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The Financial Voyage of Pacific Radiance: Sailing into Profits · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Hey, everyone, and welcome back to the Deep Dive. Well, we like to take these
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  kind of complex financial reports and try to make sense of them for you,
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  you know, give you the real story behind what all the numbers actually mean.
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  Yeah, exactly. We try to like cut through all the noise and get down to the
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  like what you really need to know. Right.
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  And today we're looking at a company called Pacific Radiance LTD.
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  They're in the maritime sector. Yeah, they're all about ships and stuff, right? That's right.
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  So we've got their financial statements, the condensed interim ones for the
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  year ending December 31st, 2024.
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  So that's like the full year picture of their financials, you know?
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  So like we're not just looking at a quick snapshot, right? We've got the full enchilada here.
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  Exactly, exactly. And we're not just going to like skim the surface.
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  We're going deep, deep into the detail. So our goal today is to really,
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  like, figure out, OK, how did they actually do financially last year?
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  What were the big things that drove their performance? Like,
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  what were the key factors there?
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  And then, of course, you know, what does this tell us about what might happen
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  in the future, right? Like, what can we glean about their prospects moving forward?
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  Right, right. Looking for those clues. Exactly. Yeah. You know,
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  we want to do all this without, like, overwhelming you with every single little detail.
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  Right. Just the important stuff. Just the good stuff. Exactly.
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  All right. Well, let's jump in then.
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  Okay, so looking at their financial performance for 2024, and we'll kind of
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  compare it to 2023 to see where the changes were.
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  Yeah, good plan. The thing that really pops out to me right away is the revenue.
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  Their revenue is way up. We're talking about a 40% increase from U.S.
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  $31.4 million in 2023 to U.S.
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  $43.8 million in 2024. Yeah, that's a huge jump. It's a big leap, yeah. Yeah.
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  So what's driving that? So if we dig into the report a bit, it looks like there
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  are a couple of things going on.
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  First, their ship repair business, that saw a pretty good increase, like 34 percent.
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  And they ended up at U.S. $18.5 million for the year.
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  And, you know, they're saying that's mostly because they just had more repair jobs coming in.
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  So more ships needing fixing. business good
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  for them yeah exactly but even more impressive i
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  think is their ship management revenue that went up even more
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  by 44 to hit us 25.3 million
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  dollars and that's that's being driven by you know higher income from chartering
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  out their vessels and and just more management fees in general so both sides
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  of their business are are really humming yeah it seems like they were operating
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  in a pretty busy environment that's for sure okay so they've got you know more
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  ships to fix and higher demand for their management services,
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  that's a good sign. But what about the profits?
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  Did all this extra revenue actually translate into more profit for them?
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  Did their bottom line see a similar jump?
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  Well, it's interesting because, you know, their revenue went up by that huge
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  40 percent that you mentioned, but their gross profit actually increased by
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  a bit less, like 14 percent. So they ended up at U.S.
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  $14.3 million, up from U.S. $12.5 million.
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  So, you know, they're bringing in a lot more money, but the costs of providing
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  all those services are going up, too.
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  Just not as much the revenue. Right. So the margins are maybe a little tighter.
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  Yeah, exactly. So I think it's, you know, we have to look beyond just the top
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  line growth, the revenue to really get a good understanding of the full picture
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  of their profitability.
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  Makes sense. Now, there's this line item further down on the income statement
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  called other operating income.
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  And it's up by like a massive 43 percent going from U.S.
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  $16.8 million up to U.S. $24 million.
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  So what's the deal with that? OK, so this is where things get a little interesting.
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  It seems like this big increase isn't really coming from their usual activities
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  like the ship repair and management stuff we were talking about.
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  It's actually mostly because of some one time gains.
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  Yeah. So the biggest chunk of this comes from a gain of like U.S.
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  10.8 million dollars. And that's that's because they had a bank loan forgiven. been.
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  Wow. Yeah. So that's a big, big financial benefit right there.
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  And then there's also a U.S.
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  5.5 million dollar right back of an investment they have in another company.
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  And then another another gain of U.S. 4.3 million dollars from recognizing a
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  deferred gain on the sale of some vessels like from a while ago.
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  So a lot of these things aren't really from their day to day business.
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  Yeah, exactly. It's not their their normal operations. Right.
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  Right. And the report mentioned some things that kind of offset these gains too. What were those?
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  Yeah, good point. It's important to have all the pieces of the puzzle here.
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  So these positive things were partly balanced out by some money they thought
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  they might not collect, doubtful receivables, they call it.
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  And then also some amounts that were owed to them by related companies that
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  were lower than they expected.
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  And then there were also some adjustments related to their property,
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  plant, and equipment. Yeah.
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  So, yeah, I mean, the category as a whole shows this big increase,
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  but it's it's important to know that these non-recurring items are a big part of that. Right.
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  Right. OK, moving on to their expenses now.
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  General and administrative expenses, those were only up by nine percent,
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  which seems pretty good considering their revenue went up by so much.
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  Yeah, that's a pretty small increase, relatively speaking.
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  And it seems like it was mainly because of higher staff costs,
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  which, you know, makes sense if they're busier and then also higher property
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  taxes and just general corporate expenses.
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  Right, right. So given that 40 percent jump in revenue, having their overhead
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  costs only go up by 9 percent suggests that they're managing those costs fairly well.
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  Right. However, other operating expenses tell a different story.
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  Those were up by a significant amount, like 77 percent, coming in at U.S. $1.4 million.
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  Okay, so what caused that big jump? Well, a big chunk of that increase is because
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  of something called a fair value loss on derivative warrant liabilities.
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  Okay. These are financial instruments, and you can kind of think of them like options contracts.
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  So their value is tied to the price of something else.
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  And in this case, their value moved in a way that ended up costing Pacific Radiance money.
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  So this isn't really related to their core business, you know, the ships and stuff.
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  Right, right. It's more about how these financial instruments fluctuated in value.
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  Okay. So we've got some interesting movements going on with their expenses.
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  Now, what about their finance costs? You know, how much it costs them to borrow
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  money? This is a positive.
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  Their finance costs actually decreased by a lot, like 58%, down to U.S.
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  $0.4 million from U.S. $1 million the year before. And this is really tied to
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  their efforts to pay down their debt.
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  They've been repaying bank loans, and that naturally means they have less interest to pay.
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  Makes sense. So that's a pretty clear indicator that their financial position
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  is getting stronger. Okay, good, good.
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  And it looks like their investments in other companies are also doing well. Uh-huh.
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  The line for share of results of associates and joint ventures,
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  that's showing a profit of U.S. $1.2 million.
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  That's up quite a bit from U.S. $0.3 million the previous year.
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  Yeah, definitely a good sign. It means that their investments in companies like P.T.
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  Legendo, Sam Adromach-Murr, TBK, and Main Prize Asia Ventures,
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  Pete LTD, you know, they did well last year and contributed more to Pacific
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  Radiance's overall profits.
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  So we've talked about a lot of pieces here. Strong revenue growth,
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  these one-time gains, pretty good control over administrative costs,
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  a jump in other operating expenses,
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  lower finance costs, and better performance from their investment.
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  So what does this all mean for their profitability overall?
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  Well, when you put it all together, it actually adds up to a pretty big increase in their profit.
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  Profit before taxation is up by 56 percent to U.S. $24.2 million from U.S. $15.5 million.
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  And their profit for the year, you know, the bottom line, that increased even
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  more by 78 percent, coming in at U.S.
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  $25.9 million compared to U.S. $14.5 million the year before.
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  Wow. So their profit really jumped.
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  Yeah. On the surface, it was a very positive year for them in terms of making money.
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  That's great. And how does that translate to
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  you know, what investors usually look at, like the earnings per share.
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  Okay, so this is interesting.
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  Their basic earnings per share, or EPS, actually went down from 3.2 U.S. cents to 1.8 U.S. cents.
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  And the diluted EPS also decreased from 2.9 U.S. cents to 1.7 U.S.
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  Cents. So wait, their profit went way up, but their earnings per share went down?
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  Exactly, yeah. And I know that might seem counterintuitive. It does.
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  But the reason is because, you know, they issued some new shares during the
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  year, so now that profit is being divided among more shares.
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  So even though they made a lot more money overall, each individual share represents
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  a smaller piece of that, that bigger profit pie.
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  Okay. Yeah, I see that. It's a subtle but important difference.
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  It is. So great overall performance. But yeah, that EPS figure gives us another
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  layer of understanding.
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  Okay. So let's dig a little deeper into why they performed so well.
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  What were the main positive things driving these results?
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  Well, the report points to a few key factors. First of all, they benefited from
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  strong demand in both the offshore oil and gas market and the wind energy market,
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  which is becoming increasingly important for them.
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  And both of those sectors, those are crucial for their business, right?
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  So that strong demand that translated directly into more work for them,
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  more ship repair jobs, higher revenue from chartering their vessels,
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  and more management fees from other companies—.
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  And then, of course, we can't forget about those one-time gains we talked about
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  earlier, the debt forgiveness and the investment right back.
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  Those were a big boost to their profit for the year. And then finally,
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  those lower finance costs, those were really helpful, too, you know,
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  because they've been paying down their debt. So that helped their bottom line as well.
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  Right. So it sounds like a lot of things went right for them.
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  Yeah, pretty much. But were there any things that went wrong?
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  Were there any negative factors that might have had them back?
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  Yeah, even though the big picture is very positive, there are a few things that
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  kind of offset some of those positive things.
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  The increase in other operating expenses was a bit of a drag,
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  you know, mainly because of that fair value loss on the derivative warrant liabilities.
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  And then also, you know, even though the general and administrative expenses
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  were only up by a little bit, that's still an increase in their overhead.
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  And the report also talks about how their current assets decreased a bit,
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  mainly because of lower cash and bank balances and less money owed to them by related companies.
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  Now, this didn't stop them from having a strong profit growth,
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  but it's something to kind of keep an eye on. Okay, good point.
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  Now, let's shift gears a little bit and look at their balance sheet,
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  which is basically a snapshot of their financial position at the end of the year.
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  So what were the big changes in what they own, their assets?
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  Okay, so their non-current assets, those are things that are meant to be held for the long term.
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  Those increased significantly. Went from U.S. $48.4 million to U.S. $68.7 million.
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  Okay, so what caused that? Well, it seems like it was mostly because of investments
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  in property, plant and equipment.
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  So they're putting money into things that will help them operate better in the future.
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  And then there's also that write back of their investment in another company,
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  which we talked about earlier, and then also their share of the profits from those other companies.
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  On the flip side, their current assets, things they can easily convert to cash...
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  Those decreased from U.S. $59.7 million to U.S. $47.1 million.
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  And that was mainly because of lower cash and bank balances and less money owed
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  to them by related companies.
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  Although it's worth noting that their trade receivables, you know,
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  what their customers owe them, that actually increased. So that kind of offset things a bit.
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  All right. So it sounds like they're shifting more towards longer term assets
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  and they've got a little bit less in those more liquid assets.
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  Now, what about their liabilities? What about their obligations?
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  You know, what they owe to others? Okay, so on the liability side,
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  their current liabilities, things due within a year, those went down a bit.
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  From U.S. $27.8 million to U.S. $26.2 million.
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  And that was partly because they repaid some bank loans and they owed less to related parties.
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  And they had some reductions in their tax provision and lease liabilities.
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  But then to kind of balance that out, their trade payables went up a bit.
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  So that's what they owe to their suppliers. And they had some increases in other
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  short-term obligations.
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  But the really big change was in their non-current liabilities, the longer-term stuff.
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  Those went down a lot, from U.S. $42.6 million to only U.S. $9.7 million.
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  Wow. So that's a really big drop in their long-term debt. Yeah, huge.
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  What caused that? Well, the main things were the full repayment of their property
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  loan, which was a pretty big one, at U.S. $28.3 million.
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  And then they also redeemed their perpetual securities.
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  Those are kind of debt that doesn't really have like a fixed maturity date.
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  So it's a bit different from a normal loan.
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  And then on top of that, they just had a general reduction in other long term liabilities.
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  So all of this, it shows that they've really been working hard to reduce their
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  debt, which is a really good sign for their financial stability going forward.
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  It is. It also means they'll have lower interest payments to make. Right. Exactly.
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  Yeah. OK, so they've made a lot of changes to their assets and their liabilities.
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  How does this all affect the company's overall financial health?
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  What about their net assets or equity?
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  Well, the end result of all these changes is that their net assets,
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  which is basically what's left over after you subtract their liabilities from
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  their assets, their net assets more than doubled.
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  They went from U.S. $37.7 million to U.S. $79.8 million.
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  Wow. So that shows you they're in a much stronger position now than they were a year ago. Right.
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  Okay, let's look at their cash flow statement now. This tells us about the actual
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  cash coming in and going out of the business.
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  What are the main things we should focus on there?
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  Well, they generated U.S. $14.8 million in net cash from their operating activities.
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  So that's their core business, right?
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  And that reflects their profitability and how efficiently they're managing things
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  like their inventory and receivables.
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  However, they used U.S. $19.7 million in investing activities,
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  mainly because of those investments we talked about earlier in property, plant, and equipment.
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  Right. And then they also had a net cash outflow of U.S.
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  $3.7 million in financing activities, mostly due to the repayment of bank loans
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  and the redemption of those perpetual securities.
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  But that was partly offset by the cash they got from issuing new shares.
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  OK, so even though their operations generated cash, they also spent quite a
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  bit on investments and paying down debt.
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  So did their cash reserves go up or down overall?
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  Their cash and bank balance has actually decreased over the year,
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  which is consistent with what we saw on their balance sheet. Right, right.
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  Now, that's not necessarily a bad thing, you know, especially if those investments
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  are expected to generate good returns in the future.
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  And if reducing their debt gives them more flexibility. Right.
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  It all depends on what they're doing with that cash, right? Exactly. Yeah.
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  OK, so last but not least, let's talk about the future. What does the company
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  itself say about what they see happening down the road?
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  Well, they seem pretty optimistic. They're talking about how they expect continued
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  strong demand in both the offshore oil and gas market and the offshore wind market.
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  They're particularly positive about the outlook for oil and gas because they're
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  saying that years of underinvestment in the industry have kind of created some supply constraints.
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  And those constraints should benefit companies like Pacific Radiance.
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  And then in the wind energy sector, they're seeing a lot of momentum driven
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  by, you know, global efforts to transition to cleaner energy and concerns about energy security.
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  And that should lead to higher demand for the kinds of vessels that they provide,
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  you know, for things like wind farm construction and maintenance.
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  Sounds like they're in the right place at the right time. Yeah, it seems like it.
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  But are they ignoring the potential challenges, you know, the risks?
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  Yeah, that's a good question.
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  Well, they do acknowledge that they need to be careful as they navigate these
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  opportunities. They're aware of the risks that come with the shift away from
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  fossil fuels, the energy transition.
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  Right. And they're also mindful of the uncertainties in the global economy and
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  geopolitics, you know, all that stuff.
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  So, yeah, they're optimistic, but they're not burying their heads in the sand either. That's good.
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  Now, what about returns to shareholders? Are they saying anything about future dividends?
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  Yes, they are. The board of directors has proposed a final dividend for 2024
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  of 0.05 Singapore cents per share. which works out to about U.S.
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  $530,000 in total. And that's generally seen as a good sign.
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  You know, it shows they're confident about their future profitability and they're
• 16:24
  willing to share some of their success with their investors. Right.
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  And they also mentioned some pretty big moves they made during the year in terms
• 16:31
  of their debt and financing, right?
• 16:33
  Yeah, those are important too because they give you a sense of their financial
• 16:37
  flexibility going forward.
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  So they redeemed all of their outstanding perpetual securities in August of 2024.
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  And they actually already fully settled all their bank loans earlier in the year back in March 2024.
• 16:49
  Wow. So they've really cleaned up their balance sheet, which gives them a lot
• 16:53
  more freedom to pursue new opportunities.
• 16:56
  That makes sense. So we've covered a lot of ground here today in our deep dive
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  into Pacific Radiance's 2024 financial performance.
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  We have. What are the key takeaways for our listeners?
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  What should they walk away with? I think the main points are that Pacific Radiance
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  had a really good year in 2024.
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  Their revenue grew a lot thanks to strong demand in their key markets. They were profitable.
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  And while some of that profit came from one-time gains, they also made big progress
• 17:21
  in improving their financial position by paying down debt and reducing their liabilities.
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  And when you look ahead, the outlook for their market seems positive and the
• 17:30
  company seems to be well positioned to capitalize on that.
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  But they're also aware of the risks out there, which is a good sign.
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  It is. And that brings us to our final thought for you, our listener, to consider.
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  Given that they've reduced their debt so much and given that the outlook for
• 17:45
  their markets is so positive, how might Pacific Radiance use this opportunity?
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  How might they use their increased financial flexibility in the years to come?
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  What new ventures or opportunities might they be thinking about,
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  especially in the offshore wind sector, which seems to be growing so quickly?
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  It's something to really think about as you maybe dig a little deeper into their
• 18:05
  full financial statements and see how they're doing in the industry overall.
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  Music.