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Globus Maritime Limited (NASDAQ:GLBS)

Q3 2013 Earnings Conference Call

November 21, 2013 09:30 AM ET

Executives

George Karageorgiou - President and CEO

Nikos Kalapotharakos - Financial Controller

Analysts

Nicholas Bender - Wunderlich Securities

Operator

Thank you for standing by ladies and gentlemen, and welcome to the Globus Maritime Conference Call on the Third Quarter 2013 Financial Results. We have with us, Mr. George 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. There will be presentation followed by a question-and-answer session. (Operator Instructions).

I must advise you this conference is being recorded today, on Thursday, November 21, 2013. This communication contains forward-looking statements as defined under U.S. federal securities laws. Forward-looking statements provide Globus’ current expectations or forecast of 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, belief, 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 that 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 disclosed in the reports it will file from time-to-time with the Securities and Exchange Commission after the date of this communication.

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

George Karageorgiou

Thank you, operator. Welcome to our conference call, and thank you for joining us today in order to discuss Globus’ operating and financial results for the three months ended September 30, 2013, and the first nine month for the year. I am George 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 from 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 number 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 number 4 that highlights our performance. Our net income for the quarter came to $1.2 million or $0.12 per share. Our net revenue was $6.9 million, while our EBITDA was $3.6 million. Our fleet utilization rate reached 99.7%.

Looking at the nine month numbers, our net income increases to approximately $1.4 million. Our net revenue was $19.7 million and our EBITDA $10.2 million. Our fleet utilization rate reached 98.9%.

Moving on to slide number 5, our operating highlights, you will see that the company’s fleet has remained at seven vessels with 644 ownership days, 642 operating days and utilization increasing 99.7%. For the quarter, the average daily time charter equivalent rate came to $10,212 per vessel per day.

On the expenses front, I’m glad to report that our efforts to our keep costs as low as possible continue to produce a noteworthy result of the quarterly figure came to $4,774 per vessel, per day while the nine month figure remains at $4,482 per day per vessel, one of the lowest in the industry.

Slide number 6 will show you our fleet and its employment profile. As I said, we have remained at seven vessels while the average age of the fleet as of September 30, 2013 was 6.8 years. You will notice that Tiara, Sky and Star Globe trade in the spot market, the Moon and the River Globe trade on short period time charters which expire within the first quarter of next year and the two remaining vessels the Sun Globe and the Jin Star under their existing long-term time charters. During the past quarter we did not have any dry dockings.

Slide seven is a graphical representation of the previous table. We believe that market rate has started to recover and as such we will refrain from fixing any of our available vessels on long period charters, instead we will be employing more than 70% of our fleet base for 2014 in a spot market or on short time charters and expect that this strategy will maximize our earnings potentials for the year.

(inaudible) you should note that the two vessels that will trade on long-term time charters trade at the rates which are much higher than what the market offers today and both of them will expire in early 2015.

Slide 9, outlines the current market conditions. Freight rates for bulk carriers have increased significantly within the quarter especially in the Capesize sector where spot earnings rose from $15,000 per day to well above $40,000 per day before attracting again to the recent levels. Freight rates in the smaller sizes also climbed although more moderate reason for capes. The strength in the Capesize sector was mainly driven by stronger Chinese steel demand. Increased steel production combined with a need for restocking of iron ore inventories at decrease commodity prices, increase the demand for iron ore, which will combine with the slow streaming Capesize fleet and the longhauls from Brazil created the perfect conditions for a rapid increase in freight rates. The strong markets for the capes soon had a spillover effect on the smaller sizes which also benefited by the beginning of U.S. gulf grain and soybean expert season and strong exports coming out of the Black Sea.

During the quarter, we also witness increased demand for minor bulks as in some segments the trade grew faster than the fleet. Short term time charter rates are now at levels where the majority of ship owners should be either breaking even or even making a small profit. The accessory market has also moved considerably and despite some short-term pessimism associated with a traditional weakness experienced in the first quarter of every year, the forward rates for 2014, 15 and 16, point to increasingly higher levels.

The increase in the freight rates has also created a change in sentiment that worse is behind us thus setting ship owners and financial investors into massive acquiring mode. Second hand values have increased by 20% to 25% since the end of last year, while new building contracts gained approximately 15%. The revised interest in the new buildings came at the right time for the [shipyards]. The biggest ship builders have already sold their 2015 [barrels] and have now marketing the 2016 barrels. Some yards are also trying to make to take advantage of the current market by asking a premium for 2015 deliveries which could be squeezed into their production lines.

Slide 10, shows how demand has developed so far in 2013, and what the prospects are for next year. Year-to-date, trade data indicates of around 6% increase has been achieved in dry seaborne trade, compared to the same period last year. China continues to dominate the market, as it accounts for more than 40% of the trading dry bulk commodities. Chinese imports rose more than 11% so far this year of which iron ore grew about 9%, coal about 20% and other cargos by 11%. Indian coal imports also rose by 20%, while Brazilian fertilizer imports grew by 40%.

Analysts are projecting an even stronger 2014, and based their estimates on the faster growing world economy and the continued Chinese appetite for commodities. Over the next year around 80 million tons of new iron ore export capacity will become available in the market, which should have decreased the commodities price and boost imports even further, at the expense of domestic production which is phasing deterioration in quality, as well as escalating production costs.

China’s coal demand will also continue to rise as it frequently utilized arbitrage opportunities in order to [short] the commodity at a lower cost. Currently only 6% of their demand is covered by imports. So even gradual decreases in consumption can lead to big increases in imports if the commodity can be sourced at the right time, at the right price from overseas.

A seasonal up-string in steam coal transport should also be expected ahead of the winter season. A strong increase in grain transportation is expected over the coming months attributed to the increased supply coming from the U.S. and Russia. The lower grain prices that exist internationally and the low inventories in major importing countries. In total, we expect total seaborne dry bulk trade to continue to increase by 5%, 6% annually over the next few years, while tonnage demand is [expected] to increase somewhat more due to the lower fleet speed, higher port congestion and longer hold trade routes.

Slide 11 shows the supply side of our industry and how that has developed year-to-date as well as what the forecast show for the next couple of years. Year-to-date the dry bulk fleet has had deliveries of 53.1 million tons deadweight and the expected total deliveries for 2013 will be about 65 million tons deadweight. Year-to-date scrapping of 18.3 million deadweight equates to approximately 20 million deadweight tons of scrapping by the year-end.

(inaudible) continues to claims around 30% of the schedule deliveries. However in the second half of the year the percentage has significantly dropped. Comparing the dry bulk fleet in service between January and October 2013 we see an increase of approximately 6% in terms of deadweight. However we're three more months left in 2013 and assuming there would be of slippage that fleet will grow finally between 7% and 8%. So far with the exception of the Handymax fleet that did not grow at all, all other segments grew between 4% to 8%. One interesting finding is that the Capesize fleet has only grown by 4% so far this year which partly explains why China’s recent restocking has assisted the recent boom in freight rates.

For 2014, we expect deliveries to reach 40 to 45 million tons deadweight and scrapping to amount 15 to 16 million tons deadweight, resulting in an average fleet expansion of around 4% which will be the lowest net fleet growth we have witnessed in the last decade. But more importantly, it will be a year where demand growth will overcome ship supply.

In terms of new ordering, year-to-date, the dry bulk order book has added 54.6 million tons deadweight of [Utah] orders. This number almost equates the amount of year-to-date deliveries of 53.1 million tons. The order book currently stands at approximately 90% of the dry bulk fleet, about 1% less than what the order book percentage was last January.

While there are many concerns on whether the new orders will drive the market down again once the new deliveries commence to accelerate in 2016, the second half of 2013 has shown that the market is more thinly balanced than what was previously believed. It is our opinion that with the fleet growth of around 4% and the national demand growth of 6% to 7% per annum, dry bulk fundamentals are in general expected to improve over the next 24 months. And thereby result in higher average earnings for all sizes compared with the average earnings of 2013.

Nikos will now takeover 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 would like now to discuss in more detail the financial results of the company for the third quarter of the year 2013, which should be in conjunction with the details that appear on pages 7, 8 and 9 of yesterday’s press release.

So let’s turn to slide number 15, which corresponds to the company’s statement of comprehensive income for the period. Early results and operational highlights mentioned can be found on slide number 5. For the three months period ended September 30, 2013 and 2012, our revenue was $7.6 million and $7.4 million respectively.

The 3% increase in revenue was mainly attributed to bulk bonuses received and recognized during the third quarter of the year 2013 amounting to approximately $0.9 million and [23%] increase in operating days to 642 days during the third quarter of 2013 from 625 days for the same period last year mainly due to the Sun Globe dry dock that took place during the third quarter of 2012.

The increase in revenue is also depicted in the increase on the fleet time charter equivalent rate to $10,212 per vessel per day during the third quarter of 2013 from $9,868 per vessel per day achieved during the same period last year.

Vessel’s operating expenses for the third quarter of 2013 amounted to $2.6 million or $4,774 per vessel per day versus $2.5 million or $4,611 per vessel per day for the respective period last year corresponding to an increase of 4%.

It is important to note though that longer periods of time are more accurate basing conclusions on rather than on a quarter-over-quarter basis. For example, vessel’s operating expenses for the nine months period ended September 30, 2013 amounted to $7.3 million or $4,482 per vessel per day versus $7.5 million or $4,540 per vessel per day for the respective period of last year corresponding to a decrease of 1%.

Adjusted EBITDA for the third quarter of 2013 amounted to $3.6 million against $3.4 million for the same period last year corresponding to an increase of 6% mainly attributed to the increase in our revenue.

Depreciation and amortization expense for the third quarter of 2013 decreased by $1.8 million and amounted to $1.7 million versus $3.5 million recognized during the respective period of last year corresponding to a decrease of 51%. This figure includes depreciation expense with reference to the vessel’s cost, depreciation of dry docking cost and amortization of the fair value of time charters attached to the vessel’s Moon Globe and Sun Globe acquired during the second half of the year 2011.

The decrease in the depreciation and amortization expense is attributed to 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 2011, sorry 2012 and to the expiration of the time charter attached to the vessel Moon Globe during August.

Interest expense and other finance cost increased by 5% due to the increase in our weighted average interest rate 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 net income for the third quarter of 2013 of $1.2 million or $0.12 earnings per share versus a net loss of $0.8 million or $0.09 loss per share for the respective quarter of 2012.

If you turn now to slide number 14, you will find our statement of financial position as of September 30, 2013 in conjunction with page eight in our press release. Main points of focus are; the reduction in our total cash balances to $6.8 million as of September 30th from $11.7 million as of December 31, 2012 and respectively the reduction in our bank debt net of an amortized discount from $105.5 million as of December 31st to $94.5 million as of September 30th. Popular presentation on bank debt development during the year 2015 can be found at slide number 16.

Let’s now turn to slide number 17, which corresponds to the company’s cash flow statement for the period. Net cash generated from operating activities for the third quarter of 2013 amounted to $2.4 million as opposed to $2.3 million for the third quarter of 2012. Net cash used in financing activities during the third quarter of 2013 amounted to $1.8 million and consisted of $0.9 million of bank debt repayments, $0.7 million of interest and finance cost paid and $0.2 million of preferred dividends paid.

Net cash used in financing activities during the three month period ended September 30, 2012 amounted to $2.2 million and consisted of $1.4 million of debt repayment, $0.7 million of interest and other finance cost paid and $0.1 million of preferred dividends paid.

As of September 30, 2013, our cash balances as mentioned before amounted to $6.8 million and our outstanding bank debt amounted to $94.9 million gross of an amortized debt discount.

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

George Karageorgiou

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

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Nicholas Bender from Wunderlich Securities. Please go ahead.

Nicholas Bender - Wunderlich Securities

Yes, good morning gentlemen and congratulation on a very nice quarter. It certainly seems the prevailing conditions are little more conducive to some of these nice results. I just have a couple of questions around some sort of more specific events during the quarter. The first is on utilization, obviously utilization an excellent 99.7% with no dry docking. I believe you said back in the second quarter that you thought you might have another vessel and dry dock in the second half of this year. And I just wondered if you could update us on the status of that and whether you expect, I know you said you don't expect it before the end of 2013, but perhaps early in 2014 or something of that nature?

George Karageorgiou

Thank you, Nicholas. You're absolutely right. In the previous call we said that there might be an opportunity to dry dock, the Moon Globe within 2013. However, due to the trading pattern of the vessel, we will not be able to dry dock the vessel within this year. My best guess is that the Moon dry docking will be expanded towards the first quarter of 2014.

Nicholas Bender - Wunderlich Securities

Okay. Thank you. That's helpful. Looking at depreciation and amortization certainly the decreases make sense as far as the low depreciable base volume, the impairment charge, as well as the amortization of the prior Moon Globe charter, I guess my question is as I look at it from a modeling perspective moving forward. Do you expect to see D&A come down any more sequentially in coming quarters or should it sort of stabilize around this $1.5 million level or in this range for now?

Nikos Kalapotharakos

Yes. We are expecting to be stable for the next quarter.

Nicholas Bender - Wunderlich Securities

Okay. And then the last question I had related to the [dead] load certainly a couple of $5 million of principal payments coming up during the fourth quarter. Can you just provide a little bit of an update on your liquidity situation, you obviously feel comfortable on making those prepayments, do you still foresee any asset dispositions or anything like that in coming quarters?

George Karageorgiou

Thank you, Nicholas. As you know, we still have the Tiara Globe in our books as [ahead of foresee] which means that we are actively looking to sell the vessel. The vessel at the moment if we do sell it will fetch around $11 million worth. So we are in discussions with various people about the Tiara Globe, but we have not yet decided and we have not yet concluded that we will be selling the vessel at these levels. I remind you that the vessel is now earning $13,500 a day consistently from the beginning of the summer all the way up until now. So she is a very good earner and we had just completed her drydocking in May and the vessel is earnings quite healthy returns. So for the time being, we have the luxury of sitting back and waiting in order to get the right offer before selling the vessel.

In terms of principal repayments, you are absolutely right we need to pay a little more than $5 million by the year end to Credit Suisse and DVB. We have that money available. We have some -- we have increased cash balances today due to the increase in the freight market and I don’t foresee any problem in satisfying that principal repayment before the year end.

Going forward, I would like to emphasize that the company repays debt at an extremely aggressive rate. We are paying down debt at two times our depreciation charge. In other words, we are creating equity value extremely fast. We will continue to do so as long as the market allows us to be cash flow positive. And if the rates continue to be where they are today, we are cash flow positive, so there is no need in altering the city payment profile.

So we are in an extremely good position vis-à-vis the banks. We are repaying debt extremely fast, the banks love us, and our loan to value covenants have decreased significantly. We now comply with the loan to value rations that we had in the loan agreements prior to receiving the waivers. So I think we are in a unique position to explore very good 2014.

Nicholas Bender - Wunderlich Securities

Thanks. That’s a great color. And certainly you guys have been very aggressive on the debt front. So I commend you for that and I appreciate all the color, congratulations again and talk to you soon.

Operator

(Operator Instructions). Your next question comes from the line of (inaudible). Please go ahead.

Unidentified Analyst

As it relates to your interactions with charters and given the improvement that we have seen in spot rates over the last three or four months, have you started to see an increase in interest or increase and increase from charters, whether asking if you have any available ships for one year charter or three year charter? Also the follow-up, even if you are not looking at the duration at this point, are you at least seeing an increase in enquiry levels or they are not there yet?

George Karageorgiou

Yes, the enquiry levels have increased substantially, most of the charterers would like to secure (inaudible) before the market rises even more. So yes, we have received a lot of enquiries. However, as I said earlier, we are not willing to make -- to book vessels on long-term charters at this moment. We believe that it will be better to operate in on in the spot market or on short-term time charters in order to maximize the earning potential of the fleet, or next year, only about if you see there is a graph on page six or seven if I am not mistaken, which shows that for next year only about 29% of our revenue base have been fixed at very higher rates 16,000 per vessel day and 14,250 as a bareboat charter. The remaining 71% of the available days will be traded in entirely in the spot market or on time charters that are less than six months duration.

Unidentified Analyst

Great, thank you very much.

Operator

(Operator Instructions). There seems to be no further questions. I would like now to pass the floor back to Mr. Karageorgiou for any closing remarks. Thank you, sir.

George Karageorgiou

Thank you, Operator. I would like to thank everybody for participating in this call. And I am looking forward to talking to you again at the end of February next year when we’ll present the year-end results. Thank you for participating. And bye, bye.

Operator

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

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