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Financial Information : Financials

Full Year Results Financial Statement And Related Announcement

Financials Archive

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Unaudited Full Year Financial Statement and Dividend Announcement for the Financial Year Ended 31 December 2016

Income Statement

Consolidated Statement of Comprehensive Income

Review of Performance

Q4 2016

The Group recorded net loss attributable to equity holders of $313.0 million on turnover of $409.8 million in Q4 2016.

Group turnover decreased by 43.5% to $409.8 million in Q4 2016 from $725.5 million in Q4 2015 owing to decrease in shipyard and shipping revenue.

Turnover from shipyard operations decreased by 44.0% to $400.9 million in Q4 2016 from $716.3 million in Q4 2015, mainly owing to lower revenue contribution from ship repair, shipbuilding and marine engineering. The Group delivered 1 cargo and training ship and 1 module carrier from COSCO Dalian shipyard in Q4 2016.

Turnover from dry bulk shipping and other businesses decreased by 3.3% from $9.2 million in Q4 2015 to $8.9 million in Q4 2016. The Group has scrapped one of its bulk carrier in October 2016. The BDI averaged 994 points for Q4 FY 2016, which was a 55.5% increase from the average of Q4 2015 of 640 points.

Shipyard business remained the biggest revenue contributor, forming 97.8% of Group turnover in Q4 2016.

Gross loss for Q4 2016 was $467.5 million, compared to gross loss of $336.1 million in Q4 2015 due to losses from shipyard operations, which recorded lower revenue and incurred inventory write-downs of $276.4 million in Q4 2016 (Q4 2015: $289.0 million).

Compared to Q4 2015, other income increased by 83.1% to $40.2 million in Q4 2016 mainly due to higher sales value of scrap materials, interest income and government grants.

Administrative expenses for Q4 2016 is a net credit of $9.3 million as compared to an expense of $340.3 million in Q4 2015 mainly due to the net reversal for impairment of trade and other receivables of $65.4 million in Q4 2016 as compared to an allowance for impairment of trade and other receivables of $304.6 million, mainly for customers in the marine engineering segment.

Interest expense increased by 29.3% to $56.6 million in Q4 2016 owing to higher bank borrowings procured to fund shipyard operations.

Income tax expenses increased by $126.8 million to $155.5 million in Q4 2016 mainly owing to derecognition of deferred income tax assets.

Overall, the Group recorded net loss attributable to equity holders of the Company of $313.0 million in Q4 2016 compared to net loss of $483.8 million in Q4 2015.

FY 2016

The Group recorded net loss attributable to equity holders of $466.5 million on turnover of $2.6 billion in 2016.

Group turnover decreased by 27.3% to $2.6 billion in 2016 from $3.5 billion in 2015 owing to decrease in shipyard and shipping revenue.

Turnover from shipyard operations decreased by 27.4% to $2.5 billion in 2016 from $3.5 billion in 2015, owing to lower revenue contribution from ship repair, ship building and marine engineering.

The Group delivered 18 projects in 2016. COSCO Zhoushan shipyard delivered 4 oil tankers; COSCO Guangdong shipyard delivered 3 livestock carriers and 2 platform supply vessel; COSCO Dalian shipyard delivered 3 module carriers, 2 jack-up rigs, 1 emergency, response & rescue vessel, 1 salvage lifting vessel and 1 cargo & training ship and COSCO Qidong shipyard delivered 1 semi-submersible accommodation vessel.

Turnover from dry bulk shipping and other businesses decreased by 22.6% from $39.4 million in 2015 to $30.5 million in 2016. The Group has scrapped one of its dry bulk carriers in October 2016. The BDI started the year 2016 at 473 points and ended the year at 961 points. The BDI averaged 673 points for FY 2016, which was a 6.3% decrease from the average of 2015 of 718 points. Currently, the Group's dry bulk shipping fleet comprises Panamax and Handymax carriers.

Shipyard business remained the biggest revenue contributor, forming 98.8% of Group turnover in 2016.

Gross loss for 2016 was $317.3 million, compared to gross loss of $214.8 million in 2015 due to losses from shipping and shipyard operations, which recorded lower revenue and incurred inventory writedowns of $283.4 million (2015: $309.3 million).

Compared to 2015, other income increased by 8.9% to $88.6 million in 2016 mainly due to higher government grants, partially offset by lower sales value of scrap materials and lower interest income.

Administrative expenses decreased by $187.5 million to $335.0 million in 2016 mainly due to the decrease in allowance for impairment of trade and other receivables of $200.0 million from $380.3 million in 2015 to $180.3 million in 2016, mainly for customers in the offshore marine engineering segment.

Income tax expenses increased by $84.7 million to $98.3 million in 2016 due to derecognition of deferred tax assets.

Interest expense increased by 34.7% to $224.8 million in 2016 due to higher bank borrowings used to fund shipyard operations.

Overall, the Group recorded net loss attributable to equity holders of the Company of $466.5 million in 2016 compared to net loss of $570.0 million in 2015 due to losses in shipyard and shipping operations.

The Group continues to face challenging market conditions in the offshore marine, shipbuilding and shipping industry. The offshore marine industry remains weak owing to low crude oil prices that have prevailed for over two years and from which recovery remains uncertain. The shipbuilding 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 contract prices, and delivery extensions and cancellations. Subdued global economic conditions have also led to depressed shipping rates for the Group's dry bulk fleet.

Balance Sheet
(31 December 2016 vs 31 December 2015)

Cash and cash equivalents decreased by $50.5 million to $1.5 billion.

Trade and other receivables decreased $567.7 million to $4.6 billion mainly due to lower construction contracts due from customers in the marine engineering and ship building segments (from $4.6 billion to $3.8 billion) and a decrease in advances paid to suppliers (from $262.2 million to $250.8 million). The recoverability of the construction contracts due from customers in the marine engineering and ship building segments of $3.8 billion as of 31 December 2016 is dependent on the customers taking delivery of these construction projects in the future.

Trade and other payables decreased $321.8 million to $2.1 billion mainly due to lower accruals for operating expenses and a decrease in advances received from customers (from $241.9 million to $122.6 million).

Total borrowings increased by $782.6 million to $7.3 billion due to additional funding procured to finance shipyard operations.

Shareholder's equity decreased by $486.0 million mainly due to the transfer of 2016 loss to retained earnings and decrease in currency translation reserve.

Cash Flow

Q4 2016

Net cash used in operating activities for the quarter was $67.6 million. This was mainly due to cash used for working capital during the quarter.

Net cash provided by investing activities for the quarter was $1.0 million. This comprised principally the interest received and proceeds from the sale of fixed assets by shipyard operations during the quarter, partly offset by purchase of fixed assets.

Net cash used in financing activities was $51.9 million. This was due mainly to payment of bank interests during the quarter, partly offset by net proceeds of bank borrowings.

FY 2016

Net cash used in operating activities for the year was $438.4 million compared to $1.2 billion last year.

Net cash used in investing activities for the year was $1.9 million. This comprised principally the purchase of fixed assets, partly offset by interest received and proceeds from the sale of fixed assets by shipyard operations during the year.

Net cash provided by financing activities was $422.9 million. This was due mainly to net proceeds of bank borrowings loans, partly offset by the payment of bank interests during the year.

Commentary

As at 31 December 2016, the Group's gross order book stood at approximately US$6.4 billion with progressive deliveries up to 2019. These include modules of drillship and FPSO contracts for certain Brazilian customers which amount to approximately US$1.3 billion. The Group's gross order book of US$6.4 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 2016 include 1 trailing suction hopper dredger, 1 self-elevating workover unit, 2 crude oil tankers and 7 container vessels.

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.

The Group's order book in the offshore and shipbuilding segment covers a wide product range that includes FPSO, semi-submersible accommodation rig and vessel, Sevan 650 drilling unit, semisubmersible tender assist drilling rig, jack-up rig, platform supply vessel, emergency response/rescue/field support vessel, DP3 accommodation barge, subsea supply vessel, shuttle tanker, cargo transfer vessel, modules of drillship and FPSO.

The Group also expects competition in the offshore and shipbuilding sectors 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 673 points in 2016, a decrease of 6.3% from the average of 718 points in FY2015. The Baltic Exchange Handysize Index (BHSI) averaged 360 points in FY2016, a decrease of 1.6% from the average of 366 points in FY2015. The Baltic Exchange Supramax Index (BSI) averaged 596 points in FY2016, a decrease of 10.5% from the average of 666 points in FY2015. Currently, the Group's dry bulk shipping fleet comprises Panamax and Handymax carriers.

Amidst excess tonnage and overall weak macroeconomic conditions, the world dry bulk shipping market has declined to a very low level in 2016. On 10 February 2016, the BDI declined to 290 points, the lowest since the Index was created. Given these 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 two of its dry bulk carriers in October 2016 and February 2017, and may consider scrapping more dry bulk carriers in 2017.

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.

Crude oil prices remained depressed in FY 2016. On 20 January 2016, Brent Crude Oil traded at US$27.10 per barrel, the lowest in the past 12 years. For the whole of FY2016, Brent Crude Oil prices averaged US$45.13 per barrel, a decrease of 15.8% from the average of US$53.60 for the whole of FY2015.

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

Under such challenging circumstances, the decline in new orders which started in 2014 has continued into the year of 2016. Moreover, some customers have delayed accepting delivery of projects upon completion and it is possible that more customers will seek to delay delivery of projects or seek deferment of payment schedules. Construction contracts due from customers in the marine engineering and ship building segments amounted to $3.6 billion as at 31 December 2016 (as compared to $4.6 billion as at 31 December 2015) and may be subject to impairment if the market and operating conditions deteriorate further in the future.

The future of the DP3 Deepwater Drillship (DDD) continues to remain uncertain as there is no assurance that any lease or sale will materialise especially since the DDD is a specialised vessel.

In 2015 and 2016, the Group experienced delivery date extensions and order cancellations for several of its projects. These included extensions for the Sevan Developer, a jack-up drilling rig (hull number N408), a harsh environment semi-submersible accommodation rig, an advanced semi-submersible accommodation vessel, a semi-submersible tender assist drilling rig and several bulk carriers. In addition, the orders for the two floating accommodation units (hull number N381 and N675) have been terminated. The Group will continue to monitor the risks associated with these projects as well as contracts for modules of drillships and FPSO with certain Brazilian customers.

Amidst continuing weakness in the state of the global economy, challenging market conditions and depressed crude oil prices, an increasing number 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 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 $466.5 million for financial year 2016.

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

In December 2016, the Company made an announcement it has been informed by its parent company that: The China COSCO Shipping Corporation group (the Parent Group) will be restructuring its shipyard businesses. The objective of the shipyard business restructuring is to centralise operations and management of the shipyard businesses of the Parent Group.

The Company has now been informed by its parent company that after considering that the purpose of the proposed restructuring is to centralise operations and management of the shipyard businesses of the Parent Group, the Parent Group plans to acquire the Company's equity interests in COSCO Shipyard Group Co. Ltd., COSCO (Nantong) Shipyard Co. Ltd. and COSCO (Dalian) Shipyard Co. Ltd. The plans relating to the proposed acquisition will be further reviewed and determined after further necessary work, including a valuation of the assets to be acquired, has been completed. The Company has also been informed by its parent company that it will remain supportive of the Company's future development.

In connection with the foregoing information received from its parent company, the Company wishes to emphasise that no definitive agreement has been entered into by the Company with any party and there is no assurance that any transaction will materialise. The Company also wishes to advise shareholders to refrain from taking any action in relation to their shares or securities of the Company which may be prejudicial to their interests, and to exercise caution in dealing with the shares and securities of the Company. The Company will make announcements of any significant development in this matter at the appropriate junctures.

Balance Sheet