EuroDry Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021; this is an annual report, not a standalone Q4 filing. Filed April 15, 2022. EuroDry owns and operates drybulk vessels and reports under U.S. GAAP. Deloitte issued an unqualified audit opinion on the financial statements.
Business context and operating performance
The company reported a fleet of ten vessels at March 31, 2022, with total capacity of 726,555 dwt. All vessels were employed on time charters at that date. The drybulk market strengthened substantially in 2021: the Baltic Dry Index peaked at 5,647 in October and ended the year at 2,217.
Key financial metrics
| Metric | FY2020 | FY2021 |
|---|---|---|
| Time charter revenue | $23.59 million | $68.51 million |
| Net revenue after commissions | $22.29 million | $64.44 million |
| Operating income (loss) | $(2.74) million | $38.89 million |
| Net income (loss) | $(5.88) million | $31.15 million |
| Net income (loss) attributable to common shareholders | $(7.45) million | $29.40 million |
| Basic earnings (loss) per share | $(3.28) | $11.63 |
| Average TCE rate per vessel per day | $9,388 | $24,222 |
| Net cash from operating activities | $2.33 million | $39.14 million |
| Cash and cash equivalents at year-end | $0.94 million | $26.85 million |
| Total bank debt at year-end | Not stated here on a comparable basis | $79.37 million |
Calculated from reported figures, FY2021 operating margin was approximately 60% of net revenue and net margin approximately 48%. Operating expenses excluding drydocking were $6,456 per vessel per day, up from $6,211. Utilization was 99.5%, compared with 99.7%. Voyage expenses were a net credit of approximately $0.76 million in 2021, primarily due to a bunker gain. The filing does not provide a separate quarterly Q4 income statement or Q4 financial metrics.
At December 31, 2021, current assets were $30.41 million and current liabilities $17.71 million, implying working capital of approximately $12.70 million. Cash, cash equivalents and restricted cash totaled $29.53 million, of which $2.68 million was restricted. Debt maturities included $14.14 million in 2022 and $20.99 million in 2023. The company reported no loan covenant defaults at year-end.
Material changes versus FY2020
- Revenue rose 190%, while average TCE increased 158%, reflecting stronger charter markets and a larger average fleet (7.9 vessels versus 7.0).
- Operating results swung from a $2.74 million loss to $38.89 million of operating income; net income swung from a $5.88 million loss to $31.15 million profit.
- Operating cash flow increased to $39.14 million from $2.33 million. Investing outflows rose to $36.82 million, principally for the acquisitions of Blessed Luck and Good Heart.
- Year-end cash and restricted cash increased by $24.92 million. Bank debt rose to $79.37 million as acquisitions were financed in part through new or refinanced loans.
- The company redeemed all Series B Preferred Shares in December 2021, paying $13.6 million at that redemption and recording $0.67 million of preferred deemed dividends for 2021. It issued 341,017 shares through its ATM offering for approximately $10 million net proceeds and issued 180,308 shares upon conversion of a related-party loan.
- No vessel impairment was recorded in 2021; management stated that each vessel’s estimated market value exceeded its carrying value at year-end.
Outlook, risks and unusual items
Management expected revenues to increase compared with 2021, citing the recovery in economic activity and drybulk demand, and said available cash and expected operating cash flow should meet liquidity needs through at least the first half of 2023. This is not a quantified earnings forecast. As of March 31, 2022, approximately 29% of remaining 2022 vessel capacity days were contracted; nine of ten vessels were reported to have charters expiring in 2022, creating rechartering and rate exposure.
- Market and charter exposure: Rates are volatile and depend on global commodity demand, vessel supply, China-related demand and other economic and geopolitical developments. The BDI fell from its October 2021 peak to 2,217 at year-end.
- Debt and interest rates: Loans were floating-rate and LIBOR-linked, with $79.37 million outstanding at year-end. A 100-basis-point LIBOR increase was estimated to reduce annual net income and cash flow by approximately $0.64 million, before considering the swaps’ offsets. LIBOR transition and loan covenants are additional risks.
- Derivatives and unusual losses: Net derivative loss was $3.77 million in 2021, including a reported $4.1 million loss on freight forward agreements, partly offset by interest-rate swap results. The company also recorded a $1.65 million debt-extinguishment loss related to conversion of a $3.3 million related-party loan into shares.
- Other risks: Customer concentration was significant: the top five charterers generated approximately 77% of 2021 revenue. COVID-19 may disrupt crew rotation and operations; Russia’s invasion of Ukraine and associated sanctions may affect trade, energy prices and counterparties. Environmental rules may require added expenditure. The company also relies on affiliated managers and has related-party and governance conflicts to consider.
- Capital returns: No common dividends were declared in 2019–2021. Future distributions are discretionary and subject to cash generation, covenants, legal restrictions and investment needs.
- Legal and controls: The company reported no material legal proceedings. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2021; the auditor did not attest to internal controls because the company qualified as an emerging growth company.
Important facts for investors to verify
- How much of 2022 and 2023 vessel capacity is now contracted, at what rates, and how the expiring charters compare with current market rates.
- Current cash, restricted cash, debt balances, repayment schedules, covenant headroom and progress in replacing LIBOR in loan agreements.
- Subsequent results and the realized performance of the 2021 FFA positions, alongside the effect of market volatility and fuel and crew costs.
- Integration, financing and charter employment of the February 2022 Molyvos Luck acquisition, purchased for approximately $21.2 million.
- Related-party fees, transactions and governance arrangements, including management by Eurobulk and Eurobulk FE and the company’s customer concentration.
- The assumptions behind management’s liquidity outlook and whether operating cash flow supports vessel upkeep, debt service and planned acquisitions.