Performance Shipping Inc (PSHG) 2017 Q1 法說會逐字稿

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

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

Greetings, everyone, and thanks for joining us today. The members of the Diana Containerships management team who are with us on the call 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. Forward-looking statements are based on assumptions, expectations, projections 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 SEC.

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 to review the performance of Diana Containerships Inc. for the first quarter of 2017.

As the container shipping industry continues to face challenging market conditions, we took action during the recent quarter to strengthen the company's financial position while operating our business in a prudent and a responsible manner.

With respect to our financial results, the company reported a net loss of USD 7.4 million for the first quarter of 2017. In the comparable quarter of 2016, the results were a net loss of USD 5.8 million. Time charter revenues, net of prepaid charter revenues amortization, were USD 3.8 million for the first quarter of 2017. This compares to USD 11.8 million for the same period of 2016. The difference was mainly due to reduced employment opportunities and time charter rates. At March 31, 2017, the company had approximately USD 19.1 million of available and restricted cash and approximately USD 88.4 million in stockholders' equity on its balance sheet.

In late March, we announced that the company had entered into a securities purchase agreement for the offering of up to USD 150 million of securities. The securities to be offered included the 3,000 newly designated Series B-1 convertible preferred shares, preferred warrants to purchase 6 point -- 6,500 Series B-1 convertible preferred shares and preferred warrants to purchase 140,500 newly designated Series B-2 convertible preferred shares.

Our fleet is time-chartered to some of the industry's leading container lines with coverage of approximately 45% of the days in 2017. The contracted gross revenue of the fleet for 2017, including the first 3 months, is approximately USD 13.6 million.

In summary, despite continued challenges in the container shipping market, Diana Containerships has taken action to reinforce our financial strength and to operate our business to navigate the current phase of the industry cycle.

I will now turn the call over to our President, Stacey 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 all to the First Quarter 2017 Conference Call of Diana Containerships Inc.

The containership sector finally showed signs of recovery across the whole 5 ranges during the first quarter of this year compared to the dismal state in which it languished for the most part of the last 2 years.

As far as macroeconomic factors are concerned, the IMF has recently boosted its global growth forecast to 3.5% despite prevailing geopolitical conflicts. The prediction for 2018 growth stands at 3.6%.

The Eurozone manufacturing PMI increased to 56.2 in April according to Maersk Broker, which was the highest reading since April 2011. The Eurozone services PMI also went up to 56.2, again, the highest it has been since 2011. In Japan, the manufacturing PMI increased to 52.8 in April, which is the eighth consecutive monthly reading above 50 and indicates an expanding economy.

In China, industrial production in March rose 7.6% according to the National Bureau of Statistics.

Overall, the Chinese economy grew 6.9% year-on-year during the first quarter of 2017. India's economic growth is expected to pick up from 6.8% in 2016 to 7.2% in 2017.

As we talk freight rates now. During the first couple of months of this year, they were not particularly strong according to Clarksons research. This was particularly noticeable in Shanghai to the U.S. East and West Coast routes as well as from Shanghai to Europe.

According to Howe Robinson, Europe to Asia spot rates surged to record levels in early April, as unprecedented demand prolongs the capacity shortage on these trades. The latest World Container Index shows that rates from Rotterdam to Shanghai jumped 62.4% to USD 1,557 per loaded 40-foot unit.

Asset values now. As [Tapori Transport] reports, asset prices have moved up with earnings. Within February, a 4,250 TEU ship built in China in 2010 was sold for scrap at around $5.5 million. In late March, a sale of a similar vessel for further trading took place at just under USD 10 million. It will be interesting to follow the margin over scrap that such tonnage will be sold for over the next few quarters.

On the supply side, according to Clarksons research, the current projection is that the containership fleet will expand by 3% in capacity in 2017, followed by about 3.1% growth in 2018.

We will see how these projections compare with the projected increases in demand for this year and next.

Looking at the containership fleet, according to Braemar, as of April 1 of this year, the fully [cellular] containership fleet remains static compared to where the year started at about 20 million TEU capacity, consisting of approximately 5,040 container vessels. Braemar also estimated during the first quarter of this year net fleet capacity decreased by approximately 0.1%.

In the 3,000 to 3,999 TEU-size band, Braemar reported that the fleet size decreased by 5.9% in 2016. The order book as of 1st April this year represented approximately 12.3% of the current capacity in service.

For the 4,000 to 5,099 TEU-size range, the fleet in service decreased by 8.6% in 2016 in terms of TEU capacity. The order book represents approximately 0.4% of the existing fleet.

The fleet from 5,100 to 7,499 TEU shrank by 63% during 2016 in terms of TEU capacity. The order book for this size range represents approximately 1.3% of the current capacity in service.

The fleet in service of the 7,500 to 9,999 TEU ships grew by 4.2% in 2016. The order book consists of ships representing only 2.3% of the current fleet.

Finally, in the next size up, that is the ships in excess of 10,000 TEU, the situation becomes rather chaotic. The fleet increased by 14.4% in 2016 alone, and the order book represents about 50% of the existing fleet.

As mentioned earlier on, according to Clarksons, capacity growth is currently projected to accelerate slightly in 2017 to around 3%, reflecting the never-ending pickup in deliveries of very large vessels. However, recycling activity is also expected to remain at historically high levels.

Looking at demolition. Recycling activity, according to Braemar, in terms of TEU capacity, the 2017 tally of scrapped vessels stood 248,500 TEU at the end of the first quarter. Traditional Panamax vessels, that is 4,000 to 5,100 TEU, was still the most popular type of recycling with 24 units demolished. Total capacity sold for scrap this year is estimated to be in the region of 700,000 TEU in capacity terms. The average age of ships scrapped so far this year is 19 years.

We will need to watch carefully the amount of tonnage sold for scrap over the current and next couple of quarters, yielding improved employment prospects and the drop by about 10% to even 15% of the prices offered by demolition yards.

First, the newbuilding deliveries. According to Alphaliner, during the rest of 2017, there are 8 ships scheduled for delivery in the 5,100 to 9,999 TEU-size range. Interestingly enough, there are no ships in this size range scheduled for delivery beyond the end of this year, unless deliveries are postponed.

In the 3,000 to 5,099 TEU-size range, there are 18 ships scheduled for delivery in 2017, a further 13 vessels in 2018 and 2 more in 2019. These [latter] deliveries are all in the sub-4,000 TEU-size category.

As expected, once we go above the 10,000 TEU-size bracket, there are 173 ships scheduled for delivery between now and the end of 2019. This is a problem created by the liner company that will keep haunting the container shipping industry at least for the medium term, and perhaps beyond that.

According to Braemar, for the whole of 2017, an estimated 220 containerships with a total capacity of 1.4 million TEU are scheduled for delivery. It is likely, according to Braemar, that about 30% of the total tonnage scheduled for delivery this year will be pushed back to 2018.

Newbuilding orders. According to Maersk Broker, liner companies are not in dire need of more capacity, far from it, in our view, considering the number of deliveries they have to cope with going forward.

At the same time, speculative investors have been focused more on the drybulk sector. As such, they maintain their latest estimates of 500,000 TEU of newbuilding orders to be placed this year. On the demand side, according to Clarksons, current expectations put container trade growth for this year at 4.2%, up from 3.5% in 2016.

The rate of expansion on the main lane westbound from Far East to Europe and the eastbound Trans-Pacific range is expected to continue with 3% growth on the former and 4.4% growth on the latter.

According to Clarksons, during the first 2 months of this year, the Europe-to-North America traffic was up 11.9% year-on-year, while intra-Asia traffic was up 24.4%. South and Central America imports were up only 2.1% year-on-year. Intra-Asian trade is also expected to continue to grow (inaudible), with volume growth expected to increase by 6.2% in 2017, backed by growth in emerging Asian economies.

North-South trades are expected to show anemic growth of just under 2%. These rates of growth are by no means negligible, but are certainly a far cry from the 8% to 9% seen in the 10 years from 2000 onward. Idle tonnage. According to Alphaliner, on April 3, 2017, there were 266 ships idled, representing 4.8% of the containership fleet. This number is down from 351 vessels, representing 6.9% of the fleet that were idled at the beginning of the year. Most of the ships leaving lay-up were Panamaxes. These were either reactivated for further trading or sold for scrap. The latter would have been the favored option for tonnage leaving lay-up if, for example, a costly dry dock and survey were imminent.

Consolidation. Without going into the details of all the announced merger details -- deals rather, in the liner sector over the last year or so, it is worth mentioning here that according to Clarksons, past consolidation amongst liner companies has led to the top 10 liner companies controlling the deployment of 70% of all containership capacity. If all recently announced merger and acquisition activity goes as planned, this percentage will increase to 80%. A look at Port [track]. According to Braemar, port volumes around the world have been up going steadily during the first quarter. For example, Singapore Port handled a total of 7.61 million containers during the first quarter of this year, which was 3% higher than during the same period in 2016.

Container throughput at the top 5 ports in the United States East Coast reached 2.9 million TEU during the first 2 months of this year. This was 10.2% higher than the same period last year.

On the outlook now for the industry. According to Clarksons Research, what are now referred to as old Panamax vessels are likely to continue being displaced in the Asia to U.S. East Coast via Panama route by larger vessels, while redeployment opportunities on intra-regional routes appear to become more [imminent]. This is in spite of a surge in earnings, which moved from $4,000 to $4,500 per day at the beginning of the year to over $10,000 in early April.

Subsequently, and unfortunately, time charter rates have pulled back to slightly under $10,000 a day, but remain at more than double the rate seen in January. Overall, current projections indicate that the fundamental balance in the containership sector could continue to gradually improve in the coming years, with trade growth expected to accelerate further with supply expansion is expected to be lower than seen recently over the next 2 years or so.

However, according to Clarksons, further improvement in fundamentals appear necessary to generate overall improved market conditions. The reasoning behind this view is that in spite of the increased demand mentioned above, significant overcapacity remains in the sector, and further balancing of supply and demand is needed before market conditions can gain significant traction.

According to Braemar, looking at the current fundamentals, which are, first, higher demand; second, improved vessel prices; and third, improved earnings, leads to the conclusion that overall sentiment is likely to be more positive than it was 10 months ago. There is still, however, a heavy newbuilding delivery schedule, but corrective measures are in motion to assist overcapacity as we're recording more delivery deferrals for 2017 newbuildings.

According to Maersk Broker, their expectation is a possible fallback during the latter part of the year. For 2018, however, they do see an improved market balance compared to this year and, hence, expect to see the longer-term on an upward scale.

Concluding remarks now. What we can say with a reasonable degree of certainty is that it looks like the worst might be over for the containership sector as a whole, and particularly for the medium-sized vessel [family]. We need to observe carefully events that will develop when the seasonal upturn in [transits] is over later this year and also observe carefully future scrappings and newbuilding orders.

With the actions put in place by the senior management of Diana Containerships, we are hopeful that the market upturn, when it comes in earnest, will find a company with a very robust balance sheet. This will make it possible to take advantage of opportunities which will undoubtedly present themselves as they always do at the end of a prolonged downturn, similar to what this industry has gone through over the last few years.

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

Thank you, Stacey, and good morning. I'm pleased to be discussing today with you Diana Containerships Inc. operational results for the first quarter of 2017. First quarter 2017 net loss of Diana Containerships Inc. amounted to $7.4 million, and the loss per share amounted to $0.80.

Time charter revenues, net of prepaid charter revenue amortization, amounted to $3.8 million compared to $11.8 million in 2016. The decrease in net time charter revenues was mainly due to reduced employment opportunities and lower time charter rates compared to the same period of 2016. Ownership days were 1,080 for the quarter compared to 1,251 in the same period of 2016. Fleet utilization was 60.4% for the quarter compared to 79.1% for 2016. The decrease of our fleet utilization is a result of increase of hire days following the reduced employment opportunities under the current market conditions and the lay-up of the vessels Pucon, Great, New Jersey and Pamina during the fourth quarter 2016. The daily time charter equivalent rate was $3,067 compared to $8,905 in the first quarter of 2016.

Voyage expenses were $0.5 million for the quarter compared to $1 million in the respective period of 2016. The decrease is mainly attributable to decreased commissions, which are a percentage of the time charter revenues, and also due to decreased bunker costs. Vessel operating expenses amounted to $5.2 million in the first quarter of 2017 compared to $8.9 million for the same quarter of 2016.

The decrease was attributable to the decrease of all major categories of the operating expenses, such as average insurance, stores, spares, repairs and maintenance and crew costs, as a result of the increase of hire days leading to reduced vessels operation, and was partly offset by increased lay-up expenses.

Daily operating expenses were $4,816 for the first quarter of 2017 compared to $7,107 in 2016.

Depreciation and amortization of deferred charges amounted to $2 million for the quarter. General and administrative expenses were $1.6 million in the first quarter of 2017 compared to $1.8 million for the same quarter of 2016 as a result of decreased brokerage fees and bonuses and consultancy fees.

Interests and finance costs for the first quarter of 2017 amounted to $1.9 million compared to $1.7 million in the respective period of 2016, mainly due to increased LIBOR rates and increased margins in both loan agreements with RBS and Diana Shipping Inc.

Thank you for your attention. We'll be now 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) There are no questions at this time. I would like to turn the call back over to management for any closing remarks.

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.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.