GLBS

Business Context and Reporting Period

Company: Globus Maritime Limited (Nasdaq: GLBS)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2014
Business Overview: Globus is an integrated dry bulk shipping company owning and operating a fleet of seven vessels (two Panamax, four Supramax, one Kamsarmax) with a total carrying capacity of 452,886 dwt. The company transports iron ore, coal, grain, and other dry bulk cargoes. Operations are managed by a wholly-owned subsidiary, Globus Shipmanagement Corp., based in Athens, Greece.

Key Financial Metrics (Year Ended Dec 31, 2014)

Note: All figures in thousands of U.S. Dollars unless otherwise noted. Net Revenue is a non-IFRS measure.

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 10% to $26.4 million, primarily due to unfavorable average shipping rates and a decrease in Daily Time Charter Equivalent (TCE) rates from $9,961 in 2013 to $7,969 in 2014.
• Profitability: Operating profit declined 38% to $5.2 million. This was partially offset by a non-cash impairment reversal of $2.2 million related to the vessel m/v Tiara Globe, which was reclassified from "held for sale" to active assets.
• Expense Management: Vessel operating expenses decreased 3% to $9.7 million due to operational efficiency. However, voyage expenses increased 48% to $4.3 million, driven by higher bunker costs during periods when vessels were seeking employment.
• Debt Reduction: Total borrowings decreased to $84.6 million from $91.5 million. Interest expense dropped 42% to $2.1 million following the termination of interest rate swap agreements in late 2013.
• Liquidity Deterioration: The company moved from a minor working capital deficit of $0.6 million in 2013 to a significant deficit of $38.2 million in 2014, largely due to the classification of the Credit Facility with Credit Suisse as a current liability.

Guidance, Outlook, Risks, and Contingencies

Going Concern Uncertainty

The independent auditors have raised substantial doubt about the company's ability to continue as a going concern. Management projects that cash on hand and operating cash flows will be insufficient to meet minimum liquidity requirements and scheduled debt payments due in 2015 without restructuring or additional financing.

Covenant Breaches and Debt Risks

• Kelty Loan Agreement: As of December 31, 2014, the company was in breach of the security value requirement (market value of collateral must be 130% of debt). An estimated prepayment of $2.1 million is required to cure this shortfall.
• Liquidity Covenants: The company was in breach of minimum liquidity requirements ($5.0 million) under its Credit Facility, DVB Loan Agreement, and the new HSH Loan Agreement entered in February 2015.
• Cross-Default Provisions: All loan arrangements contain cross-default clauses. A default on one facility could trigger acceleration of all indebtedness, potentially leading to foreclosure on the entire fleet.

Market Risks

The dry bulk shipping market remains volatile with an oversupply of vessel capacity. The Baltic Dry Index (BDI) reached an all-time low of 509 in February 2015. The company relies heavily on spot charters, exposing it to significant rate fluctuations. All vessels were employed on spot or short-term time charters as of the filing date.

Capital Raising Plans

Management is contemplating a rights offering to raise additional capital. The Chairman, Mr. George Feidakis, has expressed an intention to participate proportionally, though this is not guaranteed. Proceeds from any vessel sales would first be used to repay secured debt.

Key Facts for Investor Verification

• Going Concern Status: Verify the company's ability to secure waivers for covenant breaches or raise capital to avoid debt acceleration and potential liquidation.
• Debt Maturity Wall: Confirm the status of the $35.0 million Credit Facility with Credit Suisse, which was partially refinanced in March 2015 but still carries significant near-term repayment obligations.
• Asset Valuation: Assess the recoverable amount of the vessel fleet, as market values are significantly depressed compared to carrying values (estimated aggregate shortfall of $30.9 million).
• Dividend Policy: Note that no dividends were declared on common shares in 2014 or 2013 due to liquidity constraints and loan covenants restricting dividend payments.
• Related Party Transactions: Review the $7.5 million outstanding balance under the unsecured Firment Credit Facility with a company controlled by the Chairman.