Weak market conditions lead to US$196m net loss
Dry bulk, towage and ferry company Pacific Basin acknowledged it suffered an unaudited net loss of US$196 million in the first half of the year compared with a net profit of US$3 million in the same period last year.
The company said first half results were impacted by a US$190 million impairment of its Roll-on/Roll-off (RoRo) investment, a weaker dry bulk spot market and a strong US$14 million contribution from PB Towage.
Pacific Basin said that its balance sheet retained substantial buying power with cash and deposits of US$657 million and net borrowings of US$196 million.
The company has fully funded vessel capital commitments of US$262 million, all for dry bulk vessels.
Mats Berglund, CEO of Pacific Basin, said the company's core dry bulk shipping business had again delivered a respectable performance in the context of the ongoing poor market. "PB Towage has delivered increasingly profitable results giving rise to the largest segment contribution to the Group results during the period. Our RoRo performance and future prospects have been hard hit by the severe weakness in Europe," Berglund said.
Berglund added that "as a consequence of our reassessment of the prospects for our RoRo business, we no longer regard RoRo shipping as a core activity of the Pacific Basin group. We remain committed to our towage business which is performing well and in line with our expectations. We reaffirm that the majority of our future investments will be in the dry bulk shipping sector where our long-standing expertise lies and where we are most confident of delivering a world-class service and sustainable growth and shareholder value over the long term."
However, the company said that in view of the dysfunctional conditions in the sale and purchase market for RoRo vessels, a full exit from this segment in the near term was unlikely. "Accordingly, we will look to manage our RoRo investment and will exit the sector in an economically rational manner that realises the maximum value for our shareholders over the medium term. This will take time, patience and may also require some investment in initiatives and ventures to unlock trading opportunities for our RoRos until such time as we can realise our investment on acceptable terms," it said.
Looking ahead, Pacific Basin said that it expected the Handysize and Handymax spot markets to remain range-bound over the second half of the year. Rates could be impacted by reduced United States grain exports if the drought in the United States Midwest persists and if the mainland demand for minor bulks slows further. There also remains scope for seasonal demand improvements to lift freight rates temporarily around the end of the third quarter.
"We do not anticipate a significantly stronger second half, due mainly to the impact of ongoing capacity expansion at a time of slowing Chinese growth and uncertainty in global trade. Therefore, we still expect dry bulk freight rates will be weaker overall in 2012 than in 2011 and for 2012 to be a tough year for our dry bulk business," it said.
Pacific Basin said its exposure to the weak freight market was partly limited by its cargo book. "We expect the majority of our uncovered 2012 capacity will generate revenue from the spot market and we continue to build our forward cargo book for 2013 and beyond."
Pacific Basin said its board had declared no dividend for the period but, for the full year, would consider a payout based on the group's full-year operating performance and available cash resources and commitments at that time.