Q3 2020 Tsakos Energy Navigation Ltd Earnings Call
Please note that the slides of the webcast presentation will be available in archives on the website of the company after the conference call. Also, please note that the slides of the webcast presentation I user control and that means that by clicking on the proper button. You can move to the next of the previous slide on your own at this time. I would like to read the Safe Harbor state of this conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the Safe Harbor provision of the private 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. And at this moment I would like to pass the floor onto miserable Lou the chairman of tacos energy navigation miserable blue, please go ahead sir.
Thank you, Nicholas. Good morning, and good afternoon to roll. Thank you for joining us on our call today reporting third-quarter nine months results.
As you've seen a more than double increase year-on-year in operating income and positive quarterly results in such a weak Market.
While paying off all our obligations, we're replacing all the tonnage with new business maintaining are comfortable cash position redeem recently a preferred issue and maintaining a healthy dividend all this demonstrates alertness and flexibility by our management and fully validates off data G and positioning in the market that you've been hearing all along. These attributes will certainly allow us to benefit from being dissipating gradual recovery in the market so that we can continue offering our shareholders value going forward.
Thank you from my side Happy Thanksgiving to all and I'll now pass the floor to Nico's tacos who deserves to gather his management once again, congratulations and good morning.
all of our participants
it it has been as described in the press release a very very strange. I would say in painful here on personal basis for for for many of us. However, in the meantime, we have been able to maintain a steady course in taking 10.
One step further to to its goal which is the full appreciation of of its shareholders value and and and the company's growing business. As German was kind enough to mention with the help of all on board or seafarers our technical management team. The whole Chuck was organizations would have been able to maintain an unpresented high utilization in very difficult times operational difficult times. And the last the last quarter the third quarter which season is this little quarter was actually also influenced by operational
Yeah, buddy, here's to to doing business as usual cost by the pandemic in the meantime ten was able to achieve its goals of the circumstances the most important part of it has been the modernization of the fleet in the first nine months. We have sold six months of our older ladies as we say and we have replaced them with a significant for economically designed and environmentally designed vessels. Both of them with accretive accredited business has this has been I think also in in our bottom-line we have been able to maintain our very high utilization reduce debt reduce our preferred obligations and prepare the company and going forward in a much more normalized environments dead.
We are seeing around us.
Leave your concerns in the other segments of the shipping business that go in parallel with the time lag will think that the dry cargo Market has turned the corner and going from strength-to-strength wishing a very strong recovery from a very very low starting point of the container sector and in the last since November, we're seeing a similar signs of recovery in in our business.
So with this with this introduction, we are looking in going forward in an environment where the supply which is used up here. It's our business is very very normalized. We have the lowest Supply in the last thirty years and also a very significant scrapping. We finally took the the pain of the last quarter has led to finally some of the older way since it's been scrapped after a very long time and we are already have seen 388 tankers been scrapped strong 7% of the tornadoes there have been scrapped within this year and growing so this gives us a very very good prospects going forward. The company has maintained its an interrupted uninterrupted dividend payout and having a strong balance.
And a strong position we're looking at better times going ahead. I will ask Georgia told you to give you a detailed analysis of the last three and nine months and then we will be available all of us to answer any questions. Thank you. Thank you Nicholas. Good morning to all of you joining. Our niece calls reported a profitable third quarter and nine month of 20,000 operation. It has been a roller-coaster year for the tanker industry and the world because of the COVID-19 pandemic and its economic social and health related repercussions month.
We continue to successfully navigate the logistic and Regulatory challenges of COVID-19 with no impact to our operations so far. Thank God the shipping industry because of the way they look down border closures in reduced Airline capacity has experienced significant challenges with crew changes. We have safely perform good changes, but the problem with restrictions and Logistics remain as different parts of the world navigate through the second wave of the pandemic. We anticipated the second wave and plant all grew changes before she arrived with no stop at the sport disruption in our operations, no cases of contaminations for the sign on crew on board our vessels and in full support of our Charter School requirements 24/7. It has been a Herculean tasks.
I want to take the opportunity to think one more time and tell how proud We are for all our C Fires and onshore Personnel for the hard work patience perseverance and professionalism during this unprecedented time. We will continue to work hard to normalize crew changes and bring Safari safely back home to their families without disruption be operational Readiness and efficiency of the fleet. This has been and will continue to be our number one priority while the pandemic class and until I return to normal industry practices for crew changes. Let us now go to the slides of our presentation in slide three. We see that since 10 is inception in nineteen, ninety three, we have faced four major crisis the Forester crisis in nineteen, ninety nine the nine-eleven crisis the credit crisis of the credit recession in two thousand.
2009 and
Currently the COVID-19 pandemic but each time the company thanks to its operating model, which is built to be crisis resistance has come out stronger for modern vessels in nineteen. Ninety three to a pro forma Fleet or fifty vessels for an average 15% annual growth in terms of deadweight tons in life for decades. We operate this time has not been an exception since the start of the year. We sold six tankers with an average age of fourteen point seven years and replace them new building orders for for Echo design conventional tankers plus one option one shuttle tankers last week. We reported the delivery of The Last Vestige in this 4-series new building program consisting of two shoes Max's and two of my boxes in South Korea that can move with minimum five-year contracts with an oil major that's expected to generate Thursday.
Approximately two hundred million during the minimum higher. The company continues its current growth program with the construction of two vessels in the specialized shifting shipping sector wage namely DP to shuttle tankers nlng both with long-term employment.
And slide for we see the pro forma Fleet and its current employment profile. We have a combination of vessels increase time Charters and flexible employment contracts time charges with profit sharing Arrangements in sports trading that capture the Market's upside all dark blue color vessels 23 in the slide are on fixed-rate time charges why the light blue and red color vessels currently in the water have exposure in the Market's upside approximately 55% of the fleet is in secured contacts.
On the next slide. We see the break-even course for the very special types. We operate as you can see we have a Force Base that is very low in addition to the low shipbuilding course. We must Hi-Life purchasing power of soccer's Columbus management The Continuous cost control efforts by management to maintain alopex average for the fleet and the load General administrative expenses off while keeping a very high utilization rate border after Border in excess of 95% for the first nine months of 2020. We should highlight again I utilization number for the fleet as we navigate through the budget demek thanks to the profit-sharing element that a big portion of the fleet and joy 10 a.m. If it's further when market conditions are strong like the Freight Market we have witnessed during the first half of the year.
As demand for oil continues to recover from the loss of the second quarter and oil inventories continue to fall we expect the Freight Market to recover from the current levels off every $1,000 per day increase in sport rates as a positive $0.59 impact in annual EPS based on the number of 10 vessels that currently have some extra exposure Light 6-3 payment and reduction is an integral part of the company's Capital allocation strategy since the end of 2016 when the company is dead picked. We have reduced that by 262 million in addition. We have repaid hundred million of preferred shares by retiring fifty million Series be in July 2019 and the 50 million series. She preferred shares in October 2020 net debt-to-capital ratio at the end of September is at 46.5%
Addition to paying down debts growing the company through timely sale sale and purchase a new building Acquisitions. We continue to reward shareholders with dividend payments. We announced today at 12 and a half cents per share dividend for common shareholders that will be paid on December 20th to the full year dividend is fifty cents for the common shareholders money. If we are the June 26th payment and then December twenty two upcoming distribution and Factor the reverse stock split of July 1st since our New York Stock Exchange listing in 2018 to the company has paid dividends without interruption and has distributed almost half a billion in common shares shareholders for an average yield of five and a quarter cup in addition. The company has an active share buyback program and has repurchased a little over 5% of its common shares outstanding. So besides debt repayment Cast app
And by box of, and preferred Shares are three main pillars of the company's Capital allocation with Fleet growth and renewal the fourth pillar.
It has been an unprecedented here for Global oil demand because of the COVID-19 pandemic and the measures to contain it twenty-twenty will be the first year of negative growth seems the period of the Great Recession in 2008/2009 year and demand will be approximately 8.8 million barrels per day below the levels of the 2019 chef and demand for approximately down 8% Most of the losses are in jet aviation fuel the expectations for 20 21 are for oil demand to grow by five or four million barrels per day will demand recovery to the pre COVID-19 levels is referred to late 2021 or in 2022 subject to how well the world will change the Resurgence of the pandemic how effective the two vaccines are and the other vaccines that are being developed and how quickly they will be approved and distributed worldwide in order to
Hello, the gradual return to normal social and economic plight nearly all these massive reductions are found in oecd countries for the no noise in the world International Energy agency has rates has raised demand estimates mainly do to improve demand expectations in China in India.
You should be countries continue to be the growth engine for oil Demand on the global oil supply front or back plus producers is production cuts by two million barrels a day from home. There is an additional seven point seven million barrels per day per day of shopping production that affect blood plus plans to gradually restore over the next sixteen months complying with this cat's continues to be very high almost hundred percent the return of Libya in the oil markets following the recent cease-fire to the Civil War and the quick increase in production dead from hundred thousand barrels per day back in August and prior to the ceasefire to a million barrels, but they currently Wilmore probably little Peg + producers in their upcoming meeting on December first off to agree to relax production cuts by another two million barrels per day at the end of the first quarter of 2021.
We saw oil inventories.
Especially annoyed should be countries continuing to draw the expected growth in global oil demand and twenty Twenty-One together with a pet plus further oil production increases should be very positive thoughts every month. And thank you raise slide number nine with oil demand expected to grow over the next year. Let us look at the forecast for the supply of tankers.
The order book as of October as of October stands at around seven per-cent or 348 tankers over the next three years the lowest in almost thirty years and at the same time a big part of the fleet is over fifteen years to be exact 1350 vessels or 28% of the fleet 360 off or 7.1% of the current Fleet are at or above twenty years upcoming upcoming environmental regulations could push more tank as approaching for about 20 years to go for scrapping.
How's the next slide shows 2018 was of the one was 2018 was one of the highest scrapping years of Records Thursday. We're scrapping was lower as expected the strong Freight Market and the pandemic has put scrabeck to a standstill but with so many tankers older than fifteen years. We could see a pick-up in scrapping as more environmental regulation on the horizon, especially create an unfavorable trading environment for those vessels approaching for currently above twenty years.
Who summarized demand for oil on the demand for oil recovery continues with strong growth expected in 2021 with the speed of this demand recovery-related and Effectiveness COVID-19 developments on the supply of oil production increases are on the horizon in 2021 by both OPEC plus producers and other non-opec producers. We should note that despite the fall in US production us crude oil exports continue to be strong at approximately 3 million barrels per day with us with most of these exports destined to long-term Nations including Asia vessel Supply. The order book to current Fleet ratio is a historical low levels which implies at minimum a balanced market for the next eighteen to twenty-four months and finally tens balance sheet. We have a modern Fleet a strong balance sheet strong cash reserves and strong banking relationships that will allow the computer.
To take advantage of the opportunities that will be presented with the expectations of better days ahead. We conclude the operational part of our presentation all will walk you through the financial highlights off for the third quarter and the nine months fault.
No, thank you, George.
Expected on top of seasonal factors quarter 3 results were impacted by pandemic lockdowns low oil demand and the continuous drawn-out entries globally.
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Less quarter three operating income was $15 and net income one point four million dollars while in the nine months operating income reached 117 million double that of the prior quarter 3 with net income of 54 million dollars in a weak Market Revenue in quarter three was still up 9% to 143 million dollars including four million dollars profit share and 21% up in the nine months.
10 had two vessels dry-docked in court at 3 and 3 in the nine months and still achieve 93% utilization import at 3 95% employment in the nine months off.
Daily TC Professor quoted three average nearly $21,000 and over $25,000 for the nine months again exceeding average Market rates.
Time chart is generated $86 billion dollars in quarter three enough to cover most expenses in the quarter while vessels operating mainly in the spot Market generated a further fifty Seven million dollars before Voyage expenses.
Total open State at $45 an average daily. Opex per vessel increase to just $7,900 due to Extra Dry. Costs and $1,000 but remained at about $7,700 for the nine months.
Have you dined cool to three amounted to $48 million just 2% up from the prior quarter three due to the more difficult Market while nine month every day increased by 50% to 230 million dollars.
43 Finance costs totaled 13 and a half million dollars down from the $22 in the prior quarter three do to reduce the loan interest our Costco death falling from over 4% to about 2% due to Libor lower Libor and margins also average outstanding debt fell by about $79,000 since the prior quarter three, there was also a $4000000 positive turnaround in Bunker valuations since the prior quarter three
In quarter three total net debt did increase by $34 mainly due to the delivery installment for the new series Max but much of this has already been offset by re page forum.
In fact, we are expecting total net debt in this year to have decreased by about ninety million dollars by the year-end part of this decrease was due to the sale of six tankers earlier than a year which in itself reduced debt by 61 million dollars and released thirty-eight million dollars cash at the same time bringing the average age down.
In addition to loan reductions. We also have the recent fifty million dollar Redemption of preferred stock paid from our strengthened cash reserves due to our income tax cash in the year and the time Charter strategy. We still remain in a comfortable liquidity position with our cash approaching the levels. We had at the beginning of the year.
We now have just two vessels being built.
An LNG carrier with delivery in the year and the shuttle tanker is $237 remaining to be paid for these two vessels and we are in process of finalizing free delivery Finance for both specials at competitive terms at the same time. We have three vessels under consideration for sale that are expected to free more cash after payment of related debt.
Finally while several observers focus on a tank of recovery in 2022. We are more confident in a return to normality within a shorter timeframe assume that a reduction in new vessel deliveries and successful covered. C Nations releasing pent-up demand and now I'll give the call back to Nicholas.
And I think as very well said by you and and George we have been able to purchase today in the turbulent Waters of most of twenty-twenty and place the company in the right track for being able to take advantage of what is going forward with 40% of our Fleet right now on the spot market and a significant part of of our profit sharing Arrangements being able to take advantage over the higher Market, we expect that as the beginning of the year finds the world in a bit more normalized State both politically, but also said she had us the wise we are seeing the signs of a stronger movements. I mean, we have seen already significant more hardening in the last month of victory.
The transatlantic trade in the product side. We're seeing the highest us Imports registered in products since 2016. And that's I think that's a very strong signal and we're seeing the majority of our M ours and and and a large trading in the in that part of the world and wishing as low increase in the demand, of course with crude basically supported from a strong appetite of experts coming from I am from Libya which has been very slow in the past. And now it's increasing its output by about a million plus barrels a day trying to become the major form of experts in the med and competing very strongly with with with with the Russian experts. So we are seeing normalization. Yep.
We're seeing trade.
Opening much more than it was that we were reporting back a quarter. The quarter go the signs are good. They Supply is non-existent. I think this is something that may I have not seen I have always been speaking and talking about actually putting and asking people and my colleagues through my position in the tank with some years ago and another. Ordering it seems like if you ask too many times someone listens to you, but I'm sure I'm not I'm not the reason but I'm not the confusion on propulsion technology right now has has created the lowest Supply in in tankers and vessels in general for a very welcome for a generation. So I mean as we speak today, we see about 8, we have a fleet of 830 wheels in the water some of them in storage dead.
It's 220 in excess of fifteen years of age and only 75 versus being built. So that's less than 9% on the vehicle. And it's a very similar situation across the board as we speak forward. I think that will show that to the confusion of all the regulations that are coming out with bonus very rightly. So I preferring to slowest him rather than find other Solutions in order to achieve the the targets. They remember that targets their emission targets that are being set as recently as last week by by the IMO. So in general, I think I have the feeling that money unless something really unless we get a third severe way and I'm knocking on wood of of the virus hitting as any time after Christmas that we are getting as Club.
Being out of the woods as possible and and better days are ahead of us. In the meantime. We have been able to successfully navigate the difficult times and without that would like to open the floor for any questions. Thank you. Thank you ladies and gentlemen as a reminder. If you wish to ask a question, please press start and one on your telephone keypad and wait for the automated message and devise new line is open Monday, please and state your first and last name before you ask your question. If you wish to cancel your request, please press star. To once again, please press star one. If you would like to ask a question. Thank you. We will take off class question, please. Go ahead your line is open.
Hello, Randy, your line is open already Givens. It's Randy. Given said Jeffries. How are you? I'm doing very well. Thank you. Considering a great great. I'm doing well. So I guess a couple of questions, you know, can you provide a maybe a little more color on that decision to repurchase the Serie C preferreds. Do you plan on continuing to kind of look at repurchasing other preferreds? And then also obviously your your cash balance is robust. You don't really have any more new buildings your share price is at a steep discount to nav any appetite for common share repurchases.
Yes, I think.
As as I said, our first obligation has been to repurchase actually within a bit more than a year within the last eighteen months. We have spent a hundred million dollars of birth of our hard-earned cash to repurchase the to step up perpetual's so that was a table gation as as George mentioned Thursday. We keep on we have bought back since May 5% of the company, which is it's a significant amount of there is there is buying we have set targets. What is buying also from money from the government?
And and of course maintaining our dividend so so it is a balance a priority to reduce expensive paper that is out there. That is our first priority Thursday. Our our dividend is also a significant to continue this five and a quarter. I think it is. I think a significant achievement that I'm almost twenty years. Now. We have averaged five and a quarter dividend yield. I think today we are closer to 7% with a month with the last with the last payment. So I think in in in in a world where in an environment where you have negative negative returns in many cases to to have them and even then like that it's positive. So I think that's how we look at it expensive paper has to be redeemed first dividend second and of course common and support to our club
sirs
Great. All right. Yeah, that sounds like a a prudent strategy. They're now looking at your Fleet. I've heard some different reports. So can you just give an update on that L engine building option? It looks like you did not exercise that for later next year and then on the shuttle tanker orders. It looks like you placed one firm order. When do you have to decide on the you know additional to shuttle tankers?
Well as you I'm sure follow as close as we do the right now because of all the issues I mentioned before which many commercial economical and technical issues. You have very low demand for the buildings which means the wages are offering quite attractive propositions for people so I don't think we have lost anything. I mean, it was our choice not to take our options are the time because we believe the way things have gone that we will get ships that will be technologically more advanced going forward and perhaps than at the Lesser price down. There are no there are no people chewing to take those those options. I think we are in we are in the front of the queue as they say got it it's there and then if off
Question, you know on on multiple calls in?
Four weeks, you know referred some of the crude players referred from some of the products kind of product carrier only players. Which Market are you more bullish on? Obviously, you have both crew tankers off and refined product tankers. So do you kind of favor one of the other here in the next few months?
Well, first of all, I have to say that we are glad that we are Diversified within the energy segment. This has been our strategy and policy, you know going back to off the families foundings many, you know, many many many decades before so we are we are client-driven we do not I would say we do not have an opinion in actually following something stronger.
I believe we are light on the vlcc on the cruise. So this is something that we are looking positive going forward, but both segments off within perhaps a quarter or or six months lack between themselves. We we have seen already a movement as I mentioned earlier on the products of our products, or taking advantage of that and we hope that the crude will will follow there is Less storage than it used to be sometime a year off or six months ago, which means there is less less oil being stored. So more will be demanded less been inventoried.
Yeah, yeah, that makes sense. All right. Well, that's it for me. Looks like the markets like in your responses today. So keep it up Happy Thanksgiving. Thank you. Same to you.
Thank you, ladies and gentlemen as a reminder. If you would like to ask a question, please press star and one on your telephone keypad now. If you wish to cancel request, please press star. To once again, please press star on one if you'd like to ask a question.
There are currently no further questions, sir. I'll hand back to you for closing remarks.
Well, once again, thank you all great call unfortunately not many questions but then the stock price range that you're all happy and we hope that our next call earlier early. Next year will be even more successful than this one today. Happy Thanksgiving to everyone Nicole would like to say close your voice.
Well, I hope the next presentation has not has not I do not have to do it through a mask, which makes it a little blurry, but we wish everybody a very Happy Thanksgiving and a very safe conclusion of this very strange year and as the chairman said early next year. Hopefully we will be able to talk about much more life. I think and better things and better and healthier visibility going forward. Thank you for your support. And as I said, I think that we are out out of the office and moving to better times. Thank you very much. Stay safe. Happy Thanksgiving.
Thank you that does conclude our conference today. Thank you for participating you may all disconnect.
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