2013 proved a particularly difficult year for Saipem due to a succession of events that impacted adversely on the year’s results, particularly in the Engineering & Construction sector. The exception was the Drilling sector which continued to follow the positive trend registered in recent years.
Overall, compared on a basis consistent with the Company’s approved 2012 reporting, revenues decreased by 10.2% and EBITDA by 71.8%, while the year saw the Company post a negative net result of €404 million.
The principal causes of this significant deterioration in results included:
- reduced activity in both the Offshore and Onshore sectors on a number of high margin contracts that had boosted 2012 results, following their completion in 2012 and early 2013;
- a significant increase in 2013 in the incidence of contracts whose lower margins reflected the extremely competitive market conditions prevailing between 2009 and 2012;
- commercial decisions taken to facilitate entry into the Brazilian market, judged to have medium-term potential, where the first contracts acquired by the Company have low margins;
- delays to important contract awards, particularly for large-scale international pipeline projects and deep-water field developments.
In addition, from May 2013 onwards, the combination of a deterioration in commercial relations in Algeria in the wake of investigations being conducted by the Algerian authorities and critical issues that emerged in relation to Onshore E&C projects under execution in Mexico and Canada, Offshore E&C projects underway in the Gulf of Mexico and completion works on a vessel due to be installed in the Mediterranean had a further negative impact on the year’s results.
The Company’s share price, which lost 49% of its value over the course of 2013, was impacted at the beginning of the year by the announcement revising 2013 earnings guidance sharply downwards, which caused the price to fall to €19.90.
Subsequently, after a second downward revision of guidance in mid-June had caused a second sharp drop to a year low of €12.60, the Saipem stock closed out 2013 at a price of €15.54.
In terms of results by business line, Offshore Engineering & Construction posted revenues in line with the previous year, while EBITDA fell by 62%, with activities concentrated in West Africa, Kazakhstan and Saudi Arabia. In the Onshore Engineering & Construction segment, revenues fell 21.8% and EBITDA totalled negative €614 million, while activities were concentrated in the Middle East, Canada and Australia. Offshore Drilling revenues rose by 8.2% and EBITDA by 10.2%, with the improvement mainly due to a full year of operations by the semi-submersible platforms Scarabeo 8, Scarabeo 3 and Scarabeo 6. Onshore Drilling sector revenues and EBITDA were essentially in line with 2012. Activities in the sector were concentrated in South America and Saudi Arabia.
In terms of health and safety, the Company’s LTIFR (Lost Time Injury Frequency Rate) fell from the previous year’s 0.32 to a very low 0.26. However, the six fatal accidents that occurred during the year (three in 2012) serve to remind us that a constant effort is needed to ensure that attention to health and safety is kept high at all sites on which Saipem operates.
Capital expenditure in 2013 amounted to €908 million, against €1,015 million in 2012. Sector by sector, Offshore Engineering & Construction saw the end of final completion work and sea trials on the Saipem’s new pipelay vessel Castorone, which began operations in the second quarter, while construction work continued on the new base in Brazil. In Onshore Engineering & Construction, the new covered fabrication yard in Edmonton, Canada, which is the first of its kind in North America, and which will allow Saipem to accelerate project delivery times was inaugurated during the last quarter of the year. The Offshore Drilling sector saw the completion of class reinstatement works on the semi-submersible rigs Scarabeo 5 and Scarabeo 7 and the jack-up Perro Negro 3, while in the Onshore Drilling sector, final completion works were carried out on four new rigs scheduled for operations in Saudi Arabia. Two other significant events affecting the Company’s fixed assets regarded the capsizing and sinking on July 1, 2013 of the jack-up drilling rig Perro Negro 6 while it was carrying out rig positioning prior to the beginning of drilling operations near the mouth of the Congo River and the sale on December 30, 2013 of the Firenze FPSO (Floating Production Storage and Offloading) vessel to Eni.
On December 5, 2013, the Italian stock market regulator Consob closed the proceedings it had commenced on July 19, 2013 with regard to a potential ‘non-compliance with international accounting standards’ of the Separate and Consolidated Financial Statements at December 31, 2012. The only consequence of the proceedings for Saipem was the restatement of the 2012 Financial Statements in line with Consob’s indications and corresponding adjustment made to the 2013 Financial Statements for the same amount.
Aggregate net profit for 2012 and 2013 remained unchanged.
As in the second half of 2013, possible delays by Oil Companies in awarding new contracts may lead to reduced visibility with regard to expected order backlog levels, which consequently makes it harder to forecast associated revenues and margins. For this reason, Saipem has chosen to adopt a policy of cautious guidance, reflecting the increased level of uncertainty in today’s market.
For 2014, Saipem expects revenues of between €12.5 and €13.6 billion, EBIT of between €600 and €750 million and a net profit of between €280 and €380 million. Final results will depend on the outcome of current tenders, on the timing of project awards and on the start date of operations, since this will determine the extent to which revenues and margins earned may be recognised in 2014. However, the commercial market outlook remains positive, with a large number of contracts to be awarded in the near future for which Saipem holds a solid competitive position, including pipe-laying projects in ultra-deep waters, subsea developments in deep and ultra-deep waters, FPSO construction projects and large onshore projects featuring a high level of technological complexity. Investments are expected to total approximately €750 million and net financial debt is expected to be approximately €4.2 billion, both figures representing decreases on 2013 levels. 2014 is expected to be a year of transition with a return to profitability. The extent of the recovery will depend not only on the pace of contract awards, but also on the efficient operational and commercial execution of low-margin contracts still in the backlog, which in 2014 should account for approximately €5 billion.
March 14, 2014
On behalf of the Board of Directors