Home / Shipping News / Hellenic Shipping News / Danaos Corporation Rides the Container Market’s Turnaround

Danaos Corporation Rides the Container Market’s Turnaround

Danaos Corporation, one of the world’s largest independent owners of containerships, today reported unaudited results for the fourth quarter and the year ended December 31, 2020.

Highlights for the Fourth Quarter and Year Ended December 31, 2020:

• Adjusted net income1 of $47.8 million, or $2.29 per share, for the three months ended December 31, 2020 compared to $38.0 million, or $2.01 per share, for the three months ended December 31, 2019, an increase of 25.8%. Adjusted net income1 of $170.9 million, or $7.18 per share, for the year ended December 31, 2020 compared to $148.7 million, or $9.17 per share, for the year ended December 31, 2019, an increase of 14.9%.
• Operating revenues of $119.6 million for the three months ended December 31, 2020 compared to $110.2 million for the three months ended December 31, 2019, an increase of 8.5%. Operating revenues of $461.6 million for the year ended December 31, 2020 compared to $447.2 million for the year ended December 31, 2019, an increase of 3.2%.
• Adjusted EBITDA1 of $83.0 million for the three months ended December 31, 2020 compared to $78.1 million for the three months ended December 31, 2019, an increase of 6.3%. Adjusted EBITDA1 of $318.3 million for the year ended December 31, 2020 compared to $310.6 million for the year ended December 31, 2019, an increase of 2.5%.
• Total contracted operating revenues were $1.2 billion2 as of December 31, 2020, with charters extending through 2028 and remaining average contracted charter duration of 3.1 years, weighted by aggregate contracted charter hire.
• Charter coverage of 94% for the next 12 months based on current operating revenues and 91% in terms of contracted operating days.

Danaos’ CEO Dr. John Coustas commented:

“In the fourth quarter of 2020, we witnessed the most outstanding turnaround in the container industry for as long as I can remember. Market participants were caught by surprise as the chronic underinvestment in capacity coupled with a sudden resurgence of demand created a spike that drove container box rates to all-time highs. This led to a massive increase in our customers’ profitability and significantly diminished the counterparty risk that was so prevalent at the end of the first quarter of 2020. The charter market, in turn, rapidly strengthened, resulting in decade-high charter rates across almost all vessel types.

Now everyone is focused on whether the current market strength is sustainable and for how long. Fortunately, incremental vessel supply will remain low for the time being. Although there have been new orders placed, the current orderbook is at historically low levels. Since there is a two-year lead time for new orders to hit the water, supply growth should be moderate for the next couple of years. What will happen next depends a lot on the environmental initiatives, regulations and of course demand.

As far as Danaos is concerned we experienced a strong quarter, completed delivery of all contracted vessels, realized significant gains, displayed exceptional rechartering performance and entered into agreements for a very important refinancing.

This quarter we saw an improvement in Adjusted EBITDA and Adjusted Net Income compared to the same quarter in the prior year. This improvement should be even more pronounced in the coming quarters as new contracted charters at significantly higher rates start to contribute to our top line.

We have concluded 27 recharterings over the past three months for periods of 12-24 months at rates between two and three times the rates of the expiring charters. In doing so, we have practically covered 91% of our 2021 operating days and a significant portion of our 2022 operating days. We currently expect revenue in 2021 to exceed 2020 revenue by at least $100 million.

The recent performance of both ZIM and HMM has resulted in a $23.8 million increase in the recorded value of our bond holdings in these two companies, which increased in value to approximately $63 million as of the end of 2020. The ZIM IPO has also provided a marked-to-market value for our 10.2mn shares in ZIM, which have a value exceeding $200 million based on Zim’s closing share price of $20.12 per share on February 12, 2021. These shares were valued at $75,000 as of the end of 2020.

We have also recently concluded a $300 million bond offering, which was over three times oversubscribed, an extraordinary accomplishment for a first-time issuer. These funds, together with another $950 million of bank and lease financing, will be used to refinance most of our existing credit facilities and form the basis of our new strategy as we will not have any maturities until 2025.

We are happy that the market has acknowledged our accomplishments, leading to a dramatic outperformance of our share price as compared to our peers. We are well-positioned and committed to continue to take actions to create value for our shareholders.”

Three months ended December 31, 2020 compared to the three months ended December 31, 2019

During the three months ended December 31, 2020, Danaos had an average of 58.5 containerships compared to 55.0 containerships during the three months ended December 31, 2019. Our fleet utilization for the three months ended December 31, 2020 was 97.9% compared to 97.0% for the three months ended December 31, 2019.

Our adjusted net income amounted to $47.8 million, or $2.29 per share, for the three months ended December 31, 2020 compared to $38.0 million, or $2.01 per share, for the three months ended December 31, 2019. We have adjusted our net income in the three months ended December 31, 2020 for amortization of non-cash fees and accrued finance fees charges of $4.6 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $9.8 million in adjusted net income for the three months ended December 31, 2020 compared to the three months ended December 31, 2019 is attributable mainly to a $9.4 million increase in operating revenues, a $6.0 million decrease in net finance expenses and a $0.5 million increase in the operating performance of our equity investment in Gemini Shipholdings Corporation (“Gemini”), which were partially offset by a $6.1 million increase in total operating expenses.

On a non-adjusted basis, our net income amounted to $43.2 million, or $2.07 earnings per diluted share, for the three months ended December 31, 2020 compared to net income of $33.8 million, or $1.79 earnings per diluted share, for the three months ended December 31, 2019.

Operating Revenues

Operating revenues increased by 8.5%, or $9.4 million, to $119.6 million in the three months ended December 31, 2020 from $110.2 million in the three months ended December 31, 2019.

Operating revenues for the three months ended December 31, 2020 reflect:

• a $7.6 million increase in revenues in the three months ended December 31, 2020 compared to the three months ended December 31, 2019 mainly as a result of contractual increases in charter rates of vessels under long-term charters, partially offset by lower re-chartering rates between the two quarters for certain of our vessels;
• a $6.1 million increase in revenues in the three months ended December 31, 2020 compared to the three months ended December 31, 2019 due to the acquisition of new vessels;
• a $2.1 million increase in revenues due to higher fleet utilization of our vessels in the three months ended December 31, 2020 compared to the three months ended December 31, 2019.
• a $6.4 million decrease in revenues in the three months ended December 31, 2020 compared to the three months ended December 31, 2019 due to lower non-cash revenue recognition in accordance with US GAAP; and

Vessel Operating Expenses

Vessel operating expenses increased by $4.2 million to $28.7 million in the three months ended December 31, 2020 from $24.5 million in the three months ended December 31, 2019, primarily as a result of the increase in the average number of vessels in our fleet and an overall increase in the average daily operating cost to $5,571 per vessel per day for vessels on time charter for the three months ended December 31, 2020 compared to $5,215 per vessel per day for the three months ended December 31, 2019. Management believes that our daily operating costs are among the most competitive in the industry.

Depreciation & Amortization

Depreciation & Amortization includes Depreciation and Amortization of Deferred Dry-docking and Special Survey Costs.

Depreciation

Depreciation expense increased by 6.1%, or $1.5 million, to $25.9 million in the three months ended December 31, 2020 from $24.4 million in the three months ended December 31, 2019 mainly due to the acquisition of the vessels Niledutch Lion, Phoebe, Charleston, Bremen and C Hamburg and the installation of scrubbers on nine of our vessels in the year ended December 31, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs increased by $0.4 million to $2.6 million in the three months ended December 31, 2020 from $2.2 million in the three months ended December 31, 2019.

General and Administrative Expenses

General and administrative expenses decreased by $0.6 million to $6.4 million in the three months ended December 31, 2020, from $7.0 million in the three months ended December 31, 2019. The decrease was mainly due to decreased non-cash recognition of share-based compensation.

Other Operating Expenses

Other Operating Expenses include Voyage Expenses.

Voyage Expenses

Voyage expenses increased by $0.6 million to $3.4 million in the three months ended December 31, 2020 from $2.8 million in the three months ended December 31, 2019 primarily as a result of the increase in the average number of vessels in our fleet.

Interest Expense and Interest Income

Interest expense decreased by 32.2%, or $5.5 million, to $11.6 million in the three months ended December 31, 2020 from $17.1 million in the three months ended December 31, 2019. The decrease in interest expense is attributable to:

• a $6.0 million decrease in interest expense due to a decrease in debt service cost of approximately 2% and a $92.6 million decrease in our average debt (including leaseback obligations), to $1,482.5 million in the three months ended December 31, 2020, compared to $1,575.1 million in the three months ended December 31, 2019; and
• a $0.5 million increase in the amortization of deferred finance costs and debt discount related to our 2018 debt refinancing.

As of December 31, 2020, our outstanding bank debt, gross of deferred finance costs, was $1,368.1 million and our leaseback obligation was $123.4 million compared to bank debt of $1,423.8 million and our leaseback obligation of $138.2 million as of December 31, 2019.

Interest income remained stable at $1.7 million in each of the three months ended December 31, 2020 and December 31, 2019.

Other finance costs, net

Other finance costs, net remained stable at $0.3 million in each of the three months ended December 31, 2020 and December 31, 2019.

Equity income on investments

Equity income on investments increased by $0.5 million to $1.6 million of income on investments in the three months ended December 31, 2020 compared to $1.1 million in the three months ended December 31, 2019 due to the improved operating performance of Gemini, in which the Company has a 49% shareholding interest.

Loss on derivatives

Amortization of deferred realized losses on interest rate swaps remained stable at $0.9 million in each of the three months ended December 31, 2020 and December 31, 2019.

Other income, net

Other income, net was $0.2 million in the three months ended December 31, 2020 compared to $0.1 million in the three months ended December 31, 2019.

Adjusted EBITDA

Adjusted EBITDA increased by 6.3%, or $4.9 million, to $83.0 million in the three months ended December 31, 2020 from $78.1 million in the three months ended December 31, 2019. As outlined above, the increase is mainly attributable to a $9.4 million increase in operating revenues and a $0.5 million increase in the operating performance of our equity investees, which were partially offset by a $5.0 million increase in total operating expenses. Adjusted EBITDA for the three months ended December 31, 2020 is adjusted for stock-based compensation of $0.3 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Year ended December 31, 2020 compared to the year ended December 31, 2019

During the year ended December 31, 2020, Danaos had an average of 57.3 containerships compared to 55.0 containerships during the year ended December 31, 2019. Our fleet utilization for the year ended December 31, 2020 was 96.3% compared to 98.3% for the year ended December 31, 2019. Adjusted fleet utilization, excluding the effect of 188 days of incremental off-hire due to shipyard delays related to the COVID-19 pandemic, was 97.2% in the year ended December 31, 2020.

Our adjusted net income amounted to $170.9 million, or $7.18 per share, for the year ended December 31, 2020 compared to $148.7 million, or $9.17 per share, for the year ended December 31, 2019. We have adjusted our net income in the year ended December 31, 2020 for amortization of non-cash fees and accrued finance fees charge of $17.3 million. Please refer to the Adjusted Net Income reconciliation table, which appears later in this earnings release.

The increase of $22.2 million in adjusted net income for the year ended December 31, 2020 compared to the year ended December 31, 2019 is attributable mainly to a $19.1 million decrease in net finance expenses, a $14.4 million increase in operating revenues and a $4.7 million increase in the operating performance of our equity investment in Gemini, which were partially offset by a $16.0 million increase in total operating expenses.

On a non-adjusted basis, our net income amounted to $153.6 million, or $6.45 earnings per diluted share, for the year ended December 31, 2020 compared to net income of $131.3 million, or $8.09 earnings per diluted share, for the year ended December 31, 2019.

Operating Revenues

Operating revenues increased by 3.2%, or $14.4 million, to $461.6 million in the year ended December 31, 2020 from $447.2 million in the year ended December 31, 2019.

Operating revenues for the year ended December 31, 2020 reflect:

• a $24.5 million increase in revenues in the year ended December 31, 2020 compared to the year ended December 31, 2019 mainly as a result of contractual increases in charter rates of vessels under long-term charters, partially offset by lower re-chartering rates between the two quarters for certain of our vessels;
• a $16.1 million increase in revenues in the year ended December 31, 2020 compared to the year ended December 31, 2019 due to the acquisition of new vessels;
• a $22.2 million decrease in revenues in the year ended December 31, 2020 compared to the year ended December 31, 2019 due to lower non-cash revenue recognition in accordance with US GAAP; and
• a $4.0 million decrease in revenues due to lower fleet utilization of our vessels in the year ended December 31, 2020 compared to the year ended December 31, 2019 mainly due to the scheduled installation of scrubbers and dry-dockings of our vessels, of which $3.2 million relates to incremental delays in the Chinese shipyards where these activities were being performed due to the COVID-19 pandemic.

Vessel Operating Expenses

Vessel operating expenses increased by $8.4 million to $110.9 million in the year ended December 31, 2020 from $102.5 million in the year ended December 31, 2019, primarily as a result of the increase in the average number of vessels in our fleet and an overall increase in the average daily operating cost to $5,586 per vessel per day for vessels on time charter for the year ended December 31, 2020 compared to $5,506 per vessel per day for the year ended December 31, 2019. Management believes that our daily operating costs are among the most competitive in the industry.

Depreciation & Amortization

Depreciation & Amortization includes Depreciation and Amortization of Deferred Dry-docking and Special Survey Costs.

Depreciation

Depreciation expense increased by 5.2%, or $5.0 million, to $101.5 million in the year ended December 31, 2020 from $96.5 million in the year ended December 31, 2019 mainly due to the acquisition of the vessels Niledutch Lion, Phoebe, Charleston, Bremen and C Hamburg and the installation of scrubbers on nine of our vessels in the year ended December 31, 2020.

Amortization of Deferred Dry-docking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs increased by $2.3 million to $11.0 million in the year ended December 31, 2020 from $8.7 million in the year ended December 31, 2019.

General and Administrative Expenses

General and administrative expenses decreased by $2.5 million to $24.3 million in the year ended December 31, 2020, from $26.8 million in the year ended December 31, 2019. The decrease was mainly due to decreased non-cash recognition of share-based compensation.

Other Operating Expenses

Other Operating Expenses include Voyage Expenses.

Voyage Expenses

Voyage expenses increased by $2.7 million to $14.3 million in the year ended December 31, 2020 from $11.6 million in the year ended December 31, 2019 primarily as a result of the increase in the average number of vessels in our fleet.

Interest Expense and Interest Income

Interest expense decreased by 25.8%, or $18.6 million, to $53.5 million in the year ended December 31, 2020 from $72.1 million in the year ended December 31, 2019. The decrease in interest expense is due to a decrease in debt service cost by approximately 1.5% and a $96.1 million decrease in our average debt (including leaseback obligations), to $1,519.9 million in the year ended December 31, 2020, compared to $1,616.0 million in the year ended December 31, 2019.

As of December 31, 2020, our outstanding bank debt, gross of deferred finance costs, was $1,368.1 million and our leaseback obligation was $123.4 million compared to bank debt of $1,423.8 million and our leaseback obligation of $138.2 million as of December 31, 2019.

Interest income increased by $0.2 million to $6.6 million in the year ended December 31, 2020 compared to $6.4 million in the year ended December 31, 2019.

Other finance costs, net

Other finance costs, net decreased by $0.4 million to $2.3 million in the year ended December 31, 2020 compared to $2.7 million in the year ended December 31, 2019 mainly due to the decrease in finance costs related to the leaseback obligations, partially offset by lease termination fees in the year ended December 31, 2020.

Equity income on investments

Equity income on investments increased by $4.7 million to $6.3 million of income on investments in the year ended December 31, 2020 compared to $1.6 million in the year ended December 31, 2019 due to the improved operating performance of Gemini, in which the Company has a 49% shareholding interest.

Loss on derivatives

Amortization of deferred realized losses on interest rate swaps remained stable at $3.6 million in each of the years ended December 31, 2020 and December 31, 2019.

Other income, net

Other income, net was remained stable at $0.6 million in each of the years ended December 31, 2020 and December 31, 2019.

Adjusted EBITDA

Adjusted EBITDA increased by 2.5%, or $7.7 million, to $318.3 million in the year ended December 31, 2020 from $310.6 million in the year ended December 31, 2019. As outlined above, the increase is mainly attributable to a $14.4 million increase in operating revenues and a $4.7 million increase in the operating performance of our equity investees, which were partially offset by a $11.4 million increase in operating expenses. Adjusted EBITDA for the year ended December 31, 2020 is adjusted for stock-based compensation of $1.2 million. Tables reconciling Adjusted EBITDA to Net Income can be found at the end of this earnings release.

Recent Developments

On February 4, 2021 we announced the pricing of our offering of $300 million of 8.500% senior unsecured notes due 2028. We intend to use the net proceeds from the offering, together with a new $815 million senior secured credit facility and a new $135 million sale leaseback arrangement, to implement a $1.25 billion refinancing of a substantial majority of our outstanding senior secured indebtedness. The offering closed on February 11, 2021.

On January 27, 2021, ZIM completed its initial public offering and listing on the New York Stock Exchange of its ordinary shares. We currently own 10,186,950 ordinary shares of ZIM, which shareholding interest was valued at $205.0 million as of February 12, 2021 (based on the last reported trading price of ZIM’s ordinary shares on the NYSE) and recorded at a book value of $75 thousand as of December 31, 2020.

On January 20, 2021 we received $3.9 million from Hanjin Shipping as a partial payment of common benefit claim applied to the unpaid charter hires plus other outstandings and interest for the period from the date of Hanjin Shipping’s filing for bankruptcy until the termination notices for each respective charterparty.

On February 12, 2021, the Board and the Compensation Committee awarded 150,000 shares of common stock to officers and directors of the Company and employees of our Manager, Danaos Shipping Co. Ltd., under the auspices of the Company’s Equity Compensation Plan.

In December 2020 we took delivery of the two 9,012 TEU container vessels built in 2009 Bremen and C Hamburg.

Full Report

Source: Danaos Corporation

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping