Aker Philly reports a record quarter and a minor snag

MAY 2, 2014 — Aker Philadelphia Shipyard ASA had some good news and some not that good news today. It reported its highest ever quarterly result, but disclosed that during sea trials of the first of two Aframax tankers for ExxonMobil “a defect in the propulsion system was discovered arising from a third-party supplied component.” It said that remedial efforts to resolve the issue are currently underway and will be concluded later this month.

The shipbuilder reported a first quarter EBITDA of $24.2 million and net income of $17.8 million, an increase relative to first quarter 2013 of 27% and 48%, respectively. The increase was driven by the gain recorded from the sale of AKPS’s profit sharing interests in Hulls 017 and 018 to Crowley in first quarter 2014.

“We are pleased to report both record earnings and a record dividend,” said Kristian Rokke, Chairman of AKPS. “Both highlight the value AKPS has generated by creating and investing in Jones Act shipping assets in addition to traditional shipbuilding activity. We have a strong balance sheet and expect another record year, and would therefore like to give more back to shareholders.”

On April 30,2014, the Board of Directors authorized a dividend of NOK 17.5 (approx. $2.93) per share, which will be paid on or about May 16, 2013 to shareholders on record as of May 6, 2014. The total size of the dividend, which is slightly higher than previously guided in connection with the sale of the profit sharing interests in Hulls 017 and 018, is reflective of the company’s strong financial position and future earnings expectations.

Aker Philadelphia says it “is currently in discussions with several interested parties regarding a potential transaction involving the construction and sale of four product tankers, Hulls 025-028, pursuant to which AKPS expects to retain significant economic exposure in the vessels post-delivery. AKPS is optimistic about securing Hulls 025-028 as product tankers during 2014.”

Production activity on the two aframax tankers for SeaRiver Maritime, Inc., ExxonMobil Corporation’s U.S. marine affiliate, continues with approximately 82% of the overall project complete at quarter end. In March 2014, the first vessel (Hull 019) completed sea trials in accordance with the contract schedule.

However, the costs of the remedial work on the propulsion defect, in addition to other higher than forecasted costs for completion of the vessels, will result in a gross margin for the SeaRiver project of between 2% and 3%.

A naming ceremony for the first SeaRiver tanker was held on April 25, 2014, in line with the original plans set in 2011, where the vessel was presented to the owner and officially christened.

“The people of AKPS have done a great job building our largest ship yet and we are proud to have been recognized for this by the customer last week,” said Kristian Rokke. “The SeaRiver project has elevated our organization’s skill set substantially and has been a key part in transforming our company to the benefit of future projects.”

Kristian Rokke continued, “The defect in the propulsion system is an isolated project specific issue that will not have impacts on other projects, and we will of course do everything possible to mitigate the schedule and cost impact from the rework.”

Hull 020 production activities continue to progress in the Building Dock in line with the contract schedule. Construction activity on Hull 021 for Crowley commenced as planned on 6 January 2014, as did construction activity on the second product tanker in the series on April 21, 2014. The majority of the purchasing activities for Hulls 021-024 have been completed and long lead items for Hulls 025-26 are being secured. Previous guidance for the expected average gross margin on Hulls 021 through 030 is unchanged at approximately 13%.

“We’re off to a good start on the product tanker series with project preparations and procurement activities, as well as ship construction,” said Mr. Rokke. “To an increasing degree, we are returning to a type of production activity characterized by standardized shipbuilding for what is expected to be a series of eight product tankers. We are excited to build-off the previously constructed fourteen product tankers, apply lessons-learned from the SeaRiver project, and use a disciplined approach to continuous improvement to ensure the opportunities associated with series construction are fully harnessed.”

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