Vard (formerly: STX OSV)

[KopiKat]

Finally... new orders!


VARD SIGNS CONTRACTS WITH DOF SUBSEA AND TECHNIP FOR FOUR PIPE LAY SUPPORT VESSELS

Singapore, 12 August 2013 – Vard Holdings Limited (“VARD”), one of the major global designers and shipbuilders of offshore and specialized vessels, is pleased to announce that it has secured contracts with joint ventures of DOF Subsea and Technip for the design and construction of four Pipe Lay Support Vessels (PLSVs).

The contracts constitute the largest order in VARD’s history, with an aggregate order value of approximately USD 1.1 billion (NOK 6.5 billion). Two of the vessels, of VARD 3 05 design, will be delivered in 2Q 2016 and 3Q 2016 respectively.

The hulls of these vessels will be built at Vard Tulcea in Romania and outfitted at Vard Søviknes in Norway. The other two vessels, of VARD 3 16 design, will be delivered from Vard Promar in Brazil, in 4Q 2016 and 2Q 2017 respectively.


No wonder share prices went above 80ct recently with volume...

[Clement]

Finally... new orders!


VARD SIGNS CONTRACTS WITH DOF SUBSEA AND TECHNIP FOR FOUR PIPE LAY SUPPORT VESSELS

Singapore, 12 August 2013 – Vard Holdings Limited (“VARD”), one of the major global designers and shipbuilders of offshore and specialized vessels, is pleased to announce that it has secured contracts with joint ventures of DOF Subsea and Technip for the design and construction of four Pipe Lay Support Vessels (PLSVs).

The contracts constitute the largest order in VARD’s history, with an aggregate order value of approximately USD 1.1 billion (NOK 6.5 billion). Two of the vessels, of VARD 3 05 design, will be delivered in 2Q 2016 and 3Q 2016 respectively.

The hulls of these vessels will be built at Vard Tulcea in Romania and outfitted at Vard Søviknes in Norway. The other two vessels, of VARD 3 16 design, will be delivered from Vard Promar in Brazil, in 4Q 2016 and 2Q 2017 respectively.


No wonder share prices went above 80ct recently with volume...

Haha.. Yeah, industry trade newspaper Upstream online has been reporting the negotiations between Technip and Petrobras for these 4 PLSVs since early July. Nice to know they have finally finalised the damm contract award.

[KopiKat]

VARD SECURES CONTRACT FOR ONE OFFSHORE SUBSEA CONSTRUCTION VESSEL FOR FARSTAD SHIPPING

Singapore, 22 August 2013 – Vard Holdings Limited (“VARD”), one of the major global designers and shipbuilders of offshore and specialized vessels, is pleased to announce that it has secured a new contract for the design and construction of one Offshore Subsea Construction Vessel (“OSCV”) for Farstad Shipping (“Farstad”). The value of the contract amounts to approximately NOK 800 million.

[KopiKat]

An interesting report by CIMB at remisiers.org. Click on the 'Offshore & Marine' link of report to download. Interesting info on the Brazil market, not just for Vard. Some extracts,

2.1 Niteroi yard is overburdened

Vard‟s Niteroi yard is located in Niteroi city, in the state of Rio de Janerio, an hour's drive from Rio de Janerio city. Rio de Janerio is also the capital of Brazil‟s oil & gas industry. Most of the established shipyards are located in the cities within the state of Rio de Janerio. These include Keppel‟s BrasFELS yard in Angra dos Ries, Maua and Mac Laren shipyards in Niteroi city.

Vard has been operating in its Niteroi yard for the last 13 years and has delivered a total of 29 vessels. It is also the only yard in Brazil to have delivered two purpose-built pipe-layers for Petrobras‟s fleet of 12 pipe-layers. The yard has historically been profitable, with no major execution issues. Hence, the magnitude of Vard‟s Brazilian losses has been surprising.

However, upon stepping into the Niteroi yard, it was apparent to us that demand requirements have outgrown the yard‟s facilities. In particular, the yard was overloaded with large-vessel orders, which it was ill-equipped to handle. Production facilities include a 100m-slipway which can dock vessels up to 3,000 tonnes, a 100m-floating dock with a capacity of 3,000 tonnes and a 300m-quay. Over the years, the group has added/expanded piecemeal facilities haphazardly to cope with the additional requirements, resulting in a motley yard.

To add colour, we saw that the slipway was unable to contain the PSV which was under construction. Scaffolding had to be added to the end of the slipway to support the tail of the vessel. For some of the even larger vessels, only ~60% of the unit was completed on the slipway before being launched. The rest of the vessel was completed and outfitted along the quayside. However, this production method inflates production costs. Work done along the quayside can cost much more than that on the slipway due to the lack of accessibility. The vessel can only be accessed from one length along the quayside vs. two sides on the dock.

In the face of ever larger vessel orders, the Niteroi yard functioned more like an outfitting yard and was dependent on the subcontracting market for the construction of vessel hulls. However, constraints in the subcontracting market (due to an overheated Brazilian environment) have led to cost overruns. The sub-contracted hulls cost Vard much more than budgeted, and this was one of the contributing factors to its 2Q loss. That said, the last hull built outside the yard was delivered and the worst seems to be over. Its improvement efforts are beginning to bear fruit and the overload situation will ease starting from 4Q as the projects pass its peak phase

2.2 Promar: yard for the future

Vard‟s Promar yard is located in Pernambuco, in the state of Suape, North-Eastern Brazil. It is an hour's drive from Recife, the capital of Suape. The yard is located adjacent to the Estaleiro Atlantico Sul (EAS) yard, which is building seven drillships for Petrobras. Established in 2005 with operations commencing in 2008, EAS is one of the largest yards in Brazil in terms of steel throughput. EAS employs around 6,000 workers.

Thanks to the presence of EAS, a network of ancillary markets and infrastructure has sprung up over the past few years to support shipbuilding activities. The EAS and Promar developments have arguably boosted the previously underdeveloped North-East, and this reflects Petrobras‟s desire to spread its pre-salt riches to other regions within the country.

If anything, our impression of Promar is a full 180-degree shift from that of Niteroi. We draw comfort from 1) the pace of development of the yard, 2) the yard's state-of-the-art new facilities, and 3) management‟s clarity and longer-term approach in developing the new yard.

Since civil works began in 4Q11, development of Promar is more or less completed as scheduled (Vard has invested US$156m in the yard). First steel-cutting began in Jun 2013, and we witnessed the prefabrication and assembly of steel parts to blocks. These blocks will be used in the assembly of hulls for Transpetro's LPG carriers.

The yard is designed as a highly automated "flow" production line. Not surprisingly, the yard's director is a German who had previously worked for Daewoo Shipbuilding & Marine Engineering (042660 KS, Neutral). The Koreans are, after all, known for their highly precise and automated production lines that can churn out a high rate of throughput. Likewise, Promar is all about productivity and efficiency. Unlike Niteroi, Promar aims to carry out most of the outfitting and piping during the production stage. There would be minimal touch-up when the vessel is in the quayside, resulting in significant time and cost savings.

Lastly, we were impressed by Vard‟s clarity and longer-term approach in developing the new yard. The foundations have been set in place for a higher order cycle and sustainable operations. For example, adjacent pieces of land have been earmarked (beside the workshop) to allow for an orderly expansion.

2.3 Promar vs. Niteroi: labour cost perspective

Operating in Pernambuco also means that Vard faces less labour cost pressures vs. Rio de Janerio. We found out that on average, a blue-collar worker in Promar takes home about net US$700/month. However, including social pension contributions, transportation and other benefits-in-kind, Vard actually incurs a gross wage of around 2.5x the worker‟s net income. Hence, the gross wage bill to Vard for a blue-collar worker in Promar is around US$1,750/month. In comparison, Vard incurs a gross wage of U$2,750/month (or a net wage of US$1,100/month) for a worker in Rio de Janerio.

Compared to other countries, salaries in Brazil are decidedly higher. Singapore rigbuilders incur a gross wage bill (including workers‟ levies) of US$1,000/month for a blue-collar worker, while Korean shipbuilders face a gross wage bill of US$3,000/month for a blue-collar worker (higher productivity commensurate with higher wages).

Promar currently employs around 400 workers (100 white-collar, 300 blue-collar). It plans to double its blue-collar work force to 600 by next year as work for building more Transpetro LPG carriers kicks in. It will also commence the construction of the two pipelayers for Petrobras in 4Q14. On the other hand, Niteroi has a workforce of 1,200 employees (300 white-collar, 900 blue-collar).

2.4 Conclusions: part macro, part micro

While we acknowledge that the overheated environment has made it even more challenging to operate in Brazil, we believe that Vard‟s Brazilian issues are also somewhat company-specific – its Niteroi yard is too limited to handle its numerous large-vessel orders.

Lending credence to this argument is the fact that Niteroi has successfully delivered smaller vessels on time and on budget over the last 10 years. Problems have erupted after the yard was overloaded with large-vessel orders. To illustrate, the average length/breadth of a PSV delivered from 2010 onwards is 87.9m/19m while the average length/breath of a PSV delivered from 2000-2004 is 70.3m/16m. This implies that vessel sizes have grown around 50% in terms of area over the last 10 years. It is envisioned that Promar, with its modern and integrated facilities, would be better positioned to address future demand requirements.

4.3 Maintain Neutral on Vard with target price of S$0.91

Though we expect Vard‟s earnings to bottom in 2QFY13, the 22% rebound in its share price from the lows in late-Jul seems to have priced in some recovery. Vard is trading at 9x CY14 P/E, in line with its mean since IPO. Additionally, until investors are truly convinced that execution hiccups in Brazil will not recur, we think that a sustained re-rating is unlikely. Hence, we maintain our Neutral rating. Our target price is based on 9x CY14 P/E (its mean since IPO).

[valuebuddies]

Mitigating actions in progress at Vard Niterói

Vard continued to strengthen the project organization and reorganize production processes at the Niterói shipyard. It say that as implementation is still in progress, results are taking a longer than expected time to show.

"While Vard Niterói has hit an all time high manning, with approximately 1,250 employees and 750 subcontractors at the yard, access to qualified personnel continues to be a concern. Of the four delayed vessels in the order book in Niterói, the first one (an AHTS for DOF) has reached about 95 percent completion, and is expected to be ready for sea trials shortly.

Key shipyard infrastructure at Vard Promar completed within 3Q 2013

Key shipyard infrastructure for the Group's second shipyard in Brazil, Vard Promar, was completed in the third quarter. The ramp-up of production capacity at the new yard is underway, and the first blocks have been produced. Recruitment and training to integrate approximately 80 new employees per month into the organization are ongoing, and about 600 staff have been employed so far. Financial performance of the yard for 3Q 2013 is in line with previous estimates. With shipbuilding works in progress at the new yard, Vard has put in place the foundations for sustainable operations and future growth in Brazil. Click here for more

Look like the brighter days ahead

[GPD]

Will need at least 2 quarters of good margin to convince me of clear sky.

[kyle]

Some uptrend recently...
With the highest orderbook in last 5 years, maybe it will turn around this year. Need to deliver 3 vessels from its problematic Brazil shipyard this year, not sure whether there is any more delay. Let's see whether it can deliver the first vessel this quarter?

[valuebuddies]

Uptrend was ignited by the recent order win or approximately S$200M, also partly because of the QE tapering news. But I have more concerns on the parent company, remember they wanted to take Vard private but failed? They could just probably play another game to weaken the share price, I will not be surprise that they make further provision again on the Niteroi orders because of delays and sort of problems.

[kyle]

Win another contract. delivery from Vard Langsten Norway, mid-2016.

http://www.reuters.com/finance/stocks/VA...le/2903860

[valuebuddies]

I just to be kaepoh to write in to the IR to seek some clarification on the Q4 announcements yesterday, and here is the reply from the EVP Investor Relations:

Thank you for your kind email and questions.

As to the provisions for Niteroi, for loss-making projects, we calculate our best estimate of expected losses for the remainder of the project lifetime, and if that exceeds the total estimated in the previous quarter, we will book additional losses (as cost over P&L, and make a corresponding adjustment in the construction work in progress in the balance sheet). In 4Q, unfortunately we had to make additional such adjustments, affecting the margin for the quarter. While we cannot exclude having to make further revisions in the future, we have noted that the most problematic project (PRO30) is already on sea trials, and progress is being made on the other vessels.

The Group’s dividend policy is unchanged, and correctly summarized by you below. However, the Board noted that as an exception for FY2013, their recommendation is to deviate from the policy and not pay out any dividend.

I hope this clarifies.

Kind regards
Holger Dilling