Q3 2022 Tsakos Energy Navigation Ltd Earnings Call
[music].
Thank you for standing by ladies and gentlemen, and welcome to the Chico's Energy Navigation Conference call on the third quarter 2022 financial results.
We have with US Mr Khakis Arab hold Lu chairman of the board.
Mr Nikolas, Tsakos, Sacco's, President and CEO .
Mr. Paul Durham, Chief Financial Officer.
And Mr. George <unk>, Chief operating officer of the company.
At this time all participants are in a listen only mode.
There'll be a presentation followed by a question and answer session at which time if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced.
I must advise you that this conference is being recorded today.
And now I pass the floor over to Mr. Nicholas pointed out was this chief President Okay.
Capital Link Investor Relations advisor to Tsakos energy navigation.
Go ahead Sir.
Thank you very much and good morning to all of our participants I'm Nicholas partners of capital Link Investor Relations advisor of Tsakos energy navigation.
This morning, the company publicly released its financial results for the third quarter and nine months and that's it.
Number two.
2022.
We do not have a copy of today's earnings release, please call us up to 12661756.
Six or email us at <unk>.
G N capital in Dot Com, and we will have a copy for you right away.
Please note that parallel to today's conference call. There is also a live audio and slide webcast.
It's gonna be accessed on the company's website.
The front page at Www adult day.
P E and M Dot G or the conference call will follow the presentation slides. So please we urge you to access the presentation slides on the company's website.
Please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call.
Also please note that the slides of the webcast presentation are user controlled and that means that by clicking on the proper button you can move to the next or to the previous slide of your on your own.
At this stage I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contains certain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 investors are cautioned them.
Such forward looking statements involve risks and uncertainties, which may affect ten's business.
Our business prospects and results of operations and before passing the floor to our chairman I would like to remind everybody and congratulate them.
This year the comp.
He is celebrating its 20 <unk> anniversary of listing on the New York Stock Exchange.
And on December nine we look forward to traveling with us in New York The management of Oh.
And Dr. Charles joining the cap the Lincoln bedroom, Great Forum December nine in New York and at this moment I would like to pass the floor to Mr. Robert <unk>.
I'll start with energy and obligations. Please go ahead Sir.
Thank you Nicholas.
Good morning, good afternoon tool.
Thank you for joining our call today.
Real.
Real congratulations to the management for historical second best.
Early performance.
Just below the the highest ever in Q4 O seven of 52 million.
So you know this is a.
Great result.
Hum.
Proves once again.
The strategy markdown strategy model.
Protects us in bad times.
Fully responds and in good times and allows us to.
So about obligations pay dividends and generate cash for new business.
And we're very happy that all of this is reflected.
Now he's beginning to be reflected on the stock price.
In particular I'd like to congratulate management for the successful new business with another blue chip.
Customer.
So Tom.
On a on a on the first deal ever.
And on on a very successful business so without further ado.
Congratulations to Nikolas tsakos, and his team and the and open the floor to him.
For the rest of the meeting thank you Nicholas.
Thank you chairman and good.
Good morning, good afternoon to all of you and thank you for that.
Being here.
And supporting and following a tense.
'twenty here for four months.
Stock exchange.
And.
On a Thursday here next year with Jordan, there's going to be a 30 year anniversary since the company was established on New York stock exchange, So and hopefully our share price will be.
About $13 a week, where we were hoping to be went above 20, and the remaining of the year. So we worked on 10 or 20 in the next year, it's going to be 10 of 13 at least but thank you for bringing us what what are we are.
My sense is really one of our.
Our best quarter in the last 15 years.
Well, we have not had such a high return since the fourth quarter of 2007 so.
And but I believe that Ah if things continue to go and you know I'm I'm very concerned what they've usually in the.
But I hope that the we wouldn't break that according to Paul Paul is working on it already in our chartering team at the same time and in the fourth quarter of this year, although things do look to be even a even a stronger orders here and this is a time that are.
But then moderate.
Bruce It works because we've done the work in difficult times.
But also a much better times.
We have Uh huh.
As George Shuttle.
We have a this is our fifth prices that we were coming out from for the tanker market based on a geopolitical events and market related events and economic events.
And our aim is always to have a sustainable growth we are able to.
Fixed business at the time and they make sales of ships.
The times of the high times that what Scotty I'll jump to the next cycle and I think this is the.
At the time, we are doing now we're enjoying a six finger.
Hey, Devin store or a revenue time charter revenues and the majority well, but often amongst suezmax and VLCC fleet, which hopefully won't be portrayed on the fourth and the first in the first quarter and.
Well what gives me comfort is right now we are in a situation where very little new building supply is coming in.
And show this good market, perhaps not at these high levels as always but it would be sustainable for at least the next three three years.
In our internal we use the low markets to be able to purchase a new modern assets as we have done.
And then something of them out are when the times are better for long term to be able to cover the cyclical markets that we might.
Besides that the market might bring.
And with this I would like to ask Joe shuttle, though not to take too much of his time to give us a little description of the last nine months and focus on the subsequent events, which we will talk also after the during the question Doug.
Thank you Nicolas good morning to all of you joining our earnings call today, let's go through the slides of her presentation.
Starting with slide three we see that <unk> seen since inception in 1993, we have faced five major crisis and each time the company has come out stronger thanks to its operating model.
This time is no exception.
We manage the COVID-19 pandemic without any serious effects for both sleep and onshore operations and we are currently navigating the challenges created by the warning Ukraine.
The market fundamentals are record low order book and an aging fleet, even without the tragic war went positive for the tanker industry.
The combination of self imposed and Monday that sanctions on Russia noise. As a result of the war served as an additional catalyst to propel freight rates higher as long as established trade routes will disrupt it and voyage distances lindon.
And you round of European sanctions on oil imports from Russia is expected in December .
The full impact cannot be assessed until details are known.
However, it is expected to sustain the lenten before yet distances, which coupled with normal winter factors like weather delays and an increase in oil demand due to gas storage switching as it is.
Also higher natural gas prices in Europe is expected to keep the freight rates in the tanker market.
Through this winter in the months ahead.
Russia will need to re roof, it's ROI exports away from Europe in Europe , we need to backfill those shortfalls imports from other motivations locations, both of which will continue to create significant ton mile demand for tankers.
With a record low order book and the redesign of the global energy market for both crude and oil product grades. We expect the tanker industry to go through a sustained strong markets in the years to come.
In slide four we see the fleet and its current fleet employment 40 out of the 66 vessels or 61 of the fleet in the water or 61% of the fleet in the water cause market exposure and combination of sports contract of affreightment and time charters with.
Profit sharing.
44 out of 66 vessels or 67% is in secured context.
Fixed time charters and time charters with profit sharing.
This means that <unk> is well positioned to capture the prevailing positive tanker fundamentals and we have taken advantage of the good tanker market as our earnings released yesterday shows.
So it was there it is a key element of our operating model.
Year to date, we sold two verses 2003 built panamax tankers and the 2006 built two aframax tankers and took delivery of three modern vessels.
Two new buildings in.
In January we took delivery of LNG carrier energy and in July the shuttle tanker for Tau and this month, we took delivery of 2020 built eco friendly scrubber fitted vlccs, which we which we have renamed as this one.
The Greek name for Zeus.
All three vessels are chartered up against long accretive time chunks in fact today, we announced the start of the three year time charter with profit sharing for the S. One to a significant or major.
I should prices continue to trend higher.
Management is actively exploring opportunities to divest some of its earlier generation vessels and replace them with more modern eco friendly green at a S. R.
The new building front, we announced today a project with a major energy concern to built in time charter optimization, two tankers against minimum five up to 15 year contracts.
This is in addition to our northern we have in place for four new building Aframax tankers, which we expect to start taking deliveries from the fourth quarter of 'twenty three.
And which are part of the company's green sheep dual fuel LNG powered initiative.
Older vessels are coming with long term employment attached.
In slide five.
We present, the company's current and long term clients.
As you see we have a blue chip customer base consistent with all major global energy companies refineries commodity traders with equinox currently topping the list is our largest charter with nine vessels and four new buildings or.
<unk>.
I'm Chas.
On slide six the left side presents the all in breakeven cost for the various vessel types wheel bearings, we maintain as you see a low cost base.
We have a simple operating model, we try to have our time charter vessels generate revenues that covers the company's cash expenses, which mean bang for the vessel operating expenses finance expenses or benefits.
And of course in commissions and we let the revenue from the spot trading fleet.
Contribute to the profitability of the company.
Despite the prevailing inflationary pressures, we wanted to highlight the purchasing power of our technical managers and the continuous cost control efforts by management to maintain a low opex average for the fleet while at the same time keeping high fleet utilization.
Quarter after quarter year after year.
Despite 14 special surveys some ahead of schedule in preparation or anticipation and the anticipated market upturn we achieved another all.
Utilization of 93, 7% for the fleets.
Thanks to the profit sharing element for every $1000 increase in spot rates.
A positive 29 cents impact in annual EPS based on the number of vessels. We currently operate in the spot market.
[noise] slight number seven debt reduction is also integral to the company's capital allocation strategy. The company's debt peaked in December 2016 seem.
Since then we have repaid 428 million of debt and repurchased 100 million in two cities step up preferred shares we had outstanding.
Yeah.
In addition to paying down debts in slide eight we see that dividend continuity is important for common shareholders and management.
Dan has always paid the dividend irrespective of the market cyclicality.
15 cents per common shares will be paid in December 20 to shareholders of record on December 14.
The December dividend payment represents a 50% increase from the July 10 cents a share dividend.
Company has paid half a billion in dividends since we listed the company in the New York Stock Exchange in 2002.
Do you have a long demand continues to recover despite lockdowns in China as a result of the zero Covid policy and mounting global economic headwinds.
For the year oil demand is expected to grow by $2 1 million barrels per day.
Next year, we expect growth to be one 6 million barrels per day.
Developed economies lead oil demand growth in 2022.
In 2023 oil demand expansion is forecasted to come from the non OECD countries.
On the supply side, we have the recent OPEC plus cuts.
The sanctions and self sanctions in Russia crudes.
And that will play out in 'twenty to 'twenty three.
And further releases currently from there always should be strategic petroleum reserves.
Stocks continued to fall and are currently below the five year average in the period 2017 2021.
OPEC.
No no no no effects 'twenty to 'twenty three production is set to rise coming mainly from Brazil.
USA, we honor, Canada, Mexico and Norway.
As global oil demand recovers continues to grow let's look at the forecast for the supply of tankers. The order books that stance at a little over 4%.
Over the next three years, which is the lowest that it has been in more than 30 years at the same time, a big part of the fleet.
Is 2% is over 15 years.
And we have eight 3% that is currently over 20 years.
So there's a very strong fundamentals and as the next slide shows the scrapping activity. This is 2018, we have upcoming regulations and the industry.
Monetization initiatives and almost 9% of the fleet over 20 years. So we think that all of these factors point to a very balanced tanker supply in market for a couple of years ahead and with that I will ask Paul to walk you through the financial highlights for the six three sales quarter in the nine months of the year.
Well thank you George.
This is rather going to be over sort of.
Super numbers.
Starting with our net income.
$1 million.
Fully realizing our expectations for a strong quarter.
In this quarter, how vessels reaped, an extra $92 million revenue over there.
Prior quarter, three resulting in a total revenue of.
$224 million.
70% increase mostly from spot earnings of a $103 million that's the rates changed.
In addition time charter vessels in quarter, three including $14 million profit share generated over $120 million covering most of our operational expenses.
The inflow of cash in the third quarter from our operations, Brazil, Tate in EBITDA of over $100 million compared to just $20 million in the previous quarter.
While in the nine months period, EBITDA totaled $236 million.
From the start of this year to the end of September tens revenue reached $519 million, while net income in the nine months amounted to over $130 million with profit share of nearly $21 million.
Average daily TCE exceeded $32000, thanks to market conditions that allowed our fleet to achieve almost maximum utilization of 94%. Despite five vessels completing dry docks from quarter three.
The significant cash flow generated in the recent nine months period and the abundant cash reserves generated as a consequence has placed us in a very favorable position.
We anticipate these reserves will provide us new opportunities such as those created by the company over the past months such as in particular, the new LNG carrier the shuttle tanker and more recently the new VLCC.
These newly acquired vessels are already operating on a creek if time charters and are expected to generate considerable revenue in their lifetime.
These are the kinds of opportunities that we believe will continue to generate accretive returns and secure our cash flow and of course as Georges mentioned too.
Reduce.
Our debt.
Yeah.
Yes.
Yes. Thank you.
Yeah.
Excellent.
There's always good and we've been doing it.
Right.
It drastically not only reducing debt from the highs of 2016 and 17.
Close to 430 million and then another 100.
<unk> million dollars for buying back our prep so.
I think what we have accomplished this.
A bigger fleet a much more modern fleet with a with a much less obligations and we've been doing this through thick and thin for the.
Good times Bad times.
Perhaps one of the few companies out there that we have never delayed or renegotiating or negotiating any of our oh.
Banking relationships.
And this is why we have always been offered very good terms at very competitive terms and growing the business that are difficult types.
I mean, the the picture that Paul and George.
Our showing to US is a picture of a of a strong market a sustainable market going forward.
This is what do we want to know.
To do but the way we always protect the company's downside as we have done in the past and I will remain as to further decrease.
Our debt and increase our dividends to the shareholders and with that.
Yeah in mind, it seems that the best is yet to come.
At least for the foreseeable future.
I expect that we're halfway there so I expect the fourth quarter.
To be there to be a record quarter with the numbers that we're seeing today.
Spot Aframax is many of them are above the $100000 a day level.
Together with our Suezmax as well, which is significantly higher where does the third quarter was and and for sure. The first nine months.
And with that positive note I would like to open the floor for any questions. Thank you.
Thank you we will now be conducting a question and answer session.
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Yeah.
Thank you. Our first question comes from the line of Colin Hunt.
<unk> with value Investor's edge. Please proceed with your question.
Good morning, gentlemen, thank you for taking my questions.
Given the 19 improved outlook on the tanker sector I want to delve a bit deeper into your capital allocation priorities.
How do you plan on balancing shareholder returns via dividends or share repurchases growth spending and deleveraging.
Yeah, well Oh, you know we are a company.
You can grow a company in growth mode.
And so we always want to come to to have absolute.
Hum.
Our cash for growth.
And again, it's not growth for growth is growth for our for accretive transactions that will get earnings.
There are probably three or $4.
The level.
Sure I mean, and then of course dividend is very important for us.
We are big believers in a rewarding our shareholders.
The management is the largest shareholder here to reward the management there.
Through dividends.
Yeah.
Going going forward.
So protection of our strong balance sheet, which are if you go back over the years.
We always maintained.
Strong liquidity because it's the only time you actually appreciate your strong liquidity is recording you do not have it and turn has never been in this situation.
30 years.
And an increase in interest and dividends.
Alright, and regarding Europe , Aurora financial position.
First of all with your current level of leverage.
Or would you like to deleverage a bit need repurchasing preferreds or reducing bank debt.
Very good point and as I said I mean, if you look on slide seven that was put up there in the presentation. We have done a dramatic deleveraging considering that in 2016. The company was did not have the quality of the affiliate that we have today.
All of the valuation of the fleet and we are determined to do this and according to Poland. I think by 2024 will be significantly out of there the $1 billion.
Yeah, all right.
It needs to be above a $1 billion in market cap and significantly out of the billion dollars in debt and I think this is something where we are working on that and I think you brought a very good point out there. We have was one of our preferred which is view for purchasing up to par.
The next six months and that would be something that we might be using or our access.
The liquidity to do.
Yeah.
Thanks for the color that's helpful. I'll pass it over to thank you for taking my questions.
Thank you.
Yeah.
A final reminder, if you would like to ask a question press star one on your telephone keypad.
One moment, please while we pull for any additional questions.
Okay.
Yeah.
Thank you. It appears we have no further questions at this time I would now like to turn the floor back over to management for closing comments.
Okay.
Well Frank.
Thank you very much and it's a good oh when the news are good I think we'll get the last question and I think that's a that's understandable again as I said we are looking.
I think this is the first time, we fill a significantly strong about that we're looking at a sustainable a positive future for the tanker and energy industries.
We are proud to grow their business with first plus our clients.
Relationships are we want to thank you for your support in that.
We hope that our next our next announcement would show would be in the first quarter coming up for the fourth quarter and first the full year results are we'll oh, we have even even better news and better prospects.
Looking forward, we will be visiting.
New York and in the next couple of weeks looking forward to meet any of you interested in face to face and talk about the industry and the company and would like for all of US here to wish our American friends and everybody around the world and happy Thanksgiving.
Peaceful and then with our with you and your family and thank you very much.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Thank you.
Yeah.
Yeah.