Cosco Group posts first half results
The Group achieved net profit attributable to equity holders of $37.0 million on turnover of $718.5 million in Q2 2009 despite another challenging quarter for the industry. For 1H 2009, Group net profit attributable to equity holders amounted to $70.2 million on turnover of $1.4 billion. Turnover
Group turnover declined 31% to $718.5 million in Q2 2009 from $1.0 billion in Q2 2008 mainly due to less revenue recognized from ship repair, ship building and marine engineering projects and lower dry bulk shipping revenue.
Ship repair, ship building and marine engineering operations fell 30.4% to $681.3 million in Q2 2009 on lower revenue from ship repair and conversion projects due to the global economic downturn.
Turnover from dry bulk shipping business decreased 45.2% to $33.5 million in Q2 2009 on lower charter-hire rates compared to Q2 2008. The Baltic Dry Index (BDI), a measure of shipping costs for commodities, rebounded partially from 1,574 points as at 1 April 2009 to 4,291 points on 3 June 2009, hitting its highest level since 29 September 2008, before retreating to 3,757 points on 30 June 2009. In comparison, the BDI was hovering at a relatively high level of around 8,000 points in Q2 2008 with a record high of 11,793 points on 20 May 2008.
Ship repair, ship building and marine engineering business remained the largest revenue contributor, representing 94.8% of Group turnover in Q2 2009. Dry bulk shipping and shipping agency and others accounted for the remaining 5.2%
For 1H 2009, Group turnover fell 18.8% to $1.4 billion from $1.8 billion in 1H 2008 on declines in revenues from shipping, ship repair, shipbuilding and marine engineering owing to the global economic downturn.
Profitability
Gross profit fell 67.7% from $245.4 million in Q2 2008 to $79.3 million in Q2 2009 due to the lower dry bulk shipping charter rates and lower profit contributions from ship repair, ship building and marine engineering business led by higher operational costs and a difficult business environment.
Other gains comprised gain from the disposal of scrap metal, interest income, currency exchange gain and net fair value gain on forward currency contracts. Other gains fell 33.0% to $41.8 million in Q2 2009 mainly due to the lower sales value of scrap materials led by a 40% plunge in steel market prices from those of Q2 2008.
Distribution and administrative costs fell in line with lower turnover. The reversal of impairment of trade and other receivables of $25.9 million also led to the decrease in administrative costs. Interest expense increased $10.3 million to $11.9 million in Q2 2009 due to the additional bank borrowings to fund shipyard expansion.
Income tax expense decreased due to the lower profits for some of the Company's subsidiaries in the People's Republic of China ("PRC"). Effective tax rate increased from 10.2% in Q2 2008 to 22.9% in Q2 2009 due to lower tax-exempt shipping profits and higher tax rates for certain subsidiaries in the PRC.
Minority interests decreased due to lower contributions from the Group's PRC subsidiaries involved in ship repair, ship building and marine engineering operations.
Overall, net profit attributable to equity holders of the Company decreased 71.2% from $128.7 million in Q2 2008 to $37.0 million in Q2 2009 due to lower profit contributions from dry bulk shipping and ship repair, ship building and marine engineering operations. Compared to 1H 2008, net profit attributable to equity holders of the Company fell 67.0% from $212.6 million to $70.2 million in 1H 2009.
Balance Sheet and Cash Flow
(30 June 2009 vs. 31 December 2008)
Cash and cash equivalents remained almost unchanged at $1.9 billion as compared to the balance as at 31 December 2008.
The increase in trade and other receivables from $1.6 billion to $1.7 billion was mainly due to increase in advances paid to suppliers (from $743.1 million to $894.4 million).
Property, plant & equipment increased from $2.1 billion to $ 2.2 billion as a result of ongoing facilities expansion of the major shipyards in COSCO Shipyard Group Co., Ltd ("CSG").
The decrease in trade and other payables from $4.4 billion to $4.1 billion was mainly due to the decrease in advances from customers (from $2.8 billion to $2.4 billion).
Total borrowings increased from $656.6 million to $1.2 billion due to additional funding procured for the ongoing expansion of the Group's major shipyards.
Shareholder's equity remained almost unchanged at $1.1 billion as at 30 June 2009 after the payment of dividends in May 2009.
Commentary
The Group maintains a cautious outlook for the rest of 2009. While taking some comfort from signs of slight improvement in the global economic outlook in recent months, the Group expects overall operating conditions to continue to be challenging amidst the ongoing uncertainties. The Group believes that confidence will not be restored until clearer and more concrete evidence of real recovery from the current economic doldrums.
The IMF (International Monetary Fund) has just revised down its global GDP forecast for 2009 and upgraded its outlook for 2010. The world economy is expected to contract 1.4% in 2009 instead of the 1.3% decline predicted in April and this would be the deepest recession in more than 60 years. The IMF now foresees a 2.5% rebound in global growth in 2010, which is up from a 1.9% growth estimate in April 2009, as signs are emerging that the rate of output decline has moderated after two quarters of unprecedented global economic contraction that carried through this year's first quarter.
The Group expects its dry bulk shipping performance to continue to be adversely affected by the relatively weak BDI as the global economy stumbles on its road to recovery. Due to lagging effect, the Group's ship building order flow and ship repair and conversion business volume are expected to remain subdued until any pickup in global trade and economic activities takes hold. Meanwhile, the Group will continue to increase efficiency while strengthening control on expenses in face of the high material and operational costs and low profit margin.
The Group has an order book of US$6.8 billion as of 30 June 2009 with progressive delivery up to first half of 2012 which will keep the Group's shipyards busy. This order book is subject to revision from any cancellation of orders or new orders that may arise. The Group has announced on 15 July 2009 the cancellation of eight 57,000 dwt bulk carriers and the total value of the cancelled orders is US$ 298.7 million.
To ensure that it is ready to take advantage of the demand recovery when the economic uptick does happen, the Group will continue to focus on expanding its shipyard capabilities and efficiencies, while monitoring the rapidly evolving operating environment closely.
Due to the uncertain global economic environment, the Group expects earnings for FY2009 to be substantially lower than FY2008.
Group turnover declined 31% to $718.5 million in Q2 2009 from $1.0 billion in Q2 2008 mainly due to less revenue recognized from ship repair, ship building and marine engineering projects and lower dry bulk shipping revenue.
Ship repair, ship building and marine engineering operations fell 30.4% to $681.3 million in Q2 2009 on lower revenue from ship repair and conversion projects due to the global economic downturn.
Turnover from dry bulk shipping business decreased 45.2% to $33.5 million in Q2 2009 on lower charter-hire rates compared to Q2 2008. The Baltic Dry Index (BDI), a measure of shipping costs for commodities, rebounded partially from 1,574 points as at 1 April 2009 to 4,291 points on 3 June 2009, hitting its highest level since 29 September 2008, before retreating to 3,757 points on 30 June 2009. In comparison, the BDI was hovering at a relatively high level of around 8,000 points in Q2 2008 with a record high of 11,793 points on 20 May 2008.
Ship repair, ship building and marine engineering business remained the largest revenue contributor, representing 94.8% of Group turnover in Q2 2009. Dry bulk shipping and shipping agency and others accounted for the remaining 5.2%
For 1H 2009, Group turnover fell 18.8% to $1.4 billion from $1.8 billion in 1H 2008 on declines in revenues from shipping, ship repair, shipbuilding and marine engineering owing to the global economic downturn.
Profitability
Gross profit fell 67.7% from $245.4 million in Q2 2008 to $79.3 million in Q2 2009 due to the lower dry bulk shipping charter rates and lower profit contributions from ship repair, ship building and marine engineering business led by higher operational costs and a difficult business environment.
Other gains comprised gain from the disposal of scrap metal, interest income, currency exchange gain and net fair value gain on forward currency contracts. Other gains fell 33.0% to $41.8 million in Q2 2009 mainly due to the lower sales value of scrap materials led by a 40% plunge in steel market prices from those of Q2 2008.
Distribution and administrative costs fell in line with lower turnover. The reversal of impairment of trade and other receivables of $25.9 million also led to the decrease in administrative costs. Interest expense increased $10.3 million to $11.9 million in Q2 2009 due to the additional bank borrowings to fund shipyard expansion.
Income tax expense decreased due to the lower profits for some of the Company's subsidiaries in the People's Republic of China ("PRC"). Effective tax rate increased from 10.2% in Q2 2008 to 22.9% in Q2 2009 due to lower tax-exempt shipping profits and higher tax rates for certain subsidiaries in the PRC.
Minority interests decreased due to lower contributions from the Group's PRC subsidiaries involved in ship repair, ship building and marine engineering operations.
Overall, net profit attributable to equity holders of the Company decreased 71.2% from $128.7 million in Q2 2008 to $37.0 million in Q2 2009 due to lower profit contributions from dry bulk shipping and ship repair, ship building and marine engineering operations. Compared to 1H 2008, net profit attributable to equity holders of the Company fell 67.0% from $212.6 million to $70.2 million in 1H 2009.
Balance Sheet and Cash Flow
(30 June 2009 vs. 31 December 2008)
Cash and cash equivalents remained almost unchanged at $1.9 billion as compared to the balance as at 31 December 2008.
The increase in trade and other receivables from $1.6 billion to $1.7 billion was mainly due to increase in advances paid to suppliers (from $743.1 million to $894.4 million).
Property, plant & equipment increased from $2.1 billion to $ 2.2 billion as a result of ongoing facilities expansion of the major shipyards in COSCO Shipyard Group Co., Ltd ("CSG").
The decrease in trade and other payables from $4.4 billion to $4.1 billion was mainly due to the decrease in advances from customers (from $2.8 billion to $2.4 billion).
Total borrowings increased from $656.6 million to $1.2 billion due to additional funding procured for the ongoing expansion of the Group's major shipyards.
Shareholder's equity remained almost unchanged at $1.1 billion as at 30 June 2009 after the payment of dividends in May 2009.
Commentary
The Group maintains a cautious outlook for the rest of 2009. While taking some comfort from signs of slight improvement in the global economic outlook in recent months, the Group expects overall operating conditions to continue to be challenging amidst the ongoing uncertainties. The Group believes that confidence will not be restored until clearer and more concrete evidence of real recovery from the current economic doldrums.
The IMF (International Monetary Fund) has just revised down its global GDP forecast for 2009 and upgraded its outlook for 2010. The world economy is expected to contract 1.4% in 2009 instead of the 1.3% decline predicted in April and this would be the deepest recession in more than 60 years. The IMF now foresees a 2.5% rebound in global growth in 2010, which is up from a 1.9% growth estimate in April 2009, as signs are emerging that the rate of output decline has moderated after two quarters of unprecedented global economic contraction that carried through this year's first quarter.
The Group expects its dry bulk shipping performance to continue to be adversely affected by the relatively weak BDI as the global economy stumbles on its road to recovery. Due to lagging effect, the Group's ship building order flow and ship repair and conversion business volume are expected to remain subdued until any pickup in global trade and economic activities takes hold. Meanwhile, the Group will continue to increase efficiency while strengthening control on expenses in face of the high material and operational costs and low profit margin.
The Group has an order book of US$6.8 billion as of 30 June 2009 with progressive delivery up to first half of 2012 which will keep the Group's shipyards busy. This order book is subject to revision from any cancellation of orders or new orders that may arise. The Group has announced on 15 July 2009 the cancellation of eight 57,000 dwt bulk carriers and the total value of the cancelled orders is US$ 298.7 million.
To ensure that it is ready to take advantage of the demand recovery when the economic uptick does happen, the Group will continue to focus on expanding its shipyard capabilities and efficiencies, while monitoring the rapidly evolving operating environment closely.
Due to the uncertain global economic environment, the Group expects earnings for FY2009 to be substantially lower than FY2008.
