Tsakos Energy Navigation Limited — 2015 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual Form 20-F, not a standalone fourth-quarter filing. Financial statements are audited and prepared under U.S. GAAP.
Business context
Tsakos Energy Navigation is a Bermuda-based international owner and operator of crude oil, petroleum product, LNG and shuttle tankers. At year-end 2015, the Company operated 49 vessels, with an average fleet age of 8.5 years and utilization of 97.9%. Its fleet deployment shifted toward market-exposed employment: spot voyages represented 41% of operating days versus 34% in 2014, while fixed-rate time-charter employment declined to 35% from 41%.
Management attributed the strong tanker market to low oil prices, higher oil consumption and stockbuilding, high refinery utilization, longer-haul trade patterns, limited crude tanker fleet growth and lower bunker costs.
Financial and operating metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Voyage revenues | $587.7 million | $501.0 million | +17.3% |
| Operating income | $188.1 million | $76.0 million | +147.3% |
| Operating margin | 32.0% | 15.2% | +16.8 percentage points |
| Net income | $158.4 million | $33.7 million | +369.7% |
| Net income attributable to the Company | $158.2 million | $33.5 million | +372.0% |
| Net income attributable to common stockholders | $144.8 million | $25.1 million | +477.0% |
| Basic and diluted EPS | $1.69 | $0.32 | +428% |
| Net cash from operating activities | $234.4 million | $107.0 million | +119.1% |
| Net cash used in investing activities | $(174.8) million | $(254.3) million | Lower use |
| Net cash from financing activities | $27.9 million | $187.2 million | Lower inflow |
| Cash and cash equivalents | $289.7 million | $202.1 million | +$87.6 million |
| Restricted cash | $15.3 million | $12.3 million | +$3.0 million |
| Total debt | $1.400 billion | $1.418 billion | Down $18.2 million |
| Total stockholders’ equity | $1.415 billion | $1.178 billion | +20.1% |
| Debt-to-capital ratio | 49.7% | 54.6% | Lower leverage |
| Average TCE per vessel per day | $25,940 | $19,834 | +30.8% |
| Vessel operating expense per ship per day | $7,933 | $8,209 | -3.4% |
Material changes versus the prior comparable period
- Revenue growth and margin expansion were driven primarily by materially stronger tanker rates and increased spot-market exposure.
- Voyage expenses fell 14.5% to $131.9 million despite more spot and contract-of-affreightment days, mainly because bunker expense declined 30.5% as fuel prices fell.
- Vessel operating expenses declined 3.3% to $142.1 million, helped by the stronger U.S. dollar against the euro and the sale of two vessels, partly offset by repairs and dry-docking costs.
- Interest and finance costs declined 30.3% to $30.0 million, partly because bunker swaps expired and borrowing costs improved.
- The Company sold the product carrier Delphi and the suezmax tanker Triathlon for combined net proceeds of $42.8 million and recognized a $2.1 million gain.
- The Company acquired the suezmax tanker Pentathlon for approximately $57.9 million and issued 2.6 million common shares to partially finance the acquisition of two VLCC newbuilding contracts.
- No vessel impairment charge was recorded in 2015 or 2014, compared with a $28.3 million impairment charge in 2013. However, 33 vessels had carrying values above estimated market values at December 31, 2015.
- The Company issued 3.4 million Series D preferred shares and raised $81.8 million net of expenses. Preferred dividends accrued in 2015 totaled $13.4 million, compared with $8.4 million in 2014.
Liquidity, debt and capital commitments
Working capital improved to positive $35.0 million at December 31, 2015 from negative $49.8 million in 2014. The Company stated that cash holdings and expected operating cash flow were sufficient to meet liquidity and working-capital needs through January 1, 2017, assuming relatively stable market conditions. Management also stated that significantly weaker markets could put debt service and capital commitments at risk.
- Debt principal outstanding totaled $1.400 billion, including $319.6 million classified as current.
- Scheduled debt principal payments after year-end were $319.6 million in 2016, $202.1 million in 2017, $286.3 million in 2018, $178.3 million in 2019, $137.3 million in 2020 and $276.5 million thereafter.
- Remaining newbuilding and related acquisition commitments totaled approximately $805.7 million at December 31, 2015, including $584.4 million due in 2016 and $221.3 million in 2017.
- The Company reported compliance with its financial, leverage and vessel-value-to-loan covenants at year-end. Its loan agreements generally require minimum unrestricted liquidity and restrict additional debt, asset sales, dividends and other activities.
- Operating cash flow dedicated to debt service was approximately 77% in 2015, excluding certain voluntary prepayments.
Guidance, outlook and management commentary
Management expected subdued oil prices, potentially approaching $50 to $60 per barrel, to support tanker demand during 2016. It anticipated strong crude tanker rates through 2016 and into 2017, although likely without the extreme 2015 spikes, followed by pressure as new vessel deliveries increased.
Management was more cautious on product tankers because of substantial ordering, although new refinery capacity and longer trade routes were expected to support rates. LNG carrier rates had declined materially and were expected to provide only modest returns until additional LNG projects were completed, potentially into 2017.
The Company had contracted employment for its aframax newbuildings, LR1 product carriers and shuttle tanker. Employment for the two VLCC newbuildings and the LNG carrier was still being discussed. The existing LNG carrier was seeking spot employment after its time charter expired in February 2016, and the LNG newbuilding expected in the second quarter of 2016 had no charter arrangement at the filing date.
Key risks, contingencies and unusual items
- Market cyclicality: Charter rates and vessel values are volatile and depend on oil demand, tanker supply, refinery activity, trade routes and geopolitical conditions.
- Spot-market exposure: Spot and variable-rate employment increased materially, improving upside in 2015 but increasing exposure to rate declines and bunker costs.
- Debt and refinancing: Significant 2016 debt maturities and newbuilding installments require continued operating cash generation, asset sales, refinancing or additional capital.
- Vessel values and covenants: A decline in vessel values could cause covenant pressure, required prepayments or additional collateral requirements, even though the Company was compliant at year-end.
- Newbuilding execution: Delayed deliveries, shipyard financial problems or cost overruns could postpone revenue and increase funding needs.
- LNG exposure: The existing LNG carrier was unemployed in the spot market and the new LNG carrier lacked a charter, creating utilization and cash-flow risk.
- Environmental and operational liability: Pollution, casualty, piracy, terrorism, sanctions, regulatory changes and insurance limitations could create material losses. Pollution coverage was stated at $1 billion per incident, but a catastrophic event could exceed available insurance.
- Related-party dependence: The Company relies on Tsakos Energy Management, Tsakos Shipping and TCM for executive, commercial and technical management. A management-agreement termination following certain control changes could have required an estimated payment of approximately $170.2 million at December 31, 2015.
- Dividends: Common and preferred dividends are discretionary and subject to cash availability, subsidiary distributions, Bermuda law and financing covenants. Preferred dividends have priority over common dividends.
- Concentration: Petrobras represented approximately 14.4% of 2015 revenue; Exxon, Shell and Vitol represented approximately 9.7%, 9.2% and 8.4%, respectively.
Important facts for investors to verify
- Reconcile the annual results with the full audited financial statements and confirm that 2015 is not being interpreted as a fourth-quarter-only period.
- Review the timing and funding of the $805.7 million of remaining newbuilding and acquisition commitments, especially the $584.4 million due in 2016.
- Assess debt maturities, refinancing availability, minimum unrestricted liquidity requirements and vessel-value covenant headroom.
- Monitor spot-market rates, utilization, bunker prices and the proportion of vessels operating under fixed-rate versus market-linked charters.
- Review employment arrangements and charter coverage for the LNG carrier, LNG newbuilding and two VLCC newbuildings.
- Evaluate the gap between vessel carrying values and market values, including the 33 vessels whose carrying values exceeded estimated market values.
- Verify related-party fees, management-agreement termination provisions and the effect of the Tsakos family’s voting influence.
- Confirm subsequent events, including 2016 vessel deliveries, debt drawdowns, the common-share repurchase program and declared dividends.