Hong Kong-listed NewOcean Energy Holdings Limited (NewOcean) on Wednesday (31 March) reported in its unaudited financial year 2020 results (FY 2020) that its gross profit margin derived from oil bunkering business has been substantially reduced or turned into gross loss margin due to COVID-19 and the slump in global oil prices in first half year of 2020.
The group said its overall gross margin for oil products and electronic components decreased to 1.0% as compared to 6.8% last year.
The group recorded net loss of HKD 2.366 billion (USD 304.3 million) during FY 2020, mainly due to the drop in gross profit and additional impairment provision for goodwill, intangible assets, trade receivables, other receivables, inventories and property, plant and equipment, etc.
Its revenue for the year decreased by around 30.99% to approximately HKD 19.180 billion attributed primarily to the fall in average price of energy products as well as the drop in total sales volume. In FY 2019, NewOcean saw HKD 27.791 billion in revenue.
The group’s sales volume for energy products fell to approximately 5.64 million metric tonnes in 2020 compared to 7.51 million metric tonnes in 2019.
Specifically, the company’s oil products business generated total sales revenue of HKD 224.1 million with a gross margin of 2.04% in FY 2020 compared to HKD 848.2 million revenue and a gross margin of 4.4% in FY 2019.
For the past twenty years, NewOcean said it has always kept up its obligations and has never breached any debt covenants. However very unfortunately, from April 2020 onwards, a series of unexpected negative events caused banks to freeze the group’s credit and request for early repayment.
The pandemic, slump in oil prices, and the stand-off between China and the United States seriously affected the group’s business especially the oil bunkering business in Hong Kong and Singapore and the electronic business in the People’s Republic of China.
As a result, the gross profit margin derived from oil bunkering business and electronic business has been substantially reduced as compared to last year or in certain cases turned into gross loss margin.
Due to severely unfavourable market conditions, some of the group’s key competitors in the oil products market sold large lots of inventory at bargain prices to cash in during March and April.
NewOcean said it was a tough decision to for the group to reluctantly follow suit and slash prices under the pressure of its mounting inventories over the successive months, resulting in a steep dive in its overall gross profits for energy products.
Adverse market sentiment also caused its oil product clients to delay the repayment of trade or other receivables to a significant extent; for which, an allowance for impairment loss of about HKD 760 million had been made.
In 2020, more than 10 monohull [single hull] oil tankers had been written off due to a change in the specifications of oil tankers in Mainland China, and the group had shut down a number of auto-gas refueling stations because of the decreasing demand, resulting in a loss of approximately HKD 120 million for the disposition of the above fixed assets.
With limited liquidity from to the lack of support from banks to back its business NewOcean said it decided to scale down both its marine and on-land bunkering businesses; and hence, an allowance for impairment of approximately HKD 420 million was made at the end of the year.
Additionally, due to the crash of Hin Leong Trading (Pte.) Ltd. and the slump in global oil prices during the first half of 2020, many banks had extended requests to the group limit or terminate the utilization of letters of credit and other short-term credit facilities.
In order to ease pressure on liquidity and improve the financial position of the group, NewOcean’s directors implemented a range of measures, including opening negotiations with banks which resulted in an agreement for debt restructuring.
“With the significant scale-down of our oil products business, we are committed to focus not only on the sales of products with high gross profits, but also on lowering our operating costs,” said NewOcean.
“As the costs of refueling business in Hong Kong are relatively high, the group will step up its efforts to sell wholesale to our clients who are distributors, and to lease its existing oil tankers to wholesalers or list them for sale.
“As to our business in Singapore, a certain extent of the marine bunkering business will remain, with oil products of relatively stable gross profits and high sulphur fuel oil being the key focus of the business.
“Meanwhile, the group will take the occupancy of a small portion of a total leased capacity of 300,000 tonnes in a floating storage unit, while the remainder will be leased to third parties to keep running costs down.”
Related: NewOcean Energy issues USD 304.8 million net loss warning ahead of FY 2020 results
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Related: NewOcean creditors meeting application granted by Supreme Court of Bermuda
Related: NewOcean planning creditors meeting, foundation of debt restructuring plan laid out
Related: NewOcean records USD 174 million 1H 2020 loss; Singapore bunkering business remains
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
Published: 1 April, 2021
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