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spk01: Thank you for standing by, ladies and gentlemen, and welcome to the Grindrott Shipping Holdings LTD conference call on the first, second quarter, and first half 2021 financial results. We have with us Mr. Martin Wade, Chief Executive Officer, and Mr. Stephen Griffiths, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-answer session, at which time, if you wish to ask a question, please press star and 1 on your telephone keypad and wait for an automated message stating your line is open. I must advise you that this conference is being recorded today. We now pass the floor to one of your speakers today, Mr. Wade. Please go ahead.
spk00: Thank you, Operator. Welcome, everyone, and thank you for joining our call for the first quarter, second quarter, and first half of 2021. Let me please refer you to slide number two 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 dry bulk and tanker markets, 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 described in the slide presentation and in today's press release, as well as the risk factors included in our annual report and our other filings with the SEC. We assume no obligation to revise or update forward-looking statements, whether as the 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 24 and 25 of the slide deck, which is posted on our website and our filings with the SEC. Please turn to slide four, the first quarter, second quarter, and first half of 2021 financial highlights. Financial results for the second quarter of 2021 increased compared to the previous year due to favorable market conditions. Gross profit increased to $34.3 million in the second quarter of 2021, $1.8 million in the second quarter of 2020, while adjusted EBITDA in the second quarter of 2021 increased to $40.7 million compared to $9.2 million from the previous year. Net profit attributable to owners of the company increased to $19.8 million in the second quarter of 2021 from a loss of $11.8 million in the second quarter of 2020, while profit per share, EPS, was $1.02 in the second quarter of 2021 compared to a loss per share of $0.62 in the previous year. For the first half, gross profit was $48.2 million. Adjusted EBITDA was $62.5 million, while net profit attributable to owners of the company was $22.1 million. Finally, profit per share was $1.15 in the first half of 2021. Can we please now turn to slide five to look at operational highlights in the second quarter of the year? We sold the 2009 built small product stanker, the Breeder, for a gross price of $6.8 million, delivered to the buyers on April the 14th, 2021. We also sold the 2013 built medium range tankers Leopard Moon and Leopard Sun for a total gross price of $42.8 million with deliveries to the buyers on April the 12th and April the 20th this year. On May the 7th this year, the United Kingdom Upper Tribunal found in our favor with respect to a previously disclosed tax dispute with Her Majesty's Revenue and Customs, HMRC. HMRC decided not to appeal the decision, which prompted the release of $2.4 million in tax provisions that had been recorded in respect of such dispute in prior periods. On the 9th of May, we repaid the approximate $25.8 million remaining outstanding amount on the senior secured credit facility with an affiliate of Bain Capital Credit. On June the 28th, 2021, we announced our transition to a quarterly financial reporting from semi-annual reporting. During the second quarter, we also purchased a combination, a combined total of 38,467 ordinary shares in the open market on the NASDAQ and the JSC at an average price of $8.46 per share. Now, can we please turn to slide six to discuss recent developments? On July the 21st, the group entered into an agreement to acquire the remainder of IBS bulk held by Bain for a total consideration of $46.3 million, comprising of $37.2 million for the ordinary equity shares and $9.1 million for the preference shares. The purchase price was based on appraised values as of May 13th, 2021, and the IBS bulk balance sheet as of April the 30th, 2021. The agreement with Bain is subject to customary closing conditions with closing to occur no later than September the 30th, 2021. On the 17th of August, Grinrod Shipping entered into an agreement to purchase the 2019 Japanese-built Ultramax Bolt Carrier, IVS Phoenix, which we currently charter in from its owners for a price of $23.5 million, which we believe reflects a significantly reduced price per relative to management's estimate of the fair market value of the vessel due to the early termination of the prevailing charter agreement. In order to finance the acquisition, we have simultaneously entered into a financing arrangement with separate Japanese owners on attractive terms for a gross amount of $25 million, whereby the company will bare boat charter the vessel back for a period up to 15 years and has the right, but not the obligation, to acquire the vessel after the first two years of the charter. Transactions are expected to close by the end of September 2021, while the vessel will remain chartered in on the original terms until closing. Now can we please turn to slide seven, where we will go over our new dividend and capital return policy. Commencing from the quarter ending September 30th, the company intends, subject to operating needs and other circumstances, to return approximately 30% of its adjusted net income. This will be adjusted for extraordinary items to shareholders through a combination of quarterly dividends and or share repurchases. The company intends to pay a minimum quarterly base dividend of three US cents per share and an additional variable component that will consist of additional dividends and or share repurchases. The timing and amount dividend payments will be determined by our board of directors and could be affected by various factors, including our financial results and earnings, restrictions in our debt agreements, required capital expenditures, and the provision of Singapore law affecting the payment of dividend to shareholders and other factors. I would like to reiterate that our key policy focus is to create a simple, transparent, sustainable capital return policy that allows the company to retain significant cash flow to further strengthen the balance sheet and pursue growth, while rewarding shareholders with material dividends and or share repurchases in times of market strength. Now I'll pass the floor over to Steve Griffiths, our Chief Financial Officer, who will go over the financial highlights and performance for the second quarter of 2021. Steve. Thank you, Martin.
spk06: Focusing on some key metrics for the second quarter compared to the first quarter, gross profit increased to $34.3 million. for the three months ended June 30th, 2021 from 13.8 million for the three months ended March the 31st, 2021. Profit attributable to owners of the company for the three months ended June the 30th, 2021 increased to 19.8 million or $1.02 per share from 2.4 million or 12 cents per share for the three months ended March the 31st, 2021. Now looking into the first half figures, gross profit was $48.2 million for the six months ended June the 30th, 2021, while profit attributable to owners of the company for the six months ended June the 30th, 2021 was $22.1 million or $1.15 per share. And now turning to slide 10, the company was able to materially enhance our cash and liquidity during the first half, while simultaneously repaying over $66 million debt. With net debt reduced to $144 million as of June 30, 2021, we believe the company is well positioned to pursue its expected growth and capital return strategies. On slide 11, the company spent considerable effort over the last 12 months to refinance or redeem all of our upcoming maturities, partly through the timely sales of our tankers. Now, limited debt maturities until 2025, combined with a conservative amortization profile, provide the company with balance sheet flexibility going forward. Let's turn to slide 12. We will now briefly discuss results in the dry bulk business for the second quarter of 2021. In the dry bulk business, handy size TCE per day was $18,104 per day for the three months ended June 30th, 2021, and $5,852 per day for the same period in 2020. Supermax Ultramax TCE per day was $21,916 per day for the three months ended June 30, 2021, compared to $7,676 per day for the same period in 2020. As of August 16, 2021, we have contracted approximately 1,326 operating days at an average TCE of $25,205 per day, for our handy sizes and approximately 1,686 operating days at an average TCE of $30,666 per day for our SuperMaxes. The average long-term chartering cost per day for the SuperMax Ultramax fleet for the second half of 2021 is expected to be approximately $12,883 per day. The slide also provides figures for Q1 and the first half of 2021. Now turn to slide 13. The scale of the rise of the dry bulk freight rates thus far in 2021 is easily demonstrated versus our historical results. During the first half, approximately 90% of our fleet was predominantly trading either on index link cargo contracts, short-term time charges, or in the spot markets. leaving the company exceptionally well positioned to take advantage of the strong freight rate environment. Every $1,000 change in TCE per day equated to 5.4 million of TCE revenue during half one 2021. And that's for the core fleet. Now turning to slide 14, this slide shows the own fleet cash break-even analysis for the first half of 2021. Long-term chartering breakeven was $13,850 per vessel per day, and core dry bulk breakeven was $11,630 per vessel per day. The cash breakeven rate per day includes operational expenses, net G&A, interest expense, and debt repayment. With that, I would like to turn the call back over to Martin.
spk00: Thanks, Steve. Please can I ask you to turn to slide 16, Let's look at the fundamentals of the dry bulk sector and how they have been developing against the new market environment. The dry bulk cargos hit hardest by the global pandemic were coal and minor bulk demand, while iron ore and grains were far more resilient. Thus far in 2021, we have seen a material rebound in coal and minor bulk demand, which is closely correlated to global GDP. Bent-up demand has led to a more robust recovery in 2021 in both raw trade figures and shipping demand, i.e. tonne miles. Any size and supermaxes have been further helped by congestion in the container shipping business, which is leading to certain bag cargoes and break bulk like scrap and steel returning to bulk carriers. Now can we turn to slide 17? As the slide depicts, iron ore trade rebounded faster than expected from early 2020. Declines with healthy demand continuing in 2021. Coal trade has exceeded expectations but still remains below 2019 levels. Grain flows remained healthy in 2021 after a very strong 2020. Looking at the minor bulks, which are a key business segment for Grinrod Shipping, The demand has rebounded strongly, driven partly by the steel, forestry, and by forestry I mean logs, cement, nickel ore, and alumina trades. Now to slide 18. The chart on the left indicates handy-sized supermax TC rates have steadily increased over the course of 2021, reaching levels last seen in 2008. Asset prices have also rebounded since the lows of late 2020, remain below levels reached in 2010, despite higher comparative charter rates. Turning to slide 19, the dry bulk order book continues to shrink to multi-decade lows and is estimated only 6% of the current fleet. Andesize and SupraMaxx order books are the smallest in the dry bulk fleet, 4.7% and 5.8% respectively. 20% of the dry bulk fleet is 15 years or older, or 10% of the dry bulk fleet is 20 years or older. Despite strong market conditions, new ordering remains constrained by uncertainty relating to engine technology and emissions. Finally, let's turn to slide 21 for our conclusions and strategy. Let's start with our achievements at the beginning of 2021. The strong dry bulk market conditions led to our highest financial result since our spin-off and listing. With the sale of all our remaining spot trading product tankers, it has allowed us to focus on dry bulk at an optimal time. Accordingly, we announced an agreement to acquire the remainder of IVS bulk at an attractive valuation. On the commercial side, the dynamic approach of the company that includes opportunistically charging your vessels on both long and short time charters in order to service our cargo contracts is bearing significant fruit Our long-term charter and vessels contracted at what we believe to be well below current market charter rates, and most contained favorable extension options and or fixed price purchase options that are now notably below the current market value. This allows us the option to pursue growth at prices considerably below pervading levels in the second-hand and charter markets, as evidenced in our announcement of the IBS Phoenix acquisition. In addition, we have been able to complement our core fleet with a number of short-term chartering vessels in which we hold a series of charter extension options at commercially favorable levels. Together with our own fleet of predominantly Japanese-built vessels, these options demonstrate the flexibility of our operating model. On the corporate side, having concluded a series of strategic and transformational transactions, we have announced our transition to quarterly financial reporting. In addition, we are pleased to reward our shareholders with the initiation of a quarterly dividend and capital return policy beginning with the third quarter. Now, looking ahead, dry bulk freight rates have continued to increase to levels last achieved before the 2008 financial crisis. Freight rates have been supported by rebounding commodity demand and pricing in 2021 across a wide swathe of commodities, including grains, iron ore, coal, and minor bulks. while we are seeing the smallest new building order book in decades supporting market recovery due to constriction in vessel supply growth as demand continues to recover. Due to record amounts of new container ship orders thus far in 2021, even if dry pot orders were to pick up materially, limited shipyard capacity means that most new orders could not hit the water in 2024 at the earliest. To the extent that demand continues to grow moderately, the lack of available supply growth leads to an attractive potential multi-year window for the dry bulk market. In this environment, with stronger market fundamentals, we are confident that Grinrod Shipping can reinforce its market position and create significant value for our shareholders. With this, I thank you all for joining our call today and looking forward to reporting further progress on Grinrod Shipping. With that, we'd like to open up for questions. Operator?
spk01: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and 1 on your telephone keypad and wait for the automated message advising your line is open. Please then state your first and last name before you ask your question. If you wish to cancel your request, please press star and 2. Once again, please press star and 1 if you wish to ask a question and star and 2 to cancel that request. Thank you. We will now take our first question. Please go ahead. Your line is now open.
spk04: Howdy, gentlemen. It's Randy Givens from Jefferies. How's it going?
spk06: Hi, Randy. Good, thanks.
spk00: Very happy, as you can imagine.
spk04: I can imagine, for sure. We have a long-time listener, first-time caller, so thanks for having me on here. You mentioned on one of those slides that you have 1,326 days Bulked at a little above 25,000 for the handies. About 1,700 days bulked above 30,000 for the supers. I guess two questions. Are all those days entirely 3Q or do some slip into 4Q? And then should we expect the same number of operating days in 3Q21 compared to 2Q21? I'm trying to break that down to a percentage of 3Q.
spk06: Yeah. Randy, I'll take this. Steve, yeah. So firstly, on your first question, yes, that's the cover that we have for Q3 only. And then, yeah, I think the expectation is for our total days, including the short-term operating, to be pretty much the same as what we had in Q2.
spk04: Okay. So I guess that works out to around 80% of handies and 60% of supers. Okay. Yeah. And then any coverage into 4Q21 or into 2022 with some longer-term time charters at these levels?
spk00: Not at the moment. We are, to be honest, as you and I had a discussion some weeks ago, we are running spot to the market. We will be looking forward, but at the moment we're happy to take the market. And it is something we will concentrate on, but with levels still moving up, we feel that... Q3 into Q4 is developing very nicely. We're not convinced there will be a Chinese New Year again, so we suspect that the market maybe will ease a bit, but we think it's going to be continuing strong. So, yes, we will be taking some cover, limited cover at some point, but at the moment we're very happy to run spot to the market.
spk04: Perfect. And then the last question for me, we talked about it, like you said, a few weeks ago in terms of dividends. I see here your dividend policy kind of has a base level of $0.03, 30% net income for additional payouts. I guess two questions. How did you kind of come up with that 30% number instead of 10% or 60% or any other number? And then second question, how do you determine the split between dividends and share repurchases? Is it based on a NAV calculation or liquidity? So if you can kind of touch on those two components of the dividend policy.
spk00: Martin, do you want to meet? I'll say the other part, yeah.
spk06: Yeah, so the split between dividends and share barbacks is obviously if our share price is trading close to NAV, then there's no need for us to do any share barbacks. And then obviously the whole portion will be allocated against NAV. will be allocated against the dividend. In terms of coming up with that 30%, Mark, are you happy for me to take this? Yeah. In terms of the 30%, I mean, the allocation of cash, I mean, there's a whole lot of items that go into allocation of cash. But initially, we're looking to strengthen our balance sheet and improve liquidity. Obviously, we're well on the way with that because of the recent strong earnings. And then we're looking to return cash value to the shareholders by way of dividends and or share buybacks as per this policy. But then in future, you know, we need to keep something aside to grow. We'll be looking to exercise some of our purchase options on the long-term chartered fleet. Not all at once, but over time as cash becomes available. And then, you know, paying down some debt. You know, at the moment, we had about 46% leverage against our fleet. And I guess we'd like to be a bit lower. So, yeah, all of those things taken into account. We just thought that the 30% was a sweet spot for us.
spk00: And obviously, Randy, can I just add, as this market develops and keeps on going, I mean, as the cash gets generated, obviously, we can be flexible again. But I think it is conservative for the first time in many, many years. All our peers are generating cash. It has to be bulletproof balance sheet and then move forward from there. It's a great position to be in. As Steve said, for years he was wondering where the cash is coming from. Now he's wondering what to do with it. It's exciting times.
spk04: Clearly, especially with this forward booking for the third quarter, it seems like your net income will be substantially higher than 2Q, thus your payout, either return of capital or or given in to share repurchases will be pretty robust here. So we'll be looking forward to that 3Q release. Thanks again, and keep up the great work. Great. Thanks, Randy. Thanks, Randy.
spk01: Thank you. We will now take our next question. Please go ahead. Your line is now open.
spk02: Can't tell for sure, but can you hear me, Martin and Steve? Yep. Okay. Sorry, it's a little... odd the way the moderator is doing this, but it's Poe Fratt from Noble Capital Markets. Just a couple questions. Martin, first of all, can you just talk about the macro environment? You just said that you expect some easing seasonally, but can you just sort of give us a little more color on if there's anything that concerns you right now as far as the state of the dry bulk market you know, what would be the surprise? Would it be China really clamping down on, say, steel production that ripples through the market? Or, you know, what are you concerned about as you look towards the end of the year and into 2022? It's a good question.
spk00: It actually got our chairman asked me at board yesterday, what can possibly go wrong? And you never want to tempt it. It's the beauty of shipping. Projectly, no. It's interesting what's going on in China, actually, from a COVID perspective at the moment. And we heard reports today that on the Yangtze River, which when you think of what, 22% of the world's fleet trades coastal in China, that they're talking about all river pilots having to do compulsory quarantine, the congestion. It is staggering how much congestion with another figure, what, 7% of the world's hand is basically tied up in congestion in China. that's all very positive um on the steel industry uh yes it might slow down although demand in the world is such and in fact what's very positive for the first time since you know the 2000s is that uh world steel production outside of china is at record levels so demand is there so um when we actually looked at all the q2 uh commodity figures what was very pleasing was that uh Well, it has rebounded. A lot of it still hasn't reached 2019 levels. So despite it's very healthy, despite, you know, you'd have expected gangbusters for every commodity. Shipping's changed with ships steaming a lot longer, crossing oceans, and it's all feeding in along with the container side to very positive. And I caution end of the year. I mean, the FFA's super max is what, 23, 24 for Q1 against Q4 at 33. Traditionally, it comes off, but I think as we found this year, can we realistically expect China to allow 800 million people to go home? So our feeling is it might be a little stronger, but we're kind of taking quarter by quarter and demand is there and there's nothing in the figures at the moment that suggests anything is going to end anytime soon. And overall, with an order book, you know, the lowest in many decades. That's always positive. If the order books only started picking up, then we always know what happens next. But that could be years away now. So all in all, I think it's quietly optimistic.
spk02: Great. Yeah, when you look at the order book, you know, that may temper any, you know, potential seasonality or other factors that hit the market. Can you talk about in a recent presentation, You talked about how you thought the FFA market wasn't properly discounting what potentially could happen in 2022. And it sounded like you might be buying FFAs for 2022. And can you just clarify that statement? And if it's true, if you could give us an order of magnitude of, you know, what kind of commitments you might have made for 2022?
spk00: Very, very little. We only use FFAs if we feel the need to hedge at any point. We don't at the moment. We have bought a couple because we have index-linked contracts that one in particular could actually switch to a fixed rate. The people at Counterpilot have the option to change it to a fixed rate. So all we've gone and done is bought a very small amount of contracts uh, Canada 22 paper at a level below what, what the fixed is just to hedge ourselves in that respect. But otherwise, no, uh, we, we feel, yes, the paper is still undervalued, but, but our ships are, uh, our core fleet is a lot less than that. And with the, with the options we have on, on a lot of our chartered ships, we're very happy. So if we do any paper, it is purely specifically to, to hedge a particular piece of business. So at the moment, no, no, we're, we're, we're, we're not heavily involved in, in, in the paper. Uh, We prefer to trade the physical.
spk02: Okay. And then you talked about the purchase options, and I was a little bit surprised because the Phoenix wasn't one that you had a purchase option, yet you were able to acquire it. And can you give us an idea how that came about? And then secondly, you talk about a discount to what potential you think it's worth right now, and can you quantify that discount, or would you be willing to quantify that discount?
spk00: Yeah, this is with... Sorry, Steve. This is with a yard that owns ships in Japan. And we've had a relationship for well over 10 years, taken a number of their ships on. And this was basically their flagship. We took a number of them several years ago. And what happened is that the yard has now consolidated with another yard and they're getting out of ship owning. So they came to us and this was... They're really the only ship they had going on into the future because obviously we had a fixed period then with options and they asked whether we'd like to buy the ship or could they sell it to another owner and we maintain the charter. And we looked at it and obviously there was value in the existing charter. So we came to a very amicable arrangement with them that this discount, what we could have made, would have been making on the charter. Not as much as maybe we would have liked, but then it is relationships with our Japanese friends, and they agreed to sell us the ship at a price. How you compare that to the market these days, well, all I can say is a new building of this ship type in Japan for delivery 2024 is $35 million. So we're now talking a two-year-old ship. It's $32, $33 million conservatively, the value. So It's a pretty crackerjack deal. We've got a great price. We maintain our cost base of the charter. And as we said, you know, we have the right if we wanted to buy it back after two years. So I think it's a win-win where we have an ultra-modern ship in our fleet at a very, very competitive price. And we'll be generating a lot of cash out of it. So it's a good deal. A lot of it's to do with relationships, Paul, and it's the trust, yeah? You get to this position, you know, you never...
spk06: renege on anything and then when things change they come and ask you they'd like a favor we said yes at a price and it was agreed great that's helpful and then i'm sorry steve did you want to add something or yeah and then i'll just just add to to what martin said there's been a bit of confusion about buying it the ship at 23 and a half and getting financed at 25 but obviously with the vessel value that as as what martin says 31 to 32 million um you know we secured the the financing the Japanese financing, similar to what we've done on four of the other vessels, the Not King, Lit Magpa, and Matuku. So that's 25 loans against a valuation of $31.32.
spk02: Great. And I asked about the purchase options because you have one without a purchase option that's on charter that's coming up next year, the Crimson Charter. Is that potentially something to watch as far as maybe a similar transaction? And then if you could discuss the actual options that you have on, you know, like the Pinehurst that comes up next year, how should we be looking at, you know, those options? And are the purchase options on the five that you have, you know, on the chartered in capacity, Are those set or are those market-based or subject to negotiation?
spk00: Well, the Crimson Creek, we don't have a purchase option on. It's with our friends from Maribene. But we've had her on now for six, seven years, and we keep on extending her. As to whether we would want to buy, I'm sure Maribene would love to sell her to us at a price. We probably won't be able to afford it, to be honest. So that is a charter. On our other ones, we have a number of ships where we've been able to declare the purchase options for the last couple of years. One of them is at fixed price. That's the Pinehurst. And the other one is the IBS Nauruo, which is a mixture of dollar and yen. And that depreciates every year. So at the moment, obviously, the charter is very attractive. We're doing very well there, but we will hold that option. Again, it's another owner, Takabayashi-san, we know incredibly well. We're discussing with him. And at some point, we will be able to declare that option and either flip her or take her back into the fleet. And there'll be another couple where we have the options next year. And it's just a matter of looking at it and gauging when is the right time to declare the option. We have a number of older handers. We have five older handers. At some point, we could be selling them and then renewing from those proceeds with some of these purchase options. It's a great position to be in, and we're just going to monitor the market and decide when the timing is right. At the moment, it's nice options to have, and they just sit there with a lot of value in it.
spk02: Understood. And frankly, you have more You know, looking back a year to 18 months ago, you know, you had a lot of visible growth, you know, that was pretty, you know, you had a little more control over whether it was the JV interest. You're sort of at the end of that road. Now you have the purchase options on the chartered in vessels. Are you looking beyond those, Martin, at this point in time? And how would you characterize the, you know, the S&P market right now?
spk00: Well, I think starting with the S&P market, I still think it's undervalued. If you take a one-year rate on an Ultramax, which is probably not a million miles off 30,000, the two-year rate is in the mid-20s and the cash-generating properties. So I think the S&P market, I think it has a capability of at least another 50%. to go with how much cash, which is why all our friends in Greece are being so aggressive and one or two friends in London. That's interesting. For us, it's interesting because, you know, as usual with shipping, no one knows how long it's going to last. This is set. You'd never want to chase a market, but we could be opportune. But with the amount of purchase options we have, they're very nice where you're declaring options at many, many millions below the market. So immediately you know, improving the, uh, the age of your fleet, the quality of your fleet with, with, with cheap ships. But, uh, it's, yeah, it, it, it's as usual with shipping. I mean, values have gone, gone a long way quickly. We don't want to chase it. Uh, there is still value there with this kind of cash being generated. We will assess what, what the use of funds is for, but it is a good position to be in. Yeah. We, we, uh, we have an open mind. I think, uh, What, 44 years in the business has taught me you don't do stupid things when markets are taking off. It's got to be calculated. So we will look at it and assess accordingly.
spk02: Understood. And then, Steve, maybe we could talk about just IBS bulk, JB. Are there any closing conditions that need to be fine-tuned or anything concerning IBS? for closing by the end of the third quarter. And then secondly, if you could talk about how, from an accounting standpoint, you have, you know, the results that weren't included in the second quarter, you know, that you are economically benefiting from what is it, April 30th, from the standpoint of, you know, the financial statements. So can you talk about how that's going to be rolled into the fleet and rolled into the financials?
spk06: Yeah, sure. Sure. So I, Just in terms of that September deadline, we're in a position now, we're going to close the deal well in advance of that, so there's no issues around the September, not meeting the September target date. In terms of closing, no issues that I can foresee. In terms of how we accrue for this, obviously the cash, all the earnings on the cash from the end of April accrue to us, but it doesn't go through the income statement. That'll be a a sort of balance sheet negative goodwill, it'll go through that when it closes. So that's also why we're keen to finalise this as soon as possible, because all of the earnings will then go through the income statement from date of transfer of ownership, which, as I say, will be well in advance of September.
spk02: And any idea of how the cash balance, you know, the financial, the balance sheet has changed since April 30th? Can you update us on that or is it something?
spk06: Yeah, look at the moment. We'd rather not disclose any further info on this until the transaction is completed. So we're happy to share that and hopefully it won't be too long.
spk02: Okay, sounds good. And then just for you, a micro question from the standpoint of, OPEX looking at the third quarter and maybe the fourth quarter or maybe even the 22, should there be any material change in what your OPEX numbers were over the first half of the year?
spk06: Yeah, I mean, OPEX, you know, we have a target. We like to be under the $5,000 a day, and we have been hit with some issues. You know, on OPEX, we've had some high repatriation costs arriving from COVID issues you know, there's been expensive flights, hotel quarantine. So we feel we can improve, you know, on that figure. And then also our interest in our cash break even, you know, with the payback of the sanctity bank loan, we expect that to come off a bit. Charter costs, as you've seen, for the second half is slightly higher. So, you know, we believe that we can more than offset the increase in the charter costs by, decreases on the optics and the interest side. So, yeah, target is to be slightly lower than this 1163 on cash break, even costing the second half of the year.
spk00: Can I just add that, Poe, just on the optics, yeah, it's permanent because with quarantine, as I mentioned earlier about China, it's an ongoing battle and making sure that, you know, if you do end up with a ship, with a crewman, you've got to change the crew where it can be done at times we're having to balance several weeks to do it. We're not the only owner out there. I mean, everyone's been caught and it does flow through to the OPEC. So it is something we're striving on, but you get this every now and then this, you know, something out of the blue, you have all your protocols and suddenly you get hits. And is it, is the guy positive? Is it false positive? It doesn't matter. You then have to make a plan. So, uh, and at that point on this market, you spend whatever money you need to, to, to repatriate fly people. So, uh, It has impacted our effects, but it is something that, yeah, we're hoping to improve.
spk02: Yeah, maybe, yeah, downtime is expensive or any disruption is expensive. Do you have any planned, you know, maintenance or dry docking over the second half of the year or into 2022? Steve? Yeah.
spk06: Yeah, it is absolutely the program. You know, every two and a half years our ships go in, so there's a constant dry docking of vessels, and we try and spread it over time. So there's nothing unusual, I would say, in the second half of the year.
spk02: Okay, great. And just to follow up on the purchase option, I think, Martin, you said that Pinehurst, you had a fixed option. They're a fixed price option. Would you be willing to share that price with us? No, not at the moment, but...
spk00: It's attractive, and I just leave it at that. Very attractive.
spk02: Sorry, I had to ask. Great.
spk00: Thank you so much. Of course. Thanks, Bo. I appreciate it.
spk02: Thanks, Bo. Thank you.
spk01: Thank you. We will now take our next question. Please go ahead. Your line is now open. Hi.
spk03: Good morning, gentlemen. It's Jay Mintzmeier from Value Investors Edge. How are you doing?
spk00: I'm doing very well. Thank you.
spk03: Yeah. It's good to be on the call. Congrats on shifting to a quarterly format. I think that's going to open things up a lot. The gentleman in front of me had some excellent questions, so I think hit most of the things. I think what's left is mostly just small modeling questions. Looking at your Q1 and Q2 breakdown, you report an adjusted EBITDA and you report a regular income, but the way you have your sales proceeds, it seems a little confusing to me. Maybe I'm just missing something obvious, but What was the actual gain on sale or loss on sale from those transactions?
spk06: Sorry, what were the sale transactions of ships? The gain, yeah. Correct. No, there was nothing, no gains on that. I mean, all of those were tankers, and we wrote down the vessels to selling price. So there was no profit or loss in those figures. All the impairments had been done in previous periods towards the end of last year.
spk03: Okay, understandable. It's just interesting in the revenue line, it has cost of ship sale and just an interesting point.
spk06: Yeah, I know. It's a legacy issue, dual purpose reporting, solar ships and fleet revenue.
spk03: Okay, just trying to strip out.
spk06: Happy to take you through it at some point, Jay.
spk03: Yeah, that's fine. It's just kind of a modeling question. And then the other question on this Bain transaction, taking out the rest of the IVS bulk. I understand that's closing Bain. later this quarter or in the next, but when does the actual revenue share switch back over? Is Bain enjoying the profits from July, August, September, or did that already close a few months ago?
spk06: No. So that closed at the end of April. So as I said earlier, we get the cash, but we can only take it through the income statement once we sign the deal. So it'll go through the balance sheet instead of a negative goodwill law. reduce the value of the assets. But yeah, so that's why we're keen to get the deal done as soon as possible so we can grow our bottom line.
spk03: Understandable. Yeah, there'll be a massive catch-up whenever that deal closes. And then finally, you talked about wanting to bring your leverage down a little bit. It's about 46% is the number you stated. Do you have any sort of target in mind? Is it like 30% or 40% or do you have any range?
spk00: Well, can we say that... Steve and I, yeah, and Steve knows exactly where I'm going. I'm very old school. I do admire my Greek friends, zero leverage. Now, I appreciate that is very difficult. So it's somewhere between where we are and zero. Obviously, who knows a couple of years of the market, but it's, yeah, Steve, what is it? What are we aiming? I mean.
spk06: Yeah, I mean, just trying to get low. Obviously, if the market value of the seat goes up, then that gets better. But I think on current market values, you know, heading towards the 30%. But, again, difficult to have a fixed percentage in mind.
spk03: Yeah, certainly makes sense. I mean, you want 0% at the very top going down, and you want 99% at the bottom going up, right? So I think you're doing fine. Randy alluded to this in his earlier question, but just looking at the way the days available flows through on your sheets, is that 4,100 number roughly combining the two segments, is that a valid reasonable expectation for Q3 and Q4?
spk06: Jay, just say that again. I didn't get that. You're talking about the cover. No, the amount of days. Amount of days. No, you see in there, there's the short-term operating. And obviously, we have some short-term ships that say are longer than just 30 days. They go on to 11, some of them at 11 to 13 months that are not part of our core fleet, but they're in short-term operating. It's very difficult to estimate at 100% at the start of each quarter. But what's happened in the last quarter is a fair indication of the number of ships. And, you know, what Randy was trying to do was estimate that percentage. And I think with where we are being halfway through, you know, the 80% on the handies and just under 70% on the supers is probably fair.
spk03: Okay. Yeah, that's helpful. Yeah, we're asking the same question in different directions. Hi, gentlemen. That was a great call, and congrats on getting this quarterly thing done, and I look forward to the next quarter. Thanks very much, Greg. Appreciate it.
spk01: Thank you. We will now take our next question. Please go ahead. Your line is now open.
spk05: Hi, guys. It's Gavin from PSG. Hi, Gavin. Yeah, just to congrats with the results, just a quick hypothetical question on your dividend policy. So if we look at a sort of a full year run rate at spot rates, I guess we could look at something north of $150 million a year in terms of your bottom line. If you pay 30% out, you're still left in excess of like 100 million. And if you chip away on the debt, let's say 20 million and purchase some vessels, 20 million, you're still left with quite a substantial amount of free excess cash in this business. And my question is, how should I be thinking about special dividends of that excess cash that's going to be in your hands?
spk06: Gavin, yeah, it's a good question. And obviously, if we have these type of profits for a sustained run, there's every chance of us looking at the dividend balance. percentage and improving it. We've started off with 30% because we've got other things that we need to do, you know, as I mentioned earlier in terms of allocation and cash. But, you know, this can be changed at any time. And a hypothetical question, I would think, you know, if we would probably relook at it if we were having that much free cash left over, you know, 70% of $150 million. So it's flexible. It's there for now. and we'll obviously look at it, but I can't answer your question directly, give you a definite answer. But just to say this is a flexible policy.
spk00: But Gavin, you have done the simple maths or math, haven't you? It's quite easy to translate through what could happen after another six, 12 months of this market, yeah?
spk05: Yeah, so maybe just a follow-up would be, should I think about debt repayments and vessel purchases as a gradual strategy or would there be bulk prioritization of those above special dividends?
spk00: The purchase options are still going to run over the next two, three, four years depending on the length of the charters and where we have them. It's also going to factor in that obviously we have these five older handers and we will be selling them at some point and making sure that we have a modern fleet with ESG and all the restrictions and taking as many boxes. So it would then be a matter of who to sell some of our older ships, which have very little debt on them, using that in the best possible way to exercise some of the options. So I don't think it's going to be done. I mean, We have the options depending on where the market is. And the other smart thing to do is actually you just say, well, let's flip the ship and pocket how much money has happened back in 2007, 2008 with companies where purchase option at $10 million, we're flipping them for $50, $60 million. So it's something we'll always look at. It will depend where we are on the market. But we are being conservative, and yes – Do we dream? Of course. And where we could end up with this cash? And yes, we appreciate it. We will, as Steve said, we will have to adapt our dividend policy because there's no point in, well, you make yourself a target, don't you? You have very much cash sitting around doing nothing. So we will be looking at it, but let's get there first or at least be well on the way. It's a great start and we're heading in the right direction.
spk07: Thank you. We will now take our next question.
spk01: Please go ahead. Your line is now open.
spk06: Hi, Steve and Martin. I'm from Sunland. Just a quick one around your two shareholders, both Grinrod 10% stake and obviously Remgrove, which I think has publicly said they're not long-term holders of Grinrod shipping. I mean, just around capital allocation going forward and the potential to acquire some shares from them. Have you got any thoughts about that? Have there been discussions around the possibility of picking up some of those shares? Charlie, I'll take that. Look, I mean, shareholders, what they want to do, it's their own decision. Yes, I think long-term we have said that at some point they'd be wanting to get out, but the specific timing is really their decision. But in terms of Singapore law, we can't buy from an insider. So we would have to do whatever buybacks we do, we'd have to do it on the open market. Certainly not from them. We'd do it through other brokers. All right. Thank you. Okay.
spk07: Good job.
spk01: Thank you. There were no further questions at this time. I would now like to hand back to management for closing remarks.
spk00: Thanks very much, operator. Thanks, everyone. And, yeah, well, we look forward to reporting on Q3 in due course. So thank you, everyone.
spk06: Thank you.
spk01: Let us conclude our conference for today. Thank you for participating. You may all disconnect.
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