Eagle Bulk Shipping Inc. (NASDAQ:EGLE) Q3 2022 Results Conference Call November 4, 2022 8:00 AM ET
Company Participants
Gary Vogel – Chief Executive Officer
Frank De Costanzo – Chief Financial Officer
Conference Call Participants
Omar Nokta – Jefferies
Benjamin Nolan – Stifel
Liam Burke – B. Riley Financial
Poe Fratt – Alliance Global Partners
Clement Mullens – Value Investors Edge
Operator
Good day and thank you for standing by. Welcome to the Eagle Bulk’s Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question and answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.
I would now like to hand the conference over to Gary Vogel. Please go ahead.
Gary Vogel
Thank you, and good morning. I would like to welcome everyone to Eagle Bulk’s third quarter 2022 earnings call. To supplement our remarks today, I would encourage participants to access the slide presentation that is available on our website at eagleships.com.
Please note that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and are inherently subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance and our financial condition.
Our discussion today also includes certain non-GAAP financial measures, including adjusted net income, EBITDA, adjusted EBITDA and TCE. Please refer to the appendix in the presentation and our earnings release filed with the Securities and Exchange Commission for more information concerning non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures.
Please now turn to Slide 6. Notwithstanding macro headwinds and heightened uncertainty surrounding geopolitical elements, Eagle was able to post another strong quarterly result, achieving Q3 net income of $77.2 million or $5.94 per share basis. Adjusting for non-cash mark-to-market gains on derivative hedges and other non-cash items net income came in at $74.3 million or $5.72 per share.
Based on this result and consistent with our stated capital allocation strategy, Eagle’s Board of Directors declared a cash dividend of $1.80 per share, equating to 30% of earnings. This is our 5th consecutive quarterly dividend bringing total shareholder distributions to $10.05 per share, since we adopted our capital allocation strategy just 13-months ago.
Additionally, we opportunistically repurchased approximately 9% or $10 million face amount of our convertible bond debt in the open market. This transaction has not only resulted in a decrease in our debt outstanding, but also in a reduction of our diluted share count by 296,990 shares. I think it is worth noting that we repurchased the bonds when our shares were trading around $41 so we view the transaction as quite accretive in terms of NAV.
As part of our ongoing fleet growth and renewal strategy, we acquired a high specification 2015 built scrubber fitted Ultramax for $27.5 million. The vessel was constructed at Imabari in Japan and will be renamed to the motor vessel Tokyo Eagle.
Delivery is expected within November. Separately, in August, we closed on the sale of the Motor Vessel Cardinal, a 2004 built Supramax, the ship was sold for $15.8 million pro forma for these transactions, our fleet totals 53 ships averaging about 9.8 years of age with 91% being fitted with scrubbers.
Please turn to Slide 7. Our third quarter financial flow results were driven by exceptional top-line performance especially when compared to the underlying market. We achieved a net TCE of $28,099, which represents a decrease of 7% quarter-on-quarter, but a significant increase in outperformance against our benchmark index to almost $9000 or 46% per-ship per-day.
Our strong market performance can be attributed to a number of factors including our commercial platform and its dynamic approach to trading ships, our FFA and commercial position heading into the quarter, and our ability to capture significant value from fuel spreads as a result of our fleet scrubber position.
As we look forward to the fourth quarter, spot rates are weaker than the Q3 average. But as of today, we fixed approximately 70% of our owned available days for the fourth quarter at a net TCE of $25,040 pointing towards another quarter of significant outperformance against the BSI.
Please turn to Slide 8. Our top-line performance helped drive another strong operating result with adjusted EBITDA coming in at 85.1 million after adjusting for the unrealized P&L impact of our hedges and certain other non-cash items. Our trailing 12-month EBITDA run rate remains essentially flat as compared to the last quarter coming in at $364 million very modest EV EBITDA multiple of just 2.3 times.
I would now like to turn the call over to Frank, who will review our financial performance in more detail.
Frank De Costanzo
Thank you, Gary. Please turn to Slide 10 for a summary of our third quarter financial results. TCE revenues totaled 128.9 million in Q3 versus 138.2 million in Q2. The decrease was mainly due to lower market rates offset in part by a slight increase in available days.
Net income for Q3 was 77.2 million. Earnings per share for the third quarter was $5.94 on a basic basis. On a diluted basis, which primarily includes the shares related to the convertible bond, EPS came in at $4.77 for the quarter.
Adjusted net income, which excludes non-cash unrealized gains on derivatives and a loss on debt extinguishment came in at 74.3 million for the third quarter or $5.72 per share on a basic basis. On a diluted basis, we achieved adjusted EPS of $4.58 for the quarter.
Adjusted EBITDA for the third quarter was 85.1 million. As Gary noted, during the quarter, we repurchased $10 million in face value of our convertible bonds, which reduced our diluted share count by approximately 300,000 shares.
Let’s now turn to Slide 11 for an overview of our balance sheet and liquidity. Total cash at the end of Q3 was 97.6 million, an increase of 56.1 million as compared to Q2 2022. The significant growth in the company’s cash balance was primarily driven by strong operating results as well as the receipt of 14.9 million in net proceeds from the sale of one vessel.
These inflows were partially offset by the Ultraco Debt Facility’s quarterly amortization payment of 12.4 million, a 4.1 million deposit paid for the purchase of the Tokyo Eagle, a 14.2 million payment to purchase a portion of our convertible bonds and 28.8 million of dividend payments. Total liquidity came in at 294.6 million at the end of Q3. Total liquidity is comprised of total cash of 197.6 million and 100 million of a fully undrawn revolving credit facility.
It is important to note that we own three unencumbered vessels, which provide us with additional flexibility to increase our liquidity. We intend to use cash-on-hand to pay for the Tokyo Eagle, which will provide us with a fourth unencumbered vessel once the Tokyo was delivered to us in the fourth quarter.
Total debt at the end of Q3 was 354.3 million, an improvement of 22.4 million from Q2, driven by the quarterly repayment of the Ultraco Debt Facility and the repurchase of the convertible bonds.
We entered into interest rate swaps around the time of our global refinancing in early October of 2021 to fix the interest rate exposure on the term loan. As a result of these swaps, which averaged 87 basis points, the company’s interest rate exposure is fully fixed insulating us from the adverse impact of rising interest rates.
Please now turn to Slide 12 for an overview of our cash flows from operations for the third quarter of 2022. Net cash provided by operating activities was 102.3 million an increase of 4.3 million from Q2. Strong receivables collection drove the quarter-on-quarter increase. Our working capital management is outstanding as reflected by the company’s strong overall cash conversion cycle.
The chart highlights the timing driven variability that working capital introduces to cash flow operations as depicted by the differences between the dark blue bars, which are the reported cash from ops numbers and the light blue bars, which strip out changes in operating assets and liabilities, primarily working capital. As the chart demonstrates, the volatility caused by working capital largely evens out over time.
Please now turn to Slide 13 for a Q3 cash walk. The chart at the top of 13, lays out the increase in the company’s cash balance during Q3. The revenue and operating expenditures bars provide a simple look at the company’s operations with the net of these two bars totaling85 million which equals our adjusted EBITDA result.
Just to the right, you will note the strong working capital result. The convertible bond buyback dividend in the debt service bars, which explain most of the remaining Q3 cash activity. The chart at the bottom of the slide similarly covers the cumulative year-to-date cash movements.
Let’s now review Slide 14 for our cash breakeven per-ship per-day. Cash breakeven per-ship per-day came in at $11,931 for Q3. The quarter-on-quarter increase of $190 is due to higher vessel operating costs, offset in part by lower drydocking, G&A, interest expense and debt principal repayment.
Vessel expenses or OpEx came in at $6,566 per-ship per-day in Q3, 982 higher than prior quarter. The increase was primarily due to unscheduled required repairs and upgrades to the ships that do not qualify for capitalization. Increased crew travel costs along with higher stores and freight expenses.
In short, we continue to face COVID related as well as general inflationary cost pressures. Drydocking came in at $503 per-ship per-day in Q3, $601 lower than the prior quarter as we completed drydocking for only one vessel during the quarter as compared to three in Q2.
Cash G&A came in at $1701 per-ship per-day in Q3, down $17 from Q2. It is worth noting that our G&A per ship calculation is based solely on our owned vessels, whereas we operate a larger fleet which includes our chartered in tonnage. If we were to include our chartered in days in our calculation, G&A would improve by almost $300 to $1409 per-ship per-day.
Cash interest expense came in at $584 per-ship per-day in Q3, $170 lower than the prior quarter as we realized an increase in interest income on our growing cash balances. Cash debt principal payments came in at $4 lower at $2,577 per-ship per-day in Q3.
Looking ahead, we expect the following per-ship per-day in Q4. OpEx is likely to remain elevated at similar levels at circa $6600 per day. Drydocking is expected to decline to $310 on lower drydocking activity. G&A is expected to be unchanged at $1,700.
Again, it is worth noting that this figure would be about $300 lower if we were to include our chartered in ships. Cash interest expense is expected to decline to circa $500. Cash debt principal payments is expected to remain flat at $2,577 per-ship per-day.
This concludes my comments. I will now turn the call back to Gary.
Gary Vogel
Thank you, Frank. Please turn to Slide 16. Year-to-date, Supramax continue to outpace all of the drybulk segments with the BSI currently averaging just under 24000, the highest January to September market since 2008.
As mentioned earlier on the call, freight rates have moderated in recent months, due to a number of factors, including lower global growth as well as uncertainty surrounding the macro landscape, which has impacted aggregate demand and sentiment. In addition, notwithstanding a general cooling of commodity prices, the U.S. dollar strength has kept landed prices of commodities high, impacting purchasing power and trade volumes.
Furthermore, notwithstanding the successful implementation of the Ukraine Grain corridor since July, overall grain volumes continue to be impacted by the war and low water levels on the Mississippi River are hindering the ability to get product from the Midwest downriver for export.
Another factor which is difficult to quantify has been the reduction of what we call spillover cargoes that we carried as a result of the extremely high container market. While we continue to move some bad cargoes and other commodities that have historically been moving on container ships, volumes are significantly lower than they were a year-ago.
Chinese congestion which unwound through the first half of the year remains at relatively low levels, primarily driven by muted short-term trade volumes. This factor also has contributed to lower Pacific freight rates due to more available tonnage. Anecdotally, the Atlantic and Pacific rate premium which is essentially flat in Q3 is now averaging around 35% in Q4 more in-line with the historic relationship.
Positively, congestion remains elevated in Northern Europe, as the continent attempts to substitute its energy source away from Russian natural gas. Year-to-date, European seaborne coal imports totaled roughly 138 million tons, up 36% year-on-year.
Finally and importantly, dislocations resulting from some of the aforementioned factors have positively impacted ton miles as cargoes such as grain and coal need to move across greater distances from alternative countries of origin.
Please now turn to Slide 17. Fuel prices which reached a 10 year high in Q2 came off meaningfully during the third quarter, similar to what we have seen across the commodity spectrum. HSFO and VLSFO averaged $500 and $795 per ton respectively.
Although prices were down, the spread between HSFO and VLSFO prices widened in Q3, peaking at more than $400 per ton and averaging $295 for the quarter, up 29% compared to the prior period.
Pro forma for the Tokyo Eagle, 48 out of our 53 ships will be scrubber fitted. On an illustrative basis, given Eagle’s fleet, we estimate that our scrubbers will generate approximately $58 million in incremental net income on an annualized basis using the 2022 year-to-date fuel spread figures and the forward curve for the balance of the year.
Please turn to Slide 18. Asset prices have come off their peak levels reached in June. Given the significant move up in values over the past two years, cooling off was not unexpected given that we have seen both spot and forward rates correct to the downside.
S&P liquidity was thin during the summer months with minimal transactions taking place. As mentioned earlier, in September, we took advantage of the market to liquidity and picked up a modern high specification scrubber fitted Japanese Ultramax for $27.5 million. Based on our calculations, this transaction represents roughly a 20% discount comparable deals done just a few months ago.
S&P liquidity has improved over the past month with pricing fairly stable. Looking ahead, notwithstanding short-term volatility, our view has not changed. We remain constructive on the market and asset prices in the medium-term given the positive supply side dynamic.
Please turn to Slide 19. Net fleet supply growth slowed in Q2. A total of 99 dry bulk newbuild vessels were delivered during the period, down 8% year on year. Partially offsetting this 13 vessels were scrapped during the same period.
Notably for Eagle, just four midsized geared vessels were scrapped during the first three quarters of the year that is four ships out of a fleet of almost four thousand midsize ships. As we have mentioned previously, despite high scrap prices.
The low level of vessel recycling is not too surprising given the strength in the underlying spot market over the past two years. A positive from this, is that there is an ever increasing number of older ships that will inevitably need to be recycled during the coming years.
In terms of forward supply growth, the overall drybulk order book remains at a historically low level of just around seven percent of the on the water fleet. For 2022, drybulk net fleet growth is expected to be 2.7%, which would be down about twenty five percent compared with 2021.
Looking ahead, 2023, net fleet growth is projected to drop further to just 0.6% driven by continued muted deliveries as well as a significant increase in scrapping volumes. A total of 45 dry bulk ships were ordered during Q3 down about 27% compared to the prior quarter and less than half of the average over the last five years of roughly 15 ships per quarter.
It is worth noting that the vast majority of ships being ordered today will only be delivered in 2024 and 2025. Although, we expect some level of ordering to continue, we still believe it will remain low for the reasons we have articulated many times before.
Please turn to Slide 20. This is a new slide we are including in this quarter’s presentation. It depicts the average age of the Supramax Ultramax fleet going back thirty years overlaid against the order book as a percentage of the on the water fleet.
It is interesting to see how quickly the fleet is aging in recent years and will most certainly outpace the historical high reached in 1994. This is not only the result of the decreasing number of new buildings entering the market, but also due to the fact that smaller number of older ships are getting scrapped.
As mentioned previously, the order book today remains at a historically low level. Given the relative cost advantage of secondhand ships versus newbuildings, as well as the uncertainty surrounding decarbonization and future fuel propulsion technology, we believe ordering will remain low for quite some time. We believe these dynamics combined with a record low order book with a near record fleet age will further improve the supply side in terms of fleet utilization and scrapping.
Please turn to Slide 21. After reaching a multi-year high last year, the drybulk trade demand growth is expected to come in at negative 1.6% for the full year 2022. However, after taking into account the significant ton mile effect, caused by the war in Ukraine, the deficit growth rate improves by 110 basis points.
The impact to demand this year is a direct result of global slowdown as a result of high inflation and tighter monetary policy across the developed world, as well as the continuation of China’s restrictive zero COVID policy.
For 2023, the IMF is currently projecting global GDP growth to reach 2.7% a decrease of 50 basis points as compared to the current year estimate. In terms of drybulk, trade demand growth is expected to improve by 240 basis points in 2023 to reach a level of positive 0.8% on a core basis and higher when factoring in a positive ton mile effect.
Please turn to Slide 22. In evaluating drybulk demand in more detail, growth rates for 2022 are now expected to come in lower for both major and minor bulks. This is primarily driven by downward revisions to volumes in steel, fertilizer, forest products in cement.
As we look into 2023, there is great deal of variability in forecasted growth rates amongst the various drybulk commodities. Volumes for infrastructure related commodities such as iron ore, steel and cement are expected to come off basis the current views of weaker Chinese demand and lower global economic activity.
Coal on the other hand, which typically represents anywhere from 15% to 20% of our cargoes, is expected to grow by over 2%, and we expect this figure to be even greater when factoring in the increased ton mile effect for this particular commodity, primarily as a result of Europe’s changing energy mix.
Additionally, grain, which typically represents anywhere from 10% to 15% of our cargo mix, are projected to grow by 4.3% as Black Sea exports are expected to normalize and grain production led by soybeans increases in both the U.S. and in Brazil.
Please turn to Slide 23. Given our exclusive focus on the midsize segment with an ability to carry all drybulk commodities, and a commercial platform with a track record of meaningful out performance I believe we are in an optimal position to maximize utilization and capitalize on a rapidly evolving environment.
Looking forward, notwithstanding current uncertainty in the macro landscape, we remain optimistic about the medium-term prospects for the drybulk industry, particularly based on strong supply side fundamentals.
With a modern fleet of 53 predominantly scrubber fitted vessels, roughly 300 million of liquidity, Eagle is in a very unique leadership position, and we are looking forward to continuing to deliver superior results for our stakeholders at large.
With that, I would like to now turn the call over to the operator, and answer any questions that you may have. Operator.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question will come from Omar Nokta of Jefferies. Your line is open Omar.
Omar Nokta
Thank you. Hi, Gary. Hi, Frank. Good morning. First off, I can see you are sounding a bit more potentially acquisitive given the softer market here recently, at least more so than you would been, call it, first half of 2021. We agreed to buy one Ultramax. Wanted to get your thoughts here on how you see the platform from here.
I know this is probably a bit sensitive, but you have been reported to have looked at the Grindrod deal, which would have added a good amount of handy size exposure. Is that something you are interested in getting into the handys or should we think from here that it is still more about focusing on Ultras and Supras?
Gary Vogel
Yes. I think what I would say in general terms is that, we are, although we are one of the largest owners of Supramax, Ultramax vessels. We are a very small part of the market and we feel that increasing in our core segment, makes a lot of sense.
Having said that, expanding beyond that, if a transaction were to bring us into other sub segments within drybulk as well, we are very comfortable with that but it is not a specific desire for us because we think we have the ability to increase within call it, the 55,000 to 65,000 deadweight size. But there are crossovers between them. So as I said, we are not opposed to getting outside of our core focus of Supramax, Ultramax under the right circumstances.
I might add going forward. So we added this ship, it was opportunistic. We felt the market was liquid and we picked that ship up, scrubber fitted ship, what we think is a really attractive number and we are going to continue to look at opportunistic additions as well. We think that over the next number of months, as you know, we have a significant cash balance total liquidity of some $300 million.
And so, we think that adding in at levels below where the peak was in May, June of this year, given our constructive view of the kind of medium-term, given what we have we keep talking about how compelling the supply side looks, particularly with the aging fleet. And so, I think you will see us continue to add on an opportunistic basis.
Omar Nokta
Yes. Well, that sounds good, Gary. I guess, Frank went over the interest rate swap that you entered into when you secured credit facility last year. Generally speaking, you mentioned being opportunistic. How are you viewing acquiring assets here in this higher interest rate environment, how do you think about, how you execute those opportunities versus say two years ago when you are a bit more acquisitive?
Gary Vogel
Yes. Look, it is a great question because a year-ago, Frank mentioned, right, we entered into those swaps at 87 basis points. Today, one year LIBOR is 5.5%. So it is a completely different environment.
We have decided to pay for the Tokyo Eagle with 100% of cash given our balance. But we are keenly aware of the fact that, if you put leverage on a vessel today of 50%, your debt is significantly more expensive. So it just is part of the discussion.
Obviously, we haven’t hedged future debt that we might take on for vessels. I think it is helpful in that. It gives people pause and will limit speculative buying, because it just makes ownership and those cash breakevens that much greater, if you are not using cash. And of course, if you are using all equity then the cost of capital is even higher on an overall basis, on a weighted basis.
So it definitely comes into the equation for us. But given our robust cash balance at the moment. It doesn’t impact the Tokyo Eagle. And we likely would – if we were acquiring another one or two ships, we likely would do that with cash as well. But that is a decision to be taken at that time.
Omar Nokta
Yes, got it. Thanks Gary. I will turn that over.
Gary Vogel
Okay, thank you.
Operator
Our next question will come from Benjamin Nolan from Stifel. Your line is open Ben.
Benjamin Nolan
Hey thank you Gary and Frank. I want to start a little bit macro. I really just have two questions. But first of all, I have had sort of expected or I guess normally by this time of the year in November. We normally would see some seasonal uptick in grain and everything else and I appreciate that this year is different.
But Gary, do you have any thoughts on if we are going to see a seasonal surge in drybulk demand this year or if all of the crazy things that are happening in the world might make this a year when we don’t actually see that?
Gary Vogel
Yes, I think as you said, it is anything but normal. There is a lot of things at play at the moment, not to recap them all again. But even in the North American harvest, we are having challenges getting grain downriver, because of low water levels. So that is of course not helpful.
But I think it really more comes down to demand even then the supply side of things. There is just less demand, I mean, even on the soybean front, year-to-date before U.S. exports, China’s soybean imports are down 3% and Brazil had plenty of products as an example.
And so I think, you have overall the revisions downward of fertilizer that was expected to be flat just a quarter ago is now coming in at almost down 5% and things like that. So we are much more cautious.
The good news is that these downward revisions really speak to what has happened over the last three to four months and of course the balance of the year. But we have enjoyed a pretty robust market where October settled at over 18,000 a day for Supramax on the BSI.
So we are not planning on a pop here, if you will, for the quarter. But as you know, we just reported already having 70% coverage at 25,000, which we think is a pretty robust number. We positioned ourselves coming into the quarter for that. And of course, if we will take an upside, but at the moment, we are not planning on it.
Benjamin Nolan
And then for my second question, sort of goes to capital allocation ties on what [OMR] (Ph) is talking about. Obviously, asset values should come in a little bit, but as you say, we are sort of in a period of uncertainty. Interest rates are higher cost of capital is higher, I guess.
And then also interestingly, you guys bought back $10 million of converts. As you sort of – it sounds like you are opened for more acquisitions, but how do you balance that against something like buying a converts here, taking off potential dilution, just also strengthening the balance sheet a little bit further, like we are in a period where again, there is some uncertainty you guys want to grow the fleet, but there is other options too. So maybe talk through that balance a little bit.
Gary Vogel
Sure. So, I mean, I will start with the fact we feel very comfortable with the strength of the balance sheet. As I mentioned, 300 million of total liquidity, including $100 million undrawn revolver.
And as Frank mentioned, the Tokyo Eagle will be our fourth completely unencumbered vessel. So we have an accordion feature under our first lien bank debt facility, so we could add debt to those, freeing up more cash if we desired. But again, we also talk about the underlying cost of debt today.
So absolutely, we look at the balance between in this quarter, we did both. We bought back the 10 million face value of the bonds. We did that when our shares were trading at around $41, so we felt it was compelling to take off that future dilution that along with acquiring ships are kind of the balance along the way.
So I think, we have demonstrated that we are able and willing to do both, but really depends where ship values are versus where our shares are trading, and then ultimately how much cash we want to keep on the balance sheet.
So those are things we have to ask ourselves every day as we come in. But we remain very constructive on the market because of the supply side. So if we can use this period where values have come in somewhat, and let’s see where they are over the next few months, if we can continue to build on the fleet now, now that the heavy lifting of selling our older assets.
We have done 20 ships. We only have one more ship that is over 15-years old that likely will be sold before the next special survey drydock, then we can focus, although, we have been able to grow the fleet, a lot of that growth has been offset by a netting of sales. And now we think we are in a position where as long as we can do it accretively building the fleet from here we think makes sense.
Benjamin Nolan
Alright. I appreciate and thanks for taking my call.
Gary Vogel
Great. Thank you.
Operator
[Operator Instructions] And our next question comes from Liam Burke of B. Riley Financial. Your line is open.
Liam Burke
On your OpEx, they were higher sequentially. There were a lot of one-time charges that probably spill into the fourth quarter. But as I look at a more normalized OpEx rate, do you still see the need to continue to invest in the vessels or do you see some flattening or declining of OpEx per vessel?
Gary Vogel
Yes. I mean, I think right now, it is really hard to project out, because we are in an environment where we are seeing higher costs particularly around things like crew travel. I don’t know if you have tried to book a flight lately, but the prices are extraordinary, and particularly some of the ones from Eastern Europe, there is less flights and costs are high and then also moving things spares and stores and things like that.
So hopefully we believe that – hopefully will moderate, but it is hard to have visibility on it. And in terms of upgrades, as I have said before, we are keenly focused on trying to keep OpEx down, but our first focus is to ensure the ships are able to trade without being hindered in terms of cargo holds and low friction hold coatings.
So they are efficient and not burning too much excess fuel and things like that. And sometimes we will take a ship out of service and it doesn’t qualify for drydock accounting because it is not up to the five-year cycle.
So it is hard to have real visibility, but we are keenly aware that, those levels are up. And we are looking to hopefully bring them down. But as Frank said in the prepared comments, we expect the fourth quarter to remain elevated. And of course, we will provide guidance for Q1 as we move forward.
Liam Burke
Great. And on the macro front, I mean coal is an important commodity that you ship. There has been dislocation with longer route miles. But generally, are you seeing overall demand for coal to be able to support the overall demand in the shipping part of the business?
Gary Vogel
Sorry. Could you just repeat that?
Liam Burke
Sure. There has been a lot of dislocation on demand for coal due to the Ukraine crisis. In a normalized basis, are you seeing overall demand for coal increasing and helping to boost the rates?
Gary Vogel
Yes, I think the short answer is we are, because what we had this year is China is down about 16%, which is a meaningful amount, 40 some-odd million tons, partly because of domestic production, but also because of the COVID lockdowns and lack of economic activity.
And notwithstanding that coal overall, this year is relatively flat. India was up and Europe is importing significantly more coal. So as we look forward into next year, expectation is for China to be flat, but for the world overall to be up a couple percent.
And as mentioned in the prepared remarks, we think that 2% increase next year that is forecasted on a ton mile basis will be significantly higher, again because of that dislocation that you referred to. So I think long-term not upward trend for coal, but I think in the short-term given energy security, we think it is going to show growth at least for 2023.
Liam Burke
Great. Thank you, Gary.
Gary Vogel
Thank you.
Operator
Our next question will come from Poe Fratt of Alliance Global Partners. Your line is open.
Poe Fratt
Good morning, Gary. Just two questions. You covered OpEx. But on the capital allocation front, should we expect from here a continued buybacks of the convert, not opportunistic basis, obviously but is that something that is sort of the primary focus on capital allocation versus stock buybacks? And then secondly, can you talk about the change in your quarterly presentation on your FSA book and also just talk about your hedging strategy going forward?
Gary Vogel
Sure. Yes, so why don’t I start with the FFA book. We decided to break out the sales and then the buybacks, because we do some of that prior to the quarter that we are in. And because of that, if we didn’t break it out, it indicates a misalignment in other words, the profit from the buyback.
You can see that we bought back the sales profitably. That number would push the effective rate of the sales, remaining sales up dramatically and so what would have shown is that, we had some sales at levels where the market never reached for Q4.
And so, it just would indicate something that didn’t really happen. So by breaking it out, it gives you more clarity and that is why we have done it. And if that is clear, then I will move on to – sorry, did you have something?
Poe Fratt
Well, yes, I guess, so if you look at your net position for 2023, you are effectively unhedged?
Gary Vogel
Yes. So as of September 30th, the FFA position was effectively unhedged. That is correct. And part of – so I can only speak to September 30th, if not what we have done since then. But the forward market for – particularly the paper market for 2023 has been very backward dated all along.
And I think if you look at the market today for Cal 2023, it is around 12,000. So a significant discount to the current market. I mean, we are in a bit of a weak period right here, but as I mentioned, October settled at 18 to 50.
And so it is a decision as to lock in that kind of a number on paper. I think we have been fairly successful timing when we use paper and when we use fiscal and we don’t disclose our fiscal book. But you are correct, the paper position as of September 30th was essentially neutral.
If I move on to capital allocation, I think, again, we come in every day asking what is the best use of capital and when our shares traded down around the $41 we thought the buyback of the convert made sense.
The convert – because it is so in the money, it trades highly correlated to the way our shares trade. And so buying them back when the shares are down is similarly accretive to as if we were buying back shares. But of course, if you believe that buying back shares are beneficial to share price that pushes the price of the convert up.
So it takes away future dilution at maturity. And so as we have said before, we are — we believe that setting aside capital, cash to buyback that convert either at maturity or prior to maturity, which is what we did for 10 million of the face value in the last quarter. We think makes sense. And so we will be – I think we will be opportunistic about it.
But on any given day, there is a decision making a decision process as to what it is. But based on my comments, I think we believe that buying back the convert is similar to buying back shares but has other benefits. And I will leave it at that.
Poe Fratt
Great. Thanks for your time.
Gary Vogel
Thank you.
Operator
And our next question will come from Clement Mullens of Value Investors Edge. Your line is open.
Clement Mullens
Congratulations for the outstanding operational performance. Following-up on the questions regarding the convertibles, should we think about the repurchase as kind of a one off opportunity that you took advantage of or do you believe this is something you could repeat going forward?
Gary Vogel
First of all, thanks for the comment on the quarter. It is definitely something we could repeat. Our shares traded down during the quarter, we saw as an opportunity and we intend to be opportunistic as well just as we believe we were on the asset purchase this quarter.
So I’m not going to say that you should consider this to be a quarterly event. But if we believe it presents good value and the best value for our shareholders capital, then you could see us acting again. So it is really just going to have to be a wait and see.
But we clearly I think have demonstrated I have said that in the past and people said, but Gary haven’t done anything. So I think now we have demonstrated that we have acted on buying back the converts. So you know that we were willing to do so and we are able to do so. And I think that is speaks to how we might act in the future.
Clement Mullens
Thanks for the color. That is all for me. Thank you for taking my question.
Gary Vogel
Sure, thanks.
Operator
And I’m showing no further questions. I would now like to hand the call back to Gary Vogel for closing remarks.
Gary Vogel
Great. Thank you, operator. We don’t have anything further, so I would like to thank everyone for taking the time today to be with us and wish everyone a good day and a good weekend.
Operator
This concludes today’s conference. Thank you for participating. You may now disconnect.
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