Seanergy Maritime Holdings Corp. (NASDAQ:SHIP) Q1 2017 Results Earnings Conference Call July 5, 2017 9:00 AM ET
Stamatis Tsantanis - Chairman and CEO
James Jang - Maxim Group
Thank you for standing by, ladies and gentlemen, and welcome to the Seanergy Maritime Conference Call on the First Quarter 2017 Financial Results. We have with us Mr. Stamatis Tsantanis, Chairman and Chief Executive Officer of the Company. At this time, all participants are in listen-only mode. There will be presentation followed by a question-and-answer session. [Operator Instructions] I must also advise, the conference is being recorded today. Please be reminded that the Company publicly released its financial results which are available to download on the Seanergy website at seanergymaritime.com. If you do not have a copy of the press release, you may can contact Capital Link at 212-661-7566, and they’ll be happy to send it to you.
Before turning the call over to Mr. Tsantanis, we would like to remind you that this conference call contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, considering future events and the company’s growth strategy and measures to implement such strategy. Words such as expects, intends, plans, believes, anticipates, hopes, estimates, variations and such words and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks and are based upon a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Company.
Actual results may differ materially from those expressed or implied in such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to competitive factors in the market in which the Company operates, risks associated with operations outside the United States, change in rules and regulations applicable to the shipping industry, and other risk factors included from time-to-time in the Company’s annual report on Form 20-F and other filings with the Securities and Exchange Commission.
The Company’s filings can be obtained free of charge on the SEC’s website at www.sec.gov. The company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with respect thereto or any changes in events, conditions or circumstances on which any of the statement is based.
Now, I will pass the floor to Mr. Tsantanis. Please go ahead, sir.
Thank you, Carlos. Good morning, everyone, and thank you for joining Seanergy today. I would like to open this call with the statement about the dry bulk market. In Q1 of 2017, our industry started to experience the improvement of the market fundamentals especially when comparing with the same period last year. To remind everyone, in the first quarter of last year in 2016, we saw the great market collapse to the lowest point of the last 30 years, which of course affected the asset values as well.
The average daily time charter equivalent rate or TCE of a Capesize vessel was around $3,500 per day, while the value of a 5-year old ship dropped approximately $20 million. Just to put things into perspective, the relevant 20-year averages are $33,500 per day for the TCE rates, 10 times more than the lows of last year, $48 million for the value of a 5-year old Capesize to 150% more than the lows of last year.
In the first half of 2017, the dry bulk market improved considerably compared to the historic lows. The Baltic Capesize Index picked at around $20,000 a day in March and the value of 5-year old Capesize exceeded 32 million. [Ph] Still, despite this recovery, the Time Charter Equivalent rate is well below the 20-year average, so is the relevant Capesize value.
Regarding our Company, the improved market conditions and our larger fleet helped us achieve a 90% increase in the revenues and allowed us to make considerable headway forward to the successful implementation of our business plan.
Since the beginning of 2016, we have increased our fleet capacity by almost 47%, reaching 1.7 million deadweight tons through the acquisition of three additional modern Capesize vessels, taking advantage of the lowest value environment. We have achieved an accretion of around 27.9 million for our Company, thanks to the excellent timing of our acquisitions, as well as a gain from our $0.70 on the dollar refinancing, that is expected to be completed by the end of September. We have secured strong time charter contracts for two of our Capesizes that are estimated to generate considerable revenues for Seanergy.
I will now discuss the most important developments that have taken place so far in 2017. Starting up with fleet expansion, in March 2017, we acquired another modern Capesize vessel built in 2012 in Hyundai of South Korea at a price $32.65 million. The new vessel was delivered recently and commenced employment under time charter contract to major European utility and energy company for a period of about 12 months to 18 months at a gross rate of $16,200 per day. This employment is expected to generate approximately $8.8 million of gross revenue, assuming the full period of 18 months. More on the employment front, in March 2017, we also extended the time charter contract for the Lordship for a period of 18 months to 22 months with a major European charterer. The charter will be based on the 5 route average of the Baltic Capesize Index. Moreover, we have the option at any time to convert the index linked rate into a fixed rate corresponding to the prevailing value of the Capesize forward freight agreement for a duration of three months to 12 months.
We strongly believe in the superior fundamentals of the Capesize market and we view the willingness of first class charterers to pick their vessels on long-term time charter contracts at improved rates as a clear indication of the -- market. I will elaborate further on this point later in this call.
Moving on to financial developments. In March of 2017, we agreed with one of our lenders to settle a $39.4 million credit facility by prepaying $28 million. This is $0.70 on the $1, as I mentioned earlier. Upon completion of this transaction by the end of September, the associated gain is expected to be approximately $11.4 million and the relevant shareholder equity accretion is expected to exceed 30%. Another important banking achievement for our Company is that we agreed with four of our major lenders on the proactive waiver and deferral of our financial covenants until the second quarter of 2018. And by proactive, I mean we didn’t have any pressure or covenant breach whatsoever, we just wanted to eliminate potential trivial distractions for the next 12 months.
I will now discuss our completed equity offerings. Contrary to some of our peers that continuously dilute their shareholders using toxic products, we have decided recently to discontinue a small at-the-market equity offering program. This ATM merely lasted between February and April of 2017, and we raised approximately $2.9 million in gross profits. An important point I want to make is that since August of 2016, we have raised $28.3 million of gross profits from public equity offerings including the ATM and we have utilized these funds in the most conservative way as we have pursued and completed highly accretive transactions. In particular, we have used the process of the offerings to partly fund the acquisitions of our three recent Capesizes as well as to finance the prepayments under the early termination of the credit facility discussed earlier.
The combined accretion in value we have created for our shareholders from these transactions is more than $27.9 million, which is derived from the market value appreciation of the acquisitions and the expected gain of the refinancing, this means, almost 100% appreciation for the funds with the new investors entrusted with us.
On May 24, 2017, the Company entered into an $18 million senior loan facility with Amsterdam Trade Bank to fund part of the acquisition cost of the partnership. As of the date of this press release, we have fully drawn down the facility. On the same date, we entered into a $16.2 million senior loan facility with Jelco to partly fund acquisition cost of the partnership again. As of today, the Company has fully drawn down the facility.
Lastly, I’m pleased to announce a new addition to our Board of Directors. Effective May 4, 2017, Mr. John Kartsonas has been appointed as a member of our board. John brings more than 18 years of experience in finance and commodities trading to our Company, having held senior positions in investment management and equity research, focusing on shipping and commodities. John is a New York resident and is currently the Principal and Managing Partner of Breakwave Advisors, a commodity-focused advisory firm based in New York.
Turning to our financials, as of March 31, 2017, our shareholders’ equity was $26.7 million; our total cash balance was $6.9 million while total debt outstanding was approximately $216 million. In the first quarter of 2017, our net revenue was equal to $13.3 million, up by 90% from $7 million in the same quarter of 2016. The increase is attributable to an increase of 14% in operating days and to 104% increase in our daily TCEs.
Fleet average daily operating expenses were equal to $4,650 per day, 9% improvement over the same period last year. Needless to say that we have one of the lowest daily OpEx figures in the industry, including the management fees.
Moving on to the review of industry conditions. As already mentioned, 2016 was the worst year for the dry bulk market since the late 1980s. However, it was a strong close to the year as demand for core commodities of iron ore and coal increased by more than 4.5%, which draw a significant increase in charter rates that carried over to the first quarter of 2017. Average Baltic Capesize rates picked at the levels close to $20,000 per day in March 2017 and even as the market has declined since then, it should be noted we are seeing the strongest market of last three years. As an indication, the 5 route BCI average has more than doubled when compared to both 2016 and 2015 and has reached levels of about [11,000]. We are therefore seeing a positive market trend develop, which we believe is part of long term recovery in Capesize rates and asset values.
As mentioned earlier, this strength is reflected in the period of charter market, where we have seen so far an impressive number of 110 fixtures, period fixtures year-to-date in 2017, compared to 79 period fixtures in the whole year of 2016. The average daily rate agreed in the 2017 fixtures is almost double than the near average of 37,700, we saw in 2016. This marks an important improvement of underlying market dynamics and charters are willing to pay relatively healthier rates to components for longer periods. We also expect this trend to continue to improve.
Long-term, we estimate the demand for sea bulk transportation of iron ore and coal will continue to be strong, a significant export oriented capacity expansion has started taking place in Brazil, Australia and Africa. As a result, we view the ultimate increase in shipping demand to improve steadily. At the same time, the growth in dry bulk fleet has slowed considerably as yards and owners mainly focus on limiting existing vessel orders, one we’re seeing very limited interest for new buildings.
According to Clarkson’s research, in 2017, the global trade of the dry commodities is forecasted to increase by 4.1%, which implies an incremental fleet requirement of 5.6%. However, the global dry bulk fleet is expected to increase only by 3.9%, meaning a current deficit of 1.7%. As a result, I believe that the expected increases in demand along with aforementioned historical slowing of supply growth over the next two years will lead to higher charter rates and much higher vessel values.
On the final note, Seanergy is one of the best positioned companies to capture the significant upside of the market. We have the strongest focus in the Capesize vessel, which presents the best dry bulk fundamentals. Our Capesize cost base is the lowest in the peer group with no expensive legacy acquisitions. Our lower breakeven rates will deliver significant cash flows. And finally, we have solid corporate governance with no related bad [ph] transactions in ship management. Our main strategic objective is to continue our fleet expansion in Capesizes with accretive acquisitions that will deliver solid return for our shareholders as we have successfully proven.
Carlos, please take the call and coordinate the questions. Thank you.
Thank you. [Operator Instructions] We’ve got one question. It’s from the line James Jang from Maxim Group. Your line is open.
So, we’ve seen a lot of good news around the dry bulk sector moving into, I guess Q3 and Q4. In terms of asset prices, what have you seen? Have you seen increase and prices that are being offered a lot higher or are they still relatively same from I guess the start of the year?
Well, as I mentioned in the beginning of my call, the asset values have recovered significantly since the absolute lows that we experienced in 2016, like for a five-year old ship we have seen $10 million of an increase. However, this is still significantly lower than historical averages of the last 20 years. So, there is still a very considerable upside concerning the values of the ships and of course the appreciation of the equity value associated with that.
So, what’s your outlook for the rest of the year? Do you think that rates are going to continue to move up or do you think it will be -- like incremental increases until we get to 2019?
We think that 2018, before we go to 2019, 2019 is going to be a very strong year because there is very limited order book that will be delivered, almost nothing. As I mentioned in the call, we expect to see anywhere between 4.5% and 6% increase in the sea bulk transportation of iron ore and coal. 2017, we also think that Q3 and Q4 will be considered to be stronger. If I am to take the projection, I will say that the physical market will beat the FSAs especially in Q4. And 2018 is going to be much, much stronger; than what the FSAs are projecting. So, therefore, I think that from the second half of the year until 2018 and 2019 for sure, we will see a much, much stronger market.
Okay, great. And just one more question on I guess the order book. So, investors have always been asked about what’s going on with the order book or the shipyards are doing. Have you guys seen any aggressive pricing being offered from the Chinese -- on the Chinese side on the dry bulk vessels or are they -- or do you think they’re focused more on different sectors right now?
The answer is yes. We have seen aggressive offers from shipyards in China. However, there are only two or three yards actually offering for Capesizes. The earliest delivery that everybody is quoting is mid 2019. And like I said before, there is a very limited capacity because not too many yards globally, not only in China, can actually deliver Capesizes. So, I don’t think that supply will be of any problem in the near future. Something also very important about the supplies and -- the supply of ships and new build that we’re still in a very high historical multiple of a new building as compared to five-year old ship, which means that even if you price a new building ship, high quality new building ship at $45 million and a five-year old ship is of 30, it doesn’t really make sense to order a new building today. We will need to see that spread [to narrow] significantly before we have people rushing in o new buildings again, which again will have at least 2.5 years to 3-year horizon.
There are no further questions at this time. [Operator Instruction] There are no further questions at this time. Speakers, please continue.
Thank you, guys. Have a nice day.
Thank you. That does conclude the conference for today. Thank you all for participating. And you may now disconnect.