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extracted from Annual Report 2015
Dear Valued Shareholders,
The freefall in crude oil prices continued seemingly unabated for the past two (2) years, falling to sub- USD40 per barrel towards the end of 2015. Against the backdrop of this slump in the Oil and Gas Industry, the operations of the SIB Group were invariably affected.
Despite the difficult business environment and operating conditions, the SIB Group was still able to chalk up a respectable revenue of RM142 million for the financial year 2015 as compared to RM128 million for the preceding year.
The overall increase of RM14 million (11%) stemmed largely from the sale of an offshore support vessel to an external party by the shipbuilding division, which was offset by a slight decline in the Ship Charter division's revenue. The prevailing soft demand for marine services throughout 2015, exacerbated by a market overhang in the supply of offshore supply vessels, culminated in a marginal drop in divisional revenue of RM2.2 million (2%) from that of the preceding year. In particular, the last quarter of 2015 saw short-term contracts for vessels off-hired by customers.
The slowdown in shipbuilding and related activities affected most shipbuilders in Malaysia, what with the threat of competition posed by rival shipbuilders and ship repairers located in China and Singapore. Apart from the sale of an offshore supply vessel, the revenue of the shipbuilding division for financial year 2015 comes from proceeds from ship repair and related activities.
The Group's investment in an associate and joint ventures was also not spared. The Group's share of pre-tax losses in an associate and jointventures amounted to RM1.6 million for the year as compared to a pre-tax profit of RM2.7 million in 2014, mainly due to margin squeeze and softening of demand that led to off-hiring of vessels.
In light of the difficult business environment as outlined above, the SIB Group recorded a pre-tax loss of RM17.1 million for the financial year 2015 as compared to a pre-tax profit of RM3.7 million in the preceding year. Factors that contributed to a sub-par performance for the financial year 2015 include the pressure on margins for ship charter arising mainly from competition, lower utilization of vessels for charter, knock-on effects of the Goods and Services Tax Act 2015 which took effect on 1 April 2015, a net impairment and write-off/down of receivables, property, plant and equipment and inventory amounting to RM9.9 million and lower foreign exchange gain.
On a positive note, the Group recorded net cash inflows of RM31.5 million from operating activities, despite suffering a pre-tax loss for financial year 2015. This speaks well on the viability of the Group's business despite the tough conditions in which it operates.
Notwithstanding the challenges faced in the industry, the Group is always on the look-out for strategic alliances with business partners, especially those with niche expertise for better market reach, all with the view of enhancing shareholder value. On this premise, the Group entered into a joint-venture agreement ("JV") in September 2015 via a wholly-owned subsidiary, namely Era Surplus Sdn Bhd, with Cakara Maritime Sdn Bhd ("Cakara"), a local company with track record in the shipping business.
The joint-venture company which hitherto was a subsidiary in the Group, namely Seasten Sdn Bhd, is 70% owned by the Group with the remaining 30% held by Cakara. The key rationale for this JV is for the Group to forge a long term alliance with Cakara, which is a wellestablished ship agent for the oil and gas market in Malaysia, to increase the likelihood of MV Vanessa 6, a Group's vessel, of securing long term contracts. This would in turn maintain and increase the Group's share in the marine offshore supply vessel segment. This joint-venture is expected to contribute to the Group in financial year 2016.
The Group also inked memoranda of agreement in November 2015 to sell two (2) units of landing crafts to an external party for a total consideration of approximately USD8.6 million (RM34 million), the delivery of which, including the recognition of revenue, was completed in January 2016.
Due to the aforesaid losses incurred, the Board does not recommend any dividend for the financial year 2015.
The downtrend in the oil and gas ("O&G") industry has resulted in oil majors either shelving or postponing their capital expenditure.
Crude oil prices ended 2015 below USD40 per barrel, the lowest level since early 2009. Spot prices for the international crude oil benchmark Brent averaged USD52 per barrel in 2015, 53% below the level in 2014 and 49% below the average price over 2010-2014. The prolonged lower crude oil prices in 2015 reflected the sustained excess of crude oil supply over global demand (Source: US Energy Information Administration).
2015 has been a year of consolidation for the O&G and related businesses. With Petronas reporting its loss of RM2.96 billion for Quarter 4 of fiscal year 2015 and having revised downwards its expenditure budgets, Malaysia's marine services sector, especially the offshore supply vessel business, needs to carefully monitor the national oil company's upstream intent.
Nearly all of Malaysia's oil and gas production comes from offshore fields in the South China Sea. Continued investment in hydrocarbons production, both in shallow waters and at deep-water plays, may prop up the domestic maritime market, from drilling to offshore support vessel provision.
2016 is not expected to bode well for the industry as recovery in oil prices is not anticipated in the short term. Cost control measures remain the top imperatives for oil majors as well as the supporting sectors. The top three (3) measures prioritized to impose stricter cost control are tougher decisions on CAPEX, headcount reductions and increasing pressure on the supply chain.
The Group's shipbuilding division will be looking towards building vessels which have a niche market like landing crafts, as well as enhancing its docking (ship repair) facilities, whilst continuous efforts will be taken towards optimising capacity utilization of the Group's vessels, which currently number 38 units of various make and tonnage. Charter rates are expected to stagnate or even weaken in the midst of oversupply of vessels.
Although the market demand for fossil fuels is currently soft, we believe such demand will eventually pick up.
As a key measure to manage the Group's exposure to the vagaries of business, the Group has embarked on the following initiatives which
will be reinforced and carried forward to the next fiscal year:
With the ongoing initiatives in rationalizing and optimizing costs and exposures, we believe the Group will be poised and well positioned to tide over the prevailing business challenges.
Barring any unforeseen circumstances or events, we anticipate that 2016 will continue to be a challenging year where charter rates will likely be flat or weaken, with shipbuilding activities curtailed since crude oil prices are not expected to be northbound from the current levels in the short term.
There was no other corporate development during the financial year 2015 except for the above-mentioned joint-venture arrangement with Cakara.
We are continuously committed to fulfilling our role as a responsible corporate social citizen. The main foci of our Group on corporate social initiatives are the Marketplace, the Workplace, the Environment and the Community, with the view of maintaining a sustainable value for SIB Group and its shareholders.
Activities undertaken in the discharge of the Group's corporate social responsibilities are set out separately in the Statement on Corporate Social Responsibility included in this Annual Report.
The Board believes in embedding a culture in the Group that seeks to balance compliance requirements with the need to deliver long-term strategic value to shareholders and stakeholders through performance, predicated on entrepreneurship, control and ownership, and with due consideration towards ethics and integrity. As such, the Board strives to embrace the substance behind the Principles and Recommendations as promulgated by the Malaysian Code on Corporate Governance 2012 ("MCCG 2012") and not merely the form.
For a full write-up on how the 8 Principles and 26 Recommendations of the MCCG 2012 have been applied and observed respectively by the Company, refer to the Corporate Governance Statement which has been included separately in this Annual Report.
Apart from disclosures in the Annual Report, the Company has also established a corporate website at www.asiasealink.com that houses, inter-alia, documentation on the Group's corporate governance practices like the Board Charter, Whistle-Blowing Policy, Code of Conduct for Directors and employees of the Group, Corporate Disclosure Policies and Procedures and Sustainability Policy that are useful for investors as well as potential investors to be apprised on how the Board views corporate governance and engagement with investors. The website also provides, amongst others, information deemed pertinent for investors and the public, for example the Company's corporate announcements, financial analysis, financial calendar, shareholding spread, historical chart of the Company's share prices.
On behalf of the Board, I wish to express our sincere appreciation to our committed management and staff for their hard work and tireless efforts in maintaining our position as one of the leading oil and gas offshore support vessel providers in Malaysia. Their dedication and professionalism has definitely helped the Group to thrive in a challenging and difficult business environment.
I would also like to take this opportunity to thank our valued institutional and individual shareholders for their confidence and belief in the prospects of the SIB Group, the oil majors who have been supporting us in their upstream and downstream operations over the years, our business associates and principals for their successful collaboration with us in various business operations, our bankers and the authorities for their vital role in our strategic planning and execution. Lastly, my special thanks also to my colleagues on the Board of SIB Group for their invaluable support and guidance throughout the financial year.
YONG KIAM SAM
Chief Executive Officer cum Deputy Managing Director