As previously stated, revenues and associated profit levels, particularly in the Offshore and Onshore sectors, and, to a lesser extent, in the Drilling sector, are not consistent over time, as they are influenced not only by market performance but also by climatic conditions and individual project schedules. Consequently, the results from any one particular fiscal period can vary significantly, thereby precluding a direct comparison with the same period in other fiscal years or extrapolation of figures from a single quarter to the entire year.
Investments in the first quarter of 2007 amounted to Euro 252 million and consisted of: maintenance and upgrading of the existing asset base, including works on the construction of the new semi-submersible platform Scarabeo 8 and the new pipe layer (Euro 134 million); investments in vessels and equipment for specific projects, mainly in Saudi Arabia and preparatory works on Scarabeo 6 due to perform operations in Egypt (Euro 19 million); capex to strengthen the operating bases/yards in Kazakhstan and West Africa (Euro 6 million); conversion of two tankers into FPSO units, due to operate respectively on Petrobras' Golfinho 2 field in Brazil and on behalf of Sonangol P&P in Angola (Euro 85 million); and investments carried out by Snamprogetti (Euro 8 million).
Net financial debt at March 31, 2007 amounted to Euro 1,437 million, representing an increase of Euro 20 million from December 31, 2006, ascribed mainly to capital expended during the period.
New contracts and backlog
During the first quarter of 2007, Saipem, as a stand-alone entity, was awarded contracts amounting to Euro 1,779 million (compared to Euro 1,125 million in the first quarter of 2006); during the same period, Snamprogetti won contracts amounting to Euro 589 million. The most significant orders awarded in the first quarter include:
The backlog of the Saipem Group at March 31, 2007 stands at a record level of Euro 13,268 million.
Management outlook for 2007
The strong overall market performance, Saipem's positive results for the first quarter and the fact that projects under execution are generating expected volumes and margins underpin management's expectations of achieving, as previously announced, revenues in excess of Euro 9 billion and an increase in net profit, before one-off income from disposals, of at least 20% compared with 2006. This, despite the fact that the devaluation of US dollar, the currency in which approximately 70% of revenues are denominated, has negatively impacted 2007 operating income by approximately Euro 20 million compared with 2006.
As previously stated, disposals of non-core assets are planned to take place in 2007. The proceeds from these disposals are expected to be in the region of Euro 700 million, with a pre-tax capital gain amounting to approximately half of that sum. These disposals will contribute to a more effective financial planning of the Group's industrial development. Accordingly no immediate impact in Saipem's dividend policy is contemplated.
With regard to capital expenditure, the contract for the construction of a new pipelay vessel was formalised with the Chinese Shipyard Yantai Raffles. Also, a letter of intent was sent to the Italian company Fincantieri, for the completion and outfitting of the semi-submersible platform Scarabeo 8, whose hull is being built at the Russian Shipyard Sevmash in Severodvinsk. Works for the realisation of the new construction yard specialising in large offshore structures have yet to start, while negotiations with the land owners, in a specific area, continue; Saipem is committed to pursuing this project, and alternative locations are being considered.
Alongside the above mentioned investments, a turnkey contract was recently signed with Samsung Heavy Industries Co., of the value of US$ 660 million, for the construction of a new deep-water drillship to be called Saipem 12000, due to be delivered in the first quarter 2010. This new ship will be 228 meters in length and 42 meters wide; it will be equipped with a dynamic-positioning system, and is designed to operate at depths of 3,600 meters (12,000 feet). Its maximum cruising speed will be 11.5 knots and it will be capable of accommodating up to 200 personnel. The decision to start construction of the new vessel was reached following protracted negotiations with clients for the award of a new long-term contract, and the fact that clients demand, as a pre-condition for negotiations, a definite delivery date of the vessel. The total capital expenditure for 2007 is forecast to be marginally in excess of Euro 1.2 billion, which was previously announced. This is due to the combined effect of the start of the investment on the drillship Saipem 12000 and the revised time schedule for other initiatives.
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