Performance Shipping Inc (PSHG) 2013 Q4 法說會逐字稿

Greetings, and welcome to the Diana Containerships Inc. fourth quarter, 2013, conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would like to turn the conference over to your host, Ed Nebb, Investor Relations for Diana Containerships. Thank you, Mr. Nebb. You may begin.

Thank you, Kevin, and greetings to all. Welcome to the Diana Containerships Inc., 2013 fourth quarter and year-end conference call.

Members of the management team who are with us today include Mr. Symeon Palios, Chairman & Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Operating Officer & Secretary; and Miss Eleni Leontari, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice. Certain statements made during this conference call which are not historical fact are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. Our forward-looking statements are based on assumptions, expectations and beliefs as to future events that may not prove to be accurate.

For a description of the risks, uncertainties, and other factors that may cause future results to differ from the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission.

And now with that, let me turn the call over to Mr. Symeon Palios, Chairman and Chief Executive Officer of Diana Containerships.

Thank you, Ed. Good morning and thank you for joining us. It is my pleasure to report to you on the performance of Diana Containerships Inc. for the fourth quarter and full year 2013.

During the past year, we took a number of actions to position the Company to benefit from the long-term opportunities we see in the containership market. In particular, we reconfigured our fleet with a primary emphasis on adding more modern vessels. In this regard, we acquired three container vessels during 2013; the motor vessel Hanjin Malta, the motor vessel Puelo, and the motor vessel Pucon.

In addition, we sold four vessels for demolition in 2013 and recently announced an additional sale. The oldest of the scrap vessels were 24 years old. These vessel sales were primarily intended to eliminate older tonnage that could not be operated economically, while also generating cash for eventual reinvestment in more desirable vessels.

With all of the above sales completed, we will have a fleet of eight vessels. Our fleet is time chartered to some of the industry's leading container lines for more than 86% of the days in 2014, and approximately 25% of the days in 2015, providing a stable revenue stream. The contracted gross revenue of the fleet for 2014 onwards is approximately $81.2 million.

Now to summarize our financial results. Time charter revenues, net of prepaid charter revenue amortization for the 2013 fourth quarter were $15.5 million, an increase from $14.6 million for the same period of 2012. Time charter revenues for all of 2013 totaled $54 million, compared to $56.6 million for the year 2012.

The Company recorded a net loss of $19.8 million for the 2013 fourth quarter. However, the fourth quarter loss was mainly the result of impairment charges for the vessel Sardonyx, and direct sale and other charges associated with disposal of the vessel Spinel. Excluding such charges, the result for 2013 fourth quarter would have been net income of $2.1 million, or earnings per share of $0.06.

Net loss for the full year 2013 amounted to $57.3 million. This was mainly the result of impairment charges and direct sale and total charges for the vessel Madrid, Malacca, Merlion, Spinel and Sardonyx. Excluding sale charges, the result for the year would have been net income of $1.5 million, or earnings per share of $0.04.

We have continued to maintain an attractive and prudent dividend policy. Today we announce that the Board of Directors has declared a dividend of $0.15 per share payable on or about March 19, 2014, to all shareholders of record as at March 4, 2014.

Our balance sheet remains a source of strength. At the end of 2013, the Company had approximately $20 million of available cash, approximately $10 million of restricted cash, and shareholders' equity of more than $164 million. We have continued to take advantage of the opportunity to issue shares through our previously announced at-the-market equity offering.

During the quarter ended December 31, 2013, and up to this date, the Company has sold an aggregate of 1,351,890 common shares through the AGM offering at a weighted average sales price of $3.91. The Company received total net proceeds of $5.2 million. We have approximately $25.7 million remaining to be sold through the AGM offering.

In summary, the performance of Diana Containerships for 2013 reflected our strategic actions to reconfigure our fleet, strengthen our financial capacity to support continued growth and deliver shareholder value in the form of cash dividend.

Going forward, we will continue to pursue this strategy that has driven our progress today, and we remain continue to deliver shareholder value through our dividend policy.

Now I will turn the call over to our President, Stasi Margaronis, for a perspective on industry conditions. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a more detailed financial overview.

Thank you.

Thank you, Symeon, and welcome to all the participants in this morning's conference call by Diana Containerships.

Macroeconomic developments around the globe are always a good place to start when looking at the present and future state of the containership market. The IMF revised its forecast for global growth in 2014 as growth in the United States and the United Kingdom accelerated during the year.

The global economy is projected to grow 3.7% in 2014 compared to an estimate of 3.6% given in October 2013. The United States economy is expected to expand 2.8% this year.

For the container business, the all important US retail sales figures came out better than expected in December 2013 at 0.2% month-on-month increase. The UK economy is expected to grow by 2.4% this year.

As for China, it's expected to grow by 7.5% in 2014. Chinese GDP reportedly grew by 7.7% year on year in the fourth quarter of 2013, which was marginally slower than the 7.8% year-on-year rate of growth registered during the third quarter of last year.

In a sign that domestic demand in some sectors is still very strong, sales of new homes in China grew by 21% year on year to $1.1 trillion last year in 2013 despite the Government's efforts to cool down the hot property market.

The euro area is expected to grow by 1% this year and 1.4% in 2015, which indicates that finally, recovery will materialize in the back of the eurozone. According to Maersk Broker, economic activity in the euro area in January expanded at its fastest pace in 30 months as the manufacturing index increased to 53.9 from 52.7 in the prior month.

With regards to the container business, Maersk Broker reports that private consumption in the euro area is looking positive. This was reflected in high car sales figures and positive results from major retailers. In November 2013, the retail trade grew 1.4% month on month, which was the biggest monthly rise according to Braemar Seascope since November 2001.

Let's look at the liner company developments. According to Alphaliner, on January 22 of this year, Hapag-Lloyd and CSAV signed a non-binding memorandum of understanding to merge their container shipping business. If this deal goes through, it will create the fourth largest liner shipping company in the world with a combined fleet of just under 1 million TEU and a global market share of 5.6%.

For charter owners, the benefit from such rationalization is that it would improve the financial strength of liner companies and introduce some controls over the so far unchecked rate for market share that all major liner companies have been engaging in to date through ordering more and more large container vessels.

Let's turn to container trade growth. As we have mentioned in the past, demand for container transportation is a function of world GDP growth. RS Platou reminds us that from 2001 to 2012, average GDP growth stood at 3.8% per annum, and container demand increased by 8.1% per annum. This implies that the multiplier for that period was about 2.1.

Going forward, if GDP growth in Europe and the United States picks up over the medium term, the high multipliers they bear with container demand growth could easily bring the average multiplier up to 2.5. Under this scenario, a 4% growth in world GDP could raise demand growth for container transportation to 10% per annum. If this materializes, then the so far gloomy projections which are today prevalent in the containership market will have to change dramatically for the better.

According to Clarksons, global container trade is currently projected to grow by 6% in 2014 after expanding by 5% during 2013. Global container capable supply of tonnage is expected to increase by 4.8% this year. If this materializes, it will be slightly outpaced by global demand growth.

However, as a degree of structural oversupply undoubtedly persists, freight rates on individual routes will, according to Clarksons, continue to be determined by capacity management, with the speed and magnitude of the cascade effect remaining crucial.

Main lane trades are expected to register at 3.9% rate of growth in 2013 and 5% growth in 2014. This is extremely good news for the entire route hierarchy, according to Clarksons, as it is likely to ease the supply pressures which we have been witnessing across the board for a while now.

The north-south trades, which grew by 4.3% in 2013, are estimated to grow by 5.6% this year. Intra-regional trade is expected to grow by 6.9% in 2014.

Record scrapping levels, which we will mention in greater detail below, and the small sub-8,000 TEU order book, together with the potential slowdown of the cascade, should act as supporting factors in the charter market over the medium term.

Let's look at the new building order book now. According to figures gathered by Clarksons Research, at the beginning of this year, the containership order book consisted of 474 vessels capable of carrying 3,692,400 TEU, which represented 21.6% of the existing fleet. This total consists of 103 vessels of 12,000-plus TEU out of the existing fleet of 151 vessels, and 150 vessels of between 8,000 TEU and 12,000 TEU carrying capacity out of an existing fleet of 400 such vessels.

There are 95 post-Panamax ships on order smaller than 8,000 TEU, representing 13% of the existing fleet; and finally, a mere 10 Panamaxes of over 3,000 TEU capacity; the latter representing 0.9% of the existing Panamax fleet.

Clarksons believe that it is possible for the 8,000 TEU to 10,000 TEU vessels to soon become the workhorses in a number of trans-Pacific and large north-south trades. However, they also believe that if the trend of non-ordering continues, there is bound to be a shortage of good specification Panamax vessels to service the smaller north-south trades and the intra-regional trades, which have been growing quickly every year.

New building deliveries now. According to Clarksons, during 2013, 201 boxships of a combined carrying capacity of 1.34 million TEU were delivered. Large vessels of over 8,000 TEU accounted for nearly 70% of this delivered capacity. In contrast, a mere 700,000 TEU of capacity was delivered in the shrinking sub-3,000 TEU sector.

As for slippage, it is interesting to note that according to RS Platou, in 2012, 79% of the order book was actually delivered. In 2013, this number had dropped slightly to 73% of the order book. As of the end of January 2014, admittedly a very small time period, 96% of the vessels scheduled for delivery were actually delivered.

During 2014, the scheduled deliveries stand at 1,775,921 TEU. For 2015, scheduled deliveries stands at 1,537,485 TEU. From these ships, 80% are above the 7,000 TEU size range of 2014, while this percentage rises to an impressive 85% in 2015.

As for new building ordering, during 2013, a total of 223 ships with a combined carrying capacity of 1.82 million TEU were ordered for delivery from 2015 onwards. A staggering 88% of all these orders were for ships able to carry more than 8,000 TEU. At the same time, there has been relatively little investment in smaller vessels. The 3,000 TEU to 8,000 TEU capacity on orders has fallen to its lowest level since 1999, according to Clarksons.

As for the freight rates, so far in 2014, the average Asia to Europe freight rates are up by 9% year on year, and stand at approximately $1,500 per TEU. Trans-Pacific rates are up by much less and stand at around $1,100 per TEU. As for intra-Asia freight rates, they have remained flat so far this year at around $720 per box.

As for the laid-up tonnage, according to Alphaliner, in the middle of January this year, the total containership capacity in lay-up stood at 681,800 TEU. These 223 idle ships accounted for 3.9% of the overall containership fleet. Most of these vessels are small, but the average size of laid-up tonnage stands now at just over 3,000 TEU.

Scrapping now. Demolition during 2013 reached a record 187 vessels, or 428,765 TEU. Of the vessels scrapped last year, 66 were in the 3,000-plus TEU Panamax sector, accounting for 55% of the capacity demolished. As a result of this scrapping, the Panamax fleet shrank by 4.3% over the course of 2013.

The fact that earnings remain soft for these ships is a result of the cascade effect which took away from this size more routes than the new routes they were able to enter into on the north-south trades and the Asian intra-regional routes.

The average age of ships scrapped in 2013 was 22.5 years, one year younger than the average age of vessels scrapped in 2012.

Let's look at the cascade effect. The devastating effects of the cascade and trade upsizing to the earnings of medium and smaller-sized container vessels has been discussed to exhaustion during the last three years or so. For example, at the start of the last quarter of 2013, 39% of capacity in trans-Pacific trades was provided by 8,000-plus TEU vessels, while 60% was provided by smaller ships down to 3,000 TEU.

The carrying capacity provided by the very large container carriers on this trade has quadrupled since mid-2009, which illustrates the dramatic effects of upsizing. Similar upsizing has been taking place in the Far East to Europe trade routes.

However, we agree with Clarksons that at some point there should be a limit to the cascade. Going forward, the absorption of the majority of cascadable tonnage and/or the demands from cumulative trade growth will eventually slow down, and so will the cascade. Such slowing in the cascade, combined with a very thin order book in the small and medium sizes and high rate of demolition, should tighten the supply of suitable capacity for many trades.

Let's finally turn to the outlook for our trade. According to Maersk Broker, developments in 2014 should mirror what happened in 2013; that is steady improvements in the earnings of feeder tonnage, and continued challenges for Panamax tonnage, until the point has been reached where demolition has removed the surplus tonnage.

Proposed Panamax ships, they predict continued good demand with seasonal weakness during the first and the fourth quarter. The infamous cascading will, according to Maersk Broker, continue to be an issue in 2014. There will be continuous push to utilize the largest possible tonnage in every trade.

According to Maersk, charterers' appetite for modern wide-beam 9,000 TEU ships will continue unabated during this year. Five-year charters for these ships were recently negotiated at around $40,000 per day. In contrast, the time charter rates for 5,500 TEU vessels came under pressure late in 2013 and earlier this year, with just below $11,000 per day offered for periods of up to 12 months.

According to Maersk Broker, the outlook for the 4,000 TEU to 5,000 TEU tonnage is still bleak, except for modern wide-beam vessels, which is the result of the desire by liner operators to achieve cost savings due to the fuel efficiency of these vessels.

As I mentioned earlier on, Maersk Broker believes that for the Panamax market to improve, additional tonnage will have to be removed from the market this year. This is a trend that Maersk is confident will indeed develop in 2014 as owners and liner operators are active sellers for demolition of such tonnage.

The outlook for ships between 2,000 TEU and 4,000 TEU this year is, according to Maersk, more positive, as there will be negative fleet growth in 2014, and positive momentum should develop during the second and third quarters of 2014.

As we go through this year, we will continue to manage the fleet and its employment as we have been doing over the last three years. The recent trend of scrapping older ships as they come off high and profitable charters may continue, depending on their future employment prospects. Gradually these will be replaced by more modern and larger ships which will support and enhance the visibility of our dividend payments to our shareholders.

There is little doubt that we are getting closer to a recovery in rates across the medium and small-size ranges. For some time now, market forces have been at work, which have traditionally helped shipping markets recover from their lows.

We should not underestimate the beneficial cumulative effect of high scrapping, low ordering and extremely negative psychology which has prevailed in the containership market over the past three years or so. Indeed, if it were not for the larger vessel new building order book and the infamous cascade effect, things would have improved dramatically much sooner.

However, as mentioned above, cascades do not last forever in any trade, and as soon as this subsides, market participants and investors will realize the huge supply shortage which will have developed through the years in the medium and small-sized container vessels. By that time, the earnings of these ships will probably be moving higher and higher.

I will now pass the call to our CFO, Andreas Michalopoulos, who will provide us with the financial highlights of the last quarter and whole year 2013.

Thank you.

Thank you, Stasi, and good morning. I am pleased to be discussing today with you Diana Containerships Inc. operational results for the fourth quarter of 2013 and the year ended December 31, 2013.

Fourth quarter of 2013, net loss of Diana Containerships Inc. amounted to $19.8 million, and the loss per share amounted to $0.58.

Time charter revenues, net of prepaid charter revenue amortization, amounted to $15.5 million compared to $14.6 million in 2012, increasing time charter revenues, but due to increased average time charter rates achieved during the quarter compared with the same period of last year; and the contribution of revenues of the vessels APL Garnet in November 2012 and Hanjin Malta, Puelo, and Pucon in March, August and September 2013 respectively, partly offset by the disposals of the vessels Madrid, Malacca, Merlion and Spinel in May, June, and December 2013 respectively.

Ownership days were 908 for the quarter compared to 871 in the same period of 2012. Fleet utilization was 99.6% for the quarter compared to 99.9% for 2012. And the daily time charter equivalent rate was $16,878 compared to $16,374 in 2012.

Voyage expenses were $0.2 million for the quarter. Operating expenses decreased by $1.5 million, or 17%, to $7.3 million in 2013 compared to $8.8 million for the same quarter of 2012.

Operating expenses in the fourth quarter of 2013 decreased despite the increase in ownership days in the fourth quarter 2013 compared to 2012. On average, operating expenses decreased, mainly due to decreased spares, repairs and maintenance costs; and this decrease was partly offset by increased insurance expenses. Daily operating expenses were $8,054 for the fourth quarter of 2013 compared to $10,114 in 2012.

Depreciation amounted to $3 million for the quarter. General and administrative expenses were $1.2 million compared to $0.8 million in the fourth quarter of 2012. The increase was mainly attributable to the establishment of Unitized Ocean Transport Limited, or UOT, our wholly-owned subsidiary, to act as a fleet manager effective March 1, 2013; and was partly offset by decreased compensation costs on restricted stock awards.

Impairment losses amounted to $9.7 million and represent non-cash impairment charges recorded during the fourth quarter of 2013 for the vessel Sardonyx. Loss of vessels' sales amounted to $12.2 million, and relate to the sale of the vessel Spinel in the fourth quarter of 2013.

Interest and finance costs for the fourth quarter of 2013 amounted to $1.7 million compared to $0.8 million for the same quarter of 2012. The increase was the result of increased average debt after the drawdown of $50 million from our loan agreement with Diana Shipping Inc., and $6 million from our credit facility with RBS in August and September 2013 respectively; and is attributable to increased average interest rates.

Turning now to the year ended December 31, 2013. Net loss of Diana Containerships Inc. amounted to $57.3 million, and the loss per share amounted to $1.73.

Time charter revenues, net of prepaid charter revenue amortization, amounted to $54 million compared to $56.6 million in 2012. Time charter revenues decreased due to decreased average time charter rates achieved in 2013 compared to the same period of 2012, and were partly offset by the increase in the ownership days in 2013 compared to the same period of 2012.

Ownership days were 3,516 in 2013 compared to 3,156 in 2012. Fleet utilization was 97.9%, compared to 99.8% in 2012. And the daily time charter equivalent rate was $15,162 for the period, compared to $17,499 for the same period of 2012. Voyage expenses were $0.7 million.

Operating expenses for the year amounted to $30.9 million compared to $29 million for the same period of 2012. The increase in operating expenses was due to the increase in ownership days, and also due to increased crew costs, insurances and tax expenses, partly offset by decreased stores, spares, and maintenance costs.

Daily operating expenses were $8,780 for the year ended December 31, 2013, compared to $9,179 in the prior period. Depreciation amounted to $11.1 million. Management fees amounted to $0.3 million and represent the fees paid to Diana Shipping Services S.A. up to February 28, 2013.

Effective March 1, 2013, UOT provides us with management services similar to those previously provided by Diana Shipping Services. The fees payable to UOT are eliminated upon consolidation as inter-company transactions.

General and administrative expenses amounted to $5.1 million compared to $3.5 million for the same period in 2012. The increase was mainly attributable to the establishment of UOT to act as our fleet manager effective March 1, 2013, and was partly offset by decreased Company promotion expenses and competition costs on restricted stock awards.

Impairment losses amounted to $42.3 million and represent non-cash impairment charges recorded during the first quarter of 2013 for the vessels Madrid, Malacca, and Merlion, and during the fourth quarter for the vessel Sardonyx.

Loss on vessels' sales amounted to $16.5 million and relates to the sale of the vessels Madrid, Malacca, and Merlion in the second quarter of 2013, and Spinel in the fourth quarter of 2013.

Interest and finance costs were $4.6 million for the year ended December 31, 2013, compared to $3.1 million for the same period in 2012.

As mentioned earlier, in 2013, we had increased average debt outstanding compared to 2012, as well as increased average interest rates.

Turning to dividend policy. For the fourth quarter of 2013, the Board of Directors have decided to declare a dividend of $0.15 per share.

Thank you for your attention. We would be pleased to respond to your questions now, and I will turn the call to the operator, who will instruct you as to the procedure for asking questions.

At this time, we will be conducting a question and answer session. (Operator Instructions). Mike Webber, Wells Fargo.

Happy Presidents Day. A couple of quick questions for you. In thinking about the model longer term and the $60 million loss put up this year in terms of the sale on vessels that were required primarily due to their charter cover, is that still the focus going forward in terms of acquiring assets that have a significant amount of residual value risk, that have significant charters on them as well; basically buying [cashless streams] and option value? And if that is the case, what makes you confident that the next year to 18 months is when we're going to see some of that option value really come into the money?

Mike, this is Ioannis. Yes, we are in a position now, the size of the Company is such that we can concentrate on better assets; that they have a lesser risk on their residual value, as we said. And from the moment that we can ensure that there is a certain visibility on our earnings capacity for the next 18 months, or so, as you said, we think that we are in a very good situation waiting for the market to pick up.

We feel at the moment that the next 18 months are going to be very critical for the market and most probably we are going to see market improvement. But at the same time, we have to see what we will be able to do in between, during that period, and whether we can extend it for a little longer if necessary by doing something similar to what we have done up to now.

The long story short, we have managed to keep the balance sheet very healthy and still be in a position to wait for the market to pick up where value is going to be created for our shareholders.

We strongly feel that today, it's a good opportunity for someone to be -- to get invested in the containership sector; and based on the volatility that we have seen in the past, that may be -- the ones that are going to do so, they are going to place themselves in a very good position to make very nice returns within the next two to three years.

Great. Right, now that makes sense. They're expensive options to keep extending. Within that context, when you think about returns over the next two to three years and that you guys have an [active ATM] right now, when you think about your equity needs going forward, does the ATM at this point, assuming you can go ahead and fulfill it, does that satisfy the equity component of your growth needs do you think for the near to intermediate term?

Well, as you know, Mike, the ATM is in place. We have declared that we are going to use it opportunistically as it fits our needs and our growth prospects. We're going to continue to do that.

Now you can -- we are always on the lookout for what is available, and will continue to be so in terms of equity, debt, what have you, all the instruments that are available to us. But for the moment, the ATM suits us well.

Okay. One more for me just around the distribution. Based on what you're seeing right now, and I know you're not pinning a timeframe on a recovery yet, but based on what you're seeing now, how much longer do you think you can sustain the current dividend?

You can clearly see, based on our existing charters and based on the cut that we have aside, that the $0.15 dividend can be sustained for at least the next 18 months, looking -- as I said earlier, looking at the existing charters, and also at the cash available.

Now the cash available can be used in two ways. The one is to buy something that is going to be adding to the visibility and sustainability of this $0.15, or can be set aside to support this $0.15 dividend.

Either way, I think that you as an analyst, and us as management of Diana Containerships, we should try and pass this message across better, because anyone that can look at our numbers and our balance sheet and at the existing charters can see the sustainability of this $0.15 for the next 18 months, as I said earlier.

This is something that we have not managed to pass across as a message, and I think we should induce everyone to look at the numbers better and see that the $0.15 is something that it looks sustainable.

Right, okay. All right, guys. Thanks for the time.

(Operator Instructions). We have reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comment.

Thank you again for your interest in and support of Diana Containerships. We look forward to speak with you in the months ahead.

Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.