Good day, and thank you for standing by. Welcome to the 2020 Bulkers Ltd earnings call for Q1 2022. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Magnus Halvorsen. Please go ahead.
Thank you, operator. Welcome everyone to the first quarter 2022 conference call for 2020 Bulkers. I'm joined here today as usual by our CFO, Vidar Hasund. Before we start the presentation, we'd like to remind you that we will be discussing matters that are forward-looking today. These forward-looking assumptions are based on the company's current views with regards to future events and hence subject to risks and uncertainties. Actual results may differ materially. With that, I'll move over to the highlights for the quarter. We generated a net profit of $5.9 million in the first quarter. This is slightly above our net profit of $5.8 million for the first quarter last year.
As we'd like to remind you, we maintain a track record having been profitable every quarter since we got our first vessel in operation in Q3 2019. We again outperformed the Baltic Capesize Index this quarter and achieved average time charter equivalent earnings of $24,000 per day. This compares to the Baltic Capesize Index, which was approximately 14,750. For the months of January through March, we announced a total of $0.26 per share in cash distribution. This is exactly equal to the cash distributions we made during the first quarter last year. During the quarter, we also converted some of our index-linked ships to fixed charters. We did so at $31,640 per day plus scrubber benefits.
For those who followed the company for some time, this corresponds to the level which is approximately 10% higher than the similar fixings we did for two vessels last year around the same time. During the quarter, Georgina Sousa retired as a director of the company and a secretary while Mi Hyung Yoon was appointed the company secretary and director of the company. The board and the company would like to thank Georgina for her valuable contributions, and she's been there since the company was founded and made great efforts for the company's success. During April, the company transferred eight Newcastlemax vessels that we own and operate from subsidiaries domiciled in Liberia to Norwegian limited liability subsidiaries. Lastly, so far in the quarter, we have earned approximately $23,000 per day gross on average across the fleet.
With that, I leave it over to Vidar.
Thank you, Magnus. 2020 Bulkers reports a net profit of $5.9 million for the first quarter of 2022. Operating profit was $8.1 million, and EBITDA was $11 million for the quarter. Earnings per share was $0.27. Revenues were $16.8 million for the first quarter, and the average time charter equivalent rate was approximately $24,000 per day gross. Vessel operating expenses were $4.5 million, and the average operating expenses per ship per day was approximately $6,300 in the first quarter. G&A for the first quarter was $0.9 million and include approximately $0.1 million in legal fees incurred in connection with the transfer of vessels from Liberia subsidiaries to Norwegian subsidiaries. Interest expense was $2.2 million in the first quarter.
Shareholders' equity was $151.3 million at the end of the quarter. Interest-bearing debt decreased from $236.1 million at the end of the fourth quarter to $232.4 million at the end of the first quarter, reflecting scheduled repayments. The company reports cash flow from operations of $8.6 million for the first quarter. Cash and cash equivalents were $17.8 million at the end of the quarter. The company declared total cash distributions to shareholders of $0.26 per share for the months of January, February, and March 2022. That completes the financial section, and now back to you, Magnus.
Thank you, Vidar. As you know, 2020 Bulkers has a policy to pay out free cash flows to shareholders, and we do so on a monthly basis. At this time, we have returned our free cash flow for 21 consecutive months, which is every month since we had the full fleet delivered. To give you some summary numbers, our Q1 cash distribution was $0.26 per share, the same level as Q1 last year. Looking at today's share price, that equates to an approximate annualized yield of around 8% during what is typically the low season of the year. We also mentioned that with a fleet that's just a bit more than 2 years old on average, we have already to date returned 61% of the total paid-in equity in the company back to shareholders.
As you can see from this slide, we have over the last year outperformed the TCE results that are being announced by our public peers who report separate earnings for the Cape and Newcastlemax segments. We see this as a confirmation of the attractive performance of our very modern scrubber-fitted fleet of Newcastlemax. As well as a confirmation that our commercial strategy is working well. The following slide looks at our cash generation available for distribution to shareholders under various rate scenarios. For the balance of 2022, we remain constructive on the market, having 2 ships fixed at healthy rates and 6 ships on index-linked charters, where all 8 ships also receive a scrubber benefit share.
The current FFA curve from May through December sits at $32,000 per day, which for illustrational purposes could generate an annualized distributable cash flow of around NOK 30 per share or 2.5 per month. This again would equal an annualized yield of around 25% compared to today's share price. I think it's also worth noting that this slide illustrates our very resilient cash breakeven, where thanks to our overall low cash level, cash cost levels, as well as two fixed ships at healthy rates, we're generating free cash flow available for distribution as long as the Capesize market is above $5,000 per day for the six ships on the index-linked charters. We believe this is very competitive and highlights the attractive risk-reward investing in our company. Looking at Capesize spot rates year to date.
They have been following the usual seasonal pattern of softer rates compared to the second half of the previous year. Rates year to date have averaged approximately $4,000 lower than last year for the same period. The somewhat softer market is, in our opinion, driven by mainly weaker Brazilian exports, which are down 7.5% year over year. This again is driven by particularly wet rainy season. If you look at global iron ore trades, it's relatively flat, down a modest 0.5% year to date. On the coal side, where we saw a surge last year, volumes are down around 4.5%. However, the volume declines are being offset by, to a large extent, increased trading distances, where, for example, we're seeing coal moving from Asia to Europe to replace Russian coal.
Also, in spite of a slightly slower start to the year than last year, we wanted to highlight the expectations expressed through the FFA market. The FFA curve for the balance of the year is meaningfully more positive than what we saw at the same time last year. The FFA contracts, as we mentioned earlier, from May through December, are currently trading at around $32,000 per day, compared to $29,000 per day a year ago. Having a look at some of the key market drivers. After a slow start to last year, we saw a strong uptick in the issuance of local special infrastructure bonds in China during the second half of 2021.
This has continued in 2022, and we also saw some signals out of China yesterday indicating that they're looking to step up infrastructure investments further, if not significantly. As you can see on the right-hand side, we have been seeing a response to this increased issuance of infrastructure bonds, with infrastructure investments increasing recently. However, we still see that the real estate sector has continued to see a deceleration in investments. Moving on to look at the steel market. While the second half of last year showed a sharp drop in Chinese steel production, with production being down around 16% from the first half, we have seen a strong uptick in production in recent months. Daily production of steel in China in the first quarter was up 6% compared to the average for the second half of 2021.
Analyst consensus seems to be that China will deliver flat steel production this year compared to last year. That would require a further 5% increase in the daily steel production. We're encouraged to see on the left-hand side this graph that shows the daily steel output from China, measured on a rolling 10-day basis. The latest data point on this graph is April twentieth, and that's continuing to show improvements in spite of the continued lockdowns in China. In fact, the data point for the period ending twentieth of April show the highest production since August of last year. Also, we think it's interesting to see that in spite of the correction in the Chinese economy, steel inventories have not built materially. Here shown by Chinese rebar inventories, which are only 3% above where they were at the same time last year.
As you can see on the right-hand side, steel prices were holding up firm as well. Looking at the global steel market based on numbers from the World Steel Association, steel demand is expected to grow by modest 0.4% this year, down from 2.7% last year. The World Steel Association further expect growth in steel demand to rebound next year to 2.2%. Reading the reports they're citing, among others, the increased stimulus towards infrastructure in China. Looking at steel production outside of China, it was up around 7% in March compared to February, however, down 3% year-on-year. Year-to-date production is fairly flat, down 0.7%. Moving on to have a look at the iron ore market.
Total iron ore trade globally is relatively flat year to date compared to last year, showing a drop of 0.5%, with Chinese iron ore imports down year to date by around 4%. For the first part of the year, we saw Chinese iron ore inventories growing both in nominal terms as well as days of consumption. However, we've seen a trend reversal in recent weeks. With eight of nine last weeks showing that there's been a drop in iron ore inventories. If we look at the right-hand side of the slide, you will see that Chinese iron ore inventories in terms of days of consumption are not really at very high levels compared to where we've been for the last few years, and they're following the normal seasonal pattern as well.
As mentioned earlier, we believe that the weak iron ore production and exports in Brazil during Q1 is a key reason for the market starting out on a slightly softer note than last year. On the flip side, we do believe that the strong recovery in Brazilian production for Q2 to Q4 could drive a significant recovery in spot rates. Vale, which typically produces 90% of Brazil's exports, produced 63.6 million tons of iron ore in Q1. This compares to their full year guidance of 320-335 million tons. As an illustration, if Vale was to meet their full year guidance and the low end, the average production for Q2 to Q4 would be 85 million tons.
These additional tons, by our calculations, would generate demand for 140 standard Capesize equivalent compared to what was needed to ship the Q1 volumes. We oftentimes hear from investors and market participants that Vale's guidance is not really to be trusted. We looked at their guidance one year forward, going back to 2013, and we actually find that historically they've been within 3% of their one-year prior guidance, except from the recent years, so 2019 and 2020. It's quite plausible that they missed out in these years because of the Brumadinho accident and the subsequent closures and maintenance that took place in 2020. Moving on to have a look at the supply side.
As some previous calls, we would like to stress that we believe we're looking at the most attractive supply side dynamics seen in more than 30 years. The Capesize order book is currently at around 6.3%, which seems to be the lowest data on record according to the Clarksons Shipping Intelligence Network. Capesize ordering was relatively low last year and have remained virtually non-existent this year. Given the continued massive ordering in the container space, there's very little yard capacity available for new orders before 2025. When we do our channel checks, we still see less than 5 Capesize in Newcastlemax slots actively being marketed within the end of 2024. That's obviously quite modest, given the fleet size of approximately 1,700 ships today in the Capesize segment.
Looking at deliveries of Capesize, they will drop to approximately 10 million deadweight ton this year, which is down from 18 last year and 25 million in 2020. Somewhat changed from what we saw in the fourth quarter is that scrapping year to date has picked up recently. 1.5 million deadweight ton of Capesize has been scrapped year to date, giving a run rate of 4.8 million deadweight ton. This compares to 3.4 million deadweight ton last year. We suspect that the uptick in scrapping is somewhat related to the upcoming environmental regulations. As we talked about before, there are new regulations coming in in January 2023. EEXI and CII will lead to a slowdown in average trading speeds, although it's hard to estimate exactly how much.
It may also lead to some accelerated scrapping of older, less efficient units. I think lastly, we just wanted to give a quick summary of the highlights of the equity story of 2020 Bulkers. We have a fleet of eight Newcastlemax vessels. It's the most modern fleet of any listed dry bulk company with assets on the water today, with an average age of just over two years. The current status, as we look into the last three quarters of 2022, is two vessels fixed on fixed rates of $31,600 on average, plus scrubber benefits, and six ships on index-linked charters that can be converted to fixed rates on our options on the basis of the FFA curve.
The FFA curve, for illustration, implies TCE equivalent for scrubber-fitted Newcastlemax of around $45,000 per day for the period from May through December if they were converted. This again compares to our cash break-even budget of $14,900 per ship per day. We have and we will continue to pay our free cash flow as monthly distributions, and so far, we've paid back 61% of the paid in equity to our investors. Lastly, we think we are looking at the most favorable supply side dynamics in more than 30 years, and we see very little, if anything, that could change that for the coming years. I think with that, I'll leave it over to the operator for questions.
Thank you. As a reminder, to ask a question, you need to press star one on your telephone. To withdraw your question, press the pound hash key. Once again, if you'd like to ask a question via the telephone, please press star and one. We currently have one question, and the question comes from the line of Frode Mørkedal from Clarksons Securities. Please go ahead. Your line is open.
Thank you. Hi, Magnus.
Hi, Frode.
When I look at the Capesize curve, it's fairly elevated, I would say, right? Because you pointed out $32,000 per day for the rest of the year.
Yeah.
That's, I mean, at least if you look at the macroeconomic backdrop with lockdowns in China.
Potentially lower GDP growth, right? Given those concerns, how do you explain the strength really? What are the key factors driving that relative optimism?
I think we've touched on some of them. I mean, first of all, that curve probably, if we were to make it really simple, just reflects the normal seasonality. I think if you looked at any year in the Capesize market on average, and were to construct the curve for next year on the basis of that, it would look very similar. It's essentially repeating a pattern that's been seen before. I think as I mentioned, you know, Brazil has had weather-related issues this year. Was it last week or the week before they gave their production statement and they stuck to their guidance.
Obviously, as I said, if you do the math, if they're gonna meet their guidance, it's gonna mean a surge in long-haul demand. You know, one ton transported from Brazil requires three times the vessel capacity of one ton transported from Australia. That's also what prompted us to go in and look at this statement, which we very often hear that Vale is always missing on their guidance. Again, you know, we looked at the guidance they gave in December on what they call Vale Day and what they delivered the year after. The 12 months after production has actually been very tight, except from 2019 to 2020, to what they guided. I think there's no reason to dismiss that as just wishful thinking.
I will agree that, you know, if you look at Vale as longer term, kind of looking two, three, four years out guidance, the track record has been a lot more spotty. Then, of course, which frankly surprised us as we were reviewing the data. If you look at the lockdown situation in China, you would think that there's a full slowdown in all industrial activity. However, if you look at the steel production data, and this is not data that came out three weeks ago or a month ago. I mean, the last data point was seven days ago. It comes out every 10 days. It shows the highest level since August. So of course, we see, I agree.
I mean, how China handles this outbreak is definitely a risk factor. It would be foolish to say anything else. For now, I'm surprised how well production is keeping up. I guess the flip side, as we saw after the initial COVID outbreaks, is whenever there is a setback in the economy, you tend to see a response in terms of increased spending. As you may have read, you know, there was a meeting yesterday of the Central Committee for Financial and Economic Affairs in China, and there were some pretty bold, and I would say aggressive statements made from Xi following that, where increased infrastructure spending seems to be part of it.
I think other things that is giving some support to the market is of course, although volumes are not necessarily up from last year, because last year was a strong year, but the ton mile changes we're seeing on the coal side, in light of the Ukraine war and I guess the general energy crisis. I don't know if that answered your question, but I think first of all, you can start out with saying that this curve is not reflecting a pattern that's never been seen before. Rather to the contrary, it's reflecting a pattern that you tend to see every year.
Yeah, sure. The pattern is up, seasonality, but the absolute rate level above 30,000 is, you know, fairly high level, right? But I guess, like, if whenever lockdowns are over, I mean, as you said, there should be an acceleration of economic activity in China again. That's part of it, I would think. But are you tempted to switch some of your floating charters into fixed charters when you look at that, as a figure?
Yeah. I mean, I won't comment on anything we're doing until we do it, but I think I've said before, it's something that we do look at literally every day and we calculate various scenarios on how doing one or more ships would impact both on the up and down side, the balance of the year.
Yeah. Understand. The current two charters basically secures a low cash breakeven in the spot market of $5,000, right? You know. But what in terms of the mechanics is it basically you would achieve the Capesize equivalent rate of $32,000 per day? And then the alternative would be to you know keep it floating and then perhaps achieve the premium of you know as you've mentioned $45,000 per day? Is that?
No. I mean, no. If we convert, we get the curve plus our premium. We would look at, you know, the $32,000 plus our premium, which I think on average, if you look at our commercial reports, have been around 35%. Plus the scrubber premium. That is what we can lock in.
Yeah. Okay. 45,000, right?
Around that level doesn't seem to be a bad estimate. Keep in mind, you know, with the curve at the same time last year, I think I've said this before. I mean, the curve has a relevance because it can be monetized. I think it's more often than not right on the direction of the market. However, the actual levels tend to not come in where it's priced at any point in time. Last year, for instance, at the same time, May through December was pricing $29,000, and we ended up with Q2 at $31,000, Q3 at $42,000, and Q4 at $42,000.
Again, back to if you believe in Vale and what they're saying, there's gonna be a very big push coming sometime now as the rainy season ends. The recovery in the last few days, just to comment on that, it's not related to increased Brazilian volumes, it's related to quite strong activity out of Australia.
Great. That's it for me. Thank you.
Thank you.
Thank you, Hilda.
Oh, sorry, sir. Thank you. Your next question comes from the line of Clement Mullins from Value Investors. Please go ahead. Your line is open.
Hello.
Good morning, gentlemen. Good morning. You provided very interesting commentary on China's steel output continuing to strengthen even after recent lockdowns. What are your expectations for the remainder of the year? Regarding coal trade, could you provide some further commentary on the expected gains on ton mile demand?
I think if we were to pretend we had the crystal ball for China and could estimate exactly where steel production comes in, I would be lying. I think what we have seen is, as I said, stimulus efforts that started during the third, fourth quarter last year and have continued in Q1. Typically, you see a few months lag from infrastructure stimulus efforts are being made until actual steel production increases, and we've followed that pattern. Then is the question, is this COVID lockdown situation gonna derail this pickup or not? I say if I didn't have the data, I would probably be willing to make a bet that it would derail it.
Let's see in a few days when the next data point comes out. So far, we are not seeing a reduction in steel production, so it seems that perhaps this is the problem for now is contained in the biggest sectors, but it's an evolving situation. I think directionally as well with the news that you probably saw coming out of China yesterday, I mean, they will be pushing even harder on infrastructure stimulus. I think that's back to what are the market expectations, which is for flat steel demand in China this year. I think we could flip it around and say that seems reasonable barring any unforeseen COVID consequences.
You could also say that flat steel demand this year doesn't sound like a lot. But again, given the sharp downturn we had in the second half of last year, flat steel production this year would actually mean daily averages close to 10% higher for all of this year than what we saw second half of last year. I think on the coal side, again, I'd like to speak about it more directionally rather than giving a number on the ton mile equation. But I think if you look at some of the trades that are being done, they are definitely creating increased ton miles.
You know, we've seen coal go from even Australia or Indonesia to Europe, which what's been ongoing, of course, which is not new this year, is that China is not buying Australian coal, so they're taking coal from as far away as the U.S. We're also seeing India, where there seems to be a lot of demand these days, are sourcing from as far away as the US. It's tough to say, but now because this situation is evolving almost day by day.
If Russia is not sending gas to Poland, I'm quite sure that some of the guys in Asia with import contracts are gonna be diverting some cargos to Europe to sell at a bigger premium, which again, would be supporting for coal demand. Things have been turned a little bit upside down, I think, on the coal side compared to what we've been used to seeing over the last few years.
That's helpful. Thank you. Turning to the supply side, newbuilding has been very low year to date, and the order book is indeed sitting at very attractive levels. You mentioned your capacity to build Capesize or Newcastlemax is very low, but has capacity also started to tighten going into 2025? Could you provide some additional commentary? Wait, sorry. Go on.
No, sorry. Yeah, continue your question, please.
Great. Could you provide some additional commentary on new build pricing? Have yard quotes continued to increase?
Yes. I think to take those questions. I mean, first of all, just so there's no misunderstandings, we are not looking to order ships. We are focused on paying equity back to shareholders. Of course, we continuously analyze the market, and part of that is asking ship brokers when you could get delivery of a new ship. Literally speaking, we tend to use two or three sources for this. There are probably four ships being actively marketed that could be built within 2024 in China. As a consequence of that, of course, the rest will have to come in in 2025. Now, there's hardly any order book for 2025.
If I look at the Clarksons' data, the order book for 2025 is only 400,000 deadweight tons. Some of this is end of March, so something may have happened. I think as a consequence of that, I mean, there must be slots available. We still see a hesitance to order and it could have to do with several things. One is, of course, the fact that prices are pushing up. I think what I've seen for a standard Newcastlemax without the scrubber, then delivering typically in 2025, you're probably looking at $66 million. Then you probably have to add $2.5-$3 million to get that ship with the scrubber.
If you're looking at something running on LNG, you are all dual-fuel capability, you probably have to add $15 million on top of that again. You are in the kind of low eighties. I think this inflation is of course coming on the back of higher steel costs, higher energy prices, and also labor costs where there is meaningful inflation. I'm happy to see every time we open the broker report on a Monday and it says Capesize or dry bulk sector, no new ships ordered. That's good news, and there's been a lot of that. It's just pushing out further. I think we have to thank, I guess, all the ordering in the container space to some extent.
Indeed. That's all from me. Thank you very much for answering my questions.
No, thank you. Thank you for participating.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Magnus Fyr from H.C. Wainwright. Please go ahead. Your line is open.
Yeah. Hi, Magnus. Just, you know, most of my question was answered related to your chartering strategy going forward. I don't know if you have any data on what your scrubber profit share was for 4Q versus 1Q. If you have that data per vessel, per day or however you wanna quantify it.
Well, I'll admit, I don't. We of course have it. I don't have it in front of me. Let me see, Vidar, is there a way we can pull that up quickly?
Would you like an average number on the?
Yeah, yeah. No, just an average. I kinda just wanna get the magnitude of the change from, you know, 4Q to 1Q and, you know, with oil prices at current levels, you know, we could expect what kind of premium we could expect going forward.
No, we mainly
I think, I mean, can we get 'cause we report it on a monthly basis. Can we consolidate the numbers and get them back to Magnus? I think you caught.
Yeah. No, that's.
You caught us quite off guard.
No worries.
We don't have that in front of us in the room we're sitting.
I hear you. Okay. Looking forward to hearing back from you and congrats on a good quarter.
Well, thank you for dialing.
Thank you. There are currently no further questions. I will hand the call back to you, sir.
Okay. Thank you. I think we conclude the conference call and thank you for everyone who dialed in and listened and if you have any questions, feel free always to contact us. I will remind you that if you're looking to follow, you know, the Capesize market and how the index and the FFA market is progressing, you can always follow our Twitter accounts where we try to make it transparent for our investors to see what's going on in the market. Thank you, everyone, and we speak next time. Bye-bye.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.