Q4 2022 Tsakos Energy Navigation Ltd Earnings Call
Speaker 1: Thank.
Speaker 2: Thank you for standing by ladies and gentlemen and welcome to SACOS Energy Navigation Conference call on the fourth quarter 2022 financial results. We have with us Mr. Taki Sarapoglo, Chairman of the Board, Dr. Nicolas SACOS, President and CEO , Mr. Paul Dorham, Chief Financial Officer, and Mr. George Saraglo.
Speaker 2: Chief Operating Officer of the company. At this time all participants are in a listen-only mode. There will be a presentation followed by a question and answer session at which time if you would like to ask a question please press star 1 on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today.
Speaker 2: And now I will pass the floor to Mr. Nicholas Bornozis, President of Capital Link and investor relation advisor of SACO's Energy Navigation. Please go ahead, sir.
Speaker 3: Thank you very much and good morning to all of our participants. I am Nicolas Bernal of Capitalink, investor relations advisor to Tarkos Energy Navigation.
Speaker 3: This morning, the company publicly released its financial results for the fourth quarter and year ended December 31, 2022.
Speaker 3: In case we do not have a copy of today's earnings release, please call us at 212-661-7566 or email us at ten at capital link dot com and we will have a copy for you emailed right away.
Speaker 3: Please note that parallel 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 at www.sig.org.
Speaker 3: The conference call will follow the presentation slides so please we urge you to access the presentation slides on the company's website.
Speaker 3: 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 slide.
Speaker 3: or to the previous 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 Private Security Litigation Reform Act of 1995.
Speaker 3: Investors are confident that SACHS forward-looking statements involve risks and uncertainties which may affect firms, business, prospects and results of operations. And before passing the floor to Mr. Arrapoglu, I would like to, we're looking forward to having Dr. Arrapoglu with us at the CataLink Forum in New York next Monday.
Speaker 3: And I would like to congratulate him for being recognized as the Person of the Year by the Hellenic American Chamber of Commerce next Friday in New York, recognizing and honoring his contribution to global shipping to Greece, and also recognizing the fact that TEN is the longest listed Greek company on the New York Stock Exchange.
Speaker 3: And this recognition.
Speaker 3: coincides with record profitability, a record year for 10. So with that, I will pass the floor to Mr. Arrapoglu, the Chairman of Tricos Energy Navigation. Please go ahead, Mr. Chairman. Thank you, Nicholas.
Speaker 3: size with record profitability, a record year for 10. So with that, I will pass the floor to Mr. Arapoglu, the Chairman of Tricos Energy Navigation. Please go ahead, Mr. Chairman. Thank you, Nicolas. Good morning and good afternoon to everyone.
Speaker 4: Thank you for attending our call today.
Speaker 4: for attending our call today. Please excuse my voice.
Speaker 4: which is due to a paper call that's all managed.
Speaker 4: I guess I'll take today's look. Let's check the Listen to Yeah, it's
Speaker 4: records, results, and votes.
Speaker 4: Since inception
Speaker 4: Thank you.
Speaker 4: So the rate of the dividend increase.
Speaker 4: I need to remind everyone of the 10 models.
Speaker 4: which litigates negative results in bad markets and allows the company to afford to allocate to strong markets.
Speaker 4: Indeed, it's more though.
Speaker 4: How do I turn today and interrupt the business in perception?
Speaker 4: Time Equation 0.aaas
Speaker 4: over the years pay our ratio of over 22% of earnings.
Speaker 4: the US payout ratio of over 22% of earnings. I'm sure I need to stop this. We'll explain later.
Speaker 4: The main driver of the stellar results apart from the course...
Speaker 4: the otherwise very unfortunate geopolitical events.
Speaker 4: of the market fundamentals, we were all expected to begin in quite some time now.
Speaker 4: So congratulations, Yolanda, once again.
Speaker 4: clinical circles and the management team which apart from operational excellence is dynamically pursuing the future.
Speaker 4: producing them.
Speaker 4: and keeping a tight course.
Speaker 4: to benefit from what seems to be a sustained strong market.
Speaker 4: despite our special expectations.
Speaker 4: All this potential has been steadily recognized by the market and the reflected
Speaker 4: in our social performance in recent months.
Speaker 4: So again, well done to all and we look forward to the continuation of 10's possible journeys that go forward.
Speaker 4: Thank you all and I'll move it over to Mikko Salkus. Thank you.
Speaker 5: Thank you, Chairman, and good morning to everybody or good afternoon if you are on this side.
Speaker 5: and we would like to welcome you on our 2022.
Speaker 5: As the chairman said, Nick, thank you very much for reminding us that we are the oldest and the greatest here of the Greek companies on the New York Stock Exchange. I think that's a great privilege and great honor and we're looking to be able to...
Speaker 5: reached a peak. This is something that we hope, as we can see from the fundamentals and the actual market conditions that we're facing right now, that 2023 has started as a never stronger year than 2022 has done so.
Speaker 5: By coincidence, we will be celebrating 30 years as a public company, started on the Oslo Stock Exchange in 1993. So we hope, as our CEO has said, that we can see the share above the $30 within our 30th anniversary
Speaker 5: And looking at where we are today, TEN has maintained this model of being able to grow, thrive, and prepare the grounds during difficult markets, because the time you want to be investing in assets is when nobody wants to invest, and we have been able to achieve this.
Speaker 5: debt had never had to reconstruct any of its loans. And of course this gives a lot of confidence to our clients and that's why we are a client of choice in good and bad times. Which is actually we are going through our fifth...
Speaker 5: through our fifth crisis, which started with the Far East, then the 9-11 crisis, the credit crisis of 2008, which I hope we're not touching again. COVID hit us back in 2020 and then the invasion of Ukraine.
Speaker 5: Through all this crisis the company has been able to maintain a dividend and invest at the low points of the cycle and then be able to take advantage of.
Speaker 5: of the change of the market and be able to monetize part of it. That's what we have been doing. The beginning of 2023 has been a very busy year. I think we have never seen so many sales and purchase transactions in buying and selling strips.
Speaker 5: I think we have already done 18 of those transactions in less than three months, of which eight vessels were sold and 10 vessels were ordered and bought. So I think quite busy and this prepares the company for an exciting first quarter.
Speaker 5: It seems that this first quarter is as strong as the first quarter to say the least. Big appetite by clients to renew even vessels, seasoned vessels from good stables like ourselves. I would ask Paul, would you like to...
Speaker 5: give us a little bit of the numbers, and then George to give us how the year went. Yeah, by all means. Sure. So the fourth quarter of 2022 resulted in net income of over $100 million.
Speaker 6: bringing our net income for the year to over $204 million, a new record for the company since 2008.
Speaker 6: ABDHA, increased
Speaker 6: to almost $160 million in the quarter, adding to our cash reserves for the year end.
Speaker 6: and reaching staggering amount of over $300 million by the end of the recent year.
Speaker 6: due mainly to the impact of the events in Eastern Europe through most of 2022.
Speaker 6: And since the end of the year our cash reserves have continued to increase, taking into account sale of vessels. Revenue in Quarter 4 totalled over $270 million, a 94% increase over the prior year.
Speaker 6: Time Charters generated about $460 million in the year, while Total Revenues in the year amounted to $860 million, of which $55 million related to profit share.
Speaker 6: Total operating income in the quarter amounted to $122 million compared to a loss in the prior fourth quarter.
Speaker 6: in 2022 operating income reached $256 million compared with a loss of $120 million in the prior year.
Speaker 6: With 66 vessels operating, our average daily time charter equivalent in the quarter was almost $40,000 in a market that effectively operated with full employment for our vessels at 97%.
Speaker 6: Only two of our vessels were in dry dock in the quarter.
Speaker 6: but in the year 16 vessels undertook dry dock.
Speaker 6: While certain expenses had increased due in part to the new vessels that incur higher operating expenses and to various other price increases, the new vessels were also
Speaker 6: However, our time chart of revenue alone was able to cover all our expenses and still leave significant amounts of free funds.
Speaker 6: All our new vessels and orders are financed except to the latest orders, and all new buildings are expected to generate strong rewards over the forthcoming years. In the meantime, the company will continue as always to ensure perfect debt service.
Speaker 6: Given our cash availability, use of funds will be high on management's financial priorities and in this respect we are already preparing plans accordingly regarding the company's future.
Speaker 6: And that's my basic comments.
Speaker 6: Please note that we shall be filing our 20F shortly, in which there will of course be substantial information included.
Speaker 6: Thank you Paul. Good morning to all of you joining our earnings call today. Last year we had experienced the largest change in trade flows to ongoing crude and oil product movements due to a political action.
Speaker 6: the war in Ukraine, and the sanctions that followed on Russian seaborne barrels.
Speaker 6: These changes could be permanent as Europe , the biggest client of Russian oil, managed to replace these barrels with barrels coming from the US, West Africa, Guyana and the Middle East, creating a positive ton-mile multiplier effect for tanker demand and rates.
Speaker 6: At the same time, tanker new buildings are at an all-time low, 30-year low.
Speaker 6: and global oil demand is coming back after the COVID pandemic. In fact, despite the ongoing energy transition to renewables, the world understands that its reliance on oil and LNG will last longer, possibly at least until 2050. Demand is expected to grow...
Speaker 7: by 2 million barrels per day in 2023, bases the latest forecast by the International Energy Agency. It will be an all-time record at 102 million barrels per day.
Speaker 7: All eyes are of course on China, which changed its zero Covid policy in the last quarter of 2022, as worth of the growth is expected to come from them.
Speaker 7: which changed its zero-covid policy in the last quarter of 2022, as worth of the growth is expected to come from them....especially.....
Speaker 7: Despite global headwinds, inflation, tightening global financial conditions, the war in Ukraine that continues, and geopolitical tensions, the global economy continues to grow. Oil demand, as we said, is growing, and tanker fundamentals appear to be favoring a sustainably good tanker market.
Speaker 7: Let's go to the slides of our presentation. Starting with slide 3.
Speaker 7: We see that since 10's inception in 1993 we have faced 5 major crises and it's time the company came out stronger, thanks to its operating model.
Speaker 7: This time is no exception. We managed the COVID pandemic without any serious effects for both fleet and onshore operations and we are currently navigating the challenges created by the war in Ukraine and the inflationary pressures on costs.
Speaker 7: The market fundamentals, record low order book and an aging fleet, even without this tragic war, were positive for the tanker industry.
Speaker 7: The sanctions imposed on Russian seaborneur as a result of the war served as an additional catalyst to propel freight rates higher, as long established trade routes were disrupted and voyage distances lengthened.
Speaker 7: Slide 4, we see the company's split growth and capital market access since inception. We raised capital for growth counter-cyclically, not at the top of the market, but at times when the asset prices were usually low.
Speaker 7: 10 was set up in the aftermath of the Open 90 legislation for double hull tankers.
Speaker 7: We started with four modern vessels in 1993 and in three years grew to 12 after raising 130 million from the founders of the company and new energy investors at the New York Stock Exchange. When we listed the company in the New York Stock Exchange in 2002 the company was already transitioning towards a full double hull company.
Speaker 7: with a series of tailored new building tankers catering to the requirements of our clients.
Speaker 7: In the blue boxes you see the company's common share offerings, and in red, the offerings of preferred shares since the company's New York Stock Exchange listing.
Speaker 7: The first two series of 50 million each, the series B and series C preferred, have already been redeemed at par.
Speaker 7: In the next slide we see the fleet and its current fleet employment.
Speaker 7: We have an operational fleet of 58 vessels, 43 out of the 58 or 74% of the fleet in the water, test market exposure, a combination of spot, contract of affraements and time charted with profit sharing.
Speaker 7: 43 out of 58, or 74%, again is in secured contracts, 6 times charters, and times charters with profit sharing. This means that TEN is well positioned to capture the prevailing positive tanker market fundamentals. The fourth quarter and Cal 22 revenue and net income announced today is the second quarter.
Speaker 7: rate reflecting of current market conditions in the LNG sector.
Speaker 7: The vessel is expected to be delivered to her new charter upon completion of the existing time charter in 2026. Split modernity is a key element of our operating model. During 2022 we sold a 2003 built Panamax tanker and a 2006 built LR2 Aframax tanker and took delivery of three modern vessels.
Speaker 7: Two new new buildings in January of 2022, the LNG Carrier Tenergy, in July the Shuttle Tank and Portal and in November DS1, a 2020 build eco-friendly scrubber fitted VLCC.
Speaker 7: All three vessels are chartered against long, accretive time charters. In addition, we announced today the sale of eight tankers, six 2005-built MRs and two 2006-built handy-sized tankers and the buyback with company cash of 2005-built SMIXs for a price that the day before.
Speaker 7: eco-friendly greener vessels.
Speaker 7: On the new building front, we announced today the signing of two scrubber fitted environmentally designed Suez Maxxis for delivery at the end of 2025 from a South Korean yard.
Speaker 7: TEN has currently a new building program consisting of 2x1 options for delivery during 2025.
Speaker 7: for dual fuel Aframax tankers for delivery in the second half of this year and the first quarter of next plus two eco-friendly scab refitted Aspyr as Maxxis that we announced today.
Speaker 7: except for these two SUEs Maxes, at least for now, that have no charters attached, but there is interest, the rest of the company's new buildings have been fixed forward against medium to long term time charters.
Speaker 7: In slide 6 we present the company's current and long-term clients. As you see, we have a blue-chip customer base consisting of all major global energy companies, refineries, commodity traders, with Equinor currently topping the list as our largest charter with 9 vessels and 4 new buildings all on long-time charges.
Speaker 7: Slide 7, the left side presents the Olin break-even course for the various vessel types we operate in TEN.
Speaker 7: we maintain a low-cost base. We have a simple operating model, we try to have our time charter vessel generate revenue to cover the company's cash expenses, paying for the vessel operating expenses, finance expenses, overheads, chartering costs and commissions, and let revenue from the spot trading vessels.
Speaker 7: opportunistically contribute to the profitability of the company. Despite the prevailing inflation pressures, we want to highlight the purchasing power of our technical manager and the continuous cost control efforts by management to maintain a low OPEX average for the fleet.
Speaker 7: while keeping a high fleet utilization rate quarter after quarter, year after year. Despite 16 special surveys, some ahead of schedule in preparation for the anticipated market upturn, we achieved an overall utilization of almost 95% for the fleet. And thanks to the profit sharing element for every $1,000 increase in the spot rates.
Speaker 7: we have a positive $0.19 impact in annual EPS based on the number of 10 vessels that currently have exposure to spot rates. Debt reduction is an integral part of the company's capital allocation strategy.
Speaker 7: the company's debt peaked in December of 2016. Since then, we have repaid 360 million of debt and repurchased 100 million in two series of step-up preferred shares that we had outside.
Speaker 7: In addition to paying down debt, dividend continuity is important for common shareholders and management.
Speaker 7: 10 has always paid the dividend irrespective of the market cyclicality.
Speaker 7: The company announced today an annual dividend of 60 cents for 2023.
Speaker 7: 30 cents will be paid in June and the other 30 cents will be paid in December .
Speaker 7: 30 cents will be paid in June and the other 30 cents will be paid in December . This compares with 25 cents.
Speaker 7: per common share paid last year and 140% increase. Following the dividend announced today, the company will have paid in excess of 516 million in dividends since the initial listing in 2002.
Speaker 7: Global oil demand continues to recover as the world emerges from the COVID pandemic. China recently changed their strict zero-COVID policy. This policy change should have a very positive impact on Chinese and global oil demand in 2023. Despite financial and geopolitical headwinds, the International Energy Agency expects global oil demand to recover.
Speaker 7: to grow by approximately 2 million barrels in 2023.
Speaker 7: Most of the growth is coming from the Asia-Pacific region, fueled by a surge in China. On the supply side, most of the growth in 2023 is expected from non-OPEC plus countries like Brazil, the US, Vienna, Canada, Mexico, and Norway.
Speaker 7: As global oil demand continues to grow, let's look at the forecast for supply of tankers in slide 11. The order book stands at a little over 4%.
Speaker 7: over the next three years, the lowest it has been in more than 30 years.
Speaker 7: over the next three years, the lowest it has been in more than 30. At the same time, a big part of the fleet.
Speaker 7: is over 15 years and almost 10% of the fleet is currently over 20 years. Although scrapping activity has come down, which is natural, last year, we have upcoming regulations and industry with decarbonization initiatives and almost 10% of the fleet being over 20.
Speaker 7: We think that all these factors point to a balanced tank and supply market for the years ahead. And with that, I will return the call back to Nicolas for the Q&A. Thank you.
Speaker 5: Thank you, George, for giving us a full picture of quite an exciting year, and a lot of excitement, as I say, has begun with 2023, where market fundamentals are remaining strong. A recent weakness in the price of oil.
Speaker 5: was a correlation, a reverse correlation with tanking rates and the price of oil. So I think what we are seeing in the recent weeks, the normalization in the price of oil.
Speaker 5: We are in a low inventory environment. The world has suffered from high oil prices.
Speaker 5: in the last at least four quarters. So we see that the correction and the price of oil becoming to more affordable levels for the world is going to drive more business for ourselves.
Speaker 5: And we see this in the demand from every single oil major for long-term businesses that I don't think we've ever seen again. I mean, as you know, we do most of our business on profit-sharing arrangements, but today VLTC could easily go for a year close to $70,000 as sure as max.
Speaker 5: about 50 to 60 and very similar to the Aframax rates. And these are also for a couple of years. So there is positive, there is a positive environment for where we're going forward. And that's why we took the opportunity to order vessels of new generation that will be able to fulfill.
Speaker 5: significant. I think she will add at least...
Speaker 5: another by itself and close to a dollar a year of net income by her new charter. So that's a very positive situation going forward. And we will be welcoming our new vessels.
Speaker 5: as of October of 2023, the first of our dual fuel vessels. We took the opportunity to sell our older product, thank you sir, prices that we did not expect to ever see again, not far from their original purchase, purchase values some time ago. So we are renewing that part of the business.
Speaker 5: going forward. Looking back and in view of.
Speaker 5: of our presentation next week. We have seen that 10 through the years, has included this year, has made the net income over the last 20 years on the stock exchange of 2.3 billion US dollars in a very cyclical market, and has paid dividends of half, in excess of half a billion dollars as we were.
Speaker 5: as our CEO said, and we are looking at this trend, we hope that this trend to continue at least for the foreseeable future for us and of course the other energy companies out there. And with this I would like to thank all of you for your support.
Speaker 5: for the last 20 years. It has been an enjoyable ride. And looking forward for a few more years of excitement. And I would like to open the floor for any questions.
Speaker 2: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions. interested in seeking the question for a second call. studio, please press star 2 enter your question
Speaker 8: reviewed between 25% and 50% of net income during the mood times.
Speaker 5: Is that still the board's intention? Yes, I mean this has always been, thanks for, good morning to you and thanks for your question. If you look at the historical, um,
Speaker 5: The historical figures I announced, out of 2.3 billion open net income, we have already distributed to be accurate 570. So that's about close to 30 between 25 and 30%.
Speaker 5: And yes, we will maintain the same policy and always...
Speaker 5: build up cash. I believe that if things continue we will be close to half a billion dollars of liquidity within this year, which I think will give us a lot of security going forward and a lot of security going forward.
Speaker 8: of ammunition to invest in new and more environmentally friendly vessels.
Speaker 8: Could you provide some insight on the reasoning behind that decision and looking ahead should we expect additional ATM usage?
Speaker 5: That was a program that we had to complete within the year. That was a decision taken in the early parts of 2022. It was completed with the liquidity that the company is building up on a daily basis.
I don't foresee any similar transactions now that this program has been completed. That's helpful, thank you. And final question from me. You mentioned the new contract on the Neo Energy will add at least another dollar in net income by itself.
Could you provide some additional commentary on the terms of the new contract, for example the TCE or the contract duration?
Well, we are looking at yearly contracts in excess of $100,000 a day.
that's about $36 million. Or if we decide to do a two year contract, we're about $85,000 a day.
That's how we come to the figure I mentioned to you. Makes sense. So it's not fixed yet, right? Exactly.
All right, thank you for taking my questions and congratulations for the quarter. Thank you very much. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Your confirmation tone will indicate your line is in the question queue.
Thank you. There are no further questions at this time. I'd like to hand the floor back over to Dr. Nicolas Tacos for any closing comments. Well, first of all, thank you for supporting the company over this year. We are actually looking at this and I know whenever someone...
in a situation because of the lack of knowledge of what actually compunction engines our vessels should be designed or built with the lowest replacement program or new building program since I've been in business in 30 years.
I think the whole tanker industry is close to 4%, and I think the big segment is closer to 2.8 to 3%. This is unprecedented. And without any growth in trades, that would signal a very strong market going forward, because as you know, it takes at least three years to build a ship if someone decides to do so. I think the big segment is closer to 4%, and I think the big segment is closer to 4%.
We are always preparing to a company to be able to absorb any shocks that might arrive and we have proven that and we are very proud of that record. I think we will be able to harvest everything that we have planted and with the coming of the Body
vessels that have been added in our fleet in the recent couple of weeks to grow the earnings in the first quarter and going forward.
We are the major shareholders in the company and we feel very correct and very right to be able to reward our shareholders with a very dramatic and significant increase of our dividend. If the market continues, hopefully we can have another increase later in the year.
With that, I will ask Mr. Arapoglu to wrap up.
It is not a flash of the pan. It's the market continues as strong as it used to be at the end of last year
And then is ideally positioned to capture all the benefits going forward. So with that, thank you all for attending today's meeting.
And all the best. Thank you. Thank you and see you next week in New York. Thank you very much. Thank you.
Always. Thank you. Thank you and see you next week in New York. Thank you very much. Thank you.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.