Nordic American Tankers Limited — FY2015 Form 20-F
Reporting period: Year ended December 31, 2015. This is an annual report, not a standalone Q4 filing; the provided text does not give a clear set of Q4-only financial results. Financial amounts below are in U.S. dollars unless noted.
Business context and performance
NAT owns and operates Suezmax crude-oil tankers. At year-end, it had 24 operating vessels, all employed in the spot market, and two newbuildings under construction. The company’s results are therefore highly exposed to spot charter rates, voyage costs and vessel availability.
| Metric | FY2015 | FY2014, adjusted |
|---|---|---|
| Voyage revenue | $445.7 million | $351.0 million |
| Net voyage revenue | $287.1 million | $151.6 million |
| Time charter equivalent rate | $37,228/day | $20,517/day |
| Net operating income (loss) | $128.1 million | $(4.8) million |
| Net income (loss) | $114.6 million | $(13.2) million |
| Diluted EPS | $1.29 | $(0.15) |
| Cash from operating activities | $174.4 million | $57.5 million |
| Cash dividends paid | $123.1 million | $54.1 million |
Financial position and liquidity
- At December 31, 2015, cash was $29.9 million, total assets $1.245 billion, total liabilities $363.9 million and shareholders’ equity $880.7 million.
- Debt outstanding was $330 million, up from $250 million a year earlier. The debt is variable-rate and secured by vessel mortgages and related assignments. The company reported covenant compliance at year-end.
- The then-current $430 million revolving facility had $100 million available at year-end. A refinancing and increase to $500 million, with maturity extended to December 2020, became effective in January 2016.
- Investing cash outflow was $197.4 million, mainly reflecting vessel investment; financing cash outflow was $47.7 million. Year-end cash declined by $70.7 million.
- The 2015 dividend was $1.38 per share. Dividends exceeded net income, and $8.4 million was charged to contributed surplus. The filing’s selected-data table reports 2014 dividends of $0.63 per share, while its dividend-policy table reports $0.77, including a $0.16 in-kind distribution.
Changes versus the prior year
- Voyage revenue rose 27.0%, while net voyage revenue increased 89.3% and the TCE rate rose 81.5%, reflecting stronger spot rates and additional fleet days. Suezmax industry earnings were described as exceptionally strong in 2015.
- Voyage expenses fell 20.4%, primarily because lower bunker prices more than offset higher activity and port costs. Vessel operating expenses increased 6.5% with fleet growth, though daily operating cost per vessel declined to $8,130 from $8,200.
- General and administrative expenses declined 34.1%, attributed mainly to Norwegian krone weakness and cost savings. Interest expense declined 11.3%, partly due to a lower facility margin.
- Operating cash flow increased substantially, while cash declined because of vessel investment, dividends and other financing activity. The fleet grew by two secondhand Suezmaxes delivered in 2015.
Outlook, risks and unusual items
- Outlook: NAT reported that Q1 2016 tanker rates remained solid through March 11, citing an average Suezmax index rate of about $39,000/day. Fearnleys forecast weaker 2016 earnings than the exceptional 2015 level, with the first half expected to be stronger than the second; this is a third-party market forecast, not formal company guidance. Management emphasized uncertainty around oil oversupply and floating-storage demand.
- Market exposure: All operating vessels were spot-employed. NAT estimated that a $1,000/day decrease in spot rates would have reduced 2015 voyage revenue by approximately $7.7 million. A 100-basis-point LIBOR increase was estimated to add about $2.6 million to 2015 interest expense.
- Vessel values and impairment: Management estimated the fleet’s aggregate market value was approximately $167.1 million below carrying value, based on broker estimates, but recorded no vessel impairment in 2015. Valuations are uncertain and sensitive to market assumptions.
- NAO investment: NAT’s investment in Nordic American Offshore was accounted for under the equity method; NAT recognized a $2.5 million share of NAO’s 2015 loss. The investment’s quoted market value was $31.7 million versus a $64.9 million carrying value. Management stated it believed the investment could recover its carrying value through operations.
- Contingency: An arbitration panel awarded NAT $10.2 million plus costs and interest in the Nordic Harrier dispute. No amounts had been received through year-end 2015, and any recovery will be recognized upon receipt; the outcome remains uncertain.
- Commitments and other risks: Two newbuildings cost approximately $65 million each, with expected deliveries in Q3 2016 and Q1 2017. Key risks include spot-rate and vessel-value volatility, fuel and operating costs, variable interest rates, dividend discretion and restrictions under the credit facility, regulation, and customer/counterparty concentration. Two customers represented about 30% and 12% of 2015 revenue.
- Accounting and controls: 2014 results were retrospectively adjusted after NAT changed its accounting for NAO to the equity method. KPMG issued an unqualified opinion on the 2015 financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether spot rates and vessel utilization sustain cash generation as the market normalizes from 2015’s unusually strong conditions.
- Post-refinancing debt availability, facility covenants, interest costs and capacity to fund newbuildings and dividends.
- The basis and sensitivity of the estimated $167.1 million fleet market-value shortfall and the absence of an impairment charge.
- NAO’s financial and market-value performance, and the assumptions supporting NAT’s investment carrying value.
- Collection prospects for the Nordic Harrier arbitration award and the timing and final cost of the two newbuildings.
- Dividend sustainability, given the 2015 distribution exceeded reported net income and the board retains discretion over future payments.