Q4 2022 Genco Shipping & Trading Ltd Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the Genco shipping and trading limited fourth quarter 20, twenty-two earnings conference call and presentation.
Before we begin please note that there will be a slide presentation accompanying today's conference call that presentation can be obtained from <unk> website at www Dot Genco shipping dot com to inform everyone. Today's conference is being recorded and is now being webcast at the company's website W. W.
W Dot genco shipping dot com.
We'll 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 18776747070 and entering the pass code <unk>.
378900 at this time I will now turn the conference over to the company. Please go ahead.
Good morning, before we begin our presentation I note that in this conference call with making certain forward looking statements pursuant to the Safe Harbor physicians are private Securities Litigation Reform Act of 1995.
We're looking statements use words, such as <unk>.
Dissipate budget estimate expects project and.
Believe in other words in terms of similar meaning in connection with the discussion of potential future events circumstance or future operating our financial performance.
Forward looking statements are based on management's current expectations and observations for discussion of factors that could cause results to differ.
The company's press release that was issued yesterday materials relating to this call I was on the company's website in the company's filings with the Securities and Exchange Commission, including without limitation. The company's annual report on Form 10-K for the year ended December 31st 2022, and the company's reports on Form 10-Q and form 8-K, So if somebody filed with the SEC at this time I would like.
To introduce John Goldman Smith, Chief Executive Officer, Pankow shift pantry.
Good morning, everyone welcome to Jan coasts fourth quarter of 2022 conference call I will begin today's call by reviewing R. Q4, 2022 and year to date highlights providing an update on our comprehensive value strategy financial results for the quarter and the industry's current fundamentals before opening the call up <unk>.
Or Q&A.
For additional information. Please also refer to our earnings presentation posted on our website.
During the fourth quarter of 2022, Janko continued to achieve solid financial results, which capped off another strong year of earnings and shareholder returns, notably during 2022, we generated EBITDA of $227 million, which marked our second consecutive year of EBITDA well <unk>.
Of $200 million or earnings are driven by Fleetwide T. C E of $23824 per day as we drew on our best in class commercial platform outperforming are scrubber adjusted benchmarks by nearly $3000 per day, which added $44 million to the bottom line.
<unk> from our commercial platform alone after a transfer transformation of 2021 and was <unk> embarked on a path to become a low leverage high dividend payout company. The first of its kind in the drive off public markets 2022, Mark the first full year of this value strategy our success.
S. All execution resulted in declare dividends totaling $2.57 per share for the full year of 2022, representing a dividend yield a 14% based on our February 21st 2023 closing stock price.
Importantly, during the fourth quarter, we declared a dividend of 50 cents per share marking our 14th consecutive early dividend.
Since Q3 2019, we have now declared a total of $4 and 29 and a half cents per share in dividends or approximately 24% of our current share price. We believe our track record of meaningful and sustainable dividends over three and a half years through varying cycle speaks to the strength of.
The company's balance sheet, and our prudent approach to capital allocation.
In addition to paying meaningful dividends. We also continue to focus on other pillars of our values strategy for actively paying down debt has enabled us to further reduce our cash flow breakeven levels for the benefit of shareholders continue to pay down debt during a time in which we have no mandatory mandatory debt repayments is key.
Insistent with our medium term goal to reduce our net debt position to zero, creating a compelling risk reward balance.
Irrespective of the broader Martin macro environment, we remain in a strong position to pay sizeable dividends to shareholders, while seeking opportunities to take advantage of attractive growth opportunities as markets developed.
We believe the dry bulk market is currently experiencing a typical seasonal law and we anticipate an improvement and freight rates based on catalysts that include China's reopening from restrictive COVID-19 related policies together with improving cargo flows as the year progresses importantly, this positive demand outlook.
Coincides with a backdrop of a historically low new building order book.
Given constraints and fleet capacity demand growth has a low threshold to exceed in order to outpaced supply growth to further tighten markets under metals and move freight rates up ahead of this anticipated freight rate pullback.
Q1, we fixed 84% of our queue one days of the firm rate of $14217 per day, well above current spot rates published by the bulk.
I'll take exchange for non scrubber, fedak, Capesize and supermax vessels.
Importantly, our Capesize Sweet is fully scrubber fitted enabled turn a meaningful premium above this daily published index R. T. C is also well above our cash flow breakeven rate of approximately $9500 per day as.
As we've highlighted since the announcement of our value strategy in April 2021 drive all shipping is highly seasonal with significant operating leverage inherent in the business periods like where we are what we are currently seeing in the first quarter, although temporary area in our view or why we chose to prepay over 60 per.
Per cent of our debt over the last two years substantially reducing our financial average and bringing our cash flow breakeven right down to industry lows, a core differentiator for janko compared to the peer group. This provides us with a high degree of flexibility within our dividend policy in regard to both our voluntary.
He depth prepayments and our quarterly reserve with no mandatory that amortization into our credit facilities maturity. In 2026 are capital structure is built to support our values strategy in diverse market environments with amounts.
Both that prepayments and a reserve remaining under management's control, while we plan to continue to pay down debt as we as we stated in the past we maintain flexibility to reduce the quarterly reserved to pay dividends subject to the development of freight rates for the remainder of the first quarter in our assessment of our liquid.
<unk> and forward outlook the company remains very well capitalized and we're beginning to see freight rates improve off of early year lows supporting our thesis of a dry bulk market recovery.
At this point I will now turn the call over to a postal <unk>, our chief financial Officer.
Thank you John .
11%, notably the current scrap value of our fleet is nearly two and a half times are that outstanding balance.
For the fourth quarter of 2022 would be clearer to 50 cents per share dividend, representing an annualized yield of 11%.
During the quarter, we continued to see a trajectory of declining trajectory of our vessel operating expenses from the first half of a year with two four daily vessel operating expenses registering 30% low Q2 levels.
Additionally, dry docking capex declined to $5.5 million in queue for from $7.8 million in Q3 and $22.6 million in Q2.
Despite the large declines in costs in recent quarters, we continued to invest in upgrading select vessels within our fleet. Our success in completing the transition of our fleet out of Chinese cruise on the progress in upgrading select vessels. Following our technical manager transition will help in maintaining compared to the lower crude change expenses, including COVID-19.
<unk> cost.
Four Q4 2022, the company recorded net income with $28.7 million or 67 cents basic and diluted earnings per share.
Our fourth quarter, EBITDA was $46 million, bringing our full year 2022, <unk> $227 million.
As of December 31, our cash position was $64.1 million, which when combined with a revolver availability of $213 million provides total liquidity of approximately 200 <unk> $277 million.
That's substantially liquidity position together with the fact that five of the Ultramax vessels out we acquired through 2021 remain unencumbered provide significant flexibility for us to continue delivering under the three pillars of our comprehensive value strategy focused on dividends deleveraging and growth.
In the meantime, we'll continue to make good progress on our medium term objective of reducing our net zero falling following are substantial leveraging since the beginning of 2021 or that outstanding was $171 million as of the end of last year, which resulted in net debt of 107 million.
Although we have no mandatory that amortization payments until 2026, when the facilities to matures, we plan to continue to voluntarily delever consistent with our strategy.
As I mentioned, our board of directors declared the dividend 50 cents per share for the fourth quarter in line with our values strategy calculation walking down to four Wheeler. This resulted from operating cash flow $46 $6 million less debt repayment of $8 $75 million dry docking bottled water treatment systems and energy saving device.
Cost of $5.5 million and the previously announced reserve of 10.7 <unk> $10.75 million.
We expect our vessel operating expense levels in the first quarter to be $6250 per vessel per day, primarily due to timing of crude changes and purchases of Spears I'm stores for the full year of 2023, we expect our daily vessel operating expenses to be $5990 per vessel per day.
We continue to focus on cost up to migration, while seeking to continue to meet stringent safety and vessel maintenance <unk> standards.
I will now turn the call over to Peter Allen <unk> strategy to discuss the industry fundamentals.
<unk> during the fourth quarter of 2022, both the bulk of Capesize and Supramax index has averaged approximately $14900 each for the quarter from levels overall, but below the peaks seen earlier in the year, China's zero Covid policy and unwinding of four congestion a decline in black Sea Green exports, an underperforming Brazilian iron ore export.
Contributed to a counter <unk> counter seasonal second half of 2022.
Furthermore, during the first quarter. We are currently experiencing a typical softness for this time of year driven by lower export volumes from key regions as well as the timing of the Chinese new year, a new building deliveries specifically Brazilian iron our exports were down by 16% in January versus the queue for average while newbuilding vessel deliveries rows of the <unk>.
Out of the year due to the front weighted frontloaded nature of the order book temporarily throwing off the supply and demand equation.
As we look ahead review several catalysts is potentially supporting the drive on the market, including China's reopening.
There's the newest measures tightness in global energy markets and continued rerouting of cold carnal flows due to Russia's worn Ukraine. We believe these factors will benefit benefit Capesize raised primarily what we expect the onset of the South American Green season via driver Fireball earnings as we approached the end of Q1 into Q2.
Furthermore, we're currently less than one month away from the expiration on the Black Sea Green initiatives agreement.
Seen over 22 million tons of Greens export it since inception, the USDA forecasts Ukrainian Green exports have declined by approximately 30 per cent during the current marketing year.
Regarding the supply side Nestle growth in 2022 was 2.8 per cent the lowest level since 2016.
Historically low order book as a percentage of the fleet of just seven per cent as well as the near term and longer term environmental regulations are expected to keep naturally growth low in the coming years. Additionally, high scrap for us to continue to be attracted to owners of older tonnage, particularly for non scrubber fitted capesize vessels, considering the increased level of investment issues require and.
The current earnings environments for those ships.
Overall, we have a constructive outlook for the drive off mortgage given the various the main catalyst highlighted together with historically strong supply-side fundamentals.
Concludes our presentation that'd be happy to take your questions.
Thank you, ladies and gentlemen will now conduct a question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to withdraw. Your question. Please press star followed by two and if you're using a speaker phone. Please lift the handset before pressing any keys one moment for your first question.
Okay and your first question comes from <unk> Ah <unk> from Jeffries Omar. Please go ahead.
Hey, guys morning.
Obviously, yeah very nice to see the complete balance sheet transformation here over the past couple of years platform that looks pretty solid and really with physicians irrespective of where we are in a cycle I did want to ask about you know the three pillars as you highlight the dividend the deleveraging the growth Uhm. Your last acquired a few ships I guess early <unk>.
Last year, we've seen a pullback in rates I guess, one one does that done to secondhand values. Here recently and then also do you does that open up an opportunity for you to add trips in the market today.
Yeah. So the the value side of it's been pretty interesting I I can't remember a time when when I've seen values, so sticky with with where freight rates went on the on the downside clearly we're seeing an improvement of those freight rates, but.
I look at it as very positive that the not not just the the equity markets, but the the the private ship owning market, obviously sees better times coming which is why those values.
Held up I think what we're focused on Omar specifically to answer. Your question is is continued fleet renewal, which you will which you will see is do we still had some some older ships, particularly are 55, which were interested in in in.
Rotating over into into newer vessel. So I think you'll see that happen this year and and probably some of the the 170 S. On the capes. They are scrubber fitted so they're they're earning very good cash was right now but in general I think.
You know, putting large scale M&A, aside, which which we are very much focused on that but I think the the fleet renewal is is the immediate right now.
Okay. Thank you yeah definitely a good point, though cause similar to what we've been seeing with the equity. It's the sentiment is still firm and the second hand market and I guess as you as you mentioned regarding the reserved <unk> $10.75 million. Obviously, it's a board decision you clearly have the you know it it can be toggled too.
I guess, presumably zero how much of that say 10.75 would you consider also maybe using for actual fleet renewal versus say, reducing it potentially for a dividend payouts.
Yeah. So we haven't had that specific conversation yet o'meara, we wanna finish shopping and see you know see where where the quarter winds up in terms of fixtures and then once we get to that sort of 100 per cent level. Then then we'll have the conversation about how much we we want a pet.
So I'm I'm not directly answering your question. However, there was a lot of I can tell you. There was a lot of discussion around this in there is there is consensus between the management team and the board that.
As needed we will dip into that quarterly reserved for Q1 in order to to make sure. We're continuing to pay dividends as as we promised when we rolled out. This this policy you know I I think I'm, just going back and going a little further in your question. If you remember when we rolled this out.
We were specific about what that reserve could be used for and it provided the management team a lot of Optionality. When you had downside volatility like we've seen in the first quarter, particularly when as we look forward we have confidence in in a recovering freight market itself you know nothing nothing really.
New there it just make Tom and in first quarter, we may use a piece of that too to augment the dividend.
Yeah. It makes sense, John Thanks for that and maybe just one final one from before before I turn it over you know this week, we've seen a bit of a bump here in spot rates I guess really across the board from capes down to the handy.
Obviously, it's been a pretty slow start to the year. The past few weeks have been very quiet rates. It then they're below call at breakeven, but we are seeing a bit.
Of a bouncer this week I know, it's early uhm anything to read into this latest move.
No I think you're I think you're just seeing a recovery, particularly in the case of some very low numbers that that you know, we probably while we did I think over shot to the downside on on spot Cape rates, but I I do again, I I think you're seeing the beginning of of the recovery across.
Asked the board we've seen it in the mid sized shifts as well you're seeing it in the forward paper market.
And I think I think that you know <unk>, we're seeing Asia move up on the back of call and then Brazilian exports you know we're gonna we're gonna have a record soybean season right. So we're starting to get into that time period. So I think there's a few things that are driving it but I do believe that China reopening I think.
You're going to see sort of two stages moving up one the actual reopening and the service sector picking up as as normal demand recovery a curse that that also is we particularly as we get into the second half of the year all the stimulus and we believe more to come that the Chinese government is.
Focused on will start to really help out the the steel sector in an iron or imports that and I would note on the steel sector side, we are continuing to see utilization rates move up so <unk>, giving you a longer answer, but but there's a lot of positive things in green shoots to <unk>.
Focus on and if you'll remember we talked about this back in October of last year and I don't think our thesis has changed in terms of the timing.
No. That's it thanks, John I appreciate that actually very helpful. <unk> color and perspective. Thank you again, I'll I'll turn it over.
Thanks somewhere.
Your next question comes from Greg Lewis from B T. I G. Greg. Please go ahead.
Yeah. Thank you and good morning, everybody John definitely appreciate your comments around the use of the reserve and refreshing in our minds about that Peter I I did want to ask you mentioned some comments around.
We'll just call it the east some of the Eastern Europe trade with Green and call and some of those like you know <unk>.
Timelines that or a <unk>.
<unk>, how how how how are you guys thinking about.
What that what those eastern European call will and green trees look like in 23 verses 22 I guess this is my first question.
Hi, Greg Yeah. Thanks for the question you know with US a lot of the times, we focus on the seasonality of the Grand trade. So right now we're really focused on south American the green season ramping up.
Typically we really focus on the Ukrainian green season in a normal year. During Q3, that's when it's peak season right.
Right now you know the volumes are pretty light anywhere from two to 3 million tonnes per month January in particular was a very light export month with a lot of the what everybody seeing in the macro with Russia potentially delaying vessel inspections, but we're looking forward to just need the green green deal of the <unk>.
Extended hopefully for longer than 120 days, they're currently working on <unk>.
Essentially up to a year extension, but on the cold side, you know that's really been an interesting development and it's really been supportive of the overall hold trade. So when we look at cole there's been such a lack of investment made a new mines in new volumes, but the story has really been around 10 miles and read the rerouting and that's actually an a.
Positive for ton-mile demand. So we expect that to continue in the very near term and until later this year as well, but yeah, certainly a lot of moving parts.
And then just hung up.
Some of the volumes out of Russia, you know in the tank or trade you always hear about that the dark fleet is there something similar going with that.
And dry bulk and is there kind of any way to quantify that.
So so so yeah, the Russia is still exporting a lot of coal to India to China.
So that those trades have been substantial Russia is actually the second largest supplier of China's coal imports at over 40 million tons a year. So it's a pretty big number when you think about the cold trade for China is a very small portion of the overall call us, but uhm, yeah quite a quite a bit of volume still moving from Russia too.
China, and India, which are the two largest coal importers obviously.
Okay, Great and then just John on your comments around you know clearly it's been.
Superman market's been really outperforming capes for you know on and off over the last time, when I would call. It 18, plus months and even as we look at you know your performance. If you were to back out the scrubbers I imagine the capes would've underperformed the.
The smaller vessels.
You you did mention a couple of times throughout the call that we're kind of expecting capes.
Is that really just pick up an iron ore out of resolve it that's giving you the comforter or is there anything else, we should be thinking about.
No look I mean, the two main commodities of capes, our our iron ore and and call as as as you heard Peter mentioned, we still think the cold trade is gonna be firm and we see the the pick up in the reopening of China and the infrastructure spending that's going to be beneficial to the iron ore trade and hence the capes I mean, all you have.
To do is look at where the price of iron ore has gone so the over.
Over the last few weeks and volatile, but net it's it's up quite a bit. So that is positive that you know the relationship between the capes and the and the Super Max as as you pointed out.
Has has moved against what historical standards would would dictate in terms of the spread I think you're gonna see that come back into a more normalized spread this year and going into next year and why I think that is because again capesize demand is gonna move up I think demand will also move.
Up in the mid sized ships.
However, one of the things that was propping up the mid sized ships last year in particular.
Where it was the the container trade and and the fact that those ships. We're we're moving containers because of the heart container market that doesn't exist anymore. So I think you're going to see more of a normalised spread between the capes and the and the mid size sector going forward, but again rising tides list all.
Both so I I I think everything is going to to move up on the back of stronger demand.
Great Great Super helpful. Thank you for the <unk>. Thank you for the answers. Thanks.
Thanks, Greg.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by one. Your next question comes from Liam Burke from be Riley Liam. Please go ahead.
<unk> good morning, John Good morning Apostolos.
Good morning, good morning.
John you took a little volatility out of your earnings with the addition of the time charter is.
<unk> come up and some of the shorter durations come off time charter How're you looking Ah directionally.
Waiting you're you're you're the fleet between spot in time charter.
About so.
As you know as we've talked about most of the any longterm time charters will we would do going forward would be in the capesize sector.
To to take volatility out of that.
We have done some some from a strategic standpoint, we've done some spot index deals at some very firm numbers above the D. C I plus a scrubber premium so we've layered those in with the with the idea that that the market will move up and we'll be able to take advantage of that.
We need to see more we need to see more upward movement and firmness in the Cape market before we will do any further time charters I I would say right now with the exception of what's on the books are mentality is to stay very short and we're not even taking on a lot of C O as in the mine or both.
Right now just because we believe this market.
Is going to continue to move up but as a portfolio approach as we've done in the past as the Cape market.
As the Cape market for.
Firms, you'll you'll see as most likely take some exposure off the table just like we've done in the past, but but now is not the time yet.
Mmk your dry docking budget is or projections are fairly low does that give you any flexibility to to move reserves around.
<unk>, yes, the dry docking numbers are down significantly below what they were in 2022, which do help in further reducing our breakeven levels I'd say that that is a slightly separate sort of conversation. The reserve has been put in place in <unk>.
Provide us the flexibility to use it depending on market conditions.
But again you know the the the dry docking is a bit of a separate bucket within our overall breakeven levels.
But but but having a low lower capex number for 2023 significantly lower than last year, obviously lowers our breakeven and it gives more room for for dividends.
You know as a whole.
Great. Thank you John Thank you both of those.
Is there are no further questions.
As there are no further questions at this time. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.