EMAS Offshore Construction (EOCL) ›› Financial

	3 MONTHS ENDED 31st may 2010	3 MONTHS ENDED 31st may 2009	% Increase / (decrease)	9 MONTHS ENDED 31st may 2010	9 MONTHS ENDED 31st may 2009	% increase / (Decrease)
Revenue	18,538	19,862	(7%)	81,489	54,121	51%
Cost of sales	(18,477)	(9,870)	87%	(53,200)	(25,526)	108%
Gross profit	61	9,992	(99%)	28,289	28,595	(1%)
Other operating income /(expenses)	201	(666)	n.m.	(168)	(407)	(59%)
Administrative expenses	(1,871)	(2,211)	(15%)	(6,521)	(7,546)	(14%)
(Loss) / profit from operations	(1,609)	7,115	n.m.	21,600	20,642	5%
Financial income	367	83	(342%)	594	522	(14%)
Financial expenses	(2,320)	(1,150)	102%	(7,176)	(4,626)	55%
(Loss) / profit before income tax	(3,562)	6,048	n.m.	15,018	16,538	(9%)
Income tax	126	(124)	n.m.	(1,560)	(469)	233%
(Loss) / profit for the financial period	(3,436)	(5,924)	n.m.	13,458	16,069	(16%)

Other Comprehensive income
Net gain / (loss) on cash flow hedges	280	(143)	n.m.	(36)	(1,336)	(97%)
Total comprehensive (loss) / income for the financial period	(3,156)	5,781	n.m.	13,422	14,733	(9%)

(Loss) / Earnings per share (cents)	(3.10)	5.34	n.m.	12.13	14.48	(16%)

As a young company, we are focussed on establishing a strong foundation based on core fundamentals and capabilities, upon which we can build our growth for years to come.

Our main business strategy for the construction and accommodation division is to secure long term high visibility contracts for our vessels. Through planning, risk management, and market positioning, we are able to capitalise on the attractive contracts of the offshore construction market.

For the production division, our business strategy of targeting independent and national oil majors as well as positioning ourselves for potential strategic alliances with local companies has proven to be very effective. Through our alliances with various international parties, we have received strong interest to provide floating production solutions within South East Asia. We expect stable and strong growth in this business division in the medium term.

The cash flows and good earnings visibility from our strategy of long term contracts will enable the Group to bolster its capital management and build up cash reserves to fund future expansion plans. The Group manages its revenue and cash flows from a portfolio standpoint with an emphasis on longer term contracts.

With funding from traditional sources such as banks being adversely affected by recent macroeconomic events, a ready reserve of cash is more critical than ever, especially for a Group such as EOC, which is in the early stages of growth.

Global demand for offshore marine support services has been affected by the knock-on and lag effects of the financial crisis, coupled with the flood of available capacity in the market from the introduction of new construction assets over the past few months. However, the outlook is expected to continue improving in the medium term, due to the firming of oil prices, reinstatement of previously planned capital expenditure in exploration and production by most oil majors and national oil companies, as well as the definite maintenance requirements of offshore facilities. Operators providing such services will, however, continue to be challenged in maintaining margins and offering solutions within delivery schedules in the near term

Having built a solid performance, delivery and safety record from the operation of our accommodation barges, we continue to expect significant interest in our assets from existing and new major independent and national oil companies for the remaining of financial year 2010 and 2011. The contract coverage based on current contracts awarded and ongoing negotiations is expected to ensure a healthy level of utilisation for our barges.

The medium to long term demand for FPSOs is expected to remain strong despite a short term decrease in contracts awarded for 2009. Already, in the last quarter of 2009, we have seen a significant pick-up in activity. The total FPSO expenditure in terms of newbuilds and conversions is expected to rise to US$10 billion for the next 5 years.

The growth over the near term is likely to improve gradually as credit markets begin to thaw and provide liquidity to projects on a selective basis. Access to funding is vital for operators and owners seeking opportunities in this segment due to the significant related capital expenditure.

The Production Division has propelled forward with its largest contract win to-date, worth up to US$1 billion with all options exercised, for the provision of an FPSO in Vietnam, as part of a venture involving other partners. The addition of this second FPSO unit attests to the Group‟s ability in rising to meet the challenges faced by the industry.

As of the date of this report, conversion of the second FPSO is in progress and first production is scheduled for mid-2011. We have put in place a project management team which has the fitting experience and the necessary skills for the conversion and operations management phases. The Vietnamese project will greatly enhance our continued pursuit to be a leading global FPSO operator.

The discussions below refer to the 3 months period ended 31st May 2010 (“3Q FY2010”) and the corresponding figures for 31st May 2009 (“3Q FY2009”) for the Group‟s consolidated financial information. The discussions should be read in conjunction with the first quarter announcement for the 3 months period ended 30th November 2009 released on 14th January 2010 and second quarter announcement for the 3 months period ended 28th February 2010 released on 9th April 2010, to obtain an overall understanding of the 9 months year to date results.

Revenue for 3Q FY2010 was USD18.5 million, a decrease of 7% or USD1.4 million from USD19.9 million in 3Q FY2009. The decrease was mainly due to the transition of charter of Lewek Champion and Lewek Chancellor to new contracts. Lewek Champion and Lewek Chancellor commenced its operation in beginning of fourth quarter and end of third quarter respectively. This was partially offset by the contribution of revenue from Lewek Arunothai of approximately USD12.5 million for the quarter.

Gross profit of the Group for the 3Q FY2010 amounted to USD61,000, as compared to USD10 million in 3Q FY2009. The decrease was due to the maintenance downtime of Lewek Arunothai for approximately one and half months and the transition of charter of Lewek Champion and Lewek Chancellor as described above.

Other operating income/expenses, (net) changed from net expense of USD666,000 in 3Q FY2009 to net income of USD201,000 in 3Q FY2010. The change was mainly due to exchange gain resulting from the appreciation of USD against other currencies used for operation.

Financial income mainly relates to interest income derived from cash and fixed deposit accounts placed with the banks.

Financial expenses largely relate to interest incurred on bank loans. Financial expenses increased from USD1.2 million in 3Q FY2009 to USD2.3 million in 3Q FY2010, mainly due to the commencement of operations of Lewek Arunothai in which the interest previously capitalised is now being expensed.

Income tax expense pertains to the amount paid/expected to be paid to the respective taxation authorities. The Group has exposure to income taxes in respective jurisdictions. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of the reporting periods.

The reversal in income tax was mainly due to overprovision of Thailand corporate tax in respect of the operation of Lewek Arunothai.

The discussions below refer to the financial position of the Group as at 31st May 2010 and 31st August 2009.

Total assets for the Group as at 31st May 2010 and 31st August 2009 amounted to USD622.1 million and USD598.8 million respectively. The increase in total assets was mainly due to

(i) investment in associates, additions to long term receivables, other receivables, deposits and prepayments for advance purchase of equipments and services relating to the Group's new FPSO project in Vietnam
(ii) additional capital expenditure incurred in respect of Lewek Arunothai

Correspondingly, the total liabilities also increased as a result of additional financing from banks to undertake the Group's new FPSO project in Vietnam.