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Fincantieri reports rise in first half profit, warns of outlook

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Fincantieri, the Italian state owned shipbuilder that is the biggest builder of cruise liners, has reported an increase in first half profit before non-recurring and extraordinary expenses to €16 million from €12 million at the same time last year, the company said in a statement.

Operating profit (EBITDA) came to €59 million, with a margin of 5%, up from 4.3% in the first half of 2010, also thanks to measures making procurement more cost effective. “At 30 June 2011, the Fincantieri Groups order portfolio  was worth €7,920 million. The associated order backlog, although  a still significant €5,570 million, will continue to be  insufficient to saturate production capacity at all the Group's  shipyards,” Fincantieri noted.

“The shipbuilding industry continued to experience severe  problems in the first half of the year due to the world economic  crisis. The demand for new cruise ships has settled at around 6/8  ships a year (versus an average of 12 in the pre-crisis period), of  which 2/3 ships acquirable by Fincantieri.”

The company noted shipbuilding crisis has significantly intensified  price pressure on new orders. This pressure has been further heightened by the highly aggressive market entry strategies recently  displayed by the cruise market in the Far East. “This market situation will create a mismatch, even prospectively, between Fincantieri’s production capacity and its  order backlog acquired/acquirable. In fact, during the first half of  2011 surplus production capacity resulted in the total closure of  certain shipyards serving the merchant market, while others are  expected to experience problems on a similar or smaller scale in the  near future.”

“Fincantieri is addressing this situation through a block  on staff turnover, with a reduction of 115 in headcount in Italy  since the end of 2010, and through agreement with the unions for the  temporary lay-off of up to 3,000 workers, of whom 1,772 affected as  of the end of June. Furthermore, in order to deal with increasingly fierce  market competition, Fincantieri must continue, ever more resolutely,  down the road of cost reduction by reorganizing and making processes  more efficient and by improving productivity.”

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