Costamare Inc (CMRE) 2016 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. conference call on the third-quarter 2016 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. There will be a presentation followed by a question-and-answer session. (Operator Instructions).

I must advise you that this conference is being recorded today Tuesday, October 25, 2016. We would like to remind you that this conference call contains forward-looking statements. Please take a moment to read slide number two on the presentation which contains the forward-looking statement.

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

Good morning, ladies and gentlemen. During the third quarter the Company delivered solid results. On the chartering side, we continue to employ our vessels having chartered in total eight ships opening during the last three months.

Regarding our new building program, we have now accepted delivery of all five 14,000 TEU vessels which have commence their 10-year charter. We have also accepted delivery of one 11,000 TEU ship, bought together with our JV partners and we have deferred the delivery of the remaining four for the first quarter of 2017.

As mentioned in our latest press release of this month, our goal is to strengthen the Company and enhance long-term shareholder value. As committed shareholders, the founding family currently controlling above 65% of the Company have reinvested in full their cash dividends since the inception of the dividend reinvestment plan.

Moving now to the slides presentation on slide three, we are providing a summary of the chartering arrangements which took place during the quarter. As already mentioned, we have chartered a total of eight ships over the last three months.

On slide four, we are providing an update of our new building program. Including the latest deliveries, we have now accepted delivery of all five 14,000 TEU vessels which have started their 10-year charters with Evergreen.

With regards to our 11,000 TEU ships, we received the first one in September and agreed to defer the delivery of the remaining four for the first quarter of 2017. All of our new building program is fully funded with the exception of one 11,000 TEU ship which will be delivered in about five months.

On slide five, we show the refinancings we completed over the last quarter deferring total balloons of $360 million for a three-year period from 2018 to 2021. As already mentioned, the founding family have decided to invest all of the second and third quarter cash dividends in new shares under our DRIP program.

On slide six, you can see the third quarter 2016 results versus the same period of last year. During the third quarter of this year the Company generated revenues of $118 million, adjusted EBITDA of $80 million and adjusted net income of $28 million.

For the same period of last year, the revenues amounted to $124 million and the adjusted EBITDA and net income to $89 million and $35 million respectively. Our adjusted figures take into consideration the full and non-cash items, the accrued charter revenues, the gain or loss on sale of assets, the gains or losses resulting from derivatives, the amortization of prepaid lease rentals which is a non-cash charge and the non-currency G&A expenses.

Based on the above, the third-quarter adjusted EPS amounts to $0.37 versus $0.46 the year before.

On slide seven, we are showing the revenue contribution for our fleet. More than 99% of our contracted cash comes from first-class charters like MSC, Evergreen, Maersk, COSCO and Hapag Lloyd. We have $1.6 billion contracted revenues and the remaining time charter duration of about 3.4 years.

I think slide eight speaks for itself. You can see the resilience of our business model. The bars are the revenues of EBITDA since 2007 and the dotted lines are the time charter index. As you can see in a cyclical industry like shipping and irrespective of market movements, the Company has been performing based on its long-term contracted cash flow with top charters.

On slide nine, you can see our remaining CapEx commitments. As you will notice, these are rather low for a Company with cash balances of about $150 million. Our remaining CapEx is less than $25 million without any debt finance for the 11,000 TEU new building. We plan to initiate the financing process for that vessel closer to its delivery in March 2017. Assuming 50% financing for that ship, our remaining CapEx would be just $3 million.

Slide 10 shows the smoothening impact on our debt repayment profile of the recent refinancings. As you will see, there are now no debt maturities in 2016 and 2017 and we have reduced our 2018 balloons by $360 million.

Slide 11 deals with the potential effect of the re-chartering for the next 12 months. As you can see even if we assume the 40% discount on new charter rates entered into during the next year versus current [figures], the difference in the revenue basis would be less than 4%.

On the last slide, we are discussing the market. Charter rates and asset values are under pressure. The number of idled ships has come up to 6.5%. The orderbook stands at 16.5%. As we have mentioned in the past, we are well-positioned to continue to grow in such an environment which provides for opportunities.

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

(Operator Instructions). Gregory Lewis, Credit Suisse.

Good afternoon. Greg, could you talk a little bit more about the decision to push out the new builds and sort of what opportunities you are seeing for those? And could we continue to see more delivery delays on those vessels if the market sort of doesn't -- or should I say if there is not opportunities to put those on contracts?

First of all, we have decided to push back the delivery of those four ships and those will be delivered from February until the end of March of 2017. The (inaudible) has to do with market conditions today and we feel that we will have more flexibility regarding their chartering especially after the Chinese New Year which is the first week of February.

There is interest. As measured in the past, we tend to take a long-term view on all of our projects including this one and we feel comfortable regarding the chartering potential of those ships. But based on today's market conditions, we feel that it is appropriate to push their deliveries for the next quarter of 2017.

Okay. Okay, great. Just given what has happened with Hanjin and the turmoil that that has created in the shipping markets, there is definitely been some talk about potentially some other liner companies facing similar challenges. At this point has Costamare seen any of their customers late on payments?

Yes, I can tell you that as far as we are concerned, we have not experienced any delays in the payments, the charter had payments from our clients and on slide seven, we have a pie chart with our contracted customers where this is coming from. All the payments are current so I don't have anything to mention in that respect.

That is a good thing. Anyway guys, thank you very much for the time.

Fotis Giannakoulis, Morgan Stanley.

Hello, Greg, and thank you. Greg, you have managed to stay highly profitable in a very challenging environment but we all see that the market is very difficult and when the contracts expire, the profitability probably will be eroding. I want to understand based on your risk management analysis if the market remains as it is today, how long can the Company go through the current market without having liquidity issues?

Okay, first of all, a couple of things. Regarding profitability, I would have to refer you to slide 11 where this shows the effect of rechartering. These are older ships coming out of charter over the next 12 months starting from September 30 and you will see that if those ships are rechartered at a discount compared to today's rate and those ships today are also yielding a low rate based on today's market environment.

What is going to be the effect? And as you can see on a revenue percentage, the effect is not going to be substantial, quite the opposite. And the rest of the (inaudible) come out of the charter over the next 12 months, all the payments from our charters are current. We feel extremely comfortable with the credit quality of our charters. So the profitability, it is a cyclical industry. Of course it is affected by market conditions but we shouldn't forget that we also have a weighted average time charter duration of a couple of years more -- sorry -- of 3.4 years as of today.

Now regarding the Company's liquidity, as we announced at the beginning of this month, we have proactively refinanced our debt especially a couple of big balloons which were due in 2018. So we have smoothened our debt repayment schedule which definitely helps our liquidity and at the same time, we have adjusted the dividend based on today's market conditions. And we shouldn't forget that the founding family which owns 65% of the Company has up to now at least since the DRIP was initiated, received no cash and have invested all the cash dividends in new shares.

So based on all of that, I think that the Company has more than enough liquidity in order to weather the storm over the next couple of years or more than that.

So we assume that given the fact that you have a 3.5 years charters for the next 3.5 years, we shouldn't worry about the profitability? Go to 2020 with a profitable company even if the market stays the same?

If the markets stay, look, you will have to make a lot of assumptions there regarding re-chartering, market conditions, etc. going forward. So I cannot possibly forecast now what the Company's profitability will be in 2023. I think it will be very difficult task for everybody in shipping (inaudible) Costamare and container shipping. But I can tell you that proactively we have done I think everything we could in order to first, [grab] our downside. This is our first priority. And secondly, position ourselves so that we can opportunistically buy assets in such a depressed market environment.

Greg, regarding the market, we have seen very weak demand growth rates if I'm not mistaken around 2%, the demand is growing this year. This is significantly lower than what we saw in the past. Can you give us an explanation of why demand has declined? And if you think that there is a risk of any structural risk in the industry that can affect the demand even further going forward?

I think first of all today, we talk about excess supply. I mean the demand is not great. However, global demand year to date or sort of for the first eight months of 2016 is based on container rate statistics is up 3.5%. So I am not saying that the overall demand is great but the problem in container shipping has mostly to do with oversupply. And with an order close to 75% of today's order book consists of ships of 5000 TEUs and above.

Also in some specific trade routes, let's take for instance Asia Euro, I agree that the demand is relatively weak at 1.5%. But demand growth is there. Our Asia growth is in the region of 7%. So US imports are generally up by 3.7%. So I am not sure it mainly has to do with demand but it is an excessive supply type of problem.

Now today we have an order book which is below 17%. We have the demolition picking up and it is expected based on [progress] estimates that the demolition for the year, it is going to -- it is 600,000 TEU or even higher than that, which are all positive signs and we haven't seen any new building or any substantial new building ordering since the beginning of this year. So all of these are positive signs towards managing supply and demand more efficiently.

And last question for me, given the fact that you have a good cash position right now and the family is willing to forgo its dividend, asset prices have declined significantly particularly in the smaller vessels below 6,000, 7,000 TEU. Is there any interest for you to buy any of these vessels, any particular asset class that you would completely avoid?

And also I understand with Hanjin bankruptcy, a lot of vessels will come out for sale. Is this something that is happening right now that you see and is this something that would be of interest or what kind of risk do you see in buying any of these vessels?

First of all, we are generally active and (inaudible) pricing regarding asset acquisitions especially in today's environment.

On the question whether we would avoid some specific asset classes, I would say that I don't think that we would be buying today any Panamax vessels, the traditional old Panamax vessel ships. Fleets are becoming obsolete and if you look at the composition of our fleet, you will see that we have not over-invested in the Panamax vessels, quite the opposite.

Apart from that, we are pretty much open depending on price and of course on the physical condition of the vessel. But I would agree with you that today's environment also factoring in any potential distress in [bracket] sales coming out from financial institutions, definitely provide for opportunities.

Thank you very much, Greg.

(Operator Instructions). I will now turn the floor back to Mr. Zikos for his closing remarks.

Thank you very much for being here with us today. We are looking forward to talking to you again during the next conference results call. Thank you.

Thank you. That does conclude our conference call for today. Thank you all for participating. You may now disconnect.