Korea seeks stronger shipyard “self rescue” moves

Hyundai Heavy says self-imposed restructuring measures helped it to achieve a profitable first quarter

APRIL 26, 2016 — As the Korean Government’s Financial Services Commission announced its plans for  restructuring vulnerable industries, including shipbuilding, Hyundai Heavy Industries (HHI), reported that, after nine consecutive red-ink quarters, it had returned to profit in first quarter 2016.

HHI, the world’s largest shipbuilder, reported an operating income of 325 billion won (about $283 million). At 10.2782 trillion won (about $894 million), sales were down 7.8 percent.

An HHI officer said, “For 1Q 2016, we have returned to the black mainly due to the following reasons; the phase-out of low-price shipbuilding contracts, stabilization of manufacturing processes for offshore and industrial plant business, reduced material costs, the weakening won and noticeable performance improvement of non-shipbuilding businesses including Engine & Machinery, Electro Electric Systems and Construction Equipment.”
 
HHI also attributed the turnaround to a series of restructuring measures launched in 2014 by management in an effort to tide over the protracted crisis.

An HHI officer said, “From now on, we will assess each division’s performance by its level of competitiveness in the respective business fields. Although we have turned a profit in the first quarter of this year, we will concentrate more on cutting costs in case of  a falling order backlog. Moreover, under the leadership of each division heads, we will continue to exert our utmost efforts to recover the competitive edge by realigning businesses and organizational structure.”

The Financial Services Commission looks to be prescribing bigger and nastier tasting doses of this sort of medicine — which it calls “self-rescue plans” — for the sector as a whole, rather than looking to force any mergers.

It announced the following plan for the big three shipbuilders:

Daewoo Shipbuilding & Marine Engineering (DSME)  will be required to submit to creditors a stronger self-rescue plan including additional layoffs and cost savings.
Hyundai /Samsung Heavy Industries: Creditor banks will ask for self-rescue plans and check progress in implementation of such plans.

According to Yonhap news agency, in its restructuring plan announced last year, Daewoo Shipbuilding has sold 360 billion won worth of assets and cut 709 jobs. In similar efforts, Hyundai has sold assets valued at 1.6 trillion won while cutting 1,533 jobs, with Samsung Heavy shedding 100 billion won in assets and 1,500 workers.

The Financial Services Commission is now looking for much more of the same to happen.