Grindrod Shipping agrees to buy out IVS Bulk stakeholder

Grindrod

Grindrod Shipping, a global provider of maritime transportation services in the drybulk and product tanker sectors, announced its first half 2019 earnings results for the period ended June 30, 2019.

Financial Highlights for the first half of the year ended June 30, 2019

  • Revenues of $167.2 million
  • Gross profit of $5.9 million
  • Adjusted EBITDA of $14.7 million(2)
  • Loss for the period of ($19.0 million) or ($0.99) per ordinary share including a ($4.3) million impairment loss on vessel sales
  • Handysize and Supramax/Ultramax TCE per day of $7,030 and $10,481, respectively, outperformed the Baltic Handysize TC Index (“BHSI”) and Baltic Supramax-58 TC Index (“BSI-58”) benchmarks by approximately 22.2% and 34.2% respectively(1)(2)
  • Medium Range (“MR”) product tanker TCE per day of $14,276 outperformed Clarksons’ Average MR Clean Earnings per day assessment of $12,448 by approximately 14.7%, and small tanker TCE per day of $12,015(1)(2)
  • Period end cash and cash equivalents (including restricted cash) of $50.5 million

(1) The proportionate share of our joint ventures is not reflected in our condensed consolidated and combined statement of profit and loss, but is reflected in our segment results.
(2) Adjusted EBITDA and TCE per day are non-GAAP financial measures. For the definitions of these non-GAAP financial measures and the reconciliation of these measures to the most directly comparable financial measure calculated and presented in accordance with GAAP, please refer to the definitions and reconciliations at the end of this press release.

Operational Highlights for the first half of the year ended June 30, 2019

  • We sold the 2005-built Handysize vessel IVS Kawana for a gross price of $7.8 million with delivery to the buyers in April 2019.
  • We took delivery of the IVS Phoenix, a Japanese-built eco ultramax drybulk carrier newbuilding in June 2019.  The vessel has been chartered-in from its owner for a minimum period of three years with options to extend for up to two additional years, at Grindrod Shipping’s election.
  • In June 2019, we completed a financing arrangement with a Japanese shipowner relating to the 2010-built Handysize vessel IVS Knot for a cash amount of $13.0 million.  The transaction generated net proceeds of $6.3 million after settling the debt associated with the vessel.  The IVS Knot continues to be considered part of our owned fleet.
  • We wound up the Leopard Tankers JV with Vitol, resulting in the Company acquiring 100% ownership of the 2013-built Medium Range eco tankers Leopard Sun and Leopard Moon in January and February, respectively, for $27.0 million per vessel.
  • Our joint venture with Engen Petroleum sold the 2010-built Medium Range tanker Lavela for a gross price of $14.9 million with delivery to the buyers in March 2019.  The vessel was the last vessel owned by this joint venture.
  • We sold the 2011-built small product tanker Umgeni for a gross price of $8.9 million with delivery to the buyers in June 2019.

Latest Developments

  • We have agreed in principle to acquire the 33.25% stake of one of our two JV partners in IVS Bulk, which would result in increasing our ownership percentage to 66.75%.  We are currently in advanced discussions with lenders to refinance all of the existing debt of IVS Bulk, as well as provide us sufficient capital to acquire the additional 33.25% stake.  The remaining partner intends to retain its 33.25% stake in IVS Bulk.  We can provide no assurance that we will complete the acquisition until such time that agreements have been finalized and the financing has been obtained.
  • On August 8th, we took delivery of the IVS Okudogo, one of our two owned Ultramax eco new buildings built in Japan.  We finalized and drew down $15.7 million in financing with IYO Bank in conjunction with the delivery.  An additional $15.7 million remains available to partially finance the purchase of the IVS Prestwick, which is expected in late September.
  • Subject to documentation, we have agreed to enter into a financing arrangement with a Japanese shipowner on attractive terms relating to the 2011-built Handysize vessel IVS Kinglet.  The transaction would be on similar terms to the recently completed IVS Knot financing and would result in net cash proceeds of $6.3 million, after repayment of debt associated with the vessel. The transaction is expected to be completed in late September, though we can provide no assurances that the transaction will close.

CEO Commentary

Martyn Wade, the Chief Executive Officer of Grindrod Shipping, commented:

“Our operations in the first half of 2019 showed a slight improvement in revenue, gross profit, and Adjusted EBITDA with a slight decline in net income from the first half of 2018, reflecting weaker drybulk markets, partially offset by a stronger product tanker market.  Within that context, we continued to demonstrate our ability to outperform the relevant industry benchmarks in both our drybulk and tanker fleets. Specifically, for the first half of 2019, our TCE per day in the Handysize segment was $7,030 compared to the BHSI of $5,753 (adjusted for 5.0% commissions), an outperformance of approximately 22.2%, whereas in the Ultramax/Supramax segment our TCE per day was $10,481 compared to the BSI-58 of $7,807 (adjusted for 5.0% commissions), an outperformance of approximately 34.2%.  On the tanker side, the markets started strong in the winter months before coming off in the second half of the period as refinery maintenance season picked up, impacting charter rates. Still, we achieved an MR tanker TCE per day of $14,276 during the first half of 2019 compared to $12,448 for the Clarksons MR Clean Average Earnings assessment, an outperformance of approximately 14.7%.

The drybulk market in the first half of 2019 showed signs of weakness reflecting trade wars, the Vale dam disaster, swine flu in China impacting soybean imports, a general slowdown in Chinese imports, and other market disruptions.  Yet, we believe that the long-term fundamentals appear positive reflecting the reduced supply outlook combined with steady demand especially for minor bulks, which are typically carried by Grindrod Shipping’s vessels.  Already, we have experienced an increase in charter rates thus far in the second half, especially in the last few weeks, where the BHSI and BSI-58 have reached rates of $9,250 and $14,507, respectively, as of August 27, 2019. We also expect the product tanker market to improve given the increase in refining capacity and dislocation between refiners and end users combined with the low orderbook for MR tankers. Furthermore, the implementation of the IMO 2020 regulations may have a positive impact on the overall market further limiting supply as the result of higher scrapping rates, increased off hires, vessel repositioning, and slow steaming.

A core focus since our listing in June 2018 has been to streamline our corporate and financial structure by reducing the number of off-balance sheet joint ventures which will allow investors to more easily understand our operating and financial performance. To this end, we wound up our Leopard Tankers joint venture with Vitol and our Petrochemical Shipping joint venture with Engen Petroleum. We also agreed in principle to acquire the stake of one of our joint venture partners in IVS Bulk, which would allow us to consolidate its 12 vessels in our financials going forward.

We believe that the current drybulk and product tanker markets present attractive consolidation and growth opportunities and that Grindrod Shipping is well positioned to take advantage of them, leveraging our competitive advantages which include our modern, high quality Japanese built fleet, our ability to maximize revenue through the use of in-house commercial pools and cargoes, and our close commercial relationships with global and regional industry players.”

Results for the Six Months Ended June 30, 2019 and 2018

In comparison to the results for the first half of 2018, the results for the first half of 2019 were impacted by lower TCE per day rates achieved in our handysize and ultramax/supramax drybulk carrier segments, reflecting the weaker spot markets in these segments, and higher TCE per day rates achieved in our medium range and small tanker segments, reflecting the stronger spot markets in these segments. In all of these four segments vessel operating costs per day were lower for the first half of 2019 in comparison to the first half of 2018. Administrative expenses were lower in the first half of 2019 as compared to the first half of 2018, and the results for the first half of 2019 include the impairment of vessels and a foreign exchange loss, whereas the results for the first half of 2018 include a profit on sale of the OACL and Unicorn Bunker businesses and foreign exchange gains.

Revenue was $167.2 million for the six months ended June 30, 2019 and $150.8 million for the six months ended June 30, 2018. Vessel revenue was $147.7 million for the six months ended June 30, 2019 and $147.4 million for the six months ended June 30, 2018.

In the drybulk business, handysize total revenue and supramax/ultramax total revenue was $59.0 million and $72.0 million, respectively, for the six months ended June 30, 2019, and $53.8 million and $73.7 million, respectively, for the six months ended June 30, 2018. Handysize vessel revenue and supramax/ultramax vessel revenue was $50.2 million and $71.4 million, respectively, for the six months ended June 30, 2019, and $53.0 million and $73.1 million, respectively, for the six months ended June 30, 2018.

In the tankers business, our medium range tankers and small tankers total revenues were $27.6 million and $15.9 million, respectively, for the six months ended June 30, 2019, and $18.9 million and $9.0 million, respectively, for the six months ended June 30, 2018. Medium range tankers and small tankers vessel revenues were $20.3 million and $7.4 million, respectively, for the six months ended June 30, 2019 and $18.9 million and $9.0 million, respectively for the six months ended June 30, 2018.

Handysize TCE per day was $7,030 per day for the six months ended June 30, 2019 and $8,997 per day for the six months ended June 30, 2018. Supramax/ultramax TCE per day was to $10,481 per day for the six months ended June 30, 2019 and $11,092 per day for the six months ended June 30, 2018.

Medium range tankers TCE per day was $14,276 per day for the six months ended June 30, 2019 and $11,570 per day for the six ended June 30, 2018. Small tankers TCE per day was $12,015 per day for the six months ended June 30, 2019 and $11,323 per day for the six months ended June 30, 2018.

Cost of sales was $161.3 million for the six months ended June 30, 2019 and $148.4 million for the six months ended June 30, 2018. In the drybulk business, our handysize segment and supramax/ultramax segment cost of sales was $60.5 million and $72.6 million, respectively, for the six months ended June 30, 2019 and $50.6 million and $74.8 million, respectively, for the six months ended June 30, 2018.

Handysize voyage expenses and supramax/ultramax voyage expenses were $27.3 million and $37.1 million, respectively, for the six months ended June 30, 2019 and $24.8 million and $35.3 million, respectively, for the six months ended June 30, 2018. Handysize vessel operating costs and supramax/ultramax vessel operating costs were $11.9 million and $1.6 million, respectively, for the six months ended June 30, 2019, and $13.1 million and $1.7 million, respectively, for the six months ended June 30, 2018. Handysize vessel operating costs per day were $4,980 per day for the six months ended June 30, 2019 and $5,238 per day for the six months ended June 30, 2018. Supramax/ultramax vessel operating costs per day were $4,428 per day for the six months ended June 30, 2019 and $4,616 per day for the six months ended June 30, 2018.

The long-term charter-in costs per day for our supramax/ultramax fleet was $12,695 per day during the first six months of 2019. During this period, out of 3,271 operating days in the supramax/ultramax segment, 44.8% were fulfilled with owned/long-term chartered-in vessels and the remaining 55.2% with short-term chartered-in vessels.

In the tankers business, medium range tankers and small tankers cost of sales were $24.5 million and $14.3 million, respectively, for the six months ended June 30, 2019 and $19.7 million and $8.4 million, respectively, for the six months ended June 30, 2018.

Medium range tankers voyage expenses and small tankers voyage expenses were $3.9 million and $1.1 million, respectively, for the six months ended June 30, 2019 and $3.8 million and $2.2 million, respectively, for the six months ended June 30, 2018.  Medium range tankers vessel operating costs and small tankers vessel operating costs were $5.2 million and $3.5 million, respectively, for the six months ended June 30, 2019 and $5.9 million and $4.9 million, respectively, for the six months ended June 30, 2018. Medium range tankers vessel operating costs per day were $6,576 per day for the six months ended June 30, 2019 and $7,279 per day for the six months ended June 30, 2018.  Small tankers vessel operating costs per day were $6,516 per day for the six months ended June 30, 2019 and $7,750 per day for the six months ended June 30, 2018.

The long-term charter-in costs per day for our medium range tanker fleet was $15,298 per day during the first six months of 2019 and during this period all of the operating days in the medium range segment were fulfilled with owned/long-term chartered-in vessels. The Company did not have any long-term or short-term chartered-in small tankers during this period.

Gross profit was $5.9 million for the six months ended June 30, 2019 and $2.4 million for the six months ended June 30, 2018.

Other operating (expense) income was operating expense of $4.8 million for the six months ended June 30, 2019 and $6.0 million operating income for the six months ended June 30, 2018.

Administrative expenses were $13.3 million for the six months ended June 30, 2019 and $17.3 million for the six months ended June 30, 2018.

Share of losses of joint ventures was a loss of $1.5 million for the six months ended June 30, 2019 and a loss of $1.4 million for the six months ended June 30, 2018.

Interest income was $1.2 million for the six months ended June 30, 2019 and $1.9 million for the six months ended June 30, 2018.

Interest expense was $5.8 million for the six months ended June 30, 2019 and $3.0 million for the six months ended June 30, 2018.

Income tax expense was $0.6 million for the six months ended June 30, 2019 and $2.1 million for the six months ended June 30, 2018.

Loss for the six months ended June 30, 2019 was $19.0 million and loss for the six months ended June 30, 2018 was $13.5 million.

Cash used in operating activities was an outflow of $32.4 million for the six months ended June 30, 2019 and an outflow of $46.2 million for the six months ended June 30, 2018. Cash generated from investing activities was an inflow of $31.2 million for the six months ended June 30, 2019 and an inflow of $33.2 million for the six months ended June 30, 2018. Cash generated from financing activities was an inflow of $2.8 million for the six months ended June 30, 2019 and an inflow of $19.5 million for the six months ended June 30, 2018.

As of June 30, 2019, we had cash and cash equivalents (including restricted cash) of $50.5 million.

 

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