Q2 2022 Seanergy Maritime Holdings Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to this energy Maritime Holdings Corporation second quarter, and first half 2022 financial call.
At this time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session.
I'll ask a question during the session you will need to slowly Presto, one and one on your telephone.
We then here in automated message advising that your hand is raised.
Please be advised that today's conference is being recorded.
Please now turn to slide two of the presentation.
Many of our remarks today contain forward looking statements based on the current expectations.
Actual results may differ materially from the results projected from those forward looking statements.
Additional information concerning factors that can cause the actual results to differ materially from those in the forward looking statements is contained in the second quarter 'twenty to 'twenty two earnings release, which is available on <unk> website, www dot furniture maritime Dot com.
I would now like to turn the conference over to your speaker today stomach. This sentence. Please go ahead Sir.
Hello.
I would like to welcome everyone to our conference call.
Today, we are presenting the financial figures for the second quarter and first six months of 2022.
We are also pleased to announce a distribution of another cash dividends this quarter.
The second quarter was another outstanding period in terms of financial performance, where synergy supported by a healthy capesize market and our effective commercial strategy.
Balances the reward and risk for our shareholders.
There are a variety of these negative events on a global scale such as the ongoing conflict in Ukraine, the fears about inflation and ensuring the risk of recession.
Well as a COVID-19 related lockdowns in China.
However, our view is that the robust fundamentals of the Capesize sector will provide for solid market conditions. Despite these uncertainties.
Let's start with second quarter and first half highlights.
During the second quarter, we recorded net revenue of $32 8 million and adjusted EBITDA of $17 3 million up, 18% and 53% respectively compared to the second quarter of 2021.
Net income was equal to $5 9 million compared to $2 million in the second quarter of 2021.
Yes.
Okay.
The positive financial performance was driven both by the increased size of our fleet and by the 16% increase in the time charter equivalent and by our vessels.
For the first six months of 2022 net revenue reached $62 5 million, which represents a new record facility.
Adjusted EBITDA climbed to $34 1 million posting a year on year increase of 77%, while net income amounted to $9 6 million.
We reaffirm our commitment to rewarding our shareholders through the declaration of another regular dividend of $2 five per share for the second quarter and the new buyback plan for up to $5 million.
Which was recently announced I will expand on the shareholders' rewards deliverables in a minute.
From a corporate level during the second quarter. We concluded the spinoff of our wholly owned subsidiary United In Maritime Corporation, which commenced trading on the NASDAQ capital market on July six 2010, two under the symbol UC.
All shares of UC were distributed to our shareholders.
As part of this transaction. The previously owned Capesize Gloria ship was spun off to the new entity, which will be focusing on the tanker sector going forward.
In order to replace our oldest vessel that was spun out two UC, we acquired the 2010 built Japanese capesize the ownership.
Which improved our fleet's average age and the overall operating margin looks synergy.
On the financing front during the first six months of the year, we completed new financings and refinancings of $83 million.
Out of which $59 million were concluded in the second quarter of the year.
As such.
We continuously improve.
The capital structure of our company.
In addition to these financings we have received a commitment letter from a prominent European financial institution for the refinancing of an existing facility with current outstanding balance of $24 8 million, which matures at the end of the year, our CFO will provide more color in a while.
The total buybacks of convertible notes warrants and common shares have now reached $26 7 million and can potentially rise to $31 7 million once our new buyback plan materializes.
The regular dividend represents a nine year dividend yield of 14%.
On Tuesdays based on Tuesday's closing price.
Since the start of our capital rewards program in the fourth quarter of 2021, a total of $44 $7 million of synergies cost will have been allocated to shareholders rewarding actions.
Turning to slide five by adding the value of the non cash distribution of the United Maritimes shares under three different youll see price scenarios. The total dividend yield cash and noncash of synergy shares at Ames is between 16, and 24% which is very.
Impressive.
Given our strong balance sheet position and modest capex requirements, we expect to continue to reward our shareholders in the next quarters.
Our operating performance during the second quarter was robust for yet another period, given the prevailing freight market with an average TCE, reaching $23300 per day.
Now as regards to the first six months of the year, we achieved an average TCE of approximately $21200 per day outpacing the Baltic Capesize index by approximately 17%.
Our estimated <unk> guidance for the third quarter is approximately $23650 per day, assuming our earnings for the remaining operating days of our index linked Pcs will be in line with the current <unk> rate.
Our performance is benefiting from the conversions of the floating daily rate of three of our vessels into fixed rates at an average level of about $76000 a day.
I also expect our commercial performance to remain solid in the second half of 2002, which represents the seasonally strongest part of the year.
As an indication if the BCA average in the second half of the year is that the current FFA rates, we expect full year EBITDA to reach approximately $76 million.
Before I pass the call to establish a quick fleet maintenance update.
We have now completed our planned for installation of ballast water treatment system on a 100% of our fleet. While we have continued with their fleet upgrading strategy by installing energy saving devices on several vessels.
These upgrades are typically accompanied by agreements with our charters to increase the daily high rate, reflecting the improved performance of the underlying vessels.
I will now pass the call to our CFO <unk> <unk> was going to discuss more thoroughly.
Financial results I will come back at the end of the call for the market update shortly so stable. Please go ahead.
Thank you so much I would like to welcome everyone from my side as well to our second earnings call for this year.
I'll start by reviewing the main highlights of our financial statements for the second quarter and six months period that ended on June 32022.
Net vessel revenue for the quarter was equal to $32 8 million, marking an increase of 18% from the second quarter of 2021, while the increase in the six months period expense of 30%.
Meanwhile, our daily time charter equivalent for the second quarter 'twenty.
<unk> $3250, 16% higher compared to 2001.
$100 in the second quarter of 2021.
Our chartering in freight hedging strategy was effective once again as our six month time charter equivalent exceeded the average Baltic Capesize index by 17% with this outperformance expected to sustain based on the floating to fixed collaborations for three of our vessels during the third quarter.
At an average gross daily rate of 36000.
I think in <unk>, we anticipate a further decrease in our interest expenses. After the completion of the refinancing of our last maturity for 2022 as I will describe in a moment.
Of course, the rising momentum of interbank interest rate is expected to partly offset the positive effects of the transaction.
At the same time.
Cash and cash equivalents, including time deposits at the end of the second quarter stood at $43 million, which leads to a net debt of $219 million.
Total book value of shareholders equity stood at $234 million.
Adjusted EBITDA in the second quarter was approximately $17 3 million up from $11 3 million in the same quarter of 2021.
The six month adjusted EBITDA stood at $34 1 million with a year over year percentage increase reaching 77% of a 16% increase in Atlanta that equivalent there.
Amongst trading once again, our company's operating leverage.
Net income for the quarter was $5 9 million compared to net income of $2 million in the same quarter last year.
Adapting these four noncash charities, we ended up at an adjusted net income of $7 1 million.
Average daily operating expenses, excluding pre delivery expenses were $6510 in the first half with a year over year increase caused by the overall inflation on the raw material prices affecting all the aspects of our operating expenses sets us loops crew.
Actually in space as well as higher for holding costs in.
In addition, you have increased glucose due to the ongoing port restrictions, having to do with Covid and of course with challenging in sourcing and especially Repopulating Ukrainian crew.
Moving on to discuss our debt and financial expenses.
Our fleet expansion and the financing of the <unk>.
As noted in our total debt outstanding reaching approximately $262 million, including convertible notes with a debt per vessel standing at around $14 6 million.
Our loan to value currently stands at 43% and given the current scrap prices all of our indebtedness is covered by the demolition and value of our fleet.
Meanwhile, the impact of our recent activity on the financing side is reflected in reduced interest expense and extended loan maturities.
Focusing on the cost in this expense.
To the $2 5 million for last quarter with interest expense per operating day standing at $1900.
Our continuous efforts to improve further in the financing expense front is also tested by the four 2% cost of debt in the first half of 2022, which is approximately 1% lower compared to a year ago and this despite the increase in the base interbank rates are the same.
Period.
<unk> sales for the value of our vessels vis posted another rise as of June 32022, reaching approximately 584 million, which led to a corporate leverage of approximately 42% considerably improved year over year.
This underpins the timely execution of our acquisition program.
Now the book value of our fleet is around 455 million almost 130 million less than its market value.
Moving on to our recent financial transactions, we continue our efforts to optimize our capital structure as we successfully concluded during this period, new financing any financings of 59 million with existing creditors.
In particular, we entered into a $38 million sustainability linked loan facility with <unk> bank with a twofold variables the refinancing of existing facility on the one hand at an improved rate of 3% over LIBOR and the partial funding of the acquisition cost of a new capesize vessel.
The ownership.
The other transactions that closed during the second quarter was a new $21 million loan agreement with Alpha bank at 295% over so far secured by the ship.
Transactions are test to our creditors confidence.
<unk> and its prospects.
Furthermore, we have obtained a commitment letter from daily SEC filings for a loan facility of up to $28 million.
The interest rate will be 25% over <unk> and the term of the loan will be five years. The proceeds from this agreement will be utilized to refinance <unk> existing facility with a balloon payment within 2022 and will be secured by the premiership and fellowship.
Through this transaction, we will have addressed all our loan maturities until the fourth quarter of 2023.
In addition to all these materialize deals.
We are in constant discussions.
Discussions with virus international financing providers for prospective transactions that could further improve our capital structure and reduce our interest expenses and provide liquidity for emerging opportunities.
Lastly, I would like to state affinity has been positioned through all this use at the appropriate place to be able to benefit from any market update.
EBITDA again through the first half of 2022 was $28 9 million a figure already much improved compared to the respective period of 2021.
However, we firmly believe that we can efficiently take advantage.
Of a market drives in the coming quarters and achieved our full year EBITDA.
Even more notable levels for example in case at a time charter equivalent is averages at current 2022 SFA levels. Our EBITDA is.
He is expected to reach $76 million, while it can even surpassed $100 million in case, but our time charter equivalent is last year's average of the Dci.
All in all we are confident that synergy will continue and the solid performance path in the coming quarters.
<unk> enhanced operating leverage.
This concludes my review.
I will now turn the call back to commodities, who will discuss the market and industry fundamentals.
<unk>.
Thank you Sabra.
Let's now have a more extensive view of the capesize demand and supply fundamentals.
Seasonal patterns are not stable in the freight market for yet another year with a usually low first half being followed by an improved second half.
Traditionally of course in the second half of the year is the strongest.
The average level of the Baltic Capesize index for the first six months of the year was approximately $18100 per day with a low of $5800 per day, and a high of $38200 per day.
Although the average performance of the index is lower compared to 2021 is stands much higher than the 10 year average of the first half performance.
Given the global events and uncertainties that keeps us market has been quite resilient driven mostly by increased coal cargos.
Ton mile demand growth is expected to reach one 2% in 2022 and two 1% in 2023, while projected annual fleet growth will not surpass zero point, 75% in 2023.
The Chinese economy has undoubtedly slowed down in the first half of the year, but it seems the government has kept its annual GDP growth target intact aggressive infrastructure stimulus will be required in the domestic market.
In fact, the Chinese government has reiterated its support for the real estate sector. Several times this year by implementing mainly measures such as the issuance.
Special bonds for infrastructure and construction projects and the direct purchase of large and finished housing developments.
We expect these measures to help maintain steel production at high levels, which will support increased iron ore imports in the second half of the year.
In addition, we are experiencing increased demand for thermal coal for power generation.
The ongoing conflict between Ukraine, and Russia, and sanctions that have been imposed have led to an increased ton mile demand for coal mainly from Europe .
Before the war the EQ was importing around 35 to 40 million tons of thermal coal from Russia, which now have been substituted from longer distance sources, such as Australia, The U S Columbia and Indonesia.
Finally, the incremental demand for iron ore is anticipated to be covered largely by Brazilian iron ore, increasing further ton mile demand in the sector due to longer travel distances compared to Australian exports.
Given the current daily export trade valet could surpass one of Brazil could surpass the export volumes of the second half of 2021.
Considering all these demand developments capesize vessels are likely to improve in the following quarters.
Moving on to vessel supply.
Picture continues to be very encouraging.
Limited ordering activity in the previous quarters has helped dreaming the Capesize fleet growth to just two 1% in 2022, while the order book as a percentage of the active fleet continues being the lowest in more than 20 years.
Given the uncertainty surrounding compliance with future environmental regulations, and the lack of shipyard capacity I expect slow fleet growth to be enduring feature of the market in the next 10 years.
It is interesting to note. The first half of 2022 only saw orders for 10, New building capes being placed which is the slowest pace of ordering seen in the past decade.
Due to this healthy supply dynamics, we expect the capesize market to follow an upward trajectory in the following years and synergy with all the operating leverage improvement in the ESP and scrubber investments is in advantageous position to benefit for future developments.
Finally by continuing to invest in the energy efficiency improvement of our vessels and based on the stronger relationship with our world, leading charterers I am sure that synergy will continue to benefit from the Capesize uptrend in the following quarters.
On that note I would like to turn the call over to the operator and answer any questions. You may have operator, please take the call.
Thank you.
A reminder to ask a question you will need to slowly Presto, one and one on your telephone and wait for your name to be announced.
Once again his style one and then one on your telephone.
Please standby, while we compile the Q&A lifestyle.
We are going to proceed with the first question.
The first question comes from the line of Tate Sullivan from Maxim Group. Please ask your question. Your line is open.
Hello, Hello, all good day.
Thanks for taking my question and to modify to figure it out.
Start with the market commentary that you ended your presentation with particularly given the decline in capesize rates today to I mean can you comment on you did previously in previous quarters comment on coal cargoes in your fleet versus the iron ore cargoes and how much could the resilient demand for.
All offset the potential for weaker demand for iron ore in the second half of the year.
Okay.
Yes.
Hi, good morning.
Good luck.
The thing here is that <unk>.
The capesize rates have been quite disappointing.
Nobody was expecting to see this kind of low size. So we are experiencing today.
That doesn't change our view on how bullish we are for the sector.
In respect of demand of supply. So that we are seeing here is that you have both healthy.
Routes with iron ore and very healthy.
Voyages with KOL as well so.
Apparently demand appears to be quite strong.
I think the.
The market drop is mostly sentiment driven and the fact that the.
Price of bunkers is trying to find.
A certain level, but I think overall it has been affected by the <unk>.
<unk> sell off that we saw in the phase.
<unk> affects of the physical market as well.
Together with the fact that.
There has been some sort of an equilibrium at this levels, which again in our opinion is not justified.
And that we expect to see a market that is again very very short so it's gone up.
Bottom out.
You know very soon and we expect to see an upward trend.
Moving into the.
The second half of Q3, I think that the procurement of call out of Europe and other countries on the basis of the energy crisis is going to absorb more and more products. We have seen a lot of unwinding of ships.
Delays in various ports Youtube.
Most of the good weather globally, so the first sign off.
Disruption, we expect to see the market turning back up very aggressively thats, our take on the market.
Thank you <unk> and you mentioned something about Volte Vale as well I mean volumes slightly reduced our production guidance for this year earlier.
A couple of weeks ago, but did you say thats still with that guidance will have higher.
Exports iron ore exports in the second half compared to the second half of 'twenty, one was that your comment yes.
Yes, I think I think thats slightly going to be higher the overall exports from Brazil in the second half of the year, we estimate that the bank.
Pretty much at the same levels like the second half of 2021. The thing here is that we have higher coal demand for the reasons that we all know.
The Ukrainian and Russian and investing in Ukraine, and all of that so and the energy crisis. So we expect the market to turn.
It's higher in the very near future.
So our take is that the market is going to recover vessel.
Don't know where theyre going to be in the next few weeks or maybe in September with a lower net order take a position that but suddenly and shortly we expect to see the market recovering very soon.
Okay. Thank you and it's diversified did you mentioned in your prepared remarks and in the presentation you have no balloon payments until 'twenty three did I hear that correctly.
Yes, that's correct, we are addressing with our addressed through the commitment letter that we received the last maturity would you say in December 2020 tools out of Unicredit and then they don't.
Only one one facility maturing at the end of next year.
The sale and leaseback with a competency, which based on the current dynamics on the fair market value of the shipping.
Predict outstanding of the vicinity.
We'll be relatively comfortable exercise to refinance next year.
Okay. Thank you very much.
Thank you Dave.
Thank you we are going to proceed to the next with the next question. Please standby.
We have the next question is coming from go flat from our Alliance partners. Please go ahead. Your line is open.
Yes, good morning, good morning, or.
Good afternoon <unk>.
Just a quick question on the table that you have for the third quarter forward cover.
It implies that the fixed rate.
Two of the Patriots shipped and Hello ship.
<unk> been fixed were fixed for the entire quarter and that you don't expect those to be re deliberate to you is that a fair assumption and then what is your assumption for the fourth quarter on both of those because those rates for you.
Relatively high relative to the current spot market.
Yes, that's correct. Both vessels are currently fixed on mortgages does extend.
Potentially to the end of the or close to the end of the third quarter or so.
These vessels scheduled to deliver it we'd be after the third quarter now concerning the fourth quarter retained by the schedule of this will be delivered in mind you that.
Both vessels are scalable fee didn't need states developing into a two tiered market out there. So the scrubber fitted ships already very decent premiums compared to non scrubber.
So that <unk> might see high compared to where the market stands now, but if you factor in also the scrubber premium.
They are not that far away from.
<unk>.
Where the market stands so all in all.
For the third quarter.
If I were you I would include those vessels in my projections are the rates that we have them and then in the fourth quarter.
We'll see whether we receive something from the charterers on those.
Okay, Great and then.
You have on.
The index linked.
Charter 10 of those time charters with options to fix it.
And it looks like.
We have them for the full third quarter.
At a really healthy rate of close to 34000, a day did.
Could you fix those beyond the third quarter ended the fourth quarter or were those just exclusive to the third quarter.
Only only one vessel expense.
At the end of the year until December eight.
There is 31 and a half thousand per day. So the other two ships that global fixed close to in excess of 38000 fixed up until the end of September .
Okay, Great and then I'm trying to figure out.
Our cash walk to the third quarter potential cash level.
And I just wanted to make sure that.
Looking at things in the proper way.
And in July after the quarter closed, we invested $10 million in the preferred and the spinoff.
You also had that it was sustained by the spin off of the back $5 million.
And then you had the premium you have potentially the premier shale the Marcellus ship.
By that will.
That refi if the quote.
Quarter will hit.
<unk> hit the balance sheet, but then you'll have the debt repayment in the fourth quarter.
Anything else I'm missing as far as just the financing aspect.
For the third quarter.
No. These are the I mean, the major liquidity events I would say that out of the ones that you mentioned.
Okay, and I may correct in assuming that the premier and scholarship refi.
There will be a timing issue with FERC it'll show.
It will be done in the third quarter, but.
That won't be repaid until the fourth quarter.
Although the most most broadly the two ships will be refinanced by the end of the third quarter. So whether it's a third quarter event or in the fourth quarter events. It remains to be seen depending on the documentation procedure with the bank.
But it's potentially it's going to be ahead for Damien.
Okay, and then looking at spin off <unk>.
<unk> 10 million.
And the preferred.
The health <unk>.
<unk> the spinoff initially and then help rates.
Capital too.
To complete an acquisition.
Capital 10 billion is locked up for at least a year.
What we can say.
Sorry, sorry allow me to interrupt you, it's not locked for a four year period I mean this capital.
Redeemable within three months from <unk>, so potentially I mean, if United So decides they could return to the capital within three months from from.
From issuance.
Okay.
Correct, so they stay where they get that capital but okay.
Okay.
So that begs the question, what's your additional appetite for.
Helping.
Spinoff raised money.
Exports.
Additional preferred have we seen the last a bit and then also can you assure me that the management attention.
Won't be deluded.
NRG.
Having another company public company, the one won't dilute your efforts on synergy.
Hypothesis Submarkets.
Good morning from my side first.
First of all I will ask I will start with the last part of your question. There is absolutely no dilution effect.
Z and United have the proper Milan management depth.
<unk> has grown into something that we consider to be.
I'm not going to say mature, but it has come to a point, where we have the proper management that the company goes on.
On a very steady growth and path. So we do not anticipate any disruptions there.
Far as United is concerned the company recently completed and.
And equity offerings, so access sufficient capital for the current acquisitions as well as other acquisitions. So it will not require additional capital from synergy and it's likely that is going to return capital to synergy in Nevada.
Our future.
Going back to synergy.
We might look into some fleet replacement.
Options.
In the coming months, which means disposing of older assets and to buy newer assets sure.
If you use the average rate, but this is not going to affect the distributions to our shareholders or anything like that and we might be talking about one or two ships.
For replacement of older tonnage and that's about it so it's going to continue on a very stable course of.
Of business operations.
Great.
What's masking a bad.
<unk> fleet renewal or sleep.
<unk> fleet.
M&A, but that's helpful.
Last quarter I asked what your optimal lateral lengths for the Capesize fleet.
And you pretty much demand I've said that it was in the 20 range.
Is that still the case is that sort of the tar.
Target that we should be thinking about over the intermediate term.
Well.
Again, I don't anticipate to see any further acquisitions in the immediate future, but like I said I think by the end of the year, we might be buying one more ship and disposing of an older ship, but that's about it and not anticipate anything.
Super aggressive in respect of our fleet renewal until the end of the year.
Great. Thanks for your time.
Thank you Paul have a great day.
Okay.
We have no further questions at this time I will now hand, the conference back to you for closing remarks.
Okay. Once again I would like to thank everyone for attending for attending our earnings call today.
Thanks very much.
Looking forward to the next call sometime end of October beginning of November for our Q3. So thanks, everyone for attending.
You may disconnect the call. Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect. Your lines speakers. Please standby.
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