Top Ships Inc (TOPS) 2006 Q1 法說會逐字稿

Greetings ladies and gentlemen and welcome to the TOP Tankers incorporated first-quarter results conference call. At this time all participants are in a listen-only mode. [Operator Instructions] Also as a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Joe Allen, of Allen & Caron. Thank you Mr. Allen; you may now begin, sir.

Thank you Dee. Good morning and welcome to TOP Tanker’s results conference call for the first-quarter ended March 31, 2006. I’m Joe Allen of Allen & Caron Investor Relations. Before we start this call, there are a couple of items I would like to cover. Many of you have received a copy of the press release announcing the Company’s results for its first quarter. It was released this morning at 735 a.m. eastern daylight time and has been covered by all the major wire services.

If you did not receive a copy of the press release, it is posted in the client section of our website, at www.allencaron.com, or you may call our office in New York at 212-691-8087 and we will email it to you right away. It is also posted on Yahoo Finance and various other Internet sites.

This call is being broadcast live over the Internet at www.TOPTankers.com and at www.vcall.com. The Internet replay will be available shortly after the end of this call and will continue for seven days. In addition, a telephonic replay of the conference call will be available for seven days by calling 877-660-6853 from the United States and Canada, or 201-612-7415 from outside the United States and Canada. In either case, enter account number 286 and the conference ID number 202258.

I would now like to turn the call over to Mr. Thomas Jackson, Chairman of the Board of TOP Tankers. Good afternoon Mr. Jackson.

Thank you Joe. Good morning ladies and gentlemen. I am Tom Jackson, the Chairman of the Board of Directors of TOP Tankers Inc. It is my great pleasure to welcome you to TOP Tankers earnings conference call in respect to the first-quarter 2006 results.

Before we begin, let me draw your attention to the fact that during the conference call, we might make certain forward-looking statements about the Company’s future expectations, including future revenues and earnings. Those statements and all of those statements here today, other than historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and is actually defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and are subject to change at any time and the Company’s actual results could differ materially from expected results.

The Company undertakes no obligation to publicly update forward-looking statements to reflect subsequently occurring events or circumstances. The audit committee have reviewed and recommended to the Board the acceptance of the accounts for the first quarter 2006 as presented. And the Board of Directors in the meeting held today, approved the accounts as presented.

With me today for our conference call are Mr. Evangelos Pistiolis, President and Chief Executive Officer; and Mr. Stamatios Tsantanis, Chief Financial Officer.

Mr. Pistiolis will provide you will with details of TOP Tanker’s operation, activities and general expectations. Furthermore, he will provide you with an overall perspective of the international tanker market, together with his perceived outlook.

Mr. Tsantanis will comment on the financial results for TOP Tankers Inc. for the quarter ended March 31st, 2006. Following the financial highlights, the call will move into a Q&A session.

I would now like to pass you over to Mr. Evangelos Pistiolis.

Thank you Tom. Good morning ladies and gentlemen. For the three months ended March 31st 2006, our net income was 30.4 million or $1.06 per share, compared with the net income of 19.1 million or $0.69 per share for the first quarter of 2005.

Our earnings include net charges of 3.2 million or $0.12 per share of special items which are described in our earnings release.

Our voyage revenues for the first quarter of 2006 were 101.7 million, compared to 47.3 million that recorded in the first quarter of 2005.

The first quarter of 2006 was one of the most important periods in our history. Not only did we achieve our highest quarterly EPS of $1.06 per share, but we also concluded a significant $550 million sale and leaseback transaction which has resulted in a significant return of $7.50 per share to our shareholders.

We have entered into the seasonal lower period for the tanker market and are experiencing a correction in the crude spot rates. We intend to take advantage of the temporary slowdown and bring forward most scheduled dry-dockings for our Suezmaxes. As a result, we expect to enjoy the benefit of our full fleet’s availability during the next winter period, which is traditionally the strongest period of the year.

I also wish to inform our shareholders that I am currently involved in a project which involves the listing of a real estate fund on the Alternative Investment Market of the London Stock Exchange. It is envisioned that I will act as Chief Executive Officer of a private company that will manage the fund. I discussed my prospective involvement in this management company with our Board of Directors earlier in this year. Both the TOP Tankers Board and I are comfortable that my duties for the fund will not interfere with the continued performance of my duties for TOP Tankers.

You probably have questions relating to the fund, but beyond telling you that this project does not involve a public offering in the United States, I am not able to give you any more details at this time due to regulations governing securities offerings both in London and in the United States.

As of today, our fleet under management consists of 27 vessels, or 2.6 million dead weight; including 18 vessels sold and leased back for a period of 5 to 7 years.

During the first quarter of 2006, we had approximately 72% of the fleet operating days on long-term employment contracts. 19 of our 27 tankers are on time-charted contracts with an average term of over three years.

During the first quarter of 2006, eight of our Suezmax tankers operated in the spot market, earning on average $61,802 per vessel per day on a time charter equivalent basis.

As of the date of this release, 53% of our spot Suezmax operating days for the second quarter of 2006 have been fixed at average daily time charter equivalent rates of 33,000.

During the first quarter of 2006, our Handymax fleet earned on average $21,735 per vessel per day on a time charter equivalent basis, which includes the profit-sharing allocated to us.

As of the date of this release, 63% of our Handymax operating days for the second quarter of 2006 has been fixed at average daily time charter equivalent rates of $20,000 a day.

I would like now to hand over the call to Stamatios Tsantanis, the CFO, who will take you through the financial details.

[Inaudible] was 30.4 million or $1.06 per share compared to the net income of 19.1 million or $0.69 per share for the first quarter of ’05.

Our earnings include net charges of 3.2 million or $01.12 per share of special items, which are described in our earnings release.

EBITDA for the first quarter was 55.9 million, compared with 29.7 million for the first quarter of ’05.

Our voyage revenues for the first quarter of ’06 were 101.7 million, compared to 47.3 million recorded in the first quarter of ’05.

As Evangelos mentioned, we successfully concluded the sale and immediate leaseback of 13 vessels for a period of 5 to 7 years. The total deal size was 550 million, which includes 10% seller’s credit payable to us at the end of the leasing period. The net book gain from the transaction was $82 million, which under U.S. GAAP is amortized over the period of the lease.

As of March 31st 2006, we had a total debt of 428 million with the Royal Bank of Scotland, DVB Bank and HSH Nordbank. Since then we have repaid 121 million to RBS and DVB after the completion of the sale and leaseback in April.

As of today, our outstanding debt is 308 million, provided by RBS and HSH, maturing in 2015 and 2013, respectively.

On March 31st, our total cash position was 38.4 million. As of today, our total cash is approximately $[9] million, and our debt to cap ratio is 60%. Our net debt to cap ratio is 52%.

And on that note, I would like to hand the call back to Tom Jackson.

Thank you Stamatios. I would now like to hand the call back to the Operator for the Q&A session.

Thank you gentlemen. [Operator Instructions]

Our first question is coming from Natasha Boyden of Cantor Fitzgerald. Your line is live for question or comment.

Thank you; good morning gentlemen. Can I just – I did actually miss what you’d said; what percent of your fleet have you already booked for the Handymaxes at 20,000 a day?

Excuse me, it’s 63%.

I’m sorry – 50?

63- 6-3.

6-3. Okay great; sorry about that.

No problem.

I have a number of questions so I guess I’ll ask a couple and then I’ll queue back up. You’ve mentioned that a number of your vessels are going to go into dry-docking in the second quarter and possibly the third. Can you tell us exactly how many days you do expect those vessels to be out of service?

Stamatios?

Yes, total for the year for the Suezmax is going to be 540 days [inaudible] for the Suezmaxes; and approximately 170 days for the Handymaxes. So that’s a total of 710 days approximately for the full year.

Okay. Can you break that down by quarter, by any chance?

Yes. It’s an insignificant number in the first quarter. Then we have 380 days approximately in the second quarter and 310 in the third, and hopefully zero in the fourth.

Okay, great. That’s helpful. How much reserve are you putting aside for these vessels? Are they the actual special survey dry-dockings that are coming up?

It’s five special surveys for the Suezmaxes, four special surveys for the Handymaxes. And we have three [and three] intermediate surveys for Suez and Handymaxes, respectively.

Okay and obviously one would assume that they cost a lot more than the usual two-year dry-dock. Do you have any idea of how much you’re putting aside for that?

The total CapEx for the year we expect to be around 30 million.

30 million.

Yes.

Great. Then I just wanted to touch on – Evangelos you’ve obviously mentioned that you are going to working on this new real estate fund. Can you tell us how much of your time will be focused on TOP and how much will actually be focused on TOP development?

The way things are; TOP Tankers has grown to a very good size, as you are aware. We have just recently concluded the big deal that we’ve been working on for three or four months. And that’s a new thing. It’s something that I’m really [inaudible] come to detail as the lawyers will allow me. So I’ll be in a better position maybe a couple of weeks down the road, to explain to you exactly what’s going to happen. But for several reasons which I can’t get into detail, it will not actually interfere at all with what I’m doing with TOP Tankers. But I think I can analyze that a bit better in a couple of weeks.

Okay, so I guess we’ll just leave that one then. And once again your spot for Suezmax rates were significantly higher than a number of your peers during the first quarter even though you do have an older fleet than a lot of your peers. Can you tell us how you’re able to achieve this? I mean are you trading in different routes? Or what are you actually doing to do this?

We are trading in the same routes and in the same oceans like everybody else. But I think it’s a lot of work—I’m not saying that the others are not working, but we – last quarter was also very good, as you know. And actually last quarter we’re the highest. This quarter I think we are second highest. But your comment was really correct in terms of having a significantly older fleet as to our peers, and still achieving higher numbers.

I wouldn’t say that there’s a special recipe for that. You know we were – luck is also always involved and many miles in your [inaudible] voyages; and a lot of 24-7 work, really. That’s what it is.

Fair enough; I can’t really argue with that. Okay I guess I’ll step off and queue back up. Thank you.

Okay. Thank you very much.

Thank you. Our next question is coming from [Reynaldo de Leon] of General Electric. Your line is live for question or comment.

Hi; do you plan to continue to take advantage of the high price for second-hand vessels and continue to sell and then lease back the vessels over the next year or two?

That’s a good question. I’m not necessarily planning to stop doing that. Well, I can tell you very honestly that there are no plans in the immediate future to do something like this again. It really – and I would like to think and decide how we’re going to go forward in terms of growing the Company and buying more ships and stuff like that. So that will more or less decide as to what we’re going to do with the other ships that we still have. For the time being, we’re going to continue owning them.

Okay, that’s all.

Thank you.

Thank you. [Operator Instructions]

Our next question is coming from [Reynard Goldman] of Goldman & Goldman Investments. Your line is live for question or comment. Mr. Goldman your line is live for question at this time, sir.

Hello? On the leasing of your tankers, after the period of the 5 and 7 years; is there a buyback availability for you or what are the termination terms?

There is no call option or put option built in to the actual lease contracts. But at that point in time you can always freely negotiate to buy them back if you wish to. But we don’t have to. We don’t have to do that, so the termination is pretty much – you go through your 5 or 7-year period and you pay your lease and at the end of the date it goes back to the current owners.

Can you detail to us –

And then of course we will be receiving the seller’s credit at the end of the day, right? So they have kept back that seller’s credit.

I’m sorry. I didn’t hear you correctly.

We also at the end of the lease period, we are getting back the seller’s credit.

Oh you get back the 53-million credit?

That is correct.

So at that point, in other words, they are holding their funds in escrow up to that time?

That is correct, sir.

Do you receive interest on that?

No.

So therefore that is basically a deposit with them for the period of the seven years?

That is correct.

Alright. Can you detail who you did the sale and leaseback with?

Yes, it was done with a company called Komars; K-O-M-A-R-S. That is a company based in South Korea. Then it was the [Bankforties] as well as [Pareto]; Pareto of Norway, that is.

Alright. And at that point, after the 7; and 5 and 7 years, you will have no liability on any of the tankers?

That is correct.

Okay. The current pricing that you have on operating these levels with [inaudible], what type of income per day for each one of the tankers?

Stamatios?

So in other words, on the Suezmax and the Handymax, how much would you need to make in order to ---

[Inaudible] to get to break even, yes?

Yes, the break even; your operating cost and your general and administrative cost?

Yes, the break even for the Suezmax is approximately $30 to $31,000. And the break even for the Handymax is 17. So basically we need to make more than that. And if you look at the first-quarter financials, we had an average income; the spot rate for the Suezmax was 61,000—62 actually. And on a weighted average including spot and [inaudible] it was 52. So we have had a lot of margin above the break even.

And I’m sorry. I didn’t hear the answer to the question of Cantor Fitzgerald lady; but what is your projection for the year earnings in the second to the fourth quarters of this year?

Well we don’t actually give projections for our EPS. You will have to get that from the analyst reports, and whatever they are projecting through their models.

Is there any intention to pay out dividends in the near future?

There’s always intention, as you have seen. We have a great record in paying out dividends. But the truth is that at this point in time, for the immediate future there is no actual intention to do that.

Okay, I thank you.

Thank you very much.

Thank you. [Operator Instructions]

Our next question is coming from [Carmen Comity], a private investor. Your line is live for question or comment.

Yes, this is kind of a repeat of the previous that had to do with the dividends. You’re currently paying $0.21 a quarter and then have announced that you were going to do that on a regular basis. Do you anticipate that we will be exceeding the $0.84 per year or is that something that’s still unable to be discussed?

As we said in our press release early April, that the Board has decided to cut the regular dividend. And we will also be distributing special dividends in the future. That will of course be subject to our cash reserves and whether we have potential acquisitions in the horizon. As you know, the dividend is always some of our top priorities and we have proven that. And in any case we cannot guaranty if we’re going to exceed or not the $0.84 in the future, but definitely dividend is something that is very seriously considered with TOP Tankers.

Thank you.

Thank you.

Thank you. Our next question is coming from [Ken Roth], another private investor of TOP Tankers. Your line is live for question or comment.

Good morning. With respect to the decision to cancel the dividend; I was wondering, did the lenders play any role in that decision?

No, they did not. It was clearly a Company’s decision. We had promised, as you know, $0.21 a share to the shareholders. The cut that -- we distributed one special dividend last year, we had distributed a huge special dividend this year. So it was clearly our decision. We’ll see. It’s a new company now. It’s structured differently. And we’ll see how it will look in the future and we’ll consider that again.

Was the decision to cancel the fixed dividend; was that made before you announced the initial special dividend?

No, the decision was done after the announcement of the big special dividend.

I mean I know it was released afterwards, I was just wondering when it was actually decided.

Afterwards.

I see. And finally, I was a little confused about the filing for another offering through Cantor Fitzgerald after you had just distributed all this cash. Could you shed any light on that?

[Inaudible] it was a filing, but it was actually the sales agreement that we done with them. The timing for that was maybe not necessarily connected with anything else, and it was just – it just gives us the ability to access the markets whenever we think that it’s appropriate to do so.

It’s also a direct continuation of our universal sale that was filed last August. And if you look at the filing, [inaudible] dates a few portions of that filing back then.

Alright, thank you.

Thank you.

Thank you. We do another question coming from [Dave Golnick] of Financial America Securities. Your line is live for question or comment.

Yes, good morning gentlemen. Congratulations on a fine quarter and certainly, obviously your interest in taking care of shareholders. My question is – and I didn’t peruse the financial release, but on the amortization over a 5-year period of the sale and leaseback of the vessels; how much, if any, was per share involved in the $1.06 for the March quarter.

It’s approximately 4.8 million, so if you do that – hold on one second – that’s approximately $0.20.

$0.20, okay.

$0.17, $0.17.

Okay, I appreciate that. Thank you.

Thank you.

Thank you. We do have a follow-up question coming from Natasha Boyden of Cantor Fitzgerald. Your line is live for question or comment, ma’am.

Thank you. Just a couple more questions; following on from the sale leaseback questions, you’ve obviously returned a significant amount of cash to shareholders. But you do still have a relatively high debt to cap ratio. What is your strategy going forward in terms of growth for the Company?

I don’t necessarily think that it’s really high. I think we had a couple of those questions from previous callers. The vessels that remain in the ownership of TOP Tankers are quite young vessels. So we have seen and we know plenty of companies that have higher leverage on these kinds of ships. So going forward of course we don’t necessarily need to increase the leverage to do so, as you know. But like I said before, we haven’t really decided how we’re going to go forward. We’re monitoring the market to be honest with you, to look at how things will move if you want, during the summertime and then we’ll probably decide on investment.

Okay, fair enough. Now if I could ask sort of a – very much a macro question; obviously there’s been a lot of conflict in Nigeria and we’ve seen production out of the region coming down to a significant extent. Is that having any impact on your business, particularly for the Suezmax fleet that you operate?

The way I look at it, as long as things remain where they are, all things being equal with Venezuela, if you want, I don’t see anything increasing there. Anything that is being cut out of West Africa will probably have to come from anywhere in the PG- the Persian Gulf. So that will have an impact as far as total miles in concerned. And I think that’s going to have more of a positive impact, if you want.

Okay. So you’d move your vessels over there and increase the ton mileage-?

Yes, I mean—it’s not that we’re going to move them there. Everybody is going to do that because the west is not going to stop consuming what it’s consuming. So if they can’t get it out of Nigeria, they’ll have to get it out of somewhere else. And if Venezuela is at its max, then they have to go to the Persian Gulf, right? So they have to get that oil from there. So instead of being like a 14-day which it is from the West Africa, it will be like a 30-day trip or 27-day trip. So that’s going to help a lot I think.

Alright, great. Thank you very much.

Thank you.

Thank you. We do have another question coming from [Eric Davidson], a private investor. Your line is live for question or comment.

Thank you. A simple question; do you see your business model changing or has it changed, which would account for the decline in the value of the stock price?

Sorry, in the decline of the value – how do you see that?

Well the price has gone significantly down from $18 down to the range of $7 or $8. And has that attributed to the change in your business model?

No, I don’t really think so. I view that more as the price being high than what it was on the average of the past months. I always connect the share price with the net asset value of the Company and today the share price is in excess of the NAV, so there’s a premium to NAV; where for the past months and quite a few of them, most of the tanker companies were trading below NAV. So I think the share price is at a very good level at present.

Thank you.

Of course you should always remember that we’re also in our minds adding the $7.50 that we paid lately dividends or the $8.8 dividends that we paid since IPO.

Thank you very much.

Thank you.

Thank you. Our next question is coming from [Basil Veglas], a private investor. Your line is live for question or comment.

Thank you. Good morning gentlemen. I was just wondering if you could tell me what the current value is per share – the book value, I meant.

The book value per share pro forma, the leaseback and everything, is $6.7.

Okay. Did that drop as a result of selling the tankers?

Yes, of course.

Okay. And the other question I had is – what is your relationship with Kingdom Holdings?

Our relationship – there is no relationship. Kingdom Holdings is a company that is controlled by other members of my family but there is no relationship between the two companies.

They don’t own any stock in the Company?

They do own a lot stock in the Company, yes.

Okay. I was just curious.

Since it’s [up], I also follow their reporting really because I don’t know myself exactly how much stock they have at each and every time, but as far as the last reporting was, I think they still own quite a lot of stock.

Do you know if they’ve sold some off since they bought practically 11%?

I wouldn’t know myself, to be honest. I think we have to wait for the next filing.

Are you anticipating sending out any annual reports?

Yes, we’ve [released] on that. They are actually on their way, I think.

Yes, the mailing date for the annual reports is May the 18th, so you should have them hopefully within a week after that.

Okay, very good; great stuff.

Thank you, bye-bye.

Thank you. And we do have a follow-up question coming from Reynard Goldman of Goldman & Goldman Investments. Your line is live for question or comment.

What is the tax status of the $7.50 dividend? Is that a return to capital, that’s what I’m trying to understand?

Yes, you’ll have to wait until the end of the year to see what proportion of the dividend paid is to the net income. It’s actually something that all the U.S. taxpayers have to consult their tax consultant in order to figure out what percentage – if I remember correctly it’s 30% which qualifies for 15% tax and the rest is about a return on capital which is a different tax number. But this is something that you have to consult with your consultant. Of course wait until the end of year for the full net-income number.

Thank you.

Thank you.

[Operator Instructions]

We do have another follow-up question coming from Reynaldo de Leon of General Electric. Your line is live for question or comment.

Yes, with the payment of the special dividend, what was the push to cancel the dividend? Do you plan to use the additional cash to grow the fleet or what’s the main reason to cancel the dividend? And also, is there a plan to publish the pay structure or the stock options that you grant to your executives?

Stamatios will take care of the second part. If I may answer the first part of the question; like I said, that was first of all the decision made by the Board of TOP Tankers. And I think it was really – the idea behind it was that we have given a lot of dividends out and like I said before, the Company has pretty much a new face. I think it’s an even better one than what it was before. And with that new Company, we want to see how things will go. We would like to have some cash reserves because today we do have these leases, as you know, going forward; and really see how the market responds. It’s not something that is there to stay necessarily, but we’d like to see how things move forward and that was the decision of the Board, really.

Okay, and about the stock options; we do not grant stock options, we only grant restricted shares which are immediately expensed in our financials on pro rata over the vesting period. So all restricted shares are expensed.

Yes, but do you plan to show the pay structure of the executives—how much are they getting, etc.?

No, it’s an aggregate number and we grant those to officers, personnel and Board. So we’d not disclose how to divide it among the persons. It’s our policy to not to disclose the break down [inaudible].

Okay, thank you.

Thank you.

Thank you. And we do have another question coming from [Timothy Lenihan], another private investor of the Company. Your line is live for question for comment.

Thank you. Good afternoon. Can you take a couple of minutes and give your perspective on how you see the overall market for the tanker fleets and fuel usage and just growth in the industry, particularly with the installation of pipeline say from Russia into the east coast and how you think that will affect tanker usage over the next couple of years?

Could you just repeat the part with Russian-east coast?

Yes, in terms of competition for the tanker fleets, how you see new pipeline installations potentially affecting the need for tankers over the next couple of years.

Okay, got it. Sorry, because the line is not the best. As far as the market in general is concerned, I don’t see any really problems there. I see only positive things, to be honest. And that was proven also by the prices which have not dropped at all, although the freight rates have gone a bit up and down, if you want. And all of those are at very healthy levels. So I don’t see any problem there.

As we have seen now in the past two weeks, the Suezmax rates have again picked up to the mid-40s if not even 50s. The last three [fixtures] that we did were in the mid-40s and actually high 40s one of them. Before they were around the 30s; so we see again an increase there.

The products have been throughout the last maybe four quarters, have been performing 20-plus, which is a very high figure for these smaller vessels, if you want.

So in general, I don’t see a problem. And the way things look going forward and with the demand being where it is and probably will even be increasing as China and India and these counties are getting more and more developed; so I don’t see any downturn as far as the demand for tankers will be.

The only thing we need is more oil, really. So the more they explore more oil, of course, more oil will be transported so even more tankers will be needed in the future.

Now as far as the pipeline, pipelines are and have been if you want, a very—has been a subject which is interpreted differently, if you want, from an investor or any ship owner. I don’t see a real problem with pipelines and I’ve been hearing about the pipeline problem since 15 odd years now, or whatever. And I haven’t seen an impact into that. The more the talk about pipelines, the more I see tankerage rising.

So with the demand where it is today anyway, I think that there is no real threat from the pipelines going forward.

Great. Thank you.

Thank you.

Gentlemen, I’m showing no further questions at this time.

Thank you, Operator. That completes the Q&A session for today. Thank you ladies and gentlemen for participating in this call; we look forward to talking to you again and sharing our continuing progress on our next quarterly conference call. Thank you and have a good day. Ladies and gentlemen, you may now disconnect your lines.