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spk03: Thank you for standing by, ladies and gentlemen, and welcome to the Starbuck Carriers Conference call on the second quarter 2023 financial results. We have with us Mr. Petros Papas, Chief Executive Officer, Mr. Hamish Norton, President, Mr. Simos Spiro, and Mr. Christos Begres, Co-Chief Financial Officers, Mr. Nikos Resko, Chief Operating Officer, and Ms. Charis Plankantounaki, 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 will now pass the floor over to one of your speakers, Mr. Beglaris. Thank you. Please go ahead.
spk08: Thank you, Marietta. I am Christos Begleris, Co-Chief Financial Officer of Starbuck Carriers, and I would like to welcome you to our conference call regarding our financial results for the second 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 second quarter results, cash evolution during the quarter, an overview of our balance sheet, an update on fleet and 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 second quarter 2023 highlights. Net income for the second quarter amounted to $44 million, and adjusted net income amounted to $49 million, or $0.47 per share, adjusted earnings. Adjusted EBITDA was $96 million for the quarter. For the second quarter, as per our existing dividend policy, we declared a dividend per share of $0.40, payable on or about September 7, 2023. During this quarter, we bought back 307,439,000 shares at a cost of $6.1 million. Since 2021, dividend distributions and share buybacks exceed $1 billion or $10.5 per share. On the top right of the page, you will see our daily figures per vessel for the quarter. Our time charter equivalent rate was 15,835 per vessel per day. Our combined daily OPEX and net cash GNA expenses per vessel per day amounted to 5,824. Therefore, our TCE less OPEX and GNA is approximately 10,000 per vessel day. Looking towards fleet renewal, we have agreed the sale of five Supermax vessels built in 2012 in China. Our opportunistic sale of these vessels, inclusive of trading profits, produced during the period realized excellent returns for our shareholders with a cash multiple of 4.6 times on the equity invested and an IRR of approximately 42%. The accounting gain from sale of the vessels is approximately 20 million in total. Looking at the first half of 2023, we have sold seven vessels and received insurance proceeds from one vessel for total net equity proceeds of 153.1 million. Out of these, we have already used 13.1 million for share buyback for total remaining net sale proceeds of 140 million. This additional 140 million will be added to our existing cash buffer and can be used for general corporate purposes, including fleet renewal, debt repayment, and share buybacks. Slide four graphically illustrates the changes in the company's cash balance during the second quarter. We started the quarter with 254.6 million in cash and generated positive cash flow from operating activities of 96.9 million. After including debt proceeds and repayments, capex payments for energy-saving devices and balanced water treatment system installments, the first quarter dividend payment and share repurchases, we arrived at a cash and cash equivalent balance of 310 million at the end of the quarter, which implies a dividend payment of 40 cents per share to the shareholders, of record of August 22nd, 2023. The ex-dividend date is expected to be August 21st, 2023. Please turn to slide five, where we highlight the strength of our balance sheet. Our total cash today stands at 457 million pro forma for the delivery of our two remaining SugarMax vessels. Meanwhile, our total debt stands at approximately 1.19 billion. The scrap value of our fleet is more than 800 million, based on scrap price of 400 per light deadweight ton. Taking into account the share repurchases and the debt repayments in connection with the changes in our fleet made in 2023, the cash threshold above which we will distribute dividends is set at $409 million. We have a positive trade working capital of $64 million and mark-to-market of derivatives of $18 million as of June 30, 2023. Following the completion of the refinancings performed during 2022 and 2023 and the sale of the five Supermax vessels, we will have nine unlevered vessels. Our next 12 months amortization is $177 million. I will now pass the floor to our COO, Nikos Reskos, to provide an update on our operational performance.
spk07: Thank you, Christos. Please turn to slide six where we provide an operational update. Operating expenses excluding non-recurring expenses were $4,770 for Q3 2022. NETCAT GMA expense were $1,051 per vessel per day for the same period. In addition, we continue to rate at the top among our listed peers in terms of ride-shift safety score. Slide 7 provides a fleet update and some guidance around our future dry dock and vessel efficiency at grade expenses and a relevant total of hired days. Our expected dry dock expense for the next In total, we expect to have approximately 960 all-time days for the same period. In line with the EXI and CII regulations, we will continue investing and upgrading our fleet further with energy-saving devices and latest operational technologies deployed across the fleet Regarding our ESD retrofit program, we have completed 21 vessels until today, and four more vessels are planned to be fitted by the end of the year. The above numbers are based on current estimates around dry dock and retrofit planning, vessel employment, and yard capacity. During the second quarter, we have successfully completed onboard testing of carbon capture technology with the capabilities to retain up to 30% in net CO2 emissions. We will continue working on carbon capture technology with our industrial partners, aiming at developing a cost-effective solution which can be selectively retrofitted in the future on select vessels of our fleet and within the scope of our carbon credit scheme. Finally, we're actively working with demand, supply, and banking of carbon-neutral fuels to give over the safety considerations and vessel design development with a particular focus on clean ammonia and, in line, with developing work taking place under the R&R Consortium and the Green Corridors Initiative. I will now pass the floor to our CSO, Harris Plakatonaki, for an ESG update.
spk04: Thank you, Mikos. Please turn to slide A, where we highlight our continued leadership on the ESG front. Caraboc remains committed to transparent reporting. For the first time, we have completed the measurement of the company's COP3 emissions, which will be reported publicly in our upcoming ESG report. We have also submitted Starbucks' questionnaire for the company's participation in the 2023 Carbon Disclosure Project for a third year in a row. Following the increased decarbonization ambitions agreed for the industry during NTC-80, and in view of the inclusion of shipping into the EU with the US, we are enhancing our strategic planning to comply with greenhouse gas emission reduction regulations both at an international and European level. On the societal front, we have created the first company blood bank through blood donations of our employees, and we have committed to supporting people with disabilities as well as contributions related to education and health in Greece. During Q2 2023, all our company employees attended mandatory trainings on cybersecurity to help raise awareness on cyber risks and on the company's relevant policies and procedures. Starbuck is also piloting new cyber technologies on its vessels to help monitor onboard systems and manage cyber risks for the fleet. As we are increasing the company's ESG commitments, the federal code of business conduct and its relevant policies include a whistle-blowing accident hunt in compliance with the U.S. global product principles and the new global reporting initiative standards. I will now pass the floor to our CEO, Petros Tafas, for a market update and his closing remarks.
spk01: Thank you, Haris. Please turn to slide nine for a brief update of supply. During the first half of 2023, a total of 18.6 million dead weight was delivered, and 2.6 million dead weight was sent to demolition for a net fleet growth of 16 million dead weight, or 1.6 percent year-to-date and 2.9 percent year-over-year. The supply outlook continues to be the best we have seen have helped keep new orders under control. The order book stands close to record low levels of 7.4 percent of the fleet, with 14.4 million dead weight reported as firm orders between January and June. 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 The average steaming speed of the drive bulk fleet has corrected to a new record low level of 10.95 knots over the last month as a result of higher bunker costs, lower freight rates, and new environmental regulations. We expect that the EEXI-CII regulations will increasingly incentivize slow steaming and help moderate supply over the next years. Over the last five quarters, levels, and the market may find further support over the next quarters from seasonal strength in trade volumes. As a result of the above trends, net supply growth is unlikely to exceed 2% per annum during 2024 and 2025. Let's now turn to slide 10 for a brief update of demand. According to Clarkson's coal and mineral bulk exports, and the recovery of iron ore exports from Australia and Brazil. China's GDP increased by 6.3 percent in Q2, but the recovery is losing steam as the country's property market continues to struggle. Despite the overall uncertainty for the outlook of its economy, the demand for dry bulk commodities with inflation. The IMF is projecting global GDP growth to slow down from 3.5% in 2022 to 3% in 2023 and 2024. Iron ore trade is expected during the first half of 2023, following the total lift of the strict COVID policy. At the same time, domestic iron ore output contracted by 11%, while stockpiles have decreased to a two-year low, providing a positive indicator for imports. Steel production from the rest of the world declined by 6.2% over this period, affected by high energy costs and weak steel margins. But during June, output increased on a year-on-year basis for the first time since January 22. More infrastructure stimulus from China is expected to keep still production at least at par with last year's levels, and a gradual recovery from the rest of the world could further inflate iron ore demand. Coal trade is expected to expand by 5.7 percent in tons. and Russian trade is benefiting tonne miles. During the first half, Chinese imports almost doubled compared to last year, as hydropower is underperforming and there are limitations in the expansion of domestic coal production. Moreover, the unofficial ban by China on Australian coal that started during the fourth quarter of 2020 has been lifted and is already providing support to Cape Shines and Anamax vessels. Green trade is expected to expand by 2.5% in tons and 3.7% in ton miles during 2023. During the first half, corn and wheat trade of the Black Sea grain corridor last month. Moreover, strong Chinese demand and increased focus on food security are expected to inflate grain trade over the next years, and the recent correction of grain prices provides a positive indicator for grain volumes during the second half. Mineral bulk trade is expected to trade has the highest correlation to global GDP growth, and it was affected by the global slowdown. The war in Ukraine disrupted EU fertilizing and steel production and created Finally, the long-term prospects of the dry bulk market remain positive, given the record low order book, new environmental regulations, and large infrastructure investment needs for the world's green transition. Starbuck is well positioned, due to its rubber-fitted and diverse fleet, to take advantage of a
spk03: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. Again, that is star 1 to register a question at this time. Today's first question is coming from Amit Mahatra of Deutsche Bank. Please go ahead.
spk02: Hey, good morning and good afternoon. This is Chris Robertson on for a minute. Thanks for taking our questions. Hi, Chris. I just wanted to start on the updated dry docking schedule. the last earnings call by a few hundred days. So, I just wanted to drill into that a bit. Is that pulling forward some 2024 dry docking that was scheduled, or is that due to just maybe longer time periods for installation of equipment? So, just trying to get an idea of why it's gone up.
spk07: Nikos Papadopoulos Thank you, Chris. This is Nikos. We're basically accelerating some of the vessels into this quarter, and we're basically installing the devices a bit earlier due to the lower market instead of keeping it for 2024. So it's basically more shifts rather than more days on specific dry looks.
spk02: Okay. Yeah, I got it. That's good. This is related to the use of proceeds from the vessel sale. So I wanted to ask about, I guess, looking at the net share count from the beginning of the year through the end of the quarter, it looks like net-net of repurchases, but also offsetting that, the issuance of share under the compensation program, it looks like the net share count is up around 326,000 year-to-date. So, as we think about coming quarters, do you expect this net share count, will that increase further, do you think, or will there be some opportunities here to use some of the proceeds from the vessel sales to more aggressively repurchase shares to offset any issuances remaining under the comp program?
spk09: Well, I don't think we intend to issue more shares under the comp program
spk06: This year, you know... We haven't issued yet the second batch of the shares, which is going to be issued in November. Oh, it will be issued? Okay. So there will be some shares issued in November. Roughly how much? So it should be to the tune of an additional 200,000 shares.
spk09: so that's it then on the order of 200,000 shares under the comp program less any buybacks that we might do um
spk06: So the shares outstanding today is $103,183,510. And fully diluted with the additional shares remaining, it's going to be $103,398,510. So it's approximately $210,000 remaining. Okay, thanks.
spk02: Last question for me is more market-oriented. You essentially went into what's happening with China. I guess just looking at the rest of the world, what would be, in your mind, the most low-hanging fruit in terms of an immediate demand response other than kind of global GDP improving from here? What region or what sector do you think will have more of an immediate impact in terms of recovery?
spk01: Well, Chris, first of all, the reason behind the market falling to the level that we're seeing today, I think, is that congestion plus the reduction of congestion plus the increase did not, was not covered by the reduction in the speed and the additional ton-miles of, that we, that were produced during the first half of the year. So that actually ended up in being slightly negative, and I think this is one of the reasons we saw a slow market. Also, let's not forget that usually during the first half of the year we see less trade than the second half of the year, and I think that our statistical analysis over the years shows that 46 percent of trade is done during the first half and 54 percent during the second half. So I think this is the reason why we didn't see a stronger market up to now. Going forward, I think that we've seen most of the negatives. We don't believe that congestion will fall much further than what we've seen. We think that the world economy is stabilizing and may turn around positively. Vessel supply is not going where rather few vessels will be delivered. And particularly grain trade we believe is going to turn around and be much stronger during the second half, because during the first half we saw a reduction of about 4 percent of grain trade. We think that at the end of the year it's going to turn positive. things are going to turn around. And we think that China is going to exert a stronger effort on the infrastructure side. And we think that coal will remain strong. We think speed will probably remain where they are, especially as oil prices are relatively We think that the weaker dollar is going to help trade, because commodities are cheaper and freight is cheaper, so that induces more trade. We think that the ton-mile inefficiencies will remain, because Even if the war stops, I don't think that Russia will start trading with Europe right away or with the West in general. We see a low iron ore inventory in China. And generally, as we don't see more negatives coming up, but we see more positives. So, we have faith in the market for the remainder of the year and for 2024.
spk02: Yeah, definitely a lot of small things that add up for some, hopefully, incremental improvement from here. Thank you for taking my questions. I'll turn it over. Thank you.
spk03: Thank you. The next question is coming from Omar . Please go ahead.
spk10: Thank you. Hey, guys. Good afternoon. I just wanted to follow up on the share buyback. I think you mentioned in the opening remarks that you've already spent about $13 million since receiving the proceeds of the sales. I just wanted to ask, given where things are at the moment, given your outlook and where the stock price is, that $140, if I recall, that remains, what's your thought about how much of that are you thinking you'd like to utilize towards the buyback versus, say, debt repayment?
spk09: Well, you know, there are more possibilities than that, right? There's buyback, there's debt repayment, and then there, you know, the potential of renewal of the fleet. And, you know, all three of those are under active consideration.
spk10: Okay. And is there any, I guess there isn't really a preference at the moment, although I could since perhaps you did spend $13 million, so maybe there is a good amount of interest to buy the stock.
spk09: Well, as I say, I mean, you know, we're considering all three uses, but, you know, there are some very interesting possibilities that may arise in terms of renewing the fleet as well, so that's not out of the question.
spk10: Okay, and you would be willing to do that with the cash proceeds you've received irrespective of where the valuation is on the stock?
spk09: Well, we'll take that into account. I mean, you know, we're always looking out to do the best thing for the shareholders.
spk10: Yes. Okay, and then, Hamish, you didn't mention another option, obviously not with the proceeds, but you have sold to six ships recently. What are you thinking about further disposals from here? Anything on the horizon there?
spk09: Well, we think we got an excellent price for the ships we sold. And, you know, if we can continue to get similarly good prices on ships that, you know... We are happy to sell. You know, I think we'll keep doing that. Got it.
spk10: Okay. Thank you. I'll pass it on.
spk03: Once again, ladies and gentlemen, if you do have a question, you may press star 1 on your telephone keypad at this time. The next question is coming from Nathan Hull of Thanks America. Please go ahead.
spk05: Hi. Thanks for taking my question. I guess I just want to start off with maybe one on just the outlook. I think earlier the team alluded to expectations on grain trade turning positive. May I ask if that's more coming from lane dislocation or just the general expectation of macro recovery? And has the team seen any lanes being dislocated following the Black Sea Corridor closure? And any noticeable callouts there? Thanks.
spk01: I think it's a general positive feeling in the sense that the negatives have probably reached their low point and the positives are still around. It's a combination of macro and micro, I would say. I see.
spk05: So a combination of a broader GDP view as well as just 10-mile distribution. Yeah. Okay. And as my follow-up, I hate to be hitting the point again, but on the $140 million proceeds, in terms of your capital view, I think there were mentions of... Amish brought up free renewal as a potential use of proceeds. Just wondering if maybe the team could clarify a little bit about how that would be likely expressed. Would this be through further new builds, or has there been any updates in terms of opportunity availability in the second-hand market? Just maybe explain.
spk09: Well, you know, I think this is something we're looking into. And, you know, when we find an excellent opportunity, whether new building or secondhand, we'll consider that along with considering debt repayment and stock buyback. We really haven't made a decision on, you know, the use of that $140 million at the moment. but, you know, at some point in the not-too-distant future, we will probably decide what to do with it.
spk08: Yeah, and just to add to that, this is Christos. We're always open to also buy vessels using our shares, issues that net us at value, as we have done in the past. Now, that's not the use of cash, but it's definitely a use of our share capital in order to buy vessels and renew our fleet through such acquisitions like the 58 vessels that we have done since 2018.
spk05: I see. And just to clarify, on the framework as to how you look at this, would it be safe to assume it's kind of based on an IRR mentality in terms of what return looks more attractive, like in terms of how you would aim to deploy the cash?
spk09: Yeah, I mean, basically, we look at the rate of return on capital and, you know, whether that is, you know, in excess of our cost of capital and cost of equity is appropriate. Okay, that's clear. Thank you so much.
spk03: Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.
spk01: No further comments, operator. Have a nice August vacation, everybody. And thank you very much.
spk03: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and enjoy the rest of your day.
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