2001 Maritime

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February 28, 2001

Aker Maritime unveils its proposals for Kværner
Aker Maritime today gave details of its proposals for development of the Kværner Group. Aker Maritime is Kværner’s largest shareholder, with a 17.8 per cent holding.

The aim of the proposals is to create "specialized, profitable and future-oriented operations" by combining Kværner, Aker Maritime and the Aker RGI-owned shipyards group, Aker Yards.

The main elements of the proposal are:

  • Amalgamate the main divisions of Aker Maritime with Kværner’s oil and gas operation. "This will," says Aker Maritime, "create a profitable and future-oriented Norwegian-based oil and gas technology company with a sound base in its domestic markets and with a major international potential. A company of this nature could have a turnover of NOK 19-20 billion in 2001, growing organically to nearly NOK 30 billion in 2001."

  • Amalgamate Aker Yards and Kværner Shipyards. "This will create," says Aker Maritime, "a Norwegian-based shipyards group with highly specialized and world-leader shipyards in Finland, Germany, Norway and the USA. The Group could have a turnover of NOK 15.17 billion. It will initially be owned by Kværner and Aker RGI, with the latter as majority share-holder. Separate listing will be considered in the course of 2-4 years. The plans to create a new shipyards group are set out in a separate press release from Aker RGI today.

  • Continue Kværner’s Engineering & Construction area as one of two independent and specialized core areas in Kværner in addition to Oil & Gas, but transfer certain smaller sections of the area to the oil and gas technology company.

  • For the time being continue Kværner’s other operations, such as Pulp & Paper, and Sea Launch in their current form.

Key figures for the “Future Kværner”

According to the proposal, Kværner’s two core areas will have a turn-over of approximately NOK 41 billion in 2001 and in excess of NOK 47 billion in 2003. The operating profit is estimated at NOK 2 billion in 2001, increasing to NOK 2.9 billion in 2003, and with the activity as it stands today, the Group will have slightly less than 25,000 employees in its core areas.

The shipyards group’s figures are not included in the above figures because Kværner will be owning less than 50 per cent of that company. The shipyards group will have a staff of 11,000-13,000.

Kværner’s net interest-bearing debts will be reduced from about NOK 5.4 billion at the end of 2000 to about NOK 3.8 billion through the pro-posed transactions, mainly as a result of the group's shipyards being de-consolidated. Less debt and better earnings will reduce the group's gearing ratio and considerably strengthen its balance sheet. This will give Kværner time to find good, industrial solutions for its other activities.

Net cost and market synergies are estimated at around NOK 550-600 million within Oil & Gas, and NOK 250-400 million within Shipyards. The cost synergies are first and foremost related to administrative and purchasing costs.

Calculations made on the basis of the key figures above show a price potential for the Kværner share of around NOK 135 in a 2-3-year perspective. The share was traded yesterday for NOK 67 on the Oslo Stock Exchange.

Offshore industry and technology

Kværner and Aker Maritime have been key players in the development of new technology and the implementation of major projects from the start of the Oil Age in Norway. Separately the companies have built up a unique technology and competency base without much overlapping, and both companies are internationally renowned in their individual fields.

Both the Norwegian and the international parts of this industry have seen major changes. The players are becoming fewer and larger, and geographic dividing lines are less significant than they were. This implies increased competition on the domestic markets but better opportunities for international sales. In both cases, delivering the best products at the best possible price is essential.

Together Kværner and Aker Maritime will be able to create a player that stands the best chance of doing exactly that. In the international context, the Norwegian Continental Shelf plays a key role in the development of tomorrow’s technology and products. A sound footing in the domestic market is the best foundation for international expansion.

A possible formal form of transaction for the establishment of a new offshore-industry and technology company could be that Aker Maritime transfers the operations within Aker Oil & Gas and Products and Well Services to Kværner in return for a settlement in non-voting preference shares in Kværner ASA, and cash. The actual transaction de ails will naturally be subject to negotiation.

The new offshore-industry and technology company will have three main divisions:

  • Technology and Products,
  • Field Development, and
  • Service and Operation.

Technology and Products - Estimates of planned investments in important offshore markets show that the demand for advanced offshore technology and products will increase substantially over the immediate years ahead. Kværner and Aker Maritime have companies that both technologically and market wise are far ahead internationally within subsea solutions, surface installations and systems, and drilling and well technology, and they complement each other well. Calculations show that the turnover in this segment can be doubled from NOK 6 billion last year to around NOK 12 billion in 2001.

Field Development - Investments connected with new field development projects in Kværner’s and Aker Maritime’s traditional domestic markets are falling slowly, and there is over-capacity in the market, particularly within module building and deck assembly. Efforts to adapt, specialize and rationalize the companies in this segment, consequently making them competitive in the growing international market, will be given high priority. Such a strategy and international success will make it possible to maintain the current turn-over level of around NOK 8-8.5 billion over the next few years.

Service and Operation in relation to existing fields and offshore installations constitute a large and very long-term domestic market for Kværner and Aker Maritime. The market is growing gradually, the main reason being that the oil companies are changing their operation philosophy and leaving a larger part of the responsibility for service and operation to the suppliers. In the longer term, Service & Operation will also have a growing international market. It is expected that the level of turnover could increase from NOK 6.3 billion in 2000 to approximately NOK 9 billion in 2005.

Aker Maritime says it has presented its plans to other key Kværner shareholders. Reactions have been positive and contributions and comments from other shareholders have been incorporated in the present proposal.

Aker Maritime says it will continue the dialogue with other key Kværner shareholders with a view to obtaining the widest possible approval of the plan. Subsequently, Kværner, Aker Maritime and Aker RGI will have to negotiate the terms and conditions linked to the various transactions in question.