Saipem Targets More Profitable Contracts in Operational Review

By Liam Moloney

Italian oil services company Saipem SpA (SPM.MI) Wednesday said it will target more profitable contracts as part of an operational review that followed an unexpected guidance cut in January, which resulted in losing more than one third of its market value.

Saipem's risk management system has been refined to focus on more rigorous contract approval process aimed at eliminating low-margin deals from its portfolio, said Europe's biggest oil services company by market value.

"We believe that the operational improvements we are implementing...will optimally position Saipem to deliver a recovery in profitability and sustained growth in the future," said Chief Executive Umberto Vergine in a statement.

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, when it reported first-quarter results, Saipem confirmed its 2013 targets, adding it expects to see a "gradual" recovery next year.

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.

Wednesday, the company said its more disciplined commercial strategy, especially at the bidding phase and during contract negotiations, as well as enhanced project execution will lead to improved relationships with clients.

Saipem is scheduled to hold the presentation of the operational review in London at 1300 GMT, Wednesday.

At 1150 GMT, shares lose 1.0% at EUR20.45, while Italy's benchmark FTSE Mib Index slips 0.6%

Write to Liam Moloney at [e-mail]