Wintermar Offshore (WINS:JK) Reports 9M2018 Financial Results

The uptrend in oil prices has spurred more drilling activity, pushing average utilisation of the fleet to over 62% for the first 9 months of 2018 compared to 58% in the previous year. In the High Tier vessel segment, vessel utilisation was 75% for 9M2018 compared to only 53% for the same period last year. This contributed to a gross profit margin of 9.2% for 9M2018 compared to only 1.2% for 9M2017.

Owned Vessels Division

Owned vessel revenue was driven by the award of new contracts for high tier vessels although the term of these contracts remain relatively short. Total revenue for this division rose by 20% YOY to US$40.4 million in 9M2018. Tendering activity has continued to be robust in the quarter with US$14.4 million of net new contracts won.

Total direct expenses rose by 5% YOY to US$37.4 million due to higher utilisation and expenses incurred to bring our vessels into working condition after a period of warm lay up where direct cash costs were kept to a minimum. The highest increase in cost was for fuel bunker, where in addition to a "wet contract" where the fuel cost is borne by the vessel owner, some one-off mobilisation costs caused fuel expense to jump to US$3.2 million for the nine month period in 2018 compared to only US$0.6 million in 9M2017. Operational costs rose 14% YOY to US$3.3 million.

Gross Profit from Owned Vessels was US$ 3.0 million for 9M2018, compared to a gross loss of US$0.8 million for 9M2017.

In addition to providing supply services for oil rigs, our vessels are increasingly being marketed to work for other types of services including supporting underwater surveys, geotechnical surveys, remote operated vehicles (ROV) and air diving. The higher oil price and weak Rupiah has increased the urgency to increase domestic oil production. During 3Q2018, there was better utilisation of the high tier vessels for rig moves and survey work, with a noticeable increase in demand for PSVs.

Although we had sold two FMPVs from FOI at the end of 2Q2018 in our deleveraging exercise, the owned Vessel Revenue did not decline significantly as the impact of the loss of the two vessels was offset by new contracts won for the remaining fleet.

Chartering and Other Services

The Chartering Business has not recovered as quickly as the Owned Vessels segment. Chartering Revenue fell 19% YOY to US$5.9 million resulting in 9M2018 Chartering Gross profit of US$0.5 million, a decline of 29% compared to 9M2017. Gross Profit from Other Services remained robust at US$1.1 million as there were more value added services in line with higher utilisation of our vessels.

Indirect Expenses and Operating Profit

During 9M2018, management continued to keep a very tight control over indirect costs, resulting in indirect expenses which stayed around the 9M2017 level of US$5.4 million. Most indirect expenses reduced apart from staff expenses, which rose 11% to US$3.5 million as we started to build up a stronger core team to prepare for higher utilization ahead. Depreciation also rose as we opened a new location this year for crew training.

The operating loss for 9M2018 of US$0.9 million has shown a substantial improvement compared to the operating loss of US$4.9 million recorded last year for 9M2017.

Other expenses and interest bearing debt

As there was a strong drive to reduce debt through debt repayment and sale of vessels, interest expenses fell by 22% to US$ 4.5 million. Loss from share of earnings of Associated Companies was much higher at US$2.2 million in 9M2018 compared to US$0.7 million in 9M2017.

Net loss attributable to Shareholders narrowed to US$ 7.5 million for 9M2018 compared to US$9.7 million in 2017.

EBITDA

EBITDA for 9M2018 rose 23%YOY to US$ 19 million for the period, in line with better revenue and cost management, enabling the Company to reduce bank debt by US$ 16.9 million and bring down net gearing to only 34% by end September 2018.

Oil and Gas Industry

The global oil and gas market has swung from fears of oversupply to fears of supply shortages as US sanctions on Iran and Venezuela impact supply from those producers. The price of Brent crude oil to reach above US$80/barrel for the first time since the oil crisis began in October 2014. Optimism that oil prices are staying high has led to more investment in upstream oil and gas. South East Asia has seen a good recovery in drilling, in particular in Malaysia. Even in Indonesia, tendering activity has increased again.

Saudi Arabia and Russia have agreed to cooperate to achieve balance in the global market for crude oil, which we understand will maintain oil prices in the current trading range as production levels will be balanced with world demand.

The strong oil prices are triggering a recovery in upstream spending and we expect stronger OSV demand next year as more projects should be activated. In Indonesia, the higher oil price is a double edged sword as the country requires crude imports to meet demand, therefore higher oil prices add to the pressure on the currency. The government is therefore more adamant to urgently increase domestic oil production and we are optimistic that domestic upstream investment will receive priority in the coming election year.

Outlook for Offshore Support Vessels (OSV)

Globally, there has been a distinct uptrend in tendering activity as upstream spending has increased in response to the firmer oil price. However, despite better utilization of OSVs, charter rates are still not rising due to excess supply. Many oil companies have started to issue long term tenders to lock in the current low charter rates and there is more interest in OSVs in the North Sea, the Middle East, East Africa, and Malaysia.

In Indonesia, Pertamina Hulu Energi (PHE) has taken over several expiring concessions from multinational oil companies, and has been putting out more tenders for work, although several longer term tenders have been delayed for various technical reasons.

There are more sale and purchase transactions recently for second hand OSVs but we expect that many of the laid up vessels will not be reactivated as the low charter rates do not make it viable to spend the amounts required for reactivation. This means the excess supply may be absorbed sooner than expected. In Indonesia, cabotage laws and the low charter rates may also deter new entrants in the OSV market.

Strategy

In anticipation of a recovery in the OSV industry next year, the Company has strengthened the operational team through hiring and training, while keeping the fleet operationally ready to be deployed. There are several longer term tenders in the pipeline and there is hope for some to be awarded in 4Q2018.

To improve efficiency of our operations, there is also an upgrade in process to a better integrated IT system for our operational and technical needs, which is expected to also save paper and improve our environmental performance.

The older and idle vessels are in process of being sold to raise funds and reduce unnecessary costs. All these efforts are aimed to streamline the Company's operations and strengthen our position to be a leader in the industry in the upturn.

At the moment our focus is to win a number of longer term tenders in the bidding process, while building on our strength in meeting the high standards of quality, health and safety that are required to stay at the forefront of the industry.

Total contracts on hand as at end September 2018 were US$71 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^[1].

Contact:

Ms. Pek Swan Layanto, CFA
Investor Relations
PT Wintermar Offshore Marine Tbk
Tel: +62-21-530 5201 Ext 401
Email: [email protected]

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References

1. ^{^} www.wintermar.com (www.wintermar.com)
2. ^{^} [email protected] (www.acnnewswire.com)
3. ^{^} Wintermar Offshore Marine Group (www.wintermar.com)
4. ^{^} Marine/Offshore (www.acnnewswire.com)