This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk08: Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers Conference call on the first quarter 2023 financial results. We have with us Mr. Petros Papas, Chief Executive Officer, Mr. Hamish Norton, President, Mr. Simo Spirou, and Mr. Christos Beglaris, Co-Chief Financial Officers, Mr. Nikos Reskos, Chief Operating Officer, and Mrs. Charis Lakantanachis. Chief Strategy Officer for the company. At this time, all participants are in 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 will now pass the floor to one of our speakers for today, Mr. Spiro. Please go ahead, sir.
spk01: Thank you very much. I'm Simo Spirou, Co-Chief Financial Officer of Stable Carriers, and I would like to welcome you to our conference call regarding our financial results for the first quarter of 2023. 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 first quarter results, cash evolution during the quarter, an update of our balance sheet, an overview of interest rate risk management, the banker benefit and vessel operations, the latest on the ESG front, and our views on the 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 2023 highlights. For the first quarter of 2023, the company reported the following. Net income amounted to 46 million, with adjusted net income of 37 million, or 36 cents per share adjusted earnings. Adjusted EBITDA was at 85 million for the quarter. For the first quarter, after our existing dividend policy, we declared a dividend per share of 35 cents, payable on or about June 27, 2023. During this quarter, we have bought back 531,223 shares at a cost of 11.26 million. Since 2021, dividend distributions and share buybacks are over 1 billion. On May 16, 2023, our board of directors canceled the previous share repurchase program, under which 8.5 million was still outstanding, and authorized a new share repurchase plan of up to an aggregate of 50 million. 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 $14,199 per day per vessel. Our combined daily OPEX and net cash G&A expenses per vessel per day amounted to $5,755. Therefore, our TCE, less OPEX and G&A is around $8,444 per day per vessel. Looking towards fleet renewal, we have agreed to charter in seven high-specification, latest-generation, scrubber-fitted ecovessels. We have added a table at the bottom of the page with an overview. We have entered into long-term chartering agreements for four Camsomax new buildings and two Ultramax new buildings, which are expected to be delivered during 2024, with a minimum duration of seven years. In addition, in November 2021, we took delivery of the Cape-sized vessel, Star Sibumi, under a long-term charter contract for a period up to November 2028. Slide 4 graphically illustrates the changes in the company's cash balance during the first quarter. We started the quarter with 330.5 million in cash, adjusted for the refinancing, and generated positive cash flow from operating activities of 83.2 million. After including debt proceeds and repayments, CAPEX payments for energy-saving devices and ballast water treatment systems, The Q4 dividend payment and series purchases, we arrived at a cash balance of 305.9 million at the end of the first quarter, which implies a dividend payment of 35 cents per share to the shareholders of record of June 7th, 2023. Please turn now to slide five, where we highlight the strength of our balance sheet. Our pro forma total liquidity today stands at 375 million. Meanwhile, our total debt stands at 1.23 billion. Net sale proceeds from the three vessels stands at 75.5 million after debt repayment and will be excluded from the cash that can be distributed as dividend and will be kept for general corporate purposes. Note that the 11.2 during the previous couple of months will be deducted from these 75.5 million proceeds. We have a positive trade working capital of 79.5 million and a mark-to-market of the derivatives of 21.9 million as of March 31, 2023. Given current market conditions, we expect that the trade working capital will grow further in the course of the second quarter of the year. Our next 12-month amortization is at 177 million USD. In slide number six, we present an overview of our risk management on the debt side. Given the increasing interest rate environment we are in, we have focused on reducing leverage and managing interest expense in order to ensure the lowest possible finance cost compared to peers. Since 2022, we have completed refinancing totaling 525 million that reduced our interest costs by approximately 7 million per annum as a result of achieving significantly lower margins. In 2020, we proactively hedged the base rate for a significant part of our senior debt at an average rate of 45 basis points. The current outstanding notional is approximately 637 million for an average remaining maturity of one year. Total realized gains from these activities are 11.6 million as of March 31, 2023, And as of the same date, the mark-to-market of the remaining position of the swaps was at 26 million. The cumulative effect of this decision is depicted in the graphs at the bottom of the page, where one can see that Starbuck has reduced its average interest rate and currently has the lower average interest cost among its listed peers. I will now pass the floor to our COO, Nikos Reskos, for an update on our operational performance.
spk02: Thank you, Simo. In slide 7, we illustrate how Stavro continues to benefit from the fuel spread between HSFO and LSFO. Our 118 SCOBER-fitted vessels have surpassed 137,000 over 18 days, with an average system availability of 99.4%. The spread secured during the first quarter stands at $185 per ton, and currently hovers at around $122 per ton, based on Singapore's spot prices, where we cater for approximately 60% of our annual fuel demand. Indicatively, our average high-five spread since inception stands at $170 per ton. For illustrative purposes, on the top right of the slide, we present a sensitivity table that shows the impact the banker's benefit can have on our bottom line based on consumption of approximately 685,000 tons of HSS4 per annum to our squadron fitted vessels. Please start the slide, Dave. and $59 per vessel per day for the same period. In addition, we continue to rate at the top among our listed peers in terms of the ride-shift safety score. Slide 9 provides a fleet update and some guidance around the future dry dock and vessel efficiency upgrade expenses and the relevant total off-hire days. During the first quarter, we took advantage of the increase in vessel values and agreed to opportunistically sell two 2011-built Cape-size vessels, the Star Borealis and the Star Polaris. We have further reached agreement on the constructive total loss of the Star Pablina to the war-risk insurers, given its prolonged detainment in Ukraine following the war. As part of our strategy towards fleet renewal and improving the overall fleet fuel efficiency, we have secured seven long-term chartering, latest-generation echo vessels, built at first-class Japanese shipyards, six of which have been delivered during 2024. We have by now completed our past water installation program across the fleet, and in line with EXI and CII regulations, we will continue investing and upgrading our fleet further with energy-saving devices, telemetry, and other technologies, all aimed at improving our fuel consumption and reducing our environmental footprint, together with enhancing the commercial attractiveness of the startup fleet. Our expected driving expense for the nine months remaining of 2023 is estimated at $23.7 million for the dry docking of 28 vessels, with another $9 million towards our vessel upgrade capex. In total, we expect to have approximately 775 days for the same period. The above numbers are based on current estimates around drive of the rest of the planning, vessel employment, and yard capacity.
spk00: Along with our ongoing efforts to continue to improve the energy efficiency of our fields, we have now completed the first feasibility study with the Iron Ore Consortium on Green Corridors. The study assessed the potential for the demand, supply, and fine-tuning of clean ammonia on the iron ore trade between West Australia and the stadium. and concluded that developments invested in fuel supply would allow bulk carriers powered by clean ammonia to be deployed on this trade route by 2028 and reach 5% adoption by 2030. Key prerequisites for the corridor remain the acceptance of ammonia as a safe marine fuel, the development of suitable engines, oil support, and continuous collaboration through the value chain. Parallel to this green corridor project, We continue our research and development efforts on different green fusion technologies, including onboard carbon capture and storage, and we actively participate in the industry dialogue to help accelerate the carbonization of the sector. We remain focused on the well-being of our people, having completed a comprehensive employee survey to assess our company's strengths and weaknesses as an employer and make improvements wherever necessary. On the governance front, we are enhancing the company's code of conduct and its relevant policies to comply with the new global reporting initiative standard and with our broader ESG Commission. I will now pass the floor to our CEO, Petros Papas, for a market update and his closing remarks.
spk04: Thank you, Haris. Please turn to slide 11 for a brief update of supply. During the first four months of 2023, A total of 12.7 million deadweight was delivered and 1.9 million deadweight was sent to demolition for a net fleet growth of 10.8 million deadweight or 2.9% year-on-year. The supply outlook continues to be the best we have seen in the recent history of dry bog shipping. Uncertainty on future propulsion. High shipbuilding costs. orders under control. The order book has decreased to a record low of 6.9 percent of the fleet, with just 6.3 million deadweight reported as firm orders between January and April. Furthermore, vessels above 20 years of age stand at 8.1 percent of the fleet, while scrap prices have stabilized at elevated levels and should make demolition of overage over the next years. The average steaming speed of the dry bulk fleet decreased to record low levels of 11.05 knots during Q1 and over the last month has rebounded to 11.3 knots as spot freight rates improved and bunker prices moved lower. Nevertheless, steaming speeds still stand below will continue to incentivize slow steaming. During the last 12 months, global port congestion experienced a strong correction from record highs that has gradually inflated active supply and has put downward pressures on earnings. Having said that, changes in trading patterns and inefficiencies related to the war have normalized congestion slightly above Let's now turn to slide 12 for a brief update of demand. According to Clarkson's, total drive-off trade during 2023 is projected to expand by 1.8% in tons and 2.5% in ton miles. During the first quarter of 2023, Commodities demand from the rest of the world has been affected by the ongoing effects of the war in Ukraine, surging energy costs, hitting industrial profitability, and aggressive monetary tightening from central banks to fight inflation. The IMF is projecting global GDP growth to slow down to 2.8 percent in 2020. China is at an early stage of the reopening from COVID-19 and its economy is expected to accelerate from 3% in 2022 to 5.6% in 2023 with support from infrastructure stimulus and a gradual recovery of the housing market. Concurrently, the considerable correction of energy prices over the last 12 months is easing inflationary pressures generated by energy costs, a condition that should inflate the amount of raw materials amid increased manufacturing activity. Iron ore trade is expected to expand by 1.8% in tons and 2.2% in ton-miles during 2023. China's steel production increased by 7.4% year-over-year during the first quarter, Coal trade is expected to expand by 2.9 percent in tons and 4.4 percent in ton-miles during 2023. Global focus on energy security has upgraded the coal trade outlook for the next few years, The market is still adjusting to the new trade landscape after the loss of considerable quantities from Ukraine and during Q1 volumes were down year over year, despite strong soybean exports from Brazil. Nevertheless, the supply outlook for grain is positive due to good crop conditions, which have put downward pressures on prices and indicated stronger trade for the rest of the year. Miner bond trade is expected to expand by 0.8% in tons and 1.4% in ton miles during 2023, as the subsector has the highest correlation to global GDP growth and has been affected by the global slowdown that took place during the second half of 2022. The war in Ukraine disrupted European However, West Africa bauxite exports continue to expand at a high pace and generate strong turmoil for Cape Shire's vessels. Without taking any more of your time, I will now pass the floor over to the operator to answer any questions you may have.
spk08: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. Thank you. Our first question is from Amit Malhotra with Deutsche Bank. Please proceed with your question.
spk07: Hey, good morning, everybody. This is Chris. On for a minute. Thanks for taking our questions. Hi, Chris. Hi. This might be a question for Nikos. This is related to the slow steaming in the fleet. So I know the fleet has slowed down, and you guys mentioned in the prepared remarks that It's been a little bit of an uptick here, but given the EXI regulations or the CII in particular, what do you think the upper limit is in terms of the fleet kind of speeding back up here versus is there any additional downside you see this year or should we just be thinking about it in terms of the fleet not slowing or speeding up as much as it could?
spk02: Thank you, Chris. Well, at the moment, the fleet is speeding at around 11.5 knots. We feel that as the regulation tightens towards 2026 with an annual increase of about 2%, we don't see the speed increasing substantially. To the contrary, there will be some impact on the CII rating on every vessel. So we believe that over the next few years, we should see a slowing down of the speed of the fleet. taking place on a big portion of the field, which is the smaller ships. That's going to be a heavier impact on CII, so we cannot see much flexibility on speed
spk04: I think it's actually below even 11.5. I think it's 11.3 or so. And if I remember well over the last years, we have not seen speeds go much above 11.5 anyway. So I would say that the risk is on the downside. I think that in the future we will see vessels actually slowing down.
spk07: Okay, yeah, that's pretty succinct, Petros. Thank you for that. Just turning to China for a moment, we saw some increased steel production in the first quarter. There's been some inventory drawdowns since that time. But with the proposed production curbs there for the year, do you think there's further room for... additional inventory drawdowns like we saw at the very low levels in 2020? Or do you think that the drawdowns are kind of stabilizing and we'll see a restocking cycle in the next few quarters?
spk04: Well, we are seeing iron ore stocks down to 126 million tons, if I'm not wrong, which is the low for And we therefore expect that we will see more imports in the second half of the year, and more so from Brazil, which has not... yet performed up to its expectations as far as exports are concerned, which will actually increase ton miles. So we are positive about iron ore trade during the second half. And then I think that China will increase its efforts on the infrastructure level. And I've also seen that new floor space has gone down a lot. So I would expect that as China, as the effort to strengthen its economy continues, I think that we will see support both from the private and the public sector over there.
spk07: Okay, got you. Last question for me. You guys gave quarter-to-date rate guidance on the bookings, but just any color around the second half of the current quarter, since we're already more than halfway through, we've seen a little bit of slowing or deceleration of the economic recovery in China into the second quarter here. Any thoughts around how rates might perform for the rest of QQ?
spk04: As I said before, I think that China will actually increase its effort to support its economy. prices are going down, I think the world in general will also improve as far as GDPs are concerned. So I think it's not going to just be China. I think we will see a better economic situation going forward. And especially, of course, as interest rates will stop their rise and may start even falling later on in the year.
spk07: All right. Yeah, thank you very much for the time, guys. I'll turn it over. Thank you, Chris.
spk08: Thank you. Our next question is from Omar Naksa with Jeffrey. Please proceed with your question.
spk06: Thank you. Hey, guys. Good afternoon. I just wanted to ask about... Hi there. Just, you know, obviously the charter ends are definitely a new development and pretty significant. I just wanted to ask about that and how they work. And maybe first off, are these, are they bare boat leases or are they just regular in charters? And then also, just in terms of them being against new buildings, are these new orders that have been placed or were these ships already under construction and have been chartered accordingly?
spk04: Omar, hi, it's Petros. These vessels actually were ordered already or were being ordered, and we're doing these deals for four reasons. First of all, we think the rates we have fixed them are good. Secondly, it is a way to modernize our fleet. Third, as nobody knows when the new generation vessels will be in and when there's going to be the right infrastructure and ample fuels to fuel those vessels, this we consider to be a bridge between now and that time. And, of course, let's not forget that these vessels come at no capital cost. Also, those vessels have scrubbers, and they offer us optionality. So we have them for seven years plus options. So I think only good things come out of these vessels. And I think that there's more to come as well.
spk06: Okay. More potential chart trends as what you reported. Yeah. Okay. All right. And then I guess, yeah, you mentioned the four reasons and I guess wanted to ask, also we've seen, you know, in terms of asset values, just a continuous move higher throughout the year. at least relative to 21 and 22. And so shift values are moving higher. We've seen it for capes especially. But just wanted to ask, you know, maybe from your perspective, what's been driving the S&P market to be climbing so significantly this year? And also, you know, so yeah, one, what's maybe behind that? And is there a lot of deals being transacted? And is there more to come?
spk04: Well, first of all, we ship owners, we're bullish people. You know, There is not a lot of space in shipyards, and the prices of new buildings are going up. So there is this idea that prices of new buildings will not fall. This is one of the reasons why cipones are ordering. Also, the new vessels are much more eco than the vessels in the water, and that will allow them potentially to survive for longer periods until the zero-emission vessels come in. So I think basically these are the reasons why people are ordering and why prices are going up.
spk06: Okay. Maybe from your commentary just now, it sounds like it's more of the activity being done on the modern end of the curve, or is there also the old being done on the 10-plus-year range as well? What do you mean? You mean new buildings versus 10-year-old vessels? Oh, no, sorry, just meaning in terms of the S&P activity we've been seeing is the market, as you highlighted, there's not a lot of new building slot capacity. And prices are not going to come down from the new building front. So it seems like you've had this repricing of tonnage. Is that repricing on the modern end of the age curve? Yes, yes, yes.
spk04: There is also repricing on the existing vessels in the water, the ones that are actually echoed. Exactly because, you know, if you order today, you will probably take delivery of a vessel in 2026. And, therefore, we've seen that happen before. We've seen vessels in the water actually being sold for close prices or even higher prices than new buildings.
spk06: Yeah. Interesting. And I guess maybe just one final one. For me, you sold those two capes at fairly good prices. Should we be thinking we'll be seeing something similar? As you mentioned earlier, you'll be adding more charter-ins, even though those are a bit outwards in terms of delivery. Should we be thinking you'll be adding more new buildings via charter-in and maybe selling some of your older ships to take advantage of the pricing dynamics today?
spk04: Yes, well, first of all, the prices are pretty high compared to what charter levels are. So actually this means that people expect the market to go up. But, you know, we don't know what will happen. We are positive, but prices are really, really very good. The two capes that we sold, we sold them at prices that we were very, very happy with. So I think What we will do going forward is we will sell some more vessels, trying to improve the average age of our fleet, probably getting rid of a few older vessels. And chartering new building tunnels. That will improve the age profile and will do all the good things that I told you earlier, plus it will strengthen our war chest in case we will want in the future And especially if there are new technologies that really cut down on the consumption of vessels, perhaps we would want to also order new buildings. Not right now, but it would happen in the future.
spk02: And, Robert, this is Christos. Just to add, given also the large discounts to NAV and trading performance lately, selling vessels, few vessels, and especially the inefficient ones, as Petros mentioned,
spk06: Yeah, that makes sense. But thanks, Christos. Very helpful, and thanks, Petros, for the overview. I'll turn it over.
spk08: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is from Ben Nolan with CIFL. Please proceed with your question.
spk05: Yes, thanks for taking my questions. If I could start, I wanted to follow on with some of the charter ends. I just had a few other questions about those. First of all, do they include purchase options at the end? Secondly, how should we think about what your, let's say, annual cost once all seven are operating would look like? and was curious if these were related party transactions or not.
spk03: Mr. So, Ben, you know, we can't comment, unfortunately, on the details of those charters. You know, you can see what we're able to comment on in our financial statements in the footnotes. And then as far as related party transactions, SIMO, I don't...they're not. We do not have anything.
spk04: No, but one advantage one has when he or she has chartered a vessel in is that when you control a vessel, And the time comes that the owner wants to sell the vessel, being the charter of the vessel, you're always in a full position as far as being able to buy. You have forward advice about it. So it's always an advantage to have a chartered-in vessel, even if you don't have a purchase option.
spk05: Okay. That's helpful. I appreciate the color you were able to give there. And then for my second question, as I was going through the release, it seemed like for the second quarter there was going to be a whole lot more dry docking days than what had previously been the case, unless I'm mistaken. I'm curious if you guys are bringing forward dry docks or something into the second quarter.
spk02: Hi there, this is Nikos. This is correct. What we're doing is we're accelerating some of the bigger ships into Q2, taking advantage, unfortunately, or not, of the kind of softer market on the big ships and preparing for Q3 and Q4. We're doing this also to install efficiency devices on these vessels.
spk05: So is that any sense as to sort of what dry docking should look like for 2024 then?
spk02: We have 24 ships scheduled or 26 ships scheduled for 2024. Okay. All right.
spk05: I appreciate you guys taking my questions. Thank you very much. Thank you.
spk08: There are no further questions at this time. I'd like to hand the floor back over to management for any closing remarks.
spk04: Well, thank you very much for following us and have a good day. See you next time around. No more comments.
spk08: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer