Fourth quarter and preliminary full year 2016 report – Earnings impacted by lower utilization
21 Feb 2017
Polarcus Limited (“Polarcus” or the “Company”) (OSE: PLCS) announces the release of its fourth quarter and preliminary full year 2016 financial statements.
HEADLINES Q4 2016:
- Revenues of USD 47.2 million, down 27% from Q3 2016
- Gross cost of sales of USD 52.6 million, down 7% from Q3 2016
- Non-cash impairment charge USD 24.8 million and non-cash onerous contract provision USD 26.4 million
- EBITDA before non-recurring cost of negative USD 2.6 million, down USD 15.6 million from Q3 2016
- Total cash balance of USD 14.5 million in addition to USD 25 million undrawn working capital facility at the quarter end
- Backlog of USD 230 million
- Subsequent Private Placement and reduced debt service and lease payments improves liquidity by approximately USD 80 million through to the end of 2018, subject to Fleet Bank approval, bondholder approval at a meeting scheduled for 01 March and EGM approval on 06 March 2017
The fourth quarter financial results reflect a challenging seismic market resulting in fleet utilization significantly weaker than the utilization reported by the Company in recent quarters. Total utilization was 72%, down from 90% in Q3 2016. Revenues in the quarter were USD 47.2 million, down USD 17.4 million (27%) compared to the third quarter 2016, driven by a USD 18.1 million (33%) decrease in contract revenue to USD 36.0 million. The quarter saw increased standby time following delays in clients obtaining permits on certain projects and vessel repositioning after strong utilization in Q3 2016. Vessel allocation to Multi-Client increased to 17% from 4% in the third quarter, and related Multi-Client prefunding revenue increased to USD 11.0 million from USD 9.4 million. While prefunding levels remained comparatively high, Multi-Client prefunding revenue for the quarter was less than expected due to production delays on the Company’s Multi-Client project in Brazil following poor weather and extreme barnacle growth on in-sea equipment. The prefunding level was 87% in the quarter and 124% for the full year.
Gross cost of sales was USD 52.6 million, a decrease of USD 3.9 million (7%) compared to the third quarter 2016. General and administrative costs were USD 4.2 million, a decrease of 5% compared to the previous quarter. The global cost base continues to be the lowest in the industry and is a result of the Company’s strong focus on cost management and efficient operations.
The prolonged weak market conditions led the Company to recognize a USD 24.8 million non-cash impairment charge on the carrying values of the vessels and seismic equipment, as well as a non-cash onerous contract provision of USD 26.4 million in the quarter. A total of USD 9.5 million of the impairment charge relates to equipment owned by Polarcus Nadia and USD 22.4 million of the onerous contract provision relates to the operating lease for the same vessel. As the timing of the reactivation of Polarcus Nadia from lay up is uncertain, the Company has applied a careful approach in assessing the accounting for these items. If Polarcus Nadia is reactivated before the end of the operating lease term, any remaining onerous contract provision related to the operating lease is expected to be credited to the income statement.
The lower earnings resulted in net cash outflow of USD 23.5 million during the quarter. The total cash at the quarter end amounted to USD 14.5 million, comprising USD 13.7 million unrestricted cash and USD 0.7 million restricted cash. The net interest bearing debt amounted to USD 270.7 million, up from USD 247.9 million at the end of the third quarter 2016, due to a lower cash balance at the quarter end.
The Company secured eight new contract awards since the end of the last quarter. One of the awards is a multi-year contract award with TGS-NOPEC Geophysical Company ASA (TGS) to acquire 30,000 km² of 3D data, requiring approximately 15 vessel months. Approximately 20,000 km² will be acquired in 2017 utilizing Polarcus’ innovative XArray multiple source acquisition method. The remaining approximately 10,000 km² will be acquired in 2018.
Post quarter end, a Norwegian subsidiary of Polarcus Limited entered a heads of agreement (HOA) with SCF GEO AS (“Sovcomflot”), to charter a vessel on bareboat terms with delivery scheduled for March 2017. The fixed period of the Charter is 5 1/2 years with options to extend for up to four additional months. The vessel will be delivered without streamers and the streamer package currently on board the vessel will be available for other vessels in the Polarcus fleet. The Charter will generate a minimum hire of USD 72 million over the fixed charter period with the possibility of increased charter hire fees based on Sovcomflot benefitting from certain market improvements. Sovcomflot has the right to purchase the vessel at any time during the charter period at pre-agreed prices. The HOA and the Charter are subject to consent of the bank lenders who have mortgagee rights over the vessel. The Charter is also subject to finalizing terms with Sovcomflot.
After the end of the quarter, the Company conditionally allocated binding subscriptions for 1 billion new shares at a subscription price of NOK 0.33, raising NOK 330 million in gross proceeds through a private placement (the “Private Placement”). The Private Placement was significantly oversubscribed. The transaction leverages the contingencies that were incorporated in the restructuring completed by the Company in February 2016. Polarcus has completed negotiations with the lenders in the Fleet Bank Facility to an extension of the amortization freeze to 01 January 2019, reducing installments in 2018 by approximately USD 30 million. The amortization freeze triggers a one-year extension of the reduced operating lease rates for the Polarcus Naila and Polarcus Nadia until 01 January 2019, reducing the lease payments in 2018 by approximately USD 15 million. This will also extend the term of the two leases by one year to Q4 2022. Polarcus has also concluded negotiations with DNB Bank ASA to extend its USD 25 million working capital facility by one year to 01 July 2019, which further improves the Company’s financial flexibility. The Private Placement, supplemented by the debt service reductions, improves the Company’s liquidity by approximately USD 80 million through the end of 2018. The Company has also committed to conduct a subsequent offering of up to approximately USD 5 million to existing shareholders who did not participate in the Private Placement (see Note 17.2). Certain amendments will also be made to the Debt Service Ratio and equity covenants. Completion of the Private Placement, covenant amendment and associated debt service reductions are conditional upon Fleet Bank Facility lender approval, bondholder approval at a meeting scheduled for 01 March and EGM approval on 06 March 2017.
“While Q4 results were weaker than recent quarters, the numerous contract awards we have recently announced give us good visibility and significantly strengthens our backlog. That, in addition to the Private Placement and associated debt service amendments, extensively improves our cash flow profile over the next two years. We continue to have the lowest cost base and fleet technical downtime, while maintaining high utilization and the highest levels of ESHQ performance.”
Chief Executive Officer
|Quarter ended||Year ended|
|(In millions of USD)||31-Dec-16||30-Sep-16||31-Dec-15||31-Dec-16||31-Dec-15|
|EBITDA (before non-recurring items)||(2.6)||12.9||8.4||51.4||157.0|
|EBIT (before non-recurring items)||(34.9)||(11.4)||(21.2)||(54.1)||15.4|
|Net profit / (loss) for the period||(97.0)||(17.4)||(289.2)||20.3||(374.1)|
|Basic earnings/(loss) per share (USD)||(0.183)||(0.033)||(4.317)||0.046||(5.585)|
|Net cash flows from operating activities||(2.6)||25.3||28.6||48.1||167.5|
|Total assets (period end)||571.9||638.1||848.2||571.9||848.2|
|Total liabilities (period end)||393.1||362.5||736.3||393.1||736.3|
|Total Equity (period end)||178.8||275.7||111.9||178.8||111.9|
|PP&E cash investment||1.0||2.1||1.0||16.4||15.1|
|Multi-client projects cash investment||12.6||7.7||11.6||44.6||97.0|
|Total cash (period end)||14.5||38.0||68.5||14.5||68.5|
|Net interest bearing debt (period end)||270.7||247.9||588.1||270.7||588.1|
Non-recurring items include impairments, the cost of onerous contract provisions and restructuring costs.
Rod Starr, CEO
+971 4 436 0800
Hans-Peter Burlid, CFO
+971 50 559 8175
Polarcus (OSE: PLCS) is an innovative marine geophysical company with a pioneering environmental agenda, delivering high-end towed streamer data acquisition and imaging services from Pole to Pole. Polarcus operates a fleet of high performance 3D seismic vessels incorporating leading-edge maritime technologies for improved safety and efficiency. Polarcus offers contract seismic surveys and multi-client projects with advanced onboard processing solutions and employs nearly 500 professionals worldwide. The Company’s principal office is in Dubai, United Arab Emirates. For more information, visit www.polarcus.com
The information included herein may contain forward-looking statements. Forward-looking statements include all statements that are not historical facts, including but not limited to statements expressing or implying the Company’s intent, belief or current expectations with respect to, among other things, forecasts, estimates, and predictions. Such forward-looking statements necessarily involve risks and uncertainties and are dependent on assumptions, information, data or methods that may be incorrect or imprecise. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealized. Some factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, developments in the oil and gas industry, the demand for seismic services, the demand for data from the Company’s multi-client library, currency risks, political risks, regulatory risks, and unexpected operational setbacks. For a further description of other relevant risk factors we refer to our 2015 Annual Report. The reservation is also made that inaccuracies or mistakes may occur in the information given above concerning the current status of the Company or its business. Any reliance on the information given above is at the risk of the reader, and Polarcus disclaims any and all liability in this respect.