IHC Caland announces: Part 1.
Highlights
· For the first time in many years, IHC Caland failed to achieve its forecast profit for the year. Due to a one-time E 25 million provision for restructuring and associated costs of van der Giessen-de Noord, instead of a forecast net profit of E 96 million, the Group result is presently forecast at just above E 71 million (E 2.25 per share). Without the problems at van der Giessen-de Noord the Group was on schedule to meet (and even exceed) its profit target.
· For the offshore division, 2002 was a very successful year, with three new long-term FPSO lease and operate contracts being received, plus the award of a major upgrade, on a lease basis, of an existing FPSO - the Kuito FPSO for Chevron, Angola. Two of the new lease contracts, together with the upgrade of the Kuito FPSO, are in joint venture with Sonangol, the Angola state oil company.
· There were again very limited turnkey deliveries, especially in the offshore division. Profits were mainly driven by revenues from the Group's fleet of FPSO's and FSO's. The new lease contracts won during the year did not produce any net income - this will not come until 2003/2004 and even 2005 - but the high activity levels in the offshore division did result in quite some overrecovery of indirect costs, which goes straight to the bottom line.
· New orders amounted to E 1.9 billion - not quite as high as the record order intake of 2002 (E 2.2 billion) but nonetheless very respectable. E 1.6 billion relates to the offshore division and E 0.3 billion to dredger and specialised shipbuilding.
· Barring any surprises due to the many uncertainties existing in the world today, management expects to make a net profit of not less than US$ 110 million (€ 105 million at year-end 2002 exchange rate) for 2003 - a 10% increase over the original Euro profit target for 2002. This represents E 3.30 per share, an increase of 8% over the original target for 2002, and 46% over the actual result.
· Especially in respect of the offshore activities, Management remains confident that the market will continue to offer opportunities. Justification for this confidence came shortly after the year-end with the confirmation of an award by Petrobras of a long-term lease for a complex FPSO for its Marlim Sul field offshore Brazil. On the dredger/specialised shipbuilding side, the actions taken in the wake of the van der Giessen-de Noord restructuring have served to reduce the Group's overall shipbuilding capacity, and refocus on dredgerbuilding where the Group has a major technological edge.
1. Financial
For 2002, after deducting the E 25 million provision for restructuring and associated costs of van der Giessen-de Noord, IHC Caland's profit for the year fell from E 80.6 million in 2001 (E 2.76 per share) to E 71.3 million (E 2.25 per share).
Recognising the exceptional nature of the van der Giessen-de Noord problems, a proposal will be made for a dividend based on approximately 50% of the target net profit for 2002 of E 96 million.
With the exception of van der Giessen-de Noord, all major Group companies contributed positively to this result.
Despite normal profits at IHC Holland and Merwede Shipyard, van der Giessen-de Noord's losses brought the shipbuilding division into an overall negative result, so that the entire profit (and more) was contributed by the offshore division. As already mentioned, a primary contributor was the Group's lease fleet, which began the year with 12 units in operation and finished with 13 due to the operational start-up of the ExxonMobil Yoho FPSO and the Roncador FPSO for Petrobras, and the termination of the FPSO II contract.
Completed orders (turnover) was steady at E 958 million (2001 - E 965 million).
Cash flow at E 163 million was below forecast mainly because of the profit dip, but also due to the fall in the US$/€ rate over the year. The Group's long-term debt at year-end reached a level of almost US$ 1 billion with a significant portion being project related and therefore serviced by revenues from long-term contracts. The year-end cash position was satisfactory at E 203 million.
As already advised, with effect from 1 January 2003, IHC Caland will be reporting only in US$.
2. New booked orders.
New booked orders amounted to E 1927 million compared with E 2206 million in 2001.
New orders, both for the offshore oil industry but especially for the dredgerbuilding industry, included the supply of vessels and equipment incorporating new technology, developed within the Group. In general, overall profit margins on the new orders are satisfactory.
A selection of new booked orders includes the following: · An order from ExxonMobil for a seven year lease and operate contract for a second Generic FPSO, for the Zafiro field in Equatorial Guinea;
· An order from ExxonMobil for a large deep water buoy for their Kizomba A, Angola field;
· An order from Husky Oil, Canada for a complex internal turret mooring for the FPSO for their White Rose field;
· Another seven year lease and operate contract for a Generic FPSO for ExxonMobil's Xikomba, Angola field, in joint venture with the Angolan state oil company, Sonangol;
· An order from Chevron/Cabgoc for an eight year lease and operate contract for an LPG FPSO for their Sanha field offshore Angola, in joint venture with Sonangol;
· An order from Chevron/Cabgoc for a major upgrade to the Kuito FPSO, offshore Angola;
· An order from ExxonMobil for the turnkey supply of an FSO for the Yoho field in Nigeria;
· A contract from MISC (Malaysian International Shipping Corporation Berhad) for a turret for the Petronas Lukut FPSO;
· A record high level of new orders in Parts and Services, offshore;
· A 4400 kW floating booster station for NMDC, Abu Dhabi;
· An order from Boskalis for two deep dredging installations;
· An order from DEME, Belgium, for a 5400m³ trailing suction hopper dredger;
· Contracts for two jack-up platforms for Besix and Hydro-Soil Services (Belgium);
· A contract from CHEC (China Harbour Engineering Corporation) of the Peoples Republic of China for a 10000m³ trailing suction hopper dredger;
· Orders for 13 Beaver cutter suction dredgers for various clients and countries.
Orders received after year-end.
In the second week of January, the offshore division received a Letter of Intent from Petrobras for the supply on a lease and operate basis of a large complex FPSO. The contract is for a minimum period of 94 months, and the total value is in excess of US$ 500 million.
3. Order backlog as per 31 December 2002
Orders in hand at the end of 2002 increased to € 4830 million compared with € 4103 million at the end of 2001. The order portfolio includes the non-discounted value of the Group's 17 long term lease contracts for FPSO's and FSO's.
4. Expectations for 2003
Two new units were added to the operational fleet at the end of 2002, the Roncador FPSO for Petrobras, and the Yoho FPSO for ExxonMobil. This brings the number of units in operation at the start of 2003 to thirteen (8 FPSO's and 5 FSO's).
The Nkossa FSO (Oil) is due to be returned by its client Elf Congo in March 2003 in an early (fully compensated) termination, and the FSO XV is scheduled to come off hire in June, after 10 ½ years of service, to be replaced by the newbuilt Amenam FSO.
Two units which are contractually scheduled to come off hire in 2003 (the FPSO for Agip's Aquila field and the FSO for Shell in Sakhalin) are expected to receive contract extensions.
Finally three new units are expected to come into service in 2003, being the Zafiro FPSO for ExxonMobil in Equatorial Guinea, the Xikomba FPSO , also for ExxonMobil in Angola and the Okhono FPSO (in joint venture with Saipem) replacing the Jamestown.
This leads to a projected fleet end 2003 of ten FPSO's and three FSO's, which will generate substantial earnings and cash flow. Meanwhile, two more units will have been redelivered and be available for relocation. On the turnkey side of the offshore business, there will be a considerable number of deliveries in 2003, including the Matterhorn TLP, the soft yoke mooring for Shell's EA FPSO, the Amenam FSO and the Bonga facilities for Shell Nigeria. Having been contracted in a very competitive environment, and in the cases of Amenam and Bonga including major subcontracts, these projects will generate moderate margins.
In the dredgerbuilding activities, deliveries are expected to be lower than 2002, with a corresponding reduction in profit levels, while in the area of specialised shipbuilding, Management hopes to return close to break-even after the major losses and downsizing costs in 2002.
Overall, and barring any surprises due to the many uncertainties existing in the world today, Management expects to make a net profit of US$ 110 million (€ 105 million) for 2003 - a 10% increase over the original Euro profit target for 2002. This will be mainly driven by profits from the lease fleet, with a modest contribution from turnkey deliveries, and some expected overrecovery of costs in the offshore division. Cash flow is expected to rise to over US$ 260 million (€ 248 million).
5. Market developments for 2003
5.1 General The year begins with a number of important uncertainties, the main one being the possibility of a war with Iraq. On the other hand, the oil price remains at a healthy level which encourages sustained E& P budgets. There is a long list of FPSO and FSO projects, many in deep water, and the Group is optimistic to be able to obtain a reasonable share of these. The order from Petrobras mentioned above is a very good example.
On the dredger building side, there is also uncertainty in that the large Singapore land reclamation project is still suspended. Such uncertainty might make the dredging contractors reluctant to invest in the short term. Nonetheless there is an ongoing need for the replacement of small and medium size maintenance dredgers, as well as for cutter suction dredgers.
Finally on the specialised shipbuilding side, the market remains weak and highly competitive. The impact of the new safety regulations for ferries has not yet been felt in the market, but it is bound to come eventually.
5.2 Offshore sector
On a global perspective, worldwide plans for E& P spending in 2003 are predicted to be up by approximately 5%, with a growing proportion in the offshore. However, the increase is mostly coming from international E& P, and expenditure in the US domestic Gulf of Mexico is rather on a downward trend. The above is important to note, although IHC Caland's business is in most part only affected by budget movements 3 to 4 years later in the cycle.
Overall, the market is expected to remain buoyant for the Group's products:
In the FPSO lease-and-operate segment, which is becoming the most important activity of the Group, demand is expected to remain high, as a number of projects requiring such units are already identified for development of deep offshore fields. The Group has now acquired a solid experience in converted FPSO's and has improved its efficiency in project execution. Prices and delivery times can be estimated with a high degree of accuracy, thereby minimising the risks and increasing the chances of success. The Group expects to be able to maintain a strong position in this buoyant segment of the market and to grow its portfolio further.
In parallel to this, there will continue to be a rather high demand for facilities and components on a sale basis, including deep water loading terminals, mooring systems for large FPSO's, standard CALM buoys etc. There is a strong motivation to take this market segment most seriously, in order to maintain a reasonable balance of revenues between those from the lease activity and those from sales.
As part of the same objective, considerable attention will be dedicated to the offshore division's Parts & Services business which performed extremely well in 2002. This activity will now be established as a separate profit centre, to increase focus and boost efficiency.
The coming year should represent a milestone in the oil and gas industry, as it is expected that LNG will start playing an important role, both in the exploitation of stranded gas fields offshore and in the transportation and loading/offloading activity. The Group is well positioned with new technology to play a substantial role in this area.
5.3 Dredger/specialised shipbuilding sector
It is expected that the demand from the European dredging contractors in 2003 will mainly consist of replacement of their outdated smaller and mid-sized units in the existing fleet. Nevertheless the Singapore situation could lead to a postponement of investments in new equipment.
The activities with a number of state owned dredging corporations in countries such as China and India remain at a very acceptable level, with demand for medium size and larger hopper dredgers as well as custom-built cutter suction dredgers. However in this market segment pricing will be tighter than in the past because of the appreciation of the Euro against the US$. It has also to be understood that timing of these investments is difficult to predict, due to the nature of the complicated tendering processes.
All in all we expect that demand for new dredging equipment will shift; where the emphasis over the last five years has been with the European contractors (especially during the jumbo ordering boom) the centre of gravity will now shift to the state owned dredging corporations and smaller local contractors. From the market descriptions above and the resulting anticipated order intake, it can be expected that yard capacity at IHC Holland and to a large extent Merwede Shipyard will be used for dredger activities, while van der Giessen-de Noord will rely (with the exception of the occasional dredger because of delivery time considerations) on the specialised shipbuilding market where the list of identified projects indicates a higher level of ordering activity in the second half of 2003. Here the Group's exposure has been significantly reduced by the 40% reduction in van der Giessen-de Noord's workforce.
6. Conclusion
2002 was a year of mixed blessings - the offshore division continued to flourish, with several new units being added to the fleet of FPSO's/FSO's, but one of the Group's shipyards encountered very severe operational and market problems. The end result is that for the first time in many years the Group failed to meet its forecast profit. Prompt action has been taken to resolve the shipyard's difficulties, and Management believes that the situation is once again under control.
On the offshore side, there continues to be a long list of potential projects, and Management remains optimistic about the prospects and profitability of the Group in the foreseeable future.
7. Financial agenda
Preliminary results 2002 (Date changed due to rescheduling of Supervisory Board Meeting): 22 January 2003 Final results 2002- Press release: 27 March 2003 Final results 2002- Press conference (14.00 hrs IHC Caland, Schiedam): 27 March 2003 Final results 2002- Analysts presentation (Amsterdam and London): 28 March 2003 Annual Report 2002: Begin-May 2003 Annual General Meeting of Shareholders 2003: 16 May 2003 Midyear figures 2003 - Press release: 25 August 2003 Midyear figures 2003 - Press conference (14.00 hrs IHC Caland, Schiedam): 25 August 2003 Midyear figures 2003 - Analysts presentation (Amsterdam and London): 26 August 2003
End of publication.