Vard Holdings Limited (“VARD”, and together with its subsidiaries, the “Group”), one of the major global designers and shipbuilders of offshore and specialised vessels, today announced its financial results for the first quarter ended 31 March 2015.
VARD has continued to see a high level of activity at its yards and delivered five vessels during 1Q2015. However, the Group has been preparing for challenging times as its customers, which operate mainly in the oil and gas sector, are left grappling with the effects of the industry down cycle. No new vessel orders were secured by the Group in 1Q2015. Order book value at the end of the quarter amounted to NOK 15.6 billion, representing a 28% decrease from Q1 2014. The order book comprises 32 vessels, of which 18 will be of VARD’s own design.
In 1Q2015, VARD generated higher revenue of NOK 3.1 billion, representing a 14.6% increase from 1Q2014. EBITDA margin (representing EBITDA before restructuring cost to total operating revenues) came in at 2.1% during the period, against an EBITDA margin of 6.4% for 1Q2014, due to weaker operating performance at some yards.
In terms of the bottom-line, earnings were hit by unrealized foreign exchange losses primarily stemming from a 15-year yard construction loan in Brazil denominated in USD. The unrealized losses have been partially reversed since the end of the quarter due to opposite exchange rate developments. Net foreign exchange losses in 1Q2015 amounted to NOK 207 million. Consequently, the Group posted a net loss of NOK 226 million in the quarter.
The cash position deteriorated during the quarter in review, and cash and cash equivalents at the end of the period stood at NOK 1.7 billion, as compared to NOK 2.0 billion at the end of 1Q2014. Construction loans decreased slightly but remained high at NOK 7.5 billion in line with high construction work in progress at the yards.
Despite a slowdown in new order intake, VARD’s European shipyards demonstrated good yard utilisation during 1Q2015, with four vessels delivered during the quarter. However, activity is expected to slow down in 2H2015. The workload balance at the yards is positively impacted by the extension of delivery dates on several projects. Measures are being put in place to reduce cost related to lower capacity utilization, and increase flexibility as the activity level declines. A strict cost-cutting program is being implemented, including reduction of overheads, reduced use of outsourced and subcontracted labour, and temporary and permanent reductions in the work force.
In Vietnam, activity at Vard Vung Tau continues to look robust, with the delivery of one Platform Supply Vessel (“PSV”) during the quarter, and another in April. Work at the yard has also been secured well into 2016 with an additional three vessels in the order book - including its first ever Offshore Subsea Construction Vessel (“OSCV”). With regards to the two contracts that were terminated on 13 March 2015, work on the vessels continues and VARD intends to resell those to new prospective customers.
Work at Vard Promar, the Group’s new yard in Brazil, is progressing towards completion of the first LPG vessels under construction there. While additional cost overruns were incurred for the projects during the quarter, the yard continues to fine-tune its operational efficiency. Meanwhile, the two Pipe-laying Support Vessel (“PLSV”) projects are proceeding according to schedule. At VARD’s other Brazilian yard, Vard Niterói, work continued during the quarter on four vessels in advanced production stages, one of which has since been delivered to its customer on 4 May 2015. Stabilization of the Brazilian operations remains a top priority for VARD.
To underscore its focus on critical areas, VARD today also announced organizational changes and a reshuffle of the Executive Management Team. Mr. Geir Ingebrigtsen, previously Group Chief Controller and Deputy CFO, will assume the role of Acting Chief Financial Officer in place of Mr. Jan Ivar Nielsen, who has been appointed Finance Officer for Brazil to strengthen the organization there in a critical phase. Other changes include the strengthening of the management structure in the areas of corporate development, and an increased focus on further developing VARD’s Equipment and Systems business as well as new business development in the Asia Pacific region.
Many oil and gas industry players were caught off guard by the sudden dip in oil prices in 2H2014, leaving many major investments on hold, both by oil majors in exploration and production, and by the Offshore Support Vessels (“OSVs”) owners serving them. As a consequence, competition for a limited number of projects currently under development in the market is fierce.
Mr. Roy Reite, Chief Executive Officer and Executive Director of VARD, commented, “We expect weak order flows to be a prevalent theme in 2015. To mitigate the effects of lower yard activity, we aim to streamline the cost structure of our business over the next few months, as well as foster stronger ties with new and repeat customers to better position ourselves for new orders once the industry makes a turnaround. The changes made in our organization will strengthen VARD in taking on the challenges our industry is facing right now.”
Norway based Vard Holdings Limited (“VARD”), together with its subsidiaries (the “Group”), is one of the major global designers and shipbuilders of offshore and specialized vessels used in the offshore oil and gas exploration and production and oil services industries. VARD employs about 11 people and operates ten shipbuilding facilities, including five in Norway, two in Romania, two in Brazil and one in Vietnam.