SOS: COSCO profit down 42% to S$32.2m in the third quarter

Gross profit decreased 27.5% from S$115.6 million in Q3 2010 to S$83.8 million in Q3 2011 mainly due to lower dry bulk charter shipping income as a result of lower BDI and a smaller fleet of 10 bulk carriers, and lower profit contributions from shipyard operations. The lower profit contributions from shipyard operations is mainly due to the increase in expected losses recognized on construction contracts from offshore marine engineering projects of new product types as the Group incurs higher costs as it scales the “learning curve”. In addition, the Group is impacted by the general increase in labor costs, prices of raw materials and costs of equipment.

Other income comprised mainly gain from the disposal of scrap metal, interest income, net currency exchange gain, net fair value gain on forward currency contracts and compensation received from customers. Compared to Q3 2010, other income increased by 73.3% to S$70.1 million in Q3 2011 mainly due to higher interest income from bank deposits, an increase in currency exchange gain and compensation received from customers.

Distribution costs rose 83.0% in line with new orders secured and the rising cost environment. The 47.2% increase in administrative costs to S$55.8 million was mainly due to less reversal of impairment of trade and other receivables of S$0.5 million in Q3 2011 as compared to S$6.9 million in Q3 2010 and allowance for inventory write-down. The allowance for inventory write-down of S$14.6 million in Q3 2011 was mainly due to the continuation of work on a cancelled shipbuilding contract for which construction of the vessel had already been in progress (and for which the net compensation received from the customer of S$15.2 million has been included in other income).

Interest expense increased by 31.6% to S$13.3 million in Q3 2011 mainly due to additional bank borrowings to fund shipyard operations.

The decrease in income tax expense by 8.7% to S$14.9 million was mainly due to lower profit contributions from shipyard operations.

Overall, net profit attributable to equity holders of the Company decreased 41.6% from S$55.1 million in Q3 2010 to S$32.2 million in Q3 2011 due to lower profit contributions from dry bulk shipping and shipyard operations.