Diana Shipping inc.

Greetings and welcome to the Diana Shipping Incorporated 2020 First Quarter Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question at any time, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ed Nebb, Investor Relations Advisor. Thank you, sir. Please go ahead.

Thank you, Donna, and thanks to all of you for joining us for the Diana Shipping, Inc. 2020 First Quarter Conference Call. The members of the management team who are with us today include Ms. Semiramis Paliu, Acting Chief Executive Officer and Chief Operating Officer, Mr. Anastasios Margaronis, President, Mr. Yanis Zafirakis, Interim Chief Financial Officer, Chief Strategy Officer, Treasurer and Secretary, and and Ms. Maria Day-Date, Chief Accounting Officer. Before management begins, let me briefly summarize the Safe Harbor Notice. Certain statements made during this call, which are not historical fact, are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act, and such forward-looking statements are based on assumptions, expectations, projections, or beliefs as to future events that may not prove to be accurate. for a description of the risks, uncertainties, and other factors that may cause results to differ from the forward-looking statements, please refer to the company's filings with the OCT. And with that, let me turn the call over to Ms. Pagliu.

Thank you, Ed. Good morning and thank you for joining us today to discuss the results of Diana Shipping, Inc. for the first quarter of 2020. I am addressing you today in my capacity as Acting Chief Executive Officer. I also bring greetings from our chairman and CEO, Simon Paglios. He asked me to tell you that he looks forward to joining us on future calls. As individuals, businesses and governments around the world continue to deal with the challenges of the pandemic, the near-term outlook for the dry box shipping sector is uncertain. What is certain, however, is that Diana Shipping Inc. has successfully navigated previous difficult economic cycles, We are confident in our strategies and our ability to emerge from this period as a strong shareholder-focused company. To summarize the results of the 2021st quarter, the company's financial performance primarily reflected lower time charter revenues, an impairment loss on vessels' values, a loss from the sale of a vessel, and higher expenses related to the economic impact of the COVID-19 pandemic. Nonetheless, we continued our strategic approach to managing our fleet, announcing an agreement to sell an older vessel. And we have once again returned capital to our shareholders in the form of a self-tender offer early in the quarter and share repurchases under our share repurchase plan. With respect to our financial results for the first quarter of 2020, Diana Shipping reported a net loss of 102.8 million US dollars and a net loss attributed to common stockholders of 104.3 million US dollars, including a 93.1 million US dollar impairment loss. This compares to net income of 3.0 million US dollars and net income attributed to common stockholders of 1.5 million US dollars in the first quarter of 2019, including a $4.8 million impairment loss. Loss per share for the first quarter of 2020 was $1.21 compared to earnings per share of $0.02 for the same period in 2019. Adjusted loss per share excluding impairment loss was $0.13 for the recent quarter compared to adjusted earnings per share of 0.07 for the same quarter of 2019. Time charter revenues were $43.8 million for the first quarter of 2020, compared to $60.3 million for the same period of 2019. This was primarily due to decreased average time charter rates, as well as the sale of one vessel in the first quarter of 2020, and six vessels in 2019. Turning to the balance sheet, cash and cash equivalents, including restricted cash, totaled $111.2 million at March 31, 2020. Long-term debt, including the current portion, was $465.4 million, while stockholders' equity was $457.7 million. Consistent with our commitment to return value to shareholders, the company completed a new self-tender offer to purchase 3,030,303 shares on February 3, 2020. Additionally, during March, the company repurchased 1,088,034 shares under the company's share repurchase plan. Continuing our active management of the company's fleet, we completed the sale of the 2002-built vessel Norfolk in February for a sale price of US$8.75 million before commission. We will continue to manage our fleet in a responsible manner that promotes a balance of time-shutter maturities and produces a predictable revenue stream. As we look ahead of 2020, we will continue the prudent management of our financial position and our fleet and will maintain our focus on delivering value to our shareholders. With that, I will now turn the call over to our President, Stacey Margaronis, for a perspective on industry conditions. He will then be followed by our Interim Chief Financial Officer, Chief Strategy Officer, Treasurer and Secretary, Ioannis Zafirakis, who will provide a more detailed financial overlook. Thank you.

Thank you, Semiramis, and welcome to all who have made the effort to participate in this conference call, in spite of the prevailing difficulties created by the current pandemic. The dry bulk market started the year with rather promising prospects. Unfortunately, the rapid expansion of COVID-19 has certainly created havoc in commerce, and the dry bulk trade was no exception. The Baltic Dry Index, which started the year at 976, closed yesterday at 398. The Baltic Panamax Index stood at 1003 on January 3rd and closed yesterday at 628. The Baltic Cape Index was at 1646 at the beginning of the year and closed on May 13th at minus 17. We will look at these two types of vessels, the Panamaxes and Capes, and their current as well as prospective earnings later on in this short presentation. Starting as usual with some macroeconomic developments, it's worth noting that the IMF has cut its 2020 global GDP growth figures down to minus 3% contraction for the year versus 3.3% growth in its latest set of forecasts. In 2021, growth is expected to rebound to 5.8%, which is 2.4% higher than it previously predicted. Unfortunately, according always to the IMF, this rebound will not bring global output quite back to its pre-COVID-19 levels. According to the IMF, GDP growth in the Eurozone during the first quarter was a negative 3.8% quarter on quarter. For this year as a whole, Europe is expected to contract by around 7.5%. In the United States, second quarter contraction is expected to be 10%. For the year, the IMF expects the U.S. economy to contract by as much as 6.1%. About three weeks ago, China reported that its GDP declined by 6.8% year-on-year during the first quarter of this year, marking the first official quarterly contraction in almost half a century. In March, Chinese fixed asset investment in both infrastructure and manufacturing fell between 21% and 25% year on year. Lawson's report that in China, manufacturing PMI rebounded from February 35.7 to 52 in March, which was a welcome sign of stabilization in the country's huge manufacturing base. Analysts, China International Capital, have lowered their expectations for Chinese GDP growth for 2020 from 6.1% to 2.6%. For 2021, GDP growth has been revised upwards by 3.4% to 9.2%. The IMF highlighted COVID-19's effect on commodity prices. In these predictions, demand for dry bulk goods is forecast to fare better than that for other commodities such as oil and gas. For example, iron ore prices are expected to take a 10% hit on average as a result of the current pandemic, while thermal coal prices might drop by around 8%, which is far less than other energy goods. Meanwhile, prices for agribulks are predicted to be the most resilient. Soybean prices are expected to take a 5% hit, while the effect on wheat and coarse grain products is expected to be negligent. Turning to demand now, according to Clarkson, the dry bulk trade is expected to contract by 3.7% this year, mainly as a result of the COVID-19 virus pandemic. The same analysts expect demand to grow by 5.3% in 2021 and reach 29.762 billion tons. As for iron ore, Again, according to Clarkson, total seaborne trade of iron ore is expected to be flat this year at around 1.456 billion tons, while next year the forecast is for growth of about 2%. Because of weakening steel demand this year, iron ore imports across a range of importers, from Europe to Japan and South Korea, are now expected to come under downward pressure. However, Clarkson points out that with China gradually getting back to work, There is some potential for a gradual improvement of seabourn iron ore trade with lower prices and stockpiling efforts, boosting imports into China. Chinese iron ore imports are currently projected to grow by 2% this year to just over 1 billion tons. On steam coal, according to Clarkson's again, steam coal seabourn trade is expected to shrink by 5% this year and grow by 2% in 2021. A steeper decline this year cannot be ruled out completely. So far in 2020, Chinese seaborne steam coal imports appear to have held up fairly well, in part reflecting disruption to local coal production. Unfortunately, Clarkson points out that it now appears likely that imports will come under pressure in the coming months with domestic coal production back to near normal levels. European steam coal imports are initially projected to fall by almost 20% this year, which would be the third consecutive year of sharp declines. Coal shipments into India could come under pressure from weaker demand and an abundance of domestic supply. A piece of good news on the China-U.S. trade prospects was that China announced that it was dropping 27% tariffs on U.S. origin coal from March 2nd. Some ships already loaded with coal on that date sailing in the Pacific were rerouted into Chinese ports for discharge. Cooking coal now. Luxon's report that COVID-19 pandemic is expected to severely impact steel industry worldwide. As a result, global seabourn cooking coal trade is projected to decline by 7% compared to 2019 and lie at 253 million tons during the year. Imports into Europe, Japan, and South Korea are likely to come under significant downward pressure in the short term as a result of reduced sea demand, primarily in the car production and construction industries. Total seaborne exports are expected to increase by 5% in 2021. Chinese coking coal imports could remain stable this year compared to 2019, as land-borne imports from Mongolia have been significantly disrupted during the first two quarters, while gradually resuming economic and industrial activity during the remaining two quarters of the year might support demand if it materializes. Grain Cargoes On a worldwide basis, seaborne grain trade is expected to increase by 2% this season and reach 485 million tons. In 2021, a further increase of 3% is expected to bring a total volume to about 500 million tons. As usual, the soybean trade will play a crucial role on how projections on the grain trade will evolve. Chinese buyers are expected to increase purchases of U.S. soybeans later this year as part of commitments made in the Phase 1 of the U.S.-China trade deal. Global seaborne soybean trade is projected to grow by 2% to around 150 million tons in 2020. According to Hal Robinson, soybean shipments from Brazil benefited from a good crop and low local currency. Shipments rose 14% year on year to 18 million tons in the first quarter of 2020, with almost 74% of those volumes going to China. Chinese soybean And seaborne imports from around the world are projected to increase and reach just over 92 million tons during this coming grain season, an increase of 5% year on year. Turning to scrapping, according to Banquero Costa, during the first three months of 2020, 37 bulk carrier units for 4.9 million tons of all sizes were sold for scrapping. Clarkson's report that after a firm start to the year, bulk of recycling effectively came to a halt in late March and early April. This was due to the lockdowns across the Indian subcontinent. These lockdowns have made the deliveries of ships to breakers nearly impossible. At the end of April, the limited workforce was allowed to start working at the Indian demolition facilities. Clarkson stressed that this does not mean that the market has suddenly reopened. That could be a positive sign for things to come if the pandemic does not worsen over the next few weeks. Again, according to Clarkson, total bulk scrapping is now projected to reach 15.2 million dead weight during 2020. If this materializes, it will be 92% higher than last year. According to Clarkson, the weak outlook for the bulk market, together with the significant macroeconomic uncertainty, has severely limited bulker contracting activity so far this year, with only 1.6 million deadweight worth of bulk carrier tonnage ordered during the first quarter of this year, a drop of 76% compared to the same period last year. As for the new building order book, According to Clarkson's, for bulk carriers as a whole, at the end of March this year, there were orders for 75.7 million deadweight worth of tonnage. This represented 9% of the current fleet. Clarkson's also reported that there were 19.2 million deadweight worth of Panamax vessels on order, representing about 9% of the existing fleet. From this total tonnage, about 11.3 million are scheduled to be delivered this year, and 6.8 million next year. There is little doubt that several of the 2020 deliveries will be pushed back or fall back by necessity into 2021. As regards Cape size vessels, the total of 39.3 million deadweight worth of ships were on order as of the end of March this year, from which 20.4 million deadweight are scheduled for delivery this year and 15.4 million deadweight in 2021. This standard on order represents about 11.1% of the trading fleet. It is interesting, though, to note that as regards to additional CAPEs from 120,000 to 190,000 deadweight, the order book represents a mere 3.6% in deadweight terms of the trading fleet. So obviously, the order book is concentrated in the larger size CAPEs up to 220,000 deadweight. Here, the order book represents 28.5% of the trading fleet. The same point made on slippage from 2020 to 2021 for Panamax deliveries mentioned earlier holds good for contracts of this type of essence. Let's turn to supply and net fleet growth. According to Clarkson's on the supply side, growth of all types of bulkers is expected to remain limited at about 2.5% this year, with a small order book and delivery delays expected to increase. In 2021, the fleet is expected to grow by approximately 1.9%. With demand expected to shrink by 3.7% this year, as mentioned earlier, and increase by just over 5% next year, there is a potential for a meaningful improvement next year in the dry bulk trade. According to Banquero Costa, net fleet growth for ships over 120,000 deadweight is expected to remain at around 4%, year on year in 2020, after expanding by 4% again in 2019. This expansion is expected to slow down to 3% in 2021. Traditional cakes are expected to shrink in numbers and volume this year by about 1%. Growth will come from the 190,000 to 220,000 deadweight vessels, where the fleet is expected to expand by 16% year on year in 2020. As for Panamaxes and post-Panamaxes, the same analysts foresee in 2020 the delivery of 11.8 million deadweight even after accounting for slippage. This category includes shifts from 65,000 deadweight to 120,000 deadweight. Panamax fleet growth is expected to be 4% this year and 2% in 2021. A quick look at bunker prices. It is interesting to have a quick look at these as of the end of April this year. In Rotterdam, the heavy sulfur fuel oil, 380 CST, was trading at around $111 per ton, with very low sulfur fuel selling at $146 per ton, a difference of about $53 per ton. In Singapore, the corresponding prices were $164 per ton and $216 per ton for very low sulfur fuel, a difference of $52 per ton. Opinions vary as to the future trend of this price differential. The proponents of the by now much talked about scrubbers believe that the price difference will increase together with the price of fuel oil. The rest of us believe that with the supply of very low sulfur fuel oil increasing and its availability becoming more abundant, the price difference going forward might very well be reduced even further. This price differential is material to owners who have decided to install scrubbers on board their vessels at significant cost to purchase, to fit, as well as lost earnings during the fitting period. Finally, let's have a look at the outlook for our industry. It has always been very difficult to make any credible statements as regards the outlook of the dry bulk trade. Now, with the effects of the pandemic on worldwide trade, it is particularly difficult Practically impossible to do so as the variables have increased even more. For example, now Commodore research predict that going forward weakness in much of the global economy is likely to persist. China continues to fare relatively well and Chinese iron ore inputs are expected to remain reasonably strong. It is also encouraging that according to Commodore research, China appears likely to significantly increase its grain imports from the United States. Then we turn to Graymar, who claims that there is much uncertainty for the future of the shipping market and the world economy as a whole as a result of the latest pandemic. There will certainly be a recovery at some stage, but what appears to be clearer by the day is that this is not going to happen over the short term. The forecast of a global recovery in 2021 That's heavily on the pandemic easing in the second half of this year and on the success of policy actions to prevent bankruptcies, sustained job losses, and system-wide financial strain. It is not until the world comes together to find a long-term solution for COVID-19 that we will begin to see any signs of a sustained recovery. This is the unenviable business environment we have to face in the dry bulk sector of the shipping industry. Once again, our strong balance sheet will help provide us with options as regards our business strategy going forward. Among these options are the sale of older tonnage and active management of our capital structure. Investing in younger tonnage and reinstatement of a dividend to our shareholders will probably follow in due course. when prevailing conditions make this an attractive proposition. I will now pass the call to our Interim Chief Financial Officer, Ioannis Zafirakis, who will provide us with the financial highlights of the first quarter of this year. Thank you.

Hello. Good morning to everyone. I'm very pleased to be discussing today with you Diana's operational results for the three months ended March 31, 2020, from my new position as an interim CFO of this company. I think I'm getting very old for this, but never mind. So during this quarter, we recorded a net loss attributed to common stockholders of $104.3 million U.S. dollars, or $1.21 per common share. However, these results included the 93.1 million dollars of impairment loss on versus values, which is equal to 1.8 US dollars for loss per share, which means that the per share loss adjusted for impairment was, if I can say, only 0.13 dollars per share. As you are aware, During 2019, we sold six of our vessels and another one in the first quarter of 2020, which of course decreased the ownership days this quarter to 3,801 compared to 4,320 for the same quarter of 2019. Of course, we had less ownership days. The lesser ownership days, together with the deteriorated market conditions, led to lower revenues of $43.8 million compared to the $60.3 million in the first quarter of 2019. Another reason for the decreased revenues was the fleet utilization, which was 96.4% compared to 99.7% for the same quarter of 2019. And you can understand that this is mainly due to COVID-19-related issues. The daily time charter equivalent rate that we achieved during the specific quarter was $11,377 compared to $13,453 for the same quarter of 2019. In addition to the above, we had an increase in the voyage expenses that were $3.7 million for the quarter compared to $2.8 million for the same quarter of 2019. And that increase in voyage expenses was due to loss from bankers that amounted to 1.3 million compared to 0.4 million gain that we had the same period the last year. During this discussed quarter, our vessel operating expenses amounted to 21.3 million dollars compared to 22.4 million. Although this total number of operating expenses was lower than the previous year's quarter, daily operating expenses were a bit higher at $5,608 compared to $5,175 for the same quarter of 2019. Our general and administrative expenses were increased to $9.5 million compared to $7.5 million for the same quarter last year. Resulting from the resignation of two board members whose shares had to be vested in the first quarter of 2020. The good news for this quarter was the interest and finance costs which amounted to 6.4 million compared to 7.7 million in the same quarter of 2019. This decrease was attributable to the decreased interest due to the decreased interest rates and, of course, decreased average debt compared to the same quarter of 2019. We thank you for your attention, and now we are pleased to respond to your questions, and we will turn the call to the operator who will instruct you as to the procedure for asking questions.

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. Once again, that is star 1 to register questions at this time. Our first question is coming from Omar Nocta of Clarkson's. Please go ahead.

Thank you. Hello, everyone. And hi, Semiramis. It's good to speak to you. And I'm looking forward to speaking again with Mr. Palios. Thank you, Omar. Yep. Just wanted to, you know, you've obviously, you and the team, you've given us a sobering overview of the dry bulk market and the broader economic backdrop. The write-down on the shifts today is, It's not a surprise given the extreme weakness that we've been seeing in charter rates and the pressure on ship values. And apologies if you already addressed this in your opening remarks, but why don't you just get a sense of how many of the 41 ships you own does that impairment apply to? And was it vessel class specific? Was it age? Just some color on that would be helpful. Thank you.

Hi, Omar. This is Yanis. We had nine of our vessels. that we had to take in ferment. I cannot say that it is class specific. We had some Cape sizes and some Panamaxes that we did that. You understand that the environment is different. You know how the test is done. You have to take assumptions as regards future revenues together with the increased values with increased operating expenses, you come up with a number that forces you to take impairment and bring the value of the vessel closer to the actual value of the ship rather than the book value. Impairment is not a bad thing. It gives a clearer picture, I think, to everyone. From the moment we have to take it, we take it.

I think I know the answer, but any minimum net worth covenant thresholds that have been reached as a result?

No. The answer is no.

Yeah.

Good to hear. Don't forget also that most of the terms in the loans refer to actual values rather than book, but there are some on book, but they are higher than the market values.

Yeah. And, Janice, as interim CFO, according to the 20F, it looks like debt repayments are pretty manageable for this year. I think it was around maybe $48 million to $50 million, if I recall, and maturities next year were maybe about $140 million, or repayments were $140 million. As you think about refinancing and looking at the capital structure, Of those, the 48 call it for this year, the 140 for next year, how much of these payments do you see being able to defer just by virtue of refinancing balloon payments?

Thank you for that question. We are about to issue a press release tomorrow talking about some of these facilities. So you know us very well to know that we are proactive in that respect. and we will certainly be in a position to conclude something soon.

Okay. All right. Well, I'll look forward to that. And maybe just one more, if you don't mind. Just wanted to think about the cash. Obviously, in a nice cash position, excluding the restricted cash, you have $90 million. When we think about just the cash coming in in the second quarter, I know the Norfolk you had sold for the $8.75 million. Are those proceeds already in the balance sheet, or is that coming in the second quarter?

No, they are already in the balance sheet, the proceeds.

Okay. All right. Well, that's it for me. Thank you.

Thank you, Omar.

Once again, that's Star 1 to register a question. Our next question is coming from Randy Givians of Jefferies. Please go ahead.

Howdy, Simaranis, Stacey, and Ionis. How's it going?

Hi, Randy.

Hi, Randy. Hey, hey, hopefully Simon's doing better, and Ionis, congrats on the new role here. Yeah, thank you very much. All right, well, yeah, so last quarter, you know, we saw the sales of Calypso and Norfolk both get canceled. The Norfolk has since been sold. But just trying to get a sense for your plans for the Calypso, maybe some of your older vessels in the near term. Are vessel sales even an option kind of in this environment? And will the proceeds be used for share buybacks or just further kind of debt delivering?

Again, you know us very well. Certainly, we have not given up the opportunity. thought of selling the older tonnage and the unmortgage vessels and this is something that we are considering. As regards the proceeds from that sale, you know very well that today as we speak the main name of the game for ourselves is defense and therefore most probable scenario is that we will keep the money aside from the sales. However, having said that, we should not exclude the extreme situation where the values of our stock is very, very depressed and we may do some repurchases. Having said that, you understand that we have taken the position that we are in an uncharted territory and we should not... We should not be investing large amounts of money on anything and be ready in case the scenario is the worst one expected.

Sure, that's understandable. Now, you mentioned kind of uncharted territory. Clearly, the first half of 2020 has been weak, but we've seen some weak periods before, the first half of 2016. even the first half of last year with the Bakuda dam failure and stuff. How does this year kind of compare to those periods, and do you expect a rebound in the coming months?

I know that others, they have found valid argument to try to persuade themselves and the others that the market may turn in the second half of 2020, but we are... in the opinion that it is the first time that we see a drop in the demand due to many of world economies having a problem. It's not as if we have one or two economies that are having a problem. We are talking about almost the entire world. Too many parts of the chain have been broken. And therefore, I don't think that anyone should be in a position to be talking about speedy recovery because you understand that everything depends on too many countries. Now, I know that a lot of money are going to be spent as stimulus packages around the world. And certainly, it depends on what type of stimulus packages and where the money are going to be spent. And there is a good scenario where this money is spent in infrastructure and things that we carry raw materials for. But I don't think that anyone should take that scenario as being the most probable. Okay.

And kind of with those sentiments, how are you kind of preparing for that in terms of either short-term chartering, three, six, nine months? versus maybe longer term, 12, 18, 24 months?

No, we keep our hedging strategy. We secure some long term and some short term. What we don't want to do is have a lot of vessels opening at the same time and not end up in a period where everything is really bad and have a lot of vessels opening. So you should be expecting the company to do the same thing that we were doing the last 15 years. And you have to understand that when you have a hedging strategy, you do not amend based on what's happening around you. Otherwise, it's not a hedging strategy. We have too many safety valves, and one safety valve is not to take the position that the market is going to be better after six months and therefore go shorter now. This is not what we're going to do.

Yep. That's fair. All right. Well, that's it for me. Good chatting, and we'll talk soon. Take care.

Thank you, Randy.

Thank you. At this time, I would like to turn the floor back over to management for closing comments.

Thank you again for your interest in and support of Diana Shipping News. We look forward to speaking with you in the year ahead.

Ladies and gentlemen, thank you for your participation in today's event. You may disconnect your lines at this time and have a wonderful day.