Royal IHC into the Red
2018 has been a difficult year for Dutch shipbuilder Royal IHC. Due to cost overruns in the execution of a number of challenging projects, the loss for 2018 ultimately amounted to 80.6 million euros. The company has revealed concrete actions to restore profitability.
IHC has initiated a number of clear actions in order to restore profitability. For example, the organisation has applied focus to – and accelerated – the transformation that has already begun by concluding contracts under better conditions, and strengthening its management and improving processes, among others. At the same time, IHC has been reinforced with 120 million euros in additional financing, including 30 million from shareholders, while extending long-term financing facilities to 2022.
The result for 2018 was strongly influenced by a number of challenging innovative projects that were contracted in the market during the earlier crisis period (2015-2017). These projects are now in the final phase, but with significant cost overruns. For the 2018 financial year, this ultimately led to a negative EBITDA of 40.8 million euros and the subsequent net loss of 80.6 million euros.
IHC does not mention which projects have suffered the cost overruns. Large building projects that are now in the final phase, however, include the Spartacus, a 44,180 kW cutter dredger for DEME (delivery imminent), the Seven Vega, a reel-lay vessel for Subsea 7 to be completed in January 2020 and two 29,190 kW cutter dredgers for the Suez Canal Authority, to be completed in January and July 2020.
Risk reduction is an important part of the company’s focus to keep its challenges manageable. The emphasis is on improving the balance between income and risks through tighter contract and project management, and by further strengthening the order acceptance process. Attention is also being paid to cost reduction and project implementation. To accelerate this transformation, the Board of Directors was strengthened by the appointment of a Chief Transformation Officer (CTO) with effect from 1 July. Furthermore, external support has been recruited temporarily to implement this process quickly and efficiently.
Order Book to Create Better 2019 Result
IHC’s CEO Dave Vander Heyde said: 'We’re convinced that, after a difficult period, we have taken the right steps and necessary measures to safeguard our quality, innovative strength and strong relationships that have made IHC a leading player in its market for the future. The trust and commitment we have received from our stakeholders underlines the support for our strategy, which is now bearing fruit in a high-quality order book. This lays the foundation on which IHC can achieve a positive result in 2019.'
The order book at 31 December 2018 was worth 1,184.5 million euros, which is lower than a year earlier. The newly signed orders in 2018 amounted to 594 million euros. These orders have a lower risk profile and have been concluded under better conditions, which means that they will already have a positive impact on the result in 2019. The revenue for 2018 was eighteen per cent higher at 941.7 million euros (2017: 800.2 million). A higher turnover is expected for 2019 alongside a turnaround of the operational result.
Picture by M.M. Minderhoud.