Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers conference call on the first quarter of 2021 financial results. We have with us Mr. Petros Pappas, Chief Executive Officer, Mr. Hamish Norton, President, Mr. Nicos Rescos, Chief Operating Officer, Mr. Simos Spyrou and Mr. Christos Begleris, Co-Chief Financial Officers 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 now pass the floor to one of your speakers. Mr. Spyrou, please go ahead, sir.
Thank you, operator. I am Simos Spyrou, Co-Chief Financial Officer of Star Bulk Carriers, and I would like to welcome you to the Star Bulk Carriers conference call regarding our financial results for the first quarter of 2021. 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 Q1 results, our cash evolution during the quarter, our updated dividend policy and operational update, and the latest industry fundamentals before opening up for questions. Let us now turn to slide number three of the presentation for a summary of our first quarter 2021 financial highlights. In the three months ending March 31st, 2021, TCE revenues amounted to $156.6 million compared to $100.3 million for the same period in 2020.
Adjusted EBITDA for the first quarter of 2021 was $84.7 million versus $32.6 million in the first quarter of 2020. Net income for the first quarter amounted to $35.8 million, or $0.36 earnings per share versus $2.8 million net income of $0.03 earnings per share in the first quarter of 2020. Our time charter equivalent rate during this quarter was $15,461 per vessel per day. Total cash today stands at $234.2 million, with total debt at approximately $1.64 billion. In addition, we have the ability to use a $30 million revolving facility, which is currently undrawn. We continue to expand the platform with the recent acquisitions of 12 vessels, 10 of which we have taken delivery of by today. We expect to take delivery of the remaining two Kamsarmax resales at the end of May and end of June, reaching a total of 128 vessels on the water.
The company has amended its dividend policy and will pay a $0.30 per share dividend with respect to the first quarter of 2021. Slide number four graphically illustrates the changes in the company's cash balance during the first quarter of 2021. We started the quarter with $195.5 million in cash and generated positive cash flow from operating activities of $79.2 million due to the improving freight market. After including debt proceeds and repayments, vessel acquisitions, CapEx payments for scrubber and ballast water treatment installations, we arrived at a cash balance of $206.6 million at the end of the first quarter. Please turn now to slide number five, where we summarize the evolution of net debt over the last 12 months, where we have been able to reduce our net debt by more than $220 million due to the strong cash flow from operations.
Given the robust cash flow from operations, secure liquidity position, and strong dry bulk market fundamentals, the board of directors has amended the company's existing dividend policy and starts returning capital to shareholders, as per the summary presented in slide number six. Specifically, we have changed the minimum cash balance per vessel thresholds, resulting in the company paying a dividend of $0.30 per share for Q1 2021, payable on or about June 14th, 2021. In slide number seven, we demonstrate the inherent operating leverage of the company to a rising freight market and the potential increase in EBITDA with any freight or fuel spread increases. For example, with 45,000 fleet available days, an additional daily fleet-wide increase in TCE by $2,000 will increase our EBITDA by $90 million.
Similarly, assuming a total annual bunker consumption of 800,000 tons and increasing the high fuel spread by $25 will generate additional EBITDA by approximately $20 million. I will now pass the floor to our COO, Nicos Rescos, for an update on our operational performance.
Thank you, Simos. Please turn to slide eight, where we provide an operational update. OpEx was at $4,251 per vessel per day for the quarter. Net cash G&A expenses were $1,087 per vessel per day for the quarter. The combination of our in-house management and the scale of the Group enables us to maintain very competitive costs complemented by excellent shiprunning capabilities, with Star Bulk currently number one amongst our listed peers in terms of voyage rating. In view of IMO's 2023/2030 decarbonization regulation implementation, the company has built a dedicated research and development team evaluating all available technologies that are assisting in reducing our vessels' carbon footprint. Based on the analysis of historical operational parameters, we believe that our vessels' emissions profile will remain competitive within the upcoming Carbon Intensity Indicator framework, which is expected to be adopted by the IMO.
Aiming to continuously improve our performance, we are constantly enhancing voyage planning and execution via weather routing, speed optimization, and performance monitoring. On the CapEx front, we are also examining the impact of various energy-saving devices. Star Bulk is actively engaged with various R&D workshops and consortia in collaboration with other stakeholders across the maritime value chain, including engine makers, classification societies, and fuel technology innovators, in pursuit of technically and commercially viable solutions in adjusting our vessels' fuel systems to operate on carbon neutral fuels. Slide nine provides some guidance around our future drydock and ballast water treatment expenses for the next 12 months and the relevant total of hire days. The numbers are based on current estimates around drydock and retrofit planning, vessel deployment, and yard capacity. These figures incorporate our current understanding of present and future shipyard congestion.
Since the beginning of the year, 19 vessels have entered drydock, and nine have been retrofitted with ballast water treatment systems with the majority of our larger vessels scheduled for the year having completed their drydocks at the early part of the first quarter. Our expected drydock expense for the next 12 months is estimated at $23.4 million for the drydocking of 30 vessels and $126.9 million for the ballast water treatment system CapEx of 27 vessels. In total, we expect to have approximately 790 of hire days for the forward 12 month period. I will now pass the floor to our CEO, Petros Pappas, for a market update and his closing remarks.
Thank you, Nicos. Please turn to slide 10 for a brief update of supply. During the first four months of 2021, a total of 14.8 million deadweight was delivered, and 4 million deadweight was sent to demolition for a net fleet growth of 10.8 million deadweight or 3.3% year-on-year and 1.1% since the beginning of the year. The order book has decreased to a record low 5.7% of the fleet, with just 5.8 million deadweight reported as firm orders between January and April. Upcoming environmental regulations and uncertainty about future propulsion has helped keep new orders under control, while shipyard capacity is quickly filling up with containership and other orders. Furthermore, the surge of global steel and iron ore prices has increased newbuilding prices and pushed scrap prices to new record highs, supporting demolition to a degree.
Average steaming speed of the dry bulk fleet stands at 11.8 knots and despite the higher freight rate environment, has only increased 3% year-on-year, mostly due to the increase in bunker costs. As the global economy opens up and oil products consumption recovers during the second half, we expect bunker prices to experience upward pressure that will support higher freight rates and scrubber earnings. Quarantines related to COVID-19 and increased political tension in China towards Australia and India is creating strong inefficiencies for trade that have helped tighten the supply-demand balance. As a result of the above trends, net fleet growth is projected to correct below 3% by the end of 2021 and close to 1% by the end of 2022. Let's now turn to slide 11 for a brief update of demand.
According to Clarksons, total dry bulk trade during 2021 is projected to expand by 3.8% in tons and 4% in ton-miles. Vaccination programs against COVID-19 are rolling out and have brought optimism to markets with the IMF expecting 6% growth in 2021 and 4.4% growth in 2022. Pent-up demand as the world gradually opens up and the synchronized global economic stimulus have pushed commodity prices to new historical highs and currently incentivize a strong expansion in production and trade. New Atlantic export projects increases in Pacific grain demand are expected to inflate ton-miles and vessel requirements over the next years. Iron ore ton-miles are expected to expand by 3.1% during 2021.
Steel prices have increased to new record highs and have pushed steel mill profitability higher despite the strong increase in iron ore prices. Furthermore, steel prices in the Atlantic have been trading at a significant premium to the Pacific, and the wide price arbitrage has incentivized higher steel exports, with smaller vessels benefiting the most during the last months. Brazil iron ore exports are slowly recovering from the 2019 disaster and have increased 14.4% during the seasonally low first four months of the year. Vale last month reiterated their target of 400 million tons-450 million tons of production by the end of 2022. Coal ton-miles are expected to expand by 6.4% during 2021 as global energy consumption experiences a strong recovery.
During the last quarters, China and India thermal electricity output has been expanding at a higher pace than domestic production and has created shortages that have pushed stocks lower. The Chinese ban on Australia coal has forced power utilities and steel makers to diversify and seek coal cargoes from longer distance sources such as South Africa, Colombia, the U.S., and Canada. Grain ton-miles are expected to expand by 2.3% during 2021 after an 11.2% increase during 2020. China's demand for grains is projected to remain strong in the medium term as the current five year plan focuses on food security and at the same time the hog herd has fully recovered from the 2018 African swine fever outbreak. U.S. soybean and corn exports stand at all-time highs this marketing year, with forward sales indicating that volumes will maintain record high levels during the next quarters.
The Brazilian soybean export season started with delays due to heavy rains, is also catching up with a positive effect on Panamax demand during the second and third quarter of this year. Minor bulk ton-miles are expected to expand by 4.2% during 2021. Minor bulk trade has the strongest positive correlation to global GDP growth, smaller gear vessels will benefit significantly from the synchronized consumption recovery during 2021 and 2022. Having said that, West African bauxite exports will continue to expand at a high pace with a strong positive effect on Capesize ton-miles. Our outlook for the market remains positive due to the reopening of the global economy and consequent increased ton-mile demand across all key dry bulk commodities.
The record low order book, coupled with upcoming environmental regulations that limit new vessel orders, also create favorable long-term dynamics for our industry, which our company is well-positioned to enjoy. 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 very much. Ladies and gentlemen, as a reminder, if you have a question, please press star one on your telephone keypad and wait for your name to be announced. Our first question today is from Amit Mehrotra from Deutsche Bank.
Thanks, operators. Thanks. Question. I wanted to talk about the bookings in the second quarter and how that will translate to the cash balance and obviously the dividend. I think we can quite easily calculate the cash flow based on the TCE rate relative to the $11,000 breakeven. What's important to understand, at least for me, is all the other cash calls. I guess there's some outlays on the dry docking that you mentioned in the slide deck, maybe $10 million or $11 million. I wonder if there's also some working capital drag given the big spike in rates during the second quarter. If you can just talk about that and what you can say, if anything, about the dividend in the second quarter based on your formula, other than that you have over 80% of the days already booked.
Well, I guess we're not in the business of guiding on earnings or the dividend. That would be the job of each analyst. I guess, Christos, do you want to talk about working capital?
Sure. In a rising market like today's market, Amit, working capital increases because the freight receivables that you expect from voyages that you book at higher rates are increasing. We therefore expect to have a drag on the actual rates that we're recording in a specific quarter versus the Baltic index that you monitor basically on a daily basis. We wouldn't expect to see the exact index, but there will be a lag in an increasing market as there is also an overperformance in a decreasing market when you're actually getting higher freight rates from voyages you have booked in the past, and therefore you're making higher rates than the BDI.
Yeah.
The working capital is typically about 25 days. Our receivables basically are typically averaging about 25 days. As rates go up, we've got basically 25 days of revenue in working capital.
I guess the fact of the matter is, though, your average rates for the second quarter so far, with 80%+ booked, is 40% above what it was in the first quarter. I think is it safe to assume that there's a significant increase in dividend in 2Q versus Q1 given that higher earnings power or working capital?
Well, let's just say we wouldn't be surprised to see Q2 do better than Q1. Yeah. You're not wrong.
That's the way the FFA curve works. Right now it looks like rates are kind of stabilizing at high levels for the back half of the year. It looks like working capital is kind of reverse, really the third quarter is a much bigger number because you have the working capital drag just given the less volatility and kind of higher, longer, so to speak.
Well, we don't endorse the FFA curve as a forecast, but the FFA curve, if it were to come to pass, would imply what you're talking about.
Okay, just the last two for me. Hamish, there's a lot of legal language in the release about management being able to change this policy whenever they want. Of course, that makes sense. There's a lot of investors that have seen short-term spikes in rates and dividends. I think the difference here is you guys have a very good capital structure and a low balance sheet. Tell me what would have to happen for you guys to abandon this policy of dividend all surplus to shareholders. Is it a really compelling, imminent opportunity? Because you would have a lot of liquidity cushion embedded already where a weak market wouldn't necessarily be enough given that liquidity cushion.
Just help us think about, in your mind or the management team or the board's mind, what would kind of pivot away from that type of strategy given all the work that's done on the cap structure?
Well, look, it's the board's clear intention to stick with this dividend policy, the dividend policy was designed to work in a broad range of markets. I should point out that in 2019, when we adopted the dividend policy, which we've only very slightly amended here, we had no idea there was going to be a global pandemic in 2020, and we did not suspend the dividend policy due to the pandemic. The dividend policy, by its normal operation, basically provided that in the market that we had with the pandemic, there should be no dividend under the policy. We didn't suspend or stop the policy. We hope that there's nothing that will happen that would make us suspend or stop the policy.
If I may add that, Amit, the beauty of the policy is that it effectively allows us to return capital to shareholders when we make strong operating cash flows from our vessels. Therefore, we have started being in the market that will enable us to return significant capital to shareholders, and therefore we do intend to keep the policy.
Yeah. The only catch, Hamish, to that point was that last year you were in the process of building to that threshold, so you weren't really paying out much or anything. Now you're at that threshold where you are generating surplus cash flow. I guess I hear what you're saying. This is all the work for to get to this point. I guess, once you're at this point now, are there other attractive uses of that capital that may allow you to pivot away from dividending it to shareholders, or is that going to be a very high hurdle?
That's going to be a pretty high hurdle. The board is pretty much set on this policy. We're happy to make attractive acquisitions, but if we make attractive acquisitions, we would hope to use our equity as we've done in the past.
Got it. Okay. Thanks for answering my questions. Appreciate it. Thank you.
Yeah. Thank you.
Thank you very much. Our next question is from Randy Giveans from Jefferies. Please go ahead.
Howdy, gentlemen. How's it going?
Hi, Randy.
Great. Yeah, obviously, the share price today is reflecting maybe a little bit of underwhelming nature with your maybe rate guidance. Is there any reason why the remainder of Q2 2021 won't be much higher than the $21,000 quarter- to- date bookings? Maybe if you can add some color on time charters. Have you or maybe will you add some time charters to take advantage of this current market strength? A lot of your peers will put out every time charter they do for example, have you done any time charters recently?
Hi, Randy. It's Petros. We're very positive about the rest of this year, as we're positive about next year as well. In general, we're positive for several years come for various reasons that I could analyze if you want me later on. Speaking about the short term. We are actually covered mostly for our smaller vessels for Q2, and we have about 32%, 33% open on the Capesize. Actually, I think that you will see good numbers there. Now, we are not worried about the short term at all. Actually, we think that it could be even better than what the present FFAs show for the year, which is like $34K for Capesize and $24K for the other two types. Having said that, if, for example, we see a Supramax and an Ultramax offering us $30,000 for four to six months, we will fix that.
First of all, because it's above FFA, and it's a decent number. It could get higher than that. The idea is that we stay spot, in general. If we see rates that are higher than FFAs or much higher than FFAs, then we fix those for the short period. Generally, we like to have our fleet back somewhere in November, early December, so that we try to fix through Q1. We've been doing that every year and mostly successfully, except, of course, this year, where things went upside down and the market was actually extremely strong. I don't think I've seen this before in my career, maybe in 2007 or 2008, but never before that. I think going forward, we will still follow our usual plan of hedging a bit through Q1. For this year, there's no reason to hedge unless if the rates we get are way above FFAs.
All right. Have you done any one year time charters recently? For example, what percentage of 4Q 2021 is booked?
0%.
Okay, perfect. For the dividend, it seems like you decided to include, I guess, $150 million in the recent refi as part of your cash balance. Maybe what drove that decision? Going forward, how are you going to prioritize capital allocation in terms of maybe more aggressive debt repayment, further vessel acquisitions? Do you have a target leverage ratio or net debt amount for Q1 2021?
Just hold on. What was your first question again?
First part was about the decision to include the $150 million in the refi cash.
The decision on including the cash from refinancing was based on the fact that our actual loan-to-value today is substantially below the anticipated loan-to-value that we were thinking about in 2019 when this dividend policy was originally adopted. Effectively, our leverage is much lower. The capital allocation policy is clearly prioritizing the dividend. We will certainly look at attractive acquisitions of vessels, but as I said before, we'll try to do that using our shares as we've done in the past. We do want to reduce leverage, but we're doing that slowly while maintaining this dividend policy.
Yes, that is fair. All right. Well, I guess, what is your net loan-to-value now?
That's largely the job of the analyst because that involves valuing the fleet, which is not something we're really in the business of doing. It's looking really good, we think.
Yep. You were the one who mentioned our net loan, I think you just said our net loan to value is below.
We read your work and other analysts' work. We think you and the other analysts are doing a great job.
Noted. All right. Okay, I'll ask the last question. On this same topic, is there a net loan-to-value target for year-end that you're hoping to get to, planning to get to? Does it have a two handle?
Well, look, the net debt by year, our target, frankly, for net debt at year-end is to be at least down by the amount of our amortization. That's de-levering already pretty well. If we can do better than that's great.
Okay. Yeah, I see slide five. I hope that downhill trend continues. Perfect. I'll let you off there. Thanks so much.
Thank you, Randy.
Thank you. Our next question is from Ben Nolan from Stifel. Please go ahead.
Yeah, thanks. I wanted to drill down a little bit, just in terms of how you would be thinking about what your available cash balance is or whatever, and follow with me for a second here. I just was perusing your fleet list, and there's 20 or so ships that are 15 years old, probably, I don't know, on my estimates, let's say, worth closing in on $300 million. There's probably some debt associated with that, but there's probably also a lot of free cash flow. If you were to sell those, the ship count would go down, and thereby your cash per ship would increase dramatically. In that scenario, first of all, I guess, you're optimistic on the market, but are you also possibly a seller of maybe some of those older equipment?
In the situation that you were, how should we think about that ratio, right? Not only is the cash balance going up, but the number of ships is going down. It's sort of a two-fer when it comes to your ability to pay dividends. Is there the need to carve that out and say, "Okay, this is replacement capital," or something like that?
Okay. Basically, the dividend policy gives the board a lot of discretion in the case we sell ships, as I think you would expect. If we sell one or more ships, we're obviously going to think long and hard about what to do with the freed-up capital. We're shareholders. We're going to do the right thing based on our best judgment for the shareholders. If the right thing is to pay the cash out, we'll do that. If the right thing is to renew the fleet, we'll do that. As you can imagine, in defining a dividend policy like this, we don't want to tie the board's and management's hands if we sell some ships.
Ben, this is Petros. Imagine, let's say, a 15 year-old Capesize that could be fixed today for a year or into six month charters at between $20,000 and $25,000 a day. That vessel would make a profit of between $5.5 million- $7 million. Now, if that vessel is worth, let's say, $15 million today, you actually get 40%-45% return on the value of the vessel within a year. I wouldn't sell a vessel like that today.
I take that to mean that you believe that asset values are probably going to be rising then.
Well, the breakeven would be that vessel being at $8 million-$9 million worth in a year from now, if we make six to seven profit during the next 12 months. I would keep this vessel.
Yeah. Okay, does that mean that you would, on balance, are probably a better buyer than a seller?
Well, again, we're looking always at attractive acquisitions. Our inclination will be to use our equity if we can, as we've done in the past.
Right. Okay. Good enough. I appreciate it. Thanks, guys.
Thank you, Ben.
Thank you. Our next question is from Omar Nokta from Clarksons Platou. Please go ahead.
Yeah, thank you. Hey, guys. Just wanted to maybe drill down just a little bit more on, Hamish, you've mentioned several times in this call, you're always happy to look at attractive acquisitions. Just as we think about it, you guys were pretty acquisitive several months ago. You bought 12 ships at pretty good prices. Obviously, since then, the sale and purchase market's come to life in a big way and asset values have jumped. Just trying to maybe reconcile, especially with Petros, your comments about the return potential. How do you see where the market is today, where values are? Do you still see opportunities, irrespective of, say, the equity price and using that as a means to buy a vessel? Do you still think that now is the time to continue adding ships for Star Bulk?
Do you think now that you may be more focusing on the dividend and taking a backseat on the acquisitions?
Look, I'll let Petros talk about the attractiveness of vessel prices generally. We will still look. Definitely, we're interested in growth. We haven't had growth take a backseat to the dividend. We think growth and the dividend are completely compatible with each other, and we would hope to keep growing.
You saw that we bought actually two resale Capesizes a couple of months ago, which we're taking delivery of one in the next few days and the second next month. We didn't use our stock as currency there. We just bought the vessels. We saw a fantastic opportunity. They were very cheap. We went ahead and did that. The prices of those vessels have probably gone up by about 20%. They will probably go even more, even higher, because steel prices have gone up and they are adding a huge amount of money on the cost of building these vessels. I think we have enough vessels, and I wouldn't go for newbuilding because if we went for that, for example, the resales were delivered within two months. That was a no-brainer.
If somebody would come and say to me, "Buy a newbuilding and take delivery in two or three years," I wouldn't do that, and the prices would be much more expensive. Irrespective of being positive about the market, we already have 128 vessels here. I think we have enough vessels. We will do accretive deals, but we're not going to run after the market, I think.
Thanks, Petros. Actually, you did just touch on a follow-up question I had on that, was the idea of newbuildings, because I know it's a bad word. You talked about ordering newbuildings, but we have been seeing cost pressures and slots have been taken up by other vessel segments. I did want to kind of check your pulse on the idea of even though having to wait two or three years, if that was an attractive thing for Star Bulk, but it sounds like it's not.
Well, first of all, we're very happy that the slots are being taken up by other types of vessels. We will be happier even if the next available slot is in 2025. This will mean that the supply situation is going to be positive for our trade. As we think that demand will be fine as well, we are looking for a few positive years going forward. I wouldn't like to disturb that.
Yeah, makes sense. Okay, just maybe one final one, and maybe, Hamish, at the risk of getting a "You'll be there" type response. Wanted to ask about the minimum cash threshold of that $2.1 million that you're reverting to that starting in the fourth quarter, which is what you had outlined back in 2019 as the long-run minimum cash. You did mention that your LTV is lower today than what you'd envisioned when you first put the policy in place. With that, do you see that $2.1 million being reduced as we move forward, or do you feel like that's really set in stone?
Well, I guess, the truth is really neither one. We can't really anticipate what the board might decide in the future to do about that cash balance per vessel. Neither do I think it's set in stone. This is something that will be revisited. I certainly don't have any expectation it's going to be increased. Neither can we plan on it being reduced. I would tend to agree with your speculation that it may be more likely in the future to be reduced than increased. We just don't know.
Okay. That's clear enough, Hamish. Appreciate that. Thanks, guys, for the time.
Thank you.
Thank you.
Thank you. There are no further questions at this time. I'll now hand back to the speaker for any closing comments.
No further comments, operator. Thank you very much.
Thank you, sir. That does conclude the call for today. Thank you everyone for joining. You may now disconnect your lines.