StealthGas Inc. Q1 2009 Earnings Call Transcript

May.14.09 | About: StealthGas, Inc. (GASS)

StealthGas Inc. (NASDAQ:GASS)

Q1 2009 Earnings Call

May 14, 2009; 11:00 am ET

Executives

Harry Vafias - President & Chief Executive Officer.

Andrew Simmons - Chief Financial Officer

Analysts

Natasha Boyden - Cantor Fitzgerald

Mike Drickamer - Morgan, Keegan

Doug Ruth - Lenox Financial Services

Ross DeMont - Midwood Capital

Sean Moloney - Ship Management International

Steve Emerson - Emerson Investment Group

Jeff Geygan - Milwaukee Private Wealth Management

Operator

Good day and welcome to the StealthGas Incorporated, first quarter 2009 financial results conference call. For your information, today’s conference is being recorded. At this time, I’d like to turn the call over to your host today, Mr. Harry Vafias, President and Chief Executive Officer. Please go ahead sir.

Harry Vafias

Thank you and good morning everyone. Welcome to our conference call and webcast to discuss the results for the first quarter ended March 31, ‘09. I’m Harry Vafias, the CEO of StealthGas and I would like to remind you please, that we will be discussing forward-looking statements in today’s conference call and presentation.

Regarding the Safe Harbor language, I would like to refer you to slide one of this presentation, as well as to our press release and our first quarter ’09 results. With me today is Andrew Simmons, our CFO and if you need any further information on this conference call or presentation, please contact Andrew or myself.

Starting from slide number two, we continue our business strategy despite the uncertainties presented by the world economy today and I would like to highlight how we continued with this implementation in the first quarter of ’09 and later to discuss the outlook for the remainder of this year and the decision we took today for the time being to spend the payment of our dividend.

Our primary objective continues to run highly efficient in modern fleet; on secure deployment contracts with first class charters, that serves a very specific niche market that has no correlation whatsoever to most of our shipping segments, and are expensing significant downturns in both charter levels and vessel values. At the end of March ’09, our fleet numbered 41 vessels, 39 handysize LPG’s and two medium range product tankers.

Looking at ’09, we are contracted to continue to expand our business. We took delivery of the Gas Astrid in April and should be deployed under one year time charter to a major Japanese based client. Our sister, the Gas Exelero will join the fleet in June and should too have been taken by the same charter for a one year period. This charter is a new client for us and we are very pleased to have commenced this commercial relationship with them. With the delivery of the Gas Exelero, our LPG fleet will number 42 ships.

We’re also contracted to delivery two more product tankers, one in May and one in November of this year. Our second goal has been to maintain moderate leverage at all times, despite the new five fold increase, the size of the company since October ’05.

After taking into consideration of the total fleet of 41 ships at the end of the first quarter ’09, our net debt to capitalization ratio stood at 42%, which in our view particularly in these challenges times, coupled with our employment, charter profiles and the overall quality of our charter, should hold the company in good state going forward.

Our third goal has been to secure and maintain a visible revenue stream, with stable and predictable cash flows enabling us to continue to pursue a prudent growth strategy. As you might expect, given the significant uncertainties in today’s world, we are finding charters currently less willing to commit to long period deployment on handy gas carriers. So, the number of days of fixed employment for our fleet in ’09 currently stands up 67% of available days, with 38% already covered for 2010.

As you would have seen from our results for Q1, our time charter equivalent rate was 7,344 per vessel per day, compared to 7,652 in the corresponding quarter last year, which represents a drop of only 4%, therefore emphasizing the steadiness of the performance of our fleet, even in these very difficult market conditions.

We have also again included an adjusted time charter equivalent on a blended basis in our slide presentation for both the LPG vessels and the product tankers. None of the vessels were on a bareboat charter. This not only gives you a more realistic figure in terms of the average time charter equivalent, but we have also adjusted the vessel operating expense later in the presentation as it were to be responsible for the operating expenses of all the vessels in our fleet.

On this basis, the TCE was 8,821 in Q1 ’09, against 9,054 at the same time last year, a reduction of just $215 a day or 2.4%, which we believe is relatively positive, given the current economic outlook and compared also to the rate of decline in some other sectors of the shipping industry.

We currently have 13 vessels in our fleet on variable charters, which is the most secure in terms of operational risk, plus we are shielded from such items as banker, crew and maintenance cost; these and all are expenses for the variable charters account.

Our first goal has been to own and operate a modern fleet of LPG’s and in this respect, our average ages 11 years not including the four brand new product tankers and the six brand new LPG vessels that we are contracted to acquire between June ’09 and 2012, which will only enhance our competitive position further in terms of average age to the industry average. The industry average is about 20 years.

It’s our belief that charters in these challenging economic times will increasingly look for modern and efficient tonnage. So our modern fleet relative to the industry in my opinion is important as we move forward in this uncertain period we’re all facing.

Our fifth goal has been to maintain close customer relations. The quality of our customer relationship is exemplified by our continued and consistently high fleet utilization and the quality of our charters, which also lowers our counterparty risk. I’m pleased to say that to-date, except the reported issue with the charter of the Gas Ice, that we continue not to have any issues in terms of charters performance and as you can see from our balance sheet, where we are unsure of the credentials of the small number of charters taking cash deposits or bank guarantees to secure the highest.

Our sixth goal has been to maintain cost efficient operations. I’m pleased to report yet another good performance in Q1 of ’09. Our net income breakeven level increased by just $134 to $5,559 per ship per day, compared to $5,425 in the same period of 2008. The close and cost effective management of our vessel continues to be a vitally important area of operation for our company, given relatively narrow margins, which these vessels produce.

It’s vital what we continue to keep a very tight control over this expenses going forward, as I believe, we have again demonstrated in the first quarter of this year. Some of the cost compressions we have discussed in this call, particularly the crew cost and availability continue to be a factor.

Our prudent policy of operating, a relatively high number of vessels on bareboat charters continue to shield us to some extent in this regard, as these costs are born by the charter, but note that the crew wages and the availability of world trend crew cost specific type vessels will continue to be a challenge going forward, despite the fact we see some easing of that pressure in the recent months.

Slide number three: this slide demonstrate the development of our fleet. By the end of the first quarter ’09, we had a fleet of 39 gas carriers and two product tankers and we’re solidifying our number one position in the handysize LPG sector worldwide. By the end of ’09, this will increase to a total of 41 gas carries and four product tankers as we are contracted to take delivery of these ships.

Commencing now in July 2011, following a recently negotiated delay, without any financial penalty we are scheduled to take delivery of five LPG ships ordered by the company therefore in the medium term, expanding our fleet of LPG gas to 46 vessels, assuming no sales takes place in the mean time.

StealthGas continues to solidify its number one ranking in owned vessels in the 3,000 to 8,000 CBM segments, upon which we are concentrating. We continue to focus primarily on this segment because of its strong fundamentals coupled with the relatively stable rates that we have demonstrated, but we are continuing to obtain in this difficult period, a sizable order book and fleet growth compared to other size segments in the LPG sector and out over this particular sector.

We currently have a market share of about 14%, and after the acquisitions detailed above, we expect our market share to grow to about 17% further enhancing our view of growing position of some influence within the market.

Also, we believe that our moving to the product carrier sector was and will be well timed if we have continued our policy of deploying the vessels on secure, medium to long term charters, with three of the vessels being on a variable charter basis, which as previously discussed shields the company from such risks such as crewing, maintenance and banking costs.

Slide number four, this slide demonstrates our fleet employment profile and provides you with the earnings visibility for each of our 42 current ships and the two product tankers contracted during the fleet demand of November ’09. At the bottom of the employment profile charter, we have included the percentage of voyage days fixed. These enable you to access the stability and predictability of our earnings.

As you can see, 67% of voyage days are already fixed for ’09 and 38% for ‘10. The percentage of voyage days currently contracted for is lower than we have seen in the past. Due to the current economic slowdown, charters at present are some what reluctant to commit for long period employment and are taking to five ships more on the spot basis.

I’ll now turn to the financial highlights of the first quarter of ’09, so I’ll pass you on to our CFO, Mr. Simmons.

Andrew Simmons

Thank you, Harry. Good morning everybody. Now with slide number five, we turn to the financial highlights for the first quarter of 2009. With an average of 40.8 vessels owned and operated in this quarter, we realized net income of $200,000 on voyage revenues of $29.2 million and produced an EBITDA of $8.6 million.

For the first quarter of ’09, we reported a loss of $7.3 million on interest rate swap and currency hedging arrangements, which included an unrealized non-cash loss of approximately $6.2 million and a realized cash loss of approximately $1 million, plus a non-cash provision of approximately $200,000 for restricted stock portion of deferred stock based compensation.

Excluding these non-cash items, net income would have been $6.6 million or $0.30 per share. Our earnings per share for the first quarter ’09 including non-cash items was $0.01 per share, calculated on $22.2 million average shares outstanding. Our net debt to capitalization stood at 42.3% at the end of Q1 ’09.

We believe in maintaining our leverage of moderate levels that’s important, particularly in the challenging environment which we currently operating; plus by comparison it is moderate when we take into account our period employment coverage and in comparison generally to the majority of quoted shipping companies. It will also allow us to continue to prudently grow our fleet over the next four year period.

We now turn to slide number six. This slide provides you with an overview of the development of our income statement for five consecutive quarters. In comparing our results from the first quarter of 2008 to the first quarter of 2009, revenues have increased by 8.1%. EBITDA has declined by 40.8% or otherwise reduced to 33.1%, if we exclude the one-off gain in Q1 of ’08, for the profit on the sale of three vessels.

Net profit, net of non-cash items in the aforementioned gain on vessel sales reduced by $2 million to $6.6 million, compared to $8.6 million in Q1 of ’08; plus the earnings per share of $0.30 per share. Given the current economic climate, the softening to some extent that we have seen in spot rates, we are as discussed earlier by Harry, reasonably satisfied with our operating performance in the first quarter of 2009.

Slide number seven. These are all operating highlights for each quarter of last year and the first quarter of 2009. It also provides comparison to the full year’s 2007 and 2008. In terms of fleet date in the first quarter of 2009, we owned and operated an average number of 40.8 vessels and achieved 99.7% fleet utilization.

Total charter days for the fleet during the first quarter of ’09 were 3,158 and we also had 501 total spot market days. This was a significant increase over just 28 days in the same quarter last year.

In terms of average data, results for vessel for the first quarter of ’09, we achieved a time charter equivalent of $8,821 per day per vessel on the adjusted basis, compared to $8,614 per day per vessel in Q4 of ’08. Vessel operating expenses per day on the adjusted basis i.e. no vessels on bareboat charter were $3,736 per day compared to $3,724 in Q4 ’08.

We are pleased with this virtual nil increase in the day-to-date running expenses and is evident that measures we integrated, probably needs more stringent management on costs, as consequents of the overall prevailing economic conditions are assisting us in our ongoing performance.

As we have already discussed, we continue to strive to run our fleet in a very cost effective manner, concentrating extremely hard on operating our ships efficiently and safely, and this continues to be born out by a very high fleet utilization.

We are also pleased with our vessel operating expenses in Q1 of ’09, with the same as for all of 2008. While we expect operating costs to rise in 2009 as crewing still remain a challenge, we’re hopeful the rate of increase in operating costs, will continue to abate as the year progress, again due to the slowdown in the world economic situation.

So, on a cash flow basis, our daily breakeven per vessel for the first quarter of 2009 was $5,415 per day, if we deduct the realized loss on derivatives, compared to $5,051 in Q4 of ’08. However, it should be noted that Q4 of ’08 was significantly affected by the right back of a bonus provision taken in the first three quarters of 2008.

What is encouraging from a cost standpoint is, if you turn back to the previous slide, there’s a relative stability of our vessel operating expenses and general administrative expenses. On a net income basis, our daily breakeven per vessel was $5,558 per day in Q1 ’09, compared to $5,069 for the fourth quarter of ’08; again, reflecting mainly the significant decline in G&A costs in the prior quarter.

Slide number nine; this is our financial calculator. Using the input given on this slide, our shareholders and investors can estimate our financial performance for 2009. This slide provides you with the revenues we already have secured as of today till the end of 2009, based on contracted revenues under time and bareboat charges.

Total contracted revenues to-date are $101.4 million, which is 90% of total 2008 revenues; plus we have the variable revenues we generated by those of our vessels, but days are not yet contract for the remainder of 2009 and we’ve provided you with that number of days, which is $5,723 as the fleet currently stands. So you can interpret the rate you which to assume on vessels. Vessel and not yet chartered will earn for the remainder of 2009 and you can calculate our projected performance for this year.

Thank you very much for your kind attention. I’ll now hand you back to Harry for some further comments.

Harry Vafias

Moving onto slide 10; this slide shows the highly volatile freight markets for the very large gas carriers over the past seven years; plus the freight rate for the middle size and the large size gas ships. In comparison, the middle size and smaller semi or fully pressurized ships, our core sector, have experienced a much lower volatility and study growth in freight earnings from mid ’05 onwards.

Although, over the past month since the economic crisis became a reality, there has been a lessening activity, particular in the longer time charter market, as we believe charters as we have already discussed, are holding back on fixed investments long term due to the global uncertainty.

However, it’s clear from this data, that our type of ships which form the core of our business, that have probably moved from dry, wet or the containing markets have over the past seven years not experienced the wild fluctuation in rates that these other shipping segments have seen and we’re hoping that despite the world economic outlook, that this relatively non-volatile trading patter will continue to remain intact.

We continue to expect that the supply of product will increase in the next two to three years, plus demand is expected to continue to be buoyant, particularly in the far east and developing world. Therefore we continue to believe that the outlook for our core sector is encouraging and thus we will continue with the development of our fleet, to take advantage of this expected outlook as it becomes a reality.

Slide 11, this slide indicates the freight rate evolution for 12 month time charters for our market. The figures are based on independent estimates by Lorentzen & Stemoco. As you can see highlighted in yellow, the segment is characterized by relative stability and rates have been steady over the past two quarters and the independent forecast for the second quarter of ’09 is that rates will remain steady for the 3,500 pressure segment and will drop by around 5% from the current levels in the 3,500 CBM semi-refrigerated vessels and will tend to carry gases at our best and for more industrial type usage.

Slide 12, we continue to believe that the forecasted minimal fleet growth of the handysize LPG segment in the year 2010 and the negative fleet growth in ’11, at the time several large scale natural gas projects come on stream, gives a fine and positive outlook for our core sector, raising expectation that the supply of LPG product that must be shipped at this time will increase.

We continue to believe that this supply/demand access is very encouraging for our company and it’s a virtually unique situation within the shipping industry, particularly given the conditions being faced by many of the other sectors of shipping today. With this important factor underlying, we’re certainly to continue to expand the company with future acquisitions, less positioning ourselves to take advantage of the expected positive market conditions in the years to come.

Slide 13, I wanted to include this slide for the first time, by taking a sample of different times of listed companies, a comparison of their price to net asset value compared to ours.

As you can see from the slide, based upon that that’s made available to us yesterday, we seem to present a very attractive prospect to investors, when benchmarked against these companies, who do not benefit from the fundamentals that we have just discussed. I believe that if you take another random sample of listed shipping companies, you will see a similar picture on a comparative basis.

We have taken very healthy companies, slightly healthy companies in order to be a fair comparison. I firmly believe that on this basis at least we are not being valued appropriately by the market and this ongoing chase is also partly responsible for the decision to suspend, for the time being at least our dividend, which we will discuss further just on the question side.

We have now actually reached the end of our presentation and would like to open the floor to you’re questions. So operator, please open the floor. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Natasha Boyden - Cantor Fitzgerald.

Natasha Boyden - Cantor Fitzgerald

You’ve mentioned in your release, asset values have held up better in the gas carrier market than other shipping sectors; can you perhaps provide some details, maybe in the percentage of how the assets values have declined in your sector, maybe vis-à-vis perhaps the other sectors?

Then perhaps can you talk about, has SMP activity improved at all in the LPG carrier market or is it still pretty much sort of dead on arrival as you’ve mentioned in the past?

Harry Vafias

The price drops on the other segments; you know them a better than I do, so I will not comment on that. The price drops for our ships; I’ll give you an example. A resale 5,000 CBM Japanese vessel was $23 million to $23.5 million one and a half year ago and today is in the region of $20.5 million to $21 million. So, you can get an idea from that.

What was the second part? No, they virtually non-existent, you can know the reasons again and the reason is, that excluding the big players on the gas arms of the big oil corporations, the smaller buyers, those ships do not have finance and thus they find it very difficult to pay up $10 million and $15 million and $20 million cash to buy one ship. So, this thing will change very soon, unless the banks start re-lending money, which everybody needs.

Natasha Boyden - Cantor Fitzgerald

So, let’s look at perhaps then with the dividend suspension that you’ve done. It’s obviously going to give you an extra $16 million, $17 million in cash and you’ve obviously moved into buying product tankers and that perhaps may not the best sector now going forward, given the problems that the product tanker sector is having.

So, what is your strategy going forward? Where do you think it’s the most attractive area for you to grow into right now or do you just think it’s prudent for you to kind of bring things in and sit on your cash and just sit there and wait for things to get faster? Can you just tell us, what is your strategy at this point?

Harry Vafias

We’ll take the interest charges that exist. Firstly, I don’t thing it’s the right time to buy anyway. So even if we have a bundle of money, we would still not buy, so that’s number one. Number two, anyway we will shift on the cash. Wait and see; I think there are going to be very interesting opportunities from September onwards.

I don’t think there are going to be very interesting opportunities on the gas side for the reasons explained, because the freight rates have not collapsed and secondly, the values have not collapsed. So, when and if we think it’s the time to buy, we will probably not buy gas carriers and we will buy something else. Now what this is going to be depends on what will happen in the next six to nine months.

Natasha Boyden - Cantor Fitzgerald

Can we assume that you’re probably not going to expand any further into the product sector; will that be a reasonable assumption?

Harry Vafias

No, I wouldn’t say that, because product tanker prices have dropped considerably and if you’re likely enough to find a relatively good charter, then it’s not too bad of an idea.

Natasha Boyden - Cantor Fitzgerald

The order book doesn’t scare you there?

Harry Vafias

Yes, its scares you a bit, but if you think that if you succeed in having a three to five year charter, then the order book will reward you five years down the line and I don’t think we’ll be avoid too much five years down the line, because of a lot of order cancellations, because of a lot of order postponements and because of hopefully more scrapping on the tanker side.

Natasha Boyden - Cantor Fitzgerald

Okay. Then moving on to a new bills, how are your new builds currently right now, tracked to be delivered on time?

Harry Vafias

Which new billings, the product tankers or the LPG’s? Product tankers, I think we’ve already discussed that. One will be delivered this month or the next and the other one is end of the year and LPG’s obviously is on time since we delayed anyway, so it’s already on time anyway.

Natasha Boyden - Cantor Fitzgerald

Right, but the ones at the end of this year is scheduled to be coming in on time?

Harry Vafias

The product tanker you mean?

Natasha Boyden - Cantor Fitzgerald

Yes

Harry Vafias

From what we know, yes. Now it’s time we have fill it, obviously we will discuss. I want stress that especially these products tankers which are expensive ships, have already been financed, so no worries about how we’re going to pay from them.

Operator

Your next question comes from Mike Drickamer - Morgan, Keegan

Mike Drickamer - Morgan, Keegan

Andrew, can you remind me what your cash payments are for the reminder of the ships to be delivered, when they’re expected to be paid?

Andrew Simmons

Yes. We have as Harry just said, the Stealth SV coming in May, which we owe around about $52 million on that ship, which is as Harry said, financed partly with the remainder in cash and partly by a committee facility from a Greek bank.

Then we have $18.8 million to pay on the sister ship of the Gas Astrid in June, which again already has a committed financing on it and then the final product tanker in November of this year, where we’ll have the same amount to payout as the Stealth SV and again partly financed by cash and partly financed by a committee bank facility.

Then we have no acquisitions at all in 2010 currently schedule and then the five handy LPG’s that we ordered, which now commence in February of 2011.

Mike Drickamer - Morgan, Keegan

For the vessels for February 2011, is that a committed facility yet?

Andrew Simmons

There is no facility on those vessels at the moment. It’s a bit far out, we have one or two people who have given us a sort of a very broad brushed indication, that I’d like to look at it, but you’re currently in the banking market; it’s difficult.

Mike Drickamer - Morgan, Keegan

Harry, you have the new slide in your presentation there on the evaluation. I have my own theory, but I’d love to hear your theory as to why you think the company is trading at such a steep discount to other shipping companies?

Harry Vafias

I didn’t get your comments.

Mike Drickamer - Morgan, Keegan

I was just wondering, what your theory is as to why your company trades at such a steep discount to your other shipping companies?

Harry Vafias

Everybody knows that Mike. It’s very simple; it’s not my theory, its everyone’s theory. The theory is firstly, market comp; secondly, a very niche market that nobody cares about; thirdly, very little volume; fourth, very little fluctuation in day rates, so borrowing stock. I don’t know; probably that’s it.

Mike Drickamer - Morgan, Keegan

So, then what are you doing to address the issue. Obviously you’re expanding outside of gas, which expands beyond the niche that nobody cares about. What else are you doing to address these issues?

Harry Vafias

I don’t think there’s many things we can do. We’ve been on the road shows; we’re trying to explain that we are not a dryable company, that’s partly why our sale price is trailing the BDI index. It’s very weird, but nobody appreciated up to yesterday our very, very good dividend that was yielding in the recent months 17%. Nobody appreciated as we grew five times the fleet, this result over blowing the best side of things.

So, if nothing is appreciated, management has to see what it’s going to do to add value in other way. So this cash that was destined to be a dividend, now it will be destined to come back to the company, and we will use it accordingly.

Mike Drickamer - Morgan, Keegan

Okay. So you don’t believe anybody appreciated the dividend and that’s why you’re no longer paying the dividend?

Andrew Simmons

I’m very happy that the dividend guys left the stock. I’m very happy that our volume is close to $500,000 today in a few hours of trading. This is a stock for people that understand this business, who understand the fundamentals. It’s not a stock for people that just want 15% or 16% or 17% yield per annum, it’s not for them. So I’m happy that the stock is down and these people are out.

Mike Drickamer - Morgan, Keegan

So you were basically a stable dividend with stable rates, a very conservative stable company and now you’re looking to possibly expand away from that, moving into product carriers or other shipping segments where perhaps there will be more growth, but there will be a lot more volatility in your earnings?

Andrew Simmons

No, I never said that, I said that I will sit on my cash and if there are very attractive bargains and we have the cash to spend and we have finance and I have to tell you that we’re one of the few great companies that get finance today and we’re very proud of that, we will look to maximize the earnings and maximize this equity potential, and we will do it when it make sense.

No, we will not be more, let’s say gamblers, because if we buy anything, again we will try to put it on long period as we did since day one with StealthGas.

Operator

Your next question comes from Doug Ruth - Lenox Financial Services.

Doug Ruth - Lenox Financial Services

What is the right level of leverage currently, do you think for the company?

Harry Vafias

I really don’t understand your question?

Doug Ruth - Lenox Financial Services

What amount of debt should be on the balance sheet? How should we look at debt-to-equity levels? What should be the right level of that?

Harry Vafias

In today’s environment, as you know very well, the lesser debt the better. So, I don’t think there’s a number that I can give you. Of course the lesser the debt in today’s environment, the better.

Obviously I will repeat again; for a company that grew from nine ships to 50 in five years, I think that 40% debt-to-market values, I think personally is a very reasonable level. If you look at other companies, public companies obviously, they have negative equity; which means of that the debt is higher than the values of the ships. So I think that we’re in a very, very good position.

Doug Ruth - Lenox Financial Services

Could you explain how the company accounts for the employees? How come the employees aren’t considered employees of the company, the people that work on the crew?

Harry Vafias

As we’ve discussed many times and you’ll see it in all our prospectuses and filings, StealthGas has no employees. We are very lucky about that. The only StealthGas employees are myself; the CFO and the Board Members and one Internal Auditor to be exactly correct, and the rest of the staff are indirectly working for StealthGas. They are not paid by StealthGas, they are paid by the management company and we pay a fee per ship to the management company.

Michael Drickamer - Morgan Keegan

Do you feel like that’s the best way to handle that?

Harry Vafias

It cannot get any cheaper than that. If you look at other companies that are managing their ships themselves or having the employees themselves; we are definitely between 25% and 35% cheaper. Cheaper meaning we have less costs, meaning cheaper.

Michael Drickamer - Morgan, Keegan

Okay and you continue to believe that focusing on the handy-size vessel is the right strategy, because there is less volatility?

Harry Vafias

As you can understand, to give you an example, very large gas carriers a new ship cost about $100 million and today it’s earning $6,000 a day. It has a non-inclusive breakeven of $55,000. So, if you have one of these ships, you’re losing about $24,000 to $25,000 per day. Our leaderships have running costs of $3,000. So even in today’s very bad market, when they’re earning $6.5 million, $7 million or $7.5 million, these little ships are making $3,500 to $4,000 profit per day. So I think that answers your question.

Michael Drickamer - Morgan, Keegan

Yes and what is the trend with the wages? Is there are any relief on that?

Harry Vafias

You mean the crew wages?

Michael Drickamer - Morgan, Keegan

Yes.

Harry Vafias

Up to last year before the crises we were quite stuck, because we had to increase wages on a regular basis, because there was a lot of competition for high spec crews. Now we still have the same problem, but I’m happy to say that it’s been relaxing a bit, because a lot of crews that were running from one ship to another are now jobless because of many idle ships and because of many cancellations of new buildings and scraping of older ships. So we feel we have this problem, but if the crisis continues, we hope that the problem is completely solved in the next one year.

Operator

Your next question comes from Ross DeMont - Midwood Capital.

Ross DeMont - Midwood Capital

A couple of quick question; Harry, is there a scenario under which the product tanker you’re expected to take delivery of at the end of this year, under which you might negotiated another solution and not necessary take delivery of that or even I suppose the Stealth S.V.?

Harry Vafias

Yes of course. As always we try to find the best solution for the company and our shareholders and definitely we have discussions with the sellers and the charters, but we have not reached an agreement yet. So, obviously we cannot disclose anything.

Ross DeMont - Midwood Capital

Okay and then just a modeling question on I think page nine, you gave us this financial estimator. What should we use as today’s spot rate for 40 to 50 CBM vessels?

Harry Vafias

40 to 50 is the average size. If you want to be on the safe side, use between seven and seven half.

Ross DeMont - Midwood Capital

Okay, so that comes down to about $75 million of EBITDA. Okay, and then can you just remind us on any other debt maturities or sort of financing needs other than the cash which has to be paid for the Stealth S.V., just for the Gas Astrid and if you take delivery for the final product tanker?

Harry Vafias

We need no other debt financing until 2011, unless of course we buy more ships.

Ross DeMont - Midwood Capital

Okay and for example, the $52 million you owe on the Stealth S.V., how much of that would be financed versus cash; would it be 70% financed?

Harry Vafias

It will be about 50% to 55%.

Operator

Your next question comes from Sean Moloney - Ship Management International.

Sean Moloney - Ship Management International

Just really one question Harry. Looking at driving costs for the day, how do you feel you’re going to achieve this moving forward, given the high credit costs and I know you talk about leveling out of those, but they’re still very, very high, but also the late management fees? How are you going to control costs even more?

Harry Vafias

We have been successful in controlling costs, same as you have seen from our results, much better than our competitors. If you see our competitor releases in the last three years, you will see a very big steep increase on a per quarter basis. We were one out of the few companies that not only get the cost steady, but in many cases the cost fell on a per quarter basis and it’s very simple; one year or double things your hands-on.

You don’t have too many third-party managers around the world. Obviously, you have a higher cost control and a much better cost control than as you understand having your vessel disbursed in three, four third-party managers around the world and this is what we’ve done.

As you know, the fleet is grouped between three different separate groups. One group is managed by our in-house management company; the second group is split between two third-party managers and the third group is vessels on bareboat. Up to now this strategy has worked very well and I think it will continue to do so because we are on top of it and we spend a lot of time on costs, instead of only looking for future strategies and how to raise equity and those kinds of things.

Now on the crew, just to answer that part of your question, we have been again, pioneers in using crew from different areas of the world, just to keep costs on bay, and because we have so many ships, the officers cannot blackmail us, because they know that if they don’t work for us, they have to go and work for much smaller gas companies.

They want to work for a big listed company and therefore in some cases they will accept 5% or 10% less to work for us than to work for a much smaller company, but they want to know if it’s around in the next nine months to one and half year.

Sean Moloney - Ship Management International

Okay, one last question, Harry. We’re starting to hear very, very quiet talk about the [Inaudible] the shipping market and certainly with China importing its largest ever amount of iron ore in the last three to four weeks and that’s having an impact on tank size rates. What are going to be the drivers do you think to move your sets out of doldrums and when will that happen? Also how concerned are you about the stability of your charters themselves going forward?

Harry Vafias

Number one, I don’t think we are near the end of the tunnel, so I wouldn’t open the champagne yet, number one. Number two, the crises started from the banks and will finish from the banks. China importing or not importing more dryable commodities doesn’t really affect my business; it doesn’t really affect the banks as you can understand, so it’s a seasonal thing.

Lastly, as I told you before, our freight rates are relatively stable. A drop of 10% is nothing compared to the 80% and 90% drops. We’ve seen in containers and big bulkers. So, I don’t think my charters will have any problem, because if there are losses if any, they are going to be much, much smaller than if they have very big tankers, bulkers or containers chartered in.

Operator

Your next question comes from Steve Emerson - Emerson Investment Group.

Steve Emerson - Emerson Investment Group

For us who are not intimately familiar with shipping, when you take delivery of these two product tankers based on today’s spot rates or let’s say charter rates, what kind of loses would you be seeing per day?

Harry Vafias

We have the vessels fixed. So, you mean what kind of losses you’re talking…?

Steve Emerson - Emerson Investment Group

Okay, then my apologies from my ignorance. I didn’t realize you had chartered out these vessels.

Harry Vafias

All our vessels, especially the expensive ones are charted out. If the vessels were not chartered, then we will definitely pay the penalty and cancel the deal.

Steve Emerson - Emerson Investment Group

Okay. What are the penalties to cancel?

Harry Vafias

There is no penalty to cancel, because the vessels are fixed, therefore we are not trying to cancel the ships.

Steve Emerson - Emerson Investment Group

Okay got it. I’ve been reading that China, due to the decline in ship orders and cancellations is going to be financing, call it speculative ship building to keep their yards full. In lieu of the fact that your sector is doing so well, have you been hearing about major builds coming in your sector?

Harry Vafias

Chinese shipyards do not build gas carriers, so I think that covers you.

Steve Emerson - Emerson Investment Group

I’m sorry, I didn’t catch that.

Harry Vafias

Chinese shipyards have not built gas carriers.

Steve Emerson - Emerson Investment Group

That’s a very good answer. Now what are the limitations or when might you be making a decision on buying back your stock in lieu of the table you gave us, where your company is far cheaper than the assets?

Harry Vafias

I don’t think we will be buying the stock back very soon, because number one, we don’t think that this is not the lowest price of our stock, number one. Number two, as I told you, we think there’s going to be very interesting opportunities as I said before. At the end of year in our segments, not LPG, and thus we’ll keep the cost and we’ll see we’re going to do with it.

Steve Emerson - Emerson Investment Group

Okay, but however it looks like now your segment, based on your stock is so cheap that it’s a compelling value or are you going to wait till September, end of year to make that decision. If it’s cheaper to buy your stock, do you have the capability or the legal; are you allowed to very significant amounts of your own stock in the company?

Harry Vafias

Of course, we’re allowed. We’re allowed to do whatever we like, but if you think it’s so cheap, why don’t you buy?

Steve Emerson - Emerson Investment Group

I have.

Harry Vafias

Good for you then. Then today you can buy some more, because it’s even cheaper.

Operator

Your next question comes from Mike Trainer - Milwaukee Private Wealth Management.

Jeff Geygan - Milwaukee Private Wealth Management

This is actually Jeff Geygan. On our last call, when I asked you the question about to suspending your dividend, you were very hesitant to do that for fear that you would encourage a third party to come in and make a hustle off of your company, do you recall that?

Harry Vafias

That’s true.

Jeff Geygan - Milwaukee Private Wealth Management

Okay, but today you have cut your dividend, so what has changed or do you anticipate that this action will in fact stimulate a third party offer?

Harry Vafias

I’m not a prophet, I don’t know if somebody will come. If somebody will come, we’ll sit and discuss. As you can understand from our slide number 13, as I will repeat again, we’re one of the cheapest healthy stocks out there. So if somebody thinks we’re indeed cheap and wants to discuss something, our doors are always open.

I have said always when we were discussing the dividend and review and with other investors I always said that we will be patient, but after a certain time limit. We’ve been patient for many, many, many quarters, despite the fact that except from two quarters the company’s stock was always trading below and heavy; always, always under performing despite the fact that we kept all our promises and despite the fact that the profit and the income of the ships was always very stable.

So since as I said before, nobody appreciates this very good dividend and since I was the biggest beneficiary of the dividend, I decided to sacrifice it and use the cash for a better reason, which we’re going to see in the next as I said, six to nine months; what that goal will be, I don’t know.

Jeff Geygan - Milwaukee Private Wealth Management

Well Harry, I appreciate that you may be the biggest beneficiary of the dividend, but you do have a fiduciary responsibility to the rest of us. So I trust that you will make decisions that are not only in your interest, but the interest of all shareholders and if in fact you’re stock is so cheap, maybe what’s in the interest of all shareholders’ is to buy it back.

Harry Vafias

A very good comment Jeff, but what happens if the crisis doesn’t finish and the charters of the product tankers go bankrupt for example, what happens then?

Jeff Geygan - Milwaukee Private Wealth Management

Well I’m not a prophet either.

Harry Vafias

Good. So as you can understand, because I’ve been in this business that’s 14 years old, I can tell you, we’re better to have the cash in the draw in this very, very challenging times, than immediately go and backbite your stock and have only $3 million, $4 million in the draw, because you never know what happens the next day.

Jeff Geygan - Milwaukee Private Wealth Management

That’s true. You said you’ve been in the business since you’re 14, but I should just clarify how old are you now, because the delta between 14 and today?

Harry Vafias

A very good comment, I’m 31

Jeff Geygan - Milwaukee Private Wealth Management

Yes, so you’ve been at 17 years right?

Harry Vafias

Correct.

Jeff Geygan - Milwaukee Private Wealth Management

Yes, okay. Well we continue to hold the stock. As shareholders we’re a little bit concerned. We want to make sure that your use of that cash is prudent and that if the best prudence costs for buying in your own shares that you don’t eliminate that, for some reason it may not be obvious to us?

Harry Vafias

I have not eliminated anything, but we’re not going to do anything with the cash for the time being as discussed.

Operator

Thank you. As we have no further questions, I’d like to turn the call back over to you gentlemen for any additional or closing remarks.

Harry Vafias

We would like to thank everyone for joining us at our conference call today and for your interest and trust in our company. We look forward to having you with us again for the next conference call, for our second quarter and half year ’09 results. Thank you very much everyone.

Operator

Thank you. That will conclude today’s conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!