Hyundai Heavy's KSOE posts $1.1 bn loss in 2021

Korea Shipbuilding & Offshore Engineering Co. (KSOE), under Hyundai Heavy Industries Group, on Monday reported a bigger-than-expected operating loss of $1.1 billion in 2021, hit by higher steel prices and heavy reserves set aside for severance packages.  

The intermediate holding company of the world's largest shipbuilding group booked 687.2 billion won ($572 million) in reserves for retirement allowance in the fourth quarter alone, after it lost a court case filed by its 10 unionized workers. 

The reserve amount is just shy of KSOE's fourth-quarter operating loss of 696.7 billion won.

South Korea's Supreme Court in December ruled in favor of the unionized workers, who demanded one-off bonuses should be included in their remuneration based on which severance pay is calculated. 

Operating loss at KSOE amounted to 1.4 trillion won ($1.1 billion) for all of 2021, according to a regulatory filing. The results were double the market consensus of a 716.3 billion won shortfall and compared with the previous year's operating profit of 74.4 billion won. 

Revenues edged up 4% on-year to 15.5 trillion won thanks to its largest-ever orders received for a year since 2013. 

KSOE controls Hyundai Heavy Industries Co., Hyundai Mipo Dockyard Co. and Hyundai Samho Heavy Industries Co. Its top shareholder is Hyundai Heavy Industries Holdings Co. with a 30.95% stake.

"Excluding steel price hikes and one-off factors such as the severance pay reserves, we reached the operating break-even point," a KSOE official said. 

"Despite firmer steel prices, rising ship prices will help us turn to the black in the fourth quarter of this year." 

SHIPBUILDING ORDERS

Last year, KSOE won $22.8 billion orders to build 226 vessels including 58 LNG-powered ships, topping its annual target of $14.9 billion.

Year to date, it has already secured a total of $3.7 billion won in orders for 34 vessels, meeting 21.2% of its 2022 order target of $17.4 billion. The orders include two liquefied natural gas-powered roll-on/roll-off ships, one LNG bunkering vessel and six 2,800 twenty-foot equivalent unit (TEU) container ships.

Two other companies under Hyundai Heavy -- Hyundai Construction Equipment Co. and Hyundai Electric & Energy Systems Co. -- also reported operating losses for 2021, reflecting hefty severance pay reserves on the back of the Supreme Court's decision in December. 

By contrast, their parent company Hyundai Heavy Industries Holding posted its largest-ever operating profit of 1 trillion won for all of 2021, since its establishment in March 2018. Consolidated revenue came in at 28.2 trillion won.

Its refinery arm Hyundai Oilbank Co. drove the group earnings higher, with an operating profit of 1.1 trillion won on sales of 20.6 trillion won.

Last month, Hyundai Heavy's proposed acquisition of local rival Daewoo Shipbuilding & Marine Engineering Co. fell through after the European Commission vetoed the combination of the world’s two largest shipbuilders.

But analysts said the collapsed deal meant Hyundai Heavy saved as much as 6 trillion won it otherwise would have spent to acquire the debt-laden competitor.

Separately, KSOE signed a letter of intent with the British energy giant Shell plc and Doosan Fuel Cell Co. to jointly develop eco-friendly fuel cells for vessels, Doosan said in a regulatory filing on Monday. 

Write to Jung-hwan Jung at jung@hankyung.com
Yeonhee Kim edited this article