Star Bulk Carriers Corp. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Star Bulk owns and operates dry-bulk vessels carrying commodities such as iron ore, coal and grain. At year-end it operated 116 vessels; the company described a fully delivered fleet of 128 vessels and 14.1 million dwt after announced subsequent acquisitions.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Voyage revenue | $693.2 million | $821.4 million |
| Operating income | $84.0 million | $73.7 million |
| Net income (loss) | $9.7 million | ($16.2 million) |
| Basic and diluted EPS | $0.10 | ($0.17) |
| Operating cash flow | $170.6 million | $88.5 million |
| Investing cash flow | ($66.3 million) | ($279.8 million) |
| Financing cash flow | ($34.9 million) | $103.7 million |
| Cash and cash equivalents at year-end | $183.2 million | $117.8 million |
| Working capital | $41.0 million surplus | $44.9 million deficit |
- Voyage revenue less voyage expenses was $493.2 million, down from $598.4 million. The reported time charter equivalent (TCE) rate fell to $11,789 per day from $13,027.
- Operating margin was approximately 12.1%, compared with 9.0% in 2019; net margin was approximately 1.4%, versus negative 2.0%.
- Operating cash flow increased despite lower revenue, helped by working-capital inflows and lower net interest expense. Investing outflows declined as 2020 spending focused mainly on scrubbers and ballast-water systems rather than vessel acquisitions.
- At December 31, 2020, total assets were $3.19 billion and shareholders’ equity was $1.55 billion. Current assets were $307.4 million and current liabilities $266.4 million.
- Debt obligations included approximately $1.10 billion of bank-loan principal, $433.5 million of sale-and-leaseback principal and $50.0 million of 8.30% senior notes due 2022. The company reported a book-value debt-to-total-capitalization ratio of about 49% and compliance with debt covenants at year-end.
Material changes versus 2019
- Revenue fell about 15.6% and TCE declined about 9.5%, which management attributed chiefly to the weak dry-bulk market amid COVID-19 and related trade disruption.
- Net results returned to profit, while operating income rose. The $16.2 million net gain on forward freight agreements and bunker swaps supported 2020 results; the filing identifies $14.9 million as realized gains.
- Vessel operating expenses increased to $178.5 million from $160.1 million, reflecting a larger average fleet, $3.5 million of additional crew-change costs and $3.4 million of scrubber and ballast-water-system maintenance. Depreciation increased to $142.3 million from $124.3 million.
- Dry-docking expense decreased to $23.5 million from $57.4 million; 2019 included $22.6 million of accelerated dry dockings conducted alongside scrubber installations.
- Interest and finance costs declined to $69.6 million from $87.6 million, notwithstanding higher average borrowings, due to lower rates, refinancings and interest-rate swaps. Debt-extinguishment loss was $4.9 million, versus $3.5 million.
- Cash rose and the working-capital position improved, primarily following refinancing activity and lower scheduled current debt amortization. The company paid $4.8 million in 2020 for the previously declared $0.05-per-share fourth-quarter 2019 dividend; the filing does not report a dividend declared for 2020.
Outlook, risks and unusual items
- Management said available cash, operating cash flows and a $30 million working-capital facility were expected to cover liquidity needs through at least the end of the first quarter of 2022, as assessed in February 2021. It estimated 2021 interest expense at $46.8 million. These are forward-looking statements, not guarantees.
- Management anticipated dry-bulk market improvement, citing a historically low order book of about 5.75% of the existing fleet as of March 3, 2021, expected trade recovery and stronger early-2021 rates. The company primarily exposed its fleet to spot, voyage and short-term charter markets, leaving earnings sensitive to freight rates.
- COVID-19 caused crew-rotation delays, extra costs, operational deviations and lost revenue days. Management said the pandemic’s eventual effect on results, cash flows, asset values and dividends could not be reliably estimated.
- Interest-rate exposure remains material: most borrowings were floating-rate, although swaps converted portions to fixed rates. A 100-basis-point LIBOR increase was estimated to add $6.1 million to 2021 interest expense. LIBOR replacement and refinancing access are additional risks.
- No 2020 impairment charge was recorded, but management estimated that 107 of 116 vessels had charter-free market values below carrying value, with an aggregate gap of $542.3 million. The company said this was not an accounting impairment under its projected-cash-flow test. Future charter-rate assumptions were the auditor’s critical audit matter.
- Subsequent to year-end, three Capesize vessels were delivered in January 2021 for $39 million cash and 2.1 million shares. The company also agreed to acquire seven Eneti vessels by assuming lease obligations and issuing up to 3 million shares; six had been delivered by March 16, 2021. Two additional Kamsarmax vessels were contracted for $55 million in total, with delivery expected in 2021.
- Other risks include vessel values and loan-covenant headroom, fuel and operating costs, environmental and decarbonization rules, counterparty performance, litigation or casualty exposure, and related-party conflicts. Pollution liability coverage was stated as $1 billion per vessel per incident. The filing reported no legal proceedings believed likely to have a significant effect.
- The annual dividend policy is discretionary and subject to board approval, cash needs, lender restrictions and law; the company gave no assurance of future dividends. Oaktree held about 39.3% of shares as of February 26, 2021, subject to contractual voting restrictions, and can exert considerable influence.
Important facts for investors to verify
- Track realized charter rates, fleet utilization, spot-market exposure and whether freight-derivative gains recur.
- Review debt and lease maturities, refinancing terms, covenant headroom, restricted cash and the assumptions behind management’s liquidity outlook.
- Assess the $542.3 million estimated vessel-value gap and the charter-rate, utilization, scrubber-premium and residual-value assumptions used in impairment testing.
- Confirm delivery, financing and share issuance for the announced vessel acquisitions, and their effect on leverage and per-share results.
- Monitor COVID-related crew costs and disruptions, environmental compliance spending, and the board’s decisions on future dividends.
- Review related-party arrangements and Oaktree’s governance and voting rights. Deloitte gave an unqualified opinion on the financial statements and reported effective internal control over financial reporting as of year-end.