Q1 2021 Genco Shipping & Trading Ltd Earnings Call
One of them.
Okay.
Good morning, ladies and gentlemen, and welcome to the Genco shipping and trading and limited the first quarter 2020 One earnings conference call and presentation. Before we begin. Please note that there will be a slide presentation accompanying today's conference call that the presentation can be obtained from Genco is website at www Dot Jim.
Shipping dotcom to inform everyone that today's conference is being recorded and is now being webcast at the company's web site Www dot of Genco shipping <unk> 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 at any time during the next two weeks by dialing 888.
203.
1112, or 7194 of five seven and.
0820, and entering the passcode 4187 and 387 at this time I will turn the conference over to the company. Please go ahead gentlemen.
Good morning, before we begin the presentation and I note that and this conference call, we will be making certain forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Such forward looking statements use words, such as anticipate budget estimate expect project intend plan believe and other words in terms of similar meaning and connection with the discussion of potential future events circumstances or future operating and financial performance. These forward looking statements are based on management's current expectations and observations.
And it looks as well as the Brazilian iron ore export recovery and combine to create improving supply and demand dynamics.
Are positive market outlook together with a robust balance sheet has physician genco world implement our new comprehensive value strategy.
This new strategy is centered on low financial leverage and three key tenets attractive quarterly dividends throughout the shipping cycles based on cash flow after that service less of a reserve further debt reduction and growth of our asset base.
We believe that the strategy will enable the top of the to create significant shareholder value and be a key differentiator per genco over the long term.
As for our new dividend framework, we intend to pay quarterly dividend and based on the operating cash flow lots of debt repayment capital expenditures for Drydocking and neighbors there.
The corner of his quarterly reserved is targeted to be based on the future quarterly debt repayments and interest expense. However, the uses of the reserve remain and Genco. The option and include vessel acquisition debt repayments and general corporate purposes, maintaining of quarterly reserve as well as Optionality for the uses of the reserve.
<unk> court and the elements of the corporate strategy as and enables genco to be flexible depending on market conditions and provide a more tailored approach to John cause overall business model.
We also believe that the <unk> provides more transparent transparency to the market to assist and forecasting and the dividend along with our breakeven and time travel equivalent of guidance that we already provide on a quarterly basis.
We are targeting Q4 2021 of the results for the anticipated first dividend under the new corporate strategy, which would be payable and Q1 2022.
During the first quarter of 2021, and we began to execute this new corporate strategy as we reduced our that balanced by $48 million. Furthermore, and April we agreed to purchase a modern fuel efficient ultra Max vessel, marking the fourth ultra Max and we have agreed to acquire since December of the last year.
$1000 per day for Capesize and supermarkets vessels, respectively.
Based on the illustrative time charter equivalent rates shown and the potential cash flow generated genco expects to be well positioned from a net loan to value perspective, resulting and potentially meaningful quarterly dividend and 2022 per.
Furthermore, over the longer term, we plan to continue to reduce our debt balance with the goal of zero and that debt.
And importantly, Genco is barbell approach the fleet composition closely integrates with this low financial leverage model, given the large upside and operating leverage from the ownership of the Capesize vessels.
Together with the more stable cash flows from the minor bulk fleet.
While we hedged a portion of our fleet wide available days in Q1, and anticipation of a seasonally softer first quarter. The market did experience a counter seasonal rise and freight like.
Going forward, we plan to maintain our opportunistic spot oriented chartering approach along with select longer term fixtures for our Capesize fleet.
As such we have started and see the impact of our fleets the operating leverage and the second quarter as estimated.
By our daily TCE based on current fixtures for the quarter of over $20000 per day, which is nearly 70% greater than our Q1 daily TCE and would mark the company's highest daily TCE per quarter since 2010 and.
Importantly, we will have seven of our Capesize vessels open for fixing in the coming weeks to take advantage of the meaningful increase in rates, we have recently seen.
And.
With respect to the market liquidity of our shares since mid December ownership of large shareholders has been reduced from 58% down to 20% currently.
While we believe the stock sales of contributed the genco trailing stock performance compared to a number of our peers and the short term we view this as a positive and the long term due to increased over all of liquidity and free flow specifically, our 30 day average trading volume has increased substantially to approximately 800.
As of the shares per day from approximately 200000 shares per day prior to the recent large shareholder sales.
At this point out and I'll turn the call over to a pulse of the portfolio, our chief Financial Officer.
Thank you John for.
For the first quarter of 2021, the company reported net income of $2 million or five basic and diluted earnings per share excluding a non cash loss from sale of vessels.
$700000 adjusted net income for the quarter was $2 7 million or basic and diluted adjusted earnings per share of six cents.
25% year over year increase in our fleet wide TCE to $12197 per day was the primary driver of resulting an increase the adjusted EBITDA of $26 million per the quarter.
During the quarter, we continued to further strengthen our balance sheet through operating cash flows from current market conditions together with opportunistic vessel sales, bringing our cash position to $164 million, including $45 million of restricted cash related to the vessel sales as of March 31 and 2021.
We also reduced our debt balance by 11% through a combination of scheduled debt repayments as well as the prepayment of our revolving credit facility.
As a result or does the bank and growth of deferred financing costs, just $401 million of at the end of the first quarter, which after considering our cash position and the results in net debt of $237 million.
Furthermore, as of April 30th we'd have we have reduced our net debt position further to approximately $220 million or 27% net LTV I don't have built our cash position to $181 million.
The low net debt balance and strong market fundamentals provide a solid foundation for us to execute on our corporate and to value strategy.
We also declared our seventh consecutive quarterly dividend, having increased the payout of <unk> per share.
<unk> total dividends declared to over 80 cents per share since the third quarter of 2019.
As part of our fleet renewal program during the first quarter, we completed our exit from the handy sized sector through the completion of the vessel swap transaction and which we also acquired three modern fuel efficient and from excesses subsequent to the first quarter. We also delivered the Baltic Lepard of 2009, both 53.
And by the way supermax vessels two of her buyers and April.
And the Genco Lorraine is also expected to deliver to her bars and June including the divestiture of a portion of our fleet renewal program.
Our net income breakeven for the second quarter of this year is estimated to be approximately $11900 per vessel per day with regard to Drydocking. We anticipate two of our capesize vessels that go into dry docking during the second quarter for approximately of 45 days of estimated off hire during this period and.
And in relation to our Capesize vessels. We also continued to position our fleet better and better capture potential market improvements and we expect to have seven capesize vessels available to be fixed and the coming weeks of which we expect from <unk> two of them to the Atlantic Basin.
And we're putting that in 2020, given values recovering operations and of more moderate rainy season average.
And by 17% year over year and Q1, the continue to recover recovery and growth of Brazilian out of our exports of expected and value of targeted run range of 350 million times per annum and 404.
409 times per annum by the end of 2021, and 2022, respectively as compared to 320 million tons and at the end of the last year.
And the minor bulks supermax rates of been driven by strong grain demand from China bug bite of recovery from the swine fever outbreak and 2000 802019 as well as continued inventory building and the phase one trade deal and Additionally, we continue to see increased shipments of minor book commodity closely linked to global GDP growth and economic activity.
Regarding the vessel supply side, the growth and Q1, and 2021 was and annualized three 6%.
However, with deliveries Frontloaded and anticipate this level of normalize or over the course of the year is 2021 and that the growth is forecast and be approximately 2%.
The order of book as a percentage of the fleet and that below 6%, which compares the 6% of the fleet that is greater than or equal to 20 years old.
Although we have now seen a firm Drybulk markets and June of last year, the building vessel ordering and the sector has been relatively low over that period.
Specifically, we've only seen and approximately 200 and Newbuild and contract since June of last year, the side of $20000 Capesize market and $13000 supermax market on average during that time and.
And the point of reference similar rates, we're seeing from the second half of 2013 to Q1 and 2014 ordering back then was six times higher exceeding 1100 noodle and contracts.
We believe these positive supply side of dynamics provide of solid foundation for drive ballpark of fundamentals.
The lead to of low leverage of a low threshold or demand to accede to improve blue eyed utilization and and turned free rates.
And this year and next we use of supply and demand trends as favorable physical the traded clothes and pru further of the Brazilian IRR trade continues its recovery and growth trajectory. This concludes our presentation of it and that would be happy to take your questions.
Thank you ladies and gentlemen at this time the floor is open full of your questions. If you would like to ask the question you may do so by pressing star one now.
And if you're using a speaker phone and please make sure of that your immune function is disabled the to allow your signal to reach our equipment and.
And if you would like to ask a question. Please press the star one now and our first question comes from Randy Gibian's with the Jeffries.
And the gentleman and how's it going.
And Randy.
Good good I would think it's going well, but so the range and for the the remainder of the first quarter and obviously, the the second quarter quarter of today rates, they're they're pretty good but not great at least relative to this epic market. We're seeing so I'm assuming that was due is and hedging maybe some repositioning of the fleet was that the case.
And then I guess looking ahead more importantly, any further hedging of repositioning or will you be able to fully capture the strong market. We're currently thing.
So first of all of the the first quarter and the early part of the second quarter, we definitely did hedging and in both the Cape size as well as the minor box.
On the back end of of most of that.
I think and overall comment and then I'll come back to some specifics and overall common is and in a rapidly rising market, whether it's capes or of.
Of the ultra Super is.
It's it's very difficult to to to keep up with it because you are usually fixing anywhere from 15 to 30 days ahead of time, so there's always the lag effect.
That having said that.
As we mentioned we have seven and ships so call it 40% of our of Capesize fleet, that's coming open during the month of May. So we should we should be able to capture the the firm rates. The that you know that we're currently seeing just to give you a sense though.
We've we've fixed and.
Three shifts on the spot.
Basis over the last week or so we did one at one at $49000 a day for and Australian round HM.
I want it for one at $44000, a day, which was the no pop round Western Canada to to China.
And then we also date of 44000 dollar of day.
Trip from South Africa to China. So we are we are capturing this and yeah first quarter, we hedge and and.
We were pleasantly surprised with the with the rapid spike and and rates.
Sure and Sir.
And the deal and then.
And I read through some of your charters once the release. The first came out last night saw some good numbers and then I realized the 23 and 25000 of day, we're not per Cape's, but first supra and and ultra Max right. So very solid and goes with that where you kind of look the lock and more time charges and the coming months as rates remain high or play it.
And the spot market.
A little bit about I think you'll see do some some more.
Time charters and the Cape side Street.
We're we're not we're certainly not going to put the entire fleet away but.
But we do think it's a prudent portfolio approach, particularly in the case because of the volatility to take advantage of of the high market. When you can so yeah I I expect a couple of more longer term fixtures and the capesize sector. The.
The the minor box the those five to seven months that was very opportunistic there obviously good rates.
But we've got a well built up trading platform and the minor bulk side. So.
And general we think we can do we can do better, but then the overall indices and the overall market, but those are great rates as you pointed out so we wanted to take advantage of it.
Got it and then I'm gonna sneak out of quickly here on the surprise dividend increase how does that kind of five cents determined and should we expect kind of gradual increases as you work towards the new policy or stagnate and five cents until the end of the year and the new policy kicks in.
I look great question [laughter].
You know obviously, we're determining this every every quarter with with the with the board. So it's hard for me to to make any promises going forward, having said that.
And.
The the five cents I think.
Was done because of our confidence in in the market going forward as well as being ahead of plan in terms of hitting our our targets.
And so.
So I can't directly and answer your question, but.
And as you know we are moving towards a.
For a and approach that returns of substantial portion of the cash to to shareholders. So.
I I would we'll see how the market turns out but like I said at this point. We're we're ahead of plan Randy.
And that's fair appetizer before the dividend entree. Thanks, so much.
Thanks Randy.
Thank you. Our next question comes from Omar nectar, but the cartoons plateau securities.
Thanks, how John.
Good morning, Yeah, good to hear the morning get get the here. The you know obviously the <unk> the time charges from yesterday that you would disclose and then some of the the the 40000 day plus right.
Just discussed clearly some very very strong and coming cash flow.
It looks like you guys are are well underway under the new capital allocation strategy and you know what.
One thing is you you do better and ultra Max recently, and it sounds like you'll be quite a bit more of acquisitive here in the coming months maybe.
And they were just first question and I apologize if you addressed this already but the ultimate and that you just bought her taken delivery of soon was that funded of 100 per cent with cash and the.
The the next question is for whatever you buy here and the interim until we get to the new strategy.
All of those I'll be funded with cash as well.
Right so the the.
The altar Max and we just bought.
We will deliver most likely and.
In July.
Early August.
And we will we we will use a combination and and I I may have of posts those jump in here, but we will use the combination of of cash and.
And and low laggard that if you will we have is you know.
The money's on our balance sheet that are escrowed for particularly for vessel purchases.
As well as the ability to borrow under our current credit facilities the fun those.
We have already.
As we mapped out this this new strategy, we had already assumed internally some some that's the acquisition so.
We've already sort of planned for that I know the logical questions or how many of you're gonna do that that will will have to see because that's very market determined and but we are still looking at transactions I still believe this is a very.
Attracted time to acquire in terms of the fact that values of not caught up with.
And with freight rates, they're they're still well below a historical average is.
So so yeah, I do and I do and tell us to continue to be acquisitive, and we'll be using cash and and available that off the balance sheet.
Okay got it so and then I guess, yeah, or you've been a bit more active on the ultra Max's recently or you're leaving that way. You're looking ahead are you also looking at code.
Let's and where where we've been very.
The the the.
The barbell approach strategy that we have and place it able depend on it depends on what comes our way, but we do want to keep the relatively balanced as.
As we have in the past between the capes and and the ultra So I do expect us to look at it both sectors.
Got it and and and maybe one for for the past or just <unk> regarding the the the the planned refinance of your existing that just wanted to ask and you can share. If you. If you started that process officially and and and.
And sort of what what the the lender appetite book like for refinancing.
Yeah all of them are yeah, and we have started of the process. We have ongoing discussion with lenders and I'd say the generally speaking of the lender upgrade has been pretty strong as you of you may realize this is a a a a good structure for banks are coming in with a with the with a particular and Lola L. P. B.
And a very strong balance sheet for the comfortable.
Okay very good some more to come on that front them.
Yeah. The morning call later for true.
I'll, just add I'll add to that and he one of the one of the key.
Factors that it that oppose sources is working on his.
Because of the low that LTV driving down the the amortization as low as possible to get that breakeven right.
Very well and obviously at some point, where while we're targeting and at some point, we want to get to really of zero net LTV. If you will.
To get down into those blow 7000 dollar of day casual Brachiate us.
Yeah.
Yeah that'll be very interesting.
Mm cool, thanks, John and and think about the.
Thanks, so much.
Thank you again, and if you'd like to ask a question press star one type of anytime. Our next question comes from a Liam Burke with B Riley.
Good morning, John Good morning, and post loose.
Morning, Liam from one of them.
John on your fixtures on the time charters and running between most of of six months true year is there any thought the too.
And further or you just kind of take care of the range of say calm and make your decision accordingly.
Alright, well, we'll take the races, they kind of and make a decision of quarterly I will tell you when we fix the the Cape sides of that so we took it very hard look at the one year market as well as the two year market.
And while there is the liquidity coming more and more into that two year market.
We just did not feel of what you're getting paid enough for for taking the discount the two year just to give you an example.
The Liberty was done at $31000 a day.
At that point in time, and the two year market was and the low twenties and we have higher expectations for for 2022.
And then even this year. So we felt just from a technical and the financial standpoint, it was better to do the the one year right I do think.
Rates continue the firm.
You'll you'll see more two year yields being done but as again it was the pure math exercise and the one year rate was was better for us at this point.
Okay now what are you looking and really into 2022 and you're feeling.
Comfortable as to where the rates are growing so it just the function of the tighter supply or and you're comfortable with the macro environmental continue to work, so well and you're forever.
Yeah, it's both I I.
You know the the supply is pretty well laid out at this point at least through the end of 2023.
You know and and and I'll point out with what Peter out and was saying earlier of 2023 and onwards, it's only 0.6% of of fleet growth.
0.6% and put.
Eight point on it.
So we're talking about very low of fleet growth. The other the next sort of two years at of minimal.
So you you take that against the backdrop of of demand growth you just don't need a lot of demand growth the have rates continue to be firm and and even move higher.
So I would say at the at the function of of both the very low the supply, but continued demand growth going into the next year.
Great and secondly, the and the.
I should off the mentioned and I need a lot of this at least on the case has to do with the continued.
Recovery and ramp up from from the ballet.
And their their production guide and it's not just this year, but ramping up two of run rate of 400 million tons of.
By the end of the 2022.
The iron and front.
Great. Thanks, John.
Thanks lamp.
Thank you. Our next question comes from the pole, France with no capital markets.
Good morning, and.
Can I just go through the kind of just the straight the two year and I just wanted to make sure of where you're from the same page you say, it's not worth it to take the two year and 20, where do you get the one year and 31 right.
And if you take the two year.
At 20 and that means you're taken and the second year of first sexually 10000, a day and that just doesn't could you just wanted to make sure we're sort of of thank you the best and the same terms.
Well, if you're taking two years, the 20 year of losing $11000 a day for the first year right.
And then <unk> the $11000 a day for for 12 months.
And then with our belief that next year is going to be higher than 20, it's pretty straightforward.
Yeah, I was looking at the other where you're making 30 for the first year and then all you have to do the whole is make 10 and the second year.
Yeah, No that's and.
At the.
The other way that's another way to look at it and I can <unk> I can just tell you you know.
And when we and I don't Wanna get too specific here, because I think it'll bore people, but when you start looking at what the vessels should be earning in terms of load factors. We just we're not getting paid.
For for for the two year deal Weird certainly getting paid for the one year deal.
And then on your Supers do you have of like number for a two year you said 19000 for one year.
What's the two year looking like that you'd think you could've gotten the field on if you had looked into that.
I haven't really seen two year of Supermac skilled done yet.
There's been a lot of focus on the on the five to seven in the market and then there have been 12 month deals done and I haven't really seen much liquidity and the and the two year market yet.
Great and then you know, it's pretty bad when you talked about race and scoring but can you just talk about you know.
What could potentially the wrong not to rain on the parade, but what could potentially go wrong ranks historically has been extremely volatile and and what do you think are the the things that are you're worried about over the next six to 12 months and my push rates.
Down from current levels.
Book I think I I don't think we're we're out of the woods yet from from from the global pandemic and while it's.
While it's easy for us and in the U S to watch.
And because of the of the high vaccination rates and everything and opening up the reality is Europe is still with the exception of the UK is is is effectively clothes and.
We're seeing major issues in and India, Unfortunately, with with of COVID-19 outbreak, So I I.
That risk element I think he's still there.
And quite frankly, you know genco, just because of its low leverage profile, if if we do and I and I'd say, it's a big and but if we do have a another short term demand shop, we can go right through that and by the way, it's still execute on our on our.
On our news dividend strategy.
And you know India is and.
India's it as I said, it's a very unfortunate situation I guess the good news from market standpoint is that we have not India's not locking down and like they did in the past and I do think they're gonna see somewhat of a slowdown and their steel industry, but the the.
Audi has drybulk shipping is really more focused on thermal call of going to India, and the thermal cold stockpiles or down to 12 day is coming into a monsoon season. So I think there's actually a healthy story there to to to continue and importing on the on the thermal coal side.
Great. Thanks for the color John.
Thanks calm.
The ladies and gentlemen, the this concludes the Genco shipping and trading Ltd Conference call. Thank you for participating and have a nice day.
Thank you.
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