Genco Shipping & Trading Limited — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; quarterly figures are included below. Amounts are U.S. dollars unless stated otherwise.
Business context
Genco owns and operates drybulk carriers transporting iron ore, coal, grain, steel products and other cargo worldwide. At year-end it reported 55 vessels; following the February 2020 sale of the Genco Charger, its fleet was 54 vessels, with approximately 4.9 million dwt and an average age of about 9.7 years. The company uses a mix of spot voyage charters and fixed-rate time charters and is increasing direct commercial activity with cargo owners.
Financial performance and position
- Revenue: $389.5 million, up 6.0% from $367.5 million in 2018. Spot market voyage revenue rose to $281.4 million from $199.1 million, while time-charter lease revenue declined to $108.1 million from $168.4 million.
- Profitability: Operating loss was $28.4 million versus operating income of $0.5 million in 2018. Net loss was $56.0 million, or $1.34 per share, compared with a $32.9 million loss, or $0.86 per share. Approximate operating and net margins were negative 7.3% and 14.4%, respectively. EBITDA, a non-GAAP measure, was $44.7 million, down 31.6%.
- Quarterly context: Fourth-quarter revenue was $108.7 million, operating income $7.6 million and net income $0.9 million (diluted EPS $0.02). In fourth-quarter 2018, the respective figures were $112.2 million, $26.0 million and $18.3 million (EPS $0.44).
- Rates and costs: Average fleet time-charter equivalent (TCE) fell 10.4% to $10,182 per day; average daily vessel operating expense rose 4.5% to $4,576. Voyage expenses increased 50.7% to $173.0 million, mainly as more vessels operated on spot voyages, for which Genco pays fuel and port costs.
- Cash flow: Operating cash flow was $59.5 million, down from $65.9 million. Investing used $22.8 million, including scrubber and vessel-equipment spending, partly offset by vessel-sale proceeds. Financing used $77.2 million, including debt repayments and dividends. Cash, including restricted cash, declined to $162.2 million from $202.8 million.
- Debt and liquidity: Year-end debt principal was $495.8 million ($482.7 million net of deferred financing costs), down from $551.4 million principal in 2018. Net debt was approximately $333.6 million using reported cash and restricted cash. Current assets were $223.2 million and current liabilities $127.7 million. The company reported compliance with its credit-facility covenants and believes its capital resources can fund operations for at least 12 months. Quarterly scheduled debt amortization was approximately $17.4 million.
- Other balance-sheet items: Total assets were $1.529 billion and equity $978.4 million. Vessel impairment charges were $27.4 million, versus $56.6 million in 2018.
Material changes versus 2018
- Revenue increased, but profitability deteriorated: voyage costs rose sharply as the business shifted further toward spot voyage employment, and average TCE rates declined.
- Operating days declined 6.3% and fleet utilization fell to 97.5% from 98.5%; scrubber installations, surveys and drydockings contributed to off-hire.
- Operating cash flow decreased, while cash balances fell by $40.5 million. Debt declined by $55.6 million in principal, reflecting scheduled and additional repayments.
- Genco sold four vessels during 2019 and continued its fleet-renewal program. It completed 16 of 17 Capesize scrubber installations by year-end; the final installation was completed in January 2020.
Outlook, risks and unusual items
- Management budgeted 2020 average daily vessel operating expenses of approximately $4,590. The filing does not provide a clear revenue or earnings forecast.
- In February 2020, the board approved seeking sales of ten Handysize vessels. Because expected undiscounted cash flows were below their book values, Genco anticipated a non-cash first-quarter 2020 impairment of approximately $79–$85 million.
- Management described early-2020 drybulk rates as weak and volatile, citing seasonality, newbuilding deliveries, weather disruptions and reduced Chinese industrial activity associated with the COVID-19 outbreak. Potential effects include lower cargo demand and rates, port and crew delays, quarantine-related off-hire and reduced vessel sale values.
- Drybulk earnings remain exposed to freight-rate and vessel-value volatility, China and global trade conditions, fuel-price spreads, charterer credit, operating costs, and environmental and safety requirements. Most vessel charters were short-term and scheduled to expire between February and May 2020, increasing near-term rate exposure.
- IMO sulfur limits took effect January 1, 2020. Scrubbers on Capesize vessels and compliant low-sulfur fuel for the rest of the fleet create costs and uncertain savings; scrubber economics depend in part on the spread between compliant and high-sulfur fuel.
- The board adopted a quarterly dividend policy of $0.175 per share; 2019 dividends declared totaled $0.50 per share, including a $0.325 special dividend. Future payments remain discretionary and subject to liquidity, lender restrictions and legal requirements. A $0.175 quarterly dividend was announced for March 2020.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Key facts for investors to verify
- Whether spot-market rates and vessel utilization recover, and how quickly expiring charters are renewed and at what rates.
- The actual amount and timing of the anticipated $79–$85 million Handysize impairment and proceeds from planned vessel sales.
- Cash available after debt amortization, drydock and ballast-water-system expenditures, fuel costs and dividends; also monitor covenant headroom.
- Whether scrubber fuel savings offset installation costs and whether compliant fuel is available at acceptable prices.
- The operating and financial impact of COVID-19, including cargo demand, quarantines, off-hire, crew availability and vessel values.
- Dividend sustainability under the credit agreements and the board’s stated discretion over future payments.