Hyundai Heavy Industries Co. posted a profit for the first since new management took over the shipbuilder in 2014 and conducted a thorough restructuring.
But the global slowdown for shipyards around the world continues, with the shipbuilders having trouble securing new ship orders, giving the company no choice but to continue with its restructuring strategies.
In the first half of last year, the shipyard dismissed 25 percent of its officers to secure its survival, and integrated or closed 86 operational units, some 22 percent of the shipyard’s 291 units.
Hyundai Heavy Industries, in the meantime, signed an MOU with GE on March 22 on a broad cooperation pact for gas turbine-powered ships and other key areas including plant, shipbuilding, engines and equipment. The deal is not limited to gas powered shipbuilding and technology development for robotics and medical equipment, HHI said.
The company said recently that it plans to conduct another round of restructuring, including significant job cuts and $1 billion worth of asset sales, as the Korean shipyard struggles with slumping orders.
Hyundai, the world’s largest shipbuilder by revenue, will initially seek the voluntary retirement of midlevel and senior managers, and then fire workers if needed. Hyundai didn’t specify the number of jobs to be cut, but people familiar with the matter said it would likely trim its workforce of 27,000 by about 10 percent.
“This is unavoidable as orders are falling significantly, threatening the fate of the company,” Hyundai said in a statement recently.
The company also said it would streamline business divisions and sell noncore assets, including property and company resort facilities valued at 1.17 trillion South Korean won ($1 billion) in total.
Shipbuilders in South Korea have suffered amid the global industry downturn, as a glut of vessels and low freight rates have put pressure on shipyards for years. The Korean government is increasingly determined to overhaul the shipbuilding and shipping industries.
Finance Minister Yoo Il-ho and financial regulation chief Yim Jong-yong said last month the government hoped to see sector consolidation through creditor-led restructuring of debt-laden companies. If the ailing companies fail to do so, they could be put under receivership or face bankruptcy.
The announcement Monday follows the company’s decision last month to lay off a quarter of its senior executives and cut overall executive pay by as much as half. Hyundai Heavy’s efforts to reduce debt and increase liquidity are part of a restructuring plan that it will submit this week to a group of creditor banks led by KEB Hana Bank.
South Korea’s shipbuilding industry, home to the world’s three largest players, suffered billions of dollars of losses and amassed major debt as higher-margin offshore energy projects were hit by order cancellations and delivery delays due to low oil prices. Oil prices have fallen more than 50 percent over the past two years.
Hyundai, along with Korean rivals Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co., racked up a record 7.7 billion won loss last year as new orders almost dried up. Samsung and Daewoo are also expected to submit their plans to reduce debt to creditors this week.
Analysts said the future of Hyundai Heavy may be a bit brighter after the company returned to profit in the quarter ended March following nine straight quarters of losses, although a turnaround in the global shipbuilding industry still appears far off.
“Hyundai reflected most of its losses stemming from offshore projects in last year’s results. Helped by a series of cost-cutting efforts and improving margins from its refinery affiliate, the company will swing to a profit this year,” said Mirae Asset Daewoo Securities analyst Sung Ki-jong.
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