Star Bulk Carriers Corp (SBLK) 2010 Q2 法說會逐字稿

Welcome to the Star Bulk conference call on the second 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 Wednesday, August 11, 2010. We now pass the floor to one of your speakers today, Mr. Akis Tsirigakis.

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 moment to read the Safe Harbor statement on slide number two of the presentation if you will.

I would like now to take the time and use this introduction to make a few brief points before I commence with the presentation proper. We continue to believe we're one of the most undervalued companies in the dry bulk sector. In this very volatile dry bulk market, Star Bulk remains financially strong with modest leverage, substantial charter coverage, ample liquidity and positive cash flows. We also continue to maintain an excellent relationship with our lenders.

Our reduction of operating costs campaign continues to show tangible results in both G&A and operating expenses quarter after quarter. This was achieved while the quality of our operation was enhanced and our utilization rate substantially increased.

Our Company has emerged from the challenging times of the past 18 months stronger and leaner with significant achievements which include the sale of its costliest tonnage, the acquisition of three modern Capesize vessels without diluting the shareholder base, having paid organically a major portion of its debt, being in full compliance with its original loan covenants, and its in-house vessel management producing stellar results. Our commitment to enhancing our operations on all fronts is on course and we are keeping focus on reducing our operating costs further.

We are also pleased to be able to declare our fifth consecutive quarterly dividend for the second quarter of 2010 of $0.05 per share. Turning to slide number three the presentation we'll discuss our second quarter and first half ended June 30, 2010 financial highlights.

For the second quarter of 2010 gross revenues amounted to $30 million and net income amounted to $6 million. Excluding non-cash items our net income for the second quarter 2010 as adjusted amounted to $7.2 million. Adjusted EBITDA for the second quarter 2010 was $20 million while average daily operating expenses were $5269 per day per vessel.

The time-charter equivalent for the second quarter of 2010 was $28,640 per day. The adjusted net income of $7.2 million represents $0.12 per earnings per share basic and diluted, which is above Bloomberg consensus of $0.06 per share.

For the first six months ended June 30, 2010 gross revenues amounted to $59.3 million and net loss amounted to $27 million, which includes a non-cash impairment charge of $33 million due to the sale of the Star Beta. Excluding non-cash items, our net income for the first half of 2010 as adjusted amounted to $8 million.

Adjusted EBITDA for the first half of 2010 was $33.8 million while the average daily operating expenses were $5473 per day per vessel. The time charter equivalent for the first half of 2010 was $27,291 per day. The adjusted net income of $8 million represents $0.13 earnings per share basic and diluted.

Now, turning to slide number four, we would like to provide an update of our Company's recent developments. For the quarter ended June 30, 2010 we declare our fifth consecutive dividend of $0.05 per share. As of yesterday's market close, this reflects a 7% annualized yield.

We're also pleased to announce that we have secured a $26 million loan for the Star Aurora at favorable financing costs and terms. I would like to remind our investors that we acquired the Star Aurora in February 2010 for approximately $42.5 million from a third party and chartered the vessel to Rio Tinto for about three years at a gross daily rate of $27,500. We're especially satisfied to see our senior debt lender demonstrate their continued support of our acquisition plans and their confidence in Star Bulk as we continue our growth strategy.

Also in early 2010 we delivered the previously sold Capesize vessel Star Beta to her new owners. Last but not least, we have received $2 million as part of our claim for the vessel Star Epsilon.

Our next slide we illustrate Star Bulk's growth overview. As you can see in the two graphs of slide number five, Star Bulk has managed to organically grow its original fleet of eight vessels and just under 700,000 dead weight to 13 vessels of over 1.4 million tons within four years. This means that including our current contracts, our fleet growth is 111% in terms of dead weight and 63% in terms of vessels.

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

On slide six we depict the results of our operating cost reduction campaign. This was achieved while enhancing our quality as measured by objective metrics such as significantly improved fleet utilization, exceptional Port State Control record and quality certifications. As you can see in the two graphs, our operating expenses or OpEx as we call it has steadily decreased, 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're confident that our in-house technical management will continue to be instrumental in our quality objectives while further optimizing our vessel operating costs. Please return to slide seven for some selected financial data.

On this slide we've selected some key points to illustrate why we continue to believe that our Company enjoys a very comfortable financial position. Our market capitalization is currently $174 million as of yesterday's market close. We estimate the charter free value of our fleet to be currently around $330 million and the charter adjusted to be about $360 million. This includes the down payment for the Star Aurora and the two new buildings.

Our senior debt currently stands at about $201 million and our current cash position is approximately $54 million. I would like to remind you that we have no exposure to interest-rate swaps, and have therefore taken the full benefit of the prevailing low interest rates.

I should point out that after having paid $22 million for the first installment of the two new building Capesize vessels, the Star Bulk maintains a net debt to total asset ratio of 21% which is considered conservative. Going forward and excluding future loans related to the financing of the two new building Capes and Star Aurora, the remaining principal repayment for 2010 is $19 million out of a total of $65 million for the year. For 2011 it's $30 million and roughly $25 million annually thereafter.

I want to reiterate to our shareholders Star Bulk is not affected by the Greek debt crisis or by the Greek austerity measures taken.

Slide eight illustrates the 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.

Moving to slide nine now, 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 the current volatile market. Daily volatility of the respective dry bulk indices do not currently affect our current revenue generation. Our contracted coverage is now 98% for 2010 and 64% for 2011.

You can now turn to slide 10. We provide an overview of our counterparties being first-class charters who afford us excellent counterparty risk profile. If you now turn to slide 11 you will [see geographically] that Star Bulk's high contract coverage is in fact one of the finest in the industry. Now, Mr. George Syllantavos, our CFO, will discuss our financials.

Thank you and good morning to everyone. Let us now move to slide 13 for a view of our balance sheet as of June 30, 2010.

Current assets were $45.9 million. Our fixed assets amounted to $620.7 million and total assets amounted to $694 million. Current liabilities were $52.3 million while non-current liabilities amounted to $173.2 million, and stockholders' equity was $468.6 million. Total liabilities amounted to $694 million.

We'll turn to slide 14 to discuss the first half ended June 30, 2010 income statement. First-half results include non-cash items amounting to $35 million as depicted in the middle column and the adjusted figures exclude these non-cash items. For the first half ended June 30, 2010 total revenues amounted to $59.3 million and nonoperating loss amounted to $24.2 million.

The net loss for the first half 2010 was $27 million, representing $0.44 loss per share calculated on 61,052,850 weighted average number of shares basic and diluted. Excluding non-cash items, net income for the first half 2010 would amount to $8 million or $0.15 earnings per share basic and diluted.

Now, turning to slide 15 from the second quarter ended June 30, 2010 total revenues amounted to $30 million and nonoperating income amounted to $7.3 million. Non-cash items amount to $1.2 million, which is depicted in the middle column again, and the adjusted figures exclude these non-cash items.

The net income for the second quarter 2010 was $6 million, representing $0.10 earnings per share calculated on 61,055,907 shares and 61,191,174 shares weighted average number of shares basic and diluted respectively. Excluding non-cash items, net income for the second quarter 2010 would amount to $7.2 million or $0.12 earnings per share basic and diluted.

Now I would like to pass the floor back to Akis for the continuation of the Q2 presentation.

Thank you George. I would like to make some market related comments now. Please turn to slide 17 for an update on the vessel supply situation.

As we mentioned in our previous earnings presentation, only 63% of the original 2009 quarter book was actually delivered with the remaining 37% either delayed or canceled. During the first half 2010 only 30% of the 2010 order book has been delivered. These numbers point towards a similar performance with last year in terms of slippage.

Congestion at (inaudible) ports has been easing in the last couple of months. However, I must point out that the major contribution to the recent softer rates has been from the slowdown of iron ore imports in China in an effort to reduce the historically high iron ore prices. This is something that will inevitably lead to stockpiles being reduced from their present levels and imports are due to resume within the next few months. The resilience in the vessel values, especially in the Capesize sector, compared with the time charter rates underlines the market confidence.

Please turn now to slide 18. As you can see from the left graph the Chinese Purchasing Managers Index, or PMI, is following the 2005 to 2007 median reading quite closely which shows a seasonal low in July. This is an encouraging sign judging from the performance of the Chinese economy and its demand for raw materials during that period. This seems to totally disprove the recent rumors about the Chinese economy slowing.

Also I would like to remind you that the Chinese economy has been surprising on the upside for many years. And even when the PMI reading was far below 50, which is considered the threshold that separates positive from negative readings, China showed exceptional strength in terms of industrial production and economic activity in general.

On the right graph, you can see that European PMIs continue to imply a strong recovery despite the sovereign debt issues. We believe that continued strength in the European economy will help restore the market's optimism and support global economic growth. Please now turn to slide 19, the final slide of our presentation.

As you can see there on the top right graph, spot iron ore prices have been on the rise the last month or so, a fact that indicates higher demand levels. This comes after a significant drop caused by Chinese iron ore production which was at quite a high level.

It is worth mentioning that for the last three months or so, Brazilian iron ore has been cheaper than both Australian and Indian for a typical Chinese steel mill, and I refer to delivered iron ore price. Meanwhile, [villous] iron ore exports have been in a sustained outward trend since early 2009. In the event of the situation perceived, we see a significant potential for increased ton mile demand especially for Capes. Having said that, it remains of course a challenge to predict where demand will match the new vessel deliveries.

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 George and myself will be happy to answer them. Operator can you can take over?

(Operator Instructions) George Pickral, Stephens Inc.

Good afternoon guys. George, a question for you on the dry docking expense. You beat our estimate by about $1.5 million. Is that -- was there a situation where dry dockings were delayed and that will show up in Q3 or is something else going on there?

I [have always] shared a portion of the dry docking -- we have a dry docking of Star Sigma, which is a Capesize vessel which we estimated is going to cost us about $2.5 million or so. As you know, the estimate was that the vessel would enter the dry dock in such a date; as for the cost of that dry dock to be split between Q2 and Q3 by about [$1.2 million] (inaudible) per quarter or something like that.

Now as you saw, there are some costs, about $0.5 million of costs related to Sigma already in Q2. However, the vessel entered dry dock a little later than anticipated because it delivered its cargo in China about a couple of weeks after it was originally anticipated for five months ago. Therefore a bigger portion of that expense will show in Q3 versus what was originally planned for Q2 and that is the differential there.

Okay, fair enough. And when exactly in July was the Star Beta delivered?

It was delivered at about July 3 or 4, the very beginning of the month.

Okay, very beginning. And lastly George, sorry if I missed this in any of the comments. The $2 million claim for the Star Epsilon, can you talk about that?

Yes. As you remember we have the case about the Star Epsilon. There's a portion of monies. The actual claim is in two parts. One part is [they're] paid higher from the charter until the time of repudiation of charter, and the rest, the second part of the claim is for damages for that case.

Now what we have received, we have received -- I mean, the arbitration is proceeding. And the first item that has been resolved is the portion for the unpaid hire after the time of charter repudiation. And we had these monies as receivables and now these monies -- we've received these monies, so instead of receivables they increased our cash flow. It's just that we got resolution on the first portion of the case which is proceeding (inaudible).

Thank you for the color on that. And Akis, if I could ask one more question to you, you mentioned that you're under levered versus your peers. Given where vessel values stand today, would you consider levering up a little bit more and getting into the market and growing your fleet in the near-term where you would take delivery of a vessel today as opposed to, well, the end of 2011 when you are taking the two new builds?

The vessels that we are taking a delivery of, meaning the two new buildings as well is the second (inaudible) vessel, of course we're putting debt on the vessels as well to the tune of about 60% give or take for each vessel. So, yes, we will be taking some partial -- although in general you might consider the whole thing as a deleveraging exercise because in the past we have had a higher leverage than that.

Fair enough. Thanks for the time and great quarter.

Natasha Boyden, Cantor Fitzgerald.

Good afternoon gentlemen. I just want to follow-up actually on George's question. Would you actually -- you've done a lot of work in renewing your Cape fleet right now. So are you done for the time being? Or do you feel still think there are more acquisitions out there that could be attractive given where values are and where your level of leverage is?

Well, we definitely believe that there are -- I mean, we do not have definite plans of specific vessels. We do believe, however, that there are opportunities coming up and more so as time progresses. We hope we'll be in good shape and we're confident we'll be in good shape to take advantage of them because we have a pretty good relationship with banks if we need to jump on an opportunity. But we do not have specific vessels in mind, although we are growth minded.

And then on the more micro level, what was the $1.2 million vessel impairment loss due to?

It was a part of the prior -- it was -- there are certain costs that were part of the sale of the vessel and it was -- as we have written the big impairment loss of $33 million in the previous quarter for the big bulk of the Star Beta related charge, this is the remainder of the charge of the Star Beta. So it's Star Beta related [due to delivery].

Okay, great. And lastly moving to the macro side now, can you talk about the impact of the Russian ban on the grain trade and by extension the shipping industry? Are we seeing any impact right now? Is it too early? What do you think the outcome could be there?

Yes, I think it will of course impact -- it will definitely impact Supramaxes and Panamaxes mainly. Of course they will -- it will not impact the Capes in any direct manner, obviously. We do expect to see this impact because we are entering the traditional shipment period for grains for the latter part of August and the better part of September.

So, yes we're going to see this impact now. We might see imports picking up and ton miles increasing as well.

And that is if the grain comes from further afield, is that right, in the US, and that going to increase the ton mile demand? Is that what you're saying?

That is correct. Yes.

Robert McKenzie, FBR.

Good afternoon guys. Question for you Akis and/or George; you guys have obviously been very successful in reducing your average daily operating expenses. How much further do you think you have left to wring out of the system through perhaps optimizing your in-house technical management? And when do you think we get to that point?

Well, first of all, we do believe we have a little bit more room to go. Mainly it's because we have established a new [growing] pool in the Philippines that is going to be producing its results as time progresses. So, from especially the growing front, which is one very large component of the total daily cost, we expect to see a little further improvement there. Of course the efforts will continue on all fronts but the largest contribution we believe will come from there.

And (inaudible) is an ongoing process. It is currently as we speak in progress. So, of course averaging out over the year is a slow process. So when you start in the beginning of the year it's a faster thing to solve but we will be averaging down as the year progresses.

Okay, thank you. If I can come back to the acquisition question one more time and ask it perhaps slightly differently. With keep rates or values if you will continuing to fall here particularly recently, do you think now is the time to buy? Or do you think you're going to get a better price waiting one month, two months, three months? Put another way, do you expect vessel values to fall any further from here?

Since you asked, and you couple the values with the rates, the values of the vessels have not dropped as much as rates have in the past month or so, or 1.5 months. And they haven't because most owners are holding onto their tonnage because they do see a stronger fourth quarter. We do that -- we do share that view as well. We expect the fourth quarter will be stronger.

So, I do not feel that the prices will really fall so much on the fourth quarter as much as the rates will improve. So, it's not like opportunities will appear as suddenly in the next couple of months unless there are one here and one there, not in any wholesale manner. I don't know if that answers your questions.

It does. Thank you. I guess my final line of questioning is around the dividend here. You're yielding about 7% right now, but with high contract coverage and low debt, what would you look for to raise the dividend, recognizing it probably couples with the answer to the prior question?

That's a fair question. I don't have any plans to raise the dividend at this moment. I feel this is a quarter by quarter decision by the board, but we have no such plans at the moment.

Okay, thank you very much. That is it for me, guys.

(Operator Instructions) Otto Roethenmund, Internation Capital Management.

My question has to do with some of the claims you guys have been pursuing in your past charters. There seems to be some rumors out there in the market that you arrested one of the Oldendorff carrier vessels in South Africa to get security for a claim. Is this true? Maybe Akis can answer this.

Well, this is public record in the court record in South Africa so, yes, indeed it is true. It was in conjunction with obtaining security for the related claim that we have.

Do you have security for other claims that you are pursuing like in your past charters and what does this mean for Star Bulk?

I would not like to go into specifics for the other claims, other than say that we in total have security in place for the claims in -- slightly in excess of $50 million while the claims are progressing and of course they have taken their course. I would not venture to take a view on the outcome, but the security is there, so at least for that portion that I mentioned.

As there are no further questions, we now pass the floor back to Mr. Tsirigakis for closing remarks.

Thank you operator. I do not have something specific to add. I just want to thank everyone for participating on this call. I'm looking forward to you joining us again when we have our third quarter conference call. Again, thank you very much.

Thank you very much indeed to both our speakers. That does conclude our conference for today. Thank you for your participation. You may now all disconnect. Thank you Mr. Tsirigakis.