Star Bulk Carriers Corp (SBLK) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Star Bulk conference call for the third quarter and nine-months 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, Tuesday, November 24, 2009.

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

Thank you, And good morning, ladies and gentlemen. And welcome to the Star Bulk conference call. I'm Akis Tsirigakis, Chief Executive Officer of Star Bulk and with me today is George Syllantavos, our Chief Financial Officer.

I wish to use this introduction to make several brief overall points. Our Company remains financially strong with modest leverage, ample liquidity and positive cash flows and we maintain excellent relations with our vendors. We were able to declare a dividend of $0.05 per share for the third quarter of 2009 which we intend to maintain quarterly. I'm pleased to say that we are well on the way of meeting the regional covenants of our loans. Hopefully these will have occurred by the end of the year. We had undertaken a cost reduction effort which has produced tangible results. We recently announced that we have completed the process of taking in-house the technical management of our fleet. in-house technical management will reduce costs going forward as evidenced already in this quarter being reported. Indeed, evidence of our cost cutting effort is also visible in the reduction of G&A expenses reported.

Now if you would please turn to slide three of our presentation to discuss our nine-month and third quarter 2009 financial highlights. For the third quarter 2009 gross revenue was $33.6 million. The difference compared to the same period last year was mainly due to lower charter rates for most of our vessels. We report a net loss of $72.9 million which however includes a non-cash loss of $75.1 million related to the impairment loss of the vessel Star Alpha which has been classified as an asset held for sale. Last a non-cash loss of $10.1 million attributed to the amortized fair value of our above-market acquired charter on the vessel Star Epsilon due to earlier delivery from its charter. Excluding these two items, net income for the third quarter 2009 would have amounted to $12.4 million representing a $0.20 per share basic and diluted.

Our first call consensus for the third quarter was $0.02 per share. The difference is partly explained by a cash gain on FFA's of $2.8 million and a cash gain on Star Epsilon's charter termination of $5 million. If we were to exclude these one off extraordinary items, our net income would be $4.6 million or $0.07 per share, still higher than the consensus. Adjusted EBITDA for the third quarter 2009 was $28.3 million. The Time Charter equivalent for the third quarter of 2009 was $29,474 per day. For the nine-month period ended September 30, 2009, we achieved gross revenue of $111.1 million. Net loss for the nine-month period for 2009 amounted to $53.9 million. Excluding non-cash items such as impairment loss in connection with the sale of the vessel Star Alpha, amortization of fair value of below an above market acquired time charters and amortization of stock-based compensation, net income would have amounted to $16.8 million representing $0.28 per share, basic and diluted. Adjusted EBITDA for non-cash items was $69.6 million. The Time Charter equivalent rate for the nine-month period of 2009 was $31, 515 per day.

Our CFO, George Syllantavos, will of course discuss our financials in more detail later in our presentation. Please turn to slide four for some selective financial data. In this slide, we selected some key points to illustrate that we continue to believe our Company enjoys a very comfortable financial position. Our market capitalization is $211 million as of market close on November 20, 2009. We estimate a charter free value of our fleet is currently $335 million and the total adjusted value of our fleet is approximately $400 million. Our senior debt currently stands at about $247 million and our current cash position is approximately $59 million. Star Bulk also maintains a net debt to total assets ratio of 25% which is considered low compared to most companies. We have repaid our December loan installment early to save on interest expense so we have zero principal debt repayments for the remainder of 2009. Going forward, our principal repayment for 2010 is $60 million. For 2011 is $32 million, and roughly $25 million annually thereafter. While we have no other capital expenditure commitments such as new business, these factors underline Star Bulk's solid financial position.

Now, let us turn to slide five which provides an update of our Company since our last conference call. On November 16, 2009, we declared a $0.05 dividend for the third quarter of 2009 which will be paid on December 4, 2009, to shareholders of record as of November 27, 2009. We're the very first shipping Company to reinstate its dividend program after having suspended it. We also recently announced that we completed taking over in-house the technical management of the vessels previously managed by [Benasulta] Ship Management. Our operating expenses have decreased 20% compared to third quarter 2008 and we are confident that our in-house technical management will be instrumental in implementing our quality objectives while eliminating vessel management fees. I would also like to mention that our general and administrative expenses were also lower by 37% compared to third quarter 2008.

We recently announced that we have secured prior employment, period employment for two vessels of our fleet, the Star Epsilon and Star Kappa, with excellent [counterparties]. Specifically, the Star Epsilon for one year at $16,000 per day and the Star Kappa for two years at $14,500 per day. The two vessels were previously time chartered until June 2014 to other charters. We withdrew the vessels from some charter service for a punitory breach of the time charter contracts by them. We commenced arbitration proceedings for both vessels against the charters in London to pursue damages arising from such breach which will include the loss of hire. We also recently announced that we agreed with the present charterers of the Star Delta that further to year time charter employment in the ex-continuation with the present one due to expire in March 2010 at a gross daily rate of $14,000 per day.

Finally, as mentioned, we are pleased to announce that we have no principal debt repayments for the remainder of 2009 after paying the December loan installments a couple of months early. Turning to slide six, this slide illustrates our fleet employment chart which is also available on our website. I won't go into details as I believe it is self-explanatory. I would just like to mention that we previously agreed to sell the Star Alpha and the vessel is expected to be delivered to its new owners in December 2009. And that as we announced earlier in the year, the Company has entered into further Contract of Affreightment, or COA, with Brazilian Mining Companhia Vale, which practically provides full time employment for one capesize vessel for two years. The contract gives us the option to serve it either by our own or by chartering vessels.

Now, moving to slide seven. This graph shows our contracted operating days as well as our revenue visibility. Our long term contract continues provide us with stable and visible cash flows in this current volatile market. Daily volatility of the dry bulk index does not currently affect our revenue generation very much. Our contracted coverage is now 100% for 2009, 85% for 2010 and 42% for 2011.

Please turn to the next slide where Mr. George Syllantavos, our CFO, will discuss our financials.

Thank you, Akis. Good morning to everyone.

Let us now move to slide nine for an overview of our balance sheet as of September 30, 2009. Our current assets were $69.7 million while our fixed assets amounted to $681.8 million and total assets amounted to $781 million. Our current liability is worth $71.6 million and non-current liabilities amounted to $202.6 million and stockholders equity was at $506.9 million. Total liabilities and stockholders equity of course totaled $781 million. We can now turn to slide 10 to discuss the third quarter 2009 income statement. As Akis mentioned, third quarter results include non-cash loss related to the impairment charge of the vessel Star Alpha, which has been classified as an asset held for sale and the amortized fair value of above-market acquired time charter on the vessel Star Epsilon due to its early redelivery date from the charter. Adjusted figures exclude these non-cash items. For the third quarter ended September 30, 2009, total revenues amounted to $53.6 million and our operating loss amounted to $70.7 million for the third quarter ended September 30, 2009.

The net loss for the third quarter 2009 was $72.9 million representing a $1.19 loss per share calculated on 61,049,760 weighted-average number of shares, basic and diluted. Included in the third quarter 2009 results is a non-cash loss of $75.1 million or $1.23 per share related to the impairment loss of the vessel Star Alpha which has been classified as an asset held for sale and a non-cash loss of $10.1 million or $.17 per share related to the amortized fair value of above-market acquired time charter on the vessel Star Epsilon. Excluding these two items, net income for the third quarter of 2009 amounts to $12.4 million or $.20 per share calculated on 61,049,760 weighted-average number of shares, basic and diluted. I want to add that as a result of tighter cost controls the G&A per vessel decreased by a substantial margin compared to the same period of last year.

Please turn to Slide 11 to discuss our nine-month period ending September 30, 2009 numbers. For nine months of 2009, total revenues amounted to $111.1 million. Our operating loss was $46.5 million, net loss for the nine months was $53.9 million, representing a loss of $0.89 revenues per share calculated on 60,813,996 weighted-average number of shares, basic and diluted. Excluding the above non-cash items, including the impairment loss in connection with the sale of the vessel Star Alpha, amortization of fair value of below and above market-acquired time charters and amortization of stock-based compensation, our net income for the first nine months of 2009 was $16.8 million, representing $0.28 earnings per share calculated on the 60,813,996 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.

Thanks, George.

I would like to make some market related comments, particularly on supply and demand for dry bulk shipping. Now please if you would turn to slide 13, where we begin with an update on demand. We'll continue to see signs that major oil economies who are also key drivers for shipping continue to improve since our last conference call in August. First of all, I would like to draw your attention to the top right graph, showing OECD and non-OECD leading indicators and volume production which as you can see have been closely correlated through all of the years. I believe this graph shows the potential of a strong and continued recovery in industrial production throughout the world in the coming months. As you can see in the chart on the bottom of the slide, the purchasing managers index, or PMI, paint a similar picture for industrial production in the world's major economies. The PMI was successful in forecasting China's early comeback. Historically both manufacturing of steel production has followed the PMI closely which is why they may be a useful leading indicator. This point is reinforced by the fact that many major steel mills around the world have been announcing utilization increases.

On to slide 14. China has been absorbing every available ton of iron ore produced globally, but as you can see in the graph on the lower left-hand side, total seaborne iron ore trade has also been increasing by countries other than China including the EU and Japan. This is a positive sign for dry bulk shipping. On the other hand, on the lower right-hand chart, you can see that iron ore stockpiles in China are falling despite record high imports, indicating that steel production is at very high levels. Also, domestic Chinese iron ore production has been falling steadily requiring a strategic and structural shift to imported iron ore. We read in the news of the Chinese government directive to its steel industry to seek now sources of iron ore. Overall as the world economy improves, we expect total seaborne iron ore trade to be at record high levels which would only be positive for freight rates.

Now turning to slide 15. We see that the stimulus program enacted by the Chinese government has indeed worked and had a very positive effect on steel production. The combination of record high steel production and steel prices firming up point to the sustainability of present production levels and consequently, high iron ore import levels. Now in to slide 16. This slide shows the growth of thermal coal demand. As is indicated on the top two charts, China's and India's coal imports have grown significantly in 2009. China's enormous coal consumption creates potential for huge coal imports and we expect this to continue as long as China's domestic coal prices are at (inaudible), or higher than imported coal. We also expect India will continue to increase dependence on coal imports through 10 new coal-fired power plants on the coastline. Possible strengthening of the Chinese Yen will further boost coal imports.

Now going to slide 17, I would like to provide a quick update on the new building deliveries. As you can see on the top right graph, 2009 newbuild deliveries, until mid November have been at 45-50% lower than what was originally planned in the beginning of the year for 2009. Even though the year is not over, this data is not expected to change much. It will not enter into the - - I will not enter into the numbers factors as we analyzed in previous presentations that can affect the actual deliveries. Indicatively, I will mention financial constraints, refund guarantees, delays, conversions, bankruptcies, etc. As a consequence, we believe that at this point in time it is impossible to estimate the actual deliveries, going forward. However, market conditions indicate a present tight balance between demand and supply showing that 2009 newbuilding deliveries to date have been observed by the market. If you take a look at current capesize spot time charter rate, around $77,000 per day, surely a very healthy level showing no signs of oversupply, as of today. Increased congestion of loading and discharging ports recently has helped rates pick up.

Looking on slide 18, let me please reiterate that we believe to be a Star advantages as one of the better fundamentally sound companies in the dry bulk sector. We have restructured and improved both our commercial profile and our cost base. We have reinstated our dividend program, the first shipping Company to do so after having suspended it. We are very well positioned in this economic climate with a healthy cash balance of $59 million. Our high contract coverage for 2009 and 2010 limit our exposure to the volatility we are seeing in the shipping markets. We don't have exposure to newbuildings. We have a healthy balance sheet and a low net debt to total asset ratio. We continue to have our shelf registration for up to $250 million in securities in place, although unused to present. All of these factors translate to our Company being financially healthy and well positioned going forward.

I'll not take anymore 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. Operator?

Thank you.

(Operator Instructions).

Your first question comes from George [Pitrow] from Stephens. Please go ahead.

Good afternoon, guys.

Hi, George.

Akis, can you tell me exactly when you took the technical management in-house during the quarter?

We have actually begun the process some time ago back in June, May actually. The bulk of the ships came in in the third quarter and we finished off with three ships in the actual fourth quarter and it was completed about close to a month ago.

Okay, so - -

It was 11 ships in total that came in and out of those six came in the third quarter.

Okay, so the follow-up then - -

Seven, excuse me, seven came in the third quarter.

Seven. Okay. So how should we think about that your vessel operating expense line going forward? It seems like it should continue to go down from here from Q3 levels.

Well, I want to make a point on the operating expenses because we have received a number of questions in the past. We are one of the very few companies that expense the drydocking expenses for example. All other companies amortize their drydocking expenses over two and a half years depending on the Company, or three, between the drydocking period. We expense it in the quarter that it occurs. Therefore, we appear to have at times higher operating expenses, although that is because we account for it in that manner. However, the operating expenses going forward, I would say that we have achieved the bulk of the savings. I would imagine we have some room for optimization going forward. I think this level of operating expenses should be pretty much what you should be taking into account going forward in your model.

Okay, thank you for that. So you're selling the Alpha, you've got the Beta coming up, it's coming off of contract as early as March. Can you maybe talk about your plans for that vessel? Is it something where you would consider selling that or put it into the DOA with Vale?

Well - - we have various options to look into that as you well pointed out, the vessel has been freed up in about three months or so. And obviously, we have available all our options and I guess we should make a decision - - by the end of the year. And the options are either to charter it out to an operator, to some charterer, or to point it to the Vale UOA, or even to dispose of it if something makes sense. So in the reality the way that the fleet is positioned overall we have flexibilities to do whatever, and obviously, we're looking at all kinds of alternatives right now for the vessel.

Okay, and then one more if I can.

Sure.

You have all of the charts in there with global and Chinese demand spiking back up to pre-recession levels. Can you maybe give your thought? It seems like based on your comments just in general it's stimulus driven. Can you maybe give your thoughts on what you think that looks like after the stimulus money runs up, and maybe how that ties in with supply? Is there a situation where because demand is spiking due to stimulus funds that we could have an overbuild situation on the supply side, and once that stimulus money runs up we're stuck with this excess capacity?

I mentioned in my presentation and you've probably read in the news, that the Chinese government has given a directive to their steel industry to source iron ore elsewhere. They have done so in Venezuela, they just signed a big contract, Viesco is the third largest steel mill in China that's bid that. The Chinese have made some kind of agreement where we don't have details with Brazil and you've seen a lot of activity between Brazil and China, and we expect that activity to increase. They have actually been trying to source iron ore anywhere they can. Therefore, if we couple that with their own expectations and they seem to be really achieving the growth rate that they set out to do. I don't think it is a matter of the stimulus package running out and the whole thing running out of steam. I think the growth rates they have planned out and they work in five year plans and longer, is going to be there and is going to be executed and that's why they need the iron ore. I think of course they don't just need the iron ore, they need the coal as well, that's what they kind of need as well very much so because of energy consumption. So I'm very optimistic in demand, very optimistic in demand.

As I have been saying before, it is how much this will be coupled with the supply of ships and/or how fast the supply catches up with that demand if at all. It seems that now everybody had expected that deliveries in 2009 by the end of 2009 it would have been a little bit softer. And yet we see the market is very strong because all of the demand absorbed the existing supply. So is it fair to say that you might even see more softening in 2010 or strengthening? Well anything is up in the works. I might say that we might, the possibilities are more for softening than for further strengthening, although the demand will increase and it has been surprising us year and again. So it is very difficult for me to read the crystal ball except as I stated.

Well thanks for trying and thanks for the color. I appreciate it.

Sure.

Thank you. Our next question comes from Rob McKenzie from FBR Capital Markets. Please go ahead.

Good afternoon, guys.

Hi, Robert.

You mentioned the dividend, obviously the restatement of it in your prepared comments. What kind of situation would prompt you to consider raising the dividends?

Well at these levels, I think that the dividend is at close to 6%, I would say. That's not a bad return. We have not seen the share price being affected very much by the dividend declaration. We have no plans right now to do anything further with the dividends. That's all I can say on that front.

Your covenants go back to a reset early next year, by all indications you guys should be well in compliance with those covenants. Once you pass that threshold given your bullish view on the market, would it make sense to raise the dividend or do you look to use your cash more for acquisitions?

We cannot make a determination right now, Robert, I think it's very early to do that because we see some opportunities for acquisitions. So therefore, we have to weigh that juncture in about a couple of months I guess. But at this time there are no further plans like that. Of course as you said, we're going to be meeting most probably post end year the original covenants of the launch, therefore we are looking into requesting some relief on that end from banks. But I wouldn't like to preempt those discussions at this point. Would rather pick it up just after the end of the year.

Thanks, and then the former charters for the Epsilon and the Kappa at the cargo. What date did those charters effectively get canceled on? And should we expect any kind of bad debt expense or uncollectible debt in the fourth quarter?

You know, I can give you - - I can provide you with dates in order to incorporate into your analysis because there are different dates for both vessels just because of the sequencing of the 15 day payment period was different for the two contracts was not equi terminus. So I can give you that. Until that time we pulled the vessel, we expect those revenues to be receivable and to be part of our financials, but I can provide you with dates - - in an e-mail so you know how to deal with it.

Great, and then I guess looking at the rest of your fleet. You do have some of the Supras still with charter parties well above market; two with Korea Line, one with Nordin, obviously, the GMI one you negotiated an extension on. But on the Korea Line ones and on the Nordin one, how do you assess the risk of a similar occurrence happening on those three vessels?

We don't think that we have an issue with those, so I don't know what really to point out towards this question. I don't have an issue with Korea Line. Korea Line is a charter with many other public companies. Nordin - - everything is performing just fine and the GMI for them, we have a high rate vessel with them and the market-rate vessel with them. So I guess to them, averaging out is some acceptable rate and they're a very strong group. We have no issues with then either so we don't think there's an issue.

Okay, thanks. And then in terms of filling the COA for Vale, if you decided to charter in the vessel for basically - - the year starting January through 2011, where do you think you could charter in a cape at today?

It depends if you do it for a year and depends if it's 150,000 or 180,000 on the size of it, it could be anywhere from $32,000 to $33,000 for a year.

But you could actually buy a vessel against that COA also, because that COA has equivalent of TCE above $50,000 So it's like having a two year time charter for $70,000 or so. Therefore you could theoretically buy a vessel against that contract.

Okay. Great. Thanks, I'll turn it back to someone else.

Thanks, Robert.

Your next question comes from Natasha Boyden from Contor Fitzgerald. Please go ahead.

Thank you, Operator. Good afternoon, gentlemen.

Hi, Natasha.

I think most of my questions have been answered, but I do wonder if you could just walk us through your depreciation. It came down a couple million dollars in the third quarter and was that due to the fact that you classified the Alpha as held for sale and that's why you took down the depreciation?

Yes. I mean the Alpha in itself was contributing about $2.8 million per quarter to the depreciation schedule. Therefore the portion for the time of the quarter that is held for sale is its effect on the decreased depreciation number. So that was one other reason why it made sense to let it go because it was burdening the quarter substantially over time. So I can give you and provide you with a new depreciation schedule, but overall, without the Alpha on the whole quarters time, the component is $2.8 million for the Alpha.

So roughly a depreciation should be running at about $13 million.

That's right. I think next quarter's will be around $13.15 million, I think.

Okay, that's really helpful and I think that's everything. Thank you so much.

Thanks.

Thank you.

Your next question comes from Charles Rupinski from Maxim Group. Please go ahead.

Good afternoon, everybody.

Hi, Charles.

I just - - most of my questions have been answered. I just had a quick follow-up on the Beta. And I wanted to just ask if you've been talking to people potentially. I know you've got a lot of options here. On the sales option, how have you seen the S&P market just over the last month or so? Is this something that's heating up or do you think that prices are firming a bit and potentially could be something that could work in your favor? And also, do you think that this is something that's sustainable? In other words would it make sense to sell now and then buyback later? Just wanted to get your views on that.

Well, I kind of think you almost answered your own question, in the fact that the market actually strengthened a little bit later in the fourth quarter. So while we were seeing vessel prices softening, that slide has been reversed and indeed, we have seen some firming up of price. Which actually brings to mind the fact that the Beta could fetch a better price possibly today than we were thinking a few months ago. So depending on whether this is sustained or temporary spike in the chartering market, it is my reading that it might dictate the move let's say of selling and buying at the lower level, which is a principal scenario that we will contemplate.

Okay, well thank you very much. That's helpful.

Sure.

Thank you. (Operator Instructions). There are no further questions at this time. I'd now like to hand it back for any closing comments.

Well, thank you. I have no further comments, I would just like to thank everyone for joining us today. And we look forward to speaking with you again when we discuss our fourth quarter 2009 financial results in about three months time. Well, thank you again and goodbye, everyone.

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

Thank you.