Nordic American Tankers Posts Dividend
Bermuda’s Nordic American Tankers Limited today [Feb. 13] announced that it has declared a dividend of $0.30 per share for the fourth quarter of 2011. The non-GAAP measure, operating cashflow was at cash break-even for 4Q2011 — an improvement from 3Q2011.
This cash flow from marine operations of the company’s vessels for the year 2011 was positive with $12.7 million. NAT believes that paying a dividend is in the best interest of the company and its shareholders despite the weak market in 4Q2011.
The company can indeed afford to pay a dividend even in this environment. The dividend of $0.30 per share to be paid in the first quarter of 2012 is the same as for the last three quarters of 2011. The dividend paid in 1Q2011 was $0.25 per share.
Incorporated in Bermuda in 1995, the company said it is in a strong financial position and should be differentiated from shipping companies with weak balance sheets. The tanker market in 4Q2011 was stronger than in 3Q2011. Going into January and February 2012, the market has improved and at this time it seems that 1Q2012 will show an improvement on 4Q2011. Nevertheless, the spot market for tankers is always unpredictable and volatile.
The company will pay the dividend on or about March 2nd, 2012 to shareholders of record as of February 23, 2012.
Starting in the fall of 1997, when NAT began its operations, the company has paid a quarterly dividend for 58 consecutive quarters. Including the dividend for 4Q2011, the total dividend payments over this period amount to $43.04 per share.
The company closed a stock offering January 24th, 2012, which strengthened the capital base with $75.9 million. The previous offering of the company was more than two years ago, in January 2010. In combination with further acquisitions of vessels NAT expects that the offering will be accretive. Growth is a central element of the strategy of the company. NAT’s desire to maintain a strong balance sheet in the further expansion process is the main rationale of the offering. Over time it is essential that the transportation capacity — the number of ships — increases more than the share count.
During the fourth quarter of 2010 NAT’s operating fleet stood at 15 vessels. During the fourth quarter of 2011, the company had 20 trading vessels after its second Samsung newbuilding was delivered in early November 2011. NAT’s fleet has increased by 33% in a year and has substantially bolstered the company’s earnings and dividend capacity going forward.
The company remains committed to its strategy of accretive growth combined with a strong balance sheet.
Key points to consider:
- Earnings per share in 4Q2011 were -$0.37 compared with -$0.27 in 4Q2010.
- In 4Q2011 the total off hire was 58 days for the entire fleet of which 46 days were planned.
- In November NAT established the Orion tanker pool on a 50/50 basis with Frontline Ltd.
- The first of the two newbuildings from Samsung, the “Nordic Breeze”, was delivered in August 2011 and the second vessel, the “Nordic Zenith” [pictured at top], was delivered in November 2011.
- NAT continues to focus on cost efficiency – both in administration and onboard our vessels. The average daily operating costs per vessel were lower in 4Q2011 than the average in 2010.
- The spot market rates achieved in the fourth quarter 2011 were about $12,000 per day per ship gross to us. In 3Q2011 our gross spot market rate was equivalent to $8,000 per day per ship.
- Economic development in Asia remains strong while Europe is down and the growth in the US is still sluggish.
- On January 24th, 2012 the company closed an offering of shares, strengthening the capital with $75.9 million.
- The company does not engage in any type of derivatives.
Financial Information
The board declared a dividend of $0.30 per share for 4Q2011 to shareholders of record as of February 23rd, 2012 which is the same as for the three first quarters of 2011. At the end of 2011 the share count stood at 47,303,394. As of the time of this report, after the offering that was closed January 24, 2012 the total number of shares outstanding is 52,915,639.
Earnings per share in 4Q2011 were -$0.37 per share compared to -$0.80 per share in 3Q2011 which includes elements associated with the Nordic Galaxy arbitration. The Company’s operating cash flow was $0.0m for 4Q2011, compared with -$5.5m for 3Q2011.
The major points of the arbitration process involving the “Nordic Galaxy” have been settled. The remaining item still not finally decided is related to the level of legal fees to be paid by NAT to the seller.
The company has charged the G&A account for the 4Q2011 with $1.6 million being estimated legal fees incurred in the arbitration. This is offset by interest income of $1.2 million received in 4Q2011 from the seller in connection with the outstanding loan balance. The loan that NAT extended to the seller has been repaid, including an offset of $16.2 million being compensation to the seller. In connection with the follow-on offering that was closed January 24, 2012 NAT was required to file with the US Scurity & Exchange Commission an Interim Financial Statement as per September 30, 2011 where this item was recognised as a subsequent event and is therefore not reflected in the 4Q2011 accounts.
In economic terms, from NAT’s perspective this can be seen as a “cancellation” of a $90m vessel with a cancellation fee of about $16.2m except for those costs that the company charged to its profit & loss account earlier. It is to NAT’s advantage that the ship will not enter its fleet.
The company continues to concentrate on keeping its vessel operating costs low, while always maintaining our strong commitment to safe vessel operations. NAT pays special attention to the cost synergies of operating a homogenous fleet that consists of double hull suezmaxes only. As the company expands its fleet, NAT does not anticipate administrative costs to rise at the same rate as its expansion. In a weak tanker market other tanker companies may have challenges in keeping up technical standards as they cannot afford to spend the required funds for operations and maintenance.
As a general guideline, the company covers the dividend from cash on hand. NAT has a low cash break-even level of about $11,000 per day per vessel. The cash 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 vessel operating expenses, general and administrative expenses, interest expense and other financial charges.
As a matter of policy, NAT continues to keep a strong balance sheet with little net debt and a strong focus on the financial risk of the company, an essential dimension of its strategy.
NAT is also in a good position to take advantage of prospective strong shipping markets, which will quickly translate into increased dividend payouts.
R.S. Platou Economic Research a.s. reports that during seven of the last 12 years, up to the end of 4Q2011, tanker rates have averaged about $40,000 per day per vessel or more. This is reflected in the graph shown later in this report. As a matter of policy, NAT does not attempt to predict future spot rates.
Prices for second hand tankers have softened as indicated by NAT’s last acquisition in September 2011. Should this trend continue, the company will following our recent offering be in an excellent position to buy additional vessels at advantageous prices when the time is right. Such acquisitions would increase the dividend capacity of the company. It is a prerequisite for any expansion of the fleet that the dividend and earnings capacity per share increase.
NAT’s primary objective is to enhance total return for shareholders, including maximizing the quarterly dividend.
At the time of this report, the company has net debt of $79.3 million for the whole fleet [about $4 million per vessel]. In addition the company has in place a revolving credit facility of $500 million, of which $250 million have been drawn at this time. Cash on hand at the time of this report is about $100 million.
The $500 million 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. By having little net debt, NAT is better positioned to navigate the financial seas, and we believe this is in the best interests of shareholders.
During 2011 the spot tanker market was weak. However, the financial position of NAT gives us strong confidence going forward.
The company has a fleet of 20 vessels. By way of comparison, in the autumn of 2004, the company had three vessels; at the end of 2005 NAT had eight vessels; and at the end of 2006 the company had 12 vessels. At the end of 2009 and 2010 the company had 15 vessels in operation.
On a 50/50 basis together with Bermuda-based Frontline, NAT established the Orion tanker pool, a co-op that is operational at the time of this report. NAT gets earnings on 20 vessels out of the 30 vessels in the pool. This specialist suezmax pool with 30 double hull suezmax tankers is at the outset expected to enhance customer service further and to reduce costs.
