POLARCUS THIRD QUARTER 2019: Exceptional performance in an improving market
5 Nov 2019
Note: All references in this report to “segment” and “segment reporting” are adjusted for IFRS 15 effects and non-recurring items. See Note 3 in the accompanying interim financial statements for further details.
Polarcus Limited (“Polarcus” or the “Company”) (OSE: PLCS) announces the release of its third quarter results 2019.
Polarcus CEO, Duncan Eley, commented on the quarter: “We achieved an outstanding financial result due to our ability to secure complex projects and deliver them ahead of model. We have seen a price increase this year of more than 50% compared to 2018. The opportunity to generate further improved margins in the industry is driven by the steady increase in underlying demand combined with the supply-side discipline observed to date. With a young and high-performing fleet I am confident Polarcus is well positioned to continue benefitting from the improving market.”
HEADLINES Q3 2019
- Segment revenues of USD 103.4 million, up from USD 55.2 million in Q3 2018
- Segment EBITDA of USD 29.6 million, up from USD 7.3 million in Q3 2018
- Improved cashflow from operations before changes in working capital of USD 29.7 million, up from USD 9.6 million in Q3 2018
- Total cash balance of USD 35.4 million, up from USD 23.8 million at the end of the previous quarter
- Successful completion of the industry’s largest 4D project in 2019 and strong production on the multi-vessel wide azimuth project
- Solid operational performance with very high technical uptime
- Backlog of USD 145 million, compared to USD 170 million at the same time last year
As anticipated Polarcus recorded a very strong third quarter, with segment revenues of USD 103.4 million. The 87% increase compared to same period last year highlights the Company’s ability to generate premium rates where the value of several differentiating features of the Polarcus fleet and operational capabilities are recognized by clients. Higher than modelled levels of productivity driven by operational excellence of Polarcus field crews enabled revenues from a number of complex projects to be optimized. This resulted in acceleration of some revenue into Q3 2019.
Segment EBITDA in the quarter increased to USD 29.6 million compared to USD 7.3 million in Q3 2018 driven by strong revenue. The significant growth in revenue, driven by a 155% improvement of realised contract day rates, more than compensated for the absence of multi-client revenue and third-party vessel management fees. This reflects the Company’s strategy of focusing on the contract acquisition market. Fleet utilization was 74% compared to 79% in Q3 2018.
The significantly increased revenue had associated project specific costs resulting in a 40% increase in gross cost of sales to USD 63.0 million compared to USD 44.8 million in Q3 2018, driven by a large fleet of source and support vessels deployed on the wide-azimuth and 4D projects and other costs specific to these complex projects. In addition, the cost was inflated by USD 7.7 million in previously deferred mobilization and transit costs. General and administrative cost for the quarter was USD 3.1 million, maintained at the same level as Q3 2018.
Cash generated from operations before changes in working capital during the quarter increased to USD 29.7 million, compared to USD 9.6 million in Q3 2018. The net segment working capital movement in the quarter was negative USD 1.4 million, compared to negative USD 9.2 million in Q3 2018. Capex investment for the quarter was USD 8.6 million of which USD 4 million was invested in new streamers on attractive terms. This investment along with increased output of the Polarcus streamer repair facility has maintained the streamer pool at a healthy level with excess capacity, which provides flexibility and a more gradual investment profile beyond 2021.
The strong cash generation during the quarter led to total cash at the quarter end of USD 35.4 million compared to USD 23.8 million at the end of the previous quarter. The Company’s USD 40 million working capital facility remained undrawn.
Despite the recent oil price volatility, levels of tender activity from E&P companies continue to improve gradually. The reshaping of the seismic industry and ongoing consolidation of seismic vessel operators should lead to Polarcus having an expanded client base of more multi-client companies without vessels. In addition, seismic data acquisition capacity has been reduced in recent years which is expected to remain in place going into 2020.
The Company’s backlog at 30 September 2019 and value of awards announced after the quarter end is estimated at USD 145 million. While this represents a slight reduction in total backlog compared to Q3 2018, the proprietary contract backlog remained flat year on year at USD 105 million.
Three of the Company’s core vessels are fully booked to Q2 2020, while one vessel has available capacity in Q4 2019. This may lead to some idle time during Q4 2019 reflecting the focus on prioritizing projects with superior margins and appropriate contract terms. The level of backlog is expected to build through the fourth quarter, and the Company will continue to prioritise projects with suitable rates reflecting its operational capabilities.
Following an exceptional third quarter, earnings in Q4 2019 will be reduced sequentially but are expected to be stronger than in the same quarter last year.
With oil prices around current levels, margins in the seismic market are expected to continue improving driven by the steady increase in underlying demand combined with the supply-side discipline observed to date With a young and high-performing fleet, Polarcus is well positioned to continue benefiting from the improving market.
Duncan Eley (CEO) and Hans-Peter Burlid (CFO) will host a presentation at Felix Konferansesenter, Bryggetorget 3, Oslo on 5 November 2019 at 10:00 CET (13:00 UAE). The presentation will also be available by webcast and conference call.
Duncan Eley, CEO
+971 4 43 60 915
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 seismic vessels with 3D and 4D imaging capabilities, which incorporate leading-edge maritime technologies for improved safety and efficiency. Polarcus offers contract seismic surveys and multi-client projects with advanced onboard processing solutions. The Company services its clients globally from its head office in Dubai and regional offices located in Houston, London and Singapore. 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 2016 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 the Norwegian Securities Trading Act