Wintermar Offshore (WINS:JK) Reports 9M2019 Results
Utilization picked up in the third quarter to 73% from stronger demand as offshore drilling activity commenced for several Indonesian projects which had previously been delayed. Stable oil prices have created favourable conditions for renewed investment in upstream oil exploration and production. In Indonesia, there are now more tenders for work extending over a year. In other markets in the region, charter rates are starting to move higher in certain vessel segments due to shortages of operationally ready vessels.
*Owned Vessel Division
Owned Vessel revenue was 8% higher at US$11 million for 3Q2019 compared to the previous quarter, while Gross Profit for Owned Vessels turned positive for 3Q2019 compared to the last few quarters of losses.
Overall fleet utilization for 3Q2019 rose to 73%, up from 58% in 2Q2019 and 46% in 1Q2019. High Tier vessels reached 77% utilization in 3Q2019 as a long term PSV contract in Eastern Indonesia commenced, while there were drilling programs in Indonesia, Malaysia and Brunei which occupied the other high tier vessels. Although the demand for mid-tier vessels in Indonesia has recovered, the domestic charter rates are still low compared to regional markets.
For 9M2019 however, Owned Vessel revenue was still 26% below the same period in 2018, turning in a gross loss of US$2.15mil for the year to end September 2019.
*Chartering and Other Services
Management has sought to raise the income from fee or margin-based businesses like chartering and ship management in 2019 as these do not require high capital commitments. These efforts have generated higher gross profit for these divisions of US$1.8 million in 9M2019, up 13.2% from 9M2018.
*Direct Expenses & Gross Profit
Overall Direct costs for Owned Vessels was down by 15% as the Company has been successful in selling some vessels and also laying up older low tier vessels during the course of the past 12 months. Total Fleet as at end September 2019 stands at 48 vessels compared to 65 vessels as at end September last year. Although there was an increase in fuel expenses during the quarter due to the recommencement of a "wet contract" where fuel cost is borne by the charterer, the overall Fuel expenses were still 47% lower YOY for 9M2019 compared to the previous year. Crew costs were 10% YOY lower at US$7.1 million in 9M2019 compared to the previous year, however, as utilization rates improve in the region, we are expecting some cost pressures for crew wages in the coming year. Other direct operational and fleet expenses were down YOY by 28% and 17% respectively due to the streamlining of the fleet size.
* Indirect Expenses and Operating Loss
Indirect Expenses for 9M2019 declined slightly by 3% YOY due to continued cost control. The largest component was staff salary which was flat at US$3.48 million (-1%YOY) while most other expenses were down except for travelling as a result of a rising number of international contracts.
The Quarter on Quarter improvement in business conditions was shown in a narrowing of the Company's operating loss to US$1.2 million for 3Q2019 compared to US$1.97 million in the previous quarter.
* Other Income, Expenses and Net Attributable loss
Interest expenses for 9M2019 fell by 23% YOY to US$3.5 million compared to the same period in 2018, as the Company has paid down debt of US$10.5 million in 2019. Total bank debt has fallen to US$57.6 million by the end of September 2019, lowering net gearing to 36%.
The completion of several vessel sales contributed to cash flow and a recorded gain from vessel sales amounting to US$ 2.6milllion for 9M2019 compared to a loss of US$0.2 million for 9M2018. This, together with significantly reduced losses from our associated companies, led to a decline in losses attributable to shareholders, which amounted to US$5.7 million for 9M2019 compared to US$7.4 million for 9M2018.
EBITDA has improved consistently every quarter this year and totaled US$ 12.6 million for 9M2019.
* Oil and Gas Industry
During the third Quarter, there has been a significant increase in offshore activity globally, with Clarksons reporting that global rig utilization reached 74% in September 2019 with 500 active rigs for the first time in 3 years. Led by the much improved utilization, the number of actively working offshore vessels also recorded a 9% increase since the end of 2018.
In Asia, Malaysian upstream oil activity has been very robust, driven by the national oil company Petronas, which has rolled out an ambitious drilling program for the next few years. In Indonesia, since the conclusion of the Government Elections in April, there is starting to be a pick up in tenders and project commencements. Pertamina Hulu Energi, which acquired several expiring concessions in 2018, has also initiated Capital expenditure (Capex) programs to boost the country's declining oil output.
*Outlook for Offshore Support Vessels (OSV)
With the stable oil price and reports about the slowing down of Shale production, it is worth noting that break even costs for offshore oil production have fallen significantly since the last peak in oil prices. This provides a supportive environment for a sustainable recovery in oil prices going forward into 2020.
* Strategy
Management has started to anticipate improving rates by declining to participate in some longer-term tenders where the engineering charter rate estimate has been too low. Some markets like Malaysia are already experiencing tightness in supply of mid-tier vessels and the Company has deployed two vessels to Malaysia so far this year. As crewing costs are starting to see some upward pressure, Management have put together training programs to attract and retain crew. To enhance the Company's competitive edge, soft skills training has been stepped up, with Management and crew actively and routinely training for resilience and safety. The earlier efforts placed on international marketing have reaped good results as the Company has won awards in Brunei and has been able to penetrate the Malaysian market. These actions have contributed significantly to higher utilization this year.
As the OSV industry globally continues to face tight liquidity, interesting opportunities to purchase good assets at liquidation prices may present themselves. In order to compete in the OSV industry in future, fleet renewal and repositioning will be essential. Management will therefore be interested to evaluate any potential deals should the opportunity arise.
Contracts on hand as at end September 2019 amount to US$75.8 million.
About Wintermar Offshore Marine Group
Wintermar Offshore Marine Group (WINS.JK), developed over 40 years with a track record of quality that is both a source of pride and responsibility that we are dedicated to upholding, sails a fleet of more than 70 Offshore Support Vessels ready for long term as well as spot charters. All operated by experienced Indonesian crew, tracked by satellite systems and monitored in real time by shore-based Vessel Teams.
In 2011, Wintermar became the first shipping company in Indonesia to be certified with an Integrated Management System by Lloyd's Register Quality Assurance, comprising ISO 9001:2008 (Quality), ISO14001:2004 (Environment) and OHSAS 18001:2007 (Occupational Health and Safety). For more information, please visit www.wintermar.com.
Contact:
Ms. Pek Swan Layanto, CFA Investor Relations PT Wintermar Offshore Marine Tbk Tel: +62-21 530 5201 Ext 401 Email: investor_relations@wintermar.com
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