Lee Hyo-sik is Finance Desk editor at The Korea Times. He manages finance-related stories on macroeconomics, banks, stocks, bonds, crypto etc. He is passionate about covering what's happening in Korea's financial industry and explaining it to both Korean and non-Korean readers. You can reach him at leehs@koreatimes.co.kr. Your insights and feedbacks are always appreciated.
DSME has no plan to acquire STX France
By Lee Hyo-sik
Jung Sung-leep, CEO of Daewoo Shipbuilding & Marine Engineering (DSME), speaks during a press conference at DSME headquarters in downtown Seoul, Thursday. / Courtesy of DSME
By Lee Hyo-sik
Daewoo Shipbuilding & Marine Engineering (DSME) says it will not acquire STX France, a European subsidiary of struggling STX Offshore & Shipbuilding, which makes cruise ships.
Its CEO Jung Sung-leep said now is not the time to acquire the struggling company.
“I think it is too early for us to spend resources in building cruise ships,” he said during a press conference at the company headquarters in downtown Seoul. “Instead, we need to focus on our three main business sectors ― high-tech merchant vehicles, offshore plants, and submarines and other military vessels.”
He said it would take five to 10 years for cruise ships to become mainstream in Korea and other East Asian countries.
“It won’t be too late to enter the cruise ship-building business at the time,” he said.
The Korea Development Bank (KDB), which holds a 31.5 percent stake in DSME, had asked the company to look into the possibility of taking over the STX France shipyard in Saint-Nazaire, northwestern France. KDB is also the majority stakeholder of STX Offshore & Shipbuilding.
Jung said the company will make more efforts to secure orders for high-tech LNG carriers and other high value-added merchant vessels. “We aim to win orders worth $13 billion this year,” he said. “We would like to earn $6.5 billion by constructing merchant ships. We want to make $5.5 billion and $1 billion each from offshore plant construction and military vessel businesses.”
The CEO then said he will spend more money to boost its research and development capability in shipbuilding and offshore plants, as well as dispose of non-core affiliates to raise much-needed cash.
“We will keep affiliates that create synergy with our core operations but unload those making no contribution,” he said. “I would like to strengthen the firm’s ability to design ships, offshore plants and defense-related vessels. That’s the area we need to focus on the most to stay ahead of our local and foreign competitors.”
Jung said he has no plan to downsize the firm’s workforce like Hyundai Heavy did over the past year, saying that to reduce costs, he will streamline and make more efficient how the company conducts its business.
Operating losses expected
The CEO said DSME is no exception to the worldwide shipbuilding industry slump, saying it will post operating losses in the second and third quarters.
In the first quarter of the year, the shipbuilder posted a 43.3 billion won operating loss, the first loss since the third quarter of 2006.
In 2014, its operating profit rose 6.8 percent to 471.1 billion won, while Hyundai Heavy Industries reported a 3.25 trillion won operating loss, its largest. Samsung Heavy Industries saw its operating profit plunge 80 percent to 183 billion won.
Many industry analysts have raised doubts over Daewoo’s better-than-expected performance, wondering why Daewoo was able to remain in the black in 2014 when industry leader Hyundai Heavy lost so much money.
Jung said DSME will have to reflect losses from its sagging offshore plant business in its balance sheet in coming quarters, which will weigh down on its share price.
“We are facing many risks in the offshore plant construction sector,” the CEO said. “When we won the contracts, they looked profitable. But then a host of unforeseen factors made the offshore plant business less profitable. In the end, it becomes impossible to complete the project with the money we received.”