Vard reports high order intake from non-offshore markets
Vard Holdings Limited (“VARD”, and together with its subsidiaries, the “Group”), one of the major global designers and shipbuilders of offshore and specialised vessels, announced its financial results for the second quarter (“2Q 2016”) and first half (“1H 2016”) ended 30 June 2016.
Diversification away from traditional markets yields results
VARD is committed to fostering new networks and growing its customer base beyond its traditional core markets, and has seen encouraging results thus far. Over the past quarter, the Group secured a total of 19 new shipbuilding contracts for a total new order intake of NOK 6.2 billion, making 2Q 2016 the best quarter in terms of order acquisition since 2013. This includes contracts for four luxury expedition cruise vessels for French cruise operator PONANT, signed at the end of 2Q 2016 and still subject to certain conditions. The project win, if confirmed, signals VARD’s successful diversification into the expedition cruise vessel market, realising synergies with its majority shareholder, FINCANTIERI.
Furthermore, contracts were secured for 15 purpose-designed Module Carrier Vessels (“MCV”) for Topaz Energy and Marine.
Lower margins due to provision relating to assumed vessel cancellation VARD registered lower revenues of NOK 2.2 billion in 2Q 2016, representing a 10.9% decline from 2Q 2015, whereas 1H 2016 revenues came in at NOK 4.2 billion, down 23.6% from the previous corresponding period in 2015 (“1H 2015”). In line with guidance for 2016, the reduced turnover was mainly due to lower activity levels at the European yards and at Vard Niterói in Brazil.
EBITDA before restructuring cost declined to NOK 11 million and NOK 68 million in 2Q 2016 and 1H 2016 respectively, from NOK 46 million and NOK 111 million the year before. Correspondingly, EBITDA margin was reduced from 1.8% in the second quarter 2015 (“2Q 2015”) to 0.5% in 2Q 2016. However, the weaker margin was significantly affected by a provision made for the Group’s exposure to Rem Offshore, which is currently negotiating a restructuring plan with its main stakeholders.
Restructuring costs of NOK 38 million and NOK 49 million were recognised during the quarter and the half-year respectively. These were incurred in relation to statutory payments pertaining to temporary lay-offs and termination benefits, mainly at Vard Niterói where the Group has since ceased all shipbuilding activities. Consequently, the Group posted an operating loss of NOK 78 million and NOK 83 million in 1Q 2016 and 1H 2016.
Resulting from the above, VARD posted a net loss of NOK 67 million in 2Q 2016 and NOK 24 million in 1H 2016, compared to a loss of NOK 51 million in 2Q 2015 and NOK 277 million in 1H 2015. Losses of NOK 53 million and NOK 16 million were attributable to equity holders of the Company for 1Q 2016 and 1H 2016 respectively. This translates to a cumulative loss per share of 0.25 SGD cents for the first six months of the year, as compared to a loss 0.51 SGD cents the year before.
Cash and cash equivalents remained relatively unchanged at NOK 908 million as at end June 2016. Debt-wise, total current liabilities decreased from NOK 16.5 billion to NOK 13.9 billion from 31 December 2015 to 30 June 2016, mainly due to a reduction in construction loans following the delivery of eight vessels in the first half of the year, including five during 2Q 2016.
As at 30 June 2016, the Group had a total order book amounting to NOK 11.9 billion and comprising 39 vessels – of which 30, or 77%, will be of VARD’s own design. Yard utilisation secured in Romania and Vietnam; reduced exposure to Brazil In Norway, the shipyards are experiencing varying degrees of utilisation. With several offshore projects in advanced stages of construction, and one cancellation pending, the challenge is to bridge a period of low workload while awaiting the arrival of hulls for new projects from Romania. To this end, the entire workforce at Vard Brevik has been laid off temporarily, while the Group seeks new opportunities to utilise the idle capacity. Separately, Vard Aukra is expanding its service offering in the aquaculture market, following the delivery of one fish feed barge and two live fish treatment barges.
Activity in Romania is ramping up, with yards expected to stay well utilised going forward. Nine of the 15 Module Carrier Vessels from the recent Topaz Energy and Marine contract win are expected to be built entirely in Vard Braila and Vard Tulcea. In addition, the yards are seeing an increasing amount of work arising from the sub-delivery of cruise vessel hulls to FINCANTIERI, along with the hulls of the four cruise vessels for PONANT which, if confirmed, are to be constructed at Vard Tulcea. Following a period of downsizing and restructuring at the Romanian yards last year, the focus now is to maximise operating efficiency to handle the pick-up in workload.
Robust operations continue in Vietnam with yard utilisation now secured all the way through 2017.
Outfitting work for an Offshore Subsea Construction Vessel (“OSCV”) for Farstad remains on track, with delivery slated by end-2016. Work has also commenced for the construction of the six Topaz MCVs to be built at Vard Vung Tau.
Following the delivery of an AHTS for DOF in April, and the completion of outfitting works in relation to a Liquefied Petroleum Gas (“LPG”) carrier for Transpetro, Vard Niterói in Brazil has closed off all its projects during the quarter. Yard operations have since been shut down, and the leased land area has been returned to the owners in mid-July. Most of the workforce has been terminated following the yard’s closure, with some key personnel transferred to Vard Promar to further strengthen the management team there.
Looking ahead, the Group’s activities in Brazil will be concentrated on Vard Promar. Work on projects there, comprising three more LPG carriers and two PLSVs, is progressing in line with forecasts. The Group’s overall exposure to Brazil has been reduced through the exit from Vard Niterói.
Active leads in new segments amid challenging offshore market environment The offshore oil and gas market remains challenging, and VARD expects limited new contract opportunities from the sector in the near term. As several offshore players are undergoing financial restructuring, the Group will continue to focus on counterparty risk by working with clients to ensure the delivery of its current order book.
VARD is also further exploring non-traditional markets as part of its diversification strategy, leveraging on its existing capabilities and relationships to grow its business. First successful deliveries of innovative projects in the aquaculture sector have resulted in positive client feedback, while the Group is pursuing active leads in other non-offshore segments. In the expedition cruise sector, a further Letter of Intent for two vessels has already been secured, and is expected to be converted into contracts in 3Q 2016. Additional projects are under discussion.
Roy Reite, Chief Executive Officer and Executive Director of VARD, commented, “While the offshore market goes through an unprecedented phase of consolidation and restructuring, VARD remains committed to expanding its client base in new market segments, tapping opportunities for growth. With a long shipbuilding history and experience in building highly-specialised vessels, we look forward to deepening relationships with our new customers, growing the breadth of VARD’s offerings and restoring value for our shareholders.”
