Weak Market and Expired Time-charters Hurt TNG

The product tanker company Tankerska Next Generation published FY results, showing a 23% drop in EBITDA and 81% drop in net income. 2018 was a weak year for the entire shipping market, and TNG managed to record a TCE rate of USD 13,201 a day (-15%).

Tankerska Next Generation reported a sharp drop in financials in 2018, owing mostly to the fact that the spot rates were not high enough to replace the expired time charters. Out of 6 ships, 3 entered 2018 with previously arranged time charters. Vukovar expired in April (TCE of USD 17,250 a day), Zoilo in July (17,750) and Dalmacija in September (17,750). Excluding these previous arrangements, according to our calculation it seems that TNG had a TCE of about USD 9,500 a day in 2018. It looks like arranging a time-charter for Vinjerac at 14,500 in Q1 2018 (until Q2 2019) was a good call.

The results can be attributed to the fact that 2018 was a weak year for the tanker market. According to Morgan Stanley’s Maritime Report, the average MR2 clean Spot (average 6 routes) per quarters of 2018 in thousand USD was 10.3, 8.2, 6.5 and 10.9. The average for the year was 9.0. It stands at 12.4 YTD. TNG’s management says this recent improvement can be attributed to the overlap of increased transport demand (OPEC, US and Russia gradually increasing production) and somewhat increased phasing-out of older vessels.

Charter Rates According to Morgan Stanley’s Maritime Report

In 2018, TNG reported a 4% increase in revenue, but this positive movement was exclusively due to the fact that more vessels are operating on the spot market (in this case TNG covers fuel, port and some other costs associated with voyages so they charge a higher price compared to time charters). The movement of TCE (-15% to USD 13,201 a day) gives a more comparable number to 2017. This lost TNG an absolute amount of USD 4.0m and was almost completely transferred to EBITDA as there were only minor savings in Vessel operating expenses and G&A (relatively G&A is down 6%, but their absolute positive impact is less than USD 0.1m). D&A remained unchanged, but an impairment of Dalmacija (by USD 0.6m or 2% of the vessel’s book value) pushed EBIT further down. Net income ended at USD 1.0m, down by 81% or USD 4.2m (slightly helped by lower interests and better FX).

We wouldn’t expect much dividends this year due to low net income, risks related to having most fleet on spot and future CAPEX requirements (related to sulphur emissions and ballast water management).

Category : Blog

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