Italian firm Saipem to reconsider green approach after profit warning, sources say

By Stephen Jewkes

MILAN (Reuters) – Italian utility Saipem plans to take a more cautious approach to new green business after delays at a wind farm project prompted the energy contractor to issue a risk warning, two sources close to the matter said on Wednesday.

Saipem, a market leader in offshore exploration and construction and a service provider to the oil industry, has turned to offshore wind energy to transform its approach and meet growing customer interest in green technologies.

But the transition is difficult because renewable energy requires a different skill set to guarantee the returns Saipem has achieved from its traditional fossil fuel business.

Last month, Saipem cut its profit by 1 billion euros ($1.14 billion) due to a “significant deterioration” in margins on some contracts, including offshore wind.

Its chief executive, Francesco Caio, was forced to back down from a plan unveiled only in October, and the company and adviser Rothschild are racing to develop a turnaround strategy.

One source, who asked not to be named due to the sensitivity of the issue, said Saipem needs to focus more on its traditional business, in which it has an established position as an expert, and spend more time learning new skills needed in the renewables industry energy.

A second source said that while margins in the offshore wind sector could be better, the risks are higher for the company, which needs time to gain experience.

Saipem declined to comment.

Saipem’s problems have focused attention on the difficulties energy service providers face in trying to manage the transition to servicing renewable energy products without sacrificing other parts of their business.

Problems with seabed foundations have led to delays in the construction of the Neart wind farm on Gaoithe off the coast of Scotland, which Saipem is helping France’s EDF and Ireland’s ESB build.

On Wednesday, Italian daily Il Sole 24 Ore reported that Saipem’s new CEO had outlined to the board the steps needed to replace the contractor, including refocusing on existing work.

“We believe the market would appreciate a focus on reducing delinquency risk,” Banca IMI analyst Roberto Ranieri said in a research note.

Saipem, a company controlled by energy group Eni and state lender CDP, will present a revised business plan on March 16 that will likely include a capital increase and debt restructuring.

One of the sources said asset divestitures were also being considered, but warned that any sale could be difficult in current market conditions. Saipem has previously said it is open to bringing partners into its drilling business

(1 dollar = 0.8799 euros)

(Reporting by Stephen Jewkes; editing by Barbara Lewis)