Star Bulk Carriers Corp (SBLK) 2023 Q1 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 First Quarter 2023 Financial Results. We have with us Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton, President; Mr. Simos Spyrou; and Mr. Christos Begleris, Co-Chief Financial Officer; Mr. Nicos Rescos, Chief Operating Officer; and Mrs. Charis Plakantonaki, Chief Strategy Officer for the company. (Operator Instructions) I must advise you that this conference is being recorded today. We will now pass the floor to one of our speakers for today, Mr. Spyrou. Please go ahead, sir.

Thank you, operator. I'm Simos Spyrou, Co-Chief Financial Officer of Star Bulk Carriers, and I would like to welcome you to our conference call regarding our financial results for the first quarter of 2023. 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 first quarter results, cash evolution during the quarter, an update of our balance sheet, an overview of interest rate risk management, the bunker benefit and vessel operations, the latest on the ESG front and our views on the industry fundamentals before opening up for questions. Let us now turn to Slide #3 of the presentation for a summary of our first quarter 2023 highlights. For the first quarter of 2023, the company reported the following: Net income amounted to $46 million with adjusted net income of $37 million or $0.36 per share adjusted earnings. Adjusted EBITDA was at $85 million for the quarter.

For the first quarter, as per our existing dividend policy, we declared a dividend per share of $0.35 and payable on or about June 27, 2023. During this quarter, we have bought back 531,223 shares at a cost of $11.26 million. Since 2021, dividend distributions and share buybacks are over $1 billion. On May 16, 2023, our Board of Directors canceled the previous share repurchase program, under which $8.5 million was still outstanding and authorized the new share repurchase plan of up to an aggregate of $50 million. On the top right of the page, you will see our daily figures per vessel for the quarter.

Our time charter equivalent rate was at $14,199 per day per vessel. Our combined daily OpEx and net cash G&A expenses per vessel per day amounted to $5,755. Therefore, our TCE less OpEx and G&A is around $8,444 per day per vessel. Looking towards fleet renewal, we have agreed to charter in 7 high-specification latest-generation smarter fitted ecovessels. We have added the table at the bottom of the page with an overview. We have entered into the long-term chartering agreements for 4 Kamsarmax new buildings and 2 Ultramax new buildings, which are expected to be delivered during 2024 with a minimum duration of 7 years.

In addition, in November 2021, we took delivery of the Capesize vessel Tsuneishi booming under a long-term charter contract for a period up to November 2028. Slide 4 graphically illustrates the changes in the company's cash balance during the first quarter. We started the quarter with $330.5 million in cash adjusted for the refinancings and generated positive cash flow from operating activities of $83.2 million. After including debt proceeds and repayments, CapEx payments for energy-saving devices and ballast water treatment systems, the Q4 dividend payment and service practices we arrived at a cash balance of $305.9 million at the end of the first quarter, which implies a dividend payment of $0.35 per share to the shareholders of record of June 7, 2023.

Please turn now to Slide 5, where we highlight the strength of our balance sheet. Our pro forma total liquidity today stands at $375 million. Meanwhile, our total debt stands at $1.23 billion. Net sale proceeds from the 3 vessels stands at $75.5 million after debt repayment and will be excluded from the cars that can be distributed as dividend and will be kept for general corporate purposes. Note that the $11.2 million that has been spent on the buyback during the previous couple of months will be deducted from this $75.5 million proceeds. We had a positive trade working capital of $79.5 million and the mark-to-market of the derivatives of $21.9 million as of March 31, 2023.

Given current market conditions, we expect that the trade working capital will grow further in the course of the second quarter of the year. Our next 12 months amortization is at USD 177 million. In Slide #6, we present an overview of our risk management on the debt side. Given the increasing interest rate environment we are in, we have focused on reducing leverage and managing interest expense in order to ensure the lowest possible finance costs compared to peers. Since 2022, we have completed refinancings totaling $525 million that reduced our interest costs by approximately $7 million per annum as a result of achieving significantly lower margins.

In 2020, we proactively hedged the base rate for a significant part of our senior debt at an average rate of 45 basis points. The current outstanding notional is approximately $637 million for another remaining maturity of 1 year. Total realized gain from these activities are $11.6 million as of March 31, 2023. And as of the same date, the mark-to-market of the remaining position of the swaps was at $26 million. The cumulative effect of this decision is depicted in the graphs at the bottom of the page, where one can see that Star Bulk has reduced its average interest rate and currently has the lower average interest cost among its listed peers.

I will now pass the floor to our COO, Nicos Rescos, for an update on our operational performance.

Thank you, Simos. In Slide 7, we illustrate has Star Bulk continues to benefit from the fuel spread we relate our 118 congested vessel have surpassed 137,000 operating days with an average system availability of 99.5%. With the current Hi5 spread our scrubbers manfully contribute to our profitability. The spread secured during the first quarter stands at $185 per ton and currently hovers at around [$142] per ton based Singapore spot prices where we cater for approximately 60% of our annual fuel demand. Indicatively, our average high fiber spread since inception down at $170 per ton. For administrative purposes on the top right of the slide, we present a sensitivity table that shows the impact of the bunker benefit can have on our bottom line based on consumption of approximately 685,000 tonnes or rates approved per annum for our (inaudible) investment. Please turn to Slide 8, where we provide an operational update. Operating expenses, excluding nonrecurring expenses were at $4,696 for Q1 2023.

Net cash G&A expenses were $1,059 per vessel per day for the same period.In addition, we continue to raise at the top among our listed peers in terms of the Rightship Ratings scorings. Slide 9 provides a fleet update and some guidance around the future dry dock and vessel efficiency upgrade expenses and a relevant total of five days. During the first quarter, we took advantage of the increase in ventral values and agreed to opportunistically sell 2 2011-built Capesize vessels, the Star Borealis and the Star Polaris. With our further risk agreement on the constructive total loss of the Star Pavlina with war risk insurers given its prolonged detainment in Ukraine following the war.

As part of our slide, which is towards fleet renewal and improving the overall flip fuel efficiency. We have secured a long-term chartering later generation ecovessel, drilled at first late shipyard 6 weeks have delivered during 2024. We have by now completed our ballast water installation program across the fleet and in line with the EEXI and CII regulations, we will continue investing and upgrading offering further with energy-saving devices, telemetry and other technologies aiming in improving our fuel consumption and reducing our environmental footprint, together enhancing the commercial attractiveness of the staff.

Our expected dry docks expense for the 9 months remaining in 2023, is estimated at $23.7 million for the dry docking of 28 vessels, with another $9 million towards our vessel operating CapEx. In total, we expect to have approximately 775 days for the same period. The above numbers are based on current estimates around driver ametropic planning, special employment and yard capacity. I will now pass the floor to our Chief Strategy Officer, Charis Plakantonaki.

Thank you, Nico. Along with our ongoing efforts to continuously improve the energy treatments of our fleets, we have now completed the first feasibility study with the iron ore consortium on Green Corridors. The study has set the potential for the demand supply in (inaudible) of clean ammonia on the iron ore trade between West Australia and East Asia, and concluding the development invested in true supply to allow both carriers bunkering ammonia, to be deployed on this trade route by 2028 and reach 5% adoption by 2030.

Key prerequisites for the corridor remains the acceptance of ammonia as a safe marine fuel, the development of suitable engines, policy support and continued collaboration through the value chain. Prior to this green corridor project, we continue our research and development efforts on different green fuels and technologies, increasing on both cargo capture storage. And lastly, we participate in the industry's dialogue to help accelerate the decarbonization of the sector. We remain focused on the well being of our people having completed a comprehensive Employee Survey to assess our company's strengths and weaknesses as an employer and make improvements whenever necessary.

On the Governance front, we are enhancing the company's Code of Conduct and it's relevant policies to comply with the new Global Reporting Initiative standards and with our broader ESG commitments. I will now turn the floor to our CEO, Petros Pappas for a market update and his closing remarks.

Thank you, Charis. Please turn to Slide 11 for a brief update of supply. During the first 4 months of 2023, a total of 12.7 million deadweight was delivered and 1.9 million deadweight was sent to demolition for a net fleet growth of 10.8 million deadweight or 2.9% year-on-year. Supplier outlook continues to be the best we have seen in the recent history on dry bulk shipping, uncertainty on future propulsion, high shipbuilding costs and limited shipyard capacity until late 2025 and helped keeping new orders under control. The order book has decreased on a record low of 6.9% of the fleet with just 6.3 million deadweight reported as freight orders between January and April.

Furthermore, vessels above 20 years of age stands at 8.1% of the fleet, while scrap prices have stabilized at elevated levels and should make demolition operates and fuel inefficient tonnage an attractive option during seasonal downturns over the next years. The average steaming speed of the dry bulk fleet decreased to record low levels of 11.05 knots during Q1 and over the last month has rebounded to 11.3 knots as spot freight rates improved and bunker prices moved lower.

Nevertheless, steaming speeds still stand below last year's levels, and we expect that the EEXI CII regulations will continue to incentify slow (inaudible) During the last 12 months, global port congestion experienced a strong correction from rig record highs that has gradually inflated active supply and has put downward pressures on earnings. Having said that, changes in trading patterns and inefficiencies related to the war have normalized congestion slightly above pre-COVID levels. As a result of the above trends, net fleet growth is unlikely to exceed 2% per annum over the next 3 years.

Let's now turn to Slide 12 for a brief update of demand. According to Clarksons, total dry bulk trade during 2023 is projected to expand by 1.8% in tons and 2.5% in ton-miles. During the first quarter of 2023, total dry bulk volumes increased by approximately 4% year-on-year on the back of the reopening of the Chinese economy and strong coal exports from Indonesia. Commodities demand from the rest of the world has been affected by the ongoing effects of the war in Ukraine, surging energy costs, hitting industrial profitability and aggressive monetary tightening from central banks to file inflation.

The IMF is projecting global GDP growth to slow down to 2.8% in 2023 and to recover to 3% in 2024. Dry bulk trade is projected to expand at healthy levels over the next quarters as China is at the earliest stage of the reopening from COVID-19 and its economy is expected to accelerate from 3% in 2022, 5.6% in 2023, with support from infrastructure stimulus and a gradual recovery of the housing market. Concurrently, the considerable correction of energy prices over the last 12 months is using inflationary pressures generated by energy costs. A condition that should inflate demand of raw materials amid increased manufacturing activity. Iron ore trade is expected to expand by 1.8% in tons and 2.2% in ton-miles during 2023.

China steel production increased by 7.4% year-over-year during the first quarter following the total lift COVID policy in December. At the same time, domestic iron ore output contracted by 5.5%, while stockpiles have decreased a 2-year low, providing a positive indicator for imports going forward. Steel production from the rest of the world declined by 11.3% during Q1, affected by weak profit margins, leading to strong demand for Chinese steel exports. While sales underperformed during Q1, so the company expects to offset the effect of Q1 had on its annual guidance with inflated volumes over the next quarters.

Growth rate is expected to expand by 2.9% in tons and 4.4% in ton-miles during 2023. Global focus on energy security has upgraded the coal trade outlook for the next few years, while the reshuffling of European and Russian coal trade is benefiting ton-miles. During the first quarter, China and India imported record high volumes despite recording strong increases in domestic coal production, while the unofficial ban by China on Australian coal, that started during the fourth quarter of 2020 has been listed and is expected to benefit Capesize business.

Gains trade is expected to expand by 3.2% in tons and 4% ton-miles during 2023. The market is still adjusting to the new trade landscape after the loss of considerable quantities from Ukraine and during Q1 volumes were down year-over-year despite strong soybean export from Brazil. Nevertheless, the supply outlook for grain is positive due to good crop conditions, which have put downward pressures on prices and indicated stronger trade for the rest of the year. Minor bulk trade is expected to expand by 0.8% in tons and 1.4% in ton-miles during 2023. As the such sector has the highest correlation to global GDP growth and has been affected by the global slowdown that took place during the second half of 2022.

The worry you create this rapid European Union fertilizer and steel production and has created Atlantic services that are inflating backhaul trades. Moreover, West Africa bauxite exports continue to expand at a high pace and generate strong turmoil for Capesize vessels. Finally, the long-term prospects of the dry bulk market remain positive, given the record low order book, environmental regulations and large infrastructure investment needs for the world's green transition. Star Bulk is well positioned due to scrubber fitted and diverse fleet to take advantage of recovery in freight rates.

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

(Operator Instructions) Our first question is from Amit Milota with Deutsche Bank.

This is Chris on for Amit. This might be a question for Nicos. This is related to the slow steaming of the fleet. So I know the fleet has slowed down, and you guys mentioned in the prepared remarks, there's a little bit of an uptick here. But given the EEXI regulations or the CII in particular, where do you think the upper limit is in terms of the fleet kind of skewing back up here versus -- is there any additional downside you see this year? Or would it -- should we just be thinking about it in terms of the fleet not slowing or speeding up as much as it could?

Thank you, Chris. Well, at the moment, the fleet is building at around 11.5% knots we feel that as the regulation tightens towards 2026 with an annual increase of about 2%. We don't see the speed increasing substantially to the contrary there will be some impact from the CII rating on every vessel. So we believe that over the next few years, we should see a slowing down speed of the fleet. If you have on top of that, the fact that there is a lot of handling taking place on a big portion of the fleet, which is the smaller ships.

That's going to be a heavier impact on CII so we cannot see much flexibility on speed for the fleet increase.

Chris this is Petros. Actually, I think it's actually below even 11.5%. I think it's 11.3% or so. And if I remember well over the last years, we have not seen speeds go much above 11.5% anyway. So I would say that the risk is on the downside. I think that in the future, we will see vessels actually slowing down.

Okay. Yes, got it. That's pretty (inaudible) Just turning to China for a moment. We saw some increased steel production in the first quarter, there's been some inventory drawdowns since that time. But with the proposed production curves there, for the year. Do you think there's further room for additional inventory drawdowns like we saw at the very low levels in 2020. Or do you think that the drawdowns are kind of stabilizing, and we'll see a restocking cycle in the next few quarters?

Well, we are seeing iron ore stocks down to 126 million tons, if I'm not wrong, which is the low for the last at least 2 years. And we, therefore, expect that we will see more imports in the second half of the year and more so from Brazil, which has not yet performed up to its expectations as far as exports are concerned, which will actually increased ton miles. So we are positive about iron ore trade during the second half. And then I think that China will increase its efforts on infrastructure or the infrastructure level. And I've also seen that new floor space has gone down a lot. So I would expect that as China is the effort to strengthen its economy continues. I think that we will see support both from the private and the public sector over there.

Okay. Got you. Last question for me. You guys did quarter-to-date rate guidance on the bookings side, just any color around the second half of the current quarter since already more than halfway through. We've seen some -- a little bit of slowing or deceleration of the economic recovery in China into the second quarter here. Any thoughts around how rates might perform for the rest of 2Q?

Well, as I said before, I think that China will actually increase its effort to to support this economy. And I think that as oil prices, energy prices are going down, I think the world, in general, will also will also improve as far as GDPs are concerned. So I think it's not going to just be China. I think we will see a better economic situation going forward. And especially, of course, as interest rates are are -- will stop at their rise and may start even falling later on in the year.

Our next question is from Omar Nokta with Jefferies.

I just wanted to -- just obviously, the charter rents are definitely new development and pretty significant. And I just wanted to ask about that and how they work. And maybe first off, are these like (inaudible) or are they just regular in charters? And then also, just in terms of the being against new buildings, are these new orders that have been placed or were these ships already under construction and have been chartered accordingly?

Omar this is Petros. These vessels actually were ordered already or were being ordered. And we're doing these deals for 4 reasons. First of all, we think the rates we have fixed them are good. So we expect to make profits. Secondly, it's the way -- it is a way to modernize our fleet. Third, as nobody knows when the new generation vessels will be in and when there's going to be the right infrastructure and ample fuels to fuel those vessels. This we consider to be a bridge between now and that time.

And of course, let's not forget that these vessels come at no capital costs. Also, those vessels have scrubbers and they offer us optionality. So we have them for 7 years plus options. So I think only good things come out of these vessels. And I think that there is more to come as well.

Okay. More potential charter range as what you've reported?

Yes.

Okay. Great. And then, I guess, you mentioned the 4 reasons. And I guess I wanted to ask also, we've seen in terms of asset value, just a continuous move higher throughout the year despite the fact that the market has been off to a softer start, at least relative to '21 and '22, so ship values are moving higher. We've seen it for Capes especially. But I just wanted to ask, maybe from your perspective, what's been driving the S&P market at declining so significantly this year?

And also, so yes, one, what's maybe behind that? And is there a lot of deals being transacted? And is there more to come?

Well, first of all, we ones we're bullish people. there is not a lot of space in shipyards and the prices of new buildings are going up. So there is this idea that prices and new buildings will not fall. So I think this is one of the reasons why ship owners are ordering. Also, the new vessels are much more eco than the vessels in the water and that will allow them potentially to survive for longer periods until the 0 ambition vessels come in. So I think basically, these are the reasons why people are ordering and why prices are going up.

Okay. And so maybe from your commentary, just now, it sounds like is more of the activity being done on the modern end of the curve? Or is there also a deal being done on the 10 plus 10 plus year range as well?

What do you mean -- you're building a very sustained year of vessels.

No, sorry. Just meaning in terms of the S&P activity we've been seeing is the market, as you highlighted, there's not a lot of new building slot capacity available and prices are not going to come down from the newbuilding front. So it seems like you've had this pricing of tonnage, is that repricing on the modern end of the age curve? Or is it all.

Yes. There's also a repricing of the existing vessels in the water, the ones that are actually eco exactly because if you order today, you will probably take delivery of a vessel in 2026. And therefore, we've seen that happen before. We've seen vessels in the water actually being for sold for close prices or even higher prices than new buildings.

Interesting. And I guess maybe just one final one for me. You sold those 2 capes at fairly good prices. Should we be thinking we'll be seeing something similar. As you mentioned earlier, you'll be adding more charter in, even though those are a bit outward in terms of delivery, should we be thinking you'll be adding more new buildings via Chartering and maybe selling some of the older ships to take advantage of the pricing dynamics today?

Yes. Well, first of all, the the prices of -- the prices are pretty high compared to what charter levels are. So actually, this means that people expect the market go up but we don't know what will happen. We are positive, but prices are really, really very good. The 2 capes that we sold, we sold them at prices that we were very, very happy with. So I think what we will do going forward is we will sell some more vessels trying to improve the average age of our fleet, probably getting rid of a few of the vessels and charter in new building tenants.

That will improve the profile, and we'll do all the good things that I told you earlier, plus it will strengthen our watches. In case we will want in the future and especially if there are new technologies that really cut down on the consumption of vessels. Perhaps we would want to also order new buildings, not right now, but it would happen in the future.

And Omar This is Christos just to add, given also the large discounts to NAV and trading performance lately, selling vessels, a few vessels and especially the inefficient ones, as Petros mentioned, is supported.

Yes, that makes sense. Very helpful. I'll turn it over.

(Operator Instructions) Our next question is from Ben Nolan with Stifel.

Yes. If I could start, I wanted to follow on with some of the charter ends. Just had a few other questions about this. First of all, do they include purchase options at the end? Secondly, how should we think about what your, let's say, annual cost once all 7 are operating would look like? And if these were related party transactions or not.

So Ben, we can't comment, unfortunately, on the detail of those charters. You can see what we're able to comment on in our financial statements in the footnotes. And then as far as related party transactions, (inaudible) they're not.

We do not have anything. No. But one advantage one has when he foresee has chartered a vessel in is that when you control a vessel and the time comes that the vessel -- the owner wants to sell the vessel, being the charter of the vessel, you're always in a pull position as far as being able to buy, you have forward advice about it. So it's always an advantage to have a chartered in-vessel even if you don't have a purchase option.

Okay. That's helpful. I appreciate the color you were able to give there. And then for my second question, as I was going through the release, it seemed like there for the second quarter, there was -- is going to be a whole lot more dry docking days than what had previously been the case, unless I'm mistaken. I'm curious if you guys are bringing forward dry docks or something into the second quarter?

This is Nicos. This is correct. What we're doing is we're accelerating some of the bigger ships in to 2Q taking advance, unfortunately, are north of the kind of software market of the big ships and preparing for Q3 and Q4. We're doing this also to install efficiency devices on these vessels. Booking them back in to trade towards the end of Q2. So that's why you see a concentrations here.

Does that -- any sense as to sort of what dry docking should look like for 2024 then?

We have 24 ships scheduled of 26 for 2024.

All right.

There are no further questions at this time. I'd like to hand the floor back over to management for any closing remarks.

Well, thank you very much for following us, and have a good day. See you next time around. No more comments.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.