Hallin Marine, the provider of subsea solutions to the oil and gas industry, has announced record preliminary results in respect of the year ended December 31, 2008.
Hallin has strong market positions in South East Asia, China, the UK, the Gulf of Mexico and India. Typically the projects undertaken comprise engineering design and analysis and the surveying, maintaining, repairing or installing of subsea equipment for the oil and gas industry.
Tony Ebel, Chairman of Hallin Marine, said, "In the year in which Hallin celebrated its tenth anniversary we are pleased to report outstanding performance throughout the Group. We continue to feel very positive about Hallin's ability to weather the uncertainties of 2009 and to continue its history of growth."
CHAIRMAN'S AND CHIEF EXECUTIVE'S REPORT
In the year in which Hallin celebrated its tenth anniversary we are pleased to report outstanding performance throughout the Group. We have achieved very strong growth with improved margins and at the same time have continued a significant expansion of the Group's operating assets.
Revenue in 2008 grew 116% to US $139.9 million compared to US $64.75 million in 2007 and operating margins increased in 2008 to 26.2% from 18.3% in 2007. This substantial improvement in operating profit, while reflecting an active focus on improving margins throughout the Group in 2008, was materially assisted by higher day rates resulting from continuing demand for limited resources throughout the industry. At the same time, your Company was able to negotiate beneficial terms on contracts that required a high and, in some cases, a lengthy commitment from the Company.
Overheads rose in the year from US $9.9 million in 2007 to US $18.0 million in 2008 as the Company continued to invest heavily in the expansion of our management team, including the creation of a specialist ship management division to look after our growing number of vessels. The end result of this outstanding performance is that consolidated profit before tax for 2008 rose 216% to US $35.4 million from US $11.2 million in 2007. The 2008 results do not include the estimated profit of $4 million arising on the sale and leaseback of the Subsea Operations Vessel (SOV) Ullswater which as a result of the delayed completion by the shipyard, will now be credited in the first quarter of 2009.
Consolidated EBITDA for the year rose strongly to US $41.2 million, up 178% from US $14.8 million in 2007. Exchange rate movements have been particularly beneficial during the year as some 80% of our contracts are denominated in currencies other than sterling. Earnings per share expressed in our reporting currency increased from 25.1 cents to 77.6 cents. Currency movements in 2008 have contributed favorably to our earnings per share when expressed in sterling, and the sterling earnings per share equate to 42.3 pence (2007 - 12.5 pence).
We are particularly proud that the Company's track record was recognised by the award last October of National Business of the Year for 2008. Hallin was chosen as the "outstanding organisation that has best demonstrated exceptional financial returns, strong growth and innovation strategies, plus market leadership in its sector."
In the world market 2008 saw the price of oil rise from US $90 to an unprecedented high of US $147 in July and then fall dramatically in the third quarter to finish the year at US $42, where approximately it has remained to date. The stock market reacted strongly to these fluctuations and oil and gas related stocks, including Hallin, lost significant value, anticipating a correlation between oil price and contractor profits and, more particularly, through the expected reduction by the major oil companies in their capital investment programmes. In fact, Hallin has seen little diminution in the demand for its contracting services either during the 3rd and 4th quarters of 2008 or in the opening period of 2009.
Of greater impact to date, and concern for the immediate future, is the global financial crisis and resulting worldwide economic downturn. This has resulted in the effective cessation of most normal avenues of finance to the industry. As a result, from the end of 2008 an increasing number of reports indicating delays to planned projects have appeared, often from smaller independent oil companies, although to date none of these have related to any of Hallin's contracts. There appears to be a number of instances emerging of service companies in difficulty due to their inability to finance projects, especially where companies are highly geared. This appears particularly to be the case where there is a need to raise money to complete partly funded build projects relating to vessels. Whilst the inability to raise finance for new capital expenditure projects is particularly frustrating for Hallin and inevitably will affect the levels of attainable growth in the short to medium term, the Group's committed ongoing build projects are fully funded and we are not exposed in this regard. Indeed the emergence of distressed assets and companies may present opportunities for Hallin during the coming years.
The planned expansion of Hallin's operating assets continued during 2008 and the book value of these assets rose 51% to US $97.6 million at the end of 2008 compared with US $64.6 million at December 31, 2007. Accordingly, Hallin now has an asset value per share of some £1.07. The Remote Operating Vehicle (ROV) fleet grew to 17 systems by the year end, up from 6 at the beginning of the year. We continued our successful strategy of profitably selling our older saturation diving equipment and replenishing the fleet with new, cost effective, state of the art equipment. Thus two saturation diving systems (Sat04 and Sat05) were sold during 2008 and two new systems (Sat07 for Ullswater, and Sat09) were largely completed in the year. It is expected that Sat10 will be completed in the 4th quarter of 2009.
As indicated above, the first of Hallin's purpose built SOVs "Ullswater" experienced some minor technical delays prior to the anticipated delivery date in December 2008 and was finally delivered on 5th February 2009. Simultaneous with delivery the previously agreed sale and leaseback deal was completed and the Ullswater then immediately commenced a US$20 million one year contract with Shell Philippines Exploration Company. We are pleased to confirm that the build of Hallin's second SOV "Windermere" is progressing well; the keel was laid at Drydocks World shipyard in Singapore on 15th December 2008 and she is on schedule for delivery at the end of March 2010.
The contract for Hallin's third SOV, the Coniston, was signed on 11th September 2008. However, since signing, the selected shipbuilder has been unable to complete the necessary repayment guarantees required, as a consequence of which the build contract has lapsed. We are currently reviewing our options in the light of the current world economic turmoil. Against a background of generally falling costs of shipbuilding in early 2009, we are taking time to review carefully the best available options for the Company prior to making any new commitment.
Hallin's first corporate acquisition, that of Prospect Flow Solutions Ltd (Prospect) was completed in the third quarter of 2008 and we are pleased to advise that the agreed financial performance targets for 2008 were met. In the year Prospect achieved a gross margin of 55.9% on revenues of US $6.8 million. In addition, good progress has been made integrating Prospect into the Hallin group with the aim of expanding Prospect geographically into other areas of Hallin's operations.
As we referred to above, the global economy is under extreme pressure and it is appropriate that your directors and its management team proceed with caution. The Industry in general is anticipating potential delays in both the timings and placement of large capital orders. There is little doubt that there will be a greater level of pressure on margins after the higher levels achieved during the equipment shortages and increased demand of the last two years. Hallin cannot avoid being affected by any general lowering of margins even though we are confident in our continuing ability to grow the business. We are increasing our emphasis, yet again, on operational efficiencies so as to maximise the margins we are able to achieve.
Hallin has a ten year record of prudent management and a business strategy that has been geared to achieve secure and progressive growth, controlled costs and an awareness of the realities of a cyclical downturn in our industry. The Group has modest gearing (30.8% at year end 2008), solid cash reserves of US $23.0 million at year end and a strong balance sheet. Add to this a fleet of modern, high quality, cost effective operating assets that allow us to be extremely competitive in our market, and we trust you will understand why we continue to feel very positive about Hallin's ability to weather the uncertainties of 2009 and to continue its history of growth.
Against this background and having regard to the significant achievement inherent in our results we are pleased to recommend an increase in the annual dividend per share from 1p to 2p, which will be paid on June 5, 2009 to shareholders on the register at the close of business on May 8, 2009.
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