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Ezion’s Latest Earnings: Shares Suspended as The Business Hits a Critical Juncture

Earlier this morning, Ezion (SGX: 5ME) reported its 2017 second quarter earnings. Shortly after the report came bigger news: The company requested for its shares to be suspended from trading.

Ezion’s chairman, Dr Wai Kai Yuen, then issued a letter to the company’s shareholders, explaining the rationale for the trading suspension. Wai wrote that the present operating environment presented challenges to Ezion’s cash flow. He added that the company is in discussions with its principal lenders for financing options. He also wrote that Ezion’s shares are temporarily suspended from trading, pending a resolution with various stakeholders including its lenders.

With that, let’s move on to the company’s second quarter report.

Financial highlights

The reporting period was for 1 April 2017 to 30 June 2017.

As a brief background, 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 the results from the company’s previous quarter here. The following’s a quick rundown on some of Ezion’s latest numbers from the second quarter of 2017:

1. The company’s revenue fell by 19.5% year-on-year to US$67.4 million.

2. Ezion recorded a loss of US$2.6 million, a sharp reversal from the profit of US$8.1 million recorded a year ago.

3. Earnings per share was a negative US$0.003.

4. Cash flow from operations came in at negative US$2.3 million with capital expenditures at US$13.6 million. Ezion also payed out US$16.2 million in advanced payments. In all, the oil and gas services provider generated negative free cash flow of US$32.1 million for the reporting quarter. This is a far cry from the positive free cash flow of US$14.5 million seen in the second quarter of 2016.

5. As of 30 June 2017, Ezion had US$93.5 million in cash and equivalents and US$1.45 billion in debt. A year ago, Ezion had US$181.1 million in cash and equivalents and US$1.59 billion in debt.

In sum, Ezion recorded a decline in revenue and a loss for the second quarter. The oil and gas support services firm managed to reduce its debt position compared to a year ago, but still holds a significant amount of debt. The situation is made worse by the company’s negative free cash flow.

Operational highlights

Ezion’s revenue decline was due to lower charter rates, a drop in utilisation rates for service rigs, and a further depression in utilisation rates for its offshore support vessels.

In the earnings release, the company’s management team shared some background on the current state of the oil and gas industry:

“Brent oil prices have dropped from about US$110 per barrel in June 2014 to below US$30 per barrel in January 2016 and although the oil price has recovered modestly since, it has however been predominantly hovering around US$52 per barrel range.

It is noteworthy to highlight that an independent research report had forecasted that the “oil price deck (or drop) to a flat c.US$50 per barrel ($55-60 prior) for 2017-19…”

Consequently the Group does not expect any significant increase in the capital and operating expenditure of oil and gas companies over the next 12 months. Furthermore, it was reported that “languishing oil prices and a difficult outlook would hamper any recovery in Singapore’s oil and gas sector”.”

Low oil prices has weighed on Ezion’s business, as the statement below points out:

“The Group thus has been affected by the above and has witnessed charter rates being significantly depressed for most of the Service Rigs as compared to the pre-2014 period, and the depressed charter rates look likely to continue for the next 12 months. Furthermore, collection of receivables continues to be slow. If the situation worsens, significant impairments may be needed.”

Ezion has laid out plans to recover its business, but the company would require additional capital to carry out those plans. The company also warned that tougher days may be ahead:

“The Group may face even greater difficulty going forward if the situation does not significantly improve or a comprehensive solution to address the Group’s cashflow requirements is not found. We will have to engage all our stakeholders such as our lenders for support and to our mutual advantage.”

Ezion’s shares closed at S$0.197 last Friday.

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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.