RNS Number:8582I
Kvaerner PLC
22 August 2001
Kvaerner Group reports interim results
LONDON, 22 AUGUST 2001: Kvaerner, the Anglo-Norwegian engineering and
construction Group, today announced its results for the six months ending 30
June, 2001. Pre-tax profit for the period amounted to NOK 205 million; the
operating profit was NOK 431 million; and turnover totalled NOK 21.6 billion.
Commenting on the results, Kjell E Almskog, President & CEO of the Kvaerner
Group, said: "The second quarter shows a further improvement in our Oil & Gas
business. Unfortunately, this positive development has been offset by a sharp
deterioration in the second quarter within our E&C (Engineering &
Construction) business. The slow-down in the USA has taken its toll on our
business - and we expect this to have a negative impact in the second half as
well.
"The outlook for E&C is improving, though, due to our success in securing a
number of power-related projects in the Americas lately." Almskog concluded:
"Market conditions for the Oil & Gas business are favourable - and the good
performance here is expected to continue."
HIGHLIGHTS
- The Group's half-year pre-tax profit amounted to NOK 205 million (2000: NOK
47 million, adjusted for activities sold) - an improvement of NOK 158 million
compared to the corresponding period last year. Second quarter profit before
tax amounted to NOK 54 million. The result includes a provision of NOK 100
million related to disputes over cost overruns on certain projects in the E&C
business area.
- The Group's six months operating profit was NOK 431 million (2000: NOK 414
million, adjusted for activities sold), with operating profit for the second
quarter amounting to NOK 170 million.
- The half-year operating profit for the core businesses of E&C and Oil & Gas
combined, was NOK 339 million, including a NOK 100 million provision in E&C.
This result represents a 27.5 per cent over the comparable period in 2000.
Second quarter operating profit for the core businesses amounted to NOK 126
million.
- Group revenue increased slightly in the second quarter to NOK 11.1 billion,
producing a half-year figure of NOK 21.6 billion.
- Net interest bearing debt reduced by NOK 500 million, to NOK 5.6 billion.
- Core business order intake for the first six months was NOK 12.3 billion
(2000: NOK 16.9 billion) - reflecting the slow-down in the U.S. market for
E&C. The order reserve at the end of the second quarter was NOK 20.7 billion,
which is on a par with the order reserve at the end of 2000.
- New strength added to the Group's hydrocarbon capabilities in the Gulf of
Mexico region, through the acquisition of Houston-based Enercon Engineering
Inc.
GROUP RESULTS AT A GLANCE
NOK millions 2Q 2001 1Q2001 HY2001 HY2000
Turnover 11,106 10,498 21,604 28,503
Operating profit 170 261 431 541
Profit before tax 54 151 205 155
Order intake* 7,237 8,454 15,691 31,161
Order reserve/ end of period* 42,869 47,071
*Adjusted for activities sold
The main feature of the second quarter development was a better than expected
result in the Oil & Gas business area. This was offset, however, by weakening
and unsatisfactory results in E&C - caused by the significant slow-down in the
U.S. market and a NOK 100 million provision to meet problems connected with
the completion of certain projects.
The Group's half-year operating profit was NOK 431 million (2000: NOK 414
million, adjusted for activities sold), with a second quarter operating profit
amounting to NOK 170 million.
The six months operating profit for the core businesses, E&C and Oil & Gas,
was NOK 339 million (2000: NOK 266 million), with second quarter operating
profit amounting to NOK 126 million. The half-year result represents a 27.5
per cent improvement compared to the corresponding period last year because of
the good improvement in Oil & Gas.
The half-year operating profit for Other Businesses amounted to NOK 92 million
(2000: NOK 148 million), with a second quarter operating profit amounting to
NOK 44 million. Kvaerner Masa-Yards produced another satisfactory result in
the second quarter, whilst the Kvaerner Warnow result was burdened by the cost
of completion of the Stena Don drilling rig.
Net financial items for the first half-year amounted to NOK 226 million (2000:
NOK 386 million), and the pre-tax profit for the same period was NOK 205
million (2000: NOK 47 million, adjusted for activities sold. Second quarter
net financial items were NOK 116 million and the pre-tax profit for the
quarter amounted to NOK 54 million.
Group turnover for the second quarter was NOK 11.1 billion, producing a six
months figure of NOK 21.6 billion (2000: NOK 21.6 billion, excluding
activities sold.
The Oil & Gas business area is expected to continue to perform well for the
rest of the year, but this development is unlikely to compensate for the
significant deterioration in the E&C area.
The weakness in major segments of the U.S. market is likely to affect E&C
negatively for the rest of the year, whereas the longer-term outlook for the
business area is more positive due to the increase in power related projects.
The order intake for E&C looks strong for the third quarter, particularly in
the power sector, and this bodes well for improved results in E&C for 2002.
ORDER INTAKE AND RESERVE
For the Group as a whole, the second quarter order intake amounted to NOK 7.2
billion, producing a six months intake of NOK 15.7 billion. The second
quarter order intake for the core businesses amounted to NOK 5.5 billion,
producing a six months intake of NOK 12.3 billion (2000: NOK 16.9 billion).
The major deviation compared to last year was within E&C. During the months
of July and August, however, this business area was awarded a number of major
contracts for a total value in excess of NOK 4.5 billion, the majority of
which was secured within the power sector.
The Group's order reserve at the end of June was NOK 42.9 billion compared to
NOK 48.3 billion at the end of the first quarter and NOK 51.1 billion at the
end of 2000.
The decline is largely attributable to the working off of the high order
reserve in Shipbuilding. The order reserve for the core businesses at the end
of June was NOK 20.7 billion, which is in line with the reserve at the end of
the first quarter and the end of last year.
OPERATIONAL IMPROVEMENTS
Planning continued during the second quarter for an organisational
restructuring in order to increase the management focus, strategic flexibility
and operational efficiency of the Group's activities. These plans entail the
organisation of core and non-core activities into separate companies with a
clear management accountability for the development of each of the two
companies. The changes will become effective later this year. No decision
has, as yet, been taken as far as implementing a full legal de-merger of the
two units.
Total overhead costs for the first six months showed a further reduction of
6.3 per cent compared with the corresponding period last year.
CORE BUSINESS RESULTS
E&C
NOK millions 2Q 2001 1Q2001 HY2001 HY2000
Turnover 4,200 3,527 7,727 7,294
Operating profit 6 117 123 217
Order intake 2,916 2,879 5,795 8,921
Order reserve/ end of period 10,327 13,232
The six months year-to-date operating profit was NOK 123 million (2000: NOK
217 million). Operating profit for the second quarter was NOK 6 million.
The weak result is a reflection of the slow down in the U.S. economy and a NOK
100 million provision for problems connected to the completion of certain
projects. Worst hit by the slow down in the market is the Metals sector with
results deteriorating further in the second quarter into a loss - offsetting a
good performance in Process and Construction. Actions are in place to
'right-size' the Metals organisation to fit the present market.
The provision of NOK 100 million taken in the quarter is a consequence of
uncertainty attached to the completion of a zinc recovery plant and certain
other projects in the Americas. There is still uncertainty connected to the
projects in question.
The order intake for the first six months of the year amounted to NOK 5.8
billion, of which NOK 2.9 billion was booked in the second quarter. Major
orders won in the second quarter were within the power sector, with projects
worth approximately NOK 1.9 billion.
The order reserve at the end of the second quarter was NOK 10.3 billion,
compared to NOK 12.1 billion at the end of 2000. The power sector continued
to be very active at the beginning of the third quarter with additional
contracts secured in July and August with a total value of NOK 3.6 billion.
Overall, a better total order intake is expected in the second half of the
year than during the first six months, which bodes well for improved results
in 2002.
E&C - Operating Profit by Business Stream
NOK millions H1-01 H1-00
Metals (33) 33
Process 104 78
Technology 11 38
Power/ Construction 52 18
Other 89 50
Provision (100) -
Total 123 217
Oil & Gas
NOK millions 2Q 2001 1Q2001 HY2001 HY2000
Turnover 2,770 2,514 5,284 5,949
Operating profit 120 96 216 49
Order intake 2,616 3,899 6,465 7,953
Order reserve/ end of period 10,335 9,494
The business area continued its positive development in the second quarter of
the year with half-year operating profit ahead of expectation - amounting to
NOK 216 million (2000: NOK 49 million). This produced a six months operating
margin of 4.1 per cent, compared to 0.8 per cent for the corresponding period
last year. The Field Development, Oilfield Products and Process Systems
business streams all showed satisfactory performances in the first six months
of the year. Whilst Modifications, Maintenance and Operations (MMO), showed
improvement, but failed to deliver a satisfactory result, The second quarter
operating profit was NOK 120 million.
The order intake for the first six months of the year amounted to NOK 6.5
billion, of which, NOK 2.6 billion was booked in the second quarter. The
order reserve at the end of the second quarter was NOK 10.3 billion, compared
to NOK 9 billion at the end of 2000. Market conditions are favourable and
the business area expects that order intake in the second half of the year
could be higher than during the first six months.
Oil & Gas - Operating Profit by Business Stream
NOK millions H1-01 H1-00
Field Development 71 (10)
Oilfield Products 105 48
Mod., Maint. & Operations (MMO) (7) (22)
Process Systems 29 4
Eureka/ other 18 29
Total 216 49
OTHER BUSINESSES
Shipbuilding: The operating profit for the yards during the second quarter
was NOK 57 million, producing a six months year-to-date operating profit of
NOK 116 million (2000: NOK 80 million.)
Kvaerner Masa-Yards produced another satisfactory result in the second
quarter, whilst the Kvaerner Warnow result was burdened by the cost of
completion of the Stena Don drilling rig. NOK 370 million has been recognised
as a loss on this project, as per the end of the second quarter this year, and
the rig will be delivered to the customer during the second half of October.
Work continued in the second quarter on the first ship to be built at the yard
in Philadelphia. During the quarter it was announced that the yard had
received a Letter of Intent from Keystone Shipping Company of Pennsylvania,
USA, for the construction of four handy sized clean product carrier vessels,
at a total value of approximately NOK 2.2 billion.
The combined order intake for the yards during the first six months of the
year was NOK 1.4 billion. The combined order reserve at the end of the second
quarter was close to NOK 19 billion.
Pulp & Paper: The operating profit for the second quarter was NOK 3 million,
producing a six months year to date operating profit of NOK 17 million (2000:
a loss of NOK 3 million, exclusive of a pension rebate received in the
period). The order intake for the first six months of the year was NOK 2
billion, of which NOK 786 million was secured in the second quarter. The
order reserve at the end of the second quarter was NOK 3.1 billion, compared
to NOK 3.5 billion at the end of 2000. At the beginning of the third quarter,
a further important contract was secured for a NOK 460 million expansion of a
pulp plant in Brazil.
Sea Launch: The Sea Launch venture, in which Kvaerner holds a 20 per cent
stake, completed its sixth successful mission in the second quarter. A launch
scheduled for the second half of the year has been postponed at the request of
the customer, and will now take place in 2002. This postponement will have no
material financial effect on the operation, and it is expected that 2002 will
show a satisfactory activity level. The current order reserve is 17 launches
and the major market segment in which Sea Launch is competing, shows a
satisfactory growth.
Other activities: The combined result for these discontinuing businesses in
the quarter, which includes the mechanical fabrication activities in Romania,
was a second quarter operating loss of NOK 16 million, producing a six months
year to date figure of NOK 41 million. It is expected that the quarterly
results will gradually improve as a result of ongoing restructuring, margin
improvements and activity reduction.
INVESTMENT, FINANCING AND LIQUIDITY
Cash, bank deposits and debt: Net interest-bearing liabilities at the end of
the second quarter amounted to NOK 5.6 billion, which is a decrease of NOK 0.5
billion since the end of the first quarter. Net short-term operating assets at
the end of the second quarter amounted to NOK 1.5 billion, compared to NOK
2.1 billion at the end of the previous quarter. Cash flow in the second
quarter before financing was positive at NOK 534 million. The net debt will
increase again in the second half of the year, due mainly to a working capital
deterioration in E&C.
The Board is working on a financing plan with the objective of replacing
present loans with longer-term financing arrangements, and to improve the
working capital financing of the Group.
For more information:
Trond Andresen, Senior Vice President,
Group Communications: +44 (0)7770 856550 or
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 - .9.0; UK#/NOK - 13.0; EUR /NOK - 8.1
- 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 8240
8240 quoting "Kvaerner 2nd Quarter Results". In North America, at 9am (EST),
participants may call +1 800 521 5431 quoting "Kvaerner 2nd Quarter esults".
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: 658382)
or in the USA, call +1 800 625 5288 (access code: 1170096).
- 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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