Orşova shipyard produced river ships worth 17.66 million Euros

• European demand for ships dropping

• Dropping workload could lead some shipyards to close down or restructure their production

• SNO has orders that will fill its production capabilities until September 2010

The Orşova Shipyard (symbol: SNO) will export its 11th ship this year. The ship is a 110 m long, 11.45 m wide and 4.4 m tall barge, which will leave towards it beneficiary (Holland based Veka group, one of the shipmaker"s traditional customers) at the end of this month.

SNO delivered ships of over 17.661 million Euros in the first ten months of the year, meeting its production delivery schedule for this year.

By the end of 2009, the Orşova shipyard will deliver four more ships to its foreign customers and it has enough orders to keep it busy until September 2010, according to chief financial officer Gheorghe Caraiman.

The changes which occurred on the foreign markets had a negative influence on the company"s operations. Gheorghe Caraiman said the following for "Bursa": "All the reports and information in the media point towards overall difficulties which are affecting us as well. We"re talking about a drop in demand for ships and a drop in prices far below their pre-crisis levels, although it is true that the price of some of the raw materials and commodities (metal sheets in particular) have decreased as well".

The CFO of the company also used the report of the Community European Shipyards Associations (CESA) on ship orders to back his claims. Ship orders were insignificant this year, the cost of maritime transport dropped considerably, and many ships were docked or disassembled, which caused a low interest in new investments in this sector. Due to the slow demand, European shipyards are at risk for the next three years, as the low workload could cause them to close down or restructure their activity. Under these circumstances, naval transportation and financial experts are worried about the large number of ships which are currently on the market, compared to their load rate.

On the other hand, according to the same report, in order to avoid the closing down of their shipyards, China and South Korea have proposed delaying the execution of the ongoing orders instead of their cancellation. What"s more, shipmakers of South Korea and Canada are getting funding from the Development Bank and from donations and China"s steel exports have decreased significantly.

Besides, in South Korea, due to a drop in demand, shipmakers turned to manufacturing wind turbines, which are also one of the most important revenue sources for the manufacturing industry.

Gheorghe Caraiman added: "We"ve noticed a shift in the attitude of foreign banks, meaning that our foreign partners are increasingly demanding that we pay 100% of our orders by letters of credit, instead of advance payments.

• Non-current assets increased by 55%

The company"s non-current assets increased by 55% in the first half of the year, on the back of the absorption of Servicii Construcţii Maritime SA Constanţa. Inventories however dropped 36% following a drop in ongoing production and in stocks of raw materials.

On the other hand, the reduction in down payments caused by tighter lending conditions caused the company"s cash resources in lei and Euros to drop 84.5% in the first six months. Constantin Bădoiu explained that upon conclusion of the contracts, its foreign partners, under pressure from the banks, only accept very small downpayments and the guarantee of contractual payments by bank letters of credit.

According to the general manager of SNO, the financial deadlock of the company"s foreign partners, as well as due to force majeure caused by the high levels of the Danube at the end of June (which caused delays in the delivery of the ships to customers), with receivables up 129% in H1 2009, in particular uncollected receivables. The company"s 1-year debts have dropped 36% YOY.

Whereas on June 30 2008, the shipyard of Orşova had no outstanding debts, at the end of H1 2009 it had 8,717,092 lei in outstanding loans, which it was forced to take out to allow it to meet its outstanding payments due to a 4-fold drop in customer down-payments.

The total liabilities of the company increased 49.3%, first of all due to the merger, as well as due to an increase in reserves - thanks to an allocation of some of the company"s 2008 net profit, for its own financing sources, as well as due to an increase in profits, (reserves increased 35.7%, and the company"s net profit increased 35.3%).

• The net profit of SNO increased 35%

In H1 2009, SNO had 56.541 million lei in operating revenues, an operating profit of 3.5 million lei and a net profit of 2.940 million lei (up 35% YOY, beating the budgeted results by 124.5%). Following the good operating results and the positive cashflows, the company placed its cash in bank deposits. SNO did not take out any loans in this period.

The company made investments of 4,073,115 lei from its own resources, fully funded from its own resources, up from 1,643,469 lei in H1 2008, meaning a 147.8% increase. The company exceeded its budgeted investments by 123.4%.

Even though the company"s net turnover at the end of H1 2009 increased YOY, however operating revenues were smaller than last year. "Such fluctuations are frequent and normal in this business, due to long business cycles. But our good operating results allowed us to beat our total gross profit and the other efficiency ratios", said general manager Constantin Bădoiu. The financial loss of SNO decreased 50 times over H1 2008.

Total revenues increased beat the company"s predictions by 103.7%, whereas expenses increased 95.6%, which led to a 227.5% increase in gross profit, and 224.5% in net profits.