A comprehensive compilation of companies in the process and chemicals industries and their supporting industries.

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Local Process Industry Still Stuck In The Groove

1173_1Although the condition in the process supporting industry has continued to repeat itself, it is better to light a candle than curse the darkness.

While most of the major oil companies have seen a return to better days with higher revenues and better profits, our process service providers have yet to see big new projects materialising.

Many small and medium-sized companies have managed to hang on with a steady volume of maintenance work and bits and pieces of small project jobs. But they continue to face uncertainties, not sure when and from where the next profitable job will be forthcoming.

Since many of the industry service providers are small specialist companies, a glimpse of how their main contractors fare might give an idea of where things are going for them.

Same Tune of Stagnant Revenue, Lower Profit
Generally, the four listed companies Hai Leck Holdings Ltd, Hiap Seng Engineering Ltd, Mun Siong Engineering Ltd and PEC Ltd, have in 2017-2018 continued to face “decreasing volume of work and depressed profit margins”, if any at all. They reported a mixed bag of lower revenue and profitability, with more of the latter being the order in the depressed process business environment.

For Hai Leck, its last financial year (FY) ended 30 June 2018 saw revenue drop by 19.7% to S$87.7 million, while profit slumped by 83% to S$1.4 million. Hiap Seng’s latest FY ended 31 March 2018 registered revenue of S$109.4 million, down 30.7%, and a net loss attributable to shareholders of S$18.9 million (S$2.5 million in the previous year). PEC’s revenue was also lower at S$335.9 million for the year ended 30 June 2018 (S$418.6 million in FY2017), and its net profit after tax dropped 16% to S$11.7 million. Mun Siong’s FY ended 31 December 2017 recorded revenue of S$73.6 million, a decline of 22%, while profit before taxation improved 9.7% to S$2.7 million.

The slowdown is due to the dearth of project work. Where there has been project work, some companies have faced losses primarily because of higher costs in fulfilling the contracts. It also seems that most of the companies had already delivered on the projects secured earlier, and there might not be many new ones.

Weak recovery of the oil and gas industry has been the main bane of the process supporting services companies, which face “difficult operating environment” and “intense competitive market conditions”. They are “judiciously controlling operating cost” while keeping eagle-eyed on capital spending, and taking “steps to improve productivity”.

One of the companies also pointed out that “capital allocation seems to have shifted towards shorter-cycle projects”.

Going forward, sentiments continued to be dampened with the companies expecting bad conditions to persist into the remaining months of FY 2018 and they could get worse.

International EPCs More Upbeat
While local engineering, procurement and construction service providers (EPCs) continue to face daunting challenges, with fewer new projects, and having to rely on upgrading, alteration and maintenance work, international EPCs such as Jacobs Engineering, Woods Group and JGC of Japan appear to be more confident about the recovery of the oil and gas sector.

Perhaps, this augurs well for our home-grown players.

The three international players reported mixed results. Jacobs had seen its revenue decline over the last three years, sliding from US$12.2 billion in 2015 to US$10 billion for fiscal 2017. Its earnings were, however, better. With the recent acquisition of CH2M, another engineering company, Jacobs saw better first-half 2018 revenue and earnings.

Jacobs’ orders backlog hit a record high of US$19.8 billion at the end of FY2017. Combined with the backlog from CH2M, the amount rose to US$26.5 billion at the end of the first half of 2018.

Jacobs chairman and CEO, Steve Demetrious, said that the company was “confident that our more cyclical energy, chemicals and resources businesses are well positioned to benefit as markets recover”.

The company raised its earnings outlook for fiscal 2018.

Over at the Woods Group, which acquired Amec Foster Wheeler in October 2017, revenue and earnings increased for the year, compared to 2016.

For the half year ended 30 June 2018, its revenue was up 13.4% with slightly lower earnings before interest, tax and amortisation (EBITA) compared to the last corresponding half.

Its CEO Robin Watson said that the company was “seeing recovery in our core oil and gas market and good contract awards in broader industrial sectors” and it remains “on track to deliver growth in 2018”.

Woods’ order book stood at US$10.6 billion, comprising secured work and estimates of activity under long-term agreements.

Japan’s JGC Corporation also had a share of the struggles in its 2017-18 FY. Its revenue for the year ended 31 March 2018, was up 29.8% but had to settle for lower earnings. Some 70% of its revenue was from the liquefied natural gas (LNG), oil and gas and petroleum refining business.

Business from the Southeast Asian market was down slightly to 11.1% from 11.7% in the previous year.

JGC’s total value of consolidated project orders received in 2017 was 547.8 billion yen, below its forecast of 750 billion yen. It said that its overseas projects received were below its forecast of 600 billion yen, as a result of the “loss of some projects and delay in final investments decision from some customers”. Its outstanding contracts at the end of FY2017 stood at 886.6 billion yen, compared to 1.045 trillion yen for 2016.

For its first quarter ended June 2018, sales declined slightly, while profits were down by about half.

JGC has forecast for the year ending March 2019 700 billion yen in sales and new contracts of 1 trillion yen, with 850 billion yen from overseas, as it is expecting full-fledge recovery in the plant market, including mega LNG projects.

Should the customers of such EPCs regain more confidence and proceed with their investment decision, the realisation of their orders backlog could mean better days ahead for our local service providers.

If there is any flicker of hope, it could not have come at a better time for at least one of our local listed companies, PEC Ltd. In September 2018, PEC announced that it had secured S$250 million worth of new contracts from existing clients in the Middle East and Singapore.

The Middle East contract involves the provision of EPC works for a 600,000-cubic metre crude oil tank terminal, while the ones in Singapore are for propylene tankage facilities, gas pipelines and mechanical works.

A Slower Time Coming?
While it is important for every business to be positive about the future, they still need some predictability to guide them forward. However, the crystal ball has become more and more dusty and less clear. Rising trade tensions, political uncertainties in some countries, geopolitical conflicts and the threat of another debt-induced global economic slowdown have made strategic planning ever more daunting for everyone.

In August 2018 The Straits Times reported that “Singapore's economy appears to be slowing down” as its published government figures showing second quarter growth had slowed to 3.9% year-on-year from 4.5% for the first quarter, below market expectation of 4.1%.

This did not surprise anyone anymore, as the business community had become used to the waxing and waning of its fortunes as economic cycles have become increasingly familiar.

The Ministry of Trade and Industry (MTI) has said that “growth is expected to slow in the second half of the year” as a result of increased global downside risks and uncertainties in the face of heightening trade tensions. It has maintained its forecast for gross domestic product (GDP) growth of 2.5% to 3.5% for Singapore in 2018. In 2017, the economy expanded by 3.6%.

At the same time, business sentiment seems to be trending down with forecast for fourth quarter optimism easing slightly. The Singapore Commercial Credit Bureau's (SCCB) Business Optimism Index released in September showed +9.19 percentage points for fourth quarter 2018, down from +10.58 percentage points for third quarter 2018.

Compared to the same period a year ago, selling prices fared worse while all other indicators were better.

The Index is not far from reality when it comes to pricing, which has become very competitive and a big drag on margins for almost every contractor in the process industry.

The latest Annual Business Survey conducted in 2018 by the Singapore Chinese Chamber of Commerce and Industry (SCCCI) found that of the 960 respondents surveyed 45.4% indicated they have seen a decline in margins. A Business Times report on the survey said that 41.4% of the revenues had increased compared to 36.8% in the previous year, and 78.9% of them had indicated business costs have risen, from 72.3% previously.

The report quoted Roland Ng, SCCCI president, saying that challenges facing SMEs were “rising business costs, manpower shortages and stiff competition in the local market”. Some 43.3% of the respondents were said to be exploring opportunities in new growth markets, with 35.7% saying that they were looking for innovative solutions for their businesses.

Three-Pronged Approach of Innovation, Capabilities and Partnerships
Solutions touted by the government have been to increase productivity, innovate or venture overseas for new markets. With the Singapore market not expanding as much generally, the government has ceaselessly been urging firms to go abroad.

In his budget speech on February 2018, Finance Minister Heng Swee Keat had highlighted the need for Singapore to have “three key enablers that lay the foundation for all the Industry Transformation Maps (ITMs) – innovation, capabilities and partnerships”. They are:
• foster pervasive innovation throughout our economy;
• build deep capabilities in our firms and our people, “so that we can compete not on costs, but on the value and skills we bring”;
• forge strong partnerships both locally and abroad, “so that our firms and people can work together to address common challenges and access new opportunities in our region and beyond”.

The two biggest inter-twined challenges for the process industry are, of course, productivity and wage cost.

In July 2018, Senior Minister of State for Trade and Industry Koh Poh Koon, in reply to a question in Parliament on productivity and wage gains, revealed that wages have been outpacing productivity growth.

He said that over the past two decades, “real wages have grown broadly in tandem with productivity at the overall economy level”. However, between 2011 and 2017, real wages for resident workers increased 1.9% per year, while productivity grew by only 1.1% per year, with differences across sectors.

He warned that “if real wage growth outstrips productivity growth for an extended period, businesses will be at risk of losing their competitiveness and potentially be forced to scale back or close their operations”.

This is a reality for ASPRI members, as the process industry is inherently labour-intensive. When labour supply is tight, wages tend to trend up.

ASPRI is constantly aware of this and has been over the years urging members to upgrade the skills of their workers and adopt innovative work methods to improve productivity.

Productivity Council’s Three-Year Initiative Offers Hope
The Association has given its full support to the Productivity Council’s three-year productivity improvement initiative in collaboration with the Construction Industry Institute (CII) of Texas. CII had worked with the National University of Singapore (NUS) to carry out studies to identify productivity gaps and recommend solutions to the industry.

The studies and productivity measurement exercises conducted under four work groups, namely Certification, Mechanisation, Pilot Projects and Productivity Practices, were concluded in 2018.

The results of the activities conducted by the various work groups were reported at the Productivity Improvement Forum 2018 at the Matrix @ Biopolis on 11 July 2018.

Productivity Council chairman, Koh Yak Boo, in his opening address to participants mostly from ASPRI and the Singapore Chemical Industry Council (SCIC), said the activities in the first three years have helped to build the foundation for productivity improvement.

It was a good starting point and more specialist areas such as electrical and instrumentation could subsequently be added to the improvement programme. More productivity practices could also be adopted as they mature, Mr Koh said.

He pointed out that previously in 2014 the Independent Project Analysis (IPA) study on Field Labour Productivity in Singapore’s Process Construction and Maintenance Sector had found Singapore labour was 65% less productive than the US Gulf Coast (USGC).

He also said that productivity improvement “is not statistically significant”.

However, the IPA had noted significant improvement in Front End Loading (Completeness of Planning) which has a correlation with Workface Planning (WFP), and that Project Control Index (Monitoring of Execution) had also improved.

The IPA’s findings in 2015 showed that the Singapore Index had shifted from 1.66 to 1.65, while those for Southeast Asia as a whole had shifted from 1.7 to 2.0 and East Asia from 1.06 to 1.7.

The Productivity Council, therefore, felt that the Productivity Index was likely to stagnate and erode Singapore’s competitive advantage if there is no structured approach for a productivity improvement programme.

Before the productivity improvement exercise started in 2014 there was no common productivity language and no yardstick for comparison to drive improvement.

In 2016, ASPRI commissioned the IPA to conduct a study to identify key factors affecting productivity in the process industry. Findings include:
1. Importance for plant owners and contractors to share a mutually beneficial, closely communicated relationship
2. Owners planning and execution practices
3. Plant safety requirements
4. Plant permitting practices
5. Plant / site logistics and provisions.

Three years on, the industry has been able to have objective measurements of direct work through Activity Analysis (AA) with suggested improvement measures that are very precise. A global performance benchmark has also been established.

While there was a lack of understanding earlier of the infrastructure necessary to support field productivity, we have now introduced the Best Productivity Practices Implementation Index (BPPII) with improvement measures that help inform about all the infrastructure that needs to be in place for each organisation to have a productive workforce.

At the same time, the industry had linked up with the Singapore Institute of Manufacturing Technology (SIMTech), which had developed tools that could possibly help members.

Previously, the industry was highly dependent on foreign workers given their availability and low cost. There was also minimum capital-intensive mechanisation, which had become a disadvantage.

Now, the mechanisation study has been completed and an Index has been established, and a list of suggested mechanisation tools has been drawn up. ASPRI is also exploring with Enterprise Singapore (ESG) if the latter could co-fund the mechanisation needs of industry members.

Before, not only was there no formal system to drive continuous productivity improvement, there was also no recognition programme for productivity.

The industry is taking steps to introduce the first-ever Certification on Field Labour Productivity. The Certification Workgroup has drawn up a framework which has been used to carry out some trial certification. This is an important step towards establishing a formal certification programme in the near future.

In the case of WFP, two workshops were held where the processes were introduced and understood. Results and lessons learned were shared during the Productivity Improvement Forum held in July 2018. It was shared that enhanced participation of the contractor firms in project planning was essential to improve identification and prioritisation of key items for each project. Involvement of contractors would also enable mitigation of risks associated with the project activities at an early stage.

Overall, while there was co-ordinated productivity improvement effort at the industry level previously, there is now a Productivity Council to co-ordinate and drive it.

A lot has been achieved in the three years, as the Work Groups have been very active collaborating with plant owners, contractors, government agencies and even research institutes such as SIMTech to help with the improvement efforts. Plant owners too have responded very well, giving their full co-operation, especially in the area of permit to work, the location of equipment and other site arrangements.

There is even a website now serving as a depository of various studies and productivity practices and programmes from where users can avail themselves of various improvement suggestions (http://productivity.scic.sg/).

Mr Koh said that over the next four to six years it is important for members to operationalise the various recommendations to get the best of what has been made available for sharing.

Members have what it takes to succeed. It depends on individual companies to take it forward and reap the rewards, he added.

The Productivity Journey Continues; Commitment Essential
Dr Stephen Mulva, Director of CII, who spoke on the CII-NUS productivity improvement project in retrospect, likened it to a journey of training to get to the starting point in preparation for a marathon. Dr Mulva said the training helped companies to prepare for improvements in their projects.

Dr Mulva pointed out that it was no use talking about productivity methods without considering the methods of production. It is, therefore, necessary for companies to constantly ask themselves - is there a better way to do things?

Dr Mulva said that a comprehensive checklist has been made available and companies should embed it into their systems. Furthermore, Dr Mulva said, to achieve the desired productivity level, there is a need for executive-level commitment and to have trained planners and foremen to ensure proper project execution.

On the collaboration over the last three years, Dr Mulva said that it has been very positive and that the NUS had put its heart and soul into the programme. Dr Mulva also said that the process industry here is fortunate to have two top world-ranking universities – NUS, 27th, Texas University 28th – working on the project.

Mindset Shift Towards Productivity Encouraging
Over the last three years, both the publicity and the industry’s participation in the productivity exercise has created a sense of urgency amongst members.

The mindset, especially of the smaller specialist service providers, has gradually shifted towards acceptance of productivity improvement as a way of life, in the face of declining foreign worker numbers being allowed into the industry and higher operating costs.

The Association is heartened that the findings of the AA are aligned with the IPA study. Plant owners also understand that both plant owners and ESPs play complementary roles in productivity improvements and even implemented changes driven by the Productivity Practices Workgroup.

For many of the contractors that had participated in the exercise, it was perhaps a breath of fresh air having being observed, heard and provided with suggestions and tools to adjust some of the ways things were done on the worksites.

Mighty Engineering & Construction Pte Ltd had carried out two AA exercises during its civil works, such as foundations, excavation and backfill, for clients.

Daniel Ong, general manager, said: “It was like a mirror showing how we performed, with results varying from site to site due to different issues faced by our teams.”

“By having a third party to look at us we have a better idea of where we stand, like in a health check, and we can know where to improve,” he said.

Areas found needing improvement were waiting time for permits to be issued; for instructions to be given to the workers; and long travelling time within the sites.

Solutions included organising workers into smaller groups and giving them quantifiable tasks and employing more foremen. The number of transport vehicles were increased to reduce the time incurred in travelling.

For permits, some clients had assigned a Permit Approver and this had helped to ease the bottleneck in the morning.

The company recognises that in the area of planning most of the small sub-contractors that the company works with do not have the resources to do it. Thus, these sub-contractors have been included in the master schedule and tracked on their performance.

Another company, Hertel Singapore Pte Ltd had also participated in two AA exercises. The first one in November 2016 achieved 30% productivity level (3rd quartile) and the second in May 2018 was in the 32-40s range (2nd quartile).

Other useful “low hanging fruits” initiatives implemented by the Productivity Practices Workgroup include cutting unnecessary downtime in areas such as preparation, smoking breaks and permits, as cited by Derrick Toh, site manager in Hertel.

Since the beginning of 2018, the company has invested in automated welding machines, which have helped to complete jobs faster with fewer workers.

Mr Toh said that the tablet used in the AA observations was very useful as it could consolidate all the data and produce reports and graphs to indicate the productivity gaps.

Over at Sankyu (Singapore) Pte Ltd, the company had used the BPPII tool for self-assessment in a turnaround project. It discovered there were weaknesses in the waiting time and work preparation areas, and was rated 2nd quartile in the overall productivity score.

Going forward, the company plans to use tablets to monitor its projects, as its experience in using manual recording was not satisfactory, said Ronnie Seah, Sankyu Singapore’s general manager.

The company has already invested in a bundle puller and plans to further automate other areas to raise productivity.

For the company, whose core strength is in rotating equipment and equipment installation, this productivity effort is just the beginning.

“We already have a roadmap to improve productivity, especially to reduce the time for project co-ordination and status monitoring,” said Mr Seah who is a member of the Productivity Practices Work Group.

For its next project at a major plant, Sankyu will be activating the AA to identify productivity gaps and institute further improvements for future projects.

At UTOC Engineering Pte Ltd, using the AA for the first time earlier in 2018 for a maintenance job at a major plant had been very productive. Several gaps were identified, and solutions implemented.

According to Lourdes Ted Sherman, safety manager, there has been improvement in the issuance of permits to work, lunch time has been staggered and break times have been controlled with supervisors leading by example.

To cut travel time on site, the plant owner has agreed to have satellite equipment stores for workers to access them more conveniently.

Mr Sherman said that the team also shared with plant owners on the gaps at regular fortnightly meeting to address the issues, especially also with the view to introduce new ideas and innovations.

UTOC’s team members have also attended training on the BPPII, and have learned a lot from other contractors. The company has been able to incorporate new ideas into its work plans to cut downtime.

“Using the checklist really helps,” said Mr Sherman.

As for mechanisation, UTOC has already invested in torque wrenches to reduce worker stress and tiredness.

Mr Sherman, who has been in the industry for 14 years, said that he had seen improvements in productivity over the last two to three years, as workers were better skilled.

These companies had gone on the productivity bandwagon under the three-year Productivity Improvement Initiative. However, there were also companies that had gone ahead on their own to improve productivity. One of them, Ferh International Pte Ltd, had attended a workshop organised by the Singapore Malays Chamber of Commerce and Industry, and engaged a consultant to carry out an analysis of the company’s productivity status.

Ferh International subsequently took up a productivity enhancement package from the SME Centre, which helped it to undertake a job redesign exercise and a journey on work process improvement. It had used the IMPACT (Integrated Management of Productivity Activities) Primer tool from the then SPRING Singapore to assess its productivity performance.

The company found out that it was using too much labour, and that its operating costs were high. Mechanisation was also recommended.

It has since 2017 identified the skills and competencies of its workers, categorised them, and matched them to specific job areas to achieve higher productivity and faster project execution. It has also multi-skilled its workers in areas such as scaffolding, painting, plastering, and has been using a system to measure productivity based on labour deployment and costs.

For forward-looking companies like Ferh International, the AA, BPPII and Workface Planning can help the company go much further in improving its productivity and even profitability in the future.

Process Construction Market Increasingly Competitive
The reason for Singapore to become more productive is simple. The process plant construction and maintenance market is getting more competitive. According to the Singapore Economic Development Board (EDB), which presented at the Productivity Improvement Forum in July 2018, China and India are becoming more competitive.

According to the proposed ITM for the Energy and Chemicals Cluster, “continued growth hinges on harnessing growth opportunities and transformation to meet challenges”.

In the area of plant operations, manufacturers are expected to improve productivity and its product slate through upgrading and feedstock flexibility, as well as digitalisation. The process supporting industry on its part would be required to enhance skills training, which is central to continued industry growth. Strengthening its pool of process technicians by attraction and retention, as well as deep skilling, would equip companies to address evolving needs.

The industry should be thankful that the recently concluded, Productivity Council driven, three-year productivity improvement effort has laid the foundation for it to move forward. It is also important that the industry continues to keep its ears to the ground.

Mckinsey & Co, in its “Chemicals 2025: Will the Industry be Dancing to a Very Different Tune?”, has estimated that “the last decade’s 3.6% growth rate for petrochemicals may go down by between 0.5 and 2.0 percentage points over the next ten years, depending on assumptions for regional GDP growth”.

Mckinsey said that more broadly across the industry “companies could be forced to restructure in almost all parts of the world, and we foresee players trying to attain greater economies of scale through new waves of M&A”. One of the most significant implications, it said, was that “there will be less need for new builds”.

Instead, new investments would be for either replacing existing assets or displacing others. It gave the example of new crackers in North America, which have been built to supply Asian markets and compete with exports from Middle Eastern producers.

It said that the strategies of chemical companies “may become simultaneously simpler and more challenging”; because of the obvious need for productivity improvement and functional excellence to deliver “executional excellence”.

Bigger players, especially the major oil companies, would find that greater process integration within their plants would provide greater economy of scale and operational efficiency. There has been a suggestion that building smaller units within a plant could produce a lot of cost savings with minimal disruption to production output, as shutdown could involve just fewer units at a time instead of partial or total shutdown.

In the area of digitalisation, Deloitte had in a report said that the “proliferation of increasingly lower-cost digital technology is already unleashing innovative ideas across the oil and gas value chain”. It added that “the digital age is seemingly moving faster than our previous industrial revolution did and could naturally create winners and losers”.

It said that only those who were brave enough to embrace it (digitalisation) would be the winners.

More Urgency to Act Fast
At the 39th Asia Petrochemical Industry Conference (APIC) 2018 held in Kuala Lumpur in August 2018, delegates were told that six petrochemical plants have been planned in the Southeast Asian region to meet future demand in response to an expected increase of 2.5 billion people in Asia over the next 20 years.

Petrochemical exports in the region alone are expected to increase by 55% to 7.5 million tonnes per annum (mtpa) by 2020 while imports would decline by 28%. This should augur well for Singapore, as indications point to some new projects to be unveiled soon, to tap into the growing demand.

Two recent announcements could be the harbinger of something new on the horizon. In August 2018, Dutch oil and chemical storage company Vopak announced that it would expand chemical and bunker-fuel terminals in three countries, including Singapore and Indonesia. The new investment had been reported in spite of the company’s cost-cutting programme that involves selling some of its assets in Europe.

In another announcement in September 2018, Shell said it had signed an agreement with Oiltanking Singapore for the lease on two more propylene storage tanks on Jurong Island. A newspaper report said that the contract would include “additional pumps and ancillary equipment, allowing integration with existing propylene logistics facilities”.

In spite of the fears of a debt crisis, meltdown from the trade tensions between China and the United States, and continued uncertainties over near-future prospects for oil prices, it is increasingly urgent for the Singapore process industry to transform itself to address the changing needs of the market.