Global Ship Lease, Inc. — FY 2014 Form 20-F
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a standalone fourth-quarter filing; separate Q4 results are not provided. Financial statements are prepared under U.S. GAAP. Unless indicated otherwise, figures are in U.S. dollars.
Business context
Global Ship Lease owns and charters containerships, generally under fixed-rate time charters. At year-end it owned 18 vessels with aggregate capacity of 74,412 TEU and a capacity-weighted average age of 10.7 years. CMA CGM was the principal charterer; three vessels were on charters to unrelated companies. CMA CGM owned approximately 44.4% of the common shares and its subsidiary CMA Ships managed most of the fleet.
Key financial metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Time-charter revenue | $138.6 million | $143.2 million |
| Operating income | $42.3 million; 30.5% margin | $51.2 million; 35.7% margin |
| Net income | $6.1 million | $32.5 million |
| Net income available to common shareholders | $5.0 million; $0.10 per Class A share | $32.5 million; $0.68 per Class A share |
| Cash from operating activities | $60.9 million | $74.3 million |
| Cash and cash equivalents at year-end | $33.3 million | $24.5 million |
| Total assets | $886.6 million | $858.2 million |
| Debt carrying value | $414.8 million; $420.0 million principal | $366.4 million |
| Stockholders’ equity | $438.1 million | $399.5 million |
Current assets were $39.8 million and current liabilities $20.0 million at year-end. Operating costs were $96.3 million, including vessel expenses of $48.8 million and depreciation of $41.1 million. Fleet utilization was 98.0%, compared with 99.5% in 2013. Cash interest paid was $26.3 million in 2014; the notes’ annual cash interest at the 10% coupon is $42.0 million on $420.0 million principal.
Material changes versus 2013
- Revenue fell 3.2%, primarily reflecting lower rates on four extended CMA CGM charters, idle time while two vessels were redeployed, and a temporary rate reduction for a damaged crane; the October acquisition of OOCL Tianjin partly offset these effects.
- Operating income declined 17.4% and operating margin narrowed. Vessel operating expenses rose to $48.8 million from $46.0 million; reported average cost per ownership day increased 4.8% to $7,778.
- Net income decreased substantially, with higher financing costs following the March 2014 refinancing a major factor. Interest expense rose to $43.9 million from $18.8 million. 2014 net income included an $8.6 million gain on redemption of Series A preferred shares and a $1.9 million non-cash derivative gain; 2013 included a $14.3 million non-cash derivative gain.
- Operating cash flow declined $13.4 million to $60.9 million. Investing outflow rose to $80.1 million, including $55.2 million for OOCL Tianjin and $22.1 million for derivative settlement and termination. Financing cash flow was positive $27.9 million, reflecting the notes and Series B preferred issuance, offset by debt repayment and the Series A redemption.
- In March 2014, the company replaced its prior credit facility with $420.0 million of 10% first-priority secured notes due April 2019 and a $40.0 million revolving facility. It issued $35.0 million of 8.75% Series B preferred shares and redeemed the $45.0 million Series A liquidation preference for $36.4 million.
Outlook, risks and unusual items
- Management stated that retained business cash flows were expected to cover operating needs and obligations for the next 12 months. This is subject to substantial risks; the filing gives no formal earnings or revenue guidance.
- The $40.0 million revolving facility was undrawn at year-end but was fully drawn on March 11, 2015 to help fund the $53.6 million purchase of OOCL Qingdao. That vessel was immediately chartered to OOCL for 36–39 months at $34,500 per day. This subsequent event increases debt and is not reflected in the December 31, 2014 balance sheet.
- Two short-term-chartered vessels could be redelivered on 30 days’ notice and were expected to have charters expiring no later than June and July 2015. Together they represented about 4% of 2014 operating revenue. Rechartering rates and vessel utilization are important near-term uncertainties.
- Counterparty concentration is material: CMA CGM generated $133.4 million of 2014 revenue, and $832.5 million of the fleet’s $871.6 million maximum contracted future charter hire related to vessels chartered to CMA CGM at year-end. The company reported that up to two hire instalments were outstanding at times during 2014, but none was outstanding at year-end or April 17, 2015.
- The 10% secured notes carry significant debt-service demands and restrictive covenants. The company is also required to offer to repurchase up to $20.0 million of notes annually from qualifying excess cash flow at 102% of principal. The revolving facility requires minimum cash balances of $15–20 million and has financial tests.
- Management reported no vessel impairment at December 31, 2014, but estimated charter-attached market values for certain vessels were below carrying values; the aggregate shortfall was estimated at about $145.5 million using broker valuations dated April 10, 2015. Impairment estimates depend on assumptions about future charter rates, costs, off-hire and useful lives.
- Other principal risks include the cyclical, oversupplied containership market; dependence on CMA CGM for charter revenue and ship management; related-party conflicts; drydocking and regulatory costs; vessel age and market values; and limited common-share dividend flexibility. Common dividends had not been paid since March 2009. Series B dividends are 8.75% when declared and legally and contractually permitted.
- The filing reports no material pending legal proceedings and no defaults, dividend arrearages or delinquencies. Management and the auditor reported effective disclosure controls and internal control over financial reporting at year-end.
Most important facts for investors to verify
- Current CMA CGM credit condition, payment timeliness, charter concentration and the status of hire receipts after April 17, 2015.
- Post-year-end debt and liquidity after the $40.0 million revolving-facility draw, including cash balances, covenants, interest expense and the excess-cash-flow note offer.
- Renewal, redelivery or replacement employment for Ville d’Orion and Ville d’Aquarius, and the rates and terms ultimately achieved.
- Cash generation and coverage of debt service, preferred dividends, drydockings and required minimum liquidity, distinguishing recurring cash earnings from non-cash gains and working-capital movements.
- Vessel valuation and impairment assumptions, and expected capital costs for maintenance, drydocking and environmental compliance.