Good morning, everyone, and welcome to Sidoti's Virtual Small-Cap Conference. My name is Michael Mathison. I'm a Senior Equity Analyst with the firm, and I'll be your moderator today. We're fortunate to have with us the team from Genco Shipping & Trading. Before I introduce them and they get started, if I could just cover some housekeeping details. We really encourage questions. There's time left for questions at the end. Let me explain how to ask your question. You'll be asking your question by writing it in. You'll see a box at the bottom of your screen where you can ask questions. You type them in, and then I'll read them off to the presenting team, and they'll be giving you the answers. With that, let me introduce the team. We have Michael Orr with us, VP of Finance, and Peter Allen, CFO. Peter, please go ahead.
Great. Thanks, Michael. Starting here with an overview of Genco Shipping & Trading. Genco is a pure-play dry bulk shipping company. We own 44 vessels, and we transport commodities like iron ore, coal, grain, bauxite, and a various host of minor bulk commodities, cement, fertilizer, et cetera, across worldwide shipping routes. A lot of times, the cargoes are going from the U.S., Brazil, Australia to China, India, and various Asian economies. We have direct exposure to all minor bulk trades and all major bulk trades with the ownership of a diversified fleet. In terms of our capital allocation strategy, we deploy a low financial leverage, high dividend approach, so our net loan to value is 20%. And we like to balance that low financial leverage with high operating leverage, given our spot exposure to the dry bulk market, and it's been a rising dry bulk market.
That spot exposure has been beneficial to the earnings, as we'll discuss a bit later. From a corporate governance perspective, we are a top quartile rated company among shipping companies. We have no related party transactions, which is something that's very prevalent in the shipping space. And we also have a fully independent Board of Directors. Our market cap is about $1.2 billion, and we're listed on the New York Stock Exchange under ticker GNK. When we look at our overall fleet, we own 44 dry bulk vessels, an asset value at current market levels of over $1.5 billion. Those 44 ships are broken into 20 Capesize and Newcastlemax vessels, which are more driven by the iron ore trade, bauxite, and coal. They have much more upside volatility, and are really more central to China. 75% of iron ore, which is the largest dry bulk trade, goes to China.
And we balance that with 24 minor bulk vessels, which are our Ultramax and Supramax vessels. That's a more stable earning stream, diversified trade routes. Those are more linked to global GDP. And when we look at the overall cargo transported by Genco, in 2025, for example, we transported 22 million tons of dry bulk commodities. About 50% of that was iron ore, which goes into steel production. 14% of that was grains, and about 13% was coal. So a diversified mix of cargoes that we're carrying throughout the various global shipping routes. From a capital allocation perspective, our strategy focuses on three main pillars, which is dividends, deleveraging, and growth. From a dividend perspective, we've paid over $300 million of dividends over the last five years. We've also paid down about $120 million of debt over that time while growing the fleet by $550 million.
This was a strategy that we put in place in April of 2021, and we have executed in every capital allocation decision that we have done since that point in time has been along the lines of what we call our value strategy, which is our approach to capital allocation. Shipping is a highly capital-intensive business, so capital allocation is really the main focus and main topic that the management team works on on a day-to-day basis. From a dividend perspective, we do pay a variable quarterly dividend. We have paid 28 consecutive quarterly dividends, returning about $9 per share to shareholders. Importantly, in the second quarter of 2026, our dividend increased over 400% on a year-over-year basis to $0.80 per share. That is a double-digit yield based on the current stock price. It is also the highest value strategy dividend we have paid since inception.
The market continues to be strong, so we have actually guided to over $1 per share in dividends for each of Q3 and Q4 2026. When we look at our overall flexibility in our approach, the reason we have our low financial leverage, high dividend payout model is really centered around the balance sheet. So we have the ability to, in a good market like we are in today, dividends are paid to shareholders, earnings is very strong, and we have over $1.5 billion of assets on the water, so we are going to benefit. Furthermore, if the markets do correct or we see some downward volatility, we have the ability to step in with counter-cyclical acquisition opportunities that eventually will be accretive over time. We have done that over the years. We can see here we began to reinvest in a Capesize asset class in Q4 of 2023.
There was a dip in the market. We stepped in, we acquired ships, and those acquisitions have experienced an over 30% IRR since then. So those are the types of examples of us being able to be very flexible with our approach to capital allocation. Just tying a little bit with governance- Strong corporate governance is a very important thing in dry bulk shipping and shipping in general. A lot of the times there is corporate governance, related party transactions across various peers, which does hit valuation. When we look at Genco, we are a transparent U.S. filer. No related party transactions. We are the only U.S.-listed company with no related party transactions in the dry bulk space. We have an independent Board of Directors, and we continue to be rated in the top quartile of public shipping companies on a yearly basis.
A little bit on the financial highlights and performance of Genco. So the second quarter, very strong earnings, adjusted net income of $29 million or $0.65 diluted per share. EBITDA was almost $57 million. When we look at the first half of 2026 EBITDA, it is actually greater than the full year of 2025. So just a very strong earnings environment. The dividend, as I mentioned earlier, is $0.80 per share. Importantly, on our road strategy in 2025, we increased the asset base through acquisitions by 20%. The second quarter of 2026 was the first full quarter where all of those 2025 acquisitions hit. That had a significant impact on the dividend, about a 20% impact to the upside on the dividend given those acquisitions being fully operational during the second quarter.
And importantly, tying back to our low financial leverage, high operating leverage strategy, you can see here every $1,000 fleet-wide increase in TC, our time charter equivalent rate, it results in $16 million of annualized EBITDA or about $0.35 per share in dividend capacity. When we zoom in on the Capes, the 20 Capes that we have, which are more volatile and tend to be more upside and gap wider, every $5,000 increase in Cape time charter equivalent is about $35 million in annualized EBITDA or $0.80 per share. On our quarterly dividend policy, our target is to pay 100% of operating cash flow, less a voluntary reserve every quarter. It is a variable dividend. It does fluctuate with the market, but it is highly correlated with the Baltic Dry Index.
If the Baltic Dry Index increases, as we have been seeing over the last several quarters, that flows into our P&L, which flows into our dividend calculation. As you can see here on the right of the page, we paid $0.80 per share in dividends for Q2. Like I mentioned earlier, we have guided to over $1 for each of Q3 and Q4 2026. When we tie it all together, Genco's current position, we have 44 dry bulk vessels on the water today, over $1.5 billion in asset value. We have the lowest cash flow break-even rate in the peer group, $10,000 per vessel per day. We have no mandatory debt amortization.
That $10,000 per vessel per day compares very favorably to the current spot index rates of over $50,000 per day for Capesize vessels and over $20,000 per day for our Supramax vessels. Our strong balance sheet results in a 20% net loan-to-value ratio, among the lowest in our peer group as well. We also have a significant amount of liquidity for accretive growth opportunities with $300 million of undrawn revolver availability. A lot of liquidity, low leverage, but also a sizable fleet on the water to take advantage of growth opportunities. With that, I will turn it over to my colleague, Michael Orr, to talk about the dry bulk market.
Thanks, Pete. As Pete mentioned, we are currently in extremely firm footing in terms of the dry bulk market. The Baltic Capesize Index is currently about $50,000 per day, while the Baltic Supramax Index is approximately $20,000 per day. September Capesize rates are on pace for their strongest month since October of 2021. For the year, the BCI has averaged approximately $33,000 per day, while the BSI has averaged approximately $16,000 per day. In terms of iron ore, Chinese imports have grown by about 5% year to date. That is on top of already record imports last year. Australian imports have also been strong, rebounding off of a weaker Q1 due to weather-related issues. In terms of Brazil, Brazilian exports are historically about 20% higher in the second half of the year as opposed to the first half of the year.
Year to date, exports have been roughly flat. We expect a ramp-up in shipments as we enter the last part of the year. Also in terms of Brazil, a large reason why we've seen such a strong market has been the increase in Atlantic volumes on Capesize vessels. This comes in the form of iron ore from Brazil, as well as bauxite and iron ore coming from West Africa, in particular the country of Guinea. What's important is that one cargo from the Atlantic is equivalent to three cargoes coming from Australia in terms of ton miles. When you see a ramp-up in Atlantic exports, you really see a stretching of the fleet, higher utilization. That's when you really see rates jump, is when that fleet gets stretched due to those long-haul volumes from the Atlantic.
In terms of West Africa, we see continued strong exports of bauxite to China. Chinese imports have grown by about 10% year-over-year. These are all on Capesize vessels, which is also very important. This is a relatively newer trade for the Capesize segment. It provides another option for ships ballasting to the Atlantic. In terms of iron ore, we've seen a ramp-up from the Simandou project, also in Guinea. First shipments were last November. They've been steadily ramping up to the strongest month so far in August, with over 3 million tons shipped. What's important is that almost all volumes are going to China. This is, like I said, another longer-haul option for Capes ballasting to the Atlantic. We are currently in a high likelihood of an El Niño weather pattern forming later this year and into early 2027.
In terms of past El Niños, we've seen support for coal demand due to hotter temperatures and lower hydropower output in Asia, as well as drier conditions for exports, particularly from Brazil iron ore in the early part of the year. Additionally, the last El Niño, we saw a significant reduction in transits from the Panama Canal. We saw bulker transits fall by close to 80% from their normal average due to lower number of transits on a daily basis. Bulkers typically are jumped over by other vessels such as containers and LPG vessels. We'll see how that continues. Finally, on the supply side, we have seen an uptick in ordering. The order book is now approximately 14%-15% of the on-the-water fleet.
What's important is that currently, about 12% of the fleet is 20 years or older, and we are currently at the oldest fleet since 2010. We view a lot of this ordering as replacement tonnage as opposed to speculative ordering that we've seen during the past ordering booms.
Great. I'll finish up here. As Mike highlighted, strong dry bulk market, solid fundamentals. The dry bulk sector, as opposed to some of the other shipping sectors, like tankers and containers, is less driven by geopolitical factors and more driven by the current supply and demand fundamentals of the dry bulk industry. We had going into this year, the expectation was for a strong market. We've had low net fleet growth, which has materialized, and we've seen longer trading distances. That's stretched the overall fleet and improved the overall supply and demand balance for dry bulk.
And then on top of that, there has been geopolitical factors, but more on the margin for dry bulk shipping that have further improved fleet-wide utilization. So when we couple the strong market with Genco's strong balance sheet and overall advantageous position within the dry bulk market, we think that Genco has created a very compelling risk-reward for shareholders. 20% net loan to value, $10,000 cash flow break even rate. Continue to invest in larger, modern eco Capesize vessels to continue to grow the asset base and continue to be accretive for shareholders. And that spot exposure really balancing the operating leverage in the business with the low financial leverage. So like I said, overall, a very compelling supply and demand balance for dry bulk shipping, but also a compelling risk-reward profile for investors. So with that, Michael, I'll turn it back over to you for any questions.
Very good. Terrific presentation. Thank you for that. I'll kick it off with the first question, and then we'll get to some of the ones that had been offered from the audience. This is a fantastic year from you guys. Fleet utilization is at 98%, 99%. Your revenue, your TCE is also running very strongly. What catalysts can investors look to for further upside in your business performance?
Yeah. So the catalysts for shipping. I think it's important to bifurcate what's going on geopolitically versus dry bulk. Going into 2026, the thesis for dry bulk shipping was it was going to be a strong year, stronger than what was experienced in 2025. The reasons behind that were low net fleet growth and longer trading distances. We've seen both of those play out. So Capesize net fleet growth is about 1%. When we zoom in on Capes, over the last five years, we've had under 3% net fleet growth in each of the last five years, which has never happened before. So very low capacity expansion.
That's very important because historically, when you look at shipping cycles, there's a boom and bust cycle because a lot of ships are ordered and more supply comes on and then it overtakes demand growth and then throws off the supply and demand equation. So right now we're in a capacity-constrained environment with limited ordering and limited overall net fleet growth. So that's one side of it. We've continued to see longer ton miles out of Brazil and West Africa, which again, coming into this year was a big part of the thesis. The Simandou iron ore project has started to ramp up. We saw a record amount of shipments in August. We expect that to continue as that project ramps up to full capacity. So those are some of the big drivers of the supply and demand within dry bulk shipping.
The geopolitical stuff on top of that with Hormuz in particular, that has brought the energy security theme back into play. What that does for dry bulk is coal demand is much more prevalent than maybe it was earlier in the year. We have seen coal demand grow overall. There has been gas to coal switching in particular parts of Asia, like South Korea, for example. We have seen increased shipments from Colombia and the U.S. to Asia, so that is longer ton miles. Overall it has been very positive. That is layered on top of what was already a very compelling setup for dry bulk going into this year.
Great. Now looking to some of the questions that have come in. You have spoken before, and you also spoke today about your emphasis on long-haul routes. Can you talk about why that is and just the overall balance of long haul versus short haul for your fleet?
Yeah. For Genco, about half of our shipments are iron ore and iron ore.
Just when you look at the entire dry bulk complex, it is about 30% of global dry bulk trade. The most important route within that is Brazil to China. Not only is it significant volumes, but it is significant trading distances. That is a 90- 100-day trip versus Australia to China, which would be 30- 40 days. So you get that 3x multiplier on that same cargo from Brazil to China as compared to Australia to China. When we look at our overall mix, 50%, as I said, is iron ore. That is more on the Capes in particular. We do tend to see the ramp-up in the second half of the year in Brazilian shipments. There is also more iron ore coming out of West Africa. The bauxite trade out of West Africa has also increased about 20% this year.
Those longer trading distance routes, they absorb capacity for a longer period of time. So those ships are out of action, basically, for those 90 days as opposed to just the 30- 40 days in Australia. But within dry bulk shipping, there is a lot of different commodities that are traded. And there is a whole host of micro supply and demand equations throughout the business, but those are just some of the bigger trade routes that we focus on.
Great. Another question comes to your strategy for owning a fleet versus leasing ships. Could you talk about the balance of ownership versus leased, kind of what you own, what is the average life left on the fleet?
Genco, we own 44 dry bulk vessels. We own them all. There are no time charter ins for longer term, and then there are no sale and leaseback arrangements, for example. The average age of our fleet is about 12 and a half years. We depreciate those vessels over a useful life of about 25 years.
Great. Now, you talked about the different classes of ships, the Capesize versus Ultramax and Supramax. Can you just kind of drill down a little bit into why the Capesize are earning so much more, your strategy there, and why you have the mix that you do?
Yeah, we have the mix that we do. There's certain points in time in the cycle where certain classes perform better than others. Ultramax and Supramax vessels in 2021 and 2022 in the post-COVID recovery were by far the best vessel class to own, and those ships completely outperformed Capes and others. That led to ordering in those sectors more so than in Cape. What we've seen over the last few years was increased net fleet growth on Ultramaxes and Supramaxes and less net fleet growth on Capesize vessels. We do think it's important to own both to have exposure to all dry bulk commodities. Capes offer that upside and significant amount of volatility to the iron ore, bauxite, and coal trades, whereas the minor bulks are more of a global GDP story.
But we also have a team here that can add incremental earnings capacity to Ultramaxes and Supramaxes, as there's a lot more. It's just a less transparent market, so you can add a lot more value in terms of trading those ships, whereas Capes is much more transparent. It's the major iron ore miners, the Vale, Rio Tinto, BHP, and a lot of that is going to China. Right now, the Capes are outperforming Ultramax and Supramax. It's primarily due to significantly lower net fleet growth on a relative basis, but also those long ton mile trades that we've highlighted are Capesize trades. We've had demand growth coupled with minimal net fleet growth. That's one of the reasons why the Capes have been outperforming. We've not only do we observe that thesis, we've been investing in that thesis.
Since 2023, we've invested over $400 million primarily, or purely in Capesize tonnage because of this growth story, and it's played out. Those acquisitions have seen a 30% IRR over that period of time.
Great. Just looking at the cargoes you carry, you mentioned that your business is dominated by iron ore. You also spoke about coal. I believe what I saw in your presentation that grains, particularly soybeans, are also an important cargo for you. Could you talk about the impact that trade frictions and tariff wars have had on grain shipments in your business?
Yeah. Earlier on, when there was the U.S.-China trade war that was centered around grains, we did see a lot more grain exports out of South America, particularly Brazil to China. The market share of Brazil soybeans to China was significantly higher than we have seen in previous years. Having said that, we have seen a lot more purchases of U.S. agriculture products by China. We do, as we get into the fourth quarter, that is North American grain season, so we tend to see an uptick in U.S. Gulf shipments to China on the agriculture side. That is important to couple in with another theme, which is El Niño and the Panama Canal water levels because those trades typically go through the Panama Canal to Asia.
But if you are no longer able to transit the Panama Canal due to low water levels and priorities of other sectors, then all of a sudden you have to go around the Cape of Good Hope. You cannot go through the Panama Canal, let us say. Cannot go through Suez because of the geopolitical factors, so you have to go around Africa. That adds significant trading, about two to three weeks additional time at sea. Again, that just tightens overall fleet-wide capacity and creates more inefficiencies in the dry bulk fleet.
You mentioned the geopolitical environment a couple times, and obviously it dominates the headlines. Could you talk about the impact that the current environment is having on you? Then maybe if you could kind of give us a little bit of an understanding of if everyone shook hands this afternoon and the conflict is over, what would that mean to the business?
Yeah. Tankers and containers, those sectors are seeing a very significant impact with what is going on geopolitically. Dry bulk, it is more on the margins. Hormuz, for example, it is 1%-2% of dry bulk trade transits that area. There is probably 1% of the fleet that is tied up in that area. Again, on the margins there. We do not have any ships in the Persian Gulf area. We also do not have any ships that transit through Suez at this point in time. Then when you talk about the rerouting impact around the Suez Canal and the Red Sea area, that is another 1% or so. If things were to disappear overnight, there would not be a massive impact on dry bulk shipping. The massive impacts would be more on the container and the tanker side.
Having said that, we would see in all likelihood a reduction in oil prices. The fuel that our ships consume would reduce. Maybe the coal trade, there's a little bit of less of an urgency on the coal trade, although I do think there is a general view or theme of restocking commodities and building stockpiles just strategically among countries. A lot of those LNG plants are not going to come online overnight either. There's been a lot of gas to coal switching. Hard to say what that would do from a freight rate perspective. Geopolitically, I don't think it would have a significant impact on dry bulk because as I was saying before, the thesis going into this year has been playing out, and then these have been layered on top of them.
Overall strong market and geopolitically hopefully there is a resolution to all of these conflicts, but there's been a lot of fits and starts over the last several months. Tough to predict.
Coming back to the composition of the fleet. You mentioned that in 2021, and I believe also in 2025, you took the opportunity of a slow market to basically buy some ships. I'm wondering if you have any plans, even in this tighter market, to take free cash flow and invest in more ships.
Yeah. Part of our capital allocation strategy is to continually look at fleet renewal. We have some older ships that we could divest and then redeploy that capital to more modern tonnage. That's been a trade that we've been doing a lot over the last few years, and it's been very accretive to cash flows and the dividend. That's something that we certainly evaluate. Yeah, fleet renewal and fleet growth are certainly continuously looked at. It's just a matter of finding the right assets at the right time and being able to get them from the seller. There's a lot of people who are now seeing thesis play out that we've been investing in over the last three years. Liquidity sometimes is a little bit challenging for modern Capesize tonnage, but we're always on the lookout to renew and grow the fleet.
And if we could just turn back to corporate governance, because you mentioned that you had a slide or two about it. As you said, the whole industry, with the exception of yourselves, has a lot of related party transactions. You've chosen not to do that. Could you explain why and why that's a benefit to shareholders?
Yeah. So related party transactions, it's basically when the private entity that shareholders are investing in are paying bonds to private entities owned by management of that company. So there's a natural conflict of interest there that we view. Genco has not done that. That's not been our approach. We do think it impacts valuation, these related party transactions, maybe not necessarily on just the technical management side, but there's Sale & Purchase fees as well. So, we just like a clean structure. Everything is within the public vehicle, and that's what you're investing in. There's no conflicts of interest. There's no page after page after page in our 10-K about various related party transactions and how management might be focused on the private entity versus the public entity. There's none of that. You get a very clear and transparent corporate governance structure at Genco.
Excellent. Thank you. Looks like we have time to squeeze in one more question. You've talked previously about bauxite as a growing market. Could you just talk about the state of play for that for your business?
Yeah. Bauxite, that trade has been terrific for the last several years. As Mike mentioned in the presentation, that's been a growing iron ore trade. We've seen the bauxite exports from Guinea take about 80% market share of China's overall imports. So that trade continues to grow at a significant pace. The growth rate's at 20% every year. I don't think we can bet on that, but it's been a constant demand driver for whether it's EV production in China or overall energy transition there. So that's been a big driver of demand for bauxite, which goes into aluminum production in China. So it's been a nice story over the last few years, and it's gone from a very small trade to a much more substantial trade. As Mike mentioned earlier, it gives more options when you're ballasting a ship.
When a ship is basically done discharging in China, the Capesize vessel will transit empty to either Brazil or West Africa or any other potential destination. It just gives you additional options so you are not just beholden to Vale in Brazil, for example, and you have other places that you could potentially go. It just tightens the market that much more.
Great. Well, that runs us out of time. Terrific presentation. I really appreciate your crisp answers to the questions as well. Great to see you. Hope to have you back. And thanks everyone in the audience for attending. Much appreciated. See you soon.
Great. Thank you.