Q3 2020 Genco Shipping & Trading Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the Genco shipping and trading limited third quarter 2020 earnings conference call and presentation.
Before we begin please note.
But there will be a slide presentation accompanying today's conference call.
That presentation can be obtained from Gencos website at www Dot Genco shipping dot com.
Inform everyone. Today's 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.
Replay of the company at the conference will be accessible any time during the next two weeks by dialing 888, choosy Roasteries 1112 or 719.
Four 570, 820 and entering the passcode 587 to 493.
At this time I will turn the conference over to the company. Please go ahead.
Good morning, before we begin our presentation I note that in this conference call, we'll be making certain forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 995, such forward looking statements use words, such as anticipate budget estimate expect project intend plan.
I believe in other words in terms of similar meaning 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 for a discussion 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 limitation. The company's report on form 10-K for the year ended December 31st 2019, and the Companys reports on form 10-Q and form 8-K subsequently filed with the SEC.
This time I would like to introduce John Wobensmith, Chief Executive Officer of Genco shipping and trading limited.
Good morning, everyone welcome to Gencos third quarter 2020 conference call.
Well begin todays call by reviewing 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.
Additional information. Please also refer to our earnings presentation posted on our website.
During the third quarter, we witnessed an uplift in global economic activity levels, which translated into a strengthening drybulk freight rate environment. Despite the continued uncertainty relating to the trajectory of cobot 19th.
Following a challenging first half of the year Genco generated over 70% increase in our time charter equivalent rate relative to the prior quarter, enabling us to return to profitability on an adjusted basis in line with our thesis of a second half recovery, we were able to capitalize on the strengthening freight market as we primarily employee.
Our vessels in the spot market.
In the fourth quarter today, we anticipate further improvement to our time charter equivalent rate led by our Capesize vessels at nearly $20000 per day.
November 4th Archie he was fixed it over $13000 per day on a fleet wide basis from 57% of the days.
While we have seen a recovery and an improvement in fundamentals challenges relating to conducting crew rotations remain due to various import restrictions difficulty arranging travel and ensuring that health and wellbeing of our crew members Jack.
Jack I was taken proactive measures by implementing industry, leading protocols and we have successfully completed the majority of our schedule crew rotation for the year involving over 1600 seafarers, the health and safety of our crude remain our top priority. We thank our crews around the world for their dedication and professionalism and are committed to come.
I need to take steps to promote their health and safety amid the global pandemic.
Regarding capital allocation, our strong balance sheet, along with an improving drybulk market has enabled Jay genco to declare our fifth consecutive quarterly dividends highlighting our focus on returning capital to shareholders. This brings the total dividends declared of 73 and a half cents per share since the third quarter of 2019.
Effectively deploying our capital will remain a top priority for management, we intend to continuously evaluate our capital allocation strategy as the Drybulk market further evolves and as we seek to continue to create shareholder value.
Going forward, we anticipate traditional drybulk seasonality to play a factor during the first quarter of next year. However, we plan to book for cargoes and select period time charters to smooth this volatility similar to what we have done in recent years overall for 2021, we believe the Drybulk outlook is favorable specifically the order book is.
As a percentage of the fleet is at an all time low limiting net fleet growth whopper, while the Brazilian iron ore recovery and growth story, which has materialized. Since June is expected to continue we've.
We believe genco is in a position of strength to benefit from these compelling fundamentals, particularly due to our ownership of both major and minor bulk vessels are world class in house commercial operating platform and our industry, leading balance sheet. We believe the record low order book will be an important catalyst in creating a drybulk market environment in which demand.
Growth outpaces supply growth in the coming years, which we view as a positive driver for freight rates I will now turn the call over to oppose the polio, our chief financial Officer.
Thank you John for the <unk>, the third quarter of 2020, the company recorded a net loss of $21.1 million or 50 cents basic and diluted loss per share excluding non cash special impairment charges of $21.9 million and <unk> point 4 million dollar loss on sale of vessels.
Adjusted net income for the quarter was $1.2 million or basic and diluted earnings per share three cents, while we generated adjusted EBITDA of $22.3 million drink.
Drinker success capitalizing them improved market conditions enabled us to further strengthen our balance sheet, bringing our cash position to $160.8 million, including $24.5 million over strict in cash as of September 30, 2020 or debt outstanding girls from deferred financing cost is 475.4 men.
In dollars on will be out of the quarter, which after considering our cash position, resulting in net debt of $314.7 million.
Furthermore, we continue to divest our older or less acute less fuel efficient haulage as part of our efforts to modernize our fleet and create a more focused asset base, while reducing our carbon footprint as part of our fleet renewal program. During the third quarter, we delivered two vessels to the respective bars that we had agreed to sell previously the sales of the Baltic.
Wind and the Baltic Breeze at 2009, and the 2010 built Handysize vessel closed on July seven on July 31st respectively.
Additionally in October we delivered the Genco Bay had 2010 built handysize vessel as well as the Baltic Jaguara 2009, built supramax vessel to their respective buyers.
We have agreed to sell three other 53000 deadweight tons supermaxes, namely the drinking or drink would normally be in the Baltic Panther, which we anticipate delivering to their buyers during the fourth quarter of 2000.
20, and going into the first quarter of 2021.
The aggregate cross gross proceeds from the sale of these seven vessels amounts to $51.9 million with associated bad of approximately $31.44 million.
Our cash flow breakeven rate for the fourth quarter of this year is estimated to be approximately $12350 per vessel per day included in our breakeven rate is or Q4, 2020 bps, we budget of $4750 per vessel per day weighted across our current fleet.
While we have completed the majority of the scheduled crew rotations for fleet to date, we expect to continue to experience increased costs and delays during the fourth quarter. As a result of an emerging second wave of COVID-19 cases around the world.
The more deviation time associated with positioning our vessels the countries in which we can undertake such group patients due to the virus troubled governmental restrictions related to call. The 19 had resulted in days and third quarter in which our ships have been unable to work revenue and May continue to do so.
With regard to dry docking, we anticipate approximately 94 days approximated off hire time during the fourth quarter.
Lastly, I know Tom while we're continuing to position our fleet to better capture for central market improvements through the end of the year. We will have the majority of our capesize vessels with contracts expiring in November and December and we may elect to buy less certain of these ships to the Atlantic basin in an effort to maximize earnings over the longer term.
I'll now turn the call over to Peter Island, our Drybulk market analysts to discuss the industry fundamentals.
Thank you puzzles following the lows in may the freight rate environment improved significantly led by the Capesize sector, notably no, notably Capesize rates have averaged over $20000 per day since June 1st including peaks of over $30000 experienced in July and October this rising capesize rates. This coincided with a meaningful uplift in Brazilian.
Iron ore exports from June October we've seen on average 10 million tons more per month export it as compared to the January to May period as valleys operations have recovered from poor weather conditions earlier in the year as lost from the 2019 grew mid you know damn incident over.
Overall, the iron ore trade continues to be driven by China as imports have risen by 11% year over year, including imports in over 100 million tones for four consecutive months something that is only occurred three times on record prior to this year.
According to IHS increased import level has been all time high steel production in China, which has increased by 5% in the year to date China's continued to gain global market share as output in the rest of the world was down by 12% over production in key countries, such as India has been increasing off the lows in April as demand improves.
Regarding the coal trade as has been widely reported China has banned imports of coal from Australia. We view this as a way to limit coal imports into year end due to import quotas also political moved into the trade tensions between the two countries. We currently expect this band to be short term in duration, possibly being lifted early next year.
The natural reaction to this uptake by China, we are seeing a version of cargos from Australia to other destinations such as India Vietnam in Europe.
In terms of minor Bulks that North American grain trade in Q4 remains encouraging to date. The U.S. has already sold over 33 million tons of soybeans for the 2020 2021 season as compared to only 12 million tonnes at the same time last year, China has been the primary driver of grain demand as the country continues to agree to large scale purchases of U.S. agricultural products.
Including more than half of the reported soybean and corn sales to date rugged.
Regarding the vessel supply side net fleet growth in the year to date is approximately 3%.
Fortunately, we have seen 22 vlccs scrapped this year fully offsetting the newbuilding below sees that had been delivered Furthermore, increased port congestion 14 day corn peak periods and deviations for crew changes have led to a decline in fleet wide productivity.
Lastly, we know the order book as a percentage of the fleet is approximately 6%, which marks an all time low.
This also compares to 6% of the fleet that has greater than or equal to 20 years old. We believe these positive supply side dynamics 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 in the year, while the Brazilian iron ore trade continues its recovery.
And growth trajectory. This concludes our presentation I'd be happy to take your questions.
Thank you if you would like to signal for a question you can signal by pressing the star key followed by the digit one on your telephone keypad keep in mind. If you are using a speakerphone make sure. The mute function has been released to allow the signal to reach our equipment.
Once again star one for questions well pause for just a moment to allow everyone the opportunity to signal for questions.
Our first question comes from Liam Burke with B. Riley.
Good morning, John Good morning, your post close.
Morning.
John the Capesize rates have been fairly volatile going into the end of <unk>.
The third and also quarter to date in the fourth quarter looking into 2021 and the shift in terms of a Chinese steel production are you looking at continued volatility there and if youre can you do anything about it in terms of time charters.
Yeah. The the Capesize market is it has always been a highly volatile.
Absolutely and I don't expect that you want to go away, but as I look into next.
Next year, you know, we continue to see a recovery scenario with growth on the iron ore side as valet continues to push up their their output we.
We do think the Chinese will begin to to import coal again in the beginning of the year, it's possible that they may not be importing as much from Australia, but then that just means they're gonna be relying.
On sourcing coal from from longer haul trade routes like South Africa, Columbia, and maybe even maybe even see some more liftings out of the U.S. again so.
So I do expect the volatility. However, you know we expect stronger rates going into 2021 bad than what we've experienced in 2020 and we also expect.
The co bid situation to want to abate.
Yeah, we are I think India in particular was was a pretty big hit to the to the dry bulk market.
This year and they're now well on their road to recovery in terms of steel production. They still obviously a high co. The cases, but from an industrial output standpoint, there's still mills are are almost down to up to full capacity or full utilization in terms of the time charter market Liam we will continue.
[music] to monitor that you know we.
We've looked at it all this year and it really hasn't gotten above sort of 14 15000 hours a day for a year and we think that that's not that's not an attractive rate is as we go again into into next year with a with a really low supplier delivery schedule.
But if we do see opportunities that make sense, we will definitely take somebody exposure off the table, particularly in the Capesize fleet.
Fleet.
Great. Thanks, John and just quickly on the fleet you showing supermaxes the handys.
Your dad is.
Hi thing steadily but dividend program in place what about the fleet are there.
That's and P. opportunities there or do you just continue to bide your time.
[noise] I look I think that first of all you know that the shifts that weve been disposing of the Handysize in particular had been had been part of the strategy. The last few years to exit that sector and concentrate more on the Cape size as well as the ultramax sector. So that job so and so we've been able to add.
Execute on that to some degree and then meet the 50 threes, which we've also been selling you know ours are less fuel fishing.
We've been successful in operating those pretty well and we've been able to get well above the.
You know the adjusted index rates on those Weve been doing a lot of.
Lot of steel off the east coast into a into the bad and then cement back and that's been a very good trade for us on their ships and there does premium rates. However, again, that's 53 that believes that identified as part of the fleet renewal program in.
Yeah, We finally got to a point, where in the third quarter and early fourth quarter, where where values moved up quite significantly on its 50 threes.
Office or some some pretty ridiculous numbers in terms of what people are willing to pay in the summertime. So our patience paid off on that and and we've now been able to get a get some of those some of those out the door and I think overall you know that the company is focused on renewing the fleet, bringing the age down in.
And reducing our carbon footprint and getting rid of that getting rid of the less fuel efficient vessels, which we again, we've been able to execute on over the last several months.
Great. Thank you John.
Okay. Thank you.
Thank you. Our next question comes from Randy given with Jefferies.
Oh, the Genon how's it going.
Good morning.
Well I want to say I guess, a follow up question on the question on the soon frozen Handys you know more recently the sales had been Handys. This time it looks like you're going to Super is kind of why that switch and hard. The next handful of sales good to be back to Handys are kind of either asset class and then.
In terms of renewal any interest in like in any block purchase of modern second hand ultramaxes.
So you know just just on the on the Supers just to put a little finer point on it we're.
We're not necessarily selling supramaxes per se, where we've been selling the 50 threes in particular.
Again, those have been a focus for for a while because of you know their their fuel inefficiencies they're eight.
And you know we.
Again been focusing on more of the modern Ultramaxes. The then and I think we'll continue.
The exit job that's those those 50 threes I think we'll have.
I think we'll have three left.
And then at the same time, we're going to continue to look at you know exiting the handy size.
But again our focus is on is really in the capesize market and the Ultramax marketed it's it's been like that since really 2016 2017 that hasn't changed we still believe heavily in those asset classes.
To go to the second part of your question, we will lot <unk> time will tell in terms of how we redeploy capital, but the the one comment I will make is I think there is.
Hey, dislocation in terms of freight rates and values today, meaning I think it's a very attractive time to walk to acquire particularly eco fuel efficient tonnage. So a we will yeah, we'll continue to evaluate it and and as I said before you know we've always been.
Very focused on on capital allocation and doing it the proper way.
That that that bring shareholder value and we spend a lot of tied the management team along with the board analyzing all of our different options before we make decisions.
Sounds good all right and then switching over to kind of the iron ore trade, obviously volume continues to to pump up like production you know the the sale says a little disconnect in the third quarter, but they expect that to ramp up as well in the fourth quarter have you seen that in the last month to six.
Weeks or so how are you switching your fleet to have a little more exposure there in the Atlantic as opposed to the Pacific.
We we have moved I guess, a few more shifts entail.
Yep up as we go into next year, and I can't stress enough and we're talking about a 6.3%.
Order book, it's it's out of an absolute historic low and I think the projection even for deliveries next year is maybe one and a half to 1.6 that are the existing fleet you know against the four to five cent demand growth projections, so that should bode well for next year.
Yeah No. We're in the same boat no pun intended Ah sounds good we all have a good day. Thanks again.
Thank you Randy.
Thank you and I'll pass for questions again that is star one if you would like to ask a question.
Again, Please press star one now to join the question. Thank you.
At this time there are no further questions. This concludes such in case shipping and trading limited conference call. Thank you for joining have a great day.
[music].