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Cosco Corp profit slips, expects pressure on newbuilding margins

Cosco Corp profit slips, expects pressure on newbuilding margins
Cosco Corporation (Singapore) posted a dip in full year net profit despite a rise in revenue, and expects downward pressure on margins of newbuilding projects due to the weak shipping market.

In the financial year ended 31 December 2014, Cosco Corp registered a profit of SGD20.89m ($15.4m), down 32% compared to SGD30.62m in the previous financial year.

Revenue for the year, however, increased 21% year-on-year to SGD4.26bn due mainly to higher shipyard revenue.

As the group continues construction in 2015 on new shipbuilding contracts that were secured in recent years at low contract values due to the slumping shipping market then, the group expects operating margins on these newbuildings to continue to be under pressure notwithstanding improving gains in efficiency and productivity.

Wu Ziheng, vice chairman and president of the company, said: “Our group maintains a cautious outlook for 2015. The global offshore market has slowed down significantly. Many oil majors have started to cut expenditure leading to fewer orders for deepwater rigs.

“In addition, a number of offshore rigs and supply vessels delivered in past months have not secured contracts for lease yet. Under such challenging circumstances, new orders have declined,” Wu noted.

He added that all these developments have taken place against the backdrop of weak global economic conditions which, in the latter half of 2014, were accompanied by steep falls in crude oil prices.

As at the end of 2014, Cosco Corp’s orderbook stood at $8.4bn with progressive deliveries up to 2017. The company received 32 new orders in 2014 including nine bulk carriers, eight PSVs, four subsea supply vessels, one jack-up rig, one accommodation barge, and one floating accommodation.

In January, Singapore-listed Cosco Corp had warned of significantly lower earnings in 2014 due mainly to a one-off charge of SGD91.4m relating to an Octabuoy hull and topside module project that was discontinued.