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Rongsheng takes more pain in FY14 results with divestment plans

Rongsheng takes more pain in FY14 results with divestment plans
Beleaguered private shipyard group China Rongsheng Heavy Industries which is in the process of divesting its yard business to focus on its energy division, also continued to face working capital and liquidity issues in addition to having its revenue stream turn negative as a result of the divestment decision.

The group recorded a negative revenue of RMB3.9bn ($612.6m) in contrast to revenue of RMB1.34bn in 2013, due to the decrease of revenue from shipbuilding and other contracts and the reversal of revenue from cancellation of shipbuilding contracts, the company said in a stock market announcement. Rongsheng however managed to narrow losses to RMB7.8bn from RMB8.7bn previously.

"The significant decrease in revenue was primarily attributable to the reversal of revenue from cancellation of the shipbuilding contracts in alignment with the Group’s strategic plan to optimiae the production and operation of its shipbuilding business," Rongsheng said.

Revenue from shipbuilding and other contracts was already down by almost half to RMB728.4m from RMB1.3bn previously before a RMB4.5bn revenue reversal from the cancellation of shipbuilding contracts resulted in a negative revenue of RMB3.9bn.Rongsheng said it has made major efforts to reorganise and optimise its orderbook. "We sorted and optimised our orderbook by reducing the number of vessels under construction and cancelling some shipbuilding orders. In the period, we negotiated proactively with ship owners and reached agreement with them on certain orders on hand, resulting in the cancellation, revision and variation of a number of shipbuilding contracts. We believe that this action will reduce our burden on working capital and effectively reduce the credit risk of our order book," it said.

Meanwhile Rongsheng's woes continue despite the announcement of talks with a potential third party buyer for the shipyard business. The auditors highlighted "multiple uncertainties" on the group's ability to continue as a going concern.

These included the ability to complete the potential sale, which requires executing a definitive agreement with the potential purchaser before the expiry date of 30 June 2015, agreeing the details of the transaction, raising the additional funding required, if any, to complete the deal, and obtaining the necessary approvals from regulatory authorities and shareholders, and many other issues.