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Financial Information : Financials

First Quarter Results Financial Statement And Related Announcement

Financials Archive

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Unaudited First Quarter Financial Statement Announcement for the Financial Period Ended 31 March 2017

Income Statement

Consolidated Statement of Comprehensive Income

Review of Performance

Overview

The Group recorded net loss attributable to equity holders of $78.9 million on turnover of $401.8 million in Q1 2017. Group turnover decreased 44.4% to $401.8 million in Q1 2017 from $722.3 million in Q1 2016 owing to a decrease in shipyard revenue.

Turnover

In Q1 2017, turnover from shipyard operations decreased by 45.2% to $392.6 million from $716.6 million in Q1 2016, owing to lower revenue contribution from ship repair, ship building and marine engineering.

The Group delivered 7 projects in Q1 2017. Of these, COSCO Zhoushan shipyard delivered 1 shuttle tanker; COSCO Nantong shipyard delivered 1 floating, production, storage and offloading (FPSO) vessel; COSCO Dalian shipyard delivered 2 bulk carriers, 1 oil tanker, 1 module carrier and 1 salvage lifting vessel.

Turnover from dry bulk shipping and other businesses increased 63.2% from $5.7 million in Q1 2016 to $9.2 million in Q1 2017 as the current short-term charter rates were higher than those received in Q1 2016. The Group scrapped four of its bulk carriers one in October 2016, two in February 2017 and one in March 2017 respectively.

The BDI started the year 2017 at 953 points and ended Q1 2017 higher at 1,297 points. The BDI averaged 945 points for Q1 2017, which is a 164.0% increase from the average of Q1 2016 of 358 points.

Shipyard business remained the biggest revenue contributor, making up 97.7% of Group turnover in Q1 2017.

Profitability

Gross loss for Q1 2017 was $57.8 million as compared to gross profit of $89.3 million in Q1 2016 due to losses from shipyard and shipping operations. Shipyard operations recorded lower revenue and incurred inventory write-downs of $21.2 million (Q1 2016: reversal of inventory write-down of $1.2 million) and allowance for expected losses recognised on construction contracts of $70.6 million (Q1 2016: $3.3 million).

Other income comprised gain from the disposal of scrap metal, interest income and others. Compared to Q1 2016, other income increased 12.6% to $15.5 million in Q1 2017 mainly due to higher government grants and rental income.

Other gains and losses for Q1 2017 were losses of $8.6 million (Q1 2016: $0.8 million losses) mainly due to an exchange loss of $3.7 million (Q1 2016: $0.1 million loss) and loss on disposal of property, plant and equipment of $5.0 million (Q1 2016: $0.01 million gain).

Administrative expenses decreased by 42.5% to $20.2 million in Q1 2017 mainly due to the net reversal of impairment of trade and other receivables of $11.1 million (Q1 2016: $0.7 million), mainly for customers in the offshore marine engineering segment.

Interest expense increased by 7.5% to $64.1 million in Q1 2017 due to high bank borrowings to fund shipyard operations.

Overall, the Group recorded net loss attributable to equity holders of the Company of $78.9 million in Q1 2017 compared to net loss of $14.4 million in Q1 2016 mainly due to losses in shipyard and shipping operations.

Balance Sheet
(31 March 2017 vs 31 December 2016)

Cash and cash equivalents increased from $1.5 billion to $1.7 billion mainly due to cash provided by operating activities, partially offset by repayment of bank borrowings.

Trade and other receivables decreased $957.8 million to $3.7 billion mainly due to lower construction contracts due from customers in the marine engineering segment (from $3.8 billion to $2.8 billion).

Trade and other payables remained unchanged at $2.1 billion.

Total borrowings decreased by $342.0 million to $7.0 billion due to lower funding procured to finance shipyard operations.

Shareholder's equity decreased by $84.0 million mainly due to the losses incurred in Q1 2017 and a decrease in currency translation reserve.

Cash Flow

Net cash provided by operating activities for the quarter was $370.2 million compared to net cash used in operating activities of $184.3 million for the corresponding quarter last year.

Net cash provided by investing activities for the quarter was $17.7 million. This comprised principally the interest received and proceeds from the disposal of fixed assets during the quarter.

Net cash used in financing activities was $193.5 million. This was due mainly to net repayments of bank borrowings and interests paid during the quarter.

Commentary

As at 31 March 2017, the Group's gross order book stood at approximately US$5.8 billion with progressive deliveries up to 2020. These include modules of drillship and FPSO contracts for certain Brazilian customers which amount to approximately US$951 million. The Group's gross order book of US$5.8 billion includes several offshore marine engineering projects which have been substantially completed in construction but are yet to be delivered due to customers' requests for extension of delivery.

This order book continues to be subject to revision from any new, cancellation, variation or scheduling of orders that may arise. New orders received in Q1 2017 include 3 container vessels, 1 windfarm support unit and 1 offshore heavy lift project.

These orders were secured at low contract values due to the weak global economy and depressed shipbuilding and offshore markets, and the Group expects operating margins on new ship building and offshore contracts to continue facing severe downward pressure as these conditions continue to prevail.

In offshore marine engineering operations, the Group is one of the largest marine engineering groups in the People's Republic of China. Its order book in this segment covers a wide product range that includes, semi-submersible accommodation rig and vessel, Sevan 650 drilling unit, semi submersible tender assist drilling rig, jack-up rig, platform supply vessel, emergency response/rescue/field support vessel, DP3 accommodation barge, subsea supply vessel, cargo transfer vessel, modules of drillship, offshore heavy lift vessel and wind farm support unit.

The Group expects competition to remain keen even as crude oil prices continue to remain low and global economic conditions remain generally weak.

The Baltic Dry Index (BDI) averaged 945 points in Q1 2017, an increase of 164.0% from the average of 358 points in Q1 2016.

Currently, the Group's dry bulk shipping fleet comprises Panamax ,Supermax and Handymax carriers.

The world dry bulk shipping market is still seeing excess tonnage and overall weak macroeconomic conditions. In Q1 2017 as comparison to same period last year, there has been some recovery, but such recovery was made from a very low base and the BDI remains at a relatively low level. Given these prevailing market conditions, any recovery in the dry bulk shipping segment will remain weak. Under such difficult market conditions and considering that the upkeep costs of the Group's dry bulk fleet will continue to increase, the Group scrapped four of its bulk carriers one in October 2016, two in February 2017 and one in March 2017 respectively.

As the world shipping market continues to face tonnage over-capacity pressures, new ship building orders have fallen to a very low level in 2016. The ship building segment will thus continue to be highly challenging in 2017.

The Group's offshore marine segment has been adversely affected by the low crude oil prices over the past few years. Even though crude oil prices have improved from multi-year lows with Brent Crude Oil prices in Q1 2017 averaging US$55 per barrel, an increase of 57.1% from the average of US$35 for Q1 2016, the market remains highly challenging.

Many oil majors have cut expenditure leading to very few orders for rigs and support vessels. The average utilization rate of jack-up rigs, semi-sub rigs, drill ships and support vessels have continued their decline in the past year.

Amidst continuing weakness in the state of the global economy, challenging market conditions and depressed crude oil prices, more of the Group's customers may be unable to meet their contractual payment obligations to the Group, either in a timely manner or at all, or may otherwise default on these obligations. Moreover, any tightening of the availability and cost of credit in a market that is already under considerable stress could also adversely affect the ability of customers to meet their financial obligations. These will adversely impact the Group's financial position.

Any adverse volatility in currency movements, rise in wages, prices of raw materials required for production as well as higher financing costs may exert even greater downward pressure on the operating margins of the Group's shipyard operations.

Against the backdrop of such difficult conditions, the Group recorded a net loss attributable to equity holders of $78.9 million for Q1 2017.

Overall, the Group expects that these difficult and challenging business and operating conditions to persist and may even worsen. As such, 2017 will remain challenging for the Group.

In December 2016, the Company made an announcement that it has been informed by its parent company that: The China COSCO Shipping Corporation group will be restructuring its shipyard businesses. The objective of the shipyard business restructuring is to centralize operations and management of the shipyard businesses of the China COSCO Shipping Corporation group. On 5 May 2017, the Company entered into a conditional sale and purchase agreement with COSCO Shipping Heavy Industry Co., Ltd. in relation to the proposed disposal by the Company of its (a) 51% equity interest in COSCO Shipyard Group Co., Ltd.; (b) 50% equity interest in COSCO (Nantong) Shipyard Co., Ltd.; and (c) 39.1% equity interest in COSCO (Dalian) Shipyard Co., Ltd.. The Company intends to use the sale proceeds from the Proposed Disposal to fund future projects, which may include mergers and acquisitions, and for working capital requirements of the Group. In this regard, the Company's management has commenced and is actively reviewing potential investment opportunities and the Company will provide updates as necessary at the appropriate time.

Balance Sheet