Washington, D.C. 20549
Genco Shareholder Webcast
May 8, 2024
8:30AM ET
Corporate Participants
Jim Dolphin Genco Shipping & Trading Limited - Chairman of the Board of Directors
John Wobensmith Genco Shipping & Trading Limited - Chief Executive Officer
Peter Allen Genco Shipping & Trading Limited - Chief Financial Officer
Jim Dolphin - Genco Shipping & Trading Limited - Chairman of the Board of Directors
Good morning and thank you for joining Genco’s Webcast with the Board and management team. My name is 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 are worth addressing. We wanted to take this opportunity to speak directly, in particular to our retail investors, so we can ensure you are 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 and wanted to be in the same place as we answer shareholder questions.
We will not get into our first quarter earnings results. With that, let me turn it over to Peter. He’ll get us started by going through the required legal disclaimer and then he’ll read off the questions. Over to you, Peter.
Peter Allen - Genco Shipping & Trading Limited - Chief Financial Officer
Thanks Jim. Before we begin, I note that during this call we’ll 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 “expect,” “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 filings with the Securities and Exchange Commission including, without limitation, the Company’s Annual Report on Form 10-K for the year ending on December 31, 2023, and the Company’s reports on Form 10-Q 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 in this webcast, we mean the peer group 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 more information on companies used in our analyses 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 business?
Jim Dolphin - Genco Shipping & Trading Limited - Chairman of the Board of Directors
Thanks, Pete. Three years ago, as a Board, we 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. When things are good, they are very good, when things are bad, companies often hit the wall. And there mostly haven’t been consistent ways for shipping companies to reward shareholders through dividends, or other return of capital. We wanted to be different. We wanted to set out to make Genco a perpetual machine in rewarding shareholders. What that eventually led to is an understanding that the only way to do that is to really drive down your break-even rates, and the only way to really drive down your break-even rates is to eliminate, or nearly eliminate, debt, particularly amortizing debt.
John Wobensmith - Genco Shipping & Trading Limited - Chief Executive Officer
So what Jim is 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 break-evens 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 number one three 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.
Jim Dolphin - Genco Shipping & Trading Limited - Chairman of the Board of Directors
From the start, governance has been a focus of ours. We pride 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 could add to the capabilities of the Genco board.
We started that process some time ago and actually ended up finding a professional search firm to help us with that. And we’re really pleased to be able to find Ms. Paramita Das 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 three and five years down the line to make sure we’re prepared for the challenges we’re going to face in the future.
Peter Allen - Genco Shipping & Trading Limited - Chief Financial Officer
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 Net Asset Value?
Jim Dolphin - Genco Shipping & Trading Limited - Chairman of the Board of Directors
I think so. 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 one year basis, on a three year basis, on a five year basis. I think what this really speaks to is our strategy of driving down debt, continually repaying dividends and renewing our fleet, is working. People are seeing it, people are, are liking it. We have been very consistent in our messaging for the past three 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-to-1, 100% NAV. We’re going to continue to push to get there. And, you know, we’re hopeful we will continue to close that gap.
John Wobensmith - Genco Shipping and Trading Limited - Chief Executive Officer
Yeah, I mean, Jim, the gap is actually very small now and it’s really improved the last few quarters with the value strategy and the dividend that we’ve paid. And I think, again, the TSRs, as you pointed out, that speaks to themselves, but I do think the industry now, at least a lot of the analysts, are starting to look at these equities more on a cash flow generating basis and a dividend yield basis than straight NAV, which can be a very backward looking metric.
Peter Allen - Genco Shipping & Trading Limited - Chief Financial Officer
Next question is regarding the dry bulk market, what is your expectation for the dry bulk market for the remainder of this year and into next year?
John Wobensmith - Genco Shipping & Trading Limited - Chief Executive Officer
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 with a 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 that’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, bulk side imports are up, and we’ve really had quite a 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.
Jim Dolphin - Genco Shipping & Trading Limited - Chairman of the Board of Directors
Picking up on that point, we talked earlier about driving down debt and I know that when people think about driving down debt, that’s not textbook 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 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 offense. 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 around, come into the market and really expand the fleet in a way that will pay off down the line.
Peter Allen - Genco Shipping & Trading Limited - Chief Financial Officer
Switching gears a bit, who is George Economou? And do you have a history with him?
Jim Dolphin - Genco Shipping & Trading Limited - Chairman of the Board of Directors
Me, no. I’ve always known of George Economou, but frankly, I’ve only had two conversations with him in the course of this proxy process. Look, this is not personal. This is business. We’ve told you, we’ve told our shareholders about George Economou in our last communication with you. I’d encourage everybody to read that. I will not get into it apart from, to say, when George Economou has had public bonds, when he has led public companies, there has been a lot of value destruction for shareholders. Again, I would encourage people to look at our website to understand the specifics of what’s gone on when he’s been in charge. But, but he’s also a man who led what was at one time the most valuable drybulk company in the world, or at least public dry bulk company. So we take his ideas very, very seriously. He suggested to us that we do a buyback program, including possibly selling some ships. So, we looked at that extensively. We looked at it with our financial advisors which is a well-known investment bank. We looked at it with management, we looked at it as a Board. We looked at every shareholder buyback program within the last eight years. That consisted of 52 different programs and 133 executions. What the data showed was pretty inconsistent results about whether that could create value. But, on average, what we found was that companies without buyback programs actually outperformed the company that was initiating the buyback program, again on average. And that’s mainly because shipping values are really more driven by the rate environment than necessarily a buyback program that somebody happens to initiate in a period of time.
Peter Allen - Genco Shipping & Trading Limited - Chief Financial Officer
Economou is suggesting adding one person to the board. What is the harm in that? Why not just add his nominee and avoid this fight?
Jim Dolphin - Genco Shipping & Trading Limited - Chairman of the Board of Directors
George Economou is not your typical activist investor. He is actually a competitor of ours in the drybulk space. But we took his nominations seriously. We interviewed both nominees that he put forward. In one case, he put forward a professional who is very experienced in shipping, but frankly, was not additive to our board. We had those skills, we had those experiences. In the second case, Mr. Robert Pons, who remains the nominee that is part of this proxy contest, he really doesn’t have shipping experience nor does he have experience in highly capital intensive businesses nor does he have experience in highly cyclical businesses and he could offer, when the nominating and governance committee interviewed him, he could offer really no concrete suggestions that we thought could drive value within Genco.
Adding directors simply for adding directors is adding costs to our shareholders. We believe we have a very well-functioning board with the skill sets that we need to manage this business. Disrupting that with no clear benefit but clear cost was not something that we were willing to do.
Peter Allen - Genco Shipping & Trading Limited - Chief Financial Officer
Regarding capital allocation, why can’t you return even more cash to shareholders?
John Wobensmith - Genco Shipping & Trading Limited - Chief Executive Officer
So, I think again, we need to talk about our Comprehensive Value Strategy. We really strive to have a balance of paying a return to shareholders in a current manner throughout the dry bulk cycle, which as we’ve talked about, is highly volatile but also managing debt and deploying capital for the long term growth of our business and fleet renewal. And if you look at what we’ve actually done, we’ve paid 18 consecutive quarterly dividends to shareholders that represents the longest streak within our peer group. We’ve returned $5.15 per share or approximately 25% of our current share price to shareholders. And we did this while continuing to pay down debt as well as investing in our fleet. We did quite a few transactions at the end of last year in terms of fleet renewal.
Again, I think it’s important to point out that the board and the management team regularly focus on capital allocation and striking the right balance because we don’t believe there’s necessarily a set formula to get this right. And overall, the team is open-minded, we review consistently our capital allocation strategy and if changes are needed, we definitely assess it and, and we will make it, but this value strategy it’s worked incredibly well since its inception.
Jim Dolphin - Genco Shipping & Trading Limited - Chairman of the Board of Directors
And what I think is really worth noting in terms of how we think about this and how we are adaptive is that when we set out on this value strategy, our focus was driving down debt and we really pushed down our debt to drive down that breakeven rate. When we pushed down our debt to drive down that break even rate, our team was able to globally refinance our bank debt. It created a non-amortizing facility which again, further lowered our break-even rate and we were able to get reductions in our interest rate. More value that could be returned to our shareholders. Once we got that in place, then we transitioned. And this really came to the fore in 2022 and into ‘23 where we went from focusing on repaying debt to really focusing on paying out dividends. So, there was a switch into what we were doing with our cash flow. And we continue to have that priority. We think we have a good handle on our debt. We’re still going to work on it slowly but surely, but our focus right now is getting every dollar out to shareholders.
Peter Allen - Genco Shipping & Trading Limited - Chief Financial Officer
Thanks, Jim. The last question that we have for today is why should I vote for your directors?
Jim Dolphin - Genco Shipping & Trading Limited - Chairman of the Board of Directors
Again, we think we have the right management team. We think we have the right directors to guide Genco forward. We’ve been consistent in our strategy, we have executed against our strategy and that execution has led to outperformance on a total shareholder return basis.
On the other hand, there’s a suggestion that we need a newcomer in the form of Robert Pons, somebody who has no experience in the shipping business. I really want to emphasize that our board takes our role as fiduciaries working for our shareholders seriously. We believe in our strategy, our transparency and our best-in-class corporate governance.
I want to thank everyone for participating in this. This is your Company. We encourage you to vote for Genco’s current board of directors, the slate that you will see on the White Proxy Card and withhold your vote from Mr. Robert Pons.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
These materials contain 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 “expect,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with a 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 10-Q 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.
