GLOBUS MARITIME LTD annual report, Q4 FY2018

Business context and reporting period

Globus Maritime Limited filed this Form 20-F on March 28, 2019, reporting audited results for the fiscal year ended December 31, 2018. It is an annual report, not a standalone fourth-quarter filing; quarterly Q4 results are not separately provided. The company owns and operates five dry-bulk vessels (four Supramaxes and one Panamax), with 300,571 dwt of capacity. Financial statements use IFRS as issued by the IASB and are presented in U.S. dollars.

Key financial and operating metrics

Amounts below are in millions of U.S. dollars unless stated otherwise.

• Revenue: $17.354, up 25% from $13.852 in 2017, primarily reflecting higher average time-charter-equivalent (TCE) rates. Daily TCE was $9,213 versus $6,993. Fleet utilization improved to 98.2% from 97.6%; operating days declined to 1,723 from 1,745.
• Profitability: Operating loss narrowed to $1.448 from $4.015. Net loss narrowed to $3.568 from $6.475; basic and diluted loss per share were $1.11, compared with $2.51 in 2017. The filing reflects the October 2018 10-for-1 reverse stock split in historical per-share data.
• Costs and margins: Vessel operating expenses rose 9% to $9.925, or about $5,438 per ownership day, as the fleet aged. Depreciation was $4.601 and drydocking-cost depreciation was $1.166. Interest and finance costs were $2.056. The filing does not present a defined operating-margin metric.
• Cash flow: Operating activities generated $3.851, versus $0.631 in 2017. Investing activities used $0.126; financing activities used $6.435. Cash and cash equivalents fell to $0.046 from $2.756. Restricted cash was $1.350.
• Assets and equity: Total assets were $86.674, including vessels with a net carrying value of $83.750; total equity was $41.050, down from $43.968. Management reported estimated aggregate vessel market values $27.5 below carrying value, but recognized no impairment, based on its discounted cash-flow assessment.
• Debt and liquidity: The debt note reports $37.163 of gross borrowings, or $36.868 net of unamortized discounts, at year-end. Separately, management describes total borrowings of approximately $37.9 million. The filing classifies $35.368 of borrowings as current because covenant defaults removed the unconditional right to defer settlement. Current assets were $2.794 and current liabilities $43.206, a $40.4 million working-capital deficit. A related-party revolving facility had $12.8 million undrawn.
• Dividends and shares: No common-share dividends were declared or paid in 2018; the company said the defaults restricted dividend payments. There were 3,209,327 common shares outstanding at year-end.

Material changes versus the prior comparable period

• Revenue rose $3.5 million and TCE improved substantially, while the operating and net losses narrowed. Operating cash flow also increased.
• Operating costs increased despite the higher revenue: vessel operating expenses rose $0.8 million, reflecting higher daily costs and an increase in average fleet age from 9.8 to 10.8 years.
• Debt declined from $41.660 million gross at the end of 2017 to $37.163 million at the end of 2018, following repayment of the DVB facility and refinancing in part with a $13.5 million Macquarie loan. However, covenant breaches caused substantial debt to be reclassified as current.
• Cash and cash equivalents dropped by $2.710 million during 2018. Restricted cash increased to $1.350 million, and the working-capital deficit widened to $40.4 million from $43.3 million in 2017 only in the sense that it narrowed by about $2.9 million; it remained severe.

Outlook, commentary, risks and unusual items

• Going concern: The auditor issued an unmodified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. Management’s projections indicated cash and operating cash flow might not cover minimum liquidity requirements and scheduled debt payments over the following 12 months. Management was pursuing refinancing, additional financing and other liquidity alternatives.
• Covenant defaults: The company breached Hamburg Commercial Bank covenants, including the minimum net-worth test ($13.55 million versus $30 million required), liabilities-to-market-adjusted-assets test (0.77 versus a maximum 0.75), and liquidity requirements. A change in the chairman’s beneficial ownership below 50% also triggered a default. Cross-default provisions placed the Macquarie facility in default as well. Lenders could accelerate debt and enforce security over vessels; no such action had been taken by the financial-statement issuance date.
• Debt maturity and funding: Hamburg Commercial Bank debt of about $22.2 million was due through December 2019, including a substantial balloon payment. The company expected lenders not to demand early repayment if scheduled amounts were paid, but this was not assured. Its $15 million unsecured related-party Firment facility carried 7% interest and had $12.8 million available at year-end; $2.2 million was drawn, with differing accounting presentation for its host debt and embedded derivative.
• Post-year-end financing: On March 13, 2019, the company issued a $5 million senior convertible note bearing 10% annual interest. Its conversion price could adjust down to a $2.25 floor, subject to the note terms; default and other redemption provisions may increase repayment obligations. The filing says the note proceeds would support working capital and general corporate purposes, including debt repayment. In February 2019, the February 2017 warrants expired.
• Market and operational exposure: The company depends on volatile dry-bulk charter markets and concentrated customer relationships; four customers accounted for 48% of 2018 revenue. Management warned that current spot rates might not support profitable operations. The BDI fell to 595 in February 2019, more than 50% below its year-end 2018 level. Fuel regulation, vessel values, aging vessels, charterer defaults, foreign exchange and interest rates are material risks.
• Unusual accounting and corporate items: IFRS 15 was applied retrospectively; address commissions were presented net against revenue, reducing both reported voyage revenue and voyage expense in comparative years. The company changed its vessel scrap-value assumption from $250 to $300 per ton, reducing 2018 depreciation by about $178,000. It recorded a $131,000 loss on an embedded derivative related to the Firment facility. The October 2018 reverse split reduced the outstanding share count on a 10-for-1 basis.
• Governance and related parties: The chairman’s related company provided the working-capital facility; office rent was owed to another chairman-affiliated company, with $427,000 in back rent at year-end. The CEO is the chairman’s son. Consider these relationships alongside the company’s financing dependence and control provisions.

Important facts for investors to verify

1. Confirm the current status of Hamburg Commercial Bank and Macquarie defaults, any waivers or amendments, lender enforcement rights, and the debt actually due.
2. Review post-year-end cash, operating cash flows, available facility drawdowns, debt service and the outcome of refinancing efforts; the reported $12.8 million undrawn amount was under a related-party facility.
3. Read the full March 2019 convertible-note terms, including conversion-price adjustments, redemption premiums, maturity, registration obligations and potential dilution.
4. Check charter coverage, renewal rates and counterparty credit quality; the year-end charter backlog was short-term and the filing identifies material customer concentration.
5. Assess the vessel valuations and impairment assumptions, particularly the estimated $27.5 million market-value shortfall and the sensitivity of recoverable values to charter rates and utilization.
6. Reconcile the filing’s debt presentations ($37.163 million gross, $36.868 million net of discounts, and approximately $37.9 million described elsewhere) and confirm principal maturities and liquidity restrictions.