IMMOFINANZ AG – Earnings update

IMMOFINANZ AG – Earnings update

Earnings update 1Q16-ended 31-July-2016: revenue slipped 3.7% YoY to EUR 103.4m, which was due to drop in rental income in its major markets like Russia, Austria and Poland. EBIT dropped 3.6% YoY to EUR 45.3m, in line with reduced revenue growth.

For 1Q16, IMMOFINANZ reported a free cash flow of EUR 34.2m as compared to a burn of EUR 52.3m, which was a result of improved OCF and a 63.9% YoY decline in capital expenditure.


As per the balance sheet on 31 July 2016, the company had EUR 562.3m debt maturing in the coming twelve months against cash of EUR 795.2m.

Recent events: 9-June-16 – Sale of approx. 18.5m BUWOG shares to SAPINDA Group for EUR 352m. Proceeds to finance the acquisition of 26% stake in CA Immobilien Anlagen AG. Post this IMMOFINANZ will hold approx. 10m shares of BUWOG, which will be used to service the convertible bonds issued by the company.


Ticker: IIA            ISIN: AT0000809058


Convertible bond 2007–2017 – XS0332046043

Convertible bond 2011–2018 – XS0592528870

Corporate bond 2012–2017 – AT0000A0VDP8


19 December 16 — 1H16 results

(Source: IMMOFINANZ AG, Rsquaredanalytics)


Solstad Offshore FY2015 earnings review

Solstad Offshore the Norwegian offshore vessel contractor, amidst a major debt restructuring, as it repaid its NOK 700m senior unsecured FRN’s due on 25 February 2016. Furthermore, as per the company’s 4Q15 earnings presentations, Solstad had successfully refinanced 65% and 75% of its mortgage debt maturing 2016 and 2017.  In addition to this, Solstsad was undergoing refinancing discussions for the reminder 35% and 25% of its mortgage debt, while debt under joint-ventures was progressing as scheduled. Furthermore, the company’s earnings presentation also stated that, the financing of its CSV ship Normand Maximus was progressing as planned. As earlier in end-FY14 Solstad’s management had stated that the ship was due for commissioning in June 2016 with USD 340m payment due.



As of 31 December 2015, Solstad’s net debt increased to NOK 10.8bn as compared to NOK 10.3bn, which may have been due to appreciation of USD against the Norwegian Krone. As company’s debt exposure comprised of 50% USD, 41% NOK and 9% GBP. This coupled with 9.4% YoY decline in EBITDA led net leverage to increase to 6.93x at end-FY15 versus 5.99x at end-FY14.

Solstad reported a 4.6% YoY decline in revenue to NOK 3.7bn, largely due to decline in contributions from its anchor-handling (AHTS) and platform-supply (PSV) segments. Moreover, lower contractual demands for AHTS and PSV vessels led Soldstad to put nine vessels in lay-ups (5 AHT’s & 4 PSV’s), which lowered segmental revenue by 30.7% YoY and 19.9% YoY respectively.  On the other hand, construction service vessels (CSV) continued to be a bright spot and a main driver for growth, as in FY15 CSV revenues increased 16.6% YoY to NOK 2.4bn largely driven by existing back-log’s.


Aforementioned decline in revenue, coupled with an impairment charge of NOK 1.3bn recorded during the period and 2.9% YoY increase in personnel expense led EBITDA to decline 9.4% YoY to NOK 1.6bn. This led operating cash flow to decline 42.5% YoY to NOK 870m. FCF stood at NOK 742m as compared to a cash burn of NOK 900m, on account of lower capex in FY15. Capex was higher in FY14 due delivery of two large CSV’s in June and July 2014.

Fleet review: As of 22 February 2016, Solstad’s fleet consisted of 44 vessels: 19 CVS (1 new built), 15 AHTS and 9 PSV. During FY15, the company had 13 vessels in lay-ups. Furthermore, these vessels had a firm contract coverage of NOK 2.8bn representing 41% available days for 2016. Contract coverage including options stood at NOK 3.2bn representing 48% available days in 2016. As of 31 December 2015, Solstad’s fleet value based on broker valuation stood at NOK 19bn as compared to NOK 20bn at end-FY14.




Source: Solstad Offshore, Rsquaredanalytics


Ocean Rig to end relationship with Dryships by buying back the remainder 40% stake, although operational woes continue.

Ocean Rig UDW Inc. (NASDAQ:ORIG), the Norwegian offshore drilling contractor has agreed to buy all of Dryships’ shares in Ocean Rig for total cash consideration of approximately USD 49.9m via its newly created unrestricted subsidiary, Ocean Rig Investments. Post this transaction, Dryships will not hold any economic or equity interest in Ocean Rig. This move suggests that Mr. George Economou, the CEO of Ocean Rig and Dryships is acting in favor of the former. The company had announced in its 4Q15 investor call that it has created a new subsidiary and earmarked USD 180m for distressed buys. As such, the share acquisition will remove USD 50m from the USD 180m available in the subsidiary. While, USD 130m balance amount could be used for debt repurchases.

Huge Debt load: During 2015, Ocean Rig capitalised on low bond prices to buy back bonds at a discount. Although the company had decided to close its buyback program after 4Q15, it announced on its recent investor call that it would continue bond buybacks considering the low prices and company’s huge debt load of USD 4.3bn, with 608m outstanding under its USD 800m senior secured notes due October 2017. Net debt as at end-FY15 stood at USD 3.59bn vs USD 3.84bn in FY14 with corresponding leverage improving to 3.34x in FY15 (FY14: 4.00x). While Ocean Rig does not have any short-term maturities in 2016, the company depends solely on cash balance of USD 735m to meet its liquidity requirements given its senior credit facility is fully drawn. Earlier in July 2015, management suspended its quarterly dividend distributions to save cash until market conditions improve. In Feb 2016, S&P downgraded Ocean Rig to CCC+ from B- due to unsustainable capital structure considering recent contract cancellations. While, in December 2015, Moody’s also downgraded Ocean Rig’s corporate family rating (CFR) to Caa2 from Caa1 on account of high leverage in light of current business conditions and increased liquidity pressures that the company may face over the next two years.



Contract Cancellations: Since the start of 2016, Ocean rig has received early termination notices from ENI Angola SpA, Premier Oil and Total E&P for Ocean rig Olympia, Erik Raude and Ocean rig Apollo, respectively. The company has commenced arbitration proceedings for early termination and will get termination fees for its cancellations. However, it will not get any lump sum amount this year but would receive the payments in installments. On the other hand, the company signed a drilling contract on 7th March 2016 for Leiv Eiriksson with Lundin Norway AS. The drilling contract is for a minimum of three wells, for drilling offshore Norway, with an estimated backlog of around USD 23.6m and is scheduled to commence drilling from 3Q16.


Fleet Status: As at 30 March 2016, the company had a contract backlog of USD 2.6bn running through 18 months. The company currently has seven rigs having firm contract while three rigs are without any contracts and are marketed. Additionally, it also has three newbuilds which are scheduled to deliver in 2Q17, 1Q18 and 1Q19 and haven’t secured any contracts yet. As such, with 6 rigs currently looking for employment and rest contracted just until end- 2017, the company has to accelerate efforts to secure work for its rigs or face restructuring.

Earnings to deteriorate: FY15 revenue slide 3.8% YoY to USD 1.74bn due to decreased utilization of the rigs. However, thanks to cost saving initiatives by the company, drilling operational expenses went down 20% YoY to USD 582m resulting in 11.8% rise in adj. EBITDA to USD 1.07bn, while adj. EBITDA margin grew 857 basis points to 61.5% in FY15. The company has been on an expansionary spree since 2011, adding eight rigs to its fleet through 2015 vs a fleet of just two in 2010. However, in light of the difficult macro environment with three existing rigs losing contract this year and just 55% contract coverage in 2017, Ocean Rig is pressing hard to defer delivery of its new-builds. This indicates revenue to drop significantly in the coming years.

Heavy capital spending: Despite strong adj. EBITDA and operational cash flows (OCF) growth over the past few years, Ocean Rig has been free cash flow (FCF) negative due to heavy capital spending on its new-builds. During FY15, FCF improved to negative USD 51m compared to negative USD 228m in FY14 due to 26% rise in OCF and 15 % reduction capex to USD 634m. According to management, the company is in talks with shipyards to defer the deliveries of its new build even further as it would require the company to shell out approximately USD 1.8bn by 2019.

In conclusion:  Despite having a young fleet, the company will have to accept lower day rate contracts in future to service its debt. Going forward, the company plans to remain focused on reducing operating costs and make conservative use of cash in hand. Looking into 2017, with just 55% contract coverage and circa USD 600m of debt repayment, the company will be hard pressed to defer its newbuilds and gain contracts for its fleet. If the company fails to gain any contract this year and enters 2017 with just four rigs, the long term view for the company looks gloomy and would lead to restructuring.


(Source: Ocean Rig UDW Inc)

Songa Offshore announces debt restructuring; summons bondholders to approve amendments

Songa Offshore, the Cyprus-based offshore driller has announced plans to restructure its finances by offering a convertible bond of USD 100m with an option to upsize to USD 125m, raising fresh equity of up to USD 25m at NOK 0.15 per share, and amending the terms and conditions of existing bonds and loans. Further, the proposed refinancing includes a full conversion of the existing USD 150m convertible bond SONG06 to equity at NOK 0.176 per share. The plan also includes significant interest reductions, maturity extensions, covenant relief through 2Q18 and other amendments to SONG04, SONG05 and the Perestroika shareholder loan, as well as amendments to the company’s secured debt facilities. On 22 March 2016, the company has summoned bondholder’s meeting to be scheduled on 11 April 2016 to approve amendments. (For details refer refinancing term sheet)

USD 91.5m bridge bond: On 17 March 2016, the company announced a drawdown on the bridge bond of USD 91.5m, which will later be converted into the previously announced new convertible bond following the required resolutions by an extraordinary general meeting (EGM).  As mentioned in the company’s 4Q15 report, a liquidity gap had arisen due to lower than anticipated initial utilisation of Songa Equinox and Songa Endurance, delayed rig deliveries, and cash deposit requirements in the bank financing related to Songa Encourage and Songa Enabler.

Songa confident of gaining approval: The refinancing is subject to approval by sufficient majorities in the EGM and the respective bondholders′ meetings. The company stated that it has received irrevocable undertakings to vote in-favour of the proposed refinancing amounting to 71%, 72%, and 78% of the voting bonds in SONG04, SONG05, and SONG06 respectively. In addition, the company′s majority shareholder, Perestroika AS, and certain other shareholders, have confirmed that they will vote in favour of the required resolutions at the EGM.  The holders of shares and bonds issued by the company are likely to approve the restructuring as the entire offshore industry is struggling and can atleast recover their money when the market turns. While, rejecting the proposal could risk the future of the company resulting to significant losses to the holders.



Fleet Status: Songa Equinox and Songa Endurance were delivered from DSME on 30 Jun 2015 and 24 Aug 2015 and commenced operations for Statoil on Troll field from 7 Dec 2015 and 31 Dec 2015, respectively. As reported by the company in its latest fleet status report dated 21 March 2016, both the rigs operated with an earnings efficiency of 98% for the last three weeks. Further, Songa Encourage is expected to arrive in Bergen on 15 March 2016 and commence drilling operations in April 2016. The delivery of Songa Enabler is expected to take place end of March and the rig is scheduled to commence drilling operations in August 2016 for Statoil. Songa Dee and Songa Delta are also contracted for Statoil until 3Q16 while Songa Trym is currently idle and is being marketed. All in all, the company has long term contracts with Statoil for four out of seven rigs and two rigs will be off contract after 3Q16, while, Songa Trym is warm stacked. Although, the company poses a high risk of customer concentration it has a strong order backlog of USD 5.9bn through firm contracts and USD 8.3bn in options.


 Cat D Arbitration Case with DSME: Previously in July and November 2015, Songa had received arbitration notices regarding cost overruns in respect of the construction contracts for the CAT D rigs from DSME. In this regards, on 18 March 2016, Songa Offshore submitted its defence in the arbitrations and submitted counterclaims in respect of the rigs for the aggregate amount of USD 65.8m. The company further stated that DSME is solely responsible for the delays to the rigs and any attempt by DSME to recover cost overruns has no merit due to the turn-key nature of the construction contracts.

 FY15 results: Full year 2015 saw a modest rise of 3.8% YoY in revenue to USD 513m due to Songa Trym contract cancellation fee of USD 41.1m and revenue contribution from Songa Equinox from 7 Dec 2015.The company has closed offices in South Korea and Scotland, and plans to reduce 200 onshore jobs as part of its corporate restructuring program in light of depressed offshore drilling market, owing to falling crude prices. The company plans shift the support function from the offices in South Korea and Scotland to Norway, while the job cuts will save the around USD 30m annually.  Further, the management also plans to rightsize operating and staff organisations in Cyprus and Norway. FY15 adjusted EBITDA increased 43% YoY to USD 281m with corresponding margin increasing to 54.8% vs 39.7% last year. Operating cash flow in FY15 increased 240% YoY to USD 144m versus USD 42m last year largely due to aforementioned increase in adjusted EBITDA. However, humongous capital sending on the new builds delivery of USD 1.6bn resulted to a negative free cash of USD 1.5bn in FY15. Net debt increased to USD 2.2bn compared to USD 771m at end-FY14. As a result net leverage doubled to 7.91x vs 3.92x at end-FY14.

In conclusion: Songa offshore which is currently under a transformation phase should benefit from the proposed restructuring as it will cure the company’s liquidity needs and safeguard smooth operations of its drilling contracts for Statoil and will provide medium term stability by uniquely positioning  Songa Offshore compared to its peer contractors through the current market downturn.


(Source: Songa Offshore; rsquaredanalytics)

Weir Plc’s 38.7% YoY drop in EBITDA elevates net leverage to 2.5x

Weir Group Plc, the United Kingdom based designer and manufacturer of high-end engineering products and services in FY15 reported 21.3% YoY decline in its revenue to GBP 1.98bn, as order input declined across all its segments.  During the period overall order input were down 24.3% YoY to GBP 1.87bn; with cuts seen in its oil and gas segment which was down 48% YoY, while the power and industrial, and minerals segment reported a decline of 11% YoY and 9% YoY respectively. Following this company stated EBITDA dropped 38.7% YoY to GBP 330m, which pushed net leverage up to 2.5x in FY15 as compared to 1.6x in FY14. Giving the weak trading conditions and deteriorating financial matrices, Moody’s on 29 February 2016 downgraded Weir to Baa3 from Baa1 with outlook negative.

Covenant summary:

  • Net debt/EBITDA < 3.5x (Actual FY15: 2.5x; FY14: 1.6x; FY13:1.5x) FY6 net debt/EBITDA in-line with FY15 is based on the following assumptions: dividend payout same as FY15, successful asset disposal of GBP 100m.
  • Interest cover >3.5x (Actual FY15: 7.3x; FY14: 12x; FY13:10.4x)

OCF reduced 40.5% YoY to GBP 309m due aforementioned decline in EBITDA. As a result of this FCF declined 48.5% YoY to GBP 180m, which was despite 14.7% YoY deduction in capex spend. Management has guided capex for FY16 to be capped at c.GBP 65m.

During the period total liquidity comprised of cash and cash equivalent which stood at GBP 184m. In addition to this Weir also had access to GBP 800m in revolving credit facilities; however the company has not disclosed the actual availability under the RCF. The company has no significant debt maturing until 2018 and 2019.




2016 Outlook:

  • The Company expect further decline in capital expenditure from its customers across all its segments, with revenue in its minerals and, oil and gas segment expected to decline slightly on a constant currency basis, while likely to remain flat in its power and industrial segment. Moreover margins may be supported through the a GBP 40m in identified cost-saving, which are in addition to GBP 45m (c. GBP 25m expected in FY16) due to the cost-saving activities done in FY15.
  • Weir expects to realize GBP 100m through disposal of non-core assets.
  • Capped CAPEX at c. GBP 65m (1.0x depreciation)


Seadrill’s cost preservation programme boosts adj. EBITDA margin to 55.9% in FY15; however huge debt load maturing in FY16-17 has forced the company to hire a financial adviser.

Seadrill Ltd (SDRL: NYSE), the Norwegian offshore drilling company presented its FY15 results on 26 February, reporting a 13.2% YoY decline in revenue to USD 4.3bn due to prolonged downturn in the offshore drilling market, resulting in higher idle time and lower day rates for certain rigs. Adjusted EBITDA saw a 5.8% YoY drop to USD 2.5bn which was in line with the company’s guidance. Yet, thanks to the ongoing cost saving programme initiated by Seadrill in 2014, adjusted EBITDA margin improved to 55.9% versus 51.5% in FY14. Seadrill did extremely well on the cost preservation front by achieving USD 832m of cash saving, exceeding its target of USD 600m for FY15. However, the main concerns for Seadrill, is its USD 10.5bn debt load, of which 4.5bn is maturing by 2017, coupled with circa USD 3bn of capex requirement through 2017. As stated in its 4Q15 conference call, Seadrill has hired financial advisors to evaluate suitable options in-light with the current market conditions, which could help the company tackle its liquidity needs and is expected to communicate its plans sometime in 1H16.

Operating cash flow for FY15 was up 13.6% YoY to USD 1.8bn from USD 1.6bn in FY14 thanks to positive changes in operating assets and liabilities, which generated USD 82m cash versus USD 418m cash used in FY14. In addition, capex for the period plunged 67.5% to USD 935m vs USD 2.8bn in 2014, as Seadrill deferred delivery of vessels to 2016 and beyond. Following this, FY15 free cash flow turned positive to USD 828m from negative USD 1.4bn last year.

New built update:  In January 2016, Seadrill successfully deferred delivery of two ultra-deepwater drillships, the West Aquila and West Libra, to 2Q18 and 1Q19, respectively, from 2Q16 previously. As a result, the company’s near-term liquidity has improved as the final yard instalment for both units of about USD 800m has also been deferred until the delivery dates. As per the 4Q15 call, Seadrill is in discussion with Dalian shipyard regarding deferral of the 8 jack-up drills, as it has mentioned that it does not plan to take delivery of any rigs during 2016. Further, Seadrill’s subsidiary, North Atlantic Drilling Ltd (NADL), signed a standstill agreement with Jurong Shipyard (Jurong) and deferred delivery of the West Rigel drill rig (scheduled in December 2015) until June 2016. However, if NADL fails to get the unit contracted until June 2016, it will form a joint asset holding company for joint ownership of the unit with Jurong holding 77% and NADL 23%. Consequently, Seadrill has removed West Rigel from its newbuilds and future capex, and is now classified as an asset held for sale. Seadrill’s another subsidiary, Sevan Drilling, exercised a six-month option for the first time to extend the deferral agreement with Cosco Shipyard to 15 April 2016 and amend the terms relating to instalment payments.

As of FY15, Seadrill had 38 rigs of which 29 were operational. Furthermore, the company has 13 rigs rolling off contract in 2016 and 11 rigs in 2017, which will substantially impact Seadrill’s future revenue and EBITDA generation. Moreover, it does not have any contracts for 13 rigs that are currently under construction. Despite sufficient headroom under its net leverage covenant, which stood at 3.58x in FY15 against a test of 6.00x, it may face problems in 2016 depending on how successfully it shields its EBITDA decline and efforts to defer its new-builds, as these factors could require Seadrill to take additional debt to finance those rigs. As at 24 February 2016, Seadrill had an order backlog of USD 5.1bn, comprising USD 3.9bn for its floater fleet and USD 1.2bn for its jack-up fleet, with average contract duration of 18 months and 13months, respectively. For FY16 the company has contracted revenue guidance of USD 2.3bn and 1Q16 adj. EBITDA is estimated to be around USD 450m. Considering, an average of the last 3 year adj. EBITDA margin of 53%, FY16 EBITDA could be around USD 1.2bn which may lead to a breach in net leverage covenant in FY16. Hence, the company may need to ask for an amendment to its covenants or a waiver in the coming quarters.

Covenant summary: In May 2015, the company amended its covenants under the senior secured credit facilities. Under the amended terms, the permitted net leverage ratio has been amended to the following:

  • A test of 6.00x from 2Q15 to 3Q16
  • A test of 5.50x for FY16
  • A test of 4.50x from 1Q17 onwards.

The company also has an interest coverage ratio covenant of >2.50x for all periods tested quarterly and a minimum liquidity test of USD 150m amongst others.


In addition to the debt guarantees provided by Seadrill to its subsidiary North Atlantic Drilling Limited (NADL) in 2015, Seadrill has further agreed to provide new financing of up to USD 75m to its affiliate, Archer Limited, by 30 April 2016 if the latter does not have sufficient funds for repayment and cancellation of commitments under the multi-currency revolving facility agreement. The company has complex debt agreements with its subsidiaries along with a cross-default risk. On 1 March 2016, Moody’s downgraded the corporate rating of Seadrill Partners (SDPL), an affiliate of Seadrill, to Caa2 from B2, reflecting continued weakness in the offshore drilling industry and the company’s substantial funding requirements through 2017. Earlier in December 2015, S&P had also downgraded SDPL to B from BB- citing similar reasons.


In August 2015, Seadrill entered into a five-year USD 450m senior secured facility and repaid the remaining USD 21m outstanding under its USD 700m senior secured facility and USD 350m 6.5% unsecured bond, both due in October 2015. Additionally, the company repurchased USD 51.8m of its USD 1bn 6.125% senior unsecured bond due September 2017, reducing total debt to USD 10.5bn at end-FY15 from USD 12.5bn at end-FY14. As at 31 December 2015, the company had USD 1.2bn of cash and cash equivalents (including restricted cash), as opposed to short-term maturities of USD 1.5bn (debt maturity amount includes scheduled debt amortisation payments). Further, Seadrill could receive some support from its major shareholder, John Fredriksen, who has started buying the company’s corporate bonds in December, as stated in an interview with Norwegian business daily, Dagens Naeringsliv. However, his support would be limited by the fact that, he has invested his own money and formed a new entity Sandbox, aimed at buying new builds which are ready at shipyards, when offshore drillers are finding it difficult to fund their new builds.

In conclusion, with limited shareholder support and approximately USD 7.5bn of capex and debt maturities to tackle through 2017, it is likely that Seadrill would opts for debt restructuring in the next 10-12 months in order to postpone its bond maturities and reduce bank loan amortisations. However, considering the fact that Seadrill is one of the biggest clients among offshore drillers for banks with USD 8.2bn of bank debt outstanding as at FY15 (78% of total FY15 debt), it might get support from its lending banks, as most industry players are struggling.

Business profile: Seadrill Ltd is a Norwegian-Bermudan provider of offshore drilling services. The company owns and operates 56 offshore drilling units, consisting of 13 semi-submersible rigs, nine drill ships, 21 jack-up rigs and 13under-construction tender rigs. Seadrill operates under three business segments: Floaters (65.1% FY15 total revenue), jack-up rigs (29.4%) and others (3.4%). As at 31 December 2015, the company had 7,103 employees.


Premier Oil’s FY15 top-line down 33% YoY due low oil prices and a slump in volumes; proposed acquisition of E.ON’s North Sea assets for USD 120m.

Premier Oil (PMO:L), the UK based oil and gas company, published its FY15 results on 25 February, reporting a 33% YoY drop in revenue to USD 1.1bn compared to USD 1.6bn in FY14 due to decrease in production volumes and low oil price scenario. During FY15 average production dropped 10% YoY to 57.6K barrels of oil equivalent per day (boepd) versus 63K boepd in FY14, due to portfolio rationalisation which commenced with the sale of the UK North Sea Scott area assets in December 2014, and sale of Block A Aceh in Indonesia and the Norwegian business during 2015. Consequently, following the top line decline, FY15 EBITDAX slumped 30% YoY to USD 752m. Earlier, in August 2015, Premier got its financial covenants amended through June 2017, in anticipation of weak earnings and a possible covenant breach. As per the amendment, Net Debt/EBITDAX test level was modified from 3.00x previously to 4.75x until FY16, 4.50x for 1H17, post which it returns to its pre-modified level of 3.00x for FY17. Similarly, interest coverage ratio test was amended to 3.00x until 1H17 and 4.00x in FY17. Net debt as at 31 December 2015 stood at USD 2.2bn, 5% higher compared to FY14, taking net debt/ EBITDAX for the period to 2.95x versus 1.97x in FY14.

In January 2016, Premier oil made an announcement to acquire E.ON’s oil and gas production assets in the North Sea for USD 120m plus working capital adjustments. The deal is said to be financed through the proceeds of USD 120m that Premier received in December 2015 from the aforementioned sale of its Norwegian assets, which were undeveloped oil fields and required further investment to commence production However, E.ON’s assets will immediately add around 15k boepd of oil and gas production to Premier’s output and boost its cash flows. Further, 1/3rd of E.ON liquid production is hedged at USD 97 per barrel which would benefit Premier in this oil price turmoil.  Moreover, operating cash flow from the new assets will not be taxed in the near future, as Premier has USD 3.5bn of historic tax losses it can set against UK production. However, in order to finalise the deal, Premier voluntarily suspended its share trading from 13 January 2016 to 31 January 2016, as the said acquisition was classified as a reverse takeover under the UK law. The transaction completion is still subject to approval by Premier’s shareholders in March or April and Premier’s lending group. Amongst other synergies, the acquisition would provide additional headroom on the amended covenants. As stated by Premier’s management, the E.ON deal should increase the group’s borrowing limit by around USD 500m in 2016.

Operating cash flow (OCF) for FY15 was down 12.4% YoY to USD 810m due to abovementioned drop in EBITDAX, while free cash flow improved to negative USD 54.7m versus negative USD 239m in FY14 owing to 17.1% decrease in capex and cash inflows owing to asset disposals during the year. Going forward, the company would continue to invest in its approved projects, Solan and Catcher which are expected to start production in 1Q16 and mid-2017, respectively. Further, the company is looking to reduce its capital costs and hence has put its unsanctioned projects under review. However, looking at the current oil prices it is less likely that Premier would generate enough cashflow to cover its capex spending in FY16 which is expected to be around USD 700m. This may require the company to make additional drawings under its credit lines during 2016. Although with the Catcher project expected to come on stream in 2017 and capex being reduced to USD 400m, a positive FCF is expected 2017 onwards.



As at 31 December 2015, the company reported liquidity of USD 1.2bn comprising of cash and undrawn credit facilities opposed to no significant maturities before 2017 when a USD 307m of repayment is due. Further, management also stated that it is in process of selling its Pakistan business which would increase liquidity in the short term but will stop the cash flow generated through these assets. Looking ahead, production for FY16 is expected to average 65-70k boepd including contribution from E.ON’s assets and the Solan project in the coming months. As a result, this incremental production and smart hedging is likely to support FY16 revenue of USD 1.3bn. The company also expects to save around USD 50m through reduction in opex and general and administrative expenses during FY16. In conclusion, integration of E.ON’s assets, timely delivery of its key projects, conservative capital spending and successfully shielding EBITDAX through cost cutting would determine the company’s fate in the next few years.


Project execution delays weigh heavily on Petrofac’s FY15 earnings performance;EBITDA down 66.5% YoY

On 24 February 2016 Petrofac (PFC:L) the mid-weight engineering, procurement and construction (EPC) provider, in its FY15- full year results showed a 9.7% YoY rise in revenue to USD 6.84bn largely supported by the growth in its ‘onshore engineering and construction’, and ‘engineering and consulting services’ segments. Above performance was due to increased number of projects reaching executing phase and positive impact relating to its Rabab Harweel project in Oman. However despite the revenue uptick EBITDA plunged 66.5% YoY to USD 313m largely due to the recognition of USD 480m impact arising from delays relating to its Laggan-Tormore project. Going forward Petrofac does not expect any further losses from the Laggan-Tormore project, due to the completion of the project. Pre-exceptional items Petrofac’s EBITDA would have still declined by 15.1% YoY to USD 794m, due 50.4% YoY and 30.8% YoY dip in EBITDA from the company’s ‘Integrated Energy Services’ and ‘Offshore Projects & Operations’ segments. Following this net leverage was up to 2.19x in FY15 as compared to 0.78x in FY14, this was despite 6.4% YoY decrease in net debt to USD 686m.


In FY15, OCF increased 3.2% YoY to USD 669m on account of positive working capital movement. In total changes in working capital movement contributed USD 602m in FY15 vs a burn of USD 60m in FY14. This coupled with a 45.1% YoY decrease in Group CAPEX led FCF to increase to USD 215m in FY15 as compared to a negative USD 179m in FY14.

As of 31 December 2015, total liquidity stood at approximately USD 1.8bn, which comprised of USD 1.1bn in cash and short-term deposits and around USD 660m available through syndicated revolving credit facility (RCF). Total liquidity along with above mentioned positive FCF generation should be enough to pay down USD 520m in short-term debt and guided 2016 CAPEX of approximately USD 300m

Covenant summary:

  • Net debt / EBITDA < 3x (Actual FY15: 2.19x; 4.97x )
  • EBITDA / interest cover of > 3 (Actual FY15: 3.40x)

Note: On account of aforementioned negative impact from the Laggan-Tormore project, prior to 31 December 2015, the Term Loan lenders granted a waiver of the leverage covenant for the year ending 31 December 2015 as a result of which Petrofac was in compliance with its financial covenant obligations for that period.

Company Outlook: Petrofac’s end-FY15 order backlog of USD 20.7bn gives good revenue visibility going into 2016. Moreover the company’s engineering, construction, operations & maintenance (ECOM) backlog was predominantly with middle-eastern national oil companies where CAPEX still continues to expand despite low oil prices. In addition to this the company will continue to improve operational and cost efficiencies through a targeted USD 90m in saving in 2016 versus USD 80m delivered in 2015.

backlogIn addition to the above net debt is expected to remain flat, with EBITDA generation in the range of USD 650m to USD 700m in FY16. CAPEX for FY16 is guided at USD 300m, which is expected to decline further in 2017, post the completion of the Greater Stella Area (GSA) project.summary

Weak 9M15 results led management to revisit full-year revenue guidance to USD 240m to USD 245m

Welltec the Denmark based provider of robotic intervention services and completion solutions to the oil and gas industry, is revisiting its full year revenue guidance to USD 240m-USD 245m (FY14: USD 345m) as the company’s earnings continued to deteriorate in the third quarter. In 9M15 Welltec topline declined 27.1% YoY to USD 194m impacted by volatile crude oil prices, low rig count and reduced capex spend my major customers. Resulting to this EBITDA also declined 38.7% YoY to USD 76m, while margins declining to 39.2% vs 46.7% in 9M14. For FY15, Welltec expects EBITDA-margins at around 39%. At end-3Q15, net leverage had increased further to 2.74x as compared to 1.81x in FY14, due to increase in bank borrowing and lower EBITDA growth.



In 9M14, cash flow from operating activities were down 42.8% YoY to USD 59.2m, leading free cash flow to decline 51.7% YoY to USD 23.3m, which was despite 32.1% YoY decline in CAPEX spending. Welltec’s current liquidity as of 30 September 2015 stood at USD 99m, comprising of USD 59m in cash and securities and the remain under its multi-currency revolving facility. Furthermore, in the absence of any-short-term debt and reducing capex spend, the current liquidity could cushion Welltec’s operations in the short-term. However with LTM c. USD 57.3m in combined capex and net financial expenses, coupled with the deteriorating free cash flow generation could stress the company’s current liquidity position.

As of 30 September 2015, Welltec employed on an average of 832 employees, with operations established in 29 countries.

Bakkavor in the midst of management reshuffle

Bakkavor Group, the United Kingdom based ready-to-eat meal provider, on 25 January 2016 seeded 89% ownership control to Bakk AL Holdings Limited, a company owned by founders Agust and Lydur Gudmundsson and external fund managed by The Baupost Group, L.L.C. The deal as per company press release was valued at GBP 163m. Agust and Lydur Gudmundsson, who own a controlling interest in Bakk AL Holdings Limited, will remain in their current roles as CEO and Chairman in Bakkavor.

The company in 9M15 had registered a top-line growth of 2.8% YoY to GBP 1.3bn, largely supported by 42% YoY rise in its International business. In 9M15, Bakkavor’s international business added GBP 34m to the top-line, which also compensated for the flat growth on the company’s home turf. During the same period, like-for-like sales were up 1.7% YoY to GBP 1.2bn. Furthermore above growth coupled with cost-of-sale being contained around 70% of topline helped adj. EBITDA rise by 11.5% YoY to GBP 95.7m in 9M15. Following this net debt also declined 8.9% in 9M15 to GBP 430m as compared to GBP 472m in FY14, due to early repayment of GBP 140m of its existing 8.25% sr. secured notes due 2018. Corresponding net leverage also improved to 3.3x in 9M15 vs 3.9x at FY14.

Recent events:

  • On 28 January 2016, announced that it is to redeem GBP 75m at a price of 102.0625% of its sr. secured noted due 2018 of which GBP 191m remain outstanding. The notes will be redeemed on 29 February 2016 and will be funded through existing cash on its balance sheet.
  • Remaining 60% stake sale in Italpizza S.r.l to Dreamfood S.r.l for cash consideration of GBP 22m was completed on 14 July 2015.
  • Acquisition of B.Robert’s Foods in the US was completed on 12 January 2015, for a cash consideration of GBP 19.6m.


Earlier in April 2015, Bakkavor had successfully increased availability under its banking facilities GBP 220m from GBP 80m, while maturity was extended to February 2018 from October 2016. As mentioned above the company used availability under banking facility for early redemption of GBP 140m under its sr.secured notes due 2018. In addition to this, Bakkavor’s receivables securitization facility was also extended upto February 2018.

FCF improved 1.1x to GBP 65m in 9M15, as capex spend reduced 26.6% YoY and also helped by improvement in adj. EBITDA and better working capital management. At 9M15-end, total liquidity stood at GBP 145m, which included GBP 65m in cash and cash equivalent and c. GBP 80m available under its banking facilities. The current liquidity position with positive FCF generation looks sufficient to cover short-term borrowings of GBP 14.7m. However post the redemption of GBP 75m on it 2018s senior secured notes total liquidity will drop to c. GBP 70m at 1Q16-end .

During the nine months ended 30 September 2015, Bakkavor employed 18,000 individual globally and produced over 5,000 products in 18 different categories. The company’s top customers included Tesco, Marks & Spencer, Sainsbury’s, Waitrose, Asda and Morrison’s.