Singamas Container plunges into the red

Trading conditions remain extremely challenging for the world’s second largest container manufacturer, Singamas Container Holdings Limited, which has now reported two profit warnings in less than seven months.

The latest came in early June, when the group said that, based on its unaudited results, it was expected to report a loss of “$25m for the six months ended June 30, 2016”, which compares with a net profit of about $10m one year earlier, and with consolidated losses of $2.7m for the year ended December 31.

The trends are not encouraging, and its net leverage might become problematic if its operational performance does not improve swiftly.

And the outlook is far from reassuring. As the company noted in its annual results released in March, demand for new containers “is likely to remain soft in the first half of 2016, and many new container vessel deliveries have been postponed since 2015”.

Singamas also said that hefty losses in the first half of the year were primarily “attributable to the decline in the group’s turnover and gross profit margin due to the continuing downturn of the macro economy from the second half of 2015 into 2016, as well as further compensation made in connection with the Tianjin explosion incident due to commercial considerations”.

The slowdown has affected demand and the average selling price of new dry containers, while recent M&A activity amongst both carriers and container leasing companies have added uncertainty to soft market conditions. Its annual results showed that group turnover from logistics services and manufacturing activities – its main revenue drivers, responsible for 97% of group sales – plunged 27% to $1.1bn from over $1.5bn year-on-year, with pre-tax profit down to $8.9m from $52m one year earlier.

Such a poor performance pushed the group into the red only 12 months after it had reported net earnings of $28m – excluding income from non-controlling interests – in 2014. For the full year, net losses per share stood at $0.11 on a diluted basis, against earnings per share of $1.16 one year earlier.

The rapid decline in the price of steel made an impact, with raw materials expenses and staff costs fell 32% and 8.6%, respectively, to $807m and $127m, while non-cash depreciation and amortisation charges rose. Additionally, interest expenses continued to bite into earnings.

Receivables fell from $248m in 2014 to $146.7m in the twelve months ended December 31, 2015, while inventories and payables also dropped significantly. On the bright side, bank balances and cash were only mildly lower at $242m versus $249.7m one year earlier.

Given its outstanding borrowings, trailing net leverage stands just below 2x, however. The group opened its first container factory in Shanghai in 1990, and currently operates ten production factories and runs ten container depots in Asia Pacific.

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Source: Transport Intelligence, July 06, 2016

Author: Alessandro Pasetti