EZION HOLDINGS LIMITED

Transcription

1 CIRCULAR DATED 21 NOVEMBER 2007 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt in relation to this Circular or as to the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser immediately. If you have sold or transferred all your issued and paid-up ordinary shares in the share capital of Ezion Holdings Limited (formerly known as Nylect Technology Limited) (the Company ), you should immediately forward this Circular to the purchaser or transferee or to the bank, stockbroker or agent through whom you effected the sale or transfer for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited (the SGX-ST ) assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular. Approval in-principle by the SGX-ST is not to be taken as an indication of the merits of the Company or its securities. EZION HOLDINGS LIMITED (formerly known as Nylect Technology Limited) (Incorporated in the Republic of Singapore) (Company Registration Number: E) CIRCULAR TO SHAREHOLDERS IN RELATION TO:- (A) (B) (C) (D) THE PROPOSED DISPOSAL OF THE COMPANY S INTEREST IN THE M&E COMPANIES AND THE ACCOUNTS RECEIVABLE RELATING THERETO (THE PROPOSED DISPOSAL ); THE PROPOSED CONFIRMATION OF THE GROUP S OFFSHORE MARINE LOGISTICS AND SUPPORT SERVICES BUSINESS AS THE CORE BUSINESS OF THE GROUP (THE PROPOSED CONFIRMATION OF THE GROUP S CORE BUSINESS ); THE PROPOSED SUBDIVISION OF EVERY ONE EXISTING SHARE IN THE COMPANY INTO TWO SHARES (THE PROPOSED SHARE SUBDIVISION ); AND THE PROPOSED CHANGE OF THE AUDITORS OF THE GROUP (THE PROPOSED CHANGE OF AUDITORS ), (COLLECTIVELY, THE PROPOSALS ) IMPORTANT DATES AND TIMES Last date and time for lodgement of Proxy Form : 8 December 2007 at 11 a.m. Date and time of Extraordinary General Meeting : 10 December 2007 at 11 a.m. Place of Extraordinary General Meeting : No 1 Woodlands Sector 1 Nylect Industrial Building Singapore

2 CONTENTS DEFINITION... 3 Page LETTER TO SHAREHOLDERS INTRODUCTION THE PROPOSED DISPOSAL THE PROPOSED CONFIRMATION OF THE GROUP S CORE BUSINESS THE PROPOSED SHARE SUBDIVISION THE PROPOSED CHANGE OF AUDITORS DIRECTORS AND SUBSTANTIAL SHAREHOLDERS INTERESTS DIRECTORS RECOMMENDATIONS EXTRAORDINARY GENERAL MEETING ACTION TO BE TAKEN BY SHAREHOLDERS DIRECTORS RESPONSIBILITY STATEMENT DOCUMENTS FOR INSPECTION NOTICE OF EXTRAORDINARY GENERAL MEETING EXTRAORDINARY GENERAL MEETING PROXY FORM 2

3 DEFINITIONS Except where the context otherwise requires, the following definitions apply throughout this Circular: Accounts Receivable : The net amount of S$2.716 million due to the Company from the M&E Companies AGM : The annual general meeting of the Company as may be convened from time to time Audit Committee : The audit committee of the Company Balance Sheet Date : 30 June 2007, being the reference date for the purpose of determining, inter alia, the value of the Disposal Consideration under the Sale and Purchase Agreement Auditors The auditors for the time being of the Company CDP : The Central Depository (Pte) Limited Circular : This circular dated 21 November 2007 Companies Act : The Companies Act, Chapter 50 of Singapore, as amended or modified from time to time Company : Ezion Holdings Limited (formerly known as Nylect Technology Limited) Completion : The completion of the disposal by the Company of its interest in the M&E Companies and the Accounts Receivable relating thereto to the Purchaser Directors : The board of directors of the Company as at the date of this Circular Disposal Consideration : The consideration of S$4.9 million, payable in cash, for which the Company proposes to dispose of its interest in the M&E Companies and the Accounts Receivable relating thereto to the Purchaser EGM : The extraordinary general meeting of Shareholders, notice of which is set out on pages 37 and 38 of this Circular EPS : Earnings per Share FY : Financial year ended or, as the case may be, ending 31 December Group : The Company and its subsidiaries, collectively HY : The six months ended or, as the case may be, ending 30 June Latest Practicable Date : 9 November 2007, being the latest practicable date prior to the printing of this Circular Listing Manual : The listing manual of the SGX-ST 3

4 M&E Companies : The subsidiaries of the Company, which undertake the Group s Mechanical, Electrical and Fabrication Services business operations Mechanical, Electrical : One of the Group s core businesses, involving the provision of and Fabrication Services mechanical and electrical engineering services to the industrial and commercial sectors, providing design and build services as well as supply and installation services and the fabrication of fasteners and enclosures Memorandum : The memorandum of association of the Company MPA : The Maritime and Port Authority of Singapore NAV : Net asset value NTA : Net tangible assets Nylect Indonesia : PT Nylect Indonesia Nylect Vietnam : Nylect Technology Limited, Vietnam Nylect Xian : NT Industries Co Ltd (in liquidation) Offshore Marine Logistics : One of the Group s businesses, involving the provision of the and Support Services Group s customers, who are mainly in the offshore oil and gas or OMLSS industries, with the necessary assets, which comprise, inter alia, vessels, rigs, etc OMLSS Assets : The assets provided by the Group to its OMLSS customers, such as vessels, rigs, etc. Please refer to paragraphs 3.1 and 3.4 for more details OMLSS Companies : Subsidiaries of the Group through which it conducts its OMLSS business, namely, Northern Offshore Pte Ltd, Northern Offshore (Australia) Pty Ltd, Teras Offshore Pte Ltd, Teras Transporter Pte Ltd, Teras Transporter 2 Pte Ltd, Teras 331 Pte Ltd, Teras 335 Pte Ltd, Teras 336 Pte Ltd and Teras 338 Pte Ltd PRC : People s Republic of China Proposals : The following proposals, collectively:- (a) (b) (c) (d) The Proposed Disposal; The Proposed Confirmation of the Group s Core Business; The Proposed Share Subdivision; and The Proposed Change of Auditors Proposed Change : The proposed change of the Auditors of the Group of Auditors Proposed Confirmation : The proposed confirmation of the Group s Offshore Marine Logistics of the Group s Core and Support Services business as the core business of the Group Business 4

5 Proposed Disposal : The proposed disposal of the Company s interest in the M&E Companies and the Accounts Receivable relating thereto to the Purchaser Proposed Share : The proposed subdivision of every one existing Share in the share Subdivision capital of the Company into two Shares Purchaser : Mr Sim Hee Chew, and, where the context so admits, Purchaser shall include such entity as Mr Sim Hee Chew shall nominate for the purposes of holding the shares of the M&E Companies and the Accounts Receivable relating thereto to be acquired pursuant to the Sale and Purchase Agreement Rule : A rule set out in the Listing Manual Sale and Purchase : The agreement dated 19 September 2007 between the Company Agreement and Mr Sim Hee Chew pursuant to which the Company is proposing to dispose of the interest in the M&E Companies and the Accounts Receivable relating thereto to the Purchaser, more particularly described in paragraph 2 of this Circular Securities Account : A securities account maintained by a Depositor with CDP but does not include a securities sub-account SFA : The Securities and Future Act, Chapter 289 of Singapore as amended or modified from time to time SGX-SESDAQ : SGX-ST Dealing and Automated Quotation System SGX-ST : Singapore Exchange Securities Trading Limited Share Issues : The allotment and issue of (i) 145,000,000 new Shares to Unique Counsel Limited on 22 February 2007, (ii) 16,800,000 new Shares to NHPL on 4 May 2007, (iii) 28,810,000 new Shares to the placees procured by a placement agent on 20 July 2007, (iv) 4,200,000 new Shares to NHPL on 7 September 2007 and (v) 14,252,000 new shares to the placees procured by a placement agent on 7 September 2007 Shareholders : Registered holders of Shares, except that where the registered holder is CDP, the term Shareholders shall, where the context admits, mean the depositors whose Securities Accounts are credited with Shares Shares : Ordinary shares in the share capital of the Company US$ : United States dollars S$ : Singapore dollars % or per cent. : Per centum or percentage The terms depositor, depository agent and depository register shall have the same meanings ascribed to them respectively in section 130A of the Companies Act and the terms subsidiary and substantial shareholder shall have the meanings ascribed to them in sections 5 and 81 of the Companies Act, respectively. 5

6 The expressions associates, associated companies and controlling shareholder shall have the meanings ascribed to them respectively in the Listing Manual. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter gender and vice versa. References to persons shall, where applicable, include corporations. Any reference in this Circular to any enactment is a reference to that statute or enactment for the time being amended or re-enacted. Any term defined under the Companies Act, the SFA or the Listing Manual or any statutory modification thereof and used in this Circular shall, where applicable, have the meaning ascribed to it under the SFA or the Listing Manual or any statutory modification thereof, as the case may be, unless otherwise provided. Any discrepancies in tables included herein between the amounts therein and the totals thereof are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them. Any reference to a time of day in this Circular shall be a reference to Singapore time unless otherwise stated. 6

7 LETTER TO SHAREHOLDERS EZION HOLDINGS LIMITED (formerly known as Nylect Technology Limited) (Incorporated in the Republic of Singapore) (Company Registration Number: E) Board of Directors: Registered Office: Mr Lee Kian Soo (Non-Executive Chairman) No 1 Woodlands Sector 1 Mr Chew Thiam Keng (Chief Executive Officer and Executive Director) Nylect Industrial Building Dr Wang Kai Yuen (Independent Director) Singapore Mr Lim Thean Ee (Independent Director) Mr Tan Woon Hum (Independent Director) Mr Teo Chuan Teck (Independent Director) 21 November 2007 To: The Shareholders of Ezion Holdings Limited Dear Sir/Madam (A) (B) (C) (D) THE PROPOSED DISPOSAL OF THE COMPANY S INTEREST IN THE M&E COMPANIES AND THE ACCOUNTS RECEIVABLE RELATING THERETO (THE PROPOSED DISPOSAL ); THE PROPOSED CONFIRMATION OF THE GROUP S OFFSHORE MARINE LOGISTICS AND SUPPORT SERVICES BUSINESS AS THE CORE BUSINESS OF THE GROUP (THE PROPOSED CONFIRMATION OF THE GROUP S CORE BUSINESS ); THE PROPOSED SUBDIVISION OF EVERY ONE EXISTING SHARE IN THE COMPANY INTO TWO SHARES (THE PROPOSED SHARE SUBDIVISION ); AND THE PROPOSED CHANGE OF THE AUDITORS OF THE GROUP (THE PROPOSED CHANGE OF AUDITORS ), (COLLECTIVELY, THE PROPOSALS ) 1. INTRODUCTION The purpose of this Circular is to provide Shareholders with relevant information relating to the Proposals as well as to seek Shareholders approval for the same. 2. THE PROPOSED DISPOSAL On 19 September 2007, the Company announced that it had entered into the Sale and Purchase Agreement with the Purchaser, pursuant to which the Company has agreed to sell and the Purchaser has agreed to purchase from the Company its interest in the M&E Companies and the Accounts Receivable relating thereto. Further, under the Sale and Purchase Agreement, all profits and receipts, and all losses and outgoings, accrued or payable in relation to the M&E Companies between the Balance Sheet Date and Completion shall belong to and be for the account of the Purchaser. 7

8 The names of the M&E Companies and the Company s effective interest therein is as follows:- Name of M&E Company/ Country of Incorporation Effective interest held by the Company Nylect Engineering Pte Ltd/Singapore 100% MST Precision Pte Ltd/Singapore 60% PT Nylect Indonesia/Indonesia 70% Nylect Technology Limited, Vietnam/Vietnam 100% NT Industries Co. Ltd (under liquidation)/the PRC 100% Pending completion of the sale and purchase of Company s interest in the M&E Companies, the Purchaser shall have sole and absolute control and management over the day-to-day operations (including all financial matters) of each of the M&E Companies with effect from the date of the Sale and Purchase Agreement. 2.1 Conditions Precedent The Proposed Disposal is subject to:- (i) (ii) (iii) the Company receiving approval by Shareholders in a general meeting in respect of the disposal of the M&E Companies and the Accounts Receivable relating thereto on the terms and conditions of the Sale and Purchase Agreement; the licenses, authorisations, orders, grants, confirmations, permissions, registrations and other approvals, including the approvals from the minority shareholders of the M&E Companies, necessary or desirable for or in respect of the proposed transfer of the M&E Companies by the Company or for the implementation of the Sale & Purchase Agreement or for the proper carrying on of the M&E Business having been obtained from appropriate governments, governmental, supranational or trade agencies, courts or other regulatory bodies on terms satisfactory to the Purchaser and such licenses, authorisations, orders, grants, confirmations, permissions, registrations and other approvals remaining in full force and effect; and the discharge of all corporate guarantees, deeds of subordination and any other form of security or financial support provided by the Company to the banks in favour of the M&E Companies. If the conditions referred to in paragraphs 2.1(ii) and 2.1(iii) are not complied with by 31 December 2007, for any reason, the Company shall be entitled (in addition to and without prejudice to its other rights and remedies conferred by law or otherwise, including the right to claim damages): (a) (b) (c) to elect to terminate the Sale and Purchase Agreement; or to effect Completion as far as practicable, having regard to the defaults (without prejudice to its rights thereunder); or to fix a new date for Completion (not more than twenty (20) Business Days after the date originally fixed for Completion), save that:- (I) in respect of the transfer of the shares of Nylect Indonesia and Nylect Vietnam, Completion thereof may take place on a date not later than 6 months after the date originally fixed for Completion solely if the Purchaser requires such extended period to procure administrative and regulatory approvals in respect of the said transfers, which for the avoidance of doubt shall not affect the payment of the Consideration on the date originally fixed for Completion; and 8

9 (II) in respect of the shares of Nylect Xian, the shares shall not be transferred to the Purchaser, but the Purchaser shall complete the liquidation thereof. 2.2 Consideration The consideration for the Proposed Disposal (the Disposal Consideration ), arrived at after arm s length negotiations on a willing seller willing buyer basis, after taking into account the reasons for Proposed Disposal referred to in paragraph 2.3, is S$4.9 million (representing a 0.5% premium to the NTA of the M&E Companies). The aforesaid consideration will be payable by the Purchaser for:- (i) (ii) the acquisition of the Company s interest in the M&E Companies; and the transfer of the net accounts receivable due to the Company from the M&E Companies, and will be paid in cash in one lump sum following the completion of the Proposed Disposal. 2.3 Rationale The Directors are of the view that it is in the best interest of the Company to undertake the Proposed Disposal for the reasons set out below:- (i) (ii) (iii) (iv) (v) (vi) The Mechanical, Electrical and Fabrication Services division, taken as a whole, has been loss-making. The Mechanical, Electrical and Fabrication Services division has accumulated losses of S$8,675,000 as at 31 December 2006 and reported net losses of S$1,510,000 for HY2007. The Company is of the view that the Mechanical, Electrical and Fabrication Services division faces keen competition. Whilst the management strives to continue improving the operational capability and achieve greater efficiency, one of the challenges encountered was the increased prices of raw materials, which affected the gross profit margin of the Mechanical, Electrical and Fabrication Services division. In order to reduce the exposure to the volatile raw material prices, the Mechanical, Electrical and Fabrication Services division has been cautious in taking new jobs, resulting in the decline in revenue. The M&E Companies had an NAV of S$4.877 million as at the Balance Sheet Date (including the transfer of the Accounts Receivable of S$2.716 million) and the Disposal Consideration of S$4.9 million represents a premium of 0.5% to the NAV of the assets being disposed off pursuant to the Proposed Disposal. The Company has also considered other potential purchasers. However, the indicative offer by the Purchaser was the most favourable, being the highest in terms of the monetary value, indemnities provided by the Purchaser and in view that the Purchaser has been running the core Mechanical, Electrical and Fabrication Services business of the Group since The completion of the Proposed Disposal will remove the risk arising from corporate guarantees undertaken by the Company as security for the bank loans taken by Mechanical, Electrical and Fabrication Services division. The Proposed Disposal would be beneficial to the Group for the following reasons:- (a) it will allow the Company to focus on its more profitable Offshore Marine Logistics and Support Services division, which has been profitable since its commencement in the early half of FY2007 (please refer to paragraph 3 for more details on the Group s OMLSS division); 9

10 (b) (c) it will result in net proceeds of approximately S$4.8 million (after deducting estimated expenses of the transaction), which will be available to fund the working capital requirements for the Offshore Marine Logistics and Support Services division; and the completion of the Proposed Disposal will lower the gearing of the Group, resulting in a healthier balance sheet which will, in turn, give the Group an edge in seeking its banks support to fund its future growth. Accordingly, the disposal of the Mechanical, Electrical and Fabrication Services division will result in the disposal of loss-making companies at a premium to their NAV, improve the balance sheet of the Company and hence enable it to conserve its limited resources. Thereafter, the Company will be in a better position to focus on the better performing Offshore Marine Logistics and Support Services division businesses and also identify and explore any new business which may enhance Shareholders value. Please refer to paragraph 3 for more details on the Group s Offshore Marine Logistics and Support Services division. 2.4 Relative figures computed pursuant to Rule 1006 of the SGX-ST Listing Manual Test Rule 1006(a): Net asset value of assets to be disposed of, compared with the Company s net asset value. Rule 1006(b): Net profits (or loss) attributable to the assets acquired or disposed of, compared with the Group s net profits. Rule 1006(c): The aggregate value of the consideration given or received, compared with the Company s market capitalisation. Rule 1006(d): The number of equity securities issued by the issuer as consideration for an acquisition, compared with the number of equity securities previously in issue. Application 6.7% (1) (136.0%) (2) 0.9%, being an aggregate value of the consideration given of S$4.9 million over the Group s market capitalisation of S$542.3 million. Not applicable Notes:- (1) The Company s net asset value of S$76.44 million was derived based on the net asset value of the Group as at 30 June 2007, after adjusting for the net increase pursuant to the placement of shares on 20 July 2007 and 7 September As the assets proposed to be disposed of had a net assets value of S$5.11 million, the relative figure was approximately 6.7%. (2) The relative figure computed pursuant to Rule 1006(b) is a negative figure, which is computed as follows:- Group s net profit before tax: $1,102,000 Less : other income: $1,926,000 Less: Profit from the OMLSS Division: $ 675,000 Net loss attributable to the M&E Business: ($1,499,000) Based on the foregoing, the relative figure computed pursuant to Rule 1006(b) is a negative figure, as follows:- Relative figure = ($1,499,000) / $1,102,000 = (136.0)% 10

11 As the applicable relative figure computed under Rule 1006(a) exceeds 5% but does not exceed 20%, the Proposed Disposal is a discloseable transaction as defined under Chapter 10 of the SGX-ST Listing Manual, for which information as set out in this announcement must be disclosed immediately but shareholders approval for the transaction will not be mandatory. Nonetheless, the Company is seeking shareholders approval for the aforesaid transaction. 2.5 Financial effects of the Proposed Disposal FOR ILLUSTRATIVE PURPOSES ONLY, based on the announced unaudited consolidated financial statements of the Group for HY2007, the EPS and NTA per Share of the Group and the gearing of the Group, after the Proposed Disposal are as follows:- (a) EPS For the purpose of computing the EPS of the Group after the Proposed Disposal, it is assumed that the Proposed Disposal had been effected on 1 January S$ 000 Profit attributable to Shareholders 1,031 Adjusted profit after adjusting for the Proposed Disposal 2,448 Weighted Average no. of Shares for HY ,774,000 EPS 1.27 cents Based on the foregoing, the Proposed Disposal would have resulted in an EPS of the Group of 1.27 cents instead of an EPS of 0.53 cents. (b) NTA per Share The NTA per Share of the Group was 8.05 cents as at 30 June S$ 000 NTA as at 30 June ,802 NTA after adjusting for the Proposed Disposal 19,825 Number of Shares as at 30 June ,848,000 NTA per share 8.06 Cents Based on the foregoing, assuming the Proposed Disposal was effected on 30 June 2007, the NTA per Share would have been 8.06 cents instead of 8.05 cents. (c) Gearing The gearing of the Group, defined as the total indebtedness to financial institutions as a ratio of capital employed (shareholders funds and minority interests) was 0.53 times as at 30 June S$ 000 Total borrowings as at 30 June ,454 Total borrowings after adjusting for the Proposed Disposal 5,454 Shareholders funds as at 30 June ,802 Shareholders funds after adjusting for the Proposed Disposal 19,825 Gearing before the Proposed Disposal Gearing after the Proposed Disposal 0.53 times 0.28 times Based on the foregoing, assuming the Proposed Disposal was effected on 30 June 2007, the gearing of the Group would have been 0.28 times instead of 0.53 times. 11

12 FOR ILLUSTRATIVE PURPOSES ONLY, the financial effect of the Proposed Disposal on the balance sheet and the profit and loss account of the Group, based on the announced unaudited consolidated financial statements of the Group for HY2007, is set out below. (d) Effect of Proposed Disposal on the balance sheet of the Group: Assuming Proposed Disposal Actual as at took place on Group S$ June June 2007 CURRENT ASSETS Bank and cash equivalents 9,429 8,000 Trade and other receivables 8,759 4,427 Inventories Current investments ,544 12,427 NON-CURRENT ASSETS Investment properties Property, plant and equipment 20,855 16,368 Other assets ,499 16,368 TOTAL ASSETS 40,043 28,795 CURRENT LIABILITIES Short-term borrowings 4,512 0 Trade and other payables 9,198 3,363 Provision for taxation Provision for employee benefits 49 0 Current portion of long term borrowings Current portion of finance lease ,766 4,061 NON-CURRENT LIABILITIES Long-term borrowings 5,175 4,909 Finance lease liabilities ,242 4,909 NET ASSETS/( LIABILITIES) 20,035 19,825 SHARE CAPITAL AND RESERVES Shareholders Fund 19,802 19,825 Minority Shareholders NET ASSETS/( LIABILITIES) 20,035 19,825 12

13 (e) Effect of Proposed Disposal on the profit and loss account of the Group: Adjusted HY2007 (Exclude Contribution from Contribution from Mechanical, Mechanical, Electrical and Electrical and Fabrication Fabrication Services Services Group S$ 000 HY2007 Division Division) Profit before tax 1,102 (1,499) 2,601 Income tax (164) (11) (153) Profit after tax 938 (1,510) 2,448 Minority interests Profit attributable to Shareholders 1,031 (1,417) 2,448 The financial effects as set out above are theoretical in nature and are therefore not necessarily indicative of the future actual financial position, earnings and gearing of the Group after the completion of the Proposed Disposal. 2.6 Information on the Purchaser The Purchaser, Mr Sim Hee Chew, was formerly an executive Director of the Company. He remains a key executive of the Group, as of the Latest Practicable Date, being responsible for overseeing its Mechanical, Electrical and Fabrication Services division. He remains a Substantial Shareholder (due to his deemed interest in the shares held by Nylect Holdings Pte Ltd in the share capital of the Company) as of the Latest Practicable Date. Following the completion of the Proposed Disposal, Mr Sim Hee Chew will not have any executive function in the Group. 2.7 Operations and assets of the Company after the completion of the Proposed Disposal Following the completion of the Proposed Disposal, the Company s remaining business division will be its Offshore Marine Logistics and Support Services division. Please refer to paragraph 3 for more details on this business division. 3. THE PROPOSED CONFIRMATION OF THE GROUP S CORE BUSINESS 3.1 The Group s Offshore Marine Logistics and Support Services business Following the completion of the Proposed Disposal, the Group will have one business division, namely, its existing Offshore Marine Logistics and Support Services (OMLSS) division. This business division is undertaken by the OMLSS Companies, who are all wholly-owned subsidiaries of the Company in Singapore. Under the OMLSS division, the Group provides customers with the necessary marine logisticsrelated assets, which comprise mainly vessels, rigs, etc, as well as other marine offshore logistics and support services. The Group typically meets its customers requirements in the following ways: (i) (ii) (iii) (iv) the purchasing of assets, and the leasing of the same to its customers; the building of the assets via sub-contracting, and leasing of the same to its customers; entering into back-to-back leases of the assets; and modifying the existing assets of its customers to conform to their specifications. 13

14 The Group would supply the above assets to customers who are oil and gas companies engaged in the offshore exploration, production and development of oil and natural gas from marine sources. The revenue from this business segment is derived mainly from the charter contracts entered into with these customers, as well as the provision of offshore marine support services. In preparation for engaging in such activities, the Group will establish the appropriate management and investment framework that includes a risk assessment, financial and accounting analysis. A risk management policy and governance framework will be formulated and applied to all transactions, including appropriate due diligence processes, assessment and management of risk factors involved, risk management policies and approval processes, communication and consultation processes. 3.2 Organisational structure and key management of the Group s OMLSS business division The Group currently has in place a team comprising members, each of whom on average has more than 10 years of experience in the offshore marine logistics and support services industry. All members of the team bring with them invaluable experience in various areas of sales, operations and technical expertise. Please refer to the organisation chart of the Group s OMLSS business division and a description of the experience and qualifications of the Group s executive Director and key executives (who comprise the respective heads of department), below. In addition to the foregoing persons, the Group employs four administrative staff in the Finance and Administration Department, and 14 operations staff (including crew who operate its vessels) under the Operations & Commercial Department. The Group does not employ a significant number of temporary employees as the OMLSS Assets chartered to its customers are crewed by the customers staff and/or contractors. 14

15 Business Development Department Mui Rap Wai International Sales Manager Board of Directors Mr Chew Thiam Keng Executive Director and Chief Executive Officer Operation & Commercial Department Technical Department Poh Leong Ching Head, Operation & Commercial Guru Sharma Technical Head Han Suk Kwang Project Manager Allan Chaung Fui Fwu Technical Manager Finance & Administration Cheah Boon Pin Financial Controller 15

16 A summary of the executive Director and the key executives (who comprise the respective heads of department) of the Group s OMLSS business division is set out below. Chief Executive Officer and Executive Director Mr Chew Thiam Keng is the Executive Director of the Group appointed since 1st March Mr Chew has also been appointed as the Chief Executive Officer of the Group since 1st June With several years of experience in managing public listed companies, Mr Chew brings added value to the management of the Company as he takes overall charge of the Group s operations in strategic planning, corporate management and business development. Prior to joining Ezion, he was the Managing Director of KS Energy Services Limited and an Executive Director of Kian Ann Engineering Ltd. between 1996 and Mr Chew was also with the Development Bank of Singapore Limited for nine years serving in the areas of corporate finance and retail banking. Mr Chew graduated with a Bachelor Degree (Honours) in Mechanical Engineering from the National University of Singapore and holds a MBA from the University of Hull. Financial Controller Mr Cheah Bon Pin joined the Group in June 2007 and is responsible for all accounting, financial and taxation matters of the Group. He has more than 10 years of experience in auditing and commercial accounting. Prior to joining the Group, he was a Finance Manager of KS Energy Services Ltd. from 2004 to 2007, an Assistant Finance Manager of Acma Ltd from 2000 to 2004, and an Accounts Executive with East Elevators Pte Ltd from 1998 to He holds the ACCA accounting qualification and is a provisional Certified Public Accountant of Singapore. Technical Head (Teras Offshore Pte Ltd) Mr Guru Sharma joined the Group in August A Chartered Engineer by training, he is a Fellow Member of the Institute of Marine Engineers (India) and holds a Class 1 Competency as a Marine Engineer Officer. With more than 30 years of technical and operational experience, Guru Sharma provides a solid backbone to the Group s vessel management activities. Operation and Commercial Head (Teras Offshore Pte Ltd) Mr Poh Leong Ching (David) assumed the post of Operation and Commercial Head of the Group s OMLSS business division in August 2007 and is responsible for the day-to-day operations and deployment of the fleet of vessels. Mr Poh has more than 15 years of experience in the sales and marketing of cranes and heavy equipment. Before joining the Group, Mr Poh held the position of Marketing Manager at Tiong Woon Marine Pte Ltd, where he was in charge of the operations of their entire fleet of tugs and barges. Prior to that, he had been the Sales and Marketing Manager at Tat Hong Holdings Group. Mr Poh holds a Professional Diploma in Business from Edith Cowan University of Western Australia. International Sales Manager (Teras Offshore Pte Ltd) Mr Lawrence Mui Rap Wai joined the company in March 2007 and is responsible for the business development functions. Prior to joining the Group, he was the Head of Sales at Uni-Bulk Services Pte Ltd, a company managing a fleet of tugs and barges. Mr Mui graduated from the University of New South Wales, Australia with a Bachelor of Commerce. He also holds a Specialist Diploma in Shipping Operation and Management. 16

17 3.3 Risk factors To the best of the Directors knowledge and belief, all the risk factors that are material to the Shareholders in making an informed judgment on a change of core business are set out below. The Group could be affected by a number of risks that relate to the industry and countries in which the Group intends to operate as well as those that may generally arise from, inter alia, economic, business, market and political factors, including the risks set out herein. The risks described below are not intended to be exhaustive. (a) The OMLSS business is dependent on the shipping industry which is subject to business fluctuations, cyclical changes and the Company s ability to source for the vessels, customers and/or contracts required for the OMLSS business The customers to whom the Group provides marine logistics services are in the shipping industry, which has traditionally been affected by changes in freight and charter rates, capacity utilisation, demand and supply of vessels and shipping routes. These factors would contribute to volatility in the financial performance of this business, as these factors would affect the customers continued demand for the Group s marine logistics services. The freight and charter rates, capacity utilisation, demand and supply of vessels and shipping routes would, in turn, be affected by conditions such as trade, changes in seaborne and other transportation patterns, environmental conditions, port locations, port congestion, availability of transhipment links, and political situations in the various countries. In the event that there are any developments which negatively impact any of these conditions such that the markets in which the Group operates experience a reduced number of voyages from the vessels belonging to its customers, the demand for the Group s marine logistics services would decline and this would adversely affect the Group s financial performance. In addition, a general economic slowdown may affect business conditions and international trade in general. This may result in a reduction in shipping activities and hence a decrease in demand for the Group s marine logistics services. In addition, should the Group be unable to undertake charter contracts due to its inability to secure the requisite assets when required, or if it should be unable to acquire such assets at competitive prices, it would not be able to compete effectively in this business. (b) The OMLSS business is dependent on the state of the offshore oil and gas industry The OMLSS business is largely dependent on the state of the offshore oil and gas industry, in terms of the level of activities in the exploration, development and production of oil and natural gas. Such activities are affected by factors such as fluctuations in oil and natural gas prices and changes in capital spending by customers in the offshore oil and gas industry. The prices of oil and natural gas are volatile and are affected by supply and demand. They in turn will affect the level of capital spending by companies in the offshore oil and gas industry. Low oil and natural gas prices tend to reduce the amount of oil and natural gas that producers can produce economically. When this occurs, major oil and gas companies generally reduce their spending budgets for offshore drilling, exploration and development. Any decline in the level of activities in the offshore oil and gas industry will result in a decrease in demand for the Group s offshore support vessels and services. (c) The business will be affected by any oversupply of offshore support vessels in the industry The supply of offshore support vessels in the industry is affected by the independent assessment of demand for and supply of vessels by offshore support operators. Any overestimation of demand for offshore support vessels by offshore support operators may result in an excess supply of new vessels. This will result in lower charter rates and depress the market value of the Group s offshore support vessels. In such an event, the Group s financial performance and position will be adversely affected. 17

18 Further, competitors may also engage in aggressive pricing which will necessitate a corresponding lowering of the charter fees of the OMLSS Companies significantly in order to secure contracts, thereby lowering the Group s gross profit margins and cash flow. However, due to the capital intensive nature of the business, there are not many competitors in the industry in the geography into which the Group intends to venture. To the best of the Directors knowledge of the offshore support services industry, the following companies are involved in the business of offshore support services and are considered to be in competition with the Group: (i) (ii) (iii) (iv) Britoil Offshore Services Pte Ltd; Jaya Holdings Ltd; Labroy Shipping Pte Ltd; and Swiber Holdings Limited. The Group is not aware of any independent published industry statistics pertaining to the market share (whether by geographic location or otherwise) of the foregoing competitors or other companies in the offshore support services, trading of marine supplies and engineering businesses. As such, the Group is unable to determine the competitors market share in these industries. The principal competitive factors for the offshore support services industry include charter rates as well as the quality and availability of vessels. Importantly, the Group believes that the barriers to entry for new entrants to the offshore support services are relatively high, primarily due to the high capital investment in a fleet of offshore support vessels necessary for new competitors to be able to compete effectively with the more established players in the industry. Please refer to Strategy and Future Plans at paragraph 3.6 for more details. (d) (e) (f) The business will be affected by political risks in countries where the Group operates Wars, unsettled political conditions, social unrests, riots, terrorist attacks and government actions such as possible vessel seizure and import/export restrictions in countries where the Group may operate could potentially affect the ability of the Group s offshore support vessels to call on the ports of such countries. Such development may also affect the ability of the Group s customers to meet their payment obligations to the Group and increase insurance premium for its operations. If such risks develop into actual events, the Group s operations and profitability will be adversely affected. The vessels deployed in the OMLSS business are exposed to security threats and piracy The vessels deployed in the OMLSS business operate in regions in which ships may encounter incidences of security threats such as piracy, terrorist attacks, wars/insurgency and internal strife. If such events affect any of the vessels such that the vessels are captured, destroyed or damaged, the business operations will be affected and this may adversely impact the Group s financial results. The OMLSS business is affected by the regulations governing the Group s operations The OMLSS Companies which comprise the Group s OMLSS division, will be subject to the laws and regulations governing the shipping industry, such as the Merchant Shipping Act (Chapter 179 of Singapore), the Prevention of Pollution at Sea Act (Chapter 243 of Singapore), and the various regulations introduced by the International Maritime Organisation, including the International Safety Management Code. 18

19 In the event that any of the OMLSS Companies is unable at any time to comply with the existing regulations or any changes in such regulations, or any new regulations introduced by local or international bodies, their operations may be adversely affected if its vessels are not allowed to operate as a result. In addition, any change in or introduction of new regulations may increase the costs of operations. All these will have an adverse effect on the Group s profitability. Please refer to Government Regulations and Classification Requirements at paragraph 3.5 for more details. (g) (h) The OMLSS business is subject to general risks associated with doing businesses outside Singapore There are risks inherent in doing business overseas, which include unexpected changes in regulatory requirements, difficulties in staffing and managing foreign operations, social and political instability, fluctuations in currency exchange rates, potentially adverse tax consequences, legal uncertainties regarding liability and enforcement, changes in local laws and controls on the repatriation of capital or profits. Any of these risks could materially affect the Group s overseas operations and consequently, its financial position and profit. The OMLSS business is affected by the inherent risks associated with marine operations The operations of the Group s offshore support vessels are exposed to inherent risks of marine disasters such as oil spills, damage to and/or loss of vessels and cargo sustained in collisions, property loss, interruptions to operations caused by adverse weather conditions and mechanical failures. In the event of an oil spill or damaged or lost cargo, the Group may incur liability for containment, clean-up and salvage costs and other damages that may arise as a result. The Group may also be liable for damages sustained in collisions and wreck removal charges arising from the operations of its offshore support vessels. The Group s vessels may be involved in accidents, resulting in damage to or loss of vessels, equipment or cargo for which the Group may be exposed to claims from third parties. Any of such events will result in a reduction in turnover or increased costs. Further, there can be no assurance that all risks can be adequately insured against or that any insured sum will be paid. In the event of damages or losses in excess of the insurance coverage taken up, the Group may be required to make material compensation payments. As such, the Group s financial position will be materially and adversely affected. At any rate, events such as wars or terrorist attacks may result in substantial increases in the Group s insurance premiums, thereby affecting the Group s financial performance. The Group s vessels will also exposed to possible attacks by pirates. If such attacks occur and its vessels are captured, destroyed or damaged, its financial position will be adversely affected. (i) The OMLSS business is exposed to potential liability arising from any damage, injury or death resulting from accidents or other causes Due to the nature of the offshore support service operations, the Group will be subject to the risk of accidents occurring either to its employees or to third parties who may be involved in accidents while on its premises or vessels. These accidents may occur as a result of fire, explosions or other incidents which may result in injury to persons, death or damage to property or vessels. The Group may be liable, whether contractually or under the law, for any or all of such loss or damage or injury to or loss of life. The Group customarily obtains insurance for hull and machinery, war risk, protection and indemnity and mortgagee interest for its OMLSS Assets, which typically cover, inter alia, the hull value and/or acquisition cost of these assets. In the event of an accident is not covered by its insurance policies or the claims of which are in excess of its insurance coverage or are contested by the insurance companies, the Group s financial performance and position will be adversely affected. 19

20 (j) The OMLSS business is capital intensive and may require additional financing in the future for growth The expansion and development of this business requires significant additional capital. In particular, substantial additional funds are required if the Group wishes to expand its fleet of offshore support vessels through building or by acquiring new or used vessels. Failure to raise the required capital in the future on acceptable terms, or at all, will limit its expansion and growth which, in turn, may affect the Group s ability to compete in the offshore support services industry. In addition, Shareholders cannot be assured that the Group s profitability will increase significantly or that the Group will not incur losses after its capital investment due to a potential increase in its operating and financing costs incurred to finance the business s growth and expansion or lower than expected increase in turnover. This increase in operating and financing costs without a corresponding increase in turnover will have a negative impact on the Group s results of operations. In the event that any of the above events materialises, the Group s financial performance will be adversely affected. (k) The OMLSS business is exposed to risks arising from foreign exchange fluctuations It is anticipated that a significant portion of the revenue from the OMLSS business will be derived from charter fees which are denominated in US dollars, whereas a significant portion of the operating costs will denominated in Singapore dollars. To the extent of any mismatch between the Group s revenue and costs, the OMLSS business will be exposed to any material fluctuations in the US dollar to Singapore dollar exchange rate, which may affect its operating results. As the Company s books of accounts and records are recorded in Singapore dollars, any fluctuations in currency exchange rates will also result in exchange gains or losses arising from transactions carried out in foreign currencies as well as translations of foreign currency monetary assets and liabilities as at the balance sheet dates. All resultant exchange differences will be either reflected in the profit and loss account or foreign currency translation reserve. The Group intends to monitor foreign exchange rates and take appropriate measures to hedge its foreign currency exposure, subject to approval of the Board, if required, which may include entering into forward currency contracts. The Group will also put in place procedures to hedge its exposure to foreign currency fluctuations. Such procedures would be reviewed and approved by the Group s Audit Committee. It is expected that the Audit Committee will review any hedging transactions entered into on a half-yearly basis for, inter alia, compliance with the procedures to be established, including internal procedures on the threshold of approvals required for the entry into hedging transactions. However, the Group s policy is not to engage in any speculative foreign exchange transactions. To the extent that the Group is unable to successfully hedge its foreign currency exposure, its financial performance will be adversely affected. (l) The OMLSS business may be affected by infectious communicable diseases Typically, the crew who operate the OMLSS Assets are engaged on a contractual basis and may have travelled or worked in other areas prior to deployment upon the OMLSS Assets. If any one of these crew members is suspected to have contracted or contracts infectious communicable diseases such as the Severe Acute Respiratory Syndrome, the entire crew on the OMLSS Assets may have to be quarantined for an indeterminate period. This will disrupt the operations of the OMLSS Assets, which will have an adverse effect on the OMLSS business. In addition, the onshore staff may also be affected by such infectious communicable diseases which may result in a disruption of the OMLSS business. 20

21 (m) (n) (o) (p) (q) The OMLSS business depends on adequate insurance coverage and is susceptible to increase in insurance premium The Directors have observed that recent years have witnessed a substantial increase in insurance premiums charged by insurers in the industry, due, inter alia, to heightened security threats in the countries and regions where the customers of the OMLSS business operate. Any deterioration of the security conditions in the countries or regions where the customers of the OMLSS business operate may lead to further increases in the insurance premiums charged by insurers, or withdrawal by insurers from providing the insurance coverage. An inability to secure adequate insurance coverage for the OMLSS Assets deployed in the OMLSS business will result in the Group being unable to operate its OMLSS Assets. In consequence, the OMLSS business will be disrupted and the revenue and profits therefrom may be adversely affected. The OMLSS business is sensitive to rise and fall in fuel costs The Directors have observed that fuel costs for the vessels deployed in the OMLSS business have sharply increased in recent years. Further, there is no assurance that the Group will be able to fully pass on any increase in the fuel costs to its customers, except for vessels on bareboat charter. Thus, the Group may have to absorb any such increase in fuel costs to maintain its competitiveness. In such event, the operational expenses of the OMLSS business will increase and its profitability will be adversely affected. The OMLSS business will be dependent on key personnel for its operations and profitability The success of the business will be dependent on the commitment of its key management personnel comprising the Group s executive directors, Mr Chew Thiam Keng, and key executives (comprising the heads of department), namely, the financial controller, Mr Cheah Boon Pin, Mr Guru Sharma, Mr Poh Leong Ching (David) and Mr Lawrence Mui Rap Wai, and the Group s ability to identify, recruit, train and retain qualified employees for technical, marketing and managerial positions. There is no assurance that the Group will be able to retain its key management personnel in relation to the OMLSS business venture and nor does it have any key man insurance coverage. The loss of the Group s key management personnel in relation to the OMLSS business without suitable replacements will have an adverse impact on its operations and its future performance. The OMLSS business may be exposed to variation in interest rates It is anticipated that the working capital requirements of the OMLSS business may be met, inter alia, by the Group incurring additional bank borrowings. As at the Balance Sheet Date, the total amount of bank borrowings incurred for the OMLSS business was S$5.4 million, which attract interest rates typically at 6.8% to 7.3%. As such, any significant increase in interest rates will have a significant and adverse impact on the profitability of the OMLSS business. The OMLSS business may be exposed to risks arising from credit terms extended to customers. The OMLSS business will be exposed to payment delays and/or defaults by customers who are granted credit terms. Generally, the charter fees under the Group s current charter contracts are payable with credit terms of between 7 and 60 days. The factors which the Group takes into account in determining the credit terms granted include the assessment of the customer s creditworthiness and the size of the charter contract. The OMLSS business is exposed to credit risks due to the inherent uncertainties in the customers business environment. Such risks include political, social, legal, economic and foreign exchange risks, as well as those arising from unforeseen events or circumstances. There is hence no guarantee on the timeliness of the customers payments or whether they will be able to fulfill 21