Performance Shipping Inc (PSHG) 2015 Q1 法說會逐字稿

Greetings and welcome to the Diana Containerships Inc 2015 first quarter 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. You may begin.

Thank you very much and thanks to all of you for joining us today. The members of the Diana Containerships management team who are with us today include Mr. Symeon Palios, Chairman and CEO; 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 remind you of 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. The forward-looking statements are based on assumptions, expectations, projections and beliefs as to future events that may or 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 Securities and Exchange Commission.

And, 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 to review the performance of Diana Containerships Inc for the first quarter of 2015.

During the recent quarter, Diana Containerships continued to execute our investment strategy to build our fleet and thus position the Company for future growth.

To briefly review our financial results, the Company reported a net loss of $0.5 million for the 2015 first quarter compared to net income of $0.3 million for the same period of 2014.

Time charter revenues, net of prepaid charter revenues amortization, were $13.9 million for the 2015 first quarter, an increase from $13.5 million for the 2014 first quarter.

Our balance sheet has remained a source of strength, with approximately $87 million of available and restricted cash and nearly $256 million in stockholders' equity. As a result, we continue to be well positioned to take advantage of opportunities to expand our fleet further in the current marketplace.

The Board of Directors today declared a cash dividend on the Company's common stock of $0.0025 per share with respect to the first quarter of 2015. The cash dividend would be payable on or around June 10, 2015 to all shareholders of record as at May 26, 2015.

As I noted earlier, we have continued to make investments in our fleet to position the Company to benefit from the long-term opportunities we see in the containership market. In this regard, we announced purchases of two container vessels during first quarter which were delivered in April 2015.

The motor vessel, YM New Jersey, a 2006-built Panamax container vessel of approximately 5,000 TEU capacity was delivered on April 22. And the motor vessel YM Los Angeles, a 2006-built Panamax container vessel of approximately 5,000 TEU capacity was delivered on April 9. I will remind you that we also purchased three vessels in 2014. So you can see that our active fleet expansion program is progressing.

As of this date, we have a fleet of 13 container vessels, four are Post-Panamax and nine Panamax. Our fleet is time chartered to some of the industry's leading container lines with coverage of approximately 73% of the days in 2015, providing a stable revenue stream.

The contracted gross revenue of the fleet including the first quarter of 2015 is approximately $71.8 million.

In summary, Diana Containerships is pursuing a sound strategic course in 2015 by growing our fleet and providing the Company for opportunities in the next phase of the industry cycle. We remain dedicated to delivering profitable growth and then have shareholder value over the long term.

Now, I will now 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 a very good morning to the participants to this quarterly conference call.

We will look at the latest development in the containership market. Hopefully, we will manage to lift the spirit somehow during this call by talking about the future of this sector of shipping which has been battered by low rates and dropping vessel values in the temporary peak of the 2010-2011 period.

The state of the market now. Charter market sentiment appears to be gradually improving, and the overall supply demand trend looks fit to support that. With 2016 currently projected to see 7% rate growth against about 4% expansion in total supply, along with the fact that a slow down in cascading may support the non-main lane freight in chartered earnings.

According to Howe Robinson, March has seen the Howe Robinson Containership Index move up by 15% which is its largest monthly upwards movement since the brief mini recovery of 2010. Five years ago, time charter rates were supported by a combination of external factors that included quantitative easing, slow steaming and delayed newbuilding deliveries. This year, Howe Robinson does not identify any apparent external factors and the increase is relying on fundamentals.

The original impetus earlier this year came from the Panamax sector which moved up from around $10,000 per day to around $15,000 per day during the first quarter alone. All of this was initially aided by additional demand resulting from the US West Coast labor dispute. Time charter rates have been maintained at these higher level for at least the last eight weeks or so.

Let's turn to some macroeconomic developments. According to Braemar ACM, business outlook in the eurozone grew at its fastest rate in nearly four years in March. The PMI rose to 54.1%, the highest level in 46 months, compared to 53.3% which it was a month earlier.

European Union consumer confidence is currently at levels last seen before the 2009 crash. These macroeconomic indicators are likely to bolster imports and, in the short term, increase exports on the back of a weaker euro.

By reviewing global container volumes, container trade statistics have already recorded a 4.2% year-on-year increase in European container volumes during the first two months of 2015.

The United States, thanks to financial easing, cheaper oil and the versatile economy, has emerged again as a major growth force in the global economy. After three years in which GDP growth was around 2.3% per annum, current forecast according to Clarkson suggest that the rate growth could reach 3.5% over the next two years.

Due to the high market relationship between US GDP growth and demand for containerized imports, this could have a very effect on the container trade over the next two years.

US manufacturing PMI picked up to 55.3% in March, up from 55.1% in February and well above the neutral 50% threshold. This is the strongest overall improvement in manufacturing business conditions since October 2014.

Let's turn to the liner company financial results now. According to Alphaliner, of the 17 main carriers that published their annual financial results for the last year, 10 posted positive operating results while 7 recorded operating loss.

The top three performers were Maersk, Wan Hai and CMA CGM. Maersk topped the earnings scorecard with an operating profit of $2.3 billion, with Wan Hai reporting operating profit of $178 million. As for CMA CGM, they showed a profit of $973 million. At the bottom of the pack was CSAV which posted an operating loss of $185 million from its container shipping activity.

The recent fall in fuel prices has provided carriers with some room to reduce freight rate and increase their financial performance. Total cost savings from reduced bunker prices in 2015 could reach, according to Alphaliner, about $14 billion in aggregate for all carriers. This could allow shipping lines to lower their average freight rates by some $50 to $100 per TEU.

Unfortunately for liner companies, it currently appears that carriers have been passing both these fuel cost savings thus far on to shippers. This appears to be the case because according to the China Containerized Freight Index, average freight rates have fallen by 9% on average since the beginning of the year.

It is strange that liner companies keep ordering ever larger vessels, when earlier this year despite the withdrawal of 5 sailings to North Europe in two weeks in March, average capacity utilization remains in the 80% to 90% range resulting in a further rate reduction. As an example, Alphaliner mentioned that the lowest freight rates available on the Asia to Europe trade lane fell to below $300 per TEU, the lowest level ever. These are [cost] sailing omissions come at a high cost for carriers. Alphaliner cites as an example, the MSC Oliver delivered to MSC on 30th March this year which was forced to delay its maiden voyage by more than three weeks as a result of the cancellation of two sailings in April. The enforced idling of the ship does not offset some $1.5 million, both have been disbursed by MSC in vessel fees alone without taking into account the loss of foregoing freight revenue from the ship sail.

Let's look at time charter rates now. At the end of February 2015, the benchmark 12-month time charter rate for a 4,400 TEU Panamax vessel stood at $13,500 per day which is up nearly 86%, according to Clarkson, on a year-on-year basis. According to Maersk Broker in the Panamax segment we have seen some very recent softening, the rates moving below $16,000 a day whereas for the standard smaller Panamax tonnage, time charter rates remain unchanged at around $15,000 a day. Potential new enquiries in the market appear to be on the rise.

According to Maersk Broker, the direction of rate are uncertain at this time but with rates of the 2,800 to 3,000 TEU tonnage expected to soon exceed $14,000 per day, rates for Panamax tonnage may come up faster than most of us expect.

Let's have another brief look at the cascade. The cascading has continued to transfer the impact of surplus capacity down to regional trade in the charter market. Despite very strong trade growth on many of the non-main lane, the impact of this cascading was typically sufficient to decrease freight length.

Indeed, according to Clarkson, the pace of redeployment of large vessels appears to have slowed down in early 2015. Panamaxes are likely to be impacted by the widening of the Panama Canal which should enhance the deployment opportunities of the 5,000 TEU to 8,000 TEU Post-Panamax fleet.

Expectations though for volume growth on the TransPacific and North-South trade combined with limited projected growth in the Panamax fleet serving these routes could eventually generate a supply deficit for vessels of this size in spite of the continuing effect of the cascade mentioned above.

Let's turn to newbuilding deliveries now. During 2014, according to RS Platou, out of the 1.8 million TEU scheduled deliveries, around 1.51 million TEU are actually delivered. It was 85% of the actual order book for last year. For 2015, there are 1.95 million TEU of scheduled delivery. All we can say for now is that the actual versus scheduled deliveries for the first quarter was about 80% during that period.

According to Braemar ACM, in the first quarter of 2015, there were 52 vessels with a combined capacity of 363,000 TEU actually delivered. This is about 7.3% lower than deliveries during the first quarter of 2014.

During the same period, 36 newbuilding contracts were signed with a total TEU capacity of 490,850 TEU. This compares with 51 units and 447,000 TEU capacity ordered in the opening quarter of 2014.

Out of these 36 newbuildings, 23 units were in the 10,000 TEU plus size band. The average size of these 36 vessels was 13,634 TEU. According to Clarkson, if the first quarter run rate is maintained for the entire year, full year ordering will exceed 1.4 million TEU which would constitute an increase of almost 50% from the full year in 2014. We sincerely hope that common sense will prevail and the pace of ordering will cool off as the year progress.

According to Banchero Costa, the 2,000 to 4,999 TEU size range will see the fleet shrink by 2% this year and a further 2% in 2016. From 5,000 TEU upwards, the fleet is scheduled to increase by 15% this year and a further 7% in 2016.

For the time being and according to the current order book, there are a relatively low number of vessels due for delivery from 2016 onwards. There are 29 vessels of a combined 220,000 TEU capacity scheduled for delivery in 2017 and only 10 boxship out of a total 120,000 TEU scheduled to be delivered from 2018 onwards. Obviously, there are plenty of open slots during these two years particularly in Korean and Chinese shipyards.

Demolition now. During 2014 as a whole, Braemar ACM reported 163 vessels having a total capacity of 395,000 TEU scrapped. So far this year, 44 ships have been sold for demolition, 13 of which were over 3,000 TEU. Braemar ACM currently estimates that about 265,000 TEU capacity could be scrapped in 2015. This compares with approximately 400,000 TEU demolished during 2014 as mentioned above.

The average age of containerships sold for demolition during the first quarter of this year is estimated at approximately 23.1 years compared to 22.1 years of age per unit demolished in 2014. In terms of the size of ships demolished, the average capacity of units demolished has been decreased from 2,421 TEU in 2014 to 2,051 TEU in 2015 year to date.

Let's turn to the order book now. According to Clarkson, on April 1st this year, there were 5,126 containerships afloat with a total capacity of 18,521,900 TEU. At this time, there were 3,338,000 TEU on order representing about 18% of the existing fleet.

The order book was last seen at such low percentage level, compared to the existing fleet, in 2000 and 2003. Both these periods, and particularly 2003, were followed by significant spikes in time charter rates across all the size ranges.

In the 3,000 plus TEU Panamax size bracket, only four vessels are on order representing a negligible 0.4% of the existing fleet. In the Post-Panamax size band up to 8,000 TEU, there were 32 vessels in order representing 3.6% of the existing fleet.

According to Alphaliner, looking at such ships but only up to 4,500 TEU, about 11 ships will be delivered this year and they are now scheduled for delivery from 2016 onwards. The rest of the deliveries of the ships mentioned above will be for ships between 7,500 and 8,000 TEU capacity.

In the next size up, that is from 8,000 to 12,000 TEU, there are 114 ships on order which represents 25.2% of the existing fleet. For the even larger ships, the numbers are quite grim, with 110 ships on order representing 64% of the existing ships and fleet. Ships of 8,000 plus TEU amount to 52% of the order book in number of units and, more importantly, 86% of the order book in terms of TEU capacity.

Let's look at layups now. According to Alphaliner, the total containership capacity in layup rose slightly month on month to around 240,000 TEU in early March. This represents 1.3% of fleet capacity, far lower than the 4.3% level recorded in early March 2014. The number of idle Panamaxes is reported to have increased slightly since the start of 2015.

Now on slow steaming, a short word. Clarkson point out that as the means of managing oversupply, running capacity growth has been reduced by the extensive adoption of slow steaming which is estimated that this has absorbed around 2.5 million TEU of nominal capacity. Despite the recent fall in bunker cost, so far there has been no clear or significant increase in vessel speed.

Looking forward now, according Clarkson, having narrowing outpaced total supply growth in 2014, global demand is expected to continue growing faster than supply both in 2015 and 2016. Obviously, problems of oversupply remain due to the large number of very large containerships being delivered and on order, and supply management will be a key factor in determining the market environment from the individual trade lane.

According to Clarkson, in 2015 the global container trade is projected to grow by 6.7% to reach 182.4 million TEU, supported by firm main-lane trade growth and strong expansion of around 8% in intra-Asian trade which is expected to surpass the 50 million TEU for the first time.

According to Clarkson, container trade on the Far East to Europe peak leg route rose 11% in the first two months of 2015 when compared to the same two months data in 2014, reaching a total of 2.6 million TEU. It is expected to expand by 6.4% in 2015. Much will depend, of course, on the actual rate of European GDP growth this year.

The peak leg Trans Pacific route is expected to grow by 7% this year. As for the North-South trade lanes, they are projected to expand by 6.1% this year with very strong volume growth expected from the North-South trade with Africa. This should create demand growth for Panamax vessels, continuing a trend which we have been witnessing over the last few quarters. Trade growth is expected to remain robust during 2016 as well and attain rates in the order of 6.9%.

According to Braemar ACM, after three years of heavy scrapping, with the current levels of global container demand growth and a projection of future sustained growth, there is a realistic possibility that the current surge in earnings may level off, but more importantly, remain at significantly higher levels compared to the mediocre averages in earnings seen over the last three years.

Although the extent to which slow steaming continues will remain an important factor in determining supply demand balance, global container capable supply growth is set to slow further to 3.8% in 2016. In this climate of cautious optimism, we at Diana Containerships will continue implementing our investment strategy as described in past conference calls and as summarized by our Chairman and CEO, Mr. Symeon Palios, in his opening remarks.

The conservative leverage policy allows us to increase further corporate debt, which together with our reasonably high cash reserves provide the funding necessary to further increase our fleet of modern medium-sized container vessels. We firmly believe that this is an important and crucial point in the cycle of the containership industry and it is an ideal moment to continue creating a fleet with strong earnings capability out into the future.

I will now pass the call to our CFO, Andreas Michalopoulos, who will provide you with the financial highlights for the first quarter of this current year. Thank you.

Good morning. Thank you, Stasi. I am pleased to be discussing today with you Diana Containerships Inc operational results for the first quarter of 2015.

Net loss for Diana Containerships Inc amounted to $0.5 million and the loss per share amounted to $0.01. As for the revenue, net of prepaid charter revenue amortization, amounted to $13.9 million compared to $13.5 million in 2014. The increase in net time charter revenue was mainly due to the decreased prepaid charter revenue amortization and to the increase in ownership days in the first quarter of 2015 compared to the same period of 2014, partly offset by decreased average time charter rates.

Ownership days were 990 for the quarter compared to 771 in the same period of 2014. Fleet utilization was 99.6% for the quarter compared to 99% for 2014 and the daily time charter equivalent rate was $14,410 compared to $17,337 in the first-quarter 2014.

Voyage expenses were $0.2 million for the quarter. Vessel operating expenses amounted to $8.3 million in the first-quarter 2015 compared to $6.6 million for the same quarter of 2014. This increase was attributable to the 28% increase in the ownership days and also due to increased average stores and repair costs, and was partly offset by decreased average crew and repair and maintenance costs.

Daily operating expenses were $8,415 for the first quarter of 2015 compared to $8,598 in 2014. Depreciation and amortization and deferred charges amounted to $2.9 million for the quarter.

General and administrative expenses were $1.4 million in the first-quarter 2015, compared to $1.7 million in the respective period of 2014. The decrease was mainly attributable to decreased salaries and bonuses of the office personnel and was partly offset by increased competition cost on restricted stock awards.

Interest and finance costs for the first-quarter 2015 amounted to $1.7 million, same with the respective quarter of 2014, since there were no changes in our average debt and the average interest rates were substantially at similar levels.

Turning to dividend policy, for the first-quarter 2015, the Board of Directors have decided to declare a dividend of $0.0025 per share.

Thank you for your attention. We will 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 listening to your comments, you noted that Panamax time charter equivalent picked up over the past 12 months. I think it was about 86% year over year. And you have a couple of 2015 explorations coming up. Are we at a level yet in the chartered market where you begin to think about charting your vessels on a longer term basis or should we continue to expect short-term charters?

This is Ioannis Zafirakis speaking. You should expect ourselves to continue going with the same chartering strategy to struggle the way we charter our vessels and to have vessels opening. And certainly we strongly believe that we can see much higher rates than what we see today.

Got you. And I guess, where do you see rates going over the longer term?

We cannot -- nobody can be exact but certainly what we have been explaining during the call is that we are seeing the events that we need to see for the market to improve especially in the medium-sized vessels. And, therefore, the only thing we strongly believe is that the rates are going to improve but we don't know at which level.

Our chartering strategy is such that we had always the risk and we are almost never called to pinpoint the actual peak or the bottom. And more vessels we have, the easier this fiscal hedging is done.

Got you. And then I guess just referring to the fleet then, how does the current fundamental backdrop affect your near-term and long-term growth strategy and should we expect maybe more [S&P] purchases?

Certainly we are actively looking to utilize part of the past that we have aside and also as our President said, try to refer to increase the financing of the Company. Looking at the numbers, you can clearly see that we are under-leveraged and utilizing the chart together with some new debt we are in a position to buy another two to three vessels.

Got you. That's all my questions. Thank you for taking the time there.

You're welcome.

Kevin Sterling, BB&T.

It looks like two of your older vessels are coming up for renewal in the somewhat near term. The APL Garnet and the Hanjin Malta, it's coming off charter in early 2016. I know you've still got a little time before a decision is to be made, but given today's environment, charter rate environment, all else being equal, would you look to recharter these vessels or do would you lean towards selling them to trade up to more modern tonnage given that these vessels are a little bit older?

In an upgoing market, thinking of selling it by (inaudible) is something that shouldn't happen. Let's wait and see how the market is going to be at that time and we will decide then. But secondly if we were to respond to that question today, it looks like as if we are going to re-charter the vessel at nice levels.

Okay, thank you. Also as you kind of look at -- I know you guys have been continued focus on acquiring second-hand tonnage, and there's some talk on fair remarks about the shipyards. Are you seeing opportunities in the newbuild market as well or is it mostly -- or are most of these opportunities in the second-hand market?

Mostly, we are looking at the second-hand market. We are not -- we strongly feel that for our Company vessels aged 10 years or less, closer to five I would say is the optimum age profile for our Company.

Okay, great, thank you. And my last question and it's more for you Andreas. When I look at G&A this quarter, it's a step down a fair amount this quarter to the lowest level since 2013. As you think about the run rate going forward, how should we think about that? Similar what we saw this quarter or we could see G&A go back up a little bit for the remainder of the year?

We had a very big advantage because of the euro-dollar exchange rate this quarter. So I would say that if the euro-dollar remains at such levels, you should see something in between what you saw this quarter and the last quarter. So around $1.5 million should be a good number -- for the quarter should be a good number to budget.

Okay, great. Thank you for that explanation. And, gentlemen, thanks so much for your time today. I really appreciate it.

You're welcome, thank you.

Charles Rupinski, Global Hunter Securities.

Thank you for taking the time to answer my question and also for the great color on the industry. I just had a question on vessel speeds, you did mention that you are not seeing vessels speeding up at all. But given a constructive outlook for rates going forward, how much of an issue do you think this might be going forward in terms of conversations with the industry participants?

Do you think that this is something where we could see vessels speeding up in a higher-rate environment or are things pretty much given where the bunkers are even now where people are comfortable running the vessels at the current rate?

Yes, I would like to start by answering the question on the bunker prices. I mean as you probably know, each liner company has a formula which they apply for each of their routes as to what the optimum speed is which depends on many factors, obviously the price of the bunkers, the freight that they have receive, the time charter that they have to pay if they time charter the ship and more importantly on the volumes that they have to move.

For the time being, especially on the larger size vessels, it doesn't look as if there is any reason to speed up the ships, because as I mentioned earlier, in some routes they are having problems filling up the ships that they have already, which doesn't mean that demand is weak; it just means that supply has been extremely high over the last couple of years and will remain high this year.

So in order to see an increase in speeds on the lower sizes which is going to be the factor that we might see the first increases in speed, not in the larger ships, we need to focus more on higher time charter rates for these ships because the demand is going to be there.

So if rates increase to such an extent that it pays to increase the speed of all the ships in a certain route, because you can't pick and choose which ships we are going to trade faster, then we are going to be in a nice position that the ships will be earning even more than what they are earning now. And, yes, there will be an increase in supply artificially by the increase in the speeds of those vessels. But I stress the fact that in a certain route all ships have to trade at the same speed.

So it is no point in trying to look at ships on a piecemeal basis and which means in the (inaudible) that we will have to see a significant I think increase of time charter rates from here in order to see an increase in the speed of the ships.

They have to achieve a steady state on the stream of moving the containers. You cannot increase the speed if the others do not increase the speed because you are not going to meet the slot. So it is a matter of everybody doing it.

But as Stasi said, you have to reach higher levels on the time charter. At the moment, I don't think that they will start this scenario unless the charter rates moved (inaudible).

And also we may end up in the scenario that we kept saying the previous years and nobody was listening to us where you have seen vessels being on schedule as regard to the speed compared to the wider ones and the eco vessels compared to the non-eco vessels being able to achieve faster speed. We may even end up in this scenario.

Okay, this is very helpful color. And thank you.

Welcome, thank you.

Mark Suarez, Euro Pacific Capital.

Just to go back to your remarks, Ioannis, on the growth targets, you talked about maybe adding two to three vessels potentially. You also talked about maybe taking on new debt to finance that. How would that look like in terms of the different actions? Should we look at the charter [attach] sort of Panamax vessels of similar size as the ones you did recently and how should the new debt instrument look like?

I think for your modeling purposes you should add another $50 million debt to the total amount. And you should expect us to buy something to the vicinity of 5,000 TEU to 7,000 TEU vessels. It's going to be either two or three vessels or 2.5, whatever.

Okay. And just with that, assuming that scenario pans out, you continue to see Panamax charter rates increase especially at least through year-end earnings capacity and cash flow capacity increases, what sort of point would the Board consider raising dividends again given that you are growing very nicely, you are adding more fleet capacity and cash flow capacity for your P&L?

First of all, let me start by saying that people have not realized up to now the increase in the charter environment that has happened. It is due to the fact that we had a nice time charter effect. But the rate that we are seeing today are much, much higher than what there used to be a year ago. People have not realized that.

And secondly, they will realize that slowly because of the profitability of this Company. What we are aiming at is to see a full utilization of our dry powder together with some extra debt. Then we are waiting to see our stock price moving upwards together with our profitability and we may end up in a situation where having a dividend, attracting new equity and without being accretive to the dividend on a per-share basis is something that we do not exclude. But before that happens, we have to see other things happening.

Got you. So in scenario where maybe you would buy back some of the shares at this low price and keep and sort of wait for the stock to sort of rebound and catch up to its higher time charter rates, would at that point make sense for maybe a potential --?

We prefer to utilize our equity, our cash to buy vessels rather than our shares at this moment.

Got you. Okay, that's very helpful. That's all I have got for now. Thanks guys, thanks for your time.

Thank you.

We have no further questions at this time. I would now like to turn the floor back over to management for additional comments.

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.

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.