Daewoo Shipbuilding Reports 1.2 Trillion Won Loss in H1... Impact of Steel Price Hikes and Provisions for Client Litigation

Fixed offshore oil production facility built by Daewoo Shipbuilding & Marine Engineering. Photo by Daewoo Shipbuilding & Marine Engineering

[Asia Economy Reporter Choi Dae-yeol] Daewoo Shipbuilding & Marine Engineering announced on the 17th that its consolidated operating loss for the first half of this year reached 1.2203 trillion won, returning to a deficit compared to last year. Considering the rise in steel prices, it preemptively reflected 800 billion won as a provision for construction losses.

Looking at the performance for the second quarter alone, the operating loss was 1.0074 trillion won, which is similar to the previous first quarter (operating loss of 212.9 billion won) excluding the provision. Sales for the first half amounted to 2.1712 trillion won, down about 45% compared to the same period last year, and the net loss for the period was 1.247 trillion won, also returning to a deficit.

The company explained, "Due to a sharp decline in sales caused by poor orders over the past 2 to 3 years and increased fixed costs for products under construction, the provision of 800 billion won was reflected due to the recent rapid rise in material prices including steel, and an additional 300 billion won was set aside as a provision for disputes such as claims from offshore construction clients."

Earlier, major domestic shipbuilders such as Korea Shipbuilding & Offshore Engineering and Samsung Heavy Industries recorded large-scale deficits by accumulating substantial accounting provisions in preparation for a significant increase in the price of steel plates used in shipbuilding. Steelmakers and shipyards are in the final stages of negotiations over steel prices for shipbuilding materials, and the industry expects the prices to be decided at levels about 50-60% higher than in the first half of this year.

Daewoo Shipbuilding stated, "We have set provisions for various potential risks that may arise in the future," and added, "We will improve future profitability through expanding new orders, cost reduction, and productivity enhancement." The company secured orders worth 6.33 billion dollars this year, achieving about 82% of its target (7.7 billion dollars). This year's order performance has increased more than fourfold compared to the same period last year. The current order backlog stands at 21.6 billion dollars, which the company says corresponds to more than two years of production volume.

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