2008 Annual Report - SBM Offshore

34 SBM Offshore Annual Report 2008 / Report of the Board of ManagementReport of the Board ofManagementIntroductionThe net profit for the year was 14.6% lower than the resultin 2007 and 18.6% below the guidance issued at thestart of 2008. This financial result for the year was verydisappointing considering that the Company started theyear with a record high order book, and in earlier yearshad generally been able to outperform initial guidance.The management had to issue a profit warning in Julywhen it was realised that the 2008 forecast would notbe achieved. The final annual result is slightly above therevised figure.The reasons for these financial difficulties have beenexplained in detail during the year and were mainlyattributable to two large FPSO projects in the executionphase (Saxi Batuque and Frade), which have sufferedsignificant cost overruns. To re-quote a statement in thelast two years’ Annual Reports, SBM Offshore outsourcesall equipment and services and has suffered on thesupply side from short bid validities, high prices, toughconditions, inflexibility and long deliveries from vendorsand subcontractors. Those difficulties were not anticipatedto the full extent in 2005 at the time when bids weresubmitted and therefore not sufficiently factored into thecost estimates of proposals. These projects for which thecontracts were awarded in 2006, had already negativelyaffected the 2007 results, but were still in the executionphase in 2008. One of these projects was deliveredfrom the conversion shipyard in March 2008 and thesecond in January 2009. Both projects suffered significantcost overruns right up to delivery. For both projects theCompany had to implement acceleration programs in theshipyards in order to expedite the finalisation of the FPSOconstruction work, which had become very late itself