Saipem Says New Contracts Show Discipline in Increasing Margins

By Liam Moloney

Saipem SpA (SPM.MI), Europe's biggest oil services company by market value, Tuesday confirmed it expects its margins to show a gradual recovery in 2014, with Chief Executive Umberto Vergine saying the firm's stricter discipline on the terms of new contracts will pay off.

"We are happy in both terms of volumes and profitability of order intakes in the first quarter" as an indication of how future contracts are expected to go, said Mr. Vergine on a conference call on the company's first-quarter results.

"The E&C [engineering and construction] contracts are going in the right direction," said Mr. Vergine.

At the start of 2013, Saipem spooked investors by reducing its 2012 earnings guidance because of a gloomy outlook for this year. This came after months of assurances that the company was optimistic about meeting its targets.

On Tuesday, Saipem confirmed its 2013 targets.

Mr. Vergine predicted on the call that Saipem's peers will have to follow it in changing their commercial strategies to reflect the need for stricter financial discipline in contractual terms.

Earlier Tuesday, Saipem said its first-quarter net profit more than halved on the year, with much of the slippage due to the poor performance of its engineering and construction divisions suffering from low-margin contracts signed in a highly competitive market.

Write to Liam Moloney at [e-mail]

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