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Pan Ocean Q1 net profit falls 40%; expects tonnage over-supply, slow demand to continue

SOUTH Korean bulk carrier Pan Ocean Co Ltd reported on Monday that its net profit for the first quarter ended March 31, 2016 fell 39.6 per cent to US$61.4 million, compared with US$101.6 million a year ago.

Following a rehabilitation plan, Pan Ocean recognised the profit for "waiver from debt" due to debt-equity swap. The profits for the waiver fell by US$38 million to US$51 million, from US$89 million a year ago.

The group - which emerged from recevership in early 2015 - achieved sales of US$376.6 million, up 3.6 per cent from a year ago. Costs of sales rose by 11.5 per cent, or US$34 million, to US$332 million.

As a result, operating profit stood at US$32.3 million, compared with US$55.5 million a year ago. Earnings per share for the period tumbled to US$0.12 a share from US$0.46 a share a year ago.

Pan Ocean went into receivership in June 2013 after amassing US$5 billion in debt when it operated as STX Pan Ocean. STX group eventually sold its majority stake in a debt for equity swap with Korea Development Bank.

The company came out of receivership after a consortium of the South Korean poultry processing company Harim Group and private equity firm JKL purchased it.

On its Q1 performance review, Pan Ocean said that tonnage over supply continued to haunt the market. This was exacerbated by weak China and India coal imports as well as lower iron ore exports from Australia and Brazil due to bad weather and longer maintenance duration of Brazil export port. As a result, the daily Baltic Dry Index (BDI) hit 290, a historic low since since 1999.

However, BDI has been recovering, thanks to "strong P-max market supported by increasing grain export from South America and scrapping of tonnages", it said, adding: "Cape also started to rise thanks to increasing iron ore export from March."

On March 31, 2016, Pan Ocean's total assets stood around US$3.6 billion, down US$47 million from end 2015. Total liabilities amounted to US$1.5 billion on March 31, 2 016, down US$71 million from end 2015.

The group generated about US$82.6 million in net cash from operating activities, compared with US$115.0 million a year ago. However, net cash used in investing activities and financing activities during the quarter recorded a deficit of US$105 million.

It had US$216.6 million in cash and cash equivalents by end March, down from US$423.6 million a year ago.

Looking ahead, Pan Ocean expects the market situation to be "similar to 2015 due to a chronic oversupply of tonnages and slow demand".

"...so we will see more scrapping of tonnages, which could relieve current supply and demand imbalance and possibly improve the market in the near future," it said.

While South America's grain season is expected to support the market, decreasing coal import of China and India is seen exerting a downward pressure.

But it said that China's iron ore import is increasing beyond previous expectation so far thanks to closure of high cost domestic iron ore mines and expectation of China stimulus.

"So, whether China iron ore import keeps increasing or not will be a key point for the future market prospect," Pan Ocean said.