Q2 2023 Star Bulk Carriers Corp Earnings Call
Okay.
Thank you for standing by ladies and gentlemen, and welcome to the Starbucks carriers conference call on the second quarter 2023 financial results.
We have with US Mr. Petros Pappas, Chief Executive Officer, Mr. Hamish Norton President, Mr. Cmos Spiro and Mr. Christophe Beck, Louis co Chief financial officers, Mr. Nicos, <unk>, Chief operating officer, and MS terrorists on contour Gnocchi Chief strategy Officer of the company at this time all part.
Disappoints are in a listen only mode. There will be a presentation followed by a question and answer 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 announced I must advise you that this conference is being recorded today.
We will now pass the floor over to one of your speakers Mr. Polaris. Thank you. Please go ahead.
Okay.
Thank you operator.
I am Chris those Big Larry 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 second quarter of 2023.
Before we begin I kindly ask you to take a moment to read the safe Harbor statement on slide number two of our presentation.
Yeah.
In today's presentation, we will go through our second quarter results cash evolution during the quarter, an overview of our balance sheet and update on fleet and operations. The latest on the ESG front and our views on industry fundamentals before opening up for questions.
It does now turn to slide number three of the presentation for a summary of our second quarter 2023 highlights.
Net income for the second quarter amounted to $44 million and adjusted net income amounted to 49 million or <unk> 47 cents per share adjusted earnings.
Adjusted EBITDA was 96 million for the quarter for the second quarter I'm, sorry, our existing dividend policy, we declared a dividend per share or 40 cents payable on or about September seven 2023.
During this quarter, we bought back 307 439000 shares at a cost of $6 1 million.
Since 2021 dividend distributions and share buybacks exceed 1 billion or $10 45 per share.
On the top right of the page you will see our daily figures for <unk> for the quarter.
Our time charter equivalent rate was 15835 per vessel per day.
Our combined daily Opex and net cash G&A expenses per vessel per day amounted to 5824.
Therefore, our D C lessor bakes in G&A is approximately 10000 per vessel day.
Looking towards fleet renewal, we have agreed the same or five supermarkets vessels built in 2012 in China.
Our opportunistic sale of these basis inclusive of trading profits produced during the period.
Realized excellent returns for our shareholders with a cash multiple of four six times when the equity base team and an IRR of approximately 42%.
The accounting gain from sale of vessels is approximately 20 million in total.
Looking at the first half of 2023, we have sold seven vessels and received insurance proceeds from one basin for total net equity proceeds of $153 1 million.
Out of these we have already used $13 1 million for share buyback for total remaining net sale proceeds.
<unk> 40 million.
These additional $140 million will be added to our existing cash buffer and can be used for general corporate purposes, including fleet renewal debt repayment and share buybacks.
Slide four graphically illustrates the changes in the company's cash balance during the second quarter.
We started the quarter with $254 6 million in cash and generated positive cash flow from operating activities of $96 9 million.
After including debt proceeds and repayments capex payments for energy saving devices and ballast water treatment system installments.
The first quarter dividend payment and share repurchases, we arrived at the cash and cash equivalent balance of 310 million at the end of the quarter, which implies a dividend payment of <unk> 40 cents per share to the shareholders of record of August 22nd 2023.
The ex dividend date is expected to be August 21st 2023.
Please turn to slide five where we highlight the strength of our balance sheet.
Yeah.
Our total cash today stands at 457 million pro forma for the delivery of our two remaining supra amongst pesos.
While our total debt stands at approximately 1.19 billion.
The scrap value of our fleet is more than 800 million based on scrap price of 400 per light deadweight ton.
Taking into account the share repurchases and the debt prepayments in connection with the changes in our fleet made in 2023, the cash threshold above which we will distribute dividend is set at 409 million.
We have a positive trade working capital of 64 million in Mark to market of derivatives of $18 million as of June 32023.
Following the completion of the refinancings performed during 2022, eight and 2023 and the sale of the five supermarkets pesos, we will have nine unlevered vessels.
Our next 12 months amortization, you said 177 million.
I will now pass the floor to our CEO Nicos Racecourse to provide an update on our operational performance.
Thank you Felicia.
Please turn to slide six where we provide an operational update.
Operating expenses, excluding nonrecurring expenses was $4772 for Q3 and 2022.
Net cash G&A expense were $1051 per vessel per day for the same period.
This year, we will continue to right at the top amongst our peers in terms of variety of safety School.
Slide seven provides a fleet update and some guidance around the producer Drydock and vessel efficiency upgrade expenses and around about a total of five days.
Our expected Drydock expense for the next 12 months is estimated at $33 6 million for the dry docking of 37 vessels. We are another $96 million awards, our vessel upgrade capex.
In total we expect to have approximately 960 off hire days for the same period.
Atlanta would be X sight and C. III regulations, we will continue investing in upgrading our fleet further with energy saving devices and latest operational technologies deployed across the fleet and in improving our fuel consumption and reducing our environmental footprint further enhancing the commercial attractive Starbuck fleet.
Regarding our ESP retrofit program, we have completed 21 vessels until today and 12 more vessels are plotted defeated by the end of the year.
Both numbers are based on current estimates around driver can retrofit planning vessel employment and yard capacity.
During the second quarter, we have successfully completed the onboard tasking with carbon capture technology with a capability to retain up to 30% in net <unk> emissions.
We will continue working on carbon capture technology with our industrial partners and developing a cost effective solution, which can be selectively retrofit in the future on select vessels of our fleet and within the scope of our cargo Craig.
Finally, we're actively working with demand supply in banking or carbon neutral fuel together with the safety considerations in vessel design development with a particular focus on clean ammonia and in line with developing work taking place under the iron ore consortium.
The Green Court endorsed initiative.
I'll now pass the floor to our CFO Harriss Nike pardon me at CFC.
Thank you Nicholas please turn to slide eight we highlight our continued leadership on the ESP from.
Star bulk remains committed to transparency, forcing.
First time, we have completed the measurement of the company's scope three emissions.
We reported publicly in our upcoming ESG reports.
We have also submitted Starbucks question there for the Companys participation in the <unk>.
I think I can disclose yourselves at.
Eric.
Clearly the increase decarbonization ambitions and group for the industry.
Yes.
And if you think inclusion of seeping into the evening.
Yes, we are enhancing our strategic plan to comply with greenhouse gas emission reduction installations both.
No Andrew.
Yeah.
Well the societal fronts, we have created the first company blah Blah blah blah.
Blood donations.
And we are committed to supporting people with disability as well as the contributions related to education and increase.
Well in Q2 2020 see all our company employees attended.
Retraining, some cyber security to help raise awareness of cyber risks and on the company's jackpot.
Sure.
Star bulk is also piloting new cyber technology, some specials to help monitor the onboard systems and managed cyber risk.
As we are increasing the company used to commitments they start off code of business conduct and setup on policy and weaker blowing huffman.
In compliance with the UN global compact.
And the new global reporting initiative.
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I'll now pass the floor to our CEO .
For a market update and his closing remarks.
Thank you Chris.
Please turn to slide nine for a brief update of supply.
During the first half of 2023, a total of $18 6 million deadweight was delivered and $2 6 million deadweight was sent to demolition for a net fleet growth of 16 million deadweight or one 6% year to date and 2.9% yeah.
Over a year.
The supply outlook continues to be the best we have seen in the recent history of dry bulk shipping I'm.
Uncertainty on future propulsion shipbuilding.
Shipbuilding cost and limited shipyard capacity until late 'twenty to 'twenty five have helped keep new orders under control.
The order book stands close to record low levels of seven 4% below the fleet with $14 4 million deadweight reported its firm orders between January and June .
Furthermore vessels are booked in the years of age stands at eight 1% of the fleet.
While scrap prices have stabilized at elevated levels and should make demolition over rates, then surely an efficient donuts and attractive option during seasonal downturn over the next few years.
The average steaming speed of the dry bulk fleet has corrected to a new record low level of pinpoint 95 notes over the last month as a result of higher bunker costs lower freight rates of new environmental regulations.
We expect that the E X I C. III regulations will increasingly in the same device slow steaming and help moderate.
Supply over the next few years.
Over the last five quarters global Port congestion experienced a strong reduction from record highs that has gradually increased supply by approximately 5% and has put downward pressure on earnings over the first half.
Nevertheless changes in trading patterns and inefficiencies related to the war have normalized congestion slightly above pre COVID-19 levels, and then marketing may find further support over the next quarters from seasonal strength in trade volumes.
As a result of the above trends net supply growth is unlikely to exceed 2% per annum during 'twenty four and 'twenty five.
Let's now turn to slide 10 for a brief update of demand.
According to Clarksons total dry bulk trade during 2023 and 'twenty 'twenty four is projected to expand by two 7% and one 9% in tons and by 3.3 and two 4% in ton miles respectively.
During the first half of 2023.
Dry bulk volumes increased by approximately 3% year on year in the back of the reopening of the Chinese economy.
Correct or the high.
Coal in minor bulk exports and the recovery of iron ore exports from Australia and Brazil.
Okay.
China GDP increased by six 3% in Q2, but the recovery is losing steam as the company's property market continues to struggle.
The overall uncertainty for the outlook of its economy the demand for dry bulk commodities is very strong as important volumes increased by 15% year on year during the first half of 2023.
On the other hand, the rest of the world and imports declined by three 6%.
Commodities demand was affected by the war in Ukraine high and the cost and the tightening of monetary policy in the western economies during their ongoing.
Fight with inflation.
The IMF is projecting global GDP growth to slow down from three 5% in 'twenty 'twenty, 2% to 3% in 'twenty two 'twenty three 'twenty 'twenty four.
I Dunno trade is expected to expand by 25% in tons as well as in ton miles during 2023.
China's steel production increased by two 2% year on year during the first half of 2023 falling the total lift of the slick car with deposits at the same time domestic iron ore output contracted by 11%, while stockpiles have decreased to a three year low.
Providing a positive indicator for imports.
Steel production from the rest of the world declined by six 2% over the period affected by high energy costs and weak steel margins, but during June output increased on a year on year basis for the first time since January 22.
More infrastructure stimulus from China is expected to keep their steel production.
At least at par with last year's levels and the gradual recovery from the rest of the world with further inflate iron ore demand.
Coal trade is expected to expand by five 7% in tons and six 4% in ton miles during 2023.
I'll focus on energy Securities has upgraded the outlook of called trade for the next few years, while the shuffling of European and Russian trade is benefiting ton miles.
In the first half Chinese imports almost doubled compared to last year as hydropower is underperforming and there are limitations in the expansion of domestic oil production wherever the unofficial band by China on Australian coal that started during the fourth quarter of 'twenty 'twenty has been lifted then is all.
Already providing support Capesize and Panamax vessels.
Grain trade is expected to expand by 2.5% in tons of three 7% in ton miles during 2023.
During the first half corn and wheat trade was effective from poor crop conditions in Argentina, and higher U S prices on the other hand, Brazil experienced a record soybean export season.
And had a strong corn crop crop.
Crop that is expected to more than mitigate the loss of Ukrainian cargoes. Following the closure of the Black Sea Green Gordon last month.
Forever right.
Strong Chinese demand and increased focus on food security I would expect it to inflate grain trades over the next few years and there is some portion of grain prices provides a positive indicator for grain volumes during the second half.
Minor bulk trade is expected to expand by one 3% in tons and two 3% in ton miles during 2023.
I know about today that has the highest correlation to global GDP growth and it was affected by the global slowdown.
The war in Ukraine disrupted EU 30 lives in our steel production and created the Atlantic sort of does that mean.
Inflated backhaul trades during the first half Morever expanding west African bauxite exports continued to generate strong demand for capesize vessels would be as of the date exports are up to up by 30%.
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.
World's grain transition Starbuck is well positioned due to scrubber fitted and diverse fleet to take advantage of a recovery in freight rates and remains focused on actively managing its fleet and continuing to create value for its shareholders.
Without taking anymore of your time I will now pass the floor over to the operator to answer any branches in Manhattan.
Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys again that is star one to register a question at this time [noise].
Today's first question is coming from Amit Malhotra of Deutsche Bank. Please go ahead.
Hey, good morning, and good afternoon. This is Chris Robertson on for Matt. Thanks for taking my questions.
I agree.
I just wanted to start on the updated dry docking schedule looks like it picked up since the last earnings call by a few hundred days. So I just wanted to drill into that a bit is that pulling forward. Some 2020 for dry docking that was scheduled or is that due to just.
Maybe.
Longer time periods for installation of equipment or just trying to get an idea of why it's gone up.
Thank you Craig this is nicos, where basically accelerating some of the vessels into this quarter and we're basically installing is to devise a bit earlier due to the lower market instead of giving you for 2024.
Actually more shapes, rather than more days on specific drydocks.
Okay got it that's that's good.
This is related to the use of proceeds from the vessel sales. So I wanted to ask about you guys looking at the net share count from the beginning of the year two they ended the quarter it looks like.
Net net of repurchases, but also offsetting that the issuance of shares under the compensation program. It looks like the net share count's up around 326000 year to date. So as we think about coming quarters, you expect I'm guessing that share count will not increase further do you think or would there be some opportunities here to use somebody else.
Proceeds from the vessel sales to more aggressively repurchase shares to offset any issuances remaining under the current program.
Well I I don't think we intend to issue more shares under the program this year yeah.
We haven't and they should get somebody a second batch of the shares which is going to be you should expect for Oh. It will be issued okay. So so there will be some shares issued in November .
Roughly how much.
So it should be to the tune of a an additional 200000 shares okay.
So.
That that's it then or are on the order of 200000 shares under the comp program less any buybacks that we might do.
Yeah.
Okay.
Okay.
The shares the shares outstanding today is 100.083 million 500, <unk> and 10 <unk>.
On a fully diluted a with a national shares remaining it's going to be hungry or a 3 million 398500 times right.
Approximately 210000 remaining.
Okay. Thanks.
Last question for me, it's more market oriented you essentially wanted to what's happening with China I guess, just looking at the rest of the world what would be in your mind. The most low hanging fruit in terms of an immediate demand response other than you know.
Kind of global GDP, improving from here, what what region or what what sector. Do you think we'll have more of an immediate impact.
In terms of recovery.
Well.
Chris.
First of all the reason behind the market falling.
The levels that we're seeing today I think is.
That congestion.
Plus the reduction of condition.
Last thing could easily deadweight.
Did not was not covered by the reduction in the speed and the additional ton miles of the that we are that were produced during the first half of the year.
So.
That actually ended up being slightly negative and I think this is one of the reasons. We saw was so slow market also let's not forget that usually during the first couple of a year.
We see less trades in the second half of the year and nothing that or a statistical analysis over the years that shows that 46% of the first half Oh, Oh trade is done during the first half and a 54% during the second half.
So I think this is very.
The reason why we didn't see a stronger market up to now.
Going forward I think that we've seen most of the negatives.
We've we don't believe that congestion will fall much further than what we've seen.
We think that the world.
Economy is stabilizing and made turnaround positively.
Vessel supply is not going to be very strong in the next 18 months, especially 'twenty 'twenty four is going to be a year, where rather few vessels will be delivered.
And and particularly grain trade, we believe is going to turnaround and ER and be much stronger due during the second half and because.
During the first half.
We saw a reduction of about 4% of the grain trade, we think that at the end of the year, it's going to turn positive.
So these are these things.
Things are going to turn it on and we think that shine.
He is going to exert a stronger effort on the infrastructure side, and we think that coal will remain strong we think speeds will probably remain where they are.
Especially as oil prices are relatively hi, we think that the weaker dollar is going to help our trade because commodities are cheaper and freight is cheaper so that induces more trades.
We think that the ton mile inefficiencies will remain because.
Even if the war stops I don't think that our Russia will start trading with Europe , right away or the or the wood at west in general.
We see a low iron ore inventory in China.
And generally is we don't see more negatives coming up but we see more positives. So we have faith in the market for the remainder of the year and for 2024.
Yeah definitely a lot of small things that add up for some hopefully incremental improvement from here. Thank you for taking my questions I'll turn it over.
Thank you.
Thank you. The next question is coming from Omar.
Jefferies. Please go ahead.
Thank you Hey, guys. Good afternoon, I just wanted to follow up on the share buyback I think you mentioned in the opening remarks that you've already spent about $13 million since receiving the proceeds of the sales and just wanted to ask kind of given where things are at the moment given your outlook on where the stock prices are.
140, if I recall that remain.
What's your thought about how much of that you're kind of thinking you'd like to utilize towards the buyback versus say debt repayment.
Well you know there there are more possibilities than that right. There is the buyback there is debt repayment and then there you know.
Shall of a renewal of the fleet.
And you.
You know all three of those are under active consideration.
Okay and is there any I guess, there isn't really a preference at the moment, although I could.
Perhaps you did spend 13 million. So maybe there is a good amount of interest to buy the stock.
Well I as I say I mean now we're considering all three uses but you know there are some there are some very interesting possibilities.
That may arise in terms of renewing the fleet as well so that's not out of the question.
Okay, and you would be okay, and you'd be willing to do that.
With the cash proceeds you've received irrespective of where the valuation is on the stock.
Well, we'll take we'll take that into account I mean, yeah.
We're always looking out to do the best thing for the shareholders.
Yeah.
Okay, and then and then you Didnt mentioned and another option and obviously not with the proceeds but you have sold to fix ships recently well what are you thinking about further disposals from here and anything on the horizon there.
Well, we think we got an excellent price for the ships, we sold and you know if if we can continue to get similarly, good prices on ships that you know.
We are happy to sell.
No I think we'll keep doing that.
Got it okay. Thank you I'll pass it on.
Yeah.
Once again, ladies and gentlemen, if you do have a question you May press star one on your telephone keypad at this time.
The next question is coming from Nathan Hello. Thanks America. Please go ahead.
Hi, Thanks for taking my question.
I guess I, just I wanted to start off with maybe one on just the outlook.
I think earlier the team alluded to expectations on Green trade turning positive.
May I ask if if that's more coming from lane dislocation or just the general expectation of MACRA.
Recovery and has has the team seen any lane.
Being dislocated following the Black Sea corridor closure and any any notice of I'll call outs there. Thanks.
Yeah.
I think it's a general positive feeling I mean, the thing in the sense that a the negatives have probably reached their their low points.
And the positive the positive is that still are still around.
It should not macro and my a combination of macro and micro I would say.
I see so a combination of like.
A broader G D. P V I suppose just ton miles yeah.
Okay, and as my follow up I hate to be hitting the point.
Again, but on the $140 million proceeds in terms of.
Your your capital view I think they were.
Mentions of.
Heimish brought up a free when you watch a potential use of proceeds just wondering if maybe you could clarify a little bit about how that would be likely express or would this be through further new builds or has have has there been any updates.
In terms of opportunity availability in the secondhand markets I'm, just maybe expand a little bit on that.
Well you know I I I I think this is something we're looking into them and you know.
When we find it.
A an excellent opportunity, whether new building or a second hand, we'll consider that along with considering debt repayment and stock buyback. We really haven't made a decision on the use of that 140 million at the moment.
But you know.
At some point in the not too distant future, we will probably decide what to do with it.
Yeah, and just to add to that this is Kris those we're always open to also buy vessels using our shares issued at net asset value as we have done in the past now that's not the use of cash.
But it's definitely a use of our share capital in order to buy vessels and renew our fleet through south acquisitions I liked the 58 vessels that we have done since 2018.
I see and just to just to clarify on the framework as to how you look at this what would it be safe to assume it's kind of based on IRR mentality in terms of what what return.
Looks more attractive in terms of how you would aim to deploy the cash.
Yeah, I mean, basically when you look at the at the rate of return on capital and you know whether whether that is are you now in excess of our cost of capital and cost of equity is appropriate.
Okay. That's clear thank you so much.
[laughter].
Thank you at this time I'd like to turn the floor back over to management for any additional or closing comments.
No further comments operator have a nice August vacation to everybody.
And thank you very much.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and enjoy the rest of your day.
Yeah.
[music].
Yes.