Genco Shipping & Trading Limited Price & Performance (GNK)

Before we begin our presentation, I note that in this conference call, we will be making certain forward looking statements per to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. To forward looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial forward looking statements are based on management's current expectations and observations. A discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday materials relating to this call posted on the company's website, the company's filings with the Securities and Exchange Commission including without limitation the company's annual report on Form 10 ks the year ended 12/31/2023 and the company's reports on Form 10 Q and Form eight ks subsequently filed with the SEC. At this time, I would like to introduce John Wovensmith, Chief Executive of Genco Shipping and Trading Limited.

Good morning, everyone. Welcome to Genco's Genco quarter twenty twenty four conference call. I will begin today's call by reviewing our Q4 twenty twenty four and year to date highlights.

Additionally, we will provide an update on our value strategy, discuss our financial results for the quarter as well as the industry's current fundamentals before opening the call up for questions.

For additional information, please also refer to our earnings presentation posted on our website. Starting on Slide five, Q4 twenty twenty four marked another solid quarter for Genco, capping up capping off what was a very good year for the company. As we grew earnings and advanced our comprehensive value strategy, we focused on three pillars: dividends, deleveraging and growth. Specifically during a time when we continue to provide shareholders with sizable returns and take additional steps to lower our financial risk we are pleased to have acquired another high specification Capesize vessel In October, we took delivery of the Genco Intrepid, our third Capesize acquisition over the last year increasing our investment in modern high specification vessels approximately $285,000,000 since 2021. Importantly, the acquisition of the Genco Intrepid is part of our broader fleet renewal strategy Earlier in the year, we completed our exit from the four smaller and older 169,000 deadweight ton vessels and have redeployed the sale proceeds and additional cash towards the acquisition of three twenty sixteen built Capesize vessels. Notably, these accretive transactions enhance our earnings power as we add premium high quality assets to the fleet and reduced drydocking CapEx in 2020, or 2025 by $13,000,000 Turning to Slide six, we highlight what was a strong 2024 for Genco.

Our EBITDA exceeded $150,000,000 a nearly 50% increase versus 2024 levels. 2023 levels, apologize. Led by our success increasing time charter cohort rates to $19,107 per day from $14,766 the prior year.

In addition to the strong market, we continue to outperform our benchmarks adding approximately $1,600 per day to our TCE rates demonstrating the continued strength of our commercial platform.

Furthermore, we also increased distribution to shareholders by 70% declaring $1.46 per share in dividends during the year or an annualized yield of 10% on the current share price. We continue to provide sizable dividends to shareholders as highlighted on Page seven.

We are pleased to advance our track record of providing dividends to shareholders through market cycles we declared $0.3 per share dividend for the fourth quarter This marks our twenty second consecutive dividend which in aggregate represents $6.615 per share or 45% of our current share price as of February 18.

Solid fourth quarter dividend follows our recent decision to enhance our dividend policy, which is aimed at increasing cash distributable to shareholders while maintaining significant financial strength to grow renew our fleet and further strengthen Specifically, we removed the drydocking CapEx line item from the dividend Turning to Slide eight, we believe Genco remains in a highly advantageous position moving forward. Specifically, we have an industry low net loan to value of 5% a low cash flow breakeven rate and over $330,000,000 in undrawn revolver Coming off of a strong 2024 drybulk market, the beginning of twenty twenty five has seen downward volatility in part due to seasonal factors. Despite this near term softening of freight rates, we remain constructive on the longer term drive off fundamentals which are led by a moderate newbuilding order book and growth in cargo volumes from long haul origins. At the same time, given our strong balance sheet, favorable risk reward balance we built Genco to capitalize on diverse rate market environments to both opportunistically grow the fleet through the drybulk cycles and continue to provide sizable returns to shareholders. I will now turn the call over to Peter Allen, our Chief Financial Officer.

Thank you, John. On Slides 10 through 12, we highlight our fourth quarter financial results. Genco recorded net income of $12,700,000 or $0.29 basic and diluted earnings per share. Adjusted EBITDA for Q4 totaled $32,700,000 the yearly total to $151,200,000 an increase of 49 year over year. During Q4, our TCEs increased on a year over year basis led our Capesize vessels, which earned a TCE rate of over $25,000 per day, during the quarter or approximately $3,000 per day greater than the same period of last year. Highlighting the significant operating leverage of the Capesize sector. On Slide 13, we show the trajectory of our debt as outstanding and our continued voluntary debt repayments. Over the last four years, we have paid down 80% of our debt or nearly $360,000,000 which has resulted in net loan to value ratio of only 5%. In 2024 specifically, we voluntarily pay down $110,000,000 of debt under our revolving credit facility we estimate that this will reduce interest expense by approximately $6,000,000 on an annualized basis or $400 per vessel per day on our cash flow breakeven rate. Voluntarily paying down debt highlights the importance and significant and that we can pay down debt to actively manage interest expense without losing borrowing capacity to capture accretive growth opportunities.

Turning to Slide 14, we will present a current snapshot of Genco's financial position as of 12/31/2024. We have a cash and debt balance of $44,000,000 and $90,000,000 respectively, resulting in a net debt position of $46,000,000 an industry low net loan to value ratio of approximately 5%. On our 42 vessel fleet. Additionally, we have $337,000,000 of undrawn revolver availability that we can utilize for growth opportunities among other uses. Moving to Slide 15, we highlight our quarterly dividend policy, which targets a distribution based on 100% of quarterly cash flows less a voluntary reserve. For the fourth quarter, our formula resulted in a $0.3 per share dividend or an annualized yield of 8%. Nearly doubled the two year treasury rate of approximately 4%. Looking ahead to Q1 twenty twenty five, we currently have 75% of our available days fixed at a rate of $12,366 per day as compared to our anticipated cash flow breakeven rate excluding drydocking related CapEx of $8,873 per vessel. Per day. We note that while Genco, like much of the industry, has a high dry docking year in 2025, we plan to front load these drydockings during the first half of the year and seek to maximize fleet wide utilization in the second half of the year which tends to be seasonally stronger from a freight rate perspective.

I will now turn the call over to Michael O'Hare, our drybulk market analyst to discuss industry fundamentals. Thank you, Peter. Beginning on Slide 17, the dry bulk market experienced a strong 2024 led by the Baltic Capesize Index, which averaged $22,593 per day. Last year was atypical from a seasonality perspective in the sense that the market was strong from the start of the year and through Q3. But then eased into year end. So far in 2025 to date, the market has seen traditional seasonal trends return in Q1 such as weather disruptions in both the Atlantic and Pacific basins impacting cargo availability the front loaded nature of the new building deliveries, particularly from minor bulk vessels as well as the timing of the Chinese New Year. Specifically, as highlighted on Page 18, due to poor weather conditions and scheduled maintenance resilient iron ore exports have pulled back since the highs of Q3, but January exports approximately 11% lower than the second half of twenty twenty four. These reduced long haul iron ore trade volumes together with an easing import congestion have temporarily thrown off the supply and demand balance for the sector. Impacting freight rates to the downside.

Turning to Slide nineteen, twenty twenty four marked another year after year for both Chinese iron ore and coal imports. Iron ore imports grew by 5% year over year While current Chinese stockpiles are below 2022 highs in absolute terms, these levels are approximately 19% higher this time last year. China steel production declined in 2024 while steel exports increased by 25% highlighting reduced domestic demand. China continues to export over 10% of the steel it produces mostly going to other Asian nations as well as The Middle East. Its proportion of exports to steel output growing over recent years. China's excess steel has remained a point of contention inducing protectionism measures globally. Turning to Pages twenty and twenty one, highlight the long haul iron ore and box type trade growth the coming years. While growth this year is expected to be marginal, there are significant growth volumes expected in 2026 and 2027, which can absorb over 200 Capesize vessels.

Which is more than the current Capesize newbuilding order book. Supply constraints in Capesize newbuilding activity combined with added longer long haul trading businesses are two key catalysts for the sector.

As depicted on Slide 22, the Trump administration has initiated and threatened tariffs across a wide range of trade partners since the inauguration of January. Many of these tariffs such as the blanket 25% levies on Canadian an important have been delayed However, The U. S. Has implemented a 10% tariff on all prompting China to impose 15% duties on U. S. Coal and LNG, well as 10% on crude oil and agricultural equipment. Additionally, President Trump has announced that he plans to institute a 25% tariff on all steel and aluminum imports regardless of origin. So far, the new tariff regimes have had a generally limited impact on global dry bulk trade. However, the tariffs have been more aggressive than what we witnessed in the first Trump administration as they are being implemented in a broad based manner on multiple trade partners simultaneously. In terms of the grain trade as detailed on Page 23, which was impacted by the First U. S.-China trade war, we are currently entering South American grain season. Following a strong U. S. Harvest, expectations are for another bumper year for both Brazilian and Argentine shipments which should be supportive for minor bulk trades. During February so far, we've seen Supramax spot rates increase by approximately 40% in part due to these dynamics.

Moving to Slide 24, the disruption in Panama and the Red Sea have gone in different directions.

Since February 2024 low, dry bulk Panama Canal transits have increased over 200% and are back to near average levels. On the other hand, despite a tenuous CASO cease fire, Suez Canal transits are still well below normal levels and are likely to remain at lower levels in the near term until further steps are taken in the cease fire agreement. Regarding the supply side outlined on Slide 25, net fleet growth for 2024 was 3%, in line with the previous year. The Capesize segment continues to have the smallest order book among the [indiscernible] with only two Capes delivered in January. Least amount of January Cape delivery since 1999. There are currently only 36 more Cape deliveries expected this year. While we expect volatility in the freight market, the foundation of a low supply growth picture provides a solid basis a constructive view of the dry bulk market [indiscernible] This concludes our presentation. We would now be happy to take your questions.

Okay. Thank Ladies and gentlemen, we will now conduct the question and answer session. And your first question comes from the line of Omar Nob Nachta with Jefferies. Omar, please go ahead. Hi. Good morning, John, Peter, Michael.

Good update morning. Just on morning. Yes, just overall, I think just looking at the release and obviously the market is what it is, but just in terms of Genco Genco, clearly you're in strong shape, maybe the strongest you've ever been. LTVs that just 5% as you highlight. Liquidity is pushing close to $400,000,000 How do you think about where you're positioned right now How the dry book market has developed here recently? And how do you think Genco is going to be here in terms of opportunities that may be coming up especially given the softer market of lead?

Yes. Thanks, Omar. So look, this plays right into how we set this company up.

Two point five, almost three years ago, with the value strategy. And what I mean by that is we've always we wanted to put the company in a position where it can always play offense. And clearly, you've seen that happen in 2024, with large dividend payouts due to the favorable cash flows the fleet renewal that we were still able to do in 2024 And as we look at 2025, while it may be from a rate standpoint softer than 2024, we believe that that is going to allow us to acquire additional vessels at lower prices. Particularly focusing on eco type capes and Ultramaxes. So So again, I just go back to this is what we set this company up for. To thrive in all freight. Environments. And while they maybe have a little softer situation in the first part of this year, we think that will breed opportunity for the company to grow. And with a 5% net We can do that extremely easy without sacrificing anything on the dividend side. Okay. Thanks, John. That That's nice to hear and obviously nice to be able to play offense. In a market like this. And maybe just on your last point on the dividend, your payout policy is pretty simple.

You pay out operating cash flow less that $19,000,000 reserve. How do you think about the setup here for the first quarter? Earnings may be slipping in the reg just given the low spot rates. How do you think about what the dividend would be in that with that dynamic? Yes. And certainly, this question comes up. I think first of all, we're very much committed to the value strategy. Which includes quarterly dividends, you pointed out, that formula is very straightforward and there's a very again, straightforward strategy on that. Definitely downward volatility in the first quarter, but I think all you have to do is go back and look at our track record of dividends during previous periods of softness even when at the time the formula would have produced a zero dividend. Q1 twenty twenty three, Q3 twenty twenty three, formula spit out is zero during those quarters, but we still elected to pay $0.15 a share. So we've I think there's a very defined track record now in terms of what the Board and the management team and the company their commitment to the value strategy.

You pointed out the quarterly reserve, it actually works out to about $0.45 a share. So there's quite a bit of reserve on a short term basis to tap [indiscernible] Doesn't mean we're going to pay out the whole reserve, but it certainly gives us a lot of flexibility to counteract short term volatility in the freight markets, which is exactly what we believe is happening right now. So again, it's I just go back to the same thing. It's about playing offense Amar, and we've set this company up. To continue paying decent sized dividends even in periods where we had softness in rates.

And growth is very much a factor still for us.

Got it. Great. Thanks, John. Very helpful. I'll turn it over. Thanks, Omar. And your next question comes from the line of Chris Robertson with Deutsche Bank.

Chris, please go ahead.

Good morning, guys, and thank you for taking my questions. Just with regards to pulling the drydocking forward, you're not the only public player that's trying to front load this year just due to the rate environment and I'm assuming other private players are doing so as well. Additionally, there's a large portion of the fleet that was built in 2010 that that has to do special surveys and undergo dry docking this year. So do you see any potential for I guess, upside as effective capacity of the the fleet is reduced because everyone is trying to rush to the yard? Maybe a little bit. I actually think that's being made it's being made a little bigger than it actually is. I believe actually next year is an even larger drydocking year If you look at the fleet overall, In terms of what Jenco is doing, we're not necessarily pulling things forward in 2025 and we obviously [indiscernible] regulatory schedule in terms of when we need to do our drydockings, but we certainly try to pull things forward as much as we can in the earlier part of the year to make opportunity cost as low as possible. On drydockings, particularly this quarter when we're having the normal seasonal softness.

But I'm not so sure how much of a factor it is this year. But as I I again next year is even heavier. So maybe we start to see it as we get into next year. Okay, got you. All right. My second question is, just as it relates to the Suez Canal transit, John, could you talk about which segment of the dry bulk sector this impacted the most And what do you think normalization in the Suez means for overall decrease in ton mile demand if that were to normalize I don't think it's very much in dry bulk What maybe it's 1% I I can tell you Genco Genco a company has no plans at this point to to transit the Red Sea area. We will continue to go around Africa for at least the near term as we see it We still think it's a very volatile situation there. And the last thing you want is to have a ship and crew everything looks good one day and all of a sudden you're in the middle of the Red Sea and you can't turn around the world blows up again. And you have attacks. So for the time being, we're staying away I think a lot of other ship owners are.

Clearly not everyone. But it's not a risk that we want to take with our ship and crew. Yes, it's smart for the crew safety especially. All right, guys. Thank you for the time. I'll turn it over.

Thank you. And your next question comes from the line of Sheri Palmaqarabi with BTIG. Sharif, please go ahead. Hey, good morning. Thanks for taking my questions. So a couple on the market. When we look at the time charter market, recent fixtures by some other owners are showing a bit of a buy for classes Capes aren't too far below where the Liberty and the Endeavor are fixed. But smaller vessels are a bit lower. So I'm wondering what's behind the relative strength in Capes even as a spark market goes through this sort of seasonal and weather impacted slump? So I'm a little confused because one year TC rates on tapes are definitely below 20. It's at this point. They have been pushed down just like every other It's like every other market on the smaller ships as well as the larger ships. So they've definitely seen that downward pressure because of where spot rates are. And a lot of times that cape one year TC gets priced somewhat off of the daily FFA curve. Because I think in that March that FFA those FFAs are being used more so than in the midsized vessels.

Okay.

Yes, it could be that some of the fixtures I saw were for more than a year or so. Maybe that's a driver, but shifting to my second question, The iron ore and box side expansions you highlighted on Slide Slide 20, Yes.

For context, the tanker trade the last couple of years, we've seen some important refineries come online. But the ramp to full production has taken a year or more. So for these three iron ore and bauxite projects, do you have a sense of how the cadence of those 167 tonnes should start making an impact in the drybulk trade?

Sure. So I would call it an educated guess.

I would tell you, you'll see full ramp up as we get into 2027 and 2028.

They certainly have indicated shipments by the end of this year I don't believe those are going to be large shipments. My I think they'll be more symbolic that it's up and going more than anything else. And then a real ramp up should begin as you get into the second half of twenty twenty six. Then '27. And as I said, by the time we get into early twenty twenty eight, you should have that full run rate of 120,000,000 tons. That's helpful. Thanks very much for the color.

Yes, you're welcome. And don't lose sight of the fact as well that you've got growth from Vale as well that's going to come a little sooner That's obviously still a long haul trade. And we still have growth on the box site [indiscernible] at least through '26 and probably into 2027 as well. Coming out of West Africa and going going east. And your next question comes from the line of Beau Frat with Alliance Global Partners. Beau, please go ahead.

Hey, good morning, John. Comprehensive presentation as always Can you just talk about the the play between buying assets, you're talking about growth, You're clearly emphasizing growth [indiscernible] And would you compare that to buying your own stock, you're in the market, you're probably not going to be able to get a huge discount pay market prices for all intents and purposes. Conversely, you can go into the open market and buy your own stock at a pretty good discount [indiscernible] Can you just talk about how you assess that that those different opportunities Sure. First is, we're a shipping company.

And we make money by buying ships and operating them and using those cash flows to continue to pay down debt, generate ROIC, and most importantly return dividends to shareholders. So I think it comes down to a question of is it dividends or share buybacks We have done a tremendous amount of work on share buybacks. We have not seen them work In shipping, in any sector, as a whole, We do believe returning money to shareholders in the form of dividends is a better way to go. And when I when I look at share buyback programs that have been done this year with the exception of one company, our TSR is actually better.

Than the companies that have been formed share buybacks.

So We We fundamentally believe the best way to generate shareholder returns is through dividends. The shipping side, again, Poe, we're a shipping company. We need to continue to grow our fleet and cash flows to generate ROIC.

Sounds good. So no change. In your previous your historic opinion on stock buybacks Can you just talk about the reserve in the presentation you still have for the first quarter that full reserve [indiscernible] Does it make sense at this point in time you're already 72% covered call it 12,000 clearly you're not going to going to generate a significant dividend in the first quarter, at least according to my calculation. So why not flex down to the reserve right now instead of waiting until next quarter? When you report? Look, I think it's again, I think it's just about being consistent, Poe. We give the guidance a quarter forward and I agree, I'm not sure what What the actual formula will spit out, but we definitely had a soft first quarter across the industry, but again, we have that reserve that we can flex and use to smooth out quarterly dividends as we've done in the past and I can't say it enough. We're committed to quarterly dividends and the value strategy. And I think it's working extremely well. I'm not sure if most companies will even have the ability to do that in the first quarter and pay a dividend.

Understood. And John, you implied based on your history that the minimum level of the dividend should At least I heard $0.15 a quarter. Is that something we should sort of build into expectations or is that did you not mean that?

Well, I didn't address it though. I addressed that we had $0.45 of per share reserve to to have as optionality in terms of what what the Board and the management team put forward as the dividend. I've certainly pointed to past history but in terms of a decision that's been made yet, no, we want to get through the first quarter. Want to see what the cash flows are. We've obviously as well, this is as I said earlier on the call, it's a heavy drydocking year, which is why we took out the CapEx minus out of the formula going forward. Because we have such a very, very strong balance sheet and we still have positive fundamentals on the market. Sounds good. Thanks for taking my questions, John. Thank you, Poe.

As there are no further questions at this time, this concludes your conference call for today. Thank you for participating and ask you to please disconnect your lines.