Business Overview

6. BUSINESS OVERVIEW 6. BUSINESS OVERVIEW
6.1 Our Principal Business Activities Our Group’s business model is depicted below:­Our Business Model BusinessActivities  Upstream and  I  Downstream O&G  I  I  (  ‘\  ( Marine Transportation I and Offshore Storage  Provision of Port Marine  ·Shipbuilding. Ship Repair and Minor  ,  ofO&G  Services  Fabrication  /’  ./  ,.v·-•••
Main Customer Base

/. ‘\) (- If ‘\\I iO&G Trading O&G Marine Vessel Companies Refineries ) \ Operators’ Jl” .//! \” ~// \” j …..,/ /… ” /’ Design and I f ‘\ ( “”) ( O&G “””””00 )Ports Engineering ~ and Production \ ) Companies Companies ./ ~…~” Competitive Advantages and Key Strengths Track Record and Established Reputation  Secured Orderbook  Ownership of Marine Vessels  In-house Shipbuilding and Ship Repair
E-TR-ON;S JHigh Utilisation Approved Rate and Long [ Licences Term Contracts Additional Revenue Streams. from Different Business Activities
—-,,—–‘———-‘ * Our shipbuilding and ship repair activities serve as an internal supporting arm to our marine vessel operations. As such, there was no external revenue recorded for shipbuilding and ship repair for the FYE 31 December 2013 as well as for the five (5)­month FPE 31 May 2014. 6.1.1 Business Activities We are principally an owner and operator of marine vessels where our business is focused on marine transportation and offshore storage of O&G, and provision of port marine services. We are also supported by our shipyard which is involved in shipbuilding, ship repair and minor fabrication of steel structures. ~ Company No. 256516-W ~ 6. BUSINESS OVERVIEW (Cont’d) (a) Marine Transportation and Offshore Storage of O&G The main applications of our O&G tankers and FSU are as follows:­Products tankers are used to transport refined petroleum products from oil refineries to end-users or to another refinery for further processing including CPP and DPP; FSU is typically used to support production platforms as an offshore O&G storage facility; and LPG tankers are used to transport liquefied gases including propane, butane and other gases such as propylene and butylene, albeit in smaller concentrations. These gases are required to be transported under high pressure and/or low temperatures to maintain them in a liquid state. We also operate OSV namely fast crew boats which are primarily used to transport personnel/light cargoes between shore and platform, platform and platform and other offshore facilities. (b) Provision of Port Marine Services We are also engaged in the provision of port marine services for petrochemical and bulk and containerised ports in Malaysia. The types of port marine services that we provide at the ports include, among others:­towage services comprising towing, pushing or manoeuvring vessels; and mooring services involves securing a marine vessel to specially constructed fixtures such as piers, quays, wharfs, jetties, anchor buoys and mooring buoys. We also provide dockside mooring services where we have mooring personnel to secure vessels to floating structures and fixtures at the wharf. (c) Shipbuilding, Ship Repair and Minor Fabrication Our shipbuilding and ship repair activities serve as an internal supporting arm to our marine vessels. Shipbuilding: Some of the shipbuilding activities that we carry out include construction of hull and structure, installation of machinery, equipment and instruments, and various embedded systems on the deck of the vessel, painting and coating, as well as testing and commissioning. ­Ship repair: Our ship repair utilises the same facilities, equipment and skill set as shipbuilding. Our repair works involves inspection, replacement, modification, removal and installation, and cleaning. We also undertake minor fabrication of steel structures in our shipyard. The steel structures that we fabricate are mainly for marine vessels, for example helipad, flare stack, skids and piping systems. 52
6. BUSINESS OVERVIEW (Cont’d) We are mainly involved in the charter of various types of tankers for the transportation and offshore storage of O&G, charter of marine support vessels for the provision of port marine services mainly to O&G ports, and charter of OSV in the form of fast crew boats to transport personnel/light cargoes between shore and platform, platform and platform and other offshore facilities. As at the LPD, we have added a new customer to our portfolio, namely Northport, a bulk and containerised goods port. As at the LPD, we operate a total fleet of 31 * marine vessels in our portfolio, which comprises eight (8) O&G tankers· (inclusive of one (1) FSU), two (2) OSV and 21 marine support vessels. Out of the total 31 marine vessels that we operate, we own 22* of these marine vessels comprising six (6) O&G tankers (inclusive of one (1) FSU), two (2) OSV and 14 marine support vessels. The remaining nine (9) marine vessels are chartered in from external parties. * Excluding one (1) oil tanker that is not operational and is in the midst of being converted into a FSO. Our marine vessels are also supported· by our shipbuilding, ship repair and minor fabrication, which is a complementary business activity to our core business. operations. For the FYE 31 December 2013, the marine transportation and offshore storage of O&G represented the largest proportion of our total revenue at approximately 59.3%. This was followed by port marine services which accounted for approximately 37.2% of total revenue whilst the remaining 3.5% was contributed by minor fabrication works. For the five (5)-month FPE 31 May 2014, the marine transportation and offshore storage of O&G represented the largest proportion of our total revenue at approximately 59.5%. This was followed by port marine services which accounted for the remaining 40.5% of our total revenue. There was no external revenue contribution from minor fabrication works for the five (5)-month FPE 31 May 2014. 6.1.2 Main Customer Base Our business is mainly focused on two (2) target industry sectors namely O&G industry and the port industry. Between the FYE 31 December 2011 to 2013 and the five (5)-month FPE 31 May 2014, our customer base is in the following categories:­O&G trading companies; Ports; .Design and engineering companies; O&G refineries; Marine vessel operators; and O&G exploration and production companies. We mainly charter our O&G tankers to PETCO and PETRONAS Dagangan, the trading arm of PETRONAS, to facilitate the transportation of CPP, fuel oil and LPG. For the pastthree (3) FYE 31 December 2011, 2012, 2013 and the five (5)-month FPE 31 May 2014, revenue derived from this category of O&G trading companies accounted for approximately 64.4%, 57.8%, 43.6% and 43.8% of our total revenue, respectively. 6. BUSINESS OVERVIEW (Cont’d) We also charter our marine support vessels comprising harbour and utility tugboats, and mooring boats as part of our provision of port marine services to O&G ports as well as bulk and containerised goods port. In this respect, our customers comprise port operators as well as refinery operators that have their own privatised O&G ports. For the past three (3) FYE 31 December 2011, 2012, 2013 and the five (5)-month FPE 31 May 2014, revenue derived from port operators accounted for approximately 22.9%, 25.2%, 32.8% and 38.0% of our total revenue, respectively, which was mainly from O&G port operators, save for the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, where approximately 4.0% and 11.6% of our total revenue was contributed by bulk and containerised goods port, respectively. Further, the revenue derived from refinery operators accounted for approximately 1.3%, 4.7%, 4.4% and 2.5% of our total revenue for the past three (3) FYE 31 December 2011, 2012, 2013 and the five (5)-month FPE 31 May 2014, respectively. Our FSU, which was converted from a product tanker, is used for our five (5)-year time charter contract for an O&G process design and engineering contractor to service the marginal fields off Bintulu, Sarawak. The FSU commenced operations since August 2013 and represented approximately 9.4% (including approximately 3.5% for the same customer who engaged us to undertake minor fabrication works for our FSU) of our total revenue for the FYE 31 December 2013. For the five (5)­month FPE 31 May 2014, the said O&G process design and engineering contractor represented 12.4% of our total revenue. Our OSV, namely fast crew boats are all chartered to other marine vessel operators and O&G exploration and production companies to transport personnel/light cargoes between shore and platform, platform and platform and other offshore facilities. In addition, we also charter other vessels to this category of customers. The revenue derived from this category of customers constituted approximately 11.4%, 12.3%, 9.9% and 3.3% of our total revenue for the past three (3) FYE 31 December 2011, 2012,2013 and the five (5)-month FPE 31 May 2014, respectively.
6.1.3 Competitive Advantages and Key Strengths Our competitive advantages and key strengths provide us with the platform for future growth. This includes the following:­(a) Track Record and Established Reputation We have accumulated a track record of 19 years as an owner and operator of marine vessels since we acquired our first vessel in 1995. Since then, we have built a market reputation as one of the major operators focusing on marine transportation and offshore storage of O&G, and provision of port marine services. The strength of our reputation and track record has enabled .us to build on our existing customer base, as well as assist in securing new contracts and customers. (b) Secured Orderbook We have secured orderbook for our business operations. As at the LPD, our orderbook was approximately RM830.7 million. Upon expiration of the contract period, certain contracts contain extension options which are mostly renewable on an annual basis. The total potential contract sum of the extension options was approximately RM452.0 million. These secured orderbook provide our Group with the assurance of a recurring and contractually guaranteed source of revenue. As at the LPD, all of the marine vessels that we operate are contracted. 6. BUSINESS OVERVIEW (Cont’d) Please refer to Section 11.3.5 of this Prospectus for more details on our orderbook. (c) Ownership of Marine Vessels As at the LPD, we own a fleet of twenty-three (23) marine vessels comprising:­seven (7) O&G tankers (inclusive of one (1) FSU and one (1) oil tanker in the midst of being converted into a FSO) with an aggregated 125,489 DWT; two (2) fast crew boats; seven (7) harbour tugboats; two (2) utility tugboats; and five (5) mooring boats. The remaining nine (9) marine vessels comprising two (2) O&G tankers, and seven (7) harbour tugboats were chartered in from external parties. As at the LPD, six (6) additional harbour tugboats that are being constructed in Johor Shipyard will be completed in phases between end of 2014 to mid of 2015. Our portfolio of marine vessels has enabled us to meet the diverse needs and requirements of our customers in marine transportation, offshore storage of O&G and provision of port marine services. (d) In-house Shipbuilding and Ship Repair to Support Our Core Business Operations Since the commencement of our shipbuilding operations in 2008 at our previous shipyard in Teluk Intan, Perak, we have successfully designed and constructed a total of seven (7) vessels comprising one (1) product tanker, two (2) harbour tugboats, two (2) utility tugboats and two (2) mooring boats as at the LPD. In addition, as at the LPD, we are in the midst of building an additional six (6) tugboats at our new shipyard in Hutan Melintang, Perak, which is expected to be completed by mid of 2015. Our in-house design and shipbuilding expertise and capabilities are supported by our own team of three (3) naval architects and three (3) marine engineers as at the LPD. This capability means that we are self-reliant in terms of the construction and supply of new vessels, as well as carrying out ship repair works. Generally, our in-house shipbuilding and ship repair capabilities will benefit us in the following areas:­enable us to react quickly to favourable market conditions as we can promptly design and construct new vessels when the business opportunity arises; enable us to lower our operating costs for our marine vessels compared to using external parties for maintenance and repair; and enable us to carry out more regular maintenance of our vessels, which increases the lifespan of our marine vessels. 55 Company No. 256516-W II 6. BUSINESS OVERVIEW (Cont’d) (e) PETRONAS Approved Licences To participate in the O&G industry in Malaysia, it is mandatory that appropriate licences are obtained from PETRONAS. As at the LPD, E.A. Technique is licenced by PETRONAS to service the O&G industry in Malaysia to provide a range of services including operations of floating offshore facilities, fast crew boats, safety standby vessels, tug vessels, petroleum product tankers and LPG tankers. The need for PETRONAS approved licences also serve as a high barrier to entry for potential new entrants, which helps to ease the competitive conditions within the O&G industry in Malaysia. (f) High Utilisation Rate and Long Term Contracts for Our Marine Vessels We achieved high utilisation rates and obtained relatively long term contracts for our marine vessels. This is substantiated as follows:­As at the LPD, of the eight (8) O&G tankers that we operate, seven (7) of them have contracts averaging eight (8) years and one (1) has a contract of less than one (1) year. As at the LPD, of the twenty-one (21) marine support vessels that we operate, fifteen (15) of them have contracts averaging nine (9) years, while the remaining six (6) have contracts of one (1) or less than one (1) year. As at the LPD, our two (2) fast crew boats are generally based on spot charter of less than one (1) year, and as such they do not have long term contracts. For the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, all our operational marine vessels, with the exception of two (2) fast crew boats, achieved 100% utilisation rate. The high utilisation rate has enabled us to maximise earnings from our marine vessels. In addition, our relatively long term contracts for some of our marine vessels provide us with a stable and recurring revenue stream. Please refer to Section 6.7.1 of this Prospectus for our vessels’ utilisation rate. (g) Additional Revenue Streams from Different Business Activities As an owner and operator of marine vessels, we service the equivalent of two (2) core businesses namely marine transportation and offshore storage of O&G and the provision of port marine services. Our two (2) core business activities enable us to, not only generate additional sources of income from the charter of marine vessels but provide us with additional growth opportunities compared to having only one (1) core business. 6. BUSINESS OVERVIEW (Cont’d)
6.2 Our Products and Services 6.2.1 Overview Generally, our business activities are segmented into the following:­Marine transportation and offshore storage of O&G; Provision of port marine services; and Shipbuilding, ship repair and minor fabrication.
6.2.2 Our Fleet of Marine Vessels Our business is involved in the chartering of marine vessels for various applications, which covers the marine transportation and offshore storage of O&G, including transportation of personnel to and from offshore facilities, and the provision of port marine services. In this respect, as at the LPD, our total fleet of marine vessels is summarised as below:­
Thlrd~party Vessel.»
Marine Transportation and Offshore Storage of O&G  O&G Tankers Product tankers FSUIFSO·  7 5 2  2  9 5 2  LPG tankers  2  2  OSV  2  2  Fast crew boats  2  2  Provision of Port Marine Services  Marine Support Vessels Harbour tugboats  14 7  7 7  21 14  Utility tugboats  2  2  Mooring boats  5  5  TOTAL  23  9  32
Notes:­A The above fleet of vessels does not include those that are under construction. As at the LPD, there are six (6) harbour tugboats that are in the midst of construction by Johor Shipyard. There is one (1) oil tanker that was acquired in August 2014 and is in the midst of being converted into a FSO. Please refer to Section 11.3.2 of the Prospectus for a summary of our fleet composition as at the end of each FYE. Our marine vessels are chartered out to customers based on the following arrangements:­Time charter, where we are responsible for providing the vessel and its crew, and we operate the vessel under the charterer’s command; and Bareboat charter, where we are responsible for providing the vessel and the charterer is responsible for providing the crew to the vessel. 57 Company No. 256516-W 6. BUSINESS OVERVIEW (Cont’d) As at the LPO, with the exception of one (1) product tanker, M.T. Princess Sofea (formerly known as M.T. Nautica Kluang) that has been chartered to our customer on a bareboat charter basis, all of our marine vessels are chartered out based on time charter arrangements.
6.2.3 Applications of Our Marine Vessel Operations As at the LPO, our marine vessels are used in the following applications:­No. of Total Type of Vessel Vessels DWT Functions
O&G Tankers Product tankers 5 38,549 Transportation of oil products includes CPP (such as jet fuel, gasoline and naphtha) and DPP (such as crude oil or heavy refined oil products including fuel oil). We have four (4) CPP tankers and one (1) DPP tanker transporting fuel oil. FSU/FSO (1) 2 86,940 Offshore storage of crude oil LPG tankers 2 7,824 Transportation of LPG Sub-total 9 133,313
Fast crew boat 2 Transportation of personnel/light cargoes between shore to platforms, platform to platform and other offshore facilities Sub-total  2  Marine Support  (2)  Vessels  Harbour/utility  16  Manoeuvre and tow other marine  tugboats  vessels,  rigs or other  floating  structures  within and out  of port  areas.  Mooring boats  5  Supporting vessels for mooring to  piers, quays, wharfs, jetties, anchor  buoys and mooring buoys.  Sub-total  21  TOTAL  32
Notes:­(1) There is one (1) oil tanker that was acquired in August 2014 and is in the midst of being converted into a FSO.
(2) OWT is not applicable for these vessels.

 

6.2.4 Marine Transportation and Offshore Storage of O&G As an owner and operator of marine vessels, we currently operate the following types of O&G tankers for our marine transportation and offshore storage of O&G operations. 6. BUSINESS OVERVIEW (Cont’d)

6.2.4.1 O&G Tankers Tankers are marine vessels designed to transport liquid substances in bulk, including O&G products. Typically, tankers are used to transport extracted hydrocarbons in the O&G industry, particularly for transportation over greater distances where construction of O&G subsea pipelines is not economically viable. Tankers are generally measured in terms of deadweight tonnes (DWT), which is a measure of the total weight of cargo, cargo equipment, bunkers, provisions, water, spare parts and crew that a vessel can lift when loaded to the maximum draught. As at the LPD, our Group own five (5) product tankers, two (2) FSU/FSO (one (1) oil tanker is in the midst of being converted into a FSO) and two (2) LPG tankers, whereby both the LPG tankers are chartered in from external parties. Product Tankers FSU/FSO
M.T. FOIS Nautica Tembikai 18 47,172 TOTAL 125489
Computation is based on year built. M. T. Nautica Muar was formerly a product tanker, which was subsequently converted into a FSU in 2013. # M. T. FOIS Nautica Tembikai is an oil tanker which is in the midst of being converted into a FSO. (i) Product Tankers Our product tankers are generally used to transport refined petroleum products from oil refineries to end-users or to another refinery for further processing including:­”Clean petroleum products” (CPP) refers to light, refined oil products such as jet fuel, gasoline, gas oil and naphtha; and “Dirty petroleum products” (DPP) refers to crude oil or heavy refined oil products such as fuel oil, diesel oil and bunker oil. As at the LPD, we have four (4) CPP tankers and one (1) DPP tanker for fuel oil. 6. BUSINESS OVERVIEW (Cont’d) Details of our fleet of product tankers are as follows:­Year Built : 2008 Year Registered/acquired: 2010 Owner : E.A. Technique Flag/Current location: Malaysia Type  : Clean Product Tanker  Deadweight  : 9,965 DWT  Classification  : BV  BHP  : 4,497  LOA  : 119.9m  NBV” (RM’OOO)  : 56,071
Year Built : 2008 Year Registered/acquired: 2010 Owner : E.A. Technique Flag/Current location: Malaysia Type : Clean Product Tanker Deadweight : 9,986 DWT Classification : BV BHP:4,497 LOA : 119.9m NBV”(RM’OOO) : 54,273 Year Built : 2008 Year Registered/acquired: 2011 Owner : E.A. Technique Flag/Current location: Malaysia Type : Product Tanker (Fuel Oil) Deadweight : 9,800 DWT Classification : BV BHP : 4,496 LOA : 119.9 m NBV” (RM’OOO) : 64,644 6. BUSINESS OVERVIEW (Cont’d)
M.T. Nautica Johor Bahru Year Built : 2007 Year Registered/acquired: 2008 Owner : E.A. Technique Flag/Current location: Malaysia Type : Clean Product Tanker Deadweight : 5,500 DWT Classification : BV BHP : 3,596 LOA :85.0m NBV” (RM’OOO) : 31,682 Year Built : 1992 Year Registered/acquired: 1998 Owner : E.A. Technique Flag/Current location: Malaysia Type : Clean Product Tanker Deadweight : 3,298 DWT Classification : BV BHP : 1,825 LOA :86.0m NBV” (RM’OOO) A at 31 May 2014. ” (ii) Liquefied Petroleum Gas (LPG) Tanker LPG mainly comprises propane and butane, which are commonly used as fuels for heating purposes as well as for the operation of vehicles. Propane and butane are typically produced at petroleum or natural gas fields or manufactured during the crud~ oil refining process. LPG tankers are used to transport liquefied gases including propane, butane and other gases such as propylene and butylene, albeit in smaller concentrations. These gases are required to be transported under high pressure and/or low temperatures to maintain them in a liquid state. These petroleum gases are transformed into the liquid state for transportation as their volume is substantially reduced compared to their gaseous state. As such, the transportation of LPG in the liquid state is significantly more cost effective. As at the LPD, we operate two (2) LPG tankers, all of which are chartered in from external parties to service our customers.
6. BUSINESS OVERVIEW (Cont’d) (iii) OSV Typically, OSV are marine vessels that are primarily designed to support the upstream offshore O&G activities in exploration, development and production. As at the LPD, we currently own and operate OSV namely fast crew boats which are primarily used to transport personnel/light cargoes between shore to platform, platform to platform and other offshore facilities. The details of our fast crew boats are as follows:­
Note:­Computation is based on year built. Details of our fast crew boats are as follows:­

Year Built : 2005 Year Registered/acquired: 2007 Owner : E.A. Technique Flag/Current location: Malaysia Type : High Speed Passenger Craft Classification  : BV  .  BHP  : 4,200  LOA  : 34.0 m  NBV” (RM’OOO)  : 9,172  Year Built  : 2005
Year Registered/acquired: 2007 Owner : EA Technique Flag/Current location: Malaysia Type : High Speed Passenger Craft Classification : BV BHP : 4,200 LOA : 34.0 m NBV” (RM’OOO) : 9,578
11 A aU1 May 2014.
6. BUSINESS OVERVIEW (Cont’d) (iv) Floating Storage Unit (FSU) and Floating Storage and Offloading (FSO) FSU and FSO is a tanker-based vessel that functions as a semi-permanent offshore storage facilities for O&G. FSU and FSO are typically used to support production platforms as an offshore O&G storage facility. FSU and FSO are also sometimes used as a substitute for onshore storage of O&G, particularly to service refineries. This is because using an FSU or FSO is more expedient and requires lower capital cost compared to constructing onshore O&G storage tanks. Our FSO has special loading equipment with direct connection to the production platform, while our FSU’s loading equipment is connected to a single buoy mooring (SSM) system which has a connection to the production platform. In addition to FSU and FSO, the other common floating storage systems includes floating production, storage and offloading (FPSO) vessel. Unlike FPSO vessels, FSU and F$O do not have processing capabilities. As at the LPD, we operate one (1) FSU, namely M.T. Nautica Muar, which was converted from a product tanker in 2013. In addition, we had acquired one (1) oil tanker in August 2014, namely M.T. FOIS Nautica Tembikai which is in the midst of being converted into a FSO to service the Tembikai marginal oilfields, which is expected to commenced operations in April 2015. Details of our FSU/FSO are as follows:­
Year Built : 1992 Year Registered/acquired: 2007 Owner : E.A. Technique Flag/Current location: Malaysia Type  : Product Tanker (FSU)  Deadweight  : 39,768DWT  Classification  : BV  BHP  : 11,549  LOA  : 190.0 m  NBV” (RM’OOO)  : 56,418
As at 31 May 2014.” THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK

Company No. 256516-W 6. BUSINESS OVERVIEW (Cont’d)
Year Built : 1996 Year Registered/acquired: 2014 Owner: E.A. Technique Flag/Current location: Malaysia Type : Oil Tanker (FSO) Deadweight .: 47,172 DWT Classification : BV BHP . : 11,640 LOA : 182.5 m NBV” (RM’OOO) As at the LPD, this oil tanker is in the midst of being converted into a FSO. As at 31 May 2014.” The newly converted M.T. Nautica Muar commenced operations in August 2013, under a time charter contract to service the marginal fields namely, Kayu Manis Southeast (KMSE) and Anjung Kecil (AJK), off the coast of Bintulu, Sarawak. This marked our Group’s first foray into FSUoperations since the Group’s inception. Subsequently in July 2014, we were awarded a time charter contract for a FSO to service theTembikai marginal oilfields. 6.2.5 Port Marine Services We are also engaged in the provision of port marine services for petrochemical and bulk and containerised ports in Malaysia. Port marine services commonly refer to support services provided to marine vessels at the ports, which include, among others towage services, mooring seNices, pilotage services and security boat services. As at the LPD, we are engaged in the provision of port marine services comprising chartering of tug and mooring boats to the following ports:-. Kertih Port (O&G port); Sungai Udang Port (O&G port); LNG Regasification Terminal off Sungai Udang Port (O&G port); and Northport (bulk and containerised port). Company No. 256516­6. BUSINESS OVERVIEW (Cont’d) 6.2.5.1 Marine Support Vessels Details of the harbour and utility tugboats, and mooring boats owned by our Group are as follows:­Harbour and Utility Tugboats M.V. Nautica T . Puteri I
M.V. Nautica T . Puteri II
M.V. Nautica T . Puteri XI
M.V. Nautica Tg. Puteri XII
M.V. Nautica T . Puteri XV
M.V. Nautica T . Puteri XVI
M.V. Nautica T . Puteri XVII
M.V. Nautica T . Puteri XIX
M.V. Nautica Tg. Puteri XX

40 40 40 40 40 25 50 40 40 Note: Computation is based on year built. Mooring Boats Vess~IName ‘i. •••••••••• ./> M.V. Nautica Tg. Puteri VII  …  5  o.~  MV. Nautica Tg. Puteri VIII  5  0.78  M.V. Nautica Tg. Puteri IX  5  1.30  M.V. Nautica TQ. Puteri X  5  1.30  M.V. Nautica TQ. Puteri XVIII  2  1.10
Note: Computation is based on year built. (i) Tugboats A tugboat is a vessel that is primarily designed to manoeuvre or tow other vessels, rigs, platforms and other offshore structures including:­Towing, pushing or manoeuvring barges; Towing, pushing or manoeuvring disabled vessels; Towing, pushing or manoeuvring other vessels in harbours, through the open sea or in rivers and canals; and Towing, pushing or manoeuvring offshore structures including drilling rigs and platforms.
The tugboats that we operate are primarily harbour or utility tugboats, which are generally smaller than seagoing tugboats. As at the LPD, we own nine (9) of our total fleet of sixteen (16) tugboats. As at the LPD, all of our fleet of sixteen (16) tugboats have time charter arrangements with ports to provide towage services. 6. BUSINESS OVERVIEW (Cant’d) Details of some of our tugboats are as follows:­Year Built : 2010 Year Registered/acquired: 2012 Owner : EA Technique Flag/current location: Malaysia Type : Harbour Tug Bollard Pull : 40 Tonnes Classification : BV BHP : 3,596 LOA : 30.25 m NBVII (RM’OOO) : 14,526
Year Built : 2010 Year Registered/acquired: 2012 Owner : E.A. Technique Flag/Current location: Malaysia Type : Harbour Tug Bollard Pull : 40 Tonnes Classification : BV BHP : 3,596 LOA : 30.25m NBVII (RM’OOO) : 14,415 Year Built : 2010 Year Registered/acquired: 2012 Owner : EA Technique Flag/Current location: Malaysia Type : Utility Tug Bollard Pull : 40 Tonnes Classification : BV BHP : 3,600 LOA :30.25 m NBVII (RM’OOO) : 14,511 ~ Company No. 256516-W ~ 6. BUSINESS OVERVIEW (Cont’d) M.V. Nautica Tg. Puteri XVI  Year Built : 2010 Year Registered/acquired: 2013 Flag/Current location: Malaysia Type : Utility Tug Bollard Pull : 25 Tonnes Classification : BV BHP : 2,396 LOA : 25.0 m NBVA (RM’OOO) : 14,395
Year Built : 2011 Year Registered/acquired : 2013 Owner : EA Technique Flag/Current location: Malaysia. Type : Harbour Tug Bollard Pull : 50 Tonnes Classification : BV BHP : 3,998 LOA : 31.0 m NBVA (RM’OOO) : 15.935
A As at 31 May 2014. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK ~ Company No. 256516-W ~
6. BUSINESS OVERVIEW (Cont’d) (ii) Mooring Boats Mooring is the act of securing a marine vessel to specially constructed fixtures such as piers, quays, wharfs, jetties, anchor buoys and mooring . buoys. Mooring boats typically has lower break horse power compared to tugboats. Mooring boats are typically used for the final positioning of larger vessels or other floating structures such that they may be safely secured to fixtures. As at the LPD, we own all five (5) of our mooring boats and all these have time charter arrangements with ports for mooring services. Details of our mooring boats are as follows:­Year Built : 2009 Year Registered/acquired: 2009. Owner : E.A. Technique Flag/Current location: Malaysia Type : Mooring Boat Draft : 0.78 m Classification : N/A* BHP : 600 LOA ·:12.0m NBVII (RM’OOO) : 788
Year Built : 2009 .Year Registered/acquired: 2009 Owner : E.A.Technique Flag/Current location: Malaysia Type  : Mooring Boat  Draft  : 0.78 m  .  Classification  : N/A*  BHP  : 600  LOA  : 12.0 m  NBVII (RM’OOO)  : 785
~ Company No. 256516-W ~ 6. BUSINESS OVERVIEW (Cont’d)
YearBuilt : 2009 Year Registered/acquired: 2010 Owner : E.A. Technique Flag/Current location: Malaysia Type : Mooring Boat Draft : 1.30 m Classification : N/A* BHP : 800 LOA : 17.0m NBVA (RM’OOO) : 2,704 Year Built : 2009 Year Registered/acquired: 2010 Owner : E.A. Technique Flag/Current location: Malaysia Type : Mooring Boat Draft : 1.30 m Classification : NjA* BHP : 800 LOA :17.0m NBVA (RM’OOO) : 2,803 Year Built : 2012 Year Registered/acquired: 2013 Owner : E.A. Technique Flag/Current location: Malaysia Type· : Mooring Boat Draft : 1.10 m Classification : N/A* BHP : 500 LOA :12.0m NBVA (RM’OOO) : 630 * Not applicab/e. A As at 31 May 2014. 6. BUSINESS OVERVIEW (Cont’d) 6.2.5.2 Dockside Mooring Services We also provide dockside mooring services where we have experienced mooring personnel to secure vessels to floating structures and fixtures at the wharfs. 6.2.6 Shipbuilding, Ship Repair and Minor Fabrication . Our shipbuilding and ship repair activities serve as an internal supporting arm to our marine vessels. We also undertake minor fabrication of steel structures as the facilities, equipment and skills required for minor fabrication is essentially the same as for shipbuilding. All these activities are undertaken by our wholly-owned SUbsidiary, JohorShipyard. . 6;2.6.1 Shipbuilding Our shipbuilding and ship repair operations were previously carried out at our former shipyard in Teluk Intan, Perak, before we moved to our new· shipyard at Hutan Melintang, Perak at the end of 2013. As at the LPD, our new shipyard has a water frontage of approximately 250 metres in length, quayside water depth of approximately four (4) metres at low tide and up to seven (7) metres at high tide with a 150-metre long launching bay, which is capable to construct one (1) vessel of up to 10,000 DWTor six (6) tugboats at anyone time. . Since the commencement of our shipbuilding operations in 2008, we have successfully built seven (7) vessels which are as follows:­
Note:-Johor Shipyard was involved in the design and construction of this 9,800 DWT double hull product tanker, M. T. Nautica Maharani under a licence held by a third party. . We have design capabilities for shipbuilding as we have three (3) in-house naval architects to undertake the design function. We also commonly work with third-party naval architects to jointly come out with ship design and technical specifications. Some of the shipbuilding activities that we carry out include:­Hull and structure construction; Installation of machinery, equipment and instruments, and various embedded systems on the deck of the vessel; Painting and coating; and Testing and commissioning. 6.2.6.2 Ship Repair We have capabilities to undertake ship repair. Ship repair includes ad hoc and emergency repairs and scheduled maintenance. Ship repair utilises the same facilities, equipment and skill set as for our shipbuilding. Some of the repair works that we undertake comprise the following:­6. BUSINESS OVERVIEW (Cont’d) inspection of wiring and piping systems; inspection and maintenance of machinery and equipment; replacement of corroded or faulty structures and parts, as well as piping systems; altering and modifying parts, structures and fittings; removal and installation of parts and equipment; cleaning; sand blasting; and painting and coating.
We have the capability to carry out afloat repair, whete we conduct the repairing work whilst the vessel is afloat. Afloat repairs are usually undertaken when minor repairs or maintenance are carried out. 6.2.6.3 Minor Fabrication We also undertake minor fabrication of steel structures in our shipyard. The steel structures that we fabricate mainly are for marine vessels, for example helipad, flare stack, skids and piping systems. Our minor fabrication utilises the same facilities, equipment and skill set as those for shipbuilding. 6.3 Our Principal Markets Our principal market is in Malaysia where we are engaged in the marine transportation and offshore storage of 0&8, and port marine services. Sales from Malaysia accounted for all of our total revenue for the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014. 6.4 Seasonality We do not experience any material seasonality in our business, as our business operations are mainly based on contractual arrangements. 6.5 Types, Sources and Availability of Materials, Consumables and Services The following are our purchases of materials, consumables and services for the FYE 31 December 2013:­
Charter in vessels Sub-contracted services -Maintenance and related services -Hull fitting & fabrication -Interior and carpentry ~ Other sub-contracted services(1) Classification / survey fees Agency fees 21,278 3,797 1,855 996 693 252 1,056 529 41.4 7.4 3.6 1.9 1.3 0.5 2.1 1.0 57.1 94.1 88.0 100.0 100.0 100.0 98.0 82.0 42.9 5.9 12.0 2.0 18.0 ~ Company No. 256516-W ~ 6. BUSINESS OVERVIEW (Cont’d)
Spare parts for ship repair Steel and other metal materials -Steel plates -Angle bars, flat bars and square bars -Others(2) Machinery and equipment -Propulsion system -Navigation equipment & electrical switchboard -Firefighting system -Other machineries and equipment’3) Bunker Lubricant oil Other parts, components, and consumable materials(4) TOTAL 9,574 6,117 2,818 2,333 967 5,876 2,954 899 755 1,268 1,055 1,034 1,031 51,347″ 18.6 11.9 5.5 4.5 1.9 11.4 5.8 1.7 1.5 2.5 2.1 2.0 2.0 100.0 85.6 15.8 100.0 38.9 100.0 83.0 59.7 41.0 77.0 100.0 60.2 14.4 84.2 100.0 100.0 100.0 17.0 40.3 59.0 23.0 39.8 Notes:­The above purchases exclude electricity and other utilities.
A  Does not add-up due to rounding  (1)  Include painting, blasting and piping works  (2)  Include carbon steel pipe and galvanised steel wire  (3)  Include air conditioner, hydraulic anchor windlass, marine air compressor and other equipment  (4)  Include welding materials, hardware, valve, diesel, gases, scale model and other miscellaneous parts and
components for shipbuilding For the FYE 31 December 2013, purchases of materials, consumables and services for our business operations amounted to RM51.3 million. Overall, we sourced 60.2% of our purchases of materials, consumables and services from local suppliers whilst the remaining 39.8% were from imports. For the FYE 31 December 2013, purchases of services accounted for RM26.7 million or 51.9% of our total purchases of materials, consumables and services. Of this, 64.5% of these services were sourced locally while the remaining 35.5% were imported. The purchases of services include charter in vessels used for our operations, sub-contracted services for our shipbuilding, ship repair and minor fabrication operations, classification/survey fees and agency fees. For the FYE 31 December 2013, our purchase of services was mainly charter in vessels which accounted for 41.4% of our total purchases of materials, consumables and services. Company No. 256516-W 6. BUSINESS OVERVIEW (Cont’d) For the FYE 31 December 2013, purchases of materials and consumables accounted for RM24.7 million or 48.1 % of our total purchases of materials, consumables and services. Of this, 55.5% of these materials and consumables were sourced locally whilst the remaining 44.5% were imported. The major materials purchased by us were spare parts, steel and other metal materials, and machinery and equipment used in our shipbuilding operations. Presently, although there are ample sources of local and overseas supply of these material, the prices including steel which is a widely traded commodity, may fluctuate. As at the LPD, our Group has not experienced any shortages in the supply of materials, consumables and services mentioned above. 6.6 Technology Used We utilise the following shipbuilding technologies and multi-discipline engineering in our shipbuilding, maintenance and repair operations:­Hydrodynamic hull technology; Mechanical engineering; and Electrical engineering.
6.6.1 Hydrodynamic Hull Technology Hydrodynamic hull technology is focused on improving the performance of a vessel based on optimising variables such as water resistance and propulsive efficiency. Water resistance is dependent on the shape of the hull, surface area of the hull in contact with water, and the shape of appendages attached to the hull below the water line. Propulsion efficiency is dependent on the propeller rotating in the water, thus displacing the water and the displaced water interacting with the hull. The hull of a vessel is regarded as the most important part of the ship, as it provides buoyancy and structural strength. In this respect, hydrodynamic hull technology, which includes the design of the hull is crucial in providing stability and determining the least water resistance and propulsion efficiency of the vessel. Hydrodynamic hull technology is widely applied when designing various types of hulls depending on the required performance of the vessel in the water. 6.6.2 Mechanical Engineering We currently also apply mechanical engineering principles, and make use of specialised shipbuilding software in our shipbuilding activities. In general, mechanical engineering is the engineering discipline that involves the application of the principles of physics for the analysis, design, manufacturing and maintenance of mechanical systems. The common types of computer programs that are used in mechanical engineering, include Computer Aided Design (CAD), Computer Aided Manufacturing (CAM), Finite Element Analysis (FEA), Computational Fluid Dynamics (CFD), and Plant Design and Management System (PDMS). We currently use CAD programme in our shipbuilding operations. 6. BUSINESS OVERVIEW (Cont’d) We commonly apply the following mechanical engineering technologies for our shipbuilding:­Vessel design for all moving and stationery parts, among many others, include ship hull, engines, power transmission systems and gear boxes, propulsion systems, hydraulic systems, heating, ventilation and air conditioning systems, piping systems, pumps, installation of instruments, machinery and equipment, and other metal and non-metal parts and modules; Testing and analyses of machines, components and materials to determine their performance, strength, response to stress and other characteristics; and Integration and commissioning of all parts, machinery and equipment to ensure optimum performance. 6.6.3 Electrical Engineering We apply the principles of electrical engineering to practical purposes such as the design of various electrical systems for the construction of vessels. In general, electrical engineering is the engineering discipline that deals with the study and application of electricity and electromagnetism. Like mechanical engineering, electrical engineering is characterised by the application of knowledge to the creation of useful devices, objects and machines. We currently utilise some of the electrical engineering techniques for our shipbuilding as follows:­Control systems; Communication and navigation system; Cables and wiring; Electric generator sets; Instruments, machinery and equipment that is powered by electricity; and Lighting systems. . The knowledge of electrical engineering, expertise and skill are required for the installation, integration and commissioning of those systems and equipment. 6.7 Production Facilities and vessel operations 6.7.1 Marine Vessel Operations As our business operations involve the chartering of marine vessels to facilitate the transportation and offshore storage of O&G and the provision of port marine services, we are generally constrained by the size of our fleet that is available for charter. However, we are able to charter in vessels from third parties to meet our customers’ requirements should the need arise. We only charter-in for a specific timeframe when we do not have our own vessels to service a contract. In this respect, measures of capacity and utilisation are not viewed as a major constraint in our business. We are able to estimate the utilisation of our marine vessels based on number of days contracted. Generally, as I.ong as our vessels are contracted for the entire duration of the financial year with no gaps between the expiry of a contract to renewal, or the expiry of a contract to redeployment of the vessel to service a new contract, we will have a utilisation rate of 100%. For the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, the utilisation rates for our vessels are as follows:­~ Company No. 256516-W ~ 6. BUSINESS OVERVIEW (Cont’d)
.:::::/:.’.:<>:(:::». –:”::::-UtilisatidriRate’ .. ufm~~ti6n:Rate f9rth~ •••~ve •• (§)~··· .. “”””.,ibtFYE3f monthFPE31 ···M~~()14~Decembef2013~ 100% 100% 100% 100% 49%89% 100% 100% 100% 100% 100% 100% Utilisation rate is computed based on the number of days contracted divided by 365 days.# Utilisation rate is computed based on the number of days contracted divided by 151 days. /I Our FSU commenced operations only in August 2013. With the exception of fast crew boats which are typically chartered out on charter contracts ranging from three (3) months to less than a year, most of our vessels are fully utilised as they are under charter contracts with expiry of more than a year. Our utilisation rate is high as our fleet expansion strategy is such that we typically acquire or construct a vessel when we have secured or are confident of securing a contract. As at the LPD, all our vessels that we operate are contracted out. 6.7.2 Shipbuilding Our Hutan Melintang shipyard has the annual capacity to construct up to six (6) units of up to 35 metre harbour tugboats per year or one (1) tanker of up to 10,000 DWT per year at our launching bay. Annual capacity is dependent on the size of vessels being constructed and the period to construct a vessel. Our annual capacity computation uses the average size of a tugboat of up to 35 metres, for which our shipyard is able to accommodate six (6) units of tugboats of such a size, at anyone time. As at the LPD, we are in the midst of constructing six (6) units of harbour tugboats, which means that our shipyard is operating at full capacity. 6.7.3 Marine Vessels, Machinery and Equipment Since the commencement of our business, we have invested significantly in our marine vessels, as well as the machinery and equipment for our shipbuilding, ship repair and minor fabrication. ~ Company No. 256516-W ~ 6. BUSINESS OVERVIEW (Cont’d) As at 31 May 2014, the total net book value of our vessels and major machinery and equipment are as follows:­
Marine Vessel Operations and Services  Product tanker Harbour tugboat  6 7  206,670 90,573  FSU  56,418  .Utility tugboat  2  28,906  Crew boat  2·  18,750  Shipbuilding, Ship Repair and Minor Fabrication *  Mooring boat Cranes Forklifts  5 3 2  7,710  CNC cutting machine  Magnetic drills  Generator sets  2  103  Welding sets  50  Bending machine  1
Note:­Save for the generator sets, the remaining equipment and machinery have been fully depreciated. Our equipment and machinery comprise mainly cranes,· forklifts and CNC cutting machine which were purchased between 2007 and 2008. Subsequent to the five (5)­month FPE31 May 2014, we also purchased three (3) new forklifts. Although our equipment and machinery (save for the generator sets) have been fully depreciated for the five (5)-month FPE 31 May 2014, they are still in good condition and’ are fully functional. As such, we do not expect to purchase any new equipment and machinery as replacement. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK Company No. 256516-W ! 6. BUSINESS OVERVIEW (Cont’d) 6.8  Information on Land and Buildings 6.8.1 Summary of Properties Used  A summary of the material properties owned by our Group are set out below:­ Registered owner E.A. Technique  Tenurel _________ of lease Setiawangsa Business Freehold Suite Unit C-3A-3A, No.2, Jalan Setiawangsa 11, Taman Setiawangsa, 54200 Kuala Lumpur  Expiry  Description existing use and Commercial unit at fourth (4th ) floor of a six (6)­storey office block held for our head office  8 February 2007  Approximate age of building 7  Total built up area and land area (square feet) Built up: 6,560 Land area: Not applicable  Net book value as at 31 May 2013 (RM’OOO) 1,081  Major encumbrances Nil  THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
77 Company No. 256516-W II 6. BUSINESS OVERVIEW (Cant’d) A summary of the properties rented by our Group for our operations are set out below:­Tenant Registered owner· Address Tenure! Date of expiry of lease E.A.  Gan Siew Looi  No.  37, Untang  Sultan  Two  (2)  years  tenancy  Technique  Mohamad  1B,  Pusat  commencing  from  1  January  Perdangangan  .Bandar .·2014  and  expiring  on  31  Sultan  Suleiman,. 42000  December 2015  Port  Klang,  Selangor  Darul Ehsan
E.A. Zainal bin Abdul Unit C-5-3, Block C, Five (5) years tenancy· Technique Wahab Setiawangsa Business commencing. from 16 January Suite, Jalan Setiawangsa 2014 and expiring on 15 January 11, .Taman Setiawangsa, 2019 . 54200 Kuala Lumpur Johor Sumber Shipyard and Lot PT8436-A, Parit 21, 20 years I 30 November 2032 Shipyard Engineering Sdn Bhd Mukim Hutan Melintang with an option to renew for 36400 Daerah Hilir Perak another ten (10) years Perak Darul Ridzuan Description and existing use 1-storey office for office use Commercial unit at fifth (51n) floor of a six (6)-storey office block for our training facilities· Operations which include but not limited to ship construction, repairs and all such shipyard activities and other related activities. Presently, the land is erected with one (1) unit of two (2) storey office building and one (1) unit of single storey warehouse (“Buildings”). * Total built up area and land area (square feet) Yearly rental (RM) Built-up area: 2,002  24,000  Land area: Not applicable  Built-up area: 3,000  67,800  Land area: Not applicable  Built-up area: 13,000  168,000  Land area: 435,600
78
any No. 256516-W 6. .BUSINESS OVERVIEW (Cont’d) Note:­Our eompany obtained the building plan approval for the Buildings on 5 November 2014. The architect had subsequently issued a notice of completion on 17 November 2014 confirming that the completion of the Buildings is in accordance with the building plan approval.. Our eompany had on 19 November 2014 provided an undertaking for the fol/owing:- . (ij to take aI/ reasonable actions to obtain the certificate of completion and compliance (“CCC” in respect of the Buildings within 6ne (1) month from the date of this Prospectus; (ii) to make an announcement to Bursa Securities once the eee has been obtained and update the se when the announcement is made; and (iii) to make an announcement to Bursa Securities on the next course of action in the event the eee has not been obtained within one (1) month from the date of . the Prospectus. In the event the eee is not obtained, we will not be able to occupy the Buildings. Nevertheless, our management does not foresee any difficulty to obtain the eee as the issuance of the eee is in the final stages. . Save as disclosed above, as at the date of this Prospectus, our Group is not in breach of any law, rules and building regulations in relation to the use of the properties. Our Directors wish to highlight that, with respect to the land and buildings owned and leased by our Group,there are no environmental issues that may materially affect our Group’s operations and utilisation of the above properties. Our (PO does not involve any valuation of land and buildings. I THE. REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK I 79
6. BUSINESS OVERVIEW (Cont’d) 6.9 Our Business and Operation Processes 6.9.1 Marine Vessel Operations The process flow for our marine vessel operations is depicted iii the diagram below:­Customer IRequirement ~-. I I TenderI ~ I I Unsuccessful I I ISourcing of Vessels I I I I I~ I , I –‘Contract Tendering Tender Successful 1 Charter Agreement I .{. .{. Time Charter Bareboat Charter I Vessel Operations I .. Billing/Invoicing The process flow for our marine vessel operations begins with a request for tender from the customer, specifying their vessel requirements for a particular time frame. As such, we will need to consider the availability of our existing vessels for the specified contract time frame, and/or source vessels by acquiring/leasing from external parties or constructing new vessels. Based on the availability of vessels and other factors of consideration, a tender for the contract is submitted to our customer, specifying our price and other conditions. Upon a successful tender, a charter contract is drafted for signing between the customer and us. Based on the contract conditions, the vessels are then chartered to our customers either on a time charter or bareboat charter basis. For vessels based on time charter, we are required to supply the vessel and its crew, and operate the vessel under the customer’s requirements. Bareboat charter means that we only supply the vessel with the crew supplied by the charterer. Invoices are issued on a monthly basis for both time charter and bareboat charter. 6. BUSINESS OVERVIEW (Cont’d) 6.9.2 Shipbuilding Operations Our shipbuilding operations have been a supporting arm to our core businesses in marine transportation of O&G and port marine services. The process flow for our shipbuilding operations is depicted in the diagram below:­…_…….-.__ .__..__ ….-..__._….._-._.-.._–_.__… _..
Ship Design Approval by Classification ~ Society -+ Prodliction Planning External Survey and .Jnspection by Classification surVeyors Internal Man Power! [ Contractor! Yard Facilities 081
J [MaterialEQViPment& Machinery . Purchase ~ Vessel Construction Electrical [ ..kill” Finance J ] [O”ffiffiog J[C,_” ] qUi:jlity Control  • Launching  Witnessed by Classification Surveyors  -+  .J. Commissioning (Dock and Sea Trials)
Class and. Registration Certificate Issuanc.e .I. Delivery Our shipbuilding process begins with ship design. Our in-house naval architect starts designing the vessel incorporating technical drawings and specifications to cater for our operations and in accordance to the standards set by an independent Classification Society for the vessel class or category. Once the technical drawings and specifications are finalised, it is then submitted to the relevant Classification Society for approval. Upon approval of the design, the next step is production planning for the construction and fit-out of the vessel. A vessel construction schedule, which provides a timetable for each stage of the vessel construction process, is developed. The procurement and purchasing division receives the construction schedule, as well as the list of machinery, equipment, parts, materials and manpower required. The division also makes the necessary financial arrangements for its purchases. 6. BUSINESS OVERVIEW (Cont’d) The vessel construction phase begins with the fabrication and assembly of parts from raw materials. Vessel construction includes:­Steel plates are fabricated into larger block structures, and are then welded together to form the hull of the vessel; Once the hull of the vessel is formed, piping and electrical systems are installed; Painting of the hull and all other metal surfaces with multi-coated marine paints after surface preparation such as sand blasting is a continuous process during vessel construction; Machinery, equipment and instruments such as engines, propulsion system, generator sets, pumps, communications system, navigational system, surveillance system and air conditioning equipment are subsequently outfitted; and Wood related furnishings, fixtures and panels as well as cabins requiring carpentry work are also installed at this stage. Most of these construction works are undertaken by our sub-contractors. In addition, internal quality control procedures are undertaken throughout the construction process of the vessel. Various tests on the vessel’s hull are carried out to assess its structural integrity. These inspections and tests include X-ray welding inspections, ultrasonic testing and air pressure and hydrostatic tests. Defects are immediately rectified and retested again. External surveys and inspections are then carried out by Classification Society surveyors to ensure compliance with design and technical specifications, standards and safety. After all defects are rectified subsequent to both internal and external quality checks, the vessel construction phase is completed. At this stage, the vessel is ready for launching into the water. After its inaugural launching, the vessel is berthed for final alignment of the propeller shafts to the main engines and related gearboxes. Various systems on the vessel are then commissioned and tested. A dock trial is carried out to ensure that the vessel conforms to the design specifications and requirements, as well as the requirements of the relevant classifications and approvals. An official sea trial is also carried out in the presence of surveyors from the relevant classification society. The purpose of the official trial is to ascertain the seaworthiness and proper functioning of the vessel. This is to ensure that specifications and requirements are met, machinery and equipment are fully functional, and the vessel fully conforms to all of the requirements of the relevant classifications. A class certificate and a registration certificate for the vessel are issued upon successful completion of the dock and sea trials. These documents certify that the vessel conforms to the specifications, standards and requirements set out in various international conventions that govern the shipping industry. The vessel is finally delivered upon the issuance of the relevant class and registration certificates. 82 6. BUSINESS OVERVIEW (Cont’d) 6.10 Quality Assurance 6.10.1 Marine Vessel Operations and Services We place strong emphasis on safety management and adhere to safety management standards for our marine vessels as well as for the prevention of pollution. In this respect, we adopt the following safety management approaches and measures:­Undertake safe practices on-board and provide a safe working environment for our onshore and offshore marine crew during operations; Establish safeguards against all identified risk through continuing reviews, and implementation of corrective actions, if necessary; Continuously provide training and guidance to onshore and offshore personnel to improve safety management skills including preparing for emergency related safety and environmental protection; Undertake regular maintenance and inspection of our vessels inCluding equipment on-board for safety measures; and Adhere to operating .Iimits and parameters to comply with relevant industry rules and regulations. We are committed to HSE management in our business operations as it is an important requirement for the O&G industry where products and services provided are often critical in nature. Our internal management system includes a detailed documentation for HSE and contingency planning. In addition, we also engage external parties to carry out an annual audit on our HSE management and processes to ensure that we adhere to the necessary requirements. As at the LPD, we are in the process of embarking on our audit process for ISO:9001 quality management system, ISO:14001 for the environmental management system and OHSAS:18001 for health and safety management system. We are expected to be ISO:9001, ISO:14001 and OHSAS:18001 compliant by the end of 2014. In addition, we have all the necessary safety certificates in place for our vessels including a combination, amongst others of the following:­Cargo ship safety equipment certificates; Cargo ship safety radio certificates; Safety management certificates; Cargo ship safety construction certificates; and MARPOL certificates.; 6.10.2 Shipbuilding Operations For our shipbuilding operations, we place emphasis on the quality of the vessels that we build. Stringent quality control and measures are implemented in every aspect of our operations. We adopt the following approaches to ensure certain quality standards are maintained and adhered to:­6. BUSINESS OVERVIEW (Cont’d) In-coming materials, machinery and equipment such as metal steel plates, steel long products, pipes and engines and electrical systems and instruments will have to undergo checking prior to construction. This is to ensure that the final products meet the desired specifications and requirements. Quality control processes are undertaken during the shipbuilding and construction process to ensure that all parts and components constantly meet the desired specifications. We engage external parties to perform welding tests on our metal welded works, specifically on welding seams. Final tests are also conducted during the sea trial, where various tests including speed, engine performance, operation of all equipment and instruments are performed. Classification Society will approve the drawing design and will conduct the inspection on the vessel from the start until completion of construction, prior to issuance of class certificate (sea worthiness) for the ship. Furthermore, all the vessels that we build are in compliance with internationally recognised maritime standards, namely Bureau Veritas (BV) from France and Nippon Kaiji Kyokai (NK) from Japan. As at the LPD, we have a quality assurance team under shipbuilding, repair and maintenance operations to ensure that the quality of our vessels consistently meets the internal and external specifications and requirements. 6.11 Marketing and Distribution 6.11.1 Marketing Strategies Our marketing strategies are focused on the following areas to sustain and grow our business:­As all our revenue is derived from Malaysia for the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, our sales and promotional activities are targeted at the O&G and port industries. Within the O&G industry, our focus is on the national oil company, PETRONAS, PSC, and support service providers in Malaysia. Within the port industry, our focus is on port owners and operators. We market our key advantages as an established owner and operator of marine vessels with supporting shipbuilding capabilities and facilities, which enables us to effectively maintain our vessels to a high standard of operations, and undertake prompt repair with fast turnaround to minimise down time. We are also able to meet the charterer’s requirements through customised shipbuilding using in-house facilities and capabilities. We provide a range of solutions in marine vessels which are targeted to meet the requirements of our customers in the O&G industry and the port industry for the provision of marine transportation, offshore storage of O&G and port marine services. ~ Company No. 256516-W I] 6. BUSINESS OVERVIEW (Cont’d) We primarily use the direct distribution channel strategy to seek customers so as to maximise our profit margin. Nevertheless, where required, we also utilise intermediaries where we engage chartering brokers to help us charter out some of our vessels to maximise utilisation of our assets. We usually pay them commission based on the value of the charter contract that is successfully secured by them. The commission is payable throughout the duration of the charter contract. As at the LPD, we do not have dedicated sales and marketing staff as the nature of our business is such that we are generally invited to tenders and hence we do not undertake sales and marketing efforts on a daily basis. The sales and marketing function is jointly undertaken by our managing director, Dato’ Hak and some key management staff, namely Ir. Zulkifli bin Mohd Amin (General Manager) and Farrah Radziah Binti Dato’ fr. Abdul Hak (Commercial Manager). 6.11.2 Distribution Channel Strategy Our distribution channel strategy is based. on both direct and indirect distribution channel to maximise our market coverage:­Custom!lrs inth!l O&G Industry
Custom!lrs in th!l Port Industry

We mainly adopt a direct distribution channel strategy with customers in the O&G industry and the port industry with the exception of chartering brokers who commonly act as an intermediary to charter out our marine vessels to customers. The direct distribution approach enables us to work closely with our customers to evaluate and attain a better understanding of their requirements, which commonly serve as a feedback mechanism for continuous improvement. For the FYE 31 December 2013, we have dealings with two (2) chartering brokers and they work on a commission basis. Our length of relationship with these two (2) chartering brokers is approximately one (1) year. We do not generally engage regular chartering brokers as we are flexible in negotiating with any charter broker which provides us with the best terms for our vessels. We utilise chartering brokers particularly when our vessels are in between contracts or close to expiry to ensure that we optimise the earnings potential of all our vessels. 6. BUSINESS OVERVIEW (Cont’d) 6.12 Research and Development As we are mainly engaged in marine transportation and offshore storage of O&G and provider of port marine services, research and development (R&D) is not relevant to our business. As a result, we do not carry out any specific R&D activities and therefore do not formulate any R&D policy for our core business operations. As for our supporting shipbuilding, ship repair and minor fabrication activities, we are mainly focused on internal process improvement and quality assurance. 6.13 Insurance Insurance coverage maintained for our marine vessel operations include hull and machinery coverage, protection and indemnity coverage, war risk policy (which covers damage due to war, warlike act, civil war, act of national defence, revolution, rebellion, insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power), contractual liability coverage and trade disruption insurance. Our charter contracts also stipulate certain insurance coverage required to be maintained throughout the duration of the contracts. Protection and indemnity coverage is maintained through our membership in Protection and Indemnity Club (P&I). P&I Club members are typically shipowners, ship operators or charterers and its coverage includes loss of or damage to property, liabilities in respect of seaferers and pollution. Claims are paid through the aggregate premium paid by all members in the club. We are insured for loss of hire through trade disruption insurance which protect us from the daily loss of income arising from physical damage to our vessels in various situations. The duration of time that we are currently insured for varies according to the type of perils but is generally limited to 60 days. We maintain insurance to protect us from certain risks inclUding marine disaster, pollution, adverse weather conditions, mechanical failure, collision and navigation errors, all of which represent a threat to personnel safety, our vessels, cargo and environment. In the FYE 31 December 2011, 2012, 2013 and the five (5)-month FPE 31 May 2014, we incurred approximately RM4.7 million, RM3.9 million, RM4.6 million and RM1.8 million, respectively, on insurance policies for our vessels. 6.14 Major Licences and Permits As at the LPD, we have obtained various licences and permits for our operations. For further details of our major licences and permits, please refer to Annexure A of this Prospectus. 6.15 Major Customers As at the LPD, we have serviced the following category of customers:­O&G trading companies; Ports; Design and engineering companies; O&G refineries; Marine vessel operators; and O&G exploration and production companies. 6. . BUSINESS OVERVIEW (Cont’d) Our customers who individually contributed 10% or more to our total revenue over any of the past three (3) FYE 31 December 2011, 2012, 2013 and the five (5)-month FPE 31 May 2014 are set out below:­
The following are factors to mitigate against our dependency on the major customers above:­PETCO, Sungai Udang Port Sdn Bhd and PETROI\JAS Dagangan have been our customers for approximately 17 years, eight (8) years and 17 years respectively, which indicate a stable business relationship. This provides the basis for a sustainable and continuing business relationship. Of which, PETCO, a subsidiary of PETROI\JAS, is in the trading of crude oil and petroleum products internationally. Sungai Udang Port Sdn Bhd, a sUbsidiary of PETRONAS Maritime Services Sdn Bhd, is an O&G port in MeJaka. PETRONAS Dagangan, a listed subsidiary of PETRONAS, is in retailing and marketing of downstream O&G products. We have reduced our dependency on PETCO since 2011, which is supported by a decline in revenue contribution from approximately 64.1 % in the FYE 31 December 2011 to approximately 43.6% in the FYE 31 December 2013 and approximately 33.5% in the five (5)-month FPE 31 May 2014. In an effort to diversify our customer base, we began servicing contracts for Northport, a bulk and containerised goods port in July 2013 and MTC Engineering Sdn Bhd, a design and engineering company in 2013. Both of these companies became our major customer, with more than 10% contribution to our total revenue in the five (5)­month FPE 31 May 2014. 6. BUSINESS OVERVIEW (Cont’d) 6.16 Major Suppliers Our suppliers who individually contributed 10% or more of our total purchases of materials, consumables and seNices over any of the past three (3) FYE 31 December 2011, 2012, 2013 and the five (5)-month FPE 31 May 2014 are set out below:-
For the FYE 31 December 2011, 2012, 2013 and the five (5)-month FPE 31 May 2014, Kejora Resources Sdn Bhd represented approximately 7.6%, 9.5%, 16.4% and 12.4% of our Group’s total purchases of materials, consumables and services, respectively. Kejora Resources Sdn Bhd has been our supplier of charter in vessels for approximately four (4) years which suggests a stable business relationship. In addition, our reliance on Kejora Resources Sdn Bhd is mitigated by the fact that we can source for charter in vessels from various other suppliers, should the need arise. For the FYE 31 December 2011, 2012 and 2013, Keppel Smit Towage Pte Ltd from Singapore represented approximately 19.5%, 14.0% and 3.1 % of our Group’s total purchases of materials, consumables and seNices, respectively. Keppel Smit Towage Pte Ltd has been our supplier of charter in vessels for approximately four (4) years which suggests a stable business relationship. In addition, our reliance on Keppel Smit Towage Pte Ltd has reduced over the years and only represented approximately 3.1 % of our Group’s total purchases of materials, consumables and seNices for the FYE 31 December 2013. For the five (5)-month FPE 31 May 2014, we did not record any purchases from Keppel Smit Towage Pte Ltd. We are also able to source for vessels from various other suppliers should the need arise. For the FYE 31 December 2011, 2012, 2013 and the five (5)-month FPE 31 May 2014, Daikai Engineering Pte Ltd represented approximately 15.9%, 0.4%, 0.7% and 0.1 % of our Group’s total purchases of materials, consumables and seNices, respectively. Daikai Engineering Pte Ltd has been our supplier of spare parts, machinery and equipment for approximately four (4) years which suggests a stable business relationship. In addition, our reliance on Daikai Engineering Pte Ltd has reduced over the years and only represented approximately 0.7% and 0.1 % of our Group’s total purchases of materials, consumables and seNices for the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, respectively. We can also source for spare parts, machinery and equipment from various other suppliers should the need arise. In 2013, we began charter in vessels from Lauritzen Kosan A/S. Lauritzen Kosan A/S is a supplier for charter in vessels. For the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, Lauritzen Kosan A/S represented approximately 4.6% and 14.4% of our Group’s total purchases of materials, consumables and seNices, respectively. 88 6. BUSINESS OVERVIEW (Cont’d) 6.17 Interruptions to Business and Operations Save as disclosed below, we did not encounter any material business interruptions in the past twelve (12) months up to the LPD:­Our vessel M.T. Nautica Muar experienced an incident at the Kayu Manis oilfield (KMSE), located off Bintulu, Sarawak whereby the hull of the vessel was damaged by the charterer’s single buoy mooring system during a typhoon towards the end of last year. The damage to the vessel was repaired by the charterer at their own cost. The repairs took approximately one (1) month to complete. During the off hire period, we still invoiced our customer and hence, we did not experience any interruptions to our financial performance. As at 30 April 2014, the vessel has been mobilised to a new location, Anjung Kecil (AJK) oilfield, which is also located off Bintulu, Sarawak. 6.18 Environmental Matters Our business is subject to various environmental regulations in the jurisdictions in which our vessels operate or are registered. Please refer to Section 6.10.1 of this Prospectus for further details of these environmental regulations. We also maintain a HSE policy aimed at the prevention of damage to the environment or to property and at abating pollution and emissions from our operations. We are committed to implementing industry best practices in relation to our HSE policies. 6.19 Governing Laws and Regulations We are principally an owner and operator of marine vessels where our business is focused on marine transportation and offshore storage of oil and gas and provision of port marine services. The following are some of the licences, registrations and regUlations relating to marine transportation and supporting services for the Offshore O&G Supporting Services Industry:­6.19.1 PETRONAS Licences All companies wishing to participate in the O&G industry in Malaysia are required to obtain the necessary licences or successfully register with PETRONAS. Applicants are required to specify the scope of work for which the licence or registration is being applied for, based on a set of Standardised Work and Equipment Categories (SWEC). (Source: Independent Assessment of the Marine Transportation and Support Services of the Oil and Gas Industry in Malaysia prepared by Vital Factor) 6.19.2 Shipping Licences and Ship Registrations According to the Ministry of Transport Malaysia, companies applying for shipping licences must have at least 51% of directors. and shareholdings held by Malaysians. There are also additional conditions for the award of shipping licences. According to the Merchant Shipping Ordinance 1952, every Malaysian vessel has to be registered with the Registrar at the Port of Registry unless exempted under certain conditions. (Source: Independent Assessment of the Marine Transportation and Support Services of the Oil and Gas Industry in Malaysia prepared by Vital Factor) 6. BUSINESS OVERVIEW (Cont’d) 6.19.3 Safety Certificates for Marine Vessels According to the Merchant Shipping Ordinance 1952, no cargo ships registered in Malaysia shall proceed to sea without appropriate safety certificates. (Source: Independent Assessment of the Marine Transportation and Support Services of the Oil and Gas Industry in Malaysia prepared by VJ1al Factor) 6.19.4 Compliance with the Conventions of International Maritime Organisation (IMO) The Malaysian Government is a contracting party of the conventions adopted by the IMO and as such certain international certificates are a pre-requisite for all Malaysian ships operating in local and international waters. The MARPOL Convention is the main international convention covering prevention of pollution of the marine environment by ships from operational or accidental cases. In accordance to MARPOL Convention, an International Oil Pollution Prevention Certificate shall be issued to oil tankers with gross tonnage of 150 and above and other ships with gross tonnage of 400 and above, which are engaged in voyages to ports or offshore terminals under the jurisdiction of other parties to MARPOL. (Source: Independent Assessment of the Marine Transportation and Support Services of the Oil and Gas Industry in Malaysia prepared by Vital Factor) 6.20 Dependency on Patents, Licences, Industrial, Commercial or Financial Contracts As at the LPD, save as disclosed in Annexure A, Major Licences and Permits and Section 6.15, Major Customers, our Board is of the opinion that we are not highly dependent on any single contract/arrangement/licences. For the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, our top two (2) major customers, namely PETCO and Sungai Udang Port Sdn Bhd collectively accounted for approximately 63.0% and 53.8% of our total revenue, respectively. As at the LPD, we have entered into long term contracts with PETCO and Sungai Udang Port Sdn Bhd as set out below:­We have three (3) on-going contracts with PETCO for the marine transportation of O&G in Malaysia. PETCO is our major customer by virtue of their revenue contribution of approximately RM52.8 million and RM21.0 million or approximately 43.6% and 33.5% of our total revenue for the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, respectively. We have nine (9) on-going contracts with Sungai Udang Port Sdn Bhd for the provision of port marine services in Malaysia. Sungai Udang Port Sdn Bhd is also our major customer by virtue of revenue contribution of approximately RM23.5 million and RM12.7 million or approximately 19.4% and 20.3% of our total revenue for the FYE 31 December 2013 and the five (5)-month FPE 31 May 2014, respectively. 6. BUSINESS OVERVIEW (Cont’d) The following are some of the salient terms commonly set out in our charter contracts:­6.20.1 Scope of Work, Charter Period and Location The scope of work set out in each contract may vary depending on the type of vessel being chartered and the technical specification requested by the charterer. For example, a product tanker is chartered for carriage/ transportation of petroleum products in bulk while a mooring boat contract would include berthing and un-berthing services of large vessels. Most of our vessels are chartered out based on a charter period ranging from six (6) months to ten (10) years (excluding optional extension periods) or one (1) to thirteen (13) years (including optional extension periods), with the exception of fast crew boats, which are for periods ranging from three (3) months to one (1) year. Some contracts contain optional extension period ranging from six (6) months to three (3) years, exercisable upon mutual agreement by both parties. The location or geographical areas where the services are to be performed are also. stated in the contract. 6.20.2 Charter Rate Our customers generally require our vessels to be available continuously on a 24­hour basis during the charter period. The amount payable to us is generally calculated based on the OCR as set out in the contract. In the event, the vessel sustains damages (e.g. collision, major engine damages, etc.) the charterer will off hire the vessel. However, we can SUbstitute another vessel with the same OCR during this off hire period. We are also covered by the loss of hire coverage by our insurers during this off hire period for the same amount of the OCR. Our payment term varies from fourteen (14) days to 30 days from the date of our invoices. 6.20.3 Condition of Vessel and Performance Warranty Our charter contracts typically specify that the vessel has to be maintained diligently in such a state to achieve the most economic performance with full and efficient complement of master, officers and crew. The vessel is also subject to periodic audit by the charterer. The charter contracts may also contain performance warranty clauses of which the vessels chartered are expected to meet certain minimum performance requirements throughout the period of the charter contract. Under the charter contracts, the vessels are required to maintain a minimum average speed on a guaranteed daily consumption of bunker. In addition, our product tankers must also be able to discharge cargo at a minimum average rate while maintaining a certain pressure. In the event our vessels fail to perform as guaranteed, the charterers shall be compensated accordingly upon mutual agreement by both parties. 6.20.4 Cost Save for bareboat charters, we are typically responsible for the operating costs of our vessels (other than fuel costs) such as crew wages, vessel maintenance, dry dock expenses, insurance, food provisions and spare parts. We are also generally responsible for all taxes for which we are liable by reason of performing our contracts, as well as for import or export licence fees and stamp duty. Our charter parties do not usually provide adjustments to the OCR on account of our costs increasing or decreasing unless mutually agreed on a case-by-case basis. 6. BUSINESS OVERVIEW (Cont’d) 6.20.5 Termination In circumstances where operations are interrupted or suspended for a specific period of time due to our fault or force majeure, our customers usually have the right to terminate the contract. Typically, our customers also have the right to terminate our contracts upon the occurrence of certain other circumstances such as unsatisfactory performance by us, loss, destruction or requisition of the vessel or our insolvency or winding-up or equivalent event. We have never encountered any situation where a contract was terminated prior to the completion. 6.21 Future Plans, Strategies and Prospects Future Plans and Strategies Our future plans are focused in the following key areas as depicted in the figure below:­
:OSV,..FastCi’ew Boats Tugboats
Construction ofAcqiJIslt16il ofVessels Expansion of to>SeNJcethe’OBiG Vessels for Port Marine Existing Shipbuilding Facility .. IO(il!sfty Services (;onstruction ofSlipway. New Harbour Drydock Facilities. and .Tugboats Workshop Building Mditlonal Marine Vessels
New BuSIOessNeilture Provision of MargInal ()1If1eld Solutions 6.21.1 Acquisition of Vessels to Service the O&G Industry Part of our future plans is to expand on our fleet of marine vessels to further address opportunities in the O&G industry in Malaysia. The Oil, Gas and Energy segment is one of the 12 National Key Economic Areas (NKEAs), which is aimed at achieving an AAGR of 5% annually from 2010 to 2020. This segment is expected to deliver RM131.4 billion in gross national income (GI\lI) impact by 2020. Furthermore, the following statistics on the production of O&G and export of petroleum crude oil and petroleum products in Malaysia indicate continuing activities which would create opportunities for marine transportation and/or storage of O&G: In 2013, the production of crude oil and condensates decreased by 2.7% to approximately 570,000 BOE per day, while the production of natural gas increased by 4.7% to reach 6.3 billion standard cubic feet per day. 6. BUSINESS OVERVIEW (Cont’d) In 2013, the export value of petroleum crude oil and crude oil obtained from bituminous minerals was RM32.2 billion, while the export values of natural gas, and liquefied propane and butane were RM59.2 billion and RMO.9 billion respectively. During the same year, export value of refined petroleum products grew by 28.6% to reach RM61.3 billion. (Source: Independent Assessment of the Offshore O&G Supporting Services Industry in Malaysia prepared by Vital Factor) In light of the above, as at the LPD, we are looking to acquire the following types of marine vessels to cater for future business opportunities and expansion in the O&G industry which will include the following:­Marine Transportation and Offshore Storage of O&G Two (2) units of fast crew boats; Port Marine services Two (2) units of tugboats. which is expected to be funded through internally generated funds and/or bank borrowings. As at the LPD, the timeline for the acquisition of the above vessels are set out below:­Year of Acquisition New Marine Vessels End of 2014 2015
6.21.2 Construction of Vessels for Port Marine Services (a) Construction of Harbour Tugboats In 2013, we secured a contract from Northport for the construction, operation and charter of six (6) z-drive propeller tugboats with an estimated contract value of approximately RM260 million for a ten (10)-year period with the option to extend for an additional two (2) years. This contract commenced operations in the same year of 2013 and is currently being serviced by three (3) of our own vessels and another three (3) which we chartered in from external parties. We are currently in the midst of constructing six (6) tugboats where we expect to complete construction and deliver in phases from end of 2014 up to mid of 2015. Four (4) of these new vessels will replace the existing vessels that are currently servicing the Northport contract and the remaining two (2) will replace our existing vessels that are servicing Kertih Port. The remaining capital commitments on the construction of the six (6) new tugboats are approximately RM18.21 million as at the LPD which will be funded through internally generated funds and/or bank borrowings. 6. BUSINESS OVERVIEW (Cont’d) (b) Construction of Additional Marine Vessels In June 2014, we were awarded a new contract to operate four (4) tugboats with a contract sum of approximately RM28.16 million for eighteen (18) months with the option to extend for an additional sixty (60) months. This contract is expected to commence in January 2016. In this respect, as at the LPD, we intend to construct two (2) additional units of approximately 39­metre tugboats with bollard pull of 60 tonnes to service this new contract. The remaining two (2) tugboats will be serviced by our existing vessels and/or new vessels to be acquired from third party. We expect to commence construction at the end of 2014. The proposed construction is estimated at approximately RM44.0 million and we will be utilising internally generated funds and/or bank borrowings for the construction of these new vessels. 6.21.3 Expansion of Shipyard Facilities Our existing shipyard is currently equipped with a 4,000 tonnes weightage capacity launching bay which is capable to launch up to six (6) units of up to 35-metre tugboats. We intend to expand our shipbuilding facilities to include the following:­one (1) dry dock to handle dry docking, ship repairs and maintenance for vessels of up to 120 metres in length or 10,000 DWT; and one (1) slipway which is capable to handle up to 4,000 tonnes weightage capacity for vessel construction/repairs. The construction of the new dry dock and slipway at our current shipyard is expected to commence by first quarter of 2015 and completed by mid 2016. For the above purposes, we have earmarked RM10.0 million from our IPO proceeds to fund this expansion with any remaining cost to be incurred will be funded by internally generated funds and/or bank borrowings. . Indicatively, over the next two (2) to three (3) years, we plan to invest approximately RM20.0 million to build amongst others, the above dry dock and slipway as well as other related facilities including the development of roadworks, electricity system, storage system and others such as safety and security system and improvement works on our shipyard. 6.21.4 New Business Venture in Provision of Marginal Oilfield Solutions As part of our business diversification plans, we intend to venture into the provision of marginal oilfield solutions, focusing on light weight platform system and front-end engineering and design (“FEED”) services for the development of marginal oilfields in Malaysia. The Malaysian Government had identified the development of small or marginal oilfields, which are fields that contain reserves of 30 million BOE or less, as one of the strategies for addressing plateauing or declining output at mature oil and gas fields. As at December 2013, there were approximately 100 marginal fields in Malaysia (Source: Independent Assessment of the Offshore O&G Supporting Services Industry in Malaysia prepared by Vital Factor) Given the potential demand for marginal oilfield solutions, we believe this new business venture presents us with opportunities for growth. 94 6. BUSINESS OVERVIEW (Cont’d) FEED service focuses on offshore O&G structures including topsides and substructures of platforms, and production floating structures. Some of the activities under the FEED services that we intend to provide include:­engineering coordination; structural engineering; process engineering; mechanical and piping engineering; electrical and instrumentation engineering; and others include procurement, cost and planning, safety and regulatory affairs, and other engineering services. This new business venture is still at the planning stage and may be carried out through business acquisition, business alliance or forming a new business unit as and when the opportunity arises. If via business acquisition, we may acquire Marginal Field Solutions Sdn Bhd (“Marginal Field”), a company that is 51 % owned by Dato’ Hak. The acquisition of Marginal Field could possibly materialise in the next one (1) to two (2) years, should Marginal Field secures new contracts and reach sufficient scale to warrant an acquisition. However, this would be subject to further assessment on the business and expertise of Marginal Field and the intention of the other minority shareholders of Marginal Field to sell the business to E.A. Technique. In this respect, we plan to utilise our internally generated funds and bank borrowings to fund this new business. 6.21.5 Prospects We are confident of the outlook and future prospects of our business taking into consideration the following factors:­Good track record and financial performance; Competitive advantages and key strengths; Future plans to provide sustainable growth; and Industry prospects and outlook. (a) Good track record and financial performance Our good track record and financial performance is reflected by our financial achievements from the FYE 31 December 2011 to 2013 as follows:­Our revenue achieved AAGR of 12.3%; Our PBT* achieved AAGR of 34.5%; Our PAT* achieved AAGR of 49.9%; Our average GP margin was 31.6%; Our average PBr margin was 18.1 %; and Our average PAr margin was 14.5%. Note:­For the FYE 31 December 2013, we excluded gain on disposal of an associate in the calculation above. As at the LPD, we have secured a total cumulative order book of approximately RM1.283 billion (including optional extensions of approximately RM452.0 million). This will provide us with the platform for continuing business success and growth. 95 ~ Company No. 256516-W ~ 6. BUSINESS OVERVIEW (Cont’d) (b) Competitive Advantages and Key Strengths Our competitive advantages and key strengths will provide a platform for continuing growth and success. This includes the following:­Track record and established reputation; Secured orderbook; Ownership of marine vessels; In-house shipbuilding, repair and maintenance; PETRONAS Approved Licences; High utilisation rate and long term contracts; and Additional revenue stream from different business activities. Further details of our competitive advantages are set out in Section 6.1.3 of the Prospectus. (c) Future Plans to Provide Sustainable Growth We have in place a sound business, and moving forward an expansion strategy focused in the following areas:­Acquisition and construction of vessels for marine transportation and port marine services to help us broaden our asset portfolio by owning a diversified fleet of marine vessels for the O&G industry. Our fleet expansion strategy is such that we typically acquire or construct a vessel when we have secured or are confident of securing a contract; Expansion of shipbuilding facilities which will enable us to increase and upgrade our shipbuilding capabilities; and New business venture in the provision of marginal oilfield solutions. As at the LPD, taking into consideration the number of vessels we plan to acquire under Section 6.21.1 of this Prospectus and vessels under construction/conversion and to be constructed under Section 6.21.2 of this Prospectus, the number of vessels owned will increase from 23 vessels to 35 vessels. Pending the acquisition and construction of these vessels, we will source for charter in vessels, should the need arise. (d) Industry Prospects and Outlook The prospects of the marine transportation and support services segment of the O&G industry are closely tied to the overall prospects of the local as well as the global O&G industry. Since end of June 2014, crude oil prices had started to decline. By late October 2014 the price of crude oil had fallen to approximately USD85 per barrel for Brent Crude Oil and USD80 per barrel for West Texas Intermediate Crude Oil. Among others, the decline in the price of crude oil was attributed to the increase in supply from the US from its production of shale oil, combined with continuing subdued demand from the European Union and China. If the price of crude oil continues to decline and is sustained at a depressed price, operators and supporting service providers to the upstream exploration and production sectors of the oil and gas industry may find that it is not economical to either explore or produce oil and gas. 6. BUSINESS OVERVIEW (Cont’d) A drop in activities in the upstream of the oil and gas industry would have a cascading effect on all other sectors of the oil and gas industry including, among others, the marine transportation and supporting services segment of the oil and gas industry. However, marine transportation that are focused on product tankers plying coastal waters including operators such as EA Technique Group, may be less affected as its product tankers are mainly carrying refined petroleum products for domestic consumption. In addition, marine services that are serving non-oil and gas related sectors, for example port operations, would be less affected by the drop in activities in the oil and gas industry. Nevertheless, the prospects and outlook of the marine transportation and support services in the longer term are expected to be favourable based on the following factors: Global economic conditions are forecasted to continue growing, which would contribute positively to the oil and gas industry, including the marine transportation and support services segment; Petroleum prices are forecasted to grow in the longer term, whereby increases in petroleum prices are likely to drive oil exploration, development and production activities which would create demand for marine transportation and support services segment of the O&G industry; World supply and demand, as well as level of oil and gas reserves, where growth on these dependency factors will drive the demand for marine transportation and support services segment of the O&G industry. Within the overall global O&G industry, Malaysia as an O&G producing country has implemented developments and initiatives that would drive the growth of the O&G industry within the country. These developments and initiatives include, among others: Malaysia’s exploration and production expenditure, represented by PETRONAS’ capital expenditure registered an MGR of 8.5% between 2008 and 2013; development of marginal fields through innovative solutions, which is part of the Economic Transformation Programme (ETP) for the O&G sector, aimed at achieving an AAGR of 5% annually from 2010 to 2020; the development of an O&G hub in Southern Johor within Iskandar Malaysia including:-Pengerang Deepwater Petroleum Terminal; Tanjung Langsat Petroleum Terminal (TLPT); Tanjung Bin Petroleum Terminal (TBPT); Pengerang Integrated Petroleum Complex (PIPC); and Tanjung Langsat Petroleum Support Services. The increase in the refining capacity and storage capacity would continue to provide opportunities to O&G supporting services providers. (Please refer to Section 7 in the Independent Assessment of the Marine Transportation and Support Services of the O&G Industry in Malaysia prepared by Vital Factor)

 

 

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