Star Bulk Carriers Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 19, 2025

There are 9 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers conference call on the fourth quarter twenty twenty four financial results. We have with us Mr. Petros Pappas, Chief Executive Officer Mr. Hamish Norton, President Mr. Timo Spiro and Mr.

Operator

Christos Bagleras, Co Chief Financial Officers Mr. Nikos Reskos, Chief Operating Officer and Mrs. Harris Platantinaki, Chief Strategy Officer of the Company. At this time, participants are in a listen only mode. There will be a presentation followed by a question and answer session.

Operator

I must advise you that this conference is being recorded today. We will now pass the floor to one of our speakers, Mr. Spiro. Please go ahead, sir.

Speaker 1

Thank you, operator. I'm Simos Piru, Co Chief Financial Officer of Tar Heel Carriers, and I would like to welcome you to our conference call regarding our financial results for the fourth quarter of twenty twenty four. Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on slide number two of our presentation. In today's presentation, we will go through our Q4 results, Star Bulk's investment proposition, actions taken to create value for our shareholders, cash evolution during the quarter, an update on the Equibulk integration, vessel operations, fleet update, the latest on the ESG front and our views on industry fundamentals before opening up for questions. Let us now turn to Slide number three of the presentation for a summary of our fourth quarter twenty twenty four highlights.

Speaker 1

For the fourth quarter twenty twenty four, the company reported the following: Net income amounted to $42,000,000 with adjusted net income of $41,000,000 or $0.35 adjusted earnings per share. Adjusted EBITDA was at $104,000,000 for the quarter. On December 2024, we announced and amended our dividend policy alongside a new $100,000,000 share repurchase program. Under this policy, the company may allocate up to 60% of excess cash flow towards dividends with the remainder reserved for opportunistic share buybacks, growth initiatives and fleet renewal. For the fourth quarter, the excess cash flow amounted to $17,600,000 and as per our new dividend policy, we declared a dividend per share of $0.09 payable on or about 03/18/2025 and we repurchased 500,000 StubHub shares for a total amount of $7,400,000 dollars on an average price of $14.83 per share.

Speaker 1

Overall, since December 2024 that we renewed our seri pesos program, we have bought back and subsequently canceled 893,000.5 shares for a total cost of $13,500,000 at an average price of $15.08 As of today, the number of shares outstanding is $117,127,531 Our pro form a total cash today stands at $452,000,000 Meanwhile, our pro form a total debt stands at $1,300,000,000 In February 2025, we received the credit committee approval for a senior secured revolving facility of an amount up to $50,000,000 Finally, we currently have 13 debt free vessels with an aggregate market value of $250,000,000 and we will have raised additional cash of approximately $28,000,000 to be used for fleet renewal and general corporate purposes. On the top right of the page, you will see our daily figures per vessel for the quarter. Our time charter equivalent rate was $16,129 per vessel per day. Our combined daily OpEx and net cash G and A expenses per vessel per day amounted to $6,320 Therefore, our TCE less OpEx and cash G and A is around $9,809 per vessel per day. Since the IPALPAL transaction was completed on 04/09/2024, until today, the synergies achieved from the integration resulted to an amount approximately $22,000,000 and we have reached the threshold of $50,000,000 in annualized synergies almost twelve months before our original schedule.

Speaker 1

Slide four provides an overview of the company's capital allocation policy over the last three years and the various levers we have used to strengthen the company, increase the intrinsic value of our shares and return capital to shareholders. Star Bulk has been growing the platform through consecutive fleet buyouts by issuing shares at or above NAV. In total, since 2021, we have taken actions of $2,600,000,000 to create value for our shareholders. On the bottom of the page, we show our net debt evolution per vessel. Our average net debt per vessel has decreased from $12,900,000 per vessel to $5,400,000 per vessel, a reduction of more than 50%.

Speaker 1

As a result of this deleveraging process, our current net debt is covered by the fleet scrap value. Slide five graphically illustrates the changes in the company's cash balance during Q4. We started the quarter with $473,000,000 in cash. We generated positive cash flow from operating activities of $76,000,000 after including debt profits and repayments, CapEx payments for ESD and ballast water treatment installations and the third quarter dividend payment, we arrived at a cash balance of $441,000,000 at the end of the fourth quarter. And I will now pass the floor to our Chief Operating Officer, Nikos Reskos, for an update on the Eagle Bulk integration and our operational

Speaker 2

performance. Thank you, Simon. Slide six provides an update on the Eagle integration and synergies. We continue to realize savings on the operating expense front as we take in house the crew over quarter and immediately, phasing out third party managers

Speaker 1

and having centralized procurement

Speaker 2

on all stores, spare parts, bunkers and lubricants. Oversight of technical management of the former Eagle fleet has been consolidating the company's headquarters in Athens, along with implementation of uniform maintenance protocols and marine safety standards reflected in our loan, general and administrative expenses. For Q4, OpEx and G and A savings for the Eagle Fleet stood at $16.85 dollars per vessel per day. In addition, due to our scale in relation with the yards and service providers, we have reduced significantly the drive of costs on the former $4,400,000 for the quarter. Interest expense savings have accumulated tax rate financing on the former Eagle bed, which is based in Q2 of twenty twenty four.

Speaker 2

Cumulative cost synergies since closing span of $22,000,000 Our Q4 twenty twenty four synergies stand at $4,600,000 implying the run rate of $50,000,000 in annualized synergies that Seamos mentioned before. Please go to Slide seven, where we provide an operational update. OpEx for the fourth quarter stood at $5,056 and $5,123 for the full year of 2024. Net cash G and A expenses were $12.64 dollars per day and $12.84 dollars per day for the same period, respectively. In addition, we continue to rate at the top among holistic peers in terms of rideshifts safety scores.

Speaker 2

Slide eight provides a quick update and some guidance around our future drydock and the relevant total of hire days. On the bottom of the page, we provide our expected dry dock expense schedule, which for 2025 is estimated at $68,000,000 with dry docking of 53 vessels. In total, we expect to have approximately sixteen forty of caritays for the same period. In order to take advantage of the current slower market, we have arranged the front load drydockings during Q1 twenty twenty five. On the top right of the page, we have our CapEx schedule illustrating our newbuilding CapEx and vessel energy efficiency upgrades.

Speaker 2

Based on our latest construction schedule, our newbuilding vessels are expected to be delivered in Q4 twenty twenty five and the first half of twenty twenty six. For these vessels, we have secured $130,000,000 worth of debt refinancing and yet delivered installments. In line with the EXI and CII regulations, we'll continue investing and upgrading our fleet with the latest operational technologies available, aimed in improving our fuel consumption and reducing our environmental footprint, further enhancing the commercial attractiveness of the startup fleet. Regarding energy saving devices retrofit program, we have completed 42 installations by the end of twenty twenty four. We would like to retrofit another 23 vessels with ESDs during 2025.

Speaker 2

Slide 39 for an update of our fleet. On the vessel sales front, we will continue disposing low level vessels of vessels to 20,000,000. In 2024, we sold 13 vessels for total gross profits of $233,000,000 reducing our average fleet base and improving overall fleet efficiency. During Q1, we are going to sell module vessel Bitter that is expected to be delivered to the new owners in Q2 twenty twenty five. Following the rollover of vehicle bulk, existing chartering contracts, we now have a total of 10 chartering vessels.

Speaker 2

We have five transshipment contracts with KINDOW shipyard for the construction of five Tamsa Matin buildings. Considering the aforementioned changes in our fleet mix, we operate on the largest drybulk fleet among U. S. And European fleet peers with 155 vessels on a fleet delivered basis at an average age of eleven point eight years. I will now pass the floor to our Chief Strategy Officer, Haisla Kadraki, for an ERC update.

Speaker 3

Thank you, Nico. Please turn to Slide 10, where we highlight our continued leadership on the ERC front. In 2024, Sarbanc sustained its B score in the carbon disclosure project indicating effective environmental management. We also obtained the B score on water management, a new requirement under the CPP that we did for the first time. Star Bulk has achieved a sapphire year in the protecting blue rails and blue skies, set on speed reduction program in Southern California and the San Francisco regions, meeting the highest requirement of over 85% of distance travel at less than $10 During Q4 twenty twenty four, the Star Bulk fleet retains average C plus score in the greenhouse gas rating from rail ships.

Speaker 3

We further improved the company's asset analytics peer to peer risk mark score to 18.4, indicating low risk and maintaining Star Bulk's top position among two exclusive peers. Star Bulk was recognized in the Automated Neutral Assistance Special Rescue Award by the U. S. Coast Guard for rescue operations that saved 70 people in total. During Q4 twenty twenty four, we actively engaged with our stakeholders to closely monitor the IMO developments regarding global marketplace measures for the reduction of greenhouse gas emissions.

Speaker 3

We also explored optimal compliance strategies for the fueling humanitarian regulation, which came to force on 01/01/2025. We continue our employee well-being and engagement programs, have an increased retention rate of our store employees as well as our corporate social responsibility initiatives. On the technology front, we are progressing with the upgrade of digital infrastructure and cybersecurity systems onboard the Star Bulk fleet. In December 24, the company received the Bill of the Year award at the Loyalty Sweet Receiving Awards for accomplishing the merger with Equival. I will now pass the floor to our CEO, Pedro Pappas, for a market update and his closing remarks.

Speaker 4

Thank you, Harris. Please turn to Slide 11 for a brief update of supply. During 2024, a total of 33,800,000 deadweight was delivered and 3,800,000 deadweight was sent to demolition for a net fleet growth of 30,000,000 deadweight or 3% year on year. The newbuilding order book increased over the last two years, but still stands at a relatively low level of 10.5% of the fleet. Contracting decreased to 47,300,000 that way during 2024 due to limited available shipyard capacity up to $2,027,000,000 building costs and future grid propulsion uncertainty.

Speaker 4

Vessels above 20 and 15 years of age stand at 9.824.9% of the fleet, while scrap prices have stabilized at relatively elevated levels and along with high drydock costs should induce demolition of overage and energy inefficient tunnels during seasonal downturns. Moreover, an increasing number of vessels delivered during the 02/2011 shipbuilding boom will go through their third special survey during 2025 and 2026 and help trim effective capacity by approximately 0.5% per annum. The average steaming speed of the fleet has decreased to a new low of 10.8 knots as reduced earnings, high bunker costs and stricter environmental regulations provide a strong incentive to slow steam. Global port congestion has fully normalized during the second half of twenty twenty four, following a strong reduction that gradually inflated supply by approximately 6% over the last two years. Congestion presently stands slightly above last year's levels and is expected to follow seasonal trends.

Speaker 4

Focusing on Canal inefficiencies, Panama transits of drybulk vessels have almost fully recovered, whilst the recovery of Red Sea crossings is expected to take time as the ceasefire agreement looks fragile and will mainly affect smaller vessel sizes. As a result of the above trends, fleet capacity growth will not exceed 3% per annum during 2025 and 2026, while effective supply growth might drop below 2% per annum after adjusting for changes in speed, congestion and light bulk of hires. Let us now turn to Slide 12 for a brief update of demand. According to Clarksons, during 2024, total drybulk trade expanded by 3.3% in tons and 5% in ton miles supported by record high coal, iron ore and minor bulk exports. Canal inefficiencies and favorable weather conditions for Atlantic Exporters during the first half of the year inflated ton mile growth, but a strong correction in grain trade since July and weaker iron ore trade gradually reversed the positive effect and led to a weaker fourth quarter.

Speaker 4

Despite weak economic performance and a struggling property sector, China's total dry bulk imports increased by 19.5% over the last two years, supported by post COVID recovery and strength in infrastructure, manufacturing and exports. Imports to the rest of the world experienced a strong recovery during the last five quarters as lower commodity prices and easing monetary policy helped boost demand for raw materials. During 2025, dryer bag trade is projected to increase by 0.4% in tons and 0.9% in ton miles, with the IMF forecasting global GDP growth at 3.3%. China's GDP is projected to slow down to 4.6 from 4.8% in 2024, while India's GDP should remain stable at 6.5%. Trump's administration pro tariff policy is expected to create headwinds for global trade, but the direct impact on drybulk is relatively small and difficult to forecast.

Speaker 4

Chinese drybulk airports are expected to slow down during 2025 as domestic production of iron ore, coal and grains increased throughout 2024, while stock stand at high levels. Having said that, Chinese authorities announced strong stimulus measures in September with a target to boost private consumption, help stabilize the property market and minimize the negative effect of a potential trade war. Iron ore trade expanded by 5.3% during 2024 and is projected to expand by 1% during 2025. Crude steel production in China declined by 1.9% during 2024, but during the fourth quarter showed signs of stabilization and increased by 6.1% year over year. Crude steel production in the rest of the world increased 2.1% during 2024, driven by strong growth in India and Turkey.

Speaker 4

Iron ore trade will most likely underperform during the first half of twenty twenty five as the La Nina wet weather conditions will lead to a return of seasonal disruptions for exports at the time that Chinese stockpiles and domestic production have increased. Nevertheless, new iron ore Atlantic mines of high quality will come online towards the end of twenty twenty five, gradually substituting low quality Chinese domestic production and Indian exports positively impacting keepsized tonnage.

Speaker 2

Coal trade expanded by 6.5%

Speaker 4

during 2024 and is projected to contract by 2.7% during 2025. Global focus on energy security during the last years inflated coal trade volumes, but growth has come primarily from short haul Indonesian exports. Chinese coal imports increased by 14.5% in 2024, following higher thermal electricity production and the country's strategic decision to lift stockpiles. Indian coal imports were stable during most of 2024, but suffered a strong pullback during the fourth quarter. Domestic production of coal in China and India grew at a higher pace than consumption during the second half being a negative indicator for coal imports during the first half of twenty twenty five.

Speaker 4

Having said that, increasingly competitive international coal prices may incentivize Chinese and Indian coal imports during the next few years, while strong demand from Southeast Asian economies will continue to provide support. Grain spreads expanded by 2.9% during 2024 and is projected to expand by 2.2% during 2025. Grain exports contracted by 2.5% during the second half of twenty twenty four, driven by a strong reduction of Brazil corn exports to China and weakness in Australian and Russian wheat exports with a strong negative effect on ton miles of smaller sizes during the fourth quarter. U. S.

Speaker 4

Exports recovered during the last quarter, while the Brazilian soybean season is projected to be strong due to rising uncertainty on U. S. China geopolitics, creating an incentive to import from Latin America during the second quarter of twenty twenty five. Furthermore, a potential resolution of the war in Ukraine is viewed as a tailwind for grains trade inflating Black Sea demand for middle sized vessels. Minor bulk trade expanded by 4.7% during 2024 and is projected to expand by 2% during 2025.

Speaker 4

Minor bulk trade has the highest correlation to global GDP growth and is supported by improving global macroeconomic fundamentals. China steel exports reached record high levels during 2024 and are expected to pull back due to rising protectionist measures by importing nations, while bauxite exports out of West Africa increased by 13% during 2024 and should continue to generate strong ton miles for capesize vessels. As a final comment, we expect a volatile market in 2025 as the aggressive approach of the new U. S. Administration implies changes in international trade patterns amid the imposition of tariffs and subsequent retaliation acts.

Speaker 4

We nevertheless remain cautiously optimistic about the medium term outlook for the drybulk market given the favorable supply picture, stricter environmental regulations and the recent steps by the Chinese government to stimulate the economy. In a period of increased geopolitical uncertainty, we remain focused on actively managing our diverse scrubber fitted fleet to take advantage of emerging market opportunities and to continue creating value for our shareholders. Without taking any more of your time, I will now pass the floor over to the operator to answer any questions you may have. Thank you.

Operator

We will now be conducting a question and answer session. Our first question is from Chris Robertson with Deutsche Bank. Please proceed with your question.

Speaker 5

Hey, good morning, everybody, and thank you for taking my questions. This might be a question for Nikos. Just going back to the cost synergies and savings from the Eagle Bulk merger, you guys mentioned you were able to pull forward some of the savings ahead of schedule. So I'm just wondering here how much runway you think we have left in terms of future savings? Have we reached kind of a floor for OpEx per day from your perspective?

Speaker 5

And are there any inflationary counter forces that might be a counterbalance to that? Thank you, Chris.

Speaker 2

I think we have more margin for improvement here, whether it is on the crew wages. We're still aligning crewages. I think we have a good way to improve these margins further. I will reserve any comments to what we expect, but we think it's going to be significant. And we're still aligning operating expenses as we're restructuring the entire way things were done in the past.

Speaker 2

So I think we are not very yet realizing the full scale of the efficiencies.

Speaker 6

And Chris, Hamish, it's Norton. The cost savings are easy to prove, but there are probably also some revenue synergies, which are very hard to prove out, but we think they're there.

Operator

Yes, I just got to tell you on

Speaker 4

this from my side.

Speaker 6

Yes.

Speaker 5

I guess turning to the market for a moment, you guys talked a little bit about potential trade war and how it could impact the Grand Trade here. But can you remind us what is the ton mile advantage, let's say, of Brazilian soybeans versus U. S? And what kind of impact that would have if the Chinese diversify and go more heavily into Brazilian crop?

Speaker 4

I do not know off hand, but I would suggest I would suppose it's about 10% to 15% longer ton miles, plus the fact that I think that South American ports are probably not as efficient as U. S. Ports. So that might create more congestion.

Speaker 5

Okay, got it. And the last question for me, just as it relates to the fleet renewal program and

Speaker 4

you guys mentioned the best thing the

Speaker 5

non eco vessels over time, there's quite a number of CancerMAX vessels that kind of fit that age profile. So just any comments around how the S and P market, and the appetite for some of those types of vessels is in the current market?

Speaker 4

Well, prices have fallen, especially more on older vessels than younger vessels. We expect that the market will improve in the next several months and that it will give us an opportunity to continue to sell older and perhaps less efficient vessels as time goes by.

Speaker 5

All right, great. Thank you for taking my questions. I'll turn it over.

Operator

Thank you. Thank you. Our next question is from Omar Nakhta with Jefferies. Please proceed with your question.

Speaker 7

Thank you. Hey guys, good afternoon. Good morning. Just a couple of questions from me, more just on sort of the capital allocation of the updated policy on that. I mean, just first, it's very simple.

Speaker 7

But what would you say is kind of for us the best way to calculate or reconcile the definition of excess cash? Should we just assume it's basically operating cash flow, less your debt payments and scheduled dry docks? Is it as simple as that?

Speaker 2

Hi, Omar. This is Christos. That's actually pretty accurate. So it's operating cash flow, less our debt principal repayments, less dry dock expenses for a specific quarter, of course, subject to the $2,100,000 cash threshold that we have for each vessel that we have in our fleet. So that should essentially generate what is available for dividends, as well as the 40% that we have announced that is for other general corporate purposes.

Speaker 7

Okay. And then just maybe kind of following up on that part. You mentioned the 40%. So clearly, the $0.09 dividend is it seems to be that 60% of excess cash. Share buybacks look like they in January lined up with that 40% remainder.

Speaker 7

I would say your first question on that is, is that by design? And then the other question is sort of in the past you had earmarked dividends kind of with 100% of your excess cash. Now we've shifted to 60%. Prior to the latest update to the policy, ship sales funded buybacks at the valuation made sense. Kind of when you think about it going forward, is the plan to keep the buybacks contained within that 40% or up to 100% presumably of ongoing cash?

Speaker 7

Or do vessel sales continue to be a source of buyback if that opportunity makes sense?

Speaker 6

Well, the answer is we may use 40% or even more of cash to buyback shares, but we also may use sales of ships to buy back shares. We're retaining the flexibility, frankly, to use the cash for the use from the shareholders' point of view, we sometimes will be share buybacks and sometimes maybe keeping the cash on hand for possible better opportunities later. Basically, what we're saying is that we're not going to pay out more than 60% of cash flow as a dividend.

Speaker 1

And Omar, just to give an example, the excess cash that we announced for the fourth quarter was $17,600,000 The 60%, which is the maximum distribution available for dividend, corresponds to the $0.09 per share dividend that we announced. The remaining this is about $10,200,000 The remaining $7,400,000 has been already used to buy within January, the 500,000 Starbucks shares out of this excess cash as we said at $14.83 per share. But in the meanwhile, since we announced the new share repurchase program, we have also bought in addition to that an additional 393,000 shares, which were financed by the vessel sales. So it's a combination of the excess cash flow that we described in the dividend formula and the vessel sale proceeds.

Speaker 7

Okay. Well, thank you. That's clear. So we have definitely the capital returns are not contained within that excess cash and investment sales can fund it. Well, good.

Speaker 7

Well, that's it for me. I'll turn it over.

Operator

Our next question is from Clement Mullins with Value Investors. Please proceed with your question.

Speaker 8

Good afternoon. Thank you for taking my questions. Most has already been covered, but I wanted to ask about the seven vessels in charter 13 under long term agreements. Could you confirm whether those seven contracts are at fixed rate? And secondly, could you talk a bit about what portion of the $26,000,000 in chartering expenses for the quarter were attributable to those vessels?

Speaker 4

The first part of the question I can answer. Yes, there are fixed levels. They are chartered in at fixed levels for the initial seven year duration and there are a couple of optional years. But the fixed duration is at the same levels, yes.

Speaker 1

And on the second part of your question, this is not only the chartering expense for these seven vessels. We have in addition chartering in the normal course of business, a few vessels during the quarter. We have three remaining legacy chartering vessels from the Eagle Bulk as a company that are redelivered by the June, these three vessels. So this chartering expense that we have in the P and L includes both the long term chartering vessels that we have and you've mentioned the seven vessels plus the additional shorter durations.

Speaker 8

Makes sense. And could you provide some color on what portion of the 26,000,000 was actually attributable to the

Speaker 2

long term charter? About 50%.

Speaker 8

All right. That's very helpful. I'll turn it over. Thank you for taking my questions.

Speaker 4

Thank you.

Speaker 3

Thank you.

Operator

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

Speaker 4

Thank you, operator. There are no further closing remarks. Thank you for listening in.

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