Navigator Holdings Ltd. — FY 2016 Form 20-F
Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone fourth-quarter filing; separate Q4 results are not provided. The company owns and operates liquefied gas carriers transporting LPG, petrochemical gases and ammonia. Financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
Key financial and operating metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Operating revenue | $294.1 million | $315.2 million |
| Operating income | $78.0 million | $128.6 million |
| Net income | $44.6 million | $98.1 million |
| Diluted EPS | $0.80 | $1.76 |
| EBITDA (non-GAAP) | $140.2 million | $182.1 million |
| Operating cash flow | $86.7 million | $149.6 million |
| Cash and cash equivalents, year-end | $57.3 million | $87.8 million |
| Total assets, year-end | $1,724.8 million | $1,560.5 million |
| Total liabilities, year-end | $768.4 million | $650.4 million |
| Shareholders’ equity, year-end | $956.5 million | $910.1 million |
Operating margin was approximately 26.5% in 2016, versus 40.8% in 2015; net margin was approximately 15.2%, versus 31.1%. The company reported no dividend per share for 2016.
- Average TCE rate fell 15.9% to $25,476 per day from $30,280; fleet utilization declined to 87.9% from 94.3%.
- Fleet size increased: weighted average vessels rose to 31.3 from 27.8, and year-end operated fleet was 33 vessels. Twelve-month operating results also reflect four 2016 vessel deliveries.
- Voyage expenses increased 25.3% to $42.2 million; vessel operating expenses rose 15.2% to $90.9 million; depreciation and amortization rose 16.5% to $62.3 million.
- Investing cash outflow was $238.2 million, primarily for newbuildings. Financing cash inflow was $120.9 million. Cash declined by $30.5 million during the year.
Material changes and financing
- Revenue decreased 6.7%, while operating income declined 39.4% and net income declined 54.5%. Management attributed the revenue drop principally to lower charter rates and weaker utilization amid a softer LPG shipping market in the second half of 2016; fleet growth partly offset those pressures.
- At December 31, 2016, secured term and revolving debt principal was $628.9 million and the outstanding 2012 senior unsecured bonds were $125.0 million. Cash was $57.3 million. Current liabilities exceeded current assets by $33.9 million, in part due to the bond’s scheduled 2017 maturity.
- The company reported compliance with debt covenants at year-end. Covenants include minimum liquidity, leverage/coverage and collateral requirements; secured facilities also require vessel collateral coverage. A 100-basis-point LIBOR increase would add an estimated $6.3 million to annual interest based on year-end debt.
- After year-end, the company issued $100 million of 7.75% senior unsecured bonds due February 2021 and used proceeds plus cash to redeem the $125 million 9% bonds at 102% of par. It also received delivery of Navigator Nova and Navigator Luga in January 2017; three further newbuildings were expected in 2017.
- Five customers accounted for 51.0% of 2016 revenue. Mitsubishi contributed 16.4%; Pertamina 9.4%; PDVSA 9.1%; Braskem 8.2%; and Sibur 7.9%. Charters with Pertamina and PDVSA together generated approximately 18.5% of revenue.
Outlook, risks and unusual items
- Management expects demand for seaborne LPG, petrochemical gases and ammonia transport to continue growing, and highlighted U.S. shale-related production and exports and petrochemical trade as opportunities. These are expectations, not quantified financial guidance.
- The company planned to complete its newbuilding program and pursue a mix of time charters, contracts of affreightment and spot/voyage employment. Management stated that operating cash flow and debt or equity financing were expected to meet foreseeable liquidity needs.
- Principal risks include cyclical charter rates, spot-market exposure, weaker utilization, new vessel supply, refinancing and covenant/collateral requirements, capital-intensive newbuildings and drydocking, and dependence on a concentrated customer base. The filing also highlights geopolitical and sovereign risks associated with Pertamina and PDVSA, regulatory and environmental compliance costs, and foreign-exchange and floating-rate interest exposure.
- Navigator Aries’ 2015 collision resulted in a $10.5 million vessel write-down and insurance recovery accounting. Repairs were completed in early 2016; the company recorded a $0.5 million reduction in the expected insurance recovery in 2016 and said it had no loss-of-hire insurance. No vessel impairment charge was recorded in 2016, although vessel carrying values exceeded shipbroker appraisals by approximately $233.1 million.
- Management and KPMG reported effective internal control over financial reporting; KPMG issued unqualified opinions on the financial statements and internal controls. No legal proceedings were identified as expected to have a material adverse effect.
Most important facts for investors to verify
- Whether the weaker 2016 TCE rate and utilization recover, and how much of the fleet remains exposed to spot-market conditions.
- Current charter coverage, expiry schedule and customer concentration, especially exposure to Pertamina and PDVSA.
- Actual liquidity after the 2017 bond refinancing, newbuilding payments and deliveries; reconcile facility availability with cash needs and covenant headroom.
- Whether vessel collateral values and management’s long-term cash-flow assumptions support carrying values, given the disclosed appraisal gap and sensitivity to TCE rates and operating costs.
- Costs and timing for remaining newbuildings and regulatory investment, including ballast-water treatment systems; confirm that planned deliveries and financing were completed.