Investor Relations ASL Marine Holdings Ltd

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Extracted from Annual Report 2013

Dear Shareholders,

Thank you again for being our shareholders and for your support.

At the danger of sounding repetitive, the financial year ended 30 June 2013 (“FY2013”) proved again to be a difficult year in that the macroeconomic environment and the shipping industry were both challenging and competitive. Our experience mirrors the information from the Drewry Maritime Research which found that:

  1. The global shipping industry downturn is now entering its 6th year;
  2. Second hand prices for ships and new building prices remain near historic lows with economic pressures and lack of financing has resulted in financial distress for many companies, forcing continued sales of vessels particularly in Europe; however
  3. Certain segments and certain countries have done better than others. For instance we have found and exploited the strength in offshore support vessels and we have found ASEAN shipping demand has been reasonably good.

Seeing Opportunities

But crisis can also mean opportunity. In November 2012, the Group entered into an agreement for the acquisition of VOSTA LMG group for a total consideration of Euro 5.1 million. Based in The Netherlands and Germany and with more than 140 years of history, Vosta LMG group is arguably one of the leading international companies in the field of dredging engineering. Besides its reputation, Vosta LMG group has a highly respected engineering team backed by a series of self owned and co-owned patents. Vosta LMG group's business can essentially be divided into two parts: consultancy and engineering services; and the supply of patented parts and components. The services provided by VOSTA LMG group include the design of dredgers (such as Cutter Suction Dredger and Trailing Suction Hopper Dredger), engineering works (such as design of cutter ladder and spud carrier, dredge automation, suction and discharge systems). The supply of patented parts and components like cutter teeth, ball joints and dredge pumps provides a strong and recurrent income system.

The inclusion of Vosta LMG group provides the Group with two opportunities: to capture more of the value chain in the niche but high margin dredging industry; and access to clients and parts of the world the Group would not ordinarily access. Whilst we are excited by the opportunity, we also are aware of legacy issues that we must work through and that until the European and US markets improve the short term prospects of VOSTA LMG group remains muted.

The engineering segment contributed revenue of $19.5 million and gross profit of $1.7 million in FY2013.

Growth

Given the weakness in second hand and new building prices I am pleased to report that the Group recorded total revenue growth of 19.0% year-on-year (“y-o-y”) to $465.4 million. I am also pleased to report that our shipyards in Singapore, Indonesia and China continued to operate at a high utilization rate.

The shipbuilding segment remained the largest contributor to Group revenue with $289.4 million in FY2013, an improvement of 29.2% compared to $224.0 million a year ago. Apart from a higher number of projects achieving the 10% revenue recognition benchmark, the increase in revenue was also a result of the construction of higher value offshore support vessels (“OSVs”). As at 30 June 2013, the shipbuilding segment had an outstanding order book of $370.0 million. This will keep all four shipyards operating at near full capacity until the end of FY2014. Having said that the order book replenishment in FY2013 was nominal at about $24.5 million for 2 units of Emergency Response and Rescue Vessels. Thus and whilst we had a good year for shipbuilding, management is acutely aware that we have a lot of work to do to ensure this segment of the business remains robust.

On the other hand revenue for the shiprepair and conversion dipped 18.8% y-o-y to $72.4 million. This is in many ways unfair on the division which otherwise did well. For instance, shiprepair did well generating a 24.6% increase in revenue y-o-y to $70.3 million. However, we had no major conversion project. In FY2012 we had a large project being the repair and conversion of a Floating Storage and Offloading (“FSO”) vessel.

The shipchartering segment registered revenue growth of 7.7% to $84.1 million. However, one must use this number with caution. This is because of the partial disposal of our stake in PT Capital Nusantara Indonesia (“PT CNI”) from 60% to 36%. Following that partial sale, revenue is only now booked on a fleet of 156 vessels at the end of FY2013. This comprised of 103 barges (consisting of flat top barges, crane barges and split hopper barges), 45 towing tugs and workboats, 2 Anchor Handling Tugs (“AHT”), 3 Anchor Handling Towing Supply vessels (“AHTS”), 2 chemical tankers and 1 ROV support vessel. I am pleased to report that the overall utilization rate was 68%. Our vessels are deployed mainly in Singapore, Malaysia, Indonesia and Australia supporting offshore oil & gas, marine infrastructure, construction and transportation sectors during the year.

Net Profit

The healthy revenue growth and improved gross profit margin resulted in good net profit growth in FY2013. The partial divestment of PT CNI provided a one-time gain of $4.8 million and offset provisions we made on receivables that we now believe are doubtful following the restructuring of a listed Indonesian shipping client. The result was that net profit attributable to owners rose 40.0% to $45.3 million in FY2013, equivalent to 10.79 Singapore cents per share (FY2012: 7.71 Singapore cents). Return on equity stood at 11.2% (FY2012: 8.9%), while net asset value per share increased to 95.02 Singapore cents (FY2012: 84.42 Singapore cents).

Outlook

We anticipate the continued strength in the offshore oil industry and recover in the oil and chemical tanker market to continue. As a result, our marketing and focus remains on these industry segments. To maximize opportunities presented by these sectors, the Group intends to trial and embark on a build-to-stock program to complement its existing build-to-order shipbuilding operations. This proactive approach to enhance our order book will begin conservatively, on a smaller scale and with a budget of $85.0 million. Our build-to-stock program will comprise of 4 units of AHTS equipped with Dynamic Positioning-2 capability and 1 unit of offshore maintenance work vessel. We intend to take advantage of the lower cost base in our China and Batam shipyards, and time the commencement of construction so that it coincides with the gradual release of capacity as we make progress on our outstanding orders.

The shiprepair and conversion segment remains focused on securing higher value projects in the offshore and marine space such as refurbishment and conversion projects for FSO, FPSO and jack up rigs. This type of work suits our yard configuration, cost base and skill sets.

We continue to make progress in shipchartering. As at 30 June 2013, the Group held $74.0 million of outstanding order book for long term shipchartering contracts. Going forward, the Group intends to increase the proportion of vessels on long term charter to improve utilization rates. As at 30 June 2013, shipchartering operations had an outstanding delivery order for 23 new vessels worth $67.0 million.

As for the engineering segment, the focus remains on integrating VOSTA LMG group. Going forward we intend to take a more proactive role in the part of the business VOSTA LMG group appears weakest in - shipbuilding management and turnkey services. We hope that by playing a more active role in this area, VOSTA LMG group will be able to retain more customers who use their design and engineering consultancy and which in turn will boost long term demand for its patent component part business. In this segment we see particular opportunity in Middle East, Latin America and Australia. Over the medium to long term, we see the main demand coming from major dredging companies undertaking fleet renewal programs. Indeed, the Group has begun to receive enquiries from Chinese and European customers.

We view FY2014 with anticipation, caution and determination. We anticipate pricing pressures and challenges, we are cautious to the financial market situation but we are also determine to exploit our comparative advantages, solid track record and strong balance sheet to do better.

Appreciation

Thank you again for your support and confidence in ASL Marine. As a gesture of our appreciation, the Board has recommended a final one-tier tax exempt cash dividend of 2.0 Singapore cents (FY2012: 1.75 Singapore cents). Subject to approval at our upcoming Annual General Meeting, the final dividend will be paid on 8 November 2013.

I would also like to thank our other stakeholders including our customers, business partners, bankers and valued employees without whom we would not have a thriving business.


Ang Kok Tian
Chairman & Managing Director