Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers Conference Call on the First Quarter 2021 Financial Results. We have with us Mr. Petros Pappas, Chief Executive Officer Mr. Hamish Norton, President Mr. Nikos Raskos, Chief Operating Officer, Mr.
Simos Theroux and Mr. Christophe Galeris, 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. 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'm Simos Peru, Co Chief Financial Officer of Star Bulkarias, and I would like to welcome you to the Star Bulkarias conference call regarding our financial results for the Q1 of 2021. Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on Slide number 2 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 3 of the presentation For a summary of our Q1 2021 financial highlights.
In the 3 months Ending March 31, 2021, TCE revenues amounted to 156,600,000 compared to $100,300,000 for the same period in 2020. Adjusted EBITDA For the Q1 of 2021 was €84,700,000 versus €32,600,000 in the Q1 of 2020. Net income for the Q1 amounted to 35,800,000 or 0.36 dollars earnings per share versus $2,800,000 net income or $0.03 earnings per share in the Q1 of 2020. Our time charter equivalent rate during this quarter was $15,461 per vessel per day. Total cash today stands at 234,200,000 with total debt At approximately €14,64,000,000 In addition, we have the ability to use The €30,000,000 revolving facility, which is currently undrawn.
We continue to expand the platform with the recent acquisitions delivery of the remaining 2 Kamsarmax resales at the end of May 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 Q1 of 2021. Slide number 4 graphically illustrates the changes in the company's cash balance during the Q1 of 2021. We started the quarter with $195,500,000 in cash and generated positive Cash flow from operating activities of €79,200,000 due to the improving freight market. After including debt faucets and repayments, vessel acquisitions, CapEx payments for scrubber and ballast water treatment installations, We arrived at a cash balance of $206,600,000 at the end of the first quarter.
Please turn now to slide number 5, 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 €220,000,000 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 6, 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, In Slide number 7, 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 TC by $2,000 will increase our EBITDA by 90,000,000 Similarly, assuming a total annual bunker consumption of 800,000 tons And increasing the Hi Fi fuel spread by $25 will generate additional EBITDA by approximately 20,000,000 I will now pass the floor to our COO, Nikos Rescos, for an update on our operational performance.
Thank you, Simo. Please turn to Slide 8, where we provide an operational update. OpEx was at $4,251 Net cash G and A expenses were $10.87 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 excellency management capabilities, We start out currently number 1 amongst our listed peers in terms of rights to breaking. 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 reducing our vessels' carbon footprint.
Based on the analysis of historical operational parameters, we believe Our vessels emissions profile will remain competitive within the upcoming common intensity index framework, which is expected to be adopted by the IMO. Aiming to continuously improve our performance, we are also enhancing various planning and execution via revenue, Speed optimization and performance monitoring. On the CapEx front, we are also examining the impact of various energy saving devices. Starboard is actively engaged with various R and D workshops and consortium 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 9 provides some guidance around our future drydock and fast 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 employment 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 9 have been retrofitted with balanced water treatment systems, With the majority of our larger vessels scheduled for the year having completed the drydocks at the early part of the Q1. Our expected drydock expense for the next 12 months is estimated at $23,400,000 for the drydocking of 30 vessels We added $26,900,000 for the Barrack Quarter three Persistent CapEx of 27 vessels. In total, We expect to have approximately 7.90 off hire days for the full 12 month period.
I will now pass the floor to our CEO, Pedro Pappas, for our market update and his closing remarks.
Thank you, Nico. Please turn to Slide 10 for a brief Update over supply. During the 1st 4 months of 2021, a total of $14,800,000 deadweight was delivered and €4,000,000 deadweight was sent to demolition for a net fleet growth of €10,800,000 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 percent of the fleet with just 5,800,000 deadweight Reported as firm orders between January April, upcoming environmental regulations An uncertainty about future propulsion has helped keep new orders under control, while CPR 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 speeds of the drybulk 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 product 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-nineteen and increased political tension in China towards Australia and India It's 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 drybulk trade during 2021 is projected to expand by 3.8% in tons and 4% in ton miles. Vaccination programs against COVID-nineteen are rolling out and have brought optimism 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 incentivized a strong Expansion in production and trade. Furthermore, 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 By 3.1 percent during 2021, sale prices have increased to new record highs and have put 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 0.4% during the seasonally low 1st 4 months of the year. Vale last month reiterated Their target of 400,000,000 to 450,000,000 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 As forced power utilities and steelmakers 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 5 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 high this month in a year, With forward sales indicating that volumes will maintain record high levels during the next quarters. The Brazil soybean export season Started with delays due to heavy rains, but is also catching up with a positive effect on Panamax demand during the second and Q3 of this year. Minor bulk ton miles are expected to expand by 4.2% during 2021. Minor back trade has the strongest positive correlation to global GDP growth Smaller geared vessels will benefit significantly from the synchronized consumption recovery during 2021 2022.
Having said that, West Africa bauxite exports will continue to expand at the high pace with a strong positive effect on Capesize Ton Miles. Finally, 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 Over to the operator to answer any questions you may have.
Thank you very much. Our first question today is from Amit Mehrotra from Deutsche Bank. Please go ahead. Your line is open.
Thanks, operator. Hi, thanks for taking my question. I wanted to Just talk about the bookings in the second quarter and how that will translate to the cash balance And then obviously the dividend. I think we can quite easily calculate the cash flow based on the TCE rate relative to the $11,000 breakeven. But what's a bit 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 $10,000,000 $11,000,000 But I wonder if there's also some working capital draft Given the big spike in rates during the quarter, Q2, if you can just talk about that and what you can say, if anything, about the dividend in the Q2 based on your formula And 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. But I guess, Christos, do you want to talk about working capital? Sure.
In the rising markets, 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. Therefore, we wouldn't expect to see the exact sort of index, but there will be a lag In an increasing market as there is also an over performance in a decreasing market When you're actually getting freight rates from higher freight rates from ones that you're booking above
And therefore, we're making the high rates than the BDI. Yes. And The working capital is typically about 25 days our receivables basically are typically averaging about 25 days. So as rates go up, we've got basically 25 days Of revenue in working capital.
But I guess the fact of the matter is though Your average age for the Q2 so far with 80 plus percent booked is 40% above what it was in the Q1. So I think Is it safe to assume that there's a significant increase in dividend in 2Q versus Q1Q given that higher earnings power Working capital
Well, let's just say we wouldn't be surprised to see Q2 do better than Q1. Yes. I mean, you're not wrong.
And then the that's the
way the FSA curve works. There's right now, it looks like Rates are kind of stabilizing at high level back half of the year. So that working capital, like reverse. And so Really kind of the Q3 is a much bigger number because you have the worst aim of cash back just given Less volatility and kind of higher longer, so to speak?
Well, I mean, we don't endorse The SSA curve as a forecast, but The FSA curve, if it were to come to pass, would imply what you're talking about.
Okay. And then just the last Hamish, there's a lot of legal language based about management being able to change this policy whenever they want. And of course, that makes sense. But lots of investors that have seen short stakes in rates and dividends. I think the difference here is you guys have a very good capital structure and a low structure.
But tell me like what will have to happen For you guys to abandon this policy of dividend all surplus to shareholders, is it a really compelling M and A 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. So just help us about In your mind or the management team and the Board's mind, what would kind of pivot away type of strategy given all the work you've done on the cap structure?
Well, look, it's the Board's clear intention to stick with this dividend policy. And the dividend policy was designed To work in a broad, broad range of markets. And 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. But we didn't suspend or stop the policy. And we hope that there's nothing that will happen that would make us suspend or stop the policy.
And 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. And therefore, we have started being in the market That will enable us to return significant capital shareholders, and therefore, we
do intend to keep the policy. Yes.
I mean, I don't want to push back came ish to that point was that last year you were process of building to that threshold. So you weren't really paying out much or anything. And now you're at that threshold where you are generating surplus cash flow. And I guess, I hear what you're saying. This is kind of all the work for to get to this point.
I guess, Once you're at this point now, are there attractive uses that capital that may allow you to pivot away from Dividending it to shareholders? Or is that will that be a very high hurdle?
Yes. That's going to be a pretty high hurdle. I mean, the Board is Pretty much set on this policy. And 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.
Thank you very much. Our next question is from Randy Giveans from Jefferies. Please go ahead.
Howdy, gentlemen. How's it going?
Hi, Randy.
Hi. So, yes, 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 2Q 'twenty one won't be much higher than the 21,000 quarter to date bookings. And 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, but Have you done any time charter recently?
Hi, Andy, it's Petros. We are very positive about the rest of this year as we are positive about next year as well and in general, we are 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. So 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 34 ks, 4 ks and 24 ks for the other two types. But having said that, if for example we see Supramax and Ultramax offering us $30,000 For 4 to 6 months, we will fix that.
First of all, because it's above SFA and It's a decent number. It could get higher than that. But so what the idea is that we fix We see spots in general. If we see rates that are higher than FFAs Or much higher than FFAs, then we fix those for the short period. And Generally, we like to have our fleet back somewhere in November, early December, so that we try to fix Through Q1.
Now, 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 8, but never before that. So I think going forward, we will still follow our usual plan of hedging EBIT through Q1. But for this year, There's no reason to hedge unless if the rates we get are way above FFA's.
All right. And have you done any 1 year time charters recently? For example, what percentage of 4Q 'twenty one is booked? 0%. Okay.
Perfect. Now for the dividend. It seems like you decided include, I guess, dollars 150,000,000 in the recent refi as part of your cash balance. So maybe what drove that decision? And then 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
To answer the first to answer Just hold on. So what was your first question again?
First part was about The decision to include the $150,000,000 of refinance cash.
Yes. So 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. So effectively, our leverage is much lower. And then 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. And 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? You just mentioned it
well below.
That's
kind of 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, but It's looking really good, we think. Yes. We have our view. Don't of course.
But you are the one who mentioned our net loan I think you just said our net loan to value is below Right.
So we read your work And other analysts work, and we think you and the other analysts are doing a great job. Noted. All right. Okay. I'll ask
a 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 2 handle?
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. And That's delevering already pretty well. And if we can do better than that, that's great.
Okay. Yes, I see Slide 5, and I hope that a downhill trend continues. Perfect. Well, 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.
Thanks.
So I wanted to I'll
drill down a little bit just sort of in terms of how you would be thinking about what your available cash balances or whatever. And Follow me with follow with me for a second here. But I just kind of 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 $300,000,000 There's probably some debt associated with that, but there's probably also a lot of free cash flow. And also, if you were to sell those, the ship count would go down and that 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.
But in the situation that you were, how should we think about that ratio, right? I mean, not only is the cash balance going up, but the number of ships is going down. It's sort of a 2fer when it comes to your ability to pay dividends. All those, there's sort of the need to sort of carve that out and say, okay, this is replacement capital or something like that?
Okay. So basically, the dividend policy gives the Board a lot of discretion in the case we sell ships, As I think you would expect. And if we sell 1 or more ships, We're obviously going to think long and hard about what to do with the freed up capital. And we're shareholders. We're going to do the right thing based on our best judgment for the shareholders.
And if the right thing is to pay the cash out, we'll do that. If the right thing is Renew the fleet, we'll do that. But 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 Kamsarmax That could be fixed today for a year or not if it's or into 6 month charters at between $20,000 $25,000 a day. That vessel would make a profit of between $5,500,000 to $7,000,000 Now, if that vessel is worth, Let's say $15,000,000 today, you actually get 40% to 45% Return on the value of the vessel within a year, I wouldn't sell a vessel like that today.
So I take that to mean that you believe that asset values are probably going to be rising then?
Well, I mean, even The breakeven would be that vessel being at $8,000,000 to $9,000,000 worth in a year from now. If we make 6 to 7 profit during the next 12 months. So I would give this vessel.
Yes. Okay. Does that mean that you would, as a on balance, are probably a better buyer than a seller?
Well, again, we'll look at it. We're looking always at attractive acquisitions. But 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.
Thank you. Our next question is from Omar Nocturne from Clarksons Platou. Please go ahead.
Yes. Thank you. Hey, guys. Just 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. But 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 markets come to life in a big way and asset values have jumped. But 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? Or do you think now that you Now you're maybe more focusing on the dividend and then taking a back seat on the acquisitions.
Well, look, I'll let Tetris talk about the attractiveness of vessel prices generally. But We will still look. Definitely, we're interested in growth. And we haven't taken a lot had growth take a backseat The dividend, we think growth and the dividend are completely compatible with each other, and we would hope to keep growing.
Yes. You saw that we bought actually 2 resale CamScan Max's A couple of months ago, which we're taking delivery of 1 in the next few days and the second next month, that We didn't use our stock as currency there. We just bought the vessels, but we saw a fantastic opportunity. They were very cheap and we went ahead and did that. Now 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 raising a huge amount of money on the cost of building these vessels. And I think that I think we have enough vessels. And I wouldn't go for new buildings because if we went for that, for example, the resales were delivered within 2 months. So that was A no brainer, but if somebody will come and say to me, buy a new building and take delivery in 2 or 3 years, I wouldn't do that, and the prices would be much more expensive.
Irrespective of what 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, that was you did just touch on a follow-up question I had on that was, was the idea of new buildings? Because I know it's a bad word to talk about ordering new builds, but we have been seeing cost pressures and slots have been taken up by other vessel segments. And so I did want to kind of check your pulse on the idea of even though having to wait 2 or 3 years, if that was an attractive thing for Star Bulk, but it sounds like it's not. So,
I mean, first of all, we're very happy that the slots are being taken up by other types of vessels. And we will be happy even if the next available slot is in 2025. This will mean That the supply situation is going to be positive for our trade. And as we think that Demand will be fine as well. We're looking for a few positive years going forward.
I wouldn't like to disturb that.
Yes. Makes sense. Okay. And then just maybe one final one, and maybe, Hamish, at the risk of getting a Yogi Berra type response, I wanted to ask about The minimum cash threshold of that $2,100,000 that you were reverting to that starting in the Q4, 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. So with that, do you see that $2,100,000 being reduced As we move forward?
Or do you feel that's really set in stone?
Well, I guess I mean, the truth is really neither 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 That in stone. I mean, this is something that will be revisited. I certainly don't have any expectation it's going to be increased. But we certainly neither can we plan on it being reduced. But I would tend to agree with your speculation that it may be more likely in the future to be reduced than increased, But we just don't we don't know.
Okay. That's clear enough. I appreciate that. Thanks guys for the time.
Thank you, Amol. Thank you.
Thank you. There are no further questions that are coming through. I'll now hand back to the speakers 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.