TOP SHIPS INC. — 2014 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a standalone fourth-quarter filing; the supplied filing does not provide a clear set of Q4-only results. Figures below are in U.S. dollars unless stated otherwise.
Business context and reporting period
Top Ships provides international seaborne transportation of petroleum products and crude oil. The year was a fleet-rebuilding and financing transition: the company had sold its prior operating fleet in 2013, acquired and delivered M/T Stenaweco Energy in June 2014, and held interests in vessels under construction. At year-end it reported one operating vessel and five newbuilding-related commitments; by the report date, its described fleet comprised two bareboat-chartered-in tankers and four newbuildings.
All 2014 revenue came from three charterers: Stena Weco A/S (73%), ESHIPS (15%), and Newton Shipping Ltd (12%). The Newton amount related to collection of old demurrage due from 2007. The company reported 18,969,989 common shares outstanding at December 31, 2014; share and per-share figures reflect the April 2014 1-for-7 reverse split.
Key financial metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $3.602 million | $20.074 million |
| Operating income (loss) | ($0.588) million | $9.233 million |
| Net income | $2.896 million | $1.408 million |
| Basic / diluted EPS | $0.22 / $0.18 | $0.58 / $0.58 |
| Operating cash flow | ($2.803) million | $3.070 million |
| Investing cash flow | ($44.450) million | $50.994 million |
| Financing cash flow | $37.547 million | ($44.283) million |
| Total assets / stockholders’ equity | $75.575 / $42.529 million | $27.868 / $14.795 million |
| Total debt at year-end | $19.419 million | None |
| Current assets / current liabilities | $1.227 / $9.334 million | $10.262 / $8.605 million |
Year-end cash and cash equivalents were zero; an additional $0.164 million was classified as restricted cash. Management reported an $8.1 million working-capital deficit. The company’s average daily time-charter-equivalent rate was $17,892, based on 195 operating days, with reported fleet utilization of 100%.
Material changes versus 2013
- Revenue fell 82.1%, principally because the 2013 fleet sale left the company without operating vessels until M/T Stenaweco Energy was delivered in June 2014. Revenue included $3.1 million from that vessel and a $0.5 million collection of old demurrage.
- Net income increased to $2.896 million, but operating results were a $0.588 million loss. Net income included a $3.866 million net gain on derivative financial instruments, primarily the fair-value change in offering warrants, and $0.861 million of other operating income. These items are important when assessing the quality and repeatability of earnings.
- Operating cash flow turned negative, while investing cash outflow rose to $44.450 million, mainly reflecting vessel and newbuilding payments. The 2014 financing inflow included approximately $20.2 million net equity proceeds and $20.1 million of bank borrowing.
- Debt rose from zero at the end of 2013 to $19.419 million at year-end 2014 under an Alpha Bank facility. Vessel purchases and construction advances increased total assets and equity; issued shares increased substantially during 2014.
Outlook, liquidity, risks and unusual items
- Funding and going concern: Year-end contractual commitments for the vessel program were approximately $119.8 million, including $50.4 million scheduled in 2015 and $69.5 million in 2016. Management identified a $54.6 million requirement for the following 12 months, in addition to the working-capital deficit. The statements were prepared on a going-concern basis, relying on expected financing, leaseback proceeds, operating cash flow and potentially other capital sources.
- Subsequent sale-and-leasebacks: In January and March 2015, the company sold and leased back Stenaweco Energy and Stenaweco Evolution for total gross proceeds of $57 million, and reported that the Alpha Bank debt was repaid. Both vessels were leased back for seven years at daily bareboat rates of $8,586 and $8,625, respectively, with purchase options from years three through seven. These transactions provide liquidity but create continuing lease obligations; the filing estimates operating-lease obligations of $5.2 million in 2015 and substantial obligations thereafter.
- Planned financing and operations: A commitment letter for up to $42 million from ABN AMRO was intended to help fund two newbuildings; drawdown remained subject to definitive documentation. Management expected 2015 operating cash flow to improve as additional vessels entered service. The report does not give quantified earnings or cash-flow guidance.
- Fleet and market risks: The company depends on a small operating fleet and a concentrated charterer base. Tanker-rate and vessel-value volatility, construction delays, inability to fund delivery installments, counterparty nonpayment, and restrictive financing covenants could adversely affect results and liquidity. The company also cites environmental and safety regulation, sanctions, piracy, insurance, foreign-exchange exposure and access to financing as risks.
- Related parties and dilution: Newbuilding acquisitions involved entities affiliated with CEO Evangelos Pistiolis, and CSM, a related party controlled by his family, provides fleet management. The company recorded a $0.4 million 2014 performance incentive fee for CSM. The June 2014 offering included 5.33 million outstanding warrants at a $2.50 exercise price, with anti-dilution terms; future equity issuance may dilute shareholders.
- Other disclosures: The company reported no material pending or threatened legal proceedings known to management, no material uncured payment defaults, and no dividends for 2012–2014. It believed it was a PFIC in 2013 but not 2014, while noting uncertainty in the tax-law interpretation. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the auditor did not attest to internal controls.
Most important facts for investors to verify
- Whether committed financing, sale-and-leaseback proceeds and operating cash flow are sufficient to meet remaining shipyard installments and working-capital needs, and whether the ABN AMRO facility was finalized and drawn.
- The full economics and accounting of the 2015 sale-and-leasebacks, including lease payments, purchase-option terms, covenants and any residual obligations.
- How much reported net income is attributable to non-cash warrant valuation gains and other non-recurring items, versus recurring vessel operations.
- Delivery status, cost and charter performance of the newbuildings, including any delays or changes to the disclosed construction commitments.
- Exposure to the concentrated charterer base and related-party arrangements, including CSM fees, incentive compensation and acquisitions involving CEO-affiliated entities.
- Potential dilution and warrant re-pricing effects, and the company’s current share count relative to year-end 2014.