CHAIRMAN’S MESSAGE
COMPANY MILESTONES
FINANCIAL HIGHLIGHTS
COMPANY OVERVIEW
BOARD OF DIRECTORS
NAVIGATING CHALLENGES • EMBRACING DIVERSITY | ANNUAL REPORT 2015
07
CHAIRMAN’S MESSAGE
Dear Shareholders,
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
industries.
KimHengwas noexception to this aswe endured the impact of
these factors on the offshoremarine industry.
FY2015 Performance
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 themarket
and a global stock sell-off, also known as BlackMonday, 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 belowUS$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
andpricing for themaintenance of rigs, aswell 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$44.4million for FY2015.
Revenue fromour Vessel Sales &Newbuild (“VS-NB”) segment
was also affected due to lower-value vessels sold, recording a
slump of 15.3% to S$7.3million for FY2015.
As a repercussion of lower contributions from our higher
margin ORS-SCM segment, our gross profit margin declined
from34.6% in FY2014 to 26.2% in FY2015, where gross profit
for FY2015was S$13.6million.
Overall, the Group reported a loss after tax of S$4.9 million
for FY2015, compared to net profit of S$5.6million in FY2014.
However, we note that on a cash flowbasis the Groupwas 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
position.
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 periodof challenges, whilealso
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
reverses.
IndustryOutlook
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 theseobstacles inour operatingenvironment, weexpect
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.
