Good day and thank you for standing by. Welcome to the 2020 Bulkers Limited earnings call for Q4 2021. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A 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. Wednesday, the 26th of January 2022. 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 fourth quarter 2021 earnings conference call for 2020 Bulkers. As usual, I'm also joined here today by our Chief Executive Officer, Mr. Vidar Hasund. Before we start the presentation, I would like to remind you that we will be discussing matters that are forward-looking in nature. These forward-looking assumptions are based on the company's current views with regards to future events which are uncertain. Actual results may differ materially.
With that, I'll go over to the highlights for the quarter. 2020 Bulkers generated a record net profit of $26.3 million in the fourth quarter. We maintain track record of having been profitable every quarter since we got our first vessel in operation in the third quarter of 2019. We continued to outperform the Capesize Index during Q4, and we achieved time charter equivalent earnings of $52,900 per day. This compares to the Baltic Capesize Index, which was approximately $42,600 during the quarter.
For the months of October through December, we announced a total of $1.20 per share in cash distribution. This equals an annualized yield of around 45% based on yesterday's closing share price. For the year as a whole, we paid $3.18 back to shareholders, which equals around 30% of our current market cap. During Q4, we refinanced our bank debt, thereby extending the maturity from August 2024 to March 2027. The refinancing was done at LIBOR + 210 basis points, down from LIBOR + 250 basis points under the previous facility.
We also extended time charters for two ships during the quarter, the Bulk Seoul and the Bulk Shanghai, which will continue on index-linked charters with Koch for 10-13 months. At the end of the quarter, we also announced some organizational changes. Jens Martin Jensen resigned as a Director of the Board to pursue new ventures. The board would like to thank Jens Martin for his contribution, having been a valuable board member since the company was started.
At the same time as Jens resigned from the board, I was appointed Chairman of the Board and will consequently pass on the role as CEO to Herman Billung on February 1st. Herman brings decades of shipping experience, and we look forward to working with him. He will also be acting CEO of Himalaya Shipping, for which 2020 Bulkers management have taken on a management agreement. Lastly, so far in the quarter, we have so far earned around $22,400 per day gross. With that, I'll leave it over to Vidar.
Thank you, Magnus. 2020 Bulkers reports a net profit of $26.3 million for the fourth quarter of 2021. Operating profit was $28.5 million, and EBITDA was $31.4 million for the quarter. Earnings per share was $1.18. Revenues were $37.7 million for the fourth quarter, and the average time charter equivalent rate was approximately $52,900 per day gross. Vessel operating expenses were $4.8 million in the fourth quarter, which includes approximately $0.6 million in COVID-19 related costs and $0.15 million in additional insurance deductible for the Bulk Shenzhen incident. Average operating expenses per ship per day was approximately $6,600.
G&A for the fourth quarter was $0.9 million and include approximately $0.1 million in legal fees incurred in connection with refinancing of the term loan facility. Interest expense was $2.3 million in the fourth quarter. Shareholders' equity was $151.7 million at the end of the quarter. Interest-bearing debt decreased from $239 million at the end of the third quarter to $236.1 million at the end of the fourth quarter, reflecting scheduled repayments. The company reports cash flow from operations of $26.8 million for the fourth quarter. Cash and cash equivalents were $24 million at the end of the quarter.
The company declared total cash distributions to shareholders of $1.20 per share for the months of October, November, and December 2021. That completes the financial section. Now back to you, Magnus.
As you know, 2020 Bulkers has a policy to pay out free cash flow to shareholders on a monthly basis. We have returned free cash to shareholders for 18 consecutive months, which is every month since we got our full fleet delivered. The Q4 dividends and cash distributions of $1.20 equals approximately 45% annualized yield compared to our current market cap. For the year as a whole, we paid out $3.18 per share, approximately 30% of our current market cap. With a fleet that's just two years old on average, we have to date returned 57% of total paid in equity back to our shareholders. For 2022, we remain constructive on the market, and we are so far fully spot exposed through index-linked charters.
The current FFA curve implies a free cash flow of around NOK 18 per share as an indication. It's also worth noting that this slide illustrates how we are generating cash flow available for distribution as long as the Capesize market is above $10,000 per day with all our ships on index-linked charters. We believe this is highly competitive and shows the attractive risk-reward and low cash break even in our company. As you can see from this slide, the Capesize market is showing its regular pattern of a softer Q1. Keep in mind for comparison that January last year was affected by heavy congestion in China related to waiting time caused by icy conditions, which had a positive impact on the market. The seasonal weakness this year is also exacerbated by wetter than usual rainy season in Brazil.
In spite of the wet conditions, Vale has reiterated their guidance for the year, which means we can expect a significant uptick in volumes later in the year as the rainy season ends. The second half of 2021 showed a sharp drop in Chinese steel production, with production down 16% from the level seen in the first half. We did, however, see a strong uptick in December production to 86 million tons, up from 69 million tons in November. Market analysts expect flat Chinese steel production in 2022, which would imply average production in 2022 approximately 9.5% above the level seen in the second half of the year.
In addition to an overall correction in the Chinese economy and in the property sector in particular, we believe that the drop in steel production seen during the latter part of 2021 was also partially caused by the energy shortage in China, as well as their desire to reduce pollution ahead of the Olympics. It's interesting to note that the ongoing production cuts in 28 cities are scheduled to end on March 15th, which is two days after the end of the Paralympics. In addition, we also see clear signs of new wave of stimulus aimed at infrastructure spending, as well as the property sector. We'll get back to this on some subsequent slides. In spite of the correction in the Chinese economy, steel inventories did not build materially.
Here you can see the Chinese rebar inventories, which were only 3% above the level seen at the same time last year. Steel prices were also holding up relatively firmly, with rebar prices 13% higher than the same time last year. Taking a look at the steel market, we see that the World Steel Association expects steel demand to grow by 2.2% this year globally. This is with China assumed to post flat steel demand, meaning the rest of the world is showing growth rates around 4%. Total exports of iron ore globally was up 4% in 2021 compared to 2020. This is in spite of China showing contraction of 4%. We believe this suggests that the rest of the world is taking over from China as the main growth driver on the demand side.
In line with the steel demand estimates we just reviewed on the previous slide. Chinese inventories did show growth during Q4, but they seem to have flattened out recently. One of the big surprises to the market last year was the strong growth in coal volumes. We don't typically transport coal. In fact, it's been only around 5% of our cargo since we started. However, we compete with standard Capesize who transport a lot of coal. Coal volumes were up 7% year-on-year in 2021. The start to the year in 2022 has been somewhat slower, mainly driven by the export restrictions in Indonesia. If anything, these restrictions highlight the ongoing energy crisis and the need for coal in the energy mix.
We believe this underscores the fact that although we all want the world to gravitate towards cleaner energy sources, coal probably has an important role to play in many years ahead. In China, in particular, it's estimated that 150 GW of new coal-fired power will be built between 2021 and 2025. As you can see from the two last graphs on this page, coal inventories are still low in the historical perspective in both China and India. As mentioned earlier, we are seeing increased evidence of a new wave of stimulus in China. We saw a strong uptick in the issuance of local special infrastructure bonds during the second half of 2021, with CNY 2.6 trillion issued, up from CNY 1.1 trillion in the first half. Typically, we would expect a few months lag before these translate into increased infrastructure investments.
As you can see on the right-hand side, December marked the first month of year-on-year growth in China fixed asset infrastructure investment since April last year. This could be an early sign that the stimulus is starting to take effect. As mentioned previously, the second half of 2021 showed a marked slowdown in the Chinese property sector. However, December showed an increase in sale of commercial and residential buildings with the highest sales in six months. Commercial building sales were 40% above the levels seen in November. We continue to believe that the supply side dynamics are the most attractive seen in this market for more than 30 years. The Capesize order book is around the lowest level seen in three decades, with the order book sitting around 7% of the existing fleet.
Capesize ordering last year was low, and given the recent ordering in the container space over the last year, there's very little yard capacity available for new orders before 2025. In fact, we only believe Chinese yards are marketing approximately 5 Capesize in Newcastlemax slots remaining in 2024, which is obviously very modest given the total fleet size of almost 1,700 ships. Deliveries for Capesize and larger vessels would drop to approximately 10 million deadweight tons this year, down from 18 million last year and 25 million the year before. Lastly, in spite of strong markets in 2021, we still saw around 3.7 million deadweight tons of Capesize being scrapped. As mentioned on previous earnings calls, there are new environmental regulations coming up.
EEXI and CII will come into effect on January 23rd, and we believe they will overall lead to a slowdown in average trading speeds, effectively reducing supply. It's hard to estimate how much, but we know that our ships at least are future-proof for many years ahead. As we've also mentioned before, the ABS has estimated that our fleet is in the top 8% percentile of large bulkers on the water. Lastly, I'll give a quick summary of what we view the investment case in 2020 Bulkers to be. We have a modern fleet of eight Newcastlemax with an average age of two years. Our cash break-even budget for the year is $14,900 per day. This also includes approximately $300 per day in buffer related to COVID-related expenses.
As of today, we have eight vessels on index-linked time charters, where we also get the scrubber profit shares. All of these index-linked charters can be converted to fixed rates on the basis of the prevailing FFA curve. The FFA curve implies time charter equivalent earnings for a scrubber-fitted Newcastlemax of approximately $33,000 per day for the balance of 2022. Free cash flow is being paid out on a monthly basis and will continue to do so. Lastly, in terms of the market, we see the most favorable supply-side dynamics in more than 30 years, and very little that can happen to change that in the coming years, given the very scarce yard capacity. Additionally, we have some optimism that the new wave of stimulus in China will lead to a pickup in infrastructure investments there.
With that, I'll leave it over to the Operator for questions.
Thank you. As a reminder, to ask a question, you would need to press star one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Frode Mørkedal from Clarksons. Please ask your question.
Yes, thank you. Hi, Magnus.
Hi, Frode. How are you?
Just curious on how important is the Winter Olympics in China in terms of, you know, the rate decline you're seeing and, you know, what the potential after the Olympics in your view?
It's a good question. As many things China related, it's impossible to give a firm answer. What we know is there has been a focus for China to reduce pollution ahead of the Olympics. If you look at what we know as a fact, which is the production curb currently in place in 28 cities, we know that that is scheduled to end, as far as I know, on March 15th , which is two days after the Paralympics end. I would say it's likely there is a relationship there.
When it comes to the market and the Q1 weakness as you alluded to, I think we should keep in mind that if you go back and look in history, I mean, Q1 is almost always a weaker seasonal quarter in our market. It's quite easy to rationalize. You have typically a rainy season in Brazil, which reduces exports. That's definitely the case this year. I think we've had for some periods record rainfalls in Minas Gerais. You also have for Australia and I guess we're getting into peak cyclone season, which from time to time can create some disruptions. Overall industrial production, particularly in the northern hemisphere, tend to be lower. There's nothing unusual about a weak Q1.
I think last year everyone was caught by surprise by the strength in Q1. I think to me, at least, the biggest surprise that happened then was we had the La Niña winter, which created very cold weather in northern China. You had periods with - 10 degrees or more where a lot of ice was created. I think we had ships laying more than 30 days waiting to discharge. I think there's a La Niña season in place this year, but it's not as cold, so we're not seeing that effect this year.
Okay. That's good color. In terms of, I mean, you had some good graphs on China there. I mean, would you expect that Chinese iron ore imports would grow this year? What's your outlook on, let's say, the global iron ore trades for this year?
Well, I think we are quite encouraged by some of this data that we showed. I mean, I think you've seen for many years China having this pattern of stimulating or giving credit support, and then you see the effect, and then they step back for a bit. It's probably something one should have picked up earlier. As you see from one of the graphs, looking at the special bonds, local special infrastructure bonds, there was very little issuance in first half relative to the second half. You know, it's only a month, it's only one data point, but it's interesting to see that December figure with fixed asset infrastructure investments ticking up year-on-year for the first time.
There's obviously a lot of negative headlines and narrative on the property market. Again, it's only a data point, but we saw that commercial property sales in December were stronger than they had been in six months. We know that, you know, China has cut their reserve requirement ratios, and there seems to be a sort of general attitude of loosening again. I think also, you know, some of the weakness we saw in steel production towards the second half of last year was also related to the energy crisis. We obviously have quite close contact with some shipyards, and we know that a lot of the heavy industry for periods during Q4 were only operating five days against normally being allowed to be operating for seven days.
I think that's also probably why you saw some build in iron ore inventories. At least if you believe, I guess, the analysts that we follow, who essentially think China will be flat on steel demand next year, that flat steel demand, because the second half of 2021 was so weak, would imply. I think I said around 9% uptick in steel production. We do expect resurgence that will start eating into those inventories, and I think that will also be supporting imports. I think it's interesting to note as well, I mean, China is half of global steel demand. Of course, you are extremely focused on what happens there.
In spite of China contracting on iron ore imports, you saw growth in overall global volumes. I think that shows you that the rest of the world is accelerating to some degree. I think if we kind of look back just post the initial COVID outbreaks, they were the first to come with stimulus. Of course, they are a very synchronized and well-organized economy. When the government decides to stimulate, you see projects being put into work very quickly. I think in the western part of the world, there's been a lot of stimulus initiatives initiated, but you don't have the same ability to move on shovel-ready projects right away.
I think that support to the world ex-China might be a little bit slower burning, but it should be there to support over the next couple of years.
Yeah. Right. Okay. It seems like you're quite optimistic about the outlook. My final question is really about how would you play 2022, right? I mean, you are quite open, so to speak, in terms of you have high reliance on the spot or index link. Would you consider time charter exposure or fixed contract coverage? Yeah. What's your outlook there?
No, I think, you know, we are positive on the market. I think I'll just, you know, to summarize, we're entering a period with very low supply growth. We do believe that you will see some recovery in steel demand as we get further out towards the second quarter onwards, which is why we want higher spot exposure. That being said, I mean, we manage the risk very carefully, and I think we've shown that historically. I think that's a nice thing about our charters, is we have the ability to convert them. We literally monitor this day by day and look at the portfolio construction. The good thing now is, although spot has been quite depressed recently, the FFA curve is quite supportive.
Looking from February through December, standard Capesize curve is above $22,000 a day, which means we could do conversions, yeah, let's say around $30,000, and then you get the scrubber benefit on top of that. We have that put, if you will, if we want to secure some near-term cash flow or I guess lock in some cash flow through the year or then implicitly reducing our cash break-even for the remaining ships. That's something we look at. We would like to be quite exposed to the market the way we're reading it right now. But we've also seen in previous years taking some cover at points in time.
Yeah, we're keeping an eye on it and do expect that we have an active approach to it.
Great. Sounds good. Thank you very much.
Thank you.
Thank you once again. If you do wish to ask a question, please press star one on your telephone. Your next question comes from the line of Climent Molins from Value Investment. Please ask your question.
Good morning, gentlemen, and congratulations for this quarter. Following up on the latest question, I was wondering if you could provide some additional commentary on the levels you'd be willing to fix on vessels for 2022. Because, like, for your commentary, it sounds like you're more bullish than what current FFA curve implies. Could you provide some additional commentary on that?
Yeah, I'm not gonna give you a level and say, this is the rate where we will fix because that's that varies through. You know, we also follow the developments in the market. We have a market view today and we of course follow as things change. I think what's important for us is to maintain dividend capacity. We will kind of always look to that. If you see us converting one or two ships, it's not necessarily going to be reflecting that we think this is the peak or this is where we think the market will be for the year. We view it as buying insurance, if you will, as well.
You know, all I can say is we think about risk, and we've shown that both ways historically. I mean, when COVID hit, we came into the year with six ships open and we decided to take cover and that meant we didn't lose any money for any quarters that year. That was a defensive move, or buying insurance, if you will. Last year, I guess we did a little bit earlier in the year to secure some cash and lower the cash break-even on the six ships, and then towards the end of the year when rates were really, really good, we locked in those rates.
We use it as a risk management tool, but I can't give you a rate and say, this is the rate that we would lock in for the rest of the year.
Understand. Thanks for the color. Regarding the recent financing of the term loan facility, you managed to lower the interest margin by 40 basis points, and I was wondering if you could provide some commentary on the sale and leaseback financing in place for the Bulk Seoul and Bulk Shanghai, especially regarding the purchase options you hold, and when are those exercisable?
Yeah. The Bulk Shanghai financing is done at the time of delivery at LIBOR + 450 basis points, 17.5-year amortization profile. When it comes to the purchase options, we have options to purchase at our option starting in October, November 2024 for $30 million, and then that steps down gradually every year. We also have the ability to break the lease if we sell the ship. We are free to sell the ship to a third party. I think that answers your question.
It does. Thank you very much, and congratulations again for this quarter.
No, thank you. Thank you for listening in.
There seems to be no further questions at this time. Please continue.
Okay. No, I think we'll just thank everyone for dialing in and just reach out if you have any questions. One thing I forgot to say, I think I said it on the last call, we get questions from time to time from people who ask where can we follow the Baltic rates and the index. We have a Twitter account, 2020 Bulkers, where we put out daily reports. I think that's something we do to create transparency for people to see what the index is relative to the premiums that we have. I'll say thank you. Thank you for the call.
That concludes today's conference call. Thank you all for participating. You may now disconnect.