Q1 2020 Earnings Call

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Good morning, ladies and gentlemen, and welcome to the Genco shipping and trade limiting first course your Twentytwenty earnings conference call I'm presentation before there's again. Please note that there will be a slide presentation accompanying today's conference calls that presentation can be obtained from Gencos website. It does.

Josh Genco shipping dotcom.

Inform everyone todays conference is being recorded and is now being webcast. The company's website www Genco shipping dot com, we will conduct a question answer session. After the opening remarks instructions will follow at that time.

Replay of the conference will be assessed that anytime during the next two weeks by dialing eight eight date choose their 3111 to 47194 or 570 820 and entering the passcode 59892 to six at this time I'd like to turn the conference over to the company. Please go ahead.

Correct.

Good morning.

Before we begin our presentation. One note that in this conference call, we'll be making certain forward looking statements pursuant to the Safe Harbor provisions Private Securities Litigation Reform Act as mentioned on spot.

Forward looking statements use words, such as anticipated.

First and then expect projected intend plan believe another term words in terms of some more meeting in connection with the destruction of potential future events circumstances or future operating financial performance. These forward looking statements are based on management's current expectations and observations for a discussion of doctors.

It could cause results to differ please see the company's press release that was issued yesterday the materials related to this call posted on the company's website and the company's filings with the Securities and Exchange Commission, including without limitation. The Companys annual report on form 10-K for the year ended December 31st 2019, and the company's reports on form 10.

Q and form 8-K subsequently filed with the FCC.

At this time I would like to introduce John Wobensmith, Chief Executive Officer of Genco shipping and freedom unlimited.

Good morning, everyone welcome to Gencos first quarter 2020 conference call.

I will begin today's call by providing an update on Gencos response to cope with nine change. We will then review our year to date highlights discuss our financial results for the quarter.

The industry's card fundamentals before opening the call up for questions for additional information. Please also refer to our earnings presentation that is posted on our website.

Uncertainty in the global economy in the months ahead, which is largely tied to the trajectory of coded 19 management and the board of directors believe that it is prudent to protect our strong balance sheet and serve cash and attempt to insulate the company as much as possible from these macro events at this time.

That and as we look and supplement are already substantial cash position, where currently working with our existing lenders on a revolving credit facility for up to $25 million.

At the same time, we are pleased to have declared a dividend for the first quarter 2020.

Highlighting our commitment to return on capital shareholders.

Review amending our first quarter dividend as a prudent action taken by management in the board of directors aimed at balancing preservation of the company's acquitted he position with a return up cash to shareholders. We know that we have now paid and declared a total of 69 and a half cents per share to our shareholders since cute three 2019.

Effectively deploying our capital remains a top priority for us and something that we will continuously evaluate as these macro events further evolved we believe that over the medium to long term the outlook for the Drybulk industry is favorable we believe supplied side fundamentals are beneficial given that historically low do building order book.

While demand side, we anticipate activity gradually recovering as nations begin to slow slowly left that countrywide lockdowns, well now turn to call over to a <unk>, our chief financial Officer.

Thank you drunk.

The first quarter to covering 20 the company recorded another loss $122.4 million were $2.97 basic included lost per share, excluding $112.8 million and non cash bustle impairment charges and a point 5 million dollar loss on sale Bustles adjusted.

Lost for the court, there with $7.1 million.

During the first quarter with generated adjusted they've been <unk> $16.9 million.

In February and March delivered the drink a charger or 2005, both handysized vessels and the check with Thunder, but 2000 suddenly built on on Macs vessel to their respective buyers.

<unk> the sale of the drink a thunder the company exited the ban on like sector will continue to execute our bar grown approach to plead composition and create a more focus to feed the debt associated with these two buses us what was the drink or rafter, which was sold during the fourth quarter of two calls 19 amounts to $14.9 million.

It's a mind just currently recorded on our <unk> ever strict in cash.

In February the company determined to expand it to previously announced feet up to my vision and real plan aimed at Modernising indicate.

The company made the strategic decision to <unk> the sale of 10, Handysize Bustles somewhere not already part of a few bring your plan and have you does noncore vessels within our feet given the decision of the estimated feature undiscounted cash for for each of these muscles did not exceed their netbook values. We adjusted the value of these muscles to there.

Back and fair market value to the first order.

<unk> urban charge of $85.8 million.

Separately during the first quarter, we also recorded and <unk> $27 million on for a bar 50, 55000 <unk> wrestles.

As a result of the lower earnings environment, and 2020 dates primarily you to call, but 19 did not expect it was not anticipated the estimated future undiscounted Castleford each for these vessels 16, they're not book values over the buses remaining useful like a search we adjusted the values during the first quarter.

In addition to opportunistic muscle sales drawing upon or low lovebirds profile. We're in the process of negotiating a revolving credit facility for up to $25 million, which we expect a little bit collateralized by the bustles in our hundred and 8 million dollar credit facility.

This facility will be incremental are already fallen cash position I was more 31, 22 20 of $149.5 million, including restricted cash.

That I was standing gross all different financing costs is $488.8 million into the first order, which results and then that that position or $339.3 million.

Given the macro economic uncertainty we believe this as a prudent steps to bolster are already strong liquidity position remain focused on maintaining our balance sheets strength in order to be able to continue to adapt to rapidly changing market conditions.

Our cash flow break even rate for the second quarter of this year is estimated to be approximately $11940 per vessel per day included in our break even rates is or 2020, <unk> budget figure $4590 previously per day Wade across the the current.

Yeah.

Furthermore, we anticipate approximately 150 days of estimated all fired time relating to bus with dried off me during the second quarter also we'll we'll have the majority of our case size vessels with contracts expiring mangy, depending on market conditions, we may elect to buy left certain capesize buses to the Atlantic Bayes and then an awkward to maximize.

He's over the longer term.

<unk> <unk> fleet, we have utilized according downturn and Supermaxes <unk> rates to reposition buses throughout April and May to date Ah tricky regions ahead of a pension improving market later in the year.

Well now turned to cold over computer island or drive both market analyst to discuss the industry fundamentals.

Thank you <unk> during the first quarter to Drybulk earnings environment was already attending lower in part due to breezing iron ore supply constraints.

While the onset of Cobot 19 further exacerbated this decline.

Yeah in our exports increased by 16% year every year in the first quarter of 2020, marking the lowest quarter since keep 120 13.

Be rainfall impacted export it to be on top of this oh. Good 19 pandemic resulted in reduced industrial activity in China, most notably in January and February However, since March the world's second largest economy and largest in quarter of tribal commodities has shown signs of improvement as various economic indicators such as fixed asset investment.

And industrial production rose as compared to the previous months a year as China's economy begins to recover economic output in regions outside of China have declined meaningfully due to various forms of nature wine shutdowns being imposed to prevent the spread of Coca 19, most notably in India, Japan, Europe and the U.S.

We are beginning to see recovery in iron ore shipments together with some green exports to cold trade in certain mine are both trades are currently being impacted due to the reduction in global economic activity. Looking ahead as countries worldwide became to gradually recover and reopen their economies, we anticipate augmenting trade clothes and demand for raw materials, which.

Could support increase tribal earnings from current levels.

On the supply side earlier and year. There was prompt response to market conditions demolition activity increased to five nine dead weight tongues compared to 8 million knowing that wait times all of last year.

Ever scrapping activity the Indian subcontinent has come to a halt nationwide closures due to Kobe 19.

When scrap yards reopened we believe there'll be plenty of demolition candidates is 90 capesizes on the water are 18 years or older. While valley recently announced that they will be phasing out operation at 25 older Yellow Sea conversions lastly, we note that the order book as a percentage of the fleet is that approximately 8%, which marks the lowest point <unk>.

2000 and too.

There's also comparison seven per cent of the fleet that is greater than or equal to 20 years old.

The duration impact of Kobe 19 remains uncertain about the current time, we believe these positive supply side dynamics provide a solid foundation for Drybulk market fundamentals going forward is concludes our presentation and we would now be happy to take your questions.

Thank you if you'd like to ask a question piece think now bypassing sky one on your telephone keypad. He can't using a tickets on I can't think share yummy function. It's it's tough to allow you to take notes heavy tab equipment again, please stay I want to ask a question.

We even had to take the first question some vandy given some Japanese piece color <unk>.

Mmm.

Howdy, gentlemen, hope you're doing okay. During this time.

X. Randy good morning.

See I, you know hew to the second quarter coordinate rate rose to be in line with our expectations, you know capesize kind of surprised to the up side a little there that said you know how have rates in last maybe week or so compared with these kind of quarter to date numbers, just trying to get a sense.

Kind of rest of the quarter outlook or performance.

So on the on the Capesize sector I would say things have had softened over the last seven to 10 days, we do expect that probably in the next two weeks to to turn back around and as you know we're we're we're looking to.

Towards a more favorable second half of the year, we have seen the the super Max rates stabilize and start to to move up slightly but but I think our view is we really need to see India open back up again on the coal and.

Outside those thermal and and that we need to see in Colombia really gear up on on the mining side again on the cold side, South Africa, showing some good signs that opening back up but I I think in general we we need to C.D.'s economies start to to get back.

Back on track in in the medium term and then we should see a list on on rates.

That and and I'm, probably going beyond the scope. Your question, but you know China has been.

[noise] recovering in and their economy has been a has been opening up.

So we we definitely seen strength on the on the iron ore from both out of Brazil in Australia, but it's it's the celery commodities picture getting the Cape such as call and bauxite that we that we need to see <unk> I came in the market.

Got it okay that makes sense and then looking obviously has a dividend reduction you know, there's certainly understandable to kind of band down the hatches in this environment, but looking ahead, you know if with with where rates are now where your expectations are possibly for two two maybe three q. you know what should we expect for dividend is kind of two cents.

The floor with kind of upside as as earnings rebound and then also what are your plans for the proceeds from the sale of the vessels.

So.

I'll take that that's as far as any right now we we would you know put that cash on on the balance sheet.

And in terms of.

Dividend in capital allocation I I think it's I think it's pretty prudent to to respond to your question that you know on on that we're going to look at this quarterback quarter right now I'm just due to that situation ads in terms of code at 19, and all the closures that have taken place for for it for some of the economies.

That the Drybulk depends on I think that I think it's fair to say that there's no doubt our our number one priority right now is is concerned cash.

But we also remain committed to returning a returning capital to to shareholders. So it's a balancing act between those two and like I said right now where we are we have a we have a positive thesis and analysis for the second half of this year going certainly going into 2021 because of.

A low.

Supplies I didn't particular, and the fact that it's really has been a a an unprecedented demand shock, which we which we do believe will eventually right itself.

But what we want to see it is just the beginning of that thesis or that analysis to to start to play out and then you can start at that thing you know, what what you're going to do in terms of.

Staying even increasing what have you want on the dividend.

Sure you know and as you showing slide 20th histories paid guide, we we expect a rating proven hand, the coming months. So thanks again, they well.

[laughter].

<unk> need to take care yourself.

[noise] I remind get to ask a question keys pets, Taiwan, we haven't I take the next question can lean back <unk> D. Riley ask the Iraqis go ahead.

Good good morning <unk>.

Morning.

John I know it was mentioned in your prepared statements about scrapping and how it's been held up by Corona virus and you'd expect that to.

Continue or be stronger of it after the the core of it 19 resides but do you anticipate scrapping to accelerate to the point, where it'll help your meaningfully on the supply side of the equation.

If they are quite a few owners that would like to be scrapping shits right now.

We've seen.

Just the beginning there there was a kate that.

One of our peers agreed to scrap and it looks like they have a buyer for that.

In India say here.

Starting to see.

<unk>.

Wheels, you know turn again on that.

Oh I want to be a little cautious, we we really need to see Indian and Bangladesh in particular open up and then and yes, I I do think scrapping is going to pick up in a in a meaningful way, particularly on the larger ships, though leads the yellow seeds that or you know old V.L.C. inversions.

You know, they're they're 25 of those that that really need to go and and some of the older. Some of the older Capes I mean, there's.

There is still I think Peter out pointed out we still have seven per cent of the entire drive boxy 18 years and older and I don't think anything it's changed in terms of I.M. 2020 challenges for the for those older ships as well as the the software market right now and just the lack of available.

<unk> in financing for for smaller owners. So yes, I I, we expect a quite it's quite quite a pick up and strap as we get into the second half of the year and Indian Bangladesh opened back.

And I notice a difficult question, what's your priority right now to conserve cash, but you identified your handysize is no longer core.

Assets looking at the rest of your sleep [laughter] looking past the the current market.

Looking into a market improvement how do you look to manage to sleep.

But we're gonna networking continue our fleet room program I think I think it's fair to say, where a little bit odd pause I mean, yes. We we've we've side that law is on on three handy sides that souls.

I I would say they Barry.

Difficult market to execute sales right now so we are a hot you know we're not we're not jumping into both feed it just selling shifts it yeah I think I mentioned on the last even the last conference call are very being very opportunistic about this and that you know this is certainly not a situation where we just want to solve that so.

But at any price, we we want to do what's best for for the company and shareholders. So I I don't see it's doing large large scale sales right now hopefully as as the market comes back towards the latter part of the year.

More of what did he will come back into the into the sound purchase market.

And these countries will open up and we can we can have that so inspection began include changes and the like.

Thank you John.

Mmm.

[noise] thankfully to identify their phone.

But I've never mind <unk> keys pressed Guy one had a star one task the phone question.

I know further questions that will come Kate stays conference call. Thank you keep this patient you may know crack Mac.

Thank you.

Mm.

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