Genco Shipping & Trading Limited, the largest U.S. headquartered drybulk shipowner focused on the transportation of major and minor bulk commodities globally, reported its financial results for the three months ended March 31, 2020.
The following financial review discusses the results for the three months ended March 31, 2020 and March 31, 2019.
First Quarter 2020 and Year-to-Date Highlights
As Genco’s main focus is on the health and safety of our crew members and our team onshore, we have taken various proactive measures in response to COVID-19
Specifically, these measures have centered around business continuity, crew protection and headquarters operations
Genco maintains a strong financial position with $149.5 million of cash, including $15.2 million of restricted cash, as of March 31, 2020
Genco announced a regular quarterly cash dividend of $0.02 per share for the first quarter of 2020
Payable on or about May 28, 2020 to all shareholders of record as of May 18, 2020
We have now paid or declared cumulative dividends totaling $0.695 per share over the last three quarters
We are in the process of negotiating a revolving credit facility with lenders of our current bank group for up to $25 million, which we expect will be collateralized by the vessels in our $108 million credit facility
We completed our exhaust gas cleaning systems (“scrubbers”) installation program for our 17 Capesize vessels in January 2020
Recorded a net loss of $120.4 million for the first quarter of 2020
Basic and diluted loss per share of $2.87
Adjusted net loss of $7.1 million or basic and diluted loss per share of $0.17, excluding $112.8 million in non-cash vessel impairment charges and a $0.5 million loss on sale of vessels
Recorded adjusted EBITDA of $16.9 million during Q1 20201
Voyage revenues totaled $98.3 million and net revenue1 (voyage revenues minus voyage expenses and charter hire expenses) totaled $46.9 million during Q1 2020
Our average daily fleet-wide time charter equivalent, or TCE1, for Q1 2020 was $9,755 marking an improvement of 6% as compared to Q1 2019
During the quarter, we benefited from forward coverage taken ahead of a seasonally softer first quarter as well as the timely execution of our scrubber program on our Capesize vessels
In 2020, we have completed the sale of our oldest Handysize vessel and our last remaining Panamax
The Genco Charger, a 2005-built Handysize, delivered to buyers on February 24, 2020
The Genco Thunder, a 2007-built Panamax, delivered to buyers on March 5, 2020
We have also entered into memoranda of agreement to sell three additional Handysize vessels: the Baltic Wind, the Genco Bay and the Baltic Breeze for aggregate gross proceeds of $23.6 million
John C. Wobensmith, Chief Executive Officer, commented, “Year-to-date, Genco has taken proactive measures intended to protect our team and the Company from the widespread impact of COVID-19, in particular by implementing remote headquarters operations and crew protection strategies. Our top priority remains the health, safety and well-being of our crew members and onshore professionals with our goal of preventing the spread of COVID-19. We are proud of their dedication, and we sincerely thank them for their efforts. During this time of global economic uncertainty, we remain focused on maintaining the strength of our industry leading balance sheet and conserving our sizeable liquidity position. As such, we are working with our existing lenders on a revolving credit facility for up to $25 million to supplement our already substantial cash balance. At the same time, we are pleased to have declared a dividend for the first quarter of 2020 highlighting our commitment to returning capital to shareholders. We view amending our first quarter dividend as a prudent action taken by management and the Board of Directors aimed at balancing preservation of the Company’s liquidity position with a return of cash to shareholders. Capital allocation remains a top priority for the Company and is a key topic that we will continuously evaluate as these events further evolve. During the first quarter, we also continued to opportunistically divest additional non-core vessels to bolster our strong cash position and further strengthen the fleet’s profile. Our industry leading balance sheet provides Genco with increased optionality and flexibility to adapt to rapidly changing market conditions while pursuing our core longer term strategy.”
Mr. Wobensmith continued, “While the overall impact of COVID-19 on our business remains uncertain, we maintain our favorable medium to long term outlook of the drybulk market given the historically low orderbook which bodes well for containing fleet growth in the coming years. Furthermore, economic activity in China, the world’s largest importer of drybulk commodities, has improved over the last two months which we view as a positive step. While output in other regions around the world has slowed meaningfully due to nationwide closures, we remain hopeful that when these countries begin to gradually restart economic activity that will lead to increased demand for the raw materials that we transport.”
1 We believe the non-GAAP measure presented provides investors with a means of better evaluating and understanding the Company’s operating performance. Please see Summary Consolidated Financial and Other Data below for a further reconciliation.
Genco’s business continuity plans and response to COVID-19
As our vessels continue to trade commodities globally, we have taken measures to safeguard our crew and work toward preventing the spread of COVID-19. Crew members have received gloves, face masks, hand sanitizer, goggles and handheld thermometers. We continue to monitor CDC and WHO guidelines and are also limiting access of shore personnel boarding our vessels. Specifically, no shore personnel with fever or respiratory symptoms are allowed on board, and those that are allowed on board are restricted to designated areas that are thoroughly cleaned after their use. Face masks are also provided to shore personnel prior to boarding a vessel. Precautionary materials are posted in common areas to supplement safety training while personal hygiene best practices are strongly encouraged on board.
We have implemented industry leading protocols with regard to crew rotations to keep our crew members safe and healthy which includes polymerase chain reaction (PCR) testing as well as a 14-day quarantine period prior to boarding a vessel. Genco is enacting crew changes where permissible by regulations of the ports and origin of the mariners, in addition to strict protocols that safeguard our crews against COVID-19 exposure.
Our business continuity plans onshore for our three global offices in New York, Singapore and Copenhagen, have allowed for an efficient transition to a remote working environment. Additionally, we have also placed a temporary ban on all non-essential travel.
Genco’s active commercial operating platform and fleet deployment strategy
Overall, our fleet deployment strategy remains weighted towards short-term fixtures which provides us with optionality on our sizeable fleet. Our barbell approach towards fleet composition enables Genco to gain exposure to both the major and minor bulk commodities with a fleet whose cargoes carried closely mirrors that of global commodity trade flows. This approach continues to serve us well given the divergence in major and minor bulk rates throughout the course of 2020 to date.
During the first quarter, we benefited from coverage taken ahead of the traditionally softer period through a combination of booking forward cargoes as well as short-period time charters. Additionally, on our Capesize vessels, our timely execution of our scrubber installation program enabled Genco to capture the differential between compliant and high sulfur fuel that was widest in the earliest stages of IMO 2020 compliance, significantly de-risking the initial investment. Our first quarter of 2020 TCE results by class are listed below.
Ultramax and Supramax: $6,908
Fleet average: $9,755
Regarding our Q2 2020 fixtures to date, on our Capesize vessels, there are indications of a potential gradual recovery in iron ore shipments out of the Atlantic basin. For this reason, we continue to ballast select Capesize vessels to the region in an effort to capture these improving market fundamentals. This added commercial trading flexibility together with a wider array of fixing options has been a key differentiator in our Capesize performance this year as compared to 2019 as we continue to implement our active chartering approach, following the completion of our scrubber program.
For our minor bulk vessels, market conditions have softened during the second quarter to date, as trade flows of several commodities closely tied to global economic activity have slowed. We have used this weaker earnings environment to strategically reposition vessels to key regions ahead of a potentially improving market later in the year. Several of these backhaul fixtures are reflected in our forward guidance below without the positive offset of a corresponding fronthaul. Based on current fixtures to date, we estimate the following to be our TCE to date for the second quarter of 2020.
Capesize: $9,525 for 65% of the owned available Q2 2020 days
Ultramax and Supramax: $5,584 for 60% of the owned available Q2 2020 days
Handysize: $4,562 for 62% of the owned available Q2 2020 days
Fleet average: $6,773 for 62% of the owned available Q2 2020 days
Actual rates for the quarter will vary based upon future fixtures.
Regular Quarterly Cash Dividend Policy
For the first quarter of 2020, Genco declared a regular quarterly cash dividend of $0.02 per share. Management and the Board of Directors determined to pay a dividend in light of the Company’s strong balance sheet, its emphasis on returning cash to shareholders and the expected receipt of net proceeds from the sale of non-core assets. Given the disruption to and volatility of the drybulk market in 2020 to date, management and our Board of Directors decided to reduce our regular quarterly dividend for the first quarter of 2020 to $0.02 per share from $0.175 per share following its quarterly review. This dividend is payable on or about May 28, 2020, to all shareholders of record as of May 18, 2020.
Dividends going forward remain subject to the determination of our Board of Directors each quarter after its review of our financial performance and will depend upon various factors, including limitations under our credit agreements and applicable provisions of Marshall Islands law. Ongoing market weakness and heightened economic uncertainty as a result of the COVID-19 pandemic and related economic conditions may result in our suspension, reduction, or termination of future quarterly dividends.
Financial Review: 2020 First Quarter
The Company recorded a net loss for the first quarter of 2020 of $120.4 million, or $2.87 basic and diluted net loss per share. Comparatively, for the three months ended March 31, 2019, the Company recorded a net loss of $7.8 million, or $0.19 basic and diluted net loss per share.
The Company’s revenues increased to $98.3 million for the three months ended March 31, 2020, as compared to the $93.5 million recorded for the three months ended March 31, 2019. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $9,755 per day for the three months ended March 31, 2020 as compared to $9,230 per day for the three months ended March 31, 2019. During the first quarter of 2020, the drybulk market came under significant pressure in part due to seasonal factors including increased newbuilding deliveries and weather-related cargo disruptions primarily in Brazil and Australia. Specifically, Brazilian iron ore exports declined by 16% year-over-year in Q1 2020 to the lowest quarterly level seen since Q1 2013. These seasonal factors were accentuated by the onset of COVID-19 which has impacted industrial activity globally with temporary reductions in steel production, mining and port operations leading to lower demand for some of the cargoes we carry, including iron ore, coal and certain minor bulk cargoes. In recent weeks, Capesize rates have gradually improved as Brazilian iron ore shipments begin to recover off of their first quarter lows. The duration and impact of COVID-19, and actions to contain the coronavirus or treat its impact are uncertain as are their effects on rates and market volatility.
During the three months ended March 31, 2020, the Company recorded $112.8 million in non-cash impairment charges as well as a $0.5 million loss on sale of vessels. During the three months ended March 31, 2019, a $0.6 million gain on sale of vessels was recorded. Voyage expenses rose to $48.4 million for the three months ended March 31, 2020 versus $43.0 million during the prior year period. This increase was primarily due to the onset of IMO 2020 in which our non-scrubber fitted minor bulk fleet consumed more expensive low sulfur fuel as opposed to high sulfur fuel in order to comply with sulfur emissions regulations that took effect on January 1, 2020. This was partially offset by savings in fuel costs on our Capesize vessels, which are all fitted with scrubbers and continue to consume the less expensive high sulfur fuel. Vessel operating expenses decreased to $21.8 million for the three months ended March 31, 2020, from $23.2 million for the three months ended March 31, 2019 primarily due to fewer owned vessels. General and administrative expenses decreased to $5.8 million for the first quarter of 2020 compared to $6.3 million for the first quarter of 2019, primarily due to lower office related expenses. Depreciation and amortization expenses decreased to $17.6 million for the three months ended March 31, 2020 from $18.1 million for the three months ended March 31, 2019, primarily due to a decrease in the depreciation expense for the five vessels that were sold during the fourth quarter of 2019 and first quarter of 2020, as well as a decrease in depreciation expense for the Handysize vessels that were added to our fleet renewal program during Q1 2020 resulting in a reduction in their carrying value.
Daily vessel operating expenses, or DVOE, amounted to $4,413 per vessel per day for the first quarter of 2020 compared to $4,420 per vessel per day for the first quarter of 2019. We believe daily vessel operating expenses are best measured for comparative purposes over a 12 month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by our technical managers, our DVOE budget for 2020 is $4,590 per vessel per day.
Apostolos Zafolias, Chief Financial Officer, commented, “During a challenging macro-economic backdrop, we were able to generate adjusted EBITDA of $16.9 million during the quarter while maintaining a strong cash position. Furthermore, we have continued our strategy of divesting older, less fuel-efficient vessels having entered into memoranda of agreement to sell three Handysize vessels as we further streamline and modernize our fleet. Going forward we remain focused on maintaining the strength of our balance sheet in order to be able to adapt to rapidly changing market conditions. As such, drawing upon our low leverage profile, we are in the process of negotiating a revolving credit facility for up to $25 million which we expect will be collateralized by the vessels in our $108 million credit facility. Given the macro economic uncertainty brought upon by COVID-19, we believe this is a prudent step to bolster our already strong liquidity position.”
Liquidity and Capital Resources
Net cash used in operating activities for the three months ended March 31, 2020 was $4.0 million as compared to net cash provided by operating activities of $11.6 million for the three months ended March 31, 2019. This decrease in cash provided by operating activities was primarily due to an increase in amounts due from charterers as of March 31, 2020 based on the timing of freight payments and the percentage completion of spot voyages for our vessels, an increase in drydocking related expenditures and other changes in working capital.
Net cash provided by investing activities was $5.6 million during the three months ended March 31, 2020 as compared to net cash used in investing activities of $4.1 million during the three months ended March 31, 2019. This increase was primarily due to an increase in net proceeds from the sale of vessels, as well as a decrease in ballast water treatment system related expenditures. These amounts were partially offset by an increase in cash used to purchase scrubbers for our vessels.
Net cash used in financing activities during the three months ended March 31, 2020 and 2019 was $14.3 million and $17.3 million, respectively. The decrease was primarily due to the $11.3 million drawdown on the $495 Million Credit Facility during the first quarter of 2020, partially offset by a $7.3 million payment of dividends during the first quarter of 2020 and a $1.7 million increase in repayments under the $495 Million Credit Facility.
We make capital expenditures from time to time in connection with vessel acquisitions. As of May 6, 2020, Genco Shipping & Trading Limited’s fleet consists of 17 Capesize, six Ultramax, 20 Supramax and 10 Handysize vessels with an aggregate capacity of approximately 4,837,000 dwt and an average age of 9.9 years.
In addition to acquisitions that we may undertake, we will incur additional capital expenditures due to special surveys and drydockings. In January 2020, Genco completed its scrubber retrofit program on our 17 Capesize vessels. The balance of our fleet consisting of minor bulk vessels is consuming ultra-low sulfur compliant fuel.
We continue to divest our older, less fuel-efficient tonnage as part of our efforts to modernize our fleet and create a more focused asset base while reducing our carbon footprint.
Specifically, in the first quarter of 2020, we sold the Genco Charger, a 2005-built Handysize, on February 24, 2020 for gross proceeds of $5.2 million and the Genco Thunder, a 2007-built Panamax, on March 5, 2020 for gross proceeds of $10.4 million. With the sale of the Genco Thunder, the Company exited the Panamax sector as we continue to execute our barbell approach to fleet composition. The debt associated with these two vessels as well as the Genco Raptor, which was sold during the fourth quarter of 2019, amounts to $14.9 million. This amount is currently recorded on our balance sheet as restricted cash. Under the terms of our $495 million credit facility, the Company can either repay the debt associated with these vessels or utilize the 180-day reinvestment period to redeploy this capital towards the acquisition of a replacement vessel instead of repaying the loan, if the applicable terms and conditions under the facility are met.
We have also entered into memoranda of agreement to sell three additional Handysize vessels built between 2009 and 2010: the Baltic Wind, the Genco Bay, and the Baltic Breeze, for aggregate gross proceeds of $23.6 million. We expect to deliver the vessels to buyers during the second and third quarters of 2020.
In February 2020, the Company determined to expand its previously announced fleet optimization and renewal plan aimed at modernizing its fleet. In addition to the fifteen original vessels designated to be sold under this plan, the Company determined to pursue the sale of ten Handysize vessels, on an opportunistic basis, that were not already part of the plan and are viewed as non-core vessels within our fleet. Given this decision, as the estimated future undiscounted cash flows for each of these vessels did not exceed their net book values, we adjusted the values of these vessels to their respective fair market values during the first quarter of 2020. We incurred a non-cash impairment charge of $85.8 million in the first quarter of 2020. If and when we sell each of these vessels, we will determine how to deploy the net proceeds, which may include repayment of debt, the purchase of modern, high specification vessels that complement our commercial strategy and management’s view of drybulk supply and demand fundamentals, and dividends and share repurchases.
Separately, during the first quarter we also recorded a non-cash vessel impairment charge totaling $27.0 million on four of our 55,000 dwt Supramax vessels. As a result of the lower earnings environment in 2020 to date, primarily due to COVID-19, we do not anticipate the estimated future undiscounted cash flows for each of these vessels to exceed their net book values over the vessels’ remaining useful life. As such, we adjusted the values to their respective fair market values during the first quarter.
Source: Genco Shipping & Trading Limited