Danaos Annual Report 2016
Total Page：16
File Type：pdf, Size：1020Kb
World-Class Shipping, Leading-Edge Expertise 20 16 Annual Report MISSION STATEMENT Danaos Corporation seeks to remain the premier choice of global seaborne container transportation for its clients by utilizing its solid operational, technical and financial infrastructure. Danaos will continue to provide outstanding customer service, enforce rigorous operational standards, maintain a steadfast commitment to safety and enviromental protection, and reward its shareholders. 4 DANAOS CORPORATION FROM THE PRESIDENT & CEO Dear Fellow Shareholders, Challenging market conditions persisted in 31, 2016, we had charter coverage of 92% for the 2016 as liner companies, our customers, were next twelve months based on operating revenues negatively impacted by weaker than expected and 74 % in terms of contracted operating days. demand. The bankruptcy of Hanjin Shipping and As of the end of 2016, the average charter the restructuring of Hyundai Merchant Marine duration of our fleet was 6.6 years, weighted dominated the news in 2016, and Danaos was not by aggregate contracted charter hire, with our immune to the fallout. longest charters extending through On September 1, 2016, Hanjin 2028. We are also fortunate to Shipping, previously one of our have invested significant resources largest customers, filed for into operational efficiency and receivership with the Seoul Central technological innovation. This has District Court. Hanjin Shipping helped us achieve daily operating previously chartered eight of costs of $5,637 for 2016, which our vessels on long term charter clearly positions us as one of party agreements representing the most efficient operators in approximately 20% of our fixed the industry and is particularly contracted revenue. These charter beneficial in today’s environment. party agreements were terminated, As a result of the decrease in our and each of the chartered vessels operating income and charter were returned to us in 2016. We attached values, primarily caused have since re-chartered five 3,400 by the Hanjin bankruptcy, we were in TEU vessels on short term charters Dr. John Coustas - President @ CEO breach of certain financial covenants at market rates that reflect the in our bank agreement as of December 31, 2016. prevailing weak chartering environment and We are engaged in constructive discussions managed to secure employment of up to 12 with our lenders to address this matter. In the months starting from April 2017 for the remaining meantime, we continue to generate positive cash three 10,100 TEU vessels. Nevertheless, our flows from our operations and currently are in a operating results, contracted and operating position to service all our operational obligations income and our debt were affected. as well as all scheduled principal and interest Following the Hanjin bankruptcy, our near term payments under the original terms of our debt exposure to the spot market has increased, agreements. Danaos reduced its outstanding although Danaos continues to have low near term debt by nearly $251 million in 2016, consistent exposure to the weak spot market. As of December with our strategy of deleveraging our balance ANNUAL REPORT 2016 5 sheet, although we expect the rate at which we to levels above 1.0x. A more balanced demand- reduce our leverage to decrease as a result of the supply relationship for 2017 should keep the cancellation of our Hanjin Shipping charters. market near current levels until excess capacity starts being absorbed in 2018 and 2019, when the Idle containership capacity currently sits at container market fundamentals are expected to approximately 7% of the global fleet, reflecting begin to improve. the efforts of the industry to manage overcapacity. The charter rate environment has stabilized, During this extended period of market weakness albeit at levels at or below daily operating which has presented many challenges, we remain expenses. This market improvement is mainly focused on taking necessary actions to preserve due to the commencement of the new alliances the value of our company by managing our fleet between liner companies. While we do not expect efficiently and taking prudent measures to the market to return to the lows of 2016, we also manage and ultimately deleverage our balance see signs of the charter market tailing off, and sheet. very few long term charters have been achieved With a young, modern fleet, significant revenues in the market. Nonetheless, the more disciplined secured by long term charters and highly efficient capacity utilization strategy by the liner operations, we are optimistic that we will be able companies in the context of the new alliances has to capitalize on improving market dynamics over led to an improvement in box rates which has in the medium and long term. turn improved the performance of our customers and reduced our counterparty credit risks. The orderbook remains large at approximately 15% of the global fleet, and supply continues to Respectfully exceed demand. The orderbook is predominantly comprised of larger vessels, which, upon delivery will put further pressure on the market for smaller, less economical vessels. As such, we Dr. John Coustas do not expect rates to meaningfully improve President & CEO for another 18-24 months absent a significant increase in demand combined with increased scrapping activity. With global GDP growth currently projected at around 3.5%, we are reasonably optimistic that the container trade growth multiple will revert 6 DANAOS CORPORATION FROM THE SENIOR VICE PRESIDENT & COO Dear Fellow Shareholders and Danaos Colleagues, The structure of the Liner industry at the end of invest heavily in modern IT platforms, in order to 2016 was entirely different to that of the previous accommodate their customers’ needs for the direct year. A total of nine Liner Companies merged their cargo bookings, paper processing and monitoring operational activities creating four new alliances. of their cargo. In addition to that, a lot of capital The shifting of a large number of ships from the expenditure will be required to upgrade and pre-alliance schedules to the new schedules modernize several terminals in created a temporary upsize order to accommodate larger effect due to inefficiencies ships with a quick turnover. All caused during this shifting. these investment requirements, We do not believe that the may create sale and lease temporary improvement of the back transactions, initiated charter rates will last long, by the Liner Companies for since it was not supported by part of their existing tonnage. the supply/demand industry Opportunities such as these will fundamentals. Additionally, we expect the inactive part of the be ideal for the fleet growth of fleet (vessels mainly owned our Company. Iraklis Prokopakis - Senior Vice President & COO by charter owners) to be in the On an operational level, we range of 500,000 – 550,000 TEU shortly within believe that the Liner Companies will introduce 2017. new types of charter party contracts, where the We do not expect any new building activity in the Charter Owner will be asked to commit to a range years to come and it is likelier that the investment of speeds and consumptions, to agree on specific into newbuildings of larger container ship sizes reporting and monitoring requirements and to (over 6,500 TEU) will be decided on an Alliance accept vetting inspections for the condition of level rather than on an individual Liner Company the chartered vessels. Our Company is already level. fully prepared to accommodate the expected new There is also a trend for the Liner Companies to charter requirements ahead of the competition. ANNUAL REPORT 2016 7 In excess of 95% 85% fleet utilization retention rate rate in senior crew officers 0.7 deficiencies per inspection Once again, our Operational KPIs were almost perfect this year: Our Daily OPEX was USD 5,637 which was 5% less than the budget of USD 5,931 Our Fleet Utilization was 94.6% Our Port State Control Deficiencies per inspection were 0.7 against the industry average of 3 Our Senior Officer Retention Rate was 85% We at Danaos Corporation, are proud of the high level of competence and ethos of our shore employees and crews and of our technological excellence, which has made our company the Preferred Charter Owner of the Liner industry. Iraklis Prokopakis Senior Vice President & COO 8 DANAOS CORPORATION FROM THE CHIEF FINANCIAL OFFICER Dear Fellow Shareholders, In 2016, the profitability of the Company in operating revenues, which was partially offset decreased by 12% as we reported Adjusted Net by a decrease in total expenses and a $0.3 million Income of $140.9 million compared to $159.5 operating performance improvement on equity million for 2015. investments before impairment loss. Additionally, as of December 31, 2016, we recorded an The decrease in our profitability of $18.6 impairment charge of $415.1 million in the context million was mainly attributable to a $48.1 of prudently evaluating the million decrease in operating assets on our balance sheet revenues as a result of the primarily in relation to 25 of Hanjin bankruptcy. A further our vessels as of December decline in revenues of $21.5 31, 2016 compared to an million was mainly a result impairment loss of $41.1 of weaker charter market million in relation to 13 of conditions and lower fleet our vessels as of December utilization. This was offset by 31, 2015. The impairment a reduction of $47.6 million loss as of December 31, in net finance costs mainly 2016 was (i) due to the due to the expiration of our impairment loss of $205.2 interest rate swaps and lower million recognized for five debt balances, a $3.1 million Evangelos Chatzis - Chief Financial Officer 3,400 TEU vessels formerly decrease in total operating chartered to Hanjin, and (ii) the expenses and a $0.3 million improvement in the impairment loss of $209.9 million recognized for operating performance of our equity investment in 18 of our vessels less than 4,300 TEU and for two Gemini Shipholdings Corporation.