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Rongsheng plunges into the red

Rongsheng plunges into the red
Hong Kong: As flagged, China Rongsheng Heavy Industries sunk into the red in 2012 turning to a full-year net loss of RMB572.58m ($92.11m) from a RMB1.72bn profit the year before.

Revenue plunged by half to RMB7.96bn as Rongsheng blamed the poor economic conditions for its woes. The loss was blamed on an increase in interest costs and a decrease in gross profit margins as lower priced contracts signed in 2010 and 2011 started to filter into the revenue contributions, economies of scale were impacted by delays and postponements of some deliveries.

“The sluggish global shipping market continued to reduce new shipbuilding prices and deteriorate payment terms, as global new shipbuilding orders plunged to their lowest level in a decade. Under adverse market situation, constructions and deliveries in our core shipbuilding segment have suffered from delays, leading to a decline in our revenue. The diminished economies of scale also impacted our results," said chairman and ceo Chen Qiang.

With its strong orderbook, Rongsheng has been able to mitigate the effects of the downturn by avoiding low-priced new orders or those on unfavourable payment terms, he added. Chen noted that Rongsheng took in only two newbuilding orders worth $56m in the whole of 2012. The group is also placing its faith in the offshore sector to revive its fortunes.

Meanwhile Rongsheng continues to adopt a defensive strategy with respect to its cash flow management, improving cash flow control and production management while cracking down on account receivables and putting in place multiple levels of protection of receivables, including buyers' guarantees and vessel construction insurance. Account receivables were cut by 13% from the first half of the year.

TAGS: Shipyards