Q4 2022 Star Bulk Carriers Corp Earnings Call
Thank you for standing by ladies and gentlemen, and welcome to the Star bulk carriers conference call on the fourth quarter 2022 financial results, we have with US Mr. Petros Pappas, Chief Executive Officer, Mr. Hamish Norton President, Mr. Cmos Spiro and Mr. Christos belt that glare.
This co chief financial officers.
Mr. Nicos, <unk>, Chief operating officer, and Mr. Paris, Lucanthone al Canto.
Canto Gnocchi, Chief strategic officer of the company at this time all participants are in a listen only mode. There will be a presentation followed followed by a question and answer session at which time, if you'd like to ask the question Mike.
Please press star one on your telephone keypad and wait for your name to be announced I must advise you that this conference is being recorded today.
I'll now pass the floor to one of our speakers for today. Mr. Shapiro. Please go ahead Sir.
Yeah.
This increase was big Larry. Thank you, operator, Hi, I'm co Chief Financial Officer of Star bulk carriers and I would like to welcome you to our conference call regarding our financial results for the fourth quarter of 2022.
Before we begin I kindly ask you to take a moment to read the safe Harbor statement on slide number two of our presentation.
In today's presentation, we will go through our Q4 results gosh evolution during the quarter, an overview of our balance sheet and update on the banker benefit and vessel operations. The latest on the ESG front and our views on industry fundamentals before opening up for questions.
Let us now turn to slide number three of the presentation for a summary of our fourth quarter 2022 highlights.
Net income for the quarter amounted to 86 million and adjusted net income of 93 million or 84 cents per share.
Adjusted earnings per share.
Adjusted EBITDA was 135 million for the quarter.
For the fourth quarter I spare existing dividend policy, we declared a dividend per share of <unk> 60 cents.
Payable on or about March 14, 2023.
The graph on the bottom of the page highlights the cumulative performance over the last 12 months, which illustrates the strength of the platform in a robust dry bulk market.
Our last 12 months adjusted EBITDA is $809 million and adjusted net income is 609 million U S dollars.
Over the same period, we have returned a cumulative dividend of <unk>.
5.1 dollars per share or $526 million to our shareholders.
Since 2021, we have declared a total dividend of $9 35 per share or 961 million.
On the top right of the page you will see our daily figures for <unk> for the quarter.
Our time charter equivalent rate was 19590 per vessel per day.
Our combined daily Opex and net cash G&A expenses pervasive per day amounted to 5182.
Therefore, our TCE less opex and G&A is approximately 14000 and $400 per day.
Slide four graphically illustrates the cash flow bridge for Q4.
We started the quarter $393 million in cash and.
And generated positive cash flow from operating activities of $116 million.
After including debt proceeds and repayments capex payments for energy saving devices and ballast water treatment systems that installment.
In the third quarter dividend payment, we arrived at a cash balance of 286 million at the end of the quarter.
For the calculation of our dividend distribution, we add back the debt repayment of $44 million that we drew in January 2023, two.
And I've been adjusted balance of 331 million.
Please turn to slide five where we highlight the strength of our balance sheet.
Our pro forma total liquidity today stands at 356 million.
Meanwhile, our total debt stands at 132 billion.
Since 2022, we have completed refinancings totaling 430 million that reduced our interest cost by approximately $5 2 million per year as a result of achieving significantly lower margins.
Our next 12 months' amortization is 186 million.
We have 13, unlevered vessels with market value of 176 million and no debt maturities until 2024.
In an increasing interest rate environment, we have interest rate swaps well with an outstanding notional of approximately 722 million fixed at an average rate of 46 basis points for an average remaining maturity of 1.1 years.
As of December 31st 2022, the Mark to market value of the swaps was $33 million.
I will now pass the floor to our CFO Nicos <unk> for an update on our operational performance.
Thank you for yourself.
Slide six illustrates our Chicago continues to benefit from the widening of the fuel spreads between <unk> and Vms.
Our 120 scrubber fitted vessels surpassed 131000 operating days.
Our system availability of 99, 5%.
With the current SIFI spread at healthy levels, our scrubbers meaningfully contribute to our profitability.
The highest five sure spreads currently hovers at around $230 per ton based Singapore spot prices, where we cater for approximately 60% of our annual fuel demand.
Indicative lease the average high five spread achieved in Q4 was $253 per ton.
$274 per ton for the full year of 2022.
For illustrative purposes on the top right that the slides, we presented a sensitivity table that shows the impact the micro benefits can have on our bottom line based on the consumption of approximately 700000 tons of HSA for collateral for scrubber fitted vessels.
Please turn to slide seven we provide an operational update.
Opex, excluding nonrecurring expenses was $4205 for Q4 2022.
Net cash G&A expenses were $977 per vessel per day for the same period.
During calendar 2022 star bulk assumed management of an additional 19 vessels from third party managers streamlining ship management operations and costs further.
In addition, we continue to raise up the talk amongst our listed peers in terms of Rideshare safety score.
Turning to slide eight we provide a fleet snapshot and some guidance around our future Drydock and vessel upgrade expenses and there are about five days.
We have completed our ballast water installation program across the fleet and in line with ESI and C&I regulations will continue investing in upgrading our fleet further with energy saving devices and telemetry aimed in improving our fuel consumption and reducing our environmental footprint further enhancing the commercial attractiveness.
The start of fleet.
Our expected project expense for calendar 2023 is estimated at $2 7 million.
Docking of 31 vessels with another $41 1 million towards our vessels upgrade capex in total we expect to have approximately 878 days of off hire for the same period.
Yeah. Both numbers are based on current estimates are on dry dock and retrofit planning vessel employment and yard capacity.
I will now pass the floor to our Chief strategy Officer, I, just look at the Nike for an update on our ESG efforts.
Nicole Please turn to slide nine where we provide an update on your Cmos.
For a second given that rental.
Both of US participated in the carbon disclosure project are sitting at sort of b and improving its performance versus last year, where it is.
Of course at the mine.
Each rating continues to place the company management plan, though indicating your maturities.
And coordinated action climate system.
It also play star bulk a bulk well seems to be average a C and the global operators see we'd see indicate that way.
During 2023 signed off relate to continue improving its environmental stewardship.
Measuring in networking for the first time also to scope three emissions, namely the emissions that we can directly affect in our value chain.
The regulatory front Starbucks has taken all necessary technical and operational measures to ensure compliance with E X I N C. I targets I said by the international Maritime organization with scaling to Florida in January 20.
We continue enhancing our welding program, both on board the vessels and onshore.
Also making contributions towards vulnerable groups environmental protection education and sports.
With regards to the company's governance star bulk is deploying new systems to optimize its commercial and operational performance.
He's also further strengthening cyber security systems processes and functions.
I will now pass the floor to our CEO Petros Pappas for a market update and his closing remarks.
Thank you harriss.
Please turn to slide 10 for a brief update of supply.
During 2022 a total of $31 2 million deadweight was delivered and $4 5 million deadweight was sent to demolition for a net fleet growth of 26.
One 7 million deadweight or 2.8% year over year.
The supply outlook continues to be the best we have seen in the recent history of the Drybulk CP.
Certainty on future propulsion, Hi, shipbuilding costs and limited shipyard capacity until 'twenty 25 have helped keep new orders under control.
The order book stands at record low levels of seven 3% over the fleet was just $25 9 million deadweight reported as firm orders during Q.
Two.
Furthermore, scarp prices have stabilized at elevated levels and should make the militia, the walgreens and fuel in our fishing donuts and attractive option during the seasonal downturns.
Back of the E X I see I I regulation.
Yeah, good evening speed of the dry bulk fleet decreased by three 2%.
The 11th one tree nuts during the last year.
You directly the high bunker costs and a weaker freight market.
We expect oil prices and bunker cost remain inflated in the medium term amid the sanctions on Russia oil and strong demands of energy related commodities.
This situation along with a new environmental regulations will continue to incentivize slow steaming and support higher scrub the scrubber savings.
Global Port congestion experienced a correction during the second half of 'twenty two.
The gradual easing of restrictions and the strong decrease of Chinese imports during the first half Nevertheless.
Congestion remains above pre COVID-19 levels, especially for smaller vessels types due to changes in trading patterns related to the war and Susan those bottlenecks.
As a result of the above trends net fleet growth is unlikely to exceed 2% per annum over the next three years.
Let's now turn to slide 11 for a brief update of demand.
According to Clarksons total.
Dry bulk trade during 2022 is estimated to have contracted by one 9% in ton miles.
Today, It was affected by the war, Ukraine weaker Chinese imports and a slowdown of love bold economic activity due to surging commodity prices inflation interest rate hikes and the strong U S dollar.
During 2023 dry bulk demand is projected to increase.
It's on miles.
A M best forecast for global GDP growth presently standing at two 9%.
We believe that the relaxation of the six zero public policy and reopening of the Chinese economy will have a strong positive effect for the dry bulk market with larger sizes benefiting the most even in the second half of the year.
Furthermore, the Sip the coal.
Grain and minor bulk trade patterns to long haul longer haul routes due to inefficiencies related to the war of Ukraine will continue to inflate ton miles.
I dunno trade contracted by three 4% during 2022 and is projected to expand by 0.4% during 2023.
Crude steel production decreased by 2% during Q2 as a strict policy to limit the economic activity and offers no support to the brokerage market downturn that began in 2021.
Crude steel production from the rest of the world decreased by six 5% affected by surgeon energy costs and weaker steel margins. Following the war in Ukraine, Nevertheless, China's steel production.
So science stabilization during the second half with lower domestic iron ore output that stockpiles provides a positive indicator.
For importers going forwards.
Coal trade has expanded by one point to 8% during 2022 and is projected to expand by four 2% during 2023 global focus on energy security and high gas prices have upgrades of the coal trade the outlook for the next few years, while the assumptions of Europe .
And in Russia.
It is benefiting ton miles.
Gold prices increased to record high levels in 2022 due to the disruptions and interfaces is affecting export capacity.
Usually last month, the resumption of Chinese coal imports of Australian origin is taking place marking the end of the unofficial ban that started during the fourth quarter.
Great trade contracted by three 1% during 2022 and is projected to rebound by five 3% during 2023.
At the start of 'twenty.
Two great markets experienced their supply so as the war abruptly halted.
Ukrainian exports for six months, which account for 10% of total great great.
From August onwards, Ukrainian exports, partially assumed through the black sea grain initiative at around 40% of prewar levels.
The outlook for 'twenty to 'twenty three is positive as it is shuffle of trade routes all the in place another exporting nations filling the gap of the last two great new supply.
Are there more.
Hi, Brazilian soybean crop is currently harvested while the recovery of the Chinese governments would substantially increase the demands of soybean crush.
Minor bulk trade contracted by two 1% during 'twenty for the two and is projected to expand by one 3% during 2023.
Minor bulk trade has the highest correlation to global GDP growth and economic slowdown is affected trade volumes morever. The container ship market correction is moderating support the smaller geared dry bulk vessels.
On the other hand, the war in the Ukraine disrupted European Union of fertilizers steel production. Good evening Atlantic showed that this that should benefit backhaul trades.
Furthermore, West Africa bauxite exports continued to expand at the high base and generate strong ton miles for Capesize vessels.
Finally, despite the current season, though spot market weakness the long term prospects of the dry bulk market remains encouraging given the 25 year low order book, the environmental regulations and the positive effect on dry bulk demand from the opening of the Chinese economy.
Star bulk is well positioned due to scrubber fitted and diverse fleet abundance over recovery in freight rates.
Without taking any more of your time I will now pass the floor over to the operator to answer any questions you may have.
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.
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.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
One moment, please while we poll for questions.
Yeah.
Thank you. Our first question is from Amit Malhotra with Deutsche Bank. Please proceed with your question.
Yeah.
Hey, Good morning, everyone. This is Chris Robertson on for Matt Sorry, He is traveling this morning.
Just wanted to talk about the cash flow movements kind of expected in the coming quarter I think.
People are pretty hyper focused on the upcoming dividend here kind of testing the bottom of the.
Seasonally weak rates. So can you talk us through about how you're thinking about kind of working capital movements you've laid out.
Kind of a maintenance capital in and Drydocking costs pretty well on slide eight.
Could you also remind us kind of a regular debt debt amortization expected this year as well.
Hi, Chris.
So, let's let's start with AZ with each day that amortization as you said this is a approximately $190 million for 2023 for the entire year.
So it's slightly down from what we had in 2022 due to better amortization schedules that we obtained during a refinancing.
Now for the first quarter of 2023.
A market that is essentially decreasing we would expect.
The change in working capital to be slightly positive.
That has to be a source of cash correct.
Right, Okay that makes sense any other things that we should be aware of besides kind of the the ballast water system installation dry docking the working capital any other cash flow movements that could impact the dividend.
We have provided I believe those figures in our investor presentations.
So if you go to do that on our website you will find.
It's actually page eight of our Investor presentation, you will find Oh, capex items as well as dry dock estimates that we expect for the next few quarters.
Okay, Great just as a follow up you guys had some pretty good cost control here on the Opex front I think last Q.
The nonrecurring Opex as reported around 4700 per day now it's down around 4200 per day can you talk about how you achieved the savings and are there any cost pressures out there right now that that we should be aware of that might put upward pressure back on opex or do you think you can maintain it at this this new level for the coming quarters.
Hi, Chris This is nicos.
This is a result of a few actions we have taken as we mentioned a bit earlier is taking a big number of third party managed shifts and trying to streamline the cost basis.
We're trying to increase our reach on that getting better discounts in the curb the inflation pressure, we're getting on spares and supplies.
And that's really really the source of it.
Okay sorry.
Hi, Chris This is Cmos after observation I would not expect I know I would not budget for 2023 and the figure that you have there for Q4.
For 2000.
It would be a bit more concerned about even.
You know why would give a figure of around 4500, which is in the middle between Q.
Q3, and Q4 figures for the entire 2023.
Got it no. That's really helpful. Really quick last question for me I mean, I think capital discipline is very much a feature of Starbuck you guys have done an incredible job over the years doing accretive acquisitions in the past using your shares as currency. So I guess that that you might not be looking at any deals on the table at the moment.
But kind of looking forward do you think there's interesting opportunities out there generally speaking for either and block acquisitions or kind of anything that's come to you that you're that you've found compelling.
Well, Chris we are looking at things now and you know we're hopeful that the environment may be may be a little easier to close deals and then than it had been in the in the last year or so so we're optimistic actually that we may be able to get things done.
Okay interesting alright, I'll turn it over thank you very much for the time.
Thank you. Our next question is from Omar <unk> with Jefferies. Please proceed with your question.
Got it thank you.
I was going to ask but before I get to what I was planning on asking maybe heimish could I ask I know, it's probably a bit sensitive but in terms of getting deals done is that would that be kind of a long the star bulk way in the past of abusing shares in those deals.
Yeah everything we're looking at you know would involve shares.
Yes.
Okay, Alright, thank you alright.
I did want to ask maybe just a bit broadly about the earnings power of the company and it looks like you know based off of slide 13 that the bookings you've got so far in the first quarter that even even if rates remain soft as they are you will remain profitable in the first quarter and my question is I guess, one do you agree that you could remain a pause.
A territory here in the first quarter and then also.
If we assume no changes in the market from here and then holding all else equal in terms of say fuel spreads or eco spreads or maybe the size premium youre able to capture with your bigger vessels would you be profitable in the second quarter also and I guess, what I'm getting at is really just trying to get a sense for how much of you being profitable in this down market as a.
<unk> fixing ships earlier before the pullback in spot rates and then really how much of it is due to the quality premiums you are able to capture across the different shifts.
Trips yet.
Hi, Omar it's Petrus, Yes, I think we will be profitable during Q1, our I believe our breakeven is around $12000 and you'll see that we're just above 15000 right now the the bulk of our open positions.
It has to do with your cash flow maxes.
And we think that we will be able to maintain the level.
Depending of course on how how market goes one thing you have to understand is the following you look at the spot rate being like two and a half thousand dollars on the capes.
But that is a core thing to to speed of I think 13 nuts, what we usually do in situations. Like this is like that is that are we.
We slow steam vessels.
Great.
Calculated.
Actually ends up calculating at 8000, because we've learned much less fuel oil if to that you add the scrubber benefit which for a game you guys micros is higher than other vessels.
And then hey, Karen.
Carrying capacity of the bigger vessels, you'll get rates levels, which should be very close to what the average is even if the market <unk>.
During our March stays where it is although the market during March is a little bit they have to pay market.
A bit better than what it is right now no.
Regarding Q2, if you look at.
The FFA average is around 12 and a half thousand dollars now if you add to that.
The scrubber benefits and the fact that we slow steam vessels during a not very good.
Markets.
I think we will be profitable again in Q2, and probably hopefully better than against the Q1 and we are very positive for the rest of the year.
Great. Thanks, Thanks for that that's very helpful to I guess to to see that that you know the 2005 hundred that we see are published is really almost I guess, it's relevant but not really indicative of the earnings power. When you take into account the speeds are simply where you know excluding the whole scrubber.
And whatnot.
Yeah, and maybe if you guys. If you if you're if.
If you run the Cape if you run it Gabe.
13, Nordson you burned 50 tons, then if you'd go ahead.
At 11 tons, which is like 15, that's already delivered notes was about 15%.
Percent less speeds, you're probably burn.
25 tons or 28 times, which is almost 50% below.
The third thing not consumption and therefore, that's where that's where you would gain from.
Yeah. Thanks, Thanks for that additional color and then maybe just one final follow up and maybe related to the Christmas first question about the.
The dividend.
Obviously.
You've had this long term policy of paying out cash in excess of that 268 million threshold.
What does the dividend look like you know if ending cash is below that amount does it does it just simply do you stick with the actual policy and the dividend is zero.
Or a few pennies or is there a certain floor that you have on the payout.
You know our policy is pretty clear and and you know we don't frankly anticipate.
Any market in the in the foreseeable future, leaving us with less cash than you know the the minimum amount that would call for a dividend, but you know if if if basically our cash balance declines over the quarter and declined below the minimum threshold.
And you know as as as in 2000.
Yes.
20.
Parts of 2020, there might not be a dividend, but we don't anticipate that actually happening.
Okay, great well, thanks, very much for that and thanks, Petros I'll turn it over.
As a reminder, if you'd 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.
Yeah.
Okay.
Yes.
Yes.
Thank you there are no further questions at this time I'd like to hand, the floor back over to management for any closing comments.
No further comments operator, thank you very much.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.