StealthGas Inc (GASS) 2012 Q1 法說會逐字稿

Ladies and gentlemen thank you for standing by, and welcome to the StealthGas first-quarter 2012 results conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question and answer session. (Operator Instructions).

I must advise you the conference is being recorded today on Wednesday, 23 May 2012. I would now like to hand over to your speaker today, Mr. Harry Vafias, CFO (sic). Please go ahead sir.

Thank you and good morning everyone. Welcome to our conference call and webcast to discuss the results for the first quarter of 2012.

I am Harry Vafias, the CEO of StealthGas, and I would like to remind you that we will be discussing forward-looking statements in today's conference call and presentation. And regarding the Safe Harbor language, I would like to refer to slide 1 of this presentation as well as to our press release on our first quarter results.

With me today is Mr. Sistovaris, our CFO, and if you need any further information on the conference call or the presentation, please contact Konstantinos or myself.

Before I start with the slides, I would like to comment on the results we released yesterday. These are the best results we had over the last 24 months. Our bottom-line income of $0.36 a share, or $0.25 a share excluding the gain on the vessel sale and hedging, shows a significant improvement in the LPG market filtering down to our earnings. This is in contrast with the continuing difficult environment for most shipping companies whereby few are reporting earnings at all.

As a result, of our focus on the initial LPG market we continue to operate profitably. And we have laid solid foundations for the Company, avoiding any difficult financial position that so many other shipping companies are already in.

Slide number 2, as we have said in the past, our medium-term goal is to renew our fleet, buy new vessels and selling older ones. During 2011, we took delivery of the three new building vessels which we then fixed to long-term time charters. We also proceeded with the sale of 4 older ships with an average age of 16 years.

During 2012 so far we have sold 2 vessels, the Gas Tiny in January and the Gas Kalogeros this month. And we have also taken delivery of one newbuilding, the Gas Husky in January. And within the next month we will take delivery of last newbuilding, the Gas Esco.

We wish to keep the average age of our fleet and low and get rid of the older vessels that operate in the spot market so that we improve our contract coverage and operational efficiencies.

In terms of leverage, we have always been cautious to maintain moderate leverage and not overburden the Company. At the end of the first quarter of 2012, our net debt to capitalization ratio stood at 43%, similar to the previous quarter. Our gross debt stood at about $363 million. At the end of the quarter we did not expect it to increase any further.

We continue to strive to obtain a secure and visible revenue stream with stable and predictable cash flows. At the moment, fixed employment for our fleet for 2012 stands at 80%, with almost 60% fixed for 2013.

We have extended the forward coverage of our revenues by entering into a number of long-term charters. Just to remind you that the equivalent forward coverage numbers in the same quarter last year was 63% and 40% respectively.

Our fourth goal has been to own and operate a modern fleet of gas carriers, and in this respect, the average age as of today is about 10 years not including our three modern product tankers and the one Aframax crude oil tanker, which is rather young compared to the industry average. By focusing on a modern fleet, we have managed to maintain the average age of our fleet to about 10 years for the past five years at least.

We continue to believe that within our core sector this gives us a competitive advantage as younger ships have less operating expenses, consume less bunkers and are more appealing to blue-chip charters. And this factor will be very important as we move forward into this year and beyond.

We continue to have strong charters, which lowers our counterparty risk. This is key for any shipping company's performance in any segment, especially in the kind of environment where you very often hear of charters defaulting on their commitments, especially in the dry-bulk segment.

Because of the strength of the LPG market and the participation of more established names in it, we don't expect to have any issues with our counterparties. If LPG rates continue to strengthen and we did have a charter default, we would expect to be able to find a new charter at even higher rates.

Now in terms of cost efficiency of our operations, I'm pleased to report yet another good performance in the first quarter. Our net income breakeven level per vessel per day excluding losses and derivatives was $5847 per ship per day, compared to $5750 in the previous quarter and $5975 in the same quarter of last year which puts us comfortably in the profit-making territory.

We continue to consider heavily managing our cost base, and the economies of scale we have allows us to contain costs as much as we can. During the past quarter we did not see any significant increases in any expense category except in bunker fuels for the few vessels that we had in the spot market. But lately the drop in oil prices is leading to a decrease in banker costs.

I would also like to remind you that once more that our general and administrative expenses are amongst the lowest in the public shipping sector.

Finally, regarding our $50 million share buyback, since the program's inception we have bought back about 1.8 million shares or 8% of our total shares outstanding, at a cost of about $8.5 million. We did not buy any shares during the first quarter of 2012.

Slide number 3, this slide demonstrates our fleet employment profile and provides you with the earnings visibility for each of our 37 vessels in our fleet -- 33 LPG carriers, including one newbuilding; 3 product tankers and 1 Aframax crude oil tanker. At the bottom of the employment profile chart we have included the percentage of fixed employment base for '12 and '13.

[Reasonably] to assess the stability and predictability of our earnings, for 2012 80% of [voyage base] are already fixed and 55% for 2013 with a number of charters extending to 2014 and even beyond. We continue to see opportunities to employ our vessels on long-term charters. During the first quarter we announced the conclusion of five charters of duration of one year and longer, another 4 charters shorter than one year and we also charted our product tanker for four years.

Total contract revenues are about $200 million after 2017 and the estimated [this] equivalent for the LPG vessels on long-term charters is about $9500 per day. In terms of charter types, out of a fleet of 37 vessels we have 14 of the vessels on bareboat, 20 vessels on time charters and three in the spot market.

The Company's policy is to find employment for long-term charters in order to secure its cash flow. To reduce further our risk, we have arranged for a number of bareboat charters.

We now turn to the financial highlights for the first quarter, so I will pass you on to our CFO, Mr. Sistovaris.

Thank you, Harry. Good morning everyone. So let me continue the presentation with slide number 4, the financial highlights for the first quarter of 2012.

With an average of 37 vessels owned and operated in the first quarter, we realized that income of $7.4 million and voyage revenues of $29.1 million. EBITDA was $16.8 million and the earnings per share for the quarter was $0.36.

Included in the net income figure is a $0.8 million non-cash gain on interest rate swaps fair value changes and a $1.3 million gain on the sale of the vessel, the Gas Tiny. Excluding these items our adjusted net income for the quarter was $5.2 million or $0.25 per share.

The free cash balance at the end of the quarter was approximately $46.5 million. We also had about $7.6 million in restricted cash as part of our loan agreement.

We now turn to slide number 5 for a summary of our income statement in order to compare our results for the first quarter to the previous quarter and to last year's quarter. Compared to last year when we had two more vessels in the fleet, our revenues decreased by $1.4 million. Compared to the previous quarter with the same number of vessels in the fleet, they were slightly higher.

However, the big differences in the expense side. Compared to last year our voyage costs were reduced by $1 million, while our operating costs were reduced by almost $3 million. Compared to the previous quarter, our voyage costs were reduced by approximately $2 million, while our operating costs were reduced by $0.1 million.

The reason behind the reduction of our expenses is first that we had more vessels operating under bareboat charters, thus not incurring operating costs. And second, we had less vessels in the spot market, thus not incurring voyage costs. So while our costs have come down significantly our revenues, despite having more vessels under bareboat charters, due to the strong chartering market have remained flat or reduced much less.

Our operating income, which this quarter includes a $1.3 million gain from the sale of the vessel, was up a by $3.7 million or 57% year on year. Our net income was up 380% year on year. If we are to exclude derivative non-cash gains and gain on the vessel sale, our adjusted net income was $5.2 million compared to $2.7 million last year, an increase of 88%.

Again, on an adjusted basis, our earnings per share was $0.25 compared to $0.13 last year and $0.17 in the previous quarter.

Slide number 6. Looking at our balance sheet, in terms of cash we continue to maintain a healthy cash balance of $55.4 million including the restricted cash. As of March 31, we had $16.5 million in vessels held for sale account, which refers to the sale of the Gas Kalogeros. The vessel was delivered to her new owners on May 4.

Advances for vessels under construction were $13.3 million. These are installment payments to the yard for our last newbuilding, the Gas Esco, to be delivered in June. We still have the delivery payment that will be covered by bank finance.

Our vessels book value net of depreciation stood at $623.7 million compared to $613.8 million at the end of last year. With the delivery of Gas Esco in June, we would expect this figure to be around $650 million by the end of the current quarter.

In terms of liabilities, the current portion of our long-term debt, that is what loan repayments are scheduled over the next year, remain constant. We have around $9 million of principal debt repayments per quarter, $36 million per year that we can comfortably meet from our internally generated cash flow. We also have $12.8 million to repay the bank once the Gas Kalogeros was sold, and this money has been repaid as of today.

Other current liabilities of $23.9 million are slightly increased. Our long-term debt decreased slightly to $315.6 million. We would expect our overall debt of $363 million to remain below the $370 million market after we have taken delivery of the last vessel.

I would also like to point out that we have no debt maturing in 2012 or 2013, so there's no need for refinance. The first balloon payments on our loans are due in mid-2014, around $32 million, and then in 2016.

Regarding compliance with our loans, we had one bridge of a loan-to-value covenant in one of our facilities related to one of our product tankers. Last year we had obtained a waiver until March 31, 2012 regarding this loan, reducing the loan-to-value to 110%. Once this expired in the current quarter, the loan-to-value reverted to the original 125% and we were not in compliance.

We are in discussions with a bank to cure this bridge, but we do not consider it to be a significant risk. After all, in dollar terms the bridge is around $2 million to $2.5 million and we have over $50 million in cash.

Other liabilities of $6.8 million relate to the fair value of interest rate swaps we have with our banks to protect us from increases in LIBOR rates. As of today, we have around 40% of the interest rate exposure on our loans hedged. On average, by 2013 we would expect half of our swaps to have expired or amortized unless by this time we enter into new agreements.

Stockholders equity for the first quarter was $320.5 million. We now -- please turn to slide number 7. These are operating highlights for the first quarter of 2012 and 2011.

In terms of fleet data, we had an average of 37 vessels in the fleet versus 38.4 vessels last year. Hence the number of the days for the fleet have been reduced by 2.5% to 3367 days.

However, you notice two things. First, the spot market days for the fleet have been reduced by half because the vessels we sold were operating in the spot market and because we have concluded more period charters. And second, our utilization ratio has increased as a result of the new charters and the reduced idle time due to the repositioning between charters.

In terms of average daily results, we continue to see our TCE rates improving from last year. We achieved the Time Charter Equivalent of $9682 per day per vessel on an adjusted basis, compared to $8967 per day per vessel in the same quarter of 2011 and $8882 per day in the previous quarter.

Our total operating expenses decreased from $4375 per day to $4227 per day. We still operate comfortably above breakeven level in terms of income and cash flow.

We now turn to slide number 8. As usual we're going to provide you with some estimates for the remainder of 2012, the second, third and fourth quarters.

We have contracted revenues under time and bareboat charters of approximately $66 million. Non-contracted voyage days for the vessels operating in the spot market or are coming off their charters are approximately 2110. We have [8] vessels that are coming off of their period charters during the year.

We expect our operating expenses will be around $8 million per quarter.

As far as drydock expenses, we have fewer vessels to drydock this year, six vessels compared to nine last year. And we have already drydocked three vessels in the first quarter.

Interest payments on our loans and cash payments on our swaps for the remainder of the year we estimate to be $11 million, and depreciation expenses of $21.8 million.

As far as the payment for the newbuilding vessels is concerned, the remaining payments for the yard is just for the delivery of the vessel and is approximately $90 million. And we have already arranged for finance to cover the whole of this payment.

We also have added some estimates in order to show you the potential earning power of our fleet in an improved market. Currently rates for a modern 5000 CBM vessel are closing about $11,000 per day. If, at some point, we were to renew all of our hires on our LPG vessels at the rates described below -- that is from $11,000 to $13,000 per day -- we estimate that the potential EBITDA we could generate would be from $82 million to $105 million.

Thank you very much. And I will now hand you back to Harry for some further comments on the market.

Let's move to slide number 9. As we have said in the past, one of the key drivers in the LPG market is supply of the product. LPG is also a byproduct of natural gas, and we expect that as more natural gas facilities being built, there will be more LPG available for shipment especially since it is too costly to store.

The Middle East is the main exporter of LPG and usually the VLGCs are used to carry the products from the Middle East to the hubs in Asia, such as Singapore, where our vessels take care of the local distribution.

Middle Eastern countries, especially Qatar, have increased their [condensate they] produced and it's expected that further increases will continue, so that LPG (inaudible) [trade-in] total could reach 70 million tons by 2013. As a result, we see increased interest for business coming directly from Middle Eastern companies.

On the other side of the equation, demand is steadily increasing in developing nations, especially in the Far East where the majority of our fleet is trading. A recent trend we have seen is increasing demand for LPG from petrochemical plants due to the high pressure of naphtha. Both naphtha and LPG are feedstocks in the production of chemicals, and as naphtha prices have recently been very high, there seems to be a switch from naphtha to LPG as a cheaper alternative. Although this may be temporary, it could provide good support for LPG ship on trade.

Slide number 10, in this slide we show you one year's time charter rates for the average sized ship of our fleet. We have updated the slide with last year's rates, current rates and future estimates.

Looking at our vessel, the 5000 CBM pressurized ship, the rates in the first quarter of 2012 were $290,000 per month. But this is a time where rates have started moving higher. In the first quarter of 2012, rates averaged $310,000 per month and the forecast for the current quarter's [for rates] remained steady. As we head off into the summer season, that is usually slower.

What we consider an encouraging sign is the willingness of some charters to engage in longer period charters from one to five years. We assume this is because they want to cover themselves from any future increase in rates. We have managed to include a number of such charters, as previously announced, the last one being a five-year charter for our newbuilding vessel delivering in June.

At this point, we only have 5 vessels operating in the spot market. But because of our staggered employment profile during this year, we have 8 vessels whose charters we'll need to renew and we would expect new charters to be at levels higher than the current ones.

Slide number 11. As we showed in the previous slide, charter rates have improved from last year and we believe that fundamentals in our core segment that relate to supply demand are favorable. And as a result, the recovery will be sustainable despite of any short-term seasonal ups and downs. The order book for Handysize LPG ships is fairly small at the moment.

On the one hand, we expect the order book over the next years to decline. And so far we have not seen -- we have seen very few new orders for pressurized ships and newbuilding prices have not come down, especially due to the strong yen. The Japanese yards quoting for new vessels are not competitive and we don't expect this will change drastically as long as the yen remains at the levels that it currently is.

On the other hand, the existing fleet is relatively old which means more vessels will need to be scrapped. Around 10% of the fleet is over 20 years of age and overall net fleet growth was small, suggesting the demand for vessels will be higher than supply. If this projection materializes, we believe with the fleet of modern ships we will command premium rates and we're positioning our Company to take advantage of the strong fundamentals in our sector for the next 24 months.

Slide 12. We have included this slide to re-emphasize a point about the order book. The order book on the slides are spread across a period of at least three years, although in most cases deliveries are frontloaded. As you can see, for the two mainstream shipping segments although the numbers are better than last quarter, the order book continues to be elevated at 30% for bulkers and 25% for containers and 16% for tankers.

We have also seen recently renewed interest and LNG newbuildings due to the solid chartering market. At this point, increasing LNG volumes may absorb the increase in the order book. But unless there is a restraint in the ordering of new ships, this space could be oversupplied in the coming years.

The last part in this graph is our own LPG sector with an 11% order book for our segment. We continue to have one of the smallest order books in the segment, but there is not yet as much attention. Out of a total of 254 pressurized and (inaudible) vessels in our category, [3000 to 7000 and a half] cubic meters, excluding the Chinese fleet that (inaudible) trades. There are 29 vessels on order to be delivered over the next three years.

At the same time, as I previously mentioned, around 24 vessels are older than 20 years of age and either do not directly compete with us, or will need to be scrapped in the near future. And at this point, if ton mile increases at an annual rate of about 5% as some reports suggest, this could easily absorb the current order book.

Slide 13, we have added this slide just to compare our Company with some of the average (inaudible) shipping companies operating in different sectors like dry-bulk, LNG and tankers. As you can see, there are many companies whose stock trades above their net asset values. There may be a variety of reasons for that.

However, I don't believe that any of these companies or for that matter any US listed company operates in a sector that has better fundamentals than our own LPG sector. Yet our stock continues to trade far below our NAV.

I would like to close this presentation by saying that over the last year we have managed to take advantage of improving markets and posted solid operational profits. The market has not reached yet the previous peak levels, but it's steadily improving and we can be optimistic about the future based on the market fundamentals we presented to you today. The results we announced today are the best over the last two years.

But even looking beyond the bottom line to qualitative aspects of our business, we have managed to renew our fleet and keep the average age of the fleet lower, and at the same time have increased our liquidity position to take advantage of rising markets and growing our fleet further.

As far as our stock price is concerned, despite the recent run-up I believe we still present a very attractive prospect for investors. We're a solid Company in an industry whose outlook is bright, and we are valued very cheaply, far below our [breakout] value. We will continue to buy back stock for as long as our stock price remains at such levels.

We have now reached the end of the presentation and would like to open the floor to your questions. So, operator, please open the floor. Thank you.

(Operator Instructions) Jeff Geygan, Milwaukee.

Good morning Harry. Very nice quarter.

Thank you, Jeff.

Will you book a gain or a loss on the sale of the Gas Kalogeros?

It's going to be a small gain we expect. Small though.

All right. When you are giving fleet statistics, you exclude the Chinese fleet. Why is that? And do you know the size of that fleet?

We don't compete with the Chinese fleet and the Chinese fleet does not trade internationally because they don't have all major approvals. We don't know their numbers because these are Chinese-built ships with Chinese engines, Chinese pumps, Chinese crews and it is very difficult to get information on that.

All right, appreciate it. Strategically speaking with respect to the ships you have in spot market, would it be your intention to try and employ more of your ships out of the spot market in a rising rate environment?

If we can get good numbers for short-term charters, yes.

And my last question for today, what is the impact of a Greek bank default and/or Greek exit of the EU?

It's going to be actually good news for StealthGas because we have some euro costs. If Greece exits, the euro was going to be drachma, which is going to be de-valued. Therefore our euro cost component will fall considerably.

Excluding our office, we have nothing else in Greece. Our ships do not come to Greece. We don't have Greek charters. We have minor business with Greek banks and we hold very little deposits in Greek banks, so I gather the impact will be neutral to slightly positive.

Great, thank you. Keep up the nice work.

Thank you.

George Berman, J.P. Turner & Company.

Good morning, gentlemen, and congratulations on a great quarter.

Thank you.

One quick question, in the current promo that is going on overall in the shipping industry except for your area, with the amount of cash you have amassed, you've also bought significant amounts of stock back. Where do you see opportunities to deploy this cash other than in buybacks?

As we said, if the stock remains at this level we will buy back more stock. But after that, we will look to buy some more ships.

Okay, great. Just a comment; all the best to the turmoil getting through the situation, at least for you and your families and your Company.

Thank you.

Bye-bye.

(Operator Instructions). We have no further questions, sir, if you wish to continue.

Well, we would like to thank you for joining us on our conference call today and for your interest and trust in our Company. We look forward to having you with us again at our next conference call for our second-quarter results in August. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you all for participating and you may now disconnect.