Vard slips into the red in Q4

VARD Holdings posted a net loss of 83 million Norwegian kroner (S$13.5 million) for the fourth quarter, a reversal from the 154 million Norwegian kroner profit a year ago, on impairments in Brazil and as activity level at the yard group's facilities declined on a shortfall in new orders.

Revenue was down 26 per cent to 3.32 billion Norwegian kroner. The decline in revenue, having outweighed operating expenses, including materials, subcontract, salaries and other costs, contributed to a decrease in Ebitda (earnings before interest, tax, depreciation and amortisation) before restructuring to 35 million Norwegian kroner from 120 million Norwegian kroner.

Vard incurred restructuring cost in Q4 of 21 million Norwegian kroner mainly related to termination benefits and statutory payments for temporary lay-offs.

The yard group also took in 23 million Norwegian kroner of new impairment charges in Q4 to its assets in Niteroi, Brazil. Another 56 million Norwegian kroner went towards depreciation of property, plant and equipment in Q4, compared to 29 million Norwegian kroner in the last corresponding quarter due to a change in estimated useful lives at some of the yards done at year-end 2014.

Loss per share was 1.10 Singapore cents for Q4 compared to earnings per share of 2.29 Singapore cents last year.

Full-year loss for FY15 was 603 million Norwegian kroner compared to 349 million Norwegian kroner in profit for FY14.

Revenue for FY15 was down by 14 per cent year-on-year to 11.14 billion Norwegian kroner.

Vard turned in a negative Ebitda before restructuring for FY15 of 321 million Norwegian kroner compared to a positive 429 million Norwegian kroner for FY14 mainly on loss provisions related to projects at its Brazilian yards.

Vard also acknowledged margin compression from ongoing projects at its yards in Europe, partly resulting from the cost of increased underutilised capacity.

The yards in Europe, namely in Romania and Norway, delivered no vessel in Q4 and seven vessels in FY15.

Consequently, cost reduction and efficiency improvement programmes have been taking place to yield direct and indirect cost savings.

The workforce in Romania was reduced from 6,398 to 4,665 employees during FY2015, and in Norway from 1,797 to 1,657 employees, including all legal entities in the respective countries.

Vard is also in technical discussions with its Italy-based parent Fincantieri for construction of outfitted sections for cruise ships to secure a base load utilisation at yards in Romania.

At Vard Niteroi, progress is on track on two remaining vessels including one LPG (liquefied petroleum gas) carrier from the order book of Vard Promar. Both vessels are expected to be delivered in Q2 2016.

But the yard group acknowledged execution risks remain at Vard Promar. Provisions for vessels under construction for Petrobras Transportes SA (Transpetro) had been increased by 137 million Norwegian kroner as "a consequence of the challenging negotiation climate with the client", Vard noted.

Vard indicated in a December SGX announcement the receipt of a cancellation notice from Transpetro for the last two LPG carriers in a US$536 million, eight-vessel order placed in June 2010.

"The termination does not have a material impact on the results for the quarter as the vessels were in early stages of construction," Vard said in the FY15 results announcement. Legal proceedings were initiated against Transpetro in order to secure its contractual rights and recover cost, the yard group added.