Tsakos Energy Navigation Limited ("TEN" or the "Company") (NYSE: TNP) reported results for the fourth quarter and full year ended December 31, 2010.
-- Voyage revenues of $408.0 million.
-- Operating income of $80.7 million, after vessel impairment charge of
-- Net income of $19.8 million, after vessel impairment charge of $3.1
-- EPS (diluted) of $0.50 ($0.58 per share excluding impairment charge).
-- Average daily operating expenses per vessel decreased by 11.9% to
-- Fleet utilization of 97.6%.
-- Sale of five tankers with a net gain of $19.7 million.
-- Delivery of two newbuilding aframax tankers and acquisition of four
panamax product carriers with employment.
-- Change from twice yearly to quarterly dividends. Total dividends paid
in 2010 of $0.60.
-- $105 million raised in equity offerings.
-- Approximately $1.0 billion in net income since NYSE listing.
2010 FOURTH QUARTER HIGHLIGHTS
-- Voyage revenues of $95.0 million.
-- Operating income of $9.0 million, after impairment charge of $3.1
-- Income $0.5 million, before impairment charge of $3.1 million. Net
loss of $2.6 million, after impairment charge.
-- EPS (diluted) of $0.01, excluding impairment charge, or $(0.06) after
vessel impairment charge.
-- Average daily operating expenses per vessel decreased by 16.7% to
-- Agreement to sell one aframax tanker with delivery in the first quarter
-- Payment of second quarterly dividend of $0.15 per share with respect to
-- Agreed 15-year charters for two suezmax shuttle tankers to South
FULL YEAR 2010 RESULTS
Net income for the year ended December 31, 2010 amounted to $19.8 million (after an impairment charge of $3.1 million) compared to the net income of $28.7 million (after an impairment charge of $19.1 million) achieved in 2009. The decrease is primarily attributable to the weaker freight market in 2010 compared to 2009 and increased non-cash finance costs. The net gain on the sales of five vessels during 2010 amounted to $19.7 million compared to a net gain of $5.1 million on the sale of one vessel in 2009. The poor freight market in the fourth quarter of 2010 and increasing discrimination against older vessels resulted in the requirement for a further impairment charge of $3.1 million relating to the 1991 built aframax tanker Vergina II. This vessel was one of the three vessels that incurred impairment charges totaling $19.1 million in 2009. Diluted EPS based on weighted average number of shares outstanding was $0.50 versus diluted EPS of $0.77 achieved in 2009.
Voyage revenues, net of commissions and voyage expenses, totaled $308.4 million in 2010 compared to $351.6 million in 2009. The average number of vessels in the fleet decreased to 46.1 in 2010 from 46.6 in 2009, five vessels having been sold mostly in the earlier part of 2010 and six new vessels acquired mainly in the latter part of the year. The average time- charter equivalent (TCE) rate earned per vessel (voyage revenues less voyage expenses) decreased to $19,825 per day in 2010 from $22,329 per day in 2009. Utilization of the fleet was 97.6% during this difficult year compared with 97.7% in 2009.
Depreciation and dry-docking amortization costs fell to $97.4 million from $101.5 million mainly as a result of vessel sales. Operating expenses per vessel per day decreased to $7,647 from $8,677 in 2009, an 11.9% decrease as a result of reduced costs on crew expenses, stores, spares, insurance and lubricants. This was primarily due to the increased purchasing power of Tsakos Columbia ShipManagement S.A.
(TCM), which took over the fleet's technical management in July, 2010. In addition, since 2009, the Company's technical managers, on the Company's instructions, took specific measures to reduce crew costs, which also benefited from an appreciation of the U.S. Dollar against the Euro. Insurance costs were also down due to a reduction in P&I Club back calls. Overhead expenses increased to $1,144 per vessel per day in 2010 from $1,083 in 2009, due to increased management fees and an incentive award of $0.4 million, offset by reduced G&A expenditure and reduced stock compensation expense.
Interest and finance costs increased to $62.3 million in 2010 from $45.9 million in 2009, due mainly to negative non-cash movements in the valuations of non-hedging interest-rate and bunker swaps.
Net gains from vessel sales amounted to $19.7 million in 2010 relating mainly to the sale of the suezmax tanker Decathlon and aframax tankers Marathon and Parthenon. Two aged panamax tankers, which incurred impairment charges in 2009, were also sold, but at prices approximating book value. The sales reflected the Company's continued policy of fleet renewal and opportunistic divestments.
FOURTH QUARTER 2010 RESULTS
TEN attained income of almost $0.5 million for the fourth quarter of 2010, before incurring the impairment charge of $3.1 million on one vessel. Including the impairment charge, the net loss was $2.6 million. In the fourth quarter of 2009, income was $2.4 million, before $19.1 million impairment charges on three vessels (a net loss of $16.7 million after the impairment charges). The fourth quarter 2009 results included a $5.1 million gain on the sale of one vessel (no vessel sales in the fourth quarter 2010). Revenues, net of voyage expenses and commissions, were approximately the same in both quarters, operating expenses were considerably reduced and finance costs were higher. Diluted EPS this fourth quarter were $0.06 negative (but $0.01 positive without the impairment charge) compared to $0.45 negative in the same quarter last year ($0.07 negative without the impairment charge and sale of vessel gain).
Revenues, net of voyage expenses and commissions were $74.4 million in the fourth quarter of 2010 compared to $74.1 million in the fourth quarter of 2009. The time charter equivalent per ship per day was $18,287 in the fourth quarter of 2010 versus $18,081 in the fourth quarter of 2009. An increase in crude carrier rates in December provided welcome relief to an otherwise unusually challenging period. TEN operated an average number of 47.3 vessels in the fourth quarter of 2010 compared to 47.5 vessels in the same period of last year. Despite the poor market, caused mainly by the global supply and demand imbalance of tankers, our fleet utilization was still 97.5% compared to 98.8% in the previous year's fourth quarter.
Daily operating expenses per ship fell 16.7% to $7,284 from $8,743 in the fourth quarter of 2009, due to better pricing achieved by the new technical managers, TCM, which resulted in reduced expenditure on stores, spares and lubricants and action taken to reduce crew costs. An 8% stronger dollar in the fourth quarter 2010, further positively impacted crew costs. Reduced P&I Club back call obligations helped keep insurance costs down.
Depreciation and amortization costs were $26.1 million compared to $25.8 million in the fourth quarter of 2009. Management fees increased by $0.4 million to $3.8 million. G&A expenses were approximately the same at $0.9 million, and stock compensation expense was a credit of $0.2 million compared to a $0.4 million charge, due to the fall in share price. An incentive award of $0.4 million was granted to management (there was no award in 2009).
Interest and finance costs net of interest income was $12.1 million in the fourth quarter of 2010 compared to $8.7 million in the fourth quarter of 2009. The total of average outstanding loans during the respective quarters was approximately the same at $1.5 billion. Interest paid on interest rate swaps was $1.8 million higher than in the fourth quarter of 2009. Charges relating to the valuation of interest rate swaps were $0.9 million lower than the previous fourth quarter. There was no significant movement on the bunker swap valuations in fourth quarter, whereas there was a positive movement of $2.6 million in the previous fourth quarter.
The Company raised $85 million in an equity offering that closed on November 1, 2010. The proceeds from the equity offering will be used primarily to expand our fleet. The Company's balance sheet remained strong with cash balances of $277 million at the year-end, a healthy leverage level of 56% net debt to capital and continued compliance with loan covenants.
STRATEGY AND OUTLOOK
2010 was a year of transition and house-keeping for the Company as constrained shipping markets characterized by the lack of sustainable improvements never really provided opportunities for acquisitions. As a result, TEN opted to take advantage of some pockets that intermittently appeared in the sale and purchase markets and proceeded with calculated disposition and acquisition of selective tonnage. Specifically, in 2010 management sold five older vessels, a suezmax, two aframaxes and two older panamax product tankers and acquired four 2009-built panamax tankers and took delivery of two DNA-design newbuilding aframaxes. From the sale of the five vessels the Company generated a net capital gain of $19.7 million and free cash of $72 million. In addition, the Company successfully took advantage of openings in the equity capital markets and raised a total of $105 million.
On top of this sale and purchase activity, an integral part of operations that has generated close to $280 million in capital gains (including the Opal Queen), the Company ventured into the ever evolving shuttle tanker business by securing two 15-year charters by a national South American oil major for two DP2 suezmax shuttle tankers that TEN will build in South Korea with expected delivery in Q3 and Q4 2012. This two-vessel venture is expected to generate gross revenues of at least $520 million and provide the Company with a strong competitive position in this dynamic and growing segment of the industry.
All this activity in 2010 enabled the Company to fine-tune its crude fleet, renew and strengthen its product exposure with a view of further improvements in that sector in the future and expand into new but related fields of operations. Such fine-tuning was executed for the long term benefit of the fleet without however placing an undue burden on the Company's balance sheet. Cash reserves, the cornerstone of our strategy to navigate the shipping cycles with the most comfort, have remained at very healthy levels and stood at $276.6 million at the end of 2010. Going forward, we remain committed to prudent cash management to enable the Company not only to execute its growth policy, but also to maintain ample cushion to meet both its creditor and shareholder obligations in the form of timely repayments of debt and interest and healthy dividend payments going forward.
In 2010, the newly formed joint venture ship management company Tsakos Columbia ShipManagement Ltd. was established with an immediate positive impact on TEN's vessel operating expenses. Leveraging the size and footprint of Columbia ShipManagement S.A in maritime procurement services along with that already in place by our prior ship managers, Tsakos Shipping and Trading S.A., we achieved noticeable price reductions in various spares, provisions, stores and lubricants. The level of reduction of expenses in 2010 compared to 2009 was approximately 12%. We expect the reduced level of operating expenses to be maintained and hopefully to continue in the same direction.
In terms of vessel employment, the fleet again exhibited high levels of utilization, 97.6% in 2010 versus 97.7% in 2009 with a world tanker average utilization well below the 90% levels. Management will endeavor to continue its policy of balanced employment with flexible options for the future and place about three quarters of the fleet in various forms of fixed charters. A spot presence will be maintained, either directly or through pooling arrangements in order to have vessels available to take advantage of future increases in rates. Without taking into consideration potential revenues from profit-sharing arrangements and assuming only minimum agreed rates for vessels under such contracts, TEN expects to earn at least $230 million in gross time-charter revenues over the duration of the current employment contracts.
With a strong balance sheet, a tried and tested management team, a diversified and long established client base and proven access to capital, TEN is well positioned to take advantage of growth opportunities as they unfold. Despite not seeing an abundance of such opportunities in the recent past, we remain confident that attractive projects, either in the secondhand market or newbuilding front will appear. Growth, fleet modernity, employment flexibility and timely strategic sales will remain as TEN's top priorities that along with sustainable dividend payments should assist in bridging the gap between the Company's net asset value and the value the market ascribes to TEN's shares.
"We are proud of the performance of our Company on the operational front both in terms of finding attractive employment for our vessels and for achieving attractive valuations in the secondhand market. Values that the capital markets, based on the discount our shares trade to our net asset value, do not appear to recognize," Mr. George V. Saroglou, Chief Operating Officer of TEN stated. "2010 was a challenging year for all involved in tanker transportation and 2011 could be the year to kick-start the industry back in motion. We at TEN look back on 2010 as the year that all of us had to demonstrate our mettle both on professional and personal terms and look forward to a future with confidence. Our Company, our people, our fleet and our balance sheet provide us with such confidence."