Wellstream Holdings PLC (WSM.L), a manufacturer of bespoke flexible pipeline products, on Thursday reported a decline in profit for the first half of the year, despite a 12% rise in revenue, primarily reflecting pricing pressure and increased lower-margin installation revenues.
The company's profit for the period attributable to equity shareholders of parent declined to GBP 16.8 million from GBP 28.02 million in the year-ago period. Earnings per share were 16.7 pence, lower than last year's 27.8 pence.
Profit before taxation declined to GBP 24.46 million from GBP 40.79 million in the previous year.
Revenue for the first half grew to GBP 202.74 million from GBP 181.42 million in the prior year period. Wellstream noted that the increase in revenues was driven by the successful on-time delivery of its expansion program in March 2009, which increased overall production capacity by 40%.
Offshore revenue grew 10% to GBP 194.87 million from GBP 177.68 million generated last year, reflecting installation revenue that more than doubled and initial throughput from the additional capacity available in Brazil.
Onshore revenue grew to GBP 7.87 million from GBP 3.74 million generated in the same period in 2008, largely due to demand for the company's 6 inch high pressure flowlines, particularly in South America.
Average revenue per normalised kilometre of offshore pipe in the period decreased by 14% from the same period in 2008.
Operating profit for the latest period dropped to GBP 25.27 million from last year's GBP 42.51 million, largely due to reduced gross margin and a small increase in administrative expenses.
Headline gross margin fell to 22.7% from 31.8% last year. While onshore gross margin broadly remained at the same level as 2008, offshore gross margin deteriorated to 23.8% from last year's 33.2%. "The reduction in offshore margin was caused by the dilutive impact of increased installation revenues, which attract a lower margin, pricing of our core offshore product reflective of a generally weaker product mix and lower market pricing and production challenges in Newcastle that reduced potential H1 throughput," the company said.
Cost of sales increased to GBP 156.78 million from GBP 120.03 million reported last year. Foreign exchange losses on financing were GBP 221 million in the latest period, compared to foreign exchange gains on financing of GBP 33 million in the prior year.
The group intends to pay an interim dividend of 4 pence per share for the year ending December 31, 2009. It will be payable on October 13 to shareholders on the register at close of business on September 11.
Looking ahead, the company said that despite the current difficult market conditions, the medium to long term market outlook remains encouraging. This is supported by a good level of project visibility, the timing of which is uncertain, it added.
The company also stated that trading for the onshore business remains challenging with many onshore customers continuing to delay the sanction of projects.
Gordon Chapman, Chief Executive of the company, said, "Current market conditions remain challenging. In particular, the timing of awards planned for production in 2009 has been slower than anticipated as customers continue to adapt to the much changed oil and gas market prices. As a result, the Board has revised its short term expectations, anticipating earnings in the second half of 2009 slightly ahead of those achieved in the first half of the year."
For 2008, the company's fully attributable profit to equity holders was GBP 52.73 million, up from GBP 29.01 million in the last year. On per share basis, profit rose 65.5% to 52.3 pence from prior year's 31.6 pence. The company's annual revenues grew 39% to GBP 369.94 million from GBP 266.81 million in the prior year.
WSM.L closed Wednesday's regular trade at GBP 537.00, down 3.00 pence or 0.56%, on 138,370 shares.
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