Chairman Message

Mr. Prasert Bunsumpun

Chairman of the Board

Dear Valued Shareholders,

It is my great pleasure to present to you our Annual Report 2016. This has been another eventful year in Mermaid's story with developments that have tested our faith and placed us on the foundations for stability and growth. At the outset, Mermaid has retained its status as a leading international specialist for subsea services incorporated in Thailand and listed on the Singapore Stock Exchange with operations bases in various locations in South East Asia and the Middle East. Our business model is centered on owning, chartering-in and operating a diversified portfolio of specialist vessels, barges and rigs and providing a complete suite of turnkey services. Our quality customer base and stable contract backlog provides earnings visibility and our operational performance and proven track record has given us premium status amongst our peers.

In 2016, the overall drop in oil price and its continued volatility led to a survival mindset for many industry players. In response, oil companies slashed budgets with non-essential projects put on hold or cancelled and essential projects subject to scope and cost reductions. The flow down effect had hit contractors hard, with many experiencing sinking charter rates, vessel and rig layups and personnel layoffs and some eventually ending up going bust in the process. Cost reduction strategies implemented across the industry reduced its cost structure that, while not leading to substantial profits, seemed to offer some a path to survival.

In 2016, Mermaid focused on pursuing corporate strategies for resilience, operational excellence and most importantly in delivering bottom line results throughout the organization. One important fact that should not be overlooked is that we have maintained profitability and stability in Mermaid. This fact underscores the willingness of our shareholders, the Board, and management to work together towards our stated objectives of growing Mermaid and creating maximum value for shareholders as a result, despite the challenging business environment.

In 2016, revenue earned was USD 185.2 million representing a 45 percent decrease from USD 336.6 million in 2015. However, Mermaid delivered a net profit of USD 17.2 million in 2016, representing a six-fold increase compared to normalized net profit of USD 2.8 million in 2015. Earnings achieved a turnaround in 2016 driven mainly by steady utilization of our dive support vessels ("DSVs"), implementation of cost saving initiatives and lower depreciation post-asset impairment in 2015.

Also noteworthy is that in 2016 Mermaid generated USD 49.0 in positive cash flow from operations, and our ending cash balance was USD 97.7 million against debts of USD 89.5 million, hence net cash positive. Our backlog, excluding earnings from our associate Asia Offshore Drilling Limited ("AOD"), stood at USD 170.6 million as at 31 December 2016, lower than in previous years, but still competitive given market conditions. Our commercial team are also aggressively tendering for new jobs to add to our backlog.

In 2016, Mermaid also de-risked itself from potential new build deliveries. Mermaid had, in the midst of the oil price boom in 2014, entered into construction contracts to build two performance class tender asset drilling rigs and one DP2 dive support and construction vessel in China. In light of the subsequent challenging global oil and gas market situation that has, among other things, materially affected the market value of these units and their potential charter hire day rates, the construction contracts were all cancelled by mutual agreement in 2016 signifying an exit from these commitments.

Another highlight is that Mermaid's associate AOD secured three-year contract extensions for all three of its jack-up drilling rigs, thus assuring their continued employment through this period until 2019.

As a result of the challenging outlook across the oil and gas industry, a two-pronged strategy was developed and implemented by Mermaid's senior management team that takes into account both a short-term /tactical approach ("Strengthening our Core") and a longer term vision ("Positioning for Growth"), that will ensure our ability to continue to build sustained shareholder value.

Strengthening our Core: In adhering to our "Strengthening our Core" strategy, we prioritized revenue protection initiatives and streamlined our internal processes. Key achievements in 2016 included rationalization of un-competitive assets across our drilling and subsea services segments; and intensification of efforts to improve internal costs efficiency and productivity while strengthening our overall control environment.

Positioning for Growth: In furtherance to our "Positioning for Growth" strategy, we continued to focus on a value chain move to higher value engineering segments offering short and medium range turnkey contracts or lump sum contracts such as subsea cable lay and decommissioning services. We have also implemented selective geographical expansion programs.

The subsea market was characterized by hunting down any work that could be found. During 2016, subsea field development EPC projects continued to stall rapidly for a second year and major subsea contractors experienced lackluster order intake and backlogs down 40-50 percent from peak 2014 levels. E&P sanctioning of new field developments is expected to remain at very low levels until oil price picks up further and looks set to remain at more reasonable levels for a sustained period again. Inspection, repair and maintenance ("IRM") services remain in demand, particularly in the shallow water segment. However, demand for such services had experienced contraction.

IRM and survey service revenues decreased 22.0% from USD 225.2 million in 2015 to USD 175.6 million in 2016. Subsea cable laying and engineering works revenues also decreased 91.3% from USD 111.3 million in 2015 to USD 9.7 million in 2016. The decline was mainly driven by lacking numbers of awarded projects, size of projects and competitive pricing.

The offshore drilling market showed little signs of life. Oil prices may have rebounded during 2016, but rig demand across the board continued to wane. Based on the market dynamics currently in place, there is no anticipated market recovery until the second half of 2017 or later. In 2016, both of our tender rigs, 'MTR-1' and 'MTR-2', remained uncontracted as a result of limited demand in the market. We are currently reviewing several options for the rationalization of these assets.

In contrast, Mermaid's associate AOD secured three-year contract extensions with its existing customer for all three of its jack-up drilling rigs, thus assuring their continued employment until 2019. AOD's rigs have delivered exemplary operating results, with utilization for all three rigs at above 98 percent.

To emerge stronger and better valued through these challenging times, Mermaid has taken the considered course of action to conserve its cash reserves in order to maintain its stability and to be ready to engage in opportunistic moves that may arise, thus limiting its ability to pay dividends on this occasion.

Customer service remains our crucial differentiator. There are many reasons why our customers choose us. We have an excellent health, safety and environment track record which we are proud of. We also offer first tier service quality in a competitive price mix. We have capability and resources to handle large and small projects as required, and to this end provide a ‘one-stop-shop' service point. We are supported by a large pool of in-house experienced and dedicated personnel, strategic local partnerships in various geographies, local talent development programs and local content compliance initiatives, and we are fully compliant with international standards on our vessels, rigs and equipment.

We have also worked hard to earn a track record of successful projects with reputable clients, to develop regionally based operations with long-term customer relationships, and have systems in place to allow dedicated customer support and quick response to emergency call outs and variation orders at all times and in all situations. As a result, we are pleased to receive continued repeat business from our customers.

The turnaround will still require patience and will be about having strong management - commercially, operationally, and most importantly financially. The makeup of energy supply might also be changing to cleaner energy but the fundamental need for oil is not going to go way. According to the EIA, by 2030, renewable energy is expected to grow fastest, coal use plateau, natural gas surpassing coal and oil maintaining its leading share.

Although Mermaid maintains a cautionary perspective on the oil and gas outlook over the next 12 months, Mermaid believes that it remains one of those well placed companies due to its strategic industry positioning, reputation, track record, and fiscal discipline. We intend to strive forward to maintain our competitive position.

Mermaid's priorities for 2017 will be to continue to expand our service offerings to existing customers and to win new customers in order to grow our revenue base further. Mermaid will also continue to focus on optimizing performance and maximizing cost efficiencies in its businesses. We will also continue to pursue potential mergers and acquisitions for immediate opportunistic growth.

Reflecting back on the milestone developments in 2016, our achievements would not have been possible without the support of our various stakeholders. To our Board, I would like to thank you for your invaluable contribution and commitment. To our management and staff, the results we have achieved bears testimony to your hard work and dedication. Ultimately, it is our people who make the real difference in setting us apart from the competition. To our business partners and customers, we thank you for your faith and trust in us. We truly value our win-win relationship which we hope will endure in the long term.

I would like to conclude by expressing my heartfelt appreciation to our shareholders for your continued support all these years and for your continued confidence in us and particularly given the challenging business environment. As we focus towards a new chapter of our growth and our core mission of being the "Contractor of Choice", the Board and management will remain committed to comply with corporate governance best practices across our businesses and delivery of bottom line results to shareholders. With your continued support, I have no doubt that we will endure and when the recovery phase of the cycle arrives we will be "Ready for the Rising Tide".

Yours Sincerely,