Samsung Heavy Industries Reports Operating Loss of 707.7 Billion KRW in Q2... Deficit Widens

[Asia Economy Reporter Hwang Yoon-joo] Samsung Heavy Industries announced on the 31st that it recorded an operating loss of 707.7 billion KRW in the second quarter of this year. Sales amounted to 1.6915 trillion KRW, a 4.5% decrease compared to the same period last year.

In particular, the second-quarter performance worsened compared to the first quarter, when the COVID-19 pandemic was at its peak. The scale of the operating loss expanded compared to the first quarter, and sales decreased by 7% from 1.8266 trillion KRW in the first quarter due to a decline in sales in the offshore sector.

The company explained that this was due to unavoidable external environmental deteriorations such as the COVID-19 pandemic and the sharp drop in oil prices, which caused a decline in the asset value of drillships and significant one-time costs including delays in some offshore project schedules.

Looking in detail, the following were reflected: ▲ a 20% write-down of the book value of drillships due to a downturn in drilling market conditions caused by low oil prices ▲ losses related to drillships including foreign exchange valuation losses (454 billion KRW) ▲ impact of major process delays such as commissioning caused by temporary return of engineers from clients and overseas equipment companies due to COVID-19 (90 billion KRW) ▲ costs for defect repairs of already delivered offshore projects and other provisions (68 billion KRW).

Meanwhile, as of the end of June, Samsung Heavy Industries’ net borrowings stood at 3.8 trillion KRW, an increase of 900 billion KRW compared to 2.9 trillion KRW at the end of 2019. This was due to increased operating funds as the proportion of shipbuilding under the heavy-tail method rose, and it is expected to improve with an increase in the number of ship deliveries in the second half (from 16 vessels to 29 vessels) and the inflow of advance payments upon new LNG project orders.

A Samsung Heavy Industries official explained, "About 60% of the second-quarter operating loss was a non-cash drillship-related valuation loss and is unrelated to cash flow. We are currently negotiating with clients for the additional costs and delays in offshore project schedules inevitably caused by COVID-19 to be borne by the clients."

The official also stated, "Although uncertainties due to COVID-19 still persist, recovery is expected from the second half, centered on large LNG projects. We will do our best to approach the annual order target by linking the projects currently under exclusive negotiation, worth about 4 billion USD, and the Nigeria Bonga FPSO contract."

This content was produced with the assistance of AI translation services.