Even in the worst market ever experienced in the oil and gas industry, CH Offshore Group remained profitable.
On behalf of the Board of Directors, it is my pleasure to present to you the Annual Report of the CH Offshore Group ("the Group", "CHO", or "the Company") for the financial year ended 30 June 2016 ("FY2016").
In the last twelve months, the business environment was extremely challenging. The prolonged slump in the crude oil price resulted in exploration and production companies further reducing both their capital expenditure ("Capex") and their operations expenditure ("Opex"). With less jobs available, competition among offshore support vessel ("OSV") operators intensified and led to lower margins.
However I am pleased to report that your Company continued to be profitable for FY2016. This admirable performance is a result of the strong business network we have built over the years, our solid financial position and the quality of our fleet of vessels.
Revenue and Income
The Group recorded a Profit After Tax ("PAT") of US$5.6 million on the back of US$24.7 million in revenue in FY2016 as compared to US$72.0 million PAT on US$31.8 million revenue in FY2015. The 92.2 % decrease in PAT over the previous reporting period is mainly due to the US$53.6 million one-off income from settlement of claims recognised in FY2015. The 22.3% decrease in revenue was due to the off-hire of two vessels upon expiry of their contracts, as well as lower charter rates.
The lower Gross Profit Margin After Depreciation of 44.5% as compared to 60.1% for the previous corresponding period was due to additional maintenance costs for vessels upon expiry of their bareboat charter contracts, as well as higher operating costs incurred on certain vessels to meet customer's specific requirements for charter.
Financial position and cash flow
The Group's Net Asset Value decreased from US$241.7 million as at 30 June 2015 to US$161.3 million as at 30 June 2016. The decrease was attributable to a sum of US$86.0 million declared as dividends during the financial year. The Group's Net Asset Value as at 30 June 2016 is 22.88 US cents per ordinary share.
The Group's net cash generated from operating activities is US$5.6 million while overall cash flow is positive at US$9.7 million. The decrease in net cash flow from US$139.0 million as at 30 June 2015 to US$9.7 million as at 30 June 2016 is mainly due to the sum of US$133.2 million paid out as dividends in the reporting period of this Annual Report.
Liquidity is healthy with a current ratio of 1.41, and gearing remains low with no long-term borrowings, and a short-term borrowing to fund working capital of US$7.4 million. The Group is in a net cash position of US$2.3 million which is a rarity for the industry at this juncture of the oil and gas cycle.
The oil and gas sector faces more uncertainty in the months ahead as momentary rises in crude price due to demand are reversed by the glut in supply from stocks in terminals and on offshore tankers. The ease with which shale oil wells can be revived for production when prices rise adds to the weakness in the crude oil price. Any rebound in the offshore and marine market is also handicapped by the fact that offshore oil and gas competes with lower-cost onshore oil and gas for capital when it comes to funding for exploration and production.
However there are indications that the worst may be over and the crude oil price is at the bottom end of its range in the cycle. The Group will continue to be performance-driven to maintain its track record of profitability. We have so far performed admirably in several aspects and we have a competitive edge in several areas.
Our fleet average utilisation rate is in the 76% range and this keeps our vessel assets working to generate income stream and a good return on asset. In part it is due to the fact that the main part of our revenue comes from stable, longer-term bareboat charters. Bareboat charters are advantageous in a low charter rate and low margin environment as there is scalability and there are significant economies in spreading the fixed costs over a larger number of bareboat charter vessels as compared with vessels on time charters. In such a business environment a fleet of vessels with bareboat charters will have a higher gross profit margin than a fleet with time charters.
Our fleet of AHTS (Anchor Handling Tug Supply) is relatively young and the vessels are fitted out with the latest technology and high-specification equipment making the vessels the preferred choice of exploration and production companies.
AHTS are also versatile vessels and the Group's 12,240 horse power AHTS are able to serve the bigger newer jack-ups not only in the tug function but also in the supply function because of their bigger deck space and capability to take heavier loads.
The Group's competitive edge also includes the quality of its experienced Management and staff as well as the underlying strength of its main markets in this region. We serve an economically fast-growing region of several countries with huge populations and a demand for energy. Their oil wells are old and depleting but production, maintenance and well stimulation measures still have to be carried out to cater to rising demand for energy arising from rapid urbanisation. We have an excellent track record for operational efficiency and safety that retains our customers.
The Group will continually explore ways to increase operational efficiency, cut costs and conserve cash. It is with this strategy that we will be able to ride out the downturn in the oil and gas cycle and be ready for the rebound when it comes.
I would like to take this opportunity to express my thanks and gratitude to our shareholders for their patience and unwavering support for the Company. To the Board, I wish to say, thank you for your guidance and valuable advice. Last, but not least, without the hard work and dedication of the Management and staff, our admirable performance would not have been possible. For this I wish to record my appreciation for their efforts.