Seanergy Maritime Holdings Corp (SHIP) 2024 Q1 法說會逐字稿

Thank you for standing by ladies and gentlemen, and welcome to the Seanergy Maritime Holdings Corp. conference call on the first quarter ended March 31, 2024, financial results. We have with us Mr. Stamatis Tsantanis, Chairman and CEO, and Mr. Stavros Gyftakis, Chief Financial Officer of Seanergy Maritime Holdings Corp.

(Operator Instructions) Please be advised that the conference call is being recorded today, Wednesday, May 15, 2024. This archived webcast of the conference call will soon be made available on the Seanergy website, www.seanergymaritime.com under the Webcasts and Presentations section under the Investor Relations page.

Many of the remarks contain forward-looking statements based on the current expectations. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward-looking statements is contained in the first quarter ended March 31, 2024, earnings release, which is available on the Seanergy website, again, www.seanergymaritime.com.

I would now like to turn the conference over to one of your speakers today, the Chairman and CEO of the company, Mr. Stamatis Tsantanis. Please, go ahead sir.

Thank you, operator. I would like to welcome everyone to our conference call. Today, we're presenting the financial results for the first quarter of 2024, an update of our recent corporate developments. I'm pleased to report that in the three month period that ended on March 31, 2024, Seanergy achieved a record profitability, generating a net income of approximately $10 million in the usual weakest quarter of the year for the Capesize segment.

After a volatile 2023, in 2004 has started very strongly for the drybulk market for the Baltic Capesize Index staging its best first quarter performance in more than 10 years. Seanergy was optimally positioned to take advantage of this positive market environment leading to its best performing first quarter on record. Our fleet produced net revenues of $38.3 million versus $18 million in the same period last year, more than double, corresponding to an average time charter equivalent rate of more than $24,000 per day, roughly in line with the current average BCI.

The improved terms achieved on chartering our vessels over the past quarters are effective hedging activities and the hedge position vessels comprising our fleet have proven to be important drivers of our positive commercial performance and form important pillars of our long term corporate strategy.

Looking towards the second quarter of 2024 and based on the current FFA levels, we expect our daily TCE to be equal to about $26,400 per day, likely outperforming the Capesize market by a wide margin. Beyond that for the second half of the year, we have converted about one-third of our ownership days at a fixed daily rate of approximately $30,000. As a general principle during the currently healthy market conditions, we are keen to secure attractive fixed daily rate that can generate high free cash flow and solid returns on capital and will remain vigilant in that respect.

In light of our strong performance and consistent with our commitment to rewarding our shareholders, our Board of Directors has authorized another special dividend of $0.125 for the quarter in addition to our regular quarterly dividend of $0.025 for a total quarterly dividend of $0.15 per share. As the year progresses, and we gain more visibility on market conditions, we will be evaluating the best options to further increase capital returns to our shareholders.

We view this as an important priority for Seanergy. And to this effect, we have declared $1.60 of dividends -- cash dividends per share for approximately $30 million since the initiation of our policy in 2022. Given the strong Capesize outlook, we are optimistic that Seanergy is well positioned to continue executing on our clear corporate strategy, which entails rewarding our shareholders generously while growing and renewing our fleet.

Now turning to efforts to grow our fleet since the beginning of the year, we have agreed to acquire two more Japanese Capesize vessels built in 2013 and 2012. Specifically the 2013 build Iconship will be delivered as promptly and 2012 built-to-be-named Capesize vessel is expected to be delivered to us between July and October this year. The combined acquisition cost of $69.3 million will be funded through cash on hand and debt. As an indication of the good timing of these transactions, the current combined market value of these two vessels has appreciated by more than 10%.

Before I pass the floor to Stavros, our CFO, for his review of our financials, I would like to add that I'm very pleased to see Seanergy operating in a balanced manner within our stated business objectives. And I view this quarter's strong financial performance as of indication of our long-term corporate strategy.

Thank you, Stamatis. I would like to welcome everyone from my side as well to our first earnings call for 2024.

Let's start by reviewing the main highlights of our financial statements for the period. We had another great quarter while we achieved a record first quarter profitability, our strong Capesize freight rates continued dominating the market. Our net revenue was equal to $38.3 million, more than double compared to the respective period last year, while our time charter equivalent reached to $24,100, very close to the average BCI for the quarter.

Our adjusted EBITDA rose to $23.2 million during the first quarter, almost fivefold from the respective figure of last year. Our net income was $10.2 million compared to a net loss of $4.2 million last year, which translates to an EPS of $0.5.

Moving on to our balance sheet, I am pleased to say that our cash position remains strong and almost intact in the first quarter of 2024, standing at $24.2 million or approximately $1.4 million per vessel. This was achieved despite consistent dividend payments, almost $8 million advances for the announced vessel acquisitions and our regular debt repayments.

With regard to debt outstanding, this stood at $223 million at the end of the first quarter, translating to a modest loan-to-value ratio of approximately 40%. Finally, total shareholders' equity amounted to $241 million as of March 31, 2024.

Let's now delve into the refinancing activities we completed in the first quarter. We agreed with one of our close lending partners to enter into three separate sale and leaseback agreements of $58.3 million in aggregate to refinance Hellasship and Patriotship and to partly finance the acquisition Iconship. Under these agreements, the vessels will be sold and subsequently leased back on a verballed basis for a five year term, starting from the delivery date of each vessel. Seanergy will retain continuous options to repurchase the vessels at predetermined prices throughout the verballed charter period.

Upon the completion of the verbal term, Seanergy has an obligation to purchase the vessels from -- for an aggregate amount of approximately $31.5 million. Its financing will bear interest of three month term SOFR plus 2.55% per annum, representing a sizable reduction of approximately 120 basis points compared to the rate of the refinance agreement. In aggregate for the three vessels, the financing will amortize over 20 consecutive quarterly installments, averaging approximately $1.3 million per quarter. At the same time, we are in advanced discussions with potential financiers to partially finance the acquisition of our second Capesize vessel, securing favorable terms for Seanergy and minimizing the impact on our liquidity for the completion of this acquisition.

The new financing from the financing side expected to minimize the effect in its loan-to-value kept at a modest 43% based on the current market value of our fleet in line with our financing strategy. It is worth noting that Seanergy does not have any balloon payments due until the second quarter of 2025. Considering our proactive hedging activities with several index-linked charters having been converted to fixed, as discussed earlier by Stamatis. Combined with our prudent financing strategy, we expect consistency on the profitability and liquidity front in the next quarter. This can enable us to continue delivering value to our shareholders and rewarding their investment.

This concludes my review. I will now turn the call back to Stamatis, who will discuss the market and industry fundamentals. Stamatis?

Thank you, Stavros. For the first quarter of 2024, the Capesize market remained at elevated levels in continuation of the strong market conditions seen in the fourth quarter of the previous year. The strong start runs contrary to the usual seasonality and was driven by increased ton-mile demand during a time when the supply of ships has been restricted, both due to the low new building ordering in the previous years and restricted traffic through Panama and Suez Canals.

Brazilian iron ore exports rose more than 10% compared to last quarter as well managed its highest export rate since 2019. China's port iron ore stockpiles reached the low point in 2023, driving demand for imports restocking basically and leading to an increase of about 7.2% year on year in 2024. Additionally, coal imports rose by around 13% during a period of low domestic production. For the current year, China steel production is expected to remain at high levels seen in 2023 with demand driven mainly by manufacturing, infrastructure -- and that's a global thing -- and exports amidst a continued weak real estate market.

Outside China, steel production in the rest of the world has been particularly strong over the past six months, lending support to iron ore and Capesize demand, a trend that's expected to continue during the current year. Similarly, Indian coal generated electricity reached a record high levels in the first quarter, building on a positive trend playing out over the past few years.

Moving on to bauxite, that has had a substantial effect in complementing iron ore cargoes for Capesize vessels. Projections for aluminum demand are generally supportive for the next year due to healthy manufacturing trends globally, while longer term aluminum is also likely to play an important role in energy transition. Volume growth is expected to be 8% and 5% higher, respectively, in 2024 and 2025 with a ton-mile effect being even larger as the share of long-term Western African cargoes expands.

Beyond the specific Capesize demand, the general dry bulk market has also been supported by strong grain and coal cargo flows amidst the disruption of ship traffic seen both in Panama and Suez Canals, the Red Sea. This has had a positive psychological effect on our market as well on top of the marginal improvement in natural market balance. Overall 2024 ton-mile demand growth for the Capesize cargoes is expected to be about 3% to 4% higher. And given the current momentum, demand is expected to rise in 2025 with projected ton-mile growth by at least 2.5%.

Turning on to vessel supply, the order book for Capesize vessels is at one of the lowest points seen in more than 20 years. Overall, net Capesize fleet growth is expected to be around 1.5% in 2024 and 1% in 2025, very low, which is considerably lower than the respective ton-mile demand growth figures. This is already reflected in the secondhand and newbuilding vessel prices that have risen steadily since last year as well as the healthy time charter market rates that the charters are willing to pay.

Before I conclude, I just want to note that we are, of course aware of George Economou investment in Seanergy and subsequent complaint against the company and its Board of Directors. At Seanergy, our priorities, executing our strategy and creating value for our shareholders. Indeed, as demonstrated by our results today, the actions we are taking have us well positioned to capture opportunities and to reward shareholders both today and in the long term. Our Board and management team, we will continue taking actions that we determine to be in the best interest of our company and our shareholders. To that end, we are addressing Mr. Economou complain as appropriate.

That said with here today to talk about our financial results and our strategies and that's it. To close today's call, we want to emphasize our aim to balance our strategic objective of rewarding shareholders, taking advantage of accretive growth opportunities, and maintaining a strong balance sheet.

We view this approach as the most appropriate share of the long-term interest of our shareholders when considering the inherent cyclicality of our industry and future capital expenditures dictated by fleet renewal requirements amidst an ever changing environmental regulatory landscape. With this in mind, we declared one more special dividend while we ended the first quarter of the year with a loan-to-value ratio of approximately 40% level for which we view very sustainable through any market cycle.

In addition, the actions we have taken to grow our fleet substantially over the past three years with quality assets have strengthened our financial position, which has put Seanergy in a prime position to benefit from a healthy freight market as the Capesize segment enjoys the best demand and supply fundamentals in the drybulk space. As a result, we expect to generate significant cash flows that will facilitate further shareholder value creation moving forward.

That concludes our remarks, and I like now to turn the call over to the operator to answer any questions you may have. Operator, please take the call. Thank you.

(Operator Instructions) Tate Sullivan, Maxim Group.

Great. Good day and great comments. And sequential increase in that special dividend, too. If I may start on the forward hedging strategy with 2Q, looking like another quarter over quarter increase in the time charter equivalent rate with what you've done so far. Have you seen stable FFAs for the second half of 2024? And can you not comment on what you're seeing or what your activity has been so far for 3Q?

Well, good morning, Tate. Great to hear from you. The thing is that the FFA from time to time is moving completely irrational and doesn't reflect the real underlying value of the freight rates. So from time to time, we're seeing spikes in the FFA. And when we see this spikes -- right now, we have fixed 30% [of] our fleet actually for the second half at around $30,000 a day. So whenever we see those spikes, we are there and we are ready and we usually take advantage of those opportunities and we'll fix. So we were pretty much at the same levels of the BCI for Q1.

We expect to be at or above the BCI in Q2. And as long as we generate and secure a very healthy profit for the second half of the year, I believe it doesn't really matter whether you are a bit above or a bit below the BCI. But the most important thing is that we have a very dynamic strategy. So whenever we see that we monitor very carefully, we just take advantage of the spikes and we move on. As simple as that.

And then I mean, it seems like quite good visibility going into 2025. I mean, given the net Capesize growth you mentioned of 1% in '25 and good ton-mile growth. And there have been some other shipping companies after close yesterday and this morning talking about more scrapping in '25, is that going to take place in the Capesize market too and have you already seen that?

Well, the Capesize segment has the lowest order book of the last 20-plus years. We have seen some pickup in newbuilding ordering in the last six months, but this has not happened in the Capesize segment. Capesize segment ordering has been quite subdued and we don't really expect due to the very big price differential between secondhand and newbuilding, don't really anticipate any immediate --.

And even if it does, there are no slots available before '27 or even '28. So I don't really expect any additional Capesize is to be ordered or delivered anytime soon. And that is going to help the market a lot, given the fact that ton-miles are doing very well. There are always geopolitical incidents happening that are most of the time is beneficial to the trade, not so beneficial for the humanity, but beneficial for the trade.

And I think that is going to drive sustainable profit stream that is going to deliver good returns to our shareholders. So that's all I can say. And as we have pledged so many times when the revenues and the cash flow is good, we always take care of our shareholders and we give back. So with a higher degree of certainty of the cash flow stream, we will continue rewarding our shareholders to the best of our capacity.

Just one follow up is, are there -- certainly not your fleet, but other -- are there other Capesize ships in the market, it are still transporting cargo that are greater than 20 years old? And then just can you comment on the scrapping activity?

I will give a parallel example is the one of the tankers. When the tanker spiked a couple of years ago after the invasion of Russia into Ukraine, even older ships built in 2004, 2005, 2006 were actually trading at significantly a six-digit freight rate level. So when the market was good and there is not availability of supply of vessels, even the older ships trade quite well.

So I'm aware of certain fixtures right now for 20 year old vessels, older than 20 year old vessels that are in the region of $25,000, [$23,000] to $25,000. So it's quite good. I mean, even at the older vessels, they're trading quite good. And I believe if the market demand additional ships, you're not going to find them in buildings because they're not enough.

Well, thank you very much. Look forward to talking more. Thank you.

Thank you, Tate. We'll talk to you soon.

Liam Burke, B. Riley Financial.

Yes. Hello, Stamatis. Hi, Stavros. How are you?

Hi, Liam.

Hello, Liam. Good morning.

Good morning. Stamatis, you talked about the macro. You went through the iron ore and bauxite. Is coal going to be a positive or -- for you for the balance of 2024?

Yes, it is. And we are seeing very strong volumes. It is a result of two main factors. Number one, you have a higher energy needs in Southeast Asia as well as India, which still relies heavily on coal. You have a mega delivery of coal-fired power plants in Southeast Asia and India, which is going to be driving their energy capacity and needs for the next five years, brand new factories. So we don't really see coal slowing down.

What has really helped the coal trade a lot and we're seeing that on our own fleet is the fact that the Red Sea passages are now scarce. So all the coal going from Australia to Europe and we've had a lot of these trades, it now has to go around the Cape of Good Hope. So it doesn't cut at all inside the Mediterranean Sea. As you can imagine, that increased the ton-mile. So demand by itself will continue to be strong. We don't see demand slowing down.

And ton-mile effect due to geopolitics is actually helping the market a lot. So it isn't going anywhere. New factories are being built that are cleaner and better. And developing world and show fast accelerated growth economies like India, they need bit of energy, what are you going to find it? Cannot built nuclear plants in five years so you cannot [build] like windmills all over the place. You need energy and you need electricity. And coal is the most abundant and cheapest form for electricity to happen. And I think that we will see that going on for the foreseeable future.

Great. And I should know this, but you gave guidance or your partial guidance for your fixtures in the second half of the year. Do you have any dry docking scheduled in the second half that would have higher utilization rates?

We have a couple of ships. So it's not really a big drydock program for the second half of the year. It's a couple of ships, which will likely finish very quickly. We are in discussions with the charters of the ships to install energy saving devices and paints and all that. That was going to require a little bit additional time and a little bit additional cost that we are now discussing how to split. But this is not going to be a substantial effect on our P&L for the second half of the year, which if it continues like this, it's going to be pretty much as expected.

Got it. And I know this sounds kind of nitpicking, but DVOE was slightly up both sequentially and year over year. Is that just the normal cost of operations?

That's a great question. And I think that I should address it right now for good. From the public shipping drybulk companies, Seanergy has the lowest book value per deadweight, which means that we have booked our ships cheaper than the majority of the companies, right? Sometimes the ships require additional maintenance. So we have paid less for the ships, but we need a bit more expenses to maintain them better. So it's not it's not a matter of -- how do you say -- inflation or things like that.

On top of that, the regulations in the regulatory environment in drybulk space, especially the Capes that we called Australia a lot, and now China, has become much more demanding, which means that you cannot really cut down on crew costs, which is the biggest component of direct voyage operating expenses -- sorry, direct operating expenses.

And that means that we need to invest on seafarers that have the higher quality to avoid delays, avoid retentions, avoid losing operational day. So that's something that as a company we examine and we assess on a weekly basis when we discuss about the fleet. So the saving of buying our ships cheaper is much, much higher than the actual incremental operating expenses cost, which is nothing compared to how much money we've saved for shareholders in course and how much more money we generate from revenues from additional units that we're buying.

Great. Thank you.

(Operator Instructions) Kristoffer Barth Skeie, Arctic Securities.

Hello, Stamatis. How are you?

Hello. Good afternoon. We're Great. Thank you. And nice to hear from you.

Nice to hear as well and thank you for good presentation and especially really good quarter, both operationally -- I mean, it beat across all parameters. I was wondering, could you please elaborate a bit on distribution, you're now paying 30% of EPS. Is this sort of a new normal or how should we think about distributions going forward? I mean, there's still trading quite significantly below [NAV]. So how do you weigh that up against buybacks?

Well, as you know, we have been rewarding our shareholders quite significantly over the last two years that we have initiated the dividend schedule. We discontinued that for a temporary period of time last year due to bad market conditions when we saw the Cape rates going down to $3,000 a day. We are conservative people, the more we fix and the more certain we feel about the cash flow, the more our appetite is to reward our shareholders more and more. So we started with $0.1 in Q1. We're not doing $0.15 in Q2. We hope that if the market allows, we will continue to expand the dividend payout as much as possible.

We don't have any imminent acquisition opportunities and the ones that we have agreed to acquire have already been pretty much funded. So we don't have any serious outflows here and there. Having said that, we will, of course, need to have a good cash cushion to avoid any mishaps in the market. As you know, it's a very volatile trade. And we will continue our generosity to reward our shareholders because we want to and we'll feel obliged to providing the best possible returns for the shareholders' opportunity.

Right. Got it. And in terms of refinancing and also with regards to the acquisition, it's quite a low and attractive margin, you're getting now [2.55%] so I guess you're that should have a positive effect also if there's enough financials. But sort of into Q2 and maybe Q3, how is the cash effect in terms of these refinancings?

Well, for the refinancing, we expect basically to minimize -- basically nullify the equity component in the acquisition of the ship, the Iconship. So basically it's like we're buying here with no more equity. And then there's a small equity injection that we need to do for the newer ship that we have agreed to acquire during this quarter, which is around, I don't know, around $6 million on top of that [advances we have already paid] in the balance. We'll be covered by debt. So we don't expect a significant outflows to cover the [CapEx] for the acquisition of these two ships. And as Stamatis said, as the market stabilizes, and we see that there are more opportunities for long-term fixed rate feature at good rates, dividend will go up.

Right. And to ask last question from me with regards to the market. What are you seeing sort of ton-mile effect or booster going into Q3 and Q4? Is it still sort of healthy volumes from Brazil? Or do you see any other sort of volumes that are driving this market forward?

Well, as a benchmark, 2023 last year was a very strong year. If we manage to have the same volumes in 2024, that's also going to be awesome, considering the fact that we have the Red Sea passage closure that has increased -- decreased the amount of supply of ships in the water. So -- and that is going to escalate even more because the longer distances, the more the backlog of required supply that you're going to need later in the year.

Of course, geopolitics are favorable for the industry or sometimes they are not. I mean, we saw a certain period in the beginning of 2023, if you remember that all the locked supply was unwound in the sea and there was no delays. So we may see that as well. Overall, I believe that the demand supply fundamentals are very favorable. But due to all these aberrations in supply, we might see swings, I don't know, on the high side or on the low side. So that's the name of the game when you're trading on the Capes.

Perfect. Thanks a lot.

Thank you. And good afternoon.