Pacific Basin returns to profit in 1H18

CEO of Pacific Basin, Mats Berglund, commented: “The minor bulk freight market strengthened again in the first half of 2018 which, combined with our high laden utilisation, continued outperformance and competitive cost structure, enabled us to record a much improved net profit of US$30.8 million and EBITDA of US$99.3 million for the half year.”

“In view of the recovering market conditions and our return to a meaningful level of profitability, we are recommencing dividend payments in line with the dividend policy of paying out at least 50% of net profits excluding disposal gains for the full year.”

“We acquired five modern vessels in the first half of the year which will grow our owned fleet to 111 ships by January 2019. Four of the acquisitions were 50% funded by equity, and are expected to be accretive to our earnings per share.”

Performance overview

Pacific Basin’s handysize and supramax contributions increased significantly year on year, enabling the business to generate a much improved underlying profit of US$28 million (2017: underlying loss US$6.7 million). This improvement can be attributed to better markets, continued outperformance and strong cost control leading to increasing profits from the company’s larger owned fleet.

The company’s average handysize and supramax TCE earnings of US$9750/d and US$11 730/d net were up 23% and 32% yr/yr, and outperformed the BHSI and BSI spot market indices by 19% and 11% respectively. Pacific Basin reportedly continues to maintain good control of their vessel operating expenses which averaged US$3810/d during the period.

The company operated an average of 139 handysize and 86 supramax ships resulting in 2% and 10% reductions in their handysize and supramax revenue days. This reflects an increase in their owned fleet, offset primarily by reduced short-term chartered-in supramax ships, mainly due to lower Chinese steel export volumes.

We have covered 54% and 67% of our 20 440 handysize and 9540 supramax revenue days currently contracted for the second half of 2018 at US$9610/d and US$11 010/d net respectively.

Outlook

Pacific Basin’s favourable outlook for widely-spread global GDP growth demonstrates optimism for dry bulk demand, and supply is expected to be kept in check by the continued gap between newbuilding and secondhand prices and the uncertain impact of new regulations on ship designs, both of which cause many shipowners in their segments to refrain from ordering new ships.

The company sees upside in secondhand vessel values and will continue to look at good quality secondhand ship acquisition opportunities as prices are still historically attractive, resulting in reasonable break-even levels and shorter payback times.

Trade dispute actions to date impact only a small fraction of the trades in which Pacific Basin is engaged. The conflict between the US and its key trading partners might get resolved but may also escalate. This uncertainty weakens sentiment which could undermine trade, and a global trade war could impact global GDP and dry bulk demand. However, we continue to believe that any negative impact these protectionist actions have on the dry bulk trade will be largely outweighed by positive dry bulk supply fundamentals and continued global dry bulk trade growth overall.

The global 0.5% sulfur cap takes effect on 1 January 2020. With this in mind, Pacific Basin continues to assess their two main methods of compliance – low-sulfur compliant fuel oil versus exhaust gas cleaning systems or “scrubbers” – and are preparing themselves for this significant change. Some owners of larger vessels, including some supramax owners, are planning to install scrubbers. However, it is anticipated that the majority of the global dry bulk fleet, especially smaller vessels such as handysize ships, will comply by using more expensive low-sulfur fuel, which would also lead to lower operating speeds and thereby contribute to a more favourable supply/demand balance.

Pacific Basin’s healthy cash and net gearing positions enhance the company’s ability to take advantage of opportunities to grow the business and attract cargo as a strong partner.

Read the article online at: https://www.drybulkmagazine.com/shipping/31072018/pacific-basin-returns-to-profit-in-1h18/