Q2 2021 Costamare Inc Earnings Call
Thank you for standing by ladies and gentlemen, and welcome to the close Tomorrow, Inc. Conference call on the second quarter 2021 financial result.
I have with US Mr. Gregory vehicles, Chief Financial Officer.
Officer on the company.
At this time all participants are in a listen only mode.
There will be a presentation followed by a question and answer session at which time if you wish to ask a question. Please press Star then 1 on your telephone keypad and wait for your name to be announced.
I must advise you that.
This conference is being recorded today Wednesday July 28, 2021, we would like to remind you that this conference call contains forward looking statements.
Take a moment to read slide number 2 of the presentation, which contains the forward looking statements.
[noise].
And I will now pass the floor to your speaker today. Mr. Ziegel. Please go ahead Sir.
Yes.
Thank you and good morning.
Gentlemen, I think 1 day in the market do bottoms out.
In the second half of last year has continued into the first half of.
We are drawing strength from favorable supply and demand dynamics.
So on consumer demand low inventory levels and supply chain constraints have all contributed to record charter rate and local jobs that Eurasia.
On our containership charter during the quarter have been fixed at increasingly high levels of crime.
On the dry bulk side, we are pleased to report the acquisition of doing 2 on additional vessels since we first announced our entry into the sector.
Our dry bulk fleet comprised of 37 vessels should total between 32 and 85000 deadweight with an average age of 10 years.
Apple now from.
And she has got to be deliberate with the rest of the fleet expected to be delivered by year end.
The dry bulk acquisitions should result from our decision to invest in these liquid sector, where supply is limited by a low order book and demand is being driven by increased infrastructure spending in commodity consumption.
Supported by contract with revenue from $3.3 billion at an average time charter duration of more than 4 years from outer Containership fleet. We have 15 container ships coming off charter over the next 18 months and 37 dry bulk vessels operating in the spot market favorably positioning our company should the currently strong market conditions continue.
Moving now from the slide presentation.
On slide 3 you can see the highlights net income for the quarter was $82.8 million in the EPS at <unk> 67 per cent.
Net income was $58.3 million up 84% compared to the second quarter of last year and it doesn't.
And EPS is 47% increase.
<unk> increased 81% relative to the year ago period.
We have decided to expand into the dry bulk sector by signing on maintenance for 37 dry bulk vessels and we have already accepted delivery of 14 ships.
<unk> 2000, <unk> expected to be delivered between now and the end of the year.
Sure.
Moving to the next slide.
We have taken delivery of 3 more container ships during the quarter and we expect to take delivery of 2 more vessels between now and the end of the year.
Incremental revenue from these vessels are around $200 million. We have also concluded the sale of 1 vessel index.
Craig This is Luke.
Other ships to be completed within 2021 with a total estimated capped on a gain of around 22 million.
On slide 5 you can see on renewal financing arrangement since our last earnings release.
In total net we have concluded financing of about 600.
Yeah.
And we have new financing commitment subject to documentation of $150 million.
On our containership on dry bulk purchases.
We delivered have funding in place.
We do maintain a strong balance sheet with liquidity of about 600 million market value based on that but it's also 31 per se.
There are no meaningful maturities on Q2 thousand 25.
On slide 6 you can see on renewing chartering arrangements, we have entered into new or extended the charters from 7 vessels at much higher levels on average the new Chargers were fixed at a rate of 2.1 times higher with a no.
And with a longer average duration.
Our most recent pictures the Costco growth 2 and the consequent Ingo who have done on 72000 and $700 per day per vessel per 3 years more than 2.4 times higher than the current rate.
In addition, we have a total of fixed income trading ships coming off charter over the.
The next 18 months.
Moving to the next night.
On slide 7 you can see the chartering on final dry vessels, we have chartered in total 7 ships intervention rates on total geez. We have also a fixed 4 vessels was delivered is expected to be delivered.
He is expected to occur within 2.
2021.
Slide 8 day.
The containership charter market has continued to rise on the buckle force to supply and demand fundamentals.
Yeah and fleet reached 047 percent in July, indicating a fully employed market. The dry bulk market has also reached levels not seen since.
Since then as demand for commodities is surging.
We have also paid a reported recycling dividend.
On April and we will pay our 40 <unk> dividend in the coming quarters.
Slide 9.
On this slide you can see the second quarter 2021 on results.
The company generated revenue of 5 or 67 million and adjusted net income of $58 million based on the above the second quarter. Adjusted EPS is 4% per cent up 81% year over year on.
Our adjusted figures take into consideration on the following non cash items accrued charter revenues accounting gains or losses from.
2 thirds disposals prepaid lease rentals and other non cash charges as well as changes in the fair value of equity securities.
On.
On slide 10.
You can see our capital structure, our leverage is comfortably at about 30% based on kind of the market balance EBITDA.
Most of the interest is at 6.2 times for now recap on this kind of a minimum requirement of 2.5 times coverage.
On Slide 11, you can see premium distribution for Arctic ones on as your fleet.
Net revenue comes from first time charters like Maersk MSC Evergreen Cosco Academy, a cutback loans, we have 3.
3 billion contracted revenue at our remaining time charter duration of about 4.3 years.
On the next slide we discuss the containership market charter rates have significantly improved from Q2.2020 across all vessel sizes.
Rates have decreased by approximately 3.
And on a yearly basis.
Slide 15.
Idle fleet is at 0.7% from a high of 12% 1 year ago. The order book has risen to 21% as new ordering has accelerated over the past quarters.
It should be noted however that it takes close to.
On proposal includes a new vessel and the majority of new building vessels that have been ordered will not be delivered on through 2023 on launch.
In the last 2 lines that we described the dry bulk market.
As shown on slide 14, total edge have significantly improved since Q3.2020 on.
Awesome.
<unk> been trending upward since late twenties, they have lacked the increase from Saturday.
On the last night, you can see that the rebound in consumer spending combined with government stimulus has created positive momentum in the seaborne commodity strength at.
At the same time the order book.
Our newest fibrosis remains on the total historical low levels.
Question on before the sizes that we have been investing team and fleet growth is expected to decline over the next several years.
This concludes our presentation and we can now take questions. Thank you.
We can take questions now.
Thank you as a reminder.
For the day, you would like to ask a question. Please press Star then 1 on your telephone keypad and wait for your name to be announced.
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That's star 1 to ask a question.
Your next question today comes from Chris Wetherbee with.
City.
Hey, guys James on for Chris.
First question on wanted to ask was around the bulk fleet and what your ultimate plans for it might be is it something where you see customer evolving to having exposure to both markets do you see possible split and if you do see a possible split what size or scale would you.
Wanted to target just some color around how youre thinking about that would be great.
Yeah look for the dry bulk business as you've seen we have invested Oh said 37 vessels up to now Ah, it's mainly smaller vessels are our programs on MX.
And.
This type of.
But it is something we feel that day it.
It doesn't make sense.
For the future now, we cannot predict and I'm not in a position to predict now.
Whether we're going to continue our purchases are in the dry bulk vessels.
This depends on market conditions now the second part of the question I mean, the budget will not be happening in the future whether this would not be split on all day.
I mean again a lot of options.
Nothing has been decided yet and we have 1 of those ships over the last day a couple of months.
Only 14 ships have been deliberate that there is going to be deliberate.
The remaining 23 will be delivered until year end. So I think these are been pretty.
My children there is no decision taken.
Well I think that they need to us however is that the.
We have secured the debt funding for on the dry bulk vessels based on facilities.
We have already in place with European financial institutions, So regarding the delivery of the remaining 23.
Dry ships.
The day has already been in place and it is committed.
Got it and just as a follow up to that.
Like how do you actually see yourself balancing the investment between the 2 day will you actually be balancing them fairly evenly or do you actually see sort of more incremental investment going from book at this point, just trying to understand sort of like where the incremental capital dollar will go.
Look I think it is a.
This is a question on human capital allocation.
We have both of those ships recently, because the because we share we believe that the economics makes sense, but the.
This is a market.
And and.
In shipping <unk> units to adapt so.
Some markets will be over the next quarters or over the next year on a continuous that day, we are flexible.
We can be.
<unk>.
In executing.
We have equity and we also have access to commercial bank debt.
So having.
I don't know who those are.
Oh those are ingredients in place I think it does it does.
Question over weighted with film that is it.
Better use for our capital.
I cannot tell you from now then we wouldn't be investing so much in this sector and so much in the other sector.
It's all subject to market conditions going forward.
Got it.
Speaking of market.
Market's evolving 1 way and another day could you talk about sort of the current discussions youre, having with your customers are on charter terms or the sort of free to seeing it evolve towards even higher rates are you seeing.
Uh huh.
<unk> pushed out like what are the terms of weighted sort of.
Most sort of in play in which direction are they going any color on that would also be great and thats. It from me.
Yeah look from.
On the container ships.
Uh huh.
We've seen that.
If you look at the latest.
Pictures.
On the sector, you wouldn't say that the.
There's a clear trend.
Newport higher rates and also for longer periods.
If you look at our latest fixtures others.
An example, I will take the 2 coastal vessels, which have been short at 2.2 times.
The charter.
A new charter it okay on a forward basis.
And are those ships will be getting 72007.
That was $1 per day per vessel.
Compared to slightly below 31000 that were getting oh sort of they're getting now and.
For the 3 year charter.
Starting.
From next year.
So charterers.
Turning to fix for longer periods.
So for value that AIDS and also on.
On a forward basis meaningful <unk>.
That will be available.
This is for delivery in Q1 Q2.
2022, or even later.
This is what we see today and for neuroscience.
Order to.
Optimize our cash flow.
We seek to charter for the longest period available.
I think charter is that makes sense. So if you look at the latest sits out they didn't go.
Oh 4 Panamax vessel. This has been talked before $39000 per zone per day.
This is a classic panamax in 2011 built.
$59000 per day for close to 5 years.
So this is what we see today now.
While the market is going to be.
In 234 quarters, we never predict the market.
But I can tell you that every time.
And different market situation.
What's the what would have been doing for the time, Inc. We are fixing.
Fixing for a longer period.
The highest.
On possible rate and also on a forward basis proactively.
Thank you.
Sure. Thank you thanks.
Our next question comes from Ben Nolan with Stifel.
Hey, good morning, Greg.
So I wanted to do that.
<unk> made sure that I have all my numbers right can you may begin.
How much Capex is remaining for the dry bulk fleet in the back half of the year based on what you've spent so far from it.
The 37.
Yes.
Yes.
For the 23 vessels to be delivered for the dry bulk vessels during the day to be delivered the desk has already been committed so our equity.
Capex requirement is going to be in the region of $800 million.
$220 million, depending on the leverage we kind of 50% to 55% leverage we'll see but the thing that 220 million on.
Equity Capex cycle in Richmond for the remaining of the dry bulk vessels.
This is the right estimate now for the containership vessels that are sort of it would have a cup.
Happy to be delivered.
There is no incremental equity capex commitment.
So for the whole fleet, it's only describe it took on the 20 million, which is gonna be covering all the 37.
Dry bulk ships.
Okay, and that's that's very.
But what's the what's the total like I'm I'm trying to get a sense of how much you've spent in total for all 37.
Look we haven't given the total.
Number and but I mean.
If you see that sort of Oh neighborhoods.
These are things you all day.
Cash ships.
Close to I would say 50.50000 day.
Deadweight.
You can sort of get the picture I mean, how much it's gonna be but we don't give me food it's differently.
Northern half a billion.
On the equity, but I mean, we don't give the exact number.
Okay.
That's fine.
We'll see in time right.
Sure.
Filings, but.
Uh huh.
To that end, though it sounds like you're still very much in the market too.
Continue to build on that fleets at 37 is not sort of the.
The the terminal number here yet by any means is that a fair assumption.
Look this is subject to market conditions.
So as I mentioned earlier, we cannot predict the market, it's gonna be over the next quarter century.
Also a question of capital allocation.
Because of course, we are moving on dry bulk vessels zone.
At the same time, we have also been actively looking in the containership sector, let's not forget that.
And in.
During the last quarters we.
So from the beginning of the year, we did acquire a substantial number of container ships and accepted delivery of a substantial number of vessels as well.
For instance, I can't mention day, 511000, Teus where like.
We bought the shareholding of Europe out of those vessels.
Some other acquisitions.
So it's all subject to market conditions, we are flexible we have the cash we have equity as I mentioned, we have access to commercial bank debt all of those deals have been fully funded from a debt perspective.
For those 37 vessels, so as long as we have.
Debt into equity in place.
And we can be flexible.
And efficient in executing I think it's all upside, but I cannot tell you from now how many ships it.
It depends.
Okay.
Now switching gears, a little bit over to the container side of the business, obviously, you've been pretty busy there.
There have been as you highlighted a bunch of new vessel orders that really to me is almost shockingly number a number of new vessel order book.
But you know obviously the liners are are have still been very much in the market to do that and find people too on the ships for them.
We stand on that I mean are you are you guys are interested in having those conversations or the economics.
You know it all in a place that would get you to be active there.
Yeah.
First on your buildings or <unk> excuse me on board a new building.
Yes.
We look at things.
Traditionally we have been doing a lot of different cause exercise over the last 2 years.
Or a indicates yes, we look on your buildings, but are we need to make sure that first of all there's gonna be charter coverage in place and the numbers need to make sense.
From a return perspective.
So.
Of course, there have been a lot of deals.
But I mean, we need to make sure that the returns.
Our shot show that.
The transaction is going to be justified.
But.
Yes, we do we.
Look at buildings like we have always done.
I think there is something of course that we will let you know.
It has always been.
Hi, Scott.
The thing is that the.
Transaction, we've seen up to now I think that.
The returns that from our side we saw.
They didn't they didn't justify.
Entering into those contracts right and that was that was really my question is so far.
Relative to let's say other.
Are there opportunities the economics on on a new building transactions.
Now are the.
Heretofore have haven't hit sort of your I haven't been the best use of your capital is that sort of.
How you've looked at it.
Okay.
First of all we will continue looking at the new buildings this for sure and.
Sort of depending on the deals we see who will decide whether we proceed or not at the same time day dry bulk vessels that we have growth as you've seen.
Of course these are in the spot market, but the doses per day, they're getting their 'twenty 5 'twenty $8000 per day.
And they have a very low breakeven so I mean.
We definitely think that are these are deals that they do make sense from a pure returns perspective.
And and also I need to highlight here that we have the dry fleet over the 2 to 7 vessels.
You know we can be opportunistic there based on like a.
We feel the market will be hitting at the same time, let's not forget that.
We have the buffer over the $3.3 billion of contracted today Big news from somebody from the container ships with time charter duration of 4 years and we have been chartering on a forward basis ships at a very high.
At age, which definitely provide a buffer.
And also a downside protection.
So the downside protection on it is there and at the same time Opportunistically and we try to enhance our equity returns also with the dry bulk fleet.
Mhm, Yeah for sure.
Alright, well that well 1 last 1 I mean, you you talk to sort of the the order book on new buildings, starting to creep up but it doesn't really take effect until 2023 as you, but as you do look out to 'twenty 2 'twenty 3.
And the order book on being over 20 per.
<unk> now right.
Is it getting to a level, where you're starting to be a little bit more cautious or think that maybe a correction.
As a upon.
Possible at some point.
No.
Look I cannot predict the market now the 20 per cent. The order book today of course compared to <unk>.
5 or 7 per cent who's had a couple of years ago.
It looks at high number compared to the 60% order book, we had in 2008.
So its all supply and demand if we cannot we cannot predict.
If it is a new building transactions, we say charter cover.
That we think makes sense, we would definitely consider them.
Yes.
Okay, Alright, thanks, Greg.
Well thank you thanks.
Okay.
Our next question comes from Omar <unk> with collapsing.
Thank you Hi, Greg.
Yeah, I don't want this morning. Good morning, Yeah, just just wanted to ask maybe a little bit more about the drivers walkers and I know you've talked about it.
With the last 2 questions. Although just you know you mentioned basically.
She's going forward or the route based on market conditions, I guess, if we kind of think about conditions as they are.
Today, and if they were to stay on.
Is there sort of a critical mass that you wanted to achieve in the dry bulk business or are you comfortable with 37 being the number or have you had internal discussions about a certain target number that you'd like to get to feel like you've got a very good base of operations to work with.
No.
Especially if you got it.
Are we just look at asset values charter day would take you above the sector.
You have a predetermined target, let's say 50.75 per branch is whatever that age.
Then in order to achieve that at some point you are not we're not looking.
Okay.
Oh transaction going on unless you went up and just looking at ways to meet your target. So if it sounds like it makes sense, we might continue if not the day, we don't have to grow our we will push the same thing we did for containers.
We did a lot of acquisitions.
Looking at the last quarter of last year and the first couple of quarters of this year and then we stopped because it would from that from a capital allocation perspective, it made more sense to invest in the dry bulk fleet, but we don't have any pretty dead on with growth rate. Neither for the commentary on there's north of the dry bulk.
And there is no minimum line.
On the cycle.
Growth rates are dark and also from the coal for the whole fleet from the Holdco Mark.
Okay, No that's fair and I understand then and then what.
What do we think then about let's see but you know the back from container business. Some of the you you'd still day.
A handful of older smaller ships.
Should we continue to think about the how should we continue to think about the sub 2000 Teu vessels are those.
Are those do you think can be monetized here on this in this market.
Okay.
And if it's a it.
This saves, especially the smaller ships older age.
Like I need to be chartered.
At healthy rates that makes sense.
We may know disposal then it depends if we feel that the equity release from those disposals.
Is gonna be a accretive compared to our holding on.
On to those assets and continue training them.
You know we May show them.
It's all a question of whether the equity released a it's going to provide that returns higher than sort of keeping the based on continued operating to shape our day to day's levers are.
And then take.
The forward view about our residual value risk expiry.
Over the coming quarters is pretty much it but again, we're going to be very flexible we don't need the equity we don't need the cash.
It doesn't matter of capital allocation, what we finished gonna be making sense.
And for our shareholders.
And you know eventually bought on equity return on this.
The only question, but we don't need to grow or like we don't need to sell.
As long as we have noticed predictions there.
And as I mentioned as long as we can be flexible and opportunistic.
We're going to continue with the same way.
Okay.
And then finally just.
How do you see the different evolving obviously, you've got a pretty deep backlog at the moment and as you mentioned you've got 4 years on contract visibility on the on the container fleet. I know you took the dividend up from 10 to 11 on a half are you guys, having any discussions or just you know.
Any thoughts about a further boost from here considering just how much the earnings quality is becoming.
Okay.
No we're not going to give at this point close to 60 per cent of the company.
And this is our main.
Income from shipping.
We did raise the dividend some months ago 15 per cent.
No.
Uh huh.
I said, we'd discuss everything's on the dividend is a board decision.
I'm not authorized but I think the last day with the Christmas was pre division so.
Yeah.
The board every quarter.
So I mean it.
So dividend policy, we'll see but let's not forget that we have very recently increased it we have.
Uh huh.
We have used our capital.
For a lot of our acquisitions.
Uh huh.
We do feel it makes sense, we have been chartering on a forward basis.
Containers are.
Total sales increased charter rates so.
So I don't see why the dividend cannot be also increased in the future, but let's not forget that we did increase a couple of months ago. So I think it is a bit.
This discussion today I think it is a bit premature.
At least.
Okay.
Thanks, Greg that's it from me.
Thank you thanks a lot.
This.
A question and answer session I'd like to pass the call back to Mr. <unk> for closing remarks.
Thank you very much for being here with US today, we look forward to speaking again during our next quarter.
On a conference call and thank you very much bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.