Dockyard earnings slump, company ready for revival

Shipbuilding order book full, ship repairs decline

 

A. Nakauchi (Chairman)

The downturn in the global shipping industry has hurt earnings at Colombo Dockyard PLC controlled by Japan’s Onomichi Dockyard Company Limited with the after-tax group profit for the year ended December 31, 2013 slumping to Rs.929.1 million, the lowest since 2006, from nearly Rs.2 billion the previous year.

At company level, the profit after-tax was down to Rs.823.8 million from nearly Rs.1.9 billion in 2012.

Dockyard said in its recently released annual report that the reduction in earnings was mainly attributable to the drop in volume of their ship repair business and severe competition in attracting new ship building orders.

"The company has achieved 5.2% net profit margin during the year compared to 12% recorded for 2012," the report noted.

The company’s Chairman, Mr. Akihiko Nakauchi noted that the company founded in 1974 had seen total revenue hitting a record high of Rs.15.8 billion which was significant given the challenges they had faced.

These challenges, common to the ship building and ship repair industry world-wide, has pushed down profitability that had declined by almost 56% from the previous year due to the low volume of ship repairs, competitiveness in ship building contracts and depreciation of the rupee.

Overheads had increased considerably as a result. They were currently working on strategies to minimize the impact of the negatives confronting them and hoped to keep profitability and turnover on an even keel this year without sacrificing the development of their business, Nakauchi said.

According to figures published in the company’s report, the 2013 profit of Rs.824 million was the lowest since 2006 when a profit of Rs.607 million had been posted.

Nakauchi said that from a capacity perspective, their ship building business had operated on almost full capacity while in ship repairs, they had seen a decline in operations at a relatively lower capacity.

"At peak, our ship repair industry has brought in US$ 58 million annually, but in 2013, just gained only US$ 28 million. The trends foreseen, we have set our sights on approaching at least US$ 38 million by end 2014," Nakauchi said.

He also indicated that with four new vessels - one passenger boat and three off-shore vessels - on order, their order book looks strong until 2016.

He was hopeful that advantages of pricing will spur ship owners to order new ships in readiness for an upturn in the global shipping industry.

The company’s Managing Director, Mr. Mangala Yapa, who is retiring later this year said that with ship prices bottoming out during the latter part of 2013, owners, supported by hedge funds and lending institutions are now keen to order new vessels at the reduced prices on offer.

He noted that Dockyard is one of the country’s largest export earners having contributed an impressive 1.2% of Sri Lanka’s total export earnings last year, pointing out that 100% of their ship building revenues come off export orders.

Other than Onomichi Dockyard (51%) other major shareholders of the company are the EPF (14.8%), SLIC through its General and Life funds (10%), Sri Lanka Ports Authority (over 3%) and the ETF Board (2.4%).

The stated capital of the company is Rs.714.4 million and it carries nearly Rs.10.3 billion retained earnings in its books. Total assets ran at over Rs.17 billion, non-current liabilities at Rs.833.9 million and current liabilities at nearly Rs.5.2 billion.

The directors of the company are: Messrs. A. Nakauchi (Chairman), Sarath de Costa (Vic Chairman), Mangala Yapa (MD/CEO), Lalith Ganlath, H.A.R.K. Wickramathilake, Y. Kijima, T. Nakabe, Janaki Kuruppu, P. Kudabalage and Y. Imai/K. Usu (Alternate directors to T. Nakabe).

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