Diana Shipping Inc.

Greetings and Diana Shipping Inc. Second quarter, 2023 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 call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Ed Neb, investor relations advisor with the company. Thank you. You may begin.

Thanks, Daryl, and thanks to everyone who is joining us today for the Diana Shipping Inc. 2022 second quarter conference call. With us today for management are Sameer Amiz Palayu, chief executive officer, who will introduce the other members of the management team. And so without further ado, I will turn it over to Sameer Amiz.

Thank you, Ed. So good morning, ladies and gentlemen, and welcome to Diana Shipping Inc. second quarter, 2023 earnings call. My name is Sameer Amiz Palayu, the CEO of the company, and it is a great pleasure to have the opportunity to present to you today. I am joined by our team team, Mr. Stacy Margaronis, director and president of Diana Shipping Inc. Mr. Ioannis Zafirakis, director, CFO, and chief strategy officer. Mr. Gleser Papatrifon, director of Diana Shipping Inc. And Ms. Maria Dede, the company's chief accounting officer. Before we begin, I would like to remind everyone to review the forward-looking statements applicable to today's presentation, which can be found on page 4 of the accompanying second quarter, 2023 presentation. Q2, 2023 has proven to be a profitable quarter for our company. Despite less robust conditions prevailing in the market, our disciplined chartering strategy once again has largely insulated us from the market weakening and has allowed us to generate positive free cash flows. In line with the guidance provided during the company's previous earnings call, we are pleased to declare the distribution of a dividend for this quarter, amounting to 15 cents per share, which will be paid in shares or, at any shareholders' election, in cash. We aim to continue rewarding our shareholders when conditions allow us to do so. Turning to slide 5, I will provide an overview of the company's snapshot as of today. We currently own and operate a fleet of 42 vessels in the water, including a partial interest through a joint venture arrangement in one Ultramax with a carrying capacity of approximately 4.7 million deadweight tons. Our fleet utilization has remained consistently high, reaching .6% for the second quarter of 2023. Additionally, we employed 1,024 people at sea and ashore as of the end of the second quarter. Moving on to slide 6 and then 7, we'll go over the key highlights from the second quarter and recent developments. In April, we successfully secured a 100 million US dollars term loan facility from Danish Ship Finance, which has been drawn down to refinance existing loan facilities secured by nine vessels. Within the same month, we acquired the longer vessel DSI Drammen for a purchase of a new purchase price of 27.9 million US dollars. The vessel was delivered to the company in April and within the same month, we completed the joint venture for ownership and procured debt financing from Nordia Bank. Moving on to May 2023, we declared a quarterly dividend of 15 cents per common share, amounting to approximately 16 million US dollars. Shareholders had the option to receive a dividend in the form of DSX shares or cash according to their election. During June, we took further steps to optimize our financial position. We signed and utilized the 22.5 million term loan facility with Nordia Bank to refinance existing loan facilities secured by four vessels. Additionally, we entered into another 100 million US dollars term loan facility with D&P Bank to refinance existing loan facilities secured by 10 vessels. After this refinancing, we do not have any debt maturities from now until the end of 2025. Lastly, within the same month, we repurchased approximately 6 million US dollars of our .375% senior unsecured bonds listed on the Oslo burst. In July, we signed an amended and restated term loan facility with the Export-Import Bank of China for the transition into the secured overnight financing rate SOFR. As a result, all our debt agreements have now been successfully converted into SOFR. Today, we are pleased to announce a quarterly dividend of 15 cents per common share, totaling approximately 16 million US dollars to be paid in the form of DSX shares or, at the election of any shareholder, in cash. As of July 27, we have secured revenue for 80% of the remaining ownership days of 2023, amounting to approximately 87.5 million US dollars of contracted revenues. Additionally, we have secured approximately 77.7 million of contracted revenues for 2024, representing 31% of the available ownership days for the entire year. Yannis will provide a more detailed analysis of our cash flow generation potential based on the current market environment. Turning to the financial highlights of the second quarter of 2023 on slide 8, as of June 30, 2023, we held a cash and cash equivalent position of 197.6 million US dollars, including restricted cash and time deposits, compared to 143.9 million US dollars as of December 31, 2022. Our net debt, including deferred financing costs, stood at 671.9 million US dollars at the end of June 30, 2023, compared to 663.4 million US dollars at the end of December 31, 2022. Time charter revenues for the second quarter of 2023 amounted to 67.4 million US dollars, compared to 74.5 million US dollars for the same period in 2022. Lastly, our earnings per share for the second quarter of 2023 came in at 9 cents, compared to 42 cents per share for the same period in 2022. Yannis will provide a more detailed analysis of these numbers later in the presentation. Moving on to slide 9, let's review a summary of our recent chartering activity. We have continued to implement our disciplined chartering strategy by securing profitable time charters for three vessels since our last earnings presentation in May 2023. To provide some detail, we have chartered one Ultramax vessel with a daily rate of 13,800 US dollars for a remaining average period of 387 days. Additionally, we have chartered one Campstar and one Cape size vessel with a daily rate of 12,670 US dollars and a remaining average period of 470 days and at a daily rate of 16,000 US dollars and the remaining average period of 439 days, respectively. We intend to continue chartering our vessels in a staggered manner, focusing on locking in cash flows and positioning ourselves in a balanced way to participate in the market efficiently. I will now pass on the floor to Yannis to provide a more detailed analysis of our financials.

Hello everyone. Basically, all the numbers that we're going to be discussing, they are reflecting the fact that the market has deteriorated and on the other hand, the financing cost has increased for these six months and these quarters. So basically, as Yannis said earlier, the time charter revenues for the three months ended June 30th, stood at 67.4 million dollars, below the 74.5 that it was in 2002, but of course that was with a larger number of vessels, 41, instead of 35 that it was in the previous year's quarter. This can be seen also the decreased time charter rates at the time charter equivalent rate that we have at 17.3 instead of the 24,600 something that it was in the previous quarter and the previous year. The daily operating expenses, they were close to $6,000 for this quarter compared to $5.7 thousand in the year 2022. Next slide. The six months, again the same picture. You can see the time charter revenues at 140 million dollars, similar to what it was in the previous six months in 2002, at the same period in 2022 where it was 140. Again, you can see that that was with a much smaller number of vessels. The time charter rate equivalent stood for the six months at 17.9 thousand compared to 23.4 in 2022 for the same six months. The operating expenses are more or less the same, 5.7 compared to 5.6 at the same period last year. Moving to slide number 12, the income statement. You can see that we have an increased interest expense and financing cost. We have a slightly more debt and also that reflects the increased cost of financing based on the rate environment that we are currently at. That number was $23.8 million compared to 11.2 for the same period, the six month period back in 2022. All in all, the earnings performance share diluted is for these six months $0.3 compared to $0.73. At the previous year, for the three months period, the picture is the same and the earnings per common share diluted was for this quarter at $0.09 since compared to $0.42 in the same quarter of 2022. If we move to slide number 14, at our balance sheet, I think Semiramis mentioned the $197 million plus cash and cash equivalent restricted cash and time deposits that we have. This should be seen together with our long-term and finance liabilities of $671.9 million. The previous December 31st numbers, we had $143.9 compared to million cash and cash equivalent and time deposits compared to $663.4 long-term debt and financing liabilities. I'm putting those two together because it is important to notice the net debt position of the company today compared to what it was in the previous year. Slide number 15. Our CEO mentioned that we have no maturities till the end of 2025. You can see that picture clearly here in this slide. The only maturity that we have in 2022 is for the senior and secure bond that matures in 2026, but as we have said in the past, we will take care of that earlier. I see, once you do notice, that we have already decreased the number from $125 million to $119.1 million. The company repurchased some of the bond back. Slide number 16. This depicts the fact that it looks very manageable, the amount of debt for the next years to come. Slide 17. We end up in 2026 with a total amount of a little bit less than $350 million. In 2024, we are at around $500 million, which is very, very manageable. Slide number 17. You can see our free cash flow break even based on this quarter, and it is at around $15.6 thousand. Our average daily time charter rate fixed revenues for 2023 is above that number, 16.8 for the 80% of the fixed days, and for 2024, 16.7 for the 31% of the fixed days. Slide number 18. This is the usual graph that we have about our chartering strategy. You can clearly see that we are staggering the openings of the charters of each of our vessels, and the average contract duration that we have for the moment is 1.3 years, and we have secured $87.5 million for the remaining of 2023. So if we take that and have a look at slide number 19, you can see that even with the existing low FFA curve that you see below in this graph for 2023, if we assume that we will be fixing the vessels based on this curve for the remaining of the year, we will still be positive on the market outlook. And with that note, I would like to pass the call to Stacy for a discussion on the market outlook. Stacy. Thank you, Yannis.

Thanks, and welcome to all the participants of this conference call on Diana's second quarter financial performance and latest on industry outlook. Without doubt, the dry bulk carrier market clocked in the poorest performance this year to date of all major shipping sectors. We will look at the possible reasons for this and present the outlook given by the most respected shipping analysts. To illustrate the statement about dry bulk earnings in 2023, we only need to look at the Baltic indices since the beginning of this year. The Baltic dry index started the year at 1,250 and closed yesterday, July 31st at 1,127. The Baltic Cape index moved from 1,653 on January 3rd to 1,873 yesterday. The Baltic Panama index went from 1,438 to 996 over the same period, while the Baltic Supramax index stood at 968 on January 3rd and closed yesterday at 719. So what about the freight market conditions prevailing? Now, according to Clarkson's demand improvements this year have been led by slightly firmer trends in China, but these were accompanied by weaker trends in key other regions, which have marginally prevailed thus far. At the same time, lower levels of port congestion have added to active tonnage supply. For this year, we will likely witness more moderate bulk markets overall, compared to the strong conditions experienced in 2021 and the first half of 2022. However, Clarkson's foresee some improvements in earnings materializing in the coming quarter. The reasons will be analyzed later in this short presentation on the state of the markets. So the earnings trends now. According to figures published by Clarkson's and other analysts, average voyage earnings for Capes and Panamaxes have been coming steadily down over the last several weeks. The 12-month time chart rates have also dropped across the board by about 10% for Capes and 20% for Panamaxes and Supramaxes compared to the 2023 average. The 11- to 13-month time chart rates stand at around $14,250 per day for Capes. $12,750 for Capes and Supramaxes, a bit less for Panamaxes, and around $11,900 per day for Ultramaxes. Turning to the macroeconomic development now. According to the IMF, China is expected to grow by .2% this year and by .5% in 2024. For the US growth prediction around .8% this year and .1% next year. For the Eurozone, about .9% for this year and .5% for 2024. As regards China, Commodore Research reports that their research indicates that finally consumer spending recovery is indeed underway. They expect industrial recovery to resume during the third quarter but acknowledge that the housing market remains a problem. Even though China's housing supply has continued to decline, current vacant floor space marks the largest amount available since 2016. This is bound to act as a drag to any recovery scenario in China. On a more positive note, the IMF last week raised its forecast for global GDP growth by .2% from .8% in April to 3%. This was despite the slowing momentum from China witnessed this year to date. The 2024 growth forecast was kept at 3%. Let's have a quick look at the environmental issues affecting shipping. According to Heartland Shipping Services, the recent 80th Marine Environment Protection Committee meeting came up with a new timeline for decarbonization. There was agreement to reach net zero by or around 2050 and I'm quoting, taking into account different national circumstances, end of the quote. So the question in everybody's mind is how does shipping reach such targets? What policies need to be implemented to enable this to happen? The IMO have pledged to review emissions pricing scheme, a carbon tax scheme, and the fuel stamp, but there is no guarantee that these will be implemented soon. We have yet to see an IMO policy in play which actively encourages decarbonization. The CII and energy efficiency existing ship index schemes are just a stepping stone and in themselves do not serve the purpose of reaching the stated goals. In theory at least, carbon taxes promote fewer emissions and allow the market to find the best way there. However, the level at which tariffs would need to be set to equalize the cost of low carbon fuels is unrealistically high. The higher end of proposed levies of about $100 per ton of CO2 is broadly in line with current EU emission trading scheme prices. This would not make e-fuels or biofuels anywhere near profitable against fuel oil, except if shippers accept to pay for green phrase. To cite an example, the above mentioned levy of $100 per ton of CO2 adds about $320 per ton of CO2 to the cost of marine fuel oil. Even optimistic estimates put the cost of the carbon tax at a minimum of $800 per ton. Their energy densities are about 50% lower than fuel oil. So where very low sulfur fuel oil including the carbon tax would come to around $900 per ton, it could still be at least $800 cheaper than e-fuels priced at $800 per ton. To equalize costs, the carbon tax should go to about $315 per ton of CO2, a daunting thought in itself. It is therefore obvious from the above that shipping is one of the trickiest industries to decarbonize. Even though the IMO needs to do more, governments and power grids need to remove the obstacles to decarbonization by helping to bring down the cost of e-fuels mentioned above. As regards alternative fuels, according to Clarkson, about 156 alternative fuel capable ships of all types were ordered from January to the end of May this year. This represents about 40% of the tonnage contracted during this period. There has been a firm interest in metanol fuel fuel vessels with 42 such ships contracted so far in 2023, which represents 34% of all alternative fuel ships ordered during this short period. Overall, 109 units or 11% of alternative fuel tonnage on order to date are said to be metanol capable, while 48% of all ships on order have some kind of alternative fuel capability. So turning to slide 21 and looking at iron ore, according to Clarkson, world shipments of iron ore are expected to grow 2% in 2023 and reach about one and a half billion tons. Next year's volumes are expected to increase by a further 1% as steel demand potentially begins to rebound in key economies outside China. As regards coking coal, again Clarkson tells us that global coking coal seaborne trade is projected to grow by 4% in 2023 and by a further 1% in 2024. According to Braemar, weather conditions have restricted exports of coal, both coking and steam coal, from Australia and South Africa during the first half of this year. If west weather abates, it is reasonable to assume that production and supply chain operations can improve between July this year and next January. For Cakes and Pana Maxes, this would create more trading opportunities than a press. The only negative factor is the currently subdued steel sector demand in East Asia, that's outside China. On steam coal, Clarkson's report global seaborne thermal coal trade expected to grow by 5% this year to one billion tons and move higher by another 1% in 2024. For this year, Chinese imports are projected to increase by 23% in 2023 to 243 million tons amid increased energy demand from improved economic activity, weaker hydroelectric output and restrictions to domestic production. However, land-borne imports from Mongolia will need to be monitored closely for their effects on sea transportation volumes. On the grain trade, global seaborne grain trade is currently expected to grow by 4% year on year in the 2023 grain season amidst ample seaborne supply, notably from Brazil, Canada, Australia and the U.S. as mentioned below. This will be met by firm demand across key importing regions. In response to the end of the Black Sea Grain Initiative by Russia and the apparent targeting of port-sized grain stocks in Odessa by Russian missiles, the Chicago Board of Trade Grain Futures made the biggest gain since the immediate aftermath of the invasion of Ukraine. Most grain prices have gone up in price by an average of 15% as a result according to Bloomberg. In the meantime, according to Bremer, five Eastern European states, among which Bulgaria, Poland and Croatia, are discussing Ukrainian grain transit through their territory rather than the Ukrainian Black Sea ports. In the meantime, though, the question for consumers and shippers is where will the Ukrainian equivalent grain cargoes come from? Most analysts believe these will come from Brazil, the U.S. and Canada. However, there are pricing and logistical problems to be dealt with. Nevertheless, as regards ton miles, any of these countries presents an opportunity for shipping to absorb more tonnage on longer voyages from the Americans to China and Europe. On the minor bulk trade, according to Clarkson's, minor bulk trades are now projected to increase by 2% in 2023 to 2.1 billion tons, supported by improved industrial trends in China and easing demand headwinds in other regions. The Russia-exposed trade, such as forest products and fertilizers, are the most important unknown in this apparently benign supply-demand equation. Turning to demolition now, with weak market conditions, many owners have been considering scrapping all the rest. Overall, about 8% of all bulk of tonnage is over 20 years old. The younger sector are capes, where only 2% of the fleet falls in that age category, while 13% of Panamaxes are over 20 years old. In the Handymax segment, the percentage is 10%. It is also clear that there are plenty of scrapping candidates which, if market conditions dictate, could head for the breakers. Clarkson's are forecasting a total of about 6 million deadweights of bulk which will be sold for demolition this year, and about 12 million in 2024. So in slide 22, we look at new buildings. According to figures presented by Clarkson, the overall order book for bulk is at 73.2 million deadweights, or .4% of the existing fleet. For Cape, the percentage stands at just 5.1%. For Panamaxes, at 9.1%, and for Handymaxes, at 8.5%. Cape and Panamax deliveries are equally split between 2024 and 2025, while most Handymaxes will be delivered next year, and very few from 2025 onwards. So let's look at the overall supply demand outlook. According to Clarkson's headline supply demand fundamentals in the bulk sector appear balanced for 2023 with about 3% projected ton-mile demand growth versus .9% fleet growth. Slower speeds are moderating active supply in the sector. Compliance with emissions regulations could reduce available bulk supply by an estimated 2 to .5% per annum on average across 2023 to 2024 through lower speeds and retrofit time. Uncertainty remains over the scale and timing of potential market improvements for the rest of the year, and global economic weak spots need to be closely monitored. China's major coal port stockpiles keep falling according to Commodore research, and so too did the nation's iron ore stockpile. Also bullish was the most recent data showing that China's steel output most recently grew year on year by 7%. So according to Commodore research, China continues to fare better than narratives continue to suggest. On the other hand, Commodore research believe that much of the rest of the world is performing worse than narratives continue to suggest. The firm believe that dry bulk rates should rise in the near term, taking into consideration near term supply and forecasted demand. However, weakness outside China should be monitored closely in case things deteriorate to forward. Looking ahead, Johnson's also forecast some further improvement to the bulk market on the back of more positive supply demand fundamentals. Dry bulk demand is initially projected to grow by about .5% in 2024, while total fleet capacity growth is expected to come in at less than 2%, given slower delivery and potentially increased demolition for reasons stated above. This environment is not making the senior management waiver in any way from our repeatedly stated business strategy, including the buying, selling, and chartering of the company's fleet. Balance sheet strength has always been one of our top priorities and has been firmly supported by our CEO, all senior executives, and the board of directors. So going forward, we believe we are prepared for any contingency, good or bad, and that things might look mildly positive going forward will not affect this strategy. I will now pass the call to our CEO, Semira Mispalios, for her closing remarks.

Thank you, Stacy. And before we open up the call to questions and answers, I would like to summarize the key points from today's presentation. Our ongoing focus remains on generating and securing positive free cash flows. Starting from November 2021, we have consistently distributed substantial cash and in-kind dividends. Additionally, we have communicated our clear intention to declare a quarterly dividend of 15 cents per share for the upcoming quarter. Secondly, our company maintains its strong balance sheet through active capital structure management, which enables us to act opportunistically in renewing and modernizing our fleet and taking advantage of enticing sustainable shipping projects. Thirdly, we remain committed to our strategy of providing stability in a cyclical business while maximizing long-term shareholder value. Thank you all for joining us today, and we look forward to addressing your questions during the Q&A session.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. One moment, please, while we poll for your questions. Our first questions come from the line of Omar Arnafta with Jefferies. Please proceed with your

question. Thank you. Hey, guys. Good afternoon. I wanted to just check on how you're doing things strategically. You just gave us a pretty solid update on your views, but just wanted to kind of get a better sense. You've reaffirmed the 15 cent dividend for next quarter. In the past, Diana has, during times of market weakness, you've held back on dividends and maybe looked at acquiring tonnage on the cheap. We're in somewhat of a soft period right now. How do you think about capital allocation today versus back then? And are dividends a key part of the story for Diana at this point?

Hi, Omar. This is Yanis. The truth of the matter is that we made acquisitions after being at the low part of the cycle for a while. I have to remind you that the market was at the lower part for two to three years before we started buying back vessels or buying back our stock in a staggered manner again. And the investment period took around three years to do that. So by no means I don't think we are at this level where we see attractive opportunities to purchase more vessels. As regards to the cash allocation, you can see the existing cash and we feel comfortable paying another 15 cents as a dividend. We continue having the same chartering strategy. We are not in a position to say whether the market is going to be kept or go even further down materially. And we have also to distinguish the spot market with the time charter market. The levels that we see today, they are not the lowest that you can see or very, very low that you can say that we are at the lowest part of the cycle. We are somewhere in the middle even now as regards the time charter rates. The spot market is not good for sure. So to cut the long story short, we do not think that this is an investment period for us. On the other side, we are prepared to play defense but we still have the means of paying another dividend.

Okay, thanks, Yannis. That's pretty clear. It seems that in terms of acquisitions, and you mentioned nothing really looks compelling at the moment. Is that just simply, is it the return profile?

Sorry to do. Omar, as an investment, nothing looks particularly attractive today. Having said that, you realize that there are things changing in the fuel consumption of the vessels, fuel burning, what type of fuel I mean we're going to be using, etc. We have to follow these type of changes. And if you see us doing something to that respect, it would be only to follow the challenges and the changes that are going to be happening. But as investment opportunities, we don't see a clear investment today that makes sense. Sorry. Thank you.

No, no, that was helpful. I just wanted to maybe dig at that just a little bit more and understand is it more just because we're in a soft period in the market today, spot rates are soft, or is it that asset values are just too elevated relative to where you think they should be? I know that's somewhat related to circular reference, but could you qualify?

There are some levels that have not gone as usually. There is a time lag. They have not gone to the levels where the rates are today. The big question is whether they're going to stay at this level for a while or whether they're going to keep going even further down or they will change the course and they will go higher. What I'm saying is that you should not be acting very quickly when you see market movements and especially on the charter rate. Of course, you know better after so many years that the values of the vessels, they do not follow immediately. There is a time lag between where the market is and where the vessel values are and also they are correlated to the sentiment. I have to remind everyone that when the market has dropped from high levels, there is usually the expectation that this is going to be temporary and that people think that there is plenty of wishful thinking in the way they see the market. This is why the values are kept higher than what the charter rates dictate. At this time, I don't think that anyone is in a position to foresee or to guess what is going to happen after three months. You know that we are one of these companies that we definitely don't do that. We keep our course regardless of how the market is going to evolve.

Indeed, definitely. I know you suck to your long-term allocation policy and deployment of the fleet. I will leave it at that. Thank you. You're welcome.

Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. I'm showing no further questions in the queue. I'd like to hand the call back over to management for any closing remarks.

Thank you all for joining us today. We look forward to speaking again at our next earnings conference call. Thank you very much.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.