Genco Shipping at Sidoti Small-Cap Conference: Strategic Growth and Deleveraging

On Wednesday, 19 March 2025, Genco Shipping & Trading Ltd (NYSE: GNK) presented at the Sidoti Small-Cap Virtual Conference, showcasing its robust financial health and strategic initiatives. The company emphasized its value strategy, focusing on dividends, deleveraging, and fleet renewal. While the outlook is positive, challenges such as energy prices and fleet renewal constraints were also discussed.

Key Takeaways

• Genco has reduced its debt by 80% since Q4 2020, achieving a net loan to value of about 5%.
• The company focuses on a "barbell approach" to fleet composition, balancing large Capesize and mid-sized vessels.
• Genco prioritizes consistent dividend payments, with a Q4 dividend of $0.3 per share, equating to an 8% annualized yield.
• The company anticipates growth in iron ore and bauxite trade routes, particularly from Brazil and West Africa to China.
• Energy costs are largely passed through to customers, minimizing the impact on earnings.

Financial Results

• Balance Sheet:

- Cash of $44 million as of December 31.

- Debt balance of $90 million; net debt position of $46 million on a $1 billion asset base.

- Undrawn revolver availability of $337 million.

• Dividend:

- A formula based on 100% of quarterly cash flow minus a voluntary reserve.

- 22 consecutive quarterly dividends, returning over $6 a share.

• Profitability:

- Net income increase due to higher net revenue.

- EBITDA rose to approximately $150 million from $100 million the previous year.

Operational Updates

• Fleet Composition:

- Operating 42 ships, with a focus on Capesize vessels for iron ore and coal, and mid-sized vessels for minor bulks.

• Trade Routes:

- Growth in long trade routes from Brazil and West Africa to China.

- Bauxite trade growing at about 9% annually.

• Fleet Renewal:

- Investing in newer, more fuel-efficient vessels and focusing on the secondhand market.

Future Outlook

• Demand:

- Expected growth in iron ore exports from Brazil and new projects by 2026.

- Increase in bauxite trade from Guinea and West Africa to China.

• Supply:

- New ship deliveries constrained until late 2028 or early 2029.

- 8% to 8.5% of ships are over 20 years old and likely to be scrapped.

• Strategy:

- Concentrating on secondhand tonnage with more fuel-efficient engines.

- Emphasizing risk management over new builds.

Q&A Highlights

• Energy Prices:

- Fuel costs passed through to customers, with fuel hedges managing exposure.

• Deleveraging:

- Low debt balance providing flexibility for dividends and counter-cyclical investments.

• Tariffs and Fleet Renewal:

- Tariffs minimally impact bulk commodities; focus on secondhand market due to ship availability shifts.

• Alternative Fuels:

- Use of ammonia is distant due to infrastructure challenges; fleet primarily uses bunkers, with larger ships equipped with scrubbers.

For a detailed account of the conference call, readers are encouraged to refer to the full transcript below.

Full transcript - Sidoti Small-Cap Virtual Conference:

Michael Orr, VP of finance: So let me introduce the team we have with us. We have Michael Orr, VP of finance, Peter Allen, the CFO of Genco, and John Wogan Smith, the CEO. Gentlemen, why don’t you go ahead and get started?

John Wogan Smith, CEO, Genco: Great. Michael, thank you, and appreciate you all having us here today. So just starting out, we obviously had the introductions. The management team, thank you. In terms of Genco, so we have 42 ships on the water today.

It’s the largest US based drybulk ship owner. We have our our headquarter offices here in New York City, but we also have commercial offices in both Singapore and Copenhagen to, to service our customers face to face. We, we focus both on the major bulks and the minor bulks. The major bulks being iron ore and coal, mostly carried on the larger vessels, the capesize vessels. And then the minor bulks, grains, cements, fertilizer, really runs the gamut are carried on the mid sized ships.

We do have direct exposure to all the dry bulk trades. We think that is extremely important, both from an industry standpoint, but also an equity standpoint. We’ve created a full service logistics solution on in our commercial platform for our clients, where we’re moving their cargo from a to b and handling all the logistics and and, details that go on in between, to get goods to, to a discharge port in the most efficient manner. We believe with Genco, we’ve created the best risk return profile within the peer group because of our low leverage, allowing us to have a high dividend payout, but also holding back for fleet renewal through a reserve. We are a US filer, so that makes us highly transparent with no related party transactions.

We’re actually the only one in the peer group now that does not have related party transactions, so it’s a very clean structure, and we’ve been rated number one from an ESG standpoint, globally out of 64 publicly traded companies. And the ticker symbol is GNK on NYSE. Taking a look at global trade trade routes, the, you you can see the iron ore, coal grain, and miner bulks. What’s really interesting are the the longer trade routes coming from Brazil, both iron ore as well as grain going into China. There’s a tremendous amount of operating leverage because of the length of those trade routes and the growth from a ton mile standpoint.

We’ve also seen a long trade route develop from West Africa, which you can see with the purple line going around at the, around Africa and then into China. And that’s the bauxite trade. And again, we’re seeing growth in that trade. And as we get into the latter part of twenty twenty six, we’re gonna see additional growth through iron ore projects that are coming online in the second half of twenty six. If you look at our fleet composition, we believe in what we call a barbell approach.

We think it’s very important, again, to have the exposure on the larger ships, which are shipping iron ore and coal predominantly. Certainly a more volatile sector, but provides, much more upside than, than most of the other vessels in dry bulk. But we also think it’s important to have the more stable earnings of the mid sized vessels. And again, we have built a robust commercial platform around that sector to service our customers, but it also allows Genco to create arbitrage opportunities and and ultimately create alpha above and beyond the, the published indices. So if we look at our approach to capital allocation, we’ve been very consistent about this for the last few years when we first put our value strategy in place, and Peter Allen is gonna go through that in a little more detail in a minute.

But if you look at our dividends, we’ve had 22 consecutive quarterly dividends, dollars 6 and 61¢ a share or 48% of our current share price. We’ve, at the same time, delevered significantly, down to, really a 5% net loan to value today. And then the third pillar, which is extremely important is growth. We have been investing in moderate cape size vessels, over the last couple years, and we’ve been doing a fleet renewal exercise, replacing our older less fuel efficient vessels with newer, more fuel efficient vessels. This is an interesting slide, and and it’s it’s actually one of my favorite slides because I I it really demonstrates why we set Genco up from a capital allocation standpoint the way we have and why we’ve been very consistent in paying down debt, but also paying out large, large dividends.

And the whole concept is that we wanna be able to play offense in every type of freight market environment. There is no doubt there’s been volatility in freight rates in the past, and there will continue to be volatility in freight rates going forward. We want the flexibility that in up markets, we can pay high dividends. In lower markets, we can still pay dividends, but we can take advantage of countercyclical opportunities because of the low leverage that we have on our balance sheet. So with that, I’ll turn it over to Peter Allen, our CFO.

Peter Allen, CFO, Genco: Great. Thanks, John. So touching on the comprehensive value strategy, it focuses on dividends, deleveraging, and growth, that John highlighted previously. And essentially, that starts with the balance sheet. And from a balance sheet perspective, we have the strongest one among our public drybulk peers.

We have cash of $44,000,000 as of December 31 with a debt balance of $90,000,000 We’ve reduced our debt by 80% over the last number of years. Our net debt position is only $46,000,000 on an asset base of approximately a billion dollars. That results in a net loan to value of approximately 5%, which again is the lowest among the peer group. Additionally, we have undrawn revolver availability of $337,000,000 providing significant amount of capacity available for accretive growth opportunities as they present themselves. And as you’ll see on the next page, we have opportunistically drawn down on that RCF in order to fund those accretive growth opportunities.

We’ve been investing in Capesize vessels over the last twelve to fifteen months, which have done very well from a cash flow perspective, increasing the company’s earnings power. But when we kind of take a step back, we look at what our debt balance was in Q4 of twenty twenty, it was about $450,000,000 now it’s $90,000,000 paying down 80% of our debt, well over $300,000,000 of debt pay down while we continue to invest in the fleet and also pay quarterly dividends. Turning to the next page, this is our quarterly dividend formula. It is variable, but it is based on 100% of quarterly cash flow, less a voluntary reserve. So as the market pushes that flows through the income statement and also flows through the dividend calculation.

We do have a voluntary quarterly reserve, which can be flexed depending on market conditions and depending on the cash flows and income statement. When we look at the Q4 dividend, which is presented here, we paid $0.3 per share, which is equivalent to about an 8% annualized yield. So we’ve been paying dividends now for about five point five years, paid back over $6 a share, 50% of the share price. So it’s been a successful policy, and we’ve been able to not only pay dividends, but also delever and grow the company on a parallel path. So with that, I’ll turn it over to Michael Ward to talk about the market fundamentals.

Michael Ward, Genco: Thanks, Pete. On this slide, we showed both the Baltic Capesize and Baltic Supermax indices since the start of 2024. To begin 2025, freight rates pulled back, which is seasonally normal for that time of year in the past few weeks. While the Capesize rates have picked up considerably with BCI now approximately $23,000 per day and the BSI at approximately $10,000 per day. In the first two months of the year, freight rates pulled back considerably, which is typical, largely a reflection of limited cargo availability coming from the Atlantic Basin.

Brazilian iron ore exports in January and February were approximately 19% lower than the second half of twenty twenty four average. We will see an uptick in cargo coming as weather related issues tend to mitigate, as we head towards the spring and summer seasons. Over the past two years, China has imported considerable amount of iron ore. Last year, China’s iron ore increased an additional 5% up an already record 2023 season. What’s over those two years, iron ore stockpiles have appreciated considerably.

But what is encouraging is that those levels have started to tick down and are only approximately in line with where they were last year. The next few years, as John mentioned, we will see considerable amount of cargo coming online in both Brazil as well as West Africa, both in terms of iron ore as well as bauxite. But what’s important is that these are long haul ton miles. One cargo coming from either West Africa or Brazil has three times the ton mile impact as one cargo coming from Australia. So every additional cargo coming online in The Atlantic can have considerable impact on capesize rates.

And as I’ve mentioned, we’ve seen a significant increase in bauxite over the past decade with annual growth at approximately 9% per year. Most of this is coming from West Africa, particularly the country of Guinea, and China is the main consumer of this product. We are currently in peak South American grain season. One reason why Capesize rates have seen an uptick has been stronger Panamax rates, which is a smaller vessel, that had helped push up capesize rates, strong South American grain season. Most of these soybeans are going to China, the Far East.

These are long haul ton miles, helping boost break rates across the board. In terms of the Suez Canal, transits still remain quite low. They’re approximately nearly 70% lower than that they were prior to the initial attacks on commercial vessels in December of twenty twenty three. At the moment, for instance, it’s here to be it’s remaining quite low for the time being. And finally, on slide 22, we want to highlight the strong supply side picture.

We have a rapidly aging fleet. Approximately 10% of the fleet is now ten years or older, which is effectively in line with the 10% order book. We view most of this order book as placement tonnage as the rapidly aging of our fleet will need to be renewed in the coming years.

John Wogan Smith, CEO, Genco: Great. Okay. So to to round this out, just taking a look, again, the risk reward strategy that we’ve put in place for Genco, I think, is second to none with having a very low leverage with the ability to pay dividends in any type of freight market with the volatility. A lot of that has to do with, obviously, the low cash flow breakeven rate, which comes out of the low leverage, the strong balance sheet, a very high liquidity position with our revolving credit facility that we have in place. We’re still very concentrated on fleet renewal and growth because we we do have a positive view of dry bulk shipping going forward.

I think Mike did a did a really good job describing the supply and the demand dynamics and with the basically, at a historically low level on supply of 10.5 of the existing fleet on order, that is almost replacement tonnage. When you look at the 8% to 8.5% of ships that are twenty years and older, it will most likely be scrapped in a short in the short term. With Genco, very strong corporate governance, reiterating that we’ve been ranked number one out of 64 companies on an ESG standpoint. And then if you look at our revenue generation, again, with the growth of the fleet, but also the positive supply and demand dynamics, particularly as we get into next year with new demand volumes coming on, we think there’s a lot of operating leverage to, to be realized within the company. Okay.

So with that, we will open things up for questions.

Michael Orr, VP of finance: Very good. Thank you, gentlemen. So again, members of the audience, if you have questions, please type them into the q and a box. While we’re waiting for some questions to build up in the queue, there are a few gentlemen that stuck out to me as I was studying your company. The biggest one is to turn back to the income statement.

In 2024, you had a huge increase in revenue, but you also decreased expenses. So net income went way up. What drove those positive trends?

Peter Allen, CFO, Genco: Yeah. Thanks, Michael. So obviously, as we talked about during the presentation, there’s tremendous amount of operating leverage in the business. So the cost structure, while it was fairly straightforward and fairly even from a per vessel per day basis, the revenue of the company increased significantly. So when you look at net income that was primarily driven by higher net revenue, which voyage revenue minus voyage expense and charter higher expenses.

So that component of our income statement increased significantly, which resulted in about $150,000,000 of EBITDA versus about $100,000,000 even the prior year. So, basically, it was long story short, it was a significant increase in revenue.

Michael Orr, VP of finance: Got it.

Peter Allen, CFO, Genco: Due to freight rates? Due yeah. Due to the more freight

John Wogan Smith, CEO, Genco: much higher freight rates in 02/2024.

Michael Orr, VP of finance: Okay. Good. I see we have a question from the audience if you want to answer that.

Peter Allen, CFO, Genco: Michael, could you read it for us?

Michael Orr, VP of finance: Sure. How does the possible decrease in other energy prices affect your business in the next few years with the neck with the new administration?

John Wogan Smith, CEO, Genco: Well, keep in mind, you know, when we price freight, we build in the price of fuel on that day. So fuel is is, effectively a pass through, that, you know, we we price every time we’re pricing a piece of freight. So low energy prices, high energy prices from a from an earning standpoint, it does not, it does not really affect the company.

Michael Orr, VP of finance: So just to follow-up on that, are you essentially buying the fuel as you’re booking the freight, so you’re you have this sort of internal hedge like that?

John Wogan Smith, CEO, Genco: For the most part, it it’s not it’s not quite as linear as that, but it’s it’s fairly close.

Michael Orr, VP of finance: Okay.

John Wogan Smith, CEO, Genco: And, obviously, when when we have, when we have some contracts that we have in place, you know, we will build in a fuel adjustment within those contracts so that, so that we don’t take the exposure. And from time to time, we we use fuel hedges as well. But the idea is that we are a shipping company, not a fuel company. So we we wanna make sure that all of that is hedged so there’s no exposure to JETCO.

Michael Orr, VP of finance: Got it. While we’re waiting for more questions from the audience, I had a couple more from studying you guys. Let’s turn back to the balance sheet. You mentioned that you have delevered, paying off about 80% of the debt from 2020. When I look at your peers, they have much higher leverage rates.

So could you just explain that strategy? What’s driving that?

Peter Allen, CFO, Genco: I want to take that back. Sure. So, yes, Genco over the last number of years has gone on this deleveraging path. We’re paying back about 80% of our debt. We do have the lowest net leverage of the peer group.

We’re at net loan to value of 5%, whereas many of the other peers are in the 20 to 30, if not higher range. We think well, we’ve done a lot of work historically in what drives this business. There’s a lot of cyclicality and volatility. And our focus is rewarding shareholders paying dividends and also growing fleet. And the best way to do that on a consistent basis as we’ve done really over the last five plus years is to have a low cash flow breakeven rate.

And in order to do that, you have to have a low debt balance. So we have no mandatory debt amortization. We have outside of drydocking and regulatory CapEx, we have a $9,000 cash flow breakeven rate. And what that has enabled us to do is to pay 22 straight quarters of dividends, which is the longest among the peer group. It’s allowed us to buy counter cyclically when the opportunity presents itself.

So it really gives a lot of flexibility and optionality within the balance sheet.

Michael Orr, VP of finance: We had another question come up from the floor. How do you forecast the international demand for the shipping industry, and how much do you see that increasing in the next five to ten years?

John Wogan Smith, CEO, Genco: So, forecasting from a rate standpoint is always extremely difficult, though we do take views on, growth on the cargo flow side. We obviously are privy to a ton of research, but when you look at the growth from a cargo standpoint that is positioned for drybulk shipping, we’re really talking about iron ore growth out of Brazil, which again is a long haul trade over the next couple of years. So it adds ton miles. You know, there there’s a lot of operating leverage to add ton miles on that long trade. You also have the bauxite trade, which is growing out of Guinea and West Africa.

Again, a long haul trade. And then we have a new iron ore project coming on stream. Again, most likely mid to late twenty twenty six, which will add incremental volumes of iron ore into the market just like we’re seeing out of Brazil. And when you take that and you measure it up to the the very low growth on the supply side, meaning the number of ships that are available at any given time to ship cargo, you’ve got demand outstripping supply, as we get into mid twenty six and ’27 in particular. And that that will obviously be a very positive development, when those when those new projects come on stream.

But it’s on the backdrop of the supply side, and I can’t I can’t say enough positive about it. And and even, you know, we have a 10 and a half percent, you know, low historical low on the order book side. But even if you wanted to order today, you’re talking about not being able to take delivery until late two thousand twenty eight or early two thousand twenty nine. So there’s a lot of runway for for, you know, for ordering not to occur or deliveries not to occur. You you it it’s very precise in terms of what we, what we know in terms of what’s going to be hitting the water.

So we can plan a lot better. And as I said, it’s a historical loan, so it should be helpful to freight rates going forward.

Michael Orr, VP of finance: Interesting. While we’re waiting for some more questions in the queue, you kind of alluded to it in your presentation that the bulk of your business is in coal and iron ore. I’m curious why you chose those particular commodities to specialize in.

John Wogan Smith, CEO, Genco: Well, I think it I think it has to do with the makeup of our fleet, first of all. The the capesize vessels of which we have 16, are carrying iron ore and coal exclusively, bauxite from time to time, but mostly iron ore and coal. And iron ore being the biggest, commodity with within the company. There are larger parcel sizes. There are bigger ships.

But then and again, if you look at where we see growth going forward, it’s in those larger cape size vessel commodities, iron ore and bauxite in particular.

Michael Orr, VP of finance: Great. And just for folks who may not be familiar with the terms, could you just explain how bauxite is used?

John Wogan Smith, CEO, Genco: I think.

Michael Ward, Genco: Yeah. Bauxite, the it’s smelted into alumina, which eventually becomes aluminum. China’s been using majority of that for electric vehicle production as well as solar panel production, with renewable energy trades. And China’s appetite for box that has increased considerably over the past decade. It was at once a minor bulk trade like any other, and now it’s become one that is on capesize vessels, which is fairly important.

It’s also the fact that it’s coming from the Atlantic Basin, in on capesize vessels, is really, really important.

Michael Orr, VP of finance: Great. So China has come up in the discussion several times and, of course, there’s a lot of, you know, audited about tariffs that’s in the news. Does the fact that the commodity itself is sourced from outside The US make a difference for tariff purposes, or, is it down to you as a US based shipper?

John Wogan Smith, CEO, Genco: No. I think most most of what we’re shipping, I think only maybe 10% of drybulk commodities go in and out of The US. It’s it’s actually a pretty small number. And so, you know, that that’s where potential tariffs, you know, could take place. But out outside of The US, you know, our our when we’re moving iron ore from Brazil to China or Australia to China or bauxite out of West Africa into China, there’s there’s no tariff situation that’s being even contemplated at this point.

Michael Orr, VP of finance: Well, thank you. I know that

John Wogan Smith, CEO, Genco: Really, it’s really focused on Chinese exports, which is mostly semi finished or finished goods, right, in the container side, as well as exports out of The US, which would mostly be grains, and maybe some coal. But again, there are other areas of the world to source those. Right? Brazil is a very large, producer of soybeans and, and corn, and we’ve even seen more buying out of Brazil. And that’s a longer longer ton trade, so it’s actually somewhat beneficial to us.

Michael Orr, VP of finance: Great. Earlier, you were describing kind of the net shipbuilding, and how there’s effectively there’s a a big backlog if I followed you correctly. So I get that the next couple of years, there aren’t a lot of ships being delivered. But does that mean there’s sort of a a balloon payment almost, a a large number of ships hitting in 2829?

John Wogan Smith, CEO, Genco: No. Because, I mean, if you look at the order book for ’28, ’20 ’9, it really I mean, there’s nothing there. Right? It it particularly for ’29. And and what’s what’s actually driven the fact that, you know, the slots are full, it’s not dry bulk ships.

It’s containers, tankers, and gas carriers that have filled up those slots, and drybulk ship owners effectively can order at this point and until really late twenty eight and and early twenty nine.

Michael Orr, VP of finance: Okay. So with, that constraint then on new builds for, you know, your your type of carrier, what does that mean for your strategy around fleet renewal that you referred to earlier?

John Wogan Smith, CEO, Genco: Well, it means we’re going to concentrate as we have been on secondhand tonnage, but modern relatively new secondhand tonnage that have much more fuel efficient engines than the older ships that we’re cycling out of at this point.

Michael Orr, VP of finance: If we could We

John Wogan Smith, CEO, Genco: also, you know, we also think it’s very important, you know, ordering new buildings has, has its own risk. Right? You have money out the door that is not earning anything for a for a long period of time. You’re obviously taking risks from the time you order it to to when a market risk from when you order it to when you actually take delivery. So our view is we’d much rather get the ship in the fleet from the secondhand market as quick as possible, start earning a revenue stream and start derisking that asset and understanding basically what you’re getting into from a market standpoint rather than ordering new builds.

Michael Orr, VP of finance: Interesting. You mentioned fuel a moment ago, so if we could just kind of pursue that for a second. Is most of your fleet burning LNG? Are some of it still burning bunker?

John Wogan Smith, CEO, Genco: No. It’s mostly burning bunkers. And, you know, most mostly very, very low sulfur fuel oil, particularly in the mid size. But the the larger ships, we do have scrubbers on board. So we the 16 Capesize all have scrubbers.

So we we do burn HSFO. But when we’re in ports and, obviously, there are a lot of regulations around it, you know, we’re burning the, the very low sulfur fuel oil as well.

Michael Orr, VP of finance: I’ve noticed a couple of other shippers, are beginning to burn ammonia. Do you see that as a trend that will impact you?

John Wogan Smith, CEO, Genco: I think ammonia is very long away. I don’t know of a single company actually that burns ammonia yet because the so they’ve been there have been big delays on the engines for, for the new builds that are dual fuel. They’re they’re ammonia slash bunker fuel vessels that are due to really start delivering. And again, I think it’s sort of 02/2020 late twenty seven, early ’20 ’8. But there’s a real question around it right now because of the lack of availability in in an engine.

There’s certainly a design. It’s just been late coming to, to market. And then the other the other big challenge with, with ammonia is actually producing green ammonia and enough of it, that that you can actually build a fleet around it. I think that’s one of the the biggest challenges the industry faces because we’re not you know, if if if ammonia takes off, which we do we do believe in ammonia, it’s you’re gonna be competing against the aircraft industry, the electrical power industry, the trucking industry. So it’s, I I think there’s a lot to happen from an infrastructure standpoint over many years before we get to where it’s really viable.

Michael Orr, VP of finance: Great. I see we’re close to running out of time. Why don’t we wrap up by asking you guys to kind of summarize your value proposition? Why should an investor invest in Genco and why now?

John Wogan Smith, CEO, Genco: Again, positive supply and demand fundamentals within the within the industry, I think that’s where you have to start. And certainly, we’re we’re optimistic, particularly as we get into, to next year. And then you look at Genco as a company, US filer, highly transparent. We put everything out there for everyone. No related party transactions.

And with the balance sheet that we’ve created, we believe we’ve created the best risk reward model in terms of being able to pay high dividends, but then also being countercyclical and always playing offense as, you know, when vessel values do come down because of, you know, downward volatility on freight rates. So it it’s it it really our view is it’s it’s the best setup company for investors. We continue to pay that dividend, and it’s a nice option on upside in, in the market if you’re also collecting the dividend.

Michael Orr, VP of finance: Well, thank you, gentlemen. Very impressive presentation, and thank you to the audience for joining us today at the Sidoti conference. I’ll wrap it up there. If there are any further questions, please let Sidoti know and we’ll make sure and run down answers for you. Again, John, Michael, and Peter, thank you for joining us today.

We really appreciate everything you had to say.

John Wogan Smith, CEO, Genco: Great. Thank you, Michael. Appreciate you having us. Enjoy your day.

Michael Orr, VP of finance: Thank you.

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