Q1 2023 Star Bulk Carriers Corp Earnings Call
Okay.
Thank you for standing by ladies and gentlemen, and welcome to the Star bulk carriers conference call on the first quarter 2023 financial results, we have with US Mr. Petros Papas, Chief Executive Officer, Mr. Hamish Norton President Mr. Simon Spiro I Miss Mr. Christos belt bed Glaris Kochi.
Financial officers, Mr. Nicos <unk>, Chief operating officer, I missed is caris <unk> Chief strategy Officer for the company at this time all participants are in a listen only mode there'll be a presentation followed by a question and answer session I wouldn't call them. If you wish to ask a question. Please press star one on your telephone keypad and wait for your name to.
We announced I must advise you. This conference is being recorded today, we'll now pass the floor to one of our speakers for today. Mr. Spiro. Please go ahead Sir.
Yeah.
Thank you operator.
I am Cmos Spiro co Chief financial officer of several carriers and I would like to welcome you to our conference call regarding our financial results for the first quarter of 2023.
Before we begin.
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 first quarter results cost evolution during the quarter and update of our balance sheet and number of you have interest rate risk management.
<unk> benefits and vessel operations the latest on the ESG front and our views on the industry fundamentals before opening up for questions.
Yeah.
Let us now turn to slide number three of the presentation for a summary of our first quarter 2023 highlights.
For the first quarter of 2023, the company reported the following.
Net income amounted to 46 million with adjusted net income of 37 million or <unk> 36 cents per share adjusted earnings.
Adjusted EBITA was up $85 million for the quarter.
For the first quarter, but our existing dividend policy, we declared the dividend per share of 35.
Payable on or about June 27, 2023.
During this quarter, we have bought back three 531 223 shares at a cost of $11 26 million.
Since 2021 dividend distributions and share buybacks are over 1 billion.
On May 16, 2023, our board of directors canceled the previous share repurchase program under which $8 5 million, what's still outstanding.
And also what is the new share repurchase plan of up to US now an aggregate of 50 million.
On the top right of the page you will see our daily figures per vessel for the quarter.
Our time charter equivalent rate was 14190 $999 per day per vessel.
Our combined daily Opex net cash G&A expenses per vessel per day amounted to $5755.
Therefore, our D C.
Opex and G&A.
$8444 per day per vessel.
Looking towards fleet renewal, we have agreed to charter in seven high specification the latest generation of scrubber fitted eco vessels.
We have added a table at the bottom of the page with a number of you.
We have entered into long term chartering agreements for four times are much newer buildings and two ultra amongst new buildings, which are expected to be delivered during 2024 with a minimum duration of seven years.
In addition in November 2021, we took delivery of the Capesize vessels privacy Boomy.
A long term charter.
<unk> for the period after November 2028.
Yes.
Slide four graphically illustrates the changes in the Companys cash balance during the first quarter.
We started the quarter with 335 million in cost.
Adjusted for the refinancings.
And generated positive cash flow from operating activities of $83 2 million.
After including debt proceeds and repayments.
Opex payment for energy saving devices in ballast water treatment systems.
The Q4 dividend payment and series beds disease, we arrived at the cash balance of $305 9 million at the end of the first border.
Which implies a dividend payment of 35 cents per share to the shareholders of record of June seven 2023.
Please turn now to slide five where we highlight the strength of our balance sheet.
Our pro forma total liquidity today.
At 375 million.
Meanwhile, our total debt stands at $1 23 billion.
Net sale proceeds from the three vessels stands at $75 5 million after debt repayment and will be excluded from the cosmic kind of be distributed as dividend and will be kept for general corporate.
Policies.
Note that the $11 2 million that Covid has been spent on the buyback during the previous couple of months will be deducted from these 75 top 5 million proceeds.
We have a positive trade working capital of $79 5 million.
And the Mark to market of the derivatives of 21 9 million also March 31st 2023.
Given current market conditions, we expect that the trade working capital will grow further in the course of the second quarter of a year.
Our next 12 months of amortization is that the 177 million.
USD.
In slide number six we present, an overview of our risk management on the debt side.
Given the increasing interest rate environment. We are in we have focused on reducing leverage and managing interest expense in order to ensure the lowest possible finance costs compared to peers.
Since 2022.
We have completed three financings totaling 525 million that reduced our interest cost by approximately 7 million per annum as a result of achieving significantly lower margins.
In 2020, we brought tiddly hedged the base rate for a significant part of our senior debt at an average rate of 45 basis points.
The current outstanding notional is approximately 677 million for an average remaining maturity of one year.
Total realized gains from these activities are $11 6 million as of March 31st 2023.
And that's sort of the same date, the mark to market of the remaining position over the swaps was 26 million.
The cumulative effect of this decision as depicted in the graph at the bottom of the page where one can see that star bulk has reduced its all been aimed at a shape and currently has a lower average interest cost among at least it appears.
I will now pass the floor to our COO nicos rescuers for an update on our operational performance.
Thank you Simone.
On slide seven we illustrate how Starbucks continues to benefit from the fuel spread between natures affordability for fall.
Our 118 scrubber fitted vessels, which have surpassed 137000 operating days.
I was just 11 I believe it was 99, 5%.
Hi, Fi spread scrubbers meaningfully contributed to our profitability.
The sprint secured during the first quarter stands at $185 for dogs, and currently cohort $102 per Boe basis.
Basically Singapore spot prices, what we cater for approximately 60% of our revenue appeal.
Yeah.
And because it meet our Albert's five five spread since inception stands at $170 per ton.
Brian this surface purposes on the top right of the slide we present a necessity.
It shows the banker benefit come home on a bottom line based on an assumption of approximately $685000 for wages and both of them for a scrubber fitted vessels.
Please turn to slide eight where we provide an operational update.
Operating expenses, excluding nonrecurring expenses was $4696 for Q1 2023.
Net cash G&A expenses were $1069 per vessel per day for the same period.
In addition, we continue to rate.
Our listed peers in terms of safety.
Safety score.
Slide nine provides a fleet update and some guidance around the pizza Drydock and vessel efficiency upgrade expenses and total off.
Got it.
During the first quarter.
We took advantage of the increase in vessel values have agreed to opportunistically sell to 2011 built capesize vessels, the star Borealis and this awful lot of.
Without further reached agreement on a constructive top and also the stop of cleanup.
War risk insurers given its prolonged Ukraine following the war.
As part of us trying to get towards taking you out and improving the overall fuel efficiency.
Seven long term chartering generation eco vessels built up first of all Japanese shipyard.
Six of which have delivered during 2024.
We have by now completed on past Walter.
<unk> program across the fleet and in line with VX side, you can see AI recommendations, we will continue investing and upgrading our fleet further with energy saving devices telemetry and other technologies, all aimed at improving our fuel consumption and reducing our environmental footprint.
The commercial attractiveness almost all of them.
Our expected bad debt expense for the nine months remain suite is estimated at $23 7 million for the dry docking of 28 vessels with another 90 million towards our vessel upgrade capex.
In total we expect to have approximately 775 days for the same period.
Both numbers are based on current estimates on drive up.
Vessel employment and yard capacity.
I'll now pass the floor to what you saw.
Got it.
The Nike pardon me.
Thank you Nicole.
I know with our ongoing efforts to improve energy efficiency of our fleet.
<unk> now completed the first.
That would be I have no concern field monthly inflows.
Thanks.
So far the demand supply and banking pneumonia.
What I'm, saying.
Stadiums stadia and concluded that that's true.
Nine months.
Bulk carrier starts making pneumonia.
With me.
Increased 5% adoption.
You'd be right because he saw the Guangdong remained the acceptance of ammonia at baseline.
And he got up in the system.
Well, we support and continuous collaboration to the buying team.
This green cards or project, we continue our research and development day for some decent greenfield.
Hum.
Got it.
Yeah, I think you need to stand alone.
It has accelerated because of vacation.
We remain focused on building a R E.
Having completed.
Give me a sense on somebody's strength.
So again, making progress wherever necessary.
On the governance front, we are in.
The conference call with each.
Sure.
On slide global before the meeting.
And with our broader ESG.
Yes.
I mean knock on the floor to our CEO .
When the market does.
Closing remarks.
Thank you Paris.
Please turn to slide 11 for a brief update of supply.
During the first four months of 'twenty to 'twenty three.
The $12 7 million deadweight was delivered.
And one 9 million deadweight was sent to demolition for.
Net fleet growth of 10.8 million deadweight for 2.9% year on year.
The supply outlook continues to be the best we have seen in the recent history.
Oh dry bulk shipping.
Certainty on future propulsion IC building costs and limited shipyard capacity in late 2025.
Ill keep yours is under control.
The order book has decreased to a record low six 9% of their fleet.
Just $6 3 million deadweight reported its Furthermore between January and April .
Furthermore, vessels above 20 years of age stands at eight 1% over the fleet was crop prices have stabilized at elevated levels and should make the militia no overage and fuel efficient tonnage and attractive option during seasonal downturns over the.
Yes.
The average steaming speed of the dry bulk fleet degrees.
Low levels of 11.05 knots during Q1 and over the last months.
Bounded 11.3 nuts as spot freight rates improve and bunker prices move lower.
Nevertheless, stemming speech still stands below last year's levels, and we expect that the E X sight see eye to eye regulations will continue to incentivize slow steaming.
During the last 12 months global Port congestion experienced a strong correction from record highs.
His gradually deflated.
Lie and that's put downward pressure on earnings.
Having said that changes in trading patterns and inefficiencies related to the war, having normalized congestion slightly above pre COVID-19 levels.
As a result of the above trends net fleet growth.
Likely to exceed 2% erosion over the next three years.
Let's now turn to slide 12 for a brief update of demand.
According to Clarksons total dry bulk trade during 2023 is projected to expand by one 8% in tons.
Wouldn't a half percent in ton miles.
During the first quarter 'twenty to 'twenty three.
No dry bulk volumes increased by approximately 4%.
Yeah on the back of the reopening of the Chinese economy, and strong coal exports from Indonesia.
Commodities demand from the rest of the world has been affected by the ongoing effects of the war in Ukraine, Susan energy costs, getting industrial profitability and aggressive monetary tightening from central banks to fight inflation.
The IMF is projecting global GDP growth slowed down to two 8% in 2023 and to recover 3% 2024.
Right well trade is projected to expand at healthy levels over the next quarters as China is at an early stage of the reopening from COVID-19, and then Chicago music expected look salary.
8% in 'twenty, 'twenty, two or five 6%.
The three with support from infrastructure stimulus and the gradual recovery of the housing market.
I'm currently the considerable correction the witness surprises over the last month.
Mouse is easing inflationary pressures generated by energy costs, the condition that should inflate the mount of raw materials amid increased manufacturing activity.
Iron ore trade is expected to expand by one 8% in terms of 2.2% ton miles during 2023.
Chinese steel production increased by seven 4% year over year during the first quarter following the total lethal.
What was the policy in December .
The same time.
Basic iron ore output contracted by five 5%, while stockpiles have decreased the two year low.
Writing a positive indicator for imports going forward.
Steel production from the rest of the World declined by 11, 3% during Q1 affected by weak profit margins, leading to strong demand from China for Chinese steel exports.
Sales have performed during Q1, but the company expects to offset the effect that you wouldn't have done it.
Our annual guidance and inflated volumes over the next quarters.
Coal trade is expected to expand by 2.9% indulgent four 4% ton miles during 2020.
Three.
Global focus on energy security has upgraded the coal trade the outlook for the next few years. When there is sharpening of European and Russian called trade is benefiting ton miles.
During the first quarter China.
This record high volumes, despite the causing strong increases in domestic oil production why is there an official ban by China on Australian coal that started during the fourth quarter of 'twenty 'twenty has been lifted and as expected benefit capesize vessels.
Grain trade is expected to expand by 2.2%, 4% ton miles due in 'twenty two 'twenty three.
Market is still adjusting to the new trade landscape. After the loss of considerable quantities from Ukraine and during Q1 volumes were down year over year, Despite strong soybean exports from Brazil.
Unless the supply outlook for grain is positive.
Good crop conditions, which has put downward pressure on prices and indicating stronger trade well the rest of the year.
Minor bulk trade is expected to expand by 0.8% in tons and one 4% in ton miles.
Sweet.
And as a sub sector has the highest correlation to global GDP growth and has been affected by the global slowdown.
It took place during the second half of 'twenty two.
The war of Ukraine disrupted.
European Union fertilizer in steel production and is great at Atlantic surfaces that are inflating backhaul trades Morever West Africa bauxite exports continued to expand at the high praise phase and generate strong ton miles for Capesize vessels.
Finally, the long term prospects of the dry bulk market remain positive given the record low order book environmental regulations, and large infrastructure investment needs for the world's getting transition.
<unk> is well positioned to do it.
Scrubber fit that the best fleet to take advantage of a 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 well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line.
Question queue, you May press star two if you'd like to remove your question from the queue for participants using speaker equipment.
To pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question is from Amit Malhotra with Deutsche Bank. Please proceed with your question.
Hey, good morning, everybody. This is Chris on for Matt Thanks for taking our questions.
I agree.
Hi.
This might be a question for Nicos.
Related to the slow steaming in the fleet. So I know the fleet or slow down and you guys mentioned in the prepared remarks, it's been a little bit of an uptick here, but given the E X I regulations.
Or the CIA in particular.
What do you think the upper limit is in terms of the fleet kind of speeding backup here versus is there any additional downside do you see this year or would it.
Should we just be thinking about it in terms of the fleet not slowing or speeding up as much as it is it could.
Thank you, Chris but at the moment the previous speeding up around 11 knots.
We feel that the Aussie regulation that tightens the worst went to 26 with an annual increase of about 2%.
We don't see the speed increasing substantially to the contrary there won't be some impact form the CIA iracing on every vessel.
We believe that.
Over the next few years.
See a slowing down of this field so the fleet.
If you have been public about the fact that February was a little widening.
Taking place on that.
A big portion of it.
Water ships.
That's gonna be a heavier impact from C. III, so I don't see much flexibility on that.
Let's see.
Well the fleet to increase.
Chris its petro so actually I think it's actually below even 11 and a half I think it's 11.3 or so and if I remember well over the last years, we have not seen speeds go much above 11, and a half anyway. So I would say that the risk is it on there.
Downside I think that in the future we will see vessels are actually slowing down.
Okay, Yeah got it that's pretty pink Petro thank you for that.
Turning to China for a moment, we saw some increased steel production in the first quarter, there's been some inventory drawdowns since that time, but what the proposed production curbs there for the year do you think there's further room for additional inventory draw downs like we saw at the very low.
Levels in 2020, or do you think that the drawdowns are kind of stabilizing and will see a restocking cycle in the next few quarters.
Well, we are seeing our iron ore spokes down too.
And then 26 million tons, if I'm not wrong.
Which is the law for for the last at least two years.
And we therefore expect that we will see more imports in the second half of the year and more so from Brazil, which has not.
Yet performed up to its expectations as far as exports are concerned which will actually increase ton miles. So we are positive about our iron ore trade during the second half and then I think that.
China will in Crazy checkpoints check words.
On the infrastructure on the infrastructure level and I've also seen that.
New for your floor space has gone down a lot. So I would expect that the as China as the airports to a strengthening economy continues I think that we will see a support both from the private and the public sector over there.
Okay got you last question for me you.
You guys gave quarter to date.
Any guidance on the bookings, but just any color around the second half of the current quarter since we're already more than halfway through.
We've seen some a little bit of slowing or deceleration of the economic recovery in China into the second quarter here.
Any thoughts around how rates might perform for the rest of the QQ.
Well.
As I said before I think that China will actually increase the check for it to to support its economy.
And I think that as oil prices.
Energy prices are going down I think the world in general will also.
Sure improve as far as the pieces are concerned so I think it's not going to just be China, we will see a better economic situation going forward and especially of course as if the rates are.
Will stop in their eyes and May start they've been falling later on in the year.
Alright. Thank you very much for the time guys I'll turn it over.
Thank you Bruce.
Thank you. Our next question is from Omar <unk> with Jefferies. Please proceed with your question.
Thank you Hey, guys. Good afternoon, I just wanted to hear more about.
Are there.
Hill, obviously the card trends are definitely new development and pretty significantly I just wanted to ask about.
That in and how they work and then maybe first off are these are they bareboat leases or are they just regular in charters and then also.
Just in terms of them being against new buildings or are these new orders had been placed or where these ships are already under construction and have been chartered them accordingly.
Omar Hi, it's Petros. These vessels actually are aware or are there already or were being ordered and we we're doing we're doing these deals for for four reasons first of all.
I think the rates we have fixed them are are good so we expect to make profits.
Secondly, it's a the way it is a way to modernize our fleet.
Uh huh.
Yes.
Is nobody knows when the day is a new generation vessels will be in and win the theres going to be the right infrastructure and there are ample fuels to so few of those vessels.
This we consider to be a breeze between now and that time.
And and of course, let's not forget that.
These vessels come at a no capital cost.
Also those vessels have scrubbers and they offer us optionality. So we have them for seven years last option. So.
I think the only only good things to come out of these vessels.
And I think that there's more to come as well.
Okay more potential Targa and says what you reported.
Yeah.
Okay, Alright, and then I guess, you mentioned that the four reasons in there.
Wanted to ask also we've seen you know in terms of asset values, just a continuous move higher throughout the year you know despite the fact that the market has been off to a softer start at least relative to 'twenty, one and 'twenty. Two so ship values are moving higher and we've seen it for capes, especially but just wanted to ask you know maybe from your perspective, what's the.
Driving the S&P market is to be climbing so significantly this year and also you know so yeah, one whats maybe behind that and is there a lot of deals being transacted and is there more to come.
Yeah.
Well first of all the way with ship owners, we're bullish people.
You know.
There is not a lot of space in shipyards.
And the prices of your buildings are going up.
So there is this idea that the prices of your buildings will not fall. So I think this is one of the reasons why ship owners are ordering also they your vessels are more.
Much more airports than the vessels in the water and that will allow them potentially to.
To survive for longer periods due to the zero emission vessels come in so I think basically these are the reasons why people are ordering and why prices are going up.
Okay.
Maybe from your commentary just now it sounds like it's more of the activity being done on the modern end of the curve or is there also deals being done on that you know tend to put 10 plus year range as well.
So what what do you mean, you mean buildings very sustained year old vessels.
Sorry, just meaning in terms of the S&P activity, we've been seeing is as the market.
As you as you highlighted there's not a lot of not a lot of new building slot capacity available and and so and prices are not going to come down from the new building front. So it seems like you've had this repricing.
Tonnage is that repricing on the modern and other.
The age curve or is it all yes, yes, yes. There's also there's also repricing on VA on them on the existing vessels in the water are the ones that are actually echo exactly because you know if you order today you will.
Probably take delivery of a vessel in the 'twenty to 'twenty six.
And therefore, we've seen that happened before we've seen vessels.
Vessels are in the water actually beans for salt for.
<unk> prices were even higher prices than your buildings.
Yeah, that's interesting and I guess, maybe just one final one for me you you sold the two capes.
Fairly good prices should we should we be thinking will be seeing something similar.
As you mentioned earlier, you'll be adding more charter rent, even though those are a bit outwards in terms of delivery should we be thinking you'll be adding more new building to be a chartering and maybe selling some some of your older ships to take advantage of the pricing dynamics today.
Yes, well first of all of them.
The prices of our.
The prices are pretty high compared.
Compared to what the charter level Azhar. So actually this means that people expect the market to blow up.
But you know we don't know what will happen we are positive but the.
Prices are really really very good but the two are capes up we sold we sold them.
At the prices that we were very very happy with us.
So I think what we will do going forward. These we will sell some more vessels.
Trying to improve the average age of our fleet, probably getting rid of a if you all the vessels and charter in.
You're building donuts that will improve the age profile and we'll do all the good things that I told you earlier plus it will strengthen our or a war chest in case, we will want in the future and especially if there are new technologies that.
It really cut down on.
The consumption no vessels, perhaps we would want to also ordering new buildings not right now but.
What happens in the future.
<unk>. This is Chris those less rod given also the large discounts, we named V and trading performance lately.
Selling basis, a few basis, and especially be inefficient ones I spent it was mentioned.
He supported.
Makes sense.
Thanks, Chris that's very helpful and thanks, Pat trustworthy overview I'll turn it over.
As a reminder.
Please press star one on your telephone keypad.
Our next question is from Ben.
Alan with Stifel. Please proceed with your question.
Just had a few other questions.
Those are first of all do they include purchase options at the end.
How should we think about what your let's say annual cost once all seminar or operating would look like.
And and was curious if these were related party transactions are or not.
So.
You know we can't comment Unfortunately on that on the details of those charters.
You can see what we're able to comment on in in our financial statement.
The footnotes.
Uh huh.
And.
And as far as related party transactions.
<unk>.
They're not they're not they don't have anything no, but one advantage one has when he or she has chartered the vessel in is that when you control the vessel.
And the time comes that the vessel to the owner wants to sell the vessel being the charter of the vessel you're always in a pole position as far as being able to buy you have it.
You have for where the advice about it. So it's always an advantage to have the chartered in vessels, even if you don't have a purchase option.
Okay.
That's helpful. I appreciate the color you were able to give there.
And then for my second question.
Going through.
The release it seemed like there for the second quarter there was.
Is going to be a whole lot more drydocking days in AR.
It had previously been the case and unless I'm mistaken.
I'm curious.
Have you guys are bringing forward dry docks or something in the second quarter.
That's right.
This is correct and what we're doing is we're accelerating some of the bigger ships into Q2.
Taking advantage.
Unfortunately, arent also be kind of software market on the big ships and preparing for Q3 and Q4.
Doing this also to install.
You can see devices on all of these vessels.
And putting them back into trade towards the end of Q2. So that's why you see all across impression here.
Okay. So does that.
Any any sense as to sort of what Drydocking should look like for 2024 then.
We have a 24 ships scheduled.
Okay.
Sure.
Okay.
Alright.
For sure you guys, taking my questions.
Thank you.
Ben.
Thank you there are no further questions at this time I'd like to hand, the floor back over to management for any closing remarks.
Well, thank you very much for following us.
Have a good day.
See you next time around.
No more comments.
This concludes today's conference.
Connect your lines at this time, thank you for your participation.
[noise].