November 28, 2003
Stolt Offshore 2003 losses could hit $450 million
Big job cut backs are in prospect at Stolt Offshore S.A. Following an announcement yesterday by parent Stolt Nielsen S.A. that lenders had given the group a modest breathing space whilst negotiations continue, Stolt Offshore S.A. (SOSA) today provided guidance on financial performance for the twelve months ending November 30, 2003, together with an update on current trading.
Stolt Offshore's net loss for 2003 is expected to be between $400 million and $450 million. This figure reflects project losses, asset write-downs, non-recurring restructuring charges and provisions resulting from a more conservative view being adopted in respect of revenue recognition.
Losses on Legacy Contracts: Losses on the Burullus, OGGS and Bonga projects are now estimated to be in the region of $170 million in 2003. Work programs on Burullus and OGGS are now complete, with Bonga 70% finished and due to complete in Q2 2004. For the remainder of the Bonga project, Stolt Offshore has agreed to an incentive scheme with the client, SNEPCO, which provides the potential for future revenue gains.
Stolt Offshore has initiated arbitration proceedings against the Algonquin Gas Transmission Company, a Duke Energy subsidiary, in pursuit of a resolution for the Hubline project. The parties are organizing a parallel mediation process in an attempt to reach a settlement.
Asset Write-downs: Following the conclusion of a thorough review of certain businesses and the asset base, Stolt Offshore will recognise a non-cash write-down of approximately $180 million in Q4. This figure includes an impairment of the anticipated value of assets already offered for sale.
Stolt Offshore will recognize reorganization blueprint implementation costs of up to $25 million in 2003. These costs reflect, in part, the plans to reduce the total workforce by 21% from its existing level of 7,000. Some 1,100 posts would be affected as a result of the disposal program, and a further head count reduction of 400 is planned through restructuring Stolt Offshore's Regional Businesses. The estimated reduction in the Company's annual Sales, General and Administrative costs is 15% or $15 million.
Revenue Recognition: While it is currently in full compliance with US GAAP, the company has decided to apply more conservative criteria to the probability of outcome in respect of the relevant standard on revenue recognition. The change means that Stolt Offshore will record a provision of between $25 million and $75 million in 2003 with regard to the revenue already recognised, but for which formal agreement has not yet been obtained from the client. The extent of the provision will depend on the outcome of ongoing client negotiations.
Tom Ehret, Chief Executive Officer, Stolt Offshore, said:"Stolt Offshore's trading losses for 2003 are primarily associated with legacy contracts now largely behind us. They represent lessons painfully learned about the importance of sound contractual discipline and margin protection; disciplines now fully incorporated into the company's working practices. The scale of the overall loss reflects firm action to reposition the company's asset base and balance sheet-- namely write-downs against asset values, claims and variation orders. Stolt Offshore is now moving forward with a targeted commercial strategy."
Asset Disposals: Negotiations with potential purchasers of the businesses and assets for sale indicate that Stolt Offshore is likely to reach its proceeds target of $100 million to $150 million. These proceeds will be recognised in 2004.
Financial Restructuring: Stolt Offshore continues to make progress in negotiations with its lenders. The company has obtained an extension from November 26 until December 15 of the waiver of covenants to facilitate this process. Stolt Offshore has appointed a Chief Restructuring Officer from AlixPartners and retained ABG Sundal Collier to assist in the restructuring process. The objective is to achieve an appropriate longer term solution in Q1 2004.
Current Trading: The offshore contracting industry continues to experience subdued markets in Q4 2003 and visibility for 2004 remains near term. However, Stolt Offshore has maintained its competitive position with inclusion on every major bid list that it has sought to contest. The recently announced contract from the Ormen Lange license group is a significant vote of confidence in the Company.
The Stolt Offshore earnings guidance came after an announcement yesterday by parent Stolt-Nielsen S.A. (SNSA) that its primary lenders had agreed to extend waivers of covenant defaults until December 15, 2003. SNSA also announced that it will pay down its $180 million revolving credit facility by $20 million and has received an extension on repayment of the remaining $160 million until December 15, 2003. Lenders have also agreed to extend waivers of covenant defaults related to Stolt Offshore S.A.'s credit facilities, which SOSA is currently working to renegotiate, also until December 15, 2003.
The company said the relatively short waiver extensions were granted to allow SNSA, SOSA and their lenders additional time to put in place longer term agreements.
"Working with our lenders over the past several months, we have made progress toward the development of a mutually satisfactory resolution to our current financial situation," said SNSA CEO Niels G. Stolt-Nielsen. "We are currently pursuing several near-term refinancing alternatives, as well as the sale of certain assets, that, when achieved, would improve our liquidity, reduce debt and strengthen our balance sheet."
SNSA said that no interim dividend for the fiscal year ending November 30 will be paid.
The company also announced it had reached a definitive agreement on the sale of its minority interest in Dovechem Holdings Pte Ltd., which has interests in terminals and drum manufacturing in China and South East Asia, for a cash consideration of approximately $24 million. The transaction is expected to close in December 2003. SNSA said divestiture of this non-strategic asset was made as part of its overall and ongoing efforts to enhance the company's financial condition.
SNSA also noted that its wholly owned subsidiary, Stolt Sea Farm Holdings PLC, has concluded the sale and leaseback of 30 percent of its Australian- government quota of Southern Bluefin tuna. The sale is expected generate gross cash sale proceeds of about $24 million.
Combined with the previously announced sale and leaseback of three ships with Dr. Peters GmbH & Co., the company will, upon completion of the Dovechem sale, have raised proceeds of approximately $100 million since late August.
Mr. Stolt-Nielsen added, "For the fiscal fourth quarter ended November 30, results at Stolt-Nielsen Transportation Group were in line with our expectations. Going forward, we expect this business to benefit increasingly as global economic conditions continue to improve. At Stolt Sea Farm, while salmon pricing improved somewhat in the fiscal fourth quarter, business results remained poor. Market analysts anticipate improved salmon pricing in 2004. It is our objective to manage SSF to be self sufficient in terms of its funding requirements. SOSA continues to make progress against its Blueprint for recovery."