Rising raw material prices put pressure on Hyundai Heavy’s earnings Operation suspension following safety accidents also likely to hurt earnings

Translated by Ryu Ho-joung 공개 2022-05-16 08:05:44

이 기사는 2022년 05월 16일 08:03 더벨 유료페이지에 표출된 기사입니다.

Hyundai Heavy Industries turned unprofitable in the first three months of this year due to a large amount of provisions it set aside for increased raw material costs and potential losses caused by work delay.

The South Korean shipbuilder posted revenue of 2 trillion won ($1.56 billion) in the January-March quarter on a consolidated basis, up 0.7% year-over-year, according to preliminary earnings released by the company. But it recorded an operating loss of 217.4 billion won, a sharp reversal from a 28.4 billion won operating profit a year ago.

The company’s quarterly operating loss was largely due to a 110.3 billion won provision, of which 65.6 billion won was set aside for raw material costs, which are rising faster than the company had expected in the wake of the war in Ukraine.

Rising raw material prices are expected to continue to put pressure on Hyundai Heavy’s earnings in the next quarters. It is said the price of thick steel plates, which represent about 20% of shipbuilding costs, was raised by 100,000 won for the January to June period. The price could be increased again in the next six-month period if the Ukraine war does not end soon.

Delayed work hurt the company’s earnings as well. The country’s labor ministry ordered operation suspension of part of Hyundai Heavy’s plants in Ulsan after a workplace accident that killed one of the company’s workers. The suspension, which lasted until February, caused a 35.7 billion won loss, further reducing the first-quarter profits.

In April, Hyundai Heavy was again ordered to suspend operation of part of its plants following the death of a contracted worker. Moreover, the company’s labor union went on strike in May over wage increases.

The potential impact of delayed work is likely to be mitigated by operating plants in a full capacity mode, especially given the average shipbuilding lead time of about two years. Hyundai Heavy secured orders worth about $14.7 billion in 2021, surpassing its target of $8.8 billion.

“We predict operation suspension and the union’s strike to reduce revenue by 400 billion won to 500 billion won and profits by about 100 billion won this year,” an official at Hyundai Heavy said. “We will continue to work to minimize their impact on profits.” (Reporting by Yong-kyu Kang)
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