Greek owner John Coustas patted himself on the back as his container ship company Danaos announced a staggering profit late on Monday.
“We foresaw the ongoing disruption in the supply chains and tightening of the container market through 2022 many quarters ago,” he said in a press release after his Piraeus-based company revealed that net income increased nearly sevenfold in 2021 from the previous year, to $1.05bn.
Net income in the fourth quarter rose to $166m from $47.8m in the corresponding period of 2020.
About half of the profit, $543.6m, represents financial gains realised as the fair value of its stake in Israeli liner company Zim “surpassed all reasonable expectations”, according to Coustas.
Danaos currently holds about 6% in Zim, after selling 3 million of its shares last year for net proceeds of nearly $121m.
Danaos’ results include a $111.6m gain on debt extinguishment, as Zim and South Korean liner HMM redeemed bonds held by the company, as well as a $64m gain on the buyout of Gemini Shipholdings — a private Coustas vehicle that owned five post-panamax container ships.
Remaining profitability was driven by sky-high charter income in a red-hot market for the company’s more than 70 container ships.
Padded by contracted revenue of $2.8bn through to 2028, the company felt comfortable enough to announce a 50% increase to its dividend to $0.75 per share.
“This isn’t a special, one-off dividend,” Coustas told analysts in a conference call after results were published.
Danaos set the dividend at its new level with a view to maintain and perhaps even grow it in future, added Coustas, who is himself the biggest single shareholder in the company.
No more counterparty risk
Danaos, which stood on the verge of bankruptcy in 2018, had not paid dividends for 13 years before resuming them in the first quarter of 2021.
Counterparty risk of the kind that almost sank the company a few years ago, when major liner and Danaos charterer Hanjin Shipping went belly-up, “has completely disappeared”, according to Coustas.
Long-term charters are becoming the norm and liner companies expand in non-seaborne transport modes to spread their risk, he argued.
On top of that, the German KG market, which was responsible for 70% of containership newbuildings during the previous shipbuilding boom, isn’t around any more. Uncertainty over future environmental standards keeps a lid on the orderbook anyway, he added.
“The future is bright and Danaos is well positioned to benefit from it.”
This optimistic view is underpinned by the company’s expectation that supply chain disruption, which feeds liners’ and container ship companies’ profit, will continue for some time.
La Vie en Rose
Port congestion ”isn’t worsening but isn’t getting better either,” Coustas told analysts.
Even if governments eventually remove anti-Covid movement restrictions, retail firms and manufacturers will be busy for some time replenishing and increasing inventories to cope with any further supply shock.
“They can’t rely on just-in-time any longer,” said the owner.
Almost all the company’s larger vessels are fully booked for the remainder of 2022.
Demand is strong, and even increasing, for smaller feederships as well. Even though such ships are usually chartered for six to twelve months, charterers are now taking them for much longer periods.
“From what I’ve seen, three years is kind of the minimum,” said Coustas, adding that his company's chartering policy will generate “even better cash flows in 2022”.
That should allow Danaos to pursue multiple goals at the same time, such as buy ships, cut debt and maybe also offer a share buyback.
Coustas said he wants to weigh his options carefully because fat profits aren’t exactly the same thing as hard cash.
“We would like to announce a share buyback the moment we have the money in the bank… It’s not like we’re sitting on half a billion of cash,” he told the analysts.
Much of Danaos’s bonanza is locked into its Zim stake and the company prefers to hold on to those shares as it sees “significant upside” in their value, according to Coustas.
Danaos stock itself has soared in value over the past 12 months, rising from $34.72 in February last year to $97.30 in mid-day trading in New York on Tuesday.