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Otto's Batam yard has a competitive advantage in building complex and sophisticated offshore support vessels suitable for harsh North Sea conditions. NextInsight file photo

OTTO MARINE has posted a loss attributable to shareholders of S$67.7 million for FY2011 due mainly to losses in its shipbuilding and geophysical services divisions.

The offshore marine player reversed its profits in shipbuilding after two vessels contracted by Mosvold Supply were cancelled.

Provisions also had to be made for the cancellation of a third vessel contracted by the same customer.

The Group’s subsidiary which operates seismic vessels, Reflect Geophysical, was affected by lower vessel utilization. There was downtime when the vessels were moved to different geographic regions.

Group revenue decreased 10.2% year-on-year and was S$520.8 million for FY2011.

A bright spark in Otto’s results was the increase in the profitability of its chartering business.

Gross profits for the chartering division multiplied by more than four times to S$39.3 million after the Group acquired Go Group in FY2011.

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Otto’s executive director and deputy president, Aw Chin Leng.

Going forward, Otto is mitigating its risk for newbuilds.

"We have now decided to spend money only on the basic naval architectural design for new contracts and ensure specifications are formalized before beginning construction work,” said Otto’s executive director and deputy president, Mr Aw Chin Leng, during Otto’s results briefing on Thursday.  CFO Michael See was also present to address analyst queries.

This is a departure from its practice of going ahead with the strike steel ceremony as soon as the vessel design is ready, which involves a much greater amount of committed working capital.

While the former practice provided lead-time where vessel delivery schedule is concerned, the downside was that difficulties with a customer could result in multiple revision and preferential engineering requests as well as delivery delay.

“Now, we will get the designs classified (by the Classification Society) and have the customer nail down exactly which equipment to procure before proceeding with any steel strike. We just need to put our foot down and formalize our working procedures when it comes to variation orders,” said Mr Aw.

He also assured analysts that Reflect’s new CEO has addressed many issues that plagued the operator of seismic vessels, including stemming its losses and being more much conservative in taking jobs.

He remains optimistic about the demand for offshore marine services.

“As long as oil price stays above US$75 per barrel, many oil projects will take off,” he said.


Below is a summary of questions raised at the results briefing, and the replies given by Mr Aw.


Q: What are you doing to increase your visibility in terms of order book?

We will continue to stay focused and put in all our effort to complete the work-in-progress of our existing newbuilds so that we can sell them or charter them out to generate cashflow.

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"We are expecting better result contribution from Go Marine this year," said CFO Michael See.

Q: Mosvold vessels - Are you going to sell them?

We have received enquiries for these vessels. However, the current credit environment, particularly in Europe, has not been very helpful for the necessary vessel financing.

Q: Do you have plans for smaller vessels since this will not take up all your capacity?

We also tend to outsource construction of smaller and basic vessels to our strategic Chinese yards as it is more economical.

It is our strategy to build the more complex and sophisticated vessels at our Batam yard.

We intend to reserve certain of our yard space to accommodate potentially new and bigger ticket orders should the market pick up. Our yard is currently busy finishing the rest of the work-in-progress for newbuild vessels so that we can either sell them or charter them out.

Q: What kind of newbuilds are you targeting?

We have received enquiries on newbuilds and are working on the details.

Q: Is there a delivery schedule for your potential new orders?

Depending on the newbuild order, the larger vessels tend to take around 30 to 40 months to build.

Q: Is selling Reflect something you will consider?

We will be more conservative in future project bids and are committed in rebuilding the business at Reflect.

 

Related story: Otto Marine: DNV classification to help financing position

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