Genco Shipping & Trading Limited (NYSE:GNK) (“Genco” or the “Company”), the largest U.S. headquartered drybulk shipowner focused on the transportation of major and minor bulk commodities globally, today reported its financial results for the three months and six months ended June 30, 2020.
The following financial review discusses the results for the three and six months ended June 30, 2020 and June 30, 2019.
Second Quarter 2020 and Year-to-Date Highlights
- Genco’s focus remains on the health and safety of our crew members and our team onshore during this uncertain time
- We have taken various proactive measures in response to COVID-19 centered around business continuity, crew protection and headquarters operations
- We have completed crew rotations on approximately 70% of our fleet in recent months despite various travel and port restrictions and during a time in which seafarers globally have been onboard vessels well in excess of their original contract duration
- Genco announced a regular quarterly cash dividend of $0.02 per share for the second quarter of 2020
- Payable on or about August 25, 2020 to all shareholders of record as of August 17, 2020
- We have now paid or declared cumulative dividends totaling $0.715 per share over the last four quarters
- Genco maintains a strong financial position with $142.9 million of cash, including $15.2 million of restricted cash, as of June 30, 2020
- Voyage revenues totaled $74.2 million and net revenue1 (voyage revenues minus voyage expenses and charter hire expenses) totaled $31.1 million during Q2 2020
- Our average daily fleet-wide time charter equivalent, or TCE1, for Q2 2020 was $6,693
- We estimate our TCE to date for Q3 2020 to be $11,617 for 62% owned fleet available days, based on current fixtures
- We recorded a net loss of $18.2 million for the second quarter of 2020
- Basic and diluted loss per share of $0.43
- We closed on a $25 million revolving credit facility and subsequently drew down $24.0 million in June 2020
- In the third quarter, we have completed the sale of two Handysize vessels
- The Baltic Wind, a 2009-built Handysize, delivered to buyers on July 7, 2020
- The Baltic Breeze, a 2010-built Handysize, delivered to buyers on July 31, 2020
- We have also agreed to sell the Genco Bay, a 2010-built Handysize, which we expect to deliver to its buyer during the third quarter
John C. Wobensmith, Chief Executive Officer, commented, “During the second quarter, our focus remained on maintaining the strength of our industry leading balance sheet while continuing to return capital to shareholders. Our substantial liquidity position together with an improving drybulk landscape enabled Genco to declare our fourth consecutive quarterly dividend, increasing total dividends declared to $0.715 since implementing our policy in the third quarter of 2019.”
Mr. Wobensmith continued, “During the second quarter, our barbell approach to fleet composition, consisting of owning both major and minor bulk vessels, has once again proven to be a strength as Capesize freight rates demonstrated their upside potential, crossing the $30,000 per day threshold at the end of June, while minor bulk earnings have risen steadily to year-to-date highs. Overall, freight rates have experienced a meaningful increase as our third quarter estimated TCE to date is nearly 75% higher than what we achieved during the prior quarter. Going forward, we have a favorable outlook for the drybulk market for the balance of the year and into 2021 as the orderbook as a percentage of the fleet is at an all-time low limiting net fleet growth while global economic activity levels continue to recover coinciding with a seasonal uplift in cargo volumes.”
Mr. Wobensmith concluded, “Since the onset of the COVID-19 pandemic, we have prioritized the health and safety of our crew and onshore professionals. An underlying challenge for all ship owners has been successfully executing crew rotations due to various port and travel restrictions globally, and we are proud to have taken proactive measures by implementing industry leading protocols. This has resulted in the completion of crew changes involving over 800 seafarers since the onset of the pandemic. We continue to work diligently to repatriate more of the dedicated mariners on board our vessels who have worked beyond the term of their original contracts.”
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 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 align with global commodity trade flows. This approach continues to serve us well given the fluctuation in major and minor bulk rates in the year-to-date.
Regarding our Q3 2020 fixtures to date, the drybulk market improved significantly towards the end of the second quarter and has remained firm through July, led by the Capesize sector. With our active commercial trading strategy currently geared towards spot market employment together with the absence of any scheduled drydockings for the balance of 2020 for our Capesize vessels, we believe our fleet is in position to capture strengthening market fundamentals in the second half of the year as compared to the first half. As such, we plan to ballast select Capesize vessels to the Atlantic basin to take advantage of improving cargo flows from the region.
For our minor bulk vessels, market conditions have also improved led by a strong grain trade coupled with augmented trade flows of commodities closely tied to global economic activity. Based on current fixtures to date, we estimate the following to be our TCE to date for the third quarter of 2020:
- Capesize: $17,863 for 64% of the owned available Q3 2020 days
- Ultramax and Supramax: $8,867 for 62% of the owned available Q3 2020 days
- Handysize: $5,731 for 54% of the owned available Q3 2020 days
- Fleet average: $11,617 for 62% of the owned available Q3 2020 days
Actual rates for the third quarter will vary based upon future fixtures. The above third quarter to date estimate compares to our second quarter of 2020 TCE results by class which are listed below.
- Capesize: $9,466
- Ultramax and Supramax: $5,903
- Handysize: $3,952
- Fleet average: $6,693
Regular Quarterly Cash Dividend Policy
For the second 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 receipt of net proceeds from the sale of non-core assets. This dividend is payable on or about August 25, 2020, to all shareholders of record as of August 17, 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. 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 Second Quarter
The Company recorded a net loss for the second quarter of 2020 of $18.2 million, or $0.43 basic and diluted net loss per share. Comparatively, for the three months ended June 30, 2019, the Company recorded a net loss of $34.5 million, or $0.83 basic and diluted net loss per share. Net loss for the three months ended June 30, 2019, includes non-cash vessel impairment charges of $13.9 million, as well as a $0.2 million non-cash impairment of the operating lease right-of-use asset.
The Company’s revenues decreased to $74.2 million for the three months ended June 30, 2020, as compared to $83.6 million recorded for the three months ended June 30, 2019, primarily due to lower rates achieved by the majority of our vessels, as well as the operation of fewer vessels in our fleet. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $6,693 per day for the three months ended June 30, 2020 as compared to $7,412 per day for the three months ended June 30, 2019. During the second quarter of 2020, the reduction in global economic activity due to the COVID-19 pandemic combined with constrained Brazilian iron ore exports in April and May resulted in a weaker drybulk freight rate environment. However, during June, as Brazilian iron ore exports recovered while countries gradually eased lockdown measures, freight rates began to markedly improve off of the lows seen earlier in the year. Specifically, Capesize rates, as quoted by the Baltic Exchange, increased from a low of $1,992 on May 14, 2020 to $30,857 on June 30, 2020.
Voyage expenses were $41.7 million for the three months ended June 30, 2020 compared to $41.8 million during the prior year period primarily attributable to changes in bunker prices. Vessel operating expenses decreased to $21.1 million for the three months ended June 30, 2020, from $24.4 million for the three months ended June 30, 2019 primarily due to fewer owned vessels, as well as lower drydocking and crew related expenses. General and administrative expenses decreased to $5.5 million for the second quarter of 2020 compared to $5.8 million for the second quarter of 2019, primarily due to lower office rent and administrative expenses. Depreciation and amortization expenses decreased to $15.9 million for the three months ended June 30, 2020 from $18.3 million for the three months ended June 30, 2019, primarily due to a decrease in the depreciation expense for the Handysize and Supramax vessels that were impaired during the first quarter of 2020, as well as a decrease for the five vessels that were sold during the fourth quarter of 2019 and first quarter of 2020. These decreases were partially offset by an increase in depreciation expense related to scrubber additions for our Capesize vessels.
Daily vessel operating expenses, or DVOE, amounted to $4,366 per vessel per day for the second quarter of 2020 compared to $4,615 per vessel per day for the second quarter of 2019. This decline is primarily attributable to lower drydocking and crew related expenses in the second quarter of 2020 as compared to the prior year period. 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, “Against a challenging macro-economic backdrop of the second quarter, we continued to strengthen our balance sheet through the closing of a revolving credit facility providing us with increased optionality and flexibility to adapt to rapidly changing market conditions. We also agreed to sell certain non-core Handysize vessels, that were part of our fleet renewal program. Following the drawdown of $24 million under our revolving credit facility in June, we ended the quarter with a substantial cash position of $142.9 million, including restricted cash. We appreciate the continued support of our world class bank group during these unprecedented times, which highlights their confidence in our platform, team and long-term strategy.”
Financial Review: Six Months 2020
The Company recorded a net loss of $138.6 million or $3.31 basic and diluted net loss per share for the six months ended June 30, 2020. This compares to a net loss of $42.3 million or $1.01 basic and diluted net loss per share for the six months ended June 30, 2019. Net loss for the six months ended June 30, 2020 includes $112.8 million in non-cash vessel impairment charges and a $0.5 million loss on sale of vessels. Net loss for the six months ended June 30, 2019, includes non-cash vessel impairment charges of $13.9 million and a $0.6 million gain on sale of vessels. Revenues decreased to $172.5 million for the six months ended June 30, 2020 compared to $177.0 million for the six months ended June 30, 2019, primarily due to the sale of five vessels, as well as a decrease in revenue earned by our minor bulk vessels. Voyage expenses increased to $90.1 million for the six months ended June 30, 2020 from $84.8 million for the same period in 2019. TCE rates obtained by the Company decreased to $8,251 per day for the six months ended June 30, 2020 from $8,341 per day for the six months ended June 30, 2019. Total operating expenses for the six months ended June 30, 2020 and 2019 were $299.1 million and $205.2 million, respectively. Total operating expenses include $112.8 million in non-cash vessel impairment charges, as well as a loss on sale of vessels of $0.5 million for the six months ending June 30, 2020. For the six months ended June 30, 2019, total operating expenses include non-cash vessel impairment charges of $13.9 million relating to the revaluation of certain vessels that comprise our fleet renewal plan to their respective fair values as well as a gain on the sale of vessels of $0.6 million. General and administrative expenses for the six months ended June 30, 2020 decreased to $11.2 million as compared to the $12.1 million in the same period of 2019, due to a decrease in office rent and administrative expenses, as well as lower legal and professional fees associated with our credit facilities. DVOE was $4,390 for the year to date period in 2020 versus $4,518 in 2019. The decrease in DVOE was predominantly due to lower crew related and drydocking related expenses, partially offset by higher insurance and spare parts. EBITDA for the six months ended June 30, 2020 amounted to $(93.5) million compared to $8.4 million during the prior period. During the six months of 2020 and 2019, EBITDA included non-cash impairment charges, an operating lease right-of-use asset non-cash impairment and gains and losses on sale of vessels as mentioned above. Excluding these items, our adjusted EBITDA would have amounted to $19.8 million and $21.9 million, for the respective periods.
Liquidity and Capital Resources
Net cash used in operating activities for the six months ended June 30, 2020 was $9.0 million as compared to net cash provided by operating activities of $14.8 million for the six months ended June 30, 2019. This decrease in cash provided by operating activities was primarily due to an increase in amounts due from charterers as of June 30, 2020 based on the timing of freight payments and other changes in working capital.
Net cash used by investing activities during the six months ended June 30, 2020 and 2019 was $0.6 million and $13.7 million, respectively. This decrease was primarily due to an increase in net proceeds from the sale of vessels in 2020 year to date as compared to 2019, as well as a decrease in ballast water treatment system related expenditures.
Net cash used in financing activities during the six months ended June 30, 2020 and 2019 was $9.8 million and $38.5 million, respectively. The decrease was primarily due to the $24.0 million drawdown on the $133 Million Credit Facility and the $11.3 million drawdown on the $495 Million Credit Facility during the first half of 2020. Additionally, there was a $1.3 million decrease in repayments under the $495 Million Credit Facility during the six months ended June 30, 2020 as compared to the same period during 2019. These decreases were partially offset by $8.1 million payment of dividends during the first half of 2020.
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. Genco requires its crew members to wear masks when in contact with other individuals who board the vessel. 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 permitted by regulations of the ports and of the country of origin of the mariners, in addition to strict protocols that safeguard our crews against COVID-19 exposure.
Our business continuity plans onshore for our global offices in New York, Singapore and Copenhagen allowed for an efficient transition to a remote working environment. Our office in Copenhagen reopened in June 2020 following approximately three months during which our team worked remotely. Regarding our headquarters in New York, we are planning to implement a phased-in approach towards reopening the office; however, a return date has not yet been determined. Additionally, we have also placed a temporary ban on all non-essential travel.
We make capital expenditures from time to time in connection with vessel acquisitions. As of August 5, 2020, Genco Shipping & Trading Limited’s fleet consists of 17 Capesize, six Ultramax, 20 Supramax and eight Handysize vessels with an aggregate capacity of approximately 4,768,000 dwt and an average age of 10.1 years.
In addition to acquisitions that we may undertake, we will incur additional capital expenditures due to special surveys and drydockings. We estimate our capital expenditures related to drydocking, including capitalized costs incurred during drydocking related to vessel assets and vessel equipment, ballast water treatment system costs and scheduled off-hire days for our fleet for the remainder of 2020 and 2021 to be:
|Q3 2020||Q4 2020||2021|
|Estimated Drydock Costs (1)||$2.2 million||$2.1 million||$9.3 million|
|Estimated BWTS Costs (2)||$1.1 million||$0.9 million||$5.5 million|
|Estimated Offhire Days (3)||60||60||230|
(1) Estimates are based on our budgeted cost of drydocking our vessels in China. Actual costs will vary based on various factors, including where the drydockings are actually performed. We expect to fund these costs with cash on hand. These costs do not include drydock expense items that are reflected in vessel operating expenses. Estimated costs presented include approximately $4.2 million of costs associated with six vessels that could potentially be sold based on our fleet renewal program.
(2) Estimated costs associated with the installation of ballast water treatment systems is expected to be funded with cash on hand. Estimated costs presented include approximately $2.6 million of costs associated with six vessels that could potentially be sold based on our fleet renewal program.
(3) Actual length will vary based on the condition of the vessel, yard schedules and other factors. Estimated offhire presented includes approximately 120 days associated with six vessels that could potentially be sold based on our fleet renewal program. The estimated offhire days per sector scheduled for Q3 2020 consists of 40 days for Supramaxes and 20 days for Handysizes.
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, during the third quarter of 2020, we delivered the following vessels to their buyers:
- Baltic Wind, a 2009-built Handysize, on July 7, 2020
- Baltic Breeze, a 2010-built Handysize, on July 31, 2020
We have also agreed to sell the Genco Bay, a 2010-built Handysize, which we expect to deliver to its buyer during the third quarter. The aggregate gross proceeds of these sales amounts to $23.6 million, while the debt associated with these three vessels is $14.2 million.
As of June 30, 2020, $14.9 million of restricted cash is recorded on our balance sheet relating to the sale of the Genco Raptor, Genco Charger and Genco Thunder, which were sold in previous quarters. Under the terms of our $495 million credit facility, the Company can either repay this amount, which represents the debt associated with these vessels, or utilize the 360-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.