GIKEN SAKATA: To boost earnings with oil & gas drilling

Below is a summary of questions raised at the Group’s results briefing, and the replies provided by Mr Yeung, executive director / CFO Ng Say Tiong, Deputy CFO Valentin Schillo and CSE managing director Charles Madhavan.

"Both business segments are stable. We are not a risk-loving company," said Group CFO Ng Say Tiong.

Q: Why did you increase equity to repay debt in March when your gearing was low?

The debt was restructured 6 years ago with terms and conditions that would have made our investment in Cepu Sakti difficult. It was easier to just repay the debt.

When you come out of debt restructuring, banks are not keen to offer refinancing facilities. The precision engineering business requires a lot of working capital. The placement proceeds have expanded our working capital and net profit has quadrupled.

Giken is now entirely debt free. Our recent good set of results will allow us to seek debt financing for our precision engineering business.

Q: What is the utilization rate of your precision engineering facilities?

Right now, it is about 65% to 70%. We intend to expand our production capacity for medical products. We are manufacturing parts for medical devices such as catheters and scopes for well-known European and Japanese brands.

We command a price premium for our engineering services because of our track record with Japanese and European customers.

We also manufacture components for grooming care products (such as hair dryers) and garment care products (irons) for a very well-known Dutch company.    

Valentin Schillo was appointed as Giken Sakata's Group Deputy CFO on 16 September 2014. He was formerly the Group's independent director and a member of its audit committee.Q: What are old wells?

There are two things we do with old wells. We either re-enter the old well or twin-drill near it.

When we first started, we tried to enter the old wells but we found that the Dutch deliberately tried to destroy these wells when they abandoned them during World War II.

They dropped things to block the wells, including even grenades to prevent the Japanese from getting the oil.

So, we decided to twin drill the fields about 10 meters away from the original opening.

With today's improved pumping technology, we are able to drill much deeper than the Dutch.

At our new oil fields, we found virgin pressure still present because the Dutch took very little oil (only about 2% to 3% of the oil well formation).

It was very good for us because there is high oil pressure at shallow depth. This means we get natural flow without pumping. We are thus able to extract oil without incurring diesel energy cost for the pump.