Thailand: Mermaid Maritime Announces Annual Report

Mermaid Maritime Public Company Limited announces its Annual Report for the financial year ended on 30 September 2011.

2011 – Emerging Signs of Turnaround

Mermaid Maritime Public Company Limited reported better results for the year that ended on 30 September 2011 amidst a slowly recovering business environment for the offshore oil and gas industry.

Mermaid is a holding company with two  main operating divisions:

1) a Subsea Engineering Services Division (“Subsea Division”) comprised of Mermaid Offshore Services Ltd., Nemo Subsea AS, Subtech Ltd., and Seascape Surveys (Thailand) Ltd., Seascape Surveys Pte. Ltd., and PT Seascape Surveys Indonesia (collectively “MOS”) and

2) an Offshore Drilling Services Division comprised of Mermaid Drilling Ltd. and its two rig-owning subsidiaries, MTR-1 (Singapore) Pte. Ltd., and MTR-2 Ltd. (collectively “MDL”).

As a group, Mermaid served over 20 clients during the year, with an increasing number of contracts being awarded in the Middle East. Total service income in 2011 was Baht 5,543 million, an increase of Baht 2,066 million, or 59.4%, from the previous financial year. The service income increase was significantly driven by the Subsea Division, which increased its asset utilisation from 39.5% in 2010 to 69.1% in 2011. Average day rates increased by 11.7% in US Dollar terms.

Management reviews performance using different metrics. On two key metrics, Mermaid improved significantly in 2011.

On a normalised basis (after deducting extraordinary or one-off items), earnings before interest, taxes, depreciation, and amortisation (“EBITDA”) rose 188.8% to Baht 1,231 million for a 22.2% margin. On a normalised basis, earnings before interest and taxes (“EBIT”) rose 170.7% to Baht 183 million for a 3.3% margin. The EBITDA and EBIT improvement was driven by positive profits from all business segments (subsea and drilling).

Interest expenses increased 138.7% to Baht 228.92 million in 2011, as interest expenses were capitalised into three vessels that were delivered in 2010. Thus, 2011 was the first full year of interest payments on the expanded subsea fleet.

Furthermore, MDL took a Baht 135 million impairment charge against one of its older drilling rigs, “MTR-1”.

Therefore, Mermaid reported a net loss of Baht 161 million in 2011, which was a significant improvement from a net loss of Baht 456 million in 2010. After deducting all extraordinary items, Mermaid’s net loss in 2011 was Baht 102 million, a 83.8% decrease from 2010. As a result of this improvement, excluding changes in working capital, cash generated from operations increased 292% to Baht 1,495 million. Mermaid’s return on capital was 1.4%.

As evident from the financial results, Mermaid is seeing an improvement in the business environment for the subsea business and is cautiously optimistic about this improving trend into the current financial year.

Mermaid’s assets are only as good as the people who operate them. To this end, Mermaid continued to streamline its work processes across all support functions to ensure better cost controls and synergies. Along with these changes, it is inevitable that turnover in management and personnel occurs. Mermaid took a Baht 27 million charge to cover redundancy payments in 2011. Amidst a challenging business environment, Mermaid cannot afford “business as usual”. It will take time for corrective actions to be implemented, but the improved operating profits across all business divisions validates that these changes are indeed necessary and deliver value for all stakeholders.

Subsea Division

In the  last Chairman’s Message in 2010 Annual Report, company noted the primary objective for MOS was to increase business development activities and price jobs competitively, resulting in higher utilisation for the fleet.

Focus on this primary objective delivered encouraging results with utilisation rates, revenues, and operating profits improving significantly over 2010. Beyond its own efforts, MOS has been helped by more robust demand for offshore services.

In addition, MOS continues to have an excellent safety record, which will become more and more important for clients moving forward.

MOS generated Baht 4,504 million of revenues, a 89.4% increase from 2010, and Baht 101 million of EBIT, a 136.8% increase from 2010. EBIT margin increased from minus 11.5% in 2010 to 2.2% in 2011.

MOS’ strengths include the most advanced and modern portfolio of assets in South East Asia, respected operational capabilities, and experienced management and quality people.

MOS recently set up a new international marketing office in Singapore to be more pro-active and closer to existing and new clients. This initiative is already beginning to bear fruit when MOS recently announced its first ever contract with a client to in Congo, West Africa.

Drilling Division

On a normalised basis, MDL generated Baht 1,039 million of revenues, a 3.5% decrease from 2010, and Baht 129 million of EBIT, a 20% decrease from 2010. “MTR-2” achieved high utilisation rates of 95.8% in 2011, while “MTR-1” was idle for almost the entire year. The average day rate for “MTR-2” was US$ 88,306 per day. As “MTR-1” was idle in 2011, an impairment charge was taken to reflect its value as an accommodation work barge rather than a drilling rig. MDL reported a net loss of Baht 4 million as a result of the impairment charge.

Given the old age of “MTR-1” and “MTR-2”, Mermaid made a major strategic move into the offshore jack-up drilling rig business through the establishment of Asia Offshore Drilling Limited , which currently has three  high-specification jack-ups under construction at Singapore Keppel FELS Limited.

Mermaid and Seadrill Limited (‘Seadrill’) each own 33.75% of AOD after two rounds of fund raising in the international capital markets, first in November 2010 and second in June 2011.

Mermaid has invested US$ 63 million into AOD. Following Seadrill’s participation, all technical and commercial management agreements for AOD were transferred from Mermaid to Seadrill to leverage on their significant market leadership, reputation, and marketing strength to position AOD to gain economies of scale and compete more effectively against newbuild jack-up rigs that will be delivered around the same time. MDL continues to observe clients showing a preference for newer equipment, and marketing activities for the three  jack-up rigs will begin around February 2012.

All three  jack-up rigs will be delivered in the first, second, and third calendar quarters of 2013. Together with Seadrill, AOD is positioned to be one of the few Asian-based drilling companies with a fleet of modern high specification rigs. AOD did not exercise its second fixed price option to construct a fourth rig amidst the current financial crisis in Europe, and instead elected to increase the water depth of the three (3) existing rigs to improve their marketability and geographical coverage.

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Subsea World News Staff , December 19, 2011