Nordic Atlantic Tankers Issues Dividend
Bermuda-registerd Nordic American Tankers Limited today [Nov.7] announced it has declared a dividend of $0.30 per share for the third quarter of 2011.
Because of the weak tanker market during the quartere operating cash flow was negative.
In a statement, NAT said it believes paying the dividend is in the best interest of the company and its shareholders.
NAT maintained the dividend at the same level as for the first two quarters of 2011.
“The company is in a strong financial position and should be differentiated from shipping companies with weak balance sheets,” said a NAT spokesman. “Going into October and November, the market has improved and at this time it seems as 4Q2011 will show an improvement on 3Q2011. This again shows how the market may change quickly and unexpectedly.”
Nordic American Tankers Limited, an international tanker company, owns and operates double hull crude oil tankers. The company operates its vessels in the spot market. The company was formerly known as Nordic American Tanker Shipping Limited and changed its name to Nordic American Tankers Limited in June, 2011.
Nordic American Tankers Limited was founded in 1995 and is headquartered in Hamilton, Bermuda.
The company will pay the dividend on or about December 2nd, 2011 to shareholders of record as of November 23, 2011. Starting in the fall of 1997, when NAT began its operations, the company has paid a quarterly dividend for 57 consecutive quarters. Including the dividend for 3Q2011, the total dividend payment over this period amounts to $42.74 per share.
“Due to the company’s strong balance sheet, and the availability of liquidity in the form of undrawn amounts under the credit line, we are in a position to support our shareholders and pay a higher dividend than the cash flow itself would warrant without unduly increasing the financial risk of NAT,” said the spokesman. “Our dividend policy reflects the particular desire of the board and management to support shareholders in periods when the tanker market is soft.
“During the fourth quarter of 2010 our operating fleet stood at 15 vessels. Now, the company has 19 trading vessels, increasing our fleet by 27 percetn in less than a year and thus substantially bolstering our earnings and dividend capacity. In addition the second Samsung new building, the ‘Nordic Zenith’, is expected to be delivered to us tomorrow. The company remains committed to its strategy of accretive growth combined with a strong balance sheet.”
NAT said the following key points should be considered:
- The board has declared a dividend of $0.30 per share for 3Q2011, the same as for 2Q2011.
- Earnings per share in 3Q2011 were -$0.46 compared with -$0.21 in 2Q2011.
- In 3Q2011 the total off hire (out of service) was 46 days for the entire trading fleet. A substantial portion of this off hire is related to installation of fuel efficiency equipment.
- The first of the two newbuildings from Samsung, the ‘Nordic Breeze’, was delivered to us August 24. The second vessel, the Nordic Zenith, will be delivered to us tomorrow.
- On September 22, the Company took over the ‘Nordic Aurora’, a suezmax tanker that NAT agreed to acquire in early September 2011.
- We continue to focus on cost efficiency — both in administration and onboard our vessels. The average daily operating costs per vessel were lower in 3Q2011 than the average in 2010.
- The company does not engage in any type of derivatives.
- The spot market rates achieved in the third quarter were in the same range as the average Imarex rates for the quarter. Imarex is a good indication for the level of the tanker market. In October the suezmax tanker spot rates increased significantly and have thereafter fallen back.
- Economic development in Asia remains strong while Europe and the US show sluggish growth.
Financial Information
The NAT board has declared a dividend of $0.30 per share for 3Q2011 to shareholders of record as of November 23, 2011 which is the same as for the two first quarters of 2011.
The dividend for the third quarter of 2010 was $0.25 per share. The average number of shares outstanding for the third quarter of 2011 was 47,270,630.
Earnings per share in 3Q2011 were -$0.46 per share compared to -$0.21 per share in 2Q2011. The company’s operating cash flow[1] was -$5.5m for 3Q2011, compared with $7.7m for 2Q2011. NAT debited the G&A accounts for the 3Q2011 with $0.5m being legal fees incurred in the arbitration case involving the ”Nordic Galaxy.”
“We continue to concentrate on keeping our vessel operating costs low, while always maintaining our commitment to safe vessel operations,” said the firm. “We pay special attention to the cost synergies of operating a homogenous fleet that consists only of double hull suezmaxes. As we expand our fleet, we do not anticipate our administrative costs to rise at the same rate as our expansion.”
As a general guideline, NAT does not accumulate cash in the company as all cash generated after expenses is paid out as dividend to shareholders. If the cash break-even rate is not reached the shortfall will be covered by the credit line.
“We cover the dividend from the existing resources of the company,” said the spokesman. “NAT has a low cash break-even level.
“The break-even rate is the amount of average daily revenue our vessels would need to earn in the spot tanker market in order to cover our vessel operating expenses, general and administrative expenses, interest expense and other financial charges.”
The company said it continues to keep a strong balance sheet with little net debt.
“NAT is also in a good position to take advantage of prospective strong shipping markets, which will quickly translate into increased dividend payouts,” said the spokesman. “Our primary objective is to enhance total return for our shareholders, including maximizing our quarterly dividend.
“At the time of this report, the company has net debt of $122 million for the whole fleet — $6.1 million per vessel –and has a revolving credit facility of $500m. To fund working capital requirement and to pay for the new buildings delivered to our company this year, $210m have been drawn. The three newbuildings received in the period December 2010 up to November 2011 have a total cost of about $220 million.”
The $500m credit facility, which matures in September 2013, is not subject to reduction by the lenders and there is no obligation to repay principal during the term of the facility.
The company pays interest only on drawn amounts and a commitment fee for undrawn amounts. NAT believes the company is an attractive borrower in the eyes of the banks.
“The tightened terms of commercial bank financing and higher margins on shipping loans are challenging for shipping companies that are highly leveraged,” said the spokesman. “By having little net debt, NAT is better positioned to navigate the financial seas, and we believe this is in the best interests of our shareholders.:
The Fleet
The Company has a fleet of 20 vessels including one newbuilding for delivery tomorrow. By way of comparison, in the autumn of 2004, the company had three vessels; at the end of 2005 the Company had eight vessels; and at the end of 2006 the coompany had 12 vessels.
At the end of 2009 and 2010 NAThad 15 vessels in operation.
NAT expects that the expansion process will continue over time and that more vessels will be added to their fleet, which is employed in the spot market.
The “Nordic Harrier” — previously named “Gulf Scandic” — was redelivered to the company last October from its charterer, Gulf Navigation, and went directly into drydock for repairs.
The ship had been operated by the charterers since the autumn of 2004. The drydock period lasted until the end of April 2011. Thereafter, the vessel is trading in the spot tanker market.
The vessel had not been technically operated according to sound maintenance practices by the charterer, and its condition on redelivery to us was far below the contractual obligation of the charterer. Therefore, NAT has a claim against the charterer for drydocking and other costs that the charterer is obligated to cover under the bareboat charter.
NAT said its has not been able to reach an agreement with Gulf Navigation and the matter is now in arbitration.
The arbitration procedures associated with the new building “Nordic Galaxy” are expected to be finished by the end of this year.
Irrespective of the outcome of the arbitration, NAT will receive a minimum of about $15 million in cash from the seller.
On a 50/50 basis together with Bermuda-based Frontline, NAT has established the Orion Tankers pool, a co-op that is expected to be operational by the end of the year. This specialist suezmax pool with 29 double hull suezmaxes at the outset is expected to enhance customer service and reduce costs.
During the fourth quarter of 2011 NAT will leave the Gemini pool. This changeover will bring the company closer to the commercial operations and will not result in any disruption.
NAT continues to focus on the high technical quality of our fleet, a requirement in tanker operations. Total off hire [out of service] for 3Q2011 was 46 days for our trading. For the first three quarters of 2011, off hire was about 1.2% for the whole fleet, resulting in a utilization of 98.8%.
World Economy and the Tanker Market
A NAT spokesman said: :The outlook for the world economy is uncertain. Seaborne imports of crude oil into the US are still at a low level. Unemployment is a particular worry in the USA. The European economies are struggling with particular problems in the banking sector.
“The economies of the Far East generally show continuing growth, which is positive for the tanker industry. Chinese crude oil imports increased 4% in the period January – September 2011 compared to the same period of 2010. At the current pace, annual crude imports into China will total a new record high.
“Tanker market rates are also affected by newbuildings that enter the markets, increasing the supply of vessels. As a matter of policy the company does not attempt to predict future spot rates.
“The average daily gross rate for our spot vessels was about $8,000 per day during 3Q2011 compared with a gross rate of $16,600 per day during 2Q2011. In a low spot market vessels may be waiting to get a cargo, while in a more robust market environment waiting days are minimised.
“In a weak tanker market the speed of our vessels is much lower on the ballast voyages than in a stronger market. To save bunkers some vessels go as low as about 8 knots in ballast depending upon the technical features of the vessels.
“We have installed fuel saving equipment on our vessels. The daily rates as reported by shipbrokers and by Imarex may vary significantly from the actual rates we achieve in the market, but these rates are in general an indication of the level of the market and its direction. In any analysis of the tanker industry, the direction of the global economy is always the biggest imponderable.”
Corporate Governance/Conflict of Interests
In the fall of 2010 the New York Stock Exchange Commission presented its final report on corporate governance. The Commission achieved consensus on 10 core principles.
These principles include a) building long-term sustainable growth in shareholder value for the corporation as the board’s fundamental objective, b) the critical role of management in establishing proper corporate governance, c) good corporate governance should be integrated with the company’s business strategy and objectives and d) transparency for corporations and investors, sound disclosure policies and communication beyond disclosure.
NAT believes the principles presented are essential elements of good corporate governance and the company is in compliance with these principles.
It is vital for NAT to ensure that there is no conflict of interests among shareholders, management, affiliates and related parties. Interests must be aligned. NAT said it will work to ensure that transactions with affiliates and/or related parties are transparent.
Strategy going forward
“Our objective is to have a strategy that is flexible and has benefits in both a strong tanker market and a weak one,” said NAT. “If the market improves, higher earnings and dividends can be expected. If the market is weaker, dividends will be lower. However, if rates remain low, the company is in a position to buy vessels inexpensively by historical standards. The company is able to improve its relative position in a weak market and thus is able to reap the benefits of a stronger environment thereafter.
“After an acquisition of vessels or other forms of expansion, the company should be able to pay a higher dividend per share and produce higher earnings per share than had such an acquisition not taken place.
“Our full dividend payout policy will continue to enable us to achieve a competitive, risk adjusted cash yield over time compared with that of other tanker companies.
“NAT is firmly committed to protecting its underlying earnings and dividend potential.
“Our company is well positioned in this marketplace. We shall endeavor to safeguard and further strengthen this position for our shareholders in a deliberate, predictable and transparent way.”
