Q2 2020 Star Bulk Carriers Corp Earnings Call
Please continue to stand by feel confident well begin shortly.
[music].
Thank you for standing by ladies and gentlemen, and welcome to the stopped <unk> carriers conference call on the second quarter trend, you're trying to find not show me. So.
We have with US Mr Petros Pappas Chief Executive Officer.
Mr. Hamish Norton presaging.
I missed it Cmos it spend rough I missed a chris stuff that guy less chief.
Probably not show officer, if the company.
Let me tell threat Stoss, Chief operating officer.
This time, all participants how rent I listened I mean by which they will be a presentation followed by a question then on session.
To ask a question you wouldn't each press star and one on your telephone keypad and wait for your name to be a nights.
And I said five she's conference is being recorded today when I pass the floor I feel FIS speaker today [laughter]. Please go ahead Sir.
[laughter], it's actually pretty suppose Mcgladrey, Oh see if all star bulk carrier score.
And I would like to welcome you to the Star bulk out your squander in school regarding our financial results for the second quarter of 2020 [noise].
[noise] before we begin I kindly ask you take a moment read the safe Harbor statements on slide number two apart presentation [noise].
[noise] today's presentation, we'll focus on an overview of our second quarter results, our cash evolution during the second quarter.
[noise], we'd be enhancing majors that we're undertaking.
Our operational performance and the industry fundamentals before opening up for questions [noise].
They don't know turn to slide number three representation Fourish. Tom are you for second quarter 2020 financial highlights [noise].
In the three months ending June 32020, PC revenues amounted to 97.1 million.
4.8% higher than the 92.7 million for the same period in 29 D.
Adjusted EBITDA for the second quarter 2020 was 35.1 million versus 31.2 medium in the second quarter 2090.
Adjusted net loss for the second quarter amounted to 18.1 billion or 19 cents loss per share their shoes, Swayze 45 million adjusted net loss or 22 cents loss per share in the second quarter of 2090.
[noise], our time charter equivalent rate during this quarter was 9400 and <unk> dollars pervasive per day.
Oh gosh, the date stands at 154 million.
Don't know date at approximately 1.6 billion U.S. daughters.
[noise] like for rapidly illustrates the changes in the company's gosh violence during the second quarter.
The goal, but he is starting to order, we 131.3 million in cash and generating positive cash flow from operating activities of 23.4 million.
After including debt proceeds and repayments topics payments prescribers and ballast water treatment systems that installments, we arrived at the cash balance over 107.6 million I became the second quarter.
Even the garden market, while at the individual uncertainty we continued to take actions to protect the financial health horrible company.
Slide five has an overview of our liquidity enhancing measures.
[noise] one of our priorities has been to increase liquidity and strengthen our balance sheet through basal refinancings.
During July we borrowed 173 million to refinance 15 basis from for lenders with net proceeds after repaying outstanding debts or 37.4 million.
As of today, we have secured additional commitments from four major banks and leasing houses to refinance 16 base those enhancing our liquidity by an additional 75 million to.
To that cost me here that we showed today.
These transactions are expected to conclude during the second half of 2020.
Our current physical coverage for Q3, you'd approximately 60% odd $12145 per day, which includes estimated scrubber benefits.
Our only break even ghost he's out $11300 per day, including Scriber cost and debt service.
For the remainder of 2020, we have hedged the differential between HFO and via live CFO for 71000 toes in the paper markets for an average price of $232 per Tony.
Given the lower carbon market price wouldn't be for Angel. These hedges are willing to Miami, providing a significant contribution to our bottom line.
In addition, we have taken advantage of a decrease in the LIBOR curve.
And I've looked in 66% off our base rate exposure for approximately 1 billion of outstanding notional dates at an average fixed interest rate open zero point, 46% for an average maturity periods of close to four years.
I will now, but there's more to our COO role Nikko's Racecourse for an update on our operational performance.
Thank you Craig.
We started to slide six where we summarize our operational performance.
[noise] Opex was a $4027 per vessel per day for the second quarter of 2020 versus $3939 per vessel per day.
Q2 2019.
Net costs <unk> expenses were up $1048 per vessel per day for the quarter versus $1009 per vessel per day for the second quarter 2019.
The combination of our in house management and the scale of the group enables us to provide our service as a very competitive costs complemented by excellence if management capabilities. We star bulk consistently ranked among the top five shipped managers evaluated by Rightship.
We're also currently number one amongst our leasing beers in terms of ride should rates.
Our vessels operated largely I interrupt the during the second quarter. Despite the kopec 19 pandemic.
As of today, we have no remaining dry docking pending.
During 2024 our fleet.
I'll now pass the floor to our CEO Metro stop us from market update closing remarks.
Thank you Nicole.
Please turn to slide seven for a brief update of supply.
During the first seven months of Twentytwenty, a total of 31.9 million deadweight was the leaders and 9.1 million deadweight was sent the demolition for a net fleet growth of 22.8 million deadweight or 2.6%.
It does a little just 6.1 million deadweight, that's been an important by Clarksons as from orders and the Newbuilding order book has been reduced a record low level of 7% over the fleets.
[noise] years of dates the dry bulks steaming speed is estimated at 11.4 notch.
By just 0.4% to last year.
However, and notable increase has been observed over the last month I mean, the SAR rebound in freight rates.
Following the beat over Cobiz 19 relate that look downs in April shipyard deliveries and repairs have recently recovered almost full capacity needs yeah, well demolition activity also ramped up from June onwards.
Strong inefficiencies related to grow changes in quarantines exports have led to higher congestion and original shortages of vessels. This is negative for operational costs and off hires but positive one of the supply of vessels as it creates major inefficiencies.
Dry bulk fleet growth is projected to expense by approximately 3.3%.
Well, it's 20 and under Ken threads, who dropped below the person during Wednesday's 21 went it went through.
Let's now turn to slide dates for a brief update of the man.
According to Clarksons those dry bulk trade during wednesday's Wendy's estimated will decline by 4.5%.
Probably the 19 Vicki factor behind the slump.
Within early second half, having already shown signs of significant improvement. The projected decline is estimated to have concentrated on the first half of the years.
Synchronized global economic stimulus with China, leading the recovery is expected to expand trade activity during the second half of a year and into 2021.
Clarksons expect dry bulk trade three bouncing twentytwenty, one by 4.7% in dons and 5.5% in ton miles.
This is versus below 2% growth in supply.
I don't know trade during full year. When it went these projected to construct 0.4% in thumbs and to expand 0.3% in ton miles, Brazil experts decreased by 10.5% in the first top of Twentytwenty negatively impacting Capesize stone.
During the second half of last Wednesday, and Gavriel violate experts to support it on the back over their production guidance well the minimum won't 310 million tons, implying at 44% Goodies in export volumes through the first half of Flint when.
Supportive to iron ore trade is the fact that chinas crude steel and pig iron production have increased by 2.2% and a 5.0 person.
Respectively. During the first six months May and June specifically registers record high production figures well steel mills profitability has reached two unit high.
Iron ore inventories stand at low levels, and we'll need to be stopped.
However, steel production from the rest of the World continues to underperform by 11.8% during the first half with most of the declines concentrated on the second quarter.
Coal trade during Twentytwenty is projected to decline by 7.9% in dogs and 8.8% in ton miles as their corona buyers history imports requirements, while high cost Atlantic exports into Asia have been squeeze.
During the first couple of blended rents in China thermal electricity consumption contacted by 0.5%.
And domestic coal production and its coal imports increased by 2.8% and 12.7% or set the respectively.
This combination clearly resulted in somewhat increased stops however, thermal electric case is the output increased by 6.5% year on year during Q2 slowing down the base of inventory builds international thermal coal prices trades at this strong discount.
Chinese coal.
It's about 28 stones thumb, but.
Indeed dollars fit them, but the Kansas coal imports jurisdictions policy continues to grade.
Some uncertainty.
NBS thermal coal inventories at the power plants increased by 17 million thumps since last year, but they have been declining steadily from record high levels as of late.
During twentytwenty grain and soybean trade is projected to increase by 4.6% in ton miles on the back of a sharp increases in Latin America, soybean exports and the expected recovery in U.S. exports China's grains demand is already the emerging higher after the lockdowns with.
This big what what population recovering following the African swine fever phase one great deal is expected to waive positively on U.S. soybean exports of Williams during Q4.
[noise] minor bulk trade during Twentytwenty is estimated to decline by approximately 7.1%. However, West Africa book size exports out of <unk> projected to expand by 7% and we'll continue to generate on miles for Capesize vessels. It is worth noting that clarksons forecasts minor bulks trades.
Experience is 7.7% recovered during wednesday's 21.
Overall, we the record low order book and legal and fundamentally relate that logic toward there going forward.
Mounting fleet operating inefficiencies.
Rebounding consumer requirements affecting the mine ore box.
Increased liquidity injections in the calling them is worldwide and especially in infrastructure.
Brazil strengthen in iron ore exports and positive grain trade markets, the supply and demand balance looks about the Titan during the next 18 to 30 months and.
Barring any new blocks, one occurrences and store and major return over the Corona virus without the vaccine.
Or potentially resurgence of the U.S., China trade war, the appropriate conditions are lining up for a strong dry bulk market.
We're positive about the future.
And we're positioning ourselves to take advantage of it.
Without taking any more of your time I will now pass the floor over to the operator, one answer any questions you may have.
Ladies and gentlemen, once again, if you do wish to ask a question. Please press star one on your telephone keypad.
<unk>.
Councils Everquest. Please press star Thank you.
Hi, Joe first question comes from the line.
Hello.
Each bank. Please ask your question.
[noise], Amit we cannot hear you.
Yeah.
Uh huh.
Could you. Please ask your question.
Yeah can you guys. Your me now yes, yes, we can hear you, yes, I'm, sorry about that might not be working anyway.
Thanks for taking my question I wanted to ask about operating cash flow in the quarter, obviously it was nicely positive.
Seems to be like a big working working capital benefit in the quarter I wanted to see if you can expand on that what actually happened and how much of that is sustainable or will unwind as we think about the back half.
Hi, I mean this is Cmos.
I assume that's your question.
As a delay things that cost that we are reporting.
Today versus the cost by lands that we reported three months ago on the on the call.
<unk> hundred 54 million versus 106 million as we know.
No no not really I mean.
Net income if you add back depreciation.
What's still negative.
In the quarter, what you reported a positive operating cash balance of 23 million. So the okay.
Yeah, the big working capital benefits.
Correct. So they this was basically.
Yeah.
And affect off managing our working capital and our payables, we have increased our.
Liabilities per vessel during the quarter.
I almost 600.
Thousand per vessel, which is close to six media, a six and a half media.
Versus the previous quarter and this has a c. said in a in a increasing or the cost balance at the end of quarter.
Right and so are those are there are those payables that you stretch door or exactly exactly exactly.
Does that those unwind I'm, just trying to understand fall I mean.
It's really important right now.
<unk> Nitty gritty question, but do you expect that to unwind over the next six months or is this kind of performance. We are managing we're managing the payables. It's not it's not a you know where and when do you have I'm just cost. So it's not necessary to do continue stretching that payables. So right now we reported there.
There are 54 million of gossip yesterday, a we're projecting to be a you know with the additional refinancings closed or a 230 235 million a end of end of the year. So by you know if there is no need to stretch Bay you know a payable so we're not going to come.
Beginning with a with a these aging.
It was primarily during the second quarter when the you know we see they that bought them off our freight costs.
Right.
Well I thought that Ami, we starting from a very low balance on working capital showed was effectively low hanging fruit for us Nordic minus cash.
And the figured out we have stretching too is not a and exuberant figure there for 'em, we feel quite comfortable with where we are today.
Yeah, Yeah, and I know, it's a very nitty gritty question, maybe not bad.
In the Grand scheme of things, but maybe we can pivot a little bit too.
Lease backs, which are obviously more relevant I mean, the market has rebounded.
You guys have gotten good coverage.
We think about sale lease backs.
A little more of an expensive form.
Oh.
We got financing.
With that.
Reflection of just how below the market was.
Kind of the mid June inflection you guys want it really protect yourself.
I I.
Yes.
I, I mean, christos and Simos will explain but the sale leasebacks were not expensive.
Yeah, and let me expand on that basically I mean, if you compare dangerous cost on the dates that we are refinancing I. If you compare the or the all the interest cost compared to the new interest cost on the same base amount.
The eight underscores the new interest cost is actually less than the old being three scores. So we're managing geared to reduce our average margins and we have my tire on basically finance date now what is well worth also saying is that.
We are taking obviously about 100 million of additional debt with these extra proceeds or for the company, but at the same going but at the same time, we are lowering dangerous cost and we are also hobbies and we have no.
Well shaded amounts based there I'm what they station profile for the new date that we're taking over and that's a result, our I knew all over it wrong interest cervalis cost, including the debt principal repayment is actually reduced by 10 million.
Yeah.
Okay, Yeah, Yeah, that's great that's great.
The last couple of quick questions.
But somebody else out, but I guess, the capex commitments really start to fall off as you progress over the next couple of quarters. So would you expect like than that.
And to accelerate of course it.
But in terms of the cast calls and then you obviously mentioned the asset values, taking up the casual hit under Cobot can you talk about where you think your ltbs today based on where the appraisals are and what you see as kind of scenario playing out and what the potential increase in that LTV <unk>. Thanks.
So I mean on a net leverage basis.
Our LTV doesn't change right because.
We are effectively I'd been gosh I came away like say I'm talking about the asset values declining, possibly you know where the asset values are today.
[noise] I mean, we have not historically provided a valuations of our fleet and we want to maintain doing so if you don't mind.
Okay.
Okay. That's it that's fine got leveraged I'll, just say that leverage.
The new days effectively with a new debt levels either in the sixties.
On a gross leverage compared to where valuations side, then if I wish that we received to date.
So would be low sixtys on that basis and around that no.
Gross gross lower than that net.
So net net.
With a five.
Probably.
Okay Alright. Thank you guys appreciate it yeah.
[noise]. Thank you.
Next question comes from the line Ben Nolan.
Ask your question.
Hi, This is talking along on for Ben.
Had a couple of questions first given the weak market are you guys considering any consolidation opportunities you know I know you had in the past and [noise].
Just wanted to get your color on.
Your thoughts on.
Yeah. So.
I think last quarter, we we told people that.
At that time, it probably was not a good time for consolidation.
Because everybody was very uncertain.
As to the future and it was it was difficult to where are you know basically reach an agreement with anybody on the on a deal and I think that has changed.
I think people are getting more comfortable.
With the current situation and the future.
Getting getting more comfortable with how the world will react to cope with 19.
And we would be very interested in consolidation opportunities that you know.
Fit with our operations that.
I you know did not.
Increase our leverage.
No were not going to five fleet for cash and you know what you've seen us do when the past has not been to buy fleets for cash.
But to use our share at net asset value.
And you know if you could have an opportunity to do that we yeah. We will look at it very seriously.
Yeah, we would intend to make acquisitions in the dry bulk shipping market and not get into why other markets at this time.
Yeah that makes sense and then just a quick follow up for modeling question with the revised and industry edge would you say the interest expense this quarter's younger more.
No.
Normalized level going forward or would probably tick back up moving forward.
I think you'll see that it picks back up.
Simply because we'll have more debt, but create doesn't seem us maybe you want to talk about that in more detail.
Yeah. So so interest basically increase these even the larger data mile by approximately 2.5 billion per year.
But if they stay regional they're all even a much lower amortization is lower by 10 million a year.
Okay, perfect I make subs and that's all for me. Thank you.
Thank you.
Thank you and your next question comes from the line of run the Stevens with Jefferies. Please ask your question.
Oh, the gentleman how's it going.
Hi, Rand Rodney Hey, Tom I can you provide a breakdown of the Threeq you 20 quarter to date rate by asset class.
I'm also looking further ahead clearly you know iron ore trade is very strong with volley ramping up are you positioning your fleet to have more exposure to the Atlantic Basin as a result, and how do you compare the kind of strong iron ore market with them or tempered outlook for coal.
[noise], hi, rented specialists, so Q3 coverage <unk> their asset classes that the question.
Yeah, that's the first part.
Right our coverage for Q3 is about 60%.
At a high level, so a lot 12000.
Now we also have a little bit of although as I say a coverage suites are yet to two 6% to 768% and ER do admit above 12 and a half thousand.
No I don't remember my heart Oh.
The coverage spare sector I think that we have more covered on the comps and mix or size.
And and less on the less on the cable Mccabe we are.
Relatively we aren't as spot as we can be because were very positive about the next two quarters.
Okay.
And then to the second part in terms of.
Positioning in the Atlantic and then iron ore as coal.
[noise] well this is a and more complicated question.
It has a lot to do.
We the whether the vessels are hamzah feed that they're not meaning whether they can go to externally or not.
And what is happening right now is that.
As there is almost nowhere to to does embarked your cruise.
And therefore, you get a lot of people on board.
That are over 14 months actually we have a we have done it other work on that but will tell you later.
This means that.
They're not enough vessels potentially or the one be enough vessels to trade in the Pacific going forward and especially in Australia. This could get the rates up even though still in the Pacific vessels that cannot does embark crews and but by definition can.
Trade into Australia will have to start by Lusting, Dole words, South Africa, or Brazil, et cetera, and that would actually lower I mean make make the market or in the the Atlantic easier for charters in the Pacific well.
We'll see.
How it goes so we don't have a definite plan all going oh, sending our vessels, though was the Atlantic or the Pacific We think that the Pacific what does that anything strengthening substantially going forward.
Got it Oh My last question you know looking at your hedges.
You have 71000 metric tons remaining in the back half of 2020, you had 150000 tons hedge as of last quarter.
So does that mean you have not added any hedges for the fuel in recent months and then on the other hedge on your interest rate hedge which is probably more impressive in important.
What is your all in weighted average interest rate now.
So Randy do your first question at the the answer is yes, a fair amount the we have no idea.
On a the fuel spread hedge eats a that's the 14000 per month that we have hot since the beginning of Twentytwenty effectively.
And to your second question, we have averaged.
A fixed.
Base interest rates of 0.458, so it's 45.8, Beeks, Florida and notional off one me 1.011 billion, which is about 67% of our current bank debt.
And for what Glenn.
And the average weighted average maturities out four years.
Right and I guess inclusive of the margin what's that.
Weighted average interest rate.
So our average margin right now across the fleet is that a it'd be below 2.5.
Therefore, the olean interest cost is slightly lower than 3%.
Hi.
That is it for me, Thanks, again, and I will talk huh.
Thank you Randy Thank you.
Thank you.
Next question comes from the line of Jae Min snack of value investors edge. Please ask your question.
Hi, Good morning, good afternoon, gentlemen, thanks for taking my questions.
Good morning, Jay.
So the a the first question I have following up there with randy's good questions looking at your LIBOR swaps, a very impressive I don't think anyone can deny that you did 66% is that sort of the Max theoretical cap based on maturities and structure or is there a window to sort of fixed the rest of that adds to that these record low rates.
Well I you know we could fix more.
But.
You know if if you fix.
Everything.
And then you find yourself in a situation, where you can pay down debt.
You can get over swapped and so you know we have to keep that in mind.
Certainly makes sense so it sounds like a real reasonable theoretical cap. There. Yeah, you did some sale lease backs to to open up liquidity and I think that makes a lot of Sanchez as we have 100 million dollar current account deficit heading into the next year, but it looks like you bridge most of that gap with the lease backs I think now you have.
36, total if I'm counting please correct me if that's wrong that's about a third to fleet what is sort of the reasonable level at which you would say like that's the most lease backs we could do as it is at half. The fleet is a two thirds the fleet what sort of the cap well I I mean look.
Basically we have Oh, yeah. After all of the existing refinancing transactions close.
We have projected so much cash.
That.
We probably don't need anymore.
Yeah, we're in a situation where.
We look out as far as we can see and we don't have a cash problem.
At all.
So I I you know I I don't think we're going to be trying to do anything heroic here to add to our cash.
And if I may add Jay I mean, theoretically we could finance the entire fleet, we saw a sale and leasebacks because.
The types that we do are much lower leveraged on war traditional sale and leaseback deals have been and at a much much more competitive cost. However, we will know put all our eggs in one basket because we're effectively forging here relationships.
We are all the major western shipping bags attractive right now some American shipping banks like Citigroup.
And then Chinese.
Both leasing institutions as well as banks, we to our major providers of copied, though then jump I knees sale and leaseback houses as well as banks and then Taiwanese banks as well so.
We think that is why why is that we cast a wide net as far as our finance years are concerned because our in times like these a which is a very difficult time to be talking about new she financings a it really helps to have a very good relation.
It seems across a wide spectrum will find then Sears.
Yeah, certainly certainly makes sense and that's good to hear that you feel like your cash runway is good we wouldn't want to see similar appears have had to do dilutive offerings or.
Advanced themselves into very speculative industries, so I'm glad you're not following that path final question kind of a repeat of what Randy was getting at Cape sizes like we had a spike in June but it was kind of short lived where are you able to what did you fix anything on that or it sounds like you stayed mostly spot and if you state spot. If you don't have the numbers now is there any way you can follow up maybe later with a new slide or something.
I think to.
Provide segment guidance for those for Q3.
Oh, Hi, Jay Spectrums, yes. So we the intention is just to stay sport, we think that.
The Cape market, the will to Spike fair there. It during the next five months, a we see Brazil, exporting probably 50 million tones sort of 55 million tons more than a then let's say first top of the year. If that is correct then Uh huh.
And <unk> and the if that would be in addition to them to the Australian exports that would mean that we would need at Honda than 50, 260, more capes to do the job. If if that is the case and combined with all the inefficiencies that we're seeing him.
The market like you know we have to.
Those deviate too boards, and and Ah does embarked gonna crews and wait for they sometimes they're like right. Now there are like almost 70 bulkers in Manila waiting to these embark.
The cruise a with all that they the additional tons and the inefficiencies in the market, we believe that and and more bauxite from West Africa. We believe we'll we'll we'll be seeing a very strong market. So we will keep the fleet spots.
Excellent. Thank you very much for that that good guidance and answers.
Thank you.
Thank you say run there further questions at this time.
Please continue I would now like turn the conference.
Speakers today.
Nothing more to adds operator, thank you very much and have a nice August whoever one oh that goes on vacation.
And stay safe.
Thank you, ladies and gentlemen that does conclude our conference for today.
Well for participating you may now disconnect.
Thank you.
[noise].
[music].