MMA Offshore Ltd full year results: What you need to know ?
Aug 30, 2015 | Team Kalkine
MMA Offshore Limited
The company is based in Australia and engages in the provision of marine logistics and supply base services throughout all aspects of the oil and gas development cycle.it operates in three segments: Vessels, Supply Base and Slipway.It owns and operates approximately 41 vessels in Australia and internationally. Its fleet of vessels includes anchor handling tugs, AHTS vessels, platform supply vessels, multi-purpose survey vessels, harbour tugs, barges and accommodation vessels.It operates supply bases in Dampier and Broome which offer services from vessel support and supply base services, to ship repair and maintenance facilities.The Slipway provides maintenance and repair services to the Company’s expanding fleet in the North West. It offers its services in Malaysia, Thailand, Vietnam, the Philippines, Myanmar, Indonesia, Cambodia, Offshore Brunei, China and the Indian subcontinent.
Results for FY 2015
The year was an extremely challenging one for the company as the price of oil almost halved from over $ 100 a barrel in July 2014 to the current levels of around $ 50 a barrel. The first few months of the year saw the oil price gradually declining because of the increase in supply from US shale and the decision by OPEC not to cut production in November led to a steep decline in the prices. Oil and gas companies were quick to react by drastically cutting capital expenditure and seeking to reduce their operating costs. The effect on the offshore marine sector has been pronounced with the cancellation of many projects and renegotiation and re-tendering of contracts to achieve lower pricing.
Key Financials (Source - Company Reports)
The challenging market conditions had an impact on profitability for the year. Revenues, including the impact of the full year of Jaya operations, were up by 34.9% to $ 790.7 million. EBIT before impairment was up 8.3% to $ 86.9 million.NPAT before impairment charges was up 2.7% to $ 55.3 million and EPS before impairment was down 20.2% to $ .15 per share. The reported net loss after tax was $ 51.3 million after non-cash impairment charges of $ 120.7 million. The final dividend of 1.5 cents per share brings the full-year dividend to 5.5 cents per share which is 56% lower than the previous year. The operating cash flow was up 240.8% to $ 185.4 million, cash at bank was $ 124.5 million and post impairment gearing was 40.8% compared to 36.1% in the previous year.
Vessel Operations (Source - Company Reports)
Operationally, the second half of the year was badly hit by the collapse in the oil price compounded by the completion of major construction activity in Australia. Rates and utilisation were substantially down in all regions and the company continues to pursue its asset sale program though the market is difficult. It is on track to accomplish its cost reduction target of $ 15 million and the year was the best safety performance on record. The company is now focusing on operational excellence and on streamlining the business to position itself for the upswing in the cycle. Managing Director Jeffrey Webber said that vessel utilisation fell from 78% in the first half to 65% in the second half and day rates fell by up to 30% because of cost cutting by oil and gas companies. The international fleet was affected in particular with utilisation dropping to 61% in the second half and rates at historically low levels. The plan sales program to sell vessels was difficult to execute because of the poor market conditions. The Supply Base also had a difficult year with reduced construction and drilling activity affecting profits. However, a major long-term contract was signed recently which will provide stable earnings for the business going forward. During the year, a restructuring programme was initiated which expects to achieve annualised earnings of around $ 15 million and the drive to increase efficiencies will continue in FY 2016.
As at 30 June 2015, the company recognised an impairment charge of $ 120.7 million against the carrying value of its assets which reflects the impact on operations of the current market conditions. A $ 20.7 million charge was recognised against the carrying value of goodwill at the Dampier Supply Base and a further $ 100 million was recognised against the carrying value of the vessel fleet. In determining these charges, consideration was given to the expected future cash flows from these assets based on assumptions about utilisation and rates. The charge is a non-cash one and will have no effect on the covenants related to the company's debt.
Outlook
In Australia, the company continues to service existing production and construction support contracts and is bidding for new opportunities for both long-term and short-term contracts. The construction of Gorgon is close to completion but a number of vessels are expected to remain on contract to support the project through FY 2016. New opportunities for work in FY 2016 are also expected for Wheatstone, Prelude and Icsthys LNG projects. Competition in Australia continues to be intense particularly from international operators as a result of the depressed market conditions and rates and utilisation are unlikely to improve in FY 2016. Internationally, market conditions continue to be depressed with low rates and utilisation in all operating regions and unless there is a sustained increase in the oil price, conditions are unlikely to improve. Generally, visibility in the market for vessels is expected to be challenging with rates and utilisation continue to be under pressure for the next year. In the circumstances, the company is focusing on streamlining and building a base for future growth. A number of initiatives have been taken to improve operating performance, optimise the use of assets and increase productivity.
MRM Daily Chart (Source - Thomson Reuters)
Clearly, the performance of the company depends on the future demand for oil and gas and we would expect that over a period of time, demand will increase particularly in the case of emerging countries like China and India which are rapidly becoming large consumers. Though, at the present time, there is considerable uncertainty about the future, we believe that this company would be a good long-term investment at the current stock prices. We would rate this stock as a Buy at the current price of $0.51 .
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