PACIFIC BASIN SHIPPING LIMITED Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
ANNOUNCEMENT OF INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2022
The Board of Directors (the "Board") of Pacific Basin Shipping Limited ("Pacific Basin" or "PB" or the "Company") is pleased to announce the unaudited condensed consolidated results of the Company and its subsidiaries (collectively the "Group") for the six months ended 30 June 2022 as follows:
BUSINESS HIGHLIGHTS
Our Best Ever Interim Results
During the first half of 2022, we generated our best interim results in Pacific Basin's history, producing an underlying profit of US$457.5 million, a net profit of US$465.1 million and an EBITDA of US$566.9 million. This yielded an exceptionally strong return on equity of 48% with basic EPS of HK74.5 cents.
Our financial position continues to strengthen with available committed liquidity of US$698.6 million and a net cash position of US$68.9 million as at 30 June 2022.
The Board has declared an interim basic dividend of HK35 cents per share, representing 50% of our net profit for the period, and an additional special dividend of HK17 cents per share, representing 25% of our net profit for the period. The basic dividend and the special dividend together amount to a total dividend of HK52 cents per share, equal to US$348.0 million or 75% of the net profit.
Strong Minor Bulk Fundamentals
The minor bulk freight market in the first half of 2022 was driven by broad based global demand for commodities, further supported by low fleet growth and continued fleet inefficiencies.
Minor bulk rates continue to be supported despite concerns over global economic growth, on-going conflict in Ukraine, and Covid- related impacts on the Chinese economy.
Delivering Excellent Results
■■ Our core business achieved Handysize and Supramax net daily TCE earnings of US$26,370 and US$33,840 respectively, generating a total contribution of US$468.2 million before overheads
■■ Our operating activity achieved a strong daily margin of US$3,330 net over 9,200 operating days, generating a contribution of US$30.7 million before overheads
Six Months Ended 30 June
US$ Million | 2022 | 2021 |
Revenue | 1,722.8 | 1,142.0 |
EBITDA # | 566.9 | 244.6 |
Underlying Profit | 457.5 | 150.4 |
Profit Attributable to Shareholders | 465.1 | 160.1 |
Basic Earnings per Share (HK cents) | 74.5 | 26.4 |
Interim Dividends per Share, | 52.0 | |
including HK17 cents Special Dividend (HK cents) | 14.0 |
- EBITDA (earnings before interest, tax, depreciation and amortisation) is gross profit less indirect general and administrative overheads, excluding: depreciation and amortisation; exchange differences; share-based compensation and unrealised derivative income and expenses.
Our Fleet
Vessels in Operation | Total | Total Capacity | Average Age | |||||
Long-termShort-term | (Million dwt) | |||||||
Owned Chartered | Chartered1 | Owned | Owned | |||||
Handysize | 75 | 10 | 30 | 115 | 2.6 | 12 | ||
Supramax/ | 42 | 7 | 75 | 124 | 2.4 | 10 | ||
Ultramax2 | ||||||||
Capesize3 | 1 | - | - | 1 | 0.1 | 11 | ||
Total | 118 | 17 | 105 | 240 | 5.1 | 12 | ||
As at 30 June 2022
- Average number of short-term and index-linked vessels operated in June 2022
- Supramax vessels in excess of 60,000 dwt are generally referred to as Ultramaxes
- Having redelivered a chartered 95,000 dwt Post-Panamax ship, we now refer to our owned 115,000 dwt bulker as a Capesize vessel, consistent with industry definitions
■■ Our P&L break-even was US$10,260 and US$10,600 per day for Handysize and Supramax respectively; our costs remain competitive despite higher crewing and repatriation related costs and increased depreciation as a result of the reversal of a vessel impairment provision in 2021
■■ In light of a softening global economy we expect dry bulk demand to moderate in the second half of 2022, but favourable supply dynamics make us optimistic about the long-term potential of the market
Fleet Optimisation for the Future
■■ We currently own 117 Handysize and Supramax ships and have around 240 owned and chartered ships on the water overall ■■ During the period we sold five of our older Handysize ships, while taking delivery of one Ultramax vessel purchased in 2021
■■ We remain committed to our long-term strategy of further growing our Supramax fleet and renewing our Handysize fleet with younger, larger and more efficient vessels, thereby further optimising our fleet to more easily meet tightening environmental regulations
■■ We are well positioned to comply with IMO carbon intensity reduction rules coming into force in 2023 through technical enhancements, operational measures and gradual fleet renewal
1
CHIEF EXECUTIVE'S REVIEW
Our Best Interim Results in Our Company's History
In the first half of 2022, we generated our best interim results ever, producing an underlying profit of US$457.5 million, a net profit of US$465.1 million and an EBITDA of US$566.9 million. This yielded an exceptionally strong return on equity of 48%, with basic EPS of HK74.5 cents.
Our results benefited from significantly higher average TCE earnings compared to the same period last year, strong operating activity results, and a competitive cost structure. We continued to significantly outperform the market index rates, especially in our Supramax business, which delivered an exceptional performance over the period.
Looking forward, we have covered the majority of our third quarter days at US$23,690* net per day for Handysize and US$28,970* net per day for Supramax respectively, underpinning continued strong earnings in what is typically the seasonally stronger part of the year.
Our financial position continues to strengthen with available committed liquidity of US$698.6 million and a net cash position of US$68.9 million as at 30 June 2022.
In light of the strong earnings, cash position and our confidence in the longer-term outlook for minor bulk shipping, the Board has declared an interim basic dividend of HK35 cents per share, representing 50% of our net profit for the period, and an additional special dividend of HK17 cents per share, representing 25% of our net profit for the period. The basic dividend and the special dividend together amount to a total dividend of HK52 cents per share.
* Indicative 3Q 2022 TCE only, voyages are still in progress
Excellent Performance Driven by Strong Revenue Generation and Competitive Cost Base
Our core business generated average Handysize and Supramax daily time-charter equivalent ("TCE") earnings of US$26,370 and US$33,840 net per day in the first half, representing an increase of 83% and 85% compared to the same period in 2021, respectively. In the period we outperformed the average Handysize (BHSI 38k dwt tonnage-adjusted) and Supramax (BSI 58k dwt) indices by US$4,370 per day and US$8,210 per day respectively. Our performance continues to benefit from our diverse cargo and customer base and the close customer interaction facilitated by our extensive global office network.
Our operating activity contributed US$30.7 million, generating a margin of US$3,330 net per day over 9,200 operating days in the first half. While margins varied over the period, they still remain historically high and our operating activity represents an on-going opportunity to utilise the commercial and operating skills of the Pacific Basin team to generate supplementary earnings for the business.
Our overheads and vessel operating expenses remain well controlled despite more expensive crew travel, quarantine and other pandemic-related manning costs.
Further Strengthening Our Balance Sheet
We continue to maintain a conservative balance sheet, which will allow us to invest over the cycle, while still distributing excess cash to shareholders through dividends.
During the period we structured an offer to holders of our US$175.0 million convertible bond to incentivise early conversion. This resulted in a reduction of our outstanding convertible bond to US$70.1 million. This offer has allowed us to further optimise our capital structure by reducing net borrowings and increasing the Company's equity capital, thereby deleveraging our balance sheet while at the same time lowering our finance costs.
PB Performance Relative to Market Index Rates
US$/day (net) | ||
10,000 | ||
8,000 | ||
6,000 | ||
4,000 | ||
2,000 | ||
0 | ||
-2,000 | ||
-4,000 | 2H21 | 1H22 |
1H21 |
Handysize - Performance
Supramax - Performance
Strong Demand with Limited New Supply
The minor bulk freight market in the first half of 2022 was significantly stronger than the same period last year, driven by favourable supply and demand fundamentals. Minor bulk rates continue to be supported despite concerns over global economic growth, on-going conflict in Ukraine, and Covid-related impacts on the Chinese economy.
TCE earnings over the period began substantially higher than prior years and, despite a typical seasonal decline around Chinese New Year, rates have since been supported at historically high levels by growing minor bulk demand and some supply constraints.
A softening in rates since May has been due to higher vessel availability as a result of a reduction in Black Sea grain exports and demand weakness in China.
We continue to see opportunities in this strong, yet volatile rates environment to generate further positive earnings, despite global economic short-term uncertainty
2
Benefitting From Our Fleet Renewal Strategy
We remain committed to our long-term strategy to grow our owned fleet of Supramax ships by acquiring high-quality, modern, second-hand vessels, and to sell our older and less-efficient Handysize ships and replace them with younger and larger Handysize vessels. During the period we sold five of our older Handysize ships, while taking delivery of one Ultramax vessel purchased in 2021. This strategy is resulting in an even more efficient fleet with greater longevity, while crystallising value from historically high secondhand prices.
We expect our vessel purchasing activity to be less than last year as asset prices have approached historical highs, though we remain opportunistic where we see attractive secondhand acquisition opportunities. We currently own 117 Handysize and Supramax ships and, including chartered ships, we have approximately 240 ships
Signicant Growth of Our Owned Fleet and Supramax Proportion
Million dwt
5.0* | |||||||||
5 | |||||||||
4 | |||||||||
3 | |||||||||
2 | |||||||||
1 | |||||||||
0 | 2013 | 2014 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 1H |
2022 | |||||||||
Supramax | Handysize |
In the short term we are focused on selling some of our smaller, older Handysize ships as second-hand prices are strong, thereby crystallising value and further optimising our fleet to meet tightening environmental regulations
on the water overall.
* Including purchased and sold vessels in the first half of 2022
Our Safety First Culture | KPIs | Unit | FY 2021 | 1H 2022 |
During the pandemic, travel restrictions have | Health & Safety | |||
highlighted the need to focus our efforts on | Total recordable case | injuries per million | 0.55 | 0.58 |
maintaining high levels of crew safety and | frequency | man hours | ||
wellbeing. Our early adoption of the latest industry | Lost time injury frequency | injuries per million | 0.25 | 0.19 |
best practices of online training, 24/7 online | man hours |
medical and wellbeing support, remote and onboard inspections, and updated communication
infrastructure allow our vessels and seafarers to stay connected and continue to learn and apply updated procedures.
Despite the difficult operating environment during the pandemic, our safety management system and enhanced training programme continues to support sound crew safety KPIs.
Well Prepared for IMO Carbon Intensity Reduction Rules
From January 2023, IMO's global EEXI (energy efficiency existing ship index) and CII (carbon intensity index) regulations are expected to drive technical and operational measures to improve the carbon efficiency of existing ships. We have thoroughly analysed the implications of these rules on our fleet and prepared our people, ships and systems to ensure our conventionally-fuelled ships are well positioned to comply and continue to trade for the foreseeable future through technical enhancements, operational measures and gradual fleet renewal.
The consequences of these rules will include the progressive slowing of vessel speeds and, over time, accelerated scrapping as older and less-efficient ships become no longer fit for trading.
We are preparing ourselves for shipping's eventual inclusion in the European Union Emissions Trading System (EU ETS) among other EU initiatives to drive decarbonisation in shipping. The European "Fit for 55" package remains subject to negotiations between the European Council, Parliament and Commission, and is now likely to apply to shipping from 2024 onwards.
Developing Zero-Emission-Ready Ships
We will invest in zero-emission-ready ships when they become commercially viable for minor bulk trades and the requisite global bunkering infrastructure is being built out.
In May, to accelerate this development we committed to cooperate with Nihon Shipyard Co. and Mitsui & Co. in investigating alternative green fuels and their availability, and to develop zero-emission vessels and potentially invest in related bunkering infrastructure. Through this arrangement, Pacific Basin will continue to be at the forefront of our industry's development, and accelerate the transition to make zero-emission-ready vessels the default choice for new vessels by 2030, enabling us to meet our target of net zero emissions by 2050.
Retirement of Our Chairman and Executive Director
The Board announced in May that our Chairman and Executive Director David Turnbull has decided to retire from the position of Executive Director and Chairman of the Company after nearly 14 years in those positions and two prior years as an Independent Non- executive Director. Mr. Turnbull's retirement will take effect from the conclusion of the Company's 2023 annual general meeting, and he remains fully committed to his current roles in the meantime.
The Company has appointed an international recruitment firm to undertake a global search for a successor as Chairman. The Board has decided that, in future, the chairman role should be independent and non-executive.
3
Market Outlook
The IMF has lowered its global GDP growth forecast to 3.2% for 2022 and 2.9% for 2023, reflecting impacts of higher inflation and interest rates, on-going conflict in Ukraine and Covid-related disruptions to the Chinese economy.
In light of a softening global economy, we expect dry bulk demand in the second half to moderate somewhat from recent highs but remain relatively firm mainly due to seasonal factors in the grain market, elevated coal demand for electricity production and continued investment in global infrastructure.
Any revival of the Chinese economy is expected to be supported by domestic property construction, manufacturing and infrastructure spending as government policies are needed to drive growth in light of continuing Covid restrictions.
Changes in trade flows caused by the conflict in Ukraine have positively impacted tonne-mile demand for some commodities to date, but we continue to monitor the impact that the conflict might have as we come close to the typical Black Sea grain export season.
Supply is still tied up in congestion around the world, and although vessel speeds remain elevated leaving limited scope to increase vessel capacity through higher speed, historically very high bunker costs have begun to lower speeds taking some supply out of the market.
We believe uncertainty over new environmental regulations and the high cost of newbuildings, will continue to discourage any significant new ship ordering. According to Clarksons Research, current orderbook is at a 30-year low of just 7.2% of total fleet and new ordering is down 60% in the first half of 2022 compared to the same period last year. The low orderbook, coupled with IMO regulations to reduce carbon intensity likely resulting in slower speeds and increased scrapping from 2024 onwards, bodes well for the long-term health of the dry bulk market.
Well Positioned for the Future
Given the supportive fundamentals of our industry, we are excited by the long-term prospects of dry bulk shipping despite any short-term headwinds. Our large and modern owned fleet of highly versatile Handysize and Supramax ships, combined with our close customer partnerships, enhanced access to cargo opportunities, and high vessel utilisation, enables us to outperform in this strong earnings environment.
Having significantly further strengthened our balance sheet in the first half of 2022, we anticipate that the still healthy dry bulk market, our strong cash generation and limited expected capital expenditure will enable us to continue to reward shareholders by returning capital and take advantage of opportunities to grow our fleet going forward.
As always, I would like to take this opportunity to thank all of our loyal and talented Pacific Basin seafarers and shore-based staff, as it is not without your commitment and professionalism that we can deliver these results and continue to improve our safety performance. I also thank all Pacific Basin stakeholders for your support and your contribution to our on-going success as we strive to be the first choice partner in dry bulk.
Martin Fruergaard
Chief Executive Officer
Hong Kong, 28 July 2022
Our Strategies
■■ Maintain and grow our cargo focus and scale
■■ Continue to be both a fully integrated owner (asset heavy) and operator (asset light)
■■ Be the industry leader on an earnings and cost per day basis
■■ Maintain empowered local chartering and operations close to customers
■■ Keep building our brand as a leading, admired and preferred shipping company
■■ Keep our cash and balance sheet strong
■■ Protect our leading Handysize position by replacing our older, smaller ships with younger, larger ships
■■ Continue to grow the proportion of our owned Supramax fleet
■■ Not order newbuildings until zero-emission bulkers are available and viable
■■ Continue to build and leverage our sustainability and decarbonisation, digitalisation, and research capabilities
4
MARKET REVIEW
The Dry Bulk Freight Market Continues to Thrive
US$22,000 net | 34% | US$25,630 net | 28% | ||
BHSI 38K (tonnage adjusted) | BSI 58K | ||||
Handysize 1H22 avg. market spot rate | Supramax 1H22 avg. market spot rate | ||||
Handysize Market Spot Rates in 2020-2022 | Supramax Market Spot Rates in 2020-2022 | ||||
US$/day net* | US$/day net* | ||||
40,000 | 40,000 | ||||
35,000 | 35,000 | ||||
30,000 | 30,000 | 2021 | |||
25,000 | 25,000 | 25 July 2022 | |||
2021 | |||||
20,000 | 20,000 | $21,720 | |||
25 July 2022 | |||||
15,000 | $18,670 | 15,000 | |||
2020 | |||||
2020 | |||||
10,000 | 10,000 | ||||
5,000 | 5,000 | ||||
0 Jan Feb Mar Apr May Jun Jul Aug Sep | Oct Nov Dec | 0 Jan Feb Mar Apr May Jun Jul Aug Sep | Oct Nov Dec |
* Excludes 5% commission
Source: Baltic Exchange (BHSI 38,000 dwt (tonnage adjusted) and BSI 58,000 dwt)
The minor bulk freight market in the first half of 2022 saw continued favourable demand and supply fundamentals which have supported freight rates in the year to date. Freight rates saw a typical seasonal decline leading up to Chinese New Year, but otherwise remained firm over the period at higher levels than prior years, averaging US$22,000 and US$25,630 net per day for Handysize and Supramax respectively.
Demand for minor bulks over the period was robust despite concerns over global economic growth, on-going conflict in Ukraine, and Covid-related impacts on the Chinese economy. Changes to traditional trade routes as a result of the Ukraine conflict has benefited tonne-mile demand of some commodities such as coal and grain. Looking ahead, we expect that lower grain availability, slower global growth, and higher inflation may have a somewhat moderating impact on dry bulk freight demand in the second half.
Ship Values Remain Elevated
US$28.5m +4%
Second-hand Handysize YOY
Vessel values have been supported by the continued strong freight market and increasing newbuilding prices. Clarksons Research currently values a benchmark five-year old Handysize at US$28.5 million, up 4% since the start of the year.
Dry bulk newbuilding prices remain above second-hand prices as shipyards offer limited pricing incentives to build dry bulk ships. Yard capacity has largely been filled up by higher margin non-dry bulk ship ordering which is likely to continue as we expect dry bulk vessel ordering will remain constrained until commercially viable zero-emission vessels are available.
Source: Clarksons Research
DEMAND: Minor Bulks Continue to Drive Demand
Global minor bulk loading volume grew approximately
9% in the first half compared to the same period last year. Construction materials were the main driver, in particular cement, clinker and aggregates where loadings were up 8% year on year. Compared to the first half of 2021, demand was strong across a broad range of commodities, in particular pet coke and bauxite loadings which were up 15% and 7% respectively. We believe increased global infrastructure spending and some relaxation of Chinese domestic property construction curbs will support minor bulk demand for the remainder of 2022 albeit at a more moderate rate then seen in the first half as slowing global growth is likely to impact demand.
Conflict in Ukraine continues to impact grain exports from the Black Sea and has been a major contributing factor in lower year to date grain loadings of 6% compared to the first half of 2021. Global food security has become a major issue as typical buyers of Ukrainian grains are forced to source from locations which are further away. Some lost volumes are being replaced by other producers, most notably the United States, Argentina, Brazil and Australia as higher grain prices have incentivised farmers around the world to increase plantings for export, with these volumes expected to benefit overall tonne-mile demand.
Coal loading volumes in the first half of 2022 increased 2% compared to the same period in 2021. Since the lifting of the Indonesian coal export ban we have seen a significant increase in coal loadings to countries in Europe, as well as India. The conflict in Ukraine has also had a positive tonne-mile impact as coal is increasingly being sourced from non-Russian areas such as Australia, United States, Canada and Colombia.
1H2022 Global Cargo Loading Volumes# | Annual Change in Global Dry | |
Bulk Tonne-mile Demand | ||
Selected Minor Bulks* | +9% | YOY change in billion tonne-miles |
Grain | -6% | 1,400 | |||||
Iron Ore | -1% | 1,200 | |||||
+3.7% | |||||||
Coal | +2% | 1,000 | |||||
* Minerals, non-coal energy, metals and minor ores, fertiliser, | 800 | +0.8% | |||||
sugar and non-grain agricultural products, cement and clinker, | 600 | +1.9% | |||||
logs and forest products, steel and scrap | |||||||
+1.4% | |||||||
Source: Oceanbolt | +0.5% | ||||||
400 | +0.1% | ||||||
Iron ore loading volumes declined 1% in the first six | +3.3% | ||||||
200 | |||||||
months of 2022 compared to the same period last year. | +2.1% | ||||||
0 | |||||||
The decline was due to seasonal weather impacting | -0.5% | ||||||
mining operations from key producers in Brazil and | -200 | ||||||
Australia, as well as reduced demand for steel products in | |||||||
China as domestic property construction underperforms, | -400 | ||||||
and economic growth is negatively impacted by | -600 | ||||||
continued Covid mitigation controls. Steel production in | |||||||
2019 | 2020 | 2021 | 2022F | 2023F | |||
China is now expected to be lower than 2021 levels. | Iron Ore | Coal | Grain | Minor Bulk | |||
# Cargo volume is different to tonne-mile | Source: Clarksons Research, data as at June 2022 |
demand. Tonne-miles is the primary measure | |
of transport demand. A tonne-mile is defined | |
as one tonne of freight shipped one mile, and | |
therefore reflects both the volume shipped | |
(tonnes) and distance shipped (miles). | |
5
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Pacific Basin Shipping Limited published this content on 28 July 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 July 2022 08:47:03 UTC.
