Steamships Trading : SST Appendix 4D Half Yearly Result June 2017

Appendix 4D‌ Half yearly results

Rules 4.2A

Name of entity

Steamships Trading Company Limited

ARBN Half year ended ('current period')

055836952

30 June 2017

Results for announcement to the market

K'000

Revenues from ordinary operations	Up/Down	7%	T	340,007
Profit (loss) from ordinary operations after tax	Up/Down	7%	T	47,929
Profit (loss) attributable to members	Up/Down	4%	T	45,360
Dividends (distributions)	Amount per security		Franked amount per security
Final Dividend - 2016	35t		0t
Interim Dividend - 2017	70t		0t

08 September 2017

Record date for determining entitlements to the dividend,

Refer Pages 3 and 4 for commentary

This report is to be read in conjunction with the most recent annual financial report

Directors Report

The directors present their report together with the condensed consolidated financial statements for the half-year ended 30 June 2017.

Directors:

The directors of the company during or since the end of the half-year are:

G.L. Cundle Chairman since 2015 Chairman

P Aitsi Director since 2014

G Aopi, CBE Director since 1997

Sir M.R. Bromley, KBE Director since 2000

D.H. Cox OL Director since 2004

G.J. Dunlop Director since 1995

Lady W.T. Kamit, CBE Director since 2005

P.W. Langslow Director since 2015 Managing Director

M.R. Scantlebury Director since 2016 Finance Director

B.N. Swire Director since 2015

J.H. Woodrow Director since 2015

Commentary

Half Year Report to the Stock Exchange

The Directors of Steamships Trading Company Limited (Steamships) announce an unaudited profit after tax and minority interests of K45.4 million for the 6 months to June 2017, an increase of K1.8 million or 4.2% over the same period in 2016. Adjusting for significant items the underlying profit attributable to shareholders decreased K10.1 million or 24% over the same period in 2016.

2017 2016 Change K000's K000's

Net Profit attributable to shareholders 45,360 43,544 4.2%

Add back / (less) impact of significant items (post tax & minority interest)

Gain on Disposal of Property - (4,891)

Hotel Development Cost Write Off - 845

Impairment of Buildings - 1,618

Reversal of Impairment of Convertible Notes (12,540) - Loss on Disposal of Vessels 1,338 -

Salvage Profit (3,113) -

Total impact of significant items (14,315) (2,428)

Underlying profit attributable to shareholders 31,045 41,116 -24.5%

The economic environment in PNG remains challenging with excess capacity and foreign currency constraints continuing from 2016. Steamships' results have been impacted by this environment and sales have declined 7% to K340.0 million compared to last year's K365.2 million.

The charge for depreciation for the year to date of K51.3 million is broadly consistent with the same period in 2016 (excluding impairments). Capital investment was lower with expenditure for the six months being K33.0 million against K36.6 million in 2016, reflecting a continuation of Steamships' deliberate slowdown in project activity given the economic climate. The group's net operating cash flow generation decreased to K76.9 million against K88.9 million in 2016.

The reversal of impairment of convertible notes relates to proceeds received from the sale of the company's investment in BMobile, with the investment having been fully impaired in 2013.

An interim dividend of 70 toea per share has been declared and will be paid on 6th October 2017, subject to Steamships' ability to secure foreign exchange for non PNG shareholders.

Logistics

Joint Venture Port Services saw a slight increase in tonnages from the corresponding period in 2016 and produced a similar bottom line performance. JV Port Services operations in Port Moresby and Lae do however face continued uncertainty in respect of the International Terminal Operator concession tender. East West Transport reported similar revenue to the prior year, but did so at the expense of margin, resulting in a reduced profit. The performance of this business is expected to improve throughout the year as start- up costs for new contracts taper off and higher margin activity commences.

Having earlier deployed larger vessels, Consort Express Lines reduced its fleet size by retiring three vessels in the first half of the year, resulting in a smaller but more efficient fleet. Demand for coastal shipping remained weak and this continued to be a challenging sector in which to operate.

Pacific Towing reported an increase in harbour towage jobs compared to 2016 as well as successful settlement of two salvages performed in 2015. Higher operating costs in the division would have impacted profitability, were it not for this additional exceptional salvage revenue.

Property & Hotels

Pacific Palms Property reported reduced revenue to June due to higher vacancies in all categories of property. As vacancies in the market increase so too did rental rates come under pressure. Pacific Palms Property continued to develop and diversify its portfolio; the Hagen Central mixed use development and the Viva 31 development in Madang are due to complete in the second half of the year and Harbourside South in Port Moresby continued in its planning and design phase.

After a year of increased capacity and reduced occupancy, Coral Sea Hotels experienced a more stable six months with consistent occupancy and room rates. The rugby league world cup in Port Moresby in the second half of 2017 and APEC in 2018 should support occupancies in the Port Moresby hotels. Room refurbishments are ongoing in various properties with the Highlander hotel in Mt. Hagen undergoing an expansion and upgrade to rooms and facilities. The demolished Melanesian hotel in Lae is expected to be rebuilt as a larger premium property in due course.

Commercial

Laga Industries reported a strong increase in sales revenue for the year to date with all categories enjoying high levels of demand. Lower margins and higher operating costs have however dampened profit growth. Both ice cream and cooking oil sales enjoyed continuing sales momentum and new product launches improved the performance of the specialty lines business. The company successfully divested the Tradewinds alcoholic beverage business on deferred payment terms, which includes a short period of contract manufacturing. Due to continued management involvement the sale has not been accounted for in this period.

Colgate Palmolive, a PNG joint venture, reported improved trade volumes and revenue across most product ranges.

Trading outlook

The mid-year economic outlook for PNG indicates only a mild improvement in commodity prices and marginal growth through 2017. Tepid economic growth will make management of the fiscal deficit an on- going challenge for the newly returned government. Consequently trading conditions for business will remain challenging. Uncertainty over the level and availability of foreign exchange remains a downside risk for input costs. The company will remain cautious in respect of capital investment projects.

The outlook for 2018 and beyond is more attractive as APEC related activity and investments in announced LNG and mineral production projects are expected to stimulate the economy, absorb current excess capacity and provide opportunities for Steamships businesses.