Diana Shipping Inc.

Greetings and welcome to Diana Shipping, Inc. 2022 fourth quarter and year end conference call and webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Edward Nebb, IR Advisor. Please go ahead.

Well, thank you, Brock, and thank you, everyone, who is joining us for the Diana Shipping, Inc., fourth quarter year-end conference call. With us today from the company are Semiramis Paliu, Chief Executive Officer, and in a moment she will introduce the other persons present from the company. And so without further ado, I will turn it over to Ms. Paliu.

Thank you. Good morning, ladies and gentlemen, and welcome to Diana Shipping Inc.' 's fourth quarter and end of the year 2022 earnings call. My name is Samira Mispaliou, the company's CEO, and it is an honor to have the opportunity to present to you today. Joining me today, this morning, we have Mr. Stacey Margaronis, president of Diana Shipping, Mr. Ioannis Zafirakis, CFO and chief executive in Chief Strategy Officer, Mr. Lefteris Papatrifon, Director of Diana Shipping Inc., and Ms. Maria Dede, the Company's Chief Accounting Officer. Before I begin, I kindly ask everyone to review the forward-looking statements applicable to today's presentation, which can be found on page four of the accompanying fourth quarter and end of the year presentation. 2022 has been another profitable year for our company. It has also been a very busy and productive one. While market conditions have become less robust over the last quarter and into 2023, our disciplined chartering strategy has allowed us to continue generating attractive free cash flows. As a result, not only have we announced another cash dividend for this quarter, but for the first time since our public listing, we have also provided guidance of our intention to declare a cash dividend of at least 15 cents per share for the next three quarters. Additionally, as a result of prudent and creative sale and purchase activity, the company announced today another special dividend in kind in the form of OceanPal Series D convertible preferred shares. We believe that the combination of the cash and the in-kind dividends is a true testament of our will to keep rewarding our shareholders when conditions are favorable. Turning to slide 5, I will review with you the company's snapshot as of today. Once again, we find ourselves owning and operating an expanded fleet of 41 vessels in the water, with a carrying capacity of approximately 4.7 million deadweight tons. As already announced, our fleet will increase by one to 42 vessels by the end of the second quarter 2023, as we expect to take delivery of one more Utamax in April. Our fleet utilization has remained at very high levels, coming in at 98.9% for the fiscal year 2022. At the end of the fourth quarter, we employed 1,020 people at sea and ashore. Moving on to slides six and seven, I will go over the highlights of the fourth quarter and recent developments. More specifically, in November of this year, we declared a cash dividend of 17.5 cents per common share, or approximately 17.3 million US dollars in aggregate for the third quarter of 2022. and a special stock distribution of all Series D convertible preferred shares of OceanPal Inc. held by the company. In December, we concluded the sale of TSI Andromeda to an unaffiliated Japanese third party for the amount of $29.85 million, and bare-bolt charted in the vessel for a period of 10 years. Also in December, and in preparation of the just mentioned transaction, we made a prepayment of 22 million US dollars for the release of the mortgage of DSI Andromeda. During the same month, the company took delivery of two Ultramax dry bulk vessels, DSI Sigasus and DSI Altair. And finally, before the end of the year, the company released its third ESG report for 2021, a copy of which can be found on our website. Referring to our more recent developments, in January, the company took delivery of one more Ultramax dry-bulk vessel, the motor vessel DSI Aquarius, successfully concluding the SCH fleet acquisition transaction. Also, the company signed a memorandum of agreement for the sale of motor vessel Aliki for the price of $15.08 million to an unaffiliated third party. In February, the company signed a memorandum of agreement for the sale of Melia for an aggregate price of $14 million to OceanPal Inc. The amount of $4 million was paid in cash upon signing of the memorandum of agreement, and the remaining amount was paid upon the delivery of the vessel in the form of 13,157 Series Z convertible preferred shares issued by OceanPal. Also in February, we signed a memorandum of agreement for the purchase of one more Ultramax dry bulk vessel, the motor vessel Nord Potomac, for a purchase price of 27.9 million US dollars. The vessel is expected to be delivered in early April. In February, we entered into a term sheet for a senior secured term loan facility with a major European bank for up to 100 US dollars million US dollars, sorry, for the refinancing of nine vessels. This is still subject to concluding customary documentation. As announced, we have declared a cash dividend of 15 cents per common share for the fourth quarter of 2022. We intend to maintain this dividend of 15 cents for the duration of 2023. In addition, We declared a special stock dividend in the form of 13,157 Series D convertible preferred shares of OceanPal Inc. held by the company, the payment of which remains subject to certain regulatory approvals in connection with the distribution. Lastly, as of February 16th, we have secured 68% of the remaining ownership days of 2023. securing approximately $169.2 million of contracted revenues and have also secured approximately $39.5 million of contracted revenues or 14% of the available ownership days for the entire year of 2024. 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 fourth quarter of 2022, on slide eight, we find ourselves as of December 31st, 2022, with a cash and cash equivalent position of 143.9 million US dollars, including restricted cash and time deposits as against 126.8 million US dollars as of December 31st, 2021. Our debt, Net of deferred financing costs stood at $663.4 million at the end of the fourth quarter of 2022, as against $423.7 million at the end of 2021. Our time charter revenues for the fourth quarter of 2022 amounted to $75.7 million, as against 68.8 million US dollars for the same period of 2021. Lastly, our earnings per share for the fourth quarter of 2022 came in at 27 cents versus 48 cents per share for the same period of 2021. Yanis will go over these numbers in more detail further on in the presentation. Moving on to slide nine. We find a summary of our recent chartering activity. Consistent with our disciplined chartering strategy, we have continued chartering our vessels in a staggered manner and have secured profitable time charters for 17 vessels of our fleet since our last earning presentation on November 17, 2023. More specifically, we have charted five Ultramax vessels at a weighted average daily rate of 14,000 US dollars and for a remaining average period of 284 days per vessel. We also have charted one cancer mark for Panamaxes and three post-Panamax vessels at a weighted average daily rate of 14,315 and for a remaining average period of 296 days per vessel. two Cape size and two new Casper Max vessels at a weighted average daily rate of 17,622 and for a remaining average period of 532 days per vessel. 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 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, Semiramis. Clearly, this has been a great year and a nice quarter. Our time chart revenues for the quarter stood at $75.7 million, compared to $68.8 million at the same quarter in 2021. The time shutter equivalent rate was approximately the same as the last quarter of 2021. That was 21,800 approximately compared to 21,300 orders in 2021. Moving to the next slide, slide 11, we can see the year's results. And again, clearly that was a very profitable year with $113.3 million of net income attributable to common stockholders compared to $51.6 million in 2021. For the full year, the time charter equivalent rate stood at $22,735 per day. We remind you that the same rate in 2021 was $15,759 per day. We want also to mention here that we have managed to keep our weighted averages to only 10.2 years, reduced from the previous year, which was 10.4 years for our CLIP. Slide number 12. Our earnings per common share diluted was for the last quarter of 2022 equal to 27 cents compared to 48 cents in the same quarter of 2022. However, just to clarify that the quarter in 2022 included gain in 2021. sorry, included the gain from OceanPulse spin-off, which was equal to approximately 15 cents, which is more or less the current difference. Slide number 13. As we have already mentioned, 2022 has been a very profitable year, with a net income of $113.2 million, compared to only 51.6 of the previous year. That is equal to $1.36 per share compared to only $0.67 per share. At this stage, I would like to remind everyone that the last time we were close to this number and we had $1.33 per share net income, earnings per share, that was back in 2011. And at that time our stock price was more than $8. I would like to remind, and also I would like to stress the fact that we were not paying a dividend at that time when we were trading at $8 with earnings per share at $1.33. Moving to the next slide. Slide number 14. For another year, we have kept our balance sheet at a very healthy condition. You can see there that the cash and cash equivalent and time deposits are at $143.9 million, and our total debt is only $663.4 million. The net debt position is at $528.5 million. Slide number 15. Looking at our debt amortization profile, we have kept it very manageable. With the latest agreement of the new $100 million credit facility, the maturity profile has no maturity for 2023, and we have very little for 2024. Of course, by now you know our style and that we are always proactive in that respect, and we will not wait until the last moment to change that picture for 2024 or even 2026. Slide number 16. Looking in addition to the previous slide, the debt balance proposition is also very important for someone to understand. Our debt structure is comprised of a senior unsecured bond, chain and lease back deals, and secured loan facilities. Our loan facilities, just for your info, They carry a margin of approximately 2.24% over LIBOR. If you think about where the LIBOR is today, you can clearly see that we have managed to hedge the increasing interest rate environment with the sale and leaseback deals, which they have an average fixed cost of only 4.9%. that is even lower than the loan facilities that we discussed earlier. Looking at the current liable rate, even the unsecured bond is very competitively priced. Slide number 17. Our break-even costs also have been kept at very low levels, at approximately $14,200. If we look at our average time charter rate of fixed revenues for 2023, which is at $18,000 plus, and 2024 close to $19,000, this is a very manageable break-even. Of course, we have plenty of days to fix for 2024, but still, this is something notable. Slide number 18, this is the usual graph that depicts the essence of our chartering strategy, which is exactly the same since 2005. This is a strategy that is proven it proves that it provides the best risk-reward ratio for our revenue. The specific number we have already mentioned on the previous slides about the secured revenues, the days that they are fixed and so on and so forth, there is no need to mention again. Slide number 19. If we look, if we use the FFA data that they were published in February 16, certainly they are not on the high side. It looks as if we can have a cash flow surplus of $34.2 million for 2023 and $13.6 million for 2024. And with that happy note, I will pass the call to Anastasios Margaronis for the dry bulk market outlook.

Anastas, many thanks Yanni and welcome to all the participants of this first earnings conference call of 2023. In slide 20, the bulk shipping market started the year in the same mood as it was at the close of 2022. Macroeconomic factors and geopolitical developments had their influence on the freight market and produced certain extreme results as will be mentioned below. The BDI, the Baltic Dry Index, which had reached a higher 3,368 on 23rd May 2022, closed yesterday, February 21st, at 594. Similar moves took place with the Baltic Cape Index, which dropped from 4,602 in May last year to 303 yesterday. The Baltic Panamax index came down from $3,416 in March 2022 to $843 yesterday. Period time charter employment came down as well, but certainly not as much as the spot market. From just over $30,000 a day in the first half of 2022 for one- to two-year employment contracts, CAPES commanded around $15,000 per day, as per latest fixture reports, for similar period employment. Ultramaxes showed similar declines in 12-month employment daily earnings, dropping from over $32,000 a day in the first quarter of 2022 to around $14,000 a day this month. The Panamax-Camshax 12-month time charter rate dropped from US$31,000 per day in 2022 to $14,750 per day recently. Let's have a quick look at what may have caused the apparent collapse in spot market earnings, particularly of large bulk areas. Two are the most obvious and visible reasons. First has been the collapse of Brazilian iron ore exports in January and early February of this year due to exceptionally heavy seasonal rainfalls that have been reducing volumes since late 2022. These adverse weather conditions have contributed to the building up of Cape-side capacity in Brazilian loading ports in early February. Congestion in Brazil had up to that point dropped by about 11% during last year. The second reason is what we just mentioned, that is port congestion. According to Clarkson, in early 2022, worldwide port congestion was estimated to have absorbed an extra 5% of the bulk of fleet. This congestion now appears to have to a large extent disappeared, except for some localized congestion as that mentioned above in Brazil. global macroeconomic headwind, and other factors such as the ongoing challenges in the Chinese economy also played a role. Before leaving this slide, slide 20, even though we at Diana are certainly not surcharges, by looking at the pattern of troughs and peaks, all the dry bulk Baltic exchange indices appear to be set for a bottoming out, with indices about to turn positive. The question, as usual, remains exactly when this will happen. On slide 21, we look at some macroeconomic development. Latest estimates from the IMF provide forecasts of world GDP growth of about 2.9% for this year and 3.1% for 2024. The Chinese economy is expected to grow by 5.2% this year and 4.5% in 2024. Obviously, these figures can change for various reasons as we have seen in the past. The U.S. economy is expected to grow by 1.4% this year and by just 1% in 2024. The Eurozone economies are basically expected to stagnate this year with growth coming in at just 0.7%, while next year should see the economies of the area grow by 1.6%. Let's see how these growth figures might affect demand supply balance for bulk carriers going forward. Starting with demand, according to Parsons, after dropping by about 1.9% in terms of ton miles in 2022, overall bulk trade growth is currently expected to increase by 2% in 2023. Last year's drop was primarily caused by China importing about 4% fewer bulk cargoes than in 2021. The minor bulk trades are expected to be negatively influenced by weak global economic growth. Volumes are expected to grow by just 1% this year. More importantly, though, Clarkson's report that worldwide steel production is expected to remain steady this year compared to 2022, which will come after a drop of about 30 million tons in 2022 compared to 2021. This trend will have a profound effect on demand for the shipment of iron ore and coking or metallurgical coal this year. Seabourn iron ore trade then is expected to remain steady this year with stronger trends appearing in the second half of the year. In 2024, this trade is expected to grow by about 1% year on year. Thermal coal is expected to increase by 2% this year on the back of European demand. Coking coal Demand is also expected to lead to 2% growth in seaborn trade this year based on increased demand from emerging economies and India. The grain trade is projected to see a rebound this year of about 5% after significant disruptions to Ukrainian exports in 2022 had a negative impact on this trade. In 2024, this trade is expected by Clarkson to increase by a further 4% based on normalized Ukrainian exports and increased demand from developing regions. Turn to slide 22. The bulk of supply projections appear to be positive, with the order book still near its 30-year low of 7% of the existing fleet. About 60% of the Cape size and Panamax-Camsha max order book will be delivered this year. From 2024 onwards, deliveries dropped dramatically. This has led Clarkson to predict that fleet growth is expected at about 1.8% this year, while the impact from emission regulations could absorb some extra supply. Clarkson estimates that compliance with EEXI, the Energy Efficiency Existing Ship Index, and the CII, the Carbon Intensity Index regulation, could absorb between 2% and 2.5% of available tonnage in the two-year period of 2023-2024 through slower speed and retrofit time. Looking at 2024, Clarkson foresees stronger ton-mile demand of about 2% or higher, depending on the robustness of future GDP growth. At the same time, supply is estimated to increase by less than 1%. with emissions regulations continuing to have the effect on supply as referred to above. New building orders for bulk carriers of all sizes were down in 2022 by about 56% year on year. Prices have softened slightly compared to last year. Looking quickly at scrapping, according to Clarkson's, dry bulk scrapping is expected to be about 16 million deadweight this year due to weaker market conditions and the introduction of new environmental regulations. such as the CII mentioned about, and the EXI. From this total, 4.2 million deadweight are expected to be caked, and about 4.5 million Panamax-Kamshamaks. Klapsen's prediction for demolitions in 2024 stands at just under 22 million deadweight. Most of these scrap candidates will be vessels whose compliance with the new environmental regulations proves to be too costly for owners to bear. Finally, turning to the outlook now for our industry, we agree with Clarkson that 2023 will be a year with more moderate market conditions than seen at the peak of 2022. Demand is still facing macroeconomic headwinds, and the Chinese economy is recovering slowly from the drop in GDP growth seen at the latter part of the last year. Furthermore, there are still some direct impacts from the Russian-Ukrainian conflict. Finally, port congestion, which had been absorbing about 5% of the bulk of fleet in early 2022, as mentioned earlier, has eased considerably, thus releasing plenty of tonnage at the seasonal low of the dry bulk market. However, improvements are expected in the dry bulk market, mainly from China's post-COVID reopening and the stimulus programs introduced by the Chinese government. Furthermore, macroeconomic headwinds are expected to start easing later this year, and environmental regulations are expected to support the supply side. According to Braemar, Brazil is expected to have a record soybean harvest this season. Braemar expects strong increases in soybean exports from Brazil to China, which will certainly support bulk carrier freight rates, particularly that for Panamaxes, which will carry most of the stems coming up for soybean shipment. As we have mentioned repeatedly in the past, Diana's business strategy is not based on specific forecasts about the future trends of the freight market and of asset values. This is not about to change by the fact that we as a company find reasonable the forecasts made by several shipping analysts, that there are good chances for the dry bulk market to start recovering from its present weak state from the middle of 2023 onwards and well into 2024. In this environment, we will continue to protect the integrity of our balance sheet, and any fleet expansion or renewal, as well as our dividend policy, will be handled in such a way so as not to prejudice this strength. I will now pass the call back to our CEO, Semiram Isparliou. who will summarize the highlights of the company's business plan, its goals and aspirations. Thank you.

Thank you, Stacey. So before we open the call up to questions and answers, I would like to provide a summary of what I believe to be the most important points presented today. The company has been distributing substantial cash and in-kind dividends since November 2021. and has additionally provided clear guidance of its intention to declare a cash dividend of 15 cents per share per quarter for the next three quarters. At the same time, the company is maintaining a strong balance sheet, allowing it to entertain creative growth and fleet renewal opportunities. Also, the company remains committed to its long-term strategy of providing relevant stability in a cyclical business with an emphasis on maximizing the shareholders' value. Now, I will turn it over to the operator to commence the questions and answers session.

Thank you. We'll be conducting a question and answer session. If you would 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 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, if you would like to have a question, please press star 1 on your telephone keypad. There appears to be no questions at this time. I'd like to turn the call back to management for closing remarks.

Thank you all for joining us today, and we look forward to talking to you again in our next financial results call. Thank you very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.