Q2 2020 Tsakos Energy Navigation Ltd Earnings Call

Thank you for standing by ladies and gentlemen, and welcome to the cycles energy profit.

<unk> conference call on the second quarter Twentytwenty financial results.

Mr Talkies tremendously.

Tremendous the board Mr. Nikolas tsakos.

Oh, I see Oh <unk>.

Financial Officer, Mr., George Saroglou, Chief operating officer.

Also the company at this time all participants are in a lift.

There will be presentation, followed by a question answer session.

It's time, if you wish to ask a question. Please press star one telephone keypad and wait to be an i. I missed.

I must advise you that this conference is being sold to stay well into the 20 Threerd to September 2020, I know I pass the floor to Mr. Nicolas Bornozis President of capital Link Investor Relations Advisor Sakhalin Energy navigation. Please go ahead Sir.

Thank you very much and good morning to all of our participants I am Nicolas Bornozis capital link investor relation for advisors to truck or energy never give.

This morning, the company publicly released its financial results for the second quarter, a six month old 2020.

In kids, we do not have a copy of todays earnings release, please call us.

Do you want to.

[laughter] 617566 or email us.

Then the.

D N I pick up at the Linq book goal and we will have a copy sent to you right away.

Please note that started to today's conference call. There is also a live audio and slide webcast.

Which can be accessed on the company's website.

On the front page <unk> W.W.W. adult P E and M Dot D.R.

The conference call will follow the present different slides. So please we urge with what.

Accessible isn't there some slides on the company's website.

Please note that the slides over to work after that date for would be available to an archived on the website of the company profit.

The conference call also please note [noise].

The slides for the webcast presentation are user controlled and that.

And that means that by clicking on the proper bought them you got moved to the next slide on your own.

At this time I would like to read the Safe Harbor statement.

This conference call and slide presentation of the webcast contain certain forward looking statements within the meaning of the safe Harbor provision of the prize.

But securities Litigation Reform Act of 1995.

Investors are cautioned that such forward looking statements involve risks and uncertainties, which may affect tens business prospects and results of operations.

This morning, I would like to pass the floor formed it moved it up a little bit surmont cycles, and I'd, probably give some difficult the conference call what that would be a record performance that field. Please go ahead Sir.

Thank you very much Nicholas Hello, good morning, and good afternoon tool.

Thank you for joining us today.

I hope, you're all keeping safe and healthy [noise].

Our freshly said today with second quarter first half results.

Thanks, all the boxes.

She performance.

It includes [noise].

Profitability.

Substantial historically debt reduction.

Continuous fleet renewal.

[noise] highly accretive new business.

Repayment, so [noise] pretty hard.

Pretty hard issues.

An active buyback program.

And impressive cost containment.

So.

That's when nations once again, Nikolas tsakos and his team.

And we all look forward to answering your questions. After hearing your constructive comments.

Yes.

Thank you and I know pass the floor to Nick will talk.

[noise] anchor German.

[laughter] has been.

Oh yeah.

[noise] interesting to sales at least in line.

Enlightening they'd do occasionally be good for all of US we are not very good thing in uncharted waters for the last more than six.

More than six months now.

However, we have been able to maintain.

Yeah the company.

On course at least.

We have been maybe dual first of all.

Sure the safety of our Oh, what people on board.

This has been a huge one churn if you are in an operation was 2000.

Seafarers informed on board that ships at one time and 2000 she first.

I think the board <unk> on the other hand, so that's a huge effort.

<unk> <unk>.

There's been made then I think that's where the big but overall.

But priority has been has been forced.

And not as a German said, we werent able.

We weren't able to navigate this uncharted waters.

Successfully and not to lose track of the companies that targets the.

Good so I was always been profit to be within your time.

It has been an excellent quarter and a record six months.

But other than that also the growth in modernization.

Overall fleet, we sold four vessels.

Within the quarter and the six months.

He was dead, we booked Casa side than we had in place then those four vessels were there not a danger 14 years with a four new bassam study over them already to de lever.

His fight over the very difficult circumstances that cpms have been operating so I mean first of all.

First I want to thank God I shouldn't say parents for their efforts are the people there, but I'm sure you'll be thin film and operations team for making sure that we weren't able to deliver those ships on time maintain already accretive charters. So by showing all of these we weren't able to replace for older ladies.

I didn't get that 14 years. This is our goal to try avoiding passing the.

I, usually they'd be more Warner's third special survey and we replace them with four new restaurants, we thought that maybe more modern and capacity wouldn't be hungry and they feed me Lynn.

A full over there.

Five years employment as a minimum door to door to whatever so all this took a lot of important from a the whole team, we maintain 96% utilization, which has not been easy maybe because oh, yeah, but is that.

Circumstances were facing with the rule changes.

We started this a year end to end didn't do anything with optimism I would say, but a lot of concerns all of us and remembers that these would have been our biggest issue we're supposed to be.

<unk> the progression from the three and a half.

I think from that study I know for sure are going to do that to the 0.5.

Within six weeks on the beginning of the here or is this a one.

I want to do the Buck.

Okay. Thank you and we have been dealing with the effects of the virus students but.

However, so far so good well we increased our dividend in June we hope to maintain a strong. They would then you know next dividend payment in December.

And again I would like to think a the board to the management of the technical management for their efforts to keep a the bolt on tuck in these very very rough waters.

We are pushing us as third quarter third quarter, which has been a seasonably slow.

Hello, and also we are facing these shoes over the course of items include changes, but though that is a that out a very good signs that the remaining of the year. The market is going to turning to shop in the store so far stronger normality.

So we are hoping to have a a record here going forward and.

And with this I will ask George to give everything in a much more detailed than we will be here with the German.

The end goal for all the answers.

Thank you Nicholas and good morning to you all.

We reported today a profit up in the second quarter and first half of Twentytwenty.

It has been at all of course every year for the tanker industry and their work as a result of the car advancing on damages and its economic [laughter] Cross sell.

And health related.

Effects.

We continue to successfully navigate their logistic ita and regulatory challenges from gold with 19 with minimal impact to our operation So far thank God.

It's a big effort.

Lastly, as a result of that and then the mix and the lockdown the border closures and a reduced airline capacity has experienced significant challenges in crude changes.

I'm pleased to report that we have seen really changed out the number of crew members in our fleet.

We want to take this opportunity to say one more time and tell how proud we are.

All out to sea fighters and onshore personnel for their hard work patience perseverance and professionalism during this time of crisis.

We will continue to work hard with all of them to bring the remaining over did you see fighters safely back home and to their families.

Without disrupting the operational readiness and efficient show the fleet.

This has been and will continue to be our number one priority and feel that virus is eradicated and will return to normal industry practices for crew changes.

Let's go to the slides of our presentation.

In slide number three we see that since since inception in 1993, we have faced for major crisis far East 911 granted crisis and call. It 90.

I think its time the company. Thanks to the operating model, which is built big crisis resistance has become a growing stronger and bigger insights from FFO.

From for modern vessels in 1993, <unk> pro forma fleet Freesheet 70 vessels today for an average 15% annual growth instead of deadweight eat into for decades, we openings.

So this time has not been an exception since the start of the year, we have sold for tankers with an average age of 15 years Andrew.

And replace them with new building orders for four conventional tankers and and one auction last option one option one central banks.

All vessels have long employment at that minimum five yes.

We have already taken delivery of three conventional tankers and expect big you leave it on the last one during the fourth quarter.

When did Glenn.

Slide four we see the pro forma fleet and its current employment profile.

We have a combination for fixed time charters and flexible employment contracts. Thanks.

Time charter with profit sharing Seaways as Forthright, Inc.

That's capture the markets upsides.

Blue collar vessels 30 in number out on fixed rate time charters.

The red and dark Red color vessels, 40, or 60% of that slipped have exposure in this in the markets upsides.

In slide five we see in the left side.

All in breakeven cost for the various vessel types we operate.

As you can see the cost base is low.

In addition to the laws shipbuilding cost, we must highlight the purchasing fire power of Soc with Columbia ship management there.

The continuous cost control effort by management to maintain a low opex avid it's for the fleet and the lower general and administrative expenses, while keeping at the same time, a very high fleet utilization rate quarter after quarter.

In excess of 96% for the first six months of the year.

Thanks to the profit sharing element that is a big portion of that.

Our fleet then benefits further than what market conditions are strong like the freight market environment over the first half of the year.

What every $1000 increase in spot rates, we have a 48 cents impact can be on your EPS based on the number of 10 vessels that currently have exposures in the spot market.

That the reduction is an integral part of our strategy.

At the end of 2016 when debt level, because we have it in Europe.

We have reduced debt by almost 300 million we have.

We have repaid in full the 50 million pretty fair series B shares in 2019 and.

And intend to initiate at par repayment of the 50 million series preferred status in.

In October 20 trench.

Net debt.

To GAAP ratio at the end of June Twentytwenty is 45.5%.

In addition to paying down debt growing the company through timely sale and purchase and your new building acquisitions, we continue to reward shareholders through dividend payments.

Last common share dividend in June with a payment of 77 and a half a cent shares a share split adjusted or sense, including the special dividend of 12 and a half cents.

To that end glass semiannual dividend of 25 or so.

Since percent split adjusted.

Since our New York Stock exchange listing entered into in 2002, the company distributed almost 487 million in common share dividends or $25.70 split adjusted.

In addition, as part of it said its buyback program, we have repurchased approximately 8 million worth of common stock and we expect to buy back the 50 million preferred series C. Bites due date at the end of October.

Good luck.

Sales to appears to be the month, where oil prices and global oil demand for them.

Since then demand pick up as more economies came up with a locked down and the low oil price environment incentivize stockpiling.

Adams agencies monitoring the oil market.

Expect Oh, you can mine to reach the prequel with 19 levels of hundred million bottles sometime next year.

Subject to not going through another synchronized global look down and how come how quickly vaccine will be widely available.

The order books, thousands I thought around 7.3% 40 67 tankers over the next three years the lowest it has been in more than 30 years and at the same time and big part of the fleet is Robert 15 years.

1307 vessels or in excess of 20% of the current fleet.

And environmental regulations with Bush more tankers approaching or above 20 years to go for scrapping.

2018 was one of the highest scrapping gears for exports last year scrapping was lower as expected.

And the strong market that we have faced in the first half and the pandemic scrap.

Scrapping to a standstill.

But with a lot of tankage with more than.

Okay. Thank us in excess of 20 years, we could see a pickup in scrapping as more environmental regulations on the horizon create an unfavorable trading environment for those vessels that have reached at or above 20 years.

So as oil demand recovers and hopefully the world will come out of the pandemic soon.

Fly of tankers remain in check.

At least for the next two years, if not longer we expect the freight market going forward to continue to be favorable for modern tanker owner like then.

That concludes the operational part of our presentation, Paul will walk you through the financial highlights for the second quarter and the first half of the year.

Thank you George.

Well quoted two is very rewarding for 10.

Operating income reached $65 million and net income $50 million before impairment charges of $13.5 million on two tankers and the 4.7 million dollar loss on vessel sales.

In the six month period operating income was $119 million and net income $69 million.

Before these non cash items.

Quarter, two revenue increased $47 million to $191 million much.

Much of the increase due to the demand for floating storage that benefited those charters with profit share by $21 million and $41 million in the six months.

And that 96% utilization and more than half of the fleet operating days on spot or variable rate charters day.

Daily Tc per vessel in quota to have reached $28800 the highest achieved since 2008.

Our two LNG carriers generated a combined daily average.

It was significantly higher than the average spot rates for such vessels in the period.

Quarter, two operating costs fell by $3.5 million in total.

Finally, due to one less vessel well average daily Opex per vessel fell 6%, mainly due to the strengthening of the dollar against the euro pushing down crew costs.

The 2005 product carrier sold in June release $2.7 billion cash.

Repayment of a 6.2 million loan.

Another $17.6 million was prepaid regarding to productivity is transferred to our joint venture.

Quota to net debt repayments were $34 million and outstanding debt stood at $1.47 billion.

Net debt to capital fell to 45% and the cost of the debt fell to 3% and Dave below 3%.

Likely to remain at this level for the foreseeable future.

Quota to finance costs fell by $7.4 million, mainly due to reduced debt reduced margins and falling interest rates and positive movements over $2 million in bunker hedge evaluations.

Quarter, two EBITDA totaled $98 million up 76% boosting our cash reserves and allowing us to comfortably redeem series C preferred stock for $60 million in October and to continue our share buyback and to contribute to our capex commitments.

We currently have one suezmax with charter under construction.

We delivered in November with $47 million to be paid we also have a newbuilding LNG carrier under construction for delivery in late Twentytwenty 21 on which we have paid $19 million to date.

We have also recently contracted to build a series of up to three DP two shuttle tankers with charter to be delivered in Twentytwenty two.

We have paid $9.3 million cash as the first installment.

Thats arrangements have been made over on rent or are under discussion for our new buildings on the highly competitive terms, including financing free delivery yard installments.

We actively continue to seek opportunities to sell vessels and have earmarked certain vessels for disposal to maintain a modern fleet with lower running costs and to reduce debt.

Quarter, three has been a challenge due to seasonal factors global fleet de stocking and slackening demand, but again, we expect our time charter hire alone to cover all cash expenses.

And we believe that there are various factors that George has mentioned and in the press release to indicate that a recovery is not too far off as we entered the fourth quarter.

And now I'll hand, the call back to Nikolas.

Thank you all for the good solid news and May This continues as we go forward.

Yes. It is.

In that situation that.

We find ourselves.

To have a record quarter in a period of four.

I'm pleased that there are more than I think a congratulations store.

Involved in that but there's a lot of work that has to be done going forward.

And with this as you said, we expect that the third quarter has been a seasonally lower quarter than where we have to take a lot of four operational.

Operational and logistical risks mainly associated with our with our seafarers.

But there are signs that.

Demand is be normalized as well.

We look forward a good signs coming out of demand from China, even in the Mediterranean, we see some more bottoms coming out of a hopeful of Libya, creating a bigger.

A bigger market and a lot of product got irrs are coming out of India to help the clean today, the product or the product.

The product today, but on top of all of that and I think George So let it correctly. This is the lowest new building order book for 30 years, which have been since the nineties.

And this is always what's yours.

And the shipping market the tanker market also and to have such a low Newbuilding order book.

Gives us.

Hey, good future going forward and as we see that.

Let's flip is getting older that are out of almost 800 than the third reveals a 200 of them.

15 years or older more than six they are 20 years or older and the order book stands as we speak today at 75, and we do not know how many of those are actually going to be delivered and all these goals. In every segment of the market that we are involved in so we are looking it has been a very difficult year a lot of.

I've heard has been by our technical managers and the whole team operationally to make sure that we maintain.

Our cars.

Hopefully the worst is over.

Is there still everybody and with that I would like to open the floor for any questions. Thank you.

Thank you, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad.

Thank you Brian.

Scott one for any questions.

Your first question comes from the line of Randy given from Jefferies. Please ask your question.

Oh, the gentlemen, how's it going.

Hi, Andy.

Hey.

Obviously, congrats on the second quarter I think it's been pretty well documented that the twoq was strong well, but now that basically the third quarter is over can you give a little more insight in terms of how the markets and more recently in terms of floating storage you X export cargoes out of the Middle East West Africa, and kind of what you're seeing.

Moving on on trade routes or more recently.

Well I'll give it first the Gordon if George wants to do.

As I said I think up to really the third quarter has been a quarter of our Joplin.

Less storage significantly less storage vessel.

Vessel, Thats, where im sorry, its game in the market.

And of course, a lot over the positioning of vessels also for Oh, I mean for for our non comex televisions, but mainly for crude changes.

The way this block or the way the company structure with a 27 with Oh, sorry, 40 vessels on time charters and 27, the spot market, thus far and said we would.

We weren't able to charter.

A number of our ships in the first and second quarter long term and we.

We expect to have another positive.

Positive quarter and to follow.

Following the beginning of the fourth quarter, we see a wish you the market, becoming stronger in the far east, which oh on the crude side and the and the clean side.

Okay.

George I think that.

Not really no.

That's right.

One thing is very well put I missed it sorry, all right.

They didn't want to cut you off there part and then kind of looking at.

Yes, obviously, we're seeing a preferred.

The CDC getting report it I think you said in common shares being repurchased I'm also obviously gets de levering.

Okay.

What we've also done the shuttle tanker Newbuilding order right.

Hi, Barry.

Derek Aberle boost in the fourth quarter. So you do some sales of older tonnage.

Get a little more kind of discretionary cash let's call. It what are the kind of priority in terms of using that relative to that deleveraging or return of capital to shareholders through additional repurchases or further newbuilding order getting kind of rank those.

Yes.

Yeah.

So it was a combination I think we are purchasing.

That we must be one of the very few.

The combined this should not be a group we have maintained the.

Continue Sir.

Clint see it with our banks never having good.

Any disguise.

Just got teams.

On on our.

Payment schedules to shape to say, the least and that's why as Paul said, we are seeing right now I think we're discussing now we're getting our debt.

Right. It goes to the all time lows of just above a 100 basis points between 100 and 150 and.

So this is our priority a dividend to our shareholder and growth of the company as you as we were able to portray during the first six months, we were able to sell the older ships and from the cost that we took out of those ships, we weren't able to order the new vessel. So I think that has been.

Very good.

Arrangement and they're very very straight to their companies strategy about how to replenish and modernizing the fleet that we generated 30 million of free cash we repaid debt out of the sales trend will use.

Part of this cash for the new acquisition.

Yes.

Well well well that's it for me I'll turn over well over there.

Great. Thank you.

Yes.

Thank you.

I'd now like turn the call back to the speakers.

[noise], let's say if there are no other questions. Thank you.

Thank you all.

We look forward to these results of filtering through.

Our stock price eventually.

And.

And I look forward to equally good results in next quarter.

Nikhil.

Yes. Thank you I guess price best wishes for everybody to serve to stay safe. We are running a very tight as a as we said here and looking forward to speak to you.

In a in a in the next quarter all the best Thank you.

Thank you that does conclude our conference for today. Thank you for participating you may now disconnect.

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