Diana Shipping Inc
NYSE:DSX
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Diana Shipping Inc
Earnings Call Analysis
Summary
Q3-2023
Q3 2023 saw our company declare profitable, with a dividend of $0.15 per share, strong free cash flow generation, and investment into sustainable shipping such as dual-fuel vessels and a venture into offshore wind service vessels. We are focusing on renewing and modernizing the fleet, resulting in an $18 million vessel sale and converting Series C preferred stock into common shares. Our revenue is largely secured for 2023 and 2024, with $30.7 million and $108 million, respectively. Despite lower time charter rates and revenue compared to last year, our balance sheet shows $173.6 million in cash against a $492 million net debt level, with no loan maturities until 2026.
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Greetings. Welcome to Diana Shipping Inc. Third Quarter 2023 Conference Call and Webcast. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to Ed Nebb, Investor Relations. Thank you. You may begin.
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 SIM 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 commissions. Our disciplined chartering strategy once again has largely insulated us from market weakening, enabling us to generate positive free cash flow. In line with the guidance provided during the company's previous earning 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, a total of USD 130 million in cash dividends. In addition to that, we have distributed to our common shareholders in-kind dividends in the form of newly issued Diana Shipping Inc. common shares as well as ocean pilings 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 the shore.
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 newbuilding [ Kamsarmax ] dry bulk vessels built at [indiscernible] 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 CSV 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 motives a Boston for approximately USD 18 million. Also, we have 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 opportunity. 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 date 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 and 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 13,378 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 [ Kamsarmax ] vessels have been charted with a weighted average daily rate of USD 17,380 per day, and the 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. And we think that what is worth mentioning is the fact 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% at the same quarter the previous year. At the same time, our cash, cash and equivalent time deposits and restricted cash at the end of September in 2023. It was -- there were $173 million point something. And during the end of the year in 2022, it was [ $143.9 ] million. Our long-term debt and finance liabilities. This is net of deferred financing cost, was $657.4 million compared to $663.4 million in December 31, 2022.
Moving to the next slide. You can see what we said earlier, the decrease on the time charter revenues and the increased number of vessels. Although the operating expenses have been kept more or less at the same level, the TC equivalent rate has fallen due to market conditions to $15,891 per day compared to $289,000 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, again, you can see the increased number of vessels compared to a lower time charter revenue but we had in this 9-month period, and that has resulted to a time charter equivalent rate of $17,235 compared to $23,363 in the same 9 months in the previous year. The operating expenses more or less the same, and we said 5,691 compared to 5,580.
The facts described earlier, had as a result the drop of our earnings per common share to $0.36 compared to $1.10 in the same 9 month period in the previous year 2022. If we see the same for the quarter, you can see that our earnings per common share diluted were $0.06 per share as compared to $0.37 in during the first -- the 3-month period, the same 3-month period in the previous year.
All in all, in the slides, we are very happy that we have kept our debt level low for -- at $657.4 million. And at the same time, we have $173.6 million cash in our cash in our accounts. So the net debt level is only $492 million. Once again, in the next slide, we would like to emphasize our prudent management of our debt -- and this basically shows to everyone that we have no maturities till for our loans until 2026. At the same time, you can see the smooth reduction of the projected smooth reduction of our debt balance. Leading us to something like $40 million in 2026 as a total amount.
Next slide. talks about our free cash flow breakeven. You can see that our free cash flow breakeven is currently at 15,700. And if you compare that with the average daily time charter rate of fixed revenues for 2023 for the 90 days. And the 46% of the days in 2024, the one is 16,000, the other 16,155. It's pretty much okay considering what is happening in the market. And with that happy note, I'm going to pass the floor to Stasi Margaronis for some -- for the market review.
Thank you, Ioannis. So dry bulk shipping earnings have exhibited interesting and somewhat surprising trends recently. Mainly due to the geopolitical developments and tight monetary policies pursued by most central banks around the globe with the exception perhaps of the China Central Bank. Spot dry bulk earnings have alternated widely, particularly in the last few weeks. But let's show the 12-month time charter rates, and these are shown on this slide. Capesize 1-year employment higher rates at around 15,250 per day. And the most recent peak being $30,000 a day in March 2022. .
Today, the 12-month rate for [ Kamsarmaxes ] is $14,250 a day. That was around $29,500 a day at the end of March last year. For Ultramaxes, the 12-month higher rate is $13,500 per day. the most recent peak was again 29.25 per day in March '22. So back then, it looked like for approximately the same daily hire, charterers would pick the most suitable vessel size for their needs.
On the next slide, we look at dry bulk demand. It has been well established by now that world GDP growth has a direct impact on demand for dry bulk carriers. The long-term average rate of annual GDP growth according to Clarkson stands at about 0.7% below the average long-term dry bulk growth rate expressed in ton miles. This helps us place into perspective the size of the long-term multiplier effect of about 1.25x GDP growth rate on dry bulk carrier demand growth. later statistics now from the IMF show forecast for China's GDP growth at 4.6% and in 2024 for India, 6.3% for the U.S. 1.5%, the euro area 1.2% and for the world, 2.9%.
According to statistics published by Clarkson's research demand for dry bulk cargo transportation in 2024 is estimated to grow by about 1.8% in ton mile. For 2025, we forecast is growth of 1.6%. In terms of steel demand, in 2024, [ Braemar ] reports that the feel production is expected to remain flat in China, increased about 4% in the rest of the world. These projections are primarily supported by increased steel demand from India. For the iron ore trade. The forecast is that it will decline marginally in 2024 due to weaker steel production in China, which may be counterbalanced by improving industrial demand in the United States and Asia. [ Coking ] coal demand is expected to increase somewhat next year, but thermal coal is expected to initially shrink by 1.5% to just over 1 billion tons in 2024 and by a further 1% in 2025. The grain trade is anticipated to show growth of 3% next year and reach 550 million tons and increased by a further 5% in 2025 due to firm forecast for global grain production. As for the minor bulk trade such as fertilizers, agribulks and steel products, these are expected to increase by 3% in 2024 and 4% in 2025. These are trades affecting the employment prospects primarily of our Ultramax vessels.
On Slide 20, we look at the dry bulk supply. According to statistics provided by Clarkson, the dry bulk fleet capacity in 2024 is expected to increase by 2.2% and by only 0.9% in 2025. I overall dry bulk carrier newbuilding orders stands at about 8.1% of the existing fleet with a figure for Capes being 5.2% of the existing fleet for Panamaxes 11% and Ultramax Supramaxes at 9.2%. As for the age of the fleet, overall 12% of the bulker fleet is 20 years or older. For Capes, the percentage is only 3%. All these elderly ships will form potential scrapping candidates, especially in a weak market. Average speeds have fallen this year, partly owing to softer freight markets. And as Clarksons point out, environmental regulations could keep speed down for quite a while. However, reduced congestion has helped increase the availability of tonnage worldwide. Congestion seems to have reached levels marginally above pre-COVID levels. As mentioned in previous calls, environmental regulations could potentially reduce supply from this year to the end of 2025 by about 1.5% to 2% per annum slower speeds and retrofit time of energy-saving devices. Looking at the new building deliveries and scrapping, according Clarksons newbuilding deliveries for Capes in 2024 are expected to stand at 3.6 million tons. Deliveries of Panamaxes and Kamsarmaxes, will be 5.4 million deadweight. And for Supramax, Ultramax delivery come to 6.1 million deadweight.
On the demolition side, 3.2 million deadweight worth of Capes are expected to be scrapped in 2024. And an estimated 2.9 million deadweight worth of Panamax Kamsarmaxes might be scrapped next year. And around 2.4 million deadweight were of Ultramax, Supramax tonnage would head for demolition in 2024. If the above forecast materialize, the Capesize fleet will increase next year by just 1%. The Panamax, Kamsarmax fleet by 2.9% and the Ultramax, Supramax fleet by 3.5%. If we include forecast for smaller Handysize bulkers and deadweight turn, the overall bulk carrier fleet is to grow by just 2.2% next year, as mentioned earlier on.
A brief look at asset prices now. According to Clarksons, newbuilding prices across the board have increased by about 8% to the end of September from the beginning of the year. For Capes, prices have gone up by just under 7%, and to $64.5 million. For Panamax, Kamsarmaxes prices have increased by 4.5% to $35 million. And for Ultramax, Supramax ships prices have increased by about 8% to $35 million. These are prices for vessels with modern, Tier 3 main engines ready to comply with Phase 3 EDI regulations. Increases in raw material and labor costs have been the main driver of these price increases supported obviously by firm demand for new buildings, primarily from other sectors than bulk carriers and tankers. As regards secondhand prices, since the beginning of this year, the 5-year old Clarksons bulker Index has dropped by about 3% to the end of October. This trend is primarily driven by sentiment and environmental considerations as regards future regulations.
Turning to Slide 21. We look at several factors, which could affect positively the dry bulk market and some of them in a negative way. On the positive side, according to [ Brainmark ] now, Indian major infrastructure projects with positive implications dry bulk commodities are in the pipeline and include ports, steelmaking, coal-fired power generation and airport construction. According to Commodore Research, Chinese iron ore imports will increase in coming quarters to make up for the continuously dropping iron ore stockpile. Chinese importers have reportedly entered into agreements to purchase record volumes of U.S. agricultural goods, mainly soybean. If these shipments materialize, they are expected to provide strong support to Kamsarmax's earnings during the forthcoming grain shipment season. The more newbuilding order book provides a high degree of confidence the market will not suddenly become flooded with new buildings, which would increase supply and disrupt what appears to be a balanced supply-demand situation, which we have been going through over the past few quarters.
Finally, due to persistent drought restrictions in the Panama Canal have been imposed, which have led to significant delays according to Maersk Broker and are having an impact on global vessel availability. On the negative side now, there are plenty of geopolitical disruptions around the globe, which could easily have a negative effect on global GDP growth and consequently, on demand for the shipment of dry bulk commodity. Unpredictable weather conditions, a result of the change in climate and have an adverse effect on grain cars and separately lead to the closure of loading ports of bulk commodities, putting pressure on bulk carrier rates by reducing the availability of commodities ready to be shipped. Finally, sentiment might play a negative role as well. Even though today's sentiment is neutral to slightly negative, it might suddenly turn positive and lead to the influx of new building orders for ships, which would come from 2026 onwards and join the fleet.
Regardless of all the above, as we have repeatedly pointed out in our conference calls and meetings with analysts and investors. The Diana shipping chartering strategy is being determined by taking the agnostic view as regards the future of earnings. This policy has served us well through the years and will, in all likelihood, continue to do so into the future. As regards our balance sheet, has always been and will remain our priority, and all future investments will be done with its preservation as a major criteria in the decision-making process. I'll now pass the call to our CEO, Ms. Semiramis Paliou for a summary of the company's priorities and future goals. Thank you.
Thank you, Stasi. So 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 have hold a robust balance sheet through proactive management of our capital structure. With these opportunities to renew and modernize our fleet. Capitalizing on appealing sustainable shipping projects as part of our opportunistic approach. And thirdly, our dedication persists in adhering to a strategy that offers stability in a cyclical business while striving to maximize long-term shareholder value. So we look forward to addressing your questions during the Q&A session. .
Thank you. We will now conduct the question-and-answer session. [Operator Instructions] Our first question is from [ Bendik Myterson ] with Clarkson Securities. .
With regards to the CSOB joint venture, you mentioned that this is sort of the initial phase with the two firm vessels and the two new builds -- or the two options. How should we think about Diana going forward in terms of growth 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 in a manageable scale. Our core business certainly remains dry bulk. Having said that, all projects related to green and [indiscernible] green element into them. It's something that we look carefully into and we may have an interest we are not in a position to tell you that this may end up as a major investment for us or not. Currently, what you see is what it is. we are participating with a percentage in the building of two CSOBs and there is still the pending option 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 who the other pockets are?
At the moment, you have to stay with the press release. Certainly, in the future, you will be able to have more information on that. But whatever you read in the press release that we have issued, I think it's the major information that you can have today.
[Operator Instructions]. 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.