Following a profit warning in late January 2022, the Italian offshore contractor, Saipem, has revealed details about its revised strategic plan for the period between 2022 and 2025, which includes cutting costs, increasing focus on offshore E&C and drilling, being more selective in projects, and repositioning on low-risk offshore wind business in the next two years.
The plan, however, is yet to be approved by its board of directors, expected in mid-March.
It all started in late January when, following a strategic review of its contract backlog covering a total of 22 projects, Saipem withdrew its outlook from October 2021. As a result, Saipem’s financial statements in 2021 are expected to show a loss for more than one-third of the company’s equity.
Namely, when compared to the outlook from October 2021, preliminary estimates of the 2021 consolidated preliminary results show that Saipem’s consolidated adjusted EBITDA for the second half of 2021 was down by approximately €1 billion ($1.1 billion) compared to the positive outlook for consolidated adjusted EBITDA.
Saipem blamed this reduction on Onshore E&C projects for which the increase in costs for materials and logistics was only partially recoverable and attributed it to the recent further difficulties in offshore wind projects, for which impacts from delays in critical supplies were combined with revised estimates of execution times and costs.
Less than a week after that, Saipem approved the new organizational structure of the company, designed to reinforce the execution capabilities for the company projects, and worked to complete the ongoing strategic review.
Furthermore, as a result of these events, credit ratings agency Moody’s downgraded the company’s CFR from Ba3 to B1 and its probability of default rating (PDR) from Ba3-PD to B1- PD and placed ratings on review for further downgrade. The outlook was changed from stable to ratings under review.
Review outcome & fresh plan in sight
The backlog review was completed this week without showing any further impact from what was communicated in late January. Saipem’s board also approved the guidelines for the revision of the Strategic Plan 2022-2025, which will be approved on 15 March 2022 and lay the foundation for the financing package to strengthen the company’s financial and capital structure.
According to Saipem, the operating performance in the fourth quarter shows signs of improvement compared to the third quarter in the offshore and onshore drilling, as well as a good performance of the offshore E&C, excluding offshore wind.
In the drilling segments, in addition to improved results in the fourth quarter, there are positive market dynamics with increased demand and prospects for full utilization of the operating fleet.
Acquisitions of new contracts in 2021 amounted to approximately €7.2 billion or over $8 billion with a strong acceleration in the fourth quarter, confirming the recovery of demand in offshore E&C oil & gas and Saipem’s centrality to major clients in this segment.
Saipem’s Strategic Plan 2022-2025 is based overall on the dynamics of Saipem’s reference markets presented in October 2021 and, specifically, on the growing trends in offshore E&C and offshore drilling.
The plan’s guidelines include the reduction of structural costs, with an increase in the target for 2022 to over €150 million and the increase of focus on the project acquisition in offshore, both E&C and drilling, characterized by higher profitability.
Furthermore, the plan includes increased selectivity in the project acquisition of onshore E&C, giving priority to higher-tech projects in the LNG and gas valorization segments, where Saipem can leverage proprietary technologies.
Considering that delays connected to offshore wind projects were behind some of Saipem’s financial woes, the company’s new plan includes repositioning on low-risk offshore wind business in 2022-23, and adoption of a renewed commercial and execution strategy to capture market growth potential in the second half of the plan.
The plan also entails reaffirming Saipem’s industrial focus on energy transition and circular economy, also through the development of modular and industrialized solutions, in particular on CCUS value chain, plastic recycling technologies and subsea robotics as well as active management of the asset portfolio, to support cash flow generation in the 2022-25 plan horizon.
The guidelines for the review of the 2022-25 plan will be based on a more balanced risk-return profile and on a path of deleveraging.
Discussions for revision of the Strategic Plan 2022-25 continue with the shareholders exercising joint control – Eni and CDP Industria – and with the banks.
The board, in addition to the expected approval of the plan, will in March also examine for approval the consolidated financial statements and the draft statutory financial statements for 2021, which is expected to close with a loss of more than a third of the share capital, and will convene a Shareholders’ Meeting for the approval of full-year 2021 financial statements and to take appropriate steps in accordance with the law.
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