The Viktor Lenac Shipyard was founded under the name of Lazarus in 1896 in the port of Rijeka in Croatia. The shipyard has a distinguished history, being originally established as a ship repair facility for the merchant, naval and fishing vessel fleets of the Austro-Hungarian Empire. Then, at the end of the Second World War, the yard was re-named after a local partisan hero, who died fighting the fascists. Mr Domijan explains, “Viktor Lenac used to work for our company, and he has been honoured by us. Gradually the new name has become a by-word for quality in the ship repair global market.” 

New home and new owners

In the late 1960s, a modernisation programme was initiated which also involved the shipyard being moved from the port to its present location at Martinscica Bay – about 3 kilometres to the south of Rijeka. This area has good natural properties, in particular, an adequate water depth to accommodate vessels with deep draughts. “The company purchased two floating docks and cranes and put them in the bay – this was a major milestone in the company’s history,” recalls Mr Domijan. A subsequent key event was the managerial reorganisation that occurred in 1990, which was followed by the registration of the shipyard as a joint stock company in 1993. Mr Domijan explains, “We are the only shipyard in Croatia that has been privatised. Thirty percent of the shares are owned by the Uljanik d.d. Pula Shipyard, which is a major builder of car carriers and dredgers, based in a coastal town called Pula, some 150 kilometres to the west of our site. Thirty percent of the shares are owned by Tankerska Plovidba d.d. Zadar, the biggest shipbuilding company in Croatia, and 25% are owned by the Croatian Government through a privatisation fund and a state-owned bank, Hrvatska Banka Za Obnovu I Razvitak. The rest of the stock is held by small shareholders including several partners, employees, some suppliers and contractors.” 

Re-flotation

Owing to heavy financial investment, Viktor Lenac shipyard filed for bankruptcy at the end of 2003, and this represents the point at which the former owners lost their shares. The next milestone occurred in April 2008 when the bankruptcy process was completed and the company acquired new owners. In September, 2008, it was listed on the Zagreb Stock Exchange (ZSE), with a shareholder equity valuation of €17.1 million. New ownership has meant that the Viktor Lenac Shipyard has benefited from extensive upgrading of existing facilities. This was part of the deal when Tankerska acquired its shareholding. Mr Domijan elaborates, “We have an ongoing investment programme amounting to about (US)$10 million. In 2000, we purchased a second-hand floating dock from the USA. When we obtained the new dock, we already had two floating docks, but one of these had to be scrapped. So we are now back to having two floating dry docks, the older one dating from the 1960s. 

"Our new, large dock can handle Suezmax vessels (a naval architectural term particularly applied to tankers and meaning ships of the maximum size to pass through the Suez canal). Such ships are up to 160,000 tonnes dead-weight, while our other floating dock is capable of handling mid-Panamax vessels (Panamax referring to the largest size of vessel able to pass through the locks of the Panama Canal) of about 50,000 to 60,000 tonnes dead-weight. We spent a lot of money to get the larger dry dock back to Croatia and to refurbish it, and that is the reason why we went bankrupt. With the help of the investment from our new owners, we have just completed the refurbishment and the dock is now in full commercial operation. We have been using the new dry dock already, but only in a limited way – not for full ship repair as yet, but for some special things.” Mr Skific adds, “The refurbishment has been completed, the dock is being commissioned and we are starting constant, round-the-clock use of it. Up until now, it has been used for small commercial projects, particularly for small-scale anti-corrosion protective treatments.” 

Having the right facilities

The company has around 1,100 metres of berthing (wharfage) space inside the bay. Each berth is outfitted with energy sources, cranes, and other lifting equipment, capable of lifting loads up to 100 tonnes. Apart from the two dry docks, there are eight shore cranes, one crawler crane, a plasma cutting machine, an offshore construction area, and a heavy lift loading pier. There is also a small design office which specialises in ship repairs. There are some 580 employees, together with 300 – 400 subcontractors working in the yard, and there are 130 skilled engineers with Master’s degrees (representing about 20 percent of the total workforce). 

Mr Domijan recalls, “We had a master agreement with the US Navy to undertake small-scale repairs of its vessels, and we started doing some new ship building, but found it was not as profitable as ship repair, so we gave that up. We now have three main activities: ship repair, ship conversion and construction of offshore platforms (these are fixed platforms for gas exploration in gas fields in the northern Adriatic). We undertake all sorts of repair, including treatment with anti-corrosives and anti-fouling paints, hull scraping, steel replacement, dry dock works, mechanical works, pipe renewals, electrical works and the provision of special services. Our conversion work involves pipe and cable layers, mega yacht restoration, double skin installation and increasing the length of vessels. Our off-shore work has involved us in constructing a jack-up platform Labin, and we started work on making 11 gas platforms in 1997, and are currently constructing the Annamaria A process module and the Izabela north jacket and process module. In 2008, the proportions of our revenue from sales were: 46 percent for ship conversion, 44 percent for ship repair and only 10 percent for off-shore work.” Mr Skific adds: “In 2008, we undertook about €20 million worth of conversions, compared with €13 million for the previous year, whereas our off-shore projects amounted to €6 million for 2008.” 

Mr Domijan continues, “One of our major clients for ship repair is Tirrenia, the biggest Italian ferry operator, and recently we had a contract from CMA/CGM (Marseilles), one of the biggest owners of container vessels. We also undertake much work for our owner, Tankerska, which brings its vessels from all over the world, tankers and bulk carriers, that can be accommodated in our facilities. We also work on vessels from V-Ships, based in Monte Carlo, France and Norway, and ones from the Clipper Group in Denmark. We have also undertaken work for Helix Energy Solutions & Hays Maritime on conversion of a train ferry into a floating refinery, and for Aker Biomarine on the lengthening and conversion of a stern trawler to a krill fishing vessel. Most of the materials we use are supplied by the ship owners. A ship can earn as much as (US)$80,000 per day, so it is very important that we provide a quick turn around so they can be back in the water earning money as soon as possible.” 

The right price

On the subject of the company’s key attributes that have led to its success, Mr Domijan singles out the high level of competency of its workforce. He notes that the company’s pricing policy is another important factor in its profitability: “Our pricing is between the high cost western European shipyards and the low cost competition – our high level of expertise and reliability and policy of sticking to time, makes us very good value for money. In addition, we comply with international standards, particularly those applying to all IACS members (International Association of Classification Societies), and our own quality control department that takes care of all these issues. Many of the accreditation bodies have offices nearby in Rijeka; for example, the American Bureau of Shipping (ABS) and Bureau Veritas (BV), and our work is inspected regularly.” 

Being good neighbours

Viktor Lenac shipyard is heavily involved in health, safety and environmental issues. Mr Domijan explains, “We have the town of Rijeka to one side of us and the village of Kostrena on the other side. So we have to comply with very strict local regulations, and we have an environmental system that runs continuously. The biggest issues are noise and air contamination, with particulate matter arising from the grit used in sand blasting and particles from painting. We are trying to minimise these, and we are also working to relieve the local electricity supply by upgrading our electrical energy systems using diesel generators. In addition, we have developed a recycling yard, inside the premises, where waste is separated according to its nature. 

"We produce a lot of process waste, particularly spent grit and steel. To reduce this, we are considering the purchase of ultra high pressure (3,000 bar) equipment for water blasting instead of blasting with sand or grit. This is a goal that we hope to achieve over the next few years, as the equipment is quite expensive and will be a big investment for us. The waste water and sediment are collected in containers in which the paint and dust are separated out – the water is then discharged into the sea and the rest is disposed of. The good thing is that, here in the bay, we have a good source of water; so we also use it for technical purposes.” Mr Skific adds, “We also insist on the use of all necessary protective clothing and apparatus for all our workers, in conformity with international safety standards.”

Recently, the Viktor Lenac Shipyard is experiencing a decline in the demand for large projects, particularly regarding ship conversions and off-shore construction work. Existing projects are either being terminated or postponed. However, as Mr Domijan notes, “We have some contracts originating from before the financial crisis, which we are still working on. Also, the ship repair business is still quite good, so we are focusing on this aspect of our work at the present time. We are reasonably sure that our off-shore construction work will pick up in the near future as there are quite big plans for the exploration of gas and renewable energy sources (such as geothermal drilling and wind farms) here in the Adriatic, particularly due to the recent gas dispute between Ukraine and Russia.” However, the company’s short-term forecast for offshore work for this year is very modest, “only €7 million – just a €1 million increase on the amount for 2008,” explains Mr Skific. He adds, “Over the next five years, there is likely to be much interest in building a terminal for LNG (liquified natural gas) very close to the shipyard. This will attract much European investment, and this would offer us the possibility of offering our facilities.”

Domijan continues, “In addition, our new large floating dock facility will open new markets for us, as we shall be able to handle vessels that are three times larger than we could accommodate in the past. This will definitely be a huge step forward, also allowing us to work with new customers; for example, cruise liners and cruise companies.” 

Preparing for growth

The company is naturally putting a lot of energy into advertising, by using glossy brochures and having a very informative website. It is also in direct contact with its existing clients as well as potential new customers to whom it regularly gives presentations. As Mr Domijan explains, “We fell behind with advertising due to the recent bankruptcy proceedings, but are now intent on catching up by attending exhibitions to get ideas on new techniques. We are very good value for money, and we are able to compete effectively on an international basis. The next big challenge for us will come when we enter the EU, probably in 2012. In particular, we shall have higher manpower costs compared with several other similar companies in Eastern Bloc countries. However, we should be able to negate this effect once our re-structuring is complete.” 

The company has ambitious plans for restructuring and these are focused on re-training the workforce for it to be able to make maximum use of the new facilities and equipment. Mr Skific explains, “A comprehensive restructuring programme was the only proposal to the governing board of the company, aimed at giving our customers a better service and the company the best possible platform on which to start trading as part of the EU. We used an English company, FMI, a well-known consultant in the ship repair industry. Among its many recommendations, was an integrated programme for re-training to give the workforce multi-skills and better qualifications to facilitate the award of future accreditations.” 

The company’s plans for upgrading its facilities include fitting out berths with new cranes designed to cater for vessels up to 275 metres in length, and new energy sources, as well as a new workshop to enable it to make full use of the large new dry dock. Mr Skific adds, “We shall shortly have all the necessary cherry picker lifting platforms in place for allowing operatives to have close access to the hulls of vessels for them to undertake repair and refurbishment work.” Mr Skific adds, “We are also planning on acquiring another new dry dock, increasing our floating dock facilities to three. This will allow us to cater specifically for Aframax oil tankers (around 260 metres in length and 44 metres wide, with capacities between 80,000 and 120,000 tonnes dead weight.” 

Once completed, the restructuring and the upgrades should enable the Viktor Lenac shipyard to become more competitive and capable of taking full advantage of the new markets that will open up with the entry of Croatia into the EU.