Due to One-off Costs Related to Drillships
Samsung Heavy Industries suffered heavy losses again last year due to large one-off costs related to its drillships. The company has been in the red for five consecutive years.
As long as the company fails to sell off the five drillships it has built, the repeated one-off costs will drag down its performance.
The company’s stock price remains weak as uncertainties about its earnings linger. Samsung Heavy Industries closed at 6,520 won on Feb. 4, down 0.91 percent (60 won) from the previous trading day. The stock price fell 10.9 percent during the last seven trading days.
The company announced on Feb. 3 that its annual sales increased by 39.6 percent on year to 7.3 trillion won last year. But its operating loss for the same period grew by 50.7 percent to 616.6 billion won. In the fourth quarter, sales reached 2.16 trillion won, an increase of 58.2 percent over the same period in 2018, but its operating loss stood at 215 billion won.
The main culprit behind Samsung Heavy Industries’ sluggish earnings is the five drillships in stock. It built them in the era of high oil prices but could not sell them. Failure to deliver them is expected to result in 150 billion won in cost and inventory valuation losses each year.
One-off expenses including drillship costs and provisions for the Ichthys Project in Australia reached 170 billion won in the fourth quarter. Annual losses related to drillships amounted to 689 billion won, which broke down to 349 billion won in cash outflow losses and 34 billion won in book losses. “About 80 percent of the company’s operating loss in the fourth quarter was one-off in nature,” said Kim Hyun, a researcher at Meritz Securities.
However, even if one-off losses are excluded, operating losses reach 45 billion won. “Samsung Heavy Industries is failing to improve its profitability despite an increase in shipbuilding volume,” said Choi Kwang-sik, a researcher at Hi Investment & Securities.
Stock analysts predict that Samsung Heavy will make a profit in the second half of 2020 after a slight loss in the first half of the year if there is no additional drillship-related one-off loss.