Schoeller-Bleckmann Oilfield Equipment AG: Very challenging market environment reflected in operating result – Nonetheless, record free cash-flow and liquid funds increased – highly robust balance sheet structure with equity ratio of 59 %
 

Ternitz/Vienna, 26 November 2015. The entire oilfield service industry was hit by the expected massive slump of drilling activity in the first nine months of 2015. Schoeller-Bleckmann Oilfield Equipment AG (SBO) responded at an early stage - already in Q3 2014 - by taking a set of countermeasures to guide the company safely through the downturn. Naturally, the market collapse was reflected in the earnings figures of SBO. Nevertheless, SBO was able, in the first nine months, to generate positive operating income (EBIT) before impairments, record free cash-flow and to increase liquid funds in this extremely difficult environment, which worsened even further throughout the third quarter.

Sales contracted by 27.8 %, to MEUR 257.6 (1-9/2014: MEUR 356.6). Earnings before interest, taxes, depreciation, and amortisation (EBITDA) fell by 46.5 %, to MEUR 55.0 (1-9/2014: MEUR 102.9). Earnings before interest and taxes (EBIT) before impairments dropped by 77.1 %, to MEUR 16.5 (1-9/2014: MEUR 72.0). Profit before tax in the first nine months came to MEUR 0.3 (1-9/2014: MEUR 64.5). Profit after tax fell to MEUR minus 2.0 (1-9/2014: MEUR 46.8). Earnings per share arrived at EUR minus 0.13 (1-9/2014: EUR 2.93).

Gerald Grohmann, CEO of SBO: "As we realised early that 2015 was going to be a very challenging year for the oilfield service industry, we started to take countermeasures still in 2014. We will continue to pursue this course systematically. The market environment deteriorated further in the third quarter and so we are preparing for this downturn to last longer than those seen in the past. But we know how to deal with the cycles in our industry. We are now positioning the company to ensure that it can fully benefit from the next upswing that is bound to set in sooner or later."

Due to the persistently challenging market situation, SBO made goodwill impairments of MEUR minus 21.7 and an impairment of fixed assets of MEUR minus 1.9, which were largely neutralised by the revaluation of option commitments, which delivered earnings of MEUR plus 21.7 in the third quarter. As a consequence, option commitments totalling MEUR 9.7 were released in the first nine months.

The EBITDA margin was 21.4 % (1-9/2014: 28.9 %), the EBIT margin before impairments stood at 6.4 % (1-9/2014: 20.2 %), and the EBIT margin after impairments went to minus 2.8%. The pre-tax margin was 0.1% (1-9/2014: 18.1 %).

Despite the highly challenging environment SBO achieved a record free cash-flow in the first nine months of MEUR 70.9 (1-9 2014: MEUR 27.5) and increased its liquid funds. With its equity ratio of 59.4 % the company has a very sound balance sheet structure. Cash-flow from operating activities climbed by 53.7 %, to MEUR 86.1 (1-9/2014: MEUR 56.0). As at 30 September 2015, SBO had a net cash position of MEUR 12.2 (31 December 2014: net debt of MEUR 35.6; 30 September 2014: net debt of MEUR 9.7). Liquid funds went up by 44 %, to MEUR 188.0 (31 December 2014: MEUR 130.2). This rise was mainly attributable to a decrease of the net working capital of MEUR 36.5.

Bookings dropped by 58.2%, to MEUR 154.2 (1-9/2014: MEUR 369.4). The order backlog recorded at the end of the third quarter was MEUR 40.2, down 67.5 % from last year's reading (30 September 2014: MEUR 123.6).

Outlook

According to the International Energy Agency (IEA) oil demand is set to go up by 1.8 mb/d in full 2015, to an average of 94.6 mb/d (2014: 92.7 mb/d). For 2016, the IEA anticipates decelerating growth to come to 1.2 mb/d.

Due to massive curtailment of E&P spending in non-OPEC countries, the International Energy Agency expects production in non-OPEC countries to drop by 0.6 mb/d in 2016. Therefore, our assumption is that the balance between oil demand and supply will stabilise over the next months. It is impossible to assess today to which extent OPEC will compensate for the decline in production and growing demand as described above.

In any event, SBO prepares for a continuation of the highly challenging market environment. It cannot be predicted at the moment at which point customers of SBO will abandon their restrictive spending policies. SBO endeavours to make full use of existing customer relations. However, as the level of bookings is low, the company is facing significant challenges. SBO will consistently continue implementing the countermeasures initiated in 2014 in the months ahead. SBO merged its two US subsidiaries "Godwin-SBO LLC" and "Knust-SBO L.L.C." as at 1 October 2015. Production of newly founded "Knust-Godwin L.L.C." will be bundled at the site of Godwin. The merger aims to create structural and sustainable cost benefits, although capacities will remain at the same level.

Those measures can compensate for only part of the fierce decline in demand in the established core markets. However, our positive operating cash-flow, low debt and high level of liquid funds provide SBO with a stable basis to overcome the current cyclical downturn. Therefore, SBO is in a position to intensify its search for strategically fitting acquisition targets, even in this difficult environment. As a result, the company will be excellently positioned to fully meet the demand that should re-emerge from the next upswing.


Comparison of key figures

1) based on average number of shares outstanding
2) reporting date 30 September.

Schoeller-Bleckmann Oilfield Equipment AG is the global market leader in high-precision components and a leading supplier of oilfield equipment for the oilfield service industry. The business focus is on non-magnetic drillstring components and high-tech downhole tools for drilling and completing directional and horizontal wells. As of 30 September 2015, SBO has employed a workforce of 1,231 worldwide (30 September 2014: 1,663), thereof 399 in Ternitz/Austria and 455 in North America (including Mexico).