Q1 2022 Grindrod Shipping Holdings Ltd Earnings Call
Okay.
Yeah.
[music].
Thank you for standing by ladies and gentlemen, and welcome to Green Rot Chipping Holdings L. P. D Conference call on your first quarter 2022 financial results.
We have with US Mr. Sidney Griffith's interim Chief Executive Officer, and Chief Financial Officer, and Mr. Carl I, Kelly Chief operating officer of the company.
At this time all participants are in a listen only mode.
There will be a presentation followed by a question and answer session at which time if you wish to ask a question. Please press star one on your telephone keypad and wait for the automated message by saying your line is open.
I must advice you that this conference is being recorded today.
We now pass the floor to one of your speakers today. Mr. Griffiths. Please go ahead.
Thank you operator, welcome everyone and thank you for joining not cool on the first quarter 'twenty 'twenty Chief financial result.
I'm also pleased to welcome call back at least to the cool he leads our commercial activities.
They spent 10 years at Green Dot and plays an integral part of our chartering and operations. We look forward to his insights on the dry bulk market going forward.
Let me. Please refer you to slide number two with the forward looking statement disclaimer.
On this call we will make certain forward looking statements.
Including statements regarding our future financial and operating performance.
These statements include information regarding future time charter contracts.
It looks for the dry bulk market and other operating methods.
These statements are based on the beliefs and expectations of management as of today.
Actual results may differ materially from our expectations.
Investors should read carefully the risks and uncertainties described in the slide presentation and in yesterday's press release.
Well as the risk factors included in our annual report and other filings with the SEC.
We assume no obligation to.
Knives out to revise or update forward looking statements, whether as a result of information.
Sure.
Or otherwise except as required by law.
In addition, during this call we will be discussing certain non-GAAP financial measures.
For additional disclosures relating to these non-GAAP financial measures.
Reconciliation to the most directly comparable GAAP measures. Please see yesterdays press release and pages 20 through 25 of the slide deck.
Which is posted on our website and our filings with the U C C.
Please turn to slide four for an overview of our first quarter 2022 financial results.
After a transformational year in 2020, one, but they're not shipping and which we enjoyed record record financial results for the full year.
He has enjoyed a historically strong stock.
Thank you too.
Well the first quarter 2022 our gross profit.
EBITDA and adjusted net income increased materially yeah, yeah.
Reaching $40 7 million $50 2 million and shrinking on $8 million.
All but $1 16 per ordinary share respectively.
As of March 31st 2022, we had cash and equivalents of $106 $5 million and.
Net cash of $6 6 million.
Which was similar to the year and despite the strong results as it was it working capital increased due to the timing.
I'm sitting in receivables collected shortly after the quarter end.
I will go into more detail on our financials.
Passion.
Okay.
Please now turn to slide five to look at a recent development.
On April 14th 2022 we entered into a contract to sell the 2016, both medium range product tanker <unk> for $50 million.
The full cost.
In anticipation of the sale, we have exercised the purchase option.
Well the matusi under existing finance arrangement at a cost of $25 $4 million.
Following the exploration of the current bareboat charter under which the vessel upright.
Delivery of the Batesville, just as expected all know about two.
'twenty two.
And with delivery to than you planned on or about June 2022.
On may the 10th 2022 we exercise the purchase option on the chartered in 2015 bulk Supermac, Bulgaria obvious partners.
For an amount of $18 million with delivery planned on or about June the ACC 2022.
The vessel will remain chartered in.
The original contract right until delivery.
They're not as full remaining purchase options, which you will find on slide 22 of this presentation.
You fix that charter in fleet updates and provides information on our long term charter in vessels and especially I took purchase options.
Also on May 10, 2022, we agreed to extend the long term charter on the 2014 bolt Supermac South Korea.
If it comes and create a pay rate of 11 to 13 months at a charter in rates of 26000.
$276 pay day.
The main thing made a phase three in 'twenty two.
On May 24, 2022, our board of directors declared an interim quarterly cash dividend.
47 ordinary shares payable on or about I don't know about the strength you're.
2022 to all shareholders of record as of June <unk>.
'twenty two.
As of Monday, the 24th 2022.
They were $18 million 958025 common shares of the company outstanding excluding treasury shape.
Now I will go over the financial highlights and performance for the first quarter of 2022.
Turning to slide seven the first quarter of 2022 was the strongest first quarter for charter rates in over a decade and lays a solid foundation for the rest of the year.
In this context revenue increased to $110 $3 million in Q1 'twenty to 'twenty two.
<unk> to $68 $4 million for the same.
[noise] period 'twenty through 'twenty one.
Gross profit increased to $47 million in Q1 'twenty to 'twenty two.
Page $12 $6 million for the same period.
'twenty one.
Net profit attributable.
Tributes devote I ended up the company increased to $29 million.
Or $1 55 per ordinary share.
In Q1, 2022 from $2 2 million or 11 seems to ordinary share.
In Q1, 2021.
Turning to slide eight.
We have placed on building a strong balance sheet and have maintained a healthy cash position wildly.
Wildly paying $7 million of bad debt in the first quarter 2022.
The strategy has reduced our net debt to $126 million, while leaving us well positioned to pursue our growth and capital return strategy.
On slide nine we provide our bank lines and other borrowings repayment profile at March 31st 2022.
We continue to have limited debt maturities until 2025, which combined with our conservative amortization profile profile provides us with balance sheet flexibility going forward.
Overall, we maintained low leverage.
And this is even lower when you take into consideration the market value of our fleet, which is comprised mainly of modern Japanese built <unk> vessels.
Okay.
Let's turn to slide 10, we will now briefly discuss our dry bulk operational performance for the first quarter of 2022.
And besides TCE per day was 22201 for the three months ended March 31st 2022.
This is 12053 per day for the same period 2021.
Super Max Ultra Max TCE per day was 24395 per day for the three months ended March 31st 2022, basically $13259 per day for the same period 2021.
As of May the 19th 2022 we have contracted approximately 1310 operating days at an average TCE of 26875 per day for a handy sizes and approximately 1568 operating days at an average TCE of 29000 for one.
Not yet to die for a Super Max Ultra Max.
The average long term charter in cost per day for the Super Max Ultra Max fleet for the second quarter of 2022 is expected to be approximately $13997 to pay that.
Now turning to slide 11.
Scale of the horizon in the Drybulk freight rates easily demonstrated versus our historical results.
During the first quarter 2022.
Approximately 90% of our fleet was predominantly trading either on index linked called the contract.
Short term time charter or in the spot market.
Leaving the company well positioned to take advantage of the strong price price environments.
To put this into context.
With every $1000 change in TCE per day equates to approximately $10 8 million TCE revenue during the full year 2021 for the coal fleet.
As you can see on the graph the drybulk environment.
In the second quarter 'twenty to 'twenty, two is having a strong performance in the first quarter.
2022 around levels, we had in the second half of 'twenty to 'twenty one.
Now turning to slide 12, it shows the coffee cash breakeven analysis for the first quarter 'twenty to 'twenty two.
Break even per vessel per day was as follows for long term charter in which includes a daily G&A allocation on top of the charter rate the cost with $14890 two decks, but I agree it was $11782 per day and the combined average total for the core Drybulk fleet with 12.
$474 per day.
The cash breakeven rate per day includes operational expenses net G&A interest expense and debt prepayments.
You can contrast, these figures to the daily TCE rates in the previous slide to assist the robustness of our profitability.
With that.
I would like to turn the call over to call to discuss the dry bulk market.
Alright. Thanks.
Now if you could please turn to slide 14 to look at the fundamentals of the dry bulk sector.
They've been developing against the current market environment.
The war in Ukraine led to produce extra.
The expectation Chicago levels in 2022 due to the loss of nearly all Ukrainian seaborne exports on money Russian cargoes, particularly in the grain and fertilizer and sectors.
The demand is being partially offset by longer voyages as replacement cargoes are sourced from further afield.
This is demonstrated by the ton mile demand our expectations.
Expectations, but are still expected to increase by one 6% in 'twenty.
2022 plus actual tons are projected to only increase by 3%.
Andy sizes, and Supermax has continued to be helped by congestion in the container sector, which.
Which is leading to unitize, Chicago as well as other previously containerized cargoes, such as certain steels scrap great Bob cargos moving into bulk.
There was also containerization with small number of handy bulk carriers, particularly lager touch which can take containers.
Hum under that.
Please turn to slide 16.
As the slide depicts grain trade is expected to contract in 2022.
Primarily due to the loss of Ukrainian export cargos.
Well, it's cold tried to speed and impacted as well due to some budget boarding Russian coal cargos.
It has also been increased domestic coal production in China.
Are you seeing the need for their imports.
Covid Lockdowns in China are also created uncertainty with factory production under pressure.
Commodity pricing remains resilient.
Regarding on all Bollywood stated they plan to increase exports in the second half of the year.
Normally happens in Q3 Q4 after the summer ratings.
We're also expecting a big push from Western Australia for June prior to the Australia and fiscal year end.
Minor bulks are expected to remain resilient hugely aforementioned containerization as well as the emerging markets.
Turning to grow and required product.
Turning to slide 16, the dry bulk order book continues to shrink to multi decade lows.
Is estimated to be at.
So at least six foot 6% of the fleet.
This potential growth is quite favorable, especially considering approximately 22% of the dry bulk fleet is 15 years or older and approximately 11.
Bulk fleet 20 years or older measured by deadweight.
Despite strong market conditions, you're ordering remains.
Strange by uncertainty relating to coast practicality in terms of trading patterns, a new fuel availability engine technology.
The emissions regulations, but tightening to E X I N C I R.
The 'twenty to 'twenty two 'twenty three supply growth is forecast to be two 2% no 0.4% respectively.
Handy sized suezmax order books, which are the smallest in the dry bulk fleet.
Turning to slide 17.
While we saw a handy size suezmax spot TCE rates decreased at the beginning of this year.
We have recently been seeing the market strengthening.
Looking at the chart on the right hand side handy sized supermarkets asset prices have increased approximately 10% since the start of 'twenty to 'twenty two.
And as long as the market tightens strengths. We believe this trend should continue.
I would now like to turn the call back over to Steve.
Thanks Carl.
Finally, let's turn to slide 19 for our conclusions and strategies.
Start with our achievements in 2021.
As reported earlier.
The first quarter.
It was the strongest in over a decade.
With over 12 fold increase year over year, and our adjusted net income per share.
Our commercial strategy continues to demonstrate its potential with material profits generated from both our long and short term charter in vessels.
While we have opportunistically exercise the purchase option on the obvious partners at very attractive levels.
On the corporate side, we continue to have flexible dividend and capital return policy in the first quarter, which will result in a cash dividend of 47 cents per share.
As far as performance today as of May 19, 2022, our contracted days for the second quarter have been fixed.
Higher charter rates relative to Q1, 2022 and that was achieved during Q2.
'twenty one.
Now looking ahead the war in Ukraine.
And the impact of the Russian sanctions is disrupting the grain trade and other commodity players from that area.
That is shipping demand has remained strong due to its excellent cargoes being sourced from longer distances.
Increasing ton miles.
The smallest new building order book indicates continues to support market strength do you see a constriction in vessel supply growth.
The uncertainty of the engine technology and emissions and put new building orders, particularly particularly in the smaller vessel segments.
New building orders in other states, such as LNG and container shipping has limited shipyard spare capacity.
Meaning that's nice.
New orders could not just the water until mid 2024 at the earliest.
To the extent that demand right.
Sorry that demand continues to grow the lack of available supply growth combined with E X I environment environmental regulations from 'twenty to 'twenty three is expected to lead to an attractive potential multi year window.
For the dry bulk market.
With this I. Thank you all for joining our call today and look forward to reporting and through the fragrance and grow not shipping.
With that we'd like to us.
A bright spot.
Thank you as a reminder to ask a question via audio Please press star one on your telephone and reach pretty automated message advising your line is open.
If you wish to cancel your request you may press hard to keep.
We have our first question.
Yeah.
First question comes from the line of Christopher Robertson Your line is open.
Hey, good morning, and thanks for taking my questions.
Got it.
So just looking at the a couple of vessels that have charter expiry. This year, where you have the purchase option. So those prices are well below or at least meaningfully below.
The current market price for our resale or secondhand ship of this similar age.
So can you walk through.
Do you plan on exercising those options or do you have a time period, where you can wait those out to see what happens or how are you thinking about those.
Yes, I am.
We have we have all of our vessels have got purchase option.
You know they are all significantly in the money.
We just contracted one which is delivering.
Shortly by the end of May.
And the plan with the other four.
If they exercise those options.
Over the next 12 months.
We know that the opinion that we should do them all at once.
And as if cash comes in.
You know we will exercise those options.
Plan is to do that with all of them within the next 12 months.
Okay and then how are you thinking about the I guess the financing you mentioned cash there so would you.
Proceed. This is an all cash purchase or would there be debt financing as well.
So the likelihood is you know on the first one we haven't raised any deaths and and the intention is to do the same with the others, but it obviously depends on the cash flow.
We're looking at reducing our overall cost of things and this is one way of doing it is rather paying down debt.
It is taking place.
With that gates, but obviously, we would still have the capacity to raise the debt down the line.
We needed to.
Right, Yeah that makes sense, okay. Thanks for the color on that that's all for me today. Thank you.
Okay. Thanks.
We have our next question comes from the line of <unk>. Your line is open.
Yes.
Yeah.
Good morning, Stephen This Pau, France from Alliance Global partners.
Oh, yes.
Good morning, I hope Martin joined into retirement.
[laughter] jewelry is.
Could we just walk through you just talked about exercising the options.
Is there still potential that maybe the Windsor and the Crimson Creek.
That you might be able to you know.
Bring those and even though they don't have purchase options.
But look it's contractually they have to purchase options attached.
There will always be an option at the end of the charter to extend the charter rates, but if it's not contracted it would be more like at current market levels at the time.
I would say very unlikely that we'd be able to bring them into our core fleet.
At the end of that it's off the theory or the option periods as well.
Okay, and then you did extend out Crimson Creek.
There was a big jump about 10 times a day on the next 11 to 13 months expansion can you just talked about.
How we should interpret that is that a signal that you think the market's going to be you know.
Relatively strong.
Or have you been able to lock in the other side of that trade.
And lock in a margin on that on the on Crimson Creek.
Yes. It is it's a bit of buzz on that set of I'll I'll, let Karl answer that.
Yeah, well they the original Bill what was they extension after the initial five years was on our index spaces with a floor and a ceiling.
When that ended at the beginning of May Oh.
We entered into discussions with marubeni to see if they wanted to.
Extend are they did they work for awhile thinking they may.
So the ship, but they decided that they were happy to go another year.
Hum.
We would give them sort of like first opportunity as being the in the long term incumbent and they are a very.
Good relationship with them as far as the rate itself is concerned.
Yeah, we did do.
Do very well in the first 60 day voyage, which was locked in at a profit that justified taking it forward and we also hedged.
A good portion of the paper so the remainder of the shelter after that first voyage.
And any sort of ballpark margin number.
Uh huh.
Call it.
Yes, but it is certainly about the levels of what we taught it isn't it.
Okay.
Sort of leads into my next question if I look at.
You're flat you know if I assume that.
Second quarter available days are going to be flat with the first quarter.
On this handy side yeah.
91% locked in and on the Super side, it's close to 70%.
You know really solid further visibility for the second quarter can you talk about visibility into the third quarter have you do you have any you.
Any.
Charters in place for the third quarter or you shouldn't you do but you know can you give us sort of a ballpark.
Yeah again, probably you know, we really just hope to Q2.
We have to say that you know we run pretty much.
Spot on 90% of the seats are at this stage, there's nothing about cut much covering two into into Q3, but yeah. We just stick to reporting on the figures available for Q2.
Okay, and when I look at your cash levels relative to the purchase options. You know you can more than cover.
The purchase option.
The cash that you currently have on the balance sheet.
You assume that you know.
You shouldn't assume but you know looking at your second quarter cupboard, and looking at what rates might be into the third quarter and maybe even into the fourth quarter youre going to continue to build cash.
Any thoughts on.
The dividend policy.
Did they sort of looks like.
At the low end or the minimum.
The formula any thoughts on the dividend going toward.
Okay.
For now.
We are happy to stay with with.
At the 30%.
If you look at over the purchase options across the value is $108 million.
And we have got.
That's about the balance now, but obviously, we go to cash covenant of $50 million.
So yeah for now I think it's the way you know before we start looking at potentially increasing the dividend.
The dividend of 30%.
And just to clarify Steven your intention is to exercise those options over the next year, but you do have more flexibility. If you wanted to spread it out further don't you.
Absolutely yeah. So that is that is.
You know the purchase options. So all the way through from now to 225 26, I think he is one of the nice thing fixed.
Yes, we have we have got options, but doesn't have to do them now but.
But our view is you know he gets them on without that but was that finance it brings us that.
The daily cash cost down.
I would just say we are a bit.
You know toughish compared to our peers at 12 500.
You know we are looking.
At ways to bring that down.
Okay, and if I can just squeeze in last one or two.
Two more if you don't mind.
One is it.
So you're potentially going to exercise the options.
The asset market is really strong as you said the options here we are in the market are well in the money what about selling some of your older assets.
Yep.
We've got five shifts handy is that they say Oh, you know on the old chart slightly older than.
Before I felt like we would like.
Again, we'd be looking to sell salads.
And they get out of a sudden the same timeframe probably over the next year.
Not all with one guy.
Okay, Great. That's helpful. And then if I could just talk about costs.
Others are talking about whether it's crude cost or other other costs can you just talked about what you're seeing on the cost structure side and it.
It didn't look like Youre, saying youre looking at it much of a change but can you just sort of give us a little additional color on the cost side.
Yeah. So the cost I mean, we'd love to reduce this figure so 12500 per day that we're currently.
Currently around Q1.
But we got to talk to us at the moment, there will be slightly higher over the next year with this recent extension of the Crimson Creek.
But the conversion of the ship as we've discussed.
It'll certainly lower our daily credit structure and even most of it.
<unk> seen attached.
Opex as well at the moment.
It's still it's still in Asia continues to include some hot stuff depreciation costs.
Ravi from because of the issues, we did extensive class hotel quarantine.
We've been working on reducing this but its difficult at the moment in the current circumstances and and there's elements of opex that are being hit by inflation as well.
On top of what we discussed recycling these shifts.
Ships under that finance, we are looking to to prepay some of them about this as well you know which.
Which will also be used there.
The daily cash cost.
G&A at the mine and then create some some increased staff related incentive costs.
As a result of the improved bottom line, but these are variable costs, which will reduce significantly if the market changes.
So that's really how we looked at block comfort an exact figure on it but I think with the plans.
We've got for the rest of the year, we were looking to see a reduction in Mexico.
Okay.
And if I could just.
Ask one more.
The the way the Aries over breakfast Arris has started.
Is this could you just talk about management succession.
Keep your team is in sort of what the plans are going from the management side.
If any over the rest of the year and looking into 2023.
So it looks like basically I mean, I worked alongside Martin for 12 years.
Call. It chartering since 2010, just recently been appointed as you know we've got a good management team that that's largely been together for about 10 years and I believe we can continue to move from strength to strength in India.
You know it is as far as succession.
It's not my position.
At this stage.
I'm, sorry, you sort of broke up on that they've been.
No no what I'm, saying, well would you probably didn't see Oh.
Alright.
Just the last your last comment sorry, Yeah, just in terms of I guess the question was along the lines of how long.
The main entrance.
You know I don't have any comments on that at the moment.
Okay, great Yeah, I didn't really know how to ask that question and I. Appreciate your answer. Thank you so much and a great start.
Yeah, Thanks for that.
Thank you.
Once again I would like to remind everyone. If you wish to ask a question. Please press star one on your telephone.
Yeah.
Okay.
We have no further questions at this time Mr. Griffith you may continue.
Hello, and thanks to everyone for joining the call.
Yeah.
That's perfect. Thanks, a lot.
Yes.
That does conclude our conference for today. Thank you for participating you may all disconnect have a great day. Thank you okay. Thank you.
Oh.