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Cash Flow and Cash

The Group’s four main sources of funds are operating cash flows, secured loans, convertible bonds and equity. The major factors influencing future cash balances are operating cash flows, sale and purchases of dry bulk vessels and drawdown and repayment of borrowings.

As part of the ordinary activities of the Group, the Treasury function actively manages the cash and borrowings of the Group to ensure sufficient funds are available to meet the Group’s commitments and an appropriate level of liquidity is maintained during different stages of the shipping cycle.

Over the long term, the Group aims to maintain a consolidated net gearing of no greater than 50% – defined as the ratio of net borrowings to net book value of property, plant and equipment – which we believe is appropriate over all stages of the shipping cycle.

Overview of 2017 and Current Position

During 2017:

  • Our operating cash inflow further improved to US$125 million, as compared with US$48 million in the first half 2017 and US$50 million in full year 2016 on the back of an improving dry bulk market conditions.
  • Borrowings increased by US$52 million, after:
    • We drew down US$158 million, comprising US$140 million under our Japanese export credit facilities in respect of seven delivered newbuildings to fund the capital commitments of US$119 million, and US$18 million of other borrowings on two existing vessels; and
    • We repaid US$106 million of secured borrowings, net of the voluntary prepayment and drawdown of our revolving facilities during the year.
  • In August, we committed to the purchase of one secondhand Handysize, three secondhand Supramax and one resale Supramax newbuilding for a total consideration of US$105 million, which was funded by way of i) the issue of new shares to the ship sellers equivalent to US$46 million; ii) the placement of new shares to institutional investors, raising net cash proceeds of US$38 million; and iii) cash payment of US$21 million.

As at 31 December 2017:

  • The Group’s cash and deposits were US$245 million reflecting a 35% net gearing ratio.
  • Our unmortgaged vessels comprise ten dry bulk vessels (including the resale Supramax newbuilding which delivered to us in January 2018) with an aggregate market value of approximately US$173 million.
  • Our committed banking facilities were fully drawn.

Cash and Deposits

The split of current and long-term cash, deposits and borrowings is analysed as follows:

US$ Million 2017 2016 Change
Cash and deposits 244.7 269.2 -9%
Current portion of long-term borrowings (104.1) (95.7)
Long-term borrowings (776.9) (743.5)
Total borrowings (881.0) (839.2) -5%
Net borrowings (636.3) (570.0) -12%
Net borrowings to shareholders' equity 55% 55%
Net borrowings to net book value of property, plant and equipment KPI 35% 34%
Net working capital 136.8 160.6 -15%

Treasury is permitted to invest in a range of cash and investment products subject to limits specified in the Group Treasury Manual. These include overnight and term deposits, money market funds, liquidity funds, certificates of deposit and structured notes.

Treasury enhances Group income by investing in a mix of financial products, based on the perceived balance of risk, return and liquidity. Cash, deposits and investment products are placed with a range of leading banks, mainly in Hong Kong.

The Group’s cash and deposits at 31 December 2017 comprised US$236.9 million in United States Dollars and US$7.8 million in other currencies. They are primarily placed in liquid deposits of three months or less and saving accounts. This maintains liquidity to meet the Group’s working capital needs.

During the year, Treasury achieved a 1.6% return on the Group’s cash.

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