Shipbroking giant Clarksons has chalked up improved first half results in the face of a weaker dry cargo market, an ongoing trade war between the US and China and a period of constrained capital markets activity.
London-listed Clarksons pointed to a strong showing from its shipbroking operation for the improved numbers and remains confident of an ongoing recovery in shipping markets and a disruption around IMO 2020.
Chief executive Andi Case said: “Clarksons has delivered a robust performance in the first half of 2019, with revenue up 10% and underlying profit up 5% on the first half of 2018, despite suppressed investor appetite weighing on the financial markets.
“As in previous years, our business remains second half weighted and we anticipate that the upcoming introduction of IMO 2020 will cause market disruption supporting higher freight rates as the supply of available vessels is impacted.
“This, and a broader re-balancing of supply and demand dynamics, means we remain confident in the outlook for Clarksons and the shipping markets, both in the coming months and longer-term.”
Clarksons booked an underlying pre-tax profit of £20.1m for the opening six months of 2019, up from £19.2m at the same stage of 2018.
It paid a dividend of 25 pence for the period, up by a penny on a year-on-year basis.
Significance of scale
“Our results demonstrate the continued effectiveness of the scale and breadth of our offering, our market-leading positions and the strong relationships Clarksons fosters with its clients,” Case said.
“We remain confident in the outlook for the shipping markets, with the ClarkSea Index pointing to improving underlying fundamentals as it increased 8% year-on-year in the first half to move marginally above the trend last seen since the financial crisis.
“Whilst the average of the Baltic Dry Index (BDI) in the first half of 2019 was 26% weaker than the first half of 2018 and 40% weaker than the second half of 2018, we have begun to see increases in the BDI in recent weeks and the tanker market has recorded earnings up 80% year-on-year in the first half.”
Shipbroking recorded an underlying profit of £21.8m, beating the £15.9m at the same stage last year. Revenue climbed from £111.5m to £130.1m.
“The broking teams delivered a strong first half of 2019, despite a fall in dry cargo earnings from their six-year highs as the impact of the Vale dam disaster, adverse weather conditions and the US-China trade war resulted in some seaborne trade disruptions,” Case said.
“Earnings in the tanker market during the first half of 2019 were significantly stronger than the first half of 2018, benefiting from high levels of oil production and exports and containership market conditions made progress over the period, albeit more gradually than expected.
“Container charter rates in the larger sizes saw by far the greatest gains, up on average c.40% since early 2019, with improvements for the smaller ships more limited in the first half.
“On the newbuild supply side, growth is slowing alongside a slower pace of deliveries and clients are being more strategic in the tonnage being ordered.
“Activity in the sale and purchase market was more challenging than expected.”
Weak investor sentiment
The financial division remained in the black with an underlying profit of £1.1m, down from £4.7m a year ago. Revenue dipped from £22.7m to £16.1m.
“The first half of 2019 has been difficult for our financial division,” Case said. “Weak investor sentiment on the back of macro-economic concerns have made capital markets transactions particularly challenging.
“There were no new listings of companies within our covered verticals on exchanges in the US or Norway during the first quarter.
"We did however complete six equity offerings and two debt offerings, raising approximately $830m, with a number of further transactions postponed due to market conditions.
“Whilst market sentiment remains fragile, our financial division has a strong pipeline of mandated transactions ready to be executed as market conditions begin to improve.”
Underlying profit from Clarksons Research improved from £2.4m to £2.8m as revenue inched up from £7.8m to £8.3m.
“We have previously talked about the importance of innovation and technology in the shipping industry and I am very proud to announce that we have established Maritech, a ring-fenced corporate subsidiary of Clarksons, through which we have launched Sea/, the world's first end-to-end digital shipping platform,” Case said.
“Sea/ is an enabler and tool for trade, servicing users all along the shipping chain, digitalising the freight transaction workflow for partners including charterers, owners, traders, operators and brokers.
"Sea/ is highly complementary to brokers and will enable them to increase connectivity with their clients and enhance the service they offer.”