TTA announces third quarter results: significant non-cash impairment offsets positive contributions from all three business groups
- Operations improve, as normalised EBIT rises quarter-on-quarter and year-on-year
- THB 2,319 million non-cash impairment of goodwill results in net losses of THB 2,351 million
- Thoresen Shipping returns to profitability even as freight rates remained near historical lows
- Mermaid contributes THB 82 million in profits, with revenue and EBIT growth of 21% and 123% respectively
- Baconco reports record quarter in terms of both sales and EBIT
Bangkok, Thailand, 15 August 2012 -- Thoresen Thai Agencies Public Company Limited ("TTA") today announced third quarter net losses of THB 2,351 million and losses per share of THB 3.32 for the three-month period that ended on 30 June 2012. The losses were primarily attributable to a significant non-cash impairment of TTA's investment in Unique Mining Services Public Company Limited ("UMS"), which continues to face difficult operating conditions stemming from a Samut Sakorn government order to close one of its two plants for more than a year.
Revenues for the quarter were THB 4,810 million, a 10% improvement year-on-year while normalised EBIT climbed to THB 350 million, a 64% and 402% improvement year-on-year and quarter-on-quarter, respectively.
Continuing improvements in TTA's operating results came from a number of business units. Thoresen Shipping, whose strategy to position vessels in higher yielding north Atlantic routes, reported profits through a 4% quarter-on-quarter gain in Time Charter Equivalent ("TCE") rates and a sharp drop in vessel operating expenses. Meanwhile, Mermaid Maritime Public Company Limited ("Mermaid"), which operated in its traditional high season, reported a profit and pushed positive Group Energy business division contributions to THB 73 million. Meanwhile Baconco Co., Ltd. ("Baconco")'s record EBIT of THB 93 million helped to offset losses at UMS for the Group Infrastructure business division, which also contributed marginal profits this quarter.
The non-cash impairment against goodwill related to TTA's investment in UMS came after the Board of Directors requested a mid-year review, given continuing uncertainty over UMS' Samut Sakorn plant, which was ordered closed by provincial authorities due to environmental issues in another district of Samut Sakorn. While UMS continues to work towards meeting the conditions set out by the authorities to reopen the plant, several back up plans are now being considered, including the opening of a third site. The impairment charge reflects this uncertainty and the on-going risks relating to a permanent reopening of the Samut Sakorn facility as well as those associated with the potential identification and construction of a new plant.
"The highlight of the third quarter from an operational point of view was a clear, continued turnaround for both of our core businesses, Thoresen Shipping and Mermaid," commented M.L. Chandchutha Chandratat, TTA's President & CEO. "In addition, Baconco had its strongest quarter since we acquired the company in 2009, while Petrolift continued to contribute steadily to group results. At the same time, however, we continue to face challenges with UMS and as a result, the Board and management decided to take an impairment charge against TTA's investment in UMS in line with our policy of conservative financial reporting. Notwithstanding this charge, both the Board and management remain confident that UMS will be able to return to profitability and growth once full operations are resumed."
Group Transport contributions grew from a loss of THB 7 million in the previous quarter to a positive contribution of THB 67 million in the third quarter. Thoresen Shipping's freight revenues rebounded to THB 934 million, a 24% improvement from the previous quarter while normalised EBIT rose to THB 41 million compared to negative normalised EBIT of THB 6 million THB 17 million in the previous quarter and year respectively.
The relatively stronger revenues came as a result of higher freight rates, reaped from positioning a greater proportion of Thoresen Shipping's fleet in more profitable north Atlantic routes as well as chartering in additional tonnage, resulting in a full-time fleet equivalent of 21 vessels in the third quarter, compared to 16 in the previous quarter.
With effective cost control initiatives in place, Thoresen Shipping was able to bring its vessel operating expenses down by 37% year-on-year and 10% quarter-on-quarter. Improved inventory management of spares, implementation of pool purchasing and reduction in lube oil consumption were among the primary initiatives, while dry-docking savings were also realised as a result of Thoresen Shipping's modern fleet and on-board maintenance initiatives.
"The fact that Thoresen Shipping delivered a marginal profit in a quarter which saw the second lowest Baltic Dry Index average in nearly six years is testament to the efforts of the team in finding ways to maximise revenues while keeping a close check on operating and maintenance costs," said Mr. David Ames, Executive Vice President, Group Transport. "While we continue to run the business in a climate of economic uncertainty, Thoresen Shipping has proven it can operate rationally and profitably, and is no doubt set to capitalise on a market upturn over the next 12-24 months. Going forward, we will focus on our fleet renewal plan, which looks to boost Thoresen Shipping's owned fleet from 16 today, to up to 24-30 vessels by 2015."
Petrolift performance softened slightly during the third quarter with revenues affected by the planned dry-docking of two vessels. Petrolift contributed THB 26 million to TTA during the quarter and remains one of the Group's best performing diversified investments.
Group Energy contributed THB 73 million in profits compared with a loss of THB 68 million in the previous quarter and a profit of THB 22 million during the same period last year. Improvements were driven by the second highest quarterly utilisation rate for Mermaid's subsea services segment in three years, combined with aggressive cost savings efforts. Adjustments in crew contracts along with the effective implementation of TTA's pooled procurement initiative continued to enable Mermaid to reduce both vessel running costs and project costs considerably.
Mermaid's revenues climbed to THB 1,753 million, a 21% improvement over the same period last year. Going forward, Mermaid will focus on a subsea fleet optimisation plan, aiming to maximise the use of its higher end dive and remotely operated vehicle support vessels, which can reap superior day rates. Furthermore, Mermaid is focused on securing longer-term contracts from national oil and gas companies in growth areas such as Malaysia, Indonesia, the Middle East, and Africa. In Mermaid's drilling segment, MTR-1 continues to operate as an accommodation barge support unit, while MTR-2 operates in drilling mode, both contracted in Indonesia through to the first quarter of fiscal year 2013. MTR-2 is scheduled to undergo a special periodic survey for a period of three to four months upon the conclusion of its current contract.
The construction of Asia Offshore Drilling Limited ("AOD")'s three high-specification jack-up rigs continues to make progress with delivery of the first rig now scheduled as early as December 2012. Marketing activities have already commenced as overall demand for premium jack-up rigs remains strong, with utilisation rates above 95% globally.
"Following intensified and focused efforts to grow the Company's geographic footprint combined with greater attention to costs, it is gratifying to see the positive fruits of this labour," commented M.L. Chandchutha. "With outlook remaining strong for the oil and gas industry, Mermaid is well positioned to capture growth opportunities for its subsea and drilling segments, as well as for our joint venture jack-up rig operator Asia Offshore Drilling, which will launch operations as early as December 2012."
Group Infrastructure contributed THB 5 million in profits this quarter, nearly identical to the THB 3 million in the second quarter but down 94% year-on-year. The year-on-year decline came as a result of UMS' continued aggressive push to sell its 0-5 mm coal inventory in Samut Sakorn, which is one of three preconditions set out by the provincial government before it considers allowing the plant to reopen. Widening losses at UMS were partly offset by an impressive performance at Baconco, which reported its highest sales and EBIT since being acquired by TTA.
The situation UMS faces in Samut Sakorn stems from environmental concerns targeted at coal operators in another district of Samut Sakorn. Nevertheless, UMS has been forced to incur higher transportation costs because of the need to ship 0-5 mm coal from Samut Sakorn to cement factories in Saraburi, while sending out classified coal from Ayudhaya to existing customers in the Samut Sakorn area. The situation is further complicated by the fact that much of the 0-5 mm coal in the Samut Sakorn plant was purchased during in 2009 - 2011, when coal prices were considerably higher than they are today. Being forced to sell this coal at today's prices, coupled with the additional transportation costs, has caused UMS to incur widening losses on the sale of this inventory.
The situation has also delayed UMS' strategy to implement a granular coal solution to its 0-5 mm coal, which would have reaped higher prices and in turn, wider margins. The solution has already been deployed successfully in UMS' Ayudhaya plant, but cannot be brought to scale since the larger production line and greater inventory of 0-5 mm coal continues to be locked up at the Samut Sakorn facility.
"Since embarking on our aggressive sales program in the second quarter, nearly two thirds of the 0-5 mm coal stockpile at Samut Sakorn has already been sold," said Mr. Vichai Chuensuksawadi, Executive Vice President, Group Infrastructure. "We continue to work towards selling the entire stockpile by the government's February 2013 deadline but should the reopening be delayed for any reason, we are in the midst of studying a number of alternatives, including investment in an alternate site, floating terminals and run-of mine coal imports to return UMS to consistent profitability."
Following a seasonally low second quarter, Baconco reported sales revenues of THB 1,038 million, a 42% year-on-year improvement. The strong demand, partly pent-up from last quarter as South Vietnamese farmers waited longer to make their purchases compared to last year, was also driven up by Baconco's increased focus on export sales. Warehousing remained a strong growth area for TTA's infrastructure investments in Vietnam, with space at all facilities under TTA companies in Vietnam enjoying over 90% capacity utilisation.
"We see a continued environment of low freight rates in the dry bulk space over at least the next 12 months, but with a formidable team and winning strategy now well in place at Thoresen Shipping, we have a strong, competitive business built for sustainable long term growth," concluded M.L. Chandchutha. "While we will look for modest performance from Thoresen Shipping over the next year, prospects for the oil and gas industry look very promising, and Mermaid is today poised to capture continued strong results in the upmarket ahead.
"With UMS, we will continue doing everything within our control to resume operations at our Samut Sakorn plant as quickly as possible but have already started contingency planning in case we face further obstacles. In the meantime, continued strong performance at Baconco and Baria Serece coupled with formidable growth and utilisation at our warehousing facilities in Vietnam will help to at least partially offset the losses at UMS, which will likely continue through the second quarter of fiscal 2013."
Thoresen Thai Agencies Public Company Limited ("TTA") is a strategic investment holding company listed on the Stock Exchange of Thailand (TTA:TB). Its investment strategy is to grow through a balanced and diversified business portfolio of transport, energy, and infrastructure assets, both domestically and internationally. TTA's evolution from a dry bulk shipping operator began in 2005 with an investment in subsea engineering firm Mermaid Maritime Public Company Limited, which has since been listed on the Singapore Stock Exchange (MMT:SP). Since then, TTA has acquired interests in fertiliser and logistics (Baconco Co., Ltd.) coal-related businesses (SKI Energy Resources Inc, Merton Group (Cyprus) Limited and Unique Mining Services Public Company Limited), petroleum tankers (Petrolift, Inc) and a port in Southern Vietnam (Baria Joint Stock Company of Service for Import Export of Agro Forestry Products and Fertilizers).
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