Wintermar Offshore (WINS:JK) Reports FY2018 Results

Despite a good start, 2018 proved to be a challenging year as the uptrend in oil prices was not maintained. This reignited uncertainty in the oil and gas outlook and delayed ongoing contract awards. As a result, the Company's overall fleet utilization was lower than expected in the 4th Quarter, falling to 57% as compared to 64% for the 3Q2018.

Owned Vessels Division

Although the level of tendering activity has increased in the past months, there has also been a delay in tender awards due to several factors, including inability to secure a rig, delays in project execution due to technical issues and slower approval process in the lead up Presidential elections in April 2019.

The last quarter of the year was slower than expected, as delays in several projects resulted in high tier vessels which completed projects becoming unemployed while waiting for the next contract. After activating several high tier vessels from warm layup over the course of the year, the lower utilization experienced in 4Q2018 caused operational costs to rise without corresponding revenue. This led to a gross loss for the Owned Vessel Division of US$0.6 million for FY2018 compared to a profit of US$0.4 million the year before. The rise in direct cost was largely due to fuel and crew costs of operationally ready but idle vessels which were in between contracts, as well as increase in fuel cost from a wet contract where the Company is responsible for fuel costs. The monsoon season at the end of the year also affected some vessels which were off hired during the time, and the Company used the opportunity to proceed with maintenance and docking, which also contributed to maintenance expenses in the 4th Quarter 2018.

Chartering and Other Services

Chartering Revenue was 9% lower YOY for FY2018 at US$8.5 million and margins were lower, leading to a fall of 25% YOY in gross profit from the Chartering Division to US$0.6 million compared to US$0.8 million in FY2017.

Revenue from Other Services fell by 2% YOY to US$4.6 million while margins improved, bringing the gross profit from this division for the year to US$0.9 million.

Direct Expenses & Gross Profit

Total direct expenses rose by 4% YOY to US$61.8 million for the year, largely due to a rise in Fuel Bunker costs to US$4.4 million from US$1 million as the Company started work on a fuel inclusive contract and due to one off mobilization costs to activate previously laid up vessels to bring them to operationally ready status.

Gross profit fell from US$2.5 million to US$1 million for the year FY2018.

Indirect Expenses and Operating Profit

Indirect expenses declined by 10% YOY to US$6.9 million as management continued to keep to tight cost control while still building up a stronger technical team to handle an increase in activity going forward. Apart from Staff expenses which remained flat, other indirect expenses fell. A new crew training centre opened during the year also led to higher depreciation of 50%. Initiatives are being taken to increase efficiency through adopting a change in IT and going digital for some internal processes. The operating loss increased by 14% YOY to US$6 million for FY 2018.

Other expenses and interest bearing debt

Through debt repayment and sale of vessels, interest expenses fell in FY2018 by 29% YOY to US$5.4 million from US$7.6 million. Over the year, there were several large companies in the industry globally that went into liquidation, and an increase in mortgagee sales as banks finally decided to sell the vessel collateral at liquidation values. As a result of these market developments, the management decided to take an additional impairment of assets in the group as well as associated companies to bring down the carrying cost of the Group's fleet to reflect the lower transacted prices. This has impacted the net profit attributable to shareholders through impairment of assets worth US$17.4 million for FY2018 compared to impairment of US$20 milllion in the previous year. At the associated company level, the share of loss of associated company was US$3.2 million due to an asset impairment on the assets of the associated company in Singapore. In addition as there were 10 vessels sold during the year, there was a gain on sale of vessels of US$0.8 million booked during the year.

Due to a tax dispute which the Company is in the process of appealing, there was an additional tax assessment and penalty of US$3 million at the subsidiary level which contributed to the other expenses of US$3.4 million.

RESULT FOR THE YEAR

For the Full Year 2018, the net loss attributable to Shareholders decreased 8% YOY to US$25 million from US$27 million in the previous financial year as non-cash impairments which totaled US$ 17.4 million in FY2018 were lower than US$20 million booked in the previous financial year.

EBITDA

In line with the flat revenues, EBITDA fell 7% YOY to US$21 million for FY2018. Total debt payment was US$19.6 million for the year, thereby bringing the net gearing down to 37% by the end of 2018.

Oil and Gas Industry

Growing production of shale oil in the US during 2018 led to concerns about an oversupply in global oil outlook, which caused a sharp drop in the oil price from a high of near US$85/barrel back to below US$55/barrel. Those fears eventually subsided when projections of planned 2019 capex in shale were shown to be subdued. As political tensions escalated in Venezuela and the US enacted more severe sanctions on Venezuela and Iran, the oil price gradually recovered. Globally there seems to be a consensus for a 10-14% increase in spending on upstream oil and gas for 2019. As there has been limited capital expenditure in the past five years, there are now fears of supply constraints on the production capacity in the coming years.

In Indonesia, the government has been more proactive to promote investment in oil and gas, with a planned US$14.8 billion increase in investments for 2019 compared to a realized investment of US$12 billion for 2018. Separately, there have been some indications that Pertamina Hulu Energi (PHE), the state's upstream oil company, is planning to drill 300 wells in 2019, since they have taken on a number of expiring concessions in 2018. The government is becoming a larger player in the Indonesian upstream oil and gas market. A stronger push by the government for higher oil production should generate higher offshore activity. However, with the greater market share of PHE, there is expected to be limited pricing power in Indonesia for OSV suppliers in the near term.

Outlook for Offshore Support Vessels (OSV)

Globally, there has been a uptrend in tendering activity as upstream spending has increased in response to the firmer oil price. However, 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, 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. Local upstream oil activity may improve but pricing is likely to stay low for the near term.

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

The 4th Quarter presented a speed bump in the outlook for Offshore Supply Vessels in Indonesia, as some delays were experienced due to several different factors which confluenced in the same period. The first quarter of 2019 is likely to continue to see subdued demand in Indonesia as attention is already focused on the government and presidential elections in April. Many contracts under tender have been stalled and are awaiting the go ahead.

For 2019, we expect better activity in the second half of the year, but there are some indications that there will be a revival of two large offshore projects, namely the Indonesian Deepwater Development ("IDD") and the Abadi field which had significant gas discoveries waiting to be developed for commercial production in 2013, but were shelved due to the oil price downturn and pending technical negotiation with the government. These projects are currently undergoing Front End Engineering ("FEED") studies and testing. Should these prove to be positive, they will sustain the upstream activities for many more years.

A significant benefit to the cash flow of the Group for 2018 has been the successful amendment of loan repayment terms with major lenders and their support and expectation of continued support has allowed Management to view the future with confidence in the knowledge that debt service can be maintained and obligations can be met when they fall due. The Company is in discussion with its principal lenders to amend repayment term to match projected cashflow in 2019 and beyond.

The Management will speed up the sale of older vessels to free up some capital and capacity to increase operational efficiency. By focusing on mid and high tier vessels, there can be better cost management and a focus on delivering a higher quality service for the more technologically driven vessels, where the supply in Indonesia is more limited.

There will continue to be cost efficiency initiatives while at the same time the Company is still committed to sustainability and environmental excellence to stay at the forefront of the energy industry.

Total contracts on hand as at end March 2019 amounted to US$56.6 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)