Star Bulk Carriers Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

Key Takeaways

  • Q2 2024 results: Net income of $106 M, adjusted EBITDA of $153 M, declared a $0.70/share dividend, and ended the quarter with $516 M liquidity against $1.38 B of debt.
  • Capital returns: Since 2021 the company has distributed $1.25 B in dividends and $420 M in share buybacks, raised $104.3 M from the Eagle Bulk merger and sold 10 vessels for $180 M.
  • Eagle Bulk integration is progressing with consolidated commercial, technical and procurement functions, aiming for $600/day/vessel cost synergies by Q2 2025.
  • Drydock programme: 2024 drydocking expense of $34.8 M across 38 vessels will result in approximately 966 off-hire days, affecting near-term vessel availability.
  • Market outlook: With 1.7% fleet growth, strong iron ore, coal and grain trade, geopolitical inefficiencies and slow-steaming trends, management expects a constructive freight market through year-end.
AI Generated. May Contain Errors.
Earnings Conference Call
Star Bulk Carriers Q2 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers' conference call on the Q2 2024 Financial Results. We have with us Mr. Petros Pappas, Chief Executive Officer Mr. Hamish Norton, President Mr. Timo Spiro and Mr.

Operator

Christophe Belvederez, Co Chief Financial Officers Mr. Nikos Rescos, Chief Operating Officer and Ms. Sharys Plakim Tonaki, Chief Strategy Officer of the company. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session.

Operator

I must advise you that this conference is being recorded today. We now pass the floor to one of your speakers today, Mr. Spyrou. Please go ahead, sir.

Speaker 1

Thank you, operator. I'm Simo Spyrou, Co Chief Financial Officer of Star Bulk Carriers, and I would like to welcome you to our conference call regarding our financial results for the Q2 of 2024. 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 Q2 results, cash evolution during the quarter, actions taken to create value for our shareholders, an update on our Eagle Bulk integration, vessel operations, fleet update, the latest on the ESG front and our views on the industry fundamentals before we open up for questions. Let us now turn to slide number 3 of the presentation for a summary of our Q2 2024 highlights.

Speaker 1

For the Q2 2024, the company reported the following. Net income amounted to $106,000,000 with adjusted net income of 89,000,000 dollars or $0.81 per share adjusted earnings. Adjusted EBITDA was at $153,000,000 for the quarter. For the 2nd quarter, as per our existing dividend policy, we declared a dividend per share of $0.70 payable on September 6, 2024. Since 2021, dividend distributions are over 1,250,000,000 dollars or $12.20 per share and share buybacks of over 420,000,000 dollars Our total liquidity today stands strong at $516,000,000 Meanwhile, our total debt stands at $1,380,000,000 On the top right of the page, you will see our daily figures per vessel for the quarter.

Speaker 1

Our time charter equivalent rate was $19,268

Speaker 2

per vessel per day.

Speaker 1

Our combined daily OpEx and net cash G and A expenses per vessel per day amounted to $6,690 Therefore, our TCE less OpEx and less cash G and A is around $12,578

Speaker 2

per day per vessel.

Speaker 1

Vehicle bulk transaction was completed on April 9 and vehicle bulk vessels contributed 83 days each during the Q2. Cash received from the Eagle Bulk merger amounted to 104,300,000 dollars Eagle Bulk's convertible notes, which matured on August 1, 2024 converted to 5,000,009 171,290 shares of Star Bulk common stock. 1,341 1,584 shares of Star Bulk have been loaned out as part of a share lending agreement with Jefferies Capital Services in connection with the Adibulk convertible notes and have been returned to Star Bulk and canceled. The fully diluted share count as of today stands at 118,825,307 shares. Currently, we have 159 vessels on a fully delivered basis, including the 5 newbuilding Kamsarmax vessels we have announced.

Speaker 1

During 2024, we have sold 10 vessels for a total gross proceeds of $180,000,000 2 of these vessels, namely Star Iris and Star Hydrus, are expected to be delivered during the Q3 to their new owners. As of June 30, 2024, the equity left aside from vessel sales and the ATM after the share buybacks and $18,000,000 of newbuilding installments stands at 74,000,000 dollars During the Q3, the above equity will increase by $24,000,000 from the sale of the 2 sold vessels and will be reduced by $8,000,000 of newbuilding down payments. Slide number 4 graphically illustrates the changes in the company's cash balance during the 2nd quarter. We started the quarter with $373,000,000 in cash, out of which $104,000,000 were received for the Igi Balfe transaction. We generated positive cash flow from operating activities of $143,000,000 After including debt proceeds and repayments, CapEx payments for ESD and ballast water treatment installations and the 1st quarter dividend payment, we arrived at a cash balance of $486,000,000 at the end of the second quarter.

Speaker 1

Slide number 5 provides an overview of the company's capital allocation policy over the last 3 years and the various levels we have used to create shareholder value. On the top left, we show our net debt evolution. Since 2021, we have reduced leverage in the company by approximately 34%. Our average net debt per vessel has decreased from $11,000,000 to $6,000,000 per vessel. Star Bulk has been creating value for its shareholders through consecutive fleet buyouts by issuing shares at or above NAV.

Speaker 1

Over the same period, we have declared consecutive quarterly dividends of over $1,250,000,000 We have taken advantage of historically elevated S and P values to sell some of our older and less efficient vessels using equity proceeds to buy back our shares at attractive valuations. Since 2022, we have bought back $423,000,000 worth of Starbucks stock. Combining all of the above, we see that we have focused on returning capital to our shareholders, while at the same time deleveraging the balance sheet and buying back shares when there are opportunities to do so accretively. In total, since 2021, we have taken actions of $2,300,000,000 to create value for our shareholders. I will now pass the floor to our COO, Nikos Rescos for an update on Eagle Bulk transaction, integration and our operational performance.

Speaker 1

Thank you, Simo. Slide 6 illustrates a summary of the Eagle Bulk transaction integration. The integration with Eagle Bulk is underway and upon completion, it will allow us to leverage our strong global presence of the combined entity with offices in Singapore, the U. S, Greece, Denmark and Cyprus. The respective Singapore offices operations have merged into 1 entity and continue as a commercial and technical management hub, aligning ship management practices covering the Asia Pacific.

Speaker 1

The Stamford Office continues operations both on commercial and technical management, covering the Atlantic and the U. S. Together with the Athens corporate headquarters in Europe, we maintain presence in Copenhagen for chartering operations covering the Atlantic and the continent. We are nearing completion of the integration of our commercial teams for the Supramax and Ultramax vessels, managing the 2nd largest Ultramax, Supramax fleet globally, combining our freighting capabilities aiming to improve our TCE performance. We are further rebalancing our sector employment strategy to include voyage business and optimizing our fleet distribution between the Atlantic and the Pacific Basins.

Speaker 1

We have introduced our planned maintenance, procurement and cost control processes across the Singapore and Stamford offices and towards realizing operational and cost reduction synergies. Significant synergies are expected from the centralization of the procurement of all stores, spare parts, bunkers and lubricants for the combined fleet. Cream is gradually taken in house with the expected cost reduction of $600 per vessel per day to be realized by Q2 2025. Dry docks of 12 ex Eagle Bulk vessels are planned following the merger and benefiting from Star Bulk competitive pricing agreements with service providers and shipyards globally. Marine safety, quality and technical maintenance standards, processes, policies and systems are being applied across the combined fleet, aligning with the Star Bulk Lightship Safety Score and Port State Control performance.

Speaker 1

Please turn to Slide 7, where we provide an operational update. Operating expenses was at $5,319 for Q2 2024. Net cash G and A expenses at $13.71 per vessel per day for the same period. In addition, we continue to rate at the top amongst our listed peers in terms of Rideship Safety Score. Slide 8 provides a fleet update and some guidance around our future drydock and the relevant total off hire days.

Speaker 1

On the top right of the page, we provide our expected dry dock expense schedule, which will remain in 2024 is estimated at 34,800,000 for the dry docking of 38 vessels. In total, we expect to have approximately 966 off hire days for the same period. On the bottom of the page, we have our CapEx schedule illustrating our newbuilding CapEx and vessel energy efficiency upgrade expenses with 100% of our fleet by now being ballast water treatment fitted. Based on our latest construction schedule, our newbuilding vessels are expected to be delivered in Q4 2025, Q2 and Q3 2026. In line with the EXI and CII regulations, we continue investing and upgrading our fleet with the latest operational technologies available aimed improving our fuel consumption and reducing our environmental footprint, further enhancing the commercial attractiveness of the Star Bulk fleet.

Speaker 1

Regarding our energy saving devices program, we have completed 36 installations with 11 more vessels planned for retrofit by the end of the year. The above numbers are based on current estimates around drybulk, retrofit planning, vessel employment and yard capacity. Please turn to Slide 9 for an update on our fleet sales. On the vessel sales front, we'll continue disposing our vessels opportunistically at historically attractive levels, having agreed during Q2 to sell 2 vessels for total gross proceeds of 30,000,000 dollars reducing our average fleet age and improving overall fleet efficiency. Following the rollover of Bagel Park existing chartering contracts, we now have a total of 10 chartering vessels.

Speaker 1

We have 5 firm shipbuilding contracts with Qingdao Shipyard with the construction of 82,000 Kam Salvat's newbuilding vessels and with the 1st vessel delivering during Q4 next year. Considering the aforementioned changes in our fleet mix, we operate 1 of the largest dry bulk fleet amongst U. S. And European listed peers 159 vessels on a fully delivered basis at an average age of 11.3 years. I will now pass the floor to our Chief Strategy Officer, Harris Plakadonaki for our ESG update.

Operator

Thank you, Mikko. Please turn to Slide 10, where we highlight our continued leadership on the ESG front. During the Q2 of 2024, we completed the measurement of the company's 2023 greenhouse gas emissions. Scope 1 greenhouse gas emissions were reduced by approximately 4%, while the respective CII of our fleet reduced by approximately 5.7% compared to 2020. All 3 emissions measured for a consecutive year were approximately 9.5% lower than the previous year.

Operator

This performance will be published in our newly achieved report during the Q3 of 2024. Moving forward, we're working on setting science based targets for the company to help clearly define the path to further reduce our fleet's carbon footprint in line with the Paris Agreement goals. On the regulatory front, we are preparing for compliance with the fueling to maritime regulation coming into force on 1 January 2025 and the Mediterranean Sea Emission Control Area for sulfur oxide and particulate matter having effect from 1st May 2025. The GAAP analysis related to the EU's corporate sustainability reporting directive is underway to identify and address differences between the directive and the company's ESG reporting processes. In July 2024, Star Bulk Systems both in the office and on the vessels were affected by the Crowdstrike worldwide incident caused by a bug during the night of various shutdowns.

Operator

The immediate action by the company restored the systems in the office a few hours later and on the vessels 1 to 2 days later. On the society front, the employment of female cadets on our vessels' unions, along with the deployment of StarLink on board and implementation of the CyberRoute technology, which monitors the system's performance and security. Star Bulk was awarded sustainable development in the maritime industry credit awards, recognizing the company's continuous efforts to lead by example in sustainable development in the sleeping industry. I will now pass the floor to our CEO, Pedro Spappas, for our market cap rates and his Q1 results.

Speaker 2

Thank you, Harris. Please turn to Slide 11 for

Speaker 1

a brief update of supply.

Speaker 2

During the first half of twenty twenty four, a total of 18,800,000 deadweight was delivered and 2,100,000 deadweight was sent to demolition for a net fleet growth of 16,700,000 deadweight or 1.7% year to date and 3% over the last 12 months. Uncertainty on future green propulsion, high shipbuilding costs and limited shipyard capacity until late 2026 due to increased competition from other vessel types have helped keep new orders under relative control. The order book has slightly increased during the last 2 years, but still stands at a comparatively low level of 9.8% over the fleet. Furthermore, vessels above 20 15 years of age stand at 9% and 21.9% of the fleet, respectively, while scrap prices have stabilized at elevated levels and should induce demolition of overage and energy inefficient tonnage during seasonal downturns over the next years. The average steaming speed of the drybulk fleet has stabilized at lower levels between 11.1 and 11.2 knots during the last 6 months due to inflated bunker costs and environmental regulations, including EXI and CII that increasingly incentivize slow steaming and retrofits and should moderate supply over the next several years.

Speaker 2

During the first half of twenty twenty four, global pork concession has fully normalized on all sizes, following a strong reduction over the last 2 years that gradually inflated available supply by approximately 6%. Recent trends of global Supramax congestion as well as dry bulk tonnage at Chinese ports indicate that there is a high probability for congestion to increase year over year during the second half of twenty twenty four, with a positive effect on the supply and demand balance. Moreover, rising tensions in the Red Sea since late 2023 continue to cause strong inefficiencies for trade despite the partial recovery of drybulk crossings in the Panama Canal that are expected to fully recover by the end of the year. As a result of the above trends, nominal fleet growth is unlikely to exceed 3% per annum over the next couple of years, even under the assumption that demolition activity remains at current low levels. Let me now turn to Slide 12 for a brief update of demand.

Speaker 2

According to Clarksons, total dry bulk trade during 2024 and 2025 is projected to expand by 2.6% and 0.7% in tons and by 4.4% and 0.5% in ton miles, respectively. During the first half of twenty twenty four, total dry bulk volumes increased by 5.8% year on year on the back of record iron ore, coal and minor bulk exports, while ton miles increased at a faster pace, supported by Canal and geopolitical inefficiencies and strong exports from Latin America, West Africa and the U. S. The IMF is projecting global GDP growth of 3.2% for 2024 and 3.3% for 2025, at the same pace as in 2023, and upgraded its forecast for China to 5% and 4.5%, respectively. Chinese GDP increased by 4.7% in Q2, missing initial expectations due to a struggling property market and a slowdown of household spending.

Speaker 2

Nevertheless, recent comments from government officials highlighted that the country has the ability and confidence to achieve its full year growth target of around 5%, supported by strength in infrastructure, manufacturing and exports, while demand for drybulk commodities remained strong as import volumes increased by 7 0.5% year over year during the first half of twenty twenty four. Variable demand from the rest of the world is experiencing a recovery over the last three quarters that is expected to continue amid lower commodity prices and expectations of easing monetary policy. During the first half, imports were up by 4.3% year over year, with the increase coming mainly from India, the Middle East and Southeast Asia. Meanwhile, Western economies are also moving higher following 2 years of contraction and geopolitical related disruptions. Iron ore trade is expected to expand by 3.1% in tons and by 5.6% in ton miles during 2024.

Speaker 2

China steel production declined by 2.2% year over year during the first half, while domestic production in imports of iron ore increased by 15.3% and 6.1% respectively, increasing port stockpiles by approximately 30,000,000 tons versus last year. Weak domestic consumption has forced China steelmakers to export excess output and has prompted some economies to raise tariffs as a response. On the other hand, steel production from the rest of the world has been on a strong upward trend since September and increased by 4.4% during the first half, driven by strong demand in India and a gradual recovery of Atlantic production. It is worth highlighting that the medium term outlook of Atlantic iron ore exports is promising as Vale is expected to achieve the upper end of their 2024 production guidance that was set at 310,000,000 to 320,000,000 tons. Moreover, Vale is expected to ramp up production to 340,000,000 to 360,000,000 tons by 2026, while the Simmandu iron ore project in Guinea will deliver the 1st quantities by the end of 2025.

Speaker 2

Coal trade is expected to marginally expand by 0.6% in tons, but contract by 0.5% in ton miles during 2024. Global focus on energy security during the last years has inflated coal trade, but most of the growth has come from short haul Indonesian exports. Chinese imports increased further during the first half and stand at record levels, segment supported by a 1.9% year on year decline in domestic coal production and a 2.2% year on year increase in thermal electricity generation. Nevertheless, during the last 2 months, a reversal of this trend is taking place following the seasonal strength of hydropower, a directive from provinces to increase production and a stabilization of prices. During the last quarters, India is emerging as a leading buyer of coal as domestic consumption has outpaced production growth and along with inland infrastructure constraints has led to a strong increase in import requirements.

Speaker 2

Grains trade is expected to expand by 4.4% in tons and by 10% in ton miles during 2024. Exports from Latin America increased by approximately 12% during the first half as Argentinian volumes experienced a strong recovery. Moreover, Ukraine raised exports to the highest level since the start of the war, but at the same time, Russian wheat exports have been affected by frost, lots and heat waves at key production areas. Total grain trade was flat year over year during the first half of twenty twenty four, but export volumes growth is expected to increase during the second half of twenty twenty four. Lower grain prices, improved outlook for the forthcoming U.

Speaker 2

S. Crop and increased focus on food security are expected to support grain trade in the medium term. Manual bulk trade is expected to expand by 3% in tons and by 4.1% in ton miles during 2024. Minor bulk trade has the highest correlation to global GDP growth and the recent strength in the container market provides a positive indicator for short term prospects for smaller sizes. The positive price arbitrage continues to incentivize Chinese steel exports and backhaul trades, while bauxite exports out of West Africa continue to expand at a high pace that generates strong thumbnails for the Capesize sector.

Speaker 2

As a final comment, despite the global geopolitical uncertainties, we're constructive about the medium term prospects of our industry, given the favorable order book, an aging fleet and upcoming rigorous environmental regulations. Star Bulk has built a diverse scrubber fitted fleet that is well positioned to operate efficiently and take advantage of attractive opportunities, create value for its shareholders. Without taking any more of your time, I will now pass the floor over to the operator to answer any questions you may have.

Operator

Thank you. We will now conduct a question and answer session. The first question comes from Omar Khokta with Jefferies. Please proceed.

Speaker 3

Thank you. Hi, guys. Good afternoon. Thanks for the update. Hi, Amish.

Speaker 3

Yes, just a couple of questions for me I wanted to ask, perhaps maybe just market related and Petros, you just gave an overview of the different markets. And just wanted to touch a bit more on that. But clearly, as we're looking in the market today, dry bulk rates are they've been holding up quite well and your realized figures thus far into the Q3 show continued steady earnings, I would say. Obviously, there's volatility, but it looks like things aren't too crazy different. But this is happening somewhat of a softer steel environment, at least in terms of steel prices when we look at where they are globally.

Speaker 3

And so just wanted to ask, given the steel backdrop and how it looks a bit softer, are you seeing this having any effect on the dry bulk market at the moment? And then also, are you a bit surprised perhaps that Capes are earning north of 20 in this type of environment?

Speaker 2

Hi, Omar. Thanks for the question. Well, we are actually positive for the second half of twenty twenty four for a number of reasons. First of all, we see that the Red Sea and the Ukrainian war are not finishing anytime soon. So this will continue to create inefficiencies.

Speaker 2

And this has an effect in the market. Then the environmental regulations are starting to bite. And you see that the fleet is basically slow steaming at around 11.1 notch. So this is going to get worse going forward. Then we see Vale increasing their exports, their iron ore exports.

Speaker 2

And we see Guinea increasing or keeping at a high level their bauxite exports. We think we will see much stronger grain trade. We believe that China will not let up and we'll try to keep the 5% GGP growth going forward. We also see newbuilding deliveries slowing down. So and judging from the past, the second half of every year is much stronger than the first half, is much more exports.

Speaker 2

So overall, we think that the decent market will remain for the next 6 months at least. And it's not just related to whether there's going to be more production of steel or less production of steel in China, where we think that it will be it will remain strong going forward, especially because of manufacturing reasons and because we they will continue to export for as long as they can. So from all respects, we expect to be seeing a decent market for the second half of the year.

Speaker 3

Got it. Okay. That's helpful, Petros. Thank you. And maybe just kind of a follow-up and thinking more about the midsize segment this time.

Speaker 3

I think one of the themes, say, late last year and coming into this year has been the expectation that Capes would outperform the Ultra and CancerMAX segments. And that, I think, was the case earlier. But it feels like or it looks like the midsized segments have done quite well here, somewhat under the radar perhaps. What's driving that sort of stronger performance on the midsize, would you say?

Speaker 2

Well, all sizes are interconnected actually. So it's not like one size will go up and the rest will lag. So I would say that if we see strong very strong Capes, charters will try to cover by splitting cargoes, for example, or the other way around from Supramaxes to the midsize. So actually, whenever the 2 edges, the Capesize and the Supramax are doing better. You will see cargoes flowing into the middle sector, the Panamax, Kamsarmax.

Speaker 2

In any case, I mean, I think all types of vessels with strong Capes have remained on average, I think, above $25,000 which is pretty strong. Supras have done well because the containership sector is doing pretty well. And I have to admit that I'm pretty surprised that our Khamsin Maxes have been fixed for the next quarter, a bit above $18,000 on average, probably because coal trade in the first half of the year was relatively strong, maybe because there's cargoes from the other two types of vessels. But we also expect they will be doing pretty well going forward because we foresee higher trade on the grain side.

Speaker 3

Understood. Well, Petros, thank you for the color. That's it for me. I'll turn it over.

Speaker 2

Thank you, Amar.

Operator

Thank you. Our next question comes from Miglick with Clarksons Securities. Please proceed.

Speaker 4

Just want to touch upon capital allocation. You have quite a significant portion of cash now. How are you looking at share buybacks going forward?

Speaker 5

Well, it's Hamish North here. We spent $380,000,000 in the fall buying back 20,000,000 shares of stock, Oaktree was the seller, but frankly, from the shareholders' point of view, it doesn't matter who the seller was, but what the price was. And it was substantially below net asset value and below today's market value. So it was a big benefit to the shareholders. And we pretty much feel like we're exhausted by the effort of buying back those shares.

Speaker 5

At that time, let us recover our breath and figure out what to do. We're paying out a big dividend and we do have a bunch of cash after that. We, as you might recall, have a policy of keeping $2,100,000 of cash per vessel on the balance sheet permanently. And we've got some cash in excess of that, but it's not a huge amount. So I don't think we're under pressure to figure out what to do with that cash for the moment.

Speaker 5

It's not until it builds up to something more substantial.

Speaker 4

That's great color. And maybe just to follow-up on that, how are you looking at growth? And if

Speaker 5

you were sort of forced to choose a segment to grow in, which one would it be? Well, we really like being diversified and we've just bought a bunch of Supramaxes and Ultramaxes. So ideally, if we find a merger partner, we would like to find a merger partner who's got Capes and larger ships generally. So you can always get what you want, but hopefully, we get what we need.

Operator

Okay. That's perfect. Thank you. Our next question comes from Ben Nolan with Stifel. Please proceed.

Speaker 6

Hi. This is actually Pamela on for Ben. But I wanted to ask, since secondhand asset values have been sort of plateauing recently, What direction do you see this moving forward?

Speaker 5

The shift size, Constantine Sinotiris, do you want to talk about ship values?

Speaker 1

Well, ship budgets have increased

Speaker 7

substantially during the first half of this year. We are seeing stabilization over the last 1, 2 months. We believe that ship projects should, as you mentioned, plateau and probably remain at these levels, but a lot will depend on how the market performs towards the end of the year when we expect the freight market to be stronger.

Speaker 5

Yes. And I guess the shipyards are still quite full.

Speaker 7

Yes. Shipyard capacity for 2026 is structurally almost all gone and we especially for the

Speaker 2

larger sizes, and we are now

Speaker 7

are starting to see 2027 slowly being filled. So this is definitely something that will be supporting prices of modern vessels since we haven't seen such conditions for a

Speaker 1

few decades actually.

Speaker 2

Yes, but overall, we believe that prices have actually reached a pretty high price and they will plateau from here unless, of course, there is a huge upside in the market at some point. Otherwise, the market remains where it is. We think this is we're very close to the highs of the high values for the vessels.

Speaker 6

All right. Appreciate the color. Thank you.

Operator

There are no questions in queue. I would like to turn the call back to management for closing comments.

Speaker 2

No further comments, operator. Thank you very much and have a great summer everybody.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

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