The profit for the period after tax amounted to DKK 52 million compared with a profit of DKK 77 million in the first half of 2015. • Earnings from lending before loan impairment charges for the first half of 2016 amounted to DKK 312 million, against DKK 329 million in the first half of 2015. Earnings from lending were positively impacted by a higher average DKK/USD exchange rate, but a decline in average lending detracted from performance.
• Loan impairment charges and write-offs in the first half of 2016 represented an expense of DKK 341 million, against an expense of DKK 124 million in the first half of 2015. Measured in lending currencies (primarily USD), accumulated loan impairment charges (allowance account) rose in the first half of 2016, primarily due to developments in the offshore segment.
• The allowance account accounted for 5.3% of total loans at 30 June 2016, against 4.4% at the same time last year and 4.3% at the end of 2015. Write-offs remain at a low level, amounting to 0.1% of loans at 30 June 2016.
• Overall, the market value of the mortgaged ships fell by 8.2% measured in USD, driven especially by a large decline in the dry bulk segment. After loan impairment charges, the portfolio’s weighted average loan-to-value (LTV) ratio was 63%, which was unchanged from the end of 2015. Furthermore, 91% of all loans after loan impairment charges is covered within 60% of the market value of the mortgaged vessels, which is also unchanged from the end of 2015. In other words, the company retains a high degree of security for its loans.
• Falling interest rates and a small contraction of the credit spread on the company’s portfolio of Danish mortgage bonds triggered a positive return on the securities portfolio of 1.3%, against a negative return of 0.7% in the first half of 2015.
• Loans before impairment charges fell by DKK 2.8 billion in the first half of 2016 driven by a depreciating US dollar and a net decrease in loans.
• The company retains a robust cash position, and there are only limited refinancing risks between issued bonds and loans disbursed as well as loan offers submitted. These moderate risks are amply covered by the company’s own funds. The short-term liquidity requirement, LCR, has consistently been met with a large margin relative to the statutory limits.
• The capital ratio was 18.8% at the end of the first half of 2016, which is an increase from 17.3% at 31 December 2015. The profit for the period has not been recognised in the company’s own funds. Accordingly, the capital ratio remains well above the individual solvency need, including the combined buffer requirement, which under the 8+ approach was 9.3% at 30 June 2016.
• In April 2016, an amount of DKK 413 million was distributed as dividend to the shareholders for the financial year 2015. Of this amount, Den Danske Maritime Fond received DKK 62 million.
The shipping market and competition
The shipping market remains characterised by excess capacity in all key segments, resulting in generally low freight rates. The offshore sector is particularly hard hit because the lower oil prices have triggered a sharp drop in demand. The low oil prices have made new offshore activities less profitable for the oil companies. The dry bulk market bottomed out in February and has subsequently experienced slightly upward trendig rates, although levels are still far from satisfactory. Following a couple of good years, the tanker market has slowed down, among other things due to a large inflow of new vessels. The container market continues to suffer from the delivery of too many vessels relative to demand, and given the current large order books, the segment will most likely be challenged for some time.
Competition in the market remained fairly unchanged relative to the past few years. Investment capacity has dropped in many shipping companies due to sluggish earnings in a number of segments. So while there is still demand for ship financing, it is not as strong as it used to be. The export credit institutions of Asia are still active in the market for financing newbuildings from the countries of the region.
Outlook for the second half of 2016
Danish Ship Finance expects a small decline in loans in the second half, primarily owing to a drop in demand from the company’s customer segment. The company retains its good competitive strength. More expensive sourcing of USD financing for new lending will weigh on the company’s net earnings. This is due to developments in financial markets and, especially, the consequences of the ECB’s asset purchase programme, which has made it more expensive to convert DKK funding into USD. Based on the company’s A rating from Standard & Poor’s, funding in Danish kroner is competitive.
The company continues to expect a lower profit than in 2015, Primarily because of a decline in loans. Danish Ship Finance cannot provide more specific financial guidance given the potential impact from market value adjustments and fluctuations in the USD/DKK exchange rate, which are the principal risk and uncertainty factors facing the company during the remaining six months of the financial year. The company only publishes full-year and half-year reports as it is believed that more frequent reports would not affect the pricing of the bonds issued.