Wintermar Offshore 1H2016 Gross Profit Grows 19% to US$10.5M

By Finance

Wintermar Offshore Marine (IDX:WINS) has reported 1H2016 financial results. Gross profit grew by 19% to US$ 10.5 million from US$ 8.8 million in 1H2015, driven by better margins in all divisions.

High tier vessels experienced an increase in utilization to 62% in 1H2016 compared to 58% in 1H2015, largely from the resumption of one development contract which had been suspended since January 2015, and some new spot contracts. Because of successful cost control measures implemented since last year, margins improved in the Owned Vessel division, thereby providing a 5% increase in Gross profit at USD 7.9 million compared to 1H2015.

Wintermar Offshore 1H2016 Gross Profit Grows 19% to US$10.5M

Chartering -
Chartering Division revenues rose by 11% to US$ 13.6 million with a rise in profit to US$ 2.0 million owing to one-off contracts which are expected to finish by the year end.

Other Revenue -
Gross profit from others sources also rose in 2016 to US$ 600,000 compared to US$ 186,000 in the previous year resulting from a lump sum bill.

Direct Expenses -
Owned Vessel cash costs were lower compared to the same period in the previous year, primarily from lower crew and fuel costs. Total direct expenses for Owned Vessels was down 14% against a 10% drop in revenues, with overall gross margin improving to 21.5% in this reporting period from 16.3% a year ago.

Gross Profit -
Gross Profit grew by 19% in 1H2016 to US$10.5 million from US$ 8.8 million for 1H2015, driven by better margins in all divisions.

Indirect expenses and operating profit -
Indirect expenses fell by 21% in 1H2016 owing to strict cost controls implemented, which led to falls in most expense categories. Salary expenses in particular were 19% below 1H2015 despite the additional month paid for Hari Raya bonuses in June 2016.

As a result, operating profit jumped 89% to US$ 6.1 million in 1H2016, a rise in operating margin to 13% for the period compared to 6% last year.

Other Income/ Expenses and EBITDA -
Interest expenses fell 8% to US$ 4.9 million after scheduled debt repayment and a prepayment after the sale of a vessel in 1Q2016. The sale transaction resulted in a book loss of US$ 1.9 million recorded in 1Q2016.

EBITDA for 1H2016 amounts to US$ 20.3 million, a rise of 19% compared to the same period last year.

Assets and Gearing -
Net gearing fell to 52% as compared to 60% at end of 1H2015.

Industry Outlook -
Several oil and gas companies are now taking advantage of the cost deflation in oil services to procure tenders for longer durations. However, because of the low demand in the Offshore Support Vessel (OSV) industry, there is a noticeable downward trend in pricing as ship owners compete for the few longer term contracts available.

Globally, there is more consensus now that oil prices seem to have turned around and are moving upwards. The latest forecasts seem to point to an equilibrium in demand and supply of oil sometime in late 2017, indicating a strengthening oil price towards 2018. The biggest impact on the supply outlook comes from the sharp cuts in capital expenditure that have happened since 2015 which will limit global supply increases over the next three years.

Wood MacKenzie Research has data showing total cuts of up to US$ 310 billion in capex spend in 2015-2016 and up to US$ 1 trillion for the period 2015-2020. This supports a gradually increasing trend in oil prices in 2017 onwards as cut-backs in capital spending will limit the capacity of the major oil companies to increase production.

With the stabilization of oil prices recently, there have been a few OSV tenders for longer periods of 2 years or more. We see this as an indication that oil companies have started to lock in lower costs for oil services at the current depressed rates. This is consistent with Company's view that the OSV charter rates are near bottom.

However, because of the lower demand for offshore vessels, there is still fierce competition for tenders of longer maturities. Therefore, although there are more tenders for work for the rest of the year and early 2017, this does not necessarily imply that vessel charter rates will rise. The OSV industry is still badly affected by expenditure cut-backs by the producers and explorers which will keep pressure on pricing for the rest of 2016 and through to 2017.

However, in the longer term, there are several development projects in Indonesia which are scheduled to start operations, and Wintermar Offshore expects more tendering activity in 2017 and 2018 which will increase vessel utilization.

Strategy -
Management continues to focus on cost control while maintaining high safety and quality standards. There were a number of initiatives in early 2016 to lower crew and shore-based salaries, which were successfully implemented. Wintermar Offshore has extended its international marketing efforts to bid for longer term contracts in Brunei, India and the Middle East to lock in a longer term cash flows, albeit at lower charter rates.

According to the Company, the OSV market will stay weak through 2017 and lag any recovery in oil prices.

Wintermar Offshore current contracts on hand as at end June 2016 is US$ 137 million.

Source: Wintermar Offshore