Hong Kong-listed NewOcean Energy Holdings Limited (NewOcean), the parent company of bunkering firm NewOcean Fuel, on Monday (31 August) published its unaudited interim results for the first six months (1H) ending 30 June, 2020.
Following the profit warning posted by the group on Friday (28 August), NewOcean reported a HKD 1,351 million (USD 174 million) loss for 1H 2020; the group recorded consolidated profit of 301 million (USD 38.9 million) in 1H 2019.
The loss was mainly due to the drop in gross profit and additional provision for account receivables, inventories and property, plant and equipment, it said.
Due to COVID-19 and the slump in global oil prices, the gross profit margin derived from oil bunkering business and electronic business has been substantially reduced or turned into gross loss margin, explained NewOcean.
The overall gross margin from these sectors decreased to 0.4% as compared to 6.2% of the same period in last year.
On top of the above, the company noted it also experienced undue delay in trade receivables collection and inventory being sold at a loss in recent months, therefore it has to make additional impairment losses on trade receivables and allowance for inventories for 1H 2020.
The additional impairment losses amount to HKD 554 million (USD 71.5 million), as opposed to HKD 8 million recorded in the same period last year.
Due to the collapse of Hin Leong Trading Pte Ltd and the global oil slump in 1H 2020, NewOcean noted a number of banks demanded a reduction in short term credit extended to the company.
In order to mitigate the liquidity pressure and to improve its financial position, the company said its Directors have implemented a proactive approach to negotiate with banks to arrange and agree on a debt restructuring.
“Our gross margin of LPG business remained above 10%. Since our major competitors had turned to cut-throat tactics to sell products in large lots at low prices for cashing in during March and April, we unwillingly had to use the same tactic for our oil products business, that was to sell products below costs for the depletion of its holding stock to avoid further impairment risks from the ongoing oil price slump,” said NewOcean in its report.
“These explain the recorded negative gross profits in our marine bunkering business during March and April.
“As the market had restored in May and June, both our gross profits and gross margin had adjusted back to normal, despite the fact that our average overall gross profits for the six months were dragged down to a low of 1.11% (same period of last year: 4.28%).”
NewOcean said it will scale down its oil products business to focus on the sales of products with high gross profits as well as measures to reduce costs.
Since the cost of refueling business in Hong Kong is relatively high, the company said it is committed to selling wholesale to clients who are distributors, and to lease its existing oil tankers to wholesalers.
Its bunkering business at Singapore will still continue operations due to relatively stable gross profits and high commodity flow.
Moving forward, NewOcean noted it will take the occupancy of around 100,000 tonnes among the total leased capacity of 300,000 tonnes of storage, while the balance of 200,000 tonnes will be leased to third parties to reduce overhead costs.
Related: NewOcean Energy publishes profit warning to shareholders ahead of 1H 2020 results
Related: NewOcean Energy records 66% bunker sales jump to 4.5 million mt in FY 2019
Photo credit: NewOcean Energy Holdings
Published: 1 September, 2020
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