Posted on May 2, 2020
By Pieter Lalkens & Tjabel Daling
Provisions and write-downs on a number of poor offshore projects have left shipbuilder Damen Shipyards deep in the red. The Gorinchem concern suffered a loss of € 287 million in 2019. It is the highest loss in the family business’s 93-year history.
Damen announced this on Thursday. Earlier this year, Arnout Damen, CEO since 1 January this year, said in a conversation with the FD that Damen had been confronted with serious setbacks in some shipbuilding projects.
The risks turned out to be considerably greater than had been estimated, Damen said on Thursday. The projects, especially in the offshore sector, were calculated too optimistically and, according to the group, had unfavorable contract conditions.
Loss taken at once
The group took the loss on these loss-making projects in one go. “We have marked this with the past and have started a new chapter this year,” Arnout Damen said in a statement.
“The provisions made can largely be traced back to the particularly difficult market conditions in the offshore sector,” said the CEO and son of Kommer Damen, the shipping magnate who developed the group internationally.
In the interview earlier this year, the new CEO said the shipbuilder had suffered significant losses on at least four complex assignments, including the construction of a dredger in the Middle East and a tour boat in England.
Measures
The company has already implemented measures to turn the tide. Arnout Damen wants to return to standardization and series construction. He calls this ‘success factors that have led to great growth in the past’. But they are also preconditions for following two trends: digitization and sustainability.
The summit has also radically changed the organization by introducing six divisions. This should lead to a less fragmented company. Divisions that are not profitable will be placed under guardianship of the company top, according to Arnout Damen in the conversation with the FD.
Moreover, he said that a new risk board has been formed, a committee of top managers and division heads who test large, complex and deviant projects. ‘The purpose of such a cross check is that we no longer accept loss-making projects. Either you don’t accept such a project or you give it extra attention. “
Still solid
Without the provision for the bad projects, Damen suffered a loss of € 23 million last year. In 2018, the loss amounted to € 17 million. Despite the heavy loss, the group remains ‘a solid company’, according to the CEO.
He points to the equity of more than € 500 million. The solvency ratio – a measure of the ability of a company to meet its debt obligations in the long term – amounts to more than 37%. “That is above average for capital-intensive companies like Damen Shipyards,” says Arnout Damen.
No prediction
There are also some positive developments to report, says Damen. The first quarter ended with a positive gross operating result. The order book at the beginning of this year was € 3.7 billion, € 400 million more than a year earlier. The production value rose by € 200 million to € 2.4 billion.
According to Damen, a forecast for the entire year cannot be given in view of the corona crisis. “It is clear that this pandemic has unpredictable consequences in the human field, as well as in the global economy.”
The group is still competing for a large submarine order from the Royal Navy. In January this year, Damen won the largest naval order in the history of the German armed forces for the construction of four frigates. The German shipyard German Naval Yards (GNY) in Kiel is challenging the order of around € 5.3 billion.
In separate unrelated news, Damen recently announced an important new order.
27 March
Even during the Corona crisis, Damen is committed to remaining operational in order to continue the important projects for the Defence sector. The first two contracts for the Combat Support Ship (CSS) for the Royal Netherlands Navy were signed earlier this week, with a modified working method in accordance with the current guidelines of the Netherlands National Institute for Public Health and Environment.
RH Marine, leading system integrator and innovator of bridge systems, electrical and automation systems in the maritime industry, and Heinen & Hopman, worldwide specialist in the field of heating, ventilation, air conditioning and refrigeration systems (HVAC + R systems), will immediately start engineering, while the first supplies of equipment for the CSS are expected by mid-2021.
The Dutch subcontractors, our partners for all new construction projects for the Royal Netherlands Navy in recent decades, can now work together on more than 200 man-years of Dutch content. Together with Damen as main contractor and many other subcontractors participating, a large part of the Dutch naval shipbuilding sector are cooperating on this new and much needed ship.
Source: https://fd.nl/
