Navigator Holdings Ltd. — FY 2013 Form 20-F
Reporting period: Fiscal year ended December 31, 2013; filed March 17, 2014. This is an annual report, not a standalone fourth-quarter filing. The financial statements are audited under U.S. GAAP, and the auditor issued an unqualified opinion.
Business context
Navigator owns and operates liquefied gas carriers transporting LPG, petrochemical gases and ammonia. It reported 23 owned vessels and operated 24 vessels at year-end, including one chartered-in vessel. The 2013 fleet expansion included delivery of 11 vessels acquired from A.P. Møller. The company also had 10 Jiangnan newbuildings scheduled for delivery through April 2016.
Key financial and operating metrics
| Metric | FY 2012 | FY 2013 |
|---|---|---|
| Total revenue, including other cargo revenue | $146.7 million | $238.3 million |
| Operating income | $39.7 million | $70.2 million |
| Net income | $30.5 million | $41.0 million |
| Basic and diluted EPS | $0.82 | $0.89 |
| Operating cash flow | $55.0 million | $78.8 million |
| Cash and cash equivalents at year-end | $140.9 million | $194.7 million |
| Total assets | $832.3 million | $1,325.2 million |
| Total liabilities | $384.4 million | $604.6 million |
| Shareholders’ equity | $447.8 million | $720.7 million |
FY 2013 operating revenue excluding the $4.1 million of other cargo revenue was $234.3 million, up 59.7%. Operating margin was approximately 29.4% and net margin approximately 17.2%, calculated using total revenue. Net cash used in investing activities was $456.3 million, primarily for the A.P. Møller vessels and newbuilding payments; financing provided $431.4 million. EBITDA, a non-GAAP measure, was $106.8 million, versus $63.9 million in 2012.
At year-end, secured term loans totaled $450.5 million and the senior unsecured bond was $125.0 million, for total debt of $575.5 million. Cash less total debt was approximately $380.7 million. Current assets were $226.7 million and current liabilities $89.8 million. The company reported compliance with debt covenants at December 31, 2013. The bond bears 9% interest and matures in December 2017; secured loans generally bear floating LIBOR-based rates.
Material changes versus prior year
- Revenue increased 62.4% and net income increased 34.2%, reflecting a larger fleet and improved average TCE rate, partly offset by lower fleet utilization.
- Weighted-average vessels increased from 12.7 to 19.6. Fleet utilization fell from 99.5% to 92.9%, while average TCE rose from $25,627 to $28,262 per day.
- Interest expense rose to $28.8 million from $8.7 million, mainly due to the 9% bond, acquisition borrowing and refinancing. Vessel operating expenses rose 70.7% alongside fleet growth.
- Cash rose by $53.9 million, supported by the IPO and borrowings, despite substantial vessel investment. The IPO generated approximately $156.4 million in net proceeds for the company.
Outlook, commentary, risks and unusual items
- Management expected demand for gas transportation to benefit from U.S. shale-related production and expanding petrochemical trade, but gave no quantified earnings or rate guidance. The company planned to fund remaining newbuildings with cash, future credit facilities and potentially equity or other debt.
- Contractual obligations totaled approximately $1.03 billion, including $444.6 million for vessels under construction and $575.5 million of debt and bonds. The three optional 35,000-cbm vessels, if exercised, would require additional funding.
- Revenue is exposed to volatile spot charter rates, charter renewals, seasonal demand, new vessel supply and utilization. Pertamina and PDVSA together generated approximately 20.1% of 2013 revenue and carry geopolitical and state-counterparty risks. Three customers represented approximately 30% of operating revenue.
- Other material risks include debt covenants and collateral-value requirements, refinancing and newbuilding funding needs, floating interest rates, environmental compliance costs, vessel casualty and off-hire exposure, and dependence on third-party technical managers. The company does not carry loss-of-hire insurance.
- Unusual items included $4.1 million of other cargo revenue and matching $4.3 million cargo cost associated with butane aboard Navigator Capricorn during an engine-room fire; the vessel was off-hire for 45 days. Higher corporate expenses also included feasibility work on a terminal opportunity.
- Effective April 1, 2013, Navigator changed voyage-charter revenue recognition to a discharge-to-discharge basis. Management said prior-year periods were not retrospectively adjusted because the impact was not material. It reported no off-balance-sheet arrangements and no known legal proceedings expected to have a material adverse effect.
- The company had no current plan to pay common-stock dividends in the near term. It reported effective disclosure controls; management’s internal-control assessment and auditor attestation were not included because of the transition period for newly public companies.
Most important facts for investors to verify
- How much of future revenue and cash flow is secured by existing charters, and when near-term charters expire or require renewal.
- Whether the company can finance and take delivery of the remaining newbuildings on schedule without materially increasing leverage or diluting shareholders.
- Current covenant headroom, collateral vessel valuations, required debt amortization and liquidity needs, including the 9% bond terms.
- Whether utilization recovers from 92.9%, and how much of earnings depends on spot voyages versus longer-term charters.
- The effect of customer concentration and political or payment risks involving Pertamina and PDVSA, as well as exposure to cargo and vessel incidents.
- How the voyage-revenue accounting change affects period comparability, and whether the company’s tax assumptions—including PFIC and U.S. shipping-income treatment—remain supportable.