Master in Shipping

Competitors valuation tool Dry Cargo Sector

Componenti del PW:

Carlo Maria Forte

Gerardo Daniele Miscuzzi

Giorgia Riccardi

Tutor: Giovanni CapelloGroup Planning & Control Manager

Napoli, 1° Aprile 2011

Master in Shipping

Methodology

• Key Financials (KF):- Margins / Growth- Assets / Net Debt- Returns indicators- …

• Fleet Structure (FS):- Size- Ownership- Average Age- …

• Efficiency & Effectiveness (EE):- Daily TCE- Cost structure- Coverage- …

Valuation Tool (VT)

“Best in class”

Different strategies

Growth Path

Effectiveness

…

Master in Shipping

Selected Companies Overview

Company Capesize Panamax Handymax Handysize Notes

Diana Shipping • 2 Containerships

Dry Ships • 6 Offshore units

D/S Norden • 27 Tankers• Includes ST charter-in

Eagle Bulk • Includes ST charter-in

Excel Maritime

Genco

Globus Maritime

Navios • 223 Towage units• Includes ST charter-in

Pacific Basin• 1 Ro-Ro• 27 Towage units• Includes ST charter-in

Paragon Shipping • 2 Containerships

Safebulkers

Seanergy

TBS International • Includes 25 Handysize multipurpose tweendecker

Fleet StructureSegment breakdown (%)

Master in Shipping

• Pacific Basin controls the largest fleet (in addition ~ 30 short term charter-in)

• Including short term charter-in D/S Norden current fleet consists of ~ 150 vessels

• Pacific Basin and D/S Norden have the lowest ownership percentage

• Globus has the smallest fleet (only 5 vessels)

• Only D/S Norden, Genco and Seanergy operate in all four segments

• Eagle Bulk is focused on Handymax segment (all sisterships)

• In terms of higher number of vessels per segment: Handysize Pacific Basin, Handymax Eagle Bulk, Panamax Excel Mtm. and Capesize Navios

70% of analyzed companies completely owns their active fleet Common fleet size is between 35 and 50 vessels (outliers Pacific Basin

and Globus Maritime) mainly Handymax and PanamaxSource: SEC filings/ Company Report (31/12/10) – RS Platou (October 2010)

Master in Shipping

Fleet StructureAverage age (years)

• D/S Norden, Globus Mtm. and Safe Bulkers have the youngest fleet

• TBS Int. controls the oldest fleet (the average age is partially reduced by young Handysize multipurpose tweendeckers)

• The average segment age of Excel Mtm. fleet is not homogeneous; the company states its intention to reduce it

• The strategy of almost all the competitors has been focused on young fleet

38% of the companies manages a fleet older than the average (7.4) Small segments contain older vessels: Capesize, Panamax, Handymax and

Handysize average age is respectively: 5.9, 7.2, 8.2 and 9.0. Pacific Basin and Seanergy reflected a countertrend

Source: SEC filings/ Company Report (31/12/10) – RS Platou (October 2010)

Master in Shipping

Fleet StructureDWT growth (MM)

More than 50% of companies will have a global presence ranging between 3 and 4 DWT/million

Overall, newbuildings are 102: 36 Handysize, 25 Handymax, 24 Panamax and 17 Capesize, for about 7.6 DWT/MM (24% of relative existing fleet)

• Navios shows the highest absolute increase of its fleet; the growth is composed mainly by Capesize and Panamax

• The increase in D/S Norden fleet is mainly focused on Handysize and Handymax

• Safe Bulkers remains focused on Panamax

• Excel Mtm., Globus Mtm., and Seanergy do not have newbuildings at all

• Genco fleet grew from 34 to 49 vessels (12 Handymax)

• D/S Norden fleet grew from 2009 by 54% and is still expanding with 30 newbuildings. Opposite growth trend for Dry Ships (decreasing trend)

Source: SEC filings/ Company Report (31/12/10) – RS Platou (October 2010)

Master in Shipping

Key FinancialsAbsolute profitability (MM$)

• The volume effect of short term charter-in is reflected in higher TCE revenues for D/S Norden and Pacific Basin

• Excel Maritime and TBS have the highest incidence of depreciation and impairment (due to old fleet)

• Low value of TCE/Revenues for D/S Norden, Pacific Basin and TBS suggests an high incidence of voyage charter (mainly as an employment strategy on short term activity)

• The smallest segments (with exception of Seanergy) seem to have the highest incidence of voyage charter

• For Navios and Paragon total revenues come from TC hire

Most profitable competitors are: D/S Norden, Genco, Dryships and Diana Norden and Dryships exchange their position from EBIT to Net Income

due to a completely different financial structureSource: SEC filings/ Company Reports as of 31/12/10 – RS Platou (February 2011)

Master in Shipping

Key FinancialsEBITDA/EBIT margin (%)

• EBITDA margin = EBIT margin for D/S Norden and Pacific Basin because of low ownership percentage

• Safe Bulkers shows the highest EBITDA/EBIT margin combination with a significant volume

• TBS Int. has a negative EBIT margin due to large impairment (200 MM)

Due to different ownership strategy the margin comparison should be focused both on EBITDA and EBIT

Source: SEC filings/ Company Reports as of 31/12/10 – RS Platou (February 2011)

Ownership %

Master in Shipping

Key FinancialsProfitability indices (%)

Source: SEC filings/ Company Reports as of 31/12/10 – RS Platou (February 2011)

• Safe Bulkers (that is highly geared) experienced a positive leverage effect

• Debt and loss due to financial instruments have a negative incidence on DryShips ROE

• TBS shows negative figures of ROE and ROCE and a downward ROE trend

• Safe Bulkers ROE plummeted due to massive capitalization

• Globus experienced the most significant growth in ROE

• DS Norden is not leveraged

Average ROE (not considering TBS) is 10.2%, and average ROCE is 6.8% 46% of companies shows a leverage (ratio between long term debt and

equity) above the average (1.07)

Master in Shipping

Key FinancialsCash flow (MM$)

• Diana, DryShips, Eagle Bulk, Genco and Safe Bulkers support their investments with financing strategy

• D/S Norden, Excel Mtm. and Pacific Basin invested over the period using their own cash (equity instead of debt)

• Seanergy investing cash flow is affected by the acquisition of other business (with positive cash position) by using a share issuance

Investments level still high in 2010 (lowest net investments around $70 mln) with a different finincing strategy (in some cases affected by existing debt repayment impact)

Source: SEC filings/ Company Reports as of 31/12/10 – RS Platou (February 2011)

Master in Shipping

Key FinancialsFixed assets & debt (MM$)

The average figure for net debt/fixed assets is 39% (excluding TBS Int.) D/S Norden has a liquid structure (no outstanding debt and consequently

a positive net indebness) meaning a strongly different strategy compared with other Companies

• DryShips has the biggest figure for fixed asset, debt and fixed assets – net debt

• Navios has the lowest ratio fleet/fixed assets

• Eagle Bulk and Safe Bulkers show the worst ratio net debt/ fixed assets with a stretched fleet

• Considering the trend of fixed assets and gross debt volume, Excel Mtm is an exception due to a consolidated debt structure on old vessels

Source: SEC filings/ Company Reports as of 31/12/10 – RS Platou (February 2011)

Master in Shipping

Efficiency & EffectivenessDaily TCE ($)

Source: SEC filings/ Company Reports (H1 2010)

• Daily TCE for Panamax vessels are quite steady for the three companies examined

• In the Handymax segment Genco experienced higher TCE rates than Eagle Bulk with a lower TC coverage

• The same consideration done for Handymax concerns Panamax with reference to Genco and Safe Bulkers

Highest spread betweeen Companies and Market index on Capesize segment meaning an higher coverage at higher levels

During the first half 2010 Genco achieved the higher daily TCE in all segments (near to indexes) with the exception of Capesize

Avg 17.116 $/dayBHSI avg 18.830 $/day

Avg 23.189 $/dayBSI avg 26,435 $/day

Avg 29.140 $/dayBPI avg 30,155 $/Day

Avg 48.359 $/dayBCI avg 36,160 $/day

Master in Shipping

Efficiency & EffectivenessTC Coverage (%)

Source: Jeffries research as of December 2010

• Genco shows lack of coverage especially in 2012 and 2013 (it’s the only one with coverage indication for Handysize segment: 28% in 2011, 31% in 2012 and 19% in 2013)

• Excel Mtm. has a complete exposure in Handymax segment for the next three years and in Panamax segment for 2012 and 2013

• Safe Bulkers is generally the most covered company for the next three years

• DryShips shows the best coverage average percentage in 2011 but is significantly exposed in the next years

The coverage seems to be proportional to segment (the bigger the vessel the higher the coverage)

By 2013 there will be a substantial decrease in coverage, except for Capesize vessels

Master in Shipping

Efficiency & EffectivenessCost structure (%)

Source: SEC filings/ Company Reports (Q3 2010)

• D/S Norden and Pacific Basin show high incidence of Opex and the lowest level of daily G&A as a result of their strategies (large fleet, low ownership percentage and high short term charter-in)

• Balanced cost structure, high volumes of TCE revenues and similar fleets for Dry Ships and Navios. In addition these companies have the same (and highest) level of daily G&A

• Excel Mtm., Safe Bulkers and Seanergy reveal a good cost structure with an average of 60% opex, 20 % G&A and 20% financing costs

D/S Norden, Genco, Seanergy, Safe Bulkers and Pacific Basin daily G&A’s under the average

Master in Shipping

Efficiency & EffectivenessAverage vessel book value vs market value (MM$)

Source: Morgan Stanley research as of 17/01/11 - SEC filings/ Company Reports as of 31/12/10

Overall, the average vessel market value is lower than book value with the exception of Safe Bulkers

• Safe Bulkers fleet has market value higher than book value

• Excel Mtm. shows the greatest fleet value spread with market value significantly lower than book value

• Companies with oldest fleet suffered from lower market values compared with book value

Master in Shipping

Overall ResultsKPI Radar Monitorning

Valuation drivers:

• Fleet on water: (FS) (company fleet/ global fleet per segment)

• Average age (FS)

• EBIT margin (KF)

• ROE (KF)

• Leverage (KF)

• Interest incidence: (KF) (EBIT-net income)/|EBIT|

• Net debt (KF)

• Daily Interests (EE)

• Daily G&A (EE)

1st

2nd

4th

3rd

Master in Shipping

Conclusion

Correlation between fleet average age and company performance Different ownership strategy can be equally successful Percentage profitability (EBIT margin) seems to be correlated with

the concentration on no more than 2 segments (of which at least one of bigger vessels - Capesize/Panamax, except for Eagle Bulk)

Leverage level in general affected company performance ROE fluctuating near the average figure (about 10%) meaning that

dry cargo shipping business well faced the crisis into 2010 In 2010 we registered two main cluster of investing policy:

investments matched with debt (lower ranking position) and investments supported by equity (higher ranking position)

The bigger the vessel the higher the coverage Balanced cost structure: ~60% opex, ~20% G&A, ~20% financing

cost Companies with oldest fleet suffered from lower market values

compared with book value according to current oversupply momentum

Thank you for your attention!