Dear Shareholders,
The proverbial "interesting times" that we were plunged into in 2009 appear to have given way to a new dawn marked by cautious growth in the global shipping and shipbuilding sectors.
After more than a year of economic ennui, banks are finally starting to relax their tight fists of credit, as business owners dust off their capital expenditure plans and consumers return to their old habits of spending more on wants than needs.
The "feel good" factor is back in town. But for the marine and offshore industry, the ebullience is somewhat tempered by certain realities of the business. Overcapacity remains a major challenge - particularly for certain classes of offshore support vessels - and utilisation rates are still restrained. While banks are more willing to finance ship owners, they are still reluctant to accept reasonable risk, hence financing remains costly and cumbersome. Alas, reality takes time to catch up with sentiment.
Nevertheless, we do have reason to be optimistic about the future based on how we lived out the past. In FY2009, Penguin posted a net profit of $7.3 million on revenue of $114.0 million and ended the year with $25.3 million in cash. Most of the profit was generated by shipbuilding and chartering of ferries, Fast Supply Intervention Vessels (FSIV) and Anchor Handling Tug/Supply vessels (AHTS).
More significantly, our FY2009 profit was earned in the absence of any significant contribution from vessel sales. Last year's other operating income, typically consisting of vessel sales, was $4.8 million, compared with $10.3 million in FY2008. Taken in this context, the drop in total net profit from $8.8 million in FY2008 to $7.3 million in FY2009 is understandable.
Our "survival and thrive" strategy, which forms part of our overall growth strategy, is to focus on our core shipbuilding and chartering activities, while seeking to maximise our $100 million-plus fixed asset base - comprising mostly 62 vessels and two shipyards - and expand sensibly within our core competencies. Indeed, our improved quality of earnings in FY2009 underscores our strength in focus.
A key initiative from maximising our assets is to focus on securing more charters for our fleet of 33 high-speed passenger ferries versus traditional ticketing runs to the Riau Islands - Batam, Bintan and Karimun. Our efforts paid off in FY2009 with an unprecedented two-thirds of our ferries on charter to government and corporate clients. We are now keeping close tabs on possible new demand arising from the two Integrated Resorts in Singapore.
Meanwhile, we will continue to approach debt cautiously and maintain a healthy cash flow. At the end of FY2009, we had $25.3 million in cash - roughly 25% of our market capitalisation - and a low gearing ratio of 14%. A strong balance sheet not only ensures survival, it also enables us to capitalise on sensible expansion and acquisitions within our core competencies.
On the expansion front, we plan to refleet our offshore vessels, which have been sold down to three FSIV and two AHTS. Over the last three years, we sold three of our own FSIV in a booming market. We also bought two AHTS, which are now on long-term charter. The time is now ripe for us to build new offshore vessels at our own shipyards for our own requirements, as the market reality starts to catch up with sentiment.
Currently, all our ferries are operating in Singapore and the Middle East, while our offshore vessels are deployed around Southeast Asia and the Middle East. Away from home, the Middle East is by far the most significant growth market for Penguin.
It was almost three years ago when we secured our first "toehold" in the Middle East via a long-term marine services contract with Dubai's Roads and Transport Authority. Since then, we have sent one of our AHTS to Saudi Arabia on a long-term charter, signed US$48 million worth of shipbuilding contracts with the Abu Dhabi National Oil Company and built up a fleet of 20 workboats in and around Dubai.
Late last year, we took the additional step of turning our Dubai joint venture into a fully fl edged subsidiary by acquiring additional shares from a local partner to give us a 75% interest.
While the news media tend to focus only on the darker side of Dubai's economic woes, the reality is not as dire. If anything, the crisis has made Dubai a more attractive place to invest and conduct business. Roads are less congested, employees are less demanding, the cost of living has come down and even government officials are friendlier.
Furthermore, Dubai is one of seven closely-linked emirates (or kingdoms) in the United Arab Emirates, which are in turn part of the larger Arabian Gulf community, which includes Saudi Arabia, Kuwait, Bahrain, Qatar and Oman. Our Dubai-based subsidiary, for example, is operating ferries in Saudi Arabia, Kuwait and Abu Dhabi. Sentiment in Dubai, as perpetuated by the mass media, tends to overshadow reality in the region.
Our ability to survive and thrive in difficult times is exemplified by our Founder Mr. Heng Kheng Seng, who retired at the age of 60 as Chairman in February 2010 after serving the company for 38 years. We are grateful to Mr. Heng for laying the foundations of growth and for bringing in a new management team to carry on his legacy.
Mr. Heng's own life story is truly a journey of resilience. From a small boat rental business in 1972, he has overcome numerous challenges to build Penguin into the integrated marine and offshore services group that you see before you today.
The Board of Penguin extends its heartfelt gratitude and appreciation to Mr. Heng for his years of dedication and personal sacrifice.
At the same time, the Board would like to welcome Mr. Jeffrey Hing as Penguin's new Chairman. Mr. Hing, 54, is an experienced offshore ship owner and investor with an accounting background. As Penguin's single largest shareholder, he is also an ardent believer in the Group and its prospects.
By focusing on our core strengths and remaining rooted in reality, I am confident that Penguin will grow stronger and soar higher in coming years.
Mr. James Tham Managing Director