Q3 2020 Star Bulk Carriers Corp Earnings Call
Please continue to standby feel confident will begin shortly.
[music].
Thank you for standing for ladies and gentlemen, and welcome to the Star bulk <unk> for the school and the third quarter and nine months for 2020 for not sure.
We have we GAAP, Mr petrol Star <unk>, Chief Executive Officer, Mr., English Norton, President mR.S. GAAP chief.
And officer Mr. simple spirit I missed the Christos Begleris co chief financial officers of the company.
At this time all participants are in a listen only mode. There will be a presentation followed by question and not for session at which time. If you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be and <unk>.
I must advise you that this conference is being recorded today and.
That's helpful to one of your speakers Mr. Patrick. Please go ahead Sir.
Higher, but I thought we should see must be too.
Thank you I actually was paid with co Chief Financial Officer of Star bulk Cardio scored and I would like to welcome all of you to the Star bulk ideas conference call regarding our financial results for the third and fourth or Twentytwenty.
Before we begin I kindly ask you to take a moment to read the safe Harbor statement on slide number two of our presentation.
[noise] today's presentation, we focus on an overview of our Q3 results Oh Scott's evolution during the quarter I would go for they show for for months and the industry fundamentals before opening up to questions.
Let us now turn to slide number three of the presentation for somebody or for third quarter Twentytwenty financial highlights.
And the three months ending September Thirtyth, U.S., Twentytwenty, PC revenue, which amounted to 137.8, maybe and 4.9% higher than the 131 point and feed me little for the same period and 29%.
Adjusted EBITDA for the third quarter Twentytwenty was 79.7 million Bucks for 72.2 million instead for their 29 theme and increase of 10.4%.
Adjusted net income for the fed for dirt amounted to 27.3 million or 28 cents per share.
And for 17 points being de Leon adjusted net income for 18 cents per share in the third quarter of 29%.
Our time charter equivalent rate during the quarter was $13083 per vessel per day.
Oh Gosh two day stands at 225 million, we thought that that's not the approximately 1.6 day 3 billion pro forma for and only we did see well for working capital facility.
Our strong cash flow generation and a third for dirt in combination with how recent refinancings have increased significantly <unk> our liquidity.
Until today, we have completed eight refinancings for 30 by sales increasing our liquidity by 107 million net for any financing fees.
In addition, we have secured commitments and we are in the process of drawing down funds for them to financial institutions to refinance and additional fiber shows which after repaying outstanding debt I'd expect somebody leaves net proceeds of approximately 5 million for a total combined benefit.
And another 30 million net of fees.
Slide number for graphically illustrates the improvement in the company's GAAP balance during the third quarter.
The company started the quarter with 107.6 million in cash and generated positive cash flow from operating activities, well 57 and medium.
After getting through the day, including net proceeds from the financing side any payments capex payments for crop and ballast water treatment systems.
We arrived at a healthy cash balance of 222.1 million and at the end up and <unk> quarter.
I will now pass the floor to our CEO all nickel. So that's gross for update on our operational performance.
Thank you see more.
Please turn to slide number five where we summarize our operational performance.
Opex was up $4244 per vessel per day for the third quarter for 2020.
The increase was primarily due to increased for wasn't logistic expenses during the quarter to service. Our fleet. However, we expect public levels to normalize during the fourth quarter.
Otherwise our vessels have operated largely uninterrupted during the third quarter, despite the cold and 19 pandemic.
For the nine month 2020 period will continue having operating expense of 13% below or at least the peer average.
Net cost and expenses for $985 per vessel per day for the quarter.
The combination of our in house and management and the scale of the group and enables us to provide their services, that's very competitive cost complemented by excellence it management capabilities.
Star bulk is consistently ranked among the top five ship managers about <unk> by Rightship and.
It would count for your rank us number one amongst our at least it fears.
As of today, we have no remaining dry docking spending for 2020.
We're currently operating a fleet of 114 scrubber for the vessels that they are not going to gape I've already operated consistently for more than 38000 days.
I'll now pass to flow to our CEO Petros Pappas for a market update and his closing remarks.
Thank you Nicole.
Please turn to slide six for a brief update for supply [noise].
During the first and months and when do you see it doesn't look for the 1.6 million dead weight was the Louisville.
And flow point 4 million weighted was simple demolition for.
For a net fleet growth of 29.2 million deadweight or 3.3%.
Well be 19 has created strong supply chain efficiencies since April.
One of the themes and growth change this inflating port congestion and grazing short them religion and sort of the digital vessels.
New environmental regulations, and sponsored and greenhouse gas emissions are expected to keep newbuilding activity under control over the next few years.
The order book has decreased low six.
6.3% of that fleet with just 9.1 million deadweight for more there's <unk>.
For the by Clarksons year to date.
Furthermore.
Right.
And then starting and breakers.
After nearly two years of absence isn't latest crop prices and so make the middle east and the world that on EPS and more attractive for sleep owners.
So we expect net fleet growth to stay below one and a person and on during the next several years.
Despite the strong correction and crude oil prices the average student and speed of the dry bulk fleet during the year was down 0.5%.
Approximately 11, and <unk> notes and.
And also I am low low sulfur regulation and that speaks to more expensive vila simple.
And recovery of crude oil prices in the medium term is expected to further incentivize slow steaming and we'll play here all day for freight rate levels wasn't done this and May also increase scrubbers savings.
Let's now turn to slide seven for an update of the month.
And then just when he has been challenging portrayed as quotas and they seem that has affected consumption and the supply chain all dry bulk cargoes of.
According to Clarksons total as I bulk trade spending.
And then he is estimated to decline by 2.7% and dorms and 2.3% and done lives.
Right and that has been the driving force of the recovery and.
And maybe importing ready for <unk>.
And more soybean and bauxite during the last month.
However, economic activity from the rest of the world remains weak whether I think one cents on the bulk of the second round of look downs and especially in Europe.
And it wasn't even though the availability of vaccine and the COVID-19 treatment by the end of <unk>.
This year supports and economic crude bomb during wednesday's and one and two.
The synchronized global economic stimulus.
As expected and folks and the construction sector and and fate dry bulk trade during the next years.
And more does he later and ore production is gradually recovering from the <unk> Wednesday, 19 room and Daniel.
And disaster and will inflate on miles over the next few years.
And when do you plan to one clarksons expects that type of trade growth.
3.9% and thoughts and 4.4% and.
Yes.
I don't know 30 miles doing really well and they are projected to expand by 1.7 per cent.
The pandemic, so and that has produced a record high volumes of crude steel since April and raise iron ore imports by 11% during the first and most of it.
However, steel production from the rest of the World continues to underperform, and but also down 7% and year over year.
During the third for their Brazil, iron ore exports increased 11.5% last year and hopefully this will be the star of the long term upward trends.
Well I had said that and annual production target.
$400 million make when they do.
From slightly less than $350 million during wednesday's twin.
[noise] coal trade has been affected the most from different than this year and is projected to contract and 9.9% they've done miles on top of that strong keeping and global consumption and.
Attention with Australia, and supply disruptions in Colombia, and had the strong negative effects on vessels requirements with longer distance today declining the most.
During the first nine months for the year domestic coal production in China as well as they need the other increases and faster pace than their mother like <unk> and the combination resulted.
And then increase of stocks and lower imports required.
Having said that.
Expectations for public colder than average weighted or do you.
Let me conditions and the global industrial recovery is doing well and one is expected to reverse that and creating a favorable outlook for coal trade with.
And it wouldn't be 1000 miles for zixone by Clarksons to rebound for <unk> and 7%.
Grain and soybean trade during the day this particular through increased 5.6% and bone mass and the bulk of it saw increases in Latin America, soybean exports and and quality of U.S. exports is down and that is part of a phase one they do.
But it seems like me and export season has ended with record high volume Sip from that country, while U.S. outstanding Great and sales staff that that goes I love it.
China's demand for grains is expected to remain strong during the next few years and the next five year plan, we focus and food security and the bulk has recovered from the African swine fever.
Minor bulk trade unions.
And is expected to decline, but if one seven per cent they've done miles however, west Africa bauxite exports continue to expand the EBIT by strong project price.
Right and generating something miles for Capesize vessel.
The positive effect from the global stimulus B cell during the one and but this is too low.
Sales focus and minor bulk trade to expect experience and 5.9 per cent rebound doing well and the one.
Finally, as it's and I'll common for supply demand balance during the next few years looks bounce for sites and and the appropriate conditions are lining up for a sustainable recovery to take place.
Q1, and possibly could go up next year, and maybe slower for as long as koby, 19, and still prevalent, but west and vaccine and the three men are mass produced and available we expect markets to rebound strongly.
Without taking any more of your time I will now pass the floor over to the operator to answer any questions you may have [noise].
[noise], ladies and gentlemen, other reminder.
Ask a question. Please press star one on your telephone keypad and what's your name.
Oh for US questions for today is from Ron begins and Jefferies. Please go ahead.
Howdy, John and How's it going.
Hi.
And so that zone that well I guess first question on the sale leasebacks and all the incremental liquidity from that.
Can you give us a weighted average interest rate for those deals just kind of seeing what the cost of financing was and then secondly, how does this affect the kind of dividend formula and the calculation for your kind of cash balance.
Oh, Hi, Ravi its Greece, those so basically the average.
Hi, gene or for those new financings easing the high twos you to around 275.
And that's the average for the for that 500 million no facilities, including the 60 million that we will be drawing and the next a few weeks.
And effectively and these refinance a and that's all for approximately 390 million which was.
Was priced 20 basis points higher than the new financing. So the interest cost is down on a larger amount and then b b and what they station.
He's a actually quite a lower on the new day resolving in a new sort of interest cost for the 500 million that these day media and per year lower than what we had on the 390 million that we refinanced.
Got it okay. Thank you for that and and for the Devon and calculation now.
Oh I see.
For the the dividend calculation.
You know is based on the as you know cash on the balance sheet relative to the number of ships we have but.
But you.
You know a lot of the cash on the balance sheet, right now and and perhaps a bit more later, it's going to be from refinancing existing ships at higher leverage right.
Where basically we have the option of counting that.
Cash from refinancing to count toward the dividend or not.
Hi, [laughter] to this point, we have we have opted to basic.
Basically not count that extra cash as counting toward the dividend.
It's possible that management and the board.
Will change its my and at some point, but.
I think basically the intention of that dividend provision was to take into account cash generated from operations.
Got it and assuming you aren't just borrowing is to pay it out and the dividend, but just saying no.
Yes, I mean, just.
Net that off you know because.
Going into it fourth quarter, you're supposed to and how are you supposed to have 1.6 million a per vessel and then the incremental cash was to be paid out as a dividend correct.
Correct. So now does that and 1.6 number go up or do we just take your cash balance and reduce the excess liquidity you got from this refinancing what's the best weighted calculus.
I I think basically you should net off the extra cash that we've gotten for refinancing.
Got it at least for the time being.
That's fair and net I guess in terms of use of cash is just just to to build a fortress balance sheet and case, there's a very soft market and 21 and are you looking at some fleet renewal and maybe some second hand acquisitions like where do you see they use a class and kind of your your fleet going for.
For it.
Okay.
Yeah, I I think for the near term you should think about this cash as you know <unk> cash on hand and case.
We have a pandemic and last I looked we had a pandemic so.
And there is this.
There's more risk in the world and die and that was why we wanted to refund and some of our ships to generate some more cash.
You know obviously, our intention is not to keep large quantities of cash on the balance sheet indefinitely.
So we will we will be using cash.
Yeah for productive purposes.
[noise] noted.
All right well I have a few more questions, but I will I'll hop off and that's okay. Thank you so much.
Thank you.
Our next question for <unk>.
No.
Please go ahead.
Yeah, Thanks, Hi, guys.
For.
Following up on that last one a little bit.
Obviously.
One of your competitors and been really busy selling assets and at least historically speaking the error and.
Pretty low prices and.
Relative to say average and modern asset values.
It is that at all interesting to you is that something that you're looking at or are you thinking of it pretty much is.
Similar to what you've done in the past if you can get a ship.
Chip for shares type of a situation and maybe look at it otherwise.
Not.
I think basically you know given given where our share price is.
At this point I ship for share this transaction could could be quite interesting.
And.
And you know basically ships for cash.
At this point probably less so.
Okay.
And Ah and another thing I, I know and having lived through some of your free previous presentations you.
And it's it it appears to be pretty pleased with the CCL goal for the Capes and Newcastlemaxes and.
The I was curious well first of all assuming that that's correct.
What would you or or how do you think about maybe.
Deploying the kamsarmaxes or or supermaxes or or other.
Parts of the portfolio and two similar.
Scalable arrangements.
Hi, Ben do you do you mean for this business do you mean, the weather, we would form and pool on capex, so on non-GAAP, sandboxes or or so for us.
Well you tell me.
And the it looks like the CCL Bulls working out for you I don't know is that is that a something that you would like to apply to the rest of the fleet and in some form or fashion.
Actually to be honest with you I think that makes even more sense to be and the pool for smaller vessels. There is only the following day. When you have a big number of vessels you have them dispersed all over and starts in Austin and.
Therefore, when new business comes in and you have a bigger probability that you're going to be closer to the low as imports and that actually happens more with smaller vessels, meaning so for us and supernatural does and the Panamax comes and Mikes then with cash.
Excuse have set through so you cannot actually get as much of and advances as as you moved on other smallest kids' choice finding enough. We've been discussing these the last few days is that formation, all but its full on a and those smaller sizes.
This wouldn't be beneficial going forward.
Okay interesting.
And then lastly, I don't want to overdo it on the debit and question, but I do think it's important so and should we again and that the calculation, it's become a little bit more ambiguous a shiite.
See I assume that and and until the market gets better for you, there, where they're probably not going to be any dividend payments for that sort of the the read through here.
That that's.
That's probably the you know the the logical.
In conclusion.
Yeah, I mean right.
Yeah [laughter].
[laughter], yeah and.
Market a market at this level could lead to a dividend eventually but a dividend in the near term probably requires a better market.
Right and part of that and then said we wouldn't be shocked if we see a better market next year.
Sure.
And as part of these new financing Theres no restrictions on your ability to pay or anything of that it's just a decision on your part correct.
Correct that's correct.
All right that does it for me thanks, guys.
Thank you Ben.
Thank you very much and next question is from net.
Ross and Deutsche Bank. Please go ahead.
Thanks, Operator, hi.
Everybody I'm, sorry, I dialed in.
So the question forgive me if this has been answered but did you guys provide a.
Corner bookings percentage and range and Christos or Simos I think.
Some of the refinancing gymnastics you guys have done I think your breakeven to actually come down from 11000, plus level and you can just give us a finer point on what the breakeven is.
For all that stuff that you guys have done.
Hi, I'm, especially those.
We have a booked about other than the 65%.
All of our other fuel for.
At the levels of about 13, and a half thousand dollars.
No.
35% less.
It's probably going to be lower because the market has gone down.
Right now I would say that.
Well drives our mean high nines and Panamaxes are around then and Oh and Capes around 13, 13, and a half so I would expect that a this thursday and and Oh thousand doesn't fix up and no make goes down.
Two about what's weve seen during Q3 unless of course, if the market moves up and then last 45 days of other quarter, which I wouldn't know through low.
As for I'd break that out.
And I don't have scrubbed is I don't know if scrubbed are on script basis for the numbers that you're providing.
Yes.
These are roughly on this club base growth.
Basis, Okay, sorry go ahead.
As for our break even and let the Cfos think of this as a part of this part of the question.
I I mean I have for my side squeeze those so basically our break even or a cash breakeven as you correctly have I pointed out has actually dropped to slightly below 11000 per day, we are around 10900 or NAV on a cash basis.
Okay, Great and then came and <unk>.
The price that there's so many questions are on dividends because of the market is not that great right now.
But I wanted to kind of use that as an opportunity to revisit the whole strategy behind the dividends and correct me if I'm wrong, but.
The whole kind of motive behind the dividends for us to allow the equity value to trade above above any day.
I will give you a currency to de lever the balance sheet and then you had basically a de levered kind of dry bulk company with job is commensurate very low breakeven and I mean, the outlook for the market is incredibly different and when it was a year ago, it's not bad, but it's not the super cycle that we once predicted prior.
Prior to the cold and crisis as it relates to 2020, so and that contacts and I'm just wondering like just a dividend hold out for.
Much of a priority and your head for the company's mine.
And it did this time a year ago and the context of what the outlook is better, but it's not necessarily that the the windfall opportunity that you guys thought it was a year ago for all the stuff.
Oh, I know I think that dividend is just as important as it was and frankly you know I.
I think the opportunity maybe better than it was.
And you know.
The opportunity for 2020 was obviously that we were going to have a pretty good markets without the past and <unk> and we have great returns on the scrubbers.
[laughter], which obviously was affected quite substantially by the pandemic.
Going forward, we have a ridiculous Lee low order book Yeah.
Yeah, we have very tiny fleet growth expected.
Next year, well below what we expected it to be the growth and the ton mile demand.
And yet [noise] Kuwait.
Who is going to be brave enough to order a ship next year.
Right I mean, if you order a ship next year, you're making a bet.
She the political acceptability of your fueling choice.
No five years out from from the day to order and nobody knows.
There's tremendous uncertainty about what sort of ship you're supposed to order.
And you know how long that ship will be grandfathered and so we expect frankly that the order book will remain very low even in the face of pretty good market.
Which.
He has tremendous opportunity.
Okay, and and and then.
Just related to this scrubber I mean, the scrubber economics are not horrible there. Okay. I mean, there's still a spread in terms of high that's all for fuel can you just baseline and that spread today I think it's like 60, $70 and you know, obviously and well price.
Oh, well prices are coming back higher.
Jet fuel diesel GAAP distillate demand and general should improve.
And the post vaccine world.
It would be possible that like the scrubber economics become more compelling, even though they're actually pretty decent now even at $70 spread out yeah, right and left yeah, let's put it this way and at $70. It's a decent return on investment.
You know at 150 or $200 or $250 it becomes and you know.
Better than a return on investment.
Yeah, you know what what's crucial is demand for low sulfur refined product.
And you know I.
Right now basically since there is so little demand for jet fuel and diesel demand is somewhat suppressed.
On the <unk>.
Most profitable low sulfur product of a refinery is is low sulfur fuel for ships, which is.
Very unfortunate.
On the point is that the scrubber economics, but once jet fuel demand comes back and and diesel demand comes back.
Yeah, it should be quite extensive for the refineries to produce a marginal barrel.
For the low sulfur fuel for ships.
Because it's a self for removal of capacity at the refineries.
And we'll be stretched.
And she does not today so.
So yeah, the scrubber economics should come back faster.
And the increase in oil prices.
Okay. That's interesting and then the last the last question I had if I could I guess this is for Christos and Simos you guys decide to put our press release and the press release. The fact that your you know comply and with all your covenants, which obviously you are given the fact that the net debt is coming down and the company, but obviously like.
That begs the question of like what is.
The the covenant and and how quickly or asset values declining relative to your ability to you know lower the liabilities for the company and and and so last quarter. You were very helpful. In terms of providing where the gross and net ltvs were I guess the banks, maybe look at it on an asset to value basis, I don't know how you look.
Got it internally, but you know it would be really helpful. If you just help us think about what the pro forma the.
The value is on a net and gross base, especially given there is there is a seller of assets seemingly at any price to diversify away until like.
A random kind of business, but I'd just love to get your perspective.
[music].
And so there is a big box for the short answer I mean is that there's a bee bought for the value Goldman and that we have for our fleet.
And the corporate Goldman and that we have right now is that 70% and that's on the basis or.
Basically told debate over total assets, including our cash and then net debt.
Labels that we have for our fleet, which would you sort of and if we even and ratio to the Goldman and.
Based on the values that we have eyes off.
The Thirtyth of September because essentially those Goldman and I tested at the last day of each quarter.
Yields are a ratio that is in the mid Fiftys and therefore, there is there is plenty of buffer and room or even me for any competitor flooding the market and are the price for their values biologics and.
And is that is that and value that you guys come up with or is it and independent appraisal of the assets like who comes up with what the value of the asset is at the end of the 90 day period.
And we wish we could we could come up with our own valuation.
[laughter] Oh no basis for man for met Preselected group, all five by viewers and he and the likes of Clarksons Graeme are.
Et cetera, so the big sort of by brokerage houses.
Got it okay. That's it for me guys. Thank you for the time and good night.
And I. Thank you and do you think.
And next up we have some for questions from non beekeeping. Please go ahead.
Hey, guys me again, and just a quick question following up on the hedges right. You have I think 8000 metric tons remaining in November and December.
You had 71000 tons or so last quarter. So I guess for 2020 does that mean you haven't added any hedges recently and then your prior press release stated you had I think 24000 tons and 2021, but your cry and press for these doesn't mentioned 21 did you.
Sell those are what is the status of those.
Hi, Greg we have liquidate and those are around and the win or 2021 was a at levels below $60 for dawn.
And this has proved the so far at least two to be a good moving even that are right now.
2021, or the spread trades at around EUR $80 for Dawn given also the latest announcements about a if I've seen and further progress on treatment for Colby.
Got it and then can you help with the ER and getting to the 266 per ton that is sizeable what was that were those just locked in at the beginning of the year and that's just kind of a remaining positions.
Yeah, those were essentially locked in December 2019.
Well it was a and very different world to where we are today.
Makes that got it.
Well that's it for my follow ups I'll, let you go thank you.
Thank you Hi, Randy.
Next.
A question for waiting I'll now hand back because.
Thank you operator, and no more comments from us.
Good night and stay safe.
Thank you for him so.
Ladies and gentlemen that does conclude the call. Thank you everyone. Joining you may now disconnect.
[noise].
Welcome to outcomes and school. Please continue to stand by your confidence for begins shortly.
[music].