SINGAPORE SHIPPING CORPORATION LIMITED
20
INTERVIEW WITH CHIEF EXECUTIVE OFFICER
5.
Why did you build in step-down rates in your charter contracts?
The initial rates under a long term charter are higher due to higher interest rates under the
financing arrangements. Further, as a vessel ages, it will naturally command a lower charter
rate.
For illustrative purposes, it is not uncommon for the first 5 years of the rates to be agreed at
S$10,000 per day (as an example), with rates stepping down to S$5,000 per day for the 5 years
thereafter. In our view, such rates should be accurately reflected accordingly in the accounts,
as was done in previous years. However, in May this year, it was foisted on us that we should
adopt a straight-line basis which means (if based on the example above), we would only record
S$7,500 as revenue a day even though the full S$10,000 is earned.
6.
How do the Accounting Standards prescribe such income’s recognition?
The standards prescribe that “lease income from operating leases shall be recognised
in income on a straight-line basis over the lease term, unless another systematic basis is
more representative of the time pattern in which use benefit derived from the leased asset is
diminished.”
In layman’s terms, the conventional approach is to straight-line the revenue as advocated by
the standards. However, the standards allow for an alternate way of recognising such revenue
if it is more representative of the use benefit derived.
7. How has SSC accounted for such revenue previously?
In the past and up to 3Q FY2016 results announcements, SSC had consistently recognised
revenue via the alternative recognition in accordance with its daily charter income under the
terms of the charter contracts.
8.
What brought about the change this year given no new acquisitions noted (your 3
vessels were acquired last year)?
Accounting standards, mode of business and operations of SSC (including terms of charters for
all the vessels) remain unchanged.
This year, the Group changed its audit partner in accordance with Rule 713 of the Listing
Manual (which provides that an audit partner must not be in charge of an audit for 5 consecutive
financial years).
Notwithstanding that:
(i) there is a step down in the charter rates in future years; and
(ii) the accounting profits will not be reflective of commercial realities,
