Saipem SpA (SAPMY.PK)

Q3 2010 Earnings Call Transcript

October 27, 2010 11:30 am ET

Executives

Pietro Franco Tali – Deputy Chairman and CEO

Hugh James O'Donnell – Deputy CEO

Analysts

Ian Macpherson – Simmons

Fiona Maclean – Merrill Lynch

Tom Ackermans – Barclays

Phil Lindsay – RBS

Martijn Rats – Morgan Stanley

Kenan Najafov – Citigroup

Andrew Dobbing – JPMorgan Cazenove

David Phillips – HSBC

Amy Wang – UBS

Christyan Malek – Deutsche Bank

Alex Marie – Exane BNP Paribas

Presentation

Operator

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Good day, and welcome to the Saipem third quarter 2010 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Pietro Franco Tali. Please go ahead, sir.

Pietro Franco Tali

Pietro Franco Tali speaking. Good afternoon to everyone. Welcome to the presentation. I will start as usual with some comments on the results of the market and the CapEx, starting with the financial results, which are good, are good for the quarter, and the results for the first nine months are an all-time record.

So, now going into some detail across the business lines. If we start with drilling, and here the – to me, the most appropriate comparison should be between Q3 this year and Q2, and this is because during, through '09, as you may recall, we have expanded it fully. So, comparing Q3 with Q2, in the onshore segment, revenues were in Q3 slightly higher than Q2, and with a slight improvement in EBITDA and EBIT. In offshore drilling, revenues were lower in Q3, and this is because the Saipem 10000 drillship and also some other conditional rigs were under maintenance.

The EBITDA improvement we have seen in the quarter is the result of the Saipem 12000, so the new drillship, which has been operational for almost two months of the quarter.

Now moving into the engineering and construction sectors, and here the comparison, the most appropriate comparison is between the same quarter of 2009 and 2010. So, if we start with the offshore, revenues were slightly higher than the quarter in the previous year, with EBITDA and EBIT, which were brought in line with the same quarter last year. And since in 2010, so this year, the idleness cost of some conditional assets are higher. So, achieving the same margin implies a better underlying profitability on the project under execution.

In the onshore sector, there was a combination of revenue increase and margin improvement, and this is the result of a positive backlog development and improvement in operational efficiency. Below the EBIT line, financial charges, proceeds from investments, and the net income attributable to third parties are quite similar for the two third quarters. And finally, as you may notice from the press release, in Q3 this year, we posted a capital gain of EUR16 million, net of taxes, deriving from the sale of minorities' interest we had in the French engineering company, Doris. So, the adjusted net income for the quarter amounted to EUR211 million, which represents a 24% increase with respect to the same quarter last year, and the adjusted net income for the nine months amounts to EUR591 million, with an increase of 8.6% compared to the same period last year.

Well, now moving to the market, the market environment is pretty similar to the one we commented three months ago. So, in the drilling sector, in both the onshore and shallow-water segments, we see a better utilization of the industry fleet. But we do not see yet a day rate improvement. For Saipem, this market situation is translated into higher utilization of the onshore rigs and a full 100% utilization of the shallow-water semi-subs and jack-ups.

On the deepwater drilling segment, although our assets are currently fully booked, so we are not so active in the market, because our rigs are contracted on long-term basis, in any case, the lifting of the moratorium in the Gulf of Mexico should be positive for the market in general. In the onshore construction, the market is quite active, active across the different segments. And this has allowed us to significantly increase the backlog with respect to '09 year-end.

Finally, in the offshore, the market is expected to improve next year, but it is still relatively weak. We have been able so far to replace backlog, and as you may recall, we have announced this month new contract acquisitions, including variations to existing contracts for an aggregate value of EUR700 [ph] million. So, also at year-end, the backlog should be broadly in line with the level we had at the beginning of the year. And fully replaced in backlog in a relative weak market scenario shows a good resilience.

Then moving to CapEx, well, in the quarter, the jack-up Perro Negro 8 has been delivered and is now in the Mediterranean. And she will start operating for ENI in a week time or so. The Scarabeo 8, semi-sub, is being moved from the Fincantieri yard in Palermo. The rig is presently under tow and is expected to arrive in Norway in few days' time. Moving the rig allow us to avoid some additional delay, because we are still waiting for the delivery of some critical replacement items arising from the fire, which as you may recall occurred last June. So, the completion of the repair and the commissioning of the Scarabeo 8 will be now performed at the Westcon yard in Norway. Then the Scarabeo 9 is the one which was being built in China. Also, the Scarabeo 9 has left the Yantai yard in China and will arrive in Singapore early November, early November because we have lost some 10 days because of the typhoon, which was in the area. And the reason for deciding to move the rig was because our view is that Yantai was overloaded. I mean, there were five or six rigs which were approaching the commissioning stage, all of them at the same time, and so we decided to move the rig. So, the Scarabeo 9 will be now commissioned at the Keppel yard in Singapore.

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