Saipem 1Q Suffers from Low-Margin Contracts

ROME - Italian oil services company Saipem SpA Tuesday said its first-quarter profit more than halved due to lower margins in its key divisions, but sought to reassure investors by confirming its earnings targets for the year. 

The steep fall in profit, more than what the market had expected, comes as Saipem has lost more than a third of its market value in the last three months after unexpectedly slashing its 2012 earnings guidance in January. 

Saipem reported a first-quarter net profit of 110 million euros ($143 million) from EUR231 million over the same period in 2012. 

Much of the slippage was due to the poor performance of its engineering and construction divisions which suffered from low-margin contracts signed in a highly competitive market. 

Revenue fell 1.4% to EUR3.09 billion and operating profit slipped 46% to EUR202 million. 

A survey of seven analysts polled by Dow Jones Newswires had expected a net profit of EUR124.7 million on revenue of EUR3.30 billion and an operating profit of EUR221.1 million. 

Milan-based Saipem, which is controlled by oil company Eni SpA, has been in the spotlight in recent months after it announced in December that it was being investigated by Italian prosecutors over alleged corruption linked to some Algerian contracts. Saipem denies any wrongdoing. 

Tuesday, the company confirmed an Algerian court has upheld the freezing of about EUR80 million in one of its accounts held in the country. It also said it has been informed of a possible extension of the ongoing investigation by Algerian prosecutors, although it has no details of the probe's status or the people involved. 

Saipem said that a partial reason of the net debt increase in its accounts of EUR567 million to EUR4.85 billion at the end of March from three months earlier is due to the Algerian investigation which is causing significant delays in the approval of progress reports in the country. 

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. 

Saipem is to hold a conference call at 1330 GMT to comment on its results. It will present its operational review Wednesday. 

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