Published February 24, 2009

Cosco profit hit by $61.3m provisions

2008 earnings fall 10%; it expects challenging conditions to remain

By VINCENT WEE

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COSCO Corp (Singapore) yesterday announced a 10 per cent fall in 2008 full-year net profit to $302.6 million, from $336.6 million in 2007.

Still going strong: Dry bulk shipping turnover rose 24 per cent to $257.4 million

However, turnover rose 54 per cent to $3.48 billion on expansion in the ship-repair, ship-building and marine engineering segment of the group's business and on stronger dry bulk shipping performance.

The higher turnover translated to just a 3 per cent rise in gross profit to $630.1 million as cost of sales surged 72 per cent to $2.85 billion, with the group citing higher operational costs.

Explaining the net profit fall, Cosco said that owing to the adverse global economic climate, it has made provisions for impairment of trade and other receivables of $61.3 million as the shipping industry faces deteriorating market conditions and requests for payment delays.

The results would have been worse if not for an 87 per cent jump in other net miscellaneous gains. These include gains from sale of scrap materials rising 85 per cent to $122.3 million, interest income from deposits more than doubling to $34.4 million from $14 million, currency exchange gains rising by nearly half to $26.7 million, and sundry income climbing by half to $20.3 million.

Basic earnings per share fell to 13.51 cents from 15.09 cents. A first-and-final dividend of four cents and a special dividend of three cents per ordinary share have been proposed.

Turnover from the main ship-repair, ship-building and marine engineering segment grew 57 per cent to $3.2 billion in FY08 buoyed by a strong ship-conversion and ship-building, and offshore marine engineering project order book. Meanwhile, dry bulk shipping turnover rose 24 per cent to $257.4 million on higher charter rates locked in on a one-plus-one year basis on charter renewal in the first half of last year.

Cosco expects market conditions to remain challenging this year as credit conditions tighten and global trade slows down due to the global economic crisis. Its contract flow and dry bulk charter rate are highly dependent on the overall pace of recovery of the global economy and restoration of international trade.

'Supported by the sound business foundation we have built up over the years, we believe that our group is well-placed to ride out the current economic slump. To strengthen our competitiveness, our group will focus on cost management while cautiously implementing our long-term growth strategies,' said vice-chairman and president Jiang Li Jun.

Cosco has an order book of US$7.3 billion for progressive delivery up to 2012, he added.

Cosco shares closed half a cent lower at 78 cents yesterday.