Top Ships Inc (TOPS) 2007 Q3 法說會逐字稿

Greetings and welcome to the TOP Tankers third quarter 2007 results conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Mr. Michael Mason, with Allen & Caron, Investor Relations. Thank you, Mr. Mason, you may begin.

Thank you. Good morning and welcome to TOP Tankers results conference call for the third quarter ended September 30, 2007. As mentioned by Anthony, I'm Michael Mason of Allen & Caron Investor Relations. Before we start this call there are a couple items I'd like to cover.

Many of you received a copy of the press release announcing the company's results for its third quarter 2007. It was released this morning at 7.35 am. 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 to you right away. It is also posted on Yahoo! Finance.

This call is being broadcast live over the Internet at www.toptankers.com, or Precision IR's Webcast site at www.investorcalendar.com.

The Internet replay will be available shortly after the end of the call and will continue for seven days.

In addition to telephonic replay, the conference call will be available for seven days by calling (877) 660-6853 from the US and Canada, or (201) 612-7415 from outside the US and Canada. And our account number 286, and the conference ID number 261403.

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

Good afternoon. Thank you very much. Michael. Good morning, ladies and gentlemen.

I am Tom Jackson the Chairman of the Board of Directors of TOP Tankers Inc. It is my pleasure to welcome you to TOP Tankers earnings conference call in respect of the third quarter and nine month period of 2007 financial 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 other statements here today, other than historical facts, are forward-looking statements within the meaning of Section 27 (a) of the Securities Act of 1933, Section 21 (e) of the Securities Exchange Act of 1934 and that term is defined in the Private 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 recurring events or circumstances. The Audit Committee have reviewed and recommended to the Board the acceptance of the accounts for the third quarter and nine month period of 2007 as presented, and the Board of Directors, in the meeting held this morning, 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 with details of TOP Tankers operation, activities and general expectations. Furthermore, he will provide you with an overall perspective of the international tanker market, together with its perceived outlook.

Mr. Tsantanis will comment on the financial results of TOP Tankers Inc. for quarter and nine month period ended September 30, 2007.

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 September 30, 2007 we had a net loss of $18.4 million or $0.5 per share, compared with a net loss of $11.4 million or $0.35 per share for the third quarter 2006.

The results for the third quarter 2007 include net charges of $2.3 million or $0.06 per share of special items that affected our income, but are typically excluded by securities analysts.

EBITDA for the quarter was $3.8 million as compared to $7.7 million for the third quarter of last year.

Voyage revenues for the third quarter 2007 were $51.2 million, compared to $70.7 million in the third quarter 2006.

We believe our expansion into the drybulk sector is a major strategic initiative for TOPT and one that should enable TOPT to compete more effectively in the global shipping community. Since the initial announcement of our drybulk acquisitions, the Baltic Dry Index has been increasing to historic highs. This has generated a significant premium to our investment well before we took delivery of the vessels. Based on the performance of the Baltic Dry Index, we chose to diversify into the drybulk trade at a very favorable time. We think that the drybulk business will offset any weakness that may occur on the tanker side and that the overall mix will better position the company.

We will be taking delivery of our first drybulk vessel as early as next week, and we expect the remaining drybulkers that we have agreed to purchase to follow on schedule. We are excited that we will now be one of the few public shipping companies to offer a multi-sector presence in the global arena.

Regarding the markets, the climate for the crude oil sector of our business has been difficult during the third quarter 2007. The prolonged warm weather in most parts of Europe and the United States, together with higher than anticipated fuel oil inventories at the beginning of the period and the constant rise of oil prices, led to a softer demand for crude oil.

While no-one can anticipate the market, we are optimistic for the upcoming winter period and 2008 in general, since demand and supply fundamentals appear favorable. For 2008, the International Energy Agency is forecasting global oil demand to increase by approximately 2.4%, while the order book in the Suezmax fleet, which is our core tanker segment, is one of the lowest across the shipping industry.

We are close to completing our extensive upgrading of our fleet, which we expect will further increase our trading capacity and reduce off-hire days and maintenance costs. In addition, we have undertaken the day-to-day technical management of the majority of our fleet in order to further increase the quality of management services and control our costs.

We have also proposed to change the company's name to TOP Ships Inc., to reflect our participation in various segments of the shipping industry. The date of the Special Meeting of the Shareholders has been scheduled for December 13, 2007.

Lastly we decided to change our accounting policy for drydocking from the deferral method, under which we amortized drydocking costs over the estimated period between drydockings to the direct expense method, under which we will expense all drydocking costs as incurred. We believe that the direct expense method is preferable as it elimates a significant amount of time and subjectivity involved to determine which costs and activities related to the drydocking qualify for capitalization.

As of September 30, '07, our fleet consisted of 20 vessels or 2.2 million deadweight.

In April and July 2007, the Handymax tankers Invincible, Victorious and Restless, which we were leasing under the 2005 sales and leaseback transaction, were sold by their owners to third parties. Following these sales we terminated the bareboat agreements for these vessels. As I said earlier in July and August 2007 we entered into agreements to acquire six drybulk vessels from unrelated third parties. The vessels which comprise of four Panamaxes, one Handymax and one Supramax have an aggregate acquisition price of $370 million. We intend to finance the acquisition through new loan facilities, working capital, and the proceeds from future capital raisings.

During the first nine months of 2007, we had approximately 67% of our fleet's operating days on long-term employment contracts. As of September 30, 2007, ten of the company's 20 tankers were on time charter contracts with an average term of over three years, with all but four of the time charters including profit sharing agreements.

We have secured approximately 63% of the estimated operating days for our tankers and drybulk fleet for 2008 under time charter contracts.

During the third quarter 2007, seven of our company's Handymax tankers, operated in the spot market earning on average $17,983 per visit per day on a time charter equivalent basis, and five of our company's Suezmax tankers operated under time charter contracts, earning of average $35,263 per visit per day on a time charter equivalent basis.

All of our Handymax tankers operated under long term employment agreements, that provides for a base rate and additional profit sharing. During the third quarter of 2007, including the profit sharing allocated to us, the Handymax fleet earned on average $18,706 per visit per day on a time charter equivalent basis.

On that note I would like to pass you over to Stamatios.

Thank you, Evangelos. Good morning, ladies and gentlemen. For the three months ending September 30, 2007 we had a net loss of $18.4 million or $0.50 a share, compared with a net loss of $11.4 million, or $0.35 a share for the third quarter of 2006. The results for the third quarter include net charges of $2.3 million, or $0.60 per share of special items that affect the net income and are typically excluded by securities analysts. EBITDA for the quarter was $3.8 million, as compared to $7.7 million for the third quarter of last year.

Voyage revenues for the quarter were $51.2 million, compared to $70.7 million in the third quarter of 2006. For the nine months ending September 30, we had a net loss of $11.6 million, or $0.34 per share, compared with a net income of $11.9 million, or $0.37 per share for the same period last year. EBITDA for the nine month period was $31.4 million, as compared to $71.8 million for the same period of last year.

Voyage revenues for the nine months were $200.5 million, compared to $242.3 million for the same period last year. As of September 30, 2007 we senior secured credit facilities of $339 million with the Royal Bank of Scotland, HSH Nordbank, and DVB Bank, maturing in 2015, 2013, 2012 respectively.

As of September 30, 2007 our debt rate was approximately 60.8% and our net debt rate was 52%. In the second and third quarters of 2007 we issued 4.3 million shares of common stock with net profits of $29.4 million. These securities were sold by Deutsche Bank through a combination of at-the-market sales and negotiated transactions.

Regarding the change in accounting principle for dry docks, beginning with the fourth quarter of 2007, we intend to change this policy from the deferral method, under which we amortized drydocking costs over the estimated period between dry docks, to the direct expense method, under which normal expense all drydocking costs as incurred. We believe that the direct expense method is more conservative as it eliminates the significant amount of time and subjectivity involved to determine which costs and activities qualify for the deferral method.

The new accounting principle will be presented in future earnings releases and filings and the new accounting treatment may have an [eclectic] effect for earnings since most of the operating of the fleet has already been completed.

And on that note, back to Tom.

Thank you very much, Stamatios. I would now like to pass the call back to the operator for the Q&A session.

(OPERATOR INSTRUCTIONS). Our first question comes on the line from [Natasha Boyden] with Cantor Fitzgerald. Please ask your question.

Thank you, operator. Good morning, gentlemen.

Hi, Natasha.

I just want to dig in a little bit on your sale leaseback strategy that you have. Do you have any intentions of repurchasing any more of the vessels that you had sold and leased back, or selling them, or are you planning on focusing capital primarily on the drybulk industry now?

Yes, indeed, I think any strategy is there to serve and implement anticipated market conditions, right? So the strategy, the way it started, everybody, including us, thought that the good tanker market will continue for at least three to five years, it was back when we estimated. So that has changed and that is why we did some collective action last -- actually this year, it was. How many months ago was it?

It was in May.

In May. So about half a year ago. So the answer is that we don't expect anything like that to happen tomorrow, but we could not exclude anything.

Okay. And I think clearly the asset value for drybulk vessels has been increasing substantially recently, and it is probably likely that the bulk of your purchase has already increased in value.

Can you give me any idea of how much you calculate that that premium is?

The premium today, about $65 million all together.

And so, given that increase, and where the stock is currently trading, what do you think your NAV is at present? Can you give us any idea?

Well we don't usually give a guidance for NAV, but we believe that in excess to what the analysts are expecting, especially with the appreciation of the drybulk price.

Okay. And if I just quickly get some clarification on the accounting policies for drydockings. Is that change going to be, in any way, retroactive or is it just going to apply for future drydockings?

It will apply to future dry dockings, and for comparative purposes we will be presenting it as a separate column in our future filings. So just for people to know what the effect would have been if we had this accounting policy effective back then.

Okay. But you're not going to go back and change your actual numbers?

No, no, no, no, we are not changing any numbers. Just for comparative purposes we are just going to have a separate column saying what the effect would have been.

Okay, great. That's very helpful, thank you very much.

Thank you.

Our next question comes on the line from [Jonathan Shapel] of JP Morgan. Please proceed with your question.

Thank you. Good afternoon, guys. Stamatios, my first question is for you. Can you just give us an update on the timing of the capital outlays for the drybulk ships, both the 4Q '07 and 2008? And can you also talk about the financing of those assets, how much is still required to get? You know, we've been hearing some talk that some of the banks may be closed to the shipping markets through year end, giving some of the subprime worries.

First of all, about the debt. We have managed to secure debt financing for almost all of the ships; for five out of the six of the vessels. And we are in discussions with another bank to also secure financing for the last drybulk, which is not going to be delivered before March of next year. We are also likely to negotiate very good terms, considering the credit terms and all that. So as far as debt is concerned, we have managed to secure that.

In addition to that we have also paid down 10%, which is the deposit for these vessels. And we expect to start taking delivery, as Evangelos said before, next week for the first one and we expect the remaining equity to be necessary this year for another $25 million. And then the first quarter of the following year we will have about another $70 million required for equity purposes for these ships. Don't forget it is a $370 million acquisition.

Okay. As we look at the forward drydocking schedule now that it is going to be expanded, it is a little more significant in the P&L. What's the schedule for drydocking, and if you can, give us price [to us and heavy] for the fourth quarter in 2008, number of days and anticipated cost?

Yes. We have one Suezmax that is going to be drydocked in December and it's going to go well into the first quarter, that's the Endless. And once again we have the Limitless, in 2008. So we have three Suezmax drydockings in 2008, of special surveys. But we do not anticipate the cost to be significant because it is in a very good condition. And two of the Handymax to be in drydock in 2008.

Now, we expect the total days for 2008 to be around 100 off-hire days in drydock, and the cost to be approximately $8 million to $9 million, depending on the extent of the works.

The good thing is that with the new accounting policy, obviously the unamortized portion that was carried forward is significantly higher than the amount that we expect to incur. So most likely, as I said before, it is going to have a credit effect to our EPS for 2008 and 2009. We can't really tell you how much right now, but it's certainly going to be a credit.

Okay. And on the new drydockings, are you still doing those primarily in China or have you shifted out of there, given some of the delays you've had in the past?

It really depends on what exactly the work that needs to be done includes. So China was always preferred if we had vessels with a lot of renewal that could be done. Other than that we usually pick the Black Sea or the Greek shipyards. Then, of course, it is also very much depending on the trading area of the vessel. If it is in the Far East [continent] you are hardly going to pick the Persian Gulf for a refit.

Right, one last one. Have you found that there have been more extensive delays in the Chinese yards, or more difficult to get drydocking berths available, given that some of those births may be used for conversions of tankers now rather than just pure drydocks?

Of course it is -- still not [conversion]. Since it is in the interest of new building orders, especially with the dry -- where it is today where new buildings in [dry sectors] have boomed. So definitely the shipyards' availability worldwide, not only in China, is probably even worse than when we were really having the big ones, if you remember last year. So the situation with the shipyards worldwide is definitely not good.

All right. Thanks a lot, Evangelos and Stamatios.

Thank you.

Pleasure, sir.

Our next question comes on the line from [Bill Fraser], with Greenhill and Company. Please proceed with your question.

Yes, gentlemen. This current quarter it looks like we had a number of off days and I was wondering if that was due to drydocking or some other reason?

It was mostly for drydocking.

Mostly for drydocking. And did you just say before the last question that there will be about 100 days off-hire in the fourth quarter?

No, in the fourth quarter we expect to have approximately 60 days to be off-hire.

60 days off-hire. Okay. The three drybulkers that are coming in, I think you said one is next week. When do you anticipate the other two being delivered?

One is -- this year is three. We have another three next year.

Right.

The total requisition is six. The first one coming on Monday, like I said, or maybe Tuesday at the latest. And the other ones are in December, I don't know the exact dates yet, it's too early to tell. And then we have the first quarter of 2008, we have another three.

And finally, everything is in place as far as this year's acquisitions?

Yes, yes ,of course, yes. They are completely, totally in place, yes.

Have you given any thought of locking in some of the Suezmaxes to longer time charters or are we going to stay on the spot market?

Yes, I have given a lot of thought on that. And it's really -- you know, when the market is low it's not easy to enter into any [greater] time charters. I agree some time charters would make sense. Any [inaudible] that comes out onto the market we follow, then we are going to be participating in it, and if we make it at the numbers that we want to make it.

It appears --

Like we already have --

-- fairly high for the Suezmax tankers. Or is it market price?

Sorry, what did you say about the value?

Have you given any thought about selling some of the Suezmaxes and ploughing the money back into the dry sector? I mean, ultimately where do you want to be?

Obviously, we have thought of all these things. We are trying to adapt as quickly as we can as a management team to changes that are shaping the shipping industry. We have thought of that. We have thought also of working on maybe converting some of the Suezmaxes into dry, which is something that makes sense these days. And we are also looking at other alternatives to further improve the company's performance. We have not really concluded anything, that is why I can't really tell you exact specific things, but to fix the first, drybulk ships are definitely moving to the right direction.

Okay, thank you very much.

Thank you.

There are no questions at this time, but as a reminder, (OPERATOR INSTRUCTIONS).

Our next question comes from [John Allen] of [Future Oaks]. Please proceed with your question.

Yes, can you tell me, on a longer-term basis, what asset mix you want to have between drybulk and oil or product tankers?

What assets would we prefer to have?

What asset mix? In other words, you're converting some of your ships to drybulk, and acquiring drybulk carriers. Ultimately are you looking at 60-40, 20-80, 70-30? What kind of mix between drybulk and oil products?

That is a good question and it's really depends on what kind of leads we will be coming across the next year, if you want a year or two. So it is a very difficult thing to answer. Definitely we would definitely like to keep it to the 50-50 if we can. This was our intention since two years ago. If you remember we tried to do the [non-cost fleet] in 2005, which would of course have proven to be a great deal but it wouldn't take place at that time for a variety of reasons.

So the strategy would definitely be to have two fleets rather than one.

But you don't have an overall thought process right now in terms of either short term or intermediate term, what mix you want to have between the oil sector and the drybulk sector?

Yes, we would like to get it to 50-50, like I said, as quickly as we can, but I can't really tell you when that is going to happen.

Okay, thank you.

Thank you.

(OPERATOR INSTRUCTIONS).

There are no further questions at this time. I would like to turn the phone back over to management for closing comments.

Thank you, operator. That concludes 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 conference call. Thank you and have a good day. Ladies and gentlemen, you may now disconnect your lines.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.