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OPERATOR: Ladies and gentlemen, welcome to the Diana Shipping fourth quarter 2008 earnings conference call, on the 19th of February, 2009. For today's recorded presentation, all participants will be in a listen-only mode. (Operator instructions)
I will now hand the conference over to Edward Nebb. Please go ahead, sir.
EDWARD NEBB, IR ADVISOR, COMM-COUNSELORS, LLC: Thank you, David, and welcome to the Diana Shipping fourth quarter and year end 2008 conference call. The members of the Diana Shipping management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer, Mr. Anastassis Margaronis, President, Mr. Andreas Michalopoulos, Chief Financial Officer, Mr. Ioannis Zafirakis, Executive Vice President and Secretary, and Ms. Maria Dede, Chief Accounting Officer.
Before management begins their remarks, let me briefly summarize the Safe Harbor notice, which you can see in its entirety in the news release that we issued this morning. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements, and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on assumptions, expectations, projections, intentions and beliefs as to future events that may not prove to be accurate. For a description of the risks, uncertainties and other factors that may cause future results to differ materially from what is forecast in the forward-looking statements, please refer to the Company's filings with the SEC.
Now let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping.
SIMEON PALIOS, CHAIRMAN AND CEO, DIANA SHIPPING INC.: Thank you, Ed. Good morning, and thank you for joining us today.
I am pleased to report that Diana Shipping produced excellent operating and financial results for the fourth quarter and full year 2008. We are especially proud of this performance since it has been achieved despite the extremely challenging conditions facing global economies in general, and the dry bulk sector in particular.
During this period of great disruption in the market, Diana remains a strong, profitable and resilient company. We are well positioned not only to withstand (inaudible), but also to capitalize on future opportunities.
I would now like to share some of the highlights of our 2008 performance. More importantly, I will describe Diana's solid position as we look toward the balance of 2009.
Net income was $54.2 million for the fourth quarter of 2008, an increase of nearly 49% from the comparable period of 2007. For the full year ended December 31, 2008, net income was $221.7 million, an increase of more than 65% as compared to the prior year.
Voyage and time charter revenues totalled $84.3 million for the fourth quarter of 2008, and $337.4 million for the full year. This represents an increase of 43% for the quarter, and 77% for the year.
We believe the same strategy that enabled Diana to produce these positive results will continue to serve the Company and our shareholders well in the difficult times that lie ahead.
Let me review some of the key elements of our strategy, which is prudent, time-tested, and intended to mitigate risk.
First, our chartering approach is designed to provide a high degree of revenue visibility. For the full year 2009, we have already fixed revenues for the majority of the available days. These revenues are significantly in excess of our fixed expenses. The revenues generated from the few vessels whose charters will expire in 2009 will be in addition to our already secure revenues.
Second, we have focused on building relationships with high quality charterers, an especially important factor at a time when the solvency of some charterers has been a cause for concern. The majority of our vessels have been chartered to companies whom we deem strong and substantial. Many of these relationships have been expanded in recent months, as the major charterers increasingly seek stable partners in the current marketplace.
Third, we believe in maintaining a solid balance sheet and have a debt level that is one of the lowest in our industry. At the end of 2008, long-term debt stood at $238 million dollars, compared with a total stockholders' equity of $775.5 million.
Fourth, we have always emphasized the value of a young fleet, which now has an average age of 4.3 years. The efficiency of our modern fleet and the flexibility afforded by our sister ships has been a strong point in attracting quality charterers. Above all, it helps us to ride the cycle during these difficult times.
These features, maintaining high revenue visibility and relationships with strong charterers, a healthy balance sheet, and a young fleet have combined to make Diana a strong, stable company. As a result, where many less well-positioned companies see only challenges, we are poised to seize opportunities.
In particular, we believe the present market will offer exceptional opportunities to acquire vessels at attractive prices. We also should see a continued flight to quality by end users of dry bulk carriers, enabling us to deepen our relationships with major charterers. Our management team will actively explore these and other opportunities in a selective and disciplined manner, intended to create value for our shareholders.
With that, I will now turn the call over to our President, Stassi Margaronis, who will provide you with a perspective on market trends. Thank you.
ANASTASSIS MARGARONIS, PRESIDENT, DIANA SHIPPING INC.: Thank you, Simeon, and a warm welcome to all who have joined us in this conference call.
The turbulence in the world economy has had a profound influence on the dry bulk shipping trade market, as can be seen from the Baltic indices mentioned below. The Baltic Dry Index started the fourth quarter of 2008 at 3,025, and yesterday closed at 1,986. The equivalent figures for the Baltic Cape Index were 4,186 and 3,587, while for the Baltic Panamax Index, were 2,102 and 1,352 as of yesterday's close.
There is no doubt that the future course of the freight market will be closely linked to the worldwide demand for steel, which in turn, will move with world GDP and industrial production growth. Let us look at the latter before discussing steel production.
According to the IMF, during 2009, world growth is forecast to fall to its lowest level since World War II, with global output and trade plummeting. For this current year, the IMF expects real economic activity to contract by around 1.5% in the United States, 2% in the Euro area, and 2.5% in Japan. With positive growth of plastics, 0.7% in China, the IMF predicts the world economic growth for 2009 to come in at around 0.5%.
The well-publicized stimulative actions taken by governments around the world will undoubtedly help the world economy come out of its present downspiral, and the big question, as usual, is when will this happen. According to a recent article in The Economist magazine, much depends on the effectiveness of the stimulus programs, the last one announced just a few days ago by the Chinese government, which in turn hinges on the extent to which China is now a capitalist economy.
Ironically, the more it remains a command economy, rather than a capitalist one, the better the chances for the recovery in 2009. State controlled firms in China account for one third of industrial output, and almost half of all investment. They have been asked by the government not to cut capital spending.
At the same time, all the big banks in China are government-owned, and have had their controls on bank lending suspended, while at the same time have been encouraged to lend. On top of all this, more public housing and infrastructure projects are on the way. The banks appear to have led the way in this whole process, with total lending surging by 19% in the year to December 2008. China is one of the few large economies whose banking system has not been crippled by the global credit crunch.
How will these forces work to bring the world economy out of recession? According to DeLoitte Investment Advisors, the single best long-term forecast indicator of the US economy is the Treasury yield curve. Since World War II, it has correctly anticipated every recession and every recovery.
According to DeLoitte, the yield curve is something of a proxy for bank margins. A steep yield curve enables the banks to borrow cheap and lend dear. Over the past year, the yield curve has steepened significantly. For the current business cycle, the peak of the yield curve came in November 2008. Looking at the behavior of growth in past recessions, this suggests that the recovery from the current recession will not start before late this year.
In the meantime,...
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