Star Bulk Carriers Corp (SBLK) 2008 Q4 法說會逐字稿

Thank you for standing by ladies and gentlemen, and welcome to the Star Bulk conference call on the fourth quarter and full-year 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. (Operator Instructions) I must advise you that this conference is being recorded today, Tuesday, March 17, 2009.

We now pass the floor to Mr. Nicolas Bornozis, President of Capital Link Investor Relations advisor to Star Bulk. Please go ahead.

Good morning, to everyone, this is Nicolas Bornozis of Capital Link, and welcome to the Star Bulk Carriers fourth quarter and full-year 2008 results. Please be advised that today's presentation, the webcast presentation, has been posted on the Company's web site at www.starbulk.com, where it is available to download.

As a reminder, this conference is also being webcast and the web -- the slides of the webcast presentation are user-controlled, so please click on the appropriate button on your own to move to the next or to the previous slide of the webcast presentation. 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 the presentation, you can contact me, Nicolas Bornozis at Capital Link, at 212-661-7566, and we will be happy to send you or to fax you a copy of the press release and the presentation.

Now, I kindly ask you to turn to Slide Number Two of the webcast presentation to view the Company's Safe Harbor statement. This conference contains certain forward-looking statements within the Safe Harbor Provisions of the Securities Litigation Reform of 1995, and investors are cautioned that such forward-looking statements involve certain risks and uncertainties which may affect the Company's business prospects and the result of its operations. Such risks are more fully discussed in the Company's filing with the Securities & Exchange Commission. I will kindly ask you -- I will pause for a second, and ask you to read the forward-looking statement in its entirety on Slide Number Two. And while you are reading that, I will pass the floor to Mr. Akis Tsirigakis, the Company's Chief Executive Officer. Please go ahead, Mr. Tsirigakis.

Thank you, Nick, 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, and with me today is George Syllantavos, our Chief Financial Officer. I am pleased this earnings release provides us with opportunity to show the sound operating and financial status of Star Bulk Carriers. This is pertinent, especially at times of crisis, when there is increased tendency to take a brief, general look in the process discounting entire sectors for absence of inclination or clarity to focus on the Star performance within the sector.

I wish to use this introduction to make certain brief overall points. We are pleased to report strong fourth quarter and full-year 2008 results. We are financially sound. We have signed loan covenant waivers with all our lenders. We have more than adequate liquidity. We have performing charters, and we have strong net cash generation with substantial contract coverage and earnings visibility. At this time, we do not have commitment to purchase new building vessels or similar capital expenditures that would require us to obtain additional financing.

I should point out here, that the self-registration for up to $250 million recently declared effective by the SEC was not made out of necessity. The Company became eligible for Shelf registration in December, 2008 after being one year operational, and the Shelf was put in place as a tool to add flexibility and dry powder should suitable use of proceeds be identified. Now, please turn to Slide Three, our presentation, to discuss our fourth quarter and year-end December 31, 2008, financial results, which we are pleased to have come out above analysts' estimates.

This is our fifth consecutive profitable quarter, and we look forward to expanding this record. Something we are confident of. For the fourth quarter 2008, gross revenue was $72.8 million. Net income was $50.2 million, representing $0.89 earning per share basic undiluted. Excluding non-cash items such as vessel impairment, amortization of fair value of below- and above-market acquired time charters, and amortization of stock-based compensation, net income for the fourth quarter 2008 was $22.8 million, representing $0.41 earnings per share basic and diluted. EBITDA for the fourth quarter of 2008 was $70.3 million. Adjusted EBITDA for the fourth quarter 2008 was $42.9 million. Excluding non-cash items, the time charter equivalent rate for the fourth quarter of 2008 was $42,451.

For the year ended December 31, 2008, we achieved gross revenue of $238.9 million, and net income of $133.7 million, representing earnings per share of $2.55, and $2.46 basic and diluted respectively. Excluding non-cash items, net income was $60.8 million, representing $1.16 earnings per share basic and $1.12 diluted. EBITDA for the year ended December 31, 2008, was $193.8 million, and adjusted EBITDA was $120.9 million. Excluding non-cash items, the time charter equivalent rate for the year ended December 31, 2008, was $42,824. Our CFO, George Syllantavos, will of course discuss our financial in more detail later on in our presentation.

Now, let us turn to Slide Four to review some selected financial data. In this slide, we selected some important key points to illustrate that -- what we believe at least to be a comfortable position for our Company in the present state of the market. Our current cash position is in excess of $60 million. Our current net cash generation is about $140,000 daily, which equates to about $40 million until the end of 2009. We, therefore, expect our cash position by the end of 2009, post-debt repayment, to accumulate to about $100 million. Our senior debt currently stands at about $284 million. We have a further debt repayment of $38 million, with 2009 -- within 2009, rather. Thereby, reducing our debt level to $244 million by the year-end, 2009.

As of January 1, 2009, our contracted revenue was $400 million. The charter-free value of our fleet is currently $295 million, and the charter-adjusted volume of the fleet is $525 million. Our free fleet charter-free values, and fleet charter-adjusted values are Company's estimate. Our expected cash of about $100 million in our balance sheet by the end of the 2009 year will equate to approximately 40% of our total debt at that time. Further, it is interesting to note, this amount will be roughly equal to our current market capitalization at the closing price of a few days ago.

Please now turn to Slide Five to review certain milestones since going public in December, 2007 and recent chartering activity. First, we are pleased to have completed our first, full year of operations in 2008 profitably despite the volatile markets. This we feel to be a strong achievement in the current economic crisis. Since we have commenced operations, would have achieved the 50% fleet growth. We expanded our fleet from eight to twelve vessels reducing the average age of the fleet to approximately 9.8 years and exceeded the one million dead weight mark. Meaning, that we have achieved a 62% growth in terms of dead weight. We achieved the fleet growth without compromising our focus on maintaining moderate leverage and have succeeded in securing what we believe are stable and predictable cash flows by entering our vessels into period employment.

Ways to fund our future growth include the recent Shelf registration of up to $250 million. I wish to stress again that the self-registration was not made out of necessity. We expect to continue our focus on taking advantage of opportunities at the lower added values in the dry belt sector with continued philosophy of maintaining moderate leverage. Our primary focus will remain on shareholder value.

As I mentioned previously, we are very pleased with the successful outcome of our discussions with our lenders in which we obtained covenant waivers until February, 2010. This, we believe, is the result of our excellent relationship with our lenders, and our strong balance sheet. I want to add that the suspension of our dividend will further reinforce our liquidity.

We announced in a recent filing that on December 15, 2008, the insiders' lockout period expired, whose shares remained unregistered throughout the three-year lockout period stipulated by stock rules. Since the expiration of the lockout, the insiders have not sold a single share. And quite the opposite, they have reinvested their cash dividend, by repurchasing -- by purchasing, rather, shares. This, we believe, is a statement of confidence of our insiders on the long-term values of our shares.

On the bottom of Slide Five, we highlighted our recent chartering activity. We are pleased with the recent fleet employment development, strengthening the position of Star Bulk, in the current market environment. We were very active commercially with about six of our twelve vessels either entering into new charters or being delivered to their charters in the first quarter of 2009.

Turning to Slide Six. This slide illustrates our fleet employment chart, which is also available on our web site, that Mr. Bornozis just mentioned a little while ago. I won't go in to the details, as I believe it is self-explanatory.

Now going to Slide Seven, these graphs are contracted operating days and revenue stability. As I mentioned, our long-term coverage provides us with stable and visible cash flows in the current volatile market. Any volatility in today's charter market as depicted in the BDI or Baltic Dry Index does not currently affect our revenue generation since our fleet contracted operating days coverage is now 93% in 2009, and 66% coverage in 2010. Securing over $400 million in contracted revenue.

Please now turn to Slide Eight for certain confidence-building elements in Star Bulk's business model in this challenging environment. Although we have been in the public market just a little over a year, we continue to make decisions based on shipping fundamentals. Our Management has been weathered through several shipping cycles. For example, our decision not to enter into the new building market was a planned decision, based on our belief that asset values reached unsustainable levels and should fall on future market volatility, just as we are experiencing. Thus, by maintaining a strong balance sheet, we could take advantage of the drop in asset values. I'm [asad] and admit that it's hard to believe that both rate and asset values dropped as quickly as they did, due in large part to the economic crisis we are currently seeing.

We maintain a diversified charter portfolio. With no more than two vessels committed to anything we charter. Thereby, limiting our exposure to counterparty risk. Also, with staggered chartering [schedules], we minimize exposure of having several vessels open at any given quarter. Lastly, our previously stated item that six of our twelve vessels commenced employment in the first quarter of 2009.

Please now turn to Slide Nine to discuss our fleet time charter equivalent breakdown depicted in a graphic manner. As you can see from this slide, and we believe it is an important indicator of the strength of our Company, is that the Company produces in excess of $11,000 of net cash, above the break-even rate for 2009 of $23,650 and $24,400 for 2010. Please note on this graph, our fixed revenue days are estimated using current FFA rates.

Please now turn to Slide Ten. This slide illustrates that the Company's assets work hardest producing more EBITDA per value of fleet value compared to shipping companies in both the dry bulk and tanker sector. This slide is taken from a recent Morgan Stanley report. Mr. George Syllantavos, our CFO, will now discuss our financials. George?

Thank you, Akis. Good morning to everyone. Let us move to Slide Twelve for an overview of our balance sheet. As of December 31, 2008, our fixed assets amounted to $821.3 million, and total assets amounted to $891.4 million. Non-current liabilities amounted to $273.9 million. Stockholders' equity was $560.1 million, and total liabilities and stockholders' equity totaled $891.4 million.

We can now turn to Slide Thirteen to discussion our fourth quarter income statement. I must reiterate that we commenced operations on December 3, 2007, therefore, we are unable to present a very meaningful comparison to our results between fourth quarter '07 and fourth quarter of 2008. For the fourth quarter ended December 31, '08, volume revenues amounted to $72.8 million, and operating income amounted to $54.3 million. Net income for the fourth quarter of 2008 was $50.2 million, representing $0.89 earnings per share calculated on 56,278,511 weighted average number of shares basic and diluted. Excluding non-cash items such as vessel impairment, amortization, fair value below- and above-market acquired time charters, and amortization of stock-based compensation, our net income for the fourth quarter 2008 would be $22.8 million, representing earnings per share basic and diluted for the fourth quarter of 2008 equal to $0.4, calculated on 56,278,511weighted average number of shares basic and diluted.

Now on Slide Fourteen, we discuss our full-year 2008 numbers. For the year ended December 31, '08, volume revenues without adjustments amounted to $258.9 million and operating income amounted to $142.8 million. Net income for the year ended December 31, '08 was $133.7 million, representing earnings per share of $2.55 and $2.46 basic and diluted respectively, based on the weighted average of 52,477,947 shares of standing basic. And then, a weighted average of 54,280,475 shares outstanding diluted. Adjusted net income for the year ended December 31, '08 was $60.8 million, representing earnings per share of $1.16, and $1.12, basic and diluted respectively. Based on the weighted average of 52,477,947 shares outstanding basic, and then the weighted average of 54,280,475 shares outstanding diluted. I now would like to pass the floor back to Akis for the continuation of this presentation.

Thank you, George. I would like to make some comments on the general market conditions, and some points on supply and demand for dry bulk shipping. Now, please turn to Slide Sixteen, where we begin with an industry overview. The supply side continues to improve since our last earnings conference call in November 2008. Scrapping activity over the last four months has exceeded the accumulative scrapping level of the last six years. Specifically, 7.7 million dead weight tons of all types of vessels, amounting to about 2% of the current dry bulk trading fleet have been scrapped in the last four months. That is equal to roughly 11% of the 2009 dry bulk order book. This trend is expected to continue in 2009. The right-hand slide of Slide Sixteen illustrates the monthly scrapping activities since 1981. You can see that the current scrapping levels are at record levels. We also illustrate in this slide the dry bulk fleet age profile, and currently 30% of the dry bulk fleet is over 20 years old.

Turning to Slide Seventeen. This slide highlights several significant factors that we believe will lead to dry bulk carriers supply constraints, or at least to have information of indications that it will be sold. Due to the current credit crunch, the new buildings with all time charter coverage are unlikely to get financed, and therefore will not be built. And, even if they do, they will have a tighter financing environment in which to obtain finance. Evidence of new building order cancellations, our news coming out from the engine makers [Varcela] and Man BMW have warned of up to $2 billion of new building engine cancellations or postponements. Additionally, massive order cancellations combined with financial difficulties have already led some shipyards to bankruptcy with a likeliness of more to follow. With 44% of 2009, and 32% of 2010 dry bulk order book placed in [Greenfield], a newly established yard, the number of additional cancellations to come could range from 30% to 50% of the order book, which will add to the number of already canceled orders. We continue to believe that the credit crunch has a cleansing effect by eliminating speculative ordering of vessels and providing supply constraints.

Turning to Slide Eighteen, this slide illustrates the current Chinese contributors to GDP, which is expected to have a growth -- China is expected to have a growth, supported by -- of 8% -- supported by this $586 billion stimulus package. It is also expected that China will almost double investment in railroads to about $88 billion within 2009, further stimulating growth in iron ore imports into the country. The Chinese Premier has announced the government's intent to support GDP growth of 8% with whatever measures the government considers necessary. Lastly on this slide, in what may be contrary to common belief, is more portion of Chinese GDP is dependent on exports.

Turning to Slide Nineteen, illustrates iron ore stockpiles and congestion in China. The global slowdown in shipping in the fourth quarter of 2008, has resulted in a drop in iron ore inventories in China. Because of China's need for increasing steelmaking activity, congestion of both Capesize and Panamax vessels in China has increased as you can see on the right-hand side of the slide. We used to know of congestion mainly in Australia and secondarily in Brazil, however, at this point, the largest congestion occurs in China.

Slide 20 reiterates what we believe to be Star Bulk advantages as one of the better set of fundamentals in the dry bulk sector, and the ability to provide long-term shareholder value. We believe our stock represents itself with strong upside potential. You will note that the uncertainties, of course, in demand-supply balance are going to persist throughout 2009 despite the current positive trends that I have just described in the previous three slides. I will not take any more of your time. Thank you, and I will now pass the floor over to the operator. If you have any questions, both myself and George will be happy to answer them. Please go ahead, Operator.

Thank you. (Operator Instructions). Your first question comes from Natasha Boyden of Cantor Fitzgerald. Please ask your question.

Thank you, Operator. Good morning, gentlemen.

Good morning, Natasha.

Good morning, Natasha.

I wanted to first start off with the counterparty risk, in terms of your charters. I know you have had some trouble there. But, do you have any further concerns about counteryparty risk with any of your current charters? I mean, looking in particular with the Star Epsilon, is on a very attractive charter. Has that charter, in particular, approached you to renegotiate? And then have you had any -- across the fleet in general -- have you had any charters approach you to renegotiate?

Well, our charters are really performing -- all of them are performing. And we have every reason to believe, and we are confident they will continue to perform. Obviously, every prudent owner talks to all of his charters. I do wish to reiterate, Natasha, that six vessels of our fleet -- that's almost 50% -- that's actually 50% of the fleet -- were really delivered. In fact, the Epsilon was just delivered within the first quarter of 2009 -- new charter. If they had an issue, they would probably not take the ship.

Right. Right. So, you are basically saying that no charter at all has come back to you?

Well, I'm saying that -- that we have discussed with all of our charters, and when you discuss with anybody, ideas fly around the table. But, we have all of our charters performing, and we are confident that they will continue to perform. We have not -- the only two items, that I have mentioned earlier in the presentation -- I don't know if it came out very clearly, is that the Star Gamma, and the Star -- and the Cosmo are at the average of the staggered rate. This is depicted in Slide Number Six. The staggered rate was for a three-year period, and they are now at the average rate.

Okay. Alright. Great. That's helpful. And then, can you talk a little bit more about your intended use of free cash flows. I mean, I think now with the renegotiation with your banks, I think you are restricted from paying dividends or repurchasing shares. What -- what do you intend to do with that? Are you going to utilize your free cash flow to retire debt beyond the retired payments? You are fairly low-leveraged there. What do you see using your free cash flow?

Well, right now the way that the market values us, or valued us until recently. In reality and all of the analysts, I think, concur, is that the only accurate thing that somebody can do, is decrease the debt level of the Company. Although we think that the debt level is -- is reasonable for the sector, and as you know let me point out that always even in the good times, we always thought that we should not have debt of more than 50% of the value of our assets, just because we're looking forward to 2009 and 2010 period of softening rates because of demand-supply characteristics in the shipping sector. That would -- we had estimated back then that that would decrease asset values by about 35% or so, and that then our levels would jump to about 60% or so. Well, we are glad that we had that conservative approach, because actually due to the credit crunch, things turned worse than what we anticipated. But, still our leverage is relatively healthy for our type of business model. Therefore, even though we don't need do it, and from now on, we still have just $38 million worth of -- we made about $12 million payments up until now on our debt facilities, and we have another $38 million. And that's comfortably payable within the year, no big deal. But the way that we are valued in terms of multiples of EBITDA generated by the vessels, etcetera, really vessel acquisitions don't seem to be the most accretive thing to do right now.

Yes.

It just looks like the world values debt decrease as a very useful thing to happen.

Right. So, that actually leads into my next question. Is, you don't have a new build program, or you don't have a growth program in place. Asset values have come down dramatically. And then, there is a school of thought out there that they may come down even further. At what point do you say, okay, asset values have come down so much that maybe we will dip our toe in the ocean, as it were, no pun intended. And look to, perhaps, expand the Company?

I believe that we subscribe also to a further decline in vessel values. We are expecting to see resales of new buildings at lower prices. This time, not so much by owners, but by yards, probably. We have started to see those signs. Very few vessels have come out in the market from yards yet, but the yards are (inaudible) forced to collect any downpayments and then offer the vessel at lower rate. While at the same time, making a profit, but we expect that to be in a much bigger scale. Possibly in the third quarter, we should see that.

Okay. Alright. Well, that's really helpful. Thank you very much, gentlemen.

Thank you.

(Operator Instructions). Your next question comes from Kevin Sterling of Stephens, Inc. Please ask your question.

Akis and George, this is Brad on for Kevin. How are you doing today?

Good morning.

Good morning.

Good morning. Great quarter by the way. We have been hearing a lot of rumors on the iron ore negotiations between the Chinese mills -- steel mills -- and the Brazilian and Australia miners. I was wondering what you are hearing on your end?

Well, what we're hearing is that a drop in the new contract prices is a given. It's -- the spread is still there between the miners and the Chinese, but a drop, nevertheless. I could say very conservatively, between 10% and 40% because that is how the negotiations were about a few weeks ago. They have not agreed, but they are bound to agree at some point. At which time, I believe, we are going to see a flurry of activity because the Chinese will want to take advantage of the lower iron ore price, delivered price. Therefore, at some point, I would venture to say, possibly before June, we're going to see some kind of a substantial increased activity, lead by the Capers.

Okay. That's interesting. So, you think Capesize will be leading. And then, going forward also, I wanted to ask you, have there been any new updates with regard to your arbitration case with [Olendorf]?

No, that's proceeding. We don't, of course, want to make an extra statement here because this is a case that is proceeding. We feel very good about the outcome of it. But, if you want an approximate estimate, I would say we still have about three months ahead of us or so, until some decision is reached on that one.

Okay. Alright. Thank you, gentlemen, and great quarter, again.

Thank you.

Thank you. I wanted to mention that what George mentioned was a very confident outcome in our favor.

Yes.

Okay.

(Operator Instructions). Your next question comes from Charles Rupinski of Maxim Group. Please ask your question

Good afternoon, Akis, and George.

Hi, Charles.

Good morning, Charles.

Couple of quick questions. Wanted to find out -- the Star Theta which is coming off of charter. Have you given any thoughts about near-term charting strategy given the potential for a secular improvement in rates something along the lines of time -- I'm sorry -- of profit-sharing, or maybe doing it short-term and looking to put something on longer. Just let me get your thoughts about chartering in this environment?

Our current thoughts, Charles, are that we should probably be keeping that vessel in the spot market for, I believe, a short period more after the current charter. Maybe for another month or two, and we'll revisit the issue then, in light of what I just mentioned about the iron ore negotiations on how the state of the market will be at that time.

As you know, Charles, we just don't charter for the fact that our business model says that we have to charter long-term. If we feel that, in the short-term forward, the prospects are better, we will keep the vessel for one or two legs there in the spot market, and opportunistically optimize that longer term period fixing.

Great. That sounds like it makes a lot of sense. Other question is, I just want to confirm, the $9.7 million was the Kawasaki. Was that the full amount of the Kawasaki payment?

Yes, that was the full amount. And because we were not allowed to -- as you understand -- have a payment for one, and having the vessel in another employment, we put that down as an extraordinary gain of termination of that contract.

That makes sense, and I think the market would certainly understand that. And finally, just a -- can you give us your -- or do you have -- I'm sure you published this, but I'm just curious if you have it? Debt repayment for 2010? Is there a schedule or amount?

It's about $50 million also. I can send you the full debt repayment for all of the six- and eight-year periods so you can have it there to put it in your analysis whenever you need it. So, no problem.

Appreciate your time. Thank you.

Thank you.

(Operator Instructions) There are no further questions at this time. I now pass the call back to Mr. Tsirigakis for closing statements. Please go ahead, sir.

Thank you very much. I wish to thank everybody on the call. I have nothing further to add. I think it was a very good quarter and year, in fact. And, we just look forward to repeating these kinds of quarters and performances. Thank you. Bye.

That does conclude our conference for today. For those of you wishing to review this conference, the replay facility can be accessed by dialing from within the UK on 0845-245-5205, or from outside the UK, on country code (+44) (0) 1452 55 00. The access code is 3128607 followed by the hash sign. Thank you for participating. You may all disconnect.