StealthGas Inc (GASS) 2012 Q2 法說會逐字稿

Thank you for standing by, and welcome to the StealthGas Inc. second-quarter 2012 results call. 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 would now like hand the conference over to your speaker today, Harry Vafias. Please go ahead, sir.

Thank you and good morning, everyone. Welcome to the conference call and webcast to discuss the results for second quarter and six months 2012. I'm Harry Vafias, CEO of StealthGas, and I would like to remind you that we'll be discussing forward-looking statements in today's conference call and presentation.

Regarding the Safe Harbor language, I would like to refer you to slide number 1 of this presentation as well as to our press release on our second-quarter and six-month results. With me today is Konstantinos Sistovaris, our CFO. And if you need any further info on the conference call or the presentation, please contact Konstantinos or myself.

Before I start through the slides, I would like to comment on the results we released today, which highlighted considerable year-over-year improvement in our operations. Our income from operations went from $1.2 million last year to about $10 million this year, a 740% increase. I repeat, 740% increase. But even looking at our bottom line -- not the net income of $0.35 a share, but our adjusted figure of $0.31 a share, that excludes the losses and gains on vessel sales and hedging -- compared to the $0.16 a share for the same quarter last year, there is close to a 100% increase. Even compared to the previous quarter's adjusted EPS of $0.25, there is a 25% improvement.

This shows, once again, the significant improvement in the LPG market, in contrast to the continuing difficult environment for most shipping companies, whereby if you are reporting earnings at all. As a result of our focus in that niche LPG market, we continue to operate profitably. And we are confident of the fundamentals in our core segment going to further market improvements in the future.

We have laid solid foundations for the Company and improved our cash position, which shall enable us to continue looking for strategic opportunities to consolidate our fleet and increase our market share.

Let's begin our presentation with slide number 2. As we have said in the past, our medium-term goal is to renew our fleet, buy new vessels, and sell older ones. During 2012, we are completing our new building program with the delivery of our latest newbuildings, the Gas Husky in January and the Gas Esco in June.

From 2011, we have taken delivery of five new brand-new LPG vessels. And over the last five years we have taken delivery of 12 brand-new LPG vessels, all from Japanese shipyards. We also sold two vessels so far this year, the Gas Tiny in January and the Gas Kalogeros in May. We wish to keep the average age of our fleet low, and sell gradually older vessels that operate in the spot market, so that we improve our contract coverage and operational efficiencies. Modern vessels are more appealing to charters, and can achieve savings of at least 10% to 15% on operating expenses.

In terms of leverage, we have always been cautious to maintain moderate leverage. At the end of the second quarter of 2012, our net debt to capitalization ratio is 47.8%. And we will maintain it at that range of 50%. Our debt is at approximately at $360 million, and we do not expect it to increase any further for the time being.

Our Company's newbuilding program has been completed after the delivery of 12 brand-new ships from Japan since 2007. And there are no remaining capital expenditure requirements. 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%; for 2013, at 56%; and for 2014, already at 40%.

Just to remind you that the equivalent of forward coverage numbers in the same quarter last year where 75%, 50%, and 25%, respectively. We have extended the forward coverage of our revenues by entering into a number of long-term charters. We'll continue to operate a relatively modern fleet of gas ships. And in this respect, the average age as of today is about 10 years, not including our four modern oil tankers, which is rather young compared to the industry average. We have managed to maintain the average age of our fleet at around 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 vessels have less operating expenses, consume less bunkers, and are more appealing to blue-chip charters. We continue to have strong charters, which lowers our counterparty risk 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 LPG counterparties. If LPG rates continue to strengthen, and we did have a charters default, we would expect to be able to find a new charter at even higher numbers.

Now, in terms of cost efficiency of our operations, I'm pleased to report yet another good performance in second quarter. Our net income breakeven level per ship per day, excluding losses on derivatives, was $5817 per vessel per day; compared to $5847 in the previous quarter; and $6161 in the same quarter of last year, which puts us comfortably into profit-making territory.

We continue to concentrate heavily on managing our cost base, and the economies of scale we have allow us to contain costs as much as we can. During the past quarter we did not see any significant increase in any expense category except in bunker fuels for the few vessels we operate in the spot market. But, lately, the drop in oil prices is leading to decreases in bunker costs.

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

Finally, regarding our 50 million share buyback program, since the program's inception we have bought back approximately 1.8 million shares, or 8% of our shares outstanding, at the cost of approximately $8.5 million. We did not proceed with any buybacks during this last quarter.

Slide 3 -- at the bottom of the employment profile chart, we have included the percentage of fixed employment days for 2012, 2013 and 2014. This enables you to assess these stability and predictability of our earnings. For 2012, 80% of voyage days are already fixed; while 56% are fixed for 2013; and 40% for 2014, with a number of charters extending beyond 2014. We continue to show opportunities to employ our vessels on long-term charters.

During the first six months of this year, we announced the conclusion of seven charters of duration of one year and longer. The latest charter extension we did was for the gas Cerberus whose charter was extended by one year. Total contracted revenues are approaching $200 million after 2017, and the estimated DC equivalent for the LPG vessels on long-term charters is approximately $9500 a day.

In terms of charter types, out of the fleet of 37 vessels, we have 14 of these vessels on bareboats; 17 on time charters; and six in the spot market. The Company's policy is to find employment for long-term charters in order to secure a profitable cash flow.

Now we turn to the financial highlights for the second quarter and six months. So I pass you on to our CFO, Mr. Sistovaris.

Thank you, Harry. Good morning, everyone. Let me continue with this presentation with slide number 4, the financial highlights for the second quarter and six months of 2012. With an average of 37 vessels owned and operated in the second quarter, we realized a net income of $7.2 million; on voyage revenues of $29.1 million. EBITDA was $16.5 million, and earnings per share for the quarter were $0.35.

Our adjusted net income for the quarter was $6.5 million or $0.31 per share. That is before the net cash loss of $0.3 million on interest rate swaps; $1 million on swap interest paid; and $0.1 million gain on the sale of a vessel, the Gas Kalogeros; and $0.1 million on realized foreign exchange loss.

The free cash balance at the end of the quarter was approximately $57 million versus $46.5 million at the end of last quarter. We also have about $4.9 million in restricted cash as part of our loan agreements. For the six months of 2012, with an average of 36.7 vessels, our net income was $14.6 million, compared to a net loss of $2.1 million for the same period last year. Voyage revenues were $58.3 million; and EBITDA was $33.4 million. Adjusted net income for the six-month period was $11.7 million or $0.57 per share, compared to $6.1 million or $0.29 per share for the same period last year.

We now turn to slide number 5 for a summary of our income statement, in order to compare our results for the second quarter versus the previous quarter, and versus last year's quarter. Compared to last year, when we had two more vessels in the fleet, our revenues decreased by $2.2 million. However, the big difference is in the expense side. Compared to last year, our voyage costs were reduced by $2.6 million, while our operating costs were reduced by almost $2.4 million. That is a $5 million reduction in expenses in total.

The reason behind the reduction of our expenses year over year is, first, that we had two fewer vessels; and we had less vessels operating under spot charters, thus not incurring voyage costs. The reason why we had lower operating costs is mostly due to having a higher number of vessels operating under bareboat charter, thus not incurring any operating expenses.

Our operating income increased from $1.2 million last year to $9.8 million this year. That is because last year we had incurred losses from the sale of the vessels. However, excluding the losses and profits from vessel sale, derivative instruments and foreign exchange; our adjusted net income was $6.5 million compared to $3.5 million last year. That's almost double.

Compared to the previous quarter, with the same number of vessels in the fleet, our revenues were flat. Our voyage costs increased by $0.1 million and our operating costs decreased by approximately $0.2 million. Excluding the one-time gain from the sale of vessels in the first quarter, our adjusted income improved this quarter, mainly due to the lower drydock expenses. We drydocked one vessel in the second quarter, versus three in the first quarter; and also, due to the slightly lower interest rate expenses. On an adjusted basis, our earnings per share were $0.31 compared to $0.25 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 $64 million, including restricted cash. As of June 30, our vessels' book value, net of depreciation, stood at $649.2 million -- as expected with the delivery of our newbuilding, the Gas Esco -- compared to $613.8 million at the end of last year.

In terms of liabilities, the current portion of our long-term debt -- that is, what loan repayments are scheduled over the next year -- increased to $35.7 million. We have around $9 million of principal debt repayments per quarter that we can meet comfortably from our internally generated cash flow.

Other current liabilities of $22.5 million have slightly increased. Our long-term debt increased to $327.5 million because of the new loan for the new vessels. I would also like to point out that we have no debt maturing in 2012 or 2013, so there is no need to refinance. The first balloon payments on our loans are due in mid-2014, around $32 million, and then in 2016. We have no covenant breaches in our loans, and have obtained a waiver from one bank for a mild, minimum value breach.

Other liabilities of $6.3 million relate to the fair value of interest rate swaps we have with our banks to protect us from increases in LIBOR rates. This has been reduced from $9.4 million at the end of December, because these interest rate swaps are amortizing. As of today, we have around 35% 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 second quarter was $327.7 million; a $14.7 million increase since December 31.

We now please turn to slide number 7, for the operating highlights for the second quarter of 2012 and 2011. In terms of fleet data, we had an average of 36.5 vessels in the fleet, versus 38.7 vessels for the same period last year. Hence, the number of days for the fleet have been reduced by 6% to 3319 days. However, you should 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 repositioning between charters. But in terms of average daily results, we continue to see our average time charter equivalent rates improving from last year. We achieved a time charter equivalent of $9853 per day per vessel on an adjusted basis, compared to $8699 per day per vessel in the same quarter of 2011; and $9682 in the previous quarter.

Our total operating expenses year over year increase below 1%, from $4283 per day to $4307 per day. We still operate comfortably above breakeven levels, in terms of income and cash flow.

We now turn to slide number 8. As usual, we are going to provide you with some estimates for the remainder of 2012; the third and fourth quarters. We have contracted revenues under time and payroll charges of approximately $45 million. Non-contracted voyage days for the vessels operating in the spot market, or are coming off their charters, are approximately 1380. We have six vessels operating in the spot market, and four that are coming off their period charters before the end of the year. We expect our operating expenses will be around $8 million per quarter.

As far as drydock expenses, we have had six vessels to drydock this year, compared to nine the previous year. We already drydocked four vessels, and have two more to go before the end of the year.

Interest payments on our loan and cash payments on our swaps for the remainder of the year we estimate to be $7 million; and depreciation expenses of $14.5 million.

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

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

The Middle East is the main exporter of LPG. And, usually, VLGCs are used to carry the product from the Middle East to hubs in Asia, such as Singapore, where our vessels take care of the local distribution. The Middle Eastern countries, especially Qatar, have increased their quantities they produce. And it's expected that further increase will continue, so that LPG seaborne trade in total could reach 70 million tonnes by 2013, and 82 million tons by 2015. As a result, we see increased interest for business coming directly from Middle Eastern companies.

On the other side of the equation, demand, especially for propane, is steadily increasing in developing nations, especially in the Far East, where the majority of our fleet is trading. A recent trend we've seen is increasing the demand for LPG from petrochemical plants, especially in Europe. In the US, shale gas increases LPG export potential. Although the US has never been a major exporter of LPG, and we only have a couple of vessels occasionally trading there, there's a potential for an additional 2.5 million to 3 million tons of LPG of exports. Although not a huge amount, it's a welcome development.

Slide 10 -- in this slide, we'll show you one-year time charter rates for the average size ship of our fleet, which is 5000 CBM. We have updated this slide as of last quarter rates, current rates, and future estimates for the third quarter of 2012. So looking at the 5000 CBM pressurized ship, the rates have been steady, averaging $310,000 per month. And the forecast is for the rates to remain at the same levels, as we are starting to come off the summer season; but is usually slower, especially for vessels trading in the spot market.

What we consider an encouraging sign is the willingness of some charters to engage in longer-period charters from 2 to 5 years. We assume this is because they want to cover themselves from any future increase in rates. We have managed to conclude a number of such charters, previously announced, the last one being a five-year deal for our newbuilding vessel delivered in June. We have recently extended a charter of the gas Cerberus for one year. And we expect that, as we enter into the winter months, we will receive more inquiries for long-term business, as the market will tighten.

Slide 11 -- as we showed in the previous slide, charters have improved from last year. We believe that the fundamentals in our core segment, which relates supply and demand, are favorable. And, as a result, the recovery will be sustainable, despite any short-term seasonal ups and downs.

The order book for our small-sized LPG ships is fairly small at the moment. On the other hand, we expect the order book, over the next years, to decline. So far, we have seen few new orders for pressurized ships, and newbuilding prices have not come down. The Japanese yards quoting for new ships are not competitive. And we don't expect this situation will change drastically, as long as the yen remains at the level it currently is.

The Chinese do not have the experience yet to build high-specification chips for international trade. And the Koreans have achieved some orders, but they are not particularly active in this segment. LPG trade is a very niche segment, and there are barriers to entry. So we would expect mostly established players to show any interest in ordering ships, and not newcomers that would order on a speculative basis.

On the other hand, the existing fleet is current relatively old, which means more vessels will need to be scrapped. Our own 10% of the fleet is over 20 years of age. Overall net fleet growth is small, suggesting that demand for vessels will be higher than supply. If this projection materializes, we believe that with a fleet of modern ships we will command premium rates. And we are 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 the point about the order book. The order books in this slide are spread over a period of at least three years; although, in most cases, deliveries are frontloaded. As you can see, for the two main shipping segments, although the numbers have come down since last quarter, especially for dry-bulk, the order book continues to be elevated; and the huge numbers of vessels delivering this year in the dry-bulk and tanker markets are the culprits for the horrific chartering market that we are seeing today.

We have also seen interest in LNG newbuildings, due to the current 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 vessels, this space could be oversupplied in the next year or so.

The last bar in the graph is our own LPG sector, with only 12% order book for our segment. We continue to have one of the smallest order books in the segment, but still does not get as much attention. Out of a total of 254 pressurized and semi-ref vessels in our size category -- excluding the Chinese fleet that does [capitals] trades -- there are 30 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, and either do not directly compete with us, or will need to be scrapped in the near future. And at this point, if tonne mile increases at the annual rate of 5%, as some reports suggest, this could easily absorb the current small order book.

We added slide 13 just to compare our Company with some of the other US-listed shipping companies operating in different segments; such as gas, tankers and dry. As one can see, there are many companies whose stock trades above net asset values. Although there may be a variety of reasons for that, as I had mentioned in the past, I still don't believe that any US-listed company operates in a sector that has better fundamentals on the LPG segment. And yet, our stock continues to trade far below our NAV.

I'd like to close this presentation by saying that over the last year we have managed to take advantage of improving markets; keep posting solid operational profits amid a very challenging environment for most shipping companies. The gas market is steadily improving. And we can be optimistic about the future, based on market fundamentals we presented to you today.

Looking beyond the bottom line, into qualitative aspects of our business, we have managed to renew our fleet; keep the average age low; and, at the same time, we have increased our liquidity position to take advantage of rising markets, and growing our fleet further and consolidate our leading position in our strategic focus.

We have now reached the end of our presentation. We would like to open the floor for questions, so please open the floor. Thank you.

(Operator Instructions). Jack Wilson, UBS.

Hi, Harry. Your stock buyback program is definitely the best thing you can do with your deep discount. When we recommend stocks to clients, however, their first question these days is, what is the dividend yield? That's very important to investors in the current environment. Could you possibly consider restarting a low cash dividend policy again that would open the door for many investors?

Thank you, Jack. Probably you were not on the last call. We said very precisely, on this question, that we will wait and see how the last six months of 2012 pan out. And, thereafter, we will sit down with the Board and discuss the possibility of a dividend reinstatement. But just to add something, if these investors are clever and they just do the basic maths of StealthGas, they'll see that it's a company with 45% debt to market values; $65 million cash; $80 million of projected EBITDA; and leader in its segment, and tiny order book. And it's trading at 60% discount of NAV. So I do understand that dividend is very important. But I think it's a no-brainer that, at this level, is a definitely bargain, it's a big bargain.

Thank you.

(Operator Instructions). Nick Peters.

Morning, Harry. This is actually Jeff Geygan.

Hi, Jeff.

When your interest rate swaps start to roll off, would you intend to further hedge your interest rate exposure?

It depends. I cannot say at the moment. We have nothing that is very prompt to be discussed. But we don't foresee rates going up in the near future.

Second question -- you've got four ships coming off charter, with six in spot. What is your expectation, in terms of where your fleet will end up at year-end, with regard to spot versus fixed?

I don't know which vessels these are, because I don't have the list in front of me. But I suppose that, at year-end, we'll be approximately at the same percentage that we are today. We will have about 5 to 6 vessels spot.

Got it. And last question -- and you may have mentioned this on your prior call, but I didn't recall -- what is your intention with respect to your cash, if not buying in shares?

We are entering the second stage of expansion. So some of that cash will go towards that. And two, as we have discussed previously, there's going to be either a dividend reinstatement or share buyback.

Thank you. Good luck.

Thank you.

Martin Roher, MSR.

Thank you. I just wonder if you could talk about the statement in the press release, about evaluating strategic opportunities to grow and renew our fleet. Are these acquisitions that you are looking at, or new orders? I'm a little bit puzzled by what you said.

No, we are not -- generally, we do not have -- we prefer to buy those ships on an individual basis, i.e., one by one or two by two, at a maximum. We have not seen any groups of ships or any fleets that we want to acquire. Our priority is modern ships; either very, very modern second-hand ships or brand-new ships. At the moment, we haven't done anything. But, obviously, the time is coming that we have the money; we are very bullish for this year and the next; and we need to keep our leading position with brand-new vessels that not only are in high demand, but also give much better operational efficiency because of new engines, lower consumption, and lower running costs, basically.

Thank you very much.

(Operator Instructions). There are no further questions at this time. Please continue.

We would like to thank you very much for joining us at our conference call today, and for your interest and trust in our Company. We look forward to having you again at our next conference call for our third-quarter results in October.

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