Vard looks to new markets to lift revenue

Vard Holdings' executive vice-president of investor relations Holger Dilling.
Vard Holdings' executive vice-president of investor relations Holger Dilling. PHOTO: VARD HOLDINGS

Shipbuilder Vard Holdings hopes that half the group's top line could come from new target markets in the next two to three years in the wake of its diversification strategy, said executive vice-president of investor relations Holger Dilling.

Mr Dilling told The Straits Times in a recent interview: "During the last few years, it was boom times for the offshore oil and gas market, and we've been focusing mostly on that segment.

"But with the market situation today, we see that we need to diversify, and we believe we can draw on the strengths of the company to move into other vessel segments."

He was referring to the drastic downturn in global oil and gas amid anaemic demand and a supply glut. While crude prices have bounced off 12-year lows in recent months, they remain about 60 per cent down from levels last seen in June 2014, before the oil price collapse.

To reduce dependency on the cyclical oil and gas business, Vard in November said it intends to move into new vessel segments. It singled out the aquaculture and offshore wind sectors, and plans to tap synergies with parent Fincantieri to enter markets for exploration cruises and offshore patrol vessels.

"We will try to have a balance between the offshore business and the new segments, and 50-50 would be a very realistic target," said Mr Dilling."It is really about what we can still achieve in the offshore market in today's climate and how fast we can move into the new business segments."

Mr Dilling said the group has recently clinched a series of contracts for designing and building barges and support infrastructure for offshore fish farming. The deals, which amount to less than 100 million Norwegian kroner (S$17 million) in value, will be disclosed through the Singapore Exchange once the company receives a more sizeable order flow.

"At this stage, they're not as big as contracts for offshore oil and gas," he said. "But it's a small beginning."

Prospects are promising, he said, with the global aquaculture industry forecast to see a long-term average annual growth rate of about 5 per cent from 2000 to 2025, compared with 1 per cent for fishing.

"We hope to start selling vessels across all the new seg ments this year, though it's fair to say that the first few projects will probably have smaller margins," he said.

In March, Vard announced it has inked a letter of intent for the construction of four vessels for French cruise company Ponant. The group has participated in tenders for the offshore wind sector as well.

Vard continues to see opportunities in offshore oil and gas, specifically in the Middle East. "Right now, the Middle East market for us is still very small. But investments in the region have been growing and the strong demand for offshore support vessels is likely to continue," said Mr Dilling.

While he is confident demand in the oil and gas market will eventually come back, Mr Dilling also believes it is going to be "very difficult to bet our future on just oil and gas".

Vard posted a net loss of $603 million Norwegian kroner last year, its first year in the red since the 2008 financial crisis. Ebitda, a measure of operating profit, plunged to negative 321 million kroner on the back of loss provisions related to projects at its Brazilian yards.

DBS Group Research said in March that it remains "conservative" on new order wins for the 2016 fiscal year, given the limited evidence of increased workload from its parent group or contracts from new target markets.

"While management is looking to achieve positive Ebitda margins (this year), we are more bearish, given the expected fall in revenues and lack of order wins, amid challenging industry conditions."

An OCBC Investment Research report, on the other hand, noted that the "negatives have largely been priced in", given the significant price declines that the stock has suffered. It also upgraded its rating on the stock from "sell" to "hold", with a fair value of 20 cents.

A version of this article appeared in the print edition of The Straits Times on May 03, 2016, with the headline 'Vard looks to new markets to lift revenue'. Print Edition | Subscribe