Star Bulk Carriers Corp (SBLK) 2022 Q2 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers Conference Call on the Second Quarter 2022 Financial Results.

We have with us Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton, President; Mr. Nicos Rescos, Chief Operating Officer; Mr. Simos Spyrou and Mr. Christos Begleris, Co-Chief Financial Officers of the company. (Operator Instructions) I must advise you that this conference is being recorded today.

I will now pass the floor to one of your speakers today, Mr. Begleris. Please go ahead, sir.

Thank you, operator. I am Christos Begleris, co-CFO of Star Bulk Carriers, and I would like to welcome you to our conference call regarding our financial results for the second quarter of 2022. Before we begin, I kindly ask you to take a moment to read the safe harbor statement on Slide #2 of our presentation. In today's presentation, we will go through our second quarter results, cash evolution during the quarter, an overview of our balance sheet, an update on our scrubbers and vessel operations, the latest on the ESG front, and our views on industry fundamentals before opening up for questions.

Let us now turn to Slide #3 of the presentation for a summary of our second quarter 2022 highlights. Net income for the second quarter amounted to $200.2 million and adjusted net income of $204.5 million or $2 adjusted earnings per share. Adjusted EBITDA was at $258.3 million for the quarter. For the second quarter, after our existing dividend policy, we declared a dividend per share of $1.65, payable on or about September 8, 2022. The graph on the bottom of the page highlights the cumulative performance over the last 12 months, which illustrates the strength of the platform in a robust dry bulk market.

Our last 12 months adjusted EBITDA is $1.12 billion, and adjusted net income is USD 907 million. Over the same period, we have incurred a cumulative dividend of $6.55 per share or $674 million to our shareholders.

On the top right of the page, you will see our daily figures progression for the quarter. Our time charter equivalent rate was $30,451 per vessel per day. Our combined daily OpEx and net cash G&A expenses per vessel per day amounted to $5,684. Therefore, our TCE less OpEx and G&A is $24,767 per vessel per day. Looking at our charter-in coverage for the third quarter of 2022, we have covered 61% of our fleet available days at a daily rate of $29,000 per day.

Slide 4 graphically illustrates the changes in the company's cash balance during the second quarter. We started the quarter with $444.4 million in cash and generated meaningful positive cash flow from operating activities of $239.9 million due to the strong freight market. After including debt proceeds and repayments, CapEx payments for ballast water treatment system installments, and the first quarter dividend payment, we arrived at a cash and cash equivalent balance of $385.6 million at the end of the quarter.

Please turn to Slide #5, where we highlight the continued strength of our balance sheet. Our total cash stays at $474 million. Meanwhile, our total debt and approximately $1.41 billion. We have refinanced $310 million of old facilities -- older facilities that decreased the annual regular debt repayments by $11 million and reduced our interest costs by $4 million per year as a result of achieving significant [profit] margins.

Our next 12 months amortization is $188 million. After completion of the recent refinancings, we have 12 unlevered vessels with market value [debtors] of $310 million and no debt maturities until 2024, where we have $82 million outstanding payments, part of which we're in the process of refinancing. In an increasing interest rate environment, we have fixed 55% of floating interest rate exposure at an average fixed rate of 45 basis points for an average remaining maturity of 1.7 years.

I will now pass the floor to our COO, Nicos Rescos, to talk about our scrubbers and provide an update on our operational performance.

Thank you, Christos. On Slide 6, we would like to update investors about our scrubber investment. We are pleased to report that as of mid of June, within a (inaudible) plan of 2.5 years, we have reported $250 million scrubber investment. This cost includes unrelated capital expenditure as well as the off-hire cost involved in the installation of our scrubbers. On the scrubber utilization front, (inaudible) has by now surpassed 108,000 scrubber operating days and (inaudible) 99.5% system availability on board. With 94% Hi-5 scrubber benefit and average Hi-5 spread of (inaudible) during Q2.

(inaudible) Scrubber benefit (inaudible) bottom line based on a consumption of approximately 700,000 tons of HSFO consumed per annum. Indicatively the average Hi-5 spread achieved during the second quarter was $323 per ton. As you can see at the bottom part of the slide, the forward Hi-5 spread is in (inaudible) versus the (inaudible).

Please turn to Slide 7, where we provide an operational update. Operating expenses excluding non-recurring expenses, was at $4,674 for the quarter -- second quarter 2022. Net cash G&A expenses were $1,010 per vessel per day for the same period. Despite continued adverse COVID-related expenses and inflationary pressures, which have a direct impact on our operating expenses, the combination of our in-house management and the scale of the group enable us to sustain a very competitive cost base and maintain our position as the lowest cost operator amongst our peers. In addition, we'll continue to raise at the top among our listed peers in terms of Rightship Ratings.

Slide 8 provides a fleet structure and some guidance around our future dry bulk and ballast water system expenses for the next 12 months and the relevant total off-hire days. Our expected dry bulk expense for the next 12 months is estimated at $33.2 million with a dry dock of 33 vessels, with another $13.4 million towards our vessel upgrade CapEx.

In total, we expect to have approximately 1,000 off-hire days for the forward 12-month period. We anticipate that 98% of our fleet will be fitted with ballast water systems by the end of Q4 of 2022. The above numbers are based on current estimates around dry dock and retrofit planning, vessel employment and yard capacity.

I will now pass the floor to our Chief Strategy Officer, Charis Plakantonaki, for the update.

Thank you, Nicos. Please turn to Slide 9, where we highlight our continued leadership on the ESG front. A major new development in the decision by Star Bulk's Board of Directors to establish an ESG Committee, which will guide and support management on environmental, social and governance matters in order to ensure that the company promotes and integrates ESG in its strategy and business operations.

On the environmental front, Star Bulk has taken part for a second year in the annual assessment cycle for the Carbon Disclosure Project. In addition, we are actively participating in the Iron Ore Consortium along with some of our major charterers to assess the feasibility of a Green Corridor on the Australia-East Asia routes up to 2050.

Furthermore, in an effort to continue to improve on our sustainability performance, we have participated in the annual S&P Global Corporate Sustainability Assessment, which will provide us with the score and ranking based on various financially relevant ESG criteria.

Finally, from the societal point of view, Star Bulk has partnered with UNICEF to provide psychosocial support to refugee women and children who have fled to Greece as a result of the war in Ukraine.

I will now pass the floor to our CEO, Petros Pappas, for a market update and his closing remarks.

Thank you, Charis. Please turn to Slide 10 for a brief update of supply. During the first half of 2022 a total of 15.6 million deadweight was delivered and 1.8 million deadweight was sent to demolition for a net flip growth of 13.8 million deadweight or 1.5% year-to-date, and 3% year-on-year.

The supply outlook is the best in the recent history of dry bulk shipping. The order book stands at only 7.1% of the fleet with just 9.4 million deadweight reported as firm orders between January and June. Uncertainty and future propulsion, along with surging shipbuilding costs, have helped keep new orders under control, while shipyards continue to fill 2025 capacity with more profitable to the shipyards vessels.

Furthermore, despite the correction of global steel prices during the second quarter, inflated scrap prices may incentivize the demolition of overage tonnage without scrubbers during seasonal downturns. We expect this to intensify after the implementation of the EEXI, CII regulations that come into effect as of 2023.

The average steaming speed of the fleet has decreased by 2.8% during the last year to 11.3 knots as a result of a strong increase of bunker costs. We expect oil prices in bunker cost to remain inflated for the next quarters amid the sanctions imposed by the Western countries on Russia. This situation along with the new environmental regulations will continue to incentify slow steaming will also support wider scrubber savings. Global port congestion and especially (inaudible) congestion in China has experienced a decline during the last months as pandemic-related restrictions are easing, and reduced arrivals helped ease for delays.

Having said that, congestion for smaller vessel types remains at high levels due to changes in trading patterns and seasonal bottlenecks. As a result of the above trends, net fleet growth is projected to drop below 2.5% in 2022, and is unlikely to exceed 2% during 2023 and 2024.

Let's now turn to Slide 11 for a brief update of demand. According to tractions, total dry bulk trade during 2023 is projected to expand by 0.1% and 1.7% in tons, and by 1.4% and 1.9% in ton-miles, respectively. During the first half total dry bulk volumes were down by approximately 0.5%, mainly due to a 6% decrease of Chinese imports as a result of a China's zero-COVID policy, export disruptions and the war in Ukraine. However, trade growth is expected to recover during the rest of the year, supported by export seasonality and weaker restocking needs worldwide. Furthermore, there is suffering of coal, grain and minor bulk trade patterns to longer-haul routes will inflate on miles and help moderate the weaker volumes seen during the first half of 2022.

Iron ore trade is expected to expand by 0.3% in tons and 0.1% in ton-miles during 2022. China steel industry went through a strong slowdown over the last year due to significantly higher input costs and a weak real estate market. During the first half of the year, steel output from China decreased by 6%, and from the rest of the world by 3% due to negative profit margins and a drop of production from the high energy-intensive electric car furnaces. Nevertheless, China (inaudible) iron output is experiencing a recovery supported by infrastructure stimulus and iron ore port stockpiles during the second half of the year, experienced a sharp decline.

During the first half of the year, Brazil iron ore exports decreased by 7% with Vale recently announcing an annual guidance between 310 million and 320 million tons, which is flat from last year, but indicates higher shipments for the rest of the year.

Coal trade is expected to contract by 0.4% in tons, but to expand by 3.3% in ton-miles during 2022. Sanctions announced by major importers on Russian coal limited capacity for expansion of Atlantic producers, and soaring gas prices have pushed coal prices to record high levels. European buyers are stocking coal ahead of the winter and are substituting imports from Russia with Australia and Indonesia, while Russia is exporting more coal, China, India and other Asian companies, a situation that is benefiting ton miles.

During the first half of the year, China and India have increased their domestic production significantly in order to help raise stocks, reduce prices and be less dependent on imports. However, India's stockpile still stand at relatively low levels, and imported coal needs to remain high in order to avoid last year's blackouts and therefore, strong demand is expected after the monsoon season.

Grain trade is expected to contract by 3.7% in tons and 0.5% in ton miles during 2022. Ukraine exports account for approximately 10% of total grain trade. And since the invasion in late February, exports have fallen to almost 0. During the first half of the year, grain shipments declined by 11.5% as a result of war or weather conditions in Brazil, and a strong spike in prices. On the other hand, U.S. soybean outstanding sales stand at record high levels for this time of the year while the Brazilian corn season started with inflated volumes, indicating stronger grain trade during the second half and the fourth quarter. During the next few years, China's demand for grains is projected to be strong as the 5-year plan is focused on food security and inventory building.

Minor bulk trade is expected to expand by 1.1 percentage tons and 2.1% in ton miles during 2022. Minor bulk trade has the highest correlation to global GDP growth and is receiving support from the strong containership markets. The IMF projects global GDP growth to slow down to 3.2% during 2022 and 2.9% during 2023. Shortages of steel products in the Atlantic and a positive price arbitrages to further inflate backhaul flows from the Pacific, and provide support for years tonnage. Moreover, expanding West African bauxite exports continue to inflate ton miles with year-to-date exports up by 8%.

Finally, we remain optimistic for the prospects of the dry bulk market, and our company is well positioned to enjoy and take advantage. The record low order book, combined with the lack of yard space, upcoming environmental regulations and high bunker costs and suppressing orders and speeds, and create a favorable supply side picture for our industry in the long-term. On the demand side, there are short-term risks, but strong commodity flows over longer distances due to the change of trade patterns are expected to support earnings over the next years.

Without taking any more real time, I will now pass the floor over to the operator to answer any questions you may have.

(Operator Instructions) I show our first question comes from the line of Amit Mehrotra from Deutsche Bank.

This is Chris Robertson on for Amit. I just wanted to ask, so you have relatively young Newcastlemaxes and Ultramax vessels as well. So you spent quite a bit of time talking about the scrubber premiums, but I ask about the premiums you're getting or uplift you're getting on the younger ECO vessels.

And you're talking, Chris, about the premiums due to the facts being younger as opposed to do to the scrubbers?

Correct.

Yes. Well, the younger vessels have lower consumption than the other vessels, and therefore, in effect, they have -- on the one hand, they have the advantage of being ECO, on the other hand, by burning more or less tons, they get less over scrubber advantages. So for example, a (inaudible) burns, let's say, 40 tons versus another (inaudible) burns 50 tons. On the one hand, it has the ECO advantage but on the other hand, it less 10 tons worth of scrubber, benefit less.

Okay. Yes, that's fair. My next question is on -- you guys mentioned the speed of the fleet around 11.3 knots at the moment. How do you foresee that kind of evolving over the next few quarters, and into 2023? And could you quantify or kind of look at the effective capacity reduction that you expect?

Okay. It depends on 2 things. First of all, it depends on the price of bunkers. And second, it depends on the -- on what -- how the market rates are. So if -- the highest speed will be -- it's at very high rates and very low bunker prices. And the lowest speed would be with very high bunker prices and very low speeds. We expect the oil prices to remain where they are, not to hold much. And therefore, we also expect that -- we expect also the market to be decent during the next 4, 5 months, especially towards the fourth quarter. Therefore, we think that speed will remain where it is at around 11.3 knots, give or take.

Now as vessels are (inaudible) for about 60% of the time, 1 knot difference from 11.3 to 11 -- to 12.3 is about, I think that's about 9% reduction -- or 8.5% reduction, and you multiply that by 60%. So that's us about 5% effect on supply. So 1 knot less or 1 knot more in speed would be plus or minus 5% on supply.

Okay. Yes. My last question here is around the unwinding of the Chinese port congestion. And also as it relates to the containership market. So let's say, containership rates fall from here and port congestion eases. What do you think the impact will be to dry bulk rates?

Well, we -- first of all, congestion has -- Chinese congestion has eased mostly on the capesize sector. I think I was reading a figure of like 68%, that's congestion this year than last year, which we think actually it has run its course. Even if anything, and as we expect to have much more iron ore trade during the next 4, 5 months, we believe that for the capesize congestion will actually increase in China going forward.

Regarding Supramax containership market and Supramax vessels. Yes, if containership rates collapse, this will have a negative effect on Supramax. However, I was just -- last week, I saw that containers from a well-known public shipping company, fixed for 3 years at like $54,000. So it doesn't seem to me that the competitive market is yet that much affected to have a major impact on Supramaxes.

Also, 1 interesting thing is that congestion on Supramaxes has actually increased by a bit, like 6%. So all in all, on the capesize question, I think we will see more congestion. On the Supramax question, it will have an effect, but I don't think it's going to be immediate.

Congrats on the solid quarter.

And I show our next question comes from the line of Omar Nokta from Jefferies.

Just wanted to ask, Hamish, just wanted to ask you guys have secured several new credit facilities and extended your maturities, lower your cost base. You now have the 12 unencumbered ships. I guess are you willing to give us maybe a sense of where you have those down in terms of market value? And then maybe give us a sense of what you're thinking about those shifts going forward? Are those sales candidates? Or are they just for flexibility's sake?

Well, so -- Omar, as I think you can appreciate, we make a policy of not discussing the value of our fleet in terms of value per ship. Because, frankly, the ships are worth more in our hands than in the hands of others because of the way we operate them. And the ships that are unencumbered are unencumbered more or less by happenstance, they're not particularly sales candidates.

Okay. That's pretty clear. And this is maybe in a little nuance, but I noticed that maybe it just so happens to be this way, but you spent $20 million on the buyback this year, buying at an average price to let say, $225. And you've issued close to $20 million also under the ATM at [31]. So definitely good pricing on both counts. But is that a coincidence that they lined up like that at $20 million? Or...

No. It's not a coincidence. We basically had an arbitrage situation lined up where we could issue shares and buy assets in a way that was very advantageous to the shareholders. And sort of in the middle of that, the arbitrage situation started becoming less probable and our share price started to drop. So basically, we spent precisely the money that we raised by issuing shares, on buying back shares at a lower price, and so in effect, retired some shares at 0 net cost.

Okay. And so do you think that would be how you guys approach it in the future?

Well, hopefully, in the future, we'll be able to issue shares and buy loads of vessels in a way that's very profitable for the shareholders.

Yes. Yes. Very good. And one final one. I just I saw it in the cash flow statement, a $35 million T-bill outlay. Just -- I don't think I've noticed that before. I'm just wondering if you could give me a sense of what that was for?

Omar, this is Simos. This was just a short-term investment we placed for below 6 months. But since the maturity was after the end of the quarter, June 30, under U.S. GAAP, we have to report them not in our cash, but in our investment portfolio. However, that these products, these T-bills are considered to be in reality cash. So we consider them cash, and we add them back to the cash balance for the calculation of the dividend. All of these bills are maturing within the third quarter.

(Operator Instructions) I show our next question comes from the line of [Clement Molins] from [Investors Edge].

I would start by asking about the dividend. You have declared another very strong distribution equal to like the quarter 1 payout despite the slightly lower cash balances at the end of the quarter. What has been the driver behind this decision? And should we expect this to be rebalance looking at the remainder of the year?

Clement, it's the same dividend policy. It's not a management decision. The cash balance divided by the number of shares outstanding came up with $1.65 based on the formula. And it was a pretty mechanical operation. And I think you can anticipate that we would go through the same, basically, mechanical calculation every quarter.

So Clement, this is Christos. It was basically a coincidence that the dividend for the second quarter just equaled the figure of the dividend of the first quarter. Essentially, as Hamish said, what counts is the exact cash balance at the end of each quarter and the number of shares.

It makes sense. An extensive program reduced program is yielding outstanding results, given the outside spread we have seen as of late. And although the spread the futures market is lower, scores should continue to provide a significant tailwind. Is there any willingness to hedge part of your 2023 bunker consumption? Or do you prefer to remain open?

At the moment, there is quite a steep discount of the 2023 forward curve on the spread compared to the prices that we're getting now. Indicatively, the spread in Singapore is in the high 200s, close to $300 per ton. And the calendar '23 right now is at levels around $160, $170 per ton. Given essentially that we have repaid the entire investment and given our expectation of strong energy markets, and a widespread in 2023, the choice right now, given what we know now is to basically ride the spot market also in the spread. Of course, we may change decisions in the future.

Congratulations for another excellent quarter.

That concludes our Q&A session for today. At this time, I would like to turn the call back over to Mr. Petros Pappas, CEO, for closing remarks.

Thank you, operator. No further remarks. Have a nice summer to everybody.

Thank you, everyone, for participating in today's conference call. This concludes the program. You may all disconnect.