Star Bulk Carriers Corp (SBLK) 2008 Q3 法說會逐字稿

Welcome to the Star Bulk conference call on the third-quarter and nine months 2008 financial results. We have with us Mr. Akis Tsirigakis, Chairman and Chief Executive Officer, and Mr. George Syllantavos, Chief Financial Officer of the Company. At this time all participants are in a listen-only mode+ADs- there will be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise that this conference is being recorded today, Tuesday, November 25, 2008 and we now pass the floor to your speaker today, Mr. Akis Tsirigakis. Please go ahead and thank you, sir.

Thank you and good morning, ladies and gentlemen, and welcome to the Star Bulk conference call. I'm Akis Tsirigakis, I'm the Chief Executive Officer of Star Bulk Carriers, and with me today is George Syllantavos, our Chief Financial Officer. Now please be advised that today's presentation has been posted on our website at www.StarBulk.com where it is available to download if you so wish.

As a reminder, this conference is also being webcast and is user controlled. To access the webcast please refer to your earnings press release which was disseminated last evening from the Web address which will direct you to the registration page. If you do not have a copy of the press release or presentation you may contact Nicolas Bornozis at capital link 212-661-7566 which is the phone number and he'll be happy to fax or email a copy to you.

I kindly ask you to turn to slide 2 to view our Safe Harbor statement. This conference contains certain forward-looking statements within the Safe Harbor provisions of the Securities Litigation Reform Act of 1995 and investors are cautioned that such forward-looking statements involve certain risks and uncertainties which may affect the Company's business prospect and the results of operations. Such risks are more fully discussed in the Company's filings with the Securities and Exchange Commission. I'll pause for a second to allow you to read the Safe Harbor statement.

Now before turning the slides I wish to point out that the Company has changed the method of accounting for dry docking expenses in early spring by adopting to expense the dry docking costs as they occur as opposed to the previous method of amortizing these costs over the period between dry docks. This simpler method is in line with SEC's views as well.

At this time we also have a liquidity of over +ACQ-50 million in cash, a moderate debt level compared to our peers, and strong cash flow generation. We face no issues with our loan covenants and enjoy an excellent working relationship with our lending institutions. We do not have commitments to purchase new building vessels or similar capital expenditures that would require us to obtain additional financing. Therefore we are confident in our ability to meet our financial commitments for the foreseeable future.

Now please turn to slide 3 of our presentation to discuss our third-quarter and nine months ended September 30, 2008 financial results. For the third quarter net income was +ACQ-35.2 million representing +ACQ-0.63 earnings per share basic and +ACQ-0.62 diluted. Our cash flow per share was +ACQ-0.53 basic and +ACQ-0.52 diluted. Net income figure for the third quarter 2008 includes a gain of +ACQ-1.02 million or about +ACQ-0.02 per basic and diluted share in connection with the sale of the vessel Star Iota.

For the nine months ended September 30, 2008 net income was +ACQ-83.5 million representing +ACQ-1.63 earnings per share basic and +ACQ-1.54 diluted. Our cash flow per share for the nine-month period was +ACQ-1.29 basic and +ACQ-1.22 diluted. Net income figure for the nine months ended September 30, 2008 includes vessel impairment loss of +ACQ-3.63 million or about +ACQ-0.07 per basic and diluted share in connection with the sale of the vessel Star Iota.

On November 17, 2008 we declared cash and stock dividend on our common stock totaling +ACQ-0.35 per common share payable on or about December 1, 2008 to stockholders of record on November 28, 2008. The dividend payment consists of a cash portion in the amount of +ACQ-0.18 per share with the remaining half of the dividend being payable in the form of newly issued common shares.

The amount of newly issued shares would be based on the volume weighted average price of Star Bulk's shares on the NASDAQ global market during the five trading days before the ex-dividend date of November 25, 2008. Our approach to structuring our dividend in respect of the third quarter of 2008 in the form of cash and the remaining half in the form of newly issued shares conveys our continued belief in the financial health of our company.

This approach aims to continue to reward our shareholders while at the same time further reinforcing our financial position by conserving a significant amount of valuable cash which can be redeployed to enhance shareholder value for the longer term. As previously announced, management and our directors will reinvest all of their cash dividends into newly issued shares in a private placement which further demonstrates ours as well as their confidence in the Company.

Now please turn to slide 4 to review our fleet operating performance for the third quarter 2008. An average of 12.1 vessels were owned and operated, earning an average time charter equivalent, or TCE rate as we call it, of +ACQ-62,156 per day. Adjusted to exclude the effect of the amortization of time charters attached to vessels acquired at above or below market rates, the TCE rate for the third quarter of 2008 was +ACQ-45,756 per day. Our fleet utilization on the basis of ownership days for the quarter was 92+ACU- and on the basis of available days was 98+ACU-.

Please proceed to slide 5 for another view of our company. We became operational on November 30, 2007 with an initial fleet of eight drybulk carriers. Since then we have additionally acquired three Supramax and two Capesize vessels and have sold one Panamax vessel. Currently we have an operating fleet of 12 drybulk carriers with an average age of approximately 9.5 years and a combined cargo carrying capacity of 1,106,250 deadweight tons.

Please turn to slide 6. We so far have achieved a 50+ACU- fleet growth since we commenced operations. Not only have we taken delivery of the additional eight vessels within a few months since the commencement of operations, we have since acquired an additional five vessels and have sold one vessel, the Star Iota.

In this context we expanded our fleet from eight to 12 vessels without compromising our focus on maintaining moderate leverage and we have succeeded in securing what we believe are stable and predictable cash flows by entering our vessels into period deployment. As mentioned, we also sold our oldest vessel, the Star Iota, Panamax built in 1983 for +ACQ-18.35 million which we consider to be an attractive price for a 25-year-old vessel.

Following the delivery of the Star Iota to its buyers in October 2007, we have completed -- sorry eight, I wanted to say -- we have completed all deliveries of vessels for either purchase or sale to date. Through these transactions we reduced the average age of the fleet to approximately 9.5 years and exceeded the 1 million deadweight tonnage mark, meaning that we have achieved 62+ACU- growth in terms of deadweight.

Please turn to slide 7. This slide provides what we believe to be desired parameters for (inaudible) investor and we consider that Star Bulk meets all of them. Therefore we believe we maintain a strong position in the current turbulent market environment. Although we don't yet have an (inaudible) to point to a proven track record we believe that Star Bulk has one of the better sets of fundamentals in the drybulk sector and the ability to provide long-term shareholder value. We believe our stock represents itself with strong upside potential.

Now please turn to slide 8. This slide provides you with a shareholding structure. As of November 11, 2008, 81.3+ACU- of the Company's common stock was owned by the public and about 18.7+ACU- by Star Bulk officers and directors. We have continued to implement our share and warrant repurchase program having repurchased 977,000 shares of common stock year to date. There remains approximately +ACQ-37.1 million of additional repurchasing capacity in the Company's repurchasing plan. We continue to believe that at current rating levels of our common stock in the public market, redeployment of a portion of available cash to repurchase shares remains an attractive proposition.

If you can now turn to slide 9, this slide provides our fleet employment chart. I won't get into the details as it is self-explanatory. However, I wish to mention that we maintain a diversified charter portfolio with no more than two vessels committed to any single charter thereby limiting our exposure to counterparty risk. We aim to further manage counterparty risk by communicating with our charters in an effort to keep abreast of market developments.

Please turn to slide 10. A high degree of time charter coverage depicted graphically here allows for visible and stable cash flows that significantly protect from market volatility that may arise. I would also like to add that under time charters the fuel cost is passed to the charters. I believe it is important to mention also this because any volatility in today's charter rates, as depicted in the BDI or drybulk -- bulking dry index as we call it -- does not currently affect our revenue generation since our operating days are 100+ACU- contracted for 2008. Additionally, our operating days are 74+ACU- and 64+ACU- contracted for 2009 and 2010 respectively.

Please turn to slide 11. This slide provides you with our fleet time charter equivalent breakdown for the year 2008 and 2009 graphically. Please note on this graph our fixed revenue days are estimated using current FFA rates. As you can see from this slide, and we believe it's an important indicator of the health of our company, is that our free cash flow for 2008 is 65+ACU- and for 2009 it's 43.5+ACU-.

Please proceeded to slide 12, we highlight our defensive strategy, which I mentioned a short while ago. In summary, our minimized exposure to the volatile shipping markets with the help of our high time charter coverage, hedged counterparty risk with no more than two vessels committed to a single charterer and a sound balance sheet allows us to feel very comfortable about the current position of the Company. I will now pass the floor over to our CFO, George Syllantavos, to discuss our financials. George?

Thank you, Akis, good morning to everyone. Let us move now to slide 14 for an overview of our balance sheet. As of September 30th this year our fixed assets amounted to +ACQ-837.3 million and total assets amounted to +ACQ-892.4 million. Non-current liabilities amounted to +ACQ-314.1 million+ADs- our stockholders' equity was up at +ACQ-520.2 million and total liabilities and stockholders' equity totaled +ACQ-892.4 million.

Now turn to slide 15 to discuss our third-quarter income statement. I must reiterate that we commenced operations during the fourth quarter of 2007, therefore we're unable to present a very meaningful comparison to our results between third quarter '07 and third quarter of '08.

For the third quarter ended September 30, 2008 voyage revenues amounted to +ACQ-65.18 million and operating income amounted to +ACQ-37.64 million. Net income for the third quarter of 2008 was +ACQ-35.24 million, representing +ACQ-0.63 earnings per share calculated on 55,873,973 weighted average number of shares basic and +ACQ-0.62 earnings-per-share calculated on 56,971,504 weighted average number of shares diluted.

Excluding non-cash items such as vessel impairment, amortization of fair value below and above, market acquired time charters and amortization of stock-based compensation our net income for the third quarter 2008 would have amounted to +ACQ-17.77 million or +ACQ-0.32 earnings per share calculated on 55,873,973 weighted average number of shares basic and +ACQ-0.31 earnings per share calculated on 56,971,504 weighted average number of shares diluted.

I would like to 2008 add that the third-quarter 2008 earnings reflected effect of increased repairs expenditure for the Star Alpha, more over the benefit of the high first-year charter rates for the Star Cosmo and the Star +AFs-Ypsilon+AF0- are not reflected in the financials since revenue accounting interest per US GAAP are based on the average rate of which vessels per year staggered at a schedule where the first year is the highest year and the last year is the lowest at (inaudible) year in such schedule.

Turning now to slide 16, for the nine months ended September 30, 2008 voyage revenues without adjustments amounted to +ACQ-166.1 million and operating income amounted to +ACQ-88.53 million. Net income for the nine months ended September 30, 2008 was +ACQ-83.54 million representing +ACQ-1.63 earnings per share calculated on a 51,201,845 weighted average number of shares basic and +ACQ-1.54 earnings per share calculated on 54,200,802 weighted average number of shares diluted.

Adjusted net income would have amounted to +ACQ-38 million representing +ACQ-0.74 earnings-per-share calculated on the weighted average number of shares basic and +ACQ-0.70 earnings-per-share calculated on a 54,200,802 weighted-average number of shares diluted. I would now like to pass the floor back to Akis for the continuation of the presentation.

Thank you, George. I would like to make some comments on the general market conditions and some points on some planned demand for drybulk shipping.

Turning to page 18 to begin with an industry overview. The supply-side commenced to improve+ADs- scrapping is back and in October 2008 we have had the highest monthly scrapping activity in five years. This amount equals the cumulative scrapping from the last 24 months. And in fact the price of scrap metal on a dollars per ton basis went down from in excess of +ACQ-700 per ton to under +ACQ-200 per ton.

Please turn to slide 19. This slide highlights several significant factors that we believe will lead to bulk carrier supply constraints. Due to the current credit crunch the new buildings without time charter coverage are unlikely to get financed and therefore will not be dealed. And even if they do they will have tighter financing terms.

Additionally, massive order cancellations from banks with financial difficulties have already led some shipyards to bankruptcy with the likeliness of more to follow. We continue to believe that the credit crunch has a cleansing effect by eliminating speculative ordering of vessels and providing supply constraints.

Please turn to slide 20 where we'll provide you with a view of the confirmed and/or alleged new building cancellations. To date 335 vessels, or about 36 million deadweight, have been canceled. As a measure of this magnitude this aggregate is equivalent to about 53+ACU- of the 2009 order book with more cancellations expected to happen in the near future. In fact, we would not be surprised if that number more than doubled.

Now turning to slide 21. We would like to highlight reasons why dry cargo movements are at a standstill. According to the World Trade Organization statistics, 90+ACU- of the world trades are facilitated by letters of credit. Since banks are not issuing letters of credit and have literally stopped guaranteeing buyers performance, this has resulted to shipments of dry cargo to literally stop. Once the issuance of letters of credit normalizes we believe we will see cargo movement again and a market rebound.

Moving to slide 22. As many of you may have already heard, China recently announced a +ACQ-586 billion stimulus package of which 20+ACU- is planned -- and I emphasize the word planned -- for fourth quarter 2008. More than 50+ACU- of that +ACQ-586 billion package is earmarked for infrastructure development in China. This measure was taken by China to react to the global slowdown, encourage domestic consumption and aim its growth rate at about 8+ACU- to 9+ACU- growth in 2009 if it will be materialized. I would like to add that the stimulus package represents about 15+ACU- of China's GDP.

Thank you and I will now pass the floor over to the operator and if you have any questions we would be happy to answer them.

(Operator Instructions). Natasha Boyden, Cantor Fitzgerald.

Thank you, operator. Good morning, gentlemen -- or good afternoon. Just starting on some line items here on your income statement. Your vessel OpEx was substantially higher here than it was in previous quarters. Can you just tell us what was in there? Was any dry docking included in this number or what was included there? And what would be a good run rate to use going forward?

I guess, Natasha, you are looking at the vessel operating expense of +ACQ-9.4 million --?

Yes, exactly, versus last quarter of +ACQ-5.7 million and the first quarter of +ACQ-4.5 million.

Yes, let me explain. Well, as you can see on the dry docking side of things, although we did repairs on the Alpha, that's not mirrored in the dry docking expenses because those were categorized as repairs upgrading. So therefore our auditors thought that that should be part of the vessel operating expenses number. Therefore out of that +ACQ-9.4 million number +ACQ-2.6 million, +ACQ-2.7 million is associated with those repairs for the Star Alpha.

Okay, so it was taken out of the dry docking line and put into vessel OpEx?

That's right.

Okay. So that shouldn't be in there going forward?

No (multiple speakers), that's a one-time item. If you remember (multiple speakers) -- as you remember, when we have talked we have indicated that we have planned to stop the Alpha for some repairs due to its condition as we had received it. And as you know that the repair went above and beyond our estimates (inaudible) we started looking into that quality of that condition of the vessel. (inaudible) also expenses are within that number, that's why it's augmented by that amount.

Okay. But other dry dockings in the future should fall back into the dry docking expense line item?

That's right, that's right.

Okay, great. That's helpful, thank you. And then on your G+ACY-A you had some stock-based compensation in the quarter. Do you expect +ACQ-2.6 million to be a good run rate going forward?

No, I'll tell you what, the +ACQ-2.6 million has some extraordinary items right there and let me briefly -- quickly from the top of my head point them out. There's about +ACQ-450,000 of stock-based compensation attributed there+ADs- there is some extra cost due to our SOx, Sarbanes-Oxley advisory work we're doing before the end of the year+ADs- there are the costs for putting together the -- the legal costs for putting together the F3 that we have put out there for the resale (inaudible) by Mr. Su of his sales as per our original agreement with him+ADs- and some also legal expenses associated with that situation with F5 capital+ADs- and also there is about another +ACQ-200,000 associated with a move to the new offices and setting up during the third quarter of the year. So there are quite a few one time items there.

Okay, so we're looking at more like +ACQ-1.7 million, +ACQ-1.8 million is a better number going forward?

That's the number which is also actually the number here if you exclude all these other numbers.

Okay, great. That's helpful, thank you. Moving on to your (inaudible) impair on your share repurchase. Can you explain your strategy regarding your dividend payout and your share repurchases? What (inaudible) your decision to alter your dividend payout strategy and then buy back shares as well? And do you intend to maintain the dividend payout in the form of shares and cash and continue to buy back shares? Can you just explain that for us?

Well, the share repurchase helped mainly in the second and third quarter of course this dividend. We have not had any additional share repurchases post the dividend announcement, in fact not post October. So, regarding the structure of the dividends of course we believe that we wanted to reward our shareholders for having earned, let's say, that dividend.

But at the same time we provide them with an upside potential there with the shares that we give our investors because we do believe that the share price, where it is today, reflects -- well, just the cost we have on hand is almost +ACQ-1.00 per share. Therefore we believe that we could reward and have them participate in any upside of the share price.

Let me add to that maybe and it's better understood. From the one side of things, Natasha, we thought that the third-quarter dividend was let's say earned because you're making an announcement in November for something that happened in the July/September timeframe. At the same time, due to market conditions, we felt that the stock would trade at some not logical yield level. So obviously the market thought this was junk stock.

So we thought which were -- plus also (inaudible) on charter eight adjusted basis, our NAV is at least double or more than double the levels where the stock trades today. Therefore we thought we'd give our shareholders a cash dividend of a very attractive yield plus the stock dividend that will provide them at the upside once the equity markets normalize and the stock starts trading in its normal actual levels vis-a-vis the value that it has in it.

So we thought we made -- we took a middle of the road solution that in the long term would benefit shareholders and also have the Company keep about north of +ACQ-11 million worth of cash which can be very useful in order to, for some couple of opportunities, as we move into this turbulent environment.

Right, now was this a one-time thing?

This is the decision of the -- what our next -- the Board will decide next on the basis of the dividend I don't know.

Okay.

(multiple speakers) the Board's (inaudible) on that issue.

I guess what I'm try to get at is that this isn't going to be -- you haven't decided that this is how you're going to pay the dividend out regularly going forward?

This was a decision for this particular quarter and we have new decisions for the future.

That's right.

Okay, great. Thank you. And then just lastly, you do -- obviously you have already had one issue with one of your contracts which we're all well aware of -- we don't need to rehash here. But you do have some other charters that are well above where the current spot and period rates are. Have you had any other of your charters come to you and try to negotiate any lower rates? Or a second question, are any of your other charters looking or, of course for concern for you in terms of them being insolvent in any way, shape or form?

Well, we are communicating very closely with our charters because, as I said before, we wanted to be abreast of developments and know how they're faring and how our charters are viewed also in the market. That is one thing. However, if you ask me about the financial status of my charters or of any charters in particular in this environment I would not really be able to make a sensible comment about any charter.

Obviously rumors abound in this market about certain charterers, etc. But I guess we don't want to comment on that. Okay, I'll hop off and I'll let someone else go on. Thank you very much.

Charles Rupinski, Maxim Group.

Good afternoon or evening. Most of my questions have been asked+ADs- but I had just a couple quick ones. On it your balance sheet for September 30th the vessel held for sale, the Iota I'm assuming, has all that cash been paid basically?

Yes, all the cash paid at the time of -- we had the 12+ACU- down payment when we put together the MOA and then the balance was paid on October 6th I believe when we delivered the vessel, yes.

Okay other question real quickly. So I'm assuming here just cash, restricted cash and the cash coming in from there of about +ACQ-34 million. What roughly is your total cash balance as of today, roughly?

It's about +ACQ-50 million.

+ACQ-50 million, okay. Another quick question is on the -- and this is just a mechanical question which I can do myself, but do you have a figure on how many shares are going to be -- roughly are going to be issued on this stock dividend?

No, we have the calculation going as we speak because that was based on last night's closing on the VWAP. I should send you an e-mail on that. It's probably in my office+ADs- when I go out I can send you that e-mail. It's being calculated right now because we have to feed NASDAQ with the actual figure.

Okay, that's fine. Thank you very much.

Kevin Sterling, Stephens.

Good afternoon, Akis and George. Let me start with the ICI charter and Oldendorf. Where do things stand with possibly collecting from Oldendorf? Is this case in arbitration?

Well, the case is in arbitration, the arbitration proceedings have initiated. We have assigned an arbitrator a couple of weeks ago+ADs- the other side assigned theirs late last week and we are in those proceedings which are expected to take a few months here. But we are moving forward and we have (inaudible) counsel advice that we are right and we're going to prevail and that's how we're pushing it forward -- the process will take its course and we'll see what happens.

Okay, thanks. Akis, you mentioned letters of credit you have pretty much bringing trade -- or lack of letters of credit bringing trade to a standstill. Are you beginning to see some letters -- credit come back to the market now or is it still pretty tight out there?

It's very tight. I don't know how to express it in numbers, I can mention a number of 65 vessels outside of Lagos, Nigeria with cargo on board that cannot deliver their cargo because of a lack of letters of credit. This is how it is out there. And those are for cargo that is on board ships. There are other cargoes that are sitting in the docks not going on board ships because, again, of lack of letters of credit. This is how bad it is.

It will take some time.

But it will take some time. We are speaking with banks lately, they said, yes, we have all these procedures in place and the funding that is required. But that's going through the internal procedures and releasing that credit to actual transactional level to the customers themselves will take weeks. So, we expect a little more time before the market normalizes in terms of letters of credit.

Okay, thank you. You mentioned you're in compliance with all of your loan covenants. What are your loan covenants? I assume -- is it based upon NAV?

Well, there are various types of loan covenants in each, how do you call it, loan agreement. I don't think I could go on and described them all on the call. But we are in compliance with them and we have been very closely cooperating with the banks to make them feel comfortable that we are indeed so.

Okay. One last question here and this is just kind of an outlook question. With all the market turmoil I imagine it could create opportunities to buy secondhand vessels which you've done very well in the past. And with your dry powder are you guys still weighing options of potentially buying some vessels maybe into 2009, particularly at reduced prices which we may see given the market turmoil?

Well, there is a possibility. What you might expect to see in this market environment is whatever traditional shipping assets are very low charter hires are also low and maybe the exercise does not appear very accretive in the first instance. However, most or at least 50+ACU- of the return traditionally in shipping have been made from the asset play point of view. We fully appreciate the fact that this is not something that the equity markets really like or appreciate.

But this is how traditionally it is with shipping. And if one takes a long-term view, cannot ignore the asset play participation in the total returns. Now as far as we are concerned, and this ties up a little bit with our bank loans -- in fact, we have certain of our vessels debt free and we are building also cash because the cash flow generation is pretty healthy in the company. Therefore if we see opportunities we won't miss them, I can assure you.

Okay. And one last follow-up question. You guys mentioned your stock is trading at a discount to NAV, and I would agree with that. But it's been hard to find second ship brokers to stop quoting secondhand vessel prices. Have enough deals been done lately so that -- to help calculate NAV? What have you guys seen in terms of secondhand vessel purchases and to kind of help understand NAV calculation in particular (multiple speakers)?

Brokers are not very careful at this instance because there are not enough transactions out there. We conduct our own calculations of course on what we are seeing. But the problem is a selling problem because there are not enough transactions and it's a buying problem, too, because the bank issue is hurting the buying side of the vessel SMP process.

Regardless if vessel prices have fallen to where they were a couple of months ago, you still -- it doesn't really make sense or you still would like to have a portion in debt to acquire a vessel. That not being readily there yet from the banking sector I think prevents the sector of having enough sales and purchases out there of vessels to have a clearer picture. You should be a little bit more patient and maybe in the coming weeks things will clear up there, too.

Thank you, George. Gentlemen, thanks so much for your time today.

Peter Goldmark, Rockport Management.

I have a question+ADs- it's sort of in two parts. Can you elaborate on the current very low valuation levels of Star Bulk and the drybulk sector? And the second part of that is why is the market placing such a low valuation level on the sector and Star Bulk in particular? Thank you.

Well, I would imagine on the -- you're talking about the share valuation and in particular Star Bulk. I do not see the reason because I think we are all put in the same pot. We have just a valuation, if you base it on just available cash, I think we are valued right now at this company, and not just our company, just about all the companies in the drybulk sector were close to being bankrupt. Now that is clearly not the case and clearly not the case for Star Bulk. But this is the type of valuation levels that we see for the Company and we hope that is reversed.

Thank you, gentlemen.

(Operator Instructions). There are no further questions at this time, so we will now pass the floor back to Mr. Akis Tsirigakis for closing remarks.

Well, I would like to thank everybody for participating in the call. I do not think I have any additional remarks. And please be reminded to view our website for any updates on our company or to ask further questions if you have any under our Investor Relations section. Thank you very much again.

With many thanks to all the speakers today, that does conclude our conference. But for those of you wishing to review this conference, the replay facility can be accessed by dialing the UK on country code 1452-550000. And the reservation number is 3128-607 followed by the hash sign. For those of you within the UK please dial 0845-245-5205 and again the reservation number is 3128-607 followed by the hash sign. Thank you for participating today, you may now all disconnect. Thank you, Mr. Tsirigakis.