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.
Clarkson PLC today announces unaudited Interim results for the six months ended 30 June 2021.
Summary
• Strong trading across all areas of the business
• Underlying profit before taxation of £27.5m (2020: £21.1m), an increase of 30.3%
• Underlying earnings per share increased by 24.5% to 64.0p (2020: 51.4p)
• Robust balance sheet, with £73.9m of free cash resources1 (31 December 2020: £81.1m)
• Increased interim dividend of 27p per share (2020: 25p per share)
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.
Andi Case, Chief Executive Officer, commented:
“I am delighted by the performance of Clarksons over the first half of the year. We have built a diverse, marketleading business and the strategy continues to deliver shareholder value.
“The Company generated significantly increased profits in the first half of the year, aided by a robust performance in our Broking division and a strong recovery from our Financial division. I am also excited by the progress and momentum that our Sea/ platform is building.
“A huge thanks goes to all my colleagues for their hard work and commitment throughout what has been a challenging period for us all. We are confident in the outlook for Clarksons, which is well placed to capitalise on an improving demand/supply dynamic within shipping, offshore and renewables and from the wider global economic recovery.”
Forward-looking statements
Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no obligation to update any forwardlooking statements whether as a result of new information, future events or otherwise.
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 and reconciliation of the term ‘underlying’ and related calculations are included within the Chief Executive Officer’s review.
Chair’s review
As highlighted at the end of 2020, we went into 2021 with an improving demand/supply balance, which has provided the backdrop to more positive shipping markets. The ClarkSea Index, reflecting the weighted average of earnings for all main vessel types, averaged US$20,717 per day in the first half, an increase of 27% year-on-year, the benefit of which was in part offset by the stronger sterling/US dollar exchange rate.
The quality of the Clarksons business and its market-leading position has meant that it has weathered the global crisis caused by the COVID-19 pandemic as it did the credit crisis of 2008 and 2009 when it continued to grow, generate cash flow, and increase its dividend. Clarksons is a robust, cash-generative business which has delivered increasing Total Shareholder Return and 18 consecutive years of dividend growth, despite a decade long malaise in freight rates.
I am delighted to report the Group’s strong financial performance over the first half of 2021, with underlying profit before tax of £27.5m, an increase compared to the same period last year, of £6.4m or 30.3%. This Group performance was driven by our market-leading Broking teams, significantly increasing both spot and forward business, a strong performance from our Financial division following a return in capital market activity, and steady performance from both Research and Support. Our innovative technology platform Sea/, which offers interoperable modules which together provide an end-to-end solution to support the freight supply chain, also progressed well in the first half of the year. During these challenging times I would like to thank the Clarksons team for the extraordinary efforts that they have delivered in these half year results.
We have a diverse business model and multiple market-leading positions in nearly all the verticals in which we operate, and our sector teams have the best in-depth market knowledge and intelligence, which is a key differentiator for our clients. It is this diversity alongside a focused strategy that is the strength of the business.
We were pleased to welcome Martine Bond as an independent Non-Executive Director to the Board, and a member of the Audit and Risk Committee, during the first half. Martine has extensive experience in the financial services industry and her skills and expertise in electronic trading and technical solutions complement the existing skills of the Board. As previously announced, Marie-Louise Clayton stepped down from the Board with effect from 31 January 2021 and I would like to thank her for her contribution to Clarksons.
The outlook for Clarksons as a Group is strong and the Board believes we are in the early stages of a recovery in the shipping markets after a decade of unfavourable demand/supply dynamics.
Chief Executive Officer’s review
As we have been predicting for some years now, the demand/supply dynamics of the shipping market have turned positive, aided by the green transition, its impact on the global shipping fleet and the beginnings of economic recovery from the pandemic. The Group’s first half performance reflected the early days of these changing trends and we have positioned the business to capitalise on these dynamics.
The results that the business continues to deliver are a testament to our strategy which has consistently delivered shareholder value. We have built a diverse business, which is market-leading in nearly all its verticals and we have developed a positive culture which puts our clients and their needs first. I would like to thank all my colleagues for their immense dedication and the hard work they have shown over the period. Despite the ever-changing requirements and restrictions around COVID-19, their skill has enabled the business to thrive and deliver an excellent performance over the first half.
Market backdrop
Shipping markets entered 2021 with the supply side reflecting the lowest order book of new ships for 30 years, significant structural reduction in shipbuilding capacity globally compared to 2008, material cost increases, continued challenges in the availability of finance and a change in regulation around emissions impacting the world fleet and the need for alternative fuelling. On the demand side, following a COVID-19 induced fall in seaborne trade in 2020 of some 0.5bn tonnes, we have started to see the beginnings of the anticipated upswing in demand from Government stimulus, investment in infrastructure and a rebound in consumer spending. This recovery of demand should mean that in 2021 seaborne trade will exceed 12bn tonnes.
Broking
During the first six months of the year, the improvement in freight rates and market outlook gave rise to a buoyant sale and purchase market. Asset prices started to recover while secondhand sales volumes increased by more than 100% compared to the first half of 2020. Regulation concerning GHG emissions and the green transition continued to play a large part in decision-making around investment in newbuildings and longer-term projects. Nevertheless, the order book remains at only approximately 4% of the fleet as the market is deliberating suitable fuel choices for the green transition. Clarksons has built a cross disciplinary green transition team in order to play an important role in the global shipping fleet’s evolution and decarbonisation, through research and analytics, consultancy and execution in broking and financing through the Financial division.
The recovery in freight rates within the dry cargo and container markets, initially seen in the latter part of 2020, continued apace. The container market was buoyant as demand increased due to both restocking and consumers buying physical goods in place of spending their disposable income on foreign travel and other leisure activities. Disruption from the Ever Given in the Suez Canal impacted most shipping markets, and we saw rates in the container market being pushed up further by congestion in ports due to COVID-19 and a physical shortage of containers due to market dislocation.
The dry bulk market was strong in the first half of 2021, reflecting the beginning of what many predict to be a commodity boom as previously highlighted government stimuli focuses spend on infrastructure. There was also significant activity in the gas markets where the Clarksons team covers both the freight and the underlying product.
The tanker market was weak due to low demand for oil which is still 10% below pre-COVID-19 levels. A reduction in international travel has dented demand for oil, causing an excess of supply of tankers, a stark difference to the first quarter of 2020 which benefited from cheap oil and the tanker market’s role in the contango trade. Whilst tanker earnings averaged their lowest half year period for over 30 years, the mediumterm outlook is better as stockpiles of oil have now fallen to pre-pandemic levels and we are beginning to see some increases in both spot and longer-term business.
The offshore energy market is improving as activity picks up and the offshore wind market continues to grow rapidly. Continued momentum in this renewables market is fundamentally important if global emissions targets are to be met and we see this as a long-term driver of our business. Overall, divisional profit from Broking of £30.3m was up £0.9m on the same period last year, reflecting a margin of 21.2%. This result was negatively impacted by the movement in the GBP/USD exchange rate from an average of 1.2615 in the first half of 2020 to 1.3911 in the first half of 2021. On a constant currency basis, profit would have been £35.0m, up £5.6m on reported first half 2020. Broking has continued to grow its significant forward order book as spot business concluded in the first half is invoiced on delivery, or end of voyage, in the second half and beyond.
Financial
In the Financial division, activity within Clarksons Platou Securities has improved significantly following several years of restricted opportunity for shipping and offshore in the capital markets. The first half of 2021 has seen increased ECM, DCM and M&A activity and the pipeline remains strong. The project finance markets were also buoyant, with our real estate team continuing the growth seen in the second half of 2020. Overall, our Financial division produced a profit of £5.3m on revenues of £24.7m in the first half compared with a loss of £1.6m on revenue of £13.3m in the same period last year.
Support
The Support business performed well producing £1.5m profit and a 10.6% margin in the first half of 2021 (2020: £0.2m and 1.7%). Agency, renewables, customs clearance, safety & survival and supplies activities continued in the recovery phase following the significant reduction in activity in the first half of 2020 due to COVID-19 and the changes from Brexit. We now have increased opportunities for growth from this solid platform.
Research
The Research business increased sales of digital products, which included the launch of Renewables Intelligence Network, to go alongside our market-leading products, Shipping Intelligence Network and Offshore Intelligence Network. However, this increase was in part offset by the US dollar-based valuations business suffering in translation from a stronger sterling. Nevertheless, the division made a solid profit of £3.1m (2020: £3.1m) and the timing of subscription renewals should provide additional reported revenue growth in the second half.
Digitalisation
Our Sea/ platform has seen continued momentum. Client adoption is growing, as clients seek to increase risk control, audit, compliance, efficiency, communication and data integrity, together with enhanced analytics and validation to enable better decision-making. The trajectory of new customer uptake is positive, and we are seeing both very encouraging retention rates on client renewals and clients broadening their product uptake once invested in the platform. We have a promising pipeline of new customers with Sea/fix proving to be a significant value proposition for our clients.
Results
Total revenue in the first half was £190.1m (2020: £180.4m) and underlying administrative expenses were £153.9m (2020: £151.2m). Underlying profit before taxation was £27.5m (2020: £21.1m), which, after acquisition-related costs of £0.2m (2020: £0.2m), resulted in a reported profit before taxation of £27.3m (2020: £20.9m). Underlying earnings per share, before acquisition-related costs, were 64.0p (2020: 51.4p). Reported earnings per share were 63.5p (2020: 50.6p).
Cash and dividends
Clarksons has generated strong levels of cash in the period and maintains a healthy balance sheet, with cash balances at 30 June 2021 of £152.9m (31 December 2020: £173.4m) and a further £2.8m (31 December 2020: £22.8m) in short-term deposit accounts, classified as current investments on the balance sheet. Net cash and available funds, after deducting amounts accrued for performance-related bonuses but including these short-term investments, amounted to £87.3m (31 December 2020: £95.4m). This is lower, partly due to the payment of the 2020 final dividend in May, and also because the second quarter was particularly busy with much of the increased revenue reflected in trade debtors. These debtors should be converted into cash in the third quarter. Free cash resources, after deducting monies held by regulated entities, amounted to £73.9m (31 December 2020: £81.1m).
Due to confidence in the current year business outlook and continuing its 18 consecutive year progressive dividend policy, the Board has declared an increased interim dividend of 27p per share (2020: 25p per share) which will be paid on 17 September 2021 to shareholders on the register at the close of business on 3 September 2021.
Outlook
The outlook for the business is strong. Improving demand/supply dynamics is positive to the rate environment across shipping, offshore and renewables markets, driven by the green transition, increasing demand for bulk commodities and the global economic recovery after the COVID-19 induced recession. We have made a strong start to the second half, there is increasing momentum across the business and we believe that Clarksons will continue to benefit from its leading market position and diverse offering.
Source: Clarkson PLC