Tsakos Energy Navigation Q2 Results
Tsakos Energy Navigation Limited (TEN) (NYSE: TNP) reported results (unaudited) for the second quarter and first half of 2010.
Second quarter 2010 highlights
-- Voyage revenues of $112.8 million
-- Operating income of $30.1 million
-- Net income of $8.5 million
-- EPS, diluted, of $0.22 per share
-- Vessel average daily operating expenses decreased by 14% to $7,342
-- Delivery of a new building aframax and sale of one aframax and one panamax tanker with total gains of $5.8 million
-- Semi-annual dividend of $0.30 per share paid in April 2010 (bringing the total for fiscal 2009 to $0.60)
-- Quarterly dividend declared of $0.15 with first payment in July, 2010
First half 2010 highlights
-- Voyage revenues of $217.5 million
-- Operating income of $63.2 million
-- Net income of $27.9 million
-- EPS, diluted, of $0.73 per share
-- Sale of four tankers and delivery of new building aframax reducing fleet's average age to 6.5 years with total gains of $20.2 million
-- Quarterly dividend policy announced
Second quarter results
Revenues, net of voyage expenses and commissions, were $83.3 million in the second quarter of 2010 compared to $88.6 million in the second quarter of 2009 primarily reflecting a slightly smaller fleet. Despite improved rates for crude carriers, the Company's product carriers achieved lower rates than in the second quarter of 2009, as did its LNG carrier.
On average, TEN deployed 45.0 vessels versus 46.0 vessels in the prior year quarter. Fleet utilization remained high at 97.8%, the same level as in the second quarter of 2009. The average daily time charter equivalent rate per vessel was $22,059 down from $22,890 in the 2009 second quarter. Vessel operating costs were $7,342 per ship, per day, down nearly 14% from $8,514 in the previous second quarter in part to a stronger US dollar against the Euro that positively impacted crew costs, reduced insurance costs, and decreased repair costs. In addition, the increased cooperation between our technical managers and Columbia ShipManagement S.A., even prior to the launch of the joint-venture Tsakos Columbia ShipManagement Ltd., achieved price reductions for spares, provisions, stores and lubricants. On July 1, this joint-venture formally assumed the technical management of the vast majority of the company's vessels.
Depreciation and dry-docking amortization costs fell to $23.4 million from $25.1 million in the second quarter of 2009, mainly due to the sale of vessels and reduced dry-docking costs over the past year. Management fees were $3.2 million, in line with the slightly smaller fleet and a modest increase in fees in January. G&A expenses were down 12%, as a result of cost cutting, primarily on promotional costs. In the second quarter of 2010, operating income was $30.1 million, which included gains on the sale of vessels amounting to $5.8 million, compared to operating income of $24.1 million (with no gains on the sale of vessels) in the second quarter of 2009. The gains on sale of vessels in the second quarter of 2010 relate to the aframax tanker Marathon and the panamax tanker Hesnes. These vessels were delivered to their new owners in April 2010. At year end 2009, both vessels had been accounted for as held-for-sale. The Victory III commenced a voyage in the second quarter, which completed in the Far East where she was eventually delivered to her new owners in early August.
Interest and finance costs rose sharply in the second quarter to $21.5 million from $6.1 million in the previous year's second quarter. While actual loan interest fell by almost $5 million between the two quarters, reflecting the reduction in average interest rates, interest paid on interest rate swaps rose by nearly $7 million. There were non-cash negative movements of $4.5 million in interest rate swap valuations, compared to positive movements of $4 million in the second quarter of 2009, and a $2.5 million non-cash negative movement in the bunker related swap valuations compared to a positive $3 million in the second quarter of 2009. Cash received on bunker swaps was $0.5 million higher than in last year's second quarter. Interest income was $0.7 million in the quarter compared to $1.1 million in the prior year second quarter.
Net income in the 2010 second quarter was $8.5 million (including gains on the sale of vessels of $5.8 million) versus $18.8 million in the second quarter of 2009, primarily reflecting the negative impact of swap valuations. Diluted earnings per share were $0.22 versus $0.51 in the second quarter of 2009.
Cash flow from net income before depreciation, amortization and finance costs improved to $53.4 million compared to $49.9 million in the second quarter of 2009.
Net proceeds from the sale of vessels contributed a further $44.7 million in the second quarter of 2010 from which $34.5 million was used to prepay debt on the sold vessels. A further $7 million was raised in the second quarter of 2010 from the sale of stock under the ATM program, which has not been used since May 2, 2010. Subject to market conditions, the Company intends to sell, from time to time, a final 500,000 of its common shares under this program.
First half results
Voyage revenues were $217.5 million in the first six months of 2010, down from $240.5 million in the 2010 period reflecting primarily the lower rates achieved, mainly on product carriers. TEN operated, on average, 45.8 vessels as compared with 46.0, a year earlier. The average daily time charter equivalent rate per vessel decreased to $21,371 from $25,187 while operating expenses declined to $7,885 from $8,932, a 12% reduction. General and administrative expenses decreased to $1.8 million from $2.4 million in the same period last year. Management fees were approximately the same. Depreciation and dry-docking amortization costs fell to $46.3 million from $49.8 million in the first half of 2009 mainly due to the sale of vessels.
In the first half of 2010, operating income was $63.2 million which included gains on the sale of vessels amounting to $20.2 million, compared to operating income of $63 million (with no gains on the sale of vessels) in the first six months of 2009.
Interest and finance costs were raised in the first half to $35.6 million from $21.2 million. Actual loan interest fell by almost $14 million, reflecting the reduction in average interest rates, but interest paid on interest rate swaps rose by nearly $12 million. In addition, there was a non-cash negative movement of $5 million in interest rate swap valuations compared to a positive $5 million movement in the first half year of 2009 and a $3 million non-cash negative movement in the bunker related swap valuations compared to a nearly $4 million positive movement in the first half of 2009. Cash received on bunker swaps was $1.3 million higher than in the first half of 2009. Interest income was $1.3 million in the half-year compared to $2.5 million in the prior year first half.
Net income in the six months of 2010 was $27.9 million, including gains on the sale of vessels of $20.2 million, compared to net income of $43.2 million, with no gains on the sale of vessels. Diluted earnings per share for the first half of 2010 were $0.73, while diluted earnings per share for the first six months of 2009 were $1.16.
"A strong relative performance in a temporarily depressed environment is a strong testament to the efficacy of TEN's basic business strategy and management's execution," stated D. John Stavropoulos, Chairman of the Board of TEN. He concluded, "There are signs that the worst of the economic tsunami have passed. The renewed growth of the world's oil consumption driven by the dynamic expansion of the emerging economies is the foundation of our optimism. Meantime, the ability to operate profitably whereby sustained dividends, fleet growth and a strong financial position are fundamental to building shareholder value."
Quarterly dividend
As already announced on June 8, 2010, the company decided to revise its dividend policy from semi-annual to quarterly payments. The first such quarterly dividend of $0.15 per share was paid on July 15, 2010 to shareholders of record on July 12, 2010. Including this distribution, TEN has distributed in total $8.325 per share in dividends to its shareholders since the Company was listed on the NYSE in March of 2002. The listing price was $7.50 per share taking into account for the 2-1 share split of November 14th, 2007.
The basis of dividends will continue to target a payout ratio of 25% to 50% of net income subject to maintaining an appropriate level of liquidity as a function of a prudent and strong financial position. Each April, the Board of Directors will give consideration to the declaration of a supplementary dividend.
Subsequent events
On July 2, TEN took delivery of the Uraga Princess, the last DNA-design aframax tanker in a series of eight from Sumitomo Heavy Industries in Japan. Upon delivery, the vessel entered an up to two month redelivery voyage charter to the Mid-Atlantic basin.
In July, the Company's 2007-built LNG carrier Neo Energy entered a 12-month time charter with a major European gas company.
In July, TEN entered into an agreement to acquire four fully coated 2009 Korean built panamax tankers from affiliated companies, sister vessels to the Selecao and Socrates already in the fleet. The first two vessels are on time charters to a major South American state affiliated oil entity at a minimum base rate with 100% upside for the Company. The charters expire in April and June 2011, respectively. The remaining two panamaxes currently operate in a spot pool and management will consider employment options upon delivery depending on prevailing market conditions. The first vessel, the World Harmony, was delivered to the Company on July 23, the second, the Chantal, is expected to be delivered on August 10 while the last two, Selini and Salamis, in the fourth quarter of this year.
In early August, the 1990-built panamax tanker Victory III was delivered to her third-party buyers at approximately book value.
Fleet strategy & outlook
The turnaround in world oil demand and the continuation of contango, albeit at lower levels from the beginning of the year, lead to an improvement in freight rates for the larger crude carriers. Such improvements, for the more optimistic, signified the end of the crude tanker recession while for others it was a cautious statement for things to come should the rebound in world economies stay largely intact. TEN falls in the latter category and remains committed to its policy of a diversified fleet with flexible employment and upside options. The cyclicality of the markets, particularly at this juncture of world recovery, merits caution and calls for prudence in both employment and growth. Cash preservation continues to be the cornerstone of TEN's strategy as was evident in the Company's non-restricted cash reserves this past quarter which stood at $306 million.
Looking ahead, it is becoming more evident that charterers continue to reevaluate the attractiveness of longer term charters and TEN will continue to explore all available options for the chartering of its vessels. Options that are consistent with the flexible elements that have so far enabled our fleet to perform successfully irrespective of market cycles. At the beginning of the third quarter 2010, 76% of remaining employable days are under secured revenue employment and 58% for 2011. Without taking into consideration the potential additional revenues from profit-sharing arrangements in place and assuming only the minimum rates for the remaining operating days in 2010, TEN expects to earn at least $114 million in gross revenues. For 2011, based on the same assumptions, the minimum gross revenue already secured is estimated at $145 million.
"Once again, the Company maintained its momentum at a time where markets did not display a stable sense of direction. Our vessels exhibited high utilization levels, 98.5% for the first half of the year, as demand from charterers for term employment increased," Nikolas P. Tsakos, President and CEO of TEN stated. "With an improvement in world oil demand, an acceleration in scrapping and a disciplined newbuilding approach, our modern, versatile fleet will remain well positioned to take advantage of market upturns. Our objective remains to operate the fleet at the highest utilization levels possible, to vigorously monitor cost elements (as confirmed by the 14% quarter-over-quarter drop in operating expenses) to continue the quest of modernization and to explore sale & purchase opportunities for the benefit of both the Company and our shareholders," Tsakos concluded.
