Navigator Holdings Ltd. — FY2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing. The company owns and operates liquefied-gas carriers transporting LPG, petrochemical gases and ammonia; it reported a 38-vessel fleet at year-end.
Financial and operating performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Operating revenue | $298.6 million | $294.1 million |
| Operating income | $47.2 million | $78.0 million |
| Net income | $5.3 million | $44.6 million |
| Basic / diluted EPS | $0.10 / $0.10 | $0.81 / $0.80 |
| EBITDA (non-GAAP) | $120.8 million | $140.2 million |
| Net cash from operating activities | $75.9 million | $86.7 million |
| Cash and cash equivalents at year-end | $62.1 million | $57.3 million |
- Revenue grew 1.5%, but total operating expenses increased 16.3% to $251.4 million. Operating margin fell to approximately 15.8% from 26.5%; net margin fell to approximately 1.8% from 15.2%.
- Average TCE rate declined 17.5% to $21,018 per operating day, while fleet utilization edged down to 87.6% from 87.9%. The larger average fleet—36.2 vessels versus 31.3—supported revenue, partly offsetting weaker charter rates.
- Voyage expenses rose 31.6% to $55.5 million, largely reflecting more and longer voyage charters and associated pass-through costs. Vessel operating expenses rose 11.1% to $101.0 million, while daily vessel operating expense fell 3.7% to $7,635.
- Investing cash outflow was $183.0 million, primarily for final payments on five delivered vessels. Financing cash inflow was $111.9 million. Cash increased $4.8 million during the year.
- Year-end total assets were $1.854 billion, liabilities $890.7 million and stockholders’ equity $963.2 million. Principal debt comprised $772.2 million of secured facilities and $100.0 million of senior unsecured bonds. Cash less principal debt implies net debt of about $810.1 million.
- Cash plus undrawn borrowing capacity was approximately $104.0 million ($62.1 million cash and $41.9 million available under two facilities). Current assets of $112.1 million were close to current liabilities of $110.4 million.
Material changes and unusual items
- Despite fleet expansion, operating income declined 39.5% and net income declined 88.1% year over year, reflecting lower charter rates, higher operating costs and increased interest expense.
- Interest expense rose 16.6% to $37.7 million, partly due to additional borrowings supporting new vessel deliveries. The company refinanced its 9.0% bonds with $100 million of 7.75% bonds in February 2017; redemption premium, notice penalty and related charges included $3.5 million of expense.
- The five 2017 vessel deliveries increased the year-end fleet from 33 to 38. No vessel impairment was recorded. However, the aggregate carrying value of vessels exceeded shipbroker appraised values by approximately $254.2 million; the company’s impairment test relied on estimated future cash flows and charter-rate assumptions.
- Five customers represented 64.6% of 2017 revenue, up from 51.4% in 2016. Braskem contributed 16.5%, Mitsubishi 16.3%, Sibur 11.9%, Pertamina 10.4% and Kolmar 9.5%.
Outlook, risks and contingencies
- Management cited expected growth in seaborne liquefied-gas trade, particularly ethane and ethylene, while noting that charter rates and vessel values are volatile and depend on vessel supply, demand and global economic conditions. The filing gives no specific earnings or revenue guidance.
- In January 2018, Navigator and Enterprise Products Partners agreed to a 50/50 joint venture for a U.S. Gulf Coast ethylene export terminal, targeting service in first-quarter 2020. The project is subject to regulatory approvals; Navigator was considering financing of up to $200 million and had not reported committed financing.
- Management stated that its cash forecasts for the forthcoming 12 months were expected to meet liquidity needs, subject to successful financing discussions for the terminal and assumptions about vessel employment.
- Principal risks include cyclical charter markets and spot-rate exposure; charter renewals and utilization; customer concentration and state-owned counterparties; debt service, floating LIBOR rates and collateral-value covenants; terminal construction, approval and financing; regulatory and environmental compliance; and maritime, operational, geopolitical, sanctions, insurance and currency risks.
- Secured facilities require quarterly repayments and include liquidity, interest-coverage, equity and collateral-coverage covenants. The company reported compliance with debt covenants at December 31, 2017. It had $83.4 million of scheduled secured-debt principal due in 2018; total contractual obligations were $877.5 million, including debt and office leases.
- The company did not anticipate near-term cash dividends. It reported no material legal proceedings, no material uncured payment defaults, no off-balance-sheet arrangements, and effective disclosure controls and internal control over financial reporting. KPMG issued unqualified audit opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether charter rates and utilization recover, and how upcoming charter expirations affect revenue and cash generation.
- Terminal regulatory approvals, total project cost, financing commitments and the company’s share of funding obligations.
- Debt repayment capacity, covenant headroom, collateral vessel valuations and sensitivity to LIBOR increases.
- Customer and counterparty concentration, including exposure to Pertamina and PDVSA, and the durability of contracted revenue.
- Assumptions underlying vessel impairment testing and the gap between carrying values and broker appraisals.
- The effects of adopting the new revenue-recognition standard in 2018; the filing estimated a $0.5 million revenue increase and $0.2 million voyage-expense reduction for 2017 under the new method.