Topaz Energy and Marine Financial Results for the Nine Months Ended 30 September 2017
21 November 2017Nine months revenue of US$175m; Robust EBITDA margin of 50%
Dubai, UAE, Tuesday 21st November 2017: Topaz Energy and Marine (“Topaz”), a leading offshore support vessel company, today announces its results for the nine months ended 30 Sept 2017 (“the period”).
| Three Months Ended | Nine Months Ended | |||||
|---|---|---|---|---|---|---|
| Sept 2017 | Sept 2016 | % change | Sept 2017 | Sept 2016 | % change | |
| Consolidated Revenue (US$ m) | 59.7 | 66.6 | -10.3% | 175.4 | 216.1 | -18.8% |
| EBITDA (US$m) | 30.5 | 34.4 | -11.3% | 88.1 | 111.0 | -20.6% |
| EBITDA Margin (%) | 51.0% | 51.7% | -0.7ppt | 50.2% | 51.4% | -1.2ppt |
| Net Profit (US$ m) | (24.3) | (5.0) | NM | (37.7) | (4.2) | NM |
| Net Profit Margin (%) | (40.7%) | (7.5%) | -33.2ppt | -21.5% | -1.9% | -19.6ppt |
| Core Vessel Utilization | 67.0% | 66.6% | -0.4ppt | 64.4% | 70.3% | -5.9ppt |
Business Highlights (Nine Months ended 30th Sept 2017)
- Overall core fleet utilization at 64%, while we continue to demonstrate resilience in our main market of Azerbaijan with utilization at 93%.
- Robust EBITDA margin of 50%, despite utilization and rate pressure in MENA and Africa in particular.
- Continued resolute focus on cost control across the organization has resulted in savings of US$16m for the period, compared to the same period last year, while the company continued maintaining highest standards of operational safety.
- Boost to our long-term utilization with the 5-year US$100m Dragon Oil contract awarded for six vessels in Turkmenistan.
- Announced a strategically important contract win with Total in Azerbaijan in Q3 which results from Topaz’s global relationship with Total.
- Topaz continues to maintain an industry-leading backlog of US$ 1.5bn through established long-term contracts, adding to the company’s long earnings visibility and financial strength.
- Succesful refinancing of the existing US$350m 8.625% Senior Notes due in 2018 via the issuance of US$375m 9.125% Senior Notes due in 2022.
- Fully compliant with financial covenants; covenants proactively reset during the period.
- Credit ratings reaffirmed by S&P and Moody’s and remain stable.
- Safety continues to be Topaz’s top priority. No Lost Time Incidents (LTIs) during the past 21 months and no recordable injuries in Q3.
René Kofod-Olsen, Chief Executive Officer, Topaz Energy and Marine said,
“Despite exceedingly challenging market conditions, Topaz has delivered stable results for the nine month period ended 30 September 2017, with an upwards quarter-on-quarter trend compared to Q2 2017. With a robust cost-efficiency programme in place, we maintained a stable EBITDA margin of 50% and reduced costs by US$16m, a decrease of 12% on the same period last year, thereby enabling the organization to better perform in a volatile and unpredictable market.
“We will continue to adjust and enhance the business making it more efficient and effective. During the period, we signed a contract with Orange to digitize processes across the organization; a solution which will allow us to connect with our fleet at sea in real- time, effectively transforming them into branch offices at sea.
“Revenues for the nine month period stand at US$175m, down 19% compared with the same period last year. EBITDA is at US$88m, down 21% compared with the same period last year. Our financial results continue to be impacted by the OSV sector challenges, driven primarily by depressed investments from the Energy sector, adding pressure on rates and utilization.
“Core fleet utilization improved from 62% in H1 2017 to 65% for the period. In Azerbaijan, our most significant operation with solid contract cover, utilization was at 93%, reflecting the strength of our business in that market. In the MENA and Africa regions – which are mainly spot market-driven compared to our longer-term contracts of the Caspian – we have continued to face severe competitive pressure on rates and utilization, with lower overall core fleet utilization of 52% and 30% respectively. “The outlook in both regions remains very challenging, however, on the back of strong tendering activities, we have reactivated five vessels in MENA and two in Africa during the period, thereby bringing down the total tally of vessels in layup, from 12 to 5. The majority of our African fleet has been contracted since the period end, and we expect to see significantly improved utilization in the fourth quarter. MENA and Africa remain long-term strategic markets for Topaz, with the potential to achieve better utilization near term.”
“On the paramount Tengiz project we have in Q4 commenced operation of two vessels, six months ahead of schedule, marking the company’s entry into marine logistics.
“Rising demand and flattening global supplies, coupled with OPEC’s cuts since January, seem to indicate an upward trend on prices after three years in the doldrums. Brent has been trading above US$55/boe since mid September, primarily because the underlying fundamentals have improved markedly in the last few months. We foresee OSV markets responding positively to this with an expected increase in tender activity that will help absorb the excess tonnage over time. We are beginning to see some signs of recovery in the market, and while we expect 2018 to offer better opportunities for growth, challenging market conditions will prevail in most markets.”
Financial Review
| REVENUE | Three Months Ended | Nine Months Ended | |||
|---|---|---|---|---|---|
| Sept 2017 | Sept 2016 | Sept 2017 | Sept 2016 | Variance | |
| Caspian | 43.9 | 50.6 | 131.4 | 155.5 | -15.4% |
| MENA | 12.0 | 13.5 | 36.2 | 49.2 | -26.4% |
| Africa | 1.8 | 2.5 | 4.9 | 11.4 | -57.0% |
| Corporate / adj | 2.0 | – | 2.9 | – | +100.0% |
| Total | 59.7 | 66.6 | 175.4 | 216.1 | -18.8% |
Revenue for the period was US$175.4m, a decrease of 18.8% against corresponding revenue of US$216.1m in the same period last year. This decrease is mainly the result of (i) loss of revenue of US$14.4m due to layups and pressure on rates and utilization in the MENA and Africa regions, (ii) off-hire of barges and tugs in Kazakhstan of US$13.5m, (iii) off-hire/standby rate on two subsea vessels of US$6.2m, (iv) loss of revenue due to lower utilisation in Russia of US$2.6m and (v) lower mobilization revenue of USD$1.6m. However, this decrease is partly offset by a new vessel deployed on a long-term contract of US$0.9m.
US$ Millions
| Three Months Ended | Nine Months Ended | ||||
|---|---|---|---|---|---|
| Sept 2017 | Sept 2016 | Sept 2017 | Sept 2016 | Variance | |
| Crew cost | 12.8 | 12.4 | 35.9 | 42.8 | -16.1% |
| Technical maintenance | 4.3 | 5.0 | 11.6 | 14.5 | -20.0% |
| Depreciation / Dry-dock | 17.4 | 19.2 | 51.1 | 55.1 | -7.2% |
| Mobilization charges | 0.6 | 0.7 | 1.7 | 3.7 | -54.0% |
| Others | 6.4 | 6.6 | 6.5 | 19.5 | -66.7% |
| Total | 41.5 | 43.9 | 119.5 | 135.6 | -11.9% |
For the nine months ended Sept ’17, Topaz decreased direct costs by US$16m, or -11.9% year on year, to reach US$119.5m, compared to US$135.6m incurred during the same period last year.
Critical scrutiny of our operating costs on a constant basis is yielding results. Savings on maintenance have been achieved by negotiations with our core suppliers and have been further supported by framework agreements. The decrease in depreciation/dry-dock is mainly due to an impairment charge reducing the depreciation amount.
Other savings consist of items such as insurance and staff costs, which have been reduced as a result of a strategic cost efficiency program, while ensuring no compromise on coverage or standards.
| EBITDA | Three Months Ended | Nine Months Ended | |||
|---|---|---|---|---|---|
| Sept 2017 | Sept 2016 | Sept 2017 | Sept 2016 | Variance | |
| Caspian | 29.5 | 34.7 | 88.0 | 104.8 | -16.0% |
| MENA | 2.9 | 2.2 | 8.1 | 12.3 | -34.1% |
| Africa | (1.5) | (1.0) | (5.4) | – | NM |
| Corporate / adj | (0.4) | (1.5) | (2.6) | (6.1) | -57.4% |
| Total | 30.5 | 34.4 | 88.1 | 111.0 | -20.6% |
EBITDA decreased by US$22.9m, or 20.6%, to US$88.1m during the period compared to US$111m in the same period last year. This decrease mainly relates to (i) EBITDA reduction of US$12m due to barges and tugs being off-hired in Kazakhstan, (ii) EBITDA reduction of US$8.8m due to layups, lower utilization and rates of vessels in the MENA and Africa region and (iii) EBITDA reduction of US$6.5m on two subsea vessels. However, the decrease in EBITDA has been offset by the savings in overheads of US$4.9m and EBITDA contribution of US$0.7m by a new vessel deployed MENA.
Administrative Expenses:
Administrative expenses decreased by US$4.9m, or 18.9%, to US$21m during the period, compared to US$25.9m during the same period last year. This is due to lower staff costs and various efficiency initiatives implemented across operational offices.
Finance costs:
Finance costs increased by US$16.8m, or 37%, to US$62.1m during the period compared to US$45m during the same period last year.
In July 2017, Topaz completed the offering of US$375m aggregate principal amount of Senior Notes due 2022 (the “Notes”) at a fixed coupon of 9.125% per annum. The gross proceeds from the issue of the Notes were used to fund the repurchase and redemption of Topaz’s existing US$350m 8.625% senior notes due in 2018 and the associated costs. Of the total costs associated with the refinancing of the existing senior notes, US$19m was charged to the 2017 income statement comprising of US$15.3m incurred towards the redemption premium of the existing bonds and US$3.7m towards the write-off of unamortized issuance costs relating to the redeemed notes.
Income tax expense:
Income tax expense decreased by US$2.6m, or 18%, to US$11.4m during the period compared to US$14m in the same period last year.
Cash flow
The cash generation as a percentage of EBITDA for the nine months ended September 2017 was 112% (January-September 2016: 120%).
The table below sets out a breakdown of cash flow for the nine months ended 30 September 2017:
| CASH FLOW | Three Months Ended | Nine Months Ended | |||
|---|---|---|---|---|---|
| Sept 2017 | Sept 2016 | Sept 2017 | Sept 2016 | Variance | |
| EBITDA | 30.5 | 34.4 | 88.1 | 111.0 | (19.0) |
| Changes in working capital | 6.8 | 6.3 | 10.6 | 22.5 | 12.4 |
| Cash generated from Operations | 37.3 | 40.7 | 98.7 | 133.5 | 31.4 |
| Cash conversion | 122% | 118% | 112% | 120% | |
| Income tax paid | (3.8) | (3.0) | (10.4) | (13.9) | 4.3 |
| Interest paid | (12.6) | (4.9) | (40.8) | (33.0) | (0.1) |
| Net Cash generated from operating activities | 20.9 | 32.8 | 47.5 | 86.6 | 27.2 |
| Net Cash generated from Tengiz | (1.8) | – | 14.2 | – | 16.0 |
| Cash used in investing activities | (5.8) | (8.5) | (21.8) | (36.2) | 11.7 |
| Cash provided by financing activities | (7.5) | (19.5) | (24.5) | (35.5) | (1.0) |
| Dividend Paid | (3.6) | – | (3.6) | ||
| Increase/(decrease) in cash and cash equivalents | 2.2 | 4.8 | 11.8 | 14.9 | (0.5) |
Investing activities include US$6.3m towards expansion CAPEX and US$15.5m towards maintenance CAPEX. Investing activities also include milestone CAPEX payments of US$99.9m to Vard under the new build contract for the Tengiz project, which were fully pre-funded by advance payments received from the client. Financing activities include bilateral debt repayment of US$22.5m, US$2m for repayments of parent company debt in March’17 and US$40.8m of interest payments.
Unutilized banking lines as of 30 September 2017 include a Revolving Credit Facility (RCF) of US$100m expiring in April 2020. We successfully reset our covenants in June 2017, thereby providing us sufficient headroom to draw down on our unutilized banking lines.
Financing
| Facility | Maturity | Interest Rate | Repayment | Outstanding as of 30 Sept 17 US$’000 |
|---|---|---|---|---|
| Conventional and Islamic facility | 7 years | 3 month LIBOR + 2.75% |
Quarterly with bullet repayment | 278,315 |
| Senior Notes | 5 years | 9.125% | Bullet | 366,166 |
| Total Topaz Loans | 631,904 |
*Recorded as per International Financial Reporting Standards (IFRS) in US$.
Bank Covenants
The senior secured borrowing arrangements include undertakings to comply with certain financial covenants. As of 30 September 2017, Topaz is compliant with all financial covenants.
| Financial Covenant | Threshold | As of 30 Sept 2017 |
|---|---|---|
| Net Interest-Bearing Debt to EBITDA | < 5.25 | 4.86x |
| Headroom | 8% | |
| Tangible Net Worth | > US$300m | US$386m |
| Headroom | 29% | |
| Free liquidity (in millions) | > US$30m | US$151m |
| Headroom | 404% | |
| EBITDA to DSCR | > 1.2 | 1.51x |
| Headroom | 26% |
Capitalization
The following table sets out Topaz’s consolidated cash, total indebtedness, shareholders’ funds, total capitalization and net debt at the end of the last five quarters.
US$ Millions
| Sep- 17 | Jun- 17 | Mar- 17 | Dec- 16 | Sep- 16 | Change Sep’17 v Sep’16 | |
|---|---|---|---|---|---|---|
| Cash & Cash Equivalents | 51 | 49 | 57 | 39 | 70 | -19 |
| Floating rate senior secured loans | 278 | 286 | 292 | 300 | 307 | -29 |
| Other loans / Senior Notes¹ | 366 | 346 | 346 | 345 | 344 | 22 |
| Subordinated shareholder funding | 79 | 78 | 78 | 81 | 91 | -12 |
| Total debt | 723 | 710 | 716 | 726 | 742 | -19 |
| Total equity | 422 | 449 | 459 | 463 | 570 | -148 |
| Total capitalization | 1,145 | 1,159 | 1,175 | 1,189 | 1,312 | -167 |
| Net debt | 672 | 661 | 659 | 687 | 672 | – |
| Total debt / LTM EBITDA | 5.9 | 5.6 | 5.3 | 5 | 4.5 | |
| Net debt / LTM EBITDA | 5.5 | 5.2 | 4.8 | 4.7 | 4.1 |
¹ Recorded as per International Financial Reporting Standards (IFRS)
About Topaz Energy and Marine
Topaz Energy and Marine is a leading international offshore support vessel company providing logistics support and marine solutions to the global energy industry with primary focus on the Caspian Sea, the Middle East, West Africa and Subsea operations in the North Sea and the Pacific. Headquartered in Dubai, Topaz Energy and Marine operates an existing fleet of ~100 offshore support vessels with an average age of approximately nine years. Topaz Energy and Marine is a subsidiary of Renaissance, a publicly traded company listed on the Muscat Securities Market in Oman. In addition, Standard Chartered Private Equity holds a minority position in the company.
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