2017 was a markedly better year for dry bulk shipping compared to 2016, but that improvement was from an extremely low base. There is still some ay to go before the dry bulk market sees sustained healthy freight earnings, but supply and demand fundamentals are now more positively balanced and we are cautiously optimistic for a continued market recovery albeit with some volatility along the way.
The improved market conditions and our continued outperformance of the market in terms of vessel earnings enabled Pacific Basin to generate significantly larger operating cash flows and our first positive P&L net result since 2013.
We expect several positive initiatives and developments of 2017 to benefit our Company in 2018 and beyond, enhancing our position from which to capitalise on opportunities and improved market conditions ahead.
We took delivery of the last of our owned newbuildings and purchased several high-quality modern vessels to further enhance our world-leading fleet of minor bulk ships. The scale of our fleet and uniform design of our interchangeable ships enable our teams in 12 offices to provide the most reliable freight cover to our customers around the world while combining our ships and cargoes to achieve high laden utilisation and TCE earnings that outperform the market indices.
We concluded our exit from the towage business, opened a new commercial office in Brazil, relocated our Hong Kong headquarters to a better and more cost-efficient office, and rolled-out our new integrated ship management software. We also pursued an innovative fundraising (comprising consideration shares and cash raised through a private placement) to purchase five vessels while enhancing our operating cash flow and balance sheet strength. Mats Berglund will elaborate on all of these initiatives in his Chief Executive’s Review.
Our initiatives helped to maintain a balance sheet with total cash and deposits of US$245 million at 31 December 2017 and net gearing of 35% (net debt divided by net book value of our owned fleet). Important cost saving initiatives helped to further reduce our daily vessel operating expenses, and improve our efficiencies enhancing our platform for success in the improving market ahead.
We again received several awards in 2017 recognising the quality of our customer focus and service delivery, technical management, corporate governance and investor relations. I would like to single out the Company of the Year award we received at the Lloyd’s List Global Awards which recognised our performance and healthy balance sheet under difficult market circumstances, a high level of customer satisfaction, and innovative financing.
We remain committed to our Handysize and Supramax focus, our effective strategy and to always refining and improving how we do our business. Staying true to our corporate mission and values – such as through dedication and teamwork, customer attention and solutions focus, responsiveness and reliability, safety and care, and integrity and accountability – is key to the longer term sustainability of our business, irrespective of market conditions.
In view of the small net profit in 2017, the Board recommends not to pay a dividend for 2017 (2016: nil). However, we continue to target a pay-out ratio of at least 50% of net profits excluding disposal gains once we return to a more meaningful level of profitability.
Chanakya Kocherla and Andrew Broomhead retired in April and August 2017 stepping down from their Executive Director roles and their respective positions as Chief Technical Officer and Chief Financial Officer. Our technical and ship management organisation has since been led by our Fleet Director, and Peter Schulz joined us in August as our new Chief Financial Officer and a member of the Company’s Executive Committee.
Our Board currently comprises two Executive Directors and six Independent Non-executive Directors who bring a broad range of commercial, strategic, operational, legal, financial and accounting experience and a strong shipping and commodities expertise to our Board. I would like to thank our Board of Directors for their valuable contributions in all aspects of the Company’s oversight.
A commitment to strong corporate governance – sound internal controls, transparency and accountability to all stakeholders – continues to underpin all components of our business and seeks to enhance stakeholder confidence in Pacific Basin as a partner and a place to invest. I thank all our stakeholders for their valued support of our Company.