Aristides Pittas - Chairman and CEO Tasios Aslidis - CFO

Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas Conference Call on the first quarter, 2013 financial results. We have with us Mr. Aristides Pittas, Chairman and Chief Executive Officer; and Mr. Tasios Aslidis, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you the conference is being recorded today, Friday, May 17, 2013. Please be reminded that the company announced their results this morning with a press release. Before passing the floor to Mr. Pittas, I would like to remind everyone that in today’s presentation and conference call, Euroseas will be making forward-looking statements. 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 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. I would now like to pass the floor to Mr. Aristides Pittas, Chairman and Chief Executive Officer of Euroseas. Please go ahead, sir.

Good morning and thank you for joining Euroseas for our conference call today. Together with me is Tasios Aslidis, our CFO. The purpose of today’s call is to discuss the financial results for the first quarter ended March 31, 2013. Let us turn to slide three for our first quarter ended March 31, 2013 financial results overview. In the first quarter, we reported total net revenues of $10.9 million. Net loss for the period was $4.6 million or $0.10 loss per share basic and diluted. The results for the first quarter include $0.5 million unrealized gain on derivatives and the $0.4 million realized loss on derivatives. Excluding the effect of the loss for the quarter of the unrealized gain and realized losses, the adjusted loss per share for the quarter ended March 31, 2013 the cost remained the same at $0.10 per share basic and diluted. Adjusted EBITDA for the first quarter of 2013 was minus $0.1 million. We declared the quarterly dividend of $0.015 per share for the first quarter of 2013 payable on June 14, 2013 to shareholders of record on June 5th. This is the 31st consecutive quarterly dividend declared. Our balance sheet remains strong with about $36 million of cash and the net debt to market value of the fleet of below 30%. Please turn to slide four. For the last seven years, we have been loyal to our strategy of declaring meaningful dividends which represents the yield of between 5% to 12%. Despite the continued challenges in both the drybulk and the container sectors in which we operate, and which we expect will persist in 2013, we felt it is right to maintain our dividend at current levels since we expect the markets to start improving towards the end of the year and certainly within 2014. The dividend of $0.015 per share that our Board declared for the first quarter of 2013 represents an annual yield of 5.4% on the basis of our stock price on May 5th, 2013. Our current fleet is shown on slide 5 and remains unchanged at 15 ships, five drybulk vessels, nine containerships and the multipurpose ship. On slide 6, you will find an overview of Euromar, our joint venture with Eton Park Capital and Rhône Capital. On this slide, we list the Euromar fleet of 10 ships, mostly geared intermediate and handysize containerships with an average age of less than 10 years and the total carrying capacity of 24,000 TEUs. During this quarter we contributed the remaining $6.25 million of our commitment to Euromar alongside of course the $37.5 million of our partners. The full amount of the comminuted equity has thus been injected in the company. Euromar is sitting on the cash pile of about $45 million and we’ll be able to purchase two three additional vessels. Now let us move to slide 8 for a brief overview of the market. The IMF recently projected growth in world economy to be at 3.3% in 2013, down by 0.2% from the January call. Despite that, stock markets have generally been performing well, buoyed mainly by U.S. improved statistical data and the Japanese central banks' aggressiveness. However, there are still a number of political and economical certainties in the U.S., Europe, China and even the BRIC countries have continued to cloud economic accretion 2013. While Asian economies continue to provide the largest contribution to the world growth, we still have the U.S. fiscal cliff to be conclusively resolved. This may hamper growth of the world’s largest economy. In addition, the Eurozone could remain in the recession for another year as a growing list of countries mostly recent list items are finding it difficult to deal with their mounting debt. China, the second largest economy in the world has slow down to single-digit growth of about 8% and is expected to remain around that level. In addition, while in previous quarters we look forward to the growth and development of the Greek economies, today, the growth forecast for these economies are revised downwards, in part due to the continued growth sluggishness of the developed world. As you can see in more detail in side nine, according to the IMF the drop in the projected world GDP growth in 2013 comes about from small drops in all main countries except Japan and the ASEAN-5. The 3.3% current world growth projection is slightly above the actual 2012 growth of 3.2%. Further out in 2014 and 2015, the global economy is still projected to be growing at a fancy rate in excess of 4%. As I mentioned numerous times, GDP projections are strongly correlated with drybulk and container trades especially the latter. On the bottom of slide nine, you will find that Clarkson’s projections point the drybulk growth to be at 25% in 2013, revised upwards from the previous estimates of 4%. On the other hand, Clarkson’s containerized trade growth forecast in 2013 was slightly lower to 6% from the previous estimates of 6.1%. The weaknesses in the Eurozone economies are clearly impacting container trade growth, though it is still expected to be higher than last year’s totally disappointing 3.4%. Again for 2014 and 2015, things seem much more promising. Against this demand background, we have to also look at fixed supply, so let’s turn to slide 10. The delivery schedules for drybulk vessels so far in 2013 stands at 14.9% of the fleet. This does not take into account cancellations, slippage, and scrapping. It is generally difficult to quantify how much of the order book will finally get delivered this year. A reasonable bet is that it’s going to be around 70% due to the poor market and the lack of financing. For 2014 the current total order book stands at only 4.5%, which is a significant improvement over previous years and points to a stabilizing drybulk sector, of course 4.5% is not going to be the actual number when you factor in slippage from 2013, but we still expect the order book in 2014, to be at its lowest growth rate in a number of years. Please also note on the left hand side on this slide as a percentage of the fleet that is over 20 years old is still quite high at 11%. Scrapping should enhance the fleet imbalance relatively quickly if rates remain low for the next 12 months. Let’s turn to slide 11. The containership order book for 2013 delivery is starting stand at 11.3%, but we do expect that there will be at least 20% slippage fear and cancelations fear as well, thus bringing the actual 2013 deliveries lower than the current forecast. The 2014 order book at just 6.1% is at historically low levels and also points towards a recovering market if significant new orders are not placed in the coming months. Please note that the existing order book is heavily skewed towards the larger ships. However cascades happening and happening fast which implies that all the sizes, rates move somewhat in parallel. Let’s turn to slide 12 summarize our views of the markets beginning with drybulk. Drybulk trade growth expectations have been negatively affected by slower world and Chinese growth. Also there are significant vessel deliveries projected in 2013 which are expected to put pressure on the freight market. While slippage and scrapping have been strong in 2012, and promise to cover at similar levels in 2013, they will not suffice to balance the market, Looking forward 2013 will probably be the turning point for the drybulk sector unless we see a significant spike in new orders and or the global economy does not start recovering as anticipated by the IMF and other forecasters. As for the containership market, economic uncertainty has affected containerized trade quite broadly, as consumers in Europe and North America have remained timid in their spending. Poor demand growth from Europe affects the largest container trades route the Far East Europe route. Although one would expect that currently we would be witnessing high trading volumes due to seasonality this is not strong enough, casting some doubts on the short term forward outlook. Overall supply and demand growth should be fairly balanced in 2013, implying the market hovering around today’s low levels. Small changes in this balance will determine the direction of the market for the remainder of the year. However for 2014, we foresee an improving market if global GDP grows around the forecasted 4% rate. Please turn to slide 14 to discuss our drybulk employment in more detail. Our drybulk coverage for 2013 currently stands at 48%, with ships opening up gradually over time. Having secured continuous spot market employment for the ELENI P through the (inaudible) we will probably be fixing the two ships that will be coming up this year on short term charters so as to be able to take advantage of the market when they recover. Let's turn to slide 15; as far as our container ships are concerned we currently have about 36% coverage for 2013. Here again we are employing our vessels in short-term charters because of the weakened conditions in the market so that we can be able to take advantage of future upswings. We have been proving difficult to fix our only multipurpose ship, the Anking, but we expect that the remaining three vessels will sharpen up during the current quarter will be fixed is really at between $7,000 and $8,000 a day. Please turn to slide 16. Through Eurobulk, our manager, we have been able to continue to keep our cost very low. The graph on this page compares our daily costs, excluding drybulk expenses since 2008. Overall, our costs are amongst the lowest of the public shipping companies. We are very proud of this performance especially as it is in conjunction with fleet utilization in excess of 98.5% over the last five years, a level similar to that of our peers despite the fact that the average age of our fleet is higher than most of the other listed companies. Let’s now turn to slide 17. The left side of the slide shows the correlation of time charter rates with Panamax drybulk ships and containers of 1,700 TEUs over the last decade. Earnings for containerships were moving in parallel with earnings for Panamax ships, with the exception of the peak in 2004, which was the prelude of the super-cycle that followed in drybulk from 2006 to 2008. From 2006 to 2010, containership significantly underperformed the drybulk market due to the Chinese demand boom. But the two markets finally began to converge again. The drybulk rates remain slightly higher than the container rates over the last three years. The right hand side of slide 17 shows current values in relation to historical prices. Drybulk second-hand asset prices corrected quickly to match what is happening on charter rates. Panamax prices fell to their lowest levels at the beginning of the year but rebounded however by 10% to 20% quite quickly when the charter market improved significantly. However, the last couple of weeks, charter rates have been falling again and it remains to be seen if this will also translate into sale prices. If the charter market remains poor running into December, we should see a slight drop in dry bulk prices relative to date. Containership values have also been weak and they are at historical lows. As explained on numerous occasions, we are generally comfortable investing at levels around historical average or lower. Indeed, our modeling shows us that we can reach significant medium-term returns by investing in either of the two sectors today. The issue, however, in our mind is not if an investment today will prove profitable, but if by waiting a bit further, even more lucrative opportunities may appear. We are continuously evaluating all opportunities both directly and via our Euromar joint venture with the aim of pulling the trigger sometime within the next few months. With that, I will pass the floor over to our CFO, Tasios Aslidis, to take you through our key financials in a bit more detail.

Thank you very much, Aristides. Good morning, ladies and gentlemen. I will now provide you with a brief overview of our financial results for the three months period ended March 31, 2013. For that, let’s move to slide 19, which shows our first quarter 2013 results in comparison to the same period of 2012. I will go over here some of the same figures which Aristides gave you at the beginning of the presentation. For the first quarter of 2013, we reported total net revenues of $10.9 million representing a 21.7% decrease of our total net revenues of $13.9 million during the first quarter of last year. We reported losses for the period of 4.6 million as compared to a net loss of 9 million for the first quarter of 2012. The results for the first quarter of 2013 include a $0.5 million unrealized gain and derivatives and a $0.4 million realized loss on derivatives. Excluding the effect on the loss for the quarter of the unrealized gain and the realized loss on derivatives, the exact loss as said for the quarter ended March 31, 2013 which have remained the same at $0.10 per share basis and diluted. Our adjusted EBITDA for the first quarter of this year was negative 0.1million down from 4.9 million achieved during the first quarter of 2012. As, Aristides mentioned earlier, we declare a quarterly dividend of $1.5 per share which is a 31st consecutive quarterly dividend declared during the accessed the capital markets in August of 2005. Let's now move to slide 20, which shows our fleet performance for the first quarter, in comparison to the same numbers for the previous year. With your work imbalance as user, our utilization rate into commercial and operational. For the first quarter, we reported a 99.3% commercial utilization rate and a 98.7% of operational utilization rate as compared to 87.6% commercial and 99.4% operational utilization rates for the same period in the first quarter of 2012. Our utilization rate calculation does not include vessels in drydock or in scheduled repairs during the reported periods. In the first quarter of 2013, we operated 15 ships sharing a time charter equivalent rate of $8,718 per vessel per day which should present a decrease of about 22.6% compared to the time charter equivalent of $11,258 per vessel per day that we achieved during the first quarter of 2012, a period during which we operated 15.92 almost 16 vessels on average. Our total vessel operating expenses during the first quarter including general and administration expenses were $6,269 per vessel per day compared to $5,986 per vessel per day for the same period of 2012, a 5% increase. Our drydocking expenses in the first quarter were high as three vessels were drydocked during the period compared to almost no vessels drydocked during the same period of last year. Overall, we believe we continue to maintain one of the lowest operating cost structures amongst the public shipping companies, and we think that this is one of our main competitive advantages in the business. Let's look at the bottom of the table to our daily customer operative and level for the quarter presented this year on a dollar per vessel per day basis. We reported in the first quarter of 2013 an operating breakeven level, which includes loan repayments, of approximately $9,536 per vessel per day as compared to approximately $9,525 per vessel per day in the same period of 2012. Let's now move to slide 21, this slide shows the expectation of our cost flow breakeven levels over the next 12 months on the right side of the slide. And from the left side of the slide, we saw our scheduled debt repayments including scheduled balloon repayments. As we can see from the chart on the left side, in 2012, we had about $13.4 million of total debt repayments including balloon repayments. In 2015, we are scheduled to make about $11 million of loan repayments, and another $4.9 million of balloon repayments. Last year was two of our opportunities were extended for a two-year period as well as their balloon payments of 5 million originally during 2013 we’re pushed out by about two years. Our loan and balloon repayments over the next 12 months produced that $2,740 per vessel per day contribution to our customer daily breakeven levels that we'll see on the last line of the table on the right side of this slide. After making assumptions for the other elements about cost flow such as operating expenses, general and administrative costs, interest and drydocking. We come to the estimated customer breakeven level of the next 12 months of about $10,700 per vessel per day. This figure does not include any credit or any gains from interest that we are going to have during the course of next year, which of course will reduce a bit the customer breakeven level. Let’s now move to slide 22, and as usual, let me give you some highlights from our balance sheet. As of March 31, 2013, we had unrestricted cash of about $24 million and restricted cash of about $12 million for a total of about $36 million. This cash balance translates to about $0.79 per share, a figure which I would like you to compare to the closing price of our stock as of May 15, which was exactly $1.12 per share. Our debt, including the current portion of it, is about $59.5 million resulting in a debt-to-capitalization ratio of about 23%. The ratio of our debt to the market value of our fleet stands in the range of 70% to 75%. And our net debt that is the debt less the cash we have, as a ratio to the fleet value is about 29% to 30%. We are in compliance with all our loan covenants as of the end of March 2013. Looking forward, we estimate that we can allocate $15 million to $20 million of our cash for further expansion of our fleet and renewal of it, and that includes funds that we may invest directly on our own plus funds, as Aristides mentioned earlier that Euromar may invest, although (inaudible) in that figures I gave you, just a moment ago. And with that let me pass the floor back to Aristides to conclude.

Thank you, Tasios. This concludes our presentation and we are ready to take any questions that you may have.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from the line of Michael Webber from Wells Fargo. Please go ahead.

This is Donovan for Michael. The first question I have is about, in your press release you mentioned Euromar is looking to acquire two to four vessels. I just wanted to know would these vessels be from early new bills or S&P purchases and do you expect to secure any long term charters with the vessel?

No, we are not going to be doing new bills at this stage and money is going to be used to acquire second-hand ships. We are not sure if we will come with the charter or not, it’s not that prerequisite. We will be looking into the market within the next few months to see what we will buy. It will depend on the circumstances of which by picking opportunity. If we can come, we are going to touch after a month.

And continuing that question; is there any color in terms of the timings for these acquisitions?

As you saw, our belief here is right now that 2013 is the year where the market bottoms. And from 2014, we see an improvement in the market. So obviously the intention is to affect these acquisitions both on Euromar level but also in the Euroseas level as well within this year, and probably not too late in the year.

Finally just in terms of your liquidity, if you could provide us an update on where that stands, and for acquisitions at the Euroseas vessel, do you have any preference for container acquisitions versus drybulk acquisitions?

As we have been investing mostly in containers with Euromar, our priority in Euroseas is probably the bulk market. However, prices for drybulk has increased a little bit over the last couple of months. We expect some probability to bring in really good summer and be able to proceed with drybulk acquisitions. But I would not continue this buying a containership as well perhaps as replacement of one or two of our older ships, which we are taking or perhaps replacing new more modern ships.

Thank you. (Operator Instruction). Thank you. There are no further questions at this time. Please continue.

Okay. We have no more questions. Thank you all for participating in this conference call. We will be talking to you again in three months’ time with the results of the first half of the year. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating, you may all disconnect.