Our inbox had a couple of items in it this week, which, although of not grave concern, did create a tremor or two. These are clearly both company specific issues and not industry wide but are they instructive about the future?
It was the best of times, it was the worst of times…
On a macro level, times could not be better for the shipbuilding industry. There is high newbuilding activity in the global shipping and offshore segments. And, although economic conditions are generally favorable, there are recession concerns. Nevertheless, Aker Yards ASA, the world’s fifth largest shipbuilder in the world, reported 4Q earnings below consensus estimates and negative EBITDA for the full year. Of course, the company is disadvantaged by a different labor cost structure than its Far Eastern competitors, but it has wisely chosen to focus on niche segments, where it has strong market positions, and specialized vessels where there are high barriers to entry. And it has been very successful building a backlog of NOK 79 billion at year-end 2007. Of course, these positives do not alleviate the particular difficulties associated with this industry which include the before mentioned cost issues, the risks associated with fixed price contracts and the working capital issues associated with long lead-time projects.
This is only an excerpt of Chinks in the Armor
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Tags: · Aker Yards ASA
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