Safe Bulkers, Inc.
Q1 2013 Earnings Call Transcript

Published: 16 May 2013

[Operator:]

Thank you for standing by ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss financial results for the first quarter 2013. Today we have with us from Safe Bulkers, Chairman and Chief Executive Officer, Polys Hajioannou; President, Dr. Loukas Barmparis and Chief Financial Officer, Konstantinos Adamopoulos. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) Following this conference call, if you need any further information on the conference call or on the presentation, please contact Matthew Abenante at Capital Link at 212-661-7566. I must advise you that this conference is being recorded today, Thursday, May 16, 2013. Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the Securities Exchange Act of 1934, as amended, concerning future events, the company’s growth strategy and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters. Words such as expect, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are intended to identify forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Company. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include but not limited to changes in the demand for drybulk vessels, competitive factors in the market in which the company operates. Risks associated with operations outside the United States, and other factors listed from time to time in the Company’s filings with the Securities and Exchange Commission. The Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based. And we now pass the floor to Dr. Barmparis. Please go ahead, sir.

[Loukas Barmparis:]

Good morning. I’m Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast. Let’s move on to discuss the financial results for the first quarter of 2013, which were announced yesterday after the close of the market in New York. In slide 5, we present the average 4TC Baltic Cape and Baltic Panamax index. Panamax rates were supported by increased by exports of grain from South America. On the contrary for Capes, market has been trading at very low levels through the past period which in many cases are lower than operating expenses. In the lower part we present the values of secondhand Capes and Panamaxes as published by Baltic Exchange. Despite capital market position, consensus for the market prospects turning to positive have a renewed interest for quality second-half ships (inaudible) prices. Though prevailing low asset prices have caused some problem for shipping companies in relation to debt covenants and may lead to impairment losses. In slide 6, we see that there is still a substantial orderbook for 2013, going forward in 2014 and onwards the orderbook is substantially lower. The average age of the fleet is reduced due to numerous newbuild deliveries, and due to older vessels strapping. But still some 9% of the drybulk fleet is currently above 20 years old and a total of about 10 (ph) above 20 years old. Other grades of our vessels gone for scrapped is decreasing because of the current adverse market conditions in the form of scrap prices. Therefore a large portion of the total drybulk fleet to be candidates for scrapping. Delayed deliveries and cancellations affect the actual numbers as shown on slide seven 7. Lack of financing is an additional factor contributing to cancellations or delays. We have seen through in the past quarter that ships had canceled or delayed not only because of the inability of buyers to finance their projects, but also from inability of shipyards to seek good finance for vehicles with (indiscernible) actions to meet their contracted time schedule. For 2012 the number of deliveries late amounted to approximately 130 (ph) expected to continue in 2015. Furthermore, scrapping activity will lower the net fleet increase. For the first four months, scrapping activity has reached 9.3 million tons which in annualized term is a touch lower than the record year of 2012 when vessels gone for scrapping amounted to 35 million tons. This has developed a net fleet increase of about 16.4 million tons or 2.5 (inaudible) for the first months of 2013, in comparison to the net fleet increase of about 64.1 million tons (inaudible). In slide number 8, we present the real GDP growth as provided by IMF for the BRIC countries mainly Brazil, Russia, India and China which have the tonnage for seaborne trading. We know that India has been growing faster than currently at the rate of about 8.7. China though lower is growing with a substantial 8% which is expected to see (inaudible). The growth in modernization expecting to boost investment activity in drybulk commodities. In here the world seaborne trade in the bottom figure shows a constant increase for sea transportation as for the commodities by rate of 45% over the past year. (inaudible) expected over the forthcoming years which will have ships set and extend oversupply. In slide 9, we present the demand outlook for the major drybulk commodities ore and grain. On the graph on the top we present amount of iron ore exported by Australia and Brazil. Despite the negative trend at the beginning of 2015, you can see have been growing constantly over the past years and some is expected to continue especially on the drybulk on their economy. Grain exports from Australia and Argentina on the bottom of this slide show a very good grain exports from South America which (inaudible) with record exports of grain, valuable supporting charter rates on the Panamaxes. This impact might be seen during December months and -- balance oversupply. In slide 11, we present our fleet and orderbook. Safe Bulkers owns a fleet of 26 high specification vessels with an average age of 5.1 years and a contracted orderbook of eight newbuilds and one second hand vessel from top quality shipyards in Japan delivered through 2015. In slide 12, we provide certain information about Safe Bulkers. We would like to reiterate that management is fully aligned with our public shareholders. In slide 13. Through these years in the shipping market, we have navigated through many shipping cycles, gaining experience and proven track record, maintaining hands-on approach, which resulted in low daily operating expenses and high utilization ratios. We expanded our business sensibly to create value for our shareholders with whom we’re fully aligned. In the present prolonged adverse charter market conditions, it is prudent to maintain a strong balance sheet, liquidity and comfortable debt in compliance with loan covenants while rewarding our investors with regular payments of dividends. We have a substantial expansion through 2015 as presented in slide number 14. We invest mainly in newbuild shallow-drafted economical sister vessels in the low part of the shipping cycle. We manage actively our orderbook In these low price such an environment, we acquired a 2008 Japanese build Kamsarmax vessel at $19.4 million. I may remind we – last year two 2003 Japanese Panamax vessels, which have already been delivered to us, at 14.2 and 13.8 million. In addition we entered into two shipbuilding contracts with Japanese CPS for the construction of two eco-design deadweight tons. The first vessel is expected to be delivered to us on the second half of 2014 and the second – first half of 2015. Going to next to slide 15, we seek to employ our vessels in period time charters in order to have visibility of our future cash flow, while maintaining certain vessels in the spot market to have the flexibility that the spot market offers in low charter periods and upside potential when the markets improves. We have reduced our counterparties by agreeing to early deliveries of four vessels for which we will receive cash compensation of $24 million in total. We reemployed all redelivered vessels in spot and period time charter market. As presented in slide 16, we evaluate the performance of our chartering policy against the spot market, which we outperform most of the times. Over the years, we have established long-term relations with some of the most respected charters in the shipping industry. As presented in slide 17, all of our charters are performing. In slide 18, we show our daily operating expenses and management fees, public company expenses demonstrating our lean operations. On slide 19, we present the net debt per vessel together with the fleet expansion. We maintain low interest expense, as evidenced by our debt per margin levels. We will retain more earnings in the company to further strengthen our balance sheet and our liquidity. We intend to finance our new build programs from equity and debt, while we maintain a comfortable debt to asset ratio and comply with our financial covenants. On slide 20, we present our liquidity and our ability to finance our capital expense requirements. As of March 31, 2013, our liquidity was 162.5 million, while our capital expenditure requirements were 121.5 million. I have not included our operational cash flows, which is supported by our contracted period of time charters. We also have the ability to raise additional indebtedness against two existing and seven unencumbered contracted vessels upon their delivery us which will provide us with further financial flexibility. The excess cash and low charter markets can be used either for debt repayments in order to deleverage our balance sheet or to be used as equity for further expansion. On slide 21, we present historically our quarterly EPS and our quarterly dividends. Our Board has declared a dividend in the amount of $0.05 per share payable on the 7th of June. At this point, I would like to point out that as presented in slide 22, we remain committed to returning cash to our stockholders. We continue to actively manage our orderbook to selective reductions in newbuild acquisition costs, prolonging existing newbuild deliveries and opportunistically acquiring newbuilds and second hand vessels at attractive prices. We maintain our low financial costs by continuing to make attractive repayments to our banks in order to ensure compliance with our financial covenants. We have a lean and efficient cost structure in relation to operating expenses, management fees, and general and administrative expenses. We believe it is important to preserve liquidity in this environment as we aim to further strengthen our balance sheet and deleverage our company while maintaining the ability to make additional acquisitions in the depressed asset market timely for the next upward shipping cycle. Our Chief Financial Officer, Konstantinos Adamopoulos will now present in detail our financial results.

[Konstantinos Adamopoulos:]

Thank you, Loukas, and good morning to you all. Moving on to slide 23, we present the operating highlights for the first quarter of 2013 and 2012. As of 31st March 2013, we owned and operated 26 vessels and we achieved the utilization rate of 98.5% compared to 20 vessels and the utilization rate of 99.8% during the same period of last year. The average daily time charter equivalent per vessel for the first quarter of 2013 was $18,113 compared to $24,890 for the same period of last year. For the first quarter of 2013, daily running expenses decreased slightly by 6% to $4,412 compared to $4,715 in the same period of last year. Slide 24, illustrates the comparison of selective three months financial key points of our performance for the quarter ended 31st March 2013 and the respective figures of the last quarter of last year. For the first quarter of 2013 net revenues remained almost unchanged to $44.2 million from $44.1 million in the respective quarter of last year. Net income for the first quarter of 2013 was $16.1 million, a decrease of 25% from net income of $21.6 million in the same period last year. Adjusted net income for the same quarter of 2013 was $16 million compared to $22.9 million during the same period in 2012. The decrease in net income is mainly attributed to the net effect of the following factors. Net revenue of $44.2 million compared to $44.1 million, vessel earning expenses of $9.9 million compared to $8.1 million; depreciation of $8.8 million compared to $7.3 million; interest expense of $2.6 million compared to $1.8 million and adding delivery income of $0.1 million compared to a loss of $1.2 million for the relevant quarters of 2013 and 2012 respectively. EBITDA was $27.5 million for the first quarter of 2013, a decrease of 10% from $18.7 million in the respective period of 2012. Adjusted EBITDA was $27.4 million for the first quarter of 2013, a change from $31.9 million in the same period of 2012. Earnings per share and adjusted earnings per share for the first quarter of 2013 were $0.21 and $0.21 respectively calculated on the weighted average number of 76.7 million shares compared to $0.30 and $0.32 respectively in the first quarter of 2012 calculated on the weighted average number of 71.9 million shares. For a definition and reconciliation of EBITDA and adjusted net income, EPS and EBITDA, please refer to slide 26. Slide 25 presents a summary of our key financial figures during the first quarter of 2013 as compared to the same period in 2012. Our net revenue remained almost as same at $44.2 million from $44.1 million. Our adjusted net income for the first quarter of 2013 decreased by 30% to $16 million from $32.9 million during the same period of last year. Our adjusted EBITDA for the first quarter of 2013 decreased by 14% to $27.4 million from $31.9 million during the same period in 2012. Adjusted EPS for the first quarter of 2013 of $0.21 compared to $0.32 in the first quarter of 2012 calculated respectively on the weighted average number of shares of 76.7 million and 71.9 million respectively. In the second table in the bottom of slide 25, we see that the total debt as of 31st March 2013 decreased by 11%, amounting to $515.5 million as compared to $615.7 million as of December of last year. The result of our financial performance is clearly demonstrated by the company consistency in its dividend policy, maintaining a prudent and meaningful dividend throughout the last crisis, comparing to the vast majority of our industry peers. In slide 26, we present the reconciliation of our adjusted net income, EPS and EBITDA from net income. Turning to slide 27, the Company has declared for the first quarter of 2013 a cash dividend of $0.05 per common share, payable on June 8, 2013 to shareholders of record at the close of trading on May 27. This is the 20th consecutive quarterly cash dividend since our company’s IPO more than four years ago. Summing up our presentation on slide 28. Although market conditions at the moment are still challenging, we’re prepared as a long-term oriented company. We have been in shipping for more than 50 years, we know the industry and we believe in this industry. We actively manage our orderbook and fleet. As a result of our track record and reputation in the industry, we have developed strong long-term relationships with key shipyards, charters and banks in Japan, Europe and China. We have a reputation of operating excellence as reflected in our utilization rates and lower operating expenses. We maintain low financial costs as a result of our low spreads and prudent levels in compliance with our financial covenants. We actively manage our young shallow drafted fleet of 26 drybulk vessels, all of which are built post 2003. Our extensive charter coverage with established performing customers supports our strong balance sheet and liquidity, providing financial flexibility. We remain committed to a prudent dividend policy to reward shareholders through payment of dividends and at the same time ensure future expansion and deleveraging. Our contact details can be seen on slide 29. Thank you for listening. We are now ready to accept and reply to your questions.

[Operator:]

(Operator Instructions) Your first question comes from the line of Christian Wetherbee from Citi.

[Seth Lowry:]

This is actually Seth Lowry in for Chris. If I could start off, you guys have been pretty active in the first half of the year in restructuring charters. And I guess you still have a decent portion of your fleet that is on longer-term charters. I guess just simply, are all of those potentially fair game to restructure? Do you see it as advantageous to potentially go out and seek the arrangements that you have been getting in the first half of the year with the rest of them? And in particular, the two Capesize vessels on the longer-term charters.

[Loukas Barmparis:]

We are not going out seeking to get compensated for finalizing charters earlier than schedule but when we have addressed on the charter it makes sense for them to compensate us with a good part of 80, 90% of the outstanding amount and given the environment that we are working and what we are hearing from happening with other charters, so other people in our market. When we have such approach we should always sit down and consider and listen according to the situation, you know the market, it’s a lot easier for a charterer to do, of course it's much easier for somebody to do when there is six or 12 months remaining on a long term charter and of course it’s not so easy for some of these to do when there are eight or nine years remaining on a charter. So the company listened to proposals negotiated and I think we are in constantly – about to let $20.8 million and adding the 12 million at the end of last year total of $32.8 million of cash, I think it’s prudent strategy in today’s environment, it’s a prudent decision to collect almost $33 million out of cutting little bit shorter these charters.

[Seth Lowry:]

Sure, definitely. And I’d imagine it becomes a bit more attractive, too, when you are willing to be a bit more opportunistic in the market. And based on that, can you just give us some general commentary and color on your M&A appetite? I know you've been out in the second-hand market and also the newbuild market now. How much more do you think you can do with your current financing structure? And do you think it makes sense now to go out and tap additional external financing, whatever form that may be -- equity, debt; in order to go out into the market and keep building your fleet?

[Loukas Barmparis:]

I don’t think we will actually do many more things than what we have already done because as you see on page 14, we have growth – built in growth in the fleet. So currently we will end up with 27 vessels, already we have a step-up of fleet to 31 vessels in next year and 34 vessels in 2015. So we are very nicely positioned with really attractively priced, modern echo newbuild joining the fleet in what we expect to be a recovery of the market. So we are working (inaudible) need to do something. In the second half of last year we found really attractive second hand prices. So we decided to move that up and I think it was a good decision because right now we are hearing a lot of competition for second half ships. What we are pricing is generally 2 million per vessel higher than what we take (ph) in the end of last year and right now we found opportunistic on the Japan from a current shipyard in order to sell two bulks of their new design of very eco consumption. They gave us a very, very, low price including our high ships built in this cost. So we could really refuse this price but we are not hungry let’s put it that way. We are not hungry for more.

[Seth Lowry:]

So fair to say, you positioned your fleet for the recovery and any incremental uptick in fundamentals may then shift your focus from fleet growth to maybe potentially returning capital to shareholders? Is that the next focus point of the company now that you've positioned yourself in the right way?

[Loukas Barmparis:]

I think we are very well positioned and our debt is under control and the net debt conversion is steady as you see despite the growing modern fleet and works with Vorini being more than 60% shareholder of the company, there comes a point that you should expect something more, if the market of course recovers.

[Seth Lowry:]

And then lastly, really quick, daily OpEx per vessel has been trending down. This quarter it was down 6% or 7%. Is that a function of just crewing costs and the slack in the market helping you on the cost side? And is that a fair run rate to project with for the rest of the year, that mid $4,400 level?

[Loukas Barmparis:]

Yes, if you see If you see this graph on page 18 we are coming 34% now especially in the low market it’s very important to focus and try and sharpen the pencils and try to do your operation not more economically as you can see. I am pleased to see that we are managing around the ships that we did five years ago. So that’s we are very healthy organization and a very hands on approach on how we run our ships. Suppliers and other people in the market they are pressed these days, nice to do business with people who pay on sets dates on their invoices, they hey settle invoices promptly without delay, and if you are in this position you can negotiate much, much better terms and conditions for various invoices. Clearly this is demonstrated by our drops on the OpEx and the management fees of course.

[Konstantinos Adamopoulos:]

We have a good operating cost (inaudible) we have operating expenses, on top we have the G&A expenses, we have two parts, one is public company expenses and the other is the management fee. So we do that, so you can look it more closely all our expenses except the financials and you can see how competitive we are and how can we create value for our shareholders.

[Operator:]

Your next question comes from the line of Greg Lewis from Credit Suisse.

[Greg Lewis:]

I don't know who to direct this question to -- maybe Polys, maybe Loukas, maybe Konstantinos. When I think about slide 20, and you outline your total liquidity -- it looks like there is around $54 million in cash. I guess about $10 million of that is restricted. When we think about a minimum cash balance per vessel, as your fleet grows, is there a number that we should think about for every vessel in the fleet? There is a minimum cash balance requirement for each of those vessels.

[Loukas Barmparis:]

If we have a low operating expenses and if we have a low financing expenses as we demonstrate on the presentation on page 19, you calculate that our loans are mostly low 195 spread and our debt covenants are very comfortable and have been changed last year when there was lot of prices without cost to the company, just by bringing (inaudible) payments. I think that we are very comfortable on the cost – on the amount of or money that you need to keep on the side vessel to meet our obligations. And there you will see also that, when you have a new cycled vessels, even in today’s off market which is maybe around 7500 a day, 8000 a day thereabout, a day or thereabouts. We are still fixing our ships at 9.5 to $5000 a day in the spot market. So we are doing little bit better than around 15% better than BPI average. I think this amount to keep on the side vessel it’s (inaudible).

[Greg Lewis:]

And then I know previously you guys talked about newbuilding prices in Japan coming down and potentially providing more opportunities on the newbuilding side. Have we seen any deterioration in newbuild prices at Japanese yards just given the strength in the yen lately?

[Loukas Barmparis:]

I don’t think they will bring lower than this price and I don’t think that we will repeat this price. On the other (inaudible) be able to raise prices dramatically because of the general over capacity of the accepted capacity of the shipbuilding market. Yes, if you are existing client you can now offer at attractive prices but I will be very, very much surprised if I expect Japanese Panamax is sold below this price. I will be very much surprised.

[Operator:]

Your next question comes from the line of Fotis Giannakoulis from Morgan Stanley.

[Fotis Giannakoulis:]

I would like to ask about -- also about the three Capes and it seems they have very long-term charters at very, very high rates compared to where the spot market is. Can you please explain to us about the counterparty risk on these charters? How solid do you think that these charters are?

[Loukas Barmparis:]

The one counterparty with – on the one Cape is bigger still 1.1 million, if it stops performing then it will be big story in the news. The other one is the other charterer in one of the biggest coal producers of India, who just constructed the 5 million (ph) mega power plants in India and (inaudible). So we don't expect either from him any bad news. The third is a big shipping company of – which owns ships as well of more than 100 years tradition based in France and they are performing very correctly over the decades without any problems. So we are feeling very comfortable with all these three charterers, performing in this market so we expect them to be correct on their cases.

[Fotis Giannakoulis:]

I also want to ask about the funding of the two new buildings. First of all, what are the payment terms that you have managed to get for these newbuildings? What is the percent of the payment costs that will be at the end, upon delivery? And how are you planning to finance these two vessels?

[Loukas Barmparis:]

I think they are very short terms on delivery I think it’s around 70%, and financing more than likely we will do some financing but after delivery. Before delivery we don’t plan to raise any finance on these vessels. I think the company will have sufficient cash in, from operations, in the system. I mean the 33 million we have been commenting in the last month out of the early deliveries for a good portion of these two orders, I don’t think that we will have any problem to raise, after delivery, around for 16 million debt on those vessels. But it’s something that’s still far away and it’s deliveries the end of ’14, beginning ’15. So it’s plenty of time to deal with them in the future.

[Fotis Giannakoulis:]

And on the prepayment of the charters that you have agreed, what is the amount that you are expecting to get right now?

[Loukas Barmparis:]

We will get $7.7 million, we received 13 million, $13.1 million in the first quarter. So including the vessels we agreed to build, deliver now in the second quarter. We will receive another $7.7 million. So we will get total of – on top of this figure you see here the 162.5 million of liquidity, you should be adding the $7.7 million we received in the second quarter. Again remember these are compensation for charters but they would anyway end by the end of this year. So they have loan remaining of the charter level. This 7.7 million is not included in this figure. So if you put it there it goes – with the CapEx of the existing six ships that we have as of the end of last quarter.

[Fotis Giannakoulis:]

And going a little bit deeper on your liquidity, you mentioned earlier that you do not -- you're not hungry to buy many more vessels. But given the current delivery schedule for your newbuildings and the remaining CapEx, how much do you think of this liquidity is left for additional acquisitions?

[Loukas Barmparis:]

We have the goals, and we are not going to overdo it because we prefer to wait and see the real – have a real and then be moving more (inaudible) what we know about the recovery has started. So we don’t like to do many more things, that’s how all the times that we see that (inaudible) by September time which traditionally I believe the best time to get second hand ships, September or after the holidays when people, they are not so eager and the competition is much less. If the trade market is not good in August or September and prices are relaxed little bit from the current levels, maybe we’re shipping for one or two more ships. But it won’t be something big. We have the growth, we have from 26 vessels now it will be 36. So I mean we are not under pressure about we have to grow the company that fast.

[Konstantinos Adamopoulos:]

Also you have (inaudible) until now we have not – we are not trying to have good guys, (inaudible) so let’s say the last year in total we contracted, we took the delivery of the 5 vessels which is an important figure for the previous period. Quietly and for (inaudible) we have to do – same plan but we will do in the future.

[Fotis Giannakoulis:]

I fully understand. I'm just trying to understand on a theoretical basis compared to -- you have a total liquidity of $162.5 million. A big part of that will go to fund your newbuildings. You already ordered two newbuildings since the end of the last quarter. Is there any of liquidity left for more vessels apart from what you already have?

[Loukas Barmparis:]

Look, the important thing to note which is that for example, for each vessels we acquire we always have the ability to take that only. So we can do – I mean we have the flexibility to do whatever we want. So this 162.5 million would result in liquidity as stated right now it doesn’t include our cash flow from operations and we are – at the company, we create substantial profits, most of them (inaudible) are in red, we have substantial profits but we don’t have these covenants and this 162.5 million also, we are sure that it can be used for to cover capital expenditure requirements, it can be used for any purpose including the acquisition, but the question to ask is planning to do something additional and that’s what we said before.

[Fotis Giannakoulis:]

But give me the opportunity to ask my next question. But before that, can you remind us how many vessels right now you have debt-free? And how many vessels with your current liquidity you are expecting to have debt-free that could be levered up?

[Loukas Barmparis:]

We don’t have vessel but we have some vessel that our debt fee vessel use them, sometimes to as collaterals for other loans we have. So hopefully we will have debt free, where we have demonstrated on page 20, the six newbuildings before the – the six newbuildings that are coming and we need $171 million to pay to the yards, the remaining CapEx and $171 million already available in the company. So these six newbuildings will be debt free, can remain debt free and be used for extra raising of debt for the leverage on the company may require. So it will assume that these six newbuildings, five are Panamaxes and one is long term charter Capesize. That could lead around $100 million of debt comfortable. So the liquidity from debt on those six vessels are low, could be 100 million just by putting 15 million debt on the newbuilding Panamaxes and maybe 25 of 30 million, 25 million vessel on the long term charter Capesize. So without really leveraging the company we will have another 100 million there to be used as – could be for new acquisition. But again we will say that we don’t want to overdo it, we have the suits, we have the open days. Let the market recover and we know what to do. Let it recover first.

[Fotis Giannakoulis:]

And regarding the market, when do you see them in the market recovering? Can you give us your outlook for 2014and perhaps 2015, if that's possible?

[Loukas Barmparis:]

I think that the supply story, there was a problem, it was last year, these guys getting a lot better and 2014 will be very good. So together with the slow feeling that every charter as we say insisting upon I think that the recovery be as first half of next year but could be similar to next year. If it will happen, immediately the supply will stop coming to the market. The good thing is that we obviously are now set forth. Now we see activity on Ultramaxes, we see activity on Capes, now we are going to see activity – the Chinese guys, they are not keen on count so much on Panamaxes. The bigger yards they want Capes and then smaller ones they want all Ultramaxes. So I am optimistic for next year that we will start seeing a recovery. Now it’s a fully fledged recovery but then also on economies when Europe will start coming out of recession and negative growth. Sometime next year, probably little bit later between middle and second half of next year we will see that there will be a meaningful recovery.

[Fotis Giannakoulis:]

And given the fact that the current order book for Panamaxes is quite heavy, and most of the analysts are viewing as a main driver for the recovery the iron ore market, do you fear that the recovery for the Panamax vessels might take longer compared to other sectors?

[Loukas Barmparis:]

No, I don’t think that – last year it was sold at 65% deliver, they were expecting to be delivered and of the first four months of this year delivery I think it’s at similar levels, there is a local ships that have been canceled or they have never moved further than LOI stage. So I don’t think that, much of that they are lending, all those have been shut out of this. But as I said that we expect that our market also demand this steady and (inaudible) is increasing. And we think that sometime around this time next year, we should see a meaningful recovery, it may not be $20,000 a day, but if the market goes 14,000 a day people will start being more optimistic. Also learning certain feature of our acquisition policy, actually it’s just that vessel which were bought recently from the second hand market at very low prices, it’s an opportunity to be served later on when the market improves. In the second party, the newbuildings with the (inaudible) type vessels and these vessels are very efficient in the shallow drafted. I would say our other vessels in our fleet when they come for (inaudible) it basically goes working very consciously, the first opportunistically in the second hand market wherever we feel is necessary. And also to have a very good fleet for years after 2015. The company traditionally has been well priced to recover, has been trying to sell ships of 10 years old in order to keep a low average on low value cost. So it is to be expected that if all three built ships which are worth today around 16 million which we bought 13.8 to 14.2 in the second half of last year, even this 16 million if fleet market recovers next year and could be bought over 20 million because you should remember that this time last year before the summer of last year they were worth 20 million. So if the market recovers to $15,000 a day, these ships will go to 20 million. So the company could move to send those vessels and already we will be having the replacement for those vessels from the cost of $28 million. It will more than ships of new technology. So with $8 million you will be replacing ships of 10, 11 yards of all designs and more consumption and things like that. So part of the growth strategy also could be used as a replacement for our fleet that’s around 10 years old. Some of the fleet that’s around 10 years old at the moment.

[Operator:]

The next question comes from the line of David Beard from IBERIA.

[David Beard:]

Maybe you could talk in general about how charter negotiations are progressing with eco-ships. My question specifically is what percent of fuel savings can accrue to the shipowners versus having to entice charterers to “bet on a new technology”?

[Loukas Barmparis:]

Look, I mean the eco-ships, they will give you the maximum benefit in a good market, not in the low market because as everybody is asking for low speed and even the old ships can’t do reasonable consumptions at low speed. So of course some of the owners of the older ships they take some risk in doing even lower speeds on recommended by engine manufacturers in their effort to keep their ships and the charterers happy in order to find employments, sometimes risking integral safety of the engine and risking also breakdown. But people they tend to – old ships they take this risk because this gives them substantial saving and so the eco-ship is not really – is not going to give you the big benefit in the low market but will give you a benefit, a very big benefit when the market starts recovering because it will be the ship that’s on better ship could be operated very, very economically. So while the speed is reducing in the low market, also the benefit of the eco design is reducing, of course, it’s there but it’s not as big as it is on 13 or 14 knots when you run them down to 11 knots. Because as I said old ships they use consumption as well on those RPMs. That’s why there is confusion in the market, that eco-ships was in favour of the – on the old pipe, today’s market the difference is – there is some difference but it’s not huge.

[Operator:]

Thank you. I would now like to hand the conference back to the speakers today for any closing comments.

[Loukas Barmparis:]

So thank you very much for attending this conference call and we’re looking forward to have the same call in the next quarter. Thank you to all.

[Operator:]

Thank you ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may now disconnect.