Feb 24, 2022
Operator
Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Fourth Quarter 2021 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 Genco's website at www.gencoshipping.com. To inform everyone today's conference is being recorded and is now being webcast at the Company's website www.gencoshipping.com.
A replay of the conference will be accessible any time during the next two weeks by dialing (888) 203-1112 or (719) 457-0820 and entering the passcode 9610869. At this time, I will turn the conference over to the Company.
Please go ahead.
Peter Allen
Good morning. Before we begin our presentation, I note that in this conference call we will be making certain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management's current expectations and observations.
For a discussion of factors that could cause results to differ, please see the Company's press release that was issued this morning, the materials relating to the call posted on the Company's website and 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 31, 2020, and the Company's reports on Form 10-Q and Form 8-K subsequently filed with the SEC. At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.
John Wobensmith
Good morning, everyone. Welcome to Genco's fourth quarter 2021 conference call.
I will begin today's call by reviewing our 2021 and year-to-date highlights, providing an update on our implemented comprehensive value strategy, financial results for the quarter and 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.
Looking back to 2021, it was truly a transformational year for Genco across the board capped off by a Q4 that was the best since 2008. Mainly a year ago, we proactively pivoted our capital allocation strategy towards a low leverage compelling dividend model which has the balance of 2021, laser focused on the implementation of the strategy following the blueprint we laid out back in April, 2021.
After completing initiatives centered around financial deleveraging and growth, we are now in a position to distribute meaningful quarterly dividends commencing in the fourth quarter of 2021 to be paid this March. As we stand here today, we are pleased to have developed a unique dry bulk vehicle that offers an attractive risk reward profile for the benefit of shareholders.
We believe our platform represents a differentiated dry bulk offering given our industry low cash flow breakeven rate and low financial leverage combined with high operating leverage to the scale of our balance fleet the best-in-class commercial team and a strong liquidity position. The opening that can check all of these boxes is not been previously in place in the dry bulk public markets which is why we are so excited to rollout our fourth quarter results at a capped off a year of not only significant cash flows for the company but also significant financial discipline.
Over the course of last year, we paid down $203 million of debt representing 45% of our debt balance at the start of 2021. Importantly, we are not on a position in which the current scrap value of our fleet is nearly two times our debt outstanding.
These pay downs together with the global refinancing completed mid last year, have insured that Genco has no mandatory debt repayments until 2026. In addition, this has resulted in the lower overall casual breakeven rates which we believe will enable Genco to pay dividends across diverse rate environments.
Continuing to pay down debt during a time with no mandatory debt repayments is consistent with our medium term goal to reduce our net debt position to zero. In the near term, we are focused on rewarding shareholders to compelling dividends while continuing to de-lever to be in a position to reward shareholders over the longer term and support sustainable dividends.
We view this as prudent to further improve our financial standing over time to put Genco in an even stronger position to take advantage of attractive growth opportunities as markets develop. Furthermore, in early 2021, we opportunistically grew our core minor bulk fleet capitalizing on a disconnect between freight rates and ship values to augment our earnings power.
Specifically we purchased six high quality fuel efficient Ultramax vessels for an aggregate of a $150 million. In January of 2022, we took delivery of the final two of those vessels, the Genco Mary and the Genco Laddey both filled in 2022 at DACKS shipyard.
Throughout the course of the year, on a parallel path to our deleveraging and taking advantage of growth opportunities, we also steadily ramped up our quarterly dividend from $0.02 per share in Q4 2020, up to $0.15 per share in Q3 2021. For the fourth quarter 2021, we declared a quarterly dividend of $0.67 per share representing a nearly 350% increase versus the previous quarter and marking our first dividend under our value strategy methodology.
This substantial dividend represents an annualized yield of 14% based on Genco's closing share price as of February 23, 2022. Interestingly, if we pay down our targeted quarterly run rate of $8.75 million of debt in Q4, 2021 instead of the $59 million of debt we actually paid, our quarterly dividend would have been $8.85 per share nearly three times higher than the actual pay out.
This highlights a dividend capacity and significant operating leverage combined with our industry low breakeven rate. Management maintained its disciplined approach towards capital allocation which we believe will well-position the company both now and going forward.
And we have now declared dividends for 10 consecutive quarters, and cumulative dividends totalling a $1.725 per share or approximately 9% of yesterday's closing share price. In addition to the measures taken to execute on our value strategy from an earnings perspective, the fourth quarter was our strongest in over a decade led by net income of $90.9 million and a time charter equivalent rate of $35,200 per day.
Looking ahead to the first quarter, our estimates point to continued strong results with a time charter equivalent of approximately $24,215 per day based on fixtures to-date across the fleet for 87% of our owned available days. This firm number highlights our proactive approach to securing revenue ahead of a seasonally softer market period as well as incremental earnings generated through an opportunistic container fixtures.
In addition, the container fixtures demonstrates Genco's innovative approach towards developing niche trades and they have proven to be highly beneficial for the company by generating premium rates above the typical dry bulk Pacific backhaul route while further insulting Genco from the softer January market and providing premium paying positions upon redelivery. In line with our portfolio approach to fixture activity which consists mostly of spot trading opportunistic period charters and forward cargo coverage last year, we fixed seven vessels on period time charters for one to two years at rages ranging from $23,375 to $32,000 per day.
To illustrate this, our earnings release contains our estimated TCE to-date for the first quarter of 2022, broken up by vessel class and spot and fixed rate time charter equivalent rates. Our scrubber fitted Capesize vessels are also benefitting from the widening fuel spreads which currently stand in over $200 per ton.
This provides us with a competitive advantage in a high fuel price environment in two ways. First, we can purchase less expensive fuel while completing a voyage.
And Second, it reduces the investment of ballasting vessels to the Atlantic Basin to capture developing trends in cargo flows. From a market perspective, we continue to have a positive outlook for dry bulk rates due to the low order book.
We are starting to see timing and weather related disruptions that impacted the market early in the year subside. Overall, we believe we're in a cyclical dry bulk market upturn and have solid visibility as I mentioned particularly on the supply side given the historically low new building order book that we will believe -- that we believe will support the market over the coming years.
At this point, I will now turn the call over to Apostolos Zafolias, our Chief Financial Officer.
Apostolos Zafolias
Thank you, John. During 2021, we maintained our focus on improving our balance sheets taking steps to further reduce our leverage and breakeven levels and enhance our earnings power and dividend potential.
For the fourth quarter of 2021, the company recorded net income of $90.9 million with $2.16 basic and $2.13 diluted earnings per share, our highest earnings per share since 2008. Adjusted for the gain of vessels, earnings per share was $2.02 and $1.99 basic and diluted respectively.
Our fourth quarter EBITDA, adjusted EBITDA was $102.2 million with supported respective as higher than adjusted EBITDA for all of 2020. A full year adjusted EBITDA of $253 million was also greater than 2019 and 2020 combined and double of that of 2018.
During the quarter, we continue to further strengthen our balance sheet through increasing operating cash flows by taking advantage of firm market conditions. Our cash position as of December 31, 2021, was a $120.5 million following $203 million of debt repayments through the year together with a $109 million paid to acquire vessels over the same period.
Pro forma for the acquisition of two Ultramax vessels in January of 2022, our cash balance is approximately $80 million. Following substantial deleveraging our net outstanding is $246 million as of the end of the year which after considering our pro forma cash position resulted net debt of a $166 million or 16% net LTV.
Importantly, while we have no mandatory debt amortization payments until 2026, we plan to continue to voluntarily pay down debt with a medium term objective over using our net debt to zero which would leave us consistent with our focus on paying consistent dividends through the cycle. Looking ahead, we plan to voluntarily pay down $8.75 million of debt during the first quarter, representing an annualized run rate of $35 million of voluntary debt repayments over a year to further strengthen our balance sheet.
As John mentioned, our Board of Directors declared a dividend of $0.67 per share for the fourth quarter of 2021 in line with our value strategy calculation. Walking down our dividend formula, this consisted of operating cash flow of a $101 million, less debt repayments of $59 million, drydocking, ballast water treatment system and energy saving device costs of $2.9 million and the previously announced reserve of $10.75 million.
Going forward, we will be disclosing estimates in both the revenue as well as the expense side in order to provide visibility of the dividend framework. Specifically we plan to communicate our TCE estimates for the fixed portion of our fleet's available days, estimates on the expense side and the anticipated level of the reserve.
Earlier in the presentation, on Slide 11, we provided an illustration of the expense estimates for the first quarter of 2022. Specifically, operating expenses are estimated to be $31.6 million, debt repayments $8.75 million and dry dock related expenses $5.9 million.
The reserve is expected to be $10.75 million which is based on the $8.75 million of voluntary debt repayments expected to be made in the second quarter of 2022 as well as estimated cash interest expense. In total, the expense side of the equation will be $57 million for Q1, 2022.
Moreover, in an effort to provide perspective on the significant operating leverage of our fleet and sensitivity of our dividend framework, we have included an illustrative representation of our dividend per share on Slide 23. Subject to the assumptions in our presentation, our current dividend framework would produce an annual dividend of a $1.69 in a $20,000 a day fleet wide TCE rate environment and as high as $7.21 per share in a $35,000 in a fleet wide TCE rate environment.
Our estimates for 87% of the first quarters available days is $24,215 per vessel per day similar to the levels on the third bar in the chart which would indicate an annual dividend of $3.53 or 18% yield. Our first quarter 2022 estimated breakeven rate excluding any voluntary debt repayments is approximately $9,500 per vessel per day.
Our total ownership base for the first quarter are estimated to be $3,948 and we anticipate five vessels to dry dock resulting in approximately $6 million of costs and 99 days of estimated off-hire time during the quarter. I will not turn the call over to Peter Allen, our SVP of Strategy to discuss the industry fundamentals.
Peter Allen
Thank you, Apostolos. During the fourth quarter of 2021, freight rates remains firm following a strong Q3 driven by augmented demand for raw materials and an improving coal trade, solid iron ore volumes and a continued fleet wide reduction in productivity.
Spot trade rates remained on the uptrend in early October with Capesize rates exceeding $85,000 per day and Supramax earnings approaching $40,000 per day. Towards the end of 2021 and to early 2022, Capesize and Supramax rates have pulled back from these decade plus highs due to various seasonal factors.
These include weather related cargo disruptions impacting resilient iron ore volumes which were down 13% year-over-year in January and front loaded new building deliveries as we saw annualized net fleet growth of nearly 6% in January. Additionally, the timing of the Lunar New Year in China together with the Beijing Olympics, resulted in still more utilization declining by less than 5%.
These seasonal factors are beginning to subside which are being reflected by earnings at Capesize and Supramax rates of approximately 200% and 50% respectively versus earlier a year lows. On the demand side in 2022, we anticipate China to continue to shift towards more quantitative policies to support economic growth.
We have seen the ship shift commence last December through a series of interest rate cuts and continuing to early this year with increasing lending growth following a year contraction. The trajectory of line of growth tends to be a leading indicator of metals demand.
The timing of policy accommodation and its potential impact is expected to coincide with improving dry bulk trade flows in the coming months and a ramp up of China steel production driven by spring construction season. We've already seen and uptick in work on construction projects in many parts of China that have restarted sooner after this year's Lunar New Year than years passes probably as the response to the central government following for quick progress on new infrastructure projects to help boost the domestic economy.
We believe these developments are positive for iron ore trades particularly as seaborne volumes rise in Q2 and Q3. Regarding other trade flows, we anticipated coal demands remain firm giving tightness in energy markets on the grain side South American grain season has had an early start which has been supportive of minor bulk earnings.
Overall, we believe we're on a cyclical up-trending market, a positive go forward thesis for the dry bulk market is underpinned by the historically low order book. The order book is a percentage of the fleet is 6.6% as compared to 7% of the fleet which is greater than or equal to 20 years old implying fleet renewal rather than material on that fleet growth in the coming years.
Encouragingly newbuilding vessel orders have been relatively low despite the strong market conditions and part due to uncertainty around go-forward future propulsion and tightness in shipyard capacity. Overall, we believe these positive supply side dynamics drive solid founding over the dry bulk market and lead to a low threshold for demand growth have to exceed in order to improve fleet wide utilization and freight rates.
This concludes our presentation and we now would be happy to take your questions.
Operator
We will take our first question from Randy Giveans with Jefferies. Please go ahead.
Randy Giveans
Howdy John, how is it going?
John Wobensmith
Good Randy, how are you doing?
Randy Giveans
All is well, thanks. Few questions here.
Excuse me. So, starting with the charter backlog, I think you mentioned around eight vessels on that.
Clearly the FFA curve is rising in this environment, time charter rates are picking up as well. Any plans to maybe lock away some additional tonnage for the rest of the year or do you expect kind of spot rates to keep outperforming that FFA curve.
And then briefly, can you give the percentage of days fixed so far for the full year?
John Wobensmith
Sure. So a couple of things.
As we said in the past, we do like the idea of a portfolio approach particularly in the Capesize sector with the volatility. So I could see us doing one to two or cut some more one to two year charters in the Capesize sector as rates continue to move up, I don’t think we're at the point yet where we comfortable locking them away.
But we do expect rates to continue to improve overall. Then something I'll point out is the two index deals that we just did in the Capesize sector, those are pretty neat deals because we did them at the really the low point of the Capesize market.
So we're able to get very premium percentage over the index particularly for the and when we did at a 121%. So and we also have the option in those index deals to fix a lot of those in or any time.
So you could see us take advantage of that as well. So short answer is yes we're going to continue to look at longer term charters that we don’t think the market is quite there yet but it's moving in the right direction.
In terms of fixtures, I want Peter Allen answer that question as a percentage.
Peter Allen
Hi, Randy.
Randy Giveans
Hi, Pete.
Peter Allen
So, for the full year we had about 30% of full year days fixed, that's approximately $24,000 a day.
Randy Giveans
Thanks. Good deal.
All right, thank you for that. Second question, final one from me.
You mentioned the dividend $0.67, well ahead of our expectations, so nicely done here. And you also said it could have been I believe a $1.85 using that kind of go-forward run rate reserve.
So, using your quarter to-date rates, assuming rates they at least at that $24,000, $25,000, for the rest of the quarter. Slide on using the table on Slide 11, the chart on Slide 23, just in terms of direction, is it pretty fair to assume the next dividend should be higher than this current dividend of $0.67?
Apostolos Zafolias
So look, we still have 15% of the overall fleet to fix. So it's a little tough for me to nail it exactly but Randy the numbers that are in there in terms of the $35 million debt repayment target run rate for 2022 is in there obviously the reserve that goes along with that or in there dry docking.
So I guess I would leave it to you to put that extra 15% of freight rates in there and come up with the dividend. But so that, I'm only a little hesitant just because we haven’t booked the entire fleet yet.
Randy Giveans
Got it, all right. And just the --.
John Wobensmith
And obviously -- it's a very small piece that’s still is often fixed.
Randy Giveans
Yes, chart 23, $25,000 a day here and we lay that for you're getting $0.80 plus. So, I'll take that a highly likely.
That's it from me. Congrats again on the best quarter since 2008.
Good to see the market in upswing.
Apostolos Zafolias
Thank you.
John Wobensmith
Thanks, Randy.
Operator
And we will take your next question from Magnus Fyhr with HC Wainwright. Please go ahead.
Magnus Fyhr
Yes, good morning and congrats to a great quarter. You clearly laid out your dividend strategy here and use of cash, I mean primary use for dividends and debt repayment.
How should we think about potential acquisitions going forward and what part of the cycle do you kind of just stop doing acquisitions and just focus on dividends?
John Wobensmith
So first of all I think dividends are the are a major focus, Magnus. I do think you'll still see us do some fleet renewal, most likely particularly in the $55,000 that we have.
And are certainly earning very good returns but the values of those have increased significantly. So the opportunity so maybe trade those out, swap those out or redeploy the capital into newer more fuel efficient vessels, I could see us doing that this year.
But so it's I would say right now it's really dividend, fleet renewal, we obviously are always looking at larger M&A transactions but as a whole, I still think it's interesting, I'm changing gears here a little bit. But I still think values have not caught up with trade rates, so I do think there are good opportunities to return on capital type transactions.
But as you've seen in the past whenever we do those, we tend to de-risk them and put them away out of to your charter and we've been hitting anywhere from paying off 40% to 50% of the ship in the first two years. So, those types of deals still look attractive.
I'll just come back to what I said, we're very focused on the dividend model, we're focused on keeping leverage low. Net debt was 16%, loan to value at the end of the year and we're focused on fleet renewal.
Magnus Fyhr
Okay, great. Thanks for that answer.
And just one more question. You laid out the sensitivity to the fuel spread.
Any chance you could highlight what the fourth quarter actuals were as far as realized fuel spread or just the $1 million that you made out of the fuel?
John Wobensmith
I don’t have that number in front of us per se. I will give you another number on that that's pretty compelling.
And that is if you look at our actuals sort of through the end of February from when we first installed this scrubbers in 2019, and you look at the forward curve for 2022 and we're running at about a 35% IRR by the time we get to the end of 2022. So, that's a pretty compelling number but I don’t have the specific fourth quarter number.
Peter Allen
Yes. So hi, Magnus.
This is Peter. So, if you just looked at the average cost spread in Singapore in Q4, I was about a $150 per ton.
So, obviously we're not well over $200 per ton, so it's a significant increase and it's obviously been rising with rising fuel prices a correlation between the spread and the price of oil historically. And so yes, I think that's and if you look at the Page 15 in our presentation, a $150 fuel spread as it's approximately $28 million in incremental revenue on an annualized basis.
So, that's probably a decent parameter of the fourth quarter number.
Magnus Fyhr
Okay, great. That's just from me.
Thank you.
Apostolos Zafolias
The great thing is the equipment and the installation cost were paid off at the end of 2021. So, everything we're making now is just straight return on investment.
Magnus Fyhr
Okay, thank you.
Apostolos Zafolias
Thank you.
Operator
We will take our next question from Greg Lewis with BTIG. Please go ahead.
Greg Lewis
Well, thank you and good morning everybody. And then, congrats on the good quarter, everybody.
John Wobensmith
Good morning, Greg.
Greg Lewis
John, just well with seem cycles I think you've seen probably a couple more than May. Realizing before you became to see you're the -- you were the CFO, how do you think about cash, right, I mean obviously we have the dividend payout model, the dividend strategy which we're laying out, clearly there's going to be opportunities that at a certain point to buy ships and do a lot of different things with the cash we're making.
Just kind of curious how you kind of you cash as you think about having here on the balance sheet?
John Wobensmith
Well, let me go back to our value strategy, right. It's where clearly dividends are our major focus right now.
As I said before fleet renewal is continuing to de-lever. We're looking at that target run rate of $35 million of debt repayment for 2022.
We'll be building up the reserve and that reserve has a lot of optionality in terms of what we can do with it. We can use it to buy ships, we can use it for share buybacks if we feel that's the right thing to do.
We can use it to smooth out quarterly dividends again if we feel that that's the right thing to do. In general, we really want to get to a place where our dividend is seasoned and our stock begins to trade off of a free cash or dividend yield in excess of NAV so that our shares can be used as currency for further acquisitions when the timing is right.
So I -- what the other thing is Apostolos put into place a very large revolving credit facility that was very purposeful in terms of being able to move on an acquisition if it made sense at the time. So, I think the company is well it's certainly set up than it ever has been from a leverage dividend and potential growth profile at this point.
And I hopefully that answer your questions with a longer answer.
Greg Lewis
Yes. That was helpful, thank you.
And then, just a bigger picture on the market, realizing that it's a fluid situation and there is a lot more important things going on than how it pertains to the dry bulk market. But as we look at what's going on in Eastern Europe, in Russia and Ukraine, I guess Ukraine is a pretty big grain next quarter, I believe Russia is a large coal exporter.
Probably not seeing anything just yet but I mean like how should we I mean like how we're -- what type of -- I mean, do we have any sense for where these exports generally go and where those replacements could be and really just trying to understand there is big issues here but is that going to be supportive of ton miles, I think it might be. Just kind of curious if you guys have any view on what's happening over there and how that's going to impact the market?
John Wobensmith
So look, as you said, its fluid, it's evolving. If we look at I guess some of the facts before opinion, you're really talking about out of the Ukraine grains which is corn and wheat as a major commodity that comes out of Ukraine.
Iron ore to some degree though obviously Brazil and Australia are the big exporters but there is some iron ore that comes out of Ukraine and then there is some coal that comes out of out of the Ukraine. I think overall as a macro view, with the low supply and the low order book in dry bulk shipping, you just don’t need much demand growth overall to continue to build on 2021.
So, we still believe in the cyclical upturn. I think as it gets to grains, I think which is obviously the largest commodity, you need to keep in mind that you're really talking about a very slow period right now for Ukraine in general on exports.
The height of the grain season is really August. So, we're quite some time away from that.
We do believe that the U.S. could make up if there were significant cut backs on the grain side, we do believe the U.S.
could make up some of that slack. So, it could be a ton mile increase there.
As I mentioned, iron ore, it's out of the Ukraine a very small part of global trade. Some of that could be made up probably by Brazil and Australia and even India.
But I think just to round this out a little bit, there is unfortunately always geopolitical risk in dry bulk. Obviously the Ukrainian situation is well an unusual.
But I just I still emphasize the low order book. We don’t need much demand growth.
If you look at Genco in as a company, you are really set up for volatility with this low leverage model, low breakeven rate creating a very good risk reward model. We've got Q1 mostly fixed at $24,000 a day, so that that risk is off the table.
Greg, honestly I it's as you said this is all sort of hit this really late last night and this morning and there are there's a very large group of Ukrainian seafarers around the world and as far as we're concerned, the focus should really be on them. And our hearts go out to them and their families.
So, we hope they stay safe. So, it's I think it's a little early I guess to see exactly what's going to go on here but again I just go back to how Genco has set up in the low supply situation.
Greg Lewis
Okay, great. Yes now, I agree.
Thank you for that, have a great day.
John Wobensmith
Thanks, Greg.
Operator
We will now take our last question from Liam Burke with B. Riley.
Please go ahead.
Liam Burke
Yes, thank you. Good morning, John.
Good morning, Apostolos.
John Wobensmith
Good morning.
Apostolos Zafolias
Good morning.
Liam Burke
John, I know this is a high class problem but where along the capital allocation strategy, would a buyback make sense in terms of your alternatives, understanding your objective is to pay dividend and to become debt free?
John Wobensmith
Again I think we want to give the dividend model a few quarters to be seasoned and see how that reacts. We do believe it takes a few quarters, I think I've said before we've gone back and we've looked historically at companies when they start declaring big dividends and how long it takes to be season and get down into that single digit dividend yield.
And it does take two to three quarters. So we'd like to see that pass first.
And then, if there are opportunities on share buy backs, we're going to look at them. And that's again that's one of the reasons why the reserve is in place.
Liam Burke
Fair enough. And I think you said that you didn’t think that fleet assets have caught up with rates.
How does potential acquisitions in terms of this year look?
John Wobensmith
Well again, it's I think right now we're focused more in the fleet renewal side but as I've said you can right now you're talking about in the Ultramax sector cash-on-cash returns for one year charters in sort of the 40% range. So may, yes what's actually called around 35% one year cash-on-cash returns.
I think that's pretty attractive still. But you've got to find the right transaction and again I think the first thing you're going to see is to is more fleet renewal swapping out the older ships for newer tonnage reapplying the capital.
Liam Burke
Great. Thank you, John.
John Wobensmith
Thanks, Liam.
Operator
And there are no further questions at this time. And this concludes today's call.
Thank you, for your participation.
John Wobensmith
Thank you.