Dear Shareholders

2015 has been a chaleenging year, fraught with geo-political tensions and uncertainties in the global economy. Market frailty was further shaken as oil oil prices plugned from a high of US$115 a barrel in June 2014 to under US$30 at the start of 2016. Rising costs and sustained depressed oil prices in the last 18 months have eroded returns for oil companies. This has caused some companies to review their operations and put planned exploration and production projects on hold. Others, particularly those in the offshore and marine industry have shelved and deferred their future capital expenditure plans and even delayed their existing new build capital infrastructure.


Given our participation at the core of the oil and gas, and offshore and marine industry, Viking’s businesses are by no means insulated from these challenges. The impact of project delay and deferment felt by our customers has cascaded to us. Only a fraction of our order books was fulfilled, with a large portion deferred to later years. The deferring of existing order books and lack of new orders in the market further aggravated an already tough business environment. Amidst these headwinds, Viking continued to deliver profits, though these were lower than in 2014. That said, our performance was not balanced across all our business pillars as our HVAC and winch businesses recorded less favourable figures. This resulted in us taking a one-time impairment charge on the goodwill recorded in our balance sheet since the acquisition of our HVAC business some six years ago. While this goodwill impairment did not impact our cash flow, it meant that we recorded a loss at the Group level.


In light of the continued difficult operating environment of the offshore sector, we diversified our customer base towards non-oil and gas and onshore customer requirements. While these initiatives are still in their infancy, their results so far have been encouraging. Meanwhile, we are also increasing our bidding activities for onshore projects and from new customer bases. In 2015, we managed to make headways in securing a number of projects in this arena; including involvement in onshore terminals, defence-related vessels, dredging and other non-direct oil and gas activities. We look forward to growing deeper and wider into this newly found diversified portfolio.
In addition, we looked to long-term contracts in asset chartering services. While these new business areas are not adequate in compensating for the slowdown, they still represent opportunities for us to cushion the risk in our traditional business portfolio and set the stage for new customer bases and future business growth.


As new project pipelines become increasingly scarce, we are taking visible steps to manage our cost structure and support lower business activity levels. In this regard, we deferred non-mission critical planned capital expenditures, pending future outcomes. We also carefully assessed non-essential spending and resources costs, making reductions where needed to rightsize our operations. While our aim here was to reduce costs, we also recognised the need to maintain adequate and optimal infrastructure to meet the needs of our business and to cope with near-term volatility. There will be difficult decisions that need to be made and trade-offs that we can expect. However, this is also an opportune time to demand greater efficiency and throughput from a more streamlined operational structure.


It was a very difficult year in many ways, and industry pundits are not expecting 2016 to be significantly different. There is not a whole lot we can do about the broader industry landscape, but we can certainly improve the effectiveness of our business and diversify our risk. Numerous project deferments have resulted in us carrying forward a higher- than-expected unconsumed order book. We can harvest this pent-up order fulfilment when the situation does improve and customers resume their project execution. As we compete for limited opportunities in our traditional space with sharpened focus, we will continue to invest and explore new ground for growth outside of the offshore oil and gas sector. We have seen encouraging opportunity pipelines and will continue to pursue new markets and customer segments. It is also equally important for us to continue to adopt a prudent cost management stance. We need to optimise our business infrastructure and implement cost-effective engagement models for continued efficiency and savings. This is the only way for us to effectively compete and remain sustainable in the face of price pressure from competitors vying for limited opportunities. This industry has long been volatile and cyclical in nature. While we cannot be certain how long it will take for oil prices to recover and stabilise, we believe the market will eventually move towards a new equilibrium driven by demand and supply. Hopefully, we will have done enough to weather this difficult period and therefore emerge stronger and more ready for the upturn in this cycle.


We would like to thank our fellow directors for their valuable input and guidance, as well as our many shareholders, partners and suppliers for their unwavering support. This, coupled with the hard work and dedication of our colleagues, puts us in a position to meet challenges and seize new opportunities to sustain our businesses. Working together is the only way to get us through this period of uncertainty so that we can look forward to a better tomorrow.

Andy Lim
M.A. (Cantab), MBA(UCLA)

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