Ezion’s Latest Earnings: Another Tough Quarter

Ezion  (SGX: 5ME) released its fiscal second-quarter earnings report last Friday. The reporting period was for 1 April 2015 to 30 June 2015.

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 services such as well-servicing and maintenance, amongst others.

You can catch its previous quarter’s earnings here.

Financial highlights

The following’s a quick rundown on Ezion’s latest financial figures:

  1. Overall revenue for the second-quarter fell by 2.8% year-on-year to US$90.1 million.
  2. Profit for the period was around US$29 million, down a hefty 36.3% compared to last year’s quarter. This was mainly due to a big 29.6% jump in cost of goods sold.
  3. Consequently, Ezion’s earnings per share (EPS) for the second-quarter fell by 38.6% to 1.80 US cents in the reporting quarter.
  4. For the reporting quarter, cash flow from operations came in at US$75 million with capital expenditures clocking in at around US$114 million. This gave the oil and gas services outfit around US$39 million in negative free cash flow. This still represents an improvement from a year ago though, when Ezion’s cash flow from operations, capital expenditures, and free cash flow came in at US$39.9 million, US$126.4 million, and –US$86.5 million, respectively.
  5. As of 30 June 2015, Ezion had US$340 million in cash and equivalents and hefty borrowings of about US$1.62 billion. This puts Ezion at a net debt position (cash and equivalents minus borrowings) of US$1.28 billion. Ezion’s balance sheet has weakened compared to a year ago when it had US$352 million in cash and equivalents and borrowings of US$1.41 billion.

In all, it was another jarring quarter for Ezion. Both revenue and profit for the quarter were down amidst a tough operating environment for the oil and gas industry as a whole. Ezion also fell back into negative free cash flow territory after recording positive free cash flow in the previous sequential quarter.

Meanwhile, Ezion also raised S$120 million from issuing five year bonds earlier in August, thus adding further debt to its balance sheet.

Operational highlights

According to management, the decrease in Ezion’s topline was mainly due to the absence of contribution from the marine and offshore logistics support services division.

Moving to the bottom line, the fall in profit attributable to shareholders was offset by a 16.2% year-on-year increase in the share of results from associates and jointly controlled entities. This line item contributed US$9.3 million in the reporting quarter.

As for the outlook head, this is what Ezion’s management team has to share:

“The operating environment in the Oil and Gas sector has remained challenging since the beginning of the year. The Group expects Oil Majors will continue to reduce capital expenditure on exploration and development and focus on extraction and production related activities. As the Group’s key assets are designed mainly to provide offshore production support, it will be working closely with the clients to meet this new focus.

The Group is putting in additional resources and effort to ensure the Service Rigs that were not able to generate revenue in 1H15 due to repair and maintenance, dry docking inspection and additional modification work, so that they could be deployed as soon as possible in the second half of 2015 (“2H15”). Additional Service Rigs will also be deployed in 2H15.

The Group also raised S$120 million via a five year bond issue with the support of DBS Bank earlier in the month. This allows Ezion to be in a better position to explore further opportunities to better support its clients in the coming months

Foolish take away

At its closing price last Friday of S$0.72, Ezion traded at around 3.5 times its trailing earnings. While Ezion’s price looks cheap on the surface, it should be noted that the oil & gas support services provider’s trailing earnings include a one-off disposal gain of a subsidiary in the fourth-quarter of 2014.

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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.