Daewoo Shipbuilding Says Worst Is Over, Sees Profit This Quarter

Daewoo Shipbuilding Says Worst Is Over, Sees Profit This Quarter
Daewoo Shipbuilding & Marine Engineering Co. says the worst is over for the company and it expects to post an operating profit this quarter after a record loss for 2015.

(Bloomberg) -- Daewoo Shipbuilding & Marine Engineering Co. said the worst is over for the company and it expects to post an operating profit this quarter after a record loss for 2015.

The world’s second-largest shipbuilder is working on nine offshore projects as planned and doesn’t expect any further losses from them, Chief Executive Officer Jung Sung Leep said in a briefing in Seoul Thursday. It’s targeting to win $10.8 billion in total orders this year, more than doubling from the $4.5 billion received in 2015.

Oil plunging to the lowest prices in more than a decade prompted clients to cancel or delay orders of offshore rigs, leading to higher costs for Daewoo Shipbuilding and a record operating loss of 5.51 trillion won ($4.6 billion) last year. The company said in late October that it expects to make a profit in 2016 as it works more on high-value vessels that carry gas.

“The worst appears to be over,” Jung told reporters. “We now have better control of our offshore business and are confident we will be able to deliver orders as planned with no further losses.”

Daewoo Shipbuilding gained as much as 7.5 percent to 6,310 won in Seoul, and traded at 6,110 won as of 1:38 p.m. The stock has dropped 69 percent in the past year, compared with a 0.8 percent decline in the benchmark Kospi index.

Project Delivery

The company plans to deliver seven offshore projects in the first half of this year, including the last of four semi-submersibles ordered by Songa Offshore and the world’s first floating liquefied natural gas production facility to Malaysian state oil company Petronas.

Daewoo Shipbuilding plans to reduce its workforce to about 30,000 from the current 45,000 by cutting subcontract workers, Cho Wook Sung, a senior executive vice president, said at the briefing. He said the cuts would be gradual, without providing a timeframe.

The shipbuilder has an annual sales target of 10 trillion won to 12 trillion won, Jung said. Revenue fell 23 percent to 13 trillion won last year. Work from shipbuilding will contribute 55 percent of revenue this year, and offshore projects will account for 33 percent, the company said March 7.

Korea Development Bank and Export-Import Bank of Korea, the shipbuilder’s key creditor banks, pledged in October to provide 4.2 trillion won in loans and equity. Daewoo Shipbuilding also plans to raise 750 billion won by selling non-core assets such as its headquarters building and a golf course.

Korea-based Hyundai Heavy Industries Co., Daewoo Shipbuilding and Samsung Heavy Industries Co., the world’s biggest shipbuilders, recorded combined operating losses of 8.55 trillion won last year. Jung predicted the nation’s shipbuilding industry would rebound in the second half of next year.

To contact the reporters on this story: Heejin Kim in Seoul at hkim579@bloomberg.net ;Kyunghee Park in Singapore at kpark3@bloomberg.net To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Lena Lee

Copyright 2016 Bloomberg News.

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