Posted on November 15, 2020
Translated from the Dutch Newspaper FD
By Gaby De Groot And Pieter Lalkens
Ship builder IHC is carrying out a major reorganization, which will eliminate the jobs of about 1100 workers, almost one third of the total workforce. And some businesses will be sold. The major restructuring is necessary because the group has been in serious trouble since last year because of loss-making shipbuilding projects.
The reorganization will be coming through the State, banks, and a group of companies six months after a rescue operation in April this year. That recapitalisation prevented an immediate bankruptcy.
Fewer orders
Gerben Eggink, the interim CEO who started this past May 1st, said in a conversation with the FD that, in addition to major losses on three ships contracts, the coronapandemic and a poor market for dredgers and offshore ships created a coronapandemic market starting in May of this year. ‘This corona pandemic market has caused the reorganization to be heavier than originally planned. Order revenue has dropped sharply. I expect that fewer new ships will be built at IHC next year.’
For this year, Eggink expects another loss. “That’ll be about the same as last year’s loss.” For 2019 the Kinderdijk shipbuilding company had a loss of €226 mln. “In our new plans, we will be profitable again by 2021.”
“Flexible” worker layer affected
Of the forced redundancies, 300 are local in the Netherlands and 300 are abroad, 200 of them in the UK. In addition, there is no work for 500 people in the so-called “flexible layer.” (Essentially subcontractors.) A social plan has been agreed with the unions for a two-year period.
Eggink: ‘In the Netherlands we have largely spared the shop floor workers. Those people build ships, not me. There are 5 to 10% of the employees there. The yards in Kinderdijk and Krimpen will remain open. ‘Otherwise, the company would become too inflexible in the production of ships. Besides, the closure of a yard is not very good.”
Office jobs.
However, half of the office jobs will be cut. The interim ceo indicates: “The organization has become too heavy.” He claimed that this had to do with a 2017 report from the major consultancy agency McKinsey, which recommended doubling turnover to €2B. “It’s not a good thing.” Multiple sources reported to the FD about McKinsey’s advice.
“Because of that high turnover, the organization has become very complex and very large,” Eggink explains. “With too many layers and far too many managers. There was also too little power to decide at lower levels. So all in all, a way too high cost level.” The reorganisation is not only intended to reduce costs, but also to make it simpler.
The objective of the huge turnover growth plan of the consultants has put the group in serious difficulty. “That’s when you’re stuck with Must-Win projects, and you’re going to look for as much turnover as possible is my ex-post analysis.” This has led to the conclusion of unattractive contracts for three technologically complex ships, the pipeline laying ships Seven Vega and Amazon. as well as the dredger Spartacus.
The contract risks fell mainly on IHC, which was estimated to have lost more than €200 mln. Especially regarding the Amazon conversion contract, Eggink speaks of it as “worthless” and “too unilateral”. He says IHC is also “at the limit of its technological capability”. The problems with the ship are not over yet, and IHC is talking to the client McDermott for a better distribution of risks.
Sell it.
The organisation is adapted to a new ‘realistic’ turnover forecast of €600 mln to €700 mln per year.
The group goes back to its core: the production of dredgers and offshore ships and its equipment.
In addition, IHC has identified two activities with a lot of potential: wet mining and defense. IHC is now in the race for the construction of submarines for the Royal Dutch Navy.
Everything that does not belong to the core business IHC is either selling or closing. The sales include GranIHC, a 50% participation in Brazil. This company focuses on maintenance in the maritime sector. In addition, the engineering firms Vuyk and KCI are available for sale.
In the short term, the IHC Board will be strengthened with an operational director, President Jaap Huijkes, who was a member of the Commissioners only since last year. He is succeeded by former State Secretary of Finance Menno Fall, who was appointed a member of the State in June after the rescue by the State.
