Shipping services group Clarkson (CKN) saw its underlying pre-tax profit increase by 5 per cent in the six months to 30 June, to £21m. This was despite what chief executive Andi Case called “the most disruptive period for working practices in living memory”.
Earnings were buoyed by the broking division, where underlying profit was up by more than a third year on year, to £29m. The ‘ClarkSea Index’ – which is Clarkson’s own index of the weighted average earnings for the main types of shipping vessels – was 9 per cent higher than across the whole of 2019. This came amid strength in the tanker market following the Covid-19-induced contango in the oil price earlier this year – this is when futures contracts are trading at a premium to the spot price. Such conditions encourage commodities traders to store oil for sale in the future at a higher price, often aboard floating offshore tankers.
Gains from tankers offset shipping weakness elsewhere – lower industrial output hit demand for containers, while the offshore market was pulled down by subdued oil exploration and production activity.
The pandemic’s impact on Clarkson extended beyond its shipping operations. The group also has a financial services division where a lack of transactions due to market turmoil swung it to a £1.6m underlying loss, versus a £1.1m profit a year earlier. On top of cutting costs, it is hoped that more normal market conditions will help the business return to profitability in the second half.
The group is sitting on £156m of net cash and adjusted free cash flow has risen by almost 30 per cent year on year, to £89m. With the balance sheet in good trim, Clarkson has effectively reinstated its deferred final dividend for 2019 – which will now be paid as a half-yearn dividend – and held the normal interim payout steady at 25p. With a track record of 17 years of consecutive dividend growth, it is aiming to continue that streak this year.
Clarkson’s full-year outlook remains uncertain as the recovery of the global economy and international trade is difficult to predict. The Baltic Dry Index provides a benchmark for the cost of shipping various raw materials and is often used as a barometer for global economic growth – manufacturers buy more raw materials when they intend to produce more finished goods. The index had gathered momentum between mid-May and early July, suggesting economic activity was picking up – this reflects a recovery in industrial production is China and strengthening commodities prices. But the stumble since then should serve as a warning that the picture is far from clear, particularly as we head towards a downturn.
