WINS 2Q2017 fleet utilization recovers to 56% from 49% in 1Q2017, while total revenue picks up by 11% on a quarterly basis.
JAKARTA — Wintermar Offshore Marine (IDX:WINS) has reported 1H2017 financial results. 2Q2017 saw improvements in total revenue and utilization of vessels compared to the previous quarter, as total revenue picked up to US$14.6 million compared to US$13 million in 1Q2017, reflecting a gradual return of offshore activity as we had anticipated.
However, for 1H2017, cumulative total revenue of US$27.7 million was still 43% lower Y-o-Y (year-on-year) compared to 1H2016. This was the result of the severe decline in demand for Offshore Support Vessels (OSVs) causing more intense price competition in the same period.
As we had anticipated, as the oil price improved, there has been more demand from drilling activity accompanied by lower charter rates, resulting in higher revenues but lower gross margins.
Owned Vessels
Owned Vessels utilization picked up in the second quarter with the commencement of some projects in Indonesia. Vessel utilization for 2Q2017 reached 56%, compared to 49% in 1Q2017.
Owned Vessel revenue of US$10.9 million for 2Q2017 was 15.6% higher than 1Q2017. Although there was a quarter on quarter improvement, the total revenue for the first 6 months of 2017 of US$20.4 million was still 38% lower than the first half of 2016.
Direct expenses for Owned Vessels for 1H2017 fell by 10% to US$22.6 million, mainly from an 18% fall in crew costs, while Operations, Maintenance and Fuel costs were also lower by 13% – 22% against 1H2016, resulting from the continued cost control measures taken.
On a Q-o-Q basis however, Direct expenses for Owned vessels rose by 15.5% from 1Q2017 because of the payment of annual Ramadan bonuses and fuel and maintenance costs in mobilizing the vessels for commencement of new projects.
Owned Vessels recorded a Gross Loss of US$ 2.2 million for 1H2017 compared to a Gross Profit of US$7.9 million in 1H2016.
Chartering and Other Revenues
In line with the downturn in demand for OSVs, the Chartering Division saw a reduction of Revenue. Gross Profit fell 66% on a YOY basis to US$0.6 million as compared to 1H2016.
Revenues from Other Services declined marginally by 6% Y-o-Y, while Gross Profit from this Division fell 14% to US$0.5 million.
The Company recorded a total Gross Loss of US$1.05 million for 1H2017 compared to a Gross Profit of US$10.5 million in 1H2016.
Indirect Expenses and Operating Loss
As Management continued to implement cost control measures, total indirect expenses fell by 13% Y-o-Y to US$3.8 million for 1H2017. The largest savings came from salary costs, which fell by 20% Y-o-Y to US$2.3 million for the first half of 2017.
A reduction of US$0.14 million in marketing expenses was offset by higher Professional fees of US$ 0.18 million associated with our debt rescheduling exercise which concluded in 2Q2017.
For 1H2017, the Company recorded an Operating Loss of US$4.8 million compared to an Operating Profit of US$6.1 million in 1H2016.
Other income and expense
Interest expenses of US$3.9 million were 14% lower Y-o-Y due to lower overall debt compared to the previous year.
Two low tier vessels were sold during the second quarter at a total loss of US$96,851. An impairment charge of US$0.46 million was recorded for two vessels revalued pending sale.
Equity Earnings from an associate company declined in 2017 compared to 1H2016 due to the impact of global reduction in demand for OSVs.
In June 2017, a subsidiary cancelled a shipbuilding contract at a reduced penalty of US$1.3 million which has been deducted from the down payment made on this contract.
EBITDA and Debt
EBITDA for the first half of 2017 amounted to US$8.8 million, a fall of 56% compared to the first half of 2016.
With the conclusion of our debt rescheduling with our major lenders, we have been able to better match our cash flow profile with the amended debt repayment schedule. Net Gearing remains conservative at 50%.
Net Loss Attributable to Shareholders
Total Net Loss Attributable to Shareholders for the period 1H2017 was US$8.7 million, compared to a net loss of US$0.6 million in 1H2016.
Offshore Oil activity is returning
As we had updated in the first quarter newsletter, activity in the Indonesian offshore industry has been picking up in the second quarter, as evidenced by the rise in utilization rate for the second quarter. However, charter rates have been under pressure as ship owners compete for longer term contracts of over 12 months to 3 years as some upstream projects have commenced again.
As the outlook for oil prices seems to be returning to stability, we expect a gradual recovery in revenue at lower margins. Therefore cost control and productivity will remain priorities for our management team.
Industry Outlook
Oil Prices continue to fluctuate in a range between US$45 to US$55 per barrel. OPEC commitment to the production cuts has been high, but news of higher shale production and inventories have put a ceiling on oil prices. The US Energy Information Administration (EIA) now forecasts that oil prices will remain flat at around US$50 per barrel for most of 2018, owing to higher expected US Shale production.
However, lower costs of drilling stemming from reduced costs of support services has significantly lowered the break-even costs of most projects, therefore more projects are being commissioned even at these lower oil prices.
The market will favour low cost and efficient support services.
Strategy
The new paradigm for the Offshore Support Industry is to seek cost efficiencies while maintaining high standards of safety and quality. Therefore we continue to focus on training and streamlining our shore team, to deliver cost effective solutions for our clients.
The new Gross Split Scheme in Indonesia will favour contractors who can offer high quality at low cost, and we will continue to work towards productivity gains through more dynamic fleet monitoring and active management of crew and fleet. To that end, we are looking into improving our IT systems to achieve better efficiencies.
There are several longer term projects still in the process of tendering and we are actively involved in marketing for these. The Indonesian government has also simplified and shortened approval processes for oil and gas investment to incentivize more activity and investment in upstream oil and gas in Indonesia.
Plan for Issuance of New shares
Wintermar’s shareholders approved the issuance of up to 400 million new shares at the May 2017 Shareholders’ Meeting. This will provide the company with the agility to raise capital where necessary to improve working capital needs and take advantage of any new opportunities that may arise during this turbulent period for the OSV sector.