INTERIM DIVIDEND
The Board has resolved not to recommend the payment of any interim dividend for the quarter ended 30 September 2022.
REVIEW OF OPERATIONS
Third Quarter of 2022. Dry bulk shipping market enjoyed a strong first half backed by the robust demand for dry bulk commodities, limited new supply of vessels and covid related congestion. The freight rates were softened gradually during the third quarter of 2022 due to the increase in interest rates imposed by various central banks, higher inflation, congestion related to Covid-19 ease globally, ongoing of multiple geo-political issues and slow down of global economic growth. Baltic Dry Index (“BDI”) opened at 2,240 points at the beginning of July and slid to the lowest of 965 points at the end of August. BDI then move upward and closed at 1,760 points by the end of September 2022. The average of BDI of the third quarter of 2022 was 1,655 points, which compares to 3,732 points in the same quarter in 2021.
Revenue for the third quarter of 2022 was US$39,579,000 representing a decrease of 2% as compared to US$40,405,000 for the same quarter in 2021 due to the correction in market freight rates while the number of owned and chartered-in vessels was increased as compared with that of the corresponding quarter in 2021. The average daily time charter equivalent rates (“TCE”) earned by the Group’s fleet decreased 17% to US$19,562 for the third quarter of 2022 as compared to US$23,592 for the corresponding quarter in 2021. The fleet utilization rate of the Group’s fleet slightly increased from 97% in the third quarter of 2021 to 98% in the third quarter of 2022.
Shipping related expenses mainly comprised of crew expenses, insurance, consumable stores, spare parts, repairs and maintenance and other vessels’ expenses. Shipping related expenses increased from US$11,732,000 for the third quarter of 2021 to US$21,025,000 for the current quarter. It was mainly attributable to the increase in crew cost which due to the inflation and the increase in number of owned vessels, and other pandemic related manning expenses. In addition, a net loss of US$3,805,000 on bunker arising from shipping operations was recognized due to the bunker price adjusted downward during the current quarter whereas, a net gain of US$931,000 on bunker arising from shipping operations was recognized in the same quarter in 2021 and included in other operating income. The Group’s daily vessel running cost increased to US$6,095 for the third quarter of 2022 as compared to US$4,992 for the third quarter of 2021. We will continue with our cost reduction effort, striving to maintain a highly competitive cost structure when stacked against other market participants.
Other operating expenses increased from US$4,053,000 for the third quarter of 2021 to US$5,686,000 for the current quarter mainly due to the Group recorded a net loss of US$4,288,000 on financial assets at fair value through profit or loss for the current quarter while a net loss of US$2,925,000 on financial assets at fair value through profit or loss was recognized in the third quarter of 2021.
Depreciation and amortization increased from US$5,286,000 for the third quarter of 2021 to US$10,926,000 for the third quarter of 2022. The Group’s daily vessel depreciation increased to US$4,202 for the third quarter of 2022 as compared to US$2,814 for the third quarter of 2021 mainly due to the combination effects on the increase in carrying amounts of the owned vessels after the recognition of the reversal of impairment loss on owned vessels in 2021, the delivery of acquired owned vessels and the increment in capitalized drydocking costs incurred under the regular drydocking schedule during the quarter. Depreciation and amortization for the current quarter also included the recognition of depreciation on right-of-use assets of US$1,142,000.
Finance costs increased from US$400,000 for the third quarter of 2021 to US$1,064,000 for the third quarter of 2022. The increase was mainly attributable to the rising interest rate and the drawdown of new secured bank loans as compared with that of the corresponding quarter in 2021.
FINANCIAL REVIEW
During the nine months ended 30 September 2022, capital expenditure on additions of motor vessels and capitalized drydocking costs was US$84,747,000 (30/9/2021: US$29,516,000) and on other property, plant and equipment was US$102,000 (30/9/2021: US$44,000).
On 20 April 2018, a wholly owned subsidiary of the Company (the “Co-Investor”) entered into the co-investment documents to co-invest in a property project in Tower A of One Financial Street Center, Jing’an Central Business District, Shanghai, the PRC (the “Tower A” or previously named as “T3 Property”), pursuant to which the Co-Investor committed to acquire non-voting participating class A shares of Dual Bliss Limited (“Dual Bliss”) of US$10,000,000. Dual Bliss is one of the investors of the co-investment in Tower A. As at the reporting date, the capital expenditure commitments contracted by the Group but not provided for was US$372,000 (31/12/2021: US$372,000).
On 9 September 2022, the Group entered into two agreements in respect of the acquisition of two Supramaxes each at a purchase price of US$25,375,000 and the total purchase price of the two vessels is US$50,750,000. The first vessel was delivered to the Group in October 2022 and the second vessel was delivered to the Group in November 2022. Total deposits of US$5,075,000 for the two vessels was paid by the Group in September 2022. As at the reporting date, the capital expenditure commitments contracted by the Group but not provided for was US$45,675,000 (31/12/2021: nil).
In December 2021, the Group entered into two agreements in respect of the acquisition of two Supramaxes each at a consideration of US$17,250,000 and the total consideration of the two vessels is US$34,500,000. The first vessel was delivered to the Group in February 2022 and the second vessel was delivered to the Group in March 2022. As at 31 December 2021, the capital expenditure commitments contracted by the Group but not provided for was US$34,500,000.
As at the reporting date, the total amount of capital expenditure commitments contracted by the Group but not provided for was US$46,047,000 (31/12/2021: US$34,872,000). Save as disclosed above, there was no other significant capital expenditure commitments contracted by the Group but not provided for as at the reporting date.
During the first nine months of 2022, the Group entered into two agreements to dispose of two Supramaxes at total consideration of US$17,750,000 with a net gain of US$6,146,000 which was recognized on completion of the disposal of these two vessels in the period.
On 28 March 2022, the Group entered into an agreement in respect of the acquisition of a Supramax at a purchase price of US$25,500,000, which was delivered to the Group at end of July 2022.
On 20 May 2022, the Group entered into a charterparty with a third party in respect of leasing of a Panamax of deadweight 84,484 metric tons, built in year 2022 for a term of seven years commencing on the date of delivery of the vessel to the Group. The vessel was delivered to the Group in June 2022. In accordance with IFRS 16 and HKFRS 16 Leases, the Group recognized the unaudited value of the right-of-use asset which is calculated with the present value of total minimum hire payment at the inception of the lease terms of the charterparty and corresponding lease liabilities was also recognized in the consolidated statement of financial position. The Directors consider that the lease of a Panamax newbuilding represents an opportunity for the Group to increase the carrying capacity with a modern ship at a reasonable price via means other than outright acquisition of vessels, improving the fleet profile of the Group with minimal immediate capital expenditure, bring chartering freight and hire income to the Group and enhance the Group’s income and cashflow from core shipping business.
Subsequent to the reporting date, the Group entered into two agreements on 18 October 2022 in respect of the disposal of two Post-Panamaxes each at a consideration of US$17,250,000 and the total consideration of the two vessels is US$34,500,000. The first vessel and the second vessel were delivered to the respective purchaser in November 2022. In addition, the Group entered into an agreement on 24 October 2022 in respect of the disposal of a Supramax at a consideration of US$13,300,000. The vessel will be delivered to the purchaser on or before 19 December 2022.
We will continuously monitor the market as well as our operations going forward and look out for opportunities to maintain a reasonably modern and competitive fleet, not ruling out any future disposal, acquisition or charter- in of vessels and will make such decisions on an ad hoc basis to maintain a high financial flexibility and operational competitiveness.
The Group’s total secured bank loans increased from US$92,578,000 as at 31 December 2021 to US$94,888,000 as at 30 September 2022, of which 51%, 26% and 23% are repayable respectively within one year, one to two years and two to five years. During the first nine months of 2022, the Group had drawn new revolving loan and term loan of US$39,744,000 (30/9/2021: US$12,556,000) and repaid US$37,434,000 (30/9/2021: US$25,072,000). The bank borrowings represented vessel mortgage loans that were denominated in United States Dollars, revolving loans, term loans and property mortgage loans that were denominated in Hong Kong Dollars and United States Dollars. All bank borrowings were committed on floating rate basis.
During the first nine months of 2022, cash generated from operations before changes in working capital was US$61,711,000 (30/9/2021: US$53,589,000) and the net cash generated from operating activities after working capital changes was US$80,717,000 (30/9/2021: US$65,464,000). The changes in working capital are mainly attributable to the decrease in equity and debt securities, and decrease in loan receivables due to certain borrowers chose to early repay respective loans in full in the period. During the first nine months of 2022, the Group’s net loss on financial assets at fair value through profit or loss was US$6,275,000 (30/9/2021: US$1,103,000). The net loss of US$6,275,000 on financial assets at fair value through profit or loss comprised of a realized gain of US$1,664,000 upon disposal of certain equity and debt securities during the first nine months of 2022, and an unrealized fair value loss of US$7,939,000 on financial assets at fair value through profit or loss for the period. The aggregate interest income and dividend income from financial assets was US$3,215,000 (30/9/2021: US$4,043,000).
As at 30 September 2022, the Group maintained positive working capital position of US$22,392,000 (31/12/2021: US$37,887,000) and the total of the Group’s equity and debt securities, bank balances and cash decreased to US$62,078,000 (31/12/2021: US$76,407,000).
The gearing ratio, as calculated on the basis of net debts (total interest-bearing debts net of equity and debt securities, bank balances and cash) over total equity, rose to 7% (31/12/2021: 4%) as at 30 September 2022. With cash, marketable equity and debt securities in hand as well as available credit facilities, the Group has sufficient financial resources to satisfy its commitments and working capital requirements. As at 30 September 2022, the Group is able to service its debt obligations, including principal and interest payments.
FLEET
As at 30 September 2022, the Group had twenty five owned vessels and one chartered-in vessel as follows:
In December 2021, the Group entered into two agreements in respect of the acquisition of two Supramaxes each at a consideration of US$17,250,000 and the total consideration of the two vessels is US$34,500,000. The first vessel is deadweight 56,361 metric tons and the second vessel is deadweight 56,469 metric tons. The first vessel was delivered to the Group in February 2022 and the second vessel was delivered to the Group in March 2022.
During the first nine months of 2022, the Group entered into two agreements to dispose of two Supramaxes of deadweight 53,806 and 50,259 metric tons respectively at total consideration of US$17,750,000. Both vessels were delivered to the purchasers at end of March 2022.
On 28 March 2022, the Group entered into an agreement in respect of the acquisition of a Supramax of deadweight 63,485 metric tons at a purchase price of US$25,500,000, which was delivered to the Group at end of July 2022.
On 20 May 2022, the Group entered into a charterparty with a third party in respect of leasing of a Panamax of deadweight 84,484 metric tons, built in year 2022 for a term of seven years commencing on the date of delivery of the vessel to the Group. The vessel was delivered to the Group in June 2022.
On 9 September 2022, the Group entered into two agreements in respect of the acquisition of two Supramaxes each at a purchase price of US$25,375,000 and the total purchase price of the two vessels is US$50,750,000. The first vessel is deadweight 63,518 metric tons and the second vessel is deadweight 63,469 metric tons. The first vessel was delivered to the Group in October 2022 and the second vessel was delivered to the Group in November 2022.
Subsequent to the reporting date, the Group entered into two agreements on 18 October 2022 in respect of the disposal of two Post-Panamaxes each at a consideration of US$17,250,000 and the total consideration of the two vessels is US$34,500,000. The first vessel is deadweight 93,204 metric tons and the second vessel is deadweight 93,279 metric tons. The first vessel and the second vessel were delivered to the respective purchaser in November 2022. In addition, the Group entered into an agreement on 24 October 2022 in respect of the disposal of a Supramax of deadweight 52,050 metric tons at a consideration of US$13,300,000. The vessel will be delivered to the purchaser on or before 19 December 2022.
RISK FACTORS
This report may contain forward looking statements. These statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including the Company’s management’s examination of historical operating trends. Although the Company believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties which are difficult or impossible to predict and are beyond its control, the Company cannot give assurance that it will achieve or accomplish these expectations, beliefs or targets.
Key risk factors that could cause actual results to differ materially from those discussed in this report will include but not limited to the way world economies, currencies and interest rate environment may evolve going forward, general market conditions including fluctuations in charter rates and vessel values, financial market conditions including fluctuations in marketable securities value, counterparty risk, changes in demand in the dry bulk market, changes in operating expenses including bunker prices, crewing costs, drydocking and insurance costs, availability of financing and refinancing, inability to obtain restructuring or rescheduling of indebtedness from lenders in liquidity trough, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents, piracy or political events, and other important factors described from time to time in the reports filed by the Company.
OUTLOOK
2022 has largely been a good year for shipping, with the freight environment being steadily driven by a general robust demand for commodities worldwide. As discussed before, volatility is expected given any changes in monetary policies or material geo-political issues will affect business sentiment, or in some cases business practices or trade patterns will be affected. Shipping will not be shipping without a good dose of volatility.
In recent weeks, there has been a general slowdown in economic activities, primarily driven by the interest rate outlook which translates to increasing borrowing costs and correction of risk assets values, as well as a general expectation of a slower global economic growth going forward given geopolitical conflicts at multi frontiers. Freight rates of dry bulk shipping has been coming off as a result towards the latter of 2022.
When we look purely at the industry fundamentals, the supply of new vessels remain low, the industry outlook continues to point towards a relatively healthy freight market for our business operations. However, demand for commodities may become unexpectedly volatile. Transportation of certain commodities will undergo profound and complex changes given the variables that affect our business are a combination of industry specific, economical, as well as geopolitically driven. With COVID remaining to be a sporadic challenge depending on time and location, logistics of the transportation of goods and commodities continue to experience bottlenecks and disruptions are likely to continue to be present in the foreseeable future depending on countries and regions.
With the expected global dry bulk fleet growth at historical lows, and with no consensus in the shipping with regards to the next generation engine design to reduce carbon emission, new vessel orders are expected to be few. Looking ahead, this potentially highly favorable demand and supply dynamics is expected to continue , where our fleet is well positioned to benefit.
We remain alert to the increasingly frequent economic, geo-political, or other unforeseen surprises that can trigger volatility to our business performance, as well as the carrying value of our shipping assets and financial assets. We currently have no capital expenditure commitment in relation to newbuilding contracts, and will continue to focus on taking sensible and decisive actions to maintain a strong financial position.
On behalf of the Board of Directors of the Company, I would like to first express our heartfelt appreciation to our seafarers who have continued to remain professional under an extremely challenging environment, as well as all customers and stakeholders for their ongoing support.
Source: Hellenic Shipping News
