Q2 2021 Genco Shipping & Trading Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the Genco shipping and trading Ltd second quarter 2021 earnings conference call and present.
Okay.
Before we begin these all debt there will be a slide presentation and accompanying today's conference call.
Presentation can be and obtained from genco websites.
W. W dust Genco shipping dot com.
Inform everyone on today's conference is being recorded and is now being webcast at the company's website.
Www Das Genco shipping dotcom.
We will conduct a question answer session. After the opening marks and instructions will follow at that time, a replay of the conference will be accessible anytime during the next 2 weeks by dialing H H H, 2 zero tree 1112 or 71945.
And he wanted the conference call.
And will begin today's call by reviewing our year to date highlights providing an update on the company's new comprehensive value strategy financial results for the quarter and the industry's current fundamentals and then open the call up for questions for additional information. Please also refer to our earnings presentation posted on our website.
The second quarter of 2021 was a transformative period for Genco and April we announced our new comprehensive value strategy centered around growth deleveraging and dividends since and we have made notable progress working towards paying our first dividend under this strategy hi.
Highlighting are strong progress and achieving growth objectives over the last 4 months, we have agreed to purchase 6 modern fuel efficient ultramax vessels to build out this core portion of our fleet to 15 shifts. We believe that we are at a unique point and the dry bulk cycle with freight rates at their highest levels and over and.
Decade, while values, which have increased year to date have lag the upward trajectory of earnings this creates compelling return on capital opportunities.
To capitalize this and to Derisk, our latest purchase the 3 ultra Max's we secured 3.2 year charters at rates ranging from 23000, and 375 to 25000 and $500 per day locking in and Unlevered cash on cash return of approximately 50% over this pier.
<unk> on those 3 new or newly acquired shifts.
In terms of our proactive deleveraging progress.
During the first half of 2021, we repaid $82.2 million of debt or 18% of the beginning of the year that balance. This included the retirement of our scrubber facility as well as the prepayment of our revolver.
Financial deleveraging is a key part of our value strategy. Therefore, given the strong market. We believe it is prudent to accelerate debt repayments to further fortify our balance sheet as we positioned the company to distribute sizeable dividends and diverse right environments.
By the end of this year, we are targeting a net loan to value of 20%, which we are currently on track towards achieving ultimately our medium term goal is to reduce our net debt position 2 zero through additional debt repayments over the coming years and.
Importantly, we have now achieved a foundational component of our corporate strategy and a key milestone towards full implementation. Specifically we are pleased to have entered into a new credit facility. The complete the global refinancing of our existing credit facilities, we expect the new facility to significantly enhance our capital struck.
Sure improve key terms of our debt reduce our cash flow breakeven rate and provide further optionality for the company later and the call Apostolos will elaborate on some of the details and features of this new credit facility.
Regarding returning capital to shareholders and our current quarterly dividend for the second quarter, we increased our payout to 10 cents per share our second consecutive quarterly increase we have now declared a total of 90 and a half cents per share and dividends over the last 8 quarters. We are pleased with the progress we are <unk>.
Aching and continue to target Q4, 2021 results for our anticipated first dividend under our new corporate strategy, which would be payable and Q1.2022.
In addition to the measures taken to execute our value strategy from and earnings perspective, the second quarter was our strongest and over a decade or net income of $32 million and our time charter equivalent rate of $21137 per day, both marked our highest since 2010 Ado.
Actually our first have adjusted EBITDA was $79 million and is nearly identical to a full year 2020, adjusted EBITDA of $71.8 million looking ahead to the third quarter. Our estimates point to continued strong results with a time charter equivalent over 2000 and $7000 per.
And a day based on fixtures to date across the fleet.
Moreover, we will have the majority of our Capesize vessels open for fixing and the coming weeks to take advantage of the meaningful increase and rates. We have recently seen highlighting are significant operating leverage and a robust and improving dry bulk market.
In addition to the current firm market conditions, we view the market outlook favorably the order book as a percentage of the fleet is that a historical low limiting net fleet growth.
Unprecedented stimulus as well as the Brazilian iron ore export recovery have combined to create improving supply and demand dynamics are positive market outlook together with our robust balance sheet has position genco well to implement our new comprehensive value strategy as we focus on unlocking shareholder value.
Not to be overshadowed by measures we have taken on the value strategy. There were several other key corporate updates that occurred and the recent months Genco was ranked number 1 out of 52 public shipping companies and the Weber Research 2021, ESG scorecard to that and on the environmental side, we joined the working group along.
533, other participants across the maritime value chain to study the feasibility of ammonia as an alternative fuel as part of the long term goal to Decarbonize shipping.
Additionally, we plan to enter into a new joint venture Jeez ship management with the synergy group for the technical management of our fleet.
The creation of this joint venture will provide a unique and transparent service to the management of our vessels and resolved and increased visibility and control over vessel operations increased fleetwide fuel efficiency, the lower our carbon footprint and potentially unlock further vessel operating expense savings.
At this point I will now turn the call over to a pulse sorts of Folias, our chief Financial Officer.
Thank you John for.
For the second quarter of 2021, the company and recorded net income of $32 million or 76 cents basic and 75 cents diluted earnings per share.
The 216% year over year increase and our Fleetwide DCE to $21147 per day was a primary driver, resulting and increased adjusted abdominal book $52 million.
During the quarter, we continued to further strengthen our balance sheet through operating cash flow from firm market conditions together with opportunistic vessel sales, bringing our cash position to $161.2 million, including 44.9 million of restricted cash as of June 30th 2021.
We also reduced our debt balance and the year to date by 18% were combination of scheduled that on more innovation as well as the prepayment of our scrubber and revolving credit facilities.
As a result, our debt outstanding is $367 million as of the end of the second quarter, which after considering our cash position results and net debt of $206 million.
John goes already low leverage position and strong for a great environment have enabled us to enter into a new global refinancing of our debt.
We appreciate the strong and ongoing support from our leading banking group.
As a key step towards implementing our comprehensive value strategy, we have entered into an agreement with our lenders for the 450 million dollar credit facility, which consists of a 5 year term loan together with a sizeable revolver that can be used for growth.
This new debt structure will provide improved at on location flexibility and significantly reduce our cash flow breakeven rate, which combined with the strength of our balance sheet provides a solid foundation for our value strategy and our goal to distribute sizeable dividends to shareholders.
$450 million credit and facility provides for $150 million terminal term loan and a revolving line of up to $300 million, which can be used for acquisition acquisitions and general corporate purposes based on car and market conditions and management estimates, we are targeting a year and debt balance of approximately 250 million.
Following bargaining and paydowns of approximately $117 million over the second half of the year.
If we make these targeted paydowns, we will have no mandatory that amortization payments until December 2025.
Regardless of this favorable mandatory that amortization schedule and we plan to continue to voluntarily pay down debt with a medium term objective of reducing our net debt to zero.
T terms of the new facility include competitive pricing of LIBOR, plus 250 basis points to 275 basis points and we expect to be on the low end of that range. After the first measurement date in relation to September 30 results.
A favorable covenant and package, including a lower minimum liquidity covenant as compared to our existing facilities and other customary covenants, including and minimum collateral maintenance covenant minimum working capital and net debt to capitalization covenants and.
In addition, and there are no restrictions on dividends other than customer you bump of default and pro forma financial covenant and compliance provisions and.
Importantly, 5 of our vessels to be acquired will remain unencumbered and not pledged us collateral to this new facility. This will provide genco with further flexibility and optionality on a go forward basis.
On slide 17, we have provided estimated expense levels on a per vessel per day basis for you.
With regard to dry docking, we anticipate 2 vessels to enter dry dock this quarter, resulting and approximately 40 days of our higher estimated off higher during the third quarter and.
And terminal vessels sale and purchase activity, we anticipate taking delivery of 4 of the 6 ultramax as I would have agreed to acquired during the third quarter and.
And we also completed the sale of our last 53000 deadweight ton Supramax vessel, the Genco Lorraine and July.
Furthermore, we agree dissolved and Django Provence and.
And 2004 boats supramax vessel and the oldest shipping our fleet for $13 and $25 million with expected delivery and the fourth quarter of 2021, and importantly, with this and we will be avoiding budget and Drydocking capex of approximately 800000 and.
And in the next year and 2022.
I will now turn the call over to Peter Allen RSVP on strategy could discuss the industry fundamentals.
Mmm.
Thank you and Postpose during the second quarter of this year freight rates continue to increase the decade, plus is driven by a resurgence of global economic activity, leading to augment and demand for raw materials spot freight rates for book Capesize and Supramax vessels currently stand and over $30000 per day.
During the first half of the year global steel production rose by 14% year over year supporting the iron ore traded and Capesize rates, while China's output rose by 12% X China has seen a notable rebound rising by 18 per cent year over year led by India, The E U and Japan.
We've also seen a recovery and the Brazilian iron ore trade, which is up by 11% year over year. There is a highly seasonal waiting towards the second half of the year for Brazilian iron ore exports, which historically rise approximately 20 per cent from July to December versus January to June on.
On the minor bulks rates have been driven by strong green demand from China and.
Additionally, we continue to see increased shipments and minor bulk commodities closely linked to global G P growth and economic activity.
Regarding the vessel supply side and net fleet growth year to date is approximately 2 per cent. The order book as a percentage of the fleet is 6%, which compares to 7 per cent of the fleet that is greater than or equal to 20 years old encouragingly newbuilding vessel ordering has been relatively low this year. Despite the strong market conditions. We believe these positive supply and.
And demand dynamics provide a solid foundation for the dry bulk market and lead to low thresholds for demand to accede to improve fleetwide utilization and pray rates for the balance of the year, we expect increased iron ore exports to be a catalyst for capesize rates will increase green exports from the Black Sea region and August are expected to be supportive to Supramax earnings and the Atlantic based on.
Head of North American Green season, and the fourth quarter.
These demand drivers are expected to be met by favorable supply side fundamentals underpinned by the historically low order book. This concludes our presentation and we would now be happy to take your questions.
Thank you, ladies and gentlemen, if you would like to ask the question the signal by pressing star followed by 1 on it.
Star 1 if you wish to queue for a question.
We pause for a brief moment, hello, everyone and opportunity to sing for questions.
Mhm.
We will move on to our first question on from Randy Givens of Geoffrey's. Please go ahead and your line is and I welcome.
Howdy gentleman how's it going.
Morning, Randy.
<unk> Congrats obviously on the the best quarter, and a decade and I'm sure I'll say the same again next quarter on but I guess 2 questions for me first you mentioned, you're going to repay $117 million and debt during the back half of the year. You also have I believe $87 million due to complete the acquisition and the 4 vessels. So.
And I guess, where does that put your balance sheet and your maybe financial flexibility for future acquisitions or maybe even share repurchases at this point and the next few months.
I mean look we a.
A couple of things so the 3 shifts that that we just bought.
Or agreed to by which will be taken delivery of between August and October.
As you saw we did derisk those those purchases with time charters on 3 of our existing ships.
2 years between.
2003, 375, and 25.500.
On.
As I said in and the opening remarks that actually yields a 50% cash on cash return and so you're effectively paying off half of the purchase price over a 2 year period.
On ships that are.
2017, and 2014 Bill.
So I think we I think we've done a pretty good job of of Derisking and covering.
We have a very large revolving credit facility and place I think part of part of that was to have additional firepower for for acquisitions.
But having said that we're also concentrate on the value strategy and and deleveraging the analogy so.
For the time being I think we're we're very happy with the acquisitions, we've made Randy.
But we we certainly definitely and we'll still have cash at the at the end of the year after the Paydowns and taking delivery of the ships. So we'll we'll take it as a calm and we're going to continue to look for opportunities as I mentioned on the call earlier on.
Values are still compelling from from where freight rates are and work time charter rates are on.
Again, evidenced by those 2 year deals that and.
We did a few weeks ago.
Sure Yeah, I can see that as well and then speaking of those charter rates that you mentioned there you chartered out a few of those ultra Max's very strong rates as you mentioned 23, 24.25000 and for 2 years.
And guess a few questions around that any additional appetite for further ultramax charter outs or is there a kind of a base level of spot exposure you want to have there and then I per as it pertains to the Cape sizes and thank you only have 1 charter there or maybe 2.
Is the reason the charter activity and rates on as elevated on the Cape sizes because of maybe the uncertainty around Chinese steel production and really I'm just trying to ask you about that as well so kind of a 2 per 1 question here because that's clearly the big concern and the market.
So in terms of.
In terms of of of chartering activity.
And.
We made we may do a couple more on the altars, but I think you're going to see his focus more on the case.
In terms of locking up cash flows that is the most volatile sector and as we come closer and closer to implementing fully the the value strategy I think it makes sense to to have coverage in place.
Right rates today, and the Capes are still probably around $30000 a day for a year and 2 year rates are probably $2420.5000 a day so good healthy numbers.
Having said that the spot market is.
Is actually quite a bit higher my my guess is as the spot market continues to to hold up over the next couple of months and and increase.
Along the lines of the FSA curve, you'll you'll see those charter rates move up further, but I think that's where you're going to see is concentrate a little more on derisking and our portfolio approach and putting some more ships away and are longer term charter.
Got it and some of those and deal fraud.
So I look on the on the steel fronts.
And typical fashion and there is.
A lot of conflicting reports.
And.
A lot of times, we see we see the Chinese government.
Say things, but not necessarily execute I do think it seems like there is definitely some curtailment on steel production I think a lot of it centered around the Communist Party anniversary.
And.
And reducing pollution, particularly around Beijing, it's possible that will continue for a little while but but we don't see any fundamental shift.
And I and I would point out that the most important thing to dry bulk shipping and and and in terms of China is iron ore shipments.
Now granted the steel production goes into that but the reality is Brazil is continuing to ramp up and get their logistics system back up and running after early 2019, and we expect those volumes to continue.
We've seen this before where even steel production has been flat, but yet iron ore imports continue to move up and as we're going into the second half of the year again typically stronger seasonally second half of the year for valet is usually 18% to 20% higher in terms of shipments from the first half.
I don't see too much of a change and that right now.
And I also think the Chinese government.
Was trying to put some downward pressure on on iron ore prices, which which.
Successful no doubt about that but.
And that opens up steel margins, so it's actually better for the steel companies.
To see some of these low on iron ore prices and.
Quite frankly, valet, and the Australia and iron ore miners had low cash flow breakevens on iron ore production. So.
Any any these slight movements downwards are.
They are still producing excellent cash flow, so and long answer to that but reality as we continue to think the market.
Firms coming into the into the third quarter here on the Cape size and the ulcer stop matter.
Yeah, Yeah, I appreciate the color and I agree obviously with the increasing Vale exports and really the non Chinese steel production ramping as well could offset that but thanks again give up the great work.
Thank you Randy.
Oh, Okay, and if you would like to ask the question on a star 1.
Move on to our next question from all my on my account.
Clarke from security is just go ahead to your line and file open.
Thank you Hi, John Apostolos Peter.
Good morning.
Morning.
Guess.
As Randy said, congratulations on I guess on several fronts. The earnings and then also this refinance and the acquisitions and and and the new J V. I did want to ask about the 450 million credit facility, which with the 300 million dollar a vulgar and it's a pretty decent sized revolver, I'd say and 1 I I I don't think I've really.
Seen much of and the shipping space over the past several years.
So I guess kudos to you on being able to get a revolver that size.
But also wanted to ask.
In terms of how the mechanics of the of the revolver, how does that work in terms of Cecil acquisitions, we've seen it where if you have a revolver and you use it to buy ships. The revolt that that portion that's been drawn converse and to a term loan is that what's happening here and just stay on as a as a revolver.
[noise]. Thanks, Omar no. It's a regular revolver and it does not convert into a term loan you're able to draw on payback and redraw.
And it has a regular quarterly reductions of about $11 and $7 million.
But it does not term out it's just a regular revolver and and gives us plenty of flexibility.
Going forward.
I'll also say that.
5 of the vessels and our fleet will stay unencumbered, so that those provide additional flexibility for us and the future.
And it also has a and uncommitted accordion and feature so if we did want to increase the facility amount.
We could do that by putting additional vessels and there.
Yeah, I mean, Omar I would I would.
I I would look at it as a holistic $450 million credit facility, Yes, 300 deserve all over and 150 is a term loan, but it's really a $450 million facility that as opposed to says reduces.
Just on a 20 year <unk> schedule, it on 11 million and and change per quarter, that's how I would view it.
Got it yeah pretty pretty nice pretty nice scheduled there and then I'm not that you wouldn't necessarily want to do this considering you're you're reducing debt fairly aggressively here, but just in terms of.
Let's say all else equal you'll have that much drawn on the facility. If you were to buy a ship per se $30 million did that'd be completely.
Fully John.
If you were to pay $30 per ship could you draw it down $30 million on it or does it have to adhere to some LTV covenant.
And you could find out and you can drive.
So you could draw down 30 million, depending on the revolver availability, obviously, you would not need to put it on and as collateral.
There is an overall covenant of 55 per cent LTV, a drawdown, but that's for the whole a revolver right.
Got it thank you and thanks for that and I appreciate your kind of entering that uhm.
And then 1 kind of follow up.
His eyes, Randy asked about you intend to repay $117 million here during the second half get you down to that $250 million, a year and and it sounds as if I recall, what possible as you mentioned that you're not going to stop there ear and 250 next year you intend to continue paying down debt is is there a certain level or.
Amount of debt you intend to pay or you have a target and is how much of a 250, you Wanna pay down next year.
Great question Omar So we don't have we don't have a target set yet, but as as we're coming into.
And the next quarter earnings call if you will.
<unk>, if you think about it we will have our third quarter cash flow in the bag so to see we will.
Have it probably 60% of our fourth quarter.
Fixtures done so we will have a very good sense coming into the end of the year, our cash position and how much will be paying ultimately down too.
Clearly the target is 250.
Would be great. If we could go lower and that that that's going to be.
And that's going to depend on freight rates. So also at that time, we're going to take a view on 2022, and we will then let the market no.
What we plan on repaying for for that for 2022, so it's a little bit of.
Let's let's wait let's make sure we have as much information as possible as we head and the year and and then we can set at repayment for for 22.2022.
Makes sense and it sounds like no matter, what the amount of debt outstanding that year, and if I just do a simple calculation will be below the described value to sleep.
Not a bad place to be on.
Yes, yeah basis today's.
Today's scrap values, yes, I would agree with that.
But look ultimately Omar and.
1 of the key tenants of this strategy is obviously get down to that net debt zero, because we want a.
A rock solid low.
Casual breakeven right. So that we can continue to.
Pay dividends throughout any type of of market cycle.
Yeah.
Yeah, well definitely looking forward to seeing you guys getting closer and closer to that to that model. So I. Appreciate it. Thanks for thanks for answering the questions and I'll turn it over.
Great. Thank you Omar.
When I move onto our next question from James Chang of Universe Securities. Please go ahead and.
And is now open.
Good morning, everyone.
Spend all of this and awhile.
Oh and.
I have a couple of quick questions you know we're expecting.
And start all over real Super cycle, and the drive <unk> and coming and coming here and we're expecting that glass about 2 and a half to 3 years. My question is are you open to chartering and vessels and.
Cool and levels. If you are if you're if you have the same sent him and it has me with the super size and coming up or would you like to own buses.
I think it's a little bit above so.
First of all we definitely are are in the owning vessel business and will continue to be.
But as part of our particularly are minor bulk strategy.
We do do quite a bit of booking of forward cargos.
And using other people's vessels at times to move those cargo so we do charter and.
But those typically be those are typically for short term.
Cargo covering where we where we believe we can we can make a profit on those on those listings.
We have done some longer term charters in the sense of 3 to 5 months or or 4 to 6 months, but again, that's on that usually on the back of a decent backhaul cargo so that we're covering quite a bit of the.
Of that minimum period, and then using it to make money on on the front Hall.
What I, what I think you're referring to is longer term charters log on term chartering in and I would say no.
We that we view that is.
Quite a bit more risk.
To do longer term charters, we have a large enough fleet, where we where we can operate very efficiently and we would we'd rather use our monitor balk fleet trade around that with foreign cargoes and as I said on a short term basis use potential.
Potential use other other vessels outside of our fleet, but long term I would say the answers now we just look at that as dialing up the the risk too much.
Gotcha Okay.
And the next question is on <unk>, it's awesome, so with the smaller vessels hold it in.
We assume that day.
And he will be on like the ones that you would look at it or is it really more of a solo case by case, nieces and and and value.
I would call it on a case by case basis, we have a barbell approach, where we've identified we want to continue to grow and gates and and ultras.
And some very compelling ultramax transactions that we've been able to execute on.
Which we have quickly and definitively.
The capesize market in terms of acquiring eco vessels, which is what we are focused on is a little more challenging and the sense that the market.
Is not not as liquid as the equal eco ultramax market, but.
We will definitely continue to look at that and if we see and opportunity then.
And will the will move on it.
Gotcha, Okay. Those are all the questions on that thank you very much.
Thank you.
And it appears we have no further questions at this time and I'd like to turn on the conference boxing additional or closing remarks.
No. Thank you everyone for for participating today and I hope everyone has a has a nice day and enjoy the rest of your summer. Thank you.
Ladies and gentlemen, and this concludes today's conference call. Thank you for your participation you may know disconnect.
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