Australia: Neptune Marine Announces Structural Review

Neptune Marine Services Limited   announces the results of an operational and structural review carried out over the past two months and expected lodgement of the prospectus for its $80.6 million equity capital raising with ASIC.

The operational review – carried out in conjunction with Pricewaterhouse Coopers – has identified specific actions that will result in ongoing annual overhead savings of approximately $9.5 million, more than 50% of which has already been actioned based on recent reductions in headcount. In addition specific non?core businesses and assets have been identified and will be restructured or rationalised to remove operating losses of approximately $2 ? $4 million. Together, these initiatives have the potential to improve EBIT moving forward by up to $13.5 million per annum.

In parallel with the operational review, Neptune’s balance sheet is also being restructured with asset values written down by $99.5 million and up to $80.6 million in new equity capital to be raised under the prospectus.

The balance sheet and operational initiatives are expected to provide a platform better suited to the level of earnings currently being generated by Neptune’s underlying businesses and therefore an outlook for sustainable profitability for FY12 and beyond.

Operational restructure

Key to the restructure is the reorganisation of Neptune’s regional operations under which all activities will be initially managed from two centres in Perth, Western Australia and Aberdeen, Scotland. The UK businesses remain subject to ongoing strategic review and may be further rationalised if appropriate.

Neptune’s Asian and Middle Eastern operations will be managed from Perth, with the Company’s UK businesses managed from Aberdeen. Following review, the US operations have been deemed unsustainable in their current form. As a result Neptune plans to exit from the diving business in the US and examine alternative strategic partnerships for the NEPSYS® technology.

Alternative options for other non?core businesses are also under review while the ROV Supporter vessel will be sold.

Overall headcount has been reduced by approximately 20, along with substantial cuts to corporate overheads. In addition, Neptune will undergo substantial board renewal, including the appointment of at least two new nonexecutive directors with significant industry experience and associated skill sets.

Earnings impact

On a proforma basis, had the restructuring initiatives been in place for the full 2010 financial year, underlying EBIT would have indicatively increased from the level of $2.6 million to approximately $20.5 million. These improvements result from both the reduction in overheads and rationalisation of non?core businesses and assets. Neptune Acting CEO Robin King said the wideranging changes put Neptune on a strong operational footing to deliver on the objective of restoring profitability and shareholder value.

“This is essentially a return to basics for Neptune, focusing on the strong parts of our business and rationalising those that do not meet the standards we require,” said Mr King. “Our objective is to create a platform that delivers to shareholders a strong, profitable business that is properly funded and that can achieve sustainable earnings growth.” Mr King said that Neptune’s trading performance has stabilised over the past three months on the back of a number of significant new contracts.

“An example of work recently awarded is the $9 million contract with BHP Billiton Iron Ore for inspection and maintenance services at its Finucane Island facility in WA’s Pilbara region, which we announced earlier this month and on which work has already started,” he said. “These changes and the balance sheet impact of the recapitalisation are focused on returning Neptune to profitability.”

Entitlement Offer

In December 2010, Neptune announced an Entitlement Offer to recapitalise the balance sheet and set a platform for the turnaround in financial performance. The Offer will raise up to $80.6 million through the issue of new shares now priced at $0.05 per share, with Neptune’s 12,000 existing shareholders having the right to a pro rata entitlement and the opportunity to subscribe for further shares on the favourable price terms.

The new pricing of $0.05 per share has been set to align more closely with the post capital raising pro forma net tangible assets (NTA) per share which was finalised following the balance sheet write downs undertaken by the Board. Following discussions with large institutional investors, it was agreed that alignment of price and NTA provided the best opportunity for success of the capital raising.

Patersons Securities Limited and Euroz Securities Limited are Joint Lead Managers to the issue and will place any shortfall from shareholder contributions with institutional and corporate investors on a best endeavours basis. Proceeds from the raising will be used to reduce debt and meet deferred payments to vendors of businesses acquired by Neptune. Some of the vendors concerned are integral members of the team involved in the Neptune operational restructuring program.

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Source: Neptunemarine, February  1, 2011; Image: ENI