Pacific Basin's revenue falls in 1H2019

Shipping & logistics

Pacific Basin's revenue falls in 1H2019

14 December, 2020

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The company believes it will benefit from many larger ships being taken out of service for scrubber installation in 2H2019

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BUSINESS COMMENTARYPerformance OverviewOur results for thefirst half of 2019 were supported by our robust customer-focused business model and competitive cost structure, but adversely affectedby markedly weaker dry bulk freight market conditions. We made a net profit of US$8.2 million (2018: US$30.8 million), an underlying loss of US$0.6 million (2018: US$28.0 million profit), and EBITDA of US$101.1 million (2018: US$99.3 million), although EBITDA was positively affected by new lease accounting standards.While our average Handysize and Supramax daily TCE earnings of US$9,170 and US$10,860 perday net were down 6% and 7% year on year, our outperformance over the BHSI and BSI indicesincreased to 59% and 39% respectively.Our ship operating expenses (ÔÇ£OpexÔÇØ) of US$3,990 per day, general and administrative (ÔÇ£G&AÔÇØ)overheads of US$730 per day and favourable financing costs of US$820 per day are also very competitive by industry standards.Our TCE premium and competitive costs are driven by our ability to draw on our experienced commercial and technical teams, globaloffice network, strong cargo support and large fleet of high-quality interchangeable ships in ways that optimise ship and cargo combinations for maximum utilisation and by generating scale benefits and other efficiencies from good systems, optimisation and strict cost control.We have covered 56% and 76% of ourHandysize and Supramax vesseldaysfor second half 2019 at US$9,050andUS$10,790per day net respectively.PositiveGrowthInitiativesIn the first half of 2019, we took delivery of four modern secondhand vessels (one Handysize and three Supramax), three of which we committed to purchase in 2018, and we completed the sale of an older, small Handysize. Two further modern Supramax acquisitions delivered into our fleet in July, expanding our owned fleet to 115 ships. Including chartered ships, we operated an average of 230 Handysize and Supramax ships overall during the first halfof the year.Strong Balance SheetIn May we closed a new US$115 million syndicated 7-year reducing revolving credit facility secured against 10 of our previously unmortgaged ships, raising fresh capital at a competitive interest cost of LIBOR plus 1.35%. The new facility further enhances our funding flexibility and reinforces our already competitive vessel break-even levels.During the period, holders of our convertible bonds due in 2021 exercised their right to redeem US$122.2 million of the convertible bonds on 3 July 2019, and on the same date we exercised our option to redeemall the remaining bonds totalling US$2.8 million on 2 August 2019.As at 30 June 2019, we had cash and deposits of US$314 million, providing sufficient liquidity to repay the US$125 million convertible bonds in full. We had net borrowings of US$687 million, which is 37% of the net book value of our owned vessels at mid-year.Outlook & PositionThe IMF expects the global economy to gradually strengthen in the second half of the year and into 2020, partly as a result of Chinese economic stimulus and continued loose monetary policy in the United States and Europe. As published in July, the IMF forecasts global economic growth of 3.2% in 2019 and 3.5% in 2020.Uncertainty over new environmental regulations and the gap between newbuilding and secondhand prices continue to discourage new ship ordering, and the small Handysize orderbook continues to be a positive factor for the health of our segments in the medium term.The dry bulk freight market is expected to benefit in the second half of 2019 and early 2020 from many larger ships being taken out of service for several weeks for scrubber installation. We believe the market for smaller dry bulk ships like ours will benefit also over the longer term, as they will consume more expensive low-sulphur fuel and therefore be incentivizedto operate at slower speeds which reduces supply.

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