Eneti Inc (NETI) 2014 Q1 法說會逐字稿

Good day and welcome to the Scorpio Bulkers Incorporated first-quarter 2014 conference call. Today's conference is being recorded. At this time I would like to turn the call over to Mr. Hugh Baker, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Thank you for joining us all today. On the call with me are Emanuele Lauro, our Chairman and CEO; Robert Bugbee, our President; Cameron Mackey, our Chief Operating Officer; and Brian Kerr, our Controller.

The information discussed on this call is based on information as of today, April 30, 2014, and may contain certain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release that we issued today as well as Scorpio Bulkers' SEC filings, which are available at www.ScorpioBulkers.com.

Call participants are advised that the audio of this conference call is being broadcast live on the web and is also being recorded for playback purposes. An archive of the webcast will be made available on the investor relations page of our website for approximately 14 days.

Now I would like to introduce Emanuele Lauro.

Thank you, Hugh. Welcome, everybody. Thanks for joining us today. The usual format for this call, for the Scorpio calls, actually, since this is the first earning call. But we are going to allow the questions and answers parts to play the major role.

As far as my opening remarks are concerned, I will say that the Company is largely where we expected it to be. The market we are experiencing today is in a weak spot at present. This is consistent with what we expected, having deployed all of our equity in new buildings which are delivering largely, mostly throughout 2015. We believe and we have acted on this deep -- taking it as an opportunity to add length to the time charter book, which is providing the company with the operational leverage that we were describing to other investors and shareholders during the IPO road show back in December last year.

As far as the ship building process is concerned, we are happy with how things are progressing. Everything is going according to plan, and we are looking forward to taking delivery of our first ships over the summer, two Kamsarmaxes over the summer.

Having said that, I don't know if, Robert, you have anything to add. Otherwise, I would open the floors for questions.

No. I think we just go straight to questions.

(Operator Instructions) Herman Hildan, RS Platou Markets.

It seems like I guess the majority of your time charters were delivered in the Pacific and as you write in the report, you repositioned vessels to the South American grain season, resulting in some ballistic time during the quarter. How should we think about Q2? Should we expect to see back to the benchmark rates in Q2 as you are getting back to, call it, the ballast business in one quarter?

As you have seen, Herman, -- Emanuele here. As you have seen, not a lot of the vessels which we have on time charter had delivered in Q1. We have started taking delivery of the first one at the end of January and then a few ships in February and a few ships in March. So some of the ships actually have impacted not greatly to the first quarter.

Having said that, as we continue to take delivery of vessels, you rightly pointed out we are repositioning them from the Pacific into the Atlantic in order to benefit from the South American grain season, which is -- you know, we expect the grain season to start in June. So there will be an impact towards the end of the second quarter and largely during Q3. So does that answer the question?

Yes, sure. And on the [last call], your call a couple days ago, you talked about maximizing value for shareholders. And at the moment I guess you are trading up to a discount to the [broker] value of the Company. Is it premature to implement the share buyback program and effectively sell some of your new builds that are (inaudible) and buyback shares? I think that would be, call it, accretive rather than just growing with the current fleet north of (inaudible). How do you think about that?

I think, look, you have a pretty new company. But at the same time you have a very aggressive management in terms of maintaining shareholder value. And you have a stock price. What's most important here is that the value of the Company, the value of the assets is pretty strong. The vast majority of the ships are well in the money from purchased [positions]. And we have a clear dislocation in management's mind; it's actually getting quite wide, between the underlying value of the Company and where the stock is trading.

Now, I think that the great thing about the dry cargo market is that it's very liquid. The great thing about the Company and the Company's management as it has proved in other areas, is it's agnostic. So the management, to the degree that [if this were] a little bit longer, would have no problem at all in putting in a buyback program, selling some assets, and buying back stock. That's the idea. The idea is that's an opportunity, too. It's a very easy way to create value, particularly when you have wide spreads like you have today and you have a highly fungible market.

And the Company -- look, we have 80-odd ships on order. So it's not exactly, if we sold a few ships to buy back stock, not exactly as if we would lose critical mass.

I totally agree. That's really what I wanted to get at you. So thank you.

Taylor Mulherin with Deutsche Bank.

If I could just follow up briefly on the comments that were just made there, would you also consider maybe selling some of those vessels that are going to be delivered maybe in like a second half of 2016 and then use that cash for just basically purchasing more [prompt] tonnage, so maybe a well-built secondhand vessel or something that's going to be delivered maybe --

Well, yes. I think that when we look -- in relation to that question there, if the stock was not -- if we look at it right now, today, let's pretend you had the decision today where you were selling later-delivery tonnage, then what would you do with that process? Would you buy front tonnage or would you buy stock?

You would be an idiot to buy the front tonnage because you are buying your stock at a large discount to that front tonnage. You don't even have to take the risk of another person's specification. You are buying a fleet that you know really well that's the best fleet out there in terms of its overall design, deliverability, and structure. So, right now, if you sold any assets at the back, you would not be buying vessels at the front. You would be buying stock at the front.

Right, that's great to hear. Makes sense. And if I just moved over to the financing side of the equation, you've announced another $40 million or so of financing this morning. I just wanted to get a recap of where we are right now, still about $2.4 billion to pay toward the ships. Obviously, you have quite a bit of cash to offset that. But if you just walk us through what is firmly committed, what is still in negotiations, and then what is yet to be addressed.

Yes, Taylor. Firstly, we have three committed credit facilities, one of $330 million, one of $67 million, and one of $39 million. And collectively those three facilities financed 28 vessels.

In addition to that, we actually are negotiating a further facility with another 12 vessels in it. And we have additional discussions taking place with financial institutions.

So, as we said in our last call, we expect to deliver sequential announcements each quarter as to the financing of the fleet. And we expect every quarter to have financed more vessels in the fleet.

That said, we probably have -- we have another $400 million of financing that's currently under discussion that I've just mentioned. So within reason, we have around $800 million of debt to raise to finance approximately 37 vessels.

So, we have a long way to go in this process. But every quarter we are making progress towards that eventual goal.

Okay. And then just two follow up questions to that -- I just wanted to confirm, for one, just from a modeling perspective, what you have committed right now is not on the balance sheet at the moment. Correct?

Correct.

Okay. And then if you could just briefly address how the sentiment is, as far as raising capital at the moment. You mentioned the last conference call that you are committed to securing all this by year-end 2014. Do you remain committed to that?

Yes, we remain committed to that. The bank market has bifurcated. It is generally very strong for quality credits and generally very unforgiving of weaker credits. Scorpio Bulkers is in the former category, and we certainly have access to quite substantial amounts of additional bank capital. And we expect to achieve and to secure that in the next three quarters.

The bank market is pretty good at the moment. It's definitely got better pricing, and terms and conditions have softened somewhat. I don't think that we should be complacent. I think that we have a large amount of capital to raise, and we are not being complacent about that. And we are very much focusing at this initial stage in raising the money from the export credit agencies, and we expect to spend more time working with the traditional European ship finance lenders in the second half of the year.

I don't know if that answers your question, Taylor.

It does. It's great to hear. Thanks for your time.

Ben Nolan with Stifel.

I have a few questions. Number one is maybe just an update on the chartering strategy. You guys have been pretty aggressive in the Kamsarmax segment and recently done some Ultramaxes as well. How close to having a fleet of scale would you say that you are, at the moment? Or in other words is there much left to be done on the chartering side?

And also along with that, you haven't done any Capesize vessels. Would you consider adding on to that segment of the fleet in order to build out the pool in that business as well?

I think that the -- I'll think we want to tactically say where we are, related to the Ultras and the Kansars, other than what Emanuele said, that this market at present may throw off opportunities. On the other hand, it may not. If we look at the Capesize market itself, because the actual [forward] charter book market has stayed pretty strong. Even very recently, you've had a pretty major, good, smart trader taking [non-eco] vessels, Capesize, five years at around $25,000 a day.

So you've got to pick your opportunities. To the first question, do we have enough scale, the answer is if you look at it on an instant position, maybe not yet. If you look at it in terms of what's in the book and what starts to be delivered over the summer and the third, fourth quarter, yes, we have scale.

When it comes to the Capesize market itself, we have a lot of exposure to the Capesize market with nearly 30 Capes coming pretty soon. There is a very high degree of exposure in that market. And you are not getting the optionality. That market is tight. The one thing we managed to do in the Ultras and the Kansars and Supras is we've, by and large, not just got one-year charters. We have managed to get options, too. And those options in shipping are very often mispriced to the underlying volatility, and wouldn't normally, would certainly wouldn't follow a Black-Scholes model. So, it's about getting value, just going in and doing Capesizes at pretty firm rates without options is probably not the way we will go.

Okay, that's helpful. And then secondly, it has to do -- my question has to do with the position of the Company from an infrastructure standpoint. Just looking for an update there as it relates to -- are you fully staffed as you, I guess, would like to be? Or are there still more pieces to add? And then ultimately, along with it, just for modeling purposes, how should we think about the G&A going forward relative to where it was in the first quarter?

Ben, this is Cam. I'll take a crack at it. I think we are not at -- as far as it relates to staffing in the Company, we are in midstream, as you would expect. What you will see is -- what you would logically see is a path of staffing both in commercial and technical and accounting areas that track the growth in our fleets, but preceded by about 3 to 6 months, to allow people the appropriate time to familiarize and get up to speed with their jobs. Most of these functions I would call middle to lower-level areas, so you wouldn't see G&A tracking up where it's in the same path or same slope as our revenue and expenses [but about that].

Okay.

The other thing is that we are pretty well covered and continuing to expand in the Ultras, the Kansars, those vessels we have in the water. We will step slowly when it comes to [staffing up] the commercial side of Capes because that market itself is more consolidated, but also there are a couple of key players that perhaps there are consolidation opportunities from the commercial side or ultimately even the asset side. And there are substantial charters out there that have been talking to all the time related to joint ventures, et cetera. So, we will take a little time to watch on that one.

All right. Okay, that's very help across the board. So that does it for my questions. Thanks a lot, guys.

Jon Chappell with Evercore.

Thanks. I wanted to ask a couple of follow-ups from some of the previous questions. First, as far as the assets are concerned, it's unfortunate we're talking about potentially selling assets before you've even taken delivery of them yet. But you saw what Frontline 2012 did with Knightsbridge as a way to accelerate the returns they had from acquiring assets at the right part of the cycle, similar to put you have done. Have you looked at that strategy at all, and is there a similar type strategy that you are looking at?

Well, they are little bit more advanced than we are in terms of -- slightly, in terms of timetable and had the positions three, four, five months earlier. But I think the strategy is -- I think it's fantastic, what VLCCS and the way they've dealt with it is concerned. I think it's -- they have created a pure play, large-size Cape company that is very clear, that's going to be set up for return of capital through dividend. And that company is already trading at a significant premium to what we would consider NAV maybe they wouldn't say it's significant, but it's significant. So whatever you have a situation where your whole currency is trading below NAV and another structure, another model is trading significantly above NAV, you've got to actually study it.

I don't think I should go any further than that at the moment, Jon.

Okay, understood. The other follow-up I wanted to ask was in regards to the G&A run rate. Cam mentioned you are still probably going to be adding some more people. But as far as the non-cash, stock-based compensation amortization is concerned, $5.1 million in the first quarter -- Hugh, is that the run rate we should think about going forward? Or will that ramp up as you add more people as well?

No, that is -- actually, if you look at page F-19 of the annual report, you would see details of the updated equity plan. And going forward, we would anticipate that as a result of the announcement, the February plan update, I think you should probably be looking at a $6.2 million quarterly charge for the next three quarters.

That's what I would take going forward. But in addition to that, there's already a carveout including that for -- including that in the positions for extra people that are coming on in terms of the commercial and operations.

Okay, right. All right, final question -- three months ago whenever it was, two and half months ago, on the fourth quarter call, Robert, you mentioned that you had never seen in your career such a disconnect between what the charters and the commodity movers were showing you and what Wall Street was showing you with asset prices -- or with equity prices. Obviously, the equities haven't done very well since that time. But the market also has sold off pretty significantly as well and there's probably some liquidity dried up as far as the time charter market is concerned. Do you still share that view?

Yes. I think in a way it's widened, because the since that time you've had a slowdown in new building orders. You've had increasing evidence of continued delays of some new vessels being able to come out of berth. And you have really had a continued forward strength in the position. If you think translating what that rate -- rate being paid for Capes right now, in a period of fear where the person is going to take [a part of the] the first voyage, that is showing a strong disconnect. And I think that disconnect has got wider in the sense that the seasonal weakness and the other incremental things such as lateness of markets due to South American flooding, inventory drill downs in parts of Asia, et cetera, has just put a stall into the ordering side. And that disconnect has widened as a result of the stocks going lower. Our asset values have not gone down since the last conference call; they have gone up since the last conference call. Yet our stock has gone down.

Okay, very helpful. Thanks, Robert.

In addition to that, look where the Korean won is, in addition. The Korean won, in three months, has strengthened significantly.

Thank you.

Gregory Lewis with Credit Suisse.

I just had one question more on the overall markets. Are we seeing a slowdown in commodity and freight related to what's going on in Russia and the Ukraine? I have been talking to people on -- traders. And it seems like there's liquidity that's coming out of (technical difficulty). Is that something that you are seeing? Is that just sort of -- is it people just looking for reasons why the market seems soft when I think there was an expectation that it would be stronger here? Just sort of any color, if any (multiple speakers) --

First, I don't know whether it's so much expectation and why the period between January, February, March, April is meant to be stronger because it has been stronger overall, but relative to last year in terms of time charters and indexes and prices. But that's still the seasonal weakness part of any market, anyway.

Now, I think what you are alluding to is, I think you have flat markets or commodity markets in general seems under pressure because of fear of things that are going on in the world, which is perhaps taking a little of the steam out in terms of the traders. Obviously, you haven't had those requirements for inventory to build. They have come down. And yes, maybe you have had uncertainty in terms of capital or risk capital that's being willing to play on the commodities at the moment, as a result of whatever -- concern in -- not knowing what's going to happen in places like Ukraine or Russian money that was at work being taken out to be put in suitcases and taken out of Switzerland to buy houses in other areas of the world. I don't know.

But for us as a management, we have to look at what are we seeing. We are generally seeing the world economy improve. We are seeing what we want to see when it -- for the iron ore producers. We are seeing what we're doing across different geographical places. We are seeing the price structure and the availability of shipbuilding capacity move up and get diminished. And we are seeing our customers slowly and remorselessly lengthening their books to the long term in this market. And that's the only way we can manage this.

And we ourselves -- we are very clear that there was -- we still believe that 3Q, 4Q is going to get stronger. But we ourselves in our entire strategy of having new buildings, we are looking for value charters with options, by definition, is saying that we did not expect the market to be ballistic and the first or the second quarter of this year.

Okay, perfect. Thank you, Robert.

And, gentlemen, at this time I would like to turn the call back over to you for any additional or closing remarks.

We have no closing remarks. I would like to thank everyone for their participation on the call.

Thank you. And that does conclude today's conference call. Thank you for your participation.