Good afternoon and welcome to Stainless Tankers earnings call. My name's Richard Taylor, and I will be the moderator for today's event. Please note that this conference is being recorded. You will have the opportunity to ask questions at the end of the presentation through the orange "Ask a Question" button on the right bottom corner of the player. Just a note: please note that at 3:00 P.M. London time there is a scheduled fire alarm test, which will last approximately 45-60 seconds. If necessary during the test we will mute the microphone and then continue with the presentation afterwards. Now we'll hand over to your host, Alex Karakassis, CEO, to begin today's conference. Thank you.
Thank you, Richard, and good afternoon everybody, and welcome to our Q1 2024 results call. You will have seen from the news this morning that we announced that I will be stepping down from my position at the end of June, so this is my last call presenting the results. But I'm very pleased to have with me Andrew Hampson, the CEO of Tufton Investment Management, who will be taking over the position as of July 1st. Turning to the presentation, we generated about $15.3 million in revenue in the quarter. That's slightly short of what we had expected. That's due to the TCE being slightly below our expectations. On the profitability level we felt somewhat more short, and that's because of the timing effect of certain planned annual operating expenses, and Irene will elaborate on that later on in the presentation.
Q1 ended with a very strong March, so we saw rates firming starting in March, and we're seeing very strong momentum heading into Q2. We expect the second quarter to exceed 23,000 TCE overall, and I'm very positive about what we're seeing at the moment. On the capacity front it's basically unchanged: small order book, moderate growth of the fleet, and the fleet is getting older, and therefore the backlog of vessels that are due to be scrapped is growing, and all of that we see as a positive development for the medium term. The first quarter dividend we have increased. We're proposing $0.25 a share. That is about a 20% annualized yield on the initially invested equity.
That will be decided after the annual general meeting, which we have scheduled for May 22nd, where our board is seeking the authorization to declare this dividend, and we plan to pay it on or about June 7th. Generally our outlook remains as positive as it's been in recent quarters. In particular Q2 is making us very optimistic for the rest of the year, and we continue to expect to be able to increase dividends gradually over the remaining quarters. On the slide we're showing you our pool TCE performance in the red line, and the blue line is the one-year time charter rate for J19s. You will see there at the end of last year beginning of this year we had a small dip.
As we talked about in previous calls, this was related to the Panama Canal disruptions in particular which affected us, but those are behind us, and you see the line is going straight up. We have seen a TCE of over $23,000 in April. May is actually on track to exceed $24,000 a day, and you will see from the red line we are back to the highs that we have seen at the end of 2022 and the beginning of 2023 when we first started Stainless Tankers ASA. One-year time charter rates are also moving up quite a bit and getting closer to their recent highs, and they're at $20,750 a day. So all looking very positive at the moment, and in addition I would like to say that COA coverage in the WOMAR pool at the moment is about 30% for the next 12 months.
A TCE is over 23,000, and that should give us good support going forward. On the slide which we shared with you also in our last call we're showing you the disruptions that we've experienced in both the Panama Canal and Suez Canal crossings of chemical tanker transits. You see there was quite a steep decline in the Suez Canal for reasons that I'm sure everyone is familiar with. The red line is the Panama Canal crossings, and there for both of them you see a slight improvement in transits, but nevertheless on the right-hand side the Chemical Freight Index which we constructed which is an index of 23 global routes for chemical tankers expressed in dollars per ton you see that that has been going up and is now at an all-time high.
On the next page we are showing you the blue line. Here is the same chemical tanker index which I've just shown you on the previous slide. The red line we have indexed the WOMAR pool performance, and in fact the way to understand the slide is if you look at the blue line that's effectively voyage revenue, and the red line is voyage profitability. You see when the market is very strong and very tight as it was in 2022 you see the two are very closely aligned.
That sort of correlation broke down a little bit at the end of last year and the beginning of this year when we had these short-term disruptions that I mentioned earlier, but you see the correlation is back, and the continuously growing freight index or rising freight index is pulling TCEs up and putting upside pressure on earnings as well. As we have these disruptions and more capacity is used for transporting cargoes, same cargoes are transported over longer distances, that obviously takes capacity out of the market, and therefore that is putting upside pressure on TCEs. And we expect this gap here to continue closing, and it's giving us that's the main reason why we're optimistic over the next couple of quarters. As I mentioned on the supply side this chart is more or less unchanged to last time.
We've seen virtually no orders for new vessels in this vessel size category which is 10,000-25,000 deadweight tons. It's at about 7% of the order book is about 7% of the global fleet, of which there are 15 vessels. Delivery times are still up to 3 years, and removals is something that we expect to start growing over the next couple of years. We've seen virtually none last year, but the average age at scrapping has grown to approximately 28 years, so inevitably even if the market remains relatively strong over the next 2, 3 years there should be some scrapping activity. In any case we don't see the fleet growing more than about 2% until the end of next year. That's below global demand growth of approximately 3%, which is global GDP growth, and the chemical tanker market as we discussed before closely tracks global GDP.
So on the supply side both new vessels entering the market but also the other factors, the disruptions that we've talked about before which in an indirect way remove capacity from the market, very much in place, and therefore the supply-driven upswing in this market is very much still at play here, and that makes us very positive. So on the next slide I'd like to pass over to Irene, our CFO, to give you the overview and the highlights of the performance for the quarter. Irene?
Thank you, Alex. We will now provide an update on our financial performance for the quarter. During the first quarter of this year we had full ownership of our fleet. Our utilization stands at 97%, and this is due to the higher days for the dry docking of the Orchid Madeira. The Orchid Madeira completed her third special survey on April 17th at a cost of $1.3 million, and we're pleased to report that the cost is in line with our planned budget. The dry docking went smoothly, and we are satisfied with the progress. At the same time, when the Orchid Madeira completed her dry dock, the Orchid Sylt went into dry dock. The progress looks good, and we expect that the cost will align with our planned budget.
Furthermore, the dry docking of Orchid Sylt is expected to be completed a few days earlier than anticipated, and in addition to this, I would also like to mention that there will be no further dockings for the rest of the year. In terms of fleet employment during the quarter, one vessel was on TCE, which was subsequently transferred to the WOMAR pool on May 6th. Our net income of $3 million was impacted by approximately $700,000 due to the timing of planned annual operating expenses, and we expect these expenses to be absorbed over the course of the year. Regarding our fleet's values, we note that our fleet's market value stands at $162.5 million, which is approximately $23 million higher than our fleet book value.
Additionally we note an increase of approximately $7 million in our fleet's market value compared to the end of 2023, resulting in a decrease in our leverage ratio to 50.3%. It's also important to note that our increased fleet values has led to an NAV of $88.8 million or $6.58 per share, which is equivalent to approximately NOK 71 per share. And finally restating Alex's earlier statement on the call we propose a dividend of $3.38 million or $0.25 per share, which represents an increase of $0.25 per share from the previous quarter. Now I'll hand it back to Richard so that we can conclude our presentation and address any questions. Thank you.
Thank you, Irene. Just as a reminder, if you would like to ask a question or make a contribution on today's call, please just send your questions through the Ask Question button on the right bottom corner of the player. Okay, Alex, just ask one question: how the product tanker market is performing relative to chems?
Thank you. The product tanker market is performing also very strongly, and that's something we're tracking quite closely because part of the supply side dynamics that we see is the swing tonnage, which is leaving our markets and trading in the product tanker market, and that is helping our rate. If you like the three factors of the supply side story has been few new deliveries of vessels, disruptions which mean that cargoes have to travel longer distances, and swing tonnage sort of getting out of our market and therefore helping to push our rates up. So we track this closely, and we see no changes in that dynamic in the short term, but I'll pass to Andy if you want to add any on this one.
Sure, sure, sure, Alex, thanks. I think within the broader Tufton fleet we have a number of product tankers both in the MR and the Handysize sector. I think the geopolitical pressures particularly from the situation in Ukraine have caused a lot of changes in the distribution, sourcing, and using of oil product, and we see that as if it's not a permanent change it's at the very least a semi-permanent change, whereas hopefully some of the other issues going on at the moment in the Red Sea are less permanent. We see a very strong medium-term product tanker market as a result of the Ukraine situation which will continue to suck that tonnage out of the chemical tanker sector, and therefore we believe that both sectors will continue with strength over the foreseeable future.
Okay, our second question asks: how many off-hire days do you expect in the second quarter?
Irene, is this a question you can cover?
Yes. Thank you, Richard. We expect approximately 45 days.
That's mainly due to the.
That's mainly due to that part of the off-hire days for Orchid Madeira until she completed the dry dock, and part of the days relates to the Orchid Sylt which the dry docking started in April and expected to be completed in the following days.
Okay, our third question is: at which rate would you consider entering time-charter contracts?
Let me take this one. We do monitor this very closely. We have built our thesis here on TCEs somewhere between $20,000 and $25,000, is our target to achieve the returns we are targeting. We feel if the time-charter market gets a bit stronger from here we will definitely consider it if we can achieve something in the mid-$20,000s, so low $20,000s, somewhere in the middle of that range that I mentioned, we will definitely consider it. We're keeping a close eye, and there have actually been some discussions in this regard. We just haven't been able to yet get to the levels that we think will convince us to do so, but we are definitely considering locking in some of the good market for the next 12, ideally 24 months, when that opportunity comes up.
But at the moment where the time charters are, 1-year time charters or in particular 2-year time charters, let's say around about the $20,000 level for vessels of our vintage which are non-eco vessels and not quite there yet where we feel we should be locking it in, but we're keeping a close eye on that.
Okay, our fourth question asks: Would you consider selling some vessels before 2026/27 if attractive offers, and if so, would a special time dividend be most likely or increase in the quarterly dividend? Finally, how much cash do you expect to set aside in 2024 for the Q2 SPS and the SPSes in 2025?
That was three questions, Richard.
It was, yes.
I mean, let me start, and Andy please feel free to chip in on this one, but would we consider selling some vessels before 2026 and 2027? Absolutely. The prices have been moving up strongly. As Irene presented earlier, our fleet value is moving up, and we see it in the market, and the requests are coming in. It's a very tight market, and yes, there will come a time in the not-so-distant future, I think, where we will have to look at it very seriously with some of the ships. Then the second part of the question, yes, a special dividend, that's the intention. I mean, if we were to sell a couple of vessels in a year from now we would pay that money out as a special dividend as our dividend policy states. So that is currently the intention.
That's part of the original strategy, and this has not changed. So yes, that would be a we would pay out as a special dividend. How much money are we setting aside for dry dock? So the dry dock reserving is happening for next year is happening this year, mostly in the later part of this year. The arrangements we have or the agreement we have with our lending bank is that we start reserving for dry docks 12 months in advance, so in four equal installments we set aside the money, and we would be doing a lot of that later on this year. The positive thing here is that we have no vessels to be dry docked after the Orchid Sylt has come out of dry dock soon. For the remaining of the year we have a strong year. We have good cash flow.
We have no off-hire planned off-hire days for dry dock. So it's actually quite a good time to set that money aside, which will then take the burden off 2025.
I think it's fair to say then, Alex, that all of those numbers for the provisions for the docking are taken into full account when we're looking at our dividend expectations going forward, and so therefore we don't see any of those provisions negatively impacting on any of our future dividend distribution expectations.
Yeah, so the statement I made up front where I said we continue to expect the rest of the year to be positive, both in terms of earnings and our ability to gradually increase the dividend, absolutely takes all of that into consideration. If we didn't have to make those provisions I think we would pay a very attractive dividend to shareholders, but nevertheless we will still pay an attractive dividend despite putting this aside on the assumption that the market continues as we see the development that we see over the next 2-3 quarters.
Okay, our next question asks: if there is a resolution in the Middle East that reopens the Suez Canal how much does that hurt rates?
Do you want me to say that?
Yeah, sure.
I think as I said before I think that the real transformation that we've seen in the product tanker market and therefore also the chemical tanker market has been as a consequence of what's happening in Ukraine more so than as a consequence of what is happening at the moment in the Red Sea and the Suez Canal. The number of chemical tanker transits through Suez is not a major trade component of Red Sea-Suez traffic. Just incidentally, the main areas that are impacted there are actually the container sector and the car carrier sector are the main users of the Suez Canal. So yes, there will be some impact because it will follow through from the product side, but we do not see that as being a material impact on the current freight rates.
Okay, our next question asks: will all the vessels trade in the WOMAR pool going forward?
Well, for now they are. They are now all in the WOMAR pool with the exception of the Orchid Sylt which is in dry dock at the moment but coming out very shortly. Every vessel will be in the WOMAR pool, and we intend to keep the vessels there right now. As I mentioned earlier, answering the other questions around at what levels do we consider time charters, until that moment comes that's where the vessels will be. But we do have the flexibility and the understanding also with the pool that we will consider time charters if it makes sense for the company.
We may consider time charters within the pool environment.
Yes, and we have the ability to do this through our commercial manager who's WOMAR, and therefore we are 100% aligned here to take advantage of attractive time-charters when they come up. We do prefer to look at more than one year. So ideally when we lock away now a vessel on time-charter at rates that we're happy with, that can deliver the returns we set out to deliver with this investment, we'd like to at this stage maybe go longer than one year, ideally two or even three years with some of the vessels and keep the others in the pool. So yes, we will assess that on a quarter-by-quarter basis.
Now that this company is fully developed over the past year, many of you have been part of that journey, you will have seen quite a lot of changes with the fleet being bought into the company with two additional vessels being acquired with us transitioning vessels from a legacy pool and time-charters into the WOMAR pool. The focus now going forward in a stable setup that we have right now is very much that, is staying very close to the market and making those decisions both on do we lock in any time-charters or should we sell a vessel or two or even more when the right time comes. That's the key focus going forward, Andy.
Absolutely. No, I agree with you totally. We're totally happy with WOMAR as the commercial manager of the vessels. The pool is operating very well. We look frequently comparing WOMAR pool results with other peer groups, and we're very happy indeed with the performance and the relationship with WOMAR. And indeed, maybe just worthwhile saying as well that I've had quite a longstanding relationship with WOMAR prior to Tufton's involvement in Stainless as well because Tufton has had ships in WOMAR's pools prior to Stainless. So it's a relationship also that I've developed over the years as well, and at the moment we see no reason whatsoever to change that.
Okay, our next question asks: assuming that TCE rates reach mid-$20,000s how many vessels are you willing to put on time-charter contracts?
Yeah, thanks. I mean, I think we've answered this question in part before. Mid-20s, if it is attractive time-charters, i.e., even longer than one year, quite a few. I don't want to commit to a number. Obviously, I'm leaving the company at the end of June as well, but based on the discussions we've had here and we've had very close discussions also with Andy before, I think we will take advantage of it. That's what it is.
Yeah, we'll definitely take advantage. I mean, we'll clearly look at the commercial strategy very closely, and if we do get into a position as Alex says where time-charter rates to good quality counterparts are there at rates which are above our initial expectations and our initial underwriting for Stainless, then clearly we're going to be clearly we're going to be locking in. I think the extent of that, i.e., the number of vessels that we would look to actually put on the contracts, is clearly going to be determined at the time depending upon what the rates actually are, and I think more importantly the duration and the counterparts. But I mean, clearly we're very conscious if we're locking away rates long-term that we need to have a strong that we need to have a strong counterparty for that.
So I think we'll play that one by ear as it actually comes about, but mid-20s, as the question suggests, would be a very attractive rate. I think just to put it in context, Alex, the latest numbers we've seen are low 20s for one year, for one year South America trading which has a slight premium because there's higher operating costs in that area.
Yeah, it was very low 20s with some issues attached to it, so.
Yeah, maybe high teens is maybe normal is maybe the normal market at the moment, and I think that so I think actually getting to the mid-20s level I think might be slightly maybe slightly ambitious. I think just I'm just going to preempt our fire alarm test which was most likely going to happen.
Okay, this should last about 45-60 seconds, and the conference call will continue. So just as a reminder, if you'd like to ask a question or make a contribution on today's call, please send your questions through the Ask Question button on the right bottom corner of the player.
Okay, we're back.
Oh, crap. I hope there's never a fire at 3:00 on a Wednesday. Okay, Richard, sorry, back to you.
No problem. Well, we haven't had any further questions, so I'll now hand back over to Alex for any closing remarks.
Thank you, Richard. I think this being the last call all that's left for me to say is to thank everybody for the trust they put into Stainless Tankers and investing in our company. For me, it's been a privilege to be part of the Stainless Tankers journey since the beginning and now 18 months and counting. But I'm also very pleased that Andy is taking over, and Andy is obviously, through his extensive experience, track record, and his position as CEO of Tufton, the ideal person to take over the leadership of Stainless Tankers going forward. So thank you very much and all the best is all I can say at this point.
Well, Alex, thank you very much. I'd just like to add to that, I attended yesterday's Stainless board meeting as a guest in anticipation of the announcement that we made overnight, and I'd just like to reiterate the fact of the message given by Ted Kalborg, the Chairman of the Board, on behalf of all of the directors, thanking Alex very much for his dedication and his contribution towards getting this off the ground. From Tufton's perspective, I reiterate that it's been great working with Alex for the last 18 months, and indeed in the first instance, I think you and I did the vast majority of the investor calls together on this. I look forward greatly to continuing the good work that Alex has already put into this, and I'm sure we can make a success out of it.
Thank you, Andy.
Sorry, just one last question just coming in about how active is the second-hand market in this sector. It has got a lot more active recently. I see TRF just sold a third of their 2016 vintage recently, and the values have been jumping up with each progressive sale. I think the way we look at vessel values within Tufton is looking at new building replacement costs, looking at what we call depreciated replacement costs. So we look at the replacement cost of new tonnage, and then we look at it on a depreciated basis for age. There is a direct correlation between second-hand values and new building values. New building values are up 22% in the last 2.5 years. There are inflationary pressures on steel, dollar-denominated Asian labor, and predominantly European equipment which are the main components of these types of ships.
So there are increasing inflationary pressures on new building prices, and that in itself will then lead through over time to continued upward value pressure on second-hand tonnage. So I think that was the last question that's come up there.
Yeah, we get requests. There's definitely upward pressure at the moment, and this increase in the fleet value that we reported to you today, it was a snapshot at the end of March. It's up from there already. So this is a strong market.
Reflected in the rates.
Yeah.
Well, Alex, thank you very much indeed for all the work you put into this.
Thank you. Thank you, everybody. I think this then concludes the call.
Thank you for joining today's call, and you may now disconnect.
Thank you.
Thank you.