StealthGas Inc (GASS) 2005 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the StealthGas conference call on the third-quarter 2005 financial results. We have with us Harry Vafias, Director, President and CEO, and Mr. Andrew Simmons, CFO 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, Monday, the 14 of November in the year 2005.

We now pass the floor to one of your speakers today, Mr. Harry Vafias, Chief Executive Officer. Please go ahead, Mr. Vafias.

Thank you. Good morning, everyone. Welcome to our conference call and webcast to discuss our results for the third quarter of '05 and for the nine-month period of 2005, which ended on September 30.

I'm Harry Vafias, the Chief Executive Officer of StealthGas. Please be reminded that we will be discussing forward-looking statements on today's conference call and presentation. Regarding the Safe Harbor language, I would like to refer you to slider Number 2 of this presentation, as well as to our press release on the third-quarter results.

With me today is Andrew Simmons, our CFO. If you need any further information on the conference call or the presentation, please contact Mr. Bornozis of Capital Link in New York, our Investor Relations advisor, at 212-661-7566 or contact us directly.

I will start from slide Number 3, please. So, I would like to reiterate our business strategy as we presented it to the investment community prior to the IPO and highlight how we been implementing it so far. Our first goal has been to triple the fleet by the middle of '06, so in this context, we have already acquired and received delivery of seven out of the 10 identified vessels. Out of the remaining three, two are expected to be delivered within this month, so promptly, the Sweet Dream and Gas Oracle, and the last one, the gas eternity, within February '06. This will complete the 19-vessel fleet, (indiscernible) in our IPO perspectives, comprised of nine initial vessels plus ten identified vessels.

Furthermore, our growth has been to expand the fleet further and acquire an additional 9 vessels beyond the identified ones and eventually expanding it to 28 in total. The first of those nine are unidentified vessels. The Catterick has already been acquired, as we announced today, for a consideration of 12.75 million with expected delivery by the end of this month. So, as of December, we will have 19 ships already delivered to us, thereby enhancing the earnings capacity of our company.

Our second goal has been to maintain moderate leverage, so as we will analyze further on, after taking into consideration the acquisition of seven out of ten identified vessels, which have already been delivered to us, our post-IPO debt-to-cap ratio is 24%. If we include all 11 vessels -- in other words, all 10 identified and the 1 additional vessel -- our debt-to-cap ratio actually stands only at 29%.

Our third goal, as we have discussed, has been to secure a visible revenue stream. In this respect, 96.6% of voyage days are fixed for the fourth quarter of '05 and 55% of voyage days are fixed for fiscal year '06.

Our fourth goal has been to own and operate a modern fleet of LPGs. In this respect, we reduced the average age of our fleet from 11 years down to 10 years.

Our fifth goal has been to maintain close customer relations. The quality of our customer relationship is exemplified by the fact that we had 100% of fleet utilization in the third quarter of '05 and we secured a 14-month time charter for the Catterick, the additional vessel we just acquired.

Our last goal has been to maintain cost-efficient operations. In this context, we have achieved a loan at income breakeven level of $4315 per ship, per day in the third quarter of '05.

Last but not least, we intend to implement a policy of quarterly dividends. In this respect, we are on track to declare, as planned, our first dividend of 18.75 (indiscernible) January '06.

If you want to flip to slide Number 4, it demonstrates the development of our fleet. Just to summarize, pre-IPO, we had an initial fleet of nine LPG carriers, and post-IPO we set out to acquire ten more vessels that have already been identified. This brought the fleet to a total of 19 LPG carriers. However, our plans have been to expand beyond this number by acquiring 9 additional vessels and eventually bring the fleet size to 28 by the second quarter of '06. Out of those nine additional vessels, we have already acquired one, as we announced today. So to recap, as of today, November 14, we've built a fleet of 20 vessels in total and by the second quarter of '06, we plan to expand our fleet to 28 vessels, as indicated on this slide.

I want to point out that today, with a fleet of 20 vessels, StealthGas ranks number one in the world in owned vessels in the 3000 to 8000 segment on which we are concentrating on.

Slide Number 5 demonstrates our fleet profile and provides you with information on the type, size and age of each vessel, as well as the employment status, which with details were relevant of the charter expiration date and the monthly rate.

We now turn to the financial highlights of the third quarter, and I will pass you onto our CFO, Mr. Andrew Simmons.

Thank you, Harry. Good morning, everybody.

With slide Number 6, we now turn to the financial highlights of the third quarter '05. An average of nine vessels were owned and operated in the third quarter, 2005, earning an average time charter equivalent rate of approximately $8027 per day. Quarter Three net income was 3.6 million with revenues of 6.9 million and EBITDAR of 5.1 million.

Our earnings per share was $0.60 per share, calculated on 6 million shares outstanding. Our cash balance on September 30 was 15.3 million. We've maintained a conservative leverage with net debt to capitalization of 36.7% as of the end of the third quarter. We utilized 92 million of the IPO proceeds to acquire seven of the ten identified vessels.

After the end of the third quarter until today, we have arranged for a 50 million, ten-year facility secured by six vessels to fund two of the remaining three identified vessels and to partially fund additional vessel acquisitions, as we pointed out, over the next three quarters. We should also point out that 4 out of our 16 existing vessels delivered to us remain debt free, therefore providing us with substantial financial flexibility.

Turning now to Page 7, this provides you with an overview of our income statement for the third quarter '05 and for the nine-month period ended September 30, 2005. As Harry has already mentioned, we had net revenue of 6.9 million with operating income of 3.8 million and net income of 3.7 million and EBITDAR of 5.1 million. The third-quarter earnings per share were $0.60 calculated on 6 million shares outstanding at the time. For the nine-month period ended 30 of September, we had net revenues of 16.5 million with operating income of 8.6 million, net income of 7.7 million and EBITDAR of 10.9 million. Our nine months earnings per share was $1.28, calculated on 6 million shares outstanding at the time.

Slide number 8, please, demonstrates our operating highlights for the third quarter and nine-month 2005 period. In terms of fleet data in the third quarter '05, we owned and operated an average number of nine vessels and achieved 100% fleet utilization, all of it under time charters. For the nine-month period of 2005, we owned and operated an average 7.3 vessels and again achieved 100% fleet utilization. 99.5% of voyager days were also under time charters.

In terms of average daily results per vessel for the third quarter '05, we achieved a daily time charter equivalent of $8027 per day, per vessel. Vessel operating expenses were 1809. Management fees were $302. G&A expenses were $137. Total vessel operating expenses 2248, indicating the cost efficiency of our operations.

In terms of average daily results per vessel for the nine-month 2005 period, we achieved a daily time charter equivalent of 7948. Vessel operating expenses were 1972. Management fees were $320. General and administrative expenses were 174. Therefore, our total operating expenses were 2466.

Turning to slide Number 9, this indicates how our cost-efficient operations and moderate leverage translate into low daily breakeven, both on a cash flow and net income basis. This low breakeven is one of our competitive advantages. The figures on the slide are based on the actual results of the third quarter '05, so as analyzed in the slide, our daily breakeven per vessel is 4761 on a cash flow basis and $4315 per day on a net income basis. I would like to remind you that in the same period of the third quarter '05, we owned an average time charter equivalent per vessel of $8027 per day.

Slide Number 10 shows the Pro Forma adjustments made to our balance sheet as of September 30, 2005 to reflect the vessel acquisitions until today. The third column from the right indicates our Pro Forma capitalization based on today's fleet of 16 vessels, which includes the 9 initial vessels plus the 7 identified vessels which have already been delivered until today. As such, our debt to capitalization stands at 24%.

The sixth and last column from the right indicates our Pro Forma capitalization based on the fleet of 20 vessels, which includes today's fleet plus the 3 remaining identified vessels and the 1 additional vessel which we have announced today and which we expect to take delivery upon this month. On that basis, our debt to capitalization still remains quite moderate at the level of 29%, providing us with additional flexibility for further acquisitions as per our fleet-expansion strategy.

Turning, please, to Page 11, Page 11 demonstrates how we anticipate our capital expenditures rate for the fleet expansion to develop on a quarterly basis and how we intend to fund them. The first row refers to the ten identified vessels, which we have been acquiring for a total of 123.7 million. We've taken delivery of seven until today with two more expected in the fourth quarter of '05 and the last one, as was mentioned previously, the Gas Eternity, by February of next year. The second row refers to the nine additional vessels we intend to acquire for an estimated total of 112.8 million. Of those nine, the first one, Catterick, has been acquired for 12.75 million and will be delivered within November '05. Four are planned to be acquired in the first quarter of '06 and the remaining four in the second quarter of 2006. We estimate the additional nine vessels, including Catterick, which has already been acquired, will cost approximately $112.8 million in total.

The third row shows the quarterly breakdown of our total acquisition capital expenditures of 236.5 million, bringing the fleet total to 28 vessels. As seen on the right column on the bottom, 101.6 million total will be financed with bank debt, leaving 134.9 million which we will fund from the 109 million net IPO proceeds and 25.9 million with the funds (indiscernible) from our operations over the next three quarters.

Slide 12 is a financial calculator similar to one that we had in our IPO slides when we met with many of you earlier this year. We created this slide for our shareholders and investor today to estimate our financial performance for '05 and '06. The slide provides you with the revenue we've already secured under time charters for 2006. The variable is the revenue to be generated by those of our vessels operating in the spot market. We have provided you with a number of spot days during each period and under various the sizes. So all you need to do is input the rate you wish to assume our average vessel of 4200 CBM will earn, and you can calculate everything else, and as such, it's a very simple situation to analyze.

Thank you for your attention. I will now hand you back to Harry for some comments on the industry. Thank you.

Thanks, Andrew.

If you want to look at Page 13, probably you are familiar with this slide from our roadshow; it demonstrates the relationship between LPG suppliers and freight rates. Seaborne LPG trade is supply-driven and less affected by demand and based on committed projects. Liquefied Natural Gas production is expected to increase by about 12% per annum over the next five years. As you should remember, LPG is a byproduct of LNG. Also, new environmental regulations do not allow the flaring off of LPG or LNG. (indiscernible) and Partners forecasts LPG supplies to increase by 50% by 2010 from 50 million tons to 75 million tons. So, more natural gas produced and less flaring of LPG means higher LPG supply, more shipments and therefore higher rates.

Slide 14 -- again, it's one slide that probably you've seen during our roadshow. It enforces our view that LPG demand is sustainable for the foreseeable future. Please note the growth between 1965 and 1888 in Japanese LPG consumption, 23 years of rapid 8% year-on-year growth. Although consumption has plateaued, it has not declined. This rapid growth phase is currently expensed and should continue for another 10 or 15 years, maybe, in China and India, the two most populous countries in the world. Both of these countries will (indiscernible) LPG imports to satisfy domestic demand.

Page 15 -- just an indication of rates for different sizes. This slide indicates the freight rate evolution for 12 months time charters for our market. The figures are based on independent estimates by a big brokerage firm called (indiscernible). As you can see highlighted in yellow, the segment we focus on are the vessels between 3000 and 8000 CBM, as characterized by relative stability as average rates in the third quarter of '04 and current rates remain at the same or slightly higher levels.

The independent forecast for the fourth quarter of '05 is that rates will strengthen and the same trend is I think the anticipated among most of the industry sectors.

We have now actually reached the end of our presentation, and we are ready to open the floor to your questions, so operator, if you want, please open the floor.

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS). Daniel Burke of Johnson Rice.

First a question on the rates that you just indicated near the end of the presentation -- I was wondering if you could give just a little bit more color on evolution of rates so far in the fourth quarter, maybe discuss any differences you've seen in the specific market and then the European or the European market and Atlantic Basin market as well.

Do you want me to talk to you about (indiscernible) or pressurized?

I guess if you could address both, that would be even useful. It's my understanding that the pressurized trades more frequently, of course, in the Asia-Pac market.

Correct. As we had discussed, the (indiscernible) have been more stable up to now. There's a shortage of ships, actually; that's why the rates have not during the summer time, I mean, weakened slightly, not a very, very small change. Therefore, in the region of -- as you see in the table about $10,000 daily. As we had discussed again, the rates for (indiscernible) are more applicable in the (indiscernible) and the Atlantic because the majority of those ships do not trade east of Suez.

Now, in the pressurized ships, which of course the majority of our ships are pressurized, it depends again where they trade. If they trade east of Suez, the rates are slightly weaker because there are more ships available down there, therefore more competition and therefore weaker rates. In the west of Suez, i.e. mid (ph) continent and the Atlantic Basin, the rates are firmer and the rates are close to the rates of the semi (indiscernible). I personally expect the rates to remain fairly stable, maybe the pressurized ships to strengthen a bit now that we are approaching the cold season, let's say, and for the rates to remain firm, let's say, until February/March -- thereafter again, a seasonal weakening, which we have been experiencing over the last couple of years.

I understand. A question -- good to see the acquisition of the Catterick. Are you in any discussions for incremental acquisitions at this time? Any advanced discussions?

As we had promised during our roadshow, we want to have 28 ships by June '06, about June '06. We already have 20 with the Catterick, and I am in discussions now for a further three ships which of course I cannot yet disclose because they are not yet finalized. Hopefully, if all goes well, we're going to have 23 vessels very soon, so our expansion program is actually happening sooner than what we had said during our roadshow.

One last one just for Andrew -- could you refresh my memory, Andrew, on what level of debt, on a net debt to cap basis, you're most comfortable with as you advance the acquisition strategy?

Yes, I mean, the way we have the business modeled at the moment, we expect our maximum debt to cap to be approximately 49% by the midpoint of next year. Obviously, as we discussed on the roadshow, were there to be accretive acquisitions that would take that up to say, to around 55, 60%, we still consider that to be relatively prudent. But based on the 28 vessels model, albeit slightly perhaps accelerated, as Harry has just outlined, we expect our maximum debt to cap to be 49%.

Okay, great. Thank you guys. I will turn it back.

(OPERATOR INSTRUCTIONS). There are no further questions at this time, sir.

Then I have some closing remarks. Should I go on?

There are still no questions, sir. Please continue.

Okay, I will give you my closing remarks then and if somebody has a question, please -- they can interrupt me.

Thank you all for listening and for the interesting questions from Daniel, as always.

In closing, I would like to say that we're pleased with the way in which the third quarter has progressed and with the successful integration of the new vessel acquisitions into the initial fleet. Going forward, we will continue monitoring the market closely as we have done up to now, remaining alert to opportunities as they arise with a view to implementing our fleet expansion program and deploying our fleet conservatively under the proper time charters or (indiscernible), thereby re-enforcing our revenue generation and probability and enhancing shareholder value, and of course keeping our position as to be the worldwide leader in the (indiscernible) LPG segment.

We thank you all very much for participating in this conference, and we look forward to speaking with you again in the fourth-quarter earnings call and of course seeing you face-to-face very soon. Thank you very much.

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

Thanks.