Star Bulk Carriers Corp (SBLK) 2011 Q3 法說會逐字稿

Welcome to the Star Bulk conference call on the third quarter and nine months 2011 financial results. We have with us Mr. Spyros Capralos, President and Chief Executive Officer, and Mr. Simos Spyrou, 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 this conference is being recorded today, Wednesday, November 9, 2011.

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, or good afternoon wherever you are in this world. I am Spyros Capralos, the President and Chief Executive Officer of Star Bulk Carriers, and I would like to welcome you to the Star Bulk Carriers' third-quarter and nine months' 2011 financial results conference call.

Along with me today to discuss our financial results is our CFO, Mr. Simos Spyrou.

Before we begin, I kindly ask you to take a moment to read the Safe Harbor statements on slide number two of our presentation. Let us now turn to slide number three of the presentation to first discuss our balance sheet which we would like to highlight, because we believe it is one of the healthiest in the dry bulk industry.

As of today, our senior debt stands at $268 million including the full withdrawable amount from the credit loan facility for the financing of Star Polaris that is going to be delivered next week. Important to mention is that we have zero CAPEX commitments from now on.

Our current cash position stands at $39 million. Star Bulk has resisted exposure to interest rate swaps and we are taking the full benefit of the prevailing low interest rates as all of our loans are bared on floating notes -- rates. According to our list consensus estimates on Bloomberg, our 2012 EBITDA is expected to be around $52 million. Our net debt amounts to around $230 million and so our net debt stands at around 4.4 times consensus 2012 EBITDA.

Our principal repayment commitments for this year are down substantially compared to last year, since our loan repayment schedules were intentionally designed to be frontloaded. Specifically, as you can see in the bar graph, during 2010, our principal repayments stood at $68 million while our 2011 repayment commitments stands at $37 million, out of which the remaining amount in year-end stands at only $1.5 million.

Our principal repayment commitments amount to $35 million for each of 2012 and 2013. We believe that these characteristics make Star Bulk one of the most financially solid players in the dry bulk industry today.

Please turn to slide four to discuss our third-quarter and nine months' 2011 financial highlights.

In the third-quarter 2011, gross revenue amounted to $26.3 million and our net loss amounted to $3 million. Excluding non-cash items, such as amortization, deferred revenue, and stock-based compensation, our net loss for the third quarter amounted to $1.5 million. Adjusted EBITDA for third-quarter 2011 was $11.9 million while average daily operating expenses were $5,682 per vessel.

The Time charter equivalent was $18,808 per day. The adjusted net loss of $1.5 million represented a $0.02 loss per share basic and diluted, which is above Bloomberg consensus.

For the nine months 2011, gross revenue amounted to $78.4 million and net income amounted to $0.4 million. Excluding non-cash items as well as a loss related to an early Time charter termination, our adjusted net income for the nine months' 2011 amounted to $2.1 million. Adjusted EBITDA for nine months 2011 was $41 million while average daily operating expenses were $5,478 per vessel. The Time charter equivalent in the nine months 2011 was $20,165 per day.

The adjusted net income of $2.1 million represents $0.03 earnings per share basic and diluted.

Slide five illustrates a high-quality fleet of dry bulk vessels consisting of 14 dry bulk carriers with a fully funded Capesize [newbuilding] (see slide) on its way to be delivered next week. Once we take delivery of our second newbuilding, we will have increased our operating fleet by 75% in terms of cargo carrying capacity from the beginning of 2011.

As you can see the bar graph, on the lower left-hand side, we have managed to grow our fleet from the beginning of 2011 from 900,000 tons to just above 1.6 million dead weight tons by the end of 2011. Our fleet growth will result in an increase in our ownership days with visible revenue in the volatile freight market.

It is worth -- also worth noting that, in the process of growing our fleet, we have also been renewing it. Since our inception, we have sold three of our older vessels while acquiring eight younger vessels. As a result, we expect our fleet's average age to be 10.6 in December 20 11th only two months older than a year ago. So we have achieved considerable growth while also renewing our fleet.

Please turn to slide six for an overview of our fleet employment and our counterparties. Currently, we have secured 94% of our operating days in 2011, 52% in 2012 and 38% in 2013, with most of the open days in the Supramax category. Specifically, our Time charter coverage in the Capesize sector is 98% for 2011, 86% for 2012 and 73% for 2013 with the only Capesize open for employment being the Star Ypsilon whose Time charter contract is expected to expire this December. We plan to opportunistically recharge our one Capesize and our six Supramax vessels as the freight rate environment improves.

Our total contracted revenue amounts to approximately $220 million while it is worth noting the solid profile of our charters with companies like Rio Tinto, Cargill and [Louis Dreyfus] among our counterparts.

Please turn to the next slide, slide seven, for an overview of our management and operational structure.

Star Bulk is one of very few companies in the dry bulk sector that have fully integrated in-house commercial and technical management capabilities. This integrated structure offers a number of advantages like increased operation of flexibility, high-standard quality control and maintenance which leads to increase the fleet utilization while reducing our operating expenses.

We are able to achieve all of the above while being totally transparent since we have practically eliminated any related party management transactions. And now I will ask Mr. Simos Spyrou, our CFO, to discuss our financials and give you an update on the market developments. Thank you.

Thank you, Spyros, and good morning to everyone. Let's now move to slide nine for an overview of our balance sheet as of September 30, 2011.

Current assets were $32.5 million. Our fixed assets amounted to $703 million, and total assets amounted to 705 -- $785 million. Current liabilities were $54 million while noncurrent liabilities amounted to $223 million and stockholders equity was $508 million as a result of our recent offering.

If we can now turn to slide 10 to discuss our third-quarter 2011 income statement. I would like to point out that our results include non-cash items amounting to $1.5 million, which is depicted in the middle column and the adjusted figures exclude [this] income items. In particular, there was an amount of $0.8 million related to the amortization of a bulk market acquired Time charters; $0.1 million to (technical difficulty), also an amount of $0.6 million related to stock-based compensation.

For the third-quarter 2011, total revenues amounted to $26.3 million while our operating loss amounted to $2.2 million. Net loss for the third-quarter 2011 was $3 million or $0.04 per share basic and diluted. Excluding non-cash items, net income for the third-quarter 2011 amounted to a loss of $1.5 million or $0.02 per share basic and diluted.

Please turn to slide 11 to discuss our nine-month 2011 income statement. Non-cash items included in our nine-month results amount to $1.7 million which again are depicted in the middle column. And the adjusted figures exclude this month's cash items.

For the nine months 2011, total revenues amounted to $78.4 million, while our operating income amounted to $2.9 million. Our voyage expenses were higher than last year due to the fact that we had one additional shipment related to our co-op with [wireless]. G&A expenses for the nine months 2011 totaled $10 million versus $9.2 million during the same period last year.

The increase in G&A expenses in the nine months 2011 is due to the non-recurring severance payments to the Company's former CEO and former CFO, totaling to $3.6 million. Excluding these one-off severance payments, G&A expenses would have been reduced by 30%.

Net other operational gains amounted to $6.7 million on a cost basis and include $1.6 million from the early termination of the Star Cosmo and $5.1 million from a claim related to Star Beta.

Dry docking expenses for the nine months amounted to $1.6 million significantly below last year. I would like to mention here that during the third quarter of 2011, our Capesize vessel Star Big passed a scheduled dry docking.

As you recall, Star Big was delivered to us during this quarter, the third quarter, as one of our new acquisitions this summer. The vessel was delivered to the Company while at the yard and that their respective expenses were capitalized. The amount of $0.2 million in dry docking expenses during the third-quarter 2011 relates to the purchase of spares and other materials which will be used in dry dockings in the future.

Overall, the net income for the nine-month 2011 was $0.4 million or $0.01 per share basic and diluted. Excluding non-cash items, net income for the nine months, 2011 amounted to a gain of $2.1 million or $0.03 per share basic and diluted.

I would now like to turn our attention to the dry bulk markets. Please turn to slide 13 for an update on dry bulk supplies.

Dry bulk vessel deliveries during the first 10 months of 2011 continued at a record high pace with a large order book still remaining for the remainder of 2011 and 2012. As you can see on the top right-hand graph, deliveries in the first 10 months of 2011 point to a slippage rate of around 30%, a level very similar to the last year's slippage.

On the bottom right-hand graph, you can see the order book for the rest of 2011, 2012, 2013, and 2014. As you can see, the dry bulk industry still has to go through a process of absorbing a very big number of new vessels that will come into the market in the next years. What is important and encouraging is the fact that bulk carrier demolition through October 2011 is more than three times that of 2010 and if the current scrapping rate continues, scrapping could hit an all-time record of over 24 million dead weight tons in 2011.

A pickup in scrapping slows, a pickup in scrapping slows down the fleet's net growth rate which effectively provides some relief to the [supply] market. In other words, scrapping is another correction mechanism in the shipping industry that helps to restore the supply demand equilibrium.

Please turn to slide 14 for an update on the coal trade. On the top right bar, you can see past an expected future coal imports from India. As you can see, Indian coal imports have been increasing fast in recent years and we expect this trend to continue in the future. The two bottom hand side graphs show the electricity produced from thermal coal in China and Chinese coal imports.

It is important to note that even though Chinese coal imports have been surging, they only represent around 5% of the total Chinese coal consumption. As a result, we believe that there is lots of room for further growth in this trade.

Please turn now to slide 15 for an update on the iron ore trade. As you can see on the two graphs on the right, world seaborne iron ore trade and global steel production have maintained a steady growth pattern in recent years. We believe that this trend will continue in the future, supported by mainly the industrialization and the urbanization of emerging economies.

The most encouraging graph, though, is the one on the bottom hand left, where you can see the expected additional iron ore export capacity. There is 1 billion tons of additional iron ore capacity that is expected to come online in the period from 2012 to 2015. We believe that this capacity expansion, combined with the expansion project in other commodities, have the potential to absorb the net growth and carrying capacity of the dry bulk fleets.

We continue to be cautious and closely monitor all important developments related to the world economy especially those related to the European crisis, which is the most urgent and rapidly unfolding at this moment. Even though the prices does not affect Star Bulk or dry bulk shipping directly, it creates an uncertain and unstable global economic environment that does not help emerging economies unlock their true growth potential.

Overall, we remain optimistic about the long-term prospect of dry bulk shipping demand based on the growth prospects of emerging economies and the fact that demand for commodities like iron ore and coal are more dependent on domestic growth components like infrastructures and urbanization than export-related ones.

I would like now to pass the floor back to Mr. Capralos for his closing remarks.

Thank you, Simos. In conclusion, as you can see on slide 17, we believe that Star Bulk is well-positioned from a financial and operational point of view to not only sustain the Company, but also take advantage of the opportunities in the dry bulk markets.

On top of our high quality, modern fleet, and significant time charter coverage, especially the volatile Capesize segment for the next two years, Star Bulk also has one of the most diverse groups of high financially solid charters in the sector.

Our campaign to bring our fleet's management in-house has provided tangible results as it has led to a meaningful increase in our efficiencies and transparency, while lowering our daily vessel operating costs over the past year. We have a moderately leveraged balance sheet, a healthy liquidity profile, and an experienced and dedicated management team.

Without taking any more of your time I will now pass the floor over to the operator. In case you have any questions, both Simos and myself will be happy to answer them.

(Operator Instructions). From Cantor Fitzgerald, your first question comes from Natasha Boyden.

Good morning. You have done a lot of work over the past several months renewing your fleet, particularly the Capesize fleet and I'm just wondering what the next step is here? Are you comfortable with what you've done for the time being, or are more acquisitions attractive here given your level of leverage and where asset values are?

Well, this year we've increased our fleet quite substantially. Right now we are digesting these acquisitions and I think that in this volatile market, and especially if this market continues like that, we'll be seeing a lot of distressed assets and opportunities for further growth. Therefore, we will be cautiously looking at the market and if the right opportunity arises, then I'm sure that our Board and us will step in and we will continue our growth strategy.

Turning to the dividend, your yield right now is pretty substantial at around, I think it's about 15%. Have you looked at that in terms of getting benefits, shareholder benefit obviously with a high yield and yet balancing that with growth for the Company?

Thank you for this question because dividend is something that is a big interest to all of our shareholders. First of all, I would like to focus on the fact that Star Bulk is the only or certainly one of the very few dry bulk shipping companies that maintain dividend payments for the past couple of years. A challenging market period for -- by all accounts. We are very proud of this fact.

As we have mentioned in the past, our first priority is to ensure the Company is in a position to sustain a challenging market environment that may prevail through the next year. So to that effect, cash preservation is important to ensure the Company not only has the resources to survive, but also to take advantage of our acquisition opportunities that will certainly develop during the next several quarters.

Our plan also grows so -- our plan is also to grow so that Star Bulk emerges as a major dry bulk shipping company during the upcoming market recovery. Within this context, we will review our dividend policy with our Board early next year to determine the appropriate level that ensures dividend continuity as well as cash preservation to permit us to grow.

Thank you very much.

From [Clarkson Capital Markets, Michael Pack].

Good afternoon. Couple of questions here. On your -- you have got quite a number of Supramaxes that are up for renewal during this quarter. How should we think about that in terms of are you -- do you feel you are going to be more involved in the period market or is it -- do you think you will be more employed on the spot you feel as you look at the two employment situations here? Two sides.

You're right on the Supramaxes, we have a few of our vessels that are going to be free this last quarter of the year. We were not that pessimistic for the Supramax segment or the Capesize sector and that is why for the Capesize we have almost all of them fixed for two years and more.

On the Supramax, this part has been less volatile and we have not seen the ups and downs that we have seen, that we have seen on the Capesize. However if we have some opportunistic fixtures for periods of up to a year, we could go and fix those vessels. However, I'm sure that we will keep some of the vessels in the spot market to benefit from upticks in this market.

Okay, so it feels like a balanced approach. Maybe you could fix out to a year, but basically stay in the short term here it sounds like.

Yes, we don't want to fix for longer terms, longer periods of time because I think at a certain point, shipping is a cyclical business and when we will have this upturn in the markets we will want some of our fleet to be in short fixtures so to benefit from the upside.

Understood. My other question on the drydocking expense side, were there any other ships in terms of timing perspective that you thought was going to be dry docked in 3Q, maybe is going to be pushed to 4Q or 1Q? Or was it just mainly attributed to that one Star Big vessel?

We have -- we had from the third and fourth quarter two vessels to go in drydocking. Those were two Supramaxes which are less costly. Both of them will go in drydocking now in the last quarter of this year while in the third quarter we had the bigger Capesize vessel.

Okay, so -- all right, so you have two Supramaxes that are going to be in drydocking in 4Q?

The one is already in drydocking and the other one will be in drydocking shortly.

Okay, so in terms of 4Q drydocking expense, how should we think about that? I take it there will be about $1 million a ship?

Yes, probably. Probably a little bit lower, but it's safe to assume that this number.

Okay. Great. And then just, Simos, if you can just update us on the financial covenants, your key financial covenants? Understanding that you guys are in -- your balance sheet is in good shape, just if you can kind of remind us of the key covenants and maybe where you guys stand?

Well, Michael, the key covenants you know are the usual for that sector. We have 11 ratios of around -- it depends on the facility, 65% to 70%. We have some minimum liquidity requirements and interest coverage ratios in some facilities. And we have a market value of the market vessels over the [levels]. Minimum liquidity is included in the balance sheet and as of November, as of the third quarter 2011, although we didn't have to pass any compliance test, we are compliant with all of our covenants.

Great. And I mean in terms of headroom, can you give us an idea in terms of where you stand in terms of the leverage ratio?

Well, you know that this really depends on the valuations that you get and valuations from broker to broker usually vary. So I wouldn't want to give an indication at this stage because it gives -- it's too technical.

From FBR Capital Markets, James Woods.

Hello, gentlemen. I am dialing in on the behalf of [Rob McKenzie]. So I had a quick question on the expense priorities and the funding. You said that you're going to be looking for opportunities to potentially grow the fleet in the downturn, come out a stronger tanker company on the other side. I wanted to understand a little bit better how you think about funding for that and how you weigh that priority against the dividend which is, obviously, something that is very important to you.

Obviously this is a $1 million question. I think in this market, there are going to be opportunities. And then, it is up to us and to the Board to decide whether we move and acquire new vessels, whether we go for new building vessels, whether we go for distressed vessels and then also the financing of that. And of course the balance of that would determine our policy regarding dividend payment, how much the dividend is going to be and also how we finance this whole thing.

It can be financed again if -- and it doesn't look like that right now that if the entity market improves, then maybe we could do more offerings. But I think right now with prices of stocks being in stock trading well below net asset value, I think that this is not the appropriate way of funding it. But I think that we will be looking at different types of financing, through bank financing, traditional commercial bank financing or even if the debt market permits, then to come out with bonds we wouldn't exclude any bond or anything like that.

But for the time being, equity markets are not good for us. And but right now, there is nothing specific in the pipeline. I think that later on we will find many more opportunities in this market.

That's really helpful. The other side of it is you've talked a good deal about the volatility of tanker markets and how the Supramax local speakers -- I'm sorry, (multiple speakers) dry bulk -- and how the Supramax market has held up better than the Capesize.

Now you are largely contracting the Capesize vessels and that's really where the order book is the most onerous. Could you talk to us a little bit about just from 10,000 feet, what you see happening in the Supramax market into 2012 and 2013?

It's -- well it is very difficult to predict what will happen, but this market because those types of vessels can carry different goods and commodities, those vessels have a much bigger use and, therefore, that is why we think that it is less volatile. The Capesize sector is very limited to big and bulky products like iron ore and coal. And therefore, we depend there both on the supply of the new vessels coming in the market as well as the countries and markets who import iron ore and coal which is mainly China and India.

And that is why we have seen that big volatility. I think the market in addition to what Simos said earlier on that we have improvements and also the scrapping itself also slow steaming has helped this market.

That's all very helpful color. I guess with that I will turn it back. Thank you, gentlemen.

(Operator Instructions). As there are no further questions we now pass the floor back to your speaker, Mr. Spyros Capralos, for closing remarks.

Well, if there are no more remarks, we are happy that the Company has performed very well for one more quarter. We continue rewarding our shareholders with a nice dividend. And we hope that in February when we will be announcing the year-end results, we'll be having some good news also for everybody. Thank you very much.

And with many thanks to both our speakers today, that does concludes our conference. Thank you for participating. You may now all disconnect. Thank you, Mr. Capralos, Mr. Spyrou.

Thank you and have a good day.