Second Quarter Highlights
Tom Ehret, Chief Executive Officer, Stolt Offshore S.A., said:
"Stolt Offshore's turnaround is now well advanced. The Group now has the financial resources to compete effectively in its chosen markets thanks to a much improved balance between equity and debt. Furthermore, 45 project wins, with a total value of $1.2 billion in the first half of 2004 underlines that Stolt Offshore not only has made strong progress in winning profitable contracts but is transforming its earnings base and moving on from the period dominated by legacy projects.
Looking ahead, the management team is focused on delivering sustainable profits. This will be achieved through the combination of sound project management to grow margins across the Group and further project wins in its target market segments."
Commercial activities in all areas have been sustained and a steady stream of successes has been seen in the NAMEX and NEC regions. At quarter end the backlog stood at $1,748 million of which $579 million is for execution in 2004. In addition to this backlog, we have received $267 million in signed letters of intent during the second quarter.
Projects throughout the Group performed well in the first half, with a particularly strong financial performance in the NEC region. The only exceptions were the Sanha and Bonga projects where problems discussed in the first quarter earnings release have continued to lead to downgrades in the second quarter.
Regarding the completion of Sanha, an agreement was signed May 19, 2004 with Chevron Texaco improving the operating conditions in the field and providing upside potential through performance. To date, execution has met or exceeded the targets set for May and June. Completion is scheduled for September.
Since the quarter end, an agreement has been initiated with SNEPCO, and awaits final signature, regarding the contract terms for the completion of the Bonga project. This would limit Stolt Offshore's downside risk for the remainder of the project, and provide upside subject to performance. Operations resume imminently with completion scheduled for year end.
The progressive elimination of legacy contracts and the consequent reduction of major AFMED projects is chiefly responsible for revenue during the quarter being $89.5 million lower than the second quarter of Fiscal Year 2003.
Several significant gains and losses affected overall profitability during the quarter. Downgrades on the Sanha and Bonga projects accounted for losses of $39.4 million in the quarter and $68.2 million for the first half. Sales, general and administrative costs continue to reflect restructuring and refinancing costs associated with the turnaround. Offsetting these impacts, the result for the quarter includes $26.3 million in respect of gains on the sale of assets and businesses, principally in relation to Serimer Dasa.
Stolt Offshore has now successfully completed the financial restructuring programme. During the first half year the Company raised a total of $165 million in new equity before costs in addition to the $50 million subordinated debt conversion to equity. As a result of the increased equity, Stolt Offshore's free float on the Nasdaq and Oslo exchanges has increased from 37% in January 2004 to 58% today.
An after tax gain of $20 million was recorded on the disposal of Serimer Dasa, our welding services subsidiary. The asset sales program has achieved gross proceeds of $91 million so far, with certain small disposals still outstanding. Following a review, the management team has concluded that there is an attractive business case for retaining the survey business within the Group.
The gross debt position was reduced by $48 million during the quarter to $297 million. The Company is holding cash balances of $262 million at the quarter end. Options to optimize the Company's capital structure continue to be reviewed through the ordinary course of treasury management.
Outlook & Current Trading
West Africa continues to generate the highest level of future activity and opportunity, and whilst there have been few major awards recently, it is anticipated that a number of tendered projects will be awarded within the second half of the year.
Elsewhere, demand remains at a steady level with some interesting longer term prospects starting to be visible in the Far East. Furthermore, there are a number of significant projects, both within SURF and Conventional markets, which have been discussed with the operators for sometime, but now look set to finally come into the market as formal invitations to tender. Again the majority of these will be for execution in West Africa.
We are pleased to see that the volume of awards of smaller projects continues at a steady pace. We believe that we are currently securing our expected market share of these projects. These smaller projects are equally as important as large projects as they underpin the business going forward with respect to asset utilization.
The Stolt Offshore management remains confident of achieving its target of reaching break even for the Full Year following the material progress made towards this goal during the second quarter.
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