Seanergy Maritime Holdings Corp.
Q2 2015 Earnings Call Transcript

Published: 23 Sep 2015

[Operator:]

Thank you for standing by ladies and gentlemen, and welcome to the Seanergy Maritime Conference Call on the Second Quarter 2015 Financial Results. We have with us, Mr. Stamatis Tsantanis, Chief Executive Officer of the company. At this time, all participants are in listen-only mode. I must advise you that this conference is being recorded today. Please be reminded that the company publicly released its financial results, which are available to you 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 will be happy to send it to you. Before turning the call over to Mr. Tsantanis, we would like to remind you this 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, concerning 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 the operations outside the United States, change in rules and regulations applicable to the shipping industry, and other risk factors included from the time in which 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 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. I would like to pass the floor over to Mr. Tsantanis. Please go ahead sir.

[Stamatis Tsantanis:]

Thank you, Claire. Good morning, everyone and thank you for joining our call. Today, I will discuss the most important corporate developments, and then I will briefly go through our financial results for the second quarter of 2015. In late March of 2015, we took delivery of our first Capesize vessel, the M/V Leadership and Seanergy resumed its revenue generation capacity. In addition, we were constantly pursuing further growth opportunities by exploring the market for accretive acquisitions. As a result, we recently entered into an agreement to acquire seven high quality dry bulk vessels, consisting of five Capesizes and two Supramaxes with an average age of six years. On September 11, we took delivery of the first of these ships and 2010 built Capesize vessel, which was renamed to the M/V Premiership. The remaining deliveries are expected to be completed by November 30, 2015. After the completion of all deliveries, our fleet will increase to eight modern vessels consisting of six Capesizes and two Supramaxes, with a total carrying capacity of about 1.1 million DWT. The purchase price of the fleet, which is approximately $183 million is significantly lower than the equivalent asset values of one year ago. To elaborate further on this point, the value of seven similar ships in August 2014 was approximately $285 million and therefore this year, the price we have agreed to pay is almost $92 million or 36% lower. For the financing of the acquisition, we have secured firm commitments from four international financing institutions as well as an investment by our sponsor. The terms agreed in the relevant loan agreements will allow Seanergy to preserve its cash flow during a period when the dry bulk market is still recovering. Our solid relationship with the shipping finance market is evident in these arrangements and we also expect to be in a position to secure the required funding to take advantage of additional market opportunities. The underlying economic fundamentals of the transaction are very strong, given the lower capital cost and the advantageous terms that we have achieved with our lenders. Combined with the expected rise in saturates and asset values, we strongly believe that Seanergy is positioned very favorably in the leased dry bulk peer group. In addition, we will continue to review the market for potential acquisition targets that will grow our fleet further. On September 7, 2015, the company entered into a share purchase agreement to raise additional equity capital with an entity affiliated with our sponsor for an amount of $9 million for general corporate purposes. On September 11, 2015, the first tranche of approximately $3.5 million was contributed in exchange for 19.5 million common shares of the company. The purchaser of the newly issued shares has received customary registration rights. The transaction was approved by an independent committee of the company’s Board of Directors. Further to the equity contribution by our sponsor, on September 7, 2015, the company also issued an unsecured revolving convertible note of up to $6.8 million to an entity affiliated with our sponsor for general corporate purposes. The note has a tenor of up to 5 years after the first drawdown and the applicable limit is reduced by $1 million each year after the second year of issuance. The note bears interest of three months LIBOR plus a margin. At the holder’s option, the note may be paid in common shares of Seanergy. On September 10, 2015, we drew $1.7 million under the note. It is also worth mentioning that the company filed with the Securities and Exchange Commission a universal shelf registration statement on Form F-3 for the registration of up to $200 million in securities, which was declared effective in August 2015. Turning into the financial results of June 30, 2015, the company’s total assets were $19.6 million, shareholders’ equity reached $9.4 million, while the cash and cash equivalents amounted to $1 million. In the six month period ended June 30, 2015, Seanergy recorded revenue of $1.8 million as opposed to $2.1 million in the six months ended June 30, 2014. This is due to different fleet composition between the two periods. In the first six months of 2015, Seanergy operated an average of 0.6 vessels compared to 1.5 vessels in the same period of 2014. In addition, the Time Charter Equivalent rate earned by vessels during the second quarter of 2015 amounted to $9,800, which compares very favorably with the average rate of the Baltic Capesize Index for the same period of $4,600. Turning to the market overview, in the first half of 2015, the dry bulk market experienced its lowest levels over the last 25 to 30 years. More specifically, the Capesize index fell to its lowest point over the last 30 years in January at 311 points. Since then, we have experienced a significant recovery and the index has increased by almost six times to more than 1,800 points. We continue to believe that the market weakness is temporary and we expect that Capesize activity to improve substantially. We also hope that this market recovery will extend further on a sustainable basis. More specifically on the demand side, despite the slowing growth of the Chinese economy in the recent years, dry shipping demand growth has averaged 5% to 6%, in line with the long-term compounded growth projections for the seaborne dry transportation. As a result, Australian and Brazilian iron ore producers have boosted low cost iron ore production capacity, which is marginalizing expensive Chinese iron ore miners. It is evident that despite the slowing steel production, the levels of Chinese iron ore imports have increased year-on-year. As far as vessel supply is concerned, there are two main reasons to feel optimistic about the future. First, dry bulk ship orders in 2015 have fallen by about 87% compared to last year. Their favorable top-end market and relatively modest price declines for new vessels suggest that the trend is unlikely to reverse soon. Second, a very high demolition rate is further reflecting ship supply. More specially, in 2015, the Capesize scrapping activity has exceeded 2013 and 2014 combined, which is almost 13 million deadweight tons year-to-date. The substantial reduction of the order book as well as the accelerated scrapping activity has finally led to negative fleet growth year-to-date in 2015. It is, therefore, expected that the net dry bulk fleet growth will be approximately zero to 1% in 2015, after growing only 4.4% in 2014. This is a record low as compared to the historical 10-year compounded fleet growth of 9% and more importantly, a historical seaborne trade growth on a compounded basis of 5.6% from 2004 until 2014. Based on these factors we believe that in the next three years, the market will likely lead to tonnage shortfall and a tightening utilization environment. As a result, we expect an upward trend in saturates and asset values. On the final note, I would like to reiterate the fact that Seanergy represents a unique investment platform to capitalize on the improving smart fundamentals. We are in a strong position of rebuilding our fleet concurrently with the significant market recovery. On that note, thank you for listening in our call and now we will pass the call back to the operator. Claire, thank you.

[End of Q&A:]

Thank you. Ladies and gentlemen, this conclude our conference for today. Thank you for participating, you may now disconnect.