MMA Offshore Ltd (ASX: MRM) recently released its full year 2015 results. Here's what you need to know.
MMA Offshore Limited, formerly Mermaid Marine Australia Limited, is an Australia-based company engaged in the provision of marine logistics and supply base services throughout all phases of the oil and gas development cycle.
The company operates in three segments: Vessels, Supply Base and Slipway.
It owns and operates approximately 41 vessels throughout Australia and internationally. Its fleet of vessels includes anchor handling tugs, AHTS vessels, platform supply vessels, multi-purpose survey vessels, harbour tugs, barges and accommodation vessels.
It operates supply bases in Dampier and Broome. Supply bases offers services from vessel support and supply base services, to ship repair and maintenance facilities.
The Slipway provides maintenance and repair services to the Company's expanding fleet in the North West. The Company offers its services in Malaysia, Thailand, Vietnam, the Philippines, Myanmar, Indonesia, Cambodia, Offshore Brunei, China and the Indian subcontinent.
Here are the highlights of MMA's full year 2015 results:
- Revenue $796.7m up 34.0% (including full year of Jaya operations)
- EBIT $86.9m up 3% (pre-impairment)
- NPAT $55.3m up 7% (pre-impairment)
- EPS 15.0c down 2% (pre-impairment)
- Reported Net Loss after Tax $(51.3)m after $120.7m non-cash impairment charge
- Final Dividend of 1.5c bringing full year dividends to 5.5cps down 0%
- Operating cash flow $185.4m up 8%
- Cash at Bank $124.5m
- Gearing 40.8% (post impairment)
So what.
The 2015 financial year was an extremely challenging year for MMA as the price of oil fell by over 50% from US$107 per barrel in July 2014 to current levels of under US$50 per barrel.
The first few months of the financial year saw a gradual decline in the oil price as output from US shale oil increased supply.
The unprecedented and unexpected decision by OPEC in November not to rebalance the market by cutting production, caused the oil price to plunge as the markets reacted to the emergence of a supply/demand imbalance.
Oil and gas companies reacted swiftly, dramatically cutting capital expenditure budgets and seeking ways to reduce their ongoing operating costs. The impact on the offshore oil and gas marine sector has been dramatic with numerous projects or campaigns cancelled or deferred, contracts retendered to achieve lower pricing and renegotiation of rates on longer term projects.
The reduced activity has dramatically impacted MMA's vessel utilisation and competition for available work is intense with operators cutting rates to historically low levels.
In MMA's areas of operation, rates have been reduced by up to 30% depending on the region and vessel class. Combined with the lower utilisation, this has a significantly negative impact on the business.
The vessel sale and purchase market is also weak, making the execution of their previously planned fleet rationalisation programme difficult at this time.
In response to the downturn, MMA embarked on a cost reduction programme to reduce overheads and operating expenses. Actions have been taken to reduce personnel and key expenditure items and the programme is on track to deliver at least $15 million in ongoing annualised savings. The drive to increase efficiencies will continue into the 2016 financial year.
What now
MMA Offshore's primary exposure is to demand for oil and gas, which stems from global economic growth. Higher global economic growth results in higher consumption of oil and gas.
Emerging economies, particularly China and India, have rapidly become large oil and gas consumers. Deterioration in the economic and financial situation in Western Europe and North America could result in significantly lower oil and gas demand.
The major risk is the deferment or cancellation of major LNG (liquefied natural gas) projects. Industrial action is potentially a risk factor. MMA Offshore has noted that union activity has become increasingly challenging, with significant wage claims and limited consideration of workplace flexibility or productivity.
Verdict
For me, there's just too much uncertainty around MMA with its close links to oil and gas demand and that's why for now it's a 'wait and see'.
