• Normalised net profit after tax of $10.9 million (ex IFRS adjustments)
• Maiden net profit after tax of $7.4m (FY07: $6.4m loss)
• Revenue of $86.7 million
• EBITDA of $13.5m
• Cashflow from operational activities of $10.9m
• Completion of three acquisitions: 2 Western Australia; 1 United Kingdom
• Capital raising totalling $61 million
• Confirmed orders for 1H09 valued at $50+ million
• Reaffirm FY09 guidance at $22-24m NPAT (ex IFRS adjustments)
Leading engineering services company Neptune Marine Services (ASX:NMS) has positioned itself for significant future growth after posting a normalised net profit after tax of $10.9m (1H08: $2.2m; 2H08: $8.7m) and maiden net profit after tax of $7.4m (1H08: $845k; 2H08: $6.55m) for the full year 2008.
The result effectively represents a $17 million turn around on the company’s comparative FY07 financial performance and has it poised to take advantage of significant opportunities for growth across the international offshore oil and gas industry.
Revenue for the period totalled $86.7m (1H08: $31.7m; 2H08: $55m) representing a 560% increase on the comparative FY07 figure of $15.5 million. This was largely due to the significant levels in organic growth recorded across the group, supported by consistent growth from international acquisitions.
A successful capital raising project that generated $61m helped drive Neptune’s expansion within Western Australia, as well into the investment rich regions of Europe (North Sea) and South East Asia. The project also funded Neptune’s entry into the offshore support vessel and remotely operated vehicle (ROV) market, with the purchase of the 55 metre construction support vessel, the MV Neptune ROV Supporter, and the first three of Neptune’s burgeoning ROV fleet.
Neptune’s Managing Director and CEO, Christian Lange, said the period, and particularly the second half of the year, represented an important phase in the group’s consolidation, strategic positioning and identification of significant international opportunities for growth. “Following our encouraging normalised NPAT of $2.2 million in the first half of the year, we have almost quadrupled our effort to record an $8.7 million normalised NPAT in the second half,” he explained. “This marked increase in activity is indicative of the future trend for the Neptune group that is embarking upon a major phase of growth that is being driven by a number of factors including a very buoyant subsea investment market in Australasia, our aggressive, proactive approach to bidding and tendering, an increase in repeat and extended contracts and greater industry recognition (globally) for our range of integrated engineering services.
“If you consider our current position as a guide, we already have confirmed contracts for 1H09 valued at more than $50 million. With this as a foundation, we can focus on consolidating our position within the market, fostering the integration of our business units and identifying future organic opportunities in line with our strategy for growth.
“The businesses that we have acquired this year continue to perform above expectation and consistently return high levels of growth. Complementing this expansion is the in-house expertise that we possess and will continue to nurture as we cultivate our future development potential.” At the local level, Mr Lange said Neptune’s expansion, particularly in the second half of the year, confirmed the effectiveness of the group’s service model and emphasised the value that customers placed on partnering with a single provider of multiple services.
“The establishment of the Neptune Integrated Projects Group during 2H08 resulted in the successful execution of the Simpson Pipeline Replacement Project for Apache Energy offshore Western Australia,” he said.
“Utilising our full range of integrated services, the success of this project emphasised the significant time, cost and logistical efficiencies that can be realised from such a unique and comprehensive service offering,” he added.
Offshore Services
The Offshore Services Division returned full year revenue of $51.9 million, bolstered by the addition during the period of:
• Tri-Surv Geomatics (August 2007; hydrographic survey).
• The ROV and Vessel business unit (October 2007; MV Neptune ROV Supporter and Swift XL Work Class ROVs).
• Sea-Struct (April 2008; pipeline stabilisation, protection and grouting).
The demand for Neptune’s commercial diving and associated services increased steadily throughout the year, posting an increase of 53% revenue year on year. The amalgamation of Allied Diving Services (Perth) and Territory Diving Services (Darwin) consolidated the assets, management and considerable industry experience of both business units to provide clients in the Australasian region with a comprehensive solution to their commercial diving needs. Further recognition of the service came in the form of the Master Service Agreement that was established with Woodside Energy Limited.
In the United States, US Underwater Services (USUS) maintained a steady flow of work, both on and offshore, for a variety of major industry and municipal clients. Similar to its Australian counterparts, USUS was officially recognised with a Master Service Agreement with the Lower Colorado River Authority and a ‘Preferred Vendor’ status in the State of California. While it enjoyed increased industry recognition and associated contract award within Australia, the USA and Asia, the NEPSYS® dry underwater welding technology experienced the negative impact of client rescheduling on more than one occasion, the result of which was (a majority of) revenue deferral to FY09. On the upside, projects were successfully completed in the Gulf of Mexico, extensive research and development continued into improving the process and design of the technology and a European patent was secured.
The addition of hydrographic survey services through Tri-Surv Geomatics brought with it Master Service Agreements with industry majors Santos and Conoco Phillips and exceptional levels of organic growth (69% growth in revenue post acquisition). Of particular note during the period was the $8+ million contract that the business won to provide geophysical and geotechnical survey services on the Ichthys Gas Field Development operated by INPEX Browse, Ltd.
Neptune completed the acquisition of the 55 metre construction support vessel, the MV Neptune ROV Supporter and the first of three Swift XL work class ROVs. On taking delivery of the vessel, Neptune confirmed a (minimum) 120 day charter for a major international oil and gas EPIC contractor valued at US$4.5/AUD$5.2* million. Confirmation for the acquisition of a second, larger vessel, the 70.05 metre DP2 AHTS Nor Sea, is expected in 1H09.
A three month contribution from the Sea-Struct pipeline stabilisation business added to revenue and provided Neptune with additional expansion opportunities in Singapore, Indonesia and the Middle East. A good indication of Sea-Struct’s future earning potential is the AUD$7 million worth of confirmed projects that was announced in the early part of 1H09.
Engineering & Project Management Services
The Engineering & Project Management Services Division returned full year revenue of $34.8 million. A major highlight during the period was the winning and subsequent completion of phase one of Neptune’s largest integrated services project to date, the $13 million Simpson Pipeline Replacement Project for Apache Energy that was administered by the Integrated Projects Group (IPG). Employing the full range of integrated services, the project (the second integrated project of the year) provided the industry with an insight into Neptune’s service capabilities.
Operationally, the division was extended through the addition of Ross Deeptech Initiatives Ltd (February 2008), a specialist subsea and offshore engineering firm based in Aberdeen, Scotland. The business is also regarded as an industry leader in the development of marine renewable energy projects - specifically in the areas of wave, tidal and offshore wind systems – representing another opportunity for expansion within an emerging industry.
Locally, the demand for both on and offshore engineering, fabrication, welding, piping and associated services remained high and resulted in the Link Weld Engineering and Subsea Developments business units maintaining a high level of activity for a comprehensive international client list. While the industry wide skills shortage continued to be an issue, the businesses reported good retention rates and solid management structures.
The Engineering and Project Management Services Division returned a significant rate of organic growth during the period – a figure in the order of 43% - a strong indicator of successful integration and strategic development across the Neptune Marine group of companies.
Outlook
“With our FY08 profit result and our confirmed work for 1H09 as a basis, Neptune Marine commences the new financial year in a very strong position,” Mr Lange revealed. “The operational capability and underlying profitability of the group grew significantly during 2H08 and current indicators suggest this trend will continue well into the future. “All of our business units are winning new work and we are starting to see a shift towards projects that are much greater in scope and value and that deliver stable, recurring revenue over longer time frames. Concurrently our pipeline of future project opportunities is at a record level in line with the increased awareness of and demand for Neptune’s integrated services, particularly in the oil and gas industry.
“A major component in the efficient delivery of these services to the Australian market is the 70.05 metre DP2 anchor handling, tug and platform supply vessel, Nor Sea that we expect to take delivery of during 1H09, mid charter. Complementing both the Nor Sea and our recently acquired MV Neptune ROV Supporter are the three Swift XL work class ROVs that we have committed to and have secured work for corresponding to their staggered delivery,” he added.
In order to benefit from this increase in activity and long term investment in the sector (conservatively valued at $17 billion over the next four years in Australasia alone), Mr Lange said Neptune Marine would continue to focus on enhancing its proven integrated services strategy, fostering its high levels of organic growth, maintaining its strong cash flow position and remaining conservatively geared and profitable.
* Foreign exchange rate of US$.8638 as at 25 August 2008 for AUD$ : US$ equivalent
