Vard: profits dip, but orders soar

First quarter orders won by Vard include an arctic Anchor Handling Tug Supply (AHTS) vessel for Bourbon First quarter orders won by Vard include an arctic Anchor Handling Tug Supply (AHTS) vessel for Bourbon

APRIL 29, 2014 — Specialist shipbuilder and designer Vard Holdings Limited (which is 55.63% owned by Fincantieri) saw first quarter operating profit drop to NOK 123 million compared to NOK 275 million in the comparable quarter of last year — a 55.3% decline.

On the positive side of the picture, Vard's order book value reached a five-year high, buoyed by an exceptionally high first quarter order intake of NOK 5.5 billion. Order book value at the end of the quarter reached NOK 21.8 billion, a 13% increase from the full year 2013 ( and a 41% increase from the same quarter in the preceding year ("1Q2013").

Orders included an arctic Anchor Handling Tug Supply (AHTS) vessel for Bourbon – the first AHTS contracted since 2012, an Offshore Subsea Construction Vessel ("OSCV") for Solstad Offshore – Vard's largest ever single vessel order, a Diving Support and Construction Vessel for Technip, and three Platform Supply Vessels (PSV") to be built at the Group's shipyard in Vietnam, two of which for new customer Mermaid Marine Australia.

During the quarter, Vard delivered four vessels from Norway and Romania, and its order book as at March 31 stood at 45 vessels, of which 27, or 60%, will be of Vard's own design.

In 1Q2014, Vard generated stable revenue of NOK 2.7 billion, representing a slight 2.7% dip from 1Q2013. EBITDA margin (representing EBITDA to total operating revenues) ticked upwards for the third consecutive quarter ending at 6.4%, against a high EBITDA margin of 11.1% for 1Q2013.

The Group's cash position improved by nearly NOK 400 million since the end of FY2013, and cash and cash equivalents at the end of the quarter stood at NOK 2.1 billion, mainly due to an increase in operating cash flows, coupled with the effect of lower cash flows used for investing activities.

During the quarter, one of the delayed vessels at Vard Niterói in Brazil was completed, reducing the yard's load from its peak in the fourth quarter of the last financial year. Of the three remaining Niterói projects, one vessel has successfully concluded its sea trial and is slated for delivery in May.

Vard Promar, the Group's second Brazil yard, is in the final stage of construction, with the installation of the gantry crane to be finalized in July 2014. The yard currently has a headcount of about 1,210 employees, and construction of its first shipbuilding projects, a series of LPG carriers, is advancing.

On the back of three new contracts secured during the quarter, Vard Vung Tau's order book lengthened, and yard utilization improved immediately. All projects at the Vietnam yard are progressing well.

The investment program at Vard Tulcea in Romania was completed, leading to a positive development in productivity. The hull yards in Romania experienced high workload in 1Q2014, while the outfitting yards in Norway generally observed a good level of yard utilization. The four vessels delivered in 1Q2014 all came from Vard's Norwegian yards.

Positive outlook from continued strong demand for subsea support and construction vessel segment

The Group remains positive on order activity for the full year 2014, but also considers the order intake in 1Q2014 to be exceptional. Vard expects to see continued strong demand from the subsea support and construction vessel segment despite concerns over the rising production cost in the oil & gas industry. Average vessel size and complexity are expected to continue to increase.

Vard believes there will be incremental growth opportunities from new business development, such as the establishment of Vard Marine, the new design and engineering subsidiary in Canada, announced on 17 March 2014.

Roy Reite, Chief Executive Officer and Executive Director of Vard, commented, "We have had a promising start to the new year, and continue to reinforce our position as a market leader, and strengthen partnerships with new and repeat customers. We are excited for the upcoming projects in 2014 and are confident of building upon our solid fundamentals to tap on future growth opportunities."

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