Performance Shipping Inc (PSHG) 2015 Q3 法說會逐字稿

Greetings and welcome to the Diana Containerships Inc. third-quarter 2015 conference call. (Operator Instructions) 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, Mr. Ed Nebb, Investor Relations Advisor. Thank you sir, you may begin.

Thank you Adam and thanks to all of you for joining us today. The members of the Diana Containerships management team who are with us include 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, 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 from the forward-looking statements, please refer to the Company's filings with the SEC.

And 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 review the performance of Diana Containerships Inc for the third quarter of 2015. During the recent quarter, Diana Containerships continued efforts to expand and reposition the Company's fleet while maintaining sound financial resources in a challenging global environment.

Turning to our financial results, the Company reported a net loss of $9.1 million for the 2015 third quarter. The loss was mainly due to $8.3 million of direct sale and other charges associated with the disposal of the vessel Garnet. Excluding those charges, the result for the 2015 third quarter would have been a net loss of $0.8 million. This compares with net income of $1.4 million for the third quarter of 2014.

Time charter revenues, net of prepaid charter revenues amortizations, were $16.1 million for the third quarter of 2015, compared to $13 million for the same period of 2014. The increase was mainly due to the enlargement of our fleet, partly offset by reduced time charter rates and increased off-hire days.

Our balance sheet remains strong with approximately $48 million of available and restricted cash and $248 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 third quarter of 2015. The cash dividend will be payable on or around December 9, 2015, to all shareholders of record as of November 24, 2015.

We have continued to make strategic investments in our fleet. During the quarter, we took delivery of a post-Panamax container vessel, the motor vessel Rotterdam, a 2008-built vessel of approximately 6,500 TEU capacity. Later this month, we expect to take delivery of another post-Panamax vessel, the motor vessel Hamburg, a 2009-built vessel of approximately 6,500 TEU capacity.

Finally, we sold for demolition the 1995-built Panamax vessel Garnet in late September 2015. As a result of this actions and including the expected delivery of the Hamburg, we will have a fleet of 14 container vessels, six post-Panamax and eight Panamax. Our fleet is time chartered to some of the country's leading container lines with coverage for approximately 89% of the days in 2015, providing a stable revenue strip. The contracted gross revenue of the fleet including the first nine months of 2015 is approximately $91.1 million.

In September 2015, the Company signed a six-year term loan facility with the Royal Bank of Scotland plc for up to $148 million and completed a drawdown of $122.5 million secured by eight vessels. The drawdown was used to voluntarily prepay in full the balance of $92.7 million of the existing revolving credit facility with the Royal Bank of Scotland plc and to partially finance the acquisition cost of the motor vessel Rotterdam.

The un-drawn amount, which is expected to partially finance the acquisition cost of the motor vessel Hamburg, is available for drawdown until December 31st, 2015, and will be the lesser of $25.5 million and 60% of the market value of the vessel.

In summary, Diana Containerships has maintained a steady strategic course in 2015 despite a challenging market. Our strengths include a solid balance sheet and a growing fleet. We remain dedicated to building on those strengths to deliver, enhance shareholder value over the long term.

Now, I will turn the call over to our President Anastasios Margaronis for a perspective in 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 good morning to all the participants of this third-quarter conference call. We'll start a short overview of the containership market by looking at developments during 2015.

According to Clarksons, the key driver behind the virtual collapse of the containership time charter market during the second half of the year has been the shift in the demand side environment. Contraction in key elements of the main lane trade has led there to surplus capacity placing pressure elsewhere and across the size spectrum. At the same time, the slowdown in intraregional trade growth has reduced demand for Panamax and sub-Panamax ships.

As we will mention later on, the contraction of the Far East to Europe trade appears to have led that to very large vessels taking an increased share of intra-Asian trade in an attempt to maintain higher levels of utilization. As these ships are not suitable for these trades, they just end up performing inefficiently in service of moving relatively small numbers of containers over much shorter voyages than these vessels were built to perform.

It is therefore not surprising that according to Clarksons even though this sustaining of large assignments onto intraregional trade prove more persistent than anticipated, it now appears to be slowing down.

Let's turn to some macroeconomic factors. The economic performance of the world's major trading economies has a direct bearing on the demand for the transportation of containers. The IMF has downgraded its forecast for global economic growth this year from 3.3% to 3.1%.

For 2016, the forecast has come down from 3.8% to 3.6%. Economic data from the United States has been solid over the last few months. GDP figures were recently revised up to 3.7% from 2.3% growth for the second quarter and durable goods orders pointed to a recovery of US investment growth during the third quarter.

In the Euro area, manufacturing PMI in August was unchanged at 52.4% and consumer confidence rose during the same period compared to July despite the volatile stock market. Therefore according to Maersk Broker, both manufacturing and consumption indicates the strong container demands ahead.

China's economy grew 6.9% in the third quarter of 2015, a weaker trade since the last global financial crisis. This data is expected according to Braemar ACM to raise pressure on policy-makers in China to take monetary policy measures to stem the slowdown. The overall effects on container demands of the transition from a production-driven to a consumption-driven Chinese economy is still uncertain, according to Maersk Broker. Stronger consumption and higher wages may result in higher import growth of consumer goods, while high wages will result in lower export growth of consumer goods.

At the same time, lower investment growth will result in lower imports, growth in investments related containerized commodities, and machinery. We will have to wait and see what the net effect on containerized trade in and out of China will be.

Consolidation now among China operators. According to Braemar ACM, consolidation in the container operative sector has become a necessity in order to squeeze out yet more cost in a sector of shipping that is becoming increasingly commoditized and claiming to make the profit. This appears to be the rationale behind the recent merger between the container shipping arms of Cosco and China Shipping. They have thus far failed to match up to the European operators in terms of scale and financial performance.

However, what we consider more important in terms of increasing profitability for operators is for these companies to make more slot sharing deal so that they can efficiently utilize the already accepted numbers of large containerships which have already been delivered or are scheduled to join the fleet over the next couple of years.

Looking at idle capacity, Clarksons estimate that in October 2015 idle capacity reached the level of 800,000 TEU which represents 4% of the total fleet. This is the highest percentage of laid-up tonnage since March 2014.

Furthermore, certain owners have started laying up Panamax and post-Panamax tonnage in traditional South-East Asian spots for cold lay-up, signaling that they do not expect to see a market turnaround anytime soon. It is not necessarily a bad time for the medium and long-term fortunes of this side of segment for reasons we mention below.

Let's look at the trade and demand. According to Clarksons, container trade will grow by only 3.7% this year, and the outlook is increasingly uncertain given recent developments in China and slow growth in the eurozone. For the full-year 2015, Clarksons expects the Far East to Europe peak leg route to grow by only 1.6% with this trade having contracted by 3% from January to May of this year.

Asian exports to North America are projected to rise 7.4% this year to 15.8 million TEU. The Trans Pacific peak leg should grow by 6.4% and the non-main lane East West trade were respectable 7.5% during 2015. Clarksons expect the world's box trade to increase by 6% in 2016.

According to Howe Robinson, as a result of weaker demand, Maersk Line has emerged two services in Asia to Mediterranean trade in a move that will free up nine 5,500 TEU vessels. The G6 line is said to remove capacity from the Asia-Europe trade in the winter slack season in an effort to address the imbalance between supply and demand that has played the key East-West route for much of 2015.

There is a contrasting picture in the Trans Atlantic trade with (inaudible) volumes from Europe booming on the back of a growing US economy. Box trade on the Europe to North America route is expected to grow 8.9% annually this year and reach 4.3 million TEU.

Looking at supply now, according to Clarksons on an average basis containerships on order presents 18.2% of the existing fleet in terms of metric dead weight tonnage. Braemar ACM ship broking reports that over the past 12 months, the cellular fleet has achieved annualized net growth of as much as 8.3%. In terms of TEU capacity, they estimate that the cellular fleet will grow by 8.2% in all of 2015 and by only 5.3% in 2016. Both these numbers are higher than those calculated by Clarksons, even though the downward trends remain the same.

Clarksons expect 1.5 million TEU of new building to join the fleet during all of 2015. According to Braemar ACM, in the 4,000 TEU to 5,099 TEU-size bracket, the fleet in service decreased by 2.6% during 2014 in terms of TEU capacity and the order-book represents a mere 2.7% of the current fleet. In the 5,100 TEU to 7,499 TEU-size sector, the fleet in service grew by only 2.6% during 2014 and the order-book represents an insignificant 0.2% of the current capacity in service.

As regards to 7,500 TEU to 9,999 TEU size, here the fleet grew by 11.5% in 2014 and the order-book represents a more normal 14.4% of the existing fleet. As has been the case for a while now, the problem is with the 10,000-plus TEU ships were the fleet in service increased by a staggering 31.4% in 2014 and the order-book represents a depressing 69.3% for the current capacity in service.

According to Alphaliner, during 2016 and 2017 there are only 39 vessels scheduled for delivery in the 4,000 TEU to 9,999 TEU size range. Unfortunately there are about 130 vessels scheduled for delivery during the same two-year period between 10,000 TEU and 21,000 TEU. The oversupply situation has, according to Alphaliner, become so serious that 23 vessels of above 7,900 TEU were without employment about two weeks ago including one 18,000 TEU ship.

While carriers normally try to keep their largest ships active, the oversupply conditions caused by the uncontrolled ordering have led some [minor] operators with no choice but to idle even some of their most expensive assets. We find it quite remarkable that with all these large ships lined up to join the fleet over the coming three years, owners and operators are thinking about ordering even more tonnage of this size and specification. Recent developments will hopefully put an end to this insane tonnage expansion policy, and the resulting self-inflicted tonnage to the operators' balance sheet that this creates.

Indeed, some positive news was published recently by Lloyd's List. The report claims that Maersk Line announced that it has no plan to exercise the previously reported set of options for six 19,630 TEU ships and two 3,600 TEU feeders. Maersk will also postpone its decision on an optional eight 14,000 TEU vessels. This is not surprising particularly in view of the fact that this operator planned to cancel a further 35 [sail] in the fourth quarter on top of already announced suspension of four services.

Looking again at the new building orders, as we said earlier, in spite of the apparent over-tonnage in the large size factor, according to Clarksons in September this year cost of confirmed orders for 11 container vessels of over 19,000 TEU scheduled for delivery in 2018. A further order for five 14,000 TEU ships was placed by (inaudible) Caixa for delivery in 2018-2019. So far this year, there have been 22 orders for 3,000 TEU to 7,999 TEU post-Panamax vessels compared to only five during the whole of 2014. However, the order-book for this size of containerships represents a mere 3% of the existing fleet according to Clarksons.

Overall annualized containership investments in the first nine months of 2015 was 108% higher year on year in value terms. Annualized value of investment in 12,000-plus TEU sector was up 175% year on year.

Let's look at the Panama Canal now. As there has been plenty of speculation on the effect of the opening of the new Panama Canal on the Panamax containership fleet, we have looked at the use of two prominent shipping analysts on the subject.

Clarksons estimate that about 138 Panamax containerships regularly transit the Panama Canal. Clarksons estimate that with the opening of the new canal, unless the markets has improved significantly, some of these ships will be sold for scrap as about 62 ships in the Panamax sector will be over 20 years old in 2016.

Other vessels are expected to find new homes on the north-south and intraregional trade, where much of the fleet is already deployed.

Finally, with the incentives to upsize Panamax is strong, it is highly unlikely for the full effect to take place instantly and the number of these 138 or so Panamaxes may initially at least remain on the Asia-North America trade.

Howe Robinson has similar views on this subject. They start by pointing out like Clarksons that less than one-thirds of Panamax containerships transit the Panama Canal. Furthermore, there is also a cargo limitation which will restrict the immediate benefit of utilizing larger ships. In addition to this, there will be a restriction of the number of permitted transits and containership operators who do not have an automatic right to put as many ships as they wish through the new locks.

Finally, the US East Coast terminals are behind the curve on advancing their infrastructure to accept the larger ships and it will take time before the necessary improvements have been put in place. The Panama Canal expansion project is therefore expected to deter any further ordering for the existing Panamax design. In addition and as mentioned above, Panamax demolition levels could pick up in 2016, easing some pressure on this act.

Looking at freight rate, according to Alphaliner, average container freight rates have plunged to their lowest levels in recent history as the market enters the traditionally slow winter season. The China Containerized Freight Index fell to 752 points on October 19th, the lowest level on record since the index was first published in 1998. The lowest points the index had reached up to now was 763 points, amidst the depths of the financial crisis back in June 2009.

The vast majority of 12,000 TEU-plus ships are deployed on the Far East to Europe long haul (inaudible). According to [FCSI] data, spot trade rates on the Shanghai to Europe routes averaged $530 per TEU in September this year, down from an August average of $633 TEU. The latest rate stands at additional $233 per TEU.

Turning to demolition, so far in 2015 Braemar ACM estimate that only 67 containerships have been sold for demolition with a combined capacity of 137,000 TEU. According to Clarksons (inaudible), containership demolition in September reached 18,473 TEU, the highest monthly volumes in capacity terms this year since March.

We agree with their forecast that ship demolition will most likely increase during the final quarter of this year due a much weaker time charter market compared to earlier in the year and increasing numbers of laid up (inaudible) vessel.

Containership idling, which has recently risen, would continue to increase and this would put older box ships under increased pressure and the likelihood of many being scrapped will increase significantly.

Clarksons expect containership demolition to reach 200,000 TEU this year, far below the 2014 level. Subject to charter and scrap market development, Clarksons expect a further 200,000 TEU of containership to be sold for scrap in 2016. If the market does not improve, we expect far more tonnage to be scrapped next year compared to 2015.

Turning to the cascade now, according to Howe Robinson, the much discussed cascade has now changed and the pinch-point appears to be moving up the size ranges. It is now the greatest victim of the recent disruption where small post-Panamax ship and 8,000 TEU vessels where chartering demands all but evaporated. As even larger ships deliver, the pinch-point is likely to increase to the older 10,000-plus TEU ships and then to the 13,000 TEU units.

Gone are the days when operators were merrily ordering mega containerships, confident that they will be able to utilize them by pushing smaller ships out of the main lane trade. The way things are beginning to develop, we could see large ships pushing only slightly smaller vessels out of trade and these smaller vessels may be owned by the same operators who were the in the past confident that the cascade effect would help them get out of the over-tonnaging chaos they have helped to create in the large-size sectors.

Short and medium-term outlook now. According to Clarksons, there are indeed increased risks on the demand side, but the supply side fundamentals still looks supportive for next year.

In 2016, capacity growth is expected to drop to 4.7%. Fresh containership ordering appears to be dropping and cascading still appears to be slower. However, any charter market upside looks likely to depend on the sector overcoming the current basis on the demand side and further gain in idle capacity, stands at around 4% of the fleet, could put further pressure on the time charter market in the short term. Clarksons expects expansion in global container trade to come in at around 6% in 2016.

Now fleet growth and supply, which they estimate at 4.6% for the same year, this should certainly help in absorbing some of the surplus tonnage in the sector.

Clarksons also identified a positive factor for the medium term in the form of a slowdown of cascading of capacity into the charter market sector and port congestion caused by the ever increasing size of vessels calling at main harbor ports.

These factors could provide additional support to ports. We agree with Howe Robinson's overall assessment of the containership market for Panamax and post-Panamax package.

These ships are now trading around their operating expenses, possibly even below, if we take into account idling time, and there seems to be little room for further decrease as earnings for these units are close to levels last seen at the markets in the 2009 trough.

Our short-term indicators are still in the negative zone. Market momentum and average period are starting to show signs of bottoming out.

As for the longer term outlook, the containership market has been in a poor state for the last seven years with occasional spikes on the way. We agree with Howe Robinson that commonsense and cyclicality would suggest that at some point there must a lapse in recovery. Unfortunately continued spells of ordering have once again left everything to demand. Demand growth needs something more than a leap of faith.

Given the speed of the current downturn, a correction may not be as far as away as many people think. The world economy is not that bad as stated. There are certainly areas of exposure in risk, but the containership outlook must be put into context of the global stage and not be dragged down by a knee-jerk reaction to recent events.

The conservative IMF is maintaining it's growth forecast in emerging markets and developing economies which should rebound in 2016. Brazil, Russia, Latin America and the Middle East could be back to healthier growth rates as their recessions could be less deep than many people believe. A spillover from a stronger pickup in advanced economies and the easing of trade sanctions should offer an additional stimulus.

Although China is expected to continue to grow at slower rate, the pace will be gradual and the economy has certainly become much larger over the past eight years. Even though there is no consensus on the duration of slower growth in China, Clarksons estimates that if China were to experience 5% growth this year, that would add more to world [feed] on trade than the 14% growth they saw in 2007. Naturally fleets have increased since 2007, but it is useful to see things in the right perspective.

We at Diana Containerships having scrapped several of our older vessels over the last few quarters are preparing the fleet to take advantage of a time charter recovery possibly as early as next spring. The conservative leverage and the maintenance of excellent relationships with the major charterers make us confident that the Company is well-prepared to weather this latest storm and will emerge unscathed to take advantage of future investment opportunities as they arise.

I will now pass the call to our CFO Andreas Michalopoulos, who will provide us with Company's third quarter and first nine months financial highlights. Thank you.

Thank you Stasi, and good morning. I'm pleased to be discussing today with you Diana Containerships Inc. operational results for the third-quarter 2015 and the nine months ended September 30, 2015.

Starting with the third quarter of 2015, net loss of Diana Containership Inc. amounted to $9.1 million and the loss per share amounted $0.12.

Time charter revenues, net of prepaid charter revenue amortization, amounted to $16.1 million compared to $13 million in 2014. The increase in net time charter revenues was mainly due to the increase in ownership days in the third quarter of 2015 compared to the same period of 2014, partly offset by decreased time charter rates and increased off-hire days.

Ownership days were 1,215 for the quarter compared to 755 in the same period of 2014. Fleet utilization was 88.5% for the quarter compared to 100% for 2014 and the daily time charter equivalent rate was $12,654 compared to $17,177 in the third quarter of 2014.

Voyage expenses were $0.9 million for the quarter compared to $0.1 million in the respective period of 2014. The increase is mainly attributable to bunker costs we incurred while our vessels were off-hire during the third quarter of 2015.

Vessel operating expenses amounted to $8.9 million in the third quarter of 2015 compared to $6 million for the same quarter of 2014. This increase was attributable to the 61% increase in the ownership days and also due to increased average stores and spares costs and was partly offset by decreased average crew and repairs and maintenance costs.

Daily operating expenses were $7,314 for the third quarter of 2015 compared to $7,891 in 2014. Depreciation and amortization of deferred charges amounted to $3.4 million for the quarter. General and administrative expenses were $1.5 million in the third quarter of 2015 compared to $1.4 million in the respective period of 2014.

The increase was mainly attributable to legal fees, and was partly offset by decreased salary due to the change in the exchange rate of US dollar.

Loss on vessel sales amounted to $8.3 million and relates to the sale of the vessel Garnet during the quarter. Interest and finance costs for the third quarter of 2015 amounted to $2.2 million, compared to $1.7 million in 2014 mainly due to the increased financing costs we incurred during the quarter in relation with the drawdown of $122.5 million from our new loan agreement with RBS, partly offset by decreased interest rates.

Turning now to the nine months ended September 30, 2015, net loss of Diana Containerships Inc. amounted to $8.7 million and the loss per share amounted to $0.12.

Time charter revenues net of prepaid revenue amortization amounted to $47.3 million compared to $39 million in 2014. The net time charter revenues increased mainly due to the increase in ownership days in 2015 compared to those of 2014, and the decrease of the prepaid charter revenue amortization partly offset by reduced time charter rates. Ownership days were 3,358 days in 2015 compared to 2,254 days in 2014.

Fleet utilization was 95.2% compared to 99.6% in 2014, and the daily time charter equivalent rate was $13,970 for the period compared to $17,212 for the same period of 2014.

Voyage expenses for the nine months ended September 30, 2015, amounted to $1.6 million compared to $0.2 million in the prior period, mainly as a result of bunkers costs we incurred while our vessels were off-hire.

Vessel operating expenses for the nine months ended September 30, 2015, amounted to $26.9 million compared to $18.8 million for the same period of 2014. The increase in operating expenses was due to the enlargement of our fleet and also due to increased average stores and spares expenses, partly offset by decreased average crew costs and repairs and maintenance costs. Daily operating expenses were $8,005 for 2015 compared to $8,337 in the prior period.

Depreciation and amortization of deferred charges amounted to $9.5 million. General and administrative expenses amounted to $4.4 million compared to $4.5 million for the same period in 2014. The decrease in general and administrative expenses was mainly attributable to decreased payroll and bonuses of the office employees and was partly offset by legal fees.

Loss on vessel sales amounted to $8.3 million and relates to the sale of the vessel Garnet. Interest and finance costs were $5.5 million for 2015, compared to $5.1 million for 2014. As already mentioned, we incurred increased financing costs in relation with our new loan agreement with RBS partly offset by decreased interest rates.

Turning to dividend policy, now for the third quarter of 2015, the Board of Directors has decided to declare a dividend of $0.0025 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. Thank you.

(Operator Instructions) Mark Suarez, Euro Pacific Capital.

I'm wondering maybe you can talk around potential asset sales, I know you're putting the Garnet. I think at one point you are planning to sell the vessel Domingo. I'm wondering if that is still for sale and what are your thoughts regarding additional asset sales over the next 12 months?

We do not have a specific plan as regards the sales. Of course you understand that the older the vessel is in this environment, a better candidate is for sale. But at the moment we have not decided to dispose any of our vessels. The older of our vessel which is the Hanjin Malta still has a very nice charter attached.

Okay. That's helpful. And then I know that you obviously refinanced your RBS credit facility, I know that last quarter we talked about this, I think you were thinking that you could potentially increase your debt capacity as far as $200 million. I'm wondering if that remains the case and now that you've refinanced the RBS facility, do you have a new target leverage ratio in mind that you would like to stick to?

I think we are okay with the current debt that we have, don't forget it's $148 million when we draw down also for motor vessel Hamburg when it gets delivered plus $50 million that we have from Diana Shipping Inc. as a loan facility. So that makes us very close to the $200 million target that we always had and we feel that at this stage we will remain with that type of leverage ratio.

Okay. That's fair enough. And then I guess lastly in your dividend policy I know that you've been growing your fleet -- renewing your fleet I should say as well as going into some of the second-hand vessels here. And I'm wondering if at some point the Board has considered the dividend payout structure tied to some sort of metrics such as net income attributable cash flow, if you will, given your level of contracted revenues.

We -- eventually when the market turns, as we have explained, we -- it is the Company's strategy to have a proper dividend in place based on the earnings of the Company and the cash flow of the Company. But at the moment, as we try to explain, we are waiting to see how the market performs and we hope for better aids in the medium to long term, something that will position the Company in a different part of the cycle and we will reconsider the introduction of a better and proper dividend.

Great. And I appreciate your time as always.

Thank you.

Thank you.

(Operator Instructions) Ladies and gentlemen, there are no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.

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

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