TIDMCKN
RNS Number : 3543F
Clarkson PLC
09 March 2020
9 March 2020
Clarkson PLC (Clarksons) is the world's leading provider of
integrated shipping services. From offices in 23 countries on six
continents, we play a vital intermediary role in the movement of
the majority of commodities around the world.
Preliminary results
Clarkson PLC today announces preliminary results for the 12
months ended 31 December 2019.
Summary
-- Financial results in line with market expectations
-- Strong performance in broking more than offset weakness in financial services
-- One-off, non-cash impairment charge of GBP47.5m in relation
to acquisition of RS Platou in 2015
-- Continued strong free cash flow generation
-- Robust balance sheet with free cash resources(1) of GBP68.7m (31 December 2018: GBP57.0m)
-- Improved forward order book from 2019, although COVID-19
virus likely to impact first half performance
-- Medium term macro environment for shipping favourable as demand / supply dynamics improve
(1) Free cash resources are cash and cash equivalents and
current investment deposits, after deducting amounts accrued for
performance-related bonuses, outstanding loans and monies held by
regulated entities.
Year ended Year ended
31 December 31 December
2019 2018
Revenue GBP363.0m GBP337.6m
Underlying profit before taxation * GBP49.3m GBP45.3m
Reported profit before taxation GBP0.2m GBP42.9m
Underlying earnings per share * 118.8p 105.2p
Reported (loss)/earnings per share (42.4p) 98.8p
Dividend per share 78p 75p
* Before exceptional item of GBP47.5m and acquisition related
costs of GBP1.6m (2018: GBP2.4m).
Andi Case, Chief Executive Officer, commented:
"2019 delivered robust underlying financial results and strong
free cash flow generation, which has enabled us to increase the
dividend for the 17th consecutive year. An excellent performance in
our Broking, Support and Research businesses offset weakness in our
financial services business. Clarksons has a strong balance sheet
and a leading market position across most verticals in shipping and
offshore.
"We started 2020 with a stronger forward order book than in
2019, however, the emergence of the COVID-19 virus will impact our
first half performance. In the medium term, the environmental
regulatory drivers and supply demand dynamics in the shipping
industry are favourable and we remain confident in the prospects of
the Group."
Enquiries:
Clarkson PLC:
Andi Case, Chief Executive Officer
Jeff Woyda, Chief Financial Officer & Chief Operating
Officer 020 7334 0000
Camarco:
Billy Clegg 020 3757 4983 /
Jennifer Renwick 4994
Alternative performance measures (APMs)
Clarksons uses APMs as key financial indicators to assess the
underlying performance of the Group. Management considers the APMs
used by the Group to better reflect business performance and
provide useful information. Our APMs include underlying profit
before taxation and underlying earnings per share. An explanation
of the term 'underlying' and related calculations are included
within the financial review.
About Clarkson PLC
Clarkson PLC is the world's leading provider of integrated
services and investment banking capabilities to the shipping and
offshore markets, facilitating global trade.
Founded in 1852, Clarksons offers its diverse and growing client
base an unrivalled range of shipbroking services, sector research,
on-hand logistical support and full investment banking capabilities
in all key shipping and offshore sectors. Clarksons continues to
drive innovation across its business, developing digital solutions
which underpin the Group's unrivalled expertise and knowledge with
leading technology.
The Group currently employs over 1,600 people in 53 different
offices across its four divisions and is number one or two in all
its market segments.
The Company has delivered 17 years of consecutive dividend
growth. The highly cash-generative nature of the business,
supported by a strong balance sheet, has enabled Clarksons to
continue to invest to position the business to capitalise on the
upturn in its markets.
Clarksons is listed on the main market of the London Stock
Exchange under the ticker CKN and is a member of the FTSE 250
Index.
For more information, visit www.clarksons.com .
Chair's review
Overview
2019 has been a year of good operating and financial
performance, continued strategic progress and consolidation of our
leading market position. I am pleased to report to shareholders
that our underlying results were in line with market expectations.
During the year our broking business, which is a market leader in
nearly all its verticals, once again delivered an increased profit
and expanded geographically. The strong performance in Broking was
offset by weakness in our Financial business, where profits were
impacted by the lack of activity in capital markets. However, we
were pleased to record solid growth in our Support and Research
businesses.
Clarksons is playing an increasingly important role as an agent
for change in the sustainability agenda within shipping, as the
industry strives for a lower sulphur and lower carbon future
powered by cleaner energy. We have also invested in renewables
across Broking, Financial and Support, all powered by dedicated
market intelligence and research. Regulatory changes are driving
changes to the fleet and shipping behaviours, with IMO 2020 being
the most recent example. Further greenhouse gas and emissions
targets in 2030 and 2050 provide a favourable long-term backdrop to
our business as fleets evolve from low sulphur oil to other means
of powering ships. In order to reach the 2050 targets, we estimate
that most of the world's shipping fleet will need to be replaced.
Rates of scrappage will increase as the fleet evolves within the
framework of these regulatory changes, improving the supply/demand
dynamics.
We have continued to invest in technology during the year. Our
recently launched Sea/ products are complementary to our existing
business, providing brokers and clients alike with improved tools
for trade. We are beginning to see adoption of the Sea/ platform by
charterers, owners, traders and brokers as we seek to increase
efficiency and reduce risk for the entire industry.
Results
Underlying profit before taxation was GBP49.3m (2018: GBP45.3m).
Reported profit before taxation was GBP0.2m (2018: GBP42.9m) due to
a non-cash impairment charge arising from the acquisition of RS
Platou ASA. Underlying earnings per share was 118.8p (2018:
105.2p). Reported basic loss per share was 42.4p (2018: earnings
per share 98.8p).
As explained in the financial review, free cash resources as at
31 December 2019 were GBP68.7m (2018: GBP57.0m).
Dividend
Clarksons is increasing its dividend for the 17th consecutive
year in line with its progressive dividend policy. The Board is
recommending a final dividend of 53p (2018: 51p). Combined with the
interim dividend of 25p (2018: 24p), the resulting full year
dividend is up 4% to 78p (2018: 75p). The dividend will be payable
on 29 May 2020 to shareholders on the register at 15 May 2020,
subject to shareholder approval.
Clarksons is committed to its progressive dividend policy,
whilst at the same time growing the business with organic and
occasionally inorganic investments to grow the profitability.
Clarksons has a strong balance sheet and has a business model which
generates free cash flow with high cash conversion rates. Dividends
will remain an important priority in the years ahead.
People
Over the past year I have spent a great deal of time meeting and
getting to know many of the Clarksons global team. I have been very
impressed with the quality of people I have met and by the
progressive, supportive and inclusive culture. Training, recruiting
and providing our people with industry leading tools for trade
remains a key pillar of the success of Clarksons. We have again
grown the business, hiring a number of highly experienced
colleagues to serve our growing and highly valued client base,
investing in offices in Tokyo, Seoul, Connecticut, Copenhagen and
most recently Madrid, as well as expanding our offering in the
renewables space as we work towards a cleaner energy future.
I thank all our colleagues in the Clarksons team for their
continued hard work and dedication.
Board
The Board evolution continued in 2019 and into early 2020. I
joined the Board as Non-Executive Chair in February last year. At
the same time, Ed Warner, who was Acting Chair, stepped down from
the Board having served beyond his scheduled departure date to
provide stewardship during the search for a new Chair. Peter Anker
retired from full-time employment on his 62nd birthday in July
2019, and stepped down from the Board in April. On behalf of the
Clarksons team, I would like to thank Ed and Peter for their
contribution during their years on the Board.
It was with great sadness that, following a long illness, James
Hughes-Hallett CMG, independent Non-Executive Director and former
Chair of the Company, passed away on 12 October 2019. James joined
the Board in August 2014 and served as Chair from January 2015
until March 2018 when, due to illness, he relinquished this role
but continued his duties as a Non-Executive Director and member of
the Audit and Risk, Nomination and Remuneration Committees. James'
extensive expertise in maritime and global trade was invaluable to
Clarksons' operation and strategy.
The Board will remember James for his great leadership and
commitment. Even whilst suffering from his illness, James remained
dedicated to Clarksons, continuing to serve on the Board as a
Non-Executive Director and Committee member, and we remain indebted
for the guidance he provided.
We were delighted to welcome Heike Truol to the Board in January
2020 as an independent Non-Executive Director. Heike brings a deep
knowledge of dry bulk shipping to the Board, particularly from the
customer perspective. Heike's previous experience and skills will
complement that of the rest of the Board - she is an experienced
adviser and her background in strategic planning will be
invaluable.
Shareholder engagement
Having now completed my first year as Chair, I am delighted to
have personally met so many of our major shareholders in what has
been a year of engagement following the voting results at the last
AGM held in May 2019.
I consider the Remuneration Policy to be put to shareholders at
the upcoming AGM to be of such importance to the shareholders and
the business that I, together with Dr Tim Miller (our Remuneration
Committee Chair) and Peter Backhouse (our Senior Independent
Director), have led a major engagement process with shareholders
who collectively hold 49% of our shareholder register. We have
listened to their views and discussed why the Remuneration Policy
for Clarksons is appropriate. Having come in fresh to Clarksons in
February 2019, and having learnt what I now know about the Company,
its management and context, I firmly believe in the remuneration
proposal which will be put to the vote in May.
While Clarksons' Remuneration Policy does not conform to current
market norms, our executives each have binding contracts of
employment. Seeking to update the Policy in the short term would
require those contracts to be broken. The Board believes that this
is not in the best interests of the Company's stakeholders and that
such action would create a significant risk in terms of executive
continuity. There is also a serious cultural consideration -
Clarksons' reputation is built in part on its history of honouring
contracts, it does not break them. When new Executive Directors are
appointed or, in the fullness of time, when succession takes place,
the Board has committed to make appointments more consistent with
market norms, and this legacy remuneration issue will
disappear.
Voting against the re-election of remuneration committee members
is, I believe, a new principal risk. The Board is keen that
shareholders are aware of this risk exposure, and appreciate the
considered and independent approach put into consultation. We hope
that shareholders understand the explanation given within the
'comply or explain' framework and support the Board's
recommendation. I believe it is in the best interests of Clarksons
and its stakeholders to do so.
Outlook
The Board considers the medium-term macro environment for
shipping to be favourable as the demand/supply dynamics improve and
as sustainability-driven regulatory changes such as IMO 2020 move
apace. Clarksons benefits from a leading position across its
markets, with a truly global footprint, market-leading technology
and diversity across sectors and offerings. All these elements make
the Group resilient.
Clarksons started 2020 with a stronger forward order book than
in 2019, however, since the beginning of the year, the outbreak of
the COVID-19 virus in Asia has contributed to significantly reduced
short-term freight rates. The extent of its geographical reach and
duration will determine by how much global GDP may be challenged,
although it does already seem clear that the Company's performance
will be impacted in the first half of 2020. The Board remains
confident in the medium-term outlook for the shipping, offshore and
renewables markets and the Group.
Sir Bill Thomas
Chair
6 March 2020
Chief Executive Officer's review
I am delighted to report a strong underlying performance from
Clarksons in a year which has seen volatility, both good and bad,
in freight rates, asset values and volumes, caused by a range of
natural disasters, trade wars, changing regulation, sanctions and
geo-political uncertainty. However, as expected, overall
demand/supply dynamics improved with better fleet utilisation,
continued low levels of shipbuilding activity and a further growth
in seaborne trade. The strength of Clarksons' market-leading teams
and the 'best in class' service provided across the global
business, combined with confidence in the underlying fundamentals,
has enabled the Board to recommend an increase in the final
dividend, representing a 17th consecutive year of dividend growth
for shareholders.
As we have previously highlighted, shipping in common with many
industries, is embarking on significant change to combat
environmental challenges. Recent years have seen important
developments, including IMO 2020, first agreed in 2016 and enforced
from 1 January 2020, introducing a global low sulphur emissions
cap. In 2018, the IMO also agreed milestone targets to reduce
CO(2)
emissions, including a 40% reduction by 2030 and a 50% reduction
by 2050. Some industry players are targeting even more ambitious
net zero carbon strategies. Although shipping currently produces
around 2.4% of global CO(2) emissions, it remains by far the most
carbon efficient means of transport. As an industry, efforts
towards cleaner emissions are starting to have significant impact
and we estimate that overall CO(2) output has been reduced by about
14% since 2008, through measures such as slow steaming and the use
of more fuel efficient vessels, despite moving 35% more cargo. Even
with this progress however, further accelerated decarbonisation
strategies will be needed in the coming decades to hit the
targets.
There will be further industry-wide changes as the
sustainability agenda becomes more urgent and emission policy is
set for 2030 and 2050. We are well positioned to continue to help
and advise our clients to navigate these changes at every stage of
the shipping lifecycle. This year we have further invested in
expanding our strong renewables capability by growing our dedicated
renewables broking, investment banking, and UK support teams and
also enhancing our research and the quality of our offshore wind
and emissions data.
We are already seeing an increase in ships powered by
alternative fuels and an increasing focus on reducing greenhouse
gases. Clarksons is proud to have not only played a part in
ordering many such vessels and successfully concluding and
continuing to work on such initiatives, but also to be leading the
way as an agent for change with our clients in a variety of ways
towards a cleaner energy future. At this time of innovation and
change, there any many challenges and opportunities, not least in
financing. As the industry adopts new designs and technologies,
there needs to be a sensible and pragmatic transition in order for
global trade to flow and the more than 12 billion tonnes of
seaborne trade to reach its destination.
In 2019, as we moved towards IMO 2020 coming in to force,
strategies to deal with this new regulation were executed and there
was an increase in ships leaving the water for scrubber fitting.
This, together with US sanctions, contributed to an increase in
tanker rates in the latter part of the year as supply became
constrained. We anticipate continued market disruption with big
spreads in fuel prices in the short to medium-term as the industry
recalibrates to the new requirements.
We continue to drive innovation across the industry, with our
market-leading technology bringing transformative digital solutions
to the chartering process. Our Sea/ suite of products is enabling
users to make better decisions more efficiently, with less risk and
more control. The software, delivered by our wholly owned SaaS
provider Maritech Services Limited, has been designed to help
manage increasing complexity and regulation across our industry. We
continue to believe that technology is a valuable additional
service which will complement our world class broking teams. Many
but not all of our products have now been commercially launched and
our software is now being used by all categories of participant in
the shipping and offshore markets. With the launch of additional
modules later this year, we expect to see an acceleration of this
uptake.
Turning to our performance by division, the broking teams
delivered an exceptional performance in the year, despite a mixed
macroeconomic backdrop. The tanker and gas markets performed very
strongly, with mixed fortunes across the year in the dry cargo
markets. In addition, we began to see some recovery in the offshore
markets, with margins starting to lift as a result of increased
activity.
Although the market dynamics provided a favourable environment
for the broking teams, the Financial division saw another
challenging year overall. Macroeconomic uncertainty continued to
fuel negative sentiment in the global shipping and offshore capital
markets, with transactions at a low level despite a promising
pipeline. Newbuilding activity, other than dual fuel projects,
remained at low levels during 2019, although we anticipate the
introduction of IMO 2020 and the shift to a cleaner energy future
will lead to earlier scrapping of ships and changes across entire
vessel fleets that will require future financing.
The Research team again delivered a strong performance, with
increases to both revenue and profitability. The team expanded its
digital capabilities and grew its client base, cementing its
position as the leading provider of authoritative intelligence and
data to shipping, trade, energy and offshore markets. The teams'
increased volumes of annuity revenue and retention of clients has
been driven by a focus on excellent client service and the
provision of unparalleled market insights to enable better and more
informed decision making.
The Support division has seen profitable growth during the year,
new office openings and the launch of Gibbs Safety and Survival, a
specialist division focusing on the supply of personal protective
equipment and safety and survival equipment. An uptick in activity
across the offshore and renewables industry has seen positive
momentum building for the support division.
I welcome this opportunity to thank everyone at Clarksons for
their hard work during the year. Our people are our core asset,
successfully growing our business and making it possible for
Clarksons to deliver value to our shareholders. During the year we
expanded our global footprint and invested in expertise across the
business, including our very successful wet FFA team, who have gone
from a standing start to becoming a market leader within the year.
We have also opened new offices in Copenhagen and Connecticut,
successfully rolled out our offices in Tokyo and Seoul, and since
the year-end acquired Martankers which has created a base for the
Group in Spain.
On behalf of everyone at Clarksons, I would like to highlight
the invaluable role that James Hughes-Hallett played in guiding the
Company and providing great leadership and expertise throughout. He
will be greatly missed by all those who knew him.
I would also like to congratulate Sir Bill Thomas on his
knighthood for his services to politics and charity. Sir Bill has
made a significant contribution as Chair in his first year at
Clarksons and I thank him for his stewardship and guidance. I am
also delighted that Heike Truol has joined the Board as a
Non-Executive Director. Heike brings a deep knowledge of dry bulk
shipping to the board, particularly from a client perspective, and
I look forward to working with her.
As highlighted in the interim results issued on 12 August 2019,
we undertook a review of impairments to goodwill on the balance
sheet relating to the acquisition of RS Platou ASA. The outcome of
that review is a non-cash impairment charge of GBP47.5m relating to
the carrying value of RS Platou ASA. The impairment charge does not
affect our cash balances or distributable reserves. Whilst the
offshore oil and shipping capital markets are in a difficult stage
of their respective cycles, the strategic rationale of the
acquisition of RS Platou remains sound as the funding environment
for new build ships from banks remains limited and as the offshore
markets improve and as the offshore wind markets continue their
growth.
The global backdrop remains mixed, with continuing trade wars,
the impact of the COVID-19 outbreak, and the changing pressures on
global GDP impacting freight rates in most markets. Oxford
Economics has forecast that if COVID-19 becomes a pandemic in Asia,
global GDP will take a 0.5% hit, whilst if this becomes a global
pandemic, the negative impact on global GDP will be 1.5%.
The current outbreak has adversely affected the freight rate
environment, with the ClarkSea index down 32% since the first week
of 2020. Despite the challenges that this presents in the immediate
future, the macro environment has been broadly supportive of
positive forward momentum, and we start 2020 with a strong forward
order book of US$113m. Capital markets, however also remain
challenged as investors continue to sit on the sidelines.
2019 has been a strong year for Clarksons and global demand for
shipping continues apace, irrespective of the pricing dynamics
within specific markets. As a business, we have been signalling for
some time the favourable industry supply / demand dynamics, with
new builds at historic lows and an increasing number of ships being
scrapped, in part to meet new regulatory requirements. We have
invested across the business in teams and technology and we are
confident that we are best positioned to help our clients navigate
the complexities of the shipping and offshore markets, with a
particular focus on the evolution of the industry towards a low
carbon, low sulphur future, as we go into 2020.
The outlook for the coming year is however likely to be affected
by the current COVID-19 outbreak, which we anticipate will impact
our first half performance. Nevertheless, we continue to believe
the fundamentals of the shipping industry are improving and we
remain confident in the medium-term outlook.
Andi Case
Chief Executive Officer
6 March 2020
Business review
Broking
Revenue: GBP283.0m (2018: GBP251.7m)
Segment underlying profit: GBP55.5m (2018: GBP44.0m)
Forward order book for 2020: US$113m* (At 31 December 2018 for
2019: US$107m*)
* Directors' best estimate of deliverable forward order book
(FOB)
Despite a challenging start to the year, performance in the
second half was encouraging across both our asset and chartering
activities.
Dry cargo
The Baltic Dry Index (BDI) matched last year's seven-year high
of 1,353. Capesize earnings performed 11% better year-on-year,
which partly offset the earnings decline in the smaller size
sectors. The third quarter of 2019 marked the highest quarterly
earnings since 2010, following a weak first half which was riddled
by trade disruptions.
Iron ore volumes were undercut due to the Vale dam rupture in
Brazil but partially recovered during the second half of the year.
The sub-Cape sectors suffered under the US-China trade dispute with
weak US soybean cargoes, which was compounded by softer Chinese
soybean demand due to African Swine Fever (ASF). Strong coal and
construction demand from emerging Southeast Asian countries
supported the sub-Cape market, but the declining trend in Europe's
coal demand, as the Continent increasingly turns to gas and
renewables for power generation, compromised seaborne trade
growth.
Shipowners responded to the weak earnings environment during the
first half of the year by postponing new build deliveries and
sending ships to drydocks to install sulphur emission cleaning
systems (scrubbers) in preparation for the IMO 2020 bunker fuel
sulphur limit restriction, effective from 1 January 2020. Thereby
the active tonnage has remained tight and demolition remained
limited.
While the focus for shipping has been on preparations for the
IMO 2020 regulations, longer-term planning has also been affected,
with a more cautious approach to investment in new generation
eco-friendly vessels. New build orders reduced by 45% year-on-year,
which resulted in the order book being 10% of the fleet, all of
which is scheduled to deliver over the next three years.
Fleet growth in the short term poses downward pressure on
earnings, but the supply balance will recalibrate as shipowners
adjust to the market through cancellation or postponement of new
builds and demolition of older uneconomical tonnage. Growing
pressure on greenhouse gas emissions and shipping's carbon
footprint will reduce fleet growth with higher costs to comply,
charterers having responsibility toward deployment of compliant
vessels and lower eco speeds.
Seaborne trade growth should expand as iron ore volumes recover,
world economic growth improves, and China continues with monetary
stimulus and investment in emerging regional and African economies.
Upside potential for seaborne trade exists if Europe also reverts
to infrastructure related stimuli.
The outbreak of COVID-19 in China is expected to weigh on world
economic growth. To counter such a downturn, many countries might
be forced to increase monetary stimulus.
Nevertheless, fleet growth will continue to challenge seaborne
demand, whilst fragile geopolitics and combatting COVID-19 will
affect seaborne trade and market volatility.
Containers
Containership market conditions overall saw further progress in
2019, although improvements were heavily weighted towards earnings
at the larger end of the charter market. The container freight
market, meanwhile, proved challenging for operators, with spot box
freight rates generally finding it hard to make headway. The key
Shanghai Containerised Freight Index (SCFI) averaged 811 points
across the full year, down by 3% on 2018, though rising in the
final quarter. Despite this backdrop, containership charter rates
improved through most of 2019, following a downward trend in the
second half of 2018, with the 'basket' containership charter rate
index up by 19% between the start and the end of the year, although
the full year index average was down 6% year-on-year. Nevertheless,
the trend was clearly upwards, and sentiment saw a marked
improvement. Charter rates in the larger sizes again saw the
greatest gains, up over 60% during 2019, with improvements for the
smaller ships significantly more limited. The one-year charter rate
for a 6,800 20-foot Equivalent Units (TEU) containership, for
example, increased from $11,000/day at the end of 2018 to an
average of US$25,000/day in December 2019.
In terms of fundamentals, global seaborne box trade growth
proved soft in 2019; clear headwinds from the world economy,
including the US-China trade dispute and disruptions in developing
economies, had a notable impact. Box trade growth is estimated to
have reached just under 2% in both TEU and TEU-mile terms. On the
supply side, capacity growth appeared to become more manageable.
Total fleet capacity expansion stood at 4.0% across 2019 (compared
to 5.6% in full year 2018) and is expected to slow with the order
book historically limited at around 11% of fleet capacity. Boxship
contracting remained fairly subdued in 2019 at 0.79m TEU. Despite
this, with demand side impetus limited, the headline fundamentals
suggested limited rebalancing. However, factors related to the
introduction of the IMO 2020 global sulphur cap have provided
support to vessel earnings, with boxship time out of service for
scrubber retrofit estimated to have reduced available active
capacity on average across 2019 by 1.5% (and by 2.3% in sizes 8,000
TEU and above). Moreover, average container service speeds dropped
by circa 2% in 2019, further absorbing capacity.
As of the end of 2019, whilst headline fundamentals going
forward appear relatively balanced, the vessel scrubber retrofit
schedule and other impacts related to the IMO 2020 regulations look
likely to continue to support gains in vessel earnings for larger
charter market vessels in particular, although for the sector as a
whole significant risks to demand from the world economy clearly
remain and still need to be tracked closely. The ability of
container shipping lines to absorb the cost of low sulphur, IMO
2020 compliant fuel through box freight levels is also set to be an
increasingly telling factor behind trends in the box shipping
industry.
Tankers
The tanker market strengthened considerably in 2019, driven by a
combination of geopolitical developments, IMO 2020 related
reductions in trading fleet supply, strong growth in crude imports
into China and strong growth in crude exports from the United
States.
Clarksons' published annual average earnings for Very Large
Crude Carriers (VLCCs) on the main Middle East to Far East route
increased by 126% versus the 2018 average, to levels above the
long-run averages recorded since 1990. Meanwhile Clarksons' average
annual earnings for Suezmaxes and Aframaxes increased by 92% and
62% respectively versus 2018 levels, both also surpassing the
long-run average levels.
In the products tanker sector, Clarksons' annual average
earnings for Long Range 2 (LR2) tankers and Long Range 1 (LR1)
tankers trading in clean products on the key Middle East to Far
East route increased by 100% and 80% respectively versus 2018
average levels. Clarksons' average earnings for Middle Range
tankers (MR) in 2019 increased by 57% versus 2018 levels. Products
tanker earnings were slightly below the long-run average
levels.
Geopolitical developments had a strong influence on the market.
In particular, changes to US sanctions policy in May and again in
September led to reductions in the VLCC trading fleet. The changes
announced in September precipitated an extreme spike in tanker
earnings. The spike was ultimately short-lived, however both crude
and products tanker earnings were sustained at high levels
throughout the fourth quarter driven by factors such as continued
growth in oil demand and refining capacity; record levels of
Chinese crude imports and US crude exports; the restoration of
higher levels of Russian crude exports following disruption over
the summer; and typical seasonal factors such as bad weather.
The crude tanker fleet grew by 6.4% in 2019. However, the size
of the trading fleet was reduced by the removal of Iranian tonnage;
the temporary removal of vessels from service in order to retrofit
exhaust gas scrubbers in preparation for IMO 2020; increased
numbers of vessels being employed in floating storage as stocks of
IMO 2020 compliant fuel were built up; and by the additional
sanctions imposed in late September.
The products tanker fleet grew by an estimated 4.6% in 2019.
However, the clean products trading fleet was similarly reduced by
a significant number of LR2s switching to crude oil or dirty
products trade. This meant that, although the total LR2 fleet grew
by an estimated 7.2% in 2019, the clean trading LR2 fleet increased
by just 0.5%.
Earnings remained at high levels at the beginning of 2020,
however the return of tonnage that had been affected by sanctions
in late September, together with several factors that are expected
to be short-term headwinds to earnings including the effects of the
COVID-19 virus; disruption to crude exports from Libya; and
refinery maintenance in the Middle East led to much softer earnings
in many of the crude and products tanker markets by early
February.
Looking ahead in 2020, fleet growth in both the crude and
products tanker segments is expected to be lower than in 2019,
while the trading fleet is expected to remain constrained by the
combination of further scrubber retrofitting, floating storage, and
the absence of Iranian vessels in the market. Crude tanker demand
growth is expected to be driven by higher levels of crude exports
from the US, Brazil, Norway and the start-up of exports from
Guyana. Meanwhile a combination of continued demand growth, higher
run rates at recently built refineries in Asia, and further new
refining capacity are all expected to lead to higher crude imports
into Asia, assuming that the worst effects of COVID-19 are confined
to the first half of the year.
In the products tanker sector, China is expected to see higher
levels of products exports following the rapid growth in refining
capacity and fresh quotas for products exports. Upgrades and
increases in refining capacity in the Middle East may also lead to
increased shipments from that region once refinery maintenance in
the early part of the year is concluded. It is also possible that
IMO 2020 may lead to higher refinery run rates and additional
volumes of crude oil and oil products trade as refiners, traders
and bunker suppliers adjust to the switch to lower sulphur bunker
fuels. The current geopolitical backdrop also continues to provide
the potential to create further volatility in the tanker
market.
Specialised products
The majority of 2019 proved to be challenging for the
Specialised Products sector. The earnings environment remained
under pressure for much of the year with freight rates suppressed
by an oversupply of tonnage, added to by an influx of part capable
IMO product carriers due to a weak products market. However,
fundamentals began to change in the latter stages of the year with
the products sector picking up due to seasonality factors and the
IMO 2020 effect. As a result, chemical tanker earnings improved as
products tonnage exited the sector due to the more robust returns
for trading clean petroleum products (CPP). On top of these market
developments, geopolitical factors and the switch to IMO 2020
compliant fuel led to a rise in benchmark chemical freight levels
as owners looked to recoup their additional costs.
The Clarksons Platou Bulk Chemicals Index recorded an 11%
increase from January to December 2019 and was on average 4% higher
than 2018. Although slightly later than was expected, the elevated
levels reflected market opinion that the fourth quarter of 2019
would be a period of increased optimism for the chemical markets.
This was chiefly due to the reinvigorated products market, with
traders looking to capitalise on the supply disconnect of compliant
IMO 2020 fuels outside of the main bunkering hubs and take
advantage of any arbitrage opportunities. We witnessed a similar
rise in the edible oils freight rates, with the Edible Oils Index
recording a 10% rise during the year.
Due to ongoing weak returns, deal liquidity in the time charter
market was low for much of the year and the short-termism that
characterised 2018 was evident once again.
Overall seaborne trade volumes continued to grow in 2019 with a
3.1% year-on-year increase expected, or a total of 332.5m tonnes.
This shows that the key macro megatrends of world population
growth, urbanisation and rising social mobility rates remain the
key drivers for Specialised Products seaborne trade growth. Most of
this increase was recorded in the organic chemicals sector, which
has been fuelled by increasing production levels in both the US and
the Middle East. This has been supported by sustained increases in
import demand in the key end user markets of China and India, both
of which recorded a 7% increase on an annualised basis. The
US-China trade dispute continues to cause some concern amongst
participants although before the year-end, some positive signs of a
deal being reached were seen. That said, this trade lane still
accounts for less than 1% of total seaborne trade and thus there
has been little direct impact.
Meanwhile, we expect average trading distances for chemical
carriers in 2019 to have increased by 0.5% when compared to the
previous year. This shows that more vessels are required to meet
the same volume obligation.
On the supply side, the chemical tanker fleet stood at 53.6m
deadweight (dwt) at the start of the year. 3.1m dwt was delivered
throughout 2019 whilst 1.2m dwt was removed from the fleet. Despite
this, the order book is still one of the lowest of all major
shipping sectors and is measured at 6% of the in-service dwt.
Meanwhile, net fleet growth is expected to be lower in 2020 before
contracting in future years.
As mentioned, market sentiment and earnings were mostly
depressed for much of 2019. Increased influence from the clean
petroleum products trade will remain a challenge for chemical
tanker owners and, as such, we assume that there will be additional
modern products tanker tonnage (with part IMO capability) competing
for chemical tanker market share. Headline fundamentals including
the impact of IMO 2020 and the resulting elevated cost base for the
industry, combined with continued volume growth and a contracting
fleet, point towards healthier earnings and a potential elevation
of utilisation levels in the short to medium term.
Gas
2019 has, overall, been a year of recovery in the LPG carrier
market segment, with the improvement proving more marked in the
larger vessel sizes than in the smaller gas carrier sector. Firmer
freights were underpinned by a number of factors, which included a
slowdown in the pace of fleet expansion, market inefficiencies and
delays both loading and discharging which served to extend voyage
durations, thus raising utilisation levels. Further adding to this
was the uncertainty ahead of the impending IMO 2020 deadline and
retrofitting of vessels with scrubbers, which tightened tonnage
availability. LPG trade also showed continued growth, with North
American exports registering very healthy growth levels, rising by
over 7 million metric tonnes (m mt) on the 2018 level of 32.6m mt
following a new project on the West Coast of Canada and continued
growth from the US. This far exceeded the marginal downturn in
Middle Eastern exports as a result of disruptions to Saudi exports
following the drone attacks and as sanctions lowered Iranian
exports. The increase in Australian
exports as two new projects commenced production also served to
boost overall seaborne LPG trade, which is estimated to have risen
by 7.5% year-on-year. Whilst the Very Large Gas Carrier (VLGC)
fleet rose by 18 units, with no vessels sold for scrap due to the
stronger market, this was not sufficient to compensate for the
rising volume and the change in trade patterns witnessed.
The VLGC segment led the recovery, with the benchmark spot
freight AG-Japan rising 67% on the 2018 level and timecharter
equivalent earning rose nearly threefold to just over $46,000 per
day. Freights in the size categories below followed suit, although
the scale of the increase was not so pronounced as in the larger
sector. Assessed Large Gas Carrier 12-month timecharter has risen
by 47% and Midsize freights are up 38%, returning to levels not
seen since 2016. In addition to growing LPG trade volumes, Ammonia
exports are estimated to have risen 1% year-on-year and with some
longer haul flows developing, this has provided some further
support. Although Handysize freights also improved over the last 12
months, the increase was a more modest 18% on a 20,000 cubic metre
(cbm) Semi-Refrigerated (Semi-Ref) unit, reflecting the lack of
longer haul petrochemical gas cargoes. The lack of support from the
petrochemicals market generally was more acutely reflected in the
smaller Ethylene carriers, with 17,000cbm timecharter levels only
fractionally higher than 2018 and assessed rates on the 12,000 and
8,250cbm units static, although these headline numbers do not
reflect the idle time which has been incurred. 2020 may offer some
reprieve for this sector of the market with the start-up of
Ethylene exports from the new US Gulf Coast Enterprise/Navigator
terminal at the end of last year and modest newbuilding
deliveries.
The pressure carrier and smaller Semi-Ref segment has fared
slightly better due to the addition of virtually no newbuildings
and a deteriorating age profile, and freights have stabilized at
close to 2018 numbers, but these levels had already shown
improvement over the last few years after bottoming out in
2016.
LNG
The LNG shipping market experienced a significant drop in
near-term freight rates, despite growing trade flows. The spot
rates for conventional 160,000cbm Tri-Fuel Diesel Electric (TFDE)
tonnage fell 22% year-on-year averaging US$69,300 per day in 2019.
This was largely attributed to shorter haul voyages on the back of
lower northeast Asian LNG spot prices and thinner cross-basin LNG
arbitrage activity. Additional production from the Atlantic basin,
combined with low demand in Asia and low re-export from Europe,
pushed down the average distance travelled globally by each cargo
by 1.9% to around 4,006 nautical miles.
Global LNG trade volumes were up 12% to 355m mt per year, pushed
by new supplies from US, Russia and Australia. US LNG exports
jumped by around 70% to over 35m mt with the commissioning of
Sabine Pass T5, Corpus Christi T2, Cameron T1, Freeport T1 and Elba
Island projects and the ramp-up of Corpus Christi T1 and Cove
Point. Russian LNG exports rose by 57% to 29m mt driven by the ramp
up of Yamal LNG T2 and T3. Australia's LNG exports climbed by 14%
to 76m mt, on the back of the start-up of Prelude FLNG and the ramp
up of Wheatstone T2 and Ichthys projects. Qatar retained the
world's biggest exporter position with 77m mt exported in 2019, but
Australia is expected to overtake it in 2020 once Prelude FLNG
reaches full capacity. Elsewhere, Algeria LNG exports were up by
25% to 12m mt, partially offsetting a drop in pipeline exports to
Europe, and higher output from Zohr field enabled Egypt to switch
to a 3.8m mts LNG net exports position in 2019 from a 0.7m mts net
import position in 2018.
LNG re-export dropped 25% to 3.39m mts, driven by lower activity
in the European terminals, amid narrower inter basin price spread.
The spread between the northeast Asia LNG price and the European
title transfer facility (TTF) natural gas prices plunged 61%
year-on-year to US$0.80 per million British Thermal Unit (BTU) in
2019, from US$2.07 per million BTU in 2018.
On the demand side, Asia remained the largest region but imports
into the Japan-Korea-Taiwan area dropped significantly, only
partially offset by rising demand from China and the Indian
subcontinent region, while the biggest rise in demand was recorded
in Europe. Imports into the UK, France, Netherlands, Spain, Belgium
and Italy almost doubled, surging by 33m mt to 66m mt, driven by
price-sensitive demand in the power and gas storage segment, as
well as offsetting declines in domestic gas production and pipeline
imports from Algeria and Norway. Japan remained the largest
importer at 77m mt, but its imports slumped 7% on the back of mild
winter weather and nuclear power plants restart. The second largest
buyer, China, slowed down its growth at 15% to 62m mt, partially
due to higher domestic gas production. South Korea remained the
world's third largest buyer but its imports dropped by 8% to 40m mt
due to mild winter weather. Meanwhile, imports in India, Bangladesh
and Pakistan rose by a combined 18% to 35m mts.
Traded volumes are expected to increase again in 2020, led by US
projects Cameron T2-T3 and Freeport T2-T3, which are set to bring
online some 18m tonnes per annum and the ramp-up of the US terminal
commissioned in 2019.
Six new liquefaction projects have reached final investment
decision in 2019: US Golden Pass, US Sabine Pass T6 expansion, US
Calcasieu Pass, Mozambique LNG, Russia's Artic LNG-2 and Nigeria T7
expansion. These projects will add some 19% or 70m tonnes per annum
of LNG capacity by mid-2020, which should result in additional
demand for tonnage.
Some 40 conventional LNG carriers and three floating storage
regassification units (FSRUs) were delivered in 2019, a drop of 10
LNG vessels from 2018. 56 conventional LNG carriers were ordered in
2019, down from the all-time high of 68 vessels ordered in 2018.
About half of them were placed against long-term contracts for
upcoming export projects in US, Russia and Papua New Guinea and by
portfolio players. However, 22 speculative orders were also placed
by new and existing players, who anticipate tonnage requirements
into early 2020s and beyond. Newbuild ordering is expected to
continue into 2020, with several liquefaction projects anticipated
to reach final investment decision within the year.
Sale and purchase
Secondhand
For the Sale & Purchase department, 2019 proved to be a hard
year and the uplift in transaction levels that we have become
accustomed to in the second half of the year unfortunately failed
to materialise.
Dry cargo in general had a poor year with both earnings and
values being flat, meaning in essence that buyers had no incentive
to buy and sellers at the same time were under no real pressure to
sell. Our transaction volumes across this sector were reasonable
but there were no high capital deals concluded, so although we
maintained our market share, the market itself shrank and our
revenues therefore reduced.
Conversely on tankers, the freight market soared for most of the
second half of the year making sellers reluctant to sell at
reasonable levels, with the result being that the only modern
tonnage that was sold throughout the year was done so via public
auction due to the bankruptcy of one specific fleet. Although we
did act in some of these auction sales on behalf of our clients,
liquidity in the large crude tanker sector especially remained very
tight, so whilst values were indeed high, few significant
transactions were concluded when compared to previous years.
The position for container vessels was somewhere between the two
conditions above. Whilst the freight earnings did improve steadily
throughout the year, there was a lack of confidence from buyers to
raise their bids, which sellers felt to be justifiable due to this
improvement in charter rates. With this sector being affected more
than others by the impending new IMO 2020 fuel regulations as well
as the US-China trade dispute, it was difficult to disagree with
buyers' cautious approach and as a result, we witnessed a 40% drop
in the number of sales concluded across all sizes.
Furthermore, the capital markets once again remained largely
closed to shipping, which meant that our traditional strength of
acting for publicly quoted clients was not so much a factor and we
derived little revenue from this area. At the same time, there were
no large fleet mandates from either banks or liquidators, meaning
we were unable to conclude any large, en bloc transactions.
Nevertheless, our S&P transaction volumes worldwide fell
only slightly against 2018 levels and our teams remained busy.
However, with a number of high capital transactions having been
agreed very late in the year and concluded in 2020, we start the
decade optimistic that opportunities will prove more favourable
going forward.
Newbuilding
2019 remained a challenging year for the Newbuilding market.
Newbuilding orders were down 25%. In parallel, the global order
book has now fallen to under 3,000 vessels, a decline of
approximately 10% in 2019 in compensated gross tonnage (CGT) terms,
and a 67% decline on its 2008 peak, representing its lowest level
since 2004 in CGT terms.
South Korean shipyards took orders for circa 222 vessels over
the course of 2019, representing some 37% of the global total in
CGT terms: LNG carriers accounted for the largest share of CGT
contracted, amounting to 43%, while tankers accounted for the
second largest share at 30%.
In China, yards took orders for 402 vessels of 29.1m dwt and
8.9m CGT in 2019, accounting for 34% of the global total in terms
of CGT. Yards under the new China State Shipbuilding Corporation
(formed through the merger of CSSC and CSIC) have taken orders for
around 130 vessels of 14m dwt and 4.0m CGT, accounting for 46% of
2019 contracting at Chinese yards in terms of CGT, underpinned by
robust domestic demand and support.
The regulatory shifts that have now started to come into force
as of 1 January 2020 played a significant part in both catalysing,
as well as inhibiting, investment decisions. Early adopters of
alternative fuel technology moved forward with investment and we
saw some meaningful ordering across the container, VLGC and tanker
spaces, bolstered by strong employment opportunities and support.
Across 2019, the share of the order book that is LNG fuel capable
increased to 20%, up from 14% at the start of the year.
However, investment in new technology remains capital intensive
and with 2020 on the horizon, others took a 'sit-and-wait' approach
against uncertainty over both technology, regulation and how the
trading dynamics of 2020 would play out and this was certainly
stifling in terms of new contracting activity.
LNG carrier demand also provided a healthy level of support to
the Korean shipyards, with an overhang of speculative options being
taken up over the course year, as well as the commencement and
conclusion of some larger scale industrial demand that was both
meaningful in its contribution to 2019's overall performance and
will certainly flow into the make up of 2020.
Our Group performance remained robust in spite of a challenging
trading environment. We executed some significant ordering in the
LNG, tanker and container markets, and continued to grow and
successfully deliver opportunity from both heritage and industrial
relationships. Looking forward, we remain well positioned to
capitalise on the opportunities that 2020 will present us with.
Offshore
General
2019 was another challenging year for the offshore oil services
sector, though with certain sub-sector differences and signs of
optimism. Oil prices were relatively stable through the year, and
on the back of that, we witnessed a slight increase in both
offshore field development sanctioning and exploration activity.
Discipline from OPEC is however still required to balance the oil
market and 2019 was another year of strong US shale oil growth,
implying limited incentives for the international oil companies
(IOCs) to drive significant offshore project developments.
Despite the uncertain backdrop, we have seen an increase in rig
tendering and fixing activity, as well as slightly improving
utilisation for selected rig and offshore support vessel (OSV)
segments. Offshore contractors and suppliers have also regained
some optimism and seem to be preparing for increasing activity
levels going forward. Capital markets do not, however, generally
reflect this and most listed oil services companies have seen
significant adverse market capitalisation development, something
which for many players affects not just their view on market
outlook, but also their capacity to pursue strategic actions and
transactions. This has negatively affected the opportunities for
both capital markets transactions and asset transactions
(S&P).
Drilling rig market
Total offshore rig demand continued to improve in 2019, having
bottomed in early 2017 and gained momentum through 2018. The global
offshore rig count (rigs on contract) was at 505 units as of the
end of 2019, up from 452 units at the end of 2018 and a low point
of 433 units in February 2017. Active utilisation is currently
around 76% for jackups (vs 69% end of 2018) and 70% for floaters
(vs 65% end of 2018).
A deeper analysis of the rig market displays significant
regional and sub-segment variances. In shallow water, we see
increased rig demand in the Middle East, Asia and Mexico. For the
deep water and ultra-deep water floater segment, we see demand
growth in South America (Brazil and Guyana), Asia and to some
extent the Gulf of Mexico. The North Sea Harsh Environment (HE)
semi-submersible market remains the strongest floater segment,
especially in Norway. This segment has experienced pronounced
tightening due to rising demand and significant supply side
attrition, resulting in day rates in this segment having more than
doubled from trough levels.
Re-balancing of the broader rig market continues to progress
further on the back of low utilisation and rates, financial stress
and contractors' realisation of the need to reduce capacity across
the industry. As such, contractors have retired around 40% of the
total floater fleet since late 2014. We expect the retirement trend
to continue as overcapacity is still an issue and as the industry
continues to cut costs. Retirement of assets in the jackup segment
has been less pronounced, with about 20% of the fleet at peak
capacity retired so far in the downturn.
Subsea and field development market
Sanctioning of new offshore field developments in general
continues to progress slowly, but we have seen a meaningful
increase during 2017-19, compared to the low point in 2016. A large
share of offshore oil projects seem to be economically viable, even
after oil prices have dropped strongly from peak levels, and as
such, should not prevent operators from increasing sanctioning
activity. A number of other factors however, likely contribute to
operators' reluctance to significantly ramp up sanctioning
activity, and we have witnessed a strong increase in operators'
preference for short-cycle over long-cycle oil, something which
especially affects the deepwater subsea segment negatively. Backlog
for the leading subsea engineering procurement construction (EPC)
contractors is only moderately up from levels at the end of 2018,
but this is nonetheless the first positive development in three
years and we expect the backlog to continue to build somewhat going
forward. As there is a significant lag between order intake and
offshore execution for large contractors, their fleet utilisation
has continued to be low in 2019. This has adverse knock-on effects
for vessel providers, leading to low global subsea fleet
utilisation. There is also so far, no meaningful improvement in the
market for subsea inspections, maintenance and repairs (IMR), which
also contributes to depressed fleet utilisation. Continued strong
activity in the offshore wind segment has compensated somewhat, but
this is far from sufficient to cover the shortfall in subsea
EPC/project work and IMR.
Offshore Support Vessels (OSVs), Platform Supply Vessels (PSVs)
and Anchor Handling Tug and Supply Vessels (AHTS)
The market for OSVs also generally remains challenging and is
still characterised by vessel overcapacity, but we have witnessed
meaningful improvement, particularly in the segment for large
modern PSVs. Regional variances also apply but, in particular, the
North Sea market saw meaningful strengthening in terms of average
utilisation and rate levels through 2019. Despite this, most vessel
owners are struggling significantly, and we have continued to
witness high corporate activity in terms of refinancing,
restructuring and consolidation. Some key industry players have
however, managed to reduce debt substantially as a result of these
processes, making them more competitive going forward. Increased
consolidation and significant vessel attrition bodes well for the
longer-term rebalancing of the segment, but on the back of the
overcapacity, we anticipate a recovery to more sustainable day rate
levels on a broader basis to still be some time out.
Renewables
Offshore wind
2019 saw a substantial ramp up in the global focus on the
environment. This included significant climate protests,
progressive policy decision-making in some countries, and several
major investment funds strongly increasing ESG focus. This trend is
likely to continue with increasing focus on sustainability, the
environment and the need to drive an energy transition. Demand for
clean, abundant and reliable energy is likely to continue to grow,
with support from popular opinion and governments. Solar and wind
are likely to be the main growth segments within renewable energy
generation, with wind estimated to contribute 18% of total global
power generation by 2050. Estimated wind contribution is expected
to be around 3,500 gigawatts (GW) by 2050, of which offshore will
contribute approximately 500GW (or 14% of the total wind
contribution), according to Bloomberg New Energy Finance, figures
supported by Clarksons' own offshore renewables research team.
Offshore wind could very well see even stronger growth on the back
of improving profitability and learning curve effects. Offshore
wind growth is further set to outpace that of other renewable and
conventional energy sources.
The offshore wind industry in Europe has grown rapidly over the
last ten years, with over 4,600 turbines in the water generating
power at the end of 2019 and another 3,750 to be installed by 2025.
On a worldwide basis, our estimates suggest there will be more than
25,000 offshore wind turbines by 2030. The offshore wind market is
rapidly evolving towards new regions with China, Taiwan and the US
amongst the most developed of the new offshore wind markets. In
addition, Japan, South Korea and other countries in Asia are
gaining interest. We also see additional new countries in Europe
pursuing offshore developments.
It should be highlighted that Levelized Cost of Electricity
(LCoE) for offshore wind is coming down strongly and many projects
are expected to be subsidy-free post 2023. In the last auction in
the UK, offshore wind projects secured offtake agreements at GBP40
per megawatt (MW), well below the GBP50 per MW grid price. We
register that some energy companies and developers are now also
considering building offshore windfarms in the UK without any fixed
off take contract with the Government, therefore taking more of an
industrial commercial approach.
The offshore wind industry is rapidly moving further from shore
and into deeper waters as turbine and vessel technology now allows
for significant far shore construction developments and wind
conditions are far more favourable further out. This also allows
for larger turbines that are able to generate more power per unit.
This means longer sailing routes and rougher weather which,
combined with bigger turbines, imply increasing demand for larger
and more sophisticated assets. Vessel demand in the sector has been
growing steadily and with the new cables, foundations and turbines
going in the water, a new breed of construction and support vessels
will be needed. Overall, the offshore wind farm industry has
already moved from an undeveloped and immature marine energy
industry to a leading, industrialised marine business sector. In
line with an increasing number of projects likely to be sanctioned
going forward, we expect to see further increasing demand for
vessels to support the construction and maintenance of offshore
windfarms.
Renewables broking and advisory
Clarksons Platou has consolidated most of its renewables experts
into a dedicated global division to provide ship broking, market
intelligence and commercial services, including investment banking,
specifically to the rapidly growing offshore renewables market. As
such, Clarksons Platou is today regarded as one of the global
leaders within the offshore energy sector, with a global footprint
and superior deal flow. With a history of supporting the leading
market players with bespoke vessel chartering, sale and purchase
and newbuilding activities and port services dating back to 2006,
we continue to have progressive growth ambitions in this industry.
The core Offshore Renewables team is based out of Oslo and Hamburg,
with strong support and collaboration with the offshore broker
teams in Aberdeen, London, Houston, Shanghai and Singapore, forming
a global platform for clients and further growth. The team covers
all major asset/vessel segments in the industry. Further, based on
our extensive offshore renewables experience, as well as more than
50 years of oil and gas experience, the group can leverage global
offices and capabilities in the traditional offshore and
shipbroking hubs to advise clients in new regions of interest. The
team also collaborates on opportunities with the Financial, Support
and Research divisions in the Group.
Futures
2019 was a mixed year in the dry indices: Capes improved to an
average US$18,025 (US$16,528 in 2018), Panamaxes weakened to
US$11,112 (US$11,653 in 2018) and Supramax 10TC averaged US$9,948
(US$ 11,486 in 2018). Panamaxes have already started to trade the
82,000 DWT, with the expectation that the market will migrate to
this new index in the first quarter of 2020. Volumes for the year
were all positive, with Capes moving from 488,234 lots in 2018 to
534,128 lots in 2019. Panamax volumes improved once again from
576,040 lots in 2018 to 670,151 lots in 2019 and once again,
Panamaxes were the highest volume futures contract. Supramaxes
improved from 142,128 lots in 2018 to 171,818 lots in 2019.
Total dry options volumes slipped from 272,666 lots in 2018 to
244,826 lots in 2019 but some new entrants impacted on these
volumes in the second half of the year, leaving some room for
optimism in 2020.
The headline Cape index was particularly volatile through the
year, with the Vale dam rupture in Brazil having a profound impact
on the early part of the year, whilst trade disputes dented what
might otherwise have been a stronger year for the Panamax and
Supramax markets.
The Wet FFA team had a strong year and performed well in a
volatile and growing market. Clean volumes improved from 131,106
lots in 2018 to 172,479 lots in 2019 (up 32%) whilst Dirty volumes
grew significantly from 191,975 lots to 297,022 lots (up 55%).
Though still in its infancy, CME started to clear a new LNG
contract just before the year-end and we closed the first
contract.
The iron ore market volumes recovered in 2019 after a period of
decline during 2018. The Vale dam rupture during the first quarter
of 2019 was the catalyst for the recovery in volumes, as a highly
volatile market produced good numbers throughout the year. Daily
average volumes came in just shy of the 5,000,000mt per day mark
and our team, despite some streamlining and reduction in size, held
their market share and position. Despite volumes being up and a
volatile first half of the year, levels steadied during the second
half and we saw growth from our Far Eastern team, with Chinese
volumes growing and Western falling. We are planning a fresh
approach on iron ore options in 2020 to increase our market share
in this growing part of the market, where volumes grew 98.7%
year-on-year.
Financial
Revenue: GBP35.5m (2018: GBP46.1m)
Segment underlying profit: GBP3.3m (2018: GBP8.0m)
We executed a number of key transactions in markets which were
dominated by geopolitical risks. .
Securities
This first half of 2019 can only be described as extremely
difficult. Despite our promising pipeline, it was very challenging
to raise any equity or debt within our sectors and as a result, our
first quarter was poor, with year on year total revenue down almost
50%. There were no new listings of companies on exchanges in the US
or Norway during the first quarter of 2019.
The dam rupture in Brazil, which occurred at the end of January
2019 and is operated by the world's largest producer of iron ore,
Vale, impacted the dry bulk shipping industry as seaborne volumes
were substantially reduced on the Brazil-China route, hurting
especially the capesize market negatively until Easter.
In the second quarter, markets were calm, however this was
disrupted in May, with politics taking centre stage with the Brexit
negotiations and the continued trade dispute between the US and
China. All major indexes fell sharply as a result across all major
regions - the US equity market delivered its worst May return in
seven years, with energy stocks falling the most. Global bonds also
fell markedly in May.
In June, confronted by weaker economic data, risks to the trade
outlook and continued low inflation, the US Federal Reserve and the
European Central Bank both indicated that further monetary stimulus
was coming shortly.
The third quarter of 2019 was a mixed quarter for shares and
investors switched back and forth between risk aversion and risk
appetite, making it difficult to complete any capital market
transactions. The US-China trade dispute rumbled on, as did global
growth concerns, but central banks remained supportive. Global
stock markets were volatile with a 5% setback in July, then
recovery in August and September. Convertible bonds were flat over
the third quarter but managed this result with about half of the
level draw-downs and volatility seen in the equity markets.
Government bond yields declined markedly over the third quarter
due to heightened risk aversion in August when US-China trade
tensions escalated. Corporate bonds outperformed government bonds
as they benefited from the decline in global yields and an
improvement in risk sentiment.
Offshore-related stocks sold off significantly in July and
August. While the month of September saw some relief, sentiment for
offshore appears to have reached rock bottom, evidenced by stock
prices nearing all-time lows. Selling pressure in July and August
can be explained by a 10% move in the oil price and leveraged
capital structures, with equity taking the hit. The focus on ESG
this year from investors and authorities has also put pressure on
offshore stocks, as traditional oil production and supporting
industries have seen the impact of traditional financial markets
weighting sustainability, governance and social responsibility much
higher as they incorporate ESG factors in their total risk
assessments. We do believe most offshore companies can outlast the
current sentiment and are well positioned to see stocks continue to
rally in 2020, however only companies successfully managing the ESG
risks efficiently will be attractive to investors as they are
increasingly looking for products being ESG compliant.
The geopolitical risks that dominated markets for much of 2019
faded in the fourth quarter, helping global equity markets to post
gains. In fixed income, corporate bonds performed well amid the
improved investor sentiment. With Europe's economy highly dependent
on global trade, the announcement of a 'phase one' trade deal
between the US and China in December helped bolster investor
sentiment heading into the new year.
The market volatility seen throughout 2019 is particularly
impacting the commodity and energy industries in which we operate.
For offshore, the uncertainty about the timing of a market recovery
is making investors apply a wait-and-see approach to equity
opportunities. For shipping, companies have been trading well below
net asset value (NAV), but the market sentiment has shown signs of
recovery as the ripple effects of IMO 2020 sulphur cap regulations
that came online at the beginning of 2020 are becoming visible.
Europe's convertible bond market enjoyed a modest recovery in 2019
even though interest rates stayed low. For 2020, there is cautious
optimism that the revival will continue.
We added a renewables sector to our current focus during 2019,
with a full team in Investment Banking in Oslo. The team secured
several mandates within the sector during 2019. Norway is blessed
with huge renewable resources and the opportunity to make use of
them. In addition, focus on renewable power is an important
strategy as security of supply and the consequences for climate and
economic growth must be considered to secure an efficient and
climate friendly energy supply. Initially, our focus has been on
offshore wind vessel owners and supply chain, building on
relationships and competence from the Renewables team in Clarksons
Platou Offshore. Offshore wind is expected to remain a key area for
business development, but solar, onshore wind, hydrogen and other
technologies will also be of interest. Based on strong investor
interest, the Equity Research team in Securities has initiated
coverage of several renewables companies and expects to continue to
increase expertise within Securities and the broader Group.
Key transactions during the year were the closure of the
acquisition of Spectrum ASA by TGS-Nopec Geophysical ASA in August,
the US$150m convertible bond loan for Norwegian Air Shuttle ASA in
November, the equity raise and IPO of Klaveness Combination
Carriers on the Oslo Exchanges in May and the acquisition of 19
product tankers from Trafigura Ltd by Scorpio Tankers Inc. in
September. In total, we raised US$2.6bn, with US$894m in debt
capital markets (DCM) transactions, US$350m in equity capital
markets (ECM) transactions, and performed advisory work in M&A
transactions with a total value of US$1.3bn. Clarkson Platou
Securities' (CPS) strategy for the last 10 years has been to create
an edge and focus on what we are good at. Credentials are
paramount, and we feel we are on a positive path, especially since
we are expecting more merger and acquisition activity in the coming
year.
For 2020, we are braced for continuing volatile equity markets
due to the presidential elections, the next phases in the US-China
trade relations, the US-Iran tensions and the containment of the
COVID-19 virus.
Project finance
Shipping
2019 has been an interesting year in ship finance. Traditional
sources of financing for second and third tier shipowners have
become scarce as many of the larger banks are exiting or reducing
their portfolio and focusing on corporate clients. This has created
an opportunity for alternative sources of finance such as direct
lenders and lease providers to fill the funding gap. The Norwegian
project finance arrangers have focused more and more on using their
expertise and teaming up with these sources of capital to structure
bilateral projects.
Clarksons Platou Project Finance has structured and placed six
new transactions and financed nine vessels in 2019: five vessels
through sale leaseback structures, one through preferred equity and
three through asset play/co-investment structures. These
transactions included two chemical carriers, three bulk carriers,
two tankers, one containership and one Offshore Supply Vessel.
With the current availability of alternative finance providers
and upcoming refinancing needs, we expect a high level of activity
in 2020.
Real estate
The Nordic real estate market delivered a transaction volume in
2019 quite similar to 2018, therefore high in historical terms, but
a little below the all-time high in 2017.
Throughout the Nordic market, yields on prime assets and long
leases compressed as institutional funds, private equity funds,
family offices and other investors sought yielding assets with
stable dividends in low volatility macro-economies like the
Nordics. In 2019, prime yields in Stockholm and Oslo were similar
to major European cities like Berlin, Paris and Madrid. Consensus
amongst the major analysts is that we will see prime yields
flattening out in 2020.
The vacancy rate in the Oslo office market is expected to
decline over the coming years as a result of conversion and
demolition of older office buildings to residential properties,
combined with few new office buildings. The strong growth in rent
levels we experienced in 2018 continued in 2019 and validated our
prediction last year that office buildings with short leases offer
an attractive investment opportunity. Together with Clarksons
Platou Real Estate Investment Management (CPREIM), we have sought
out these kind of opportunistic investment opportunities in Oslo,
but have clearly felt the impact of interest and competition.
During 2019, Clarksons Platou Real Estate completed 19 projects
and sold one project. Together with CPREIM, we have invested half
of the NOK500m committed in equity last year.
Structured asset finance
According to the latest Dealogic data relating to syndicated
loans for the year-end, 2019's volume of $57.7bn done in 186
transactions was less than the $59.8bn in 177 transactions recorded
during 2018. We expect these relatively steady volumes to continue
into 2020 as Basel III and Basel IV protocols, as well as
regulatory and environmental constraints, continue to restrict
lending to the industry, especially for the European commercial
banks.
With the exception of the top-tier owners that these banks
continue to support, we expect financing for the second and third
tier owners to be sourced from a more diverse group of lenders
(such as leasing companies, alternative finance providers and
private equity funds) with lower leverage and a higher cost of
funding becoming the norm. This will be even more prevalent to
those owners seeking to refinance existing debt/balloon payments
against older vessels, as there is an increasing shift by banks to
support those businesses that rank highly in terms of
environmental, social and governance (ESG) issues. We are already
starting to see the Poseidon principles adopted by some of the
major ship finance lenders influence credit and portfolio
strategies and decisions.
The contraction in financing continues despite improved shipping
market fundamentals, the greater significance of Chinese lease
finance and emergence of alternative finance providers, as well as
private equity financing filling some of the void left by the
withdrawal of established shipping banks from the sector.
On top of IMO 2020, which is a major shake-up for oil and
shipping, we expect the shipping finance landscape to remain
challenging. Nevertheless, despite these headwinds, Clarksons
Platou Structured Asset Finance continues to develop its targeted
strategic financial advisory activities. It has closed a number of
transactions of this type during the course of 2019 and has a
growing 2020 pipeline, as relationships grow and deepen and our
reputation and successes bring referrals and increased repeat
business.
Support
Revenue: GBP27.7m (2018: GBP23.9m)
Segment underlying profit: GBP3.1m (2018: GBP2.3m)
Our range of services has enabled us to benefit from the
increased levels of activity in 2019.
Agency
Grain exports performed better than expected in the first half
of the year. Additional tonnage became available for export due to
the two major bioethanol plants on the east coast either shutting
or switching supply away from UK grain. We also experienced a
significant amount of malting barley being exported in the first
three months, which was due to exporters fulfilling contracts prior
to the original 31 March 2019 Brexit date.
The July/August harvest produced a larger than normal crop,
resulting in an exportable surplus greater than we have seen since
2014. Coupled with the previous Brexit deadline of 31 October 2019,
this led to an extremely busy autumn for all our ports and offices
involved in grain export, with record levels seen in Ipswich,
Tilbury and Southampton.
Despite the busy end to the year for grain exports, it is
estimated that two-thirds of the UK's exportable surplus remains to
be exported in the first half of 2020.
Grain imports remained steady throughout the year, with
continued shipments of milling wheat from the USA and Canada.
Animal feed imports remained in line with expectation for the
first half of the year, but picked up significantly in the second
half as the majors attempted to ensure the maximum tonnage was
imported prior to 31 October 2019.
Offshore energy activities continued down the east coast of the
UK for both offshore renewables and the offshore oil and gas market
(as production increased). In offshore renewables we cemented our
position within the supply chain supporting construction projects
off the coasts of Invergordon, Humber and East Anglia.
2019 saw us continue to support clients during the construction
phase of Orsted's 154 turbine Hornsea One project off the Humber
coastline, with operations predominately through the ports of Hull
and Grimsby. This coming year will see us involved again supporting
clients on the cable installation for Triton Knoll and Hornsea Two
projects.
During the year, we also continued supporting offshore
renewables off the East Anglia coastline, this time on Scottish
Power Renewables 714 MW East Anglia One project, the first to be
constructed within the East Anglia zone. The summer was busy with
our team coordinating numerous crew changes each week, as well as
supporting our client's construction and support vessels moving in
and out of the local ports of Great Yarmouth and Lowestoft. This
project continues in the construction phase for the first half of
2020.
Our aggregate business continues to increase and is now a
significant part of our work on the Thames, Humber and Tyne. We
have also brought aggregate into Aberdeen in support of the
building of a new port facility coordinating, the berthing of the
largest vessel ever to enter the port
Gibb Tools
Our supply business had a very successful year both in Aberdeen
and Great Yarmouth. Along with the increase in oil and gas
activity, we experienced a marked increase in orders from the
offshore renewable sector. Both offices increased resources in
order to react to demand, as we saw volumes beginning to move
towards the levels we were experiencing prior to the drop in oil
price a few years ago.
In the second half of 2019, we launched Gibbs Safety and
Survival, a new division specialising in the supply of personal
protective equipment and safety and survival equipment largely to
the offshore industry. Along with the supply of equipment, Gibbs
Safety and Survival will also be equipped to service lifesaving
equipment.
With the new division and the completion of our purpose-built
office and warehouse facility in Great Yarmouth, 2020 looks to be a
very exciting year.
Stevedoring
The first half of the year was better than expected for our
stevedoring business in Ipswich. This was due to better than
anticipated import volumes augmented by increased export volumes.
Despite the poor harvest in 2018, we were able to largely keep our
warehouses operating at capacity.
As with Agency, our stevedoring business was extremely busy in
the second half of the year. With the strong harvest and the
pressure to execute contracts prior to the previous Brexit deadline
of 31 October 2019, we experienced record volumes through our
Ipswich facility.
We continue to work with UK port authorities to find storage
solutions for our customers. Along with storage solutions, we
remain committed to investment in plant and machinery to allow us
to work with UK ports to provide ship loading solutions.
Freight forwarding and logistics
Freight forwarding in Aberdeen, Great Yarmouth and Belfast
continued to be a major part of our business, both in support of
our agency activities and in support of the offshore oil and
renewables industry.
We continue to carefully watch the developments around Brexit as
this could have a significant effect on our forwarding business as
we support our customers through whatever changes may be put in
place.
Research
Revenue: GBP16.8m (2018: GBP15.9m)
Segment underlying profit: GBP5.4m (2018: GBP5.0m)
We strengthened our position as a global leader in the provision
of data and intelligence.
Research revenues grew by 6% to reach GBP16.8m (2018: GBP15.9m),
supporting an encouraging increase in underlying profit to GBP5.4m
(2018: GBP5.0m). Over the past twelve months, Clarksons Research
has strengthened its position as a global market leader in the
provision of data and intelligence across shipping, trade, offshore
and energy. Strong investments into Research continue including the
expansion of our proprietary database, the use of innovative data
analytics, the development of market relevant content and insights,
besides the expansion of our global sales capability. Research has
expanded its role as a core data provider to the Broking, Financial
and Support teams of Clarksons, while increasingly supporting the
Sea/ suite technology initiative. Through the provision of
respected research to a wide client base, Research plays an
important role in enhancing the Clarksons profile across the
shipping industry.
Our strategy to remain market relevant, while providing broad
and authoritative data and intelligence, is increasingly influenced
by our focus on environmental-related research. The shipping
industry produces approximately 880mt of CO(2) per year, 2.4% of
global output, and although our analysis shows this output has
fallen by 14% during the past decade, the IMO has set significant
reduction targets for 2030 and 2050. Our initiatives to explain
emissions regulation to commercial decision-makers, to track
technology uptake, to analyse the economic impact on markets,
earnings and asset value and to project scenarios for required
investments have been integrated into our offering and are
receiving excellent client feedback. This intelligence is being
utilised across the shipping industry, including by governments and
policy-makers.
Research focuses on collecting, validating, managing, processing
and analysing data around the shipping and offshore markets to
support our clients with their strategy and general decision-making
processes. Our wide ranging proprietary relational database is at
the heart of the Research business - coverage includes 160,000
vessels; 47,000 companies; 30,000 machinery models; 900 shipyards;
6,000 ports; 26,000 berths, 12bn tonnes of trade; 8,000 offshore
fields; 1,000 offshore rigs; 2,300 investment projects; 600 wind
farms; 200,000 time series and indices. This data flows through
into our Research offering and into systems used across the
Clarksons operating divisions.
Total global research headcount is 115, with a significant Asia
Pacific presence. Over the past two years, dedicated Asian
management summits have been held to focus on our development and
growth in the region. We continue to benefit from the expansion of
our Data Analytics teams, utilising innovative techniques to derive
data, as well as the expansion to our Business Development and
Sales team. Annuity-based sales have reached 80% and client
retention levels remain above target. Research maintains a
regionally broad and diversified client base, including good market
penetration across the financial, ship owning, insurance, supplier,
governmental, private equity, energy, commodity, shipyard,
fabrication and oil service sectors.
Research derives its income from the following principal
areas:
Digital
Sales across our digital platform grew by an encouraging 16%
(2018: 19%), with robust growth in each of our offerings. There are
now over 6,000 individual users across our single access integrated
platform. Investment into the underlying architecture of our
digital offer, including Application Programming Interface (API),
is providing wide-ranging benefits. Specific development plans for
each of our digital products continue to be executed, to ensure
that all systems capture the benefits of our expanded database;
utilise latest technology including new data visualisation and
customisation tools; and remain market relevant.
Major digital products include:
Shipping Intelligence Network (SIN). SIN is the market-leading
commercial shipping database and continues to receive excellent
client feedback. Sales grew strongly in 2019, benefiting from high
renewal rates, as well as continuing to add new subscribers to the
platform. The platform provides wide-ranging data and analysis
tracking and projecting market supply/demand, vessel earnings,
vessel values and macro-economic data around trade flows and global
economic developments. This has included the 24% year-on-year
increase in the ClarkSea index across 2019 and the all-time high in
tanker freight rates reported in early October. Intelligence
briefings profiling the shipping context of major geopolitical
events including the impact of US sanctions, the US-China trade
dispute, and Brexit were well received alongside analysis of the
market impact of IMO 2020. At the start of 2020, additions and
changes to our indices to reflect the use of Low Sulphur Fuel Oil
(LSFO) and the growth of the 'eco' and 'scrubber' fleets were
implemented. Our intelligence briefings in early 2020 also included
some initial analysis on the potential disruption impact of the
COVID-19 outbreak on the Chinese economy, global trade and the
shipping markets specifically.
World Fleet Register (WFR) . We continue to see robust sales
growth of the WFR, our authoritative on-line vessel register,
supported by client interest in the accelerating environmental
regulatory timetable facing the shipping industry. The WFR focuses
on providing intelligence on around the world shipping fleets and
companies, environmental regulation, the tracking of new technology
on-board ships and market trends in the shipbuilding market. The
roll-out of our ship repair module and analysis, increasingly
relevant given the uptick of retrofitting activity such as sulphur
oxide exhaust scrubbers, has been particularly well received
alongside new data tracking on 'eco' ships, alternative fuels and
wide-ranging Energy Saving Technologies (ESTs). Data around
companies has also been expanded.
World Offshore Register (WOR). Offshore oil and gas represent
17% of global energy production and while offshore renewables is
producing less than 0.5%, it is growing quickly from this low base.
Our renewables module, reflecting the increasing
internationalisation of this market, was further expanded across
2019 and we intend further investments in this database. Our
comprehensive offshore register provides detailed intelligence on
all offshore oil and gas fields, oil company investment activity,
the infrastructure involved and the mobile assets that support. We
have retained our market-leading position in the insurance market,
where our data is used as the core reference in identifying rigs
and platforms.
Offshore Intelligence Network (OIN). Despite the slow recovery
in offshore and energy markets, offshore digital sales overall grew
by 14% across 2019. The utilisation time series developed by our
Data Analytics team using new algorithmic techniques has been
expanded to further offshore sub-segments.
Sea/net. Developed in conjunction with the Clarksons technology
business, our vessel movement system Sea/net blends satellite and
land based AIS data with our proprietary database of vessels and,
recently expanded, ports and infrastructure. Despite strong
competition, there has been good sales growth across 2019,
supported by product enhancement. The development of intelligence
around vessel speed, deployment patterns and port activity has been
aggregated into time series and profiled in a new report, Port
Intelligence Monthly. The underlying data management and processing
for the Sea/net system has also been improved.
Services
Our specialist services team, which concentrates on developing
and managing retainers that provide bespoke data, consultancy and
seminars to a range of corporate clients, has been expanded and has
increased its global footprint. Good client retention was achieved
alongside some notable new data contracts, including API delivery.
There was record attendance at our six-monthly seminars, "Shipping
and Shipbuilding to 2030" and "Offshore and Energy to 2030", where
analysis and modelling of the market outlook, long-term trade
development, energy transition, technology scenarios to meet
greenhouse gas (GHG) reduction, ship finance requirements and
newbuilding demand were presented. Our bespoke services typically
become embedded within our clients' workflows, supporting good
client retention. Important client groups include banks, shipyards,
fabricators, engineering companies, insurers, governments, asset
owners and other corporates.
Clarksons Valuations is the largest provider of valuation
services to the ship-owning and financial community and is
recognised as the leading provider of authoritative valuations to
the industry, combining leading expertise, research and technology.
Clarksons Valuations has maintained strong positions with all major
ship finance banks, leasing companies and asset owners despite the
changing financial landscape. The successful project to digitalise
workflows, supported by significant investment into the team's
operating platform, continues to improve workflow efficiency and
client deliverables.
Reports
Benefiting from over 50 years of heritage, our comprehensive
market intelligence report and register series continues to
generate provenance and profile across the industry. Across 2019,
an expanded ship finance section and new ship repair section were
added to our Shipping Review and Outlook, while enhancements to our
flagship Shipping Intelligence Weekly have also been made. The
series is widely recognised across the industry and, in addition to
being available individually, is available through our digital
platforms.
Financial review
Revenue: GBP363.0m (2018: GBP337.6m)
Underlying profit before taxation*: GBP49.3m (2018:
GBP45.3m)
Reported profit before taxation: GBP0.2m (2018: GBP42.9m)
Dividend per share: 78 p (2018: 75p)
* Before exceptional items and acquisition related costs
Results
The Group generated revenue of GBP363.0m (2018: GBP337.6m) and
incurred underlying administrative expenses of GBP298.2m (2018:
GBP279.7m). The majority of revenue and a significant proportion of
expenses are earned in currencies other than sterling.
Underlying profit before taxation was GBP49.3m (2018: GBP45.3m),
an increase of 9%. The term 'underlying' excludes the impact of
exceptional items and acquisition related costs, which are shown
separately on the face of the income statement. Management
separates these items due to their nature and size and believe this
provides further useful information, in addition to statutory
measures, to assist readers of the annual report to understand the
results for the year.
2019 2018
GBPm GBPm
Underlying profit before taxation 49.3 45.3
Exceptional items (47.5) -
Acquisition related costs (1.6) (2.4)
======= ------
Reported profit before taxation 0.2 42.9
======= ------
Exceptional items
As previously identified, the Board has reviewed the need for a
non-cash impairment relating to the acquisition of RS Platou ASA.
The Board has determined that an impairment charge, relating to
goodwill attributable to Securities and Offshore broking, amounting
to GBP47.5m (2018: GBPnil) was required.
Acquisition related costs
Acquisition related costs include GBP1.0m of amortisation of
intangibles and GBP0.6m of cash and share-based payments spread
over employee service periods. We estimate acquisition related
costs for 2020 to be GBP0.1m, assuming no further acquisitions are
made.
Taxation
The Group's underlying effective tax rate was 23.1% (2018:
23.6%), reflecting the broad international operations of the Group
and the disallowable nature of many incurred costs, particularly
entertaining.
Earnings per share
Underlying basic earnings per share was 118.8p (2018: 105.2p) a
13% increase, calculated as underlying profit after taxation
divided by the weighted average number of ordinary shares in issue
during the year. The reported basic loss per share was 42.4p (2018
earnings per share: 98.8p).
Forward order book (FOB)
The Group earns some of its commissions on contracts where the
duration extends beyond the current year. Where this is the case,
amounts that are able to be invoiced and collected during the
current financial year are recognised as revenue accordingly. Those
amounts which are not yet invoiced, and therefore not recognised as
revenue, are held in the FOB. In challenging markets, such amounts
may be cancelled or deferred into later periods.
The Directors review the FOB at the year-end and only publish
the FOB items which will, in their view, be invoiced in the
following 12 months. At 31 December 2019, this estimate was 6%
higher than last year at US$113m (31 December 2018: US$107m).
Dividend
The Board is recommending a final dividend of 53p (2018: 51p),
which, subject to shareholder approval, will be paid on 29 May 2020
to shareholders on the register at the close of business on 15 May
2020.
Together with the interim dividend of 25p (2018: 24p), this
would give a total dividend of 78p, an increase of 4% on 2018
(2018: 75p). In taking its decision, the Board took into
consideration the Group's 2019 performance, balance sheet strength,
ability to generate cash and FOB.
This increased dividend represents the 17th consecutive year
that the Board has raised the dividend.
Foreign exchange
The average sterling exchange rate during 2019 was US$1.28
(2018: US$1.33). At 31 December 2019, the spot rate was US$1.32
(2018: US$1.27).
We do not believe that our business will be materially affected
by Brexit, other than any impact arising from movements in foreign
exchange rates.
Cash and borrowings
The Group ended the year with cash balances of GBP175.7m (2018:
GBP156.5m) and a further GBP2.5m (2018: GBP1.7m) held in short-term
deposit accounts, classified as current investments on the balance
sheet.
Net cash and available funds, being cash balances after the
deduction of accrued bonuses, at 31 December 2019 were GBP84.7m
(2018: GBP73.4m). The Board uses this figure as a better
representation of the net cash available to the business, since
bonuses are typically paid once a year after the year-end, hence an
element of the year-end cash balance is earmarked for this
purpose.
Given the increasingly regulatory nature of our business, a
further measure used by the Board in taking decisions over capital
allocation is free cash resources, which deducts monies held by
regulated entities from the net cash and available funds figure.
Free cash resources at 31 December 2019 were GBP68.7m (2018:
GBP57.0m).
Balance sheet
Net assets at 31 December 2019 were GBP380.6m (2018: GBP434.6m).
The reduction in net assets arises principally as a consequence of
the non-cash impairment identified above; this impairment has had
no effect on distributable reserves as it is offset against the
merger reserve which arose on the initial acquisition. The balance
sheet remains strong, with net current assets and investments
exceeding non-current liabilities (excluding pension provisions and
lease liabilities as accounted for under IFRS 16) by GBP93.7m
(2018: GBP89.3m).
The overall loss allowance for trade receivables was GBP14.2m
(2018: GBP14.4m).
The Group's pension schemes have a combined surplus before
deferred tax of GBP11.0m (2018: GBP14.0m).
Jeff Woyda
Chief Financial Officer & Chief Operating Officer
6 March 2020
Risk management
Full details of our principal risks and how we manage them are
included in the risk management section of the 2019 annual report,
together with our viability and going concern statements.
Our principal risks are:
-- Loss of key personnel - Board members
-- Economic factors
-- Cyber risk and data security
-- Loss of key personnel - normal course of business
-- Adverse movements in foreign exchange
-- Financial loss arising from failure of a client to meet its obligations
-- Breaches in rules and regulations
-- Changes in the broking industry
Directors' responsibilities statement
The statement of Directors' responsibilities below has been
prepared in connection with the Group's full annual report for the
year ended 31 December 2019. Certain parts of the annual report
have not been included in this announcement as set out in note 1 of
the financial information.
We confirm that:
-- to the best of our knowledge, the consolidated financial
statements, which have been prepared in accordance with IFRSs as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and loss of the Group;
-- to the best of our knowledge, the strategic report includes a
fair review of the development and performance of the business and
the position of the Group, together with a description of the
principal risks and uncertainties that it faces; and
-- we consider the annual report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business
model and strategy.
This responsibility statement was approved by the Board of
Directors on 6 March 2020 and is signed on its behalf by:
Sir Bill Thomas
Chair
6 March 2020
Consolidated income statement
for the year ended 31 December
2019 2018
------------ -------------- ------------- ------------ ------------- ------------- -------------
Before After
exceptional exceptional
items and items and Before After
acquisition Acquisition acquisition acquisition Acquisition acquisition
related Exception-al related related related related related
costs items costs costs costs costs costs
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 363.0 - - 363.0 337.6 - 337.6
Cost of sales (14.3) - - (14.3) (12.9) - (12.9)
============ ============== ============= ============ ------------- ------------- -------------
Trading profit 348.7 - - 348.7 324.7 - 324.7
Administrative
expenses (298.2) (47.5) (1.6) (347.3) (279.7) (2.4) (282.1)
============ ============== ============= ============ ------------- ------------- -------------
Operating
profit/(loss) 50.5 (47.5) (1.6) 1.4 45.0 (2.4) 42.6
Finance revenue 1.3 - - 1.3 1.3 - 1.3
Finance costs (2.9) - - (2.9) (1.3) - (1.3)
Other finance
revenue -
pensions 0.4 - - 0.4 0.3 - 0.3
============ ============== ============= ============ ------------- ------------- -------------
Profit/(loss)
before taxation 49.3 (47.5) (1.6) 0.2 45.3 (2.4) 42.9
Taxation (11.4) - 0.3 (11.1) (10.7) 0.5 (10.2)
============ ============== ============= ============ ------------- ------------- -------------
Profit/(loss)
for the year 37.9 (47.5) (1.3) (10.9) 34.6 (1.9) 32.7
============ ============== ============= ============ ------------- ------------- -------------
Attributable to:
Equity holders
of the Parent
Company 36.0 (47.5) (1.3) (12.8) 31.7 (1.9) 29.8
Non-controlling
interests 1.9 - - 1.9 2.9 - 2.9
============ ============== ============= ============ ------------- ------------- -------------
Profit/(loss)
for the year 37.9 (47.5) (1.3) (10.9) 34.6 (1.9) 32.7
============ ============== ============= ============ ------------- ------------- -------------
Earnings/(loss)
per share
Basic 118.8p (42.4p) 105.2p 98.8p
Diluted 118.6p (42.4p) 104.9p 98.6p
============ ============== ============= ============ ------------- ------------- -------------
Consolidated statement of comprehensive income
for the year ended 31 December
2019 2018
GBPm GBPm
(Loss)/profit for the year (10.9) 32.7
Other comprehensive (loss)/income:
Items that will not be reclassified to profit
or loss:
Actuarial (loss)/gain on employee benefit
schemes - net of tax (3.1) 1.0
Items that may be reclassified subsequently
to profit or loss:
Foreign exchange differences on retranslation
of foreign operations (16.4) 4.0
Foreign currency hedges recycled to profit
or loss - net of tax 0.7 (0.6)
Foreign currency hedge revaluations - net
of tax 0.9 (1.4)
Other comprehensive (loss)/income (17.9) 3.0
------- ------
Total comprehensive (loss)/income for the
year (28.8) 35.7
======= ------
Attributable to:
Equity holders of the Parent Company (30.5) 32.8
Non-controlling interests 1.7 2.9
------- ------
Total comprehensive (loss)/income for the
year (28.8) 35.7
------- ------
Consolidated balance sheet
as at 31 December
2019 2018
GBPm GBPm
Non-current assets
Property, plant and equipment 25.6 27.0
Investment properties 1.2 1.2
Right-of-use assets 53.4 -
Intangible assets 238.2 293.4
Trade and other receivables 2.1 1.1
Investments 4.8 4.8
Employee benefits 15.5 18.2
Deferred tax assets 9.1 8.6
======== --------
349.9 354.3
======== --------
Current assets
Inventories 1.1 0.8
Trade and other receivables 77.0 77.0
Income tax receivable 0.1 1.2
Investments 15.6 9.7
Cash and cash equivalents 175.7 156.5
======== --------
269.5 245.2
======== --------
Current liabilities
Interest-bearing loans and borrowings (1.2) -
Trade and other payables (151.3) (135.4)
Lease liabilities (8.7) -
Income tax payable (9.1) (8.0)
Provisions (0.3) (0.2)
======== --------
(170.6) (143.6)
======== --------
Net current assets 98.9 101.6
======== --------
Non-current liabilities
Interest-bearing loans and borrowings (0.1) -
Trade and other payables (2.4) (10.5)
Lease liabilities (53.7) -
Provisions (1.5) (0.2)
Employee benefits (4.5) (4.2)
Deferred tax liabilities (6.0) (6.4)
======== --------
(68.2) (21.3)
======== --------
Net assets 380.6 434.6
======== --------
Capital and reserves
Share capital 7.6 7.6
Other reserves 158.4 237.1
Retained earnings 211.5 185.9
======== --------
Equity attributable to shareholders of the
Parent Company 377.5 430.6
Non-controlling interests 3.1 4.0
-------- --------
Total equity 380.6 434.6
======== --------
Consolidated statement of changes in equity
for the year ended 31 December
Attributable to equity holders
of the Parent Company
----------------------------------------------
Non-controlling
Share Other Retained interests Total
capital reserves earnings Total GBPm equity
GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2019 7.6 237.1 185.9 430.6 4.0 434.6
Impact of change in accounting
policies - - (3.9) (3.9) - (3.9)
Adjusted balance at 1
January 2019 7.6 237.1 182.0 426.7 4.0 430.7
(Loss)/profit for the
year - - (12.8) (12.8) 1.9 (10.9)
Other comprehensive (loss)/income:
Actuarial loss on employee
benefit
schemes - net of tax - - (3.1) (3.1) - (3.1)
Transfer from merger
reserve - (67.1) 67.1 - - -
Foreign exchange differences
on
retranslation of foreign
operations - (16.2) - (16.2) (0.2) (16.4)
Foreign currency hedges
recycled to
profit or loss - net
of tax - 0.7 - 0.7 - 0.7
Foreign currency hedge
revaluations - net of
tax - 0.9 - 0.9 - 0.9
========== =========== =========== ======== ================ =========
Total comprehensive (loss)/income
for the year - (81.7) 51.2 (30.5) 1.7 (28.8)
========== =========== =========== ======== ================ =========
Transactions with owners:
Share issues - 0.8 - 0.8 - 0.8
Employee share schemes - 2.2 0.3 2.5 - 2.5
Tax on other employee
benefits - - 0.8 0.8 - 0.8
Tax on other items in
equity - - 0.2 0.2 - 0.2
Dividend paid - - (23.0) (23.0) (2.7) (25.7)
Contributions from non-controlling
Interests - - - - 0.1 0.1
========== =========== =========== ======== ================ =========
Total transactions with
owners - 3.0 (21.7) (18.7) (2.6) (21.3)
========== =========== =========== ======== ================ =========
Balance at 31 December
2019 7.6 158.4 211.5 377.5 3.1 380.6
========== =========== =========== ======== ================ =========
Attributable to equity holders
of the Parent Company
----------------------------------------------------
Non-controlling
Share Other reserves Retained interests Total
capital GBPm earnings Total GBPm equity
GBPm GBPm GBPm GBPm
---------- ----------------- ----------- -------- ---------------- ---------
Balance at 1 January
2018 7.6 234.7 177.4 419.7 3.7 423.4
---------- ----------------- ----------- -------- ---------------- ---------
Profit for the year - - 29.8 29.8 2.9 32.7
Other comprehensive (loss)/income:
Actuarial gain on employee
benefit
schemes - net of tax - - 1.0 1.0 - 1.0
Foreign exchange differences
on
retranslation of foreign
operations - 4.0 - 4.0 - 4.0
Foreign currency hedges
recycled to
profit or loss - net
of tax - (0.6) - (0.6) - (0.6)
Foreign currency hedge
revaluations - net of
tax - (1.4) - (1.4) - (1.4)
---------- ----------------- ----------- -------- ---------------- ---------
Total comprehensive income
for the year - 2.0 30.8 32.8 2.9 35.7
---------- ----------------- ----------- -------- ---------------- ---------
Transactions with owners:
Share issues - 1.6 - 1.6 - 1.6
Employee share schemes - (1.2) 0.9 (0.3) - (0.3)
Tax on other employee
benefits - - (0.6) (0.6) - (0.6)
Tax on other items in
equity - - (0.1) (0.1) - (0.1)
Dividend paid - - (22.5) (22.5) (2.9) (25.4)
Contributions from
non-controlling
interests - - - - 0.3 0.3
---------- ----------------- ----------- -------- ---------------- ---------
Total transactions with
owners - 0.4 (22.3) (21.9) (2.6) (24.5)
---------- ----------------- ----------- -------- ---------------- ---------
Balance at 31 December
2018 7.6 237.1 185.9 430.6 4.0 434.6
---------- ----------------- ----------- -------- ---------------- ---------
Consolidated cash flow statement
for the year ended 31 December
2019 2018
GBPm GBPm
Cash flows from operating activities
Profit before taxation 0.2 42.9
Adjustments for:
Foreign exchange differences 0.4 (1.9)
Depreciation 13.3 5.2
Share-based payment expense 1.1 1.4
Amortisation of intangibles 1.4 1.7
Impairment of intangibles 47.5 -
Difference between pension contributions paid
and amount recognised in the income
statement (0.2) (0.2)
Finance revenue (1.3) (1.3)
Finance costs 2.9 1.3
Other finance revenue - pensions (0.4) (0.3)
Increase in inventories (0.3) (0.1)
Increase in trade and other receivables (2.9) (16.5)
Increase/(decrease) in bonus accrual 7.1 (3.4)
Increase in trade and other payables 8.0 2.0
Increase in provisions 0.2 0.2
======= -------
Cash generated from operations 77.0 31.0
Income tax paid (9.2) (8.3)
======= -------
Net cash flow from operating activities 67.8 22.7
======= -------
Cash flows from investing activities
Interest received 1.2 0.9
Purchase of property, plant and equipment (3.9) (2.2)
Purchase of intangible assets (5.0) (3.9)
Proceeds from sale of investments 10.9 1.7
Proceeds from sale of property, plant and equipment 0.1 0.1
Purchase of investments (11.8) (8.0)
Transfer from current investments (funds on deposit) - 3.8
Dividends received from investments 0.1 0.2
======= -------
Net cash flow from investing activities (8.4) (7.4)
======= -------
Cash flows from financing activities
Interest paid and other charges (2.8) (0.8)
Dividend paid (23.0) (22.5)
Dividend paid to non-controlling interests (2.7) (2.9)
Proceeds from borrowings 1.2 -
Payments of lease liabilities (8.6) -
Proceeds from shares issued 0.8 1.6
Contributions from non-controlling interests 0.1 0.3
Net cash flow from financing activities (35.0) (24.3)
======= -------
Net increase/(decrease) in cash and cash equivalents 24.4 (9.0)
Cash and cash equivalents at 1 January 156.5 161.7
Net foreign exchange differences (5.2) 3.8
======= -------
Cash and cash equivalents at 31 December 175.7 156.5
======= -------
Notes to the preliminary financial statements
1 General information
The preliminary financial information (financial information)
set out in this announcement does not constitute the consolidated
statutory financial statements for the years ended 31 December 2018
and 2019, but is derived from those financial statements. Statutory
financial statements for 2018 have been delivered to the Registrar
of Companies and those for 2019 will be delivered following the
Company's Annual General Meeting. External Auditors have reported
on the financial statements for 2018 and 2019; their reports were
unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under s498(2) or (3) Companies Act 2006.
2 Accounting policies and basis of preparation
The financial information set out in this announcement is based
on the consolidated financial statements, which are prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted for use by the European Union, and complies with the
disclosure requirements of the Listing Rules of the UK Financial
Conduct Authority. The financial information is in accordance with
the accounting policies set out in the 2019 financial statements
and have been prepared on a going concern basis.
3 Segmental information
Business segments Revenue Results
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Broking 283.0 251.7 55.5 44.0
Financial 35.5 46.1 3.3 8.0
Support 27.7 23.9 3.1 2.3
Research 16.8 15.9 5.4 5.0
====== ------ ======= -------
Segment revenue / underlying profit 363.0 337.6 67.3 59.3
====== ------
Head office costs (16.8) (14.3)
======= -------
Operating profit before exceptional
items and acquisition related costs 50.5 45.0
Exceptional items (47.5) -
Acquisition related costs (1.6) (2.4)
======= -------
Operating profit after exceptional items
and acquisition related costs 1.4 42.6
Finance revenue 1.3 1.3
Finance costs (2.9) (1.3)
Other finance revenue - pensions 0.4 0.3
======= -------
Profit before taxation 0.2 42.9
Taxation (11.1) (10.2)
======= -------
(Loss)/profit for the year (10.9) 32.7
======= -------
4 Exceptional items
As a result of the impairment testing of goodwill, an impairment
charge was recognised of GBP47.5m (2018: GBPnil).
5 Acquisition related costs
Included in acquisition related costs are cash and share-based
payment charges of GBP0.3m (2018: GBP0.2m) relating to previous
acquisitions. These are contingent on employees remaining in
service and are therefore spread over the service period. Also
included is GBP0.3m (2018: GBP0.5m) relating to the acquisition of
the remaining non-controlling interest in Clarksons Platou Tankers
AS. The charge consists of cash and share-based payment charges
which are linked to future service of the employees and are
therefore spread over a four year period.
Also included is GBP1.0m (2018: GBP1.7m) relating to
amortisation of intangibles acquired as part of the Platou and
other prior acquisitions.
6 Taxation
The major components of the income tax charge in the
consolidated income statement are:
2019 2018
GBPm GBPm
Profit at UK average standard rate of corporation tax of 19% (2018: 19%) - 8.2
Impairment charge not deductible for tax purposes 9.0 -
Expenses not deductible for tax purposes 1.8 1.6
Tax losses not recognised 0.8 0.7
Other (0.5) (0.3)
====== ------
Total tax charge in the income statement 11.1 10.2
====== ------
7 Earnings/(loss) per share
Basic earnings per share amounts are calculated by dividing
profit/(loss) for the year attributable to ordinary equity holders
of the Parent Company by the weighted average number of ordinary
shares in issue during the year.
Diluted earnings per share amounts are calculated by dividing
profit/(loss) for the year attributable to ordinary equity holders
of the Parent Company by the weighted average number of ordinary
shares in issue during the year, plus the weighted average number
of ordinary shares that would be issued on the conversion of all
the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2019 2018
GBPm GBPm
Underlying profit for the year attributable to ordinary
equity holders of the Parent Company 36.0 31.7
Reported (loss) / profit for the year attributable to
ordinary equity holders of the Parent Company (12.8) 29.8
=========== -----------
2019 2018
Millions Millions
Weighted average number of ordinary shares - basic 30.3 30.1
Weighted average number of ordinary shares - diluted 30.3 30.2
----------- -----------
8 Dividends
The Board is recommending a nal dividend of 53p (2018: 51p),
giving a total dividend of 78p (2018: 75p). This final dividend
will be payable on 29 May 2020 to shareholders on the register at
the close of business on 15 May 2020, subject to shareholder
approval.
9 Intangible assets
Additions of GBP5.0m in the year relate to GBP4.7m of
development costs and GBP0.3m arising on acquisitions. Goodwill and
other intangible assets are held in the currency of the businesses
acquired and are subject to foreign exchange retranslations to the
closing rate at each year-end, amounting to a decrease of GBP11.5m
in the carrying value of goodwill and GBP1.8m in the carrying value
of other intangible assets in the year.
Recognising the continued challenging trading conditions in the
offshore broking and securities markets, the directors have revised
the estimate of future cash flows expected from these cash
generating units. Following these revisions, an impairment loss of
GBP47.5m (2018: GBPnil) has been recognised as an exceptional
item.
10 Cash and cash equivalents
2019 2018
GBPm GBPm
Cash at bank and in hand 173.4 154.0
Short-term deposits 2.3 2.5
------
175.7 156.5
====== ------
11 Employee benefits
The Group operates three final salary defined benefit pension
schemes, being the Clarkson PLC scheme, the Plowrights scheme and
the Stewarts scheme.
As at 31 December 2019, the combined schemes had a surplus of
GBP11.0m (2018: GBP14.0m). This was after an asset ceiling
adjustment of GBP3.8m (2018: GBP6.8m) in relation to the Plowrights
scheme. As there is no right of set-off between the schemes, the
benefit asset of GBP15.5m (2018: GBP18.2m) is disclosed separately
on the balance sheet from the benefit liability of GBP4.5m (2018:
GBP4.2m). The Group has recognised a deferred tax asset on the
benefit liability amounting to GBP0.7m (2018: GBP0.7m) and a
deferred tax liability on the benefit asset of GBP2.6m (2018:
GBP3.1m). The market value of the assets was GBP194.7m (2018:
GBP188.8m) and independent actuaries have assessed the present
value of funded obligations at GBP179.9m (2018: GBP168.0m).
12 Share capital
2019 2018
Million GBPm Million GBPm
Ordinary shares of 25p each, issued and fully paid 30.4 7.6 30.3 7.6
========== ------ ---------- ------
13 Contingencies
From time to time, the Group is engaged in litigation in the
ordinary course of business. The Group carries professional
indemnity insurance. There is currently no litigation that is
expected to have a material adverse financial impact on the Group's
consolidated results or net assets.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UBSURRBUORAR
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