Star Bulk Carriers Corp. (SBLK) Q1 2012 Earnings Report, Transcript and Summary

Welcome to the Star Bulk Conference Call on the First Quarter 2012 Financial Results. We have today Mr. Spyros Capralos, President and Chief Executive Officer; and Mr. Simos Spyrou, Chief Financial Officer of the company. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today on Thursday, May 31, 2012. We now pass the floor to one of our speaker today Mr. Spyros Capralos. Please go ahead sir.

Thank you, operator and good morning everybody. I’m Spyros Capralos, President and Chief Executive Officer of Star Bulk Carriers, and I’d like to welcome you to the Star Bulk Carriers’ first quarter 2012 financial results conference call. Along with me today to discuss our financial results is our CFO, Mr. Simos Spyrou. Before we begin I kindly ask you to take a moment to read the Safe Harbor statement from Slide number two of our presentation. While you read it I’d like to personally address some of the most frequent questions we have been receiving from various investors. First of all, it is true that this year unlike most of the previous year’s our first quarter results came out a little later than usual. The main reason behind this is the fact that as of the beginning of the year, we have appointed new auditors. In view of this, we decided it would be better to allow enough time for our new auditors namely Ernst & Young to complete all auditing procedures. Our cooperation with our previous auditors was exceptional and our relationship remained excellent, however, we believe that the company should reach auditors every five years in order to ensure better corporate governance and increase balance sheet towards its shareholders. Another question we have been receiving recently has to do with our F3 filing. Our previous F3 registration statement expired and in order to continue using it, we had to file a new one with a same terms and conditions. This procedure is considered a standard practice for listed companies within the industry. Finally, I’d like to underline the Star Bulk Carriers is a Marshall Islands company not a Greek company. It is true that we maintain offices in Greece and our fleet is managed from these offices, but…

Thank you, Spyros. Let us now move to Slide 10 for an overview of our balance sheet as of March 31, 2012. Current assets stood at $33.6 million; our fixed assets amounted to 617.6 million; and total assets amounted to $696.1 million. Current liabilities were $43.7 million while non-current liabilities amounted to 218.2 million and stockholder’s equity was at 434.1 million. If we can now turn to Slide 11 to discuss our first quarter 2012 income statement. I’d like to point out that our results include non-cash items amounting to $5.9 million, which are depicted in the middle column while the adjusted figures exclude them. For the first quarter of 2012, non-cash adjusted revenues amounted to 29.6 million compared to 29.3 in the same period last year. Net income for the first quarter of 2012 was marginal and amounted to $94,000. In particular, non-cash items include a 1.6 million related to the amortization of above market acquired time charters. Expenses of 1.3 million relating to the amortization of stock-based compensation and the loss on the sale of Star Ypsilon of $3.1 million. Excluding the non-cash items net income for the first quarter of 2012 amounted 5.9 million or $0.07 earnings per share. The increase in vessel operating expenses for the three months ended march 31, 2012 versus the same period last year was due to the increased number of vessels in our fleet and the increased average vessel size. Voyage expenses increased to 8.7 million for the first quarter of 2012 from 6.6 million in Q1 2011. If we exclude the expense for charting in a third-party vessel to serve a shipment under our contract of payment amounting to 4 million and 6.6 million for respective quarter last year due to fewer shipment days. The increase in voyage expenses would…

Thank you, Simos. In conclusion as u can see on Slide 17, we believe that Star Bulk is well positioned from a financial and operation point of view to not only sustain the company but also take advantage of the opportunities in the dry bulk markets. On top of our high quality modern fleet, Star Bulk also has one of the most diverse group of high quality charter in the sector. As we discussed earlier I our presentation, our campaign to bring our fleets management in-house has provided tangible result as we have later meaningful increase in our efficiency and transparency while consistently lower operating cost. We have a moderately leveraged balance sheet and healthy liquidity profile and experience and dedicated management team. Most importantly we believe that our financial condition is strong. We currently have no capital expenditures related to new buildings, we have 42 million of cash in the banks, we are compliant with our loan covenants. From an operational perspective, our Capesize fleet is mostly covered for the next two to three years and as above market charter levels while our operating expenses are being continuously optimized. We believe we have all of the element in place to continue with our fleet growth and renewal strategy. Without taking anymore of your time, I will now pass the floor over to the operator. In case you have any questions well Simos and myself will be happy to answer them.

Thank you, sir. (Operator Instructions) Your first question comes from the line of Natasha Boyden from Global Hunter Securities. Please go ahead.

Few questions here, first off wanted to ask you about your plans for the Star Sigma here, it's a ’91. Could we see some of our outcome as we have seen with the Star Ypsilon?

Well, let me say quickly about Star Sigma, yes Star Sigma is a 21 year old vessel, she is a quality vessel because commercially it's one of the largest old capes of 180,000 something dead weight tons which is very good commercially. On the other hand, she has approximately a little bit than a year until or next dry dock. Therefore, we think that for the time being we will operate in the market and we will decide later whether it's worth selling her; take her for dry dock depending on the market developments.

And just on that same note, as you look across your fleet the dry bulk fleet, are there any more ships that you would be interested in selling perhaps on top of the Star Sigma or at this point are you looking growth opportunities as appose to selling off vessels?

We have one more vessel in the markets one of the Supramax vessels which is our only Chinese made vessel to Star Cosmo, and then what we are looking forward is not to sell at this market levels but actually we are thinking of growing further our fleet, taking advantage of some of the assets or even going or a newly fleet with new buildings.

And looking at new building and second hand opportunities here, how do you look at potentially financing those assets, obviously I’m assuming there will be some debt component but would you look to go to the market at all to raise equity at his point?

Well, we will have all of our options open, we don’t want to commit today on what we want to do, because first we need to find the right opportunities, what we know for sure is that our lending banks have good faith in our company and they have come to us saying that, they are ready to finance the acquisition of new vessels.

If I can just move over to the macro picture right now. You commented on the Chinese growth of iron ore etcetera in the presentation. There has been a lot of talk about a potential slowdown in Chinese economic activity, and the lack of sort of huge stimulus package that they had a couple of years ago. And there has also been talk about the cancellation of cargo, what are you seeing on that front and what are your thoughts generally regarding your Chinese economic growth?

Well, as I said before, we have been listening about the previous stimulus in China and there are some recent talks about new stimulus package, apart from that we have not seen anything, but we still believe that even without any growth or even a slowdown in China all of these basically statistics from the coal trade and the iron ore favorable for the dry bulk market.

We are not talk about no growth in China we are talking about a growth of 7, 7.5% which is quite substantial.

Thank you. Your next question comes from the line of (inaudible).

This is actually (inaudible). I have a few questions for you, number one, can you explain we spoke earlier this year you mentioned you are looking at interest rate swaps with rates going even lower, what are you thinking about locking in rates or what’s your view on that?

Well, since last time we talked interest rates are even lower and therefore we are happy we haven’t done it yet. And seeing the situation in the euro zone we believe that interest rates may go further down, therefore, we are not locking yet our positions but of course, the intention at the certain point to lock some of our cost especially for the longer maturities over debt in order to take advantage of their low interest rate environment, but not yet. With the uncertainty we think that we can wait to get better results.

Number two, any of you know with Supras going in decent rates earlier this year, there were times I believe you could have raised that $12,000 mark that you mentioned in earlier presentations for the breakeven. Why is it that you chose not to lock them in for the whole year or little bit longer? It looks like that is still moving more on the spot market, what is that?

Why, because when we have the right price, probably the right charter is not there, because as you know we always fly when we (inaudible) which charter longer term to make sure that the charter would be of high quality like we have done with most of our fleet. So, we are waiting for some hikes in the market and whenever we can, we charter for longer terms like we did recently with one of our vessels with charter here for four to six months at 11,750 that was only last week. And so we wait to see. It will not make such a huge difference; therefore, we are trying to make sure that we charter our fleet in the best possible rates. And you know sometimes you see the market is 12,000, but if your vessel is not positioned at the right place, you cannot get that 12,000.

And what is your view on Supramax, Supra’s rate later on this year going forward, do you still think that they will maintain their strength overall?

The forward curve is not that doing well but of course they have not been as volatile as the Cape or Panamax they scaled much better than the other classes and therefore, being on the spot market has not punished us; well on the other side on the Capes having fixed them for longer period of time, we feel much better for that.

One last issue is with your expansion plans, with the current cash on hand and with prospective debt financing that you [will get] and also maintaining your balance sheet strength. How many vessels and at what size could you expand right now?

Well, this is a big and very long question to answer, because we are starting the different classes from Supramax’s their prices range now from 25 million to Capes could be around 45 million. And it depends whether you talk about Chinese, Korean or Japanese ship yards. So they range. So, we have cash in hands 40 million and so you can make your calculations and usually probably what we would like to do is if we were to put in order for new buildings to put for a couple of them.

And one last point, I think one reason why the share price is so significantly below net asset value and also considering how well financed and secure the company is, I think is a big fear of dilution and therefore, the equity raising is happening across the sector and I think that’s one big (inaudible) that lot of investors have. So, I hope you consider that before any plans like that are made because I think these companies has done a great job, I know you have done a great job, but that’s something that worries everyone when the share price is dropping and we have pretty big dilution potential there.

Point noted, we will continue doing our job in the best possible way, but we have to take advantage also of the current low prices in the vessels and if we want to grow further the company.

Thank you. (Operator Instructions) We have a question comes from the line of Tony Pollock from Maxim. Please go ahead.

Could you give us a little more background on the debt situation what maturity is and what’s the dollar amount on the maturities are?

Basically as we said before we have 243 million outstanding debt, and the amortization plan for the following years, the remaining for 2012 is 17 million; 2013 is 32 million; 2014 is 33 million; 2015 is 28 million; 2016 is 85 when we have in the fourth quarter the first balance.

And what are the interest rate structures [on the said]?

Well I’d say on average the interest rate is around 2.2%, the lowest margin is 125 basis point and the highest is 300.

The average is only about 2.2%.

Over LIBOR.

Thank you. (Operator Instructions) We seem to have no further questions gentlemen; I’d now like to pass the floor back to Mr. Capralos for closing comments. Thank you.

Thank you, ladies and gentlemen for taking the time to join us today for our earnings conference call. Our company Star Bulk is focused on future for stability and growth, and to continue rewarding our shareholders with a dividend. Again thank you very much for your interest in our company and have a good day.

Thank you, ladies and gentlemen that does conclude our conference for today. Thank you all for participating and you may now disconnect.