TSAKOS ENERGY NAVIGATION LIMITED (TEN) yesterday reported financial results (unaudited) for the third quarter and first nine months of 2007. Net income was a record $50.0 million for the third quarter of 2007, (including capital gains of $31.8 million) as compared with $44.5 million (including capital gains of $13.3 million) for the third quarter of 2006. Net revenues (voyage revenues net of commissions and voyage expenses) expanded 3.9% to $97.2 million from $93.5 million reflecting growth of the fleet (43.6 vessel average in Q3 2007 versus 37.1 vessel average in Q3 2006) and the effect of the Company's balanced employment policy to provide contracted rates in cyclical markets. The time charter equivalent per ship per day was $26,467 in the third quarter of 2007 versus $29,779 in the third quarter of 2006. Operating income rose 15.8% to $71.1 million (including capital gains of $31.8 million) in this year's third quarter from $61.4 million (including capital gains of $13.3 million) in the similar period of last year.
Depreciation was higher at $21.3 million from $16.6 million as a result of the growth and continuous modernization of the fleet. Net financing costs also grew reflecting financing of the fleet expansion, higher interest rates and interest rate swap valuations. Net income before depreciation rose by 16.7% to $71.3 million as against $61.1 million in the same quarter last year. Diluted earnings per share increased 12% to $2.61 from $2.33 in the third quarter of 2006.
For the nine months of 2007, net income was a record $131.0 million (including capital gains of $38.2 million), exceeding the previous record for the 2006 nine months of $119.3 million (including capital gains of $13.3 million). Net revenues (voyage revenues net of commissions and voyage expenses) grew 20.6% to $300.9 million from $249.4 million in the 2006 similar period reflecting a growing fleet (41.2 vessel average for the nine months of 2007 versus 32.7 vessel average in the similar 2006 period) and a chartering policy that includes profit-sharing components.
The time charter equivalent was $29,233 per ship per day as compared to $30,290 in the nine months of 2006. Operating income rose significantly by 24.7% to $175.9 million from $141.1 million. Depreciation was $60.0 million versus $42.1 million as a result of the expansion and continuous modernization of the fleet. Net financing costs were higher reflecting increased debt and higher interest rates. Net income before depreciation rose by 18.3% to $191.0 million from $161.4 million in the 2006 period. Diluted per share earnings grew 9.8% to $6.86 as opposed to $6.25 in the nine months of 2006.
"The record profits of the first nine months of 2007 reconfirmed the efficacy of TEN's corporate strategy and business plan," observed D. John Stavropoulos, Chairman of the Board. "A diversified, young, and growing fleet combined with a balanced employment program has resulted in strong secular earnings growth. These results have enabled a dynamic newbuilding program, consolidation exploitation, increased dividends and a complementary share repurchase program. The litmus test of TEN's strategy and business plan will be measured in the months ahead as we navigate an uncertain economic and financial environment. I believe they will continue to provide a safe passage," Mr. Stavropoulos concluded.
FLEET STRATEGY
During the most recent quarter, TEN's fleet underwent a strategic readjustment to conform to its ongoing strategy of fleet renewal and earnings generation. Despite the charter markets experiencing seasonal weakness this quarter, asset values remained firm which provided the fodder for TEN to realize significant capital gains and release of cash, a practice the Company considers integral in its overall operational model. In particular, in this quarter and having taken into consideration the delivery, in the first half of the year, of the DNA-designed aframax tankers Izumo Princess and Sakura Princess, the Company agreed to the sale of the 1998-built aframaxes Maria Tsakos and Athens 2004 together with the 1999-built aframax Olympia for total capital gains of $96 million. The Olympia was repurchased by the Company at the beginning of the year, after declaring a pre-agreed purchase option, for $31.1 million, about half its fair market value as determined by independent brokers at the time.
In order to facilitate a seamless exit from the fleet and allow these three vessels to complete their existing charters, the Company agreed to a "one-per-quarter" delivery. The Maria Tsakos was delivered in the third quarter, the Athens 2004 in the beginning of the fourth quarter while the Olympia will be delivered to her new owners in January 2008. Each respective capital gain was and will be recognized during the quarter of delivery.
Along with these sales, on August 21, the Company took delivery of the 1B ice-class handysize product tanker Bosporos which immediately entered an attractive three year time-charter with profit-sharing provisions. On average the Company this quarter operated 43.6 vessels as compared to 37.1 vessels in the same quarter last year.
TEN's strategy in terms of fleet growth relies primarily on its current newbuilding program which numbers six DNA aframaxes and two panamax product tankers. To satisfy clients cargo requirements, the Company will on occasions explore opportunities that might arise on the newbuilding front and/or second- hand market. The Company in line with its stated strategy to actively participate in the sale & purchase market will entertain inquiries for the disposition of certain tonnage, especially its first generation double hull tankers, as long as such dispositions will not upset the core structure of the fleet nor jeopardize the Company's contractual obligations.
"Our strategy of actively participating in the sale and purchase market while maintaining a solid vessel platform in the context of a balanced but flexible employment policy has been rewarding to both company and shareholders," stated Mr. Nikolas P. Tsakos, President & CEO of TEN. "With a strong balance sheet, supplemented by healthy gains from vessel sales, and widespread acceptance of our vessels from blue-chip international oil majors we view the future with renewed confidence," Mr. Tsakos concluded.
The chartering philosophy of the Company with a preponderance of vessels on flexible charters to smooth market volatility proved valuable during this quarter which exhibited the usual seasonal characteristics of a soft market. This policy is designed to safeguard TEN from market gyrations and has succeeded in affording TEN earnings visibility adequate enough to provide comfort for the future. In particular, for 2008 and based on a current operating fleet of 43 vessels, and after the recent three-year fixture to an international oil major of the modern suezmaxes, Eurochampion 2004 and Antarctic, TEN has fixed 75% of the fleet's employable days and 60% of 2009 employable days. This translates to approximately $290 million and $225 million of revenues respectively. All-in-all, and as of October 2007, TEN has secured, on average, 2.1 years of employment coverage for its 38 vessels under period employment and absent any profit-sharing this translates to gross revenues of at least $700 million.
"Our results this quarter, considering the challenging market environment in our sector, is a testament to our ability to generate healthy revenues irrespective of market conditions," Mr. Nikolas P. Tsakos, President & CEO of TEN stated. "There is preliminary evidence for a market turnaround in the sectors in which we operate, including oil majors appetite for long term fixtures and a fleet well in demand from prominent charterers. Therefore, we remain optimistic and well positioned to take advantage of market opportunities that could further enhance shareholder value," Mr. Tsakos concluded.
SUBSEQUENT EVENTS
Tsakos Energy Navigation Ltd. today announced that the Company's board of directors has approved a 2-for-1 stock split to be effected in the form of a stock dividend.
Each shareowner of record will receive one additional share of common stock for every one share owned. Additional shares issued as a result of the stock dividend will be distributed after the close of trading on November 14, 2007 to shareowners of record at the close of business on November 9, 2007. The shares distributed as a result of the split will begin trading at the open of the market on November 15, 2007. Shareowners do not need to exchange existing stock certificates and will receive a Direct Registration Statement at the time of the split, reflecting the newly issued shares.
The stock split will increase the Company's total shares outstanding from approximately 19.03 million to approximately 38.06 million.
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