Bourbon Posts Weak First Half Results
Bourbon published its first half results for 2014, recording adjusted revenues up 8.9% at constant rates, reflecting an increase in the size of the fleet, despite a lower utilization rate (adjusted revenues increased 1.5% at current rates). Adjusted EBITDAR as a percentage of adjusted revenues, remained at a stable level of 34.4% following good cost control over the period, while adjusted EBIT decreased more than 50% largely due to €41.8 million increase in bareboat charter costs year on year, not fully offset by capital gains. Positive free cash flow of almost €250 million enabled further debt reduction for a total of €556 million since June 30, 2013.
“Offshore markets during the first half of 2014 were affected by a slowdown in activity, partly due to cost reductions by oil and gas companies and delays on some projects,” said Christian Lefèvre, Chief Executive Officer of Bourbon (BOUBF). “Bourbon showed strong improvement in cost control while taking delivery of 23 vessels during the period, bringing the total number of vessels under operation to 500 offshore vessels."
Half year 2014 market and operational highlights
•A high, stable oil price enabled continued investment in offshore activity by oil majors and national oil companies while cost reduction objectives and some project delays have slowed the demand for offshore vessels
•The global deepwater PSV fleet is facing overcapacity due to the high number of deliveries of new vessels coming from shipyards
•Bourbon is focused on operational excellence in execution:
-Safety remains a strength at Bourbon, with TRIR (Total Recordable Incident Rate per million hours worked) of 0.61
-Technical availability of 95.2% in the first half of 2014 follows the strong performance in 2013 of 94.5%
-Bourbon is continuing its focus on cost control through its standardization policy
•Utilization rates excluding crewboats historically have been within an 87%-92% tunnel, in line with long-term expectations; during the first half of 2014, the performance was in the lower part of this range
Half year 2014 results/additional highlights
•EBITDAR as a percent of revenues, compared with the first half 2013, showed improvements in Shallow water and Subsea and stable performance in Deepwater, reflecting strong cost control overall despite high level of vessel deliveries and the negative impact of foreign exchange rates
•A decline in activity in the crewboat segment in West Africa had an impact on average utilization rates versus first half 2013 and on EBITDA
•Revenues were mixed across regions compared with the first half of 2013, with Asia increasing 25% primarily due to the addition of new and larger vessels to the fleet , Americas down 5%, Europe & Mediterranean/Middle East and West Africa stable
•Average daily rates increased in most segments compared with the first half of 2013 with delivery of larger or high end vessels in all segments and in the shallow water segment rates remained stable while increasing the fleet by 23%
Revenues increased 3%, a result which was impacted by the foreign exchange rates during the first half 2014. Bourbon continued its current investment program, adding a significant number of vessels during a softening market. The reduction in EBIT was a combined result of the higher level of bareboat charter costs and the addition of provision for dry docks for these vessels.
Marine Services : Deepwater offshore vessels
The first half of 2014 saw the delivery of the new mid size deepwater PSV Bourbon Explorer with excellent feedback from customers. While the revenues were impacted by lower average utilization rates and underperforming technical availability on one side and the exchange rate on the other side, the cost control performance resulted in a stable EBITDAR margin of 38.8 %.
Deepwater segment remains a strong contributor to Bourbon cash generation, in a market where the impact of the large size PSV oversupply still has to be evaluated.
Marine Services : Shallow water offshore vessels
With 23% fleet growth and stable day rates compared to H1 2013, Shallow water revenues grow by 15.6% reflecting the impact of the weak dollar compared to the Euro.
Cost control and operational excellence lead to a cost increase limited to 11.3% which account for the good EBITDAR performance of €69.3 million, a 25.4% increase compared to last year. The increasing number of bareboated vessels have impacted, as expected, the EBITDA generation standing at €53.5 million, a 3.1% decrease compared with H1 2013.
Marine Services : Crewboat vessels
Despite an increase in the size of the fleet, the softer conditions in certain countries in the West Africa region contributed to the utilization rate dropping by 5 point and in combination with a weaker dollar, revenues declined by 5.5% also directly impacting the level of EBITDAR.
Since last year, two vessels were transferred from Subsea Services to Marine Services and one has been sold, while two large Bourbon Evolution IMR vessels joined the fleet. Operational performance was stable, resulting in a good level of revenues, exchange rates permitting.
Good cost control within the activity lead to an improved EBITDAR margin. Capital gains on vessel sales and bareboat charter back more than offset the increase in bareboat charter costs, leading to strong EBITDA generation.
The market favors cost competitive solutions from IMR vessels, which translates into good demand for the new series of Bourbon Evolution still to be delivered.
Using chartered vessels has two advantages for Bourbon: it makes it possible to meet client demands and generate contracts while new vessels are being built and added to the fleet. Using chartered vessels also enables Bourbon to offer vessels that are not part of its regular line of services when needed for global calls for tenders. Volatility of “Other” revenues is largely due to the variation in the number of chartered vessels during the period.
Net non-current assets increased due to the delivery of vessels that are not part of the vessel sale and bareboat charter agreements. Meanwhile, the decrease in assets held for sale reflects the continued progress of delivering vessels to ICBCL during the first half of 2014.
The reduction in gearing ratio (net debt/shareholders equity) since December 31, 2013 was relatively small, due to the payment of the dividend. The more significant reduction in this ratio is seen when comparing to the end of June 2013, when vessel sale proceeds began to impact net debt. This reduction was significant with a 27% reduction in the ratio from 1.53 to the current level of 1.12 thanks to total proceeds from the disposal of vessels of $1.3 billion.
The two primary sources of cash generation for Bourbon are from the vessels in service as a ship operator and the sale of vessels as a ship owner. From these sources of cash, the stakeholders such as banks, government entities and shareholders receive a portion in the form of interest, taxes and dividends. Another use of cash is for the continued high level of investment in assets for the business and required working capital increases. These various uses of cash make the speed of debt reduction less rapid, though still significant.
The free cash flow generated through the combined vessel operator and vessel owner elements of the business has made a significant improvement since the beginning of the vessel sale and bareboat charter program, moving from a negative free cash flow position in H1 2013 to a strong positive free cash flow of close to €250 million at the end of H1 2014. This has enabled Bourbon to reduce its net debt significantly over this period.
Despite a stable level of oil prices for the past several years, oil and gas companies are expected to continue their cost reduction efforts and to be more selective in their investment decisions and more focused on existing well production. In addition, there is some uncertainty on the timeframe to execute projects.
On the other hand, the rig count is expected to continue to increase. Only a portion of the approximately 200 rigs under construction will be replacing older rigs, which is favorable for the demand of offshore vessels (OSV). A high contractor backlog through 2016 could also have a positive impact on demand for OSVs. On average, we anticipate a stable demand for offshore support vessels.
On the supply side, the high number of large PSVs coming out of the shipyards could negatively affect the spot market. This should have only a small impact on Bourbon, taking into account the high contractualization rate of its PSVs.
Bourbon said it is focusing on service execution with a strong commitment to cost reduction, thanks to the standardized fleet of 500 vessels.
Major Operations and Highlights
•Following the success of the public tender offer and taking into account the 16,226,089 shares tendered to the offer, JACCAR Holdings holds, in concert with Mach Invest International and its affiliates, 41,613,701 Bourbon shares, representing 55,81% of the share capital and theoretical voting rights of Bourbon and 58,13% of effective voting rights. JACCAR Holdings holds alone 35,639,941 shares in Bourbon, representing 47.80% of the share capital and theoretical voting rights of Bourbon and 49.78% of effective voting rights.
•The controlling shareholders will take the time it needs to study Bourbon's options from 2015 onwards and therefore, new outlook for Bourbon following the current business plan will be presented during the first half of 2015
•As an update on Bourbon’s sale of 51 vessels for up to $1.5 billion to ICBCL the transfer of 43 vessels have been completed for a total proceeds of $1.3 billion, including four vessels that have been transferred since July 1, 2014
•To date, the vessels transferred to ICBCL comprise seven deepwater vessels, 31 Shallow water vessels and five subsea vessels
•The $150 million agreement with Standard Chartered Bank for the sale of six vessels remains on track and the remaining three vessels are targeted to be transferred before the end of 2014