Colombo Dockyard banks on ship repairs, heavy engineering to return to profitability

By Chandeepa Wettasinghe
Colombo Dockyard PLC (DOCK), which has been navigating through rough seas in recent years, is hoping to return to calmer waters in the next financial year, backed by ship repairs and heavy engineering projects.

“In 2018, we will be able to pick up. Right now we’re making losses, and we’re trying to mitigate it and at least reduce the loss compared to last year, gradually, so that we can show some improvement, with heavy engineering and ship repair,” DOCK Managing Director/CEO D. V. Abeysinghe said last week.

DOCK made Rs. 262.01 million net loss for the last financial year ended December 31, 2016, improving from Rs.584.27 million net loss recorded 12 months ago.

DOCK went into the red in 2015, simultaneously with the crash in world oil prices due to the shale oil boom.

 DOCK’s main source of income until then had been the construction of ships catering to offshore oil drilling and exploration operations, which suffered due to the oversupply of oil in the global market.
The company—owned by Japan’s Onomichi Dockyard Company Limited—has improved its performance so far this year as well,  posting a Rs.104.87 million in net profit for the first 6 months against a net loss of Rs.21.82 million year-on-year (YoY) However, during the second quarter, the firm posted a net loss of Rs.36.57 million, against a net profit of 54.84 million YoY.

Abeysinghe said with the number of infrastructure development in Sri Lanka that requires steel work increasing, DOCK can profit from heavy engineering, but that the current capacity of DOCK’s heavy engineering operations has to be increased to maximize profits.

“If we can expand 4-5 hectares further we can increase our other activities like heavy engineering. For steel construction, you need space,” Abeysinghe said.

Although heavy engineering plateaued in 2016 with segmental operating profits of Rs. 252.52 million compared to Rs. 251.74 million YoY, the first 6 months of 2017 saw heavy engineering operating profits expand to Rs. 98 million from Rs. 7.74 million YoY.

Abeysinghe noted that the company is setting aside funds to expand its land for heavy engineering, starting from at least one acre, but that a parcel of land which was initially won for Rs.200 million through a tender process was re-tendered by the Sri Lanka Ports Authority this year, which resulted in it slipping through DOCK’s fingers.

He also revealed that DOCK will restart offshore repair facilities—a lucrative business—within Sri Lankan waters.

“We have to start some facilities to cater to the float repair business, which we had omitted for a couple of years. Now we have found a team to do that kind of repairs,” he said.

After a few ship construction orders were cancelled due to the oil crash, DOCK now appears to be getting new ship orders which will cater to other industries.

Last week DOCK laid the keel to build the biggest ship ever built in Sri Lanka, which is a submarine cable laying vessel, for a Japanese client, with the order worth US$ 53 million.

According to Abeysinghe, DOCK is attempting to gain the contracts of two Sri Lanka Coast Guard vessels, valued at US$ 103 million.

“We’re trying to get them. The Cabinet approved (it) last March and negotiations are going on for the financing. The financing is done through Japanese banks and our External Department is working on that,” he said.

In the long-term, Abeysinghe said DOCK will explore opportunities with constructing liquid natural gas (LNG) transport vessels, and vessels fuelled by LNG, to link in with attempts at creating environmentally friendly power generation attempts both in Sri Lanka and abroad.

“Here, the Ceylon Electricity Board is looking at generating electricity with LNG. Even for ships, maybe in four to five years time, there will be a lot of requirements for ships to run with LNG fuel. The International Maritime Organization is looking for environmentally friendly fuels for future operations,” he said.

Abeysinghe noted that with this, the requirements for LNG bunkering will increase, and DOCK is interested in building bunkering facilities, which could be operated by third parties.