Huge debt surge batters shipyard

PUBLISHED : Saturday, 08 April, 1995, 12:00am
UPDATED : Saturday, 08 April, 1995, 12:00am

CHINA'S Guangzhou Shipyard has recorded an increase of almost 400 per cent in accounts receivable for last year, an indication that the country's austerity programme continues to stifle its enterprises.

According to the company's Chinese accounts, its net accounts receivable were 640.5 million yuan (about HK$587.33 million) at the end of last year.

This was an increase from 165.25 million yuan figure at the beginning of last year.

SBCI analyst Anna Ho estimated that the company's customers now took 150 days to pay, compared to 77 days previously.

She said the payment period actually could be longer for its shipbuilding business, because container manufacturing, its other core operation, usually had a faster turnover.

Guangzhou Shipyard completed five large ships for domestic clients last year.

'We were told by the company's management that the customers would pay the money eventually, albeit a bit late,' said Ms Ho.

But she expected the problem to ease this year, as Guangzhou Shipyard focussed its shipbuilding business on exports.

The shipbuilding business also was battered by value added tax (VAT) and soaring inflation, which squeezed its profit margin last year. Domestic sales are subject to 17 per cent VAT .

Chairman Ren Fuwei said the company paid an additional 22 million yuan in VAT last year, because of a higher rate introduced in January.

Shipbuilding accounted for 52 per cent of the company's sales and containers for 40.5 per cent.

Income from shipbuilding contracts signed several years ago was not sufficient to cover increasing production costs, he said.

The company's container manufacturing operation also was hurt by price-cutting competition last year.

Prices dropped five per cent last year despite a recovery of three per cent in the second half, said Mr Ren.

He expected the situation to improve because the six ships scheduled for completion this year would be exported.

Container prices will continue to rise, having increased already by two per cent this year.

However, Mr Ren said there were worries over the weakening US dollar against the Japanese yen because the company's imports accounted for more than 60 per cent of its shipbuilding production costs.

He said the company would continue to import overseas telecommunications equipment, but would source more domestic steel products to replace imports from Japan.

On Thursday, Guangzhou Shipyard announced a 65 per cent rise in attributable profit.

However the earnings growth of its underlying operation would be four per cent, with exceptional items stripped out.