Business Context and Reporting Period
This Form 6-K filing by Nordic American Tanker Shipping Limited (NAT) covers the period ending September 30, 2010. The document primarily consists of a letter from the Chairman and CEO, Herbjørn Hansson, dated September 29, 2010, updating shareholders on the company's strategic position, dividend policy, and fleet expansion plans during a softening tanker market.
Key Financial Metrics and Position
- Balance Sheet: The company reports a strong balance sheet with no net debt and available liquidity reserves.
- Dividend History: NAT has paid dividends for 53 consecutive quarters since commencing operations in autumn 1997.
- Historical Returns: From 1997 to mid-September 2010, the annualized total return was approximately 20%, with the majority paid as dividends.
- Market Rates: At the time of writing, Suezmax spot tanker market rates averaged about $10,000 per day (Imarex index), though NAT reported rates well above this level for the quarter.
- Dividend Comparison: Management expects the Q3 2010 dividend to be well above the Q3 2009 level of $0.10 per share.
- Projected Debt per Vessel: In a hypothetical 20-vessel fleet, net debt is estimated at $7 million per vessel; for a 24-vessel fleet, it is estimated at $16 million per vessel.
Material Changes and Operational Status
The tanker market softened in the third quarter of 2010, a seasonal trend noted by management. Despite this, the company's performance remained above the spot market average. The fleet has grown from 3 vessels in 2004 to 19 Suezmax vessels as of late September 2010, including three newbuildings scheduled for delivery in 2010 and 2011. The company maintains a strategy of distributing at least all available operating cash flow as dividends.
Guidance, Outlook, and Risks
Outlook and Strategy
- Fleet Growth: NAT expects the fleet to reach a minimum of 20 vessels by the end of 2011. The company plans to fund this expansion using internal resources rather than tapping equity markets.
- Acquisition Strategy: Management intends to acquire further vessels inexpensively if soft market conditions drive down second-hand vessel prices, viewing this as an accretive opportunity.
- Dividend Policy: The quarterly dividend amount is directly tied to spot market levels. The company aims to maximize total return through stock price appreciation and reinvested dividends.
- Upcoming Events: The Q3 2010 report and dividend declaration are expected on November 8, 2010. The record date is November 22, 2010, with payment expected around December 3, 2010.
Risks and Contingencies
Forward-looking statements are subject to significant uncertainties, including fluctuations in charter rates and vessel values, changes in global oil consumption and OPEC production, bunker prices, drydocking costs, regulatory changes, political instability, and potential vessel breakdowns or off-hire instances.
Investor Verification Checklist
- Verify the actual Q3 2010 dividend amount when announced on November 8, 2010, against the expectation of exceeding the $0.10 Q3 2009 level.
- Confirm the delivery schedule and final cost of the three newbuildings due in 2010 and 2011.
- Monitor the company's ability to maintain "no net debt" status as it expands the fleet to 20+ vessels.
- Track spot market rates (Imarex) versus the company's actual achieved rates to validate the claim of outperforming the market average.
- Review the upcoming Form 20-F or subsequent 6-K filings for detailed financial statements, as this letter does not provide specific revenue or profit figures for the quarter.