Not that easy for the Dutch
We are used to talking about the low competitiveness of Russian shipyards. However, not everything is so simple abroad. Thus, one of the leading shipbuilding groups Royal IHC, specializing in innovative shipbuilding, does not seem to stand up to global competition being in a crisis situation, disrupting the delivery time of ships and increasing the cost of their construction.
Shipbuilding group Royal IHC is in a critical financial position, said Het Financieele Dagblad, a leading Dutch daily on economics and business.
Thus, according to the group's annual report published recently, the company's net loss in 2018 almost quadrupled - to 80 million euros compared to the previous year. The conclusion of the auditing company KPMG states that unless the situation is radically changed, there may be "reasonable doubts" about the future of IHC.
As a result of the losses incurred, the company warned that it would no longer be able to comply with certain terms of agreements with creditor banks.
As IHC told IAA PortNews, the company is not in pre-bankruptcy phase. “The highly complex and large vessels led to extensions of our building phase, additional costs and some delay in delivery. Subsequently the milestones are paid later as they are reached later in time. With the additional financing of 120 million IHC's continuity is guaranteed”, comments IHC.
The company admits that market prices are under pressure influencing IHC's margin. At the same time, there was a significant cost overrun for a number of large and complex projects, including the construction of a dredger on liquefied natural gas (LNG) for the Belgian DEME. Although the parameters of the respective contracts have been reviewed (including those with DEME), the situation has deteriorated further in 2019, which, as stated in the annual report, has led to "uncertainty regarding bank liabilities and liquidity".
The protracted time frame for the commissioning of ships and the increase in contract costs have caused disputes with customers, who in turn have postponed payment terms. As a result, the group will transfer funds later than planned.
"We underestimated the complexity of these contracts. In addition, many good professionals had to leave in the process of reorganization back in 2015-2016," the company's CEO Dave Vander Heyde said. According to him, because of this, the company intends to focus on less technologically complex projects.
To get out of a critical financial situation, the group intends to look for new investors, but whether it will be able to find them in such circumstances is a big question. In addition to Rotterdam investment company Indofin (72%), IHC shareholders are Rabo Capital (11%) and Rabo Capital (11%). The last two investors are reluctant or unable to provide additional capital.
“IHC strongly believes it will get a new investor on board. We do not expect our existing investors, that have been with us for a long time, are going to contribute more when the additional financing term ends two years from now”, says the company.
"We will not try very hard to be bought. Anyway, if someone makes a very tempting offer, I'm not ruling anything out. Everything is sold at a good price," Vander Heyde commented on the prospects of selling the group.
Now IHC is trying to optimize its expenses and business processes, with the management having introduced anti-crisis managers to this end. IHC says it is investing in its management and employees to align processes and enable competences. “No reduction of staff is at hand as we have a filled order book for which we need our organization”, emphasizes IHC.
The situation with IHC demonstrates the fact that global competition in the innovative shipbuilding market is increasing. If we go back to Russia, which is developing its shipbuilding industry in the segment of technologically complex vessels, we must admit that without state support and reasonable protectionist measures, as well as cooperation with leading foreign companies, it is unlikely to survive global competition.