Diana Shipping Q1 2024 Earnings Call Transcript

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May 28, 2024

There are 4 speakers on the call.

Operator

Hello, and welcome to the Diana Shipping Inc. 1st Quarter 20 24 Conference Call and Webcast. It is now my pleasure to turn the call over to Ed Nett, Investor Relations. Please go ahead, Ed. Thank you, Kevin, and thanks to everyone who is joining us for the Diana Shipping Inc.

Operator

2024 Q1 conference call. Leading the call today is Sameeramis Paliou, Chief Executive Officer, and she will now introduce the other members of the management team. So 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. Q1 2024 Financial Results team, Mr. Stacy Margarone, Director and President. Team, Mr.

Speaker 1

Stacy Margaronis, Director and President Mr. Ioannis Afirakis, Director, CFO and Chief Strategy Officer Mr. Lesteris Papatrifon, Director and Ms. Maria Dede, Chief Accounting Officer. Before we begin, I'd like to everyone to review the forward looking statements on Page 4 of the accompanying presentation.

Speaker 1

The Q1 of 2024 started unusually strong with Capesize earnings being the highest in 14 years and pulling along the other sectors. Even though the market has softened since, the sentiment is still strong for the balance of the year. In this background, we announced a cash dividend for the Q1 of 2024 of 0 $0.75 per common share. Turning to slide 5, I will review with you the company's snapshot as of today. Our fleet comprises of 39 dry bulk vessels in the water with a total deadweight of approximately 4,400,000 tons.

Speaker 1

The company is also expecting to take delivery of 2 methanol dual fuel newbuilding Kamsarmax drive out vessels. Our fleet utilization has remained consistently high, reaching 99.1% for the 1st quarter of 2024, attributed to our prudent and efficient management of our vessels. Additionally, as of the end of March, we employed 993 people at sea and the shore. Moving on to Slide 6. Let's go over the key highlights for the Q1 and recent development.

Speaker 1

In February 2024, the company executed the contract for the acquisition of 281,000 200 deadweight methanol dual fuel newbuilding Kamsarmax drybulk vessels built at Cernesi Group for a purchase price of US46 $1,000,000 each. These vessels are expected to be delivered to the company in the second half of twenty 27 and the first half of twenty twenty eight, respectively. We take pride in our role as an industry leader, continually striving to enhance our fleet and operations for the benefit of our stakeholders and the environment. In addition, the joint venture entity Windward Offshore increased its investment from 2 to 4 high spec commissioning service operation vessels, TSOVs, to be built at Bard Yards as a result of exercising its option to construct 2 additional vessels. The continued participation in this venture is another reflection of the company's commitment to a greener and more sustainable shipping industry.

Speaker 1

These investments also underscore our focus on seeking new opportunities for the company and our shareholders that may arise from the transition to new energy solutions. Furthermore, continuing the renewal and modernization of our fleet, one vessel has been sold to an affiliate third party. Motor vessel Houston was sold at a net sale price of approximately USD 23,300,000. In December 2023, we completed the pro rata distribution of warrants to holders of the company's common stock, of which, as of May 20, 3,284,372 were exercised. Distribution provided us with an opportunity to raise equity in a nondiluted manner for our existing shareholders.

Speaker 1

As of May 2024, the company has secured revenue for 66% of the remaining ownership days of the year 2024, amounting to approximately US96.8 million dollars of contracted revenues. Additionally, the company has secured approximately $48,800,000 of contracted revenues for the year 2025, representing 18% 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 further on. As mentioned earlier, we are pleased to declare a quarterly cash dividend of 0 0.075 dollars per common share, totaling approximately $9,100,000 Finally, we are happy to share that our company has been honored with the Gold Environmental Leader Award and Gold Diversity, Equity and Inclusion Leader Award at the 2024 ESG Shipping Awards International. Moving on to Slide 7.

Speaker 1

Let's review a summary of our recent chartering activities. So we have continued to implement our disciplined chartering strategy by securing profitable time charters for 4 vessels since our last earnings presentation 2024. To provide some detail, we have chartered 1 Ultramax vessel with a weighted average daily rate of $16,500 for an average period of 4 52 days. Additionally, 2 Panamax vessels have been chartered at a weighted average daily rate of US14,573 of 4 72 days. N1 Capesize vessel has been chartered with an average daily rate of 27 $1,150 and the remaining average period of 5 43 days.

Speaker 1

Slide 8 illustrates our commitment to strategically charter our vessels in a staggered manner. Our emphasis is on securing positive free cash flows through our disciplined employment strategy and positioning ourselves in a balanced way participate in the market efficiently. I will now pass the floor to Yannis to provide a more detailed analysis for our financials.

Speaker 2

Thank you, Shamir Amis. As you can see in this simplified slide, simplified from the previous one, the time charter revenues for the Q1 of 2024, they were in the vicinity of 58,000,000 dollars compared to 52.6 percent in the same quarter previous year. Our EBITDA also was at 27,800,000 compared to 45,900,000 percent. And the net income stood at $2,100,000 compared to $22,000,000 of the Q1 of 2023. This is why the earnings per common share on a diluted basis is at 0.1 dollars at 0.01 dollars compared to $0.22 in the same quarter last year.

Speaker 2

However, the cash position of our company together with the restricted cash is at $162,000,000 and the long term debt and finance liabilities is at $628,000,000 compared to $642,000,000 at the same quarter the previous year. Looking at the summary of the selected financial and other data, I think what we should look at is that the number of vessels has decreased to 39 point 7%, the average from 41.5%. And the same applies for the ownership days, which is slightly lower than the previous same quarter last year. So our time charter equivalent is at $15,000 approximately compared to $18,500,000 at the same quarter of the previous year. Daily operating expenses, they are at 5,000 800 approximately compared to 5,400.

Speaker 2

This is a particular trend for this quarter. We do not expect to continue for the other quarters and the average for the year probably is going to be lower. If we move to the other slide, which has the amortization profile and the balance profile of our debt, You can see clearly that the company has managed very well their facilities and we have no maturities for the remaining of 2024, the entire 2025 and we have the bond maturing in 2026 only. And looking at the balance profile at the bottom, you can see how well positioned the company is as regards the remaining amount of debt going forward, very well balanced and controlled. The breakeven rate of ours, you can see that there is the ability of the company based on the unfixed days that we have to improve our revenues and end up with around $4,000,000 above our breakeven for the remaining of 2024.

Speaker 2

And for 2025, based on the existing FFAs, this can be close to $14,000,000 There is a leeway on a per day basis for 2025 close to $1,000 Of course, all of these are based on the current FFA care. Something that we need to point out, something that we keep forgetting mentioning to our shareholders is how well we did as regards with the dividends that we paid since the Q3 of 2021. We have managed to pay around $2.56 per share either as a cash dividend or dividend in kind. Of course, $0.075 that we are paying now is a continuation of that particular policy. With that, I will pass the floor to Stacy Maradonis for the drybulk market growth.

Speaker 2

Stacy?

Speaker 3

Thank you, Yannie. A warm welcome to the participants of this quarterly earnings call of our company. If we cast our sights back to the beginning of the year, the bulk carrier market has so far been strong compared to 2023 and its 10 year earnings average. The Clarkson's average bulk sector earnings were $15,500 per day from January through the end of April and above $17,500 a day by mid May. The main factors supporting this strength were firstly, demand growth in the Atlantic for cargo such as iron ore from Brazil and bauxite from Guinea.

Speaker 3

Secondly, the Red Sea disruption, which increased the ton mile demand through alternative routing, about 0.7% for Capesizes and 2.9% for Kamshar Maxes and smaller. Thirdly, the Panama Canal restrictions due to low water levels have again increased ton miles. Increased demand for shipments of bulk commodities to India and China. Related in some cases contributing to the above mentioned factors were the following events. We saw a return of growth of steel production outside China, a return of growth in global grain trade, and finally, China's contraction of domestic coal production.

Speaker 3

Government decisions also influence rates in less direct ways. An example is the recent announcement that the Chinese government will spend $42,000,000,000 to buy and sold homes, a remarkable decision, impossible to imagine happening outside China, which will have a profound effect on the absorption of the hugest surplus of residences remaining unsold following the building boom of a few years ago. In this short presentation, we will try to establish which of the above factors will continue supporting the pulp market, which might drop out and which new ones might emerge due to seasonal and other factors. The Panama Canal restrictions is the most likely factor to drop out of the lift over the short to medium term, while the Red Sea disruption remains a wild card. Meanwhile, continued demand for bulk commodities from China and India will depend on factors that we'll mention later on.

Speaker 3

Looking quickly at macroeconomic factors, GDP growth forecast for major economies have not changed much since our last report. According to the April 24, the April 24, I beg your pardon, the forecast of the IMF, world GDP is expected to grow by 3.2% this year and in 2025, the same rate, which with China growing by 4.6% this year and 4.1% in 2020 5, India by 6.8% this year and 6.5% next year and the U. S. By 2.7% this year and 1.9 percent in 2025. The euro area is expected to grow by just 0.8% this year and by 1.5% in 2025.

Speaker 3

Let's look at demand now. It is encouraging to note that according to Comodo Research, year on year steel production outside China remains strong for this year and is expected to continue showing strength as GDP growth increase. Global steel production last year was just under 1,900,000,000 tons, up 0.1%, while Chinese steel production shrank by about 1% during that period. Strong manufacturing output in China has continued to contribute to significant steel consumption to help counter weakness in demand from the construction industry. The iron ore trade is expected to increase this year by 1% and remain stable in 20 25.

Speaker 3

Brazilian exports are expected to grow by 5% this year and reach nearly 400,000,000 tons and Australian exports are expected to remain flat. Coal exports, both coking and steaming coal combined are expected to show very small with China, India, Indonesia, Europe and Australia, each having their effect on total shipments, which are expected to reach about 1,300,000,000 metric tons. Chinese demand will slow down and European demand will continue to decline. In China, hydropower production is starting to increase rapidly and at the same time, China's coal derived electricity generation growth has continued to exceed domestic coal output growth. India is expected to import record volumes of coal as electricity demand is once again outpacing domestic coal production growth.

Speaker 3

Grain exports are expected to grow by 3% this year and next, reaching about 559,000,000 metric tons during the next grain season. Soybeans from the U. S. To China will be negatively affected due to better price products from Argentina and Brazil. Minor bulk trades are expected to grow by 4 percent this year and 3% in 2025, reaching 2,284,000 metric tons.

Speaker 3

As we know well, this trade is highly correlated to global GDP growth. Bauxite and other metals such as nickel, manganese ore and scrap are expected to play a major role in supporting the increased trade going forward. Their shipments are expected to increase by 6% this year and by 4% in 2025. Soy meal, rice and fertilizers are expected to show strong volume gains as well. Most of the above mentioned commodities are shifting ultra max spectrum such as those in our fleet.

Speaker 3

Turning to the supply side, according to Clarksons, the newbuilding order book remains low at around 9.3% of the existing fleet. In the case sector, the ships on order are about 6 0.2% of the existing fleet. For Panamax Campture Maxes, it stands at 12.6% and for Handymaxes around 7%. Newbuilding contracting of bulk carriers this year is about 130 vessels according to Clarkson, which is 44% fewer than at this time last year. Considering expected deletions and additions to the fleet, the Cape fleet should increase by 1.5% this year and by only 1% in 2025.

Speaker 3

The Panamax and Camshamax fleet is expected to grow by 3.5 percent this year and by 3% in 2025. The equivalent numbers for Handymaxes are 4% for 2024 3.3% for 2025. Looking to the end of this year, demand for bulk carriers is expected to be 3.6% higher than in 2023 and supply of bulkers is expected to be 3% higher than last year. Look at the fleet age structure. Looking at the age of the bulk carrier fleet, 25% of Handymaxes are 15 years or older, while for Panamaxes this percentage goes to 27% and for Katz it is 16%.

Speaker 3

Any weakness in earnings going forward will most certainly lead a number of these aging ships to the scrapyard. Looking at the age structure of the fleet, it is interesting to keep in mind that a significant number of large bulk carriers would become 15 years old in 2026 and will face their 3rd special survey. The future will much depend on their condition and how environmentally friendly they can become with retrofits and other intervention. Undoubtedly, another pool for potential scrap candidates depending on then prevailing market conditions. About 25% of the bulk of fleet capacity are estimated to have a D or E rating for CII as of the end of 2023.

Speaker 3

So as mentioned earlier, slower operating speed, increased ESP retrofitting, some demolition of the older units and increasingly clear new markets are factors that will influence the freight market going forward. Turning to demolition. According to Clarksons, 5,400,000 deadweight worth of capital was scrapped in 2023 and so far 1,500,000 deadweight has been scrapped this year, which is on par with last year. For 2025, this is expected to increase to about 7,000,000 deadweight tons. This year, about 1,800,000 deadweight of Capesize vessels are expected to be scrapped and about 2,400,000 deadweight in 2025.

Speaker 3

Panamaxes and Kanshanaxes are expected to be scrapped in the tune of about 2,500,000 deadweight this year and 3,700,000 next. If you look at asset banners, newbuilding prices according to Clarksons have increased by 3% this year with Newcastlemax prices having gone up by 6% and ultra MAX newbuild prices having gone up by 3%. Smaller ship prices have been more or less steady. 2nd hand ship prices have been going up across the board, particularly since early this year. The 3 month trend for 5 year old Capes is up 12% and for older 10 year old ships as much as 21%.

Speaker 3

For countermax, prices of 5 year old vessels have increased by 9% and 10 year old ships by 14%. Have witnessed similar increases in the prices of secondhand Ultramax. So finally, let's look at the outlook. Apart from unexpected factors such as adverse weather, which can have a negative effect on the supply demand balance to others, we are cautious about 2025. We agree with Clarksons that the bulk carrier sector supply demand balance initially appears somewhat softer in 2025, which could lead to a softer freight market.

Speaker 3

Dry bulk demand is expected to increase by about 1.6% in ton miles, assuming Red Sea disruption has eased by the end of this year. Meanwhile, fleet growth is expected to come in at around 2.5% in 2025. Even slower operating speed, increased TST refitting, increased demolition of all the units will all influence the market in 2025, hopefully counterbalancing this negative effect of surplus tonnage mentioned above. So to summarize, we should So to summarize, we should be

Operator

focusing on the following positive and negative factors,

Speaker 3

which may affect the dry bulk industry over the next few quarters. On the positive side, relatively low newbuilding order book with deliveries spread over the next 4 years. Secondly, continued sailing restrictions in the Panama Canal, threats seek risks of attack, increasing ton mile demand, China's contraction of domestic coal production, an increase in congestion, even slower operating speed and continued growth in Asia outside China. On the negative side, we have to look for new geopolitical disruption in tight monetary policies leading to a worldwide recession. 2nd, the reversal of higher congestion trends easing of tensions in the Middle East allowing again free and safe transit through the Red Sea, a large increase in new building ordering due to excessive optimism, and finally development of a trade war between major trading nations such as the U.

Speaker 3

S. And China. At this point, I will pass the call to our CEO, Semira Mispali, for the highlights of our company's business strategy going forward.

Speaker 1

Thank you, Stacy. And before we open the call up to our questions and answers session, I would like to summarize the key points from today's presentation. We adhere to our strategy of providing relative stability in a cyclical business and aiming to maximize long term shareholder value. A cornerstone for executing this strategy is the prudent and active management of our balance sheet. We are continuously renewing and modernizing our fleet and enhancing our ecological footprint with greener investments.

Speaker 1

This aligns with our commitment to sustainability and environmental responsibility. Our focus is on generating and securing positive free cash flows. We also remain committed to rewarding our shareholders with attractive cash and in kind dividends whenever possible. And lastly, we're keeping abreast of developments in the shipping and energy sectors for potential attractive opportunities presented to us. With that, 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.

Speaker 1

With that, I would like to thank you again, and we look forward to catching up on our next call with our next financial results. Thank you very much.

Operator

Thank you. That does conclude today's teleconference 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 Q1 2024
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