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Diana Shipping Inc  (NYSE:DSX)
Q4 2018 Earnings Conference Call
Feb. 26, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Diana Shipping Inc. 2018 Fourth Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(Operator instructions)

Please note, this conference is being recorded.

I'll now turn the conference over to our host, Mr. Ed Nebb, IR Advisor for Diana Shipping. Please go ahead sir.

Edward Nebb -- IR Advisor

Thanks Diego, and thanks to all of you for joining us today for the fourth quarter and year-end conference call of Diana Shipping Inc. With us today from management are Mr. Simeon Palios, Chairman and Chief Executive Officer, 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 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. Forward-looking statements are based on assumptions, expectations, projections and beliefs as to future events that 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 from the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission.

With that, let me turn the call over to Mr. Simeon Palios, Chairman and CEO.

Simeon P. Palios -- Chairman and Chief Executive Officer

Thank you, Ed. Good morning and thank you for joining us today to discuss the results of Diana Shipping Inc. for the fourth quarter and full year 2018. Our performance strengthened significantly during the recent quarter and year as reflected in higher-time charter revenues and the dramatic turnaround in profitability. This is the result of the patient and focused strategy we have persistently followed over many years, which position the Company to take advantage of improving industry conditions.

In addition, we took steps to fortify our balance sheet in 2018, while also demonstrating our strong belief in the Company by conducting a Self Tender Offer. Lastly, we have continued to actively manage our fleet profile to optimize our mix of vessels, and maintain our operational and financial flexibility.

To summarize our financial results, Diana Shipping Inc. reported net income of $2.9 million and net income attributed to common stockholders of $1.5 million for the fourth quarter of 2018. This represents a turnaround from a net loss of $436.9 million and a net loss attributed to common stockholders of $438.4 million for the fourth quarter of 2017, which included a $422.5 million impairment loss.

For the full year 2018, net income was $16.6 million and net income attributed to common stockholders was $10.8. This was a significant improvement compared with the net loss of $511.7 million and a net loss attributed to common stockholders of $517.5 million, including the impairment loss for 2017.

Time charter revenues rose to $62.9 million for the fourth quarter of 2018 from $48.9 million for the same quarter of 2017, mainly due to the increased average time charter rates that we have achieved for our vessels. Time charter revenues were $226.2 million for the full year of 2018, up from $161.9 million for 2017.

Turning to the balance sheet, cash, cash equivalents and restricted cash totaled a healthy $151.4 million at December 31, 2018. Long-term debt, net of deferred financing cost, including the current portion, was $530.5 million compared to stockholders equity of more than $627.7 million. The Company enhanced its financial flexibility during the 2018 fourth quarter by redeeming all of the outstanding 8.5% senior notes due 2020 at the aggregate principal amount of approximately $63.25 million. This was made possible in part by our issuance during the third quarter of $100 million private placement of senior unsecured bonds -- maturing in September 2023.

Reflecting our commitment to return value to shareholders, at the end of December 2018, the Company completed the Self Tender Offer to purchase up to 4,166,666 shares of our outstanding common stock at a price of $3.6 per share. The Board of Directors determined that repurchasing the shares was in the Company's best interest, given our cash position and stock price.

In connection with our active management of the Company's fleet in the 2018 fourth quarter, we agreed to sell two vessels. The Alcyon for a sale price of $7.45 million before commissions and the Triton for a sale price of $7.35 million before commissions. In early 2019, we announced agreements to sell the vessels, Naias and Dione at a sale price of $7.2 million each. All four of these vessels were 2001 built and were among the oldest vessels in fleet.

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 in 2019, we will continue the prudent management of our financial position and our fleet, and we'll maintain our focus on delivering value to our shareholders.

With that, I'll now turn the call over to our President, Anastasios Margaronis, for a perspective on industry conditions. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a more detailed financial overview. Thank you.

Anastasios C. Margaronis -- President

Thank you, Simon and welcome to all the participants of this quarterly conference call of Diana Shipping Inc.

Last year started off on a very positive note in the bulk area market, but things began to deteriorate and the market lost its gains and more toward the end of the year. Proof of this is Baltic Dry Index, which started the year at 1,282 and stood at only 637 on February 25. The Baltic Cape Index moved from 1,987 to 520 over the same period, and the Baltic Panamax Index stood at 1,391 on January 2, closing yesterday at only 608.

Since mid-October last year, Panamax rates are down by 52%, while Capesize rates are also down 32% over the same period.

Let's start with macroeconomic developments, which usually have a role to play in the medium- to long-term fortunes of the shipping industry. In the Eurozone, the economy grew 1.8% in 2018. The IMF predicts growth will slow down to a maximum of 1.6%, this year, with downside risks present. In 2018, the Chinese economy grew by 6.6%. That was the slowest pace since 1990, but the comparison becomes rather meaningless if you look back in the context of the overall size of the Chinese economy in 2018 and in 1990. For 2019, growth is expected to come in at 6.2%.

Developing economies on the other hand grew at a brisk 4.6% in 2018. The IMF expects growth to slow down to about 4.5% this year. Overall, world GDP growth in 2018 was 3.7% and this rate of growth is expected to come down to 3.5% this year. Starting with steel now, looking at commodities according to Howe Robinson, Chinese steel production rose nearly 10% in 2018 on the back of strong expansion in real estate and ongoing government infrastructure project. Howe Robinson expects Chinese steel production to fall in 2019. However, they cite state-sponsored projects such as the recently announced $125 billion rail network expansion to limit the extent of any decline. Steel stock piles in China at the end of December were approximately 9.2 million ton, which was about 100,000 tonnes less than at the same time in 2017.

Turning to demand now for shipping overall, according to Clarksons, total bulk carrier trade in 2018 reached the 29.339 trillion ton miles, an increase of 2.8% compared to 2017. In 2019, they estimate that volumes will increase by 3.4% to reach 30.343 trillion ton miles. In 2021, volumes are estimated to increase by 2.8% (ph).

Looking at iron ore now, according to Clarksons, global seaborne iron ore trade is estimated to have contracted marginally to 1.47 billion tonnes in 2018, largely reflecting weaker shipments to China. This was mainly caused by more scrap use in the countries of steel industry and a drawdown in port inventories. In 2019, Chinese iron ore imports are expected to increase by around 2% as the sharp drawdown in inventories seen last year is not expected to be repeated and the consumption of scrapping China's blast furnaces might fall back from the level seen last year. The latter could be caused through the arrival of more high-quality steel in the markets. According to Banchero Costa, the outlook for Chinese iron ore imports in 2019 remains worried as higher iron ore prices and lower steel prices have cut into steel mill profit margins, discouraging the steel mills from ramping-up output and restocking raw materials.

According to Clarksons, following the disaster caused by the collapse over Vale's Corrego do Feijao Dam, Vale announced that 40 million tonnes per annum of iron ore production will be suspended to allow for the decommissioning of 10,000 dams over the next three years. As a result, overall Brazilian iron ore shipments could be between 5 million tonnes and 50 (ph) million tonnes per year weaker than earlier projections. This would amount to about 1% of seaborne iron ore trade or 0.3% (ph) of total annual bulk trade. The interesting question is to try and determine where the shortfall in projected iron ore shipments might come from and what effect that would have on the overall ton mile demand for capes.

It is quite certain though that business for the Vale sized bulkers would be negatively affected as a result of this disaster. We need to keep in mind that these ships cannot be employed in any other routes but those envisaged by Vale, when they were design built.

As for coking coal now, holding against to Clarksons, total world imports of coking coal could reach 275 million tonnes this year, an increase of 3% compared to 2018. In 2020, the estimate is set at 282 million tonnes, which would be a further increase of 2%. (inaudible) Chinese import demand and potentially weaker prices represent downside risks, so do European Union seaborne coking coal imports, which are expected to show only marginal growth in the coming years.

Thermal coal, according to Clarksons, thermal coal imports are estimated to increase by 2% this year and reach 996 million tonnes, and about 1% growth in 2020. This year, China is expected to remain the world's largest seaborne steam coal importer, although volumes are expected to fall slightly year-on-year, when significant downside risks are present as mentioned below. According to Howe Robinson, the Chinese government imposed restrictions on thermal coal imports from mid-November onwards. According to Banchero Costa, India continues to have strong coal imports as domestic production shortfalls, domestic logistics bottlenecks regulations, targeting pollution cuts and surging demand for power from household electrification lead to higher imports from suppliers in Indonesia, South Africa and the United States.

On top of all the above, according to Comodo Research, at the beginning of February, China's six major coastal power plants had 14.7 million tonnes of coal in stock pile, which was 50% higher than a year ago.

Turning to grain cargos. In the 2018, 2019 grain season, Clarksons expected the grain imports to reach 500 million metric tonnes, which if it materializes will be an increase of 4%. In 2019, 2020, the expectation is for a further increase of 3% to 515 million metric tonnes. According to Banchero Costa, global soybean trade is expected to contract by 0.7% in 2018 to 2019 grain mainly as lower Chinese imports, due to US trade tensions, outweigh an increase in European imports.

Turning to the supply now of tonnage, newbuilding deliveries last year were 27.3 million deadweight compared with 37.1 million deadweight in 2017. This year, newbuilding deliveries are expected to reach 37 million to 38 million deadweight. Comodo Research are concerned by the fact that while in 2018 about 297 vessels were delivered this year, the number is expected to be in the 330 to 430 range.

Unless demolitions increase so as to compensate for this extra newbuilding tonnage, supply might become an issue for the dry bulk market, by increasing well over 3% which is currently anticipate by most analysts. Clarksons estimate fleet growth of 3% this year with fundamental looking fairly balanced with downside demand risks as mentioned already.

Banchero Costa also expects fleet growth of 3% for this year assuming demolition activity increases from its record low-level seen in 2018, in line with expected increases in newbuilding deliveries this year. Clarksons believe that supply growth could be limited by the impact of the January 2020 Global Sulphur Cap with bulk carriers out of commission to fit scrubbers absorbing about 0.5% of bulk fleet capacity across 2019.

Scrapping, last year's demolition volumes of 4 million deadweight were the lowest seen for 10 years. In 2017, 13.6 million deadweight worth of capacity was scrapped. In 2019, Banchero Costa expect the scrapping to reach at least 10 million deadweight tonne. With scrapping slowing down significantly in 2018 to just over 4 million deadweight tonne, the average age of the bulk carrier fleet went up from 9.1 years at the end of 2017 to 9.6 years last December.

A quick look at the order book now. According to Clarksons, at the end of last year, there were 88.5 million deadweight tons worth of ships on order, representing 11% of the bulk carrier fleet. The Capesize order book was 49.9 million deadweight tons, which was 15% of the existing fleet and 20.9 million deadweight tons of Panamax's were on order, the equivalent of 10% of the existing fleet. Nearly half of this newbuilding tonnage is scheduled for delivery this year, while the rest will be delivered in 2020 and beyond.

So, what kind of an outlook do analysts provide us with all these data? Comodo Research are rather bearish on the prospects of the world economy and for the dry bulk market as a whole. They point out that the Vale incident is a new headwind for the Capesize market that will require continued evaluation. The positive news they cite in this sector, is the arrest of an elderly VLOC conversion. This might reveal problems known in some circles for a while now about the structural integrity of these ships. It is possible that the further trading of these vessels might be suspended. If the supply and demand forecast described earlier unmaterialize this year, rates should improve from their present depressed levels.

On the other hand, Clarksons' report, that while overall demand/supply outlook for the bulk carrier sector in 2019 looks broadly balanced, a number of significant downside risks to the demand side are clear. These range from global economic concerns to uncertainty over the outlook of China's coal and iron ore imports. Clarksons' counter-balanced these negative factors, by pointing out that increased demolition and vessel

of higher time for scrubber retrofits mentioned earlier could have a positive impact.

On this note, we will pass the call over to our CFO, Andreas Michalopoulos, who will provide us with the financial highlights for the fourth quarter of last year and for 2018 as a whole. Thank you.

Andreas Michalopoulos -- Chief Financial Officer

Thank you, Stasi and good morning. I am pleased to be discussing today with you Diana's operational results for the fourth quarter and year-ended December 31, 2018. Net income and net income attributed to common stockholders amounted to $2.9 million and $1.5 million, respectively. Earnings per common share were $0.01.

Time charter revenues increased to $62.9 million, compared to $48.9 million in the fourth quarter of 2017. The increase was due to the increased average time charter rates that we achieved for our vessels during the quarter. This increase was partly offset by a decreasing revenues due to the sale of the vessels Alcyon and Triton in December 2018.

Ownership days were 4,554 in the fourth quarter of 2018 compared to 4,624 in the same quarter of 2017. Fleet utilization was 99.1% compared to 98.9% for the same quarter of 2017, and the daily time charter equivalent rate was $13,527 compared to $9,949 for the same quarter of 2017. Voyage expenses were $2.7 million for the quarter compared to $3 million for the same quarter of 2017, and the decrease in voyage expenses was due to a gain from bunkers of $0.7 million compared to a loss of $0.5 million in the same quarter of 2017.

Vessel operating expenses amounted to $25.2 million compared to $24 million for the fourth quarter of 2017, and increased by 5%. The increase was due to increasing insurances, repairs and maintenance costs of the vessels and taxes. Daily operating expenses were $5,536 for the fourth quarter of 2018 compared to $5,195 for the same quarter of 2017, representing an increase of 7%.

Depreciation and amortization of deferred charges amounted to $13 million. General and administrative expenses were $9 million compared to $8.2 million for the same quarter last year. The increase was mainly due to increased payroll and training costs, and the exchange rate of euro to US dollars. Management fees to related party were $0.6 million compared to $0.5 million last year, due to the increased average number of vessels managed by Diana Wilhelmsen.

Interest and finance costs amounted to $9 million, compared to $6.8 million in the same quarter of 2017. This increase was attributable to increased average interest rates in the quarter compared to the same quarter of 2017, and was partly offset by decreased average debt. Interest and other income amounted to $0.8 million compared to $1.5 million for the same quarter last year. The decrease was due to the repayment of the loan due from Diana Containerships.

For the year now ended December 31, 2018, net income amounted to $16.6 million and net income attributed to common stockholders amounted to $10.8 million. Earnings per share was $0.10. Time charter revenues increased to $226.2 million, compared to $161.9 million for 2017. The increase was attributable to increased average time charter rates that we achieved through our vessels during the year, less a five (ph) days compared to 2017.

Ownership days in 2018 were 18,204 compared to 18,119. Fleet utilization was 99.1% compared to 98.2% in 2017, and the daily time charter equivalent rate was $12,179 compared to $8,568 in 2017. Voyage expenses were $7.4 million in 2018. Vessel operating expenses amounted to $95.5 million compared to $90.4 million in 2017. The increase in operating expenses was due to increased insurances, repairs and maintenance costs and taxes. Daily operating expenses in 2018 were $5,247 compared to $4,987 for 2017, representing a 5% increase.

Depreciation and amortization of deferred charges amounted to $52.2 million in 2018. General and administrative expenses increased to $29.5 million compared to $26.3 million in 2017, mainly due to increased payroll and training costs, increased BoD fees and legal fees and the exchange rate of fuel to US dollars.

Management fee to related party was $2.4 million compared to $1.9 million in 2017. The increase was due to an increased average number of vessels managed by Diana Wilhelmsen during the year compared to 2017. Interest and finance costs amounted to $30.5 million compared to $26.6 million in 2017. This increase was attributable to increased average interest rates compared to last year, while average debt is decreasing.

Interest and other income amounted to $8.8 million compared to $4.5 million in 2017. This increase was mainly due to the payment of the $5 million discount price, which was recorded in income on the date of the loan repayment by Diana Containerships, Inc.

Thank you for your attention. We would now be pleased 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.

Operator

Thank you, sir.

At this time, we will be conducting a question-and-answer session.

Questions and Answers:

Operator

(Operator Instructions)

Our first question comes from Noah Parquette with JPMorgan. Please state your question.

Noah Parquette -- J.P. Morgan -- Analyst

Great. Thanks.

I just wanted to ask you guys -- wanted to ask about use of cash flow. Obviously the tender in Q4, that was one drive off because that was kind of pre the Vale news and the market moved lower. I mean, how are you in terms of your comfortable like a liquidity buffer at this point, given where rates are? I mean, would you consider more moves like the tender or taking up the deferred stock? Or are you kind of want to see a little bit extra liquidity out there?

Ioannis Zafirakis -- Chief Strategy Officer and Secretary

No. This is Ioannis Zafirakis speaking. We are considering the cash position that we have today to be sufficient on the conservative side of the business, I have to say. As we were trying to explain earlier, we feel that the fare meter is on the high side and there is some justification for being afraid for the demand. And certainly, there is the thought of the demand going down, but we also believe that these may have been a little bit overestimated, which has led also supply to be on the low side lower than what should have been, and the net effect, most probably is going to be much more positive than everybody thinks.

Having said that, to answer your question directly, we think that the liquidity -- the cash that we have aside is more than enough. And don't forget that we are selling also vessels, and, therefore, a tender offer is not out of the question.

Noah Parquette -- J.P. Morgan -- Analyst

Okay. That's clear.

And then I just wanted to ask about the 2001-built ships that you're selling. One, you still have, I think, one more, it's safe to assume that's up on the block too. Are those, just trying to get a sense of -- or two more -- are those going to scrap or are those going to trade? Just to get a sense how scrapping will shape up this year?

Ioannis Zafirakis -- Chief Strategy Officer and Secretary

No, no. Those vessels are fully tradable. They've been sold to -- before the trading.

Andreas Michalopoulos -- Chief Financial Officer

The scrap value of those vessels is almost half of what they have been sold for.

Noah Parquette -- J.P. Morgan -- Analyst

Yes. Okay, great. Thanks.

Operator

Thank you.

(Operator Instructions)

Our next question comes from Randy Giveans with Jefferies. Please state your question.

Randy Giveans -- Jefferies -- Analyst

Yes. So two quick questions for me. So, Diana obviously been very active in the time charter market in recent months and it was kind of continuous. But is that specifically due to kind of a weaker outlook for short-term spot rates or just an ongoing strategic decision to kind of keep rechartering vessels to maintain 75%, 80% time charter coverage for the next six months to nine months?

Ioannis Zafirakis -- Chief Strategy Officer and Secretary

You are closer to the second explanation. As we have done since 2005, we keep our strategy the same. Chartering of our vessels is staggering process. We will continue doing that. I'm not that 100% certain whether it is 70% or 80% that you mentioned, it is absolutely correct. We don't have such a target in our mind. What we have as a target is to have a vessel opening every 15 days or 20 days. We are trying our best not to have a lot of vessels opening at the same time and this is what we will continue doing.

Randy Giveans -- Jefferies -- Analyst

Sure. Okay.

And then looking at the balance sheet now on kind of where it is currently after some refinancings and whatnot. Can you provide a quarterly debt amor for this year and maybe for 2020? Any big balloons in the near term?

Anastasios C. Margaronis -- President

Yes. So as we had stated we had a loan for motor vessel Maera, which had a balloon and a maturity amount of $12.1 million. And that was maturing on the 4th of January. This was repaid; this loan was repaid and we have the vessel now that is without a mortgage. So, this was a conscious decision within our strategy to slightly de-lever the Company, we decided to repay that vessel.

Considering motor vessel, Crystalia and Atalandi, those two vessels, we had a maturing installment, a maturing balloon and installment of $21 million that we also repaid a few days ago. It was maturing a few days ago. On that amount, we are nearly concluded to refinance those two vessels. As soon as we refinance them, you will be the first to know, but we are in final stages of refinancing those two vessels for about $19 million for both.

And finally, within our maturities, you have a loan for Ismene and Selina, with the maturity amount of around $20 million, maturing on the 30th of June. We intend to also refinance those two vessels at maturity and this should be absolutely no problem for us to do that. Last but not least, motor vessel Houston is maturing at the end of the year with a balloon installment of $4.9 million. On the November 19th, we have not decided yet what we're going to do at that point in time of the year with that amount.

What is important for you to know is that we have banks that are there to refinance our vessels and that's point number one. And point number two is that we do not want, as Ioannis said I think at the beginning of the call, to diminish our cash balance in the balance sheet. We are at the point in the cycle where we are building the balance sheet and the cash in the balance sheet and we intend to do that.

Randy Giveans -- Jefferies -- Analyst

Got it.

And in kind of just for total debt amor for this year and next year, not necessarily including the vessel sales, just kind of scheduled debt amor.

Anastasios C. Margaronis -- President

You will see all that in the 20-F, but basically, for this year is around $100 million, all inclusive. And for next year, it's about $40 million and a lot in the half for the next six years. But I think in a few days, you will have the 20-F filing that we will do, and you will have all that in greater detail which is most important for you at that time.

Randy Giveans -- Jefferies -- Analyst

Yes. Excellent. And then I guess one quick housekeeping question. So, yeah. Congrats on that tender offer. Now following those share repurchases, what is the current share count that we should use for 2019?

Ioannis Zafirakis -- Chief Strategy Officer and Secretary

You want the exact number, it's 103 million shares something. You want the exact number?

Andreas Michalopoulos -- Chief Financial Officer

103,764,351.

Randy Giveans -- Jefferies -- Analyst

103,764,351. Now, we're talking. All right. Thanks again, gentlemen. Have it going.

Operator

Thank you.

(Operator Instructions)

Ladies and gentlemen, there appears to be no additional requests for questions. I'll turn it back to management for closing remarks. Thank you.

Simeon P. Palios -- Chairman and Chief Executive Officer

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

Operator

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.

Duration: 38 minutes

Call participants:

Edward Nebb -- IR Advisor

Simeon P. Palios -- Chairman and Chief Executive Officer

Anastasios C. Margaronis -- President

Andreas Michalopoulos -- Chief Financial Officer

Noah Parquette -- J.P. Morgan -- Analyst

Ioannis Zafirakis -- Chief Strategy Officer and Secretary

Randy Giveans -- Jefferies -- Analyst

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