Vard: One new order, a lot more red ink

NOVEMBER 11, 2015 — Like a spoonful of sugar to help the medicine go down, Singapore listed Vard Holdings today reported a newbuilding order .... and released third quarter and nine months financials that revealed mounting losses.

First the good news: It's an order for an offshore vessel of undisclosed type or size, for an undisclosed owner, at an undisclosed price. Designed by Vard Design in Ålesund, Norway, the vessel's hull will come from the Vard Braila shipyard in Romania, with outfitting and delivery scheduled from Vard Langsten in Norway in 2017.

Now to the mounting losses. Vard recorded a net loss of NOK 845 million ($1($98.4 million) and NOK 1.1 ($128 million) for 3Q2015 and 9M2015, against a loss of NOK 160 million ($18.6 million) and profit of NOK 30 million ($3.5 million) respectively in the corresponding 2014 periods. The third quarter loss attributable to equity holders came at NOK 486 million ($56.5 million), as compared to a loss of NOK 37 million ($3.4 million) in 3Q2014.

Over the first nine months of the year, cash holdings declined from NOK 2.0 billion ($232 million) to NOK 906 million ($105 million) as at 30 September 2015 on the back of capital-intensive projects requiring a significant amount of working capital, and the cash impact of losses in Brazil. However, cash holdings remained stable in the third quarter compared to the balance of NOK 904 million at the end of 2Q2015.

Although orders picked up in the third quarter, with four new vessel contracts secured, total order book value at September 30 was NOK 14.01 billion ($1.6 billion) — a 30% decrease from the third quarter 2014 figure.

Currently, Vard has an order book of 31 vessels, of which 18, or 58%, will be of its own design.

Vard is winning some work outside of its traditional North Sea market and in non-offshore related specialized vessels. Still, that's not been enough to offset the impact of continuing offshore weakness in its European shipyards and of lower utilization and cost overruns at its Brazilian shipyards, where "additional loss provisions were required to account for unsatisfactory progress."

"In particular," says the company, "the scope and complexity of the series of LPG carriers under construction at [50.5% owned subsidiary] Vard Promar exceeds original assumptions, while the efficiency and operational stability at the new yard is still lower than anticipated."

Downsizing continues at Vard's Niterói Brazil yard in line with a declining workload.

Activity levels at Vard's shipyards in Romania and Norway continue to decline on the back of a shortfall of sizeable new orders and postponement of deliveries in the current order book.

In Vard Tulcea, the larger of its two shipyards in Romania, a restructuring process is underway and a number of engineering resources have been subcontracted to Vard's parent group Fincantieri in order to retain highly skilled staff in the organization. Vard Tulcea has also delivered first steel sections to Fincantieri cruise shipbuilding projects, and opportunities are being evaluated how the yard can carry out a larger share of such project.

In Norway, temporary layoffs are being imposed.

Operations and yard utilization at the Vietnam shipyard, Vard Vung Tau, are said to "remain robust."

Vard says that work is underway on a comprehensive strategy overhaul and development of a new business plan which it will unveil when it releases its full year figures.

It says a key element of that plan will likely be a diversification of production, with synergies with the Fincantieri parent group expected to play a major role.

Vard says its "exposure to the Brazilian market is under review."

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