Key trends and hot topics in the shipping industry were
presented by PwC Greece in the “The PwC Annual Shipping Industry Finance
Update” event. More than 100 shipping finance professionals attended the event
and were updated on key areas that PwC experts believe that shipping businesses
should take into consideration when planning
their strategies in the year ahead:
●
Current developments with respect to the IMO 2020
regulation on low sulphur fuel, as well as the IMO strategy on the de-carbonization of the industry, the new EU regulations
and the need for the shipping companies to monitor these and develop strategies to be compliant;
●
PwC’s view on US GAAP and IFRS accounting considerations related to the decision by some
companies to invest and install scrubbers;
●
The importance of technology in shipping, the recent
technological developments and how the shipping finance teams and their
companies can benefit from technology solutions;
●
PwC’s insights into
the recent trends in shipping M&A
activity and the key considerations for finance teams when going through a
detailed due diligence process based on PwC’s experience in a number of
recent shipping M&A transactions.
According to PwC experts, shipping environmental regulations will continue to be a key challenge in the
next years, with more regulations coming on a local and regional level. According
to Helena Athoussaki, Head of Maritime Sustainability, PwC Greece, the reduction of carbon emissions
and the IMO 2020 regulation on low sulphur fuel dominate the agenda for shipping companies,
unfortunately with many unknown parameters remaining
on the table. Trying to assess the cost of compliance and select the best
option to remain competitive, is not an easy exercise. Risk assessment can be
done based on different scenarios and criteria, taking into consideration among
others the operating profile of each vessel, the dynamics of the bunkering
industry, while looking at the risk universe of the technical, operational,
financial and commercial environments specific to each company.
IMO GHG strategy constitutes another potential challenge, sending a clear signal to the industry participants
that the ultimate goal is the de-carbonization of the industry. Companies should take measures and look into various
zero-carbon technologies and fuels deployed, particularly when they finance or
build new vessels since this will commit the companies for a long period
of time and into the period when the new regulations for carbon emissions come
into force. They will need to assess all options,
implications and risks associated with design and implement a future proof
strategy. To this end, shipping companies should put in place a specific
action plan for the mid-term and reflect this
within their business plans and strategies going forward.
For those companies that have made the decision to install
scrubbers, they will also need to face the task of assessing the
accounting and reporting implications of this strategy.
According to Santos Equitz, Managing Director, T&L Leader and Capital
Markets, PwC Greece, this would involve
the assessment of several potential accounting
impacts, among others capitalization criteria
for the scrubbers and their depreciable life,
impact on future cash flows for impairment
testing, the likely implications of different financing options used to
fund them and possible impact on the company’s going
concern assessment.
Moreover, as technology continues to disrupt the way we do business, shipping finance departments
should not be left behind. Ioannis Potamitis, Director, Applications, PwC
Greece, stated that Systems Integration, Budgeting and Reporting &
Consolidation automation are the challenges that they have to deal with when it
comes to systems and performance
management.
Specifically, lack of accuracy & completeness of
information is the main weakness of non-integrated
systems along with the lack of a common language among different departments.
The installation of a reporting system by itself will not resolve the
aforementioned issues if the information is not accurate, timely and complete when recorded. Thus, the implementation of an
integrated system could be the first
step towards change while the implementation of a budgeting system could be the base for a common language between
the operations and the finance departments.
During the preparation for such a system implementation, the finance department
should ensure that specific processes are in
place and that the data is available and accurate to be migrated in the new
system.
For facilitating shipping finance professionals, PwC has
developed a shipping template based on latest technology, which covers the
areas of Finance and Procurement. The template has already interfaces with
other industry specific applications and it includes an integrated PwC solution
for Document Management with enhanced workflows and approvals. Integration,
process efficiency, timely monitoring of purchasing, inventory, cash position
as well as debt and liabilities are some of the features from which finance departments can benefit. The next version of the template
will also include applications for Vessel Performance Management and Plant
Maintenance.
Last but not least, M&A activity in the shipping
industry has seen a notable increase in the past year and finance
departments of shipping companies, should take note of this trend as they plan
their growth strategies. PwC has been involved in a number of recent shipping
M&A transactions and Ioannis Vovos, Director, Deals, shared his insights,
the current trends and through the use of examples from these recent
experiences in shipping M&A transactions, he highlighted some practical
issues that shipping companies need to look out for. For
the medium term, and for as long as the global markets remain volatile, it will
be difficult for shipping companies to tap into the US capital markets via an IPO. On the other hand, shipping
M&A activity is expected to continue at least at the same pace as 2018, as
financial investors of private companies will continue seeking to position
themselves in more “liquid” and “marketable” listed shares or to exit
investments as they are reaching the end of their investment horizon (usually between 5 and 7 years). In general, shipping M&A transactions
are more complex than asset acquisitions, take longer to conclude (usually 4 –
6 months for the execution phase alone) and divert management’s and finance
teams’ attention from day-to-day operations. Conducting thorough due diligence
in share acquisitions or mergers is a valuable tool which aims to safeguard
shareholder value, provide robust arguments during value negotiations and
supports companies make better-informed decisions.
Ms. Santos Equitz, Managing Director, T&L Leader and
Capital Markets, PwC Greece commented:
“2018 was an active year in the shipping M&A market.
Whether the deal was an opportunistic move to create a larger company that can
access capital, merge complementary fleets or enter into a new market, there is
no “one size-fits-all” to a successful deal structure. If you are contemplating
a potential capital market transaction, PwC Greece can assist your finance
executives and management team through the key stages of a M&A deal and the
overall due diligence process.”
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