Q2 2024 Euroseas Ltd Earnings Call
Speaker Change: Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas conference call on the second quarter 2024 financial results.
Speaker Change: We have with us today Mr. Anastasios Aslidis, Chief Financial Officer of the company. At this time all participants are in 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 1 on your telephone keypad and wait for your name to be announced.
Speaker Change: I must advise you that this conference is being recorded today.
Speaker Change: Please be reminded that the company announced their results for the press release that has been publicly distributed.
Speaker Change: Before passing the floor to Mr. Aslidis, I would like to remind everyone that in today's presentation and conference call, Euroseas will be making forward-looking statements.
Speaker Change: These statements are within the meaning of the Federal Securities Law. 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 Change: 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 Change: Please take a moment to go through the whole statement and read it.
Speaker Change: And now I would like to pass the floor to Mr. Tata Aslidis. Please go ahead, sir.
Tassos Aslidis: Good morning ladies and gentlemen and thank you all for joining us today for our scheduled conference call.
Aristides Pittas: and Anastasios Aslidis, CFO of Euroseas. Adjusted net income for the quarter was $34.3 million, or $4.92 per diluted share. Our survey purchase plan of up to $20 million was extended for a year during 2023, and last month our board extended it for yet another year. The vessel will then proceed to the Far East to have its fifth special survey in dry dock performed. Next, please turn to slide 5 for an update on our current fleet profile.
Tassos Aslidis: I am Anastasios Aslidis, CFO of Eurasys.
Speaker Change: Together with me is Simos Pariaros, our Chief Administrative Officer.
Speaker Change: Our chairman and CEO , Mr. Aristides Pittas, who is usually hosting our earnings calls, is not available for this presentation this quarter due to overlapping engagements.
Speaker Change: The purpose of today's call is to discuss our financial results for the six-month quarter ended June 30, 2024.
Speaker Change: Let's turn to slide 3 of the presentation to go over our income statement highlights.
Speaker Change: For the second quarter of 2024, we reported total net revenues of $58.7 million and a net income of $40.7 million, or $5.84 per diluted share.
Speaker Change: Adjusted net income for the quarter was $34.3 million or $4.92 per diluted share.
Speaker Change: Adjusted tibidab for the period was $42.3 million.
Speaker Change: A reconciliation for debtor-to-debtor net income is presented in the press release that was released earlier today.
Speaker Change: I will provide you with some further details on our results later in the presentation.
Speaker Change: As part of the company's common stock dividend policy, our board of directors declared a quarterly dividend of $0.60 per common share for the second quarter of 2024, which will be payable on or about September 17, 2021.
Speaker Change: to serve holders of record on September 9.
Speaker Change: The annualized dividend yield of our stock remains at around 6.5% based on the current share price.
Speaker Change: Our survey purchase plan of up to $20 million was extended for a year during 2023, and last month our board has extended it for yet another year.
Speaker Change: We will continue to use our share repurchase program at management discretion, depending on the level of our stock price, to enhance our ability to increase long-term shareholder values.
Speaker Change: Please now turn to slide 4, where we discuss our recent sales and purchase, chartering, and other operational developments.
Speaker Change: Starting first on the SAP front, we can report that the previously agreed-to-be-sold vessel, motor vessel EM Astoria,
Speaker Change: The vessel was sold for approximately $10 million, resulting in a gain on sale of about $5.7 million or $0.82 per share.
Speaker Change: During the last four months, there was quite an activity around our new building program.
Speaker Change: MV Monika is a fuel-efficient 1,800 TAU feeder vessel.
Speaker Change: The acquisition of MV PepiStar was partly financed with a loan from Piraeus Bank, and following its delivery, the vessel commenced a charter for a minimum of 23 to a maximum of 25 months at a rate of $24,250 per day.
Speaker Change: From the above, one can observe the progressive increase of the rates the three sister vessels were chartered, which fully reflect the market developments during the quarter.
Speaker Change: There are two more vessels remaining in our new building program, two 2800 PEU vessels.
Speaker Change: Continuing our report here on the chartering side, MV Hydra Charter was extended for a minimum of 10 to maximum 12 months at $13,000 a day starting from May 2024.
Speaker Change: while
Speaker Change: Its charter was extended for a minimum period starting from the beginning of August to a maximum period until August 23rd at an average gross daily rate of $13,500 per day.
Speaker Change: Our current lead consists...
Speaker Change: of 23 vessels in the water, including and includes 16 feeder container ships.
Speaker Change: and seven intermediate container carriers with total carrying capacity of just about 67,100 TEU and another stage of about 14 years weighted by TEU.
Speaker Change: Turning to slide 6, you can see the two remaining vessels that are under construction, which are to be delivered, as I mentioned earlier, in January , in the first quarter of 2025.
Speaker Change: After the delivery of these two feeder container ships, our fleet will consist of 25 vessels with a total carrying capacity of just under 73,000 TEU.
Speaker Change: Let's now turn to slide 7 for a graphical presentation of our vessel employment.
Speaker Change: As you can see in the slide, we have secured very strong charter coverage over the next two years, with approximately 95% of our fleet fixed for 2024 and nearly 44.5% for 2025.
Speaker Change: This robust charter coverage, combined with profitable rates for the remaining of our charters, positions us for highly profitable quarters, enhancing our fluid liquidity through 2024 and 2025.
Speaker Change: Our chartering strategy is crucial in maximizing our revenues across market cycles and ensuring that we capitalize on favorable market conditions.
Simos Pagliaros: At this point, let me pass the floor to our Chief Administrative Officer, Mr. Simos Pagliaros, to go over recent market developments. Simos, go ahead. Thank you, Tasso. Good morning from me as well, ladies and gentlemen.
Speaker Change: Let's now move to slide 9 for a broader market review.
Simos Pagliaros: Let's take a look first on charter rates, focusing on the development of 6 to 12-month-time charter rates over the past 10 years. In the second quarter, continuing through the end of June 2024, containership charter rates experienced a strong increase across all segments.
Simos Pagliaros: If we look at the reference, the rate of a 2,500 TEU container ship, the 6-12 month charter rate stood at about $34,000 per day, much more than triple.
Simos Pagliaros: the almost $9,250 per day which the market paid at the end of 2023.
Simos Pagliaros: and well above the 10-year average of approximately 15,719 per day. These trends are consistent across both smaller and larger container ship sizes, showing similar favorable comparisons to median and average rates.
Simos Pagliaros: Now moving on to slide 10, we go over some further market highlights. We mainly want to highlight here that after climbing through the beginning of July , the market has shown signs of stabilizing in the past.
Simos Pagliaros: and possibly a temporary...
Simos Pagliaros: posing in the upward trend.
Simos Pagliaros: Let's hope that this will reverse in the weeks to come.
Simos Pagliaros: The increase up to the end of June is primarily attributed to ongoing disruptions in the Red Sea, return to some degree of port contention, and an early peak season with unexpectedly high volumes from Asia.
Simos Pagliaros: predominantly to developing economies leading to a very tight market.
Simos Pagliaros: Average rates per day during the second quarter of 2024 increased by about 48% compared to the first quarter of 2024, while vessel prices increased as well and are now closer to the peak levels of 2022.
Aristides Pittas: The average second-hand price index also increased on average by about 15.5% in the second quarter of this year over the first quarter, with basically a cooling activity in the U.S., a stabilization in Europe, and stronger consumption and exports in China. Risks to this outlook remain more balanced, however, there are upside risks to inflation and price pressures stemming from the new trade or geopolitical tensions that may appear. On the other hand, Japan's growth has been revised the most downwards for this year, from 0.7% to 0.9%, and Russia's in 2025 down to 1.5% from 1.8% in their previous forecast, and much lower than the 3.2% that is predicted for Russia in 2024.
Simos Pagliaros: The average second-hand price index also increased on average by about 15.5% in the second quarter of this year over the first quarter.
Simos Pagliaros: The new building price index increased by about 1.4% in the second quarter of 2024 over the first quarter of the same year.
Simos Pagliaros: New building prices continue to stay elevated due to inflation and extended yard forward cover. While new building contracting has moderated from the exceptionally high levels observed during the COVID-19 pandemic,
Simos Pagliaros: It still remains relatively robust. This sustained activity is primarily driven by cash-rich liner companies eager to renew their fleets with alternative fuel-capable vessels.
Simos Pagliaros: However, this is primarily focused on bigger size ships.
Simos Pagliaros: As of July 15, 2024, the idle fleet, excluding vessels under repair, stood at a mere 170
Speaker Change: The total fleet consists of ships that are under sanctions as they are owned or related to Iranian interests, so essentially we can say that there is no idle fleet at all.
Speaker Change: I will now give you some figures about container vessel recycling within this year.
Speaker Change: During 2024, up to now, 39 vessels, accounting for about 54,000 TEU, have been scrapped.
Speaker Change: We expect demolition activity to increase moderately in the remainder of this year after a number of very quiet years due to the very high market.
Speaker Change: In the second quarter of 2024, scrapping prices softened slightly to approximately $545 billion.
Speaker Change: dollars per light well tonne on average, though still remaining above the average observed in the pre-pandemic year of 2019 by about 33%.
Speaker Change: Please now turn to slide 11.
Speaker Change: The latest update from IMF from July 2024
Speaker Change: sees the global economy to experience modest growth over the next two years with basically a cooling activity in the US, a stabilization in Europe , and stronger consumption and exports in China.
Speaker Change: Risk to this outlook remains more balanced, however there are upside risks to inflation and price pressures steaming from the new trade or geopolitical tensions that may appear.
Speaker Change: Any further escalation of trade tension could raise near-term risks by increasing the cost of imported goods along the supply chain.
Speaker Change: As a result, the IMF has maintained this year's growth forecast at 3.2%, consistent with its April projection.
Speaker Change: In the meantime, the forecast for 2025 was slightly reduced by 0.1% to 3.3%, with China and India bringing the most notable upward revisions.
Speaker Change: On the other hand, Japan's growth has been revised the most downwards for this year, from 0.7%.
Speaker Change: to 0.7% from 0.9% and Russia's in 2025 down to 1.5% from 1.8% in their previous forecast and much lower than the 3.2% that is predicted.
Aristides Pittas: Overall, we see that the fleet continues to grow at a very fast pace, having expanded by about 6.5% only this year, without accounting for idle vessel reactivation, which has been significant in 2024, as the idle fleet has shrunk from about 800,000 TEUs about 12 months ago to just 170,000 TEUs today. And this is happening due to further rerouting through the Red Sea caused by ongoing disruptions in the area and also exceptionally good volumes from Asia to Europe and the U.S., along with developing countries.
Speaker Change: for OCEAN for 2024.
Speaker Change: Overall, we see that the fleet continues to grow at a very fast pace, having expanded by about 6.5%.
Speaker Change: In the meantime, the Asian 5 economies remain the main agent for the global economy with a forecast remaining broadly unchanged from April .
Speaker Change: However, the effects of the Houthi attacks in the Red Sea that have caused these disruptions are expected to normalize at some point going forward, something that we expect will create significant challenges in the market for a period of time.
Speaker Change: As a result, to import the order book as a percentage starts at around 22%, reduced from a peak of 30% which we saw last year.
Aristides Pittas: Now, according to Clarkson, new deliveries are projected to be approximately 8% of the entire 2024, with the vast majority of these ships already delivered. With over 50% of the fleet of this size segment being over 15 years old, these favorable fundamentals suggest an anticipated reduction in fleet size in the coming years. Despite destabilization in July, the container shipping market has seen significant gains throughout 2024, and freight rates have fallen to their highest level in the past year.
Speaker Change: Now, according to Clarkson, new deliveries are projected to be approximately 8% within the entire 2024, with the vast majority of these ships already delivered.
Speaker Change: The number drops to 1.8% in 2025 and 1% in 2026 and beyond.
Speaker Change: suggesting that going forward we will have minimal deliveries of this size segment.
Speaker Change: With over 50% of the fleet of this size segment being over 15 years old, these favourable fundamentals suggest an anticipated reduction in fleet size in the coming years.
Speaker Change: Let's now move to slide 14 where we discuss our Outlook Summary for the Container Ship Market.
Speaker Change: Despite destabilization in July , the container shipping market has seen significant gains throughout 2024. Freight rates have shed to the highest level outside the pandemic period, while charter rates have climbed steadily to historically robust levels.
Speaker Change: These strong market conditions are largely driven by disruptions in the Red Sea, as mentioned before, which have forced vessels to divert around the Cape of Good Hope, leading to increased vessel demand and port congestion.
Speaker Change: Additionally, healthy container volumes are bolstered by a continuously strengthening global economy.
Speaker Change: Freight rates have surged and charter rates have more than doubled since the end of the year of the previous year, reaching their highest level outside of the COVID-19 period and the strong markets of the
Speaker Change: of 20 years ago of around 2004-2005 period where the market was also at extremely high levels.
Speaker Change: The Context Index has increased by 164% since the end of 2023.
Speaker Change: Looking into the second half of 2024, the developments in the Red Sea will play a critical role in shaping the sector's immediate outlook. The situation remains uncertain, with any resolution heavily depending on the political landscape.
Aristides Pittas: Even if conditions improve, the destruction is expected to continue for several more months. Furthermore, the introduction of further environmental measures and carbon taxes worldwide will further boost the premium on this kind of ship. And with that, I will pass the floor back to our CFO, Tasos Aslidis, to go over our financial highlights in further detail.
Speaker Change: Even if conditions improve, the destruction is expected to continue for several more months.
Speaker Change: The fleet is projected to expand, creating capacity management challenges due to significant cumulative supply growth.
Speaker Change: The energy transition and the decarbonization process of the world's fleet is steadily gaining momentum in the container ship sector and definitely at a much faster pace than the rest of the shipping sectors, creating much more favorable dynamics for the newer eco-vessels, something that has worked very well for the new building investment program of Euroseas.
Speaker Change: Going forward, we anticipate that the premium for charter aids achieved by ECOVESSELS will further widen.
Speaker Change: This is because charters and the industry as a whole are becoming increasingly sensitive to greener transport options, thereby placing a higher value on vessels with lower environmental impact.
Speaker Change: Furthermore, the introduction of further environmental measures and carbon taxes worldwide will further boost the premium on this kind of ships.
Speaker Change: Now moving on to the last side of my part.
Speaker Change: Please take a note of the significant increases in both charter rates and asset prices that we have seen during 2024 following the Red Sea developments.
Speaker Change: What is most interesting...
Speaker Change: Though, is that the new building price index is almost at the highest historical levels, something that gives further value to our investment program, and proves the rightness of our decision to proceed with the vast expansion of our fleet throughout our new building program just a few years ago.
Speaker Change: Euroseas with healthy cash balance to fund the remaining equity portion of our new building program. We plan to continue returning money to our shareholders through dividends and share buybacks at management discretion.
Speaker Change: And we continue to plan the renewal and expansion of our fleet with strategic investments that we believe will create further value to our shareholders.
Speaker Change: Thank you, Simos. Let me continue. As I indicated in the beginning, I will provide you with a little bit more detail on our financial results.
Speaker Change: for the six and three-month periods ended June 30th and compared them, as I said, with the same periods of last year. For that, let's turn to slide 17.
Speaker Change: For the second quarter of 2024, the company reported total net revenues of $58.7 million, representing a 23.1% increase over total net revenues
Speaker Change: of 47.7 million during the second quarter of last year.
Speaker Change: This was the result of increased time charter rates on average that our vessels earned in the second quarter of this year compared to last, but primarily due to the increase in the average number of vessels we own and operated.
Speaker Change: in the second quarter of 2024 compared to the same period of last year.
Speaker Change: The company reported net income for the second quarter of 2024 of $40.7 million compared to $28.9 million for the same quarter of 2023.
Speaker Change: Interest and other financing costs for the second quarter of 2024 amounted to $3.5 million.
Speaker Change: partly offset by 1.4 million of imputed interest income earned because of the self-financing of the pre-delivery installments of our new buildings.
Anastasios Aslidis: This increase in interest expenses is primarily due to the increased amount of debt we carried in the current quarter compared to the same quarter of last year. Adjusted EBITDA for the second quarter of 2024 was $42.3 million compared to $30.6 million achieved during the second quarter of last year, meaning per se, the company's earnings per share are basically diluted for the same quarter of last year. We make these adjustments because, usually, security analysts do not include the above items in their published estimates of earnings per share, and our operational utilization rate was 99.8%, and others again.
Speaker Change: which in that imputed interest is capitalized.
Speaker Change: This is to be compared to 2.4 million of interest expense, interest and finance cost in the second quarter of 2023, again partly offset by 1.2 million of imputed interest income.
Speaker Change: This increase of interest expenses is primarily due to the increased amount of debt we carried in the current quarter compared to the same quarter of last year.
Speaker Change: Adjusted EBITDA for the second quarter of 2024 was 42.3 million compared to 30.6 million achieved during the second quarter of last year.
Speaker Change: Basic and diluted elements per se.
Speaker Change: For the second quarter of 2024, where $5.89 and $5.84 calculated on approximately 6.1 million basing and 7 million diluted weighted average number of shares outstanding.
Speaker Change: compared to basic and diluted earnings per share of $4.17 and $4.15, respectively, for the second quarter of last year, calculated on approximately $6.9 and $7 million.
Speaker Change: basically diluted weighted average number of shares outstanding.
Speaker Change: excluding the effect on the income of the unrealized gain on derivatives.
Speaker Change: The Game on Sail of the Vessels
Speaker Change: The amortization of below-market time charters acquired and the vessel depreciation charged on the portion of the consideration of vessels acquired with attached time charters allocated to the below-market charters.
Speaker Change: The adjusted earnings for the quarter ended June 30th, 2024, would have been $4.95 per share basic.
Speaker Change: Sands-Perserre basically diluted for the same quarter of last year.
Speaker Change: We make these adjustments because usually security analysts do not include the above items in their published estimates of earnings per share.
Speaker Change: Let's look now at the numbers for the corresponding six-month periods, ended June 30, 2024, and compare them with 2020-23.
Speaker Change: So, for the first half of this year, the company reported total net revenues of $105.5 billion.
Speaker Change: Millions to 5.4 million, representing 17.6% in case of a total net revenues of 89.6 million during the first half of 2023.
Speaker Change: The company also reported a net income for the period of $60.8 million compared to $57.6 million for the first half of last year.
Speaker Change: Interest and other financing costs for the first half of 2024 amounted to $6.6 million. Again, partly offset by $2.7 million of reputed interest income, compared to $4 million.
Speaker Change: in the first half of 2023, offset by 2.3 million of infused interest income.
Speaker Change: Again, the increase of the interest expense is due to the higher levels of debt that we carried on average this year versus last.
Speaker Change: Adjusted GDP for the first six months of this year were 66.9 million compared to 56.6 million achieved during the first half of 2023.
Speaker Change: Basic and diluted earnings per se for the first half of this year were $8.78.77 and $8.71 respectively. Calculated on approximately 6.9 basic and 7 million diluted.
Speaker Change: Weighted average number of shares outstanding, compared to basic and diluted earnings of $8.28 and $8.25 respectively.
Speaker Change: Calculating about 7 million shares outstanding for the same period, the first half of 2023.
Speaker Change: excluding again the effect on the net income for the first half of the unrealized gain on derivatives, the gain on a sale of a vessel, the amortization of below market time charters acquired and the related vessel depreciation.
Speaker Change: The adjusted earnings per share for the six-month period ended June 30, 2024, would have been $7.63.
Speaker Change: and $7.57 basic diluted respectively, compared to adjusted pairings per share of $7.29 basic and $7.26 diluted for the same period of last year.
Speaker Change: Our fleet utilization rate is broken down into commercial and operational components.
Speaker Change: On average, again, about $31,639 per day, compared to 18 vessels for the same period of 2023, earning on average $30,151 per day.
Anastasios Aslidis: Our total daily operating expenses, including management fees, general administrative expenses, but excluding dry-dodging costs, which amounted to $13,700 per vessel per day compared to 13,840 land vessels per year, while for the same period of last year, it amounted to $2,117 per vessel per day compared to 17.5 vessels earning on average $29,714 per vessel per day for the same period, the first six months of 2023, to review In 2025, our projected loan repayments are about $22 million, along with balloon payments of around $17.5 million, and we typically refinance our balloon payments, which carries an average margin of about 2.17%.
Speaker Change: If we look further down in the table, we can see again the cash flow break-even rate for the second quarter of 2024.
Speaker Change: which amounted to $13,700 per vessel per day compared to 13,841 vessels per day.
Speaker Change: dollars per vessel per day for the same period of last year.
Speaker Change: We have half a slide left to discuss. Let's now move to review the six-month figures.
Speaker Change: for 2024 and 2023. So during the first half of 2024, our commercial and operational utilization rate was 99.9% each.
Speaker Change: compared to a 99.1% commercial and 98.7% operational for the same period of last year.
Speaker Change: compared to 17.5 vessels, earning on average $29,714 per vessel per day for the same period, the first six months of 2023.
Speaker Change: Operating expenses, again, including management fees and GNAs, but no direct docking costs.
Speaker Change: Are there $7,563 per vessel per day in the first half of this year compared to $7,948 for the same period of last year?
Speaker Change: If we look again down to our break-even levels...
Speaker Change: Professor Forday
Speaker Change: break even level compared to $13,996 for the first six months of 2023.
Speaker Change: And if we include dividends in our break-even...
Speaker Change: In 2024, our dividend payments amounted to...
Speaker Change: [inaudible]
Speaker Change: $238 per vessel per day compared to $2,194 for the same period of last year.
Speaker Change: Let's now move to the next slide, slide 19.
Speaker Change: and our forward breakeven levels.
Speaker Change: As of June 30th, our total debt stood at approximately $208 million, and that figure does not include the loan we withdrew to finance our last delivery, Pepe Star, which we took delivery in July . The chart, though, that we saw there, the repayments, shows...
Speaker Change: As you can see, in 2024, we already made loan repayments of approximately $17 million in the first half, and we expect to make an additional $1.5 million.
Speaker Change: 17.1 million of repayments and a balloon payment of about 1.8 million in the second half of the year for a total loan repayment amount of about 35.9 million.
Speaker Change: In 2025, our projected loan repayments are about $22 million, along with balloon payments of around $17.5 million, and we typically refinance our balloon payments.
Speaker Change: In 2026, we do not have any balloon payments due, but we have to make loan repayments of around $15 million.
Speaker Change: We also saw in this chart our laundry payments and balloon payments for 2027.
Speaker Change: Senior Debts
Speaker Change: carries an average margin of about 2.17%.
Anastasios Aslidis: And assuming a base rate, a base offer rate of 5.25%, our senior debt has a total cost as of June 30th of around 7.4%. If we include in the cost of the debt the savings we have achieved by swapping a portion, about 10% of our debt, at a base rate of 3.4% instead of 5.25%, the overall cost comes down to about 7.1%. I will concentrate only on the final one, including... On the liability side, as I mentioned, as of June 30th, our debt stood at $208 million, which represents approximately 38% of the book value of our assets.
Speaker Change: Assuming a base offer rate of 5.25%, our senior debt has a total cost as of June 30th of around 7.4%.
Speaker Change: If we include in the cost of the debt the savings we have achieved by swapping a portion, about 10% of our debt, at a base rate of 3.4% instead of 5.25%, the overall cost comes down to about 7.1%.
Speaker Change: We expect to assume additional debt.
Speaker Change: for the two vessels to be delivered towards the end of the year, beginning of next now, of around $55 million. So the $208 million that we have as of June 30th, plus the loan we drew for PEPI Star, plus the loans for the upcoming deliveries, will be our total indebtedness.
Speaker Change: I'd like to draw your attention to the bottom of this slide, where we present the levels and components of our expected cash flow breakeven for the next 12 months, and show the breakeven at various levels.
Speaker Change: I will concentrate only on the final one, including interest and loan repayments. Our projected cash flow break-even level for the next 12 months is expected to be around $12,921 per vessel per day.
Speaker Change: To sum up our presentation, let's move to the next slide, Flight Landing, to review our balance sheet.
Speaker Change: This slide presents our assets and liabilities in a simplified format. Our assets mainly include cash and other current assets, advances for vessels under construction and, of course,
Speaker Change: are the book value of our vessels in the water, shown here, shown here.
Speaker Change: As of June 30, 2024, we had cash and other current assets amounting to about $85.5 million.
Speaker Change: We have paid advances for our new building program.
Speaker Change: of about $41.5 million, while the book value of our vessels stood at around $420 million, resulting in total assets at book value of about $547.5 million.
Speaker Change: On the liability side, as I mentioned, as of June 30th, our debt stood at $208 million, which represents approximately 38% of the book value of our assets.
Speaker Change: However, it is important to highlight here that the market value of our fleet significantly exceeds its book value.
Speaker Change: We estimate that the Charter Adjusted Value for our fleet to be around $550 million, which translates to a net asset value for the company of about $458 million, or around $65 per share.
Speaker Change: Our closing price yesterday was just under $36 a share, a level that indicates a significant discount to our NAV and thus, we believe, represents a considerable appreciation potential for our shareholders and investors.
Anastasios Aslidis: We also get other liabilities, like the fair value of below-market charges acquired, and other liabilities, all together amounting to about 3.5% of our total assets. We estimate that the charter adjusted value for our fleet to be around $550 million, which translates to a net asset value for the company of about $458 million, or around $65 per share. With that, we'll finish our remarks, our prepared remarks, and we would like to open the floor to questions, if there are any. Thank you.
Speaker Change: Well, that will finish our remarks, our prepared remarks, and we would like to open the floor for questions if there are any.
Speaker Change: Thank you.
Speaker Change: At this time, we'll be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: Let me press star 2 if you'd like to withdraw your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: One moment, please, while we poll for questions. Thank you.
Speaker Change: One moment please while we poll for questions. Thank you.
Speaker Change: Thank you and our first question is from the line of Tate Sullivan with Maxim Group. Please proceed with your questions.
Tate Sullivan: Thank you, thank you both. My question is on charter coverage. I mean already 95% for this year and 44% for next year and probably to increase.
Tate Sullivan: Can you talk about how you view your counterparty risk and how your customers are honored?
Speaker Change: contracts in the last five years. I think maybe you've had just one customer pull out of a withdrawal from an existing contract. Can you talk about that, please? Yeah, that's correct, Tate. We had pretty much the overwhelming majority of our customers.
Speaker Change: stayed true to their signature and to their contracts. We had only one instance a couple of years ago of a charter that defaulted.
Speaker Change: So we expect to be able to collect on our charter contracts. As the market recovered, the portion of our contracted revenues that represents above-market charters has declined.
Speaker Change: So, while at the end of last year we estimated about 150 million worth of contracted revenues that were at above market charges, that number now is significantly lower, is below 30 million I believe in the last calculation.
Speaker Change: So, as long as the market stays at the current levels, or fluctuates around the current levels, I think that risk is minuscule.
Speaker Change: In any case, the liner companies have extremely strong balance sheets and an extremely profitable year this year.
Speaker Change: It would be a very big surprise to see that requests for negotiating older charters. At the moment, liners make tons of money on the ships, even on expensive ships that they have chartered over the last few years. So I think the question at the moment...
Speaker Change: It's not much of an issue for us.
Speaker Change: There is no risk at the moment on that.
Tate Sullivan: Thank you. And then with the increase in ship values, particularly, and then new build prices increasing with your leverage level relative to the ship's asset value, would you look to acquire secondhand ships more than possibly place new build orders at this time?
Speaker Change: Thank you. And then with the increase in the ship values particularly and then new build prices increasing with your leverage level relative to the ship's asset value, would you look to acquire secondhand ships more than possibly place new build orders at this time?
Speaker Change: I think, as I believe we have discussed in the past, we have our antennas out for opportunities that might appear. We try to make sure that we evaluate properly the risk of every acquisition.
Speaker Change: The prices, now that the rates are high, prices are also high.
Speaker Change: We would do a second conversely if...
Speaker Change: The residual value risk at the end of the employment of a vessel is acceptable, typically bringing the value of the vessel below historical average or even lower than that.
Speaker Change: So we are looking, we have the capacity, we have the liquidity, and we are looking both at the second-hand market and also on the new building market, but for the time being we are sitting tight, I guess, given the developments.
Aristides Pittas: Thank you, Tate. Thanks for your interest.
Speaker Change: Okay, thank you.
Speaker Change: Thank you, Tate. Thanks for the interest.
Speaker Change: Our next question is from the line of Lars Ede with Arctic Securities. Pleased to see you with your questions.
Lars Ede: Hello. First of all, congratulations on a great quarter. I just have a couple of questions.
Lars Ede: I was wondering, your voyage expenses turned positive for the quarter. How large was the bunker gain effect on voyage expenses?
Speaker Change: along the sails of Astoria.
Speaker Change: I guess the mortgage expenses have to do really with the sale of bankers when we change charter.
Speaker Change: I don't think there was something that was dramatically...
Speaker Change: Out of the ordinary, simply...
Speaker Change: We typically have very low mortgage expenses because the vessels are chartered and in certain cases we might have some gains because when we sell the fuel to the next charterer we make money on the transaction and that I guess is what is reflected in this quarter.
Speaker Change: So it's a small amount compared to the overall level of revenues.
Aristides Pittas: in any case,
Speaker Change: in any case.
Speaker Change: But it has to do primarily with what I said, you know, sometimes we, when we change charter, we sell the fuel that is the inventory that's on the board and that could result on a small gain or on a small loss.
Speaker Change: Yeah, okay, thanks. Additionally, in terms of dry dockings, you had two vessels.
Mark Reichman: to drive up the end of the quarter, how should we, or what can we expect for the second half of 2024? I'm frustrated with any potential docking.
Speaker Change: How should we or what can we expect for the second half of 2024?
Speaker Change: Yeah, we had two vessels completing their dry-dock, the one was primarily done in Q1. We had really one dry-dock that took place this quarter, Synergy Keelung.
Speaker Change: For Q3, I believe we already said in the presentation, we have Johanna that is going to go through dry dock.
Speaker Change: On the top of my head, I don't have any other vessel that...
Speaker Change: We expect, but I can get back to you on that, I mean, about what is, we have...
Speaker Change: [inaudible]
Mark Reichman: the profile of the
Speaker Change: I can get more specific about two...
Aristides Pittas: But from the nine new buildings, we don't expect anything.
Speaker Change: the profile of the upcoming dry donkings.
Speaker Change: Thank you very much. That's all from me.
Speaker Change: Thank you. As a reminder, if you'd like to ask a question today, please press star 1 from your telephone keypad.
Speaker Change: The next question is from the line of Mark Reichman with Noble Capital. Please receive your question.
Mark Reichman: Good morning. You mentioned the premium that eco-vessels garner, and I was just kind of curious on your thoughts.
Climent Molins: Where exactly does the container ship market stand in terms of lowering emissions over time and what are the implications for your fleet, and how are you planning in terms of developing your fleet as the demands for lowering emissions grow? So that's the first question.
Mark Reichman: Where exactly does the container ship market stand in terms of lowering emissions over time and what are the implications for your fleet and how are you...
Speaker Change: you know, planning in terms of developing your fleet, you know, as the demands for lowering, you know, emissions grows. So that's the first question.
Speaker Change: There are a couple of ways we are looking at that. One thing is that we have embarked on a pretty significant fleet renewal through our new building program. These vessels consume a lot less energy.
Speaker Change: fuel and have a very direct effect.
Speaker Change: on Reducing Emissions.
Speaker Change: The second component is that...
Speaker Change: We are pursuing a retrofit program. We have already had three vessels gone through that.
Speaker Change: That involves a significant investment from us, which in some cases we share with the charter of the vessel because they benefit as well.
Speaker Change: And in the cases that we have done it, we have registered reduction of fuel consumption of the order of 25-30%.
Speaker Change: Correspondingly, emissions of the same magnitude have been reduced.
Aristides Pittas: From those vessels, as we move through our dry docking cycle of the vessels, depending on the market conditions we are judging, and with a bias toward doing it, pursuing retrofits.
Speaker Change: As we move through our dry docking cycle of the vessels, depending on the market conditions we are judging and with a bias of doing it, of pursuing retrofits.
Speaker Change: for our elder vessels. The new buildings, I think...
Speaker Change: are the best vessels that can be built with today's technology.
Simon: and contribute directly to lower emissions. Simon, do you have anything to add? Yes, I wanted to add, Mark, that on the retrofits, because this has a basic cost with it,
Simon: We are trying to share that with some of our clients if they have the interest, which they usually have because they have the vessel under their charter. They make most of their savings, so they have interest to participate, and that works well for us as well.
Speaker Change: Also, I wanted to mention that the new buildings of the same size, of the same capacity, we have noticed that our 2800 EU vessels and the 1800 ships that we have gotten delivery of, they perform about 40%
Speaker Change: lower fuel consumption than ships of the same size that we own or have owned in the past, which is impressive.
Speaker Change: And this is only for the conventional ships. If you add the...
Speaker Change: or the LNG option, or you can use the LNG, the savings are even more.
Speaker Change: So, we are happy with the developments and our actions in terms of renewing our fleet and try to contribute from our side as much as possible to the process, to the decarbonization process of the world fleet.
Speaker Change: Now the second question is when I look at slide 10 and I see those shipping rates
Speaker Change: It kind of implies that the third quarter should be pretty strong as well, you know, with maybe, you know, hard to say whether the rates have peaked in July or August , but certainly looking at these numbers, it seems like the third quarter should be a pretty strong one.
Speaker Change: with good cash flow. So as you think about capital allocation going forward...
Speaker Change: In your press release, you mentioned evaluating accretive investment opportunities, but with the market values exceeding book values by...
Speaker Change: by a fairly large margin, it doesn't seem like the best time to go out and buy.
Speaker Change: second-hand vehicles, so
Speaker Change: or secondhand vessels. So would you be more inclined to invest in new builds or will there be the timing will be right where you know if you can pick up secondhand vehicles?
Speaker Change: closer to, you know, a book value, so to speak, and then retrofit them. How are you, kind of, you thinking about new builds versus acquiring secondhand vessels and retrofitting them?
Speaker Change: As I mentioned earlier, I think we are looking always for interesting investment opportunities.
Speaker Change: We realize that the second-gen prices are elevated and the deals that we would be willing to, the transactions that we would be willing to enter, would have to have
Anastasios Aslidis: acceptable residual value risk that could be the scrap price if the vessel is older or a price that is well within historical averages or sometimes or below historical averages. So we will not buy a vessel without being able to secure a charter at the same time; that brings down our cost to the levels I mentioned. We are also looking at the new building market, and we try to create a balance between returning funds to our shareholders, the dividends and the share buyback are proof of that, retaining certain liquidity in case opportunities appear, and, of course, we still have to complete the funding of our new building program.
Speaker Change: Acceptable residual value risk.
Speaker Change: That could be the scrap price if the vessel is older or a price that is well within historical averages or below historical averages. So we would not buy, obviously, a vessel without being able to secure a charter at the same time.
Speaker Change: that brings down our costs to the levels I mentioned.
Speaker Change: We do look also...
Speaker Change: at the new building market and we try to create a balance between returning funds to our shareholders, the dividends and the share buyback is one is a proof on that, retaining certain liquidity in case opportunities appear and of course we still have to complete the funding of our new building program.
Anastasios Aslidis: So our balance sheet starts building more liquidity in the second half of the year and into the next year, and these questions that you're asking will become more pressing then about how we can use that extra liquidity, but we're trying to balance it between those three.
Speaker Change: So, our balance sheet starts building more liquidity in the second half of the year and to the next year. And these questions that you're asking will become more pressing then, how we can use that extra liquidity. But we're trying to balance it between those three.
Aristides Pittas: But the bottom line, Mark, is that we won't take market exposure at today's second-hand prices. As Tassos said, there has to be a very low residual risk, and any second-hand project that we may look at needs to be covered with a charter that breaks down the residual value to very manageable levels.
Speaker Change: Arias
Speaker Change: But the bottom line, Mark, is that we won't take market exposure of today's second-hand prices.
Tassos Aslidis: As Tassos said, there has to be a very low residual risk and any second-hand project that we may look at needs to be covered with a charter that brings down the residual value to very manageable levels. At the moment...
Aristides Pittas: At the moment, the market is not offering such projects, so we're not really interested in today's second-hand prices. The new building in front has opportunities that we are exploring. The yards are extremely busy, and they are offering slots way down the road, so this is something that we are evaluating. We feel that new building prices, although high for several reasons, including the very high numbers that the world inflation was in the last..., three or four years in the world, which has created... So I think the bottom line is that at the moment we're evaluating, exactly.
Speaker Change: The market is not offering such projects, so we're not really interested in today's second-hand prices. The new building in front has opportunities that we are exploring.
Speaker Change: The yards are extremely busy and they are offering slots way down the road, so this is something that we are evaluating. We feel that new building prices, although high for several reasons, including
Speaker Change: The very high numbers that the world, the inflation was in the last...
Speaker Change: three, four years in the world, which has created a trend that cannot go back. And also the fact that modern ships are of different quality and different specifications than older ones, meaning that the cost of building a modern ship of the same size is.
Speaker Change: de facto more expensive today than it was a few years ago simply because of the specifications of the ship. And this can also not reverse.
Speaker Change: [inaudible]
Speaker Change: So I think bottom line is that at the moment we're evaluating, exactly.
Operator: Okay, thank you very much. That's very helpful. Thank you.
Speaker Change: Okay. Hey, thank you very much. That's very helpful. Thank you, Mark.
Operator: Thank you. Our next question is from the line of Climent Molins with ValueEdge Investor Edge. Please go ahead with your question.
Speaker Change: Thank you. Our next question is from the line of Climent Molins with ValueEdge Investor Edge. Please go ahead with your question.
Climent Molins: I wanted to start by asking about the vessels coming open later this year, which, excepting the Synergy Busan, are mostly in the feeder segment.
Clement Moll: Good afternoon. Thank you for taking my questions.
Clement Moll: I wanted to start by asking about the vessels coming open later this year, which, excepting the Synergy Busan, are mostly in the feeder segment.
Speaker Change: Should we expect some of these vessels to be forward-fixed over the coming weeks, or are you comfortable waiting until closer to re-delivery?
Speaker Change: I think we are on the market to look for charters for these vessels. Of course, you cannot dictate on the market your wishes.
Speaker Change: As I'm sure you know, the market became a little...
Speaker Change: softer in July compared to June .
Speaker Change: So I think, which is a function of many developments, one is that there is an evolving...
Speaker Change: Geopolitical scene with all the...
Speaker Change: This travels around the world at the same time as a seasonally low period in the summer. So we believe that at the end of the summer we have a clear picture of how forward we can fix some of these vessels.
Aristides Pittas: The market is still there, but it's a little softer, we have to admit, in July compared to June. We still have received a few indications from this ship that we could have replied to, and they could have been extremely profitable, but we have decided as a company to wait a few weeks and re-evaluate things after the summer holidays come closer to an end, and as people get back to their work and re-evaluate the conditions.
Speaker Change: The market is...
Speaker Change: It's still there, but it's a little softer, we have to admit, in July compared to June . We still have received a few indications from this ship that we could have replied and they could have been extremely profitable, but we have decided as a company to...
Speaker Change: to wait a few weeks and re-evaluate things after the summer holidays come closer to an end and as people get back to their work and re-evaluate the conditions at the time.
Climent Molins: That's very helpful, thank you. You also mentioned you expect the spread between modern and older vessels to widen going forward. I was wondering if you could provide some commentary on the EU ETS and whether you expect it to lead to a significant portion of recent new builds being employed in Europe. And if so... Do you think this could lead to some inefficiency?
Speaker Change: That's very helpful, thank you. You also mentioned you expect the spread between modern and older vessels to widen going forward. I was wondering if you could provide some commentary on the EU ETS and whether you expect it to have a significant, like to lead to a significant portion of recent new builds to be employed in Europe .
Speaker Change: And if so, do you think this could lead to some inefficiencies?
Aristides Pittas: I don't want to use the word penalty, but the more fees are placed on the emissions, which are higher from the older ships, the bigger the difference, the gap will be between young ships and older ships, and that naturally could create sort of a two-tier market, chartering-wise, for younger versus older ships. We would make younger ships more attractive, and it would justify our new building program even more so.
Speaker Change: Clearly, the more...
Speaker Change: I don't want to use the word penalties, but the more fees are placed on the emissions, which are higher...
Speaker Change: from the older ships, the bigger the...
Speaker Change: The difference, the gap will be between young ships and older ships and that naturally could create...
Speaker Change: on sort of a two-tier market charting-wise for younger versus older ships. It would make younger ships...
Speaker Change: more attractive and it would justify our new business program even more so.
Aristides Pittas: As a company, we anticipated that things would go like that. When we took the decision to invest such a large amount of our capital, especially for the size of our company, in a new building program, which at the time was 50% of our current fleet, the decision was based on these fundamentals, that the industry would have to pay for the pollution that it creates, and going forward, this will even intensify. So we have great faith in those modern ships.
Speaker Change: As a company we anticipated that things will go like that. When we took the decision to invest such a big amount of our capital, especially for the size of our company, to a new building program, which at the time was 50% of our current fleet,
Climent Molins: Makes sense. That's all from me. Thank you for taking my questions and congratulations on the quarter.
Speaker Change: The decision was based on these fundamentals, that the industry will have to pay for the pollution that it creates, and going forward this will even intensify. So we have great belief in those modern ships.
Speaker Change: Makes sense. That's all from me. Thank you for taking my questions and congratulations for the quarter. Thank you.
Anastasios Aslidis: Thank you. We've reached the end of the question and answer session, and I'll turn the call back over to Mr. Aslidis for closing remarks.
Speaker Change: Thank you. We've reached the end of the question and answer session, and I'll turn the call back over to Mr. Aslidis for closing remarks.
Anastasios Aslidis: I would like to thank everybody for your interest and for joining our call today, and I would like to renew our commitment to see each other at least via the earnings call in three months' time. Enjoy the rest of the summer, everybody.
Mr. Aslidis: I would like to thank everybody for your interest and for joining our call today and I would like to renew our, to see each other at least via the earnings call in three months' time. Enjoy the rest of the summer, everybody.
Aristides Pittas: Thank you all so very much from my side.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Mr. Aslidis: Thank you all so very much from my side.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.