“I am happy to report good financial performance for the second quarter,” said Tom Ehret, Acergy’s CEO. “During the period we saw solid project execution and high levels of asset utilization as well as continued growth and improvement in the quality of our backlog. In delivering our strategy we continue to rejuvenate and expand our fleet. Our targets are being met for recruiting and developing our workforce as we continue to attract the best people in our industry. Our position in Brazil and in Asia has been further strengthened and our business in North America has been successfully restructured. The strong market conditions that we are currently experiencing are expected to continue to the end of the decade."
Important Note: As noted in previous quarters, until the pipelay projects in Trinidad are complete, the results of this part of the Acergy North America and Mexico business are reported as discontinued operations. Prior period comparatives have been restated accordingly.
Three Months Ended Six Months Ended ---------------------- ---------------------- in $ millions May.31.06 May.31.05 May.31.06 May.31.05 Unaudited Unaudited Unaudited Unaudited ---------- ---------- ---------- ---------- Net operating revenue from continuing operations $ 536.8 $ 346.1 $ 904.4 $ 672.1 Gross profit 107.4 64.2 158.4 87.4 Net operating income from continuing operations 78.0 43.4 105.6 54.2 Net income from continuing operations 59.6 20.4 80.1 23.4 Loss from discontinued operations (4.3) (9.6) (0.3) (7.2) Gain on disposal of discontinued operations 18.7 - 35.1 - Net income $ 74.0 $ 10.8 $ 114.9 $ 16.2 Three Months Ended Six Months Ended ---------------------- ---------------------- PER SHARE DATA May.31.06 May.31.05 May.31.06 May.31.05 Unaudited Unaudited Unaudited Unaudited ---------- ---------- ---------- ---------- Earnings per share from continuing operations (Diluted) $ 0.30 $ 0.11 $ 0.40 $ 0.12 Earnings per share from discontinued operations (Diluted) $ 0.07 $ (0.05) $ 0.18 $ (0.04) Net earnings per share (Diluted) $ 0.37 $ 0.06 $ 0.58 $ 0.08 Weighted-average number of common shares issued (Diluted) (millions) 197.9 194.6 197.5 194.4
Highlights --Good financial performance and project execution --Backlog quality improving and continuing to grow --Ongoing high level of asset utilization.
Post-quarter highlights --Awarded $245 million Chevron Frade contract in Brazil --Awarded Saxi Batuque deepwater construction contract in Angola by Esso Exploration Angola (Block15) Limited, an Exxon Mobil affiliate --Chartered Skandi Acergy, new build deepwater heavy construction ship for the North Sea and Toisa Proteus construction and diving ship for Acergy Asia and Middle East --Exercised purchase option on Acergy Discovery.
Given the current level of activity, Acergy now expects net operating revenue from continuing operations for the full year 2006 to be approximately $2.1 billion. The company maintains its guidance in respect to moderate growth in adjusted EBITDA(a) margin over the 14.8% delivered in 2005 for continuing business.
Acergy said that it is also revising its guidance for capex spending in 2006 from $280 million to approximately $250 million. The reduction stems from the re-sequencing of the conversion works on the Polar Queen and a slower pace of overall expenditure in the company’s capex program. Note, however, that higher commitment levels have arisen in relation to the company’s purchase the Acergy Discovery--coupled with cost pressures in the shipyards. The company added, however, that the changes materially affect neither the expected delivery of assets underpinning Acergy's growth plans nor its margin expectations.
Acergy Africa and Mediterranean Acergy said that significant growth in revenues and earnings in the second quarter resulted from good project execution and very high levels of asset utilization. The installation of the offshore loading lines on the Erha project and further progress on EPC2B brought these two major projects close to completion. The BP Greater Plutonio project is progressing according to plan and will go offshore following the planned refit of the Acergy Polaris.
With six major projects for this region now in the bid process, the company said it has good visibility of the demand for its major construction assets until 2010.
Acergy Northern Europe and Canada The stronger performance in this region over the same period last year reflects a continuing high level of activity in the SURF market and the start up of the second phase of the Langeled pipelay in March. The Langeled project is proceeding ahead of schedule. The high level of activity in SURF and IMR work is expected to continue through the remainder of this year.
Acergy North America and Mexico Acergy’s Houston-based unit continues to strengthen its ability to provide tendering and engineering support for large international deepwater projects. High levels of tendering activity continue for SURF projects for the global deepwater market and for the deepwater Gulf of Mexico, which is showing signs of growth from 2008.
The discontinued operations, which are now limited to the ongoing projects in Trinidad, encountered delays due to significant adverse weather. These projects are now scheduled to complete in the fourth quarter of the financial year.
Acergy South America Both ships on long-term contract to Petrobras performed well during the quarter. Acergy said that it has delivered upon ts strategy of transforming its Brazilian business from being a construction and IMR service provider for Petrobras into an EPIC lum- sum contracting operation. The project team for the $145 million Petrobras PRA1 tie-in contract is now in place while the regional business infrastructure continues to be expanded to manage the recently awarded $245 million Chevron Frade project. Bidding activity is increasing both for lump-sum projects and for the growing level of field development and maintenance work.
Acergy Asia and Middle East Projects in Vietnam and Sakhalin are progressing according to plan, and the company recently received a $35 million letter of lntent for a SURF project offshore New Zealand. Acergy’s Asia/Middle East unit continues to expand ahead of the arrival of the Sapura 3000 in 2007, for which tendering activity is intense for work through to 2009.
In line with its strategy, Acergy has continued to develop its fleet during the second quarter. The hull of the Sapura 3000 is now complete and is under tow from China to Singapore for fitting out. The Polar Queen is scheduled to complete her conversion program in early 2007. The Pertinacia conversion is expected to be completed in late-2006. The Acergy Polaris will start a planned 2 ˝-month period of refitting and refurbishment commencing in August 2006. During this period, a new J-Lay deepwater pipelay system will be installed. It will enable the Acergy Polaris to reach a leading position in terms of deepwater pipelay capability.
The Toisa Proteus, an offshore construction and diving support ship, will be on charter to Acergy for 3 years from mid-2007. She will work in the Asia and Middle East region, where her first contract has been secured off New Zealand. The Skandi Acergy, an industry-leading new-build heavy construction ship, has been chartered for a period of 8 years for work in the North Sea. She is slated for completion in the second quarter of 2008. The Acergy Viking, a new-build IMR and survey ship for the North Sea, is on target for delivery in the third quarter of 2007. An option has been exercised to purchase the Discovery, a high-specification diving support ship that has been on charter to Acergy since 1997.
Net operating revenue from continuing operations for the second quarter increased from $346.1 million in 2005 to $536.8 million in 2006 due to increased activity levels in West Africa and the North Sea.
Net operating income from continuing operations for the second quarter was $78 million compared to $43.4 million for the same period in 2005. The increase resulted from a combination of higher activity levels, improved project performance, and higher asset utilization.
Net income from continuing operations was $59.6 million for the second quarter 2006, compared to $20.4 million in the same period in 2005. After including $14.4 million from discontinued operations, which includes an $18.7-million gain on disposal of the Seaway Kestrel, net income from all operations for the quarter ended May 31, 2006, was $74 million compared to $10.8 million for the same period in 2005.
The cash and cash equivalents position at the quarter end was $302.9 million, compared to $395 million at the quarter ended Feb. 28, 2006. This reduction is due to a greater working capital requirement because projects are being mobilized for offshore installation. Total advance billings at the quarter end were $287.3 million compared to $290.2 million at the end of the previous quarter.
The backlog for continuing operations as at May 31, 2006, was $2,470 million, of which approximately $1,100 million was for execution throughout the remainder of 2006. The group also held an additional $489 million in pre-backlog at the quarter end.
Particularly high levels of bidding activity are in progress for West Africa--for projects now going out to 2010--with continuing market growth in the North Sea, Asia, and Brazil. Acergy said it has taken timely and cost-efficient actions to rejuvenate and expand its fleet, adding that it has succeeded in meeting its recruitment targets to support the growth in activity. The company concludes that it is well-positioned to continue to benefit from the growing demand for its services over the coming years.
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