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GoodBulk Ltd.: “Capesize market is in the early stages of a cyclical recovery”

GoodBulk Ltd., a leading owner and operator of dry bulk vessels, today announces its financial results for the second quarter of 2018. 2nd Quarter Highlights • Generated $3.6 million of net profit resulting in earnings per share (EPS) of $ 0.13. EBITDA for the period was $ 15.2 million. • Averaged direct vessel operating expenses for the period $5,314 per vessel per day, or $5,259 per vessel per day excluding one-time expenses related to the acquisition of vessels.

• Earned an average gross Time Charter Equivalent rate (TCE) of $14,084 per day on our Capesize vessels, $13,149 per day on our Panamax vessel and $12,627 per day on our Supramax vessels.
• Hedged all floating interest rate exposure under its credit facilities to maturity, fixing LIBOR at an average of 2.6304%.
• Ended the period with a cash balance of $22.4 million. Recent Developments
• For the third quarter thus far the Company has fixed approximately 68% of its Capesize days at $19,894 per vessel per day (equivalent to reported gross TCE).
• On 9 July 2018, the Company entered into an agreement to sell the M/V Aquapride, a 2012 built Supramax vessel of 61,465 dwt built by Imabari (Japan) to a third party for consideration of $20.0 million, which generated a net capital gain of $4.0 million. Assuming delivery to its new owners on 1 November 2018 the vessel is expected to have contributed net profit of approximately $2.4 million since being delivered to the Company’s fleet on 1 June 2017, resulting in a levered internal rate of return (IRR) of 55%.
• Entered into a new credit facility with ING Bank for up to $73.0 million at spread of LIBOR + 225 basis points, reducing the Company’s average cost of debt capital by 24 basis points.
• Exercised options to acquire three Capesize vessels, 2011 and 2012 built, of approximately 180,000 dwt for aggregate consideration of $104 million, and took delivery of the first of the three vessels, the M/V Aquasalwador.
• Declared a regular quarterly cash dividend of $0.06 per common share payable to shareholders of record as of 19 September 2018.
• Completed a private placement of new common shares to an unaffiliated investor at an issue price of $17.46 per share for net consideration of $10.0 million.

GoodBulk continues to execute its plan to build a leading owner of dry bulk vessels with a commitment to pairing low financial leverage with active portfolio management optimizing operational leverage to the dry bulk market. While GoodBulk is able to invest in dry bulk vessels ranging in size from 50,000 to 210,000 dwt, Management continues to believe that secondhand Capesize vessels currently represent the most attractive risk adjusted return opportunity.

As such, the Company continues to increase its capital allocation to this segment. In this effort, following the completion of the second quarter, the Company announced an agreement to sell the M/V Aquapride, a Supramax vessel, and the exercise of options entered into in April 2018 to acquire three additional Capesize vessels. Following the completion of these announced transactions the Company will control a fleet of twenty-seven dry bulk vessels consisting of twenty-five Capesize vessels, one Panamax vessel, and one Supramax vessel. The second quarter of 2018 saw a continuation of the improvement in the Capesize market as measured by the benchmark Baltic 180,000 dwt 5TC index (“BCI”).

While volatility continued to remain high, after bottoming at $7,051 per day on 5 April 2018, each month of the quarter showed sequential improvement averaging $11,708 per day in April, $16,294 per day in May, and $16,783 per day in June resulting in an average of $13,963 per day for the first half of 2018. This corresponds to a 20.4% increase for the first half of 2018 versus the first half of 2017. This steady improvement has continued through the traditionally softer summer season, with the Index averaging $23,952 per day in July and $25,034 per day in August. Management remains optimistic that the Capesize market is in the early stages of a cyclical recovery supported by stronger fundamentals on both the demand for tonnage and supply of vessels, as evidenced by the stronger spot rates for Capesizes this year compared to 2017.

On the demand side, new trade of seaborne coal from the United States to India as well as more longer haul Brazilian iron ore into China on Capesizes have contributed support to this segment. The logistical interruptions that caused temporary reductions of iron ore cargoes in the first half of 2018 have begun to resolve in the third quarter of 2018 and we expect continued strength as iron ore producers work to meet their reaffirmed 2018 production targets. On the supply side, the Capesize fleet is seeing less growth this year with net deliveries (in dwt terms) down by 12% in the January to August period compared to the same period last year. The Capesize segment is expected to see limited growth until 2020 following minimal new ordering in the last three years and the scrapping wave of 2015 and 2016. This fundamental position of demand and supply could result in a tight market in the remaining months of 2018 with a corresponding response in Capesize spot rates.

Results of Operations Second Quarter 2018
For the three months ended 30 June 2018, the Company reported revenues and other income (expenses) of $34.7 million, and net income of $3.6 million, generating EPS of $0.13 based on 28,715,543 weighted average number of shares outstanding. This result compares with a gain of $0.9 million for the second quarter of 2017. Ship ownership days increased sequentially to 2,131 in the second quarter of 2018, from 1,737 in the first quarter of 2018 as the Company took delivery of three vessels. Ship ownership days are expected to further increase to an estimated 2,327 in the third quarter of 2018, 2,489 in the fourth quarter of 2018 and 9,855 for the full year 2019. The Company earned an average gross TCE of $14,084 per day on its Capesize vessels, $13,149 per day on its Panamax vessel, and $12,627 per day on its Supramax vessels for the three months ended 30 June 2018. Comparatively for the three months ended 30 June 2017, the Company earned an average gross TCE of $10,768 per day. During the second quarter of 2018, most of the Company’s vessels were traded on the spot market, with fifteen Capesize vessels employed in Capesize Chartering Ltd. (“CCL”) via the CTH Capesize Revenue Sharing Agreement (“Capesize RSA”), three Capesize vessels employed on index-linked charters and one Capesize vessel on a period charter. The Panamax vessel was trading spot and the Supramax vessels were employed in the CTM Supramax Revenue Sharing Agreement (“Supramax RSA”). Net income for the three months ended 30 June 2018 included non-cash depreciation expense of $8.9 million. Direct vessel operating expenses for the period totaled $11.3 million or $5,314 per vessel per day, or $5,259 per vessel per day excluding one-time expenses related to the acquisition of the vessels.

General and administrative expenses (“G&A”) for the three months ended 30 June 2018 were $0.8 million, or $389 per vessel per day compared to $186 per vessel per day for the same period in 2017. First Half 2018 For the six months ended 30 June 2018, the Company reported revenues and other income (expenses) of $69.1 million, and net income of $12.6 million, generating EPS of $0.49 based on 25,694,018 weighted average number of issued and outstanding shares.

This result compares with a gain of $0.5 million for the first half of 2017. Ship ownership days increased sequentially to 3,868 in the first half of 2018, from 2,076 in the second half of 2017, as the Company took delivery of 12 vessels in the interim period. Ship ownership days are expected to further increase to an estimated 4,816 in the second half of 2018 and 9,855 for the full year 2019. The Company earned an average gross TCE of $14,342 per day on its Capesize vessels, $13,413 per day on its Panamax vessel, and $11,495 per day on its Supramax vessels for the six months ended 30 June 2018. Comparatively, for the six months ended 30 June 2017 the Company earned an average gross TCE of $10,291 per day.

During the first half 2018, most of the Company’s vessels were traded on the spot market, with thirteen Capesize vessels employed in Capesize Chartering Ltd. (“CCL”) via the CTH Capesize Revenue Sharing Agreement (“Capesize RSA”), four Capesize vessels employed on index-linked charters and one Capesize vessel on a period charter. The Panamax vessel was trading spot and the Supramax vessels were employed in the CTM Supramax Revenue Sharing Agreement (“Supramax RSA”). Net income for the six months ended 30 June 2018 included non-cash depreciation expense of $15.6 million. Direct vessel operating expenses for the period totaled $20.8 million or $5,387 per vessel per day, or $5,221 per vessel per day excluding one-time expenses related to the acquisition of the vessels. General and administrative expenses (“G&A”) for the six months ended 30 June 2018 were $1.7 million, or $439 per vessel per day compared to $403 per vessel per day for the same period in 2017. GoodBulk Fleet GoodBulk owns twenty-three Capesize, one Panamax, and two Supramax dry bulk vessels (of which one was sold in July and expected to be delivered to its new owner in November 2018) with an average age of 9.6 years. Two additional Capesize vessels are expected to be delivered to GoodBulk by the end of October 2018. Upon delivery of announced vessel acquisitions and disposition, GoodBulk will control a fleet of twentyseven dry bulk vessels consisting of twenty-five Capesize vessels, one Panamax vessel, and one Supramax vessel with an average age of 9.5 years.

Investments
On 9 July 2018, GoodBulk entered into an agreement to sell the M/V Aquapride, a 2012 Supramax vessel of 61,465 dwt built by Imabari (Japan) for consideration of $20.0 million, resulting in a net capital gain of $4.0 million. Assuming delivery to its new owners on 1 November 2018 the vessel is expected to have contributed net profit of approximately $2.4 million since being delivered to the Company’s fleet on 1 June 2017, resulting in a levered IRR of 55%. On 27 July 2018 the Company exercised options entered into in April 2018 to acquire two Capesize vessels, 2011 and 2012 built, of approximately 180,000 dwt built by Daehan Shipbuilding (South Korea), for aggregate consideration of $68.3 million. On 7 September 2018 the Company exercised its third option to acquire a 2012 built vessel of approximately 179,000 dwt built by Sungdong Shipbuilding (South Korea) for $35.7 million. The first of these vessels, the M/V Aquasalwador, was delivered to the Company on 4 September 2018, and was financed by a combination of cash on hand and $24.5 million of availability under the ING Bank credit facility. The remaining two vessels are expected to be delivered to the Company by the end of October 2018 and be financed with a combination of cash on hand and $48.5 of remaining availability under the ING Bank credit facility.

GoodBulk’s regularly scheduled drydocking and maintenance program is another area of investments. This capital expenditure is necessary to ensure the proper, safe and efficient operation of our vessels and to comply with international shipping standards and environmental laws and regulations. Installation of Ballast Water Treatment Systems (“BWTS”) will be evaluated on a case by case basis depending upon the age of each ship and the market conditions at the time of the required installation. Currently, no BWTS investments are planned before 2020.

The Company intentionally completed all of its 2018 scheduled dry dockings in the seasonally weaker period between March and May with the goal of minimizing the opportunity cost of the lost earnings due to off hire days. The following table includes our actual dry dock expense and off hire days for 2018 as well as our estimated dry dock expense and off hire days for 2019. These estimates are based upon our technical manager’s experience and the condition of the vessel at the time of acquisition. These estimates can vary based upon yard schedules, condition of the vessel at the time of drydocking, location of the drydocking, and other factors and do not include the cost of installing BWTS.

Liquidity and Capital Resources
Net cash used in the quarter ended 30 June 2018 was $9.7 million, which compares to $0.8 million cash produced in the same period for 2017. Net cash provided by operating activities in the second quarter of 2018 was $7.0 million, compared to $4.4 million used in the same period in 2017. Net cash used in investing activities in the second quarter of 2018 was $34.7 million, which compares to $108.8 million for the same period in 2017. GoodBulk ended the quarter with cash and cash equivalents of $22.4 million. GoodBulk has entered into two credit facilities with ABN Amro for $60.0 million and $85.0 million, one credit facility with Credit Suisse for $56.5 million and one credit facility with Danish Ship Finance for $77.0 million. As of 30 June 2018, the $60.0 million ABN Amro facility is fully drawn, the $85.0 million ABN Amro facility has been drawn for $35.0 million, the Credit Suisse facility has also been fully drawn and the Danish Ship Finance facility has been drawn for $37.0 million. As of 30 June 2018, $188.5 million is drawn under these four credit facilities, leaving $90.0 million of remaining availability. On 28 August 2018 GoodBulk entered into a credit facility with ING Bank for up to $73.0 million. This facility had an initial term of five years and bears interest at a rate of LIBOR + 225 basis points. The loan has an initial profile of 16 years. The Company drew down $24.5 million under this facility to finance the acquisition of the M/V Aquasalwador and fixed its LIBOR rate for the drawn portion at 2.935% for the duration of the loan. On 7 September the Company completed the private placement of 572,738 new common shares to an unaffiliated investor for net proceeds of $10.0 million. As of 7 September 2018, the Company had 30,116,458 shares outstanding.

Corporate Governance
On 23 May 2018, Luigi Pulcini was appointed as Chief Financial Officer (CFO) of the Company. Mr. Pulcini already served in this capacity on an outsourced basis as CFO of CTM. Mr. Pulcini has been CFO of CTM since 2004. Prior to his position at CTM, he was employed at Coeclerici Group in various roles including CFO from 1995 to 2002. Mr. Pulcini started his career at Arthur Andersen. Mr. Pulcini is a member of the Italian Association of “Dottori Commercialisti” (Chartered Accountants) and “Revisori dei Conti.”

On 30 May 2018, Timothy Huxley was appointed as a Director on the GoodBulk Board. Mr. Huxley has been the Chairman of Mandarin Shipping Limited since 2016, which he established in 2006. Prior to his position at Mandarin Shipping, he held the role of Chief Executive Officer of Wah Kwang Maritime Transport Holdings Limited from 2008 to 2016. He has also held senior roles in Clarksons acting as Managing Director of Clarkson Asia Limited from 1996 to 2006 and prior to that spending 14 years as a sale and purchase shipbroker in London and Hong Kong.

Dividend
On 5 September 2018, the Board of Directors declared a cash dividend of $0.06 per common share to shareholders of record as of 19 September 2018 and payable on 3 October 2018. Going forward, GoodBulk will seek to distribute 25–50% of net income to shareholders on a quarterly basis by dividend or stock repurchases, subject to the sole discretion of our Board of Directors.
Source: GoodBulk Ltd.

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