Ezion’s Latest Earnings: Profit Doubles, But don’t Celebrate Just Yet

Ezion  (SGX: 5ME) reported its fiscal fourth-quarter earnings for the year ended 31 December 2014 yesterday. The reporting period was for 1 October 2014 to 31 December 2014.

Ezion is an oil and gas support services provider. The company is an owner of a fleet of offshore assets that include multi-purpose self-propelled jack-up rigs and heavy-haul vessels. It also provides tag-on services such as well-servicing and maintenance amongst others.

You can catch Ezion’s first quarter earnings here.

Financial highlights

Here’s a rundown on the financial figures found in the company’s latest earnings release:

  1. Overall revenue for the fourth quarter rose by 24.9% year-on-year to $104.6 million. Ezion finished 2014 with $386.5 million in annual revenue, about 37.1% above 2013’s revenue of $281.9 million.
  2. Profit for the fourth quarter was $83.7 million, up by a whopping 106.6% compared to the same quarter a year ago. The profit was boosted by a gain from the disposal from a subsidiary. For the full year, profit came in at $223.7 million, up some 39.4% from 2013.
  3. For the fourth quarter, earnings per share (EPS) leapt 68.8% from 3.88 cents in the fourth quarter last year to 5.2 cents in the reporting quarter. Ezion’s 2014 EPS was 16.17 cents, which was a 21% increase from last year’s EPS of 13.33.
  4. For the full year, cash flow from operations came in at $213.5 million with capital expenditures clocking in at $458.3 million. The high capex gave the oil and gas services outfit $244.8 million in negative free cash flow. This is an improvement over 2013 when the company generated $548 million in negative free cash flow.
  5. As of 31 December 2014, Ezion had $371.5 million in cash and equivalents and hefty borrowings of $1.27 billion, giving a net-debt position of $899 million. This compares to end-2013, when it had a net-debt position of $920 million.

A final dividend of 0.1 cents per share was also recommended, unchanged from last year.

In summary, Ezion managed to grow its revenue and profits for the quarter despite the ominous situation found in the oil and gas industry. The company’s free cash flow remained negative for the full year, leaving debt to grow from $1.09 billion at the end of 2013 to $1.27 billion at end-2014.

Operational highlights

The Service Rigs segment saw revenue grow from $170.5 million in 2013 to $298.9 million in 2014. Meanwhile, the Offshore Logistics Support Services segment saw revenues decline from $111.4 million to $87.6 million.

Other income, net grew from to $2 million in the fourth quarter of 2013 to $36.5 million in the fourth quarter of 2014. The gain of $34.5 million came from the disposal of a subsidiary and actually contributed to much of the profit growth from $40.5 million to $83.7 million over the same period.

Beyond that, Foolish investors might want to keep a keen eye on new share issues as well. Ezion had issued more than 120 million ordinary shares in 2014 to finance acquisitions and assets. For some perspective, Ezion ended 2013 with 1.18 billion ordinary shares.

The management team added the following commentary for the year ahead:

“The oil and gas industry as a whole faces a challenging year ahead in view of the drastic decrease in the prices of fossil fuel over the last four months. Going forward, the management expects oil majors to reduce exploration and development activities and to cut corresponding capital expenditure, and to re-focus on extraction from existing infrastructure. The Group will continue to focus its effort in growing its Service Rig Division to support its customers to better cope with the current environment.

Following the successful restructuring on its port and marine supply base business in Australia into AusGroup Limited in 4Q14, the Group has further strengthened its balance sheet and increased management focus to further grow its Service Rig business. Ezion expects more of its service rigs to be deployed in FY15 [financial year 2015]  and will also endeavour to explore strategic tie-up to further enhance its business.”

Foolish take away

At its closing price yesterday of $1.17, Ezion traded at around 7.2 times its latest trailing earnings. The company’s dividend yield is rather negligible at this point. Again, Foolish investors should note that Ezion’s free cash flow remains negative for the year.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.