Diana Shipping Q3 2023 Earnings Call Transcript

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November 15, 2023

There are 6 speakers on the call.

Operator

Greetings. Welcome to Diana Shipping Incorporated Third Quarter 2023 Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Keypad.

Operator

Please note this conference is being recorded. I will now turn the conference over to Ed Nebb, Investor Relations. Thank you. You may begin.

Speaker 1

Well, thank you very much, and thanks to everyone joining us for the Diana Shipping Inc. 2023 Third Quarter Conference Call. With us today from management are, Sameer Ramiz Paliou, Chief Executive Officer and other members of the management team, whom she will And so without further ado, I will turn the call over to Ms. Palieu.

Speaker 2

Thank you, Ed. So good morning, ladies and gentlemen, and welcome to Diana Shipping Inc. Q3 2023 Financial Results Conference I'm Samira Mispaliu, the CEO of the company, and it is my pleasure to present alongside our esteemed team Mr. Stacy Margaronis, Director And President, Mr. Ioannis Zafirakis, Director, CFO and Chief Strategy Officer Mr.

Speaker 2

Leftelio Papadri, from Director and Ms. Maria Zadeh, Chief Accounting Officer. Before we begin, I'd like to remind everyone to review the forward looking statement on page 4 Q3 2023 has proven to be a profitable quarter for our company, despite less robust market conditions. Our disciplined chartering strategy once again Has largely insulated us from market weakening, enabling us to generate positive free cash flows. In line with the guidance provided during the company's previous earnings calls, we are pleased to declare the distribution of a dividend for this quarter amounting to $0.15 per share payable as common stock.

Speaker 2

Since November 2021, We have paid $1.45 per share, a total of $130,000,000 in cash dividends. In addition to that, we have distributed to our common shareholders in kind dividends in the form of newly issued Diana Shipping Inc. Common As well as Ocean Palinks common and preferred shares. Turning to slide 5. Our fleet Comprises of 42 vessels with a total deadweight of approximately 4,700,000 deadweight tons.

Speaker 2

Our fleet utilization has remained consistently high, reaching 99.7% for the 9 months ending September 30, 2023, attributed to our prudent and efficient management of our vessels. Additionally, as of the end of Q3, we employed 10.40 people at sea and the shore. Moving on to slide 6. Let's go over the key highlights from the Q3 and recent developments. We recently announced our intention to order 281,200 deadweight methanol dual fuel newbuilding Kamsarmax drybulk vessels built at Chinesi Group for a purchase price of US46 $1,000,000 each.

Speaker 2

These vessels are expected to be delivered to the company by the second half of twenty twenty seven and the first half of twenty twenty eight, respectively. We take pride in our role as an industry leader, continually striving to enhance our fleet and operations for the benefit of our stakeholders and the environment. This investment underscores our dedication to sustainable shipping and positions us to meet the evolving that has ordered 2 high spec commissioning service operation vessels, otherwise known as CSOVs, to be built at Bard Yard with the option to acquire 2 additional offshore wind service vessels. This is another reflection of our commitment to a greener and more sustainable shipping industry. Furthermore, Continuing through the renewal and modernization of our fleet, we have agreed to sell the Motovesto Boston for approximately US18 $1,000,000 Also, we have converted the vast majority of Ocean Pal Inc.

Speaker 2

Series C preferred stock into Ocean Pal common shares at the point in time that we considered Oportun. As of November 10, the company has secured revenue for 90% of the remaining ownership date of 2023, amounting to approximately US30.7 million dollars of contracted revenues. Additionally, the company has secured approximately $108,000,000 of contracted revenue for the year 2024, representing 46% of The available ownership dates for the entire year. Yanis will provide a more detailed analysis of our cash flow generation potential based on the current market environment. Today, we are pleased to announce a quarterly dividend of €0.15 Moving on to slide 7, let's review a summary of our recent chartering activity.

Speaker 2

We have continued to implement our disciplined chartering strategy by securing profitable time charters for 8 vessels since our last earnings presentation in August 2023. To provide some detail, we have chartered 2 Utamax vessels with a weighted average daily rate of US13,398 dollars for a remaining average period of 3 51 days. Additionally, 3 Panamax Camps Irmaque vessels have been chartered at a weighted average daily rate of US12,6 US142 dollars per day for a remaining average period of 2 83 days And 3 Capesize Newcastlemax vessels have been chartered with a weighted average daily rate of US1380 dollars per day and the remaining average period of 4.94 days. Slide 8 illustrates our commitment to strategically chartering our vessels in a staggered manner. I will now pass on the floor to Yanis to provide a more detailed analysis

Speaker 3

Thank you, Shamir Amis. The financial highlights of this quarter can be summarized in this table. And We think that what is worth mentioning is the fact that our time charter revenues stood at $62,000,000 compared to 73.8 $1,000,000 in the same 3 months in the previous year and our earnings per common On shares on a diluted basis were $0.06 compared to 0.37 At the same quarter the previous year. At the same time, our cash, cash and equivalent types deposit And restricted cash, at the end of September 2023, there were 100 and $3,000,000 Our long term debt and finance liabilities, This is net of deferred financing cost, was $657,400,000 compared to 663 $400,000 in December 31, 2022. Moving to the next slide, you can see what we said earlier, the decrease on the time charter revenues and And the increased number of vessels, although the operating expenses have been kept more or less at the same level, The TC equivalent rate has fallen due to market conditions to 15,891 dollars per day compared to $24,289 per day in the previous year for the same 3 month period.

Speaker 3

The same applies to the next slide in the 9 month period where Again, you can see the increased number of vessels compared to a lower time charter revenue But we had in this 9 month period and that has resulted to a time charter equivalent rate of $17,235 compared to $23,363 in the same 9 month period in the previous year. The operating expenses, more or less the same as we said, dollars 5,691 compared to 5,005 The facts described earlier The drop of our earnings per common share to $0.36 compared To 1.10 in the same 9 a month period in the previous year 2022. If we see the same for the quarter, you can see that our earnings per common share diluted were 0.0 $6 per share as compared to $0.37 during the 3 month period Same 3 month period in the previous

Speaker 4

year.

Speaker 3

All in all, in This slide, we are very happy that we have kept our debt level at $657,400,000 And at the same time, we have $173,600,000 of Cash in our accounts. So, the net debt level is only $492,000,000 Once again, in the next slide, we would like to emphasize our prudent management of our debt. And this basically shows to everyone that we have no maturities till for our loans At the same time, you can see the smooth reduction of our the projected smooth reduction of our debt balance, Leading us to something like $340,000,000 in 2026 The next slide talks about our free cash flow breakeven. You can see that our free cash flow breakeven is currently at $16,700 And if you compare that with the average daily time charter rate of fixed revenues for 20 23 for the 90 days and the 46% of the days in 2024. The one is 16,000 and the other is 16,155.

Speaker 3

It's Pretty much okay considering what is happening in the market. And with that happy note, I'm going to pass the floor to Stacy Madaronis for some for the market review.

Speaker 4

Thank you, Gianni. Pleasure, Stacy. So dry bulk shipping earnings have exhibited interesting and somewhat surprising trends recently, mainly due to the geopolitical Developments in tight monetary policies pursued by most central banks around the globe with the exception perhaps of the China Central Bank. Spot dry bulk earnings have oscillated widely, particularly in the last few weeks, but less so the 12 months time charter rates And these are shown on this slide. Capesize 1 year employment hire rates are around $15,250 per day And the most recent peak being $30,000 a day in March 2022.

Speaker 4

Today, the 12 month rate for Camsharmaxes It's $14,250 a day. That was around $29,500 a day at the end of March last year. For Ultramaxes, the 12 month higher rate is $13,500 per day and the most recent peak was again $29,250 per day in March 22. So back then, it looked like for approximately the same daily hire, charterers could pick The most suitable vessel size for their needs. On the next slide, we look at dry bulk demand.

Speaker 4

It has been well established by now that world GDP growth has a direct impact on demand for dry bulk carriers. The long term average rate of annual GDP growth according to Clarkson stands at about 0.7% below the average Long term dry bulk growth rate expressed in ton mine. This helps us place into perspective the size of the long term multiplier effect of about 1.25 times GDP growth rate on dry bulk carrier demand growth. Later statistics now from the IMF show forecasts for China's GDP growth at 4.6% in 2024, For India, 6.3 percent for the U. S.

Speaker 4

1.5 percent the euro area, 1.2% and for the world, 2.9%. According to statistics published by Clarkson's Research, demand for dry bulk cargo transportation in 2024 Is estimated to grow by about 1.8% in ton miles. For 2025, the forecast It's growth of 1.6%. In terms of steel demand, in 2024, Brahma report that Steel production is expected to remain flat in China, increase about 4% in the rest of the world. These projections are primarily supported by increased steel demand from India.

Speaker 4

For the iron ore trade, the forecast is that it will decline marginally in 2024 due to weaker steel production in China, which may be counterbalanced by improving industrial demand in the United States and Asia. Coking coal demand is expected to increase somewhat Next year, but thermal coal is expected to initially shrink by 1.5% to just over 1,000,000,000 tons in 2024 and by a further 1% in 2025. The grain trade is anticipated to show growth of 3% next year And reached 550,000,000 tons, an increase by a further 5% in 2025 due to firm forecasts for global grain production. As for the minor bulk trade such as fertilizers, agribulks and steel products, These are expected to increase by 3% in 2024% and 4% in 2025. These are trades affecting the employment prospects primarily of our Ultramax vessels.

Speaker 4

On Slide 20, we look at the dry bulk supply. According to statistics provided by Clarkson, dry bulk fleet capacity in 20 24 is expected to Increased by 2.2% and by only 0.9% in 2025. Overall, drybulk carrier newbuilding orders stand at about 8.1% of the existing fleet, with a figure for Capes Being 5.2% of the existing fleet for Panamax is 11% and Ultramax Supramax is at 9.2%. As for the age of the fleet, overall 12% of the bulk of fleet is 20 years or older. For Capes, the percentage is only 3%.

Speaker 4

All these elderly ships will form potential scrapping candidates, especially in a weak market. Average speeds have fallen this year, partly owing to softer freight markets. And as Clarkson's point out, environmental regulations could Keep speeds down for quite a while. However, reduced congestion has helped increase the availability of tonnage worldwide. Congestion seems to have reached levels marginally above pre COVID levels.

Speaker 4

As mentioned in previous calls, Environmental regulations could potentially reduce supply from this year to the end of 2025 by about 1.5% To 2% per annum through slower speeds and retrofit time of energy saving devices. Looking at the new building deliveries and scrapping. According to Clarkson's new building deliveries for Capes in 2024 are Expected to stand at 3,600,000 tonnes. Deliveries of Panamaxes and Camshamaxes will be 5,400,000 deadweight And for SupramaxUltramax deliveries will come to 6,100,000 deadweight. On the demolition side, 3,200,000 deadweight worth of Capes are expected to be scrapped in 2024.

Speaker 4

An estimated 2,900,000 deadweight worth of Panamax Camture Maxes might be scrapped next year and around 2,400,000 deadweight worth of Ultramax, Supramax tonnage could head for demolition In 2024. If the above forecast materialize, the Capesize fleet will increase next year by just 1%, The Panamax Camshamax fleet by 2.9% and the Ultramax Supramax fleet by 3.5%. If we include forecasts for smaller handysize bulkers in deadweight turn, the overall bulk carrier fleet is Expected to grow by just 2.2% next year as mentioned earlier on. A brief look at asset price According to Clarksons, new building prices across the board have increased by about 8% to the end of September from the beginning of the year. For Capes, prices have gone up by just under 7% to $64,500,000 For Panamax Camshamax, prices have increased by 4.5% to 35,000,000 And for Ultramax, Supramax, ships prices have increased by about 8% to 35,000,000 These are prices for vessels with modern Tier 3 main engines ready to comply with Phase 3 EEDI Regulation.

Speaker 4

Increases in raw material and labor costs have been the main driver Of these price increases supported obviously by firm demand for new buildings primarily from other sectors Then bulk carriers and tankers. As regards secondhand prices, since the beginning of this year, the 5 year old Clarksons bulk index Have dropped by about 3% to the end of October. This trend is primarily driven by sentiment and environmental considerations as regards Turning to Slide 21, We look at several factors which could affect positively the dry bulk market and some of them in a negative way. On the positive side, according to Braemar now, Indian major infrastructure projects with positive implications for dry bulk commodities are in the pipeline and include ports, steelmaking, coal fired, power generation and airport construction. According to Comodo Research, Chinese iron ore imports will increase in coming quarters to make up for the continuously Dropping iron ore stockpile.

Speaker 4

Chinese importers have reportedly entered into agreements to purchase record volumes Of U. S. Agricultural goods, mainly soybean. If these shipments materialize, they're expected to provide Strong support to Canshardmax earnings during the forthcoming grain shipment season. The small newbuilding order book provides a high Appears to be a balanced supply demand situation, which we have been going through over the past few quarters.

Speaker 4

Finally, due to persistent drought, restrictions in the Panama Canal have been imposed, which have led to significant delays according to Maersk Broker and are Having an impact on global vessel availability. On the negative side now, There are plenty of geopolitical disruptions around the globe, which could easily have a negative effect on global GDP growth and consequently On demand for the shipment of drybulk commodity, unpredictable weather conditions, A result of the change in climate and have an adverse effect on grain harvest and separately lead to The closure of loading ports of bulk commodities, putting pressure on bulk carrier rates by reducing the availability of commodities ready to be shipped. Finally, sentiment might play a negative role as well. Even though today's sentiment is neutral to slightly negative, It might suddenly turn positive and lead to the influx of new building orders for ships, which would come from 2026 And join the fleet. Regardless of all the above, as we have repeatedly pointed out in our conference calls and meetings with analysts and investors, The Diana Shipping chartering strategy is being determined by taking the agnostic view as regards the future of earnings.

Speaker 4

This policy has served us well through the years and will in all likelihood continue to do so into the future. As regards our balance sheet, Strength has always been and will remain our priority and all future investments will be done with its preservation as a major criterion in the decision I'll now pass the call to our CEO, Ms. Samira Mispalu for a summary of the company's Priorities and future goals. Thank you.

Speaker 2

Thank you, Stacy. So before we open the Call to the questions and answers session. I would like to summarize the key points from today's presentation. Through proactive management of our capital structure, we seize opportunities to renew and modernize our fleet, Capitalizing on appealing sustainable shipping projects as part of our opportunistic approach. And thirdly, our dedication persists in adhering to a strategy that offers stability in a cyclical business while striving to maximize long term shareholder value.

Speaker 2

So we look forward to addressing your questions during the Q and A session.

Operator

Thank you. We will now conduct a question and answer session. Our first question is from Benjik Meitersen with Clarksons Securities. Please proceed.

Speaker 5

Thank you. With regards to the CSLB joint venture, you mentioned that this is Sort of the initial phase with the 2 foreign vessels and the 2 new builds or now the 2 options. How should we think about Diana going forward in terms of growth between the booster market and the offshore wind market?

Speaker 3

Hi. This is Jan Zafirakis speaking. As we have said many times in the past and during this call, we are interested in green projects, But everything has to be in a manageable scale. Our core business certainly remains dry bulk. Having said that, all projects related to Green and the products that have a green element into them is something that we look carefully into and we may have an interest.

Speaker 3

We are not in a position to tell you that this may end up As a major investment for us or not currently, what you see is what it is. We are participating with the percentage in the building of 2 CSOVs, and there is still the pending option for another 2.

Speaker 5

Okay, perfect. And do you have any color to give us on the structure of the joint venture?

Speaker 3

Can you repeat your question because you are breaking up?

Speaker 5

Yes. Sorry. Can you tell us anything about the structure of that joint venture in terms of percentage share, who the other parties are?

Speaker 3

At the moment, you have to stay with the press release. Certainly, in the future, you will be able to have more information on that. But whatever you read in the press release that we have issued, I think it's the major information that you can have today.

Speaker 5

Okay. Thank you.

Operator

There are no further questions at this time. I would like to turn the conference back over to management for closing comments.

Speaker 2

Thank you all for joining us today, and we look forward to talking to you again on our next earnings call in a few months. Thank you very

Operator

much. Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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Key Takeaways

  • Despite softer markets, Diana Shipping delivered a profitable Q3 with positive free cash flows and maintained fleet utilization at 99.7% for the nine months ended September 30, 2023.
  • The company declared a quarterly dividend of $0.15 per share, bringing total cash dividends since November 2021 to $1.45 per share, and issued in-kind dividends in common shares.
  • Diana Shipping ordered two 281,200 DWT methanol dual-fuel Kamsarmax vessels at $46 million each, plus two high-spec CSOVs (with options for two more), underscoring its commitment to sustainable shipping.
  • As of November 10, the company has secured approximately 90% of remaining Q4 2023 revenues (~$30.7 million) and 46% of 2024 revenues (~$108 million) under contract.
  • With cash of $173.6 million and net debt of $492 million, Diana Shipping enjoys a smooth debt maturity profile and free cash flow breakeven of $16,700/day versus current rate coverage.
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Earnings Conference Call
Diana Shipping Q3 2023
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