Published November 4, 2009

SHIPBUILDING: MIXED FORTUNES
Cosco's Q3 net profit plunges 80% to $22.3m

By VINCENT WEE
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THE shipping downturn has hit all key operations of Cosco Corp (Singapore) resulting in an 80 per cent plunge in net profit to $22.3 million for the third quarter ended Sept 30, from $113.9 million for the previous corresponding quarter. The three months saw turnover slip by nearly a quarter to $752.0 million from $987.7 million.

Adverse environment: Cosco's gross profit dropped 60% to $80.5 million, hit by lower charter rates and lower profit contributions from the ship repair, ship building and marine engineering businesses

Earnings per share fell to one cent from 5.08 cents.

Gross profit dropped 60 per cent to $80.5 million, hit by lower charter rates and lower profit contributions from the ship repair, ship building and marine engineering businesses. Cost of sales fell just 15 per cent.

Turnover from shipyard operations fell 20.7 per cent to $721.3 million as ship repair and conversion projects suffered under the adverse business environment. Cosco's dry bulk shipping business, which contributed only 4 per cent of group turnover, saw revenue dive 63.2 per cent to $26.7 million as expired long-term charters were leased on a short-term basis at new lower rates.

Q3 interest costs shot up to $11.6 million from $1.5 million while net 'other gains' dropped by half to $28.3 million due mainly to lower gain from the sale of scrap materials.

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Click here for Cosco's news release

Financial statements

For the first nine months, net profit fell 72 per cent to $92.5 million from $326.5 million for the previous corresponding period, while turnover fell 21 per cent to $2.18 billion.

'As the world turns its back on the worst of the economic recession, the road to recovery remains bumpy with little solid evidence of sustainable growth in sight yet,' said Cosco vice-chairman and president Jiang Li Jun. 'Our operating environment is expected to stay challenging for the near term as the industry struggles against the tide of stuttering global trades. Our group's outlook remains cautious for the rest of 2009.'

Despite the recent rise in the benchmark Baltic Dry Index, prospects for the shipping industry are expected to remain foggy for the near term with a strong rebound in freight rates unlikely, Cosco warned.

The group pointed out that prior long-term charters locked in at higher rates have all expired and the group is chartering out its vessels on new short-term leases at lower rates while shipbuilding also faces challenging operating conditions.

'Our group is adamant about embracing the current adversities as we strive to emerge stronger from the crisis.

'To enhance our long-term competitiveness, our group will continue to focus on expanding and upgrading our shipyard capabilities and efficiencies as we keep a tight lid on costs in the face of high material and operational costs and low profit margins,' Mr Jiang added.

Cosco has an order book of US$6.3 billion as at Sept 30 with progressive delivery up to 2012. However, this order book is subject to revision from any cancellation of orders or new orders that may arise, the group said. Cosco has seen several cancellations and delivery reschedulings in recent months.

Due to the uncertain global economic environment, Cosco expects earnings for the whole of FY2009 to be substantially lower than last year.