Quarterly Report • May 26, 2017
Quarterly Report
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Songa Bulk ASA Financial Report Q1 2017
| SONGA BULK 3 | |
|---|---|
| First Quarter 2017 Highlights, events, results and fleet 3 | |
| MARKET 6 | |
| Market, outlook and strategy 6 | |
| FINANCIAL INFORMATION 8 | |
| Condensed Statement of Comprehensive Income 8 | |
| Condensed Statement of Financial Position 9 | |
| Condensed Statement of Changes in Equity 10 | |
| Condensed Statement of Cash Flows 11 | |
| NOTES 12 |
The net loss in the first quarter of 2017 is mainly a result of the Group being in the start-up phase. Only 4 vessels were delivered as of 31 March 2017 and expenses include start-up costs and non-cash expenses by issuance of warrants. As the Group was formed in Q4 2016, there exist no comparatives from Q1 2016. The highlights below focus on comparing Q1 2017 versus Q4 2016.
On 29 March 2017, the Group entered into a purchase agreement for a Kamsarmax bulk carrier, the Songa Hadong. The purchase price was \$20.05 million. The vessel was built at Tsuneishi in 2012 and has a deadweight of 82 158 tons.
On 30 March 2017, the Group entered into a purchase agreement for an Ultramax bulk carrier, the Songa Wave. The purchase price was \$23.30 million. The vessel was built at Dacks Kawasaki in 2017 and has a deadweight of 61 491 tons.
At the date of this report, the Group has taken delivery of 8 vessels and has entered into purchase agreements to buy 2 additional vessels.
| in \$ thousands | ||
|---|---|---|
| Financial performance | Q1 2017 | Q4 2016 |
| Operating revenue | 1 571 | 117 |
| Time charter earnings | 1 509 | 117 |
| Time charter equivalent (TCE) – \$ per day | 6 289 | 6 591 |
| Loss before financial items, taxes and depreciations | -640 | -823 |
| Operating loss | -961 | -861 |
| Net loss | -1 813 | -2 037 |
| Earnings per share - \$ per share | -0.072 | -0.242 |
| Financial position | 31 March 2017 | 31 December 2016 |
| Total assets | 174 991 | 72 813 |
| Cash and cash equivalents | 116 781 | 57 688 |
| Total equity | 172 676 | 71 205 |
| Cash flow statement | Q1 2017 | Q4 2016 |
| Net cash flow from operating activities | -470 | -154 |
| Net cash flow used in investing activities | -42 835 | -15 000 |
| Net cash flow from financing activities | 102 398 | 72 838 |
As the Group was formed in Q4 2016, there exist no comparatives from Q1 2016. This section, both the table above and the comments below are focused on comparing Q1 2017 versus Q4 2016.
The Group reports a net loss of \$1.8 million in Q1 2017. Net loss in Q4 2016 was \$2.0 million. The Group is in the startup phase with results influenced by the limited number of vessels delivered.
The Groups' vessels are chartered out on time charter contracts. Time charter earnings were \$1.5 million in Q1 2017 compared with \$0.1 million in Q4 2016. During Q1 2017, the Group took delivery of a total of three vessels, adding to the one vessel delivered in Q4 2016. TC-out days increased from 17 in Q4 2016 to 240 in Q1 2017, which explains the increase in revenues.
Operating expenses were \$2.5 million, compared to \$1.0 million in Q4 2016. The increase relates mainly to ship operating expenses as operating days increased from 22 in Q4 2016 to 255 in Q1 2017.
Net financial expenses were \$0.1 million in Q1 2017, down from \$0.3 million in Q4 2016. Financial expenses are mainly the change in fair value of warrants.
The tax expense in Q1 2017 is the tax effect of tax deductible share issuance costs recognized directly in equity. The tax expense is non-payable.
The Groups' total assets amounted to \$175.0 million at 31 March 2017, up from \$72.8 at 31 December 2016. Non-current assets, which comprise of vessels delivered and paid deposits on vessels for future delivery, increased from \$15.0 million at 31 December 2016 to \$57.5 million at 31 March 2017 mainly through delivery of three vessels in the quarter.
Total equity was \$172.7 million at 31 March 2017, \$71.2 million at 31 December 2016. The equity increase mainly comes from net proceeds from share issuances during the quarter.
Net cash flow from operating activities was \$-0.5 million in Q1 2017. Net cash flow from financing activities was \$102.4 million which were the net proceeds from share issuances during the quarter. \$42.8 million were used in investing activities in the quarter being purchases of vessels. Net change in cash and cash equivalents from 31 December 2016 to 31 March 2017 was \$59.1 million.
By the end of the first quarter 2017, the delivered fleet consists of 4 bulk carriers:
| Vessel Name | Ex Name | Type | DWT | Built | Yard |
|---|---|---|---|---|---|
| Songa Glory | Equinox Glory | Supramax | 58 680 | 2012 | Nacks Kawasaki |
| Songa Marlin | Tenki Maru | Supramax | 58 693 | 2009 | Tsuneishi Zhoushan |
| Songa Genesis | Maverick Genesis | Kamsarmax | 80 705 | 2010 | STX Jinhae |
| Songa Maru | Ten Maru | Kamsarmax | 82 687 | 2008 | Tsuneishi Zhoushan |
Total operating days in Q1 2017 were 255. TC-out days were 240. A total of 15 waiting days in periods from delivery of vessels to the Group until re-delivery to charterers are deducted from total operating days to calculate TC-out days.
The vessels are all chartered out on medium to long term contracts, being up to about 12 months. During first quarter 2017, about 4 days off hire were recorded in total for the fleet. The off hire days occurred are related to minor periods, mainly due to hold condition failure prior to loading of clean cargo and supply of stores in owners' time.
With first quarter 2016 lackluster earnings still fresh in memory, expectations for first quarter 2017 were low well into December 2016. In spite of a high influx of newbuildings the market exceeded most analyst rate forecasts.
Average weighted time charter earnings as reported by the Baltic Exchange for the three first months of 2017 were:
A total of 206 bulkers in excess of 10.000 dwt were delivered by the end of first quarter which was more or less in line with the previous year. 53 vessels were scrapped during the first three months compared to 167 same quarter last year. This resulted in a net fleet growth in deadweight carrying capacity of 1.6 % as opposed to 3.4% in Quarter 1 last year.
The main reason why the market delivered better than expectations derived from demand.
Compared to the previous quarter, first quarter demand grew by 1.1%, which is contrarian to normal seasonality. Year on year growth was about 5.5%, which took utilization of the dry bulk fleet up to 83%. A supply/demand balance that many following the industry considered to be structurally damaged a year ago.
Looking into the main commodities, this can be broken down as follows:
On the back of a market that delivered better than expectations, there was a further strengthening of sentiment leading to more buying interest of second hand tonnage. The S&P activity was brisk and many vessels changed hands. In turn this had an impact on second hand values.
A five-year-old Supramax (56 000 dwt) was worth MUSD 16 by the end of first quarter 2017 compared to MUSD 14 at the end of the previous quarter.
A five-year-old Panamax (76 000 dwt) moved from MUSD 14 to MUSD 18, while the biggest uptick was witnessed for a five-year-old Capesize (180 000 dwt) which moved to MUSD 33,5 from MUSD 24 the previous quarter.
In spite of the improved market conditions few orders are being placed at the yards. Several letters of intent have been signed but a limited number made effective. By the end of first quarter the official order book stands at 8.5% of the existing fleet and shrinking. New regulations for water ballast treatment and fuel emissions ( BWTS/ NOX / SOX ) coming into force should stimulate scrapping of older tonnage. There are about 1 800 vessels older than 15 years (>20 000 dwt) and 925 older than 20 years while the order book stands at 700 units.
Shipping analysts are expecting a moderate supply growth of about 2% for 2017 followed by zero net fleet growth in 2018. There is a wider spread among the same analysts when it comes to demand growth, but consensus is that demand growth measured in ton miles will outperform supply growth leading to a higher utilization of the dry bulk fleet which should result in an improved freight environment. The forward freight market is indicating a rather flat market through third quarter with an upswing in fourth quarter 2017
The asset values continued to rise through the month of April, but during the last few weeks they have stabilized. Until we see a sustained improvement in freight levels which has a strong correlation with asset values it is believed that secondhand prices will remain around present levels.
Songa Bulk ASA is in the process of taking on moderate leverage. This will enable the Company to grow further within "the mandate" described in the prospectuses in connection with the successful raising of equity in November 2016 and February 2017 respectively.
When the last vessel of the 10 vessels purchased will be delivered in September Songa Bulk ASA will have an unlevered cash breakeven of \$5 750 per day. This is ex. dry dockings and startup costs in connection with delivery of the assets. The Company is pleased with the fact that we have been able to upscale the operation without adding costs.
Songa Bulk is focused to create shareholder values and if the market lives up to expectations, dividends will be considered from first quarter 2018 or alternatively buying back own shares.
Songa Bulk ASA has from the end of first quarter 2017 covered about 650 days of its Supramax exposure at an average net TCE of \$7 275 per day and about 1 000 days of its Kamsarmax exposure at a net TCE of \$8 415 per day. The Capesize vessel to be named Songa Mountain, which is expected to be delivered in July, is still unfixed.
The general chartering strategy is to fix the ships for periods of up to about one year. The duration will to a large extent depend on the market expectations and the prevailing sentiment.
Oslo, 24 May 2017
The Board of Directors of Songa Bulk ASA
| in \$ thousands | Note | Q1 2017 |
|---|---|---|
| (Unaudited) | ||
| Operating revenue | 1 571 | |
| Total operating income | 1 571 | |
| Voyage expenses | 36 | |
| Ship operating expenses | 1 563 | |
| General and administrative expenses | 612 | |
| Depreciation | 3 | 321 |
| Total operating expenses | 2 532 | |
| Operating loss | -961 | |
| Financial income | 123 | |
| Financial expenses | -263 | |
| Net financial expenses | -140 | |
| Loss before taxes | -1 101 | |
| Tax expense | 712 | |
| Net loss | -1 813 | |
| Total comprehensive loss | -1 813 | |
| Basic and diluted earnings – \$ per share | -0.072 |
| in \$ thousands | Note | 31 March 2017 | 31 December 2016 |
|---|---|---|---|
| (Unaudited) | (Unaudited) | ||
| Vessels | 51 238 | 11 108 | |
| Deposit vessels | 6 239 | 3 855 | |
| Total non-current assets | 3 | 57 477 | 14 963 |
| Inventories | 221 | 26 | |
| Trade receivables | 10 | 3 | |
| Other receivables | 501 | 132 | |
| Financial investments | 1 | 1 | |
| Cash and cash equivalents | 116 781 | 57 688 | |
| Total current assets | 117 514 | 57 850 | |
| TOTAL ASSETS | 174 991 | 72 813 | |
| Share capital | 21 620 | 9 085 | |
| Share premium | 154 331 | 63 756 | |
| Other paid-in capital | 574 | 400 | |
| Retained earnings | -3 849 | -2 036 | |
| Total equity | 4 | 172 676 | 71 205 |
| Financial liabilities at fair value through profit or loss | 588 | 327 | |
| Total non-current liabilities | 588 | 327 | |
| Trade payables | 510 | 682 | |
| Income taxes payable | 395 | 393 | |
| Other liabilities | 822 | 206 | |
| Total current liabilities | 1 727 | 1 281 | |
| Total liabilities | 2 315 | 1 608 | |
| TOTAL EQUITY AND LIABILITIES | 174 991 | 72 813 |
| in \$ thousands | Share capital |
Share premium |
Other paid-in capital |
Retained earnings |
Total equity |
|---|---|---|---|---|---|
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |
| Incorporation | 3 | - | - | - | 3 |
| Share issuance | 9 082 | 65 188 | - | - | 74 270 |
| Share issuance costs | - | -1 432 | - | - | -1 432 |
| Warrants issued to employees | - | - | 400 | - | 400 |
| Net loss | - | - | - | -2 036 | -2 036 |
| Equity 31 December 2016 | 9 085 | 63 756 | 400 | -2 036 | 71 205 |
| Share issuance | 12 535 | 92 711 | - | - | 105 246 |
| Share issuance costs | - | -2 136 | - | - | -2 136 |
| Warrants issued to employees | - | - | 174 | - | 174 |
| Net loss | -1 813 | -1 813 | |||
| Equity 31 March 2017 | 21 620 | 154 331 | 574 | -3 849 | 172 676 |
| in \$ thousands | Q1 2017 |
|---|---|
| (Unaudited) | |
| Profit before taxes | -1 101 |
| Depreciation | 321 |
| Change in inventories | -195 |
| Net change in trade receivables/payables | -179 |
| Employee benefit expenses in connection with issuance of warrants | 174 |
| Change in financial liabilities at fair value through profit or loss | 261 |
| Net change in other current items | 249 |
| Net cash flow from operating activities | -470 |
| Purchase of vessels | -36 596 |
| Paid deposit vessels | -6 239 |
| Net cash flow used in investment activities | -42 835 |
| Proceeds from share issuance | 105 246 |
| Share issuance costs | -2 848 |
| Net cash flow from financing activities | 102 398 |
| Net change in cash and cash equivalents | 59 093 |
| Cash and bank deposits at beginning of period | 57 688 |
| Cash and bank deposits at end of period | 116 781 |
These interim financial statements are prepared in accordance with IAS 34 Interim Financial Reporting.
The condensed consolidated interim financial reporting should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with IFRS, as adopted by the EU.
The following new or amendments to standards and interpretations have been issued and become effective during the current period. These include:
The above pronouncements did not have a material impact on the financial statements of the Group, beyond disclosures.
The following new or amendments to standards and interpretations have been issued and become effective in years beginning on or after January 1, 2018, assuming European Union adoption. The Group is evaluating the impact of these changes on the financial statements of the Group:
The group operates within one single segment, which is the shipping dry-bulk segment.
| in \$ thousands | Q1 2017 | Q4 2016 |
|---|---|---|
| Closing balance previous period | 14 963 | 0 |
| Purchase of vessels delivered in the period | 36 596 | 11 145 |
| Paid deposits on vessels for delivery in future periods | 6 239 | 3 855 |
| Depreciation in the period | -321 | -37 |
| Closing balance | 57 477 | 14 963 |
As of 31 March 2017, the Group is the owner of a total of four bulk carrier vessels. During Q1 2017 the Group took delivery of three bulk carrier vessels, of which two were agreed upon and paid deposits for in Q4 2016. The Group entered into memorandum of agreements for another five bulk carrier vessels during Q1 2017 for delivery in future periods, of which deposits were paid for three vessels during the quarter.
Management have assessed indicators of impairment as of 31 March 2017 and concluded that no such indicators are present.
As of 31 March 2017 the Company's share capital consists of 35 860 000 shares, each at a nominal value of \$0.60 (NOK 5). All issued shares are fully paid.
In a board meeting on 31 January 2017 the Board of Directors resolved to issue 1 000 000 new shares under a proxy from the general meeting. Total proceeds from the share issuance were \$5 million. It was also resolved to issue 75 000 warrants to the founding shareholders. For further information see note 5.
In an extraordinary general meeting on 17 February 2017 it was resolved to issue 20 000 000 new shares. Total proceeds from the share issuance were \$100.2 million (the subscription price was fixed at NOK 42 per share). It was also resolved to issue 325 000 warrants to the founding shareholders. For further information see note 5.
In connection with the two share issuances taking place in Q1 2017, as mentioned in note 4, warrants have been granted to the founding shareholders. Warrants are granted under the same warrant agreement as mentioned in note 8 to the annual report.
Granted warrants as at 31 March 2017 to shareholders that are also employed by the Group:
| Tranche 1 | Tranche 2 | Tranche 3 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Value | Value | Value | Value | Value | Value | ||||
| per | per | per | per | per | per | ||||
| No of | warrant | warrant | No of | warrant | warrant | No of | warrant | warrant | |
| Share issue | warrants | (NOK) | (USD) | warrants | (NOK) | (USD | warrants | (NOK) | (USD) |
| 4 November 2017 | 201 094 | 5.87 | 0.72 | 201 094 | 5.84 | 0.71 | 201.094 | 4.54 | 0.56 |
| 31 January 2017 | 13 750 | 7.53 | 0.90 | 13 750 | 7.87 | 0.94 | 13 750 | 6.37 | 0.76 |
| 17 February 2017 | 59 583 | 6.85 | 0.82 | 59 583 | 6.99 | 0.84 | 59 583 | 5.52 | 0.66 |
Valuation date is on the date of the respective share issuance. Subscription price is NOK 40.89 for warrants issued on 4 November 2016, NOK 41.63 for warrants issued on 31 January 2017 and NOK 42.00 for warrants issued on 17 February 2017. Warrants are accounted for as employee benefit expenses with a corresponding increase in equity. Total recognized amount in Q1 2017 was \$174 thousand.
Granted warrants as at 31 March 2017 to shareholder that is not employed by the Group:
| Tranche 1 | Tranche 2 | Tranche 3 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Value | Value | Value | Value | Value | Value | ||||
| per | per | per | per | per | per | ||||
| No of | warrant | warrant | No of | warrant | warrant | No of | warrant | warrant | |
| Share issue | warrants | (NOK) | (USD) | warrants | (NOK) | (USD | warrants | (NOK) | (USD) |
| 4 November 2017 | 164 531 | 7.80 | 0.91 | 164 531 | 8.27 | 0.96 | 164 532 | 6.75 | 0.79 |
| 31 January 2017 | 11 250 | 7.51 | 0.88 | 11 250 | 7.85 | 0.92 | 11 250 | 6.36 | 0.74 |
| 17 February 2017 | 48 750 | 7.41 | 0.86 | 48 750 | 7.71 | 0.90 | 48 750 | 6.21 | 0.72 |
Valuation date is on 31 March 2017. These warrants are recognized as financial liabilities, since the strike price is not in the functional currency of the entity, and valued at fair value through profit or loss. The fair value of all issued warrants to shareholder not employed by the Group at 31 March 2017 was \$588 thousand. The recognized expense in Q1 2017, which is classified as a financial expense, was \$260 thousand.
Set out below is a comparison by category for carrying amounts and fair values of all of the Group's financial instruments that are carried in the financial statements. The estimated fair value amounts of the financial instruments have been determined using appropriate market information and valuation techniques.
| 31 March 2017 | 31 December 2016 | |||
|---|---|---|---|---|
| In USD | Carrying amount | Fair value | Carrying amount | Fair Value |
| Financial assets: | ||||
| Trade receivables | 10 | 10 | 3 | 3 |
| Other receivables* | 120 | 120 | 77 | 77 |
| Financial investments | 1 | 1 | 1 | 1 |
| Cash and cash equivalents | 116 781 | 116 781 | 57 688 | 57 688 |
| Financial liabilities: | ||||
| Financial liabilities at fair | ||||
| value through profit or loss | 588 | 588 | 327 | 327 |
| Trade payables | 510 | 510 | 682 | 682 |
| Income taxes payable | 395 | 395 | 393 | 393 |
| Other current liabilities* | 522 | 522 | 115 | 115 |
*The difference between the balance sheet item other receivables and other receivables in the table above is prepaid expenses which are not considered a financial instrument. The difference between the balance sheet item other current liabilities and other current liabilities in the table above is prepaid revenues which are not considered a financial instrument.
| In USD | Cash and loans | At fair value through | Available | Liabilities at | Total |
|---|---|---|---|---|---|
| and receivables | profit or loss | for sale | amortized cost | ||
| Financial assets: | |||||
| Trade receivables | 10 | - | - | - | 10 |
| Other receivables | 120 | - | - | - | 120 |
| Financial investments | - | - | 1 | - | 1 |
| Cash and cash equivalents | 116 781 | - | - | - | 116 781 |
| Financial liabilities: | |||||
| Financial liabilities at fair | |||||
| value through profit or loss | - | 588 | - | - | 588 |
| Trade payables | - | - | - | 510 | 510 |
| Income taxes payable | - | - | - | 395 | 395 |
| Other current liabilities | - | - | - | 522 | 522 |
The different levels for fair value estimation have been defined as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly
Level 3: Unobservable input for the asset or liability
Fair value equals carrying value for all financial instruments. Except from financial liabilities at fair value through profit or loss, all financial instruments are valued at level 1. Financial liabilities at fair value through profit or loss, which are warrants issued to shareholder, are valued at level 3.
The Group has purchased corporate services from Arne Blystad AS under the corporate service agreement as mentioned in the annual report for 2016.
The Group has purchased technical management services from Songa Shipmanagement Ltd for the vessel Songa Maru under the technical management agreement as mentioned in the annual report for 2016. In addition, the Group has entered into technical management agreements with Songa Shipmanagement Ltd for the rendering of technical management services for the vessels Songa Genesis and Songa Marlin.
The Group has entered into a technical management agreement with Equinox Maritime Ltd for the vessel Songa Glory. Equinox Maritime Ltd is an affiliate of former board member Ghikas Goumas.
On 31 January 2017, 1 million new shares were issued in a private placement. Total proceeds were \$5 million. The shares were subscribed by North East Star Maritime Ltd, an affiliate of former board member Ghikas Goumas.
On 1 February the Group took delivery of the vessel Songa Glory. The vessel was purchased from North East Star Maritime Ltd, an affiliate of former board member Ghikas Goumas.
On 12 April, the Group entered into a purchase agreement for a Capesize bulk carrier, the Songa Mountain. The purchase prices was \$27.95 million. The vessel was built at Hyundai Heavy Industries in 2009 and has a deadweight of 179 147 tons.
On 18 April 2017, the Group took delivery of the Kamsarmax bulk carrier Songa Flama. The purchase price was \$14.78 million, of which a 20% deposit was paid during first quarter 2017. The vessel was built at STX in 2011 and has a deadweight of 80 448 tons.
On 20 April 2017, the Group took delivery of the Ultramax bulk carrier Songa Wave. The purchase price was \$23.30 million. The vessel was built at Dacks Kawasaki in 2017 and has a deadweight of 61 491 tons.
On 27 April 2017, the Group took delivery of the Kamsarmax bulk carrier Songa Hadong. The purchase price was \$20.05 million. The vessel was built at Tsuneishi in 2012 and has a deadweight of 82 158 tons.
On 12 May 2017, the Group took delivery of the Kamsarmax bulk carrier Songa Delmar. The purchase price was \$18.7 million, of which a 10% deposit was paid during first quarter 2017. The vessel was built at Hyundai Samho Heavy Industrues in 2011 and has a deadweight of 81 501 tons.
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