JT 8.2016This article by Jennifer Tan (left, Director, Research & Products,  Equities & Fixed Income, at the Singapore Exchange) was published in SGX's kopi-C: the Company brew series on 25 August 2017. The article is republished with permission.

GeraldSeowVeteran seafarer Captain Gerald Seow, CEO of PACC Offshore Services Holdings Ltd (POSH). (Photo: Company)

For veteran seafarer Captain Gerald Seow, the lure of the ocean has always been irresistible.

The Chief Executive Officer of SGX-listed PACC Offshore Services Holdings Ltd (POSH) recalls splashing in the sea as a child, and paddling boats ranging from flat-bottomed wooden sampans to traditional outrigger sailboats known as prahus.

"I've always had a passion for the sea, and spent all my time on boats," Seow smiled.

"When you hop into a boat, put up the sail, and set off into the beyond with a few cans of sardines, some loaves of bread, and a magnetic compass - that's an adventure!"

Seow went to sea at 18, starting his career with Neptune Orient Lines Ltd. Three years later, he was certified as Second Officer, and joined the crew of the tanker Neptune Aries. The memory of one balmy evening in the Saudi Arabian port of Ras Tanura remains indelibly etched in his mind.

LQMB29873One must always challenge the status quo - you need to continue to grow and evolve, or die.

- Gerald Seow
CEO

PACC Offshore Services Holdings

"It was pitch dark, and we had just cleared port.

As the ship sailed out, the captain said to me, 'Mate, she's all yours', and walked off the bridge.

He had entrusted the ship to me," he recalled.

In that instant, Seow gazed into the clear waters of the Persian Gulf and saw a bluish-white phosphorescence bloom in the wake of the ship's propellers, created by billions of tiny bioluminescent phytoplankton.

"That was an unforgettable moment. I was in command of a multi-million dollar vessel, and the realisation filled me with a huge sense of pride and achievement."

Ten years later, Seow came ashore to serve in various senior management positions within the NOL group in both US and Singapore. "Running operations for NOL in a foreign country taught me a lot, and I got to experience the cycles in the shipping industry."

Seow remembers the slew of measures that NOL management undertook to overcome tough market conditions, which eventually helped the group to turn around its US operations.

"Those years taught me the importance of diversification, and how to manage risk. One must always challenge the status quo - you need to continue to grow and evolve, or die."

In 1996, Seow joined Pacific Carriers Ltd (PCL) - part of Malaysian billionaire and Asian sugar king Robert Kuok's business empire - and was instrumental in developing its shipping liner and offshore marine services businesses. The latter was eventually spun off as POSH.

"Basically, I'm fascinated by things that float - be it sailing boats, naval vessels or merchant ships," he grinned. "The world is what it is today because of structures that float and carry you around. They've shaped history."


Brand Building

POSH was listed on the Mainboard of Singapore Exchange in 2014. It has a current market capitalisation of over S$500 million, and is one of the largest Asia-based international operators of offshore support vessels.

"My technical and business knowledge, as well as hands-on experience, having been to sea, offer many advantages," Seow said.

"I understand what a ship can or cannot do, what the business needs or doesn't need, what's important to customers, and how to make a profit from the service."

Seow holds a Certificate of Competency as Master of a Foreign-Going Ship from the Ministry of Transport of New Zealand, and a Master of Science in Shipping, Trade and Finance from City, University of London. He was appointed CEO of POSH in 2013.

The 64-year-old emphasises the importance of remaining relevant to the market. "For any business to be sustainable, it needs to offer solutions, such as cost savings and more efficient ways of doing things," he noted.

GeraldSeow2
LQMB29873

Many people look at a business in terms of how to make a quick buck, but don't focus on providing solutions. So when the market hits a downturn, they become irrelevant.


- Gerald Seow
CEO

PACC Offshore Services Holdings

(Photo: Company)

"Many people look at a business in terms of how to make a quick buck, but don't focus on providing solutions. So when the market hits a downturn, they become irrelevant."

The oil and gas sector remains mired in its worst slump in at least three decades, and the timing of its recovery is unclear.

According to June 2017 data from the International Energy Agency (IEA), oil demand is projected to grow by 1.3 million barrels a day this year, supported by higher consumption in India and China.

However, second-quarter oil output was 1.25 million barrels a day above the same period a year ago - its steepest annual rise since February 2016 - due to increased production by Libya and Nigeria, and a lower compliance rate by OPEC members on the agreed extended cuts, IEA data showed.

As a result, crude has languished below the US$50 per barrel mark, and capital expenditure by oil majors remains depressed.

"At POSH, we are building a brand, and building it over the long term, irrespective of market conditions," Seow said.

While POSH has a diversified business model, it has not been immune to the industry crunch. "We've been very prudent, but the downturn has been surprisingly deep, impacting not just offshore, but shipping as well," he added.

POSH offers a suite of services to its clients across the oil and gas value chain, including offshore supply vessels that support mid- to deep-water operations of rigs and oilfield operators, a fleet of harbour tugs that provide harbour towing operations, as well as a joint venture that offers heavy lift services to shipyards engaged in the construction, repair and conversion of various types of vessels.

The Group swung into the red for the financial years ended 31 December 2015 and 2016, reporting attributable net losses of US$131.0 million and US$371.4 million respectively. For the second quarter ended 30 June 2017, it narrowed its attributable net loss to US$9.1 million from US$17.5 million in the year-ago period.

"We're still pretty busy despite the downturn, and there are pockets of growth that keep our cashflow positive," Seow pointed out.

ICHTHYS EXPLORERIn June 2017, POSH Terasea completed towage and station-keeping for the INPEX Ichthys Explorer, the largest semi-submersible platform in the world. (Photo: Company)

 

♦ Cash is King

As at 31 December 2016, the Group's cash balances stood at US$15.1 million, up from US$13.8 million as at end-2015. At end-June 2017, its cash and cash equivalents were stable at US$14.8 million.

POSH's strong balance sheet has enabled it to clinch landmark projects from global oil majors, including Shell, Inpex and Total. "Some of our competitors were awarded contracts, but could not deliver due to balance-sheet distress," he noted.

"Having been in shipping all my life, I've always known that cashflow is king. Because of our prudent management, we're seen as a reliable service provider to our customers."

As at 30 June 2017, the Group has deployed six vessels to the Middle East to perform their charter contracts with a national oil company, and another six will be deployed progressively over the remainder of this year.

POSH has executed a couple of key projects this year. In the June quarter, it completed the towing of the INPEX Ichthys Central Processing Facility - the world's largest semi-submersible platform located in Browse Basin, off the Western Australian coast.

Stock price  30c
52-week range 27c - 39c
Market cap S$544.1m
Price/Book 0.6 x
Price Earnings -
Dividend yield -
Source: SGX StockFacts

Last month, it completed the towing of the Shell Prelude Floating Liquefied Natural Gas (FLNG) vessel, which is longer than four football fields and the largest offshore floating facility ever constructed.

Following the arrival of Shell Prelude in Browse Basin and connection of the 16 mooring lines, POSH Arcadia - the Group's state-of-the-art, 750-capacity Semi-Submersible Accommodation Vessel (SSAV) - will provide accommodation support during the hook-up and commissioning phase of the project.

More recently, POSH also completed towing of the Ichthys Floating Production, Storage and Offloading (FPSO) facility. In the final quarter of 2017, it will begin towing and positioning operations for the Egina FPSO platform - Total's flagship project that will be located off the coast of Nigeria.

Maintaining the Group's operational excellence is crucial as it executes these bellwether projects. "Right from day one, safety has been our paramount concern, because this is what our clients demand and expect of us," Seow noted.

The Group also makes it a priority to invest in the training, development and welfare of its staff. "Our crew who work on our ships - they are the face of the company and look after our most expensive assets. I know what a difference their commitment makes to our execution and performance."

LQMB29873More than 50% of energy will continue to be sourced from oil and gas over the next 30 years. The long-term viability of the business is there.

- Gerald Seow
CEO

PACC Offshore Services Holdings

He is also cognizant of the degree of mental strength required to be at sea.

"I've been a seafarer myself, so I understand what it takes to be away from home and loved ones for long periods of time."

Looking ahead, Seow remains confident of the industry's prospects.

"According to reports from oil majors, more than 50% of energy will continue to be sourced from oil and gas over the next 30 years. The long-term viability of the business is there."

"We're confident of riding through the downturn successfully, and are preparing ourselves for the recovery."

The Group is focused on reducing operating expenses across operations, pursuing charters that generate positive cashflow and earnings before interest, tax, depreciation and amortisation (EBITDA). It is enhancing its assets by offering more advanced solutions - thereby boosting revenue per vessel - as well as optimising resource allocation to capture longer term expansion opportunities.

"We understand what our customers need, and that gives us an edge."


Shell PreludeShell Prelude FLNG (background), the world’s largest offshore facility, is towed by POSH Terasea fleet. (Photo: Company)

Pockets of Demand

Currently, the bright spots are in Middle East and West Africa. "There are more rig projects taking place there than anywhere else, and we will continue to participate in those tenders," he said. 

The Group has also set up joint ventures in Saudi Arabia and Abu Dhabi with the objective of expanding its presence in those key markets. 

Now is the best time for national oil companies to invest in the exploration and development of new sources, he added. "Onshore oilfields are depleting, and will continue to deplete, while offshore projects are becoming cheaper and more efficient."

POSH is also monitoring sector developments closely.

"A lot of industry consolidation is going on, and that's great, because it will boost pricing power.

LQMB29873A lot of industry consolidation is going on, and that's great, because it will boost pricing power. If a good acquisition opportunity arises that makes sense, we might consider it.

- Gerald Seow
CEO

PACC Offshore Services Holdings

"If a good acquisition opportunity arises that makes sense, we might consider it."

In spite of the myriad of challenges ahead, Seow sleeps like a baby every night.

"We have a strong team, and that gives me a lot of comfort. All relevant processes and procedures are also in place to ensure the company's operational excellence."

He always tries to promote values of teamwork and accountability among his staff. "I tell them to question everything and not to take anything for granted. Basically, step up, speak out, and do something about it."

Integrity and humility are also high on his list. "We must have good intentions, keep our promises, and be very open and transparent in our dealings with others," he said. "It's important to be humble - empty vessels make the most noise."

Outside the office, the father of three girls and a boy, aged 24 to 36, never strays far from the water.

"I love sailing in the Mediterranean - the region has great weather, good marina facilities, and thousands of years of history. The blues and greens of the ocean are also more vibrant, maybe because of the climate."

And despite a passion for all that floats, Seow doesn't own a boat - yet.

"They say owning a boat is like having two wives - it takes up a lot of time. Maybe when I retire?"

Financial results

Year ended 31 December (US$ '000) 2016 2015 2014
2013
Revenue 183,100 280,820 234,037 237,263
Gross profit/loss 4,985 58,026 57,204 72,391
Net profit/loss attributable to holders -371,448 -130,959 53,243 73,371



Quarter ended 30 June (US$ '000) 2QFY2017 2QFY2016
yoy chg
Revenue 42,434 46,109 -8%
Gross profit/loss -2,732 1,833 NM
Net loss attributable to equity holders -9,109 -17,527 -48%

Source: Company data
NM: Not meaningful

 


Outlook & Risks
  • Oil prices remained below US$50 per barrel despite efforts by oil-producing countries to curb oil production, resulting in a lack of new field development.
  • The oversupply situation for all vessel categories continues to exert pressure on charter rates and vessel utilisation, and this will have a negative impact on the Group's financial performance for the year.
  • While other oil-producing regions have slowed down given the weak market conditions, the Middle East and West Africa remain key regions where oil majors continue to issue tenders for vessel requirements. The Group will continue to participate actively in tenders and focus on these regions.



PACC Offshore Services Holdings Ltd

Listed on SGX, POSH is one of the largest Asia-based international operators of offshore support vessels, and among the top five globally,. It owns a diversified fleet providing marine support services to the offshore oil and gas industry. The Group's four key business segments are:

  • Offshore Supply Vessels (OSV) - supports mid- to deep-water operations of rigs and oilfield operators (exploration and construction phases).
  • Offshore Accommodation (OA) - operates a fleet of offshore accommodation vessels providing a range of solutions for offshore construction, modification & maintenance, and decommissioning activities.
  • Transport & Installation (T&I) - supports marine contractors in construction and maintenance of oilfield infrastructure and pipelines.
  • Harbour Services & Emergency Response (HSER) - operates a fleet of harbour tugs actively engaged in supporting harbour towage operators. A joint venture also provides heavy lift services to shipyards engaged in the construction, repair and conversion of ships, offshore drilling units, other offshore structures, as well as topside production and processing facilities.

 

For its 2nd quarter results for the period ended 30 June 2017, click here.

The company website is: www.posh.com.sg.

The ccompany's Stock Facts page is here.

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