Business Context and Reporting Period
Company: Costamare Inc.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2011
Business Overview: Costamare is an international owner of containerships, primarily deploying its fleet under multi-year, fixed-rate time charters to leading liner companies. As of December 31, 2011, the company operated a fleet of 46 vessels (with 10 newbuilds on order), aggregating approximately 234,000 TEU. The company is incorporated in the Republic of the Marshall Islands and is controlled by the Konstantakopoulos family, which owns approximately 77.9% of the outstanding common stock.
Key Financial Metrics (Year Ended Dec 31, 2011)
| Metric | 2011 (in millions) | 2010 (in millions) |
|---|---|---|
| Voyage Revenue | $382.2 | $353.2 |
| Operating Income | $170.7 | $155.9 |
| Net Income | $87.6 | $81.2 |
| Earnings Per Share (Basic & Diluted) | $1.45 | $1.65 |
| Operating Cash Flow | $195.2 | $127.9 |
| Total Assets | $1,982.5 | $1,828.8 |
| Total Long-Term Debt | $1,443.4 | $1,341.7 |
| Cash and Cash Equivalents | $98.0 | $159.8 |
| Stockholders' Equity | $330.0 | $362.1 |
Note: All figures are in millions of U.S. dollars unless otherwise noted. The filing text does not provide a specific "margin" percentage, but operating income increased by approximately 9.5% year-over-year.
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenue increased 8.2% to $382.2 million, driven primarily by an increase in the average number of vessels in the fleet (47.8 in 2011 vs. 42.4 in 2010) and increased ownership days.
- Profitability: Net income increased 7.9% to $87.6 million. However, earnings per share decreased from $1.65 to $1.45 due to a significant increase in the weighted average number of shares outstanding (60.3 million in 2011 vs. 49.1 million in 2010) following the 2010 IPO.
- Expense Increases:
- General & Administrative Expenses: Increased 316.7% to $5.0 million, largely due to costs associated with being a public company (legal, audit, D&O insurance) and officer compensation.
- Management Fees: Increased 35.4% to $15.3 million due to the higher daily fee structure post-IPO and increased fleet size.
- Depreciation: Increased 11.1% to $78.8 million due to the addition of new vessels.
- One-Time Items: The 2010 period included a $9.5 million charter agreement early termination fee which was not present in 2011. In 2011, the company recorded a $13.1 million gain on the sale/disposal of vessels, including the constructive total loss of the vessel Rena.
- Cash Flow: Operating cash flow improved significantly to $195.2 million, up from $127.9 million, driven by higher cash from operations and favorable working capital changes. Investing cash outflows increased to $283.8 million due to heavy capital expenditures for newbuilds and secondhand vessel acquisitions.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Management Commentary
Management expects to continue paying quarterly dividends, currently targeting $0.27 per share. The company plans to grow its fleet through the delivery of 10 newbuild vessels scheduled between late 2012 and early 2014. As of December 31, 2011, the company had approximately $3.0 billion in contracted revenue from fixed-term charters.
Risks and Contingencies
- Market Conditions: The company faces risks from the global economic slowdown, particularly the European sovereign debt crisis, which weakened container trade demand in the second half of 2011. An oversupply of containership capacity could depress charter rates upon the expiration of current contracts.
- Counterparty Risk: A significant portion of revenue (68% in 2011) comes from three major customers (A.P. Moller-Maersk, MSC, and COSCO). Financial distress among these liner companies could impact charter payments.
- Debt and Liquidity: The company carries substantial debt ($1.44 billion). Credit facilities contain restrictive covenants, including loan-to-value ratios and minimum cash requirements. A decline in vessel market values could trigger defaults or limit borrowing capacity.
- Derivative Instruments: The company uses interest rate swaps to hedge floating-rate debt. In 2011, a loss of $8.7 million was recognized on derivative instruments in the income statement, with an additional $55.5 million unrealized loss recorded in other comprehensive income.
- Unusual Item - Vessel Loss: On October 5, 2011, the vessel Rena ran aground off New Zealand and was declared a constructive total loss. While insurance is expected to cover most costs, the company noted potential civil and criminal liabilities that could have a material adverse effect.
Important Facts for Investor Verification
- Customer Concentration: Verify the financial health of the top three charterers (Maersk, MSC, COSCO), which collectively generated 68% of 2011 revenue.
- Debt Covenants: Confirm compliance with loan-to-value covenants and minimum cash requirements, especially given the volatility in vessel market values.
- Dividend Sustainability: Assess whether operating cash flows will remain sufficient to support the $0.27 per share quarterly dividend policy amidst potential rate declines and high debt service costs.
- Newbuild Commitments: Review the $791.5 million in outstanding commitments for 10 newbuild vessels and the availability of financing to fund these deliveries.
- Insurance Coverage: Monitor the status of claims and potential liabilities related to the Rena grounding incident.