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Operator
Thank you for standing by, ladies and gentlemen, and welcome to the Starbuck Carriers Conference call on the first quarter 2021 financial results. We have with us Mr. Petros Papas, Chief Executive Officer, Mr. Haynes Norton, President, Mr. Nikos Raskos, Chief Operating Officer, Mr. Simos Spirou, and Mr. Christos Glaris, Co-Chief Financial Officers of the company. At this time, all participants are in a listen-only mode. There'll be a presentation followed by a question and answer session. At which time, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today. We now pass the floor to one of your speakers. Mr. Spirou, please go ahead, sir.
Petros Papas
Thank you, operator. I'm Simo Spirou, co-chief financial officer of Star Valkyries. and I would like to welcome you to the Staple Carriers Conference call regarding our financial results for the first quarter of 2021. Before we begin, I kindly ask you to take a moment to read the safe harbor statement on slide number two of our presentation. In today's presentation, we will go through our Q1 results, our cash evolution during the quarter, our updated dividend policy, an operational update, and the latest industry fundamentals before opening up for questions. Let us now turn to slide number three of the presentation for a summary of our first quarter 2021 financial highlights. In the three months ending March 31st, 2021, TCE revenues amounted to 156.6 million compared to 100.3 million for the same period in 2020. Adjusted EBITDA for the first quarter of 2021 was 84.7 million versus 32.6 million in the first quarter of 2020. Net income for the first quarter amounted to $35.8 million or $0.36 earnings per share versus $2.8 million net income or $0.03 earnings per share in the first quarter of 2020. Our time charter equivalent rate during this quarter was $15,461 per vessel per day. Total cash today stands at 234.2 million, with total debt at approximately 1.64 billion. In addition, we have the ability to use a 30 million revolving facility, which is currently undrawn. We continue to expand the platform with the recent acquisition of 12 vessels, ten of which we have taken delivery of by today. We expect to take delivery of the remaining two Camsomax resales at the end of May and end of June, reaching a total of 128 vessels on the water. The company has amended its dividend policy and will pay a 30 cents per share dividend with respect to the first quarter of 2021. Slide number four graphically illustrates the changes in the company's cash balance during the first quarter of 2021. We started the quarter with 195.5 million in cash and generated positive cash flow from operating activities of 79.2 million due to the improving freight market. After including debt deposits and repayments, vessel acquisitions, CAPEX payments for scrubber and ballast water treatment installations, we arrived at a cash balance of $206.6 million at the end of the first quarter. Please turn now to slide number five, where we summarize the evolution of net debt over the last 12 months, where we have been able to reduce our net debt by more than $220 million due to the strong cash flow from operations. Given the robust cash flow from operations, secure liquidity position, and strong dry bulk market fundamentals, the Board of Directors has amended the company's existing dividend policy and starts returning capital to shareholders after the summary presented in slide number 6. Specifically, we have changed the minimum cash balance per vessel thresholds resulting in the company paying a dividend of 30 cents per share for Q1 2021, payable on or about June 14, 2021. In slide number seven, we demonstrate the inherent operating leverage of the company to a rising freight market and the potential increase in EBITDA with any freight or fuel spread increases. For example, With 45,000 fleet available days, an additional daily fleet-wide increase in TC by $2,000 will increase our EBITDA by $90 million. Similarly, assuming a total annual bunker consumption of 800,000 tons and increasing the high-five fuel spread by $25 will generate additional EBITDA by approximately $20 million. I will now pass the floor to our COO, Nikos Reskos, for an update on our operational performance. Nikos Reskos Thank you, Simo.
Simo Spirou
Please turn to slide eight, where we provide an operational update. OPEX was at $4,251 per vessel per day for the quarter. Metcalf GMA expenses were $1,087 per vessel per day for the quarter. The combination of our in-house management and the scale of the group enables us to maintain very competitive costs complemented by excellent ship management capabilities, which is currently number one amongst our listed peers in terms of ride ship rating. In view of IMO's 2023-2030 decarbonization regulation implementation, the company has built a dedicated research and development team evaluating all available technologies that are assisting in reducing our vessel's carbon footprint. Based on the analysis of historical operational parameters, we believe that our vessels' emissions profile will remain competitive within the upcoming carbon intensity index framework, which is expected to be adopted by the IMO. Aiming to continuously improve our performance, we are gradually enhancing project planning and execution via weather routing, speed optimization, and hot performance monitoring. On the CAPEX front, we are also examining the impact of various energy-saving devices. Carbot is actively engaged with various R&D workshops and consortia in collaboration with other stakeholders across the maritime value chain, including engine makers, stratification societies, and fuel technology innovators, in pursuit of technically and commercially viable solutions in adjusting our vessel's fuel systems to operate on carbon-neutral fuels. Flight 9 provides some guidance around our future dry dock and ballast water treatment expenses. for the next 12 months and a relevant total of high days. The numbers are based on current estimates around dry dock and retrofit planning, vessel employment, and yard capacity. These figures incorporate our current understanding of present and future shipyard congestion. Since the beginning of the year, 19 vessels have entered dry dock and nine have been retrofitted with balanced water treatment systems, with a majority of our larger vessels scheduled for the year having completed their dry docks at the early part of the first quarter. Our expected dry dock expense for the next 12 months is estimated at $23.4 million for the dry docking of 30 vessels, with another $26.9 million for the ballast water treatment system capex of 27 vessels. In total, we expect to have approximately 790 off-hike days for the following 12-month period. I will now pass the floor to our CEO, Petros Papas, for a market update and his closing remarks.
Petros Papas
Thank you, Nico. Please turn to slide 10 for a brief update on the supply. During the first four months of 2021, a total of 14.8 million deadweight was delivered, and 4 million deadweight was sent to demolition for a net fleet growth of 10.8 million deadweight, or 3.3% year-on-year, and 1.1 percent since the beginning of the year. The order book has decreased to a record low 5.7 percent of the fleet, with just 5.8 million deadweight reported as firm orders between January and April. Upcoming environmental regulations and uncertainty about future propulsion has helped keep new orders under control, while CPR Capacity is quickly filling up with container ship and other orders. Furthermore, the surge of global steel and iron ore prices has increased new building prices and pushed crop prices to new record highs, supporting demolition to a degree. Average steaming speeds of the drive-about fleet stand at 11.8 knots, and despite the higher freight rate environment, has only increased 3% year-on-year, mostly due to the increase in bunker costs. As the global economy opens up and oil products consumption recovers during the second half, we expect bunker prices to experience upward pressure that will support higher freight rates and scrubber earnings. Quarantines related to COVID-19 and increased political tension in China towards Australia and India is creating strong inefficiencies for trade that have helped tighten the supply-demand balance. As a result of the above trends, net fleet growth is projected to correct below 3% by the end of 2021 and close to 1% by the end of 2022. Let's now turn to slide 11 for a brief update of demands. According to Clarkson's total dryback 2019 are rolling out and have brought optimism to markets, with the IMF expecting 6 percent growth in 2021 and 4.4 percent growth in 2022. Pent-up demand, as the world gradually opens up and the centralized global economic stimulus have pushed commodity prices to new historical highs, and currently incentivize the Furthermore, new Atlantic export projects and increases in Pacific grain demand are expected to inflate tonne miles and vessel requirements over the next years. Iron ore tonne miles are expected to expand by 3.1 percent during 2021. Seal prices have increased to new record highs and have put steel mill profitability higher, despite the strong increase in iron ore prices. Furthermore, steel prices in the Atlantic have been trading at a significant premium to the Pacific, and the white price arbitrage has incentivized higher steel exports with smaller vessels benefiting the most during the last months. Brazil iron ore exports are slowly recovering from the 2019 disaster and have increased 14.4 percent during the seasonally low first four months of the year. Vale last month reiterated their target of 400 to 450 million tons of production by the end of 2022. Coal-ton miles are expected to expand by 6.4 percent during 2021, as global energy consumption experiences a strong recovery. During the last quarters, China and India thermal electricity output has been expanding at a higher pace than domestic production. shortages that have pushed stocks lower. The Chinese ban on Australia coal has forced power utilities and steelmakers to diversify and seek coal cargoes from longer-distance sources such as South Africa, Colombia, the U.S., and Canada. Grains on miles are expected to expand by 2.3 percent At the same time, the hog herd has fully recovered from the 2018 African swine fever outbreak. U.S. soybean and corn exports stand at all-time highs this marketing year, with forward sales indicating that volumes will maintain record high levels during the next quarters. The Brazil soybean export season started with delays due to heavy rains, but is also catching up with the positive effects on Panamax demand during the second and third quarter of this year. Minor bulk turn miles are expected to expand by 4.2 percent during 2021. Minor bulk trade has the strongest positive correlation to global GDP growth, and smaller gear vessels will benefit significantly from the synchronized consumption recovery during 2021 and 2022. continue to expand at a high pace with a strong positive effect on Cape-sized ton-miles. Finally, our outlook for the market remains positive due to the reopening of the global economy and consequent increased ton-mile demand across all key dry-buck commodities. The record low order book coupled with upcoming environmental regulations that limit new vessel orders also create favorable long-term dynamics for our industry. which our company is well positioned to enjoy. Without taking any more of your time, I will now pass the floor over to the operator to answer any questions you may have.
Operator
Thank you very much, ladies and gentlemen. As a reminder, if you have a question, please press star 1 on your telephone keypad and wait for your name to be announced. Our first question today is from Amit from Deutsche Bank. Please go ahead. Your line is open.
spk08
Thanks for the question. I wanted to talk about the bookings in the second quarter and how that will translate to the cash balance and then obviously the dividend. I think we can quite easily calculate the cash flow based on the TCE rate relative to the $11,000 breakeven. But what's important to understand, at least for me, is all the other cash calls. I guess there's some outlays on the dry docking that you mentioned in the slide deck, maybe $10, $11 million. But I wonder if there's also some working capital draft given the big spike in rates during the quarter, second quarter. If you can just talk about that and what you can say, if anything, about that. you know, the dividend in the second quarter based on your formula and that, you know, you have over 80% of the days already booked?
Hamish
Well, I guess, you know, we're not in the business of guiding on earnings or the dividend. You know, that would be the job of each analyst. But I guess, Christos, do you want to talk about working capital?
spk06
Sure. In a rising market like today's market, Amit, working capital increases, because the freight receivables that you expect from voyages that you book at higher rates are increasing. We therefore expect to have a drag on the actual rates that we're recording in a specific quarter versus the Baltic index that you monitor basically on a daily basis. Therefore, you know, we wouldn't expect to see the exact sort of index, but there will be a lag in an increasing market, as there is also lower performance in a decreasing market, when you're actually getting freight rates from high freight rates from points that you're booking a bus, and therefore you're making higher rates than the BBI.
Hamish
And, you know, the working capital is typically about 25 days. You know, our receivables basically are typically averaging about 25 days. So as rates go up, we've got basically 25 days of revenue in working capital.
spk08
But I guess the fact of the matter is, though, your average rates for the second quarter so far, with 80-plus percent booked, is 40 percent above what it was in the first quarter. So I think it's safe to assume that there's a significant increase in dividend and QQ versus QQ given that higher earnings power or working capital.
Hamish
Let's just say we wouldn't be surprised to see Q2 do better than Q1. Yeah, I mean, you're not wrong.
spk08
And then that's the way the FSA curve works. Right now it looks like rates are kind of stabilizing at high levels back half of the year. So that working capital, reverse, and so really kind of the third quarter is a much bigger number because you have the worst same-world contract, just given the less volatility and kind of higher, longer, so to speak?
Hamish
Well, I mean, we don't endorse the SSA curve as a forecast, but, you know, the SSA curve, if it were to come to pass, would imply what you're talking about.
spk08
Okay, and then just the last question for me. I mean, Hamish, there's a lot of legal language about, you know, management being able to change this policy whenever they want, and of course that makes sense. But there are a lot of investors that have seen short stakes in rates and dividends. I think the difference here is you guys have a very good capital structure and a low venture, but tell me, like, what will have to happen... for you guys to abandon this policy of dividend altar plus a lot of shareholders? Is it a really compelling eminent opportunity? Because you would have a lot of liquidity cushion embedded already where a weak market wouldn't necessarily be enough given that liquidity cushion. So just tell us about, in your mind or the management team or the board's mind, what would kind of pivot away from that type of strategy given all the work that's done on the cap structure?
Hamish
Well, you know, look, it's the board's clear intention to stick with this dividend policy. And the dividend policy was designed to work in a broad, broad range of markets. And I should point out that in 2019, when we adopted the dividend policy, which we've only very slightly amended here, we had no idea there was going to be a global pandemic in 2020. And we did not suspend the dividend policy due to the pandemic. The dividend policy by its normal operation basically provided that in the market that we had with the pandemic, there should be no dividend under the policy. But we didn't suspend or stop the policy. And we hope that, you know, there's nothing that will happen that would make us suspend or stop the policy.
spk06
And if I may add, the beauty of the policy is that it effectively allows us to return capital to shareholders when we make strong operating cash flows from our vessels. And therefore, we have started being in a market that will enable us to return significant capital to shareholders, and therefore we do intend to keep the policy.
spk08
yeah i mean i don't have track image to that point with that last year you were profit building to that threshold so you won't really paying out much or anything and now you're at that threshold where you are generating surplus cash flow and i guess I guess I hear what you're saying. This is kind of all the work to get to this point. I guess, you know, once you're at this point now, are there other attractive uses of that app that may allow you to pivot away from pivoting into shareholders, or will that be a very high hurdle?
Hamish
That's going to be a pretty high hurdle. I mean, the board is pretty much set on this policy. And, you know, we're happy to make attractive acquisitions, but if we make attractive acquisitions, we would hope to use our equity as we've done in the past.
spk08
Got it. Okay. Thank you for answering my questions. Appreciate it. Thank you.
Operator
Yeah.
spk08
Thank you.
Operator
Thank you very much. Our next question is from Randy Gibbons from Jefferies. Please go ahead.
spk02
Howdy, gentlemen. How's it going? Hi, Randy. Hey, so yeah, obviously, you know, the share price today is reflecting maybe a little bit of underwhelming nature with your maybe rate guidance. Is there any reason why the remainder of 2Q21 won't be much higher than the 21,000 quarter-to-date bookings? And maybe if you can add some color on time charters, have you or maybe will you add some time charters to take advantage of this current market strength? You know, a lot of your peers... will put out every time chart they do, for example. But have you done any time charts recently? Hi, Aaron. It's Petros.
Petros Papas
We're very positive about the rest of this year, as we're positive about next year as well, and in general. We're positive for several years to come for various reasons that I could analyze if you want me later on. Speaking about the short term, we are actually covered mostly for our smaller vessels, for Q2. And we have about 32, 33 percent open on the Cape size. So, actually, I think that you will see good numbers there. We are not worried about the short term at all. Actually, we think that it could be even better than what the present FFA has shown for the year, which is like 34K, 4K, and 24K for the other two types. But having said that, if, for example, we see... a supramax and a ultramax offering us $30,000 for four to six months, we will fix that. First of all, because it's above SFA, and it's a decent number. It could get higher than that. But so what the idea is, the idea is that we fix, we stay spot in general. If we see rates that are higher than FFAs or much higher than FFAs, then we fix those for the short period. And generally, we like to have our fleet back somewhere in November, early December, so that we try to fix through Q1. Now, we've been doing that every year. year where things went upside down and the market was actually extremely strong. I don't think I've seen this before in my career, maybe in 2007 or 8, but never before that. So I think going forward we will still follow our usual plan of hedging a bit through Q1. But for this year, there's no reason to hedge unless if the rates we get are way above FFA's.
spk02
All right. And have you done any one-year time charges recently? For example, what percentage of 4Q21 is booked? Zero percent. Okay. Perfect. Now, for the dividend, you know, it seems like you decided to include, I guess, $150 million in the recent refi as part of your cash balance. So maybe what drove that decision? And then going forward, how are you going to prioritize cap allocation in terms of maybe more aggressive debt repayment, further vessel acquisitions? Do you have a target leverage ratio or net debt amount? Okay, so...
Hamish
To answer the first... To answer the... Hold on. So what was your first question again?
spk02
First part was about the decision to include $150 million in the refinancing.
Hamish
Yeah. So the decision on including the cash from refinancing was based on the fact that our actual loan-to-value... today is substantially below the anticipated loan-to-value that we were thinking about in 2019 when this dividend policy was originally adopted. So, effectively, you know, our leverage is much lower. You know, and then, you know, the capital allocation policy is clearly prioritizing the dividend. We will certainly look at attractive acquisitions of vessels, but as I said before, we'll try to do that using our shares as we've done in the past. And, you know, we do want to reduce leverage, but, you know, we're doing that slowly while maintaining this dividend policy.
spk02
Yes, that is fair. All right, well, I guess what is your net loan-to-value now? You just mentioned it.
Hamish
That's largely the job of the analyst because that involves valuing the fleet, which is not something we're really in the business of doing, but it's looking really good, we think.
spk02
We have our view, of course, but you were the one who mentioned our net loan. I think you just said our net loan to value is below.
Hamish
We read your work and other analysts' work, and we think you and the other analysts are doing a great job.
spk02
noted. All right. Okay, I'll ask the last question. On this same topic, is there a net loan-to-value target for year-end that you're, you know, hoping to get to, planning to get to? Does it have a two-handle?
Hamish
Well, you know, look, the net debt, you know, by year, our target, frankly, for net debt at year-end is you know, to be at least down by the amount of our amortization. And, you know, that's delivering already pretty well. And, you know, if we can do better than that, that's great.
spk02
Okay. Yeah, I see slide five, and I hope that downhill trend continues. Perfect. Well, I'll let you off there. Thanks so much. Thank you, Randy.
Operator
Thank you. Our next question is from Ben Nolan from Stiefel. Please go ahead. Yeah, thanks.
Ben Nolan
So I wanted to drill down a little bit just sort of in terms of how you would be thinking about your available cash balances or whatever. And follow with me for a second here. But I just kind of was perusing your fleet list, and there's 20 or so ships that are 15 years old, probably, I don't know, on Maya. estimates, let's say, worth closing in on $300 million. There's probably some debt associated with that, but there's probably also a lot of free cash flow. And also, if you were to sell those, the ship count would go down, and thereby your cash per ship would increase dramatically. In that scenario, first of all, I guess you're optimistic on the market, but are you also possibly a seller of maybe some of those older equipment? But in the situation that you were, how should we think about that ratio, right? I mean, not only is the cash balance going up, but the number of ships is going down. It's sort of a twofer when it comes to your ability to pay dividends. Although, is there sort of the need to sort of carve that out and say, okay, this is replacement capital or something like that?
Hamish
Okay, so basically the dividend policy gives the board a lot of discretion in the case we sell ships, as I think you would expect. And, you know, if we sell, you know, one or more ships, we're obviously going to think long and hard about what to do with the, And, you know, we're shareholders. We're going to do the right thing, you know, based on our best judgment for the shareholders. And if the right thing is to pay the cash out, we'll do that. If the right thing is to, you know, renew the fleet, we'll do that. But, you know, as you can imagine, in defining a dividend policy like this, you know, we don't want to tie the boards and management's hands if we sell, you know, some chips. Ben, this is Petros.
Petros Papas
Imagine, let's say, a 15-year-old Kamsomax. that could be fixed today for a year or not, or into six-month charters at between $20,000 and $25,000 a day. That vessel would make a profit of between $5.5 to $7 million. Now, if that vessel is worth, let's say, $15 million today, you actually get... 40% to 45% return on the value of the vessel within a year. I wouldn't sell a vessel like that today.
Ben Nolan
So I take that to mean that you believe that asset values are probably going to be rising then?
Petros Papas
Well, I mean, even the break-even would be that that vessel being at $8 million to $9 million worth in a year from now. If we Yeah. Okay. Does that mean that you would, you know, as an on-balance or probably a better buyer than a seller?
Hamish
Well, again, we'll look at it. We're looking always at attractive acquisitions, you know, but our inclination will be to use our equity, you know, if we can, as we've done in the past.
Ben Nolan
Right. Okay. Good enough. I appreciate it. Thanks, guys. Thank you, Ben. Thank you.
Operator
Thank you. Our next question is from Omar Notta from Clarkson's Plattel. Please go ahead.
Omar Notta
Yeah, thank you. Hey, guys. Just wanted to maybe drill down just a little bit more on, you know, Hamish, you've mentioned several times in this call, you know, you're always happy to look at attractive acquisitions. But just as we think about it, you know, you guys were pretty acquisitive. You know, several months ago, you bought 12 ships at pretty good prices. Obviously, since then, the sale and purchase markets come to life in a big way, and asset values have jumped. But just trying to maybe reconcile, especially with Petros, your comments about the return potential. How do you see where the market is today, where values are? Do you still see opportunities, irrespective of, say, the equity price and using that as a means to buy a vessel? Do you still think that now is the time to continue adding ships? for Starbuck, or do you think now that you've maybe more focusing on the dividends and they're taking a backseat on the acquisitions?
Hamish
Well, you know, look, I'll let Tetra talk about the attractiveness of vessel prices generally, but, you know, we will still look. definitely we're interested in growth. And, you know, we haven't, you know, had growth take a backseat to the dividend. We think growth and the dividend are completely compatible with each other, and we would hope to keep growing.
Petros Papas
Yeah. You saw that we bought, actually, to resale Camp St. Maxus a couple of months ago, which we're taking delivery of one in the next few days and the second next month. We didn't use our stock as currency there. We just bought the vessels. But we saw a fantastic opportunity. They were very cheap. And we went ahead and did that. Now that the prices of those vessels have probably gone up by about 20 percent. They will probably go even more, even higher, because still prices have gone up. And they are adding a huge amount of money on the cost of building these vessels. I think that we have enough vessels and I wouldn't go for new buildings because if we went for that, for example, the resales were delivered within two months. So that was a no-brainer. But if somebody would come and say to me, buy a new building and take delivery in two or three years, I wouldn't do that. And the prices would be much more expensive. Irrespective of being positive about the market, we already have 128 vessels here. I think we have enough vessels. We will do accretive deals, but we're not going to run after the market, I think.
Omar Notta
Thanks, Petros. Actually, you did just touch on a follow-up question I had on that, was the idea of new buildings. Because I know it's a bad word to talk about ordering new builds, but we have been seeing cost pressures and slots have been taken up by other vessel segments. And so I did want to kind of check your pulse on the idea of even though having to wait two or three years, if that was an attractive thing for Starbolt, but it sounds like it's not.
Petros Papas
So, you know, I mean, first of all, we're very happy that the slots are being taken up by other types of vessels. And we will be happy even if the next available slot is in 2025. This will mean that the supply situation is going to be positive for our trade. And as we think that demand will be fine as well, we're looking for a few positive years going forward. I wouldn't like to disturb that.
Omar Notta
Yeah, that makes sense. Okay, and then just maybe one final one, and maybe Hamish, you're at the risk of getting a Yogi Berra type response. I wanted to ask about the minimum cash threshold of that $2.1 million that you're reverting to that starting in the fourth quarter, which is What you had outlined back in 2019 as the long-run minimum cash, you did mention that your LTV is lower today than what you'd envisioned when you first put the policy in place. So with that, do you see that $2.1 million being reduced as we move forward, or do you feel that that's really set in stone?
Hamish
Well, you know, I guess the truth is really neither one. You know, we can't really anticipate what the board might decide in the future to do about that, you know, cash balance per vessel. Neither do I think it's set in stone. I mean, this is something that will be revisited. You know, I certainly don't have any expectation it's going to be increased. But, you know, neither can we plan on it being reduced. But, you know, I would tend to agree with your speculation that it may be more likely in the future to be reduced than increased. But, you know, we just don't know.
Omar Notta
Okay. That's clear enough. I appreciate that. And thanks, guys, for the time. Thank you. Thank you.
Operator
Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star 1 on your telephone. There are no further questions that are coming through. I'll now hand back to the speaker for any comments.
Petros Papas
No further comments, operator. Thank you very much.
Operator
Thank you, sir. That does conclude the call for today. Thank you, everyone, for joining. You may now disconnect your lines.
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