Global Ship Lease, Inc., a containership charter owner, announced its unaudited results for the three months and year ended December 31, 2016.

Fourth Quarter and Year Highlights

– Reported operating revenues of $41.4 million for the fourth quarter 2016. Operating revenues for the year ended December 31, 2016 were $166.5 million

– Reported net loss(1) of $55.1 million for the fourth quarter 2016, after a non-cash impairment charge of $63.1 million. For the year ended December 31, 2016, net loss was $68.2 million after a $92.4 million non-cash impairment charge

– Generated $28.6 million of Adjusted EBITDA(2) for the fourth quarter 2016. Adjusted EBITDA for the year ended December 31, 2016 was $114.7 million

– Normalized net income (1)(2), excluding the non-cash impairment charge, was $6.1 million for the fourth quarter 2016. Normalized net income was $22.4 million for the year ended December 31, 2016

– Retired $53.9 million of bonds and $9.5 million of other debt; reduced net debt to Adjusted EBITDA from 4.0 times at end 2015 to 3.3 times at end 2016

Ian Webber, Chief Executive Officer of Global Ship Lease, stated, “In 2016, we maintained a strong focus on maximizing the profitability of our long-term, fixed-rate time charters and ensuring our insulation and resilience in the face of a challenging market environment. Throughout the year, we made progress in reducing our vessel operating costs, successfully extending the contract durations of two of our vessels chartered to CMA CGM, and meaningfully strengthening our balance sheet.”

Mr. Webber continued, “While the overall market continues to experience significant pressure, we remain encouraged by the longer-term prospects for the mid-sized and smaller vessel classes that are the focus of Global Ship Lease’s strategy. The supply/demand dynamics for those vessels continue to move in the direction of equilibrium, driven by record levels of vessel scrapping, an orderbook heavily skewed towards very large ships, and the continued growth of the non-mainlane trades most reliant upon our vessels. With our strong counterparties and limited exposure to the spot charter market in 2017, we are well positioned to continue generating significant cashflow, de-levering our balance sheet, and pursuing long-term value creation for our shareholders.”

Operating Revenues and Utilization

The 18 vessel fleet generated operating revenues from fixed rate, mainly long-term time charters of $41.4 million in the three months ended December 31, 2016, down $2.6 million on operating revenues of $44.0 million for the comparative period in 2015, with the reduction due mainly to fewer ownership days following the sale of Ville d’Aquarius and Ville d’Orion in fourth quarter 2015 and the effect of the amendments to the charters of Marie Delmas and Kumasi, effective August 1, 2016 whereby the previous charter rate of $18,465 per day was reduced to $13,000 per day against the granting of options in our favor to extend the charters at $9,800 per day in three periods, potentially to end 2020. There were 1,656 ownership days in the quarter, down 6.0% from 1,761 in the comparable period in 2015. In the fourth quarter 2016, there was one day of unplanned offhire and 11 days of planned offhire from regulatory drydockings, giving an overall utilization of 99.3%. There were 1,761 ownership days in the fourth quarter 2015 and a total of 14 days off-hire, of which one was unplanned and 13 were for idle time, prior to the disposal of Ville d’Aquarius and Ville d’Orion, giving an overall utilization of 99.2%.

For the year ended December 31, 2016, operating revenues were $166.5 million, up $1.6 million or 1.0% on operating revenues of $164.9 million in the prior year, mainly due to the full year contribution of OOCL Qingdao, purchased March 11, 2015, and OOCL Ningbo, purchased September 17, 2015, offset by reduced revenue after the sale of Ville d’Aquarius and Ville d’Orion, the effect of the amendments to the charters of Marie Delmas and Kumasi and increased offhire from six scheduled drydockings in 2016, compared to only one in 2015.

There were six regulatory drydockings in 2016, with only one vessel drydocked in the year ended December 31, 2015. A further five regulatory drydockings are due in 2017.

Vessel Operating Expenses

Vessel operating expenses, which include costs of crew, lubricating oil, spares and insurance, were $11.2 million for the three months ended December 31, 2016, compared to $12.2 million in the comparative period. The absolute reduction is due to fewer ownership days following the disposals of Ville d’Aquarius and Ville d’Orion. The average cost per ownership day in the quarter was $6,771, compared to $6,957 for the comparative period, down $186 per day or 2.7%. The reduction is primarily attributable to reduced crew costs and insurance costs on renewal, together with the elimination of the relatively high costs related to the operation of Ville d’Aquarius and Ville d’Orion, partly offset by costs incurred in drydockings that are expensed rather than capitalized.

For the year ended December 31, 2016, vessel operating expenses were $45.7 million, or an average of $6,936 per day, compared to $50.1 million in the comparative period or $7,269 per day. The $333, or 4.6%, reduction in vessel operating expenses per day is due mainly to reasons noted above.

Depreciation

Depreciation for the three months ended December 31, 2016 was $10.4 million, compared to $10.9 million in the fourth quarter 2015; the reduction is due to the reduced number of vessels in the fleet.

Depreciation for the year ended December 31, 2016 was $42.8 million, compared to $44.9 million in the prior year; the reduction again being due to the reduced number of vessels in the fleet.

Impairment

The Company’s accounting policies require that tangible fixed assets such as vessels are reviewed individually for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. We also undertake an impairment review at the end of the financial year.

The 2016 year-end impairment review gave rise to a non-cash charge recorded in the fourth quarter of $63.1 million, as the sum of the expected undiscounted future cash flows from four vessels over their estimated remaining useful lives is less than the carrying amounts. The impairment charge is equal to the amount by which the assets’ carrying amounts exceed their fair values. Fair value is assessed, on a vessel by vessel basis, as the net present value of estimated future cash flows, discounted by an appropriate discount rate.

There was no such impairment charge in fourth quarter 2015.

A non-cash impairment charge of $29.4 million was recognized in the three months ended September 30, 2016, following our agreement with CMA CGM to amend and extend the charters of the Marie Delmas and Kumasi.

Accordingly, the total non-cash impairment charge for the year ended December 31, 2016 was $92.4 million.

Following receipt of notices of re-delivery for Ville d’Aquarius and Ville d’Orion in fourth quarter 2015 and the Company’s assessment of the vessels’ re-chartering prospects, sales of the vessels were completed on November 5, and December 8, 2015 respectively, for total net proceeds of approximately $9.3 million. The vessels were written down as at September 30, 2015 by $44.7 million to their estimated net realizable value, including estimated selling costs.

General and Administrative Costs

General and administrative costs were $1.7 million in the three months ended December 31, 2016, compared to $1.6 million in the fourth quarter of 2015; the modest increase is due mainly to higher professional fees offset by a positive exchange effect from the stronger US dollar, as some general and administrative costs are denominated in sterling and euro.

For the year ended December 31, 2016, general and administrative costs were $6.3 million, compared to $6.5 million for 2015.

Other Operating Income

Other operating income in the three months ended December 31, 2016 was $41,000, compared to $164,000 in the fourth quarter 2015.

For the year ended December 31, 2016, other operating income was $0.2 million, compared to $0.5 million for the prior year.

Adjusted EBITDA

As a result of the above, Adjusted EBITDA was $28.6 million for the three months ended December 31, 2016, down from $30.3 million for the three months ended December 31, 2015.

Adjusted EBITDA for the year ended December 31, 2016 was $114.7 million, compared to $108.8 million for the prior year. The increase of 5.5% is due mainly to the effect of vessel acquisitions and the disposal of the Ville d’Aquarius and Ville d’Orion.

Interest Expense

Debt at December 31, 2016 comprised amounts outstanding on our 10% Notes, the revolving credit facility, which was drawn March 11, 2015, and the secured term loan, which was drawn September 10, 2015.

Interest expense for the three months ended December 31, 2016, was $9.5 million, down $3.0 million on the interest expense for the three months ended December 31, 2015 of $12.4 million. The reduction is mainly due to a $1.9 million gain on the open market purchases of $18.0 million principal amount of the Notes in November 2016 and reduced interest on the Notes following these repurchases and the repurchase by way of tender of $26.7 million principal amount of the Notes in March 2016, and the open market purchases of $4.2 million principal amount of the Notes in May 2016 and $5.0 million principal amount of the Notes in August 2016.

For the year ended December 31, 2016, interest expense was $44.8 million, down $3.4 million on interest expense of $48.2 million for the year ended December 31, 2015. The decrease is due to lower interest on the Notes following the tender offer and open market purchases and the $2.9 million gain realized on these, offset by the effect of drawing on the secured term loan in September 2015, $0.5 million premium paid in March 2016 in relation to the tender offer and accelerated write-off of the portion of deferred financing charges and the original issue discount attributable to Notes which were purchased and retired in the year.

Interest income for the three months ended December 31, 2016 was $59,000, up from $16,000 in the comparative period of 2015 due to higher cash balances. Interest income for the year ended December 31, 2016 was $198,000, compared to $62,000 in the comparative period.

Taxation

Taxation for the three months ended December 31, 2016 was a charge of $14,000, compared to a credit of $1,000 in the fourth quarter of 2015.

Taxation for the year ended December 31, 2016 was a charge of $46,000, compared to $38,000 for the prior year 2015.

Earnings Allocated to Preferred Shares

The Series B Preferred Shares carry a coupon of 8.75%, the cost of which for the three months ended December 31, 2016 was $0.8 million; the same as in the comparative period.

The cost in the year ended December 31, 2016 was $3.1 million; the same as in the comparative period.

Net (Loss)/Income Available to Common Shareholders and Normalized Net Income

Net loss for the three months ended December 31, 2016 was $55.1 million, after the $63.1 million non-cash impairment charge. For the three months ended December 31, 2015, net income was $6.2 million.

Normalized net income for the three months ended December 31, 2016, adjusting for the non-cash impairment charge, was $6.1 million, compared to $6.2 million in the comparative period.

Net loss was $68.2 million for the year ended December 31, 2016 after the $92.4 million non-cash impairment charge. Net loss was $31.9 million for the year ended December 31, 2015, after the $44.7 million non-cash impairment charge.

Normalized net income for the year ended December 31, 2016 was $22.4 million, before the impairment charge and was $12.8 million for the prior year, again before the impairment charge.

Source: Global Ship Lease