Star Bulk Carriers Corp (SBLK) 2011 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 2011 financial results.

We have with us Mr. Spyros Capralos, President 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. (Operator Instructions). I must advise you the conference is being recorded today, Friday, May 13, 2011. And we now pass the floor to one of your speakers today, Mr. Spyros Capralos. Please go ahead, sir.

Thank you, operator, and good morning, ladies and gentlemen. I'm Spyros Capralos, the President and Chief Executive Officer of Star Bulk Carriers, and I would like to welcome you to the Star Bulk Carriers first-quarter 2011 financial results conference call.

Along with me today to discuss our financial results is our CFO, George Syllantavos.

Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on slide number 2 of our presentation. While you do that, and before we commence the earnings presentation, I would like to take the time and inform those of you who did not have the time to read our latest press release this morning, that Star Bulk has entered into definitive agreements to acquire two Capsize vessels with longtime charter rates attached to a high credit rating mining company and at favorable rates compared to current market levels. We will discuss this in further detail during the presentation.

Let us now turn to slide number 3 of the presentation to discuss important financial data. On this slide, we present certain key data to illustrate why we continue to believe that while Star Bulk Corp. continues to enjoy a very comfortable financial position, it remains substantially undervalued.

As of May 12, our minimum total gross contracted revenue, including our two newly to be acquired Capes, is approximately $245 million and our market capitalization stands at $146 million. Our senior debt currently stands at about $225 million and our current cash position is approximately $41 million.

I would like to reiterate that Star Bulk has resisted exposure to interest-rate swaps and has, therefore, taken the full benefit of the prevailing lower interest rates.

We are also very pleased with the fact that our principal repayment commitments for this year are down substantially compared to last year since our loan repayment schedules were intentionally designed to be front loaded. Specifically, during 2010, our loan repayments stood at $68 million while our repayment commitments for 2011, 2012 and 2013 are $34 million, $31 million, $32 million and $31 million, respectively.

Please note that numbers regarding our principal repayments do not include any loans associated with our two new acquisitions of today.

Please slide four to discuss our first-quarter 2011 financial highlights. For the first quarter, gross revenue amounted to $29.5 million and net income amounted to $1.7 million. Excluding non-cash items, our net income for the first quarter of 2011 amounted to $1.3 million. Adjusted EBITDA for the first quarter of 2011 was $14.2 million while average daily operating expenses were $5,170 per day per vessel.

The time charter equivalent was $23,252 per day. The adjusted net income of $1.3 million represents $0.02 earnings per share basic and diluted, which is $0.05 above Bloomberg consensus.

Turning to slide number 5, I would like to point out in this slide that since reinstituting the dividend in the second quarter of 2009, we have rewarded shareholders with eight consecutive dividends. Our dividends represent a meaningful yield, which currently is the highest within the drybulk universe, 8.7% on an unrealized basis calculated as of yesterday's close.

As you can see on the graph, only five out of the 11 drybulk peers distribute dividends to their shareholders, with Star Bulk having currently the highest dividend yield.

I would like to remind our investors that Star Bulk is one of the few companies in the drybulk industry that has paid dividends for 12 out of the 14 quarters since inception three years ago.

Slide 6 illustrates the fleet employment chart and counterparties, which you can also find on our website. 78% of our 2011 operating days are already fixed while most of the open days are in the Supramax category. Actually, our 2011 time charter coverage in the Capsize sector is 94% with the addition of the three new Capes. With charters expiring mainly in the Supramax category within 2011, we are aiming to opportunistically recharter our vessels as the freight rate environment improves. I won't go into further detail as I believe the presentation is self explanatory.

If you'll now turn to slide 7, we provide an overview of our counterparties for our first-class charters while providing us with an excellent counterparty risk profile.

Please turn to slide 8 for an update on our latest transaction. This morning, we announced that we have entered into definitive agreements to acquire two Capsize bulk carriers for approximately $51.5 million. The first Capsize vessel has the carrying capacity of approximately 168,000 tons and was built in South Korea in 1996.

This vessel has a time charter agreement with a major mining company until November 2015 at a gross daily rate of $25,000, and is currently expected to be delivered to Star Bulk within July 2011.

The second Capesize vessel has a carrying capacity of approximately 170,000 deadweight tons and was built in Japan in 1994. This vessel has a time charter agreement with a major mining company until August 2014 at the gross daily rate of $24,500, and is currently example to be delivered to Star Bulk within July 2011.

These acquisitions will be funded by a combination of company's cash and bank debt. Actually, we have already received funding indication from a major Europe bank regarding these two acquisitions. The vessels will be acquired from companies in which family members of our chairman, Mr. Pappas, hold minority stakes. We believe that this transaction is very accretive and will further strengthen our company's financial position.

The time charter agreements that the two vessels have attached to them will substantially increase our revenue visibility and improve our financial results going forward, since they are expected to contribute a minimum of $64 million with a maximum of $75 million in gross revenue. We will continue to be on the lookout for opportunities to structure accretive transactions that increase shareholder value.

Moving to slide 9, we illustrate Star Bulk growth overview. As you can see in the two graphs, we have managed to grow the original fleet of eight vessels under 700,000 tons to 15 vessels and just about 1.6 million deadweight, including our latest acquisitions and our two newbuilding Capes.

This growth has been achieved within four years of going public. This means that we have achieved fleet growth of 135% in terms of deadweight, and 88% in numbers of vessels. It is also 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 oldest ships and bought eight younger vessels, while we have also contracted to newbuilding Capsize vessels to be delivered in the fourth quarter of 2011.

We will continue to explore opportunities as we said earlier on for further growth by conducting accretive transactions.

And now, I will ask Mr. George Syllantavos, our CFO, to discuss on the financials and give you an update on the market developments. Thank you. George.

Thank you, Spyros, and good morning to everyone. Let us now move to slide 11 for a view of our balance sheet as of March 31, 2011. Current assets were $27.6 million. Our fixed assets amounted to $664.4 million, and total assets amounted to $715.6 million. Current liabilities were at $51.7 million, while non-current liabilities amounted to $177 million and stockholders' equity was up $486.9 million.

If we can now turn to slide 12 to discuss first-quarter 2011 income statement, I would like to point out that the first-quarter 2011 results include non-cash items amounting to $340,000, which is depicted in the middle column, and the adjusted figures exclude these non-cash items.

For the first quarter 2011, total revenues amounted to $29.5 million while our operating income amounted to $2.6 million. The net income for the first quarter 2011 was at $1.7 million or $0.03 per share calculated on 63,410,360 weighted average number of shares basic, and 63,452,187 diluted. Excluding non-cash items, net income for the first quarter 2011 amounts to a gain of $1.3 million or $0.02 per share basic and diluted.

I would like to move now to the third and last part of the presentation, which includes our market commentary.

Please turn to slide 14 for a supply update. According to data provided by [collections], actual deliverers of drybulk vessels during the first quarter of 2011 accounted for approximately 50% of the 2011 planned order book as of the order book that was there as of January 1, 2011. Assuming that the deliveries are evenly the spread throughout the quarters, that would imply a rate of deliveries of approximately 60% and an equivalent 40% slippage rate, which is in line with the previous year's performance of the shipyards; actually there was a performance in both 2010 and 2009.

As you can see, the bottom right graph, looking beyond 2011, all scheduled deliveries come down to much lower levels for the years 2012 and beyond. Also during the last few months, there has been a significant pickup in scrapping activity of older vessels. As you can see, the bottom left graph total bulk carrier demolition in the first four months of this year is already higher than the entire activity of 2010. If this rate continues, scrapping could hit an all-time record of about 20 million deadweight within 2011. Scrapping acts like a pressure valve in the supply/demand equilibrium. A pickup in scrapping could slow down the fleet's growth rate, which will effectively provide some relief to rate pressures.

Now, turning to slide 15 for an update of the Chinese iron ore, as you can see at the top right graph, iron ore and steel prices have been rising steadily for more than a year. Actually iron ore prices are close to their recent historical highs while steel is in the highest level since August of 2008, just before the crisis.

On the other hand, as you can see the two graphs at the bottom, iron ore and steel inventories are dropping substantially. The bottom right graph shows iron ore stockpiles expressed in multiples of monthly imports to China, as we are approaching a level that has always acted as a support level in the past, we believe that there is a good possibility that iron ore imports will pick up in order to bring the stockpiles back at higher and more sustainable levels of consumption coverage.

One might think that higher prices and dropping inventories would be the result of a combination of stated demand and decreasing supply. This would be a logical deduction, however, we will see on the next slide statistics imply otherwise.

So on the next slide -- on the next slide 16, on the top right graph, you can see global steel production hitting new all-time highs. Not only stainless steel production growth very strong, but the rest of the world is very close to a record high, even when compared to pre-crisis levels.

What is also worth mentioning is that Chinese steel imports exports have been on the rise lately, which is another indicator of the strong global steel demand. So lost in production level is not the reason for which steel prices have been rising.

Also, on the bottom left graph, you can also see flow space hold and flow space under construction and how it has moved over time. These two indices are closely correlated with Chinese steel demand. And as you can see, they remain at very healthy levels, providing additional comfort and optimism regarding Chinese future steel demand and steel production.

Now if we turn to slide 17, in this slide, we have picked out and aggregated some numbers regarding the mining big three announcements on investments regarding their mining projects in the last 12 months. Rio Tinto has announced investments of a $8.3 billion in actually all-new iron ore projects. BHP, on the other hand, has announced investments of $19.2 billion in both new and existing iron ore fines and also some coal projects.

Vale, on the other hand, has announced investments of $24 billion in mining projects in general, but with the maturity being iron ore and especially within this year.

If we sum this up, we end up with above $50 billion of investments in mining and especially in the sector of iron ore, which is of a special interest to us.

These investments will come from those three companies only. I'm sure on top of this there are many others that are planning mining projects since, as you've seen from the graph before, commodities have performed exceptionally well during the past decade. As you can understand, all these mining projects when they start production, they will probably need drybulk ships to carry raw materials to the buyers. This gives an outlook, provides some optimism regarding the long-term demand fundamentals for drybulk shipping in general.

Now we will take -- I will not take any more of your time. I will now pass the floor over to the operator, and if you have any questions regarding the above, Mr. Capralos and myself will be happy to respond to them. Thank you.

(Operator Instructions). Noah Parquette, Cantor Fitzgerald.

Thank you. My question is on the Capsize segment. You've done a lot in terms of investing in that segment over the last year, and you chartered out for intermediate term. With scrap being so high, do you have a medium-term outlook on this sector? Or is it just a function of these individual ships are attractive at the time?

Well, both, Noah. As you can see first of all, we don't speculatively acquire tonnage in that sector. We acquire tonnage in that sector when we have some meaningful employment either attached or we have attached it independently to the tonnage in the past. The only vessel that comes up for some more chartering activities are starting [reaching on] at the end of the year. And the rest of our vessels have substantial coverage from between 2, 2.5 to with a newbuilding, almost 10 years forward.

So, we do -- we always believe that this is a sector that correlates well with the infrastructure projects in the world. Of course, the order book is always a question mark in our minds. But because it's directly correlated to the infrastructure projects in the world, therefore, directly correlated with iron ore and coal activity, we think although that sector is pressured right now, as long as you can have vessels, good vessels that have employment from superior charter counterparties, we feel that we are entering a good investment which are good for the company and the earnings forward.

Yes, I guess what I was getting at is that with your chartering strategy, it's almost like you are taking a view that the Capsize market will rebound in two to three years. I just want to confirm that was your opinion.

Looking in the order book, we do feel that there is a chance of rebound. The prospects of rebound are there from 2013 onwards. Therefore, we feel that it would be prudent for us to cover the in between hump of about two to three years, and then be out on the market to refix the vessels. But with the charters attached to those vessels, even with the chartering activity that we currently have, provides some attractive returns to us as operators.

And in terms of financing, can we assume something like 50% debt financing? Or is there a number that you are looking at?

We have received indication for the specific vessels, however it's not definitive yet. We're still talking with the bank, but it looks like about 60% level of debt.

60%. 60%, right?

60%, yes.

Yes, okay. And then just finally in terms of the acquisition costs, these charters are great. They are above market. How do you break up the price between the steel and the charters? And are you going to account for those charters as above market?

Well, you know that the charters are above market, especially when you're talking about four-year durations because there are currently no four-year time charters out there to begin with. So, obviously we have them [on age] for each individual vessel or each individual vessel has its own value there.

The breakdown we can provide forward as we talk to you. But in reality what you're looking here is you're looking at us buying vessels which could be on block work, charter free about $47 million or $46 million, $47 million. But the charter adjusted value of these vessels is about $62 million or so.

Therefore, what you are looking at, you are looking at us buying a charter adjusted value of about $15 million, $16 million and we're only paying about a third of that in reality in the course of our [MOAs] for the acquisition of the vessels. Therefore, we think that we are getting those vessels at a discount of about $10 million or $11 million, vis-a-vis where the charter adjusted value really is at today's levels.

All right, completely agree. That personally started seeming low for the charters you were getting, so great acquisition, guys.

(Operator Instructions). Gentlemen, as there are no further questions at this point, I will now pass back to you for closing remarks.

Well we want again to thank everyone for participating on this call, and we look forward to joining us again when we have our next-quarter financial results conference call except if we have also something else to announce in the meantime. Again, thank you very much and have a good day.

Thank you. And with thanks to both our speakers, that does conclude our conference. Thank you for participating. You may now all disconnect. Thank you, gentlemen. Bye bye.