Hallin Marine, the provider of subsea solutions to the oil and gas industry, announces resilient interim results in respect of the first six months of 2009.
Hallin has strong market positions in South East Asia, China, the UK, the Gulf of Mexico, the Mediterranean, the Persian Gulf and India. Typically, the projects undertaken comprise engineering design and analysis and the surveying, maintaining, repairing or installing of subsea equipment, primarily for the oil and gas industry.
Tony Ebel, Chairman of Hallin Marine, said, "We are pleased to report that, despite the challenging economic climate, the Group has achieved first half revenues in line with the corresponding period last year, when the market was especially buoyant. Overall, we remain confident in the outlook for the business and the current climate contains as many opportunities as challenges."
Chairman's and Chief Executive's Report
We are pleased to report that, despite the challenging economic climate, the Group has achieved first half revenues in line with the corresponding period last year, when the market was especially buoyant. The Group's first half revenues were US $60.27 million, versus US $59.58 million in 2008. As previously announced, margins have come under pressure, but we expect them to be sustainable at the current levels. The Group achieved a gross margin of 29.1% in the period, down from 31.8% in the first half of 2008. Together with a higher level of overhead expenditure, primarily relating to the acquisition of Prospect Flow Solutions Limited in August 2008, this has resulted in a lower EBITDA of US $14.24 million (23.63%) against US $16.66 million (27.96%) in the first half of 2008. Earnings per share expressed in our reporting currency were 20.2 cents compared to 28.0 cents in the same period last year.
The highly volatile oil price of late 2008 and early 2009 has created considerable uncertainty in the industry. Whilst bidding activity remained high at the beginning of 2009, we witnessed a diminished level of actual contract awards, leading to increased competition and higher price sensitivity. In recent months confidence appears to be slowly returning to the oil and gas services market, following a period of more stable prices. It should be noted, however, that a number of factors remain which have the potential to prolong the uncertainty in the market. Oil prices, whilst currently at US $70 per barrel and slowly rising, remain well below the level that generated the hyperactive market of last year. Maintaining confidence depends on price stability, which creates revenue certainty for operators, and any significant short-term oil price fluctuation in either direction has the ability to erode confidence again after the experience of the last twelve months. Overall, the industry is dependent on the sustained availability of investment and project finance. The longer-term picture of worldwide demand outpacing supply is clear and a significant number of projects are in the pipeline to help address this. However, the continuity of projects and the predictability of start dates are dependent on the reliability and availability of lines of finance. It is this, together with the drive from oil majors for cost savings, which is having a significant impact on our industry at the present time.
The subsea contracting picture is at its most complex for several years with marked geographical variations. Our East Division, trading in the Asia Pacific region, generated revenues of US $36.4 million in the first half of 2009, representing 60% of Group revenues. However, it did so in the face of increased regional competition that impacted margins. West Division, trading mainly in the European and Mediterranean region, reported revenues of US $18.5 million or 31% of Group revenue. The margin pressures have been less on the West Division but demand has been lower, resulting in lower utilisation of their Remote Operating Vehicle equipment, particularly the smaller inspection vehicles. The results of our West Division have also been particularly affected by the adverse movement of over 30% in dollar / sterling exchange rates. Overall, however, returning confidence in the market is generating a more robust pattern of demand which is reflected in our rising forward order book which now stands at US $55.3 million, an increase over US $53 million, the last figure disclosed by the Company in March this year at the time of the 2008 annual results announcement.
Our Engineering Division, Prospect, experienced a significantly lower level of business in the first half but, encouragingly, is now seeing signs of a recovery. A new subsidiary, Prospect Asia, was formed in February, co-located with Hallin in Singapore. This entity has already won interesting new work in both oil and gas and renewable energy fields and further new opportunities have been identified. A decision was made to close the loss making Prospect office in Norway. The engineering focus is now on the profitable sectors of Prospect's operations, particularly those in Asia and the more established Prospect markets in the UK and Houston. The closure of the Norway office involves a non-recurring write-off of US $448,000, which has been provided for in full in the first half 2009.
The Ullswater, Hallin's first Subsea Operations Vessel, has performed well since delivery in February 2009, achieving utilisation of 88% to the end of June. The sale and leaseback of this vessel was successfully completed in February, contributing over US $3 million to earnings and enabling the repayment of the loan drawn to finance the construction of the vessel. As announced on September 11, 2009, the vessel has been immediately contracted from late September for inspection, repair and maintenance work in Indonesia, with a contract value of US $20 million, and which will utilise the Ullswater through to January 2010, with further contracted work to be carried out in mid 2010.
The build of our second Subsea Operations Vessel, the Windermere, is progressing well at the Drydocks World shipyard in Singapore, and delivery is scheduled for the second quarter of 2010. Based on enquiries currently being received, we remain confident about the ongoing demand for our specialist vessels and also for the long-term charter vessel, the Sanko Angel, which achieved 83% utilization in the first half of the year.
The Company is continuing with the development of new operating assets and, in addition to the Ullswater, the first half has seen delivery of a new portable saturation diving system, three work class Remote Operating Vehicles (two built by our Manufacturing Division) and two inspection class Remote Operating Vehicles. The value of operational equipment on the balance sheet has risen to US $51.85 million from US $31.89 million at the beginning of the year. The value of equipment under construction has fallen to US $28.09 million after the US $45 million disposal of the Ullswater and US $14.70 million additions to the Windermere under build. Prudently, the Group has hedged a substantial proportion of the foreign currency exposure related to the Windermere construction contract.
The cash position of the Group remains strong, with cash balances reported of US $18.6 million at June 30, 2009 (US $23.0 million at December 31, 2008). Borrowings, the majority of which are long term loans to purchase operating assets, fell to US $38.2 million at June 30, 2009 from US $42.6 million at December 31, 2008, resulting in a gearing ratio of 26.1%, down from 30.8% at December 2008. We will continue to draw on facilities already in place to complete the construction of the Windermere.
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