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Ezion’s Latest Earnings: Sinking into the Red

Last Friday, Ezion  (SGX: 5ME) reported its 2017 first quarter earnings report. The reporting period was for 1 January 2017 to 31 March 2017.

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 the company’s latest financial figures for the first quarter:

1. Revenue fell by 16.4% year-on-year to US$68.6 million.

2. The firm recorded a loss of US$12.7 million, a sharp reversal from the profit of $15.5 million recorded last year.

3. Ezion registered earnings per share of -US$0.0070, a big decline from the US$0.0084 seen in 2016’s first quarter.

4. Cash flow from operations was US$26.0 million and capital expenditure was US$10.6 million. The firm thus generated free cash flow of US$15.4 million, which is down from US$24.3 million a year ago.

5. As of 31 March 2017, Ezion had US$187 million in cash and equivalents and US$1.48 billion in debt. Ezion’s balance sheet improved compared to 2016’s first quarter when it had US$206.3 million in cash and equivalents and US$1.64 billion in debt.

On 8 May 2017, Ezion warned that it would record a net loss for the first quarter of 2017. Indeed, that has happened as you can see above. Moreover, the company’s revenue declined and it is in a net debt position. But, Ezion generated positive free cash flow in the reporting quarter and improved its balance sheet compared to a year ago.

Operational highlights and what lies ahead

Ezion’s revenue decline was mainly due to lower charter rates and a drop in utilisation of its assets such as self-propelled jack-up rigs and offshore support vessels.

In Ezion’s earnings release, management provided the following outlook:

“Fossil fuel prices have improved over the last few months and oil prices have stayed above US$50 per barrel since late 2016. This stability in prices has helped Exploration & Production companies broadly.

However, there appears to be no significant adjustment yet to the corresponding operating budget of these companies. As the Group’s activities are mainly involved with the provision of asset and services to the offshore Oil and Gas industry, it is expecting the headwind to persist for the large part of FY2017.

The Group is working closely with its bankers and several government agencies to complete the repair, modification and upgrade of several of its Service Rigs for deployment as soon as possible. In addition, the Group will be focusing on matching its cashflow with the capital expenditure that is required to fulfill its obligation to its customers. The Group will also continue to engage in discussions for possible disposal for one of its existing Service Rigs and to invite potential partners to co-own some of its asset to further strengthen the Group’s Balance Sheet.”

Ezion’s shares closed at S$0.31 each on Friday. At that price, Ezion is trading at just 0.35 times book value.

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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.