Dear Shareholders

Although oil prices trended upwards last year, price volatility has been high and the sporadic price rallies have been met with caution by most industry participants. The offshore and marine sector experienced tremendous pressure due to the simultaneous impact of limited projects, project delays and cancellations, tight credit conditions, and slow customer payments.

Viking continued to navigate this challenging business climate which has persisted in the last few years. Essentially, our main business and operational efforts centred around:
1. The acquisition of new customers and expansion of markets to sustain a right-sized capacity and to build a stronger backlog for the future.
2. Maintaining liquidity for operational capacity requirements through stringent working capital management and rightsizing initiatives.
3. Working in concert with our financial creditors to achieve a satisfactory solution to address our borrowing.
4. Monetizing assets and recovery of receivables to unlock cashflow.

Offshore and Marine Services

With the lower business volumes, we right-sized our business operations by rationalising our customer support requirements and our infrastructure and capacity. In order to meet varying resource requirements without adverse impact to customer support, we adopted flexible work arrangement, outsourcing and leveraging on resources in more cost-effective locations.

With lesser newbuild opportunities and customers looking to stretch the utilisation of their assets, we are getting better traction in securing and performing maintenance and upgrading jobs. As a result, our parts and services business grew at a faster pace than newbuild projects. While the margins for these services are higher, the contracts tend to be smaller and of a shorter tenure, and could not make up for the shortfalls in the newbuild area.

We have also reallocated our resources and efforts towards geographical markets and customer segments which present better opportunities. On a positive note, Malaysia, Indonesia, and the Middle East territories are yielding better orders and promising pipelines compared to Singapore and China. To improve our sales and marketing access for the Chinese markets, we collaborated through a joint venture agreement with a local Chinese entrepreneur to leverage on his local knowledge and networks.

Customer inquiries continued to be met with significant price pressure as many competitors sought to outbid each other for the limited opportunities. The Group hopes to sustain its offshore and marine services through acquisition of new projects utilising the strong established track record it has built over the years.

Asset Management Services

Low charter rates and utilisation, coupled with excess supply of offshore-related assets, continue to persist within the industry. Consequently, market demand and corresponding valuations remained depressed, and opportunistic distress transactions further pinned down asset values. Against this backdrop, we wrote down our asset carrying values in our chatering related assets.

Given the depressed outlook on offshore chartering, our focus has been on the monetising of our existing assets and the recovery of outstanding receivables from the charterers.

We obtained a favourable outcome from the arbitration with the Chinese charterer for the land drilling rigs. The Chinese courts have accepted our application for the recognition of the award, and we are working with the Chinese party on the settlement of outstanding charters.

In a separate legal dispute with the owners of the chemical tankers which we contracted under a charter and sub-charter arrangement, we are contesting the enforcement of the corporate guarantee and simultaneously seeking amicable settlement.

As the outlook in this business segment is expected to remain challenging, it is not envisaged that we will be making major investments, and will focus instead on the recovery of asset values.

Financial Review

The Groupís profitability for the year was affected by declining revenues, impairment charges on assets, and higher financing costs accrued on overdue borrowings. Reductions in operational costs and the prudent management in spendings have not been adequate to cover the shortfalls.

Revenue and gross profit for the year declined year-on-year as a result of the smaller order book carried forward from last year, lower order intake during the year, and deferral of secured projects by customers. These difficult conditions are reflective of the state of the industry plaguing most industry peers. The prudent spending management coupled with the right sizing efforts undertaken by the Group across the board translated to lower administrative and marketing expenses.

The increase in other operating expenses was mainly due to impairment charges recorded on the Groupís chartering assets as the Group opined that the valuations were no longer able to substantiate the carrying value in the financial books. These impairments majorly relate to:
1. The depreciated value of the land drilling rig, given the ageing of the asset and the continued weak market demand for such assets.
2. The investment in associated companies for the offshore drilling rigs where recent market transactions reflected the depressed value.
3. The provision for doubtful debt against the finance lease receivables relating to the defaulted land drilling rig chartering contracts.

Finance Cost increased as the Group continues to accrue for the interest and associated cost at the original contract terms, notwithstanding the Group is in continued negotiation with respective lenders on the restructuring of debts.

The financial position of the Group as at year-end reflects the above financial performance during the year. The lower net assets for the Group are impacted by the financial losses, primarily from impairment charges against the assets. This impairment against the assets coupled with the depreciation on property, plant and equipment also accounted for the reduction in non-current assets.

The reclassification of land drilling rig from finance lease receivables to inventories due to the expiry of the charter contract led to the increase in Inventories and decrease in finance lease receivables. The increase in inventories was partially offset by the impairment of a land drilling rig as mentioned above. The increase in trade receivables was a consequence of the amortisation and reduction of finance lease receivables due to the timing of the charter contract expiry as at year end.

The reduction of bank term loans reflects the scheduled repayment made during the year. The increase in the redeemable exchangeable bonds and non-bank borrowings were due to the accrual of interest during the year. Trade Payables decreased due to payments made to suppliers for goods received or services rendered, coupled with lesser purchases as a result of lower business volume. Other payables and accruals increased largely due to foreign exchange revaluation of payables denominated in US Dollars .

Moving Forward

Capital spending in the upstream oil and gas segment is unlikely to return to the levels prior to the downturn. In this regard, related asset values will continue to be depressed and a strong recovery in the offshore and engineering segment for newbuilds is unlikely in the short term.

We have to be prepared for a longer than expected recovery in our business sector and the continued challenges ahead. The key to riding through this difficult period is to ensure the necessary working capital and project financing resources are in place.

The Group is considering to apply for a debt moratorium and restructuring arrangement under Section 211 of the Companies Act (Cap. 50) to orderly and equitably address the outstanding borrowings and legal actions by the financial creditors. This will provide the Group the opportunity to facilitate the onboarding of any strategic investor which is key to the Groupís restructuring efforts. We hope for our creditorsí understanding and support during these difficult times to achieve the best outcome for all parties involved.

On this note, we would like to thank our shareholders, employees, suppliers, customers, and our creditors for their support and sacrifices through this difficult journey. We continue to maintain the faith to navigate our way out of this prolonged challenging business climate.

Andy Lim

Ng Yeau Chong
Chief Executive Officer

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