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REVIEW OF FINANCIAL PERFORMANCE – MARINE SECTOR3. PROSPECTSWith the delivery of only one LST in 2001, bothShipbuilding turnover and its operating profit areexpected to be lower. Shiprepair activities especiallyconversion work is expected to increase. Some maturitiesof funds under management will contribute to thefull year results. Overall, the performance of the sectoris expected to be marginally below 2000.1. FINANCIAL PERFORMANCE1.1 TURNOVERThe sector’s turnover of $359 million in 2000 was40% or $103 million higher than that achieved in 1999.Shipbuilding turnover increased by 66% or $99 milliondue primarily to deliveries of two Landing Ship Tanks(LST) in 2000 compared to only one LST in 1999.For the same period, Shiprepair turnover recorded anincrease of 6% or $5 million due to completion of moreconversion and major repair projects. Engineeringturnover of $18 million was marginally lower by 4%or $1 million in 2000 due to completion of fewerblastdoor projects.1.2 PROFITGross profit for 2000 was $75.3 million, 29% or $16.7million higher than that achieved in 1999 due mainly tohigher Shipbuilding turnover.The sector experiencedlower distribution and selling expenses due to write-backof provision for doubtful debts no longer required, andlower other operating expenses.This was largely offsetby lower other operating income which decreased by$8.2 million due to lower investment income as a resultof fewer funds matured and an increase in provision fordiminution for a long term investment.The above together with share of higher losses fromassociated companies, higher tax expense (by $4.9million in 2000 compared to 1999) resulted in thesector’s net profit for the year of $43.8 million being41% or $12.7 million higher than 1999.1.3 CASH AND CASH EQUIVALENTSCash and cash equivalents as at 31 December 2000 was$351.2 million, an increase of $9.8 million from $341.4million at the beginning of the year.The increase wasattributable to higher cash flow generated from operatingactivities.1.4 CAPITAL EXPENDITURETotal capital expenditure incurred was $4.0 million,mainly for the conversion of the temporary occupationlicence for two floating docks’ seabed to a 26 yearspermanent lease, and purchase of plant and machinery.1.5 ECONOMIC VALUE ADDED (EVA)EVA for full year 2000 was $38.7 million, an increase of$16.1 million or 71% over 1999.The weighted averagecost of capital was 9.9% for 2000 and 1999.2. REVIEW OF BUSINESS ACTIVITIES2.1 BUSINESS ENVIRONMENTThough charter rates for containerships, oil tankers andoffshore support vessels/anchor handling tugs declinedmarginally since 3Q1999, the charter rates remainedstrong.The freight rates have risen in tandem with thehigher oil price and are considered relatively healthy byindustry players, especially when compared to those in1999.We expect to see a gradual increase in the ordersfor new offshore support vessels/anchor handling tugs.With oil price continuing to stay high, oil producingcountries are expected to have surplus funds to replacetheir ageing defence hardware; we anticipate a gradualincrease in the replacement of ageing missile strike craftbuilt in the 1960s and 1970s.Strong demand for containerships, oil tankers andoffshore support vessels/anchor handling tugs isexpected to continue through 2001.This will fuelhigher demand for shiprepair. In addition, shipbuildingprices are expected to firm and delivery times areexpected to stretch longer as shipbuilders register highbacklog of new orders.We expect to see someshipowners turning to conversion in order to meet theincreasing demand.2.2 MAJOR PROJECTSDuring the year, the Marine sector secured a contractfrom DCN International (DCN) of France to build fivestealth frigates for the Republic of Singapore Navy(RSN). DCN will design and construct the first ship.The second and third LSTs were delivered during theyear. In 1Q2001, we expect to deliver the last of theseries of four LSTs and commence construction of thethree platform supply vessels for Tidewater Inc.2.3 MAJOR ACQUISITIONThere was no major acquisition during the year.MARINE SECTOR PROFIT AND LOSS ACCOUNTS2000 1999$’000 $’000Turnover 359,112 255,979Cost of sales (283,768) (197,378)Gross profit 75,344 58,601Other operating income 8,145 16,389Distribution and selling expenses, net 2,657 (5,220)Administration expenses (19,336) (18,454)Other operating expenses (2,305) (5,562)Profit from operations 64,505 45,754Other income (expenses) 1,355 1,884Financial expenses (10) (175)Profit before taxation 65,850 47,463Share of results of associated companies and joint ventures (1,915) (1,096)63,935 46,367Taxation (20,105) (15,189)Net profit for the year 43,830 31,178198 • visionreview of financial performance • 199