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Hyundai Heavy Industries books $400m loss in Q3

Hyundai Heavy Industries books $400m loss in Q3
South Korea’s Hyundai Heavy Industries (HHI) has reported a huge loss of KRW451.4bn ($398.47m) for the third quarter ended 30 September 2015, hit by delays in offshore projects and lackluster sales of the construction equipment business.

The third quarter loss, however, narrowed from the even bigger deficit of KRW1.46trn seen in the same period of 2014. But compared to the second quarter of this year, the loss widened by KRW209bn.

The quarterly revenue came up to KRW10.92trn, down 11.9% compared to KRW12.4trn in the previous corresponding period.

A HHI spokesperson 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.”

HHI also booked the cost of liquidating unprofitable overseas subsidiaries, which started in 2014, as third quarter losses. The Korean yard 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 said.

The spokesperson pointed out that the fourth quarter could be the starting point of earnings improvement, with the phase-out of low price orders and profit turnaround of commercial vessels. The offshore business has also booked “all perceivable loss.”

“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 said.

Meanwhile, a Korean financial services provider NH Investment & Securities wrote that HHI is unlikely to see an improvement to its profitability over the next two years due to projected sluggish market conditions.