Diana Shipping Q4 2023 Earnings Call Transcript

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February 23, 2024

There are 5 speakers on the call.

Operator

Hello, and welcome to the Diana Shipping Inc. 2023 4th Quarter and Year End Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Ed Nebb, Investor Relations for Diana Shipping. Please go ahead, Ed.

Operator

Thank you, Kevin, and thanks to everyone who is joining us today for the Diana Shipping, Inc. 2023 Q4 and full year conference call. With us today from management are Sameer Ramis Palliut, Chief Executive Officer and she will introduce the other members of the management team. And so without further ado, I will turn the call over to Ms. Palieu.

Speaker 1

Thank you, Ed. Good morning, ladies and gentlemen, and welcome to Diana Shipping Inc. Q4 and end of year 2023 financial results conference call. As Ed said, I'm Samira Mispalio, the CEO of the company, and it's my pleasure to present alongside our esteemed team, Mr. Stacy Margaronis, who is the Director and President Mr.

Speaker 1

Ioannis Zafirakis, Director, CFO and Chief Strategy Officer Mr. Lester Lisa Patricon, Director. Before we begin, I'd like to remind everyone to review the forward looking statement on page 4 of the accompanying presentation, please. So despite market conditions being mixed during the last quarter of 2023 and in early 2024, our disciplined chartering strategy has allowed us to continue generating positive free cash flows. Within February, we have witnessed the market sentiment improving significantly and as a result, current market conditions are more robust.

Speaker 1

In this background, we announced a cash dividend for the Q4 of 2023 of 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.5 per share. Turning to Slide 5, I will review with you the company's snapshot as of today. Our fleet comprises 41 vessels in the water with a total deadweight of approximately 4,500,000 tons. Our fleet utilization has remained consistently high, reaching 99.7% for the fiscal year 2023, attributed to our prudent and efficient management of our vessels. Additionally, as of the end of the quarter, we employed 1018 people at sea and the shore.

Speaker 1

Moving on to Slide 6, let's go over the key highlights from the Q3 and recent developments. We recently executed the contract for the acquisition of 281,000 deadweight methanol dual fuel newbuilding Kamsarmax drybulk vessels built at Cenese Group for a purchase price of $46,000,000 each. These vessels are expected to be delivered to the company in the second half of twenty twenty seven and the first half of twenty twenty eight, respectively. The investment of US92 $1,000,000 just mentioned was showcased at the Business and Philanthropy Climate Forum during COP28 in Dubai. This presentation highlighted our commitment to reducing the environmental impact of our fleet, demonstrating our dedication to sustainable practices and initiatives.

Speaker 1

We take our role as an industry leader very seriously, continually striving to enhance our fleet and operations for the benefit of our stakeholders and the environment. In addition, our joint venture entity, Windward Offshore, has increased its investment from 2 to 4 high spec commissioning service operation vessels, CSOVs, to be built at Vard Yard as a result of exercising its options to construct 2 additional vessels. Our continued participation in this venture is another Our continued participation in this venture is another reflection

Operator

of our commitment to a greener and more sustainable shipping industry.

Speaker 1

These investments underscore our dedication to sustainable shipping and positions us to meet the evolving demands of our industry while reducing our carbon footprint. Furthermore, continuing at a net sale price of approximately US13 million dollars at a net sale price of approximately US13 $1,000,000 and Motor Vessel Houston for approximately US23 $300,000 Before the end of the year, the company released its 4th ESG report for 2022, a copy of which can be found on our website. On November 20, 2023, we announced the pro rata distribution of warrants to holders of the company's common stock, of which, as of February 16, 2024, 1,940,000 736 were exercised. The warrant distribution provided us with an opportunity to potentially raise equity in a non diluted manner for our existing shareholders. As of February 19, 2024, the company has secured revenue for 60 2024, amounting to approximately $123,300,000 of contracted revenues.

Speaker 1

Additionally, the company has secured approximately $31,000,000 of contracted revenues for the year 2025, representing 12% 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. As mentioned earlier, we are pleased to declare a quarterly cash dividend of 0 point approximately $8,700,000 Finally, we are pleased to announce that our company was honored with the prestigious Dry Cargo Company of the Year award at the 2023 Lloyd's List Greek Shipping Awards. This recognition is a testament to the hard work, dedication and excellence of our team. Moving on to slide 7, let's review a summary of our recent chartering activity.

Speaker 1

We have continued to implement our disciplined strategy by securing profitable time charters for 8 vessels since our last earnings presentation in November 2023. To provide some detail, we have chartered 3 Ultramax vessels with a weighted average daily rate of US13,950 dollars per day for a remaining average period of 401 days. Additionally, 3 Panamax, Campamax, Post Panamax vessels have been chartered at a weighted average daily rate of US15 $631 per day for a remaining average period of 3 65 days. And 2 Capesize Newcastle MAX vessels have been chartered with a weighted average daily rate of US21043 dollars per day and a remaining average period of 4.86 days. Slide 8 illustrates our commitment to strategically charter our vessels in a staggered manner.

Speaker 1

Our emphasis is on securing positive free cash flow through our disciplined employment strategy and positioning ourselves in a balanced way to participate in the market efficiently. I will now pass the floor to Ioannis to provide a more detailed analysis of our financials.

Speaker 2

Thank you, Sameer Amicia. Slide number 9 clearly shows the 2 main points. The one has to do with the market conditions deteriorating compared to for the Q4 of 2023 compared to 2022 and you can see that on the revenue side being $60,000,000 compared to $75,000,000 in 2022 for the same quarter. But the other point that you can see here is that we have managed to increase our cash position in the end of the year to $161,000,000 point something compared to $143,900,000 and also we have managed to decrease our long term and finance liabilities, plus net of deferred financing costs to 642 800,000 compared to 663,400,000 regardless of the market conditions. Now, if we move to the next slide, you can see this slide basically on the time charter equivalent, time charter rate for the 3 months ended December 31, the fact that our time charter equivalent has been 15,162 compared to 21,800 in the same quarter in the previous year.

Speaker 2

Again, this is mainly due to the market conditions deteriorating. If we move to the next slide, what is worth mentioning is that they improved the utilization rate to 99.7% compared to 98.9 percent in the same quarter in 2. And also the fact that the time charter equivalent for the year has been 16,700 compared to 22.7 in the previous year. The daily vessel operating expenses, they have increased slightly to 5,700 compared to 5,574. What is worth mentioning also is that we have managed to keep our weighted average age to 10.5 years, although a year has passed from 10.2.

Speaker 2

Percent. Going to the income statement, I think you can clearly see that we made $0.06 in this the last quarter of 2023 compared to $0.27 in the previous year's same quarter. Of course, the main reason behind that has to do with the different market conditions. If we go to the year end income statement, again, you can see clear here that we made CHF 44, CHF 0.42 on a dilutive basis on earnings per common share on a diluted basis, dollars 0.42 compared to 1.36 in the previous year, same reasoning behind that as explained earlier. On the balance sheet, again, we think that the cash and cash equivalent, restricted cash and time deposit of $161,000,000 compared to $143,000,000 shows our prudent way of balancing our balance sheet.

Speaker 2

The total debt stood at 642 as we said and the net debt in that situation is approximately $488,000,000 which we consider to be very healthy. Moving to the next slide, the debt amortization profile. This is something that we have discussed in the past. You can clearly see that we have no maturities in 2024 2025. And we have the bond expiring in 2026, dollars 119,000,000 worth of bonds.

Speaker 2

We think that we have managed very well the maturities and that gives us the next 2 years the opportunity to amortization profile. Together with the amortization profile, you can see the next slide the balance profile and you can see that this is steadily is going to be decreasing. And especially in the 2026 year, you can see that it's going to be very healthy in order to make us not worry at all about the maturing of the bond at that time. If we talk about the breakeven costs, these are at the moment the free cash flow breakeven. We calculated to be at 15,800 approximately.

Speaker 2

And the average daily time charter rate of the fixed revenues for 2024 is 16,232 and that's for 62% of the days. In the year 2025, we are fixed at $19,105,000 per day for the 12% of our fleet days. Moving to Slide number 18, you can see in a different way that for the remaining of the year, if we use the FFAs based on February 2019, 2024, there is still some way that we can create based on those rates free cash flow of around $7,000,000 for 2024 and for 2025, dollars 11,000,000 The market since February 2019 has moved a lot the last 2, 3 days And these numbers are a little bit on the conservative side as we speak since the market has moved. And I think with that, I will pass the floor to Stacy Margaronis for some for the market preview.

Speaker 3

Thank you, Yami. And from me also a warm welcome to all the participants in Diana's first earnings call for 2024. On this slide, I'd like to mention that from our last conference call, we have brought to your attention that geopolitical events continue to have an important influence on drybulk earning. According to Clarkson's Bulkers, Suez Canal transits are running about 40% below those seen during the first half of December last year. This is partially the result of several owners, operators including ourselves avoiding the area due to the increased risks of attack and consequent risk to seafarers' lives.

Speaker 3

This decrease in Suez Canal transit is estimated to have increased the dry bulk rate average whole length by around 1%. The Clarksons base case forecast assuming 1 quarter of disruption factors in a 0.3% dry bulk ton mile demand uplift for the full year 2024. This comes at the same time as Panama Canal restrictions due to draft limitations in Lake Gatun where water levels are at critically low levels of less than 25 meters. This is another factor already driving some trade towards longer alternative routes. Turning to the time charter rates now that we are witnessing Capesize 12 months employing and higher rates stand at around $26,500 per day basis specific delivery with the most recent peak being $30,000 per day seen in March 2022.

Speaker 3

Today's 12 month rate for Camshara Maxes is 18,250 per day and it was around 29,500 at the end of March 2020 2. For ultra maxes, the 12 month time charter hire rate is 17,000 per day and the last peak was again 29,250 per day in March 2022. These rates are well above those reported 3 months ago in our last earnings call. Turning to macroeconomic considerations now, the IMF GDP growth forecast for 2024 provides a reasonably optimistic picture of the future, where the GDP is expected to grow by 3.1% this year by 3.2% in 2025. China is projected to grow by 4.6% this year and by 4.1% next.

Speaker 3

India is expected to grow by 6.5% both this year and in 2025. The U. S. Might grow by 2 0.1% in 2024 and 1.7% in 2025. The usual anemic growth figures are forecasted for the euro area with 0.9% growth for this year and 1.75% in 2025.

Speaker 3

On another positive note, industrial production has returned to growth in several major economies apart from Japan that is and even the euro area is finally seeing positive monthly growth in industrial production. On the supply and demand balance now, According to Clarkson's current projections suggest that bulk carrier demand growth of about 1.6% in 2024 may fall short of expected net fleet growth of 2.3% this year despite a modest newbuilding delivery schedule and potential for increased demolition due to regulations and the aging fleet. However, a few other factors have the potential to support rates. These were mentioned also in our last conference call and remain so today. They are the slower speeds and EST retrofit time for environmentally sound technologies.

Speaker 3

At the same time, a strong demand supply ratio in 2023 means that there is very little surplus tonnage and 2024 starts from a stronger base. Looking out into 2025, drybulk trade is forecast to grow by a modest 1.6% in ton miles, but the fleet is expected to grow by just 1% next year. So overall, Clarkson Sea Bulk Carrier Supply supported with the order book steady at just under 9% of the existing fleet and the net fleet growth projected to slow 3% in 2023 to around 1% in 2025. On the next slide, we look at demand. Starting with steel, according to World Steel, on a global basis, steel production has gone up over the last 12 months by 1.2 percent to 1,850,000,000 tons.

Speaker 3

According to Comodo Research, the last 7 months have seen steel production outside China increased by 15,800,000 tonnes year on year. Prior to June last year, steel production outside of China was falling on a year on year basis for 15 straight months. In China, most recently, steel production increased by 8% on a year on year basis. Seaborne iron ore trade is projected to decline marginally in 2024. In 2025, the iron ore trade is projected to remain steady at around 1,500,000,000 tons as global blast furnace steel production comes under increasing pressure from green alternatives, while peak Chinese steel demand will remain sensitive to government policy.

Speaker 3

Seaborne coking coal trade is expected to increase by about 3% in 2024 and by about 1% in 2025 as coking coal demand in some key importing regions comes under pressure amid the transition to greener mode of steel production. Seaborne thermal coal trade is expected to contract by 2% this year and contract by a further 1% in 2025 and fall to about 1,000,000,000 tons by the end of next year. Thermal coal's place in the wider global energy is likely according to Clarkson to come under pressure from expanding renewable energy capacity. The huge increase in Chinese imports seen in 2023, about 54%, went to replace port and power plant inventories. This according to Clarksons is unlikely to be repeated in 2024, while at the same time improved hydro generation and any improvement in domestic coal production could curb coal imports even further.

Speaker 3

However, as Braemar out that China's and India's coal imports sometimes overshadow dramatic changes in coal imports seen in other countries. Examples are Vietnam, Malaysia and Thailand, where imports of coal jumped dramatically last year and are expected to ease much this year due to growth factors in those countries affecting demand for prompt and reliable power generation. Grain exports are expected to grow by 2% in 2024 with a potential increase of U. S. Exports by about 7% compared to last year.

Speaker 3

For 2025, exports are expected to grow even more and reach 5% growth compared to 2024 and reach 557,000,000 tonnes. The minor bulk trade after ending 2023 on a firm note are expected by Clarksons to grow by 3% in 2024 supported by potential macroeconomic improvements. In 2025, minor bulk trade is expected to increase by a further 3% and reach 2,250,000,000 tons. On slide 24, we look at the supply side. Looking at the age profile for the bulk carrier fleet, about 21 percent of the Handymax fleet by deadweight is 15 years or older, 25% of the Panamax fleet by deadweight fall into that category and only 15% of the Capesize fleet are older than 15 years.

Speaker 3

Scrapping into 2023 came to about 5,400,000 deadweight. This year, if earnings continue to improve, they might fall back to the level seen in 2022 about 4,300,000 tonnes. Turning to asset values, according to Clarksons, their bulker secondhand price index increased by 11% in 2023 on the back of another year of active bulker sale and purchase market. The 3 month trend of 10 year old case prices is up 17% at around $37,500,000 and for Camshamax's the equivalent increase is 12% up to US26 $1,000,000 Ultramax prices have also increased by about 17% to $25,000,000 over the same period. The bulk carrier newbuilding price index was up by 6% year on year amid competition for yard space across all vessel sectors and continuously increasing labor costs.

Speaker 3

Looking briefly at the order book, according to Clarksons, the Panamax order book stood at the end of 2023 at 29,800,000 deadweight equivalent to about 11.7% of the existing fleet. For Capes, the equivalent numbers are 22,500,000 deadweight and 5.7% of the existing fleet. For the Handymaxes, the order book stands at 22,000,000 deadweight, which is about 9,300,000 percent, I beg your pardon, of the trading fleet. Overall, there are about 85,800,000 deadweight worth of bulk was on order, representing about 8.5% of the trading fleet. Turning to slide 22, the outlook for our industry.

Speaker 3

Comodo Research remained bullish for the overall drybulk market. The drybulk market is continuing to enjoy historically strong rates for this time of the year. This has led to a jump in period activity as the FFA market supports the hedging of such contracts by time charter. A positive factor in the drybulk market according to Comodo Research is that the Indian economy is doing so well and coal imports are increasing while hydropower output in that country remains in a phase of contraction. Dry bulk carrier demand should be supported this year by China purchasing large volumes of dry bulk commodities that benefit from any weakness in global commodity prices.

Speaker 3

This strong import appetite was seen last year and Comodo Research see no reason for this to be reversed in 2024. Finally, even though predictions vary depending on the assumptions made, Clarksons predict that compliance with regulations such as EEXI and CII could reduce available supply by between 1.5% 2% per annum out to 2025 through slower speeds and TSC retrofit time. Clarksons remind us though that uncertainties on the demand side remain with Chinese dry bulk demand growth facing challenges from the property sector and the sensitivity to the Chinese government's steel and energy policies. Diana's business strategy and chartering policy remain steady and this chartering policy will allow us to take advantage of any upcoming increase in bulk carrier earnings, while at the same time, the strength of the company's balance sheet remains the top priority as has always been the case. I will now pass the call to our CEO, Semira Mispalu, for a summary of the company's priorities and future goals.

Speaker 3

Thank you.

Speaker 1

Thank you, Stacy. Before we open the call up to questions and answer session, I would like to summarize the key points from today's presentation. Firstly, our dedication is on generating and Secondly, we are proactive in renewing and modernizing our fleet, enhancing our ecological footprint in greener investments, aligning with our sustainability and environmental responsibility. Thirdly, our dedication persists in adhering to a strategy that offers stability in a cyclical business, while striving to maximize long term shareholder value. Thank you very much.

Speaker 1

We can now I will turn the call back to our operator for the Q and A session.

Operator

Thank you. We will now be conducting a question and answer session. Our first question today is coming from Christopher Scott from R6 Securities. Your line is now live.

Speaker 4

Hello. Congrats on Amelix. Good quarter. I was just wondering if you could comment on the balance sheet. Is it an investment in equity securities of SEK 20,700,000 as of year end?

Speaker 4

And is that related to this offshore joint venture or yes?

Speaker 2

This is an investment that we have. We do not have to disclose the details of that investment. It's not material enough that we need to do a filing. So, fortunately, we cannot

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.

Speaker 1

Thank you very much for joining us today and look forward to seeing you at our next earnings call. Thank you very much.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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Earnings Conference Call
Diana Shipping Q4 2023
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