Genco Shipping & Trading Ltd (GNK) 2011 Q1 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Genco Shipping & Trading Limited First Quarter 2011 Earnings Conference Call and Presentation.

Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.GencoShipping.com. We would like to inform everyone today's Conference is being recorded and is now being webcast at the Company's website www.GencoShipping.com.

We will conduct a question and answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be assessable at anytime during the next two weeks by dialing 888-203-1112 or area code 719-457-0820 and entering the passcode 639-1931.

At this time I will turn the conference over to the Company. Please go ahead.

Good morning. Before we begin our presentation I note that in this conference call we will be making certain forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Management's current expectations and observations.

For a discussion of factors that could cause results to differ, please see the Company's press release that was issued yesterday, the materials relating to this call are posted on the Company's website, and the Company's filings with the Securities and Exchange Commission including, without limitation, the Company's Annual Report on Form 10-K for the year ended December 31, 2010 and the Company's subsequent reports filed with the SEC.

At this time I would like to introduce Gerry Buchanan, the President of Genco Shipping & Trading.

Good morning and welcome to Genco's First Quarter 2011 Conference Call. With me today is Peter Georgiopoulos, our Chairman, and John Wobensmith, our Chief Financial Officer.

I will begin today's call by discussing our first-quarter highlights as outlined on slide three of the presentation. I will then turn the call over to John to review our financial results for the three-month period ended March 31, 2011. Following this, I will discuss the industry's current fundamentals. John, Peter and I will then be happy to take your questions.

During the first quarter Genco further expanded its high-quality fleet while maintaining an opportunistic approach to signing its vessels to short-term or spot market related contracts with top international charters in order to increase the Company's future earnings potential as market conditions improve.

Turning to slide five, net income attributable to Genco for the three months ended March 31, 2011 was $13.4 million or $0.38 basic and diluted earnings per share. Genco's cash position excluding Baltic Trading Ltd. was $282.5 million, which reflects the cash flows generated by our sizable fleet.

During the quarter we completed the acquisition of 13 Supramax vessels from affiliates of Bourbon SA with a delivery of the Genco Rhone, a Supramax new building, on March 29, 2011. By actively consolidating the drybulk industry, we have further strengthened Genco's position in the global transportation of essential commodities.

We also maintained our focus on opportunistically signing vessels to short-term contracts with multinational companies while preserving the ability to benefit from future rate increases. Consistent with this objective we employed several vessels on spot market related contracts that provide the Company the option to convert to fixed rate time charters as the freight rate environment improves.

Moving to slide six, we provide a summary of our fleet pro forma for vessels remaining to be delivered. During 2010, Genco acquired 18 modern drybulk vessels at prices near historic lows, expanding its world-class fleet by 31% on a dead weight tonnage basis excluding Baltic Trading vessels.

As I mentioned earlier we completed the Bourbon acquisition during the first quarter. A detailed delivery and payment schedule of the three remaining vessels to be delivered to Genco, from a total of five Handysize vessels we acquired from companies within the Metrostar Group, is included in the appendix of our presentation.

On completion of the Metrostar acquisition and excluding Baltic Trading's fleet, we will own a fleet of 53 drybulk vessels consisting of nine Capesize, eight Panamax, 17 Supramax, six Handymax and 13 Handysize vessels with a total carrying capacity of approximately 3,812,000 DWT. At that time, the average age of our fleet is expected to be 6.5 years -- well below the industry average of approximately 14 years.

With our modern and versatile fleet that adheres to the highest industry standards, we remain well positioned to provide first-rate service for our leading customers. I will now turn the call over to John.

Thank you Gerry. Turning to slide eight, I will begin by providing an overview of our financial results for the first quarter ended March 31, 2011. Please note that we are reporting our financials on a consolidated basis as a result of the Baltic Trading IPO in March of 2010 and our 25.24% equity ownership in Baltic Trading.

For the three-month period ended March 31, 2011 we recorded total revenues of $101.4 million. This compares with revenues for the first quarter of 2010 of $94.7 million. The year-over-year increase was mainly due to the increase in the size of our fleet.

Operating income for the first quarter ended March 31, 2011 was $33.7 million. This compares with operating income for the first quarter ended March 31, 2010 of $48.4 million.

The decrease in operating income for the three-month period ended March 31, 2011 compared to the corresponding year-earlier period is attributable to higher expenses associated with the operation of a larger fleet.

Interest expense for the first quarter 2011 was $21.3 million. This compares to interest expense of $15.4 million for the first quarter of 2010.

The Company recorded net income attributable to Genco for the first quarter of 2011 of $13.4 million, or $0.38 basic and diluted earnings per share. This compares to net income attributable to Genco of $33.5 million or $1.07 basic and $1.06 diluted earnings per share for the first quarter of 2010.

For the three-month period ended March 31, 2011 Genco also recorded income tax expense of $359,000. This income tax expense includes federal, state and local income taxes on net income earned by Genco Management USA Ltd., one of our wholly-owned subsidiaries, and relates to income generated from the technical and commercial management of vessels for Baltic Trading Ltd., sales and purchase fees payables to us by Baltic Trading Ltd. if any, and service revenue from the technical management of vessels owned by Maritime Equity Partners.

Next on slide nine you will see the income statement effects of Baltic Trading's consolidation with Genco Shipping and Trading Ltd. This will provide you with a more detailed breakdown of the financial performance of the two separate companies. Key consolidated balance sheet and other items as presented on slide 10 include the following.

Our cash position including restricted cash was $285.2 million as of March 31, 2011. Excluding the consolidation of Baltic Trading, Genco's cash position was $282.5 million. Our total assets as of March 31, 2011 were $3.2 billion, consisting primarily of our current fleet, cash and cash equivalents, and our investment in Jinhui Shipping and Transportation.

Our EBITDA for the three months ended March 31, 2011 was $68 million, which represents an EBITDA margin of 67.1% of revenues.

Moving to slide 11, our utilization rate was 99.5% for the first quarter of 2011 compared to 99.6% in the year-earlier period. Our time-charter equivalent for the first quarter of 2011 was $19,155. This compares to $30,248 recorded in the first quarter of 2010.

The decrease in time-charter equivalent rates resulted from lower charter rates achieved in the first quarter of 2011 versus the same period last year for the majority of the vessels in our fleet.

Weather-related disruptions in Australia as well as peak new building vessel deliveries during the first quarter of 2011 were the main contributors of reduced rates. Also contributing to the lower time charter equivalent rates were the addition of sub Capesize class vessels from the Metrostar and Bourbon acquisitions, as well as the consolidation of Baltic Trading's fleet.

For the first quarter of 2011 our daily vessel operating expenses were $4,748 per day versus $4,726 per day for the first quarter of 2010. The increase in daily vessel operating expenses for the first quarter of 2011 compared to the prior-year period is primarily due to slightly higher crude costs.

While daily vessel operating expenses for the first quarter of 2011 were below budget due to the timing of purchases of spare parts, as well as lower than anticipated crew, lubricants and insurance costs, we believe daily vessel operating expenses are best measured for comparative purposes over a full 12 month period in order to take into account all the expenses that each of vessel in our fleet will incur over a full year of operation.

For 2011 we expect our full year daily vessel operating expense budget to be $5200 per vessel per day on a weighted average basis.

Moving to slide 12, we present our pro forma balance sheet which shows our pro forma cash position of $244.1 million, which includes $18.6 million of estimated debt amortization under our three credit facilities for the second quarter of 2011, as well as the remaining $19.9 million cash payments for the delivery of the Genco Avra and the Genco Mare expected to be delivered in the second quarter of 2011.

Pro forma cash excludes Baltic Trading Ltd.'s cash balance of $2.7 million. Our pro forma debt to total capital ratio was 59% as of March 31, 2011.

We intend to draw upon our current liquidity position to fund the three remaining Metrostar vessels as mentioned earlier on the call. As we continue to grow our modern high quality fleet and expand our industry leadership, we remain committed to maintaining a strong financial foundation for the benefit of our shareholders.

On slide 13 we present our anticipated expense levels for 2011. We expect our full-year 2011 daily vessel operating expense budget to be $5200 per vessel per day on a weighted basis of an average number of 50.65 vessels. We expect our daily free cash flow expense rate to be $15,225 per day per ship, and our daily net income expense rate for Genco consolidated to be $17,162.

I will now turn the call back to Gerry.

Thank you John. I will now take this opportunity to spend a few moments discussing the industry fundamentals. I will start with slide 15 which points to the Drybulk Indices. Represented on this slide is the overall Baltic Dry Index.

As can be seen when looking at the graph, the BDI showed relative weakness beginning in November 2010, which has continued so far through 2011 with freight rates under considerable pressure since the beginning of the year. The lower index was mainly driven by a deteriorating freight rate environment in the Capesize sector. Supramax and Panamax vessels, on the contrary, maintained a more stable earning profile through the cycle as a result of the (inaudible) versatility of the vessels and demand strength of [remaining] bulks.

On slide 16 we summarized the main drivers behind the current suppressed rate environment and the catalysts as we see them for the drybulk freight market going forward. As mentioned earlier, we believe the Capesize Index led the most recent decrease in the BDI mainly due to drastic decrease of available cargoes in the iron ore and coal trades as well as peak deliveries of newbuilding vessels in the first month of 2011.

Substantial rainfall in Eastern Australia during December of 2010 caused the flooding of many coal producing mines in Queensland as well as related infrastructure, such as rail tracks used to transport the commodity to the shipping terminals. BHP Billiton reported reduced coal output by 14% for the first quarter while RS Platou markets estimated it coal exports have decreased by 30 million, which represents 15% of Queensland's annual coal output. The return of these cargoes is subject to further weather patterns. What with the cyclone season coming to an end, port utilization is likely to increase as the recovery continues.

Total export capacity per week from Australian ports is 7.2 million tons, as it is currently estimated at 5.3 million tons are being exported. Estimates from local or coal producers such as BHP Billiton suggest that fuel capacity will be reached towards the end of the year. Iron ore production in Australia was also affected by weather disruptions, shown by a 16% decrease in Rio Tinto's iron ore output for the first three months of 2011.

At the same time iron ore inventories at Chinese ports remain near record levels, as the first quarter of 2011 saw a 14.4% increase in iron ore imports compared to the same period of 2010. On the supply side, newbuilding delivery spiked during the first month of the year, as is usually the case due to owners' efforts of registering a more modern fleet. Fleet expansion was at 2% for the month of January alone and 4% through March of 2011.

The horrific earthquake in Japan also took its toll on freight rates, as the second largest dry bulk import importer in the world had several coal plants shut down and diverted cargoes to other ports. The Japanese government has focused more on limiting electricity consumption rather than increasing production as major power users, primarily factories, have been asked to reduce consumption by 25% making the short-term need for increased coal imports trivial compared to the other tasks at hand.

Going forward we believe that a number of catalysts will affect the drybulk market as listed at the bottom of slide 17. Firstly, we expect the eventual reversal of weather related patterns and return of coal cargoes into the market, although timing is hard to estimate.

Second, China's [twelve] five-year plan stresses numerous infrastructure programs such as construction of highways, airports, hospitals and railways, as well as the urbanization and development of Central and Western regions. In the medium term, as Japan looks to reconstruct areas more severely hit by the earthquake, essential commodities needed to rebuild the country's infrastructure such as iron ore, metallurgical coal, cement and lumber will come to the forefront. Furthermore, once coal power plants come back online, this could potentially lend support to imports of the commodity as several nuclear plants remain off-line or may even become retired.

The nuclear scare experienced in Japan has also affected several European countries, such as Germany, which has shut down seven of its oldest nuclear power plants. On the supply side, we believe the most important catalyst to be the delivery rate of new vessels as compared to what is currently recorded in the large order book.

January was a peak month for new building deliveries, followed by a significant slowdown as fewer vessels hit the water in February and March combined than in the first month of big year according to Clarksons. We believe the slippage in 2011 should alleviate some of the concerns of oversupply when coupled with growth in demand.

Lastly, we note that scrapping could potentially increase especially if rates for certain classes of vessels continue at similar levels as was currently experienced to date in 2011.

On slide 17 we talk further about the demand side fundamentals. As indicated on the graph at the bottom right, Chinese steel production reached 173.6 million tons for the first quarter of 2011, showing a 10% increase over last year's first-quarter production figures. Over 177 million tons of iron ore were imported into China for the same period. Iron ore imports into China showed an increase of 14% on a year-over-year basis.

Strong iron ore was supported by the return of the traditional importers such as Japan, South Korea and Europe are beginning to reestablish a baseline amount of seaborne trade as indicated at the bottom left of the slide. We believe that our low iron ore inventory levels at Chinese ports have been comparably high throughout the course of the year. Iron ore trade fundamentals remained intact in the long-term as we expect the trade to be fueled by continued growth in China and India.

China's GDP growth of 9.7% for quarter one of 2011 and plans for continued housing and other infrastructure projects bodes well for the drybulk market. China's recently announced five-year plan indicates additional support will come from continuous infrastructure spending as 36 million housing units are expected to be built within the next five years.

Moving to slide 18, we show the expansion plans of key iron or producers as recently revised by the respective companies. On the left side of the slide you can see the combined iron ore expansion plans through 2015, which accumulate to 536 million tons or 52.4% of 2010 seaborne iron ore trade.

As India's iron ore production gets absorbed by domestic demand for the production of steel, the government has taken measures to reduce exports, thereby increasing the need for China to source from Brazil and Australia. The federal government has already imposed a 20% duty on exports in an attempt to limit volumes. Local governments have gone as far as placing a ban on iron ore exports. Although the most recent ban in the Karnataka region has been lifted, only a limited number of fixtures have come to the market, maintaining the possibility of greater ton-miles.

In addition, according to Commodore Research, and 19 Karnataka-based iron ore mines are now being forced to halt operations until further notice.

Additional demand for iron ore will come from not only increase steel production China but also rebounding steel production in the rest of the world. Forecast for growth in the overall steel market stands at 5.9% for 2011 and 6% for 2012. China accounted for 45% of world steel production in 2010 and we do not expect any major shifts in that number going forward.

On slide 19 we present a review of the supply side of the equation which we feel is also the most important going forward, but also the one with the highest level of uncertainty. Looking at the graph at the bottom left of the slide, we can see the drybulk order book through 2014. The significant drybulk order book still represents approximately 50% of the existing fleet. However, it is questionable whether it will be delivered in its entirety.

In past conference calls we have suggested that although the commercial bank market has returned to a certain extent, capital is still scarce and banks only lend to select clients. Furthermore, depressed vessel values imply higher equity installments for existing and newbuilding orders from illiquid owners. Slippage also continues to be a major factor in the supply side, representing approximately 35% to 40% of the total order book for 2010 and estimated to continue at approximately 40% into 2011 according to Clarksons.

We also believe that scrapping will continue to play a significant role in 2011, especially if the freight rate environment remains at suppressed level over prolonged periods. Approximately 27% of the world fleet is 20 years or older, and 20% is greater than 25 years old.

As illustrated in the graph at the bottom right of page, 6.7 million DWT have been scrapped year to date as compared to 5.7 million DWT for the entire year of 2010. With 25 Capesize vessels scrapped in 2011 already, more than the number of Capesize vessels scrapped during the entire year of 2010.

On top of that, Bangladesh demolition yards have resumed operation and have begun purchasing drybulk vessels. Bangladesh scrap prices have historically been higher per lightweight ton compared to other competing yards. As we have indicated in past calls scrapping is essentially an economical equation. It is our opinion that the current combination of high scrap prices and suppressed freight weights will support the increased scrapping.

This concludes the presentation and [we'll] be happy to take your questions.

(Operator Instructions) Justin Yagerman, Deutsche Bank.

This is Josh Katzeff on for Justin. Just starting off, there seems to be a disconnect between the period end FFA market. It looks like the FFAs are pricing Panamaxes at $13,000 to $14,000 a day, while time charter rates and to be in excess of $15,000 a day. Does this differential need to come closer to parity before you guys start considering maybe converting some of your index charters to fixed-rate charters?

We'd like to see the actual time charter rate move higher than $15,000 a day. I think the disconnect is just lack of liquidity in the FFA market right now. We've seen this plenty of times in the past.

And I think you've got owners that believe those numbers are too low. And obviously charters are seeing cargo flows that would justify higher rates than what the FFA curve is showing.

Got it. So it is as though you're looking for rates kind of materially above your cash breakeven rates?

Well, the cash breakeven rate is on a weighted basis, right? And we're specifically talking about Panamaxes. But yes, we're looking for higher rates than $15,000 a day.

Got it. And then when we think about where you are coming out with your covenants, I guess our estimates show that there is significant headroom between -- with your net debt to EBITDA and interest coverage ratios. But can you guys give us an actual number where you guys are coming out for those numbers and maybe [what's] your market value ratio?

It is fairly straightforward to do the math obviously this quarter. I think the number is somewhere around 4 for the average net debt to EBITDA, so below the 5.5 covenant number. And obviously that is helped by the $280 million in cash that we have in the form of liquidity sitting on the balance sheet in Genco.

And with regard to your market value ratio, I know that has been waived at the moment but can you give us an idea?

Honestly, I'm not sure what that is from a DnB standpoint, which is the large credit facility. But you are correct. That covenant has been waived.

But in theory, if you were to come into compliance with that covenant, you would be tested. I guess for a couple of quarters you would be I guess then tested under the original terms of your facility?

Yes. As soon as we are able to be in compliance that covenant would come back and we can pay dividends again.

One last question before I turn it over. I guess we modeled this year the Avra delivering in Q1. Can you give us maybe an update on delivery timing?

She's coming in on 9 May. She just completed sea trials. The original date for delivery was 9 May, but there are a few works to be completed on her, so she's going to push back probably the 11th or the 12th.

Definitely the first half of May.

Doug Mavrinac, Jefferies.

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Gregory Lewis, Credit Suisse.

John, I guess you just touched on sort of how your balance sheet looks and how you were thinking about it in terms of maybe how the banks are thinking about it. In terms of your stake in Jinhui and Baltic Trading, are those -- I assume those investments are kind of siloed and are being excluded from the relationship you're looking at with your balance sheet. Is that correct?

I'm not sure exactly what you mean by that.

In other words, when you're talking about being in compliance with covenants, you're not even taking into account either of those investments.

No, they would not.

That's correct.

Okay. So in other words your balance sheet looks a lot more stronger than it would if you were just to look at cash and debt?

Although having $280 million of cash I think is pretty strong, but yes. It would look stronger with those.

Okay, great. And just really quick, Gerry, you mentioned real briefly on the problems in Australia due to flooding. Do you sort of have any color or feel for when we could see some normalization out of Australia in terms of them exporting, returning to more normal type of export levels?

As we said, the cyclone season is now over there and things are getting back to normal, albeit slowly. So I would expect as we go into the second quarter we will start to see more normalization again.

Okay, thank you very much.

Scott Malat, Goldman Sachs.

On the crew related expenses that you mentioned, can you just help us think about the inflation rate here, the puts and takes going forward?

Yes. We put out obviously the budget number of $5200 a day on a weighted basis for the ships.

Can you help us think about that a little longer-term, puts and takes next year? How do we think about [bottling out] crew related expense inflation?

I think next year is a bit too far away to try and forecast where crew related expenses are going to be. We have some minor increases coming off on certain nationalities this year and -- but we are talking to all of our crew suppliers. And we're getting the crew leveled; we just held levels where we want them to be held.

So we're pretty confident we can hold budgets this year. Going to next year we will have to wait to see where the market goes.

Okay. That is somewhat helpful. On vessel acquisition opportunities, I guess we would have thought we would see more distressed sales at this point just given how bad rates have been. Can you help us think?

On the last call we talked about you have seen one- and two-offs. Are you seeing more of those in the market place? Are you seeing more opportunities for acquisitions at better prices?

No, we have not seen a lot of opportunities for acquisitions.

Any thinking as to what is holding that up? Are people -- have stronger balance sheets than we thought? What is holding there?

I think someone who paid a huge number for ship doesn't want to let -- will hold on as long as they can before they sell it, before they take that loss. So I think that is what we're up against.

Obviously, Scott, what we have seen is increased scrapping levels on the older ships, and particularly a big pickup in Capes, which is obviously positive.

All right, that is helpful. Thanks.

(Operator Instructions) Michael Webber, Wells Fargo.

Just wanted to touch quickly on the growth and John you guys have been very upfront I guess, after growing a lot last summer then you guys have been really focused on deleveraging. I just want to make sure that's still the case.

And we've seen some asset value downplay here, but not a tremendous amount. You guys are still focused on the balance sheet and pretty happy with your fleet where it is right now, correct?

Yes.

Okay, good. In terms of within the space, it seems like the Korea Line defaults have been somewhat contained for the time being.

But have you all noticed a meaningful shift in terms of risk aversion in the market? And are charters really doing a lot of extra credit work at this point? Are we seeing any measurable benefit for the more solid counterparties in the space yet?

Yes, we have. Some of the charters, deals that we have done with some of the newer companies as far as we are concerned, they have definitely been having conversations with us on the credit side. So the answer is yes. We think that is positive.

Great, that is helpful. And your old fleet is still probably one of the youngest in the sector. But from an industry perspective, given the weak environment have we actually seen a lot of kind of meaningful age discrimination at this point? And I guess maybe can you point to a number of older assets that are in layup right now? Or is that something that still needs to be priced in the kind of the day rate environment?

I don't (multiple speakers) -- we haven't seen anything in layup. But what you are seeing is the older assets are getting discriminated against. And that is why scrapping has increased and we think that will continue to increase through the summer.

Okay, great. That's helpful. And I guess finally just wanted to touch back on your DVOE. You mentioned flat year-over-year and down about 5% sequentially. I think within your comments you mentioned that some of your commodity-related kind of input costs came down along with some others.

It seems a little bit counterintuitive. When we think about your DVOE for the rest of the year, do you think we're going to see a meaningful rise at some point this year? Or do you think eventually your guidance could come under a little bit of pressure?

No, I think we're very comfortable with our guidance.

Okay. I guess where during the course of the year do you think we'll actually see a move higher than where we are right now? At this point your DVOE is still very, very low.

Look, our DVOE was about $4800 versus year budget of $5200. Even $5200 I think is pretty good compared to the peer group.

Exactly.

We're comfortable with that $5200 budget figure. As I said before, you can't always measure this quarter by quarter. You have to look at 12 months because of timing of purchases and spares. But the $5200 number right now we're comfortable with. That is why we have it out there.

Okay, fair enough. I appreciate the time guys. Thank you.

Fotis Giannakoulis, Morgan Stanley.

Tell me if you can give us some color about the situation in the Capesize market. We have seen the last few weeks that first deliveries of the very large ore carriers. And then how do you think that this will link back to the long-term balance in the Capesize market?

And if you can also comment on the interchangeable trades we [see]. Panamaxes and how much the [press-run] Capes can impact smaller vessels?

Let's take that second one first. I don't think that the decline in the Capes can impact the smaller vessels -- I mean, to some extent, but not to a very big extent because the reason you have the different ship sizes are for the ports they can get in and out of. A Cape just cannot get into the same port as a Supramax or a Panamax.

And so we think it will limit -- it's not as if you can double up the way you can in some ports on the tanker side with Suezmaxes and the VLCCs. You sort of can't do that in the ports that take the dry cargo.

On the first part of your question, we don't think it is going to be -- I don't know. Maybe Gerry or John wants to jump in here. The very large ore carriers, we think it's one charter it is one segment. My guess is they probably regret doing it. (multiple speakers) So I'm not sure of the impact it will have.

Look, there are ships coming on the market but it is one trade. And right now it doesn't even seem these ships are going to China. They have to go to Malaysia and offload, which obviously increases costs.

And we have actually seen and it will remain to be seen if this happens going forward. But we've seen a couple of these [VLOCs] being converted into different orders under the request of [Valet]. So it's possible that could continue. As Peter said, I think they're regretting the decision to put that kind of capital at work in owning ships.

Do you have a feeling of what is the utilization of these ships? And how many ports they have the capacity to accept these very large ore carriers?

No, very few ports. (multiple speakers) And in terms of utilization I think it is just too early to tell.

Thank you. That's all.

Urs Dur, Lazard Capital Markets.

I had to jump on the call little bit late, so please forgive me if I have doubled up on anything. John, I bet you did discuss where you guys are with the average net debt to EBITDA covenant. You are still having no real issues there?

Yes. We said for this quarter we were somewhere around 4 times.

Right, that is consistent with what I thought. Thanks. I'm sorry if I doubled up on that.

Gerry, also I find what is happening with steam coal in China quite particularly interesting. And you may also have mentioned this, but I'm seeing a lot of power companies in China complaining they don't have enough coal for summer. How is this going to positively or negatively impact your demand over the course of the summer?

Well, hopefully it will increase the demand of coal going in there.

I think you are right. I think there is a -- stockpiles in India and in China of coal are low, so.

One of the big drivers of that is simply the big slowdown of coal coming out of Australia and we hope that's going to correct itself over the coming months.

It seems like it is at one-third of normal capacity. Is that right Gerry?

Yes. I think the bit of coal we see at the moment is coal going into India. There's a lot of steaming coal going into India.

Finally on scrapping, and again, if you mentioned it I am sorry. I'm seeing quite a nice clip here with the high fuel prices and low freight rates and great steel prices. What is your expectation or have you given an expectation for the amount of fleet that you expect to be scrapped over this year?

Well, I think you have to look at the amount of fleet that has been scrapped so far (multiple speakers) quite substantial. If you look, there's 25 Cape vessels been scrapped this year already, which is more than was scrapped the entire year last year. So I think you are going to see an increase in scrapping for sure.

Yes. I see it about 5%. Anyway, thank you so much for your time.

Doug Mavrinac, Jefferies & Co.

At this point a lot of good questions have been asked, so I will keep mine focus more on kind of the supply side since as you mentioned in your presentation that seems to be kind of obviously a challenge.

My first question relates to kind of the cyclicality of shipping. Back in -- whatever 2006, 2007, 2008, whenever the drybulk market was doing so good, you saw a lot of conversions in the order book from tankers to drybulk ships. And ships are being converted and everything else.

At what point -- we've already seen obviously as you guys just mentioned a lot of scrapping thus far. We've also seen a lot of slippage. At what point do we see kind of the order book saying hey, you know what, the containership market for example is looking really good. I may convert that drybulk order that was supposed to be for 2013/2014 delivery into a containership. Is that something, from a historical cyclical standpoint, that we should kind of expect?

Yes, we have definitely seen it. As John said, there was talk in those [Valley] ships of converting them. We saw that (inaudible) converted to some VLCCs to LNGs.

So I think with LNG and containers being sort of the flavor of the month, you may see some orders converted. There have been some. I think you will see some more.

Right, right. Which I guess, Peter, I guess is normal right? Whenever you have some sectors doing well and others at variable cost breakeven levels, right?

Yes. Absolutely.

Okay great. Second question related to supply, in both the container shipping market and now the tanker market, everyone is talking about slow steaming just due to the structural high oil prices and high bunker fuel prices. Is that something that can kind of work its way into the drybulk shipping market as well?

And obviously if it did, it would have a positive effect I guess on overall fleet utilization, just more ships being required if they're going slower. Is slow steaming something that can happen in the drybulk market, if it hasn't happened already?

Yes, Doug. It's actually happening at the present time. We're working with a number of charterers, working out the best economical speed to run the ships at. And that is happening right now. So you are spot on there.

Okay, great. Thank you Gerry.

And just final, final question. This one is kind of more on demand, but perhaps potential positive surprise for demand down the road is -- we talked about the reconstruction efforts in Japan and whatnot. But from a historical perspective, do you guys have any feel for whenever the Japanese nukes go down, what sort of corresponding impact that has on, say, coal demand?

Whether it is -- we've seen a 10% increase in imports and the past or what have you, just basically from a fuel switching perspective, do you guys have a historical perspective that you can share on that?

No, I don't.

No. I think it is close to sort of 8% to 10%, Doug. But I think the bigger story unfortunately with Japan is the rebuilding. Japan is going to need to import iron ore, cement, met coal, lumber and forestry products to rebuild. And most likely you will start to see those materials start to pick up probably towards the end of this year I would think.

Yes, that's what I'm kind of thinking too, John, because obviously we have seen what rebuilding and construction of infrastructure looks like for the last 10 years in the drybulk shipping market with China. So obviously that would be a positive for Japan for that. But I think you're right, too, in terms of that 8% to 10% number for the switching components.

So I was just trying to get confirmation on that. Anyhow, thank you for the time guys.

Michael Pak, Clarkson Capital Markets.

Good morning gentlemen. Just a couple of quick questions here. One is the Company's goal on deleveraging.

Can you kind of help us understand it a little bit more? Will you just follow the debt schedule that is laid out in front of you or will you accelerate your principle debt and payments? That is question number one.

The other is more of a housekeeping question on your fully diluted share count, whether the converts should be included in the fully diluted share count going forward. Thanks.

Okay. The convert is fairly straightforward. If you go back to the fourth-quarter earnings presentation that we did, there is a slide that goes through the exact accounting for the convert. And Michael, if you have any further questions after looking at that, please give me a ring. We obviously can walk you through that.

In terms of de-levering, I think we obviously have the scheduled repayments. And we are also looking at what we're going to do going forward. I don't have anything really any more specific than that.

Anything further from our questioner? That does conclude today's conference call. We thank you for your participation.