Dorian LPG Ltd. — FY2017 Form 10-K
Reporting period: Fiscal year ended March 31, 2017. Although the request metadata refers to 2016 Q4, this filing is an annual report for FY2017; unaudited fourth-quarter figures are also reported below. Dorian owns and operates VLGCs transporting liquefied petroleum gas (LPG). At June 9, 2017, its fleet comprised 22 vessels, including 19 ECO-design ships.
Financial and operating performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $167.4 million | $289.2 million |
| Operating income | $14.0 million | $158.4 million |
| Net income/(loss) | $(1.4) million | $129.7 million |
| Adjusted EBITDA (non-GAAP) | $83.3 million | $204.9 million |
| Cash from operating activities | $52.1 million | $151.0 million |
| Fleet utilization | 93.6% | 93.1% |
| Average TCE rate | $22,037/day | $55,087/day |
Revenue fell 42.1%, principally due to weaker charter rates. The Baltic Exchange LPG index average declined 67% year over year. Pool revenue decreased 43.0% to $115.8 million; voyage-charter revenue fell 97.2% to $1.3 million, while time-charter revenue rose 27.7% to $49.5 million. The Helios Pool accounted for 69.1% of FY2017 revenue.
Operating income margin was approximately 8.4% versus 54.8% in FY2016; net margin was approximately negative 0.9% versus 44.8%. These comparisons reflect sharply lower TCE rates as well as a larger operating fleet and higher financing costs. FY2017 net loss included a $27.5 million unrealized derivative gain, offset in part by $13.8 million of realized derivative losses and $29.0 million of interest and finance costs.
For the three months ended March 31, 2017, revenue was $47.6 million, operating income $9.2 million, and net income $2.0 million. The comparable quarter ended March 31, 2016 had revenue of $85.3 million, operating income of $42.1 million, and net income of $20.2 million.
Cash, debt and liquidity
- FY2017 investing cash outflow was $2.0 million, compared with $910.4 million in FY2016, when substantial newbuild payments were made. Financing cash outflow was $79.3 million, primarily debt repayments and share repurchases.
- At March 31, 2017, cash and cash equivalents were $17.0 million; restricted cash was $50.9 million. Current assets were $64.0 million and current liabilities $85.8 million. The balance sheet also included $42.5 million due from related parties in current assets and $19.8 million non-current.
- Gross debt was $770.1 million, including $66.0 million due within one year; debt net of deferred financing fees was $750.0 million. Total shareholders’ equity was $976.0 million.
- Vessels secured the borrowing facilities. The company reported compliance with the 2015 Debt Facility’s financial covenants at March 31, 2017. Variable-rate debt and covenant requirements remain material liquidity risks.
Changes, outlook and material matters
- Management attributed weaker rates to a large wave of new vessel deliveries, LPG becoming less competitive with naphtha for some petrochemical users, and reduced economics for long-haul U.S.-to-Asia LPG shipments. Panama Canal expansion may also increase effective vessel supply.
- On May 31, 2017, Dorian amended its 2015 Debt Facility, relaxing certain covenants and releasing $26.8 million of restricted cash, with $24.8 million applied to the next two principal payments. The amendment temporarily restricts dividends and share repurchases until a qualifying equity offering or May 31, 2019, whichever occurs first.
- On June 8, 2017, the company borrowed $97.0 million under a secured bridge loan, due by August 8, 2018, and repaid the RBS facility at 96% of outstanding principal. The bridge loan’s interest margin steps up from LIBOR plus 2.50% to 8.50% by its final period. Management expected cash on hand, operating cash flow and released restricted cash to cover liquidity needs for the next year, but noted that additional financing or amendments might be needed and were not assured.
- No quantitative earnings or charter-rate guidance is provided. Management describes a strategy of balancing time charters, spot voyages, contracts of affreightment and pool employment, and considering fleet growth when market conditions permit.
- At March 31, 2017, estimated aggregate fleet market value was $272.1 million below carrying value. No impairment was recorded because management’s estimated undiscounted cash flows supported recoverability. Its sensitivity analysis indicated a 40% reduction in assumed historical-average TCE rates could trigger an estimated $245.7 million impairment on 19 vessels.
- Environmental and capital obligations include ballast-water systems on six vessels, estimated at approximately $0.8 million per vessel, and about $0.3 million for emissions-related equipment. Market risks include LPG shipping cyclicality, excess vessel capacity, customer concentration, fuel and crew costs, interest rates, and vessel-value declines.
- Dorian had not paid dividends since inception. The auditor issued an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective at March 31, 2017. The auditor did not express an opinion on internal control.
Important facts for investors to verify
- Whether charter rates, utilization and operating cash flow recover from FY2017 levels, given the industry orderbook and spot-market exposure.
- The company’s post-amendment liquidity, restricted-cash requirements, covenant headroom and ability to refinance or repay the bridge loan before its maturity and rate step-ups.
- Whether the assumptions underlying vessel recoverability remain reasonable; market values were below carrying amounts and the disclosed impairment sensitivity is substantial.
- Helios Pool and major-customer concentration, including the pool’s performance, related-party receivables and counterparties’ ability to pay.
- Whether the dividend and share-repurchase restrictions, and any future equity financing requirement, affect shareholder returns or ownership dilution.