Vard Back in the Black
Presenting its financial results for the first quarter ended 31 March 2016 today Vard Holdings Limited announced a net profit of NOK 43 million for the period, as compared to a loss of NOK 226 million a year back.
Over the past quarter, VARD had focused on efforts to grow in new markets while streamlining its cost structure, to weather the effects of the ongoing oil and gas down cycle. With its core market for high-specification offshore vessels showing continued signs of weakness, the Group had strengthened its expertise and networks in new markets, recording breakthroughs in the expedition cruise vessel and aquaculture markets.
Revenue fell 34% year-on-year to NOK 2.02 billion in 1Q2016, from NOK 3.06 billion, mainly due to slower activity at some of VARD’s European yards and the planned downsizing at Vard Niterói in Brazil. EBITDA before restructuring cost came in at NOK 57 million during the period, and EBITDA margin improved from 2.1% in 1Q2015 to 2.8% in 1Q2016.
Restructuring costs of NOK 11 million were recognised during the quarter, in relation to a reduction of staff in Europe and Brazil. Consequently, operating profit fell from a profit of NOK 9 million in 1Q2015, to an operating loss of NOK 5 million in 1Q2016. Adjustments of the workforce in Norway are likely to continue until the diversification of the order book begins to have a material impact on yard utilization. In Romania, the workload is expected to increase rapidly with the ramp-up of production of cruise vessel sections for FINCANTIERI, targeted own cruise vessel projects, and a major contract for the construction of Module Carrier Vessels for Topaz Energy and Marine signed on 11 May 2016.
As at 31 March 2016, the Group has a total order book comprising 27 vessels, of which 17, or 63%, will be of VARD’s own design. New order intake came in at NOK 651 million, and the order book value stood at NOK 8 575 million. The order intake and order book do not include the value of Letters of Intent (LoIs) for four cruise ships signed during the quarter, which will be included once the LoIs are converted into firm contracts.
Stable operations in Europe and Vietnam; execution risk in Brazil remains
At the Norwegian shipyards, operations remain occupied with several large and complex offshore projects in the final stages of completion. At the same time, the yards are being readied for new projects, including the outfitting of cruise vessels, and the new contract for an advanced factory trawler for Norway’s largest trawler company, HAVFISK. Vard Aukra has delivered its first fish feed barge to aquaculture industry leader, Marine Harvest, while securing further work from the sector.
The Romanian yards, in particular Vard Tulcea, are already seeing an upswing in activity. As part of a multi-year program to supply partially outfitted hull sections to the parent company, FINCANTIERI has placed a first order for the construction of a large cruise ship section. Work is ongoing to enable launching of larger hulls from Vard Tulcea in the future, including the enlargement of the launching barge, and dredging works.
In Vietnam, following the delivery of one vessel in 1Q2016, only one vessel remained in the order book. With the new contract for the construction of Module Carrier Vessels for Topaz Energy and Marine, six of which will be built at Vard Vung Tau, yard utilization will be secured throughout 2016 and 2017.
In Brazil, the process of phasing out newbuilding activity at Vard Niterói continues, with completion of its last vessel expected this summer. The last AHTS remaining in the Vard Niterói order book was delivered to DOF in April. At Vard Promar, the first LPG carrier built entirely at the new shipyard was successfully delivered during 1Q2016. Work on two LPG carriers and two PLSVs is progressing in line with forecasts, but execution risk remains high in light of the difficult situation in Brazil.
New business plan underway with increased focus on counterparty risk in existing order book
To ensure the success of the new business plan, VARD is implementing further cost-cutting initiatives and efficiency improvement programs to enhance its competitiveness in core and new markets. Leveraging on its existing capabilities and relationships, VARD has made promising headway in both the cruise vessel and aquaculture markets. The signing of LoIs for four expedition cruise vessels for PONANT was a breakthrough in this respect, and given the positive market sentiment in this segment, VARD is well positioned to secure more orders.
The current market situation in the offshore market however remains challenging, and VARD is increasing its focus on counterparty risk, working actively with clients and financial institutions to secure delivery of the current order book.
Roy Reite, Chief Executive Officer and Executive Director of VARD, commented, “2016 is a year of transformation for VARD, and in the first quarter we delivered a strong start. We are encouraged by the customer response to our foray into new markets, especially in the expedition cruise and aquaculture segments. With the contract for the design and construction of Module Carrier Vessels for Topaz, we demonstrate that even within the oil and gas sector, there are still attractive opportunities. At the same time, we need to be mindful that our core markets still present formidable challenges, both for our clients and for us. The strong support from our main shareholder, FINCANTIERI, and the increasing cooperation between our companies gives me confidence that we will master these challenges successfully.”