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Ezion’s Latest Earnings: What Investors Should Know

Ezion  (SGX: 5ME) reported its third-quarter earnings this morning. The reporting period was for 1 July 2016 to 30 September 2016.

As a quick background for context later, Ezion is an oil and gas support services provider. The company owns 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.

Financial highlights

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

  1. For the third-quarter, Ezion’s revenue fell by 7.4% year-on-year to US$79.8 million.
  2. The firm recorded profit of US$9.4 million for the period, down over 69% year-on-year.
  3. The company registered US$0.0039 in earnings per share for the quarter, down 77% from a year ago.
  4. For the reporting quarter, cash flow from operations came in at US$46.1 million with capital expenditures clocking in at US$10.2 million. This gave the oil and gas services outfit free cash flow of US$35.9 million for the quarter, up from the negative US$34.6 million seen a year ago (US$19.1 million in cash flow from operations and US$53.6 million in capex).
  5. As of 30 September 2016, Ezion has US$255.4 million in cash and equivalents and total borrowings of US$1.54 billion. Ezion’s balance sheet has improved slightly compared to a year ago when it had US$245.5 million in cash and equivalents and total borrowings of about US$1.65 billion.

Ezion continues to struggle, as it recorded a decline in revenue and a hefty cut in profit. But, the company managed to generate free cash flow. There are couple of financial items to note:

  1. Trade receivables rose from US$202.3 million in the third-quarter of 2015 to around US$220 million in the reporting quarter. This increase in receivables came despite a fall in revenue. This may imply that Ezion has not been able to collect customer payments in a timely manner.
  2. Ezion had reported US$12.2 million in profit from operating activities, but is also stuck with financing costs of US$8.5 million for the reporting quarter. This is a big bite out of its profit from operating activities.

Operational highlights

Ezion’s top-line decline was mainly due to a reduction in charter rates, modification to its service rigs, and a slower start to a customer’s project. Cost of sales and servicing, though, rose despite the lower revenue. This was due to the deployment of additional service rigs.

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

“The Company expects the currect challenges facing the Marine and Offshore Oil and Gas Industry (the “Offshore Industry”) to continue at least into 2017.

Some of Ezion’s customers in the Offshore Industry are very much focused on production and extraction activities, and at current oil prices we are seeing pockets of renewed optimism that is translating into enquiries and requirements for additional Service Rigs.

Some of the Company’s other customers in the offshore windfarm segment are similarly pushing ahead on various field developments, and will therefore also require supporting Service Rigs.

Ezion is working very hard on meeting the operating requirements of these clients for 2017 and beyond. These will involve modifying a few more of its existing Service Rigs and also taking delivery of up to two or three new units before the end of 2017.

The Company is also aware of the severe financial difficulties faced by its partners as a result of the very adverse current market conditions and is deeply sympathetic with their problems. While the Group is doing all it can to assist in the joint ventures’ operations, the Group has in place contingency plans to deal with the possibly worsening situation and do not expect to be materially affected.”

To sum up what management has said,  Ezion may dispose at least another existing service rig and work with customers to delay or cancel a few projects in order to cope with the challenging environment. The company may also invite joint venture partners to co-own some of its assets.

At its opening price today of S$0.31, Ezion has a price-to-book ratio of only around 0.35.

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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.