Diana Shipping Inc

NYSE:DSX

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, and welcome to the Diana Shipping Third Quarter 2020 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Ed Nebb, Investor Relations. Please go ahead, Ed.

[Edward Nebb]

Thank you, Kevin, and thanks to everyone who is joining us today for the Diana Shipping Inc. 2024 Third Quarter Conference Call. With us today from management is Ms. Semiramis Paliou, Chief Executive Officer, who will introduce the other members of the management team.

And so without further ado, I will turn the call now over to Semiramis Paliou. Please go ahead.

[Semiramis Paliou, executive]

Thank you, Ed. Good morning, ladies and gentlemen. Welcome to Diana Shipping Inc.'s Third Quarter 2024 Financial Results Conference Call. As I Ed said, I'm Semiramis Paliou, the Chief Executive Officer of the company. It's a pleasure to address you today alongside our seen team. Mr. Ioannis Zafirakis, Director, Chief Financial Officer and Chief Strategy Officer; Mrs. Maria Dede, Chief Accounting Officer; and Mr. Dave Vander Linden, Chief Commercial Officer of Steamship Shipbroking Enterprise link.

Before we begin, I kindly remind you to review the forward-looking statements on Page 4 of the accompanying investor presentation. The third quarter of the year has been a tale of 2 markets. Capesize vessels maintained the relative strength, averaging higher returns than in the previous quarter, while the smaller segments weakened significantly. This disconnect has persisted throughout the year, but became more pronounced as the market struggled to absorb the steady flow of Kamsarmax and Ultramax new-buildings. That said, we successfully secured period employment for 9 vessels during the quarter, achieving an overall average rate higher than their previous fixtures.

Turning to Slide 5. Let's review our company's snapshot. Diana Shipping Inc. founded in 1972 and listed on the New York Stock Exchange since 2005. Operates a fleet of 38 dry bulk vessels, 7 of which are mortgage free. Our fleet has an average age of 11 years and the total deadweight capacity of approximately 4.2 million tonnes. We anticipate to deliver 2 methanol dual-fuel newbuilding Kamsarmax dry bulk vessels at the end of 2027 and early 2028, respectively. Fleet utilization reached 99.7% in the 9 months period of 2024, Highlighting our effective vessel management. As of the end of September, we employed 984 individuals at sea in the shore. Financially, our net debt stands at 37% of market value supported by USD 186.8 million in cash reserves and total secured revenues of approximately USD 135.3 million as of November 19.

On Slide 6, we outline the key developments from the third quarter through November. In July, we issued $150 million senior unsecured bonds that are listed on the Oslo Stock Exchange maturing in July 2029 with a fixed coupon of 8.75%. The net proceeds were used to refinance the company's USD 125 million in our unsecured bonds due in 2026. The approval and publication of the company's prospectus for the bond listing on the Alfa Exchange was completed in October. In July, we signed a term loan facility with Nordea Bank secured by 10 vessels, drawing USD 167.3 million to refinance 2 existing term loan facilities. This refinancing related to previously financed vessels. In October, we entered USD 80.2 million, 7-year secured term loan facility with [ Danish Ship Finance ], maturing in April 2031. The secured by certain vessels. This refinanced our existing loan with Danish Ship Finance, releasing 2 previously mortgaged vessels. In November, we completed a USD 25 million tap issue under our outstanding senior unsecured bonds due July 2029.

The issued at 102% of par value with a fixed coupon of 8.75%. This post the total outstanding amount of the 2029 bond to USD 175 million. As of November 19, we have raised USD 25.5 million through the exercise of [ 6,381,900 warrants ] under our ongoing warrant program. with the potential to raise an additional USD 64.9 million under the full scope of the program. As of November 19, we have secured revenue for 78% of the remaining ownership days of 2024, amounting to approximately USD 22.1 million and 38% of available ownership days in 2025, amounting to approximately USD 95.8 million. [ James ] will provide further detail on our cash flow generation potential. Earlier this month, we released our 2023 ESG report, the fifth in a row underscoring our ESG strategy and commitment to sustainability. For the quarter ending September 30, 2024, create to declare a quarterly cash dividend of $0.01 per common share, totaling approximately USD 1.3 million.

On Slide 7, we summarize our current chartering activity. Since our last earnings presentation, we have secured favorable time charters for 9 vessels. Three, Ultramax vessels at a weighted average daily rate of USD 14,539 for 379 days. Five, Panamax, Kamsarmax and Post-Panamax vessels at a weighted average daily rate of USD 12,664, for 155 days. One, Newcastle [ Mexcat ] USD 26,800 for 699 days. Slide 8 highlights our disciplined chartering strategy. We focus on staggered medium- to long-term charters to avoid clastic maturities, ensuring earnings visibility and resilience against market downturns.

Now I'll pass the floor to Ioannis for a detailed financial analysis.

[Ioannis Zafirakis, executive]

Thank you, Semiramis. We will go through very quickly the financial highlights for the third quarter 2024, where you can see that -- our time charter revenues have decreased by approximately USD 5 million from the third quarter 2023, being USD 62.1 million to USD 57.5 million for the third quarter of 2024. The net income has been USD 3.7 million, and the same period in 2023, it was USD 7.4 million. The good thing about our highlights is that we have managed to increase our cash and cash equivalents, time deposits and restricted cash. To $186.8 million. Today, as we speak, the number is much higher, but that was as of September 30 compared to $161 million in December 31.

The long-term debt has gone down from $642.8 million to $627 million. And looking at our balance sheet, as we said earlier, we have managed to be in a position to have our net debt compared to the values of our vessels at 37%, as we have already said. On the summary of selected financial and other data -- you can see that in this quarter -- in this quarter, our time charter equivalent has dropped to BRL 15,000, $33000. Compared to $15.8000 at the same period last year. The operating expenses have increased to $5,954 compared to $5,321 at the same period last year. Looking at the 9-month period, the same numbers, the high, the time charter equivalent rate has gone down to $15,163 compared to $17,235 for the 9-month period last year. And the daily expenses have increased to $5,900, approximately from $5,700 approximately.

Having said all of the above, looking at our current debt profile and generally speaking, our balance sheet, we think that we are in a very good position. One of the indicators of that is or the profile of the debt. As you can see in this slide, we have no maturities. Basically, we have managed to have no maturities up to 2029, which gives us a very nice profile and cash flow-wise, help us do our strategic things. At the bottom of this slide, you can see how well the debt decreases, and we end up in 2029, with slowly getting to lower and lower numbers.

Next slide. If we go to the breakeven versus estimated revenue, we still have some days that are fixed for 2024. But if we assume based on the FFA rates, that we fixed, we have fixed at for around $15,000. That will bring us to a time charter equivalent rate of $16,765 which is going to be above around $650 per day for our vessel for all of our vessels. As regards to 2025, more or less, we think we're going to be very close to our breakeven if we take an assumption the current FFA rates having said all of these things.

If we move to Slide #14, we have just declared a dividend of $0.01, but since 2021, the third quarter of 2021, we have never missed a dividend payment. And the intention is to keep that in the future as well. Having said all of these things, now it's time to pass the floor to or to the Chief Commercial Officer of [indiscernible] Broking enterprises. They want to leave them for the market overview. Dave?

[Unknown Executive]

Thank you, Ioannis, and welcome again to all participants on this call. Now for a brief market update. The recurring theme during this year's conference call has been the important role that geopolitical developments have played in the shipping industry. And the third quarter of this year has been no exception. Rerouting of dry bulk vessels away from the Red Sea remains in focus with Swiss Canal transits, hovering at about 40% less compared to the second half of 2023. [ Clarksons ] estimates that the Red Sea disruption has increased bulk carrier ton mile demand by about 1.2%. However, the Chinese economy has continued to struggle with the property sector being the biggest drag on economic growth. So far, there has been little impact on imports, even though demand has been weakening.

The continued imports, coupled with lower domestic demand have led to a significant buildup of commodity inventories. Having said that, the Chinese government is determined to support the economy via several stimulus measures. As can be seen from the graph on this slide, the 12-month time charter levels unusually peaked in Q1 this year. That being said, Q3 levels were resilient on the back of increased congestion in South America and a steady cargo flow into India and Southeast Asia.

Moving to the next slide for some macroeconomic news. The IMF forecasts that the global economy will grow by 3.2% in 2024 and by 3.3% in 2025. The IMF reports later outlook for China, Latin America and the EU. The Chinese economy is projected to grow by 5% in 2024, 4.5% year after and by 4.1% in 2026. These forecasts, however, have not considered the recently announced stimulus package in China involving the raising of debt to support the economy.

For the Eurozone, growth predictions are mere 0.8% this year and 1.2% in 2025. And the IMF prediction on GDP growth in India is 6.5% for next year, while for the U.S., the prediction is 1.9%. For a brief commodities update, according to [ Kamada ] Research, global steel production, excluding China, is beginning to contract. According to Braemar, year-to-date global steel production stands at 1.25 billion tons which is nearly 2% lower than at this time last year. Having said that, the World Steel Association is predicting a pickup of more than 1% in 2025. Regarding iron ore, Clarkson's expect this trade to remain flat, both in '25 and '26 at around 1.6 billion metric tons per annum. It is understood that iron ore inventories in China stand at a 10-year high, around 160 million tonnes. [ Cox's ] projected coking coal volumes are also remaining steady for '25 and '26 around [ 275,000,000 ] tonnes per annum. And as regards to thermal coal, the projection is for volumes to drop to 1.037 billion tonnes next year, which should be around 2% compared to 2024.

And to 1.025 billion tonnes in 2026, which would be another 1% down over 2025. The 2025 grain season is expected to grow to 552 million tonnes, which is an increase of 2% compared to this year. While for '26 grain trade might reach 565 million tonnes, which will be another 2% increase. The biggest growth we will see -- we expect to see in minor bulks. Trade in Miner box is expected to grow by 3% in '25 and reached 2.3 billion tonnes and by another 2% in '26, reaching 2.341 billion tonnes supported mainly by growth in the bauxite and manganese ore trade as well as an increase in cement petcoke volumes as global construction activity is expected to pick up.

Moving to Slide 3 -- Moving to slide. covering fleet development. The overall bulk carrier order book stood at the end of October at around 10.3% of the existing fleet. The order book for Capes and above continues to be the smallest of all types of bulkers with 29.5 million deadweight tonnes, which represents about 7.5% of the current trading fleet. The order book for Kamsarmax is 36.7 million deadweight, which is about 14% of the current fleet and the order book for Ultramax vessels stands at a little less than 30 million tonnes, about 12% of the current fleet.

If you look at projected deliveries, according to statistics prepared by Braemar, the Capesize fleet is expected to grow by about 5 million deadweight tonne in 2025 and 6 million in 2026. For Kamsarmax, the figures are 9 million deadweight comps next year and 14 million the year after. Ultramaxes are expected to grow by 10 million in 2025 and by 7 million in 2026. All these figures are net of expected dilutions from the fleet. According to Clarksons, only 5.2 million deadweight ton worth of bulkers are expected to be sold for scrubbed this year. And for 2025, the figure is expected to reach 9.2 million deadweight in 2026 and for an excess of 40 million tons deadweight.

New environmental regulations are expected to drive many shifts to the scrapyards. Ship demolition decisions are primarily driven by the state of the freight market sentiment and age. For Capes and Supramaxes the 2010 through 2012 were the highest delivery volume you have seen for a long time. And for Panamaxes and [ gamzomaxes ] the peak delivery years were 2011 through 2013. This means that a considerable number of vessels will soon become 15 years old. Which particularly for Capes is a crucial age barrier as regards to the cost of a third special survey and the ability to charter to the main players in the dry bulk market.

According to Clarksons, 24% of Handymax Ultramax transitions 15 years or older as well as 26% of Panamaxes and 17% of Capes. Newbuilding prices of Capes according to Clarksons have moved up so far this year by over 14%, whereas new building prices of smaller ships as rises about half of that. Recent weakness in the Chile market has seen some asset values come down from the peak levels earlier this year. 5-year-old Kamsarmaxes are now around $34 million and a 10 year stand around $25 million which is down double digits. For Capes, 5- and 10-year old ships secondhand prices eased about 2% from their peak stand now at around $63 million and $44 million, respectively. Ultramax 5- and 10-year old values are currently around $33 million and $24 million, respectively.

Turning to Slide 18 for the outlook. According to [ furnishing cartons ], positive factors for 2025 are the following: continued import growth into India and Southeast possibility of a strong Brazilian soybean season, increased congestion and slower speeds, the recent stimulus measures in China and continuing risk for the Red Sea transit. Possible negative factors for 2025 are worldwide lower iron ore consumption protection measures leading to trade wars, steel production outside of China falling back. But fleet growth outpacing demand and the easing of tensions in the Middle East, which could result in more at sea transits. Considering the entire picture of headwinds and boosting factors for the dry bulk trades, Clarksons project a slight easing for bulk carriers earnings in 2025 as total mile demand is expected to grow by about 1.3%.

Versus a supply growth of around 3%. However, for 2026, Clark has predicted a cautiously positive outlook for the bulk carrier market. Even though dry bulk demand in ton-mile is expecting to grow again, a little over 1% in supply projected to grow again by around 3%. They foresee impacts from environmental policies to remain in focus with new regulations having a range of positive impacts for supply demand. Also slower operating speeds, longer dry dock stays, demolition of older units should help the market going forward. [ Damco inflations ] regard as a positive factor, the [ Simandou ] iron ore project in Guinea, which starts production in late 2025 and will gradually contribute to longer shipping distance of high-quality iron ore into 2026. And looking even further ahead, BHP Billiton states in their latest economic and commodity outlook report that population growth, urbanization, the infrastructure decarbonization capital stock replacement and rising living standards are expected to drive demand for ferrous and nonferrous metals as well as fertilizers for decades to come. That's it for the market.

I will now pass the call back to our CEO Semiramis Paliou, to provide the most important financial highlights and takeaway points from our quarterly earnings call.

[Semiramis Paliou, executive]

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

Moving on to Slide 20. To summarize, Diana Shipping Inc. stands on a strong foundation built on over 15 years of industry expertise and nearly 20 years on the New York Stock Exchange. Asian management team adapt at addressing industry challenges, strong stakeholder relationship and a disciplined strategy approach. A solid balance sheet with a strong cash position and a countercyclical mindset. Ongoing fleet modernization efforts. A robust ESG strategy and the focus on rewarding our shareholders when possible. And with that, thank you for joining us today.

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

[Operator]

[Operator Instructions] Our first question today is coming from Clement Molins from Value Investors.

[Unknown Analyst]

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

[Ioannis Zafirakis, executive]

Okay. This is Ioannis speaking. We our total commitment on those versus this EUR 50 million. And there is another -- there is -- we have already paid the around EUR 33 million of those EUR 35 million and we expect to pay the other EUR 15 million soon. The delivery of those vessels are scheduled to be by the first 1 by September 2025 and a vessel after and eventually after every 3 months, we are supposed to have a delivery of the next 3 vessels every 3 months. Now as regards the employment, we have not secured any employment yet. But if we were to share a preference we prefer to enter long-term employment. .

[Unknown Analyst]

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

[Ioannis Zafirakis, executive]

Now being listed since 2005, we have shown to everybody how disciplined we are as regards the questions that you have asked. Be certain that we will do what we have to do at the right time in the cycle. But being more specific with regards to your questioning, unfortunately, we cannot be more specific renewal of the fleet will happen at the appropriate time. And of course, we have shown in the past that, again, at the appropriate time, share repurchase can happen. The big thing for the bigger picture for everyone is to look at our balance sheet and see that all of your questions we have prepared the company to have the option to be able to do these things, but it has to happen at the appropriate time.

So to cut the long story short, the answer to your question is in direct. And it is that we have the means of doing what you have asked. As regards to asset allocation, We are not in a position to respond.

[Unknown Analyst]

All right. Makes sense. That's all for me.

[Ioannis Zafirakis, executive]

Thank you very much for the question.

[Operator]

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

[Semiramis Paliou, executive]

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

[Operator]

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