Diana Shipping Inc. (NYSE:DSX) Q4 2019 Earnings Conference Call February 21, 2020 9:00 AM ET
Ed Nebb – President-Comm-Counsellors, LLC
Simeon Palios – Chairman and Chief Executive Officer
Semiramis Paliou – Deputy Chief Executive Officer and Chief Operating Officer
Anastasios Margaronis – President
Andreas Michalopoulos – Chief Financial Officer
Ioannis Zafirakis – Chief Strategy Officer and Secretary
Conference Call Participants
Randy Giveans – Jefferies
Omar Nokta – Clarksons Platou Advisors
Alexander Jost – Arctic Securities
Greetings, and welcome to the Diana Shipping Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Ed Nebb. Please go ahead, sir.
Thank you, Kevin, and thanks to all of you for joining us for the Diana Shipping Inc. Fourth Quarter and Year End 2019 Conference Call. The members of the Diana Shipping management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Ms. Semiramis Paliou, Chief – Deputy Chief Executive Officer and Chief Operating Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Strategy Officer and Secretary; and Ms. Maria Dede, Chief Accounting Officer.
Before management begins their remarks, let me briefly remind you of the safe harbor notice. Certain statements made during this conference call, which are not historical fact are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act. And such forward statements are based on assumptions, expectations, projections and beliefs as the future events that may or may not prove to be accurate.
For a description of the risks, uncertainties and other factors that may cause future results to differ from the forward-looking statements, please refer to the company’s filings with the SEC. And now without further adieu, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer.
Good morning and thank you for joining us today to discuss the results of Diana Shipping for the fourth quarter and full year 2019.
Although we have yet to see a definite firming trend in the dry bulk shipping market, the company experienced relatively stable operating income for the year 2019, excluding an impairment loss and loss from vessel sale. We also continued to actively manage our fleet profile, announcing agreements to sell several vessels throughout the year. Significantly, we have returned a substantial amount of capital to our shareholders in the form of multiple self-tender offers.
To summarize our financial results, Diana Shipping reported a net loss of $14 million and the net loss attributed to common shareholders of $15.4 million for the fourth quarter of 2019 which included a $6.5 million of impairment loss and $3.3 million loss from the sale of vessels, this compares to net income of $2.9 million and net income attributed to common stockholders of $1.5 million reported in the fourth quarter of 2019.
For the full year of 2019, the net loss amounted to $10.5 million years. Net loss attributed to common stockholders amounted to $16.3 million, which included a $14 million of impairment loss and $6.2 million loss from sales of vessels. This compares to net income and net income attributed to common stockholders of $16.6 million and $10.8 million respectively for 2018.
Time charter revenues were $51.5 million for the fourth quarter of 2019 compared with $62.9 million for the same quarter of 2018, mainly due to sale of vessels and decreased average time charter rate. Time charter revenues were $220.7 million for the full year 2019 compared with $226.2 million for 2018.
Turning to the balance sheet, cash and cash equivalents including restricted cash totaled a healthy $128.3 million at December 31, 2019. Long-term debt net of deferred financing fees, including the current portion was $475 million compared to stockholders equity of $570.1 million. Reflecting our commitment to return value to shareholders, the company completed two self-tender offers during 2019 fourth quarter, purchasing 2,816,900 shares of which common stock in October and 2,739,726 in December. A new self-tender offer to purchase up to 3,030,303 shares was announced in early January, 2020 and was successfully completed on February, 2.
Over the course of the full year 2019, we completed five self-tender offers. The Board of Directors will continue to consider self-tender offers if is determines that purchasing of the shares is in the company’s best interest given our cash position and stock price. In connection with our active management of the company’s fleet, we completed the sale of the Clio in the 2019 fourth quarter for a sale price of $7.4 million before commissions.
In total, we sold six vessels in the past year, the oldest of which were built in 2001. We will continue to manage our fleet in a responsible manner that promotes a balance of Time Charter maturities and produces a predictable revenue stream. As we look ahead to 2020, we will continue to prudent management of our financial position of fleet and we will maintain our focus on delivering value to our shareholders.
With that, I will now turn the call over to our President, Anastasios Margaronis for a perspective on industry conditions. He will then be followed by Chief Financial Officer, Andreas Michalopoulos, who will provide a more detailed financial overview. Thank you.
Thank you, Simeon. Welcome to the participants of this quarterly conference call of Diana Shipping Inc., starting quickly with an overview of the macroeconomic considerations, we can say with confidence of growth projections across the Board are being adjusted downwards because of the coronavirus disruption in trade and commerce as well as the movement of individuals worldwide.
According to Clarksons, the latest 2020 global growth forecasts to before these negative projections at about 3.3% and the Chinese growth at about 6%, which is per annum figures going forward. The U.S. growth forecasts were 2%. The Euro area is projected to grow this year by an anemic 1.3%.
Potential shipping impact to monitor according to Clarksons going forward include, lower oil demand imports overall, effects on industrial output and raw material demand and reports of disruption to activity in Chinese ports, shipyards and ship repair yards.
Turning to demand supply, according to Clarksons, during 2020, seaborne dry bulk trade is projected to grow by 2.5% in ton miles, 2% in volumes. Capacity on the other hand is expected to grow by 3.7% this year. In 2021, the dry bulk trade is expected to grow by 2.3% in ton miles, while supply is expected to increase by just the 1.4% next year.
Looking quickly at the age profile of the fleet, according to banchero costa, 2% of the trading Capesize fleet is over 20 years old, 11% is between 15 years and 19 years old, while 17% is less than five years old. The Panamax and Post-Panamax size range, 19% of the trading fleet is over 20 years old and 26% of the fleet is between 15 years and 19 years. It is very possible that weak market, the IMO 2020 and the ballast water system regulations and refits will lead a larger number of these ships finding their way to the scrap yards this year.
So talking about scrapping, according to banchero costa, during 2019 only seven Panamax and Post-Panamax ships were sold for scrap, with an aggregate approximate capacity of 0.5 million tons deadweight. Shipping company, Polaris has reportedly signed the deal to scrap over the next few months, eight of its 10 converted VLOCs. According to Clarksons, in full year 2020 bulk carrier scrapping is projected to reach at least 13.6 million deadweight, these scrapping could pick up even more this year, especially if rates remain at or near their current levels.
Turning to commodities and starting as we usually do with iron ore, Clarksons estimate that seaborne iron ore trade will increase by about 3% in 2020 to reach a just over 1.5 billion tons after declining by 1% last year, for 2021 further expansion of around 1% is initially projected. Chinese buyers continue to rebuild their stockpiles drawn down last year. China is expected to import about 1.073 billion tons of iron ore this year up 3% on last year’s volumes.
As for coking coal, global seaborne coking coal trade is projected by Clarksons to grow by about 2% both this year and another 2% next year. Volumes could reach 285 million tons by the end of 2021. Interesting to note, that the Indian seaborne coking coal imports are projected to grow by 5% per annum and reach 67 million tons between now and the end of 2021. As for thermal coal, according to Clarksons, again, the overall global seaborne thermal coal trade is projected to grow by about 1% in 2020 and reach 1.033 billion tons. Volumes are expected to remain fairly steady in 2021. The switch from coal to gas and the focus on de-carbonization in many regions represents a clear headwinds going-forward.
China’s thermal coal imports are expected to decline by 4% this year to 206.3 million tons and by further 3% in 2021 as domestic production continues to expand steadily. However, Asian economies excluding China are expected to increase their imports of thermal coal by about 5% per annum between now and the end of 2021. Volumes imported, therefore by all Asian nations, including China are expected to increase and reach 874.7 million tons by the end of next year. Furthermore, it is worth noting that according to Commodore Research, hydropower output increased in December 2019 to 8.9 billion kilowatt hours, which makes a year-on-year increase of 16%.
Turning to grain now, globally, seaborne grain imports are expected to grow by 2% this year and the further 2% in 2021. This would bring volumes to over 500 million tons. Soybeans are again projected to play a major role in this expansion. The expectation is that the world imports will grow by 4% to 163 million tons this year, after zero growth in the 2018-2019 grain season.
It’s worth noting that Phase 1 of the U.S.-China trade deal involved China, more than doubling the purchases from the U.S. farmers compared to last year. This should happen over the next 12 months. After purchasing an additional $12.5 billion of U.S. agriculture products during the first year compared to the 2017 to 2018 season, China will increase its purchases of agriculture appropriate that’s by an additional $19.5 billion in year two of this agreement. This deal is expected among other things to boost the U.S. soybeans exports to China.
All this is good news for Panamaxes going forward. But the coronaviruses outbreak in China has raised concerns with the U.S. Agriculture Secretary as U.S. Officials are wondering whether China will be able to buy the agreed total of $36.5 billion of U.S. agricultural goods this year alone. You have to wait and see, watch for developments on this call.
As regarding minor bulk trade, some of these commodities such as soy meal, phosphate rock, bauxite, manganese ore, anthracite and a few others are also carried in Panamax vessels, though not exclusively so, is therefore interesting to note that volumes are expected to grow by 2% this year and 3% next year to reach 2.147 billion tons by the end of 2021.
Quick look to scrubbers now. According to Clarksons at the beginning of 2020 there were 736 bulkers fitted with scrubbers, which was 12.6% of capacity. Another 282 ships are waiting to have scrubbers fitted, which is equivalent to 43.2 million deadweight tons. Scrubber fitting this year is expected by Clarksons to remove about 0.8% over the bulker fleet by capacity compared to the removal of 1.1% of the fleet in 2019.
According to Commodore Research, at the beginning of the year the average spread in price between the very low sulfur fuel oil and the 3.5% high sulfur fuel oil stood at about $358 per ton. In early February this spread had dropped to about $215 per ton and is gradually dropping. Price differential is closely watched by proponents and opponents of scrubbers as it is instrumental in determining the repayment periods of each scrubber unit. This will ultimately show with the more lack thereof of owners who went to the trouble of stopping their vessels and fitting scrubbers.
Let’s turn to the new building order book. According to Clarksons at the end of January 2020 there were 86.6 million deadweight worth of bulk carriers on order equivalent to about 9.9% of the existing fleet. As regards Panamaxes the tonnage on order came to 22 million deadweight equivalent to 10% of the existing fleet. Most of these ships are scheduled for delivery next year that is about 14.6 million deadweight and about 7.3 million deadweight in 2021 and beyond.
The Capes on order at the beginning of this year came to 45.8 million deadweight equivalent to about 13% of the existing fleet. Once again, most of these ships are scheduled for delivery this year that’s about 28 million deadweight and the rest about 18 million deadweight are scheduled to be delivered from 2021 onwards. Little bit worrying to see that the 62 Newcastlemax’s are about 210,000 tons deadweight on average are scheduled for delivery this year on top of the 50 capes which were delivered last year.
According to Braemar in 2020 there are also 29 new VLOCs, which are due for delivery. The latter, however might be counterbalanced by the scrapping of a number of VLOC conversion. Most of these are over 25 years old and the high bunker price environment and the costs of upcoming special surveys will convince most owners to scrap these ships. We need to keep in mind that some of this year’s delivered is will be delayed by the coronavirus epidemic related regulations and the deliveries of several ships will be pushed back into next year.
Turning to the freight rate outlooks now. According to Braemar, there are promising signs the demand for Panamax and post-Panamax vessels is gradually improving despite China taking the necessary steps to prevent the spread of the new virus. Some shipping analysts have commented though that after the virus has been controlled, the country will be much starved over resources. Furthermore, as regards to the Panamax trade, prospects are encouraging because as Howe Robinson pointed out the most recent troughs in the U.S.-China trade war and an increase in demand especially across the Atlantic basin may help spur a much needed wave of optimism in the market.
The Baltic Panamax index started the year as $1,003 and closed on February 20th as $765. We’ll note that this is a new now index, which takes more Kamsarmaxes into account as opposed to pure Panamax. Early in February, the Baltic Cape index fell to a historic low of minus-234.
According to Howe Robinson, weak demand over supply of tonnage, the coronavirus epidemic restrictions and poor weather conditions in Brazil and Australia approved detrimental to rates and indices. Cyclone Damien forced Australian authorities to clear and close Western Australian ports of Dampier and Port Hedland.
With this perfect storm in place, Howe Robinson believes there is no imminent recovering site for the Capesize market. In line with the above rather gloomy forecast, BRAEMAR site some ships in the Pacific which are idling already rather than looking in loss making employment. However, shipping analysts Commodore Research are more positive on capes for later on this year as they project the strong iron ore exports sufficient to absorb the large number of new building deliveries coming up.
The Baltic Cape Index closed on February 20th at minus $232. In this challenging environment we at Diana see no reason to change our strategy, which we will pursue steadily by selling out the tonnage and whenever circumstances are favorable repurchasing company stock. Sooner or later we’ll reach the end of this process and the company could then resume dividend payments if the market allows.
I will now pass the call to our CFO, Andreas Michalopoulos, who will provide us with the financial highlights over the fourth quarter of 2019 and for the entire year 2019. Thank you.
Thank you, Simeon, and good morning. I’m pleased to be discussing today with you Diana’s operational results for the fourth quarter and year ended December 31, 2019. Net loss and net loss attributed to common stockholders amounted to $14 million and $15.4 million respectively, including a $6.5 million impairment loss and a $3.3 million loss from the sale of vessels. Loss per common share was $0.17.
Time charter revenues decreased to $51.5 million compared to $62.9 million in the fourth quarter of 2018. The decrease was due to decreased average time charter rates that we achieved for our vessels during the quarter and decrease revenues due to the sale of two vessels in December 2018 that we achieved for our vessels during the quarter and decreased revenues due to the sale of two vessels in December 2018 and six vessels in 2019.
Ownership days with 3,915 in the fourth quarter of 2019 compared to 4,554 in the same quarter of 2018. Fleet utilization was 96.9% compared to 99.1% for the same quarter of 2018. And the daily time charter equivalent was $12,264 compared to $13,527 for the same quarter of 2018. Voyage expenses were $4.5 million for the quarter compared to $2.7 million for the same quarter of 2018. The increase in voyage expenses was due to a loss of $1.9 million in bunkers compared to a gain of $0.7 million for the same quarter last year.
Vessel operating expenses amounted to $23.4 million compared to $25.2 million for the fourth quarter of 2018 and decreased by 7%. The decrease was mainly due to a 14% decrease in ownership days resulting from the sale of vessels and partly offset by increases mainly in spares and repairs. Daily operating expenses were $5,969 for the fourth quarter of 2019 compared to $5,536 for the same quarter of 2018 representing an increase of 8%.
Depreciation and amortization of deferred charges amounted to $12.1 million. General and administrative expenses were $7.8 million compared to $9 million for the same quarter last year, due to decreased bonus taxation, partly offset by increased payroll costs. Management fees to related party was $0.6 million, the same as last year. Interest and finance costs amounted to $6.7 million compared to $9 million in the same quarter of 2018. The decrease was due to decreased interest rates and decreased average debt.
Interest and other income amounted to $0.6 million compared to $0.8 million due to decreased interest rates on deposits and decreased average cash balance. For the year ended December 31, 2019, net loss amounted to $10.5 million and net income attributed to common stockholders amounted to $16.3 million including a $14 million impairment loss and a $6.2 million loss from the sale of vessels. Loss per share was $0.16.
Time charter revenues decreased to $220.7 million compared to $226.2 million for 2018. The decrease was attributable to decreased revenues due to the sale of vessels, offset by increased average time charter rates that we achieved through our vessels during the year. Ownership days were 16,442 compared to 18,204 for 2018. Fleet utilization was 98.6% compared to 99.1% in 2018, and the daily time charter equivalent rate was $12,796 compared to $12,179 last year.
Voyage expenses were $13.5 million. Vessel operating expenses amounted to $90.6 million compared to $95.5 million for 2018. The decrease in operating expenses was due to the decrease in operating days and was partly offset by increased operating expenses in all categories except for store supplies and taxes. Daily operating expenses in 2019 were $5,510 compared to $5,247 for 2018 representing a 5% increase.
Depreciation and amortization of deferred charges amounted to $48.5 million. General and administrative expenses decreased to $28.6 million compared to $29.5 million for 2018, mainly due to decreased bonus taxes, partly offset by increased payroll costs and directors and officers insurance. Management fees to related party were $2.2 million compared to $2.4 million in 2018, due to the decreased number of managed vessels by DWN.
Interest and finance costs amounted to $29.4 million compared to $30.5 million last year. The decrease was attributable to decreased average debt and loan expenses, partly offset by increased [indiscernible]. Interest and other income amounted to $2.9 million compared to $8.8 million last year. This decrease was due to repayment of the loan by Performance Shipping, including a $5 million discount premium.
Thank you for your attention. We would be pleased to respond to your questions now, and I will turn the call to the operator, who will instruct you as to the procedure for asking questions. Thank you.
Thank you. [Operator Instructions] The first question today is coming from Randy Giveans from Jefferies. Your line is now live.
Howdy, team Diana. How are you?
So I guess, first question, looking at the canceled sale of the Calipso and the Norfolk, what kind of happened with those? And do you still plan on selling these in the near term?
We have explained with the press release what has happened. Basically, the buyers, they have to – they have the right – the option to avoid or to not to take – not to buy the vessel because we missed the [indiscernible] period where the vessel theoretically was supposed to be delivered to them directly due to the problems that exist today as we speak in China. As regards to the fact whether we are trying to sell these vessels yes, and no. The vessels are there. We are considering or trading them – keep trading them or selling them. The option is ours now.
Okay. And then, I guess, you mentioned there, your kind of views on China. Obviously, you’ve been relatively more conservative on the market in recent years relative to your peers. So how do you see kind of the dry bulk market is responding with a rebound after coronavirus? Is it a couple of weeks, a couple of months, not until 2021, kind of how do you view your recovery going forward?
Basically, usually, there is – when there is a sharp downturn, there is a sharp upturn, the V shape that you keep talking about. And we strongly feel that when there is going to be a solution to the problem, we will see the market picking up because Chinese economy is going to try to gain the lost ground. And it all depends on how quickly the news are going to be better. And we think – we hope that the news are going to get better soon. And therefore, the market is going to improve. You understand that the inventories are becoming less and less. And then we have to catch up. So the sooner this is going to happen, the better for the dry bulk market.
Got it. That’s fair. And then lastly…
Randy, Ioannis again. But what I wanted to say, though, is that sometimes we have been criticized for being a bit conservative or have always a lot of safety valves in place with our chartering strategy, the money that we have aside. But you notice now that this thing has happened, and we are in a very, very favorable condition and we still can sustain this type of environment very well compared to the other companies that they have wasted most of their money in scrubbers. I know that you are supporting the scrubber idea, but this is exactly what we have been talking about the opportunity because of what you can do with the money or what you may be asked to do with the money that you are spending on scrubbers. Anyway, it remains to be seen. I’m pretty much convinced that at the end of the year, we will be talking again and saying that we were once again right with our decisions on how to handle this market.
Noted. Okay. And then real quick on the IMO, as you mentioned. Obviously, no scrubbers. Are you having any issues with some fuel compatibility or even availability for the LSFO? Have you bought any of that forward? Or is it pretty robust at all of the ports that you are operating in?
Hello, Randy, this is Semiramis. Nice talking with you.
We found the transition between the high sulfur fuel and the low sulfur fuel to be smooth. Smoother than what was expected. And we’re happy with the progress.
Alright. Well, great. Thank you so much and have a good one.
Thank you. Our next question is coming from Omar Nokta from Clarksons Platou Advisors. Your line is now live.
Hi, thank you. Guys, I just wanted to maybe just follow-up on Randy’s question regarding those two ship sales. Ioannis, I wanted to just get clarity, in your comments, do you – are you saying it was the coronavirus – were there logistical delays that caused the – you to miss the laycan window? Or was it more the buyer becoming nervous about acquiring ships post-coronavirus break out?
It’s a bit of both. We gave them the right to do so, and they took advantage of the market deteriorating. And probably the same people may be the buyer of the vessel again at a slightly lower price, we think, it remains to be seen. In other words, if the market was better, they would have found a way to take delivery of the vessel one way or another.
But rest assured that we have an alternative solution to give the vessel and trade here further. For the time being, we will do plan B. And plan B is to give the vessel for some time until we get similar or even better levels.
That makes sense. And just one more point on that. Was this one seller – I’m sorry, one buyer for both ships are two separate ones?
Two separates, unaffiliated.
Okay. And then just a follow-up, Andreas, I think I missed it in your comments just regarding the vessel OpEx for the quarter. Obviously, they were a bit higher. What do you think – as we – do you think they’ll revert to the average, for, say, the first three quarters of the year and for the next couple of – sorry, the first three quarters of last year for the next few quarters? Or is it – should we assume this higher price?
No, I think it should be between the average of the first three quarters and the average of the year. So that’s where you should place your numbers around – to be more specific, between 5,300 and the average of the year was 5,500 I think, more towards 5,300.
Okay. Thank you. And sorry, just one more. You guys have – with the preferred shares outstanding the 65 million, those became redeemable a year ago. Any thoughts on looking to buy those back when you think about the future sales rather than buying common stock, buying the preferreds. Is that a topic at all of conversation for you?
Not really. So as we have said in the past, all these instruments there put together in a way like a puzzle to keep our balance sheet in solid condition, in a stellar condition, and we think we have done a very good job there. And we’ll keep having these type of instruments into our balance sheet and always keep the optionality for us to act according to the plans. At the moment, we are very happy keeping it.
Okay, very good. Thank you for that and appreciate the answers.
[Operator Instructions] Our next question today is coming from Alexander Jost from Arctic Securities. Your line is now live.
Hi, thank you for taking my question. I was wondering in the now softer market sentiment, how will you balance share buybacks versus taking advantage of asset prices coming down?
The asset prices are going down, but the inefficiency between the net asset value of the company and the pricing that we have in the capital market is still there, and it’s getting bigger. And therefore, we will take advantage of that. And you understand that it is very similar and better to buy back part of your vessels rather than buying Other vessels at net asset value of the company, and we are buying at a discount to net asset value.
Of course we have to make certain, as we keep saying not to jeopardize the public nature of the company, and we will keep doing something like this provided we will not risk at any point, as regards to the liquidity of our stock and the public nature of the company. Hello?
Mr. Jost, please proceed. If there are no further questions, I’ll turn the floor back over to management for any further or closing comments.
Thank you, again, for your interest and support to Diana Shipping Inc. We look forward to talking to you in the coming years. Thank you.
Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.