Business Overview

5. INFORMATION ON OUR GROUP 5. INFORMATION ON OUR GROUP HISTORY AND BUSINESS Our Company was incorporated in Malaysia under the Act on 8 May 2008 as a private limited company under the name Handal Resources Sdn Bhd. Our Company was sUbsequently converted to a public limited company on 15 May 2008. HRB was incorporated to facilitate our Listing and commenced business as an investment holding company, following the Acquisition of HOSSB on 6 May 2009. The history of our Group dates back to 1988 when HESB was established by Dato’ Mohsin Abdul Halim to operate as an agent, to supply certain makes of offshore cranes manufactured overseas. As some of the oil platforms and equipments begun to age in the local oil and gas industry, HESB was contracted in 1995 by ExxonMobil to remove and recondition cranes which had degenerated or had been reduced to less than half its optimal capacity along with deteriorating safety standards. Prior to 1995, none of the local companies in Malaysia had performed or provided such services to the local oil and gas industry. While successfully reconditioning multiple offshore cranes for ExxonMobil, HESS had simultaneously set out to establish themselves as a local manufacturer of offshore pedestal cranes. In an effort to modernise their eXisting fleet of cranes and to maintain and improve their operating and lifting capacity, PETRONAS Carigali had in year 2000 awarded HESS a service contract similar to that awarded by ExxonMobil. In line with PETRONAS’ aspiration to develop Bumiputera-owned companies in the oil and gas industry, HESB was restructured in 2001 via the injection of all our pedestal crane assets and personnel into HOSSS. Having started as a crane services company, we are experienced in providing crane related services to the oil and gas industry. Our Group has removed and reconditioned fifty seven (57) offshore cranes from various offshore platforms. This entails providing our own cranes to be utilised in the absence of the platform crane as well as delivering the crane to the customer with not only the latest technology but also a brand new crane warranty. As our experience broadened we have evolved from reconditioning crane parts and components to a fully integrated offshore crane service provider and manufacturer. We began fabricating our cranes subsequent to requests from customers. As at the LPD, our Group stands out with zero defects on all fourteen (14) new cranes delivered and zero warranty call outs on fifty seven (57) cranes reconditioned. Presently, our Group is principally involved in the following core activities:­(a) provision of overhaul and maintenance services;
(b) manufacturing or fabrication of new offshore pedestal cranes;
(c) other services such as supply of manpower and parts;
(d) offshore crane rental business; and
(e) workover projects lifting solutions.

Our existing corporate Group structure is as follows:­HRB (Holding Company)
~ 100% HOSSB (Subsidiary) 5. INFORMATION ON OUR GROUP (Cont’d) 5.2 SHARE CAPITAL As at the LPD, we have an authorised share capital of RM50,000,000, comprising 100,000,000 ordinary shares of RMO.50 each and an issued and paid-up share capital of RM35,750,000 comprising 71,500,000 ordinary shares of RMO.50 each. The details of the changes in our issued and paid-up share capital since incorporation until the date of this Prospectus are as follows:­
8 May 2008  4  Cash I Subscribers’ Shares  2  6 May 2009  71,499,996  Shares issued pursuant to the  35,750,000  Acquisition

5.3 SUBSIDIARY AND ASSOCIATE COMPANIES We are an investment holding company with only one (1) subsidiary as set out below:­
Further details on the subsidiary of HRB are set out in Section 5.6 of this Prospectus. As at the LPD, we do not have any associate companies or other subsidiaries.
5.4 LOCATION OF OPERATIONS Our Group’s operational and administrative facility is located as follows:­” .. HOSSB Corporate Office No. 16C, Jalan 51A1225 46100 Petaling Jaya Selangor Darul Ehsan Principal place of business 4 Kawasan Lapang Fasa II Kemaman Supply Base 24007 Kemaman Terengganu Darullman Apart from the above mentioned three (3) acre yard located in the Kemaman Supply Base, our Group has also purchased a new ten (10) acre yard located at the Teluk Kalong industrial area, near our existing yard, in the vicinity of the Kemaman Supply Base. 32

5. INFORMATION ON OUR GROUP (Cont’d) The new ten (10) acre yard is expected to be completed by the second quarter of 2009 and has the capacity to manufacture, service, maintain and overhaul an average of thirty (30) offshore cranes per annum as compared to our Group’s current plant capacity of approximately twelve (12) cranes per annum. For further details of the new yard, please refer to Section 9.1 of this Prospectus. 5.5 KEY ACHIEVEMENTS I MILESTONES I AWARDS Our Group has received the following awards in the past:­
2008  Gold Award  ExxonMobil  In recognition Excellence in 2007  of  Safety  2008  API  2C-0086  American Institute  Petroleum  In recognition of our manufacturing processes and quality systems. Authorizing HOSSB to affix the API monogram to our products.  2006  Gold Award  ExxonMobil  In recognition Excellence in 2006  of  Safety
2005 2004/2005 2004 2004 2004 2003/2004 2002 2001 2000* 1999* 1998* Letter of Appreciation Bronze Award Gold Award Certificate of Appreciation Letter of Recognition Gold Award Gold Star Award ExxonMobil Award ExxonMobil Award Esso Production Malaysia Inc. (“EPMI”) Esso Safety Award EPMI Esso Safety Award Sarawak Shell Berhad PETRONAS Carigali ExxonMobil PETRONAS Carigali PETRONAS Carigali ExxonMobil ExxonMobil ExxonMobil ExxonMobil ExxonMobil ExxonMobil In recognition of commitment shown during the execution of work done at the F23 Rejuvenation Project In recognition of excellent HSE performance In recognition of Safety Excellence in 2004 For participation in scheduled plant shutdown activities at PMO offshore platforms For job performance at Duyong B with minimal impact to platform operations, in a productive and efficient manner and without any HSE related accident In recognition of Safety Excellence in 2003/2004 In recognition of Safety Excellence in 2002 In recognition of Safety Achievement for 2001 In recognition of Safety Achievement for 2000
In recognition of Safety Achievement for 1999 In recognition of Safety Achievement for 1998 (High Risk Category) 5. INFORMATION ON OUR GROUP (Cont’d) Ye~I” ………•.•  tYP~OfAwar~’ . .c. .:>,.r:’  .. ~\’Var<;lec;l !)¥ ….., , .  [)e~criRtior:tc’> ….. :i’, ‘:i .•·,.  1997*  EPMI Esso Safety Award  ExxonMobii  In recognition of Safety Achievement for 1997 (High Risk Category)  1996*  Safety Award  EPMI  In recognition of safety achievement (Medium Risk Category)  1995*  EPMI Esso Safety Award  ExxonMobil  In recognition of Safety Achievement for 1995 (Medium Risk Category Offshore Division)
Note:­Awards received under HESB.
5.6 INFORMATION ON SUBSIDIARY Information on HOSSB (a) History and Business HOSSB was incorporated in Malaysia on 21 August 2001 under the Act as a private limited company under the name of Handal Off-Shore Services Sdn Bhd. It subsequently assumed its present name on 26 October 2001. HOSSB is principally involved in the provision of overhaul and maintenance services, manufacturing or fabrication of new offshore pedestal cranes and other services such as supply of manpower and parts. HOSSB commenced business on 1 july 2002. (b) Share Capital
Authorised 5,000,000 1.00 5,000,000 Issued and paid-up 4,000,000 1.00 4,000,000
Details of the changes in the issued and paid-up share capital of HOSSB since its date of incorporation are as follows:­
21.08.2001  2  1.00  Cash  2  08.04.2002  900,000  1.00  Cash  900,002  01.10.2002  300,000  1.00  Cash  1,200,002  26.11.2002  1,199,998  1.00  Otherwise than cash  2,400,000  21.02.2006  100,000  1.00  Cash  2,500,000  18.09.2006  1,500,000  1.00  Bonus issue  4,000,000

 

5. INFORMATION ON OUR GROUP (Cont’d) (c) Substantial Shareholder HOSSB is our Wholly-owned subsidiary. (d) Subsidiary and Associate Companies HOSSB does not have any subsidiaries or associate companies. 5.7 INFORMATION ON LISTING SCHEME In conjunction with, and as an integral part of our listing of and quotation for the entire issued and paid-up share capital of our Company on the Second Board of Bursa Securities, the details of our Listing Scheme are as follows:­(i) Share Transfer On 6 June 2008, Dato’ Mohsin Abdul Halim, Zahari bin Hamzah, Mallek Rizal bin Mohsin and Joel Emanuel Heaney entered into a multi-party share transfer agreement to re­organise their respective shareholdings in HOSSB, and to transfer part of Zahari bin Hamzah and Mallek Rizal bin Mohsin’s interest in HOSSB to Dato’ Mohsin Abdul Halim and Joel Emanuel Heaney, a long time serving and key management of HOSSB. The effects of the Share Transfer on the shareholdings of HOSSB are set out below:-
Dato’ Mohsin Abdul Halim  1,152,000  28.80  1,328,000  33.20  Zahari bin Hamzah  1,696,000  42.40  1,408,000  35.20  Mallek Rizal bin Mohsin  1,152,000  28.80  400,000  10.00  Joel Emanuel Heaney  864,000  21.60  TOTAL  4,000,000  100.00  4,000,000  100.00
The Share Transfer was completed on 5 May 2009. (ii) Acquisition On 6 June 2008, HRB entered into a conditional share sale agreement with the vendors of HOSSB for the acquisition of the entire equity interest in HOSSB, comprising 4,000,000 ordinary shares of RM1.00 each, for a purchase consideration of RM35,749,998, which was fully satisfied by the issuance of 71,499,996 HRB Shares to the respective vendors of HOSSB at an issue price of RMO.50 per HRB Share. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
5. INFORMATION ON OUR GROUP (Cont’d) The share sale agreement was conditional upon the completion of the Share Transfer. The Acquisition resulted in the following vendors exchanging their respective stakes in HOSSB for a proportionate stake in HRB as set out below:­, Shareholding in,
…………. ···.··f·7·;Fs~~f£~~~~:;~;;{,+.
·’>(.f\jo. of .., . ·>HOSSB .. ,
‘shares'” .%, Dato’ Mohsin Abdul Halim 1,328,000 33.20 23,737,999 11,869,000 33.20 Zahari bin Hamzah 1,408,000 35.20 25,167,999 12,583,999 35.20 Mallek Rizal bin Mohsin 400,000 10.00 7,149,999 3,574,999 10.00 Joel Emanuel Heaney 864,000 21.60 15,443,999 7,722,000 21.60 Total 4,000,000 100.00 71,499,996 35,749,998 100.00
Note:­# After the completion of the Acquisition The purchase consideration of RM35,749,998 for the Acquisition was arrived at based on a willing-buyer willing-seller basis after taking into consideration, amongst other factors, a PE Multiple of approximately 3.86 times based on the audited PAT of HOSSB for the FYE 31 December 2008 of RM9,252,401 as well as the growth and future prospects of HOSSB in the oil and gas industry. The Acquisition was completed on 6 May 2009. (iii) Offer for Sale Upon completion of the Acquisition and in conjunction with the Listing, 6,000,000 HRB Shares representing 6.67% of the enlarged issued and paid-up share capital of HRB will be offered to identified public investprs at an Offer Price of RMO.72 per share subject to the terms and conditions of this Prospectus as follows:-
Dato’ Mohsin Abdul Halim  1,992,000  2.21  1,434,240  Zahari bin Hamzah  2,112,000  2.35  1,520,640  Mallek Rizal bin Mohsin  600,000  0.67  432,000  Joel Emanuel Heaney  1,296,000  1.44  933,120  Total  6,000,000  6.67  4,320,000
Pursuant to the Offer for Sale, the Offerors are expected to raise RM4.32 million based on the Offer Price of RMO.72 per Share. (iv) Public Issue In conjunction with the Listing, HRB will undertake a public issue of 18,500,000 new HRB Shares, representing 20.56% of the enlarged issued and paid-up share capital of HRB, at an Issue Price of RMO.72 per Share to be allocated in the following manner:­(a) 6,000,000 HRB Shares, representing 6.67% of the enlarged issued and paid-up share capital to be made available for application by the Malaysian pUblic, of which 30% is to be set aside for Bumiputera investors; 5. INFORMATION ON OUR GROUP (Cont’d) (b) 4,000,000 HRB Shares, representing 4.44% of the enlarged issued and paid-up share capital to be reserved for eligible directors, employees and persons who have contributed to the success of our Group; and
(c) 8,500,000 HRB Shares, representing 9.44% of the enlarged issued and paid-up share capital has been allocated to be placed out to identified investors.

All the Issue Shares and Offer Shares shall rank pari passu in all respects with the existing issued and paid-up shares of the Company, including the voting rights and rights to all dividends and distributions that may be declared, made or paid sUbsequent to the date of the allotment thereof. (v) Listing The admission and the listing of and quotation for our entire enlarged issued and paid-up share capital of RM45,OOO,OOO comprising of 90,000,000 HRB Shares on the Second Board of Bursa Securities will be sought.
THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR GROUP (Cont’d)
5.8 BUSINESS OVERVIEW 5.8.1 Our Services and Products Our Group is a fUlly integrated offshore crane service and manufacturing provider specialising in the oil and gas industry. The principal activities of our Group include the following:­(i) Provision of overhaul and maintenance services .:. Crane reconditioning Our Group has a proven track record for on-site structural inspections, crane removal and crane reconditioning. As at the LPD, we have reconditioned fifty seven (57) cranes with zero warranty call-outs. Crane reconditioning involves the overhaul of degenerated cranes with deteriorating safety standards. The reconditioned cranes delivered to the clients are provided with a new crane warranty. We also provide on-site crane upgrades, statistical analysis and structural modifications which meets the API and original manufacturer design specifications. The cranes are reconditioned to exceed the manufacturer’s original specification and to comply with API2C standards. Cranes reconditioned can also incorporate off-the-shelf or customised upgrades to enhance safety features, capitalize on modern efficiency gains or improve the ease of operation. These upgraded services and systems are designed and supplied by HOSSB. The availability of improvements in safety systems, new condition monitoring systems offering easier maintenance and changes to the role of the crane on offshore installation can facilitate mid-life modification or upgrade for cranes. Crane reconditioning saves customers the cost of replacing the crane by devising and implementing comprehensive crane system upgrade programs. As diesel, electric and hydraulic components become more efficient, cranes are able to provide the same or heavier lifting capacities as when new, while consuming less energy. These upgrades and/or modernisations translate into cost savings and efficiencies for the customer. As the lifespan of a typical offshore pedestal crane is approximately ten (10) to fifteen (15) years, and a platform can be producing oil/gas past its projected useful life into twenty (20) to thirty (30) years and beyond, these modernizing efforts are not only advantageous but are mandatory. •:. Operation and management Our Group’s crane operation and management administration is intended to create one customer focal point for all crane activities. A dedicated point of contact co­ordinates the planning and delivery of operating and maintenance services which meet pre-agreed key performance and budget objectives. A defined parts inventory is specified and held by us to ensure that routine spares and capital insurance parts are available to respond to urgent repair needs, thus minimising downtime. •:. Crane inspection Our Group performs inspections for certification to API-RP2D on a quarterly, semi­annual, and annual basis or on a pre-rig and post-rig crane, and manufactures cranes to conform to API2C standards. We maintain the detailed inspection reports of previously inspected cranes. These inspection reports provide comprehensive data collection for future component requirements and timely inspections, thus minimising crane downtime. 5. INFORMATION ON OUR GROUP (Cont’d) .:. Consultation services Our crane and lifting equipment consultation services covers every aspect from conceptual design and procurement, through installation and commissioning, to operation maintenance and demobilisation. We have been instrumental in writing the crane maintenance philosophy and strategy for both ExxonMobil and PETRONAS Carigali. Having participated in drafting these systems, we are in a unique position of knowledge with regard to our customer’s policies and level of acceptance. •:. Vendor/customer support data Our Group provides customers with an information database to chart the wear on critical components. Data collected from vendors/customers enables critical crane components such as slew bearings to be tracked for allowable tolerances and actual wear. As such, the components can be ordered prior to an actual breakdown, avoiding delay or downtime. Our information database positions us to prevent potential downtime. (ii) Manufacturing or fabrication of new offshore pedestal cranes Offshore pedestal cranes are mounted on offshore production platforms on top of a pedestal. The cranes are an elevating and rotating lifting device used for the transfer of materials or personnel to or from marine vessels and structures. Our Group’s offshore pedestal cranes are designed to meet the performance demands of the oil and gas industry. In the oil and gas industry, the offshore pedestal cranes are typically mounted on a fixed (bottom supported) or floating platform structure, used in drilling and production operations such as pile driving, installation and removal of jackets and topsides, tension leg platforms, subsea modules and deepwater pipelay assistance. All of our Group’s offshore pedestal cranes are designed and built in accordance with API2C standards. Our Group has also to date, manufactured and delivered fourteen (14) new custom manufactured offshore pedestal cranes with zero defects and no warranty claims to date. Our track record is exemplified by the fact that many of our cranes are still in operation and quite a few have been upgraded to higher capacities and modified for additional capabilities at an affordable cost. Our Group’s evolvement into a crane manufacturer was a process encouraged by the demands from our customers for alternatives in the market. (iii) Other services such as supply of manpower and parts .:. Personnel Our Group provides fUlly trained experienced personnel for short or long-term projects. These include design, mechanical, structural and electrical engineers, crane operators, and technicians, all specializing in hydraulic offshore cranes. We provide on-site and in-house training for crane specialists, crane technicians, crane operators and signalmen. Our assessors are trained by nationally recognised and accredited assessor organisations. We have been awarded three (3) consecutive contracts to provide such training to our clients and external parties. Our Group has recently incorporated such training into the integrated crane maintenance contracts as an added service to our clients. 5. INFORMATION ON OUR GROUP (Cont’d) .:. Component supply Our Group supplies components, spare parts and also provides procurement services for all makes of offshore cranes. It is our policy to stock the most commonly utilised components in-house at our Kemaman Supply Base location. Our Group also holds an excess of crane spare parts, ranging from major units such as engines and slew bearings to structural components such as boom sections and other critical spares such as pumps, motors, winches and small consumables. All cranes overhauled and manufactured by HOSSB are fitted with a tracking and monitoring systems, which enables HOSSB to pre-empt failures and stock the necessary components to minimize downtime. In addition to our stockholding, our Group has established supply links with the majority of offshore, marine crane and component manufacturers. For example, HOSSB is the appointed distributor and service centre for Braden winches for this region. As the service centres for these major components on offshore cranes, we do not only provide the sales, parts and service, but also satisfy warranty claims on factory products sold by other manufacturers. Our links and knowledge as the designer of various crane systems gives us an added advantage of identifying frequent failure components. •:. Component exchange program The most critical, costly and long lead components such as hydraulic pumps, winches, power units, motors and boom sections are available on an exchange basis in order to reduce downtime. The customer purchases at pre-agreed prices for our available units in exchange for their old core unit which is reconditioned by us with no urgency. As such, we are unique in supplying such a broad based exchange program on many different crane components. (iv) Offshore crane rental Our Group has invested in twelve (12) APl2C compliant modular offshore pedestal cranes for our temporary crane rental division. Our own fleet of cranes have been designed for rapid deployment and bUild-up offshore. In addition, our engineering teams are on hand to design solutions to the challenges of siting, structural support and development of lifting plans for projects. Temporary crane rentals are critical to customers in view of the long lead time required to overhaul and recondition cranes. Furthermore, the rental business complements our Group’s crane maintenance services and strengthens our position as a fully integrated offshore crane service provider. (v) Workover projects lifting solutions Our Group has recently emerged as an engineering lifting solutions provider for workover projects. Workover projects involve reviving old or abandoned oil platforms which have recently become commercially viable given the introduction of new technology and the increase in oil prices. The lifting solutions are a critical solution to the workover projects as offshore cranes are utilised to lift equipment, tools, consumables and in some cases personnel to and from the platform.

5. INFORMATION ON OUR GROUP (Cont’d) The initial workover projects lifting solutions involve our engineers and technicians being brought-in site to survey the area and conduct engineering studies in order to provide solutions on the most efficient way to erect and assemble the offshore pedestal cranes on the platform. The rented offshore pedestal cranes are fitted in stages, onto the platform to lift the workover rigs and other equipments on the platform so that rehabilitation and drilling works can be performed. However, our Group does not participate in the rehabilitation and drilling works. Our Group has provided lifting solutions for workover campaigns in Peninsular lVIalaysia, Sabah and Sarawak on dozens of platforms with the campaigns continuing into the foreseeable future. 5.8.2 Our Principal Markets The offshore support services that our Group provides relate to the upstream segment of the oil and gas industry which involves exploration, development and production activities. We provide services to oil and gas majors who are involved in the upstream segment of the oil and gas industry. Our services mainly include the provision of integrated offshore crane maintenance services and the manufacturing of offshore pedestal cranes. Our Group’s current provision of integrated offshore crane maintenance services contract for PETRONAS Carigali and ExxonMobil covers their PMO. In this respect, our Group has maintained our competitive position and has been performing the same contract with ExxonMobii (through HESS) and PETRONAS since 1995 and 2001 respectively. In addition, our Group has also proVided lifting solutions for workover campaigns in Peninsular Malaysia, Sarawak and Sabah on dozens of platforms with the campaigns continuing into the foreseeable future. In the near future, our Group intends to expand our businesses primarily, in East Malaysia as well as the neighbouring South East Asian countries.
5.8.3 Seasonality The provision of our offshore pedestal crane services and products by the oil and gas majors are essential in ensuring the uninterrupted supply of oil and gas. Thus there is no seasonality in the demand for our services.
5.8.4 Our competitive strengths Our competitive strengths are as follows:­(a) Approved licences and registrations Our Group is one of only two (2) API licensed companies operating in Malaysia that manufactures offshore pedestal cranes and is the only company in Malaysia to provide fully integrated offshore crane services to the oil and gas industry. In addition, to participate in the oil and gas industry in Malaysia, it is mandatory that appropriate licences be obtained from PETRONAS. Our Group has obtained licences issued by PETRONAS that enables us to supply equipment or provide services to the oil or gas industry participants in Malaysia. Our Group constantly ensures that we meet the requirements of the licences as well as obtains any new licences to provide new products and services within the oil and gas industry in Malaysia. The licensing by API and PETRONAS creates a barrier to entry for new operators. 5. INFORMATION ON OUR GROUP (Cont’d) We are also registered as a contractor with the MOF. This allows us to tender for contracts issued by the Malaysian Government. Our Group is also licensed by MITI for the manufacturing of offshore pedestal cranes. (b) Established track record and strong relationship with major oil and gas companies in Malaysia Our Group has built a strong working relationship with long established and reputable customers, namely PETRONAS Carigali, ExxonMobil, Talisman, Ecodrill (M) Sdn Bhd and Sarawak Shell Bhd, amongst others. In May 2006, our Group secured contracts from PETRONAS Carigali and ExxonMobil to provide services in twenty six (26) offshore oil and gas fields located off the coast of Terengganu. Our Group had in November 2007 secured a similar service contract with Talisman for a period of three (3) years. Our Group’s other customers includes Murphy Oil Corp., UMW Petrodrill (Malaysia) Sdn Bhd, Petrofac Ltd, BJ Oilwell Services (Malaysia) Sdn Bhd, Conoco Philips Inc., Newfields Exploration Co., Crest Petroleum Berhad, Kencana Petroleum Berhad and Sime Darby Engineering Sdn Bhd. Our Group has been providing services to ExxonMobil since 1995 (through HESB prior to 2001), and we are the only company in Malaysia to be awarded the service contract three (3) consecutive times. We have also been awarded similar contracts to provide offshore pedestal crane services to PETRONAS Carigali and Talisman in 2001 and 2004, respectively. Our Group’s success in securing the above contracts demonstrate our strong credentials and performance track record. With approximately twelve (12) years of experience in the offshore crane servicing industry, our Group has successfully established an enviable track record which is associated with quality, reliability, technical expertise as well as service excellence. Our track record serves as an important reference to secure new potential customers. (c) Niche industry and high barriers to entry Our Group is one of the few companies in Malaysia that manufactures and provides overhaul and maintenance for offshore pedestal cranes. Profit margins are high due to our Group’s niche and the limited number of companies offering the same type and quality of service. Our Group’s competitive position is supported by high barriers to entry due to the highly specialised and technical nature of our business. In particular, crane design and development, especially customized crane manufacturing, requires a high level of expertise to meet the demanding specifications in their respective applications, and also to comply with the increasingly stringent safety levels imposed by the international bodies. Such expertise can only be acquired through long years of industry experience. The heavy emphasis on track record and technology which requires high expertise level acts as a deterrent for any prospective company to enter the offshore pedestal cranes services and manufacturing market. (d) Strategic partnership with foreign parties Our Group receives technical support from ECHI, an American company which has over forty six (46) years of experience in all aspects of offshore pedestal crane including parts, service, repair, rental, manufacturing, sales, training and design of offshore cranes. Our Group also receives technology transfer and assistance in sourcing of raw materials from ECHI. This is to ensure that our Group is kept abreast with all the latest technological developments and expertise in the oil and gas industry. 5. INFORMATION ON OUR GROUP (Cont’d) In addition, our Group is also the authorised service centre for Braden hoist, which are the most commonly utilized hoist on open loop hydraulic cranes. Furthermore, Braden also commonly refers their requirements to HOSSB for regional inquiries outside of Malaysia. (e) Pioneer status The Pioneer Status granted by MITI for a period of ten (10) years, grants our Company tax exemption on our profit derived from manufacturing of new offshore pedestal cranes. The pioneer period commenced on 18 September 2005 and expires on 17 September 2010, after which our Company is required to re-apply for a further five (5) year extension. (f) Crane rental business Our Group has invested in twelve (12) API2C offshore pedestal cranes for our crane rental business. The crane rental business complements our Group’s crane maintenance services and strengthens our position as a fully integrated offshore crane service and manufacturing provider. The crane rental business has great potential and it is expected to grow further in view of the long lead time required to overhaul and recondition offshore pedestal cranes. (g) Skilled, experience and dedicated management team In view of the technical and niche nature of our business, our Group recognises the need to employ technically skilled and dedicated employees. We have in our employment, experienced and capable staff who are competent in their respective roles. We also send our staff overseas for crane component training at Robway in Australia for load monitoring systems and Braden in Oklahoma, USA for hoists. In addition, our employees also possess a keen understanding of our customer’s requirements and are able to translate them into deliverables that meet the customers’ specifications. Our Group is headed by an experienced, committed and dynamic management team. Some of the senior management staff has been in the oil and gas-related industry for more than twenty (20) years. (h) Quality and HSE assurance Our track record and distinguished reputation is attributed to our stringent quality controls. One of our company policies is to deliver our quality products and services on time. Stringent quality controls are implemented in each process of operation to ensure that the final result adheres to the standards and specifications of our respective customers. Before delivery of both new and reconditioned offshore pedestal cranes, our Group will first calibrate and test that the offshore pedestal crane conforms to API2C standards as well as customers’ requirements. Due to such stringent quality controls, we have received numerous awards for HSE which is testimony to our Group’s proven work practices and quality of service. 5.8.5 Types, sources and availability of raw materials/input The following are the major raw materials and components used for crane manufacturing and fabrication:­• Primary steel and secondary steel products;
• Mechanical components such as engines, hydraulic gear boxes, hydraulic components, slew bearings and steel wire ropes;
• Casting materials comprising drums and sheaves; and

5. INFORMATION ON OUR GROUP (Cont’d) • Electrical components, lights, switches, enunciators, solenoids and control panels. Our Group sources these raw materials from overseas and local suppliers. For the past twelve (12) months up to the LPD, our Group has not experienced any significant shortage in the supply of raw materials used in our manufacturing process. In addition, HOSSB is the appointed distributor and service centre for Braden winches for this region. Braden is the most dominant manufacturer of Planetary crane hoists utilised on offshore cranes worldwide. It is our Group’s policy to keep in stock critical components that are not easily available to avoid any downtime. A discussion on the impact of fluctuations in foreign exchange rates on the prices of our raw materials has been set out in Section 4.1.7 of this Prospectus.
5.8.6 Technology used or to be used Our Group uses various technologies in the provIsion of our services and cranes. In researching, designing and design-proving any prototypes prior to inclusion into our product line, we utilise strain gauges, micro strain reading hardware, data acquisition hardware, real­time stress data collection and reduction software and calibrated weights. A few of our key research and developments (“R&D”) tools are computer aided design, three-dimensional (3D) drawing and solid modelling software with trained operators and finite element stress analysis software. In addition, our Group has a representation and manufacturing agreement dated 15 January 2001 with ECHI, an American company whose proprietors have over forty six (46) years of experience in all aspects of offshore cranes including parts, service, repair, rental, manufacturing, sales, training and design. Pursuant to the aforesaid agreement, our Group receives technology transfer and assistance in sourcing of raw materials from ECHI as well as quality control guidance. This agreement ensures that our Group is kept abreast with all the latest crane technological developments and expertise in the oil and gas industry. The salient terms of the above agreement are as follows:­(i) ECHI is contracted to partner with HOSSB for the following:­
• To develop and share quality programs;
• To develop and share design & quality control management systems;
• To develop and share the Seahorse Crane product line; and
• To implement and design, oversee and manage stress test and strain gauge of each respective crane models as sold.

 

(ii) Both parties, HOSSB and ECHI agree:­
• To set minimum monthly quotas after consulting each other and the market;
• To share market information and requirement dates for the mutual benefit of both parties;
• The design and Quality Program investment will be treated as a cost to be recovered by ECHI spread out over the initial fifteen (15) crane sales;
• To treat all designs, documents and data as the proprietary property of ECHI;

 

5. INFORMATION ON OUR GROUP (Cont’d) • Abide by and enforce the procedures and guidelines of the Q1 System; and
• Modifications and changes shall be agreed upon in writing by both parties.

Duration The agreement is perpetual and binding on both HOSSB and ECHI until both parties agree to mutually terminate the agreement. Save for costs/fees incurred for the sourcing of certain raw materials/parts and consultation services rendered on an ad-hoc basis, there is no technical assistance or partnership fee to be paid by HOSSB to ECHI in relation to this strategic partnership agreement. 5.8.7 Production/operating capacities and output As our Group is primarily engaged in providing offshore pedestal crane overhaul and maintenance services for the oil and gas industry, conventional measures of production capacity and utilisation are not relevant to our operations. However, our Group has been fabricating on average of approximately four (4) cranes per annum at our current yard in Kemaman Supply Base for the past three (3) years. Our proposed new fabrication yard located at the Teluk Kalong industrial area in Kemaman, Terengganu Darul Iman has the capacity for manufacturing, servicing, maintaining and overhauling an average of thirty (30) offshore cranes per annum as compared to our existing plant capacity of twelve (12) offshore cranes per annum. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR GROUP (Cont’d) 5.8.8 Process flow of the business operations of our Group The process flow of the business operations of our Group are depicted in the following diagrams:­(a) Offshore pedestal crane manufacturing or fabrication processes Request for Quotation I Tender Process Project Award Engineering Design Production Plan Operation & Maintenance Manuals Procurement of Materials & Crane Parts
QC Verification Fabrication Stage QC Conformance Final Assembly Hook-Up Mechanical & Hook-Up Electrical & Assemble Crane Components Hydraulic System Instrumentation System Testing & Commissioning Dismantling Packaging & Delivery to Offshore
Offshore Crane Erection Final Commissioning & Testing
5. INFORMATION ON OUR GROUP (Cant’d) The process flow for the manufacturing or fabrication of offshore pedestal cranes begins with the request for quotation from our existing/potential customers or the submission of a tender by the marketing division of our Group for a project. In the event the project is awarded to our Group, the engineering division will begin its design process. Upon finalisation of the engineering design for the offshore pedestal crane, a production plan and the operation and maintenance manual will be made available. The production of the offshore pedestal crane will commence in accordance to the production plan. During the production process, we will ensure that all the materials procured for the production of the offshore pedestal crane are approved by the QC Officer through a stringent QC verification process. During the QC verification process, all materials that are non-QC compliant will be rejected. Under such circumstances, the production division will procure new parts/materials to replace the materials which were rejected during the QC verification process. Upon completion of the procurement and QC verification process, the fabrication stage will commence with the QC conformance process constantly ensuring that quality and customer’s specifications are met. The final assembly process for the manufacturing of the offshore pedestal crane involves the hook-up mechanical and hydraulic system, hook-up electrical and instrumental system and the assembly of crane components. Upon completion of the final assembly process, newly fabricated/manufactured offshore pedestal cranes will be fUlly tested and commissioned in our yard to ensure optimal performance when in use. Once satisfactorily tested, the cranes will be dismantled and packaged for delivery to the designated offshore site. At the designated offshore site, the offshore pedestal crane will be erected and will be sUbject to a final commissioning and testing before it is made available for use. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR GROUP (Cont’d) (b) Overhaul and maintenance services processes [ [
[ r [ I [ • QC • Material Order Conformance ~ • New Parts Replacements I [ Equipment Repair [ •
Hook-Up Mechanical &[ Hydraulic System J[ [ I I r [ [
Request for Service I Tender Process
.” I Engineering Studies to Ensures Conformance
~ Rental Crane Verification ~ Logistics on Loadout ~ Rental Crane Erection & Load Test ~ Platform Crane Dismantling & Back ~ Engineering Design! Upgrading I … Operation & Maintenance Manuals
•I Repair & Fabrication Stage ~ Final Assembly I
… Hook-Up Electrical & Instrumentation System
•I Testing & Commissioning ~ Dismantling ~ Packaging & Delivery to Offshore ~ Offshore Crane Erection ~ Final Commissioning & Testing ~ Rental Crane Dismantling & Back LoadinQ Onshore
J r Project Award ] ]I ] ] ] ] ] • Drawing Established • Fabrication
• Hydraulic & Electrical I

 

] ]

Assemble Crane Components J[ J I I ] ] ] ]
] 5. INFORMATION ON OUR GROUP (Cont’d) The process flow in relation to the overhaul and maintenance of offshore pedestal cranes begin when our prospective/existing customer places a request for services or when the marketing division of our Group submits a tender for service works. When we are awarded the works/project, an engineering study will be carried out to ensure conformance to our customer’s specification. As part of our Group’s added service, the offshore pedestal crane which requires servicing/overhaul will be temporarily replaced with our rental crane(s) to avoid disruption to our client’s business operations. Upon erection of the rental crane, the existing offshore pedestal crane will be dismantled and brought back onshore for overhaul/maintenance. The engineering division will establish an engineering design/plan to upgrade the lifting mechanism of the existing offshore pedestal crane model. Upon finalisation of the said design, the production division will procure the materials/parts to be replaced. At this juncture, an operation and maintenance manual will be made available. Similar to the business process of manufacturing offshore pedestal cranes, all materials/parts procured are required to be approved by the QC Officer through a stringent QC verification process to ensure that the said materials conform to the material specifications. The drawings pertaining to the hydraulic and electrical circuit together with the fabrication designs will be made available at this juncture for the repair and fabrication stage. The repair and fabrication process involves a few sub-processes such as material profiling, welding process, non-destructive testing, components refinement, surface preparation and coating. Upon completion of the repair and fabrication stage, the offshore pedestal crane will be assembled during the final assembly stage. The final assembly process involves the hook-up mechanical and hydraulic system, hook-up electrical and instrumental system and the assembly of crane components. The newly overhauled and serviced offshore pedestal crane which has been assembled will be SUbject to a series of tests. Upon successful testing and commissioning, the offshore crane will be dismantled, packaged and delivered to its offshore site. At the offshore site, the crane will be erected and subject to a final testing and commissioning. The rented offshore crane will be dismantled and brought back onshore upon completion of the final testing and commissioning of the offshore pedestal crane. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR GROUP (Cont’d) (c) Other services and offshore pedestal crane rental The other services and offshore pedestal crane rental business process involves the following procedures:­Other Services & Offshore Pedestal Crane Rental
Manpower I PPM Requests from Client Tender I Quote Submission POI Award Mobilization Crane Rectification Parts Requisition Supply Parts
Requests from Client Parts Identification Tender I Quote Submission PO I Award Parts Sourcing I Stock Logistics on Loadout Rental Crane Requests from Client Tender I Quote Submission POI Award Engineering Studies Ensures Conformance
Crane Verification Logistics on Loadout Crane Erection & Load Test Prior Handover to Client
Crane Operation & Maintenance Stage
Crane Diserect & Back Loading Onshore
Actual Quote on Rental Rate THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR GROUP (Cont’d) The process for our Group’s other services and offshore crane rental are as follows:­(i) Manpower / Planned Preventive Maintenance (“PPM”) Our Group maintains a preventative maintenance schedule for all our clients under contract. As the date of the PPM approaches, we will mobilize our personnel to conduct and perform the necessary preventative maintenance works on the designated offshore pedestal crane. During this process, our Group may also be required to replace existing deficient parts/components on the offshore pedestal crane which are nearly worn out based on our PPM records. If such replacements are required, our Group will despatch the replacement components/parts to the offshore platform prior to the scheduled date of the PPM works. Besides PPM works, we also provide ad-hoc call out services for clients under contract, as well as for other clients requiring our services. Generally, ad-hoc services begin with a call from our client when their cranes are down or not functioning at its optimum capacity. Upon obtaining the necessary documentation and payment approval from our client, we will then proceed to requisition parts (where necessary) and mobilize our technicians and personnel to the offshore platform. Typically, any down time on the platform as a result of a malfunctioning crane will be costly to the client. As such, an agreement on the price is usually swift and mobilisation is on a speedy and urgent basis. (ii) Supply of crane components/parts Generally, the processes for supply of crane components/parts begin with our client requesting necessary crane components/parts to replace their existing deficient components/parts. Following the requests from our clients, our Group will proceed to submit our quotes for the component/parts with price and delivery terms. Upon receipt of the approval from our clients, our Group will then proceed to package the component/parts and deliver them to nominated warehouse of our clients. (iii) Rental Cranes As disclosed in Section 5.8.1 of this Prospectus, our rental cranes are used as temporary replacements at our client’s offshore platform in view of the long lead time required to overhaul and recondition cranes. Generally, the rental crane process begins with a request from our client for the rental crane. Our Group will proceed to mobilize our personnel to the offshore platform for engineering studies necessary to submit a proper proposal; then, our client will agree to the terms. Upon completion of the engineering studies, our Group will then arrange for the logistics loadout of our rental crane on the offshore platform. At the platform, our Group will erect the rental crane and perform load test prior to the handover to our clients. During the crane rental operation stage, our Group will perform periodic maintenance works on the offshore pedestal crane. Once the tenure of the rental cranes has expired, the cranes will be disassembled, removed and loaded back onshore to our fabrication yard. 5. INFORMATION ON OUR GROUP (Cont’d) Our Group also provides rental cranes for work-over projects lifting solution where our clients will rent our rental cranes as well as our personnel to operate the rental cranes. The processes of the rental cranes for work over lifting solutions are similar to the processes for crane rental for temporary usage except in the installation method. Some of these platforms requiring this service do not have a permanent crane. In these cases our three (3) stage self erector would be utilized. 5.8.9 Quality assurance Our Group is committed to providing high quality services and products. Our in-house quality systems are audited and approved by API and we are licensed by them to use their monogram on our products. In this respect, all offshore pedestal cranes fabricated at our yard are API2C and ISO-9001 compliant and are delivered with a brand new crane warranty. The commitment on quality broadly entails areas such as processes and scope, document control and policy, planning, supplier and procurement review and monitoring/evaluation, production and service, design processes and audit. We are committed to bringing our customers high quality products and services by placing emphasis on error prevention while ensuring that we have a consistent detection program in place. Our quality system is intended to ensure that the customer receives a product or service that is designed, manufactured and serviced in accordance with our customer’s, industry and our own strict quality requirements. Our quality system complies with the standards and gUidelines, such as XM QM2004 Quality Management System, API Specification Q1, API2C and ISO 9001 :2000. The result of our commitment to quality is evidenced by our success in having zero defects and zero warranty call-outs in manufacturing fourteen (14) brand new cranes and fifty seven (57) reconditioned cranes respectively. 5.8.10 HSE Compliance with the requirements and regulations of HSE is crucial in the oil and gas industry in order to prevent injuries, loss of human life and to preserve the environment. Our Group has established an in-house HSE policy or program that includes the following:­• to conduct a program/HSE inspection and audit to identify and eliminate unsafe working conditions, to control health hazards and to encourage full compliance with the safety and health standards for every job;
• to conduct training for employees in good safety and health condition through in­house and established training institutes;
• to develop awareness and strictly enforcing HSE policy and procedures as part of a pre-employment condition;
• to prompt an investigation for any incidents or accidents and near misses to prevent any recurrence of such events; and
• to discuss and to have a dialogue with:­
(i) the customers on HSE related matters; and
(ii) the management, employees and sub-contractors during regUlar safety meetings, tool-box meetings and during emergency procedures.

 

In terms of operation and safety of our Group’s integrated offshore crane services, our Group has recorded zero incidents and / or accidents during the past three (3) years. 5. INFORMATION ON OUR GROUP (Cont’d) 5.8.11 Marketing and distribution Our Group’s sales and marketing team utilises the following marketing strategies to sustain and expand our business:­• positioning ourselves as a fully integrated offshore crane service and manufacturing provider specialising in the oil and gas industry;
• positioning our Group as an established and niche offshore pedestal crane specialist with more than twenty (20) years of work experience and good track record in the oil and gas industry;
• continually providing excellence in customer service with the aim of establishing long-term business relationships;
• continually maintaining our HSE, product and service quality standards;
• keeping abreast with new technological development of our products so as to gain a competitive edge and to better meet customers’ requirements;
• expanding our market presence primarily in East Malaysia and neighbouring South East Asian countries. However, our Group may also expand our business reach to other countries on the African continent should prospective business opportunities arise in the future; and
• developing new business opportunities by working closely with existing customers.

Our Group’s Directors and senior management are responsible for implementing our Group’s marketing strategy. The senior employees are focused on business development with existing and potential customers. Our Group also makes proactive visits to current and potential customers as part of our marketing strategy to promote our services and products. Distribution Channel Strategy Our Group primarily adopts a direct distribution strategy in marketing our range of services which includes overhaul and service of offshore cranes, fabrication of new offshore cranes, supply of manpower and parts, rental of our offshore pedestal cranes and workover projects lifting solutions. In-house sales and marketing teams are primarily utilised to market our services. This is a collective responsibility of the middle to senior management of our Group. Our Group’s physical presence in the PMO for PETRONAS Carigali and ExxonMobil, the Joint Development Area off Kelantan coast for Talisman, and workover projects off the coast of Sabah and Sarawak enables us to qUickly and effectively gauge existing and potential customer demand for our services, and allows us to effectively conduct sales and marketing activities targeted at these customers. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
~ Company No. 816839-X II 5. INFORMATION ON OUR GROUP (Cont’d) 5.8.12 Approvals, major licences and permits obtained Details of major business licenses, permits and approvals applicable to our Group (where all are registered under HOSSB) as at the LPD are as follows:­d”ill~tf,’Irr~
HOSSB  MITI  Manufacturing License (A 015257) for Teluk Kalong, Kemaman  Valid from 16.08.2005  • The Ministry of International Trade and Industry informed/notified of any sales of shares in the Company.  must  be IComplied.  HOSSB  MITI  Manufacturing License (A 015256) for Kemaman Supply Base  Valid from 16.08.2005  • The Ministry of International Trade and Industry informed/notified of any sales of shares in the Company.  must  be I Complied.  HOSSB  MIT!  Certificate of Pioneering Activities (Perakuan Perintis Bil 2365)  18.09.2005 to 17.09.2010 (with an option to re­apply for a further five (5) years extension)  • Added value products (Nilai ditambah keluaran syarikat) must be at IComplied. least 30%. • The number of staff at management, technical and supervisory level I Complied. must be at least 15% of the company’s total manpower. • The company will have to maintain separate accounts for products IComplied. which has been approved by the promotion of Pioneer Standard (Taraf Perintis) which is the ‘Manufacturing of Offshore Pedestal Crane’ and the products / activities which was approved without tax are dependant on the terms of the account which must be agreed by the Internal Revenue Board of the State (Lembaga Hasil Dalam Negeri).
54
II Company No. 816839-X II 5. INFORMATION ON OUR GROUP (Cont’d)
55

5. INFORMATION ON OUR GROUP (Cont’d) (ii) On 28 February 2007, HOSSB entered into an agreement with PETRONAS Carigali to provide all the supervision, procedures, labour, material, equipment tools, services and all other things of the like nature pursuant to the PETRONAS contract and PETRONAS Carigali shall pay HOSSB for the abovementioned services and work done. The salient terms of the agreement are as follows:­Duration Five (5) years from the effective date. Upon mutual agreement by HOSSB and PETRONAS Carigali, PETRONAS Carigali has the right to extend the contract for one (1) year pius one (1) year. PETRONAS Carigali shall notify HOSSB of its intention to extend the contract within thirty (30) days of expiry of the primary or initial extension. Termination • PETRONAS Carigali has the right to terminate the contract by giving written notice upon occurrence of an event of default of HOSSB.
• PETRONAS Carigali shall have the right at any time to suspend or terminate without cause all or any part of the work by giving HOSSB a written notice specifying the part of the work to be suspended or terminated.
• If in the performance of the contract, HOSSB provides services, personnel and/or Equipment (as defined in the contract) in association with or pursuant to its association with another company, the parties agree in the event that the association is terminated or for any reason ceases, PETRONAS Carigali shall have the option to terminate the contract upon written notice to HOSSB.
• PETRONAS Carigali shall have the right at its option to terminate the contract if HOSSB no longer holds a valid PETRONAS Carigali licence for this particular category of work/service due to the licence being suspended or terminated by PETRONAS Carigali.

(iii) On 24 January 2008, HOSSB entered into a provision for crane maintenance contract with Talisman to provide all work as set out in the request for service inclUding all services to be rendered by HOSSB in accordance with the contract, whether expressly stated in or otherwise inferable from the description of the work. The salient terms of the above agreement are as follows:­Duration The contract shall commence from 2 November 2007 and shall continue for a period of three (3) years with two (2) extension options of one (1) year each. Talisman shall exercise the option by issuing a thirty (30) day written notice in advance, whereupon the contract period shall be extended upon the same rates, terms and conditions as herein contained. Termination • Talisman shall have the right by giving notice to terminate all or any part of the contract at such time or times as Talisman may consider necessary for any or all of the following reasons: 5. INFORMATION ON OUR GROUP (Cont’d) (a) to suit the convenience of Talisman. Talisman shall not be liable to payment of any other compensation whatsoever for early termination other than mutually agreeable fair and reasonable estimation of cost for the work completed;
(b) subject to clause 16.2 of the contract, in the event of any material default on the part of HOSSB; and
(c) in the event HOSSB or its foreign supplier (if applicable) being unable to pay its debts. Termination of the contract in this event shall be at no cost to Talisman.

5.8.15 R&D Our Group is constantly focused on improving efficiencies of our work processes to meet with the ever changing safety and environmental guidelines. It is our Group’s policy to constantly strive to learn and implement the latest technologies available in our operations in order to gain and sustain our competitive advantage in the following areas:­• to enhance business effectiveness, efficiency and productivity to optimise offshore cranes capability (after service) and operating costs;
• to continuously improve our crane service methodology and utilise new or existing technology for new offshore crane fabrication towards achieving zero defect quality; and
• to continuously improve service quality to ensure customer satisfaction.

Our Group’s R&D is carried out in our fabrication yard at the Kemaman Supply Base. The R&D for offshore pedestal crane manufacturing is carried out using sophisticated R&D computer aided design and simulation facilities. The detailed studies which include more rudimentary testing of highly technical application of new hydraulic motors, electric power supply and electronic diesel engines ensures that only high-integrity, reliable offshore pedestal cranes enter production. We have crane test stands capable of testing loads of up to 160 tonnes, as well as hydraulic test stands for real-time proving of systems. Our detailed drawings ensure our production and quality control systems at our fabrication yard in Kemaman Supply Base are of high standards which conform to API2C standards. We have designated three (3) personnel to oversee the R&D functions of our Group, which includes and headed by our Deputy Managing Director, Joel Emanuel Heaney. We are constantly evaluating existing and new technologies, implementing those that we believe will improve our business processes or create opportunities for new business development. Please refer to Section 5.8.6 of this Prospectus for the various technologies used by our Group to carry out our business operations. We do not recognise any expenditure that is specific to the R&D activities of our Group as we are mainly actively engaged in R&D activities related to our process improvements. 5.8.16 Interruptions in business Our Group has not experienced any material interruption to the business of our Group in the past twelve (12) months preceding the date of this Prospectus. II Company No. 816839-X II 5. INFORMATION ON OUR GROUP (Cont’d) 5.8.17 Major customers The major customers that contributed 10% or more to our Group’s revenue for the past three (3) FYE 31 December 2006 to 2008 and the four (4) months period ended 30 April 2009 are listed below:­
Carigali Talisman 8 179 117 2,8801 4.751 5921 2.6210.661 1, 1 2.01II Canada I 4, 1 Sarku Engineering Malaysia 3 7,388I 769 1.96 13.29 10,2461 16.91 I 4,5831 20.27 Services Sdn Bhd For the FYE 31 December 2008, ExxonMobii and PETRONAS Carigali accounted for 37.13% and 23.94% of our total revenue respectively. During the four (4)-month period ended 30 April 2009, ExxonMobil and PETRONAS Carigali accounted for 34.23% and 29.18% of our total revenue respectively. Our Group operates in a highly specialised and niche industry with only a few major oil and gas operators in Malaysia. ExxonMobii and PETRONAS Carigali are our major customers as they are the major PSC operators in Malaysia especially in the PMO. Please refer to Section 4.1.3 of this Prospectus for the mitigating factors of the dependence on these major customers. [ THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 59 II Company No. 816839-X ~ 5. INFORMATION ON OUR GROUP (Cont’d) 5.8.18 Major suppliers The major suppliers that contributed 10% or more to our Group’s purchases for the past three (3) FYE 31 December 2006 to 2008 and the four (4) months period ended 30 April 2009 are listed below:­
ECHI  USA  8  7,5661  26.64  10,369 I  31.55  13,2451  31.97  3,527  35.22  Handal I Malaysia Fabrication Sdn Bhd (UHFSB”)  5  2,851  10.04  5,7161  17.39  6,405 1 15.46  1,713  17.11  Excell Crane & I Singapore Hydraulics (Singapore) Pte Ltd  8  1,8921  6.66  2,8721  8.74  3,6331  8.77  239  2.39  Frontken I Singapore Engineering Pte Ltd  8  5221  1.84  4641  1.41  3,4231  8.26  704  7.03  Sun Hui Engineering Sdn Bhd  I Malaysia  8  2,5871  9.11  2101  0.64  158 I  0.38  46  0.46
For the FYE 31 December 2008, ECHI and HFSB accounted for 31.97% and 15.46% of our total purchases respectively. During the four (4)­month period ended 30 April 2009, ECHI and HFSB accounted for 35.22% and 17.11 % of our total purchases respectively. ECHI supplies crane spare parts and HFSB supplies manpower and material for crane fabrication and machining. As disclosed in Section 10.1 of this Prospectus, both ECHI and HFSB are related parties. The purchases were carried out at arm’s length basis and on commercial terms which are not more favourable to the related parties than those generally available to the public and will not be detrimental to our minority shareholders. 60 5. INFORMATION ON OUR GROUP (Cont’d) 5.9 FUTURE PLANS, STRATEGIES AND PROSPECTS 5.9.1 Future plans and strategies In order to achieve our vision and maintain our competitive strength, our Group intends to utilise the following strategies as part of our future plans for the next three (3) to five (5) years:­(a) New services and crane technologies Our Group has recently emerged as an engineering lifting solutions provider for workover projects. Workover projects involve reviving old/abandoned oil platforms which have recently become commercially viable given the introduction of new technology and prevailing oil prices. Our Group will also focus on the significant enhancement of our existing crane technologies and the development of engineered lifting solutions in the market through continuous R&D efforts and spending on selected design software as improvements become available. (b) Expansion of manufacturing facilities
Currently, our Group is operating from a rented three (3) acre yard located at the Kemaman Supply Base in Kemaman, Terengganu Darul Iman. Our Group expects to complete our proposed new yard located at the Teluk Kalong industrial area in Kemaman, Terengganu Darul Iman by the second quarter of 2009. For further information on the new yard, please refer to Section 9.1 of this Prospectus.
(c) Geographical expansion plans
The principal markets for our Group’s products and services are currently focused in Peninsular Malaysia. Our Group will expand our sales and marketing network to reduce the risk of over exposure to anyone particular geographical location. Part of our Group’s future plans is to continue to focus on expanding our business in East Malaysia and abroad.
(d) Acquisition of complementary businesses, forming joint ventures, alliances and mergers
We plan to expand our business in the future through acquisitions, joint ventures and strategic alliances that will complement our current and future businesses. Our Directors believe that suitable acquisitions, joint ventures and strategic alliances will give access to new markets and customers as well as new businesses. Under this strategy, we will also be able to pursue growth by seeking out potential companies to acquire or form joint ventures which are complementary to our business.
(e) Brand building and promotion

Our Group will continuously seek to build upon our brand, corporate image and reputation. By positioning ourselves as a fUlly integrated offshore crane service and manufacturing provider specialising in the oil and gas industry, we will be able to compete more effectively against our competitors and also increase the barriers to entry for other potential competitors. We believe that consistent delivery of quality services and cranes and the ability to come up with new and/or enhanced services and cranes will set us apart in the industry and help grow our brand name. 5. INFORMATION ON OUR GROUP (Cont’d) 5.9.2 Prospects Premised on our future plans and strategies as highlighted above, our key competitive strengths as highlighted in Section 5.8.4, the prospects and the outlook of the industry as set out in Section 6 and the state of our order book for the FYE 2009 as disclosed in Section 11.4.1(b) of this Prospectus, our Board is of the view that our Group will enjoy positive growth and favourable prospects in the long-term. We will continue to leverage on our core competencies, strong fundamentals and our excellent track record whilst pursuing growth opportunities within the oil and gas industry. For the near future, our growth will be driven by our increased capacity at the new yard in the Teluk Kalong industrial area, as well as our plans to utilise our IPa proceeds in the manner as set out in Section 3.8(j) of this Prospectus. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 6. INDUSTRY OVERVIEW AND OUTLOOK 6.1 OVERVIEW OF THE MALAYSIAN ECONOMY The Malaysian economy registered a growth of 4.6% in 2008, amidst the international financial turmoil and sharp deterioration in global economic environment. Robust domestic demand, in particular sustained private consumption and strong pUblic spending, supported growth during the year. While external demand was strong in the first half of 2008, the sharp and rapid deterioration in the global economic conditions as well as major correction in commodity prices in the second half led to a contraction in Malaysia’s export performance in the latter part of the second half year. Given the high degree of openness of the Malaysian economy, the contraction in exports adversely affected income and domestic demand. Private investment activities and private consumption moderated significantly in the fourth quarter of 2008. The economy grew strongly by 7.1 % in the first half of 2008 supported by robust domestic and external demand. Domestic demand was led by continued strong expansion in private consumption, supported by a steady increase in disposable income, positive labour market conditions and favourable financing environment. External demand was supported by very high commodity prices and strong export volume. Demand from the regional countries was also strong. When the global downturn intensified in the second half of 2008, with several major advanced economies slipping into recession and growth in a number of regional economies moderating rapidly, net external demand declined significantly. Nevertheless, real gross domestic product (“GOP”) growth remained positive in the second half-year, expanding modestly by 2.4%, supported by strong public consumption and continued expansion in private consumption. The Malaysian economy is expected to experience the full impact of the global downturn in 2009. In response, several policy measures have been put in place with a primary focus on supporting domestic demand, as well as mitigating the impact of the global slowdown on the affected segments of the economy. On 4 November 2008, the Government announced the first stimulus package amounting to RM7 billion. The funds would be allocated to projects which have a high and immediate multiplier impact on the economy. In addition, several measures to directly support private consumption were also introduced, such as a reduction of Employees Provident Fund contributions from 11 % to 8% and higher vehicle loan eligibility for civil servants. As the global economic conditions deteriorated further in the fourth quarter of 2008 and in the early part of 2009, a second economic stimulus package of RM60 billion or almost 9% of GOP was announced on 10 March 2009. The package will be implemented over 2009 and 2010, and will involve spending on training, job creation, improving public infrastructure, school facilities and basic amenities, as well as establishing guarantee facilities. (Source: Bank Negara Malaysia Annual Report 2008) 6.2 OVERVIEW AND PROSPECTS OF THE OIL AND GAS INDUSTRY IN MALAYSIA Production of crude oil (including condensates) averaged 694,141 barrels per day (“bpd”) in 2008, representing an increase of 2%. The higher production was driven entirely by the doubling in crude oil output in Sabah to 150,792 bpd (2007: 74,800 bpd). Sabah now accounts for 21.7% of total oil output. In keeping with the production limits set by the National Depletion Policy, production in Peninsular lVIalaysia declined by 8.9% to 337,369 bpd, to account for 49% of total output of crude oil of the country. Meanwhile, condensates continued to contribute significantly, accounting for 17.5% of the total oil production, at 121,511 bpd. Output of natural gas contracted by 4.9% to 5,579 million cubic feet per day due mainly to lower external demand for liquefied natural gas (“LNG”). In addition, production was also affected by unplanned maintenance shutdowns at several gas fields in Peninsular Malaysia. Oil reserves in the country increased to 5.46 billion barrels or 22 years of lifespan as at 1 January 2008, supported by the rising reserves from the deepwater discoveries in offshore Sabah. Meanwhile, natural gas reserves is at 14.67 billions of barrels oil equivalent, sufficient to cover 36 years of gas output at current production levels. The oil and gas industry continued to experience higher activity, especially in building rigs, platforms and storage terminals. (Source: Bank Negara Malaysia Annual Report 2008) 6. INDUSTRY OVERVIEW AND OUTLOOK (Cont’d) Industry observers believe that it would be a matter of time before the major oil and gas operators in Malaysia will award new contracts to the local supporting oil and gas. Previously when crude oil prices were on a declining trend, it was believed that many oil and gas majors had re-evaluated some of its new contracts with the local supporting oil and gas companies to determine their feasibility. However, with crude oil price stabilising, many are expected to resume its intended exploration and production capital expenditure expansion plan. Moving forward, the oil and gas majors are expected to continue to focus on deepwater development and the revival of existing platforms. As for the shallow water platforms, most of them are located off the coast of Terengganu and have been fully developed. Hence, the potential work would be to refurbish the abandoned or existing platforms to increase oil and gas production. In addition, the oil and gas majors in Malaysia have also been aggressively looking for new deepwater fields in the last ten (10) years and have been waiting to develop them to replace the depleting shallow water fields. Hence, all these development should benefit the local oil and gas companies as based on historical trends in the award of contracts, preference is usually given to locally licensed oil and gas companies unless they do not have the available resources, technology or expertise. (Source: Management) 6.3 INDUSTRY PLAYERS AND COMPETITION Some of the other major worldwide offshore crane service providers and manufacturers includes Favelle Favco Berhad (Malaysia), National OilWell Inc. (USA), Seatrax Inc. (USA), Energy Cranes International (USA) and MS Herkules Sdn Bhd (a subsidiary of Ramunia Holdings Berhad). However, Favelle Favco Berhad and MS Herkules Sdn Bhd are the only companies which have a presence in the Malaysian market. Competition among offshore crane service providers and manufacturers are based on a number of factors, including, range and quality of products and services, technical compliance to customers’ specifications, cost competitiveness, technological advancement, HSE management and prompt delivery/completion. We believe that our Group is well positioned in the market as:­.:. Our Group is a niche player in the offshore pedestal crane market servicing the oil and gas industry. Our Group is one of only two (2) API licensed companies operating in Malaysia that manufacture offshore pedestal cranes and is the only company in Malaysia to provide fully integrated offshore crane services to the oil and gas industry. In addition, only companies that are licensed or registered by PETRONAS are allowed to bid directly for work from PETRONAS and PSC operators and contractors. All companies who wish to obtain contracts from the Government or to bid directly for work prOVided by PETRONAS and PSC operators/contractors in the oil and gas industry are also reqUired to register as contractors with the MOF; .:. High barriers to entry due to the highly specialised and technical nature of the business, crane design and crane development. Customized crane manufacturing requires a high level of expertise to meet the demanding specifications required in offshore applications and also to meet the stringent safety standards imposed by the industry; .:. Our Group has the proven in-house capabilities to design and develop customised cranes according to certain specifications to meet the unique performance requirements requested by customers; 6. INDUSTRY OVERVIEW AND OUTLOOK (Cont’d) .:. Our Group has successfully established a track record associated with quality, reliability, technical expertise and safety as well as service excellence. Our track record serves as an important reference to win new customers; and .:. Our Group has recently emerged as an engineering lifting solutions provider for workover projects. We have provided lifting solutions for workover campaigns in Peninsular Malaysia, Sabah and Sarawak on the drilling and workover enhanced recovery campaign. This has been ongoing, utilising our rental crane fleet for the past two (2) years and is expected to continue for the foreseeable future. 6.4 GOVERNMENT LAWS AND REGULATIONS 6.4.1 Government laws and regulations Oil and gas industry The oil and gas industry in Malaysia is governed by the Petroleum Development Act 1974. The power to regulate all activities in the upstream petroleum sector is vested with PETRONAS. PETRONAS, established under the Petroleum Development Act, 1974 as a state-owned enterprise, has exclusive rights of ownership, exploration and production of oil and gas in Malaysia. PETRONAS is actively engaged in the exploration, development and production of crude oil and natural gas both at home and abroad. In Malaysia, these activities are undertaken and managed through PSCs with a number of international oil and gas companies as well as with its subsidiary PETRONAS Carigali. Companies that are registered with PETRONAS are only allowed to participate in the downstream sector and maritime sector of the oil and gas industry. However, companies who also wish to participate in the upstream sector are reqUired to have a license issued by PETRONAS. Companies who apply for the PETRONAS licence 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 (“SWECn). SWECs are divided into two (2) categories which are products and services. An individual licence or registration must be obtained for each SWEC. Generally, licences and registrations are effective for a period of one (1) year. However, the effective period of more than one (1) year can be considered. In addition, all companies who wish to obtain contracts from the Government or to bid directly for work provided by PETRONAS and PSC operators/contractors in the oil and gas industry are required to register as contractors with the MOF. In this respect, our Group holds a PETRONAS licence to supply equipmenUprovide services to PETRONAS and PSC operators/contractors in Malaysia and is a registered contractor with the MOF. Manufacturing industry All companies that are in the manufacturing industry having shareholders’ funds of RM2.5 million and above or engaging seventy five (75) or more full-time paid employees are required to have a manufacturing license from MIT!. Our Group holds two (2) MITI licences for manufacturing of offshore pedestal cranes, existing yard in Kemaman Supply Base and the other for our proposed new yard in Teluk Kalong. 6. INDUSTRY OVERVIEW AND OUTLOOK (Cont’d) 6.4.2 Government Incentives PETRONAS Initiatives In an effort to reduce the operating costs of upstream operations, PETRONAS and its PSC operators/contractors have initiated the Malaysian petroleum industry’s Cost Reduction Alliance (“CORAL”), a forum which seeks to reduce costs and enhance efficiency via breakthrough measures and provides for the sharing of facilities and logistics, the standardisation of equipment specifications and the coordination of operations. Pursuant to the CORAL forum, the Malaysian Oil and Gas Services Council (“MOGSC”) was formed in 2003 to showcase the capabilities and expertise as well as spearhead the development of PETRONAS registered oil and gas service companies. MOGSC members provide engineering, process equipment, maintenance, piping, diving, installation, barge supplies, information technology, surveying, consultancy, helicopter services and catering services. Malaysian oil and gas service companies are expected to make further inroads in the international market through MOGSC, as MOSGC allows them to showcase their expertise and capabilities abroad. In this respect, HOSBB is a member of MOGSC. Manufacturing Incentives HOSSB was granted pioneer status for a period of ten (10) years by MITI under the Promotion of Investments Act, 1986 for its activity on “Manufacturing of Offshore Pedestal Cranes”. Under this pioneer status incentive, income derived from the pioneer activity is exempted from income tax for a period of five (5) years from 18 September 2005 to 17 September 2010. HOSSB is required to apply for the extension of the incentive period for another five (5) years upon the expiry of its initial five (5) years pioneer period subject to the fulfilment of all terms and conditions for the pioneer status incentive. 6.5 DEMAND/SllPPLY CONDITIONS The long term demand for crude oil is expected to sustain spending on exploration, development and production activities in the oil and gas industry. Servicing and maintenance activities for offshore pedestal cranes as well as workover projects lifting solutions are expected to increase in tandem with the spending of the oil and gas majors in shoring-up oil reserves and boosting production output. The crane is the critical link between platforms and onshore supply bases. All equipment, tools, consumables and in some cases personnel that are required to operate oil and gas platforms, are lifted to and from the platform using cranes. The growth of the offshore pedestal crane manufacturing industry is dependent on the growth of the oil and gas industry. New discoveries in offshore fields have been the engine of growth for the offshore pedestal cranes market. As oil and gas companies go for deepwater oil and gas production, cranes have to keep up with the needs of exploration and production activities. Since the offshore pedestal cranes are specialised cranes, the demand for offshore cranes is dependent on new offshore discoveries and projects for enhancing existing wells. In addition, our Group has recently emerged as an engineering solutions provider for workover projects. Our Group has provided lifting solutions for workover campaigns in Peninsular Malaysia, Sabah and Sarawak on dozens of platforms with the campaigns continuing into the foreseeable future. Our Group has recently purchased a new ten (10) acre yard at the Teluk Kalong industrial area in Kemaman, Terengganu Darul Iman, which will complement and increase our existing capacity to manufacture, service and overhaul pedestal cranes. The new yard is expected to cater for the growing demand for our Group’s services and cranes. The new ten (10) acre yard is expected to be completed by the second quarter of 2009 and has the capacity to manufacture, service, maintain and overhaul an average of approximately thirty (30) offshore cranes per annum compared to our Group’s current plant capacity of approximately twelve (12) cranes per annum. 6. INDUSTRY OVERVIEW AND OUTLOOK (Cont’d) 6.6 SUBSTITUTE PRODUCTS/SERVICES Our Group is a fully integrated offshore crane service provider and manufacturer specialising in the oil and gas industry. Offshore pedestal crane services playa critical role in the oil and gas industry. There are no direct substitutes for the provision of such services unless PSG contractors/operators or owners of offshore platforms undertake to perform these services internally. As offshore platforms mature, it becomes more important to maintain the integrity of the high risk offshore pedestal cranes. Over time, the wear and tear of these offshore pedestal cranes have made it costly and time consuming for PSG operators to maintain. Thus, it has become more advantageous for the operators to outsource the maintenance of offshore pedestal cranes as part of its initiatives to reduce costs and enhance efficiency. In addition, the requirement for API2G compliant offshore pedestal cranes also increases the demand for such service providers. Used or reconditioned offshore pedestal cranes can be a substitute for newly manufactured offshore pedestal cranes. However, when a customised platform is being designed and constructed at a substantial cost with the crane being a small proportion of the investment, operators may prefer to have a brand new customised crane included in the program. Small independent platform operators may elect to capture the relatively small cost savings by utilising used cranes. In some other cases, light tender assist rigs and larger floating self-contained workover rigs come with their own cranes. However, these rigs cannot be used on smaller platforms as they may be too heavy and costly. 6.7 INDUSTRY’S RELIANCE ON AND VULNERABILITY TO IMPORTS The main raw materials used by our Group are steel and steel-based products used in the reconditioning and fabrication of offshore pedestal cranes. These are procured from overseas and local suppliers. During the FYE 31 December 2008, purchases of steel products accounted for approximately 25% of the total proforma purchases by our Group. Our Group sources approximately 87% of our steel materials from overseas as steel used in our crane manufacturing activities are highly specialised. As these types of steel materials are easily available from suppliers overseas, any disruptions in supply are minimal. For situations where mild steel can be used, Malaysia’s large output would easily satisfy our Group’s requirements. For the past twelve (12) months up to the LPD, our Group has not experienced any significant shortage in the supply of raw materials used in our manufacturing process. THE REST OF THIS PAGE HAS BEEN INTENTJONALLY LEFT BLANK

 

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