Otto Marine's GO Phoenix will be deployed to Australia early next month in search of the missing Malaysia Airlines plane MH370. The AHTS vessel is operated by Otto Marine's wholly-owned subsidiary, GO Marine Group. Company photo
“The upcoming quarters are looking very promising for Otto Marine," said CEO Garrick Stanley. "It's the bottomline that we are very focused on."
Photo by Leong Chan Teik OTTO MARINE’S focus on improving its chartering fleet has been paying off.
“We are focusing on offshore support vessels of larger capacity to support the deep water segment of the market which, historically for the company, has seen return higher margins and utilisation,” said Otto Marine CEO Garrick Stanley during an exclusive interview with NextInsight recently.
At its shipyard in Batam, moving away from the previous core business of newbuilding to doing repair and fabrication means higher margins, better cashflow and bottom line growth but lower revenue, said Mr Stanley.
The Group’s 2QFY2014 gross profit was up a whopping 82.7% at US$27.2 million.
Net profit was US$16.9 million, reversing the net losses in 4QFY2013 and 1QFY2014.
2QFY2014 gross profit margin more than doubled to 24.3% (from 11.2% in 2QFY2013), with margin improvement across all segments.
The Group has been securing more long term charter contracts with marginal increases in charter rates.
Its outstanding offshore chartering contracts were worth US$450 million as at 30 June with average contract tenor at 3 to 5 years.
Of this, US$404 millon worth of contracts were secured during the first half of this year.
“The upcoming quarters are looking very promising for Otto Marine," said Mr Stanley. "It's the bottomline we are very focused on."
"Recent awards in Australia and Indonesia for our large anchor handers will boost the bottom line.
"We are very pleased to be supporting the search for MH 370 using the GO Pheonix ( 21,000 BHP AHTS ) in the coming months," he added.
Chartering high spec vessels
Otto Marine has an offshore chartering fleet of about 60 vessels which range from anchor handlers, platform support vessels, multi-purpose supply vessels, work maintenance vessels to tugs and barges.
Its high-specification large tonnage deep-water offshore support vessels are also deployed in the harsh North Sea environment.
Its other vessels are deployed in Australia, as well as East and West Africa, Asia and Australia.
2QFY2014 gross profit from shipping more than doubled (up 121% y-o-y) to US$17.2 million due to better utilization of vessels.
The GO Electra is a diving support vessel operated by GO Sea Energy, a joint venture company in the North Sea in which Otto Marine owns 49%. Go Sea Energy operates the Group's assets in the region. Company photo
Otto Marine has 5 vessels providing subsea and related services.
These high tech vessels are deployed for the inspection, repair and maintenance of subsea facilities and installations.
2QFY2014 gross profit from provision of subsea services surged to US$3.8 million (from US$305,000) due to vessel deployment in higher-margin projects and the addition of one vessel to the fleet.
"There's a lot more sub-sea infrastructure in the oil & gas business now, and there is increasing demand for subsea inspection, maintenance and repair. It is a tightening market around the world for this service," said Mr Stanley.
2QFY2014 gross profit from its shipyard decreased by 9.5% to US$6.2 million.
Its shipyard -- one of the largest in Batam -- is now primarily used third party ship repair and fabrication, as well as select newbuilds for the Indonesian market.
Given the concentration of oil & gas exploration and production activity in Southeast Asia, being in Batam is a competitive advantage for a shipyard offering repair and maintenance services.
As Mr Stanley explained, it would not make financial sense for, say, an anchor handling tug supply vessel with a daily charter rate of close to US$50,000 to sail 15 days from this region to use a low-cost ship repair facility in China.
Otto Marine has a newbuild program to replace existing chartered in vessels as well as select fleet expansion in key markets. This tonnage for the group is built in China shipyards which have a cost advantage and offer attractive financing packages.
However, for cabotage-related reasons Batam yards such as Otto Marine's have an advantage in constructing newbuilds which are to be deployed in Indonesian waters.
Since January this year, the Indonesian government has required offshore support vessels operating in Indonesian waters to be domestically owned, Indonesian-flagged and manned by Indonesians.
Cabotage legislation is expected to increase demand for newbuilds from Otto Marine's shipyard in Batam.
Four of the newbuild Ulstien PX 121 vessels under construction in China to be added to Otto Marine's chartering fleet. Company photo
Chartering fleet to drive growth
Otto Marine has eight vessels under construction in China currently – four platform supply vessels, two work accommodation / maintenance vessels and two subsea IMR vessels.
Charter rates for platform supply vessels have been increasing over the past 5 years with stable PSV-to-rig ratios.
As a result, the Group’s chartering revenue is expected to be boosted after it takes delivery of the vessels over the next 8 to 20 months.
“We intend to increase our owned fleet size as our balance sheet improves,” said Mr Stanley.
The Group's net gearing has improved from 2.3x as at end FY2012 to 1.7x as at 30 June 2014.
Earlier this month, the Group issued its second tranche (S$70 million) of unsecured notes under its 7% S$500 million multi-currency medium term note program due in July 2016.
Summing up, Mr Stanley said: "2014 is still a restructuring year for us, getting our fleet right, getting our large AHTS fully deployed, and realising the sale of smaller tonnage vessels, and increasing our ship repair business.
"We will also do some strategic acquisitions for our fleet. We have a more sustainable business going forward."
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