 4 Chairman’s Report . . . . . . . . . . . . . . . . . . . . . 6 Directors’ Review . . . . . . . . . . . . . . . . . . . . 10 Review of Operations - LOGISTICS . . . . . . . . . . . 12 Consort Express Lines . . . . . . . . . . . . . . . 12 Pacific Towing . . . . . . . . . . . . . . . . . . . 14 Joint Venture Port Services . . . . . . . . . . . . . 15 East West Transport . . . . . . . . . . . . . . . . 16 Review of Operations - PROPERTY . . . . . . . . . . . 17 Coral Sea Hotels . . . . . . . . . . . . . . . . . . 17 Pacific Palms Property . . . . . . . . . . . . . . . 18 Sustainability . . . . . . . . . . . . . . . . . . . . . . . 20 Corporate Governance . . . . . . . . . . . . . . . . . . 21 Financial Section . . . . . . . . . . . . . . . . . . . . . 22 Statements of Comprehensive Income . . . . . . . 22 Statements of Changes in Equity . . . . . . . . . . 23 Statements of Financial Position . . . . . . . . . . 24 Statements of Cash Flows . . . . . . . . . . . . . 25 Notes to the Financial Statements . . . . . . . . . 26 Independent Auditor’s Report . . . . . . . . . . . 64 Directors’ Report . . . . . . . . . . . . . . . . . . 70 Stock Exchange Information . . . . . . . . . . . . 75 Company Directory . . . . . . . . . . . . . . . . . . . IBC Steamships Annual Report 2019 1 BRIEF PROFILE OF THE STEAMSHIPS GROUP Steamships Trading Company (Steamships) is a committed investor and is celebrating over 100 years of business operations in Papua New Guinea. The Group is a well-established business conglomerate with diverse commercial interests and listings on both the Australian and PNG Stock Exchanges . Steamships has a vision to build a valuable and profitable business that is widely respected as being the best group to work for and with which to do business . Customer Focus – Our customers are the final judges of our success or failure . We understand and respond to the needs of our customers . People Development – We value a working environment that fosters innovation and encourages personal development and learning . 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 . 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 . • • • Steamships is aware of its prominent 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 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 and satisfaction of its customers, the local communities and the environment in which it operates . Steamships is still showing it has the resources and capacity, vision and capability to meet the dynamic needs of a growing country. 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 over 2,600 PNG citizens and non- citizens in diverse divisions grouped under the operating categories of Logistics, Property and Commercial & Investments . Steamships core values include the following: • • • Safety – We prioritise safety awareness and compliance to ensure our business operations are conducted safely. 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. 2 Steamships Annual Report 2019 BRIEF PROFILE OF STEAMSHIPS GROUP STEAMSHIPS’ ORGANISATIONAL STRUCTURE STEAMSHIPS TRADING COMPANY LOGISTICS PROPERTY COMMERCIAL & INVESTMENTS Consort Express Lines Pacific Towing EastWest Transport Port Services Pacific Palms Property Coral Sea Hotels Colgate Palmolive JV X5 Associate Port Services Co’s JV Port Services (x9 JV LO Entities) Harbourside Development JV Croesus (x3 entities) Pacific Rumana JV Wonye JV Viva No 31 JV Steamships Annual Report 2019 3 FINANCIAL HIGHLIGHTS 2019 FINANCIAL HIGHLIGHTS (including discontinued operations) 2019 K’000 2018 K’000 Change % Revenue (including discontinued operations) Profit attributable to shareholders Cash generated from operations Net cash inflow/(outflow) before financing Shareholders’ funds External Borrowings Earnings per share (toea) Dividends per share (toea) Shareholders’ funds per share (kina) Underlying profit attributable to shareholders Underlying earnings per share (toea) Gearing ratio Interest cover Dividend cover 585,168 49,995 111,855 648,106 69,529 116,682 42,656 278,817 920,305 885,043 373,579 319,565 161 80 28.54 31,505 102 224 165 29.68 43,304 140 19.5% 16% 7.7 9.0 1.1 2.6 10% -28% -4% -85% -4% -14% -28% -52% -4% -27% -27% -8% 8% -58% 4 Steamships Annual Report 2019 FINANCIAL HIGHLIGHTS SUMMARY OF PAST PEFORMANCE 2010 K’000 2011 K’000 2012 K’000 2013 K’000 2014 K’000 2015 K’000 2016 K’000 2017 K’000 2018 K’000 2019 K’000 INCOME STATEMENT (including discontinued operations) Profit before tax Share of associates profit Income tax expense Minoirty interests Net profit attributable to shareholders Depreciation transfer Equity adjustment Dividends paid or provided for the year Earnings retained this year - - (31,008) 85,437 (1,061) - (58,916) 98,284 180,834 233,967 265,574 3,843 14,188 13,859 11,416 (14,042) (38,487) (81,414) (67,727) (53,935) (11,490) (21,870) 38,609 (20,648) (21,838) 88,655 116,445 158,261 177,700 114,011 (37,710) (2,415) 98,979 79,747 134,789 136,042 118,686 3,062 5,865 9,697 62,686 7,525 (35,677) (32,621) 3,926 (4,664) 41,516 84,210 - - (88,373) 89,327 - - (8,994) - (57,365) (43,411) 45,244 47,652 - - 2,206 - - - (40,291) (32,559) 8,957 43,919 (48,062) 53,123 112,493 5,628 61,284 5,010 (54,420) (18,928) 2,629 49,995 5,828 69,529 - - - - (26,357) (44,962) 5,033 43,172 Underlying profit attributable to shareholders (adjusted for significant items) 113,597 153,566 156,213 128,367 108,808 80,651 71,721 61,775 43,304 31,505 BALANCE SHEET SHARE CAPITAL & RESERVES Issued Capital Retained Earnings Shareholders’ funds Non-Controlling Interests EQUITY Fixed Assets / Investment Properties Investments in Associated Companies Future Income Tax Benefit Goodwill Other assets TOTAL ASSETS 24,200 24,200 24,200 24,200 24,200 428,157 554,349 652,978 896,105 860,843 452,357 578,549 677,178 713,977 735,964 789,087 833,006 841,964 920,305 885,043 24,200 24,200 689,777 711,764 764,887 808,806 817,764 24,200 24,200 24,200 62,851 17,747 515,208 653,914 761,500 736,884 766,737 836,602 881,837 878,154 940,028 902,790 47,515 48,831 19,723 75,365 22,907 36,190 84,322 30,773 786,510 938,709 1,023,861 1,066,393 1,115,123 1,072,955 1,068,892 997,125 38,687 28,445 67,196 15,416 31,471 30,250 - - 9,282 21,081 93,617 80,002 17,183 17,183 17,183 352,549 366,479 400,480 284,200 294,800 294,203 299,634 411,920 890,576 970,928 41,586 65,276 2,311 1,683 76,433 76,433 470,810 360,385 1,122,595 1,283,971 1,491,651 1,565,111 1,628,807 1,627,298 1,536,708 1,469,373 1,504,778 1,451,643 36,458 66,445 36,914 36,680 80,491 80,491 33,193 33,521 80,491 Current Liabilities Non-Current Liabilities TOTAL LIABILITIES 352,541 148,286 273,055 283,445 370,396 334,331 346,612 359,755 212,209 400,567 607,386 630,057 730,151 828,227 862,070 790,696 654,871 591,219 564,750 548,853 230,390 190,621 541,292 184,646 221,560 597,837 671,449 249,404 470,225 369,659 NET ASSETS 515,208 653,914 761,500 736,884 766,737 836,602 881,837 878,154 940,028 902,790 RATIOS Current assets to current liabilities 1.08 89.7% Borrowings to shareholders funds 44.0% Gearing 16.06 Tangible net asset backing per share (Kina) 14.7% Net profit to revenue % 25.7% Net profit to shareholders’ funds % Underlying profit to shareholders’ funds % 25.1% 100 Dividends per share (toea) 376 EPS (toea) 366 Underlying EPS (toea) 73.4% Earnings retained % 1.06 70.1% 38.3% 20.53 17.2% 27.4% 26.5% 190 510 495 62.1% 1.11 72.6% 39.2% 24.00 18.0% 26.2% 23.1% 285 573 504 50.3% 1.53 89.7% 46.5% 20.75 12.2% 16.0% 18.0% 185 368 414 41.8% 1.92 95.2% 47.8% 22.13 9.4% 12.0% 14.8% 140 286 351 51.0% 0.74 81.7% 43.1% 24.38 12.8% 12.5% 10.2% 155 319 260 53.7% 1.16 57.0% 34.6% 25.84 11.5% 10.1% 8.6% 130 272 231 52.2% 1.00 50.2% 33.1% 25.74 5.9% 4.9% 7.3% 110 134 199 21.6% 1.15 39.7% 16% 27.85 11.1% 7.6% 4.7% 165 224 140 62.1% 1.83 35.4% 19.5% 26.65 8.5% 5.6% 3.6% 80 161 102 10.1% 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 2019 5 CHAIRMAN’S REPORT On 22nd March 2020, the Office of the Prime Minister declared a State of Emergency in Papua New Guinea, for a period of 14 days, as a result of the global COVID-19 virus pandemic . Although there are no reported cases present in PNG at present, there has inevitably been an impact on businesses operating in the country with increased regulatory restrictions and a reduction in demand for goods and services . Steamships is working tirelessly to continue operating essential services to customers and has the management expertise and resources to manage through the crisis. That said, the extent of the economic impact of the virus, globally and in PNG is unknown and will inevitably depend on the rate of infection and the government responses thereto, both globally and in PNG, and how and when demand returns . Further commentary on the impact of covid-19 on each of our divisions is set out in the Review of Operations on page 12 to 19 and in note 30 to the Accounts I now reflect on the performance of Steamships in 2019. After the euphoria in 2018, that saw Steamships celebrate 100 years in PNG since our incorporation and Port Moresby successfully hosting the APEC Leader’s Summit, 2019 was a challenging year for the country, and for Steamships, with a continuation of the weakness in demand throughout the economy. The lack of foreign currency continued to limit business activity and the Kina weakened further against the US Dollar. Government expenditure also remained constrained by the ongoing national budget deficit and debts from APEC going unpaid. The budget deficit creates short term pressure for the economy, which combined with uncertainty arising from the proposed legislation on foreign businesses and the current lacklustre investment, will likely see another difficult year for business in 2020, although there is broad cautious optimism for an improved economic environment in 2021 . However, much of the economic recovery relies on the launch of the long-awaited resource extraction projects at Wafi-Golpu and extension to the existing PNG LNG infrastructure . It was encouraging to see the agreement reached over Papua LNG in 2019 but this has turned to concern over continuing delays to an agreement for the P’nyang gas field, which appears to be in stalemate. These agreements, and the significant investment that results, would bring a much-needed boost to the economy. Steamships is also closely following the progress of other infrastructure investments, particularly road, port and airport facilities, as this infrastructure is much needed if the Government’s drive to promote agriculture and tourism is to succeed . Steamships looks forward to being at the forefront of opportunities that these investments will bring . 6 Steamships Annual Report 2019 Notwithstanding the Government’s supportive pro-business and foreign investment statements, the private sector remains concerned with the progress of legislative reform intended to balance the need to foster growth for local business and communities whilst continuing to encourage foreign investment . Coastal shipping continues to be a highly competitive market and the small improvements in volume were offset by pressures on rates and costs leading to another challenging year for the industry. Following the completion of the docking of the larger vessels during 2019, Consort Express Lines’ operational performance rebounded with vessel reliability and on-time performance significantly improved. Project and charter activity improved towards the end of the year, however, the docking of an ore carrier depressed results in the division. Of significance, in May 2019, Steamships bought out minority interests and amalgamated Consort Express Lines into Steamships Limited . As a result, a new management team was installed in September 2019 and is tasked with turning around the fortunes of Consort . Progress to date is encouraging, though prospects for 2020 and beyond are reliant on a pickup in the general economy. Pacific Towing had a satisfactory year, which included completing its first significant wreck removal; a container vessel in Fiji Harbour . Deep-sea towage work helped compensate for a softer harbour towage market, enabling a satisfactory result. East West Transport performed satisfactorily though prior year adjustments led to a disappointing result. The company remains committed to the logistics sector, and its customers, winning several significant contracts during the year. Pacific Palms Property continues to maintain high quality investments in strategic locations across PNG. Upgrades and renovation across the portfolio helped drive improved occupancy. There remains an oversupply in all sectors as demand remains soft, with both rents and occupancy levels under pressure. Despite the challenging market, Pacific Palms Property broke ground on its mixed use Harbourside CHAIRMAN’S REPORT Steamships Annual Report 2019 7 CHAIRMAN’S REPORT South project. The company continues to look for attractive investment opportunities in the property sector and eagerly awaits the introduction of strata title legislation that could help stimulate the market . PNG economy, whilst cautious and disciplined in facing the short-term challenges . As ever, Steamships aspires to contribute and participate in PNG’s economic and social development for many years to come. Coral Sea Hotel’s performance reflected a slow year of economic activity. The relatively low number of visitor arrivals and new capacity in the Port Moresby market continued to pose a challenge in 2019 . The Colgate Palmolive joint venture continued to benefit from the growing demand for high quality consumer household and personal care products . The recent report from Moody’s (March 2020) confirms a B2/ stable rating for PNG. Steamships welcomes this conclusion and remains confident in the medium-term prospects for the Steamships has maintained its investment in the training and development of its employees despite the economic slowdown. We strive to be well-positioned for the recovery in economic growth and our team will continue to grow Steamships and its contribution to PNG. I thank all our staff for their commitment and hard work, which have been and will remain critical to the success of Steamships . GL Cundle Chairman 31 March 2020 8 Steamships Annual Report 2019 CHAIRMAN’S REPORT Steamships Annual Report 2019 9 DIRECTORS’ REVIEW 2019 was a difficult year for PNG after the euphoria of hosting the APEC summit in late 2018. The economy remained weak in the absence of any progress on the much-needed investment in the resource sector and the uncertainty caused by the change of Government in May 2019 and the consequent significant readjustment of national debt further dampened sentiment. The National Budget presented in November 2019 projects 2020 will record the largest expenditure and budget deficit in PNG’s history. The ongoing shortage of foreign currency in PNG continues to suppress economic activity. Continued budget support from multilateral agencies will be essential and likely to entail economic reforms that will impair economic activity in the short term. capitalised interest) was K9.8 million against K10.3 million in 2018. Capital expenditure for the year was K93 million (with capitalised interest of K0.06 million) against K56.1 2019 was a challenging year for the private sector as a whole and Steamships diverse business activities being closely integrated to the domestic economy were not immune to the negative impacts of the slowdown . revenue Steamships’ sales from ongoing operations increased 1% to K585.1 million against last year’s K581.8 million, on a continuing basis with improved revenue for Consort offsetting declines for Pacific Palms Property & Coral Sea Hotels . Depreciation in 2019 was K82.3 million against K83 million in 2018, and net interest on borrowings (excluding million (with capitalised interest of K1.7 million) in 2018. The group’s net operating cash flow generation declined 4% to K111.8 million against K116.7 million in 2018. The cash balance at year end is K100.8m. A final dividend of 55 toea per share has been proposed and will be paid following approval at the company’s annual general meeting on the 17th of June 2020, subject to Steamships’ ability to secure foreign exchange for non PNG shareholders. This brings the total dividend for the year to 80 toea per share (2018 = 165 toea per share). The dividend is unfranked and there is no conduit foreign income . Net Profit attributable to shareholders 49,995 69,529 -28.1% Add back/(less) impact of significant items (post tax and minority interests) 2019 K000’s 2018 K000’s Change Impairment of Fixed Assets, Goodwill (incl Vessels) Tax Loss Write Off Hotel & Property Development Cost Write Off Gain on Sale of Laga Industries Loss on Disposal of Vessels Gain on Sale of Properties Salvage Profit Total impact of significant items 0 0 0 0 789 (16,910) (2,369) (18,490) 7,854 21,469 1,498 (48,584) 687 (984) (8,165) (26,225) Underlying profit attributable to shareholders 31,505 43,304 -27.2% 10 Steamships Annual Report 2019 Significant items The gain on sale of properties is principally attributable to the sale of a plot of land in Port Moresby by the Company to an associated company, Harbourside Developments Ltd, being the site for the new mixed-use development Harbourside South . Logistics Consort Express Lines embarked on a significant turnaround programme in 2019 in the face of a highly competitive and depressed coastal liner and projects shipping market . This has started to show results with improved fleet and schedule reliability and customer service. New systems and management have been introduced and Consort’s results are improving . While investment in the resource sector remains weak, the focus is on the liner service with opportunities for projects and charter work, hopefully forthcoming later in 2020 . The Joint Venture Port Services businesses had a steady performance in 2019, recovering from the loss of the International Terminal Operator concessions in Port Moresby and Lae in 2018 . JVPS now manages stevedoring and handling in 10 ports around PNG as well as an equipment hire business, providing a vital, safe and efficient operation for these communities, whilst providing an economic return to the local community shareholders. East West Transport continues to grow its fleet and range of services in a steady profitable manner, winning some key new business in 2019 and maintaining a strong customer and fleet reliability focus. Pacific Towing experienced a modest year in its principal harbour towage work across ports in PNG from its main base at the Motukea port in Port Moresby. External towage work provided steady work in 2019 with tugs deployed throughout the region. Diving and life raft activity were steady. The company was engaged in a number of successful salvage and wreck removal operations in the region in 2019 and has established a strong reputation in this area . Property & Hotels Pacific Palms Property experienced a reduction in rental rates in 2019 in the face of increased competition and was unable to achieve the occupancy levels of the prior year and profit fell as a result. In response to growing competition, an upgrade programme was undertaken in Port Moresby and Lae to maintain its quality leadership position. Construction DIRECTORS’ REVIEW of the Harbourside second phase, Harbourside South, with residential, commercial and retail space, commenced mid- year and is on track for mid-2022 opening. the reduction Coral Sea Hotels owns and manages nine properties in PNG and suffered from the increased capacity in Port Moresby coupled with international arrivals . Nevertheless, CSH is committed to remain competitive through a sustained focus on investment in its quality service offering, food and beverage as well the training and development of its staff . in Commercial and Investments Colgate-Palmolive, (PNG) Limited a PNG incorporated joint venture, saw volume and sales revenue growth across all three categories of Oral Care, Personal Care and Home Care. Overall margin for the business was slightly lower than budget. Overheads were prudently managed to finish below prior year and in line with budget. Trading Outlook The outlook for 2020 is obviously clouded by the impact of the COVID-19 pandemic, which is clearly a global crisis. Our businesses are responding well to the new environment in the face of a general decline in demand . It is not possible to estimate the financial impact on Steamships, as PNG and global economies react to the virus in the weeks and months ahead . We have enacted numerous initiatives, across the businesses, to give us the best possible set of outcomes in different scenarios and emerging from the crisis in good shape on the expectation that the crisis is well managed globally and we can consider a return to some form of normality. The attached financial statements for the year ended 31 December 2019 contain an independent auditors’ report which includes an emphasis of matter in regards to the potential impact of the COVID-19 pandemic on the group . For further information, refer to Note 1 to the financial statements, together with the auditors’ report. Whether the key resource projects proceed or not, 2020 will therefore be another challenging year for the PNG economy. We remain hopeful that the state of emergency is short lived and the resource projects will progress to binding agreements and subsequent significant investment that would be beneficial to the citizens of PNG and all the other stakeholders in the projects We remain firmly focused on the future and our commitment to the development of the country and people of PNG and the exciting opportunities that lie ahead . Steamships Annual Report 2019 11 REVIEW OF OPERATIONS - LOGISTICS CONSORT EXPRESS LINES Consort operates a fleet of 11 coastal vessels (six vessels dedicated to the liner trade and five shallow water landing craft and bulk carriers serving the projects market). 10 of the 11 vessels are PNG flagged and manned and are maintained in accordance with Lloyds Registry international standards. LINER SERVICES Consort consistently connects 14 ports around PNG. The Company has scheduled services to the North Coast, South Coast, New Guinea Islands, Bougainville and Western Province. Consort proudly serves the people of PNG by providing an important supply link to many of the communities on its routes. The Company carries 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 cargos to outports . In addition to owning and operating ships, Consort manages PNGs largest fleet of containers offering customers easy access to a wide range of container types. PROJECT CHARTERS Consort provides short and long-term vessel charters specialising in shallow water river shipping, and develops, intermodal implements and supports logistics solutions linked to land based services such as road transport, cargo handling, storage, agency, customs clearance, lay down areas and warehousing. Both the liner and the project and charters market remained soft in 2019. The positive economic outlook that existed in 2018 for 2019 did not materialise as investment in large- scale resource projects was pushed back . Domestic cargo volumes remained flat. non-core assets and functions . Management of properties with no direct relevance to the shipping businesses was transferred to Steamships property division, as too was the management of Consort’s four active stevedoring businesses transferred to Joint Venture Port Services . In May 2019, Steamships reached agreement with minority shareholders to acquire the outstanding shares of Consort . Consort was formally amalgamated into Steamships Limited at the end of the year, and is now a wholly owned division of Steamships . Consort continues to trade under its existing brand Consort Express Lines. This ownership change allowed Steamships to renew the management team, and in the third quarter, a new General Manager, a Chief Operating Officer, additional operational and commercial resources were brought in . Consort management is focused on its two core businesses of liner shipping and project shipping and has divested of Within Consort there has been renewed focus on the core operational pillars of liner shipping: safe operations, well- maintained vessels and equipment, operational excellence, on-time services, and customer-centricity. To those ends, certain internal functions have been consolidated into Lae, there has been a substantial re-investment in crew training and new digital systems have been implemented. Consort also invested in new cargo carrying equipment in Lae so that it could continue to meet the needs of its customers . In 2019, the Niugini Coast and Gazelle Coast followed their sister ship, the Bougainville Coast, into and out of dockyards in China. These ships provide the core of Consort’s liner 12 Steamships Annual Report 2019 REVIEW OF OPERATIONS - LOGISTICS CONSORT EXPRESS LINES network. The Kiunga Chief and Balimo Chief were also docked in Port Moresby. New reefer containers were bought and delivered from Northern China to help Consort meet the demand for cold storage shipments up and down the coast of PNG. Operational reliability is expected to remain at Q4 2019 levels after the dockings . The 2020 outlook is clouded by the uncertain impact of COVID-19 . At the time of writing, the vessels are busier than ever, helping domestic businesses stock up in anticipation of constrictions to their supply chains. COVID-19 notwithstanding, Consort is well-positioned to serve its customers in the current market with both its liner network and its project fleet substantially refreshed. The operational synergies between Consort’s two business divisions allow it to be operationally ready for the resource up-turn when it does arrive and to deal with the longer-term impacts of COVID-19 should they become severe. Consort remains ready to capitalise when the PNG economy does improve . Steamships Annual Report 2019 13 REVIEW OF OPERATIONS - LOGISTICS PACIFIC TOWING Pacific Towing is a market leader in the provision of a diverse range of marine services, enjoying a reputation for excellence and reliability. The company’s core services include towage, moorage, salvage, commercial diving, and life rafts (sales and servicing). Other Pacific Towing services include emergency response, video pipeline inspections, PLEM valve hook up and release, pollution prevention, and oil spill response. Pacific Towing is also increasingly sought out for its capacity to design, engineer and Significantly, the company introduced Melanesia’s only in-water hull cleaning service at the end of 2019 . implement customised project solutions . Pacific Towing is headquartered in Port Moresby, PNG, and operates 14 tugs and 10 associated support vessels and is a full member of the International Salvage Union and has fast responder salvage capability. Its capacity to respond and provide a range of salvage services is complemented via partnerships with organisations both within the Swire Group of companies (i.e., Swire Pacific Offshore, Swire Emergency Response Services), as well as those external to it (e.g., Perrott Salvage Pty Ltd). Pacific Towing experienced a slight decrease in harbour towing jobs undertaken in 2019 compared to 2018 owing to the declining vessel activity within Papua New Guinea. This was partially offset by revenue from non-harbour operations. These included a number of ocean tows and salvage and wreck removals, though the impact of this revenue has been offset by high operational costs. The company continued to expand its geographic footprint further into Oceania and South East Asia via a number of projects including the wreck removal of the container ship ‘Southern Phoenix’ off the coast of Fiji, as well as the open ocean towage of a barge from Micronesia to Indonesia . Pacific Towing purchased another tugboat late in 2019, increasing fleet numbers to 14 tugs and 10 associated support vessels in five ports across PNG (Port Moresby, Lae, Rabaul, Kimbe and Madang). An additional tug dedicated to harbour towage services is based in Honiara at the company’s Solomon Islands operation. Pacific Towing’s expanding fleet increased its towage service delivery capacity and the additional purchase of a barge (complete with a 150 tonne crane) greatly enhanced its salvage capabilities. The company maintained its business strategy of localisation and people development. 94% of Pacific Towing staff are PNG nationals and the company is led by a predominantly Papua New Guinean management team. Pacific Towing continued to invest in high quality staff training and development throughout the year. Pacific Towing expanded its relationship with Swire Pacific Offshore (SPO) by finalising the recruitment of another nine cadets who will commence their training at sea on SPO vessels in late 2020. The initial seven cadets who finished their sea training in 2019 will progress to the academic component of their cadetships . The Women in Maritime Scholarship Program partnership between Pacific Towing, the Australian Government’s Australia Awards and the China Navigation Company continued with great success throughout 2019 with training of the second intake of female cadets. The end of 2019 witnessed the commencement of the selection process for even more female cadets – a process due for completion in early 2020. Pacific Towing also signed a contract with the PNG Business Coalition for Women to implement ‘Gender Smart Safety’ – a workplace safety program designed to maximise the safety of female personnel. Operating to international standards, and well positioned throughout the Pacific Islands region, Pacific Towing expects underlying performance to remain solid in 2020, notwithstanding the uncertainty injected into the market by COVID-19 . 14 Steamships Annual Report 2019 REVIEW OF OPERATIONS - LOGISTICS JOINT VENTURE PORT SERVICES The group’s 10 Joint Venture Port Services (JVPS) businesses operate throughout the country including in the principal ports of Port Moresby, Lae as well as elsewhere on the mainland and on Bougainville, New Ireland and New Britain. The group expanded the number of local land owner joint ventures to 10 in 2019 and formed a new equipment hire company (JVHire Co). The core port businesses offer a full range of stevedoring and handling facilities in the major ports of PNG. With a fleet of specialist equipment, the businesses handle all types of containers, as well as project cargo, break-bulk, RO-RO, LO-LO, grains and cement. The stevedoring companies are joint ventures between Steamships and local landowner groups at the respective ports around the country. Each joint venture employs a local workforce and is structured in a manner so that a significant share of earnings is returned to the community in which the joint ventures operate . During 2019, JVPS took over four port operations from Consort, consolidating all 10 of Steamships’ stevedoring activities under the JVPS banner. As the country’s largest professional stevedore, JVPS brings to these operations a renewed focus on safety, professionalism and financial discipline . With soft across-the-wharf volumes, the focus in 2019 has been to improve customer service standards whilst reducing costs. Technology has been deployed including the introduction of live cargo updates direct into customers booking and inventory management systems, electronic payroll and increased levels of surveillance through digital solutions. This focus on safety and governance, coupled with high levels of productivity and professionalisms, continues to provide a point of difference between JVPS and its competitors . Individual companies mostly performed to expectations with the exception of Kiunga Port Services that was impacted by low water levels on the Fly River. Operations in the ports of Buka and Kieta in Bougainville suffered from low consumer and investor confidence brought about by the uncertainty surrounding the third quarter referendum on Bougainville’s future. The referendum passed peacefully, and JVPS did not experience any untoward interruption to its services. JVPS is the only group of stevedoring and handling companies in PNG to be ISO accredited for both Safety and Environment. The business continues to work hard to provide a seamless logistics solution for customers in PNG drawing on the combined strengths of Swire Shipping, Consort and East West Transport. Exclusive of the impact of COVID-19, which is far from certain at the time of writing, the businesses expects volumes in 2020 to be similar to last year for the outer ports with marginal growth in volumes in Port Moresby and Lae. Papua New Guinea remains a nation highly dependent on imports and the domestic shipping of basic goods. These necessitate a continued use of ports irrespective of concerns surrounding COVID-19 . After a slow start in 2019, JVPS expects the performance of the hire company to improve. Steamships Annual Report 2019 15 REVIEW OF OPERATIONS - LOGISTICS EAST WEST TRANSPORT intense. At the time of writing, the fleet was busier than ever helping businesses prepare for COVID-19, however, it remains unclear what the long-term impact of the virus will be on demand. Management have contingency plans in place to match capacity, up or down, to demand. East West Transport (EWT) is one of Papua New Guinea’s largest multifaceted transport and logistics companies, with ISO accreditation of 14001, Environmental Management, & 18001, Occupational Health & Safety. Based in Port Moresby, East West Transport has operations in Lae, Kimbe, Rabaul, Madang, Wewak, Alotau and Kavieng. The company has a sizable fleet of prime movers, heavy and light trucks, forklifts and reach stackers ranging from 2 .5 to 80 tons in capacity. All equipment is supported by localised workshop facilities, safety teams and emergency response teams and vehicles. EWT operates across a wide spectrum of transport related activities including bulk fuel, containerised cargo and break-bulk cargo, and provides depot services such as equipment hire, warehousing and bonded or unbonded yard storage. EWT also offers a licensed customs cargo clearance service in Lae and Port Moresby with the ability to clear cargo in any location where EWT has a presence. The division capitalises on its close relationships with sister companies in shipping and stevedoring by offering specialised end-to-end logistics and project solutions for the mining, oil and gas sectors and new or existing commercial sectors . 2019 proved a tough year for EWT, with the company able to grow top line revenue strongly but producing weaker results off the back of significant pressure on margin. However, in the intensively competitive market that is transport and logistics in PNG, EWT continues to grow its market share and revenue through a continued focus on safety, professionalism, competitiveness, customer service and fleet reliability. New contracts for both haulage and storage were secured in Port Moresby and Lae in 2019, with no major contract losses . EWT team grew by 5% in 2019 and now has a team of 400, of which more than 99% are Papua New Guineans. The company is proud of the investment in training and development that it makes in its workforce . As the business continues to grow, the financial and commercial functions continue to be strengthened with a new Commercial Manager joining in 2019 and a National Operations Manager joining early in 2020. Despite the likely short-term impact of COVID-19, modest growth is anticipated in 2020 off the back of new long-term contracts . Additional prime movers and rolling stock will be added via fleet renewal and in line with conservative growth predictions . Pressure on rates is expected to remain 16 Steamships Annual Report 2019 REVIEW OF OPERATIONS - PROPERTY CORAL SEA HOTELS Coral Sea Hotels (CSH) operates nine hotels, residence and apartment properties offering full- service hotel rooms and apartments as well as extensive food & beverage outlets, recreation and meeting, conference and banqueting facilities . CSH opened a stand-alone ‘Enzo’s Pizza and Takeaway’ outlet in Harbourside, downtown Port Moresby, testing the food concept for the first time outside a hotel property. The company expects further expansion of the Enzo’s brand. CSH added a new 300 seat conference facility to its Mount Hagen Highlander Hotel in 4Q 2019 . CSH is the largest hotel group in PNG, offering 592 hotel rooms, 132 apartments and 138 residences . The group comprises the Grand Papua Hotel, the Gateway Hotel and Apartments, the Ela Beach Hotel and Apartments, Whittaker Apartments and the Air Niugini Residence in Port Moresby; the Huon Gulf Hotel in Lae; the Highlander Hotel and Apartments in Mount Hagen; the Bird of Paradise Hotel in Goroka and the Cassowary Hotel in Kiunga. The operating environment in 2019 continued to be very tough for the hospitality industry with international visitors to PNG continuing to decline, and the delays to resource based projects causing local and international business uncertainty. During early 2019, additional capacity was added into the Port Moresby market which has created additional pressure on rates and occupancy across the city. Nevertheless, CSH continue to outperform against competitors as demonstrated by STR comparisons. Trading conditions in Western Province remain particularly tough, and the Cassowary Hotel continues to disappoint. CSH completed significant physical and process improvements in 2019 to enhance the guest experience . A new property management system and electronic guest satisfaction survey were introduced early in the year. The latter, with its improved data analytics, allows management to respond more rapidly to the feedback provided by guest and restaurant customers . A state of the art 300 seat conference facility was added to The Highlander Hotel in Mount Hagen. This conference facility is the only one of its kind in the rapidly expanding Highlands Region of PNG. Guest rooms and apartments at Gateway Hotel and Apartments were renovated, as was the Wild Orchid Restaurant. The Departure Bar will be renovated in the first quarter of 2020. Significant capital was spent to upgrade fire safety systems across the hotel group, and significantly the new Harbourside South mixed use development (which includes 88 apartments) broke ground. This development will be ready for handover to Coral Sea Hotels in mid-2022. The Grand Papua Hotel was once again the recipient of the ‘World Luxury Hotel Award’ in the Australasia and Oceania category. Maintaining and improving the guest experience remains central to CSH strategy, and training and development continued with managerial and customer service training provided by SHATEC Singapore. This focus on people will continue in 2020, with the first batch of staff expected to join the Pacific Labour Scheme in 2020. The travel restrictions and reduction of visitor numbers into PNG owing to COVID-19 are having an immediate impact on the occupancy throughout CSH. At the time of writing, the State of Papua New Guinea has implemented a 14 day State of Emergency, and in response, CSH Management have temporarily closed one of the three Port Moresby hotels, and adjusted inventory at other hotels. It is too early to tell what the long-term impact of COVID-19 will be, but CSH expect 2020 to be a tough year. Nevertheless, CSH will use the downturn restructure its operations, and to develop initiatives and projects that will allow it to prepare for the expected improvements associated with the long-delayed resource projects . Steamships Annual Report 2019 17 REVIEW OF OPERATIONS - PROPERTY PACIFIC PALMS PROPERTY Pacific Palms Property (PPP) is one of the largest and most dynamic property developers and managers in PNG. The division continues to develop and hold property in the Residential, Commercial, Retail and Industrial sectors with building and land assets located in Port Moresby, Lae, Madang, Wewak, Goroka, Mt. Hagen, Popondetta and Rabaul. PPP’s strategy of making investments of scale and quality, in good locations continues to support stable revenues even though a current over-supply of property in Port Moresby continues to put pressure on properties within the capital . The larger Port Moresby market in which PPP operates remains competitive, but stable, with product offering and importantly service offering driving loyalty of tenants across all categories . With additional developments coming on stream during the year, the market for property sales was slow in 2019 and this saw PPP preferring to hold properties and upgrade them in advance of an anticipated uptick towards the middle of the next decade . The performance of the commercial portfolio in Port Moresby saw steady year-on-year gains, ending the year with solid occupancy levels. Rental reversion in Port Moresby was stable. Outer regions of the country performed less well, with a reduction in revenue due to lower rental reversion and a number of large tenants moving out in Madang and Popondetta . Performance in Lae was strong . There was a similar story with the industrial portfolio which remained steady in Port Moresby but saw some contraction in outer regions reflective of a generally weak performance of the non-extractive economy. The residential portfolio remains strong across all locations. However, the continuing growth of supply in Port Moresby continues to put pressure on rates. This is something that PPP manages through a robust service offering and a particular focus on effective and efficient repairs and maintenance . Improving the tenant experience is a central part of management’s 2020 - business plan . 18 Steamships Annual Report 2019 REVIEW OF OPERATIONS - PROPERTY PACIFIC PALMS PROPERTY PPP’s joint venture projects in Mount Hagen, Madang and Port Moresby are performing to expectation. Occupancy in Hagen Central continues to pick up with several significant tenants secured on long-term contracts . PPP’s flagship development Harbourside East and West precinct in Port Moresby remains at full occupancy and the mixed use Harbourside South project commenced construction in the second half of 2019 . Construction is progressing well with completion targeted for mid-2022 . Once completed, the fully integrated Harbourside precinct will offer a wide range of commercial, retail and residential services along with a vibrant food and beverage waterfront location with harbour access . PPP are also managing internal renovation and improvement development works across PNG including various projects for Coral Sea Hotels. Notably projects include substantive upgrades to fire safety infrastructure across the portfolio and the new conference centre at the Highlander Hotel. This expanded project design, construction management and commercial development will be increasingly important as PPP looks to develop further large scale projects in the coming years. Despite the immediate pressures of dealing with COVID-19, the focus in 2020 for PPP will be to continue to meet customer service expectations, maintain high maintenance standards and manage its portfolio of leases to maximise occupancy. Exclusive of the impact of COVID-19, the outlook for 2020 remains stable if unexciting, however, how the virus will impact performance remains to be seen with the inevitable requests for rental rebates potentially balanced by upside later in the year should the the major resource projects be sanctioned. Notwithstanding short-term uncertainty, should these projects go ahead, PPP is well positioned to benefit from the next resources cycle with high quality properties across all categories and is confident of its future prospects. Steamships Annual Report 2019 19 SUSTAINABILITY A genuine commitment to the principles of Sustainable Development has always underpinned the way that Steamships operates, and is key to delivering lasting value to its customers and shareholders. This commitment, articulated by a focus on Our People, Our Community, and Our Environment, will ensure that the Company remains relevant, and continues to make a valuable and lasting economic and social contribution to Papua New Guinea. leadership development At Steamships the focus is to ensure that employees are afforded every opportunity to build strong, rewarding and successful careers in an environment of safety, trust, fairness and respect . A successful inaugural Annual HR Conference was held mid-year engaging HR teams in dialogue around the development and welfare of our employees, and an over-arching framework was established, linking the Team Leadership Development and Graduate Development programmes. A new Front Leaders Development Programme will be introduced in 2020. Promoting our value of Safety First, employees from our Logistics and Property divisions underwent custom designed HSSE training at basic and supervisory levels, and a cross group emergency response drill, simulating a major earthquake and tsunami event, was conducted by our leadership team. Two of our Divisions continued good progress towards ISO accreditation . Steamships recognises that every business has to earn and maintain its right to operate . Having a positive impact on the various communities in which Steamships operates is key to this. Engagement with the community is facilitated through an involvement in social programs that prioritise four key areas; health, social welfare, education, sports and culture, with emphasis on women and children. The aim is to identify projects and partnerships that bring measurable, meaningful, and positive impact to those in most need. The company committed over K2.0 million to various community based initiatives in 2019, as well as announcing a five year K2.0m partnership with Buk bilong Pikinini to support an additional six learning centres across the country. Projects in 2019 included a water sanitation project in Morobe province, a cervical cancer HPV vaccination programme in Milne Bay, and a gender transformative Women’s Maritime Scholarship Programme . Environmental Sustainability continues to be a focus area for the Company. Responsible and sustainable energy consumption is managed through the regular monitoring and reporting of energy use, water use and environmental emissions at operational level . Steamships again partnered with the Conservation and Environment Protection Authority to sponsor World Environment Day, delivering awareness lectures to selected school children, and coordinating a number of educational activities to highlight the importance of environmental sustainability. Steamships continues to support the Wanang Conservation Project near Madang; a project that has won many international accolades for its 20 Steamships Annual Report 2019 research and preservation of Papua New Guinea’s rich and unique flora and fauna. Steamships’ sustainability performance aligns with the requirements of the Global Reporting Initiative (GRI), a worldwide corporate transparency initiative that Steamships has followed since 2013. The full GRI report and a comprehensive Sustainability Report are available on the Steamships website at www.steamships.com.pg. Photo courtesy of Sago Network. CORPORATE 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 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 2019 Annual Report or on the Steamships’ website . Steamships believes it complied with the Australian Stock Exchange Corporate Governance Principles (the fourth edition) during the twelve months ended 31 December 2019, except where noted in the Corporate Governance Report . Steamships’ can Corporate Governance be found at http://www.steamships.com.pg/aboutus/ corporategoverance Report Steamships Annual Report 2019 21 STATEMENTS OF COMPREHENSIVE INCOME Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s) Note 2019 Consolidated 2018 (restated) Parent Entity 2019 2018 Continuing Operations Revenue Other income Operating expenses OPERATING PROFIT Finance income Finance costs Share of profit of associates and joint ventures PROFIT BEFORE INCOME TAX Income tax expense 3(a) 3(a) 3(b) 3(e) 3(e) 4(b) 5(a) PROFIT FROM CONTINUING OPERATIONS Profit after tax from discontinued operations 25 PROFIT FOR THE YEAR Attributable to: Non-controlling interests Shareholders TOTAL COMPREHENSIVE INCOME FOR THE YEAR attributable to owners arises from: Continuing operations Discontinued operations 585,168 581,815 - - (514,038) (509,393) 71,130 7,938 72,422 5,199 (17,784) (15,492) 5,010 66,294 (18,928) 47,366 - 47,366 (2,629) 49,995 47,366 5,628 67,757 (53,886) 13,871 49,830 63,701 (5,828) 69,529 63,701 48,000 3,021 (1,870) 49,151 72 - - 49,223 (307) 48,916 - 59,634 37,609 (2,364) 94,879 72 - - 94,951 (83) 94,868 - 48,916 94,868 - 48,916 48,916 - 94,868 94,868 49,995 - 49,995 19,699 49,830 69,529 48,916 94,868 - - 48,916 94,868 Basic and Diluted Earnings per share Continuing & discontinued (toea) Continuing (toea) 3(f) 3(f) 161t 161t 224t 64t These Statements of Comprehensive Income are to be read in conjunction with the accompanying notes. 22 Steamships Annual Report 2019 STATEMENTS OF CHANGES IN EQUITY Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s) Consolidated Share Capital Retained Earnings Other Total Capital Controlling Reserves & Reserves Interest Total Equity Non- BALANCE AT 1 JANUARY 2018 24,200 826,758 (8,994) 841,964 36,190 878,154 Adjustments to opening retained earnings on adoption of IFRS15 Profit for the year Equity adjustment on acquisition of new entity (Note 24) Adjustment on disposal of subsidiary Dividends paid 2018 - - - - BALANCE AT 31 DECEMBER 2018 24,200 896,105 Profit for the year Adjustment on acquisition of minority interest in subsidiary (Note 24) Dividends paid 2019 - - - 1,740 69,529 33,429 49,995 (8,994) 8,994 (26,357) - - 1,740 - 1,740 69,529 (5,828) 63,701 33,429 - - - 33,429 - (26,357) (10,639) (36,996) 920,305 19,723 940,028 49,995 (2,629) 47,366 - - - - (40,295) (40,295) 10,738 (29,557) (44,962) - (44,962) (10,085) (55,047) BALANCE AT 31 DECEMBER 2019 24,200 901,138 (40,295) 885,043 17,747 902,790 Parent Entity Share Capital Retained Earnings Total Equity BALANCE AT 1 JANUARY 2018 24,200 (3,266) 20,934 Profit for the year Dividends paid 2018 - - 94,868 94,868 (26,357) (26,357) BALANCE AT 31 DECEMBER 2018 24,200 65,245 89,445 Profit for the year Dividends paid 2019 - - 48,916 48,916 (44,962) (44,962) BALANCE AT 31 DECEMBER 2019 24,200 69,199 93,399 This Statement of Changes in Equity is to be read in conjunction with the accompanying notes. There is no other comprehensive income. Steamships Annual Report 2019 23 STATEMENTS OF FINANCIAL POSITION Steamships Trading Company Limited As At 31 December 2019 (Amounts in Kina 000’s) Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Assets held for sale Non-current assets Property, plant and equipment Investment properties Investments in related companies Loans to related companies Intangible assets Deferred tax assets TOTAL ASSETS Current liabilities Trade and other payables Lease liabilities Provisions for other liabilities and charges Loans from related companies Loan from minority shareholder Borrowings Income tax payable Non-current liabilities Lease liabilities Deferred tax liabilities Provisions for other liabilities and charges Borrowings TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Capital and reserves attributable to the Company’s shareholders Non-controlling interests TOTAL EQUITY Consolidated Parent Entity Note 2019 2018 2019 2018 6 7 8 5(e) 10 10 11 4(a) 9 12 5(c) 13 14 15 9 16 16 5(e) 14 5(c) 15 16 17 100,832 148,118 13,351 9,507 - 271,808 610,646 360,282 41,586 88,577 76,433 2,311 1,179,835 1,451,643 75,407 3,772 51,542 15,662 160 1,743 - 148,286 68,464 18,866 11,237 302,000 400,567 548,853 902,790 24,200 860,843 885,043 17,747 902,790 193,521 191,778 16,063 355 3,363 405,080 492,402 398,173 65,276 65,731 76,433 1,683 1,099,698 1,504,778 104,277 - 56,685 47,394 19,503 124,682 - 352,541 - 18,729 11,480 182,000 212,209 564,750 940,028 24,200 896,105 920,305 19,723 940,028 - 471 - - - 471 23,396 - 195,887 5,635 - 485 225,403 225,874 - - - 132,415 - - 60 132,475 - - - - - 132,475 93,399 24,200 69,199 93,399 - 93,399 - 446 - 45 - 491 24,554 - 164,037 5,712 - 436 194,739 195,230 10 - - 105,775 - - - 105,785 - - - - - 105,785 89,445 24,200 65,245 89,445 - 89,445 These Statements of Financial Position are to be read in conjunction with the accompanying notes. For and on behalf of the Board: 31 March 2020 G.L. Cundle Chairman M.R. Scantlebury Managing Director 24 Steamships Annual Report 2019 STATEMENTS OF CASH FLOWS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s) Consolidated Parent Entity Note 2019 2018 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Interest and other finance costs paid Income tax paid 595,374 587,981 (451,452) (430,786) 7,938 (14,502) (25,503) 5,199 (15,492) (30,220) Net cash provided by operating activities 19 111,855 116,682 5,023 (1,967) 72 - (250) 2,877 5,019 (2,290) 72 - (211) 2,590 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant & equipment Proceeds from sales of property, plant & equipment Proceeds on sale of investment Cash balance received in acquiring Croesus entities 24 Loans issued to associated companies Loans repaid by associated companies Dividends received (94,250) 24,409 - - (22,846) - 23,488 (56,114) (783) (2,139) 14,662 147,464 47,632 (2,022) 10,084 7,548 - - - - - - 78,770 - - - 48,000 47,217 59,634 136,265 Net cash (used in)/provided by investing activities (69,199) 161,192 CASH FLOWS FROM FINANCING ACTIVITIES Repayments of borrowings Proceeds from borrowings Loans received from subsidiaries Loans repaid to subsidiaries Loans received from associated companies Loans repaid to associated companies Purchase of additional shares in subsidiary Lease repayments Dividends paid (10,000) 10,000 - - - (31,732) (40,379) (5,248) (55,047) (41,627) - - - 5,236 (12,354) - - 26,717 - - - - - (31,850) - - - - (112,499) - - - - (36,995) (44,961) (26,356) Net cash used in by financing activities (132,406) (85,740) (50,094) (138,855) NET (DECREASE)/INCREASE IN CASH HELD (89,750) 200,196 NET CASH AT BEGINNING OF THE YEAR NET CASH AT END OF THE YEAR 188,839 99,089 (11,357) 188,839 CASH COMPRISES: Cash and cash equivalents Bank overdrafts 6 16 100,832 193,521 (1,743) 99,089 (4,682) 188,839 - - - - - - - - - - - - These Statements of Cash Flows are to be read in conjunction with the accompanying notes. Steamships Annual Report 2019 25 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 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 31 March 2020 . The Board of Directors has the power to amend the financial statements after their issue. (a) Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS). The consolidated financial statements have been prepared under the historical cost convention as modified by certain financial assets and liabilities at fair value through profit and loss, and assets held for sale measured at fair value less costs of disposal . Going concern The financial statements for the year ended 31 December 2019 have been prepared on a going concern basis which contemplates the realisation of assets and settlement of liabilities in the normal course of business as they become due. As at 31 December 2019, the Group had cash reserves of K100.8m and net current assets of K123.5m. During the year ended 31 December 2019 the Group reported a profit after tax of K47.4m and a net cash inflow from operating activities of K111.9m. At 31 December 2019 the Group had K263.0m in committed, undrawn bank facilities, with financial institutions. The Group has bank borrowings of K303.7m, including K182.0m that is due for repayment in April 2021. Since 31 December 2019, the global COVID-19 pandemic has had a significant adverse impact on the global economy and, at the date of reporting, Papua New Guinea is in a State of Emergency (“SOE”). The slowing of the global economy and travel restrictions have reduced demand for goods and services generally. Since the announcement of the SOE, each of the businesses operated by the Group has been significantly affected. Whilst the outbreak did not have a significant impact on PNG and the Group’ business for almost all of the first quarter of 2020, immediately prior to and since the announcement of the SOE, each of the businesses operated by the Group has been affected. Each has a business continuity plan which is now active. Management is operating effectively, and in dialogue with customers, suppliers, bankers and regulators, to address the challenges that are presented . 26 Steamships Annual Report 2019 Under the SOE, there are restrictions on incoming travel and this has resulted in a reduction in occupancy in our hotels and bookings being cancelled . Management have already taken action to respond and have ceased operation of certain hotels to preserve cash in the event that the situation continues or worsens . The property business benefits from the majority of its portfolio committed on leases which extend beyond the current period of the operation of the SOE . However, if the period is extended for a considerable period and the situation, both globally and in PNG, worsens then renewal of these leases or the ability of tenants to meet their rent obligations will be at risk . The logistics business has so far been largely unaffected. All announcements from the governing National Operations Committee have been supportive of the need to keep essential services going and the four businesses in this sector have continued to operate . A reduction in economic activity resulting from the pandemic has the potential to reduce demand for the Group’s logistics services with an adverse consequence on cash flows. It is anticipated that the COVID-19 pandemic is likely to have an adverse impact on the Group’s business, results of operations and cash flows in 2020. At the date of these financial statements it is not possible to reliably estimate the financial impact on the Group. Management will continue to monitor the impact of COVID-19 on the financial performance of the business and further measures may be required. As a result of these matters there exists a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern, and therefore it may be unable to realise its assets and settle its liabilities and commitments in the normal course of business and at the amounts stated in the financial report . The economic uncertainty associated with the COVID-19 outbreak has been considered by the Board in assessing the potential financial impact on the Group’s ability to continue to generate positive cash flows, to comply with financial covenants and to meet debts as and when they fall due. At the date of this report, the Board are of the opinion that the Group will be successful in managing the impacts of the COVID-19 pandemic and will continue to realise its assets and discharge its liabilities in the normal course of business and at the amounts stated in the financial report. Accordingly, no adjustments have been made to the financial report relating to the recoverability and classification of the asset carrying amounts or the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern . NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) (i) Standards, effective in the year ended 31 December 2019 amendment interpretations and following standards, amendments and The interpretations to existing standards became applicable for the first time during the accounting period beginning 1 January 2019. • • • IFRS 16, ‘Leases’ removes the previous IAS 17 distinction between finance leases and operating leases and now requires a lessee to recognise a lease liability representing future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. There is an optional exemption for certain short-term leases and leases of low-value assets . Amendment to IFRS 9 on prepayment features with negative compensation. This amendment liability that when a financial confirms measured at amortised cost is modified without this resulting in de-recognition, a gain or loss should be recognised immediately in profit or loss. The gain or loss is calculated as the original contractual cash flows and the modified cash flows discounted at the original effective interest rate . the difference between ‘Uncertainty over income tax IFRIC 23, treatments’ clarifies how the recognition and measurement requirements of IAS 12 ‘Income Taxes’ are applied where there is uncertainty over income tax positions. The IFRS IC had clarified previously that IAS 12, not IAS 37 ‘Provisions, contingent liabilities and contingent assets’, applies to accounting for uncertain income tax treatments . IFRIC 23 explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment . A subsequent IC agenda decision also provided guidance on the presentation of uncertain tax positions . • Annual improvements 2015 – 2017. These amendments include minor changes to: - - - IFRS 3 ‘Business combination’ – a company remeasures its previously held interest in a joint operation when it obtains control of the business . IFRS 11 ‘Joint arrangements’ – a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business . IAS 12 ‘Income taxes’ – a company accounts for all income tax consequences of dividend payments according to where the past transactions or events that generated distributable profits were recognised . - IAS 23 “Borrowing costs’ – a company treats as part of general borrowings any borrowings originally made to develop an asset when the asset is ready for its intended use or sale . • to ‘Investments Amendments in IAS 28 associates’ on long term interests in associates and joint ventures. These amendments clarify that long-term interests in an associate or joint venture to which the equity method is not applied should be accounted for using IFRS 9 before applying the loss allocation and impairment requirements in AASB 128 Investments in Associates and Joint Ventures . • Amendments to IAS 19, ‘Employee benefits’ on plan amendment, curtailment or settlement . These amendments require an entity to: - - use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement, and recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling . The implementation of IFRS 16 Leases required the Group to change its accounting policy as a lessee under lease contracts as set out in Notes 1(a) (iii) and 1 (x). The other changes did not have any material impact on the Group. (ii) Standards, amendments and interpretations issued but not yet effective for the year ended 31 December 2019 or adopted early following The 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 2020 or later periods, but the entity has not early adopted them: • Amendments to IFRS 3 – definition of a business (effective 1 January 2020). This the definition of a amendment business. According to feedback received by revises Steamships Annual Report 2019 27 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) the IASB, application of the current guidance is commonly thought to be too complex, and it results in too many transactions qualifying as business combinations . • Amendments to IAS 1 and IAS 8 on the definition of ‘material’ (effective 1 January 2020). These amendments IAS 1, ‘Presentation of financial statements’, and IAS 8, ‘Accounting policies, changes in accounting estimates and errors’, and consequential amendments to other IFRSs: to - - - use a consistent definition of materiality throughout IFRSs and the Conceptual Framework for Financial Reporting clarify the explanation of the definition of material; and incorporate some of the guidance in IAS 1 about immaterial information . • Amendments to IFRS 9, IAS 39 and IFRS 7 – interest rate benchmark reform (effective 1 January 2020). Following the financial crisis, the replacement of benchmark interest rates such as LIBOR and other inter-bank offered rates (‘IBORs’) has become a priority for global regulators. These amendments relate to hedge accounting and have the effect that IBOR reform should not generally cause hedge accounting to terminate . However, any hedge ineffectiveness should continue to be recorded in the income statement under both IAS 39 and IFRS 9 . Furthermore, the amendments set out triggers for when the reliefs will end, which include the uncertainty arising from interest rate benchmark reform no longer being present . • IFRS 17 ‘Insurance contracts” (effective 1 January 2021) replaces IFRS 4. IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contacts with discretionary participation features . The Group does not consider that there are any measurement or recognition issues arising from the release of these new pronouncements that will have a significant impact on the reported financial position or financial performance of the Group. (iii) Changes in accounting policies This note explains the impact of the adoption of IFRS 16 ‘Leases’ on the Group’s financial statements . 28 Steamships Annual Report 2019 IFRIC 4: IFRS 16 replaces the guidance in IAS 17 ‘Determining whether ‘Leases’, an Arrangement contains a Lease’, SIC 15 ‘Operating Leases – Incentives’ and SIC 27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’ . The adoption of IFRS 16 from 1 January 2019 resulted in changes in accounting policies and adjustments to the amounts recognized in the financial statements. The new accounting policies are set out below. The Group has adopted IFRS 16 using the modified retrospective method. Comparative figures have not been restated and the cumulative adjustments arising on adoption have no impact on the opening balance of retained earnings brought forward as at 1 January 2019 . IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees . A lessee recognises a right-of-use (“ROU”) asset representing its right to use the underlying asset and a lease liability representing its obligations to make lease payments. The ROU asset is depreciated throughout the lease period in accordance with the depreciation requirements of IAS 16 ‘Property, Plant and Equipment’ whereas the lease liability is accreted to reflect interest and is reduced to reflect lease payments made. Lessor accounting remains similar to the current standard . As a result of adaptation of IFRS 16 the Group recognised ROU assets of K41.3M on 1 January 2019 together with an equivalent lease liability. The detailed impact of the change in accounting policies are set out in Note 29 . As permitted by the transitional provision of IFRS 16, the Group has elected to adopt the simplified transition approach where the cumulative effects of initial application are recognised on 1 January 2019 as an adjustment to the opening balance of retained earnings. The Group has also applied the following practical expedients under IFRS 16: • No adjustments are made on transition for leases for which the underlying asset is of low value . • Single discount to rate portfolio of leases with reasonably similar characteristics . is applied NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) • The Group does not apply the standard to leases which the lease term ends within 12 months from 1 January 2019. • The Group uses hindsight in determining lease term for contracts that contain options for extension or termination . The Group has also elected not to apply IFRS 16 to contracts that were not identified as containing a lease under IAS 17 and IFRIC 4 ‘Determining whether an Arrangement contains a Lease’ . (iv) Comparative information Comparative figures have been adjusted to conform to changes in presentation in the current year. Accordingly, operating expenses of K20,998,000 were netted off against revenue in the Group’s financial statements for the year ended 31 December 2018. As related revenue and expenses for year ended 31 December 2019 are presented on gross basis, to ensure comparability, the Group has restated comparative amounts of revenue and operating expenses in these financial statements . (b) Foreign currency is The Company’s functional and presentation currency 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 Steamships Trading Company Limited as at 31 December 2019 and the results of all 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 1(d). balances transactions, Intercompany 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. in interests the results and Non-controlling 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. 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 post-acquisition cumulative income. 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. The When the Group’s share of losses in an associate equals or exceeds its interest in the associate, long-term including any other unsecured 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 Steamships Annual Report 2019 29 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) associates have been changed where necessary to ensure consistency with the policies adopted by the Group. (iii) Joint ventures Joint venture entities Interests in joint ventures are 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 re-measured 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 . (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 30 Steamships Annual Report 2019 in from a contingent consideration arrangement and the fair value of any pre-existing equity interest 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 re-measured to fair value with changes in fair value recognised in profit or loss. Predecessor accounting is applied for business combinations among entities under common including acquisitions of entities . control, Assets and liabilities of the acquired entity are stated at predecessor carrying values. Fair value measurement is not required and no new goodwill arises in predecessor accounting. Any difference between the aggregate book value of the assets and liabilities of the acquired entity at the date of the transaction is included in equity in retained earnings. the consideration given and (e) Revenue recognition Revenue which represents income arising in the course of the Group’s ordinary activities to each distinct is recognised by reference NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) performance obligation promised in the contract with the customer when or as the Group transfers the control of the goods or services promised in a contract to the customer . Depending on the substance of the respective contract with the customer, the control of the promised goods or services may transfer over time or at a point in time . A contract with a customer exists when the contract has commercial substance, the Group and its customer have approved the contract and intend to perform their respective obligations, the Group’s and the customer’s rights regarding the goods or services to be transferred and the payment terms can be identified, and it is probable that the Group will collect the consideration to which it will be entitled to in exchange of those goods or services . At the inception of each contract with a customer, the Group assesses the contract to identify distinct performance obligations, being the units of account that determine when and how revenue from the contract with the customer is recognised . A performance obligation is a promise to transfer a distinct good or service (or a series of distinct goods or services that are substantially the same and that have the same pattern of transfer) to the customer that is explicitly stated in the contract and implied in the Group’s customary business practices . A good or service is distinct if: - - the customer can either benefit from the good or service on its own or together with other readily available resources; and the good or service is separately identifiable from other promises in the contract (e.g. the good or service is not integrated with, or highly interrelated with, other goods or services promised in the contract) If a good or service is not distinct, the Group combines it with other promised goods or services until the Group identifies a distinct performance obligation consisting of a distinct bundle of goods or services . As disclosed in Note 26, revenue from external customers comes from the logistics business, hotels & property business, and commercial business . Revenue from the logistics business includes revenue from providing the following services: freight and shipping activities, land transport activities, towage and salvage activities, and sale of goods . Revenue from freight and shipping services, land transport services and towage services is recognised over time as the performance obligation (in this case transport or towage activity) is performed taking into consideration the days of shipment. In case of sale of goods (such as containers), revenue is recognized at a point of time. Payment terms for freight and shipping services and land transport services are typically 30 days; payment terms for towage services are typically within 30 days after completion of service delivery. Salvage revenue is recognised over time as the performance obligation (in this case salvaging activity) is performed, based on the days of provision of service, or at a point of time (upon completion of the salvage job), depending on the nature of the salvage activity and the contractual terms. The Group recognises salvage revenue over time if the customer simultaneously receive and consume the benefits provided by the Group’s performance as the Group performs. In such cases, the Group typically has a right to payment based on work performed until the reporting date. The Group recognises salvage revenue at a point in time when the customer does not simultaneously receive and consume the benefits provided by the Group’s performance as the Group performs and has no enforceable right to payment for performance completed to date . Payment terms for salvage work vary between one and three months . Where salvage work is completed but the amount of proceeds is not known at the reporting date, revenue is determined on the basis of expected proceeds taking into account estimation uncertainty. The estimated amount of consideration will be recognised as revenue only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the consideration is subsequently resolved. to incurs costs needed fulfil The Company salvage contracts and defers these costs incurred directly related to salvage work, if their recovery is considered probable based on management’s assessment . If management’s assessment suggests the expenses is not expected to be recovered, the estimated unrecoverable portion is expensed when incurred. Probability of recoverability of initially recognised deferred salvage costs is assessed at the end of each reporting period . In the reporting period when management’s assessment suggests that these expenses will not likely be recovered by revenues i .e . the related contract asset is deemed impaired, the estimated unrecoverable portion is Steamships Annual Report 2019 31 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) expensed . Deferred salvage costs are amortised in profit or loss on a systematic basis consistent with the pattern of recognition of the associated revenue . Revenue from the hotels business from provision of services is recognised over time based on the days of provision of service; payments for provided services are made upon service delivery. Revenue from sale of goods in hotels business is recognized at a point in time upon delivery of goods under typical credit term of 30 days or in cash. Lease income from the property business is recognized on a straight line basis over the term of the lease . Revenue from the commercial business relates to sale of goods and is recognized when the goods are accepted by the customers, under typical payment terms of 30 days after the delivery of goods . The following other income is recognized across the Group as follows: Interest income - Interest income is recognised using the effective interest method . Dividend income - Dividends are recognized 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 benefit 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 on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is not recognized if it arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). 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 future taxable profit will be available, against which the temporary differences can be utilised . 32 Steamships Annual Report 2019 (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 an original maturity of up to 3 months. 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 measured at amortised cost using the effective interest method, less provision for impairment . (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 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 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 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 . 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 The Group classifies all of its financial assets in the measurement category ‘Financial assets at amortised cost’ . its financial assets at The Group classifies amortised cost when the asset is held within a business model whose objective is to collect the contractual cash flows and the contractual terms give rise to cash flows that are solely payments of principal and interest (“SPPI”). Financial assets of the Group that fall under this category are trade and other receivables, bank balances, deposits and cash, and loans to related companies . At initial recognition, the Group measures a financial asset at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains and losses together with foreign exchange gains and losses . As of 31 December 2019 and 31 December 2018, the Group had no financial instruments classified as financial assets at fair value through other comprehensive income (“FVOCI”) - Equity instruments (previously classified as available- for-sale financial assets) or financial assets at fair value through profit or loss (“FVTPL”). Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset . Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership . Financial assets are classified as current assets for those having maturity dates of not more than 12 months after the end of the reporting period, and the balance is classified as non-current. Impairment of financial assets The Group recognises an allowance for expected credit losses (“ECLs”) for all debt instruments and financial guarantee contracts issued. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. For financial guarantee contracts, the ECL is the difference between expected payments to reimburse the holder of the guarantee debt instruments less any amounts the company expects to recover from the other party. ECL is measured based on either the general 3-stage approach or the simplified approach. The general 3-stage approach is applied for loans to related parties and financial guarantee contracts issued . ECLs are recognised in two stages . For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). The simplified approach is applied for trade receivables and other receivables, including inter- company balances. trade receivables, For the Group applies a simplified approach in calculating ECLs. The Group does not track changes in credit risk, but instead recognises a loss allowance based on Steamships Annual Report 2019 33 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment . Collective assessment To measure ECL, trade receivables and other receivables have been grouped based on shared credit risk characteristics, such as days past due. Individual assessment Trade receivables, other receivables and amounts due from related parties which are in default or credit-impaired are assessed individually. (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 . Land is not depreciated . Depreciation on other items of property, plant and equipment 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: Buildings Ships Plant and fittings Motor vehicles 2 – 4% 5 - 10% 10 - 33% 20 - 33% 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 buildings leased out 34 Steamships Annual Report 2019 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 the Note 11. 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 . is capitalised and assessed Goodwill 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. NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) (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 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 departures and periods of service . Expected future payments are discounted using 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. (iii) Termination benefits are benefits payable when Termination employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value . (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 depreciation or 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 recoverable amount, which is determined as the higher of an asset’s fair value less costs to sell and its value in use . For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). (t) Borrowing costs Steamships Annual Report 2019 35 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 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 4.5%(2018 – 4.5%). (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 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 . (w) Goods and services tax (GST) 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) Leases Accounting policies applied from 1 January 2019 Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group or on the date of adoption of IFRS 16 (refer to Note 1(a)). Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis . 36 Steamships Annual Report 2019 Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • fixed payments in-substance fixed payments), less any lease incentives receivable; (including • variable lease payments that are based on an index or a rate; • amounts expected to be payable by the lessee under residual value guarantees; • the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and • payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option . The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the group’s incremental borrowing rate . Right-of-use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability; • any lease payments made at or before the commencement date less any lease incentives received; • any initial direct costs, and • restoration costs . Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT- equipment and small items of office furniture. Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. in In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) option, or not exercise a termination option . Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee . Accounting policies applied until 31 December 2018 Leases, where the Group does not assume substantially all the risks and rewards of the ownership are classified as operating leases. The leased assets are not recognised on the statements of financial position. Payments made under operating leases are recognised in the statements of profit or loss on a straight-line basis over the term of lease . Lease incentives received are recognised in the statements of profit or loss as an integral part of the total lease expense, over the term of the lease . Operating lease payments are representative of the pattern of benefits derived from the leased assets and accordingly are charged to the profit and loss account in the periods in which they are incurred. Leases under which the Group assumes substantially all the risks and rewards incidental to ownership have been classified as finance leases and are capitalised. The asset and corresponding liability are recorded at inception of the lease at the fair value of the leased asset, at amounts equivalent to the discounted present value of minimum lease payments including residual values. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period . Capitalised leased assets are depreciated over their expected lives in accordance with rates established for other similar assets. The Group had no leases classified as finance leases in 2018 . (y) Rounding of amounts Amounts in the financial statements have been rounded off to the nearest thousand Kina. (z) 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 calculations. These based on calculations require the use of estimates as further detailed in Note 12 . value-in-use (ii) Estimated impairment of ships and other plant and equipment The Group tests the recoverable amount of ships and other plant and equipment when impairment indicators are identified. 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 pre-tax discount rate of 12 .5% . Refer to Note 10 . (iii) Deferred tax assets relating to carry forward tax losses The analysis of the recognition and recoverability of the deferred tax assets relating to carry forward tax losses is complex and judgmental and estimating future taxable income is based on assumptions that are affected by expected future market or economic conditions . For management’s judgments in relation to recoverability of deferred tax assets, refer to Note 5 . (iv) Incremental borrowing rate relating to lease liabilities interest the weighted average As disclosed in Note 14, management assessed that rate on collateralized borrowings obtained from financial institutions during 2019 and previous years of 4 .5% approximates the incremental borrowing rate at the date of initial adoption of IFRS 16 and at 31 December 2019. Therefore, this rate has been used for discounting lease payments arising from state land leases and property leases. In making this judgment, management considered the period of leases (including extension and termination options), the quality of leased assets compared to assets used as collateral for relevant borrowings, and made an assessment whether any adjustments Steamships Annual Report 2019 37 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s) the factors affecting to the weighted average rate on borrowings are needed to reflect differences in secured assets, lease periods compared to maturity of borrowings, and other incremental borrowing rate . Based on assessment performed, management concluded that the average weighted interest rate on borrowings of approximately 4.5% p.a. approximates the rate that the Group would expect to borrow to acquire the right-of- use assets in relation to land leases and property leases . If the incremental borrowing rate were 1 .0% higher/(lower), lease liabilities as of 31 December 2019 would be K7.2M lower and K9.2M higher, respectively (1 January 2019: K4.8M lower and K5.8M higher). 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 interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk . Long term borrowings 38 Steamships Annual Report 2019 are a mix of fixed and variable rate interest. It is not the Group’s policy to hedge cash flow and interest rate risk . At 31 December 2019, if interest rates on PNG Kina-denominated borrowings had been 1% higher/ lower with all other variables held constant, post- tax profit for the year would have been K3,058,000 (2018: K2,192,000) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings . (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 . Where credit limits were exceeded during the reporting period management has made provision for amounts considered uncollectible . The Group has the following types of financial assets that are subject to the expected credit loss model: trade receivables, other receivables (including inter- company receivables) and loans to related parties. While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, impairment loss is immaterial . The Group applies the IFRS 9 simplified approach to measuring expected credit losses, for all financial assets, other than loans to related parties and other receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2019 or 31 December 2018 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward- looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The Group has analyzed GDP and employment rate of PNG to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors . Management concluded impairment provision for trade receivables is not materially affected by changes in GDP and employment rate. that the For loans to related parties and other receivables, the Group applies a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition, as summarised below: NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s) • A financial instrument that is not credit- impaired on initial recognition is classified in ‘Stage 1’ and has its credit risk continuously monitored by the Group. • If a significant increase in credit risk (‘SICR’) since the financial instrument is moved to ‘Stage 2’ but is not yet deemed to be credit-impaired. initial recognition identified, is • If the financial instrument is credit-impaired, the financial instrument is then moved to ‘Stage 3’ . • Financial instrument in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected credit losses that result from default events possible within the next 12 months . Loans in Stages 2 or 3 have their ECL measured based on expected credit losses on a lifetime basis . Forward- looking information incorporated in the model includes GDP Growth (%) of Papua New Guinea economy. The Group considers a loan or other receivable to have experienced a significant increase in credit risk when one or more of the following quantitative and qualitative criteria have been met: delay in payment of over 30 days, early signs of cash flow/ liquidity problems, significant adverse changes in business, financial and/or economic conditions in which related party operates, actual or expected forbearance or restructuring, significant change in collateral value (for collateralised loans). The Group defines a financial instrument as in default, which is fully aligned with the definition of credit- impaired, when it meets one or more of the following criteria: delay in payment of over 90 days, significant financial difficulty of related party (such as long-term forbearance, insolvency, or probability of bankruptcy). A loan or other receivable is considered to no longer be in default (i.e. to have cured) when it no longer meets any of the default criteria at the reporting date . The Expected Credit Loss (ECL) is measured on either a 12-month (12M) or Lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition or whether an asset is considered to be credit-impaired . All of the Group’s loans to related parties as at 31 December 2019 and 31 December 2018 are classified in ‘Stage 1’. Further, management assessed that no material impairment provision on loans to related parties is necessary given the following: • Loans to related parties are repayable on demand and the Group expects to be able to recover the outstanding balance of related loans, if demanded; • Loans to related parties have not had significant increase in credit risk since the loans were first recognized; • There are no historic losses or write offs on these loans; • As a result, impairment provision is based on 12-month expected credit losses, which results in immaterial impairment provision . Similarly, the Group’s other receivables as at 31 December 2019 and 31 December 2018 are classified in ‘Stage 1’, as they are either current or overdue up to 30 days, and the Group has not noted a significant increase in credit risk. (c) Liquidity risk liquidity risk management Prudent 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 were as follows: 2019 K’000 2018 K’000 Undrawn Facilities 263,000 255,000 The table at the top of page 40 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. (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 . Steamships Annual Report 2019 39  At 31 December 2019 Borrowings Borrowings from minority shareholders Borrowings from related parties Trade and other payables Lease liabilities At 31 December 2018 Borrowings Borrowings from minority shareholders Borrowings from related parties Trade and other payables Less than 1 year K’000 Between 1 & 2 years K’000 Between 2 & 5 years K’000 Over 5 years K’000 (1,873) (160) (15,975) (75,407) (5,246) (98,661) (131,191) (21,018) (48,342) (104,277) (304,828) (294,014) (23,510) - - - - - - - - - - (5,246) (299,260) (15,741) (115,330) (39,251) (115,330) (6,509) (207,935) - - - - - - (6,509) (207,935) - - - - - Total K’000 (319,317) (160) (15,975) (75,407) (141,563) (552,422) (345,635) (21,018) (48,342) (104,277) (519,272) The Group does not hold derivative financial instruments. All loan covenants associated with borrowing arrangements have been met . 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: 2019 K’000 2018 K’000 Total external borrowing & unsecured loans 319,565 373,579 Less: Cash & Cash equivalents Net debt Total equity Total capital 100,832 193,521 218,733 180,058 902,790 940,028 1,121,523 1,120,086 Gearing ratio 20% 16% is subject The Group to certain covenants related primarily to its external borrowings. Non- compliance with such covenants may result in negative consequences for the Group including declaration of default. The Group was in compliance with covenants as at 31 December 2019 and 31 December 2018, as well as during respective years. (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). If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3 . The Group does not hold any financial assets at fair value . 40 Steamships Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTSSteamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s) 3. Operating results (a) Revenue and other income comprises: Revenue from contracts with customers - Revenue from sale of goods - Revenue from provision of services Lease income Dividend income Total Revenue Consolidated Parent Entity 2019 2018 2019 2018 37,684 440,609 106,875 - 36,726 436,905 108,184 - 585,168 581,815 - - - - - - 48,000 48,000 59,634 59,634 * Other income (net) - - 3,021 37,609 * Other income in 2019 includes royalties and management fees. Other income in 2018 of K37.6M mostly relates to gain on sale of Laga Industries (Note 25), while the remaining amount includes royalties and management fees. The Group’s revenue from contracts with customers are recognized at a point in time and over time. Most of the revenue from the provision of services is recognized over time, while revenue from sale of goods is recognized at a point in time. Further disaggregation of revenue by segment is provided at Note 26. The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of 31 December 2019 amounts to K0.3 million and relates mostly to towage work which commenced in late 2019 and will be finalised within January 2020. (b) Expenses comprise: Cost of sales Staff costs (note 3c) Depreciation and amortisation Impairment of fixed assets Hotel & property development cost write off Electricity and fuel Other operating expenses Total operating expense (c) Staff costs: Wages and salaries Retirement benefit contributions Accommodation and other benefits 111,552 119,712 82,268 - - 46,314 154,192 514,038 101,683 5,516 12,513 119,712 102,223 122,217 82,974 11,710 1,498 48,772 139,999 509,393 101,116 5,235 15,866 122,217 Number of staff employed by the Group at year end: Full Time 2,637 2,685 - - - - 2,029 2,065 - - - (159) 1,870 - - - 299 2,364 - - - - - - - - - - Steamships Annual Report 2019 41 NOTES TO THE FINANCIAL STATEMENTSSteamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s)NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 3. Operating results (continued) Consolidated Parent Entity 2019 2018 2019 2018 (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 Impairment of property, plant & equipment Loss on sale of fixed assets After crediting: Gain on sale of property, plant and equipment Net foreign exchange transaction gains Bad debt recovery (e) Cost of financing – net: Interest expense* Interest income Net finance costs 10 10 1,045 1,406 4,880 1,817 - 1,127 16,910 640 - 1,050 708 943 2,206 11,710 390 - 1,373 2,550 - - - - - - - - 17,784 (7,938) 9,846 15,492 (5,199) 10,293 - (72) (72) - - - - - - - - - (72) (72) *The interest expense excludes capitalised interest of K0.06m (2018 - K1.7M). (f) Earnings per share 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 & discontinued) Basic earnings per share (continuing) 49,995 31,008 161t 161t 69,529 31,008 224t 64t 42 Steamships Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 4. Investments in subsidiaries, associates and joint ventures Consolidated Parent Entity 2019 2018 2019 2018 (a) Investments are accounted for in accordance with the policy set out in Note 1(c) and relate to: Investments in subsidiary companies (note 21) Investments in associates (note 22) Investments in joint ventures (note 23) (b) Share of after tax profit in associates and joint ventures Share of profit in associates Share of profit in joint ventures 5. Income Tax (a) Income tax expense Current tax Deferred Tax Prior period (over)/under provided - 11,373 30,213 41,586 393 4,617 5,010 - 159,261 127,454 34,359 30,917 65,276 119 5,509 5,628 - 36,626 195,887 - 36,583 164,037 - - - - - - Consolidated Parent Entity 2019 2018 2019 2018 20,657 (489) (1,240) 18,928 31,703 24,964 (2,781) 53,886 355 (49) 1 307 270 (168) (19) 83 (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 on profit before income tax Non-taxable income - dividends Expenses not deductible for tax Tax loss not recognised Income not assessable for tax Prior year (over)/under provisions (c) The deferred tax (liability)/ asset comprises: Provisions Tax losses Lease liabilities Prepayments & consumables Property, plant and equipment Right-of-use assets Deferred tax asset Deferred tax liability 19,888 - 579 6,659 (6,958) (1,240) 18,928 7,419 182 21,671 (5,452) (18,706) (21,671) (16,556) 2,311 (18,866) (16,555) 20,327 - 2,831 35,921 (2,412) (2,781) 53,886 9,917 171 - (3,851) (23,283) - (17,046) 1,683 (18,729) (17,046) 14,767 (14,400) - - (60) - 307 28,485 (17,890) - - (10,493) (19) 83 - - - - 485 - 485 485 - 485 - - - - 436 - 436 436 - 436 As at 31 December 2019, the group has not recognised deferred tax asset amounting to K58.4M (2018 - K51.7M) related to carried forward tax losses, as they relate to Consort Express Lines Limited and their recoverability as at 31 December 2019 and 31 December 2018 were considered uncertain. Steamships Annual Report 2019 43 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 5. Income tax (continued) Beginning Balance IFRS 16 adoption Charge to profit Ending Balance (d) The gross movement on the deferred tax account is as follows: Consolidated Provisions & accruals Tax losses Lease liabilities Prepayments & consumables Property, plant and equipment Right-of-use assets Total Parent Company Property, plant and equipment Total (e) Income tax (receivable)/ payable is represented as by: At 1 January Income tax provision Income tax over provided Disposal of subsidiary Use of tax credit Others Acquiring new subsidiary Tax payments made At 31 December 6. Cash and cash equivalents Cash and short term deposits 9,917 171 - (3,851) (23,283) - (17,046) - - 12,401 - - (12,401) (2,498) 11 9,270 (1,601) 4,579 (9,270) 491 7,419 182 21,671 (5,452) (18,704) (21,671) (16,555) 436 436 49 49 485 485 Consolidated Parent Entity 2019 2018 2019 2018 (355) 20,657 (1,240) - (2,632) (434) - (25,503) (9,507) 1,407 31,703 (2,781) 289 - (1,325) 572 (30,220) (355) (45) 355 - - - - - (250) 60 (85) 270 (19) - - - - (211) (45) Consolidated Parent Entity 2019 2018 2019 2018 100,832 100,832 193,521 193,521 - - - - 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 banks resident in Papua New Guinea who have appropriate long term credit ratings. 7. Trade and other receivables Trade receivables Provision for impairment Other receivables Prepayments 44 Steamships Annual Report 2019 Consolidated Parent Entity 2019 2018 2019 2018 84,372 (7,108) 77,264 60,844 10,010 148,118 89,849 (2,379) 87,470 86,244 18,064 191,778 - - - 471 - 471 - - - 445 - 445 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 7. Trade and other receivables (continued) (i) Credit losses As at 31 December 2019 and 31 December 2018, loss allowance was determined as follows for trade receivables: 31 December 2019 Current More than 30 More than 60 More than 90 days past due days past due days past due Total Expected credit loss rate 0.2%-2% 2%-5% 5%-8% 8% - 30% 8.4% Gross carrying amount - trade receivables Loss allowance 33,619 1,429 22,327 714 8,235 494 20,191 4,471 84,372 7,108 31 December 2018 Current More than 30 More than 60 More than 90 days past due days past due days past due Total Expected credit loss rate 0.2%-2% 2%-5% 5%-8% 8% - 30% 2.7% Gross carrying amount - trade receivables Loss allowance 49,136 147 22,168 554 6,101 366 12,444 1,312 89,849 2,379 Movement in the provision for impairment of trade receivables is as follows: Opening balance Impairments recognised during the year Provision released Total 2,379 4,880 (151) 7,108 19,030 6,186 2,279 (6,086) 2,379 5,131 - - - - - - - - - - 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 the balance outstanding. 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. These mostly include receivables for rental bonds, income tax and other tax receivables (such as GST receivables) and other non-financial assets. These receivables are not interest bearing. Collateral is not normally obtained. As at 31 December 2019 and 31 December 2018, most of the Group’s other receivables are current and classified as Stage 1 for impairment provisioning purposes. The amount of other receivables overdue more than 30 days is not material, and the impairment provision based on expected loss model is immaterial. Prepayments relate to advance payments for expenses not yet incurred. Steamships Annual Report 2019 45 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 8. Inventories Finished goods Provision for obsolescence Consolidated Parent Entity 2019 2018 2019 2018 14,781 (1,430) 13,351 16,180 (117) 16,063 - - - - - - Inventories recognised as an expense during the year ended 31 December 2019 and included in cost of sales and cost of providing services amounted to K11M (2018: K19M). The provision for obsolescence of inventories during the year increased by K1.3M (2018: by K2.7M decrease). 9. Loans to/(from) related companies Non-Current Colgate Palmolive (PNG) Limited Huhu Rural LLG Pacific Rumana Limited Harbourside Development Limited Viva No.31 Limited Wonye Limited Nikana Stevedoring Limited Loans to subsidiaries Loans from associates and joint ventures: Harbourside Development Limited Morobe Terminals Limited Consort Express Lines Limited’s associates Loans from subsidiaries Consolidated Parent Entity 2019 2018 2019 2018 500 1,640 28,930 55,330 2,000 27 150 88,577 - 88,577 - - (15,662) (15,662) - 500 1,587 29,530 34,114 - - - 65,731 - 65,731 (7,968) (9,543) (29,883) (47,394) 500 500 - - - - - - - - - - - - 500 5,135 5,635 500 5,212 5,712 - - - - - - - - - (132,415) (105,775) (15,662) (47,394) (132,415) (105,775) The loan to Harbourside Development Limited is secured and earns interest at 6.5%. The loan to Pacific Rumana Limited is unsecured and earns interest at 9%. The loan from Consort Express Lines Limited’s associates is unsecured and incurs interest at 2%. 46 Steamships Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 10. Property, plant & equipment Consolidated 2019 Cost Accumulated depreciation (including impairment losses) Net book value Property Ships Plant and Vehicles Right-of-use Assets Total 656,517 231,030 435,220 47,812 1,370,579 (291,676) 364,841 (118,369) 112,661 (347,392) (2,496) (759,933) 87,828 45,316 610,646 Opening value Impact of IFRS 16 adoption on 1 January 2019 Additions Lease agreements made during the year Disposals Transfer from investment properties Depreciation 294,725 - 37,411 - - 45,142 (12,437) 364,841 100,189 - 36,574 - (4,506) - (19,596) 112,661 97,488 - 20,265 - (837) - (29,088) 87,828 - 14,945 20,265 32,867 - - (2,496) 45,316 Closing value 2018 Cost 392,677 236,020 392,010 Accumulated depreciation (including impairment losses) Net book value Opening value Additions Disposals Sale of subsidiary Transfer to investment properties Depreciation Impairment Assets held for sale Closing value (97,952) 294,725 367,573 4,015 (131) (17,396) (48,658) (10,678) - - 294,725 (135,831) 100,189 (294,522) 97,488 137,098 4,399 (12,583) - - (21,139) (7,586) - 100,189 123,456 47,700 (10,486) (24,020) - (31,675) (4,124) (3,363) 97,488 492,402 14,945 94,250 32,867 (5,343) 45,142 (63,617) 610,646 1,020,707 (528,305) 492,402 628,127 56,114 (23,200) (41,416) (48,658) (62,188) (11,710) (3,363) 492,402 - - - - - - - - - - - - The premises used by the Group of K45.1 million, classified as investment properties as at 31 December 2018, were transferred to properties within line ‘Property, plant and equipment’ during 2019 due to change in primary use of property. Refer to the Note 1(m). Parent Entity 2019 Cost Accumulated depreciation Net book value Opening value Impairment Disposals Additions Depreciation Closing value 76,488 (54,004) 22,484 23,811 - 406 (1,733) 22,484 - - - - - - - - 5,534 (4,622) 912 743 (338) 803 (296) 912 - - - - - - - - 82,022 (58,626) 23,396 24,554 (338) 1,209 (2,029) 23,396 Steamships Annual Report 2019 47 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 10. Property, plant & equipment (continued) Parent Entity 2018 Cost Accumulated depreciation Net book value Opening value Impairment Disposals Depreciation Closing value Property Ships Plant and Vehicles Total 75,810 (51,999) 23,811 23,428 2,061 - (1,678) 23,811 - - - - - - - - 5,702 (4,959) 743 1,117 78 (65) (387) 743 81,513 (56,958) 24,554 24,545 2,139 (65) (2,065) 24,554 (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 are in the course of construction: Consolidated Parent Entity 2019 2018 2019 2018 Property (classified as investment properties in note 11) Plant and vehicles Total assets in the course of construction 12,243 22,377 34,620 34,015 19,118 53,133 - - - - - - The cost of additions in 2019 includes capitalised borrowing costs of K0.06M (2018: K1.7M) in relation to qualifying assets. The Group used capitalisation rate of 5.85% p.a. to determine the amount of borrowing costs eligible for capitalisation. (b) Impairment losses During the year the Directors performed an impairment review on certain assets with impairment indicators. As a result of this assessment, there is no further impairment required (2018: K11.7M). For 2018 impairment was recorded on property, plant and equipment, out of which K7.7M relates to ships in Consort business and K4M to equipment and vehicles in port services entities within the logistic business. Recoverable amount of ships is based on market valuations. Ships have been assessed against market value on an annual basis using a valuation technique of market comparable prices. The valuation as at 31 December 2019 was carried out by two independent firms of valuators, Australian Independent Shipbrokers and GPA Maritime & Engineering Consultants Pty Ltd, who both hold a recognised and relevant professional qualification and who have recent experience in valuation of assets of similar location and category. The assessed average market value of ships is K82.2M. If market price of ships had been 10% lower, recoverable amount would be K75.3M (2018:K80.9M) resulting in an additional impairment charge of K3.7M (K6.7M). There are no other further conditions that indicate impairment of property, plant and equipment as at 31 December 2019 in other businesses of the Group. In 2018 recoverable amount of equity and vehicles in port services entities (for which decision on their voluntary liquidation was made by directors in 2018) was based on fair value less costs to sell, which is determined based on sales agreements made in early 2019. (c) Right-of-use assets The recognised right-of-use assets relate to properties leased by the Group for its use (i.e. leased buildings). The movement of right-of-use assets classified under property, plant and equipement is provided below: Opening net book amount Effect on adoption of IFRS 16 Balance at 1 January 2019 Lease agreements made during the year Depreciation Closing net book amount At cost Accumulated depreciation 48 Steamships Annual Report 2019 Properties PGK’000 Total PGK’000 - 14,945 14,945 32,867 (2,496) 45,316 47,812 (2,496) 45,316 - 14,945 14,945 32,867 (2,496) 45,316 47,812 (2,496) 45,316 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 11. 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 in ‘Property’ within note 10. Cost Accumulated depreciation Net book value Opening value Transfers (to)/from property, plant & equipment Right of use assets Depreciation Closing value (a) Right-of-use assets As at 31 December 2019 Opening net book amount Effect on adoption of IFRS 16 Balance at 1 January 2019 Depreciation Closing net book amount At cost Accumulated depreciation Consolidated Parent Entity 2019 2018 2019 2018 542,874 (182,592) 360,282 398,173 (45,142) 25,902 (18,651) 360,282 596,542 (198,369) 398,173 368,998 48,658 - (19,483) 398,173 - - - - - - - - - - - - - - State Land Leases PGK’000 - 26,390 26,390 (488) 25,902 26,390 (488) 25,902 Total PGK’000 - 26,390 26,390 (488) 25,902 26,390 (488) 25,902 104,985 (5,068) (13,203) (b) Amounts recognised in profit/loss for investment properties Rental income Repairs and maintenance attributable to rental properties under non-cancellable leases Operating expenses directly attributable to rental properties under non-cancellable leases 110,664 (6,753) (21,088) (c) 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 2019 for a selected sample of representative properties and combination of independent professional valuation and discounted value in use assessments for some of the hotel properties. Included in properties are the following: Investment properties Other properties (note 10) Total NBV Lower Higher Valuation Range 360,282 364,841 725,123 1,330,321 460,271 1,790,592 1,662,901 575,339 2,238,240 The management has utilised certain historical facts and available relevant market data in reaching their opinion as to the valuation of the properties up to the date of valuation, including use of comparable sales and capitalisation rates. (d) Non-current assets pledged as security Refer to note 16 for information on non-current assets pledged as security by the Group. Steamships Annual Report 2019 49 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 11. Investment properties (continued) (e) Contractual receivables Minimum lease receivables under non-cancellable operating leases of investment properties not recognised in the financial statements are receivable as follows: Within one year Later than one year but not later than five years Later than five years 12. Intangible assets Opening balance Disposal of Subsidiary Closing balance Consolidated Parent Entity 2019 2018 2019 2018 48,921 113,546 254,361 416,828 63,428 150,673 154,574 368,675 - - - - - - - - Consolidated Parent Entity 2019 2018 2019 2018 76,433 - 76,433 80,002 (3,569) 76,433 - - - - - - Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to operating segment. The goodwill balance of K76.4M (2018: K76.4M) is attributable to various business acquisitions in the logistics segments including Pacific Towing (K67.4M) 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 5% for New Britain Shipping and Pacific Towing (2018: 5% for New Britain Shipping and 8% for Pacific Towing). A pre-tax discount rate of 12.5% per annum (2018: 12.5% per annum) has been used and reflects specific risks relating to the operating segment. The recoverable amount of the Pacific Towing CGU and New Britain Shipping CGU exceed their carrying amounts by K1.3M (2018: K43.5M) and K10.9M (2018: K37.7M), respectively. Revenue forecasts used in impairment assessment of Pacific Towing CGU do not include salvage revenue due to its fluctuations from year to year. Management determined the budgeted gross margin based on past performance and its market expectations. If the revised growth rate beyond three years had been 3% lower than management’s estimates the Group would need to reduce the carrying value of goodwill of Pacific Towing by K23.4M and the carrying value goodwill of New Britain Shipping by KNil. The CGUs’ carrying amount would exceed the value in use at a growth rate lower than 4% p.a. for Pacific Towing and negative growth (contraction) rate higher than 2.1%p.a. for New Britain Shipping. The discount rates used are pre-tax, and reflect specific risks relating to the relevant CGUs. If the revised estimated pre-tax discount rate applied to the discounted cash flows of the Pacific Towing CGU and New Britain Shipping CGU had been 2% higher than management’s estimates, the carrying value of goodwill of Pacific Towing and New Britain Shipping would be reduced by K20.3 million and KNil. The CGUs’ carrying amount would be equal to value in use at a discount rate of approximately 12.6% p.a and 18.0% p.a. respectively. 13. Trade and other payables Trade payables Accruals Other payables Consolidated Parent Entity 2019 2018 2019 2018 32,584 36,384 6,439 75,407 24,938 77,851 1,488 104,277 - - - - - - 10 10 All trade and other payables are due and payable within 12 months and are recorded at their fair value. 14. Lease Liabilities As disclosed in Note 10, the right-of-use assets and related lease liabilities are recognised in relation to the following types of assets: state land leases related to properties owned by the Group (including its investment properties) and properties (i.e. buildings leased by the Group for its use). On implementation at 1 January 2019 right-of use assets were measured at the amount equal to the lease liabilities. Lease liabilities are measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. 50 Steamships Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 14. Lease Liabilities (continued) State land leases Properties Total lease liabilities 31 December 2019 PGK’000 26,198 46,038 72,236 1 January 2019 PGK’000 29,654 11,681 41,335 Total lease liabilities as of 31 December 2019 include current liabilities of K3,772,000 (1 January 2019: K2,832,000) and non-current liabilities of K68,464,000 (1 January 2019: K38,503,000). Minimum lease payments: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Total Less: Unexpired finance charges Present value of lease liabilities: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Total Interest on lease liabilities recognized in profit or loss by the Group amounts to PGK 3.3M. Movement in net lease liabilities as per below: Opening Effect on adoption of IFRS 16 (Refer note 29) Lease agreements made during the year Finance costs Repayment 5,246 20,987 115,330 141,563 (69,327) 72,236 3,772 17,895 50,569 72,236 - 41,335 32,867 3,282 (5,248) 72,236 2,832 11,327 84,429 98,588 (57,253) 41,335 2,692 9,627 29,016 41,335 - - - - The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4.5% p.a. Management assessed that weighted average interest rate on borrowings obtained from financial institutions during 2019 and previous years approximates incremental borrowing rate at the date of initial adoption of IFRS 16 and at 31 December 2019. For related management’s judgments refer to Note 1(z). For adjustments recognized on adoption of IFRS 16 on 1 January 2019, refer to Note 29. The Group recognized expenses relating to short-term leases and expenses relating to leases of low-value assets that are not short- term leases of K15.8M and K1.7M for the year ended 31 December 2019, respectively. These expense are included in operating expenses. The Group’s leases have no variable payments. 15. Provisions for other liabilities and charges Opening value Charged to profit & loss Disposal of subsidiary Acquisition of subsidiary Utilised during year Closing value Current Non-current Employee Dry Dock Insurance Claims 2019 Total 17,015 7,909 - - (8,402) 16,522 5,285 11,237 16,522 500 - - - (500) - - - - 50,650 - - - (4,393) 46,257 46,257 - 46,257 68,165 7,909 - - (13,295) 62,779 51,542 11,237 62,779 2018 Total 18,290 7,081 (963) 50,650 (6,893) 68,165 56,685 11,480 68,165 A description of employee and dry dock provisions is disclosed in note 1p. Provision for insurance claims mostly relates to provision for disputed insurance claim, as criteria for recognition of provision were met. Refer to Note 1(p). Steamships Annual Report 2019 51 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 16. Borrowings Current: Bank overdrafts (secured) Bank loans Other loans (unsecured) Non-current: Bank loans (secured) Total Borrowings Consolidated Parent Entity 2019 2018 2019 2018 1,743 - 160 1,903 302,000 302,000 303,903 4,682 120,000 19,503 144,185 182,000 182,000 326,185 - - - - - - - - - - - - - - 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 4.5% (2018: 4.5%). Bank overdrafts are interest-only with no agreed repayment schedule. Bank loans are secured loans with varying 1 to 4 year terms. The effective interest rate on other loans is 2% (2018: 7.83%). The fair value of borrowings approximates their carrying amounts. Borrowing terms, margins and credit risk factors approximate currently obtainable levels for similar facilities. 17. Issued capital (a) Issued and paid up capital Consolidated Parent Entity 2019 2018 2019 2018 Ordinary shares 24,200 24,200 24,200 24,200 (b) Number of shares Number of shares (000’s) Ordinary shares 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. (c) Dividend The Directors advise that a final dividend of 55 toea per share will be paid immediately after the Annual General Meeting on 17th June 2020. This brings the total dividend declared for the year to 80 toea per share. Dividends payable to shareholders resident outside of Papua New Guinea will be converted to Australian Dollars at the prevailing rate which the Company is able to secure. During the year the Company paid dividends totaling 145 toea per share which includes the final dividend of 2018 and totaled K 44.9M 52 Steamships Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 18. Related party disclosures (a) Parent entity Until 3 September 2019, the Group was controlled by John Swire & Sons (PNG) Limited, which owned 72.12% of the Company’s shares. John Swire & Sons (PNG) Limited sold its shares in Steamships Trading Company Limited to JS & S (PNG) Ltd, incorporated in England on 3 September 2019. The ultimate holding company as at 31 December 2019 is John Swire & Sons Ltd, incorporated in England. (b) Interest in subsidiaries, associates and joint ventures: These are set out in notes 21, 22 and 23 respectively. (c) Directors: G.L. Cundle, M.R. Scantlebury and R.P.N. Bray are directors of John Swire & Sons (PNG) Limited. (d) Remuneration: Income received or due and receivable both by Directors and general managers in connection with the management of the Group companies is shown in the Directors’ Report. Consolidated Parent Entity 2019 2018 2019 2018 Key management personnel disclosure Wages and salaries Other short term benefits 12,118 1,249 13,584 1,340 (e) Material transactions: Sales of goods and services - Associates & joint ventures - Key management - Associated Groups Lease and rental income - Associates & joint ventures Management fee received - Associates & joint venture Container & charter hire - Associates & joint venture - Shareholders & associate companies Purchase of goods and services - Associates & joint ventures - Associated groups Purchase of assets - Associated groups Lease rental expense - Other shareholders Finance Cost - Associates & joint ventures - Other shareholders Dividends paid - Other shareholders (minority interest) - Controlling shareholder - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 454 56 14,037 1,717 771 216 374 (46) (9,558) (140) 451 62 15,712 2,271 133 1,001 1,590 (408) (9,937) - - (1,236) (482) - (891) (1,516) (10,085) (32,427) (10,639) (19,008) - (32,427) - (19,008) Steamships Annual Report 2019 53 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 18. Related party disclosures (continued) - Significant shareholder Loans to/(from) related companies - Other shareholders Consolidated Parent Entity 2019 2018 2019 2018 (12,535) (7,349) (12,535) (7,349) (160) (19,503) - - - - - - 500 - 5,135 - - - - - - - - - - - 500 - 5,212 - - - - - All transactions with related parties are made on normal commercial terms and conditions. Balances with related companies: Associates and joint ventures: Consort associates (note 9) Harbourside Development Limited (note 9) Morobe Terminals Limited (note 9) Consort shareholders (note 16) Basilok Limited (note 16) Loans to related companies: Colgate Palmolive Limited (note 9) Harbourside Development Limited (note 9) Subsidiary Companies (note 9) Pacific Rumana Limited (note 9) Huhu Rural LLG (note 9) Viva No. 31 Limited (note 9) Wonye Limited (note 9) Nikana Stevedoring Limited (note 9) (15,662) - - - (160) 500 55,330 - 28,930 1,640 2,000 27 150 (29,883) (7,968) (9,543) (19,343) (160) 500 34,114 - 29,530 1,587 - - - 54 Steamships Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 19. Reconciliation of cash flows (a) Cash generated from operations Profit for the year after tax Depreciation and impairment Dividend and interest income Net loss/(gain) on sale of fixed assets Gain on sale of subsidiary Share of profit of associates and joint ventures Change in operating assets and liabilities (Increase)/decrease in trade debtors and other receivables (Increase)/decrease in inventory (Increase)/decrease in deferred tax asset Increase /(decrease) in operating assets (Decrease)/increase in trade creditors and other payables (Decrease)/increase in other operating liabilities (Decrease)/increase in income tax payable (Decrease)/increase in deferred tax liability Consolidated Parent Entity 2019 2018 2019 2018 47,366 82,268 - (15,783) - (5,010) 40,838 2,712 (628) 3,363 (28,870) (5,386) (9,152) 137 63,701 82,973 - 390 (48,583) (5,628) (62,092) (4,288) 27,588 (2,747) 18,278 52,099 (1,407) (3,602) 48,916 2,029 94,868 2,064 (48,000) (59,634) - - - - - (49) (36) - (127) 144 - - (34,644) - - - (104) (9) - 9 40 - Net cash inflow from operating activities 111,855 116,682 2,877 2,590 (b) Net loan reconciliation Net debt as at 31 December 2017 Borrowing from related parties Repayments Net debt as at 31 December 2018 Adoption of IFRS 16 Borrowings Repayments Repayment of minority shareholder loan - purchase of additional shares in subsidiary (Note 24) Lease liability-2019 agreement and finance costs Payment of lease liabilities Net debt as at 31 December 2019 20. Retirement benefit plans Lease liabilities Bank Loans Other Loans Total - - - - (41,335) - - - (36,148) 5,247 (72,236) (343,627) (74,015) (417,642) - 41,627 (5,236) 12,354 (5,236) 53,981 (302,000) (66,897) (368,897) - (10,000) 10,000 - - - - - 31,732 19,343 - - (41,335) (10,000) 41,732 19,343 (36,148) 5,247 (302,000) (15,822) (390,058) The total cost of retirement benefits of the Group in 2019 was K5.5M (2018: K6M). 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 parent entity does not employ staff directly; consequently there was no charge during the year. Steamships Annual Report 2019 55 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 21. Subsidiaries and transactions with non-controlling interests 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): Equity Holdings* Equity Holdings* Name of Entity Country of Incorporation Class of Shares 2019 2018 Consort Express Lines Limited****** Kavieng Port Services Limited Kiunga Stevedoring Company Limited Lae Port Services Limited***** Madang Port Services Limited New Britain Shipping Limited** Oro Port Services Limited Pacific Towing (PNG) Limited Palm Stevedoring & Transport Limited Port Services PNG Limited***** Steamships Limited Windward Apartments Limited Motukea United Limited United Stevedoring Limited*** Morobe Terminals Limited**** Croesus Holdings Limited Croesus Limited Croesus Re PCC Limited Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Isle of Man Papua New Guinea Isle of Man Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 60 100 51 60 50 100 100 66.7 54 100 100 64.1 100 50.5 100 100 100 70.2 60 100 51 60 50 100 100 56.7 54 100 100 50.9 16.9 42.9 100 100 100 *The portion of ownership is equal to the proportion of voting power held. ** Consolidated by virtue of control over the operating decisions and returns. As at 31 December 2019, Steamships Trading Company Limited still has control over this entity. *** United Stevedoring Limited became subsidiary in May 2019 ****Morobe Terminals Limited became subsidiary in May 2019 and is in liquidation *****Lae Port Services and Port Services Limited are in liquidation ******As disclosed in Note 24, Steamships Trading Company Limited acquired the minority shareholding (29.76%) of Consort Express Lines Limited in May 2019 to increase its shareholding to a fully owned subsidiary. Shares in subsidiary companies have been stated at cost or fair value on acquisition less dividends received from pre-acquisition profits. The summarized financial information of the Group’s subsidiaries with non-controlling interest that are material to the Group as at 31 December 2019 and 31 December 2018 is as follows: 2019 Ownerships Interest % Assets Liabilities Madang Port Services Limited New Britain Shipping Limited Motukea United Limited 60 50 64.1 5,711 19,189 3,452 (1,149) (1,753) (1,160) 2018 Consort Express Lines Limited Lae Port Services Limited Madang Port Services Limited New Britain Shipping Limited Port Services PNG Limited Motukea United Limited Ownerships Interest % Assets Liabilities 70.2 51 60 50 54 50.9 219,553 19,494 5,721 17,745 9,756 3,407 (231,770) (494) (535) (1,468) (990) (1,193) Carrying Value 4,562 17,436 2,292 Carrying Value (12,217) 19,000 5,186 16,277 8,766 2,214 Revenue Profit 5,383 11,134 6,824 (28) 1,572 214 Revenue Profit 162,854 1,997 5,131 13,072 4,473 16,266 (23,288) (1,862) 1,032 4,721 (2,610) 2,000 56 Steamships Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 22. Investment in associates (a) Movement in carrying amounts Consolidated Parent Entity 2019 2018 2019 2018 Opening value Share of profits before tax Income tax expense Change in control of associate companies to subsidiaries Dividends received Closing value 34,359 561 (168) (1,681) (21,698) 11,373 38,287 170 (51) - (4,047) 34,359 - - - - - - - - - - - - The equity method is used to account for all interests in associates on a consolidated basis. (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 2019 Makerio Stevedoring Limited Nikana Stevedoring Limited Riback Stevedoring Limited Morobe Terminals Limited 2018 Makerio Stevedoring Limited Nikana Stevedoring Limited Riback Stevedoring Limited United Stevedoring Limited Morobe Terminals Limited Ownerships Interest % 45.0 45.0 49.0 43.0 Ownerships Interest % 31.7 31.7 34.4 16.9 43.0 Assets Liabilities 1,317 1,356 8,830 - 11,503 (57) (239) 426 - 130 Assets Liabilities 1,687 1,888 26,860 602 9,163 40,200 340 305 5,582 601 (987) 5,841 Revenue Profit Carrying Value 1,374 1,595 8,404 - 540 414 378 - 28 11 559 (205) 393 11,373 1,332 Carrying Value 1,347 1,583 21,278 1 10,150 34,359 Revenue Profit 217 136 7,971 539 3,242 12,105 99 158 649 3 (790) 119 The associates provide stevedoring services to various external and Group shipping entities. 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 2019 57 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 23. Investment in joint ventures (a) Movement in carrying amounts Consolidated Parent Entity 2019 2018 2019 2018 Opening value Share of profits before tax Income tax expense Elimination of gain on sale of land to associate company Dividends received Closing value 30,917 6,633 (2,016) (2,821) (2,500) 30,213 28,909 7,870 (2,362) - (3,500) 30,917 36,583 43 - - - 36,626 36,583 - - - - 36,583 The interest in joint ventures is accounted for in the financial statements using the equity method of accounting. (b) Information relating to the joint ventures is set out below. 2019 Ownership Interest % Assets Liabilities Carrying Value Revenue Profit Colgate Palmolive (PNG) Limited Harbourside Development Limited Pacific Rumana Limited Viva No. 31 Limited Wonye Limited 50 50 50 50 50 15,173 105,204 3,588 13,122 27,279 4,502 105,204 228 9,390 14,829 10,671 44,714 4,084 - 3,360 3,733 12,450 9,838 1,921 1,744 2,422 210 (1) 385 (61) 164,366 134,153 30,213 60,639 4,617 2018 Assets Liabilities Ownership Interest % Colgate Palmolive (PNG) Limited Harbourside Development Limited Pacific Rumana Limited Viva No. 31 Limited Wonye Limited 50 50 50 50 50 13,254 89,287 4,112 10,026 28,424 4,168 86,675 751 6,679 15,913 Carrying Value 9,086 2,612 3,361 3,346 12,512 Revenue Profit 40,309 5,464 9,974 2,872 574 1,440 26 566 (299) (248) 145,103 114,186 30,917 55,168 5,509 The Group’s share of the capital commitments of joint ventures at 31 December 2019 is K98.5M (2018: K4M). There are no contingent liabilities arising from the Group’s interests in the joint ventures. 58 Steamships Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 24. Business Combinations Steamships Trading Company Limited acquired the minority shareholding (29.76%) of Consort Express Lines Limited in May 2019 to increase its shareholding to a fully owned subsidiary. Purchase consideration paid for acquisition of minority shares in subsidiary Repayment of minority shareholder loan Add/(less): acquisition of minority interest Equity adjustment on gain in control of subsidiaries 2019 K’000 51,202 (19,343) 10,738 (2,302) 40,295 During 2019 the directors made the decision to amalgamate Consort Express Lines Limited into Steamships Limited. The amalgamation is effective as at 31 December 2019. Last Period On 10th July 2018, the group bought all shares of Croesus RE PCC Limited from an entity under common control for no consideration which resulted in unrealized gain to equity of the Group to extent of the value equivalent to net assets of acquired entities. As the transaction was between entities under common control, assets and liabilities were recorded at existing book values at the date of acquisition, with a corresponding adjustment recorded in retained earnings. The assets and liabilities recognized as a result of the acquisition are as follows: Cash and term deposits Receivables Other assets Insurance reserves Other payables Net assets acquired 25. Discontinuing Activities Last Period 47,632 63,956 190 (64,467) (13,882) 33,429 On the 3rd of July 2018, the Group disposed of its 100% interest in Laga Industries Ltd. The 31st December 2018 results (K’000) from the discontinued activities are derived from: (a) Profit & Loss for the period: Revenue Operating expenses Profit before tax Profit after tax Gain on disposal of subsidiary 2018 66,291 (64,510) 1,781 1,247 48,583 (b) The Group has two subsidiaries in liquidation and their assets and liabilities are disclosed as Assets & Liabilities held for Sale. Balance sheet as at 31st December 2019 and 31st December 2018: 31 December 2019 31 December 2018 Lae Port Services Limited Port Services Limited Lae Port Services Limited Port Services Limited Assets held for sale - - 636 2,727 Steamships Annual Report 2019 59 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 25. Discontinuing Activities (continued) (c) An analysis of the cash flows of discontinued operations is as follows: Operating cash flows Investing cash flows Financing cash flows Net cash flows Opening balance Cash disposed on sale of Laga Industries Closing cash flow balance 2018 (6,459) (8,593) 16,487 1,435 204 1,639 - The subsequent sale has resulted in an approximate gain of K48.6M profit for the group in 2018. 26. Segmental reporting (a) Description of segments The Board monitors the business from a product perspective and have identified three reportable segments. A brief description of each segment is outlined below: • 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. • Commercial and investment – consists of the commercial, head office administration function and insurance activities. (b) Segment information The segment information provided to the Board for the reportable segments for the year ended 31 December 2019 is as follows:: 2019 External revenue Interest revenue Interest expense Segment results Share of joint ventures and associates profit Total tax expense Profit from continuing operations Segment assets Segment liabilities Net assets Hotels & Property Logistics Commercial & Investments (and eliminations) Total 222,621 358,507 994 (14,421) 68,701 532 (18,310) 50,923 1,506 (3,644) 5,592 393 (2,994) 2,991 4,040 5,437 282 (13,009) 4,085 2,376 585,168 7,937 (17,783) 61,284 5,010 (18,928) (6,548) 47,366 741,088 401,809 308,746 1,451,643 (259,406) (282,185) (7,262) (548,853) 481,682 119,624 301,484 902,790 Total assets includes investment in joint ventures and associates Capital expenditure Depreciation 19,542 25,190 44,756 11,373 66,220 34,552 10,671 1,637 2,960 41,586 93,047 82,268 60 Steamships Annual Report 2019 26. Segmental reporting (continued) 2018 External revenue Interest revenue Interest expense Segment results Share of joint ventures and associates profit Total tax expense Profit from continuing operations Segment assets Segment liabilities Net assets Hotels & Property Logistics Commercial & Investments (and eliminations) Total 230,935 344,638 - 11,837 65,509 45 (18,431) 47,123 1,268 13,201 2,630 119 (38,289) (35,540) 6,242 3,931 (9,564) (6,010) 5,464 2,834 2,288 581,815 5,199 15,492 62,129 5,628 (53,886) 13,871 703,784 394,852 406,142 1,504,778 (253,291) (240,412) (71,047) (564,750) 450,493 154,440 335,095 940,028 Total assets includes investment in joint ventures and associates Capital expenditure Depreciation 21,836 25,918 42,078 34,359 19,918 37,239 9,086 10,478 3,657 65,276 56,114 82,974 These figures include non-controlling interests share of operating profits and assets. Revenue from the hotels & property business mostly relates to the provision of services and is recognized over time. A minor portion represents revenue from the sale of goods and is recognized at a point in time. Similarly, revenue from the logistics business mostly relates to the provision of services and is recognised over time. Revenue from the commercial segment relates to sale of goods and is recognised at a point in time. (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 two insignificant business operation’s in the Solomon Islands and Isle of Man. 27. Contingent assets and liabilities (a) Contingent Assets During 2017 the Company received a salaries and wages tax default assessment of K15.2M, including penalties and interest, from the Internal Revenue Commission of PNG (“IRC”) for the periods from 2006 to 2016. The Company recognised related expenses in the 2017 financial statements. During 2017, the Company paid the assessment, and lodged the appropriate objections as required by the IRC. Although management are confident of a successful outcome, the application of IAS37 requires such recovery to be considered as a contingent asset. (b) 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. Steamships Annual Report 2019 61 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s unless otherwise stated) 28. Commitments (a) Capital commitments Contracts outstanding for capital expenditure: - less than 12 months - 1-5 years Consolidated Parent Entity 2019 2018 2019 2018 8,883 - 8,883 8,289 - 8,289 - - - - - - (b) Lease commitments: Group as lessee Operating lease commitments in respect of state land leases and leased premises are as follows: - less than 12 months - 1-5 years - over 5 years 29. Effect on adoption of IFRS 16 State land leases 2018 1,534 6,137 75,175 82,846 Property 2018 1,298 1,298 - 2,596 The adoption of IFRS 16 ‘Leases’ has resulted in changes in the Group’s accounting policies, refer to Note 1(a) (iii) and 1(x). The effect arising from these changes on the statement of financial position of the Group are as follow: Non-current assets Property, plant and equipment Investment properties Total non-current assets Total assets Non-current liabilities Lease liabilities Total non-current liabilities Current liabilities Lease liabilities Total current liabilities Total liabilities Net assets Operating lease commitments at 31 December 2018 Effects from discounting using the incremental borrowing rate of 4.5% Add/(less): adjustments as a result of a different treatment of extension options Add/(less): adjustments relating to changes in payments Lease liabilities recognised as at 1 January 2019 62 Steamships Annual Report 2019 As at 31 Effect of adoption As at 1 January December 2018 PGK’000 of IFRS16 PGK’000 2019 PGK’000 492,402 398,173 1,099,698 1,504,778 14,945 26,390 41,335 41,335 507,347 424,563 1,141,033 1,546,113 - 212,209 38,503 38,503 38,503 250,712 2,832 2,832 41,335 2,832 355,373 567,582 - 940,028 - 352,541 564,750 940,028 PGK’000 85,612 32,084 8,637 614 41,335 30. Subsequent events Subsequent to 31 December 2019, the global COVID-19 pandemic has had a significant adverse impact on the global economy and, at the date of reporting, Papua New Guinea is in a State of Emergency (“SOE”). The impact on the Group of the global COVID-19 pandemic is set out in Note 1 to the financial statements. In March 2020 the Directors declared a final dividend of 55 toea per share payable immediately after the Annual General Meeting on 17th June 2020 amounting to K17M. No other matter or circumstance has occurred subsequent to the end of the reporting period that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. Steamships Annual Report 2019 63 NOTES TO THE FINANCIAL STATEMENTSSteamships Trading Company Limited Year Ended 31 December 2019 (Amounts in Kina 000’s) INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited Report on the audit of the financial statements of the Company and the Group Our opinion We have audited the financial statements of Steamships Trading Company Limited (the Company), which comprise the statements of financial position as at 31 December 2019, and 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 which 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 2019 or from time to time during the financial year In our opinion, the accompanying financial statements: • • 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 2019, and their financial performance and cash flows for the year then ended. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements . Our firm carries out other services for the Group in the areas of taxation and other non-audit services. The provision of these other services has not impaired our independence as auditor of the Company and the Group. Material uncertainty related to going concern Without modifying our audit report, we draw attention to note 1 in the financial statements, which indicates that the Group’s operations have been significantly impacted by the global COVID-19 pandemic in an adverse manner. These conditions, along with other matters set forth in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern and therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business and at the amounts stated in the financial statements. Our audit approach An audit is designed to provide reasonable assurance about whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the management structure of the Company and the Group, their accounting processes and controls and the industries in which they operate. PricewaterhouseCoopers PwC Haus, Level 6, Harbour City, Konedobu. PO Box 484, PORT MORESBY, PAPUA NEW GUINEA T: (675) 321 1500 / (675) 305 3100, F: (675) 321 1428, www.pwc.com.pg 64 Steamships Annual Report 2019 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited Materiality Audit scope Key audit matters • • • • For the purpose of our audit of the Group we used overall group materiality of 5% of the Group’s average annual profit before tax for the three year period ended 31 December 2019 after adding back certain non-recurring items . • • We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole. We chose Group profit before tax because, in our view, it is the metric against which the performance of the Group is most commonly measured and is a generally accepted benchmark. We selected 5% based on our professional judgement noting that it is also within the range of commonly acceptable related thresholds . We (PwC Papua New Guinea) conducted audit work over all the subsidiaries which comprise the Group consolidation. • All subsidiaries of the Group are incorporated and operating in Papua New Guinea with the exception of one subsidiary which has operations in the Solomon Islands and two subsidiaries incorporated in the Isle of Man . • • All significant associates of the Group are incorporated and operating in Papua New Guinea and audited by PwC Papua New Guinea. Our audit focused on where the directors made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. Amongst other relevant topics, we communicated the matter referred to in the Material uncertainty related to going concern section and the following key audit matters to the Audit and Risk Committee: - Non-current asset impairment assessment - Goodwill impairment assessment • These matters are further described in the Key audit matters section of our report . Steamships Annual Report 2019 65 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the current period. The key audit matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters . In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be key matters to be communicated in our report. Further, commentary on the outcomes of the particular audit procedures is made in that context. Key audit matter How our audit addressed the key matter Non-current asset impairment assessment (Refer to note 10 of the financial statements) As there was an indicator of potential impairment we have considered and tested the Group’s assessment of the estimated sale value of the ships . Included within property, plant and equipment are Ships with an aggregate net book value of K112.7 million as at 31 December 2019 . We evaluated the competency, qualifications and objectivity of the experts engaged by the Group to provide the valuations of the ships . The Group’s financial performance has been impacted by a prolonged weakness in economic conditions in Papua New Guinea. These conditions adversely impacted levels of shipping throughout the country. We discussed the valuation methodologies and assumptions with the experts. This included understanding and evaluating the impact of the dry docking schedules on the determined values . We considered this a key audit matter because economic conditions are a potential indicator of impairment in the value of the ships. The Group has assessed impairment by reference to estimated sales values of the ships. The impairment assessment is sensitive to changes in key assumptions about the estimated sales value of the ships . The sales values have been determined by reference to external valuations of the fleet which contain assumptions about the global supply and demand for specific ship types and dry docking schedules. In applying the external valuations, the directors have used their professional judgement to consider the impact of the specific dry docking schedule of the individual ships. We tested, on a sample basis, the accuracy and relevance of the input data provided by the Group to the experts. We compared the valuations of the individual ships with the valuations in the previous year. We also compared the selling prices of ships sold during 2019 with the most recent valuations for each respective ship . We compared the Group’s assertions and estimates regarding estimated useful lives and residual values with the previous year. We also considered whether the Group’s assessment of the condition of the ships and their future operating plans were consistent with historical experience and our knowledge of the business . 66 Steamships Annual Report 2019 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited Goodwill impairment assessment (Refer to note 12 of the financial statements) The Group has goodwill totalling K76.4 million at 31 December 2019 . In accordance with the accounting policy in note 1(n) of the financial statements, the Group has assessed the goodwill balance for impairment at 31 December 2019 . The prolonged weakness in economic conditions in a number of the markets in which the Group operates in Papua New Guinea has increased the risk that the carrying values of the components of goodwill may be impaired. We have considered and tested the financial models used by the Group to determine the value of the cash generating units. We compared the models with the previous year’s models and found them to be consistently structured and consistent with the basis of preparation required by accounting standards . We compared the forecast revenues and expenditures to approved budgets and obtained an understanding and evaluated the Group’s budgeting procedures, upon which forecasts are based. We also evaluated the reliability of estimates made by comparing forecasts made in prior years to actual outcomes . The Group has calculated the value of the respective cash generating units containing goodwill balances based on financial models comprising cash flow projections. The cash flow projections use a number of forward looking assumptions, including revenue and cost growth, and the value calculation is sensitive to these . We benchmarked the assumptions used around revenue and cost inflation with external forecasts, and the discount rates with our expectation based on the overall Weighted Average Cost of Capital (WACC) of the Group. Together with our valuation expert we reviewed the methodology used in determining the discount rate applied . We considered this a key audit matter because of the significant judgements around future revenues and costs, and the discount rate to be applied in determining the value of the cash generating units . We performed sensitivity analysis on assumptions to ascertain the extent of change that would be required in key assumptions for the respective goodwill balances to be impaired . We determined that the calculations were more sensitive to inflation assumptions and discount rates and focused our testing on these assumptions . Information other than the financial statements and auditor’s report The directors are responsible for the annual report which includes other information. Our opinion on the financial statements does not cover the other information included in the annual report and we do not express any form of assurance conclusion on the other information . In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact . We have nothing to report in this regard . Steamships Annual Report 2019 67 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited Responsibilities of the directors for the financial statements The directors are responsible, on behalf of the company for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and other generally accepted accounting practice in Papua New Guinea and the Companies Act 1997 and for such internal control as the directors determine is necessary to enable the preparation of financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error . In preparing the financial statements, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion . Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit . We also: • • • • • • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control . Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. 68 Steamships Annual Report 2019 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards . From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulations preclude public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements The Companies Act 1997 requires that 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 2019: • We have obtained all the information and explanations that we have required; • In our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records . Who we report to 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 Christopher Hansor Partner Registered under the Accountants Act 1996 Port Moresby 31 March 2020 Steamships Annual Report 2019 69 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2019 Steamships Trading Company Limited and Subsidiary Companies The Directors submit their Annual Report for the year ended 31 December 2019 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 8. The Group continues to operate in the segments of Hotels and Property, Logistics and Commercial & Investments. 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 K49,995,000 (2017: K69,529,000). Dividend The Directors advise that a final dividend of 55 toea per share will be paid after the Annual General Meeting on 17th June 2020. This brings the total dividend declared for the year to 80 toea per share. Dividends payable to shareholders resident outside of Papua New Guinea will be converted to Australian Dollars at the prevailing rate which the Company is able to secure . Rounding Off Amounts in the Directors’ Report and accounts have been rounded off to the nearest thousand Kina. 70 Steamships Annual Report 2019 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2019 Experience & Interests Register Directors serving at the date of this report 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: G.L. Cundle Chairman since 28th February 2015 Managing Director from 1st January 2013 to 12th January 2015 Member of the Remuneration Committee Member of the Strategic Planning Committee Director since 2013 Mr Cundle 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 General Manager of Steamships Shipping from 1989-1992. He is a Director of John Swire & Sons (PNG) Ltd. He was the Managing Director of Steamships Trading Company Limited from 1st January 2013 to 12th January 2015. He is Chairman and Chief Executive Officer of John Swire and Sons (Australia) Pty Limited. G. Aopi CBE Director since 1997 Mr Aopi has achieved several tertiary degrees in Papua New Guinea, and a Masters of Business Administration from the University of Queensland. He has substantial public service and business experience in PNG, including Secretary of Finance and Planning and Managing Director of Telikom PNG Limited. He presently holds the position of PNG Country Chairman at Oil Search Limited and President of Chamber of Mines and Petroleum. He was previously the Chairman of Telikom PNG Limited and Independent Public Business Corporation (IPBC). He is a Director of Marsh Limited and is involved in a number of other private sector and charitable organizations in Papua New Guinea. R.P.N. Bray Director since 27th August 2018 Appointed Chief Operating Officer on 27th August 2018, Mr Bray was previously Marine Services Director of Singapore based Swire Pacific Offshore Pte Ltd. He was responsible for Swire Pacific Off shore’s ‘subsea, renewables, logistics, seismic, salvage and oil spill divisions. He was formally Chief Operating Officer of Swire Oilfield Services and held various senior operational and commercial positions in Cathay Pacific Airways Ltd in his earlier career. He is a Director of John Swire & Sons (PNG) Ltd and various Steamships Trading Company subsidiaries, joint ventures and associated companies. L.M. Bromley Director since 1st August 2019 Senior Executive of the Bromley Group of Companies for over 11 years. Ms Bromley is currently a Director of the Bromley Group’s various commercial operating companies which include Heli Niugini Limited in Papua New Guinea, PT Sayap Garuda Indah and PT Air Bali in Indonesia, Allway Logistics Limited and Merit Logistic Services Limited in Hong Kong and responsible for the aviation operation, logistics support and group investment functions . She is the Managing Director of Merit Finance Limited which serves as the Bromley Group’s investment arm and also consults for the Bromley Group’s property development and property management. She has previously held position on the Divisional Boards of East West Transport and Steamships Shipping. She graduated from Bond University in Australia and holds both a Bachelor of Commerce and a Bachelor of Laws Steamships Annual Report 2019 71 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2019 Sir M.R. Bromley KBE Member of the Audit 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 a Director of Baht Fung Limited, Allway Logistics Limited, Pegasus Print Group Pty Ltd, Fasteners & More Pty Ltd, Sonway Asia Ltd, Chemica Ltd, Sig No.1 Ltd, Glock No. 1 Ltd, Maps Tuna Ltd, Sek No. 35 Ltd, Hoia Investment Ltd, Venture Ltd and Viva No. 31 Limited. Relevant Interest in Steamships shares: 19 .99% . D.H. Cox OL, OBE Member of the Audit Committee Member of the Strategic Planning Committee Managing Director 2004 to 2012 Director since 2003 Mr Cox joined Steamships as a Manager in 1992 for the Hotels Division.He has extensive experience in Property and Hotel Development within the Asia-Pacific Region. He holds a MBA in International Hospitality and BSc (Hons) in Accounting & Business Management. Mr Cox is also a member of the Steamships Hotels and Properties Advisory Boards. G.J. Dunlop Chairman of the Audit 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 City Pharmacy Group Ltd and Croesus Re PCC Limited. Lady W.T. Kamit CBE Member of the Audit Committee Director since 2005 Lady Winifred Kamit is a former Senior Partner, and currently a consultant at Dentons (formerly Gadens Lawyers) in Port Moresby. Lady Kamit is a Director of Bunowen Services Ltd, Kamchild Limited, Dentons Administration Services Ltd, Post Courier Limited and its subsidiaries, Brian Bell Group and Chairman of ANZ Banking Group (PNG) Ltd. Lady Kamit also serves on a number of non-government and charitable organisations, including Anglicare PNG and as Patron of Business Coalition for Women Inc . 72 Steamships Annual Report 2019 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2019 M.R. Scantlebury Managing Director since 27th August 2018 Finance Director & Company Secretary since June 2016 Mr Scantlebury is a chartered accountant and was previously Director of the Office for Financial Planning at Swire Pacific Ltd in Hong Kong and he has held various senior finance and commercial positions in the Swire group in his career. He is a Director of John Swire & Sons (PNG) Ltd and various Steamships Trading Company subsidiaries, joint ventures and associated companies . J.B. Rae-Smith Director since 12th August 2019 Mr Rae-Smith joined the Board of United States Cold Storage, Inc in June 2008 and has been its Chairman since January 2017 . Mr Rae-Smith joined the Swire Group in 1985 and has worked with the Group in Australia, Papua New Guinea, Japan, Taiwan, Hong Kong, the United States, Singapore and the United Kingdom. He was a Director of Swire Pacific Limited, a company listed in Hong Kong, from January 2013 to August 2016 and was the Executive Director of the Marine Services Division from 2005 to 2016, the Trading & Industrial Division between 2008 and 2016 and Chairman of the Swire Group Charitable Trust. He has led or has been involved with many Swire Group businesses over the years and was most recently the Chief Executive Officer of Swire Oilfield Services. He is also a Director of the Argent Energy Group, a sustainable producer of biofuel based in the United Kingdom and the Netherlands and Green Biologics a biochemical start up . In addition he has also been a Director of the Standard P&I Club, Deputy Chairman of the Hong Kong Ship Owners Association, Chairman of the Lloyds Asian Ship Owners Committee and a Director of the Singapore Environmental Council. J.H. Woodrow Director since 7 September 2015 Mr Woodrow is Managing Director of the China Navigation Company Pte Ltd (Swire Shipping). He was formerly Director Cargo for Cathay Pacific (2013-2015) and General Manager Cargo Sales & Marketing for Cathay Pacific (2010-2013). He joined John Swire and Sons Ltd in September 1990 and spent 15 years in the sea freight industries in Japan and Australia. He was also a Director of various companies across Asia including Air Hong Kong Ltd, Air China Cargo Ltd, Cathay Pacific China Cargo Holdings Ltd, Cathay Pacific Services Limited. Steamships Annual Report 2019 73 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2019 Remuneration of Directors Directors remuneration received or receivable from the Company as directors during the year, is as follows: P. Aitsi (retired) G. Aopi L.M. Bromley (appointed) Sir M.R. Bromley D.H Cox G.L Cundle (Chairman) G.J. Dunlop Lady W.T. Kamit B.N. Swire (retired) J.B Rae Smith (appointed) J.H Woodrow M.R. Scantlebury* R.P.N Bray* 2019 K’000 - 121 61 218 218 218 243 170 61 61 121 - - 1,492 2018 K’000 106 124 - 223 223 223 247 135 124 - 124 - - 1,529 The directors fees vary in accordance with the required duties on various sub-committees of the board. * Executive Directors 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 2019 No. 2018 No. Remuneration K’000 2019 No. 2018 No. Remuneration K’000 2019 No. 2018 No. 100-110 110-120 120-130 130-140 140-150 150-160 160-170 170-180 180-190 190-200 200-210 220-230 230-240 240-250 250-260 260-270 270-280 280-290 290-300 300-310 310-320 330-340 5 4 7 3 7 2 2 1 3 - 3 2 - 1 - - 3 1 2 1 - 2 7 6 3 5 3 2 3 2 4 2 3 1 1 2 1 1 3 - - - 2 2 350-360 360-370 380-390 390-400 400-410 410-420 420-430 430-440 440-450 450-460 460-470 470-480 500-510 520-530 530-540 550-560 560-570 570-580 600-610 620-630 630-640 640-650 5 1 1 - - - 1 1 - - 1 1 1 2 1 1 - 1 - 1 1 1 1 3 1 2 2 1 1 1 2 1 2 1 1 - - 2 - 1 1 2 1 1 650-660 660-670 680-690 690-700 700-710 720-730 730-740 770-780 780-790 790-800 800-810 830-840 870-880 890-900 900-1000 1,000-1,010 1,300-1,400 1,800-1,900 2,600-2,700 2,700-2,800 1 1 1 - - 1 1 2 - 1 1 1 - 1 1 1 1 1 1 1 1 2 - 1 1 - - 2 1 - 1 - 1 1 2 1 - 1 1 - For and on behalf of the Board: Port Moresby 31 March 2020 74 Steamships Annual Report 2019 G.L. Cundle Chairman M.R. Scantlebury Managing Director STOCK EXCHANGE INFORMATION Steamships Trading Company Limited Year ended 31 December 2019 Shares are listed on the Australian Securities Exchange and the Port Moresby Stock Exchange. All shares carry equal voting rights. Shareholdings At 28 February 2020, there were 361 shareholders. 262 Holding Holding 69 16 Holding Holding 14 1 1,001 5,001 10,001 - - - - 1,000 units 5,000 units 10,000 units and over The number of shareholders holding less than a marketable parcel was 20. The 20 largest shareholders were: Number of shares JS & S(PNG) Limited Bell Potter Nominees Ltd National Superannuation Fund Ltd Berne No 132 Nominees Pty Ltd John E Gill Operations Pty Ltd Hylec Investments Pty Ltd HSBC Custody Nominees (Australia) Limited Kelvinside Pty Ltd Bond Street Custodian Limited Mr Ramesh Mahtani Citicorp Nominees Pty Limited Intercontinental Assets Pty Ltd Engoordina Pty Ltd Derrick Charles Whitaker Jennifer May Forbes Miss Shirin Moayyad National Nominess Limited Custodial Services Limited Mrs Judith Scottholland Mrs Mary Patricia Haughton 22,362,651 5,760,000 1,859,446 446,494 54,727 32,500 26,200 25,000 23,067 21,700 17,467 15,000 11,078 10,348 10,000 10,000 9,457 8,768 8,161 8,161 30,720,225 % 72.12 18.58 6.00 1.44 0.18 0.10 0.08 0.08 0.07 0.07 0.06 0.05 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.03 99.07 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 . Steamships Annual Report 2019 75 76 Steamships Annual Report 2019 Steamships Annual Report Steamships Annual Report COMPANY DIRECTORY COMPANY DIRECTORY CHAIRMAN CHAIRMAN G. L. Cundle §& G. L. Cundle §& MANAGING DIRECTOR & FINANCE DIRECTOR MANAGING DIRECTOR & FINANCE DIRECTOR M. R. Scantlebury M. R. Scantlebury EXECUTIVE DIRECTOR EXECUTIVE DIRECTOR R.P.N. Bray R.P.N. Bray NON-EXECUTIVE DIRECTORS NON-EXECUTIVE DIRECTORS G. Aopi CBE G. Aopi CBE L.M. Bromley L.M. Bromley Sir M.R. Bromley KBE §+& Sir M.R. Bromley KBE §+& D. Cox OL, OBE +& D. Cox OL, OBE +& G.J. Dunlop +& G.J. Dunlop +& Lady W.T. Kamit, CBE + Lady W.T. Kamit, CBE + J .B . Rae Smith J .B . Rae Smith J . H Woodrow J . H Woodrow + Member of the Audit and Risk Committee + Member of the Audit and Risk Committee § Member of the Remuneration Committee § Member of the Remuneration Committee & Member of the Strategic Planning Committee & Member of the Strategic Planning Committee SECRETARY SECRETARY M.R. Scantlebury M.R. Scantlebury REGISTERED OFFICE REGISTERED OFFICE Level 5, Harbourside West, Stanley Esplanade Level 5, Harbourside West, Stanley Esplanade Telephone: +675 313 7400 Telephone: +675 313 7400 P .O . Box 1 P .O . Box 1 Port Moresby, NCD Port Moresby, NCD Papua New Guinea Papua New Guinea AUDITORS AUDITORS PricewaterhouseCoopers PricewaterhouseCoopers P .O . Box 484 P .O . Box 484 Port Moresby, NCD Port Moresby, NCD Papua New Guinea Papua New Guinea SHARE REGISTRARS SHARE REGISTRARS Computershare Investor Services Pty Limited Computershare Investor Services Pty Limited GPO Box 2975 GPO Box 2975 Melbourne VIC 3001 Melbourne VIC 3001 AUSTRALIA AUSTRALIA Telephone: (Aus) 1300 85 05 05 Telephone: (Aus) 1300 85 05 05 (Overseas) (Overseas) Fax: Fax: +61 (0)3 9415 4000 +61 (0)3 9415 4000 +61 3 9473 2500 +61 3 9473 2500 STOCK EXCHANGE STOCK EXCHANGE Shares are listed on both the Port Moresby Stock Exchange Shares are listed on both the Port Moresby Stock Exchange Limited and the Australian Securities Exchange Limited . Limited and the Australian Securities Exchange Limited . A. R. B. N. A. R. B. N. 055 836 952 055 836 952 Level 5 Harbourside West Stanley Esplanade | NCD 121 | Papua New Guinea P: +675 313 7429 / 79987000 steamships.com.pg 

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