MIS Co. Ltd. Inc. (OSE: MIS) reported record fourth quarter and fiscal year revenues of $125.1m and $387.5m, respectively and closes 2008 with a net profit of $8m and a record quarterly net profit of US$8m in Q4. This strong revenue increase and highest ever quarterly net profit is primarily driven by closing increasing volumes of contracts for the New Build Rigs value stream while maintaining MIS' market share in its traditional works value streams: Rig Refurbishment, EPC and Site Projects, Pressure Vessel, Process and General Fabrication and Technical and Safety Services.
The first New Build Rig to be delivered by MIS (Hull #104) was completed with the issue of an ABS Class Certificate and formal Acceptance for Delivery Protocol agreed with MIS' client Seawolf Oilfield Services. Delivery of the second rig (Hull #105) is scheduled in mid April 2009 as completion and commissioning activities continue within this schedule. All identified costs related to the late completions of the first two rigs have been reflected in the financial data as reported at 31st December 2008.
The third rig, for KSAM2 Petrodrill (Hull #107), is scheduled for delivery in Q4 2009 approximately 3-4 months ahead of the contract delivery date. This early forecasted completion reflects the learning curve and expertise gained on the first two rigs which was visible at the time of launching the rig in January this year. The fourth and fifth rigs, (Hulls #106 and #108) awarded in July 2008 by Mosvold Middle East Jackup (MEJU) are progressing on schedule to be delivered within their contract delivery dates. The sixth and seventh new builds Hull #109 and Hull #110 for First Energy Bank's MENAdrill progressed during the quarter within schedule and the milestone for steel cutting was achieved on Hull #109 (January 2009).
MIS maintains a solid and positive outlook for the future with its highest ever year-end closing backlog of more than USD 700 million, across all its Value Streams. This backlog reflects a continuing strong commitment in the oil and gas market in the region, where costs of oil and gas at the well-head remain significantly lower than in other areas of the world.
Commenting on the results, MIS' Group Chief Executive Officer, Kevin J. Hudson said, "Our focus remains on completing the new-build rigs, marking significant achievements both for MIS and for the energy industry in the region. With that in mind, we are steadfast in our commitment to increase our market share across all our other value streams including traditional business, as part of our long-term strategy."
New-Build Rig revenues grew 63% in Q4 2008 versus the prior quarter, 107% over Q4 2007, and 33% Y/Y. Delivery delays on both Seawolf units, Hulls 104 and 105, resulted in $5.9m being recognized in the period, compared with $29.8m in Q4 2007.
KSAM2 Petrodrill unit, Hull 107, generated $22.7m in Q4 2008 vs. $22m in Q4 2007, and $90.5m in the fiscal year. Hulls 106 and 108, for Mosvold Middle East Jackups, generated $46.1m and $36.3m in the quarter and year, with no recognition in Q3 2008.
Traditional work volumes including pressure vessel fabrication, EPC and site construction work, rig refurbishment remained strong, and in particular on O&M and H2S services, where revenues grew by 43% and 59% respectively over FY 2007.
Growth in payables and accrued expenses during the comparable 12-month periods of $39.4m, coupled with reductions in receivables and unbilled work-in-progress of $ 58m y/y were partly offset by the drop in comparable period Net Income of $13.9m, and by increased spends on interest expense, taxes and other activities, resulting in an overall improvement in Cash generated from Operating activities of $76.3m y/y.
Reduced capital expenditures in FY 2008 of $8.9, versus $15.4 in FY 2007 were more than offset by the net cash use of $14 for acquisition for 3C Metal International, in June 2008. Minority investment participations in non-traded entities and reduction in "lien" balances with banks were lower in FY 2008 by $ 5m, resulting in an overall reduction in investing activities of $7.1m y/y.
Increases in the level of bank borrowings year-on-year totaled $46m versus $63.3m in FY 2007. These increases were largely related to draw-down on facilities committed to the Mosvold (MEJU) rigs, Hulls 106 and 108, addressing large Advance Payments made for key long-lead engineered equipment deliveries for the units.
Capital expenditures during FY 2008 were at a lower level than for FY 2007 which included approximately $6.5m in respect of the 700MT Manitowoc crane acquired during Q2 2007.
Traditional work, including Pressure Vessels, EPC and Site construction, Rig refurbishment and Technical Support activities have collectively held volume levels consistent with prior years. From opening backlog of $56.1m, new awards during the year reached $155.7m, with record revenue recognized during the year of $157.9. The level of closing backlog is consistent with MIS' historic volumes within these areas of operation, and shows no impact from the current worldwide economic crisis.
New Build Rig awards were significant during 2008, with 4 new contract awards in Q3, totaling close to $700m. These, together with completion schedules for prior awards, effectively ensure a full workload through 2009 and substantial order-book for 2010 for MIS.
The initial 'learning curve' experiences from the first 2 New Build Rigs, and resulting changes implemented in systems and production methodology, are continuing to add value to MIS as production methodology changes implemented in Hull #107 and subsequent awarded rigs continue to indicate improvements in predictability of cost and construction schedule. With the backlog of new-build rig construction, continuous improvement in build methodology and in development of its supply chain, MIS has a very strong outlook in this value stream through 2010.
The number of inquiries for traditional works is also maintaining a very good level, as regional (predominantly National) oil and gas companies continue their projects and capacity expansion plans. These expansions encompass not only capital expenditure on new facilities, but the repair, maintenance and upgrade of existing plants, where MIS has a strong performance history and established customer relationships. With the recent execution of firm contracts from both Mosvold and MENAdrill, a strong rig refurbishment program under way, and a solid traditional fabrication and construction market, MIS future growth potential remains strong. The recent acquisition of 3C Metal International LLC has provided re-entry to land-based rig refurbishment, one of the core activities in MIS during its early development. The specialized fabrication and maintenance competence and track record of 3CMI will be a valuable addition to MIS' future growth plans.
MIS believes the market outlook in the Middle East oil and gas industry continues to be strong and healthy despite the recent dramatic drop in world crude prices. The current oil prices in the $40 range remain above the cost of produced Middle East crude. There are continuing demands for all MIS Value Streams with orders currently in progress for both local and international markets. Most projects in the area for increasing oil and gas production by the National Oil Companies are still on stream to be carried out. Offshore jack-up and drilling rig refurbishments, or repairs, are currently at an all time high in the area which reflects the ongoing demand for offshore drilling, offshore services jack-ups and other offshore development projects. The growth in MIS' activities in safety and technical services continue at a good rate. Therefore, MIS considers that the current and near-to-mid term market outlook for both traditional MIS works, services and new-build rig supply are expected to deliver continued MIS growth in future years.