Okeanis Eco Tankers Corp (ECO) 2020 Q1 法說會逐字稿

Hello, and welcome to OET's Q1 2020 financial results presentation. We will begin shortly. Ioannis Alafouzos, CEO and Chairman; Aristidis Alafouzos, COO; and John Papaioannou, CFO of OET will take you through the presentation. They will be pleased to address any questions raised at the end of the call. I would like to advise that this session is being recorded, and John will now begin the presentation. Thank you.

Thank you. Welcome to the presentation of OET's results for the first quarter of 2020, the financial period ending March 31. We appreciate your interest in our results and encourage questions at the end of the call. We will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events, including OET's commercial performance, dividend policy, projected dry-dock schedules, and anticipated debt capital commitments. Actual results may differ materially from the expectations reflected in these forward-looking statements.

Starting on slide 3, we review the highlights of the quarter. We generated net revenue of $73 million based on daily rates of $59,200 for the VLCC segment, $63,700 for Suezmaxes, and $35,200 for our Aframaxes, with total time charter coverage of 41%. EBITDA came in at $63 million, and we generated an exceptional profit of $41 million, or USD1.26 per share.

Our Board of Directors declared our first cash dividend of USD0.50 per share or approximately $16 million. Combined with the $3 million of share buyback since inception, OET has returned just shy of $20 million to its shareholders since listing in the summer of 2018. The dividend will be paid to shareholders on June 2. We capitalized on the recent market strength by fixing two VLCCs on a three-year and eight-month time charter, respectively. These two time charters will generate a combined $43 million of free cash flow to equity.

Lastly, we have received firm commitments for debt financing of up to 70% loan-to-value for our two Suezmax newbuildings, delivering in September. The LtV could rise to 80% depending on the vessel's employment. The cost of this financing will be the lowest in the company's debt stack.

I'll now hand it over to Aristidis for an overview of our outstanding commercial performance and cost control.

Thanks, John. I believe our chartering has been doing a fantastic job. So well done, Chris. Our technical manager has also kept the ships from missing crucial laycan, and bravo to them as well. It's been very much a team effort. OET achieved a fleet-wide TCE rate of $56,200 per operating day in the first quarter, based on a utilization of 96% and net of technical off-hire days. Our VLCC has generated $87,200 per day in the spot market, a 29% outperformance relative to our tanker peers.

We capitalized on the attractive position of the Nissos Schinoussa opening in West Africa to fix the Brazil-China run near the peak of the market in early January. Our assumption was the market to weaken from its peak in early Q1 into the balance of January and February due to COVID-19 affecting Asian demand. We then decided to ballast at full steam in order to catch the market before it weakened. The market bottomed out at below $40,000 a day, which would have been our natural unloading date. But we were successful in positioning our vessels into earlier loading windows on all three fixtures that we had opened during this period.

Moving into mid-March and after the Saudi announcement of the oil war, we were able to secure two very strong fixtures. Unfortunately, one of the two vessels open during this period failed extremely strong subjects twice as the market began to weaken. And as a consequence, we missed earnings of $250,000 per day, then $200,000 a day, and we had to settle for $100,000 a day, finally. Our Suezmaxes generated $72,000 a day in the spot market, 43% higher than our tanker peers.

Our three-spot Suezmaxes all discharged east of Suez in Q1. We were then able to secure three very strong fixtures in early January, locking in the firm market for long voyages. These long voyages put two ships back in position for fixing after the market weakened through February and then firmed in mid-March, where we again secured two very strong fixtures on long voyages. Our third vessel that was [spot] discharged in February in India before the market strengthened, where we decided to sell backhaul cargo from the Arabian Gulf into the Mediterranean. Opening Med in mid-March, we were able to again secure a longer strong voyage.

Lastly, we are pleased with the spot performance in our Aframax/LR2 fleet, which generated $41,300 per day or 43% higher than our tanker peers. We continued our strategy of fixing local voyages in the Med on our Aframaxes. We chose longer runs loading from the Black Sea when we felt the market was at high, and shifted to shorter runs loading in the Mediterranean when it was weakening. We positioned the Nissos Therassia into the Black Sea for her final spot voyage prior her first special survey and scrubber retrofit in Turkey.

Due to COVID-19 and the developments in the spot market, we postponed the remaining drydocks [for] Q3 and Q4 of 2020. Overall, our ships were able to secure fixtures near the peaks and avoid the absolute troughs. The young age of our fleet and the high quality of the management has allowed the fleets to compete for every cargo and give us the ability to [fix bases] our charting strategy while also maximizing TCE.

On slide 5, we provide guidance for our time charter equivalent revenue in the second quarter of 2020 based on the number of days coverage as well as anticipated daily TCE rates. We include only concluded fixtures in our guidance. We have covered 68% of our available VLCC spot days at $105,500 per day. We estimate the next VLCC spot fixture to be in the high 50s to low 60s per day, depending on the positioning enroute.

Moving on to the Suezmaxes, we have covered 67% of our available spot days at $56,700 per day. We estimate current market TCEs for our next spot Suezmax fixture to be in the high 30s or low 40s per day, as this will be a backhaul voyage, most probably loading in the AG and discharging in the West, probably in the Mediterranean.

Lastly, we covered 64% of our Aframax spot days at $35,800 per day. Early in Q2, we fixed two Afras on short [TCEs] in the low 30s per day to secure coverage. We have one ship, the Nissos Therrasia that is trading [team], and that will open in the spot market over the next few weeks, where she can earn around $60,000 per day, if she [bursts] without too much delay.

Moving on to slide 6, we provide a snapshot of our historical spot market performance relative to our tanker peers, based on publicly available information. OET has been a top performer across all segments for multiple quarters.

Now lastly, on slide 7, we compare our daily operating costs per ship day, comprising vessel OpEx, including management fees and G&A for 2019, to those of our crude tanker peers. Our running costs are more than $2,000 per day lower than the peer group average. This translates to an annual cost savings of $11 million in 2020 for a fleet of 15 vessels.

I'll now turn it back to John to walk you through our financials.

Thank you, Aristidis. Starting with our income statement on slide 8 and our healthy profit of $41 million for $1.26 per share. OET now trades at two times consensus 2020 earnings. Fleet-wide OpEx, including management fees for the quarter, was $7,000 per ship day, while G&A was roughly $400 per ship day.

On slide 9, we provide a snapshot of our balance sheet. Our leverage ratio stands at 67% as recurring debt repayments of $10 million were offset by an increase in pre-delivery financing for the Suezmax newbuildings. Cash and equivalents at the end of the quarter was $26 million, while book equity stood at $382 million or NOK123 per share, corresponding to a roughly 50% premium to our share price.

Turning to slide 10, we provide an overview of our cash flows. At quarter end, we had remaining all-in CapEx of $98 million, comprising $90 million for newbuilding installments and $6 million for scrubbers, including both equipment and installation costs, and about $1 million left to pay for special surveys. Adjusting for the financing we expect to achieve on our two Suezmax newbuildings, we have total liquidity of $121 million.

It's worth noting the uptick in accounts receivable this quarter and which will also be the case for Q2, owing to increase in demerge days and delayed discharge operations. The strain on working capital will be reversed through the next few months, which was a very prevalent feature of the market in the first half of the year.

We take a closer look at our financing and remaining CapEx on slide 11. In our debt snapshot, we see that we have $22 million of pre-delivery finance available as well as access to a $15 million shareholder loan that remains undrawn. We have no real debt maturities until 2021. The amounts that we have to repay for the pre-delivery financing in 2020 will be more than covered by the delivery financing that we have secured commission for.

And with that, I'd like now to hand it back to Aristidis for a quick update on our scrubber retrofit projects.

Focusing on the bottom right table, we completed our special survey and scrubber retrofit on Nissos Therassia in Turkey earlier this quarter. Nissos Therassia and Nissos Schinoussa were planned to go in during Q1 as well, but we pushed back to Q3 and Q4 due to COVID-19 related delays at the shipyard as well as strength in the spot market.

With that, I'd like to hand over to Ioannis to conclude.

Thank you, Aristidis. I'd like to start on slide 12 with a quick overview of the cash flows that we expect to generate in our three-year time charters. Locking in a long time charter is one way of monetizing assets. We felt that the cash flow this time charter will generate a superior to an outright sale at the prevailing prices. This charter allowed us to repay 85% of the equity we invested in this ship, not including the cash flows from the two very strong spot market sectors that we have done on this particular ship. As we promised our investors, we are derisking our company and locking in strong rates at the top of the cycle.

Slide 13 has a few thoughts on capital allocation. We're doing multiple things: paying down debt, paying out cash dividends as we always promised. We bought back a bit of stock at what we thought was a very cheap price. We're not at the point where we can commit to a dividend policy simply because the market outlook is so uncertain for the medium term, both for tankers and for the global macro picture.

But what I can promise, that we're committed to further payouts and that we will not let the cash build up on our balance sheet. In fact, there would be extreme supply (inaudible) if this were not one of a number of dividend payments this year.

And to summarize on slide 14, we are cautious for the next couple of months as stock builds turn into growth, which will of course have a negative effect on tanker demand. But the silver lining is the order book and the scrapping that we will see in a weak market. So we think that we're in a good position with our charter coverage, our financing, and our fleet. We'll continue to monitor the market very closely. Thank you.

(Operator Instructions) Dennis Anghelopoulos, ABG.

Good afternoon, gentlemen. My first question relates to the time charter coverage that you guys currently have. You've significantly derisked, let's say, the VLCCs. But when I look at the employment for both the Aframaxes and the Suezmaxes, essentially, it's only the Milos that's still on time charter with a profit share. Given that the market is reasonably firm now and the outlook could sour in H2, have you considered putting these vessels on time charter or do you think that it's a good spot TCE deployment right now?

Hi, Dennis. It's Aristidis. Look, I think that one thing we've noticed in Q1 and also in Q2 is that in order to time charter your vessel, it has to be ideally free of cargo or very close to completing a discharge. Charters want prompt tonnage; they don't want tonnage delivering in a month. So on the Suezmaxes, for example, when the market peaked in the first time around, we had our ships -- we fixed them in the spot market to take advantage of those rates. And in the second round, two of them were undergoing a voyage and were a month from discharging so they weren't ideal candidates. And the third ship, we fixed and failed two or three times.

So I think that amongst all our tanker peers, if you ask the chartering guys how many vessels were put on subjects and how many were actually listed, there was probably a three-to-one ratio. So that's why. I mean, ideally, we would have liked to have [fixed] a few Suezmaxes as well, but I think that going forward, we're still looking at opportunities to fix the vessels, and we're quite confident we will find some opportunities.

Then, now following up on failing -- no, not failing, but there's some failing on subs. How is going with vessel sales specifically? Given the volatility, I can imagine that it's quite difficult to complete this. Could you give some color on that potentially?

I mean, we had -- as initially planned, we had started positioning our ships and ourselves with our S&P brokers to sell vessels into late Q4 and early Q1. And as we started discussing with people, you know, getting into Q1 and the coronavirus obviously made inspections extremely difficult and this prospect of crew changes. And then whatever happened with the oil prices has -- buyers have taken a step back and they're looking at if it's the right time or not. So I think for the short term, S&P is on hold.

All right. That's all the questions I have for now. Great quarter, guys.

Thank you.

(Operator Instructions) Erik Haavaldsen, Pareto Securities.

Yeah, hi. Just one on your cash position and how you are -- I mean, you mentioned that obviously, it's uncertain and it's hard to give a firm guidance on dividends, which is completely understandable. But enough cash to weather the uncertainty, what level is that in your opinion? So how should we think about a minimum cash holding, so to say, going forward?

I think, where we ended Q1 is probably a fairly comfortable level. And as we pointed out earlier, that we're not going to let cash build up on the balance sheet. I think where we ended Q1, in the mid-20s, is probably acceptable to us.

Brilliant. Thank you.

Thank you.

Peder Jarlsby, Fearnley Securities.

Morning, guys. Sorry, both of my questions were actually taken by the two previous guys, but I can just add on one on the Suezmax financing. What is the requirement more specifically for the accordion option there, if you could just add some color there?

It would be intermediate term employment. So not short term, not very long term. And unfortunately I'm not at liberty to say much more, but we think about it intermediate-term coverage at a minimum fixed rate.

Okay, perfect. That's all. Thank you.

Thank you.

(Operator Instructions) Erik Haavaldsen, Pareto Securities.

Just one follow-up on how you balance that time charter markets versus the potential for S&P in 2021. You have your clause, right, which is suggesting that you might start selling assets if there's a big disconnect between asset values and where you trade. Of course, that disconnect is there at the moment and let's see where it ends up. But how are you balancing, I mean, when you go into three-year charter that clause versus the potential coverage on other ships?

Yeah, that's a great question. And that's also a question on the webcast about our discount control mechanism, which is very much still -- it's not inflate. It comes into effect January 1, 2021. But we have -- that will still be the case. And the way we look at that is, I think Ioannis alluded to it when we did the time charter for the initial schedules, that the time charter rates that were on offer and the capsules they generated were superior to an outright sale at the prevailing market prices at the time.

So we're still very much interested in securing some more coverage, and it's something we'd like to do, but we're also actively monitoring the S&P market as well. So there's no exact formula, and it's just about staying very close to the brokers and constantly evaluating anything that comes through.

Aristidis, you like to add into that?

Yeah, I just want to add that -- I mean, we're not as big as some of our other listed competitors, but we don't have 100% time charter exposure. We do have a significant amount of the fleet spot. So there will be ships that could be sold. And we have ships in the spot market across all three segments that we trade.

Hello. Thank you. I would encourage you to keep doing what you're doing, not do anything rush at all. So that's a good answer. Thank you.

Thank you.

We have no further questions coming through via the telephone lines. So I will hand back to John for any webcast questions.

Thank you. Would just like to address some of the questions that are coming through on the webcast. One relates to the question on whether we have any interest rate hedges in place for our floating interest rate debt. All of our debt is floating rate and we do not have any hedges in place.

Second one is whether we have any hedges in place for fuel costs. And again, we don't. We think -- we echo characteristics, the fuel efficiency of our fleet and our scrubbers are a natural business hedge to fuel costs. So that will be the case going forward. No hedges there.

Then there's a question about clarifying the amount of the loan commitment for the two Suezmaxes. Right now, it's $90.3 million for both ships, and that can go up to around $103 million, subject to vessel employment and rates. And on the DCM, as we mentioned earlier, it's still very much in place. It will kick in January 1, 2021, and that's something that we'll certainly discuss at the Board level.

Then lastly -- yeah, I think that's about it. So we'd like to thank you all for your interest in our company, and we remain -- feel free to reach out to us directly for any questions that we may not have addressed or adopt on this call. Thank you very much.

Thank you for joining today's conference. You may now disconnect your lines.