Annual Report 2016: Chairman’s Statement

Dear Shareholders,

On behalf of the Board of Directors, I am pleased to present the Annual Report and the audited financial statements of Carimin Petroleum Berhad (“Carimin” or the “Group”) for the financial year ended 30 June 2016 (“FYE2016”).On behalf of the Board of Directors, I am pleased to present the Annual Report and the audited financial statements of Carimin Petroleum Berhad (“Carimin” or the “Group”) for the financial year ended 30 June 2016 (“FYE2016”).

INTRODUCTION

The year in review marks our second year as a public listed entity and it has certainly been a challenging period for the oil and gas industry. The effects of a global decline in crude oil prices as well as turbulent global economic conditions continued to be felt, resulting in oil and gas majors trimming back on both capital (“Capex”) and operational expenditures (“Opex”). The ensuing cut-back had a significant impact on the industry, especially for companies operating within the upstream segment.
Carimin responded to the challenging environment by initiating various measures to maintain business sustainability and shareholder value. We have been pro-active in re-aligning our business model and organisational structure to remain competitive while maintaining our level of service to our clients.
Despite the challenges faced during the year under review, Carimin continued to make progress and registered a return to profitability in FYE2016.

REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE
In FYE2016, crude oil prices had dropped to USD30 per barrel before normalising at USD40-USD50 per barrel. Traditional oil producing economies including OPEC and non-OPEC member countries continued to produce high levels of crude in a bid to maintain their production quota and market share. The scenario which had first emerged at the tail-end of 2014 persisted to 2016, exacerbating existing market conditions.
The abundant supply of shale oil and slower than expected economic recovery from the US, China and Europe also compounded the situation, as the world market could not absorb the excess oil production.
Oil and gas majors, in response to the depressing environment in FYE2016, embarked on cost-cutting measures – implementing cuts on Capex and Opex. PETRONAS alone trimmed its Capex and Opex budget for 2016 by a combined value of RM15-20 billion. This resulted in projects having deferred or cancelled, reduced numbers of contract award and re-negotiation of the contract terms which had impacts on financial performances.
On a positive note, the Group remain resilient by achieving various business and operational core activities. The Group recorded a return to profitability, recording a profit after tax of RM3.45 million for the FYE 2016 as compared to the loss after tax of RM8.25 million in the previous financial year. The turnaround performance cumulated from realized foreign exchange gain and better cost management but was offset by higher financing cost and impairments on project cost.
For FYE2016, Group revenue declined by 24.42% to RM123.53 million compared to RM163.44 million registered in FYE2015. The drop in the revenue was attributed to lower contributions from the manpower services and offshore Hook Up and Commissioning businesses. Both divisions saw fewer and smaller value work orders executed due to reduction of oil and gas activities in Malaysia.
The Group’s RM101.46 million Accommodation Workboat (“AWB”), Carimin Acacia arrived in April 2016 as planned during the Initial Public Offer exercise which was part financed by a term loan. Although the Group’s gearing ratio increased from 0.28 times to 0.58 times due to the acquisition, the Group’s balance sheet remains healthy with total equity amounting to RM163.07 million as at 30 June 2016, and a net cash position of RM68.57 million.

Dividend
In anticipation of the low demand from the existing core business and the required working capital by the Group’s proposed diversification into the construction business, the Board of Directors does not recommend any payment of dividend for the financial year under review.

Corporate Governance
The Board of Directors is committed in adhering to the Best Practices in Corporate Governance as identified in the Malaysian Code on Corporate Governance 2012 (“Code”). We remain steadfast in ensuring transparency, accountability, integrity and the highest standards of professionalism, expertise and technical know-how within the organisation.
We are committed to safeguarding the best interest of all stakeholders and ensuring the sustainability and value of our business. Measures put into effect to ensure compliance with the Code are detailed in the Corporate Governance Statement section of this Annual Report on pages 24 to 33.

These measures are further described in the Corporate Governance Statement section of this Annual Report.

OUTLOOK AND PROSPECTS
The immediate future for the oil and gas sector is likely to remain subdued – weighed down by the twin effects of oversupply of crude and low oil prices. While recent decision by OPEC to reduce daily crude oil output by 1-1.5 million barrels has given some measure of optimism, it is unlikely to be sufficient to see a quick return of the oil prices to the USD70-80 mark this year or even in 2017. The slow recovery of the global economic will also have a dampening effect on the overall consumption.
Given the present low-oil price environment and tight market conditions, we expect market competition to be stiff with more players bidding for a limited number of contracts causing further pressure on the thin margin.
The industry outlook is expected to remain uncertain over the next year and the Board is in support of the proactive steps taken by management to ensure that the Group is able to deliver on its strategy to aggressively rebase its costs and ensure long-term sustainability of the business, thereby protecting and enhancing the value for shareholders.
We remain in a healthy position financially with a stable cash reserve. Our order book as well as long-term contracts provide some measure of insulation for the coming financial year. Thus far, we have tendered for several major contracts and, given our success rate over the years, we are optimistic of continuing to shore up the order book in FYE2017.

Our Appreciation
On behalf of the Board, I wish to extend our sincere appreciation to our dedicated staff whose professionalism and commitment to the Group have been impressive in powering the Group’s encouraging performance during a challenging FYE2016.
I also wish to thank my fellow Board Members for their counsel and support, the Management of Carimin for their resilience and steering the Company towards profitability as well as our business partners and shareholders for their continued confidence during the year under review. The Board is committed to fulfil its role in steering Carimin to continued success and ensuring all stakeholders interests is safeguarded.

Tan Sri Dato’ Kamaruzzaman Bin Shariff
Non-Independent Non-Executive Chairman