Wintermar Offshore Profits Dip

Wintermar Offshore Marine eports 9M/2015 revenue was down 42% YOY to US$76.4 million, as oil and gas activity continued to decline during the quarter. Lower activity levels in the upstream oil industry impacted utilization and charter rates, and as the previous quarter with few tenders for projects. This led to lower utilization across the board. As a result of this, there was more competition from other vessels in available tenders and charter rates were lower for the new jobs secured in the quarter.

Owned Vessels

Our owned vessel segment saw a 39% drop in revenue to US$50.5 million for 9M/2015 compared to the previous year. The average utilization rate was lower at 59% for the 9 months compared to 61% for the first 6 months, reflecting a 3rd quarter dip in utilization across our fleet to 51%. Margins were down to 16.5% for owned vessels in the 9 month period ending September 2015, compared to 48.9% for the corresponding period last year.

Chartering Division

Revenues from the Chartering Division were halved in 9M/2015 as compared to 9M/2014, in line with the poor industry sentiment this year. However, the gross margins from Chartering were able to hold up relatively well.

Direct Expenses

Our cost cutting measures have yielded results, as shown in the 13% fall YOY in crewing expenses to US$11.1 million for 9M/2015. However, the Quarter on Quarter (QOQ) comparison shows a steeper fall of 36% in crewing expenses from the second to third quarter.

Total direct expenses fell 22% to US$65.9 million in the 9M/2015 as compared to the preceding year.

Indirect expenses and operating profit

Total indirect expenses were down 17% for the period 9M/2015 compared to 9M/2014 mainly from not replacing staff who have resigned. We expect salaries and salary related cost to fall further in 4th Quarter.

Operating Profit

Operating Profit for the first 9 months of 2015 was US$2.4 million, a sharp fall of 93% from 9M/2014, reflecting the combination of low utilization and price competition.

Net Income and EBITDA

Interest expenses fell by 23% YOY to US$7.2 million for 9M/2015, because of debt repayment. EBITDA for the 9 months period was US$23.1 million, 59% less than the first 9 months 2014.

The Company made a loss of US$5.43 million for the first 9 months 2015, reflecting the worst quarterly performance in the company's history. Because the high tier vessels which are the hardest hit are held in joint ventures, the minority interest shared US$2.67 million of net loss for the 9 month period under review, leaving a loss attributable to the shareholders of US$2.76 million.

Despite the poor financial performance in the 3rd quarter 2015, there was more tendering activity in 3Q/2015 than we had experienced in 2Q/2015. This is a good leading indicator of better utilization in the final quarter of the year.

Assets and Gearing

Although there was a new loan disbursed for the new vessel delivered in July 2015, the Company's Net Debt reduced to US$165.7 million as at end September 2015, compared to US$177 million at the end of December 2014. This reflects a reduction of net gearing from 67% to 64% of total equity for the first nine months of 2015.

Fleet

Our latest fleet addition is a 6000BHP AHTS in July 2015, the SMS Serenity, which was funded by bank loan and equity. She underwent some modification in Batam before starting work in October 2015.

Industry Outlook

The global outlook for oil prices has taken a turn for the worse in the past three months. Expectations for global economic growth and therefore oil consumption were revised down following lower than expected economic growth data from China. With OPEC oil output still strong and the prospect of Iranian oil in the market, Brent crude prices fell once again to sub US$50/bbl, leading to more layoffs in the oil and gas industry. The consensus seems to indicate a longer downturn than originally expected earlier this year. Many companies in the oil and gas sector are reporting losses and further reducing capital expenditure budgets. The recent round of cost cutting may lead to a longer period of low activity lasting through most of 2016 and possibly 2017.

Conversely, in Indonesia there was slightly better tendering activity in the 3rd quarter, and some contracts were awarded for work commencing in the 4th quarter. This could be partly attributed to the delay in budget spending due to government inactivity in the first half of the year and a catching up in the second half. However, the big deciding factors for Indonesian oil and gas activity in the next 12 to 24 months will be the government's final decisions on the large development projects which are currently requesting for an extension of concession terms.

Business Prospects

There are still some projects starting up in the final quarter of 2015 which were already in progress. The utilization rates may be better in 4Q/2015 but charter rates are lower because of the competitive bidding environment.

We are in a new paradigm of shorter contracts and lower rates for the oil service industry for what may be a 12 to 24 month period.

Our strategy has moved towards more agile marketing efforts and continual reduction of operating costs through the consolidation of processes.

However, we continue to believe in the long term viability of the oil industry in Indonesia, the country with the largest unexplored potential reserves in the Asian region.

Strategy

To prepare for the possibility of an extended period of low oil prices, the Management have secured a US$10 million working capital line to anticipate potential cash requirements. We are taking action to downsize our shore-based teams and have implemented more stringent cost monitoring. There have been delays in the delivery of the remaining two vessels which were planned for 2015 to 2016, while the 2016 new building has been postponed to 2017.

Our cost reduction efforts on direct costs have already slashed direct costs by 12% QOQ. Our balance sheet is relatively strong with net gearing at 64% which underpins our ability to ride out the downturn.

We continue to pursue our strategy of emphasizing quality and safety. When the market turns around we aim to be ahead.

The company has been successful in tendering for some work recently. Total contracts on hand as at end September 2015 amount to US$ 139 million.