Star Bulk Carriers Corp (SBLK) 2007 Q4 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk conference call on fourth quarter and year ended December 31, 2007 financial results. We have with us Mr. Akis Tsirigakis, Chairman and CEO, and Mr. George Syllantavos, CFO of the Company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question/answer session (OPERATOR INSTRUCTIONS). I must advise you that the conference is being recorded today, Wednesday, February 27, 2008.

We now pass the floor to your speaker today, Mr. Akis Tsirigakis.

Good morning, ladies and gentlemen, and welcome to the Star Bulk conference call. I'm Akis Tsirigakis, the Chief Executive Officer of Star Bulk Carriers. With me is George Syllantavos, our Chief Financial Officer.

Please be advised this presentation has been posted on our website. It is www.StarBulk.com, where it is available to download even as we speak, if you wish.

As a reminder, this conference will also be webcast. To access the webcast, please refer to the press release, which was disseminated this morning, for the web address, which will direct you to the registration page. Please note that the slides are user-controlled.

This conference call contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Securities Litigation Reform of 1985 and investors are cautioned that such forward-looking statements involve certain risk and uncertainties which may affect the Company's business prospects and results of operations. Such risks are more fully discussed in the Company's filings with the Securities and Exchange Commission.

If you would like to turn to slide three that is headed overview, I would like to give a brief overview of Star Bulk Carriers. We are organized under the laws of the Marshall Islands and are the successors of a merger with the Star Maritime Acquisition Corp., which occurred on November 30, 2007. Our common stock and warrants are trading on the NASDAQ exchange under the ticker symbols SBLK and SBLKW, respectively. We have begun taking delivery of our initial fleet of drybulk carriers on December 3, 2007, and we expect to complete the last delivery, that is our Panamax bulk carrier, the Star Iota, by end of March/beginning of April 2008.

The aggregate purchase price of the initial vessels was $345 million, approximately, which was funded by cash, stock and debt. The purchase price comprised of 12.5 million shares, approximately, of common stock at the price of $9.63, which was provided to TMT, the fleet seller, and $224.5 million in cash, of which $184.5 million was Star Maritime's cash held in trust, plus another $40 million from a debt facility that we have obtained. Postmerger, TMT owns 32.2% of Star Bulk and, additionally, Star Bulk will issue to TMT two tranches of 803,481 shares, each issued in mid 2008 and 2009.

In addition to the eight vessels we have agreed to acquire as part of our initial fleets, we acquired an additional two vessels, thereby expanding our revenue and profit capability. In this context, we acquired and have taken delivery of the Star Kappa, a 2001 Supramax bulk carrier, and have a definitive agreement to acquire the M/V Star Sigma, a 1991-built Capesize vessel, which we expect to take delivery of during the second quarter 2008, bringing our total fleet to 10 vessels.

These two acquisitions represent a growth of about 35% and 34% in number of vessels and fleet carrying capacity, respectively. To date, we have taken delivery of eight of the 10 vessels we have agreed to acquire. Furthermore, all of our vessels have secured other time charters and we have thus contracted about what 100% of our fleet base for 2008, securing a healthy revenue stream which can support both our growth objectives and our dividend policy. The current charter free market value of our vessels is estimated, approximately, in excess of $740 million and I want to stress it is charter free market value.

Now, let us please turn to slide four. As I mentioned, we took delivery of four vessels and commenced operations in the fourth quarter of 2007. Voyage and time charter revenues amounted to $3.7 million for the fourth quarter 2007, compared to nil, of course, in the fourth quarter of 2006. Earnings per share, basic, for the three months ended December 31, 2007 was $0.05 based on a weighted average of 33.155178 billion shares outstanding.

Net income for the full year 2007 amounted to $3.4 million, compared to net income of about $2.98 million for 2006. Voyage and time charter revenues for 2007 are the same as voyage and time charter revenues for the fourth quarter of 2007 referenced before, actually, since we took delivery of the vessels then. Earnings per share, basic, for the year ended 31 of December, 2007, was $0.11 based on a weighted average of 30.067470 million shares outstanding.

As I just mentioned, with the delivery of seven out of eight of the initial vessels we agreed to acquire and the last vessel will be delivered in March 2008. We also acquired an additional two vessels, the Star Kappa and the Star Sigma. Once we take delivery of the two main vessels, will have a fleet of 10 vessels, aggregating to 927,759 deadweight, with an average age of 11 years.

I am pleased to report that we have 100% charter coverage for 2008 and approximately 61% coverage in 2009. This charter coverage allows us to have a healthy and predictable revenue stream to support our dividends and at the same time, further our future growth.

Now, speaking of future growth, I would like to add that we have a significant potential for growth due to both our leveraged balance sheet, which we expect, actually, to be approximately 22% debt-to-cap at yesterday's closing price of $11.98, and in addition, we have approximately $500 million in dry powder for growth.

If you please turn to slide five, headed Star Bulk highlights, we declared our first quarterly dividend of $0.10 on February 14, 2008, which is payable on February 29, this Friday, 2008. Our first dividend payment marks another important milestone and we are pleased to have increased this dividend to $0.10 per common -- per share from the $0.03 we would have declared based on the prorated -- for the number of fleet operating days in the fourth quarter of 2007. We're also excited to have adjusted upwards minimum quarterly dividend that we expect to pay -- or to declare, rather, for the first quarter of 2008 from $0.325 to $0.35 per share. On an annual basis, this translates to $1.40 per share, which provides a dividend yield of 11.7% based on the closing price of $11.98 on our stock on, well, yesterday. Our 100% charter coverage for 2008 provides revenues that provide dividend coverage of 179 to 180% of our 2008 dividends.

In addition to the complete Redomiciliation Merger, we are excited to have begun trading on the NASDAQ global market since December 3, 2007, under the tickers SBLK and SBLKW, respectively, for shares, for common stock and warrants. Other corporate developments since going public include the Board approval to repurchase up to an aggregate of $50 million of common stock and/or warrants from time to time and until December 31, 2008. We will be doing that when that trading window opens following the earnings calls in the quarters. That is the time period that we are planning to do that.

Currently, 2.5 million out of 20 million warrants have been exercised as of February 20, 2008, resulting in $20 million in gross proceeds, so 17.5 million warrants continue to remain outstanding.

I would like to add that as of January 24, Mr. Nobu Su has resigned from his position as Co-Chairman of the Board, with effect as of that date, due to his heavy workload and his other business activities. However Mr. Su will remain and is running as a director of the Company. Co-chairmen Mr. Petros Pappas has, as of that date, assumed the role of sole Chairman of the Board. So we look forward to Mr. Nobu Su's continued valuable input to the Board in his capacity as director and we wish to welcome Mr. Petros Pappas as sole Chairman and wish him a successful tenure.

If you would like to turn to slide six, please, this is our fleet operating table. For the three months and the year ended December 31, 2007. Now, as you can see, we have had 0.84 average number of vessels in the three months ended 31 December, 2007. That is the lower vessels. Our total voyage days were 68.71 with 77.48 ownership days, resulting in a fleet utilization rate of about 89% and, of course, that takes into account the off-hire days from the day the vessel is delivered to Star until it commences trading with the new certificates, new crew and the like. Because we only operated vessels in the fourth quarter, the data, aside from the 0.21 average number of vessels, is the same for the year ended December 31, 2007.

Now let us turn to slide seven. Voyage and time charter revenues were $3.69 million for the three months ended December 31, 2007. Voyage expenses amounted to $98,000. Vessel operating expenses amounted to $744,000 and net income was about $1.6 million. Again, fleet data for year-end 2007 was the same as for the fourth quarter.

Net income for the year ended December 31, 2007, was $3.4 million. It should be pointed out that the total $3.69 million in voyaging time charter revenues, out of that number $2.25 million represented actual charter hire revenue and the remainder $1.44 million represents gradual amortization of certain below-market charters incorporated to vessel values upon vessel deliveries.

Now, let us to turn to slide eight, the fleet profile. As you can see from our fleet profile, and as I have already mentioned, eight out of 10 vessels have been delivered to the Company and are currently under long-term time charter with reputable and established charterers. We have secured all of our vessels under time charter for full coverage in 2008, thereby securing a revenue stream which we can use to continue to grow our fleet and pay dividends. Now, the Star Iota and the Star Sigma will be delivered in early 2008, with the last deliveries of vessels, aggregate, a total of 927,759 deadweight tonnes and with a combined daily time charter rate totaling $480,986 per day.

I will now turn the floor over to George Syllantavos, he is our CFO, to discuss our financials.

Thank you, Akis. Let us turn to slide 10, which is a representation of what we can do with our low leverage. Our low leverage provides us with the ability to continue to grow without the need to issue additional equity since we are now at the 22% leverage debt-to-cap level. We have approximately $5 million in buying power, which means we have the capability to acquire either five Capesize vessels, six Panamaxes, or seven Supramaxes, or a combination of these three asset categories, depending on the age profile. If you wanted to break down the $500 million, we could say that approximately $200 million would be our additional debt capability and about $300 million would be attributed to the warrant conversions.

Let us turn now to slide 11. This just shows a representation of what an addition of a Supramax would do to the fleet. Buying the vessel, a three-year-old Supramax vessel at $75 million, employing the vessel in the spot market with rates on the basis of nine months remaining in calendar '08 forward agreements. Under both columns the following line items remain the same, our EBITDA being up $18 million and our debt being up $75 million since we assume that we acquired this vessel totally on debt.

With 6.1 times EBIT to EBITDA, which we feel is what we are trading at right now, the enterprise value for that additional vessel would be about $110 million. Our equity value would be $35 million and the contribution to our share would be about $0.80 if the market gave us that full valuation to our share. Assuming an 8.5 times EBIT to EBITDA, which is what our peers, the high yielders are trading. At the levels that are peers are trading right now, our enterprise value would increase to $153 million, our equity value being $78 million and if the market were valued at those EBITDA levels and the market gave us that full valuation, that additional Supramax would add about $1.27 per share.

Now let's turn to slide 13, which shows us the expected operating margins for this year. Over the next two slide, we are planning and taking -- to talking about Star Bulk's financials from a daily basis here and further on to the annualized figures. Page on our estimated daily breakeven announcements analysis. Our fleetwide average net time charter equivalent rate is expected to be a little bit over $45,500 a day. We will be able to achieve high net income and free cash flow margins based on very low cash outflows, which in our case are at approximately the 25% level of our net revenues.

Looking at Star Bulk from a cash flow breakeven analysis, we expect to generate approximately $11,320 per day of revenue. Based on the estimated TCE rate of $45,500, our free cash flow margins is approximately 75%. In addition, we estimate our breakeven on a net income basis to be $24,710. Our net income margin, then, is also a very substantial number, at approximately 54%. And both instances showcase the sufficient cash flow to support a quarterly dividend and growth potential.

Turning to slide 14, we have a snapshot of what the annualized picture would be. Based on these annualized figures, we expect to generate EBITDA of approximately $124 million, representing an EBITDA margin of approximately 83%. Additionally, we expect to have strong net income and cash flow margins. The roughly $110 million of cash flow we expect to generate an annualized basis will provide ample room for dividends. As indicated on the slide, we will retain approximately $49 million to grow the Company, with a remaining $61.6 million slated for paying the $1.40 dividends, which represents 56% of our cash flow.

I would now like to pass the floor back to Akis for a conclusion of the presentation.

Thanks, George. So if you would like to turn to slide 18, let's go over some of our highlights, please, which we feel will compare us favorably to our peers. First, we expect strong financial performance as we move forward, with stronger EBITDA margins of around 83%. We have a significant potential for growth due to our under-leveraged balance sheet that we have, which is at around 22% debt-to-cap at $11.98 a share. In addition, we have approximately $500 million in buying power for growth in.

Third, we also have the ability to pay attractive dividends. At $1.40 a share, our dividend would represent approximately 56%, only, of our 2008 cash flow. Our contracted revenue for 2008, with 100% coverage of our fleet capacity, covers 179% of the 2008 dividend, which allows us additional room for growth. Fourth, our management team is also a great benefit to us, with over 100 years of combined experienced in commercial and technical asset management. I would like to add that Star Bulk's Board is comprised also of recognized European and Asia shipping leaders that have a unique global perspective of the overall industry. And fifth, the strong demand in the Far East coupled with limited newbuilding deliveries in the current year supports our view for a strong, if volatile, 2008.

Closing, we believe our fundamentals can support strong cash flows and dividends and we believe we will be at the top of the peer group, or so we hope. Thank you for participating on this call. I would be glad to answer any questions and so will George.

Kevin Sterling, Stephens Inc.

Let me start with your stock buyback, stock and/or warrant buyback. When can -- now that you've reported Q4 numbers and annual numbers for '07, when can you come into the market and begin executing on that plan?

We would be able to come into the market with today's date early next week. We would be able to be doing that and for the next 20 trading days. So starting next week.

Okay, thank you. As you've mentioned in the presentation and when I look at your balance sheet, you are under levered and it looks like vessel acquisitions are a big priority for you. What is the market like now for buying vessels? Do you have an asset class of vessel that you are particularly focused on?

Well, two different questions. The asset class, as we've said many times before and it is obvious from our fleet composition, we favor the Capes and the Supramaxes. There are quite a few more Supramaxes out there than Capes. The earnings dynamics of the Capes we like, but we like the Supramax class for its flexibility abilities that it has and its better newbuilding orderbook profile. So for various reasons, we favor those two.

Now, in terms of what's out there, as I said, there are more Supramaxes than Capes out there. However, we have not seen real movement in prices, even though there has been a fluctuation in rates for the last month and a half, because there haven't been too many transactions done. Therefore, we don't have new levels that would justify either firm asset prices or a little bit lower asset prices. So we are kind out there in the middle of the ground type of situation here and we are reviewing the situation to see what makes more cents.

Thank you, George. In regards to your dividend policies, is your goal to maintain a certain percentage of your cash flow? I know right now, it is just 56% of your 2008 cash flow. It looks like it can go higher or do you target a certain dividend yield or maybe it's a combination of both?

No, actually the opposite, and I would like to clarify we do not declare the dividend on the basis of percentage of our cash flow. Our dividend is set at a dollar amount, $1.40, whatever that yield that $1.40 produces and we are there as a management and that is our dividend policy, to revisit the dividend and adjust it upwards to keep it at the average or above the average of the peer group. So this is our dividend policy.

I would like to reiterate that although it is a very low percentage of our free cash flow, we would -- we consider it is quite healthy dividend and we would like to use remaining cash flow for other corporate purposes and growth.

It just so happens that it's at raised levels of percentage, Kevin, at this point. When we started this project, then we -- with the initial fleet and we put the initial charters together, that percentage was around the 80% mark. But as we have been adjusting by attaching charters to vessel for rechartering vessels forward, we have improved the situations from this percentage has come lower even though we increased from an annualized $1.30 to $1.40. So -- yes -- it is just a dollar amount per share and we intend to keep it that way.

Thank you for the additional color. Maybe just one kind of general industry question for you here. What type of activity are you seeing in the market today regarding charter fixings and in particular, longer-term fixings, such as five-year contracts? I know you guys have a five-year contract and I'm just kind of interested in what you are seeing out there in terms of some of the longer-term contracts.

There has been significant -- last week and also the beginning of this week, we have seen significant demand for period. In fact, it has been interesting that it was less demand for spot and more demand for period. We cannot expect that this will last forever, in fact it will have to reverse relatively soon, but as we speak today there's healthy demand for period coverage.

Akis, thank you. Akis and George, thank you for your time today.

I would like to clarify when I said period and I meant for longer period, three to five-year charters, as opposed to one-year charters. I did not mean, of course, spot.

Charles Rupinski, Maxim Group.

I just want to -- just love to get your take on some of the news that has been out in the marketplace about the negotiations on the iron ore side as it effects -- just from your view of the Capesize market, we had price increase accepted with Vale out of Brazil, but there seems to be a bifurcation in the process and I wanted to see -- just get maybe your views on how you think that this could play out over the next few months as it relates to iron ore traffic for the Capes?

It has happened before and it has happened again. The three big miners have been able to cut separate deals with certain end users, certain steel mills, so now we have the case where Koreans and Japanese have reached agreements. A couple Chinese steel mills have reached agreement and there remain the rest of the Chinese industry, steel mill steel industry to reach an agreement on the pricing.

I believe now that the miners have a job to handle that and this is why we're seeing demand of 71, 72% for the contracts with the Chinese, as opposed to the 65% that has been agreed to date. Now, I expect that the Chinese will have to follow suit at some level relatively soon. I expect also that as soon as this happens, we will see a flurry of activity.

Now understand the grain seasonal will come into play, although the grain season now in South America is not as good as one could have expected, but the shipments for the grain will have to come into play as well. So we will have a compounding effect there together with fewer newbuilding deliveries.

So the fundamentals look good and in fact I expect high volatility. I said it a little earlier in this call. High volatility within the year, it is going to be a strong year I think, no doubt about it in my mind. But I expect, for example, a very high March/April type timeframe. We might see some volatility in the middle of the summer, some more than the usual summer lull and then again a spike in September. The indications that I have from reading whatever data we analyze here shows me that.

Okay, great. Just one other quick question, there was something in the marketplace about a comment the Chinese steel ministry made about they're maybe not needing as much ore as people thought. I'm just curious if heard anything about this or if this is just more posturing on the part of the steel makers or what you take is, because I think it has sort of affected the group I think a bit yesterday.

Well, we take all that with a little bit of a grain of salt here, because we are in the middle of some very tough negotiations, Charles, and both sides -- it has been the longest period of a poker game we've seen for the last five years (multiple speakers) this exchange, with the first time the miners calling the Chinese bluff early on and not getting into this pressurized and actually turning the tables on them and saying if you don't want shipments, we will not ship to you -- we don't want to ship to you anyway will maintain our (inaudible) terminals. So it is the first time that we've seen this depth in the game and so were really -- we take all these comments with skepticism, because we know it is a hard negotiation and it will continue for a few weeks.

That sounds about right. Okay, thank you for your time and good luck.

Tony [Tolak], Maxim Group.

Could you give us some comments? You have, you know, a lot of your ships coming off charter in the first half of next year. Do you expect to sign long-term charters at that time, short-term charters? If you had your way, would you prefer one over the other?

We are actually in a position to fix forward and this has not been the case in the past for Supramaxes. Now it is possible to fix almost nine months in advance or six to nine months in advance. This is the type of timeframe. It is all so possible to fix in advance for Capes nowadays. So we are considering this extensions. We would rather fix on a three-year or two to three-year timeframe if we start from next year. We have done a five-year time charter, as you know, but we are looking on a longer-term coverage of the two, three-year time charter or possibly one, two or five years. This is the current thinking.

Expanding Akis' answering and looking at the table there that you have in front of you, realistically what you would be looking at trying to fix would be on the Cape side, the Star Sigma, which ends in April '09. In the Capes you can fix, as Akis mentioned, a year forward, so we would be looking to fix here forward. And on the Supramax side, the one that comes out earlier it is the Epsilon, so that is the situation. About the rest, we will drive to fix, but we have to find an opportune time to do so.

Thank you.

Karthik Srinivasan, Giovine Capital.

I had a couple questions. I guess one is just kind of nitpicky question, but could you give us what the pro forma cash and debt balances are after the recent acquisitions? Then on the second question, the maintenance CapEx levels were slightly higher than I originally anticipated. Is that due to additional drydocking days that you are expecting for this year?

Okay, I will give you the current cash position and if you want to go into different dates, we can talk and see which dates make sense for you, but currently, you know, with the warrant conversions that we have received, we are at about the 61, $62 million type of level. So that is our cash position right now.

In terms of CapEx, the situation is as follows. When we received, as you know, four vessels in December '07, the Epsilon, the Theta, the Kappa and the Beta, the Beta we received on December 28 and we had to do -- that Beta had a scheduled maintenance in March/April of the year, but because, as you know, we attached to charter to her for $106,500 because of how the situation is, we decided and we had the better proceed directly to the yard for her maintenance. So the vessel has come out of the yard on February 20 and has already initiated its revenue generating with the charter of the $106,500 a day. So we moved that drydock visit a little earlier because of scheduling and other type of reasons, so that is the movement.

Now in terms of days, that, you know, the vessel remained in the yard about eight, nine days longer than we have thought just because we happened to be right in the middle of the Chinese new year during that and your normal activity, your normal repair activity was lower-than-expected. But we don't expect to have an overall effect on our revenues since that charter will go for this type timeframe longer at the end of the period.

Now, we are also having the Mommy Duckling coming in, which as you know is the last vessel which we have -- we are going to receive out of the initial fleet. We are going to receive the Mommy Ducking in March and we think we should take the Mommy Duckling directly to dock instead of [trading] her for about a month and a half and then taking her to dock again for scheduling purposes and also for the fact that since we intend to sell her and reviewing this current asset market, we would rather sell her with the drydock past to enhance the value that we are going to receive. So that is the drydocking situation.

Then on a go forward basis, your drydock CapEx per day should be roughly what, do you think?

I will have -- well, I will have to redo the calculation of the Mommy Duckling type of (multiple speakers) and I can answer that to you very shortly. (multiple speakers) We're just doing that. We're trying to figure out what to do, type of work to do, so we have an actual number for you and not just an estimated number.

Sure, I'm just trying to think about it on a normalized basis, what are you going to do on a going forward. The second question --

CapEx that we expect for that vessel will be in the tune of $1.8 million.

Yes, if you wanted an estimate.

If you wanted an estimate right now.

No, that's fine. We can discuss that off-line, not a problem. The other question I had was on just the newbuilding outlook. You've seen a lot of commentary from other drybulk vessel owners that they're having the cancel orders because of financing issues. There's also concerns about some of the greenfield yards in China. I'm just curious what your assessments is and what percentage, if you can throw one out there, of the newbuilding orderbook may not be delivered in the next couple of years?

To tell you the truth, the fundamental thinking, guys, that we are -- we would like to see less newbuildings having been ordered on speculation to start with, because there were too many vessels ordered just on speculation. Now, that may be an issue that will create some problems for certain of the owners and certain of the yards.

The yards are being squeezed by higher steel prices. We see now that Nippon steel increased $189 per ton the steel plate that they sell to the yards, so the yard margins have been squeezed and they are complaining. Of course there are still huge margins because they -- for the yard, but they are going to be squeezed from both sides. First of all, they need capital expenditures to develop the green yards. Second, they need additional credit which is not existing to get -- for certain of the yards. And third, their margins have been squeezed. So we do see some possible issues being developed there.

Tell you the truth, I expect most of the vessels -- we do not want to be more optimistic than necessary, I always take into account that just about all the vessels will be built that have been ordered or most of them, at least. What we might see some delays, that I could say I could expect. But I would not get my hopes up too high. I think most of the ships will be delivered that have been ordered.

But at that the same time, even if let's say some delays around forward on some deliveries, I think we're going to have kind of a positive effect, meaning that if you have quantity the divided by in two year time, 2010 and 2011, and the same quantity with the rollovers being delivered and divided within a 2.5 or three-year timeframe. Maybe that the pressure from that extra capacity coming in is going to be a little bit more normalized, therefore we will have a rather -- somewhat positive effect on the flow within the certain time of period. So we are going to see that.

Great. Thank you.

I wanted to mention a number. The greenfield yards are about 11% of the Chinese yards. The whole -- the ones that have at least, on a tonnage basis, the orderbook that has gone to the green yards is about 11%. So depending on what view you take of how greenfield yards will end up with problems, you can take a view on what percentage of the orderbook will be affected.

Thank you.

(OPERATOR INSTRUCTIONS). There are further questions at this time. Please continue. Once again, there are no further questions from the phone lines.

Okay, if there are no further questions, I would like to thank everybody who participated on the call and I hope to see you in person and discuss or drop us a line and we will be very happy to respond. Thank you very much, everybody.

That does conclude our conference today. For those of you wishing to review this conference, the replay facility can be accessed by dialing the UK on plus 44-1452-55-0000 and for UK callers, please dial 0-845-245- 5205. The reservation number is 3128607#. Thank you for participating. You may all disconnect.