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Financial Information : Financials

Second Quarter Results Financial Statement And Related Announcement

Financials Archive

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Unaudited Second Quarter Financial Statement Announcement for the Financial Period Ended 30 June 2017

Income Statement

Consolidated Statement of Comprehensive Income

Review of Performance

Q2 2017

The Group recorded net loss attributable to equity holders of $20.8 million on turnover of $524.7 million in Q2 2017.

Group turnover decreased by 31.2% to $524.7 million in Q2 2017, from $762.9 million in Q2 2016 owing to decrease in shipyard revenue.

Turnover from shipyard operations decreased by 31.6% to $516.1 million in Q2 2017 from $754.6 million in Q2 2016 mainly owing to lower revenue contribution from ship repair, ship building and marine engineering.

The Group delivered 3 projects in Q2 2017. COSCO Zhoushan shipyard and COSCO Dalian shipyard delivered 1 bulk carrier each and COSCO Guangdong shipyard delivered 1 emergency, response and rescue vessel.

Turnover from dry bulk shipping and other businesses increased by 4.7% from $8.3 million in Q2 2016 to $8.7 million in Q2 2017 as the current short-term rates were higher than the charter rates secured in Q2 2016.

The Baltic Dry Index (BDI), which is a measure of shipping costs for commodities, started Q2 2017 at 1,282 points and ended the quarter at 901 points. In Q2 2017, the BDI averaged 1,006 points which is a 64.4% increase from the average of Q2 2016 of 612 points. The Baltic Exchange Handysize Index (BHSI) averaged 497 points in Q2 2017, an increase of 49.2% from the average of 333 points in Q2 2016. Currently, the Group's dry bulk shipping fleet comprises 4 Handymax carriers.

Shipyard business remained the biggest revenue contributor, forming 98.3% of Group turnover in Q2 2017. Gross profit increased 80.2% from $11.5 million in Q2 2016 to $20.8 million in Q2 2017 due to higher contributions from shipyard and shipping operations.

Other income comprised gain from the disposal of scrap metal, interest income and others. Compared to Q2 2016, other income increased by 21.4% to $17.9 million in Q2 2017 mainly due to higher interest and rental income.

Administrative expenses decreased by 93.2% to $0.9 million mainly due to net reversal of impairment of trade and other receivables of $32.4 million (Q2 2016: $15.3 million).

Overall, the Group recorded net loss attributable to equity holders of the Company of $20.8 million in Q2 2017 compared to net loss of $36.8 million in Q2 2016 due to losses in shipyard and shipping operations.

1H 2017

The Group recorded net loss attributable to equity holders of $99.7 million on turnover of $926.6 million in 1H 2017. Group turnover decreased by 37.6% to $ 926.6 million in 1H 2017 from $1.5 billion in 1H 2016 owing to decrease in shipyard revenue.

Turnover from shipyard operations decreased by 38.2% to $908.6 million in 1H 2017 from $1.5 billion in 1H 2016, mainly owing to lower revenue contribution from ship repair, ship building and marine engineering.

The Group delivered 10 projects in 1H 2017. COSCO Zhoushan shipyard delivered 1 bulk carrier and 1 shuttle tanker; COSCO Guangdong shipyard delivered 1 emergency, response and rescue vessel; COSCO Dalian shipyard delivered 3 bulk carriers, 1 oil tanker, 1 module carriers and 1 salvage lifting vessel and COSCO Nantong shipyard delivered 1 floating, production, storage and offloading (FPSO) vessel.

Turnover from dry bulk shipping and other businesses increased by 28.5 % from $14.0 million in 1H 2016 to $17.9 million in 1H 2017.

The BDI started the year 2017 at 953 points and ended 1H 2017 at 901 points. The BDI averaged 975 points for 1H 2017, which was a 100.6% increase from the average of 1H 2016 of 486 points. While there has been some recovery in BDI in 1H 2017 as compared to the same period in 2016, such recovery was made from a very low base and the BDI remains weak at a relatively low level as the world dry bulk shipping market is still seeing excess tonnage and overall weak macroeconomic conditions. Under such difficult market conditions, the Group has scrapped 6 dry bulk carriers by the end of June 2017. Currently, the Group's dry bulk shipping fleet comprises 4 Handymax carriers.

Shipyard business remained the biggest revenue contributor, forming 98.1% of Group turnover in 1H 2017. Gross loss for 1H 2017 was $37.1 million, compared to gross profit of $100.8 million in 1H 2016 due to losses from shipyard operations.

Compared to 1H 2016, other income increased by 17.1% to $33.4 million in 1H 2017 mainly due to higher interest and rental income.

Administrative expenses decreased by 56.3% to $21.0 million mainly due to net reversal of impairment of trade and other receivables of $43.5 million (1H 2016: $16.0 million).

Interest expense increased by 4.5% to $117.3 million in 1H 2017 due to high bank borrowings used to fund shipyard operations. Overall, the Group recorded net loss attributable to equity holders of the Company of $99.7 million in 1H 2017 compared to net loss of $51.2 million in 1H 2016 due to losses in shipyard and shipping operations.

The loss is mainly attributable to unfavourable market conditions: (a) the offshore marine industry remains weak due to low crude oil prices that have prevailed over the past few years and from which recovery remains uncertain; (b) the ship building industry continues to face over-capacity amidst a weak global economy. Under these conditions, the Group's shipyards have had to contend with fewer orders and lower prices; and (c) subdued global economic conditions and excess tonnage in the world dry bulk shipping market have led to shipping rates remaining weak at relatively low levels for the Group's dry bulk fleet.

Balance Sheet
(30 June 2017 vs 31 December 2016)

Cash and cash equivalents decreased from $1.5 billion to $1.4 billion mainly due to lower bank borrowings to fund shipyard operations.

Trade and other receivables decreased $938.7 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 almost unchanged at $2.1 billion.

Total borrowings decreased by $743.1 million to $6.6 billion due to repayment of bank borrowings.

Capital and reserves attributable to equity holders of the Company decreased by $104.2 million mainly due to the losses incurred in 1H 2017 and a decrease in currency translation reserve.

Cash Flow

Net cash provided by operating activities for the quarter was $43.1 million compared to net cash used in operating activities of $103.5 million.

Net cash provided by investing activities for the quarter was $11.1 million. This comprised principally the interest received and proceeds from the disposal of assets during the quarter.

Net cash used in financing activities was $370.6 million. This was mainly due to net repayments of bank borrowings and interest paid during the quarter.

Commentary

As at 30 June 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$951Million.

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 Q2 2017 include 1 FRSU module, and 3 container vessels. These orders were secured at low contract values due to the weak global economy and depressed ship building and offshore markets. The Group expects operating margins on new ship building and offshore contracts to continue to be subject to severe downward pressure as these conditions continue to prevail.

The world dry bulk shipping market is still seeing excess tonnage and overall weak macroeconomic conditions. In Q2 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. The Baltic Dry Index (BDI) averaged 1006 points in Q2 2017, an increase of 64.38% from the average of 612 points in Q2 2016. 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 has scrapped six dry bulk carriers by the end of June 2017.

As the world shipping market continues to face tonnage over-capacity pressures, the level of new ship building orders continues to remain very low. 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 somewhat from multi-year lows with Brent Crude Oil prices in Q2 2017 averaging US$50.79 per barrel, an increase of 8% from the average of US$47.03 for Q2 2016, the market remains highly challenging.

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 has been under prolonged 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 $20.8 million for Q2 2017.

Overall, the Group expects these difficult and challenging business and operating conditions to persist and does not exclude the possibility that conditions may even worsen. As such, 2017 will remain challenging for the 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. In the meantime, the Company will be convening an extraordinary general meeting on 30 August 2017 to seek shareholders' approval for the proposed disposal, and has on 2 August 2017 despatched a circular to shareholders containing information in relation to the same.

On 4 August 2017, the Company announced that it had entered into a non-binding Memorandum of Understanding with COSCO SHIPPING (South East Asia) Pte Ltd in relation to the proposed acquisition of approximately 40% of the issued shares of the issued and paid-up share capital of PT. Ocean Global Shipping (a company incorporated in Indonesia) by the Company (the "Proposed Acquisition"). PT. Ocean Global Shipping's businesses include logistic service, container canvassing and management, ship agency and chartering and bunkering. The purchase consideration for the Proposed Acquisition shall be determined after further negotiations between the parties taking into account, inter alia, the result of a valuation to be conducted by an independent valuer. The Company will make further announcements in the event that the definitive agreement for the Proposed Acquisition is signed, and when there are material developments in respect of the Proposed Acquisition.

Balance Sheet