Cosco Corp Singapore posts 32% drop in earnings, sees hard times ahead

SINGAPORE - Cosco Corp (Singapore ) reported a 32 per cent drop in net earnings to $20.9 million.

This was despite revenue for the year to Dec 31 rising by 21 per cent to $4.26 billion, supported by increase in shipyard revenue.

Turnover from shipyard operations increased 21.9 per cent to $4.2 billion on growth in revenue from marine engineering and ship building segments.

The group delivered eight bulk carriers, two livestock carriers, two tender barges, two pipelay heavy lift vessels, one platform supply vessel, one wind turbine installation vessel, one tender rig, one jack-up rig, one launch barge and one stinger barge during the year.

Turnover from dry bulk shipping and other businesses eased by 5.6 per cent to $52.5 million on decreased charter rates.

Gross profit shrank by 9.4 per cent to $291 million, mainly due to a one-off inventory write-down related to a discontinued Octabuoy hull and topside module project with a customer, ATP Oil and Gas (UK), which went under company voluntary arrangement in Britain.

Interest expense rose by 15.2 per cent to $127.7 million due to higher bank borrowings deployed to fund shipyard operations.

Earnings per share fell to 0.93 cent from 1.37 cents previously while net asset value per share firmed by 1.43 cents to 61.08 cents.

In a sober assessment, Cosco Singapore vice chairman and president Wu Zi Heng said the group maintains a cautious outlook for 2015, given that the global offshore market has slowed down significantly.

"Many oil majors have started to cut expenditure leading to fewer orders for deep water rigs. In addition, a number of offshore rigs and supply vessels delivered in past months have not secured contracts for lease yet," he noted.

"Under such challenging circumstances, new orders have declined."

As at Dec 31, the group's order book stood at US$8.4 billion, with progressive deliveries up to 2017.

However, this is subject to revision from any new or cancellation of orders that may arise.

New orders received last year included nine bulk carriers, eight platform supply vessels, four support vessels, four subsea supply vessels and three livestock carriers.

As it continues construction this year on new ship building contracts that were secured in recent years at low contract values due to the slumping shipping market then, Cosco expects operating margins on these new shipbuilding projects to continue to come under great pressure notwithstanding improving gains in efficiency and productivity.

The company proposed a final dividend of half a cent, down from one cent last year.