Schoeller-Bleckmann Oilfield Equipment AG: Strong demand in North America drives sales and positive operating result in the first three quarters of 2017

• SBO benefits in its strong position from the upswing in North America
• EBITDA-margin in third quarter of 2017 above long-term average for the first time in two years of crisis
• Well Completion success increases value of subsidiary and requires expense booking for shares of minority shareholders

Sales in the first three quarters of 2017 amounted to MEUR 227.6, a significant increase of 71.0 % compared to the 2016 crisis year (1-9/2016: MEUR 133.1). SBO's bookings more than doubled to MEUR 241.5, following MEUR 116.5 in the first three quarters of 2016. As a result, the book-to-bill ratio, which measures the number of orders coming in compared to sales and serves as an indicator of medium-term development, was greater than 1. At the end of the third quarter of 2017, the order backlog totalled MEUR 33.4 (30 September 2016: MEUR 17.4).

"North America remains the strong driver in the market", comments Gerald Grohmann, CEO of SBO. "Our strategic positioning through the investment in the Well Completion business in North America is paying off, as demonstrated by the development of our figures. Demand for our products once again picked up in the third quarter."

This development is also reflected in the strong operating result of SBO. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) clearly returned to positive territory, from MEUR minus 7.2 in the first three quarters of 2016 to MEUR 48.5, including one-off income from completed restructuring measures of MEUR 2.0. The operating result (EBIT) was MEUR 11.0, following MEUR minus 50.9 in the first three quarters of 2016. The EBITDA margin came to 21.3 % (1-9/2016: minus 5.4 %), in the third quarter with 28.7 % even above its long-term average of 24.1 % (financial years 2001-16) for the first time following two years of crisis. The EBIT margin was 4.8 % (1-9/2016: minus 38.2 %).

"This progress shows that we have achieved the turnaround in our operations. Business in North America is running at full speed. Our market share gains there are disproportionately high, and we plan to expand them even further", says Mr. Grohmann.

Well Completion success increases value of subsidiary, expense posting

This market situation also left its mark on the development of SBO's US-based subsidiary Downhole Technology. It clearly exceeded the high expectations in terms of sales and result within the first 1.5 years since its acquisition. In course of the acquisition, SBO took over 68 % of the shares in Downhole Technology. The remaining 32 % of the shares may be acquired by SBO, or sold by the minority shareholders to SBO, by drawing a put/call option. Increased growth expectations for Downhole Technology have led to a higher than previously anticipated company value as at 1 April 2019, the earliest possible date for exercising the option to acquire the shares of minority shareholders. As a result, the option valuation had to be adjusted in the balance sheet according to the applicable accounting principles.

Since profit expectations of the fully consolidated company had increased, as announced in October, a one-off expense posting of MEUR 91.3 having an effect on result, but not on cash, had to be included in the consolidated income statement of SBO in the third quarter of 2017 and is shown in the financial result. In the first three quarters of 2017, the financial result therefore arrived at MEUR minus 95.5 (1-9/2016: MEUR 14.6). In the same period of last year, one-off income from the revaluation of option commitments amounting to MEUR 16.9 was included. Profit before tax stood at MEUR minus 84.5 (1-9/2016: MEUR minus 36.2), and profit after tax at MEUR minus 86.2 (1-9/2016: MEUR minus 22.9). Before revaluation of option commitments, profit before tax came to MEUR 5.0 (1-9/2016: MEUR minus 53.2).

"This expense posting is only a short-term drawback, as we will benefit from the increased value of our subsidiary in the long run. To put it in a nutshell: Our investment in Downhole Technology was the perfect choice to make. Strictly speaking, this is a success, and not a profit warning", says Mr. Grohmann.

Sound balance sheet

The option commitment is reflected in the balance sheet of SBO accordingly. Nevertheless, the company has preserved its sound balance sheet structure: As at 30 September 2017, the equity ratio was 39.3 % (30 September 2016: 54.8 %), and net debt MEUR 62.8 (30 September 2016: MEUR 56.1). Liquid funds at the end of the third quarter amounted to MEUR 177.9 (30 September 2016: MEUR 141.6). The operating cash-flow arrived at MEUR 23.0 (1-9/2016: MEUR 28.9). Spending for property, plant and equipment and for intangible assets (CAPEX) including expenditure for the expansion of production capacities increased to MEUR 25.3 (1-9/2016: MEUR 9.4).

Outlook: North America continues strong growth, while transition phase is set to last internationally

North America will continue on the path of growth. With its expansion of production capacities at Downhole Technology by relocation to a new site, which will be completed at the end of the current year as planned, SBO is fully prepared for further growth. "Our North American activities are highly profitable, and we will drive this growth further. In the international business, markets are stagnating at the levels seen the year before. Therefore, we expect that they will remain in a phase of transition continuing into the year 2018. But we are ready to participate fully from any form of upswing. This is what we prepared for in the years of crisis", concludes Mr. Grohmann. 

Comparison of SBO's key performance indicators

		1-9/2017	1-9/2016
Sales	MEUR	227.6	133.1
Earnings before interest, taxes, depreciation and amortisation (EBITDA)	MEUR	48.5	- 7.2
EBITDA margin	%	21.3	- 5.4
Earnings before interest and taxes (EBIT)	MEUR	11.0	- 50.9
EBIT margin	%	4.8	- 38.2
Profit before tax (before revaluation of option commitments)	MEUR	5.0	- 53.2
Profit before tax	MEUR	- 84.5	- 36.2
Profit after tax	MEUR	- 86.2	- 22.9
Earnings per share	EUR	- 5.41	- 1.43
Cash-flow from operating activities	MEUR	23.0	28.9
Liquid funds	MEUR	177.9	141.6
Equity ratio	%	39.3	54.8
Headcount		1,386	1,184

SBO is a leading supplier of tools and equipment for directional drilling and well completion applications and the global market leader in the manufacture of high-precision components made of non-magnetic steel. The product offering ranges from customer-specific complex components for the oilfield service industry to high-efficiency solutions and products for the oil and gas industry. As of 30 September 2017, SBO employed a workforce of 1,386 worldwide (31 December 2016: 1,200), thereof 313 in Ternitz / Austria and 724 in North America (including Mexico).

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