JOINT STATEMENT BY
CHAIRMAN and CEO
Dear Distinguished Shareholders
It is with considerable sense of privilege and honour that I write to you as the recently appointed Chairman of the Company, having being appointed to the Board of Directors in late December 2018.
Setting the Direction through Leadership and Experience
Left: Mr. Wong Siew Cheong, Bill
Executive Director and Chief Executive Officer
Right: Mr. Kum Soh Har, Michael
Non-Executive Non-Independent Chairman
Mr. Wong Siew Cheong, Bill and I have gone a long way since we first made our work ventures and in-roads to the Middle East back in the 1980s. When Bill presented me with the opportunity to invest in the Company in mid-2018, despite that oil prices having stabilized somewhat at a level above US$60 for international Brent Crude, I was cognizant that the offshore oil and gas marine logistics services sector will continue to remain challenging with the excess tonnages in an environment characterized by the subdued daily charter rates.
However, I saw and continue to believe in the potential of the Group as helmed by Bill as the Chief Executive Officer and the management team, which he has assembled, and readily invested cash in exchange for a slight majority equity stake in the Company. Under Bill’s leadership and indefatigable work ethics, the Group has now established a strong entrenched market position in the Middle East supported by a relatively young fleet with a significant portion of our vessel fleet being backed by long term contracts. All of these achievements are commendable as they were attained by the Group not being overly-extended on leverage but nonetheless impacted by the severe downturn in the industry over the past couple of years.
Before I turn over to Bill for his discussion on operations and financial results, I wish to express my appreciation to Bill for allowing me to share and contribute to this Company platform in an industry which I have endeared myself with and hence never truly left, and graciously allowing me to assume the chairmanship of the Company.
First and foremost, I wish to thank Michael for his kind words and strong endorsement with his significant cash-for-equity investment in the Group, which has contributed immensely to the stability of the Group and its operations. The Management is also grateful that Michael has decided to devote part of his time to assume the chairmanship of and provide leadership and insight to the Group. In a way, 2018 followed through with the developments of late 2017 with oil prices stabilizing above US$60 per barrel with increased activities and tendering enquiries as a result. From an operational perspective, the significant milestones and highlights of FY2018 is that we took full delivery and deployment of the 7 new-built vessels which now forms part of the 10-vessel marine spread service offering being deployed in the Middle East. The vessels continue to enjoy almost full 100% utilization and the duration of the respective contracts is expected to continue until the 3rd quarter of 2022. In addition, both the liftboats in our fleet, i.e. AOS Maintainer I and Delta 22 were deployed for the most part of 2018 as intended with reference to their respective contracts awarded.
Group revenue for FY2018 increased by a commendable 73.6% to US$58.8 million as compared to US$33.9 million in FY2017 due largely to our MLS division with an enlarged owned fleet at enhanced utilization rates. The increase in gross profit by 369.2% to US$15.3 million in FY2018 as compared to FY2017 corresponded with the significant increase in revenue primarily as a result of a higher utilization of owned vessels, deployment of Group’s liftboats, deployment of 3 front runners and 5 new vessels, and higher daily charter rates for long term contracts with a MENOC. As a result, the gross profit margin for the Group improved by 16.4 percentage points to 26.1% in FY2018.
However, our Group recorded a net loss of US$16.9 million in FY2018, as compared to a net loss of US$13.2 million in FY2017 due mainly to the impairment losses on certain vessels of US$16.4 million, provision set aside for an arbitration case of US$0.5 million as well as loss on fair value changes in hedging derivatives of US$0.6 million.
Our Group’s operations generated significantly higher operating cash flow before changes in working capital of US$18.1 million in FY2018 as compared to US$5.5 million in FY2017. As a result of the cash-for-equity injection of US$26.0 million by Saeed Investment Pte. Ltd. of which a significant portion was used to fully repay the convertible loan which was previously classified as debt in the balance sheet, the Group’s gearing ratio had remained stable at 57.0% in FY2018 compared to 57.3% in FY2017, despite taking delivery of and the associated significant capital expenditure on the 7 new-built vessels during FY2018.
Outlook and Strategy
Given the uncertainties in outlook of the oil and gas sector coupled with the intensity of competition for contracts, the Group is expected to continue to focus on improving its operational efficiencies while maintaining or reducing its cost of operations to be market competitive in price quotations as it pursues new contracts with its established pool of existing and new clients. Competitive downward pressure on charter rates is still to be expected due to the influx of excess tonnages from other more adversely affected regions into the Middle East.
The Group will remain focused on maintaining and protecting the enhanced level of utilization of our existing enlarged fleet and securing employment for our owned vessels at competitive market rates. Given the established track record and entrenched market presence in the Middle East, the Group will continue to explore opportunities for cross chartering-in of third party vessels backed by secured contracts to complement its fleet and service offering to generate positive cash flows and profits for the Group.
Having taken full delivery of the 7 new-built vessels, we have now a fleet of vessels which are relatively new of less than 4 years old on average, if we disregard the old legacy vessels comprising of a utility vessel, 2 tugboats and 1 remaining deck barge. We will continue to evaluate our fleet portfolio in accordance of the needs of the market with a view of continual fleet renewal in our bid to remain streamlined and focused with the ultimate aim of being nimble and competitive in our service offerings.
Dividends and Payout
No dividend had been declared or recommended for FY2018 in view of the operational and financial requirements of the Group.
Words of Appreciation
From the both of us as the Chairman and the Executive Director and CEO, we can reflect back on 2018 as a year of significant changes, especially during the latter half of 2018. We would like to take this opportunity to express our sincere appreciation to all the previous members of our Board, namely Messrs Tong Choo Cherng, Goh Boon Chye, Eu Lee Koon and Andrew Lyndon Waite for their unstinting support and guidance during the past extremely difficult periods, as well as to the new members who have stepped up to provide their expertise and experience in the stewardship and governance of the Group.
We would also like to express our gratitude to our principal bankers for their steadfast support to the financial needs of the Group, and our partners and suppliers for supporting our daily operations so that we can continue to operate effectively during these challenging times.
In addition, we thank our fellow colleagues for continuing to remain dedicated and focused on their roles and responsibilities as we look forward to jointly steer the Group through another challenging year ahead. Lastly, our special expression of gratitude also goes to all fellow shareholders for their patience as we work to deliver positive results and shareholder value in the years to come.