Business Context and Reporting Period
Company: Costamare Inc.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2011
Filing Date: May 24, 2011
Costamare Inc. is a container shipping company owning and operating a fleet of vessels chartered to liner operators. As of March 31, 2011, the fleet consisted of 51 container vessels with a total capacity of approximately 236,033 TEU. The company completed its Initial Public Offering (IPO) in November 2010.
Key Financial Metrics
| Metric (in thousands USD) | Q1 2011 | Q1 2010 |
|---|---|---|
| Voyage Revenue | $85,961 | $89,024 |
| Operating Income | $31,784 | $42,863 |
| Net Income | $17,948 | $24,683 |
| Earnings Per Share (Basic & Diluted) | $0.30 | $0.53 |
| Operating Cash Flow | $39,416 | $28,739 |
| Total Debt (Current + Non-Current) | $1,322,337 | $1,341,737 |
| Cash and Cash Equivalents | $5,541 | $159,774 (Dec 31, 2010) |
Liquidity: Cash and cash equivalents decreased significantly from $159.8 million at year-end 2010 to $5.5 million at March 31, 2011, primarily due to heavy capital expenditures. The company maintains a credit facility with an undrawn balance of $74.2 million as of March 31, 2011.
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenue decreased by approximately 3.4% to $85.96 million, driven by a reduction in the number of revenue days and lower average daily rates compared to the prior year.
- Profitability Drop: Net income fell 27% to $17.95 million. This was largely due to the absence of a $2.3 million gain on the sale of vessels recorded in Q1 2010 and increased operating expenses.
- Derivative Gains: The company recognized a $4.73 million gain on derivative instruments in Q1 2011, compared to a $0.998 million loss in Q1 2010, offsetting some operating declines.
- Capital Expenditures: Investing cash outflows surged to $158.9 million (vs. $5.0 million inflow in 2010) due to the acquisition of eight secondhand vessels ($77.7 million) and pre-delivery payments for five newbuilds ($95.4 million).
- Dividends: The company paid dividends of $15.1 million in Q1 2011, compared to $10.0 million in Q1 2010.
Outlook, Risks, and Management Commentary
- Fleet Expansion: The company is actively expanding its fleet with five newbuild containerships (three 9,000 TEU and two 9,000 TEU) scheduled for delivery between late 2012 and early 2014. All newbuilds are secured with long-term time charters.
- Asset Disposal: Three older vessels (MSC Namibia, MSC Sierra, MSC Sudan) were classified as "held for sale" with an expected aggregate gain of approximately $11 million. Subsequent events indicate these were sold in April/May 2011 for a realized gain of $10.8 million.
- Debt Covenants: The company is subject to financial covenants including a maximum debt-to-asset ratio of 0.75:1 and a minimum liquidity requirement of the greater of $30 million or 3% of total debt. Management notes that the company is in compliance.
- Interest Rate Risk: The company utilizes interest rate swaps and collars to hedge floating rate exposure. As of March 31, 2011, the fair value of these swaps represented a liability of approximately $95.7 million.
- Concentration Risk: Revenue is concentrated among major charterers. The top four charterers accounted for 81% of total revenue in Q1 2011.
Investor Verification Checklist
- Cash Position: Verify the sustainability of operations given the drop in cash reserves to $5.5 million and reliance on the undrawn credit facility ($74.2 million).
- Debt Servicing: Confirm compliance with debt covenants, specifically the liquidity requirement and debt-to-asset ratio, given the high leverage ($1.32 billion total debt).
- Newbuild Financing: Review the terms of the new credit facility ($140 million) concluded in April 2011 for the remaining newbuild payments.
- Derivative Exposure: Assess the impact of the $95.7 million fair value liability on interest rate swaps on future earnings if rates fluctuate significantly.
- Charter Concentration: Monitor the financial health of the top four charterers, who represent over 80% of revenue.