Email This Print ThisChairman's Statement

(Extracted from Annual Report 2015)

In light of the downturn we are aggressively realigning asset requirements, managing costs and recycling capital in this business Division.

Dear Shareholders,

Glenndle Sim

A Challenging Year

In the past year, the oil industry entered its deepest downturn in decades. Rising supply and weak demand have sent oil prices from a high of US$115 per barrel in June 2014 to under US$30 at the start of this year.

In this intense environment, Mencast's revenue declined 31% to $90.6 million. Net profit attributable to shareholders was $1.6 million, down 91% from the prior year.

Weathering the Storm

Business diversification helped us avoid the full impact of the contraction in the oil industry. Fabrication has been the most severely affected part of our business, as the upstream sector saw a sharp drop in new orders for rigs and offshore structures. In light of the downturn, we are aggressively realigning asset requirements, managing costs and recycling capital in this business Division.

The marine business was also affected by the weak economic environment with revenue down 14% from the prior year. The business performance was satisfactory in light of market conditions, with $37.3 million of revenue generated at a gross profit margin of 34%.

Mencast serves the Global Energy Cycle

Mencast serves the Global Energy Cycle

Our energy Division performed solidly in 2015. The fundamentals of this business are driven by energy consumption and largely unaffected by lower oil prices. We had new client wins as well as renewals from existing clients. The growth prospects for this segment are good due to the Corporate Social Responsibility and the sustainability propositions we provide to our clients.

Looking Beyond the Cycle

Oil prices are widely forecasted to strengthen in the medium term as current prices are uneconomic for a substantial proportion of producers. Energy demand must also inevitably rise over the medium term as the global population grows and national incomes rise.

For these reasons we have confidence that the fundamentals for our industry remain strong in the medium term. We plan to look beyond this cycle to seek opportunities that will position us for even greater success in the future.

During lean times, valuations become depressed and opportunities for acquisitions arise that do not exist when the industry is flushed with cash. We will seek to opportunistically acquire assets in close adjacencies.

One such example is our proposed acquisition of Stone Marine Singapore as part of a business partnership with Langham Limited of the United Kingdom. This partnership enables us to meet the propeller and sterngear needs of naval and military vessels, also allowing us to offer existing services such as precision machining, rope access and diving services into these premium markets. Fuller details of this partnership and acquisition are in our announcement of 8th March 2016.

Strong execution is integral to our long term success and we are intensely focused on our costs, capital and operational efficiency. The challenge of reducing costs whilst maintaining our service excellence is one that we are attacking with vigour, and we plan to complete it while retaining our capability to benefit from industry recovery in the future.

Financial stability is another key priority. We have been active in strengthening our liquidity position, which includes realigning our asset requirements and refinancing borrowings as required. In January 2016, the Group raised $14.8 million in a private placement at a substantial premium to the prevailing market price.

Appreciation and Thanks

It's been a challenging year and I thank our staff, customers, shareholders, bankers and Board of Directors for their support and working with us as a partner through this tumultuous time.

I'm especially grateful for the resilience of the Mencast team to the market challenges. This is the time for us to prove again that we offer the best value proposition to our customers. Together, we will prove once again that we are Partner Perfect.

Sim Soon Ngee Glenndle
Executive Chairman and Chief Executive Officer