Management Q&A
Dated 9 June 2004
Dear Investors,
Thank you very much for the your questions and the opportunity for us to respond. We hope you have a better understanding of our business through this online exchange.
Your questions will be reposted in blue italics followed by our replies in black.
Rgds,
The Management Team
ASL Marine Holdings Ltd
Larrytan, you wrote:
1a. How will the recent deals impact ASL Marine's revenues and profits?
Dear Larrytan, thank you for your questions.
ASL Energy is an associate company of ASL Marine and is equity accounted for in the Group's consolidated accounts.
The acquisition of the Tabang Coal Concession by ASL Energy is to secure a strategic stake in the supply chain for coal. This serves to ensure at least a minimum level of utilisation for ASL Energy's 40 sets of tugs and barges.
The acquisition provides an additional source of revenue and profit for ASL Energy. Additionally, it reinforces ASL Energy's position as an integrated marine company.
In the short term, ASL Marine will also enjoy additional shipbuilding revenue and profit contribution from the shipbuilding contract for the construction of the 65,000 dwt floating terminal. This contract has been, awarded to ASL Shipyard Pte Ltd, a wholly-owned subsidiary of ASL Marine.
Over the medium to long term, ASL Marine will benefit indirectly from the additional charter income accruing to ASL Energy.
The other additional shipbuilding contracts secured since 1 Jan 2004 will be substantially recognized in FY2005 and FY2006 and is expected to have a positive impact on the net tangible asset and earnings per share of ASL Marine.
1b. What are the risks and prospects involved especially with the mining concessions?
Prospects
ASL Marine and ASL Energy have expanded their businesses by tapping new markets including the construction of tugs and barges and other marine vessels, and the provision of transportation services to the Indonesian coal mining industry.
The Indonesian coal industry has grown exponentially to become one of the world's largest exporter. The majority of the coal mined in and exported from Indonesia is centered in Kalimantan, and its prospects appear good with the increased global demand for coal.
Indonesia's coal industry enjoys several competitive advantages, including:
- A relatively liberal and well defined regulatory framework;
- Relatively high quality, plentiful and 'clean' coal deposits. The latter results in minimal need for coal preparation;
- Reasonably good proximity to tidal waters or large rivers in Kalimantan;
- Low capital extraction cost as there is an abundance of quality coal seams at or near the surface; and
- Cheap labour and many experienced coal contractors.
- The acquisition of Pan Assets provided a base load of coal to transport. This ensures at least a minimum level of utilisation, which in turn ensures at least a minimum amount of cashflow to finance ASL Energy's acquisition of the floating terminal and the 40 sets of tugs and barges.
More specifically, even during a cyclical downturn, when the amount of coal mined and hauled falls, ASL Energy's and ASL Marine's vessels and infrastructure will be used in preference over vessels and infrastructure owned by third parties.
Risks
The risks involved are:-
- operational risk of not being able to extract or sub-contract the extraction of the coal at Tabang Coal Concession, as well as to blend and sell the coal extracted;
- whether Pan Assets is fairly valued; and
- the legal/regulatory environment in Indonesia.
The above risks are partially mitigated by Pan Assets outsourcing the mining, marketing and sale of coal to a nominee of Oriental Mineral Corporation, and a net operating cashflow guarantee of US$16.2 million over a period not exceeding six years from Oriental Mineral Corporation.
Further, the feasibility review and due diligence commissioned by ASL Energy concludes that Pan Assets is fairly valued.
Rgds,
The Management Team
ASL Marine Holdings Ltd
Ryan, you wrote:
Being a shareholder, I would like to express my thanks and appreciation to the management efforts in leading the group to greater heights and growth through these latest corporate developments.
Also like to give thanks to the management for their constant initiative in organising online Q&A at Shareinvestor for greater corporate transparency and disclosure to the public investors.
Some questions for the management:
2a. With all these contracts being awarded to the Group, would there be a substantial increase in capital expenditure due to higher raw materials prices?
Dear Ryan, thank you for your questions.
With regards to the shipbuilding contracts secured since 1 January 2004, additional capital expenditure is required to fulfill the contracts.
The Group is currently upgrading its facilities both in Singapore and Batam, Indonesia to further improve productivity and efficiency and also enlarge the range of vessels that the Group can build and service. Additional cranes will subsequently be commissioned to help with the increased workload. Further, a graving dry dock is also currently being constructed in Batam to enable the Group to take on shipbuilding and shiprepair for larger vessels. The graving dry dock is a pre-requisite for the construction of the 65,000 dwt floating terminal. Once completed, the Group will be able to provide a more comprehensive range of products and services, both to our existing and new customers.
Majority of the funds required have already been earmarked or secured.
2b. With the acquisition of the coal mine in Kalimantan, what are impacts of this to the growth and earnings of the Group?
Please refer to our reply for Question 1a.
2c. The Group is issuing shares for this venture, can the management explain why it does not want to use its cash flow?
With the increased capital expenditure required for both the shipyard as well as the shipchartering operations, coupled with the additional investment in ASL Energy, any further reliance on borrowings or the Group's cashflow may not be appropriate. This may result in the Group's gearing being high and financing costs may increase substantially.
2d. How many fleets does the Group have in total and what is the utilization rate of these fleets?
As at 31 December 2003, the Group has 48 tugs and 59 barges. The average utilization rate for the tugs and barges are 92% and 75% respectively.
2e. It is mentioned in the presentation slides with regards to the construction of a floating terminal, please explain the cost of this construction as well as the life span and benefits of this terminal.
The shipbuilding contract for the construction of the floating terminal worth S$56.1 million consists mainly of the following:-
- main hull of the floating terminal, including fitting out;
- Dynamic Positioning Systems and Azimuth Stern Drive propulsion systems;
- Generators; and
- Coal handling systems (including cranes unloaders, conveyor systems, shiploader and bulldozers).
- The floating terminal is expected to have an estimated useful life of up to 20 years.
The main value ASL Energy and ASL Marine brings to Tabang Coal Concession is an efficient and economic coal transportation service to the Indonesian coal industry. Kalimantan, for instance, still lacks some significant but basic infrastructure, such as the ability to rapidly load and service Panamax and Cape-sized vessels.
The floating coal terminal is to service Panamax and Cape-sized vessels, as currently, Cape-sized vessels can only be loaded using floating cranes which are slow and inefficient. In the dry season, the quayside depth at Balikpapan is also insufficient for a fully laden Cape-sized vessel. With a floating terminal, the Balikpapan Coal Terminal can fill the vessel to about half full and the floating terminal will 'top-up' the vessel offshore. This is a more efficient way to load and service Cape-sized vessels. Further, a floating terminal allows flexibility as it may be towed to any location where there is demand for its services.
Rgds,
The Management Team
ASL Marine Holdings Ltd
TAN KOK KIONG, you wrote:
3a. What is the 1Q2004 and 2Q2004 profit and loss? Basically i am finding out is the current price of share 54 cents on high side?
Dear TAN KOK KIONG, thank you for your question.
The net profit for the half year ended 31 December 2003 is S$2.86 million. We are confident that the second half will perform better than the first half, and that overall, the profit after tax for FY2004 will be at least comparable to that of FY2003. We will be announcing our results for the full year ending 30 June 2004 in 3Q 2004.
Rgds,
The Management Team
ASL Marine Holdings Ltd
Warren, you wrote:
Hi,
Appreciate your taking time to enlighten us via ShareInvestor's Q&A forum. A great governance win on your part!
Every research report on your Indon coal deal I read suggests "the acquisition will provide a defensive earnings stream to the company."
My Qs:
4a. Can you comment on above, if true?
Dear Warren, thank you for your questions.
The acquisition of the Tabang Coal Concession is always seen to be an "insurance" against the vessels not being able to be deployed in times of cyclical downturn. Further, with the guaranteed minimum operating cashflow and negligible overhead, the acquisition will provide a steady and sustainable cashflow/earnings stream to the company.
Based on the above, the acquisition should be seen as a defensive earnings stream with some upside potential.
4b. Will that new business be a significant earnings contributor in FY05 onwards? Without revealing exact amounts, what % of Group earnings will it represent?
Minimal operating cashflow as guaranteed for FY2005 and FY2006 is US$2.3 million and US$3.0 million respectively. From FY2007 onwards, minimal operating cashflow is US$3.6 million per financial year. Depending on the Group's effective shareholdings in Pan Assets, the earnings will vary accordingly.
From FY2005, earnings contribution from the new business should have an increasing impact on the Group's earnings. However, this is still subject to the effective shareholdings by the Group in the new business.
4c. Your ASL Energy already has two other sources of earnings -- the newly set-up coal transport business and a 65,000DWT Floating Coal Terminal, operational by 2Q06. Aren't these adequate (and within your domain expertise) without having to take cyclical price risk with direct coal mining?
We are not taking any cyclical price risk as we will be working on a minimal guaranteed price with the marketing agent. Further, coal is a natural substitute for oil, and both being depleting resources, are limited and should not "depreciate" too much in value.
To the Company, the acquisition of the coal concession is also meant to insure against low demand for our vessels chartered to carry coal as explained in our reply to Question 4a.
It was stated that "it would be prudent for ASL Energy to secure strategic stakes in the supply chain for coal which it currently has no control over. This is in order to ensure a minimal level of utilisation of the proposed 40 tugs and 40 barges to be deployed by ASL Energy."
4d. My Q, does ASL need to spend $20mil (its half share) to secure "work" for assets that its 50:50 jv has ordered from the parent?
The acquisition should not be seen as to secure "work" for the vessels owned by ASL Energy but rather as an additional investment that generates cashflow/earnings based on its own merits, and has the additional ability to reduce our overall business risk.
4e. Is this not a case of building 40 tugs and 40 barges for your 'son', and then spending more again so that those assets get put to work?
Please refer to our reply for Question 4d.
Rgds,
The Management Team
ASL Marine Holdings Ltd
Yong foong, you wrote:
Congrats on the recent corporate developments and contracts that was achieved by the management.
Appreciate the initiative by the management in its continuous communications to investors through this online Q&A.
Here are my questions:
5a. With this greater amount of contracts, does that mean the Group will incur greater capital expenditure and what will happen to all this excess equipments & labour should the economy slows down?
Dear Yong Foong, thank you for your questions.
Yes, while it is true that we will incur additional capital expenditure, we do not, however, acquire all the assets required to support the operational needs. We only acquire assets which are critical to the operations and are easily deployed. Furthermore, we only acquire assets rather than lease them when we are able to enjoy cost efficiencies.
A substantial portion of the equipment and labour requirements are still farmed out to subcontractors and suppliers. Todate, although we have a substantial increase in our shipbuilding contracts, our headcount has only increased marginally and mainly on the supervisory and administrative support staff.
5b. The coal mine venture with Manhattan Investments through ASL Energy, what are the main benefits of acquiring this coal mine involved and how was the S$40m investment evaluated?
Benefits of acquiring the Tabang Coal Concession has been explained in our reply to Qn 1b raised by Mr Larry Tan.
The S$40 million consideration was arrived at on a willing-buyer willing-seller basis, taking into account a review and feasibility study commissioned by ASL Energy on the Coal Concession. This review and feasibility study was conducted by a Singapore consultancy firm and a technical consulting firm from the United Kingdom.
5c. With Manhattan Investments acquiring the control and management of Links Island, does the management foresee a future business collaboration with Links Island?
We are always looking out for good business opportunities and are open to discussions on any investments, alliances or opportunities that may arise with any third parties.
5d. Finally, can the management shed some light on the management of Manhattan Investments and how did the collaboration come about?
Years ago, the Group already had business dealings with Datuk Low. When he decided to build some barges for his operations in Indonesia, he came to Singapore looking for a suitable shipbuilder and naturally, he came to us. Thereafter, the proposal of a joint venture was raised that may optimise the competence of both parties and ASL Energy was formed subsequently.
Rgds,
The Management Team
ASL Marine Holdings Ltd
Dear Investors,
Thank you for all your questions and interest in ASL Marine Holdings Ltd. We have come to the end of this Q&A session and hope that you have a better insight of our company and our operations.
Rgds,
The Management Team
ASL Marine Holdings Ltd