RNS Number:6700T
Kvaerner ASA
7 November 2000
Kvaerner reports third quarter results - profitability maintained
LONDON, 7 NOVEMBER 2000: Kvaerner ASA, the Anglo-Norwegian engineering and
construction Group, today announced its results for the nine months ending
September 30, 2000. Operating profit for the first nine months of the year
amounted to NOK 743 million, before exceptional items; pre-tax profit for the
period was NOK 358 million and turnover amounted to NOK 42.4 billion.
Kjell E Almskog, President & CEO of Kvaerner, commented on the results saying:
"Profitability was maintained during the quarter, and the Group's figures were
broadly in line with the preceding period. Our E&C activities continue to
produce strong results, with yet another improvement over the last quarter,
and a nine-month operating performance 46 per cent higher than in 1999. The
Oil & Gas result primarily reflects a 43 per cent turnover decrease due to
last year's sharp market decline", he said. "The determination to focus on
continued improvement in our activities is starting to pay-off - with further
cost savings of almost NOK 800 million, compared to last year.
"The recent completion of Kvaerner's Construction sale to Skanska represents a
further focusing of the Group's activities. At the same time, it releases
financial resources that will be used to further strengthen our Oil & Gas and
E&C operations."
Almskog concluded, "The satisfactory order intake will ensure further
improvements in profitability as we look ahead to 2001."
HIGHLIGHTS
- Pre-tax profit of NOK 203 million, lifts year-to-date figure to NOK 358
million
- NOK 202 million 3Q Group operating profit before exceptionals, gives
year-to-date figure of NOK 743 million; 3Q core business result of NOK 211
produces year-to-date figure of NOK 604 million
- Further year-to-date core business/ corporate overhead reductions of 16
percent, compared to 1999
- Core business order intake for the period increased by 31 per cent over 1999
- Continuing operating improvements in E&C - the seventh consecutive quarterly
improvement in results - while restructuring and re-focusing of Oil & Gas
continues
- Moving forward to seek alternatives for expansion; sharpened strategic
focus on E&C and Oil & Gas, as the Construction business area is sold
- Net interest bearing debt reduced by NOK 2.8 billion to NOK 6.3 billion
- Two more successful missions for Sea Launch; last obstacles cleared for
Baltic Exchange sale
GROUP RESULTS AT A GLANCE
NOK millions Q32000 Q31999 9M2000 9M1999
Turnover 13,869 17,864 42,372 54,520
Operating profit 202 126 743 -137
Profit before tax 203 36 358 -4,776
Order intake 19,520 13,851 57,470 39,637
Order reserve/ end of Qs 70,642 64,472
The third quarter results from the core businesses were in line with the
preceding quarter with an operating profit of NOK 211 million. However,
reduced contributions from the non-core businesses reduced the total
operating result to NOK 202 million. The operating profit for the nine months
to 30 September was NOK 743 million, before exceptional items (1999: a loss of
NOK 137 million).
Net exceptional items accounted for in the third quarter amounted to a profit
of NOK 200 million. One of these items was the gain on the sale of the Baltic
Exchange site in London, of NOK 400 million. This sale will now be completed
as the final obstacle to achieving planning consent has been cleared. The cash
inflow of approximately NOK 1 billion will take place in January 2001.
The other exceptional item was a provision of NOK 200 million taken in Oil &
Gas. An important element of this provision is related to a possible loss on
Texaco's Captain project in the UK. The project has been completed and was
delivered in the third quarter, but it has not yet been possible to reach
agreement on the completion settlement with the customer. Despite the fact
that discussions over variation orders are still ongoing, it has been
considered prudent to make a provision for a possible loss.
The balance of the provision has been made to meet one-off costs connected to
restructuring and downscaling. The markets remain weaker than anticipated,
despite the strength of the oil price, and a vigorous restructuring is being
carried out.
After net financial items of NOK 199 million, the profit before tax for the
third quarter was NOK 203 million, producing a nine-month year-to-date figure
of NOK 358 million.
It is anticipated that the lack of contributions from major projects within
Oil & Gas and Shipbuilding, as well as losses from the mechanical fabrication
activities being restructured in Romania, will weigh down the results in the
fourth quarter of the year.
OPERATIONAL IMPROVEMENTS
Overhead costs for the nine months showed a further reduction of NOK 798
million compared to the corresponding period last year. Since the beginning
of 1999 the Group's total overhead cost has been reduced by more than NOK 2
billion.
ORDER INTAKE AND ORDER RESERVE
The order intake in the third quarter amounted to NOK 19.5 billion, producing
a cumulative nine-month total of NOK 57.5 billion (1999: NOK 39.6 billion).
The core business order intake for the period of NOK 34.5 billion represented
an increase of 31 per cent over 1999 (NOK 26.3 billion). The order reserve at
the end of the third quarter was NOK 70.6 billion - an increase of NOK 5.6
billion compared to the end of the second quarter, and an increase of NOK 10.1
billion when compared to the end of 1999.
STRATEGIC DEVELOPMENT
Two major events dominated the third quarter of the year in terms of
restructuring and strategic development. The first was the sale of the
building and civil engineering activities of the Group, organised in the
business area - Kvaerner Construction. The second was the bid to acquire Aker
Maritime in an attempt to establish a Norwegian-based world leader in the oil
and gas services industry.
Sale of Kvaerner Construction: In August, Kvaerner announced an agreement to
sell Kvaerner Construction to Skanska. The sale, which was completed last
week, means a further sharpening of the Group's activities and is another step
in the transformation of Kvaerner into one of the world's leading providers of
industrial technology and solutions. Following the disposal of the building
and civil engineering activities, the Group's activities will concentrate on
providing technology, design and construction services for plants in the
onshore and offshore oil and gas industry, the process industry and the metals
industries. The sale includes all activities of Kvaerner Construction, and its
50 per cent shareholding in Hong Kong-based Gammon Construction.
Kvaerner has retained NOK 1.4 billion in cash from the businesses sold and has
additionally received NOK 3.2 billion in cash from Skanska, totalling NOK 4.6
billion. The total consideration for the sale has been reduced by
approximately NOK 100 million, compared to the original announcement, as a
result of due diligence and other adjustments. Completion of a few projects
will be undertaken as a shared responsibility between the two parties, and the
final gain from the transaction will be determined and accounted for in the
fourth quarter. The sale does not include Kvaerner's remaining industrial
construction activities organised within its E&C business area.
Proposal to buy Aker Maritime: It is Kvaerner's ambition to develop its Oil &
Gas business to become one of the major players in the oil and gas services
industry worldwide. Kvaerner therefore initiated a dialogue in 1999 with the
majority shareholder of Aker Maritime, the listed Norwegian oil and gas
services company, with a view to combining Aker Maritime with Kvaerner Oil &
Gas. After several previous attempts to reach an agreement, Kvaerner in August
launched a public Offering for all the shares in Aker Maritime. However, the
Board of Aker Maritime did not recommend the Offer, and the Offer lapsed.
Kvaerner is now addressing other opportunities to achieve its goal of growth,
and the improvement of its business in the oil and gas service industry.
Ownership situation: During the third quarter, Kvaerner was informed that Aker
Maritime ASA had secured options to acquire 26.4 per cent of the shares in
Kvaerner ASA. So far, Aker Maritime has not yet taken delivery of any shares.
The EU Commission has declared that an acquisition of 26.4 per cent in
Kvaerner represents a controlling position. Therefore it has declared any
transaction within this framework as "notifiable" and subject to EU approval.
The EU decision in the case is not expected until mid-December.
Amendment to the Articles of Association: With a shareholder structure
consisting of a large number of very small shareholders, and historically,
between 40 and 45 per cent of the voting shares attending the General Meetings
- a single shareholding of 26 per cent might effectively achieve majority
control. In order to protect the interests of all shareholders, the Board
proposed to an Extraordinary General Meeting on 29 September that an amendment
be made to the Company's Articles of Association by introducing a threshold
for voting rights at 30 per cent. This implies that voting rights cannot be
exercised for shares representing more than 30 per cent of the votes in the
Company unless such a shareholder has submitted an offer to acquire all the
remaining shares of the Company. The proposal was approved by the
shareholders at the EGM and the Company's Articles have been amended
accordingly.
CORE BUSINESS AREA RESULTS
E&C:
NOK millions Q32000 Q31999 9M2000 9M1999
Turnover 3,807 4,108 11,101 11,107
Operating profit 125 93 342 234
Order intake 4,427 4,266 13,348 10,062
Order reserve/ end of Qs 13,531 10,507
The operating profit for the third quarter of NOK 125 million, was yet another
improvement over the preceding quarter and produced a nine months year-to-date
operating profit of NOK 342 million, which is 46 per cent higher than last
year (1999: NOK 234 million). All business streams traded profitably in the
quarter, and the business area has now seen improving results for seven
consecutive quarters.
Oil & Gas:
NOK millions Q32000 Q31999 9M2000 9M1999
Turnover 2,798 4,509 8,747 15,282
Operating profit 42 90 91 154
Order intake 2,015 2,536 9,968 7,611
Order reserve/ end of Qs 9,331 10,315
The operating profit for the third quarter was NOK 42 million, producing a
nine month year-to-date operating profit of NOK 91 million (1999: NOK 154
million). The result primarily reflects a 43 per cent decrease in turnover as
a result of last year's sharp market decline. Due to the magnitude of the
restructuring being undertaken, and a possible loss on the Captain project,
the Group has made an exceptional additional provision of NOK 200 million. The
Asgard B platform was delivered and commissioned in the third quarter and the
first gas has been produced. Capacity utilisation has been good in the
Norwegian operations, while the UK operations are being downscaled. Kvaerner
Oilfield Products delivered another quarter of strong performance.
Construction:
The operating profit for the third quarter was NOK 44 million, producing a
nine month year-to-date operating profit of NOK 171 million (1999: NOK 83
million). Order intake for the nine months to 30 September was NOK 11.2
billion, of which NOK 4.4 billion was booked in the third quarter. The order
reserve at the end of the third quarter was NOK 18.8 million, which is in line
with the end of 1999.
OTHER BUSINESSES
The third quarter operating result for non-core businesses, including
Shipbuilding, Pulp & Paper and other remaining activities, was a loss of NOK 9
million. The operating result for the area as a whole for the nine months to
30 September was NOK 139 million (1999: a loss of NOK 568 million).
Shipbuilding: The operating result for the third quarter was a loss of NOK 6
million, producing a nine months year-to-date profit of NOK 74 million (1999:
NOK 90 million). The weak result is mainly the product of an unsatisfactory
contribution from contracts at the Masa-Yards and the Warnow Werft.
The improvement process implemented at the yard showed its effect with the
completion and result of the second ship in the 'Voyager-class' for Royal
Caribbean - "Explorer of the Seas". Profitability is not yet satisfactory,
but it is expected that the improvement will continue as the three further
vessels of this class move forward through production. Following third party
financing arrangement of vessels recently delivered, a new arrangement for the
existing order reserve has been signed. This will mean a substantial
reduction in the working capital tied up in the yards. In October, it was
announced that a new Chief Executive had been appointed for the Philadelphia
yard. The new CEO was recruited from the Avondale Shipyard and has a
distinguished career within the American shipbuilding and maritime industry.
This new appointment will add to the attraction of the yard, both in terms of
marketing the yard as a shipbuilder - and as an investment.
Order intake in Shipbuilding for the nine months to 30 September amounted to
NOK 19.2 billion, of which NOK 6.6 billion was booked in the third quarter.
The order reserve at the end of the third quarter stood at NOK 25.5 billion,
which represents a 15 per cent increase over the preceding quarter - and a 60
per cent increase over the end of 1999.
Pulp & Paper: The operating profit for the third quarter was NOK 48 million,
producing a nine months year-to-date profit of NOK 137 million, including an
exceptional income relating to a pension rebate received (1999: a loss of NOK
108 million). Order intake for the nine months to 30 September was NOK 3.1
billion, of which NOK 1.8 billion was booked in the third quarter. The
market showed a positive trend with orders taken in Finland, Sweden, Belgium,
Brazil and South Africa. The order reserve at the end of the third quarter
amounted to NOK 3.2 billion, which is a 19 per cent increase compared to the
end of the previous quarter.
Other activities: The pace of downscaling and phasing out of the mechanical
fabrication activities in Romania has been slowed by a complicated ownership
structure, and the political framework. These operations produced a loss for
the period and further staff reductions are now being implemented in order to
bring the remaining activities in balance. It must be expected, however,
that the fourth quarter will produce a loss also.
INVESTMENT, FINANCING AND LIQUIDITY
Asset disposals: In addition to the agreement to sell Kvaerner Construction
to Skanska, the disposal of two smaller shipyards was completed during the
quarter.
Pulp & Paper: The work to dispose of the Pulp & Paper activities continued
during the quarter, but not at a satisfactory pace, due to delays in the
decision making process of prospective buyers. It has now been concluded that
an alternative route will be prepared in parallel to current discussions with
industrial buyers. An alternative strategy is to float the business as a
separate listed company.
Sea Launch: In July, Sea Launch, the joint venture in which Kvaerner holds a
20 per cent stake, successfully completed the third commercial launch. A
fourth successful launch was completed in October. The Zenit rocket placed
the Thuraya-1 mobile communications satellite into orbit, with the heaviest
payload in the history of satellite launches.
Baltic Exchange: The process of securing planning consent for the proposed
building on the site has now been completed. This means that development of
the site can now start and the transaction with Swiss Re, as announced in
January 1998, can be completed. The Group has accounted for the book gain of
NOK 400 million in the third quarter, while financial closing and payment of
approximately NOK 1 billion will take place in January 2001.
Cash, bank deposits and debt: Net interest bearing liabilities at the end of
September amounted to NOK 6.3 billion, a reduction of NOK 2.8 billion since
the end of the second quarter and NOK 3.4 billion since the end of 1999. Net
working capital decreased by approximately NOK 450 million to NOK 2.8 billion.
Equity: At an Extraordinary General Meeting in June the shareholders approved
a NOK 2.5 billion rights issue to facilitate the next phase of the Group's
development. The issue was over-subscribed both for the A and B shares.
At the same EGM, shareholders approved a proposed consolidation of the A and B
classes of shares in Kvaerner ASA. This took place during the third quarter.
Following the consolidation, Kvaerner ASA has only one class of share,
'Kvaerner Ordinary Shares', listed in Oslo and London.
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, second quarter report and presentation, go to
www.kvaerner.com/finance
Notes to editors:
- NOK = Norwegian Kroner; US$/NOK - 9.2; UK#/NOK - 13.3; EUR /NOK - 7.9
- A combined media/ analyst conference call will take place later today at
1.30pm (London time). Kjell Almskog, Kvaerner's President & CEO, will present
the results and answer questions from Oslo, Norway. John Charlton, Kvaerner's
CFO, will be present in London and will also be available to take 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 9.30am (EST), participants may call +1 800 482 5547 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: 657682) or in the USA, call +1 800 625 5288 (access code: 851101).
- 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 in excess of US$8 billion, with
some 35,000 permanent staff located in almost 35 countries throughout Europe,
Asia and the Americas
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