Star Bulk Carriers : Earnings - Finnancial Documents

Star Bulk Carriers Corporation

Second Quarter 2023 Financial Results

August 4, 2023

Presenters

Petros Pappas, CEO

Hamish Norton, President

Simos Spyrou, Co-CFO

Christos Begleris, Co-CFO

Nicos Rescos, COO

Charis Plakantonaki, CSO

Q&A Participants

Christopher Robertson - Deutsche Bank

Omar Nokta - Jefferies

Nathan Ho - Bank of America

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers Conference Call on the Second Quarter 2023 financial results.

We have with us Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton, President; Mr. Simos Spyrou and Mr. Christos Begleris, Co-Chief Financial Officers; Mr. Nicos Rescos, Chief Operating Officer; and Ms. Charis Plakantonaki, Chief Strategy Officer of the company.

At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session at which time if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today.

We will now pass the floor over to one of your speakers, Mr. Begleris. Thank you. Please go ahead.

Christos Begleris

Thank you, operator. I am Christos Begleris, Co-Chief Financial Officer of Star Bulk Carriers, and I would like to welcome you to our conference call regarding our financial results for the second quarter of 2023. Before we begin, I kindly ask you to take a moment to read the safe harbor statement on slide #2 of our presentation.

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In today's presentation, we will go through our second quarter results, cash evolution during the quarter, an overview of our balance sheet, an update on fleet and operations, the latest on the ESG front and our views on industry fundamentals before opening up for questions.

Let us now turn to slide #3 of the presentation for a summary of our second quarter 2023 highlights. Net income for the second quarter amounted to $44 million, and adjusted net income amounted to $49 million or $0.47 per share adjusted earnings. Adjusted EBITDA was $96 million for the quarter.

For the second quarter, as per our existing dividend policy, we declared a dividend per share of $0.40 payable on or about September 7, 2023. During this quarter, we bought back 307,439,000 shares at a cost of $6.1 million. Since 2021, dividend distributions and share buybacks exceed $1 billion or $10.50 per share.

On the top right of the page, you will see our daily figures per vessel for the quarter. Our time charter equivalent rate was $15,835 per vessel per day. Our combined daily OpEx and net cash G&A expenses per vessel per day amounted to $5,824. Therefore, our TCE less OpEx and G&A is approximately $10,000 per vessel day.

Looking towards fleet renewal, we have agreed the sale of five Supramax vessels built in 2012 in China. Our opportunistic sale of these vessels, inclusive of trading profits produced during the period, realized excellent returns for our shareholders with a cash multiple of 4.6x on the equity invested and an IRR of approximately 42%.

The accounting gain from sale of the vessels is approximately $20 million in total. Looking at the first half of 2023, we have sold seven vessels and received insurance proceeds from one vessel for total net equity proceeds of $153.1 million. Out of these, we have already used $13.1 million for share buyback, for total remaining net sale proceeds of $140 million. This additional $140 million will be added to our existing cash buffer and can be used for general corporate purposes, including fleet renewal, debt repayments, and share buybacks.

Slide four graphically illustrates the changes in the company's cash balance during the second quarter. We started the quarter with $254.6 million in cash and generated positive cash flow from operating activities of $96.9 million. After including debt proceeds and repayments, CapEx payments for energy saving devices and ballast water treatment system installments, the first quarter dividend payment, and share repurchases, we arrived at a cash and cash equivalent balance of $310 million at the end of the quarter, which implies a dividend payment of $0.40 per share to the shareholders of record of August 22, 2023. The ex-dividend date is expected to be August 21, 2023.

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Please turn to slide five where we highlight the strength of our balance sheet. Our total cash today stands at $457 million pro forma for the delivery of our two remaining Supramax vessels. Meanwhile, our total debt stands at approximately $1.19 billion. The scrap value of our fleet is more than $800 million based on scrap price of $400 per light dead weight ton.

Taking into account the share repurchases and the debt repayments in connection with the changes in our fleet made in 2023, the cash threshold above which we will receive a dividend is set at $409 million. We have a positive trade working capital of $64 million and mark-to-market of derivatives of $18 million as of June 30, 2023. Following the completion of the refinancings performed during 2022 and 2023 and the sale of the five Supramax vessels, we will have nine unlevered vessels. Our next 12 months amortization is $177 million.

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

Nicos Rescos

Thank you, Christos. Please turn to slide six, where we provide an operational update. Operating expenses, excluding nonrecurring expenses, were $4,772 for Q3 2022. Net cash G&A expense were $1,051 per vessel per day for the same period. In addition, we continue to rate at the top amongst our listed peers in terms of Rightship safety score.

Slide seven provides a fleet update and some guidance around our future dry dock and vessel efficiency upgrade expenses and a relevant total of five days. Our expected dry dock expense for the next 12 months is estimated at $33.6 million for the dry docking of 37 vessels, with another $96 million (ph) towards our vessel upgrade CapEx. In total, we expect to have approximately 960 off-hire days for the same period.

In line with EEXI and CII regulations, we will continue investing in upgrading our fleet further with energy-saving devices and latest operational technologies deployed across the fleet aimed in improving our fuel consumption and reducing our environmental footprint, further enhancing the commercial attractiveness of the Star Bulk fleet.

Regarding our ESP retrofit program, we have completed 21 vessels until today, and 12 more vessels are planned to be fitted by the end of the year. The above numbers are based on current estimates around dry dock and retrofit planning, vessel employment, and yard capacity.

During the second quarter, we have successfully completed onboard testing of carbon capture technology with the capabilities to retain up to 30% in net CO2 emissions. We will continue working on carbon capture technology with our industrial partners aiming developing a cost- effective solution, which can be selectively retrofitted in the future on select vessels of our fleet and within the scope of our carbon credit scheme.

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Finally, we're actively working on demand, supply, and bunkering of carbon-neutral fuels to deal with the safety considerations and vessel design development with a particular focus on clean ammonia and in line with developing work taking place under the Iron Ore Consortium and the green corridors initiative.

I will now pass the floor to our CFO, Charis Plakantonaki, for an ESG update.

Charis Plakantonaki

Thank you, Nicos. Please turn to slide eight, where we highlight our continued leadership on the ESG front. Star Bulk remains committed to transparent reporting. For the first time, we have completed the measurement of the company's Scope 3 emissions, which will be reported publicly in our upcoming ESG report.

We have also submitted Star Bulk's questionnaire for the company's participation in the 2023 carbon disclosure project for a third year in a row. Following the increased decarbonization ambitions agreed for the industry during MEPC80 and reviewed the inclusion of shipping into the (inaudible), we are enhancing our strategic planning to comply with greenhouse gas emission reduction regulations, both at an international and European level.

On the societal front, we have created the first company blood bank through blood donations of our employees, and we have committed to supporting people with disability as well as contributions related to education and health in Greece.

During Q2 2023, all our company employees attended mandatory trainings of cyber security to help create awareness on cyber risks and on the company's relevant policies and procedures. Star Bulk is also piloting new cyber technologies on its vessels to help monitor onboard systems and manage cyber risks for the fleet.

As we are increasing the company's ESG commitments, the Star Bulk code of business conduct and its relevant policies, including whistleblowing (inaudible), in compliance with the UN Global Corporate Principles and the New Global Reporting Initiative standards.

I will now pass the floor to our CEO, Petros Pappas, for a market update and his closing remarks.

Petros Pappas

Thank you, Charis. Please turn to slide nine for a brief update of supply. During the first half of 2023, a total of 18.6 million deadweight was delivered and 2.6 million deadweight was sent to demolition for a net fleet growth of 16 million deadweight or 1.6% year-to-date and 2.9% year- over-year.

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The supply outlook continues to be the best we have seen in the recent history of the dry bulk shipping. Uncertainty on future propulsion, high ship building costs, and limited shipyard capacity until late 2025 have helped keep new orders under control. The order book stands close to record low levels of 7.4% of the fleet with 14.4 million deadweight reported as firm orders between January and June.

Furthermore, vessels above 20 years of age stands at 8.1% of the fleet, while scrap prices have stabilized at elevated levels and should make demolition of overage and fuel inefficient tonnage an attractive option during seasonal downturns over the next years. The average steaming speed of the dry bulk fleet has corrected to a new record low level of 10.95 knots over the last month as a result of higher bunker costs, lower freight rates, and new environmental regulations.

We expect that the EEXI, CII regulations will increasingly incentivize slow steaming and help moderate supply over the next years. Over the last five quarters, global port congestion experienced a strong reduction from record highs that has gradually increased supply by approximately 5% and has put downward pressures on earnings over the first half.

Nevertheless, changes in trading patterns and inefficiencies related to the war have normalized congestion slightly above pre-COVID levels and the market may find further support over the next quarters from seasonal strength in trade volumes. As a result of the above trends, net supply growth is unlikely to exceed 2% per annum during '24 and '25.

Let's now turn to slide 10 for a brief update of demand. According to Clarksons, total dry bulk trade during 2023 and 2024 is projected to expand by 2.7% and 1.9% in tons and by 3.3% and 2.4% in ton miles, respectively. During the first half of 2023, total dry bulk volumes increased by approximately 3% year-on-year on the back of the reopening of the Chinese economy, record high coal and minor bulk exports, and the recovery of iron ore exports from Australia and Brazil.

China GDP increased by 6.3% in Q2, but the recovery is losing steam as the company's property market continues to struggle. Despite the overall uncertainty for the outlook of its economy, the demand for dry bulk commodities is very strong as import volumes increased by 15% year-on- year during the first half of 2023.

On the other hand, the rest of the world imports declined by 3.6%, as commodities demand was affected by the war in Ukraine, high energy costs, and a tightening monetary policy in Western economies during their ongoing fight with inflation. The IMF is projecting global GDP growth to slow down from 3.5% in 2022 to 3% in 2023 and 2024.

Iron ore trade is expected to expand by 2.5% in tons as well as in ton miles during 2023. China steel production increased by 2.2% year-on-year during the first half of 2023 following the total lift of the strict COVID policy. At the same time, domestic iron ore output contracted by 11%, while

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