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Operator
Thank you for standing by, ladies and gentlemen, and welcome to the Starbuck Carrier Conference Call on the second quarter 2021 financial results. We have with us Mr. Petros Papas, Chief Executive Officer, Mr. Hamish Norton, President, Mr. Nikos Reskos, Chief Operating Officer, Mr. Simos Spirou and Mr. Christos Begleres, Co-Chief Financial Officers 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, at which time if you wish to ask a question, please press star 1 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. Christos Beglaris. Please go ahead, sir.
Petros Papas
Thank you, operator. I'm Christos Beglaris, co-CFO of Starbuck, and I would like to welcome you to our conference call regarding our financial results for the second 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 second quarter results, our cash evolution during the quarter, 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 second quarter 2021 financial highlights. In the three months ending June 30th, 2021, TCE revenues amounted to 254.9 million compared to 97.1 million for the same period in 2020. Adjusted EBITDA for the second quarter 2021 was at 182.5 million versus $35.2 million in the second quarter 2020. Net income for the second quarter amounted to $124.2 million, or $1.22 earning per share, versus $44.1 million net loss, or $0.46 loss per share, in the second quarter of 2020. Our TCE rate during this quarter was at 22,927 per vessel per day. Total cash today stands at 280.3 million, with total debt at approximately 1.62 billion. In addition, we have the ability to use a 30 million revolving facility, which is currently undrawn. During the second quarter of 2021, we took delivery of one Ultramax and the two remaining Camsomax resales, reaching a total of 128 vessels on the water. As of June 30th, 2021, we owned 128 vessels, and our total cash balance for the financing proceeds of the two resale Camsomaxes was at $282.8 million, resulting in a declared dividend per share of $0.70 payable on or about September 8th. In slide 4, we show the significant annual interest cost savings of the company due to our refinancing efforts. Total existing facilities refinanced or committed to be refinanced amount to $333.7 million, with new secured senior facilities of $391.7 million. Using the excess proceeds, our daily bond of $50 million was redeemed. The average margin for the existing facilities to be financed is at 2.9%, while the average margin for the new secured facilities is at 2.1%. Finally, the interest rate cost savings for Starbucks is at $5.5 million, out of which 4.1% are the interest cost savings attributed to the retention of our baby bond, and $1.4 million are due to the refinancings of our secure facilities. Slide 5 graphically illustrates the changes in the company's cash balance during the second quarter. We started the quarter with $206.6 million in cash, generated positive cash flow from operating activities of $140.5 million due to the strong freight markets. After including debt proceeds and repayments, rental acquisitions, capex payments for scrubber and ballast water treatment system installments, as well as the dividend payments declared in the first quarter, we arrived at the cash balance of 242.8 million at the end of the second quarter. Please turn to slide six, where we summarize the evolution of net debt Since the beginning of the year, we have been able to reduce our net debt by more than $228 million due to strong cash flow from operations. In slide 7, 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. with 46,500 fleet available days per year. An additional daily fleet-wide increase in DC by 2,000 per day will increase our EBITDA by 93 million. Similarly, assuming a total annual bunker consumption of 800,000 tons, an increase in the high-fi fuel spread by $25 per ton, will generate an additional limit of $20 million. I will now pass the floor to our COO, Nikos Reskos, for an update on our operational performance.
Christos Beglaris
Nikos Reskos Thank you, Christo. Please turn to slide A, where we provide an operational update. OPEC, excluding non-recurring expenses, will per vessel per day for the first half of 2021. Despite continued adverse COVID-related restrictions, which have a direct impact on OPEX, the combination of our in-house management and the skill of the group enable us to maintain very competitive costs, with Starbucks continuing to rate at number one among our listed peers in terms of ride-ship rating. Since January 2020, Starbucks maintains a 99.6% scrubber system availability, across 120 vessels, with 60,000 operating days and more than 1.2 million tons of HSFO consumed. The company has made significant progress in analyzing carbon emissions across its fleet in view of IMO 2023 decarbonization roadmap. We believe that our vessel emission profile will remain competitive within the upcoming carbon intensity index framework, which is expected to be adopted by the IMO in 2023. Aiming to establish all required operational measures ahead of the regulation effective date, we're implementing voyage planning analysis, speed and health performance optimization practices, which will be adopted across our fleet as of January 2022. On the CapEx front, we're examining the long-term impact of various energy-saving devices and applications in maintaining a competitive carbon intensity rating across our fleet well beyond 2023. We are actively engaged with various R&D workshops and consortia in collaboration with other stakeholders, including engine makers, classification societies, fuel technology innovators, and carbon credit advisors in pursuit of technically and commercially viable solutions in reducing meaningfully our vessel's carbon emissions footprint. Turning to slide 9, we provide some guidance around our future dry dock and ballast water treatment system expense 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 yacht capacity. These figures incorporate our current understanding of present and future shipyard congestion. Since the beginning of the year, 33 vessels have entered dry dock, and 13 have been retrofitted with palace water treatment systems, with a majority of our larger vessels scheduled for the year having completed their dry docks at least first quarter. Our expected driver expense for the next 12 months is estimated at $27.8 million for the dry docking of 30 vessels, with another $25.8 million towards our balance system, CAPEX. We expect to have 72% of our total fleet balance water fitted by end 2021, and 97% by end of 2022. In total, we expect to have approximately 825 off-yard days for the forward 12-month period. I will now pass the floor to our CEO, Petros Papas, for a market update and his closing remarks.
Nikos Reskos
Thank you, Niko. Please turn to slide 10 for a brief update of supply. During the first half of 2021, a total of 21.5 million dead weight was delivered, and 4.4 million dead weight was sent to demolition for a net fleet growth million dead weight, or 3.1 percent year-on-year, and 1.7 percent since the beginning of the year. The order book decreased to a record low 5.7 percent of the fleet, with 11.1 million dead weight reported by Clarkson's as firm orders between January and June. that have been declared, and thus the order book increased to slightly above 6 percent. Upcoming environmental regulations and uncertainty on future propulsion has helped keep new orders under relative control, with shipyard capacity is quickly filling up with container ships and other orders. Furthermore, the surge of global steel and iron ore prices ice, possibly aiding demolition, but also discouraging new dry-bulk orders. Average steaming speeds of the dry-bulk fleet currently stand at 11.7 knots, and despite the higher freight rate environment, have only increased by 1 percent year on year, partly due to higher bunker costs. As the global economy and oil products We expect banker prices to experience upward pressures that will support higher freight rates and scrubber savings. Port congestion has increased to the highest level of the last decade. Quarantines related to COVID-19 and increased political tensions in China towards Australia and India have created strong inefficiencies for trade that have helped tighten the supply-demand balance. Summarizing supply... net fleet growth is expected at 3% by the end of 2021 and should remain below 2% per annum during 2022 and 2023. Let's now turn to slide 11 for a brief update of demand. According to Clarkson's total drive-out trade during 2021, Dry-pack volumes are experiencing a strong recovery, supported by synchronized global economic stimulus that focuses on the construction sector. Commodity prices reached historical high levels that should incentivize a strong expansion in production and trade during the next years. Furthermore, new Atlantic export projects and increases in Pacific grain demand are expected to inflate ton-miles and vessel requirements over the next years. During the first half of 2021, dry bulk trade grew by more than 7.5 percent year-on-year and by more than 5 percent compared to 2019 levels, as all cargo volumes Steelmakers from the rest of the world increased production by 15.6% and are still unable to meet regional demand. As a result, steel prices in the Atlantic are trading at a significant premium to the Pacific, and the wide price arbitrage has incentivized Pacific steel exports, with smaller vessels benefiting the most during the last months. Brazil iron ore exports are slowly recovering from the 2019 drought. Vale has reiterated a target of 400 to 450 million tons of production capacity by the end of 2022. Colton miles are expected to expand by 5.3%. shortages that have put stocks lower and prices to record highs. 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, but also increased Indonesian imports that In India, coal consumption experienced a slowdown during the second quarter due to the resurgence of COVID and the lockdown imposed by the government. However, during the last month, electricity production has rebounded and Indian buyers have returned to the market with increased import needs to replenish their stocks. At the same time, the hog herd is fully recovered and stands 20 percent above the levels before the 2018 African swine fever outbreak. U.S. soybean and corn exports both experienced record high seasons while sales for the next marketing year stand at record levels for this time of the year. at harvest areas, but peaked higher than last year and helped create a shortage of vessels in the Atlantic. Having said that, cape sizes are in the medium term expected to benefit from cascading and stonking ton miles from Atlantic export cargoes such as West Africa bauxite. Finally, our outlook for the market remains positive. The record low order book combined with a lack of yard space, uncertainty on future vessel propulsion, being transported, a trend which we expect will continue, supporting our optimistic view on the future prospects of the dry bulk market. 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, sir. Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. Our first question for today is from Omar Nocta from Clarkson. Please go ahead.
Omar Nocta
Hi there. Thank you. Hi, guys. Good afternoon. Hi, Omar. Hi. I just wanted to check in on the cash thresholds for the dividend. Obviously, a nice dividend this quarter. And I know I asked this on the last call, but just wanted to see if you had any more updated thoughts. I know starting in the fourth quarter, So across all of your 128 ships, that gets you to $256 million, and then everything above that gets paid out. But, you know, given the strong market, rising asset values, obviously you're lower leverage, and you really have no committed capex from here. Any thoughts on lowering the required cash position?
Omar
I think, Omar, you know, in the, you know, far future, we might review that. But I think for the, you know, for the near and medium term, you've got to count on that $2.1 million per vessel being our rainy day fund. You know, hopefully there won't be any rainy days, but you never know.
Petros Papas
And just to add that as it essentially lowers, this gives us further supports. to lower the...those thresholds.
Omar
Yeah, but in the...not in the near or medium term.
Omar Nocta
Okay. That's fair. I appreciate that. Just a follow-up, you know, you've now got your full fleet in hand, 128 ships. You've got a large footprint across all the different asset classes. How are you guys doing things today? Are you still on the hunt for acquisitions, obviously using your equity when possible? Or do you take a step back with that? Prices have risen so much. Any color there?
Omar
Well, you know, look, we're still looking to grow. And at such time as we can use our equity to make acquisitions of ships that increase earnings per share. that increase net asset value per share, that increase the dividend per share, that reduce the net leverage of the company, and probably also reduce the fleet age for the company. We're going to do that, you know, as much as we can, because that's what is the best thing for the shareholders. And, you know, in a situation where we're trading well, we should be able to do that.
Omar Nocta
slash lower than your current LTV?
Omar
Yeah, probably buying the vessels, you know, without debt. But if we're trading well enough, we can nevertheless increase earnings per share, dividends per share, net asset value per share, and probably also reduce the average age of the fleet. So it's going to be a quadruple or quintuple win.
Omar Nocta
Yeah, it's got a check on all the boxes. Okay. Good, Hamish. Thanks for the call there.
Operator
Our next question is from Ben Nolan from Stiefel. Please go ahead.
Ben Nolan
Yeah, thanks. I was going to ask... Maybe sort of following on Omar's question there a little bit, not really about the dividend, but you guys announced an ATM program. Most of the time when you've been doing these asset transactions, it's been shares for ships. But can you maybe just talk me through a little bit like when and why? you would be active under that ATM program? I know that it said in the release that you hadn't done anything with it yet, but just sort of maybe a little color around the rationale and how you would think about deploying it.
Omar
Well, I mean, it's basically what I told Omar. Basically what we want to do is use the shares at the appropriate time to buy ships online in such a way that it increases our earnings per share, our net asset value per share, our dividend per share, reduces our net leverage, and reduces our average fleet age. And we think we can do that pretty straightforwardly in a market that is, you know, a little bit more friendly to dry bulk than the market we see this morning. But, you know, we think it's going to be actually quite easy to do that in the right market.
Ben Nolan
Okay, so I guess maybe the question is would you do it preemptively, right? You say, okay, well, we think we can buy something in the future that will be accretive to all of those things that you talked about, so we'll go ahead and be proactive or... We're going to do the thing that is the best thing for the shareholders, you know, basically...
Omar
We want to basically add as much value to the share as possible, but I wouldn't expect that we would do something on the one hand without having an opportunity on the other hand. I think we'll be pretty synchronized.
Petros Papas
And then, this is Chris, just to clarify, at the levels that we are currently trading, we would not use the ATM.
Omar
Yeah, yes, I should have said that. We have no intention of using the ATM under current conditions. Okay, very helpful.
Ben Nolan
And then with respect to sort of the market, some of the categories were a little bit lower. Like, for instance, the Supermax, Ultra Max categories, and even the Panamax categories were a little bit lower than what we've seen in the market. And I think that you'd said, Petros, that in the last quarter that you'd sort of in the first part of the year put some of those on shorter-term contracts, which I would assume kept the rates a little bit below where the spot market was. Any update on sort of your coverage into the third quarter, fourth quarter, maybe even into next year a little bit? Are there any sort of lingering effects of some of that coverage?
Nikos Reskos
And actually we had covered 50% of our supra fleet towards the end of last year, beginning of this year, at relatively low levels. And that's why you saw this effect. And about 25% of our Panamax fleet. As we stand now for Q3, we only have another six supras and four... Panamax still at relatively low levels. When I'm saying that, I mean below 20,000. And that's it. And nothing for Q4 onwards.
Ben Nolan
Okay, perfect. And then just sort of maybe to follow on there, and I'll be done. Are you currently looking to take cover with the existing fleet at current rates or still sort of riding the spot market?
Nikos Reskos
We have, as we have already said, covered about 65 percent of the fleet for Q3 at levels of about 28,500. We have almost no cover for Q4. We very much believe in the market in the next few months, actually in the next few years, to be honest. So right now we are not intending to hedge. But during Q4, depending on how things go and if the market is really strong, we might consider a part of our fleet to be hedged for the first half of next year, but that Perfect. All right. I appreciate it, and thanks for all the color. Thank you.
Operator
Thank you. Our next question is from Randy Gibbons from Jefferies. Please go ahead.
spk05
Hi, gentlemen. How's it going? Hi. Hi, Randy. Hi. Hey, so after all these recent refinancings, clearly your balance sheet's in great shape, good decisions there to redeem that senior notes. So with all those moving parts, what do you expect?
Petros Papas
And when you say net change, Randy, you mean net change in interest and debt, principal amortization?
spk05
Yeah, just like total debt. I think right now it's like 1.55, something like this. I guess 1.58. What are you expecting to be at the end of 3Q?
Petros Papas
So end of 3Q, our debt should be lowered by approximately $50 million. Okay. Then interest expense for this quarter should be at around $14 million, dropping to $12 million from the next quarters as you essentially have the cheaper debt kicking in. Got it.
spk05
Okay. That's fair. So I guess that $50 million change in debt may be another... If rates obviously stay where they are now, it seems like 3Q dividend could easily exceed a dollar. Is that fair?
Omar
Well, I guess, Randy, you know, you're the securities analyst. We just run the shipping company.
Petros Papas
I'm not on your account. I just mentioned an increase of $25 million. in working capital seems reasonable, given that we are in a continuously rising freight environment.
spk05
Got it. All right. I'll go with my assumptions from there. And I guess last question for me, speaking of good decisions for you, right, I applaud So with that, now that your fleet's fully delivered, you still have a few older vessels, so you can reduce your average fleet age by maybe selling those. So how do you view potential asset sales and then using those proceeds for maybe share repurchases in the near term?
Omar
To the extent there's an arbitrage to be done that favors the shareholders, we will look at it very seriously. Okay. But other than an arbitrage that favors the shareholders, you know, we're not in the market to sell ships generally.
spk05
Sure. I think the arbitrage of a very old ship at NAV and buying shares at a 25% discount to NAV would qualify. But I noticed. Well, thank you for the time. Thank you. Thank you, Randy.
Operator
Thank you. The next question is from Amit Mekrora from Deutsche Bank. Please go ahead.
spk07
Thanks. Hi, everyone. Congrats on the results of the dividend payment. I wanted to follow up on the last line of questioning regarding the calibration of expectations for dividend payments for the third quarter. You know, the math, I want to walk through the cash flow math, if that's okay, for a minute. So first and foremost, I think you said $28,000. Per day, majority of days books for the third quarter, that's basically a surplus of $17,000 per day. We've got call it 90 days, maybe a little bit under 90 days. So you're talking about close to $200 million of incremental cash flows, maybe a little bit under that in the third quarter alone. I'm going to throw some numbers out. You tell me where I'm wrong. You're paying out a little over $70 million in September. You've got some working capital bills. But net-net, you're probably looking at well over $100 million or so of incremental cash balance on the balance sheet. So what's wrong in that bet? Because that would imply... a dividend payment of, you know, well over $1, $1.20, $1.30 per share. What am I missing in the math and the numbers?
Omar
Well, you know, the math is a consequence of your assumptions about rates and working capital, but, you know, I don't know that there are any errors.
spk07
Yeah, because you said working capital, 25 million bills, You have 65% of the days booked, so I guess the risk is on the 35% of the balance. But I think I would imagine that the 35% balance would be accretive to your all-in rate today. Would you agree with that or not agree with that?
Petros Papas
I mean, if it's accretive, yes. I think we would probably agree with that.
spk07
Okay, great. And so the other line of questioning, Hamish, you know, you guys have embarked on this framework and strategy strategy of deleveraging and earmarking all the surplus cash flows for dividends. I think the end game is really to have the equity value of the company capitalize those dividends, which appear sustainable at a healthy premium that gives you the currency to then grow the fleet or deleverage the fleet via the currency that you have in the market. That's not working out as of right now, and I understand there's some... Not as of this morning, you know, but maybe next week. Yeah, so I guess the question is that, you know, because the stock right now is trading like it's trading like ex-dividend, if not actually even a little bit more than that. And so if the market continues to not give credit to these payments, how steadfast are you and the management team and Petros and everybody committed to this framework if the market over the next two, three quarters continues to, you know, basically not capitalize these payments at all?
Omar
We're incredibly stubborn people. We're just unbelievably stubborn. And we're going to keep at it until it works.
spk07
Okay, and then the last point on the ATM, you know, the question I have is that you're basically telegraphing equity offerings down the road, which may actually be counterproductive in capping the opportunity and the equity in the first place. So what's the thought behind the ATM in that respect when, you know, essentially it could be counterproductive in having the market give you credit for what you guys are doing?
Omar
Well, the answer is we're not going to use the ATM in a way that's counterproductive to the share price. We're only going to use the ATM in a way that's accretive to earnings per share, net asset value per share, dividends per share, reduction of the company's net leverage, and reducing the average fleet age. In what way is that going to be bad for the share price? We're not going to use the ATM in any way that will injure the share price in the slightest way. Just the opposite.
spk07
Got it. Okay. And then the last question for me, if I could, is, you know, the asset value environment. You know, one of the things that really moved the share price up from $10 to $20, you know, in a relatively short period of time was obviously this... asset value cycle that we had, a mini-cycle that we had. Has that stalled out a little bit? It's not an overly liquid market, so I'd love to get some perspective on, have we taken a pause in the upside in asset values, or have they come in a little bit? What's the overall feel out there?
Nikos Reskos
Well, Amit, we're looking at historical levels of prices and incomes. And we are seeing that prices have actually lagged incomes. So I don't know if that is psychological. It has to do with the fact that we've been not in great markets for the last several years, or whether it is COVID-related, or I don't know what other fears people may have. I want to repeat that we're extremely positive in this company, not only for the next couple of years, but for several years forward, because of the environmental regulations, which we think are our main friend, because... It's going to induce slow steaming, scrapping, less ordering, delays in yards, off hires. It will affect supply in a very strong way. So we think there's going to be a strong market. Perhaps people are not yet persuaded. that this good market can continue for long. We think it will, and after a while, if we're right, I believe that vessel prices will catch up with the rates we're seeing.
spk07
Got it. Okay. That makes sense. Thank you for taking my questions. Congrats again. Appreciate it. Thanks, Adam.
Operator
Thank you. Our next question is from Jay Mincemeyer from Value Investor Edge. Please go ahead.
Jay Mincemeyer
Hi, good morning. Good afternoon, gentlemen. Congrats on a fantastic quarter. Thank you. I think the dividend has been well covered. I appreciate the analysts in front of me asking great questions there. The only question I'd add to that is, you added the $50 million repurchase authorization. How do you prioritize that in comparison to keeping net cash available for the Q3 payout? Is it based on a function of price to NAV, or how do you think about that?
Omar
No, it's actually pretty straightforward. We really have no intention of reducing the dividend as a result of share buybacks. If we are to use the share buyback authorization, it would be an arbitrage between vessel prices and share prices, and we would probably fund it by selling a vessel or two and using the the cash released by that vessel to buy back the shares, we wouldn't be using cash that would otherwise go into a dividend. At least, certainly, that's not the current intention.
Jay Mincemeyer
Okay, that seems reasonable. So, yeah, definitely, you're the other analyst. It looks like a dollar is the very low end of next quarter's dividend, and that's good to see. Do you have any interest in acquiring potentially other equities? mid-sized assets, which has high private equity ownership, which trade at 70% to 80% price in NAV. Is there any interest in some sort of stock acquisition that way?
Omar
I mean, you know, we always are interested in acquisitions that could be accretive to our earnings per share and our dividend per share and our net asset value per share and so on. But You know, frankly, at this moment, you know, we haven't been looking at any of the examples that you've mentioned in an active way.
Jay Mincemeyer
Yeah, it certainly makes sense. I appreciate the heavy focus on per share metrics, and I think the whole industry will be in a better place if that focus continues. Thanks again, Sean. You're welcome.
Operator
Thank you. There are no further questions that are waiting. I'll now hand the call back to the speakers for any closing comments.
Nikos Reskos
No further comments, operator. Thank you very much.
Operator
Thank you, sir. Ladies and gentlemen, that does conclude the call for today. Thank you all for joining. You may now disconnect.
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