Tsakos Energy Navigation Ltd (TEN) 2003 Q3 法說會逐字稿

Good day and welcome to the Tsakos Energy Navigation third quarter earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Thomas Rusicki. Please go ahead, sir.

Good morning and thank you for joining us for Tsakos Energy Navigation's third quarter 2003 earnings conference call. By now you each should have received a copy of this morning's press release. If you have not, please contact Perav Davay of GCI Group at 212-537-8026, and he will be glad to fax or e-mail a copy of the release to you.

As a reminder, this conference call is also being webcast. To access the webcast, please refer to the press release for the Web address, which will direct you to the registration page. At this time I would like to read the Safe Harbor statement.

This conference call contains 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 TEN's business prospects and results of operation. Such risks are more fully discussed in TEN's filings with the Securities and Exchange Commission. Thank you.

At this time, I would like to turn the call over to Mr. George Saraglou, chief operating officer of Tsakos Energy Navigation.

Thank you, Tom. Good morning and thank you for taking the time to participate in today's call. Joining me on the call today are Mr. John Stavropoulos, chairman of the board of directors; Mr. Nikola Tsakos, president and chief executive officer of our company; Michael Jolliffe, deputy chairman; Paul Durham, finance director; and Dr. Paul Ambranakos, chief marine officer.

On this morning's call, first the chairman will offer some opening remarks. Then Nik Tsakos will provide a view of the third quarter and the first nine months of 2003. He will offer some guidance as to how we see the fourth quarter of 2003 unfolding and discuss our recent initiatives. We will then turn the call over to Paul Durham to review the financial information that we released earlier this morning. At that time we will open the call to questions.

Now I would like to turn the call over to Mr. Stavropoulos, our chairman.

Thank you very much, George. Good morning, ladies and gentlemen. My focus today is one of reflection and a peek at the future. I reflect because TEN commenced operations 10 years ago this quarter. We've been singing "Happy Birthday" for the last few days. The initial fleet that the company started with included four vessels, one aframax and three product carriers with a total dead weight tonnage of 231,000. Today's fleet is 27 ships with 2,681,000 dead weight tons. In other words, elevenfold the initial fleet. In addition, we have orders for seven vessels to be delivered in the years 2004, 2005, 2006.

Importantly, TEN has achieved not only physical growth, but it has also achieved consistent profitability reflecting its chartering policies, effective management of costs, and proven financial strategies. The first year's profits were $2.6m. Analysts project more than 20 times that amount for 2003. The initial book value adjusted for stock dividends is $8.33, and the current book value is $17.92 after cash dividends of $1.20. That's the past, what's the future?

The shared vision of management and the board of directors is a strong leadership position in the energy transportation industry. The direction of builds will be guided by our clients' future needs. TEN's new buildings program initiated in 1997 has been tailored to customer requirements. The resulting fleet is among the youngest and best-equipped in the world. This strategy is further reflected in the seven ships all scheduled for delivery in the next three years.

TEN's expansion program is based on its optimistic view about the intermediate and longer-term prospects of the petroleum tanker industry. The recently released projections by the International Energy Agency perceive oil demand growing by 1.5% per annum over the next quarter century. They also, importantly, foresee growing distances between points of production and consumption, thereby increasing demand for tankers.

TEN also expects greater industry concentration arising from evolving regulations, intensifying charters' selectivity, and reduced availability of financial resources for small operators.

In summary, TEN set sail on the second ten years' journey with strong assets. They include a young and modern and growing fleet; a proven management tested by ten years of consistent profitability and solid growth; a technical management resource, Tsakos shipping transportation with over 30 years of effective, successful experience; strong relationships with first-rate clients and a brand name, which is developing business with new customers; very importantly, very solid relationships with leading ship finance banks and ready access to future debt requirements; and, lastly, an ownership base comprised of a dedicated family investment, a blue-chip list of institutional investors, and a widening list of high-net-worth individuals. I should add, very importantly, TEN also enjoys widespread ownership among the onshore and offshore employees of the Tsakos Group.

I'd now like to turn the meeting over to our CEO, Nikola Tsakos. Thank you for the opportunity to share my thoughts.

Chairman, thank you very much. Good morning, ladies and gentlemen. We are very happy to announce another strong quarter, 12 times increasing our earnings since a year ago. Last quarter we cautioned that rates might not increase during the third quarter as they had in the first two quarters of 2003; however, while we did see some seasonal slowdown, typical of the third quarter, this morning we are pleased to report another strong income and earnings per share. Perhaps more strongly, we recognize another doubling - 100% increase - in revenues from the similar period last year. While the continued expansion of our fleet contributed to earnings for TEN, we also believe that our balanced fleet profile contributed significantly to our results in this quarter. Our business plan continues to support our goal, and we expect that this is what will continue through the fourth quarter and into 2004.

As we move to a busier fourth quarter, and we are already seeing rates moving significantly higher than the averages of the third quarter, and as we speak today, the suezmaxes are on the cross we start to cut rates the United States are about one scale 160 with average max about 110 on the third quarter. The Caribbean market for the aframaxes is in the one scale 215 with mid to 150 - about 150 a quarter ago. The Mediterranean is also one scale to 100, and the VLCCs are close to one scale 150, which is about $80,000 a day. So we are seeing that the fourth quarter is stronger, and we have good hopes for that.

We remain optimistic about the prospects of our industry, as always, and we are mindful of various regulations that continue to affect our business. International regulatory bodies at major oil concerns continue to engage in discussions regarding the future of the single-hull vessels and their viability, particularly in Europe, where, as you know, that as of October 21st, single-hull vessels have been banned.

Regardless of this, in December, the IMO will reconsider its position. However, no matter what the outcome of these discussions, TEN's will be positively impacted as the vast majority of our fleet, more than 80%, is of the double-double design.

The [indiscernible] is an attractive market, and I think that the good timing in our fleet expansion has worse - the combination has produced another quarter of strong profits, regardless of our decision to take four of our ships on scheduled repairs through the weak third quarter. These results reaffirm our ability to produce solid operating results and profits in volatile market as well as enjoy major benefits in cyclically strong periods. Consistent with corporate policy, we will continue to maintain a balance in our employment mix and will seek to fix selected vessels on medium to long-term charters. Currently, we have 20 vessels on [inaudible] deployment and seven vessels operating on the spot market.

We will continue this policy, and as we see on the demand side, we are looking at our diversified fleet enjoying a lot of interest from our customers. Additionally, we are seeing, on the supply of oil side, more oil coming out of Iraq and Russia and entering the system. This, of course, is quite positive for us.

TEN will maintain our vendors mix of spot and time charters and since [spot rates] fluctuate, our balance is protected by our strong term, including charters, on a large portion of our fleet. Our operational strategy and our arrangements with the Tsakos shipping and trading allows us to keep low cost and remain competitive in difficult times.

Our employment profile has proved over the last several quarters that TEN is well positioned to manage anything in market dynamics. As the market changes, we will continue to optimize and enhance our strategy to improve our operational results and seek opportunities for TEN to grow during the balance of 2003 and into 2004.

Much like last quarter, we have seen considerable strength in our balance sheet. We believe that our shares are undervalued, especially as we continue to enhance our fleet prudently, and our net asset value continues to grow. Management is taking steps by trying to address this issue by continuously visiting, not only our clients, our shareholders, and our analysts to try and explain the company's position.

At this time, I would first like to give you a top-line review of the third quarter numbers and then talk a bit about our operational performance. Paul Durham, our finance director, will provide you with more specific details relating to our financials during his remarks.

Today TEN announced net revenues for the third quarter of 2003 of $52.5m compared with $39.3m for the third quarter of 2002. The company also reported earnings per share of 47 cents for the third quarter against 4 cents a year ago. Turning to operations, during the third quarter we continued to make new progress in our effort to position TEN as one of the premier operators in the world. Due to our fleet's youth, diversity, and high specification, as well as the cost of addition of new vessels, we were again able to take advantage of the solid trade in the spot market. However, we have not and will not change our strategy of employing a significant portion of our vessels on the long-term charters or contracts. As I said, currently 20 of the 27 vessels are long-term time charters, and we have 65% of our operating days for next year, which is approximately $120m of revenue.

We are always in discussion with major oil companies seeking out new opportunities for all our vessels and have met with success in securing long-term [accretive] charters for our fleet and driving value to the bottom line by taking advantage of today's strong spot market. For an example, since March '02, that's when the company was quoted in the New York Stock Exchange, we have been taking delivery of 11 ships - four suezmaxes, three of whom have been chartered out to major oil companies for long-time charters, and one is under negotiation. We have taken delivery of four panamaxes, all of them picked out before medium- to long-term deployments with big and large oil companies and state oil companies, and three aframaxes, which are also performing contracts or are on time charters. So we are continuing the policy that we have. This policy, we believe, will find our growth in that to shareholders' value in the long term.

During the third quarter we made several announcements that show that TEN is always at the cutting edge of our industry. In July we announced the exercising of options of building two ice class suezmaxes. Following that, three months later, we ordered another two with the delivery - with the options for another two similar vessels, ice class, from the Shenai yard. The ships will be delivered to us in the latter part of 2005 and the beginning of 2006. With these additional four ice class suezmax tankers, we will increase our suezmax fleet to eight sister ships, double-double ice class tankers, all built identically in the same yard. Discussions with our clients makes us feel that those vessels will be in much demand in the forthcoming period.

Also in July we announced the expansion of a time charter for the Silia T. for an additional year, at the maximum rate allowed by the contract. We took the liberty of two ships, the Parthenon and the Andes, and since the delivery of our first new building in 1997, the Toula Z, we have expanded our fleet exclusively through our new building program. I think we might be the only company that has only built its future. We have avoided paying any [indiscernible] buying second-hand vessels and so we actually control the quality of the ships we build for our clients. I think this is a big difference from our company from other companies. We do not have to end up paying a lot of money because of market fluctuations. We negotiate with only two yards with whom we are very large clients, so we are able to build very good ships.

In August we announced that our one-year joint venture with Lauritzen Kosan - we decided to come to mutual to a close, and that has been a very experience with LBG sector, but both partners decided that at this time it was not prudent to go ahead with the second stage. It would have been an expansion of us owning another 26 LBG carriers. We felt that our industry was providing adequate returns of that base. We remain very close. The chairman of Kosan and the CEO is sitting on our board, and Lauritzen is continuing to be one of our large shareholders. The joint venture was accretive for both parties.

Also, in early October, we announced the sales of two of our suezmaxes, the Decathlon and the Pentathlon. We recognized an excess of $15m in capital gains from the sales of those ships, plus $11m of operational gains. The one here we actually operated those ships. So on an investment of $30m we returned, within a year, $26m, a 90% a return on equity, and we still maintain the control of those assets, which we have chartered out for three years to Petrobras, the state oil company in Brazil.

As has been our policy, we are limiting our new building contracts to two shipyards. We are not out there just trying to find any shipyard to build our ships because quality is very important for us. And, of course, with all our new buildings of the term, our endeavor is to charter those ships very close to when they are delivered, and our ships are already in a lot of demand.

The financing for the remaining vessels in our newbuilding program is well underway at what we consider to be very competitive rates. The company has, as you know, a share repurchase program. During the first nine months we bought back about 100,000 shares at an average price of $11.30. There is still about $4m of remaining authorized funds. We believe that although we don't want to reduce liquidity from our shares at $11.30, it has been a very good investment for the company.

Finally, TEN continues to monitor our fleet prudently with an eye towards the future, have worked diligently to position the company for continued financial strength, extended the reach of our modern fleet by adding new vessels, and reaping the benefits of our stocks per market while balancing our portfolio with long-term employment. We believe that the company's position to generate the revenue necessary to expand over the coming years. In the first quarter of 2003, we believe we will see continued strength in the tanker market and an uptick in rates from the third quarter. But still we are conservative and not expecting to have results similar to those as the first half of the year, although the way the market is going we might be pleasantly surprised.

As well, we greatly appreciate the support of all our shareholders. We are very happy to come and visit you in the States. We were very honored this year to have a lot of our major shareholders coming and visiting us here in Greece. It was a very good experience. There is a "boat," jokingly as we call it, on Tuesday, being organized in Philadelphia. One of our modern suezmaxes, the Triathlon, is going to be unloading in that part of the world, and I know our analysts are organizing a trip. So whoever wants a nice trip down to the wharf, we'll be very happy to see you there.

At this time I would like to ask Paul Durham, our finance director, to talk to us a little bit more about the company's financial performance. Paul?

Okay, Nik. I thank you all for joining us today. Before I begin, please note that a summary of selected financial and Street data is included in the press release for your reference.

Today TEN reported for quarter three, net income of $8m versus $0.7m in the third quarter of 2002. That $8m is equivalent to all the net income achieved in the first nine months of last year. Net revenue for the third quarter for 27.4 vessels was $52.5m compared to $29.3m, for 18.5 vessels for the third quarter 2002. That represents a 50% increase in tonnage but a 79% increase in revenue. Despite the seasonal softening of rates, this reflects the continued strong freight market in quarter three compared to the poor market in 2002.

This was also achieved taking advantage of the seasonal low, despite lost days in the dry docking of three vessels and the long-distance repositioning of the newly delivered product carrier, Andes, and the suezmax Decathlon to secure attractive new time charters. The average time charter equivalent rate per vessel per day in the quarter was nearly $18,000 compared to $15,700 for quarter three 2002.

Voyage expenses increased to $17m from $7.8m in the third quarter 2002. This is primarily due to 12 vessels being on either spot charter or contract of affreightment during the period compared to seven last year. With the addition of nine extra vessels operating in quarter three compared to the previous year's third quarter, operating expenses increased from $8m in 2002 to $12.7m in 2003. Average daily running cost per vessel, taking the nine-month average, rose by 5% from $5,400 to $5,690, primarily due to the impact of insurance costs, extra repairs, and the weakening dollar.

Depreciation increased from $6.4m to $8.8m, reflecting primarily the nine extra new vessels and dry docking cost amortization increased from $0.9m to $1.8m due to the extensive dry docking program over the last 18 months. Overhead costs have increased by half a million dollars compared to last year, mainly due to the new vessel management fees. However, daily operating overhead costs per vessel remained constant at approximately $670.

Net interest and finance costs in the second quarter 2003 amounted to $2.6m compared to third quarter 2002 net interest costs of $4.4m, despite an increase of approximately $200m in average debt.

Briefly looking at the results of the nine months as a whole, net revenues for the period doubled to $170m with an average of 25.3 vessels compared to $84m last year with 17 vessels. The average time charter equivalent rate per vessel in the period was $5,000 a day higher in the nine months 2003 compared to last year.

Operating income was over $53m compared to $17m last year, and net income was $45m compared to $8m. Net finance costs amounted to $8.8m compared to $9.7m for the previous year's first nine months although total average indebtedness was about twice as much as last year.

Total cash balances including short-term restricted cash stood at $43m at September 30, 2003, compared to nearly $47m at the beginning of the year, a period in which six new vessels were acquired. The freight of the two suezmaxes is expected to add a further $49m to cash balances during the fourth quarter. Net cash from operating activities in the quarter were $17.7m and nearly $65.4m for the nine months. Expenditure on dry dockings this quarter was $6.7m, primarily relating to the product carriers Crux and Dion and the panamax Hesnes.

Total dry docking expenditure has, for the nine months, amounted to $15.5m. Only one further major dry docking has since taken place relating to the Maria Tsakos. No further dry docking is scheduled for this year.

Net cash used in investing activities amounted to $74.3m, relating primarily to the final installments on the delivery of the new panamax Andes and aframax Parthenon. In the nine months to September 30th, a total of $211m has been paid on deliveries and advances from non-delivered vessels.

Committed capital expenditure during the final quarter will be minimal. With regard to the three handysize product carriers on order for 2004 and 2005 and the four suezmaxes for 2005 and 2006, [a further] $70m is now committed to 2004, $115m in 2005, and $70m in 2006. Net cash from financing activities in the quarter amounts to $42m, relating mainly to the new loans of $26m for the newly delivered Parthenon and a similar amount for the Andes. These payments amounted to $8m.

Total loans outstanding as of September 30, 2003, amounted to $524m compared to $386m at the start of the year. The total debt-to-capital ratio at the end of quarter three was approximately 63%, but it is expected to fall below 59% by the year-end, primarily as a result of the reduction in debt arising from the sale of the two suezmaxes.

This concludes my comments on the financial results, and now I'd like to turn the call back to Nikola.

Thank you, Paul, thank you very much. Well, I think we are ready to open the floor for any questions you might have.

Thank you, sir. If you'd like to ask a question at this time, you may ask it by pressing the star key followed by the digit 1 on your touchtone telephone. If you are on a speakerphone today, please turn off the mute function to allow the signal to reach our equipment. Again, that will be star, 1 if you'd like to ask a question. Today's first quarter will come from Gary Goldstein at Gilford Securities.

Good morning, guys, and congratulations on a great quarter. We had a couple of questions - one is on the dry docking this quarter. This was well above normal.

Yes, that's - hi, this is Nik Tsakos - we had scheduled our repairs, of course, for the year, but we saw that the third quarter was a period for a slower market, and we decided to take advantage of that and make our repairs within the third quarter rather than have them to spill over in the fourth quarter.

Okay, so we have no more scheduled in this year. That's what I heard?

Well, apart from the Maria Tsakos, which we did a couple of weeks ago, there's no more - anymore - the Maria Tsakos went in for just a quickie, a couple of weeks' work.

Okay, but otherwise for the year we're done?

We're done for the year.

Okay, and can you talk to us about the sale leaseback that seems to have been a very profitable venture? Could you just talk to us about that for one second?

Sure, as you know, in shipping, when you see opportunities, I think you should - of making a profit - you should be out there and take them.

We're never against that.

We scheduled our ships - we actually bring those ships - the cost of $47m, and we took delivery of them a year ago back in the year 2002. Those ships were sold at $55m per piece, and in the meantime, they made a significant operational profit. When we financed those ships, we used $30m of equity, which opted the sale and the profits from operations, so we returned $26m return. So that was a very - a 90% return within a year. So we felt it was an equity return for our shareholders. And at the same time, we control the ships for another five years with all options up to eight years. We went out and chartered those ships to the state-owned company of Petrobras at a rate that are accretive and more than cover our obligations to the charters, and then will give us a chance to make additional money on those.

That's what I thought we heard.

So we strengthened our balances significantly; it has given the company - it will give the company in excess of $100m of cash, perhaps more; and we will be there to look at other opportunities. So I think that was a very good opportunity to let it go by.

Obviously it was. Can you talk to us about, when we're looking at the fleet now, about 53%, as you put in your press release, of the active fleet has been purchased, or new building, since '97. They're comprising 85% of the net income for the company. With tanker rates - we've seen tanker rates, although there has been some discussion about it - we've seen tanker rates substantially up again this quarter. Can you tell us, looking forward, the company's vision for the newer vessels, what kind of margins they're getting on that? Obviously, December, I think, the U.N. is going to vote. There's a couple of new maritime regulations that are potentially going to be forthcoming. Can you talk to us about where TEN is three years from now?

Well, first of all, it is our stated aim that we would like to have a purely double-double fleet, and that's much earlier than three years down the road. We are looking - the double ships are getting a significant premium - up to 70% in some cases - from single ships. And we are seeing the single ships, many times, have a little idle time. So, for sure, our company would like to continue building its future with those ships. We have a large new building program - seven ships on order, three on option, and we're always looking at opportunities that might arise, and while the dry cargo market but also very stronger than tankers today, might create some opportunities there for us. Right now where we might find orders that we'd like to get rid of some order new buildings or in tankers and order some dry cargo ships. So we are starting the market, and we're looking to have a few double-double, hopefully, in the next year.

Okay, outstanding, congratulations on a great quarter. I'll let someone ask.

Thank you very much, thanks for your support.

And we'll go next to Magnus Fyhr at Jefferies and Company.

Yeah, hi, how are you guys doing? Just a couple of questions, starting, you know, going back to you're giving the strong rates in the fourth quarter that we're currently seeing - trying to get a sense on what you've booked, so far, in the quarter of the vessels that you have on the spot market? Maybe you can share with us, particularly on the aframaxes, what you've booked in the quarter and what you have left to book?

Sure, sure, thank you very much. Well, as you know, we actually, right now, we're trying to cover a lot of the employment days. For us, it's important to have full utilization of the ships. So the majority of our aframaxes are out on contracts of affreightment that didn't have a minimum rate but accretive and profit-sharing with the charters or [inaudible] with that a major oil company in which we are actually enjoying the market conditions. So what we have tried to do with this is, I would say, enjoy the market by protecting the downside. So all our ships - the Toula Z., the Athens, the Maria - they're all in contracts of affreightment, so they do not lose a single day of operation, and they do not have to wait in Med or in the Gulf. The [Olympias], she was fixed out for a two-and-a-half-year contract to a large Russian oil concern, and that's a new business that we've been very proud for. We have a lot of our ships - the Opal Queen - coming up in the first quarter - end of the first quarter of next year - opening up. And so most of our ships are spoken for, but we have the luxury to be able to get market rates through our contracts.

Okay, so these vessels, with aframax in the Caribbean, you know, I guess there's been a lot of volatility, but currently north of 30,000 a day. Have you booked a lot of those vessels at those kinds of rates or are there some limitations on the upside?

Those ships are enjoying these rates. The majority of our aframaxes are enjoying those rates.

Okay, great. And maybe a question for Paul - after the sale leaseback, what's your current cash on the balance sheet?

Current cash - well, at the end of September, we were about 43. This is bringing us nearly $15m extra cash. So we're now looking at cash between 95 and 100.

Okay. What are the prospects, you know, looking at putting this cash to work? Maybe Nik can elaborate a little bit on that.

Well, we're always looking at the possibilities. We are, I think, as I said, we are finding some good possibilities happening because of a very strong dry cargo market, and we are looking again, in fact, at accretive transactions like the ones we have been doing with top-quality investments. So I think within December, we will have some developments.

Okay, even the price that you had mentioned that your stock is undervalued, vis-à-vis the rest of the group? You've announced some buybacks. Any chance that you can get more aggressive on your buyback program?

I'll let our chairman take this one.

I think we will always look favorably on having our share repurchases so long as we perceive that the proper valuation of our stock is not reflected in the current prices. As was indicated, thus far this year, we've bought back 140,000 shares at approximately $11.30 per share on average, and if we see similar discounts to NAV and to earnings prospects, going forward, we'll take advantage of that and buy some more shares. We have about $2.4m of allocated funds that can be employed under the current board authorization.

Thank you.

We'll take our next question from John Chapelle at JP Morgan.

Good afternoon, guys. I wanted to ask a question about the Caribbean market, particularly Venezuela. Could you remind me what your exposure is to the Venezuelan market? Can you talk a little bit about how the Venezuelan oil market is trending right now, vis-a-vis over a year ago before any strikes or shutdowns? And can you also talk a little bit about the outlook for the Venezuelan oil market, going forward?

Thank you, John. Yes, well, our direct exposure to Venezuela is one vessel. She started there for quite a - the Victory - she started there until April next year with various options. We have had a very good experience, no down time, and no, you know, from that. Of course, the Caribbean market Venezuela is a very big position of oil, and I know that aframaxes depend on this market on their contracts. I have to say, I think we have been very lucky not to lose a single dollar or day, that is, with our relationships there, and we are, I think, perhaps we are close to 80% of what the situation was before the disruptions a year ago, as far as our output is coming out.

Okay, going forward, do you think they have the infrastructure in place and enough investment opportunity that they can maybe get back to pre-shutdown levels or at least maintain this 80% level without any further disruptions?

I think that they can maintain the 80%, but then that's a political situation and a lot depends on how their internal politics will go there. I have to say we've been working with them for 25 years, and we have never had any bad experiences.

Okay, that's good. Paul, can you just give us an update on the dry docking schedule for 2004?

Yes, currently we have four vessels, which are scheduled for dry docking now - the Tamyra, which we had initially scheduled for the end of this year, is going to be a later stage in next year, I think in quarter two, if I'm right. We have the Bregen at a later stage, and the Liberty and the Olympia, which has been sold but will be out of the drydocking in quarter two.

All right, thanks a lot, guys.

And then we have, depending on, again, what a very good question - we have the Victory III, which is going to be either on the fourth quarter, or can [value with us before] the first quarter, is a ship that we have in Venezuela and, depending on how the refineries are going there, we'll take it for 15 days to have their dry docking. But we are going to be replacing here by the Liberty, which is in the area in the meantime. So we are scheduling those transactions with the various departments down there.

Okay, thanks, Nik.

Thank you.

Our next question comes from Grant Costa at Putnam and Partners.

Hi, how are you all doing? Congratulations on a good quarter. I had a question for you on - you mentioned before you have a lot of free cash now and looking at the new building market, how do you see it in relation to Chinese yards? Have you thought about building in any Chinese yards? And also in relation to ice class vessels, have you thought about building any new ice class vessels?

Yes, thank you very much. I think this is a very appropriate question. We are building four suezmaxes and our six product tankers are all ice class. I think that our expectations are there for more output from the Baltic side of the Soviet Union, to say the least. With China, we have always an open mind. We are perhaps one of the companies with the largest building program in the last five years to have spent in excess a billion-two in six years, actually building our vessels. So we are a good target for any shipyard to come and talk to us. I believe China will be a significant force of new buildings.

Right now the difference in price between someone like us that has a very close relationship with two yards and building in China does not make sense to move. I think in the next three years, we will be seeing things differently, but we are always looking at the situation. They are building very good simple ships right now. They are building good bulk carrier ships. They are starting to build better container ships, and I think they are getting much better also the tankers. But I think their work - [Korea was] -- I would say, in the average segment.

Okay, thank you very much.

Thank you.

Our next question comes from Walter Lovato at Passport Capital.

Yes, good morning. I have a number of questions, please. First, I guess, going back to the share repurchase issue - you mentioned that if you saw the discount, I guess, to NAV back down, you'd consider setting that up. How do you look at that? What NAV were you using back when you made those purchases at $11.30? Was it existing NAV? Did you include newbuilding? Somehow discounted? If you could give some more detail on that, it would be good.

I don't have the precise number that we have as NAV on a day-by-day weighted average basis. I can only suggest to you that when we did factor in all of the considerations that go into NAV, we felt that we were buying the shares back at a discount of 25% or more.

That's very helpful. And on that topic, can you remind me what the dividend policy of your company is?

Yes, the dividend policy, I think, is a simple one, but we haven't explained it very well because not everyone understands it. While it is our intent to pay out between 25% and 50% of ordinary net income in the form of a cash dividend, we will do it in two semiannual dividends. The first interim dividend we declare in late September or early October and pay it in the latter part of October, while the final dividend, or as we label it, is considered in February after the close of the fiscal year and is paid in April of that following period.

Okay, thank you.

Did I clear up any confusion?

Yes, 25% to 50% of ordinary net income - yes, that's clear. I had a question on the new buildings - you mentioned capital expenditures of $70m, 115 and 32. Are those fairly evenly distributed on a quarterly basis during the year?

Excuse me?

Are the - let's say in 2004, capital expenditures are $70m. Is that evenly divided among the quarters or is it lumpy?

No, it's relatively lumpy. We're talking about seven vessels over the next three years. Our last portion of the expenditure is actually on delivery.

On delivery - what percentage of it is on delivery?

Actually, at the end. Until that time, we pay modest installments.

Okay.

So, really, the lump payments are really when we get delivery of the ships every three to six months.

Okay. I had a final question on the ice class vessels that you mentioned. How many suezmax ice class vessels are there in the market now?

You mean in general?

In general, yes.

In general, there is 1% less than 10% of the world fleet because it's a concept that has been developed in the, I would say, very late '90s. So we are looking at a small percentage for those ships. So it is a market that has been developing and being built just in the last two years.

And what's the difference in cost-to-build in ice class suezmax versus a regular suezmax?

Again, we're splitting the [inaudible] here, but it depends on how your negotiations go. Of course, it could be as 10% increase from the purchase price of the ship, because if you're building an ice class ship, you have to make sure that the machinery is also built. You have a larger engine that can pull size, and you have a much larger propeller, so you have to have all the equipment being able to sustain freezing. So it's like having an ice class car. And, of course, much more steel in order to be able to not destroy your - the vessel.

Thank you very much.

Our next question is a follow-up question from Gary Goldstein. Mr. Goldstein, please go ahead.

Hello?

Your line is open for your follow-up.

Thanks, first of all, just to get to the ice class, I understood all of the new buildings were ice class, is that not correct?

All of our new buildings, yes.

Yeah, all of your new buildings are ice class, correct?

That's right - also the product tankers and the suezmaxes.

Okay, and just, quickly, to go back on the fleet itself - the one outlier here that a number of people have brought up is the VLCC. And with rates where they are right now, we're assuming you have no interest in getting rid of it. Is that - will the VLCC remain as long as rates remain, or what do we expect out of the one VLCC?

Well, I think one of the issues different from some other companies is that we have a very diversified fleet, which means that we don't try and - if you consider one corner a side of the market, but we are client-oriented. So if our clients need the VLCC or the suezmax or a product tanker, we are able to have a very diversified portfolio. Our VLCC right now is chartered up to the year 2013 at what we would believe is a very good rate. So unless the VLCC market goes even higher, and we get a huge profit for selling it, we're not planning to sell her, because she continues significant earnings to our bottom line.

Great, okay, thank you very much. And, again, congratulations, and we're looking forward to Tuesday.

Thank you.

We hope you're going to continue doing that, by the way. We think that's a great idea, to let some sell side and buy side come out and see the fleet. That's really great.

Well, thank you for taking the trouble and, as you know, for us, it's very important to have our actual shareholders, you know, the owners of part of the steel of that ship and actually kicking the tires, as we say.

That's a great idea, and we're looking forward to it. Thank you again.

Before you get off the line, I'd like to add a comment - dress warmly. All the weather forecasts we see is that the Eastern Seaboard is going to be very cold over the next two weeks, and, of course, we are unhappy about that.

And just as a reminder, it will be star, 1 if you'd like to ask a question. Our next question comes from David Fondrie at Heartland Funds.

Could you just talk a little bit more about supply of newbuildings coming onto the market and whether or not you think that they will be offset by scrappage rates and how you see that melding with increase in demand for oil?

Yes, hello. Well, our industry is always damaged by the over-supply of tonnage. I mean, time after time, we saw the early 80s being a very painful period for many shipowners because they have built a lot of ships in the '70s, where there was a lot of demand. So we are always very skeptical of the supply side. What we are actually seeing today is that we consider doing a balanced scenario as we start the day from now up to the year 2007. There is not a single slot left in any yard for the next four years to build vessels either in China, Korea, Japan and, of course, Europe is a non-existing shipbuilder. So we know where we stand on that - on the supply of tonnage.

Where we really do not know where we stand is how tough the measures are going to be taken by the IMO on the older ships. If, by chance, the measures that were taken by Europe will be demanded by the IMO in December, which we do not expect for them to go so dramatically against the old ships, we are going to have a huge imbalance in favor of owners of double-double ships.

But the short answer is that we've been comfortable from now until the year 2007. The situation looks to be under control. At that time, 80% of the world fleet will return into double-double ships, and that's when we will have to be careful not to give our clients many, many choices, because that's affects the market. A positive thing is a very strong dry cargo market, and we are already seeing, so far, about 12 orders of tankers - suezmaxes and panamaxes - being changed by the owners into dry cargo ships. So that - we're all praying for a strong dry cargo market, because it takes so much out of the new buildings for us.

Well, that's very helpful. And then, also, could you describe these ice tankers? Is anybody else pursuing that strategy? I mean, clearly, it is, because you believe there is going to be more oil coming out of the Baltic. Is anyone else also pursuing new builds in the ice category?

There are other owners building similar vessels. Of course, not to the extent that normal ships are being built, but since the late '90s, early 2000, we have seen more owners tending to build ships like this.

And, lastly, what do you think the impact of some of the building of the LNG tankers might have on the shipyards?

Well, I think Niko addressed that partially when he talked about the crowding out of space from the bulk area, so the same is true with LNG. The yards are filling up their capacities with container vessel orders, LNG orders, bulk carriers and - it used to be the bulk carriers were the ones that were last in line, because they were the least expensive, but the demands of those have become so strong that people are bidding up what they're willing to pay for those, and they've become fully competitive with space for tankers. So unless we build a lot of new shipyards in the world in the next five years, it's going to be a very tight market.

Thank you.

And next Vernon McCrary at Amex Club .

[no response]

Mr. McCrary, your line is open.

Hello?

Hello, if you could check your mute button, please, or pick up your handset.

Perhaps, Mr. McCrary, if you could queue up again, that will be star, 1 if you'd like to ask a question today. That's star, 1 for questions.

And we'll go to Harden Defea, DePrince Race Zollo.

Hi, guys. I had a question, maybe Paul or Nik, you could comment on increases in bunker prices and insurance rates - and its order of magnitude that you're seeing?

Yes, hi. I think we are seeing - of course, we'd be [electronic noise] significantly. This, however, does not affect so much our company, because 20 out of our 27 vessels are on time charter or related employment, so contract of affreightment, and as far as our time charters, at least, are concerned, the clients, the major oil companies, pay for their own bank rate. Of course, insurance costs, we are seeing the market hardening, but for quality and, knock on wood, are incident-free, like ours. We're still, I would say, getting relatively to some other owners, a very good rate. I think what has hurt our expenses most is the weak dollar, and that because we are solely a dollar-denominated income, and we have to pay a significant amount of our expenses in Japanese yen, in euros, and other non-dollar currencies.

Okay. So when you mentioned in the press release that, you know, despite pressures from the three things you just discussed, the largest of those, by far, is the currency?

That's right. I think the currencies, but because of running a tight ship as we can, we have this not such a big effect, I think, if all we went -- expenses have beneficial for less than 5%.

And even with a weaker dollar, I think if we talking about [background noise] between 15% weakening, 15% at the moment, and we're talking about approximately 25% of our operating costs. So we're looking at about - yes, that would account for 3%, if you like, of the 5% would be of the increase.

Okay, that's helpful. And I think I may have missed something you said before regarding opportunities to employ the current cash on the balance sheet where those opportunities lie.

Well, we are looking at good quality bids, which are hard to come by without taking a decision to pay a big premium, and we're looking at new building opportunities on the back of accretive charters from major oil companies. I think, as we've done, I think, in the past, we will be pleasantly surprised our shareholders by operating some very good deals.

Very good. Thank you.

Thank you.

Our next question comes from Joe Cravelli and Centurion.

Yes, this might have been answered just now, but I came on late, but with rates where they are, is it cheaper to build or is it cheaper to consolidate in the industry now, though you might pay a premium on EBITDA with the current rates where they are, but I guess my question is when will consolidation start taking place at a quicker pace? Thank you.

Thank you very much, I think this is a very interesting question. Our industry is based on steel, which is what our vessels are made of. So it's obviously much cheaper to build, and that's why we have taken this decision. However, where consolidation can be accretive is to a better commercial understanding of putting two companies' commercial minds together and demanding higher rates from the clients. We are not excluding this, but we are only looking at the situations where both parties are going to gain from such a get-together. We believe that wasting management time and, I'm sorry for the lawyers that out there, but making lawyers and investment bankers rich, it's cheaper to build significantly as we have so far. We do not want to [audio break] again, but I think this is our view we have currently.

Anything further, Mr. Cravelli?

Yeah, it seems to me, you know, commodity prices are also going higher, so I guess this is a fragmented industry. When do you - maybe it's not advantageous for you, for TNP, but what do you see in this industry that will lead to consolidation?

We believe that the tougher regulatory body, which from the existing shipping, the largest investments that are required for high-quality, the ice class, or at least new ships, will take - is already taking out the smaller players from the market. So we are seeing a less and less fragmented industry. About 20 years ago, we could say that we had a sphere of at least 100 large tanker owners participating in a totally different game with another 20 major oil companies at the time. Now our clients are down to a handful, and the large, the tanker owners, are not more than two dozen, I would say. So it is a slow process, I agree with you. We are seeing it more and more on the tankers. We are not yet seeing it in any other sector of shipping. I mean, for sure, dry cargo, the entrance into dry cargo is a much lower entrance, so there are many, many more owners.

So I think tankers is somewhere where we're seeing this low consolidation. We agree, it will make sense. It does make sense, though, for TNP. So please do not - don't take me wrong, I'm not saying that, but we have found right now that there are not enough owners that have a purely double-double fleet that we would like to get closer to. There are owners that have good fleets, they have a good part of a double fleet, but they still carry a lot of single ships, which, again, we believe that they are very good. They can be very good, very solid ships, but they are not - it's something that we do not want to participate. So I think as we go forward, owners will have more identical fleets, I think we will see more consolidation.

We'll move next to John Chapelle of JP Morgan for a follow-up.

Yeah, I had a quick follow-up on an answer that Nik gave before about the switching of the shipyard berths to dry bulk from tankers. I would imagine this doesn't happen very frequently during "normal shipping times." How easy is it for the shipyards to switch their berths? And do they charge any kind of penalties to the owners for making changes to the contracts?

Yes, this is mainly on the options that are out there. It can happen on ships that have been already ordered, but I think it is easier to convince a yard to do something like that if there is an option. So let's say we might order two option to suezmaxes, as we did in August, and we are there to take the option, but the yard has attributed the space and the closing dock order, the yard, to build those ships. So we might go back to them and say, "Listen, we decided that we have changed our mind. We do not want to build the suezmaxes. We would like to build the cage sizes in this space." And for them, of course, it's exactly the same size of ship. A suezmax and a cage size dry cargo are exactly the same size, the same space, and it's a much simpler process for them to do it.

So if you have a good client, I don't see why not to give him this possibility, if you are there [to lose] the business altogether. And the same is with the panamax dry cargo ships. You know this very well. Panamaxes are almost identical size than tankers and dry cargo ships, because they have to navigate through the Panama Canal. So those are the two sectors that - the ships are very close one to the other.

Okay, and so there is no penalty or extra charge for making any change to the original contract?

Well, these are up for negotiation, but, as I said, usually it will be a penalty if it was on the original contract, but if it's that on the option that you have, it's your option, as a shipowner, to build or not to build, and you might begin at an option to build a suezmax, but, you know, you can negotiate with the yard that you are going to take your option by building a cage size, I think there will not be a penalty.

All right. That's very helpful, Nik, thanks.

We'll take a follow-up from Grant Costa at Putnam and Partners.

Hi, just a quick follow-up on the ice class issue. I'm wondering to what specification - what ice class specification are your new tankers being built and how does that reflect on your view on future growth than the Russian export market?

I'll ask our marine director, Dr. Ambranakos, to - he is the one building those ships so he knows much better. Dr. Ambranakos.

Yes, good morning. Our ice class tankers belong to the ice class 1B [category]. This 1B is the higher, and while we say 1B, we mean the second highest, which complies to the Maritime authorities regulations arise. These particularly enable the tanker to proceed to very restricted areas, especially during the winter, in the Baltics and in the Far Eastern areas near Sakhalin. So these very good advantage to the ship to approach these areas, where the oil is very highly required. And, of course, this means that the vessel, which belong to the ice class 1B, is very highly reinforced. The prow has much more steel to pass through the ice and to withstand the ice pressure, and it has especially designed machinery in order to propel the ship efficiently and protect the ship during the very cold climate's passage. Thank you.

Okay, and have you considered building anything to 1A specifications with the recent cold winters up North?

We have actually considered - you must be - the question there is what happened in the non-cold months, in the summer months? Because, you see, and as you know very well, a 1A specification is not so much the matter of the hull, but we don't mind adding 5,000 or 6,000 live weight tons in a very large ship like this, you know, to get it to 1A. I think what is worrying is if it becomes economically to run because of their consumption in the summer months. So it is a balanced scenario, and it is very difficult to find these, and that's why we have good brokers out there, to find for us for ice class ships for the whole year. So it means that you might have a very lucrative employment. I mean, we actually show a six-month picture last week for ships like this - [inaudible] tankers ice class for $100,000 for suezmaxes for six months and something like $6,000 for aframaxes. But then you might end up having an economical period when the ice melts. So we are starting this, and we have taken a more conservative view, so far.

Okay, thank you very much.

Gentlemen, having no further questions at this time, I'll hand the call back over to you, if you'd like to make any additional or closing remarks.

Well, thank you very much for participating in this very exciting conference call. Feel free to any questions to address it to us. We are very happy to have a face-to-face with our shareholders, as we do, of course, with our clients, the major oil companies. Thank you for being supportive for the first 10 years of this company, and we started small and hopefully we're growing it, and we are looking forward to see you on our ships or in our country to see our operation very soon. Thank you very much, ladies and gentlemen, and we promise to do what we can to get the share price much higher than it is today.

Thank you, everyone, for your participation in today's conference call.