EuroDry Ltd. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP and audited by Deloitte, which issued an unqualified opinion.
Business context and results
EuroDry owns and operates drybulk carriers. Its seven-vessel fleet had 528,931 dwt of capacity and 99.7% utilization in 2020. Average daily TCE was $9,388, down from $11,190 in 2019. TCE is a non-GAAP industry measure.
| Metric (USD unless stated) | 2020 | 2019 |
|---|---|---|
| Time-charter revenue | $23.59 million | $28.79 million |
| Net revenue, after commissions | $22.29 million | $27.24 million |
| Operating income (loss) | $(2.74) million | $3.01 million |
| Operating margin, approximate | (12.3)% | 11.0% |
| Net income (loss) | $(5.88) million | $0.02 million |
| Net income (loss) attributable to common shareholders | $(7.45) million | $(1.92) million |
| Basic and diluted loss per common share | $(3.28) | $(0.85) |
| Cash from operating activities | $2.33 million | $15.11 million |
| Cash used in investing activities | $0.61 million | $1.11 million |
| Cash used in financing activities | $6.24 million | $12.63 million |
Financial position and liquidity
- At December 31, 2020, total assets were $107.51 million, total liabilities $56.97 million, shareholders’ equity $34.60 million and preferred shares classified as mezzanine equity $15.94 million.
- Bank debt was $51.37 million, down from $56.89 million a year earlier; $14.01 million was classified as current. Debt was floating-rate, with margins of 2.70%–3.25% over LIBOR. The filing reports no covenant default at year-end.
- Cash and cash equivalents were $0.94 million; restricted cash was $3.67 million, for total cash and restricted cash of $4.61 million. Working capital was negative $13.2 million, partly reflecting debt classified as current and a deferred loan balloon payment.
- Net vessel carrying value was $99.31 million. Management identified five vessels whose combined estimated charter-free market value was about $17.39 million below carrying value, but its impairment tests indicated no impairment charge.
Material changes versus 2019
- Net revenue fell about 18%, reflecting a 16.1% decrease in average TCE rates; revenue days and average fleet size were broadly stable.
- Operating results moved from $3.01 million of operating income to a $2.74 million loss. Vessel operating expenses rose to $11.60 million from $10.78 million, and drydocking expenses increased to $2.28 million from $1.66 million. Three vessels underwent drydock in 2020.
- Interest and financing costs declined 33.6% to $2.33 million, due to lower average debt and LIBOR. Derivatives shifted from a $0.50 million net gain in 2019 to a $0.79 million net loss in 2020.
- Operating cash flow dropped to $2.33 million from $15.11 million. Management attributes much of the comparison to lower TCE and changes in related-company balances and working capital; 2019 cash flow included a substantial working-capital inflow.
Outlook, commentary and risks
- Management expected revenue to increase versus 2020 as COVID-related disruption eased and trade growth resumed, but said the pandemic’s duration and financial impact could not be estimated reliably. As of April 15, 2021, about 50% of remaining 2021 vessel-capacity days were covered by time charters or pool arrangements.
- The company stated it believed available funding—including operating cash flow, refinancing, potential equity offerings and vessel sales—would be adequate to meet obligations for the twelve months following issuance of the financial statements. This assessment is important given the working-capital deficit and low unrestricted cash.
- After year-end, EuroDry refinanced loans for three vessels. The January and February 2021 transactions provided approximately $5.5 million of additional funds after repayment of the prior loans, and extended maturities. The filing also reports a net $3.0 million redemption of Series B preferred shares.
- No common dividends were declared in 2018–2020. The company declared $1.57 million of Series B preferred dividends for 2020; $0.35 million was paid in cash and $1.22 million in kind. Following the 2021 agreement, the preferred rate was reduced through January 2023 to 8% cash or 9% in-kind, then is scheduled to reset to 14% cash.
- Principal risks include volatile drybulk charter rates and vessel values, COVID-19 and crew-rotation disruption, refinancing and covenant exposure, customer concentration (top five charterers generated 77% of 2020 revenue), regulatory and environmental compliance costs, and reliance on affiliated managers. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation because the company is an emerging growth company.
Most important facts for investors to verify
- How the company will fund near-term maturities and maintain covenant compliance, including the effects and terms of the 2021 refinancings and restricted-cash requirements.
- Whether charter-rate recovery and contracted coverage translate into improved TCE, operating cash flow and liquidity, particularly as charters expire.
- The basis and sensitivity of the no-impairment conclusion given the estimated $17.39 million gap between market and carrying values for five vessels.
- The cash burden, in-kind accruals, redemption terms and 2023 rate reset for Series B preferred shares, and any resulting limits on common dividends.
- Exposure to major charterers and related-party service providers, including the fees, governance safeguards and potential conflicts associated with affiliated managers and brokers.