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Operator
Thank you for standing by, ladies and gentlemen, and welcome to the Starbuck Carriers Conference Call on the third quarter 2022 financial results. We have with us Mr. Petros Papas, Chief Executive Officer, Mr. Hamish Norton, President, Mr. Simos Spirou, and Mr. Christos Beglaris, Co-Chief Financial Officers, Mr. Nikos Reskos, Chief Operating Officer, and Mrs. Charity Chief Strategy 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, 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 today. Mr. Few, please go ahead, sir.
Petros Papas
Thank you, operator. I am Simo Spirou, Co-Chief Financial Officer of Starball Carriers, and I would like to welcome you to our conference call regarding our financial results for the third quarter of 2022. 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 Q3 results, cash evolution during the quarter, an overview of our balance sheet, an update on the fuel spread and vessel operations, the latest on the ESG front, and our views on industry fundamentals before opening up for questions. Let us now turn to slide number three of the presentation for a summary of our third quarter 2022 highlights. Net income for the third quarter amounted to 109.7 million and adjusted net income of 136.3 million or $1.34 per share adjusted earnings. Adjusted EBITDA was at 189.9 million for the quarter. For the third quarter, after our existing dividend policy, we declared a dividend per share of $1.20, payable on or about December 12, 2022. The graph on the bottom of the page highlights the cumulative performance over the last 12 months, which illustrates the strength of the platform in a robust rival market. Our last 12 months adjusted EBITDA is at $1.03 billion, and adjusted net income is $819 million. Over the same period, we have returned a cumulative dividend of $6.5 per share, or $670 million to our shareholders. On the top right of the page, you will see our daily figures per vessel for the quarter. Our time charter equivalent rate was at $24,365 per vessel per day. Our combined daily operating expenses and net cash G&A expenses per vessel per day amounted to $5,719 per day. Therefore, our TCE, less operating expenses, less G&A expenses, stands at $18,646 per vessel per day. Our results for the third quarter of 2022 include a loss on write-down of inventories of $14.9 million, resulting from the valuation of the bunkers remaining on board of our vessels, following the substantial decrease of the bunkers' net realizable value compared to their historical costs. We value our inventories at the lower between acquisition price and net realizable value. Usually, there is no such volatility in the value of the bankers. However, on periods of continuous decrease in banker prices, and to the extent the loss cannot be recovered, we believe it is prudent to be recognized on earnings. Slide four. graphically illustrates the cash flow bridge for the third quarter. We started the quarter with a performance cash balance of $431 million and generated meaningful positive cash flow from operating activities of $184.5 million due to the strong commercial performance. After including debt repayments, capex payments for ballast water treatment systems, and the second quarter dividend payments, we arrived at a cash balance and cash equivalent of 392.7 million at the end of the third quarter. Slide number five presents our fleet coverage for the next quarter. Looking at the fourth quarter of 2022, based on the latest pictures, our fleet-wide coverage available days at $22,772 per vessel per day. In terms of size segmentation, we have fixed 53 percent of our Cape size vessels at $26,328 per day. Seventy-six percent of our post-Panamax-Camsor Max vessels at $21,015 per vessel per day. And 66% of our Ultramax-Ultramax vessels are $22,462 per day per vessel. Please turn now to slide number six, where we highlight the continuous strength of our balance sheet. Our performance total liquidity today stands at $417 million. Meanwhile, our total debt stands at approximately 1.36 billion. During the year, we have agreed refinancing totaling approximately 400 million, that decrease our annual regular debt repayments by 12.5 million, and reduce our interest costs by approximately 5 million per annum, as a result of achieving significantly lower margins. Our next 12 months amortization is at 186 million. We have 13 unlevered vessels with market value of approximately 190 million and no dead maturities until 2024. In an increasing interest rate environment, we have interest rate traps with an outstanding notional of approximately 755 million fixed at an average rate of 46 basis points for an average remaining maturity of 1.4 years. As of October 31st, the mark-to-market value of these swaps was at 37.2 million.
Simo Spirou
That should be pretty obvious. If you look at our liquidity today plus the FFA curve today, while anything can happen in the dry bulk market, this would imply a dividend for the fourth quarter that's somewhat lower. Again, it's just an obvious point. It will depend on how the FFA curve turns into reality over the next few weeks and months.
Petros Papas
And I will now pass the floor to our COO, Nikos Reskos, to talk about our operational performance. Thank you, Simo.
Nikos Reskos
In slide 7, we illustrate how Starbucks is benefiting from a widening of the fuel spread between HSFO and DMSFO. We have 120 vessels of covers fitted on board. meaningfully contribute to our profitability. The spread has declined in Q3, and currently hovers around $240 per metric ton, based in Singapore prices where we cater for approximately 60% of our annual fuel demand. Indicatively, the average high-five spread achieved during Q3 was $311 per metric ton. On the top right of the slide, we present a table that illustrates the impact the VITRE benefit can have on our bottom line, based on a consumption of approximately 700,000 tons of HSC-4 uranium for our scrapper-fitted vessels. Please turn to slide 8, where we provide an operational update. All working expenses, excluding non-recurring expenses, were $4,769 per day per vessel for Q3 2020. House management on the scale of the group enables us to sustain a very competitive cost base and maintain our position as the lowest cost operator amongst our peers. We expect our operating expenses to normalize during the fourth quarter. In addition, we continue to rate at the top amongst our listed peers in terms of ride-ship safety scores. and the relevant total of hired days. We are nearing the completion of our balanced water installation program with 98% of our fleet fitted with a system by the end of the fourth quarter this year. Our expected dry dock expense for calendar 2023 is estimated at 19 million for the dry docking of 18 vessels with another 2.3 million towards our vessel upgrade capex. We expect to have approximately 525 days for the same period. The overall numbers are based on current estimates around drive-off and rest of the planning, less unemployment, and yard capacity. I'll now have the floor to our Chief Strategy Officer, Hayes Bakadanaki, for an update on our ESG efforts.
Strategy Officer
Thank you, Nico. Please turn to slide 10, where we highlight our latest actions on the ESG front. For a fourth consecutive year, Starbuck has published its annual ESG report, which provides a transparent and comprehensive account of the company's strategy, objectives, and performance. The report has been prepared in accordance with the DRI standards corruption, the Hotelability Accounting Standards Board for Marine Transportation, the NASDAQ ESG reporting guidelines, and the United Nations Global Compact Principles. In disclosing the company's progress on ESG-related key performance indicators, we have received limited external assurance from EY on specific GRI disclosures and SASP indicators. We have also engaged the company's stakeholders, both internal and external, to identify and prioritize Starbucks ESG strategic issues as presented in the report. On the people's front, in following three years of the COVID-19 pandemic, the company is implementing an enhanced employee well-being plan, including flexible working schemes, mental health support, and employee engagement programs. I will now pass the floor to our CEO, Petros Papas, for a market update and his closing remarks.
Nico
Thank you, Haris. of supply. During the first 10 months of 2022, a total of 26 million dead weight was delivered, and 3.6 million dead weight was sent to demolition for a net fleet growth of 22.4 million dead weight, or 2.4% year-to-date and 2.8% year-over-year. The supply out Uncertainty on future propulsion, along with high shipbuilding costs and limited CPR capacity until 2025, have helped keep new orders under control. crisis. This situation, along with the new environmental regulations, will continue to incentivize slow steaming and inflate scrubber savings. Chinese port congestion has experienced a strong correction during Let's now turn to slide 12 for a brief update of demands. worldwide, and the shift of coal, grain, and mineral bug trade patterns to longer haul routes should continue to benefit ton-miles. Iron ore trade is real estate market, record high raw material prices, and the strict zero-COVID policy impact on economic activity during 2022. Nevertheless, over the last months, Chinese production has gradually recovered, while domestic iron ore output and stockpiles have decreased and provided a positive indicator for imports. Coal trade is expected to expand by 1%. borders. European buyers are substituting imports from Russia with longer-hauled cargoes, while Russia is exporting more coal to China, India, and other Asian countries, a situation that is benefiting ton-miles. Throughout the year, China and India have while stockpiles still stand at relatively low levels. Great trade is expected to contract by 1.2% during 2022 and to expand by 4.3% during 2023. smaller sizes in the medium to long term. Minor bulk trade is expected to expand by 0.8 percent during 2022 and 0.7 percent in 2023. Minor bulk trade has the highest correlation to global GDP growth, and the economic slowdown has affected trade volumes. Moreover, the correction of the container ship market is of steel products in the Atlantic and a positive price arbitrage continue to incentivize Pacific exports to the Atlantic. Moreover, expanding West Africa bauxite to China continues to inflate on miles, with year-to-date exports up by 15 percent. Finally, our outlook for the dry-buck market remains positive, and our scrubber supply-side picture for our industry. On the demand side, a gradual reopening of the Chinese economy, increased infrastructure investments, and changes of trade patterns to longer distances are expected to support earnings next year. Without taking any more of your time, I will now pass the floor over to the operator.
Operator
And at this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Amit Narota with Deutsche Bank. Please proceed with your question.
Petros
Thanks, operator. Hi, everybody. Thanks for letting me ask a question. I wanted to start... I wanted to start with acquisition opportunities. I think if I think about the star bulk of today, a lot of that growth, a lot of the growth has really come actually at weaker points in the cycle where you've been able to attract sellers by the liquidity of the shares. In many cases, actually, those sellers have been willing to accept a price that's far north of where the public wants. equity is actually trading, which is pretty remarkable. I think it probably speaks to the strength of the platform. Are you seeing any opportunities like that? I know these deals are very difficult to come by, but you've done, I think, 58, 60 ships that way, which is a lot. I'd be curious if there's a window of opportunity in what has been a tough tape for China, a where you're seeing maybe a window of opportunity to do additional deals like that, if you can just comment on that.
Simo Spirou
Yeah, sure. You know, as you pointed out, we were very successful in closing a bunch of small M&A deals when the market was relatively weak. And then when the market got strong, it became hard to close these deals because the sellers had If we go into a weak period in the market and potential sellers get nervous, that could be very helpful, and we might be able to close some deals. We're not seeing anything right now. But these things come up without necessarily much warning, and anything that we see we'll pay a lot of attention to. We're focused on trying to get good deals done in a weak market as much as a strong market.
Nico
Also, Amit, this is Petros. Also, I do not think we intend to order any new buildings going forward. They're expensive. The delivery is for 2025. We don't have a clear picture of where this is going as far as green fuels and new engines. And I assume we will not issue stock below net asset value to buy vessels.
Petros
Yeah, fair enough. And just a couple more quick ones for me, if I could. So one is, you know, the stock's been pretty volatile. you know, there was a moment there that you were getting a little bit more decent credit for the capital allocation strategy of the dividends that are actually sustainable. But now with the stock kind of back to, you know, quite a bit below NAV, I guess the question is, I just want to get into your head a little bit, the commitment to the dividend strategy, because there's obviously a lot of uses for the capital, whether it's even buying back stock, which you've done in the past a little bit. What's the commitment level with the stock sort of languishing, hopefully temporarily, at these levels?
Simo Spirou
Well, I mean, you know, Amit, you have no idea how stubborn we are. I mean, you know, we've said it before, and, you know, we will continue to say it, and we will actually continue to say it until our, you know, face gets blue. we are committed to our dividend policy, and, you know, it's not just management who's committed, but, you know, we have a large shareholding among the directors, and the directors want their dividends. So, you know, I think you can count on that.
Petros
Yeah. Last quick one for me. I think you might have mentioned this, Simos, but With the refinancing, obviously you and Christos have been quite busy doing that. The question is, I know the debt amortization has come down a little bit. What is now the new kind of all-in break-even? I think you might have mentioned it in the script, but I might have missed it. It's obviously below $10,500 or $11,000. Give us that new number. I think the break-even is around $11,000 fleet-wide.
Petros Papas
And this includes also a provision for the dry docks as well. And just to add, I mean, this is Christos. I mean, the reason it has stayed at 11,000 is because we have for 55 percent of our debt interest rate swaps at an average of 46 base points. Now, for the remaining 45 percent of the debt, the base rate is up, and therefore this slightly pushes our overall breakeven rate. What is good is that in the last essentially two years we have managed to refinance approximately 60 percent of our total debt, close to $800 million. saving tens of millions in the spread interest cost without losing a lot of the interest rate swaps that we did back in 2020, because essentially those swaps, the majority of those, were done on the holding level of Starbucks, and therefore were not affected by the refinancings.
Petros
Right. Okay, yeah, that's very clear. Okay, very good. Thank you very much. Appreciate it, everybody. Thank you. Thanks, Ahmed.
Operator
Our next question comes from the line of Omar Nocta with Jefferies. Please proceed with your question.
Omar Nocta
Thank you. Hey, guys. Good afternoon. Just wanted to maybe follow up on Ahmed's first question and the discussion you guys had. The scrubbers are obviously giving you outsized earnings, critical mass. And so I just wanted to think or ask you, given the slowdown we've been seeing here recently and potentially continuing here for the near term, any changes in how you guys are thinking strategically about the business or financially?
Simo Spirou
Well, let me say a few words, and then maybe Mr. Pappas might have a few words. We may be moving into a period where the market is weaker, and that could lead to some nervous ship owners. And nervous ship owners are the source of deals. And so we will try to get deals done, as I said. We're very happy that we've been able to refinance as much debt as we've refinanced and pushed maturities out until 2024 for the earliest maturities. So we're pretty comfortable, frankly, with the debt level. you know, around a third of asset value. And, you know, we're pretty comfortable, frankly, with our cash buffer, which is, you know, which is quite large. And, of course, whenever we pay the dividend, we've been able to build cash up from our minimum cash level for several weeks before the dividend goes up. reserve. So, you know, we're pretty happy with the situation. You know, hopefully we can take advantage of weakness.
Nico
Yeah, and with 128 vessels under management, we have critical mass on every sector of the dry-buck business. So we're in no great hurry. Now, if there is any amazing opportunity, we will, of course, look at it. And as we said previously, M&A activity is always there. If the right project comes, we will obviously look at it very carefully.
Petros Papas
Just maybe to add that in this period we are quite focused on improving the efficiency of our existing fleet. whether this has to do with fuel efficiency as environmental regulations are taking a central stage, or whether this has to exploring other ways for decarbonization. So this is also central and core right now on top of our agenda.
Omar Nocta
Got it. Thank you. That's helpful. And I guess maybe, I think Petros, earlier you had made a comment about acquiring assets, and if you were to do so, you wouldn't issue equity below NAB to do so. Just thinking about that, what about if you were to pay cash for a vessel? Would you commit to paying cash if your shares were below NAB? Or does the whole component of growth have to come from a premium valuation to NAV?
Simo Spirou
You know, it would be, we'd have to have an awfully good reason to use cash to buy vessels with our share trading, you know, below NAV. so compelling that it is in the shareholders' interest to use the cash with the share trading below NAV.
Omar Nocta
Okay, cool. And then final one for me, Hamish, you know, I think I always ping you about the ATM and the buyback. I feel like I think I noticed this quarter maybe no, you know, you did not tap into the ATM or the buyback. And then just wondering when we think of, you know, the discount at the NAB today, is the buyback still at play here or are you more in sort of a cash preservation mode?
Simo Spirou
Oh, you know, look, if we see an opportunity to buy back shares with the proceeds of vessel sales in a way that represents a serious arbitrage, we would definitely do that.
Omar Nocta
Okay, and so triggering the buyback would come from selling assets and capturing a spread, not necessarily from ongoing cash flow, because that's committed to... We want to defend the dividend.
Simo Spirou
We want to use operating cash flow for the dividend. Very good.
Omar Nocta
Got it. Well, thanks, Hamish. Thanks, guys. Appreciate it. I'll turn it over. Thanks so much.
Operator
Our next question comes from the line of Ben Nolan with Stifu. Please proceed with your question.
Ben Nolan with Stifu
Yeah, great. This is actually Frank Galante on for Ben. I just had one question, actually, just around leverage, given kind of increasing costs of interest rates and debt across the board. Obviously, there's some of the debt that is... heads with interest rates, but the majority of it is not around there. Hamish, you'd mentioned about one-third of the assets were debt. Is that a reasonable level for the business going forward, kind of potentially getting some uncertainty, or can you talk about sort of the bands around leverage given kind of changes in interest rates?
Simo Spirou
Basically, you know, if interest rates go to 20% the way they went in the 1980s, you know, then you don't want to have any debt at all. But, you know, with interest rates in the sort of, you know, low single digits, you know, 33%, 40% debt is not difficult to service. So, you know, I think we're quite comfortable. Also, you should keep in mind that actually 55 percent of our debt is currently swapped at LIBOR equals 0.45 percent.
Petros Papas
and essentially across the fleet. We don't have any junior debt. It's only senior debt that we have. Potentially may target some more financing next year. So as far as the spread is concerned, hopefully it's going to come down even further.
Simo Spirou
So while we would never, you know, turn down the opportunity to reduce debt, you know,
Ben Nolan with Stifu
Okay, that's helpful. That's all I have. Thanks so much.
Operator
And our next question comes from the line of David Barroso with Deutsche Bank. Let's see what your question is.
Petros
Hey, thanks for taking the follow-up. So one of the things that I've been thinking about, too, is we're always talking about, you know, growing the fleet and acquisitions, but we never talk about selling vessels and What's interesting is IMO, I think the grading criteria kind of starts to get more difficult starting in 2023 from an emissions perspective with IMO 2023. I don't know if there's any scope given that you know, the value of the ship is greater than the implied value at the company, if there's an opportunity to sell older vessels that may have a harder time in that context. And then remind me, if you sell vessels and raise capital, is that excluded from the dividend calculation? I think it is, but I just wanted to make sure. So let's answer your last...
Simo Spirou
is excluded from the dividend, you know, for at least a year. And, you know, we could use that to buy other vessels, to buy back stock. But, look, it might make sense to sell older vessels that might in the future have trouble with the IMO emissions standards. But, you know, we are trying to be very creative in terms of making sure that our older vessels actually will get through these IMO regulations with flying colors. And we are doing a bunch of things that are, some of them very creative, and some of them standard, but maybe negative.
Nikos Reskos
I don't think we have much time to discuss everything we're doing, but basically there's a big team of people here working on optimizing the existing fleet and basically extending the lifespan of the vessels, whether that is by accelerating dry docks and deploying new technology, whether that's the energy efficiency device that we all read about, or whether it is low-friction paints. So basically we are trying to disassociate the CII index and how this will impact the industry for the majority of the vessels instead of combining of what market prices are and having to make a decision simply on CII performance in the coming years. The existing operating speed for the fleet and our ships, we do not foresee any issues for any of the vessels. of the IMO regulation.
Petros
Right. And then my last follow-up, if I could. So we're coming up on the Chinese New Year, and that's typically, obviously, a seasonally weak period of time in the first quarter. Several years ago, you started kind of moving away from the spot market and contracting out over that period. I mean, we're sitting here in November 17, so maybe even there's some fixtures that are bleeding into the first quarter. I don't know if there's, like, a baseline that you think, you know, you can achieve in the first quarter as it relates to that kind of temporary pivot and charting strategy, or just where we are in the year right now?
Nico
Amit, unfortunately the market fell relatively early this year, and we were not able to follow our usual strategy, which was fixing forward somewhere in July, August, September. The market started dropping, like, around May. And then there we had the option whether we could fix for a year at much lower levels or stay spot at much higher levels. So we decided to stay spot, earn the higher levels, expecting a better quarter during Q3. This didn't materialize, and therefore the coverage for Q1 is not there. Got it. Okay, that makes sense. Thank you for the clarification. Thank you.
Operator
And as a reminder, if anyone has any questions, you may press the star 1 on your telephone keypad to join the question and answer queue. And it looks like we have no further questions. Therefore, I'll end the call back over to management for closing remarks.
Nico
No further remarks, operator. Thank you very much.
Operator
And this concludes today's conference, and you may disconnect the line. time. Thank you for your participation.
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