Seanergy Maritime Holdings Corp.
Q4 2016 Earnings Call Transcript

Published: 4 Apr 2017

[Operator:]

Thank you for standing by, ladies and gentlemen, and welcome to the Seanergy Maritime Conference Call on the Fourth Quarter 2016 Financial Results. We have with us Mr. Stamatis Tsantanis, Chairman and Chief Executive Officer of the company. At this time, all participants are in listen-only mode. [Operator Instructions]. I must advise you this conference is being recorded today. Please be reminded that the company publicly released its financial results which are available to download on the Seanergy website at seanergymaritime.com. If you do not have a copy of the press release, you can contact Capital Link at 212-661-7566, and they’ll be happy to send it to you. Before turning the call over to Mr. Tsantanis, we would like to remind you that the conference call contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, considering future events and the company’s growth strategy and measures to implement such strategy. Words such as expects, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are intended to identify forward-looking statements. 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 are not limited to, competitive factors in the market, in which the company operates, risks associated with operations outside the United States, change in rules and regulations applicable to the shipping industry, and other risk factors included from time-to-time in the company’s annual report on Form 20-F and other filings with the Securities and Exchange Commission, the SEC. The company’s filings can be obtained free of charge on the SEC’s website at www.sec.gov. 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 changes in events, conditions or circumstances on which any statement is based. Now I will pass the floor to Mr. Tsantanis. Please go ahead, sir.

[Stamatis Tsantanis:]

Thank you, Judy. Good morning, everyone, and thank you for joining our call. 2016 was a worse year for the dry bulk market since the late 1980s. The dry bulk industry had not expanded such a low freight rate environment for almost thirty years. Seanergy however not only weathered through the storm with great success, but also emerged as a much larger and established player focusing in case Capesize vessels. Since the beginning of 2016, we have increased our fleet by almost 47%, reaching 1.7 million deadweight tons, performed the delivery of our recent commitment as compared to 1 million and -- 150 million deadweight tons in the beginning of 2016. By acquiring three additional Capesize vessels we have positioned the company favorably to take advantage of the strong growth of the Capesize market. We have established the ship operations and management platform as one of the lowest costs of the industry and achieved an improvement of 16% on our combined daily vessel operating expenses and management fees compared to 2015. We have also improved our financial flexibility by raising gross profit of 27.6 million from public offerings since August 2016. In addition, our reaching agreement with one of our lenders to buy [indiscernible] related to a significant profit and equity accretion of 11.4 million. I will now discuss the most important developments that took place in the fourth quarter of 2016 until today. Then I will continue by reviewing the financial highlights of the fourth quarter of 2016 before discussing dry bulk industry fundamentals, with emphasis on the Capesize sector. Finally, I will open the call for questions. Starting operating fleet expansion during the fourth quarter of 2016 we took delivery of two high quality Korean Capesize vessels built in 2010 and we agreed to acquire in September 2016. The M/V Lordship was delivered on November 30, 2016 and the M/V Knightship was delivered on December 15, 2016. As previously announced, the 20.75 million price tag per vessel makes this the lowest price paid by any of our listed peers for similar vessels in the last five years. Recently in March of 2017, we agreed to acquire another modern Capesize vessel built in 2012 also in Hyundai of South Korea. The agreed acquisition cost is 32.65 million and its delivered is expected to take place by the end of May. We strongly believe the superior fundamentals for the Capesize market and our recent acquisitions will significantly improve our shareholder value. Seanergy has a low exploration acquisition cost of Capesize vessels among its listed peers. It is important to emphasize that the low acquisition prices of our vessels give a strong competitive advantage leading to lower breakeven rates, higher profit margins and increased profit participation in the market with rising shuttle rates. Seanergy, will continue to pursue additional accretive acquisition opportunities of quality Capesize vessels. Moving onto recent financial developments in March 2017, we agreed with one of our lenders on early termination of the underlying credit facility of 39.4 million. Upon completion of the transaction by the end of September, the associated gain and equity accretion is estimated to be approximately 11.4 million. Furthermore, in March, we also agreed with four of our lenders on the proactive waiver and deferral of our major financial covenants. As a result, we will be in compliance with all our major applicable covenants until the second quarter of 2018. In December 2016, we sold a total of 11.3 million of our common shares in a public offering for an aggregate amount of 17 million gross proceeds including the exercise of the overallotment option by the underwriters. The net proceeds on the offering after deducting fees and expenses for approximately 14.9 million. In a registered direct offering that was completed on November, 2016, the company sold approximately 1.3 million shares of common stock to three unaffiliated institutional investors for aggregate gross proceeds of 3.6 million. The net proceeds from the sale of the securities were approximately 3.2 million. Also in February 2017, the company entered into an Equity Distribution Agreement with the Maxim Group as sales agent, under which the company may offer and sell, up to $20 million of its common shares. Up until today the company has sold approximately 2 million common shares for an aggregate amount of 2.2 million of gross profits. As it regards to new loan facilities signed during the fourth quarter of 2016, in November, we entered into a 32 million loan facility with Northern Shipping Partners to partly finance acquisition cost of the /V Lordship and the M/V Knightship. The facility was fully drawn in Q4 with a delivery of the two ships. Moreover in October we entered into a loan facility with Jelco Delta to partially fund the acquisition of the M/V Lordship and the M/V Knightship. We have fully drawn down the facility and as of the date of this release the amount outstanding is 5.9 million. Based on the above we believe that our build to raise [ph] had gone through the public markets while recent constructive agreements with our lenders will ensure a liquidity to execute our business plan. Turning to our financials, as of December 31, 2016 our shareholders' equity was 30.8 million increased 32% compared to 23.3 million in 2015. The total cash balance was 15.9 million while total bank debt outstanding was approximately 260 million. In the fourth quarter 2016 our net revenue was 10.9 million up 59% from 6.8 million in the same quarter of 2016. The increase is due to the increase of operating days to 649 from 409 since we operated 8.1 vessels during the quarter as opposed to 6.1 in Q4 of 2015. Our average daily TCE, time charter equivalent rate for the fourth quarter of 2016 was $7,539 compared to $5,034 in the fourth quarter of 2015. The 50% improvement is attributable to the improved market conditions seen towards the end of 2016. Average daily operating expenses for the vessels, excluding the expense associated with taking delivery of our new ships were equal $4,615 per day, an 8% improvement on the same period of last year. In 2016 we recorded net revenue of 34.7 million compared to 11.2 million in the same period of 2015. The increase of 209% which is an increase in operating days as we recorded 2,444 days in 2016 up from 598 days in 2015. A net loss of 2016 was 24.6 million. In 2016 our vessels and a daily average time charter equivalent rate was $5,587 down 10% from $6,232 per day in 2015. Since dry bulk market went through the worst crisis over the last 25 years, daily vessel operating expenses excluding the expense associated with taking delivery of new ships amounted to $4,618 in 2016 compared to $5,428 in 2015 an improvement of 15%. As new vessels are added to our company split and our operations grow on scale, we expect to be reducing further our already very low operating expenses. Lastly, out of the 4.1 million incurred in G&A expenses over the course of 2016, 0.6 million represented non-cash expenses. Adjusted for non-cash items our daily G&A expense in 2016 amounted to $1,186 per vessel. Moving to the review of industry conditions, as mentioned before, our industry had not experienced such as low freight rate environment for almost 30 years. The BDI reached a 25 year low of 290 points in February 2016, and the Baltic Capesize Index was at 161 points or $485 per day at its lowest point in March of 2016. Apart from the severe vessel overbuilding that led to a colossal accumulation of tonnage during the last years, the negative market climate was made worse by increased uncertainty about the future of China's industrial production and general demand for dry bulk sea transportation, however demand for core commodities of iron ore and coal thought to be fair resumed and increased by more than 3% in 2016. In addition the major ship owners showed unprecedented discipline by scraping excess tonnage and reducing their costs. The bad situation of the market forced a number of vessels further in 2016 to forward by more than 90% compared to 2014 and 2015. Aside from abysmal [indiscernible] condition in 2016 other factors have contributed to the sharp new building reduction where the scares availability of time for almost all new vessels and high price of new investment relative to second hand ones. The later factor makes a decision toward the new building vessels especially economical, as long as shipyard prices don’t reduce significantly and prices for reducing vessels remains as low as they are today, it will be hard to justify an investment in new vessels. Indicatively for the Capesize vessels the ratio between the price of a new building and that of a five year second hand one has averaged about 1.36 times since 2010, while the ratio currently stands at 1.68 times. As far as demolition is concerned, the first half of 2016 was the most active on record for demolitions as the annualized demolition rate picks at 35 million deadweight tons. These trends however could not hold up until the end of the year as owners canceled perspective demolition sales to take advantage of the promising charter market conditions that were developed in the second half of the year. As a result, 2016 demolitions set at 29 million deadweight tons, slightly down from 31 million deadweight tons in 2015. Finally, the most important point about the vessel supply is that after more than 15 years of continue growth, the world's Capesize fleet is expect to start declining towards the end of 2017. This decline in trend is not expected to be reversed before 2019. Looking at the global demand we're very optimistic for the continued raise of imports of core commodities into China. The seaborne transportation of both iron ore and coal is expected to continue to grow by at least 3% per annum for the next three years. In addition the market will also benefit from increased cargos transported over longer distances leading to significant growth of the ton-mile effect, for example [indiscernible] aggressive ramp up of production in the S11D project, which may become one of the largest individual item announced globally, is going to bring Brazilian iron ore to the forefront of the global trade. We expect this to be supportive for the Capesize demand as indicatively the duration of a round trip from Australia to China is 30 days to 35 days, while a trip from Brazil to China -- a round trip Brazil to China will take 85 days to 90 days in total, that’s three time more. The positive fundamentals appear to be in place for the coal trade, we saw a large number of Chinese coal mine shutting down in 2016, due to various environmental protection rules. As a result from the large rise of coal imports in the second half of 2016, that was highly supportive of a spot market and provided largely and expected positive demand boost. As far as the rest of 2017 is concerned, the notable improvement in dry bulk charter rate is expected to continue. So far the daily spot rates by Capesize vessels have reached level in excess of 18,000 or even 20,000 within March of 2017 which is considerably higher then what we have seen during the first quarter in the previous years. Indicatively, comparable rates averaged less than 3,000 in the first part of 2016. We view this as very important since spot market activity is also supported by strong fixtures seen in the period market. Indicatively during the first quarter 2017 there were 51 fixtures for one year Capesize vessel time charter contracts as compared to 25 in the same quarter of 2016. The comparable figures for supramax vessels are 36 in 2017 compared to 12 in 2016, so three times more. It is important to note that in the previous years short term strength in the spot market did not usually lead into similar activity for longer term employments and such spot market improvements were proven short lived. This time conditions are different and encouraged spot market activity as also being supported by similar developments in the period market. As a final note Seanergy is one of the best positioned companies to capture a significant upside potential of the market. We have the strongest focus in Capesize sector which presents the best fundamentals, our Capesize sized cost base is the lowest in the peer group with no expensive legacy positions. Our lower breakeven rates will deliver significant cash flows. We have a very committed principle that hold -- with strong shipping heritage and expectations of more than 50 years. Corporate guidance we've no late bad transactions in ship management. Our main strategic objective is to continue our fleet expansion into Capesize sector with accretive acquisitions. On that note I would like to turn the call back to the operator, thank you.

[Operator:]

Thank you very much sir, [Operator Instructions] thank you for your patience the first question comes from the line of Quane Cancum from K2, please go ahead.

[Quane Cancum:]

I would like to know whether you guys can give a range for the net asset value of your ships. Thank you.

[Stamatis Tsantanis:]

Well, thank you, well we don't usually disclose the NAV of the fleet, what we can give is basically gross indications about what we -- again this is the management estimate so the gross fleet value of the company which is approximately right now at around 230 million to 240 million, this is the gross asset value of our fleet. And the debt outstanding again, pro forma upcoming financing that we have and excluding new vessel acquisitions in the range of 192 million to 195 million. This is more or less the guidance that we can give about the numbers.

[Quane Cancum:]

Okay, alright thank you.

[Operator:]

Thank you, very much. The next question comes from Michael Wort from National Securities, please go ahead.

[Michael Wort:]

I have two questions, one is with the dry bulk index up here, again now, I believe when you did the second year offering you said at around these levels you were profitable. Can you confirm the profitability of these rates?

[Stamatis Tsantanis:]

Well first of all good morning, we expect the company if the market remains at these levels and what the future contracts excel, these levels just remain cash flow positive throughout the year, so you know the quick answer is yes. However again, it's not in our policy to make any predictions about the market as you can understand, but based on the focus that we have now, the market -- the company expects remains cash flow positive.

[Michael Wort:]

Okay, and then this ATM facility you have with Maxim, do you not think that's going to put a ceiling on the stock price because the market will just think you'll just keep issuing new shares. Maybe you can talk about your policy behind that and also if you have a dividend policy down the road. Thank you.

[Stamatis Tsantanis:]

Okay, well about the ATM, as you have seen in our press release we have basically done very little of the total outstanding amount that we could absorb. So the company right now has a liquidity and capital resources, and is confident that it’s going to be in a position to finance the outcoming refinancing some deliveries that we have. So generally, we're not prone to be you know aggressively drawing down on the ATM and again we've only drawn like 10% while it has been outstanding for more than a month and a half. So we're not pushing the stock or we're not pushing any sales whatsoever. Contrary to a number of other companies that they don't care about plummeting share prices, just to raise stock. So we don't do these kinds of things. In respect to dividend, yes, it is in the expectation of the company to put a dividend in place and we hope that this dividend is going to be a substantial amount of over free cash flow. We have a very strong sponsor, we have where shareholders of the company themselves are interested in fully aligned with a third-party investment, so that is going to happen. The top priority right now is to increase the fleet as what we believe to be closing window of exploitable opportunity to acquire additional tonnage, and when that comes to a certain mature level and we have the cash flows that we expect to have then at that point the company's intention is to instate a dividend plan.

[Michael Wort:]

Great, thank you very much.

[Operator:]

Thank you very much, currently having no further questions so to Mr. Tsantanis, please continue.

[Stamatis Tsantanis:]

If there are not further questions then let's thank everyone for listening to the call and the questions asked. Thank you basically.

[Operator:]

Thank you very much sir. Ladies and gentleman that does conclude the conference for today. Thank you all for participating. You may now disconnect your lines.