Good afternoon. This is the Carrefour conference operator. Welcome, and thank you for joining the Damico International Shipping Second Quarter and First Half twenty twenty one Results Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions.
At this time, I would like to turn the conference over to Mr. Paulo D'Amico, Chairman and CEO of D'Amico International Shipping. Please go ahead, sir.
Thank you and good afternoon to everybody. Welcome to our Carrefco And let's go straight to the presentation. If you don't mind, I would skip the executive summary, we are not doubling Thanks and I leave for the starting to the floor to Carlos Balestra for The overview of the key financials, Carlos, 2.2.2.
Thank you, Paolo. Good afternoon, everyone. So as usual, we start just a quick glance of our fleet. We control the 38 vessels at 30th June. We are mainly an MR player.
We have, however, a small presence also in the Hello, 1 and Handy size segments with 6 vessels in each of these segments. Mostly owned vessels, 20 out of 38, 8 on barrels chartered, which We consider that own vessels because they either have purchase obligations or purchase options at very attractive Prices in one case only. And then we have the time chartered in vessels, which are mostly long term, 9 out of the time charted 9 out of the 10 time charted in vessels. The fleet is 76 Santaimo class and it is still a young fleet, 6.9 years average age relative to an average for the industry, which is Closer to 12 years in the sectors we operate in. Also, mostly by now an echo fleet, 75% of the owned and bareboat vessels and 74% of the entire fleet.
And well, these results were achieved thanks to an important newbuilding program, as we I've already talked about several times in the recent past, we ordered 22 new buildings since 2012, And they have all been delivered to us, the last one in Q4 2019. CapEx program, not much changed since our last presentation Relating to the CapEx that was planned for 2021, the large majority was already invested, €4,200,000 has only €2,000,000 left. 2022, we only have Planned investments for such purposes of EUR 3,100,000, so Around half as much as in 2021. So and this figure has been declining since 2020. And yes, of course, we only have maintenance CapEx left for now.
And Because our priority, as we have mentioned several times in the past, currently is to continue on deleveraging process In terms of also cash flow commitments, well, we are also lighter in terms of bank debt We have no balloons due in the second half of this year, and we have EUR 65,000,000 2 in 2022, and we are already working on the refinancings of these. And quite a few of them, we expect to be able to refinance before the end of 2021. The first balloon due here is in April and all the other ones are in the second half of twenty twenty two in any case. So they are still quite distant. We are also lighter in terms of bank debt repayments.
This is also positive, not only in terms CapEx repayments, it has declined quite sharply between 2019 2020 after we terminated reimbursing the $75,000,000 Facility with Entesa, which had to be reimbursed over 5 years, and it will continue declining more gradually going forward. So that will also help us from a cash flow perspective. On the purchase options front, as we announced in the past in the recent past, we have exercised the purchase option, the high priority. We did so because this vessel, in any case, We had quite a short lease, which was going to mature in October 2022. And therefore, since we have a very we had a very cash position and we still do.
At the end of the year, we decided that it was a good idea to exercise this option to save Quite a substantial amount in interest expense because this was also the most by far, the most Expensive bareboat in we had, and the other ones are At a much cheaper cost, and they are much longer they have much longer tenants. So we are not in a hurry to exercise this, but if the circumstances are right, Because we see the market moving in the right direction and our balance sheet allows us to do so, We look forward also to exercising some of these other options and saving some money On interest expense also on also in this respect. Of the remaining options we have 8, 7, Either in the money or theoretically in the money, only one is slightly out of the money, the high trader. And yes, 7 of them are already excitable. Only the cello diffuser, we have to wait until 2024 to be able to exercise.
Going on to our TC coverage. We have been working on this throughout the Q2, Increasing the forward coverage by fixing vessels on time charter, And therefore, we have 48% coverage now for Q3, which is not a bad figure At around $15,000 per day. So that allows us to weather quite comfortably The current weak markets and this coverage declines in Q4 to 36% At an average rate of 14.8 percent around, so if we look at the second half, we are at around 42% at just below 15,000, which is Pretty much aligned with our breakeven. We have much more exposure, of course, in 2022 and 2023, But we are having exposure in each 2 years because We expect the market to be much stronger by then. As previously mentioned, the percentage of eco fleet has been rising, And it's expected to continue rising as we dispose of some of our older non eco vessels over the course of the next few years.
Here, we show the fleet evolution. We are not assuming any vessel sales here, but as We delivered some of our TCN vessels. The fleet declines only very slightly over the course of the next 2 years. However, of course, because of the decline in TC coverage, our overall spot exposure Increases and so does our sensitivity for every $1,000 per day change in the TC equivalent earnings, which is of EUR 4,000,000 in the second half of twenty twenty one and rises to EUR 11,000,000 in 2022. On the Cost side, we have also been working very hard, and we achieved Very significant savings between 2018 2020 with a slight uptick in 2021, Both on the direct operating costs and on the general and administrative costs.
On the direct operating costs, of course, we benefited also from the fleet renewal program. We have all of our new buildings The 22 vessels were built at the same group, either in Vietnam or in Korea. Having modern vessels, of course, Also helps in terms of cost savings. And also we invested in technology for condition based maintenance, which allows us to increase the average lifespans of our spare parts and also Reduce off hires by preventing failures. On the G and A front and on the OpEx front, well, on the OpEx front, we benefited in 2020.
Unfortunately, of course, from the fact that we could perform less crew Rotations, but it did lead to some cost savings in 2021. Fortunately, we can perform More crew rotations and that did have an impact on our costs. There were also some currency effects, which affected both the operating costs, but more significantly, the G and A, Because especially in the first half of twenty twenty, the U. S. Dollar was very strong.
Going on to the following page of financial structure, We are quite happy to highlight that our ratio of net financial position to Fleet market value has improved relative to December 2020 despite the losses that we Recorded this year, and this is mainly due to the increase in asset values in Q2. The market, the asset values started moving up in Q2. Also, I would say because of the increase in steel prices, which was very significant that we have been experiencing this year, of the younger vessels in our fleet. But of course, also the position prices have been moving up Quite significantly, and that provided support for the vessel violets of the more middle aged Vessels and all the 5 year older vessels in our fleet. Going forward to the following page, of course, the increase in asset values also reflects The positive fundamentals and the fact that there is an expectation that the current wheat markets won't last that long and that We will soon be operating in a much stronger market.
The in terms of financial results, a quick look at the main line items of the P and L. We lost €5,400,000 in Q2. And In the first half, it is 15.2%. So quarter on quarter, it is a big improvement relative to the 9.8% loss In Q1 this year, excluding our recurring items, we lost $5,000,000 In the Q2 of this year and $14,400,000 in the first half of this year. Despite the weak markets, we did generate a good level of EBITDA, EUR 50,000,000 in the first half of this year.
Going on to a quick look at the daily TCA equivalent results for both the spot and the uncharted vessels. Spot vessels in Q2, 12,720, I believe we did very well here Relative to the market, our vessels were properly positioned, a bit scale, a bit luck, I would say. I believe even if we look at H1, the result for the Faroe spot vessels of 11.3 It's quite strong relative to the weak markets we experienced. So we did underperform a bit in Q1 21, but we more than compensated for that in Q2. In terms of spot employment, of course, if we then include the time charter coverage that we had, That allows us to which was at above $15,000 per day, dollars 15.8 in Q1 and $15.2 In Q2 this year, this allowed us to achieve a blended rate of 39% in Q2, 2021 and of Almost 13.4% in the first half of the year, which is which I believe is actually Quite a good result given the circumstances and also, I would say, relative to many of our peers, which are more exposed To the spot market and EI.
And I pass it over to Paolo for the market overview.
Thank you, Carlos. So the market you know very well where we are coming from and I have a feeling and there is a general opinion that the market did bottom and we are entering in The period where we should see some improvements on the second half. The second half is already on, But I mean, on the actual quarter and especially on the last quarter of the year, We are seeing a recovery in demand on the refining throughputs. We think I mean, we expect that we have a recovering of 2.7 1,000,000 barrels per day between June August 2021. You know where we are coming from in terms of floating storage because When COVID started, the price of oil collapsed, everybody start buying oil.
I went even in negative territory for a couple of days, started a very strong storage program And this has been very good on the moment that they start chartering ship for the storage, but afterwards we paid that In a very expensive way, now all this is gone and the market is rebalancing from That situation. What's happening today is more vehicles are rolling in the street. People are getting vaccinated. They are more confident. We still have this delta Variable, which is of course creating some problems, but overall, I would say consumption of gasoline is certainly recovering and U.
S. Is close to 2019 levels. And even here in Europe, we see more cars in the street. What is missing to the equation is that Jeff Yoo, we are still 24% lower than 2019 In terms of commercial flights, there is some recovery, but there's still a way to go. And of course, jet is cargo missing on the market.
But on longer term, We see a healthy demand growth with a stronger participation of clean products To the seagoing, total seaborne trade from 25% in 2000, we are close to 33% in 2020, and we expect to go to 34% in 2021, 2022. So there is longer term a large potential upside on asset values Because of course, we are getting out of the negative cycle and we are rather optimistic for Future, there is a on longer term always, there is a dramatic change In the refinery landscape, older and inefficient refineries in Europe are closing down. And also in Australia and New Zealand, New Zealand lost His total refining capacity was only 1 refinery and Australia lost most of them. And we have a group, which is basically all in Middle East and in China. This is creating more ton miles, so is more demand for product carriers.
On the supply side, so on number of ships on the fleet growth, we have one Strong demolition market, which is will stimulate a lot Shipowners, we hold their ships with 20 years old, 18 years old ships to scrap their vessel. The price is very good because we are talking something around $600 per lightweight ton. And not only, but the new regulation coming in, the new indexes, which we have To match starting from 2023, creating more Pressure to recycle older vessels. So this is increasing The number of demolition candidates, most of the MR fleet It's been built in the first half of, let's say, the first three quarter of year 2000, so Up to 2,006, 2007 and so they are getting over the 15 years And we are feeling this demolition already Because last year in 2020, only 10 MR and LR1s have been scrapped. This year already 26, they have been demolished in the first half of twenty twenty one.
So the double, we did in half of the time, the double of a number. There are still limited newbuilding orders. So the supply side will be I mean, we are having a very slow fleet growth, Which is a very positive thing for us. And So we think that we have a rebound of demand that is happening because Our consumption is going up and more and more countries are at least trying, but also succeeding in many cases to go back And this will overtake demand, will overtake certain supply at certain stage, which is For us not far away in the future, we think that the second half of twenty twenty one will be Certainly, by far, much better than the first and 'twenty two will pay us back what we have been suffering up to now. Carlos?
Hello? Carlos? Yes. Sorry, I was on mute. Sorry, just a quick look at the NAV Evolution in our fleets.
Yes, this has been declining after peaking In March 2020, at $320,000,000 It troughed in the March end of March this year at 213,000,000 and it then rebounded Because of what we just mentioned, the increase in asset values to $245,000,000 This, of course, as mentioned in the past already, is based on the broker valuations that we receive Also for testing loan to value covenants on our loans And on a per share basis in the U. S. Dollar terms, the NAV per share Bounced back from 0.17 to 0.20 between the end of March and the end of June this year. So we are now trading again at a very big discount to NAV, 39%, which we deem It's excessive given the positive fundamentals that we see for the sector For the reasons we recovered, I would say, in this presentation. So the recovery is not too distant.
Maybe Some there is still a soft patch in front of us as we needed More jet fuel to be consumed, but the trend is quite clear in that respect. And we need especially some areas of the world which are a bit further behind in the vaccination programs to accelerate And that, of course, would then drive demand. And as we are seeing, OpEx seems to Be prioritizing a market in equilibrium, although probably slightly Under supplied, but they seem to be following through and adapting the to what are the expectations on the demand side, and we expect this Behavior to continue going forward. So it's really demand is the key here. And in that respect, We believe vaccination programs are key.
And yes, but The path forward is pretty clear, and we definitely expect an improving market going forward. And I believe that is it. So I pass it over to you To the question and answer session.
Excuse me. This is the Corusco conference operator. We will now begin the question and answer session. The first question is from Matteo Bonizoni of Kepler. Please go ahead.
Yes, thank you. Good afternoon. Yes, just one question. Related to the asset values trend, so we have seen a reversal finally Several quarter of slide in the asset values, you commented that this is also very much connected To the inflation of the raw materials and of the steel, just on the so we have recovered basically $0.83 in the last quarter compared to Q1 and the
loan to value has also
improved. As a result, I just want to have a About your expectation on the asset values evolution going forward, basically, do you expect it to be over? Or do you expect For the improvement of the asset value is also driven by the potential recovery area of the rates and the improvement of your reference market. Thanks.
Carlos, Obi.
No, I can go, Paolo can go. Yes. No, On the asset values, I think that the increase in the steel prices will provide support going forward, especially Well, I think on both sides of the curve for the both the younger and the older vessels, as we mentioned, but further appreciation, you correctly pointed out, will depend on better markets And on a recovery in trade rates, of course, there's an extremely strong correlation in that respect. And we expect that to happen for the reasons we covered in the presentation. The big question is When are we going to be seeing we are seeing already more volumes.
We are definitely seeing bigger, more refining throughput. A lot of this additional refining throughput is now being consumed domestically. So there isn't as much as We would hope for being transported by sea, but the additional Barrows most likely will flow through the sea, will be exported. In particular, in the U. S, for example, we have seen a very strong recovery in demand and also in refining activity, but a lot of that additional refining activity Has been focused on serving the domestic market.
So the U. S. Refineries are important suppliers To Central and South America, for example, and if we don't see demand recovering in those regions, Then the experts from the U. S. Will also probably remain a bit subdued, but That is why I was mentioning before that it is important that for us, very important that the vaccination campaigns In the emerging economies, which is currently well behind that which we have seen In the U.
S. And in Europe also accelerate. I hope I answered your question, but I cannot be more precise, unfortunately.
Yes. Thank you.
The next question is from Daniele Alibrandi of Stifel. Please go ahead.
Yes. Good morning and thanks for taking my questions. I have 2. The first one, if you can please elaborate a little bit On the reason behind the outperformance relative to the market on the spot market, the spot rate that we saw In Q2, it seems a significant outperformance relative to the Clarksons. That also I typically look at.
So if you can A little bit elaborate on this. And then the second question on the exit rate that you've seen The last over the last month, basically, if you can also give us a sense of what you are seeing. I know that Q3 is not very much seasonal quarter, but you can help us Understand how things are going given that you commented that probably the trough is behind us. Thanks.
No, I mean, as far as the spot time charter rate, We did on the first half, it's been also what Carlos said before, The result of positioning the vessel in the best way we could and the best way we try to understand the market. And of course, as I say, there's also a bit of lack in certain situation. But we are working with 3 chartering offices, 1 in New York, 1 in London And one in Singapore and we are trying to get as much intelligence we can get On the field and try to position the ships as a consequence. It's not very easy to move Ships from east to west, it is easier to move them from west to east because of edge oil cargoes And that we are moving from South America to Far East. In this exact moment, it is better to stay west than to stay east, but every month is a different story.
And where we are, I don't talk about spot rate in the exact moment because they are not Great numbers, I can tell you. But what we are seeing is a lot of A lot, I mean, quite a number of traders who are taking position for 6 months, 1 year, 3 months plus 3 months of various options. So we see all this is happening because there is From the trading oil industry and expectation of increase of demand and we are taking cover. So The demand is that to put it in numbers is quite difficult in this exact moment because the rate map I can Tell you today, this afternoon, tomorrow would be already too old. So it's a very volatile market even in a depressed But the expectation is strong because we are seeing the participant On the demand side, on the demand side that we are taking more and more cover and this means only one thing that We are seeing an improvement on the market at least over the next 6 months.
Thank you. Thank you.
The next question is from Massimo Bonisoli of Equita. Please go ahead.
Good afternoon. Thank you for taking my questions. I have two questions. One is regarding the implication of the new Package of Fit455 to stimulate sustainable maritime fuels and 0 emission marine propulsions. So what are the implications for your long term strategy coming from this new kind of regulation in Europe?
And If you are thinking to have different source of fuels as well as different source of engine for your next Few investors. And the second question is on the cash flow generation. 1st half of free cash flow generation was positive despite the weak realized price and negative income. So what would be the level of realized prices that would bring your free cash flow to breakeven more or less?
I'll pick up the first question. What we are doing today, we are testing with 1 of our main clients, So the trader called Trafigura, you certainly know. And we are testing a biofuel second generation On the actual ships, so there is no need to change engines or change the ships. I mean, on today's fleet And we are having very good and positive results on the exhaust gas and reduction of CO2 So we should probably we will be moving more and more on Bios bankers, biofuels for propulsion and this should Bring us over the first target, which is 2,030 with the reduction of 40%. Now, what is certainly happening That all this is in a way also positive for us because having a fleet of eco ships, which So being built all recently, this new implementation coming in will push More and more owners to scrap the old vessels.
So the supply side will have What we for us is a positive factor, which it should reduce the fleet growth and Certainly, it will create a better balance between supply and demand.
Yes. Regarding the second question on the free cash flow, Our financial, let's say, breakeven is actually not that far from our P and L breakeven Today, and they are both around $15,000 per day, just below $15,000 per day. So we are not that far From that figure, our time charter coverage is at around that level. And And of course, the spot fixtures aren't so but we are not that far.
Very clear and interesting. Thank you very much.
Phone. The next question is a follow-up from Matteo Bonizoni of Kepler. Please go ahead.
Thank you. Just one question. As regard to the refinancing of your balloon in 2022, which is worth around $65,000,000 Can you elaborate on the expected cost in terms of financing cost vis a vis the current one?
Yes. We started, as I mentioned Already, we have ongoing conversations with banks to refinance these balloons. We are seeing banks seem to be quite keen, the ones we have contacted so far. And I would say that the conditions we are going to be able to achieve It should be slightly better actually than in our last refinancing, where we achieved a margin of 250 basis So we should do at least as well or better, and I expect us to be able to do better than that. And the usual terms that are today available on this type of loans, so 5 year terms, 17 year profiles, age adjusted to 0.
Okay. Thank you.
Gentlemen, there are no more questions registered at this time. Mr. D'Amico?
Yes.
Thank you. And thank you very much for joining us in this Carrefco. And at this point, I mean, I hope that we are going to deliver better Better news at the next quarter. And but certainly, things are getting in one direction, I think. And As Carlos said, more people are getting vaccinated and better will be for our market.
So We must just look at really at that. Thank you very much and talk to you at the next conference call.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone. Thank you.