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Annual Report 2022

Plain-text annual report

ANNUAL REPORT | 2022 CONTENTS Brief Profile of Steamships Group . . . . . . . . . . . . . 2 Financial Highlights . . . . . . . . . . . . . . . . . . . . 4 Chairman’s Report . . . . . . . . . . . . . . . . . . . . . 6 Directors’ Review . . . . . . . . . . . . . . . . . . . . . 8 Review of Operations - LOGISTICS . . . . . . . . . . . 10 Consort Express Lines . . . . . . . . . . . . . . . 10 Pacific Towing . . . . . . . . . . . . . . . . . . . 11 Joint Venture Port Services . . . . . . . . . . . . . 12 EastWest Transport . . . . . . . . . . . . . . . . . 13 Review of Operations - PROPERTY AND HOSPITALITY . 14 Coral Sea Hotels . . . . . . . . . . . . . . . . . . 14 Pacific Palms Property . . . . . . . . . . . . . . . 15 Sustainability . . . . . . . . . . . . . . . . . . . . . . . 16 Corporate Governance . . . . . . . . . . . . . . . . . . 17 Financial Section . . . . . . . . . . . . . . . . . . . . . 18 Statements of Comprehensive Income . . . . . . . 18 Statements of Changes in Equity . . . . . . . . . . 19 Statements of Financial Position . . . . . . . . . . 20 Statements of Cash Flows . . . . . . . . . . . . . 21 Notes to the Financial Statements . . . . . . . . . 22 Independent Auditor’s Report . . . . . . . . . . . . . . 58 Directors’ Report . . . . . . . . . . . . . . . . . . . . . 64 Stock Exchange Information . . . . . . . . . . . . . . . 69 Company Directory . . . . . . . . . . . . . . . . . . . IBC BRIEF PROFILE OF STEAMSHIPS GROUP With over 105 years of operations in Papua New Guinea, Steamships Trading Company Limited (Steamships) is a committed investor in Papua New Guinea. The Group is a well-established business conglomerate with diverse commercial interests and listings on both the Australian and PNG’s National 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. Over a century after it was founded, 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 3,100 PNG citizens and non- citizens in diverse divisions grouped under the operating categories of Logistics, Property and Hospitality and Commercial and 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 2022 BRIEF PROFILE OF STEAMSHIPS GROUP STEAMSHIPS’ ORGANISATIONAL STRUCTURE STEAMSHIPS TRADING COMPANY LOGISTICS PROPERTY AND COMMERCIAL AND HOSPITALITY INVESTMENTS Consort Express Lines Pacific Towing EastWest Transport Port Services Pacific Palms Property Coral Sea Hotels Colgate Palmolive JV JV Port Services (x16 JV LO Entities) Harbourside Development JV Croesus Pacific Rumana JV Wonye JV Wonye No.2 JV Viva No. 31 JV Portside Business Park JV Steamships Annual Report 2022 3 FINANCIAL HIGHLIGHTS 2022 FINANCIAL HIGHLIGHTS (including discontinued operations) 2022 K’000 2021 K’000 Change % Revenue (including discontinued operations) Profit attributable to shareholders Cash generated from operations Net cash inflow before financing Shareholders’ funds External Borrowings Earnings per share (toea) Dividends per share (toea) Shareholders’ funds per share Underlying profit attributable to shareholders (Refer page 8) Underlying earnings per share Gearing ratio Interest cover Dividend cover 631,262 57,985 183,519 30,096 1,027,010 263,084 563,929 90,550 187,261 9,386 1,004,684 266,065 187 120 33.12 76,075 245 292 100 32.40 67,681 218 16.5% 16.7% 53.8 23.0 1.6 2.5 12% (36%) (2%) 221% 2% (1%) (36%) 20% 2% 12% 12% 1% 134% (36%) 4 Steamships Annual Report 2022 FINANCIAL HIGHLIGHTS SUMMARY OF PAST PEFORMANCE 2013 K’000 2014 K’000 2015 K’000 2016 K’000 2017 K’000 2018 K’000 2019 K’000 2020 K’000 2021 K’000 2022 K’000 INCOME STATEMENT (including discontinued operations) Revenue 930,934 941,708 773,535 732,701 705,687 648,106 585,168 540,406 563,929 631,262 Profit before tax Share of associates profit Income tax expense Minority interests Net profit attributable to shareholders Equity adjustment Dividends paid or provided for the year Earnings retained this year 79,747 134,789 136,042 3,062 3,843 9,697 (37,710) (38,487) (14,042) (2,415) (11,490) 38,609 98,979 88,655 114,011 118,686 5,865 62,686 112,493 5,628 7,525 (54,420) (35,677) (32,621) 5,828 3,926 (4,664) 69,529 41,516 84,210 (8,994) (57,365) 47,652 - (43,411) 45,244 2,206 (48,062) 53,123 - - (40,291) (32,559) 8,957 43,919 - (26,357) 43,172 61,284 5,010 63,813 4,026 (18,928) 11,198 (182) 78,855 2,629 49,995 - - (44,962) (17,055) 61,800 5,033 79,786 88,248 5,062 6,288 (1,694) (26,633) (1,456) (1,066) 57,985 90,550 2,950 - (35,659) (35,659) 22,326 57,841 Underlying profit attributable to shareholders (adjusted for significant items) 128,367 108,808 80,651 71,721 61,775 43,304 31,505 36,927 67,081 76,075 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 24,200 689,777 711,764 764,887 808,806 817,764 896,105 860,843 922,643 980,484 1,002,810 713,977 735,964 789,087 833,006 841,964 920,305 885,043 946,843 1,004,684 1,027,010 24,200 24,200 24,200 24,200 22,907 17,059 736,884 766,737 836,602 881,837 878,154 940,028 902,790 963,826 1,020,929 1,044,069 16,983 36,190 19,723 17,747 16,245 47,515 30,773 48,831 1,066,393 1,115,123 1,072,955 1,068,892 997,125 890,576 970,928 945,075 933,983 947,451 45,458 39,367 41,586 66,445 2,571 2,020 2,311 36,680 80,491 76,433 76,433 76,433 284,200 294,800 470,810 360,385 428,703 464,635 444,331 1,565,111 1,628,807 1,627,298 1,536,708 1,469,373 1,504,778 1,451,643 1,488,213 1,516,989 1,515,693 36,458 33,193 31,471 36,914 33,521 21,081 80,491 80,491 93,617 352,549 366,479 400,480 36,992 1,010 76,433 65,276 1,683 76,433 67,196 30,250 80,002 Current Liabilities Non-Current Liabilities TOTAL LIABILITIES 184,646 221,560 352,541 148,286 229,779 198,688 359,424 230,390 190,621 541,292 470,225 369,659 212,209 400,567 294,608 297,372 112,200 597,837 671,449 249,404 828,227 862,070 790,696 654,871 591,219 564,750 548,853 524,387 496,060 471,624 NET ASSETS 736,884 766,737 836,602 881,837 878,154 940,028 902,790 963,826 1,020,929 1,044,069 RATIOS Current assets to current liabilities Borrowings to shareholders funds Gearing Tangible net asset backing per share (Kina) Net profit to revenue % Net profit to shareholders’ funds % Underlying profit to shareholders’ funds % Dividends per share (toea) EPS (toea) Underlying EPS (toea) Earnings retained % 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% 28.2% 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% 1.40 32.1% 13.7% 28.62 14.6% 8.3% 3.9% 80 254 119 78.4% 1.42 26.1% 16.5% 30.46 16.0% 9.0% 6.7% 100 292 218 63.8% 0.68 25.2% 16.7% 31.21 9.2% 5.6% 7.4% 120 187 245 38.5% 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 2022 5 CHAIRMAN’S REPORT “As the effects of COVID-19 receded, businesses and the economy in Papua New Guinea slowly recovered during 2022. Demand for goods and services increased throughout the year with an anticipated post-COVID downturn not materialising. Steamships performance in 2022 was solid. Profit attributable to shareholders declined primarily due to property impairments during the year. A strong underlying performance means the Group is in a good position to benefit from Papua New Guinea’s encouraging economic growth prospects”. Geoff Cundle, Chairman. The organisational restructuring undertaken in response to the COVID disruption positioned Steamships to take advantage of improving economic conditions in 2022. Demand improved for shipping and property rental and both sectors finished the year strongly. Steamships’ hospitality group, Coral Sea Hotels, which was deeply impacted by border closures and restrictions on domestic travel in 2020 and 2021 saw a return to normality in 2022 and outperformed expectations. The hospitality and property sectors will continue to contend with excess supply, primarily in Port Moresby, until absorbed by stronger economic growth. Group revenue grew by 12% in 2022, attributable to Coral Sea Hotels and Consort’s improved performance combined with modest growth in other logistics businesses. Profit attributable to shareholders decreased 36% to K58.0 million primarily due to property impairments during the year. Underlying profit (before exceptional items) showed a 12% improvement over 2021 increasing to K76.1 million. Tax payments increased on improved operating profits. 6 Steamships Annual Report 2022 Pacific Palms Properties experienced stronger demand for residential units in the second half of the year and a consequent rise in rental reversions. Coral Sea Hotels outperformed expectation with a post-COVID recovery in the domestic market. The national election did have the anticipated negative impact upon mid-year activity. Food and beverage margins were compressed by rising input inflation. Coastal shipping continued to be a highly competitive market, however the strong global and domestic shipping market benefitted Consort and Joint Venture Port Services. Improved schedule reliability and customer service strengthened Consort’s market position. Project and charter activity was subdued and prospects for 2023 depend upon progress with the major resource projects. Increased harbour towage and salvage work improved the Pacific Towing result. EastWest Transport experienced lower aviation fuel cartage and warehousing activity. Pacific Palms Property’s new development, Harbourside South, continued construction and is scheduled for phased completion in 2023. CHAIRMAN’S REPORT Steamships improved underlying result reflected the resilient growth of the non-resource sector of the Papua New Guinea economy which is forecast for improved growth of 4.6% in 2023 - an important indicator as Papua New Guinea strives to support its growing population. There is growing optimism that early-works activity for the Papua LNG project and broader infrastructure investment should gain traction in 2023. Steamships is well positioned to benefit from the improving economic conditions. It remains committed to continuous improvement in productivity and vigilant in identifying opportunities for growth. Papua New Guinea is our home and principal place of business, and we will continue to actively contribute to its economic and social development. I thank all our staff for their commitment and personal sacrifices during what has been a challenging few years for the entire country. Steamships Annual Report 2022 7 DIRECTORS’ REVIEW 2022 was a stronger than expected year for Steamships as the PNG economy recovered well from the constraints imposed as a result of the COVID-19 pandemic in 2020-21. Demand for the Group’s products and services was robust throughout the year. The Company however was not immune to the supply chain constraints and inflationary pressure that prevailed globally and these limited the progress of various property projects and new investments. Steamships’ sales revenue, on a continuing basis, increased 12% to K631.3 million against last year’s K563.9 million, with improved revenue across the various businesses. Depreciation in 2022 was K95.3 million against K93.8 million in 2021, and interest on net borrowings (excluding capitalised interest) was K1.2 million against K4.0 million in 2021. Capital expenditure for the year was K129.2 million against K89.7 million in 2021. The group’s net operating cash flow generation decreased by 2% to K183.5 million against K187.3 million in 2021. The cash balance at year end is K52.9 million. A final dividend of 70 toea per share has been proposed and will be paid after the Annual General meeting on 15th June 2023, subject to Steamships’ ability to secure foreign exchange for non-PNG shareholders. As there was an interim dividend paid during the year of 50 toea per share, the total dividend for the year is 120 toea per share (2021: 100 toea per share). The dividend is unfranked and there is no conduit foreign income. 2022 K000’s 2021 K000’s Change Net Profit attributable to shareholders 57,985 90,550 (36%) Add back/(less) impact of significant items (post tax and minority interests) Impairment of properties Recognition of tax losses previously not recognised, net of deferred tax movements Total impact of significant items 18,090 - 18,090 - (22,869) (22,869) Underlying profit attributable to shareholders 76,075 67,681 12% 8 Steamships Annual Report 2022 DIRECTORS’ REVIEW Significant items In 2018 the Company entered into a lease to build and operate the Cassowary Hotel in Kiunga. Although demand for rooms at the hotel has seen periods of strength (notably COVID-19 related quarantine), the current environment (and outlook) is weak and the hotel is operating at a loss. Discussion with the relevant Parties to provide support, whilst initially promising, have failed to reach a mutually satisfactory agreement, resulting in the Company making an impairment. The Blaikie Apartments in Lae suffered damage as a result of the earthquake in September 2022, resulting in the Company making an impairment. The Company has lodged a claim with its insurer and will record the insurance proceeds upon finalisation of the claim. The details are as follow: Impairment of Cassowary Hotel Impairment of Blaikie Apartments Less Tax Effect Total Coral Sea Hotels PGK’000 21,832 4,010 (7,752) 18,090 Coral Sea Hotels (CSH) was successful in attracting guests in greater numbers, post COVID-19, as international and domestic travel restrictions were lifted early in the year. The national election did have the anticipated negative impact upon mid-year activity. Food and beverage margins were compressed by rising input inflation. CSH continues to expand the food and beverage offering with the opening of new outlets (Enzo’s Pizzas) and new menu offerings. CSH will continue to expand the Enzo’s brand in the coming years with more outlets nationwide. Pacific Palms Property Pacific Palms Property’s (PPP) also experienced stronger demand, notably in residential units, in 2022 with overall occupancy increasing across the portfolio, with increasing rents seen later in the year. The new development in Port Moresby, Harbourside South, continued construction and is scheduled for phased completion in 2023. Logistics The integration of the logistics businesses, comprising Consort Express Lines shipping (CEL), EastWest Transport (EWT), Joint Venture Port Services (JVPS) and Pacific Towing, continued throughout the year with the aim of offering an improved service for customers. Additional shipping, towing and trucking capacity was added to meet the demand for services together with more investment in IT systems. The general cartage activity of EWT, together with depot operations, however remained disappointing. Fuel transport recovered, especially with the increased air traffic following the lifting of COVID-19 restrictions. The plan for 2023 is to strive for improved door-to-door business integrated with CEL. Pacific Towing provided a consistently reliable harbour towage service throughout the year. Returns were bolstered by salvage operations early in the year. Commercial The results of Colgate-Palmolive (PNG) Limited, a PNG incorporated joint venture, also improved following the lifting of the various COVID-19 restrictions. Inflationary pressure and supply chain disruptions however proved challenging. Volume sales in the Home Care category were adversely impacted. Overall, sales revenue grew year-on- year, albeit at a lower margin. Trading Outlook There is growing optimism that early-works activity for the Papua LNG project and broader infrastructure investment should gain traction in 2023. Steamships is well positioned to benefit from the improving economic conditions. It remains committed to continuous improvement in productivity and vigilant in identifying opportunities for growth. Steamships Annual Report 2022 9 REVIEW OF OPERATIONS - LOGISTICS CONSORT EXPRESS LINES Consort’s liner performance in 2022 was broadly in line with the expectations laid out at the start of the year with improved volumes compared to 2021. Consort’s project and charter business again performed in line with expectation. The impact of COVID-19 on the domestic shipping market remained minimal throughout 2022, with demand consistent throughout the 12-month period. There is renewed optimism within the logistics market that resource projects will materialise in 2023, pushing domestic shipping volumes upwards. Several oil and gas tenders have been circulated which are expected to come online in mid- to-late 2023. Consort continues to further differentiate itself through improved systems and customer service and plans to invest in additional container and vessel assets in 2023. Consort operates a fleet of 10 coastal vessels, all of which are PNG flagged, and is PNG’s only domestic operator that is ISO accredited for safety, environment and quality. LINER SERVICES Consort connects 13 ports around PNG to the main international gateway ports of Lae and Port Moresby. 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 cargo. In addition to owning and operating ships, Consort manages PNG’s 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, implements, and supports intermodal logistics solutions linked to land-based services such as road transport, cargo handling, storage, customs clearance, lay down areas and warehousing. 10 Steamships Annual Report 2022 REVIEW OF OPERATIONS - LOGISTICS PACIFIC TOWING Pacific Towing is PNG’s leader in the provision of a diverse range of marine services, enjoying a reputation for excellence and reliability across the region. The company is a full member of the International Salvage Union and the International Spill Control Organisation. Core services include towage, mooring, salvage and commercial diving. Although primarily operating in PNG waters, Pacific Towing also services broader Oceania. The company operates a fleet of 25 vessels (15 tugs and 10 associated support vessels) and has fast responder salvage capability. Vessels are located in five ports across PNG (being Port Moresby, Lae, Rabaul, Kimbe and Madang) and in Honiara, Solomon Islands. Pacific Towing is the only marine services and towage company in PNG to be ISO accredited for Quality, Safety and Environment. The volume of harbour towage was steady throughout 2022 and remained consistent with 2021 figures. Non- harbour operations had a quiet year, with a lack of salvage opportunities of note reflecting a generally quieter salvage market worldwide. Pacific Towing continues its strategy of developing local talent, recruiting cadets graduating from the Maritime Academy of Fiji. These deck and engine cadets are now at work on tugs aiming to eventually progress into masters and chief engineers. The Maritime Cadetship Programme continues to produce high quality female cadets who are now proudly joining the Pacific Towing fleet. Pacific Towing has committed to a re-fleeting programme that will phase out older tugs over the next five years. The newer tugs offer greater power and manoeuvrability, and, by the end of the five-year re-fleeting plan, all ports will be serviced by tugs with azimuth stern drive propulsion. Pacific Towing purchased two new tugs in 2022 with increased tonnage to follow in 2024/25. Steamships Annual Report 2022 11 REVIEW OF OPERATIONS - LOGISTICS JOINT VENTURE PORT SERVICES JVPS performed in line with expectation and continued to focus on offering a safe, reliable, and cost-effective service to all customers. Security continues to be a strong focus and technology has been deployed as a solution where possible including biometric payroll, increased levels of surveillance, and improved cargo tracking. Joint Venture Hire Company, which hires out heavy machinery on wet and dry leases, continued to provide a reliable service to all ports and to external customers. In 2023, the focus will be on ensuring that JVPS provides an efficient and cost-effective service as part of Steamships Logistics. A key aspect of this will be to ensure CargoWise is effectively used to control and track cargo movements. throughout the country Joint Venture Port Services (JVPS) operate 16 including businesses in the principal ports of Port Moresby and Lae, secondary ports elsewhere on the mainland and on Bougainville, New Ireland and New Britain. The core port businesses offer a full range of stevedoring and handling facilities. 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. JVPS is the only group of stevedoring and handling companies in PNG to be ISO accredited for Quality, Safety and Environment. The business continues to work hard to provide a seamless logistics solution for customers in PNG. 12 Steamships Annual Report 2022 REVIEW OF OPERATIONS - LOGISTICS EASTWEST TRANSPORT for localised workshop East West Transport (EWT) is one of Papua New Guinea’s largest trucking companies, providing a range of transport related activities. It is ISO accredited Environmental Management, Occupational Health & Safety and Quality. Based in Port Moresby, EWT 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 facilities, safety teams, recovery vehicles, and emergency response teams. EWT’s activities include bulk fuel, containerised cargo, break-bulk cargo, and 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 and door-to-door logistics and project solutions for the mining, oil and gas sectors and new or existing commercial sectors. Following trends in 2021, this was another challenging year for EWT. General transport did however see a slight pickup in revenue throughout 2022. Fuel cartage regained some ground with aviation fuel volumes increasing as travel restrictions eased in Papua New Guinea both locally and internationally. EWT has continued to focus on cost savings and ways to improve customer service. There has been a particular focus on improving operations in Lae and more effectively integrating EWT’s operations with Consort to provide ‘door- to-door’ delivery across the network. This has been enabled through systems integration using CargoWise, a transport platform that has now been rolled out at EWT following its use in Consort. Pressure on rates is expected to remain intense. EWT is focused on defending its market share and modest growth is expected by more effectively providing a ‘door-to-door’ service as part of Steamships Logistics. Steamships Annual Report 2022 13 REVIEW OF OPERATIONS - PROPERTY AND HOSPITALITY CORAL SEA HOTELS Coral Sea Hotels (CSH) remains the largest hotel group in Papua New Guinea, managing seven hotels throughout the country. The group comprises of the Grand Papua Hotel, Gateway Hotel and Apartments, Ela Beach Hotel and Apartments in Port Moresby, Huon Gulf Hotel in Lae, Highlander Hotel and Apartments in Mount Hagen, Bird of Paradise Hotel in Goroka and Cassowary Hotel in Kiunga. The group also operates several food and beverage (F&B) outlets including ENZO’s Pizza, Ela Beach Bakery, and Harbourside Bakery. The hotel industry within PNG was severely impacted by the COVID-19 pandemic in the past couple of years, with many hotels closing down temporarily or permanently due to travel restrictions and decreased demand. However, with the ongoing vaccine rollout and the easing of travel restrictions both locally and internationally, CSH saw a strong bounce back in room occupancy and demand in Food & Beverage outlets throughout 2022. The Grand Papua Hotel (GPH) was once again the recipient of the ‘World Luxury Hotel Award’ and for the first time the ‘World Travel Award’, cementing GPH as the leading business hotel in Papua New Guinea. The hotel will be undergoing significant refurbishment over the next two years during which public areas, guestrooms, and restaurants will all be comprehensively upgraded. The Grand Papua Hotel is now officially an affiliate franchise of the Radisson Hotel Group. Customers benefit from access to Radisson’s global loyalty programme and brand presence. This ongoing affiliation is testament to the high level of service the hotel offers its guests. 14 Steamships Annual Report 2022 Targeted investment into training and Food & Beverage continues as part of CSH’s overall strategy. The new precinct at Ela Beach Hotel, offering a bakery, ENZO’s, SALT Restaurant and Beachside Bar continues to perform well. The expansion of the ENZO’s chain continues with a new store opened at Courts in September 2022. Several new outlets are planned across Port Moresby in 2023. the hospitality industry being Despite significantly oversupplied with hotel rooms in Port Moresby, Coral Sea Hotels remain confident that the resource projects will drive demand later in 2023 and beyond. The focus for CSH continues to be delivering a consistent, high-quality, and affordable service across all hotels and restaurants. In line with this, Coral Sea Hotels continues to invest in upgrading all its hotels throughout Papua New Guinea and exploring future business opportunities. REVIEW OF OPERATIONS - PROPERTY AND HOSPITALITY PACIFIC PALMS PROPERTY With a portfolio of over 200 properties across Industrial Residential, Commercial, Retail, and asset classes in Port Moresby, Lae, Madang, Wewak, Goroka, Mount Hagen, and Rabaul, Pacific Palms Property (PPP) is one of the premier property developers and managers in PNG. The division continues to develop and operate Residential, Commercial, Retail, and Industrial properties located in Port Moresby, Lae, Madang, Wewak, Goroka, Mt. Hagen and Rabaul. PPP’s strategy of making investments of scale and quality in diversified real estate asset classes and quality in both established and upcoming locations results in stable revenues, net operating income, and cashflow. In 2021, the global pandemic caused both occupancy and rents to drop particularly in Port Moresby residential and upmarket properties in general. By the end of 2022, occupancy had improved across all asset classes. PPP’s joint-venture projects in Mount Hagen, Madang and Port Moresby are performing to expectation. PPP’s flagship development, the Harbourside East and West precinct in Port Moresby, finished the year at full commercial occupancy, anchored by the tenancies of Santos (Oil Search) and Westpac, and the mix of food and beverage offerings has been well received. The construction of Harbourside South continues to progress despite challenges presented by COVID-19 and global supply chains. Upon completion, the fully integrated Harbourside precinct will offer a range of premium commercial, retail and residential units for lease. The Harbourside Precinct has demonstrated the capabilities of PPP’s Property Development team to offer end-to-end project management of large-scale projects from feasibility studies to handover. PPP has shown it has the ability to operate market-leading properties. Steamships, Pacific Palms Properties and Coral Sea Hotels have now moved into the newly renovated @345 on Stanley Esplanade as of October 2022. The three-story building has become the long-term home for Steamships (corporate head office and shared services), Coral Sea Hotels and PPP. Both Harbourside South and @345 were built to industry leading green building standards and will be amongst the first buildings in PNG and in the Pacific Islands to be EDGE certified. EDGE (“Excellence in Design for Greater Efficiencies”) is an IFC initiative to recognise energy efficiencies and quantify financial benefits delivered to tenants. The second half of 2022 has seen a pick-up in rates as COVID wanes globally and the PNG economy opens up again. With its existing portfolio of ready for occupancy properties and its land bank of properties with clean titles, PPP is well positioned to benefit from an uptick in demand for real estate once resource projects ramp up. Steamships Annual Report 2022 15 SUSTAINABILITY Steamships’ ambition is to be a responsible private sector partner for sustainable development (SD) within Papua New Guinea. In September 2022, the Steamships Board approved the adoption of a five pillar approach to our sustainability strategy with the focus areas as People, Communities, Climate, Waste, and Water. Steamships’ commitment to the principles of Sustainable Development is essential to delivering value and social impact to Papua New Guinea. Our people are our most important asset, and the health, safety, and wellbeing of our staff is a top priority for the company. Our annual workplace culture survey identified our strong performance across key pillars including opportunity, wellbeing, and leadership, and was used to inform recommendations for management to make continued improvements. With zero fatalities recorded across our operating businesses in 2022, the company is focused on maintaining this safety standard whilst working towards “Target 2”, which would see each operating division halve its incident rate each year. Each business unit is developing its own Target 2 action plan with central Steamships support. Our annual Safety Day was held in September with the theme of Target 2, and had a special focus on Vehicular Safety and Moving Objects. The Safety Day was attended by the Steamships executive and safety teams and senior management from all divisions. External parties, including three key clients, were also invited to share their knowledge and observations. improving We continue to run health-related training and support voluntary health the initiatives aimed at health awareness and practices of our staff and of local communities. With gender-based violence unfortunately a serious and pervasive problem in Papua New Guinean society, we maintain our support of Bel Isi PNG, a family violence support NGO, to provide support services for our staff, and other charities working to provide safe spaces for survivors of family and sexual violence. Steamships’ Community Grants Program remains a cornerstone of our approach to sustainable development. In 2022, we continued to support longstanding partnerships with organisations including Buk Bilong Pikinini, Femili PNG, Sago Network and the Salvation Army. These ongoing funding commitments are based on continued successful project delivery on the part of our partner organisations, which are carrying out valuable work across our community engagement focus areas – social welfare (prioritising women, children and the most marginalised), health and education. We are also delighted to have contributed funding to impactful new projects by Sea Women of Melanesia, the Conflict Islands Conservation Initiative and Gateway Children’s Fund. to promote conservation and climate action in protected areas across the country. Steamships is a representative of the private sector stakeholder group on the Fund’s steering committee and has contributed to the Fund’s governance framework and grant-making process. The appointment of an in-house sustainability team has enabled us to increase our focus on the environmental sustainability of our business activities. We continue to keep an eye on the future, and in particular for opportunities to support Papua New Guinea’s national sustainable development goals relating to electrification and clean energy transition. Waste reduction, segregation, and diversion has been another focus area in late 2022 and moving into 2023. Five of our six operating businesses are ISO accredited for Safety, Quality, and Environment, with the remaining business targeting certification in 2023. A focus for 2022 and 2023 is expanding the scope of our environmental data collection, establishing a solid baseline with a view to setting science-based targets for emissions reduction in the near- to medium-term. It is the intention of the Board of Directors to pass a net zero resolution in 2023. Our focus remains on outcome-orientated actions. Responsible and sustainable energy consumption continues to be encouraged through the regular monitoring and reporting of energy use, water use, and environmental emissions at an operational level. Steamships is proud to engage with cross-sector external partners on projects that bring community benefit and support sustainable development within Papua New Guinea. One valuable new initiative in 2022 was the Company’s engagement with the PNG Biodiversity and Climate Fund, a new fund currently incubated within UNDP and which aims Steamships publishes an Annual SD report to complement this Annual Report. The Annual SD Report is prepared with reference to the updated standards of the Global Reporting Initiative (GRI), a worldwide corporate transparency initiative. The report is available on the Steamships website at www.steamships.com.pg. 16 Steamships Annual Report 2022 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 2022 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 2022, except where noted in the Corporate Governance Report. Steamships’ Corporate Governance Report can be found at https://www.steamships.com.pg/about-us/corporate- governance Steamships Annual Report 2022 17 STATEMENTS OF COMPREHENSIVE INCOME Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s) 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) / credit PROFIT FROM CONTINUING OPERATIONS PROFIT FROM DISCONTINUED OPERATIONS Consolidated Parent Entity Note 2022 2021 2022 2021 3(a) 3(a) 3(b) 3(e) 3(e) 4(b) 5(a) 25 631,262 563,929 - - (550,301) (476,543) 80,961 13,537 (14,712) 6,288 86,074 (26,633) 59,441 - 87,386 9,817 (13,835) 5,062 88,430 (1,694) 86,736 4,880 1,032 2,036 (4,831) (1,763) 85 - - (1,678) 815 (863) - 7,323 38,305 (1,226) 44,402 98 - - 44,500 (276) 44,224 - PROFIT FOR THE YEAR 59,441 91,616 (863) 44,224 TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR attributable to: 59,441 91,616 (863) 44,224 Non-controlling interests Shareholders TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR attributable to owners arises from: Continuing operations Discontinued operations 1,456 57,985 59,441 57,985 - 57,985 Basic and Diluted Earnings per share Continuing & discontinued (toea) Continuing (toea) Discontinued (toea) 3(f) 3(f) 3(f) 187t 187t - 1,066 90,550 91,616 85,670 4,880 90,550 292t 276t 16t - (863) (863) - 44,224 44,224 (863) 44,224 - - (863) 44,224 These Statements of Comprehensive Income are to be read in conjunction with the accompanying notes. 18 Steamships Annual Report 2022 STATEMENTS OF CHANGES IN EQUITY Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s) Consolidated Share Capital Retained Earnings Other Total Capital Controlling Reserves and Reserves Interest Total Equity Non- BALANCE AT 1 JANUARY 2021 24,200 962,938 (40,295) 946,843 16,983 963,826 Profit for the year Other Dividends paid 2021 - - - 90,550 2,950 (35,659) - - - 90,550 2,950 1,066 91,616 - 2,950 (35,659) (1,804) (37,463) BALANCE AT 31 DECEMBER 2021 24,200 1,020,779 (40,295) 1,004,684 16,245 1,020,929 Profit for the year Dividends paid 2022 - - 57,985 (35,659) - - 57,985 1,456 59,441 (35,659) (642) (36,301) BALANCE AT 31 DECEMBER 2022 24,200 1,043,105 (40,295) 1,027,010 17,059 1,044,069 Parent Entity Share Capital Retained Earnings BALANCE AT 1 JANUARY 2021 24,200 Profit for the year Dividends paid 2021 - - 62,260 44,224 (35,659) (35,659) Total Equity 86,460 44,224 BALANCE AT 31 DECEMBER 2021 24,200 70,825 95,025 Profit for the year Dividends paid 2022 - - (863) (863) (35,659) (35,659) BALANCE AT 31 DECEMBER 2022 24,200 34,303 58,503 These Statements of Changes in Equity is to be read in conjunction with the accompanying notes. There is no other comprehensive income. Steamships Annual Report 2022 19 STATEMENTS OF FINANCIAL POSITION Steamships Trading Company Limited As At 31 December 2022 (Amounts in Kina 000’s) Consolidated Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Asset held for sale Non-current assets Property, plant and equipment Investment properties Investments in related companies Due from related companies Income tax receivable Intangible assets Deferred tax assets TOTAL ASSETS Current liabilities Trade and other payables Lease liabilities Provisions for other liabilities and charges Due to related companies Due to minority shareholder Borrowings 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 Note 2022 6 7 8 5(e) 10 10 11 4(a) 9 5(e) 12 5(c) 13 14 15 9 16 16 14 5(c) 15 16 17 53,436 147,620 28,463 12,088 3,001 244,608 558,555 388,896 45,458 199,723 - 76,433 2,020 1,271,085 1,515,693 108,038 2,667 5,635 2,902 160 240,022 359,424 57,245 24,379 10,576 20,000 112,200 471,624 1,044,069 24,200 1,002,810 1,027,010 17,059 1,044,069 2021 (Restated) 63,788 178,295 23,009 10,000 8,234 283,326 558,568 375,415 39,367 167,682 13,627 76,433 2,571 1,233,663 1,516,989 91,804 2,080 48,239 2,787 160 53,618 198,688 59,474 18,470 9,928 209,500 297,372 496,060 1,020,929 24,200 980,484 1,004,684 16,245 1,020,929 Parent Entity 2022 2 0 2 1 - 35,908 - 38 - 35,946 25,068 - 51,752 8,909 - - 1,657 87,386 123,332 1,677 - - 63,152 - - 64,829 - - - - - 64,829 58,503 24,200 34,303 58,503 - 58,503 - 39,514 - 64 - 39,578 23,592 - 51,752 9,399 - - 661 85,404 124,982 - - - 29,957 - - 29,957 - - - - - 29,957 95,025 24,200 70,825 95,025 - 95,025 These Statements of Financial Position are to be read in conjunction with the accompanying notes. For and on behalf of the Board: 31 March 2023 G.L. Cundle Chairman R.P.N. Bray Managing Director Comparative period amounts have been restated to conform to presentations in the current year. 20 Steamships Annual Report 2022 STATEMENTS OF CASH FLOWS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s) Consolidated Parent Entity Note 2022 2021 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 628,260 549,665 4,552 4,626 Payments to suppliers and employees (437,595) (357,467) Interest received Interest and other finance costs paid Income tax paid 13,526 (14,712) (5,960) 9,817 (13,835) (919) Net cash from operating activities 19(a) 183,519 187,261 - 85 - (117) 4,520 - 98 - (164) 4,560 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (129,152) (89,743) (3,578) (578) Proceeds from sale of property, plant and equipment Proceeds from disposal of subsidiaries, net of disposed cash Investment in term deposits 6,338 - - - (44,056) 8,063 Loans issued to associated companies (33,307) (52,327) - - - - Dividends received 2,698 188 1,032 Net cash (used in) / from investing activities (153,423) (177,875) (2,546) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings Repayments of borrowings Loans received from subsidiaries Loans from / (repaid) to associated companies Lease repayments Dividends paid 30,000 (30,000) - 115 (2,250) - (42,523) - - - 33,685 26,854 (2,077) (5,987) - - - - (36,301) (37,463) (35,659) (35,659) Net cash used in financing activities (38,436) (88,050) (1,974) (8,805) NET DECREASE IN CASH HELD NET CASH AT BEGINNING OF THE YEAR NET CASH AT END OF THE YEAR CASH COMPRISES: Cash and cash equivalents Bank overdrafts 6 16 (8,340) 61,254 52,914 53,436 (522) 52,914 (78,664) 139,918 61,254 63,788 (2,534) 61,254 - - - - - - - - - - - - These Statements of Cash Flows are to be read in conjunction with the accompanying notes. Steamships Annual Report 2022 21 - - - 4,823 4,245 - - NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 1. Summary of significant accounting policies o 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 2023. The Board of Directors has the power to amend the financial statements after their issue. (a) Basis of preparation The financial statements have been prepared in accordance with the Papua New Guinea Companies Act 1997 (as amended) and comply with International IFRS Financial Reporting Standards Interpretations Committee (IFRS IC) interpretations applicable to companies reporting under IFRS and other generally accepted accounting practice in Papua New Guinea. The financial statements have been prepared under the historical cost convention. (IFRS) and The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 1(z). (i) Standards, effective in the year ended 31 December 2022 amendment interpretations and following standards, amendments and The interpretations to existing standards became applicable for the first time during the accounting period beginning 31 December 2022: • A number of narrow-scope amendments to IFRS 3, IAS 16, IAS 37 and some annual improvements on IFRS 1, IFRS 9, IAS 41 and IFRS 16 (effective 1.1.22). o o 3, to IFRS Amendments ‘Business combinations’ update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations. Amendments to IAS 16, ‘Property, plant and equipment’ prohibit a company from deducting from the cost of property, plant and equipment amounts from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss. received o Amendments to IAS 37, ‘Provisions, contingent liabilities and contingent assets’ specify which costs a company includes when assessing whether a contract will be loss-making. 22 Steamships Annual Report 2022 Annual improvements make minor amendments to IFRS 1, ‘First-time Adoption of IFRS’, IFRS 9, ‘Financial instruments’, IAS 41, ‘Agriculture’ and the Illustrative Examples accompanying IFRS 16, ‘Leases’. • • Amendment to IFRS 16, ‘Leases’ – COVID-19 related rent concessions (effective 1.4.21). On 31 March 2021, the IASB published an additional amendment to extend the date of the practical expedient from 30 June 2021 to 30 June 2022. IFRIC Agenda Decision - Lessor forgiveness of lease payments (IFRS 9 and IFRS 16). In October 2022 the IASB finalised the IFRIC agenda decision on lessor forgiveness of lease payments. The agenda decision addresses the accounting from the perspective of the lessor, and in particular: o o how the expected credit loss (‘ECL’) model in IFRS 9 should be applied to the operating lease receivable when the lessor expects to forgive payments due from the lessee under the lease contract before the rent concession is granted. apply in whether to derecognition lease requirements modification requirements in IFRS 16 when accounting for the rent concession. the IFRS 9 or the The above 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 2022 or adopted early. following standards, amendments The and interpretations to existing standards have been published and are mandatory for the entity’s accounting periods beginning on or after 1 January 2023 or later periods, but the entity has not early adopted them: • • Narrow scope amendments to IAS 1, Practice statement 2 and IAS 8 (effective 1.1.23). The amendments aim to improve accounting policy disclosures and to help users of the financial statements to distinguish between changes in accounting estimates and changes in accounting policies. Amendment to IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction (effective 1.1.23). These amendments require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) • • • Amendment to IFRS 16 - Leases on sale and leaseback (effective 1.1.24). These amendments include requirements for sale and leaseback transactions in IFRS 16 to explain how an entity accounts for a sale and leaseback after the date of the transaction. Sale and leaseback transactions where some or all the lease payments are variable lease payments that do not depend on an index or rate are most likely to be impacted. Amendment to IAS 1 - Non current liabilities with covenants (effective 1.1.24). These amendments clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. They also add new disclosure requirements in relation to covenants. IFRS 17 ‘Insurance contracts” (effective 1.1.23) replaces IFRS 4. IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features. (iii) Comparative information Where necessary comparative figures have been adjusted to conform to changes in presentation in the current year and comparative purposes. (b) Foreign currency The Company’s functional and presentation currency is the Papua New Guinea Kina. Transactions in foreign currencies have been translated into the functional currency at rates ruling at the date of the transaction. Amounts payable to and by the Group in foreign currencies have been translated to the functional currency at rates of exchange ruling at the year end. Gains and losses arising from movements in foreign exchange rates are recognised in the statement of comprehensive income when they arise. (c) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Steamships Trading Company Limited as at 31 December 2022 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. The acquisition method of accounting is used to account for business combinations by the Group (refer to note 1(d). Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet respectively. (ii) Associates Associates are all entities over which the Group has significant influence but not control generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against investment. Dividends receivable from associates are recognised as a reduction in the carrying amount of the investment. the carrying amount of the When the Group’s share of losses in an associate equal or exceeds its interest in the associate, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. (iii) Joint ventures Joint venture entities 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. Interests in joint ventures are accounted for using the equity method after initially being recognised at cost as for associates. Steamships Annual Report 2022 23 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) (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 from a contingent consideration arrangement and the fair value of any pre-existing equity the subsidiary. Acquisition-related interest 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. in 24 Steamships Annual Report 2022 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 control, including acquisitions of entities and amalgamations of entities under common control. Under this method, the financial statements of the combined entity are presented as if the businesses had been combined from the date when the combining entities were amalgamated. Assets and liabilities of the acquired or amalgamated 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 consideration given and the aggregate book value of the assets and liabilities of the acquired or amalgamated entity at the date of the transaction is included in equity in retained earnings. (e) Revenue recognition Revenue which represents income arising in the course of the Group’s ordinary activities is recognised by reference to each distinct 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 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 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, property and hospitality 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 recognised 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 receives 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 The Company fulfil 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 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 Steamships Annual Report 2022 25 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) services are made upon service delivery. Revenue from sale of goods in hotels business is recognised 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 recognised on a straight-line basis over the term of the lease. Revenue from the commercial business relates to sale of goods and is recognised 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 recognised across the Group as follows: Interest income Interest income is recognised using the effective interest method. Dividend income Dividends are recognised when the right to receive payment is established. (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. (f) Income tax (j) Non-current assets held for resale 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 recognised 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. (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. 26 Steamships Annual Report 2022 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 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 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) assets in the statement of financial position. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the statement of financial position. 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 statement of comprehensive income. (k) Financial assets The Group classifies all of its financial assets in the measurement category ‘Financial assets at amortised cost’. The Group classifies its financial assets at 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 2022 and 31 December 2021, the Group had no financial instruments classified as financial assets at fair value through other comprehensive income (“FVOCI”) - Equity instruments 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. 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). trade receivables, the Group applies a For simplified approach in calculating ECLs. The Group does not track changes in credit risk, but instead recognises a loss allowance based on 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. Steamships Annual Report 2022 27 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 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 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 28 Steamships Annual Report 2022 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. (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 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 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 Termination payable when 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 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 3.92% (2021 – 4.13%). (u) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided Steamships Annual Report 2022 29 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 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 statement of financial position. (x) Leases 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. 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. 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 30 Steamships Annual Report 2022 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 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. (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 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: (i) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates as further detailed in Note 12. (ii) Estimated impairment of property, plant and equipment The Group tests the recoverable amount of property, plant and equipment when impairment indicators are identified. Where an indicator of impairment is identified, the recoverable amount is determined using the higher of fair value less cost to sell and its value in use. Fair value is information, determined using market-based while value in use is determined using a pre-tax cashflow projections and discount rate. Refer to Note 10. (iii) Deferred tax assets relating to carry forward tax losses losses is complex and The analysis of the recognition and recoverability of the deferred tax assets relating to carry forward tax 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 the weighted average As disclosed in Note 14, management assessed interest rate on that collateralized borrowings obtained from financial institutions during 2022 and previous years of 4.5% approximates the incremental borrowing rate at the date of initial adoption of IFRS 16 and at 31 December 2022. 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 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% higher/ (lower), lease liabilities as of 31 December 2022 would be K4.5 million lower and K9.3 million higher, respectively (2021: K5.0 million lower and K9.4 million higher). factors affecting the (v) Net current liabilities The financial statements for the year ended 31 December 2022 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 31st December 2022 the Company has a Net Current Liability position of K114.8 million. This arises due to the maturity of the Company’s loan facilities with Westpac PNG Limited and ANZ Banking Group (PNG) Limited in August and November 2023, respectively. The drawn balances from non-current are liabilities to current liabilities. The Company is confident that these loan facilities will be renewed on or before maturity. Alternatively, the Company will use a combination of operating cash flows and facilities with other banks to meet all its current liabilities. re-classified therefore 2. Financial risk management The Group’s activities expose it to a variety of financial risks including market risk (including currency, and Steamships Annual Report 2022 31 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 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 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 2022, 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 K3.6 million (2021: K3.6 million) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings. (b) Credit risk 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 intercompany 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. respectively and 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 2022 or 31 December 2021 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 analysed 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 that the impairment provision for trade receivables is not materially affected by changes in GDP and employment rate. 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: • 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. The Group has no significant concentration • If a significant increase in credit risk (‘SICR’) 32 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) initial recognition since the financial instrument is moved to ‘Stage 2’ but is not yet deemed to be credit impaired. identified, is • • If the financial instrument is credit-impaired, the financial instrument is then moved to ‘Stage 3’. Financial instruments 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 2022 and 31 December 2021 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 recognised; 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 2022 and 31 December 2021 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: 2022 K’000 2021 K’000 Undrawn Facilities 274,900 273,000 The table on top of page 34 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. Steamships Annual Report 2022 33 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) Less than 1 year K’000 Between 1 & 2 years K’000 Between 2 & 5 years K’000 Over 5 years K’000 Total K’000 Carrying amount K’000 At 31 December 2022 Borrowings Borrowings from minority shareholders Borrowings from related parties Trade and other payables Lease liabilities At 31 December 2021 Borrowings Borrowings from minority shareholders Borrowings from related parties Trade and other payables Lease liabilities (248,073) (990) (20,814) (160) (2,960) (108,038) (5,296) (364,527) - - - - - - (5,296) (6,286) (12,125) (32,939) (115,725) (115,725) - - - - (56,031) (217,976) (160) (2,843) (91,804) (4,809) - - - (4,809) (155,647) (222,785) - - - - - - - - (13,258) (13,258) (117,891) (117,891) (269,877) (260,022) (160) (2,960) (108,038) (138,442) (519,477) (160) (2,902) (108,038) (59,912) (431,034) (274,007) (263,118) (160) (2,843) (91,804) (140,767) (509,581) (160) (2,787) (91,804) (61,554) (419,423) The Group does not hold derivative financial instruments. (d) Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as external borrowings and unsecured loans less cash and cash equivalents. Net debt for the purposes of the gearing ratio does not include lease liabilities, trade and other payables and provisions for other liabilities and charges. 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: 2022 K’000 2021 K’000 Total external borrowing and unsecured loans Less: Cash & Cash equivalents Net debt Total equity Total capital Gearing ratio 263,084 266,065 53,436 209,648 1,044,069 1,253,717 17% 63,788 202,277 1,020,929 1,223,206 17% 34 Steamships Annual Report 2022 to is subject to certain covenants The Group its external borrowings. related primarily 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 2022 and 31 December 2021, 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. NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 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 2022 2021 2022 2021 63,334 459,154 108,774 - 53,578 404,464 105,887 - 631,262 563,929 - - - - - - 1,032 1,032 7,323 7,323 Other income (net)* - - 2,036 38,305 * Other income includes royalties, management fees and gain on sale of a subsidiary. The Group’s revenue from contracts with customers are recognised at a point in time and over time. Most of the revenue from the provision of services is recognised over time, while revenue from sale of goods is recognised 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 2022 that relates mostly to shipping and freight services which commenced in late 2022 and will be finalised within January 2023 is K2.8million (2021: K1.8 million). (b) Expenses comprise: Cost of sales Staff costs (note 3c) Depreciation and amortisation Impairment of properties Impairment / (Reversal of impairment) of vessels Fixed Assets write off Electricity and fuel Insurance Security cost Motor vehicle expenses Other operating expenses/ (income) -net Total operating expenses (c) Staff costs: Wages and salaries Retirement benefit contributions Accommodation and other benefits Number of staff employed by the Group at year end: Full Time 2,705 2,507 113,742 132,189 - - - - 93,774 2,102 2,088 113,327 148,887 95,279 25,842 767 - 51,869 7,405 13,017 29,669 64,239 - (4,370) 100 34,680 6,639 12,063 18,536 69,190 550,301 476,543 114,375 5,175 29,337 148,887 110,209 5,062 16,918 132,189 - - - - - - - - - - - - - - 2,729 4,831 (862) 1,226 - - - - - - - - - - Steamships Annual Report 2022 35 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 3. Operating results (continued) Consolidated Parent Entity 2022 2021 2022 2021 (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 provided Impairment of properties Donations After crediting: 1,141 489 1,461 25,842 1,353 1,046 1,083 5,379 - 1,103 Gain on sale of property, plant and equipment Bad and doubtful debts released (534) (968) (2,063) (1,484) - - - - - - - (e) Cost of financing – net: Interest expense* Interest income Net finance costs 14,712 (13,537) 1,175 13,835 (9,817) 4,018 - (85) (85) - - - - - - - - (98) (98) *The interest expense excludes capitalised interest which is Knil in 2022 (2021: Knil). (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 and discontinued) Basic earnings per share (continuing) Basic earnings per share (discontinued) 4. Investments in subsidiaries, associates and joint ventures Consolidated 2022 2021 57,985 31,008 187 toea 187 toea - 90,550 31,008 292 toea 276 toea 16 toea Consolidated Parent Entity 2022 2021 2022 2021 (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 - 5,593 39,865 45,458 249 6,039 6,288 - 51,752 51,752 5,541 33,826 39,367 199 4,863 5,062 - - - - 51,752 51,752 - - - - - - 36 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 5. Income tax (a) Income tax expense / (credit) Current tax Deferred tax Adjustments for current and deferred tax of prior periods Tax losses utilised in current year - previously unrecognised Recognition of deferred tax asset for previously unrecognised tax losses Consolidated Parent Entity 2022 2021 2022 2021 30,710 (6,549) 3,654 (1,182) - 26,633 25,128 178 14,488 (25,600) (12,500) 1,694 166 (979) (2) - - 257 (149) 168 - - (815) 276 (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 25,822 26,529 Non-taxable income - dividends Expenses not deductible for tax Tax losses utilised in current year – previously unrecognised Income not assessable for tax - 185 (1,182) (1,846) - 146 (25,600) (1,966) Adjustments for current and deferred tax of prior periods 3,654 14,488 Recognition of deferred tax asset for previously unrecognised tax losses Others (c) The deferred tax (liability)/asset comprises: Provisions Tax losses Lease liabilities Prepayments and consumables Property, plant and equipment Right-of-use assets Deferred tax asset Deferred tax liability - - 26,633 (12,500) 597 1,694 14,754 - 17,972 (11,800) (33,158) (10,127) (22,359) 2,020 (24,379) (22,359) 13,301 12,500 18,466 (8,147) (34,582) (17,437) (15,899) 2,571 (18,470) (15,899) (503) (310) 13,350 (2,197) - - - (2) - - (815) 934 - - - 723 - 1,657 1,657 - 1,657 - - (11,045) 168 - - 276 - - - - 661 - 661 661 - 661 Steamships Annual Report 2022 37 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 5. Income tax (continued) (d) The gross movement on the deferred tax account is as follows: Consolidated Provisions and accruals Tax losses Lease liabilities Prepayments & consumables Property, plant and equipment Right-of-use assets Total Parent Company Property, plant and equipment Loan receivable Total (e) Income tax (receivable)/ payable is represented as by: At 1 January Income tax provision Prior year under/(over) provisions Utilisation of previously unrecognised tax losses - Note 5(b) Utilisation of previously recognised tax losses Utilisation of interest withholding tax Others Tax payments made Classified as: - Current - Non-current 6. Cash and cash equivalents Cash and short-term deposits Beginning Balance Charge to profit Ending Balance 13,301 12,500 18,466 (8,147) (34,582) (17,437) (15,899) 1,453 (12,500) (494) (3,653) 1,424 7,310 (6,460) 661 - 661 62 934 996 14,754 - 17,972 (11,800) (33,158) (10,127) (22,359) 723 934 1,657 Consolidated Parent Entity 2022 2021 2022 2021 (23,627) 30,710 2,000 (1,182) (11,355) (1,822) (852) (5,960) (12,088) (12,088) - (12,088) (23,923) 25,128 - (25,600) - - 1,687 (919) (23,627) (10,000) (13,627) (23,627) (64) 166 15 - - (13) (25) (117) (38) (38) - (38) (325) 257 168 - - - - (164) (64) (64) - (64) Consolidated Parent Entity 2022 2021 2022 2021 53,436 53,436 63,788 63,788 - - - - 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. 38 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 7. Trade and other receivables Trade receivables Trade receivables related parties (Note 18) Provision for impairment Other receivables Prepayments (i) Credit losses Consolidated Parent Entity 2022 2021 2022 2021 73,373 42,192 (11,163) 104,402 28,772 14,446 147,620 80,908 42,214 (12,736) 110,386 51,315 16,594 178,295 - 35,905 - 35,905 3 - 35,908 - 39,489 - 39,489 25 - 39,514 As at 31 December 2022 and 31 December 2021, loss allowance was determined as follows for trade receivables: 31 December 2022 Current More than 30 More than 60 More than 90 days past due days past due days past due Total Expected credit loss rate 0.01%-0.05% 0.05%-0.15% 0.15%-2% 2%-80% 9.95% Gross carrying amount - trade receivables 57,507 30,170 Loss allowance 17 26 9,812 63 14,704 11,057 112,193 11,163 31 December 2021 Current More than 30 More than 60 More than 90 days past due days past due days past due Total Expected credit loss rate Gross carrying amount - trade receivables Loss allowance 0.1%-1% 84,718 353 1-5% 13,925 304 5-20% 20-80% 10.6% 5,675 431 15,698 11,648 120,016 12,736 Movement in the provision for impairment of trade receivables is as follows: Opening balance Impairments recognised during the year Provision released Write off Total Consolidated Parent Entity 2022 12,736 1,461 (2,947) (87) 11,163 2021 2022 2021 11,359 5,379 (1,484) (2,518) 12,736 - - - - - - - - - - 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. (ii) 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, re-insurance receivables 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 2022 and 31 December 2021, 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 2022 39 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 8. Inventories Finished goods Provision for obsolescence Consolidated Parent Entity 2022 2021 2022 2021 28,607 (144) 28,463 23,153 (144) 23,009 - - - - - - Inventories recognised as an expense during the year ended 31 December 2022 and included in cost of sales and cost of providing services amounted to K21.0 million (2021: K20.1 million). The provision for obsolescence of inventories during the year increased by KNil (2021: by K1.4 million decrease). 9. Loans to/(from) related companies Non-Current John Swire & Sons Limited Colgate Palmolive (PNG) Limited Huhu Rural LLG Pacific Rumana Limited Harbourside Development Limited Viva No.31 Limited Wonye Limited Wakang Inc. Croesus Re PCC Limited Loans to subsidiaries Loans from associates and joint ventures: Stevedoring associates Loans from subsidiaries Consolidated Parent Entity 2022 2021 2022 2021 8,409 500 1,035 26,930 160,833 2,000 - 16 - 8,899 500 955 28,930 123,333 2,000 2,851 16 198 8,409 500 8,899 500 - - - - - - - - - - - - - - 199,723 167,682 - - 199,723 167,682 8,909 - 8,909 9,399 - 9,399 (2,902) (2,787) - - (2,902) (2,787) - (63,152) (63,152) - (29,957) (29,957) The loans to Harbourside Development Limited and Harbourside South are secured and earn interest at 6.5%. The loan to Pacific Rumana Limited is unsecured and earns interest at 9%. The loan from stevedoring associates is unsecured and incurs interest at 2%. 40 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 10. Property, plant and equipment Property Ships Plant and Vehicles Right-of-use Assets Total Consolidated 2022 Cost Accumulated depreciation (including impairment losses) Net book value Opening value Additions Disposals Impairments Depreciation Closing value 2021 Cost 539,613 295,993 347, 635 42,417 1,225,658 (234,091) 305,522 (156,083) 139,910 (243,179) (33,750) (667,103) 104,456 8,667 558,555 332,662 108,415 2,274 (120) (4,010) 58,883 (140) (767) (25,284) (26,481) 305,522 139,910 84,940 43,164 (136) 32,551 826 (142) - (21,832) (23,512) 104,456 (2,736) 8,667 558,568 105,147 (538) (26,609) (78,013) 558,555 537,534 237,250 311,994 41,733 1,128,511 Accumulated depreciation (including impairment losses) Net book value Opening value Additions Lease agreements made during the year Disposals Impairment Asset held for sale Depreciation Closing value (204,872) 332,662 306,491 44,633 - - - - (18,462) 332,662 (128,835) (227,054) (9,182) (569,943) 108,415 84,940 32,551 558,568 121,554 12,232 - - 4,370 (3,247) (26,494) 108,415 91,255 22,363 - - - - (28,678) 84,940 44,439 563,739 - 530 (8,820) - - (3,598) 32,551 79,228 530 (8,820) 4,370 (3,247) (77,232) 558,568 The Group is committed to its plan to sell cargo vessels within 12 months from the reporting date. As the sales are considered highly probable, the vessels are available for immediate sale and actions were taken to locate potential buyers (including active marketing of the vessel for sale) prior to 31 December 2022 and 2021 respectively, these vessels are classified within line ‘Assets held for sale’ as at 31 December 2022 and 2021. Steamships Annual Report 2022 41 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 10. Property, plant and equipment (continued) Parent Entity 2022 Cost Accumulated depreciation (including impairment losses) Net book value Opening value Additions Disposals Transfers Depreciation Closing value 2021 Cost Accumulated depreciation (including impairment losses) Net book value Opening value Additions Impairments Depreciation Closing value Property Plant and Vehicles Total 81,987 (58,608) 23,379 22,240 2,882 - (6) (1,737) 23,379 79,104 (56,864) 22,240 23,875 125 - (1,760) 22,240 7,313 (5,624) 1,689 1,352 696 - 6 (365) 1,689 6,617 (5,265) 1,352 1,227 453 - (328) 1,352 89,300 (64,232) 25,068 23,592 3,578 - - (2,102) 25,068 85,721 (62,129) 23,592 25,102 578 - (2,088) 23,592 (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 2022 2021 2022 2021 Property Ships and plant and vehicles Total assets in the course of construction 34,103 6,812 40,915 13,240 59,750 72,990 - - - - - - The cost of additions in 2022 did not include any capitalised borrowing costs (2021: nil) in relation to qualifying assets. The Group used capitalization rate of 3.92% (2021: 4.13%) 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, impairments of K25.8 million and K0.8 million were recognised in relation to certain properties and an individual vessel respectively (2021: K4.4 million impairment reversal on vessels). The property impairments comprised of: • K21.8 million impairment of the Cassowary Hotel right of use asset. The recoverable amount was determined based on value-in- use calculations. The calculations use pre-tax cashflow projections based on financial budgets approved by management covering a three year period. Beyond the three year period, revenue and cost growth is set at 4% for the remainder of the lease period. A discount rate of 13.5% has been adopted. • K4.0 million impairment of a building reflecting earthquake damage to a building. The Group has lodged a claim with its insurer with any insurance proceeds being recognised upon finalisation of the claim. Apart from the impairment provided for vessels and properties, there are no other further conditions that indicate impairment of property, plant and equipment as at 31 December 2022 in other businesses of the Group. 42 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 10. Property, plant and equipment (continued) (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 equipment is provided below: As at 31 December 2022 Opening net book amount Lease agreements made during the year Disposal Depreciation Impairment Closing net book amount At cost Accumulated depreciation and impairment losses As at 31 December 2021 Opening net book amount Lease agreements made during the year Disposal Depreciation Closing net book amount At cost Accumulated depreciation Properties Total PGK’000 PGK’000 32,551 826 (142) (2,736) (21,832) 8,667 42,417 (33,750) 8,667 44,439 530 (8,820) (3,598) 32,551 41,733 (9,182) 32,551 32,551 826 (142) (2,736) (21,832) 8,667 42,417 (33,750) 8,667 44,439 530 (8,820) (3,598) 32,551 41,733 (9,182) 32,551 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 Additions Disposal Right of use of assets movement Depreciation Closing value Consolidated Parent Entity 2022 2021 2022 2021 580,814 550,067 (191,918) (174,652) 388,896 375,415 375,415 30,780 (33) - (17,266) 388,896 381,336 10,515 - 106 (16,542) 375,415 - - - - - - - - - - - - - - - - - - Steamships Annual Report 2022 43 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 11. Investment properties (continued) (a) Right-of-use assets The recognised right-of-use assets relate state land leases related to properties owned by the Group (including investment properties). The breakdown of right-of-use assets classified under investment properties is provided below: As at 31 December 2022 Opening net book amount Terminated Depreciation Closing net book amount At cost Accumulated depreciation As at 31 December 2021 Opening net book amount Lease agreements made during the year Terminated Depreciation Closing net book amount At cost Accumulated depreciation State Land Leases 25,663 (142) (435) 25,086 26,781 (1,695) 25,086 25,987 107 - (431) 25,663 26,923 (1,260) 25,663 Total 25,663 (142) (435) 25,086 26,781 (1,695) 25,086 25,987 107 - (431) 25,663 26,923 (1,260) 25,663 2022 2021 (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 108,774 (2,516) (21,035) 105,887 (2,970) (10,431) (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 from previous years, adjusted by observable market trends related to PNG residential and commercial properties, as well as land values, on an annual basis. Included in properties are the following: Investment properties Other properties (note 10) Total NBV Lower Higher Valuation Range 388,896 305,522 694,418 1,395,683 419,168 1,814,851 1,737,527 523,960 2,261,487 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. 44 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (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 2022 2021 2022 2021 69,326 75,838 17,185 162,349 85,706 88,094 18,290 192,090 - - - - - - - - Consolidated Parent Entity 2022 2021 2022 2021 76,433 - 76,433 76,433 - 76,433 - - - - - - Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to operating segment. The goodwill balance of K76.4 million (2021: K76.4 million) is attributable to various business acquisitions in the logistics segments including Pacific Towing (K67.4 million) and New Britain Shipping (K9 million). 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 5% for Pacific Towing (2021: 3% for New Britain Shipping and 5% for Pacific Towing). A pre-tax discount rate of 13.4% per annum (2021: 12.0% 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 K23.2 million (2021: K23.1 million) and K9.1 million (2021: K12.1 million), respectively. Management believes that growth rate of revenue of 5% p.a. for the CGUs is appropriate, as approved three-year financial budgets are based on conservative assumptions. Management determined the budgeted gross margin based on past performance and its market expectations. If the revised growth rate beyond three years had been 1% lower than management’s estimates the Group would need to reduce the carrying value of goodwill of Pacific Towing by K0.5 million 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 4.03% p.a. for Pacific Towing and 2.7% 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 1% higher than management’s estimates, the recoverable amounts of goodwill of Pacific Towing and New Britain Shipping would exceed their carrying amounts by K4.6 million and K6.8 million, respectively. The CGUs’ carrying amount would be equal to value in use at a discount rate of approximately 17.1% p.a. and 24% p.a. respectively. 13. Trade and other payables Trade payables Trade payables - related parties (Note 18) Accruals Other payables Consolidated Parent Entity 2022 2021 2022 2021 32,979 6,323 51,520 17,216 108,038 23,287 488 51,330 16,699 91,804 - - 1,677 - 1,677 - - - - - 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 and 11, 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). Steamships Annual Report 2022 45 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 14. Lease Liabilities (continued) State land leases Properties Total lease liabilities 2022 26,155 33,757 59,912 2021 26,464 35,090 61,554 Total lease liabilities as of 31 December 2022 include current liabilities of K2.7 million (31 December 2021: K2.1 million) and non- current liabilities of K57.2 million (31 December 2021: K59.4 million). 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 5,296 17,421 115,725 138,442 (78,530) 59,912 2,667 13,967 43,278 59,912 Interest on lease liabilities recognised in profit or loss by the Group amounts to PGK2.7M (2021: PGK3.3M). Movement in net lease liabilities as per below: Opening Lease agreements made during the year Disposal during the year Finance costs Repayment 61,554 826 (218) 2,693 (4,943) 59,912 4,869 18,067 117,831 140,767 (79,213) 61,554 2,080 13,127 46,347 61,554 73,090 655 (9,371) 3,167 (5,987) 61,554 The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 31 December 2021 and 31 December 2022 was 4.5% p.a. Management assessed that weighted average interest rate on borrowings obtained from financial institutions during 2022 and previous years approximates incremental borrowing rate at the date of initial adoption of IFRS 16 and at 31 December 2022. For related management’s judgments refer to Note 1(z). The Group recognised expenses relating to short-term leases and expenses relating to leases of low-value assets that are not short- term leases of K5.3M and KNil for the year ended 31 December 2022 (K7.5 million and K9.8 million), respectively. These expenses 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 and loss Utilised during year Closing value Current Non-current Employee 15,157 8,362 (7,824) 15,695 5,119 10,576 15,695 Insurance Claims 43,010 (4,107) 2022 Total 58,167 4,255 (38,387) (46,211) 516 516 - 516 16,211 5,635 10,576 16,211 2021 Total 65,335 8,443 (15,611) 58,167 48,239 9,928 58,167 A description of employee provisions is disclosed in note 1(p). During the year the disputed insurance claim was settled resulting in the utilisation / reversal of the associated provision and reinsurance receivable. 46 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (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 2022 2021 2022 2021 522 239,500 160 240,182 20,000 20,000 260,182 2,534 51,084 160 53,778 209,500 209,500 263,278 - - - - - - - - - - - - - - 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 3.92% (2021: 4.13%). Bank overdrafts are interest-only with no agreed repayment schedule. Bank loans are secured loans with varying 1 to 3 year terms. The effective interest rate on other loans is 2% (2021: 2%). 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 Consolidated Parent Entity 2022 2021 2022 2021 (a) Issued and paid up capital 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) Dividends The Directors advise that a dividend of 70 toea per share will be paid immediately after the Annual General Meeting on 15th June 2023. 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 totalling 115 toea per share which relate to the final dividend of 2021 at 65t per share amounting to K20.15 million, and interim dividend for 2022 financial year of K15.5 million at 50t per share. Steamships Annual Report 2022 47 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 18. Related party disclosures (a) Loss of control: In September 2021 Steamships sold its wholly-owned subsidiary Croesus Holdings Ltd, and indirect wholly-owned subsidiary, Croesus Re PCC Ltd, both incorporated in the Isle of Man, to its ultimate parent company, John Swire & Sons Ltd. at the net book value of the two entities. (b) Interest in subsidiaries, associates and joint ventures: These are set out in notes 21, 22 and 23 respectively. (c) 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 2022 2021 2022 2021 Key management personnel disclosure Salary and wages Other short-term benefits (d) Material transactions: Sales of goods and services - Associates and joint ventures - Key management - Associated groups - Other shareholders Lease and rental income - Associates and joint ventures - Associated groups - Other Shareholders Dividend received - Associates and joint ventures Management fee received - Associates and joint ventures - Associated groups - Other shareholders Interest received - Associates and joint ventures Royalties received - Associates and joint ventures Shipping and towage services - Associates and joint ventures - Associated groups Cartage and storage services - Associates and joint ventures - Associated groups Purchase of goods and services - Associates and joint ventures - Associated groups - Key management Management fees and recharges - Associated groups 48 Steamships Annual Report 2022 14,651 932 13,112 958 277 158 7,700 313 - 2,503 - 159 10 5,948 - - 1,715 - 226 2,688 3,436 - 377 2 - - 12,368 8,411 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,036 1,811 2,036 1,811 - - 44,867 26,825 - 7,438 - 8,539 - (341) - (59) (603) - (12,072) (41,045) - - - - - - - - - - - - - - - - NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 18. Related party disclosures (continued) Purchase of assets - Associated groups Lease rental expense - Associates and Joint ventures - Associated groups Finance Cost - Associates and joint ventures Dividends paid - Other shareholders (minority interest) - Controlling shareholder - Significant shareholder Loans to/(from) related companies - Associates and joint ventures Consolidated Parent Entity 2022 2021 2022 2021 (13,348) (15,214) - - - (330) - - - - - - - - - - (642) (25,717) (9,942) (1,804) (25,717) (9,942) - (25,717) (9,942) - (25,717) (9,942) 35,580 61,226 All transactions with related parties are made on normal commercial terms and conditions. Balances with related companies: Associates and joint ventures: Stevedoring associates (note 9) Basiloc Limited (note 16) Due from 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) Wakang Inc. (note 9) John Swire & Sons Limited (note 9) Croesus Re PCC Limited (note 9) (2,902) (160) (2,787) (160) 500 160,833 - 26,930 1,035 2,000 - 16 8,409 - 500 123,333 - 28,930 955 2,000 2,851 16 8,899 198 Total due from related companies (note 9) 199,723 167,682 Balances receivable / (payable) from / to related companies: - - - - - - 500 500 - - - - - - - 8,409 - 8,909 - - - - - - - 8,899 - 9,399 Receivables Colgate Palmolive Limited John Swire & Sons Limited (note 7) Harbourside Development Limited (note 7) Wonye Limited (note 7) Swire Shipping (note 7) Total trade receivables from related companies (Note 7) Payables John Swire & Sons Limited (note 13) Swire Shipping (note 13) Total trade payables from related companies (Note 13) 2,035 33,870 908 429 4,950 42,192 (6,064) (259) (6,323) 2,995 2,035 36,494 33,870 2,995 36,494 100 11 2,614 42,214 (272) (216) (488) - - - - - - 35,905 39,489 - - - - - - Steamships Annual Report 2022 49 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 19. Reconciliation of cash flows Consolidated Parent Entity 2022 2021 2022 2021 (a) Cash generated from operations Profit / (Loss) from continuing operations after tax Depreciation and impairment Dividend and interest income Net gain on sale of fixed assets Impairment of properties and vessels Gain on disposal of a subsidiary 59,441 95,279 - (534) 26,609 - 91,616 93,774 - (2,063) - - Share of profit of associates and joint ventures (6,288) (5,062) Adjustment on dividend Lease Disposals Loan write-off Change in operating assets and liabilities (Increase)/decrease in trade debtors and other receivables Increase in inventory (Increase)/decrease in deferred tax asset Decrease in operating assets Increase in trade creditors and other payables Increase/(decrease) in other operating liabilities Decrease in income tax receivable Increase in deferred tax liability Net cash inflow from operating activities (b) Net debt reconciliation (173) (103) 777 29,017 (5,454) 551 - 9,989 (43,040) 11,539 5,909 183,519 - - - (14,854) (5,727) (1,561) - 30,115 (3,000) 296 3,727 (863) 2,102 (1,032) - - - - - - - - - (996) 3,606 - 1,677 26 - 187,261 4,520 Net debt as at 31 December 2020 Repayments Lease agreements made during the year Disposal during the year Finance costs Payment of lease liabilities Net debt as at 31 December 2021 Proceeds from borrowings Repayments Lease agreements made during the year Disposal during the year Finance costs Lease payments Net debt as at 31 December 2022 20. Retirement benefit plans Lease liabilities Bank Loans (73,090) - (655) 9,371 (3,167) 5,987 (61,554) - - (826) 218 (2,693) 4,943 (59,912) (302,000) 42,523 - - (1,107) - (260,584) (30,000) 30,000 - - 1,084 - (259,500) Other Loans (5,024) 2,077 - - - - (2,947) (115) - - - - - (3,062) 44,224 2,088 (7,323) - - (36,494) - - - - - - (149) 1,953 - - 261 - 4,560 Total (380,114) 44,600 (655) 9,371 (4,274) 5,987 (325,085) (30,115) 30,000 (826) 218 (1,609) 4,943 (322,474) The total cost of retirement benefits of the Group in 2022 was K5.2 million (2021: K5.1 million). 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. 50 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (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(1) Equity Holdings(1) Name of Entity Country of Incorporation Class of Shares 2022 2021 Croesus Limited Kavieng Port Services Limited Kiunga Stevedoring Company Limited Lae Port Services Limited(5) Madang Port Services Limited Morobe Terminals Limited(4) Motukea United Limited New Britain Shipping Limited(2) Oro Port Services Limited Palm Stevedoring & Transport Limited Port Services PNG Limited(5) Steamships Limited United Stevedoring Limited(3) Windward Apartments Limited Pacific Towing SI Limited Sandaun Agency & Stevedoring Limited(6) Gazelle Port Services Limited(7) Portside Business Park Limited(8) Wonye No. 2 Limited(9) 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 Solomon Islands Papua New Guinea Papua New Guinea Papua New Guinea Papua New Guinea Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 60 100 51.5 60 50.5 64.1 50 100 66.7 54 100 70 100 100 100 100 100 100 100 60 100 51.5 60 50.5 64.1 50 100 66.7 54 100 70 100 100 100 100 100 100 (1) The portion of ownership is equal to the proportion of voting power held. (2) Consolidated by virtue of control over the operating decisions and returns. As at 31 December 2022, Steamships Trading Company Limited still has control over this entity. (3) United Stevedoring Limited became a subsidiary in May 2019. (4) Morobe Terminals Limited became a subsidiary in May 2019 and is in liquidation. (5) Lae Port Services and Port Services PNG Limited are in liquidation. (6) Incorporated since 9 March 2012 and is 100% owned by Steamships Limited. This Company is operating as an agency of Consort. JV Port Services will assume control of the management in 2022 with its 3-year Stevedoring license validity. (7) (8) (9) Incorporated on 21 July 2021 and is domiciled in Rabaul. The company is still under start-up phase. Previously known as Motukea Industrial Park Limited, this company was incorporated on 30 April 2020 and is still under start-up phase. Incorporated on 8 October 2021 and is still under start-up phase. Shares in subsidiary companies have been stated at cost or fair value on acquisition less dividends received from pre-acquisition profits. Steamships Annual Report 2022 51 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 21. Subsidiaries and transactions with non-controlling interests (continued) The summarised financial information of the Group’s largest subsidiaries with non-controlling interest as at 31 December 2022 and 31 December 2021 is as follows: 2022 Madang Port Services Limited New Britain Shipping Limited Motukea United Limited Kavieng Port Services Limited United Stevedoring Limited 2021 Madang Port Services Limited New Britain Shipping Limited Motukea United Limited Kavieng Port Services Limited United Stevedoring Limited Ownership Interest % Assets Liabilities 60 50 64.1 60 70 60 50 64.1 60 70 5,974 19,996 2,810 4,552 3,308 5,439 19,456 2,906 3,989 2,908 975 1,297 1,129 868 2,307 508 1,690 1,050 919 2,398 Carrying Value 4,999 18,699 1,681 3,684 1,001 4,931 17,766 1,856 3,070 510 Revenue Profit 5,654 12,668 9,344 5,813 17,687 4,764 12,017 7,674 4,787 15,898 294 1,397 502 598 117 274 1,602 15 338 440 22. Investment in associates (a) Movement in carrying amounts Opening value Share of profits before tax Income tax expense Dividends received Closing value Consolidated Parent Entity 2022 2021 2022 2021 5,541 366 (117) (197) 5,593 5,529 285 (86) (187) 5,541 - - - - - - - - - - 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: 2022 Ownership Interest % Assets Liabilities Makerio Stevedoring Limited Nikana Stevedoring Limited Riback Stevedoring Limited 45 45 49 2,501 3,314 2,501 8,316 1,132 1,591 - 2,723 Carrying Value 1,369 1,723 2,501 5,593 2,100 2,355 - 4,455 Revenue Profit 2021 Ownership Interest % Assets Liabilities Carrying Value Revenue Makerio Stevedoring Limited Nikana Stevedoring Limited Riback Stevedoring Limited 45 45 49 1,499 1,841 2,501 5,841 161 139 - 300 1,338 1,702 2,501 5,541 840 781 - 1,621 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. 52 Steamships Annual Report 2022 117 157 (25) 249 Profit /(loss) 183 138 (122) 199 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 23. Investment in joint ventures (a) Movement in carrying amounts Opening value Share of profits before tax Income tax expense Dividends received Closing value 2022 2021 33,826 8,627 (2,588) - 39,865 31,463 6,947 (2,084) (2,500) 33,826 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. 2022 Colgate Palmolive (PNG) Limited Harbourside Development Limited Pacific Rumana Limited Viva No. 31 Limited Wonye Limited 2021 Colgate Palmolive (PNG) Limited Harbourside Development Limited Pacific Rumana Limited Viva No. 31 Limited Wonye Limited Ownership Interest % 50 50 50 50 50 Ownership Interest % 50 50 50 50 50 Assets Liabilities Carrying Value Revenue Profit /Loss 24,133 5,756 18,377 415,015 381,068 5,259 10,490 51,516 1,262 7,160 37,355 14,161 506,413 432,601 39,865 - 3,997 3,330 34,545 10,706 2,180 84 3,258 50,773 4,421 358 421 (98) 937 6,039 Assets Liabilities Carrying Value Revenue Profit 24,133 10,177 13,956 159,022 159,380 3,663 10,490 28,559 87 7,062 15,335 225,867 192,041 (358) 3,576 3,428 13,224 33,826 36,236 10,705 2,180 862 3,258 4,351 218 254 (187) 227 53,241 4,863 The Group’s share of the capital commitments of joint ventures at 31 December 2022 is K37.0 million (2021: K74.5 million). Other than those disclosed in note 27, there are no contingent liabilities arising from the Group’s interests in the joint ventures. Steamships Annual Report 2022 53 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 24. Business Combinations and Transactions with Non-Controlling Interests On 7 April 2021, the Registrar of Companies approved the amalgamation of Pacific Towing (PNG) Limited with Steamships Ltd. The effective date of amalgamation was 31 December 2020. Pacific Towing (PNG) Limited was amalgamated into the Company using the short-form amalgamation process under section 235 of the Companies Act 1997. The name of the amalgamated company is Steamships Ltd. Under the amalgamation, the Company took control of all the assets of Pacific Towing (PNG) Limited and assumed the responsibility for their liabilities. The amalgamations were accounted in the 2021 financial year based on predecessor accounting with book value accounting used for the purposes of the transaction. Amalgamation had no impact on the Group’s assets, liabilities, equity, and profit or loss account, as amalgamated entities have been fully controlled by the Group and consolidated prior to the amalgamation and after the amalgamation. Further, amalgamation had no impact on the Group’s cash flows. 25. Discontinuing Activities On 28 September 2021, the Group disposed of its 100% interest in Croesus Holdings Ltd, and its indirect wholly owned subsidiary, Croesus Re PCC Limited. The 31 December 2021 results (K’000) from the discontinued activities are derived from: (a) Profit for the period: Revenue Other operating income / (expenses) - net Profit before tax Profit after tax (b) 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 Croesus Re and Croesus Holdings Ltd Closing cash flow balance (c) Details of the sale of subsidiary are as follows: Total disposal consideration receivable (Note 18) Carrying amount of net assets sold Gain on sale before income tax Gain on sale after income tax The parent company has recognised gain of K36.5M on the sale of subsidiary in 2021 (Note 3). 2021 746 4,134 4,880 4,880 2021 (7,340) 5,406 - (1,934) 45,990 44,056 - 2021 36,494 36,494 - - 54 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 25. Discontinuing Activities (continued) (d) Assets and liabilities of disposed subsidiary on the transaction date are presented below: Cash and cash equivalents Prepayments and other receivables Total assets Accounts payable and accruals Insurance reserves Borrowings Total liabilities Net assets 26. Segmental reporting (a) Description of segments 2021 44,056 5,152 49,208 189 3,395 9,130 12,714 36,494 The Board monitors the business from a product perspective and has identified three reportable segments. A brief description of each segment is outlined below: • Property and hospitality – consist 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 include 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 commercial, head office administration function and insurance activities. Steamships Annual Report 2022 55 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 26. Segmental reporting (continued) (b) Segment information The segment information provided to the Board for the reportable segments for the year ended 31 December 2022 is as follows: 2022 External revenue Interest revenue Interest expense Segment results Share of joint ventures and associates profit Total tax (expense) / benefit Profit from continuing operations Segment assets Segment liabilities Net assets Total assets include investments in joint ventures and associates Capital expenditure Depreciation 2021 External revenue - from continued operations - from discontinued operations Interest revenue Interest expense Segment results Share of joint ventures and associates profit Income tax (expense) / credit Profit from continuing operations Profit from discontinued operations Segment assets Segment liabilities Net assets Total assets include investments in joint ventures and associates Capital expenditure Depreciation Property and Hospitality Logistics Commercial and Investments (and eliminations) Total 248,595 380,337 705 2,185 54,537 - (16,361) 38,176 199 (4,414) 41,612 - (12,484) 29,128 2,330 12,633 (12,483) (16,363) 6,288 2,212 (7,863) 631,262 13,537 (14,712) 79,786 6,288 (26,633) 59,441 696,098 423,173 396,422 1,515,693 (1,367) (217,099) (253,158) (471,624) 694,731 206,074 143,264 1,044,069 21,488 33,453 44,237 5,593 94,517 47,669 18,377 1,182 3,373 45,458 129,152 95,279 240,286 321,168 - 494 (2,276) 81,739 - (14,433) 67,306 - - 371 (5,010) 23,520 - (5,633) 17,887 - 2,475 746 8,952 (6,549) (21,891) 5,062 18,372 1,543 4,880 563,929 746 9,817 (13,835) 83,368 5,062 (1,694) 86,736 4,880 697,144 351,345 468,500 1,516,989 (101,584) (173,189) (221,287) (496,060) 595,560 178,156 247,213 1,020,929 19,870 41,419 45,908 5,541 47,672 43,193 13,956 652 4,673 39,367 89,743 93,774 56 Steamships Annual Report 2022 NOTES TO THE FINANCIAL STATEMENTS Steamships Trading Company Limited Year Ended 31 December 2022 (Amounts in Kina 000’s unless otherwise stated) 26. Segmental reporting (continued) These figures include non-controlling interests share of operating profits and assets. Revenue from the hotels and property business mostly relates to the provision of services and is recognised over time. A minor portion represents revenue from the sale of goods and is recognised 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 operations in the Solomon Islands and Fiji. 27. Contingent liabilities There were contingent liabilities at the Balance Sheet date as follows: (a) Steamships Trading Company Limited holds a 50% interest in an associated company, Colgate Palmolive (PNG) Ltd, (“CP (PNG) Ltd”). In 2022 CP (PNG) Ltd received a notice from PNG Customs seeking to reassess the historic rate of import duty applied to a specific product, known as soap noodles, resulting in an additional duty of K11.1 million and an intention to apply the higher rate on future imports. CP (PNG) Ltd has disputed the interpretation of the product characteristics by PNG Customs and formally appealed against this higher assessed rate of duty. The appeal process remains in progress. To the extent that any of the additional duty is deemed payable by CP (PNG) Ltd following the appeal process, the Group’s share of profits from associates and the equity accounted investment in CP (PNG) Ltd will be reduced by 50% of the amount payable, net of any tax effect. (b) The parent entity has given a secured guarantee in respect of the bank overdrafts and loans of certain subsidiaries, associates and joint ventures. The parent entity has given letters of comfort of continuing financial support in respect of certain subsidiaries, associates and joint ventures. No losses are anticipated in respect of these guarantees. (c) An appropriate provision has been made for ongoing legal proceedings at 31 December 2022 where a loss is considered probable. Based on information available at 31 December 2022, other than matters noted above, the Group estimates there were no material contingent liabilities at period end. 28. Commitments (a) Capital commitments Contracts outstanding for capital expenditure: - less than 12 months - 1-5 years 29. Subsequent events Consolidated Parent Entity 2022 2021 2022 2021 135 - 135 9,842 - 9,842 - - - - - - On 9th February 2023 the Company entered into a revolving credit facility agreement with Kina Bank Limited for K60 million for three years. Security for the facility is provided by the existing Common Terms Deed, which provides security for financial obligations with the Company’s banks. The Directors advised that a dividend of 70 toea per share will be paid immediately after the Annual General Meeting on 15th June 2023. 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. Steamships Annual Report 2022 57 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 2022, 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 2022 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 2022, 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. 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, www.pwc.com/pg 58 Steamships Annual Report 2022 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited Materiality Audit scope Key audit matters • Amongst other relevant topics, we communicated the following key audit matter to the Audit and Risk Committee: • Goodwill impairment assessment • This matter is further described in the Key audit matter section of our report. • • • • For the purpose of our audit of the Group we used overall group materiality of approximately 5% of the Group’s profit before tax and property impairments for the year ended 31 December 2022. 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 and property impairments 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 the Group’s significant operations including the significant subsidiaries included in the Group consolidation sufficient to express an opinion on the financial statements as a whole. All subsidiaries of the Group at the year end are incorporated and operating in Papua New Guinea with the exception of one subsidiary which has operations in the Solomon Islands. 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. Steamships Annual Report 2022 59 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited Key audit matter 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. We have determined the matter described below to be a key matter 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 Goodwill impairment assessment (Refer to note 12 of the financial statements) The Group has goodwill totalling K76.4 million at 31 December 2022. 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 2022. The Group has calculated the value of the respective cash generating units which the goodwill relates to 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 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 recoverable amount of the cash generating units. We have considered and tested the financial models used by the Group to determine the values 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. Together with our valuation expert we reviewed the financial models methodology used in determining the value of the respective cash generating units. We compared the forecast revenues and expenditures in the financial models to approved budgets and obtained an understanding of 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. We benchmarked certain assumptions with external forecasts, and the discount rate 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 in the financial models. 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. 60 Steamships Annual Report 2022 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited 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. 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. Steamships Annual Report 2022 61 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited Auditor’s responsibilities for the audit of the financial statements (continued) • • • 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. 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. 62 Steamships Annual Report 2022 INDEPENDENT AUDITOR’S REPORT to the Shareholders of Steamships Trading Company Limited 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 2022: • 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 Jonathan Grasso Partner Registered under the Accountants Act 1996 Port Moresby 31 March 2023 Steamships Annual Report 2022 63 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2022 Steamships Trading Company Limited and Subsidiary Companies The Directors submit their Annual Report for the year ended 31 December 2022 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 K57,985,000 (2021: K90,550,000). Dividend The Directors advise that a dividend of 70 toea per share will be paid after the Annual General Meeting on 15th June 2023. 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. 64 Steamships Annual Report 2022 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2022 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 2015 Managing Director 2013 to 2015 Member of the Remuneration and Nomination 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 & Transport from 1989-1992. He was the Managing Director of Steamships Trading Company Limited from 1st January 2013 to 12th January 2015. He is the Chairman and Chief Executive Officer of John Swire and Sons (Australia) Pty Limited. P. J. Aitsi MBE Director from 1st July 2021 Director 2014 to 2018 Peter Aitsi is a senior Papua New Guinean business leader with over 30 years of experience from having led and managed a number of PNG’s leading companies. He was appointed by the Bank of Papua New Guinea as a Statutory Manager for Comrade Trustee Services Limited in February 2022 and was also Deputy Chair of the Superannuation & Life Insurance Review Committee from 2021 to 2023. Peter has a long-standing involvement with community organisations such as Transparency International PNG, Badili Club of PNG, and Leadership PNG. He continues to serve on several boards of both listed and unlisted companies; Steamships Trading Company, Chair of MiBank PNG, Chair of PNG Property Developers Association and Chair of media company PNGFM Ltd. He studied Banking and Finance at the PNG Institute of Banking and Finance in Port Moresby (now IBBM), he is a member of the Australian Institute of Directors and a member of the PNG Institute of Directors (PNGID) and was awarded the Male Director of the Year in 2018. In 2004 he was accorded a Queens award as a Member of the British Empire (MBE) in recognition for his contributions to the development of PNG media and his long standing voluntary service to various community organisations. R.P.N. Bray Managing Director from 20th September 2020 Member of the Strategic Planning Committee Member of the Remuneration and Nomination Committee Director since 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 Offshore’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 holds directorship of various Steamships Trading Company subsidiaries, joint ventures, and associated companies. He sits on a number of charitable advisory boards and a number of PNG business groupings, including the PNG Property Developers Association, the United Nations Biodiversity & Climate Fund for PNG, and the Business Council’s Energy Working Group. He graduated with a Bachelor of Science from Bristol University (UK) and holds a Master of Marine Sciences from Nanyang Technical University (Singapore). Steamships Annual Report 2022 65 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2022 L.M. Bromley Chairperson of the Audit and Risk Committee since July 2021 Member of the Strategic Planning Committee since July 2021 Member of the Remuneration and Nomination Committee since July 2021 Director since 2019 Ms Bromley has been a Senior Executive of the Bromley Group of Companies for over 12 years. She is currently a Director of the Bromley Group’s various commercial operating Companies some of which include Heli Niugini Ltd, Maps Tuna Ltd, Hoia Investments Ltd and Western Drilling Ltd 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, Aerolift (Singapore) Pte. Ltd. in Singapore and AAB Holdings Pty Ltd Group of Companies in Australia and is responsible for the aviation operation, logistic support and group investment functions. She is the Managing Director of Merit Finance Limited which serves as the Bromley Group’s treasury arm. Ms Bromley also consults on the Bromley Group’s property development and property management Companies through advisory roles in Papua New Guinea and Australia. She is a Director of Viva No 31 Ltd, a Steamships Trading Company joint venture Company, and has previously held positions on the Divisional Boards of EastWest Transport and Steamships shipping. She graduated from Bond University in Australia and holds a Bachelor of Commerce and a Bachelor of Laws. D.H. Cox OL, OBE Managing Director 2004 to 2012 Member of the Audit and Risk Committee Member of the Strategic Planning Committee Director since 2003 Mr Cox joined Steamships as a Manager in 1992, rising to become Managing Director from 2004-2012. He has extensive experience in the Asia-Pacific business environment and holds an MBA in International Hospitality & BSc (Hons) in Accounting & Business Management. Lady W.T. Kamit CBE Member of the Audit and Risk Committee Director since 2005 Lady Winifred Kamit is a senior partner at Dentons PNG. Lady Kamit is a Director of Bunowen Services Ltd, Kamchild Limited, Dentons Administration Services Ltd, Post Courier Limited and its subsidiaries and Brian Bell Group. Lady Kamit also serves on a number of non-government and charitable organisations, including Anglicare PNG Inc. 66 Steamships Annual Report 2022 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2022 J.B. Rae-Smith Director since 2019 Mr Rae-Smith is Chairman of Swire Energy Services and United States Cold Storage, a Director and Chairman of the Audit and Risk Committee of Swire Shipping Co Pte Ltd and Swire Bulk Pte Ltd and Vice President of the United Kingdom Chamber of Shipping. He 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. 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. M.R. Scantlebury Managing Director from September 2018 to September 2020 Finance Director & Company Secretary from June 2016 to September 2018 and from September 2020 to present 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 holds Directorship of various Steamships Trading Company subsidiaries, joint ventures, and associated companies. Steamships Annual Report 2022 67 DIRECTORS’ REPORT Steamships Trading Company Limited Year ended 31 December 2022 Remuneration of Directors Directors remuneration received or receivable from the Company as directors during the year, is as follows: GL Cundle (Chairman) LM Bromley DH Cox Lady WT Kamit JB Rae Smith PJ Aitsi JH Woodrow GJ Dunlop Sir MR Bromley G Aopi 2022 K’000 223 249 224 174 126 124 63 - - - 2021 K’000 243 201 244 189 133 40 133 139 125 70 1,183 1,517 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 2022 No. 2021 No. Remuneration K’000 2022 No. 2021 No. Remuneration K’000 2022 No. 2021 No. 100-110 110-120 120-130 130-140 140-150 150-160 160-170 170-180 180-190 190-200 200-210 210-220 220-230 230-240 240-250 250-270 270-280 280-290 11 4 9 7 5 6 6 1 4 2 5 2 3 3 3 4 5 1 5 10 5 7 7 4 4 3 5 4 4 3 2 4 4 5 1 1 290-300 300-310 310-340 340-360 360-370 370-380 380-390 390-400 410-420 420-430 430-440 440-450 460-470 480-490 500-510 530-540 540-550 560-570 1 2 4 3 2 2 - - 5 - - - - - - - - - 1 2 1 1 1 2 1 - 1 1 2 1 - - 1 2 1 - 570-580 600-610 620-630 650-660 660-670 710-720 720-730 770-780 810-820 820-830 840-850 850-860 910-1000 1,000-1,100 1,100-2,000 2,000-2,900 7 6 - - - 2 - - - - - - 3 1 4 2 - 7 - - - 4 - - 3 - 1 1 3 2 1 2 For and on behalf of the Board: Port Moresby 31 March 2023 G.L. Cundle Chairman R.P.N. Bray Managing Director 68 Steamships Annual Report 2022 STOCK EXCHANGE INFORMATION Steamships Trading Company Limited Year ended 31 December 2022 Shares are listed on the Australian Securities Exchange and the Port Moresby Stock Exchange. All shares carry equal voting rights. Shareholdings At 28 February 2023, there were 361 shareholders. 271 Holding Holding 68 Holding 18 Holding 11 Holding 4 - 1 - 1,001 - 5,001 - 10,001 100,000 - 1,000 units 5,000 units 10,000 units 100,000 units over The number of shareholders holding less than a marketable parcel was 48. The 20 largest shareholders were: Number of shares JS&S (PNG) LIMITED BERNE NO 132 NOMINEES PTY LTD <722124 A/C> NATIONAL SUPERANNUATION FUND LIMITED BERNE NO 132 NOMINEES PTY LTD <657243 A/C> JOHN E GILL OPERATIONS PTY LIMITED HYLEC INVESTMENTS PTY LIMITED BOND STREET CUSTODIANS LIMITED MR RAMESH MAHTANI BNP PARIBAS NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED BUDLEAF PTY LTD INTERCONTINENTAL ASSETS PTY LIMITED PRAFUL PATEL INVESTMENTS PTY LTD PRAFUL & ANITA PATEL S/ A/C HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MRS LUCY ANN KING MS JENNIFER MAY FORBES CUSTODIAL SERVICES LIMITED MRS JUDITH SCOTTHOLLAND MRS MARY PATRICIA HAUGHTON MR PETER JAMES HAYMAN 22,362,651 5,760,000 1,859,446 446,494 54,727 32,500 23,067 21,700 19,348 18,606 16,470 15,000 12,048 10,767 10,348 10,000 8,768 8,161 8,161 7,500 % 72.12 18.58 6.00 1.44 0.18 0.10 0.07 0.07 0.06 0.06 0.05 0.05 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.02 30,705,762 99.02 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 2022 69 70 Steamships Annual Report 2022 Steamships Annual Report Steamships Annual Report COMPANY DIRECTORY COMPANY DIRECTORY CHAIRMAN G. L. Cundle §& MANAGING DIRECTOR R.P.N. Bray §& FINANCE DIRECTOR M. R. Scantlebury NON-EXECUTIVE DIRECTORS P. J. Aitsi MBE L.M. Bromley +§& D. Cox OL, OBE +& Lady W.T. Kamit, CBE + J.B. Rae Smith + Member of the Audit and Risk Committee § Member of the Remuneration and Nomination Committee & Member of the Strategic Planning Committee SECRETARY M.R. Scantlebury REGISTERED OFFICE Level 2, @345, Stanley Esplanade, Section 20, Allotments 3, 4 and 5 Granville, Port Moresby, National Capital District Papua New Guinea Telephone: +675 313 7400 / 79987000 P.O. Box 1 Port Moresby, National Capital District, 121 Papua New Guinea AUDITORS PricewaterhouseCoopers P.O. Box 484 Port Moresby, NCD Papua New Guinea SHARE REGISTRARS Computershare Investor Services Pty Limited GPO Box 2975 Melbourne VIC 3001 AUSTRALIA Telephone: (Aus) 1300 85 05 05 (Overseas) Fax: +61 (0)3 9415 4000 +61 3 9473 2500 STOCK EXCHANGE Shares are listed on both the PNGX Markets Limited and the Australian Securities Exchange Limited A. R. B. N. 055 836 952 S T E A M S H I P S T R A D I N G C O M P A N Y L I M I T E D A N N U A L R E P O R T 2 0 2 2 Level 2, @345, Stanley Esplanade, Section 20, Allotments 3, 4 and 5 Granville, Port Moresby, National Capital District, Papua New Guinea P.O. Box 1, Port Moresby, National Capital District, 121, Papua New Guinea P: +675 313 7400 / 79987000 steamships.com.pg 

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