Safe Bulkers Inc (SB) 2012 Q2 法說會逐字稿

Thank you for standing by ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss financial results for the second quarter 2012.

Today, we have with us from Safe Bulkers Chairman and Chief Executive Officer Polys Hajioannou, President, Dr. Loukas Barmparis, and Chief Financial Officer Konstantinos Adamopoulos.

At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions). Following this conference call, if you need any further information on the conference call or on the presentation, please context Matthew Abenante at Capital Inc. at 212-661-7566.

I must advise you that this conference is being recorded today, Tuesday, August 7, 2012. Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27-A of the Securities Act of 1933 as amended, and Section 21-E of the Securities Exchange Act of 1934 as amended, concerning future events, the Company's growth strategy, and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters. Words such as expects, intends, plans, believes, anticipates, hopes, estimates and variations of such words and similar expressions are intended to identify forward-looking statements. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risks, and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Company. Actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially include but are not limited to changes in the demand for drybulk vessels, competitive factors in the market in which the Company operates, risks associated with operations outside the United States, and other factors listed from time to time in the Company's filings with the Securities and Exchange Commission. The Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.

And now we pass the floor to Dr. Barmparis. Please go ahead sir.

Good morning. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the second quarter of 2012, which were announced yesterday at the close of the market in New York.

Before we present them, we will discuss information in relation to our industry and to our company. Safe Bulkers is a premier drybulk shipping company, mainly supporting cargo such as coal, grain, iron ore and other drybulk commodities.

In Slide 4, we present our current fleet and our order book. Currently, Safe Bulkers owns 21 high specification vessels comprising of five Panamaxes, four Kamsarmaxes, 10 Post-Panamax and two Capes. We have a contracted order book of eight vessels from top-quality shipyards in Japan and China comprising of three Panamaxes, two Kamsarmaxes, two Post-Panamax and one Cape, to be delivered through 2014. We currently own one of the youngest modern highest-quality fleets in the industry with an average age of 4.2 years as of July 31, 2012.

In Slide 5, we provide background information for the Company. Key takeaways are in our long history, predecessor since 1958, we have experienced many shipping cycles, management investing in ship-building activity solely through Safe Bulkers has us fully aligned with our public shareholders. Management has a double (inaudible) approach (inaudible) operational excellence. Chairman's policies are consistent and well adapted to market conditions.

Slide 6, we present the average 4TC Baltic Cape and Baltic Panamax index. Company market was challenging during the first half of 2012, our second financial performance of many companies and asset values. Medium-size vessels such as Panamax and Kamsarmaxes have been trading relatively better than Capesize vessels, which were traded in the region of 8000. This is mainly due to the wider range of trading areas and transportable cargoes for this class. For example, Panamaxes have been benefited from the increased (inaudible) activity during the past six months due to the seasonal grain activity from South America. However, the unprecedented growth in South America has been [driving] further growth of grain trading. Overall, presently Panamax traders are trading in the region of 7000, lower than the past 12-month average rate which was 11,000 and considerably lower than the 10 years average which is about 27,800.

On the other hand, certain issues that (inaudible) market (inaudible) easing of construction activity have pushed the Capes market at low levels, well below the historical averages and in many cases even lower than the operating expenses. At this point, we remind you all our Capes are chartered out in (inaudible) charters at comfortable levels.

Main reason for the current outlook of the market is the excess supply of vessels which is expected to increase in view of the big order book going forward in 2012, and to a lesser extent in 2013.

In Slide 7, we provide information about the order book. As of the end of June 2012, the existing fleet for Panamax was 167 million dead weight tonnage. The order book is reported to be 27 million for the remaining of 2012, and substantially smaller, 21 million, for 2013 and 6 million for 2014.

We will observe a similar situation for Capes. The existing fleet was about 272 million dead weight tons as of the end of last quarter. The order book is reported to be about $29 million for the remaining 2012, 19 million for 2015 and 6 million for 2014.

On the other hand, oversupply has been eased by the slippage on deliveries which, according to my (inaudible) analysts, was 30% for 2010 and 2011 and is expected to exceed 20% for 2012. One of the reasons is that financing of new builds has become more difficult (inaudible) financial institutions have withdrawn from the sector and the (inaudible) have been increased. Further to this, scrapping activity which is enforced in this slow freight rate environment despite a drop in scrap values, will contribute in lowering the net rate increase. We presently underwrite two grabs which represent the one showing the age distribution and the other the scrapping activity. 40% of the (inaudible) drybulk fleet is over 21 years old, and could be possibly eliminated from the total fleet in the years to come.

During the first half of 2012, the scrapping activity has reached 17.6 million dead weight tons which in annualized terms is expected to exceed the record scrapping volume of 23.8 million in 2011.

In Slide 8, on the top, we present a graph with the utilization of the drybulk fleet in relation to the demand supply of vessels. As it is shown, the demand in terms of the ton mile is continuously growing, and is expected to do so for the upcoming years. On the other hand, the excessive growth of the fleet is keeping the utilization rates low, and therefore the freight rate is depressed. Though, if we take into account the adjustment for optimal speed, slow steaming (inaudible) fuel costs, it is eventually shown that the utilization rate relatively better and is expected to grow going forward, providing a positive signal for the market.

The demand for the dry cargoes going forward as shown on the graph on the bottom will be growing sustainably. It is in some cases as in the case of iron ore is expected to increase substantially, hopefully counterbalancing global supply of vessels.

Moving on to Slide 9, through these years in the shipping market, we have adopted certain policies and strategies. We have been very carefully managing our assets, trying to invest in lower parts of the business cycle, in new buildings expanding and renewing our fleet with modern fuel-efficient shallow-drafted vessels. We have a consistent chartering policy, deploying our vessels both in period and spot charter market, always seeking to conduct business with established reputable customers, maximizing our profits, minimizing our (inaudible) and maintaining future cash flow visibility. We have been consistent with our operation policy to maintain a young, modern, flexible and fuel-efficient fleet, resulting in low daily operating expenses and high utilization ratio.

We have focused on our financing policy, resulting to a strong balance sheet and liquidity, ensuring financial flexibility, possibility to invest in the lower part of the cycle and comfortable debt in compliance with financial covenants. Our dividend policy is prudent by paying out a portion of our free cash flows to reward our investors while maintaining the remaining portion for future expansion.

In the next slide, number 10, we show our fleet expansion which by the year 2014 is expected to reach 29 vessels. We invest mainly in new-build sister vessels which are fuel-efficient and entirely more cargo in the same draft, (inaudible) seeking to be ahead of our competition.

Going to the next slide, 11, as of July 31, 2012, the charter coverage for our fleet including existing fleet for new builds was 89% of anticipated ownership days of 2012, 59% of anticipated ownership days of 2013 and 30% of anticipated ownership days in 2014. We seek to employ our vessels in period time charters in order to have visibility of our future cash flows while we maintain certain vessels in the spot market to help with the flexibility that spot market offers in low charter periods and the upside potential when markets improves.

Over the years, we have established long-term relations with some of the world's largest consumers of marine drybulk transportation services in the shipping industry, which (inaudible) in Slide 12. In such a way, we intend to minimize and control third-party risk. At the same time, at periods of low market such as the current market is, we cautiously monitor market conditions.

In Slide 13, we evaluate the performance of our chartering policy, again the spot market which we outperform most of the time.

Slide 14 we show daily operating expenses and management fees compared to the industry average, which is reported at 8000 approximately. We run lean operations, contributing to an increase of Safe Bulkers' net income.

In Slide 15, on the bottom graph, we present the net debt per vessel, which currently is (inaudible) $60 million for existing vessel. We maintain low interest expense as presented on the top graph, where we allocate our debt at the bottom level. Our intention is to finance our new building program from equity and debt while we maintain a comfortable debt-to-asset ratio and comply with our financial covenants.

In Slide 16, we show our liquidity and our ability to finance our capital expenditure requirements. As of July 31, 2012, our liquidity was $240.8 million while our capital expense requirements for $186.6 million. The analysis of CapEx per year and our liquidity per component is presented in this figure. We have not included our operational cash flows which is supported by our contracted period time charters. We also have the ability to raise additional indebtedness against the seven unencumbered newbuild vessels upon their delivery, providing us with further financial flexibility. The excess cash in low charter markets can be used either for debt repayments in order to deleverage our balance sheet or to be used as equity for further expansion when asset values are low.

In Slide 17, we present historical quarterly earnings-per-share and our quarterly dividends. Our Board has declared a dividend in the amount of $0.15 per share payable on August 31.

Our Chief Financial Officer, Konstantinos Adamopoulos, will now present in detail our financial results.

Thank you Loukas and good morning to all. Slide 18 illustrates the comparison of selected three-month financial key points of our performance for the quarter ended June 30, 2012 and the respective figure of last year.

For the second quarter of 2012, net revenues increased by 14% to $47 million, from $41.2 million in the respective period of last year. Net income for the second quarter of 2012 was $21.5 million, an increase of 15% from net income of $19.1 million in the same period in 2011, whereas adjusted net income for the same quarter of 2012 was $23.7 million as opposed to $25.5 million during the same period of 2011. The increasing net income is mainly attributed to the following factors -- net revenue of $47 million compared to $41.2 million; vessel running expenses of $8.4 million compared to $6.5 million; loss on derivatives of $2.1 million compared to $6.1 million for the same period in 2011; mortgage expenses of $2.3 million compared to $800,000; depreciation of $7.9 million compared to $5.6 million for the relevant quarters of 2012 and 2011 respectively.

EBITDA was $31.6 million for the second quarter of 2012, an increase of 34% from $25.5 million in the respective period last year. Adjusted EBITDA was $33.7 million for the second quarter 2012, an increase of 6% from $31.9 million in the same period in 2011.

Earnings per share and adjusted earnings per share for the second quarter of 2012 were $0.20 and $0.31 respectively, calculated on the weighted average number of 76.7 million shares compared to $0.27 and $0.36 in the second quarter of 2011, calculated on a weighted average number of 70.1 million shares.

For the definition -- the consolidation of EBITDA and adjusted net income, EPS and EBITDA and adjusted EPS, please refer to Slide 21.

Slide 19 presents a summary of our key financial figures during the second quarter of 2012 as compared to the same period in 2011. Our net revenue increased by 14% to $47 million from $41.2 million. Our adjusted net income for the second quarter of 2012 decreased by 7% to $23.7 million from $25.5 million during the same period of last year.

Our adjusted EBITDA for the second quarter of 2012 increased by 6% to $33.7 million from $31.9 million during the same period in 2011. Adjusted EPS for the second quarter of 2012 of $0.31 compared to $0.36 in the second quarter of 2011 calculated respectively on the weighted average number of shares of 76.7 million and 70.1 million.

In the second table at the bottom of Slide 19, we see that (technical difficulty) 2012 decreased by 1% amounting to $479.7 million as compared to $484.3 million as of December -- end December last year. The result of our financial performance is clearly demonstrated by the Company's consistency in its dividend policy, maintaining a prudent and meaningful dividend policy throughout the last crisis (technical difficulty).

Moving on to Slide 20, we present the operating highlights for the second quarter of 2012 and 2011. As of June 30, 2012, we owned and operated 21 vessels and we achieved the utilization rate of 98.5% compared to 16 vessels and a utilization rate of 99.1% during the same period of last year.

The average daily time charter (inaudible) per vessel (inaudible) 2012 was $24,168 compared to $27,921 for the same period of last year. For the second quarter of 2012, daily running expenses slightly increased by 1% to $4526 compared to $4479 in the same period of last year.

On Slide 21, we present the reconciliation of our adjusted net income, EPS and EBITDA from net income.

If you turn to Slide 22, the Company has declared for the second quarter of 2012 cash dividend of $0.15 per common share payable on or about August 31, 2012 to shareholders of record at the close of trading on August 24. This is the 17th consecutive quarterly cash dividend since our Company's IPO more than three years ago.

Turning now our presentation to Slide 23, although market conditions at the moment are not rosy, we stand prepared as a long-term oriented company. We have been in shipping for more than 50 years, we know the industry and we believe in this industry. We actively manage our order book (inaudible). We intend to continue to opportunistically expand in the US fleet by placing newbuild orders when we can negotiate attractive (inaudible) from shipyards for high-quality vessels. Our strategy has been to focus on ordering fuel-efficient shallow draft new businesses that comply with related maritime and environmental regulations and that are based on the most recent design developments, which offer us competitive operational advantages as well as lower running costs compared to single-hull vessels.

As a result of our track record and reputation in the industry, we believe we have developed strong long-term relationships with (inaudible) in Japan and China. Healthy management of our order book and fleet may at times lead us to opportunistically terminate or delay contracts to acquire vessels or to sells vessels when we believe there are financial or operational advantages to doing so, which allow us to allocate resources more productively.

Our liquidity and strong balance sheet provides us with financial flexibility. At the same time, we follow a prudent dividend policy for the long-term benefit of all our shareholders in our company. Our broad management team is fully aligned with public shareholders, implementing and optimizing (inaudible).

You may find our contact details in Slide 24. Thank you all for listening and we are now ready to accept and reply to any questions that you might have.

Thank you very much indeed. (Operator Instructions). Urs Dur, Clarkson Capital.

Good morning, good afternoon everybody. Thank you very much for the call today. In the interest of your new builds, what kind of interest are you seeing in possible other new projects down the road? You seem to be one of the healthier companies that can order ships at this point in time. Would you be ordering more ships? And are there sufficient term charters out there for you to do so at this time, or is this something you more want to wait on?

Good morning to you. Polys speaking. I mean there is plenty of reliability from shipyards bought from new ships. I don't think (inaudible) at this point. We should be waiting to see I think the new building prices that will further come down in the short-term at least.

And in regards to time charter availability, it is very limited what is available right now. Some charters are checking for deliveries up and if they are talking, it's not something that (inaudible) would be interested to ration all the ships against the time charter. So the criteria now is I mean to watch and you will find the [ready] ship from the shipyard.

Great. But you are not proposing at this time to divert from your broader policy to have longer-term contracts against your assets in the public company, correct? You want to stick to the strategy and maintain the sustainable dividend.

Yes. The thing is we want to have meaningful employment in order to fix the ship for five or ten years. If it is not meaningful, we will take advantage at a certain point of the cycle of the low new building price, and we will wait a bit later to come up with time charter.

Great. The one question, I'm just simply seeing it in other sectors, when the opportunity does come to have longer-term charters, when the market is improving a bit, are there newer ship designs such as we are seeing in other ship classes, particularly product tankers, that would improve the fuel efficiency of bulkers going forward? Are those designs available?

Yes. New designs are coming out, especially from Japan but offering a lot of economy on the consumption. Everything will depend how the oil price will develop in the future, if we see (inaudible) $650 a ton or even going higher, definitely the ships will be the ones to work, and definitely all the ships will find it much more difficult to find employment. If oil price miracles happen and it goes below $500, $400 a ton, everything may change and all the ships could be work (inaudible). But so long as $600 or above, I think that the new designs will be in demand.

Excellent. Thank you very, very much. Let's speak soon.

Christian Wetherbee, Citi.

Thank you, good morning guys. Maybe just on the back of the question about the newbuild prices, Polys, you've always given us some good color on where you kind of think, particularly the Panamax or slightly larger size, need to go. Clearly some downside is coming, but how much further do you think newbuild prices do need to fall before it gets a little bit more interesting? It seems like they are a little artificially high just on the back of the labor input costs at the yard. Just curious to your thoughts there.

I think it all depends on how soon the freight market will turn, and what finance will be available from the banks. So, so long as the freight market is low and they have the ability of finance is limited, I think you obviously are in a very difficult situation and we could well see prices by the end of the year another 10%, 15% lower. So I mean the (inaudible) situation. This is good of course (technical difficulty) will not accept to build at a loss, and they will reduce capacity. So this will be good for the market.

Sure, okay.

(inaudible) going further down.

Okay. And as far as just switching onto your costs here, it seemed like on the OpEx side things -- your daily operating expenses were fairly low, a little bit below what we were looking for. I think you did a good job managing the expenses there. How should we think about that as you roll forward to the rest of the year? Were there some timing issues that caused a slight sequential decline, or is there other management issues that you're able to kind of keep control of as we move into the back half of the year?

Look, the operating expenses reflect not only our let's say daily operations, but also a couple of other issues. One is that we -- we expense the drydocking costs, so whenever we have drydockings, you may see them increase. Also, while we have deliveries of vessels because we do the initial supplies, the operating expenses also are increments. So you may see such variability from quarter to quarter. However, we are doing our best to maintain low operating expenses and lean operations. I think we have achieved right now a very good result.

Okay. That makes sense. Your message on new builds continues to be fairly clear. I guess, from my perspective, if you were to see something come up, is there any reason to think you might be enticed to enter the secondhand market, or there are just too many potentially kind of open slots coming in the next couple of months, or even quarters that would keep you very much focused on the newbuild side of the order book.

Look. The secondhand market, we will have to buy a ship that is of the previous -- of the previous design and of the past technology and not according to the specification we want to have on our ships. We want to have uniform specification among the fleet and sister ships if possible. We are existing new buildings in order to achieve lower running expenses, which you just mentioned. So it's not very convenient for us. I don't exclude the old ship, but not convenient for us to go and start buying ships from the secondhand market, because they will not fit the pattern of the sister ships, and this model we are running here. We want to go for the next generation vessels, and those when they will be delivered from (inaudible) to replace our 10-year-old ships or the ones that are becoming less attractive and less commercially viable and less let's say they have more running expenses. So it's -- we are focused on what we have been doing all these years, going for the new type of vessel.

Sure. And I guess the last question -- you mentioned that obviously you will look continuously at whether or not you need to sell vessels or potentially delay or push out some of your new buildings. You have a couple of vessels that are getting towards that 10-year-old range. You don't have the contracts expiring for probably another several quarters at least on some of these. But that's the way we should be thinking about it though, is that as some of these older vessels reach 10 years old and may be rolling off charter, those are the potential candidates for sale as we move forward. Is that the right way to think about it?

Very right. I think we have a fast track record of doing the same thing. I think it worked in the past, and we should be focused on following something that worked in the past. So you are very correct to assume this condition.

Okay. Thank you very much for the time. I appreciate it.

Greg Lewis, Credit Suisse.

Thank you and good afternoon. You've clearly stated your strategy of looking to continue to enter the new building market from shipyards, I'm assuming primarily Japanese and established Chinese shipyards. But how do you think about and maybe provide a little bit of color on clearly the market is oversupplied currently with too many vessels, and the decision to go out and order more new buildings, whether they are delivered in late '13, '14 or maybe even early '15, doesn't that just perpetuate the oversupply in the drybulk market? I'm just curious if you have any thoughts about that.

Yes, I'll tell you what is my thought on that. I think the market has been assaulted in the past by people who are not shipowners offering ships and doing new projects, and doctors and taxi drivers and things like that. So I mean we've been doing this shot for you know the last 20 years of going for the latest design to replace our older ships, and they're going for more efficient and fuel efficient and better quality tonnage to run -- be able to run with lower cost our business model. So I mean it's not our two ships we are ordering every year or three ships that's going to keep the supply side because at the end of the day, we are one of those that we start ordering in the early '90s, and much much earlier than the market start having a habit of where everybody going for a new ship.

I think at the (inaudible) will finance and the restrictions from the banks and the fact that a lot of people have lost a lot of money will make other people stay with what they know to do better, like operating the older tonnage, which is less capital intensive and maybe they can make better return on this investment and not go on operating on a speculative basis.

And if you remember, I think the things that keep the market -- I remember a few owners, non-Greeks, went in in the rush of 2005/2006 as prices eroded or going higher and higher, and ordering up in one go 15, 20 ships simply to resell it and get the $2 million or $3 million profit, and sell it to somebody else for this profit. Many of them, they succeed to do this, but what happened eventually was the ships were for delivery in '08, or '09, okay the buyer have paid the deposit but (inaudible) then perform on the rest of the contract. So it's people like them that they will be doing the damage to the market, not I mean somebody who is cautiously ordering a couple of ships a year to follow his business policy as pure shipowner.

Okay, perfect. Then in thinking about -- I guess you have three vessels that are looking to roll off contract in August -- the Pedhoulas Builder, that Andreas K and the Venice Horizon. Should we sort of think about those vessels sort of being on spot short-term charters for the next couple -- for 30, 60, 90 day charters kind of rolling off at similar rates that they are earning based on the press release? Is that sort of how we should think about that for the next -- for the back half of Q3?

Yes. What we're doing on the ships that are coming on charter, we are going for one voyage or three months short periods. They are currently -- according to where they open, something between $10,000, $11,000, $12,000 per day. Sometimes they go below $10,000. It depends on the location that they open.

(inaudible) in today's market environment achieves numbers around $10,000 in the spot market. We have to work with that and be satisfied with that, and expect something better in the third and fourth quarter like it happened last year. Definitely, you won't see us going and fix up $9000 for one year, one of our ships, because I think this -- you protect minimal downside and you float the full upside. So from our side, we won't be doing up.

Okay, perfect. Thank you for the time.

Fotis Giannakoulis, Morgan Stanley.

Good morning and thank you. I would like to ask about your outlook about the market and give us your view about Panamaxes in the next couple of months, given the fact that the grain trade is gone right now. And what will be the implication for other owners that have much weaker balances, and especially if you see any risks for any of drybulk operators that could potentially lead to any defaults and cascade effect for the market?

Many questions in one. So outlook, we expect (inaudible) fourth quarter like it happened last year, not to the extent of last year, but additionally the fourth quarter is where the market is picking up. I was reading one of the reports, maybe your report, that usually it's the second half of the year is when also, I don't know, imports in China are higher than the first -- first half. 90% of the times it happens like this. Also, usually new building deliveries slowdown in the second half of the year because the owner doesn't want to take delivery of a new building ship in October or November or December. So a little bit better. We expect the market to be in there but not dramatically better.

Now, for Panamaxes, as I say, $10,000, $11,000, $12,000 will be the spot market. You could (inaudible) because the BPI to be $8,000 or $9,000 but a with a modern ship and proper chartering, in-house chartering that we are handling here, I believe we could be able to achieve $10,000 to $12,000 a day in the balance of this year.

Now, what other owners are doing, we (inaudible) ships, etc., etc. I cannot fully comment on that, on how we will manage. I think most of them, they are taking measures and they are reaching some sort of consensus with their banks because, at the end of the day, I mean why the bank to take ship from capable hands and people who know how -- what their business is, why to take it from them and give it to a manager to run it for the bank. You know? So I don't expect that there would be many banks that they would not support or be lenient towards these companies.

And you know, so I believe that the big companies would be able to survive with the proper support. Of course, costs will increase because banks, as you know, are demanding higher spreads to assist in that on such occasions, but generally I believe that the banks are more mature than in previous crisis, how to solve this problem. Maybe they will be more lenient because also there are many other sectors with problems, not only the drybulk sectors. The tanker sector is not good. Containers is average. So they have other problems as well from other sectors, so I think they would be more lenient towards the others.

Any (inaudible) with the drybulk operators?

The drybulk operators? What do you mean the drybulk operators?

Do think that there is a discussion in the market that many of the contracts of freight [meants] they are coming to an end, that might lead to default on charters or negotiations why they're in negotiations in the market? Is this something that you share?

I don't know what will happen with people. I don't know if some names will have problems and will not pay. That's happened before in previous low markets. Nothing is excluded, and we just have to see what happens, especially for private listing, private companies like operators which you don't know their accounts and where they stand. Of course, you have no clue what will happen.

From our point of view, what we have, our job is to be prudent and to have let's say a strong balance sheet and be prepared, and to first of all discuss (inaudible) market is so low and for such a long period. As management, we are doing our job (inaudible) of the long-term interest of the Company.

Thank you. One more question about the financing. You mentioned the financing conditions are very tight right now. Have you had any discussions with your banks this quarter about locking credit facilities for the remaining of new buildings? And do you see any changes in the terms the banks are offering?

And also, a second part of this question. Have you been approached by any of the banks potentially to take some of the new buildings that they cannot be funded by weak owners?

Many questions again. So look, (inaudible) because of the summer in Greece, we have 40 degrees temperature. We haven't discussed with any banks requirements to finance the ships in 2013 or 2014. I think September/October usually is the month that things get underway, and discuss such things. We have seven ships of the fleet of the new buildings without finance. We don't need today's finance on those ships. Whatever we would need, we would go very -- we want to raise finance, we will go very conservatively, something like $15 million on the Panamaxes. On that front, we will have to accept what the market is going to offer us. Now, if that's 250 or 300, I don't know what will be the split. But we have to live like that.

The plan is such we go now the eight new buildings to take them in the Company without having finance on seven of them. So, we will talk from the second half of the year after the holidays; we will talk with some banks. We will see what they offer and will decide in 2013 what happens.

Now, regarding them offering us so-called distressed vessels, etc., we didn't have any proposals, and even if we had, you know that we would not be interested because, as I said, for us it's more important the type of vessel than to be uniform with the other ships we have. So it will be very, very difficult to find the type of vessel we want coming from a bank which (inaudible) ship and sales somewhere else. Usually these are big yellow ships or 15-year-old ships. But banks taking over, and it's most of the time they proposes things to other owners for running older vessels.

Just to follow-up on your comment about the 250 to 300 basis points spread above LIBOR. Is this a safe assumption that your spread will be about 100 to 150 basis points lower than what the market is currently offering for other owners? We've been hearing something like LIBOR plus 400 basis points right now.

It is. Look, 400 we are not going to consider, and I don't think that they sold back to the market for establish (inaudible) reputation and many years in the market. I think it's more like 250 to 300 what banks can do. But of course this is my understanding before [the sawmill]. I don't know how the situation will be after September, so last September, if you remember, we were at 200 before the summer and then after the summer ended, we went to 250, 260. So I don't know what will happen with let's say with the new season which starts in September/October. The banks will demand even more. But typically I don't think companies are paying more than 250 to 300 right now.

Okay. Thank you for your time.

Natasha Boyden, Global Hunter.

Good morning gentlemen. I am just curious. Two of your biggest counterparties are currently having some financial issues of their own as they struggle through this pretty terrible (inaudible) market. Are you comfortable that they will continue to be (technical difficulty) maintain charter payments (inaudible) fleet coverage on your ship?

Yes. Look, we've had reports and even announcements by their CEO that they will downsize their operation in order to get over this period. I think that my view and the view of trading houses in Japan that I have discussed it with them as well to see what feedback I can get out of these reports is that Daiichi's major shareholders is very strong, or Japan Inc. behind it with Sumitomo Metal and Sumitomo Mitsui Bank Corporation and MOSK as major shareholders. And okay, these people own a 120-year-old company, and okay, they lost $100 million, or around $100 million last year, and maybe the same for this year before they can then start making profits again.

So, I don't think a company as them will go down with these losses because if you see other companies in Japan like NYK and MOSK (inaudible) they had losses of more than $600 million last year.

It's a different story. I believe of course everybody's considering what if happens what happens with Sanko, we believe in the trading house in Japan also feels the same. (inaudible) Sanko case happened also $1.3 billion, $400 million. It's a company that biggest shareholder was not Japanese, was a non-Japanese shipowner, which has not included with Japan and the other share (technical difficulty) 15% shareholder. The other shareholders were below 2% each.

So when it came to the rescue point, rightly so, this owner, say, okay give me some ships here. I'll get some ships on the ship side. And then he did not support the company because simply he would have given money to support other shipowners by supporting the company.

So we believe this is different story. They change their CEO in June, and of course you will try to reduce the cost and present a much better picture at the end of the year. So we monitor, but I don't have -- I don't feel like (inaudible).

Okay, great. Thank you very much for your time.

Ken Hoexter, Merrill Lynch.

Great, good morning. Just if you are hitting $7000 less than your cost, instead of expanding, I just want to revisit the topic of would you consider selling or scrapping those vessels. And what would occur to get you into that phase? And at least in the interim, why would you not park the vessels versus the short-term charter at a loss?

Look, our vessels, our average age is around $4000 a day. So we cannot scrap them also and there is no point to scrap them. I think that you will see people scrapping ships under 20 years old, and this will help them out a lot. And definitely for $7000 a day we will keep operating those ships, and make the odd million a year, per vessel, to be able to pay the banks and other people. So, I don't expect to lay up any of the ships. Of course if the market goes below running expenses, if the market goes below running expenses, then you consider differently. But for us, in our history, 60 years, and my father was operating older ships, and I said for 25 years we haven't laid off any shift for even a single day. So it's not and part of our philosophy here.

Appreciate the insight there. So I know you haven't as your charters (technical difficulty)

Of course having said that, we are playing very tough charting market and we are not fixing our ships with just any sort of rate we will find around. We don't -- we are not afraid to ballast our ships and fight for the last dollar to the maximum of our and the best of our ability. We are bringing in-house our chartering and we spend long hours.

Okay. So just a follow-up -- I appreciate the insight there. But if you have -- I guess I know you have your take or pay as a structure as the charter, but can you talk about the utilization of those vessels? Are you seeing -- I know your utilization or your offering to the charter is about 98.5%. But what is -- what are they using your vessels? Are they constantly being used or are they parking some in because there's the a lack of a demand?

No, it is modern ships and especially with the people we are doing business with, which are the coal carriers and grain houses, etc., they are not spotting the ships anywhere. They pick the ship because they have a particular cargo. So immediately they fix it. They send here to the loading port for loading. And I haven't seen this happen in the container ships, you know that the charter could fix a ship for six months, and he will do a couple of trips and then he will keep the ship waiting for three months. In drybulk it doesn't happen like that. They come and fix your ship when they have cargo. And even when we fix, we fix subject (inaudible) etc., etc., so they go and they confirm the cargo first that will be there on arrival, and then they (technical difficulty) the subjects for the future. So drybulk in the spot market is operating on that basis, you know.

So maybe, Polys, can you expand that a little bit to the industry as well? I know you talked about the scrapping of vessels and what's coming on or coming out of the market, but are you seeing others in the market start to park vessels at all? I just want to see what is the market itself doing to constrain the excess and the oversupply in the market?

Look, if a new ship is getting $10,000 a day, on the same route, an old ship could be earning $3000 or $4000 a day. So -- and also it is not (inaudible) ship by the charter. So this vessel may do a voyage of $3000 or $4000 a day, and then he, the owner may need to wait 10, 15, 20 days before he finds the next employment. So this all (inaudible) of course he may have a 20-year-old ship, and without any mortgage because value has written down and he may decide not to operate his ship like 250 days a year. So these things happen with the old ships (inaudible) they are happening. They go somewhere and they wait for 20 days before they find the cargo.

So you know, I mean I consider that a lot of old tonnage will go to the scrap yard, and some of them that will stay around will be underutilized. Of course, the Greek owners, they are not so keen to scrap a ship, because they know that when they scrap it up, they don't have a chance to make the last (inaudible) market recovers for whatever reason. So, but we expect other nationalities to be scrapping ships and drybulk, especially on the big sizes, even under 20 years old.

So (inaudible) earlier, you noted your growth plans, but it seems like most companies that we talk to have that same outlook that it's not them, it's the other guy that's going to have to step up and start scrapping and eliminating tonnage. So just to clarify, what would get you not to expand, just given what's going on in pricing in the markets?

To scrap or to expand? What did you say?

To not expand, to not grow the fleet. Because you noted you're still looking for new build slots whether it's in 2013, 2014.

Yes.

So given the market, I just want -- I come back to an earlier question that was saying what gets you to not go ahead and expand, given how weak the markets continue?

Of course, I believe, Ken, that new building prices will stay low for a longer time than we expect simply because even if the freight market improves let's say next year, and the yards, they would be unable to increase their price levels, so we need a good freight market and then we will need a good banking market for the (technical difficulty) and raise the prices. So there's plenty of time to place orders in 2013, 2014. And since we have an existing order book, eight vessels to join the company, we don't see the necessity to go and place more ships now or to see first market to make improvement and to make the freight market moving up, and hopefully sometime next year we will start considering 2015 or 2016 deliveries.

Appreciate the insight. Thank you.

(Operator Instructions). As there are no further questions at this time, we now pass the floor back to Dr. Barmparis for closing remarks.

Thank you very much. It was good to discuss this quarter and we're looking forward to having a new discussion in the next quarter. Thank you and have a good day.

And with many thanks to all our speakers today, that does conclude our conference. Thank you for participating. You may now disconnect. Thank you Mister Barmparis.

Thank you.

All the very best to you gentlemen, Bye-bye.

Thank you.