28 December 2009
New orders for jack-up drilling rigs have dried up since the last quarter of last year. And with no new orders expected to float up until 2011, rig builders would have to look at other verticals to offset the decline in that segment.
UAE-based and Oslo-listed Maritime Industrial Services (MIS) has opted to enter the renewable energy sector and explore the opportunities of the EPC market by expanding in Abu Dhabi.
The 30-year old company has reported a much better year with revenues up 47 per cent in the first nine months of 2009 compared to the same period last year. But it also had to face the not uncommon problem these days - default and delay of payment.
MIS Managing Director Kevin Hudson is nevertheless unabated. "We should be okay, we are a future looking company," he said. "This year compared to last year is a lot better. We've been fortunate that we have a backlog and we have executed that backlog profitably."
We've seen a significant drop of activity in the newbuild market. How do you plan to offset that decrease?
What we build is a structure that uses a technology that can be used to instal wind towers offshore. This is a growing market place and we see it growing not just rapidly but incredibly. Rig market will be flat for a while so we see opportunity in the renewable energy segment.
Have you got any clients or have you started building for this segment?
We are in negotiation with a number of potentials but we haven't secured one. Each operator has a particular niché. In North Sea and East Cost of the US, the vessel is significantly different because the towers are different. So probably, we'll have a client first before we start building.
When do you expect to have your first client on the renewable front?
Soon. Hopefully by first half next year.
Indeed this is a growing market and because of that, a lot of players in the rig business are also looking at entering this segment. Is the renewables' market big enough to accommodate large number of players?
Absolutely, there is an increasing competition. We'd like to think we're a little bit better than our competitors. It will be a price-sensitive market as always but I think delivery on time and technical excellence of a product will be very important because these will be built for a specific contract.
Due to distressed financial market conditions, the flows of equity and debt investment into renewable energy projects have been disrupted since the fourth quarter of 2008...
We have seen a couple of clients who already have financing in place against existing commitments. There are a lot of people and lots of projects that are speculative and some projects are government-funded. So hopefully we're going to pick the right clients.
Your Q3 results showed robust operating profits. Where do you attribute this growth and where are further gains coming from?
This year compared to last year is a lot better. If you look in 2009 over 2008 - the top line is not going to be much different. What's going to be of much difference is the bottom line. What we've been fortunate is that we had a backlog and we have executed that backlog profitably.
Despite a healthy backlog, you've got some defaults and delay in payments with about $120 million account receivables for your two new build rigs...
Delay of payment is always an issue. We have a situation in rigs 106 and 108 where we have a dispute with our client. We received an order from the tribunal in November giving us permission to sell the rigs and we're in advance negotiation with the potential buyer now.
When do you think you can sell the rigs?
Soon.
Will you be able to recover the original price, considering prices of rigs have collapsed?
We should be okay.
You also have some account receivables from Qatar Petroleum.Has it been resolved?
No, it's not yet resolved. We had a dispute with QP with a project that we had finished two and a half years ago. We are in discussion with them to try and resolve it. It's ongoing. There's no major shift since the last time we reported it.
A lot of analysts say that defaults could further increase by next year. Could that be the same possibility in your sector?
I think when liquidity is a problem, the potential of default is normally pretty high. You have to look at individual cases and circumstances before making a prediction.
How did MIS perform this year?
If you look across the spectrum of business, while one segment may be down, the others are not. Refurbishment and fabrication is up this year and last, technical services segment is coming out of 2009 with the biggest order backlog in its 30-year history. Sunbelt H2S is growing 25 per cent 2009 over 2008 and there are plans to grow 25 per cent in 2010 over 2009. The sector that we're seeing the biggest drop is new build, not surprisingly. Newbuild is big in terms of revenue but it is not that big in term of profits. Newbuild and refurbishment makes up 81.6 per cent of our revenue by value stream but it is only 23 per cent of our net income. Fabrication, EPC, Sunbelt and technical services make up 18.4 per cent of our revenue but those streams make up 77 per cent of our net income.
Profile: Kevin Hudson Managing Director, Maritime Industrial Services
Hudson joined as Group CEO of MIS in October 2008. His career has been dedicated to the shipbuilding industry spanning some 34 years across three countries and a number of companies. Prior to joining MIS, he was CEO of Irving Shipbuilding and Fleetaway, both part of the JD Irving Group in Nova Scotia, Canada, where he led an operation of six yards and 3,000 staff operating in new ship construction, ship repair, rig refurbishment and naval repair.
New orders for jack-up drilling rigs have dried up since the last quarter of last year. And with no new orders expected to float up until 2011, rig builders would have to look at other verticals to offset the decline in that segment.
UAE-based and Oslo-listed Maritime Industrial Services (MIS) has opted to enter the renewable energy sector and explore the opportunities of the EPC market by expanding in Abu Dhabi.
The 30-year old company has reported a much better year with revenues up 47 per cent in the first nine months of 2009 compared to the same period last year. But it also had to face the not uncommon problem these days - default and delay of payment.
MIS Managing Director Kevin Hudson is nevertheless unabated. "We should be okay, we are a future looking company," he said. "This year compared to last year is a lot better. We've been fortunate that we have a backlog and we have executed that backlog profitably."
We've seen a significant drop of activity in the newbuild market. How do you plan to offset that decrease?
What we build is a structure that uses a technology that can be used to instal wind towers offshore. This is a growing market place and we see it growing not just rapidly but incredibly. Rig market will be flat for a while so we see opportunity in the renewable energy segment.
Have you got any clients or have you started building for this segment?
We are in negotiation with a number of potentials but we haven't secured one. Each operator has a particular niché. In North Sea and East Cost of the US, the vessel is significantly different because the towers are different. So probably, we'll have a client first before we start building.
When do you expect to have your first client on the renewable front?
Soon. Hopefully by first half next year.
Indeed this is a growing market and because of that, a lot of players in the rig business are also looking at entering this segment. Is the renewables' market big enough to accommodate large number of players?
Absolutely, there is an increasing competition. We'd like to think we're a little bit better than our competitors. It will be a price-sensitive market as always but I think delivery on time and technical excellence of a product will be very important because these will be built for a specific contract.
Due to distressed financial market conditions, the flows of equity and debt investment into renewable energy projects have been disrupted since the fourth quarter of 2008...
We have seen a couple of clients who already have financing in place against existing commitments. There are a lot of people and lots of projects that are speculative and some projects are government-funded. So hopefully we're going to pick the right clients.
Your Q3 results showed robust operating profits. Where do you attribute this growth and where are further gains coming from?
This year compared to last year is a lot better. If you look in 2009 over 2008 - the top line is not going to be much different. What's going to be of much difference is the bottom line. What we've been fortunate is that we had a backlog and we have executed that backlog profitably.
Despite a healthy backlog, you've got some defaults and delay in payments with about $120 million account receivables for your two new build rigs...
Delay of payment is always an issue. We have a situation in rigs 106 and 108 where we have a dispute with our client. We received an order from the tribunal in November giving us permission to sell the rigs and we're in advance negotiation with the potential buyer now.
When do you think you can sell the rigs?
Soon.
Will you be able to recover the original price, considering prices of rigs have collapsed?
We should be okay.
You also have some account receivables from Qatar Petroleum.Has it been resolved?
No, it's not yet resolved. We had a dispute with QP with a project that we had finished two and a half years ago. We are in discussion with them to try and resolve it. It's ongoing. There's no major shift since the last time we reported it.
A lot of analysts say that defaults could further increase by next year. Could that be the same possibility in your sector?
I think when liquidity is a problem, the potential of default is normally pretty high. You have to look at individual cases and circumstances before making a prediction.
How did MIS perform this year?
If you look across the spectrum of business, while one segment may be down, the others are not. Refurbishment and fabrication is up this year and last, technical services segment is coming out of 2009 with the biggest order backlog in its 30-year history. Sunbelt H2S is growing 25 per cent 2009 over 2008 and there are plans to grow 25 per cent in 2010 over 2009. The sector that we're seeing the biggest drop is new build, not surprisingly. Newbuild is big in terms of revenue but it is not that big in term of profits. Newbuild and refurbishment makes up 81.6 per cent of our revenue by value stream but it is only 23 per cent of our net income. Fabrication, EPC, Sunbelt and technical services make up 18.4 per cent of our revenue but those streams make up 77 per cent of our net income.
Profile: Kevin Hudson Managing Director, Maritime Industrial Services
Hudson joined as Group CEO of MIS in October 2008. His career has been dedicated to the shipbuilding industry spanning some 34 years across three countries and a number of companies. Prior to joining MIS, he was CEO of Irving Shipbuilding and Fleetaway, both part of the JD Irving Group in Nova Scotia, Canada, where he led an operation of six yards and 3,000 staff operating in new ship construction, ship repair, rig refurbishment and naval repair.
By Karen Remo-Listana
© Emirates Business 24/7 2009
