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Good afternoon, this is the Chorus Call conference operator. Welcome, and thank you for joining the d'Amico International Shipping First Quarter 2019 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo d'Amico, CEO. Please go ahead, sir.
Good afternoon to everybody. Let's go straight to the main points and then we'll go through the presentation. As you know, these -- the share capital increase, which basically has been subscribed up to 97% of the authorized capital and in private placement has been finally subscribed to 100%.
The net result of Q1 '19 is a net loss of $5.5 million. There is a technicality due to the IFRS 16 that later on our CFO, Carlos Balestra Mottola, will explain you better.
Vessel disposal and sale and lease back. In January '19 we finalized Japanese operating lease, or JOLCO, which has been one of the first transactions done on a European owner, we have another one and it has been generating around $10.2 million in net cash proceeds. In April '19, DM Shipping which is a joint venture that we have with the Mitsubishi Group, we finalized the sale of one of the vessels, our 2 vessels in joint venture, we sold one, generating approximately $12.3 million in net cash proceeds.
In the March '19, DIS agreed the sale and lease back of one MR vessel built in 2014 generating at the vessel delivery April 25, net cash proceeds of $9.6 million.
We have an amendment of financial covenants on old bank loans guaranteed by DIS because of the application of IFRS 16 from January 2019 had a negative effect of 4.3% on DIS net worth total asset ratio. And so to offset this impact of this new accounting standard, all of DIS' banks agreed to amend the financial covenants on loans guaranteed by DIS with a reduction of a minimum threshold for this ratio from 25 -- from the -- to 25% from the 35% previously.
Talking about the achieved rates, the daily spot rate has been $13,583 in Q1, '19, which is 7% higher relative to our first quarter of last year, $858 per day, and 26% better than the year '18 as a whole average, which means $2,785 per day.
DIS had 46.4% of its total employment days in Q1 '19 covered through Time Chartered contracts at an average daily rate of 14.6 (sic) [ $14,604 ]. And this achieved a total daily average rate of $14,057 in Q1 '19. Let's go back -- go to the fleet.
There is no change here on the first quarter. We have -- because the sale of JV ship happen in the second one. So these numbers are, let's say, 0.5 ship better than what it is today, in the sense that we have 49.5 ships on the fleet as per first quarter. We sold the 0.5 a little bit later on. As you already know, because these numbers are, I mean, are repeat -- been repeated many times, but we have 22 newbuildings program which is coming to one end. The last ship in LR1 is due to September this year.
I have to add the fact that this LR1 is probably the only other one scrubber seated positioned for delivery in September, which should be very extremely competitive for the market. And we as usual maintained a top-quality Time Charter coverage book with the maximum, the AAA oil majors around.
And even now, we are negotiating other contracts with first class charters. Saying that, I give the floor to Carlos Balestra, and I will be back to you with the market section.
Yes, hello to everyone. As Paolo just described, we are arriving at the end of our newbuilding program, which I would say is good news from a cash generation perspective going forward. It was a crucial, a very important newbuilding program for us. We are very happy to have these newbuilding vessels, which were mostly acquired at attractive prices. But they did drain a lot of cash over the last few years, which unfortunately were also not excellent years from a market perspective.
The CapEx to take delivery of the last vessel corresponds to around $32 million, of which the equity we will have to invest is $11 million. The vessel is expected to deliver -- be delivered in September, and we are having very interesting conversations with charterers who are very keen to take the vessel on Time Charter. I must say, there's a lot of interest, there are not that many LR1's with scrubbers. I remind you, this is the only vessel we have that will have a scrubber, that are going to be delivered in September this year in the last few months of this year. So it's a very good timing in this respect.
CapEx falls, therefore, drastically for 2020. The figure, 2020, for the maintenance CapEx is still -- it's quite high relative to our usual investments for maintenance of vessels and that's because it is a coincidence that we have a lot of vessels, which turn 10 years old in 2020. Presumably, in the stronger market in which we expect from the second half of this year some of these vessels will be sold, and therefore, the -- the investments will be smaller than we indicate here, which is a steady-state scenario, which we are showing not assuming any further vessel disposal.
Going on to the following page, we also show the drop in debt repayments. We have the facility with [ Equi Minteza ], which entails $15 million in reimbursements every year, which we will finalize reimbursement of in December '19. Therefore, from 2020, our cash and our P&L breakeven would be pretty much aligned and that also will help cash generation and deleveraging of our balance sheet.
Page 9, we show recent fixtures, many of these were closed at the end of last year, in the last months of last year, we took advantage of the spike in the market to fix a number of vessels. Some of them on shorter TCs because we were a bit concerned about potential weakness in the end of Q1 and Q2 this year, associated with refinery maintenance and some of them on longer contracts. And we fixed another vessel more recently, the vessel 6 here on this list, on 29 months' contract plus 6 months option at $16,000 per day for the firm period and $16,800 for the optional period. This is -- this was only closed recently as a contract, but it actually -- the negotiations began at the end of last year so it was quite a lengthy negotiation.
And I believe these rates today are lower than what would be -- what we could achieve. And so because there is still very strong interest from charterers to take vessels for similar periods and the market is firming for these -- for rates for the -- for such periods.
So going on to Page 10. We show that -- how our coverage evolved since our last presentation of the year-end results and it increased slightly for '19, we are now 40% covered from Q2 to Q4, in details on the bottom right, we show on a quarterly basis the coverage.
It is falling as it was before in the last month of the year. I would say it increased a bit more in Q3 and Q2 is still quite low at 31%. And so this is quite exposed to the spot market, which is intentional because we expect a stronger market in the second half of the year, and especially in Q4 and we want to be open and have quite a number of open days to be able to benefit from the upswing in spot freight rates.
On Page 11, we show the fleet evolution also on not assuming any renewals of the TC and vessels and the short-term TC in vessels. And if that were the case then the fleet would fall, the average fleet controlled by us from 49 vessels in the last 3 quarters of '19 to 41 vessels in 2021.
Nonetheless, our exposure to the spot market and an average number of vessels when the spot market would rise from around 29 to 37. And at the bottom we show our sensitivity for every $1,000 per day change in the TC-equivalent earnings, given our exposure to the spot market. And in 2020, we show that if the market were to -- a $3,000 per day increase in the spot rates would translate into an increase in profits of $38 million.
Our -- we don't have that many days covered today, 2020, they are slightly above our P&L breakeven for 2020, the $15,300. Our P&L breakeven in Q1 this year was around $14,900.
For the year, we assume that excluding nonrecurring items, it should actually be slightly lower than $14,900. 2020 pretty much at the same levels, I would say, so that's an easy back of the envelope calculation, assuming no contribution -- positive contribution from the existing Time Charters, which is, let's say, a conservative assumption. If we were to earn around $18,000 per day on our spot vessels in 2020, we would be generating $38 million in profit. So that is a way of also looking at these -- interpreting this graph.
Going on to the following page, we show our net financial position as at 31st of March, and our net financial position relative to the fleet market value, we show the ratio is at 72.4%, so it's slightly better than in December last year but only marginally so, that is because of the rising asset values especially for the younger vessels.
And pro forma for the proceeds of the capital increase, so assuming the proceeds from the capital increase had come into the company on the 31st of March, we show that this ratio falls to 66.5%, and that our gross debt falls from $650 million to $619 million, and our cash and equivalents rises from $29 million to $46 million. So this is a much healthier position also because the advance ratio on our newbuildings usually is around that level, 65%, 66%, so this is a much healthier indebtedness ratio.
Going on to Page 13. We give a bit more information here. A bit more detailed information on the components of the net result for the quarter and the comparison with previous periods. And as Paolo has mentioned in the net loss for the period was $5.5 million, which is higher than the net loss of '18 of $3.6 million. Nonetheless, if we exclude nonrecurring items, in particular, nonrecurring financial items, which had a big impact in '18 and '19, the net result would have been of minus $4.4 million in this quarter, minus $6.8 million in the same quarter of last year, so an improvement of $2.4 million.
IFRS 16 has a negative impact on our results in this quarter. Nonetheless, this was mitigated by the fact that the application of IFRS 16 led also to the reversal of some onerous contracts with a positive impact of $0.7 million. So the net negative impact from IFRS 16 was only $0.1 million.
In Q2 '19, the negative impact should be closer to $0.8 million because we now have already reversed all these onerous contracts in this quarter. So -- and of course, this is only an accounting, let's say, adjustment and this impact of IFRS 16 over the life of the contract, which have been capitalized is equals to 0 on a P&L basis. But it is -- it has initially a negative impact and then a positive impact towards the end of the contract.
So the IFRS 16, of course, has also a very big impact on our EBITDA, EBIT figures, which are not comparable anymore with those of Q1 '18, unfortunately, so they have complicated the life of the investors and analysts, I would say, in analyzing our financials. The key advantage of the application of this new standard is that it probably gives a fairer, a more -- a truer picture of the financial risk of these contracts, which were previously off balance sheet and now we have to recognize them as assets and liabilities. It's led to an increase in our assets of -- an increase in our assets of $144 million and a similar increase in our liabilities of $146 million. And there was an opening adjustment to the shareholders' equity of negative $2 million, which accounts for -- corresponds to the effect which we would have had if we had applied IFRS 16 from the 1st of January, 2018, so it's a cumulative effect.
So going on to Page 14. We have a bit more detail here on the daily results of our vessels on a TC-equivalent basis.
Once again, $13,500, $13,600 almost, was the result of our vessels trading on the spot market. So it must be why it's important to take into account that we have mostly conventional vessels trading on the spot market because our ECO vessels are mostly fixed on Time Charter contracts and that is why our results -- that is one of the reasons why our results for the vessels -- for the spot vessels looks weaker than some of our competitors, which you might have looked at.
So we benefit on the TC coverage rates, which are at more attractive levels but we are penalized on the spot market because we only had 5 vessels on average, which are ECO vessels trading on the spot market in Q1 '19.
If we look only at the MRs, which are ECO, in Q1 '19 the result was actually $15,200 and that is much more aligned with the result of our peers.
So, and on Page 15, we show -- we provide this detail, we look -- also take into account that the $15,600 also includes also the results of handy vessels. And we have a number of handy vessels and vessels so depressed it beats the average. So on Page 15, we show the average only for the MRs and so the MRs trading spot conventional and ECO of our fleet earned $13,900, only the ECO earned $15,200, and that the blended average for -- including the TCs only for the MR vessels also was $14,100. And the Clarkson's average was $13,600 for MR vessel. So there is a slight outperformance relative to the Clarkson's average, usually it's much more pronounced. It must also be taking into account that there was in this quarter a number of misfortunate factors from slightly higher number of vessels stopping for dry docks with associated deviations from maybe a not very fortunate positioning of the vessels. And also adjustments to estimates on voyages which started in 2018, which led to a -- which had a negative effect of $330 per day on the results of our spot vessels in this quarter. So the results would have been stronger without the, let's say, these unfortunate events which impacted the results of our vessels in this quarter.
Now, I'll pass it on to Paolo for the market section.
Going to the market overview. We still have a large potential upside to rates and asset value, if you looked at the graph on the left, you see that with one-year Time Charter and spot rate are respectively 54% and 72% below the last cycle peak. And looking at asset value, newbuilding and second hands are respectively 32% and 48% below to the last cycle peak. We have an improving on asset value and Time Charter rates. The one-year time charter conventional non-ECO rate in '16 was $12,000-something, just a few dollars over $12,000, today we are well over $14,000. And the value of a 5-year old MR in '16 was $22 million, and today we are talking $28 million.
There is a demand growth overall, 3.6% since 2000. And -- but what is extremely interesting, I think, that the share of the total oil seaborne trade -- so product share in the total oil seaborne trade grew up from 25% in year 2000 to 35% in the year 2020. So the products are slowly growing more and more as a percentage of the total oil traded. The starts which have been built in between 2014 and '15, they have been absorbed so inventories are down significantly. We are in an expected surge in refining volume in the last part of '19. We see a ramp-up of the refineries going up to August. One thing I would like to stress is, whatever it is going to happen in terms of growth and, consequently, as positive results for us and for the industry as a whole is very much linked on the second half of the year. We have a record growth of refinery capacity in 2019, we're close to 3 million barrels per day increased capacity. But even here this increased capacity is coming in force in the second half of the year. And we have changing of refining landscape, which will be driving demand. This increase of refining capacity, 75% will happen between Middle East and Far East. So you will see as a consequence of this, a displacement of the production of refinery product, and as a consequence, there is a demand for ship transportation. A rebound in E&P should drive a surge in non-OPEC supply. And we have rapid growth in the U.S. through the exports. And here again, the second half of '19, you have increased -- strong increase in the pipeline capacity, which are going to connect Cushing down to the Gulf of Mexico or Texas, however you prefer.
Mexico and Brazil will continue to be the stronger driving imports. And then, we have IMO 2020. I think IMO 2020 doesn't need to be presented too much because everybody who was been related to our industry, at least for the last 6 months, has been bombed about what is all about. But here again, just to say it in a few words, we burned between 3 million to 4 million barrels per day of the fuel oil, which has bunkers, so as fuels for our ships. And we have just to displace this quantity with a fuel which should have stopped sulfur content of 0.5%. Today, we are burning fuels which are in excess of 0.5%. To add to that, we have 2 ways: One is a straight run, so totally new product; and two, the blending of existing products with marine gas oil, which is 0.1% sulfur cap. And so we have a totally new landscape on the bunkering side, which will be of course, an element of cost because we expect and already review quotation of futures are telling this that we expect an increase of price. But also we expect, of course, an increase of demand. The increase of demand of Middle East that's due only to this fact, has been forecasted between 1 million to 1.1 million barrels per day. And this should jump on -- and we have, if you look at Page 28, we look to the positive brokers view on IMO 2020. And if you look at the bearish one, which is Deutsche Bank's, expect an 8% increased demand for product carriers in 2020, it's only due to IMO. The most bullish one is Morgan Stanley, and it is expecting something between 10% and 14% of the global product tanker fleet increased demand. So we are talking of big numbers.
Against these numbers, there is a slowing fleet growth of around an excess of 1%, 1.5%, 1.4%. And another thing, there are a lot of ships, which are over -- getting older, 15 years of age, which have been sold for locals trade, where let's say, the world fleet is not trading today. So basically for us, it's like a demolitions fleet because the cost of trade of Africa, the cost of trade of India is absorbing a number of old ships, but we are -- we never trade there. So for us, it's like ship lost.
Leading to the newbuilding orders. The liquidity is not, thanks God, on the newbuilding which are keeping the price rather high. But they are very much concentrated on ship built between 2009 and 2010 because it -- those ones are making more sense with the today's rate. So we expect, of course, a tighter market. And here again, we see the strong improvement on the second half of 2019, not us only, but also these brokers -- those brokers that we see in the presentation. I think so, I leave to Carlos for the final words.
One final slide here on showing our NAV evolution. As usual, we measured it as at the end of the quarter, so 31st of March, the red line we show our NAV of our fleet, which increased from December at $218 million to $230 million. The NAV per share also rose from $0.33 to $0.35. And at the end of the quarter, we were at a very deep discount to NAV, 72%. Following the capital increase, the NAV rose from $230 million to $279 million so that is of course assuming that the values haven't changed between March and May. And then the NAV per share is because of dilutive effect of the capital increase, fell from $0.35 to $0.23, and at the share price of $0.10 that corresponds to a discount of 55% to NAV. So it is still a very important discount. And we assume that we had previously mentioned that this discount tends to fall once the market shows some convincing signs of improvement. So we expect that once we start generating profits again, we're not -- we're going to have -- investors are going to be able to benefit not only from an increasing NAV but also from a reduction in the discount to our NAV. And we have had also brief years in the past that we traded at a premium to NAV. So that cannot be ruled out again. So thank you very much for your time. And we pass it -- please let us know if you have any questions.
[Operator Instructions] The first question is from Matteo Bonizzoni of Kepler.
I have 2 questions. One is to help us extrapolating the impact of IFRS 16 for the full year. So in the first quarter, you say that -- on the EBITDA the positive impact was $7.9 million, so I would guess that in the full year, it is something in the region of $30 million, if you can confirm.
On the EBIT, you said in the press release that the impact was plus $1.5 million. But I want to ask you because if I look at the P&L statement, there is minus $8.48 million depreciation of right of use so if on the EBITDA is plus $7.9 million and the depreciation of the right of use is minus $8.48 million, it would calculate a slightly negative impact, so if you can help us.
And on the net profit, I would -- you have said that if I'm right, if I am correct, minus $0.8 million.
And on the net debt -- on the financial liabilities around $145 million, if you can elaborate on the 3 lines of the P&L, so EBITDA, EBIT and net profit and the financial position.
And the second question is just on the outlook and on the current market situation. So clearly, you have said that for several reasons you expect the strengthening of the market, in the -- as of the second half of this year, currently, we are experiencing if I'm right, some softness in the rates because we are probably slightly below $10,000 per day compared to stronger rates between end of 2018 and the beginning of the year. What -- can you elaborate on the reason why currently the rates are experiencing renewed weakness?
If you don't mind, I'll start from -- this is Paolo d'Amico, I'll start from the second question and then Carlos will be back to you on the first one. What is happening today and the reason why in the second -- and in the first half of this year, things are by far so softer from what we expect to be in the second half, is due to the fact that all the refining industry is passing through, now we have America slowly coming back on force and we have the Far East going in to maintenance. And the maintenance, this year, for all the refineries is going to be a very special one. It's not to be the usual spring and fall maintenance that is what happened since the refineries are around. This year, due to IMO 2020, understanding that refiners have to go and full run on the late part of the year, all the refiners are trying to maximize the maintenance on the first half of this year. So maintenance period are longer, are more complicated. And this of course has a direct consequence, it ends up in a lower demand for us because we have less cargo movements around. And this is what basically is affecting the market today. Of course, this on the secondhand, this should slowly start to recuperate. And as we say, with next fall, we should be in full force. I hope this explains you -- I mean satisfy you as an answer.
Yes.
Yes. So on your more technical question relating to the impact of IFRS 16, you should look at our financial statement Page 32 of the notes, we have actually published for both the balance sheet and the P&L for the mainline items, what they would have looked like in Q1 '19, if we had not applied IFRS 16. So you can see, therefore, the EBITDA, for example, in Q1 '19 it amounted to $22.4 million. Without the application of IFRS 16, it would've applied to -- it would have amounted to $14.5 million, and in Q1 '18, it amounted to $10.1 million. So we are already adjusting there for the impact of IFRS 16. On the bottom line, so you can see line-by-line on the Time Charter, higher cost, what was the impact, what was the impact on that high direct operating cost and on the depreciation that we had to recognize because of the IFRS 16. So on the bottom line, the -- what you have to take into account is that there was this reversal of the onerous cost. And part of this reversal we would have had anyway because, in the first quarter, and part of it is an additional reversal because of the application of IFRS 16, the accounting principle, which forced us to recognize these onerous contracts doesn't apply anymore. And therefore, we have to reverse the provisions previously made for these contracts, fully reverse the provisions. So there was an additional reversal. So net of the reversal of all the onerous contracts, the impact was negative by $0.1 million in the quarter and it would've been negative $0.8 million. Net of the additional reversal that we had to make, the impact was negative around $0.3 million only. So that explains in detail the differences.
The next question is from Luigi De Bellis of Equita.
Two quick questions for me. The first one, what do you see in terms of spot rates in second quarter?
And if you can elaborate for handy, MR, separately?
And second question, could you elaborate on the price trend of the vessels, both newbuilding and secondhand?
On the -- as far as the rate, April has been substantially very much in line with the first quarter. We are seeing some improvements, of course, now in May because the refineries are coming in -- I'm talking now about America mostly. So the Gulf of Texas. And we are start seeing volumes increasing from that, to put a number on it, it will be, I mean, not very prudent because there are still a number of ships around. So it is a little bit of supply to be absorbed.
And as far as the differential between a handy and an MR, average of the average, because also in handy you have ECO ones and conventional ones. But I would put historically at around $4,000 a day.
Gentlemen, there are no more questions registered at this time. I'll turn the conference back to you.
Thank you very much and we'll go for the next meeting, and our next conference call, and thank you for participating. And I hope we satisfied all your questions. Thank you.