Genco Shipping & Trading Limited (GNK) Earnings Call Transcript & Summary

Good morning, and thank you for joining Genco's webcast with the Board and management team. I am Jim Dolphin. I'm Chairman of the Genco Board of Directors. I'm joined today by John Wobensmith, Genco's CEO; and Peter Allen, Genco's CFO. We're pleased to be here with you today. We have heard a number of questions during this process that we think we want to address. We want to take this opportunity to speak directly in particular, to our retail investors so we can ensure you were informed ahead of the upcoming meeting. Additionally, the company is announcing earnings later today and holding its earnings call tomorrow. That said, we're having this call today because John, Peter and I are all in New York, will be at the same place as we enter shareowner questions. We will not get into our first quarter earnings results. With that, let me turn it over to Peter and we'll get us started by going through the required legal disclaimer, and then we'll read out the questions. Over to you, Peter.

Thanks, Jim. Before we begin, I note that during this call, we're 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 were suggest, expect, intend, plan, believe and other words in 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 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, 2023, and the company's reports on Form 10Q and Form 8-K subsequently filed with the SEC. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. When we refer to peer groups and this webcast, we mean the peer group we're on Page 25 of our May 2, 2024 investor presentation for TSR performance and dividends and the group on Page 26 of this presentation for net asset value comparisons. The presentation is available on www.VoteForGenco.com for [indiscernible] information on companies used in our analysis of share buybacks and tender offers, please see analysis information at VoteForGenco.com And with that, Jim and John will get started with Q&A. So the first question we have is, what do you think makes Genco different from other shipping companies? And why should investors be excited about the business

Three years ago, as a Board, they sat down and asked ourselves, how can we continue to reward shareholders in Genco. As most of you are aware, shipping is a very volatile business. Things are good. They are very good when things are bad, companies often hit the wall. And there aren't consistent way. They're mostly having been consistent ways for shipping companies to reward shareholders through dividends or other return of capital. We want it to be different. We wanted to set out to make Genco a perpetual machine and [indiscernible] What that eventually led to is an understanding that the only way to do that is to really drive down your breakeven rates and the only way down to a way to really drive down your breakeven rates is to eliminate or nearly eliminate debt, particularly amortizing debt.

So what Jim was describing is our value strategy, and we believe that we have created the best risk-reward model within dry bulk shipping with that low debt, low cash flow breakevens that allow us to pay high dividends to our shareholders. It also allows us to have a robust fleet renewal program that potentially can generate higher dividends in the future as we replace older, less fuel-efficient ships that have higher CapEx numbers with newer vessels that are more fuel-efficient and much, much easier on the CapEx budget. The other thing I would point out, Jim, is we've been ranked #1 3 years in a row by Webber's research study out of 64 global companies and I think from a corporate governance standpoint that's just a fantastic feat.

From the start governance has been a focus of ours. We tried ourselves on having a professional independent Board working alongside a professional management team. When we lost a director about 18 months ago, we went to seek to find the next best director that we could add to the capabilities of the Genco Board. We started that process some time ago and it actually ended up finding a professional search firm to help us with that. And we're really pleased to be able to find [indiscernible] who comes from the customer side of our business. That was a perspective that we were missing in our boardroom, and we thought it was critical to have somebody who could really share with us how resource companies, how commodity companies think 3 and 5 years down the line to make sure we're prepared for the challenges we're going to face in the future.

Next question is regarding valuation. Do you think the business is appropriately valued? And do you think you'll ever be able to close the gap on that [ SF. ]

I think we're getting closer and closer. I think the really critical bit is that on a relative TSR basis. So looking at both our share price and our dividends we are leading our peer group on a 1-year basis, on a 3-year basis, on a 5-year basis. I think what this really speaks to is our strategy of driving down debt, continuing repaying dividends and renewing our fleet is working. People are seeing it. People are liking it. We have been very consistent in our messaging for the past 3 years, this is what we're going to do, and we have executed on it every step of the way. Shipping companies historically trade at a bit of a discount to NAV. It's the bane of all shipping companies. We are getting closer to 1:1 100% NAV. We're going to continue to push to get there, and we're hopeful we will continue to close that gap.

Yes. I mean, Jim, the gap is actually very small now, and it's really improved as we -- the last few quarters with the value strategy and the dividend that we paid and I think, again, the TSRs as you pointed out, that speaks for themselves. But I do think the industry now that list a lot of the analysts are starting to look at these equities more on a cash flow generated basis on a dividend yield basis, than straight NAV, which can be a very backward-looking metric.

Next question is regarding the dry bulk market. What is your expectation for the dry bulk market for the remainder of this year and in next year?

We are definitely positive this year. We're definitely positive next year as well, and that is all on the back of a very low supply situation, meaning there is a low order book versus the existing fleet on the water to be delivered over the next few years. And ordering a ship today, you really can't expect to take delivery into 2028. So when they 9% of the existing fleet order book that is not only at historical lows, but you can really see the runway as you go out at least through 2028, that it's going to be very low in terms of deliveries, which means you do not need very much incremental demand growth on a year-to-year basis to continue to outstrip the number of new ships that are coming on. And if we look at what's just happened this year on the demand side, iron ore imports are up, coal imports are up, bauxite imports are up, and we've really had a point of response from the freight market with rates approaching $30,000 a day, again on the Capesize sector. And the Genco fleet is so well positioned for a rising market as it stands today.

Picking up on that point. We talked earlier about driving down debt. And I know that when people think about driving down debt, it is -- that's not text book for how you get good returns on equity. But the reality is we have enormous operating leverage in our business because of -- again, we have a barbell approach. We have a stable and more consistent minor bulk ships and the Capesize ships, which are highly volatile and really allow us to capture upside when those markets start to run. But really, what we've also set up is the ability to always be playing off them. So when the market continues to run, we're going to capture those revenues and return those earnings to shareholders. But if the market turns down, and we have this low debt profile, we're going to be able to take advantage of lower asset values and come back or come into the market and really expand the fleet in a way that will pay off down the line.