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April 11, 2001
Cammell Laird calls in receivers
After earlier requesting that the London Stock Exchange suspend trading in its shares and in its 12 per cent Senior Notes due 2010, Cammell Laird Holdings PLC today announced that it has asked its principal bankers to appoint Receivers at its intermediate holding company, Cammell Laird Group PLC which is the holding company for all the operating subsidiaries within the group. Cammell Laird's interests include a 49% stake in U.S. West Coast ship repairer Cascade General.
A statement said that the decision to call in receivers follows "a recent series of events that has caused significant damage to the trading and financial position of the group.
In Autumn 2000, continues the statement, the group had a record level of inquiries totalling approximately Euros 750 million which gave the directors high confidence in the future prospects of the Group. The business had grown substantially reporting pre-tax profits to April 2000 of Euros 15.9 million. Investment was made in employees and infrastructure in anticipation of further growth.
The inquiries however did not translate into firm orders. In late October, a six-ship ro-ro contract for the U.K. Ministry of Defense was awarded to the German shipyard, Flensburger, and Harland and Wolff. A further naval order for four large landing craft could not be pursued with any prospect of success due to the Governments bidding process. The work was awarded to BAe Systems and Swan Hunter with the result that the Groups shipyards were the only major facilities in the country not to benefit from Government orders.
Undoubtedly, the biggest impact on the deterioration in the Groups position, says the statement, was the Costa Classica contract dispute. The contract involved a $50 million lengthening of a cruise ship. Signed in late summer of 1999, the work involved building a mid-body section for insertion into the vessel between November 2000 and March 2001.
Given the credit worthiness of Costa Crociere, the groups confidence in its own technical ability, and the desire to further establish ourselves in the important cruise ship market, the group agreed to accept a contract with back end payments.
The Costa Classica was due to arrive for conversion on November 23, 2000. On November 18, the vessel left its homeport of Genoa for Birkenhead, with 30 Cammell Laird staff on board to carry out preparatory work.
On November 21, following a meeting between the parties, Costa Crociere advised Cammell Laird that it required the group to accept an amended contract with "significantly more onerous conditions."
In its letter, Costa gave the Cammell Laird Board until November 27 to respond, continues the statement. In the event Costa recalled the vessel on November 22, with Cammell Laird personnel being put ashore at La Coruna in Northern Spain.
"Urgent explanation was sought from Costa Crociere who subsequently informed the group that they were seeking to appoint arbitrators to assess whether they had the right to 'suspend' or 'terminate' the contract because of alleged delays and technical issues. These allegations were in contrast with an independent report received by both parties from the contract-appointed technical experts. Further, the allegations were not consistent with the despatch of the vessel for Birkenhead," says the statement.
The statement says that the opinion of Cammell Laird's legal counsel is that the group has a very strong case in law. "However, the arbitration process to resolve this issue is likely to exceed two years."
Under the terms of the contract, Costa Crociere provided a Euro 24 million bank guarantee in the event of its failure to meet its obligations. Cammell Laird has called this guarantee but Costas Italian bankers have, to date, refused to pay it.
"The direct and indirect impact of Costas actions have been very damaging," says the statement. "The direct impact has been loss of profit on the contract and significant cash outflow."
"Indirectly, the Group has suffered the additional costs of downsizing the workforce, carrying excess overhead costs and the significant negative impact on employee morale. Furthermore, Costas actions caused the trade and financial markets to have doubts about Cammell Lairds financial viability, which, combined with media speculation, all contributed to damage the companys trading and financial position.
"During the period since November, the group has also been working hard to secure a $500million contract to build two luxury cruise ships for Luxus (UK) Limited. Cammell Laird has made strenuous efforts to improve the Governments offer of support to Luxus. Various assessments were made of Cammell Lairds capability and project plan which all stood up to scrutiny. However, to date, the support package has not been sufficiently improved to enable the project to proceed.
"The impact of all of the above created an environment of lower customer confidence and employee morale leading to less work at tighter margins. The directors had embarked upon a strategy of re-organisation and refocusing of the business which included a possible restructuring of the balance sheet and possible sale of the business as a going concern. However, the group now has insufficient working capital to complete this strategy and accordingly has taken the action announced today.
"The directors of the group will continue to provide whatever assistance they can to the receivers to protect the future prospects of the business and safeguard jobs.