Hello, welcome to the Stainless Tankers earning call. My name is Richard Taylor, 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, which is found on the right bottom corner of the player. I will now hand you over to your host, Alex Karakassis, CEO, to begin today's conference. Thank you.
Thank you, Richard. Good afternoon, everyone, and welcome to our first results presentation. During today's call, we wanted to spend a little bit of time to give you a brief overview of our financial performance during the second quarter and the state of the market that we operate in, and to give you a chance, of course, to ask any questions that you have. The, the second quarter was very much of a transition quarter for us. After completing the private placement in the, in the first quarter, we spent the second quarter acquiring the seven vessels and bringing them into our fleet. The first one we acquired, and we closed on the 12th of April, and the last one on the 29th of April.
Therefore, we did not have the full fleet in our ownership during the quarter. We had it in our ownership for approximately 58% of the days in the quarter. However, we had the agreement with our sellers and the, the purchase agreement we had signed, we would receive the economics from the `1st of April, from the beginning of the quarter, and hence, we received approximately a total of $2.2 million in the form of vessel price discounts. Those, of course, are a balance sheet event. They don't flow through the P&L. Hence, the revenue and profitability you will have seen in our financial results are not representative of the full quarter. That will, of course, change in the third quarter. We want to talk a little bit about the market.
The market in the second quarter eased a bit from the very strong previous six months, the fourth quarter of last year and the first quarter of this year. However, it has stabilized at very healthy levels, and we see, and we have reasons to believe that we will see a better market, we will see it reaccelerate into the end of the year. We'll talk about that in a second. The fundamentals are still there. The story remains primarily a supply-side story, which remains constructive, even though on the demand side, global GDP has been revised down a little bit.
The China reopening recovery wasn't quite what we expected it to be, but nevertheless, we think the outlook is still very strong, and therefore, we're in a position to pay a dividend. Erol will talk about that more in detail later on. In a nutshell, we're proposing to pay $1.7 million, that's $0.125 a share. We will get this approved and hopefully at an EGM on the 24th of August, which has already been scheduled, and we anticipate to pay it at approximately or around the 31st of August.
Current rates, I think, are, still give us, stable cash flow and, growing cash flow into, the end of the quarter, which I think will be, will be solid. However, starting next year, the outlook, is looking, very good, and we believe at, at current rates, we can achieve, much higher, free cash flow yields, and again, Erol will elaborate on that later on. On this slide, we have shown you on the left, the blue line, which is the Womar J19 pool net TCEs over the years, and the red line is the one-year time-charter rate , as, reported by Clarksons.
You will see that easing in the second quarter, quite noticeably, you will also see that we have bottomed and we see a pickup going into August and into September. Generally speaking, market participants see the market, the spot market in particular, having bottomed, and slowly moving sideways and reaccelerating into September and beyond. Importantly, you will see that that bottoming happened at a level which was the peak of the previous cycle in 2016, which we think is encouraging. If you look at the one-year time-charter rate , which is at about $18,500 a day today, that has, you know, we believe, stabilized as well at much higher levels than the around $16,000 we saw in the previous cycle.
We will transfer our vessels into the Womar pool by the end of September. At the moment, our spot vessels, our pool vessels are still in the Stolt pool. We anticipate to transfer all four vessels into the Womar pool by the end of September. We also have one of our time charter vessels coming off its legacy time charter at the beginning of September. That vessel will transfer in as well. So by the end of September, we should have five vessels in the Womar pool, and there is one further vessel in the fourth quarter of this year, and the last one at the end of March of next year. We are obviously also in frequent discussions with our pool partners....
and we see a very positive signs also from the Womar side, in particular, considering the attractive COA book that they have, that this uptick that we're seeing at the moment going into September, will continue and strengthen actually in, in the fourth quarter. The outlook, we think, is positive, and we feel very good about going in into the second half, in particular, into the fourth quarter.
On this page, we wanted to update you a little bit on the supply side and fundamentals, which remain largely of a similar nature, or the picture remains similar to what we presented at the beginning of the year, even though the order book is off of the record low we saw at the beginning of the year, which was 4% at the time. Now we're at 6%. There's been a little bit of ordering of new buildings, even though when we analyze the data, we see that the ordering actually has happened primarily in the smaller vessel sizes of 11,000-16,000 deadweight tons. Hardly anything in the J19 vessel category.
What you see here is the order book and, and the fleet development for the 10-25,000 deadweight ton vessels. The red line you will see shows the the net fleet growth, which for the next two-three years on average, comes to about 1% annually, which is still well below the anticipated global GDP growth, which as we've discussed in the past, is very much the chemical tanker market or the chemical trade is very much linked to the global GDP growth on the demand side. We feel quite good about that. The other two factors or supply factors that we've discussed in the past, one of them is the dislocations of trade routes because of the Ukraine war. We see that unchanged.
At the moment, if you look at growth of ton-miles in the tanker market at the first half of this year, the numbers are in the 8%-10% range. Therefore, we don't see any, let's say, capacity coming indirectly back into the market from ton-miles decreasing. Equally, swing tonnage on, from the product tanker side, we have not seen come into the chemical tanker market, structurally, only opportunistically. With that market strengthening recently as well and, and rates remaining overall, generally healthy, we don't observe any, any changes and therefore any, any structural changes on the supply side.
All three supply side factors that are part of our supply thesis remain intact, and on the demand side, we feel that is still relatively healthy, even though it has you know, global economy is probably slowing a little bit, and China has been a little bit of a disappointment. Nevertheless, that was not the key part of our thesis, and therefore, we feel this market is still very healthy and well supported going into the end of the year and the next year in particular. With that, I'd like to pass to Erol, who will talk a little bit about our financial performance in more detail.
Thank you, Alex. Turning to page seven of your investor presentation, I would like to call out a few key points during the second quarter. As a bit of a reminder and, and, and restating what Alex mentioned at the beginning of the presentation, firstly, we took delivery of our fleet throughout the quarter, and therefore, we had 372 available days out of a possible 637 calendar days, or 58%, had the fleet been fully delivered at the beginning of the quarter. We raised this point as to show that revenues down to our net income do not yet reflect the full earnings power of the fleet once delivered for a quarterly basis in the current environment.
Additionally, looking at our, looking at our results, where we produced net income for the quarter of $1.2 million on revenue of just over $6.6 million, I would like to remind our investors that these results are still based on three vessels remaining on legacy time charters, which were placed on a blended rate just below $15,000 a day. As Alex shared, as a reminder, two of these three vessels, currently on time charter, will come off in the second half of the year, giving us confidence that overall fleet performance will continue to improve in the current environment.
Additionally, we're encouraged as our vessels begin to enter the Womar pool later this year, based on their current outlook, which stands above the $19,274 per, per day achieved during the second quarter by our vessels in their current pool. It is important to point out that the Womar Stainless Tanker pool is currently comprised of 38 vessels, and given its healthy COA coverage, gives us good optimism that our net TCE top-line results will continue to improve in the coming quarters ahead. Bringing us to liquidity, we ended the quarter with $6.4 million of total cash and cash equivalents, which includes $2.3 million of restricted cash and cash held as CapEx reserves for upcoming dry docks scheduled within the next 12 months.
Against this backdrop, I'd like to now spend time discussing a little bit about our proposed $0.125 dividend per share, which is in the form of $1.7 million. We feel comfortable with this proposed amount. As Alex mentioned, our fleet was purchased at a further $2.2 million discount than originally forecast, due to the delays of their transfer of the vessels, which occurred after April 1st. As we've taken our $1.2 million of net income in the quarter, and we've thought about the current earnings environment, we feel quite comfortable that this dividend, you know, is, A, prudent, and B, can also increase in the coming quarters ahead. Turning to page eight.
We wanted to provide some further details around our current operating metrics, namely our levered breakevens, and our expectations for how these costs should continue to decline in 2024, which in turn should further help increase and gives us confidence that our free cash flow generation will continue to improve as we look into the quarters ahead. This is first and foremost, primarily a result of our quarterly debt repayment schedule, which is scheduled to decline from $3 million quarterly in the second half of this year to $1.5 million quarterly beginning in 2024, resulting in our estimated debt servicing costs to fall from approximately $7,050 per ship day today, to $4,300 per ship day in 2024.
In total, we estimate our, our total levered breakevens can reduce by an approximate $3,000 per day, which in turn should help increase annualized free cash flow generation by a further 10% looking into 2024. In conclusion, given these tailwinds and this current earnings outlook, we are quite pleased with our current financial position and more importantly, our future. With that, I would like to turn it over to our moderator, Richard, and open the floor up to any questions.
Thank you, Erol. 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 a Question button on the right bottom corner of the player. We've received several questions. Our first question is: $2.2 million in vessel price discounts not reflected in the P&L. Where is this reflected, or will it be in quarter three? Could you please reiterate?
Yeah, maybe I'll take that one, Richard, or Alex, you know, feel free to jump in at the end. You know, a clear answer there, that's a, that's a balance sheet impact, so what it's the way it's reflected is through our balance sheet in a reduced purchase price of the vessels, so that's why you don't see it flow through from a P&L perspective. The cash savings, importantly, the $2.2 million, do reflect as a cash savings to us at the company level.
Okay, question number two, from Øystein Vaagen: Can we expect a weakening in the third quarter in line with general tanker markets before what should likely be an upswing throughout the winter?
Alex?
I'll take this one. We expect the third quarter to be roughly in line with the second quarter in terms of TC performance, plus or minus a few hundred. It's difficult to say at the moment, but we don't, we don't see any further weakening. It's every market participant we speak to gives us the same message. Both are the pool where we are currently have our vessels and from the Womar pool, it is a sideways market is basically the message. However, there seem to be sort of, let's call them the green shoots for an uptick and an upswing in the market in going into the fourth quarter. We see that from some forward bookings.
We would expect, and again, I'll take that with, of course, with every pinch of salt. There is, a similar quarter, as a second quarter. Of course, in the third quarter, we will have all vessels in the fleet, so, but on a relative basis and a, and a, and a TC performance basis, not much of a difference to the second quarter. For the fourth quarter, we do expect, an improvement. Now, how much of an improvement is still difficult to say, but the, the, the, the signs and the indications are, and what we, discuss with our pool partner and pool partners, we, we think we will have a better fourth quarter than, than our third quarter. How much that I'd like to leave open for now.
Okay, question three from the same guest is: Can you please give an update on asset value, as it is less information out there, liquidity, compared to traditional tankers? Given the easing in rates, has this impacted values?
I'm happy to take this, Erol. Feel free to, to, to add to what I have to say. Now, we've seen, you know, in line with the softening of rates in the second quarter compared to the first quarter, we have seen recently values adjusting a bit down as well. I'm talking about secondhand values. It, you know, we, we don't, we don't do an asset valuation every quarter. We, we follow the appreciated book value principle here as a company, but from what we see, our fleet is fairly valued compared, the book value of our fleet is fair value compared to where secondhand prices are at the moment.
Okay, question four from the same guest is: How has ordering been in the space? Tanker space has seen some upticks, anything within the J19s?
Yeah, the, I alluded to that a little bit earlier on. On this page, you see, if you compare this chart to, to what we had presented at the beginning of the year, there, there are more ships on order, not a lot, but there are some more ships on order. When looking into the detail of it and, and what kind of vessels were ordered, we find hardly any J19s. We've seen some stainless steel tankers in this mid-size category, at the lower end of this mid-size category, in the 11-13, call it, or 11,000-16,000 deadweight ton category, which perhaps is also the, the older vessels in the market. We've seen some ordering, or most of the additions to the order book in that category.
J19s, I believe, I think I've seen one, in the last three months, not more than that. It is, it is still, you know, the ordering activity is still low and, and sort of in line with, with our thesis that we communicated at the beginning of the year, which is, you know, shipyard capacity for this kind of vessel is, is, is limited. The issues around propulsion technology and what kind of vessel to order for the future is keeping people from ordering larger vessels and, and more expensive vessels. That's an important decision.
Okay, question five, on dividends. Could you please again reiterate your dividend policy and how you decide the quarterly dividend?
Erol, is that one you would like to take?
Sure. Yeah, so our dividend, the company's dividend policy is to distribute all free cash flow to investors in the form of capital returns. You know, with that in mind, we, alongside the board, in determining any proposed amount, do take into account upcoming events such as dry docks, other costs, or debt servicing requirements, both in the current quarter as well as in the future quarter. It's not a, a, a payout policy that is a, a percentage of net income generated, but it is rather a, a, a, a statement and a, and a, and an ability to pay out free cash flow, you know, full amount free cash flow to our investors on a quarterly basis.
That's why you see in this first quarter, we are paying out more than net income because it takes into account the purchase price discounts. With that said, maybe, Richard, if it's okay, I'm also seeing the next question. It does tie into this around working capital requirements. You know, I, I do want to take from that- from the next question as well, what will the working capital requirements be for the vessels that go from TC to the spot pool? This plays into our dividend thinking quite readily. Specifically as our vessels enter the Womar pool, they will contribute $350,000 of working capital for each ship.
When we think about our dividend and this $1.7 million that we're proposing for the second quarter, A, we see it as continuing in nature. B, we're already, you know, being able to evaluate and look at possibilities should rates continue in the current environment, that it's a sustainable amount and can even grow from here. That includes the fact and the costs of working capital requirements that will naturally be part of our modeling, as we think about our pool- our vessels moving from TC to spot. That, that thinking and that planning from a working capital perspective is also being done here when we think about the sustainable dividend rate. Alex, is there anything you'd like to add to that?
Just one small thing on working capital. It's true, we have to contribute to working capital, and it does have an impact in that regard. However, also the the payout structure of that pool is more favorable, hence, we have a more attractive cash flow profile from that pool in terms of timing of payout. Hence, that offsets it to some extent. I see the second part of the question, what is the expected dry dock for 2024? We have two vessels to be dry docked only next year, and those are for our third special survey.
We haven't made specific budgets yet, but we believe it's going to be in, in around, you know, $1.2 million-$1.4 million per vessel. That, you know, we cannot be very specific at this moment. It depends a little bit on the condition of the ship when it goes in, but that's sort of roughly what, what we're anticipating at the moment. We will, you know, we will have further updates on that when we get closer to the time.
Okay, question number seven. Given higher Womar pool share going forward, as you stated, you expect company average TCE to rise to, to rise going forward. Is this true even though market rates have somewhat eased in the third quarter, i.e., rising average TCEs in quarter three and quarter four, assuming a stronger winter on the latter?
Yeah, let me, let me, try to have a go at this question. So the Womar pool, you know, we've shown you the rates where they are at the moment. They've ticked up. They're at the moment, it looks like August is going to be somewhere between 20 and 21. As I mentioned, the outlook going into the end of the year and beginning of next year is very positive. Part of that positive or part of that optimism is driven by a very attractive COA book, contracts of affreightment that were fixed by the Womar team earlier this year, that run well into, well into next year, at rates that will support a higher TCEs.
Even if the spot market becomes significantly weaker, those COA rates are in the range of, call it $22,000-$24,000 a day. That will provide significant support to TCEs, even if spot market weakens. We feel quite good about moving our ships into the Womar pool. And, that's for both the four vessels in the Stolt pool, which is, of course, also a very good pool. More importantly, when we move our time charter vessels, those are on average in the mid-14s, legacy time charters. If they enter and they earn $20,000 a day, then obviously that will bring up the overall average TCE that we generate with our fleet.
Okay, the second part to the same question, and a follow-up on the latter here: Is it fair to assume a rising EPS should see rising DPS?
Alex, should I?
Yeah, go for it.
Yeah, it's very fair. We, we see rising earnings per share outlook as directly contributing to rising dividend per share outlook. I'd even go, you know, one step further when we look into 2024, from a debt servicing cost component with our quarterly scheduled debt repayments falling from $3 million to $1.5 million, we actually see rising DPS, dividend per share, outlook just on its own right. While we, of course, do see rising EPS or certainly in the current environment with the current outlook. Yes, good question.
Yeah, if I may add to that, I mean, the dividend-paying capacity is very significant next year. If we consider a, let's call it mid-13s, all-in break-even rate at $20,000 a day, that's $6,500 of profit per vessel per day. It's a simple math that you can run on these seven vessels for the year. That gives you significant cash flow, most of which we plan to pay out as dividends. And the dividends, I'd like to sort of point out again that are returns of capital. And hence we will pay excess cash flow beyond what we require to run our operations, you know, manage our CapEx.
Anything in excess, we will return to shareholders, as repayment of capital.
Okay, we have question eight from Mitchell Sachs: When will each of the seven ships go into dry dock, and how many sailing days will be lost?
Let me cover next year, Erol. Feel free to add to that. The first vessel is scheduled for next year in February, and the second vessel is next year in April. There are no other dockings for, for next year. Each docking should take, give or take, 30 days. We're, we're anticipating most of the dry docks then happen in 2025.
Okay, question nine from Ola Størberg : Could you elaborate more on the situation in China, both in terms of demand and how their increased capacity for producing chemicals may affect their imports?
Yeah, i, this is a tricky one for me to answer 'cause we don't have a lot of data. What we hear from, from our pool partner, and, and from Womar is that, you know, the product is moving in and out of China. Not as strongly as, as we expected, but product is moving in and out of China. It's not the weakest market out there, let's put it this way. It, you know, it's very difficult to predict now with the situation in China, how this situation will evolve over the next three-six months or even one year.
At the moment, we, you know, we don't see the big, we don't see the big, let's say, growth in, in, in demand and the big, reopening, impact, that, that we hoped for, but we're also not seeing a weak Chinese market.
Okay.
Yeah.
Question 10 from Eric Andreas: Can you remind us what the cash breakeven and P&L breakeven is for the fleet?
Sure. maybe, Alex, I'll...
Yeah.
I'll, I'll take this one.
Go for it.
I'm referencing page eight of the investor presentation. We've tried to lay out our breakeven costs, our levered breakevens, and all of the components, and we see that as just under $16,500 per ship day currently. Importantly, that's dropping by, you know, around $3,000 per ship day as we look out into next year. $3,000 per ship day, that's where we get, you know, speaking to the dividend per share comment earlier, we're seeing, you know, 10% free cash flow yield generation and uptick as we look into next year, just on that decrease in levered breakevens, looking, looking out into the future.
Yeah.
Good question.
Yeah, in a nutshell, I mean, if rates stay where they are, we will double our free cash flow, and therefore, we can double the dividend that we would otherwise pay.
Yeah.
With rates staying where they are. If the rates improve further, then we will all be very happy next year.
Okay, question 11 from Mitchell Sachs: The dry dock cost you mentioned was lost revenue and repair costs or just the cost of repairs?
No, this is the, the CapEx, not counting off-hire days. This is basically the, the, the cash out that we would have to pay to the yard. There's, you know, you're, you're very right, the 30 days that I mentioned of off-hire, that would be lost revenue.
Okay, we've received no more questions, so thank you for joining today's call, and you may now disconnect.
Thank you.