Vard suffers from delays and cost overruns in Brazil

Management likely to have taken a NOK200m provision.

According to OSK, it estimates Vard took a ~NOK200m provision for the delays and cost overruns in Brazil and NOK70m in goodwill write-down for Niterói. Making adjustments for the provisions, operations outside Brazil is stable, with an estimated EBITDA margin of 10%-11%.

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Management explained that it has taken the provisions based on its best assessment of the situation in Brazil and that it has made significant changes to its productivity assumptions.

NOK650m outstanding orderbook remaining at Niterói. Four vessels are still under construction, with the last unit to be delivered in 4Q2014. These orders are expected to have zero margins until completion.

Two more hulls under sub-contract. The liquiefied petroleum gas (LPG) hulls will delivered to the company’s new 50.5%-owned shipyard, Vard Promar, by end-2013 and early-2014. Starting from the third LPG unit, all major structures will be fabricated in-house, given that Vard Promar has started its operations in June 2013.

Potential Brazilian orders valued at up to NOK6bn. Petrobras (PBR) has awarded charters for three pipelaying support vessels (PLSVs) to Sapura Navegaca and three PLSVs to Subsea 7.

Upstream reported PBR is in negotiation with Technip-DOF JV to charter four PLSVs with two 300-tonne units to be built at Vard Promar and two 650-tonne units at Vard’s yard in Norway. We estimate the total value of these four PLSVs at around NOK6bn (USD1bn).