Diana Shipping Inc. Q3 FY2023 Earnings Call

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 Semiramis Paliou, Chief Executive Officer; and other members of the management team, whom she will introduce. And so without further ado, I will turn the call over to Ms. Paliou.

Thank you, Ed. So good morning, ladies and gentlemen, and welcome to Diana Shipping Inc.'s Third Quarter 2023 Financial Results Conference Call. I'm Semiramis Paliou, the CEO of the company. And it is my pleasure to present alongside our esteemed team, Mr. Stasi Margaronis, Director and President; Mr. Ioannis Zafirakis, Director, CFO and Chief Strategy Officer; Mr. Eleftherios Papatrifon, Director; and Ms. Maria Dede, Chief Accounting Officer. Before we begin, I'd like to remind everyone to review the forward-looking statement on Page 4 of the accompanying presentation. Q3 2023 has proven to be a profitable quarter for our company. Despite less robust market conditions, our disciplined chartering strategy 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. Since November 2021, we have paid $1.45 per share, totaling USD 130 million in cash dividends. In addition, we have distributed to our common shareholders in-kind dividends in the form of newly issued Diana Shipping Inc. common shares as well as OceanPal Inc. common and preferred shares. Turning to Slide 5, our fleet comprises of 42 vessels with a total deadweight of approximately 4.7 million deadweight tons. 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 the third quarter, we employed 1,040 people at sea and onshore. Moving on to Slide 6, let's go over the key highlights from the third quarter and recent developments. We recently announced our intention to order two 81,200 deadweight methanol dual-fuel new-building Kamsarmax dry bulk vessels built at Tsuneishi Group for a purchase price of USD 46 million each. These vessels are expected to be delivered to the company by the second half of 2027 and the first half of 2028, 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 demands of our industry while reducing our carbon footprint. In addition, we announced our participation in a joint venture entity that has ordered two high-spec commissioning service operation vessels, otherwise known as CSOVs, to be built at VARD yards with the option to acquire two 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 motor vessel Boston for approximately USD 18 million. We have also converted the vast majority of Ocean Pal Inc. Series C preferred stock into Ocean Pal common shares at the point in time that we considered opportune. As of November 10, the company has secured revenue for 90% of the remaining ownership days of 2023, amounting to approximately USD 30.7 million of contracted revenues. Additionally, the company has secured approximately $108 million of contracted revenue for the year 2024, representing 46% of the available ownership days for the entire year. Ioannis 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 per common share, totaling approximately USD 16.2 million to be paid in the form of Diana Shipping Inc.'s common shares. Moving on to Slide 7, let's review a summary of our recent chartering activity. We have continued to implement our disciplined chartering strategy by securing profitable time charters for eight vessels since our last earnings presentation in August 2023. To provide some detail, we have chartered two Ultramax vessels with a weighted average daily rate of USD 13,398 for a remaining average period of 351 days. Additionally, three Panamax Kamsarmax vessels have been chartered at a weighted average daily rate of USD 12,642 per day for a remaining average period of 283 days. And three Capesize new Newcastlemax vessels have been chartered with a weighted average daily rate of USD 17,380 per day, and a remaining average period of 494 days. Slide 8 illustrates our commitment to strategically chartering our vessels in a staggered manner. Our emphasis is on securing positive free cash flows through our disciplined employment strategy and positioning ourselves in a balanced way to participate in the market efficiently. I will now pass on the floor to Ioannis to provide a more detailed analysis of our financials.

Thank you, Semiramis. The financial highlights of this quarter can be summarized in this table. What is worth mentioning is that our time charter revenue stood at $62 million compared to $73.8 million in the same 3 months in the previous year. And our earnings per common share on a diluted basis were $0.06 compared to $0.37 in the same quarter the previous year. At the same time, our cash, cash equivalents, time deposits, and restricted cash at the end of September 2023 amounted to $173 million. During the end of the year in 2022, it was $143.9 million. Our long-term debt and finance liabilities, net of deferred financing cost, stood at $657.4 million compared to $663.4 million on December 31, 2022. Moving to the next slide, we can see the decrease in time charter revenues and the increased number of vessels. Although the operating expenses have been maintained at a similar level, the TC equivalent rate has fallen due to market conditions, to $15,891 per day compared to $23,289 per day in the previous year for the same 3-month period. The same applies to the next slide, in the 9-month period, where you can see the increased number of vessels compared to a lower time charter revenue that we had in this period, resulting in a time charter equivalent rate of $17,235 compared to $23,363 in the same 9 months last year. Operating expenses remained similar, reported at $5,691 compared to $5,580. The facts described earlier have resulted in a drop in our earnings per common share to $0.36 compared to $1.10 in the same 9-month period last year. If we look at the same quarter, we can observe that our diluted earnings per common share was $0.06 compared to $0.37 during the same quarter last year. Overall, we are pleased that we have kept our debt level low at $657.4 million. At the same time, we have $173.6 million in cash in our accounts, leading to a net debt level of only $492 million. Once again, in the next slide, we would like to emphasize our prudent management of our debt, showing that we have no loan maturities until 2026. Additionally, you can see the projected smooth reduction of our debt balance, leading us to approximately $340 million by 2026. The next slide discusses our free cash flow breakeven, currently at $15,700. Compared to the average daily time charter rate of fixed revenues for 2023 and the 46% of the days in 2024, which are $16,000 and $16,155 respectively. This is fairly reasonable considering the current market conditions. On that note, I'll pass the floor to Stasi Margaronis for a market review.

Thank you, Ioannis. So dry bulk shipping earnings have exhibited interesting and somewhat surprising trends recently, primarily due to the geopolitical developments and tight monetary policies pursued by most central banks around the globe, with perhaps the exception of the Chinese Central Bank. Spot dry bulk earnings have alternated widely, particularly in the last few weeks. Now let’s look at the 12-month time charter rates shown on this slide. Capesize 1-year employment hire rates are around $15,250 per day, with a peak at $30,000 a day in March 2022. Today, the 12-month rate for Kamsarmaxes is $14,250, down from about $29,500 a day at the end of March last year. For Ultramax vessels, the 12-month hire rate is $13,500 per day, with the latest peak being $29,250 per day in March 2022. This volatility allows charterers to choose the most suitable vessel size for their needs. Moving to the next slide, we observe the dry bulk demand, which correlates directly with world GDP growth. 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 miles. This creates a perspective for the size of the long-term multiplier effect of approximately 1.25 times the GDP growth rate on dry bulk carrier demand growth. Latest statistics from the IMF forecast China's GDP growth at 4.6% in 2024; India at 6.3%; the U.S. at 1.5%; the euro area at 1.2%; and the world at 2.9%. According to Clarksons research, dry bulk cargo transportation demand in 2024 is estimated to grow by about 1.8% in ton miles, with a forecasted growth of 1.6% for 2025. For steel demand in 2024, Braemar reports that steel production in China is expected to remain flat, while the rest of the world may see an increase of about 4%, primarily driven by India. There is an expected marginal decline in the iron ore trade in 2024 due to weaker steel production in China, counterbalanced by improved industrial demand in the U.S. and Asia. Coking coal demand is expected to increase somewhat next year, while thermal coal is projected to shrink by 1.5% to just over 1 billion tons in 2024, followed by a further 1% decline in 2025. The grain trade shows growth of 3% next year, reaching 550 million tons, with a further 5% increase expected in 2025, driven by strong forecasts for global grain production. Minor bulk trades, including fertilizers, agribulks, and steel products, are expected to increase by 3% in 2024 and 4% in 2025. These trades particularly affect the employment prospects for our Ultramax vessels. On Slide 20, we examine the dry bulk supply. According to Clarkson's statistics, the dry bulk fleet capacity is expected to increase by 2.2% in 2024 and by just 0.9% in 2025. New-building orders stand at about 8.1% of the existing fleet, with Capesize orders at 5.2%, Panamax at 11%, and Ultramax/Supramax at 9.2%. Currently, 12% of the bulker fleet is 20 years or older. For Capesize, this percentage is only 3%. These older ships will become potential scrapping candidates, especially in a weak market. Average speeds have fallen this year due partly to softer freight markets. However, reduced congestion has increased the availability of tonnage worldwide. Congestion levels now slightly exceed pre-COVID levels. As previously mentioned, environmental regulations could reduce supply from now until the end of 2025 by about 1.5% to 2% per annum due to slower speeds and retrofit time for energy-saving devices. In terms of new-building deliveries and scrapping, Clarkson's expects Capesize new-building deliveries in 2024 to reach 3.6 million tons, Panamax and Kamsarmaxes at 5.4 million deadweight, and for Supramax and Ultramax at 6.1 million deadweight. On the scrap side, 3.2 million deadweight worth of Capes is expected to be scrapped in 2024, along with an estimated 2.9 million deadweight worth of Panamax Kamsarmaxes, and about 2.4 million deadweight worth of Ultramax and Supramax tonnage heading for demolition in 2024. If this forecast materializes, the Capesize fleet will see an increase of just 1% next year, the Panamax and Kamsarmax fleet by 2.9%, and the Ultramax and Supramax fleet by 3.5%. Including forecasts for smaller Handysize bulkers in deadweight terms, the overall bulk carrier fleet will grow by just 2.2% next year, as mentioned previously. A brief look at asset prices reveals that, according to Clarksons, new-building prices have increased by approximately 8% by the end of September compared to the beginning of the year. For Capes, prices have risen by just under 7%, now at $64.5 million. Prices for Panamax and Kamsarmax vessels have increased by 4.5% to $35 million, while Ultramax and Supramax prices have risen by about 8%, also to $35 million. These prices reflect vessels with modern Tier 3 main engines ready to comply with Phase 3 EEDI regulations. Raw material and labor cost increases have largely driven these price hikes, supported by firm demand for new-buildings from sectors beyond bulk carriers and tankers. Regarding secondhand prices, the 5-year old Clarksons Bulker Index has dropped by about 3% since the beginning of the year through the end of October, primarily driven by sentiment and environmental considerations regarding future regulations. Turning to Slide 21, we assess several factors which might positively or negatively influence the dry bulk market. On the positive side, according to Braemar, there are major Indian infrastructure projects underway, such as ports, steelmaking, coal-fired power generation, and airport construction, all of which have positive implications for dry bulk commodities. According to Commodore Research, Chinese iron ore imports are set to rise in the coming quarters to offset the decline in iron ore stockpiles. Reportedly, Chinese importers have secured record volumes of U.S. agricultural goods, mainly soybean, which, if realized, could substantially support Kamsarmax earnings during the upcoming grain shipping season. The small new-building order book provides confidence that the market will not be flooded with new-buildings, which would increase supply and disrupt the current balanced supply-demand situation we've observed over the past few quarters. Lastly, drought-related restrictions in the Panama Canal have led to significant delays, impacting global vessel availability. On the negative side, geopolitical disruptions worldwide could adversely impact global GDP growth and consequently the demand for dry bulk commodity shipping. Unpredictable weather patterns resulting from climate change are adversely affecting grain carriers and leading to the closure of loading ports for bulk goods, putting pressure on bulk carrier rates by reducing commodity readiness for shipping. Sentiment could also play a negative role; even though current sentiment is neutral to slightly negative, it could shift quickly to a positive outlook and result in an influx of new-building orders for ships expected to commence in 2026. Regardless, as highlighted in our previous calls and meetings with analysts and investors, Diana Shipping's chartering strategy remains rooted in an agnostic view concerning future earnings. This approach has served us well over the years and should continue to do so. Our balance sheet strength has always been a priority and will remain a major factor in our future investment decisions. I'll now pass the call back to our CEO, Ms. Semiramis Paliou, for a summary of the company's priorities and future goals. Thank you.

Thank you, Stasi. Before we open the call to the question-and-answer session, I would like to summarize the key points from today's presentation. First, our continual emphasis is on generating and securing positive free cash flows. We uphold a robust balance sheet through proactive management of our capital structure. With opportunities to renew and modernize our fleet, we capitalize on appealing sustainable shipping projects as part of our opportunistic approach. Third, our dedication persists in adhering to a strategy that offers stability in a cyclical business while striving to maximize long-term shareholder value. We look forward to addressing your questions during the Q&A session.

Our first question is from an analyst with Clarksons Securities.

Regarding the CSOV joint venture, you noted that this is the initial phase with the two firm vessels and the two new-builds or options. How should we consider Diana's growth moving forward between the bulker market and the offshoring market?

This is Ioannis 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 on a manageable scale. Our core business certainly remains dry bulk. Having said that, all projects related to green elements are carefully considered, and we may have an interest in them. However, we are not in a position to disclose that this will evolve into a major investment for us. Currently, what you see is what it is; we are participating with a percentage in the building of two CSOVs, with pending options for another two.

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

Can you repeat your question because you are breaking up.

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

At the moment, you have to refer to the press release. Certainly, in the future, you will be able to get more information on that, but whatever you read in the press release we issued contains the most pertinent information available at this time.

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

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 much.

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