On behalf of the Board of Directors ("Board") of Kim Heng
Offshore & Marine Holdings Limited ("Kim Heng") and its
subsidiaries collectively the "Group"), I present to you our
annual report for the financial year ended 31st December
In 2017, the global oil industry continued to suffer from
the impact of the oil price downturn which started in 2014,
despite oil prices rising to above US$60 per barrel during
the year. Increasing shale oil exports from the USA and
oversupply of crude oil by Iran and Saudi Arabia to increase
market share continues to depress oil prices and affect overall
industry services demand. This has led to the cancellation
of projects by many oil companies, and a reduction in
spending on uneconomical exploration and development
projects. In turn, this resulted in drilling rigs, offshore vessels,
shipyards and service companies being idled. Poor operating
conditions persisted and worsened as companies struggled
to refinance debt and obtain fresh borrowings from the
Despite cost cutting measures and prudent spending in
2017, the extended weakness of our industry caused
revenue from the Group's Offshore Rig Services and Supply
Chain Management ("ORS-SCM") segment to decline year
on year (Y-O-Y) by 11.1% to $27.4 million. No revenue was
generated from the Group's Vessel Sales and New Build
("VS-NB") segment due to lack of new projects undertaken
during the year.
In 2017, the Group reported a net loss of S$15.3 million
compared to FY2016's net loss of S$17.8 million. This
included the S$3.6 million one off non-cash impairment loss
due to the write-down of some assets. Excluding the assets
impairment loss, the Group would have reported a net loss
of S$11.7 million and a negative EBITDA of S$2.7 million.
Industry Outlook Ahead
As we look ahead in 2018, the rising oil price, which has
stabilised at around US$60 per barrel is an encouraging sign
to the industry. We expect oil exploration and development
spending by oil majors to slowly improve over the coming
months, driving demand back to a more meaningful level
for the offshore drilling rigs. This will support rig reactivation,
although the environment is still extremely challenging and
the jobs available are mostly on short term basis. However,
the market is showing signs of improvement in 2018 with
increased tendering activities, and as a result we are looking
at different areas of the supply chain to generate additional
In January 2014, after raising S$40 million from our IPO, we
adopted a prudent approach to preserve our cash reserves
when many of our peers were investing aggressively into
assets at overly inflated prices. We avoided a herd mentality
and did not follow the crowd with overpriced asset
purchases ahead of the downturn. We maintained patience
and refrained from chasing high asset prices with our capital,
and instead built resilience across our business by searching
for strategic niche businesses sheltered from the worst of
In July 2015, the oil industry was faced with uncertainty not
seen in many years, marked by a continuous decline in oil
prices that threaten the viability of many offshore oil projects.
The sharp drop in the oil prices, resulting in many projects
cancellations, had led to many companies being caught
in the storm and unable to fulfil their financial obligations
throughout 2016 and 2017.
Many companies who used debt to fuel rapid growth
during the oil boom are now facing grave financial pressure.
These companies are faced with overleveraging of their
offshore assets. Many of these companies will not be able
to maintain solvency while waiting for an industry recovery
given that the current industry's vessel charter rates are very
depressed that they cannot cover for operating costs and
asset valuations have dropped as much as 90% from past
purchase prices due to excess capacity.
The financial troubles for many weaker industry players
and the resulting insolvencies can help reset the market,
consolidating the number of industry competitors and
weeding out highly speculative operators who have
contributed to overcapacity.
We have avoided the worst of the crisis, having
learned through many previous crises to guard against
overleveraging, and to remain prudent with sufficient cash
on hand to sustain through the downturn.
Future Growth Strategy
Despite continued industry uncertainty, Kim Heng remains
focused on navigating ourselves through the downturn. We
also continue develop capabilities for long term growth.
Leveraging our 50 years of experience managing industry
cycles through booms and busts, we continue to focus on
commercially viable business that can sustain during the
downturn and thrive in an upturn. By prudently investing
when the industry is weak and asset prices are distressed,
we aim to establish a strong position.
Firstly, in July 2017 we were able to secure three (3) anchor
handling tugs of 10,800 horsepower and another 6,000
horsepower in February 2018 at distressed prices. These
vessels will give us good potential to earn high returns in
the future. These purchases will help strengthen our market
position and operating capabilities ahead of an eventual
upturn in the oil industry. With our operating capabilities
with these offshore vessels, Kim Heng was able to quickly
charter these 3 vessels out on spot charters to perform rig
towage for some oil majors in the region.
While in the past we only chartered-in the vessels, we now
see an opportunity to be an owner and operator of offshore
vessels where our entry price is very low. We are looking to
expand our fleet prudently as more distressed opportunities
emerge, as this will give us economies of scale to offer
comprehensive solutions with our fleet and enjoy long-term
cost advantages versus many of our peers.
Secondly, the Group's two (2) waterfront shipyards in
Singapore remain valuable assets that will enable us to
swiftly capture a wide range of vessel and rig activation and
maintenance service opportunities during an upturn.
Thirdly, we are diversifying into the defence business and
other marine activities to build resilience across our business,
sheltered from the cyclicality of the energy industry.
We will be constantly looking for new growth, setting new
goals and strategies. We will capitalised on our knowledge
and skills, to move fast to seize new opportunities before
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
I would also like to thank our partners, suppliers, customers
and business associates for their faith in us and constant
support through the years. I hope to continue to build
stronger relationships with all of you during these challenging
Also, I wish to thank our key institutional investor, Credence
Partners, for their vote of confidence and continuous
support through the years.
In order to reward our shareholders for their loyalty &
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 Jubilee and are hopeful for a better
year ahead for Kim Heng in 2018!
Thomas Tan Keng Siong
Executive Chairman and Chief Executive Officer