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Operations Review

(Extracted from Annual Report 2008)

Overview

The Group focused on two core business segments, namely marine logistics services and ship repair and maintenance services. Revenue from these two businesses totalled S$52.9million for FY2008 (FY07: S$31.2million).

Our marine logistics business contributed significantly to the Group's revenue accounting for 89.2% of total turnover (FY07: 84.9%). This was achieved as a result of the robust oil and gas sector leading to strong demand for our fleet. In line with our fleet renewal and expansion program, our fleet size expanded from 26 as at 31 December 2007 to 32 as at 31 December 2008 and its composition included higher value and newer vessels. The employment of the larger fleet size, good utilization and charter rates and a stronger US dollar contributed favorably to the Group's revenue and margins this year.

The Group expects to take delivery of four AHTs, two barges and nine utility vessels totaling 15 vessels in FY2009. Another three vessels mainly one AHT and two utility vessels are expected to be delivered in FY2010. These new deliveries will enhance the fleet mix and provide the Group with a competitive edge.

Our vessels are :

Our ship repair and maintenance services accounted for the remaining 10.8% of the total revenue in FY2008 (FY07: 15.1%). Earning potential of this business is limited by the two slipways, waterfront and a 3000 DWT docking yard. Nevertheless, the shipyard managed to compete and secure higher value jobs, leading to higher revenue and profitability.

The Group plans to improve operational efficiency of this business through training dedicated staff to reduce dependency on third party contractors. With efficiencies and quality, profitability is expected to improve.


Review of Performance

The Group's total revenue rose by 69.6% to S$52.9million compared to S$31.2million in FY2007. The expanded fleet contributed to the higher chartering revenue and consequently, gross profit rose 77.2% to S$28.0million in FY2008 (FY07: S$15.8million). Net profit before tax decreased 41.5% to S$23.8million (FY07: S$40.7million) due to the absence of a capital gain of S$29.4million recorded in FY2007 from the part disposal of its long-held investment in financial assets, available-for-sale.

Administrative expenses decreased by 14.5% to S$9.4million in FY2008 from S$11.0million in FY2007, mainly due to lower accrual of performance bonuses for key executives. Despite increased borrowings which the Group had taken to fund the delivery of new vessels and progress payments for vessels under construction, finance cost decreased to S$605,000 in FY2008 (FY07: S$699,000) as lower interest rates had more than offset the additional interest expense on the higher borrowings.

The Group's marine logistics services to the oil and gas industries registered strong growth in FY2008. This business saw an increase in revenue to S$47.2million in FY2008 (FY07: S$26.5million). Correspondingly, the gross profit rose to S$25.4million in FY2008 (FY07: S$13.5million). The Group took delivery of more higher value offshore vessels, operations of which contributed to the higher earnings. Net profit before tax for this business stood at S$28.3million in FY2008 (FY07: S$18.2million) which included gain of S$4.4million (FY07: $7.6million) from disposal of vessels.

The Group's ship repair and maintenance business also saw an improvement in turnover to S$5.7million in FY2008 (FY07: S$4.7million). The buoyant marine industry contributed to higher value jobs contracted in FY2008. Consequently, ship repair and maintenance business registered a net profit before tax of S$2.4million in FY2008 (FY07: S$1.5million).

Review of Balance Sheet and Cash Flows

The Group's current and non-current assets, with the exception of its cash and cash equivalents and financial assets, available-for-sale, increased. Investment in vessels rose 62.1% as more vessels were added to our fleet. Current assets as well as current liabilities were in line with higher activities resulting from more vessels employed.

Funding of the fleet renewal and expansion program came from bank borrowings as well as internally generated funds. Net gearing rose as a result to 17% as at 31 December 2008 (net gearing ratio is defined as net external indebtedness to banks and financial institutions to shareholders' equity).