Grindrod Shipping Holdings Ltd
NASDAQ:GRIN
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Grindrod Shipping Holdings Ltd
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Thank you for standing by, ladies and gentlemen, and welcome to Grindrod Shipping Holdings Ltd. Conference Call on the First Quarter 2022 Financial Results. We have with us Mr. Stephen Griffiths, Interim Chief Executive Officer and Chief Financial Officer; and Mr. Carl Ackerley, Chief Operating Officer of the Company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you the conference is being recorded today.
We now pass the floor to one of your speakers today, Mr. Griffiths. Please go ahead.
Thank you, operator. Welcome, everyone, and thank you for joining our call on the first quarter 2022 financial results. I'm also pleased to welcome Carl Ackerley to the call, who leads our commercial activities. Carl has spent over 10 years at Grindrod and plays an integral part of our chartering and operations. We look forward to his insights on the drybulk market going forward.
Let me please refer you to Slide number 2 with the forward-looking statement disclaimer. On this call, we will make certain forward-looking statements, including statements regarding our future financial and operating performance. These statements include information regarding future time charter contracts, outlooks for the drybulk market and other operating matters. These statements are based on the beliefs and expectations of management as of today.
Our actual results may differ materially from our expectations. Investors should read carefully the risks and uncertainties to start in this slide presentation and in yesterday's press release as well as the risk factors included in our annual reports and our other filings with the SEC. We assume no obligation to revise or update forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.
In addition, during this call, we will be discussing certain non-GAAP financial measures. For additional disclosures relating to these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP measures, please see yesterday's press release and Pages 23 to 25 of the slide deck, which was posted on our website and our filings with the SEC.
Please turn to Slide 4 for an overview of our first quarter 2022 financial results. After a transformational year in 2021 for Grindrod Shipping, in which, we enjoyed record financial results for the full year overall, the Company has enjoyed a historically strong start to 2022.
For the first quarter 2022, our gross profit, adjusted EBITDA and adjusted net income increased materially year-over-year, reaching $40.7 million, $50.2 million and $29.8 million or $1.60 per ordinary share, respectively.
As of March 31, 2022, we had cash and equivalents of $106.5 million and restricted cash of $6.6 million, which was similar to the year-end despite the strong results as there was a working capital increase due to the timing of certain receivables selected shortly after the quarter end. I will go into more detail on our financials later in this presentation.
Please now turn to Slide 5 to look at our recent developments. On April 14, 2022, we entered into a contract to sell the 2016 bulk medium-range product tanker, Matuku, for $30 million, as we forecast. In anticipation of the sale, we have exercised the purchase option for the Matuku under her existing finance arrangement at a cost of $25.4 million following the expiration of the current bareboat charter under which the vessel operated.
Delivery of the vessel to us is expected on or about May 30, 2022, before onward delivery to the new owners planned on or about June 1, 2022. On May 10, 2022, we exercised the purchase option on the chartered-in 2015, both supramax bulk carrier, IVS Pinehurst, for an amount of $18 million, with delivery planned on or about June 18, 2022. The vessel will remain chartered-in as her original contract rate until delivery to us.
Grindrod has four remaining purchase options, which you will find on Slide 22 of this presentation, which reflects our charter-in fleet update and provides information on our long-term charter in vessels and associated purchase options. Also on May 10, 2022, we agreed to extend the long-term charter on the 2014-built supramax bulk carrier, the IVS Pinehurst for a period of 11 to 13 months at a charter-in rate of $26,276 per day, commencing May 1, 2022.
On May 24, 2022, our Board of Directors declared an interim quarterly cash dividend of $0.47 per ordinary share, payable on or about June 20, 2022, to all shareholders of record as of June 10, 2022. As of May 24, 2022, there were 18,958,025 common shares of the Company outstanding, excluding treasury shares. Now, I will go over the financial highlights and performance for the first quarter of 2022.
Turning to Slide 7. The first quarter of 2022 was the strongest first quarter for charter rates in over a decade and lays a solid foundation for the rest of the year. In this context, revenue increased to $110.3 million in Q1 2022 compared to $68.4 million for the same period 2021. Gross profit increased to $40.7 million in Q1 2022 compared to $12.6 million for the same period 2021. Net profit attributable to owners of the Company increased to $29 million or $1.55 per ordinary share in Q1 2022 from $2.2 million or $0.11 per ordinary share in Q1 2021.
Turning to Slide 8. We have placed a priority on building a strong balance sheet and have maintained a healthy cash position while repaying $7 million of our debt in the first quarter of 2022. This strategy has reduced our net debt to $126 million while leaving us well positioned to pursue our growth and capital return strategies.
On Slide 9, we provide our bank loans and other borrowings repayment profile at March 31, 2022. We continue to have limited debt maturities until 2025, which combined with a conservative amortization profile provides us with balance sheet flexibility going forward. Overall, we maintained low leverage. And this is even lower when you take into consideration the market value of our fleet, which is comprised mainly of modern Japanese built eco vessels.
Let's turn to Slide 10. We will now briefly discuss our drybulk operational performance for the first quarter of 2022. Handysize TCE per day was $22,201 for the three months ended March 31, 2022, versus $12,053 per day for the same period 2021. Supramax/Ultramax TCE per day was $24,385 per day for the three months ended March 31, 2022 versus $13,259 per day for the same period 2021.
As of May 19, 2022, we have contracted approximately 1,310 operating days at an average TCE of $26,875 per day for our Handysizes and approximately 1,568 operating days at an average TCE of $29,498 per day for Supramax/Ultramax. The average long-term charter-in cost per day for the Supramax/Ultramax fleet for the second quarter of 2022 is expected to be approximately $13,997 per day.
Now turning to Slide 11. The scale of the rise in the drybulk freight rates is easily demonstrated versus our historical results. During the first quarter 2022, approximately 90% of our fleet was predominantly trading either on index-linked cargo contracts, short-term time chartered or in the spot market, leaving our company well positioned to take advantage of the strong freight rate environment.
To put this into context, with every $1,000 change in TCE per day equated to approximately $10.8 million of TCE revenues during the full year 2021 for the core fleet. As you can see on the graph, the drybulk environment in the second quarter of 2022 is having a strong performance than the first quarter 2022 around levels we had in the second half of 2021.
Now turning to Slide 12. It shows the core fleet cash breakeven analysis for the first quarter 2022. Breakeven per vessel per day was as follows: for long-term charter-in, which includes a daily G&A allocation on top of the charter rate, the cost was $14,890 per day; for our own fleet, it was $11,782 per day; and the combined average total for the core drybulk fleet was $12,474 per day.
The cash breakeven rate per day includes operational expenses, net G&A, interest expense and debt repayments. You can contrast these figures to the daily TCE rates in the previous slide to assess the robustness of our profitability.
With that, I would like to turn the call over to Carl to discuss the drybulk market.
Thanks, Steve. Now if you can please turn to Slide 14 to look at the fundamentals of the drybulk sector and how they've been developing against the current market environment. The war in Ukraine has led to reduced growth expectations for cargo levels in 2022 due to the loss of nearly all Ukrainian seaborne exports and many Russian cargoes, particularly in the grain and fertilizer sectors.
The demand hit is being partially offset by longer voyages as replacement cargoes are sourced from further afield. This is demonstrated by tons-mile demand expectations that are still expected to increase by 1.6% in 2022 whilst actual tons are projected to only increase by 0.3%.
Handysizes and Supramaxes continue to be helped by congestion in the container sector, which is leading to unitized cargoes as well as other previously containerized cargoes such as certain steels, scrap, grain and bag cargos moving into bulk. There is also containerization of a small number of handy bulk carriers, particularly logger types, which can take containers on and under deck.
Please turn to Slide 15. As the slide depicts, grain trade is expected to contract in 2022, primarily due to the loss of Ukrainian export cargoes, whilst coal trade has been impacted as well due to some buyers avoiding Russian coal cargoes. There has also been increased domestic coal production in China, reducing the need for their imports. COVID lockdowns in China have also created uncertainty with factory production under pressure though commodity pricing remains resilient.
Regarding iron ore, Vale has stated they plan to increase exports in the second half of the year as normally happens in Q3, Q4 after the summer ends. We are also expecting a big push from West Australia for June prior to the Australian fiscal year-end. Minor bulks are expected to remain resilient due to the aforementioned decontainerization as well as the emerging markets continuing to grow and require product.
Turning to Slide 16. The drybulk order book continues to shrink to multi-decade lows. It is estimated to be at only approximately 6.6% of the fleet. This potential growth is quite favorable, especially considering approximately 22% of the drybulk fleet is 15 years or older and approximately 11% of the drybulk fleet 20 years or older, measured by deadweight.
Despite strong market conditions, the ordering remains constrained by uncertainty relating to cost, practicality in terms of trading patterns and new fuel availability, engine technology and emissions regulations pertaining to EEXI and CII. For 2022 and 2023, supply growth is forecast to be 2.2% and 0.4%, respectively, on the Handysize and Supramax order books, which are the smallest in the drybulk fleet.
Turning to Slide 17. While we saw Handysize/Supramax spot TC rates decreased at the beginning of this year, we have recently been seeing the market strengthening. Looking at the chart on the right-hand side, Handysize/Supermax asset prices have increased approximately 10% since the start of 2022. And as long as the market retains strength, we believe this trend should continue.
I would now like to turn the call back over to Steve.
Thanks, Carl. Finally, let's turn to Slide 19 for our conclusions and strategy. Let's start with our achievements in 2021.
As reported earlier, the first quarter was the strongest in over a decade with an over 12-fold increase year-over-year in our adjusted net income per share while our commercial strategy continues to demonstrate its potential with material profits generated from both our long and short-term charter in vessels, while we have opportunistically exercised the purchase option on the IVS Pinehurst at very attractive levels.
On the corporate side, we continued our flexible dividend and capital return policy in the first quarter, which will result in a cash dividend of $0.47 per share. As for our peak performance to date, as of May 19, 2022, our contracted days for the second quarter have been fixed at higher charter rates relative to Q1 2022 and those achieved during Q2 2021.
Now looking ahead, the war in Ukraine and the impact of Russian sanctions is disrupting the grain trade and other commodity flows from that area, though shipping demand has remained strong due to replacement cargo has been sourced from longer distances, thus increasing ton miles.
The smallest newbuilding order book in decades continues to support market strength due to construction and vessel supply as uncertainty over engine technology and emissions hampers newbuilding orders, particularly in the smaller vessel segments. Newbuilding orders in other sectors such as LNG and container shipping has limited shipyard spare capacity, meaning that most new orders could not hit the water until mid 2024 at the earliest.
To the extent that demand grows -- sorry, that demand continues to grow, the lack of available supply growth combined with EEXI and environmental regulations in 2023 is expected to lead to an attractive potential multiyear window for the drybulk market. With this, I thank you all for joining our call today and look forward to reporting further progress on Grindrod shipments.
With that, we'd like to open for questions. Operator?
[Operator Instructions] We have our first question. We have our first question comes from the line of Christopher Robertson.
So just looking at the couple of vessels that have charter expiries this year where you have the purchase option. So, those prices are well below or at least meaningfully below the current market price for a retailer, secondhand ship of the similar age. So can you walk through -- do you plan on exercising those options? Or do you have a time period where you can weight those out to see what happens? Or how are you thinking about those?
Yes. So, we have five of our vessels that have purchase options. They are all significantly in the money. We just contracted one, which is delivering shortly by the end of May. And the plan with the other four is the exercise of those options over the next 12 months. We know the opinion that we should do them all at once. And as cash comes in, we will exercise those options. So, yes, the plan is to do that. We do all of them within the next 12 months.
Okay. And then how are you thinking about the, I guess, the financing? You mentioned cash there. So would you foresee this as an all-cash purchase? Or would there be debt financing as well?
So the likelihood is, on the first one, we haven't raised any debt. And the intention is to do the same with the others, but it obviously depends on the cash flow. We're looking at reducing our debt overall, cost of fleet and this is one way of doing it is rather paying down debt. It is taking some with our debt. But obviously, we would still have the capacity to raise the debt down the line if needed to.
We have our next question, comes from the line of Poe Fratt.
Yes. Stephen, this is Poe Fratt from Alliance Global Partners. I hope Martin's enjoying retirement. Could we just walk through -- you just talked about exercising the options. Is there still the potential that maybe the Windsor and the Crimson Creek, that you might be able to bring those in even though they don't have purchase options?
So look, contractually, there are purchase options attached. There will always be an option at the end of the charter to extend the charter rate. But if it's not contracted, it would be more at current market levels at the time. So, I would say very unlikely that we'll be able to bring them into our core fleet at the end of the target period or the option period as well.
Okay. And then, you did extend out Crimson Creek. That -- there was a big jump, about 10,000 a day on the next 11 to 13 months extension. Can you just talk about whether -- how we should interpret that? Is that a signal that you think the market is going to be relatively strong? Or have you been able to lock in the other side of that trade and lock in a margin on that on the Crimson Creek?
It's a bit of both on that. But I'll let Carl answer that.
Yes. The original deal was the extension after the initial five years was on a index basis with a floor and a ceiling. When that ended at the beginning of May and/or we ended into discussions with Marubeni to see if they wanted to extend, they did. They were for a while thinking they may sell the ship, but they decided that they were happy to go another year.
We were given sort of like first opportunities as being the long-term incumbent, and we have a very good relationship with them. As far as the rate itself is concerned, yes, we did do very well on the first 60-day voyage, which locked in a profit that justified taking it forward. And we also hedged a significant portion of the paper for the remainder of that charter after that first voyage.
And any sort of ballpark margin number?
Carl, yes. But it's certainly above the levels of what we chartered within it.
Okay. And that sort of leads into my next question. If I look at your flat -- if I assume that second quarter available days are going to be flat with the first quarter, on the handy side, you have 91% launch. And on the super side, it's close to 70%, really solid for this visibility for the second quarter. Can you talk about visibility into the third quarter? Have you -- do you have any charters in place for the third quarter? I assume you do, but can you give us sort of a ballpark?
Yes, again, Carl, we really just focus for Q2. We have said that we run pretty much spot on 90% of the fleet. So at this stage, there's not much cover into Q3. But yes, we just stick to reporting on the figures available for Q2.
Okay. And when I look at your cash levels relative to the purchase options, you can more than cover the purchase options with the cash that you currently have on the balance sheet. You assume that you're -- not so soon, but looking at your second quarter cover and looking what might be into the third quarter and maybe even into the fourth quarter, you're going to continue to build cash. Any thoughts on the dividend policy? And you did this sort of -- looks like at the low end of the minimum on the formula. Any thoughts on the dividend going forward?
Look, I think for now, we're happy to stay with -- at the 30%. If you look at all of the purchase options, the cost of those is $108 million. And we have got -- that's about the balance now. But obviously, we got cash covenants of $30 million. So yes, for now, I think it's a way before we start looking at potentially increasing the dividend of 30%.
And just to clarify, Stephen. Your intention is to exercise those options over the next year, but you do have more flexibility if you wanted to spread it out further. Don't you?
Yes, yes, absolutely. So, there is -- the purchase option go all the way through from now, staggered up to 2025, 2026. I think there's one in there '26. But yes, we have got options. We don't have to do them now. But our view is to get them in with our, finance it, brings the daily cash cost down. As I say, we are a bit toppish compared to our peers of 12,500. So, we are looking to -- at ways to bring that down.
Okay. And if I could just squeeze a last one or actually I have two more, if you don't mind. One is that -- so you're potentially going to exercise the options. The asset market is really strong, as you say. The options are well in the market, are well in the money. What about selling some of your older assets potentially?
Yes. So, we've got five ships handy that we say are on old -- slightly older than the profile that we would like. So again, we'd be looking to sell those. And again, over the same time frame, probably over the next year, not always on go.
Okay. Great. That's helpful. And then if I could just talk about costs. Others are talking about whether its crew costs or other costs. Can you just talk about what you're seeing on the cost structure side? And it didn't look like you're seeing -- you're looking out at much of a change. But can you just sort of give us a little additional color on the cost side?
So, the cost, I mean, we'd like to reduce the figure of $12,500 per day that we currently run through Q1. We've got charter costs at the moment that will be slightly higher over the next year with the recent extension of the Crimson Creek. But the conversion of the ships as we discuss our own, it will certainly lower our daily crew cost. And even more so, if there's no timing in attached.
OpEx as well at the moment was is -- still an issue. It continues to increase, some high staff depreciation cost room COVID issues with an extension of class or quarantine. We're working on reducing this, but it's difficult at the moment in the current circumstances and the sentiments of OpEx that have been just by inflation as well.
On top of what we discussed is taking these ships on which we sit under our finance, we are looking to prepay some of our debt as well, which will also reduce the daily cash cost. The G&A at the moment increased -- some increased staff-related incentive cost as a result of the improved bottom line, but these are variable costs which will reduce significantly as the market changes. So, that's really how we look -- it's not competent exact figure on it. But I think we the plans that we've got for the rest of the year, we're looking to see a reduction in that figure.
Okay. And if I could just ask one more. The way there is over [indiscernible] has started, is this -- can you just talk about management's succession? How deep your team is? And sort of what the plans are going from the management side, if any, over the rest of the year and looking into 2023?
Look, firstly, I mean I worked alongside Martin for 12 years. Carl is at charter since 2010, just recently been appointed as COO. We've got a good management team that's largely been together for about 10 years. And I believe we can continue to move from strength to strength in the years ahead. As far as succession in terms of my position [indiscernible] at this stage.
I'm sorry. You sort of broke up on that, Stephen.
No, no. I'm saying -- well, which part didn't you hear?
Just the very -- just the last -- your last comment, sorry.
Yes. Just in terms of, I guess, the question was along the lines of how long am I going to remain interim. I don't have any comments on that at the moment.
[Operator Instructions] We have no further questions at this time. Mr. Griffiths, you may continue.
So thanks everyone for joining the call. Yes, that's really all I've got to say. Thanks a lot.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a great day.
Thank you. Okay.
Thank you.