Vard Reports Increase in Revenues (Norway)

Vard Holdings Limited, together with its subsidiaries, one of the major global designers and shipbuilders of offshore and specialized vessels, today announced its results for the second quarter of financial year 2013 and first half ended 30 June 2013.

VARD generated revenue of NOK 2,945 million for 2Q 2013, representing an 11.7% decrease from the same period in 2012. First-half revenues of NOK 5,692 were down 7.4% compared to the same period in 2012. Operating profit for the half year ended 30 June 2013 was NOK 295 million, down from NOK 793 million in the corresponding period of 2012.

EBITDA margin (EBITDA to total revenue) for 2Q 2013 declined from 13.8% in 2Q 2012 to 4.1% as a result of further delays and cost overruns at the Niterói yard, and high pre-operational expenses at the new yard Vard Promar. EBITDA margin for the half year ended 30 June 2013 stands at 7.5%.

Operations elsewhere in the Group are not affected by the challenges in Brazil. VARD witnessed the deliveries of seven successful projects, including prototype vessels and projects with very short lead times, from the Norwegian yards. Several major investments in Tulcea, Romania, are scheduled for completion in 3Q 2013, giving an excellent platform for future competitiveness. Workload in Romania remains high, while yard utilization in Vietnam is at sub-optimal level following the delivery of the second-to-last vessel in the order book.

Operations of the Company as a whole remain profitable for the year to date despite the negative results for the second quarter of 2013. The Group’s cash and cash equivalents stood at a healthy NOK 2,040 million as at 30 June 2013.

The business environment in Brazil remains challenging, with the landscape being characterized by high personnel turnover and very high pressure within the subcontracting market. Vard Niterói is currently still suffering from an overload situation. One of the major drivers of the deteriorating performance in the second quarter was VARD’s dependency on the outsourcing for the construction of vessel hulls.

However, the last hull that was being built outside of the yard has now been delivered.

Mitigating actions are being implemented, including the reorganization of production that is beginning to bear fruit in terms of productivity, stricter follow-up of subcontracted work, and increasing the usage of expatriates which will help strengthen the organization. The natural reduction of the overload situation as a result of projects progressing and being delivered is also expected to contribute positively. One PSV was successfully delivered from Vard Niterói during the quarter.

The Group’s second shipyard in Brazil, Vard Promar, has commenced operations with its first steel cutting in June 2013, in line with previous estimates. The capex budget is on target but pre-operational expenses were higher than expected, calling for revisions to estimates of start-up costs. Recruitment and training are ongoing, with approximately 350 staff employed so far, many of whom have prior industry experience. With state-of-the-art new facilities and a substantially improved cost position, Vard Promar has a solid foundation to receive new order intake and regain sustainable operations in Brazil.

In 2Q 2013, three new vessel contracts were secured, including one offshore support vessel for Island Offshore, one PSV for Simon Møkster Shipping and one Offshore Tug for Buksér og Berging, accounting for the quarter’s order intake of NOK 1.2 billion. While the order intake in the second quarter consisted of highly specialized, but smaller vessels, the average value per vessel contracted is expected to grow in the second half of 2013.

Taking into account the eight vessels delivered during the quarter, VARD’s order book comprised 41 vessels as at 30 June 2013. More than half, or 22 of these vessels in the order book, will be of VARD’s own design. Total order book value stood at NOK 14 billion.

VARD is confident about the prospects for new orders for the remainder of 2H 2013. As an increasing volume of subsea work translates into big backlogs for subsea contractors, there is a growing need for modern vessels to support such work. VARD continues to work with clients on sizeable opportunities in the subsea support and construction segment. Increased exploration and rig activities are expected to drive new demand for support vessels.

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Press Release, July 11, 2013