Fincantieri revising delivery dates with owners to mitigate COVID-19 impact

Italian shipbuilding major Fincantieri is focusing its efforts on renegotiating delivery dates of the secured newbuilding orders in order to preserve the acquired backlog.

The majority of the company’s clients are looking at their capital expenditures and the possibility of delaying certain projects and payments in order to preserve cash at this very challenging time for economic activity caused by the COVID-19 pandemic.

Cruise line companies, which account for a considerable portion of orders at Fincantieri, have been hit particularly hard by the pandemic, and are eager to push delivery dates of their newbuildings and the related payments to conserve capital.

“In order to ensure the acquired backlog and with a view to accommodate its customers’ needs, Fincantieri is valuing, in full collaboration with the shipowners, the revision of the delivery dates of the units in portfolio and the consequent delays of the installments for units about to be delivered and for those under construction. The review of delivery dates will also be influenced by the subcontractors and by the recovery plan at full capacity of production activities,” Giuseppe Bono, Fincantieri’s Chief Executive Officer, said

The shipbuilder was among the first yards in Europe to shut down its production activities at all its facilities in Italy back in March as the country experienced a significant impact from the outbreak and had to implement lockdown measures to curb the spread of the virus.

Production activities in VARD shipyards in Norway, Romania and Vietnam have not suspended because no suspension was ordered by the local authorities.

As defense-related activities are considered “essential business” and as for explicit requests of the US Navy, the American subsidiary FMG kept running production activities in all its American shipyards.

The production shutdown has resulted in a 20% reduction in Q1 production volumes, the shipbuilder said, announcing its results for the first quarter.

Fincantieri started to gradually resume production since April 20, with the implementation of strict health and safety protection measures at its Italian shipyards.

These have included staggered shift-start times, temperature checks at the entrances, and enforcement use of personal protective equipment, the company said.

Fincantieri’s revenues for the first quarter stood at € 1.307 billion, down by only 4.5% compared to Q1 2019, despite the reduction of production time, resulting in approximately € 190 million loss in revenues.

The shipbuilding major estimates the negative economic results from the pandemic’s impact to be equal to approximately € 23 million.

However, the amount has not been included in the group’s operating results but in the extraordinary expenses.

Group EBITDA at March 31, 2020, stood at € 72 million, down from € 92 million in Q1 2019 with an EBITDA margin of 5.5%, compared to the 6.7% of the first three months of 2019.

The group said that it would disclose its 2020-2024 Business Plan as soon as the developments of the emergency allow a clearer evaluation of its possible impacts.

In conclusion, Fincantieri could not provide a clear financial forecast as the repercussions of the COVID-19 outbreak are yet to be determined.

However, the company estimates that full-year results will be impacted by the costs attributable to the lower productivity of shipyards and production sites, lower fixed costs absorption, unanticipated expenses for personnel health and safety, and to the extra costs linked to supply chain disruption and the reassessment of ships delivery dates.