Q1 2022 Diana Shipping Inc Earnings Call
Greetings and welcome to the Diana Shipping Inc. 2022, first quarter 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. Please press star zero on your telephone keypad as a reminder, this conference is being.
Recorded it's now my pleasure to turn the call over to Edward <unk> Investor Relations. Please go ahead Sir.
Thank you, Kevin and thanks to everyone, who is joining us for the Diana Shipping Inc.
2022 first quarter conference call, let me remind you too.
Be aware of the Safe Harbor notice, which you can see in the presentation that accompanies today's call, but I will just remind you that certain statements made during the call which are not historical facts are forward looking statements under the safe Harbor provisions of the private Securities Litigation Reform Act are.
With us today from management are semi Roomies, Palio, Chief Executive Officer, Anastasia Macaron ish brush.
President Jan yourself, a raucous CFO Chief strategy Officer, Treasurer and Secretary.
[noise] Stereos puppetry phone, Chief operating officer, and Maria data Chief Accounting Officer.
Now without further Ado I will turn the call over to Samir armies volume Chief Executive Officer.
Thank you Ed good morning, ladies and gentlemen, and welcome Diana Shipping Inc. First quarter 2022 earnings call. My May now that said that made them <unk> the company's CEO and it is an honor to have the opportunity to present to you today.
Mr. Stacy might have it on me, let's say honest Mr.
Mr. Alastair is somewhat seasonal.
Many of those that are joining us today on this call.
Before I begin I kindly ask everyone to review the fourth and the forward looking statements applicable to today's presentation, which can be found on page four of this presentation.
Okay.
Okay.
Okay.
The first quarter of 2022 has been another fantastic quarter for our company following a strong fourth quarter last year.
Market conditions remained robust during the first quarter and allowed us to maintain our profit margins and continue generating attractive free cash flow.
As a result, we have now an even higher quarterly dividend, while we remain positive about the prospects of a market for the rest of the year.
Turning to slide five I will review with you the company's snapshot as of today.
But it is taking deliveries of our recent secondhand acquisition the motor vessel Melamine S. P C and our previously announced resale new building Capesize acquisition, the motor vessel, Florida, we find ourselves owning and operating 35 vessels in the water with a carrying capacity of approximately $4 4 million.
Deadweight tons.
And four vessels in our fleet remains on mortgage.
Our fleet utilization.
She has remained at very high levels coming in at.
98, 4% for the first quarter of 2022.
33 vessels in our fleet are managed in house by Diana Shipping services and two vessels are managed by our 50 50 joint venture Diana Williamson Management limited.
At the end of the first quarter, we employed 860 people at sea and desktop.
Moving onto slide six I will go over the highlights of the first quarter and its development.
More specifically in January of this year, we received approval for the listing over 125 million senior secured bonds on the Oslo stock exchange.
Tim became effective in February .
Also in February we took delivery of a 2011 Japanese built <unk> vessel the motor vessel no neither.
P C.
In March we took delivery of our new building Capesize acquisition, the motor vessel, Florida and at the same time entered into a sale and leaseback agreement with an affiliate of Japanese third party for her.
Also in March we paid out.
$17 2 million U S dollar as a cash dividend based on our previously announced fourth quarter 2021 dividend declaration of 20 cents per common share.
As previously mentioned the robust current market condition, how about to generate positive cash flows permitting us to be able to declare an even higher dividend of 25 cents per common share or approximately 21 5 million U S. Dollar for the first quarter of 2022.
Our board will continue evaluating the market condition for the declaration of potential dividends for the quarters to come.
Lastly, our consistent chartering strategy has allowed this to happen already secured approximately $183 6 million in U S dollars of contracted revenues for full year 2022, with a 78% contract coverage and $83 6 million U S dollars of contracted.
Revenues for 2023 with.
With 25% contract coverage.
<unk> will provide later on a more detailed analysis of our cash flow generation potential based on the current market environment.
Turning to the financial highlights of the first quarter of 2022 on slide seven.
We find ourselves as of March 31st 2022, with a cash and cash cash equivalents position of $115 7 million U S dollar, including restricted cash as against $126 eight continuous.
31st 2021.
Our debt net of deferred financing costs stood at 463 4 million U S dollars at the end of the first quarter of 2022 as against $423 $7 million at the end of 2021.
Our time charter revenues for the first quarter of 2022 amounted to 659 million U S dollars as against 41 1 million U S dollars for the first quarter of 2021.
Lastly, our earnings per share for the first quarter of 'twenty to 'twenty two came in at 31% versus a loss of three cents per share for the same period of 2021.
Yeah, and if we also go over these numbers in more detail further on in the presentation.
Moving on to slide eight we find the summary of our recent chartering activity.
Once again.
Consistent with our conservative and disciplined manner.
We have taken back.
The market has absorbed the effects of <unk> eight vessels of our fleet.
More specifically, we charted to panamax come sandbox vessels at the weighted average daily rate of 23195 U S dollars and for remaining average period of 441 days because that's all.
We have also chartered six capesize vessels at the weighted average rate of 27821 U S dollars per day for remaining average period of 713 days.
It should be noted that the first quarter's pictures continue on the trend we started last year.
Slowly extending the overall duration of our charter.
We intend to keep chartering our vessels in a similar way by staggering maturities locking in cash flow positioning us in a manner that allow us to continue to participate in the market in a balanced way.
I now turn it over to Jan to go over the financials in more detail.
Thank you.
I'm going to.
I'm excited I'm excited about this quarter and I'm gonna be very quick with my presentation I'm going to be to the point and.
Looking at the slide number nine.
You can see that we have managed to keep all the.
B B.
Yeah.
We have done since then moves to keep our average age of the fleet almost the same as a year ago and at the same time, although we decreased the number of vessels.
With the sale.
Most of the proceeds of the sale as soon as November 2018, we have been consistently buying back our shares and as of today, we have purchased by close to 76 million shares.
And everybody's surprise of three points 58 per share.
Which is which goes or the big discount Duane Navy in our lifetime.
Uh huh.
It is clear based on our view that this has been proven to be the best investment strategy.
Improving the jobs on a percent basis are substantially.
So if we move on slide number 10, you will see that this is.
How we have ended up with zero safety to our net income per share.
Today, while at the same time, we have kept our balance sheet at the same condition in all of these profiles very very low.
Addition to the above this is also the reason why we can't pay substantial dividends today and also it looks like these are these can be even improved in the near future.
On slide number.
11.
I talked a little bit about our AR.
Our balance sheet by diving that are in this slide you can clearly.
She had strengths all cash and cash equivalent and restricted cash.
Ease of handling a $15 million as of March 31st of 2022, and our our long term debt and lease obligations only $463 million or something.
Not only are these very low but also it has a very manageable amortization schedule, which we can see in the next slide.
Yes.
As you can see the first balloon payment that we have where it comes in 2023 and actually this you said during the third quarter of 2023.
Do you understand that this is a very important Costco wise and also.
Regarding our ability to pay dividends.
Moving to slide 13.
You can see that our cash flow breakeven is also evident here that we have kept it very low.
Considering the fact that we have secured income for the 70% to 80% of the remaining days of 2022.
More up close to $25000 per day.
Can clearly see the free cash flow of Globe Potentiality and then we have another slide four for that later on but in the meantime, you can see also on slide 14.
Yeah.
But we still have 27% of Unfixed days for the remainder of 2022 and the average duration about existing charter she's only zero 75, or 79 or a year.
Slide number 15.
I think this is the essence of what I'm trying to say here.
You can see the free cash flow generation potential of the company. If we assume that that got into FFA rates prevail for the Unfixed days of ours.
For the remaining of the year, we can generate another $7 million to $7 million or so for free cash flow.
And not on $207 million.
In the year 2023.
Well since you are one of those that believe that the market is going to.
The stronger and stronger than these are cash flow generation from the much much different than on the positive side.
And having said all of these things I would like to move the.
Now too.
Maybe a floor in some states you might go wrong just to talk about the market conditions update.
Thank you Johnny I apologize in advance because my presentation will be slightly longer than the youngest isn't maybe not as exciting but.
I will move on to save time.
Has he been so huge importance for the world economy have taken place since our last presentation, we need to try and look at factors affecting shipping with an eye on the ongoing conflict in Ukraine, and the continued aggression by Russia towards that company.
The latter is bringing wave after wave of sanctions against Russian Federation, each with its own effects on world trade energy prices in the shipping industry as a whole.
On slide 16, the Baltic dry indices have shown and they reflect quite accurately development in the bulk shipping sector. During the first five months of the year.
On January 4th the BVI.
Started the year at 2285 on May 23rd.
Those that 3369, the Baltic Cape Index as to the 2000 and 360 on January 4th and after several oscillations. During the first few months of the year closed at 4006 or two on May 23rd.
The PPI index. The Panamax index moved from 2874, two a year high of 3416 on March 28, and closed on May 23rd the 3377.
On slide 17, we can look at the growth rate. According to the IMF in OECD World GDP is expected to grow by three 6% both this year and next.
Chinese GDP will probably grow by about four 4% this year and five 1% in 2023.
These numbers will vary depending on the pandemic restrictions in the areas, which are they will affect us going forward and obviously the time.
They will be lifted some recent projections for Chinese GDP growth over the next 12 months at less than 3%, which is less than the projection for the U S. GDP growth. The first time this would have happened since the seventies.
In the U S. GDP is expected to grow by three 7% this year and by two 3% in 2023 in the Euro area growth is expected to come in at two 8% this year and two 3% in 2023.
Here again developments in energy availability and price will play.
Play a determining role in the final growth figures.
Turning to slide 18.
According to Braemar, so far this year crude steel production on a global basis has dropped by about five 6%.
And that's 465 million tons.
According to Clarksons total steel production. This year is estimated at 30 129 billion.
Billion tons with China, producing one point or two 8 billion tonnes, Japan, and Europe , I would expect it to increase production by 3% and 2% respectively.
Hi, Ron ore Clarksons predict that total iron ore imports will increase by 1% this year and a further 1% in 2023, reaching 153 8 billion tons.
As for China, Clarksons expect the imports of iron ore to dropped by 1.5%. This year to one point O 9 billion tons. The main reasons are a continued slight decline in the steel output and increase of scrap use by steel mills, plus a moderating pace of inventory building caused by recent.
Price increases.
Coking coal now imports worldwide that are expected to increase by 2% this year and a further 3% in 2023, reaching 281 million tons in 2023.
In Europe , Clarksons expect steel production trends and hence coking coal demand to be firm. This year has the continents steel industry works to replace much of the imported steel historically sold from Russia and Ukraine.
As a result European coking coal imports are expected to grow by 4% this year.
Suppliers, excluding Russia look type so buyers need to look further afield for extra volumes.
According to Howe Robinson coal trade patterns have been changing lately initially more Australia coal moved into India is trying to increase their imports of Indonesian coal.
More recently, India reduced imports due to high prices of over $500 per ton and European buyers stepped in to take some of the slack created by India. After embargoes have started being placed by the EU on Russian coal.
Therefore, despite reductions in volumes ton mile demand in dry cargo in general.
It has benefited from such changes in trading patterns with longer voyages and lengthier stays in ports.
As regards thermal coal according to Clarksons, the global seaborne thermal coal trade will probably remain steady this year at around 964 million tonnes with China importing 9% less thermal coal this year than in 2021.
Differences between imported and locally produced coal together with government policies on imported coal will play a big role in formulating the final import volumes of this commodity to China for 2022.
[noise] screens now clarksons predict that total imports of all kinds of grain cargoes will go down this year by 4% to $5 3 million tonnes. While in 2023, they expect volumes to rise by 3% and reached 521 million tonnes within these total numbers, our soybean and soybean meal exports.
<unk> to grow by nine 3%, respectively, and coarse grain exports expected to drop by 8% in the 2022 2023 season.
Exports from the U S, Brazil European Union, and Canada, I'd expect it to grow this year, while exports from Australia, Argentina, Russia, and Ukraine are expected to drop some dramatically due to the war in Ukraine.
According to Maersk broker Ukraine current grain export capacity is estimated to be around 450 to 700000.
Once per month compared to between five and 6 million tons per month before the war started.
Here, we need to point out the traditional buyers of grain cargoes from the Black Sea located in the Middle East and Asia are already looking towards the U S and Europe for additional volumes.
Turn to slide 19, and look at World shipping with the exception of tankers and bulk carriers. We have all other types of vessels being ordered in huge numbers with the order book ranging from about 35% of the existing fleet for LNG carriers to about 25% for container ships and about 20 per.
Sense for LPG carriers, all numbers are based on deadweight tonnage.
According to Clarksons the bulk carrier order book consists of 776 bulk carriers, which represent about six 6% of the world trading fleet.
From this total 118 vessels are capes, representing 6% of the trading fleet by deadweight.
There are also 246 panamaxes on order equivalent to 85% of the existing trading.
Bulk carrier new building prices have increased since last year from between 13, and 20% depending on the type of vessel and shipyard.
Bulker fleet growth is projected by Clarksons at the modest two 2% this year keeps increasing by one 8% and panamaxes by two 7%.
Clarksons predict that after a softer demand growth this year fundamentals could improve in 2023 with demand increasing by 2% versus fleet growth of less than 4%.
Capes by 8% and Panamaxes by 8% as well.
Let's look at the fuse now that the ships will be using as regards the fuel which all these new buildings will use the numbers are continuously evolving according to clarksons with an expanding banqueting network and proven technology LNG remains the leading alternative fuel today featuring in 59% of orders in.
2022 overall types of new buildings.
However, some owners have already opting for what Clarksons referred to as few Optionality.
There are 20 orders or more in 2022, so far for LNG capable plus ammonia stroke methanol already units for potential later conversion.
A significant number of methanol and.
Ammonia and hydrogen capable vessel designs have also received approval from classification societies. This year with shipyards marketing a portfolio of alternative fuel options to owners, obviously at considerable extra cost to the standard design.
On the environmental front, the European Parliament Committee on the environment voted a compromise amendment according to which the maritime sector will be included in the European Union's emissions trading system from first January 2024, and not from first January of 2023.
If this change goes through the European Union's formal approval process, there will be no phase in period, that's pretty the existing legislation and it will come into full effect from January one 2024.
We will know by September this year. If this amendment will have received the approval from all the relevant U S European Union Department.
Turning to scrapping now according to Braemar <unk> about one 3 million deadweight worth of Capes have been committed to scrap yards. So far this year and only 200000 deadweight worth of Panamaxes.
The expectation for the year as a whole according to Bang here of course stays at about 70 Bulker, a five point 11 million deadweight will be demolished in 2022 based on their age profile and recent demolition training.
In the traditional Cape sector or 3% of the fleet is over 20 years old and another 15% is between 15 and 19 years old in the Panamax sector, 16% of the fleet is over 20 years old and 13% is between 15 and 19 years.
With environmental regulations gradually coming into effect. Many of these ships may have to head for the scrap yards over the next couple of years.
Now turn to factors affecting dry bulk shipping supply related to the pandemic the war in the Ukraine, and some trade fruit inefficiencies.
Slide 19, again Braemar point out the following reasons, which have provided support to the dry bulk market recently from March this year onwards, and which continues to provide support.
Firstly visits by ships, the Chinese repair yards have become longer mainly due to the disruption affecting the labor force caused by the resurgence of COVID-19 infections. Secondly during April there has been an increase of about 43% year on year of bulk carrier tonnage, arriving in the ports of Amsterdam, Rotterdam and Tam.
Verb to discharge cargos. The main driver of the strength has been the extra coal imports into Europe .
The $24 1 million tons in April as the highest level seen for the last five years and this has created congestion and delays.
So.
Overall, the above combined with online supply chain issues, which are rail and trucking constraints have created delays in loading discharged ports with the inevitable consequence of making voyage durations longer across all vessel sizes.
Supply squeezes, therefore, starting to develop.
Disruption due to Ukrainian wall as regard the grain trade there is no doubt according to financial analysts that the closure of all main Ukrainian ports will make it very difficult to supply global markets with grain this year.
Concerning cold the European Union decided in April to phase out the imports of coal from Russia by me doors at Kohl's can be readily imported from other sources. This embargo should have no significant impact on eurozone economy, and if anything will prove positive for the bulk carrier vessels performing the straight preferred or in a way loads.
Imports leading to increased ton mile demand for coal shipments.
As regard to gas and immediate gas embargo by the European Union with most likely tip, the eurozone economy into recession still.
Still the current discussions as regards oil and gas suggest that the European Union is highly unlikely to agree on a gas embargo in the foreseeable future or on any other measures that could result in a further major spike in prices and for a need to rush and supplies.
Moving on to slide 20 as of today.
Well Mountain standard Capesize time charter rate stands at $31000 per day, and the capture of Max 12 month time charter rate is at around 30250 per day. These.
These are very healthy numbers, indeed, and at the same time.
We do not believe they are excessive enough to create a speculative wave of new ordering however, as mentioned earlier, even if this were to happen. There are no new building berths available to accommodate the large dry bulk order book and significant deliveries before 2025, because this will simply be impasse.
For them to implement.
So things are rather benign and distinctly positive on the supply from what about demand.
He comes with a huge question Mark as regards economic policy and inflation, both affecting future GDP growth.
We prefer to follow the base case scenario of banking and of course that with Europe imposing a KOL embark on Russian coal effective mid August and then oil embargo introduced step by step until the end of 2022.
As regards gasoline imports by the European Union the base case scenario predicts the total phasing out by mid 2024. If this scenario comes to pass the top five economic research institutes of Euro predict accumulative GDP loss of six 1% in Germany over this year and next.
As for inflation it might peak at between eight and 9% in the United States in the Euro zone over the next 12 months and start coming down later in 2023.
Yeah, Bob projections are certainly negative as you got demand going forward.
Whats extends these developments will affect world GDP will depend again on how governments around the world to react to inflation and more importantly inflationary expectations.
So on the assumption that demand and GDP growth will not weaken significantly over the next few quarters. We can agree with Brahma is the vision of the future which runs how long the following lines.
Tight supply fundamentals.
Coming I am or regulations, coupled with increased bunkering costs are likely to render slow steaming the main industry practice reduce sailing speeds at a time when more tonnage capacity will be required should certainly supports both the freight market and secondhand values over the next few quarters.
Therefore, the future business strategy Diana will take all the above mentioned factors into account in determining tonnage renewal and future dividend distributions, while at the same time, making sure the company's balance sheet remains robust as it has done through the previous shipping site.
I will now pass the call to our CEO Simeon <unk> span.
For some closing comments.
Thank you.
Thank you Stephanie.
So before we open the call to.
Questions and answers I would like to provide a summary of what I believe to be the most important point.
Firstly, we have placed an emphasis on taking advantage of favorable market conditions for January thing in securing positive cash flow.
These cash flows allow us.
To continue rewarding our shareholders with potentially growing dividend based on current market conditions and D.
Strengthen our balance sheet.
Secondly.
We remain vigilant in keeping abreast of industry development with a focus creative growth and fleet renewal.
And thirdly.
We are committed to a conservative strategy with a goal of maximizing long term shareholder value.
Now I will turn the call over to the operator to commence the questions and answer session.
Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. 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'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset.
Before pressing star one one moment, please while we poll for questions. Our first question today is coming from Ben Nolan from Stifel. Your line is now live.
Yeah, Hi, guys good quarter congrats on that.
Two questions if I could number one.
Nice to see that dividend coming higher should.
Should we think of that as just sort of a.
Floating dividend.
Or is there some formula that we should be thinking about as to.
How are you guys are thinking about dividend payouts going forward.
Hi, Ben this is Nick speaking.
There's not a particular formula based on our projections about.
Oh, using our model the board of directors or seven times the size of what the dividend.
Maybe.
Of course.
We have a way of thinking but it is not a formula somewhere or theres not a specific policies that.
We can't disclose.
What we are guiding to to tell everybody is that based on our.
Current market conditions, and what we see in the market.
We feel that this is kind of a dividend is sustainable.
Or it can be higher.
Near term.
Okay Fair.
Fair enough.
And then and then secondly.
Switching gears a little bit.
The market's obviously tightened we're seeing.
Laundered or it's somewhat longer duration contracts.
I guess the question is.
Or does that also hold true for older assets and does that change at all how you think about those assets and maybe where they fit relative to Diana versus Ocean Pal.
You know if you can get contracts do they stay and Diana for instance.
Well hyphens mistakes.
I think yes.
We have seen I mean, we have been extending duration.
As I said its selection tool.
Our our comfort zone. This everywhere where rates are for the last few years versus the soft periods.
The other five year deals, but we are when you're building.
Capesize.
We grow there and we just announced the three year deals so definitely.
You know longer duration deals up there obviously as the optics become older and then it gets a little bit more challenging to go that long. So we don't think like a $16 17 year old Cape would.
It would be that I've come to get four or five year deals. So for both vessels will continue.
As long as we have them on our portfolio will continue targeting long term, there where you know maybe one to three years.
Feels a doable unless we decide that.
At this time.
Due to the disposal, but then obviously if we do it and if they are part of the vessels that the ocean pause that I suppose refusal then.
We'll have to follow the process there but.
Yeah, if I may add.
Ben as you can see we today, where the zero seven benign now for a year as an average charter hopefully next year.
Same conference call on that for the same quarter that number is going to be.
Raj.
Right. So you know how we do it.
We do not plan to change anything as regards chartering projects.
Okay.
Sounds good I appreciate it thank you guys.
Youre welcome.
Thank you as a reminder, that star one to be placed in the question Q1 moment. Please while we poll for further questions.
Yeah.
We have reached the end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
So thank you all for joining US today, we look forward to talking to you again in our next financial results call. Thank you very much.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.