Diana Shipping Inc (DSX) 2005 Q3 法說會逐字稿

Good morning ladies and gentlemen. My name is Nelson and I will be your conference facilitator today. At this time I would like to welcome everyone to the Diana Shipping Third Quarter Conference Call. (Operator Instructions). It is now my pleasure to turn the floor over to your host, the Investor Relations Advisor, Edward Nebb. Sir, you may begin your conference.

Thank you very much, Nelson, and good morning to all of our participants. This is Ed Nebb, Investor Relations Advisor for Diana Shipping and we appreciate your attendance on the company's 2005 third quarter conference call. With us this morning are members of Diana Shipping management team including Mr. Anastassis Margaronis, President, Mr. Konstantinos Koutsomitopoulos, Chief Financial Officer and Mr. Ioannis Zafirakis, Vice President and Secretary. Mr. Simeon Palios, Chairman and Chief Executive officer regrets that he cannot be with us today due to business travel.

Before management begins their remarks, let me briefly summarize the safe harbor notice, which you can see in its entirety in today's news release - I'm sorry, the news release that was issued a few days ago. Certain statements made during this conference call, which are not statements of historical fact are forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are based on assumptions, expectations, projections, intentions and beliefs as to future events that may not prove to be accurate. For a description of the risks, uncertainties and other factors that may cause future results to differ materially from what is expressed or forecast in our forward-looking statements, please refer to the company's filings with the Securities and Exchange Commission. With that let me turn the call over to Mr. Anastassis Margaronis, President of Diana shipping.

I would like to extend a warm welcome to investors and analysts who are participating in this call to discuss the financial results of our company for the third quarter of 2005. Our CEO, Simeon Palios who is presently traveling in the Far East, very much regrets not being able to participate in this conference call. The need to monitor the fast moving developments in that part of the world has made it necessary for a senior officer of this company to be in China and the Far East every few weeks so that we can keep up with the business opportunities which that area can provide for our company and shareholders.

Our detailed results have been subject of our October 28 press release and our CFO Konstantinos Koutsomitopoulos will be analyzing these later on during this call. What I would like to say is that we are very pleased with our company's financial performance during this quarter, particularly if we take into account the recent volatility of dry bulk daily charter rates.

A few days ago we announced our second full quarterly dividend since our company became public last March and will distribute $18,600,000 US in dividends to all our shareholders on record as of November 7th.

We consider the $0.465 per share dividend very healthy in view of the weakness demonstrated by the dry bulk charter rates for at least part of this quarter. This is the result of our chartering policy which we adjust continuously, to take advantage of long-term charter opportunities while trading some vessels on the spot market, when we expect the market to firm up in the short to medium term.

I will give you a perspective of the dry bulk market in a few minutes, but as a general point, I would like to mention that the months of November and December have proven in the past to be relatively strong months for dry bulk charter rates. We have positioned ourselves to be able to take advantage of such strengths if it materializes again by having some of our vessels coming open between now and the year-end.

Our recent acquisitions are in line with our stated policy to expand the fleet when the opportunities arise and the lucrative time charter employment attached to these purchases make us confident that the acquisitions will be accretive to dividends per share. The newly acquired vessels will reduce further the already low average age of our fleet and the fact that the one is a sister ship to three of our already owned vessels while the other two are sister vessels between them, is in line with our already declared criteria on future acquisitions.

The acquisitions were at prices considerably lower compared to those paid by some of our competitors earlier this year while our strong financial position will allow us to continue to add to our fleet on an accretive basis and we are continually on the lookout for such opportunities.

Here are the latest developments in the dry bulk shipping market. On the 1st of August 2005, which was the date prior to our last quarterly earnings conference call, the Baltic dry index stood at 1,769 and yesterday it was at 3,030, which would present an increase of 71%. The Baltic Panamax index was at 1,518 and yesterday stood at 2,536, a rise of 67%. The Baltic Cape Size index was at 2,327 and yesterday closed at 4,487 an increase of 93%.

This trend justifies our conviction, as stated during our last conference call, that the weakness we are experience - we were experiencing at that time in dry bulk earnings would reverse during the third and fourth quarters of 2005. The microeconomic economic environment influences the demand for the transportation of the commodities carried by our vessels. These are primarily iron ore, coal, grain and other bulk commodities such as fertilizers, salt and steel slabs.

World economic growth in 2005 and 2006 is forecast at a strong 4.3% per annum. US economic growth has been revised downward slightly by 0.1% to 3.4% for 2005 as a result of Hurricanes Katrina and Rita. Nevertheless the US economy grew at a faster than expected 3.8% annual rate in the third quarter according to the US Commerce Department. Furthermore there is likely to be a rebound in early 2006 as the reconstruction of the effected areas gets underway.

In Asia, recent news out of China, Taiwan, Korea and Singapore indicate strength in manufacturing, exports as well as retail sales. Industrial production in China grew 16% year on year in August 2005. In the first three quarters of 2005, China's GDP grew on average by 9.4% per annum. The OECD holds the view that China is on track to become the world's biggest exporter and fourth largest economy by 2010. The OECD adds that Chinese economic growth has averaged 9.5% per annum over the past two decades and seems likely to continue at that pace for some time.

For the long term, one of the most important factors to emerge as part of the economic growth story of China over the next decade and India over at least the next two decades is urbanization. Urbanization will bring huge demand for raw material intensive infrastructure and housing construction. While China has already built and is continuing to build world-class infrastructures such as roads, ports, airports and urban projects, India has lagged behind. That is why the Indian government is planning to spend about $150 billion over the next five years in infrastructure projects.

While China's boom in demand for raw materials has been gathering pace for some time now, India's has just begun. The Indian economy is showing strong rate of growth in gross domestic product, while industrial production has been growing between 7 and 8% per annum for 2005.

With growing personal income levels, infrastructure upgrading and increased industrial activity, China and India's consumption of industrial and agricultural input and consumer items looks set to soar. China and India's infrastructure and industrial development means the region has an enormous demand for natural resources and commodities. With 40% of the world's population they have become the focal point of global attention as consumers, producers and suppliers.

In Japan, the bank of Japan reported increasing consumption and the forecast for 2006 gross domestic product growth higher than the five-year average of 1.3% per annum. The economy is forecast to grow by 2.1% in 2005 and at least 1.9% in 2006.

Looking now at the dry bulk trade, it is estimated that approximately 2.6 billion metric tons of cargo will be shipped in 2005 and about 2.7 billion metric tons in 2006, an increase of 5% year on year. Most of this growth can be attributed to iron ore trade, which is expected to increase by 8.2% in 2006 and accounts for nearly 30% of total dry bulk trade volume. Therefore, we can safely say the demand for transportation of dry bulk cargos will be strong during the forthcoming year.

Global demand for sea borne iron ore could rise from 596 million tons in 2004 to 650 million tons in 2005. China imported close to 200 million tons during the first nine months of 2005, an increase of 30% from the same period of 2004. Chinese demand for imported iron could exceed 400 million tons by 2010, double its 2004 level.

Australia and Brazil are expected to capture the largest share of this trade while the rate of growth in Indian exports is expected to decline. This will lead to a greater per ton mile demand as the new suppliers will require longer sea passages compared to the Indian supplies. The chairman of CVRD, the largest ore mining company in the world, has commented that "supply and demand will continue to be very, very tight," referring to the sea born iron ore market.

As regards coal, world trade is expected to increase moderately by 3.2% in 2006. Coal demand is being driven by strong consumption growth in both India and China. China's coking (ph) coal imports increased by 22% during the second quarter of 2005, compared to the same period last year. With conditions in the steel market improving and global steel prices recovering, it is anticipated that demand for coking coal will remain robust during the fourth quarter.

For thermal coal, China is presently facing a moderate over supply, largely due to the increased production capacity and improvements in rail and other inland transportation. However, supply and demand should balance out once production from small, unsafe and inefficient mines comes to a halt as a result of the Chinese government's decision to temporarily close down 7,000 small coal miles, which were found to be unsafe.

In Japan, which imports over 90% of all coal it uses, nuclear power is becoming more important as a source of power generation. Nevertheless, thermal coal still remains the most important source of fuel for power generation. Estimates are that during the next three years coal imports will increase by 8.6%. As regards South Korea, a major importer of thermal coal and a traditional client of Chinese coal exporters, we see power generating companies spreading out their supply risk by sourcing more coal from Australia, Indonesia and even South Africa.

Australia is the largest steam coal supplier to South Korea's thermal power generators for a second year running, indicating the Koreans' growing dissatisfaction with the reliability and quality of Chinese coal supplies. This shrift in supplier sourcing will significantly increase the ton-mile demand for ships to transport this coal if one takes into account the fact that it takes an average of 10 days for coal to be shipped from China to Korea as opposed to a minimum of 35 days from Australia to Korea.

Looking at Asian demand for coal, as then these are the coal trends Australia conference heard that in spite of the expected softening of coking coal and thermal coal prices during 2006, coal demand from this region is expected to double between now and 2010.

As for the grain trades, Hurricane Katrina had a minimal effect on dry bulk trades because grain exports from the US Gulf were only temporarily halted. Global grain trade for the crop year 2005, 2006, ending June is forecast to increase marginally by 1% from the previous period to reach 212 million tons. Higher grain and soybean imports from Europe and North Africa are partly offsetting lower imports of grains from China. With China's wheat production expected to reach the highest level in six years, 2005, 2006 Chinese imports of wheat will be lower than the year before.

Here are the latest developments in the supply of bulk tonnage. Port congestion, which is a factor effecting the supply of tonnage, has eased during the past two months, primarily at China's main iron ore ports. However, at Damlintel(ph) Bay in Haypoint in Queensland, Australia as well as the port of Newcastle, congestion has started to rise again.

For example, at the end of September, the backlog of vessels at Barinkle(ph) Bay had risen to 21 waiting ships. Today, waiting times at that port are reported to average about 14 days. The situation in Australia is an indicator that port congestion world wide could get worse in the coming months, limiting the availability of vessels.

In 2006, the number of Cape Size and Panamax vessels entering the fleet will be roughly the same as in 2005, that is about 70 Panamaxes and 62 Cape Size vessels. The total dry bulk fleet is expected to increase in capacity by 7.4% in 2005 and by 6% in 2006. In capacity terms, the current order book represents about 19% of the total dry bulk fleet. This figure is relatively low compared to the container and tanker fleets where order books account for about 54% and 26% of the existing fleets respectively.

As regards scrapping, only 11 dry bulk carriers have been scrapped so far this year, but with the aging fleet a larger number of vessels is expected to head for the scrap yards during 2006.

Summing it all up, we expect the freight market to improve during the latter part of the 2005 fourth quarter and the early part of 2006. We believe that anticipated strong grain exports from the US gulf together with the resumption of iron ore imports by China, will move the market higher. The anticipated increase in port congestion will also help to reduce the supply of tonnage that's helping absorb the significant number of new buildings scheduled for delivery during 2006.

In this environment, Diana Shipping will utilize its strong balance sheet and competitive advantages to continue its fleet expansion and chartering strategies to increase free cash flow and dividends per share, thus adding value to investors. I will now turn the call over to our CFO, Konstantinos Koutsomitopoulos, to provide you with our financial results for the third quarter. Thank you.

Thank you Stacy. Good morning from me. I'm pleased to be discussing with you today Diana's results for the third quarter of 2005 and the nine months ended September 30th 2005. For the three months ended September 30th, 2005 compared to the three months ended September 30th 2004, voyage and time charter revenues increased by 10.6 million, or 70%, to 25.8 million for the three months ended September 30th 2005 compared to 15.2 million for the same period in 2004. This increase is primarily attributable to an increase in the daily charter higher rates table under our time charters in an increase in the number of operating days that we achieved.

The increase in operating days during the three months ended September 30th 2005, resulted primarily from the enlargement of our fleet following the delivery of the Protefs in August 2004, the Calipso and the Pantelis being February 2005, and the Clio in May 2005.

For the three months ended September 30, 2005, had total operating days of 891 and a fleet utilization of 99.9% compared to 580 total operating days and a fleet utilization of 99.7% for the same period in 2004. The time charter equipment rate for the three months ended September 30, 2005 was $27,187 compared to $24,358 for the same period in 2004. Voyage expenses increased by 0.5 million or 45% to 1.6 million for the same month ended September 30, 2005 compared to 1.1 million for the same period in 2004. This increase is attributable to increased commissions paid to third-party brokers and our fleet manager.

Commissions paid during the three-month period ended September 30, 2005 and 2004 to our fleet manager amounted to 0.5 million and 0.3 million respectively. And commissions paid to unaffiliated ship brokers and in-house brokers associated with charters amounted to 1.2 million and 0.7 million respectively. The interest in commissions resulted primarily from improved trading conditions and charter hire rates and increase in operating days during the three months ended September 30, 2005, which increased the amount of revenues that we reported.

Voyage expenses represented 6% of revenues for the three months ended September 30, 2005 compared to 7% for the same period in 2004. Vessel operating expenses increased by 1.3 million or 48% to four million for the three months ended September 30, 2005 compared to 2.7 million for the same period in 2004. This increase in vessel operating expenses was the result of the increased number of ownership days resulting from the acquisitions of the Protefs, Calipso, Pantelis SP and the Clio.

Daily operating expenses decreased by $271 or 6% to 4,397 for the three months ended September 30, 2005 compared to 4,668 for the same period in 2004. This decrease is attributable to the delivery of the Protefs in August 2004, which resulted in increased purchase of consumables, including stores and spares in 2004. This decrease in 2005 has been offset by an overall increase in wages paid to officers and crews and to increased repairs and maintenance costs due to rescheduled surveys of the Nirefs and Alcyon in August 2005. Also part of the decrease has been offset by the addition to our fleet in February 2005 of the Pantelis SP, a Cape Size vessel that is significantly larger than our other vessels and therefore costlier to operate.

Depreciation and amortization charges increased by 1.3 million or 100% to 2.6 million for the three months ended September 30, 2005 compared to 1.3 million for the same period in 2004. This increase is a result of the increase in the number of our vessels and ownership days during the same month ended September 30, 2005. Management fees increased by 0.3 million or 150% to 0.5 million for the three months ended September 30, 2005 compared to 0.2 million for the same period in 2004. Part of the increase is attributable to the increased number of vessels under management that increased the ownership days and another part of the increase is due to the increase in vessel marketing management fees from 12,000 to $15,000 in November 2004.

Interest and finance costs decreased by 0.4 million or 57% to 0.3 million for the three-month period ended September 30, 2005 compared to 0.7 million for the same period in 2004. The decrease is due to the actions of interest expenses during the third quarter of 2005 after repayment of our outstanding debt in March 2005. Interest and finance costs during the three months ended September 30, 2005 consists of commitment fees incurred due to the credit facility we maintain with the Royal Bank of Scotland and other legal expenses.

Interest and finance costs for the three-months ended September 30, 2004 mainly consist of interest expenses of 0.5 million and the change in fair value financial instruments amounting to approximately 0.2 million. For the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004, voyage and time charter revenues increased by 33.7 million or 74% to 79.1 million for the nine months ended September 30, 2005, compared to 45.4 million for the same period in 2004. This increase is primarily attributable to an increase in the daily charter hire rates payable under our charters and an increase in the number of operating days that we achieved.

The increase in operating days during the nine months ended September 30, 2005 resulted primarily from the enlargement of our fleet following the delivery of Protefs in 2004 - in August 2004 - which was fully operating during the nine months of 2005, the delivery of Calipso and Pantelis SP in February 2005 and the delivery of Clio in May 2005. For the nine months ended September 30, 2005, we had total operating days of 2,480 and a fleet utilization of 99.7% compared to 1,670 total operating days and a fleet utilization of 99.8% for the same period in 2004.

The time charter equipment trade for the nine months ended September 30, 2005 was 29,719 compared to 25,269 for the same period in 2004. Voyage expenses increased by 2.1 million or 68% to 5.2 million for the nine months ended September 30, 2005 compared to 3.1 million for the same period in 2004. This increase is attributable to increased commissions paid to third party brokers and our fleet managers. Commissions paid during the nine-month period ended September 30, 2005 and 2004 to our fleet manager amount to 1.6 million and 0.9 million respectively and commission paid to unaffiliated ship brokers and in-house brokers associated with charters amounted to 3.6 million and 2.1 million respectively. The increase in commissions resulted primarily from improved trading conditions and charter hire rates and an increase in operating days during the nine months ended September 30, 2005, which increased the amounts of revenues that we have reported.

Voyage expenses represented 6.6% of revenues, which remained flat for the nine months ended September 30, 2005 as compared to 6.8% for the same period in 2004. Vessel operating expenses increased by 3.9 million or 57% to 10.7 million for the nine months ended September 30, 2005 compared to 6.8 million for the same period in 2004. This increase in vessel operating expenses was primarily the result of the increased number of ownership days resulting from the acquisitions of the Protefs, Calipso, Pantelis SP and Clio, which led to an increase in our crew and related costs as well as data expenses associated with consumables and repairs and maintenance.

Daily operating expenses increased by $200 or 5% to 4,242 for the period ended September 30, 2005 compared to 4,042 for the same period in 2004. This increase is primarily attributable to an overall increase in wages paid to officers and crews and to increased repairs and maintenance costs due to the scheduled repairs of the Nirefs and the Alcyon in August 2005. The increase is also attributable to the addition to our fleet in February 2005 of the Pantelis SP, which is a Cape Size vessel and which is significantly larger and therefore is costlier to operate.

The overall increase in daily vessel operating expenses for the nine months ended September 30, 2005 was offset with a decrease in consumable stores and spares, which, for the nine months ended September 30, 2004 increased due the addition in the fleet of the Protefs, which resulted in increased purchases to stock up the ship. Depreciation and amortization of the surcharges increased by 3 million or 89% to 7 million for the nine months ended September 30, 2005 compared to 3.7 million for the same period in 2004. This increase is primarily the result of the interest in the number of vessels and ownership days during the nine months ended September 30, 2005 following the acquisitions of Pantelis SP in February 2005 and deliveries of Protefs, Calipso and Clio in August 2004 and February 2005 - May 2005 respectively.

Management fees increased by 0.5 million or 71% to 1.2 million for the nine months ended September 30, 2005 compared to 0.7 million for the same period in 2004. This increase was attributable to the increased number of vessels under management following the acquisitions of Pantelis SP in February 2005 and the deliveries of Protefs in August 2004, Calipso and Clio in February and May 2005. Part of the increase is also due the increase in invested marketing management fees from 12,000 to 15,000 in November 2004.

Interest and finance cost increased by 0.8 million or 57% to 2.2 million for the nine month period ended September 30, 2005 compared to 1.4 million for the same period in 2004. The net increase in interest and finance costs primarily resulted from finance costs incurred in connection with our existing credit facility and other banking costs relating to our repayment of previous credit facilities repaid with a portion of the net proceeds of our initial product offering in March 2005. Interest expense decreased by 0.3 million or 23% to 1 million in the nine months ended September 30, 2005 compared to 1.3 million in the nine months ended September 30, 2004.

Now, I would like to turn to the company's dividend policy, which we believe to be an important contributor to the shareholders' value. And for the third quarter of 2005, the board of directors has decided to declare a dividend of $0.465 per share. Diana intends to declare and pay dividends that are substantially equal to our available cash from operations during the prior quarter. In calculating the cash dividend, we take into account cash expenses, dry docking reserves from the (inaudible - accent) ability finance costs and capital needed to support the company's operations.

During September and October 2005, Diana made acquisitions as part of its overall growth plan. We believe that these operations are going to be accretive to our dividends per share. On September 5, 2005, Diana purchased the Panamax dry bulk carrier, Vetis (ph) for $44.25 million. The vessel was purchased with the assumption of a time charter at the rate of $25,000 per day gross with BUNGE until July 2007. We expect to take delivery of the Vetis in late November 2005.

On October 25, 2005, Diana agreed to purchase two additional Panamax dry bulk carriers, the Erato, built in 2004, and Koronis, which is under construction. We expect to take delivery of the Erato in November 2005 and Koronis in late February, early March 2006. Both vessels will be chartered to Bosima (ph) at a rate of 21,000 per day gross for 11 to 13 months from their delivery to us.

Thank you for all your attention. And we would like now to respond to your questions. And I will turn the call to the operator, who will instruct you to the procedures for asking questions.

(Operator Instructions) Sir, there appear to be no questions.

If there are no further questions at this time, let me turn it back to Diana Shipping management for a few concluding comments.

Thank you, Ed. In closing, I want to reiterate that we are extremely pleased to deliver strong results for our shareholders during the third quarter of 2005. We also have taken initiatives to continue our growth in the future by acquiring additional vessels to expand our fleet and enhance our earnings capacity. And finally, we are encouraged by the long-term trends in the dry bulk shipping market. We look forward to continuing to build shareholder value and to speaking with you again next quarter. Thank you very much.

Let me just interrupt to say that I guess the system operated a little bit slowly and we do have some questions. So we will take those questions at this point. Operator?

Thank you. Your first question comes from John Dawson (ph).

Good afternoon. I think I misheard, but when you were talking about port congestion, did you say that - I thought you said 14 days down from 21 days, but that didn't make any sense.

Yes, so I will - thanks, John. I will reiterate, basically, what's happening as a general trend. They are - we have an easing of port congestion in the ports iron ore, primarily ports of China. And we have an increase of port congestion in the loading ports of coal in Australia.

Okay.

Now, the days that I mentioned, the first number, the 21, referred to ships and 14 referred to days. So --

Okay. All right, thank you very much.

You're welcome.

Thank you. Your next question comes from Hardon Athea (ph).

Hi. I just want to clarify, under your dividend policy, the calculation of the dividend effectively equaled cash flow from operations. And does that - that is not restricted in any way by vessels you acquire under your revolving credit facility, is that correct?

Well, the revolving credit facility does not restrict us inasmuch as there is ample space to acquire these ships. On the other hand, there are some specific governments that do no allow us to go further. But we are very far from these governments right now.

In terms of --

We feel very comfortable right now as we speak that there's not going to be any disruption in the policy that we have put forward.

Okay. Yes, I guess more a technicality in terms of how the dividend is calculated for subsequent quarters. Earnings from finance vessels contribute to the dividend - cash flow available to pay the dividend. Is that correct?

Well, the policy that we have in place right now is a policy where we effectively pay all the cash flow out with the exception of any cash expenses during the quarter. So that includes everything.

And can you - what was the purchase price? I think it was - was it 82 million for the two additional vessels recently announced?

Eighty-one.

Eighty-one. So, you - and the credit facility - what is your pro forma availability remaining under the credit facility for - after those acquisitions are completed?

Well, if we assume the three acquisitions, then the availability is going to be $117 million.

And you have access to all of that, currently, if you chose to draw it down.

That is correct.

Okay. Perfect. Thanks.

Thank you.

(Operator Instructions) Sir, there appear to be no further questions.

Very well, then. Let me echo Mr. Margaronis' comments and thank you all for participating with us. And we will speak with you again next quarter. Thank you very much.

This concludes today's Diana Shipping third quarter conference call. You may now disconnect.