Home / Shipping News / Dry Bulk Market / Genco Shipping & Trading Limited Rides Dry Bulk Market Recovery

Genco Shipping & Trading Limited Rides Dry Bulk Market Recovery

Genco Shipping & Trading Limited, 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 nine months ended September 30, 2018.

The following financial review discusses the results for the three and nine months ended September 30, 2018 and September 30, 2017.

Third Quarter 2018 and Year-to-Date Highlights

Completed the acquisition of a total of six high specification, fuel efficient Capesize and Ultramax vessels:
In July 2018, we took delivery of the Genco Weatherly, a 2014-built Ultramax vessel
In August 2018, we took delivery of two 2015-built Capesize vessels, the Genco Endeavour and the Genco Resolute
In September 2018, we took delivery of the Genco Columbia, a 2016-built Ultramax vessel, as well as two 2016-built Capesize vessels, the Genco Defender and the Genco Liberty
Entered into a $108 million, five-year senior secured credit facility with favorable terms
Announced our comprehensive fleet-wide plan for IMO 2020 sulfur emission regulation compliance
Plan to install exhaust gas cleaning systems (“scrubbers”) on our 17 Capesize vessels with options for installation on an additional 15 minor bulk vessels to provide flexibility for developing market conditions
Balance of the fleet is expected to consume compliant, low sulfur fuel
Implementing a portfolio approach aimed at reducing our environmental footprint, maximizing shareholder returns and lowering fuel costs
Anticipate the completion of five vessel sales as part of our fleet renewal program
We completed the sales of two vessels, the Genco Surprise and the Genco Progress, during the third quarter of 2018 for a cumulative gain of $1.5 million
During the fourth quarter of 2018, we expect to complete the sales of the three other vessels, the Genco Cavalier, the Genco Explorer and the Genco Muse
Given the acquisition of the six vessels, upon the completion of these vessel sales, the average age of our fleet will be reduced by over one year to 9.3 years
Recorded net income of $5.7 million for the third quarter of 2018
Basic and diluted earnings per share of $0.14
Adjusted net income of $4.2 million or adjusted basic and diluted earnings per share of $0.10, excluding a $1.5 million gain on sale of vessels
Net revenue (voyage revenues minus voyage expenses and charter hire expenses) totaled $60.1 million during Q3 2018, over 30% higher than the same period of 2017
Time charter equivalent (“TCE”) increased to $10,696 for Q3 2018 marking a year-over-year improvement of 27%
Maintained low daily vessel operating expenses (“DVOE”) of $4,434 per vessel per day during Q3 2018 highlighting our industry leading low-cost structure
Costs remained under our 2018 budget without sacrificing our high safety and maintenance standards
Recorded EBITDA of $29.6 million during Q3 2018
Adjusted EBITDA of $28.1 million, after excluding a $1.5 million of gain on sale of vessels

Image: Genco Shipping & Trading Limited

John C. Wobensmith, Chief Executive Officer, commented, “During the third quarter, we continued to generate profitable results, as we drew upon our sizeable and leading platform to take advantage of the developing recovery in the drybulk market. We also have taken steps to further strengthen our earnings power during the quarter, completing the timely acquisition of six high specification, fuel efficient Capesize and Ultramax vessels, while continuing to sell older tonnage and improve the age profile of the fleet. We also implemented a comprehensive fleet-wide plan for IMO 2020, complementing our fleet growth and renewal strategy. Based on extensive analysis, we adopted a portfolio approach aimed at reducing our environmental footprint, maximizing shareholder returns and lowering fuel costs. As we progress into 2019, we remain well positioned to capitalize on the strong demand for drybulk commodities and multi-decade low vessel supply growth rates.”

Vessel Acquisitions and Fleet Renewal Program

During the third quarter of 2018, Genco completed the acquisition of a total of six high specification, fuel efficient Capesize and Ultramax vessels from two separate transactions entered into in June and July 2018, respectively. Beginning in July we took delivery of the Genco Weatherly, a 2014-built 61,556 dwt Ultramax vessel. Subsequently, in August, we took delivery of two 2015 Chinese built 181,060 dwt Capesize vessels, the Genco Endeavour and the Genco Resolute. Finally, in September, we completed these transactions as we took delivery of two 2016 South Korean built Capesize vessels, the Genco Liberty and the Genco Defender, 180,032 and 180,021 dwt respectively, as well as one 2016 Japanese built 60,294 dwt Ultramax vessel, the Genco Columbia.

In connection with our previously announced fleet renewal program, we have agreed to sell five vessels to date, of which we have completed the sale of the following three vessels: the Genco Surprise, a 1998-built Panamax vessel which delivered to buyers on August 7, 2018, the Genco Progress, a 1999-built Handysize vessel which delivered to buyers on September 13, 2018, and the Genco Cavalier, a 2007-built Supramax vessel, which delivered to buyers on October 16, 2018. The Genco Explorer, another 1999-built Handysize vessel and the Genco Muse, a 2001-built Handymax vessel, have also been contracted to be sold and are anticipated to be delivered to their new owners in Q4 2018. As a result of the sales, Genco will save anticipated drydocking and ballast water treatment system installation costs of approximately $6.1 million previously scheduled for 2018 and 2019.

The Genco Cavalier is one of the vessels collateralizing the $460 Million Credit Facility. The Company plans to utilize the vessel replacement option under the $460 Million Credit Facility and $4.9 million of anticipated net sale proceeds corresponding to debt associated with this vessel are intended to be redeployed towards the acquisition of a replacement vessel instead of repayment of the loan if the applicable terms and conditions under the facility are met. The other four vessels that have been agreed to be sold to date are unencumbered, and the Company intends to redeploy the proceeds from the sale of these vessels towards modern, fuel efficient vessels, which it is seeking to identify.

Given the completed acquisition of six vessels and the agreed upon sale of five vessels to date as described above, our fleet will consist of 61 vessels with a carrying capacity of 5,297,000 dwt. On a per sector basis, the fleet will consist of 17 Capesize, five Panamax, six Ultramax, 20 Supramax, and 13 Handysize vessels with an average age of 9.3 years, representing reduction in average age of over one year from 10.6 years for the prior fleet composition of 60 vessels before any of the vessel sales and purchases described above.

$108 Million Credit Facility

On August 14, 2018, the Company closed a previously announced five-year senior secured credit facility led by Crédit Agricole Corporate & Investment Bank for an aggregate principal amount of $108 million. The proceeds were utilized to partially finance the purchase price for the six new vessels described previously. Under the terms of the $108 Million Credit Facility, borrowings bear interest at LIBOR plus 250 basis points through September 30, 2019 and LIBOR plus a range of 225 to 275 basis points thereafter, dependent upon Genco’s ratio of total net indebtedness to the last twelve months EBITDA.

Comprehensive Fleet Plan Ahead of IMO 2020 Regulations

On October 9, 2018, the Company announced plans to install scrubbers on our 17 Capesize vessels with options for installation on an additional 15 minor bulk vessels. The balance of the fleet is expected to consume compliant, low sulfur fuel beginning January 1, 2020, when new environmental regulations come into effect, although the Company will continue to evaluate other options. These regulations cap sulfur emissions at 0.5%, down from 3.5% currently. The Company anticipates scrubber installation on the 17 Capesize vessels to occur during 2019.

The Company’s portfolio approach is aimed at reducing our environmental footprint, maximizing shareholder returns and lowering fuel costs in an evolving marine fuel environment. The Company is currently in discussions with various lenders in regard to scrubber financing.

Our Commercial Strategy Continues to Actively Drive Revenue and Margin Growth

Overall, our fleet deployment strategy remains weighted towards short-term fixtures which provides optionality in a potentially rising freight rate environment. We believe that our active commercial strategy together with our low-cost structure provides continuing potential for increased margins, while our barbell approach to fleet composition provides direct exposure to both major and minor bulk commodities and enables our fleet’s cargoes to closely mirror those of global commodity trade flows.

Our third quarter of 2018 TCE results by class are listed below. During the third quarter, we repositioned select Capesize and minor bulk vessels based on our market expectations. We believe that these decisions will enhance Genco’s commercial platform through a further expansion of our customer base and geographical presence. Our TCE performance during the third quarter of 2018 improved by 27% as compared to the same period the year before.

Capesize: $15,168
Panamax: $9,319
Ultramax, Supramax and Handymax: $9,732
Handysize: $8,719
Fleet average: $10,696
We currently have the following net TCE fixed for the fourth quarter of 2018. We continue to take a portfolio approach to the deployment of our Capesize fleet as we have fixed several vessels on West Australian round voyages in the Pacific while gaining exposure to the Atlantic market and booking fronthaul voyages. Additionally, in the minor bulk fleet, we are benefiting from scale in designated key regions where we have established a critical mass. Further, we continue to execute our cross-trading initiatives primarily on our Ultramax and Supramax fleet where the Atlantic positions for certain vessels have benefited from a firm market during the fourth quarter to date.

Capesize: $16,736 for 64% of the available Q4 2018 days
Panamax: $10,381 for 54% of the available Q4 2018 days
Ultramax, Supramax and Handymax: $12,417 for 67% of the available Q4 2018 days
Handysize: $11,740 for 51% of the available Q4 2018 days
Fleet average: $13,367 for 62% of the available Q4 2018 days
Financial Review: 2018 Third Quarter

The Company recorded net income for the third quarter of 2018 of $5.7 million, or $0.14 basic and diluted net earnings per share. Comparatively, for the three months ended September 30, 2017, the Company recorded a net loss of $31.2 million, or $0.90 basic and diluted net loss per share.

The Company’s revenues increased to $92.3 million for the three months ended September 30, 2018, 80% higher than the $51.2 million recorded for the three months ended September 30, 2017. The increase in revenues was primarily due to the employment of vessels on spot market voyage charters as well as higher spot market rates achieved by the majority of our vessels.

The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $10,696 per day for the three months ended September 30, 2018 as compared to $8,448 for the three months ended September 30, 2017. The increase in TCE was primarily due to higher rates achieved by the majority of the vessels in our fleet during the third quarter of 2018 versus the third quarter of 2017. During the third quarter of 2018, the drybulk freight market strengthened relative to the second quarter with sequential increases in Capesize, Panamax, and Supramax average earnings as reported by the Baltic Exchange. Demand for raw materials remains strong as global steel production has increased by 4.7% in the year-to-date led primarily by growth of 6.1% in both China and India, according to the World Steel Association. On the supply side, global net fleet growth has remained low in the year-to-date primarily driven by a significant reduction in newbuilding vessel deliveries as compared to the prior year period.

Total operating expenses were $80.2 million for the three months ended September 30, 2018 compared to $74.9 million for the three months ended September 30, 2017. During the three months ended September 30, 2018, gain on sale of vessels totaled $1.5 million. During the three months ended September 30, 2017, an $18.7 million vessel impairment loss was recorded in relation to Genco’s five 1999-built vessels. Voyage expenses rose to $31.5 million for the three months ended September 30, 2018 versus $5.6 million during the prior year period primarily due to the increased employment of vessels on spot market voyage charters as part of our commercial strategy, in which we incur significantly higher voyage expenses as compared to time charters, spot market-related time charters and pool arrangements. Vessel operating expenses increased marginally to $25.2 million for the three months ended September 30, 2018, from $25.1 million for the three months ended September 30, 2017. General and administrative expenses were $5.0 million for the third quarter of 2018 compared to $5.9 million for the third quarter of 2017, primarily due to a decrease in nonvested stock amortization expense to $0.6 million from $1.3 million for the third quarter of 2018 and 2017, respectively. Depreciation and amortization expenses decreased to $17.3 million for the three months ended September 30, 2018 from $17.8 million for the three months ended September 30, 2017, primarily due to the revaluation of 15 of our vessels to their respective fair values during the first quarter of 2018 as well as the second and third quarters of 2017, partially offset by an increase in depreciation for the six vessels delivered in Q3 2018.

Daily vessel operating expenses, or DVOE, amounted to $4,434 per vessel per day for the third quarter of 2018, below our budget of $4,440 per vessel per day and compared to $4,553 per vessel per day for the same quarter of 2017. The decrease in DVOE was predominantly due to lower expenses related to maintenance, drydocking, spare parts and stores, partially offset by higher expenses related to crewing. 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 and management’s views, our DVOE budget for 2018 is $4,440 per vessel per day on a weighted average basis for the entire year for our fleet.

Apostolos Zafolias, Chief Financial Officer, commented, “During the quarter, we continued to preserve a strong cash balance as we maintained low direct vessel operating expenses and took advantage of an improving drybulk rate environment. We also entered into a $108 million credit facility under favorable terms, which, together with the success we have had year-to-date accessing capital, has supported our ability to grow our fleet and earnings power. We appreciate the strong support we have received from the capital markets and our leading banking group.”

Financial Review: Nine Months 2018

The Company recorded a net loss of $51.2 million or $1.37 basic and diluted net loss per share for the nine months ended September 30, 2018. This compares to a net loss of $61.3 million or $1.80 basic and diluted net loss per share for the nine months ended September 30, 2017. Net loss for the nine months ended September 30, 2018 and 2017, includes non-cash vessel impairment charges of $56.6 million and $22.0 million, respectively. Net loss for the nine months ended September 30, 2018 also includes a loss on debt extinguishment in the amount of $4.5 million as well as a gain from sale of vessels totaling $1.5 million. Net loss for the nine months ended September 30, 2017 includes a gain on sale of vessels in the amount of $7.7 million. Revenues increased to $255.3 million for the nine months ended September 30, 2018 compared to $134.8 million for the nine months ended September 30, 2017. The increase in revenues was primarily due to the employment of vessels on spot market voyage charters as well as higher spot market rates achieved by the majority of our vessels. Voyage expenses increased to $78.6 million for the nine months ended September 30, 2018 from $9.7 million for the same period in 2017. This increase was primarily due to the employment of vessels on spot market voyage charters during 2018 as part of our commercial strategy, in which we incur significantly higher voyage expenses as compared to time charters, spot market-related time charters and pool arrangements. TCE rates obtained by the Company increased to $10,710 per day for the nine months ended September 30, 2018 from $7,698 per day for the nine months ended September 30, 2017, due to higher rates achieved by the majority of the vessels in our fleet. Total operating expenses for the nine months ended September 30, 2018 and 2017 were $280.8 million and $174.4 million, respectively. Total operating expenses includes non-cash vessel impairment charges of $56.6 million relating to the revaluation of certain vessels that comprise our fleet renewal plan to their respective fair values for the nine months ended September 30, 2018, as well as a $1.5 million gain from sale of vessels. For the nine months ended September 30, 2017, total operating expenses include non-cash vessel impairment charges totaling $22.0 million and a gain on sale of vessels of $7.7 million. General and administrative expenses for the nine months ended September 30, 2018 increased to $16.8 million as compared to the $16.6 million in the same period of 2017. Daily vessel operating expenses per vessel were $4,394 versus $4,427 in the comparative periods. The decrease in DVOE was predominantly due to lower drydocking related expenses, partially offset by higher expenses related to the purchase of stores. EBITDA for the nine months ended September 30, 2018 amounted to $20.9 million compared to $14.5 million during the prior period. During the first nine months of 2018 and 2017, EBITDA included non-cash impairment charges, loss on debt extinguishment and gains on sale of vessels as mentioned above. Excluding these non-cash charges, our adjusted EBTIDA would have amounted to $80.5 million and $28.7 million, for the respective periods.

Liquidity and Capital Resources

Cash Flow

Net cash provided by operating activities for the nine months ended September 30, 2018 was $43.4 million as compared to $3.7 million for the nine months ended September 30, 2017. Included in the net loss during the nine months ended September 30, 2018 were $56.6 million of non-cash impairment charges, as well as a $4.5 million loss on the extinguishment of debt, a $5.3 million payment on the $400 Million Credit Facility and gains totaling $1.5 million arising from the sale of vessels due to the sale of two vessels. Included in the net loss during the nine months ended September 30, 2017 were $22.0 million of non-cash impairment charges, as well as paid in kind interest incurred of $4.6 million related to the $400 Million Credit Facility and a gain on sale of vessels in the amount of $7.7 million due to the sale of five vessels. Depreciation and amortization expense for the nine months ended September 30, 2018 decreased by $3.6 million primarily due to the revaluation of nine of our vessels that were written down to their estimated fair market value during the first quarter of 2018, as well as the revaluation of six of our vessels that were written down to their estimated fair market value during the second and third quarters of 2017. These decreases in depreciation were partially offset by an increase in depreciation expense for the six vessels delivered during the third quarter of 2018. Additionally, the fluctuation in inventories increased by $12.8 million due to additional fuel inventory for our vessels as the result of the employment of our vessels on spot market voyage charters. There was also a $5.8 million increase in the fluctuation in due from charterers due to the timing of payments received from charterers. These changes were offset by a $5.5 million decrease in deferred drydocking costs incurred because there were less vessels that completed drydocking during the nine months ended September 30, 2018 as compared to the same period during 2017. Lastly, there was an increase in the fluctuation in accounts payable and accrued expenses of $7.4 million and an increase in the fluctuation in deferred revenue of $3.9 million due to the timing of payments.

Net cash used in investing activities was $226.5 million during the nine months ended September 30, 2018 as compared to net cash provided by investing activities of $15.8 million during the nine months ended September 30, 2017. Net cash used in investing activities during the nine months ended September 30, 2018 consisted primarily of $239.7 million purchase of vessels related to the six vessels that delivered to us during the third quarter of 2018. This cash outflow during the nine months ended September 30, 2018 was partially offset by $10.6 million proceeds from the sale of two vessels during the third quarter of 2018 and $3.5 million of proceeds received for hull and machinery claims related primarily to the receipt of the remaining insurance settlement for the main engine repair claim for the Genco Tiger. Net cash provided by investing activities during the nine months ended September 30, 2017 consisted primarily of $15.5 million proceeds from the sale of five vessels during the nine months ended September 30, 2017 and $0.7 million of proceeds received for various hull and machinery claims.

Net cash provided by financing activities during the nine months ended September 30, 2018 was $144.2 million as compared to net cash used in financing activities of $3.5 million during the nine months ended September 30, 2017. Net cash provided by financing activities of $144.2 million for the nine months ended September 30, 2018 consisted primarily of the $460.0 million drawdown under the $460 Million Credit Facility, the $108.0 million drawdown under the $108 Million Credit Facility and the net proceeds from the common stock offering on June 19, 2018 of $109.8 million partially offset by the following: $399.6 million repayment of debt under the $400 Million Credit Facility; $93.9 million repayment of debt under the $98 Million Credit Facility; $25.5 million repayment of debt under the 2014 Term Loan Facilities; $11.5 million payment of deferred financing costs; and $3.0 million payment of debt extinguishment costs. On August 14, 2018, we entered into the $108 Million Credit Facility to finance a portion of the purchase price for the six vessels acquired during the three months ended September 30, 2018. On June 5, 2018, the $460 Million Credit Facility refinanced the following three existing credit facilities; the $400 Million Credit Facility, the $98 Million Credit Facility and the 2014 Term Loan Facilities. Net cash used in financing activities of $3.5 million for the nine months ended September 30, 2017 consisted of the following: $2.1 million repayment of debt under the 2014 Term Loan Facilities; $1.1 million payment of Series A Preferred Stock issuance costs; and $0.3 million repayment of debt under the $400 Million Credit Facility.

Capital Expenditures

We make capital expenditures from time to time in connection with vessel acquisitions. As of September 30, 2018, we completed installment payment obligations for the acquisition vessels. We made these payments in the third quarter of 2018 using a combination of cash on hand and commercial bank financing as previously described.

In addition to acquisitions that we may undertake in future periods, we will incur additional capital expenditures due to special surveys and drydockings for our fleet. We drydocked one vessel during the third quarter of 2018. We currently have no vessels scheduled to drydock during the remainder of 2018.

We also anticipate incurring capital expenditures with respect to the installation of ballast water treatment systems, which we intend to fund with cash on hand. In addition, we expect to incur capital expenditures for the installation of scrubbers on our 17 Capesize vessels and may incur capital expenditures related to scrubbers for an additional 15 or more minor bulk vessels. We expect the cost, including installation, to be approximately $2 million per vessel, which may vary according to the specifications of our vessels and technical aspects of the installation, among other variables. We anticipate establishing a credit facility to finance a significant portion of the costs associated with the scrubbers and intend to fund the remainder of the costs with cash on hand.

Full Report

Source: Genco Shipping & Trading

Leave a Reply

Your email address will not be published. Required fields are marked *

*

captcha

Please enter the CAPTCHA text

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping