Scrapping €165m ship deal may work in ICG’s favour

After WB Yeats debacle, Irish Ferries owner facing Covid-19 and Brexit uncertainty

The WB Yeats was due for delivery by FSG in May 2018, but was delayed until December, by  which time Irish Ferries had been through a mauling in the press

The WB Yeats was due for delivery by FSG in May 2018, but was delayed until December, by which time Irish Ferries had been through a mauling in the press

 

Irish Continental Group (ICG) boss Eamonn Rothwell and German shipyard Flensburger Schiffbau-Gesellschaft (FSG) must rue the day over four years ago when they sat down to do business.

ICG owns Irish Ferries and announced to some fanfare in May 2016 that it had contracted FSG to build a 1,885-passenger cruise vessel with enough room to hold 165 freight vehicles for €144 million. The ship, subsequently named WB Yeats, was due for delivery in May 2018 to enter summertime service on the Dublin-to-Cherbourg route.

Delays

But the ferry didn’t arrive until the following December following a series of delays, by which time Irish Ferries had been through a mauling in the press and on social media for ruined holidays, affecting 20,000 passengers.

More than 80 per cent of those customers opted for alternative sailings provided by the company, while the rest were re-routed through the UK or offered a reimbursement plus a voucher for sailings for the following year.

The unhappy episode – together with technical issues with the vessel Ulysses – contributed to a 25 per cent slump in ICG’s earnings per share in 2018.

Meanwhile, a National Transport Authority (NTA) order in January last year that Irish Ferries pay compensation to those who sought it for having their travel plans thrown into disarray was subsequently challenged through the High Court. The case is now before the Court of Justice of the European Union.

Summing up the case as he sent it off to the EU court in Luxembourg, Mr Justice Robert Haughton noted that ICG had done the rounds of 10 shipyards over 17 months, and used references and expert advice, before signing up FSG.

Seemingly impressed enough by the initial work on the WB Yeats and unperturbed by a slight slippage in FSG’s delivery dates, ICG revealed in the early days of January 2018 that it had contracted the German company to build an even bigger vessel – billed as the world’s largest cruise ferry with a capacity for 1,800 passenger and 330 lorries. This was scheduled to arrive in Ireland in late 2020 at a cost of €165.2 million, to operate on the Dublin-to-Holyhead route.

‘Shock’

A little over three months later, FSG told Irish Ferries that the WB Yeats would not be ready to set off for Dublin until mid-July, as there had been delays by third parties in kitting out the accommodation on the ship. This came as a “shock” to Irish Ferries, according to Mr Justice Haughton’s summary, and forced it to cancel its initial summer bookings. It was be followed by a series of other delays.

Rothwell told The Irish Times this week, after ICG reported a 60 per cent slump in passengers this year amid Covid-19 restrictions, that FSG has claimed that it lost €25 million on the WB Yeats build.

The German company was in serious financial difficulty early last year, blaming its misfortunes on the loss-making ICG contract. It was subsequently taken over in a rescue deal led by colourful German financier Lars Windhorst.

Eamonn Rothwell, chief executive officer, Irish Continental Group .
Eamonn Rothwell, chief executive officer, Irish Continental Group
Rothwell said he’ll now start the process of finding another yard to build the vessel

But in February this year, FSG lost an order to build ships for Australian operator TT-Line, while operations in the German shipyard were shut down entirely the following month as Covid-19 swept through Europe. FSG filed for protection from its creditors at the end of April under a so-called self-administered insolvency as management seeks to restructure its finances.

ICG disclosed on Thursday morning that it has terminated its deal for FSG to build the second cruise ferry and has recouped its 20 per cent deposit. Work on the ship, by all accounts, hadn’t even started.

Process

Rothwell said he’ll now start the process of finding another yard to build the vessel. “It will take time. Even if we were in a position to sign a contract tomorrow, it’d be two or three years before a ship is delivered,” he said.

With the spectres of Covid-19 and Brexit hanging over the industry, it may be no bad thing that ICG no longer has to pull together the funds to pay for a new vessel at the end of the year.

While freight business has been fairly robust for the group in recent months, even as passenger bookings have fallen off a cliff, this is probably not the time to be taking on extra capacity.

The company had €110 million of cash on its balance sheet at the end of last year and access to €100 million of undrawn debt facilities. Davy analyst Stephen Furlong gleaned from Thursday’s trading update that the company’s cash position has been holding up in recent times.

While a raft of publicly quoted companies announced in late March that they were scrapping planned dividends, ICG decided to postpone its annual general meeting and necessary resolution on its final 2019 shareholder payout of almost €17 million.

That shareholder meeting must be held by the middle of August under Irish company law. The cancellation of the FSG deal may yet save the dividend. With a stake of almost 16 per cent, Rothwell would be the biggest beneficiary.

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