August 12, 2008
Shake up at Davie Yards
Canada's Davie Yards, Inc. (TSX:DAV) has appointed an interim COO following the hurried departure of President and COO Mr. Gilles Gagne.
Mr. Gagne's resignation "to pursue other interests effective August 11, 2008" was announced on August 11 when Davie released its financial and operating results for the six months ended June 30, 2008, and revealed it had incurred significant operating losses and cash outflows from operations and has negative working capital as at June 30, 2008.
Yesterday, Steinar Kulen, Davies's Chief Executive Officer, said Mr. Brynjulv Mugaas would act as COO until a permanent replacement is hired.
"Mr. Mugaas knows the yard well since he has been involved in our recent analysis of the yard's processes and projects," said Mr. Kulen. "I welcome him onboard."
Brynjul Mugaas has an extensive career in the marine and shipbuilding industry, working for Shell in Norway with the Troll Project, as Managing Director for Ulstein Yard and Executive Vice President, Shipbuilding for Ulstein Group of Companies in Norway and as Managing Director and CEO for Harland & Wolf in Northern Ireland. He is currently partner in a consultancy company.
The management of the yard and Mr. Mugaas are to start "immediately implementing and executing a plan to increase productivity and attain profitability."
In its latest financial and operating results, Davie Yards reported that revenue for the six months ended June 30, 2008 was US$22.6 million. EBITDA was negative US$51.0 million, and the company recorded a net loss of US$54.8 million.
The corporation said that on the arrival of Steinar Kuleurn as its new Chief Executive Officer at the end of Q1 2008, a thorough review of its processes and projects was initiated. The review identified weaknesses in the corporation's operation.
Productivity is lower than previously estimated, due to higher than expected complexities in the vessel construction processes and a more challenging ramp-up of the yard. Lower productivity and a very tight building program has forced the yard to increase subcontracting, thereby increasing costs. Davie has also been affected, along with the rest of the shipbuilding industry, by the recent significant increases in the price of materials.
Davie has made a loss provision of $36.1 million for the vessels under construction.
Davie said it has incurred significant operating losses and cash outflows from operations and has negative working capital as at June 30, 2008. The corporation's cash situation is not presently sufficient to fund expected future cash requirements after 6 months. The ability of the corporation to continue as a going concern is dependent upon raising additional financing and achieving future profitable operations.
Davie says it has done a thorough competitive study of the yard and concluded with a clear cost advantage relative to the yards competitors in European which is only expected to improve going forward. Davie is addressing its operating processes, and with the changes that are being implemented, management strongly believes in the competiveness of the yard in building complex offshore vessels and rigs. Market reports conclude on a still positive market outlook for complex offshore service vessels and rigs, which is expected to last for the coming years, giving Davie "an interesting future potential.
In addition to the resignation of Mr. Gagne, Davie reported that Chief Financial Officer, Audun Roneid, resigned in July 2008, but has agreed to remain in his position for the coming months in order to assist with the transition and to finalize major tasks he is working on.