Dorian LPG Ltd. — FY2020 Form 10-K
Reporting period: Fiscal year ended March 31, 2020. The filing was signed June 11, 2020. Dorian owns and operates very large gas carriers (VLGCs), transporting liquefied petroleum gas (LPG). Its fleet comprised 24 VLGCs, including two chartered-in vessels; 22 company-owned or bareboat-chartered vessels had approximately 1.84 million cbm of capacity. The 50%-owned Helios Pool is a major commercial channel.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $333.4 million | $158.0 million |
| Operating income (loss) | $161.1 million | $(8.0) million |
| Net income (loss) | $111.8 million | $(50.9) million |
| Diluted EPS | $2.07 | $(0.93) |
| Adjusted EBITDA (non-GAAP) | $232.8 million | $64.4 million |
| Cash from operating activities | $169.0 million | $8.9 million |
| Capital expenditures | $19.9 million | $4.0 million |
| Cash and cash equivalents at year-end | $48.4 million | $30.8 million |
| Gross debt at year-end | $646.1 million | $710.1 million |
Revenue increased 111%, principally reflecting stronger charter rates and utilization. Average daily time charter equivalent (TCE) rose to $42,798 from $21,746; fleet utilization improved to 95.4% from 89.9%. Operating margin was approximately 48.3% and net margin approximately 33.5% in FY2020; FY2019 margins were negative. Management reported $169.0 million in operating cash flow, while financing activities used $114.7 million, including $64.0 million of debt repayments and $50.6 million of share repurchases. Cash, cash equivalents and restricted cash totaled $87.4 million; separately, short-term investments were $14.9 million.
At March 31, 2020, current assets were $139.6 million and current liabilities $85.0 million. Current assets included $66.8 million due from related parties, principally the Helios Pool. Debt was $635.0 million net of deferred financing fees; $53.1 million was classified as current. The company reported that $604.9 million of its $646.1 million debt was hedged or fixed. It had no dividends paid since inception.
Changes versus the prior comparable period
- Revenue rose $175.4 million, or 111%, and the company moved from a $50.9 million net loss to $111.8 million net income. Higher spot-market rates and utilization were the principal drivers; the Baltic Exchange LPG benchmark averaged $67.050 for the year versus $34.702 in FY2019.
- Operating cash flow increased from $8.9 million to $169.0 million, in line with the improvement in operating results.
- Vessel operating expenses increased 6.9% to $71.5 million, including higher drydocking-related costs and crew costs. Charter hire expense rose to $9.9 million as more vessels were chartered in.
- Interest and finance costs declined to $36.1 million from $40.6 million, reflecting lower average debt and lower LIBOR. Unrealized derivative losses increased to $18.2 million from $7.8 million, mainly due to lower forward LIBOR curves and FFA valuation changes.
- FY2019 included $10.0 million of BW LPG proposal-related professional and legal fees; none were recorded in FY2020.
- The company repurchased approximately 4.4 million shares for $49.3 million through March 31, 2020, at an average price of $11.24.
Outlook, risks and notable items
- COVID-19: Management said the pandemic had not materially affected operations through the filing date apart from an approximately 60-day delay in one vessel’s China drydock. It cited reduced economic activity, energy demand and market volatility, and said the eventual effect on results and financial condition could not then be estimated.
- Debt refinancing after year-end: In April 2020, Dorian refinanced the commercial tranche of its 2015 facility. The new term loan was approximately $155.8 million, with maturity extended to March 2025, annual amortization reduced to $0.6 million, and a new $25 million revolving facility. The stated margin was LIBOR plus 2.50%, subject to adjustments. A separate April refinancing of the vessel Cresques generated $52.5 million cash proceeds after a $28.5 million debt prepayment. These transactions occurred after the reporting date.
- Liquidity and covenants: Management expected cash on hand and operating cash flow to cover liquidity needs for at least the next 12 months, while warning that financing availability and covenant compliance could be affected by market conditions. Dividend payments are restricted by debt terms and depend on board discretion and legal surplus.
- Concentration and market exposure: The Helios Pool generated 89.4% of FY2020 revenue, up from 75.9%. Two charterers represented 12% and 11% of pool revenues, respectively. The company is concentrated in LPG shipping and exposed to spot rates, vessel supply and values, customer performance, and seasonal demand.
- Regulatory and fuel costs: IMO 2020’s 0.5% sulfur cap took effect January 1, 2020. Nine vessels had scrubbers at year-end, one installation was underway, and commitments covered additional vessels. The company also disclosed $4.1 million of scrubber commitments and approximately $0.9 million of ballast-water-system commitments; four vessels were expected to require ballast-water systems at about $0.8 million each.
- Asset values and impairment: Independent appraisals indicated that ten vessels’ carrying values exceeded estimated market values at year-end, but management concluded future cash flows supported recoverability and recorded no impairment. Its sensitivity analysis indicated a $11.3 million impairment could result if estimated TCE rates fell 40% from the 10-year historical average.
- Other financial risks: Debt covenants, variable-rate borrowing and the transition from LIBOR, foreign-currency expenses, derivative valuations, and possible refinancing needs could affect financial results. The filing also identifies operational, environmental, geopolitical, cybersecurity and insurance risks.
- Audit and controls: Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at March 31, 2020.
Important facts for investors to verify
- Whether the post-year-end refinancing was completed on the disclosed terms, including lender approvals for proposed covenant changes and availability of the revolving facility.
- Helios Pool receivable collection and working-capital exposure: $88.1 million net receivables at March 31, 2020, including $24.2 million of contributed working capital; confirm subsequent collections and pool performance.
- Whether FY2020’s sharp improvement in TCE rates and utilization is sustainable amid COVID-19 effects, changing LPG demand, and new vessel supply.
- Debt service, liquidity and covenant headroom, particularly given restricted cash, related-party receivables, vessel-value sensitivity and LIBOR transition exposure.
- Actual scrubber and ballast-water compliance costs, installation schedules, fuel-price spreads and any COVID-related vessel delays or off-hire.
- Share-repurchase activity after the reporting date, the remaining authorization, and the board’s capital-allocation and dividend decisions.
- Potential impairment indicators and the assumptions supporting recoverability of vessel carrying values.