HAD MENCAST Holdings not forayed into offshore & structure fabrication and topside & subsea services via acquisitions, its 1H2011 revenues would have dived 12.5% instead of surging 60.9% year-on-year to S$24.4 million.
Affected by subdued shipping freight rates and newbuilding demand, the group's 1H11 gross margins had eased off some 12.6 percentage points to 43.8% due to competitive pricing of stern gear equipment. However, maiden contribution from the new subsidiaries offsetted the earnings contraction.
In May, Mencast acquired for S$24 million Top Great Engineering & Marine, a market leader in providing engineering design, procurement, fabrication and installation of structural and precision engineering systems and plants with factories in Malaysia, Indonesia and Oman.
In Jun, it acquired for S$14.85 million Unidive Marine Services, which provides topside rope access and subsea diving services for the marine industry, particularly in inspections, repairs and maintenance.
The new subsidiaries contributed 45.6% to 1H2011 group revenue.
”Unidive is the only company that offers diving services for subsea inspection, repair and maintenance,” said Mencast CEO Glenndle Sim at an investor briefing yesterday.
”We have 60 divers now. Diving, cutting, welding, casting as an integrated service is our process design innovation,” he added.
Since the acquisition, contracts that Unidive has secured are:
(1) Commencing in Jun, a 2-year contract worth S$5.18 million from Keppel FELS for fabrication, installation and completion works and services for jack-up derricks
(2) Commencing in Aug, a one-year contract from Shell Eastern Petroleum for the provision of underwater inspection, repair and maintenance services
Mencast generated net earnings attributable to shareholders of S$5.4 million in 1H2011. Net margins were 22.2%.
Order books were S$18.7 million as at 30 Jun (stern gears S$8.3 million, S$5.2 million offshore & structure fabrication, S$5.2 million topside & subsea services).
Below is a summary of questions raised at the investor briefing and replies provided by Mr Sim.
Q: Did you know Top Great and Unidive when you acquired them?
For Top Great, I have known its founder Mr Wong Boon Huat for 15 years and we worked together at Otto Marine's shipyard.
For Unidive, its founder Mr Edwin Tan was my diving instructor at MINDEF’s naval diving unit (NDU). Edwin has worked for Keppel and we recently announced several contracts. He is also the chairman of the Commercial Diving Association (Singapore).
Recently, we secured a one-plus-four [year] maintenance program for Shell Bukom, which has been dominated by Sembawang Offshore Salvage for the past 23 years. This shows our determination in our marine and offshore maintenance, repair and overhaul (MMRO) crusade.
Q: How much does the danger of diving and rope access affect your business?
We build the insurance premiums into our quotations. We have a cost-plus revenue model and the premiums are marginal. The customer has the alternative of using scaffolding, which uses cranes, and requires logistics to take the scaffolding in and out.
Q: How were your financials affected when you consolidated your two new subsidiaries?
The margins are about the same for the new segments. Receivables have increased temporarily because there were a few big jobs done at the end of May and early June.
Q: How has your market potential changed with your 2 new business segments?
We were serving shipyards for newbuildings but we want to expand to also be a MMRO player for the oil & gas sector. Now we offer rope access to topsides and do underwater diving to check and replace the thrusters.
This allows us to gain access to a wider network of potential customers like Hyundai, NYK, Evergreen, Samsung, NOL and other large shipping companies that want our integrated diving, cutting, welding and fleet management services.
In oil and gas, there are three sub-sectors: logistic companies like Ezra and Swiber, production drilling companies like Haliburton, Cameron and Schlumberger and there are the rig managers like Diamond, Seadrill, Transocean and Petrobras.
We already serve the logistic players and we are targeting the other two sub-sectors.
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