The full year ended 31 December 2016 (“FY16”) has been a tumultuous year as the industry continued its struggle with strong headwinds from long-drawn issues relating to persistent overcapacity, weak global trade and freight rate volatility.
Our container shipping business handled 1.2 million TEUs (twenty-foot equivalent units) of containers for FY16, which was comparable to that handled in the year ended 31 December 2015 (“FY15”). This takes into account lower volume handled during the second half of FY16 following the cessation of operations of one of our partners, Hanjin Shipping Co., Ltd (“Hanjin Shipping”), with whom we have slot exchange arrangements. This, along with the protracted pressure on container freight rates, scheduled dry-docking and lower charter rates for our bulk carriers and tankers, resulted in a decrease in Group revenue to USD260.5 million, from USD317.7 million in the previous financial year (“FY15”).
Cost of services fell 15% to USD245.9 million in FY16, as we operated a smaller fleet in the bulk & tanker segment during the year compared to FY15, and also benefitted from lower bunker price and charter rates. Consequently, the Group’s gross profit margin declined to 5.6%, versus 8.6% in FY15.
During the year, we made a provision of USD3.0 million for bad debt. This is mainly in relation to the filing of receivership by Hanjin Shipping. We also recorded an impairment of USD7.7 million on the Group’s dry-bulk carriers and Indonesia-flagged container vessels.
On account of the above factors, we registered net loss attributable to shareholders of USD5.4 million, compared to a net profit of USD4.2 million in FY15.
Samudera has always committed to distributing annual dividends to shareholders in appreciation for their support of the Company through the years. Although the Group did not turn in a profit for FY16, the Board has elected to propose a tax-exempt final dividend of 0.5 Singapore cents (FY15: 0.72 Singapore cents), following careful consideration of the Group’s operating performance, cash requirements and cash availability. In making its recommendation, the Board also took into account the fact that the Group would have turned in a profitable financial performance had it not been for the provisions and impairments. In addition, the Group’s balance sheet should remain reasonably strong even after factoring the dividend payment and the Group’s business expansion, investment and working capital needs for the current financial year (“FY17”). The dividend payment is subject to your approval at the upcoming Annual General Meeting on 27 April 2017.
During the year under review, we continued to execute our strategy of improving operational efficiency and asset utilisation, while maintaining a prudent approach in the management of our fleet. To that end, we have divested four vessels in FY16 and two in the first quarter of FY17. All of these vessels are Indonesia-flagged, of considerable age and no longer competitive against new and more efficient vessels plying the Indonesian waters. Their divestment will thus free the Group of valuable resources for redeployment into activities or markets with greater potential.
As far as container shipping is concerned, our focus remained honed on the feeder space in Asia, and we continued to play to our strengths of being nimble and adaptable. Through collaborative arrangements and partnerships such as slot exchanges, we sought to reinforce our presence at our hub and spoke ports. At the same time, we kept a diligent eye out for opportunities amid current market conditions. We have embarked on joint ventures with strategic partners to lend our expertise in container feeder services in the region. We expect these overseas ventures to begin bearing fruit in FY17.
Our tanker business turned in a stable performance amid the volatility, as our vessels remained gainfully employed. However, demand for bulk shipping services was greatly impacted by new-builds that came on stream in recent years as well as decline in global commodity trade, resulting in the market struggling to fill up existing capacity. This in turn put a cap on charter rates for bulk carriers and weighed down the performance of our bulk & tanker business segment.
In the year ahead, the outlook of global trade growth remains relatively muted, with international geopolitical uncertainties potentially posing headwinds to economic growth. In addition, much remains to be done to bridge the vast gap between supply and demand in container shipping. Operating conditions in the container shipping industry are thus expected to be arduous.
Operationally, we will continue to identify ways to maintain our competitiveness and strengthen our position in regional waters. To that end, we will persist in seeking out opportunities to work with regional and domestic operators to grow our network.
The tanker business is expected to continue its stability going forward. In the near term, the recent rally in commodity prices may present a bright spot for the bulk market, which could herald a needed boost in charter rates for the bulk shipping business.
We will actively take steps to mitigate industry challenges by working to achieve a higher level of operational efficiency and asset utilisation. We will continue to apply a prudent approach towards the management of our fleet, by monitoring the market for the appropriate time to further streamline our assets.
A Word of Appreciation
Amid these trying times, I am grateful for our team of employees and management who have demonstrated boundless drive and dedication as we work together to surmount the operating challenges.
I thank my fellow Board members for sharing with us their valuable counsel, as we set the Group on course for progress. To our shareholders, customers, partners and associates, thank you for standing by us.