Hallin has strong market positions in South East Asia, China, the UK, the Gulf of Mexico and the Middle East. Typically the projects undertaken comprise the surveying, maintaining, repairing or installing of equipment on the seabed.
--Turnover increased 46% to $38.9m --Net Profit after tax increased 72.8% to $3.9m --EBITDA increased 88.5% to $5.5m --Dividend maintained at 1p --Major expansion of operational assets
Post balance sheet events
--Further Saturation System sold profitably --Confirmation of build of two further saturation systems --Flow of new contracts
Tony Ebel, Chairman of Hallin Marine, said:
"We are pleased to report another year of meaningful progress for the Hallin Marine Subsea International Group.
"The outlook for 2007 is extremely positive and we believe that we are well placed to take full advantage of the strong market conditions."
CHAIRMAN'S AND CHIEF EXECUTIVE'S REPORT
In our half year statement we described 2006 as a pivotal year for the Hallin Marine Subsea International PLC ('the Company') and its subsidiaries ('the Group'). The results reflect a year of two significantly differing halves. The first half was a period of reorganization, refitting and gearing the Group for a significantly different level of operations. The second half reflected a doubling in the amount of business contracted in the first six months, together with a material expansion in the scope and area of our operations.
Regrettably the second half also saw the Group's first significant dispute with a customer. This arose at the end of a contract where one of our leading clients, facing a major claim from their customer, sought to transfer a portion of their losses on to their subcontractors. Despite a strong legal opinion in our support it was apparent that given the likely costs involved, the huge drain on management resources and the significant adverse effect on our cash flow it was in the Group's interest to agree to a settlement. This was concluded in January 2007 and resulted in a non-recurring write off of $1.65 million in the year ended 31 December 2006.
The results for the year to 31st December 2006 shows turnover reduced by the non- recurring write off to $38,864,721, still an increase of 46% over 2005. The profit before tax for the year was $4,174,451, an increase of 81% over 2005. The EBITDA was $5,470,725 as against that of $2,902,091 for 2005, an increase of 88%. Basic earnings per share for the year rose to $0.1053c from $0.0784c in 2005.
The subsea construction market has remained very positive over the last 12 months with demand substantially exceeding supply in the industry. Increases in rates started to filter into the market in early 2006, but initially were more than matched by increased labor and material costs. As the year progressed, supply rates firmed and margins improved. Looking forward, higher rate levels are now accepted and cost increases, whilst still a factor, are now more predictable and consequently contained within planned project pricing. This is reflected in the improving margins for the Group.
The number of long-term major projects being planned by our clients indicates a continuing strong demand in the market until at least 2011/2012 as clients schedule projects further in advance and book assets further ahead so as to ensure continuity of their programs. As a result, bidding activity is high and forward visibility in the market has improved. It is important to note that almost all the current bidding activity is for construction projects; 2006 saw almost no demand for Inspection, Repair and Maintenance (IRM) work or decommissioning and we still see almost no current tendering activity in these areas. It is clear that an underlying backlog of this kind of work is building while clients direct their energies and budgets towards construction activities directly related to production to meet the high demand for oil and gas, and to take advantage of the prevailing oil and gas prices. This potential backlog of IRM and decommissioning work must emerge at some stage, and this underpins the future demand for subsea contractors in the longer term. Hallin has continued its planned program of asset development to equip itself to take advantage of the demand in the market. The value of the Group's operating fixed assets has grown to $31,184,685, a 455% increase over the $5,621,331 applicable at the end of 2005. This reflects the addition of two further Saturation Diving Systems, four ROV Systems and the initial investment in Subsea Operations Vessel Ullswater, currently under construction. The directors believe that these assets represent a solid underpinning of the value of the company for investors.
The market value of Hallin's equipment assets has been visibly demonstrated by the sale, for a net $5 million, of Sat03 to a US based customer in March 2006 which realized a profit on sale of US$3.19 million. In February 2007 we announced a further sale of the older Sat02 and ADS04 for a net $4.5 million. We consider the profitable disposal of equipment to be part of our normal business activity and it is our intention to continue actively to seek such opportunities whilst simultaneously continuing to build new high-specification subsea equipment in-house. In addition to directly generating profits, this policy should ensure the Group maintains an inventory of state of the art equipment that is in demand from clients.
Development of our new Hallin Marine business in the UK has been an important feature of 2006, with £6.5 million invested in four advanced Construction and Work Class ROVs. As a result of delayed delivery from the manufacturer the new division was unable to commence its supply program until August 2006. On delivery all four vehicles went directly to customers' projects and in this limited period the UK business achieved turnover of $3,723,759 and a gross profit of $682,332 (18%). A further two Quasar Work Class ROVs are on order for delivery in mid-2007 and given a full year of availability of the current ROVs, plus the new systems coming available to us, we expect this part of the business to grow into a significant profit center for the Group as a whole during 2007.
Construction of the Subsea Operations Vessel Ullswater is now underway at Pan- United Shipyard, and is on schedule for 3rd Quarter 2008 delivery. In the meantime Hallin has one long-term charter vessel, the Toisa Voyager, servicing contract work in the USA until at least the middle of 2007, and a further long- term charter vessel, Sanko Angel, will commence operations in April 2007. Operations based on vessels chartered by the Group made up 53% of revenue in 2006, a figure which is expected to increase as we gain access to additional vessels.
We believe that the SOV Ullswater will be in strong demand as we move towards its completion. World-wide there is a fleet of 14 Dive Support or Subsea Operations Vessels of less than 85m Length, the class to which the SOV Ullswater belongs. 78% of this fleet is more than 17 years old, with a probable life expectancy limited to 30 years. Although in some specific sectors of the offshore industry a large number of new vessels will be entering into the market over the next two to three years, only two Subsea Operations vessels of less than 85m are currently on order or under construction, one of which is our own SOV Ullswater. Access to vessels of this type is a key part of the Group's longer term strategy and our progressive expansion plans are centered on increasing the availability of these vessels from 2009 onwards.
In late 2006 the Group underwent a significant restructuring that became effective on 1st January 2007. The restructuring has provided the Group with a stronger management organization capable of handling the expanding business and, at the same time, being better able to manage risk and address the more complex issues of corporate governance. The new structure involves two customer-focused operating regions; East, based in Singapore; and West, based in Aberdeen, UK, acting as independent profit centers. A Corporate Services Division looks after normal corporate functions and delivery of assets (Marine Vessels, Diving Systems and ROVs) to the operating teams. During 2007 it is anticipated that the asset delivery operations will become a separate manufacturing profit center.
Although the restructuring has brought with it an increase in overhead levels it has also brought immediate benefits to the Group in terms of stronger management, improved risk management and corporate governance, now essential for the healthy development of the larger, more complex business of the Group.
As we have indicated above, the outlook for 2007 is extremely positive and we believe that we are well placed to take full advantage of the strong market conditions. We are pleased to recommend the payment of a maintained dividend of 1p per share, which will be paid on 30th May 2007 to shareholders on the register on 4th May 2007.
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