Polarcus Second Quarter and Preliminary Half Year Results 2020: Effective cost management in a challenging market
22 Jul 2020
Polarcus Limited (“Polarcus” or the “Company”) (OSE: PLCS) releases its second quarter and preliminary half year results 2020.
Polarcus CEO, Duncan Eley, commented:
“As guided, the Company’s Q2 2020 results were negatively impacted by low utilization as E&P companies re-assessed their near-term exploration plans following the global economic slow-down which has also delayed tender processes.
The outlook for the second half of 2020 remains challenging. However, the recent marine seismic industry restructuring alongside current oil price developments provide favourable foundations for activity levels to build during 2021.
The substantial cost reduction initiatives and organizational reshape implemented by Polarcus during H1 2020, have enabled the Company to partly offset the adverse effects of the industry slow-down and preserve liquidity.“
Q2 2020 HEADLINES
- Segment revenues of USD 22.8 million, compared to USD 64.8 million in Q2 2019
- Segment EBITDA of negative USD 2.5 million, compared to positive USD 16.0 million in Q2 2019
- Cash from operations of USD 12.7 million, compared to USD 4.9 million in Q2 2019
- Total cash balance of USD 44.8 million
- Vessel utilization of 50%, compared to 72% in Q2 2019
- Backlog of approximately USD 141 million, compared to USD 200 million at the same time last year
Second quarter Segment revenues of USD 22.8 million decreased 65% compared to the same period last year as marine seismic acquisition activity was negatively impacted by the unprecedented global economic crisis triggered by the combined impacts of the COVID-19 pandemic and oil price volatility. The revenue decline was driven largely by reduced utilization as a result of the cancelled and terminated contracts announced in Q1 2020 and lower effective day rates on contract. Reduced revenue from V.Tikhonov further contributed to the revenue decline from the same quarter last year.
In response to the COVID-19 pandemic and the associated contraction in marine seismic acquisition activity, the Company implemented enhanced business continuity measures and a cost reduction plan in March 2020. These initiatives have enabled cost to better align with reduced activity levels. As a result, gross cost of sales in the quarter dropped 60% to USD 23.5 million compared to USD 59.5 million in Q2 2019 and Segment general and administrative costs dropped 29% to USD 2.7 million compared to USD 3.8 million in Q2 2019. The effective cost management measures partly mitigated the significant revenue reduction in Q2 2020 and resulted in a Segment EBITDA of negative USD 2.5 million.
Cash flow from operating activities in the quarter improved to USD 12.7 million compared to USD 4.9 million in Q2 2019 impacted by positive working capital movements. Total cash at quarter-end was USD 44.8 million compared to USD 46.7 million at the end of Q1 2020.
In addition to the cost reduction plan implemented towards the end of the first quarter, the Company announced an organisational reshape in June 2020, decreasing the size of the onshore and offshore organisations while embedding more flexibility to manage anticipated fluctuation in activity levels in the near-term. This is estimated to realize an additional annualised reduction in the Company’s operating costs of more than USD 7 million to further improve the financial resilience of the Company. A non-recurring cost of USD 2 million associated with the organization reshape has been adjusted in the Segment numbers.
Backlog at 30 June 2020 together with the value of awards announced after the quarter end is estimated at USD 141 million compared to USD 200 million at the same time last year. The Company’s fleet is 40% booked for the remainder of 2020.
Tender activity significantly reduced during Q2 2020 due to the combined effects of a sharp decline in oil price and the global slow-down related to the COVID-19 pandemic. Discussions with many E&P companies confirm that exploration and production investment portfolios are currently being reviewed and revised. As a result, many tender processes and decisions have been deferred. This indicates a challenging market in the second half of 2020.
However, clients also indicate that 2021 activity is expected to rebuild with a number of projects and tenders rescheduled to next year. E&P companies will finalize their budgets for 2021 exploration and production investments during the second half of 2020. Sentiment during this period, related to oil price and COVID-19 restrictions, will be an important factor determining 2021 demand levels.
The Company continues to focus on managing its cost base appropriately with cash preservation being a key priority. Implementation of business continuity initiatives and substantial cost reduction measures is helping the Company navigate the current market uncertainty.
The reshaping of the seismic industry that has occurred, resulting in an increased number of multi-client companies without vessels, has led to an improved industry structure. However, continued supply-side discipline observed during Q2 2020 with three vessels removed from the global vessel count of 22 vessels is critical for the future market balance. Further reductions in active vessels are expected during H2 2020.
Industry-wide focus on the environment continues to sharpen and Polarcus is receiving growing recognition for its Explore Green™ capabilities, a cornerstone of the Company since inception. Following a successful launch in 2019, Polarcus Cirrus™ is expected to gain further momentum as more E&P clients realize the opportunity of accelerated decision-making to compress the timeline for hydrocarbon production. With a young, highly efficient and uniform fleet, combined with demonstrated operational excellence, Polarcus is well-positioned to continue securing and delivering premium projects around the globe, despite the near-term uncertainty in marine seismic acquisition demand.
Note: All references in this report to “segment” and “segment reporting” are adjusted for IFRS 15 effects and non-recurring items. Non-recurring items adjusted in 2020 include organization reshape costs. See Note 3 in the accompanying interim financial statements.
Duncan Eley, CEO
+971 4 43 60 915
Hans-Peter Burlid, CFO
+971 50 559 8175
Polarcus (OSE: PLCS) is a focused geophysical service provider of safe and environmentally responsible marine acquisition services globally. Our geophysical offering is driven by innovation and collaboration to provide clients with better seismic data faster. Polarcus operates a fleet of high performance seismic vessels with 3D and 4D imaging capabilities, which incorporate leading-edge technologies for improved environmental performance and operational efficiency. Polarcus offers contract seismic surveys and multi-client projects with advanced priority processing solutions including Cirrus, a suite of cloud-based applications and services designed to bring clients closer to acquired seismic data, enabling faster and better informed exploration decisions. The Company services its clients globally from its head office in Dubai and regional offices located in Houston, London, Singapore and delivers Group asset management services from Oslo. 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 2019 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.
This information is subject to the disclosure requirements pursuant to Section 5-12 of the Norwegian Securities Trading Act