Business context and reporting period
Nordic American Tankers Limited (NAT) filed this Form 20-F for the fiscal year ended December 31, 2018; it is an annual report, not a standalone fourth-quarter filing. NAT operates a fleet of 23 Suezmax crude-oil tankers, primarily in the spot market. During 2018, it sold 10 older vessels and took delivery of three newbuildings, modernizing the fleet.
Financial and operating performance
Amounts are in U.S. dollars unless noted; financial statement figures are in millions.
| Metric | 2018 | 2017 |
|---|---|---|
| Voyage revenue | $289.0 | $297.1 |
| Net voyage revenue | $124.0 | $154.7 |
| Net operating loss | $(38.6) | $(175.7) |
| Net loss | $(95.3) | $(205.0) |
| Loss per share | $(0.67) | $(1.97) |
| Operating cash flow | $(16.1) | $31.7 |
| Cash and cash equivalents at year-end | $49.3 | $58.4 |
| Total assets | $1,071.1 | $1,141.1 |
| Shareholders’ equity | $602.0 | $711.1 |
Net loss margin was approximately 33% of voyage revenue. TCE rate was $13,095 per day, down 15.1% from $15,428; net voyage revenue fell 19.8%. Voyage expenses rose 15.8% to $165.0 million, primarily because of higher bunker costs. Vessel operating expenses fell 8.3% to $80.4 million, largely reflecting the smaller fleet. Interest expense increased 68.8% to $34.5 million.
Gross debt at year-end was approximately $440.5 million: $313.4 million under the revolving credit facility and $127.1 million for the three newbuildings. Cash less gross debt was approximately $(391.2) million. The balance sheet reports current liabilities of $36.3 million and current assets of $112.9 million. NAT paid $9.9 million in dividends during 2018, or $0.07 per share; a further $0.04-per-share fourth-quarter dividend was paid in March 2019.
Material changes versus the prior period
- Net loss narrowed from $205.0 million in 2017, mainly because 2017 included $110.5 million of vessel impairment and $19.0 million of goodwill impairment. 2018 included a $2.2 million vessel impairment and $6.6 million loss on vessel disposals.
- Operating cash flow shifted from $31.7 million provided in 2017 to $16.1 million used in 2018, reflecting weaker achieved market rates and working-capital movements.
- Cash from investing activities was $85.1 million, primarily reflecting vessel-sale proceeds; financing cash outflow was $78.0 million, including $78.2 million of repayments on the revolving facility.
- Debt under the revolving facility declined from $391.6 million to $313.4 million, while three newbuildings added $127.1 million of financing. The reported share count was 141.97 million at both year-ends.
- Adoption of ASC 606 changed spot-voyage revenue recognition to a load-to-discharge basis and reduced opening accumulated equity by $4.1 million. The filing reports a $2.2 million positive effect on 2018 net income versus the former accounting method.
Outlook, management commentary, risks and unusual items
- Management said available cash and expected operating cash flow, together with financing and equity-raising options, should meet working-capital and other liquidity needs for 12 months from the report date. NAT launched an at-the-market share offering of up to $40 million in March 2019.
- On February 12, 2019, NAT refinanced the revolving facility with a five-year, $306.1 million senior secured facility maturing in February 2024. It requires at least $30 million of unrestricted cash and a maximum 70% loan-to-vessel-value ratio; the lender may require excess-cash prepayments. The facility bears floating LIBOR-based interest.
- The tanker market strengthened sharply in the fourth quarter of 2018, but the filing says indicative Suezmax earnings declined in first-quarter 2019 versus fourth-quarter 2018. NAT’s business remains substantially exposed to volatile spot rates; a $1,000-per-day-per-vessel spot-rate decrease was estimated to reduce 2018 voyage revenue by about $9.5 million.
- Vessel carrying value was $953.8 million versus independent broker estimates of $717.4 million for the fleet on a charter-free basis. Management reported no impairment under its undiscounted cash-flow test, which uses broker rate forecasts for the first two years and a 15-year historical average thereafter. Using the company’s five- or ten-year achieved-rate averages instead would have indicated impairment for four vessels, estimated at $100.8 million.
- Management identified 18 vessels as not compliant with the updated ballast-water standard and said compliance costs may be substantial. The 0.5% global sulfur-fuel limit took effect in 2020, creating additional compliance and cost exposure.
- Other key risks include variable-rate debt and covenant compliance, access to refinancing, oil-market and trade-policy changes, vessel off-hire or casualty, environmental liability, and the ability to sustain dividends. The company reported that a material weakness in going-concern controls identified in 2017 was remediated; management and the auditor concluded internal control over financial reporting was effective at year-end 2018. The auditor gave unqualified opinions on the financial statements and internal controls.
- NAT cancelled its proposed $375 million backstop financing in 2018 and expensed $13.1 million of associated fees. No material pending legal proceedings were reported.
Most important facts for investors to verify
- Confirm the post-refinancing debt balance, amortization, interest margin, excess-cash sweep, and covenant headroom, including the minimum-cash requirement.
- Track realized TCE rates, spot-market exposure, operating cash flow, and whether the fourth-quarter 2018 rate improvement persisted after year-end.
- Assess vessel market values against carrying values and test the sensitivity of impairment conclusions to freight-rate assumptions.
- Verify expected capital spending and compliance costs for ballast-water treatment and sulfur-emissions rules.
- Check dividend capacity and any dilution from use of the $40 million at-the-market offering.