Kvaerner cashes out

To restore profitability to the group Kvaerner has decided on draconian measures.

Using a flat and unemotional tone Kjell Almskog, president and ceo of Kvaerner, has transformed Europe`s shipbuilding industry and underlined its inherent weaknesses. Although shipbuilding is the largest single sector within Kvaerner the group has decided to divest itself of all its shipbuilding activities. The move is aimed at restoring profitability following a disastrous year for Kvaerner.

Mr Almskog noted: “The choice of shipbuilding was made in the belief that, for the foreseeable future, this business would be a drain on Kvaerner`s profitability, its ability to generate cash, and in consideration of the fact that there are few natural synergies with other core business areas. As a consequence, there is little added value from shipbuilding continuing to be part of the Kvaerner Group.” He added that the decision was the result of stiff competition from the Far East combined with over capacity in Europe.

Kvaerner has allowed a first quarter provision of up to NKr2 billion ($260 million) for what it terms as “a possible exit loss from shipbuilding.” In Kvaerner shipbuilding has a turnover of NKr12.5 billion ($1.6 billion), with 10,000 employees in 13 yards. There are three strategies being pursued to ensure that the group`s exit from shipbuilding is orderly. While the strategy remains undecided the options are, in essence, based on a split between the major yards and the rest. For Kvaerner the major yards are: Masa Yards, Warnow Werft, Floro, and Philadelphia.

Officially the strategies include a ?spin-off` of the major yards through an issue to Kvaerner`s own shareholders. In this event the remaining yards would be disposed of individually. Alternatively the major yards could be subject to a straightforward sale to an interested party which again would mean that the remaining yards would be disposed of individually. The last possibility, and one that Kvaerner would prefer to avoid, is a joint-venture with another shipbuilding group. In this event the group would seek to reduce its investment over time. Kvaerner says it is now engaged in active discussions to decide on the preferred alternative.