TEN: Positive Operating Income in a Challenging Environment


TEN, Ltd. reports results (unaudited) for third quarter and the nine months ended September 30, 2018.

In the first nine months of 2018, TEN generated positive operating income of $11.5 million and an adjusted EBITDA of $124.5 million. As a result of seven vessels purposely undergoing early dry dockings, as well as programmed vessel repairs and the very weak tanker market, the Company recorded a net loss of $36.1 million.  However, with the anticipated market recovery already upon us, the last quarter of the year should reflect the strength currently exhibited in spot rates. In particular, VLCCs in the first nine months of the year averaged about $12,615 per day while today they are at over $56,000. Suezmaxes, during the same period, were at about $8,000 per day and now at $44,000. Similarly, Aframaxes from just over $9,000 per day during the first nine months of 2018 are today over $28,000.

The daily time charter equivalent rate per vessel for the Company’s fleet was $17,155 with utilization again at a high 96.2% because of the Company’s diversified tonnage and chartering strategy. TEN outperformed the spot market by over 60% in the first nine months of 2018.

TEN and its technical managers were successful in keeping costs under control with average daily operating expenses per vessel at a still healthy $7,755 after bringing forward certain supplies and repairs in order to increase the number of vessel days for the expected market upturn. Vessel overhead costs (mainly G&A expenses and management fees) per ship per day were at $1,125, similar to that of the first nine months of 2017.

The addition of two new vessels, built against long term employment, since September 30, 2017 modestly increased depreciation and dry-docking amortization costs to $109.6 million compared to $102.5 million for the same period of 2017.

Interest and finance costs totaled $50.6 million, due to the loans associated with the newly delivered vessels and to rising short-term US dollar interest rates.

Strong liquidity maintained with $232.6 million in cash on the balance sheet at September 30, 2018.

Net debt to capital at the end of the third quarter 2018 was 46.9% with bank debt at September 30, 2018 totaling $1.63 billion, about $190 million lower (approximately $2.0 per share) from September 30, 2017 and about $50 million less from June 30, 2018. TEN’s diversified fleet, with the optionality it offers combined with its flexible chartering strategy ensures that the Company continues to maintain an impeccable debt service record, never failing to meet its obligations irrespective of market conditions.

In the third quarter of 2018, TEN Ltd. generated positive operating income of $2.0 million and adjusted EBITDA of $40.4 million. The repositioning of two panamax product tankers to the Far East for their upcoming special survey in order to install, in a timely manner, Water Ballast Treatment systems, high oil prices that added over $5.0 million to voyage costs, as well as the prolonged weakness particularly in the products market, resulted to the Company incurring a net loss of $14.6 million.  However, TEN’s fleet is already taking advantage of the much firmer rates seen in the fourth quarter.

TEN’s diversified fleet, in the third quarter of 2018, continued to operate at high utilization levels of 96.2% as a result of a majority of our vessels trading crude. During the quarter, TEN operated, on average, a fleet of 64.0 vessels, 13 of which were in product trades.

Fleet revenues, net of voyage expenses (bunker, port expenses and commissions), amounted to $92.6 million, a relatively modest reduction from the third quarter of 2017 due to higher expenses that stemmed from vessels operating primarily in the products spot market as increased bunker costs, owing to higher oil prices, added over $5.0 million to voyage costs.

Vessels on time charter accounted for approximately 68.0% of operating days in the third quarter of 2018 again generating enough gross revenue to cover all the voyage, operating and overhead expenses of the whole fleet, including vessels on spot.

Depreciation and dry-docking amortization were $37.1 million, mainly due to new vessel deliveries since the 2017 third quarter.

Operating costs were relatively stable at $7,568 per day per vessel despite the bringing forward of supplies and an earlier than scheduled dry docking in order for the vessels to be available for the expected market recovery. Sound housekeeping also led to daily overhead costs (office G&A, management fees) to fall by 4% to an average of $1,041 per day per vessel.

Dividend – Common Shares
The Company will to pay a dividend of $0.05 per common share on December 6, 2018. During the third quarter of 2018, the Company issued 268,192 common shares using Treasury Stock.

Operational Highlights
The Company recently concluded the 24th charter of the year thus far, the majority of on contracts with upward rate optionality. With an average charter period of two years, these charters combined will generate additional cash income of at least $250 million bringing the amount of contracted revenue, without incorporating expected proceeds from profit sharing contracts which are now fully in force, to a minimum of $1.15 billion. In addition, and in the backdrop of an improving market environment, management is negotiating new employment, focusing on upside potential, for 10 vessels with contracts expiring in the near future.

Corporate Strategy
As we approach the end of 2018, the signs that the worst is behind are becoming increasingly evident. Global oil demand is continuing its upward trajectory, US crude exports are soaring and finding new destinations in China and India and the global tanker fleet where most of that oil will be shipped is tightening. As scrapping outpaces new deliveries and the much-discussed IMO 2020 sulphur regulations will create supply distortions, the outlook for tankers looks more positive, than over the past three quarters.

In view of this upturn, management will keep a close eye on developments and refine its employment approach accordingly in order to maximize returns to shareholders, but still maintain a strong complement of vessels on long-term secured contracts to cover the whole fleet’s expenses. Moreover, cash generation and preservation will remain high on the agenda and therefore efficient, effective and safe vessel management will continue to be pursued vigorously, something the Company has taken pride in since inception.

As asset prices are expected to recover from the recent weakness, management will consider divesting some of its early generation tankers while looking for replacement tonnage.

On the growth front, the LNG and shuttle tanker space remain of firm interest and management is actively exploring industrial opportunities to grow without endangering the healthy balance sheet of the corporation. TEN’s two LNG carriers are employed on contracts that reflect the strong tailwinds currently in existence in that market.

“With three difficult quarters of 2018 now behind us, TEN is already taking advantage of the strong rates available in the fourth quarter. With market fundamentals such as stronger oil demand, lower vessel capacity and adequate oil supplies, particularly from the US, positively affecting tanker trades, this current upturn seems sustainable,” Mr. George Saroglou, Chief Operating Officer of TEN stated. “In addition, with the positive, for owners with young tonnage, disruptions the IMO 2020 rules would create in the vessel supply and demand balance, TEN will be well poised to take advantage of the strong freight environment. The number of vessels in the spot market, those on profit-share arrangements and the 10 ships that will be available for re-charter after expiration of current term employment reinforces this optimism,” Mr. Saroglou concluded.




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