South Korean shipbuilding giant Hyundai Heavy Industries (HHI) reported a net loss of KRW 451.4 billion (USD 398.4 million) in its earnings report for the third quarter of 2015.
According to the disclosure, 3Q sales came in at KRW 10.9184 trillion and operating loss at KRW 678.4 billion.
On a quarter-on-quarter basis, sales declined 8.7%, while operating loss and net loss widened by KRW 507.4 billion and KRW 209 billion respectively, due to delays in offshore projects and lackluster sales of the construction equipment business, the company said.
“The shipbuilding business was hit by cancellation of a semi-submersible rig as oil prices nosedived to $40 a barrel. The offshore business set up a reserve for possible losses that may be incurred from belated change orders, increased manhours or delays in delivery caused by design changes,” a HHI spokesperson said.
HHI also booked the cost of liquidating unprofitable overseas subsidiaries, which started in 2014.
Specifically, HHI has sought to liquidate its JaKe subsidiary in Germany, Hyundai Cummins and Hyundai Avancis, which respectively produce wind power gearboxes, construction equipment engines and solar modules.
Moreover, the company is in the process of shutting down its Taian construction equipment subsidiary in China amid the slowdown of the Chinese economy, and its Beijing subsidiary is in talks with its partner to sever joint venture ties.
“With a heavy focus on profitable businesses, HHI has taken bold steps to eliminate ailing subsidiaries since September 2014, as keeping them would only inflate the losses. The restructuring process is nearing its end, and part of the cost has been recognized as losses this quarter,” the spokesperson adds.
Meanwhile, HHI reckons 4Q15 as a critical juncture for earnings turnaround.
“4Q15 can be the starting point of earnings improvement: the shipbuilding business is recovering, with the phase-out of low-price orders and profit turnaround of commercial vessels. The offshore business has also booked all perceivable losses.”
The shipbuilder said it was working on boosting its liquidity by also disposing of Hyundai Motor shares and issuing convertible bonds of Hyundai Merchant Marine shares.
“Even though the company has failed to turn a profit in 3Q15, it will spare no effort to normalize its operations, with a focus on profitable businesses, reshuffle for more responsible management of each business division, cost competitiveness enhancement, disposal of stock holdings and elimination of poor-performing subsidiaries to set the stage for a turnaround,” the spokesperson concludes.