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chairman's statement
   

  Dear Shareholders,

FY2010 marked a year when the Group achieved many of its key milestones. We completed the consolidation of our Distribution businesses, took delivery and secured a charter contract for our new jack-up rig, the KS Endeavor. This paved the way for our entry into the Indonesian oil and gas market through the acquisition of PT Petro Papua Energi (“PPE”).

The consolidation of our Distribution businesses and the subsequent delisting of two of our entities – SSH Corporation Ltd (“SSH”) and Aqua-Terra Supply Services Limited (“Aqua-Terra”) were the first transactions of such nature to have been successfully executed jointly by three public-listed companies in Singapore.


Furthermore, these proposals received over-whelming support from the shareholders of SSH, Aqua-Terra and KS Energy. I would like to take this opportunity to thank all our shareholders for their vote of confidence and express my appreciation to the professionals who worked relentlessly to ensure the smooth and orderly completion of this massive exercise. KS Drilling Pte Ltd (“KS Drilling”) was incorporated to hold our drilling business and will be the subsequent unit to be restructured. After acquiring our drilling business in 2007, we integrated its activities with the existing capital equipment business of KS Energy. This acquisition paved the way for us to enter the drilling market and gave us the opportunity to carve our niche in the industry. Today, we have the credentials, experience and the necessary safety accreditations to tender for projects in the North Sea as well as other parts of the world.

Having divested most of our non-core assets over the last couple of years, our drilling unit is now a more focused and integrated business. The Asian and African continents have provided further opportunities for us to expand our operations.

Presently, our drilling rigs are operating in West Africa, China and the Middle East. Subsequently, our goal will be towards developing our operations in Indonesia. Having acquired PPE, we expect that a few more rigs will soon be added to our fleet. With Indonesia being familiar grounds, we are looking forward to working in this market where opportunities are abundant. Modelling this business to that of our Distribution unit, we will similarly be seeking partners with whom to grow and develop our drilling business.

On 24th February 2011, we announced the intention of ITOCHU Corporation of Japan to invest approximately 20% equity interest in KS Drilling. ITOCHU Corporation, with a history dating back to 1858, is one of the leading general trading companies in Japan engaged in domestic trading, import/export, and overseas trading of various products such as textile, machinery, information and communications technology, aerospace, electronics, energy, metals, minerals, chemicals, forest products, general merchandise, food, finance, realty, insurance and logistics services as well as in business investment in Japan and overseas.

The prospects of working with ITOCHU are exciting. Personally, the senior management of ITOCHU and I have known each other for many years and have been partners on various business ventures. Currently, this investment is subject to the approval of the regulatory bodies in Singapore, the shareholders of KS Energy and the execution of the Definitive Agreements. When completed, this partnership will enable us to complement each other and further expand our reach in the global oil and gas market.

On the operational front, due to the competitive business environment which persisted throughout this year, coupled with the need for provisions and capital assets impairments, it was necessary for us to include these costs, which are mainly non-cash items, into our accounts. Among these are provisions and impairments of our capital equipment and intangible assets, which amounted to $35.0 million. This resulted in a loss of $95.8 million in FY2010.

Compared to the previous financial year, our revenues were lower by 21.2%, decreasing from $646.5 million to $509.4 million. This is attributable to the lower demand for parts and components and the softer charter rates this year. However, with higher oil prices in recent months bringing cheer to many oil companies, sentiments for the oil and gas industry should improve in 2011.

Looking Ahead
We have exciting yet challenging times ahead of us. We will be continuing with our integration and restructuring efforts in the new financial year. The Distribution business, which was restructured in the first half of FY2010, is currently being reorganized to help it achieve better operating efficiency. The positive results of the reorganization are expected to start accruing from the second half of 2011.

With the recent rise in energy prices, the Drilling business has seen an increase in the number of enquiries for its capital equipment. Our management is focusing on the day-to-day business operations whilst working on the restructuring of this business unit in order to improve operating efficiencies.

When the Definitive Agreements with ITOCHU Corporation are inked, we will be able to strengthen KS Drilling’s balance sheet and support its growth.

Reorganisation and restructuring costs will continue to impact our performance in the first half of 2011. However, in view of the improved business outlook for the oil and gas industry, we are cautiously optimistic about our overall performance for 2011.

In closing, I would like to thank all our customers, bankers and shareholders for their trust and confidence in us. Furthermore I would like to thank our employees for their commitment and unceasing hard work. Their persistence and belief have enabled us to ride through the tremendous changes this year. In the new financial year, this continued support will be instrumental as we adopt strategies that will help us realize our vision to grow KS Energy into Asia’s unique and unparalleled Integrated Energy Services Hub.

 

Yours Sincerely,
Kris Taenar Wiluan
Chairman & Chief Executive Officer