Technics Oil & Gas Limited (SGX: 5CQ), Technics for short, released its 4th Quarter and full year 2013 results yesterday. Founded in 1990, Tehnics is a leading full service integrator of compression systems and process modules that are integrated to form the production and storage facilities for oil and gas exploration and production.
Operation Highlights
For the full year results that ended 30th September, Technics recorded a 73% plunge in revenue from S$149.73 million to S$40.96 million on a year-on-year basis. Correspondingly, net profit slumped S$33.23 million from S$23.18 million compared to the same period last year and ended in the red with –S$10.049 million.
This is mainly attributable to the spin-off of Norr Offshore Group Limited and a significant drop in the business coming from its subsidiaries. Other sources of income also declined considerably with interest income falling 94% against last year and the unrealised profit in foreign exchange (under “other credits”) was down 69%.
This loss was mitigated by the sharp decrease in overall expenses. Marketing and distribution costs were down from S$1.976 million to S$0.91 million. On the other hand, administrative expenses, a major part of the expenses, fell 39% from S$31.658 million to S$19.189 million.
Financial Position
Property, plant & equipment increased by S$3.22 million to S$43.21 million from S$39.99 million as at 30 September 2012. Trade and other payables decreased 41% to S$15.91 million from S$27.04 million in line with the decrease in project costs.
Under its cash consolidated statement, its cash and cash equivalents decreased by S$5.554 million to S$2.59 million as at 30 September 2013. $20.445 million in cash is pledged for bank facilities, resulting in a $25.986 million cash position in the balance sheet.
With accumulated losses amounting to S$8 million for the parent company and S$1.695 million for its non-controlling interests, no dividends have been declared. Net Asset Value per Unit also went down by 0.83 cents from S$0.74 in 2Q 2013 to S$0.73 in 3Q 2013 while its gearing ratio increased to 0.96 as at 30 September 2013 as compared to 0.86 as at 30 September 2012.
Disappointed results weigh on stock price
With the consecutive issuance of profit warnings, dampened investor sentiment led to a fall in its stock price by more than 35% over a one year period. In comparison, the Strait Times Index (SGX: ^STI saw a 4.4% gain in the same period.
On a positive note, customers of Technics, the oil and gas majors and leading FPSO operators, are maintaining a longer term perspectives on their operation requirements that will not be affected by the fluctuation of oil prices. Therefore, it is unlikely that there will be any changes to the delivery of existing contracts.
Rotary Engineering Ltd (SGX: R07), another player in the integrated engineering services, faced similar problems two years ago. However, the company has since emerged from the ashes as its share price soared 76.19% after implementing tough cost-cutting measures.
The 3 Numbers That Weigh Down Neptune Orient Lines
By David Kuo - November 29, 2013
There is something quite romantic about sailing into the sunset. There is also something quite romantic about soaring through the skies. But romance and finance don’t make for comfortable bedfellows, especially when it comes to investing in boats and planes.
The issue is high operational gearing. Airlines, such as Singapore Airlines (SGX: C6L) have notoriously high operational gearing, and so too do shipping companies such as Neptune Orient Lines (SGX: N03). In other words, these businesses have to recover high overheads before they can start making a profit.
High operational gearing has seen Neptune Orient Lines report losses in three out of the last four years. Consequently, its Return on Equity (RoE) has been less than stellar. At minus 20%, Neptune’s RoE in 2012 is, at best, disappointing.
The problem lies with its negative Net Income Margin of 4.4%. Things were not that much better in 2011, when Neptune reported a Net Income Margin of minus 5.2%. A negative Net Income Margin implies that the company is losing money on every dollar of sales it makes.
That said, Neptune, which can trace its roots back to 1801, is ultra-efficient. Its Asset Turnover of 1.2 is significantly better than the 30 companies that make up the Straits Times Index (SGX: ^STI). In 2012, the Asset Turnover for Singapore’s blue chips was just 0.5. In other words, they generated 50 cents of sales for every dollar of asset employed. Neptune managed to generate $1.30 of revenue for every dollar of asset employed.
Neptune, however, requires a hefty dollop of debt to keep it afloat. Its Leverage Ratio of 3.6 is more than three times higher than the market average.
By unloading Neptune’s Return on Equity, it is easy to see what is weighing it down. Its minus RoE of 20% is the product of a negative Net Income Margin of 4.4%; an ultra-efficient Asset Turnover of 1.3 and a good blob of Leverage Ratio of 3.6.
However, Neptune showed what it is capable of delivering when conditions are favourable. In 2010, it delivered a Return on Equity of 15% simply because Net Income Margin improved. That is the attractive flipside of high operational gearing.
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