Saipem Sees New Higher Margin Deals Filtering into 2014 Results

   By Liam Moloney 
 

Saipem SpA (SPM.MI), the Italian services company that lost more than a third of its value last week after cutting its guidance, Thursday said it expects to recover profitability next year as it predicts it will signs higher-margin contracts.

Chief Executive Umberto Vergine, speaking on a conference call, said the company forecasts the next contracts it will win will show better margins than those signed in the 2009-2010 period when competition was extremely high.

These new contracts will "filter in" in 2014 results, said Mr. Vergine, who specified that the uncertainty of timing of the new large projects is what hit the company. "We are seeing the start of a recovery."

Saipem has been in the spotlight in recent months after it announced in December that the Milan-based company, which is controlled by Eni SpA (E, ENI.MI), was being investigation by Milan prosecutors over possible corruption involving some Algerian contracts. Saipem denied any wrongdoing.

Last week, Saipem shocked investors by reducing 2012 guidance and indicated a gloomy outlook for this year after it had been repeating for months that it was optimistic over earnings.

"We didn't go totally out of control [in the 2009-10 contracts] but the timing of the high-margin ones didn't show as we had expected," said Hugh O'Donnell, Saipem's deputy CEO. "We let our guard down."

Mr. Vergine said Saipem hasn't set aside any provision in relation to a probe by Italian magistrates into possible corruption of some contracts in Algeria.

The company is "very confident" there will be no new surprises that could affect the group, said Mr. Vergine.

Write to Liam Moloney at [e-mail]