O TTO M ARINE L IMITED - Microsoft Internet Explorer - SGX

uilding such vessels. Higher demand for vessels with higher specifications from our customers may increase
our profit margins, while lower demand for such vessels from our customers generally results in lower profit
margins.
Other factors that significantly affect the demand for vessels in the offshore marine industry include the
following:
the age and condition of the existing global fleet of offshore support vessels and the actual and planned
replacement of such vessels;
the cost of building new vessels compared to the cost of purchasing and/or repairing existing vessels
and/or the charter rates of vessels available for charter; and
changes in laws and regulations that affect the technical specifications required of offshore support
vessels.
The Supply of Vessels in the Offshore Marine Industry
Our results of operations are also affected by the supply of vessels in the market. An increase in the
supply of vessels could result in our customers placing fewer orders for vessels with us or paying lower prices
for vessels that they do order, either of which would have an adverse effect on our revenues. The number of
vessels ordered is usually based on the estimated demand for such vessels in the future. As there is a lag
between the time new vessels are ordered and the time of their actual delivery, there could be a mismatch in
demand and supply when fleet owners take delivery of the vessels.
The entry into the market of new vessels or vessels on charter would increase market supply. During
periods of low demand, such an increase in supply would intensify competition and may curtail the
strengthening of or reduce the selling prices of new vessels and the charter rates of vessels. Customers may
reduce their capital expenditures for newbuildings or default on their existing orders with us or may
renegotiate or terminate their existing charter party contracts with us if they are able to secure lower rates
elsewhere. We would expect any of these events to have an adverse effect on our businesses and results of
operations.
On the other hand, when there is a shortage of vessels in the market, the demand, selling prices and
charter rates for vessels may increase which would, in turn, be expected to have a positive impact on our
revenue and profitability.
Our Production Capacity
Our results of operations and financial condition are affected by the extent to which we successfully
manage our actual and planned production capacity to match with the actual and anticipated demand
conditions for offshore support vessels and the types and sizes of such vessels. If we do not have sufficient
production capacity to meet market demand, we may lose out on shipbuilding contracts that may instead be
awarded to our competitors, which would cause us to forego potential revenues and impede the growth of our
business. Increasing our capacity would increase our costs, but in periods of high demand, we would expect
this cost increase to be more than offset by increased revenues. Conversely, excess capacity during periods of
reduced demand would leave us with high fixed costs but lower revenues, thereby reducing our profitability
and margins.
Our production capacity is dependent on several factors that include: (i) the size of our shipyard in
Batam, Indonesia, (ii) the number, size and capacities of our Syncrolift», slipways, berths and docks, (iii) our
plant and equipment, and (iv) the extent to which we are able to outsource our shipbuilding operations to
suitable third-party shipyards. Our Syncrolift» has the capacity to construct vessels of up to 100 metres length
overall (LOA) and 20 metres in breadth with 3,500 tonnes displacement. Our existing drydock has the capacity
to construct vessels of up to 140 metres LOA � 35 metres in breadth.
We intend to undertake the following upgrading works to our Batam shipyard facilities to increase our
production capacity: (i) expand the usable waterfront of our Batam shipyard from 450 metres to 800 metres,
(ii) extend our Syncrolift» berthside by 32 metres � 245 metres, and (iii) purchase additional gantry cranes.
We have commenced construction of one slipway. We intend to complete these expansion and installation
works by end of the FY2009, which would significantly increase our production capacity.
As at 8 August 2008, we were building 26 vessels in our outsourced shipyards in China with a total
outsourced contract value of S$207.2 million, of which 18 vessels with an outsourced contract value of
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