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Tsakos Energy Navigation (TEN) Reports Record Profits for Fourth Quarter and Full Year
(TEN) (NYSE: TNP) reported results for the fourth quarter and full year 2004.
Net revenues for the fourth quarter of 2004 increased 49% to $90.18 million from $60.42 million a year earlier. Income before depreciation charges excluding capital gain from vessel sale of $12.61 million was
$50.52 million in the recent quarter as compared with $22.84 million in the fourth quarter of 2003. Net income in the final quarter of 2004 was $41.66 million, excluding the aforementioned capital gain, representing an increase of 192% over the $14.29 million in the year earlier quarter. Net revenues after commission for full year 2004 were $305.21 million, up 33% from the $230.07 million generated in 2003. Income before depreciation charges, excluding capital gains from the sale of vessels of $21.37 million, was $157.30 million in 2004 as compared with $91.93 million in 2003. Net income, excluding the capital gains was $121.92 million in 2004 representing an increase of 107% over the profits of $59.05 million earned in 2003.
Basic earnings per share based on average number of shares outstanding were $2.69 in the fourth quarter of 2004 versus $0.83 in the year earlier quarter. For the full year earnings per share were $7.53 in 2004 as compared with $3.45 in 2003.
Net revenues after commission for the year rose $75.14 million or 33%, reflecting: the very strong charter market; the modest increase in the fleet from an average of 25.7 vessels in 2003 to 27.3 in 2004; and fleet utilization of 97.6% in 2004 versus 92.9% in 2003. The very strong charter market produced an average time charter equivalent rate of $28,722 per vessel in 2004, up from $22,633 in 2003. Voyage expenses, defined as variable costs of operation for vessels on voyage charters were $66.45 million in 2004 as compared with $61.30 million in 2003. However, excluding freight costs ofchartered-in vessels, which are accounted as voyage expenses, other voyage expenses declined from $48.0 million in 2003 to $42.0 million in 2004,primarily reflecting the reduction in spot market activity.
Vessel operating costs rose to $53.90 million from $49.95 million as a result of fleet expansion, higher insurance rates, and the impact of the dollar's weakness, which was 9.8% lower against the Euro in 2004 versus 2003. Daily operating expenses per vessel were $6,286 in 2004 up from $5,946 in 2003.
Depreciation and dry-docking amortization costs were $44.13 million in 2004 as compared with $40.71 million in 2003 reflecting fleet expansion. Management fees grew to $5.33 million in 2004 as compared with $4.47 million in 2003, reflecting fleet expansion and contract renewal. General and administrative costs rose to $3.10 million in 2004 from $2.42 million in 2003. Expanded corporate governance requirements resulted in increased legal and audit costs, higher travel expenses and directors' fees. Expenses also include a management incentive award of $2.50 million which was determined by the objective standard of return on equity (measured by year beginning book value per share and earnings per share for the year) which was 41.0%.Interest and finance costs, net of interest income, was $9.37 million in 2004 or $2.62 million lower than those of 2003 reflecting decreased borrowings and lower effective interest rates.
"The profits for 2004 were exceptional and compared very favorably with solid results for 2003. The principal factors included the 33% increase in revenues which translated into an 86% improvement in operating income, exclusive of the capital gains realized through the sale of three vessels. The capital gains of $21.37 million were reflective of a very strong resale market and the significant difference between book values and market values in today's market environment. This stellar performance has provided the means to distribute higher cash dividends, authorize a share repurchase program and further enhance shareholder value," observed Mr. D. John Stavropoulos, Chairman of the Board. He added, "however expenses on a per-ship, per day basis have risen and will require constant management diligence. Inflationary pressures, growing regulatory requirements, and the penalties of a weak dollar will intensify the quest for productivity within the framework of consistently delivering a quality service to clients and a quality performance for shareholders."
FLEET STRATEGY
Since 1997, TEN has aggressively expanded and modernized its fleet. The company has added 18 newbuildings and one second-hand VLCC. An additional 14 vessels are scheduled for delivery in 2005, 2006, and 2007. TEN sold three vessels in 2004 including one of its four single-hulled vessels. An additional single-hulled vessel has been sold in February 2005 and will be delivered to its new owner next month. TEN plans to dispose the remaining two when conditions permit.
"The nature of our expansion program has permitted us to identify the evolving needs of our clients and to design and construct a fleet to serve those needs. Recent examples of this approach include the ten ice-class vessels in response to the expanding requirements of ice-bound regions ofRussia, Canada and Alaska; the two Aframaxes designed to function in niche trade routes; and the LNG carrier permitting us to enter that arena in 2007," observed Mr. Nikolas P. Tsakos, President and CEO of TEN. He continued, "we find ourselves very well positioned having ordered our future newbuilding deliveries at prices well below current contract values. The impact of the post-1996 expansion program is illustrated by its contribution to TEN's 2004 results. Exclusive of the capital gains of $21.37 million (of which $20.47 million derived from the sale of two post-1996 newbuildings) 72% of net revenues and 81% of net profits were generated by the post-1996 additions.
Likewise we anticipate that the 14 newbuildings to be delivered by May 2007 will be the catalyst for continued growth and profitability."
The following table presents the newbuilding vessels currently on order:
VESSEL DWT Expected Vessel Class
Delivery
1. M/T Eurochampion 2004 164,000 18/04/2005 1C Ice Class
2. M/T Dionisos 37,000 27/06/2005 No Ice Class
3. M/T Yerotsakos 115,000 03/06/2005 Wide-Body Aframax
4. M/T Euroniki 164,000 14/09/2005 1C Ice Class
5. M/T Archangel 162,400 09/01/2006 1A Ice Class
6. M/T Alaska 162,400 27/02/2006 1A Ice Class
7. M/T Antares 36,660 13/06/2006 1A Ice Class
8. M/T Arion 36,660 24/10/2006 1A Ice Class
9. M/T Andromeda 36,660 27/02/2007 1A Ice Class
10. M/T Aegeas 36,660 25/05/2007 1A Ice Class
11. M/T Arctic 162,400 01/02/2007 1A Ice Class
12. M/T Antarctic 162,400 16/04/2007 1A Ice Class
13. M/T TBN 107,000 31/05/2007 DNA design
14. LNG TBN 150,000 cm3 31/01/2007 Membrane
Assuming no interim retirements of vessels (exclusive of the Aframax Panos G which has been sold for delivery in March 2005) the following table outlines the composition of TEN's fleet after delivery of the orders cited above:
TYPE DOUBLE DOUBLE/SINGLE SINGLE TOTAL
HULL HULL HULL
VLCC 2 2
Suezmax 10 10
Aframax 8 2 10
Panamax 7 7
Handysize 6 4 10
LNG 1 1
Total: 34 4 2 40
TANKER INDUSTRY
Worldwide oil demand in 2004 grew to the highest rate in decades. The 3.4% increase was well above the expectations at the beginning of the year. Looking to prospects for the current year, the International Energy Agency recently raised its growth forecast to 1.8%. Most observers regard this as the minimum and are publishing forecasts nearer to 2.0% growth in oil demand for 2005. There is even growing concern about the ability of oil producers to meet consumption needs in early future years, especially that of low sulphur crude. The acceleration in demand growth commenced in 2003 and now projected through at least 2005 has been fueled by increasingly strong petroleum appetites in the U.S.A., China, India and the Pacific Rim. These consumers have come to rely almost entirely on imports to supply their incremental needs as their domestic production has virtually peaked or is already declining. Generally these markets are served by distant sources of production and the transport distances are growing ever longer. New or reopened pipelines and more stable geopolitical circumstances could take up some of the slack, but
for the most part the world will become increasingly dependent on sea transportation. Many analysts suggest as a rough rule of thumb that the requirements for tanker tonnage grow at twice the pace of world oil demand growth.
During 2004 the increase in available tanker tonnage was extremely well absorbed. At the end of 2004 tanker capacity was approximately 105.4% of that available a year earlier. During peak demand periods there was virtually no nused capacity. The growth in import requirements cited earlier and the multiplier effect of longer trade routes combined with the increased selectivity of major charterers resulted in unusually tight supply conditions for younger vessels operated by quality managers. More modest growth in oil consumption and continued expansion of the modern fleet should help to ease the supply/demand squeeze in an otherwise extremely tight condition.Nevertheless, 2005 fleet utilization should be much higher than historical norms.
Longer term prospects for favorable supply/demand balance are highly encouraging. Assuming the advanced economies continue to experience modest but sustained growth and that developing countries avoid damaging hard landings, imported oil requirements should expand at a strong rate. At the same time, major shipyards have booked their berths through much of 2007. Productivity will provide the bulk of capacity expansion through 2010 when new facilities in China and elsewhere should begin to come on stream. Offsets to the growth in overall ship construction capacity could come from the competition for slots from container ships, dry bulk carriers, LNG transporters, cruise ships, drilling rigs and floating storage, etc. At the same time mandated tanker retirements by 2010 will also restrict the growth in available tonnage.
The industry outlook for 2005 involves several factors. Economic activity in most of the world continues on a path of growth with robust conditions evident in China, India, the Middle East, most of the Pacific Rim and selected sections of Latin America. Meanwhile the economies in the U.S.A., Japan and Germany are mixed. The U.S.A. which consumes about one-fourth of the world oil output is experiencing good growth. But, Japan and Germany, the third and fourth biggest consumers of oil are struggling with economic stagnation or outright recession. As noted earlier, supply/demand balance should provide the backdrop for strong fleet utilization and solid charter rates. Offsets to these desirable conditions include significantly higher interest rates, elevated bunker prices, rising insurance premiums, growing personnel expenses, vessel security costs, expanded regulatory procedures on ships and onshore, cost associated with securities issuance compliance and the ever rising penalties of a weak U.S. dollar. Nevertheless, on balance it is likely that 2005 will produce the third consecutive year of prosperity for the tanker industry.
OUTLOOK FOR TEN
The momentum of 2003 was maintained throughout 2004 and produced record profits for the year. 2005 has also started out in an acceptable fashion although charter rates in recent weeks have retreated from the peaks of late 2004/early 2005. TEN is on-track for another year of high fleet utilization, as 76% of employable days for the year have been booked or are under contract for the fleet now in operation. Including the M/T Didimon, a newbuilding delivered last month which upon delivery commenced a one-year charter at an attractive rate, TEN will take delivery of five newbuildings by the end of September and management is optimistic about employment opportunities. Scheduled special surveys are light permitting increased employable days. Thus, fleet expansion, combined with high vessel utilization and acceptable charter rates should cushion the effects of rising costs and provide for another year of solid performance. Additionally, the aframax, Panos G, has been sold for delivery in March for an anticipated capital gain of $5 million.
On February 23rd, 2005, the Board of Directors declared a semi-annual dividend of $0.95 per share in respect of 2004 operations, payable April 26th,2005 to stockholders of record on April 15th, 2005. The ex-dividend date will be April 13th, 2005. Combined with the $0.70 per share paid in October, this represents total dividends of $1.65 per share with respect to 2004.
This action reflected confidence in the ability of management, the strength of the balance sheet and the inherent resources to fund the aggressive newbuilding program; thereby, providing the foundation for continued growth of the enterprise and shareholders' value.
On 23rd February 2005, the Board of Directors decided to delist TEN's stock from Oslo Stock Exchange. The Board of Directors is of the opinion that the interests of the shareholders would be best served by concentrating TEN's efforts on the NYSE listings.
ABOUT TSAKOS ENERGY NAVIGATION
Tsakos Energy Navigation expects to operate a fleet of 40 vessels with approximately 4.3 million dwt by mid-2007, which would include 30 purpose built newbuildings (1998-2007) with approximately 3.4 million dwt. The
Company currently operates a fleet of 26 vessels including one chartered-in aframax and two chartered-in suezmaxes). The current fleet comprises 2.8 million dwt with an average of 7 years, compared to the world's tanker average age of 12 years. Between now and mid-2007, TEN is scheduled to take delivery of 14 newbuildings (6 suezmaxes, 2 aframaxes, 5 handysize product carriers and 1 LNG carrier).
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those predicted by such forward-looking statements. TEN undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.