executive chairman's statement

Extracted from Annual Report 2018



On behalf of the Board of Directors, it is my pleasure to present to you the Annual Report of the CH Offshore Group ("the Group", "CHO", or "the Company") for the financial year ended 30 June 2018.

The offshore and marine sector has finally stabilised towards the beginning of 2018 with the price of a barrel of Brent crude passing US$70 on 11 January 2018, the first time it has done so since late 2014. This would well mean that the market has seen its bottom. Whilst the oil price has now risen back to levels close to those before its collapse, this has only resulted in marginal improvement in offshore activity during 2018. 2018 has shown a small improvement in vessel utilisation levels but no real improvement in rate levels. Charter rates are not expected to improve significantly in the near term due to the current vessel overcapacity issue which is exacerbated by insufficient scrapping of vessels. Significant improvement of the offshore oil and gas market is still required before offshore vessel rates and utilization levels improve, and before most vessels can move back into profit.

In the near term, the operating environment will remain intensely competitive. It is therefore crucial that we stay focus on implementing our strategic priorities through efficient operation and prudent working capital management, while continuing to actively pursue new charter contracts in our target markets, especially in South East Asia, Mexico and the Middle East. Currently, the Group has ten vessels in South East Asia, three vessels in Middle East, two in Mexico and one in Africa. We have managed to maintain an average utilization rate of 53% in FY2018 despite the market challenges.

We will continue to focus on driving utilisation rate that generate positive cash flow and improving our operational efficiency in a safe and sustainable manner.


The Group recorded a revenue of US$9.91 million and a net loss of US$24.60 million in FY2018. The 40% decline in Group revenue from previous year were reflective of the challenging market conditions which had adversely impacted our vessel charter rates and utilisation level. The loss included total impairment charges totally US$14.33 million, of which US$3.33 million was for our owned fleet, US$2.10 million was for our jointly-owned vessel, US$8.66 million was for doubtful debt and US$0.24 million was for the impairment of our investment in an associate company. The Group net asset value decreased from US$121.22 million as at 30 June 2017 to US$96.62 million as at 30 June 2018. The Group net asset value per ordinary shares decreased from 17.20 US cents per share to 13.71 US cents per share.

During the year, the Group faced significant operational and cash flow challenges including increasing cabotage play in the region, delay in trade debt collections and termination of a long term contract which resulted in the Group incurring costs to take possession of a vessel. One of our joint venture partner also expressed their unwillingness to pay their outstanding debt due to us resulting in us taking over two vessels from the joint venture in settlement of the outstanding debt.

Despite the challenge, the Group had managed to maintain cash neutral position. We had during the year done a thorough review on our labour and administrative expenses and had managed to reduce our corporate expenditure by 13% as compared to previous year.


We are starting to see the early signs of recovery in the offshore oil and gas industry, with tendering activity for new projects marginally increasing. If oil prices continue to strengthen through 2018 and 2019, new well drilling should resume and new production should commence as E&P companies grow more confident of oil price strength. However, charter rates are not expected to improve due to the oversupply situation in the near term, especially in the 5,000 horse-power AHTS vessels. Barring any unexpected geopolitical developments or a decline in oil prices that could derail the sector recovery, we are cautiously optimistic that the market will find its balance in the medium term.

Our fleet of AHTS (Anchor Handling Tug Supply) is relatively young and uniquely situated to enjoy the eventual upturn in the market. The core of our fleet is the Japanese-built 12,240 horse-power AHTS vessels. These vessels have high quality equipment, large deck space and enjoy the horse-power required to serve the newer, larger jackup drilling rigs. Additionally, these larger vessels enjoy a less oversupplied market in comparison to the smaller sized vessels, where significant speculative building over the last 5-6 years created a significant overly supplied market. The Group's competitive edge also includes the quality of its experienced Management and staff as well as the underlying strength of its main market in Middle East and Southeast Asia.

We serve an economically fast-growing region with several countries that have huge populations and a growing demand for energy. The oil and gas wells in the region are largely older and producing in marginal fields. Consequently, many of the wells in Asia require near constant maintenance and well stimulation in order to maintain production, which in turn produces a steady stream of offshore projects for our high quality fleet. Additionally, as existing and older wells decline in production new wells are required to even maintain flat production. The improved oil price and the nearly non-existent exploration activity over the last several years will inevitably cause exploration and production companies to quickly re-start their activities offshore. As a result, demand for our fleet – especially our 12,240 horse-power vessels – will significantly improve as new drilling campaigns are launched in the eventual upturn in the market.

The Group will continue to develop ways to increase operational efficiency, cut costs and preserve cash. This is the simple strategy that will allow us to ride out the rest of the downturn and be ready for the rebound in the industry.


CHO's sustainability strategy is aligned with our core values of Passion, Respect, Integrity & Honesty, Monetary Discipline and Excellence (Prime) and our "Do No Harm" corporate policy. CHO is committed to improving the economic and social well-being of our stakeholders by operating the CHO way which ensures that we do no harm to ourselves as human, to those involved and affected by our operations, to the assets involved and affected by our operations; to the environment in which we work and to our relations with clients, subcontractors, customers, stakeholders and those affected by our operations.

CHO upholds high standards of corporate governance and transparency to safeguard shareholders' interests. We have in place an adequate and effective Enterprise Risk Management framework to enhance our business resilience and agility. CHO continuously strive to ensure full compliance with the 1974 International Convention for the Safety of Life at Sea (SOLAS 1974).

We rigorously strive to balance commercial viability with sustainability for future generations and have incorporated the key principles of environment, social and governance in settling out our business strategies and operations. However, it is clear to us that focusing on sustainability is good for our business and profitability. By adhering with our sustainability strategy, we will increase productivity and efficiencies and reduce our costs, which is increasingly vital in the currently challenged offshore oil and gas sector. Additionally, performing our business in a sustainable fashion avoids the risks and liability associated with environmental damage and provides a competitive advantage in securing and maintaining contracts with major oil and gas companies and national oil companies, which are increasingly demanding that key contractors adopt sustainable business practices. In short, our sustainability initiatives make good business sense for our shareholders, employees and stakeholders.


Our ability to cope with the past financial year's challenges would not have been possible without the outstanding efforts of our entire workforce. In FY2018, the executive team worked determinedly to steer the business through these difficult times and many tough decisions were taken along the way.

On behalf of the Board, therefore, I would like to thank our people for their outstanding efforts and dedication to the Group. To our shareholders, bankers, suppliers, customers and business associates, our heartfelt gratitude for their understanding and unwavering support and confidence in our ability to weather the headwinds in the sector.

To the Board, I wish to record my appreciation for their guidance and valuable advice.

On 26 July 2018, Baker Technology Limited (BT) through its direct wholly-owned subsidiary BT Investment Pte. Ltd. successfully acquired 52.72% stake in CHO and it became a subsidiary of BT. With the acquisition, BT has nominated Dr Benety Chang, Ms Jeanette Chang, Mr Heath McIntyre and Mr Tan Kiang Kherng onto the Board on 27 August 2018. On behalf of the Board, I would like to extend a warm welcome to them.

Mr Thia Peng Heok, George
Independent, Non-Executive Chairman
27 August 2018