TEN, Ltd (TEN) reported results (unaudited) for the fourth quarter and year ended December 31, 2017.
YEAR-END 2017 RESULTS
Gross revenue amounted to $529.2 million, a 9.8% increase over 2016, due to the increase of the fleet by seven new vessels on long term attractive contracts.
EBITDA (Earnings before interest, taxes, depreciation and amortization) totaled $216.3 million adjusted, while operating income amounted to $76.3 million before non-cash impairment charges and the loss on the sale of two suezmax vessels through a sale and leaseback transaction. The daily time charter equivalent (TCE) for the fleet (voyage revenue less voyage expenses) averaged $18,931 for the year, well above the spot market average for 2017, in all categories of vessels we operate.
Net income, excluding the above non-cash items, reached $20.4 million.
Continuous proactive vessel management together with the scale of our technical managers assisted in reducing daily vessel operating expenses to $7,688 from $7,763 in 2016, despite the impact of a weaker US dollar. Efficient cost management also contributed to lower average daily overheads (G&A, management fees) per vessel which experienced a significant drop by 13.4%.
Depreciation and dry-docking amortization costs were $139.0 million due to fleet growth. Interest and finance costs reached $56.8 million due to increased loan expenses and interest on the loans drawn down for the newly delivered vessels to the fleet.
FOURTH QUARTER 2017 RESULTS
TEN generated gross revenues of $134.5 million in the fourth quarter of 2017, a 2.9% increase over the $130.7 million revenue earned in the fourth quarter of 2016, the increase being mainly due to the addition of 7.4 modern vessels, on average, between the two fourth quarters.
Revenues net of voyage expenses (bunker, port expenses and commissions) for the same period were $106.6 million, a 7.6% increase from the same quarter of 2016 while total voyage expenses declined by 11.8% as more of the fleet’s vessels were placed under time-charters.
Net income for the quarter was at $2.7 million before the non-cash items mentioned above.
During the fourth quarter 2017, the vessels on time charter contracts generated $90.5 million gross revenue, enough to cover all the operating, overhead and finance costs of the whole fleet.
Vessels on spot charters, despite the softness in that market, contributed an additional $21 million of revenue after bunker and port expenses, indicating that the expected improvement in spot rates, after the majority of the current orderbook delivers, will have a significantly positive impact on TEN’s bottom line.
Despite a difficult tanker market due to a temporary surplus vessel capacity and production cuts by leading suppliers, which resulted in market spot rates in several sectors falling to exceptionally low levels, TEN’s vessels, which primarily operate under secured contracts, achieved an average daily net revenue per vessel of $18,343, a comparatively high rate compared to the spot market. During the quarter, the fleet achieved a notable 98% utilization rate.
Operating income before non-cash items came in at $15.9 million and daily operating expenses per vessel remained at economic levels at $7,823 despite a 9.3% weakening of the US dollar against the Euro, which affected crew costs and repair costs. Average daily overheads per vessel (G&A, management fees) fell by 2.9%.
In October 2017, TEN took delivery of the aframax newbuilding Bergen TS, bringing to completion the newbuilding program of 15 vessels. The Bergen TS immediately started its prearranged long-term charter, as with all the preceding newbuildings joining the fleet.
Interest and finance costs in the fourth quarter of 2017 totaled $13.7 million, an increase over the 2016 fourth quarter partly due to the new financing obtained for the new building program and market increases in the applicable LIBOR rate. This was offset by gains achieved from bunker hedges.
TEN’s balance sheet remained strong with cash balances at $202.7 million as of December 31, 2017. Net debt to capital at December 31, 2017 was at a healthy 50.9%. Adjusted EBITDA in the fourth quarter amounted to $52.9 million.
On December 21, 2017 TEN sold the 2005-built suezmax tankers, Euronike and Eurochampion 2004 to third-party entities, for $65.2 million and chartered them back on a bareboat basis for five years as part of a sale and leaseback deal. The sale resulted in a non-cash loss of $3.9 million, but related debt of $36.0 million was prepaid leaving $15.6 million of free cash immediately available.
Following internal impairment tests, our oldest vessels, the 1998-built VLCC Millennium and the 2002-built suezmax Silia T, were determined to have carrying values in excess of fair value as assessed by independent brokers. Consequently, an impairment charge of $8.9 million was incurred.
Dividend – Common Shares
The Company will pay a dividend of $0.05 per common share on May 10, 2018 to shareholders of record as of May 3, 2018. Inclusive of this payment, TEN will have distributed a total of $10.65 per share in uninterrupted dividends to its common shareholders since the Company’s listing on the NYSE in March 2002.
2018 started with TEN operating the largest fleet in its 25 year history, 77% of which in secured contracts averaging 2.7 years with minimum secured revenues of $1.3 billion. Of the vessels under those fixed contracts, 40% have the ability to capture market upswings through pre-agreed profit sharing provisions which together with the vessels operating in pure spot contracts, empower the Company with significant cash generating muscle when rates firm, expected in mid to late 2018.
TEN continues to position its fleet to safeguard cashflows to meet all 65 vessels’ costs and expenses, while having a large enough complement of spot and profit-share chartered vessels have the flexibility to take advantage of rate changes and evolving trading patterns.
Management will continue to adapt its chartering policy to conform to these norms and adjust the fleet’s employment profile accordingly, but always cognizant of its stated strategy of smoothing market cyclicality while offering visibility to its investors.
In terms of fleet management, growth opportunities will continue to be explored and assessed provided they do not add undue burden on TEN’s balance sheet. Conversely, vessel divestments, particularly relating to our first-generation tankers, will become more important as asset prices recover, as expected, when the current schedule of newbuilding deliveries, mostly ordered on speculation, begins to decline.
“As we enter our 25th year, we are proud to report profits in such a challenging environment. TEN’s tried and tested strategy of providing downside protection while allowing for the flexibility to capture rate hikes, has proved effective once again. The markets are gradually positioning for an upturn and TEN is well placed to reap those rewards as they will occur,” Mr.
Nikolas P. Tsakos, President and CEO of TEN commented. “I would like to take this opportunity to thank all of our associates and partners for their support and continuous efforts these 25 years and especially our men and women that serve on our vessels together with our onshore colleagues, the Board of Directors and management of TEN,” Mr. Tsakos concluded.