22nd Mar 2016 12:31
LONDON (Alliance News) - Gulf Marine Services PLC Tuesday warned 2016 will be another difficult year as the company expects earnings to fall and debt to rise as the downturn in oil and gas markets continues to pressure the company's margins.
The company, however, tried to soften the blow by increasing its dividend for 2015 despite reporting a small drop in profit.
Gulf Marine shares were trading down 6.8% to 71.50 pence per share on Tuesday afternoon.
Gulf Marine Services said its pretax profit was slightly lower in 2015 at USD77.1 million from the USD80.4 million made the year before despite the company's revenue experiencing a material lift in the year to USD219.7 million from USD196.6 million.
The main cause for the fall in profit was a large rise in finance expenses to USD34.1 million from USD21.4 million in 2014 as its debt soared in the year, with further increases expected in 2016. The rise in finance costs was partly offset by lower administration costs of USD20.9 million from USD25.4 million the year before.
Gulf Marine's foreign exchange loss of USD32,000 was also lower than the USD408,000 loss in 2014.
The boost in revenue led to its gross profit to rise to USD132.2 million from USD126.5 million the year before, but that 5% rise in gross profit demonstrates the tighter margins in the year as revenue was up 12%.
Despite the fall in profit, the company increased its final dividend for the year to 1.20 pence, meaning the total dividend for 2015 is 1.61 pence. That will cost the company a total of USD8.5 million, which is equal to 10% of the company's adjusted net profit of USD84.9 million.
Last year, Gulf Marine paid a total dividend of 1.47 pence per share, meaning the dividend has increased by over 9.5%. The dividends paid in 2014 amounted to USD8.1 million, which was also 10% of Gulf Marine's adjusted net profit of USD81.3 million.
Importantly, Gulf Marine warned that net debt is expected to continue to rise this year, whilst earnings will be considerably lower as its margins will be squeezed further as the turbulence in oil and gas markets in 2015 is expected to continue this year.
Gulf Marine provides self-propelled, self-elevating support vessels that are constructed at its yard in Abu Dhabi in the United Arab Emirates to the offshore oil, gas and renewable energy sectors, and is being hit like the wider market by the fall in oil prices since the middle of 2014, which has seen oil and gas companies defer spending and project development.
"In recent conversations with clients it is clear that they continue to seek incremental cost savings both through the efficiencies that we can deliver through better working practices and innovative offerings, through lower charter rates, and in one instance, through the early termination of an existing vessel contract. In these demanding conditions, our focus is to maximise vessel utilisation and as a result we expect pressure on margins in 2016," said Gulf Marine.
Net debt rose to USD398.9 million at the end of 2015 from the USD273.6 million at the end of 2014, and the company warned that net debt will reach its peak this year at around USD435.0 million.
However, Gulf Marine is aiming to end 2016 with net debt of around USD425.0 million, and expects this to gradually fall from 2017 onwards.
"Following completion of the new build programme net debt levels should reduce and, subject to the market outlook, the group will have the capacity to look to increase returns to shareholders through the most appropriate mechanism at the time," said Gulf Marine.
The company delivered an 11% year-on-year rise in earnings before interest, tax, depreciation and amortisation in 2015 of USD138.5 million and a small fall in basic earnings per share of 21.39 cents from the 22.14 cents reported in 2014 - but both of these are expected to fall in 2016.
"Based on our expectations for existing charters and the timing and terms of new contracts, we currently expect Ebitda in 2016 to be 15 to 20% lower than in 2015 and earnings per share to be approximately 25 to 30% lower," said the company.
By Joshua Warner; [email protected]; @JoshAlliance
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