Euroseas Ltd. Q1 2023 Earnings Call
Speaker 1: F.
Speaker 2: Osleta, Chief Financial Officer of the company.
Speaker 2: At this time all participants are in listen-only mode.
Speaker 2: 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 1 on your telephone keypad and wait for your name to be announced.
Speaker 2: I must advise you that this conference is being recorded today.
Speaker 2: Please be reminded that the company announced their results with a press release that has been publicly distributed.
Speaker 2: Before passing the floor to Mr. Petus, I would like to remind everyone that in today's presentation and conference call, your OCs will be making forward-looking statements.
Speaker 2: These statements are within the meaning of the federal securities laws.
Speaker 2: Matters discussed may be forward-looking statements which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized.
Speaker 2: I kindly draw your attention to slide number two of the webcast presentation, which has the full forward-looking statement, and the same statement was also included in the press release.
Speaker 2: Please take a moment to go through the whole statement and read it.
Speaker 2: And now I would like to pass the floor to Mr. Peetis. Please go ahead, sir.
Speaker 3: Good morning ladies and gentlemen and thank you all for joining us today for our scheduled conference call.
Speaker 3: Together with me, Stasios has leaded some chief financial officer.
Speaker 3: The purpose of today's call is to discuss our financial results for the three-month period ended March 31, 2023. Let us turn to Slide 3 of the presentation. Our first scope of financial highlights are shown here.
Speaker 3: revenues of $41.9 million and net income attributable to common shareholders of $28.8 million or $4.10 per diluted share.
Speaker 3: Adjusted net income attributable to common shareholders was $21.7 million or $3.09 per diluted share. Adjusted EVDA for the period stood at $26 million. The conciliation of adjusted net income attributable to common sales.
Speaker 3: payable on or about June 16 to the self-holders of record on June 9, 2023. This is the fifth consecutive 50 cents dividend that we are paying.
Speaker 3: As of May 15, 2023, under our SARE ePurchases plan of up to $20 million, which was announced in May, 2020, the SARE ePurchases plan was announced in May, 2020, and the SARE ePurchases
Speaker 3: In May 2022, we had repurchased 348,000 of our common stock in the open market, representing about 5% of our stock, for a total of about $7 million.
Speaker 3: Our CFO , Tasos Asilidis, will go over the financial highlights in more detail later on in the presentation.
Speaker 3: engineering and operational developments.
Speaker 3: As previously announced, on April 6, 2023, the company took delivery of its first new building vessel, Moto vessel Gregos, an Echo 2800EU feeder container ship built at Hyundai Meepo Dockyard in South Korea. The vessel is EDI Phase 3 comp-
Speaker 3: and the sustainability-linked loan provided by Europe and USA.
Speaker 3: Following its delivery, Moto Vessel Gregos commenced a 36-40 month charter with the Seattle lines at a gross daily rate of $48,000 per day. Two of our vessels with contracts that were due in April and May 2023, were
Speaker 3: were extended at rates, but also duration, that were better than anticipated.
Speaker 3: reflecting the resilience of the market and the parent belief of transfers that feed the vessels will be in sole supply.
Speaker 3: Motor vessels energy balloon was fixed for a period of 24 to 26 months at the daily rate of 23,000 dollars per day.
Speaker 3: 6 months plus or minus 45 days at $19,000 per day.
Speaker 3: The National Aegean Express was fixed between a minimum of four and a maximum six-month period at $13,000 per day.
Speaker 3: And EMDRAS' time chart the contract was extended for a period of 12 months, 12 to 14 months, at a gross daily rate of $15,000 a day.
Speaker 3: The Aegean Express completed its dry docking on February 8 and then experienced idle time of approximately 29 days whilst we were dealing with Continental Shipping Line of Singapore CSL who repudiated its charter.
Speaker 3: Arbitration is ongoing against TSL, which we expect to win, but we expect to then face difficulties in enforcing the award, as the charter seems to be trying to hide its assets.
Speaker 3: Arbitration is ongoing against TSL, which we expect to win, but we expect to then face difficulties in enforcing the award as the charter seems to be trying to hide its assets.
Speaker 3: where you can see our current fleet profile. Euro-sea's current fleet is comprised of 18 vessels underwater, including 11 feeder container ships and 7 intermediate container carriers with a skyway
Speaker 3: with a carrying capacity of about 56,000 TU and an average age of 16.5 years old.
Speaker 3: Turning to slide 6, we present our vessels under construction, which consist of eight ecofeeder container seats, five with a carrying capacity of 2,800 TEU each, and three with a carrying capacity of 1,800 TEU each.
Speaker 3: expected to be delivered between Q2 2023 and Q4 2024.
Speaker 3: The 8 feeder container ships will have a capacity of 19,400 TEU.
Speaker 3: After the delivery of these new buildings, the fleet will consist of 26 vessels with a total carrying capacity of about 75,000 TEU.
Speaker 3: Let's now turn to slide 7 for a graphical presentation of our visual employment.
Speaker 3: As you may see, we have very strong charted coverage throughout the next two years, with about 91% of our fleet being fixed for 2023 and almost 66% for 2024.
Speaker 3: Our contracted revenues over the next two years are expected to generate in excess of $20 per share, which will be further boosted by the revenues from the rest of our uncharted days. To give you an understanding of howâ ladies and gentlemen, it turns out it did take about
Speaker 3: Turning now to slide 9, we review how the six to 12-month time chart rates have developed over the last 10 years for the segments in which we mostly operate.
Speaker 3: While the container charter market saw a soft start to the year following the market weakness during the final months of 2022, charter rates started improving across all container ship segments during the first quarter through mid-May 2023.
Speaker 3: with rates sitting at healthy levels higher than the 10-year average and median levels.
Speaker 3: As of last Friday, the 6 to 12 month time chart the rate for 2500 TU container ship stood at $18,750 per day, why is the rate for a 4400 TU container ship?
Speaker 3: stood at $26,750 per day. Moving on to slide 10, we go over some further market highlights.
Speaker 3: During the first quarter of 2023, one-year time charters continued to ease but have increased since by about 10 to 15% compared to the low levels reached for most segments during February 2023. 13, 2023.
Speaker 3: The average daily chartered rates during the first quarter of 2023 were down by 18% compared to the first quarter of 2022 as shown in the table.
Speaker 3: The general sentiment remained negative throughout the first quarter as many parties remained apprehensive about entering into new transactions given the current macroeconomic headwinds and uncertainty due to the impact of the environmental regulations.
Speaker 3: New building prices were roughly stable in Q1 2023 compared to Q4 2022 and have eased a little over recent months in some sizes but generally remain elevated amid cost inflation and extended yard full root cover.
Speaker 3: The ideal container ship fleet as of April 24, 2020, is reached to about 1.4% of the fleet.
Speaker 3: which peaked in February 2023 at 3% but has been trending down ever since.
Speaker 3: Recycling activity edged higher during Q1 with 30 vessels being scrapped.
Speaker 3: This trend is anticipated to continue for the remainder of 2023 and 2024.
Speaker 3: Scrapping prices saw the modest improvement in the first quarter of 2023 to about 560,000 per library time.
Speaker 3: This is about 40% above the 2019 average.
Speaker 3: Finally, the Containers if Fleet has grown by approximately 1.8% year-to-day without accounting for Ida Bessel'sAMP activation.
Speaker 3: Please turn to slide 11. In its latest update in April 2023, the IMF slightly lowered its global GDP growth estimates to 2.8% for this year, before settling to 3% in 2024.
Speaker 3: This is primarily due to the effects of high inflation, tighter monetary policies, slow economic activity, as well as the ongoing war between Russia and Ukraine and growing geopolitical tensions.
Speaker 3: However, the US and EU seem quite resilient.
Speaker 3: despite the recent economic shocks by Maryland financial sector.
Speaker 3: Quite noticeably, China seems to be on track to achieve an estimated growth rate of 5.2% for this year, followed by a moderate growth of 4.5% for 2024.
Speaker 3: Quite noticeably, China seems to be on track to achieve an estimated growth rate of 5.2% for this year, followed by a moderate growth of 4.5% for 2024. Growth
Speaker 3: in emerging market and developing countries is expected to be quite below longer-run trends in 2023 and 2024, with the IMF lowering growth projections more than previously expected. India is poised to grow by 5.9% in 2023 and 6.3% in 2024, which is under the current year.
Speaker 3: According to the latest Clarkson's estimates, container trade is projected to contract by 2.1% in 2020.
Speaker 3: However, in 2024, trade should improve as economic headwinds start to ease, with trade growth projected at 3.3%.
Speaker 3: Rate and growth projections are being continuously revised as the effects in the financial sector, the inflation and geopolitical tensions, and the economic growth projections are being continuously revised as the effects in the financial sector,
Speaker 3: is relatively young with most vessels under 15 years old and only 10% of the fleet over 20 years old.
Speaker 3: The largest percentage of which though, lies within feeder vessels.
Speaker 3: suggesting higher potential recycling for this type of sheets.
Speaker 3: The order book as a percentage of total fleet stands at a high of 28.7% as of May 2023.
LARSUS expects new deliveries of about 9.7% of the current fleet to be delivered as of the beginning of 2023 for 2023, 10% in 2024 and 6.4% in 2025.
with the majority of the deliveries scheduled for delivery in the second half of 2023 and the first half of 2024.
Turning on to slide 13, we go over the fleet age profile and order look for ships in the 1000 to 3000DU range in multi-phase.
These sizes of vessels are the backbone of our operations and the primary focus of our new building program.
The order book here stands just 12% as of May 2023.
Together with the fact that 23% of this size vessel is older than 20 years old suggests that the fleet could even decline to fulfill the containment shifts in the ensuing 23 years. Welcome to Classroom.
New deliveries for 2023 are expected to be 9.4%, two and a half percent has already been delivered. 5.6% in 2024 and 0.8% in 2025.
Let's move to slide 14 where we discuss our outlook summary for the containers.
Container markets remained significantly below last year's boom following a strong correction in the second half of 2022. Despite the fall in volumes, easing of congestion and relative bottlenecks as well as increasing deliveries,
The container times of the market has shown admirable resilience and even some gains in the recent months. Thank you for your attention.
Further softening is possible though for the remainder of 2023 as deliveries of new building vessels is expected to pick up pace in the second half of the year.
In any event, current software rates are still standing at 165% above pre-COVID's 10-year median.
The container phase index also reversed scores during the last couple of months, and recovered a bit compared to January 2020 levels lately.
It now stands at the level 8% lower than the January 2022 peak, with still 5 to 10% above the pre-COVID 10-year average. Container volumes have fallen by 7.5% year-to-year.
The reversal of port congestion also released a good portion of the fleet, increasing effective supply.
However, the vessel slowed down has offset the increase in supply at the end of the congestion cost.
There are still large challenges ahead, mainly on the supply side, but also due to the microeconomic developments which are hard to predict and quantify. Thus, determining future shipping volumes and overall demand is very difficult.
may decline again if this has not already happened in the second half of 2023 due to a second consecutive year of substantial fleet expansion.
Market performance will remain sensitive to capacity management.
and the range of other inefficiencies such as congestion.
that could alleviate pressure to some extent.
The energy transition is another unknown that will affect the container sector, probably positively. While it's evident that the shift is taking place and in the short term we can expect lower speeds, there are strength in vessel availability.
The long-term outlook is intricate and uncertain.
One thing that is probably sure is that the spread between chartered eggs achieved by echo vessels relative to the older vessels.
is expected to further increase.
Smaller sized vessels, the segments we mainly operate in, are expected to perform relatively better due to potential scrapping of over-aged vessels and lower number of new deliveries.
all these pointing to a healthier supply situation. Without a doubt though, cascading of larger vessels that rates current research by this size could mitigate any differences to an extent.
Let's remove the slide 15.
The left chart shows the evolution of one-year time-sarter rates for containers with a capacity of 2500 TDU since 2010. Following the industry's exceptional highs in 2022, the market has now normalized with one-year time-sarter rates currently standing at 18,000.
the historical range for new buildings and 10-year-old containers with a capacity of 2500
Strong contract theme activity over the past two years, distributed between relatively few CPA's concurrently with rising inflation, pushed the new bidding prices up slightly.
Even though new building contracting activity has been hampered so far this year, new building prices remain at very high levels on the backdrop of the inflationary environment. Prices for 10-year-old secondhand container ships will skyrocket in May 2022 to $56 million in total.
have since eased to around $20.5 million, a level still significantly higher than the historical median.
In this environment, we will continue to reward our shareholders through our steady, costly digital, which currently yields about 10% annually.
and by executing on our share repurchase program, which we believe represents a very attractive investment opportunity since our shares traded 40% of the intrinsic value.
Our strong contract revenue coverage throughout 2023 and 2024 at healthy rates will also allow us to take delivery of our remaining eight new building vessels and at the same time continue to evaluate investment opportunities with low base.
that will incrementally increase our earnings and growth. And with that, I will pass the floor to our CFO , Tassos Sotirides, to go over our financial highlights and further details. Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen.
Over the next four slides, I will give you an overview of our financial highlights for the first quarter of 2023 and compare the results to the same period of last year.
For that, let's turn to slide 17. For the first quarter of 2023, the company reported total net revenues of 41.9 million, representing a 7.6% decrease over total net revenue of 45.4 million.
during the first quarter of 2022. The company reported net income for the period of 28.8 million as compared to net income of 29.9 million for the first quarter of 2022.
interest and other financial costs for the first quarter of 2023 amounted to 1.99 million
partly offset by imputed interest of 1.1 million, which is capitalized as 1.1 million.
and is due to the self-financing of the pre-delivered installments of our new building program. In addition, we had 0.23 million of interest income.
For the same period of last year, the interest and finance costs amounted to $1 million. We had no interest in the interest and practically no interest in combustion.
The increase in the top line of our interest expense is due to the increased amount of debt and the increase in the weighted average LIBOR slash software rate in the current period compared to the same period of 2022. I've adjusted the bidet for the first quarter of this year.
was 26 million compared to 31.1 million achieved during the first quarter of 2022.
Basic diluted earnings per share for the first quarter of 2023 were $4.11 and $4.10 respectively.
calculated on about 7 million basic and diluted weighted average number of shares outstanding compared to basic and diluted earnings per share of $4.15 and $4.13 respectively.
calculated in 7.2 million shares for the same period of last year. Excluding the effect on the income for the quarter of the unrealized loss in derivatives, the amortization of below market time chart acquired, the depreciation chart to the increased value of the vessel
$0.09 per share diluted.
compared to adjusted earnings of $3.71 and $3.70, basically they use it respectively, for the same period of last year, after excluding, after making similar adjustments for the previous year's period.
Usually, secure channels do not include the above items in their published estimates of clearance per share. That's why we provide you with the adjusted figures. Let's now turn to slide 18 to review our fleet performance. We will start our review by looking at our fleet utilization rates.
for the first quarter of 2023 and compare them to last year's.
quarter of 2023 and compare them to last year's. You will not receive changing UN
user, our flitilization rate is broken into commercial and operational.
In the first quarter of 2023, our commercial utilization rate was 98.1% while our operational utilization rate was 100% compared to 99.6% compared to 99.6% compared to 99.6% compared
17.1 vessels were owned and operated during the first quarter of this year.
Another Stein-Charter equivalent rate of $29,231 per vessel per day, compared to 16 vessels owned and operated in the same period, the first quarter of 2022, earning on average $33,986 per vessel per day.
Our total daily operating expenses per vessel, including management fees, general and administrative expenses, averaged $8,074 per day during the first quarter of this year, compared to $7,329 per vessel per day.
for the first quarter of 2022. If we move further down this table, we can see the cash flow breakeven rate, which we had to meet during the first quarter of this year, and which takes into account also direct docking expenses, interest costs, and loan repayments.
Thus, for the first quarter of 2023, our
The cash flow breakeven rate was $14,160 per vessel per day, compared to $14,059 per vessel per day during the first quarter of 2022.
Finally, in the very last line of this table, you can see the common dividends that we pay expressed in dollars per day. In the first quarter of 2023, we paid the equivalent of $2,292 per person per day in dividends. We had no dividends declared for the first quarter of 2020.
we should check for the first quarter of 2022. Let's now move to slide 19 to review our debt profile. As of March 31, 2023, our sentence debt was 121 million. That includes debt for our new building, which we drew before the end of the quarter. At the same time, our debt profile was 121 million.
On the same day, our scheduled debtor payments for 2023, including the amount we paid in the first quarter, would amount to 27.14 million. While our banking payments, while form-screening program was being chosen for us,
amount to 30.73 million in 2023. Of these balloon payments, we have already paid two for 13.3 million and 6.3 million and we're in the process of financing the other one. Looking at the chart on the popular part of the...
corner of the slide, we can see also our debt repayment schedule for the following year, beyond 2023. As you can see, our debt repayment is expected to decline, for existing debt is expected to decline. Thank you, I appreciate it.
in all of those three years. And we had additional balloon payments in 2025, amounting to about 22 million. A quick note here about the cost of our debt.
The average margin on our debt is about 2.771% and assuming a labor rate of about 5.34% on the top of it, we can estimate the total cost of our senior debt to be 8.05%. However, if we include it in our course of debt calculation.
the part of our debt, the interest of which is locked through our interest aid swap contracts, the cost of our debt would drop to about 6.25% as about 5% of our debt is held at a cost of around 1.7%.
As it is noted on the top part of the slide, we expect to assume additional depth.
to finance the remaining of our new building program, the eight vessels that are as I mentioned earlier, in which made that debt to be around $190, $200 million.
the remaining of our new building program, the eight vessels that I just mentioned earlier, and we estimate that debt to be around $190, $200 million. Looking now at the bottom of the table,
We can see our cash flow breakeven level projected for the next 12 months and that level is expected to be to remain similar to what we had in the first quarter and be around $14,251 per day.
A big part of which is our loan repayments, $4,073 per vessel per day correspond to the payments of loans.
To conclude our presentation, let's move to slide 20 to review some balancing highlights.
As of March 31, 2023, our assets included
and other carotid acids that amounted to about 51.3 million.
We have made advances for our new building program, which at the end of the quarter stood about 98 meters.
have made advances for our new building program, which at the end of the quarter stood at about 28 million. The book value...
of our 17 vessels in the water as of March 31st stood at around 211.8 million, resulting in a total hook value for our assets of about 361 million. On the liability side, our debt as of March 31st, 2023, as previously mentioned, stood at 121 million, representing
33.5% of the book value for our assets. The fair value of our recently acquired charters, below market charters, is about 31.1 million and that is reported in our balance sheet. Other liabilities also amount to about 10.7 million or 3% for total book value for assets.
It should be noted though that the market value of our fleet, including the value of our charters, is much higher than its book value.
Based on our own estimates, the software adjusted value of our fleet.
plus change in the market value of our new building contract is approximately worth $328 million as of the end of the month as compared to the book value of our vessels less the fair value of below market charges of about $180 million.
And this translates to a net asset value for our company of about 346 million or a little more than $49 per share.
Recently our shares have been trading in the range of $18 to $19 per share, thus representing a significant discount, as I mentioned earlier, to our net asset value and provide good appreciation potential for shareholders and investors based on this measure.
With that, I would like to close my remarks and turn the floor back to our students to continue the discussion. Thank you, Tashos. Let us open up the floor for any questions we may have.
I would like to close my remarks and turn the floor back to our attendees to continue the discussion. Thank you, Darshav. Let us open up the floor for any questions we may have. Thank you.
We'll now be conducting the question and answer session. If you'd like to ask a question at this time, please press star 1 on your telephone keypad and a confirmation tone will indicate your line in the question queue.
We will now be conducting the question and answer session. If you would like to ask a question at this time, please press star one on your telephone keypad, and a confirmation tone will indicate your line in the question queue. You may press star two if you would like to remove your question from the queue.
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One moment, please, while we poll for questions, and that's Star 1. Thank you.
Thank you. Our first question is from the line of Clement Mullins with Value Investor's Edge. Please proceed with your questions.
Good morning, thank you for taking my questions. I wanted to start by asking...
Hi, I wanted to start by asking about the Tender Soul. The vessel was initially scheduled to be delivered in the second quarter of 2023, but it seems the value is now expected in the first quarter of 2024. Could you provide some commentary on the reason behind the delays and whether we should expect any financial impact?
I'm not sure that that vessel was ever scheduled for the second quarter. It was scheduled for the fourth quarter and it has been delayed by a month or so to be delivered in the beginning of 2024. We have seen some small delays in the last
in sourcing material and equipment. But it's minor delays of one to two months, I don't expect there to be huge delays. We had Verso Terataki scheduled for the second quarter of 2023 and that just leaked to early July 2023.
Yes, go ahead.
Yes, go ahead. All right. That's helpful.
Most of your New Build program remains open. And how should we think about securing new contracts? Would you be comfortable employing them on short-term charters? Or will you still be looking for medium-term employment?
It will really depend on what the market environment is towards the end of the year, because the Rataqi will be delivered beginning of July instead of end June , as was the initial plan.
is already fixed to ASEAN lines at $48,000 per day for three years, together with the Gregors, some time ago at the peak of the market. The remaining vessels, which are all going to be delivered in 2024, we are not in a hurry to fix now because we would get extremely discounted rates if we wanted.
pretty confident they will be fixed at very good rates. But how good? It will really depend on the market.
Yeah, that makes sense. And regarding the AI-GAN Express, you mentioned you expect to win the proceedings, but that the execution may be difficult as the charter is hiding its assets.
How should we think about the timing for the resolution of the proceeding? I think that within the next couple of months, certainly within, you know, by our next call, this will have been resolved, the legal issues will have been resolved and we will know if we have won the award. For more information, visit www.fema.gov.uk
which we think is a no-brainer, but when you're in arbitration, you're never 100% sure. But as I said, the most difficult thing is to recover from a charterer who is hiding and indeed was the smallest charterer from all the charters that we have on our table.
That's fine. I think this is enough for now.
All right, thank you.
All right, thank you. Thank you, bye bye.
Thank you. If you'd like to ask a question at this time, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. We'll pause the moment to assemble the queue, and once again that is star 1. Thank you. Thank you.
At this time, I will turn the floor back to Mr. Pienes for closing remarks. Well, thanks everybody for listening to us today. And we will be back in three months time with the Q2 results.
Thank you everyone. This will conclude today's call. You may disconnect your lines at this time. Thank you for your participation.