Shipyard Giant CEO Exits -- WSJ

Shares of Samsung Heavy fell 29% last week after company issued profit warning

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 12, 2017).

Samsung Heavy Industries Co., the world's third-biggest shipyard by capacity, replaced its chief executive on Monday after having warned last week of heavy losses that wiped away nearly a third of its market value.

The South Korean company's president and CEO, Park Dae-young, resigned and took responsibility for widely missing targets for sales and the trimming of jobs. Its order book has slumped to roughly $20 billion this year, from $45 billion in 2013.

Samsung Heavy shares fell 29% last week after the company said it expected an operating loss of 490 billion won ($450 million) this year and a loss of 240 billion won in 2018. Analysts were expecting a profit of 90 billion won for 2017. Its shares fell 1.31% Monday.

The company also said it needs to raise 1.5 trillion won in new shares, after issuing 1.1 trillion won in new paper last year, further diluting the value of its existing shares. Tech giant Samsung Electronics Co. is Samsung Heavy's biggest holder, with a 16.9% stake.

A 40-year veteran of Samsung Heavy, Mr. Park has been replaced by another longtime employee, Joonou Nam. He will be under pressure to distance the shipyard from the struggling offshore-drilling industry as it attempts to compete with Hyundai Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering, local rivals who are the two biggest shipyards in the world, and other yards in China and Singapore.

"Park fell on his sword, having failed to diversify Samsung Heavy from offshore projects and cut costs," said George Lazaridis, research head at Athens-based Allied Shipbroking. "The offshore market has substantially shrunk, with new orders going to yards in Singapore that have lower labor costs, by employing workers from across Southeast Asia."

In past years, Samsung Heavy relied on offshore projects for about two-thirds of its sales, with the remainder coming from high-end ships, such as natural-gas tankers.

Its expected losses for this year and next are due to weak order demand, expected losses from some contracts and higher material costs, the company said. "We expect the situation to improve in 2019," it added.

Samsung Heavy has 3.3 trillion won of debt maturing within the next 12 months, compared with 451 billion won in cash, according to its latest earnings report. State-run Korea Development Bank is its main creditor.

Shipyards across the world are suffering from a decadelong down cycle, marred by an overcapacity of ships in the water. Hyundai Heavy split into four companies earlier this year in a painful restructuring exercise, and Daewoo Shipbuilding has received $6.5 billion in state bailouts since 2015 to stay afloat.

Write to Costas Paris at costas.paris@wsj.com

(END) Dow Jones Newswires

December 12, 2017 02:47 ET (07:47 GMT)