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DSME Forecasts Sales Normalization in Q3

Daewoo Shipbuilding & Marine Engineering ( DSME ) publicly announced the expected result for the first half of this year.

On July 29, the DSME said that it expects to post 6.14 trillion won (US$5.29 billion) in cumulative sales and 3.08 trillion won (US$2.65 billion) in operating losses in the first half of this year. An estimated net losses during the term stood at 2.56 trillion won (US$2.21 billion). Compared with the figures from the same period last year, sales decreased by 23.4 percent, while operating profits and net losses turned to deficits.

As the company was held up in the process to build vessels for its inexperienced offshore projects such as Songa, which is a semi-submersible drilling rig, executive budgets increased, which in turn raised its losses, the company said.

With offshore projects becoming larger, more advanced and more challenging after 2010, both ordering and shipbuilding companies went through unprecedented confusion by EPC and turnkey contracting. The DSME explained, “Despite frequent changes of design, it was uncertain how much ship owners would compensate. There was also a limit to reflect the increase in production costs in advance. Accordingly, we could calculate the exact losses after considerably proceeding with production.”

The company stressed that it normally performs the manufacturing process and conducts business operations despite major losses. It also said that it maintains the same financial transaction system so there is no problem with its liquidity.

The DSME expects to normalize results from the third quarter when it starts building high-value-added vessels, including liquefied natural gas (LNG) carriers, for the numerous contracts that the company won last year. An official from the company said, “Since predictable shipbuilding losses for the current deals were reflected in this settlement at once, the company will be able to see the improvement in operating cash flow and profitability from the third quarter. Through the voluntary innovation in the future, we will get rid of ineffectiveness and stabilize the business early.”

The Original Posted by Jung Min-hee/ Business Korea

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