JAKARTA — Wintermar Offshore Marine (WINS:JK) has reported results for the 2017 financial year. WINS Gross Profit for 4Q2017 has risen by 26% QOQ to US$2.0 million as utilization averaged 69% for the quarter, lifting revenue by 10% QOQ to US$18.0 million for the final quarter of the year.
Better revenue in 4Q2017 from higher fleet utilization resulted in Gross Profit of US$2.0 million booked for the last quarter of 2017. The full year 2017 gross profit of US$2.5 million shows a clear turnaround from the losses recorded in 1H 2017.
2017 was the third year of a very difficult down-cycle in the oil and gas industry, and our fleet utilisation reached its lowest point in the second quarter of 2017 before seeing a recovery. However, many of our pre-crisis contracts had already been completed by 2017, and replaced by new contracts won in 2017 at charter rates which were significantly lower due to market conditions at the time. Therefore, although the quarterly trend for 2017 has shown a significant pick up in utilization in the second half of the year, revenue for the full year 2017 was lower by 30%YOY at US$62.0 million as compared to FY2016.
Owned Vessels Division
Owned Vessels utilization averaged 69% for the 4th Quarter 2017 as more vessels were mobilized on new projects while some existing contracts were extended. This compares with 3Q2017 average utilisation of 66%.
Notably, in the second half of the year, our high tier vessels saw a recovery in utilization as we took on a seismic project in Eastern Indonesia and supported a drilling project in Papua New Guinea, both of which involved multiple vessels.
Revenue from this Division rose to US$14.2 million, +6% QOQ compared to US$13.4 million in the previous quarter, and 21% higher than revenue of US$11.7 million recorded in the 4th Quarter the previous year.
For the full year 2017, revenue from Owned Vessels reached US$48.0 million, which was 19% lower than US$58.9 million booked in FY2016. Direct expenses fell slightly by 5% to US$47.5 million from US$50.3 million the previous year, reflecting generally lower crewing and operational expenses and higher maintenance expenses. Because of mobilization and startup costs, there were heavy one off maintenance and crewing expenses which were booked in 4Q2017 as vessels had to be modified, overhauled and equipped with more spares prior to commencing longer contracts according to clients’ requirements. However, with the better utilization, the Division turned around from a gross loss in the first half of the year to record a marginal gross profit of US$0.43 million for FY2017.
Chartering and Others
The Chartering Division is seeing a slower recovery than our Owned Vessels Division, as the priority has been to increase Owned Vessel utilization. Total Chartering revenue for FY2017 fell by 65% to US$9.3 million, while gross profit fell to US$0.8 million compared to US$3.7 million the previous year. As the industry conditions improve, we are confident to improve the performance of this Division in the coming year.
Additional projects bringing in fee income, including the ship management of a seismic vessel and the provision of additional value added services for our clients, contributed to an increase revenue from other services compare with 2016. For FY2017, Total revenue from Other Services was US$4.7 million, +18% YOY from US$4 million in FY2016. Total Gross Profit amounted to US$1.2 million.
Indirect Expenses and Operating Loss
For FY2017, total Indirect Expenses fell 12% to US$7.7 million as compared to US$ 8.7 million in the previous year. The largest indirect cost, Staff salaries, fell by 15% to US$4.6 million from US$5.3 million, as we sought to maintain a smaller workforce through the industry downturn without having to resort to retrenchments.
For the full year 2017, we recorded an operating loss of US$5.2 million compared to an operating profit of US$4.9 million in the previous year.
Other income and expense
Owing to lower charter rates in 2017 compared to 2016, there was an impairment charge on the value of our fleet in the amount of US$20.0 million compared to an impairment of US$14.3 million the previous financial year. This impairment was taken as the calculation of the fleet is considered on a Fair Value in Use basis. Since we believe charter rates are already at historically low levels, we do not expect further deterioration in charter rates in the coming year.
Our Associated Company also booked an asset impairment during the year, which led to a loss of US$3.2 million in equity in associates for FY2017 compared to a small loss of US$0.08 million in the previous financial year.
The total impact of these adjustments resulted in a net loss before tax of US$38.87 million for FY2017.
EBITDA, Interest expenses and Debt
EBITDA for FY2017 was US$22.3 million, a decline of 32% from US$33 million the previous year, largely due to lower revenues for the year.
Interest expenses were lower at US$7.6 million (-7%YOY) from the repayment of US$19.1 million of Long term bank debt, while total debt repayment of US$26.2 million during the year brought our total interest bearing debt down to US$107.4 million, resulting in our net gearing ratio staying at a conservative 50%.
Net Loss Attributable to Shareholders
For the Full Year 2017, the total net loss attributable to shareholders amounted to US$27.1 million.
Many of the vessels impaired were the newer and higher value vessels which are held in Joint Venture subsidiaries, where Wintermar owns 51%, therefore, the loss attributable to non controlling interest was significant at US$12.8 million.
Industry Outlook
In 2017 the realization that oil prices had bottomed led to a recovery in drilling activity and there were several projects in Indonesia which restarted again. Several large projects in Tangguh, Madura, Djangkrik, together with a jump in Pertamina Hulu Energi’s (PHE) drilling program in 2018 provide a basis for more optimism in the oil services sector for the coming year.
Globally, the oil price outlook for 2018 remains robust. Supply is constrained by OPEC’s extension of supply cuts until end 2018, generally lower crude oil inventories in the US and a disruption in Venezuelan output due to political issues. Global oil and gas demand however, continues to be buoyed by stronger economic growth, especially in non OECD countries.
Although the US Energy Information Administration is projecting record production of US Shale oil this year, the high capital investment may be a constraint.
In Indonesia, upstream oil and gas capital expenditure for 2018 is targeted at US$17.04 billion compared to a realized expenditure of only US$9.3 billion in 2017, with the government’s upstream vehicle, Pertamina Hulu Energi (PHE) driving a lot of the investment.
Strategy
With business activity on the upturn for a few months, there is a huge need to invest in personnel and systems to ensure a high quality of service for our clients. Our innovative marketing efforts have also enabled us to embark on new areas of services like air diving, pipe tailing and subsea pipeline inspection work.
After maintaining a very lean operation for the past three years, management will start to invest in building a robust organization to manage growth with efficiency. Apart from attracting and retaining high quality personnel, management plans to harness better IT systems to manage our vessels more effectively.
In early February 2018, the Company has issued 200 million non pre-emptive shares, raising US$4.9 million as part of the issuance approved at our 2017 Annual General Meeting of Shareholders. The purpose of the fund raising was to provide working capital to facilitate the startup costs of redeploying our vessels to work, while also strengthening our capital structure to prepare for better times.
As fleet utilization is rising, charter rates are unlikely to fall further from this point. However, until the industry as a whole sees a more sustained pick up in contracts awarded, we are not factoring in any rate rises for the rest of the year.
Our marketing strategy has been to expand our range of services provided and to increase the value add to the end client. In a consortium with two other specialist companies, Wintermar is embarking on the Group’s first Air Diving project in the form of a 3 year contract to provide offshore inspection, repair and Maintenance services to a major Indonesian oil and gas producer utilizing our DP2 vessel which has been specially modified for the purpose.
Total contracts on hand as at end February 2018 were US$95 million.