Earnings Call: Q4 2018

Feb 19, 2019

you for standing by, ladies and gentlemen, and welcome to the EuroDry Conference Call on the 4th Quarter 2018 Financial Results. We have with us Mr. Aristides Pittas, Chairman and Chief Executive Officer and Mr. Tasos Aslidis, Chief Financial Officer of the company. At this time, all participant lines are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise the conference is being recorded today. And I would now like to pass the floor to your first speaker, Mr. Pittas. Please go ahead, sir. And thank you all for joining us today for our scheduled conference call. Together with me is Tasos Aslidis, our CFO. The purpose of today's call is to discuss our financial results for the Q4 period ended December 31, 2018 and our full year 2018 results. In May 2018, Euroseas contributed to EuroDry its drybulk fleet of 6 vessels, 1 Ultramax and 2 Kamsarmax vessels built between 2016 2018 and 3 Japanese built Panamax vessels built between 2 100, 2004. EuroDry was spun off from Euroseas on May 30, 2018. The results in this presentation refer to the drybulk fleet for the periods presented. Please turn to Slide 3. Our income statement highlights are shown here. For the Q4 of 2018, we reported total net revenues of $7,000,000 adjusted EBITDA of $3,500,000 and adjusted net income attributable to common shareholders of $700,000 Basic and diluted earnings per share attributable to common shareholders for the Q4 of 2018 was $0.31 per share. Our CFO, Tasos Aslidis will go over our financial highlights in more detail later on in this presentation. Please turn to Slide 4 for our chartering operational and sale and purchase highlights. We recently announced the acquisition of Star of Nippon, a Panamax sized dry bulk carrier of 75,000 deadweight built in 2,004 in Japan for $10,100,000 The vessel was delivered to us on 30th November 2018 and renamed Starlight. The ship was immediately chartered out with earliest redelivery in July and latest in October 2019 at $9,000 per day for the 1st 40 days and thereafter at 100 percent of the BPI 4x charter route index. Our Pantelis was fixed for a trip of about 20 days at $11,000 per day on November 9. Thereafter, it was fixed for a trip of about 50 days at $9,050 per day and following that fixed for a further trip of about 20 days at $5,500 per day. The Tasos was fixed for a trip of about 30 days at $7,750 per day from December 13th and then fixed for a trip of about 60 days at $12,250 per day plus a ballast bonus of 225,000 dollars which should result in about $7,000 to $7,500 per day average time charter equivalent for the duration of the voyage. During the Q4 of 2018, the drybulk market was by the continued uncertainty caused by the trade tensions between the U. S. And China. Charter rates weakened throughout the quarter as can be seen by our fixtures during this period and further declines have been registered in January February 2019. In this environment, we have timely secured FFA contracts to cover the majority of our vessels with fixed rate contracts during 2019. As a result, in the Q1 of 2019, we have covered the equivalent of 1.3 Panamax vessels at $11,950 per day with an FFA. For the 2nd and third quarters of 2019, we have covered the equivalent of 3 Panamax vessels at $11,261 per day and $11,128 per day respectively. For the Q4 of 2019, we fixed the equivalent of 2 vessels at $11,192 per day. It should be noted that there are size, route and other important differences between FFA contracts and physical charters. Notwithstanding the need to post cash margins which may increase if the market changes against our positions. Our initial margin for these positions was about $1,000,000 which could now withdraw if needed as the drop in the markets provides us with unrealized yet gains. There were no dry dockings or repairs during this quarter. Please turn to Slide 5 for a current snapshot of EuroDry's fleet. Including the Starlight, EuroDry comprises now of 7 drybulk vessels with a cargo carrying capacity of $528,000 deadweight and with a fleet average age of 10.6 years old. Slide 6 shows the employment schedule. As you can see, effective coverage for the remainder of 2019 stands at about 66%. Having secured the 2 Kamsarmaxes until mid-twenty 20 on profitable rates, we are pursuing the strategy of employing the remaining 5 of our vessels on short term contracts, index linked contracts or even pools, but have secured the equivalent of a bit less than 3 additional vessels at around $11,200 per day for FFA as already mentioned. Please turn to Slide 8. According to the January IMF projected world GDP growth report, In 2018, growth is still expected to be 3.7% same as the previous quarter. Only the Eurozone and Japan have been revised downwards by about 0.2% to 1.8% and 0.9 percent respectively. All other main countries' expectations remain the same. For 2019, global GDP growth is expected to be 3.5% down from 3.7% expected during the previous quarter. The mix of the various countries is expected to be a bit different though than in 2018. The developed world and China should grow a bit less than in 2018, while some areas of the developing world, mainly India and Brazil should grow at a slightly faster pace. Turning on to the drybulk trade, according to Clarksons, the trade in 2018 is now projected to have grown by 2.7%, down from the 3.7% expected in the previous quarter estimate. In 2019, Clarkson expects a healthy 3.1% rate growth. We see more risks to the downside on this projection especially after the Vale incident. Please turn to Slide 9. The drybulk order book is still close to its lowest point in over 2 decades, which is likely to set the stage for constrained fleet growth for at least the next couple of years given that it takes about 1.5 to 2 years for the vessel to be delivered once it has been ordered. Let's turn to Slide 10 for the drybulk delivery schedule. At the beginning of 2019, the order book stood at 5%, up from the 2.9% of the beginning of 2018. This increase was partly due to slippage and partly due to new orders placed at the beginning of 2018. For 2020, the order book stands at 4.2% or about 40,000,000 deadweight tons, still a very low number. Let's turn to Slide 11 where we summarize our outlook on the drybulk market. In 2018, we saw an average increase of about 25% in charter rates over 2017. The last quarter however, as already said, disappointed and the rates ended up slightly worse than the average despite the opposite expectations, mainly due to the Chinese restriction on coal importing and a little bit slower iron ore trade. Since the beginning of 2019, rates have been dropping again as a result of the global slowdown resulting from the trade war and the worsening sentiment. The recent accident in Vale's iron ore mine in Brazil added insult to injury and seriously affected the market, which fell strongly and only now appears to be stabilizing at low levels. However, it is too early to make an assessment of the damage done to the annual coal production and exports from Brazil and there are expectations that volumes lost due to the Vale incident will be replaced from other sources. Our analysis for 2019 2020 shows a roughly balanced supplydemand balance which would suggest rates staying constant on average, although we expect Q1 2019 to be quite depressed. The downward drivers are mainly Chinese but also Indian iron ore and coal imports, which may surprise, however, either way in the remaining of the year. Whilst longer term iron ore trading volume growth is at risk due to the lack of further mining production investments in both Australia and Brazil, the 2 major producers. But the volumes expected to be shipped in 2019 2020 are quite strong. Coal imports despite the longer term concerns due to the overall desire to reduce coal use have been surprisingly strong in 2018 and are expected to further grow in 2019 2020 as electricity demand growth remains robust. In a more general aspect, global GDP growth will affect our markets. Current expectations call for just a slight drop in global growth which if it materializes will result in the market recovering in Q2 2019 and the latter part of the year. At the requisite of this trend reversal requires that the U. S. Keeps interest rates from rising further, the China stabilization program works and some agreement is reached between the 2 of them over trade. All these are highly likely to happen. Environmental regulations coming into effect as of 2020 are the wildcard, which may or may not create a tighter market and which are adding uncertainty into the future. I will not dwell on the pros and cons of putting scrubbers on vessels here as this matter has been exhaustively discussed within the industry. Suffice it to say that together with 95% and more of the vessel owners, we will not install scrubbers on our vessels and we will burn fully compliant fuels thus also helping to protect their environment beyond any doubt. Please turn to Slide 12. The left side of the slide shows the evolution on 1 year time charter of Panamax drybulk vessels since 2,001. While drybulk vessel rates bounced back from the all time lows in 2016, we were still below historical levels even subtracting the 2 super cycle years. The right hand side of this slide shows the vessel values in relation to historical prices. Dry bulk prices nearly doubled over all time low values that were established at the beginning of 2016. Yet, they are also still lower than historical average even subtracting the 2 super cycle peak years. We believe that secondhand vessel values are still low compared to historical averages and also depreciated new build values and expect to see an increase once the effects of the current global uncertainty due to trade wars and the disruption due to IMO 2020 start settling. If the current weak sentiment continues for a bit, it could create opportunities to further grow the company by buying more cheap assets. Notwithstanding the above, we also continue to explore possibilities of growing our listed company further through mergers or otherwise if a partner providing mutually accretive synergies can be found. I will now pass the floor over to our CFO, Tasos Aslidis, to go over our financial highlights in more detail. Thank you very much, Aristides. Good morning from me, ladies and gentlemen. I will now take you over our financial highlights for the Q4 and full year of 2019 and compare to the carve out results of 2017 for our EuroDry fleet. Let's look first at the 4th quarter numbers on Slide 14. For the Q4 of this year, we reported total net revenues of $7,000,000 representing a 21% increase over total net revenues of $5,800,000 during the Q4 of 2017, and that was the result of the increased number of vessels and the increased other time charter rates that our vessels earned during the period. We reported net income for the period of $800,000 and net income attributable to common shareholders of 600,000 dollars as compared to net income and net income attributable to common shareholders of $1,300,000 for the same period of last year. The difference between net income and net income attributable to common shareholders accounts for the dividend that we paid to our Series B Preferred Shares for the Q4 of this year. This preferred dividend was paid in kind by issuing conditional Series B Preferred Shares. This is the last period that we paid the preferred dividend in kind. Starting in February 2019, we will be paying this dividend in cash. Adjusted EBITDA for the Q4 of 2018 was 3,500,000 dollars compared to $2,900,000 achieved during the Q4 of last year, an increase of 22%. Excluding the effect from earnings attributable to common shareholders for the quarter of the gain or loss in derivatives, the adjusted net earnings attributable to common shareholders for the quarter ended December 31, 2019 would have been $0.31 per share basic and diluted compared to adjusted income per share of $0.55 basic and diluted for the same quarter of last year. Let's now look at the right part of the slide and review the figures for the full year's 2017 2018. For 2018, we reported total net revenues of $24,500,000 representing a 28% increase over total net revenues of $19,200,000 during 2017, which again is the result of the increased number of vessels we operated and the increased rate with our vessels early. We reported net income for the period of 1,100,000 dollars and net income attributable to common shareholders of $600,000 as compared to net income and net income attributable to common shareholders of $800,000 for the period of 2017 for the full year 2017. As we stated, the difference between the net income and net income attributable to common shareholders is the dividend we pay to our Series B Preferred Service. Adjusted EBITDA for the 12 months of 2018 was $9,400,000 compared to $7,400,000 achieved during last year, again an increase of about 27%. Excluding the effect on the earnings attributable to common shareholders, so the gain or loss in derivatives, the adjusted net income per share for this year would have been $0.24 compared to $0.36 for 2017. Let's now turn to Slide 15 to review our fleet performance for the full quarter for the Q4 and full year of 2019 and compared to the same period of the previous year. Again, let's start with our 4th quarter numbers. Our utilization rates as usual is broken down into commercial and operational, where both and we had a 100% commercial utilization rate for the quarter and 99.6 percent operational utilization rate compared to 100% commercial and 99.9 percent operational for the corresponding for 2017. I would like to remind you here that our utilization rate calculation does not include vessels in scheduled drydocks, scheduled repairs or in lay up if any such events are reported during the period. In the Q4 of this year, during this year, we operated 5.7 vessels as compared to 4.9 vessels during 2017. If we move further down to this table, at the bottom of it, we can see the cash flow breakeven rate per day that we had for the year, which is about $11,634 per vessel per day for 2018 and as compared to $7,086 for 20.17. Let's now move to the following slide, Slide 16, to review our debt profile. In this slide, you can see the loan repayments for the remaining life of our debt and as well as the balloon repayments. In 2019, you can see a balloon payment of $4,000,000 which we expect to be able to refinance as we did in previous balloons for that loan. After that, we have no balloon payments for the remaining of 2019 2020, with the next balloon payment being in 2021. If you look our loan repayments on a per vessel per day basis, those contribute $2,950 to our daily cash flow breakeven level, and you can see that number on the lower line of the table on the right part of the slide. If we make assumptions for the remaining items that make up our cash flow breakeven level rate like operating expenses, general inventory expenses, interest, driver, etcetera, we see that our overall cash flow breakeven for the next 12 months sets maybe to be just below $12,000 per vessel per day. Let's now move to Slide 17, where I give you some highlights from our balance sheet. This is a simplified version of our balance sheet where we saw the main groupings of our assets and our liabilities. On the asset side, we have cash and other liquidity of about $10,300,000 plus restricted cash of 3,400,000 dollars We also have other assets of $3,300,000 and our main assets, the value of our vessels, accounts for about 111,000,000 dollars as of the end of last year. As of the end of last year, the market value for our fleet is very close to our book value of the vessels. The total assets amount to about $127,700,000 On the liability side, we have bank debt of about $64,000,000 which approximately accounts for 50% of our assets. We have a percent equity of $19,600,000 which approximately accounts for 15% of our total assets and other liabilities of 2,000,000 dollars That leaves our net book value around $42,000,000 or $18.5 per share, which as I mentioned earlier, is approximately the same as our net asset value per share. If we look at our closing share price last Friday of $7,89,000 per share, that represents a significant discount to the value of the company. And we and should that gap narrows, that would represent a significant appreciation for our services. And with that, let me pass the floor back to Aristides. Thank you, Tasos. Let me open up the floor for any questions you may have. Thank you. The first question is from the line of James Jang. Please go ahead. Your line is now open. Hi, good afternoon guys. Hi, James. Hi, James. So the rates have been a little weak, say the least, for the Q1. And so with the Pantelis being fixed at 5,500, I mean, what should we be looking at once that comes off charter at the end of the quarter? Would that be refixed? Is there an option for the charterer to extend that contract? The market currently seems to have stabilized a little bit and rising. Of course, still we could expect a low number, maybe around $6,000 a day, but we've got a few days till the vessel opens up again. So let's see how the market develops. So like for the Pantelis, would you be more comfortable operating on the spot or would you look to fix it short term? The biggest we would do would be 1 voyage let's say from where we are to South America and back, which would be 90 days. But we would not fix this elder ship on period because they trade better when they do direct voyages. So it will be again a fixture of between 20, 25 days to 90 days. A longer period fixer would probably be at even higher rate than the 6000 maybe 7 or something like that today. But let's things move a lot these days. So let's see how the market develops till the time it opens up. Okay. And for the Alexandros, it's in the Guardian pool, right? So how long is that? Is it going to maintain? I mean is it going to still be in the pool for the rest of the year? Most probably it will. We can take it out after a few more months, but we are generally index of the vessel. So I think we will probably leave it there. Okay. And so what are your thoughts on the macro side for coal this year? Do you think demand will stay elevated? Or do you think it will be flat year over year? I think that coal has surprised on the upside more times than less during the last 3, 4 years. Again, the basic expectation that most analysts hold is that it will be flat. I think it's possible that it can be a little bit higher than that. Coal is still needed and will be needed to provide electricity for quite some time now. We don't see peak coal having been reached. Thanks, James. Thank you. We have questions at this time. Speaker, please continue. Well, thank you for listening into our end of year results conference call. We'll host another one in 3 months' time to see how things have developed since, yes. Thank you very much. Thank you. That does conclude the conference for today. Thank you all for participating. And you may now disconnect.