Nordic American Tankers (NYSE:NAT) released its 1st Quarter 2018 report:
NAT is focusing on keeping costs at the lowest possible level. This is a reflection of the fact that we work on matters that we can do something about. Our main priorities are concentrated on shareholders, customers and the company itself, specializing in suezmax tankers (33 vessels) based on its long standing strategy. This strategy of NAT cannot at all be compared with other tanker companies listed in the US. NAT has good ships, good people and a solid reputation. NAT has more than 100,000 shareholders, above all in the US.
The time charter equivalent for our vessels during 1Q2018 was $11,200 per day per ship. Going forward, prospects are good for NAT. The world economy is enjoying its strongest upswing since 2010. What is good for the world economy, is positive for NAT. Political events, on the world scene, may be good.
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 NAT’s operations of about $160 million per year, which would pay back today’s market capitalization of NAT in less than 2 years. In contrast, a Suezmax vessel may trade for 25 years.
We continue our unbroken practice of paying dividends. Tanker markets are volatile but our strategy remains steadfast. On April 27, 2018, we announced the 83rd consecutive quarterly dividend distribution. This time of 1cent per share. The reduced dividend is simply a reflection of the weak tanker market during 1Q2018, which is not satisfactory.
Our objective is to return to the dividend level which on average was in excess of $2 per share per year over the period 1997-2018.
As announced in a press release of May 3, 2018, we are circulating two vessels for sale. This fleet adjustment must be seen in light of our three new vessels for delivery early July, end of August and end of October this year. A tanker is normally written down for accounting purposes over 25 years.
The non-cash accounting numbers for NAT are a Net Loss for 1Q2018 (after depreciation, G&A and finance charges) of -$18.7m against a Net Loss from 4Q2017 of -$151.4m. NAT Net Loss in 4Q2017 was impacted by non-cash impairment charges. A better reflection of the performance for the quarter, the Adjusted Net Operating Earnings* (cash), came in at $4.4m for 1Q2018, down from $11.2m in 4Q2017.
Our net debt** at the end of 1Q2018 stood at about $266 million equal to about $8.9 million per vessel, which is lower than the scrap value of a Suezmax vessel today.
Later in this report, we have included financial information, commented upon above, for 1Q2018 and for other periods.
* Adjusted Net Operating Earnings (Loss) represents Net Operating Earnings or Loss before depreciation, impairment and non-cash administrative charges. Please see later in this announcement for a reconciliation of Net Operating Earnings (Loss) to Adjusted Net Operating
** Net Debt is working capital, less long-term debt, adjusted for deposits paid for the three newbuilds, divided by 30 vessels
Our fleet consists of 33 (including 3 newbuilds) well maintained Suezmax tankers 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 13.5 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.
As announced in press release of May 3, 2018, we are circulating two vessels for sale. This fleet adjustment must be seen in light of our three new vessels for delivery early July, end of August and end of October this year.
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.
Our net debt at 1Q2018 stood at a conservative $8.9 million per vessel which 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 financing.
We plan that the recapitalization program shall be finalized by the end of 2Q2018.
This recapitalization, when completed, should improve our financial flexibility going forward.
At the time of this report we are in compliance with all financial covenants.
For 1Q2018 a cash dividend of $0.01 per share has been declared. Payment of the dividend is expected to be on or about June 12, 2018, to shareholders of record on May 24, 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.
World Economy and the Tanker Market
The world economy is enjoying its strongest upswing since 2010. What is good for the world economy is by nature positive for NAT. 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 495 vessels at the end of 1Q2018, following an increase of 2 vessels in the quarter. The total delivery during 2017 was 50 units. 2017 represented a peak year for deliveries. For 2018 we expect 25 vessels, and in 2019 we see 17 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. Employment of our ships with big oil is a priority.
A strong balance sheet, combined with a homogenous fleet and economies of scale are giving a low cash break-even level.
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 our position in a deliberate, predictable and transparent way.