Exmar and Jamaica – LNG Project

This is my third look at this entire LNG project which I had expressed serious reservations about on this blog in June and July of last year, this is a further follow.

Exmar and Jamaica – Financial Analysis

While stock price is not necessarily a good indication of the financial state of a company, it can give a good indication on investor confidence in the company when one compares this to other companies in the same sector.

If one examines the chat below you can recognize that Exmar stock price did very well up to June 2006 before taking a dramatic plunge and has not recovered since.

See chart below.

Exmar Financials.

Income statement 2006 – 2009.

  1. Revenue has fallen steadily from Euro 503m to 403m or a drop of 20% over the period
  2. Operating income has fallen by 50% over the same period, moving $ 88.9m to $44.4m
  3. Interest expense has moved from 43.1m to 51.0 or an increase of 18.3%, which suggest that the company has been taking on additional debt over the period under review.
  4. Net income has been far from stable being 76m(2006), 0.5m(2007), loss of 62.6m (2008), recovering to earn a profit of 43.5m in 2009.

When one closely examines the income statement however of 2009, we note that the company reported non -operating income of $43.1m, which suggest that this is not a likely source of future income if one look at the fact that the previous two years the company saw other operating expense of  $101m vs. income of $43.1m in 2009.

In fact in closer examination of the report we noted that the company reported net income from finance activities of a whopping $71.3m of which  $67.581 came from “ change in fair value of financial instruments” consisting of interest rate swaps of $43.877m, Foreign exchange contracts: $13.021m and cross currency contracts of $10.683m.

By revaluing these instruments, Exmar was able to generate “ other operating income” of 43.1m.

I would refer to this as “extraordinary income” and remove it from the income statement for purposes of this analysis.

With this removed the company (Exmar) would have generated a profit of only $0.4m dollars which is still a recovery from the huge $62.6m loss in the previous year.

This shows that the financial position of Exmar is precarious at best given declining income and the inability of the company to generate any significant profits in the last three years.

Balance Sheet  2006- 2009

  1. Long-term debt exploded from 2006 – 2009 moving from $538m to $1,402m in 2008 before falling to $1,302.5m in 2009. Exmar long-term debt has increased 260% during this period, which is really astounding. This would seem to suggest that Exmar seems at this stage to be heavily leveraged which could see it in trouble if the prevailing conditions should continue much longer.
  2. This increased debt came as a result of bank loans, which currently stands at $1.096m at the end of 2009.  At the end of 2007 Exmar had borrowed $651.6m and then borrowed an additional $205.3 in 2008 for total borrowing of  $856.1m in just two years.
  3. In trying to determine where these funds went we saw that net property and equipment jumped from $1, 292m to $1,704 an increase of  $412m or a 31.9% in property and equipment.
  4. In looking at the cash flow statement we can see that Exmar made purchases of $739.4m for property and equipment. This means that all acquisitions made by Exmar was made via debt.
  5. Exmar is heavily leveraged with a debt to  equity ratio of 3.1
  6. Current ratio stands at 1.37while the more aggressive acid test ratio is 1.27 which suggest that they have just enough current assets to meet its short term obligations.

When one looks closer on the 2008 & 2009 report(Balance Sheet) we note that Exmar added  $59m of cash during a period when they were bleeding at the bottom line. The source of these funds needs closer examination and while we are not sure exactly the source, we can infer from the data that its funds left over the huge borrowing that took place between 2007 to 2009.

During this time Exmar to bank loans of $856.1m and spent $739.4m which leaves  $116.7m to be used for further spending as Exmar sees fit.

This company is seriously challenged and as such the Jamaican Government must be careful how they enter into a deal with a company that is NOT financially sound and seems to be seeking some place to make a killing much like Mirant did when they purchased JPS.

This is my third look at this LNG Project. The link to the report from the consultant is below thanks  Nationwidenewsnetwork. Its at the top left hand corner of their home page.


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