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Shipping markets are likely to feel the depressing effects of a glut of ships ordered before the financial crisis for “a few years to come,” the chairman of Braemar Shipping has warned.
Sir Graham Hearne said it had been “a challenging year” for shipping, with a significant surplus of tonnage in many sectors, as Braemar announced a 26 per cent fall in pre-tax profits.
The decline in pre-tax profits to £9.8m for the year to February 29 was the result of a 50 per cent fall to £7.12m in operating profits at the core shipbroking division, where revenue fell 19 per cent to £49.8m.
Shipbroking revenue and profits depend on the number of transactions to buy, sell and charter ships and the prices and charter rates involved. Ship prices and charter rates have fallen sharply as a glut of dry bulk carriers, oil tankers and container ships has sent rates falling to unprofitably low levels.
The company’s other shipping services businesses – intended to act as a counterweight to the highly cyclical shipbroking business – helped to balance out shipbroking’s falling profitability.
Operating profits at the technical division rose 38 per cent to £1.8m on revenue up 42 per cent to £32m. Operating profits at logistics – which handles port agency and other shipping transactions – rose 53 per cent to £1.9m on revenue up 7 per cent to £37.6m.
The environmental division, which handled the clean-up after the grounding of the container ship Rena in New Zealand, improved profits from £300,000 to £1.9m as revenue doubled to £14.5m.
“While activity remained strong, chartering rates and vessel values suffered and shipbroking income fell as a result,” Sir Graham said. “However, the technical, logistics and environmental divisions all performed well.”
He warned that it was difficult to assess how quickly rising Asian commodity demand and scrapping of older ships were correcting the ship oversupply because of the uncertain world macroeconomic position.
“The shipping markets are likely to feel the effects of the tonnage surplus for a few years to come,” he said.
Group operating profits fell by a quarter to £9.79m, as revenue rose 6 per cent to £133m. Earnings per share fell 30 per cent to 33.84p. The recommended final dividend was held at 17p, to give an unchanged full-year dividend of 26p. The shares fell 10p to 340p.