Looking at Otto Marine's FY14 results and financial position, it looks horrible.
Noted significantly lower revenue generated from shipbuilding for FY14 as compared to prior years. Wonder if Otto Marine is actively pursuing potential shipbuilding orders which was once the core business or have it neglected its core past and focus on its newfound love in chartering and more recently, subsea services.
Noted management wanted to expand its subsea segment which contributed 8.7% of FY14 revenue and engaged UOB Kay Hian as advisors. Wonder if there are any concrete and feasible plans and also opportunities out there in the subsea sector for the Otto Marine to pursue as this is a new area for Otto Marine and there will bound to be a learning curve and the group doesn't have redundant financial resources to spare at current situation.
The group is highly leveraged with debt to equity ratio at 2.07 times and cash resources are low and required for working capital.
In view of the group's current financial position and areas which the management wants to pursue, it seems that new capital needs to be raised. With the high leverage currently, capital raising via equity seems the only feasible avenue. Also, for ambitious plan to further develop subsea services as envisioned by the management, think that needs a lot of resources, if there should be any equity fund raising, this will be a huge one. Get ready for cash call.
For FY14 vs FY13
Revenue - down 31%
COS - down 28%
GP - down 56%
GPM @ 5.8%
GP @ US$20.661m
Finance costs for FY14 @ US$27.886m which is damn high due to super high leverage already wipe out all profits, not even taking into account admin, selling & other expenses.
Otto is also a remarkable cash burner.
Cash for FY14 decreased US$28.763m
Cash for FY13 would have decreased US$49.069m, should there be no rights issue which raised US$49.61m nett.
Good thing is, Mr Yaw director and also major shareholder finances Otto with US$30m made in the year through himself direct and his vehicle.
I honestly think there is an issue on the going concern of Otto Marine given the facts as above, quite amazed that its auditors Deloitte gave an unqualified opinion and even without an emphasis of matters paragraph. I think Deloitte are satisfied there is no such issue probably due to the following possibilities:-
1. Disposal of a number of vessels for cash
2. Capital to be raised in probable future (debt or equity)
In any cases, think it will take a very long time for Otto to get back into shape.
Just curious, also noted Otto Marine did not have capitalises drydocking costs. Considering there is approximately 59 vessels, there should be huge financial impacts. I can't find any such disclosure in Note 2 - Accounting policies & Note 14 - PPE
Vessels are required to be drydocked at certain period intervals as per international maritime regulations and noted companies owning vessels will capitalised the drydock expenses when incurred and amortise on a straight line basis over the period to the next drydocking date. However, there were no disclosures of such in Otto Marine's accounting policy. Perhaps, my eyes played tricks on me.