C3is Q4 2023 Earnings Call Transcript

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March 26, 2024

There are 2 speakers on the call.

Operator

Good morning, everyone, and welcome to our City IS 4th Quarter and Full Year 2023 Earnings Conference Call and Webcast. This is Yamatish Andriotti, CEO of the company. With me on the call today is our CFO, Nina Pindia. Before we commence our presentation, I would like to remind you that we will be discussing forward looking statements, which reflect current views with respect to future events and financial performance and are based on current expectations and assumptions, which by nature are inherently uncertain and outside of the company's control. At this stage, if you could all take a moment to read our disclaimer on slide 2 of this presentation.

Operator

I would also like to point out that all amounts quoted, unless otherwise clarified, are implicitly stated in U. S. Dollars. Today, we released our earnings results for the Q4 and full year 2023. So let's proceed to discuss these results and update you on the company's strategy and the market in general.

Operator

Slide 3 shows the drybulk shipment volume growth in 2023 as compared to 2022. Global seaborne iron ore trade grew by 4.5% to 1,630,000,000 tonnes in 2023 with Chinese imports rebounding by 7% year on year. Chinese steel production increased by 0.9% in 2023 after 2 years of contraction. Domestic iron ore output and stockpiles moved higher. Coal ton miles expanded by 6.5% compared to 2022, a result of the global focus on energy security, which inflated the coal trade.

Operator

Chinese imports surged during 2023 as thermos electricity increased, hydropower underperformed and domestic coal production was limited at 4.3%. India emerged as a leading buyer of coal cargoes as electricity demand outpaced domestic coal production growth. Grain shipments grew by 1.7% compared to 2022 as record soybean and corn season in Brazil have helped fill the gap of crop losses from Ukraine and Argentina. Falling prices of agricultural commodities and better crop yields in North and South America are expected to support grain trade in 2024. Minor bulk trade high correlation to global GDP growth resulted in an expansion of 2.1 percent 2023.

Operator

Atlantic steel shortages incentivized Pacific exports and inflated backhaul trades. Slide 4 shows the increasing demand for drybulk commodities versus the handysize fleet growth. As shown in the previous slide, drybulk demand increased by 4.4% in 2023 and is expected to increase by 2.1% in 2024. After contracting by 1.2% in 2022, minor bulk ton mile trade increased by 4.1% in 2023, while it is expected to further increase by 4% in 2024. A strong Q4 mainly driven by the Atlantic basin in December helped to maintain the average rates at $12,800 the highest rate compared to the 1st 3 quarters of 2023.

Operator

Especially for Q4, the increase was up in astonishing 45% compared to Q3, where traditionally we see the strongest rates of the year. This increase was mainly attributed to heavy delays at Panama Canal causing the backlog of vessels waiting to transit through the Canal and causing an imbalance in the supply demand ratio, especially in the USG and ECSA markets. The IMF has upgraded the global GDP growth forecast by 0.2% to 3.1% for 2024 with China projection up by 0.4% at 4.6% and India projection up by 0.2% at 6.5%. The Chinese economic recovery for COVID-nineteen is still at its early stages and expect to accelerate once the property market stabilizes and consumer confidence returns. Gradual stimulus measures having investment on infrastructure and higher exports provided support of raw materials demand.

Operator

The lower energy, food and borrowing costs currently support the demand recovery for the rest of the world. On the fleet growth, the Handysize segment is quite over aged with a very small order book. In December 2023, indicative average newbuilding prices for handysize was around $32,500,000 $24,800,000 for a 5 year old vessel. The dry bulk hire of the book annually stands at 30 year historically low levels, while 16% of the dry bulk handysize fleet is above 20 years of age. The small handysize fleet is expected to shrink by 0.2% in 2024.

Operator

Compliance with new environmental regulations, CXI, CII, capped with an overage fleet are likely to accelerate demolition thus reducing average fleet supply. Moving on to slide 5, 2023 has been another positive period for crude oil trade undeterred by high oil prices and risks of economic recession. Despite the ongoing crude oil production cuts enforced by OPEC members, industry participants believe that the tanker market environment will remain positive through 2025. The ongoing war in Ukraine will create a trade pattern shifts benefiting long haul crudes and causing charter rates for tankers to rise. Crude oil demand in ton mile terms grew by 5.9% in 2023 and is expected to grow by 4.3% in 2024.

Operator

Seaborne crude oil trade has been supported by increasing demand from China and rising exports from suppliers in the Americas. In 2023, crude oil trade was estimated to have increased by 5.2 percent or 335,000,000 deadweight, whereas in 2024, it is expected to further increase by 3.4% or 346,500,000 deadweight. The tanker order book remained at historically low levels standing at 6.7% of the fleet capacity at the end of December 2023. Emission regulations are expected to have a further moderating impact on active tanker supply. Slide 6 shows the Handysize fleet age and growth.

Operator

The Handysize market by the end of 2023 was the 3rd largest size sector in dry bulk shipping in number of units, around 23% of the trade in dry bulk fleet. The handysize bulk air fleet includes many old vessels with plenty of demolition potential. Almost 40% of the handysize dry bulk carrier fleet is between 10 to 15 years of age, while a total of 20% of the trade in fleet is estimated to be 15 years old or older. New environmental regulations are likely to accelerate demolition. Order book to trading ratio was 10% in deadweight terms.

Operator

In 2023, net fleet growth for Handysize of 20,000 to 43,000 deadweight was 3.3% year on year. Net fleet growth is expected to continue at around 4.3% in 2024 and then at around 3.1% in 2025. Fleet growth forecast for 20242026 is based on the current order book after assuming slippage and expected demolition. Looking forward to 2024, the outlook for the Handy bulkier market is cautiously optimistic with room for gradual improvements. According to current projections, the growth in bulkier demand is expected to be slightly above fleet expansion combined with constrained delivery schedule and potential for increased demolitions.

Operator

Several factors including the recent escalating attacks from Houthis in the Gulf of Aden, the implementation of reduced vessel speed and extended retrofitting time due to environmental regulations coupled with recently announced constraints in the Panama Canal are poised to shape market dynamics. Slide 7 shows the Aframax Tankers fleet age and growth. Order book for Aframax Tanker vessels stood at just 5% of the existing fleet at the beginning of 2024, the lowest level seen in the past 28 years. Almost 30% of the Aframax Tanker vessels fleet is between 15 to 19 years of age, while 90% of the trading fleet is older than 20 years. Compliance with stricter environmental regulations is likely to accelerate demolition thus reducing available Aframax tanker fleet supply.

Operator

Emission regulations are expected to have a further moderating impact on active tanker supply. Tanker supply combined with geopolitical factors and environmental impacts will heavily affect tanker rates. The effects of the withdrawing of trade lanes resulting from Russia's invasion of Ukraine continue to support the Aframax market in particular. However, the same peaks and corresponding freight rates seen in Q4 of 2022 were not reached. After the attacks commenced on vessels passing through the Red Sea Gulf of Aden around the end of November, a gradual strengthening of the tanker market east of Suez were observed as vessels started rerouting via Cape of Good Hope instead.

Operator

This has resulted in less availability of vessels east of Suez and a less efficient mechanism to rebalance the vessel supply on either side of Suez. If the RTC situation persists, upwards pressure will also be expected in Atlantic Aframax market as less donuts will be available due to the longer routes taken. During the last quarter of 2023, there was a clear gap between tanker Chinese West and East of Suez. We saw a significantly firmer market in the West both on dirty and clean trades. The Afrax rates increased in Q4 compared to Q3 as crude oil exports out of U.

Operator

S. Gulf reached record figures and this combined with improved export quantities also from other key export areas in the Atlantic kept the fleet increasingly busier. Slide 8 shows the current fleet of CTIS. By the end of Q4 2023, CTIS owned and operated a fleet of 2 handysize dry bulk carriers and 1 Aframax oil tanker with an average age of 13.4 years. All vessels have had their ballast weather systems already installed.

Operator

Furthermore, there are no immediate capital commitments for special surveys as the next one due is in Q3 2025. All vessels are currently unencumbered and currently employed on short to medium term period charters and spot voyages. For the contracted revenues of the company, the Echo Busfire is on time charter at a daily rate of $13,000 until April 2024. The EcoEncel Bay is on time charter at a daily rate of $15,000 until March 2024. The Afrappel II ex Telpirana is on spot voyages.

Operator

Slide 9 shows a sample of the international charters with whom the management company has developed strategic relationships and has experienced repeat business. The repeat business highlights the confidence our customers have for our operations and the satisfaction of the services we provide. The key to maintain our relationships with these companies are high standards of safety and consistent of service. I will now turn over the call to Nina Pindia for our financial performance.

Speaker 1

Thank you, Diamantis, and good morning to everyone. Please turn to Slide 10, and I will go through our financial performance for the Q4 12 months of 2023. Voyage revenues for the 3 months ending December 31, 2023 amounted to €13,800,000 28,700,000 for the 12 months ending December 31, 2023. Compared to Q3 'twenty three, our net revenues increased by 36%, primarily due to the increase in the average number of vessels. Our fleet operational utilization was 87% for the Q4 91.6 percent for the full year 2023.

Speaker 1

For the Q4 of 'twenty 3, the daily TCE was $34,060 and for the 12 month period, the value was $23,453 Voyage expenses and vessels operating expenses for the 3 months ended 31st December 23 were $4,400,000 and $1,500,000 respectively. For the 12 months period, the figures were 7,600,000 and 4,800,000 respectively. The increases in both voyage expenses and vessels operating expenses are attributed to the increase in the average number of vessels and the addition of our Aframax tanker in the initial fleet. Voyage expenses for the 12 months ended December 31, 23, mainly included bunker cost of 3,400,000, corresponding to 45 percent of total voyage expenses and commissions to third parties of 1,200,000 corresponding to 16% of total voyage expenses. Operating expenses for the 12 months ended December 31, 23, mainly included crew expenses of €2,800,000 corresponding to 58 percent of total operating expenses spares and consumable cost of €1,000,000 corresponding to 21% and maintenance expenses of 400,000 dollars representing works and repairs on the vessels corresponding to 8% of total vessel operating expenses.

Speaker 1

Total calendar days for our fleet were 276 days for the 3 months ended December 31, 'twenty three, and 901 days for the 12 months of 'twenty three. Of the total calendar days in the Q4 of 'twenty three, 174 or 63% were time charter days and for the 12 months, 680 or 75.5 percent were time charter days. General and administrative costs for the 12 months ended 31 December 23 were €1,200,000 Depreciation costs for the 12 months ended 31st December 23 was €4,100,000 a €3,500,000 increase from €600,000 for the same period of last year due to the increase in the average number of vessels. Interest and finance costs for the 12 months ended 31st December 23 was 1,400,000 and related to the accrued interest expense related party as of December 31, 'twenty 3, in connection with the €38,700,000 acquisition price of our Aframax tanker, Afra Parlor 2, which is payable by July 24. EBITDA for the 12 months ended 31st December 23 amounted to €14,600,000 7,600,000 for Q4 'twenty three, representing an increase of 41% from Q3 'twenty three.

Speaker 1

As a result of the above, for the 12 months ended December 31, 'twenty three, the company reported a net income of €9,300,000 The net income for the 4th quarter was €5,600,000 corresponding to an increase of 67% from Q3 'twenty three. Turning to Slide 11 for the balance sheet. The fleet book value as at the end of December 'twenty three was €75,200,000 As at the end of 'twenty three, the cash and cash equivalents was €9,100,000 whereas the company had no outstanding bank debt. The financial abatement of €39,000,000 relates to the Aframax oil tanker that was acquired in July 23 and is due in July 24. Based on the current estimated fleet market value as of March 24, the company's net asset value is approximately €50,450,000 representing 10.3x its current market capitalization.

Speaker 1

Concluding the presentation on Slide 12, we outline the key variables that will assist us progress with our company's growth. Owning a high quality fleet reduces operating costs, improves safety and provides a competitive advantage in securing favorable charters maintaining the quality of vessels by carrying out regular inspections, both while in port and at sea and adopting a comprehensive maintenance program for each vessel disciplined growth with in-depth technical and condition assessment review timely and selective acquisitions of quality vessels current focus on short- to medium term charters and spot voyagers chartering to high quality charterers such as commodity traders, industrial companies and oil producers and refineries, maintaining an adequate level of cash flow and liquidity, no outstanding bank debt. At this stage, our CEO, Doctor. Diamantis Andriotis will summarize the concluding remarks for the period examined.

Operator

Since our company's listing in late June 2023 and following the acquisition of our Aframax, the first step of our growth strategy, our expanded diversified fleet has enabled our company to enjoy solid financial performance. Indicatively, during the Q4 of 2023, we achieved a fleet wide time charter equivalent rate of $34,000 per day. As a result, during the Q4 of 2023, we generated revenues of 13,800,000 and net income of $5,600,000 representing increases of 36% and 67% respectively from the previous quarter. The revenue generation of $23,900,000 achieved during the second half of twenty twenty 3 since our company's spin off from its parent company represents approximately 83% of the full year's revenue. We believe that this is indicative of our ability to efficiently operate our fleet and capitalize on the sustainable freight rate environment.

Operator

Specifically, our 2 handysize bulk carriers, which are mainly employed under short term time charter contracts are currently earning charter rates ranging from $13,000 to $14,000 per day. The earnings raised from our 2 100 bulk carriers are enhanced through the operation of our Aframax tanker in the spot market. The vessel is currently capturing the prevailing robust Aframax spot rates, which stand in excess of $40,000 per day, a level that is in line with the time charter equivalent rate achieved by our tanker during the last quarter. Our diversified fleet and deployment in the spot market enables our company to take advantage of the promising charter rate environment is expected to generate strong cash flow going forward. We believe that our capital structure comprising of no bank debt and strong cash balance currently standing at $35,600,000 will further enhance our company's ability to fund selective vessel acquisitions following payments of the remaining purchase price of our Aframax Tanker.

Operator

We would like to thank you for joining us today and look forward to having you with us again on our next call for Q1 of 2024 results.

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Earnings Conference Call
C3is Q4 2023
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