On behalf of the Board of Directors ("Board") of Kim Heng
Offshore & Marine Holdings Limited and its subsidiaries
("Kim Heng" or the "Group"), it is my pleasure to present
to you Kim Heng's annual report for the financial year ended
31 December 2016 ("FY2016").
Notwithstanding some recovery in oil prices, the weakness
in the oil and gas sector continued through the year. Many
in the industry are still caught in the storm and are struggling
to survive due to the reduced demand for services and
equipment by the oil majors.
While we could not completely avoid the effects of an
industry downturn, our prudent management initiatives
have allowed us to remain resilient in the face of the
challenging market conditions.
The general sluggishness in the oil & gas industry continued
due to the global imbalance between supply and demand
of oil. Despite the early signs of an initial oil price recovery
and stabilisation, the oil & gas players were impacted by
weaker demand during the year as cost-cutting measures
and capital expenditure cuts trickled down the value chain.
Kim Heng was not exempted, as depressed oil prices
resulted in lower demand for the maintenance of rigs and
related services, and delays in several projects. Revenue
from the Group's Offshore Rig Services and Supply Chain
Management ("ORS-SCM") segment fell by 30.5% yearon-
year ("y-o-y") to S$30.9 million for FY2016, while
revenue from the Vessel Sales and Newbuild ("VS-NB")
segment also declined by S$6.8 million to S$0.5 million due
to the absence of new build projects being undertaken
during the year.
Notably however, gross profit margins improved slightly to
27% from 26% during the year due to a shift in revenue
mix, with an increase in contribution from the higher margin
ORS-SCM segment. Gross profit came in at S$8.4 million in
FY2016, down from S$13.6 million in FY2015.
Despite the fall in revenue, we continued to explore ways
to improve cost efficiencies on the operating level and have
made headway in this aspect. Cost cutting initiatives were
successful during the year with SG&A expenses falling
Overall, the Group reported a net loss for FY2016 of S$17.8
million, compared to the loss of S$4.9 million in FY2015.
This included a non-cash impairment of S$8.3 million due to
the decrease in carrying value of some assets. By the careful
management of our working capital and balance sheet, the
Group was able to achieve positive net cash generation from
operating activities amounting to S$2.0 million in FY2016.
As at 31 December 2016, the Group still maintained a
healthy balance sheet with our cash & cash equivalents
balance of S$20.1 million and a modest net debt of S$4.9
During 2014, we anticipated that the market would be
flushed with an oversupply of assets and that the oil prices
would decline. Hence, we were prudent in preserving
our cash resources at a time when many of our peers
were continuing to invest and take on debt. In the years
following, the industry environment declined rapidly. This
threatened the viability of offshore drilling and development
projects worldwide, leading to many project cancellations.
The industry then was faced with weakness and extreme
The year ahead will be challenging, but we are expecting oil
prices to stabilize in the midst of the current tepid recovery
as there are signs that confidence is returning with oil majors
expected to increase exploration and production spending.
Despite the challenges, the Group, with over 40 years of
experience in the marine and offshore business, has a long
history of managing industry cycles. This allows us to look to
the future with confidence and ride through this downturn.
Future Plans & Growth Strategy
We avoided the use of excessive leverage before the oil price
crisis and preserved our cash. As prudent spenders we are
now exploring strategic growth plans, and ensuring careful
consideration before making any financial decisions. Any
investments we make must be justified with a clear return
During the year, we further explored the business opportunity
in Iran. However, any potential future business activities of
the Company in Iran will largely depend on the level of the
economic sanctions imposed by the U.S. against the country.
We also moved our company headquarters to our new
4-story office/warehouse building at 48 Penjuru Road in July
2016, taking advantage of our extended waterfront land
Notwithstanding the current pessimistic industry
environment, we believe there will be many opportunities
where we are well-placed to take advantage. While our
experience informs us that it is challenging to forecast the
shape of things to come, on-the-ground market intelligence
indicates a base case scenario of industry stabilization in
2017 followed by possible improvements in the industry in
Our strategy is thus to take advantage of highly selective
distressed investment opportunities that can improve our
margins and broaden our service offerings, in anticipation
of an eventual industry turn around. At the same time,
we will continue to build resilience across our business to
improve our expertise, overall productivity, efficiency and
Words of Appreciation & Proposed Dividends
On behalf of the Board, I would like to express my sincere
thanks to our hardworking team of management staff
and employees. Despite the challenges we are facing, it is
your tenacity and resilience that has allowed us to not only
endure, but come out stronger from the storms.
I would also like to thank our partners, suppliers, customers
and business associates for their faith in us and their
continued support through the years. I hope to continue
to build stronger relationships with all of you during these
Also, I wish to thank our key institutional investors, Credence
Partners and Zana Capital, for their vote of confidence and
continuous support through the years.
In order to reward our shareholders for their loyalty and
support, the Board has recommended a final dividend of
0.07 Singapore cents per share, subject to shareholders'
approval at the forthcoming annual general meeting.
We welcome your thoughts and support as we move
forward into the year of the Company's Golden Jubilee and
are hopeful for a better year ahead for Kim Heng in 2017!
Thomas Tan Keng Siong
Executive Chairman and Chief Executive Officer