Dorian LPG Ltd. — FY2015 Form 10-K
Reporting period: Fiscal year ended March 31, 2015. The filing also reports the quarter ended March 31, 2015 (fiscal Q4). The company transports LPG using very large gas carriers (VLGCs) and smaller pressurized gas carriers. Because Dorian was newly formed and expanded its fleet substantially, FY2015 results are not directly comparable with the partial-year results from inception through March 31, 2014.
Financial and operating performance
- Revenue: $104.1 million for FY2015, including $77.3 million from voyage charters and $26.1 million from time charters. Time-charter revenue included $7.8 million of profit sharing. Voyage charters represented approximately 74.5% of revenue.
- Profit and margins: Operating income was $30.0 million (approximately 28.8% operating margin); net income was $25.3 million (approximately 24.3% net margin), or $0.45 per basic and diluted share. Adjusted EBITDA, a non-GAAP measure, was $47.3 million.
- Quarterly trend: Q4 revenue was $35.3 million, operating income $10.5 million, and net income $8.8 million. Versus Q3, revenue increased from $32.6 million while operating income and net income decreased slightly from $10.8 million and $9.0 million, respectively.
- Costs and utilization: Voyage expenses were $22.1 million; vessel operating expenses were $21.3 million, or $10,703 per vessel calendar day. Fleet utilization was 85.8%, and the average time-charter-equivalent rate was $49,665 per operating day.
- Cash flow: Operating cash flow was $25.6 million. Investing activities used $312.3 million, principally for newbuilding payments; financing activities provided $213.7 million. Cash and cash equivalents declined by $74.3 million during the year.
- Liquidity and debt: At March 31, cash was $204.8 million and restricted cash was $33.2 million, of which $28.2 million was current liabilities. Total assets were $1.10 billion, total liabilities $225.9 million, and shareholders’ equity $873.2 million. Total debt was $200.3 million, including $15.7 million due within one year. The company reported compliance with debt covenants at year-end.
- Capital commitments: Contractual obligations included $871.4 million of remaining newbuilding payments as of March 31, 2015, principally due within 12 months. The filing later cites approximately $825.9 million remaining as of June 1, 2015. Management expected to fund payments using cash and borrowings under its new facility.
Material changes versus prior period
- Revenue rose from $29.6 million in the company’s July 1, 2013 inception-to-March 31, 2014 period, but the periods differ in length and fleet scale and are not directly comparable.
- The company delivered three new ECO-design VLGCs during FY2015 and ended the year with seven LPG carriers: six VLGCs and one 5,000-cbm pressurized carrier. It had 16 additional VLGCs on order for delivery from June 2015 through February 2016.
- Management transitioned in-house effective July 1, 2014. Related-party management fees fell to $1.1 million from $3.1 million in the prior partial-year period, while general and administrative expense increased to $14.1 million from $0.4 million, reflecting the expanded standalone operation and stock compensation.
- Debt increased from $128.7 million at March 31, 2014 to $200.3 million at March 31, 2015. In March 2015, Dorian entered a $758 million secured financing facility; $81.2 million had been drawn by year-end, with $676.8 million available.
- Cash decreased from $279.1 million to $204.8 million, while vessels and vessels under construction increased materially as the fleet expansion progressed.
Outlook, commentary, and risks
- Management’s strategy is to combine multi-year time charters with spot-market voyages and shorter-term employment through the Helios LPG Pool. The pool commenced operations on April 1, 2015, with three Dorian VLGCs participating initially. No quantified earnings or rate guidance is provided.
- Only two operating vessels were on five-year Shell time charters; most operating vessels were exposed to spot-market rates. The 16 undelivered newbuildings had no employment arranged at the filing date, creating chartering and utilization risk as they enter service.
- The company cited a large industry orderbook: 84 VLGCs were on order for delivery by 2017 against a fleet of 169 VLGCs as of April 1, 2015. Oversupply, weaker LPG demand, seasonality, and lower charter rates could pressure earnings and vessel values.
- Major customer concentration was significant: five charterers each accounted for more than 10% of FY2015 revenue, together representing 83% (Statoil 27%, Shell 19%, Itochu 14%, Indian Oil 12%, and Maritime Pressx 11%).
- The $758 million facility and existing RBS loans impose financial, liquidity, collateral, and dividend restrictions. Falling vessel values could trigger covenant pressure; floating-rate exposure on the new facility was unhedged at year-end. Approximately 99% of RBS debt was economically hedged.
- Unusual items included a $1.4 million impairment of the Grendon pressurized carrier, written down to $4.0 million amid weakness in its market, and a $4.0 million net derivative loss, primarily reflecting $5.3 million of realized losses partly offset by unrealized gains. Foreign-currency loss was $1.0 million.
- No dividends had been paid. The board would consider dividends only as profits and newbuilding capital needs permitted, subject to lender restrictions and legal requirements. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not required to attest to internal controls because Dorian was an emerging growth company.
- Other risks include shipyard delivery delays or cost overruns, limited operating history, reliance on a single business segment, counterparty credit risk, safety and environmental liabilities, changing regulation, and uncertainty over qualification for U.S. shipping-income tax exemptions and possible PFIC treatment for U.S. investors.
Important facts for investors to verify
- Delivery timing, remaining cost, financing availability, and employment plans for the 16 newbuildings; reconcile the March 31 and June 1 remaining-commitment figures.
- Spot charter rates, pool performance, utilization, and the proportion of the expanded fleet secured by longer-term charters.
- Customer concentration and the creditworthiness and contract terms of major charterers.
- Debt-facility drawdowns, covenant headroom, required liquidity, interest-rate exposure, and any constraints on upstreaming cash or paying dividends.
- Whether vessel valuations, the PGC impairment assumptions, and expected ECO-design fuel savings are supported by operating evidence.
- The company’s annual U.S. tax-exemption status and any PFIC determination, which may affect U.S. shareholders.