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Daewoo shipyard sells assets

Daewoo shipyard sells assets

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Daewoo Shipbuilding & Marine Engineering (DSME) said Tuesday it will sell off non-core affiliates and assets to stay afloat after its huge net losses in the first half of this year.

In a briefing on the shipbuilder’s financial health to some 300 executives on Monday, DSME Chief Executive and President Jung Sung-leep said the company will liquidate most of the affiliates whose businesses are not involved in shipbuilding and offshore facilities.

“We are also planning to put our headquarters in central Seoul and most non-core properties up for sale as part of our drastic rescue program,” the CEO said. Other measures include company-wide costing cutting efforts, repositioning of the workforce and improvements in productivity, the shipbuilder said in a message sent through an email.

DSME said on Tuesday it will announce more detailed, follow-up measures on Wednesday so it can reemerge as a “streamlined and reorganized” business entity. The move comes after DSME recorded a net loss of 2.564 trillion won ($2.2 billion) in the January-June period from a net profit of 70.8 billion won a year earlier.

It also swung to an operating loss of 3.075 trillion won in the first six months from 183.3 billion won a year ago. Sales plunged 23 percent to 6.143 trillion won from 8.024 trillion won during the same period, according to a regulatory filing.

Orders to build offshore facilities such as drill ships won since 2010 were all mega-sized and sophisticated projects. As most of the deals were engineering, procurement and construction, or EPC-based, we couldn’t pass increased raw materials costs onto the shippers who placed the orders, DSME said.

“We had to deal with unexpectedly-high extra costs during the construction process in the past years and the increased budget was all reflected in the bottom-line as losses,” a DSME spokesman said.

DSME is the world’s biggest shipbuilder by order backlog, followed by Samsung Heavy Industries and Hyundai Heavy Industries as of the end of June, according to Clarkson data. Samsung Heavy and Hyundai Heavy also reported hefty losses during the same period for the same reasons.

Samsung Heavy’s net losses widened to 1.144 trillion won in the first half from 66.4 billion won a year earlier. Hyundai Heavy posted a net loss of 367.6 billion won though it narrowed from a net loss of 707 billion won during the cited period.

After having a net loss of 2.21 trillion won last year, Hyundai Heavy has stepped up its drive to sell non-core assets and reorganize its workforce and businesses. Samsung Heavy also has taken the same steps to survive.

Detailed measures were not available as the two shipbuilders are on summer vacation this week. Together with shipping lines and construction firms, shipbuilders were among the businesses hit hardest by the 2008 financial crisis. They have since struggled with declining orders due to a prolonged slump globally.

This meant they competed to win as many orders as possible to continue their operations by offering steep discounts. As it takes at least two to three years to build a ship, increased costs are factored in the bottom line years later.

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