Dear Shareholders

While the offshore and marine sector remained challenging in 2017, the industry players are cautiously optimistic about the future following the gradual recovery of oil prices and increase in offshore asset transactions. The improving global economy and corresponding growth in oil demand is expected to increase the capital expenditures of oil companies. We have seen an increase in customer enquiries and tender invitations in recent months but acknowledged that competition remains keen and margins challenged.

Offshore and Marine Services

Our offshore and marine services business, which are systems-based engineering and integration services, has been largely affected by our customers who are deeply rooted in the oil and gas space. Our area of expertise in integrating systems on new builds continue to be in low demand due to upstream curtailed capital expenditure. During these challenging years, we rationalised our operating business model through rightsizing our operational resources and optimizing our infrastructure capacity. We took every measure to contain cost as we look to unlock structural constraints and evolve our business model towards a higher level of variability. From a geographical markets perspective, we are gaining better traction in the emerging markets outside of Singapore. While our cost to support the growth of these overseas markets are invariably higher, we strive to balance it with the higher business volume generated. Outside of the offshore and marine space, we are seeing green shoots and making promising inroads in integrating our systems for onshore applications, namely in the area of substations, power plants, military facilities and hazardous goods warehousing. We expect these projects will be good points of reference as we continue to expand into these infrastructural projects which are less affected by the current industry woes. Another brighter spark is the growth in the services and parts sales segment. This line of business benefitted from the lesser new builds, with customers looking to reduce capital spending by lengthening the serviceability of their vessels and converting older vessels for alternate applications. While we enjoy better margins in this business segment, enlarging volumes will be a key focus for the future.

Asset Management Services

Not dissimilar to our counterparts in the industry, this segment of the business is most affected during this period of downturn. Pervasive across the industry, we are seeing lower charter hires and utilisation rate compared to the business case when the assets were acquired for. This scenario is likely to persist given the availability of these assets outstrips the limited demand. The cancellation of charters, coupled with limited new deployment opportunities, added further pressure to this business segment. The status of our investment in the jack-up drilling rig remained unchanged. Our partners in concert with the shipyard have delayed the completion and delivery of the rig, pending the improvement in the economics of the jack-up rig markets. We continued to be on the lookout to deploy or dispose of the land drilling rigs, one of which the original charter contracts had been terminated. In view of the termination and non-payment of outstanding charter hires, we have initiated arbitration proceedings against the charterer, while concurrently finding solutions with them to resolve the matter. We have also terminated the charter for the hire of a chemical tanker with the owner and sub-charterer due to contract disputes and the non-payment of outstanding charter hires. This matter is also undergoing arbitration proceedings in which we are both the claimant and defendant. In summary, this business segment has been challenging for us given the charter cancellations and the related arbitration proceedings, on top of the financial commitments required for the assets involved. Going forward, it is critical to monetise the assets and obtaining favourable arbitration proceedings.

Financial Review

The Groupís profitability for the year was largely impacted by declining revenues and impairment charges on assets given the difficult business environment. Revenue and Gross Profits for the Group declined year-onyear, as a result of the smaller order book carried forward from past year, a low order intake during the year, and continued deferment of secured orders. The decline in Other Income was largely due to the weakening of the US Dollars against Singapore Dollars in 2017, leading to an unrealised foreign exchange loss for the year compared to a gain in 2016. Administrative expenses decreased largely due to the rightsizing of manpower and curtailed spending in response to the business level of the Group amidst the challenging market conditions.

Andy Lim

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