Global Ship Lease, Inc. — FY 2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. Although the request identifies 2018 Q4, this filing reports annual results; it does not provide a standalone quarterly income statement. Financial statements are prepared under U.S. GAAP.
Business context
Global Ship Lease owns and charters containerships to liner companies. On November 15, 2018, it completed its strategic combination with Poseidon Containers, adding 19 operating vessels to its 19-vessel fleet after one acquired vessel was sold. At year-end, the company had 38 vessels with aggregate capacity of 200,615 TEU, an average age of 11.0 years weighted by capacity, and an average remaining charter term of 2.5 years.
Key financial metrics
| Metric | FY 2018 / year-end | Prior comparable period |
|---|---|---|
| Time charter revenue | $157.1 million | $159.3 million in 2017 |
| Operating loss | $10.3 million | $15.4 million loss in 2017 |
| Net loss | $57.4 million | $74.3 million loss in 2017 |
| Net loss available to common shareholders | $60.4 million; $7.42 loss per Class A share | $77.3 million; $12.89 loss per Class A share in 2017 |
| Vessel impairment charge | $71.8 million, non-cash | $87.6 million in 2017 |
| Cash from operating activities | $47.7 million | $66.9 million in 2017 |
| Cash from / (used in) investing activities | $24.2 million | $(4.9) million in 2017 |
| Cash used in financing activities | $55.2 million | $42.9 million in 2017 |
| Cash and restricted cash | $90.1 million, including $8.0 million restricted | $73.3 million in 2017 |
| Total current assets / current liabilities | $99.0 million / $95.5 million | $77.4 million / $55.3 million in 2017 |
| Total assets / shareholders’ equity | $1,233.5 million / $316.4 million | $675.9 million / $251.6 million in 2017 |
| Debt | $889.2 million gross principal; $877.2 million balance-sheet carrying amount | $398.5 million balance-sheet carrying amount in 2017 |
| Fleet utilization | 98.7% | 98.4% in 2017 |
Operating expenses were $167.4 million, including the impairment charge; excluding impairment, they were $95.6 million, or 61% of revenue, versus $87.1 million, or 55%, in 2017. The filing does not present a single net-profit margin measure; losses reflect impairment and substantial financing costs. The 2018 net loss improved year over year, but operating cash flow declined by $19.2 million.
Material changes versus 2017
- Revenue fell $2.2 million, or 1.4%. Lower charter rates on legacy vessels were partly offset by $15.9 million of revenue from Poseidon vessels after the November acquisition.
- Operating loss narrowed by $5.1 million, while net loss narrowed by $16.9 million. The impairment charge decreased by $15.8 million, but remained material; three legacy vessels were written down in Q4.
- Vessel operating expenses rose $6.6 million, mainly because of the enlarged fleet. General and administrative expenses rose $3.9 million, primarily due to Poseidon transaction costs.
- Interest and other finance expense declined to $48.7 million from $59.4 million, principally because 2017 included refinancing-related premiums and write-offs. Poseidon added substantial debt and interest exposure late in 2018.
- Cash and restricted cash increased $16.8 million. Investing cash flow benefited from cash acquired in the transaction and proceeds from the sale of Argos; financing cash outflow included debt repayments and the preferred dividend.
Outlook, risks and unusual items
- Management outlook: No formal earnings or revenue guidance is provided. Management said retained business cash flows should be sufficient for operating needs, working capital, drydockings, interest and debt obligations for the 12 months following filing. This is a forward-looking assessment, not a guarantee.
- Charter renewal and customer concentration: CMA CGM accounted for 80.4% of 2018 revenue. The filing states 17 vessels were chartered to CMA CGM, with five additional charters expected to commence in the first half of 2019. Charters for nine vessels could be terminated before the end of Q2 2019 and for another ten during H2 2019, creating rechartering and rate risk. No charter hire was outstanding from CMA CGM at year-end.
- Leverage and refinancing: Gross principal debt was $889.2 million, including $510.7 million of floating-rate debt. A 1% increase in LIBOR was estimated to reduce annual pretax income by about $5.1 million. Contractual debt principal repayments were $64.1 million in 2019 and $378.2 million in 2020–2021; the filing highlights significant 2020 maturities and balloon payments. Debt agreements impose liquidity and other financial covenants, restrictions on dividends and business actions, and security over substantially all vessels.
- Impairment and vessel values: The $71.8 million charge was based on estimated cash flows and broker valuations. Management reported sensitivity of approximately $4.7 million of additional theoretical impairment for a 10% reduction in assumed post-charter rates. Further charges remain possible if charter rates or vessel values weaken.
- Integration and related parties: The Poseidon combination brought integration demands and assumed debt. Technomar and Conchart are related to Executive Chairman George Giouroukos; CMA CGM is a major charterer and shareholder. The filing identifies potential conflicts of interest and reliance on managers for operations and financial reporting.
- Regulatory and operating risks: The 2020 IMO sulfur limit and ballast-water requirements could require additional spending or affect operations. Other risks include industry oversupply and trade tensions, off-hire, aging vessels, environmental liability, insurance limitations, and LIBOR transition uncertainty. The company had no loss-of-hire insurance.
- Capital structure and distributions: Common-share dividends were not being paid. The 8.75% Series B preferred dividend was paid in 2018; annual preferred dividends are about $3.1 million. Series C preferred shares issued in the Poseidon transaction carry 38.75 votes each and are convertible in certain circumstances into approximately 13.0 million Class A shares. Kelso affiliates controlled about 50.1% of voting power, according to the filing.
- Other notable items: A one-for-eight reverse stock split took effect in March 2019, after year-end; per-share data are retroactively adjusted. The filing reports no defaults, dividend arrearages, material legal proceedings, or material off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2018.
Important facts for investors to verify
- Reconcile the filing’s gross debt principal of $889.2 million with its $877.2 million balance-sheet carrying amount, and review the 2020 maturities, balloon payments, cash sweeps and covenant headroom.
- Confirm actual 2019 charter extensions, termination options, achieved renewal rates and the commencement of the expected CMA CGM charters.
- Assess CMA CGM’s creditworthiness and the implications of its 80.4% revenue contribution, alongside the company’s other charterer exposures.
- Review post-combination integration progress, related-party management fees and governance safeguards, including the Series C voting and conversion terms.
- Test the assumptions behind vessel valuations and impairment, and quantify expected ballast-water, sulfur-compliance, drydocking and other fleet capital costs.
- Confirm subsequent liquidity, debt repayment and preferred-dividend capacity; the filing’s liquidity forecast is management’s estimate and common dividends remain discretionary and subject to restrictions.