Cash Flow and Cash
The Group’s four main sources of funds are operating cash flows, bank loans, convertible bonds and equity.
As part of the ordinary activities of the Group, the Treasury function actively manages the cash and borrowings of the Group to ensure sufficient funds are available to meet the Group’s commitments and an appropriate level of liquidity is maintained during different stages of the shipping cycle.
Over the long term, the Group aims to maintain a conservative consolidated net gearing of no greater than 50% – defined as the ratio of net borrowings to net book value of property, plant and equipment – which we believe is sustainable over all stages of the shipping cycle.
Current Position and Outlook
- In late 2014, we drew down US$122 million of new secured bank borrowings.
- As at 31 December 2014, the Group had cash and deposits of US$363.4 million resulting in a 40% net gearing ratio.
- US$179 million of bank borrowings and finance lease liabilities will be repaid in 2015. These include US$89 million in bank loans due that will release 11 vessels from mortgages that can be used for further financing.
- US$350 million of undrawn committed Japanese export credit facilities will largely fund US$385 million of our newbuilding commitments. In 2015, we expect to draw down US$94 million from such Japanese export credit facilities which will fund newbuilding commitments of US$109 million due in the same year.
- Towage sale proceeds of US$69 million were received in early 2015
- RoRo vessel sale proceeds of about US$60 million are expected to be received in 2015.
- The 2016 convertible bonds principal repayment is able to be funded through both new bank borrowing facilities to be arranged during 2015 using unmortgaged dry bulk vessels and the proceeds from the towage sales.
The major factors influencing future cash balances are operating cash flows, purchases of dry bulk vessels, sale of assets, and drawdown and repayment of borrowings.
Cash and Deposits
Treasury is permitted to invest in a range of cash and investment products subject to limits specified in the Group Treasury Policy. These include overnight and term deposits, money market funds, liquidity funds, certificates of deposit, structured notes, and currency-linked deposits.
Treasury enhances Group income by investing in a mix of financial products, based on the perceived balance of risk, return and liquidity. Cash, deposits and investment products are placed with a range of leading banks, mainly in Hong Kong.
The split of current and long-term cash, deposits and borrowings is analysed as follows:
|Cash and deposits||361.7||483.2|
|Restricted bank deposits
|Total cash and deposits||363.4||486.1||-25%|
|Current portion of long-term borrowings||(179.1)||(328.6)|
|Net borrowings to net book value of
property, plant and equipment
|Net borrowings to shareholders' equity||63.5%||42.3%|
|Net working capital||294.7||259.3||+14%|
The Group’s cash and deposits at 31 December 2014 comprised US$353.9 million in United States Dollars and US$9.5 million in other currencies. They are primarily placed in liquid deposits of 3 months or less and saving accounts to maintain the liquidity to meet the Group’s vessel purchase commitments and working capital needs.
Restricted bank deposits at 31 December 2014 primarily relate to additional collateral for certain bank borrowings. The equivalent in 2013 included collateral pledged to maintain guarantees issued for the Towage segment.
During the year, Treasury achieved a 1.2% return on Group cash. Interest income is benchmarked against a target yield of 0.7% being 50 basis point above 3-month USD LIBOR.