On behalf of the Board of Directors ("Board") of Kim Heng
Offshore & Marine Holdings Limited and its subsidiaries ("Kim
Heng" or the "Group"), I present to you our annual report for
the financial year ended 31 December 2015 ("FY2015").
2015 was a year filled with many trials and tribulations in
the global equities, offshore and marine markets. Several
macroeconomic factors have severely affected businesses
across the spectrum and caused disorientation for many
Kim Heng was no exception to this as we endured the impact of
these factors on the offshore marine industry.
In FY2015, the global oil and gas industry continued to suffer
from an imbalance between supply and demand of oil, a
situation that has persisted since the second half of FY2014.
This negatively affected oil related businesses across the
value chain which gave rise to capital expenditure cuts at the
beginning of the year.
Midway through the third quarter of FY2015, adding to the
pressure, the prospect of Iranian crude returning to the market
and a global stock sell-off, also known as Black Monday, forced
oil prices below US$50 a barrel, 25% lower than prices at the
beginning of the year. Oil prices continued to fall thereafter,
breaking below US$30 a barrel in January 2016.
As a result of falling oil prices and pivotal occurrences in the
market, we experienced downward pressure on both demand
and pricing for the maintenance of rigs, as well as the provision
of goods and services. As such, despite several new charter
contract wins, our revenue performance by our core Offshore
Rig Services and Supply Chain Management ("ORS-SCM")
segment recorded a 35.9% dip to S$44.4 million for FY2015.
Revenue from our Vessel Sales & Newbuild ("VS-NB") segment
was also affected due to lower-value vessels sold, recording a
slump of 15.3% to S$7.3 million for FY2015.
As a repercussion of lower contributions from our higher
margin ORS-SCM segment, our gross profit margin declined
from 34.6% in FY2014 to 26.2% in FY2015, where gross profit
for FY2015 was S$13.6 million.
Overall, the Group reported a loss after tax of S$4.9 million
for FY2015, compared to net profit of S$5.6 million in FY2014.
However, we note that on a cash flow basis the Group was able
to generate positive net operating cash flow of S$2.1 million
for FY2015 and our balance sheet remains in a strong net cash
Kim Heng has been in the offshore and marine industry for
over four decades and is intently aware of the effects a severe
oil price downturn can have on the industry. As we progress
into FY2016, we will continue to strengthen our knowledge
and remain resilient during this period of challenges, while also
embarking on a diversification strategy into infrastructure,
power, and water projects. As an experienced integrated
offshore and marine value chain services provider, we at Kim
Heng are equipped with the adequate skills and infrastructure
to adapt our Group to the cyclical downturn and also to
capitalise on viable business opportunities once the oil market
The current sentiment in the market is one of belt tightening,
with demand in the offshore and marine industry continuing
to wane as upstream companies maintain their cost cutting
measures. Oil price forecasts have been declining into FY2016
with oil demand easing back due to an expected slower
recovery on a weaker global growth outlook. Such effects are
expected to remain for a prolonged period, and growth in the
offshore subsea services sector is expected to remain subdued
in the near term.
Given these obstacles in our operating environment, we expect
our business to be volatile and challenging through 2016.
Despite this challenging forward operating environment, we
will continue to capitalise on our vast experience to deliver
timely and quality services to our valued customers while also
seeking opportunities to strengthen our company's offerings.
Future Plans & Growth Strategy
In view of the negative oil and gas industry outlook, we have
put standards in place for prudent business practices and
conservative resource allocation while also embarking on a
diversification strategy to service non-oil and gas industries.
We will continue to engage rigs from around the region that will
still require servicing needs as well as capitalise on servicing
today's increased stringency in global safety regulations and
compliance standards for offshore operations, which may
provide a cushion for our business in this harsh operating
We are exploring new markets in the infrastructure, power
generation and water treatment industries where we can
leverage our existing strengths to diversify our business and
service offerings. By doing this, we aim to reduce our overall
oil and gas industry exposure during the current period of
challenges and emerge as a stronger company when the oil
In our efforts to diversify our capabilities, we have expanded
our range of equipment and machineries to include crawler
cranes, lorry cranes and mobile cranes, so as to enable us
to more profitably undertake a wide variety of maritime and
marine infrastructure projects.
We have also developed Kim Heng's waterfront yard and
facilities at 48 Penjuru Road to ensure that we have sufficient
workspace with the necessary infrastructure to provide
competitive services. This involved the setting up of a new
fabrication and engineering workshop, the construction of a
quayside jetty and wharf improvements. These upgrades will
help us move up the value chain and secure higher-value jobs
in both oil and non-oil related market segments.
Towards the end of 2015, we have also obtained an offer to
renew the lease for our 9 Pandan Crescent yard for 20 years
starting from January 2016. Our waterfront engineering yards
remain a key competitive asset for our business and we remain
committed to investing in their productivity for the years to
Words of Appreciation & Proposed Dividends
On behalf of the Board, I would like to express my sincerest
appreciation to our dedicated team of management staff
and employees. It is the severity of the storm that tests the
fortitude of the individual and all of you have shown tenacity
and made significant contributions to ensure the smooth
operation of the Group.
I would also like to thank our partners, suppliers, customers and
business associates for their trust in us and support through
the years. I hope to continue to forge strong relationships with
all of you to pull through this volatility and emerge even more
Also, I wish to thank our key institutional investors, Credence
Partners and Zana Capital, for their vote of confidence and
support during this time.
In order to reward our loyal shareholders for their enduring
support, the Board has recommended a final dividend of 0.3
Singapore cents per share, subject to shareholders' approval
at the forthcoming annual general meeting.
As the Group begins 2016, we invite shareholders to stand
fervent as we strengthen Kim Heng as a whole and aim to
achieve greater value for all our shareholders.
Thomas Tan Keng Siong
Executive Chairman and Chief Executive Officer