Q4 2019 Earnings Call
To the secular Trends such as Refinery expansions and increasing trade complexity continue to drive product tanker demand growth above that of other tank or sectors.
and
Added to that the product tanker order book remains at historical lows with owners hesitant order new Bachelor's in the face of pending regulatory change and capital constraints.
We don't usually comment on share price. But today we're going to make an exception when thinking about the impact of the coronavirus on tanker company values. It's worth keeping in mind that these values are underpinned by hard-ass with 20-year useful lives in this context the across-the-board 40% drop in tanker stocks over the past few weeks is in our opinion overdone to say the least on that note. I'll have to call back over to Paul.
Thanks, Tony moving to slide 7 for a summary of our quarterly performance as Tony mentioned Charter rates had a good run since October. I am about 20 20 demand overlay on top of existing a strong fundamentals are more straight hours in the fourth quarter was 16900 per day, which is made of a $17,725 on the mrs's and 14280 volt on the chemicals. Both up significantly from prior periods. Looking ahead charge rates have been strong for the first few weeks in January as up to date for the first quarter. We have 55% of our days off on the ammar's at 19800 per day.
She continues to perform very well operationally, but dry docking send operating expenses are coming in under budget for the year.
We have to further drydock scheduled for the fourth quarter for the first quarter the dry dock of the armored Aunt has been completed area in January. We complete the refinancing announced in December and totally have refinanced twelve vessels for two hundred one point five million in the aggregate with our existing relationship Banks cash balance at the year-end was 51.7 million with 11 million available under our revolving facilities.
Turning to slide 8 for an update on tanker Market activity rather conquer rates are benefiting from a significant increase in the mind associated with the 2020. Overall. Charter rates are up 45% since the June quarter and we've noticed increased cargo volumes in all regions particularly exports from the US Gulf the Arabian Gulf and Northeast Asia, the surging demand for compliance field has resulted in significant Regional imbalances and trading activity. Notably Singapore inventories are in Decline while us inventories are building.
On the back of increased demand for compliance Fields many refineries have diverted feedstocks to produce more gas oil and veal SFO supported by strong margins for districts.
And finally the strong crew tank America's enticed some ships to move to dirty trades in total 36 that are tools moved from clean to dirty during the fourth quarter.
As Tony mentioned the bunker fuel is Market has settled in after a short period of volatility and dislocation the price differential between hsfo and deal SFO has settled in below $200 a tonne globally and scroll premiums have reduced accordingly.
Corona virus outbreak has temporarily resulted in a softening of Charter rates.
China oil consumption is estimated to decline as the virus continues and nearly estimates are the Chinese could Refinery throughput by up to 1.8 million barrels a day in February.
However, Global efforts to contain and manage this issue or intensifying and we would expect conditions to improve in the near-term.
Overall the charter Market Outlook remains positive they'll refining to throughput is forecast to increase by one point 1 million barrels A Day in 2020 supported by a recovery refined product amount off.
Price volatility and balances and dislocations should continue to support demand for product anchors.
I'm slight 9 we take a closer. Look at the underlying product tanker supply demand fundamentals, which continue to be positive.
Well, I consumption growth is increasing with an estimated growth of 1.2 million barrels A Day in 2020 up from 1 million growth in 2019. Refinery capacity additions and export-oriented location is expected to average one point seven million barrels per day per year for the next seven years.
Supply of vessels is expected to be well below demand growth new order book continued scrapping and Regulatory uncertainty around propulsion technology and greenhouse gas emission targets is curtailing new orders of shakes.
Looking in more detail at the new world order book as of today. There are 171 tankers or 5.8% of the fleet delivering between the first quarter of 2020 and the first quarter of 2023. We are forecasting 89 Potter tankers to deliver for the full year twenty-twenty and expect scrapping to be in the range of 30 to 40 product tankers per year.
As of today, there are ninety-five product tankers over 23 years old which supports the scrapping estimates.
Taken together product tanker Fleet growth of scrapping is expected to be approximately 1.5% in 2020 down from 3.3% in 2019 and spitting out in Mars on Thursday. We expect this Fleet to grow by 1.6% this year.
The chemical tanker Market Outlook is also positive with the historically the order book of 4.2% on fleek with metal scrapping expected to be 1.4% and 2028 overall as you can see on the chart and the upper right product tanker ton-mile demand is forecasted to increase by 4.8% in 2020 in line with the long-term average and not meaningfully from the past few years.
We believe the strong fundamentals will provide a solid foundation for sustained up to a known product and chemical tanker rates.
Let me just slide 11:00. We take a quick look at Fleet days. We're expecting 8907 Revenue days in 2020. We can completed one dry-docking in the fourth quarter which accounted for fifteen drydocking days. We were complete three dry docks in the first quarter and estimated seventy drydock days including repositioning.
Turns a slight 11:00. We take a look at our financials.
As you will see you at the second line reporting a net profit from continuing operations of two point five million or eight cents per share total overhead costs were in line with expectations that 4.3 million for the quarter comprised expenses at 3.6 million and Commercial and charging expenses of $700,000 as mentioned before in many companies the commercial and Charter and costs are incorporated into Voyage expenses, which means that our cost is too comfortable overhead.
For the first quarter of 2020 we expect total overhead incorporating corporate and Commercial to be four point seven million which includes both cash and non-cash items.
Depreciation amortization was nine point four million for the fourth quarter and we expect depreciation and amortization for the first quarter to come in at nine point eight million.
Interest in finance cost was six point five million for the fourth quarter comprising cash interest of 5.5 million and we're ties deferred Finance fees of $500,000 and we also wrote off $500,000 of deferred financing relating to the refinancing in the fourth quarter. We expect interested in finance costs for the first quarter 20 20 to be approximately 5.8 million and clearly advertised deferred Finance fees of five hundred thousand.
Moving to the bottom of the slide operating expenses came in on budget at $16 for the quarter standard up X for the Eco design and Mars with $6,795 per day. EK mod Mrs. Came in at 6813 per day while the chemical tankers came in at $6,498 per day.
And looking ahead we expect operating expenses for the first quarter to be approximately 15.4 million.
Turning to slide 13. We take a look at Charter rates on the left hand side. You can see the strong recovery and rate since the third quarter and year-on-year as mentioned, Mr. Rates are averaging 19800 in the first quarter two days, which 55% of the days booked up substantially from the third quarter.
Spotted Mars here in an average of 17. 7 to 5 in the fourth quarter or the feet average came in at $16,900 per day and the chemical tankers have also rebounded strongly charge rate of chemical tankers. We're $14,284 per day for the quarter up from 10617 to 3rd court room.
On slide 14 we have our summary balance sheet which shows at the end of December two thousand pieces was 420.1 million dollars while a book leverage was 54.7%
turning to slide fifteen. We remain focused on maintaining a strong balance sheet and liquidity position are cash at the end of December was fifty one point seven million with an additional eleven million available under a regarding credit facilities off in the fourth quarter. We mentioned we finalized the two new credit facilities for two hundred and one point five million in the Aggregates to refinance twelve ships unattractive terms. The first facility is for 150 million to refinance a chips and it is a 40 million revolver and the second facility is 61.5 million Term Loan to refinance for ships.
Pay down debt, all the debt and leases are advertising at approximately thirty-eight billion per year. And finally as you know Libor has been reducing and with the 90% of our debt and least has been libor-based. Every twenty five basis points reduction in interest rates is expected to contribute an additional 1 million and earnings are $0.03 in EPS annually, and we thought it would turn the call back over to Tony.
We are continuing to
Thank you Paul to sign up. Then we're reporting adjusted net profit of 2.5 million or 8 cents per share for the fourth quarter earnings are continuing strong. Well into the first quarter or Mrs are down to twenty thousand a day and the chemical tanker is at 19600 with 55% and 65% fixed respectively and that's up substantially from the fourth quarter along with everyone else. We're deeply concerned by the Corona virus outbreak and hope it will soon be contained and further eldest minimized but also along with everyone else we're waiting to get a better sense of how it's going to impact our business in the meantime or faith in forming very well under this uncertainty including most recently some very good fixtures actually even in Asia in keeping with our current dividend policy. We're declaring the quarterly cash dividend of $0.05 per share of representing 60% of earnings from continuing operations. Admittedly. We're not very happy about paying a cash dividend when our price our share price is trading at a substantial discount to nav, but that's our careers.
policy
For the year ahead or to stay focused on building our operating performance reducing debt and maximizing long-term value through good Capital allocation of which an effective dividend policy is an integral part.
To conclude then the impact of the Corona virus outbreak is on everyone's minds and it's still conjectural at this at this at this point. But once this period of uncertainty is over and the trajectory of the virus outbreak is known we would expect to see a sharp rebound and product tanker rates two levels narrated by the very strong underlying fundamentals. And with that. We're happy to open up the call for questions.
We will now begin the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you using a speaker phone, please pick up the handset before pressing the keys to withdraw your question, please press star then to our first question is from John from em. Go ahead.
Good afternoon, guys, Tony maybe up and open a couple of can of worms there. So you say you never comment on your stock price and then you did and then you showed a little bit of frustration at them and about, you know, sticking with the dividend policy given where the stock price is. So understanding the policy is the policy is and you did what you say you're going to do and I think that's great. That shows me that you know, good long-term confidence in the company. What is the flexibility around BuyBacks at this point? You know, Paul spoke about the liquidity your dead-end reservations down a little bit. This is obviously a an anomalous time. And it provides good opportunity. So should we expect to see a little bit more activity on the buyback?
Thank you.
our priorities
Look John, I think it's a good a good point you're making and I think you're you're sensing our food correctly. Share BuyBacks are one of one of our for basic alternative and in terms of capital allocation, we can buy ships. We can buy back shares. We can pay down or buy back debt and we can pay a dividend. So we just, you know, we like to think of it in that context and try to figure out on balance. What's the best thing to do at the time in order to to focus on long-term value? I mean, you know, the the dividend in particular is is is frustrating cuz we're we're trading um, um, you know, we hear various views from different investors on the topic perhaps more now so than ever before and some are quite a passionate about it, you know, so, you know, so, you know that that's you know, Capital allocation is always on our mind and it's something that is an open point of discussion.
You know.
View is that um, you know, when it comes to Dividend policy, you know, we we try to think of it in an overall Capital allocation framework in order to build long-term value. And you know, we don't really like to get involved too, you know, the discussions around signaling and you know, and and and you know, and appealing to certain investors either way with dividends or signaling of that share BuyBacks because you know, we think that's just a a short-term value focus and it's not something that we ascribe through. Yeah, I think being consistent important. I just think every once awhile. There's these situations where the market provides you an opportunity and am able to be nimble is is useful. Um, just to other quick ones on the dry docking. So first quarter dry docking is given the strength of the market maybe seems a little poorly timed and then wage, you know, we've been hearing about delays and in certain yards whether it's on dry docking zor do bills et cetera. Is there any potential or desire at this point to maybe push back some wage?
To dry documents for 1 Q into what could potentially be a seasonally softer. Or any opportunity from the yard to push that back?
The reality is that we we try to line up the dry dock things to maximize the you know, the interval between them on the intermediate surveys. There is more flexibility. However, typical you know, it's really just a question of what should we put them in earlier cuz the market so bad right now and we did a bit of that last year, but now that the market strong we don't really have the flex. I did push them out those that are delayed actually can't trade in in China. So it's not like they they can kind of go out again. If in fact they're waiting for for for a doc, you know for a for a survey. So, you know sticking sticking to the schedule and you know getting getting to a good location globally, you know, in terms of part of the world that that works armatrading pattern standpoint and also cost Effectiveness standpoint. That's that's really where the value is. Okay. Last one super quick Paul. I was writing furiously, but I missed the fax number for 1 Q. You can just repeat that please.
15.4 million. All right. Thanks Paul. Thanks, Tony.
Jeffries go ahead.
Howdy gentleman. How's it going?
It's it's a good question. It's something that we do discuss.
Hey ready? Yeah quick questions for me obviously rates, you know falling dramatically year-to-date time Charter rates are down but clearly not as much any updates on chartering out or even chartering in vessels in this market and then um kind of further down the line with decreasing time Charter rates how have acid values been impacted by the current market? Yes.
A really good question about Charter rights and and opportunities and you know, obviously we wouldn't if we were interested in month ago and chartering out. I think we're certainly not interested today because you know, I think the most important point to make here is that wage, whether you call it an air pocket a speed bump, you know a temporary decline or whatever. We we do think that that the the impact of the coronavirus is is finite and wage is over we've got very strong underlying fundamentals. So so we're we're Believers in the market and we certainly wouldn't be chartering out at today's levels. Does this represent an opportunity over the next couple of months of Charter in public that's a real possibility in terms of asset values, you know, the the the S&P Market is a slow-moving market so far. There are no indications that people are pulling back in a big way or or sellers or willing to drop prices to accommodate Fires at lower levels. It seems to be still more or less business as usual, but it's early days.
Thanks. So our next question is from Randy from
Got it. Okay. So absolute value seven moved down your nav on the last call was closer to
$11 all them for the difference there and then historically York em tankers learn about $2,000 a day less than your M ours that said obviously the first quarter wage rates the roughly in line. So, can you talk a little bit about the kind of Dynamics around that and then following that what's your average kind of full year twenty-twenty break-even rates for the Mrs. Versus the cam speakers?
I'll let Paul answer the break-even rates in a second. But no look. We're really pleased with the the current performance of the chemical tankers. It's a relatively small percentage of our Fleet. It's six six out of twenty five shifts wage. And so as a sampling size, there can be some variability in terms of performance there. But as we look at the individual performance, it is a mix of front hall back all at the moment. We think that that that those numbers are reflective of real performance from one point to note is that these are super fuel efficient ships and on long-haul voyages which they typically do in a higher, uh, fuel environment they're going to do even better. So I think that's playing in here as well. And I think also, you know, the there was a lag effect in the the sort of the you know, the the end of 2019 Chef where the chemicals were kind of, you know catching up with the mrs's um, and they have now
On the break-even levels are actually about the same. So the break even across the fleet for 2020 net income is about $15,600. Some of the Americas are obviously older. Some of them are newer so actually quite close in terms of the the cabins and the Amorous and then the feed average Breakeven is a little bit higher than that. It's around $16,200. So there are the two numbers 15 6 net income across the fleet and took over 16 on the on the cash Breakeven.
Excellent. Thanks so much. That's it for me.
That's right. That's right. Again. If you have a question, please press * then 1.
Our next question is from Omar from Clarkson security. Go ahead. Thank you. Hi, Tony of Paul Tony. I known now in your comments that you don't want to tip your hat necessarily as to you know, what you're thinking about BuyBacks and dividends and what not. But, you know to go back to maybe John's initial comment. Um, you did sound a little home and and referred to the 60% payout as your you know, your current policy. Can I take that to mean that you and the Border or maybe re-evaluating that the that the 60% payout?
I wouldn't infer anything from it other than you know, what you know, what I was trying to say. What I will say is that you know our board, you know, we do discuss dividend policy and most meetings at least informally and we expect that'll continue more and more my own view is that we need to think of that in terms of capital allocation and try to come up with a capital allocation policy that's geared toward building long-term value and explain where dividends fit into that rather than just focus on dividends and what it means and what it's signaling about business.
That's fair. And and when you think about the you know you refinance the debt Paul and you know, you you do have the pay-out based on the guidance. You're going to have it looks like a sizable cash billed as you think about progressing to the year. Do you have sort of a a perspective on what you want to do it that excess cash. Is it maybe just retaining it now on the balance sheet to start off. Do you want to maybe prepaid that further kind of what's the Thought you think on the excess cashier in the near-term?
Yeah, great question Omar. I mean I think you know, if the if the market continues at least we're January has been we're in for a pretty strong year. And I you know, I think we've had two 2019 obviously would be would.
Lost our speaker line one moment while he calls back and reconnects.
Dead dead dead dead.
Tum Hara me. This is the operative we've reconnected the speakers and we'll continue please proceed.
Hi guys, apologies about that some technical challenge at this side. So just picking up on Omar's question in terms of what we'd expect to do with excess cash that we would we would make this year off. The point that I was making was 2019 is shaping up at least based on January's numbers and and allowing for some movement on coronavirus that we should be a profitable year off and we would build a lot of cash, uh, you know, I would expect based on, you know, three or four at least three years of of of a tough Market Seventeen and eighteen in particular that we would look to accelerate that reduction in line too often should have been uh, and then after that I would say so that probably the immediate priority over. Okay? No, thanks Paul for that color, you know, maybe one just one final question. Um, you know, looks like she clearly the guidance for one key was very strong at close to $20,000 a day and you know, we'd say that that seems probably a bit higher than what index averages have been. Um, would you toss
Up to just maybe, you know good old-fashioned execution, or was there something maybe one time in there like buying fuel at the right time right place or just you know, basically good execution.
I'm sure her not would dying for me to say it's just good execution. And I think it's partly that but also I think the Market's been stronger perhaps in people realize so, you know, I don't think we'll be alone in producing pretty good numbers. So I don't know Paul if you have anything more to say no, I think