Genco Shipping & Trading Limited — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited figures are in U.S. dollars; financial-statement amounts below are in millions unless noted. Genco owns and operates a global drybulk fleet. At filing, the fleet comprised 58 vessels with approximately 5.1 million dwt.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Voyage revenue | $83.6 | $86.2 | $177.0 | $163.1 |
| Operating income (loss) | ($27.3) | $10.9 | ($28.2) | ($37.5) |
| Net income (loss) | ($34.5) | ($1.1) | ($42.3) | ($56.9) |
| Net loss per share | ($0.83) | ($0.03) | ($1.01) | ($1.62) |
| Operating cash flow | Not separately reported | Not separately reported | $14.8 | $25.0 |
Q2 operating and net margins were approximately negative 32.7% and negative 41.3%, respectively; six-month margins were negative 15.9% and negative 23.9%. Fleet-average time charter equivalent (TCE) fell 32.4% in Q2 to $7,412 per day and 22.2% for the first half to $8,341 per day. Fleet utilization was 97.7% for Q2 and 97.5% for the first half.
At June 30, cash and cash equivalents were $165.1 million, with another $0.3 million restricted; current assets were $219.4 million and current liabilities $108.7 million. Debt principal was $513.7 million, versus $551.4 million at year-end 2018. The balance-sheet debt carrying amount, net of financing costs, totaled approximately $498.7 million; gross debt less cash was approximately $348.6 million. Total equity was $1,012.1 million. The company reported compliance with financial covenants under both credit facilities.
Six-month investing cash outflow was $13.7 million, mainly for scrubbers, vessel-related purchases and equipment, partly offset by vessel-sale proceeds. Financing cash outflow was $38.5 million, primarily debt repayments. Cash, cash equivalents and restricted cash declined $37.3 million to $165.4 million.
Material changes versus comparable periods
- Q2 revenue decreased 3.0%, while net loss widened substantially from $1.1 million to $34.5 million. Vessel impairment was $13.9 million versus $0.2 million, and fleet-average TCE weakened sharply.
- First-half revenue rose 8.5%, but the company remained loss-making. Net loss improved by $14.7 million year over year, principally as vessel impairment fell to $13.9 million from $56.6 million; the prior-year period also included a $4.5 million debt-extinguishment loss.
- Spot voyage charter activity increased, raising voyage expenses to $41.8 million in Q2 and $84.8 million for the first half. Charter-hire expense also increased as Genco chartered in more third-party vessels.
- Q2 2019 impairments included $4.4 million for the Genco Challenger and $9.5 million for the Genco Champion and Charger. The company agreed in August to sell the Challenger for $5.25 million before commission.
Outlook, commentary and risks
- No specific financial guidance was provided. Management said freight conditions improved significantly in Q3 as iron-ore volumes recovered, fleet growth eased and vessels prepared for IMO 2020; this is forward-looking commentary, not a reported result.
- Most vessel employment was short-term, with many charters due to expire between August and December 2019, exposing results to spot-market rates and rechartering conditions. Management’s fleet strategy emphasizes short-term fixtures and spot-market exposure.
- Management believed capital resources were sufficient for at least the next 12 months, while anticipating higher cash expenditures for debt amortization, drydockings, ballast-water treatment systems and scrubber installations. Estimated 2019 costs included $15.5 million for drydockings, $4.9 million for BWTS and $27.8 million for scrubbers; the estimates exclude revenue lost to installation off-hire.
- Scrubbers were planned for 17 Capesize vessels, with the remainder expected to use compliant low-sulfur fuel from 2020. Risks include installation timing and cost, fuel prices and availability, and the ability to recover scrubber investment. The company had up to $34.6 million available under the scrubber tranche at June 30.
- All debt was floating-rate. Management estimated that a 1% LIBOR increase would raise interest expense by $2.7 million for the six-month period. Other risks include drybulk demand and rates, China–U.S. trade tensions and tariffs, vessel supply, operating costs, and geopolitical threats to vessels transiting the Arabian Gulf.
- The filing disclosed ordinary-course claims and described a previously filed merger-related class action that had been dismissed with prejudice and whose appeal period had expired. Management said it knew of no other legal matter expected to have a material effect.
Investor verification priorities
- Check subsequent TCE rates, charter renewals and vessel employment after the near-term charter expirations.
- Track scrubber and BWTS spending, installation/off-hire progress, financing drawdowns and expected fuel-cost savings.
- Review floating-rate debt, scheduled repayments, covenant headroom and minimum-liquidity requirements.
- Assess vessel valuations and further impairment risk, particularly for older vessels and assets whose collateral valuations were below carrying values.
- Monitor trade-policy, drybulk-market and geopolitical developments that could affect cargo volumes, rates and vessel operations.