RNS Number:3159Z
Kvaerner ASA
22 February 2001
Kvaerner reports preliminary results - profitability restored
LONDON, 22 FEBRUARY 2001: Kvaerner ASA, the Anglo-Norwegian engineering and
construction Group, today announced its preliminary results for the year
ending December 31, 2000. Operating profit amounted to NOK 968 million,
before exceptional items, and NOK 1,243 million including exceptional items;
pre-tax profit for the year was NOK 513 million. Turnover amounted to NOK 54.5
billion.
". . . tangible achievement for a Group that has now radically changed."
Kjell E Almskog, President & CEO of Kvaerner, commented on the results saying:
"Following some two years of tough surgery, Kvaerner is demonstrating that
it's a company which has regained its profitability and improved its financial
strength - and this is tangible achievement for a Group that has now radically
changed. From an unfocused conglomerate a few years ago, today's Kvaerner is
a specialised provider of technology and solutions, for the hydrocarbons and
industrial process industries. Our core Oil & Gas and E&C activities bettered
their results in the fourth quarter, with the latter showing improvement for
eight quarters in a row. Interest-bearing debt has been halved since 1998 -
and Kvaerner is in a stronger position financially. We're now searching for
growth opportunities in our chosen areas," he said. "For the business as a
whole, I expect the solid order reserve will facilitate further progress for
us in 2001," Almskog concluded.
HIGHLIGHTS
- Group pre-tax profit of NOK 513 million (1999: a loss of NOK 5,500 million)
- Group operating profit, before exceptional items, of NOK 968 million (1999:
NOK 18 million), and NOK 1,243 million including exceptional items (1999:
loss of NOK 4,692 million)
- Core business (E&C and Oil & Gas) operating profit of NOK 656 million (1999:
NOK 574 million)
- Fourth quarter operating profit for the core businesses increased by 33.5
per cent over the third quarter to NOK 223 million - E&C showed improvement
for the eighth consecutive quarter
- Group turnover of NOK 54.5 billion (1999: NOK 70.9 billion)
- Year-end order reserve of NOK 51.1 billion - an increase of NOK 9.9 billion
since the year-end 1999 (excluding Construction)
- Net interest bearing debt reduced by NOK 4.2 billion during the year to NOK
5.4 billion - plus further cash injection in January 2001 of NOK 1.2 billion
from Baltic Exchange disposal
- Net interest bearing debt reduced by 50 per cent the since end of 1998
- Equity ratio at the end of December was 22.5 per cent, compared to 10.3 per
cent at the end of 1999
GROUP RESULTS AT A GLANCE
NOK millions 2000 1999 4Q2000 4Q1999
Turnover 54,472 70,864 12,100 16,344
Operating profit 1,243 -4,692 300 -595
Profit before tax 513 -5,500 155 -724
Order intake* 54,845 39,204 8,597 8,231
Order reserve* 51,122 41,174
*excluding Construction
The Group operating result for the fourth quarter, exclusive of exceptional
items, was NOK 225 million, producing a full year operating profit of NOK 968
million. The full year operating result, including exceptional items, was NOK
1,243 million (1999: loss of NOK 4,692 million). The fourth quarter operating
result of the core businesses, E&C (Engineering & Construction) and Oil & Gas,
showed a 33.5 per cent increase over the third quarter to NOK 223 million.
Both business areas improved their results over the preceding period - E&C for
the eighth consecutive quarter. The full year operating profit for the core
businesses was NOK 656 million (1999: NOK 574 million). The fourth quarter
operating profit for all the non-core activities was NOK 2 million, producing
a full year operating profit of NOK 141 million.
Group cash flow in the year before financing was positive, at NOK 1.6 billion.
Both E&C and Oil & Gas showed negative working capital at the year-end.
Group turnover for the year amounted to NOK 54.5 billion (1999: NOK 70.9
billion), the reduction being mainly due to the sale of businesses and
additionally, the downturn in the oil and gas services industry.
Exceptional items accounted for in the fourth quarter amounted to a net profit
of NOK 75 million. This included a net gain of NOK 200 million on the sale of
Construction and a NOK 75 million gain on the sale of the Baltic Exchange
property in London booked in the period, in addition to the NOK 400 million
booked in the third quarter. The Company also made an additional provision of
NOK 200 million to cover liabilities arising from previous disposals.
For the year as a whole, net exceptional items amounted to a profit of NOK 275
million, including sales gains of NOK 675 million and exceptional costs of NOK
400 million. (1999: a loss of NOK 4,710 million after exceptional costs of NOK
5,237 million). Net financial items for the fourth quarter amounted to NOK
-145 million, with net interest expense of NOK 169 million. The figures for
the whole year were NOK -730 million (1999: NOK -808 million) and NOK -770
million (1999: NOK -874 million), respectively.
Profit before tax for the final quarter of the year was NOK 155 million,
producing a full year profit of NOK 513 million (1999: a loss of NOK 5,500
million).
OPERATIONAL IMPROVEMENTS
Overhead costs for the year showed a further reduction of NOK 824 million
compared to last year. Since the beginning of 1999 the Group's total overhead
costs have been reduced by NOK 2.3 billion. The total number of employees in
the Group was reduced from 62,000 to 34,000 during the year. Of the 28,000
total reduction, approximately 22,000 people were transferred out of the Group
as part of the disposal of Kvaerner Construction and its associated companies.
ORDER INTAKE AND ORDER RESERVE
The order intake for E&C and Oil & Gas in the fourth quarter was broadly in
line with the previous quarter. The total order intake in the quarter amounted
to NOK 8.6 billion.
The full year order intake for the core businesses, E &C and Oil & Gas,
increased by 27 per cent. For the Group as a whole, an improvement of almost
40 per cent was achieved, resulting in an amount of NOK 54.8 billion (adjusted
for the sale of Construction).
The order reserve for the core businesses at the year-end stood at NOK 21
billion - an increase of 13 per cent over the year-end 1999. Adjusted for
businesses sold during the year, the total order reserve increased by 24 per
cent compared to the end of 1999, to NOK 51.1 billion.
STRATEGIC DEVELOPMENT
In November, Kvaerner announced that it had completed the sale of its building
and civil engineering activities, Kvaerner Construction, to Skanska. This was
a further strategic step to create a Group with a clear focus in the provision
of technology and solutions to the oil and gas industry, the onshore process
industry and the metals industry.
At the beginning of January of 2001, the Group also said that it would
consider further structural changes to fulfil this strategy. Among the changes
being considered is a split of the current core and non-core activities into
separate companies.
The aim of such restructuring would be to strengthen the management focus and
level of specialisation in order to achieve further operational improvements
and growth opportunities in the core businesses. At the same time, it would
facilitate an exit from the remaining non-core activities in a way that would
secure the best value for shareholders. The evaluation of these, and other
opportunities for the further enhancement of shareholder value, will continue
during the first quarter of 2001.
DIVIDEND
In spite of significant progress made to restore the Group's profitability,
the Board of Directors does not consider it appropriate to propose a dividend
for the year 2000.
INVESTMENT, FINANCING AND LIQUIDITY
Cash, bank deposits and debt
Net interest bearing liabilities at the end of the year amounted to NOK 5.4
billion, a reduction of NOK 0.8 billion since the end of the third quarter -
and NOK 4.2 billion since the end of 1999. Since the end of 1998, net
interest bearing debt has been reduced from NOK 10.8 billion - a reduction of
50 per cent.
Additionally, the Group received NOK 1.2 billion in cash proceeds from the
disposal of Baltic Exchange at the beginning of the first quarter, 2001.
Net working capital at the end of the year amounted to NOK 4.2 billion,
compared to NOK 4.5 billion at the end of 1999. Cash flow in the year, before
financing, was NOK 1.6 billion. During the fourth quarter, the Group
concluded a US$590 million financing arrangement for the construction of
cruise ships at its Masa-Yards, which will provide the substantial part of the
working capital for this business.
Equity
The equity ratio increased to 22.5 per cent at the end of the year, compared
to 17 per cent at the end of the third quarter and 10.3 per cent at the end of
last year.
Asset disposals
Early in January 2001, the Group announced that the transaction to sell the
Baltic Exchange property in London had been finally completed. The total
proceeds from the transaction amounted to NOK 1.2 billion. The total
accounting gain from the transaction amounted to NOK 475 million, of which NOK
400 million was booked in the third quarter and the balance of NOK 75 million
in the fourth.
CORE BUSINESS AREA RESULTS
E&C:
NOK millions 2000 1999 4Q2000 4Q1999
Turnover 16,407 15,325 5,306 4,218
Operating profit 508 336 166 102
Order intake 17,159 14,632 3,811 4,570
Order reserve 12,052 11,092
The operating profit for the fourth quarter of NOK 166 million was yet another
improvement over the preceding quarter - the eighth in a row. This result
produced a full year operating profit of NOK 508 million, which was 51 per
cent higher than last year (1999: NOK 336 million). Operating margins have
consistently improved - from 0.7 per cent in 1998, 2.2 per cent in 1999 - to
3.1 per cent in 2000.
All business streams traded profitably in the quarter, with the Process stream
making a particularly good contribution. The Australian market was weak,
however, and the activities in that region produced a small loss. Early in
2001, these operations were restructured.
Order intake for the year was NOK 17.2 billion, of which NOK 3.8 billion was
booked in the fourth quarter. The full year order intake shows an increase of
17 per cent over last year. The order reserve at the end of the year amounted
to NOK 12.1 billion, which represented a 9 per cent increase over the end of
last year.
Oil & Gas:
NOK millions 2000 1999 4Q2000 4Q1999
Turnover 11,304 18,764 2,557 3,482
Operating profit 148 238 57 84
Order intake 12,394 8,642 2,426 1,031
Order reserve 8,969 7,518
The operating profit for the fourth quarter was NOK 57 million, a 35 per cent
increase compared to the previous quarter. The full year operating profit was
NOK 148 million (1999: NOK 238 million). The reduced result reflected a 40 per
cent reduction in turnover as a consequence of last year's weak market
conditions. Furthermore, no contribution was booked in the year from the
Snorre contract, due to uncertainties over the total cost development of the
project. Operating margins of 1.3 per cent remained the same. Of the five
business streams, Kvaerner Oilfield Products concluded the year with a strong
fourth quarter, and showed satisfactory results for the year. Overall, the
result for Oil & Gas was also weighed down by restructuring costs, as the
total number of employees in the business area was reduced by some 4,000
during the year, including agency personnel.
Order intake for the year was NOK 12.4 billion, of which NOK 2.4 billion was
booked in the fourth quarter. The full year order intake was 43 per cent
higher than in the previous year. The order reserve at the year-end amounted
to NOK 9.0 billion, which was 19 per cent higher than at the end of the
previous year.
OTHER BUSINESSES
The total operating profit for the non-core businesses for the fourth quarter
was NOK 2 million. The full year operating profit for the non-core businesses
was NOK 141 million, compared to a loss of NOK 655 million in 1999.
Shipbuilding
The operating result for the year was a profit of NOK 32 million (1999: NOK 47
million).
The weak result was mainly the product of an unsatisfactory contribution from
contracts at Masa-Yards and the production of a drilling rig at the Warnow
yard. Furthermore, no income has so far been recognised for work done on the
first ship that is being produced in Philadelphia.
The efforts to improve the performance of the Masa-Yards are ongoing and show
a positive development. The progress of the improvement programme gives
reason to believe that the yards have reached a turning point.
The combined order intake for the yards in 2000 was NOK 20.1 billion, compared
with NOK 5.2 billion for the previous year. The order reserve at the year-end
amounts to NOK 24.5 billion, a 54 per cent increase over the end of last year.
Pulp & Paper
The operating profit for the fourth quarter was NOK 46 million, producing a
full-year operating profit of NOK 183 million, including an exceptional item
of NOK 122 million relating to a pension rebate received (1999: a loss of NOK
118 million). The three principal business streams, Power, Fiberline and
Chemetics, were all profitable during the year.
The order intake for the year was NOK 4.8 billion, of which NOK 1.7 billion
was booked in the fourth quarter. The total order intake for the year was 12
per cent higher than in 1999, whilst the order intake for the fourth quarter
showed an increase of 35 per cent compared to the corresponding period of the
preceding year. The order reserve at the end of the year amounted to NOK 3.5
billion, which represented a slight increase compared with the end of the
previous quarter.
Other activities
A complicated ownership structure and the political framework have hampered
the restructuring of the mechanical fabrication activities at two locations in
Romania. These operations, and the financial results of some other remaining
activities being exited, produced a combined operating loss for the year of
NOK 74 million. This negative position is expected to gradually reduce, as a
result of margin improvements and decreased activities.
OUTLOOK
The Group is well positioned to concentrate on growing the profitability of
the core businesses going forward, E&C and Oil & Gas. It is expected that
overall, these businesses will continue to see reasonable market conditions
and will, in 2001, benefit largely from the 'right-sizing' of the various
operating units. It is also anticipated that the results in Shipbuilding will
benefit from the efforts invested in the improvement programmes. On the whole,
it is expected that the profitability created in 2000 will further improve in
2001. Cash flow is expected to stay positive and net debt to further reduce.
For more information:
Trond Andresen, Senior Vice President, Group Communications: +44 (0)370 856550
Paul Emberley, Vice President Group Communications: +44 (0)20 7339 1035 or +44
(0)7768 813090
To download the press release, fourth quarter report and presentation, go to
www.kvaerner.com/finance
Notes to editors:
- NOK = Norwegian Kroner; US$/NOK - 8.9; UK#/NOK - 13.0; EUR /NOK - 8.2
- A combined media/ analyst conference call will take place later today at 2pm
(London time)/ 9am (EST). John Charlton, Kvaerner's CFO, will present the
results and answer questions. In the UK and Europe, participants may dial-in,
listen and take part in the conference call live by calling +44 (0)20 8781
0596 quoting "Kvaerner". In North America, at 9am (EST), participants may
call +1 800 482 2225 quoting "Kvaerner". An instant replay will also be
available for a period of five working days after the conference by calling
(UK) +44 (0)20 8288 4459 (access code: 625182) or in the USA, call +1 800 625
5288 (access code: 943123).
- Kvaerner is a world-class Anglo-Norwegian engineering and construction
group. The Group's activities are organised in two core business areas: E&C
(engineering and construction), and Oil & Gas. It also has interests in
shipbuilding and the provision of services to the pulping industry. Kvaerner
is a Norwegian registered business, but has a London, UK-based international
headquarters. The Group has annual revenues of more than US$6 billion, with
some 35,000 permanent staff located in almost 35 countries throughout Europe,
Asia and the Americas.
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