Pacific Basin shares 2019 interim results

Mats Berglund, CEO of Pacific Basin, said: “We made a net profit of US$8.2 million, an underlying loss of US$0.6 million and EBITDA of US$101.1 million. Our results for the first half of 2019 were supported by our robust customer-focused business model and competitive cost structure, but adversely affected by markedly weaker dry bulk freight market conditions. We have taken delivery of six modern secondhand vessels in the year to date, including one handysize and five supramaxes, and we completed the sale of an older, small handysize. We now have 115 owned ships on the water and, including chartered ships, we operated an average of 230 handysize and supramax ships overall during the period. We still see upside in secondhand vessel values and will continue to look opportunistically but cautiously at acquiring good quality secondhand ships. We secured a US$115 million revolving credit facility at a competitive interest cost of LIBOR plus 1.35%, and we are repaying our US$125 million convertible bonds. Our healthy cash and net gearing enhance our ability to take advantage of opportunities to grow our business and attract cargo as a strong partner. Some of the negative demand disruptions are easing, minor bulk demand growth remains sound and IMO 2020 effects on the global fleet bode well for the freight market in our sectors. We expect to see stronger freight market conditions in the remainder of 2019, although with continued volatility due to uncertainty about the trade war, slower economic growth than in recent years and the impact of African Swine Fever on soybean imports to China.”

Performance overview

Pacific Basin’s results for the first half of 2019 were supported by the company’s robust customer-focused business model and competitive cost structure, but adversely affected by 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$9170 and US$10 860 per day net were down 6% and 7% year on year, our outperformance over the BHSI and BSI indices increased to 59% and 39% respectively. Our ship OPEX of US$3990/d, general and administrative (G&A) overheads of US$730/d and favourable financing costs of US$820/d 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, global office 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.

The company have covered 56% and 76% of its handysize and supramax vessel days for 2H19 at US$9050 and US$10 790/d net respectively.

Positive growth initiatives

In the first half of 2019, the company took delivery of four modern secondhand vessels (one handysize and three supramax), three of which the company committed to purchase in 2018, and Pacific Basin completed the sale of an older, small handysize. Two further modern supramax acquisitions delivered into our fleet in July, expanding its owned fleet to 115 ships. Including chartered ships, the company operated an average of 230 handysize and supramax ships overall during the first half of the year.

Strong balance sheet

In May, the company closed a new US$115 million syndicated 7 year reducing revolving credit facility secured against ten of the company’s previously unmortgaged ships, raising fresh capital at a competitive interest cost of LIBOR plus 1.35%. The new facility further enhances its funding flexibility and reinforces its already competitive vessel break-even levels.

During the period, holders of the company’s 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 the company exercised its option to redeem all the remaining bonds totalling US$2.8 million on 2 August 2019. As of 30 June 2019, Pacific Basin had cash and deposits of US$314 million, providing sufficient liquidity to repay the US$125 million convertible bonds in full. The company had net borrowings of US$687 million, which is 37% of the net book value of our owned vessels at mid-year. Outlook & Position The 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-sulfur fuel and therefore be incentivised to operate at slower speeds which reduces supply.

Clarksons Research estimates combined handysize and supramax net fleet growth of around 2.3% for 2019 and 1.3% for 2020 despite limited scrapping, while minor bulk tonne-mile demand is expected to grow more than 4% in 2019 and 2020. We expect to see seasonally stronger freight market conditions in the second half of 2019, although with continued volatility influenced by further uncertainty about the US-China trade war, slower economic growth than in recent years and the impact of African Swine Fever on soybean imports to China. Key catalysts for improvement on the demand side are expected to include the onset of the Black Sea grain export season and a return to normal levels of grain traffic out of the Mississippi River and iron ore exports from Brazil. Market rates have been firming, especially in the Atlantic. The company will still see upside in secondhand vessel values and will continue to look opportunistically but cautiously at acquiring good quality secondhand ships where prices are attractive. 2019 is a year heavily influenced by preparations for new environmental regulations.

At the same time, several one-off market disruptions caused a pause in market momentum during the first half of the year. The company have chosen to position many of their owned ships for dry docking this year to install ballast water treatment systems on their handysize and supramax vessels and scrubbers on a majority of their supramaxes to set them up for what we believe will be stronger years ahead. Pacific Basin think the market momentum will return and we are well positioned to benefit.

Read the article online at: https://www.drybulkmagazine.com/shipping/06082019/pacific-basin-shares-2019-interim-results/