Nordic American Tankers posted its best quarterly performance in nearly three years. The Herbjorn Hansson-led company posted a $5.6m profit for the first three months of 2019 a $25.3m improvement over the same period in the previous year.
A company announcement reads:
- 1Q2019 was a busy quarter and also saw the best result for NAT since 2Q2016
- With this report we announce our 87th consecutive quarterly distribution. The dividend is 0.03 cents per share payable on June 12, 2019, to shareholders on record May 28, 2019. It is our objective to increase the dividend as tanker markets improve.
- the TCE (time charter equivalent) for our vessels in 1Q2019 saw an improvement of 30% from the previous quarter and came in at an average of $26,025 per day per ship compared to $20,100 in 4Q2018.
- The Net profit for 1Q2019, (after depreciation, G&A and finance charges) totaled $5.6 million compared to a net loss of $10.5 million in 4Q2018 and a net loss of $19.7 million in 1Q2018. This was $16.1 million better than the previous quarter and $25.3 million better than same quarter last year. This is a substantial improvement and gives us a strong start to the year.
- the net operating earnings improved by $12.9 million from the previous quarter totaling $18.3 million for 1Q2019 compared to $5.4 million in 4Q2018.
- A better reflection of the company’s cash generation, The Adjusted Net Operating earnings was $34.3 million for 1Q2019 compared to $23.6 million in 4Q2018 and $4.4 million in 1Q2018. 1Q2019 was $10.7 million better than the previous quarter and $29.9 million better than the same quarter last year.
- We made net cash repayments of our debt of $17.7 million during the quarter and our net debt at March 31, 2019 stood at $341 million equal to $14.8 million per vessel.
- During 1Q2019 we refinanced our credit facility with a $306 million secured loan and registered a $40 million ATM. Together with our 3 vessels delivered and financed last year, we now have a financial structure in place for all of our 23 vessels with better flexibility and longer maturities than we had only a few months ago.
- Later in this report we have included relevant financial information for NAT 1Q2019 and for other periods.
- We expect to see volatility in the tanker market during 2019 due to refinery adjustments that must be made to meet the new fuel regulations that come into full effect from 2020. these adjustments will be positive for tanker demand and we expect 2019 to be a better year than 2018. With the majority of our fleet in the spot market, NAT is well positioned for an improving tanker market in the coming years.
Our fleet consists of 23 well maintained Suezmax tankers with an aggregate cargo capacity of 23 million barrels of crude oil, illustrating the size of NAT. The average age of our fleet is about 11 years; 10 units were built from 2010 onwards, 13 units were built between 2000 and 2009.
The outcome of the inspections of our ships by oil companies (“vetting”) reflects the good quality of our fleet.
NAT has one of 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 fleet is financed through two financing arrangements; the $306 million 5-year senior secured credit agreement with CLMG Corp., funded by Beal Bank of Dallas, Texas and the Ocean Yield financing for our 3 vessels delivered last year. Both financing arrangements contain an element of down-payment that will reduce our debt going forward, while still maintaining our flexibility to distribute generous dividends in improving tanker markets.
The debt level of NAT has always been among the lowest in the industry. The NAT board has focus on further reducing the debt to a level that NAT maintained a few years ago.
We made net cash repayments of our debt of $17.7 million during the quarter and our net debt at March 31, 2019 stood at $341 million equal to $14.8 million per vessel.
During 1Q2019 we also registered a $40.0 million At-the-Market issuance agreement (ATM). This facility was established to ensure we have financial flexibility at all times. As of the date of this report, no shares have been issued under this agreement.
For 1Q2019 a cash dividend of $0.03 per share has been declared. This represents 75% of our Earnings Per Share in the quarter. Payment of the dividend is expected to be on or about June 12, 2019, to shareholders of record on May 28, 2019.
In an improved tanker market, higher dividends can be expected.
Nordic American Offshore Ltd. (NYSE: NAO)
At the date of this report, major steps have been taken by new shareholders in NAO, introduced and welcomed by NAT’s Chairman & CEO, to secure a robust financial structure to take the Company through the challenging market. After a series of transactions by the new investors, aimed at strengthening NAO’s balance sheet, NAT now owns 5.33% and the NAT Chairman & CEO and his immediate family owns 4.11% of Nordic American Offshore Ltd. The NAO shareholding is no longer classified as a capital asset in our accounts, but is recorded as an investment security. We remain supportive to the new shareholder and management 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 and world trade is by nature positive for the crude oil tanker 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 & Jones Act tankers) counts 514 vessels at the end of 1Q2019. The total delivery during 2018 was 28 vessels. For 2019 we expect a similar number of vessels as in 2018, and in 2020 we currently see 22 vessels scheduled for delivery. During 2018, 21 Suezmax vessels were scrapped.
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 23 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.