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Profits plunge at life’s end for Indo-Singaporean dry bulk carrier Seroja

Pictured: bricks of hard black coal, probably bituminous coal, which is commonly burned in power plants to provide energy. (Photo credit: Pixabay and Pexels)

Singapore headquartered but Indonesia-operating dry bulk ocean carrier Seroja (SGX: IW5) has reported $9.63 million of revenues in the third quarter of 2019 along with a net profit of $182,000. Seroja reports its financial results in U.S. dollars. 

Although Seroja’s third quarter revenues have suffered a small decline of about 3.0% on a year-on-year basis, profitability has plummeted.

Plummeting profitability

Gross profit fell by 54.6% from $2.18 million in the third quarter of 2018 to $987,000 in the third quarter of this year. Seroja also reported $822,000 of net profit in the third quarter of 2018. However, that figure declined by 77.9% to the current net profit of $182,000.

Seroja noted that it received lower freight charter revenue because of lower cargo volumes. Those lower volumes were partly offset by higher freight rates. However, looking forward, the company does not envisage that freight rates will improve further in Indonesia due to the presence of local competition.

Damage done

It appears that the third quarter damage was done by a blow-out in the cost of services. In the third quarter of 2018, those costs stood at $7.75 million. But, in the third quarter of this year, they rose by 11.5% to $8.64 million, which is, in absolute terms, a $890,000 rise in costs. Also doing some damage was a 10.9% rise in administrative costs from $778,000 to $863,000. Administrative costs increased by about $85,000 due to an increase in travel, transport and entertainment costs to meet with customers for the purpose of negotiating contracts.

Commenting on its costs, the company said that it experienced higher operating costs because of higher depreciation expenses along with increased costs related to vessel maintenance, vessel supplies and spare parts used for the dry-docking of vessels.

However, the company was able to offset some of the higher costs with a $481,000 increase in “other gains,” which swung that particular line on the income statement from $308,000 in the red to $173,000 in the black. This income-swing was attributed both to a foreign exchange gain and the receipt of interest income.

Nine month results

In what now appears to be an emerging trend in the Asian maritime sectors, Seroja – like several other Asia-focused maritime companies – reported an overall good year-to-date but a weaker third quarter.

In the nine months of January through September this year, the company reported $28.03 million of revenues, which is a 2.3% increase on the corresponding period of 2018. However, the cost of services also rose. There was a 7.5% increase in the cost of services to $24.80 million in the first nine months of 2019 and it resulted in a year-on-year decrease of 25.1% in gross profit to $3.23 million.

Also of note in the first nine months of 2019 were “other gains,” which swung from red to black. Meanwhile, administrative costs were largely flat and finance costs fell by $349,000. The decline in finance costs was due to a decrease in bank borrowings. Overall, in the year-to-September 2019, the company reported a 43.2% surge in net profit to $673,000.

Seroja reports its financial results using the Singapore Financial Reporting Standard (International).

End of the line for Seroja

The company primarily hires out vessels under freight and time charters. As of December 31, 2018, the company owned and operated a fleet of about 70 vessels (mostly tugs and barges) around Indonesia for the purpose of hauling thermal coal from mines to power stations and cement companies.

“Our freight charters typically involve domestic routes in Indonesia from Kalimantan to various ports in Java and Sulawesi, while our time charters involve mainly domestic routes around the Sumatra Island,” the company said in a statement.

However, a very substantial change is underway for Seroja. In the last few days, the company announced that it has entered into a sale and purchase agreement for the entire issued share capital of subsidiary Trans LK Marine to Mr. Masdjan, who is an executive director and chief operating officer for Seroja.

The purchase price is $32.16 million. The book value of the tangible assets of the business as of December 31 was $27.63 million and the excess of the consideration over the book value was about $4.53 million.

The business of Trans LK Marine is the provision of marine transport for dry bulk freight such as thermal coal, sand and quarry materials.

Upon completion of the sale, Seroja will “cease to have any operating business” and it will be a cash-holding shell company. At that point, trading in Seroja’s shares will be suspended and the company will have 12 months to find a new operating business before it is removed from the Singapore Exchange.

This graph shows the total weekly import shipments (both containerized and non-containerized) in the U.S. as reported to U.S. Customs & Border Protection from the beginning of March to November 2019. Source: FreightWaves Sonar.

Read more stories by Jim Wilson. Jim is based in Australia but he mostly covers Asia’s maritime sectors. He can be reached with comments, suggestions and tips via [email protected].