Link to the complete 2nd Quarter 2014 report:
http://hugin.info/201/R/1848017/644750.pdf
Hamilton, Bermuda, August 11, 2014
The strong winter market at the beginning of the year subsided in 2Q2014. Refinery maintenance schedules and geopolitical factors affected our results this quarter in a weaker spring market. However, there are now reaffirmed indications that a recovery may be on the horizon. 3Q2014 has started on a more positive note than 2Q2014. The spikes in rates seen this year are a sign that the crude oil tanker market is becoming more balanced. During 2Q2014 we had cashflow from operations[1] of $4.3m, compared with $27.1m in 1Q2014, -$10.6m in 2Q2013 and -$4.9m in 1Q2013.
During 2012 and 2013, when the market was weak, we used the opportunity to place ships in planned drydock for maintenance to ensure the continued top technical quality of our vessels. During drydockings the classification societies certify the seaworthiness of our vessels, giving us confidence that the quality of our vessels ranks with the best in the industry. In 2014, NAT has undertaken two scheduled drydockings, both completed at the time of this report.
In June 2014 Nordic American Offshore Ltd. (NAO) completed a successful public offering of shares and was listed on the NYSE. Subsequently, the shares issued in the NAO November 2013 private placement in Norway were transferred to the NYSE. NAT participated in the NAO NYSE offering with $5.6m. Following the share distribution of NAO shares to NAT shareholders, NAT will own about 17% of NAO. At the time of this release, following the dividend-in-kind distribution to NAT shareholders, NAT has an unrealized gain of about $12m related to the investment in NAO. Our investment in NAO has a positive impact both accountingwise and cashwise.
On July 11, 2014, NAT declared a cash dividend of $0.12 per share payable to NAT shareholders of record as of July 25, 2014. The dividend is expected to be paid on or about August 12, 2014. In addition, as previously communicated, the dividend-in-kind with a value of about $0.16 per share will also be distributed to NAT shareholders in the form of NAO shares at about the same time.
Since NAT commenced operations in the fall of 1997, the Company has paid a dividend 68 times, with total dividend payments over the period amounting to $45.02 per share, including the dividend to be paid in August 2014.
In June and leading into July the market rebounded as refineries came back on line after scheduled maintenance and the so-called contango returned to the Brent crude market.
Key points to consider:
- Tanker rates achieved on average for 2Q2014 were $12,100 per day per vessel for our trading fleet, as against $26,300 per day achieved in 1Q2014.
- The Company agreed to acquire two additional Suezmax vessels in June, bringing the fleet to 22 vessels. The vessels were delivered to us July 16 and August 4, respectively.
- Earnings per share in 2Q2014 was -$0.19, compared with $0.05 in 1Q2014, -$0.48 in 2Q2013 and -$0.59 for 1Q2013.
- On April 7, 2014, NAT announced an equity offering that resulted in net proceeds to the Company of $113m.
- The undrawn part of our credit facility plus net working capital stood at about $387m at the end of 2Q2014.
- We continue to focus on cost efficiency - both in administration and onboard our vessels.
- 13 vessels were vetted (inspected by customers) during 2Q2014. NAT came out with excellent results, reflecting the quality of our fleet.
- NAT received a dividend of about $2.0m from its investment in NAO. It is expected that NAO will continue to produce dividends for NAT. NAO also contributes to reducing NAT's general and administrative costs.
Nordic American Tankers is very different from other tanker companies.
Nordic American Tankers has an operating model that is sustainable in both a weak and a strong tanker market. Accretive fleet growth and quarterly dividend payments are central elements of the strategy. NAT has one type of vessel - the Suezmax vessel that can carry one million barrels of oil. A homogenous fleet is reducing our costs, which helps to keep our cash-breakeven down at about $12,000 per day per vessel, which is considered low for the industry. Net asset value (NAV) is a measure that is linked to the steel value of each individual ship, and has no relevance when it comes to valuation of NAT as an ongoing business. The key for the Company is to generate returns.
Financial Information
The Company declared a cash dividend of $0.12 on July 11, 2014, which is expected to be paid on or about August 12, 2014 to shareholders of record as of July 25, 2014. The number of NAT shares outstanding at the time of this report is 89,182,001.
We believe that Nordic American Offshore will strengthen Nordic American Tankers. We see cost synergies for both NAT and NAO, in particular as regards general and administrative costs. The G&A costs of NAT benefit from resource sharing with NAO. As our respective fleets grow both companies benefit. Further growth should result in lower costs on a per vessel basis. Our investment in NAO has been recorded as a capital asset.
Earnings per share in 2Q2014 was -$0.19, compared with $0.05 in 1Q2014, -$0.48 in 2Q2013 and -$0.59 in 1Q2013.
The Company's operating cash flow in 2Q2014 was $4.3m, compared with $27.1m in 1Q2014, -$10.6m in 2Q2013 and -$4.9m in 1Q2013.
There are no further scheduled drydockings in 2014.
As a matter of policy, the Company has always kept a strong balance sheet with low net debt and a focus on limiting the Company's financial risk. This policy will continue. At the end of 2Q2014 the net debt per NAT vessel was about $5m including the remaining purchase price for the 21st and 22nd vessel that were delivered to us in 3Q2014.
The Company is well placed to take advantage of strong shipping markets, which can be expected to be reflected in increased dividend payouts immediately following a market upswing.
It is a prerequisite for any expansion of the fleet that our dividend and earnings capacity per share increase, following such a transaction.
Our primary objective is to enhance total return for our shareholders, including maximizing our quarterly dividend.
The Company has in place a non-amortizing credit facility of $430m maturing in November 2017, of which $250m has been drawn. Cash on hand is about $154m. Net working capital and undrawn amounts of the credit facility amount to $387m.
Given the Company's financial position and development in the crude oil tanker environment, NAT is not planning to access the equity capital markets at this time.
For further details on our financial position for 2Q2014, 1Q2014 and 2Q2013, please see later in this release.
The Fleet
Our company recently agreed to buy two secondhand vessels. The vessels were delivered to us July 16, 2014 and August 4, 2014. Now, the Company has a fleet of 22 vessels. By way of comparison, in the autumn of 2004, the Company had three vessels. Our vessels are in excellent technical condition.
Following the arbitration hearings involving the Suezmax vessel Gulf Scandic (now named Nordic Harrier), NAT was awarded $10.2m in the arbitration. Gulf Navigation Holding PJSC (GulfNav) was the other party in the arbitration.We are working to collect the award.
Link to the graph: http://hugin.info/201/R/1848017/644750.pdf
NAT's fleet is kept in top condition. Our operational performance remains at the forefront of the industry. The chart above shows our development in observations per inspection per quarter. 2Q2014 inspections had an average of 4.0 observations which is an excellent result. NAT's performance can be considered industry best practice.
World Economy and the Tanker Market
The development of the world economy affects the tanker industry. Seaborne imports of crude oil into the US have decreased over the recent past. Going forward, shale oil and tar sand oil projects are expected to affect the US and Canadian oil sector. These projects are vulnerable to reduced oil prices. In terms of transportation work (ton miles), the reduced imports into the US are more than outweighed by the increased imports to the Far East. The economies of the Far East generally show continuing growth, although at a slower pace than before.
Tanker market rates are also affected by newbuildings that enter the markets, increasing the supply of vessels. Increased scrapping impacts supply in the other direction.
The Suezmax fleet (excl. shuttle tankers) counts 447 vessels at the end of 2Q2014, meaning the fleet has not grown this year.
The current orderbook stands at 41 vessels from now to mid-2017. This represents less than 9% of the Suezmax fleet. In 2009, the orderbook was at over 50% of the existing fleet. At the time of this report, the orderbook for 2014 counts 11 Suezmax vessels. Four Suezmax vessels were delivered in the first six months of 2014, and 10 have been delivered in the last four quarters. The Company believes about 10-15 of the vessels in the orderbook will not be delivered, possibly more.
So far this year four vessels with an average age of around 21 years have been scrapped. In 2013 six Suezmaxes were scrapped compared to 21 in 2012 and eight during 2011.
The graph below shows the average yearly spot rates since 2000 as reported by R.S. Platou Economic Research a.s. 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.
Link to the graph: http://hugin.info/201/R/1848017/644750.pdf
Corporate Governance/Conflict of Interests
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. We 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. When the market improves, higher earnings and dividends can be expected. If rates do remain low, the Company is in a position to buy secondhand vessels or newbuildings, which are inexpensive by historical standards. Therefore, the Company is able to improve its relative position in a weak market and will be able to reap the benefits of stronger markets thereafter. Over the recent past the Company has improved its relative position. NAT is always assessing investments that further strengthen the Company.
Provided spot market rates remain above our cash break-even level, the Company should be able to pay a higher dividend per share and produce higher earnings per share after an acquisition of vessels than had such an acquisition not taken place.
Our dividend policy will continue to enable us to achieve a competitively priced risk adjusted cash yield and a competitive total return 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.
We encourage investors who seek exposure to the tanker sector to consider buying shares in NAT.
* * * * *
Link to the graph: http://hugin.info/201/R/1848017/644750.pdf
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters discussed in this press release may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.
The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. The words "believe," "anticipate," "intend," "estimate," "forecast," "project," "plan," "potential," "will," "may," "should," "expect," "pending" and similar expressions identify forward-looking statements.
The forward-looking statements in this press release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, our management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies and currencies, general market conditions, including fluctuations in charter rates and vessel values, changes in demand in the tanker market, as a result of changes in OPEC's petroleum production levels and world wide oil consumption and storage, changes in our operating expenses, including bunker prices, drydocking and insurance costs, the market for our vessels, availability of financing and refinancing, any change in our liquidity requirements and the state of the equity and debt capital markets, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, vessels breakdowns and instances of off-hires and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission, including the prospectus and related prospectus supplement, our Annual Report on Form 20-F, and our reports on Form 6-K.
Contacts:
Scandic American Shipping Ltd
Manager for:
Nordic American Tankers Limited
P.O Box 56, 3201 Sandefjord, Norway
Tel: + 47 33 42 73 00 E-mail: nat@scandicamerican.com
Jacob Ellefsen,
Manager, Investor Relations and Research, Monaco
Nordic American Tankers Limited
Tel: + 33 678 631 959 or + 377 93 25 89 07
Rolf Amundsen, Advisor, Norway
Nordic American Tankers Limited
Tel: +1 800 601 9079 or + 47 908 26 906
Turid M. Sørensen, CFO & EVP, Norway
Nordic American Tankers Limited
Tel: +47 33 42 73 00 or +47 90 57 29 27
Gary J. Wolfe
Seward & Kissel LLP, New York, USA
Tel: +1 212 574 1223
[1] Operating cash flow is a non-GAAP number. Please see later in this announcement for a reconciliation of operating cash flow to income from vessel operations.
