Dear Shareholders

During the financial year ended 31 December (ďFYĒ) 2019, business conditions in the global offshore and marine industry remained difficult as a consequence of the prolonged market recovery, slow demand growth in the upstream and increasingly intense competitive pressures within the sector. Business sentiment was further dampened by continuing economic and geopolitical uncertainties worldwide.

To navigate this challenging business environment and sustain our business, our focus and direction for the year centred around:

  • sustaining the Offshore and Marine Services business with a right-sized capacity and infrastructural support, and building up a stronger backlog and order book;
  • maintaining liquidity for operational needs through prudent cost management and spending discipline;
  • restructuring our financial debts and address creditorsí concerns;
  • seeking strategic investor(s) for fresh funds and business opportunities; and
  • monetising our assets and improving receivables collection to unlock cashflow.

Operations Review

The seemingly gradual recovery in the industry has been sporadic and inconsistent. Without a clear industry outlook and direction, upstream demand continued to be weak and downstream flow-through lagging.

Offshore and Marine Services

With the newbuilds opportunity in the offshore sector significantly lacking, we focused our efforts on the marine vessel requirements and the supply of parts and services. This invariably resulted in a higher number of transactions of shorter tenure and smaller contract values, but of better margins. In addition, we were better able to manage the inherent risks associated with large end-to-end integration project works. While the profitability and risk profile of our Offshore and Marine Services have improved, the volume and value of the contracts were not able to cover the shortfalls in the newbuilds.

The shifts in sales order mix were also reflected in the geographical markets we serve. Lesser newbuilds in the offshore sector impacting major countries of China and Singapore resulted in a corresponding decrease in revenue contribution from these markets. On a positive note, emerging markets are seeing increases and the overall geographical portfolio showed more balance and diversification. While our business mix reflects the industry patterns, we recognise the need to increase our order intake rates as well as to seek out larger project opportunities in order to raise business levels.

The changes to our business strategies and the low levels of business activity required the reduction and reallocation of our resources accordingly. We right-sized our business operations by rationalising our customer support requirements and our infrastructure and capacity. In order to meet the changing resource requirements without adverse impact to customer support, we re-missioned and reskilled our staff towards growth areas, outsourced support activities, and leveraged resources in more cost-effective locations.

We anticipate the difficult industry conditions to persist. To sustain and navigate our Offshore and Marine Services business through this period will necessitate us to relentlessly pursue higher order intake rates in parts and services areas, while selectively bidding on the limited new turnkey projects utilising the strong established track record we have built over the years.

Asset Management Services

Low levels of activity in oil and gas drilling and exploration continued to underpin the weak demand for offshore-related assets. As a result, the Groupís drilling rig assets remained cold stacked and facing charter contract default from its charterers. Our focus in this segment primarily centred around the recovery of outstanding receivables from the charterers as well as being on the lookout for opportunities to monetise the assets.

Our favourable arbitration award in Singapore against the defaulted Chinese charterer of the land rigs has been recognised by the Beijing Chinese court and is currently undergoing enforcement procedures. We will endeavour to extract any amount and form of recovery against the assets of the defaulted Chinese charterer. In the enforcement process, one of the land rigs was judicially seized from the chartererís premise in 2019, after an arbitration between the charterer and their supplier in a Chinese court. The Group is currently seeking legal advice and recourse on this matter.

In a separate legal dispute with the owners of the chemical tankers which we contracted under a charter and sub-charter arrangement, we managed to reach an amicable settlement and have closed this protracted unpleasant chapter.

We expect this business segment to continue to face challenges, and we do not envisage making any major investments. We will focus instead on the recovery of outstanding receivables and on extracting value from the existing assets.

Corporate Restructuring

While we have endeavoured to weather the difficult operating conditions faced by the industry in the past few years, the situation became untenable for the Group in 2019. We were able to negotiate debt restructuring plans with some creditors but less successful with others. In this regard, the Group deliberated and decided that the best course of action was to subject itself to a court-supervised moratoria and restructuring process. This will allow the Group time and space to develop plans to address all the creditorsí debt in an orderly and equitable process.

In June 2019, we filed an application for moratorium and restructuring under Section 211 of the Companies Act for Viking Offshore & Marine Limited and one of its subsidiaries. At the date of this report, these companies are still under the moratoria and efforts are underway to seek further extension of the moratoria. During this moratoria period, we were able to negotiate a joint conditional share placement agreement with two potential strategic investors. It is envisaged that the funds from these potential investors will be channelled towards a scheme of arrangement to address the affected creditorsí debts.

While we envisage the scheme of arrangement may not satisfy the full face-value of the debts, we believe this solution to be the best possible outcome for the creditors under the present situation. We urge the creditors to give us time to complete the process and to give the proposal every opportunity to materialise when they are presented with it.

Financial Review

The Groupís revenue decreased to S$23.7 million in FY2019, as compared to S$30.1 million in FY2018, mainly due to lack of revenue for the Asset Chartering Services coupled with the lower order book in the Offshore and Marine Services. No revenue was recognised for the Asset Chartering Services due to termination of contracts because of the chartererís default.

Gross profit decreased to S$8.4 million in FY2019, in tandem with the decrease in revenue. The gross profit margin declined from 38% in FY2018 to 35% in FY2019, due to the lack of higher-margin Asset Chartering Services revenue in FY2019, as compared to that in FY2018. The weakened US Dollar against Singapore Dollars in 2019 resulted in the unrealised foreign exchange loss on translation of US Dollar denominated current assets. This caused a decrease in other income to S$0.4 million in FY2019, from S$1.0 million in FY2018.

Total expenses, excluding one-off impairment charges, decreased year-on-year. This is a result of the prudent expense management efforts coupled with lower discretionary spending from lower business levels. The impairment charges mainly resulted from accounting for valuation of certain assets on the Balance Sheet; and were recorded in other operating expenses. These material items and their accounting effects were as follows:

  1. impairment loss on goodwill of S$6.3 million related to the acquisition of the Offshore and Marine Services businesses;
  2. impairment loss on trade receivables of S$4.3 million pertaining to the land rig charter contracts, due to collectability issue. Notwithstanding the impairment, the Group continues to pursue the enforcement of the favourable arbitration award against the charterer in China; and
  3. impairment loss on inventories of S$13.4 million pertaining to a land rig, slow moving stocks and work in progress. The land rig was impaired as it was judicially seized from the chartererís premises, after an arbitration between the charterer and its supplier in a Chinese court.
As a result of the above, the Group recorded a net loss after tax of S$32.0 million. Further to this, the Groupís net assets decreased to S$4.8 million as at 31 December 2019.

The impairment losses explained earlier resulted in the corresponding reduction in non-current assets, trade receivables and inventories accordingly, in the Balance Sheet. While the major debts were subject to the moratoria and restructuring process, the interest charges continued to be accrued and this accounted for the increase in other payables. Timing of purchases and supplier payments further contributed to the balances.

The Group recorded net cash outflow for the year which resulted in reduction of cash balances at year-end, as compared to the prior year. While cashflow from operating activities was positive, this was offset by the larger cash outflow for repayments of loans and borrowings during the year.

Going Forward

The challenge confronting the Group is in the balancing act of its restructuring journey to address the competing interests of multiple stakeholder groups and maintaining the ongoing offshore and marine businesses. This is now compounded by the ongoing oil price volatility affecting the industry as well as the outbreak of COVID-19 pandemic which will have a global economic impact.

Our goals remained unchanged Ė it is imperative for the Group to relentlessly work with the various creditors and potential investors so as to expeditiously emerge from the moratoria. Additionally, the operating business units need to manage through the difficult business climate with aggressive order intakes, improved productivity, and heightened cost management. We continue to maintain our faith to navigate our way out of this prolonged challenging business climate and our debt restructuring process, and to ultimately emerge with a renewed vigour and direction going forward.

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 employees, suppliers, customers, and our creditors for their support and sacrifices through this difficult journey. This is especially relevant and more so for the creditors which are impacted by the moratoria, a group which is very crucial for our restructuring process. We will endeavour to present a scheme of arrangement that will be equitable and maximise the debt recovery rate for our creditors, and we look forward to their support when the time comes. Thank you.

Andy Lim

Ng Yeau Chong
Chief Executive Officer

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