Grenland Group Boosts 3Q Profits

Grenland Group delivered an EBITDA of NOK 31.3 million for the third quarter, compared with NOK 28.1 million in the same period of 2007. The corresponding figures for the first nine months were NOK 76 million and NOK 63.6 million respectively.

Sales rose by 29.8% from the third quarter of 2007 to NOK 442.5 million. Total revenues for the first nine months came to NOK 1,368.4 million, up by NOK 319.8 million or 30.5% from last year.

The group's order backlog at September 30 was NOK 1,352 million, compared with NOK 1,473 million at the end of the second quarter 2008.

Sickness absence was 5.2% for the third quarter and the first nine months, compared with 6.5% in July-September 2007 and 5.5% in January-September last year.

Continuous efforts are being made to improve operational efficiency and reduce the group's cost base. The machining business at Notodden has been sold, operations have been merged and further rationalization measures are being carried out. Grenland Group is closely monitoring developments in financial markets and the oil price, and continuously assessing their effects on the business. However, the recent developments are expected to have a limited impact on the market outlook for the group.

Income Statement

Sales for the third quarter came to NOK 442.5 million, compared with NOK 340.8 million in the same period of 2007. In the first nine months, sales reached NOK 1,368.4 million, an increase of 30.5% from last year.

Operating profit before depreciation (EBITDA) was NOK 31.3 million for the quarter, compared NOK 28.1 million in 2007, and NOK 76 million for the first nine months. The latter figure was up from NOK 63.6 million the year before.

After depreciation of NOK 9.0 million for the quarter and NOK 25.4 million for the first nine months, operating profit (EBIT) was NOK 22.3 million and NOK 50.6 million respectively. These figures were up NOK 2.2 million and NOK 11 million from the respective periods of 2007.

Pre-tax profit came to NOK 14 million for the quarter, compared with NOK 16.9 million in 2007. Net financial items for the third quarter include NOK 4 million related to loss on foreign exchange. For the first nine months, pre-tax profit was NOK 35.3 million as against NOK 33.2 million in 2007.

Further comments on the development in earnings are provided under the individual business areas.

Balance Sheet

Total capital amounted to NOK 914.9 million at September 30. The group had an equity of NOK 260.2 million at the same date, which gave an equity ratio of 28.4%. Total capital rose over the first nine months as a result of growth by the group. Interest-bearing debt declined by NOK 10.8 million from the second quarter and totalled NOK 255.1 million at September 30, of which NOK 153.6 million was long-term debt.

An extraordinary general meeting on September 30 resolved to engage KPMG as the auditor, to reduce the share premium reserve by NOK 50 million and to transfer this amount to other equity.

Order Reserve

The group's order backlog at September 30 totalled NOK 1,352 million, compared with NOK 1,473 million at June 30. Comments on developments in the order backlog are provided under the individual business areas.

Cash Flow

Cash flow for the group was negative at NOK 12.2 million for the third quarter and positive at NOK 1.6 million for the first nine month. Of this, cash flow from operations accounted for a positive NOK 0.2 million and NOK 6.7 million respectively, from investing activities for a negative NOK 1.6 million and NOK 15.0 million respectively, and from financing activities for a negative NOK 10.8 million and positive NOK 10.0 million respectively.

Outlook

Grenland Group has reviewed the customer base in its order book, and concluded that the counterparty position is sound. Roughly 75% of the order book relates to contracts with large oil companies as the ultimate customer. All these orders exceeded NOK 30 million in individual value. The remaining 25% consists primarily of contracts with known companies which have well-established operations and assignments from large, leading oil companies.

Developments in financial markets and the oil price are being closely monitored by Grenland Group, which is continuously assessing their effect on its business. However, the recent financial instability and oil price decline are expected to have a limited impact on the market outlook for the group. Modification projects on existing oil and gas installations must be executed to limit the decline in production. Projects relating to improving recovery and extending field production life, health, safety and the environment, and maintenance and upgrading of installations are cases in point. A large number of subsea developments are also planned for the time to come. Such projects are cost-effective, and the tie-back of satellites to existing installations is regarded as particularly robust.

The group's financing is regarded as satisfactory. Fixed assets are financed by long-term debt, and financing of working capital is adequate in relation to the current level of activity. No investment which calls for further financing is planned for the immediate future. The group also has sufficient guarantee limits to ensure continued growth.

The Maintenance & Modifications business area works primarily on conversion and maintenance for offshore installations.

Sales rose by 89% from the third quarter of 2007 to NOK 232.3 million, and by 56% from the first nine months of last year to NOK 660.3 million. EBITDA came to NOK 12.4 million for the third quarter, compared with NOK 7.2 million in the same period of 2007. The business area's EBITDA margin was 5.3%, compared with 5.8% the year before. For the first nine months, the margin was 2%. The order backlog for Maintenance & Modifications at September 30 was NOK 597 million, compared with NOK 663 million at June 30.

Oseberg low pressure, the business area's biggest assignment, is on schedule. Prefabrication is almost 50%complete, while offshore installation began in May and is well under way. A total of 250 people from various parts of the group are involved in the project. Worth more than NOK 600 million, the work is scheduled for completion in the first quarter of 2010.

Seawell has commissioned the group for the Statfjord late life project, which embraces conversion and modification of the B and C platforms. The prefabrication part of this contract is well under way, and has been moved from Tonsberg to Karmoy to help improve utilization of production capacity and shorten transport distances for the project. Some 70 people from Grenland Group will be involved in this work, which has a remaining contractual value of roughly NOK 80 million and runs until the second half of 2010.

The Marine & Process Solutions business area delivers solutions and services to the oil/gas and marine industries.

Sales for this business area in the third quarter came to NOK 63.0 million, compared with NOK 90.0 million for the same period of last year. Corresponding figures for the first nine months were NOK 192.7 million and NOK 292.1 million respectively. The decline primarily reflects less procurement, less construction included in contracts and transfer of resources from this business area to Maintenance & Modifications in connection with the execution of the Oseberg low pressure project.

EBITDA for the third quarter was NOK 14.7 million, compared with NOK 18.4 million for the same period of last year. The business area's EBITDA margin was 23.4% for the third quarter, compared with 20.5% in 2007, and 15% for the first nine months as against 12.4%.

The order backlog for Marine & Process Solutions was NOK 132 million at September 30, compared with NOK 145 million at June 30. None of the business area’s projects have so far been postponed because of the financial instability.

Marine & Process Solutions secured a new contract worth NOK 22 million from Samsung Heavy Industries during the period for the delivery of two new flare booms. Grenland Group has delivered or holds orders for 13 such structures during 2008. In all, the group has supplied 40 flare booms based on its own design.

Engineering work related to a new oil drill ship for Hyundai is approaching completion. Grenland Group has been responsible for the design of drilling systems and integration of drilling equipment. Marine & Process Solutions has executed similar design work for several drill ships built at Samsung, and has acquired a strong position in this market.

Grenland Group has been assisting Awilco for some time with engineering design for the rigs being built at Yantai Shipyard in China. Awilco is in the process of being acquired by China Oilfield Services Ltd (COSL), a leading supplier of integrated offshore services in China. Grenland Group has forged a closer collaboration with COSL, and expects its Chinese operations to expand in the time to come.

The Subsea Fabrication business area manufactures subsea production systems for the oil industry, and has five production facilities in Norway. Sales for this business area increased from NOK 123.5 million in the third quarter of 2007 to NOK 175.1 million. For the first nine months, the increase was NOK 233.8 million to NOK
563.2 million.

EBITDA came to NOK 15.7 million for the third quarter, compared with NOK 5.8 million in the same period of 2007. The EBITDA margin rose from 4.7 per cent in the third quarter of last year to 9%. It was 8.3% for the first nine months.

Subsea Fabrication continued work during the quarter on improving organisational efficiency and enhancing competitiveness through a continued focus on project execution, which has yielded the expected profit effect. As part of efforts to focus the business and increase group profitability, Grenland Group disposed of the machining business at Notodden during the quarter.

The order backlog for Subsea Fabrication totalled NOK 609 million1 at September 30, compared with NOK 645 million at June 30. Tendering activity was good during the quarter, and important projects are in the start-up phase. This will help to maintain a high level of activity in the business area during the time to come.

Grenland Group and FMC Technologies signed a letter of intent worth NOK 160 million in April for the Pazflor development. The scope of work has expanded substantially since then, with increased weights, 12 utilities modules and raw materials for three manifold systems to be fabricated in Angola. As a consequence, Grenland Group signed a contract worth NOK 307 million in October.

During the quarter, Subsea Fabrication had high capacity utilization and completed both the Gjoa and Tyrihans projects. Efficient project execution and quality work have been and will remain priorities for the business area.

The others category embraces the field development business area, Grenland AsIs Global AS, the group's Asian business and shared expenses for the group. Certain key personnel in the group are employed in the others category with effect from 2008, but work for and are charged to the various business areas.

Sales for this business area came to NOK 54.1 million for the third quarter, compared with NOK 13.9 million in the same period of last year. For the first nine months, sales were NOK 137.8 million.

EBITDA for the area was negative at NOK 11.5 million for the third quarter, compared with a negative NOK 3.3 million for the same period of 2007. The corresponding figures for the first nine months were both negative at NOK 12.9 million and NOK 5.9 million respectively.

Field Development executed assignments related to the 20th licensing round during the quarter. This round covered areas in the North, Norwegian and Barents Seas. The business area also carried out early phase studies of modifications to existing infrastructure. Such jobs can be positive for Grenland Group when contracts for the actual work are put out to tender.

EBITDA for the business area was negative at NOK 1.6 million in the first nine months. Grenland Group AsIs Global is growing steadily and the order position is good. This company is a leader in gathering three-dimensional geometric data with laser scanners. While its head office is in Stavanger, much of the modelling and data processing takes place at the Malaysian office. The company had an EBITDA of NOK 3.4 million in the first nine months.

 

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