Genco Shipping & Trading Limited, the largest U.S. headquartered drybulk shipowner focused on the global transportation of commodities, today reported its financial results for the three months and twelve months ended December 31, 2022.
The following financial review discusses the results for the three months and twelve months ended December 31, 2022 and December 31, 2021.
Fourth Quarter 2022 and Year-to-Date Highlights
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Declared a $0.50 per share dividend for the fourth quarter of 2022
- Q4 2022 dividend represents an annualized yield of 11% on Genco’s closing share price on February 21, 2023
Q4 2022 dividend marks the Company’s 14th consecutive quarterly payout, reflecting cumulative dividends totaling $4.295 per share or approximately 24% of the closing share price on February 21, 2023
- Q4 2022 dividend is payable on or about March 14, 2023 to all shareholders of record as of March 7, 2023
Prepaid $8.75 million of debt on a voluntary basis during Q4 2022, to reduce our debt to $171.0 million
- Net loan-to-value of 11%1 as of February 21, 2023
- Since the start of 2021, we have paid down $278 million or 62% of our debt
Recorded net income of $28.7 million for the fourth quarter of 2022
- Basic and diluted earnings per share of $0.67
Voyage revenues totaled $127.0 million and net revenue2 (voyage revenues minus voyage expenses, charter hire expenses and realized gains or losses on fuel hedges) totaled $76.0 million during Q4 2022
- Our average daily fleet-wide time charter equivalent, or TCE2, for Q4 2022 was $19,330
- We estimate our TCE to date for Q1 2023 to be $14,217 for 84% of our owned fleet available days, based on both period and current spot fixtures
- For FY 2022, our fleet-wide TCE was $23,824, which outperformed our scrubber-adjusted benchmark by nearly $3,000 per vessel per day3
- Recorded adjusted EBITDA of $226.8 million during 20222
- Over the last two years, we have generated $340.6 million of net income and $479.7 million of adjusted EBITDA
- During that period, the Company also paid $129.2 million in dividends and prepaid $278.2 million in debt
Increased our liquidity position to $277.0 million as of December 31, 2022, including:
- $64.1 million of cash on the balance sheet
- $212.9 million of revolver availability
Completed fuel efficiency upgrades on seven Capesize vessels ahead of requirements for IMO 2023 environmental regulations
John C. Wobensmith, Chief Executive Officer, commented, “During 2022, we advanced our strategy of creating a unique drybulk vehicle with an attractive risk-reward profile, while generating sizeable earnings and returning significant capital to shareholders. Dividends under our value strategy have been robust, highlighted by the $2.57 per share that we declared in 2022. Importantly, we have also stayed true to our value strategy’s three pillars of dividends, deleveraging, and growth, continuing to invest in our fleet and paying down debt, which has enabled us to further lower our cash flow break-even levels and strengthen our position to pay sizable dividends over the long-term and through diverse rate environments.”
Mr. Wobensmith continued, “As we look through what we believe to be temporary seasonal factors currently impacting drybulk rates, we remain optimistic on the go-forward outlook based on favorable fundamentals that continue to be in place. Specifically, we currently see a number of compelling catalysts, including the reopening of China together with a historically low orderbook, which bode well for a strengthening market throughout 2023. We believe Genco is in a strong position to capitalize on these market dynamics due to our sizeable fleet, best-in-class commercial platform and barbell approach to fleet deployment.”
1 Represents the principal amount of our credit facility debt outstanding less our cash and cash equivalents as of December 31, 2022 divided by estimates of the market value of our fleet as of February 21, 2023 from VesselsValue.com. The actual market value of our vessels may vary.
2 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.
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3 Our benchmark is defined as the weighted average of the Baltic Supramax Index as published by the Baltic Exchange and the Platts Scrubber Fitted Capesize Index net of 5% for commissions, adjusted for our owned-fleet composition as well as the characteristics of our vessels. We compare our actual TCE performance against this benchmark to assess TCE performance. We benchmark our fully scrubber-fitted Capesize fleet of 17 vessels against the Platts Scrubber Fitted Capesize Index as we view this as a more relevant benchmark than the Baltic Capesize Index which represents a non-scrubber fitted vessel.
Comprehensive Value Strategy
Genco’s comprehensive value strategy is centered on three pillars:
- Dividends: paying sizeable quarterly cash dividends to shareholders
- Deleveraging: through voluntary debt prepayments to maintain low financial leverage, and
- Growth: opportunistically growing the Company’s asset base
We believe this strategy is a key differentiator for Genco and will drive shareholder value over the long-term. We therefore believe Genco has created a compelling risk-reward balance positioning the Company to pay a sizeable quarterly dividend across diverse market environments. At the same time, we also maintain significant flexibility to grow the fleet through accretive vessel acquisitions. Key characteristics of our unique platform include:
- Industry low cash flow breakeven rate
- Net loan-to-value of 11% as of February 21, 2023
- Strong liquidity position of $277.0 million consisting of cash and our undrawn revolver as of December 31, 2022
- High operating leverage with our scalable fleet across the major and minor bulk sectors
In 2022, Genco took the following steps in line with our corporate strategy:
- Dividends: declared dividends totaling $2.57 per share for the twelve months of 2022
- Deleveraging: paid down $75 million of debt in 2022. Since the beginning of 2021, we have paid down $278 million or 62% of our debt
- Growth: completed the acquisition of two high quality, fuel efficient Ultramax vessels in January 2022
- Securing revenue: opportunistically fixed various period time charterers to secure cash flows and de-risk recent acquisitions as shown in the following table:
Our debt outstanding as of December 31, 2022 was $171.0 million. In Q4 2022, we voluntarily paid down debt totaling $8.75 million, in line with our run rate quarterly voluntary debt repayment. Importantly, we have no mandatory debt amortization payments until 2026 when the facility matures. Regardless of this favorable mandatory amortization schedule, we plan to continue to voluntarily pay down our debt with the medium-term objective of reducing our net debt to zero and a longer-term goal of zero debt.
For the fourth quarter of 2022, Genco declared a cash dividend of $0.50 per share. This represents the fourth full quarterly dividend under our comprehensive value strategy utilizing our run rate voluntary quarterly debt repayment of $8.75 million and fifth dividend payment under our value strategy overall. The cumulative dividends declared under our value strategy to date are $3.24 per share.
Under the quarterly dividend policy adopted by our Board of Directors, the amount available for quarterly dividends is to be calculated based on the formula in the table below. The table includes the calculation of the actual Q4 2022 dividend and estimated amounts for the calculation of the dividend for Q1 2023:
The quarterly reserve for the first quarter of 2023 under the Company’s dividend formula is expected to be $10.75 million. Subject to the development of freight rates for the remainder of the first quarter and our assessment of our liquidity and forward outlook, we maintain flexibility to reduce the quarterly reserve to pay dividends.
For purposes of the foregoing calculation, operating cash flow is defined as net revenue (consisting of voyage revenue less voyage expenses, charter hire expenses, and realized gains or losses on fuel hedges), less operating expenses (consisting of vessel operating expenses, general and administrative expenses other than non-cash restricted stock expenses, technical management fees, and interest expense other than non-cash deferred financing costs).
Key Q4 2022 dividend items: during the fourth quarter of 2022, we paid down $8.75 million of debt on a voluntary basis, representing our run rate voluntary quarterly debt repayment. This amount was deducted from operating cash flow in our fourth quarter dividend payment. Drydocking, ballast water treatment system and energy saving device costs related to four vessels that drydocked during the fourth quarter compared to six vessels that drydocked during the previous quarter. Furthermore, our reserve for Q4 2022 was $10.75 million as previously announced in advance. Anticipated uses for the reserve include, but are not limited to, vessel acquisitions, debt repayments and general corporate purposes. In order to set aside funds for these purposes, we plan to set the reserve on a quarterly basis for the subsequent quarter, and it is anticipated to be based on future quarterly debt repayments and interest expense.
Q1 2023 reserve: The quarterly reserve for the first quarter of 2023 is expected to be $10.75 million. The reserve was determined based on voluntary debt repayments anticipated to be made as well as estimated cash interest expense on our debt and remains subject to our Board of Directors’ discretion. The quarterly debt repayment and reserve will be reassessed on a quarterly basis in advance by the Board of Directors and management. Estimated expenses, debt repayments, and capital expenditures for Q1 2023 are estimates presented for illustrative purposes. Maintaining a quarterly reserve as well as optionality for the uses of the reserve are important factors of our corporate strategy that are intended to allow Genco to retain liquidity to take advantage of a variety of market conditions. Anticipated uses for the reserve include, but are not limited to, vessel acquisitions, debt repayments and general corporate purposes.
The Board expects to reassess the payment of dividends as appropriate from time to time. Our quarterly dividend policy and declaration and payment of dividends are subject to legally available funds, compliance with applicable law and contractual obligations (including our credit facility) and the Board of Directors’ determination that each declaration and payment is at the time in the best interests of the Company and its shareholders after its review of our financial performance.
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Genco’s Active Commercial Operating Platform and Fleet Deployment Strategy
We utilize a portfolio approach towards revenue generation through a combination of short-term, spot market employment as well as opportunistically booking longer term coverage. Our fleet deployment strategy currently remains weighted towards short-term fixtures, which provide 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 upside potential in major bulk rates together with the relative stability of minor bulk rates.
Based on current fixtures to date, our estimated TCE to date for the first quarter of 2023 on a load-to-discharge basis is presented below.
Given several of our vessels are on fixed rate period time charters, we have provided a TCE breakout of the period time charters as well as the spot trading fixtures in the first quarter to date. Actual rates for the first quarter will vary based upon future fixtures. We have approximately eight Capesize vessels coming open in the coming weeks, a portion of which we plan to ballast to the Atlantic basin.
Financial Review: 2022 Fourth Quarter
The Company recorded net income for the fourth quarter of 2022 of $28.7 million, or $0.67 basic and diluted earnings per share, respectively. Comparatively, for the three months ended December 31, 2021, the Company recorded net income of $90.9 million, or $2.16 and $2.13 basic and diluted earnings per share, respectively.
The Company’s revenues decreased to $127.0 million for the three months ended December 31, 2022, as compared to $183.3 million recorded for the three months ended December 31, 2021, primarily due to lower rates achieved by our major and minor bulk vessels. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $19,330 per day for the three months ended December 31, 2022 as compared to $35,200 per day for the three months ended December 31, 2021. During the fourth quarter of 2022, the drybulk freight market was impacted by COVID-related lockdowns in China, lower Brazilian iron ore export volumes together with an easing in port congestion. Currently, the freight market is experiencing various seasonal factors that are weighing on freight rates, including weather related cargo disruptions and scheduled maintenance periods in certain main export origins including for iron ore cargos out of Brazil. Additionally, the timing of the Chinese New Year and the timing of newbuilding vessel deliveries frontloaded towards the beginning of the year have played a role in the current market dynamics.
Voyage expenses were $43.5 million for the three months ended December 31, 2022 compared to $36.6 million during the prior year period. This increase was primarily due to higher bunker expenses for our vessels. Vessel operating expenses decreased to $20.9 million for the three months ended December 31, 2022 from $22.5 million for the three months ended December 31, 2021. The decrease is explained in the DVOE section of the below paragraph. General and administrative expenses increased to $7.4 million for the fourth quarter of 2022 compared to $6.8 million for the fourth quarter of 2021, primarily due to an increase in non-cash stock amortization expenses, as well as higher legal and professional fees. Depreciation and amortization expenses increased to $16.0 million for the three months ended December 31, 2022 from $14.8 million for the three months ended December 31, 2021, primarily due to an increase in drydocking amortization expense for the major bulk vessels that completed their respective drydockings during the twelve months ended December 31, 2022.
Daily vessel operating expenses, or DVOE, amounted to $5,164 per vessel per day for the fourth quarter of 2022 compared to $5,766 per vessel per day for the fourth quarter of 2022. The decrease was primarily due to lower crew costs, including COVID-19 related expenses, as we have transitioned our crews from Chinese to Indian and Filipino crews. In addition, our spares and stores expenses were lower for the fourth quarter of 2022 as compared to the same period in 2021 and partially offset by higher repair and maintenance as well as lube costs. Overall, despite a 22% decline in vessel operating expenses as compared to Q4 2021, the operating environment with regards to costs remains challenging given various macroeconomic factors mentioned above while we continue to invest in our fleet. 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 manager, our DVOE budget for Q1 2023 is $6,250 per vessel per day on a fleet-wide basis including an estimate for COVID-19 related expenses. For the full year of 2023, we expect our budget to be $5,990 per vessel per day. The higher expense levels anticipated in Q1 2023 are primarily due to timing of crew changes and purchases of spares and stores. The potential impacts of COVID-19 and the war in Ukraine are unpredictable, and the actual amount of our DVOE could be higher or lower than budgeted as a result.
Apostolos Zafolias, Chief Financial Officer, commented, “During 2022, we continued to demonstrate our sizeable earnings power, generating $226.8 million of EBITDA for the year and commitment to deliver under the value strategy we announced in the beginning of 2021. We declared $2.57 per share in dividends in 2022 resulting in a 14% yield based on our current stock price. We continued to voluntarily pay down debt in 2022 and since 2021 reduced our debt position by 62% percent to $171.0 million, while further improving our leading net loan to value which now stands at 11%. We enter the new year with a stronger balance sheet, and further improved breakeven levels allowing the Company significant flexibility regardless of market conditions.”
Financial Review: Twelve Months 2022
The Company recorded net income of $158.6 million or $3.74 and $3.70 basic and diluted earnings per share for the twelve months ended December 31, 2022, respectively. This compares to net income of $182.0 million or $4.33 and $4.27 basic and diluted earnings per share for the twelve months ended December 31, 2021. Revenues decreased to $536.9 million for the twelve months ended December 31, 2022 compared to $547.1 million for the twelve months ended December 31, 2021, primarily due to lower revenue earned by our major bulk vessels primarily as a result of a decrease in available days due to scheduled drydockings, partially offset by higher rates achieved by our minor bulk vessels. Voyage expenses increased to $153.9 million for the twelve months ended December 31, 2022 from $146.2 million for the same period in 2021, primarily due to higher bunker expenses partially offset by a decrease in certain costs incurred related to our spot market voyages. TCE rates obtained by the Company decreased to $23,824 per day for the twelve months ended December 31, 2022 from $24,402 per day for the twelve months ended December 31, 2021. Total operating expenses for the twelve months ended December 31, 2022 and 2021 were $369.7 million and $346.0 million, respectively. General and administrative expenses for the twelve months ended December 31, 2022 increased to $25.7 million as compared to the $24.5 million in the same period of 2021 primarily due to an increase in non-cash stock amortization expense. DVOE was $6,197 in 2022 versus $5,409 in 2021. The increase in daily vessel operating expenses was primarily due to higher crew related expenses. Higher repair and maintenance costs on certain vessels, general inflationary pressures and an increase in the purchase of stores and spare parts, also contributed to this increase. EBITDA for the twelve months ended December 31, 2022 amounted to $226.8 million compared to $253.4 million during the prior period. During the twelve months of 2022 and 2021, EBITDA included gains on sale of vessels and debt extinguishment, as well as gains and losses on unrealized fuel hedges. Excluding these items, our adjusted EBITDA would have amounted to $226.8 million and $252.9 million, for the respective periods.
Liquidity and Capital Resources
Net cash provided by operating activities for the years ended December 31, 2022 and 2021 was $189.3 million and $231.1 million, respectively. This decrease in cash provided by operating activities was primarily due to lower revenue earned by our major bulk vessels partially offset by higher rates achieved by our minor bulk vessels, changes in working capital, as well as an increase in drydocking costs incurred. These decreases in cash provided by operating activities were partially offset by lower interest expense.
Net cash used in investing activities during the years ended December 31, 2022 and 2021 was $55.0 million and $67.6 million, respectively. The decrease was primarily due to a $63.2 million decrease in the purchase of vessels. The purchase of vessels during 2022 is primarily a result of the delivery of two Ultramax vessels that delivered during the first quarter of 2022, as well as fuel efficiency upgrade vessel asset additions for certain vessels in our fleet. The purchase of vessels during 2021 primarily included the purchase price of four Ultramax vessels which delivered during the third quarter of 2021, as well as deposits made for the two aforementioned Ultramax vessels that delivered during the first quarter of 2022. This decrease was partially offset by a $49.5 million decrease in net proceeds from the sale of vessels as there were no vessels sold during 2022.
Net cash used in financing activities during the years ended December 31, 2022 and 2021 was $190.7 million and $222.7 million, respectively. The decrease was primarily due to the refinancing of our prior credit facilities with the $450 Million Credit Facility on August 31, 2021. During 2022, the decrease in total net cash used in financing activities related to our credit facilities was $128.2 million as compared to 2021. Additionally, there was a $6.0 million decrease in deferred financing costs paid in relation to the $450 Million Credit Facility during 2022 as compared to 2021. These decreases were partially offset by a $102.3 million increase in the payment of dividends during 2022 as compared to 2021.
As of February 22, 2023, Genco Shipping & Trading Limited’s fleet consists of 17 Capesize, 15 Ultramax and 12 Supramax vessels with an aggregate capacity of approximately 4,635,000 dwt and an average age of 11.0 years.
In addition to acquisitions that we may undertake, we will incur additional capital expenditures due to special surveys and drydockings. Furthermore, we plan to upgrade a portion of our fleet with energy saving devices and apply high performance paint systems to our vessels in order to reduce fuel consumption and emissions. 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, fuel efficiency upgrades and scheduled off-hire days for our fleet for 2023 to be:
Source: Genco Shipping & Trading Limited