Technics Oil & Gas Limited
Chairman's Statement
*Extracted from Annual Report 2011
Dear Shareholders,
I am pleased to present to you our annual report for the financial year ended 30 September 2011 ("FY2011"). FY2011 has been an eventful year for the Group as we marked significant milestones in our corporate history. The most notable achievement will be the Group's market debut in Taiwan with its successful listing on the GreTai Securities Market, Taiwan's over-the-counter stock exchange, on 25th February 2011. We were successfully dual-listed on the Taiwan Stock Exchange via our issuance of Taiwan Depository Receipts ("TDR") in February 2011. Technics took the lead as the first Singapore listed company to be listed and traded on the Gretai Securities Market in the history.
The Group has also dedicated great efforts to sustain the order winning momentum in FY2011. The Group roped in S$185.1 million worth of new contracts during the financial year under review and chalked up record-high outstanding order book of S$141.0 million as at 9th November 2011.
Our fundamentals remain sound and balance sheet remains in very good health. Final phase of the expansion programme is expected to be completed by the end of the year 2011. Additional capacity from our new in-house facilities and expanded yard space will allow us to cope with existing pipeline of projects and accommodate new projects.
In terms of returning value to shareholders, Technics have been consistent in our dividend payout for the last few years. This year, with our record net profit attributable to equity holders and our solid cash position, the Board was pleased to propose our highest ever full year dividend of 12.0 Singapore cents per ordinary share. This represents an astounding dividend payout ratio of 124% in FY2011, highest in corporate history.
Moving ahead, we will align our business focus to concentrate on engineering, procurement, construction and commissioning ("EPCC") projects for onshore and offshore gas compression systems relating to booster and recovery applications. These EPCC projects allow Technics to leverage on strong technical expertise and capabilities by managing the projects on a turnkey basis. Margins are, therefore, relatively more attractive to that of Contract Engineering ("CE") and Procurement and Other Services ("PS") projects. Technics remains committed to expand our portfolio offerings and to entrench ourselves deeper into new markets like Australia, the Middle East and Russia in the coming year.
I am pleased to share with you the key highlights of FY2011.
FY2011 - A RECORD-SETTING YEAR
First Singapore Listed Company to be listed on Taiwan GreTai Securities
We are proud to update our shareholders that we are now dual-listed on GreTai Securities Market Taiwan, Taiwan's over-the-counter market on 25th February 2011 via the issuance of Taiwan Depository Receipts ("TDR"). We have issued a total of 40 million shares of the Company, comprising of 13 million new shares (the "New Shares") to be issued by the Company, and 27 million vendor shares (comprising shares held by the controlling shareholders). The shares are allotted on the basis of 2 TDR shares to 1 ordinary share and a net proceed of S$12.7 million was raised. The net proceeds were utilised towards repayment of bank borrowings to reduce interest payments and enhance gearing ratio of the Group.
The successful listing on Taiwan grants the Group ready access to the different equity markets in the Asia Pacific region when the opportunity arises. At the same time, the two markets, Singapore and Taiwan, attract different investor profiles and will thereby widen the investor base of the Company and increase the liquidity of our shares. In particular, it enables the Company to benefit from its exposure to a wider range of private and institutional investors.
Strong and Sustainable Profit Growth
We concluded FY2011 with record setting revenue and net profit attributable to equity holders. The Group's revenue hit about S$125.8 million in FY2011, 21% year-on-year ("y-o-y") increase from S$103.6 million in FY2010. Net profit attributable to shareholders rose by 14% y-o-y to S$18.7 million in FY2011. The increase in revenue was primarily attributed by higher revenue contributions from the relevant recognition of work-in-progress items carried out on CE and PS projects. However, more CE projects have also resulted in lower gross profit margins of 37% in FY2011 as compared to 42% in FY2010.
Despite higher business volume and activities, the Group has managed to keep operating expenses (marketing and distribution costs and administrative expenses) under tight lid as operating expenses remained fairly consistent at 21% of the Group's revenue in FY2011.
Our balance sheet remained rosy with solid cash and cash equivalent balance of S$20.7 million as at 30 September 2011. Gearing ratio improved to 0.84 as at 30 September 2011 as compared to 1.51 as at 30 September 2010 as a result of enlarged shareholding base due to issuance of new shares and conversion of warrants into ordinary shares during the year.
Dividend
With a view to rewarding shareholders for their continued support of Technics and the strength of the Group's ongoing financial position, the Board was pleased to propose a total dividend payout of 12.0 Singapore cents per share, amounting to S$24.3 million. This translates to a dividend payout ratio high of 124% in FY2011. A resolution has been passed and approved in December 2010 in relation to the Group's dividend policy. It was indicated in the resolution that the Group will propose and recommend an annual cash dividend of between 5% to 75% of the Group's distributable profits to be paid to shareholders as long as the Group remained listed on SGX-Mainboard and Taiwan Stock Exchange. The Group has repeatedly outdone itself in this aspect as the Group's dividend payout ratio was maintained above 50% for the past 3 years.
Upholding Contract Winning Momentum
Technics continue to reel in new orders in FY2011 and secured approximately S$185.1 million worth of new contracts during the year. Consequently, order book swelled to a record high of S$141.0 million as at 9 November 2011 with progressive delivery throughout FY2012.
Technics clinched two CE contracts in the Russia Federation amounting to a total of S$28.9 million during the year. This is an important stepping stone for the Group as we marched into a new geographical market that has huge potential demand for the Group's service offerings. Technics will be responsible for supplying Oil & Gas Process Equipment for modification of Jack-up rig and an offshore Oil Wellhead Satellite platform in the Russia Federation.
Apart from Russia Federation, the Group is targeting to move into Middle East as well. The Group was awarded a contract worth S$23.5 million from a Middle East Oil & Gas Company in January 2011 for EPCC of Process Equipment for Early Production Systems. With project duration of 8 months, the Group shall deliver Process Equipment for Early Production Systems consisting of Wellhead Manifolds, Test Separators, Three Phase Separators, Gas KO Drums, Flare KO Drums, Heater Treater, Scraper Traps, Corrugated Plate Separators, Hydrogen Sulfide Removal Module and Flare Stacks and Burners.
Technics has also gained traction in Vietnam with yet another EPCC contract from JV Vietsovpetro ("VSP") for the provisioning of the topside equipments for wellhead satellite platforms named GT-1 for the "White Bear" and MT-1 for the "White Cat" oilfields in offshore Vietnam, worth an estimated S$32.0 million. These series of contracts awarded by VSP demonstrates the customer's strong confidence in Technics' technical and execution capabilities. Including this latest contract, Technics has been awarded a total of 15 wellhead satellite platform orders by VSP. To date, thirteen projects have been completed and delivered, including RC-6 and RC-7 which were delivered in June 2011.
At our subsidiary level, the Group announced on both January 2011 and March 2011 that its 51% owned subsidiary, Norr Systems Pte Ltd ("Norr Systems"), had been awarded three turnkey construction and service contracts worth S$48.4 million for the design, engineering, procurement and manufacturing and supply of ship automation (Hydraulic and Electrical equipment). The supply of equipment also includes main engines and all auxiliary equipments on board vessel as well as provision of project management on site to deliver quality vessels to the owner. Norr Systems shall also provide the maintenance and servicing of the entire three vessels for the subsequent 7 years after completion of the turnkey contract.
Our strategy of expanding existing portfolio offerings appears to be fruitful as Norr Systems continue to build track record to establish itself in the market.
Expansion of portfolio offerings
On 18 August 2011, Technics has incorporated a 51%-owned subsidiary, Technics Systems Solutions Pte Ltd, to design, engineer, integrate, test and supply integrated control & safety system, Pneumatic & Hydraulic Wellhead Control Panels and Turbo Machinery Control to Oil & Gas, Power and General Industries. This investment is consistent with the Group's strategy to expand portfolio offerings and to leverage on the growth opportunities present in the integrated automation market for the Oil & Gas and Power industries.
BROAD PERSPECTIVES ON THE GLOBAL AND REGIONAL OIL & GAS SECTOR*
(*Figures here variously derived from DNB Nor, Infield (the Energy Analysts) and various online sources )
Asia's Increasing Dominance
Asia continues to be Technic's key market place. Overall, we expect the markets for offshore oil and gas in Asia to grow in tandem with the increasing intensity and complexity of oil exploration and production. In a report by Infield, the firm expects that region's expected recovery in offshore activity will continue to significantly drive up demand for fixed, floating and subsea units in the short term. The report forecast that surge in platform installations globally will continue steadily until 2012 and both Asia and the Middle East and Caspian will construct close to 43% and 37% of the fixed platforms in 2011 and 2012 respectively.
Signs of Increasing Capital Equipment Spending in Offshore Sector
We have witnessed series of rig order wins in the market and also improved activity in the Exploration and Production ("E&P") operations. Analysts from DnB NOR believe that these factors will facilitate the market to absorb the enlarged Offshore Support Vessel ("OSV") fleet by 2012. Furthermore, a relatively stable oil price will continue to spur demand for E&P activities and thereby stimulate demand for OSV new builds.
STRATEGIC PLANS
Building Up EPCC Growth Momentum
As in the earlier years, the Group shall continue to build on its platform of core EPCC capabilities particularly in the FPSO conversion, fixed platforms as well as onshore and offshore gas compression systems and recovery applications. Our geographical focus can be categorised into two spheres – prospective new markets and traditional markets.
In prospective new markets such as Russia, Middle East and Australia, our strategy is to build up a network of strong and reliable partnerships that can bring us into deeper engagement with the key customers such as oil majors in their respective geographies. This will however take time to achieve. In our traditional markets such as Singapore, Vietnam, Malaysia, Indonesia and Thailand, we are constantly and actively engaged in bidding process across a wide spectrum of large scale projects.
Whilst the prospective new markets present immense potential to leapfrog into new areas of growth, we will still require the traditional markets to continue to supply a stable base of projects which we can effectively rely on for the long term.
Expansion of Portfolio Offerings
With a recurring base of EPCC contracts from key customers in traditional markets, Technics have also been actively building up a wider range of engineering services in order to offer total engineering solutions to a variety of key customers. Our subsidiaries such as Norr Systems, M2E, Wecom, and newly-incorporated indirect subsidiaries, Norr Systems Hydraulics Pte Ltd and Bloomfoss Pte Ltd, provides a wide array of engineering services for us to synergistically cross market. In the long run, we believe the different clientele bases from various engineering services open new possibilities for unique marketing and solution offerings.
Capacity Expansion
With our fully functioning fabrication yard, waterfront space, jetty, warehousing and office facilities at our Loyang yard in Singapore, we have started to generate interests from customers and partners who are keen to tap on our one-stop vendor services. Aside from being able to utilise our jetty and waterfront spaces for our internal loading and offloading activities for heavy process equipment and modules, Technics can offer repair, maintenance, fabrication and other auxiliary services to visiting vessels.
Hence, we intend to position ourselves as a mini offshore supply base ("OSB") as our Loyang yard is the only other alternative jetty and waterfront facilities along the Loyang Industrial Estate. The existing large scale Loyang OSB has already been operating at closed to full capacity. As OSBs are in short supply in Singapore, we intend to collaborate with a "tenant partner" who would like to utilise our base to service a wider range of customers.
OUTLOOK
As of 9 November 2011, the Group has a total outstanding order book of about $141.0 million for progressive delivery through to the end of FY2011.
These project schedules are typically subject to changes that could be due to various factors, e.g. customers requesting variations to original project specifications, or adjustment to shipment schedules by overseas manufacturers of major equipment, notably premium-branded engines of non-standard specifications.
Our customers, who are mainly, oil and gas majors, leading FPSO operators and end users, maintain longer term perspectives on their operation requirements that are not affected by the prevailing oil prices. Hence, they are continuing with the previously agreed schedules for the delivery of contracts awarded to us. The Group has already submitted proposals or is continuing to follow up with prospective customers for the projects in the regional markets. Indicative timelines remain on-track.
Nevertheless, given the extent of the global credit crunch that has impacted the world's major economies; the Group remains alert on new challenges that may arise in its external environment. In view of the sizeable order book, current yard schedules and the expected completion of our expanded yard space and new in-house facilities in early next year, barring unforeseen circumstances the Group will remain profitable for FY2012.
A WORD OF APPRECIATION
On behalf of the Group, I would like to take this opportunity to express our heartfelt appreciation to our customers, business partners and associates for their ongoing support throughout this year. We could not have achieved the set of strong results in FY2011 without your confidence and trust. We certainly look forward to your continued support of Technics as we look towards the future to build a deeper and broader range of engineering solutions for the oil and gas markets.
I would also like to put forward a special note of thanks to the Directors, management and staff of Technics whose commitment, diligence and integrity have raised our operational and financial performance towards a higher level every year. With your support, I am confident that we can continue to build upon the current momentum and achieve greater heights.
Ting Yew Sue
Executive Chairman and Group Managing Director