Acergy Announces Third Quarter Results
Tom Ehret, Chief Executive Officer, said, "I am very happy with these results which demonstrate the continued progress that we are making towards superior project execution across the group and confirm the strengthening of our market over the last eighteen months. We also saw the completion of some major projects in this quarter which benefited the results. The high levels of asset utilisation experienced both in the second and third quarters are expected to continue through to the year-end. Looking ahead, we are currently experiencing a very high level of bidding activity, particularly for West Africa, the North Sea and Asia."
Acergy Africa and Mediterranean -- During the third quarter, high levels of asset utilisation continued and significant progress was made on two large projects in Nigeria, Erha, substantially completed, and EPC2B on which some additional reimbursable work scopes have been received. The Sonamet fabrication yard in Angola is experiencing high activity levels and we continue to participate in significant tendering activity for deepwater projects in this region.
Acergy Northern Europe and Canada -- In a quarter of very strong performance and high levels of asset utilization, the Acergy Piper successfully completed the contracted scope of work on the Langeled pipeline in August, a month ahead of schedule, and has since completed an additional 158 kilometers of this pipeline. The Langeled pipeline is now complete and first gas has been achieved. Our first project in Canada, on the Terra Nova field, was completed very successfully.
Acergy North America and Mexico -- Within discontinued operations, the Dolphin Deep project offshore Trinidad was completed during the third quarter. Only the NGC BUD project remains to be finalized. This has been delayed due to a major breakdown on a third party vessel that was hired to complete this project. This further delay resulted in a loss of $12.8 million in the quarter.
The continuing business in Acergy North America and Mexico is focused on supporting both large international deepwater projects and tendering activity for other regions in the group.
Acergy South America -- The two ships on long term contract to Petrobras performed well throughout the third quarter. Both lump sum contracts, PRA-1 and Frade, are at an early stage and are being managed jointly with Acergy North America and Mexico.
Acergy Asia and Middle East -- The Sakhalin project for Nippon Steel progressed very well and is now substantially complete. The Dai Hung project in Vietnam is experiencing some operational delays and is now expected to be completed in 2007. Tendering activity for the Sapura 3000 and for the Toisa Proteus remains very strong for work through to 2010. The continued development of Acergy's infrastructure in this region is progressing satisfactorily.
The new build and conversion programs continued throughout the third quarter. Despite cost inflation in shipyards and some delays in the supply of certain long-lead items, we do not expect the resulting cost overruns to significantly impact the return on these investments. The Chinese built hull of the Sapura 3000 arrived in Singapore on July 31, 2006 and is being fitted out in the Sembawang shipyard. The Polar Queen, which has been working in the North Sea for three months, will commence the final part of her conversion in November. The Pertinacia conversion is progressing towards her scheduled contract start date with Petrobras. The refit and upgrading of the Acergy Polaris, which includes the installation of a new deepwater J Lay pipelay system, is progressing well.
Net operating revenue from continuing operations for the third quarter 2006 increased to $607.0 million from $347.8 million in the same period in 2005, due to continued high activity levels in West Africa and the North Sea.
Net operating income from continuing operations for the third quarter was $108.5 million, compared to $41.0 million for the same period in 2005. The increase was due first and foremost to higher activity levels, good project performance and very high asset utilization of all major assets.
In addition, during the quarter our non-consolidated joint ventures contributed $23.7 million representing a substantial proportion of Acergy Corporate's income from operations. This compares with $6.8 million for the same period in 2005. It is a well-established practice for Acergy to enter into strategic joint ventures to broaden the scope of work we are able to offer, either on a project or longer term basis.
Adjusted EBITDA margin from continuing operations for the three months ended August 31, 2006 was 21.3%, compared to 17.3% for the same period in 2005.
Net income from continuing operations was $66.6 million for the third quarter, compared to $28.9 million in the same period in 2005. After including a loss from discontinued operations of $12.8 million, net income from all operations for the quarter ended August 31, 2006 was $53.8 million compared to $24.1 million for the same period in 2005.
The cash and cash equivalents position at the quarter end was $325.3 million, compared to $302.9 million at the quarter ended May 31, 2006. Total advance billings at the quarter end were $265.3 million, compared to $287.3 million at the end of the previous quarter.
On August 10, 2006 we amended our existing $350 million multi-currency revolving credit and guarantee facility agreement, to increase it to $400 million and to extend the maturity until 2011. The mortgages over vessels were released and explicit restrictions on investments and additional financing removed.
The $500 million convertible note offering, launched on September 11, 2006, will be completed today and the convertible notes, due 2013, will be listed and traded on the Euro MTF Market of the Luxembourg Stock Exchange. The convertible notes are convertible into our common shares, have an annual coupon of 2.25% and a conversion price of $24.05 per convertible note, representing a conversion premium of 43% to the US$-equivalent of the volume weighted average share price during the marketing period of the convertible notes. The proceeds will be used to fund Acergy's further upgrading and rejuvenation of its fleet, to provide a platform to support growth initiatives and to repurchase issued share capital for a maximum aggregate consideration of $300 million.
The backlog for continuing operations as at August 31, 2006 was $2,618 million, of which approximately $600 million was for execution throughout the remainder of 2006. The Group also held an additional $302 million in pre-backlog at the quarter end.
In $ millions as at: August.31.06 May.31.06 August.31.05 ------------------- ------------ --------- ------------ Backlog (1) 2,618 2,470 1,866 Pre-Backlog (2) 302 489 634
(1) Backlog restated to exclude amounts related to discontinued operations in Acergy North America and Mexico of $16.3 million (August.31.06), $27.4 million (May.31.06) and $50.0 million (August.31.05). Backlog reflects the stated value of signed contracts.
(2) Pre-backlog restated to exclude amounts related to discontinued operations in Acergy North America and Mexico of $nil (August.31.06), $nil (May.31.06) and $1.3 million (August.31.05). Pre-backlog reflects the stated value of signed letters of intent and the expected value of escalations on frame agreements
The satisfactory completion of major projects such as we have seen recently, not only enhances our earnings performance, but increases our ability to win repeat business with the small number of key clients who offer such contracts. In the first half of 2007, we expect to see the award of some of the many deepwater projects that have been through the bidding process in the second and third quarter of 2006. We believe that the group is well positioned to continue to benefit from the growing demand for our services over the coming years.
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