Star Bulk Carriers Corp (SBLK) 2010 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 2010 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 20, 2010.

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

Good morning, ladies and gentlemen, and welcome to the Star Bulk conference call. I am Akis Tsirigakis, the Chief Executive Officer of Star Bulk, and with me today is George Syllantavos, our Chief Financial Officer.

Before we begin with our slide presentation I kindly ask you to take a few moments and read the Safe Harbor statement on slide number two. And you will take a minute to do it.

Okay, I would like to take this time now and use this introduction to make a few brief points. We continue to believe that we are one of the most undivided companies in the dry bulk sector, especially since our company remains financially strong with modest leverage, substantial charter coverage, ample liquidity, and positive cash flows.

We have had quite a busy and fulfilling first quarter of 2010 with several key developments. Our reduction of operating cost campaign continued to show great success for the third quarter in a row. This was achieved while the quality of our operation was enhanced rather than compromised.

Delivering on past guidance we judged the timing was appropriate to implement fleet growth and renewal plans. As such we agreed to acquire three Capesize vessels, two newbuildings, and one secondhand representing a whopping 57% of our current dead weight or 27% in terms of number of the vessels.

The newbuilding prices achieved were the lowest in the recent years and both secondhand and newbuilding values have increased significantly following our acquisitions showing the correct timing of the acquisitions.

On slide number three we have an update of our company since our last conference call. Very recently we declared a $0.05 dividend related to the first quarter of 2010. As of yesterday's market close this reflects a 7.1% annualized yield.

We extended our time charter for the Star Theta with Cargill at the rate of $19,000 per day, a 68% higher gross daily rate than the previous charter, for a year and a half duration. We entered into a package deal with Augustea for the Star Ypsilon.

Augustea time chartered the Star Ypsilon for 10 to 12 months at a gross daily rate of $22,350 and undertook to perform the next four quarterly cargoes and the VALE contract of affreightment. This effectively improved the TCE rate while also alleviating fuel and other exposures usually associated with COAs.

We contracted two Capesize newbuildings with high-quality shipbuilder, Hanjin, for $53.5 million and $53.25 million, respectively, with delivery expected in September and November 2011. These prices are the lowest for new Capesize contracts in recent years.

We also entered into a 10-year time charter agreement with STX Pan Ocean for the first newbuild only at a gross daily rate of $24,750. In March we entered into a time charter agreement with Rio Tinto for the Star Aurora, a vessel we recently purchased for $42.5 million and expect to have delivered in the fourth quarter of 2010. We will finance the acquisition with a mix of our own cash and bank debt.

We have gained certification for ISO 14000 environmental management. This certification ensures that offshore sites as well as shipboard operations and processes conform to strict standards aimed at protecting the environment and are recommended, verifiable, and constantly improving.

We actively participate along with a handful of major shipping companies in the European Union's energy efficiency research program entitled Targeted Advanced Research for Global Efficiency of Transportation Shipping or you might have heard it as TARGETS. These two developments show our continued commitment to us enhancing our corporate responsibility and the quality of our operations while still, of course, keeping focus on reducing our operating costs.

On the next slide, four, we illustrate Star Bulk's growth overview. Within 2010 we have already contracted growth equal to 57% of our current fleet dead weight or 27% in number of vessels.

As you can see on the two graphs, Star Bulk has managed to grow its original fleet of eight vessels and just under 700,000 dead weight tons to 13 vessels of over 1.4 million tons within four years. This means that based on our current contracts our fleet will grow by 111% dead weight and 62.5% in vessel terms by the end of 2011.

It is worth noting that in the process of growing our fleet we have also been renewing it. During this period we have sold three of our older ships and bought seven younger vessels while we have also ordered two newbuilding Capesize vessels.

On slide five we depict the results of our operating cost reduction campaign. This was achieved while enhancing our quality as measured by objective metrics such as exceptional port state control records and quality certifications. As you can see in the two graphs, our operating expenses or OpEx as we call it has steadily decreased, both overall, but more importantly on a per vessel per day basis.

Actually our efforts towards operating cost reductions have played an important role in our improved financial performance. We are confident that our in-house technical management will continue to be instrumental in our quality objectives while further optimizing our vessel operating costs.

If you could please turn to slide six of our presentation to discuss our first-quarter 2010 financial highlights. For the first quarter of 2010 gross revenues amounted to $29.3 million. Net loss amounted to $33 million which, however, includes a non-cash impairment charge of $34 million due to the sale of the Star Beta.

Excluding non-cash items our net income for the first quarter 2010 is adjusted to $1.5 million. Adjusted EBITDA for the first quarter of 2010 was $14.6 million while average daily operating expenses were $5,679 per day per vessel. The time charter equivalent for the first quarter of 2010 was $25,919 per day.

The adjusted net income of $1.5 million represents a gain of $0.02 per share basic and diluted which compares favorably with our Bloomberg consensus indicating the $0.00 per share.

Please turn to slide seven for some selected financial data. On this slide we selected some keys points to illustrate why we continue to believe that our company enjoys a very comfortable financial position. Our market capitalization is currently $166 million as of market close on May 19, 2010. Our price over NAV at the same time was at 1.1.

Including our recent acquisition of the Star Aurora we estimate the charter-free value of our fleet to be currently around $340 million. Our senior debt currently stands at about $224 million and our current cash position is approximately $45 million. I should point out that this level is after having paid out $22 million for the first installment of the two newbuildings.

Star Bulk also maintains a net debt to total assets ratio of 24% which is considered conservative. Going forward and excluding future loans related to the financing of Star Aurora and the two new building Capes, the remaining principal repayment for 2010 is $36 million. For 2011 it is reduced to $32 million and roughly $25 million annually thereafter.

I would like to take this opportunity to reassure our investors that Star Bulk is not affected by the Greek debt crisis or by the Greek austerity measures taken. These factors underline Star Bulk's solid financial position.

Slide eight illustrates our fleet employment chart and counterparties which is also available on our website. I won't go into further details as I believe it is self-explanatory. I would just like to reiterate, however, that we expect delivery of the Star Aurora in the fourth quarter of 2010.

Also we agreed to sell the Start Beta in January 2010 which is expected to be delivered to its new owners in the second quarter of 2010 upon its redelivery from the current time charterer. In addition we have included the two newbuildings with delivery expected in September and November of 2011 as well as noting the package arrangements with Augustea with regard to the contract of [affreightment with VALE].

Moving to slide nine, the graph shows our contracted operating days as well as our revenue visibility. Our long-term coverage continues to provide us with stable and visible cash flows in this current volatile market. Daily volatility of the respective dry bulk indices do not currently affect very much our revenue generation. Our contracted coverage is now 98% for 2010 and 64% for 2011.

If you turn to slide 10, you will see graphically that Star Bulk's high contract coverage is in fact one of the highest in the industry.

And now Mr. George Syllantavos, our CFO, will discuss our financials. George?

Thank you, Akis, and good morning to everyone. Let us now move to slide 12 for a view of our balance sheet as of March 31, 2010.

Current assets were $68.9 million where are fixed assets amounted to $610.7 million and total assets amounted to $706.8 million. Current liabilities were $61.3 million, non-current liabilities amounted to $181.5 million, and stockholders' equity was at $463.9 million so total liabilities, stockholders' equity, totaled to $706.8 million.

We can now turn to slide 13 to discuss the first-quarter 2010 income statement. The first-quarter 2010 results include non-cash items amounting to $34.5 million depicted in the middle column and the adjusted figures exclude these non-cash items. For the first quarter ended March 31, 2010, total revenues amounted to $29.3 million and our operating loss amounted to $31.5 million.

The net loss for the first quarter 2010 was $33 million representing a $0.54 loss per share calculated on 61,049,760 weighted average number of shares basic and diluted. Excluding non-cash items, net income for the first quarter 2010 amounts to a gain of $1.5 million or $0.02 per share calculated on 61,049,760 weighted average number of shares basic and diluted.

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

Thank you, George. I would like to make some market-related comments now. Please turn to slide 15 for an update on the vessel supply situation.

As we mentioned in our previous earnings presentation, the percentage of the original order book that was actually delivered in 2009 was around 60% with the remaining 40% either canceled or delayed. According to Clarksons' data, first quarter of 2010 dry bulk deliveries were approximately 45% of those originally planned with the remaining 55% again canceled or delayed. Based on this one can reasonably assume that non-deliveries are bound to persist or even increase going forward.

On the lower left chart you can see how congestion has moved on a quarter-to-quarter basis and as the chart shows congestion has risen again from its recent lows indicating increased [rate].

Slide 16 gives us an update on world iron ore demand. On the top right-hand part of the slide you can see a graph showing global iron ore imports split into two categories, China and the rest of the world except China. This graph clearly highlights that while China's imports are steady near record levels, the rest of the world is steadily picking up resulting in total imports of 263 million tons or more than 1 billion tons if annualized.

Global iron ore imports hit another historical high in the first quarter of 2010. The reason for the high iron ore imports is shown in the bottom right graph. World steel consumption has definitely reached pre-crisis levels and actually in the first quarter of 2010 demand was higher than in the first quarter of 2008.

The result of the record high demand in the price of iron ore can be seen in the bottom-left graph. As you can see, the delivered price of iron ore to China is approaching the $200 per ton mark. Even though this is a sign of extraordinary demand strength it might work against iron ore imports in case the high prices stimulate domestic mining. This, however, is not sustainable in our view.

All the above factors imply that the global iron ore market is undersupplied and that trade is constrained by production and/or infrastructure.

Please turn to slide 17 for some interesting facts and comments on Chinese coal demand. As most of you know, Chinese coal imports show a strongly emerging trend. Actually coal imports were up by more than 200% during 2009 and current import levels remain close to historical highs.

Furthermore, a recent drought in China have affected hydropower production further increasing the need for coal imports. As you can see on the bottom-left chart, Chinese import coal, even though it is more expensive than domestic, and this suggests that China cannot cope with their own demand and therefore has a fundamental need to import coal.

Even though it remains to be seen whether China can increase domestic coal production fast enough to cope with the increased demand, the magnitude of their annual consumption gives us reason to be optimistic should part of this consumption be satisfied by imports.

Slide 18 contains the last market comments which has an interesting qualitative angle. 95% of imports and exports of China are conducted via the sea; even a large part of its domestic trade is done by the sea. This is not likely to change any time soon.

China, because of its geographical position, is surrounded by mountains like Himalayas and underdeveloped and mainly resource-poor areas like Mongolia and Siberia. Therefore, as statistics on the graph below prove, China's most valuable way to trade with other countries is through an ocean route. Also the spectacular growth taking place in the coastline is no coincidence.

This concludes our presentation and I hope we have presented the healthy financial position of Star Bulk, steady growth, and growth prospects. I will not take any more of your time.

Thank you. I will now pass the floor over to the operator. If you have any questions, both George and myself will be happy to answer them.

(Operator Instructions) Natasha Boyden, Cantor Fitzgerald.

Good morning, gentlemen. You have done a lot of work over the past few months renewing your Cape fleet. I am just really curious what the next steps are for the Company here. Are you comfortable with what you have done for the time being or are more acquisitions attractive here?

We are actively in the market looking. I would not take a position whether something is in the works, but we are actively looking and we are looking for more growth that is a fact.

Are you focused purely on Capes or are you looking at other vessels, sub-sectors as well?

We are looking at other sectors as well.

Okay. All right, great. Do you have any further counterparty issues for any of your charters, specifically on the Zeta, Omicron, Cosmo, and Gamma?

Absolutely not.

Okay. All right, well, that is helpful. Then just wanted to -- George, perhaps you can answer this -- the $2.4 million derivative loss, what was that associated with? Was it an interest rate derivative or an FFA?

No, no, it's an FFA just that as you remember from our last quarter where it seems especially fixed the Ypsilon. We are in the process of closing down those positions. However, as you understand or you have seen, the beginning -- end of last quarter, the beginning of the second quarter our rates have been low so we have been slower in closing the positions in order to optimize the result here.

It's not until a couple of weeks ago actually or maybe 17, 18 days that Cape rates started on the rise again, thus allowing us to continue closing our position. So we are continuously, as we are allowed by market conditions, keep on closing down that position.

Okay, great. Thank you very much.

George Pickral, Stephens Inc.

Good afternoon, gentlemen. To follow up on one of Natasha's questions, any desire to expand outside of the dry bulk market? Maybe into container ships or tankers?

We have no plans to do so. We have no desire to do so either. The only outside chance that might, I don't know, I would say exist would be a distress situation which I really have no hope for because we have not seen many of those in other sectors. If something were to come in our platter and look very attractive then we would of course consider it, but it is not something we would seek.

Okay, thank you. Then, Akis, I guess if you could provide your thoughts on this there is -- I guess recent reports are saying that a lot of the infrastructure projects that have driven Chinese growth for the past, call it, five years are now coming to an end and people think China may actually, China GDP may actually slow because of that.

I guess do you think that can happen? Do you see any signs of that? And then on top of that does that have any implications for the dry bulk order book if China slows?

I would like to decouple -- in fact I have been trying and I am not the only one who has been trying to decouple really the GDP growth of China, per se, with the steel production in China. And that is the main point of interest for us.

It has been growing at a hugely greater base than the GDP; in fact, at over 20% in the past and we do not see that abating. In fact, as I said in the presentation, we see it increasing.

And may I add, another parameter that is not really, normally overlooked, you need a lot of water washing that coal that resources are not really available. The water resources in China are also relatively limited, freshwater I mean, and therefore that is another limited factor on how they can actually process that. And that favors, of course, imports.

So we are very optimistic about the demand there even if China, as you say, has any slowdown which I am not really the one to predict.

Also, if we take all the time account of stockpiles out there, George, and even though -- even very recent, last week stockpiles (inaudible) have been down. Although we have a greater number of imports, production is at the level that high still our stockpiles are coming down which means that the actual import is being used and processed in manufacturing. So we can't really say that we see signs of a slowdown.

Okay, great. Thanks for that. George, maybe one question for you. Just to remind me, your revenues and dry bulk revenues in general are based in US dollars, correct?

That is right.

How much of your expenses are based in euros?

Well, you know, our OpEx -- about 70% of our OpEx is euro based. So the relative, the relation between the two currencies is moving to a direction lately where it's going to have, we think, a positive impact on that component of our expense base.

Great. That is what I was thinking too. Thanks for that and that is all I have. Thanks, guys.

(Operator Instructions) [Jeff Garber], FBR Capital Markets.

I wanted to ask you guys about your dividend and your payout ratio, if you guys have a target pay out ratio of around 20%, 25% and what would have to happen for you guys to potentially increase the dividend. Or are you guys really more focused right now on growing and renewing the fleet?

We are more focused on growing and renewing the fleet. We are not -- we have not decided and we do not envisage an imminent decision on the dividend at all. We feel that the dividend that we have been paying is at a very healthy or attractive yield at these levels.

We do not tie our decisions to a percentage of our free cash flow so we tend to do a fixed amount decision like the $0.05 we have been declaring quarterly, but we have no plans to change that. Not in the immediate future anyways.

Okay, that is helpful. Thanks, guys.

(Operator Instructions) You have no further questions at this time. I now pass the call back to Mr. Tsirigakis for any closing comments. Please go ahead, sir.

I just want to thank everyone for participating on this call and looking forward to be on another call for the second quarter. And that is all. Again, thank you very much.

That does conclude our conference for today. For those of you wishing to review this conference, the replay facility can be accessed by dialing country code 441452550000 or from within the UK 08452455205. The reservation number is 3128607 followed by the hash sign.

Thank you for participating; you may all disconnect.