Vard Slips into the Red
* Positive EBITDA margin during 4Q2015, net loss of NOK 170 million for the quarter
* Net loss of NOK 1.29 billion for FY2015, weighed down by NOK 474 million net FX losses (NOK 734 million FX losses and NOK 260 million FX gain), of which NOK 380 million net unrealized
* Order book of 29 vessels valued at 10.23 billion NOK at the end of FY2015
* Capacity utilization impacted by shortfall in new orders; positive EBITDA margin expected in 2016, notwithstanding a dip in revenue to NOK 8-9 billion
* Diversification strategy launched to reduce dependency on the offshore market during the downturn
* Recovery to NOK 12-13 billion in revenue targeted with new business plan, reaching previous highs by 2020, also on the back of expected recovery of the offshore market from 2018
* Strong support from major shareholder FINCANTIERI through long-term business opportunities and synergies
Singapore, 29 February 2016 – Vard Holdings Limited (“VARD”, and together with its subsidiaries, the “Group”), one of the major global designers and shipbuilders of offshore and specialised vessels, today announced its financial results for the fourth quarter ended 31 December 2015 (“4Q2015”), and full year ended 31 December 2015 (“FY2015”).
With its core market for offshore oil and gas related vessels showing continued signs of weakness in the short term, VARD also announced highlights of its new diversification strategy, aimed at reducing its dependency on the offshore business during the industry downturn. Focusing on other engineering- and technology-intensive parts of the shipbuilding market, VARD aims to preserve its core expertise and skilled employee base during the downturn, and utilize its existing yard capacity until an eventual recovery in its core market. Already in 2015, VARD has successfully expanded its market presence to new geographies and vessel segments, with the majority of new contracts signed outside its core market.
Slowdown in operations and challenging Brazil situation impact financials
Group revenue for FY2015 came in at NOK 11.14 billion, down 14% compared to FY2014, with the decrease due mainly to reduced activity at some of the Group’s European shipyards, as a result of the shortfall in new orders.
EBITDA before restructuring cost was NOK 35 million for 4Q2015 (4Q2014: NOK 120 million), and NOK 321 million negative for FY2015 (FY2014: NOK 429 million positive). While the rest of the Group delivered a positive EBITDA, margins were impacted by the performance of its Brazilian yards. In Europe, the increasing cost of underutilized capacity contributed to lower margins compared to
FY 2014. The slowdown in activity also resulted in a restructuring cost of NOK 21 million in 4Q2015 and NOK 77 million for FY2015, including severance payments for lay-offs as part of ongoing cost reduction efforts. During 2015, the Group’s total headcount in Norway and Romania declined by 8% and 27% respectively.
Operating profit decreased from NOK 85 million in 4Q2014 to an operating loss of NOK 67 million in
4Q2015, whilst it decreased from a profit of NOK 240 million for FY2014 to an operating loss of NOK 633 million for FY2015. The Group recorded a net loss of NOK 1.29 billion for FY2015, compared to a profit of NOK 50 million for FY2014. The net result for FY2015 was weighed down by NOK 474 million net foreign exchange losses (NOK 734 million FX losses and NOK 260 million FX gain), of which NOK 380 million net unrealized. Of the FY2015 loss, NOK 603 million was attributable to equity holders of the Company, translating to a loss per share of 8.22 SGD cents for the period (FY2014: 5.25 SGD cents earnings per share).
Cash and cash equivalents were reduced by NOK 1.08 billion during FY2015. This is largely due to large projects requiring high working capital investments that exceeded available construction loan financing, and the materialization of the cash impact of the Group’s losses in Brazil. Due to the extraordinary market situation and increased risk, cash preservation and financing of the operations were accorded a high priority. The Group has taken actions during the first months of 2016 to strengthen the balance sheet and liquidity.
In 4Q2015, the Group secured one new vessel contract for an OSCV, bringing the total order book for FY2015 to 29 vessels, of which 18, or 62%, will be of VARD’s own design. The total value of VARD’s order book at the end of FY2015 was NOK 10.23 billion, compared to NOK 17.74 billion at the end of FY2014.
Business plan with solid long-term prospects
Addressing the challenges presented by the cyclical downturn in its core market, VARD has developed a new business plan and strategy. Key elements of the new plan are;
Leveraging the Group’s existing capabilities and relationships, VARD aims to penetrate markets for specialized vessels in the offshore wind and aquaculture markets, and develop a broader product offering to the aquaculture industry. Geographically, the Group will increase its focus on the Middle East region, where it expects comparatively strong demand for OSCVs and other specialized vessels from the offshore industry.
Combining in-house expertise and synergies with its parent group, FINCANTIERI, VARD sees opportunities in the segment of small and specialty cruise vessels such as exploration cruise ships, as well as in the market for Offshore Patrol Vessels (OPV). FINCANTIERI is the leading builder of cruise vessels globally, and has a strong presence in naval shipbuilding. Through its subsidiary, Vard Marine, VARD is already a leading provider of innovative and cost effective OPVs.
To further strengthen ties between VARD and FINCANTIERI, both companies intend to cooperate in the construction of cruise ships, with sections of cruise ship hulls to be produced at Vard Tulcea, also securing a base load for the Group’s Romanian yards for the next years.