Diana Shipping Inc. (DSX) Q1 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the Diana Shipping Incorporated 2019 First Quarter Earnings Conference Call and webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Ed Nebb. Thank you, Mr. Nebb. You may now begin.

Thank you, Carlson, and thanks all of you for joining us for the first quarter 2019 conference call of Diana Shipping Inc. Members of the management team who are with us today include Mr. Simeon Palios, Chairman and CEO; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Strategy Officer and Secretary; Ms. Semiramis Paliou, Chief Operating Officer; and Ms. Maria Dede, Chief Accounting Officer. Before management begins their remarks, let me remind you of the Safe Harbor statement. Statements of historical fact -- that are not historical fact are forward-looking under the Safe Harbor provisions of the Private Securities Litigation Reform Act. Such forward-looking statements are based on assumptions, expectations, projections or beliefs as to future events that may or may not prove to be accurate and for a description of the risks and uncertainties and other factors that may cause future results to differ. Please refer to the company's SEC filings. With that, let me turn the call over to Mr. Simeon Palios, Chairman and CEO.

Thank you, Ed. Good morning and thank you for joining us today to discuss the results of Diana Shipping Inc., for the first quarter of 2019. The recent quarter was highlighted by continued strength in our financial performance as we achieved higher time charter revenues and improved profitability. We also continue to actively manage our fleet profile announcing and are completing the sale of three vessels. Finally, we have returned a significant amount of capital to our shareholders in the form of shares and their offers. To summarize our financial results, the Diana Shipping Inc., reported net income of U.S.$3 million and net income attributed to common shareholders of U.S.$1.5 million for the first quarter of 2019 including a U.S.$4.8 million impairment loss. These represent a significant improvement from the net loss of U.S.$3.1 million and net loss attributed to common stockholders of U.S.$4.5 million for the first quarter of 2018. These strong results were largely due to higher time charter revenues which rose to U.S.$60.3 million for the first quarter of 2019 versus U.S.$48.4 million for the same quarter of 2019 mainly due to the increase average time charter rates that we achieved for our vessels. Turning to the balance sheet, cash and cash equivalents including restricted cash total U.S.136.5 million at March 31, 2019. Long-term debt including the current portion, net of deferred financing fees was U.S.$506.2 million compared to stockholders equity of approximately U.S.$621 million. Reflecting our commitment to return value to shareholders, the company completed a self tender offer in March 2019 purchasing approximately 3,890,386 shares of our outstanding common stock at the price of $2.8 per share. This followed an earlier self tender in December 2018 when we purchased 4,166,666 shares of our outstanding common stock at the price of $3.6 per share. Most recently in mid-April 2019, the company announced a third self tender offer for up to [3,000,125] [ph] shares at a price of $3.2 per share, which will expire later this month. In total, the completed self tender offers have returned nearly U.S.25.9 million in capital to Diana Shipping shareholders. In connection with our active management of the company's fleet in the 2019 first quarter, we agreed to sell three vessels. [Technical Difficulty] for a net sale price of U.S. $7.2 million. Dione for a net sale price of U.S. $7.2 million and the Erato for sale price of U.S.$7 million before commission. These vessels were built between 2001 and 2004 and we're among the oldest vessels in the fleet. We will continue to manage our fleet of 45 vessels in a responsible manner that promotes a balance of time charter maturities and produces a predictable revenue stream. We are pleased that the company demonstrated its financial strength capacity to return capital to shareholders and continue prudent fleet management strategy during the first quarter. And we will strive to sustain our progress throughout the year. With that, I will now turn the call over to our President, Anastasios Margaronis for a perspective on the industry conditions, who will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a more detailed financial outlook.

Thank you, Simeon. And welcome to the participants of this springtime conference call Diana Shipping Inc., for the first quarter of this year. The markets have certainly disappointed the owners and charters is alive thus far this year. At the beginning of 2019, the BDI, the Baltic Dry Index stood at 1282 and yesterday closed at 940. The Baltic Cape Index started the year at 1987 and closed yesterday at 1169, while the Baltic Panamax Index started the year at 1391 and closed yesterday at 1188. These are certainly not very encouraging numbers, but there is a bright side to this grim occur. The low earnings so far this year have helped increase scrapping and reduce new building ordering. Both of these developments coupled with the negative sentiment especially about near-term earnings. We work in the market's favor over at least the medium term and maybe launched. A brief look at macroeconomic developments. According to the IMF advanced economies should grow by 1.8% on average this year and by 1.7% in 2020. As regards developing economies growth this year should stand at 4.5% and 4.8% in 2020, while GDP growth should average 3.3% this year and 3.6% in 2020. The reasons cited for the weakness in the GDP growth are the U.S., China trade tensions, disruption to the German automotive sector and tighter credit policies in China. According to the recent IMF report 70% of the global economy is projected to experience reduced growth in 2019 compared to 2018, although expansion is expected to be firmer in the latter half of 2019. According to Comodo Research, European Union industrial production has now contracted on a year-on-year basis for three straight months, which has not been the case since 2013. As for Indian economic activity remains robust and Moody's recently forecast Indian GDP growth to rise from 7% in 2018 to 7.3% in 2019 and sustain similar levels in 2020. Turning to earnings, when looking at the recent drop in bulk carrier earnings, it was interesting to note that according to Clarkson, China's imports of iron ore, coal and grain have now all declined in sync in four of the last seven months [indiscernible] an occurrence seen only five times previously since the turn of the millennium. Not surprising therefore, average capesize export earnings fell earlier this year to a three year low of $1926 a day. Capesized vessels earnings have been affected by the suspended Vale iron ore production about 6% of seaborne iron ore supply and cyclone disruptions, the West Australian iron ore ports. According to the same-source average earnings of Panamax's built around 2010 fell 37% over the last six months compared to a year ago. [Astro Cape] [ph], the drop was rather scary 86% over the same period. One-year time charter rates fell on average by 40% over the last six months. For Panamax's the 12-month time charter has fell by 20% over the same period. A quick look at demand, following adjustments due to the Vale iron ore shipment disruption, global seaborne dry bulk trade is now projected to expand by a subdued 1.7% this year to reach 5.3 billion tonnes with a similar pace of expansion projected in the mine. On the supply side, Clarkson's project bulk carrier fleet capacity to grow by 2.9% in deadweight terms this year. Although active supply growth could be limited by the impact of the forthcoming IMO 2020 global sulphur cap with bulk carrier time out of service for scrubber retrofits currently estimated to absorb 0.5% of the bulk carrier fleet capacity during 2019. As we go to scrapping, according to Braemar four VLOCs were sold for scrap so far this year. Three of these were converted to LLC. Their average age was 25.4 years, since they were launched as newbuilding tankers. Braemar anticipate the scrapping of these vessels to continue unabated going forward. Demolition of ships over a hundred thousand dead weight has reached 19 vessels thus far this year. This accounts for about 3.5 million deadweight in terms of capacity. With scrapping outpacing delivery, the combined Cape and Newcastle Max fleet has been reduced by a net of 11 ships or 1.7 million deadweight so far this year. According to Clarkson, the volume of bulk carrier tonnage demolished in the first quarter of 2019 rose 45% year-on-year. On the other side of this case, bulk carrier newbuilding orders totaled 40 vessels with an aggregate of 3.9 million deadweight during the first quarter of this year down 60% year-on-year in deadweight terms. As regards to the age profile, which is only one but not necessarily the most important factor determining having of tonnage 14% of ships over 10,000 deadweight are 15 years or older. From the Panamax fleet, this figure is 18% and of the Cape's only 10% including the rather ancient VLOC conversions are 15 years older. Turning to the order book, according to Clarkson's as of the beginning of April, the bulk carrier order book consisted of 93.6 million deadweight which represented 11.1% of the global fleet, from this tonnage 23.7 million deadweight for Panamax's representing 11.3% of the global fleet and 49.7 million deadweight capes the equivalent of 14.8% of the fleet. Iron ore production, according to a Clarkson's, the iron ore trade continues to be dominated by developments in Brazil in Vale. Australian iron ore exports are expected to increase by about 2% to 856 million tonnes during 2019. According to Howe Robinson, Brazilian miner Vale recently estimated selling up to 75 million tonnes left iron ore this year compared to 2018. After several mines were halted following the recent dam burst. If this materializes, the reduction would still leave 2019 Brazilian iron ore sales at around 307 million tonnes compared to 309 million in 2018. Overall, iron ore imports are expected to drop in 2019 by 1% 1468 million tonnes compared to 2018. In 2020, this figure is expected to go to 1484 million tonnes a 1% increase compared to this year's imports. According to Comodo Research, approximately 146.7 million tonnes of iron ore are stockpiled at the beginning of April at Chinese ports. Turning to coking coal, according to Clarkson's China's coking coal imports are now expected to decline for a second consecutive year in 2019. Australian coking coal exports are projected to grow by 4% to 155 million tonnes this year. On a worldwide basis, coking coal imports are expected to reach 274 million tonnes this year. This will represent a 3% increase compared to 2018. Next year, Clarkson expect a further 3% increase compared to this year. On thermal coal, according to Clarkson, the pace of Indian steam coal imports is expected to slow slightly as power plants have increased their inventory levels in recent months and domestic production continues to expand. In the meantime, the European Union's seaborne thermal coal imports are projected to decline by around 9% to 88 million tonnes this year. [indiscernible] reports that China plans to cap coal imports and raise production in 2019. This capping will keep imports to around the levels seen in 2018. So overall, world exports are expected to grow to 1.023 billion deadweight or about 1% with a further 1% increase forecasted for 2020. As regard to green cargos now. According to Clarkson's global seaborne cost grain trade volumes are initially projected to be cut by around 2% this year mainly expecting higher exports from the Ukraine and Argentina. Overall, global seaborne grain trade is projected to grow by 2% to reach around 481 million tonnes in 2019. Now, what would the outlook be for our industry? According to Comodo Research much more scrapping is needed this year for the overall dry bulk market to be able to maintain a sustained support. It is Clarkson's view that even though capesized vessel earnings are expected to improve their current flows 2019 looks likely to be a much less positive year for the market in 2018. The reason they cite is the potential for seaborne iron ore trade to contract this year and the capsize fleet to expand by around 3.6% in deadweight terms. As regards Panamax vessels, Clarkson's forecast earnings to improve since the seasonal lows seen in February. As mentioned earlier for the market as a whole here again the fundamental balance appears to be moving away from the market at least for the rest of this year. It may be that the sector witnesses further rebalancing supported by slower fleet growth of around 1% next year and the number of positive factors relating to the introduction of the IMO 2020 sulfur cap mentioned below. According to Clarkson's looking ahead to 2020 initial projections suggest that seaborne dry bulk trade could grow by 2.2% and by around 3.2% in terms of ton miles. Baltic fleet growth is expected to slow to around 2% potentially allowing for summary balancing. While some wildcards relating to the IMO 2020 sulfur cap such as scrap retrofits, slower operating speeds and increased recycling should have a positive effect. Braemar reports that an optimistic estimate of Vale problem is a reduction of between 50 and 65 million tonnes of iron ore this year compared to expectations. As a very crude calculation, since the estimate as being the equivalent in terms of impacts of having an extra 75 standard capsize ships into the market. This might appear to be rather ominous for at least this year. However, they point out that factors which made people more optimistic for this year still remain valid. For example, while the VLOC order book may be long that's what the standard capsize vessel is very short indeed. Also scrapping has reappeared in larger and larger numbers particularly scrapping of older tanker conversions. In this environment, we wish to point out that almost if not all lower tanker conversions will be heading for the scrap yards fairly soon. Finally, owners are resisting accepting poor daily rates for their vessels and are holding out for higher rates. It therefore appears that factors are present that should help the bulk carrier market in 2020 and hopefully beyond that. We are Diana Shipping plan to take advantage of this environment by strengthening even further the company's balance sheet through the sale of the older tonnage and the possible reinvestment of the proceeds to continue to repurchase our common shares as long as the shares are trading at an attractive discount to NAV. At this point, I will pass the call to our CFO, Andreas Michalopoulos will provide us with the first quarter financial highlights. Thank you.

Thank you, Anastasios. Good morning. I'm pleased to be discussing Diana's operational results for the three months ended March 31, 2019. Net income and net income attributed to common stockholders amounted to 3 million and 1.5 million respectively and 8 million of impairments. Earnings per common share was $0.02. Time charter revenues increased to $60.3 million compared to $48.4 million in the first quarter of 2018. The increase was due to the increased average time charter rates that we achieved for our vessels used before. This increase was partly offset mainly by a decreasing in revenues due to the sale of two vessels in December 2018. Ownership days were 4320 in the first quarter of 2019 compared to 4500 in the same quarter of 2018. Fleet utilization was 99.7% compared to 99.8% for the same quarter for 2018 and the daily time charter equivalent rate was $13,253 compared to $10,416 for the same quarter of 2018. Both these expenses were 2.8 million compared to 2.1 million [Technical Difficulty] up 2018. The increase in volumes expenses was due to an increase in commissions due to increased revenues. Vessel operating expenses amounted to $22.4 million compared to $22.9 million for the first quarter of 2018 and decreased by 2%. The decrease was due to the minus 4% decrease in ownership days resulting from the sale of two vessels and was partly offset by increases in supplies repairs and maintenance and environmental costs. Daily operating expenses were $5,175 for the first quarter of 2019 compared to $5096 for the same quarter of 2018 representing an increase of 2%. Depreciation and amortization of deferred charges amounted to $12.4 million. General and administrative expenses were $7.5 million compared to $7 million for the same quarter last year. The increase [Technical Difficulty] increase in Board of Directors fees and insurances. Management fees related party were $0.5 million compared to point $0.6 million for the same quarter last year. The decrease was due to the sale of two vessels in December 2018. Increased interest and finance costs amounted to $7.7 million compared to $6.7 in the same quarter 2018. This increase was attributable to increased -- due to increased interest rates partly offset by decreased average debt compared to the same quarter of 2018. Interest and other income amounted to [indiscernible] million compared to $1.4 million for the same quarter last year. The decrease was due to the repayment of the loan to Performance shipping Inc. Thank you for your attention. We would be pleased now to respond to your question. And I will turn the call to the operator who will instruct you as to the procedure for asking questions. Thanks.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question comes from the line of Randy Giveans with Jefferies. Please go ahead.

Hey guys. This is Chris Robertson on for Randy. Thanks for taking our call. Congratulations on the successful tender. So kind of following the share repurchases, what's the current share count and how are you going to think about putting excess cash to work going forward? Are you considering additional tender offers, dividend or perhaps fleet renewal?

First of all, this is Ioannis Zafirakis speaking. We still have pending the last one -- the last tender offer is going to be closing probably on the 13th of May, but if you are asking about the number of shares today we are talking about the 101.8 approximately million shares. And as we have said in the past, the intention is from the moment we are trading well below our net asset value on a per share basis. The buying back of our stockholders has an attractive opportunity. And we have to make clear once again that for Diana Shipping Inc., buying back our stock is an attractive investment. And when we are buying back the stock, we are not doing that to support the stock price. We would like to make this distinction based on what we see from other companies that they are buying few shares here and there just to support the stock price. We strongly believe that we create value with our investments, for our shareholders and slowly we are going to be seeing the fruits of that.

That makes sense. Yes thanks. Thanks for that.

As regards to your dividend question, sorry for what -- from the moment our stock price is well below as I said, the net asset value, the dividend part of the story is not relevant, but when we will be getting closer and closer dividend most probably they are going to be introduced and when the market is improving.

Okay. So speaking of market improvements, so clearly the capesized market has been getting tighter in the past few weeks with rates tripling from 4000 a day in April to 12,000 day last week from what we're seeing. So what's been the main driver of the short-term run up in the rates? And secondly, what do you think is going to cause more of a sustained strength later in the year other than maybe increasing production from falling? I know that you hit on some scrapping and kind of IMO wildcards earlier, but…

Yes. If we use the [slow seaming] [ph] retrofit time off for ships that are going to fix these scrubbers for the rest of the year. The supply demand ratio is not that favorable to justify huge optimism. The grounds for optimism come up in 2020 where we have more meaningful discrepancy between increases in supply and demand. And from then on taking into account the fact that ships will have been scrapped in larger numbers during the year before even if the scrapping doesn't continue in 2020, there should be a relatively higher shortage of ships especially in certain areas of the world seasonally and otherwise in 2020 and we should see higher spot rates and time charter earnings.

Okay. And then, last question for me, can you comment on the two vessels that are currently off higher as indicated in the release. So, I think that Calypso and [indiscernible]?

It is customary from time-to-time to have some repairs that that on schedule and as we speak those two vessels and they have some repairs. And that's the reason why that's on 05. But we are not talking about material numbers as regards the 05 part of the story.

Can you comment perhaps on the number of days you expect them to be off higher they're going back into service kind of full quarter and in 3Q or they be back in service during the second quarter?

We are talking in the vicinity of around 10 to 20 days -- 10 to 12 days of hire, the calypso it has a bigger damage and we are not in a position to know how long it's going to take to -- we had the sustaining damage on the main engine. And we are not in a position to be able to know how long it's going to take to fix it.

Thank you for taking my questions.

You're welcome.

The next question comes from the line of Frank Galanti with Stifel. Please go ahead.

Yes. Hi. Thanks for taking the questions. So to follow up on the tendering for the shares, I had a question outside of the current pending tender offer. Do you guys have an appetite to do more tenders? And then, just kind of second part of that why do a tender at all and why not purchase the shares in the open market?

We tried to explain that earlier purchasing in the open market shares with the liquidity that the shipping stocks have to-date. It's almost impossible to invest these amounts of money that we are talking about. It takes forever. And if you look at what the others have been doing, they are well into their share buyback program for months and they have not come as near as what we have achieved to buyback our shares with a tender offer considering also the difference in the price of our share of the stock. So, for stocks that they don't have a lot of liquidity, the share buyback program is not -- consider to be not optional -- not the optimum way of investing in your company. If you just want to be buying here and there a few shares, it's are okay. And as regards to your questions about whether we will continue buying back our stock? Certainly, as we said we -- from the moment we are trading well below our net asset value, investing in our shares is a good option. But we have to make clear that we are not here to decrease the cash position of the company or change the balance sheet view of the company. This is going to be done simultaneously with sales of all the tonnage as we have done in the past. We are selling two vessels. We are getting $40 million. We are buying back the stock.

Okay. Yes. That makes sense. Thanks for that. And then, I know capesized rates and dry bulk rates in general have moved up a little bit in the past couple of weeks, but given the state of the market, are you starting to see any signs of distress sellers?

In our industry we have never consider the phrase distressed seller to be a correct one because even if you are a distressed seller you would be asking for the price of the market at that time. Being in distress to sell a vessel, you are going to accept what the market value of the vessel is going to be and this is what is happening. You have the values going up and down. And as you -- we are talking today, I can say that the values of the vessels are in similar levels that we have seen even when the market was a bit higher since they have never gone up, I would say substantially. There is this going down a little bit, but not substantially. Distress sellers are such do not exist, even if you have a problematic situation with the bank someone who owes money to the banks is going to be asking what the value of the vessel is at that time. Let's say 5% discount, but no more.

Okay. Yes. Thank you. That's all I had. Appreciate it.

[Operator Instructions] There are no further questions at this time. I'd like to turn the floor back to management for closing comments. Thank you.

Thank you, again for the interest in and support of Diana Shipping Inc. We look forward to speaking with you. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.