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Globus Maritime Ltd. (NASDAQ:GLBS)

Q2 2013 Earnings Conference Call

September 4, 2013 11:00 am ET

Executives

Georgios Karageorgiou – President, Director, Chief Executive Officer and Chief Financial Officer

Nikos Kalapotharakos – Financial Controller

Operator

Thank you for standing by ladies and gentlemen, and welcome to the Globus Maritime Conference Call on the Second Quarter 2013 Financial Results. We have with us, Mr. Georgios Karageorgiou, President and Chief Executive Officer; and Mr. Nikos Kalapotharakos, Financial Controller of the Company. At this time, all participants are in a listen-only mode. (Operator Instructions)

I must advise you, the conference is being recorded today, Wednesday, September 04, 2013. This communication contains forward-looking statements as defined under U.S. federal security laws. Forward-looking statements provide Globus current expectations or forecast the future events.

Forward-looking statements include statements about Globus expectations, beliefs, plans objectives, intentions, assumptions and other statements that are not historical facts or that are not present facts or conditions. Words or phrases such as anticipate, believe, continue, estimate, expect, intend, may, ongoing, plan, potential, predict, project, will or similar words or phrases or the negatives of these words or phrases may identify forward-looking statements, but the absences of these words does not necessarily mean that the statement is not forward-looking.

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements.

Globus actual results could differ materially from those anticipated in forward-looking statements for many reasons, specifically as described in Globus’ filings with the Securities and Exchange Commission.

Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this communication. Globus undertakes no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this communication or to reflect the occurrence of unanticipated events.

You should however review the factors and risks Globus described in the reports it will file from time-to-time with the Securities and Exchange Commission after the date of this communication.

I now pass the floor to one of your speakers today, Mr. Karageorgiou. Please go ahead, sir?

Georgios Karageorgiou

Thank you, operator. Welcome to our conference call, and thank you for joining us today to discuss Globus’ operating and financial results for the three months ended June 30, 2013, and first half of 2013. I am Georgios Karageorgiou, President and CEO of Globus Maritime, and with me today is Nikos Kalapotharakos, our Financial Controller.

For those of you that just joined, please note that we have posted a slide presentation for this conference call, which you will be able to download in PDF by clicking on the banner titled “Second Quarter Earnings Conference Call” located on the homepage of our website. The same presentation can also be accessed from our Investor Relations page under the webcasts and presentations menu.

Let me quickly refer everyone to Slide #2, which contains the disclaimer about any forward-looking statements, which should be noted in the context of this conference call.

Let’s start with Slide #4 that highlights our performance. Our net loss for the quarter came to $1.1 million. Our gross revenue was $6.8 million, while our net revenue was $5.8 million. Our EBITDA was $2.5 million, and our average TCE rate was $8,838 per day, per vessel while our operating expenses came at $4,791 per day, per vessel. Our fleet utilization rate reached 97.4%.

Looking at the first half numbers, I’m pleased to report that despite the Q2 loss, we closed the half year with a profit of 200,000. Our gross revenue was $14.3 million while our net revenue was $12.8 million. Our EBITDA was $6.6 million, and our average TCE rate was $9,712 per day, per vessel while our operating expenses came at $4,333 per day, per vessel. Our fleet utilization rate reached 98.5%.

Moving on to Slide 5, our operating highlights, you will see that the Company’s fleet has remained at seven vessels with the Q2 numbers being 637 ownership days; 593 operating days; 91 days of bareboat income; and utilization of 97.4%. While the first half numbers, we have 1,267 ownership days; 1,220 operating days; 181 bareboat income days and utilization reaching 98.5%.

On the expenses front, I’m glad to report that our efforts to keep costs as low as possible continue to produce results as the quarterly figure came in at $4,791 per day, per vessel while the half year number was at $4,333 per day, per vessel.

Moving on to Slide 6, you will see our fleet and its employment profile. Since we have not made any changes, we remain at seven vessels with a total carrying capacity of 453,000 tons deadweight, and an average age as of June 30 of 6.6 years. You will notice that two vessels traded at spot market, and four other time charters. During the quarter we drydocked the Tiara Globe, and we expect that we will have one more drydocking until the year end.

Slide 7 is a graphical representation of the previous table. At the moment, our time charter cover for the remaining of the year is approximately 56% and 29% for 2014. We do not plan to increase our cover by fixing our operating vessels in long-term charters as we believe that charter rates are now at cyclical lows with good prospects of recovery within 2014. Therefore, we will continue to fix our vessels in the spot market, and in short time charters depending on the geographical position, and the market available charter rates of the time.

Slides 9 and 10 depicts the current spot market positions, and how the Baltic dry indices have performed lately. The first half of 2013 has remained challenging for ship owners due to the over supply of tonnage that has evolved in the last five years as net fleet growth during the period overwhelmed the increase in cargo volumes.

In June, STX Pan Ocean filed for court receivership in Korea quickly followed by Excel Maritime filing for Chapter 11 in the U.S. Yesterday, the BDI closed at 1,168 points with capesize spot earnings of around $16,300 per day, while the year-to-date average is at $8,150 per day. Panamax spot earnings are around $7,350 per day, while the year-to-date average is a little bit higher at $7,600 per day.

Supramaxes continued to outperform all other sizes with spot earnings around $9,820 per day, and year-to-date averages of $8,940, while Handys had an employment in the spot market around $7,660 per day, which is very close to their year-to-date average of $7,554 per day.

Even though average spot fleet earnings for this year are almost identical to the levels achieved in 2012, it seems that we are starting to see signs of a strengthening recovery in the global economy, and signs that we have reached the bottom of the dry bulk cycle.

The U.S., and lately Europe have demonstrated signs of increasing industrial output, and despite the recent downward revision of Chinese growth to 7.4%, China has continued to provide huge support for global shipping markets in the first half of 2013.

Iron ore imports reached their third highest level on record in May of this year, reaching $68.5 million tons. And the recent cape rally owning to the Chinese re-stocking of iron ore prove that China remains the biggest influence of dry cargo demand.

In general, we see the traders favoring a more just in time approach for the practitioners, but we also witnessed periods of support when commodity prices are low, and buyers are there to rapidly restock low inventories.

The improving conditions of the economies toppled with a minimal fleet growth anticipated for 2014 is fueling an increased mine activity mostly for Greek and Chinese owners, which in turn has resulted in a 15% to 20% rise in asset values year-to-date.

We believe that in order for the recent rises in new building and second hand asset prices to be sustained, the freight market will need to see earning support before the close of 2013.

The recent rally in the cape sector could be a sign that the market is starting to move in a direction, but would justify ship owners’ recent investments in the sector. The FFA market is also another reflection of this optimism, with Q4 rates trading at higher levels than current spot rates and future full year rates showing a gradual increase.

Slide 11 will bring you up-to-date with the latest developments in the dry bulk fleet. According to Braemar on August 1, the total dry bulk order book amounted to 1,445 vessels or approximately 16% of the existing fleet, while the net fleet growth of the fleet for the first seven months of this year was 4%, and forecast score for an 8% net fleet growth for the year end.

Even though we still expect vessel supply growth to outnumber cargo demand growth in 2013, this will be the last year of this phenomenon, as in 2014 the forecasts called for a minimal net fleet growth as new building deliveries are not expected to exceed 42 million tons deadweight, which corresponds to approximately 33% of the existing order book.

Scrapping for the first eight months of the year amounted to 15.6 million tons deadweight, which marks a 31% decrease in the rate from the record levels achieved in 2012 as scrap prices have deteriorated to about $355 per lie deadweight ton.

Unfortunately, with the Indian rupee struggling hold its ground since it reached 68 per dollar, the opportunity for further purchases of any deadweight tonnage by Indian scrap yards is limited. In Bangladesh, market is still open, but the price we can pay is low compared to what we were seeing a few months ago.

The improved fundamental conditions unfortunately have also triggered a new building contracting mini spike as 422 new vessels have been contracted since the beginning of the year signifying a 74% increase over the contracted rates of 2012.

Slide 12 talks about the iron ore and steel markets. It is now evident that the iron ore export capacity will not double in the years 2012 to 2017 as previously forecasted, but increase by approximately 50% to 1.9 billion tons.

China continues to import record volumes of iron ore. However, in the previous years, Chinese iron ore imports growth has been in line with GDP growth in the region of 8%. In the beginning of this year, Chinese seaborne iron ore imports from January until May 2013 totaled 312 million tons, up only 4% from the same period last year, indicating that GDP growth and subsequent iron ore demand maybe decoupling. In theory, that will probably be cancelled by the recent cape rally, and the increasing imports due to the Chinese re-stocking efforts that are carrying as we speak.

Despite the recent downward revision of the Chinese GDP to 7.4%, this year we also witnessed a change in policy under the new Chinese premier, whereas previously growth has been driven by infrastructure investment, and hence steel and iron ore demand; growth is now being driven by domestic consumption and urbanization. As such, steel production and consumption is now secondary to GDP growth, rather than the driver of it.

We do not expect China to return to its previous GDP growth levels. However, in our opinion Chinese demand looks at to continue at a slightly slower, but more just in time space. We are seeing a move away from large scale speculative stockpiling, and increasing spot shipments when iron ore prices are low. The recent cape rally demonstrates this very well.

As long as iron ore prices remain subdued and with plenty of new supply coming online, we expect iron ore demand to continue to be around 5% to 7% per annum. And if one takes into account, the vast steel consumption potential of India, Brazil and other developing countries, this demand growth rate should continue to be strong for many years to come.

Slide 13 is all about the increasing coal trade, which is supported by the low commodity prices and the low freight rates. This year started with strengthening coal demand from China with imports between January 2013 to May 2013, up 21% to 136 million tons year-on-year according to Galbraiths.

However, imports between April and May fell to 27.4 million metric tons, as words [ph] of import polices and weak local demand has suppressed buying activity. The predominant driver behind traders’ uncertainty is China’s proposed ban on low quality lignite imports in order to support the struggling domestic miners. If brought into play such a ban would most likely affect Indonesian exporters who will be directing their exports towards India.

This year we have seen strong increases in Indian coal imports, up over 40% year-on-year in May to 16.7 million tons according to Galbraiths. Falling global coal prices have offset the affect of a weakening rupee and allowed increasing coal fired capacity to be fueled by imported coal. Approximately, 70% of coal [ph] imports have been from Indonesia, 16% from Australia, and the remaining from South Africa, the U.S. and Mozambique.

With introduction of the new policy allowing power stations currently fueled by domestic coal to make up stock shortfalls by imported coal and pass the cost on to consumers, the decreasing domestic LNG supplies, and the ever increasing coal fired capacity, we see significantly increasing import demand from India. With the U.S. switching to gas and China implementing policies to encourage domestic usage, we expect India to become a dominant importer of coal in the global market.

Increased volumes of thermal coal we have also seen from the U.S. Gulf to Europe, as the U.S.’s shift to gas burn has provided a surplus of thermal coal available for exports to Europe as European renewables growth has slowed and is being replaced by cheap coal imports, a trend that we expect to continue as long as gas-powered capacity replaces coal in the U.S.

Columbian coal exports have been adversely affected this year by a ban implemented on nighttime rail transportation through urban areas and strikes at the country’s mines. Industry estimate for lost output are in the region of 5 million tons. But we expect to see that could recover in the second half of the year as the local issues get resolved and the government’s rising need of the funds provided by the exports.

In general, we’re confident that the steam coal trade will continue to be driven by excess supply and low prices justifying large increases in imports that help increase the demand for dry bulk shipping.

On the grain front, although we have a record soybean crop in South America, the exports are on the same levels as last year. As the region continues to suffer from logistical problems and seasonal rains that have caused loading delays at the ports. As a result, we see an increased number of vessels waiting at anchorage outside Brazilian ports.

Record volumes and subsequent delays mean an elongated South American grain season, which replaces the traditional peaks in ship earnings with a steadier and more prolonged flow of cargos with the potential for trading of the tonnage towards the end of the year if the South American exports overlap with the start of the U.S. grain season.

Nikos will now take over in order to discuss our financial results in more detail before I return in order to answer any questions that you might have.

Nikos Kalapotharakos

Thank you, George. I’d like now to discuss in more detail the financial results of the company for the second quarter of the year 2013, which should be at in conjunction with the detail that appear on Pages 7, 8, 9 of yesterday’s press release.

So let’s turn to Slide 15, which corresponds to the company’s statement of comprehensive income of the period. Early [ph] results and operational highlights mentioned can be found at Slide 5.

Net revenue for the second quarter of 2013 amounted to $5.8 million corresponding to an increase of 18% from $4.9 million during the same period last year. Net revenue for the second quarter of 2012 included a one-time charge of $1.7 million with reference to a charter that did not perform.

Excluding the aforementioned charge, net revenue for the second quarter last year accounts $6.6 million that if compared to the respective period in the current year corresponds to a decrease of 12% mainly attributed to the lower time charter rates achieved on average during the second quarter of 2013 compared to the respective period last year and despite the 4% increase in operating days, from 570 during the second quarter of 2012 to 593 during the second quarter of 2013.

Time charter equivalent rate or TCE for the second quarter of 2013 was $8,858 per vessel, per day as of close to $7,353 per vessel, per day for the second quarter last year corresponding to an increase of 20%.

Now [indiscernible] for the second quarter of 2012 is adapted with long-time charter of $1.7 million that was mentioned earlier. TCE, which is calculated on a net revenue basis for the second quarter last year accounts $10,696 per vessel, per day which is compared to the TCE achieved during the second quarter under discussion corresponds to the decrease of 17%.

Vessel’s operating expenses for the second quarter of 2013 amounted to $2.6 million or $4,791 per vessel, per day versus $2.3 million or $4,259 per vessel, per day for the respective period last year corresponding to an increase of 15%. It is important to note though that longer periods of time are more accurate in basing conclusions on rather than on a quarter-over-quarter basis.

For example, vessel’s operating expenses for the six month period ending June 30 amounted to $4.7 million or $4,353 per vessel, per day versus $4.9 million or $4,504 per vessel, per day for the respective period last year corresponding to a decrease of 4% which is in alignment to our convenient efforts towards improving our operational efficiency.

Total administrative expenses amounted to $0.7 million for the second quarter of 2013, much the same as last year. While this figures includes administrative expenses payable to third-parties of $0.5 million. Administrative expenses payable to related parties of $0.1 million and $61,000 of share-based payment expense prioritized during the period.

Adjusted EBITDA for the second quarter of 2013 amounted to $2.5 million against $1.7 million for the same period last year, which corresponds to an increase of 47%. Now if EBITDA for the second quarter of 2012 is adjusted by $1.7 million one-time charge with reference to the charter that didn’t perform last year it becomes $3.4 million, which is compared to adjusted EBITDA for the quarter ended discussion corresponds to a decrease of 26%.

Deprecation and amortization expense for the second quarter of 2015 decreased by $1.5 million and amounted to $2 million versus $3.5 million recognized during the respective period last year corresponding to a decrease of 43%. This figure includes depreciation expense with reference to the vessels cost, depreciation of dry docking costs and amortization of the fair value of time charters attached to the vessels Moon Globe and Sun Globe acquired during the second half of the year 2011. The decrease in the deprecation and amortization expense is attributed the lower depreciable book values of the vessels in our fleet resulting after the impairment charge of $80.2 million recognized during the fourth quarter of 2012.

Now, with reference to the impairment loss recognized during the second quarter of 2015, it is fully attributed to the vessel Tiara Globe, which during December 2013 was classified as non-current asset held for sale and it is subsequently measured at the lower of its carrying amount and its fair value less cost to sell.

During the second quarter of 2013, Tiara Globe had its Special Survey, which increased its carrying amount by $0.8 million while its fair value less cost to sell as of June 30, decreased by $0.2 million leading to an impairment charge of $1 million.

Interest expense and other finance costs increased by $0.1 million, or 13%, to $0.9 million during the second quarter of the year, compared to $0.8 million during the respective period last year. The increase is mainly attributed to the increase in our weighted average interest rate to 2.54% during the second quarter of the year 2013 from 2.13% during the same period last year resulting by an increase in the margin over LIBOR in one of our debt facilities with effect from the beginning of the current year.

As a result of the aforementioned, we had a net loss for the second quarter of 2013 of $1.1 million or $0.13 loss per share versus a net loss of $2.4 million or $0.27 loss per share for the respective quarter in 2012.

If you turn now to Slide 16, you will find our statement of financial position as of June 30, which is in conjunction with Page 8 in our press release. Main points of focus are the reduction in our total cash balances to $6.12 million as of June 30 and $11.7 million as of December 31, 2012 and respectively the reduction in our bank debt net of amortized discount from $105.5 million as of December 31 to $95.4 million as of June 30.

A popular presentation of bank debts development during the first half of the year can be found in Slide #18. So let’s now turn to Slide #17 which corresponds to the Company’s cash flow statement for the period. Net cash generated from operating activities for the second quarter of 2013 amounted to $3.2 million as apposed to $2.7 million for the second quarter of 2012.

Net cash used in financing activities during the second quarter of 2013 amounted to $9.8 million and consisted of $8.8 million of bank debt repayment $1 million of interest and finance costs paid. On the other hand, net cash used in financing activities during the second quarter of 2012 amounted to $3.4 million and consisted of $1.4 million of bank debt repayment, $0.9 million of interest and finance cost paid and $1.1 million of dividends paid to our shareholders. As of June 30, 2013 our cash balance is as mentioned earlier amounted to $6.1 million and our outstanding bank debt amounted to $95.7 million broacher for an amortized they discount.

I would like now to turn the floor to George so we can move on to the Q&A.

Georgios Karageorgiou

Thank you Nikos. Operator you can now open the floor to questions.

Question-and-Answer Session

Operator

Thank Mr. Karageorgiou. (Operator Instructions). And from International Capital [ph] we have a question from Peter Bodmark [ph]. Please ask your question sir.

Unidentified Analyst

Hi. I have two questions; the first one your operating expenses continue to be low in fact lower than your peers. How are you able to achieve this on a consistent basis?

Georgios Karageorgiou

Thank for you for the questions. Just keep them coming up. Well we are focusing on developing and maintaining a cost control/operational business culture, mainly through promoting complaints budgets and by the budgeting procedures and through continuous monitoring of expenses. While the implementation of our recently installed ERP software also helps our technical and operations teams to implement more informed and cost efficient strategies both the maintenance and operation of the fleet.

But in addition to that we believe that what differentiates us from our peers is our structure, we utilize an in-house technical and operations management provided by our fully consolidated management company, which operates as s cost center for us rather than having to outsource management which would have operated as a profit center instead. Thank you.

Unidentified Analyst

The second question regarding the seasonality of dry bulk shipping. We are coming up on the U.S. grain trade now in September and through October. When you look at your fleet mix especially those ships you have on spot charters, how do you see your fleet benefiting in Q4 if at all from the upcoming U.S. grain trade.

Georgios Karageorgiou

Thank you for the question. I had already touched upon these earlier when I was talking about the grain trades. Currently you will notice that we have the Tiara Globe and the Star Globe, Panamax and Supramax which will be available for chartering within September.

Both of these types of vessels are going to be the big benefactors of any big changes that might occur due to the initiation of the North American grain season. The main reason is that we hope that a lot of vessels which used to be tied up in the South American grain export season, which this year is continuing at a very strong rate despite the prolonged period that it has started.

We expect that a lot more vessels will be tied up in that trade, which will make the availability of Panamax and Supramax for the North American grain trade more scarce and that will have to be accompanied by an increased fright rates. This is why we are keeping both the Tiara Globe and the Star Globe on short-term support charters in order to benefit for the anticipated increase in rates from September onwards.

Unidentified Analyst

Okay. Well, thank you very much.

Georgios Karageorgiou

Thank you.

Operator

Thank you. (Operator Instructions) As there are no further questions, we now pass the floor back for closing remarks to Mr. Kara Georgio.

Georgios Karageorgiou

Well, I’d like to thank everybody for participating in this call and look forward to talking to you again in three months time in order to review the Q3 results for the company. Thank you very much operator and that concludes our call.

Operator

Thank you very much and many thanks to both our speakers today. That does conclude our conference. Thank you for participating. You may now disconnect. Thank you, gentlemen.

Georgios Karageorgiou

Thank you.

Operator

Thank you. Bye-bye.

Georgios Karageorgiou

Bye-bye.

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