Mitsubishi Heavy Industries, the Japanese shipbuilding group, says it will book a charge of JPY 39.8 billion in its first half financial year 2014 results, in addition to a JP Y61.4 billion charge that it had booked against the two ship order in its accounts for the previous financial year. In the US dollar terms, it means that the Japanese shipbuilder's losses in the project are approaching the $1.0 billion mark
"Under the circumstances, the scale of losses is now expected to significantly exceed the extraordinary loss that was booked to the company's consolidated financial results in FY2013. For this reason, the company has booked an extraordinary loss in the amount of 39,841 million yen in its consolidated financial results for 1H FY2014," Mitsubishi said. The financial year (FY) of Japanese companies runs from 1 April to 31 March in the following year.
Following the losses last year, the company in March 2014 set up a new project management structure and proceeded with construction. "In the course of confirming and pursuing the advanced specifications with the customer, however, reconsideration of the basic design concept was required for the overall layout of the ship's public areas, cabins and auxiliary facilities, causing a vast amount of design rework and a significant delay in the design schedule," Mitsubishi said.
"Although MHI had assigned additional design resources to the project and taken other measures, in the second quarter (2Q), the company was forced to revise the first ship's construction schedule due to a delay in completing the requisite drawings. Moreover, it has led to a delay on the second ship's work schedule. As a result, MHI expects further increase of costs due to design rework, rush work to make up for the delays, and procurement of additional materials resulted from the changes to the design specifications," the shipbuilder said.
Commenting on the earlier losses on the contract, the company said that as the work proceeded on the 124,500 gross ton ships difficulties in constructing the prototype became evident. "The volume of design work relating to cabins and other areas was vast beyond expectation, and significant design changes were made," the company said.
"The delay in the overall design work caused by these factors not only increased design costs but also made adverse impact on the construction schedule and need for additional material procurement. With this background, the company expected a substantial loss in the project and booked an extraordinary loss of 64,126 million yen in its consolidated financial results for FY2013," Mitsubishi pointed out.
