Diana Shipping 4Q14 Earnings Call Notes

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The end of 2014 was disastrous

“There is no doubt at the last quarter of 2014 brought a great disappointment to owners and huge movements in earnings of all bulk carriers unfortunately on the downside. A year ago capesize vessel time charter rates stood at around $40,000 a day and hopes were high for 2014. As we say prices at the time approach US$60 million. As we all know by now 2014 ended in a disastrous way despite seaborne Chinese iron ore import increasing by about 100 million tons.”

Wide over-capacity

“the Baltic dry index slumps with lowest point in 29 years hit by a shipping glove, falling commodity prices and declining import demand from China. We agree with these analysts and the most important factor in the Baltic dry indices decline is industry wide over capacity.”

Steel capacity utilization in China only 72%

“The crude steel capacity utilization ratio in December 2014 was 72.7% which was 2.4% lower than in December 2013. Average capacity utilization in 2014 was 76.7% compared to 78.4% in 2013. ”

Panamax rates are below operating expenses

“As of the first week of February the average spot market earnings for capes have dropped to a miserable US$5,125 per day. As if this was not bad enough the equivalent rate of Panamaxes stood at $3,906 per day, a rate which is definitely below operating expenses.”

Rates to stay low for a long time

“The result of this trend is unfortunately that rate unlikely to remain low for a long time as the industry overcapacity works itself out of the shipment that will in all likelihood remain the case even if global mainly Chinese commodity demand recovers substantially. So this is once again the environment which the management team of Diana Shipping is implementing investment strategy which we have repeatedly stated and explained.”

Market will gradually strengthen from 2016 and beyond

“Our priorities to preserve these strength and integrity of our balance sheet and gradually increase leverage towards the 60% to 65% or even 70% mark and asset values, we believe that purchasing vessels at this point in the cycle will prove to be profitable investment as the market strengthens gradually from 2016 and beyond.”

Constraint in ordering will eventually lead to better industry

“We also believe that provided there is a continued restrain in ordering, the lack of bank finance and the even greater lack of investor appetizing the capital markets will eventually lead the industry to better days. All the ships will be scrapped and earnings will gradually increase, this should find our company in the advantageous position of owning mostly very modern ships to the large income generating capability. That will be the time when our dividend can be reintroduced and older vessels can be sold at very advantageous prices. The company can then expand through the essence of fresh equity which will enhance both our ability to pay dividend and the level of those dividends.”

Repurchased shares

“During the second half of 2014 we repurchased and retired 2.8 million shares for an aggregate cost of about $25.3 million and subsequently to year-end we additionally repurchased and retired 413,804 shares for an aggregate cost of $2.7 million.”

We’re still pessimistic about the market

“we have no change whatsoever in our bearish view about the market. We have not seen the scrapping and the laying up of vessels that we want to see before will start going up this scale. The psychology as regard to market turning positive should turn little bit more to the less and less optimistic. But not at the pessimistic level. We won’t achieve that before and some other things as we have explained in the past, before we start going up in the scale of your question.”

There is appetite still that has to go away

“The vessels have definitely to lay up and things are moving to the proper direction in putting the market in a different phase all together. And this up to now it has not been some for example our ships today capes that they have been inspected by almost 10 people. There is still appetite admittedly at lower levels but the appetite is still there and psychologically that appetite has to go away.”

First priority is to ensure survival of the company

“As we have said in the past our first priority is to ensure the survival of the company for as long as possible. At the same time we want to keep buying vessels in this lower part of the cycle because we strongly feel that we should shed this type of investment. And we have — as we kept saying in the past we’re talking about one vessel every two months and we tell we will try to spend let’s say something like in the vicinity of $15 million every two months. And at the same time we will make sure that our cash flow, our loans et cetera are going to be serviced in such a manner that we will buy some more vessels for the next year at least. And then from then onwards we can survive a bad environment for another two to three years. This is our target.”

buying back shares same as buying ships

“You should consider the repurchasing of our shares as an investment at this part of the cycle. So it goes together with our vessel acquisitions, so from the moment we said we will keep the same pace and we will make sure that w”

For us to really be positive we’d have to have analysts not wanting to ask us questions anymore

“The next time that we will have less and less analyst really interested about the dry bulk sector it would be a very good point for the market to start for us to start thinking positively.’