StealthGas Inc (GASS) 2015 Q4 法說會逐字稿

Good day and welcome to the StealthGas Fourth Quarter and Full Year Results 2015 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Harry Vafias, please go ahead, sir.

Good morning ladies and gentlemen, and thank you for dialing into our fourth quarter and full year 2015 earnings presentation. This is Harry Vafias, CEO of StealthGas and joining me on the call today is our Finance Officer, Mrs. Sakellaris, who will discuss the financial results at the later stage of the call.

Before we commence our presentation, I would like for all of you to be reminded that we will be discussing forward-looking statements, which reflect current views with respect to future events and financial performance. At this stage, if you could all take a moment to read our disclaimer on Slide 2. It's noted that risks are further disclosed in StealthGas' filing with the Securities and Exchange Commission. I would also like to note that all amounts quoted, unless otherwise clarified are stated in US dollars.

So let's start from Slide 3. So to summarize our Company's key highlights for the year. As an opening statement, it has to be acknowledged that in 2015 we faced a difficult environment with the slowing global economy and record low oil prices, both affecting greatly the broader shipping sector. Particularly in the coastal LPG segment, overall market conditions were poor with weak freight rates, fewer available cargoes and more ships to compete with.

Despite this challenging market conditions, we believe that our Company stood strong demonstrating throughout the year revenue growth, while successfully concluding the rigorous capital investment plan for the year. As mentioned in our previous calls, throughout 2015 we took delivery of a total of 10 new eco-LPG carriers all from top-quality yards. Our fleet expansion assisted us to achieve the year-on-year increase in vessel calendar days of about 15%, while we managed to close the year with an operational utilization of 92.5%. We continued our conservative chartering strategy maintaining, as customary, strong earnings visibility.

Proceeding to our financial highlights. In 2015, we recorded revenues of $141.3 million, an increase of about $9 million compared to 2014. While our adjusted EBITDA, a measure which excludes non-cash items amounted to $58.4 million. In terms of our leverage and cash position, we still maintain a low gearing of about 41% with a net debt-to-assets ratio as low as 31% as our cash is about $100 million.

Most importantly, we actively continue our stock repurchase plan as we feel at this market valuation, it's the soundest corporate strategy to follow. We have spent till now, about $20 million from December 2014 to to-date.

Looking at our Company's positioning against peers in Slide 4. StealthGas, with an estimated market share of about 20% in terms of vessel zones, remains the leader in the small LPG segment. Our Company successfully materialized in 2015 the heaviest fleet expansion compared to any other of our market peers. In terms of our average fleet age, it was reduced with our new deliveries over the last 12 months by approximately 20% and it is now close to 8.8 years on average. Indeed, we own a young efficient fleet, as 75% of our vessels are below 15 years of age, while only 11% are above 20 years of age.

Slide 5 provides an analysis of our fleet employment. In terms of charter types, out of a fleet of 53 owned vessels and as of February 15, we had 14 of this on bareboat. Two vessels came off bareboat in the last couple of months, 26 on time charters and 13 in the spot market. The only two vessels that are chartered in by a company are also sublet on time charters. As customary to our conservative chartering strategy, we have 63% of our fleet on period charters. We secured revenues of about $200 million and an average contract duration of 2.7 years.

It's interesting to know that despite the soft market, we have a 100% of our new deliveries on period charters and have manage to have 45% of our fleet above 15 years of age employed on period contract basis. As a business policy, we usually strive to have a bigger percentage of our fleet on period, but given the current market, and as stated in our previous calls, we prefer not to commit to long-term charters at a time when rates are close to the all-time lows and therefore, we have the higher than usual number of vessels on the spot market.

In terms of new employment and contracts, since our Q3 results announcement in November, we concluded five charter extensions, four time charters of half year duration, two charters of 12 months duration and 18 months time charter to this one for our upcoming newbuilding delivery, which will happen in June or July 2016.

With regards to our fleet geography on slide 6, 56% percent of the fleet trades in the Middle East and Far East, 30% in Europe, 7% in South America, and 7% in Australia. It's the nature of our business to benefit from geographical diversification as we have the flexibility to adjust our trading partners, according to the market needs. In comparison to our fleet composition presented in the previous quarter; during Q4, we had only one charter expiring in Brazil and that ship was relocated to the Caribbean.

Slide 7 demonstrates our fleet development and any sale and purchase activity. As to date, our Company owns 53 ships. We took no deliveries of new vessels during the fourth quarter of 2015. However, in January 2016, we completed the sale of Gas Arctic for further trading, while early this month we took delivery of new 7,500 cubic meter Eco vessel, the Eco Nical.

It's also been noted that during 2015, we've had 10 new eco LPG vessels delivery. We expanded our fleet by 22%. Continuing our schedule expansion, we'll have a fully owned fleet of 58 vessels by the end of 2017. So just briefly touch upon our fleet characteristics, looking at the graph at the bottom left, the majority of the vessels we operate fall in the 3,000 to 5,000 cubic meter category, while our average fleet capacity is somewhat higher, about 4,700 cubic meters.

Slide 8 is the analysis of our remaining capital expenditure program scheduled to take place this year and the next. We took delivery of the Eco Nical, early this month and we expect the delivery of yet another new 7,200 Eco LPG vessel to take place in the third quarter. For 2017, we expect to take delivery of the four new 22,000 cubic meters semi-ref vessels, which will add to our fleet, a small element of diversification, without really deviating from our core segment.

Looking at the table on the left, our remaining CapEx excluding any related advances paid to-date is in the order of about $196 million. At the bottom of the table, we provide you with a detailed breakdown of our capital expenditure as to advances and final payments related to our future deliveries. In relation to the financing of this capital expenditure, which is presented in the left graph, from a total contract value of $231 million; $35 million are advances paid to-date, $17 million is committed bank debt, while $135 million is debt under negotiation related to our new 22,000 cubic meter semi-ref vessels. Equity requirement is low as $44 million, which is around 22% of our remaining CapEx.

We are planning to finalize the financing of these vessels by end March 2016 as initially directed by our Board of Directors. The willingness exerted by financial institutions to finance more of our newbuilds under difficult market conditions gives us comfort not only for the strength of our Company, but also for the good rating the seaborne LPG trading business.

Now, I'll turn the call over to Mrs. Sakellaris for a financial performance discussion during the fourth quarter and full year 2015 and later I'll continue with the market and the industry outlook.

Thank you, Harry, and good morning to everyone. As an opening statement and as mentioned early on, we acknowledge that this year's profitability potential was suppressed due to market conditions, but we feel we managed through yet another quarter and consistently during the year to materialize successful cost-effective management policies.

Let us move on to Slide 9, where we see the income statement for the fourth quarter of 2015 and full year results against the same periods of the previous year. Looking at the fourth quarter results, our voyage revenues came $37.4 million, marking a 7% increase compared to the same period of 2014, mainly due to the realization of our new deliveries, which are all charted on period charters.

We must note that since rates have marked a year-on-year decline in excess of 23% in the 3,000 and 5,000 cbm segments, our revenue increase could have potentially been stronger. Voyage costs amounted to $4.2 million, marking a 20% increase compared to Q4 2014, as this quarter, our spot market days more than doubled as we had 12 vessels on the spot market at this period compared to five in the fourth quarter of last year.

Net revenues; that is revenues after deducting voyage costs came at $33.2 million. Running costs are $14.2 million, and given the considerable fleet expansion, marked a 20% increase. Key drivers of operating costs are the net addition of eight vessels and one vessel coming off bareboat. While in terms of cost categories, key driver of OpEx increase were the higher crew costs.

At this point, it's worth to mention that this quarter, we had no new vessel deliveries that burden our cost base and compared to the third quarter of 2015, we manage to contain costs as OpEx increased by only 5%, while [exports] in time charter days by more than 8%. With regards to dry docking costs, they amounted to approximately $800,000 given the completion of the scheduled dry docking of Gas Pasha and Gas Texiana.

Overall for 2016, we have scheduled for seven dry dockings that will take place throughout the year. With regards to the impairment loss of $4.7 million we took this quarter, we strategically decided to impair our [owned] vessel, the Gas Ice, which is the sister vessel on the Gas Artic that we impaired in the first half of the year. And we also took an impairment loss for Gas Marathon, another alteration.

Our EBITDA for this fourth quarter of the year came at $10.1 million. Interest in finance costs marked an increase of approximately $800,000 as a result of the increase in our leverage. With a net loss of close to $3 million, our earnings per share was minus $0.08, while our adjusted EPS for the quarter was $0.04.

So as to briefly summarize our full year results for 2015, we generated net revenue of almost $124 million, increased by $6 million compared to 2014. Our adjusted EBITDA came at $58.4 million while our adjusted EPS was $0.26 compared to $0.48 in 2014.

Slide 10 demonstrates our performance highlights for the period examined. As mentioned earlier [loan] and due to soft market conditions, our operational utilization was 91% in Q4 2015, lower compared to the same quarter of last year as we had high spot market activity. Focusing on the average daily results; adjust time charter equivalent is lower by 8% period-on-period, indicating the weak state of the market it is in.

At this stage, we would like to note that despite this hard market condition, it is as a result of our efficient management and the expansion of our fleet with Eco new vessels, that we for yet one more period, the reduction of our daily operational expenses. It is noted the daily OpEx marked a year-on-year decline of 11%.

Looking at our balance sheet in slide 11, we have a strong asset base of more than $1 billion and our strong liquidity continues as we have cash of about $100 million in spite of our capital expansion. Compared to our nine months figures, our cash increased as we [do debt] for two vessels delivered within Q3 2015. Focusing on the equity and liability side, our gearing still remains low in the order of 41%, since our Company leverage decreased by $100 million as a result of our CapEx program.

We have 10 vessels unencumbered and this number will increase within the year. We have a schedule of annual principal repayment excluding balloon payments of approximately 11% of our outstanding loan balance for the years to come. Therefore, even when our leverage increases with the deliveries of four new 22,000 semi-refs in 2017, our leverage ratio will not surpass 50%.

Slide 12 presents the evolution of our break-even as well as a brief analysis of our charter equivalent earnings. Although LPG charter rates are close to the bottom of the rate cycle and as presented in the top graph to the left, our daily TCE follows a declining trend, but so does our daily break-even. For 2015, our daily break-even was $6,092 compared to $6,385 in 2014. This decrease is primarily driven by a deduction in our daily OpEx.

In addition, it's evident from the brief fleet contribution analysis that our Company's strongest revenue stream is our time charters. While the weakness in the spot market is evident from the low contributions productivity had to our time charter equivalent earnings.

I will now hand you over to our CEO, Mr. Harry Vafias, who will discuss market and company outlook.

Let's now proceed with Slide 13. Despite of a soft global economy in oil prices, seaborne trade of LPG is expected to grow by 26% in the period 2016 to 2018. The slowing down of China's economy in 2015 had created much concern over seaborne trade. But for LPGs, China marked in the aforementioned year, a rise in LPG volumes of 71% primarily driven by the opening of the PDH plants and an increased domestic consumption.

The US is bound to remain one of the key drivers of the LPG business as export market share to Asia is expected to increase significantly in the upcoming years. In terms of LPG product pricing, which is currently at low levels as the prices affected by fluctuations in oil prices; besides, any change in LPG supply and demand fundamentals may affect pricing in a positive way.

Slide 14 shows the evolution of the LPG charter rates. As evident by the table presented, the small LPG segment has experienced declining rates during the past year. Compared to Q4 2014, rates have dropped by as much as 16% while from the beginning of 2014 rates have declined by about 23%. Indeed, this is a sharp decline that inevitably has affected the profitability of seaborne trade.

It's noted however, and as depicted in the top left table that during the last months, we see a minor positive trend in the evolution of rates in all categories of our segments. Another element which might positively affect costal LPGs is the potential increase of scrapping. A logical step since high number of vessels are in the market, but most importantly due to the fact that 24% of the fleet is above 20 years of age.

Since the beginning of 2015, we show the demolition of 15 vessels, including some Ethylene ships. And we feel that this trend might continue in the near future. One of the more significant facts considering our market is the limited order book for the upcoming years. We expect new deliveries corresponding to approximately 3% of the fleet in 2016, only 1.4% in 2017 while for 2018, we only expect the delivery of a single vessel. Again, the limited order book together with demolition of older vessel might help our markets to balance itself.

I will now continue to discuss further Company's outlook, commencing with our share performance for the last five months. The performance of our stock is presented along with selected gas carriers peer group. It's evident that oil price volatility strongly affects energy related stocks. As we closely monitor the market, we feel that for energy related stocks, price volatility reflects more oil and broader economy movements rather than specific company fundamentals.

This fact is evident by the high year-to-date decline at our stock and the stocks of most of our peers have experienced. Additionally, looking at the left bottom graph which present the change in oil prices versus the change in LPG rates, we see that rates seem quite stable and less correlated to the oil price movement, particularly in the last couple of months, where we note a minor upward trend in rates in spite of the sharp declining oil prices.

On slide 16, we are showing different scenarios on the Company's performance for year 2016 when the Company will operate a total of 56 ships. In general, we hold a conservative view when making such predictions. The different scenarios were built based on our existing fixed charters plus open days with current market rates. As evident from the table presented which indicates the effect of various time charter rates on our EBITDA, low rates narrow the EBITDA potential. With our strong modern fleet in place, we have the capacity in 2016 to reach an EBITDA of about $90 million, should market condition permit so.

To summarize, we have the infrastructure, the technical superiority, the market share and the solid balance sheet to navigate safely even during weak times and this can be deemed as our Company's biggest success. On slide 17 we can see some valuation multiples for StealthGas against comparable companies. All peer group companies trade at a discount to NAV while asset values exceed current enterprise values.

As stated earlier on, it shows that market caps of our segment are mostly driven by reaction to oil prices and broader market movements rather than company fundamentals. Taking as an example our company; StealthGas' [ratio] during the last couple of months that the markets collapsed close to our company's cash balance. This means that the market gives zero value to our large rejuvenated fleet despite of our low leverage and strong cash position.

It's however because of our low valuation that we feel we offer an interesting opportunity for medium term investors. We actively continue our share buyback, having spent close to $20 million from December 2014 until today and we are authorized by the Board to spend an additional $10 million on top.

Concluding our presentation with slide 18, we summarize all the reasons why we feel StealthGas is a good investment. The Company has proved its leading position in the coastal LPG business, having acquired a total of 45 ships since its IPO, while it maintains a healthy capital structure and follows a conservatives chartering strategy. We operate good quality vessels and collaborate with top tier charters. Most importantly, we managed to maintain profitability even in very poor market conditions, exerting a steady performance in spite of any market pressure.

Year 2015 presented challenges stemming from the global economic environment. Nearly all sectors of shipping faced considerable obstacles, but as to our segment, we face an environment of low freight rates attributable to low oil prices and an imbalance of supply/demand of coastal LPG ships. Our Company managed to close the year demonstrating a growth in revenue and positive income results. We have successfully executed our expansion plan, reduced our operating cost base and have preserved our superior technical efficiency.

In addition, we feel that we are in a good position as we enjoy a solid capital structure with net gearing as low as 31%, assets exceeding $1 billion and contracted revenues of about $200 million. Indeed, we believe that the Company's managerial capabilities and strength are more evident in periods of weak markets.

Our stock has been trading at about 25% of NAV, so buying back our own stock has been an obvious decision for us. We have spent close to $20 million in buying back our own stock and buying back our own stock coupled with a strong balance sheet and a rejuvenated high quality fleet and probably better market conditions going forward makes us feel optimistic for our Company's future.

We have now reached the end of our presentation and would like to open the floor for your questions please.

(Operator Instructions) Charles Rupinski, Seaport Global.

Want to see if it is the case, you've mentioned scrapping has been potential catalyst in the last couple of quarters and you also mentioned that, as a leadership role, StealthGas has views on this. Are you hearing anything in the marketplace that you think this might accelerate or is this something that's going to be maybe something steady over the next few quarters in terms of the whole fleet?

Yes, thank you, Charles. As you know, these things cannot be predicted, but it all depends on the rates. If rates stay as they are or fall further, I think you will see more vessels going for scrap. If we see an improvement in rates, I guess you will see a slower rate of scrapping because owners will think twice before scrapping their valuable assets despite their age. So the point is, a big percentage of the fleet is over 20 years of age. So sooner or later these ships will go, now if they will go this year or the next, honestly nobody can say.

Okay, great. Well, I appreciate you managing through this downturn and thanks for taking the question.

Patrick Sheffield, Beach Point Capital.

Thanks for taking my question. Harry, I just got a quick one on seasonality. In the past, you've described Q1 and Q4 as being relatively strong compared to Q2 and Q3. Does that relationship still exist? You mentioned in Q4, rates were up slightly from Q3. Is that based on seasonality or any kind of comment on that?

Excellent question, Patrick, I think from the point that the oil price collapsed, that seasonality has basically evaporated meaning that the rates winter-summer have become somewhat same. Of course, there are sometimes special conditions like icy ports and delays and fogs stuff like that that happens sometimes in North Europe over the Black Sea, which spike the spot markets for a little bit. But generally speaking, I think we had a relatively warm winter. Thus we haven't seen the seasonality factor that we have been seeing in the last five years.

Got it and then, looking at the outlook for supply and demand for your ships, you have a couple of charts in here that try to describe it, but could you provide any more color that you might have on the outlook of supply and demand and what that might mean for rates going forward?

Yes, I mean again, Patrick. I'm not somebody that can predict the future, but it depends on three things. I mean it depends what your view is on those three things. One is the scrapping as we just discuss. Two is global economy in China, what are they going to do? Are they going to improve? Are they going to be in a worst shape? And three is the price of oil. So I'm not an oil trader to give you my opinion. Most people think that the oil will stay low for at least this year.

So we have to take a defensive approach. Thank God, we have a very good balance sheet. We have a nice pre-contracted revenues of about $200 million. And because of our low breakeven, we can still survive in this weak environment instead of burning cash like some other shipping companies, especially in dry or energy shipping are at the moment doing.

So, we have lots of ships. We hope for an improvement now, if it come this year or the next, again it's just a guess. When it happens though, obviously that will mean a very, very good result for the Company because with such a large fleet there is a very, very important multiplier effect.

So your point is, you got $6,100 a day of cash breakeven, spot rates are still above that level.

On average, yes. Because, for example, if you're comparing a 24 year old ship, if you include the idle time, it's below that. But on any ships that are above 15 years of age; including the idle time, yes I would say that it's about $1,000 above.

(Operator Instructions) George Berman, ISS Raymond James.

I've got a quick question, looking at your StealthGas fleet, you currently have four crude oil tankers in the fleet and that's about the only area in the ship market where rates and values are pretty high. Have you given any thoughts, looking at the current tremendous discount that you are trading to net asset value to maybe monetize these four ships and taking the chunk of stock out of the market?

Very good comment, George. Just to correct you, we don't have four crude tankers, we have one crude tanker and three product tankers, just to be correct. Yes, as you can understand, because at the moment LPG ships don't make real profits, we are basically breakeven. These ships, these tankers are providing a very nice cash inflow for the Company and it has been supporting the Company during these weak times.

If we didn't have the cash that we just announced, it would be our first thing to do, but because we have, as you saw, quite a big pile of cash and because we have been actively buying back stock and as we discussed, we have another $10 million to spend on top. I don't think it's our number one priority, because these ships, as I told you in the beginning are very, very good in helping the cash flow of StealthGas and have been cash making machines, especially over the last two years.

Okay. You are limited by the average daily share of volume on StealthGas on how many shares you can actually purchase back right?

Correct.

My thought was looking at the situation of buying low and selling high that the disposal of those crude and product tankers at this time and then coming into the market and making a general offer for a chunk of stock might prove very good especially in light of the fact that you've sold in placements couple of years ago a few million shares in the $10, $11, $12 range.

Again a very good comment, but don't forget that our tankers have been moneymaking machines because they have charters attached. So there are not many buyers that want tankers with charter attached. The majority of the buyers want tankers that are charter-free, so that they can take advantage of the spot market. So it's not easy to sell ships with charters attached and we would have to take quite a considerable discount to do so.

Okay, that makes sense. Then one last question. In your rate scenario for the LPG ships, your fleet generally has a smaller cubic meters, 5,000 to 7,500 whereas the larger ones have significantly more. Would you consider yourself like a specialty operation? Are there any companies that have like you, only smaller size ships or are you basically one of a kind facilitating the coastal transfer?

Yes, I think we've discussed it before, we are the largest Company in the world in the small-scale LPG transportation. There are other companies, of course, with similar sized ships, but obviously not as a big fleet as ours.

And the super LPG, LNG tankers that are floating around, they usually don't have access to the ports that you service, correct?

Very correct, the majority of the ports we serve have 100 meters length restriction. And our ships, the majority of them at least are designed to be 99 meters.

Okay, great, thank you very much.

Jeff Geygan, Global Value Investment Corp.

Good morning, Harry. Thanks for taking my call. I'm looking at Slide 14 of your presentation. And by the way, I would complement you as I think this presentation has become better and better over time with more valuable information to us as shareholders.

This congratulation should be directed to Mrs. Sakellaris, because she is the one that did it, not me. But she is hearing you, she is next to me.

Yes, great, well thank you. I like the additional detail. I'm looking at the complexion of the fleet on Slide 14 and you indicated the 24% of the fleet is 20 years or older. What would actually motivate the owner to scrap a ship?

Very simple question, Jeff. Two things. Either very low freight rates or very high demolition prices.

Then, would you expect, given the modest amount of newbuilds in place that there might be a reluctance for some of these older ships to be scrapped if in fact rates firm up?

A 100%, when you don't have any debt on the ships and you are making $5,000 or $6,000 a day and your running cost is about that. So you're not burning any cash, why would you be in a hurry to scrap your ships?

Yes, I agree, so it's not although the statistics almost suggest that this fleet might contract on its own through scrapping, but you need just the right set of circumstances in order for that to happen while rates are firming?

Listen Jeff, in the end of the day, it doesn't really matter because the majority of the oil majors and the oil or gas receiving terminals in the developed nations do not take ships over 17, 18 years of age. So if these ships go for scrap or not, they don't really compete with our new generation of expensive ships. So of course we want them to get scrapped; of course, we want to make space for these new ships. But in the end of the day, the quality business is awarded to the quality ships

I appreciate that. You said in the past too. And my last question or observation, the order book out to 2018, what is the lead time in order to get an order and to have a ship build. In other words, could the 2018 order book fill up or are we beyond that and we're looking at 2019 right now?

Listen, with the market as this I doubt anyone will place new orders. Of course you can never be a 100% certain. But we don't expect a surge in orders. But yes, now you can place an order for 2018 if you want to buy, but why should anyone place an order now in such an environment? I mean, it doesn't make any sense.

Unless you expect the outlook to improve in the future.

Correct, if you expect the market to be as good as it was in beginning of 2014, yes, but I don't see yet any signs of evidence of that.

Thank you and good luck.

There are no further questions at this time, sir. I will hand back over to you for any closing remarks. Thank you so much.

We would like to thank everybody for joining us at 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 Q1 results in May. Thank you very much.

That will concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.