Euroseas Ltd.
Q2 2013 Earnings Call Transcript

Published: 13 Aug 2013

[Operator:]

Thank you for standing by ladies and gentlemen, and welcome to the Euroseas Conference Call on the Second Quarter 2013 Financial Results. We have with us Mr. Aristides Pittas, Chairman and Chief Executive Officer; and Mr. Tasios Aslidis, Chief Financial Officer of the Company. 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). I must advise you the conference is being recorded today, Tuesday, August 13, 2013. Please be reminded that the company announced their results last night after the market closed in New York with a press release that has been publicly distributed. Before passing the floor to Mr. Pittas, I would like to remind everyone that in today’s presentation and conference call, Euroseas will be making forward-looking statements. These statements are within the meaning of the Federal Securities Laws. Matters discussed may be forward-looking statements which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to slide number 2 of the webcast presentation, which has the full forward-looking statement and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. I would now like to pass the floor to Mr. Aristides Pittas, Chairman and Chief Executive Officer of Euroseas. Please go ahead, sir.

[Aristides Pittas:]

Good morning and thank you for joining Euroseas for our conference call today. Together with me is Anastasios Aslidis, our CFO. The purpose of today’s call is to discuss the financial results for the three and six month period ended June 30, 2013. Let us turn to slide three for our second quarter and first half ended June 30, 2013 financial results overview. For the second quarter of 2013, we reported total net revenues of $9.6 million. The net loss for the period was $8.9 million or $0.20 loss per share basic and diluted. The results for the second quarter of 2013 include a $0.4 million unrealized gain on derivatives, a $0.4 million realized loss on derivatives, and $3.2 million loss on sale of a vessel. Excluding the effect on the loss for the quarter of the unrealized gains the realized loss and the loss from the sale of a vessel, the adjusted net loss per share for the quarter would have been $5.7 million or $0.12 loss per share basic and diluted. Adjusted EBITDA for the second quarter of 2013 was minus $1.0 million. We declared a quarterly dividend of $0.015 per share for the second quarter of 2013, payable on or about September 11, 2013 to shareholders of record on August 31st. This is the 32nd consecutive quarterly dividend declared. Our balance sheet currently remains strong with about $34 million of cash and the debt-to-market value of the fleet ratio of about 20% to 25%. For the first half of 2013, we reported total net revenues of $20.5 million. The net loss for the period was $13.5 million of $0.30 loss per share basic and diluted. The results for the first half of 2013 include the $0.9 million unrealized gain on derivatives, a $0.9 million realized loss on derivatives and the $3.2 million loss on sale of the vessel. Excluding the effect of the losses for the first half of 2013 of the unrealized gain, realized loss and loss on the sale of vessel, the adjusted net loss per share for the six months period would have been $10.3 million or $0.23 loss per share basic and diluted. Adjusted EBITDA for the first half of 2013 was minus $1.1 million. In total, we declared two quarterly dividends of $0.03 per share during the first half of 2013. Please turn to slide 4. For the last seven years, we've been loyal to our strategy of declaring meaningful dividends which represents a yield of between 5% to 12%. Despite the continued challenges in both the drybulk and container sectors in which we operate we felt it is right to maintain our dividends at current levels since we expect the markets to start improving towards the end of the year and certainly within 2014. The dividend of $0.015 per share that our Board declared for the second quarter of 2013 represents an annual yield of 5.7% from the basis of our stock price on August 9, 2013. On slide 5 we provide our fleet developments and operational highlights. We anticipate that the gradual recovery in the container and drybulk sectors will carry on for the remainder of this year and into 2014. With containerships and drybulk prices at or near all time low levels, we believe it's an opportunity for Euroseas to take advantage of investments and fleet replacement at minimal capital cost. On this front, we sold for scrap one of our oldest assets, the 1990 built 950 teu multipurpose vessel M/V Anking for approximately $3.7 million and replaced the vessel with the 1,738 teu geared vessel M/V Joanna, which is nine years younger almost twice the size of the Anking and more attractive commercially, for approximately $5.9 million, over an incremental investment of about $2.2 million. The Joanna is currently employed till April 2014, and $7,500 per day. Our other vessel transaction is the sale of our oldest drubulk carrier M/V Irini for about $3.9 million. Our intent is to replace this with a younger vessel. We have been able to find charters for all of our ships that opened up during this quarter and currently have all our ships fully employed. Specifically, with a charter for periods ranging between five to 12 months and three containerships which opened up at rates between $6,750 per day and $8,000 per day; i.e. we started the Evridiki, the Manolis which recently passed an intermediate survey and the Ninos. We have extended the drybulk vessel Monica P charter immediately after its drydock during months of April of this year. Our employment strategy remains to renew our fleet and short term charters, until the drybulk and containerships markets recover further. Our current fleet is shown on slide 6; following the vessel transactions mentioned on the previous slide, we have now 14 ships, including four dry bulk vessels and 10 containerships. On slide 7 you will find an overview of Euromar, our joint venture with Eton Park Capital and Rhône Capital. On this slide, we list the Euromar fleet of 10 geared intermediate and handysize containerships with an average age of about nine years and the total carrying capacity of over 24,000 TEUs. The full amount of the $175 million committed to equity, of which $25 million was from Euroseas has been injected into the company. Euromar is sitting on a cash pile of about $46 million and will be able to purchase an additional two to four vessels. Let's move to slide 9 for a brief overview of the market. Since our last conference call in May, there have been some positive developments in the U.S. that seem to mitigate the political and economic uncertainties. Analysts have revised their estimates upwards for the U.S. as the fiscal cliff [widely subside], as the U.S. continues its progress to become energy self sufficient. The Fed has begun talking about scaling back quantitative easing is also longer term positive, as it indicates that we believe in the strengthening of the economy. Still on the negative side is that European exports have declined and hopes for a revival in European growth is postponed till after the German elections next month. However, as we reach closer to that date, there are quite a few analysts predicting that the real recovery will follow, despite debt issues. The emerging markets growth is still shaky. BRIC countries outlook has been revised downwards due to weak demand in the developed world, but also slow internal consumption growth than previously forecast. As we can see in more detail in slide 10; according to the IMF projected GDP growth in 2013 and 2014 is now expected to be slightly less than what it was expected three months ago. Only Japan is now expected to do better, due to the overall success of [economics] [ph]. China is now expected to grow by about 0.5% lower than previously, but the 7.7 to 7.8%, this actually remains quite healthy. The 3.1% current world growth global projection is in line with 2012 growth. Further out, in 2014 and 2015, the global economy is projected to be growing at a healthier rate of 3.8% in 2014, and 4.4% in 2015. As mentioned numerous times, GDP projections are strongly correlated with drybulk and container trades, especially the latter. On the bottom of slide 10, you will find that Clarksons' projection point the drybulk growth to be at a healthy 5% in 2013, unchanged from the previous estimate. On the other hand, Clarksons' containerized trade growth forecast in 2013 was revised slightly lower to 5% from the previous estimate of 6%. The continued weakness in the Eurozone economies is the main reason for the lower container trade growth, although it is still expected to be higher than last year's disappointing 3.2%. Again, for 2014 and 2015 growth seems more promising. Against this demand background, we have to also look at ship supply. Let's turn slide 11; the delivery schedule for drybulk vessels in the beginning of 2013 stood at 14.9% of the fleet. This does not take into account cancellations, slippage, and scrapping. It is generally difficult to quantify how much of the order book will finally get delivered this year, but today you can see from the chart, that the number of vessels actually delivered is at the rate about 30% lower than what was projected at the beginning of 2013, due to the poor market and the lack of financing. For 2014, the current total order book stands at only 5.4%, which is a significant improvement over previous years and points to a stabilizing drybulk sector. Of course 5.4% is not going to be the actual number, when you factor in slippage from 2013, but we still expect the order book in 2014 to be at its lowest growth rate in a number of years. Please also note on the left hand side of the slide, that the percentage of the fleet that is over 20 years old is still quite high at 9%. Scrapping should enhance the fleet balance relatively quickly, if rates remain low for the next few months. Let's turn to slide 12; just as we pointed out in the drybulk order book, the containership delivered so far in 2013 is lower than what was originally projected to be 11.3%. We still expect that there will be close to 20% slippage and cancellations here as well. Thus bringing the actual 2013 deliveries lower than the current forecast. The 2014 order book at just 7.5% is at historically low levels and also points towards a recovering market, if significant new orders are not met in the coming months. Please note that the existing order book is heavily skewed towards the larger ships. However, cascades happen and happen fast, which implies that rates of all sizes move somewhat in parallel. Let us turn to slide 15 to summarize our views of the markets beginning with drybulk. We had a relatively good market performance during the second quarter of 2013, with the Drybulk Index up around 25% due to the surge in capsize rates, which increased from around $5,000 per day to above $10,000 per day and even higher lately, as we have seen Q4 trade up to $19,000 per day on paper. Despite the volatility, Panamax rates have not changed from Q1 levels, and supramaxes has moved sideways between $9,000 to $10,000. All-in-all we expect the second half of 2013 to be better than the first six months of 2013. Second Hand asset prices also improved during Q2 by around 20%-25% for 10-15 years old vessels and around 10% for younger vessels. N/B prices seem to have bottomed out and the recent trend indicates increases in the region of 10%. The orderbook during Q2 has risen considerably adding about 14mdwt during the quarter, about 2% of the global fleet and there is still significant appetite for 'eco' vessels. Deliveries by yards are now offered for Q4 2015 onwards. We are somewhat worried about owners placing new orders that may heavily impact the supply side in 2016 onwards and rates put a little we expect to the covenant, still though we have not reached that level. For the fact that the freight rate environment is still very low and financing difficult offset the eco premium that the yards are advertising in our opinion more aggressively than warranted and consequently we hope that over order does not occur. That's for the containership market and rates have shown encouraging improvements especially on the smaller geared sizes in the range of 15-20% however, supply demand curve seems to find the balance and the further push requires as manifestation of an improving global economy. Speculator of small line of companies noticing the all time of low time low prices have bought a few ships suggesting that the asset prices are on the increase again in the region of 25%-30% mostly for older vessels. Younger vessels have similar increases but fewer transactions to demonstrate it. N/B prices here as well seem to have bottomed out and the recent trend indicate increases in the region of 10%.Appetite for new orders was very strong during Q2 with owners placing around 500k teu of new orders which about 2.5% of fleet, almost exclusively this increase was in the large size with 8,000 to 9,000 teu tonnage dominating the orderbook as having the perception of usually become the world courses for the future. Let's turn to slide 15 to discuss our drybulk employment in more detail. Our drybulk covenant for the remainder of 2013 currently stands at 75%. Beside from the Eleni P currently on the [Baumarine Pool] it will guarantee employment but the [flex rate is corporate] or rather three trade drybulk vessels are secured for the remainder of the year. Let's turn to slide 16. as far as our containerships we currently have about 80% covenants for 2013, we are continuing a strategy of employing our vessels in short term cycles between 6 to 12 months in anticipation of the market improvement, only there are best is expected to open towards the end of the current quarter and we are already in discussion for a possible extension for slightly higher number Please turn to slide 17, Through Eurobulk, our manager, we have been able to continue to keep our cost very low. The graph on this page compares our daily costs, excluding drybulk expenses since 2008. Overall, our costs remained amongst the lowest of the public shipping companies. We are very proud of this performance especially as it is in conjunction with fleet utilization in excess of 98.5% over the last five years, a level similar to that of our peers despite the fact that the average age of our fleet is higher than most of the other listed companies. In this quarter in particular, our commercially utilization was down to 90.6% because of the signing two closed the agreement regarding the sale of Anking and the Irini. These ships were ideal waiting to be delivered for the bigger part of the quarter, excluding this one off event our commercial utilization which have been in excess of 99%, our daily cost per vessel for Q2, 2013 are generally in line with our budget in the previous years. Let's now turn to slide 18, the left side of the slide shows the evolution of time charter rate for Panamax drybulk ships and container of 1700 teu since 2001. After seven years when drybulk ships were relatively more than containerships both segments are now running similar rates again. This was mainly due to the Chinese bulk demand boom and without such variance will be seen against soon in the absence of the further bulk commodity push. The right hand side of slide 18 shows current values in the relations to historical prices, Panamax prices are currently below the average of 2000-2012, and we would expect these values to improve towards the historical average as charter rate continue to recover. Containership values have also been weak and they are only above the recent historical lows. Here again we would expect prices to covers with historical average as the global economy improves. And as already discussed we have started our fleet renewal program by replacing our well distant slightly odd sized containerships with the younger and more efficient vessels. We shall soon also be replacing the oldest drybulk eco fleet we just sold with a younger one. We will probably enter into other similar transaction in the next six months always making sure we do not over extend ourselves as our priority has always been to maintain strong balance thus assuring the long -term prospects of our company. In that respect t, the total liquidity we currently plan and investing is between $15 million and $20 million. With that I will pass the floor over to our CFO, Tasios Aslidis to take you through our key financial in a bit more detail.

[Anastasios Aslidis:]

Thank you very much, Aristides. Good morning, ladies and gentlemen from me as well. I will now provide you with a brief overview of our financial results for the three and six months period ended June 30, 2013. For that, let’s move to slide 20, and start with our second quarter 2013 results in comparison to the same period of 2012. I will go over here some of the same figures which Aristides gave you in the beginning of the presentation. Specifically for the second quarter of 2013, we reported total net revenues of $9.6 million representing a 25% decrease of a total net revenues of $12.8 million during the second quarter of 2012. We reported net loss for the period of $8.9 million as compared to net loss of $1.4 million for the second quarter of last year. The results for the second quarter of 2013 include a $0.4 million unrealized gain on derivatives, a $0.4 million realized loss on derivatives, and $3.2 million loss on the sale of a vessel as compared to $0.3 million realized gain and $0.4 million realized loss on derivatives for the same period of 2012. Excluding the effect on the loss of a quarter of the unrealized gain on derivatives, the realized loss on derivatives and the loss on the sale of the vessel, the adjusted net loss per share for the quarter ended June 30, 2013 would have been $5.7 million or $0.12 net loss per share basic and diluted compared to a net loss of $1.3 million or $0.4 per share basic and diluted for the same period, same quarter of last year. Our adjusted EBITDA for the second quarter of 2013 was negative one million compared to $3.4 million achieved during the same quarter of 2012. As Aristides has mentioned earlier, we declared a quarterly dividend of $0.015 per share which is a 32nd consecutive quarterly dividend declared since the company accessed the capital markets in August of 2005. On the same slide, we provide our first half 2013 results as compared again to the same period of last year. For the first half of 2013, we reported net total revenues of $20.5 million representing a 23.3% decrease over total net revenues of $26.7 million during the first half of last year. We reported net loss for the period of $13.5 million as compared to net loss of $10.4 million for the first half of 2012. The results for the first half of 2013 include $0.9 million unrealized gain on derivatives, a $0.9 million realized loss on derivatives and $3.2 million loss on the sale of the vessel as compared to a $0.4 million unrealized gain on derivatives and trading securities, $0.9 million realized loss on derivatives and $8.6 million loss on the sale of a vessel for the same period of 2012. Excluding the effect on the losses for the first half of 2013 of the unrealized gain on the derivatives - realized loss on derivatives and loss on the sale of a vessel, the adjusted net loss per share for the six month period ended June 30, 2013 would have been $10.3 million or $0.23 per share basic and diluted as compared to a loss of $1.4 million for last year or $0.04 per share basic and diluted. In the first six months of 2013, we declared total of $0.03 per share of dividends. Let's now move to slide 21, which shows our fleet performance for the second quarter and first half of 2013 again in comparison with the same periods of 2012. As usual we have broken down our fleet utilization rate into commercial and operational. First the second quarter 2012, we reported a 90.6% commercial utilization rate and the 99.8% operation utilization rate as compared to 99% commercial and 99.5% operational utilization rates for the second quarter of last year. Our utilization rate calculation does not include vessels in drydock or in schedule repairs during the reported period. In the second quarter of 2013, we operated 14.96 vessels share into time charter equivalent rate of $7,700 per vessel per day which represents a decrease of about 21% compared to the time charter equivalent of $9,750 per vessel per day that we have achieved during the second quarter of 2012. A period during which we operated 15 vessels. Total daily operating expenses including management fees general and administrative expenses but excluding drydocking cost averaged $6,115 per vessel per day during the second quarter of 2013 as compared to $6,072 per vessel per day for the same period of last year an increase of about 0.7%. Overall, we believe we should continue to maintain one of the lowest operating cost structures amongst the public shipping companies, and we think that this is one of our main competitive advantages in the business. Let's look now at the bottom of this table to our daily cash flow breakeven level for the quarter, presented here on a dollar per vessel per day basis. We reported for the second quarter of 2013 an operating breakeven level which includes loan repayments of approximately $11,249 per vessel per day as compared to approximately $9,108 per vessel per day in the same period of 2012. Moving on the right hand side of the slide, we can take a look for our figures for the first half of 2013 in comparison to the same period of last year. We reported a 95% commercial utilization rate and the 99.3% operational utilization rate as compared to 93.3% commercial and 99.5% operational utilization rates for the first half of 2012. Again as mentioned earlier, our utilization rate calculation does not include schedule drydock or schedule repairs. In the first half of 2013, we operated 14.98 ships, 70 time charter equivalent of $8,256 per vessel per day which again represented the case of about 21% compared to the time charter equivalent of $10,431 per vessel per day that we achieved during the first half of last year. A period during which we operated 15.4 vessels. Total daily vessel operating expenses again including management fees and general and administrative expenses but excluding drydocking costs averaged $6,192 per vessel per day during the first half of 2013 as compared to $6,028 per vessel per day for the same period of last year a 2.7% increase. Let's look at the bottom of this table to our daily cash flow breakeven for the first half of 2013, which again represent here on a dollar per vessel per day basis. We've reported in 2013 an operating breakeven level again including loan repayments of approximately $10,358 per vessel per day compared to $9,313 per vessel per day in the same period of last year. Let's move to slide 22. This slide shows the expectation of our cash flow breakeven levels over the next 12 months from the right part of the slide, and from the left part of the slide we show our schedule debt repayment including schedule balloon of the payments. As you can see from the chart on the left side for the slide in 2012, we had $13.4 million of total debt repayment including balloon repayment. In 2013, we are schedule to make about $11 million of loan repayments and additional $4.9 million of balloon repayments. I am going to add here the two of our facilities were extended for two year period as well as their balloon payments of $5 million originally due in 2013 were pushed out by about a year. Our loan and balloon repayment over the next 12 months produced a $3,500 per vessel per day contribution to our cash flow breakeven level as we see on the last line of the table on the right part of the slide. Of that $3,500 about $1,500 is for balloon repayment that we might able to reschedule. After making assumption for other elements of cost flow breakeven level such as operating expenses, administrative cost, interest and drydocking which have come to be estimated cash flow breakeven level over the next 12 months of about $11,300 per vessel per day including balloon repayment for about $9,800 per vessel per day without balloon repayments. Let's move to slide 23, and as usual let me give you some highlight from our balance sheet. As of June 30th, 2013, we had cost of $23 million unrestricted and restricted cash of about $10.9 million for a total cash of little more than $34 million. This cash balance translate to about $0.79 per share, a figure which I would like you to compare to the closing price of our stock of last Friday which was $1.03 per share. Our debt including the current portion of it is about $54 million resulting in a debt to capitalization ratio of just below 22%. The ratio for our debt to the market value for a fleet comes in the range of 60% to 65%, and our net debt that is debt less cost as a ratio to the fleet to the market value for a fleet is in the range of 20% to 25%. We are in compliance with all of our loan covenants as we enter June 2013. Looking forward, we estimated we can allocate about $15 million of our cash for a fleet renewal and acquisition program. This is on a accounting for the $5.3 million we spent after we enter the quarter to make the remaining payment for the acquisition of Joanna the containership we bought to replace Anking and also the $3.8 million of net proceed we collected from the sale of Irini. In addition, as Aristides mentioned earlier we can pursue our positions most likely containerships utilize funds as Europe market is still available for investment which are in the tune of $35 million. And with that let me pass it back to Aristides to conclude.

[Aristides Pittas:]

Thank you, Tasios. Let me open up the floor for any questions we may have.

[Operator:]

(Operator Instructions) You have a question from Wells Fargo from Michael Webber. Please ask your question sir.

[Michael Webber:]

Hi, good morning guys, how are you?

[Aristides Pittas:]

Hi, Mike, how are you?

[Michael Webber:]

Good. I just I want to talk a little bit about the drybulk market to start off with. You guys obviously have been pretty active replacing some of your older tonnage with newer assets for the last several years, but it looks like year-to-date we've seen a bump in – definitely a bump in new build values, and but also an uptick in second hand prices as well though we haven't really seen the corresponding move in long-term charter rates which is a bit worrying that that asset outside is being driven mostly by speculation more than anything else. They could play out or could not. I just well kind of want to know your take and I know you kind of touched on it different points in your prepared remarks just on the year-to-date movement and kind of an improvement and optimism around the drybulk space and whether this degree of assets outside is really warranted yet or whether you’d be more comfortable once we see an actual improvement in kind of operator’s expectation via long - term employment

[Aristides Pittas:]

Yes. I have been surprised a bit by the recovery in the charter rate that we showed you in the summer. I mean the summer is traditionally a slow period, a very slow period and we've seen of course mainly for capesize vessels we've seen a very significant improvement in the market. And in the beginning of the year we all thought that the cape market would be very subdued, there were many ships coming in, the economy wasn't doing that well. We felt that those ships would not be absorbed and we would have a very poor market. This was proven not to be the case despite the big number of ships that have come in, charter rates are improving in the capesize sector. The Supramax sector has remained strong relatively strong throughout the year; all the ships always find their employment relatively easily. And it’s only been the Panamax that has been weak and flat at times but when the grain season is strong you see the market improving rapidly. So, overall we see that the market and the demand is quite strong, stronger than we thought it would be and is absorbing the huge number of deliveries. And certainly for 2014, and the bigger part of 2015, we know that the number of ships that will be delivered will not be huge. So, we do expect the next 18 to 24 months will be better than where they are right now and I think this is what the market is seeing and deciding let's go out and buy ships now, they are anyway at the lowest price they could be let's go out and buy. I think that we would probably see a recovery in the rates within the next 18 months or so.

[Michael Webber:]

Right, okay so there is a movement in net values, you are comfortable with that movement still buying in the market because we are near cyclical lows still and you do expect that long term employment that three and five year contract rates to start inching up to kind of justify the [multi asset][ph] values

[Aristides Pittas:]

That's what we think. That's what we think. I mean of course values cannot go too much higher because we don't expect the recoveries to the levels we saw during the super cycles right. There is capacity to build ships, and ships are going to be built and really the question mark to us is what happens in 2016 depending on how much new orders have been placed. But for 2014 and 2015, we feel that as long as the global economy does as the analysts are suggesting is going to do, i.e. a little bit better, we should see a little bit better charter rates as well.

[Michael Webber:]

Right. And Aristides you mentioned in your prepared remarks too that you are starting to delivery windows for dry out in the 2015 and towards the end of 2015, but when you look at the nominal or whatever numbers I mean we've got only about 30% and kind of on a order relatively to kind of peak global production year I think it was early 2012 actually, so it seems like there is certainly a lot of surplus shipyard capacity kind of on the sideline so that long delivery window is a bit striking when you actually look at the fact that they are on a [inaudible] percent year-over-year there’s not that much still on order. So I guess the idea being that your only saying it's kind of selective slots being marketed by the shipyard. In your experience when you look at kind of the supply dynamic over the next two to three years and the idea that some will replace the dry bulk order for 2015, how close are we to a tipping point where we start seeing some of these Chinese yards start marketing some of the slots they’ve held back to prop up prices or we started seeing some of that surplus yard capacity come online because it’s certainly been there in the past. Just how you think about that?

[Aristides Pittas:]

Yeah I think that the possibility of some of the second tier Chinese yards returning into the markets, it is not really there yet. I mean we all believe that the shipyards are not really making huge profits at this time at the prices in which ships are being built. Definitely the fact that we see prices of ships increasing by I would say another 10% during the year indicates that the yards are being able to fill the immediate positions and have filled their immediate positions so they can push for some increases. But in order to see second tier shipyard start building ships again and attract interest I think we need to see a further push in new built prices which I’m not 100% sure that we will see. It really depends on the appetite of owners to put new orders on. But really genuinely you know we have been talking to yards and we feel that to get anything delivered within 2015 you’re going to be need to be paying a premium to wait into 2016. And I don’t think there is too much appetite to do that.

[Michael Webber:]

Right basically it comes down to the margins that these yards and when they hit that kind of inflection point to at which point they will start opening up additional slots. And I mean I know this is a very difficult question to answer because it's not really the market you are guys are playing in right now. But how close do you think we are to that point maybe on a percentage basis maybe just kind of a best guess?

[Aristides Pittas:]

Yeah, Mike I think we are quite far, I mean the previous time when we saw China shipyards opening up, new yards opening up and all that stuff prices were much, much higher for ships. So I think we do need to see prices increase by at least another 10% to 15% before some more yards start becoming really attractive and marketing strongly. I think we're not there yet.

[Michael Webber:]

Got you, all right. And just maybe just shift gears for a second and talk about containerships. I was looking at the slide you guys put together on page 18 just kind of showing Panamax and then current values if you look at the fleet within the JV I mean its pretty heavily weighted towards the intermediate term carriers versus the smaller handies which are going to be below 2000 teu. I am just curious in terms of making that kind of investment decisions intermediate versus handies, is there something driving that higher concentration intermediate term carriers or is that really just a function of what’s in the market and what you, what’s looked attractive today. And it did strikes me if you get below the 2000 teu range you might be more insulated from any sort of cascading and then you certainly do not have the order books that you’d see anywhere else and this charter carrier is the worst kind of an the biggest investment driver for that mix.

[Aristides Pittas:]

I think we have there’s really no crystal ball as to which size is going to do better. And we definitely believe that because cascading effect results in rates moving largely parallel for the various different sizes of ships. So I don’t think there is a huge, huge difference there. We would definitely avoid ships below 1000 teu because we think there is nowhere they can cascade to. But between 1000 and 3000 teu geared ships I think it is not very easy to make a guess obviously in the better markets the bigger ones will be doing better in the worse market the smaller ones is the smaller capital outlay and they probably on very similar amount about of money

[Anastasios Aslidis:]

Only add that I mean the gearing provide some protection to the cascading and the largest gearing ships are probably the safest segment to benefit from cascading down. And then be protected from the largest ship cascading going –

[Michael Webber:]

Yeah, they are pretty similar that's the best we are getting pretty specific within different quite so just curious as they were something operationally that was may be driving a decision that we were speaking about. One more for me and I will turn it over and I will hop, but it's more kind of just macro question I mean we cover from under rival mains and very few if any are as healthy as you all are and you get from an operational perspective your cost are well inside the rest of the group despite an older fleet, if you look around and some of these ships just rest fleets now, is there any interest in potentially stepping up and doing something on the larger side from M&A perspective and may be kind of coming to better you way could actually answer but do you guys get approached around operating and kind of coming into take over larger fleets given the fact you have got strong financial partners, you got a great operational background and you have certainly have a platform to come in and more effectively run some of these fleet, I am just curious whether that's on your radar or not or if it has been and it's not now and why?

[Aristides Pittas:]

This is something that we have looked at in the past but to be very honest we've been disillusioned to an extent because there is great reluctance from most of these companies which are relatively small but have very poor balance sheet to try and do something in conjunction with others. So something that we have had some discussion in the past with the few people. Nobody wanted to do that. Most of these people are facing very difficult situations right now but still they are not willing to come to discuss.

[Anastasios Aslidis:]

And also the point of the banks as long as this trade is market driven there is nothing wrong with the management of the company or with the structure. I mean there is an great incentive for the banks to force merger or change

[Michael Webber:]

Right. I guess that's the angle I was coming was the bank coming to you all and taking a couple of statistics specifically that I won't mention specifically but were there is a rationale for coming in and having you operators and then finding some of us able to generate outside returns with those assets so, coming out more are you guys being approached by banks basically but -

[Anastasios Aslidis:]

It is clearly sometimes we believe in our strength and if a situation emerges we can definitely add value by managing larger company

[Aristides Pittas:]

We have had some discussion with the KG related companies in Germany on the container side but nothing really to report on.

[Michael Webber:]

Okay, all right. Well, I have been up lot for the Q&A, I will hop off and thank you guys for the time. I appreciate it.

[Aristides Pittas:]

Thank you very much, Mike.

[Operator:]

(Operator Instructions) There are no further questions. We now pass the floor back to Mr. Aristides Pittas for closing remarks.

[Aristides Pittas:]

Well, thank you all for listening into today's some of holiday period results. But we will be review in three months' time and we will take you through our third quarter results then.

[Anastasios Aslidis:]

Have a nice day everybody

[Operator:]

And with management's (inaudible) speakers, that does conclude our conference. Thank you for participating. You may now disconnect.