EuroDry Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 13, 2023

There are 4 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to EuroDry Conference Call on the 4th Quarter 2022 Financial Results. We have with us today Mr. Arcez Pittas, Chairman and Chief Executive Officer and Mr. Tasos Aelidis, Chief Financial Officer of the company. At this time, all participants are in a listen only mode.

Operator

There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today. Please be reminded that the company announced its results with a press release that has been publicly distributed. Before passing the floor to Mr. Pittas, I would like to remind everybody that in today's presentation and conference call, EuroDry will be making forward looking statements.

Operator

These statements are within the meaning of the federal securities laws. 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. I will kindly draw your attention to Slide number 2 of the webcast presentation, which has the full forward looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And now I would like to pass the floor over to Mr.

Operator

Petis. Please go ahead, sir.

Speaker 1

Good morning, ladies and gentlemen. Thank you all for joining us today for our scheduled conference call. Together with me is Tasos Haslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the Q4 and full year ended December 31, 2022. Tasos will go over our financial highlights in more detail later in the presentation.

Speaker 1

Please turn to Slide 3. Our income statement highlights are shown here. For the Q4 of 2022, we reported total net revenues of $15,100,000 and net income of $6,300,000 or $2.20 per diluted share. Adjusted net income attributable to common shareholders was 3,300,000 dollars or $0.01 $1.18 per diluted share. The difference stemming mostly from the one time profit we had selling our eldest vessel MV Pantelispi.

Speaker 1

Adjusted EBITDA for the period was $7,300,000 Please refer to the press release for the reconciliation of adjusted net income attributable to common shareholders and adjusted EBITDA. As of February 10, 2023, we had repurchased 147,362 shares of our common shares in the open market for about $2,100,000 under our repurchase plan of up to $10,000,000 announced in August 2020 2. We will continue to execute the share repurchase program at management's discretion. For the full year 2022, our net revenue was $70,200,000 and net income was $33,000,000 or $11.62 per diluted share. Adjusted net income for the period was $28,400,000 or $9.86 per share diluted.

Speaker 1

Adjusted EBITDA for the period was 40 $3,200,000 Please turn to Slide 4 for our chartering and operational highlights. On the chartering front, we have been active in securing short term employment for all our vessels as a result of a weakened Q4 2022 market. In belief that when the market turns we can fix these vessels for longer contracts at higher levels. However, we have fixed 2 of our 10 vessels for a minimum of 13 to 24 months respectively, but on index linked charters at 105.5 percent of the average Baltic Cancer Image Index, thus maintaining our exposure to the spot market there as well. Fixers done during Q4 was still at decent levels, but all our other vessels that have been refixed in January have been at still lower levels below $10,000 a day as can be seen in the slide.

Speaker 1

I'm just going to note here the 1 charter of motor vessel, Molybaux Lagh. As this vessel was redelivered early from its previous charterer after mutual agreement and was re fixed for the remainder of the charter at $7,750 per day, I. E. For about 40 days to 50 days. The original charterer paid the difference between the original charter rate being $25,750 per day and the rate of the new charter in advance, essentially leaving us with no material loss of income.

Speaker 1

Moving on to the dry docks and repairs. Motor vessel Irene was in dry dock for approximately 53 days passing her scheduled special survey. 20 of these days were in Q4, 2022 and the remainder in Q1, 2023. There were no idle or commercial off hire periods during this quarter. In addition, during the quarter, we sold 90 days of an FFA contract for Q1 2023, the equivalent of 1 Panamax vessel at $12,000 per day.

Speaker 1

This contract is well in the money as the market is quite lower today. Please turn to slide 5. The company has a fleet of 10 vessels divided into 2 subsectors, 5 modern and eco ships younger than 10 years old, 2 Ultramaxes, 2 Kansaramaxes and 1 Supramax and 5 Japanese vintage Panamaxes, which however continue to be valuable workforces of the industry. Overall, our fleet has a total cargo capacity of about 730,000 deadweight and an average age of approximately 13.6 years. Turning to Slide 6, we provide a graphical update of our fleet employment.

Speaker 1

As you can see, fixed rate coverage for 2023 including the FFA stands at about 13.8%. This figure excludes ships on index charters, which are open to market fluctuations that have secured employment. Slide 7 reviews the market highlights for the Q4 of 2022 up until recently. The average spot market rate for Panamaxes was approximately $14,700 per day in the Q4 of 2022. By December 30, the spot rate had dropped to approximately $12,100 per day.

Speaker 1

And remarkably, this rate has dropped by about 47 percent to $6,438 per day as of February 10, 2023. The drop in the 1 year time charter rates for Panamax's has been more moderate, standing on average at around $14,700 per day during the quarter and currently standing at $13,700 per day. Both the BPI and BDI indices reflected the weaker demand and lackluster shipping activity due to a slowdown of imports to China, global slowdown of economic growth, the Ukraine Russia war, energy security focus and rising interest rates. Please now turn to slide 9. In its latest report, the IMF revised its global growth projections for 2020 3 2024 signaling some positivity in world economic growth and greater than expected resilience in a number of economies.

Speaker 1

The IMF now projects world growth to reach 2.9% in 2023, rising to 3.1% in 2024. The rise in Central Bank rates to fight inflation in Russia's war in Ukraine continue to weigh on economic activity. The rapid spread of COVID-nineteen in China dampened the growth in 2022, but the recent reopening has paved the way for a faster than expected recovery with a projected GDP growth of 5.2% in 2023 and 4.5 percent in 2024. In 2023, GDP growth for the United States was revised upwards to 1.4%, but is projected to inch down to 1% in 2024 owing to persistent inflation and the Federal Reserve's hawkish outlook. European growth projections are up by 0.2% from the previous quarter to 0.7% for the whole in 2023, whilst the growth rebound to 1.6% is expected in 2024.

Speaker 1

For now, the risks of high energy costs, waning confidence and rising interest rates are likely to persist into the year. Growth in emerging and developing countries is expected to be quite slow in 2023, but higher than previously expected, Especially the recent IMF's GDP focus for China has improved to 5.2% from 4.5% previously, mainly on the basis of the significant loosening of the COVID restrictions. Also the Russian economy has recently been upgraded from a negative 0.3% in 2023 to a positive 2.1% for 2024. India is expected to grow at the fastest pace of 6.1%, while Brazil's economy is now projected to grow 1.2 percent in 2023 and 1.5 percent in 2024. According to Clarksons' estimate, drybulk trade demand is expected to return to growth in 2023 following the contraction last year.

Speaker 1

For 2023 drybulk trade rate is expected to grow by 1.6% and 2% in 2024. Please turn to Slide 10, where we review the current dry bulk market cycle. The order book continues to fuel positive market sentiment as it remains at historically low levels. The order book as a percentage of total fleet stands at 7.2% as of February 2023. This suggests minimal fleet growth over the next 2, 3 years, likely leading to higher rates of trade increases.

Speaker 1

Additionally, new environmental regulations that kicked off this year could further influence supply growth by forcing some vessels to retire or to reduce their operational speed. Continuing on to slide 11. According to Plaxon's latest report, new deliveries as a percentage of total fleet is expected to be 3.8% by the end of 2023, 2.4% in 2024 and just 0.8% in 2025. The actual fleet growth is expected of course to be lower due to recycling. As of February 2023, the total drybulk vessel operating fleet was 13,182 vessels.

Speaker 1

8% of this fleet is older than 20 years old and the candidate for scrapping. Please turn to slide 12 where we summarize our outlook for the drybulk market. The drybulk market continues to soften with freight rates losing 50% year on year having returned to pre pandemic levels. The market continues to face significant headwinds on the back of geopolitical uncertainties. China's 0 COVID containment policy and a weak global economic outlook with recessionary risks sparking slowdown fears in key markets.

Speaker 1

At the same time, certain logistical bottlenecks that grew during the pandemic years have reversed significantly. There are however certain demand catalysts that could lead us to return to normal or even above normal growth rates. China's return to normality after the real estate crisis and reversal of 0 COVID containment policy along with announced stimulus packages, is one of the major potential drivers of the market recovery. By extension, an end to the war between Ukraine and Russia would lead to higher grain exports and huge reconstruction projects. Also, once central bank interest rates hiking has reached the level necessary to control inflation, a more predictable investment environment, higher economic growth and thus more dry bulk trade should start to materialize.

Speaker 1

On the supply side, the ordering of new ships has been practically non existent due to lack of available slots in shipyards and the lack of clarity for the fuel of the future. The order book to fleet ratio as discussed is near the lowest historical levels creating the backdrop for a charter rate recovery if demand returns to normal levels. Furthermore, the introduction of emissions regulation related measures, the EEXI and the CII, could further curtail supply as already explained. It is yet quite unclear how soon the above described developments will enter into force. So the timing of the market recovery is uncertain, but it's bound to happen.

Speaker 1

Finally, let's turn to slide 13. The left chart shows the evolution of 1 year time charter rates of Panamax drybulk vessels since 2002. As of February 10 this year, the 1 year time charter rate for Panamax ships with a capacity of 75,000 deadweight tons stood at $13,700 per day. This is close to the historical median level. In the right chart, you can see the historical price range for a 10 year old Panamax vessel, which has a current price of about $22,500,000 This is lower than the highest price level seen in the last 12 20 plus years, but still considerably higher than the historically average and median prices.

Speaker 1

Clearly, prices are higher than what current charter rates would suggest and this reflects the expectations amongst market participants that there will be a strong recovery in rates soon. We share the view that the recovery should come sooner rather than later. And whilst believe that Q1 we believe that Q1 2023 will be the 1st loss making quarter for EuroDry after 8 consecutive profitable quarters in which the company booked a combined profit of more than $21 per share, we would hope that it will be just a parenthesis. And in Q2 the company will return to profitability. If for any reason charter rates do not recover as expected, It will give us the opportunity to use our strong balance sheet to grow the fleet with newer assets whose values will also have corrected due to the protracted pool charter markets.

Speaker 1

In cyclical markets like shipping, it is those companies that time their acquisitions at the lower end of the cycle that eventually will be rewarded. In the meantime, we will continue to execute conservatively on our stock repurchase program as indeed we perceive our stock market valuation to be by a couple of orders of magnitude lower than our intrinsic fair value. Let me now pass the floor over to our CFO, Tasos Aslidis to go over our financial highlights in more detail. Tasos, the floor is yours.

Speaker 2

Thank you very much, Adi Fidesz. 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 Q4 full year of 2022 and compare them with our actual results in the equivalent periods of 2021. For that, let's turn to Slide 15. For the Q4 of 2022, the company reported total net revenues of $15,100,000 representing a 32.3% decrease over total net revenues of $22,300,000 during the Q4 of last year, which was the result of the decreased average time charter equivalent rate our vessels earned in the Q4 of this year compared to last year.

Speaker 2

The company reported a net income and a net income applicable to common shareholders for the period of $6,270,000 as compared to a net income of $16,000,000 and a net income attributable to common shareholders of $15,200,000 for the same period in the Q4 of 2021. Interest and other financing costs for the Q4 of 2022 increased to about $1,500,000 as compared to $700,000 for the same period of 2021. Inert expense was higher mainly due to the increased amount of debt and of course the increased LIBOR rates our loans had to pay during the period as compared to the same period of last year. Adjusted EBITDA for the Q4 of 2022 was $7,300,000 compared to $16,000,000 achieved during the Q4 of 2021. Basic and diluted earnings per share attributable to common shareholders for the Q4 was $22.21 basic calculated on $2,800,000 $2.20 diluted calculated again on about €2,900,000 weighted average number of shares outstanding compared to €5.38 basic and 5.32 diluted during the same period of last year.

Speaker 2

Excluding the effect on the income attributable to common shareholders for the quarter of the change in fair value of derivatives and gain on sale of a vessel, the adjusted earnings attributable to common shareholders for the Q4 of this year would have been 0.1 1 dollars per share basic and $1.17 per share diluted compared to adjusted earnings of 4.34 dollars per share basic and $4.29 per share diluted for the same period of last year. Typically, security analysts do not include the above items in their published estimates of earnings per share. Let's now move to the right half of the slide to review the same figures for the full year of 2022. For the full year, the company reported total net revenues of $70,200,000 representing an 8.9% increase over total net revenues of $64,400,000 during 2021 as a result of the increased number of vessels we operated during 2022. The company reported a net income and a net income attributable to common shareholders for the period of 33,500,000 dollars as compared to a net income of $31,200,000 and net income attributable to common shareholders of $29,400,000 dollars during 2021.

Speaker 2

Interest and other financing costs for the during 2022 amounted to 3,900,000 compared to $2,300,000 for the same period of last year. Adjusted EBITDA for the 12 months of 2022 was $43,200,000 compared to $42,300,000 achieved during 2021. Basic earnings per share attributable to common shareholders for the 12 months of 2022 were $11.66 calculated on $2,900,000 weighted average number of shares outstanding and diluted earnings per share were $11.61 calculated again on about 2,900,000 dollars weighted average number of shares outstanding compared to basic and diluted earnings per share attributable to common shareholders of $11.63 $11.54 basic and diluted respectively for last year. Excluding the effect on the earnings attributable to common shareholders for the year of the change in the fair value of derivatives, the loss on debt extinguishment in 2021 and the gain on sale of our vessel in 2022, the adjusted earnings per share attributable to common shareholders for last year, 2022, would have been $9.90 basic and $9.85 diluted compared to $11.63 basic and $11.54 diluted for 2021. As I mentioned, typically, secured analysts do not include the above items in the published estimates of earnings per share.

Speaker 2

Let's now turn to Slide 16 to review our fleet performance. We will start our review by looking at our fleet utilization rates for the Q4 and the full year of 2022 2021. Let's start with the Q4 first. As usual, our fleet utilization rate is broken down to commercial and operational. In the Q4 of this year, our commercial utilization rate was 100%, while our operational utilization rate was 99.7% compared to 99.8% commercial and 99.5% operational for the Q4 of last year.

Speaker 2

On average, 10.1 vessels were owned and operated during the Q4 of 2022, earning an average time charter equivalent rate of $16,688 per day compared to 9 vessels that we owned and operated during the Q4 of 2021, earning on average $29,157 per day. Our total daily operating expenses, including management fees, general and administrative expenses, average $7,335 per vessel per day during the Q4 of 2022 compared to $6,324 per vessel per day for the Q4 of last year. If we move further down this table, we can see the cash flow breakeven rate, which we paid during the Q4 of this year, which takes into account also dilutive expenses, interest costs, loan repayments and preferred dividends, if any, of them were paid in cash. Thus, for the Q4 of 2022, our daily cash flow breakeven rate was $13,063 per vessel per day compared to $11,625 per vessel per day during the Q4 of 2021. Let's now look on the right part of the slide to review the same figures for the full year.

Speaker 2

During the entire 2022, our commercial utilization rate was 99.8%, while our operational utilization rate was 99.3% compared to 99.9 percent commercial and 99.6 percent operational for 2021. On average, we own and operated 10.4 vessels, earning an average time charter equivalent rate of 21 $1,304 per day compared to 7.9 vessels during 2021 earning conunders $24,222 per vessel per day. Our total daily operating expenses, including management fees, general and administrative expenses, but excluding drydosing costs, averaged $6,699 per vessel per day in 2022 compared to $6,456 per vessel per day in 2021. Again, looking at the bottom of this table, we can see our daily cash flow breakeven rate for the year, which amounted in 2022 to $12,989 per vessel per day, and that compares to $10,739 in 2021. Let's now move to Slide 17.

Speaker 2

There, we can review our debt profile. As of December 31, 2022, we had an outstanding bank debt of about $81,900,000 Looking at the chart on the top of the slide first, we can see that our debt repayment our debt repayment and balloon payments over the next 4 years. As of December 31, 2022, again, our scheduled debt repayments, including balloon repayments over the next 12 months during 2023, amounted to about 23,000,000 dollars an amount which includes an $11,300,000 balloon payment related to the loan of our newest vessel Ekaterin. Our balance sheet allows us to comfortably make the balloon payment. Nevertheless, we intend to refine asset like we have done in similar cases in the past.

Speaker 2

Total debt repayments in 2024 amount to about $14,000,000 inclusive of a $3,000,000 balloon and dropped to about $5,700,000 in each of 2025 and 2026. A quick note here about the cost of our debt. The average margin for our debt is about 2.7% and assuming a LIBOR rate of about 4.8% on the top of it, we can estimate our total cost of our senior debt to be around 7.5%. However, if we included in our cost of debt calculation the interest rate locked via our interest rate swap contracts, the cost of our debt would drop to about 6.25%. At the bottom of this table, we can see a projected cash flow breakeven rate for the next 12 months broken down to its components.

Speaker 2

As you can see, we expect an overall cash flow breakeven rate level of around $12,725 per vessel per day. Also in the middle of this chart, in the bottom of the slide, we can see our EBITDA breakeven rate, which amounts to about $7,637 per vessel per day over the next 12 months. Let's now move to the last slide, Slide 18, where we can see some highlights from our balance sheet in a simplified way. This slide offers a snapshot of our assets and liabilities. As of December 31, 2022, cash and other current assets stood at about $50,500,000 in our balance sheet.

Speaker 2

The book value of our vessels was approximately $149,000,000 resulting in a total book value of our assets of about $200,000,000 On the liability side, our debt as of the end of last year, as I mentioned, was about €81,900,000 representing about 41% of the book value of our assets. And we also had other current liabilities amounting to about $4,300,000 or about 2.2% of the book value of the assets. That leaves us with a book value of shareholders' equity of about $114,000,000 which translates to a book value per share of $39.35 However, based on our own estimates and market transactions, we assess that the market value of our vessels as of the end of last year was above the book value and stood at around $168,000,000 about $19,000,000 more than their book value, suggesting that our NAV per share to be in excess of $45 per share, close to $46 per share. And that indicates that with our share trading in the range of $16 to $17 recently that our shares that investing in our shares provide a significant upside to our shareholders and investors. This concludes my brief review of our results and balance sheet.

Speaker 2

I would like now to pass the floor back to Aristides to continue the call.

Speaker 1

Thank you, Tassos. Let us open up the floor for any questions we may have.

Operator

Our first question is from Tate Sullivan with Maxim Group. Please proceed.

Speaker 3

Hello. Good day both. In the press release, you mentioned maybe using this current environment as an opportunity to buy ships or merge user public shares as a merger. What are incentives for other ship owners to sell currently or to consider a merger?

Speaker 1

1st of all, we need to find our incentive to buy ourselves because as I said during the discussion, prices are still quite high relative to where the current charter rates are. And I think we would see we would need to see prices softening a little bit before we were able to act on these expansion plans that we have.

Speaker 3

Okay. All right. And then you mentioned you gave some commentary about positioning of the ships and I mean I've seen the slide on in terms of your spot rates for this current quarter. Is there a potential for more positioning after the current contracts expire in this current quarter? Should we factor that into our estimates for 1Q 2023?

Speaker 1

Well, half of our vessels are practically fixed throughout Q1. The other half will come up for re chartering within the next 40 days till the end of the quarter. So, we will be obviously fixing those ships as well because the market is at these low levels. We will we do not anticipate in fixing longer term charters now. We think that there is a correction.

Speaker 1

The usual cyclicality that we have in drybulk trade, where Q1 is the lowest quarter everything else being equal of course. We think that this will transpire this year as well and we will see recovering rates within Q2.

Speaker 3

Okay. And then Tassos, on the voyage expenses, a bit volatile with the gain on bunkers and going back to expenses as opposed to a negative $2,000,000 in 3Q 2022. I mean, will this be consistently an expense or what has to happen to have a gain on bunkers going forward, please? Or should I just continue to factor in about $1,000,000 of voyage expenses every quarter?

Speaker 2

It depends on the voyage expenses depends on the style of fixing. If we did time charters, obviously, we don't have significant mortgage expenses other than mortgage expenses that result from buying and selling fuel and delivery and delivery between charters. If we fix on a voyage basis, and I think we do have a voyage charter in Q1, which will be really shown the Q1 results, then of course, both revenues and mortgage expenses will be fine. So the best way to model it is to, in my opinion at least, is to model the time charter equivalent basis and assume a level of mortgage expense. But possible gains on mortgage expenses that you see occasionally is because of the gains that we realize when we buy at a lower price and sell to the next charter at the higher price.

Speaker 2

We shouldn't count of this continuing, this sort of one off situations.

Speaker 1

Yes. So, voyage expenses are very much affected by fuel prices, not the actual fuel prices, but if fuel prices are going up or fuel prices are going down, because we buy from the market, sell to charters and vice versa. And it all depends on how that is going. So this is a difficult thing to model as Tasos rightly said.

Speaker 3

Understood. Okay. Well, thank you. Thank you for the background and the commentary. Have a good rest of the day.

Speaker 1

Thanks. Thanks. Thanks. Thanks. Bye.

Operator

There are no further questions. I would like to hand the conference back over to management for closing comments.

Speaker 1

Thank you everybody for listening in to our results of this quarter. We will be back to you at the end of Q1 with the results of the Q1 of 2023. Have a great day. Thank you, everybody.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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EuroDry Q4 2022
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