Dubai, United Arab Emirates, August 11, 2009 (ME Newswire): MIS Co. Ltd. Inc. (OSE: MIS) reports a continuation of its positive start to the financial year (its 30th year of operations in the Middle East) with results for the 2nd Quarter 2009, operating and financial highlights of which are as follows:
- Revenue of $132.5 million in the second quarter was 62% ahead of the same period last year, reflecting progress on six New Build rigs in production during the quarter versus three at the same time last year. Against the previous quarter revenue was down 10%, as revenue slowed on rigs at or near completion while production built up more slowly on the newer contracts.
- Net income of $10.2 million (just 0.8% down on the previous quarter) was more than 600% ahead of the same period last year, as both gross and net margins improved. Profitability was maintained in the traditional value streams, while MIS achieved a further modest improvement in the contribution from New Build. This contrasted with losses of $6 million recorded in the same period last year on Hulls 104 and 105 and zero margins on $6.6 million of revenue in Qatar.
- The SeaWolf Onome (Hull 105) was completed and formally accepted by the owner during the quarter, with the final milestone payment received after the quarter end.
FINANCIAL PERFORMANCE
Consolidated financial statements for the 2nd Quarter 2009 are attached and set out below is a summary of key financial data:
US$ Millions | Q1 2009 | Q2 2009 | Q2 2008 | 1st Half 2009 | 1st Half 2008 |
Total Revenue | 147.2 | 132.5 | 81.8 | 279.7 | 163.7 |
New Build | 108.5 | 91.9 | 38.4 | 200.4 | 87.9 |
Traditional Works | 38.7 | 40.6 | 43.4 | 79.3 | 75.8 |
Gross Profit (before depreciation) | 20.3 | 19.3 | 7.9 | 39.6 | 18.2 |
EBITDA | 14.3 | 12.6 | 4.0 | 26.9 | 9.2 |
Depreciation & Amortisation | 2.6 | 2.3 | 1.7 | 4.9 | 3.3 |
EBIT | 11.7 | 10.3 | 2.3 | 22.0 | 5.9 |
Net Income | 10.4 | 10.2 | 1.4 | 20.6 | 4.4 |
Margins on revenue (%) |
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Gross Profit | 13.8 | 14.6 | 9.7 | 14.2 | 11.1 |
EBITDA | 9.7 | 9.5 | 4.9 | 9.6 | 5.6 |
Net Income | 7.0 | 7.7 | 1.8 | 7.4 | 2.7 |
An improvement in gross profit margins partially compensated for the fall in revenue during the quarter, while net income was further supported by the sale of the company's investment in Gulf Marine Services (GMS), which resulted in a profit of $1.2 million. Net interest costs in the period amounted to $1.7 million (versus $1.6 million in the previous quarter and $1.1 million in Q2 2008. The charge for the half year amounted to $3.3 million compared with $1.9 million for the same period last year, on higher average borrowings.
CASHFLOW AND BORROWINGS
US$ Millions | 1st Half 2009 | 1st Half 2008 |
Net operating cashflow | -5.0 | -21.7 |
Investing activities | 2.2 | -15.7 |
Financing activities | 1.8 | 41.7 |
Net increase/(decrease) in cash & cash equivalents | -1.0 | 4.3 |
Against the first half of last year, the improvement in net income is fully reflected in an improved operating cash flow, as robust cash collections balanced the growth in working capital that would otherwise have resulted from the much higher level of new build activity.
The positive contribution from investing activities came from a combination of dividends from our Saudi associated company ($1.4 million, 35% higher than in the same period last year) and proceeds from the sale of the investment made in 2007 in GMS ($7.0 million, realising a profit of $1.2 million). Together these items exceeded capital expenditure of $6.0 million, itself significantly reduced from $4.5 million in the 1st Quarter to $1.5 million in the 2nd Quarter. In 2008 investment expenditure included the acquisition for $14 million of 3C Metal International LLC (3CMI).
Bank borrowings (net of cash) were almost unchanged compared to the year end but were $34.4 million lower than at the end of the previous quarter. Last year's increase was primarily to finance the 3CMI acquisition and increasing New Build work in progress.
Since the end of the quarter, our cash position has once again improved, largely as a result of the following:
- Completion and acceptance of Hull 105 resulted in the receipt on 18th July 2009 of $44.8 million, in settlement of the final delivery milestone on that contract.
- The laying of the keel on Hull 110 triggered a further milestone payment ($51.6 million) from First Energy Bank in June, with the funds received just two days late on 2nd July 2009.
As a result, and subject to the successful resolution of the matter referred to under the heading Notice of Arbitration below, we expect a materially lower level of average debt in the second half of the financial year.
NOTICE OF ARBITRATION
(This note reproduces an announcement made to the Oslo Børs on August 4th 2009)
A customer, in whom MIS holds a shareholding of 8.7% and for whom we are building two New Build rigs, is due to pay the company $117 million on 14th August 2009 against an already achieved and independently certified production milestone. The customer has assured us that it is committed to meeting its obligations under the contract and is pursuing a number of credible options in order to ensure that the necessary funds are available to meet those payments.
The same customer has separately written to the company claiming that the rigs under construction do not meet the technical specification included in the contract and has therefore put MIS on notice of a potential breach of contract. This claim is in our opinion (confirmed by the rigs' designers and an independent engineering consultancy) wholly without foundation. MIS has recently delivered two rigs built to a specification that is in all material respects identical to that of the two rigs in question, and for which certificates have been issued (following relevant testing) by ABS, the certifying authority, confirming their adherence, as built, to the appropriate classification rules. We have therefore referred the claim to arbitration (the remedy under the contract) and are confident that, if the claim is pursued, it will be confirmed to be without merit.
For the avoidance of doubt, our contractual position is entirely clear - this technical issue has no bearing on the customer's obligation to make the payment due on 14th August [1]
[1] As is normal in contracts of this sort, MIS has, in the event of a customer's failure to make a payment due under the contract, an unfettered contractual right to sell the rig and thereby recover any and all sums due under the contract.
BACKLOG
(US$ Millions): | Traditional Works | New Build | Total |
At 1 January 2009 | 54.0 | 662.0 | 716.0 |
Additions/Awards 1st Half 09 | 74.7 | -26.3 | 48.4 |
Recognised 1st Half 09 | -79.3 | -200.4 | -279.7 |
As at 30 June 2009 | 49.4 | 435.3 | 484.7 |
As expected, backlog is reducing steadily from the exceptional levels achieved at the end of 2008, in the absence of further new-build contract awards (see Prospects and market outlook below). Traditional business orders slipped a little in the 2nd Quarter, reflecting an increased level of competition for available work in current market conditions.
PROSPECTS AND MARKET OUTLOOK
The outlook for 2009 reported at the end of the 1st Quarter is unchanged: revenue is secured by our backlog and profitability supported by the progress previously reported in improving our new-build productivity and applying other lessons learnt on the first two rigs.
We see no early improvement in the outlook for New Build orders. MIS' strategy remains to offset the effects of any temporary reduction in New Build revenue by reducing its cost base and concentrating in the short term on the growth of other areas of our business which are less cyclical and therefore less affected by the economic crisis, particularly Refurb (rig refurbishment), EPC (engineering, procurement and construction) and our safety services business, Sunbelt, where we are pursuing opportunities for profitable expansion into new territories within the GCC and the wider Middle East region. The competition is intense, but MIS is looking beyond its traditional markets and remains uniquely positioned in its ability to offer turnkey solutions to its clients across the oil and gas industry's spectrum of services.
-Ends-
*Source: ME NewsWire
*View this release online and download high resolution images and logos at: http://www.me-newswire.com/news/862
Investor Relations:
Contact Group CFO Andrew R. J. Calvert: Andrew@mis.ae, or Rana Said,
Director Corporate Communications at: rana@mis.ae for additional information.
Note: MIS will be presenting at this year's Pareto Oil & Offshore Conference in Oslo, in September 2009, and is available for one-on-one meetings.
© Press Release 2009
