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On February 28, 2009, Swiber released their FY 2008 financials, and basically dropped a bombshell on shareholders – there were delays in the deliveries of 2 vessels which ultimately meant that project work on some contracts could not be completed in time, resulting in higher costs recognized without associated revenues. The effect of this was a plunge from a net profit to a net loss for 4Q 2008, which dragged down the performance for the entire FY 2008.
After going through the numbers, facts and figures, below is my analysis of the situation and comments on whether the Company can steer through the difficulties it is currently facing, and also to determine if this surprise loss is a one-off incident, or may likely occur again in future. As shareholders and investors, we should be most concerned about what our asset (business) is doing and whether it can continue to give us steady returns over the long-term.
Profit and Loss Analysis
As mentioned, the 4Q 2008 numbers are not pretty mainly due to the late deliveries of 2 vessels – Swiber Concorde (pipelay barge) and Swiber Supporter (dive support work barge). This resulted in delays in completing work for pipeline installation and subsea tie-in and led to increased cost of goods sold without associated revenue being recognized. In addition, a confluence of other factors such as higher sub-contracting costs for an offshore fabrication project as well as costs associated with rapid mobilization and de-mobilization of vessels to handle projects in different locations resulted in a gross loss of US$12.3 million (gross loss margin of 12%). Net loss margin for 4Q 2008 stood at 10.9% as a result too of higher administrative costs associated with increased staff strength due to the expansion of the company, but part of the costs were defrayed by the higher share of profits from associates Principia Asia and Swiwar Offshore. Finance costs rose about 150% due to the increase in bank loans and bonds taken up by the company to finance its capex requirements. This will be dealt with under the Balance Sheet analysis.
For FY 2008, gross margin compression caused gross margin to fall from 28.3% in FY 2007 to just 15% for FY 2008, principally due to the performance of the 4Q 2008. Stripping out exceptional gains from sale and leaseback transactions (S&L), net margin would have been 6.35% for FY 2008 against 18.5% for FY 2007, a drastic drop no doubt.
To put things in perspective, one has to analyze the factors behind this occurrence and put forward a conjecture on whether it is reasonable to assume that it is likely to occur again in the near future. According to the Company’s press release, the vessels which were delayed are slated to be delivered in 1Q 2009 instead, where they will then presumably be able to finish up the job and complete the projects. What was not mentioned though was the probable loss in confidence from their customers as a result of this fiasco, which would hurt Swiber’s reputation for timely project execution. While it can be argued that clients should understand that this credit crunch is unprecedented and was the principal cause for the shipyard’s delay, I would think that Swiber’s reputation would still be somewhat tarnished after this unfortunate incident. This may affect their ability to clinch new contracts and also strain relations with existing customers. However, the Company did announce US$70 million worth of new contracts clinched in the first 2 months of FY 2009; so one can infer that the reputational damage should be fairly contained and customers may dismiss it as a mere one-off incident. Shipyard delays make it difficult to schedule project work and Swiber must have felt this very keenly in 4Q 2008 when global trade financing came to a near standstill and freight rates also plunged. This caused problems for companies such as Ezra as well as they had to cancel their MSFV orders with Keppel Singmarine and Karmsund.
So it can be seen that the effects of the crunch have affected all companies; hence it can be concluded that the reputational damage is mitigated by this fact and also the fact that Swiber has established long-term relationships with customers prior to such an event occurring, which makes it unlikely for the relationship to strain further. I view this as a one-off unfortunate incident for the Company, but it pays to observe if things will go as planned for 1Q 2009 with the eventual delivery of the 2 vessels. Mr. Raymond Goh did mention in the Business Times today that he does NOT forsee any more delivery problems as “the situation has changed (from one of over-capacity in the yard) to one whereby the yards are more desperate for work now”.
Balance Sheet Review
Read more...[caption id="attachment_1958" align="alignright" width="160" caption="Photo by ArtemFinland"][/caption]
On February 28, 2009, Swiber released their FY 2008 financials, and basically dropped a bombshell on shareholders – there were delays in the deliveries of 2 vessels which ultimately meant that project work on some contracts could not be completed in time, resulting in higher costs recognized without associated revenues. The effect of this was a plunge from a net profit to a net loss for 4Q 2008, which dragged down the performance for the entire FY 2008.
After going through the numbers, facts and figures, below is my analysis of the situation and comments on whether the Company can steer through the difficulties it is currently facing, and also to determine if this surprise loss is a one-off incident, or may likely occur again in future. As shareholders and investors, we should be most concerned about what our asset (business) is doing and whether it can continue to give us steady returns over the long-term.
Profit and Loss Analysis
As mentioned, the 4Q 2008 numbers are not pretty mainly due to the late deliveries of 2 vessels – Swiber Concorde (pipelay barge) and Swiber Supporter (dive support work barge). This resulted in delays in completing work for pipeline installation and subsea tie-in and led to increased cost of goods sold without associated revenue being recognized. In addition, a confluence of other factors such as higher sub-contracting costs for an offshore fabrication project as well as costs associated with rapid mobilization and de-mobilization of vessels to handle projects in different locations resulted in a gross loss of US$12.3 million (gross loss margin of 12%). Net loss margin for 4Q 2008 stood at 10.9% as a result too of higher administrative costs associated with increased staff strength due to the expansion of the company, but part of the costs were defrayed by the higher share of profits from associates Principia Asia and Swiwar Offshore. Finance costs rose about 150% due to the increase in bank loans and bonds taken up by the company to finance its capex requirements. This will be dealt with under the Balance Sheet analysis.
For FY 2008, gross margin compression caused gross margin to fall from 28.3% in FY 2007 to just 15% for FY 2008, principally due to the performance of the 4Q 2008. Stripping out exceptional gains from sale and leaseback transactions (S&L), net margin would have been 6.35% for FY 2008 against 18.5% for FY 2007, a drastic drop no doubt.
To put things in perspective, one has to analyze the factors behind this occurrence and put forward a conjecture on whether it is reasonable to assume that it is likely to occur again in the near future. According to the Company’s press release, the vessels which were delayed are slated to be delivered in 1Q 2009 instead, where they will then presumably be able to finish up the job and complete the projects. What was not mentioned though was the probable loss in confidence from their customers as a result of this fiasco, which would hurt Swiber’s reputation for timely project execution. While it can be argued that clients should understand that this credit crunch is unprecedented and was the principal cause for the shipyard’s delay, I would think that Swiber’s reputation would still be somewhat tarnished after this unfortunate incident. This may affect their ability to clinch new contracts and also strain relations with existing customers. However, the Company did announce US$70 million worth of new contracts clinched in the first 2 months of FY 2009; so one can infer that the reputational damage should be fairly contained and customers may dismiss it as a mere one-off incident. Shipyard delays make it difficult to schedule project work and Swiber must have felt this very keenly in 4Q 2008 when global trade financing came to a near standstill and freight rates also plunged. This caused problems for companies such as Ezra as well as they had to cancel their MSFV orders with Keppel Singmarine and Karmsund.
So it can be seen that the effects of the crunch have affected all companies; hence it can be concluded that the reputational damage is mitigated by this fact and also the fact that Swiber has established long-term relationships with customers prior to such an event occurring, which makes it unlikely for the relationship to strain further. I view this as a one-off unfortunate incident for the Company, but it pays to observe if things will go as planned for 1Q 2009 with the eventual delivery of the 2 vessels. Mr. Raymond Goh did mention in the Business Times today that he does NOT forsee any more delivery problems as “the situation has changed (from one of over-capacity in the yard) to one whereby the yards are more desperate for work now”.
Balance Sheet Review
Read more...
[/caption]
On February 28, 2009, Swiber released their FY 2008 financials, and basically dropped a bombshell on shareholders – there were delays in the deliveries of 2 vessels which ultimately meant that project work on some contracts could not be completed in time, resulting in higher costs recognized without associated revenues. The effect of this was a plunge from a net profit to a net loss for 4Q 2008, which dragged down the performance for the entire FY 2008.
After going through the numbers, facts and figures, below is my analysis of the situation and comments on whether the Company can steer through the difficulties it is currently facing, and also to determine if this surprise loss is a one-off incident, or may likely occur again in future. As shareholders and investors, we should be most concerned about what our asset (business) is doing and whether it can continue to give us steady returns over the long-term.
Profit and Loss Analysis
As mentioned, the 4Q 2008 numbers are not pretty mainly due to the late deliveries of 2 vessels – Swiber Concorde (pipelay barge) and Swiber Supporter (dive support work barge). This resulted in delays in completing work for pipeline installation and subsea tie-in and led to increased cost of goods sold without associated revenue being recognized. In addition, a confluence of other factors such as higher sub-contracting costs for an offshore fabrication project as well as costs associated with rapid mobilization and de-mobilization of vessels to handle projects in different locations resulted in a gross loss of US$12.3 million (gross loss margin of 12%). Net loss margin for 4Q 2008 stood at 10.9% as a result too of higher administrative costs associated with increased staff strength due to the expansion of the company, but part of the costs were defrayed by the higher share of profits from associates Principia Asia and Swiwar Offshore. Finance costs rose about 150% due to the increase in bank loans and bonds taken up by the company to finance its capex requirements. This will be dealt with under the Balance Sheet analysis.
For FY 2008, gross margin compression caused gross margin to fall from 28.3% in FY 2007 to just 15% for FY 2008, principally due to the performance of the 4Q 2008. Stripping out exceptional gains from sale and leaseback transactions (S&L), net margin would have been 6.35% for FY 2008 against 18.5% for FY 2007, a drastic drop no doubt.
To put things in perspective, one has to analyze the factors behind this occurrence and put forward a conjecture on whether it is reasonable to assume that it is likely to occur again in the near future. According to the Company’s press release, the vessels which were delayed are slated to be delivered in 1Q 2009 instead, where they will then presumably be able to finish up the job and complete the projects. What was not mentioned though was the probable loss in confidence from their customers as a result of this fiasco, which would hurt Swiber’s reputation for timely project execution. While it can be argued that clients should understand that this credit crunch is unprecedented and was the principal cause for the shipyard’s delay, I would think that Swiber’s reputation would still be somewhat tarnished after this unfortunate incident. This may affect their ability to clinch new contracts and also strain relations with existing customers. However, the Company did announce US$70 million worth of new contracts clinched in the first 2 months of FY 2009; so one can infer that the reputational damage should be fairly contained and customers may dismiss it as a mere one-off incident. Shipyard delays make it difficult to schedule project work and Swiber must have felt this very keenly in 4Q 2008 when global trade financing came to a near standstill and freight rates also plunged. This caused problems for companies such as Ezra as well as they had to cancel their MSFV orders with Keppel Singmarine and Karmsund.
So it can be seen that the effects of the crunch have affected all companies; hence it can be concluded that the reputational damage is mitigated by this fact and also the fact that Swiber has established long-term relationships with customers prior to such an event occurring, which makes it unlikely for the relationship to strain further. I view this as a one-off unfortunate incident for the Company, but it pays to observe if things will go as planned for 1Q 2009 with the eventual delivery of the 2 vessels. Mr. Raymond Goh did mention in the Business Times today that he does NOT forsee any more delivery problems as “the situation has changed (from one of over-capacity in the yard) to one whereby the yards are more desperate for work now”.
Balance Sheet Review
Read more...
