(23 April 2010) Slump in the oil industry amid global economic meltdown has taken its toll on the operating performance of TSC Offshore With sharp decline in oil price and drastic reduction in customers’ capital expenditure, the Group saw a decline of 29.5 per cent in its consolidated turnover to US$112.8 million for the year ended 31 December 2009. The Group also made provisions with an aggregate amount of US$7.9 million for possible impairment of doubtful debts and inventories, and losses on several contracts in the books of TSC Offshore (UK) Ltd, (formerly known as Global Marine Energy, Plc. (“GME”)), which the Group acquired in 2008, leading to a loss attributable to equity holders of US$10.2 million for the year under review.

The board of directors of the Company decided not to declare a dividend for the year ended 31 December 2009 (2008: nil).

During the year under review, the Group’s total turnover comprised turnover from rig products and technology, rig turnkey solutions, oilfield expendables and supplies, and engineering services, which amounted to US$81.7 million (2008: US$95.5 million), US$14.3 million (2008: US$46.5 million), US$11.5 million (2008: US$17.3 million) and US$5.2 million (2008: US$824,000) respectively.

Decrease in turnover was mainly due to significant reduction of drilling activities and steep decline in crude oil prices from a high of US$130 per barrel in August 2008 to US$39 per barrel in January 2009 amid worldwide recession. Moreover, interruption in the progress of a rig turnkey project of the Group as a result of change in ownership of the shipyard and the completion or near completion of several capital equipment projects taken over by the Group from the acquisition of GME also contributed to the decline in turnover.

"2009 was the most challenging year for the Group in its 10-year history. But with the recovery of oil prices from the low of US$39 per barrel in January 2009 to an average of US$62 per barrel for the year 2009, we saw the return of confidence as we received more enquiries and were able to secure US$30.7 million worth of new orders up till mid April 2010,” said Mr Jiang Bing Hua, the Executive Chairman of TSC Offshore.

During the year, high costs were involved in the completion of certain projects which were taken over with the acquisition of the GME Group. This together with a reduced turnover led to a decline in gross profit and gross profit margin of 51.3 per cent and 8.5 percentage points to US$21.3 million and 18.8 per cent respectively as compared to those of 2008.

The legacy contracts entered into by GME prior to the acquisition by the Group were under priced and contained unfavourable terms. Through the provisions made for these GME projects, the adverse impact of the legacy contracts is likely to have been largely recognised in 2009.

In June 2009, the Company became listed on the Main Board of the Stock Exchange of Hong Kong Limited by way of transfer of listing from the Growth Enterprise Market. In December, the Company completed the placement of 90 million shares at HK$2.53 per share to raise net proceeds of approximately HK$221.9 million, which were used as general working capital of the Group for developing deepwater related products and future acquisition.

As at 31 December 2009, the Company’s financial position remained healthy, with cash at bank and in hand amounting to US$38.5 million and a gearing ratio of 60 per cent.

While 2009 was a difficult year, it also provided the Group with the opportunity to better prepare itself for the industry recovery in 2010. To achieve further centralisation of production, the Group completed its Qingdao manufacturing facility ahead of schedule in June 2009. New warehouses and repair facilities were also setup in Brazil, Singapore and Middle East, providing convenience to stock and offer the Group’s products to all customers at various locations. In addition, the Group has doubled its capacity for rack cutting to meet with rising demand.

Referring to the successful integration of GME in 2009, Mr Jiang said: “We have now consolidated our position as one of the three companies in the world with such a comprehensive range of products and level of expertise for the oil and gas drilling industry. We will leverage GME’s deepwater engineering capabilities and blue chip clientele to build a solid technical core competency, with which the Group will utilise to develop the international deepwater and offshore market.”

Looking into 2010, Mr Jiang remarked: “As the world economy heads out of the recession, oil consumption will increase, leading to higher oil price and more investments in the industry, particularly in the deepwater sector. Favourable government policies in the US, Brazil, China, Mexico and the OPEC nation towards oil exploration and production activities are also positive signs for the industry. A good indicator is rig utilisation, which has climbed up to over 80 per cent on average. This has resulted in increasing enquiries from customers for turnkey packages.”

"In 2010, the Group will continue with its key strategy to be a total solutions provider through fully leveraging its existing capabilities to capitalise on market opportunities. In particular, the Group will expand its market coverage through oilfield engineering services. The Group will also explore further business prospects through its strategic alliance with internationally renowned offshore rig designer Friede & Goldman and world leading rig builder Yantai Raffles Shipyard Limited (“YRS”)," said Mr Jiang.

In February 2010, the Group and YRS entered into a new master agreement, pursuant to which the Group will sell to YRS equipment and turnkey projects with an annual cap of US$200 million for each of the two years ending 31 December 2011.

"With its strategic partners and being one of the three companies in the world capable of providing rig total solutions, the Group is confident in achieving its long-term target of becoming a major product and service provider in the oil and gas exploration and production sector. To meet its business development, the Group will pursue expansion through organic growth and strategic mergers and acquisitions of those that will provide the best synergy to the Group’s existing business and to further diversify its revenue base,” Mr Jiang added.

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