A Tough Year in Dry Bulk
2014 was another very difficult year for dry bulk shipping due to oversupply and negative surprises in demand, but our balance sheet remains healthy and we succeeded in generating continued positive EBITDA.
Our towage business – most of which we have now sold – faced similar market-related challenges, adding to the significant one-off accounting charges we have had to book that undermined our results for the year.
The Group made an underlying loss of US$56 million, with non-cash impairments and provisions accounting for the majority of our net loss of US$285 million.
Preserving Value in a Weak Market
We are far from happy with these results, but it says much about Pacific Basin’s effective business model and competitive cost base that we remain EBITDA positive in these testing times and able to generate Handysize earnings that outperformed spot market rates by 28%.
As at 31 December 2014, we had total cash and deposits of US$363 million and net gearing of 40% illustrating our continued robust balance sheet.
The Board has recommended a final dividend of HK 5 cents per share for 2014 (2013: HK 5 cents final) in view of the Group’s positive operating cash flow during the year.
Strengthening our Platform
We are enhancing our focus as a specialist dry bulk company. Management made good progress on several strategic initiatives. Despite worsening market conditions, we recently sold our harbour towage interests, which frees up cash and management time for our core dry bulk business.
We made organisational changes affecting all levels of the Company, such as downsizing our offshore towage organisation and the senior management team is also significantly smaller than a year ago. In aggregate, these will reduce our total general and administrative expenses in 2015.
In our dry bulk business, we stopped buying ships in early 2014 as we saw prices increasing on overly optimistic sentiment without a supporting increase in freight rates. We assimilated into our fleet seven of the ships that we purchased at historically attractive prices. These are enhancing our service delivery and have made a positive cash contribution even in this weak market.
Sustainable, Long-Term Strategy
We continued our concerted investment in staff training and development, which resulted in excellent safety performance at sea, enhanced productivity ashore, and leadership development that is the backbone of our strong succession planning.
The value of long-term relationships over short-termism remains a key Pacific Basin tenet at the bottom of the market cycle as much as it is at the top, and this principle is tested in times of weak forward market pricing.
The importance of long-term relationships applies to our human, social and natural Capitals – the resources on which we rely – including our customers, our staff, the environment, the communities in which we are active, and other stakeholders. We apply sustainable thinking in our decision-making processes and the way we run our business. We aim to create long-term value through good corporate governance, accountability, strategy and risk management, and responsible social and environmental practices.
Underpinning our operational strength is the endorsement and support we have earned from our customers and other stakeholders. In 2014, we were awarded the inaugural “BIMCO Shipping Company of the Year ” award for our innovative customer service and solid service reliability. That is welcome recognition coming from our industry’s largest association. We also received awards for safety, environmental responsibility and corporate governance, which support our view that our staff’s dedication, passion and ability to deliver an excellent and safe service make Pacific Basin one of the very best companies in dry bulk shipping.
Awards in 2014
- Shipping Company of the Year
- Safety Award
International Bulk Journal
- Safety Award
Lloyd's List Awards Global
- Best Ship Operator
Lloyd's List Awards Asia
- Outstanding Performance in Port State Control Inspections
Hong Kong Marine Department
Carbon Footprint Repository for Listed Companies in Hong Kong
- Platinum Award for Corporate Governance, Social Responsibility and Environmental Responsibility
Changes to our Board
As announced during the year, Irene Waage Basili joined our Board as an Independent Non-executive Director on 1 May 2014, bringing valuable additional commercial, strategic and operational experience to our board meetings.
Chief Operating Officer Jan Rindbo resigned from the Company on 7 November 2014 to pursue new employment in his home country.
Management of our dry bulk commercial organisation remains assured by our Chief Executive Officer Mats Berglund, assisted by our Atlantic and Pacific chartering directors demonstrating our prior leadership development and succession planning.
Chanakya Kocherla relocated to Hong Kong in July 2014 to assume the new role of Chief Technical Officer to take overall responsibility for our ship management, newbuilding, marine insurance and sustainability matters.
The Board now comprises four Executive Directors and five Independent Non-executive Directors, all of whom I thank for their valuable contributions to the Board in a challenging year requiring much careful consideration and strategic decision making.
A Well-Positioned Business
At the time of writing, the Baltic Dry Index (BDI) is at its lowest since indices began in 1985 and the freight market has become dysfunctional in some regions where cargo availability is very limited – exacerbated by the lull around the lunar new year holidays in China.
This is a difficult time for everyone in the dry bulk shipping sector and we expect to see a continued weak market in 2015. Chinese economic growth is slowing and the slump in fuel prices, if prolonged, may lead to faster ship operating speeds potentially increasing global shipping supply.
I am confident, however, that we are well positioned to weather any protracted weak market and take advantage of opportunities that may arise, resulting in better returns for our shareholders when the stronger market returns. The Company is in good financial health, has a proven business model and a large competitive fleet with a low cost base. It has the excellent people, governance structure, strategies, systems and reputation that are key to enhancing our already competitive market position.
On behalf of the Board, I thank our loyal customers, suppliers, staff and other stakeholders for their support of Pacific Basin – especially in these testing times.