Genco Shipping & Trading Limited — FY 2017 Form 10-K
Business and reporting period. The filing covers the fiscal year ended December 31, 2017; it is an annual report, not a standalone Q4 filing. Genco operates a worldwide drybulk shipping business. At year-end, it reported a 60-vessel fleet with approximately 4.69 million dwt and an average age of 9.9 years. In 2017, it expanded its in-house commercial platform, began fixing more vessels directly with cargo owners, opened a Singapore office, withdrew vessels from pools, and shifted freight exposure toward the Atlantic basin.
Financial performance and position
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Total revenue | $209.7 million | $135.6 million |
| Operating loss | $29.6 million | $186.5 million |
| Net loss | $58.7 million | $217.8 million |
| Net loss per share | $1.71 | $30.03 |
| EBITDA (non-GAAP) | $42.0 million | $(112.5) million |
| Operating cash flow | $26.5 million | $(50.0) million |
- Voyage revenue increased 57.4%; the fleet-average time charter equivalent (TCE) rate rose 75.9% to $8,633 per day. Higher spot rates and greater use of voyage charters drove the improvement.
- Operating expenses totaled $239.3 million, including $22.0 million of vessel impairment charges. The operating loss equaled about 14% of revenue; the net loss equaled about 28%.
- Q4 2017 revenue was $74.9 million, operating income $10.0 million, and net income $2.6 million, following losses in each of the first three quarters.
- Cash, cash equivalents and restricted cash totaled $204.9 million at year-end, including $174.5 million unrestricted cash and $30.5 million restricted cash. Current assets were $217.2 million and current liabilities $52.4 million; some cash is restricted by financing arrangements.
- Debt principal, including accrued PIK interest, was $524.4 million; debt net of deferred financing costs was $515.4 million. Total equity was $975.0 million. Debt was predominantly floating-rate; management reported covenant compliance at year-end.
- Investing cash flow was $15.0 million and financing cash flow was negative $5.6 million. The $400 million facility cash sweep required an $11.3 million payment, classified as current debt.
Changes versus prior year
- Revenue improved substantially as market rates recovered, while operating cash flow turned positive. Genco nevertheless remained loss-making for the full year.
- Total operating expenses fell 25.7%, reflecting a smaller fleet, lower vessel operating costs and lower stock-compensation expense; voyage expenses rose as more vessels moved to voyage charters.
- Fleet-average utilization declined slightly to 98.1% from 98.8%. Ownership days fell 11.8%, primarily following vessel sales and scrapping.
- Impairment charges declined to $22.0 million from $69.3 million. Vessel-sale gains were $7.7 million, versus $3.6 million.
- Common shares outstanding increased substantially after the 27.1 million preferred shares issued in 2016 converted to common stock in January 2017.
Outlook, risks and unusual items
- Management outlook: Management said available capital resources were sufficient to fund operations for at least the next twelve months under then-current conditions. No specific revenue, earnings or freight-rate guidance was provided. The fleet was weighted toward short-term fixtures to retain exposure to a potentially rising market.
- Costs and investment: 2018 average daily vessel operating expense was budgeted at $4,440 per vessel. Estimated drydocking costs were $4.9 million in 2018 and $20.9 million in 2019; estimated ballast-water-system costs were $0.6 million and $16.6 million, respectively. These are estimates, and actual costs may differ.
- Subsequent vessel decisions: In February 2018, the board decided to dispose of nine older vessels. The filing expected a first-quarter 2018 impairment charge of approximately $56.4 million.
- Market and operating exposure: Freight rates remain cyclical and sensitive to global demand, particularly in China, and to vessel supply. Spot voyage charters expose Genco to rate volatility, fuel costs, voyage execution and customer claims. Two charterers accounted for about 26% of 2017 voyage revenue; the ten largest accounted for about 56% of total revenue.
- Financing and liquidity: Credit facilities include cash-sweep, minimum-liquidity, collateral and other restrictive covenants. Collateral maintenance testing under the $400 million facility was scheduled to begin June 30, 2018. A 1 percentage-point increase in LIBOR was estimated to add $5.3 million to annual interest expense. Dividends were restricted, with the longest restriction extending through December 31, 2020; the company had not paid dividends since 2008.
- Operational and regulatory costs: Engine repairs kept the Genco Tiger and Baltic Lion off hire for approximately 115 and 34 days, respectively. Genco received $2.1 million in approved loss-of-hire payments and was awaiting the final Baltic Lion claim. Upcoming sulfur-emissions and ballast-water requirements may add operating and capital costs.
- Legal and reporting matters: An appeal remains pending in litigation concerning the 2015 Baltic Trading merger; the company said it could not reasonably estimate any loss but did not consider a material effect probable. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting at year-end.
Important facts for investors to verify
- Whether stronger TCE rates and positive operating cash flow persist after 2017, particularly as short-term charters reset.
- Debt repayment, cash-sweep requirements, liquidity headroom and collateral values as covenant testing begins; distinguish unrestricted from restricted cash.
- The timing, sale proceeds and operating consequences of the planned vessel disposals, including the expected $56.4 million impairment.
- Actual drydocking and ballast-water compliance costs, and whether planned expenditures or off-hire materially exceed estimates.
- Exposure to major charterers, fuel-price changes on voyage charters, and the status of the remaining insurance claim and merger-litigation appeal.