European customer also pushes back next year's delivery of 2 vessels
By NISHA RAMCHANDANI
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IN a sign that the marine industry is still in choppy waters, Cosco Corporation has been hit by the cancellation of an order for one vessel and rescheduled deliveries for two others, on top of posting lower first quarter profits year-on-year for FY2009.
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| Stacked against the odds: The group expects FY09 earnings to be 'substantially lower' than FY08 |
Cosco (Zhoushan) Shipyard Co - a subsidiary of the company's 51 per cent owned subsidiary, Cosco Shipyard Group - has received requests from a European shipowner relating to the shipbuilding contracts for four bulk carrier vessels of 57,000 deadweight tonnes each.
The order for one of the vessels has been cancelled and the client has pushed delivery dates for two other vessels to June and September 2010, instead of March and May 2010.
As part of the agreement, the shipowner has paid compensation to Cosco Zhoushan for the cancelled vessel, for which construction had yet to begin.
For the first quarter ended March 31, net profit plummeted 60 per cent year-on-year to $33.15 million, from $83.88 million previously.
Gross profit took a tumble from $200.6 million in Q108 to $116.9 million in Q109 on the back of lower charter rates for dry bulk shipping and the lower profit contributions from the shiprepair, shipbuilding and marine engineering business.
Turnover was virtually flat at $714.41 million, versus $717.65 million previously, on the back of a decline in dry bulk shipping revenue. Earnings per share came to 1.48 cents, down from 3.75 cents previously.
Cash and cash equivalent increased from $1.9 billion as at Dec 31, 2008 to $2.1 billion as at March 31, 2009, as a result of more bank borrowings for the expansion of the shipyard facilities.
The group had an order book of US$7 billion as of March 31, with progressive delivery up to the first half of 2012.
'We expect our dry bulk shipping performance to continue to feel the negative impact of the deteriorating Baltic Dry Index (BDI) which is showing little sign of recovery,' said Jiang Li Jun, vice-chairman and president.
The BDI - a measure of shipping costs for commodities - stood at 1,615 points on March 31, 2009, rebounding from a low of 773 points on Jan 1 this year but significantly lower than the 8,000 points reached in Q108.
Shipbuilding profit margins are also likely to remain depressed, given high material and operational costs.
'The lower global trade and economic activities have also taken a toll on our shiprepair and conversion business as our group braces for more subdued business volume due to the economic downturn,' Mr Jiang added.
The group plans to enhance operational efficiencies and expand its shipyard capabilities to position itself for long-term growth. It expects earnings for FY2009 to be 'substantially lower' than FY2008, due to the uncertain global economic environment.
Cosco gained three cents to close at $1.23 yesterday.
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