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Chairman Message

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Extracted from Annual Report 2017


Grace and peace to all.

2017 continues to be a difficult year for the offshore market. While there were signs that the sector was heading towards early recovery and oil price was stabilising, there were still many challenges that companies operating in this sector had to overcome after the prolonged downturn.

For Ezion, in view of working capital constraints even though the Group continues to be cashflow positive operationally and had met all financial obligations to our secured creditors and securityholders, we initiated a refinancing exercise to strengthen our financial fundamentals. We requested suspension of trading in Ezion shares back in August 2017 so as to minimise potential negative impact on the share price amidst the challenges of the refinancing exercise.

We must thank you and all our stakeholders, including Secured and Unsecured Lenders as well as Securityholders, for your understanding, patience and prayers during this long arduous 9-month period when our committed management team worked tirelessly with our professional advisors to put Ezion on stronger anchor.

We are both humbled and grateful to have received votes of confidence and endorsement from all our stakeholders for our very extensive and complex refinancing exercise, culminating with shareholder approval at the recent EGM.

Holding Hands To Preserve Value For All Stakeholders

The refinancing plan involved Secured Lenders agreeing to a 6-year refinancing plan for their existing facilities of approximately US$1.5 billion with minimal fixed principal repayments, reduction of interest rates as well as an additional working capital line of up to approximately US$118 million.

Securityholders have also agreed to extend the maturity of their S$575 million securities by 6 to 10 years, a reduction of interest rates to 0.25% per annum and lifting of all covenants. In addition, 79% of the Securityholders chose the convertible bond option to be able to convert their securities into Ezion shares.

Unsecured Lenders with existing facilities of approximately US$18 million extended their help through a reduction of interest rates and exiting via exercise of stapled warrants to convert outstanding amounts to Ezion shares.

The Company will also be issuing 3 warrants for every 5 shares held by all shareholders.

Rationalising The Business

Due to the complexities of the refinancing exercise over a protracted period, the Group's operations had been adversely affected by working capital constraints, exacerbated by delays in payments from clients and limited ability to utilize our bank facilities. These affected the Group's ability to deploy our liftboats to our customers due to shortage of funds. The prolonged downturn in the Oil & Gas sector also affected the utilisation of some of the Group's other vessels, including jack-up rigs and smaller assets such as barges.

Although revenue for FY2017 decreased by 39.3% to US$193.1 million, the Group generated a positive operating cash flow of US$62.6 million during the year.

The Group has since undertaken a rationalization of our business and will focus on the core Liftboat business and scale down Jack-up rigs and offshore logistics vessels as the charter rates of these assets are very depressed in addition to high capital expenditure required for deployment. The Group will continue to look at ways to maximise the recoverable value of its assets, including opportunities to sell under the right circumstances.

As a result, the Group recorded impairment losses of approximately USD$900 million, inclusive of trade receivables, bringing accumulated impairment losses since FY2015 to approximately US$1.05 billion. The Group's associates and jointly-controlled entities also registered a loss of US$16.2 million mainly due to assets impairment taken by these companies in FY2017. Current shareholders' fund as at the end of FY2017 was US$304.8 million.

Positioning For Recovery

The recent stabilization of fossil fuel prices has seen an increase in production activities in the offshore oil and gas industry. As a consequence, the Liftboat division of the Group has been receiving increasing number of enquiries in recent months.

With the completion of our refinancing exercise, the Group will have additional working capital which will be used to deploy more Liftboats. The Group expects its current fleet of 12 Liftboats to be fully deployed by end of 2018, barring any major deterioration of the macro-economic environment. Even though the utilization rate of Liftboats will improve and the Group does not expect charter rates to decline in view of the stabilisation of fossil fuel prices, the Group expects to enjoy material improvements in both topline and bottomline only in FY2019. This is because some of the charters are already contracted earlier at lower rates and not all the Liftboats will have full year contributions in FY2018.

In addition, we have reorganized our senior management team to turnaround and re-engineer the Group for future growth.

We are grateful and delighted to welcome Pavilion Capital as our strategic investor and partner to augment the Group's growth plans. The injection of additional capital is a clear endorsement of Ezion and its business focus in liftboats. The Company is indebted to all its stakeholders for investing in its recovery and growth, giving management and staff the confidence to sail forward and capture growth opportunities in this niche market segment in which Ezion has a strong competitive edge.

Appreciation & Regrets

We are grateful to God for being with us throughout the difficult refinancing exercise. We thank Him for the saints and friends He sent to hold our hands and help us, for the wisdom to deal with the complex problems and His peace to cope with the pressure. May His name be praised forever!

We apologise to all our stakeholders for any discomfort and inconvenience that you may have had to suffer with us. Despite these, you have responded with trust and kindness and, for these, we are most thankful.

We are grateful to our fellow directors for their continued guidance and support. We are deeply appreciative of the unwavering commitment and hard work of our management and staff in these trying times in spite of the stress and pressure they experienced.

To our bankers, we thank you for your grace and unstinting support.

To our securityholders, we thank you for your confidence through the overwhelming votes of approval given at the consent solicitation exercise.

To our business associates and partners, we plan to forge ahead with you, through regular dialogue and closer collaboration. We are confident that together with your support Ezion will be much stronger and even more resilient.

To our co-shareholders, we thank you again for your friendship and support. Please be assured we will continue to work hard to preserve value and grow your investment.

May the Grace of our Lord be with you all!

Dr Wang Kai Yuen

Mr Chew Thiam Keng
Chief Executive Officer

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