| Copyright: | CCBN, Inc. and FDCH e-Media, Inc. | | Source: | FD (FAIR DISCLOSURE) WIRE | | Wordcount: | 8575 |
OPERATOR: Good afternoon ladies and gentlemen and welcome to the
Saipem Q1 2008 Results Conference Call hosted by Pietro Franco Tali,
Chairman and CEO.
(OPERATOR INSTRUCTIONS).
I'm now handing you over to Pietro Franco Tali to begin today's
conference.
PIETRO FRANCO TALI, CHAIRMAN AND CEO, SAIPEM S.P.A.: Ladies and
gentlemen, good afternoon. As usual I will make a brief introduction
and then we'll be taking your questions. So starting with the
results. We think that the results are good. Comparing Q1 '08 with Q1
'07 the improvement would be particularly impressive. But even
sequentially margins are improving in offshore and onshore. And this
thanks both to the absence of major problems on our projects, and
because we are executing contracts awarded in an improved market
environment.
In offshore drilling, revenues and margins have improved because of a
day-rate increase in [semi-sub] units. In onshore drilling, a
decrease in revenues of some EUR7 million mainly related to services
has been more than offset by revenues generated by 8 new rigs that
have entered service during this first quarter. These newly deployed
rates have also led to an increase in depreciation of EUR6 million.
Then as far as depreciation is concerned, and this may be important
for your modeling, we will be using a particularly prudent approach
in drilling both onshore and offshore. So we will be depreciating as
much as possible the CapEx for the new units over the life of the
contract that led to this respective investment decisions. More
specifically new land rigs will be depreciated over eight years, in
itself a short period. In addition using the so called component
approach, which allows depreciation over the length of a contract, of
all equipment and parts, that can be classified as being specifically
required by that contract.
The results of the eight-year depreciation period, and the component
approach is that over the average three-year contract duration we
will be depreciating some 40% of the investment.
Then moving to the offshore, the new jack-ups, so the Perro Negro 6
and 7 we did depreciate it over a period of 20 years, and using the
component approach some 30% of the investment will be depreciated
over the first three years.
Finally, the two new semi-subs and the new drilling ship, all of
which, as you may remember, had a five-year contract, we did
depreciate it over 30 years again with the component approach leading
to a depreciation of some 40% over the first five years.
Now moving to the disposal of the [non-class], as already announced
during the first quarter we have finalized the sale of our 30% stake
in GTT for a price of EUR370 million and a pretax capital gain of
EUR185 million. Discussions regarding the sale of our 20% stake in
FertiNitro are ongoing.
Moving to market and backlog the market is good. The offshore West
Africa is now particularly active. But also other areas appear
promising. Onshore, the Middle East and Nigeria are the areas seeing
the most intense bidding activity. We have been able to fully replace
revenues in the first quarter and we remain confident of achieving
our target of fully replacing our revenues over the course of the
year.
Moving to CapEx, starting with units that are due for delivery
throughout the remainder of this year, the TAD, or the tender
assisted drilling barge is to leave the shipyard over the next few
days and then start service by mid-May. The Perro Negro 7, the
jack-up is in Singapore undergoing final preparation for its contract
with Saudi Aramco is due to commence transport early June and then
start service approximately mid-July.
The FPSO Gimboa is to leave the shipyard late summer, which means
that it should enter service for Sonangol in Angola during the fourth
quarter. Then the vessels for the hook-up and commission in Kashagan,
the construction continued to be on track and the delivery will be
mainly in the third quarter this year so that they are delivered
before the winter ice.
Now looking to the vessels that are due for delivery later on, on the
two vessels that we are getting built in Yantai we have recently
agreed to transfer some resources from the pipelayer to the Scarabeo
9 so the semi-sub drilling rig in order to secure its delivery in Q4
'09 to commence its five-year contract. The new pipelayer vessel will
now be delivered in Q3 2010.
The other main items of the CapEx plan, the Perro Negro 6, the
Scarabeo 8, the Saipem 12000, actually the S2 and the [diving]
support vessel are proceeding as previously communicated. For the FDS
2 and the diving support vessel is you will recall are still in the
technical definition in commercial sales and we should finalize the
contracts for their construction in this Q2 '08.
Finally the new yard in Karimun and the important and local content
initiatives in West Africa, Saudi Arabia and Kazakhstan are
progressing well.
Now the guidance for fiscal year '08. We have to take into account
the impact of U.S) dollar devaluation since 70% of our contracts and
therefore 70% of our revenues and profit are generated in U.S.
dollars. Thus when we translate them into euro we are affected by the
weaker U.S. dollar. The mix of the contrasts already in the backlog
and hedged along with the contracts still be awarded is currently
expected to lead to an average euro/dollar exchange rate of 1.45 in
'08 as compared with 1.34 in '07 and the 1.41 for '08 that we
expected at the beginning of the year.
The negative impact for '08 compared to '07 is therefore now expected
to be EUR550 million revenues and EUR55 million at EBITDA level, thus
an additional negative impact with respect to what we expected at the
beginning of this year, which as you recall was EUR400 million
revenues and EUR40 million on EBIT respectively.
This notwithstanding, the success we are experiencing on projects
under execution allows us to confirm our target for an improvement in
EBIT and net income of at least 20% on revenues in the region of
EUR10 billion. Thank you and now we're ready to take your questions.
OPERATOR: (OPERATOR INSTRUCTIONS). Thank you. Our first question
comes from the line of Andrew Dobbing. Go ahead please.
ANDREW DOBBING, ANALYST, CAZENOVE: Yes, hi. I just had a question on
the currency impact actually. You say that your -- this EUR55 million
impact is based on an average rate of 1.45 for 2008. I guess to reach
that 1.45 we're going to need to see a significant strengthening of
the U.S. dollar. Is it fair to assume if the spot rate stays where it
is at about 1.60 then this EUR55 million negative impact on operating
profit will have to be increased I guess quite significantly?
PIETRO FRANCO TALI: No, as a matter of fact, the situation is quite
different. We have typically we get contracts where the execution is
over two, three years, and our policy is when we get a contract, when
we sign a contract, we hedge the contract on the foreign exchange
risk. So, for the contracts already in the backlog we are totally
immune from any devaluation and at the beginning of the year some 60%
of the revenues of '08 were already in the backlog and already
hedged.
And therefore, the remaining approximately 40% at the beginning of
the year we were assuming an exchange for '08 so for the contracts to
be awarded in '08 and executed in '08 it make it a cross rate which
was roughly 1.5. Now the exchange rate is different as you know and
as you know and so the expected average rate for '08, which I repeat
this is the mix, the combination of existing contracts hedged at
older day-rates, and the contracts that we are getting actually at
the new day-rates is expected to be 1.45. So if the cross rate,
euro/dollar remains the same of the day-rate we are seeing presently,
the average day-rate would be 1.45 or close to 1.45. So the
difference would be if we will see a significant further devaluation
or we will benefit if there is some kind of re-evaluation.
ANDREW DOBBING: Okay, I think I understand. Thanks very much.
OPERATOR: Thank you. Our next question comes from the line of
[Stephen Williams]. Go ahead please.
STEPHEN WILLIAMS, ANALYST: Yes, just a very quick question about the
switching of resources between the drilling asset and pipelay vessel.
Was that because there was some slippage in the expected time of the
drilling asset construction or was it, kind of an opportunistic move
to secure a contract earlier than you otherwise have been able to do?
PIETRO FRANCO TALI: Well, I think it is fair to say that in the
present market scenario managing larger CapEx plan like the Saipem
plan is a challenge and this is because as you know all the yards are
handling, the main suppliers are overloaded. So the difference
between the semi-sub and the pipelayer is that for the semi-sub we
have already a contract. We have a five-year contract and even if we
have some seven months of a grace period, this means that if we are
not able to deliver the unit in Q4 '09 we still do not suffer any
penalty for the following seven months. But we decided to make the
delivery of the semi-sub, how say more [solely] than this because for
this unit we have already a contract.
For the pipelayer, for its very nature these kind of investment which
is made on speculation and the assumption of what the market will be
offering, and as you may remember the main target for this unit is
the second line of Nord Stream and the timing of this line is now
expected to be 2011. So even if the delivery of the new pipelayer
will be in Q3 2010 instead of Q2 2010 we will not be suffering for,
let's say, postponing the utilization of the vessel. This is the
reason why we shifted some resources from the pipelayer to the
drilling unit.
STEPHEN WILLIAMS: Okay, that's great. Thank you.
OPERATOR: Thank you. And our next question comes from the line of
Thomas Deitz. Go ahead please.
THOMAS DEITZ, ANALYST, ABN AMRO: Yes hi, it's Thomas Deitz from ABN
AMRO. I have two questions if I may. The first one is regarding your
new depreciation policy. I was wondering whether you could give us
kind of an idea of what the new run rate per quarter would be? And
the second question is regarding your idle days for your rigs. I
thought that at the end of last year you expected 492 idle days and
it seems that now we are well above 500. Am I reading that right in
your table, in the release? Thank you.
PIETRO FRANCO TALI: Well, starting from the second question, you
know, the only difference in terms of days we will be needing for the
maintenance of the vessel is on the Perro Negro 3 and which, as a
matter of fact, the previous quarter we were expecting some 150 days
and now we are targeting 132 and this because - maybe the press
release is misleading. We had 71 days in Q1, which were dedicated to
maintaining the unit and 132 which are on the right side is in total
the amount of days we'll be needing. So the 71 is part of the 132.
THOMAS DEITZ: Okay, great.
PIETRO FRANCO TALI: And a matter of fact, according to this days plan
we'll be needing, we will be having less idle days than we were
expecting in the first -- in the previous quarter. Then the
(inaudible) as far as what?
THOMAS DEITZ: The depreciation.
PIETRO FRANCO TALI: The depreciation, well, first of al, let me say
that the fact that we have decided to implement this kind of
accelerated depreciation is not at all a sign that we do not believe
that the market will remain strong and the rates will remain strong.
No, we think that it's prudent having contracts at such a high day
rates to depreciate whatever the auditors will allow us to
depreciate.
And so this means, as I mentioned earlier on, for the land rates, the
depreciation will be for the first three years in excess of about 10%
a year. For the jack-ups, for the first three years, will be 10% per
year and for the big units, the deepwater units, will be 40% in five
years. So this is the combination of the overall period in which
we'll be depreciating, how say, the hull and the much shorter period
on which we'll be depreciating all the items which can be classified
as required by the specific project.
So this means that you can measure the impact at the EBITDA level
will be totally neutral and there will be an increase of depreciation
and an equivalent, a corresponding proportion of decrease in terms of
EBIT.
THOMAS DEITZ: Right and do you have any -- could you give us an
indication of what that means? I mean we had EUR80 million, about
EUR80 million this quarter. To what kind of amounts is that going to
be per quarter?
PIETRO FRANCO TALI: Well, as far as in '08, the segment which is --
which will be mostly impacted is onshore. Onshore drilling and this
because as you may remember we had deployed 8 new rigs over the Q1
and we'll be deploying an additional 12 rigs through the remainder of
the year. So the depreciation, the depreciation for the rest of the
year for -- in the onshore drilling will be roughly EUR60 million and
this will not -- should be split evenly between the quarters because
as I mentioned the deployment of the additional 12 rigs will happen
throughout the year. So the overall amount is roughly EUR60 million.
The division between -- the split between quartes will depend on the
timing of deploying -- of the deployment of the new units.
THOMAS DEITZ: Okay. Thank you very much.
PIETRO FRANCO TALI: Okay.
OPERATOR: Thank you and our next question comes from the line of Dave
Thomas. Go ahead please.
DAVE THOMAS, ANALYST, CITI: Yes. Good afternoon, gentlemen. Just a
question on the currency impact. Obviously you've explained this
year. Could you just give us some idea therefore what we should
assume for 2009 and beyond in terms of what you're currently hedging
at? Are you using the sort of $1.60 per euro that we're currently
seeing in the markets?
PIETRO FRANCO TALI: Well, let me say that the split in terms of
revenues, as you may remember some 70% in dollars and the rest in
other currencies, is something which would be difficult to change and
this because as long as the price would currently be denominated in
dollars also the contrast will be mostly denominated in the same
currencies.
Then the devaluation has an impact on the future contracts and this
because, as we were discussing earlier on, we hedge the contracts the
day on which we assign them. Then, taking into account that 70% of
revenues and EBIT is coming from contracts in dollars this leads then
to the fact that for, let's say, each 10% of U.S. dollar devaluation
the impact on revenues and EBIT will be 7%. And so this again means
that when we'll be moving from 1.45 to the 1.60, if this the cross
rate which will be prevailing going forward, we would be impacted by
some 70% of the devaluation, the further devaluation which is the
difference between 1.45 which is the average day-rate we expect for
'08 again the combination of all contracts and new contracts and the
day rates which are prevailing today. Is it okay for you?
DAVE THOMAS: That's very clear. Thank you.
OPERATOR: Thank you. Our next question comes from the line of
Christyan Malek. Go ahead, please.
CHRISTYAN MALEK, ANALYST, DEUTSCHE BANK: Hi, good afternoon. Two
questions if I may. The first is just to clarify the reason behind
shifting resources within the Yantai Raffle yard. I mean is it really
a question of just sort of assigning where you need the resource in
terms of delivering your contract or is there some underlying
execution problem at that yard with respect to being in China and so
on?
And the second question is regarding your onshore construction
margin. What do you view as best-in-class within this business given
you've managed to sort of touch the 5% level, which was sort of your
target about a year and a half ago?
PIETRO FRANCO TALI: Well, as far as the reason for shifting resources
from the pipelayer to the semi-sub, well, I do not say that there is
a reason because there were problems at the Yantai Raffle. The Yantai
Raffle is, I guess all the yards are experiencing some kind of
constraint in terms of resources. And the difference between the two
units, as I mentioned earlier on, is that the semi-sub has already a
long-term contract, a contract, we think which will be a very
profitable one. And the other unit, the pipelayer has no contract and
the first realistic opportunity to use the vessel is the second line
of Nord Stream, which is presenting scheduled for 2011. And so it
seem to us it seemed a sensible, let's say, decision to move
resources to a vessel for which we have a contract instead of trying,
let's say, to have the two vessels at the original schedule.
Then as far as the onshore, well, first of all, let me say that we
are quite pleased with the success we think we have achieved in
integrating Snamprogetti and in moving these margins of Snamprogetti
to a level which is close to the historical level Saipem was
achieving in this segment. This because, as you may remember,
Snamprogetti has an excellent track record as an engineering company
but definitely they did not use - excel in terms of margins.
And the fact that we have integrated Snamprogetti and we are able to
achieve margins which are improving in sector in which some other
players are suffering is something which make us quite pleased.
Going forward as you may recall we have announced that for '08 we are
targeting additional synergies to come from the integration of
Snamprogetti, synergies which we quantified in some EUR13 million. We
are well on track on achieving the synergies and so we see in '08
some additional improvement and also the Q1 is I'll say testimony
that we are achieving this improvement.
CHRISTYAN MALEK: I guess maybe if you tie in the two questions
together. I mean you mentioned construction tightness which is
nothing unusual. But you've done very well in managing the supply
chain particularly within the context of lump sum contracting. Given
that the extensions don't seem to be sort of loosening up what -- and
the fact that you're seeing increasingly so within China and Yantai,
is there any read across within lump sum contracts that you've got on
within the onshore or offshore that you feel that as a result of the
construction tightness could actually impact your margins or
execution? Or are you still as confident as you have have been?
PIETRO FRANCO TALI: Well, we have never denied that EPC or EPC is
intrinsically risky and it's because a contractor is doing on lump
sum basis projects which are frequently challenging and big.
Our -- we maintain that this approach, the EPC approach is
intrinsically the most efficient one. This is something that you will
think is intuitive. If you have in the same company the capability to
provide the engineering solutions and at the same time, to do or at
least to manage the construction it is intuitive that there is room
for continuous improvement.
And our point is that EPC is the right approach. It is the right
approach particularly for the big projects at the frontiers. What a
contractors needs for playing in this segment is in appropriate
industrial model, a model which has to encompass good engineering,
strong construction capabilities and a strong local content. We think
we have a good engineering, as you know, we have invested a
significant money in acquiring the engineering competencies we were
needing. We are investing billions of euros in strengthening our
asset base and this because we think that particularly going forward,
these big frontier projects will require different assets, bigger
ones, and we are building the assets we think the industry will be
needing for the projects in the years to come.
And the third pillar, which is local content strategy, as you may
know, and as you may recall, we are a strong investor locally. We
have already big facilities. And we are continuing to invest,
particularly West Africa, Saudi Arabia and Kazakhstan. So definitely,
we think the EPC approach is the most appropriate one and we think we
have the industrial model, which is most demonstrated over a number
of years now to be the right one for properly and efficiently
executing these projects. We are investing heavily in order to
strengthen this model and also we are totally, let's say, at ease and
happy to be a player in the EP segment.
CHRISTYAN MALEK: Okay. Thank you very much.
OPERATOR: Thank you. Our next question comes from the line of
[William Mansfield]. Go ahead please.
WILLIAM MANSFIELD, ANALYST: Hi there. Thank you for taking my
question. I have two quick questions for you. One was on your
recently acquired jack-up rig. The Perro Negro number 7. It has this
complicated put-call structure in the acquisition of that. Is that
something that you specifically wanted in the structure? And is there
a possibility that you won't own that rig a year from now when the
put-call expires?
PIETRO FRANCO TALI: I would say that is not as complicated -- that
complicated. Because if I recall correctly, there is a time charter
period of some 12 months and then there is an option at a price,
which is already predetermined and there is no doubt at all that
we'll be exercising the option. And the reason why in [strength],
instead of let's say simply buying the unit, we have gone through
this scheme is at the request of the seller and it's probably
associated with some, let's say, fiscal reasons. But the, I will say,
the reality is that we consider to have bought the unit and the
scheme is different, but the final result is that we have acquired
that unit.
WILLIAM MANSFIELD: Okay. And thank you very much for that. And
similar to that unit and some of the semi-subs, you've kind of --
what I would say opportunistically, taken advantage of your strong
balance sheet and the credit issues affecting some of the smaller
players to make investments or to buy up rigs here in the offshore
sector. Is that something that you see additional possibilities of
that in 2008 here?
PIETRO FRANCO TALI: Well, this is a good question. Because on the one
hand, we have a market, which is still offering prospects, which are
really very, very interesting. Because day rates are still very high.
And we still have oil companies which are prepared at least to
discuss, to negotiate long-term contracts. And so on one hand, it is
difficult to say no. On the other hand, as we announced on, let's
say, the previous quarter, we have also to take into account, to be
constrained in service of human resources. And this because,
particularly the offshore units we are building, the pipelayer, the
FDS, the different initiatives in terms of local content, the very
big fabrication yard we are building in Indonesia, they really need a
lot of skilled resources. And so we have to strike, to identify the
proper balance between, let's say, taking advantage of the market and
the constraint in terms of human resources.
So we have announced that, as far as drilling is concerned, both
onshore and offshore, we will be going forward more selective. So
this does not mean that by definition we will not invest. We will be
more selective. So I tend to believe that both offshore and onshore
drilling, any further initiatives will depend from getting very good
contracts and this would not be enough. In addition to the contracted
sales, also the country and the client has to be a very strategic
one.
WILLIAM MANSFIELD: Great. Thank you very much for answering my
question.
OPERATOR: Thank you. And our next question comes from the line of
David Phillips. Go ahead, please.
DAVID PHILLIPS, ANALYST, HSBC: Thanks. David Phillips from HSBC in
London. A couple of questions. Firstly, I know it's a relatively
small part of the business, but FPSOs, could you talk about what's
the level of activity you have in there in terms of chasing tenders
and how important this area is in your overall investment plan? In
other words, how many possible vessels you may look to add over the
next few years?
And secondly, I know it's a bit of a flavor of the month and I guess
the question -- the answer could be either short or very long. But
Brazil, can you talk a little bit about what sort of timeline we
might think about from an [actually] market perspective to see some
news about what you might do in Brazil with Petrobras? Thank you.
PIETRO FRANCO TALI: Well, as far FPSO, so I think that [Hugh] will
stand a little bit in general terms. My company (inaudible) we are in
this segment and we continue to say we have an opportunistic approach
and so we will never be very, let's say, aggressive player in the
segment. The rationale for us for being in this segment is that as
you know, the lease option is frequently the favored option for
national companies. And you know we are a strong local investor and
so we tend to be in all the segments in which the national companies
are, let's say, are focused in. Then Hugh will expand on what could
-- we could be doing in the short to medium term.
Then Brazil. First of all, let me acknowledge that there is a
discrepancy between how important it is and will become, Brazil, in
the oil industry. Brazil will, undoubtedly, become one of the biggest
oil provinces of the world and so far, Saipem, e have not been able
to be a significant player. We have an FPSO, as you may remember, we
are doing some drilling activity, we've been going there for
installing the machine now platform. But definitely we are not one of
the big players.
Well, as you can imagine, we are trying to imagine how to [sell] in
this situation and probably the water depth could be something, which
should play in our favor. As you know, many of the big discoveries,
the recent discoveries in Brazil, are in water depths exceeding the
2,000 meters. And, we think the answer for this water depth, the
[taking] solution for developing these [sales] will mostly be on
rigids and when moving, when, let's say the solution becomes a rigid
one, we think that we have some competitive edge or definitely we
have the chances to be one of the big players.
In addition to that, we are examining, that we are exchanging ideas
with Petrobras, but as you know, the water depth could change the
picture as far as Brazil is concerned and the level of the activity
of Saipem in that country.
Hugh?
HUGH O'DONNELL, MANAGING DIRECTOR, SAPIEM: Yes, well as you probably
know, I -- we generally prefer not to mention specific opportunities,
commercial opportunities because it's not particularly commercially
savvy to do so.
But I would say that there are opportunities, in particular in
Southeast Asia, in the Mediterranean and West Africa and, of course,
in Brazil, associated the work that they're there. You can probably
imagine the kind of opportunities that we're talking about.
There seems to be a significant number of opportunities, but one of
the other reasons for not mentioning specific bids is because quite
often, we're seeing that the clients haven't decided yet whether
they're going to lease that vessel or whether they're going to be
sale.
In terms of the leased FPSO opportunities, there are kind of two
levels, I would say. There's the level, which is generally between
80,000 and 100,000 barrels of oil a day and that's the one in which
we've been principally focused and as you know, we are already
operating a leased FPSO in Brazil. And as Pietro Franco mentioned,
Giboa, which should be delivered from the shipyard later in summer.
Ideally, what we would like to be doing is to be completing one,
starting one, and bidding one. I think that's probably for the next
year or two the kind of level that we would like to achieve. And it's
-- it looks to be reasonably -- it looks to be possible to do that.
Whereas up to now, we haven't been all that focused on the smaller
FPSOs, it seems to me that that's becoming also quite a strong
business. At least it would be worth looking at because at these oil
prices, there seems to be significant opportunities also, even with
regards to the smaller FPSOs that kind of had between 10,000 and
30,000 barrels of oil a day.
But our focus would be on the bigger ones, but also looking at the
smaller ones. So hopefully that is enough without getting into
specific opportunities, which we may be -- because of course if we
talk about specific opportunities, then everybody gets to know about
it and that then violates a little bit the commerciality of the
approach.
DAVID PHILLIPS: Sure. No, thanks a lot. It's very helpful. I'm sure
you could leave the speculation to us on that one.
HUGH O'DONNELL: Alright.
DAVID PHILLIPS: Thank you.
OPERATOR: Thank you. And our next question comes from the line of
[Rob Halen]. Go ahead, please.
MARTJIN RATS, ANALYST, MORGAN STANLEY: Hello. It's Martjin Rats from
Morgan Stanley. I had two more questions. First of all, with the
accelerated depreciation, does that have an impact on the effective
tax rate going forward or are we merely talking rounding errors here?
And also in onshore construction, relative to the backlog that you
announced at the start of the year for execution in '08, I thought
that the revenues looked particularly light and also the order intake
looked particularly light. I was hoping whether you could comment on
whether there were any specific reasons for that?
PIETRO FRANCO TALI: Well as far as the impact of the accelerated
depreciation, there's no impact at all. Then as far as onshore, the
depreciation was on --
HUGH O'DONNELL: (inaudible)
PIETRO FRANCO TALI: Well, in terms of revenues, particularly in the
onshore rigs, this may depend also from the timing of the
procurement. As you know, procurement is, particularly in the
onshore, something which should maybe represent between 40% and 50%
of the overall contract value and so of the overall revenues. And the
timing of the procurement may have an impact on the quarterly
revenue. So depending on procurement being made in March and April,
these could have significant impact in terms of revenues from
(inaudible) specific quarter.
Then in terms of order intake, in terms of order intake, again, in
the onshore, we are talking of now big projects and so the award is
may be erratic during the year. We had been awarded, in Q4, some
EUR400 million of new orders, which were basically the extension of
or additional work on existing contracts in Pakistan and in Nigeria.
HUGH O'DONNELL: In Q1.
PIETRO FRANCO TALI: In Q1. Yes. In Q1, we have been awarded, let's
say, change orders on existing contracts. Then we think that the
market, let me say particularly in the onshore, is very promising. As
you know, we think that we are very well positioned in the Middle
East, in North Africa, in Algeria, in Nigeria. We had recently
submitted bid for [Manir] in (inaudible), which as you know -- I
mean, as you probably know, the bidding was an exercise, which has
been recently completed. We will be knowing the results soon.
We will be bidding for a number of prospects in Algeria. We have
submitted some bids and we'll be bidding for additional projects in
Nigeria. So in areas and countries where we are traditionally a good
positioning, we had, we think, an excellent track record in the --
doing the execution. So without, let's say, putting a chance on what
could be the chance on specific contracts, we tend to think that we
will get our share or a good share of what will be awarded. And we
see, during the remainder of the year, a number of big awards taking
place in the areas I mentioned to you, Middle East and Algeria and
Nigeria. So we have -- let me say that we have no concern at all as
far as the order intake in the onshore.
MARTJIN RATS: Okay. I understand. That's very helpful. Just one
follow-up question. If it's mainly the volatility of the -- or sorry,
the changes in procurement activity driving the volatility in
revenues in onshore, shouldn't we not only see that in revenues, but
also in margins, given that procurements doesn't carry [a low]
margin?
PIETRO FRANCO TALI: No, no, no, no, no. Because as a matter of fact,
we use the percentage of completion method. And so even if the
different phases of the same project have, I would say, an embedded
margin, which it can be different, as you are right in saying,
procurement, particularly has a lower tract, a lower margin, while
engineering a project, management attracts a higher margin. But the
percentage of completion method is a method through which we book
margins throughout the life of the project, which is exactly the
same.
So irrespective, from what the volumes comes from, from engineering,
from procurement, from construction, the margin is the same. And so
the procurement has an impact, may have an impact, on revenues, while
usually it does not have an impact on margins.
MARTJIN RATS: Ah. Okay. That was helpful. Thank you very much.
OPERATOR: Thank you. (OPERATOR INSTRUCTIONS) Thank you. Our next
question comes from the line of Iqbal Nasim. Go ahead, please.
NICK PICKUP, ANALYST, LEHMAN BROTHERS: Hi. It's not Iqbal, it's Nick
here. Just one question, gentlemen. Just as we're looking at the rest
of the year and following off of what Martin said, you've just done
EUR2.2 billion of revenues in 1Q and you did EUR2.2 billion of
revenues a year ago. Yet your backlog for execution for the rest of
this year,[in hand at the moment is actually somewhat down, a couple
of percentage points down on last year. Are we still expecting
revenue growth this year? Because I noticed you're going to in the
region of EUR10 billion from in excess of EUR10 billion?
PIETRO FRANCO TALI: Well, as a matter of fact, the reason why, as you
are rightly pointing out, we have changed the guidance from in excess
of to around EUR10 billion is because of the U.S. dollar impact. As I
mentioned earlier on, the additional U.S. dollar devaluation has an
additional impact in terms of revenues of EUR150 million and this is
the reason why we are now saying EUR10 billion instead of in excess
of EUR10 billion.
Then as far as the -- how much, of this EUR10 billion is secured from
contracts in the backlog, it is not far from the percentage of last
year at the same time. And the mix of contracts already in the
backlog and contracts for which we think we are well positioned and
we should be getting soon make us confident at this point in time
that we will reach the target we are giving, announcing, in terms of
revenues.
NICK PICKUP: Okay. And just another question if I may. You talked
about FPSOs, I think this quarter we've seen the LNG FPSOs taking off
or coming more into frame. And I don't often hear your name mentioned
associated with those, yet it's your type of skill set. Have you got
any plans in that area?
PIETRO FRANCO TALI: Well, as far as floating liquefaction, are you
referring to floating -- ?
NICK PICKUP: Yes.
PIETRO FRANCO TALI: Okay. Floating liquefaction, as a matter of fact,
is probably one of the themes of today. And this is for a number of
reasons. Because the price of gas is high and in addition to that,
there are and there will increasingly be -- it will be increasingly
difficult to flare the gas. As you know, there are ideas on building
very big floating liquefaction plants and in addition to that, there
should be also another segment for relatively small units. And these
last ones, for targeting marginal fields for which would be
uneconomical to lay a pipeline to shore and to build a liquefaction
plant onshore.
First of all, let me say I do believe that this market has a good
[reputation]. My personal belief is that the price of gas should
remain quite high for any foreseeable future. And in addition to
that, particularly the segment for building a relatively small
floating liquefaction plant seems to me something which is realistic.
And this is because, as I mentioned earlier on, the rules will make
-- will simply not allow any more to flare the gas. And so one way to
monetize the gas is to liquefy it the.
As far as Saipem is concerned, we are working at each end, we have to
bid the leasing and probably the big -- the entities, the big
fabrication we have in four areas, we could have a slight competitive
advantage. And taking also into account that for (inaudible), you
also have a company with a good track record in terms of liquefaction
and in addition to that, as you know, frequently the client for
buying the gas is again in the same countries. So we have to be
realistic about the [headings] of that. Definitely, I think that this
market, which will materialize, we are working on it, we are working
with, in order to developing areas, and also to try to team up with
the players, which could be well positioned.
NICK PICKUP: Okay. Thank you very much.
OPERATOR: Thank you. Our next question comes from the line of Paulo
Citi. Go ahead, please.
PAULO CITI, ANALYST, INTERMONTE: Paulo Citi. Hello.
PIETRO FRANCO TALI: Hello.
PAULO CITI: Good afternoon, everyone. Just a few questions. First of
all, regarding the [newest status] contracts, and particularly in
West Africa. Could you give us an idea of the new potential contracts
to be awarded in the coming months after the [huge] projects awarded
two weeks ago?
Second question was related to the Nord Stream project. If you can
give also in this case an update regarding the expected announcement
of the final contract?
PIETRO FRANCO TALI: Yes.
PAULO CITI: We were expecting it for the end of Q1, so an update on
this front.
PIETRO FRANCO TALI: Yes.
PAULO CITI: Another question is related to the depreciation, you gave
a guidance of a rough EUR100 million increase compared to '07.
PIETRO FRANCO TALI: Yes.
PAULO CITI: A few months ago, so if you can confirm this guidance?
And finally, regarding the results in the offshore construction
division, I was particularly surprised by the very strong results,
taking into account the fact that we were expecting a potential
negative impact from the fact that the Saipem 7,000 vessel was idle
for three months or so. Is this correct, this indication? Or the the
vessel was operational?
PIETRO FRANCO TALI: No, I'll start from this last question. So you're
right, the Saipem 7,000 was undergoing some maintenance and she was
out of operations for the quarter, where in last year she was working
the Gulf of Mexico. Well, but luckily, actually, in the revenues we
were missing from the Saipem 7,000 were achieved in other areas and
countries. And so there is no one-off in the quarter.
Margins are improving and these, as we anticipated, are the result of
the fact that we are executing a number of projects, even a number of
challenging ones, but luckily enough, we are not experiencing any
major problems. And in addition to that, the projects we will be --
we are and we will be executing in '08 have been awarded to us a
couple of years ago. So in an improved market environment, we do
expect then the contracts we had been executing last year. So we
expect these kind of margins in the offshore to continue for the
remainder of the year.
Then the depreciation, the guidance of an increase of EUR100 million,
is a guidance we continue to maintain. And this is the result of the
new rigs we'll be deploying in the onshore and in addition to and
also the new jack-up. And in addition to that, also, there will be
some additional -- some increasing depreciation coming from beyond --
from the offshore as a result mainly of specific CapEx we have
completed a few years ago and CapEx, as you know, we depreciate over
the life of the same projects.
And finally, again, we are in the offshore, there is the Gimboa,
which as we were discussing earlier on, it will be -- will start,
will enter service in the fourth, in the third quarter of this year.
Fourth quarter of this year.
Then moving to Nord Stream, well, as you may recall, we have been
awarded a letter of intent, we've been given the letter of intent
last year and the signature of the contract was previously targeted
for March of this year. Now, as you may know, the project, the
client, is actively working on the permit issue. We are cooperating
with them. Getting the permit is not and will be not our scope of the
work. And now the client is saying that by this summer, they should
be ready to sign the contract.
When? We have to stick to what the client is foreseeing.
With Africa, the positive, the very positive aspect is that the big
projects, which were being -- supposed to be awarded, some of them
even a long time ago, finally are moving to the award phase and so we
have been awarded [Uzem] as you know, a couple of weeks ago. Well, we
are bidding on a number of prospects in Nigeria, in Angola. As you
can imagine, it's difficult to speculate on which project we could be
in a better position. Qualitatively speaking, we do believe that our
positioning in West Africa is a good one because as you know, we have
invested and we are investing. So in qualitative terms, we think that
we will get a fair share of whatever will be awarded in Nigeria and
Angola.
Then as far as the project, which the oil companies are saying we
will see an award this year, in Europe and Nigeria, there is
[Bangola] then what else. (inaudible).
HUGH O'DONNELL: There's Bongo, both northwest and southwest. There's
a significant amount of work in Angola, Block 18 for BP, [Paket] in
Turkey one, Kizomba Satellite then there's some smaller platforms,
[Sanya], a for Total, the work associated with the gas gathering from
Block 14 in addition to also gas gathering work for Block 18.
Then ,of course, there's also work in -- on the Brazilian side with
Uruguay and probably the start of [Tupee]. There's, I think, a job
for Anadarko and Tullow in Ghana called Jubilee. There's [Grove] for
Total. I am trying to say as many of these as possible so that
they're -- we're not singling out anyone, but just giving the idea
that there's a -- the impression that the market is strong.
Also then, Pietro Franco mentioned the fact that not only West Africa
is strong, but other areas are strong. So that Southeast Asia, to
some extent, and in addition in the North Atlantic, in addition to
Nord Stream, there are -- we've already been successful, I think, in
this [port for] and some smaller projects, but there seem to be a
number of other small projects.
And then I think in the Mediterranean and the Middle East, there are
jobs, in particular perhaps in Egypt, which seems to be a good
sector. Seems to be a strong sector at the moment. And probably in
the future, the Gulf of Mexico will come back to some extent, in
particular in deep water, but the Gulf of Mexico and perhaps also
Venezuela.
So of course we shouldn't forget about the Caspian, where we have --
obviously there's ongoing work, which is, I guess, there's going to
be variations and additions to the scope of work on Kashagan and also
some potential for work in Azerbaijan and perhaps even Turkmenistan.
So plenty of going on -- plenty going on in addition to West Africa.
Plenty going on elsewhere around the world. As Pietro Franco said,
the market appears to be in pretty good shape.
OPERATOR: Thank you. And our next question comes from the line of
Alejandro Demichelis. Go ahead.
ALEJANDRO DEMICHELIS, ANALYST, MERRILL LYNCH: Yes. Good afternoon,
gentlemen. Following up on the -- on your answer about revenues and
the confirmation of your, both, EBITDA and net income guidance, is it
that you're seeing better margins in the business today than what you
see -- you saw when you issued the guidance a few months ago? Or is
it something that has changed, that you're decreasing the revenue
guidance, but you're keeping and confirming the EBIT and net income
guidance?
PIETRO FRANCO TALI: Well, we are factoring in, we are taking into
account, as far as revenues are concerned, the impact of the U.S.
dollar. Then, as far as net income and EBITDA are concerned, as you
mentioned, we are still confident to achieve an improvement of at
least 20%. And as you may have noticed in the first quarter, the
improvement was in excess of 40%. So this shows that we think -- that
we are well on track on delivering on the net income and operating
income improvement.
Then, as far as the scenario is concerned, in terms of market,
frankly speaking, I don't see that much difference. Probably the only
difference is that now, increasingly in West Africa, projects are
becoming contracts. And this is something, which in anyway we are
quite positive, but as a matter of fact, now we see these projects
becoming contracts and this is definitely something, which is
positive to the industry.
Then as far as the execution, well, frankly speaking, we had no major
problems three months ago, and we are pleased to say today that
things are going well. We have been able, let's say, to -- we are
able to do some challenging jobs without any major problems. So the
combination of a market, which remains good and probably as far as
West Africa is concerned, even more reassuring, and an execution,
let's say, track record, which seems to be one very similar to last
year, which as you may remember, we had a very good efficiency in
terms of execution, make us confident that the target in terms of net
income and EBIT will be achieved, not withstanding the impact of the
dollar devaluation.
ALEJANDRO DEMICHELIS: So should we assume that the improvement that
we have seen in the first quarter can be sustained throughout the
year?
PIETRO FRANCO TALI: No, I'm not saying that.
ALEJANDRO DEMICHELIS: I am asking that.
PIETRO FRANCO TALI: I was mentioning a simple fact, being an
improvement in Q1 compared with the Q1 in '07 is 40%. This is a fact.
And I am not suggesting that this kind of improvement will be
maintained throughout the year. What I am confident is in insisting
that we are confident and that will be, again, delivering on our
targets in terms of net income and operating profit, which for the
time being, we stick to the guidance of an improvement of at least
20%.
ALEJANDRO DEMICHELIS: Okay. That's very clear. Thank you.
PIETRO FRANCO TALI: Okay.
OPERATOR: Thank you, ladies and gentlemen. I will now hand you back
to your host, Pietro Franco Tali, to wrap up today's conference.
PIETRO FRANCO TALI: Well, thank you to everybody for participating in
this conference and goodbye.
OPERATOR: Ladies and gentlemen, thank you for joining today's
conference call. You may now replace your handsets.
[Thomson Financial reserves the right to make changes to documents,
content, or other information on this web site without obligation to
notify any person of such changes.
In the conference calls upon which Event Transcripts are based,
companies may make projections or other forward-looking statements
regarding a variety of items. Such forward-looking statements are
based upon current expectations and involve risks and uncertainties.
Actual results may differ materially from those stated in any
forward-looking statement based on a number of important factors and
risks, which are more specifically identified in the companies' most
recent SEC filings. Although the companies may indicate and believe
that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL
REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE
EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE
MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE
SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL
OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY ASSUME ANY
RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON
THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT.
USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL
ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY
INVESTMENT OR OTHER DECISIONS.]
[Copyright: Content copyright 2008 Thomson Financial. ALL RIGHTS
RESERVED. Electronic format, layout and metadata, copyright 2008
Voxant, Inc. (www.voxant.com) ALL RIGHTS RESERVED. No license is
granted to the user of this material other than for research. User
may not reproduce or redistribute the material except for user's
personal or internal use and, in such case, only one copy may be
printed, nor shall user use any material for commercial purposes or
in any fashion that may infringe upon Thomson Financial's or Voxant's
copyright or other proprietary rights or interests in the material;
provided, however, that members of the news media may redistribute
limited portions (less than 250 words) of this material without a
specific license from Thomson Financial and Voxant so long as they
provide conspicuous attribution to Thomson Financial and Voxant as
the originators and copyright holders of such material. This is not a
legal transcript for purposes of litigation.]
This is a news service of Thomson Business Intelligence Service ©2006. This content is for your personal use only, subject to Terms and Conditions. No redistribution allowed.
|
