FY2016 has been a very tough year for our companies involved in the oil industry. Oil prices have fallen far and fast, from a peak of $ 115 per barrel in June 2014 to under $ 35 at the end of February 2016.
NDC Board Chairman Ely Cyrus said,“ A large part of NDC’ s businesses supports the oil and gas industry, and it is no secret that companies operating in these markets have been impacted by the lower prices of oil. The board and management are focusing our efforts on reducing the risk to NDC, as these companies face much lower revenues than we expected.”
DIVERSIFIED INVESTMENTS
NDC acquired GIS in 2011 – a major acquisition to strengthen our capabilities to serve the oil sector, and to better balance our business investments. With GIS as part of NANA’ s business portfolio our company now has the ability to take on much larger projects, and to serve natural resource companies all across the world. NDC did take on debt to make this acquisition. Debt financing is a tool used by many companies, large and small, to grow their business.
NDC’ s debt is rated by two different companies: Standard & Poor’ s and Moody’ s. Both of those companies recently lowered NDC’ s debt rating, mostly because low oil prices have brought about a slowdown in work. Our Oil & Gas
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Sector revenue has dropped in the past year. We are not alone. Many companies in the oil sector have also had their debt ratings lowered, and even the State of Alaska’ s debt rating was lowered because of the state’ s budget deficit tied to the low price of oil.
“ While GIS has not yet delivered the financial returns we expect, we believe the company is a good investment for NANA over time,” said Helvi Sandvik, NDC President.“ We have a long term view – business opportunities in the oil and gas industry will increase as oil prices improve, and GIS is well positioned to deliver critical services to the producers, both onshore and offshore, domestically and internationally.”
While the oil & gas sector remains challenged, more than half of NDC’ s revenues come from the federal sector, which is holding strong throughout 2016.“ NANA has made many investments in its history. Some have been very successful, while others have been more challenging. As our work in the federal government shows, we believe we have the right balance of skills and diversity of companies to meet the conditions we face,” said Cyrus.
NDC BOARD FOCUS ON CORE BUSINESS
The NDC Board completed its annual strategy session in June. Within the last few years, the board has redefined its strategies and approach to focus on the company’ s core lines of business.“ We have taken steps
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to improve the financial contributions of investments made in the past to protect the company as we move forward during the current economic climate,” said Cyrus. These include closing some businesses, like our investments in the entertainment industry, and restructuring others. The board also decided to sell NOSI, a successful business that was facing increasing competition at a time when business opportunities on Alaska’ s North Slope are in a decline.
When business is in a decline, it is important to look for ways to make adjustments to match the current business environment. NDC has aggressively cut costs from top to bottom, throughout the company. Unfortunately, this has meant several rounds of layoffs in many of our companies, as well as at the corporate level.“ At times like these, we have to be as aggressive as possible, yet also be cautious. We are closely watching oil prices, and reducing our costs where we can, without compromising our ability to serve our customers. The lower cost structure will position us well for growth when oil prices rise,” said Sandvik.
STRONG FINANCIAL POSITION
NDC expects a net loss for FY2016, despite good performance from the Federal Sector, because of the large drop in business in the Oil & Gas Sector, as well as some decline in business in our primarily Alaskabased, Commercial Sector companies.
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However, NDC’ s financial position remains strong. We have adequate cash flow to support the company’ s debt payments. NDC’ s Chief Financial Officer, Jamie Clark, said,“ While no one is happy with the company’ s financial performance, we are meeting all of our financial obligations. We have reduced capital expenses and cut overhead, which will position us well when oil prices recover.”
Board Chairman Cyrus said,“ The board of directors of NDC has been committed to ensuring the strategic focus of the company delivers to performance expectations. We continually track the performance of each of our companies, and the board is kept up-to-date as staff monitor global economic and financial developments. The board has tasked our company leadership to find the best path forward in this challenging environment, and we expect to see our margins to improve as the oil markets begin to recover.”
“ Given the challenges we face, it is understandable that shareholders are concerned,” said Cyrus.“ We will present more information at this fall’ s informal shareholder meetings, so they can learn more about NANA and the work we do. We fully expect to deliver on the strategic goals we set on behalf of all of our shareholders.”
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