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For Q1 2017 Cosco Shipping International has recorded a net loss of 78.9 mill. $ on turnover of 401.8 mill. $. The Group expects challenging business and operating conditions to persist in 2017. 

In the first quarter of the year, the group’s turnover decreased 44.4% to 401.8 mill[ds_preview]. $ from 722.3 mill. $ in Q1 2016 owing to a decrease in shipyard revenue. In Q1 2017, turnover from shipyard operations decreased by 45.2 % to 392.6 mill. from 716.6 mill. $ in Q1 2016, owing to lower revenue contribution from ship repair, ship building and marine engineering.

»Overall, the Group expects that these difficult and challenging business and operating conditions to persist and may even worsen. As such, 2017 will remain challenging for the Group«

Turnover from dry bulk shipping and other businesses increased 63.2% from 5.7 mill. $ in Q1 2016 to 9.2 mill. $ in Q1 2017 as the current short-term charter rates were higher than those received in Q1 2016. The Group scrapped four of its bulk carriers – one in October 2016, two in February 2017 and one in March 2017 respectively.

The shipyard business remained the biggest revenue contributor, making up 97.7% of Group turnover in Q1 2017. Gross loss for Q1 2017 was 57.8 mill. $ as compared to gross profit of 89.3 mill. $ in Q1 2016 due to losses from shipyard and shipping operations. Shipyard operations recorded lower revenue and incurred inventory write-downs of 21.2 mill. $ (Q1 2016: reversal of inventory write-down of 1.2 mill. $) and allowance for expected losses recognised on construction contracts of 70.6 mill. $ (Q1 2016: 3.3 mill. $).

New orders at low contract values

cosco shipping international shipbuilding
Photo: Cosco

As at 31 March 2017, the Group‘s gross order book stood at approximately 5.8 bn $ with progressive deliveries up to 2020. New orders received in Q1 2017 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 world dry bulk shipping market is still seeing excess tonnage and overall weak macroeconomic conditions. Under such difficult market conditions and considering that the upkeep costs of the Group‘s dry bulk fleet will continue to increase, the Group scrapped four of its bulk carriers.

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 Group says. The ship building segment will thus continue to be highly challenging in 2017.

Conditions expected to persist or worsen

cosco shipping international bulk
Photo: COSCO

Amidst continuing weakness in the state of the global economy, challenging market conditions and depressed crude oil prices, COSCO expects that more of the Group‘s customers may be unable to meet their contractual payment obligations. This 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.

»Overall, the Group expects that these difficult and challenging business and operating conditions to persist and may even worsen. As such, 2017 will remain challenging for the Group,« COSCO said in a statement.