Operating revenues and other income for the first quarter of 2017 were USD 167.8 million compared to operating revenues and other income of USD 35.7 million for the first quarter of 2016. Q1 2017 operating revenues and other income were primarily driven by the delivery by Philly Shipyard of Hull 026 to Kinder Morgan, the related sale by Philly Tankers of its Hull 026 shipping assets to Kinder Morgan and continued progress on the Matson vessels (i.e., Hulls 029-030), whereas Q1 2016 operating revenues and other income were primarily driven by continued progress on the PHLY-Crowley joint venture vessels (i.e., Hulls 021-024). Net income for Q1 2017 was USD 17.2 million compared to net income of USD 1.9 million for Q1 2016.

As previously disclosed, under International Financial Reporting Standards (IFRS), (1) 49.9% of the profit on each of Hulls 021-024 to be delivered to the PHLY-Crowley joint venture was deferred, and the total estimated deferred margin for all four vessels was recognized pro-rata (25% per ship) at delivery, and (2) Philly Shipyard is required to recognize 100% of the revenue, cost and profit on each of Hulls 025-028 at its delivery. This accounting treatment is required for Hulls 025-028 because there were no external customers at the time these contracts were signed and shipbuilding activities commenced. With the delivery of Hull 025 in Q4 2016 and Hull 026 in Q1 2017, 100% of the revenue, cost and profit on those vessels has now been recognized. EBITDA1 for the first quarter of 2017 was USD 29.9 million compared to EBITDA of USD 2.0 million in the first quarter of 2016. Adjusted EBITDA2 for the first quarter of 2017 was USD 14.3 million compared to Adjusted EBITDA of USD 11.8 million in the first quarter of 2016.

The increase in EBITDA was mainly driven by the delivery by Philly Shipyard of Hull 026 to Kinder Morgan and the related sale by Philly Tankers of its Hull 026 shipping assets to Kinder Morgan. In addition to the IFRS financial measures reported above, EBITDA and Adjusted EBITDA are considered other relevant earnings indicators for PHLY as they measure the operational performance of the shipyard. In particular, Philly Shipyard believes presenting Adjusted EBITDA is useful to investors as it provides another measure of Philly Shipyard’s profitability from its operations, as if Philly Shipyard never had an economic interest in the PHLY-Crowley joint venture vessels or investment in Philly Tankers, and more closely represents earnings from shipbuilding activities. Net financial items in Q1 2017 were income USD 1.4 million compared to income of USD 1.6 million in Q1 2016.

For both Q1 2017 and Q1 2016, the main financial income drivers were primarily unrealized currency gains on foreign exchange forward contracts. Balance Sheet Total assets were USD 371.1 million at 31 March 2017 compared to USD 408.8 million at 31 December 2016. The decrease in total assets was primarily driven by a decrease in vessels-under-construction receivable and work-in-process, which decreased in aggregate from USD 180.3 million to USD 162.8 million following delivery of Hull 026 on 29 March 2017.

The Company’s total debt decreased in 2017 to USD 112.5 million at 31 March 2017 compared to total debt at year-end 2016 of USD 157.5 million. The net decrease was mainly due to payback of the full USD 75.0 million Caterpillar loan for Hull 026, offset partially by draws made on the Caterpillar loan facility for Hull 027. The Caterpillar loan facility is described under Financing below. Cash and cash equivalents (excluding restricted cash) were USD 68.0 million at 31 March 2017, compared to USD 69.1 million at 31 December 2016. The decrease of USD 1.1 million was due to payback of the full Caterpillar loan for Hull 026 along with the dividend paid offset mostly by additional customer payments made on Hulls 027 and 028 and additional draws made on the Caterpillar loan facility for Hull 027. As of 31 March 2017, restricted cash consisted of USD 7.0 million related to the SeaRiver project, which is expected to be released in 2017, and USD 13.1 million related to the Welcome Fund loan, which is expected to be released in 2020 when the loan matures. Total equity increased to USD 105.6 million at 31 March 2017 from USD 91.4 million at year-end 2016 due to the net income of USD 17.2 million partially offset by the dividend paid of USD 3.0 million.

Financing

The Company has a secured USD 150.0 million loan facility with Caterpillar Financial Services Corporation (Cat Financial) for construction financing on Hulls 027-028. USD 53.0 million was drawn under this facility as of 31 March 2017 for the construction of Hull 027. The Company also has a secured five-year term loan for up to USD 60.0 million from PIDC Regional Center, LP XXXI through the Welcome Fund loan program. The loan matures in March 2020. The entire USD 60.0 million amount was drawn under this facility as of 31 March 2017. The Company also has an unsecured three-year revolving credit facility for up to USD 20.0 million from TD Bank, N.A. The facility terminates in April 2019. After April 2017, the facility amount automatically reduced to USD 10.0 million. USD 1.2 million of this facility was utilized as of 31 March 2017 for the issuance of letters of credit.

Shareholder Distributions

In 2016, the Company paid dividends totaling approximately USD 90.7 million, consisting of USD 12.1 million of ordinary dividends and USD 78.6 million of extraordinary dividends. In addition, an ordinary dividend for the fourth quarter of 2016 of USD 0.25 per share, totaling USD 3.0 million, was paid in March 2017. Due to the current uncertainty in securing new orders beyond Hull 030, the Company does not plan to pay any further ordinary or extraordinary dividends at this time. The PHLY Board will revisit the Company’s dividend policy and dividend plan when it has more clarity about the Company’s new order situation and related capital requirements.

Outlook

Shipbuilding

The contracts with Philly Tankers (Hulls 027-028) and Matson (Hulls 029-030) provide for shipbuilding activity with delivery dates through Q1 2019. As of 31 March 2017, Philly Shipyard had an order backlog of USD 624.4 million. As noted above, under IFRS, Philly Shipyard is required to recognize 100% of the revenue, cost and profit on each of Hulls 025-028 at its delivery. In the remainder of 2017, Philly Shipyard expects to recognize 100% of the revenue, cost and profit for Hulls 027-028 upon their deliveries to Kinder Morgan (as assignee of Philly Tankers), together with its share of profit of the equity investment in Philly Tankers from the related sale of its shipping assets for Hulls 027-028 to Kinder Morgan.

Philly Shipyard also expects to record revenue and cost for the remainder of 2017 for continued progress on Hulls 029-030. Key focus areas for Philly Shipyard’s operations in 2017 are delivery according to contract delivery dates for the two remaining product tankers being built for Kinder Morgan (as assignee of Philly Tankers), and continued progress on the containerships under construction for Matson. In addition, main focus areas for Philly Shipyard’s business in 2017 are securing new contracts to expand its order backlog beyond Hull 030 and seeking capital to finance the construction of new vessels. Although no firm orders are in place, Philly Shipyard has commenced design work and procurement activities to build Hulls 031 and 032 as container vessels. Start of production for Hull 031 is planned for Q2 2018; however, production start is dependent upon the satisfaction of certain contingencies, including securing a firm order and/or construction financing for this vessel. There can be no assurance these contingencies will be satisfied. The delay in securing new orders has already negatively impacted the optimal production schedule for these vessels. While Philly Shipyard is currently focused on large containerships for its next contracts, Philly Shipyard continues to explore potential new construction projects in other areas of the Jones Act market.

Among other endeavors, Philly Shipyard has teamed with Fincantieri Marine Group (FMG) and Vard Marine to compete for the detail design and construction of the U.S. Coast Guard’s next generation heavy polar icebreaker. In support of this effort, the team is participating in a government funded industry study to develop a baseline icebreaker design, cost estimate and project schedule and refine key vessel features and performance requirements.

Shipping

As Philly Shipyard and Philly Tankers completed definitive documentation in 2016 to divest their shipping assets related to Hulls 021-028, they will no longer have exposure to these vessels in service. These transactions streamlined the business and marked a successful conclusion to an innovative plan to invest in eight Jones Act product tankers with an approximate contract value of USD 1 billion through the PHLYCrowley joint venture (Hulls 021-024) and Philly Tankers (Hulls 025-028). In line with its business strategy, the Company will continue to evaluate opportunities to participate in the post-delivery economics of the ships that it constructs.

Full Report

Source: Philly Shipyard ASA