Q2 2020 Genco Shipping & Trading Ltd Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Genco shipping and trading limited second quarter 2020, <unk> earnings conference call and presentation. Before we begin. Please note there will be a slide presentation accompanying today's conference call that presentation can be obtained from Gencos website at WD.
W. W Dot genco shipping dot com.
Inform everyone todays conference is being recorded and is now being webcast at the company's website www Dot Genco shipping dot com.
We will conduct a question and answer session. After the opening remarks instructions will follow at that time.
A replay of the conference will be accessible anytime during the next two weeks by dialing 880, 2031112, or 7194 or 570, 820 and entering the passcode 660.
Six six to nine.
At this time I will turn the conference over to the company. Please go ahead.
Good morning.
I would be your thinking to fund I note that in the office coal will be meetings and forward looking statements pursuant to the safe Harbor provisions in the private Securities Litigation Reform Act as much money bark.
Such forward looking statements use words, such as anticipate budget estimate expect project intend plan believe in other words in terms of similar meeting in connection with a discussion of potential future events circumstances or future operating or financial performance.
These forward looking statements are based on management's current expectations and observations.
A description of factors that could cause results to differ please see the company's press release that was issued yesterday the materials relating to this call posted on the company's website and the company's filings with the Securities and Exchange Commission, including without limitations. The company annual report on form 10-K for the year ended December 31st 29 team and the company's or.
Ports on form 10-Q, and form 8-K subsequently filed with the FCC <unk>.
This time I would like to introduce John Wobensmith, Chief Executive Officer, Genco shipping and trading limiting.
Good morning, everyone. Welcome to Genco second quarter 2020 conference call I will begin today's call by providing an update on Gencos response to covert 19, We will then review our year to date highlights discuss our financial results for the quarter and the industry's current fundamentals before opening the call up for questions.
For additional information to refer to our earnings presentation posted on our website.
Since the onset of the pandemic Genco has continued to prioritize the health and safety of both our crew members and our onshore team as a result, we've undertaken a number of proactive measures specifically centered around ensuring the continuity of our business and protection of our crew, while maintaining effective and safe headquarter operate.
Yes.
Transitioning to a remote work environment at March our office operations have continued as usual and we have not experienced any disruptions. Today. In addition, we continue to provide customers with the high level service and support that it's become a hallmark of our operations. Our teams onshore in New York in Singapore continue to work from home.
While our team in Copenhagen has returned to the offices.
Regarding our crew members our focus remains on taking proactive actions to safeguard these individuals to this end we've provided crew with the necessary P.P.E.
Limited access offshore personnel boarding vessels and have prominently posted cobot 19 safety instructions onboard vessels to supplement ongoing safety training.
Over the last several months the primary challenge of the industry has been executing crew rotations due to the covert 19 pandemic government imposed port restrictions difficulty arranging travel and safeguarding the health of the on an all signing crew have all posted.
Unique challenges that have prevented many ship owners from being able to undertake crew rotations in a safe and effective matter as crew members worldwide have in many cases exceeded the duration of their contracts. There was an increase urgency to work towards completing marker rotations in the coming months.
You have taken proactive measures by implementing industry, leading protocols, which have resulted in successfully completing crew rotations involving approximately 70% of our fleet in recent months complete basis proven extremely difficult. This is due to covert 19 related restrictions worldwide and a research.
Agents have restrictions in certain ports around the world, including Singapore, and Hong Kong that had been more accommodating recently.
We continue to work diligently diligently to repatriate more of the dedicated Mariners onboard our vessels. Furthermore, the global outbreak of covered 19 resulted in meaningful slowdown in global economic activity levels through much of the first half of the year, leading to a decline in demand for certain raw materials that are about.
As transport.
Commencing in June as countries began to east restrictions, we have seen increased activity levels together with augmented demand for commodities that we carry translating into higher freight rates over the last two months.
Despite recent market improvements, we continue to focus on fervor preserving the strength of our balance sheet and are sizable liquidity position as such we closed on a $25 million revolving credit facility to further supplement our already substantial cash balance our strong balance sheet, along with an improving drybulk market has enabled genco.
So to declare our fourth consecutive quarterly dividend highlighting our efforts to return capital to shareholders. This brings the total dividends declared to 71 and a half cents per share since the third quarter of 2019.
Going forward effectively deploying our capital remain a top priority.
Something that we will continuously evaluate as the dry bulk market and macro events further evolve.
Looking ahead to the third quarter freight rates have experienced a meaningful uplift is highlighted in our forward fixtures today, which are nearly 75% higher than our second quarter time charter equivalent rates are barbell approach to fleet composition, consisting of owning both major and minor bulk vessels has won and proven to be a significant.
Component of our business model as Capesize freight rates demonstrated their upside potential crossing the 30000 dollar per day threshold at the end of June while minor bulk earnings have risen steadily to year to date highs.
Going forward, we believe the outlook is favorable for the Drybulk market for the balance of the year and into 2021 as the order book as a percentage of the fleet is that an all time low limiting net fleet growth, while global economic activity levels continue to recover coinciding with a seasonal uplift in cargo volumes.
With our leading and sizable Drybulk platform. We believe we're in a position of strength to benefit from these positive fundamentals during a time in which we have further solidified our balance sheet and continue to return capital to shareholders I will now turn the call over to a postal as fully as our Chief Financial Officer.
Thank you John.
For the second quarter of 2020 of the company recorded a net loss of $18.2 million or 43 cents basic and diluted loss per share and generated EBITDA of $2.9 million. Additionally, during the quarter were utilized our low leverage profile to close a 20 on a 25 million dollar revolving credit facility, which is.
Collateralized by the vessels and 433 million dollar credit facility. This further step enabled us to further strength or strengthen our already solid balance sheet, providing us with increased optionality and flexibility to adopt drop of you're changing market conditions, we drew down $24 million under the revolver in June helping.
During our cash balance to 142 million, a $142.9 million, including approximately $15 million of restricted cash as of June 32020.
Our debt outstanding gross deferred financing costs is $494.5 million as with the end of the second quarter, which after considering our cash position results in a net debt position all $351.6 million.
The continued support of our World Class Bank group during these unprecedented times pilots or confidence in our platform team approach to capital allocation and long term strategy.
Subsequent to the second quarter would deliver two vessels through their respective bars in July the sales of the Baltic wind and the Baltic Breeze at 2009 into 2000 Bell 10 built Handysize vessel closed on July 7th in July 30, Onest, respectively. Additionally, we expect the sale of the Genco Bay that too.
Housing 10, built handysize vessel to close during the third quarter as will the gross proceeds for the vessels or $23.6 million and the sale of these vessels will also result in savings of $1.4 million in Drydocking Capex for 2020.
Our cash flow breakeven rates for the third quarter over this year is estimated to be approximately $11763 per vessel per day included in our breakeven races are 232020, dv budget figure of $4900 per vessel per day weighted across recurring fee.
We know that during the first half of the year, our daily vessel operating expenses was EUR per day were approximately $200.
Lower than budget due to lower crewing and dry docking related expenses as we compete more crew rotations in the coming months, we expect our vessel operating expenses to increase as a result, but we are maintaining our full year bustle operating expense budget of $4590 per vessel per day asset out of the beginning of the year.
Yeah.
Furthermore, deviation time associated with positioning our vessels to courts in which we can undertake a crew rotation to get the virus travel and governmental restrictions related to covert 19 has resulted in Beijing June 2020, and the third quarter in which our vessels have been unable to arriving in May continue to do so with regard to drydocking.
We anticipate approximately 60 days overestimated off hard time during the third quarter, we anticipate our second half drydocking schedule to be a lighter relative to the first half as we actively manage the timing of our drydockings for the plan of taking vessels out of service during local where market periods.
Additionally, with our active commercial trading strategy carded gear towards spot market employment together with the absence of any scheduled drydockings in the balance of 20 to 24, our capesize vessels, we believe that we're in position to capture the strengthening market fundamentals in the second half of a year as compared to the first we'll have the majority of our capesize dry.
Muscles with contracts expiring in August and September rates are too for the on fixed portion of the quarter susceptible to market conditions at the time, which have been volatile to date and Furthermore, we may elect to buy less certain capesize vessels three Atlantic in an effort to maximize earnings over the longer term I.
Ill now turn the call over to Peter on the island are Drybulk analyst to discuss the industry fundamentals.
Thank you post close as highlighted in the slide in the market update section of our earnings presentation. The freight market during April and May was largely impacted by Brazilian iron ore supply constraint.
There with various nationwide lockdown measures taken to slow the spread of Copel 19, which produced industrial activity globally.
However, during June the Baltic dry index significantly recovered led by Capesize spot rates.
Rose from a year to date low of under $2000 per day on May 14 over $30000 per day on June Thirtyth.
The sharp rise and Capesize rates was primarily a result of several factors, including a 40% increase in Brazilian iron ore exports in June versus May coincided with the push from Australian iron ore miners hit their June thirtyth fiscal year end shipment target, while capturing iron ore prices of over $100 per ton.
Going forward Brazilian minor valley reiterated its 2020 iron ore production guidance of 310 to 330 million tons, stating that it will likely fall towards the lower end of this range. This implies an uplift in iron ore production of 44% or 56 million tons in the second half of the year versus the first half.
Overall, the iron ore trade continues to be supported by China as imports rose by nearly 10% year over year led by a strong June which saw imports top 100 million tonne for only the fourth time on record.
China's steel production has been resilient rising by 1.4% through the first half of the year steel output ex China is down by 14.3% over that period. However output in key countries, such as India has been increasing off of the April lows.
In terms of minor bulks. The grain trade has remained firm largely due to a robust Brazilian grain season, the strong South American grain trade has helped strengthen supramax earnings, which now stand at close to year to date highs.
And drivers going forward remain peak black sea export season in August.
As well as North American Grand season in Q4.
While China as purchase large amounts of agricultural products from us in recent weeks. We note that a strong export season remains dependent on us to China trade relations regarding the vessel supply side.
Increased vessel demolitions from mid May together with increased port congestion 14 day quarantine period and deviations recruiting changes have led to a decline in fleet productivity.
Lastly, we know the order book as a percentage of the.
Is that approximately 7%, which marks an all time low. This also compares to 7% of the fleet that is greater than or equal to 20 years old. We believe these positive the supply side Diana provide a solid foundation for Drybulk market fundamentals.
Looking ahead to 2021, we view the supply and demand trends as favorable as global trade flows further improve off of the trough levels seen earlier this year well valleys iron ore output is expected to continue to recover towards the company's forward expectations as such we anticipate demand growth to outpace supply growth next year.
This concludes our presentation and we would now be happy to take your question.
If you would like to signal for questions you can signaled by pressing the star T followed by the digit one on your telephone keypad.
Keep in mind, if you're using a speaker phone make sure. The mute function has been released to allow the signal to reach the equipment once again star one for questions.
Well take our first question from Randy given Swift Jefferies.
Hello, gentlemen has gone.
Morning.
Morning, wanting I'd say, it's nice to see how you're making progress on the Handysize sales in this obviously tough environment. So kudos for that not to that point you sold I guess 24 million of assets and they they have about 14 million and debt so more than 9 million increase in liquidity.
Ample cash on the balance sheet lowest leverage ratios across drybulk trading FC discount to NAV. So all that being said what are your plans for this cash you know assuming day rates stay relatively firm in the coming quarters, because it further debt repayments share repurchases secondhand acquisitions, what are you at all.
Yeah. So Randy as you know we have amortizing debt. So clearly we're going to continue paying our quarterly I'm, more which which is already in place. So there will be debt rate continued debt reduction in terms of of capital allocation, which is what I would I think you're really referring to.
I would say our thoughts have not changed since last quarter in that we feel it's important to have the dividend in place. We obviously moved it down.
Because of of Cobot 19.
And we'll we'll obviously review that policy every every quarter. It you know with management and at the board level I think we're still in in what I said last quarter, we're in a little bit of Oh wait and see yes were very positive in that we've seen third quarter rates strengthened quite significantly and we have that we have a good forward book.
Third quarter and where.
We are optimistic credit for the rest of the year going into next year, but we still do have the backdrop of code 19, and I think we all need to appreciate that so from a capital allocation I would say, it's a it's still a little bit a wait and see and and want to get a little more further on the other side of of coded 19 and.
And have our thesis proves out that you.
You know that rates are going to continue to remain firm.
Oh sure Highway I'm I'm, just glad you can say newbuildings, especially wind turbine installation. So good to hear that I'm now turning to your Capesizes with scrubbers pilot, though has been performing any plans to hedge some of your fuel needs do some some some spread theres some financial derivatives.
No I don't see as hedging anything keep in mind, we had all of that scrubbers in place before the end of last year. So we were able to capture a pretty significant.
Part of the of the high premium that existed from really early November you know through February. So we've actually paid off if you. If you look at the fuel differential from when they were installed we paid off about 40% of our of our capital cost on that and with the with the spreads around call it $70.
Well, that's still a 25% to 30% cash on cash so while the spreads are certainly lower than.
And what we would have anticipated you know Anna and I think cobot 19 has has a lot to do with that any issues surrounding that I do think that spread will you know will move back up and I think it'll get above 100.
So no no we don't see any reason that that certainly hedge at these levels and keeping in mind that we paid off a on a decent chunk of the original capex.
Sure we only have a similar view on the $100. There last quick question looking at the market.
Really iron ore trade is strong, especially in Bali ramping production ramping export you mentioned that in your prepared remarks, so I guess it around value positioning your fleet to have more exposure in the Atlantic Basin, and how do you compare the strong iron ore trade with the more tempered outlook for coal.
So let's talk about fleet positioning per second so.
Again, you know as you know the second half of last year.
Because we are doing scrubber installations, we were.
We are pretty much for us to lot to trade almost exclusively in the in the Pacific This year, a happy to be able to go back to our our normal strategy of trading both in the Atlantic Basin as well as the Pacific Basin on the Cape So that that has been ongoing I would say, it's you know maybe its a.
50, 50, 60, 40 split Australia to and Brazil adult lose sight of the fact that yeah. Brazil is definitely we think going to be strong at valley is going to continue to ramp up but that also does affect the Australian market. So the Australian market is has been from as well and so you want to have.
Balance between some shorter term voyages, which you can do in the Pacific, but also those those long haul voyages.
That you know that lock away decent rates for longer periods of time. So again it it's back to our original strategy I'm that we laid out and I would say it split between the the two basins.
Perfect and then quickly on coal.
Yeah, so on the coal side.
I mean look at China is as we've always talked about is is the black box in terms of putting quote is in place and then lifting quotas.
From one I understand there has been a positive move where there where they're looking at these quotas more on a monthly basis, rather than a yearly basis. So it actually should smooth it should smooth things out, but I do still believe that the Chinese are very interested in high quality coal.
Which which is which really leans towards imports.
So while I do see some volatility I don't see any you know medium term issue with China imported coal and there is certainly importing a lot of met coal as well.
What I would focus on that was India, India has been has been slower to come back on the coal import side. Their inventory numbers are are on the high side.
There that the production is still.
Not efficient in it and is lagging.
But we certainly haven't seen a true recovery at in thermal coal imports going into India. We have seen pickup of have met coal in fact, there is even theres even been some shipments again from have met coal from the U.S., The India, which is a long haul trade and certainly what we what we like to see so I.
I would be watching India to see when they really start to when their inventory levels come down on the thermal coal side and they and they start importing in a meaningful way again now having said that again, Vietnam, Philippines, Turkey, Pakistan are all growing on the on the thermal coal import side Vietnam in particular.
The growth numbers are actually getting to the point, where they're a meaningful player in the thermal coal markets. So you know that area it seems to be positive.
Go way that's it for me, Thanks, again, and looking forward to the much improved threeq results.
Thank you Randy.
And again to ask a question. Please press star one again that is star one to ask a question.
Well take our next question from Omar knocked out with Clarksons Plateau Securities.
Hi, Thank you hey, guys or just a couple of follow a family morning just.
Guys.
You just wanted to follow up to some of the Randy's.
Topics and questions and maybe the first one.
On capital allocation, John you guys have about $80 million that do over the next year.
How do you think about those payments clearly you have on a substantial cash position. We've got a lot of cash you've got the proceeds coming from the handy fleet in the third quarter as Randy left that it's going to be a very strong influx of of earnings that do you see yourselves.
Meeting to discuss versus deferrals with your lenders on those on those amortization payments or are you comfortable with how things are.
Based on the cash position and the market.
I don't see any need to discuss deferrals right now I think we have a very well I think we're in a very fortunate position from a liquidity standpoint.
While we certainly did not predict the second quarter volatility due to cobot 19.
You know.
Well years ago, we put into place that strategy of making sure that do that we had a strong balance sheet and low leverage and and plenty of cash.
Thats, obviously paid off.
I think that.
I think that if you I I mean, just this to be a 100% pointed I see no reason to even think about talking about mix. It up deferrals right now I know there maybe some other companies that are that are doing that.
But I do I definitely don't see need and I think its advantageous to continue to to reduce debt and bring the leverage down.
Oh that well that's that's area pointed and I appreciate that I mean, it's clearly a a topic of discussion last earning season this earning season, where a lot of companies are.
Discussing deferrals and whatnot, but you guys do have a lot of cash and relatively low levered, so you're definitely a different position.
I did want to maybe just ask also the.
Maybe on the crew changes.
Separate topic, the you've done 70% or so of the of your fleet since dependent up again.
No the costs are going to be going up due to the logistical complexities of getting.
Things moving how do you think how do think that plays out is this sort of clearly there's a lot of uncertainties with Covance 19 and.
And in a vaccine and whatnot, but how long do you think these higher costs will continue this sort of something for basically the second half of the year do you see that slipping into next year and then also.
Have you seen things saw a bit and relax, where it's you're able to navigate these crew changes a bit more than you were earlier on.
Okay, well listen on the call that tomorrow.
No. It's the cost side I think is is tough to predict for next year I I. You know just like everyone else I would say you know the availability of a vaccine and and the effectiveness of.
Of pp and locked down that's going to really determine you know how things are next year in terms of what jurisdictions are open I mean, keeping in mind. Most crude changes are done during cargo operation. There is no deviation typically there is no having to book extraordinary flight that.
That's not unfortunately, not that where we live in right now where where most screw changes are not done right now very cargo operations are having to be done in an extraordinary fashion. There's some deviation that that occurs because of that.
I'd say some were talking three to four days. So we're not we're not talking about large blocks time here, but what it is important to watch and and flights are quite a bit more expensive that that's where the real expense comes in from from an operating expense standpoint.
For Genco, if you look at.
You know, we gave guidance for the third quarter.
The have higher operating expenses than our.
Yearly budget, but that's on the backup not really doing any crude changes many.
In the in the first half.
We've done it we don't launch in the third quarter in sort of June and July and that's how we've gotten up to 70% of the fleet, which is I got Italia.
It was a herculean effort to get to those numbers and the end the team at Genco had to be very creative and spend a lot of late nights I'm trying to make sure. We orchestrate each grew changes in it in a very safe fashion. So it's not just a matter of getting a crew members on and off it's it doing it safely.
And making sure you're not introducing.
Covert 19 to the vessel with Onboarding crew member. So we have corn teams in effect, we have testing in effect.
So going to your.
Go into your and let me just to be clear our opax, while we expect some higher expenses in the third quarter, we do expect for the year to still be.
Within the budget number that we put out the beginning of the year.
Going to your second part of your question actually things things are getting more difficult now.
There was a good window in June and July, particularly with Singapore as you know we did the first full crude change in Singapore since since cobot 19.
And we did we did quite a few in Singapore, we've done some in India. We've done some in Sri Lanka South Korea.
Hong Kong, but unfortunately, I think the world is is closing up again for crude changes, particularly in Hong Kong, which is now shutdown, Singapore is effectively shut down except for some Barry.
Except for emergency situations and you know, we're having again to assess where we're going to do things, but I can't stress. It enough. We were fortunate that we that we are on top of this and we really pushed out.
And were proactive been doing a lot of crude changes during June and July so that this will not be a a factor for us right now.
Got it launched on the long answer I know us along and lot of information, but it but from an operation standpoint, you know the team is is just is working.
Now almost non stop on this issue.
Yeah, clearly well done on that and I guess, it's definitely a situation that you know requires consistent [laughter], oh, well have to keep our eyes on it to see how things progress, but hopefully it starts yeah you down here.
Yeah, maybe just one more John to as a follow up.
Could you just mentioned in your the technical side of the business too, but has been very active and focusing on this nights and weekends.
On the commercial side, you know the charter in charter out business that you guys had built up it's obviously slowed a bit this year.
Oh Wow, how do you think about that business, especially now with the market picking up do you see picking up that that freight business a bit there are keeping it where it's been at the past couple of quarters.
No I see it picking up and quite frankly, you know we did a lot of forward fixtures that the very end of last year and and into first quarter on the minor bulk so.
If you if you you know we haven't publish these numbers, but if you look at the number of of cargos, an arbitrage opportunities that we've taken advantage of we're well ahead of even where we where last year.
So while second quarter.
You know you wouldn't be booking forward cargoes and in a in a really down market, but as we get into little more into the third quarter in the fourth quarter I definitely see as you know replicating what we've done in years past and moving on things.
The other interesting thing is you know our number of fixtures are continued to move up the and the and were doing.
That were close to 80, 85% of our fixtures are direct voyage fixtures with with customers. So.
That business is a is alive and well and you.
You know weve, even a we've even looked at some see away business as well, particularly on the on the backhaul trades to ought to lock those up so that we can take advantage of the very strong fronthaul trade. So.
Everything is a is going well and on the capes. It's its been very fortunate weve that we've been able to take advantage of of the market. We had a we definitely had a lot of ships that were open and available to states in a as rates move dumped in latter part of Jim.
Great Okay.
Okay. Thanks, Thanks, Don Thanks for that color, but a very helpful. I'll I'll leave it there.
Okay. Thanks Omar.
This concludes the Genco shipping and trading limited conference call. Thank.
Thank you and have a nice day.
Thank you.
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