The company reports strong adjusted EPS growth of 61%. The acquisition of Prestige Cruise Holdings was completed in the fourth quarter.
The integration is progressing well with identified synergies of $50 million.
Norwegian Cruise Line Holdings Ltd. (NASDAQ: NCLH) (NCL Corporation Ltd., “Norwegian Cruise Line Holdings,” “Norwegian,” or “the Company”), has reported its results for the quarter and full year ended December 31, 2014, and has also provided guidance for the first quarter of 2015 and the full year. The results reported for the quarter and full year ended December 31, 2014, include the results of its recently acquired Prestige Cruise Holdings, Inc. (“Prestige Cruise Holdings,” “Prestige”) beginning with the closing of the acquisition on November 19, 2014. Due to the short consolidation period for Prestige’s results, some data are presented on both a reported and an excluding basis (“Norwegian only”).
Main news from the 2014 fiscal year
- The acquisition of Prestige Cruise Holdings, parent company of Oceania Cruises and Regent Seven Seas Cruises, diversifies the Company's product portfolio
- Adjusted EPS improvement to 61.0% (64.5% on a “Norwegian only” basis)
- Adjusted Net Yield increased to 4.8% (3.3% on a “Norwegian only” basis)
- Revenue increased by 21.6% to $3.1 billion
- Launch of the Norwegian Getaway, Norwegian Cruise Line's first ship based in Miami year-round in more than a decade.
Results for the 2014 fiscal year
“Given the achievements of the past year, it is clear that 2014 will be remembered as a year of strong growth and game-changing expansion for the Company,” said Frank Del Rio, President and CEO of Norwegian Cruise Line Holdings Ltd. “These strong results are a testament to the hard work and dedication of our team members who, despite working in a challenging environment, focused on optimizing pricing and managing expenses while delivering outstanding vacation experiences for our guests. Looking ahead, the acquisition of Prestige has created the most dynamic and diversified operator in the cruise industry, perfectly positioned to leverage significant synergies and deliver superior results. I am excited to lead this exciting company, which combines a deep-rooted history in the industry with an entrepreneurial spirit unique among cruise operators,” Del Rio continued.
The Company reported, on a reported basis, a 61.0% increase in adjusted EPS to $2.27, on adjusted net income of $480.6 million, excluding expenses related to the acquisition of Prestige and other items. In accordance with generally accepted accounting principles (GAAP), diluted earnings per share and net income were $1.62 and $338.4 million, respectively. 2014 EPS includes a $0.03 per share impact related to an incident aboard Oceania Cruises' Insignia in December 2014. On a Norwegian-only basis, adjusted EPS increased 64.5% to $2.32. This follows a 45% increase in adjusted EPS in 2013 and further demonstrates the Company's revenue-generating capacity.
The 25.5% improvement in adjusted net income to $2.4 billion was driven by a 19.8% increase in capacity days along with a 4.8% improvement in adjusted net yield. Adjusted net income excludes a $10.1 million fair value adjustment of deferred income related to the acquisition of Prestige. The increase in capacity days was primarily due to the addition of the Norwegian Breakaway and Norwegian Getaway to the Norwegian Cruise Line fleet in April 2013 and January 2014, respectively, as well as the addition of capacity days from the Prestige fleet. The improvement in adjusted net yield was primarily due to a 3.3% increase in "Norwegian-only" net yield (3.2% on a constant currency basis) and also partly due to the addition of the Prestige brands to the fleet. Revenue for the period increased 21.6% to $3.1 billion, up from $2.6 billion in 2013.
On a reported basis, the adjusted net cruise cost per capacity day, excluding fuel expenditure, increased 3.5%. The adjusted net cruise cost per capacity day, excluding fuel expenditure, increased 1.0% on a “Norwegian only” basis (0.8% on a constant currency basis) due to investments related to the Norwegian NEXT program, as well as marketing expenditures to stimulate demand and last-minute bookings in the fourth quarter and capitalize on momentum for the promotional season.
The Company's fuel price per metric ton, free of the impact of hedging, was $605, compared to $686 in 2013. The Company experienced a negative impact of $10.3 million on its hedging portfolio in 2014 due to recent reductions in fuel prices, compared to a benefit of $4.7 million in 2013. The fuel price per metric ton, taking into account the impact of hedging, decreased to $625, compared to $675 in 2013. The Company's fuel consumption per capacity day decreased by 3.1%.
Net interest expense was $151.8 million in 2014, compared to $282.6 million in 2013. The 2014 interest expense reflected an increase in the average outstanding debt associated with new vessel financing and debt incurred in connection with the Prestige acquisition, substantially offset by lower interest rates resulting from the amortization of higher-interest-rate debt and refinancing transactions. Additionally, 2014 reflects $15.4 million in expenses related to financing transactions in conjunction with the Prestige acquisition, while 2013 reflects $160.6 million in expenses associated with early debt repayment.
Fourth quarter 2014 results
Due to the timing of the acquisition closing, the results of the Prestige consolidation are more evident in the fourth quarter than in the full year. Adjusted EPS for the period was $0.36 on adjusted net income of $77.6 million and excludes both debt-related expenses and other expenses related to the Prestige acquisition. In accordance with generally accepted accounting principles (GAAP), the loss per share and net loss for the quarter were $0.12 and $25.6 million, respectively. On a "Norwegian only" basis, adjusted EPS was $0.40. In accordance with generally accepted accounting principles, both earnings per share and adjusted EPS on a "Norwegian only" and reported basis include the benefit of the completion of our global tax platform.
Adjusted net profit for the period, which excludes the aforementioned fair value adjustment of deferred revenue, increased 37.5% to 618.7 million on a 23.8% growth in capacity days due to the addition of the Norwegian Getaway and the Prestige fleet, as well as an 11.1% improvement in adjusted Net Yield due to the addition of the Prestige fleet and a 3.9% increase on a “Norwegian only” basis (4.5% on a constant currency basis).
The adjusted net cost of cruising per capacity day, excluding fuel, increased 9.9% as a result of the addition of the Prestige fleet and remained virtually unchanged on a “Norwegian only” basis. The fuel price per metric ton, excluding hedges, was $529 in the fourth quarter of 2014 compared to $656 in 2013. The impact of the change in fuel prices on the Company’s hedging portfolio during those same periods had a negative impact of $10.5 million in 2014 and a benefit of $0.8 million in 2013. The fuel price per metric ton, taking into account the impact of hedges, was $599, compared to $649 in the fourth quarter of 2013.
Net interest expense increased to $56.4 million from $24.6 million primarily due to the expenses mentioned in connection with the acquisition of Prestige and the incremental interest expense related to the additional debt incurred in connection with the acquisition.
Forecasts and sensitivities for 2015
In addition to the results for the fourth quarter and for the full year 2014, the Company has also communicated the following guidance, which reflects its expectations for the first quarter of 2015 and for the full year, along with related sensitivities. The adjusted net yield and adjusted net cost of cruising per capacity day, excluding fuel, are provided on both a reported basis and a Combined Company basis, which compares the guidance to the 2014 results that include the Prestige results, assuming the acquisition had occurred at the beginning of 2014.
“Until recently, our booking revenue has been on par with the prior year; however, in the last three weeks of this promotional season, we have seen a significant acceleration in booking volume. The Norwegian Escape is registering higher booking volume than its two most recent predecessors, its sister ships Norwegian Breakaway and Norwegian Getaway, and the Seven Seas Explorer has set new records for both one-day and one-week bookings for the Regent brand. Year-end and to date, the Company has higher booking revenue and higher net yields on future cruises than ever before, including the full years of 2015 and 2016,” stated Del Rio. “As anticipated, the combined impact of the capacity and pricing challenges in the Caribbean, along with a normalized winter season for the Norwegian brand, which last year included the charter of the Norwegian Jade for the Sochi Olympic Games, has resulted in subdued expectations for the first quarter. Looking at the year as a whole, the outlook is much more encouraging with pricing and “We see stable booking trends across all markets. While 2015 is primarily an organic year, we expect solid adjusted EPS growth of approximately 23%,” Del Rio noted.
| First quarter of 2015 | |||||||||||||
| Combined Company(1) | Combined Company(1) | ||||||||||||
| Base reported | Base reported | Constant currency | Base reported | Base reported | Constant currency | ||||||||
| Adjusted Net Yield | 17.0 to 18.0% | (1.0) to (2.0)% | Invariable at (1.0)% | Approx. 17.5% |
|
Approx. 3.0% | |||||||
| Adjusted net cost of the cruise per capacity day excluding fuel | 27.0 to 28.0% | 4.5 a 5,5% |
5.0 to 6,0% |
Approx. 23.5% | Approx. 2.75% | Approx. 3.25% | |||||||
| BPA adjusted(2) | $0.20 to $0.24 | $2.70 to $2.90 | |||||||||||
| Depreciation and amortization | 80 to 85 million dollars | $335 to $345 million | |||||||||||
| Net interest expense | 55 to 60 million dollars | $220 to $230 million | |||||||||||
| Effect on adjusted EPS of a 1% change in Net Yield(3) | 0,03$ | 0,15$ | |||||||||||
(1) “Combined Company” compares the 2015 forecasts with the combined results of Norwegian and Prestige for the first quarter and full year 2014
(2) Excludes the full-year impact of the Insignia incident of $0.07, of which $0.05 is included in the forecast for the first quarter
(3) It is based on the midpoint of the forecasts.
The Company's expectations regarding fuel consumption and price, along with related sensitivities, are reflected below.
| First quarter of 2015 | Fiscal Year 2015 | ||
| Fuel consumption in metric tons | 170.000 | 685.000 | |
| Fuel price per metric ton | 305$ | 350$ | |
| Fuel price per metric ton, free of hedges | 510$ | 525$ | |
| Effect on adjusted EPS of a 10% change in fuel prices, net of hedges | 0,01$ | 0,04$ | |
As of December 31, 2014, the Company had hedged approximately 68%, 55%, 39%, and 8% of its planned metric ton fuel purchases for 2015, 2016, 2017, and 2018, respectively. The average fuel price per metric ton for the hedged portfolio for the same periods is $520, $468, $416, and $400, respectively.
Future capital commitments are contractual commitments, including anticipated future capital expenditures for business improvements such as dry-dock ship refurbishments under the Norwegian NEXT program and shipbuilding contracts. As of December 31, 2014, anticipated capital expenditures, together with amounts allocated to shipbuilding and the financing of linked export credits, were broken down as follows (in thousands, based on the euro/dollar exchange rate as of December 31, 2014):
| Exercise | |||||||
| 2015 | 2016 | 2017 | |||||
| Shipbuilding | 975.782$ | 648.378$ | 891.064$ | ||||
| Ship financing | (683.663) | (477.197) | (666.112) | ||||
| Shipbuilding free of financing | 292.119$ | 171.181$ | 224.952$ | ||||
| Capital expenditures for business improvement, including capital expenditures with return on investment(1) (2) | 154.000$ | 160.000$ | 156.000$ | ||||
| Incremental capital expenditures with return on investment for wastewater treatment plants | 28.000$ | 8.000$ | – | ||||
(1) Fiscal year 2015 includes $51 million in capital expenditures with return on investment and investment for the development of the Company's future cruise destination in Belize.
(2) Excludes quantities from wastewater treatment plants.
Company news and other important updates
In November 2014, the Company completed the acquisition of Prestige Cruise Holdings, with total transaction consideration of $3.025 billion in cash, stock, and debt assumption. An additional contingent cash payment of up to $50 million was payable to Prestige shareholders upon achieving certain performance targets in 2015. The Company issued $680 million in unsecured preferred notes in a private placement to finance a portion of the purchase price, along with related fees and expenses.
At the time of completing the acquisition, the Company announced cost synergies of approximately $25 million. The Company is reiterating this level for 2015, having identified synergies in the consolidation of office operations, insurance costs, port fees, and contracts with excursion concessionaires. In addition, the Company has identified, to date, revenue synergies of $15 million resulting from onboard revenue opportunities, for a total first-year amount of at least $40 million, which is reflected in the Company's forecasts. The same items that comprise these $40 million in 2015 synergies correspond to approximately $50 million in 2016.
In December 2014, an incident aboard Oceania Cruises' Insignia resulted in the cancellation of certain cruises. Repairs to the ship are scheduled to bring it back into service in March 2015. The impact of this incident has been included in the Company's first-quarter and full-year 2015 outlook.
In 2014, the Company continued its tradition of hiring strong leaders with extensive experience both within and outside the cruise industry. With more than 20 years of experience in the cruise industry, Frank J. Del Rio assumed the role of President and CEO of Norwegian Cruise Line Holdings after founding and leading Oceania Cruises and later Prestige Cruise Holdings for more than 10 years of growth and a prominent position in the luxury segment of the industry. Drew Madsen joined the Company in October 2014 as President and COO of the Norwegian Cruise Line brand. Madsen brings more than 30 years of experience in the hospitality and consumer products sectors. In December 2014, Jason Montague was appointed President and COO of Prestige, overseeing both the Oceania Cruises and Regent Seven Seas Cruises brands. Montague had previously served as Chief Financial Officer of Prestige.
Upcoming additions to the fleet
Norwegian Cruise Line
The cruise line will welcome its largest ship and the first in the Breakaway Plus class, the Norwegian Escape, in October 2015. The company announced an exclusive partnership with Margaritaville Holdings LLC to bring Margaritaville, Jimmy Buffett's popular dining concept, to sea for the first time, along with the 5 O'Clock Somewhere Bar. Newly announced dining and entertainment concepts include those from Iron Chef Jose Garces and the Michael Mondavi family, as well as productions of the Broadway shows After Midnight and Million Dollar Quartet.
Oceania Cruises
In November, the Company announced the purchase of the Ocean Princess, the 684-passenger sister ship to the cruise line's flagships, Insignia, Regatta, and Nautica, which will be delivered in March 2016. The ship will be renamed Sirena after a 35-day, $40 million refurbishment that will bring its accommodations and facilities up to Oceania Cruises' standards. The total investment in Sirena is approximately $180,000 per stateroom and represents exceptional potential returns when considering the higher daily premiums the ship will command as part of the Oceania Cruises fleet. Sirena is expected to welcome its first guests in April 2016.
Regent Seven Seas Cruises
The designs and offerings of the cruise line's next newly built ship, the Seven Seas Explorer, were revealed to the public for the first time in January 2015. Considered the most luxurious ship built to date, the 750-passenger Seven Seas Explorer will feature the cruise line's first Regent Suite, a 360-square-meter space with an spa and a glass-enclosed observation deck, along with classic Regent restaurants such as Compass Rose, La Veranda, and Prime 7. The Explorer broke booking records for both its first day and first week after its itineraries went on sale to Seven Seas Society members on January 19.
