Tsakos Energy Navigation Ltd (TEN) 2004 Q3 法說會逐字稿

Good morning, my name is Tina, and I will be your conference facilitator. At this time I like to welcome everyone to the Tsakos Energy Navigation Third Quarter Earnings Conference Call.

[OPERATOR INSTRUCTIONS].

Mr. Rozycki you may begin your conference.

Good morning and thank you for joining us for Tsakos Energy Navigation Third Quarter 2004 Earnings Conference Call. By now you should have received a copy of the earnings press release. If you have not, please contact Parag Dave of GCI group at (212) 537-8026, and he will fax a e-mail a copy of the release to you. As a reminder, this conference call is also being web cast. To access the web cast, 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 Privacy 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. Nikolas Tsakos, President and CEO of Tsakos Energy Navigation. Nick?

Yes, thank you, Tom. Good morning ladies and gentlemen, some of you from Greece, thank you for being on the line with us today to hopefully enjoy a good conference call. We have here with us our Chairman, Mr. Stavropoulos, our Finance Director, Mr. Paul Durham, our Chief Operating Officer, Mr. George Saroglou, our Operating Manager, Mr. Lambrinakos, and our Deputy Chairman, Mr. Jolliffe from London. So with that I would like to call our chairman to fill us in with his wise words, and then I will try to make some comments on how the market and our operations have gone in the last 90 days, and then Paul Durham will talk to you about the finances, so thank you very much.

Thank you very much, Nikolas. I don't know how wise my words will be, but they certainly will be happy words. Good morning or good afternoon to each of you participating today, it's a great pleasure to visit with you when times are so good. The third quarter and the early part of the fourth quarter have indeed been exceptional. We kicked off unintended the third quarter with the Greek national team winning the European Soccer Championship. That was followed by a spectacular Olympics, which we hope you all have enjoyed, and I would like to report we were swimming in the sea this past weekend, hope you have the same kind of weather.

That (inaudible) was certainly more important, the oil trade market, the five seasonal gravity with recent charter rates soaring to record levels. When your Board of Directors met in late September, management presented TEN as a company with a very strong balance sheet including significant liquidity. Looking ahead, TEN was viewed to have comfortable earnings visibility, for the fourth quarter in 2005, based on its commitment to a balanced (inaudible) employment strategy, and the added revenue from new building delivery. As a result, we confidently and proudly declared a semi annual dividend of $0.70. Looking further down the road, we were gratified to contemplate the growth catalyst of the very attractive fleet additions, contracted for the coming three years.

Reflections, regarding our strategic guidance, which we shared with management, included seek prudent opportunities to re-leverage the balance sheet, continue to pursue a balanced vessel employment programs, implement the fleet renewal objective with timely and appropriate disposition of older vessels, emphasize organic growth, would seek opportunities for consolidation with a creative characteristics, and also significantly based on the events of this morning, the guidance was to continue the policy of hedging a significant part of our interest rate exposure.

As you know the cost for five-year money spiked some 20 basis points this morning, following the jobs report. Our current coverage is about 75%, and covers a maturity span of three to five years. As to feeling good, your Board of Directors was most pleased that TEN has delivered an outstanding return to its long supported investors. Those who purchased the shares at the USIPO in March of 2002, at $15 a share have in the interim, received cash dividends of $2.40, and now have shares as of last night, I understand this morning they are up a considerable amount more, as of last night we are $37.95 per share.

Thus in 32 months, the investment has grown 169% even a loan shark would be pleased. Those who bought shares with TEN on 2nd January of this year, had a cost of $18.75, and received dividends of $1.20, the year-to-date all-in return is approximately 110%, let's see what today's and tomorrow's market reaction brings. On that happy note bye from me, and back to Nikolas.

Thank you Chairman. Well it's always a pleasure speaking to our friends, especially when the news are good. The third quarter of 2004 was a record setting again quarter for TEN and our whole sector continued to perform well. On our last call we said that we believed that there is a third quarter which usually is much weaker for our industry, we will reserve that trend and would show significant trend, and I think we were proven right. Once again TEN has posted significantly strong operating results.

I would like first to give you top line summary of the third quarter numbers, and then talk a little bit about our operating performance. Paul Durham our Finance Director will provide you with the nitty gritty, and the financial details. Today TEN announced net revenues for the third quarter of '04 of $71,840,000, compared with $52.5 million for the third quarter of '03. The company also reported earnings for sale of $1.26 for the third quarter. On the net profit basis the third quarter was another record quarter for TEN.

From our operating perspective we had several multiple accomplishments during the third quarter, other than being busier as the Chairman said organizing the Olympic games, and ringing the closing bell at the stock exchange on August 15th. The company agreed to sell our original first new building, the (inaudible), which we took delivery back in 1997, and we are going to be selling the ship by the end of '04 realizing a significant profit and gain.

At the same time, on August 18 we signed a contract for the delivery of a newest design Aframax, which will be delivered to us in the middle of 2007. The cost of both transactions is very similar, so actually we are replacing an old with new building very good, very likely (inaudible) for us with a new design with no additional cost, which is quite a surprising thing. On the chartering side we chartered two of our Aframax's to Exxon-Mobil for three years and six months respectively and chartered one of our Suezmax's to Shipnet, the Russians, for two years both fixtures at a very attractive rate.

Currently 21 of our 27operating vessels and forget the 14, about 6 are still doing well for us. Our one-term employment of which 11 are at fixed rate, representing 44% of the remaining operating days for this year, 10 vessels are enjoying full utilization at YWH, market related rate that is, and 6 vessels are on the stock market. The above mix makes still comfortable that we can take advantage of further improvements in the market while we can secure our profitability, in case that the market does not perform as well.

We have fixed 93% of our current fleets operating days for the remaining of this year, and 71% for 2005, which represent an estimate of 200 million in revenue over the next five quarters. We anticipate that the remaining 7% of employable days for 2004, which have not yet been contracted, will be employed in a very exciting market environment. We are constantly seeking new opportunities for all our vessels, and as mentioned we have met with success in securing a long term (inaudible) for our fleet, and this way we will drive value to the bottom line.

This strategy will continue to fund our growth, and not to the shareholders value in the long term. We will continue to grow our fleets aggressively, but prudently with an eye towards the future. We are recognized as one of the most versatile, and nimble operators in the sector, able to satisfy client needs from VLCCs to ice-class vessels down to handy size, and very soon in LNG market.

In the third quarter we continued to operate in a strong rate environment. We believe that this environment will continue over the balance of '04, and will carry over into '05. Based on the third quarter results, and our expectations for the fourth quarter, we are confident that '04 will be an even more profitable year than '03 was, and that was and that was a record year. And although even inventory levels have increased marginally upwards over the past few weeks, as we near the winter months in the northern hemisphere, we believe that the months for ultimate rotation will remain high.

Geopolitical concerns and the situation in Nigeria will also play into their raised environment. In additions in our part of the world, we are beginning to see that the seasonal bottleneck in the (inaudible) where we are experiencing 12 to 18 days waits already up from three to five days just a month ago.

Taking all of those factors into account, we believe that the worldwide oil demand will continue, as a result we will enjoy a healthy demand for our higher quality product (ph) and however, we will always continue to monitoring the factors that will effect the delicate supply demand balance in our industry, and we will continue to advance (inaudible) our fleet to ensure maximum value for the shareholders.

We continued to monitor the new building order book, and expect that we will move closer to the mandatory IMO retirement dates for 2005 and 2010, to see more sinking vessels being scrapped. The run on scrapping has not yet begun in a big way, as the significant demand for tonnage worldwide has made continued salvage of those vessels, a very lucrative option instead of scrapping, but even with this in mind we still project over the supply side of the equation, we will remain strong throughout 2008.

At the same time, the amount of new deliveries may begin to put a strain in the market dynamics by that time. However, we still believed as time (ph) and other oil consuming nations continue to increase their inputs, it's extremely likely that the market could see continued strength beyond '07. To meet the increased demand, TEN has made a significant investment in new highly specialized tonnage to be delivered over the next three years. We are looking forward with great anticipation to the delivery of our first of 10 ice-class vessels, scheduled to take place in April '05. However, our first new building will be on January the 7th and that's a 37,000 tonnage product (inaudible) tanker called (inaudible).

Further of course as we have discussed we have contracted for our first LNG buildings, which is going to be delivered to us in March of '07. LNG currently represents one of the fastest growing shipping segment in the global energy market. In '03, the global LNG trade grew by 13%, and it is expected to double by the year 2010. Low cost market results in Russia, the Middle East and Africa combined with a decrease in cost structure of the LNG process, will allow larger scale expansion of this trade.

TEN is now close to joining a select group of operators, who will be able to take advantage of this growing market segment. We have made the conscious decision to not sign a charter for this vessel at this time, as we feel that the market will expand before delivery, and it is true that we have a lot of offers to charter the ship from up to 20 years, but I think we are taking our time. As a result, we would like to continue monitoring this market, with an eye towards securing a lucrative long-term charter for the vessel closure to her delivery day.

We are also currently exploring additional opportunities within this sector, and believe that this type of vessels will become very important and significant part of our fleet in the future. The high expected nature of LNG carrier, as well as the semi-class vessels of currently older model will provide significant charter premiums, increased earnings, and shareholders returns. Currently, our vessels are earning significant premiums, due to their use and specific characteristics.

The vast majority of the fleet is of the double hull design. As I mentioned earlier, we now have only three vessels of the single hull design in our fleet, which are making very lucrative charters as we speak, but it remains our intention to divert these vessels in the near future. The continued strong charter market, and the excellent timing of our expansion combined, are reducing another quarter of strong profit.

With these results we are feeling our ability to produce solid earning results, and profits in volatile capital market as well as to enjoy major benefits in significantly strong periods such as the one we are operating now. We maintain a balance employment profile in the effort to achieve strong operating results, but also to moderate the risk for the company and the shareholders.

And we will continue an balanced employment mix, seeking to fix selected victims on the medium to long term charters, this strategy has paid continuously dividends to us and to the shareholders, and then because of the strategy, it remains one of the very few shipping companies worldwide to be profitable since the inception more than 11 years ago. However, despite the record high oil prices arising from supply limitations, we are continuing to see strong demand for our business. As we predicted, the US and other nations continue to build the results for the winter shipping season, and healthy third quarter profits were the results of this.

We expect that the fourth quarter will be even stronger, as worldwide demand continues to increase. Our arrangements with Tsakos Shipping and Trading, our technical managers, allow us to keep low costs and remain competitive. Our cost structure is one of the most competitive in the industry. While we are not immune to rising costs of fuel, insurance and other considerations we have managed to keep operating expenses as low as possible. While we experience a slighter rise in operating expenses this quarter, we believe that our course is extremely competitive compared to our peers.

As always, we look internally to control expenses, both operationally and from a GNA perspective, in order to guide more revenue to the bottom line. In this way, we continued to optimize and enhance our strategy to prove our operating results and strategic opportunities for TEN to grow during the balance of '04 and beyond.

We believe that the market continues to judge that our fleet, and operating strategy represents a surely long-term investment, and I would like to thank our shareholders for this support, and wish to assure each of you that we will continue to work and grow our fleet, and provide financial results that support even higher evaluation.

We are scheduling quarterly visits to the US and Europe, in order to educate the market about shipping, and about our company specifically. We are looking forward to see many of you in the States, after I think the Thanksgiving holidays when our team will be in that part of the world. As a confirmation of the board's confidence in the future of TEN, and its strong financial position, we announced our latest dividend of $0.70 that has been already paid on October 26.

In the meantime, we are looking forward to take delivery of 14 new vessels, all of them ordered before this time the hype of the market today, at values that in many cases are reaching -- already close in doubling from where we order our ships in 2002 and 2003. So our 14 vessels are going to be delivered between '05, '06 and '07, and they consist of six Suezmax vessels, six handy size vessels, one LNG, and Aframax, and the total capacity of the additional tonnage is $1.4 million.

We will look to expand the reach of our modern fleet by adding the new vessels when the time is right, and reap the benefits of a strong market while balancing our charter for the follow with long term employment. We are confident that the company is positioned to generate revenues necessarily to expand over the years.

As always we greatly appreciate the effort our shareholders who have been with us for quite some time, and hopefully as the Chairman said we have not disappointed with our results, and I would like now to ask Paul Durham our Finance Director to give us a little bit more details about how we achieved this figures, and then we will be back available to answer any of your questions. Thank you very much. Paul?

Thank you Nikolas, and thank you all for joining us today. Before I begin, please note that a summary of selected financial data is included in the press release for your reference. And I would like now to present more significant items. Again the quarter's results, overtook out earlier forecast, as rates increased dramatically in several sectors, driving total net revenue for the quarter to $71.8 million compared to $52.5 million in Q3 last year.

The total net income for the quarter was $25.5 million, resulting in earnings per share of $1.26, triple the net income of $8 million earned in Q3 2003. For the nine months period, net income was $89 million, double that of last year. Overall days available for trading were almost exactly the same as last years quarter. However, this quarter had nearly 98% productivity compared to 90% last year. Due to four dry-docking in the last year's quarter versus none this third quarter.

We had 430 more days tied to period employment this quarter over Q3 2003. But many of those days we were still subject to variable risks in accordance with our balanced chartered strategy. In fact, 77% of our operating days where under period employment in Q3 compared to 65% in last year's Q3. However, the percentage of operating days subject, in one way or another to variable rates, remained the same at 60%. In other words, we have considerably increased secured employment, but insured that our ability to take advantage of the current buoyant market has not diminished.

Overall daily TCE per vessel, time charter per vessel for the quarter was nearly $26,100, and for the nine months $26,500. All tanker categories achieved good rates in the quarter as follows. VLCCs earned an average of $55,100 against $35,500 last year, Suezmax is $26, 200 against $20,000 last year, Aframax is $27,300 against $16,600, Panamax is $22,800 against $19,300 last year, and Product Carrier $14,000 against $11,600 last year.

Vessel operating expenses amounted to $12.9 million in total in quarter, compared to $12.7 million during Q3 2003, and increase of 1.5%. However, for those vessels, which their operating expenses overall daily operating costs increased by 5% to $6,090 in comparison to prior year Q3. The strengthening of the dollar witnessed in Q2 was shortlist. On the year-to-year basis the impact of the weakening dollar mostly on crew costs has resulted in a 2.5% increase in overall costs. That is, it accounts for half the overall increase.

Insurance cost increases account for another 2% of the overall cost increases and lubricants especially recently has impacted overall costs by 0.5%. We should note that the addition of the VLCC La Madrina has also impacted overall average costs by further 1% increase, but that vessel has also contributed a 15% increase in net revenue, so we can't complain. In those areas where we can move directly control costs on spares, tools, retailing, repairs and maintenance we have achieved success in the holding costs as we mentioned the last quarter. We were however obliged in recent months to form extra work on the Panamax Victory fleet and over Handymax's Toula, and Lieber which has the adversely skewed daily overhead costs within their category.

Both management fees and general administration costs, the constituent parts of our overhead costs rose on a quarterly basis and nine month basis over last year. Management fees increased after an agreed adjustment of the fees as from the beginning of the Q3. And GNA expenses has moved higher due to continued efforts to improve investor relations by more frequent visits to the USA, and because of the additional professional fees relating to SEC, Stock Exchange and other corporate governance requirements. As a consequence our daily overhead cost for vessel increased from an average of $796 for the first nine months of 2003 to $887 for the nine months of 2004. We still feel that this is a very competitive all-in rate for managing our vessels and office.

So the finance costs for this year and last years Q3 were approximately the same at $2.5 million even though average loans for the quarter decreased from $500 million in 2003 to $400 million this year, and average interest rates were the same as in Q3 last years that is 2.5% for loan interest, and 3.3% for all-in finance costs. In fact last year's quarter incurred a $ 0.5 million higher interest charges but this is almost certainly upset last year by higher positive valuations on the non-hedging slots. Those particular interest slots that did not meet edging criteria finally expired during Q3. So our income statement will not again be affected by the master market fluctuations.

Actual interest payable or receivable on the new hedging slots will of course affect the income statement depending on the interest rate movements. These slots now provide interest rate protection for 75% of our outstanding loans. There were no new dry-dockings in the quarter and in deed there are no definite price docking span for the remainder of the year. Although there remains a possibility that the dry-docking of the Bregen or Victory Tree or both might be brought forward in 2005 to the final weeks of 2004.

Total loans decreased in the quarter from $408 million to $397 million. There were no new loans during the quarter. Our debt-to-capital ratio fell to 46% while our leverage ratio as defined by our bank governance is 33% under half the maximum permissible. We ordered a new Aframax for $47 million that saved an initial 10% deposit. We also requested an upgrade of two Suezmax's under construction from ice-class IC to IA at an extra cost of $4 million each to be paid at a later date.

We now have 14 vessels under construction at a total contract price of $708 million of which $103 million has been paid by the end of Q3, $25 million of that within Q3. In Q4 we expect to pay only a further $ 3 million, in Q4 we have now paid a dividend of $0.70, which was declared in Q3. The total amount paid was $14.1 million. Also in Q4 we shall conclude the sale of the Toula Z on December 15. The sale will result in an expected $12 million capital gain, and after repayment of approximately $20 million debt will be leave us with $23 million free cash. And this concludes my comments now, and I call back to Nikolas.

Thank you Paul.

Thank you very much.

We would like to answer any questions or any ideas from anyone on the line. So, thank you very much -- this is the end of our presentation.

[OPERATOR INSTRUCTIONS].

The first question comes from Johnathan Chappell of JP Morgan.

Thank you, good afternoon guys. I have a question for George actually on the operations and specifically any route switching you have seen whether it would be West Africa to China, North Sea to China maybe the Caribbean in to the far East as well, what kind of impact is route switching having on the time amount in the industry and the tightness of the capacity of the fleet?

You can see the, you know demand for fleets that have lower in full force in Greece lately and therefore we have you know we see the increase in demand from West Africa, for the east coast of the United States. We also see that, tin oil demand in Asia continues to be strong, which also calls for the stronger rate environment that we have seen from 80s to today.

And then also in our neighborhood, I mean with Russia being one of the biggest exporters of crude with Saudi Arabia, they have two main let's say, export routes, and we see Russia exporting from both routes to, you know the US and other importing locations in the world, so we see a balanced, let's say increase all over you know, the various locations, export locations and imports of the world.

Are the increased Russian exports adding to the delays in the phosphorous, I think Nick there are out 13 days..?

Certainly, you know for those that are coming out of (inaudible) you know, these you know they add good significantly to the delays what we have see in (inaudible) there, and of course that has an impact on the market and in to the increasing rates.

So the delays today November 5, 2004 worse than they were November 5, 2003 in Turkish rates or is it about the same?

It is a little difficult, it is currently we are talking about 15 days, you know this started a little bit earlier than last year.

OK

So, you know the market today is better than what we have had a year ago.

I have a question for John now, I mean some of the broken record to that it's last time but as we keep rising our estimates we have to keep asking the questions. The dividend policy 25% to 50% of earnings based on my new estimates and an annualized dividend of $1.40, would only followed up 20%? So in your next board meeting do you look at the past 12 months or you are going to look at the 2004 estimates so you are looking at 2005, what do you looking at when you make the board decision and what the next dividend will be?

Looking at the great number of factors, but as far as the pay-out ratio is concerned we look at the all the fiscal years results. So we would be talking about fiscal 2004 would be the key determinant of what kind of dividend we will be declaring for payment in April.

OK.

You have the $0.70 in hand and you know we will determine what second semi-annual dividend would be. But please don't forget that our board has to look the things beyond our earnings so that's the basic guidance we have to look at the liquidity, we have to look at our capital commitments, there are many factors that could influence the dividend session.

All right, thanks John, thanks George.

Next question comes from Magnus Fyhr of Jeffries & Co.

Thank you, congratulations to a great quarter. I had two questions regarding to the time-charter strategy and also on the new build program. Starting on the time-charter strategy, if you can maybe give us some comparisons on the market today versus you know six or three months ago, if your clients are more keen on locking in time-charters now also maybe talking about the development as far as increases in charter rates?

Yes thank you Magnus, hi. Well, right now I have to say we are seeing a much more, much bigger desire (inaudible) our chartering people on a daily basis, and we have offers on every single of our ships, I mean we even get offers in some of our you know older ships, you know times we have, ships that have not even been built, some of our ships that are going to be delivered in six months from now we have people that are offering a five and seven year contracts on those ships that unbelievably calculates, -- the rates that actually amortize before the asset within the five years period.

And which is I think, unprecedented in the history, of course this happens, because we are perhaps one of the few companies that has a new building program that goes on based on our deliveries and practice that we order ships back in '02 and '03, so just to put you summary of examples, we ordered our Suezmax somewhere in the mid to upper 40s, whereas those ships today are closer to $80 million. So that's why, as I have said some of the sectors of the business have almost doubled. So if were then to sell our $700 million new building program that we still have not delivered, in many of the ships we will have, we have taken but double of our investment, but that's why the figures we are seeing out there for a long period of time make lot of sense.

However we are not - we're having discussions, we've made to end users our ice-class ships are very, very popular, people are expecting, major end users are expecting ice-class vessels to get their significant premiums, and that's why they have very eager to cover themselves with ice-class ships for 5 to 7 years.

So, we will be looking to secure some of this business earlier next year, but there is much more appetite than I can remember for major oil companies looking to secure, to secure (inaudible). It was always the complain of ourselves, and all our colleagues in the tanker business, that up to about three years ago, you know there was what -- we have to order our ships and speculations and hopefully, you know someone who will get an interest on that. Today it's exactly the opposite, we are very similar to what the container market has always been or has always business for the ships before delivery and being delivered.

Correct me if I am wrong, but I think the most recent time-charter that you did was around $23,000 for a three year Aframax charter, what would that you know fetch today if you want to look for a three year Aframax charter?

We had the charter at mid proper 20's. So there is an increase that will fix up the vessel back up in March, so there's quite sometime and then we fix one of our Suezmax for $30,000 late in the summer. So I will say a three year Aframax depending on the trade simple not an ice-class ship of course will be anywhere between $25,000 and $28,000 I would say.

OK and the same compared with what the Suezmax charter you did at $30,000 over that ....?

I have not seen anything else other then as we had the last vessel business that I know.

OK and just on your I guess strategy going forward you have a very big new build program to take delivery of over the next couple of years, you have in the past taking advantage of strong asset prices by doing some sale lease backs, may be you can walk us through a little bit on what you think about these asset prices now on ordering vessels today for 2007-2008 delivery, you know without contract versus locking them in on contracts if you can?

I said that we have been quite lucky, you know, luck is what we need more in shipping like in any other business to have all the ships that we have ordered you know back before the market area is strengthened, so we have the capital gains, we have been in this business as a company, I guess, as a family for many years and we know the capital gains are very important for shipping many times and that's why we were not sized to take within this year a couple of capital gains I mean, our first $37,000 we took a capital gain back in June.

And of course, as I said before our initial new business of Toula Z after we operated it for seven years very profitably we decided to take a significant capital gain. Actually it's one obvious case because we have shown the world about the new business price in '07 and C seven years old and C had made a significant contribution to our bottom line for almost seven years. So I think this is the situations where you do not find yourself very often in shipping. Now we have a large fleet so we can take advantage of this opportunities and we will not decide, however, right now I think, the appetite of our charter is so large, but there will be, we must probably, we will not make any more capital gain in the near future.

All right.

Unless of course we are very, very you know, unless people really want to pay a lot of money for our ships.

OK, so would you restrain yourself from ordering vessels with 2008 delivery unless you have a contract or you know what you stand there?

Well, as again back in August, we have ordered at 7 delivery, and I think this is the ship and that we are helping in the design, it's an obvious design, it's an Aframax that has the length over Panamax, so she's very popular to comment. So all the Caribbean ports and the Gulf ports by instead of carrying something like 60,000 tons she can carry up to 85,000 or 90,000 tons.

So depending on the different ports and we went ahead and we ordered that ship in Japan for delivery in the middle of 2007 and I believe you know we are able to because of our contribution to have a good price on that ship we ordered at amount of $47,000 million which is the same price as we have shown 7 year old ship a similar price to what we sold the seven itself. Yes, we will be looking again at the opportunities at the yard with which we have been working for a long time. But of course we are looking toward something for down the road down to 2008, without any employment might not be our first priority right now, I am sure your are correct on that.

All right, OK thank you.

Thank you very much.

Your next question comes from Ann Kohler of IRG Research.

Good afternoon, very good quarter gentlemen. I have a question for either John or Nick. In addition to covering the tanker industry, I cover the independent refining sector, and over the last 10, 15 years there has been a real shift in the sector, from the bulk of the capacity being owned by the immigrated oil companies, to the real life of the independent refiners that now control, you know more than 50% of capacity, that's really helped the industry dramatically in terms of being able to respond quickly to down turns in the industry to keep inventory levels in line and margins high.

Given that you know, more than 80% of the global tanker fleet is held in the hands of privately held companies, wouldn't something like entering into joint ventures, is that something that would be an option that you might consider particularly given you know that currently the going in to new builders is probably given the price of those is relatively unattractive?

Kohler hi this is Nick. I think you are very correct in what you said and this is something good, and we have been doing it from actually the very initial stages of our group starting even before the TEN's base is to be very close to the end user, it is very important for us to do the contracts we thrive to secure for our business are many times market related, so we are actually putting more importance to being closer to the end user for a long period of time rather then the actual rate that we are going to achieve.

We believe that, we believe in our market long term prospects, so we would rather have a long term contracts with the minimum rate and then a profit share with some how, with the refinery, I mean we did like this about a year ago with a very large and growing independent refinery in the east coast, Sunoco Sun Oil and we have been doing this with other parties, so yes, we are looking more and more to do this type of business. And Chairman if you would like to add something on that.

The only thing I would add is, if your question is still directed to our having a physical participation in the profitability of the refineries, it's not something that at the moment we would consider undertaking.

Right, now my question was more you know, given that so much of the global tanker fleet is held by privately held companies, not publicly traded companies, such as your self. Would it, is it something that would make sense for a publicly traded company, such as yourself, to enter into joint ventures with some of these other privately held tanker fleets, that would give you the opportunity to have more of the fleet controlled to a certain extend by you.

And therefore, you know the more I just gave the example of the refining industry, because as more and more the capacity went into the hands of a publicly traded company whose you know bottom line was so dependent upon margins you know they were much more responsible in their outlooks towards the industry, so my question was really geared towards if not the refining side but more towards looking at the rest of the fleet beyond that which is held by the publicly held companies.

Ann you are driving to the question of industry consolidation.

Yes that is correct.

Pointing out that it's a highly fragmented industry. We think that there is little question over the next decade, we will see very significant consolidation, I think it will likely gravitate towards the control by the public companies, because the public companies will have a better access to the capital of markets and therefore have the ability to absorb the private companies. We intend to be an active participant in the consolidation process. We will try to be very disciplined and to do them on their accretive and benefit our shareholders, we won't be doing it just for the sake of getting bigger, we will do it because we get better.

Well, my next question I agree with that, but will it be in terms of an outright sale would joint venturing be another option that you might pursue in that consolidation.

The specific structure is that I won't be the driver if it makes economic sense that a joint venture is the better way to structure absolutely we would be open to that. And as you perhaps know we are participating in imports. I think that's the way I mean this is a good way of achieving market consolidation without having to lose anything within the operational consolidation which means that the you are placing your ships under the chartering control of one party, and this way you achieve a much better strategic moves of the ships and that this is something who were very open and it's one of things we are already doing, but we are always in discussion because we believe that our industry needs, it's very fragmented as the German side.

OK, thank you very much.

Thank you.

Our next question comes from Mike Simon of (inaudible) Capital

Good morning guys, I think most of the good questions have already been taken, let me try to throw in a little mechanics here. Paul your over head burn did increase this quarter, do you think what you had now is the good run rate going forward?

Yes but even (inaudible) it's kind of elements that impacted where we don't have any direct control and obviously we can take counter measures against those things like, the movements in the Euro and insurance costs. Yes, but we do expect those costs in those areas to increase. The dollar and unfortunately now seems to be on an almost intractable course south vis a vi the Euro, so we do expect those costs, which are in Euro, to keep increasing.

And as we have said, we are seeing we have had a 10% increase in the Euro against the dollar in the past year. We have about 25% of our costs are in Euro hence the 2.5% I was talking about. That looks a possibility. Having said that, whereas in another areas counter measures can be potentially risky, and we don't want to change our crew complement for instance, to non-Greek officers.

We believe Greek officers are the finest officers in the world, and we don't want non-Greek officers in all our vessels, but as far as the Euro itself is concerned, yes we are looking at counter measures in that respect hedging. So, hopefully we can keep those costs that we can directly control in hand, where we can't directly control as the Chairman has pointed out in the press release, where we are subject to some danger. Not great we are not going to see vast increases, but we will see this creeping escalation.

And do you believe that most of you costs are within the control or how much do you think is beyond your control?

Well again here the Euro cost accounts for about 25% of our total costs, beyond our control and when I say beyond our control they are controlled if we take the appropriate counter measures I said, we were looking at about 30% to 40%.

OK great, thanks a lot.

As I mentioned in my piece of the presentation this areas are crew cost for the Euro, the lubricants of course because of the rising oil prices so that's where we have seen the half percent increase in total costs, because of the lubricants and yes again insurance and of course there is always a better inflation working around.

Great thanks Paul, Nick I am trying to get your bottom of second market here but we will try and get it at the different way, you know in your press release you comment that you will you be look and sell your single hull when conditions warrant, you know we have seen a significant increase in ship value here, what more conditions are you looking for to sell the single hulls.

Whether we are not -- I mean I think this is a good time, as you know the older ships are now being supported by very strong scrap market not one, and we have a lot of interest strangely on this, very good quality ships are being single, three of our ships are left in that category.

So, I think you are right we are very close, it makes it, you know when you can you can make $50,000 a day for a 20 day volume sometimes it makes, our chartering if people look at me very strangely when I talk to the buyers for those ships but you know I am trying to put compensate the mean guys that what have sell the older ships but you know I think we are closed in selling those ships in the next quarter, I would say.

Right, thanks for that.

Thank you.

[OPERATOR INSTRUCTIONS].

your next question comes from (inaudible) of French Schweppes Willow.

Hi guys, the question is that the first one is for Paul can you go through the capital commitments for the new building program, and then what financing has been arranged for that so far?

All right, as I mentioned that the total program now is $708 million of which we have paid $103 million, with another $3 million to the paid this year. Next year will have payments amount to $173 million, in 2006 almost exactly the same number $173 million, and then in 2007 $266 million, and to date we have arranged financing for 12 of the 14 vessels. The only vessels that we haven't arranged financing for -- agreed a final terms on -- relates to the LNG, and the new Aframax.

OK, what about can you go through the timing of deliveries in '05?

Well in '05 we have the first handy-size vessel the (inaudible) is on the 12th of January, the first Suezmax 1C Euro Champion 2004, is the lovely name of that vessel will be delivered on the 19th April. The second handy-size vessel the (inaudible) will be delivered on the 27th of June, and the second Suezmax 1C class the Euro Nicky will be delivered on the 23rd of September.

OK great, and then maybe either Nick or George, if you could comment on by vessel types what our current spot rates are?

Depending on the proximity where ships are, I think the VLCCs are ranging right now we are talking about in the last month, the ranging depending under O and their design is old so anyway it were around a $150,000 a day. Then you have the Suezmax's because of their delays as we spoke in the Black Sea that's where they are making most of their money that believe they are not close to $200,000 a day and in West Africa around $100,000 a day and of course the effect of the delay is really doubled there in all those ships. The Aframax's are in close to $100,000 a day but they average between all of the threes. The Panamax's is around $50,000 a day and the stock market for those modern ships are in the mid 20s, so it I would say its quite a hefty market.

Great, and then I guess the last question is related to the dividends, I know John you spoke it briefly, has there been any further contemplation of being quarterly dividend as opposed to a semi annual dividend and in addition to that consideration providing more specific guidance or stability in the amount of the dividend perhaps with the, you know a semi-annual special or an annual special such that there is not the huge range of possible dividend payment from one half to the next?

I think on the quarterly dividend we are not planning to implement a quarterly dividend because I think it makes a more sense logistically now that we are likely to have an excess of 7000 share holders around the world to have a semi-annual dividend, so that I think that's the one base and other as a Chairman, as think as I said before our initial strategy of 25% to 50% still stands.

However, we are going every time the board looks at the opportunities that lie ahead and the expectations we have on the market. And I think at this date we are sticking to the 25% to 50% but as I said that we, when we started the company about, you know 3 or 4 years ago when we implemented this dividend we didn't expect this market to be this way. So we had to adjust and then is something about the board, and the chairman who will take onboard, John if you want to say anything on that.

The only thing I would add to that is let's keep in mind that we are operating in a cyclical industry earnings are not going to be straight lined up or, we think on the secular basis we have a strong growth model and that indeed that will be realized. But around that secular trend you will have some degree of volatility, and we want to have the room to be able to hopefully have a sustainable and growing dividend.

Fair enough, thanks.

There are no further questions, are there any closing remarks?

As there are no further questions we would like, to again thank everyone for your attention. We would like to thank especially the people who paid so much attention to our company, by analyzing it, and we are here to assist you. We would really enjoy having more and more people understand the shipping arena, and if there is anything more we can do to make it easier for you to understand, we are always here to do.

And again once more to congratulate all our colleagues in the public and private sectors for having so good results, and hopefully within one quarter's time we can again have a (inaudible) and profitable call, and as I said we will be starting two week road show based on the Goldman Sacks Shipping Seminar on the 29th of November. So we would try and see as many of you, if you are not sick of seeing us already, we will see you again. So, thank you very much for your time, and all the best.