Abu Dhabi Ship Building Co. — Management Reports 2020

Aug 12, 2020

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Management Discussion and Analysis

FINANCIAL HIGHLIGHTS

Abu Dhabi Ship Building recorded a revenue, gross loss and net loss of AED 114 million, AED (6) million and AED (27.2) million, respectively, for the period ended 30 June 2020 as compared to a revenue, gross profit and net loss of AED 145 million, AED 17 million and AED (12.4) million, respectively, during the corresponding period in 2019.

During the second quarter of the year Covid-19 had a significant impact on operations and resulted in a decrease in military repair and maintenance activities, in part due to restrictions on access to certain Navy facilities. However, Commercial business was more resilient with owners using slack periods caused in part by Covid-19 to reschedule maintenance activities, and also due to more focused marketing activities by the Company. Commercial business in the first half of the year was ahead of the same period in 2019 by 60 per cent.

The renewal of the Marine Support Services contract continued to be negotiated in the first half of the year and when this is concluded will have a positive impact on the revenue and bottom line for the remaining periods of 2020. In addition, ADSB is in ongoing negotiations with its major customer in regards to a contract to build a new class of vessels and it is hoped that this will be concluded before the end of 2020.

In the absence of a major new build order, the bulk of the Company’s activities were refit, repair and maintenance for military and commercial clients. The first quarter of 2020 marked the completion of the refit of P171, the first Baynunah vessel but unfortunately in Q2 the effect of Covid-19 saw some refit work postponed.

Total direct costs to ADSB of managing the Covid-19 pandemic were AED 1.2 million, in addition to the value of business lost. However, the Company was able to keep its operations functioning and continue to provide a service to its customers.

The Company has made significant efforts to improve its collection of receivables and in the first half of the year recovered AED 239 million, compared with AED 200 million in the same period in 2019 and AED300 million in the whole of 2019. The net increase in cash and cash equivalents for

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the period was AED 100 million, which contributed to the overdraft reducing to AED 208 million from AED 289 million. ADSB continues to have adequate banking facilities for its operational needs but suffers from constraints on working capital which impact its ability to hold inventory and invest in research and development.

However, the second quarter of the year has seen ADSB implement its strategy of developing design skills and for the first time in its history the Company has a portfolio of small boat designs for which it owns the intellectual property. Construction of prototypes has commenced and the Company has a number of potential orders in the course of negotiation. The objective for the second half of the year is to expand this into vessels in the 40 metre range.

While the procurement cycle for major warships is protracted, and travel has of course been restricted, ADSB has used the Covid-19 period to strengthen its business development efforts and has a significant early stage pipeline of potential new business which it hopes to convert in the second half of the year.

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______ David Massey Chief Executive Officer

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