Scomi Group Bhd is ending the year on a good note with its oilfield services and public transport divisions securing contracts worth RM680.35 million and RM494 million respectively despite the economic challenges.
In its note to shareholders on a review of the group’s performance in 2010, Scomi’s group CEO Shah Hakim Zain said the downturn during the financial crisis and subsequent drop in oil prices and slowing down of drilling activities had affected the group’s markets in the West particularly the US, Russia and UK.
“The shrinking of these main markets translated immediately to a decrease in revenue of approximately RM309.25 million. Thus it was imperative for us to reduce our costs substantially and hence the difficult decision had to be made of restructuring operations, which included closure or downsizing of operations and stringent monitoring of operating costs resulting in us reducing our operating expenses from RM284.5 million in December 2008 to a RM166.99 million run rate as at December 2010,” he said, adding that despite the financial crisis, the division had maintained reasonable stability in revenue generation which only saw a marginal drop of 8% against the previous year.
Scomi’s oilfield services division’s order book stood at RM1.13 billion as at June while it managed to secure RM680.35 million in new contracts in the second half of this year. The new contracts do not include those from the West which are generally short-term rollover contracts.
“Our focus moving forward will continue to be on strategic go-to-market activities, monitoring of costs, improving operating margins and enhancing our product portfolio with new and improved technologies,” said Shah Hakim, adding the financial crisis has allowed the group to re-think its strategy and re-focus its efforts to capitalise on markets that are emerging as global growth engines.
On the marine division, the high oil price period had eroded its business margins with increase in bunker prices due to long-term contracts which were entered into when oil prices were at RM61.80 per barrel.
“However, over the last several years neighbouring markets have started to enforce cabotage laws in their countries, which have made it difficult for us to grow our business without locally flagged vessels.
“Due to this and our new focus of supporting growth in the oil and gas deepwater developments, we entered into a transaction to inject our Indonesian operating assets into Scomi Marine’s subsidiary company, PT Rig Tenders. This transaction will bring in an Indonesian partner and also generate RM531.9 million for Scomi Marine,” said Shah Hakim, adding that once the transaction is completed the strategy is to give a return to shareholders and reinvest funds into growing the business focusing on oil and gas deepwater requirements.
Scomi’s public transport division’s long patience in holding out for contracts has paid off with the recent award of RM494 million contract for the KL monorail system upgrade to a four-car system.
Shah Hakim said that the group had submitted over 10 tenders and proposals to build monorail and other train-related systems around the world but decisions on the projects have been delayed due to the financial crisis, political changes and funding requirements.
While the delay has impacted its margins, he said going forward, the group is optimistically cautious as it is seeing increasing activities in India, China and the Middle East in this division. - by Sharon Tan
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