Hyundai Heavy Shipbuilding Says Earnings Should Improve Soon

  • COO says shipbuilder has reflected order losses in 3rd quarter
  • Company targets $14.3 billion shipbuilding orders in 2015

Hyundai Heavy Industries Co. said fourth-quarter earnings at its shipbuilding business should improve, as it has already recorded almost all potential losses from order cancellations in its books.

“Our backlog now consists of ships, as construction of specialty vessels like drills and semi-submersibles has pretty much been competed,” Ka Sam Hyun, chief operating officer of Hyundai Heavy, the world’s biggest shipbuilder, said in an interview in Singapore on Oct. 30. “During the third quarter the company pre-emptively reflected potential losses from cancellations.”

Customers of global shipyards, including Hyundai Heavy and Daewoo Shipbuilding & Marine Engineering Co., are asking for delivery delays as weaker economic growth and sluggish oil prices make it difficult for them to pay for the offshore drilling rigs and ships they’ve ordered. The two shipbuilders have posted heavy losses in recent quarters.

Hyundai Heavy revised its third-quarter loss to 600.3 billion won ($526 million) Friday, wider than the 434.1 billion-won deficit reported Oct. 26, to reflect potential losses when a unit of Norway’s Fred Olsen Energy ASA cancelled an order for a semi-submersible drilling rig.

Contract Goal

Hyundai Heavy shares fell 1.2 percent Monday to close at 94,100 won in Seoul trading. The shares have declined 18 percent since the start of the year, compared to a 6.2 percent gain in the benchmark Kospi index.

The Korean company and its two affiliates, Hyundai Mipo Dockyard Co. and Hyundai Samho Heavy Industries Co., had combined shipbuilding orders of $11.2 billion in the first nine months of this year.

Ka, who is in charge of the shipbuilding operations at the three companies, said “we are trying very hard to meet this year’s target” of $14.3 billion in shipbuilding contracts.

Hyundai Heavy, Daewoo Shipbuilding and Samsung Heavy, the world’s three biggest shipyards, shifted toward floating drilling and production facilities when the global financial crisis damped demand for ships. Now they’re pulling back from that business after a decline in oil prices since last year prompted companies such as Royal Dutch Shell Plc and Petroleo Brasileiro SA to cut spending. West Texas Intermediate futures have fallen 41 percent in the past year.

The drop in crude prices has meant oil companies can’t make timely payments if they need to alter the design of offshore projects, hitting the shipyards’ cash flow, Ka said. Most of Hyundai Heavy’s projects are expected to be completed by next year, he said.

Client Delays

Daewoo Shipbuilding ended a contract in August after a client in the Americas failed to make payment on a drill ship under construction. It said last week that two drill ships will be delivered a year later than originally agreed, at a customer’s request. Those setbacks contributed to a 3.65 trillion-won loss over the last two quarters. Samsung Heavy accepted requests from customers to defer delivery of six drill ships.

Revenue from Hyundai Heavy’s shipbuilding operations accounted for about 33 percent of its total in the first half of the year. Through other divisions and affiliates, the company also is involved in refinery operations, plant construction, offshore projects, renewable energy, construction and electronics equipment.

Its sales in the third quarter dropped 12 percent to 10.9 trillion won, while its operating loss narrowed to 897.6 billion won from a 1.9 trillion won loss a year earlier.

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