MISC Sees Rough Seas Ahead As Operating Profit Down 39%

MISC Sees Rough Seas Ahead As Operating Profit Down 39% | Hellenic Shipping News Worldwide

in International Shipping News 23/02/2019

Group revenue of RM2,388.5 million was 3.1% lower than the quarter ended 31 December 2017 (“corresponding quarter”) revenue of RM2,465.0 million, while Group operating profit of RM381.4 million was RM246.9 million lower than the corresponding quarter’s profit of RM628.3 million. The variances in Group performance by segment are further explained below.

LNG
Revenue of RM562.3 million was RM114.4 million or 16.9% lower than the corresponding quarter’s revenue of RM676.7 million, mainly due to lower earning days following a commercial arrangement with client to temporarily suspend a charter contract and resume the charter in the future, to be compensated with a longer contract period. The decrease in revenue is partially negated with lower dry-docking days in the current quarter. Operating profit of RM186.2 million was RM54.3 million or 41.2% higher than the corresponding quarter’s profit of RM131.9 million, mainly due to lower dry-docking days and reversal of provision for receivables in current quarter.

Image: MISC Berhad

Petroleum
Revenue of RM1,278.3 million was RM103.8 million or 8.8% higher than the corresponding quarter’s revenue of RM1,174.5 million resulting from higher freight rates. Operating profit of RM108.6 million was RM64.5 million higher than corresponding quarter’s profit of RM44.1 million, from higher freight rates as explained above.

Offshore
Revenue of RM274.7 million was RM171.5 million or 38.4% lower than the corresponding quarter’s revenue of RM446.2 million as corresponding quarter included revenue from construction of Floating, Storage and Offloading (“FSO”) Benchamas 2 which was completed in May 2018. The reduction in revenue is softened by the charter commencement of FSO Mekar Bergading in August 2018. Operating profit of RM122.3 million was RM232.2 million lower than corresponding quarter’s profit of RM354.5 million, as the corresponding quarter’s profit included reversal of provision for receivables and construction gain from FSO Benchamas 2.

Heavy Engineering
Revenue of RM272.2 million was RM21.9 million or 8.7% higher than the corresponding quarter’s revenue of RM250.3 million, mainly due to higher revenue from an ongoing project and commencement of a new order intake in the current quarter. Heavy Engineering segment recorded operating loss of RM30.3 million compared to corresponding quarter’s profit of RM24.8 million, mainly due to insufficient dry-docking works to absorb fixed overheads and compressed margins for drydocking activities in the current quarter as well as close-out of a significant project in the corresponding quarter.

Others, Eliminations and Adjustments
Other segment recorded operating loss of RM5.4 million compared to corresponding quarter’s profit of RM73.0 million mainly due to higher interest income and foreign exchange gain in the corresponding quarter coupled with fair value loss on other investments in current quarter.

Current year performance against the year ended 31 December 2017
Group revenue of RM8,780.3 million was 12.8% lower than RM10,068.2 million revenue for the year ended 31 December (“corresponding year”). Group operating profit of RM1,466.3 million was 45.8% lower than the corresponding year’s profit of RM2,705.1 million. The variances in Group performance by segment are further explained below.

LNG
LNG revenue of RM2,346.3 million was RM516.1 million or 18.0% lower than the corresponding year’s revenue of RM2,862.4 million, mainly due to reduced number of operating vessels following expiry of a charter contract in June 2017 and suspension of a charter contract in current year coupled with lower charter rate following contract renewal of an LNG carrier in October 2017.

The drop in revenue was softened by the commencement of time charter contracts for two (2) LNG Carriers in current year and one (1) LNG Carrier in August 2017. LNG operating profit of RM985.4 million was RM436.9 million or 30.7% lower than the corresponding year’s profit of RM1,422.3 million, mainly due to lower revenue as explained above and as the corresponding year’s profit included recognition of compensation for early termination of a time charter contract.

Petroleum
Petroleum revenue of RM4,312.9 million was RM198.8 million or 4.4% lower than the corresponding year’s revenue of RM4,511.7 million, mainly due to the strengthening of Ringgit Malaysia (“RM”) against United States Dollar (“USD”) as follows:

Operationally, Petroleum recorded higher freight rates and higher earning days from delivery of 2 Aframax and 2 Suezmax vessels in the current year.

Petroleum recorded operating loss of RM12.4 million compared to corresponding year’s profit of RM46.9 million, mainly due to higher bunker costs.

Offshore
Revenue of RM1,196.0 million was RM700.1 million or 36.9% lower than the corresponding year’s revenue of RM1,896.1 million, as the corresponding year’s revenue included recognition of one time gain from favourable adjudication decision on Gumusut-Kakap Semi-Floating Production System (L) Limited (“GKL”) variation works and lower construction revenue for FSO Benchamas 2 in the current year from different phase of project construction.

Offshore operating profit of RM558.7 million was RM571.0 million or 50.5% lower than the corresponding year’s profit of RM1,129.7 million, mainly from lower revenue in GKL following favourable adjudication results in corresponding year and lower construction gain for FSO Benchamas 2 in the current year.

Image: MISC Berhad

Heavy Engineering
Heavy Engineering revenue of RM974.3 million was RM15.4 million or 1.6% higher than the corresponding year’s revenue of RM958.9 million mainly from higher revenue from ongoing projects in the current year.

Heavy Engineering recorded operating loss of RM124.6 million compared to corresponding year’s profit of RM15.3 million mainly due to close-out of completed projects in the prior year and insufficient contribution to absorb fixed overheads in the current year. This arose from lower LNG dry-docking activities coupled with suppressed margins from other marine works.

Others, Eliminations and Adjustments
Other segment’s operating profit for the period of RM59.2 million was RM31.7 million lower than corresponding period’s profit of RM90.9 million. This was mainly because the corresponding year’s profit included reversal of provision following early termination of charter-in contracts for three container vessels. The vessels were previously chartered in for the liner business.

B2. COMPARISON WITH PRECEDING QUARTER’S RESULTS

Group revenue of RM2,388.5 million was RM159.3 million or 7.1% higher than the preceding quarter’s revenue of RM2,229.2 million, mainly from higher freight rates achieved in Petroleum segment.

Group operating profit of RM381.4 million was RM26.9 million or 7.6% higher than the preceding quarter’s profit of RM354.5 million, mainly from higher revenue as explained above.

B3. GROUP CURRENT YEAR PROSPECTS
The petroleum tanker spot market ended the year 2018 on a firmer note after a fragile start. However, 2019 is projected to be still another challenging year for tanker markets. Growth in seaborne oil demand is expected to be impacted by the recently announced OPEC-led production cuts, and geopolitical uncertainty continues to cloud future energy demand. Over the longer term, growth in tonne-miles that is driven by higher exports from the Atlantic region to Asia suggests a more robust outlook in charter rates.

The LNG segment is expected to continue to benefit from the market strength seen in 2018 going into 2019, supported by demand growth in Asia, additional supply from new liquefaction projects and slower LNG fleet growth in 2019. While the LNG spot rates reached a multi-year peak in late 2018, the sustainability of such rates remain uncertain in 2019.

Nevertheless, the existing portfolio of long term charters that are in place will underwrite a steady performance for MISC’s LNG shipping unit into the next financial year.

The offshore segment continues to be supported by healthy activities in oil and gas exploration and production. An increasing number of floating production system contract awards are forthcoming in the next few years and MISC’s Offshore business unit will be actively pursuing these opportunities. The two new assets added in 2018 will provide a source of income growth and support the financial performance for the unit in 2019.

The Heavy Engineering segment is not expecting further deferment by ship owners for dry -docking activities in the coming year in view of the forthcoming implementation of new rules by International Maritime Organisation (IMO). In 2018, the segment had secured a number of long term offshore fabrication frame agreements which are on a call-out basis. These are expected to contribute positively to the segment’s revenue in 2019 and beyond. The Heavy Engineering segment remains committed to replenish its order book, and efforts to ensure competitiveness of ongoing and future bids remains a priority.Full Report

Source: MISC