Nordic American Tankers: Operational cashflow was $11.9m higher in 4Q than in 3Q2017 – Prospects are good
We expect the tanker market to turn for the better in 2018.
The NAT cash build-up from operations during 4Q2017 was $11.2 million as against a negative cash development in 3Q2017 (-$0.7 million).
Despite the volatility in the stock markets, the world economy is enjoying its strongest upswing since 2010. What is good for the world economy and world trade is positive for the crude oil tanker business. Recent upbeat macroeconomic data released by the International Monetary Fund in Washington, are giving further positive signals for the world economy and consequently for the NAT business.
On January 26, 2018, we announced our 82nd consecutive quarterly dividend distribution of 3 cents per share, the same as in 3Q2017.
During 4Q2017 we took three important steps in our recapitalization program. We signed an agreement for the full financing of our three newbuilds for delivery in June, August and October 2018. On December 12, 2017, we raised $110 million in new equity. Thirdly, we agreed to establish a new credit facility, as part of the plan to replace the original credit facility of 2004.
Our net debt at the end of 4Q2017 stood at about $253 million equal to about $8.4 million per vessel, which is lower than the scrap value of a suezmax vessel today.
NAT is well positioned when the tanker market improves. The historic average market rate for the last 25 years was about $30,000 per day per Suezmax vessel. Such earnings would give a free cashflow from operations of about $1.40 per share per year. As of today, a $1.40 annual dividend per share would represent a cash yield well above 50%.
The Net result for 4Q2017, (after depreciation, G&A and finance charges), was -$21.9 million. In 3Q2017 the Net result was -$34.3 million. The Adjusted Net Operating Earnings were $11.2 million for 4Q2017. In 3Q2017 the Adjusted Net Operating Earnings were -$0.7 million. I.e. cash-wise the 4Q2017 was $11.9 million better than the previous quarter. Later in this report we have included relevant financial information for 4Q2017 and for other periods.
When analyzing the data, with such volatile assets as in the tanker industry, we must make a distinction between accounting numbers and cash development.
We would note that The TCE (timecharter equivalent) for 4Q2017 was $13,800 per day per ship compared to $10,600 in 3Q2017. For several reasons, the TCE is not an adequate measure of performance for NAT.
We continue our unbroken practice of paying dividends. Tanker markets are volatile but our strategy remains steadfast.
Our fleet consists of 33 (including 3 newbuilds) well maintained Suezmax tankers (all our ships above 15 years of age has a CAP 1 class notation, which above all is related to steel quality) with an aggregate cargo capacity of 33 million barrels of crude oil, illustrating the size of NAT.
The average age of our fleet is about 13 years; 10 units (including our 3 newbuilds) were built from 2010 onwards, 13 units were built between 2000 and 2009 and the remaining 10 were built in the late 1990s. This is a balanced portfolio.
The outcome of the inspections of our ships by oil companies (“vetting”) reflects the good quality of our fleet.
NAT has the largest fleet of Suezmax tankers in the world. In a capital intensive industry like ours, timing and financing are the key issues to achieve a sound cost structure.
4Q2017 was an important quarter for NAT with the first major steps in the recapitalization program being completed.
During the quarter NAT announced the full financing of its three newbuilds to be delivered in June, August and October 2018. The financing was completed with Ocean Yield ASA at the end of November 2017, on attractive terms.
Our net debt at year end 2017 stood at a conservative $8.4 million per vessel and is among the lowest in the industry. Our existing Revolving Credit Facility (RCF) dates back to 2004, when we only had 4 vessels in our fleet. This facility has become “outdated” and is getting restrictive on our business. The objective is to retire the existing RCF and replace it with a new and smaller facility, in combination with other financing. As part of this plan we raised $110 million in new equity on the 12th of December 2017.
We plan that the recapitalization program shall be finalized by the end of 2Q2018, at the latest. When the recapitalization is completed, the financial flexibility is greatly enhanced.
As per 31st December 2017 we were in compliance with all financial covenants. Recent volatility in the financial equity markets can impact financial covenants.
For 4Q2017 a cash dividend of $0.03 per share has been declared. NAT has a policy to maximize dividend payments within a framework of a conservative attitude. Payment of the dividend is expected to be on or about March 9, 2018, to shareholders of record on February 21, 2018.
In an improved tanker market, higher dividends can be expected.
Nordic American Offshore Ltd. (NYSE: NAO)
NAT owns 16.1% of Nordic American Offshore Ltd. and the NAT Chairman & CEO and his immediate family own 13.4% of NAO. NAO owns 10 PSVs (Platform Supply Vessels).
World Economy and the Tanker Market
The world economy is enjoying its strongest upswing since 2010. What is good for the world economy and world trade is by nature positive for the crude oil tanker business. Recent upbeat macroeconomic data released by the International Monetary Fund in Washington, are giving further positive signals for the world economy and consequently the NAT business. In addition to the role of major oil companies, large oil traders have become important for the tanker industry.
The world Suezmax fleet (excl. shuttle & product tankers) counts 493 vessels at the end of 4Q2017, following an increase of 5 vessels in the quarter. The total delivery during 2017 was 50 units. 2017 represented a peak year for deliveries. For 2018 we expect 33 vessels, and in 2019 we see 14 vessels for delivery.
The supply of tanker tonnage is inelastic in the short-term. When there are too many ships in an area, rates tend to go down. When there is scarcity of ships, rates tend to go up. Short-term spot tanker rates may be expected to be volatile.
Corporate Governance/Conflict of Interests
It is vital to ensure that there is no conflict of interests among shareholders, management, affiliates and related parties. Interests must be aligned. From time to time in the shipping industry, we see that questionable transactions take place which are not in harmony with sound corporate governance principles, both as to transparency and related party aspects. We have zero tolerance for corruption.
Strategy going forward
The NAT strategy is built on expanding and maintaining a homogenous and top quality fleet, leveraging on our industry network and close customer relationships with big oil. Employment of our ships with big oil is a priority.
A strong balance sheet, combined with a homogenous fleet and economies of scale is giving a low cash break-even level, enabling NAT to distribute free cashflow to our shareholders.
This strategy will benefit in both a strong tanker market and in a weak one. In an improved market, higher dividends can be expected and vice versa.
Our dividend policy should continue to enable us to achieve a competitive cash yield.
Our fleet of 33 more or less identical vessels is a special feature of NAT that is particularly valuable to our customers.
NAT is firmly committed to protecting its underlying earnings and dividend potential. We shall safeguard and further strengthen this position in a deliberate, predictable and transparent way.Full Report
Source: Nordic American Tankers