Kvaerner to focus on shipbuilding

KVAERNER, whose profits fell under its acquisitive former chief executive, has ordered his successor, Kjell Almskog, to focus Europe's premier shipbuilder and reverse a year-long share slide by selling unprofitable units.

A year ago, the home builder to cruise-ship maker was seventh in market value on the Oslo Stock Exchange. Today, the Anglo-Norwegian firm is out of the top 20. The shares lost three-quarters of their value in 15 months as demand from emerging markets collapsed, commodity prices fell, and debt soared.

Mr Almskog, former head of Asea Brown Boveri's oil and gas unit, replaces Erik Toenseth, who was fired this month. His job will be to streamline the conglomerate and sell units to focus on Kvaerner's main activities - making ships and oil and gas equipment. The 57-year-old, who helped double ABB's oil and gas orders, fits the bill, investors said.

"This is good news - he's the right man for the job,'' said Leif Ola Roed, the investment director for Odin Forvaltning, Kvaerner's third- largest shareholder, which holds about 10 per cent of its share capital. "He'll sell what's useful to sell, and restructure what's needed.''

"Almskog has lots of qualities Kvaerner needs: oil and gas experience, restructuring experience - and he's Norwegian,'' said Alan Coats, an analyst at Merrill Lynch who rates the stock a long-term "buy".

Since Mr Almskog's appointment on Wednesday, the stock has soared 35 per cent. But this year, Kvaerner shares plummeted 56 per cent, more than the 20 per cent decline of Norway's OBX Stock Index.

London-based Kvaerner employs about 55,000 people and has operations in more than 100 countries. The company's main activities include construction, oil and gas equipment and processing machinery for the energy, metals and paper industries.

Mr Almskog, voted best business leader in Norway by Oekonomisk Rapport magazine this year, was tipped as a successor since Mr Toenseth's departure. Under his four-year reign at ABB's oil and gas unit, orders at the division doubled to pounds 1.85bn.

He starts his new job in January, 1999. One of his immediate tasks at Kvaerner will be to sell more assets, perhaps even to his old employer, ABB, which has said it is interested in buying parts of Kvaerner's oil and gas equipment unit if they are for sale. The unit accounts for 25 per cent of Kvaerner's sales.

While Kvaerner denied talk earlier this year that it would sell large units such as oil and gas, its chairman, Christian Bjelland, said this month that "no division will remain sacred'' in terms of job losses and the potential sale of units.

That could mean selling non-core activities such as ship equipment and fish processing, and parts of larger units, such as oil and gas or pulp and paper equipment, according to analysts.

The shipbuilding unit, meanwhile, is expected to continue to be the company's main source of profit, boosted partly by higher demand for cruise ships.

The company will also have to revamp the units it keeps. The unprofitable Kvaerner Energy, for example, is expected to face "severe restructuring'', Kvaerner has said.

The company already reorganised this year by merging some of its seven divisions to cut costs and increase efficiency. Restructuring at Kvaerner would follow an industry-wide movement. Among other European companies in engineering, both ABB and Sweden's SKF AB have slashed jobs and closed plants in the past year to boost profit.

Kvaerner's troubles were sparked two years ago, when Mr Toenseth, 52, engineered the pounds 820m purchase of Trafalgar House, the biggest-ever foreign acquisition made by a Norwegian firm.

Kvaerner's debt has ballooned to Nkr12bn (pounds 1bn) since the purchase of the UK construction company - despite asset sales of pounds 1.2bn in recent years. That is because the need to finance projects, such as ship construction, increased after the acquisition, the company said.

To claw its way out of debt, Kvaerner plans to sell about Nkr3bn worth of assets this year. Last week, that process started with a pounds 90m sale of Trafalgar's US house-building arm.

The century-old company said last month that its second-quarter profit plunged 94 per cent, held back by Asia, where it generates about a fifth of its revenue.

"There are great challenges waiting at Kvaerner,'' said Olof Jonasson, an analyst at Handelsbanken Markets in Oslo. "[Mr Almskog] will have to slim down the company, and do it while the economic cycle is going against him." Copyright: IOS & Bloomberg