Diana Shipping Q2 2023 Earnings Call Transcript

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August 1, 2023

There are 5 speakers on the call.

Operator

Greetings and Diana Shipping Inc. 2nd Quarter 2023 Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

At this time, I would like to hand the call over to Ed Ned, Investor Relations Advisor with the company. Thank you. You may begin. Thanks, Daryl, and thanks to everyone who is joining us today for the Diana Shipping Inc. 20 22nd quarter conference call.

Operator

With us today from management are Sameer Ramis Paliuk, Chief Executive Officer, who will introduce the other members of the management team. And so without further ado, I will turn it over to Simi Ramos.

Speaker 1

Thank you, Ed. So good morning, ladies and gentlemen, and welcome to Diana Shipping Inc. Q2 2023 Earnings Call. My name is Mira Mispaliou, the CEO of the company, and it is a great pleasure to have the opportunity to present to you today. I am joined By our esteemed team, Mr.

Speaker 1

Stacy Margaronis, Director and President of Diana Shipping Inc Mr. Ioannis Mr. Zafirakis, Director, CFO and Chief Strategy Officer Mr. Lasseris Papatrefo, Director of Diana Shipping Inc. And Ms.

Speaker 1

Maria Dede, the company's Chief Accounting Officer. Before we begin, I would like to remind everyone to review the forward looking statements applicable to today's presentation, which can be found on Page 4 of the accompanying Q2 2023 presentation. Q2 2023 has proven to be a profitable quarter for our company, despite less robust conditions prevailing in the market. Our disciplined chartering strategy once again has largely insulated us from the market weakening and has allowed us to generate positive Free cash flows. In line with the guidance provided during the company's previous earnings call, we are pleased to declare the distribution of a dividend for this quarter Amounting to $0.15 per share, which will be paid in shares or at any shareholders' election in cash.

Speaker 1

We aim to continue rewarding our shareholders when conditions allow us to do so. Turning to Slide 5, I will provide an overview of the company's snapshot as of today. We currently own and operate a fleet of 42 vessels in the water, including a partial interest through a joint venture arrangement in 1 Ultramax with a carrying capacity of approximately 4,700,000 deadweight tonnes. Our fleet utilization has remained consistently high, reaching 99.6% for the Q2 of 2023. Additionally, we employed 10 24 people at sea and ashore as of the end of the Q2.

Speaker 1

Moving on to Slide 6 and then 7. We'll go over the key highlights from the Q2 and recent developments. In April, we successfully secured a US100 $1,000,000 term loan facility from Danish Ship Finance, which has been drawn down to refinance existing owned facilities secured by 9 vessels. Within the same month, we acquired the longer vessel DSI Draman for a purchase price of US27.9 million dollars The vessel was delivered to the company in April, and within the same month, we completed the joint venture for her ownership and procured Debt financing from Nordea Bank. Moving on to May 2023, we declared a quarterly dividend of $0.15 per common share, Amounting to approximately US16 $1,000,000 shareholders have the option to receive the dividend in the form of DSX shares or cash According to their election.

Speaker 1

During June, we took further steps to optimize our financial position. We signed and utilized the $22,500,000 term loan facility with Nordea Bank to refinance existing loan facilities Secured by 4 vessels. Additionally, we entered into another US100 $1,000,000 term loan facility DNB Bank to refinance existing loan facilities secured by 10 vessels. After this refinancing, We do not have any debt maturities from now till the end of 2025. Lastly, Within the same month, we repurchased approximately US6 $1,000,000 of our 8.375 percent senior unsecured bonds listed In July, we signed an amended and restated term loan facility with the Export Import Bank of China for the transition Into the secured overnight financing rate software.

Speaker 1

As a result, all our debt agreements Have now been successfully converted into software. Today, we are pleased to announce a quarterly dividend $0.15 per common share, totaling approximately $16,000,000 to be paid in the form of TSX shares or At the election of any shareholder in cash.

Speaker 2

As

Speaker 1

of July 27, we have procured revenue for 80% of the remaining ownership days of 2023 amounting to approximately $87,500,000 of contracted revenues. Additionally, we have secured approximately $77,700,000 of contracted revenues for 2024, representing 31% of the available ownership days for the entire year. Ioannis will provide a more detailed analysis of our cash flow generation potential based on the current market environment. Turning to the financial highlights of the Q2 of 2023 on Slide 8. As of June 30, 2023, we held a cash and cash equivalent position of 197,600,000 dollars, including restricted cash and time deposits, compared to $143,900,000 as of December 31, 2022.

Speaker 1

Our net debt, including deferred financing costs, stood at USD 670 US1.9 million dollars at the end of June 30, 2023 compared to $163,400,000 at the end of December 31, 2022. Time charter revenues for the Q2 of 2023 amounted to $67,400,000 compared to US74.5 million dollars for the same period in 2022. Lastly, Our earnings per share for the Q2 of 2023 came in at 0 0 0.09 dollars compared to 0.42 dollars per share for the same period in 2022. Ioannis will provide a more detailed analysis of these numbers Later in the presentation. Moving on to slide 9, let's review a summary of our recent chartering activity.

Speaker 1

We have continued to implement our disciplined chartering strategy by securing profitable time charters for 3 vessels Since our last earnings presentation in May 2023. To provide some detail, we have chartered 1 Ultramax vessel with a daily rate of $13,800 for a remaining average period of 887 days. Additionally, we have charted 1 Camparmax and 1 Capesize vessel with a daily rate of $12,650 And the remaining average period of 4 70 days and at a daily rate of 16,000 We intend to continue chartering our vessels in a staggered manner, focusing on locking in cash flows and positioning ourselves in a balanced way to participate in the market I will now pass on the floor to Ioannis to provide a more detailed analysis of our financials.

Speaker 2

Hello, everyone. Basically, all the numbers that we're going to be discussing, they are reflecting the fact that The market has deteriorated and on the other hand, the financing cost has increased for this 6 months and this quarter. So basically, as Sameer, I mean, said earlier, the time charter revenues for the 3 months ended June 30 stood at $7,400,000 below the $74,500,000 that it was in 2,002, But of course, that was with a larger number of vessels, 41, instead of 35 as it was in the Previous year's quarter, this can be seen also the decreased time charter rates At the time charter equivalent rate that we have at 17.3 instead of the 24,600 something that it was in the previous The daily operating expenses that were close to $6,000 for this quarter Compared to 5,700 in the year 2022. Next slide, The 6 months, again, the same picture. You can see the time charter revenues at $140,000,000 Similar to what it was in the previous 6 months in 2,002 at the same period in 2022 Well, it was $104,000,000 Again, you can see that that was with a much smaller number of vessels.

Speaker 2

The time charter rate equivalent stood for the 6 months at $17,900 compared to 23.4 percent in 2022 for the same 6 months. The operating expenses More or less the same, 5.7% compared to 5.6% of the same period last year. Moving to Slide number 12, the income statement. You can see that we have an increased interest Expense and financing costs, we have slightly more debt and also that reflects The increased cost of financing based on the rate environment that we are currently at, And that number was $23,800,000 compared to $11,200,000 for the same period, the 6 month period Back in 2022. All in all, the earnings per common share diluted is, for the 6 months, 0 point $3 compared to $0.73 at the previous year.

Speaker 2

For the 3 months period, the picture is the same. And The earnings per common share diluted was for this quarter at €0.09 compared to 0 point 42 in the same quarter of 2022. If we move to Slide number 14, at our balance sheet, I think Sameer, I missed mentioned the $197,000,000 plus that will cash of cash and cash equivalent and restricted cash and time Deposits that we have, and this should be seen together with our long term And finance liabilities of $371,900,000 The previous December 30 1 numbers, we had $43,900,000 compared to $1,000,000 cash and cash equivalent and time deposits compared to There is a $63,400,000 long term debt and financial liability. I'm putting those 2 together because it is important Do notice the net debt position of the company today compared to what it was in the previous year. Slide number 15, our CEO mentioned that we have no maturities Until the end of 2025, you can see that picture clearly here in this slide.

Speaker 2

The only maturity that we have in 2022 is for the senior unsecured bond that matures in 2026. But as we have said in the past, We will take care of that earlier. And I see I want you to notice that We have already decreased the number from $125,000,000 to $119,100,000 The company repurchased Slide number 16, This depicts the fact that it looks very manageable, The amount of debt through for the next years to come, we end up in 2026 with Total amount of a little bit less than $350,000,000 And in 2024, we are at around $500,000,000 which is very, very manageable. Slide 17, You can see our free cash flow breakeven based on this quarter, And it is at around $15,600,000 Our average daily time charter rate fixed revenues for 2023 is Above that number, 16.8 percent for the 80% of the fixed days And for 2024, 16.7 percent for the 31% of the fixed date. Slide number 18, this is the usual graph that we have about our chartering strategy.

Speaker 2

You can clearly see That we are staggering the openings of the charters of each of our vessels And the average contract duration that we have for the moment is 1.3 years. And we have secured 87 $500,000 for the remaining of 2023. So if we take that And have a look at Slide number 19. You can see that even with the existing low FFA curve That you see below in this graph for 2023, if we assume that we will be fixing the vessels based on this curve For the remaining of the year, we will still be positive on the cash flow basis. And with that note, I'd like to pass the call to Stacy for a discussion on the market outlook.

Speaker 2

Stacy?

Speaker 3

Thank you, Jan. Thanks, and welcome to all the participants of this conference call on Diana's Q2 financial performance and latest on industry Without doubt, the dry bulk carrier market clocked in the poorest performance this year to date of all major shipping sectors. We will look at the possible reasons for this and present the outlook given by the most respected shipping analysts. To illustrate the statement about drybulk earnings in 2020 We only need to look at the Baltic indices since the beginning of this year. The Baltic Dryings started the year at $12.50 and closed Today, July 31 at $1,127.

Speaker 3

The Baltic Cape Index moved from $16.53 on January 1873 yesterday. The Baltic Panamax Index went from 1438 996 over the same period, while the Baltic Supramax Index stood At 9.68 on January 3 and closed yesterday at 7.19. So what about the freight Market conditions prevailing. Now according to Clarksons, demand improvements this year have been led by Slightly firmer trends in China, but these were accompanied by weaker trends in key other regions, which have marginally prevailed thus far. At the same time, lower levels of port congestion have added to active tonnage supply.

Speaker 3

For this We will most likely witness more moderate, bulkier markets overall compared to the strong conditions experienced in 2020 1 and the first half of twenty twenty two. Skyward Clarksons foresee some improvements in earnings materializing in the coming quarters. The reasons will be analyzed later in this short presentation on the state of the market. So the earning trends now. According to figures published by Clarksons and other analysts, average voyage earnings for Capes and Panamaxes have been coming steadily down over the last several weeks.

Speaker 3

12 months time charter rates have also dropped across the board by about 10% for Capes 20% for Panamaxes and Supramaxes compared to 2023 average. 11 to 13 months Time charter rates stand at around $14,250 per day for Capes, Turning to the macroeconomic development now. According to the IMF, China is expected to grow by 5.2% this year And by 4.5% in 2024. For the U. S.

Speaker 3

Growth prediction standard around 1.8% this 1.1% next year and for the Eurozone, about 0.9% for this year and 1.5% for 2024. As regards China, Comodo Research reports that their research indicates that Finally, consumer spending recovery is indeed underway. They expect industrial recovery to resume during the Q3, but acknowledge that the housing market Remains a problem. Even though China's housing supply has continued to decline, current vacant floor space marks the largest amount available Since 2016, this is bound to act as a drag to any recovery scenario in China. On a more positive note, the IMF last week raised its forecast for global GDP growth by 0.2 percentage points from 2.8% in April to 3%.

Speaker 3

This was despite the slowing momentum from China witnessed this year to date. The 2024 growth forecast was kept at 3%. Let's have a quick look at the environmental issues affecting shipping. According to Heartland Shipping Services, the recent ATS Marine Environment Protection Committee meeting came up with a new timeline for decarbonization. There was agreement to reach net 0 by or around 2,050, and I'm quoting, taking into account different national circumstances, End of the quote.

Speaker 3

So the question is everybody's mind is how does shipping reach such What policies need to be implemented to enable this to happen? The IMO have pledged to review an emissions pricing Scheme, a carbon tax scheme and a few standards, but there is no guarantee that these will be implemented soon. We We have yet to see an IMO policy in play, which actively encourages decarbonization. The CII and Energy Efficiency Existing ship index schemes are just a stepping stone and in themselves do not serve the purpose of reaching the stated goals. In theory at least, carbon taxes promote fewer emissions and allow the market to find the best way there.

Speaker 3

However, the level at which tariffs This would not make eFuse or Biofuels anywhere near profitable against fuel oil, Except if shippers, except to pay for green freight. To cite an example, the above mentioned levy of $100 per ton of has about $6.20 per ton of CO2 to the cost of marine Even optimistic estimates put the cost of e methanol and e ammonia at a minimum of $800 per ton. Their energy densities are about 50% lower than fuel oil. So where very low sulfur fuel oil including the carbon tax would come to around 900 dollars per ton, it could still be at least $800 cheaper than e fuels priced at $800 per ton. To equalize costs, Carbon tax should go to about $3.15 per ton of CO2, a daunting thought in itself.

Speaker 3

It is therefore obvious from the above that shipping is one of the trickiest industry to decarbonize. Even though the IMO needs To do more, governments and power grids need to remove the obstacles to decarbonization by helping to bring down the cost As regards to alternative fuels now, according to Clarkson, about 156 Alternative fuel capable ships of all types were ordered from January to the end of May this year. This represents about 40% of the tonnage contracted during this period. There has been a firm interest in methanol dual fuel vessels With 42 such ships contracted so far in 2023, which represents 34% of all alternative fuel ships ordered during this short period. Overall, 109 units or 11% of alternative fuel tonnage on orders to date are set to be methanol capable, while 48% of all ships have some kind of alternative fuel capability.

Speaker 3

So turning to Slide 21 and looking at iron ore, According to Clarkson's world shipments of iron ore are expected to grow 2% in 2023 and reach about 1,500,000,000 tons. Next year's volumes are expected to increase by a further 1% as steel demand potentially begins to rebound in key economies outside China. As regards to coking coal, again Clarkson tell us that global coking coal seaborne trade is projected to grow by 4% in 2023 and by a further 1% in 2024. According to Braemar, Our weather conditions have restricted exports of coal, both coking and steam coal from Australia and South Africa during the first half of this year. If wet weather abates, it is reasonable to assume that production and supply chain operations can improve between July this year and next January.

Speaker 3

For Capes and Panamaxes, this would create more trading opportunities than Afrezza. The only negative factor is the currently subdued steel sector Demand in East Asia, that's outside China. On steam coal, Clarksons report global seaborne thermal coal Trade is expected to grow by 5% this year to 1,000,000,000 tonnes and move higher by another 1% in 2024. Well, this year, Chinese imports are projected to increase by 23% in 2023 to 243,000,000 tons amid increased energy demand from improved economic activity, weaker hydroelectric output and restrictions to domestic production. However, landborne imports from Mongolia, we need to be monitored closely for their effect on sea transportation volumes.

Speaker 3

On the grain trade, global seaborne grain trade is currently expected to grow by 4% year on year In the 2023 grain season, amid ample seaborne supply, notably from Brazil, Canada, Australia and the U. S. As mentioned below. This will be met by firm demand across key importing regions. In response to the end of the Black Sea grain initiative by Russia The immediate aftermath of the invasion of Ukraine.

Speaker 3

Most grain prices have gone up in price by an average of 15%, As a result, according to Bloomberg. In the meantime, according to Braemar, 5 Eastern European States, Among which Bulgaria, Poland and Croatia are discussing Ukrainian grain transit through their territories rather than The Ukrainian Black Sea ports. In the meantime though, the question for consumers and shippers is where will the Ukrainian equivalent grain cargoes come from? Most analysts believe these will come from Brazil, the U. S.

Speaker 3

And Canada. However, there are pricing and logistical problems to be dealt with. Nevertheless, as regards ton miles, any of these countries present an opportunity for shipping to absorb more tonnage on longer voyages from the Americas to China and Europe. On the minor pulp trade, according to Clarksons, minor pulp in China and easing demand headwinds in other regions. The Russia exposed rates such as forest products and fertilizers The most important unknown in this apparently benign supply demand equation.

Speaker 3

Turning to demolition now, With weak market conditions, many owners have been considering scrapping all the vessels. Overall, about 8% of all bulk tonnage is over 20 years old. The younger sector at Capes, where only 2% of the fleet falls in that age category, while 13% of Panamaxes are over 20 In the Handymax segment, the percentage is 10%. So all in all, there is no doubt that there are plenty of scrapping candidates, Which if market conditions dictate, could head for the breakers. Clarksons are forecasting a total of about 6 deadweight of Bulkers will be sold for demolition this year and about $12,000,000 in 2024.

Speaker 3

So in Slide 22, we look at new buildings. According to figures presented by Clarkson, the overall order book for Bulkers Stands at 73,200,000 deadweight or 7.4% of the existing fleet. For Capes, the percentage stands at just 5.1%, for Panamaxes at 9.1% and for Handymaxes at 8.5%. Cape and Panamax deliveries are equally split between 2024 2025, while most Handymaxes We'll be delivered next year and very few from 2025 onwards. So let's look at the overall supply demand outlook.

Speaker 3

According to Clarkson's headline, supply demand fundamentals in the Bulkers sector appear balanced for 2023 With about 3% projected ton mile demand growth versus 2.9% fleet growth. Slower speeds are moderating active supply in the sector. Compliance with emissions regulation Could reduce available bulkier supply by an estimated 2% to 2.5% per annum on average across 2023 to 2024 Through lower speeds and retrofit time, uncertainty remains over the scale and timing of potential market Improvements for the rest of the year and global economic weak spots need to be closely monitored. China's major coal port stockpile keep falling according to Recently grew year on year by 7%. So according to Comodo Research, China continues to fare better The narratives continue to suggest.

Speaker 3

On the other hand, Comodo Research believes that much of the rest of the world is performing worse than narratives Continue to suggest. The firm believes that dry bulk rates should rise in the near term, taking into consideration near supply and forecasted demand. However, weakness outside China should be monitored closely in case things deteriorate to full. Looking ahead, Chartres also forecasts some further improvements to the bulk of market from the back of more positive supply demand fundamentals. Dry bulk tonnage demand is initially projected to grow by about 2.5% in 2024, While total fleet capacity growth is expected to come in at less than 2%, given slower deliveries and potentially Increased demolition for reasons stated above.

Speaker 3

This environment is not making senior management waiver in any way from our repeatedly stated business strategy, including the buying, selling and chartering of the company's fleet. Balance sheet strength has always been one of our top priorities and has been firmly supported by our CEO, All senior executives and the Board of Directors. So going forward, we believe we are prepared for any contingency, good or bad, And that things might look mildly positive going forward will not affect this strategy. I will now pass to our CEO, Semira Mispaliu for closing remarks.

Speaker 1

Thank you, Stacy. And before we open up Call to questions and answers, I would like to summarize the key points from today's presentation. Our ongoing focus cash and in kind dividends. Additionally, we have communicated our clear intention to declare a quarterly dividend of $0.15 Secondly, our company maintains its strong balance sheet through active capital structure management, Which enables us to act opportunistically in renewing and modernizing our fleet and taking advantage of enticing sustainable shipping projects. Thirdly, we remain committed to our strategy of providing stability in a cyclical business, while maximizing long term shareholder value.

Speaker 1

Thank you all for joining us today, and we look forward to addressing your questions during the Q and A session.

Operator

Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. Our first questions come from the line of Omar Khanna with Jefferies. Please proceed with your

Speaker 4

Thank you. Hey, guys. Good afternoon. I wanted to just check on how you're Strategically, you just gave us a pretty solid update just on your views. I just wanted to kind of get A better sense.

Speaker 4

You've reaffirmed the $0.15 dividend for next quarter. In the past, Diana has during times of market weakness, You've held back on dividends and maybe looked at acquiring tonnage on the cheap. We're in somewhat of a soft period right now. How do you think about capital allocation today Versus back then and are dividends a key part of the story for Diana at this point?

Speaker 2

Hi, Omar. This is Ioannis. The truth of the matter is that we made acquisitions after being at the low part of the cycle for a while. I have to remind you that the market was at the lower back for 2 to 3 years before we started buying back Buying vessels or buying back our stock in a staggered manner again and the investment period took around So by no means, I don't think we are at this level where we see attractive opportunities As regards the cash allocation, you can see the existing cash And we feel comfortable paying another $0.15 as a dividend. We We continue having the same chartering strategy.

Speaker 2

We are not in a position to say whether market is going to We kept or go even further down materially. And we have also To distinguish the spot market with the time charter market, the levels that we see today, they are not The lowest that you can see or very, very low that you can say that we are at the Lowest part of the cycle. We are somewhere in the middle, even now as regards the time charter rates. The spot market is not good for sure. So to cut the long story short, we do not think that this is On the other side, we are prepared to play defense, but we still have The means of paying another dividend.

Speaker 4

Okay. Thanks, Ioannis. That's pretty clear. And it seems that in terms of acquisitions, and you mentioned nothing really looks compelling at the moment. Is that just simply is it the return profile?

Speaker 2

Yes, except I have sorry to Omar. As an investment, nothing looks Particularly attractive today. Having said that, you realize that there are things Changing in the fuel consumption of the vessels, fuel Bernie, what type of fuel I mean we're going to be using, etcetera. We have to follow This type of changes and if you see us doing something to that respect, it would be only to follow The challenges and the changes that are going to be happening. But as the investment opportunities, We don't see a clear investment today that makes sense.

Speaker 2

Sorry. Thank you.

Speaker 4

No, no, that was helpful. I just wanted to maybe kind of maybe dig at that just a little bit more and understand Is the is it more of just because we're in a soft period in the market today, spot rates are soft? Or is it that asset values are just too elevated Relative to where you think they should be. I know that's somewhat related to circular reference, but Could you qualify

Speaker 3

me why you're saying that?

Speaker 2

The prices of the vessels have not gone as usually, there is a time lag, they have not gone to the levels where The rates are today. The big question is whether they're going to stay at this level for a while or whether they're going to Keep going even further down or they will change the course and they will go higher. What I'm saying is that you should not be acting Very quickly when you see market movements and especially on the charter And of course, you know better after so many years that the values of the vessels, they do not Follow immediately. There is a time lag between what the market where the market is and where the precious values are and also they are correlated to the sentiment. And I have to remind everyone that when the market has dropped from high levels, There is usually the expectation that this is going to be temporary and that people think that there There's plenty of wishful thinking in the way they see the market, and this is why the values are kept higher than what the charter rates So at this time, I don't think that anyone is in a position To foresee or to guess what is going to happen after 3 months and you know that we are We definitely don't do that.

Speaker 2

We keep our course regardless of how the market is going to evolve.

Speaker 4

Indeed. Definitely. No, you stuck to your long term allocation policy. So I will and Employment of the fleet. So I will I'll leave it at that.

Speaker 4

Thank you.

Speaker 3

You're welcome. Thank you.

Operator

Thank you. I'm showing no further questions in the queue. I'd like to hand the call back over to management for any closing remarks.

Speaker 1

Thank you all for joining us today. We look forward to speaking to all of you again at our next earnings conference call. Thank you very much.

Operator

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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