Global Ship Lease, Inc. — 2015 Form 20-F
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter filing. Figures are U.S. dollars unless noted; financial statements use U.S. GAAP and were audited.
Business context
Global Ship Lease owns and charters containerships under time charters. At year-end, its fleet comprised 18 vessels with aggregate capacity of 82,312 TEU, a capacity-weighted average age of 11.0 years and a weighted average remaining charter term of 4.8 years. Fifteen vessels were chartered to CMA CGM and three to OOCL. CMA CGM also owned approximately 44.4% of the common shares.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Time charter revenue | $164.9 million | $138.6 million |
| Operating income | $19.3 million | $42.3 million |
| Operating margin | 11.7% | 30.5% |
| Net income (loss) | $(28.9) million | $6.1 million |
| Net income (loss) available to common shareholders | $(31.9) million | $5.0 million |
| Basic and diluted Class A EPS | $(0.67) | $0.10 |
| Cash from operating activities | $62.3 million | $60.9 million |
| Cash used in investing activities | $(101.2) million | $(80.1) million |
| Cash from financing activities | $59.2 million | $27.9 million |
| Cash and cash equivalents at year-end | $53.6 million | $33.3 million |
| Total assets | $904.9 million | $873.7 million |
| Stockholders’ equity | $396.8 million | $438.1 million |
Operating expenses were $145.7 million, including a $44.7 million vessel impairment charge. Excluding impairment, expenses were $101.0 million. Vessel operating costs were $50.1 million; depreciation was $44.9 million; interest expense was $48.2 million. The filing reports $492.8 million of debt principal outstanding at year-end: $419.7 million of notes, $40.0 million drawn on the revolving facility and $33.1 million on the secured term loan. The balance-sheet carrying amount of debt, after discounts and financing costs, was $478.1 million. Current assets were $57.6 million and current liabilities $53.6 million.
Material changes versus 2014
- Revenue rose 19.0%, primarily due to the addition of OOCL Qingdao and OOCL Ningbo, the full-year contribution from OOCL Tianjin, and fewer off-hire and idle days. Fleet utilization improved to 99.6% from 98.0%.
- Operating income fell to $19.3 million from $42.3 million, mainly because of the $44.7 million impairment charge. The charge followed redelivery and sale of the two oldest vessels, Ville d’Aquarius and Ville d’Orion, for net proceeds of approximately $4.6 million and $4.7 million.
- Interest expense increased to $48.2 million from $43.9 million, reflecting the full-year effect of 10% notes and interest on new 2015 borrowings. The company recorded a net loss rather than 2014’s profit, which included an $8.6 million gain on redemption of Series A preferred shares.
- Investing outflows increased with $108.2 million spent on vessel purchases. Financing included $75.0 million of facility drawdowns and $9.5 million of Class A common dividends paid. The company reported a 2015 Class A dividend of $0.20 per share.
Outlook, risks and unusual items
- Management said it expected operating cash generation and retained funds to cover operating needs for the next 12 months, including working capital, drydocking and debt repayments. No quantified revenue or earnings guidance was provided.
- Management described weak industry conditions: estimated 2015 container trade growth of 2.3% versus 8.0% fleet-capacity growth; by February 2016, spot rates for representative 3,500–3,600 TEU vessels were about $6,000 per day and more than 7% of the global fleet was idle.
- Charter revenue is concentrated: CMA CGM generated $133.4 million, about 81% of 2015 revenue. The filing cites occasional delayed charter payments, though no charterhire was outstanding at year-end. CMA CGM’s proposed acquisition of Neptune Orient Lines was identified as a potential liquidity concern for the charterer.
- Five vessel charters could terminate as early as September–October 2017 and two more in 2018. Rechartering at lower rates, idle time, oversupply, vessel aging and drydock costs could reduce cash flow. Management’s impairment analysis was sensitive to future charter rates; it estimated a $39 million impairment from a 5% reduction in assumed post-charter rates and about $81 million from a 10% reduction.
- Debt is substantial and secured by vessels and related assets. The $420 million notes bear 10% interest and mature in April 2019; facilities impose restrictive covenants, minimum-cash tests and repayment requirements. Approximately $35.2 million of debt obligations were scheduled within one year at December 31, 2015. A combined excess-cash-flow and vessel-sale tender offer subsequently accepted $26.7 million principal amount of notes in March 2016.
- Preferred dividends are cumulative at 8.75% when declared; payment of common dividends remains subject to board discretion, law and debt restrictions. The filing reports no defaults, dividend arrearages or delinquencies. Management and the auditor reported effective internal controls over financial reporting at year-end.
Important facts for investors to verify
- Current charter status, payment timeliness and credit condition of CMA CGM, including the effect of its proposed NOL acquisition.
- Rechartering prospects and expected rates for vessels with 2017–2018 expiry options, and sensitivity of vessel values and impairment assumptions to market rates.
- Debt balances, scheduled amortization, the 2019 notes maturity/refinancing plan, covenant headroom and minimum-cash requirements.
- Cash available after debt service, drydock and regulatory spending, and the board’s capacity and intention to continue common and preferred dividends.
- Execution and terms of the March 2016 note tender, and whether subsequent operating performance supports management’s stated 12-month liquidity outlook.