Costamare Inc (CMRE) 2014 Q4 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare conference call on the Fourth Quarter 2014 Financial Results. We have with us Mr. Gregory Zikos, Chief Financial Officer of the Company. At this time, all participants are in a listen-only mode. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, February 5, 2015.

We would like to remind you that this conference call contains forward-looking statements. Please take a moment to read slide number 2 of the presentation, which contains the forward-looking statements.

And I will now pass the floor to your speaker today, Mr. Zikos. Please go ahead, sir.

Thank you and good morning, ladies and gentlemen. During the fourth quarter of the year, the Company continued to deliver positive results. In December, we concluded with a leading Chinese financial institution the financing of the five 14,000 TEU new buildings chartered to Evergreen will deliver in 2016. The deal was on a sale and leaseback basis, and financers are [required to] deliver installments to the shipyard, releasing additional equity for further transactions.

Recently, we acquired the 2004-built 2,500 TEU containership Lakonia for a price of $8.2 million. The vessel has been chartered to Evergreen for a period of approximately two years.

While still growing and planning to grow further during 2015, in line with our commitment to provide our shareholders with sustainable and increasing returns, management will recommend to the Board of Directors a dividend increase beginning with the first quarter 2015 and raising the quarterly dividend from $0.28 to $0.29 per common share.

We continue to execute successfully on our growth strategies. Our cash on balance sheet coupled with debt-free assets, low leverage and positive cash flow from operations allow us to continue to grow selectively and (inaudible).

Moving now to the slide presentation, on slide 3, we are providing a summary of our recent transactions mentioned earlier. These are the financing of our five 14,000 TEU vessels (inaudible) which was done on rather competitive terms. And the acquisition of a smaller vessel which has been fixed for two years.

During the quarter, we declared a dividend on our common stock which is 17th consecutive dividend since our listing and those are dividends from both (inaudible) of our preferred shares. Finally, we plan to raise the dividend on the common by $0.04 per year effective from the first quarter of 2015.

On slide 4, you can see the fourth quarter 2014 results versus the same period of 2013. During the fourth quarter of last year, the Company generated revenues of $120 million, EBITDA of $81 million and net income of $28 million. For the same period of 2013, the revenues amounted to $112 million and the EBITDA and net income of $71 million and $26 million respectively.

Consistent with our previous press releases, we feel that the EBITDA and net income figures need to be adjusted for the following non-cash and one-time items. First, the accrued charter revenues and the resulting discrepancy between revenues received and revenues accounted for based on a straight-line amortization schedule; secondly, the gains or losses resulting from derivative instruments; and lastly, the amortization of prepaid lease rentals, which is a non-cash charge resulting from a sale and leaseback transaction for three of our vessels.

Adjusting for the above, the fourth quarter adjusted EPS amounts to $0.41 and the fourth quarter adjusted EBITDA to $83 million. Overall, the Company generated strong results during the quarters based on solid fundamentals.

On Slide 5, we are showing the revenue contribution for our fleet. More than 90% of our contracted cash comes from Maersk, MSC, Evergreen and COSCO. Today, we have $2.3 billion in contracted revenues and the remaining time charter duration of about four-and-a-half years.

Slide 6 is dealing with a theoretical re-chartering risk the Company would face in 2015. Based on our (inaudible) assumptions, the four ships coming out of charter during the year are re-chartered at a 70% rate, being equal to a 30% discount. The cash effect is minimal, above 2% of the 12-month EBITDA which goes up to 4% for a 50% discount. It is evident from the above that the Company does not face any meaningful re-chartering risks. Hence, the dividend we offer today is very attractive based on its quality and sustainablity.

On Slide 7, we discuss our balance sheet. Liquidity as of the end of the year stands at $177 million. At the same time, we have unencumbered vessels and a moderate fleet leverage. The loan portfolio is around 85% hedged at a weighted average rate of less than 4%, which adds to the visibility of our cash flow. We consider the Company to be in a competitive position with a comparatively stronger balance sheet which together with our joint venture with York Capital will allow us to continue managing attractive acquisitions.

And moving to the last slide, on the last slide, we're discussing the market. Charter rates have been rising, especially during the last month and the chartering market has been quite active pre Chinese New Year. The number of [partnerships] is at an all-time low. Oil fuel costs do not affect containership owners negatively, [by the operators], I would say. The order book is at around 18% of the current fleet in the water. As already mentioned, we still are well positioned to capitalize on market movements, either by chartering ships in a higher market or by acquiring assets in a low asset value environment.

This concludes our presentation and now, we can take questions. Thank you. Operator, we can take questions now.

Thank you. (Operator Instructions) Fotis Giannakoulis, Morgan Stanley.

Yes, hello and congratulations for the good quarter.

Yes. Hi, very good morning.

Greg, I want to ask you about the dividend increase. You've raised your dividend exactly a year ago and this is a new dividend increase. How come you thought about it and what led you to increase the dividend at this point? Is there a strategy of increasing your dividend every year? Was it some transactions that you concluded? Can you help us think a little bit more about the dividend growth going forward?

Sure. It's a couple of things. First of all, we have sort of accepted delivery of all the new buildings we had ordered back in 2010 and 2011. We have closed the [finding] for the five 14,000 TEU ships, which are to be delivered next year and it's only four new buildings, which have not yet been chartered and for those we have not yet arranged financing. But, we don't have any significant [outbound] liabilities, bearing in mind, the size of the Company and our financial standings.

At the same time, we are committed to providing our shareholders and this is something that we have been repeating over the last years to provide our shareholders with first of all sustainable and secondly, increasing returns. And we now think that by raising the quarterly dividend by sort of $0.01 per quarter, it's something that it is first of all providing additional returns for our shareholders; and secondly, it is not something that in anyway affects us, I mean affects our ability to grow.

So, $0.04 per year incremental dividend is close to $3 million when we have cash on balance sheet of north of $170 million will have low leverage for the cash flow. So as mentioned in my commentary, we are like in a growth mode and we definitely intend to grow more during 2015. At the same time, a dividend increase of this size is something that is rewarding our shareholders without affecting our growth plans.

I understand that your first focus from what you said is to expand your fleet at the time that the asset values are low rather than to return so much cash to shareholders, but given the fact that next year, you take delivery of your new building vessels, most of them are already chartered long term, shall we expect a similar dividend increase or you might even consider a larger dividend increase given the earnings growth that is projected next year?

I think, you can understand that I cannot commit now. Normally, the dividend is growing commensurate with the growth of the cash flows and those new buildings will now have a substantial effect in our cash flow from operations. So, the dividend increase is something we sort of always have in mind. However, the magnitude of that increase, it's possible to turn out because we don't know the market conditions that will prevail in 2016 onwards. But definitely, a growing dividend and hopefully a growth of north of $0.01 per quarter, it is something we will definitely like to do, should market conditions allow us.

And just I'll shift to the market conditions and perhaps not going out to 2016, that is faraway to discuss, but currently we've seen your slide on page eight that the charter rates are moving higher. Can you explain why this has happened? Then, how has the asset prices reacted? Have they also come up and if they have -- asset prices have come up together with charter rates, done this affect your plans of making more acquisitions this year?

Yes. I mean our charter rates have come up and also they've come up substantially also during the last month. Now, there is definitely demand, there is increased activity for chartering prior to Chinese New Year, which is not what someone would normally expect. At the same time, let's not forget that there are some acquisitions which still take place in the West Coast and in a couple of other places which is definitely boosting the demand for [dockings]. To what extent the charter rate will keep rising up until for the next couple of weeks up until the Chinese New Year and thereafter, I cannot tell. But part of the increase has to do with the congestion, this is a fact.

Now, regarding the asset values, generally, asset values are also big but not for sort of every single type of asset. Different sizes have seen a different performance. I think, it's obvious that the Panamax type vessels have had a very good performance if someone measures that there were sort of a period close to $7,000 per day a year ago or so. And now, we've seen the latest pictures in the region of $13,000 per day (inaudible). However, I'm not sure whether this is something that we can take for granted (inaudible) as I said because specific to market conditions, especially the congestion that allows for that, also supported by lower fuel oil prices.

Now, on the other [times], new buildings, I don't think we've seen a substantial increase in like new building prices. Overall, as far as we are concerned, if we see a continuing rising market, we're going to have (inaudible) some upside from the re-chartering of all of our vessels coming out of charter. If like price levels tend to stay at historically low levels, as a company, we will continue growing with a [solid] pace, capitalizing on new opportunities. So, I am not sure what is best or worse for us, but in any case I think we are positioned in a way so that we can take advantage of market conditions irrespective of what we are.

And given the order book that has declined and charter rates, they have been trending higher the last couple of months. Since your vessels are contracted for another five, six years, can you re-charter vessels or extend the existing charters even before the charters expire or it's irrelevant if the market goes up in the near term?

First of all, we have four new buildings for 11,000 TEU ships, which are going to be coming to the water beginning of 2016 and those have not been chartered yet and this is definitely an upside in a market like that. Now, we have on average I think it's close to 4.3 years of remaining time charter duration, but it's not unusual; sometimes, you may start discussing with the charter a continuation of a chartered party; it's prior to the expiry of a current one. So this is not unusual, and if we think that this is the right approach, we will definitely follow it.

One last question and I will hand it over. You mentioned about the impact of fuel cost reduction of oil prices to the industry. Can you elaborate on that? How does the lower prices affect both expenses and demand? And also because Greece is on the news again and there are some concerns, can you remind us if you have any exposure to Greek banks and the Greek economic system?

Yes. Now, first of all, regarding our connection with the Greek state, we are residing in Greece, but apart from that, we don't have any Greek clients. We don't rely on any subsidies from the Greek state which are very [weird]. And we don't rely on the Greek banking system. So to that extent, you can argue that our day-to-day business is immune from what is happening in today's environment.

Now, regarding the fuel costs and some vessels, there may be their own perceptions that lower fuel cost is not a good thing for containership owners, which is definitely not the case; this is something that it is low in our expenses. So, I mean, we consider it as a positive, both from an operating expenses point of view and also regarding incremental demand. So, lower fuel cost is something that does not negatively affect us. Quite the opposite, and this is a fact.

Thank you very much.

Okay. Thank you.

(Operator Instructions) Mark Suarez, Euro Pacific Capital.

Hi, good morning, Greg. (multiple speakers). Just to go back on, I think you touched on this, if you just take at a macro level here. In the past I'll say three months or so, especially December and January, I've actually seen Panamax rates accelerate quite significantly. We talked about scrapping, et cetera, scrapping last year. While at the same time, post-Panamax period rates, the long-term charter rates year-over-year have actually trended fairly stable. I'm wondering what is driving that economy between those two class segments? And do you feel that the Panamax pricing acceleration is sustainable? I think you talked about congestion at one point. But, do you think this is sort of a new trend going over the next 12 months?

Yes. I am afraid I cannot predict whether the Panamax rates today, whether they are sustainable or not for the next 12 months. Part of the incremental needs for Panamax vessels have to do with the congestion. Part of it may have to do with the lower fuel cost and less sort of eco-friendly ships may be under more demand now. But, let's not forget that historically, also in the past or years ago, Panamax ships were like earning $25,000 or $30,000 per day. So the fact that we have reached $11,000 [of $30,000], it's definitely an improvement from the $7,000 per days where the ships did not break even (inaudible). But still it is a relatively low rate if someone takes a more broad view of the market.

Okay. Great. And just I got into the conference a little late. I don't know if you mentioned it, but do you have any updates with regards to the 9,000 TEU vessels (inaudible) are willing to come under -- expected to come in -- have you closer to [fixing the] charter rates or do you have any updates on that?

These are actually the 11,000 TEU vessels. The reason we're mentioning 9,000 is that initially we had an order for 9,000 TEUs which we upgraded later. So, it's [four 11,000] TEUs coming into the water from the beginning of 2016. We are not in a hurry to charter them. There is a lot of interest from charterers. We take our time. It is a market that is generally rising. Those contracts today are well in the mining, bringing mines where those vessels were contracted and so how much we got disposal then today. So we take our time. We still have like a year or so and we don't plan to rush on fixing those vessels.

Okay. And then, just to go back on the cost side, if you look at your daily vessel operating expenses, I think it came a little under than what I was expecting and you touched on bunker fuel, and although bunker fuel has some indirect impacts on that line, I am wondering how should we think about the daily vessel operating expense inflation into 2015 and do you think this current run rate will be a good run rate going forward?

Okay. Well, now that it's for 2014, if you take our sort of operating expenses excluding management fees and divide by the numbers of ownership days, we come at around $6,000 per day average running expenses. And our sort of average ship is like, it has like 5,500 TEUs and above. I think this is one of the most competitive daily operating expenses you can find and let's not forget that we're flying the Greek flag -- around 25 ships of our fleet have the Greek flag with a Greek crew that it is paid in euros. And those vessels have substantially high operating expenses compared to vessels flying other flags.

So factoring this in the equation, I think our running expenses are probably one of the most competitive in this industry. Now there have been some positive type of fluctuations in the euro, dollar exchange rate.

Regarding 2015, going forward, what we will be doing is that we're going to be sending you a new budget for the whole fleet. So bear with us and you will see whether this is sort of the $6,000 per day is a good run rate or not. But from our side, obviously we are trying to lower the operating expenses as much as we can although we know we're still flying the Greek flag as a substantial part of our fleet.

Got you. That's helpful. Well, thanks. Thanks for your time, again, Greg.

Thank you.

Shawn Collins, Bank of America.

Great, thank you. Hi, Greg. Good afternoon.

Hi, Shawn. Good morning, thanks.

Hey, Greg, in December, I see you lined up a leading Chinese institution for financing of five of your vessels. Just curious what your experience was in the financing markets in general and the financing markets' receptivity to the container shipping sector as a whole?

Yes, this is the second sale and leaseback transaction we are doing with the same financial institution. The particularity of this one is that it was financing on a pre-delivery basis, meaning that financing our commitments to the shipyard for the next couple of years and then lining up financing on a post-delivery basis for 12 more years. So, this is a long-term cycle for our financing. This is what's done on a bilateral basis. So it was only one financial institution participating. This was not syndicated and this was not [collective].

I think there was appetite for solid transactions like that with a strong sponsor meaning a shipowner and also with a strong charterer. So, it took us some time to close, because the [recommendation] was quite complex. But I think overall, it is a transaction which is beneficial for our shareholders and releases equity for new deals. So, overall, I think we are very much satisfied with our relationship with Asian financial institutions.

Okay, great, that's helpful. Thanks, Greg. And then, just a second question, just kind of big picture, with the price of crude oil down 50% over the last three to six months, have you observed any real change in your charter customers' behavior or any sense that they look at the world any differently or may behave differently in the future?

Yes. Well, the question we normally get is, whether the slow [steaming] is something that has been affected because of lower fuel costs or whether charterers of the liner companies have an incentive of a sailing partner, which is not something we have not seen up to now. So, liner companies I think I mean from our experience from the ships, the vessels that we see and operate, we have not seen yet an increase in the sailing speeds, which I think is overall a positive thing for the whole industry because it doesn't put additional capacity in the market. Apart from that fleet [summary], as I said, there is no change there. We don't see anything different.

Okay, great. That's helpful, I appreciate it. Okay, Greg. Well, that's all from me. Thank you very much for the time and the insight.

(Operator Instructions) And at this time, I show no additional questions in the queue. I would like to turn the conference back over to Mr. Zikos for his closing remarks.

Thank you, all, for being here with us today. We are looking forward to speaking with you again at our next conference call. Thank you very much. Operator, we are done. Thank you.

Thank you, sir. Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.