Star Bulk Carriers Corp (SBLK) 2009 Q1 法說會逐字稿

Thank you for standing by ladies and gentlemen and welcome to the Star Bulk conference call on the first quarter 2009 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. There will be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise you that this conference is being recorded today, Thursday, May 28, year 2009.

We now pass the floor to one of your speakers today, Mr. Akis Tsirigakis. Please go ahead, sir, and thank you.

Thank you and good morning, ladies and gentlemen. This is Akis Tsirigakis. I welcome everyone to the Star Bulk Carriers first quarter 2009 financial results. Please be advised that today's presentation has been posted on the Company's website at www.starbulk.com where it is available to download.

As a reminder, this conference is also being web cast. That is accessible through the Company's website and the slides of the web cast presentation are user controlled. Please click on the appropriate button on your own to move to the next or to the previous slide of the web cast presentation. If you do not have a copy of the press release or of the presentation, you can contact Nicolas Bornozis at Capital Link which is 212-661-7566 and we'll be happy to send you or to fax you a copy of the press release and the presentation.

I now kindly ask you to turn to slide number two of the web cast 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 Act 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 and Exchange Commission. I kindly suggest that you take a minute to read the entire statement.

I hope you have and I'm now pleased to be presented with the opportunity to show the sound operation and our financial status of Star Bulk Carriers. I also use this introduction to make certain brief overall points. We are pleased to report profit in 2009 first quarter results. We are financially sound, we have more than adequate liquidity, we have performing charters and we have strong net cash generation which have special coverage on earnings visibility. In fact, we believe our current status to be one of the most balanced business models within our peer group when all parameters are taken into account. Therefore, the Company has been well positioned and going forward to pursue growth and opportunities that are certain to arise and are already beginning to shape up in the present environment. I want to stress that our primary focus will continue to be on shareholder value.

Now if you please turn to slide three of our presentation, we discuss our first quarter March 31, 2009 financial results. Maintaining our focus on shipping fundamentals has resulted in our sixth consecutive profitable quarter despite the volatile markets. This is an achievement in the current economic environment. And we look forward to expanding this record. In the first quarter 2009, gross revenue was $45.1 million and net income was $22.5 million, an increase of approximately 34% versus the same period last year representing $0.37 earnings per share basic and diluted. Excluding noncash items related to the amortization of fair value of below and above market acquired time charters, amortization of stock-based compensation, and mark to market evaluation of the Company's forward freight agreements, net income for the first quarter of 2009 was $9.4 million, representing $0.16 earnings per share basic and diluted.

EBITDA for the first quarter of 2009 was $40.8 million. Adjusted EBITDA for the first quarter of 2009 was $27.8 million. The time charter equivalent rate for the first quarter of 2009 was $35,158 per day on the average. Our CFO, George Syllantavos, will discuss our financials including details of the noncash items expressed in more detail later on in our presentation.

Let's now turn to slide four to review certain milestones and chartering activity. We were very active during the first quarter 2009, a period of uncertainty in the drydock markets, implementing our proactive approach to our charters and lenders. Shelf Registration declared effective from the SEC earlier in 2009 for up to $250 million was not made out of necessity, but as a tool to add flexibility and dry powder should suitable (inaudible) proceeds be identified. We have not used it to date. We expect to focus on taking advantage of opportunities at lower asset values in the dry bulk sector presently prevailing with a continued philosophy of maintaining moderate leverage. At this time we do not have commitments to purchase new building vessels or similar capital expenditures that would require us to obtain additional financing. Earlier in the year we announced that we obtained covenant waivers until February 2010. We believe that the successful outcome of our discussions with our lenders is a result of our excellent relationship with our lenders and our strong balance sheet.

In the first quarter 2009 we were able to further enhance the 11 year visibility of our fleet by entering into new or amended employment agreements for ten of our vessels as well as into index based profit sharing arrangements for three of our vessels, the Star Sigma, Star Kappa and Star Epsilon, enabling us to share into the potential market upside. I want to add that the charter agreements for the Star Sigma, Star Kappa and Star Epsilon were extended to five years at well above current market rates as well as including profit sharing schemes. Finally, I would like to mention that we have closed all of our FFA positions, which in the past we utilized as a hedge even though now presently all of our vessels are under contract.

Please now turn to slide five to review some selective financial data. As we have highlighted in our previous presentations, in this slide we selected some important key points to illustrate what we believe to be a comfortable position for our company in the present state of the market. We are pleased to report that our current cash position is in excess of $72 million. Our current net cash generation is about $108,000 daily, which equates to about $20 million until the end of 2009. We, therefore, expect our cash position by the end of 2009 post debt repayments to accumulate to approximately $90 million. Our senior debt currently stands at about $282 million. We have a current debt repayment of $36 million within 2009, thereby reducing our debt level to approximately $245 million by year end 2009. We expect our principal payment in 2010 to be $56 million and thereafter our annual debt repayment will be approximately $25 million per year.

As of January 1, 2009, our contracted revenue is $425 million. The charter value of our fleet is currently $295 million and the charter adjusted value of our fleet is $525 million. Both values are our company's estimates. Our expected cash of $90 million in our balance sheet by the end of 2009 will equate to approximately 37% of our total debt at that time.

Turning to slide six, this slide illustrates our fleet employment chart which is also available on our website at www.starbulk.com, therefore I won't go into the details as it is self-explanatory.

Now, going to slide seven, this graph shows our contracted operating days and 11-year visibility. 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 market as depicted in the BDI or Baltic Dry Index currently does not affect directly our revenue generation. As of today we have secured over $435 million in contracted revenue in the time charters. 100% of our fleet operating days for 2009 are contracted under time charters and contracts of operation, 71% for 2010 and 42% for 2011. I want to reiterate our focus on managing our counter party exposure, and along these lines we do not employ more than two vessels per charter.

Please now turn to slide eight to discuss our fleet Time Charter Equivalent breakdown depicted graphically. As you can see from this slide, and we believe an important indicator of the strength of our Company, is that the Company produces average net cash per vessel per day in excess of $9,000 above the break-even rate of $23,350 per day for 2009, or $108,000 daily for the fleet and in excess of $6,000 of net cash above the break-even rate of $24,400 for 2010. Please note that on this graph our uncontracted revenue days are estimated using current FFA rates.

Please now turn to slide nine. We included this slide, once again, to illustrate the Company's assets work hardest producing more EBITDA per dollar of fleet value compared to all other shipping companies in both the dry and tanker sectors. This slide is taken from a recent (inaudible) report.

Now our CFO, George Syllantavos, will discuss our financials. George.

Thank you, Akis, and good morning to everyone. Let us now move to slide 11 for a brief overview of the balance sheet. As of March 31, 2009, our fixed assets amounted to $805.6 million and total assets amounted to $891.5 million. Non-current liabilities amounted to $259.8 million, stockholders' equity was $585.9 million, and total liabilities and stockholders' equity totaled $891.5 million. You can see on this slide how these compare favorably with the same period last year.

We can now turn to slide 12 to discuss our first quarter '09 income statement. We included net income figures in the slide for noncash adjustments. For the first quarter ended May 31, 2009, total revenues amounted to $45.1 million and operating income amounted to $25.2 million. Net income for the first quarter of 2009 amounted to $22.5 million, representing $0.35 earnings per share calculated on 16,390,219 weighted average number of shares, basic and diluted. These first quarter 2009 net income figures include noncash items related to the amortization of fair value below and above market acquired time charters of $6.4 million and a noncash gain of $10.9 million associated with a gain on time charter agreement termination.

Expenses were $1.5 million relating to the amortization of stock-based compensation and an unrealized loss of $2.8 million associated with a mark to market valuation of the Company's forward faith agreements. Excluding these noncash items, net income for the first quarter of 2009 would be $9.4 million, representing earnings per share basic and diluted of $0.16 calculated on 16,390,219 weighted average number of shares basic and diluted.

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

Thank you, George. I'd like to make some comments on the general market conditions and some points on the supply and demand for dry bulk shipping. Turning to slide 14, let us begin with a break up date on the supply of vessels which continues to improve. The economic crisis and in particular the lack of financing continues to have an effect on the new building delivery. To date, the delivery of about 5 million dead weight of all types of vessels are behind schedule and previous expectations of rapid order cancellations are becoming a reality as 28 additional vessels were canceled in April alone.

Scrapping activity over the last six months has exceeded the cumulative scrapping level over six years, the last six years in fact. Specifically 9.7 million of one type of vessels representing 2.3% of the current dry bulk freighting fleet have been scrapped in the last six months representing 14% of the total 2009 dry bulk order book. This trend is expected to continue for the rest of 2009. We also want to add that currently 30% of the dry bulk fleet is over 20 years old, which would mean scrapping activity should continue. The two graphs below illustrate the dry bulk order book in 2012 and the breakdown of the order book by vessel type.

Turning now to slide 15, this slide illustrates the purchasing manager's index for the major global economies which is an important leading indicator of industrial production. As you can see, PMIs have bounced in all major economies and even though they are still below the 50 mark, indicating contraction, the up trend of the last few months gives us reason to be more optimistic.

Turning to slide 16, illustrates China's increase in demand for imported iron ore which reached record levels in April 2009. As you can see in the graph, this huge increase was realized on the back of lower domestic iron ore production. The important point to note is China's apparent centralized decision to increase strategic iron ore stockpiles for protection against price volatility. Also, reports indicate that China has been stockpiling iron ore as a strategy in its negotiations with major Australian and Brazilian miners. However, the pace of import growth is much faster than that of the stockpiles which means demand has increased. This fact coupled with a decrease in domestic ore production that I mentioned earlier makes us feel confident about the stability of the high imported volumes. As reported, Rio Tinto it has recently agreed on a 33% price cut with Nippon Steel, but the Chinese steel mills, while continuing negotiations, seem to be holding out for a bigger discount since the current spot level remains a bit lower than the above new benchmark price.

Please turn to slide 17, which briefly looks at the production cost breakdown of the Chinese iron ore miners and the short- and long-term effects of this breakdown. At the lower expected contract prices, a significant portion of Chinese mines will be uncompetitive in terms of both price and of course quality. From a long-term perspective, we could say that imported iron ore is practically the only sustainable source of supply for the Chinese steel industry for quite the long term, as I said. This view is supported by the fact that for a number of years, imported iron ore has been increasing its market share. Looking at production costs and historical iron ore prices, we believe that 70% to 80%, 80% of Chinese iron ore mines are uneconomical or uncompetitive in the long term. Our view is supported by recent rumors that a number of Chinese mines have suspended their operations, but more importantly recent data of declining iron ore production as we saw in the previous slide.

Now turning to slide 18, as we can see in the graph, Chinese steel prices are on the rise in the last few weeks. What we can also see is that rebar has outperformed hot roll coil which seems to imply a relatively greater demand in construction and infrastructure rather than other segments of industrial production. We believe that this is a sign of the Chinese stimulus package indicating and taking effect and this makes us feel more confident about the prospects of the Chinese economy as a whole.

Moving to slide 19, I reiterate what we believe to be Star Bulk's characteristics as one of the better positioned companies in the dry bulk sector. We have a balance sheet and significant net cash generation, about $425 million of contracted revenue, positive net cash flows in 2009 and significant EBITDA margin.

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. Please go ahead, Operator.

We will now begin the question-and-answer session. (Operator Instructions) Your first question today comes from Kevin Sterling of Stephens. Please ask your question.

Thank you, Operator. Good afternoon Akis and George.

Hi, Kevin.

Akis, could you talk some about the advantages of bringing the technical management of your vessels in-house. I know you recently announced that. If you could share some color with us as to maybe some of the cost savings and some of the advantages you might realize from doing that in-house.

Yes, I'd be glad to. Of course, my background is in technical management and I used to have for many, many years a privately owned technical management company. I would like to apply that expertise in optimizing the technical operations of the fleet in-house. However, that could not be done right off the bat since we're coming from a stock background where you're actually not having any employees at all, so that was not feasible at the very, very beginning of our operations about a year and a half ago. We had said that we would do it in a step wise manner and benchmarking our costs. We now think it is wise to bring the entire fleet in-house to be managed technically. That will produce some cost savings to the tune of -- well, all the management fees, of course, will be saved. Last, we will have better operational control and that will produce indirect additional savings.

Okay. Thank you. Akis, regarding your drydocking schedule, I think you have one vessel scheduled for drydock in the second quarter for 48 days and then two vessels scheduled in the third quarter just for 20 days each. Is that right? Is that all of your drydocking for 2009?

Yes, that's all. That's all. In fact, I want to clarify something since you brought up the question, Kevin. I saw some references in the press about (inaudible). this has nothing, absolutely nothing to do with drydocking, which is taking a ship for a regular service to the shipyard. All ships of all companies go to the shipyard every two and a half years. If you optimize that, you try to do it more or less close to 50% of your fleet every year. So that is a very normal course of events that happens to all vessels of all companies. It is nothing particular to our company.

Okay. Thank you. And the case that you had in arbitration, where does the arbitration stand right now?

The arbitration is proceeding in London. All the submissions of both parties have been made. We will have to wait a few months for the outcome.

We're in the discovery phase of the process, Kevin, where some additional documentation is submitted and it should be something that should, if it progresses quick enough, we should have maybe something in the next quarter.

Okay. Great. Thank you. Moving on to an industry question, what does the S&P market look like these days? And a follow-up, where do you guys see opportunity for Star Bulk? Would it be buying some new building slots or second-hand vessels that are already in the water?

Well, the S&P market, as you know, the market has been improving rate-wise for the last couple of weeks rather substantially. But on the other side of things, we haven't seen a real material increase in vessel prices yet. There are no transactions that have really taken place to know what's happening out there. There is a supply of vessels, there has been a supply of vessels for sale for about three, four months now, and we still think that even though rates are firming, we are going to, if one would look would find the vessels at these levels or a little lower levels, just because there are enough opportunities out there, we think, from shipyards that are now looking to sell certain vessels that haven't been taken or have been canceled by their previous owners, the shipyards have received 20%, 30% of down payment and they're able to let go of the ships from their docks at a little lower levels of pricing. So although there is some firming in rates, we see acquisition opportunities out there that make sense.

Okay, great. And if you purchase some vessels, would you purchase other classes or do you plan to stick to Capesize and Supramax vessels?

We would likely stick with those classes. It might become the case that we may purchase a Panamax, but we would likely buy a Supramax or a Capesize as a matter of first choice.

Okay. Great. Well, that's all I have today, gentlemen. Thanks so much for your time.

Thanks, Kevin.

Your next question today comes from Charles Rupinski of Maxim Group. Please ask your question.

Thank you, Operator. Good afternoon, George and Akis.

Hi, Charles.

Thank you very much for your presentation. Just one quick question on the income statement. On the time charter agreement termination fees, can you walk me through that? That was a Kawasaki, is that correct?

This is a non-cash item, Charles. The Kawasaki thing was a gain that we reported in the last quarter. Actually what's been happening here is the following. As you know, we get a premium or a penalty depending on our above or below time charter attached vessels that we had coming into the transaction last year. During the first quarter, we had two instances where the vessel was taken back by us earlier. One was the Alpha, which was the substantial part of that amount, about $10 million of that is the Alpha, and the remainder, almost $1 million is from the Theta.

The way that this happens is that these are above and under noncash adjustment, is amortized throughout the original period of the charter. Now, if that period gets shortened or the vessel is delivered earlier, that portion of that amortized amount gets credited at the time of closure of the contract because, of course, it doesn't get amortized for another however months was the original duration. Therefore, this is the amount that we take out of our noncash. You know, the original noncash would have been about $7 million. It's now about $6 million because that about $10 million or so were taken out of the noncash amount.

Okay. Thank you for clearing that up.

Your next question today comes from Dave Robertson of PSL Advisers. Please ask your question.

Good afternoon, guys. How are you?

Good afternoon.

Good morning to you.

Hi. Just real quick. I'm wondering, how does one value, actually, the COA on which the Star Alpha is committed to? In other words, what is the TC one should use in calculating a revenue base?

Yes, thank you. The COA, of course, we have not reported a number, we have reported, of course, that the fact that the Alpha is committed to serving the COA. So in models we have seen people use quite a few variations, usually using spot rates or FFA numbers for it. Well, that is not, I think, the proper way to do it and, in fact, that may explain a little bit why there are some big variations in various research reports because this number is calculated about $11,500 per day fine charter equivalent for the Alpha. Mind you that that contract, that COA, was entered into in late 2008 when the actual prevailing rates for (inaudible) were about $8,000. So that looked like a very good deal at the time when we took that COA. So one should be using $11,000 to $11,500 for that Time Charter Equivalent.

And there is another point that should be made with the COAs if one were to look at how steel mills and miners have been delivering cargoes in the first quarter in particular. And even now. Cargoes are or are not available when the ship arrives there and usually in a COA you have a range of dates, which is quite substantial, maybe 15 days range at which time the ship has no choice but wait for the cargo to be available. That does not work like an off hire in a normal time charter. You just wait there and, of course, the effective rate is becoming lower. And that's why we think conservative numbers would be close to $11,000 to $11,500. I don't know if that made sense.

Absolutely, absolutely. Thank you. One other thing, consensus has a big variation between analysts. How do you explain that?

Well, in part was because of what I said with the Star Alpha COA. If one analyst has used spot rates -- for example, currently they are much higher than the COA number that should be applied -- would arrive at a completely different number. On the other hand, if one were to exclude an outlier estimate of about $0.35 on the consensus, that would have been much, much lower to about $0.17. One probably would not have taken into account that there were about $0.05 of FFA related mark to market losses and part of it was, in fact, realized which FFAs were used as a hedge for a vessel operating in the spot market. We have since closed all the FFAs position because all our vessels are now under time charter contract. But all those items, if they were not taken into account, could produce substantial variations.

Okay. Thank you very much and congratulations on the quarter.

Thank you very much.

(Operator Instructions) There are no further questions at this time. Please continue, sir.

Thank you. If there is no question, as you said, I want to thank everybody for participating in the call and wish everybody well. Thank you.

That does conclude our conference for today. Thank you all for participating. You may all disconnect.