Demand for high end subsea vessels is still high

reite royNOVEMBER 14, 2012 — "Despite the soft market for some of our core products, STX OSV is still seeing a healthy level of project enquiries, especially in the offshore subsea construction vessel segment," says Roy Reite, Chief Executive Officer and Executive Director of STX OSV. "Although we expect continued demand for high-end vessels in the subsea market to drive the industry for the rest of the year, we are concerned about the availability and cost of financing having an impact on order conversion rates. Having said that, STX OSV remains confident in our fundamental ability to take advantage of the robust long-term demand for larger, more complex and customized vessels."

Singapore-listed, Oslo-headquartered STX OSV operates nine strategically located shipyards serving the OSV market, including five in Norway, two in Romania, one in Brazil and one in Vietnam.

It reports that its order book at September 30 was worth NOK 16,354 million, or about $2.8 billion. That was up 20 percent on the same period in the previous year.However, third quarter revenue, at NOK 2,457 million was down 27 percent on the same the same period in 2011, which STX OSV says is "mostly due to normal fluctuations in the project portfolio." Revenues for the first nine months of the year were down 7 percent from the same period last year. EBITDA margin (EBITDA to total revenue) came down from an "exceptionally high base of 7.6 percent in 3Q 2011 to a still healthy 13.5 percent this quarter, reflecting generally stable operations particularly in Norway, Romania and Vietnam."

STX OSV says it had good yard utilization and productivity in Norway and Romania. In Romania, its shipyards are running at high load, and an investment program is underway to improve efficiency and throughput. In the Vietnam yard, though, "workload is sub-optimal and is likely to remain so during parts of 2013." STX OSV says a e recent slow-down in new orders is also likely to lead to periods of under-utilization in Norway next year.

In Brazil, STX OSV successfully delivered one platform supply vessel and one anchor handling vessel  from tts shipyard in Niterói in third quarter 2012. The yard is continuing to experience project delays mostly due to general yard overload and constraints in the supply chain, but the company says that improvement measures are being implemented and are beginning to pay off.

Meanwhile, work on the group's new Brazilian yard, STX OSV Promar, has progressed well and shipyard construction is at present more than 60 percent complete. Recruitment is ongoing, and shipbuilding activities are scheduled to begin in the second quarter of 2013, in line with previous estimates.

Orders, Deliveries and New Contracts for the Quarter

Two new vessel contracts were secured in the third quarter, amounting to a total order intake of NOK 900 million. The NOK 8,229 million in orders for 14 vessels secured in the first nine months of the year is well ahead of the NOK 5,090 million for the same number of vessels in the equivalent 2011 period. The increase in average value per vessel is a result of larger and more complex projects, including several offshore subsea construction vessels.

With eight vessels delivered during the quarter, STX OSV's total order book stood at 49 vessels and outstanding order book value was NOK 16,354 million as at  September  30, 2012. More than half, or 27 of these vessels in the order book, will be of STX OSV's own design. Since the end of the quarter, STX OSV has firmed up additional contracts for two OSCVs for repeat customer Siem Offshore, and delivered three more vessels.

Outlook: Market Fundamentals in Place

Orders for medium-sized and high-end AHTS are behind expectations reflecting lower-than-anticipated spot and charter rates, and the market for high-end PSVs is currently slow. However, the subsea construction market continues to drive demand for high-end vessels.

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