Seanergy Maritime Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 6, 2024

There are 5 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Synergy Maritime Holdings Corp Conference Call on the 2nd Quarter and 6 Months Ended June 30, 2024 Financial Results. We have with us Mr. Stamatis Santenis, Chairman and CEO and Mr. Stavros Giftakis, Chief Financial Officer of Cenergy Maritime Holdings Corp. At this time, all participants are in a listen only mode.

Operator

There will be a presentation followed by a question and answer session. Please be advised that this conference call is being recorded today, Tuesday, August 6, 2024. The archived webcast of the conference call will soon be made available on the Cenergy website, www.synergymaritime.com. To access today's presentation and listen to the archived audio file, visit the synergy website following the Webcast and Presentation section under the Investor Relations page. Please now turn to Slide 2 of the presentation.

Operator

Many of the remarks today contain forward looking statements based on current expectations. Actual results may differ materially from the results projected from those forward looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward looking statements is contained in the Q2 6 months ended June 30, 2024 earnings release, which is available on the synergy website, again, www.synergymaritime.com. I would now like to turn the conference over to one of your speakers today, the Chairman and CEO of the company, Mr. Stamatis Santanis.

Operator

Please go ahead, sir.

Speaker 1

Thank you, operator. Hello. I would like to welcome everyone to our conference call. Today, we are presenting the financial results for the Q2 and 1st 6 months of 2024 and an update on our recent corporate developments. We will commence our call with a brief overview of our main highlights for the Q2, which are fully aligned with our corporate strategy, namely maximizing shareholder returns while growing our fleet and maintaining a healthy balance sheet.

Speaker 1

Following a strong start to the year, the Q2 of 2024 marked another record in our profitability with a net income of $14,100,000 Synagis' focus as a pure play Capesize owner proved advantageous as our segment outperformed the smaller drybulk vessel classes. The Capesize market continued its positive momentum with a Baltic Capesize index averaging about $22,600 per day. During this period, our daily time charter equivalent of $26,600 a day outpaced the KHSI index by an impressive 18%, thanks to our active commercial strategy, resulting in quarterly net revenues of 43,100,000 dollars up significantly from $28,300,000 in the same quarter last year. For the 6 months ending June 30, we reported net revenues of $81,400,000 a substantial increase from $46,400,000 in the same period last year based on a daily time charter equivalent of about $25,400 a day, which exceeded the Baltic Capesize average again. Our profit for the 6 month period was $24,300,000 Given these favorable market conditions and our strong financial performance, our Board of Directors has revised our dividend policy to further enhance our focus on returning capital to our shareholders.

Speaker 1

Details of this policy will be discussed in the next slide. For the Q2, our cash dividend will be $0.25 per share, up from a combined $0.15 per share in the Q1 of the year. Additionally, we have repurchased common shares worth approximately $1,800,000 since our last update, bringing total stock repurchases to $2,700,000 since the beginning of the year. We remain optimistic about the Capesize market and expect to continue generously rewarding our shareholders in the upcoming quarters. In regards to our growth initiatives, during the Q2, we took delivery of the Icon ship, a 2013 Capesize vessel built in Japan acquired earlier in the year for $33,600,000 As is typically the case with our ships, the ICON ship has commenced employment under an index linked time charter and is earning a premium to the Baltic 8 Size Index.

Speaker 1

Additionally, we expect to take delivery in September of 1 more Capesize vessel built in 2012 in Japan. It is encouraging to note that both vessels have appreciated in market value since our acquisition underscoring once again the good timing of our transactions and the strong CAEP fundamentals in play. I would also like to highlight that following $58,300,000 in financing and refinancing transactions completed during 2024, we ended the Q2 with a modest fleet loan to value ratio comfortably below 40% when netting from debt our robust cash reserves. Let's move on to Slide number 4 to discuss our new dividend policy. We have introduced a variable formula policy to further align our dividend distributions to the Capesize market conditions while affirming our commitment to higher shareholder returns.

Speaker 1

Our quarterly dividend will be based on an operating cash flow generated during each quarter while considering our debt service and other commitments. As mentioned earlier, the cash dividend for the 2nd quarter will be $0.25 per share, representing approximately half of our operating cash flow, net of the debt service for the quarter and will be paid to all shareholders of record as of the 27th September on or about the 10th October. Slide 5. In the next slide, we highlight our firm commitment to shareholder returns. Since the Q4 of 2021, we have paid $1.85 per share in cash dividends and repurchased $6,000,000 in common shares and 36 $900,000 in convertible notes and warrants.

Speaker 1

Looking ahead, our new dividend policy aligned with the current Capesize market outlook can deliver attractive capital returns to our shareholders. This sets Synergy apart from many of our drybulk peers as our pure play Capesize fleet outperforms smaller vessel sizes. We are dedicated to rewarding our shareholders accordingly. Lastly, I have made additional personal investments by purchasing common shares and call options on synergy stock on the open market, reflecting once again my strong confidence in the company's future performance. Slide 6, moving on to our commercial highlights.

Speaker 1

Our fleet's daily time charter equivalent outperformed the Baltic Capesize Index by 18% in the 2nd quarter and by 8% over the entire 6 month period. This strong performance was primarily driven by our proactive commercial strategy, including a well timed hedging plan. For the Q2, we secured the rates of approximately $28,000 a day for half of our operating days. Additionally, half of our vessels are equipped with exhaust gas scrubbers, enhancing earnings and many of our ships have favorable fuel consumption specifications based on earlier installation of energy saving devices and our proactive maintenance schedule. For the Q3 of 2024, based on the current FFA levels, we expect our daily time charter equivalent to be equal to approximately $25,500 roughly in line with the Capesize index.

Speaker 1

This reflects the fact that we have fixed approximately 42% of our operating days for that period at a gross rate of $29,500 Overall, we have currently fixed 39% of operating days for the second half at a gross time charter equivalent rate of $29,300 Before passing the floor to Stavros, I would like to add that I'm particularly pleased to see Synergy operating in a balanced manner within our stated business objectives and I view this quarter's strong financial performance as a testament of our long term corporate strategy. Stavro, please go ahead. Thank you, Samatik, and welcome everyone to our earnings call. Let's begin by reviewing the key highlights of our financial statements for the Q2 and the 6 month period ending June 30, 2024. We had another outstanding quarter, achieving record profitability supported by what seems to be a resilient Capesize freight market.

Speaker 1

Our net revenue for the quarter reached $43,100,000 marking an approximate 50% increase compared to the same period last year. Additionally, our adjusted EBITDA rose to $28,000,000 approximately $12,000,000 higher than the same period last year. Our net income was $14,100,000 compared to $700,000 last year, translating to an EPS of $0.68 For the 6 month period, our net revenues and adjusted EBITDA reached $81,400,000 $51,200,000 respectively, significantly surpassing last year's performance. Our profitability in the 1st 6 months of 2024 set a record for the first half of the year. At the same time, our net income was $24,300,000 compared to a net loss recorded in 2023.

Speaker 1

Our EPS for the 6 month period was $1.18 Moving on to our balance sheet, I am pleased to report that our cash position at the end of the quarter stood at $38,200,000 or approximately $2,100,000 per vessel. This was achieved despite consistent dividend payments, some share buybacks and nearly $4,500,000 at once for the announced vessel acquisition and our regular debt repayments. Our outstanding debt stood at $253,000,000 at the end of the second quarter, resulting to a debt to capital ratio of approximately 50% calculated against the total assets of the company. I will provide more details on our financings shortly. Finally, total shareholders' equity amounted to 250 $4,700,000 as of June 30, 2024.

Speaker 1

Let's now turn to Slide 8 to discuss our profitability performance. Our hedging activities through FFA conversions and our overall commercial approach once again allowed us to outperform the Capesize market. Our 2nd quarter TCE rose to 26,600 while our first half TCE reached 25,400 dollars surpassing the BCI as Thomas explained earlier. Our adjusted EBITDA for the first half was $51,200,000 more than double compared to the same period in 2023. Meanwhile, our adjusted EBITDA margin was maintained at around 60% for another quarter, demonstrating our effectiveness in converting revenue into operating profit.

Speaker 1

Looking ahead, we're optimistic that we will continue this trajectory in the second half of the year, while our ongoing investments in fleet renewal and operational efficiency are expected to further enhance our profitability. Additionally, we are closely monitoring market trends to capitalize on emerging opportunities and mitigate potential risks. Moving now to Slide 9, let's delve into more details about our debt profile. The health of our balance sheet is reflected in a modest loan to fleet value ratio of approximately 40% with our debt per vessel currently standing at about 14,000,000 dollars almost $20,000,000 less than the average market value of our ships. With a cash reserve of $38,200,000 we're well equipped to manage our financial obligations and seize new opportunities.

Speaker 1

This strong liquidity position combined with our prudent financial management ensures we can continue to support our strategic initiatives and maintain operational flexibility while allowing us to distribute a significant part of our net operating cash flow as dividend to our shareholders as per our revised dividend policy. On our financing activities, during the 1st 6 months, we completed 3 separate sale and leaseback agreements totaling $58,300,000 with Aevic, a long standing partner of the company on the financing side. These agreements were used to refinance the existing debt of the last ship and Patriot ship and to partially finance the acquisition of the ICON ship as discussed in our previous call. Additionally, we are already in the process of concluding a transaction for the partial financing of our new already announced Capesize vessel at favorable terms for synergy, which I'll see the completion of this acquisition with minimum impact on our liquidity. Our latest transactions have already reduced our daily interest cost and lower the weighted average margin of our financing to approximately 2.85%.

Speaker 1

This is also reflected in our interest expense, which has reduced by approximately $700,000 in the 1st 6 months of 2024 versus the same period last year. We anticipate further improvements over the next 12 months as some of our older and higher priced loan facilities are maturing and we expect to be able to execute the refinancings at lower margins and improved overall terms. Finally, as we move to Slide 10, I would like to reiterate that Synergy is well positioned to fully benefit from any outward movement in the Capesize market. The current trends in our market indicate a potential for increased NARE rates. Therefore, we are closely monitoring the activity and are ready to react to maximize our gains.

Speaker 1

At the same time, our comprehensive risk management strategies are designed to protect our revenue and cash flows against market volatility. As Tomas mentioned earlier, we have proactively hedged 39% of our available days for the second half. If Capesize rates in the second half reach current FFA levels, we anticipate our EBITDA for 2024 will rise to approximately $130,000,000 The anticipated rise in EBITDA will allow us to enhance shareholder value through increased dividends and potential share buybacks. This concludes my review. I will now turn the call back to Stamatis, who will discuss the Capes' market and industry fundamentals.

Speaker 1

Stamatis? Thanks, Stavros. The positive momentum from the start of the year continued into the Q2 with the Cape index averaging $22,600 for the period per day. In recent months, the market has remained relatively stable at high levels, thanks to a strong volume of cargoes, limited fleet supply and psychological factors stemming from adverse geopolitical events. Overall, the low Capesize order book suggests limited fleet growth, which is likely to be outpaced by the growth in tonne mile demand.

Speaker 1

In the first half of twenty twenty four, Brazilian iron ore exports rose by 6% compared to last year, driven by high prices in China restocking, allowing Vale in Brazil to increase exports significantly. Meanwhile, Guinness bauxite exports increased by 14% from the first half of twenty twenty three, tightening the Atlantic market. This increased ton miles absorbed more ships impacting the Capesize market. China's coal imports rose by about 12% year to date due to strong energy demand unmet by domestic production. China steel production is expected to fall slightly with demand driven by manufacturing, infrastructure and exports.

Speaker 1

Globally, steel production remains stable with notable growth in Europe. Iron ore export seasonality suggests higher second half exports with major miners predicting a 6% increase over 2023 levels for the second half. We have fixed approximately 40% of our second half days at very favorable rates, as I mentioned before, insulating our financial performance. For the bauxite trade, the long term aluminum demand is strong, supported by projected cargo volume growth of 11% in the second half of 2024 and an annual increase of about 12%. Looking ahead, the Cimandu iron ore project in West Africa starting in 2026 will boost the planned cargoes enhancing tonnage demand for Capesizes.

Speaker 1

Despite short term volatility, global consumption has historically grown and major iron ore miners investments in high quality resources affirm our positive long term outlook for Capesize demand. Turning into supply, the order book for Capesize vessels is at its lowest point in decades. Net Capesize fleet growth is expected to be approximately 1.8% in 2024 and 1.3% in 2025, both below the growth in ton mile demand. Strict environmental regulations, high newbuilding prices and limited shipyard slots create a challenging environment for large vessel orders. This suggests fleet growth will lag behind demand for an extended period.

Speaker 1

As a result, we expect the Capesize market balance to remain favorable for owners ship owners in the coming years. To conclude, Synergy is strategically positioned to benefit from the positive long term trends in the Capesize market. Our commitment to our business plan is centered around 3 main objectives: delivering substantial and attractive shareholder returns capitalizing on opportunities to grow our fleet through projects that offer high returns on capital managing our growth with an acute awareness of the Capesize market's high cyclicality, ensuring the sustainability of our balance sheet under all market conditions. With these key principles, I would like to close our call by stating that our company has performed strongly in all these key areas. Thank you very much for listening.

Speaker 1

Operator, please take the call.

Operator

Thank you. Questions come from the line of Liam Burke from B. Riley. Please ask your question.

Speaker 2

Yes, thank you. Stamatas, Stavros, how are you today?

Speaker 1

Hello, Liam. Good morning. We're very good. Thank you.

Speaker 2

I had a question on asset purchases. The last two capes you bought, well, they're obviously capes. You pretty opportunistic and they're certainly worth more than when you bought them. How is the asset pipeline out there? Can you see any possibility of being able to add any more vessels?

Speaker 1

The answer is yes. There might be a couple more opportunities over the next 3 to 6 months. I'm not saying 5 or 10. I'm trying to be conservative because, again, our priority is to maximize shareholders' returns and, of course, grow the fleet in a very conservative manner. We're at a very good pace right now between, let's say, 19 21 Capesize vessels and Newcastle Maxis.

Speaker 1

I believe that's a very good number for now. And the important thing is to maximize the return on a per share basis. So I'm pretty confident that we will be able to source 1, 2, maybe 3 more ships over the course of the next 3 to 6 months. And I strongly believe that these opportunities will be very, very well priced compared to the current market levels. That's all I can say for now.

Speaker 2

That's fair enough. And just to tie that discussion into your dividend payout now, it's a pretty clear cut formula on operating cash flow, but I'm presuming that additional asset purchases are in the mix once you get past paying the dividend and servicing debt?

Speaker 1

Well, I mean, we'll try and maintain the operating cash flow as the guiding principle to put it this way. And I'm quite confident that the equity required for the acquisition of the ships can be absorbed one way or another. So I don't think that unless, which I doubt it, we come across, let's say, opportunities for 10 ships. If it's 1, 2 or maybe 3 ships over the course of the next 3 to 6 months, the equity component required for these acquisitions is not going to affect the dividend formula.

Speaker 2

Great. Thank you,

Speaker 1

Stamar. You're very welcome. Have a great day.

Speaker 2

Thank you. You too.

Operator

Thank you. We are now going to proceed with our next question. The questions come from the line of Christopher Balsztyki from Arctic Securities. Please go ahead. Your line is open.

Speaker 3

Hi, guys. How are you? Hello.

Speaker 1

We're very well. Good afternoon. Good

Speaker 3

the equity market is very pleased by the new dividend policy. Can you share some more color on the threshold regarding the policy and sort of how obviously you're paying you're going to pay quite a chunk of distributions going forward with close to 50% of free cash flow to equity. But sort of how do you look at that compared to buybacks because you're still at quite a discount to intrinsic value?

Speaker 1

That's a great question and thank you for that. We are looking into the buybacks of course. The only problem with the buybacks is that there is a certain limit up to how much stock we can proceed with buybacks because of the daily trading thresholds that we have. So dividend for us is the best way to return capital to the shareholders and it's the more fair, transparent and straightforward to be honest. So we will continue on the dividend course.

Speaker 1

If you want to have a guidance, a good guidance for future dividends, I believe that the Q2 dividend formula is a very good guidance. And I don't see that changing materially over the course of the next quarters unless something super major happens, something seismic or adverse change or something like that. So on a normal course of business, I would expect the Q2 to be a good guidance for your future reference, if that makes sense.

Speaker 3

Perfect. Yes, absolutely. And in terms of the market, could you share some color on sort of short term rate expectations as we're soon approaching sort of the seasonal high? And what's going to drive sort of the uptick in the short term? And in the long term, if you could share some more color on Simandou.

Speaker 3

Obviously, you mentioned it, and we agree that we think it will be quite a ton mile booster. But are you seeing that BHP or other miners are in the market open to lock in tonnage to secure sort of these volumes? And what's your view and impression on these volumes? Will it replace Australian ones? Or will it come in addition?

Speaker 3

As of how do you view that dynamic?

Speaker 1

Well, that's a great question, and thank you for asking that. Despite the overall negative noise that we hear in the market and all this negativity coming across from sell offs here and there, the fundamentals for the dry bulk market and especially for the Capesizes have not really changed at all over the course of the last 2 to 3 months. For example, the guidance from the big miners for the second half are all higher than the first half. So if we believe that the guidance from Vale, Rio Tinto and BHP is accurate, they will be exporting 5% to 7% more cargoes in the second half of the year, which I believe is very, very good news. The inventories of China have started after quite some time instead of a buildup to start reducing, which is of course very good news for demand for iron ore and the stockpiles in China.

Speaker 1

And as far as supply is concerned, nothing has really changed. I mean, there has not been any material newbuilding Capesize deliveries. On the contrary, the global Capesize fleet is getting older and older by the day. The Red Sea is still closed. So the coal demand is still quite strong.

Speaker 1

Aluminum and bauxite demand is still quite strong. So I don't really see the fundamentals changing, as you say, in the short term.

Speaker 3

On the contrary, I believe that

Speaker 1

the market may have bottomed or may be bottoming, and we may see an uprise sorry, an uptick in the market over the course of the next few weeks. That's again a very, very careful estimate I want to make right now and a very careful prediction, all things being equal. But for the commercial arena that we see every day, there's a big struggle for the miners to secure ships like you very well said at reasonable prices on a dollar per ton. So I see a lot of push upwards, which is trying to be contained here and there with various ways. So I'm generally very, very conservatively optimistic.

Speaker 3

Okay. Thanks a lot, Thomas, and have a great day.

Speaker 1

You're very welcome. You too.

Operator

Thank you. Thank you. The questions come from the line of Tate Sullivan from Maxim Group. Please go ahead. Your line is open.

Speaker 4

Thank you. Hi, Thomas. Hi, Tawse. On the great balance on the FSAs going forward, is the market liquid enough? Is it a 6 month forward market?

Speaker 4

Or can you start to look in some rates for 2025 yet, please?

Speaker 1

Good morning, Tate, and thanks for listening into our call. We believe that the market of the F phase is quite liquid. So right now, we're very, very well hedged for the second half of the year. About close to 40 percent of our fleet is covered at what we believe to be very strong rates. If we see peaks in the next few weeks or even months going forward, we will, of course, push the trigger and fix some more ships at this high rate.

Speaker 1

So there's plenty of liquidity if we want to do that. For the time being, we're just waiting still. And if the opportunity comes across, we're just going to take it. And then I

Speaker 4

was looking at in your press release the charter list for your fleet in this current current good of market with a good outlook to most of the chart do you usually spend the existing charter existing contracts with the current charters? Or will there be some turnover?

Speaker 1

Generally, we tend to extend with the same charters. One of our ships, we have actually fixed for a period covering 2025 as well, our most recent acquisition. So we are optimistic that we will continue our excellent relationship that we have with our current charters and all this long term partnership that we have established over the course of the previous years.

Speaker 4

Great. And great to see the dividend policy and the repurchases. Thanks very much.

Speaker 1

Of course, of course. Thank you, Tate.

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