Performance Shipping Inc (PSHG) 2014 Q1 法說會逐字稿

Greetings, and welcome to the Diana Containerships Inc first quarter 2014 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Ed Nebb, Investor Relations Advisor. Thank you, sir. You may begin.

Thank you very much. And thanks to all of you for joining the Diana Containerships Inc 2014 first quarter conference call.

The members of the Diana Containerships management team who are with us today are Mr. Symeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Operating Officer and Secretary; and Ms. 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 statements of historical fact are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act.

Such forward-looking statements are based on assumptions, expectations, projections, intentions, and beliefs about 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 materially from the forward-looking statements, please refer to the Company's filings with the SEC.

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

Thank you, Ed. Good morning, and thank you for joining us to discuss the 2014 first quarter results of Diana Containerships.

We have continued to take a long-term view in our efforts to position the Company to capitalize on the eventual recovery in the container market and to operate our business in a prudent and financially sound manner.

In this regard, after carefully considering the current containership charter market and vessel acquisition opportunities, the Board of Directors determined to reduce the cash dividend payable with respect to the first quarter to $0.05 per share.

We believe this action is in the best interest of the Company and its shareholders and is consistent with the long-term strategy of maintaining a strong balance sheet and pursuing attractive vessel purchase opportunities as they arise.

In taking this action, the Company expects to deploy its available cash to purchase additional containership vessels at currently attractive prices that will further enhance the Company's position to capitalize on the eventual recovery in the container market.

We believe this use of our financial capacity will enhance long-term shareholder value and will eventually -- and will evaluate future dividend decisions in light of then-prevailing market conditions.

The cash dividend of $0.05 per share will be payable on or around June 11th, 2014, to all shareholders of record as at May 28th, 2014.

In other strategic action during the first quarter, we sold the -- for demolition a 1995-built vessel the Sardonyx for a price of approximately $10 million before commissions. This sale also was consistent with our efforts to modernize the fleet and position the Company for future improvements in the containership market.

Now, to summarize our financial results, time charter revenues for the 2014 first quarter were $13.5 million compared to $15.1 million for the same period of 2013.

The Company recorded net income of $0.3 million for the 2014 first quarter compared to a net loss of $31.8 million for the same period of 2013.

During the first quarter of 2014, the Company incurred losses arising from the disposal of the vessel Sardonyx amount to $0.7 million. Excluding these losses, net income for the first quarter of 2014 would have been $1 million, and the earnings per share basic and diluted would have been $0.03 million for the quarter.

Our fleet is time chartered to some of the industry's leading container lines for more than 88% 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, including the first quarter of 2014, is approximately $81.6 million.

Our balance sheet remains solid. At March 31st, 2014, the Company had approximately $33 million of available cash and approximately $10 million of restricted cash on the balance sheet and stockholders' equity of nearly $164 million.

During the quarter ended March 31st, 2014, and up to this date, the Company has sold an aggregate of 1,092,596 common shares through our market equity offering at a weighted average sales price of $4.03. The Company received total net proceeds of $4.3 million in connection with these shares.

In summary, the results of Diana Containerships for the first quarter of 2014 reflected our continued effort to position the Company financially and operationally to deliver performance and shareholder value for the long term.

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 quarterly conference call.

Let's start our quarterly health check of the containership industry by looking at the financial health of the liner companies, on which [forward charter] (inaudible) [depend] for employment of their container vessel.

According to Alphaliner, average operating margins for container carriers remained under pressure during 2013, even though the aggregate operating income turned positive for the first time since 2010.

The combined operating income for 19 main carriers surveyed by Alphaliner reached the $247 million, although only six out of the 19 liner operators surveyed reported positive operating margins for 2013.

The positive combined result is due to the strong performance of Maesk and CMA CGM, who reported core operating profits of $1.524 billion and $756 million, respectively.

The remaining 17 carriers accumulated operating losses totaling $2.023 billion. It is noteworthy, though, that the second largest liner operator MSC is not included in the survey as it does not publish any financial results.

Let's look at the recent developments now in the containership industry. Freight rates, according to Clarksons, struggled across the board during 2013. However, rates did start improving at the beginning of this year, especially on the all-important Shanghai-to-the US (inaudible) as seasonal capacity reduction allowed carriers to drive up rates from the December 2013 lows.

During 2013, the volume of idle capacity exerted, among other factors, downward pressure on the charter market. Cascading wasn't self-sufficient to bring the time charter market under intense pressure during last year.

Benchmark rates for 4,400 TEU Panamaxes came under severe pressure down to just $7,500 per day at the end of 2013. In the larger sizes, the three-year benchmark rate for the 9,000 TEU vessels ended the year at around $39,000 per day.

On the northern main lane route, the pressure came from the cascaded capacity throughout last year.

On the trade outlook, according to Clarkson Research, global container trade is projected to grow by 6% in 2014 and by 7% in 2015, having expanded by about 5% last year.

Growth of trade along the main lanes is projected to be around 5% this year after showing sluggish growth during 2013. The Far East-to-Europe volumes are expected to increase by 5.1% this year while the Trans-Pacific eastbound trades are expected to grow by 5.2% in 2014.

According to (inaudible) [economists], recovery in the Eurozone is strengthening, and risks of a return to recession are receding. European container import volumes are projected, according to Clarksons, to grow by 4.7% in 2014, up from 3.7% growth in 2013.

This is an impressive multiple of the anemic rate of GDP growth of about 1.2% expected this year for the Eurozone. It also helps us estimate the high rate of container import growth we could witness in 2015 if Eurozone growth accelerates even modestly.

In the United States container import growth is expected to come in at 4.7% in 2014 after growing only 3.6% last year. And the economy as a whole is expected to grow by 2.8% in 2014, according to the IMF.

This is another economic zone with high GDP container import multiples as well as very high relative volumes.

Most importantly, according to Maersk Broker, US consumer confidence rose more than expected in March this year, climbing to its highest level since January 2008.

The positive consumer confidence data in the United States was backed by the flash PMI, a gauge of economic sentiment, for March, which came in at 55.5, indicating further expansion in the economy.

Intra-regional trade is expected to grow by 6.9% this year, driven by strong intra-Asian trade growth. The volumes of north-south trades are expected to grow by 5.6% in 2014, driven by strong demand from the southern hemisphere.

According to Braemar Seascope, in China, even though during the first quarter of this year, the economy expanded by 7.4%, retail sales in March spiked by 12.2% compared to the same months last year, underscoring China's efforts to boost economic growth through increased consumption at home. If this continues, the effects on the inbound container trade could be very positive.

Let's turn to supplies. According to Clarksons at the beginning of March this year, the containership fleet numbered 5,115 vessels, having combined carrying capacity of 17.13 million TEU.

The newbuilding order book consisted of 468 vessels, having a combined carrying capacity of 3.654 billion TEU, which is equivalent to 21.1% of the current global containership fleet capacity.

From these ships comprising the newbuilding order book, only 10 are Panamaxes, 95 are post-Panamaxes, under 8,000 TEU; 150 are post-Panamaxes between 8,000 and 12,000 TEU; and 103 are very large containerships, larger than 12,000 TEU.

The general upsizing in several trade routes has led to the increase of the average vessel size in the Trans-Atlantic trade from 2,986 TEU at the start of 2012 to 3,554 TEU at the beginning of this year.

In the Trans-Pacific trade, upsizing has been more pronounced. At the start of 2014, there were 141 very large containerships deployed in those trades, representing 42% of capacity, while a year earlier that percentage was a much lower 32%.

At the beginning of this year, there were still 134 post-Panamaxes under 8,000 TEU and another 197 Panamaxes trading Trans-Pacific, which according to Clarksons demonstrates that there is still further scope for more cascading in future.

This will obviously be limited, though, by other factors such as port handling facilities and trade volumes on specific routes.

Much less scope for cascading exists, however, in the Far East-to-Europe trade, where already 82% of the trade is loaded in ships capable of carrying more than 8,000 TEU. This percentage was only 52% at the beginning of 2009.

Let's turn to newbuilding deliveries. In 2014, Clarksons estimates that 1.3 million TEU containership capacity will be delivered, 79% of which will consist of ships larger than 8,000 TEU.

This proportion is expected to increase further next year when it is estimated to reach 86% of the total 1.51 million TEU deliverable capacity. In 2015, Alphaliner estimates that about 67 containerships larger than 10,000 TEU will join the fleet with a number falling to around 34 in 2016.

In addition to the above, Alphaliner estimates that 60 ships in excess of 7,500 TEU and smaller than 10,000 TEU carrying capacity will be delivered in 2015 and a further 24 such vessels in 2016.

In contrast to the above numbers, a mere 14 ships between 4,000 and 7,500 TEU carrying capacity will join the fleet in 2015. And only one so far is scheduled for delivery in 2016. These figures provide a clear indication of the enormous differences among the various sizes of ships in the existing order book.

As regards slippage, this can be calculated if we take into account the fact that, in 2014, the scheduled delivery order book is 1.69 million TEU, and only 1.3 million TEU are expected to be actually be delivered. From the 1.64 million TEU scheduled for delivery in 2015, Clarksons estimates that, at most, about 1.51 million TEU will be delivered.

Demolition now, the single most important check on supply growth from 2013 onward has been demolition activity. During 2013, 187 vessels capable of carrying 430,000 TEU were sold for scrap, the biggest ever annual total.

This number will comfortably -- will be comfortably exceeded this year, according to Braemar Seascope, who point out that [60] (inaudible) containterships were sold for scrap during the first quarter of this year with a combined carrying capacity of 210,000 TEU.

This represents a 95% year-on-year increase in terms of cargo-carrying capacity. The average age of containerships sold for scrap so far this year is approximately 21 years compared to 22.7 years in 2013.

As regards the average size, this has gone up from 2,280 TEU in 2013 to 3,377 TEU this year. Clarksons expects that at least 0.49 million TEU worth of container capacity will be scrapped this year. If it materializes, this will be a new all-time record. They expect a further 370,000 TEU to be scrapped in 2015. However, we consider this to be a very tentative estimate as it is far too early to make any credible scrapping predictions for next year.

According to Maersk Broker, demolition activity appears to finally be having an impact on the reduction of tonnage availability. Specifically, in the 3,000 to 5,000 TEU segment, the idle tonnage has come down from 80 ships at the beginning of this year to currently around 50 units.

Maersk Broker continues that some of these ships will require several weeks to be reactivated. And other tonnage is not really available for further trading as it is in the process of being sold for scrap.

On the back of increasing demand, Maersk therefore expect to smaller post-Panamax tonnage becoming available during this year to be quickly absorbed to fill in the supply shortage created by the lack of ships in the immediately smaller size segments.

As far as idle capacity is concerned, according to Alphaliner, during the third week of April, there were 185 ships in layup capable of carrying 513,000 TEU, which represented around 3% of the containership fleet.

The number of idle ships is expected to fall further over the next three months as demand is expected to pick up for the summer peak season for the start of new services, hopefully absorbing most of the 20 vessels above 5,100 TEU, which are currently idle.

Let's turn to newbuilding contracts. According to Clarksons, this year, there have been about 44 newbuilding contracts signed against a total number of 241 for the whole of last year.

At this pace, newbuilding contracts will be about 34% down on last year's total. There have been now newbuilding contracts signed for ships between 3,000 and 8,000 TEU since November of last year.

According to Braemar Seascope, during March of this year, newbuilding contracting slowed down significantly with only nine units reported as new orders.

However, Maersk Broker points out that there are several operators evaluating their future requirements. And the expectation is still that orders may start to appear later this year but at a slower pace than seen last year.

Maersk maintains their full-year forecast for contracting at 1.5 million TEU compared to about 1.9 million TEU in 2013.

On the supply-demand balance now, Clarksons predicts there's a projected supply growth this year of 4% to be outpaced by demand growth of 6%, although a degree of structural oversupply will remain in the market.

For 2015, Clarksons predicts demand growth of 7%, supply increasing at 5%, and structural oversupply weakening with time.

In the Panamax size sector, according to Maersk Broker, the scrapping efforts referred to earlier, tonnage layups, and the number of contract extensions have reduced the availability of tonnage this year.

In addition, various services were upgraded from 2,800 TEU to Panamax tonnage. And owners finally have the choice in terms of the employment of their vessel.

Braemar Seascope reports that there has recently been growth in the deployment of Panamax vessels on intra-Asia routes. Furthermore, delays in the completion of the Panamax (inaudible) despite the Panamax sector as newbuilding deliveries are extremely low and scrap (inaudible).

Maersk expects the level of activity to continue to improve for this size segment. However, how much rates can improve remains to be seen. But, currently, tonnage appears to be fixed at an increasing pace as some charters have decided to move quickly to secure Panamax tonnage at attractive rates.

Furthermore, Clarksons points out that, in the medium term, the potential exhaustion of the visibility or desirability of cascading may eventually lead to a supply deficit on trades that require small- and medium-sized ships.

This will come about at the same time as the combined effects of a thin order book in these size ranges and the higher rate of demolition, which we have been witnessing since the beginning of last year. There are indications, Clarksons continues, that the cascade onto intra-Asian trade is slowing down.

Braemar Seascope reports that the most positive news of all emanates from the post-Panamax sizes, where rates have been achieved higher than last [time] for the widebeam 6,000 TEU and 9,000 TEU segments.

Supply at this end of the charter market appears to be low as lines are generally withdrawn [relapse] tonnage from the market to deploy in their own service networks.

Slow steaming now, in order to [contract] the structural oversupply (inaudible) primarily created by the 9% trade contraction of 2009, [running] capacity [growth] has been limited by the widespread adoption of containership slow steaming.

This, according to Clarksons, may have absorbed about 2 million TEU of (inaudible) capacity from the market since the end of 2008. This is another factor that should be taken into account in the longer term as time charter rates increase across the size spectrum.

As regards asset values, at the end of 2013, the containership secondhand price index stood at 37.1%, which was 57% lower than at the end of 2010. Charter free tonnage could be bought at very attractive prices on many occasions not much higher than the scrap value for ships around 15 years of age.

On newbuilding capacity, according to Clarksons, due to heavy newbuilding contracting in other sectors of shipping, yard capacity available for containership construction beyond 2015 may be reduced. This could place a cap on possible future fleet expansion.

Finally, we agree with Maersk Broker that, even though there may still be a way to go to achieve a healthy supply-demand equilibrium, there is hope that the market will come much closer to equilibrium later this year. This might be initially seen in the time charter rates and periods obtainable for post-Panamax tonnage.

However, with the expected continuation of negative growth in the smaller-sized segments, there should be room for improvement there as well, especially for modern and fuel-efficient tonnage.

I will now pass the call to our CFO Andreas Michalopoulos, who will present you with the first quarter financial highlights of Diana Containerships Inc. Thank you.

Thank you, Stasi, and good morning. I am pleased to be discussing today with you Diana Containerships Inc operational results for the first quarter of 2014.

Net income of Diana Containerships Inc amounted to $0.3 million, and the earnings per share amounted to $0.01.

Time charter revenues, net of prepaid charter revenue amortization, amounted to $13.5 million compared to $15.1 million in 2013. The decrease in time charter revenues was mainly due to decreased ownership days after the disposal of five vessels from May 2013 to February 2014, partly offset by the acquisition of three vessels in March, August, and September 2013, respectively.

The decrease in time charter revenues was partly offset by increased average time charter rates achieved in 2014.

Ownership days were 771 for the quarter compared to 916 in the same period of 2013. Fleet utilization was 99% for the quarter compared to 100% for 2013. And the daily time charter equivalent rate was $17,337 compared to $16,203 in 2013.

Voyage expenses were $0.1 million for the quarter. Operating expenses decreased by $1.6 million, or 19%, to $6.6 million in 2014 compared to $8.2 million for the same quarter of 2013.

Operating expenses in the first quarter of 2014 mainly decreased due to the decrease in ownership days compared to 2013. In addition, average operating expenses decreased mainly due to decreased spares, repairs, and maintenance costs. And this decrease was partly offset by increased insurance and tax expenses.

Daily operating expenses were $8,598 for the first quarter of 2014 compared to $8,987 in 2013.

Depreciation amounted to $2.5 million for the quarter. General and administrative expenses were $1.7 million compared to $1.3 million for the first quarter of 2013. This increase was mainly attributable to the establishment of Unitized Ocean Transport Limited, our wholly owned subsidiary, to act as a fleet manager effective March 1st, 2013, and was partly offset by decreased compensation costs on restricted stock awards.

Loss on vessel sale amounted to $0.7 million and relates to the sale of the vessel Sardonyx in the first quarter of 2014.

Interest and finance costs for the first quarter of 2014 amounted to $1.7 million compared to $0.8 million for the same quarter of 2013. 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 also attributable to increased average interest rates.

Turning to dividend policy, for the first quarter of 2014, the Board of Directors have decided to declare a dividend of $0.05 per share.

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

(Operator Instructions). Donald McLee, Wells Fargo.

So, just to talk about the dividend, it looked like it was relatively secure over the next couple of quarters following some of your recent sale and purchase activity. How does the cut reflect your outlook for container market, say, over the next 12 months?

The -- hi, this is Ioannis Zafirakis speaking, Donald. You see, the ability of the Company to pay that dividend, you correctly pointed out that it was secured for the next quarters.

However, we have realized that the fact that we were yielding 16% was not something that the Company considered to be a fair yield for our Company. In other words, we were paying out lots of cash to our shareholders, and that's a very big outflow of cash, considering that there are plenty of opportunities out there for vessels to be purchased at a very good price, but not being able to support this type of a dividend.

We had to make this difficult decision and make sure that we have the necessary cash and be there to buy vessels that we consider to be very good asset plays and then not trying to attract more and more capital, something -- more and more equity, something that we fail to do by having this handsome dividend.

We think that, by doing that, we will eventually create value for our shareholders, having purchased nicely priced vessels and not just limiting our target group with expensive vessels with a very nice cash flow.

Even that process has started becoming more and more difficult. And we were not in a position to find really attractive vessels as regards the cash flow that they were producing.

Okay. That makes sense. And just I guess for some of the size range you're targeting for the -- that you're going to use the savings from the dividend, is there a specific vessel site or vessel size?

The vessels that we have said that we like, they are in the medium type of vessels. We like the 5,000-plus TEU vessels and below 9,000, and this is going to be our main target.

Gotcha. And then just a question on the ATM, how much do you have outstanding on that?

On the ATM, we have about $22.3 million outstanding. But, of course, you understand that we will reevaluate that ATM accordingly.

Got it. Yes, and that was my second question. Just would you look at potentially expanding that as you look to acquire additional vessels?

You see, it depends on the pricing of our stock. As we said earlier, we were not able to have a stock at the price that makes sense to raise more equity. And we have to wait and see that before we will be in a position to comment on the ATM.

All right. Thanks. That's helpful. That's all my questions, guys.

Thanks, Donald.

(Operator Instructions). Kevin Sterling, BB&T.

Thank you. Good afternoon, gentlemen. You guys, you've been relatively quiet for the last months or so in terms of vessel acquisitions. Is that a function of just waiting for the right opportunity, lack of opportunities in the market, or maybe waiting for a better foothold in the recovery? And now, with the dividend cut, it sounds like you're looking -- it sounds like, on the surface, maybe you're looking to kind of unleash some of that cash to grow your fleet. How should we think about vessel acquisitions here in the near term? Are we getting close?

You are correct. We're not in a position to find vessels that they were going to be supporting our handsome, as I said earlier, dividend. And although we were looking very actively to find projects that were going to help the sustainability and the visibility of the dividend, that's proven to be almost impossible. And this is why you should expect us now to come out in the market and try to find vessels that they are, as I said earlier, attractive as regards their price and not their cash flow at the moment with big potentials of increasing their value as the market moves, as Mr. Margaronis said earlier to a better position.

Okay. Thank you, Ioannis. And s you think about your strategy with the charter market, I believe you have one vessel that's up for charter in the coming weeks. Will you be looking to secure something short term or longer term for that vessel?

I will say we will go for a shorter term rather than anything else, by shorter, maybe anything in between six and a year, six months and a year.

Okay. Thank you, Ioannis. And then last question here, looks like you took a much smaller loss on the sale of a vessel this quarter compared to previous sales. Is this a sign the secondhand market has strengthening, or it just was an impairment charge maybe a lot lower?

No, I think it was the second assumption you have. We had already a good example with a previous vessel we had sold that was a sort of similar vessel. So, we managed to have our impairment charge better put in our P&L on the fourth quarter of 2013.

Okay, gotcha, Andreas. So, it's not necessarily strengthened secondhand market, just kind of lower impairment charges. Great.

Exactly.

Okay. Thanks so much for your time today.

Thank you, Kevin.

We have reached the end of our question and answer session. I would like to turn the floor back over to management for closing comment.

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

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