Shipping

38
Financial Review
COSCO Corporation
(Singapore) Limited
Overview
In FY2004, COSCO Corporation underwent further expansion to
extend its focus beyond its traditional shipping business to ship
repair as another major growth driver for the Company. At the same
time, the Company continued building up its shipping business in
order to keep at the forefront of the international shipping industry.
Overall, FY2004 was an excellent year for bulk shipping, producing
the best results attained since the Company’s inception. With the
Baltic Dry Index reaching a historic high and averaging above 4,000
points throughout the year, COSCO Corporation’s shipping arm
reaped excellent profits. These will be sustained in the long-term
by the Company’s adherence to its strategy of locking in profits by
chartering its dry bulk carrier fleet on a long term basis. This mitigates
the risk of the Company being adversely affected by the wide swing
in the conventional shipping cycle.
Long term stability and growth were additionally ensured by the
Company’s strengthening of its stake in the ship repair business
in China, a thriving industry with tremendous potential for growth.
Previously, the Company owned 50% of the COSCO Nantong
shipyard and 40% of COSCO Dalian, acquired on 1 February 2002
and 15 August 2003 respectively.
In September 2004, the Company signed a sale and purchase
agreement to acquire 51% of the COSCO Shipyard Group Co Ltd
to further develop this core business and bring the Company closer
to realising its aspiration of being the largest ship repair company
in China and one of the biggest in the world.
Turnover
The Company recorded a turnover of S$116.3 million for FY2004.
This was an increase of 27% or S$24.4 million compared to FY2003
which recorded S$91.9. This was due to better charter rates.
Specifically, in the shipping business arm, turnover grew by 36.0%
from S$67.4 million in FY2003 to S$92.2 million in FY2004 due to
better charter rates.
Cash flow from operating activities
The cash flow generated from the Company’s operating activities
exceeded that of the previous year. While S$62.8 million was
generated in FY2003, the cash flow generated in FY2004 was higher
at S$70.1 million. This was due to the extraordinary cash surplus
that was derived from the firmer charter hire contracts.
Cash flow from investing activities
Both COSCO Nantong and COSCO Dalian shipyards continued to
do well in FY2004. An increase in the number of ships requiring repair
as well as the shipyards’ provision of higher value, high-tech repairs
which enabled them to generate increased revenue resulted in better
dividends from the two associated companies.
Dividends
A dividend of 1 cent per share was approved at the Company’s AGM
and EGM on 20 April 2004. A special one-time bonus issue of 1 for
every 5 held was also approved. This was a significant improvement
in dividend payouts, and reflected the Company’s expansion of its
capital base to enhance the liquidity of the company’s shares.
For FY2004, the directors are recommending a first and final dividend
of 2 cents per share. This represents a payout ratio of approximately
32% of the profits attributable to the shareholders.
Net borrowings
The Company enjoyed a cash surplus as a result of a strong cash
flow from its shipping business and the dividends income derived
from its two ship repair associates, COSCO Nantong and COSCO
Dalian. The Company’s periodic shipping loans were paid down
according to the repayment schedules in order to trim the Company’s
borrowings. The sale of an aged dry bulk carrier in the third quarter
of FY2004 additionally enabled the Company to reduce its
bank borrowings.
Issued capital
The capital issued in the year under review was S$217 million, an
increase of S$38 million from S$179.6 million employed in FY2003.
The return on issued capital was 30.5% as compared to 13.5%