Diana Shipping Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 25, 2024

Key Takeaways

  • Secured period employment for nine vessels during Q3 at an average rate exceeding their prior fixtures.
  • Achieved 99.7% fleet utilization in the first nine months, with net debt at 37% of market value and $186.8 M in cash reserves.
  • Time charter revenues decreased to $57.5 M in Q3 (down from $62.1 M YoY) and net income fell to $3.7 M.
  • Raised €150 M via a senior unsecured bond and $167.3 M through a term loan, refinancing existing debt and releasing four vessels from mortgage.
  • Declared a quarterly dividend of $0.01 per share, maintaining an unbroken dividend record since Q3 2021.
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Earnings Conference Call
Diana Shipping Q3 2024
00:00 / 00:00

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Diana Shipping Third Quarter 20 24 Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Ed Nebb, Investor Relations. Please go ahead, Ed.

Speaker 1

Thank you, Kevin, and thanks to everyone who is joining us today for the Diana Shipping Inc. 2024 Q3 conference call. With us today from management is Ms. Samiramese Palliu, Chief Executive Officer, who will introduce the other members of the management team. So without further ado, I will turn the call now over to Samir Riz Paliou.

Speaker 1

Please go ahead.

Speaker 2

Thank you, Ed. Good morning, ladies and gentlemen. Welcome to Diana Shipping Inc. Q3 2024 Financial Results Conference Call. As Ed said, I'm Semira Mispaylo, the Chief Executive Officer of the company.

Speaker 2

It's a pleasure to address you today alongside our esteemed team, Mr. Ioannis Zafirakis, Director, Chief Financial Officer and Chief Strategy Officer Mrs. Maria Dede, Chief Accounting Officer and Mr. Dave Vander Linden, Chief Commercial Officer of Steamship Ship Broking Enterprises Inc. Before we begin, I kindly remind you to review the forward looking statements on Page 4 of the accompanying investor presentation.

Speaker 2

The Q3 of the year has been a tale of 2 markets. Capesize vessels maintained the relative strength, averaging higher returns than in the previous quarter, while the smaller segments weakened significantly. This disconnect has persisted throughout the year, but became more pronounced as the market struggled to absorb the steady flow of Cansarmax and Ultramax newbuildings. That said, we successfully secured period employment for 9 vessels during the quarter, achieving an overall average rate higher than their previous fixtures. Turning to Slide 5, let's review our company snapshot.

Speaker 2

Diana Shipping Inc, founded in 1972 and listed on the New York Stock Exchange since 2005, operates a fleet of 38 drybulk vessels, 7 of which are mortgage free. Our fleet has an average age of 11 years and a total deadweight capacity of approximately 4,200,000 tonnes. We anticipate the delivery of 2 methanol dual fuel newbuilding Kamsarmax drybulk vessels at the end of 2027 and early 2028 respectively. Fleet utilization reached 99.7% in the 9 months period of 2024, highlighting our effective vessel management. As of the end of September, we employed 984 individuals at sea and the shore.

Speaker 2

Financially, our net debt stands at 37% of market value, supported by US186.8 million dollars in cash reserves and total secured revenues of approximately US135.3 million dollars as of November 19. On Slide 6, we outlined the key developments from the Q3 through November. In July, we issued EUR 150,000,000 senior unsecured bonds that are listed on the Oslo Stock Exchange maturing in July 2029 with a fixed coupon of 8.75%. The net proceeds were used to refinance the company's US125 $1,000,000 senior unsecured bond due in 2026. The approval and publication of the company's prospectus for the bond listing on the Oslo Exchange was completed in October.

Speaker 2

In July, we signed a term loan facility with Nordea Bank secured by 10 vessels, drawing US167.3 million dollars to refinance 2 existing term loan facilities. This refinancing released 2 previously financed vessels. In October, we entered US80.2 million dollars 7 year secured term loan facility with Danish Ship Finance, maturing in April 2031, secured by 7 vessels. This proceeds refinance our existing loan with Danish Ship Finance, releasing 2 previously mortgaged vessels. In November, completed a US25 $1,000,000 TAP issue under our outstanding senior unsecured bond due July 2029, issued at 102 percent of par value with a fixed coupon of 8.75%.

Speaker 2

This puts the total outstanding amount of the 20 29 bond to US175 $1,000,000 As of November 19, we have raised US25.5 million dollars through the exercise of US6,381,000 9,000 100 warrants under our ongoing warrant program with the potential to raise an additional 64,900,000 under the full scope of the program. As of November 19, we have secured revenue for 78 percent of the remaining ownership days of 2024, amounting to approximately US22.1 million dollars and 38% of available ownership days in 2025, amounting to approximately US95.8 million dollars Janis will provide further details on our cash flow generation potential. Earlier this month, we released our 2023 ESG report, the 5th in a row underscoring our ESG strategy and commitment to sustainability. For the quarter ending September 30, 2024, we're pleased to declare a quarterly cash dividend of $0.01 per common share, totaling approximately US1.3 million dollars On Slide 7, we summarize our current chartering activity. Since our last earnings presentation, we have secured favorable time charters for 9 vessels.

Speaker 2

3 Ultramax vessels at a weighted average daily rate of US14,539 dollars for 3.79 days 5 Panamax, Campamax and Post Panamax vessels at the weighted average daily rate of US126664 dollars for 155 days. 1 Newcastle MAX vessel at US26 $1,800 for 6.99 days. Slide 8 highlights our disciplined chartering strategy. We focus on staggered medium to long term charters to avoid clustered maturities, ensuring earnings visibility and resilience against market downturns. Now I'll pass the floor to Yanis for a detailed financial analysis.

Speaker 3

Thank you, Shneur Amish. We will go through very quickly the financial highlights for the Q3 2024 where you can see that our time charter revenues have decreased by approximately $5,000,000 from the Q3 2023, being $62,100,000 to $57,500,000 for the Q3 2024. The net income has been $3,700,000 and at the same period in 2023, it was $7,400,000 The good thing about our highlights is that we have managed to increase our cash and cash equivalents time deposits and restricted cash to $186,800,000 Today, as we speak, the number is much higher, but that was as of September 30 compared to $161,000,000 in December 31. The long term debt has gone down from $642,800,000 to $627,000,000 And looking at our balance sheet, as we said earlier, we have managed to be in a position to have our net debt compared to the values of our vessels at 37% as we have already said. On the summary of selected financial and other data, you can see that in this quarter, our time charter equivalent has dropped to 15,300 and $33,000 compared to $15,800 at the same period last year.

Speaker 3

The operating expenses have increased to 5,900 and $54 compared to $5,621 the same period last year. Looking at the 9 month period, the same numbers, the high EBIT time charter equivalent rate has gone down to 15,162 compared to 17,235 for the 9 month period last year. And the daily expenses have increased to $5,900 approximately to from $5,700 approximately. Having said all of the above, looking at our current debt profile and generally speaking our balance sheet, we think that we are in a very good position. One of the indicators of that is our the profile of the debt.

Speaker 3

As you can see in this slide, we have no maturities. Basically, we have managed to have no maturities up to 2029, which gives us a very nice profile. And cash flow wise, help us do our strategic things. At the bottom of this slide, you can see how well the debt decreases, and we end up in 20 20 9 with slowly getting to lower and lower numbers. Next slide, if we go to the breakeven versus estimated revenue, we still have some days that they are unfixed for 2024.

Speaker 3

But if we assume, based on the FFA rates, that we fixed the unfixed rates for around $15,000 that will bring us to a time charter equivalent rate of $16,765, which is going to be above around $6.50 per day for our per vessel for all of our vessels. As regards 2025, more or less, we think we're going to be very close to our breakeven if we take as an assumption the current FFAE rates. Having said all of these things, if we move to Slide 14, we have just declared a dividend of $0.01 But since 20 21, the Q3 of 2021, we have never missed a dividend payment. And the intention is to keep that in the future as well. Having said all of these things, now it's time to pass the floor to our to the Chief Commercial Officer of Steamship Shiprock Enterprises, Dave Van der Linden, for the market overview.

Speaker 3

Dave?

Speaker 4

Thank you, Jani, and welcome again to all participants on this call. Now for a brief market update. A recurring theme during this year's conference call has been the important role that geopolitical developments have played in the shipping industry, and the Q3 of this year has been no exception. Rerouting of dry bulk vessels away from the Red Sea remains in focus with Suez Canal transits hovering at about 40% less compared to the second half of twenty twenty three. Clarksons estimates that the Red Sea disruption has increased bulk carrier ton mile demand by about 1.2%.

Speaker 4

However, the Chinese economy has continued to struggle with the property sector being the biggest drag on economic growth. So far, there has been little impact on imports even though demand has been weakening. The continued imports coupled with lower domestic demand have led to a significant buildup of commodity inventories. Having said that, the Chinese government seems determined to support the economy via several stimulus measures. As can be seen from the graph on this slide, the 12 month time charter levels unusually peaked in Q1 this year.

Speaker 4

That being said, Q3 levels were resilient on the back of increased congestion in South America and a steady cargo flow into India and Southeast Asia. Moving to the next slide for some macroeconomic news. The IMF forecast that the global economy would grow by 3.2% in 2024 and by 3.3% in 2025. The IMF reports a weaker outlook for China, Latin America and the EU. The Chinese economy is projected to grow by 5% in 2024, 4.5% the year after and by 4.1% in 2026.

Speaker 4

These forecasts, however, have not considered the recently announced stimulus package in China involving the raising of debt to support the economy. For the Eurozone, growth predictions are mere 0.8% this year and 1.2% in 2025. And the IMF prediction of GDP growth in India is 6.5 for next year, while for the U. S, the prediction is 1.9%. For a brief commodities update, according to Commodore Research, global steel production excluding China is beginning to contract.

Speaker 4

According to Braemar, year to date global steel production stands at 1,250,000,000 tons, which is nearly 2% lower than at this time last year. Having said that, the World Steel Association is predicting a pickup of more than 1% in 2025. Regarding iron ore, Clarksons expect this trade to remain flat both in 2025 and 2026 at around 1,600,000,000 metric tons per annum. It is understood that iron ore inventories in China stand at a 10 year high around 160,000,000 tons. Clarkson's projected coking coal volumes are also remaining steady for 2025,000,000 tonnes and around 275,000,000 tonnes per annum.

Speaker 4

And as regards to thermal coal, the projection is for volumes to drop to 1.037000000000 tons next year, which should be around 2% compared to 2024 and to 1.025000000000 tons in 2026, which would be another 1% down over 2025. The 2025 grain season is expected to grow to 552,000,000 tons, which is an increase of 2% compared to this year. While for 2026, grain trade might reach 565,000,000 tonnes, which would be another 2% increase. The biggest growth we will see we expect to see in minor bulks. Trade in minor bulks is expected to grow by 3% in 2025 and reach 2,300,000,000 tons and by another 2% in 2026 reaching 2 point 341,000,000 tons supported mainly by growth in the bauxite and manganese ore trade, as well as an increase in cement, coke, pet coke volumes as global construction activity is expected to pick up.

Speaker 4

Moving to Slide 3. Moving to Slide 17, covering fleet development. The overall bulk carrier order book stood at the end of October at around 10.3% of the existing fleet. The order book for Capes and above continues to be the smallest of all types of bulkers with 29,500,000 deadweight tons, which represents about 7.5% of the current trading fleet. The order book for Kamsarmaxes is 36,700,000 deadweight, which is about 14% of the current fleet.

Speaker 4

And the order book for Ultramax vessels stands at a little less than 30,000,000 tons, about 12% of the current fleet. If you look at projected deliveries, according to statistics prepared by Braemar, the Capesize fleet is expected to grow by about 5,000,000 deadweight tons in 2025, and 6,000,000 in 2020 6. For Kamsarmax, the figures are 9,000,000 deadweight tons next year and 14,000,000 the year after. Ultramaxes are expected to grow by 10,000,000 in 2025 and by 7,000,000 in 2026. All these figures are net of expected deletions from the fleet.

Speaker 4

According to Clarksons, only 5,200,000 deadweight ton worth of bulkers are expected to be sold for scrap this year. And for 2025, the figure is expected to reach 9,200,000 deadweight in 2026 for an excess of 14,000,000 ton deadweight. New environmental regulations are expected to drive many shifts to the scrapyards. Ship demolition decisions are primarily driven by the state of the freight market sentiment and age. For Capes and Supramaxes, the years 2010 through 2012 were the highest delivery volume you have seen for a long time.

Speaker 4

And for Panamax and Camps Armaxes, the peak delivery years were 2011 through 2013. This means that a considerable number of vessels will soon become 15 years old, which particularly for Capes is a crucial age barrier as regards the cost of a third special survey and the ability to charter to the main players in the drybulk market. According to Clarksons, 24% of HandymaxUltramax tonnage is 15 years or older as well as 26% of Panamaxes and 17% of Capes. New building prices of Capes according to Clarksons have moved up so far this year by over 14%, whereas new building prices of smaller ships have seen rises about half of them. Recent weakness in the charter market has seen some asset values come down from the peak levels seen earlier this year.

Speaker 4

5 year old CAMS are now around $34,000,000 and the 10 year old stand around $25,000,000 which is down double digits. For Capes, 5 10 year old ships secondhand prices have eased about 2% from their peak and stand now at around $63,000,000 $44,000,000 respectively. Ultramax 5 10 year old values are currently around $33,000,000 $24,000,000 respectively. Turning to Slide 18

Operator

for the outlook.

Speaker 4

According to Fearnleys and Clarksons, positive factors for 2025 are the following: continued import growth into India and Southeast Asia possibility of a strong Brazilian soybean season increased congestion and slower speeds the recent stimulus measures in China and continuing risk for the Red Sea transit. Possible negative factors for 2025 are worldwide lower iron ore consumption, protectionist measures leading to trade wars, steel production outside of China falling back, both fleet growth outpacing demand and the easing of tensions in the Middle East, which could result in more Red Sea transits. Considering the entire picture of headwinds and boosting factors for the drybulk trades, Clarkson's project a slight easing for bulk carriers' earnings in 2025 as tonne mile demand is expected to grow by about 1.3% versus a supply growth of around 3%. However, for 2026, Clarksons predict a cautiously positive outlook for the bulk carrier market, Even though dry bulk demand in ton miles is expecting to grow again a little over 1% and supply projected to grow again by around 3%, they foresee impacts from environmental policies to remain in focus with new regulations having a range of positive impacts for supply demand. Also slower operating speeds, longer drydock stays, demolition of older units should help the market going forward.

Speaker 4

BIPCO and Clarksons regard as a positive factor the Simandou iron ore project in Guinea, which starts production in late 2025 and will gradually contribute to longer shipping distance of high quality iron ore into 2026. And looking even further ahead, BHP Billiton states in their latest Economic and Commodity Outlook report that population growth, urbanization, the infrastructure of decarbonization, capital stock replacement and rising living standards are expected to drive demand for ferrous and non ferrous metals as well as fertilizer for decades to come. That's it for the market. I will now pass the call back to our CEO, Simeon Espadiol to provide the most important financial highlights and takeaway points from our quarterly earnings call.

Speaker 2

Thank you, Dave. But before concluding today's presentation, I'd like to highlight our ongoing ESG initiatives. Diana Shipping Inc. Is committed to promoting eco friendly technologies and modernizing our fleet. It's committed to transparently sharing emission data to ensure accountability, to build on partnerships and collaborations to advance our sustainability goals, to develop an equity, diversity and inclusion program while continuously investing in our people.

Speaker 2

Moving on to Slide 20. To summarize, Diana Shipping Inc. Stands on a strong foundation built on over 50 years of an industry expertise and nearly 20 years on the New York Stock Exchange. A seasoned management team adapts at addressing industry challenges, strong stakeholder relationship and a disciplined strategy approach, a solid balance sheet with a strong cash position and a countercyclical mindset ongoing fleet modernization efforts a robust DSG strategy and a focus on rewarding our shareholders when possible. And with that, thank you for joining us today.

Speaker 2

We now look forward to addressing your questions during the Q and A session.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Clement Mullens from Value Investors. Your line is now live.

Speaker 5

Good afternoon. Thank you for taking my questions. I wanted to start by asking about your minority investment in 4 CSOVs. Could you provide an update on when the vessels are expected to be delivered and whether you expect any additional equity goals for these vessels? And secondly, could you talk a bit about how these vessels will be employed, be it on term contracts or in the spot market?

Speaker 3

Okay. This is Jan speaking. We our total commitment on those vessels is €50,000,000 and there is another there is we have already paid the around 33 of those, 35 and we expect to pay the other 15 soon. The delivery of those vessels are scheduled to be by the first one by September 2025 and a vessel after every 3 months, we are supposed to have a delivery of the next 3 vessels every 3 months. Now as regarding employment, we have not secured any employment yet.

Speaker 3

But if we were to share a preference, we prefer to enter long term employment.

Speaker 5

That's helpful. Thank you. I also wanted to ask about your capital allocation priorities. Could you talk a bit further about how you plan to balance fleet renewal, deleveraging and shareholder returns going forward? And secondly, is there any appetite to potentially repurchase shares given the discount you're trading at?

Speaker 3

Now being listed since 2,005, we have shown to everybody how disciplined we are as regards the questions that you have asked. Be certain that we will do what we have to do at the right time in the cycle. But being more specific, at regards to your questioning, unfortunately, we cannot be more specific. Renewal of the fleet will happen at the appropriate time. And of course, we have shown in the past that, again, at the appropriate time, share repurchase can happen.

Speaker 3

The big thing for the bigger picture for everyone is to look at our balance sheet and see that all of your questions, we have prepared the company to have the option to be able to do these things, but it has to happen at the appropriate time. So to cut the long story short, the answer to your question is indirect and it is that we have the means of doing what you have asked. As regards to asset allocation, we are not in a position to respond.

Speaker 5

All right. Makes sense. That's all for me. Thank you for taking my questions.

Speaker 3

Thank you very much for the question.

Operator

Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Speaker 2

So once again, thank you for joining us today, and we look forward to speaking to you again at one of our next financial results call. Thank you very much.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

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