Although most of the economies in Asia recovered strongly in 2010, a large number of the developed countries in the west were still feeling the effect of the recession brought on by the financial crisis in 2008 with high unemployment and burdensome public debt. The resultant high fuel cost and volatility of the U.S. dollar had an effect on the operating cost of the Group’s marine transportation business.
Group profit for FY2010 was $549,000 as against a profit of $7.8 million in the previous year. A comparative breakdown of the contribution to the Group’s result is as follows:
In compliance with the change in Indonesian laws, the Group managed to change the entire fleet of vessels to Indonesian flag before the end of 2009. The change in flag of the vessels in 2009 required a large number of vessels to undergo major survey, including docking in local shipyards. Consequently, vessel utilisation rate in 2010 was a material improvement over the previous year resulting in higher volume of coal transported and the marine operations turned from a deficit of $2.3 million in 2009 to a profit of $3.5 million in 2010. The results would have been better if not for the effect of unusual weather conditions which affected the output of the mine which the Group serves. Unfortunately, it appears that the volatile extreme weather pattern is likely to be a more frequent occurrence. Management has taken steps to diversify its geographical spread of its transport route.
The Group’s 50% equipment leasing business joint venture, Tat Hong Energy Pte. Ltd. (“THE”), ceased operation during 2009 and effort is being made to dispose of its remaining equipment. During 2009, THE made a contribution of $7.6 million to the Group, largely as a result of the recognition of a one off income of $11.5 million for the recovery of pre-acquisition loan made by the Company to THE. Group’s corporate expenses in 2010 was absent of gain of $6.5 million resulting from change in corporate structure in 2009.
The Group’s financial position continued to be strengthened by the increasing number of warrants being exercised. During the course of 2010, there were a total of 14,493,500 warrants exercised thereby increasing the Group’s capital by $10.1 million. As at the end of 2010, Group cash balance was $38.1 million.
With a positive cash balance, the Group continued to seek out investment opportunities during the year. The Company is endeavouring to secure a parcel of land for commercial development in Ningbo in Zhejiang province in China, for which the Goup would have a 51% interest. Also, the Group, subject to shareholders’s approval, would make an investment of US$10 million in a United States company which is involved in the production of treated lumber as building materials in the United States. In addition, the Group is also evaluating a few opportunties which are in the Indonesian coal mining sector. Consequently, the Group has increased its head count, including a few senior appointments.
Group’s results for 2011 are expected to rely almost entirely on coal shipping activies as the new investment initiatives are not expected to make any material contribution to Group results during 2011. However, the operating conditons in coal transportation are expected to be volatile depending on weather and the long supply chain of the mining business. Efforts are being made to achieve a better geographical spread of our marine operations in order to achieve a better fleet utilisation rate. I am confident that these initiatives would help to mitigate some of the operational risks. I am also optimistic that the proposed new investments to diversify the Group’s income base will bring long term benefits to shareholders.
Again, I wish to register my appreciation of the hard work and dedication of our staff members and also the support our shareholders and customers have given to us. I am sure their loyalty and support will be duly rewarded.
Michael Sumarijanto Soegijono
5 April 2011