Italian oilfield services group Saipem has issued a profit warning as supply chain costs rise and project margins in offshore wind and onshore construction deteriorate.
Saipem (SPM.MI) said Monday that its accounts for 2021 are expected to show a loss of more than one-third of the company’s equity.
The Milan-headquartered company said it had initiated preliminary discussions with its banking partners and with shareholders Eni and CDP Industria to ascertain their willingness to support a financing package.
Saipem said it had begun a review of backlog contracts ahead of its full year results, which indicated a “significant deterioration” of the full-life margins of some projects related to its onshore engineering and construction (E&C) and offshore wind businesses.
It said “the persistence of the pandemic and the current and prospective increase of the costs of raw materials and logistics” would impact its financial results.
Revising its forecast results from its last update in October, it estimated that consolidated adjusted EBITDA for the second half of 2021 would fall by approximately €1 billion (£830 million).
This looked to be caused by a corresponding drop in revenues for the second half of 2021, which Saipem says are now expected to be €3.5bn (£2.8bn), compared with the €4.5bn (£3.75bn) forecast in October.
It blamed the drop on a backlog review for onshore E&C projects for which increased costs of materials and logistics is only partially recoverable, as well as “further difficulties” in unspecified offshore wind projects, in which delays in critical supplies are combined with revised estimates of execution times and costs.
It said that the increase in expected whole-life costs for these projects would result in lower project margins and lower revenues.
However, it said that the company’s net financial position at the end of 2021 had improved, amounting to approximately €1.5bn (£1.25bn) compared to the outlook of approximately €1.7bn (£1.4bn).
As a result, the company said its “statutory financial statements for 2021 are expected to close with losses in excess of one-third of company’s equity, which trigger the application of Article 2446 of the Italian Civil Code.”
Under some conditions, this could give rise to the right of the banks to accelerate the repayment of certain outstanding loans to the Saipem group, it said.
Saipem said its board would look to call a shareholders’ meeting once its consolidated preliminary results have been completed and approved, which will occur as soon as possible.
The process is likely to be the first major test for chief executive and general manager Francesco Caio, who took on the role in May.
Saipem shares fell by almost 30% on the news, to €1.3635 as of 11.15 GMT.
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