This is from their 2003/4 annuals.
The demand for our products and services is dependent upon a number of factors, including the economic condition of our customers and markets, the age and state of repair of the vessels operated by our customers and the relative cost to construct a new vessel as compared with repairing an older vessel. A significant portion of our historical revenues has been derived from customers in the Gulf of Mexico oil and gas industry. Accordingly, demand for our products and services has been adversely impacted since the latter part of 1998 by decreased activity in that industry. This decreased demand has adversely affected our revenues, margins and profits, particularly in our repair and conversion segment, but also in our new construction segment. Although oil and gas prices have been relatively high for the last several years, there has not been a corresponding increase in exploration, drilling or production activity in the Gulf of Mexico. We cannot predict whether or when these activities in the Gulf of Mexico will increase.
Although there has been a decline in new construction opportunities in the Gulf of Mexico oil and gas industry, we have been successful in securing backlog in our vessel construction segment primarily from government customers. Government contracts accounted for approximately 24.9% of our backlog at December 31, 2000 and 80.4% at June 30, 2004. Our backlog was $31.4 million at June 30, 2004 as compared to $43.6 million at December 31, 2003 and $34.8 million at June 30, 2003.
The depressed conditions in the Gulf of Mexico oil and gas industry continue to adversely affect our financial performance. Our repair business has high fixed costs primarily associated with depreciation of facilities, floating drydocks and the marine travel lift. As a result, our margins and profits are adversely affected when the volume of our work declines. These fixed costs have by our expansion into the aluminum business and the opening of our new Conrad Deepwater repair yard. The reduced demand and resulting increased competition have led us to bid some work from time to time at margins lower than we would have been willing to accept historically. In addition, we have experienced inefficiencies associated with the shift in the nature of our backlog to primarily government work which requires more administrative functions than our traditional commercial customers.
In 2012 annuals
Our customers comprise a very diverse group that crosses a wide range of businesses including the energy sector, dredging, construction, towing and bunkering markets, as well as the US Army Corps of Engineers, US Coast Guard and various state and local governmental agencies. During 2012 we derived our revenue from 176 customers compared to 171 in 2011, and in 2012 no customer accounted for 10% or more of our total revenue. For 2012, 16.2% of total revenue was energy related, 76.1% was other commercial and 7.7% was government. This compares to 7.0% energy, 75.7% other commercial and 17.3% government in 2011.
There was an increase in revenue and gross profit in the repair and conversion segment starting in the fourth quarter of 2005 and continuing for 2006, 2007 and 2008 related to increased oil and gas activities in the Gulf of Mexico and the impacts of Hurricanes Katrina, Rita, Gustav and Ike. Although we had strong activity in our repair segment during the first quarter of 2009, we experienced lower repair gross profits in 2009, 2010 and 2011 as a result of a significant decrease in demand and profitability primarily due to decreased customer activity in the Gulf of Mexico, which we believe resulted from the Macondo incident and economic uncertainties. In 2012 we experienced a slightly higher gross profit in the repair segment resulting from an increase in production hours and a few more profitable jobs as compared to 2011, when we incurred losses on a few jobs.
Some takeaways
Their killer factors
- steel prices, labor costs (fixed overheads)
- construction, their major segment is under fixed price contracts (duration 1 - 36 mths)
- lower economic growth
- poor economics to build or repair vessels
Their bonuses
- increased O&G activity and high oil prices (latter has less correlation)
- Jones Act
- Govt vs commercial is counter cyclical although govt = lower margin, less efficient business
- typhoons/hurricanes
The part they did poorly was in 2000 - 2005. During 2003 -2005 they had some massive capex plans into Conrad Aluminium and Deepwater so depreciation was heavier thereafter. Also post 2005, less govt contracts and more commercial contracts, volume , as measure by manhours were significantly higher. Steel prices came down as well. |
