Navigator Holdings Ltd. — FY2015 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter filing. Financial statements are in U.S. dollars and prepared under U.S. GAAP.
Business context
Navigator owns and operates liquefied gas carriers transporting LPG, petrochemical gases and ammonia. At year-end it operated 29 vessels; four were delivered during 2015 and one vessel was sold. Navigator Ceto was delivered in January 2016. The company reported 55,363,467 common shares outstanding at December 31, 2015.
Financial and operating performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Revenue | $315.2 million | $304.9 million | +3.4% |
| Operating income | $128.6 million | $115.5 million | +11.4% |
| Net income | $98.1 million | $87.7 million | +11.8% |
| Diluted EPS | $1.76 | $1.58 | Increased |
| EBITDA | $182.1 million | $161.3 million | Increased |
| Operating cash flow | $149.6 million | $133.1 million | +12.4% |
| Cash and equivalents, year-end | $87.8 million | $62.5 million | Increased |
Derived margins were approximately 40.8% operating income/revenue and 31.1% net income/revenue. Average daily TCE rose to $30,280 from $29,988. Fleet utilization fell to 94.3% from 97.3%, while the weighted-average fleet increased to 27.8 from 24.8 vessels. Daily vessel operating expense declined to $7,779 from $8,068.
Year-end total assets were $1.571 billion, total liabilities $660.6 million and shareholders’ equity $910.1 million. Debt comprised $505.3 million under secured term loan and revolving facilities and $125.0 million of 9% senior unsecured bonds. The $290 million revolving facility signed in December was undrawn at year-end. Current assets were $125.0 million and current liabilities $92.2 million. No dividends were paid in 2015, and management said it did not anticipate cash dividends in the near term.
Investing cash outflow was $205.9 million, mainly reflecting newbuilding payments; financing cash inflow was $81.6 million. Year-end cash increased by $25.3 million. Contractual obligations totaled $1.024 billion, including $390.9 million for vessels under construction and $630.3 million of debt and bonds.
Material changes and unusual items
- Revenue growth primarily reflected a larger fleet and a modestly higher average charter rate. Lower utilization, including off-hire following the Navigator Aries collision and vessel repositioning, and a lower proportion of voyage charters partly offset growth.
- Voyage expenses declined 25.1% to $33.7 million, attributed to the charter mix and lower bunker prices. Vessel operating expenses rose 12.3% in total with fleet expansion, despite lower expense per vessel-day. Depreciation and amortization rose 16.7% to $53.5 million.
- Navigator Aries was damaged in a June 2015 collision in Indonesia. The company recorded a $10.5 million vessel write-down and a $9.9 million insurance recovery for repairs. Repairs were completed in January 2016. The company had no loss-of-hire insurance, so lost charter revenue during repairs was not expected to be recoverable.
- Navigator Mariner was sold in August 2015, producing a $0.55 million profit after sale costs.
- The company corrected an immaterial prior-period error: certain interest on newbuildings should have been capitalized rather than expensed. It revised 2012–2014 and interim-period figures, including the first three quarters of 2015; the filing says previously issued statements were not materially misstated overall.
Outlook, risks and contingencies
Management expected seaborne demand for LPG, petrochemical gases and ammonia to continue growing, citing U.S. shale-related supply, export infrastructure and global trade opportunities. It also described lower oil prices and a narrowing oil/LPG arbitrage as market headwinds. The filing provides no specific earnings or revenue guidance.
Eight additional newbuildings were expected after the January 2016 Ceto delivery, with deliveries scheduled through July 2017 and an aggregate stated price of $509.2 million. Seven were described as financed through debt and equity arrangements; the company planned to fund the remaining 38,000 cbm vessel with cash on hand and future credit facilities. Delivery delays, construction costs, future charter rates and financing availability are key execution risks.
- Charter rates and vessel values are cyclical; 12 of the 30 vessels operated at the filing date were exposed to spot-market fluctuations. Fifteen of 19 time charters at year-end were due to expire within one year.
- Five customers accounted for 51.4% of FY2015 revenue. PDVSA and Pertamina together accounted for approximately 20.0%; their state ownership creates political, contract-enforcement and payment risks.
- Debt covenants include liquidity, leverage, interest coverage, equity and collateral-value tests. The company reported covenant compliance at December 31, 2015; falling vessel values could require additional collateral or repayment.
- Other risks include operational casualties and off-hire, drydocking and regulatory costs, reliance on third-party technical managers, and the planned introduction of in-house technical management in 2016.
- The company believed it qualified for the U.S. international transportation income tax exemption and was not a passive foreign investment company, but disclosed uncertainty around ownership tests and the tax classification of time-charter income.
- No material legal proceedings or off-balance-sheet arrangements were reported. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Current charter coverage, expirations and realized utilization, especially as near-term time charters roll off and new vessels enter service.
- Funding, drawdowns and covenant headroom for the newbuilding program; reconcile the $290 million revolving commitment with actual borrowing after year-end.
- Customer concentration and collection/payment exposure to PDVSA, Pertamina and other major charterers.
- Final insurance proceeds and any remaining financial impact from the Navigator Aries collision, including unrecovered off-hire losses.
- Effects of the corrected capitalized-interest error and the company’s subsequent financial reporting and controls.
- Whether the company continues to meet debt collateral and liquidity requirements and qualifies for the stated U.S. tax exemption and non-PFIC treatment.