Star Bulk Carriers Corp. — FY 2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; the filing does not provide a clear set of Q4-only results. Figures are in U.S. dollars unless noted. Star Bulk transports dry bulk commodities worldwide and reports one operating segment.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Voyage revenue | $651.6 million | $332.0 million |
| Operating income | $131.9 million | $38.8 million |
| Net income (loss) | $58.4 million | $(9.8) million |
| Basic and diluted EPS | $0.76 | $(0.16) |
| Net cash from operating activities | $169.0 million | $82.8 million |
| Net cash used in investing activities | $(325.3) million | $(127.1) million |
| Net cash from financing activities | $96.7 million | $122.0 million |
- Operating margin was approximately 20.2% and net margin approximately 9.0%, calculated from reported revenue and income.
- Average daily time charter equivalent (TCE) increased 32% to $13,768 from $10,393. The 2017 TCE excludes Star Logistics, while 2018 includes it.
- Voyage expenses were $121.6 million; charter-in hire expenses rose to $92.9 million from $5.3 million, principally reflecting substantially more charter-in days. Vessel operating expenses were $128.9 million and depreciation was $102.9 million.
- Cash and cash equivalents were $204.9 million at year-end, down from $257.9 million; restricted cash was $9.0 million. The filing reports a working-capital surplus of $66.7 million.
- Total assets were $3.02 billion and shareholders’ equity $1.52 billion. The company reported a 49% debt-to-total-capitalization ratio.
- At December 31, 2018, the balance sheet included $101.0 million of current debt, $685.8 million of long-term debt (net), $48.4 million of 2022 Notes (net), and $606.8 million of current and long-term lease commitments. Management reported total borrowings, including leases and notes, of $1.458 billion as of February 28, 2019.
Material changes and drivers
- Revenue nearly doubled, driven by higher charter rates and fleet expansion: average owned vessels increased to 87.7 from 69.6, while TCE increased to $13,768 from $10,393.
- The 2018 acquisitions expanded the fleet materially: three Newcastlemax newbuildings were acquired, 15 Songa vessels and 16 Augustea vessels were added, and one E.R. vessel was delivered in October. Acquisitions included share consideration, cash payments, and assumed debt.
- Interest and finance costs increased to $73.7 million from $50.5 million, reflecting higher average debt and LIBOR. The weighted-average interest rate on debt and bareboat leases rose to 5.59% from 4.72%.
- Investing cash outflow increased, principally from vessel acquisitions, newbuilding advances and scrubber equipment. Financing cash flow included $988.0 million of loan and lease proceeds and $875.0 million of repayments.
- The company recognized $17.8 million of impairment losses related to vessel sales, including Star Delta and negotiated sales of Star Aurora and Star Kappa. It reported 55 vessels with estimated market values below carrying values; the aggregate estimated shortfall was $219 million if sold at the filing’s estimated year-end market values.
Outlook, risks and other notable items
- Management expects available cash, committed financing and operating cash flow to meet 2019 liquidity needs through at least the end of Q1 2020. This is an expectation, not a guarantee, and depends on operating performance and financing availability.
- Management expects the dry bulk market to strengthen over the medium term, citing a relatively low orderbook and IMO 2020 sulfur rules. However, the BDI ranged from 948 to 1,774 in 2018 and stood at 649 in late February 2019; management noted uncertainty around market recovery. The company principally exposes its fleet to spot and short-term charter markets.
- The scrubber program is expected to cost $173.9 million in total and be completed by early 2020. Remaining payments were estimated at $141.0 million at year-end 2018; by February 28, 2019, the company said it had financing agreements for $134.2 million of program costs. Savings depend on fuel-price differentials and effective implementation of the regulations.
- Management identified 63 vessels as not compliant with updated ballast-water standards and said equipment and modifications may be costly; no clear total cost is provided.
- Key risks include volatile spot charter rates and vessel values, high leverage and floating-rate debt, covenant compliance, refinancing access, fuel and operating costs, trade tensions and weaker Chinese demand, environmental compliance costs, and charterer or financing-counterparty performance. A 100-basis-point LIBOR increase was estimated to raise 2019 interest expense by $12.2 million.
- The company was in compliance with applicable debt covenants at December 31, 2018. It paid no dividends in 2018. It repurchased 341,363 shares for $3.1 million during the year under a $50 million authorization.
- Management and the auditor reported effective internal control over financial reporting; Deloitte issued unqualified opinions on the 2018 financial statements and internal controls. The filing also discloses related-party arrangements and potential conflicts, including services from entities affiliated with management, directors and sellers of acquired vessels.
Important facts for investors to verify
- Confirm current debt, lease obligations, maturities, interest rates, available liquidity and covenant headroom, including the effect of subsequent refinancing.
- Assess whether operating cash flow can fund scheduled debt service, newbuilding payments and scrubber and ballast-water expenditures under weaker charter-rate scenarios.
- Review fleet exposure to spot rates, charter-in costs, customer concentration (one customer accounted for 15% of 2018 voyage revenue), and changes in vessel utilization and TCE.
- Check progress and actual costs of scrubber installations, related financing, and the realized fuel-cost advantage after IMO 2020 requirements took effect.
- Evaluate impairment assumptions and vessel sale proceeds against carrying values, particularly given the disclosed market-value shortfall for 55 vessels.
- Review acquisition-related dilution, the 4 million performance-based restricted share units approved in January 2019, and related-party management and brokerage arrangements.