Commented M.L. Chandchutha Chandratat, TTA’s President & CEO, “In line with best corporate governance practices that call for transparent and conservative financial reporting, the Company took a number of significant impairments and other extraordinary write-downs during the year. These were largely non-cash items that have not affected our cash position, which remained strong and in fact improved significantly during the year. We now go into 2013 with a balance sheet that represents an even more conservative view of our operations, the restructuring of our two largest business units largely completed and already yielding increasingly strong operating results, and a potential capital increase plan that should position us very well for profitability improvement as soon as next year.”
Revenues for 2012 were THB 16,339 million, 7% lower than the previous year, largely due to a reduced fleet size at Thoresen Shipping, offset in part by marginal growth in top line results at Baconco Co., Ltd. (“Baconco”), Mermaid Maritime Public Company Limited (“Mermaid”), and Unique Mining Services Plc. (“UMS”).
Throughout the year, TTA’s two largest core businesses, Thoresen Shipping and Mermaid, showed significant improvements in their operating fundamentals through efficient vessel and project cost management. Thoresen Shipping delivered a positive EBIT despite the Baltic Dry Index (“BDI”) averaging 30% lower than it did in the previous year. Mermaid, meanwhile, generated THB 603 million in normalised EBIT contributions. These improvements drove consolidated net operating cash flows to THB 1,974 million for the year, a 1,261% increase over the previous year.
UMS undertook various strategic moves in an attempt to reopen its Samut Sakorn plant, suffering margin pressures as a result of accelerated sales of its 0-5 mm coal inventory. The depressed margins, coupled with operating out of only one of its two plants, caused UMS to report a negative EBIT of THB 103 million for the full year. Baconco generated sales growth of 14% compared to the previous fiscal year, but gross margins came under pressure due to higher raw material costs, resulting in an EBIT of THB 243 million, down 7% from the previous year.
“2012 was a year of restructuring, transition, and difficult decisions for TTA. On the positive front, we have seen significant fundamental improvements for our largest business units, Thoresen Shipping and Mermaid. However, we face prolonged challenges at UMS and will make every effort to reopen its Samut Sakorn plant in the shortest possible time,” said M.L. Chandratat. “It was particularly gratifying to see Thoresen Shipping boost its fourth quarter EBIT by nearly 50% compared to the previous quarter. This came largely as a result of adding the Thor Insuvi to the fleet and chartering in the equivalent of 1.3 additional vessels during the quarter. This proves that Thoresen Shipping is ready to scale up even in an environment of depressed freight rates, something that will be of particular focus in our capital increase plan.
“At the same time, Mermaid continues to make excellent progress forging close relationships with oil and gas majors in South East Asia, the Middle East, and beyond. The offshore oil and gas services business is clearly in a cyclical upturn, and Mermaid has found itself in situations where it has turned down work due to a lack of available assets. The tender rig segment is an area we see great potential in, and Mermaid’s board has asked for strategic options. TTA is ready to support Mermaid’s potential expansion plans.”
Group Transport contributed THB 775 million in losses during the year, primarily due to THB 909 million in one-time write-offs and impairment charges. Excluding these extraordinary items, Group Transport would have contributed THB 133 million in net profits, a formidable result given prolonged weakness in the global dry bulk industry.
Two of these extraordinary items occurred during the first quarter while the third, a THB 501 million fixed asset impairment charge, was taken in the fourth quarter against a USD 16 million novation fee paid to acquire new build vessels from Vietnam Shipbuilding Industry Group (“Vinashin”) at the height of the dry bulk market.
Thoresen Shipping’s normalised EBIT for the fiscal year jumped 886% to THB 118 million from a negative normalised EBIT of THB 15 million a year ago. Strategic moves, including fleet reconfiguration, relocation of the commercial hub to Singapore, a tighter focus on costs, and improved on-board maintenance initiatives, have all proven successful in delivering positive results despite a year of highly depressed global freight rates.
Petrolift, Inc. (“Petrolift”)’s performance softened slightly during the year as revenues during the second half of the year were impacted by poor weather conditions, which delayed the dry-docking of two vessels. EBITDA both in absolute terms and margins, however, remained strong with Petrolift contributing a formidable 12% return on investment throughout the fiscal year.
“The dry bulk industry was hit with 25-year low freight rates in 2012, a fact that makes Thoresen Shipping’s positive normalised contribution that much more impressive,” said Mr. David Ames, Executive Vice President, Group Transport. “On a full year basis, our owner expenses averaged about USD 3,952 per day, placing Thoresen Shipping in the top quartile of owner expenses worldwide. We were able to garner these results through a renewed focus on cost controls, evidenced by operating expenses dropping by 32% year-on-year. While the freight rate outlook for next year remains largely flat, there is little doubt that Thoresen Shipping will be able to ride out the downturn and be set to capitalise on a cyclical upturn which we expect to begin taking shape in 2014.”
Driven largely by a turnaround at Mermaid, Group Energy contributed THB 24 million in profits, compared to losses of THB 110 million in 2011. The improvement was largely driven by a turnaround at Mermaid, which has both streamlined its operations and increased its market penetration in time to begin capitalising on an industry upturn in the oil and gas industry.
Mermaid’s total revenues rose 3% to THB 5,714 million, but the Company’s margins improved significantly, with gross profit rising 19% to THB 1,944 million and EBIT climbing 138% to THB 603 million. The improvements came on the back of aggressive vessel and project cost management, the employment of Mermaid’s MTR-1 accommodation barge after being off-hire for a year, and higher full-service contract rates for the subsea division.
Mermaid has been working towards a subsea fleet optimisation strategy to focus on higher vessel yields and increased market penetration in high growth areas, such as the Middle East and Africa. This push materialised in several significant deals, particularly in the Middle East throughout the year and in the early part of fiscal year 2013.
TTA’s plan to directly invest in its Philippines coal venture by converting debt into equity has not yet been approved by local regulators, pending legal motions raised by other companies about foreign share ownership restrictions for Philippine companies engaged in mining. Because the debt to equity conversion has not taken place, the financial position of SKI Energy Resources Inc. (“SERI”) has weakened, and the venture is not able to produce sufficient coal to reach break-even cash flows. In line with its policy for conservative accounting and reporting, TTA has taken a THB 908 million doubtful debts provision while it explores options to restructure SERI, including evaluating alternate debt to equity scenarios or finding other partners to capitalise the business properly.
“We are very pleased to see Mermaid make the turnaround it has, a momentum that has been further buoyed by additional significant deals early in fiscal year 2013, most notably with Saudi Aramco, the largest oil and gas company in the world. That deal, signed with a Mermaid JV for USD 530 million over five years, will give Mermaid a share of 60%-70% of the contract amount,” said M.L. Chandratat. “For our coal investment in the Philippines, we still have confidence that the concessions can produce 500,000 to one million tonnes per year if the venture is capitalised properly. Our focus is now on restructuring the business with the hope of realising the potential of this project.”
Group Infrastructure contributed THB 23 million in losses this year, compared with THB 301 million in profits the previous year. The losses came about primarily as a result of UMS’ aggressive sales of its 0-5 mm coal stockpile and a THB 107 million allowance for net realisable value of inventories. Excluding this allowance, which can be adjusted annually or reversed depending on coal prices, Group Infrastructure would have reported a profit, as Baconco and Baria Serece continued their strong performances.
UMS has faced a series of significant challenges over the past two years, most of which have been external factors beyond its control. Chief amongst these was a shutdown of all coal operators in Samut Sakorn province in July 2011 due to environmental protests unrelated to UMS itself. A major pre-condition to the reopening of the plant is for UMS to clear out its entire 0-5 mm coal inventory, most of which is being transported to cement plants in Saraburi. Meanwhile, Samut Sakorn-based clients are being served from UMS’ Ayudhya plant. These activities caused much higher transport costs, resulting in continuing net losses. UMS continues to work towards removing all 0-5 mm inventories by the local government’s February 2013 deadline.
Baconco’s EBIT of THB 243 million for the year was down slightly from THB 261 million as a result of downward pressure on margins due to rising raw materials costs. To compensate for relatively softer local demand, Baconco concentrated on boosting exports in 2012, more than doubling export volume from 28,600 tonnes to 60,700 tonnes year-on-year.
Baconco’s warehouse business will expand in January 2013 with the opening of additional premises that can store 100,000 metric tonnes of bagged and bulk cargoes and 20,000 tonne of containers, pipes, and steel. The facilities have already begun to receive pre-booking requests while current warehouse space at all facilities under TTA’s oversight in Vietnam continues to enjoy over 90% capacity utilisation.
“Sales of 0-5 mm coal from UMS’ Samut Sakorn plant will continue as we work to meet the deadline imposed by local authorities. Once the Samut Sakorn plant is reopened, or some other alternative solution is implemented, UMS is expected to return to profitability quickly, serving the large number of coal users in the province,” said Mr. Vichai Chuensuksawadi, Executive Vice President, Group Infrastructure. “In Vietnam, we have made tremendous strides and today, Thoresen Vinama Logistics and Baconco are uniquely positioned to offer a full logistics solution which in turn, will support the continuing expansion of Baria Serece, in which TTA also holds a 20% stake. The growth we have witnessed in this segment underscores the rising demand for professional logistics services in South Vietnam and validates our strategic drive to create a first-of-its kind, fully-integrated professional logistics services in the area.”
In the dry bulk industry, supply growth is likely to continue to outpace demand growth for at least the next two quarters. During this time, freight rates are expected to remain low, encouraging scrapping activity and driving vessel prices further down in the short term. Thoresen Shipping will continue to operate at a high level of efficiency and concentrate on prudent financial management, while exploring opportunities to expand its total owned fleet to a size of 24-30 vessels.
TTA expects oil to remain above US$ 100 per barrel, driving exploration and production activity in a number of Mermaid’s target markets, including South East Asia, the Middle East, and North and West Africa. In particular, the outlook appears strong in the jack-up rig and tender rig segments, areas where Mermaid may consider additional investments in 2013. Mermaid’s investment in Asia Offshore Drilling Ltd (“AOD”) in particular looks to pay dividends in 2013, with day rates climbing amidst a supply shortage. AOD signed its inaugural deal in October with Saudi Aramco, worth USD 236.5 million.
“We see strong opportunities for positive contributions across most of our business units going into 2013, particularly Mermaid which has focused on high growth geographical regions,” said M.L. Chandratat. “For Thoresen Shipping, we are targeting some profitability into next year as freight rates stay largely flat, but will take the year to renew our fleet in order to be optimally set for an expected upturn in 12-18 months. Clearly, our other major priority will be on reopening UMS’ Samut Sakorn plant, which can return to profitability quickly if allowed to resume normal operations.”
Thoresen Thai Agencies Public Company Limited (TTA) is a strategic investment holding company listed on the Stock Exchange of Thailand (TTA:TB). Its investment strategy is to grow through a balanced and diversified business portfolio of transport, energy, and infrastructure assets, both domestically and internationally. TTA’s evolution from a dry bulk shipping operator began in 1995 with an investment in Mermaid Maritime Public Company Limited, which has since been listed on the Singapore Stock Exchange (MMT:SP). Since then, TTA has acquired interests in fertiliser and logistics (Baconco Co., Ltd.), coal-related businesses (Merton Group (Cyprus) Limited, Qing Mei Pte.Ltd., and Unique Mining Services Public Company Limited), petroleum tankers (Petrolift, Inc), and a port in Southern Vietnam (Baria Joint Stock Company of Service for Import Export of Agro Forestry Products and Fertilizers). For more information, please visit www.thoresen.com
Thoresen Thai Agencies Plc. press release