Brazil operations give Vard a red ink quarter

Vard PromarJULY 11, 2013 — Ålesund, Norway, headquartered shipbuilder Vard Holdings Limited, which is 55.63 percent owned by Fincantieri, reported a second first quarter FY 2013 loss of NOK 44 million, mostly because of problems with its two Brazilian shipyards, Vard Promar and Vard Niterói.

Construction of Vard Promar is near complete and the yard cut its first steel last month

There were delays and cost overruns at the Niterói yard, and high pre-operational expenses at its new yard, Vard Promar.

Vard generated revenue of NOK 2,945 million for 2Q 2013, an 11.7 percent decrease from same period 2012. First-half revenues of NOK 5,692 were down 7.4 percent compared to the same period in 2012.

Operating profit for the half year ended June 30 was NOK 295 million, down from NOK 793 million in the corresponding period of 2012.

EBITDA margin (EBITDA to total revenue) for 2Q 2013 declined from 13.8 percent in 2Q 2012 to 4.1 percent. EBITDA margin for the half year ended June 30, 2013 stands at 7.5 percent.

Vard says its operations elsewhere are not affected by the challenges in Brazil, though utilization in Vietnam is at sub-optimal level following the delivery of the second-to-last vessel in the order book.

In contrast, Vard's Norwegian yards delivered seven successful projects, including prototype vessels and projects with very short lead times. Several major investments in Tulcea, Romania, are scheduled for completion in 3Q 2013, giving a good platform for future competitiveness and the workload in Romania remains high.

Operations of the company as a whole remain profitable for the year to date despite the negative results for the second quarter of 2013. The Group's cash and cash equivalents stood at NOK 2,040 million as at June 30.

Vard says its Niterói operation still needs more time to stabilize. The business environment in Brazil remains challenging, with high personnel turnover and very high pressure within the subcontracting market. Vard Niterói is still suffering from an overload situation. A major driver of the deteriorating performance in the second quarter was the yard's dependency on outsourcing for the construction of vessel hulls. However, says Vard, the last hull that was being built outside of the yard has now been delivered.

It says that mitigating actions, including the reorganization of production, are beginning to bear fruit in terms of productivity, stricter follow-up of subcontracted work, and increasing the usage of expatriates which will help strengthen the organization. The natural reduction of the overload situation as a result of projects progressing and being delivered is also expected to contribute positively. One PSV was successfully delivered from Vard Niterói during the quarter.

The Group's second shipyard in Brazil, Vard Promar, has commenced operations with its first steel cutting in June 2013, in line with previous estimates. The capex budget is on target but pre-operational expenses were higher than expected, calling for revisions to estimates of start-up costs. Recruitment and training are ongoing, with approximately 350 staff employed so far, many of whom have prior industry experience.

With state-of-the-art new facilities and a substantially improved cost position, says, Vard, Promar has a solid foundation to receive new order intake and regain sustainable operations in Brazil.

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