Latest issue 5 Mar 2009 of Fairplay, the International Shipping Weekly
COSCO SINGAPORE, which has controlling interest in seven mainland Chinese shipyards and operates a dozen dry bulk carriers, experienced a rapid growth of its business last year, but warns that the outlook for 2009 is challenging.
Rising costs and provision for payment delays for ship orders more than offset the increase in turnover.
Group revenue increased by 54% to S$3.48 billion on broad-based growth, with the shipyards reporting a 57% increase in revenue to S$3.2 billion and the dry bulk fleet increasing revenue by 24% to S$257 million thanks to long - term contracts that provided a buffer against a weak spot freight market since the summer.
After the good news comes the bad: costs escalated on a broad scale in shipbuilding and uncertainties over payment schedule for orders means that the company had to charge its accounts for possible losses. Consequently, net profit fell by 9% from 2007.
“In light of the adverse global economic climate, the group made provisions for impairment of trade and other receivables of S$61.3 million as the shipping industry faces deteriorating market conditions, and amid requests for payment delays by several ship owners,” the company said.
The receivables in total amounted to S$1.57 billion at the end of last year, almost twice the S$821.1 million figure at the end of 2007. The figure, which equals US$40.9 million, accounts for only 0.6% of the US$7.3 billion order book of the group’s yards at the end of the review period.
Flurry of cancellations at leading engine maker
Cosco operates a dozen dry bulk carriers.
This paints a strikingly different picture of the state of the shipbuilding industry than recent figures from Wärtsilä, the Finnish power system supplier, which warned last month that up to US$1 billion worth of orders for marine engines could be at risk of cancellation after it saw about US$400 million worth of orders cancelled in 2008.
Cosco Singapore’s provision is only roughly a tenth of the size of cancellations Wärtsilä booked in 2008.
However, some observers have noted that the bulk of cancellations of orders resulting from the current recession would not come this year but from 2010 onwards.
Cosco Singapore’s management did not say how they expect the figure to develop.
Rather, they pointed out that the order book runs up to 2012, which will keep the shipyards busy.
“Cosco Guangdong and Cosco Dalian shipyards had also begun to undertake new shipbuilding work in addition to Cosco Zhousan shipyard.
Shipbuilding costs escalated in FY08. Above: Cosco's Zhoushan yard
Cosco Nantong shipyard, which enjoys a strong surrounding marine-supporting industry, remains as the group’s premier shipyard in leading the diversification of business into offshore marine engineering,” the company said.
A significant change took place last year in the focus of activity at the group’s yards. New-buildings generated 26% of their turnover, an increase of 10% on 2007.
Conversion work’s share rose by 3% to 37%, while offshore-related business increased its slice by 4% to 16% of the yards’ combined turnover.
Ship repair, meanwhile, suffered a 17% loss in its share of the turnover to 21%.
This lends support to views of some ship owners who have pointed out that yards have been busy on the new-building side and reduced capacity allocated to repair work, which has lengthened the time of repair projects and pushed up prices.
The management said market conditions are likely to remain challenging as credit conditions tighten and global trade slows down.
“In view of the challenges in 2009, the group will continue to adopt a cautious approach in cost management while accelerating its efforts to better manage investment opportunities and risks.”
The management also stated that future capital investment would be scrutinized against the development of the economic situation: in 2008, the group’s capital expenditure on its shipyards amounted to S$661.4 million, while the figure for its ships stood at just S$3.1 million.
| Full company name: | Cosco Corporation (Singapore) Limited |
| Headquarters: | Singapore |
| Listed: | Singapore Exchange |
| Principal shareholders: | China Ocean Shipping (Company) 53.37%, Temasek Holdings 5.59% |
| Share price: | 72.5 cents on 5 Mar 2009; 52-week high $3.88, low 60.5 cents |
| Market capitalisation: | S$1.6 billion |
| Latest financial result: | 2008 net profit S$451.4 million vs S$498.1 million |
| Core businesses: | - Owns 51% of the shares in Cosco Dalian, Nantong, Zhousan, Guangzhou, Shanghai, Tianjin and Xiamen shipyards. - Has a fleet of 12 Panamax dry bulk carriers totalling 698,000dwt - Owns 70% of Costar ship agency (handles Cosco group ship calls in Singapore) |
Originally published at http://www.fairplay.co.uk, this article is reproduced here as part of a collaboration with NextInsight.
