Diana Shipping Inc.

Greetings and welcome to the Diana Shipping Inc. 2022 first quarter conference call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Edward Nebb, Investor Relations. Please go ahead, sir.

Thank you, Kevin, and thanks to everyone who's joining us for the Diana Shipping, Inc. 2022 First Quarter Conference Call. Let me remind you to be aware of the Safe Harbor Notice, which you can see in the presentation that accompanies today's call. But I will just remind you that certain statements made during the call, which are not historical facts, are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. With us today for management are Semiramis Paliu, Chief Executive Officer, Anastasios Margaronis, President Yiannis Zafirakis, CFO, Chief Strategy Officer, Treasurer, and Secretary, Eleftherios Papatrifon, Chief Operating Officer, and Maria Dede, Chief Accounting Officer. And now, without further ado, I will turn the call over to Semiramis Paliu, Chief Executive Officer.

Thank you, Ed. Good morning, ladies and gentlemen, and welcome to Diana Shipping Inc's first quarter 2022 earnings call. My name, as Ed said, is Samira Mikpaliou, the company's CEO, and it is an honor to have the opportunity to present to you today. Mr. Stacy Margaroni, Mr. Ioannis Zafirakis, Mr. Lefteris Papatrifon, and Ms. Maria Dede are joining us today on this call. Before I begin, I kindly ask everyone to review the forward-looking statement applicable to today's presentation, which can be found on page four of this presentation. The first quarter of 2022 has been another fantastic quarter for our company, following a strong fourth quarter last year. Market conditions remained robust during the first quarter and allowed us to maintain our profit margins and continue generating attractive free cash flows. As a result, we have announced an even higher quarterly dividend while we remain positive about the prospects of our market for the rest of the year. Turning to slide five, I will review with you the company snapshot as of today. Further to taking deliveries of our recent second-hand acquisition, the motor vessel Leonidas PC, and our previously announced resale new building Cape Sight acquisition, the motor vessel Florida, we find ourselves owning and operating 35 vessels in the water with a carrying capacity of approximately 4.4 million deadweight tons, and four vessels in our fleet remain unmortgaged. Our fleet utilization has remained at very high levels, coming in at 98.4% for the first quarter of 2022. 33 vessels in our fleet are managed in-house by Diana Shipping Services, and two vessels are managed by our 50-50 joint venture, Diana Williamson Management Limited. At the end of the first quarter, we employed 860 people at sea and ashore. Moving on to slide six, I will go over the highlights of the first quarter and recent developments. More specifically, in January of this year, we received approval for the listing of our 125 million senior secured bond on the Oslo Stock Exchange. The listing became effective in February. Also in February, we took delivery of a 2011 Japanese-built Camp Thermax vessel, the motor vessel Leonidas PC. In March, we took delivery of our new building Cape size acquisition, the motor vessel Florida, and at the same time entered into a sale and lease back agreement with an affiliated Japanese third party for her. Also in March, we paid out 17.2 million US dollars as a cash dividend based on our previously announced fourth quarter 2021 dividend declaration of 20 cents per common share. As previously mentioned, the robust current market conditions have allowed us to generate positive cash flows, permitting us to be able to declare an even higher dividend of 25 cents per common share, or approximately 21.5 million US dollars for the first quarter of 2022. Our board will continue evaluating the market conditions for the declaration of potential dividends for the quarters to come. Lastly, our consistent chartering strategy has allowed us to have an already secured approximately 183.6 million US dollars of contracted revenues for full year 2022, with 78% contract coverage and 83.6 million US dollars of contracted revenues for 2023, with 25% contract coverage. Yanis will provide later on a more detailed analysis of our cash flow generation potential based on the current market environment. Turning to the financial highlights of the first quarter of 2022 on slide seven, we find ourselves as of March 31st, 2022, with a cash and cash equivalent position of $115.7 million, including restricted cash. as against 126.8 million US dollars as of December 31st, 2021. Our debt, net of deferred financing costs stood at 463.4 million US dollars at the end of the first quarter of 2022 as against 423.7 million US dollars at the end of 2021. Our time charter revenues for the first quarter of 2022 amounted to 65.9 million US dollars as against 41.1 million US dollars for the first quarter of 2021. Lastly, our earnings per share for the first quarter of 2022 came in at 31 cents versus a loss of three cents per share for the same period of 2021. Yanis will also go over these numbers in more detail further on in the presentation. Moving on to slide 8, we find a summary of our recent chartering activity. Once again, consistent with our conservative and disciplined chartering strategy, we have taken advantage of the robust chartering market and have produced attractive-time charters for eight vessels of our fleet. More specifically, we charted two Panamax-Campermax vessels at a weighted average daily rate of 23,000 185 US dollars, and for a remaining average period of 441 days per vessel. We have also charted six Cape-type vessels at a weighted average rate of 27,821 US dollars per day, for a remaining average period of 713 days. It should be noted that the first quarter's fixtures continue on the trend we started last year, of slowly extending the overall duration of our charters. We intend to keep chartering our vessels in a similar way, by staggering maturities, locking in cash flows, and positioning us in a manner that allows us to continue to participate in the market in a balanced way. I now turn it over to Yanis to go over the financials in more detail.

Thank you, Mr. Miramis. I'm excited about this quarter, and I'm going to be very quick with my presentation. I'm going to be to the point, and looking at the slide number 9, you can see that we have managed to keep the We have done certain moves to keep our average age of the fleet almost the same as a year ago. And at the same time, although we decreased the number of vessels with the most of the proceeds of the sale since November 2018, we have been constantly buying back our shares. And as of today, we have purchased back close to 36 million shares. at an average price of 3.38 per share, which was at a big discount to NAV at that time. And it is clear, based on our view, that this has been proven to be the best investment strategy, improving results on a per share basis substantially. So if we move on to slide number 10, you will see that this is how we have ended up with 0.32 net income per share today while at the same time we have kept our balance sheet at the same condition and our risk profile very, very low. In addition to the above, this is also the reason why we can pay substantial dividends today and also it looks as if these can be even improved in the near future. On slide number I talked a little bit about our balance sheet, but I think that in this slide you can clearly see its strengths. Our cash and cash equivalent and restricted cash is $115 million as of March 31st of 2022. And our long-term debt and lease obligation is only $463 million something. Not only our debt is very low, but also it has a very manageable amortization schedule, which we can see in the next slide. As you can see, the first balloon payment that we have comes in 2023. And actually, this is during the third quarter of 2023. You understand that this is very important cash flow-wise and also regarding our ability to pay dividends. Moving to slide 13, you can see that our cash flow break-even is also evident here that we have kept it very low. Considering the fact that we have secured income for the 73% of the remaining days of 2022 at close to $25,000 per day, you can clearly see the free cash flow potential. And we have another slide for that later on. But in the meantime, you can see also on slide 14, that we still have 27% of unfixed days for the remainder of 2022, and the average duration of our existing charter is only 0.79 of a year. Slide number 15. I think this is the essence of what I'm trying to say here. You can see the free cash flow generation potential of the company. If we assume that the current FFA rates prevail for the unfixed days of hours, for the remaining of the year, we can generate another $77 million of a free cash flow and around $107 million in the year 2023. Of course, if you are one of those that believe that the market is going to be stronger and stronger, then this cash flow generation can be much, much different on the positive side. Having said all of these things, I would like to move now to give the floor to Stasi Margaronis to talk about the market conditions update.

Thank you, Yanni. I apologize in advance because my presentation will be slightly longer than Yanni's and maybe not as exciting. I will move on to save time. As events of huge importance for the world economy have taken place since our last presentation, we need to try and look at factors affecting shipping with an eye on the ongoing conflict in Ukraine and the continued aggression by Russia towards that country. The latter is bringing wave after wave of sanctions against the Russian Federation, each with its own effects on world trade, energy prices, and the shipping industry as a whole. On slide 16, the Baltic trade indices are shown, and they reflect quite accurately developments in the bulk shipping sector during the first five months of the year. On January 4th, the BDI started the year at 2,285. On May 23rd, it closed at 3,369. The Baltic Cape Index has stood at 2,350 on January 4th, and after several oscillations during the first few months of the year, closed at 4,602 on May 23rd. The BPI index, the Panamax index, moved from 2,874 to a year high of 3,416 on March 28th and closed on May 23rd at 3,377. On slide 17, we can look at the growth rates. According to the IMF and OECD, world GDP is expected to grow by 3.6% both this year and next. Chinese GDP will probably grow by about 4.4% this year and 5.1% in 2023. These numbers will vary depending on the pandemic restrictions and the areas which they will affect going forward, and obviously the time that they will be lifted. Some recent projections put Chinese GDP growth over the next 12 months at less than 3%, which is less than the projection for the U.S. GDP growth. The first time This will have happened since the 70s. In the US, GDP is expected to grow by 3.7% this year and by 2.3% in 2023. In the Euro area, growth is expected to come in at 2.8% this year and 2.3% in 2023. Here again, developments in energy availability and price will play a determining role in the final growth figures. Turning to slide 18. According to Breymar, so far this year, crude steel production on a global basis has dropped by about 5.6%, and stands at 460.5 million tons. According to Clarkson, total steel production this year is estimated at a steady 1.290 billion tons, with China producing 1.028 billion tons. Japan and Europe are expected to increase production by 3.2% respectively. Iron ore. Clarksons predict that total iron ore imports will increase by 1% this year and a further 1% in 2023, reaching 1.538 billion tons. As for China, Clarksons expect imports of iron ore to drop by 1.5% this year to 1.09 billion tons. The main reasons are a continued slight decline in steel output, an increase of scrap use by steel mills, plus a moderating pace of inventory building caused by recent price increases. Coking coal now. Imports worldwide are expected to increase by 2% this year and a further 3% in 2023, reaching 281 million tonnes in 2023. In Europe, Clarksons expects steel production trends and hence coking coal demand to be firm this year, as the continent's steel industry works to replace much of the imported steel historically sourced from Russia and Ukraine. As a result, European coking coal imports are expected to grow by 4% this year. Supplies, excluding Russia, look tight, so buyers need to look further afield for extra volumes. According to Hal Robinson, coal trade patterns have been changing lately. Initially, more Australian coal moved into India as China increased their imports of Indonesian coal. More recently, India reduced imports due to high prices of over $500 per tonne, and European buyers stepped in to take some of the slack created by India after embargoes have started being placed by the EU on Russian coal. Therefore, despite reductions in volumes, tonne-mile demand on dry cargoes in general has benefited from such changes in trading patterns with longer voyages and lengthier stays in ports. As regards thermal coal, according to Clarkson's, the global seaborne thermal coal trade will probably remain steady this year at around 964 million tons with China importing 9% less thermal coal this year than in 2021. Price differences between imported and locally produced coal together with government policies on imported coal will play a big role in formulating the final import volumes of this commodity to China for 2022. Grains now, Clarkson's predict that total imports of all kinds of grain cargoes will go down this year by 4% to 503 million tons, while in 2023, they expect volumes to rise by 3% and reach 521 million tons. Within these total numbers are soybean and soy meal exports expected to grow by 9 and 3% respectively, and coarse grain exports expected to drop by 8% in the 2022-2023 season. Exports from the US, Brazil, the European Union and Canada are expected to grow this year, while exports from Australia, Argentina, Russia and Ukraine are expected to drop, some dramatically due to the war in Ukraine. According to Maersk Broker, Ukraine's current grain export capacity is estimated to be around 450,000 to 700,000 tons per month, compared to between 5 and 6 million tons per month before the war started. Here, we need to point out that traditional buyers of grain cargoes from the Black Sea, located in the Middle East and Asia, are already looking towards the US and Europe for additional volume. Let's turn to slide 19 and look at world shipping with the exception of tankers and bulk carriers. We have all other types of vessels being ordered in huge numbers with the order book ranging from about 35% of the existing fleet for LNG carriers to about 25% for container ships and about 20% for LPG carriers. All numbers are based on deadweight tonnage. According to Clarkson, the bulk carrier order book consists of 776 PAL carriers, which represent about 6.6% of the world's trading fleet. From this total, 118 vessels are CAPEs, representing 6% of the trading fleet by deadweight. There are also 246 Panamaxes on order, equivalent to 8.5% of the existing trading fleet. PAL carrier new building prices have increased since last year, from between 13% and 20%, depending on the type of vessel and shipyard. Bunker fleet growth is projected by Clarkson's at a modest 2.2% this year, Cape's increasing by 1.8%, and Panamax's by 2.7%. Clarkson's predict that after softer demand growth this year, fundamentals could improve in 2023 with demand increasing by 2% versus fleet growth of less than 0.4%. Capes by 0.8% and Panamaxes by 0.8% as well. Let's look at the fuels now that the ships will be using. As regards the fuel which all these new buildings will use, the numbers are continuously evolving. According to Clarkson's, with an expanding bankering network and proven technology, LNG remains the leading alternative fuel today, featuring in 59% of orders in 2022 over all types of new buildings. However, some owners are already opting for what Clarkson's referred to as fuel optionality. There are 20 orders or more in 2022 so far for LNG capable plus ammonia stroke methanol ready units for potential later conversion. A significant number of methanol, ammonia and hydrogen capable vessel design have also received approval from classification societies this year. with shipyards marketing a portfolio of alternative fuel options to owners, obviously at considerable extra cost to the standard design. On the environmental front, the European Parliament's Committee on the Environment voted a compromise amendment according to which the maritime sector will be included in the European Union's emissions trade system from 1st January 2024 and not from 1st January 2023. If this change goes through the European Union's formal approval process, there will be no phase-in period as per the existing legislation, and it will come into full effect from January 1, 2024. We will know by September this year if this amendment will have received approval from all the relevant European Union departments. Turning to scrapping now, according to Bremer, about 1.3 million deadweight worth of capes have been committed to scrap yards so far this year and only 200,000 deadweight worth of Panamaxes. The expectation for the year as a whole, according to Banquero Costa, is that about 70 bulkers of 5.11 million deadweight will be demolished in 2022 based on their age profile and recent demolition trends. In the traditional Cape sector, 3% of the fleet is over 20 years old and another 15% is between 15 and 19 years old. In the Panamax sector, 16% of the fleet is over 20 years old, and 13% is between 15 and 19 years. With environmental regulations gradually coming into effect, many of these ships may have to head for the scrap yards over the next couple of years. Let us now turn to factors affecting dry bulk shipping supply related to the pandemic, the war in the Ukraine, and some trade through inefficiency. Slide 19, again, Bremer points out the following reasons which have provided support to the dry bulk market recently from March this year onwards and which continues to provide support. Firstly, visits by ships to Chinese repair yards have become longer, mainly due to disruption affecting the labor force caused by the resurgence of COVID-19 infections. Secondly, during April, There has been an increase of about 43% year-on-year of bulk carrier tonnage arriving in the ports of Amsterdam, Rotterdam, and Antwerp to discharge cargoes. The main driver of this trend has been the extra coal imports into Europe. The 24.1 million tons in April are the highest level seen for the last five years, and this has created congestion and delays. Overall, the above, combined with online supply chain issues, which are rail and tracking constraints, have created delays in loading discharge ports with the inevitable consequence of making voyage durations longer across all vessel sizes. A supply squeeze is therefore starting to develop. Trade disruption now due to Ukrainian war. As regards the grain trade, there is no doubt, according to financial analysts, that the closure of all main Ukrainian ports will make it very difficult to supply global markets with grain this year. Concerning coal, the European Union decided in April to phase out imports of coal from Russia by mid-August. As coal can be readily imported from other sources, this embargo should have no significant impact on Eurozone economies and, if anything, will prove positive for the bulk carrier vessels performing this trade from further away loading ports. leading to increased unmild demand for coal shipments. As regards gas, an immediate gas embargo by the European Union would most likely tip the Eurozone economy into recession. Still, the current discussions as regards oil and gas suggest that the European Union is highly unlikely to agree on a gas embargo in the foreseeable future or on any other measure that could result in a further major spike in prices and or a need to ration supplies. Moving on to slide 20, as of today, the 12-month standard CAPE size time charter rate stands at $31,000 per day, and the CamShar Max 12-month time charter rate is at around $30,250 per day. These are very healthy numbers indeed, and at the same time, we do not believe they are excessive enough to create a speculative wave of new ordering. However, as mentioned earlier, even if this were to happen, There are no new building berths available to accommodate a large dry bulk order book and significant deliveries before 2025, because this will simply be impossible to implement. So things are rather benign and distinctly positive on the supply front. What about demand? Here comes the huge question mark as regards economic policy and inflation, both affecting future GDP growth. We prefer to follow the base case scenario of Banquero Costa, with Europe imposing a coal embargo on Russian coal effective mid-August, and an oil embargo introduced step by step until the end of 2022. As regards gas imports by the European Union, the base case scenario predicts a total phasing out by mid-2024. If this scenario comes to pass, the top five economic research institutes of Europe predict a cumulative GDP loss of 6.1% in Germany over this year and next. As for inflation, it might peak at between 8% and 9% in the United States and the Eurozone over the next 12 months and start coming down later in 2023. The above projections are certainly negative as regards demand going forward. To what extent these developments will affect world GDP will depend again on how governments around the world react to inflation and, more importantly, inflationary expectations. So on the assumption that demand and GDP growth will not weaken significantly over the next few quarters, we can agree with Bremer's vision of the future, which runs along the following lines. Tight supply fundamentals, the upcoming IMO regulations, coupled with increased bunkering costs, are likely to render slow steaming the main industry practice. Reduced sailing speeds at a time when more tonnage capacity will be required should certainly support both the freight market and second-hand values over the next few quarters. Therefore, the future business strategy at Diana will take all the above-mentioned factors into account in determining tonnage renewal and future dividend distributions, while at the same time making sure the company's balance sheet remains robust as it has done through the previous shipping cycles. I will now pass the call to our CEO, Semira Mispalou, for some closing comments. Thank you.

Thank you, Stacey. So, before we open the call to questions and answers, I would like to provide a summary of what I believe to be the most important points. we have placed an emphasis on taking advantage of favorable market conditions for generating and securing positive cash flows. These cash flows allow us, A, to continue rewarding our shareholders with potentially growing dividends based on current market conditions, and B, to further strengthen our balance sheet. Secondly, we remain vigilant in keeping abreast of industry developments with a focus on creative growth and fleet renewal, And thirdly, we are committed to our conservative strategy with a goal on maximizing long-term shareholder value. Now, I will turn the call over to the operator to commence the questions and answer session.

Thank you. And I'll be conducting your question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 star one. One moment, please, while we poll for questions. Our first question today is coming from Ben Nolan from Stiefel. Your line is now live.

Yeah. Hi, guys. Good quarter. Congrats on that. Two questions, if I could. Number one, Nice to see that dividend coming higher. Should we think of that as just sort of a floating dividend, or is there some formula that we should be thinking about as to how you guys are thinking about dividend payouts going forward?

Hi, Ben. This is Yannis speaking. There is not a particular formula based on our projections about Using our model, the board of directors every time decides what the dividend may be. Of course, we have a way of thinking, but it is not as a formula somewhere or is not a specific policy that we can disclose. What we are trying to tell everybody is that based on current market conditions and what we see in the market, we feel that this kind of a dividend is sustainable or it can be higher for the near term.

Okay.

Fair enough. And then secondly, switching gears a little bit, The market's obviously tightened. We're seeing somewhat longer duration contracts. I guess the question is, does that also hold true for older assets? And does that change at all how you think about those assets and maybe where they fit relative to Diana versus OceanPal? You know, if you can get contracts, do they stay in Diana, for instance?

Well, hi, Ben, it's Lefteris. I think, yes, I mean, as you have seen, I mean, we have been extending duration, but that is a reflection to our comfort zone vis-à-vis where rates are for the long period versus the short periods. You know, we've done a five-year deal for the new building, Cape Size. We just announced a two-year deal, so definitely, you know, longer-duration deals are there. Obviously, as the assets become older, then it gets a little bit more challenging to go that long. We don't think a 16 or a 17-year-old Cape would be the right candidate for a five-year deal. Those vessels will continue, as long as we have them on our portfolio, we'll continue charging them long-term, where maybe one to two years, those deals are doable. unless we decide that it is time to dispose them, and then obviously if we do, and if they are part of the vessels that the ocean has the right of as refusals, then we'll have to follow the process there.

If I may add, Ben, as you can see, today we are at 0.79 of a year as an average charter. Hopefully, next year, the same conference call for the same quarter, that number is going to be larger. You know how we do it, and we do not plan to change anything as regards our chartering policies. Okay.

Sounds good. I appreciate it. Thank you, guys.

You're welcome. Thank you. As a reminder, that's star one to be placed in the question queue. One moment, please, while we poll for further questions. We have reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

So thank you all for joining us today. We look forward to talking to you again in our next financial results call. Thank you very much.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.