Danaos Corp (DAC) 2009 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Danaos Corporation conference call on the third quarter and nine months 2009 financial results. We have with us Dr. John Coustas, President and Chief Executive Officer and Mr. Dimitri Andritsoyiannis, Vice President and 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 Thursday, November 12, 2009.

We now pass the floor to one of your speakers today, Mr. Dimitri Andritsoyiannis. Please go ahead, sir.

Thank you. Good morning, everyone and thank you for joining us today. Before we begin, please allow me to remind you as always that this presentation contains certain forward-looking statements within the meaning of the Safe Harbor Provisions of Section 20a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934.

Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and others statements which are other than statements of historical fact. As a result, you are cautioned not to rely on any forward-looking statements.

Although these statements are based on assumptions we believe reasonable based on available information, they are subject to risks and uncertainties detailed from time to time in our periodic reports. We expressly disclaim any obligation to update or revise any of these forward-looking statements whether because of future events, new information and change in our views or expectations or otherwise. We make no predictions or statements about performance of our common shares.

I will now turn the call over to John.

Good morning, everyone, and thank you for joining today's call to discuss our results for the third quarter and nine months 2009. We are happy to announce third-quarter results of 2009.

Our net income was $16.4 million or $0.30 a share while at the same time we managed to increase our fleet by adding one more new building of 6,500 TEU which immediately entered into a 12-year charter.

On the operating cost side, we have once more managed to prove very effective. We reduced our average daily operating cost per vessel by 5.8% compared to that in the third quarter of 2008. On the broader market front, we are getting signals of a visible recovery based on volumes traded while some routes have reached capacity. However, liner companies are still operating in the red which has negatively affected the whole industry.

In this third quarter, we also engaged in a new round of negotiations with our shipyards. These negotiations are still in progress and aimed to actively manage our cash flows from investing activities both for the rest of this year and the years to follow in order to defer capital expenditure requirements and ultimately allow for the arrangements of additional funding in a market that has given signs of gradual albeit slow recovery.

Among our efforts on the financing front, we have also been preparing to raise more capital in the form of additional equity and other forms of hybrid funding. Our strategy in this area, build size and structure as well as types of instruments we may utilize, are closely linked to restructuring the payment schedule of those new building orders which are still in finance.

Finally, last week we agreed with Zim revisions to the charter parties we have in place for six of our vessels in operation which reflect significantly improved terms compared to the initially unilateral reductions in payments and are based on the principle of interest-bearing revenue deferment.

In closing, I would like once again to stress our commitment as management and controlling shareholders to doing everything necessary to achieve our corporate goals and safeguard our investments and their returns in the near and long-term horizon in the most challenging time in our industry's history.

I will hand over the call back to Dimitri who will take you through the financials for the quarter. Dimitri?

Thank you, John. I will briefly review our financial performance for the quarter and nine months ended September 30, 2009 to give the chance to the participants of this call to place their questions.

During the quarter ended September 30, 2009, Danaos had an average of 41 containerships as opposed to 38.1 containerships for the same period of 2008. During the third quarter of 2009, we took delivery of one new vessel, the CMA CGM Moliere. Our fleet utilization was 99% in the third quarter.

Our net income was $16.4 million or $0.30 per share for the three months ended September 30, 2009 compared to $28 million or $0.51 per share for the three months ended September 30, 2008 which represents a decrease of 41.4% or $11.6 million compared to the three months ended September 30, 2008.

This decrease is mainly attributable to increased realized losses on our interest rate swaps contracts recorded in our net income representing net interest expense on our interest rate swap hedges during the three months ended September 30, 2009. Compared to the same period of 2008, as well as increased interest expense on our credit facilities resulting from the increased average indebtedness in 2009 and increased margins over LIBOR on which our indebtedness is subject to following our agreements with our lenders to temporarily waive certain covenant breaches as of December 31, 2008 and June 30, 2009 and up until October 1, 2010.

Furthermore during the month of September, the charter -- the charter (inaudible) of our containerships, Zim Integrated Shipping Services Ltd reduced unilaterally all of its long-term charter hire payments to ship owners by 35% resulting in $1.4 million of revenue not being recognized in the third quarter of 2009.

Before since then, we have managed to negotiate the (inaudible) deal on new improved terms which however is a fourth-quarter event and therefore not expected in our first third-quarter and nine-month results.

Operating revenue increased 4.5% or $3.4 million to $79.8 million in the three months ended September 30, 2009 from $76.4 million in the three months ended September 30, 2008. The increase was primarily attributable to the addition of five vessels to our fleet. These additions to our fleet contributed revenues of $7.4 million during the three months ended September 30, 2009.

These revenues were offset in part by the sale of two 3,100 TEU containerships, the Asia Express, the Sederberg on October 2008 and December 2008, respectively, and contributed revenues of $2.8 million for the three months ended September 30, 2008 compared to no revenues of course in the three months ended September 30, 2009.

Moreover, 2,200 TEU containerships, the Zim Rio Grande and the Zim Sao Paulo, which were added to our fleet on July 4, 2008 and September 22, 2008 contributed incremental revenues of $1.6 million during the three months ended September 30, 2009 compared to the same time in 2008. Vessel operating expenses increased 1.3% or $300,000 to $23.1 million in the three months ended September 30, 2009 from $22.8 million in the three months ended September 30, 2008.

The decrease was due to the increase in the average number of vessels in our fleet during the three months ended September 30, 2009 compared to the same period of 2008. This overall increase was offset in part by the lower average daily operating cost per vessel of $6,122 per day for the three months ended September 30, 2009 compared to $6,502 per day for the three months ended September 30, 2008.

During now the nine months ended September 30, 2009, Danaos had an average of 40 containerships as compared to 37 containerships for the same period 2008. During the first nine months of 2009, we took delivery of four vessels, the Zim Monaco on early January 2009, the Zim Dalian at the end of March 2009, the Zim Luanda on June end of 2009, and the CMA CGM Moliere on end of September 2009.

Our net income on a comparable basis from continuing operations was $52.3 million or $0.96 per share for the nine months ended September 30, 2009 compared to $78.3 million or $1.44 per share for the respective period of 2008 excluding however a gain on the sale of vessels of $14.9 million recorded during the nine months of 2008.

This represents a decrease of 33.2% or $26 million which is mainly attributable to the increased realized losses on our interest rate swaps again representing net interest expense on our interest rate swap hedges in the nine months ended 2009 of September as compared to the same period of 2008. As well as an increased interest expense due to higher average indebtedness in 2009 and increased margins over LIBOR on which our indebtedness is subject to following our agreements, as I said earlier, with our lenders to waive certain covenant breaches as of December 31, 2008 and 2009 in (inaudible).

Operating revenue increased to 6.4% or $14 million to $234.2 million in the nine months ended September 30, 2009 from $220.2 million in the nine months ended September 30, 2008. The increase was primarily attributed to the addition of four vessels or five vessels in our fleet. These additions to our fleet contributed revenues of $17.8 million during the nine months ended September 30, 2009.

Moreover, we sold three containerships of 2200 TEU and two 4,253 vessels and out of these additions and subtractions, we have added if you will an incremental amount of $13 million during the nine months of September 2009 as compared to the same period of 2008.

In addition, the Company sold as I said five vessels, five older vessels which contributed to operating revenues of $10.4 million during the nine months of 2008 which were zero revenues for the same period of 2008. The balance of $6.4 million is attributable to revenue lost due to off hire days as well as rechartering of two of our vessels that reduced charter rates in the market.

With that, I would like to thank you for listening to this first part of our call and John and myself will take your questions. Thank you.

(Operator Instructions) is Urs Dur, Lazard Capital Markets.

Good afternoon, guys. Nice results given the challenging times. I guess the topic on everybody's mind is Zim and how you have reworked that. Does this open the floodgates for everybody for your charters? And how do you look at it industrywide or is this not a precedent setter, is it just a one-off event?

Well, we cannot really it is not up to us to determine every charter's strategy. Practically with Zim, as far as we are concerned, it was a charter that took all of their vessels on time without any delays. And practically as far as our other charters are concerned, our contribution let's say equivalent to Zim has already been granted by the deferrals that we have really agreed on the new buildings that are forthcoming and in this respect, we believe that we have done let's say our fair share and we are not really prepared for anything additional.

Okay. Fair enough. Can you give us any color on how -- it is in the release so I guess the payments that have been pushed or reduced now that will come back to you in the form of I guess a debt payment over time or how does that get paid out? And where is it going to appear on the sheets?

I cannot really disclose much information. The only thing is really what we have told you in the press release that we don't lose economic value or whatever the deferrals which are substantially lower than the initial 35% reduction are going to be repaid in the future with interest-bearing. So practically it is let's say pure revenue deferral exercise.

How about -- can you give us any hint on what kind of interest it will bear?

No, I said unfortunately I do not want to really to go into the -- (multiple speakers)

No, I appreciate it. Thank you very much. No, I understand. Sorry about that. Very good. Everything else is clear to me in the release. Thank you, guys.

Gregory Lewis, Credit Suisse.

Thank you, and good afternoon, John and Dimitri. John, could we talk a little bit about your order book? In the press release you mention that this is how it is scheduled where we stand today. But can you talk maybe a little bit about what potentially could happen? You know, there has also been a lot of conversations about potentially -- or other shipowners have converted their containerships into other types of ships and maybe you could talk a little about the (inaudible) and maybe a little bit about what is happening in the overall industry?

There is no doubt that everyone is exploring all options and the options are as we've said on one hand the straight kind of deferral which is something that we are discussing with our yards and in connection with our charters and as soon as we have a finalized situation of course, we are going to report it. But at present, we are in the middle of discussions which we hope that they are going to lead to conclusion definitely before year-end.

Also as we said, yes, one of the options is a change of ship type -- either let's say to another let's say another container to bulk or from another let's say from a ship capacity to another one. But that of course is done in conjunction with the charterer. And it is not all of our ships as you know have long-term charter commitments and all of these exercises have to be looked in perspective with our charterers and it is not the kind of unilateral decision that we can take.

Okay, great. Then just a real quick follow-up. It looks like you are scheduled to take delivery of three containerships in the fourth quarter. When we are looking out to model these, what sort of delivery timeframe should we be looking at for these three vessels?

Well, --

I mean are they being delayed or they are just like normal course delays where they might (multiple speakers)?

For the time -- as you know, there are some delays which are -- delays that we are asking. There might be other delays that relate to the yard construction schedules. Delays in yard construction schedules of course we cannot comment. As far as we are concerned, if the yard doesn't give -- we do not [count] the delivery date, it is only then that we will know that the yard cannot deliver the ship. It is not up to us.

But in any case, as I said before, we are in talks about delays of all of our ship portfolio which are at the present under construction and we will report on those as soon as we have a definite agreement.

Thank you very much for the time, gentlemen.

Ken Hoexter, Bank of America Merrill Lynch.

It is actually Scott Weber sitting in for kin. In the release you mentioned that you anticipate potentially raising capital. I was just wondering how far along you were in that process and if you could elaborate at all on what your thoughts were there?

As I said, Scott, in the release, (inaudible) size will be much more -- will be crystalized, first of all, once we have finalized the rescheduling of our new building program. So once this is over then we know we will know at least better exactly the timing of our equity needs and we will be ready to be a bit more clear on that issue.

Okay. Then going back to what you were saying a few minutes ago about potentially changing the type of ship or newbuild that you are expecting from say a container ship to a tanker or a bulk ship, would that -- in those discussions, is that also to reduce the overall level of CapEx that would be required so you could change the ship and the amount of commitment that you would make? Or you would just change the ship itself and you would still have the same CapEx commitment?

For the time being reducing the CapEx is equivalent to let's say cancellation. And for the time being, the yards do not really talk about cancellations. So we are talking about equivalent CapEx. And also another point, we are not discussing about tankers. We are discussing about maybe some possibilities of dry bulk or some other container ship sizes but not tankers.

Okay. Then one other quick follow-up just to clarify, of the newbuilds that are coming on, those already have contract commitments?

All of them.

All of them. Okay, great. Thanks a lot.

Daniel Burke, [Clark's and Johnson].

Good afternoon, all. I wanted to go back to the topic of potentially transitioning orders from container to other sectors. And you noted it would be an equivalent CapEx commitment. I wanted to ask if it would be an equivalent backlog -- contract backlog commitment that you would be able to retain in those discussions?

Well, of course. We are talking let's say on purely equivalent economic terms to Danaos. So all of these discussions do not change let's say the charter coverage and the value of a charter coverage.

Okay, great. That is what I was looking for. My second and last question was I think on last quarter's conference call you had remarked that you were evaluating the opportunities to secure finance via the export agencies, some of those out of the Far East. I don't know if I heard you mention that today. Is that still a viable financing opportunity for you?

We are still exploring these routes but as we said, we will only comment -- really report a kind of a committed done deal which is not the case at this moment.

Daniel Burke Okay, great. Those were my two remaining questions. Thank you.

Bascome Majors, Citi.

This is Bascome Majors in for Matt Troy this morning. I wanted to ask a little more about the nature of your negotiations with the shipyards. Just trying to feel where the push and pull is. Are you seeing more pressure from the banks or the shipyards themselves or even your customers in getting what you want done here?

Well, everyone understands that we are in a difficult environment and everyone understands that they must take their part of the pain to a certain extent. And the yards cannot be immune from all of these situations and that is why we see that the yards are cooperating. Of course, they have also to run a business and they cannot just let's say accept deferrals which will put them in jeopardy. But definitely we are seeing the yards becoming more understanding because also for them, they want to also continue with their business. We will continue to be their customers tomorrow and everyone tries to do what is best to accommodate the situation of the industry.

When you say they have become more understanding, do you feel as time passes the opportunity for possible discounts or additional delays or conversions will become more apparent for customers and people in your situation?

I think that here every situation in the future will be judged by the let's say by the specific contract realities. I have not seen discounts except maybe in cases that that was combined with something else maybe an additional order or things like that.

So I cannot really say how yards will react in the future. However, it remains more on an individual on a case-by-case situation.

That is fair enough. Thanks a lot.

(Operator Instructions). There are no further questions at this time. I would now like to hand back to Mr. Andritsoyiannis for any closing comments.

Thank you. Actually the closing comments are for Dr. Coustas.

Thank you, Dimitri. Thank you all for listening and taking part in this conference call and we appreciate your time and interest in Danaos. As you know, we continue to operate in a distressed industry which reflects last year's big downturn and the change in consumer and production trends worldwide. And we are taking steps to monitor the current exposure we have regarding the unfunded part of our order book and at the same time to ensure that our chartering arrangements which are the true pillars and the underlying value of our Company remain in place.

As I said earlier in the call, I have already seen the reversal from the lows earlier in 2009. World trade is recovering at a slow pace assisted by the stimulus packages of national governments and the ultimate forces of supply and demand. No matter, the pace of recovery is relatively slow and in any case, containerships have proven their contribution to efficient transportation and trade which ensures the long-term future of this industry.

Thank you very much for your time.

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