Yinson Annual Report 2018

A RELIABLE SHIP FYE2018 saw the FPSO industry benefitting from a revival of contract awards worldwide with nine contracts awarded, six of which were for leased FPSO. Yinson has been able to continuously win projects at the right price as well as on the right terms and will continue to bid for jobs in our core geographical areas of Asia and Africa. And by meticulously managing the risks of each project, we have been able to strengthen our balance sheet and achieve new highs in our order book and cash levels. One of the strengths of Yinson is our contracting model via termination protection, that ensures the Group is able to recoup our costs and expenses through early termination payment, in the event of a contract termination. Our typical contract structure ensures that termination at the charterers’ convenience will result in payment of termination fees covering the project’s outstanding loan, equity injected, plus cost of debt and equity as well as an additional amount generating the desired equity return, thus ultimately protecting Yinson’s original investment. Such compensation schemes have shown to have helped avert the adverse financial impact against the Group, and an example of good termination mitigation and how we choose strong partners is the termination fee of USD209 million that we received from PTSC for cancelling a bareboat charter contract resulting from the liquidation of LSJOC. There are now fewer players in the FPSO business with not many new players coming in at the global scale. To remain at the fore front we need to maintain our solid track record, strong technical capabilities and ability to finance projects. Although demand for FPSO services was previously softer due to the low oil price environment, it has since picked up as oil prices shift towards more stable and economically viable levels that enable our clients to plan their developments. Meanwhile, our funding strategy based on the concept of capital asset velocity, as demonstrated by our new consortium partners from Japan, will hopefully be able to provide the Group with access to more markets and a bigger fleet of vessels as well as better financing to strengthen our position together with our partners. For the long term, the Group has an order book of USD3.1 billion (of which USD2.2 billion has been firmly locked in) as at 31 January 2018, which will keep us occupied up to year 2037. We are pleased to highlight that the Net Debt/EBITDA ratio is now at a low i.e strong 3.65 times which, when taken together with the long tenure of our contracts in hand that go beyond 10 years, is a positive indication of the solid future equity value for shareholders that we expect to not just preserve but also grow. The strong future cashflows place Yinson in a favourable position if we were to decide to use it to finance further growth. In terms of financing, the strategy is to ensure that project level debt is self-sufficient and that the quantum of termination payments is sufficient to repay project level debt. On an ongoing basis, contracted project cash flows will be used to service project debt while any excess may be used to service or pay down corporate borrowings. In the event of a contract termination, the early termination payment will be used to first extinguish project debt before any excess is upstreamed and used to pay down corporate borrowings. Corporate Overview Stewardship Governance Accountability 45 Yinson Holdings Berhad Annual Report 2018