Tsakos Energy Navigation Ltd (TEN) 2005 Q1 法說會逐字稿

Good morning and thank you for joining us today for Tsakos Energy Navigation First Quarter 2005 Earnings Conference Call. By now you should have received a copy of the earnings press release. If you have not please contact Parag Dave at GCI Group at 212-537-8026 and he will fax or email a copy of the release to you. As a reminder this conference call is also been webcast. To access the webcast please refer to the press release or the web address which would 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 operations. Such risks are more fully discussed in TEN’s filings with the Securities and Exchange Commission. Thank you.

Now, I would like to turn the call over to Mr. Nikolas Tsakos, President and CEO of Tsakos Energy Navigation.

Thank you and good morning. Thank you for taking the time to participate in our call today which is our first quarter results and we have here with us today our Chairman, John Stavropoulos; our Deputy Chairman, Mr. Michael Jolliffe; Paul Durham, our Finance Director; George Saroglou, our COO; and Dr. Paul Labrinakos, our Chief Marine Officer. So we are here to answer any questions and go ahead with our presentations. In the mean time I would like our Chairman to give us his initial follow-ups on the first quarter and the market themes and then I will comment on how the operations are doing, Paul Durham will be talking us on the nitty gritty of the finance, and we will open the floor to answer any questions, Mr. Chairman.

Thank you, Nikolas. Good morning ladies and gentlemen, shareholders, analysts, and friends. As always it’s a pleasure to visit with you and particularly in prosperous times. I want to congratulate management for capitalizing on the opportunities that have been available in today's market. TEN's first quarter profits were not only a record, but also reflected progress towards the objective of the double-hull fleet. Further progress towards this goal was made in April, which was quite refreshing. Later this month, we are holding our annual general meeting. One resolution proposed for shareholder approval is the increase in authorized capital shares. This proposal is important because it will provide the capacity, the stock split, and/or acquisition. Over the years, we have stressed the importance of sound corporate governance. Long before Sarbanes-Oxley we urged investors to participate in the process. Once again we hope that we will have high attendance at the AGM. Those of you not attending are strongly encouraged to express your wishes through the proxy process.

Nikolas, again I want to congratulate you and your team for an excellent quarter. As on a side, you know, I am a captive of statistics, I would like to tell you how I keep score. The total return for shareholders for the 12 months ended March 31, 2005 was 49.8%, should have been 50 Nikolas. Thank you Nikolas, keep up the good work. We hope you really could double that at some space.

Well, thank you again ladies and gentlemen good day, to those of you on the other side of the Atlantic, good afternoon to us on the European side.

It's with great pleasure that I have opportunity to speak again to you on matters of inside and recent developments of our operations. I believe that it goes without saying that the first quarter '05, was a very productive period for the growth of our company and the investor in general. The rates continued to be robust among many different investor classes, and the benefits of the strong markets are reflected in our first quarter results. Our net profits increased by 19.3%, from last year to almost 40 million even though we operated vessel less, I mean, we operated 27 vessels this last quarter rather than 28 a year ago adding earnings per share to $1.98 from $1.94.

Last quarter we stated that the growth we have experienced in '04, would continue to the first quarter and beyond based upon our belief that the demand side integration will remain strong, most likely till [2008]. As we continue to enjoy this period in the cycle we are also keeping a watchful eye on the factors that could effect future growth such as new regulations, demand from China, India, and the Pacific RIM in general, inflationary pressures, and the availability in the price of oil. With the new IMO regulations of April is having success, there is one position to continue earning premium rates for our young fleet as well as the allies in custom gains on the sale of our older ships that served us very well for many years. The vast majority of our fleet now is well over 95%, is of the double-hull design. And with an effort to even add more diversity and rate premiums potential to our fleet, 10 of our scheduled new buildings will be Ice Class from the decrease in mix of that were expected in Ice blocked ports in Russia, Canada, and Alaska.

I have just returned from Korea and China having taken delivery of our newest Ice Class vessel 'Eurochampion 2004' which is sailing now on her maiden voyage from the Persian Gulf to Portugal in order to position herself for the summer Atlantic trade. The continued strong charter market and the excellent timing of the expansion of our new building program has produced another quarter of strong profits. To brief the results, we affirm our ability to produce solid operating results and profits in volatile charter market as well as to enjoy major benefits in secretly strong periods such as the one we are operating now. We continue to balance the composition of the fleet and our employment profile in an effort to recognize strong operating results but also to minimize risk for the company and the shareholders. TEN is one of the very few shipping companies if there are any others which has been profitable since it s inception 25 years ago.

In the marketplace we see major importers like China, India, Korea, and the U.S. to continue to use more and more oil. This offset some slow growth in Japan and the Euro Zone. On the supply side, we expect more scrapping to take place after owners absorbed the effects of April '05. The scrapping will balance somewhat the new buildings attempted at the market this year. Last year the supply demand balance was very bright. This year was strong for the strong charter market as well. We believe that we have taken the necessary steps to continue to grow our enterprise in this market environment and take advantage of the strong demand for our new building strategy to provide clients with a diversified model fleet to meet their various needs. Our fleet management strategy and our arrangements with Tsakos Shipping and Trading allow us to keep enhanced management and low cost operations and remain continuously competitive. The relationship is coupled with our employment profile and has allowed TEN to be well positioned to mange the changes in market dynamics over the last several quarters.

We continue also to look internally to control expenses both operationally and from the G&A respective in order to drive more revenue in the bottom-line. This is the reason that we chose to delist from the Oslo Stock Exchange in this closing quarter number 1 and this would reduce significantly SG&A costs.

Turning to our operations during the fourth quarter we made several moves to further establish as a one of the premier operators in the world. In January we took delivery of the product Didimon accompanied with immediate charter to a major oil contract straight from the shipyard. On April 18th we took the delivery of our Ice Class Suezmax Eurochampion signifying our initiative to establish a strong presence in this trade route. The vessel is now performing a major new voyage from the Persian Gulf to Portugal. Apparently 21 out of our 27 vessels are on term employment in joint full utilization through either profit selling arrangements, contract of [freightments], or traditional signs contracts.

Looking to the balance of the year we are consciously optimistic that our momentum will be maintained based on the additional 2 more ships later this year. The tanker of Dionisos in June and the Ice Class Suezmax Euroniki in September. The employment policy which has 75% of our employment base for the last 3 quarters this will be maintained. In February and April respectively we announced the sale of three of our regional single-hull vessels, the Aframax Panos G, the Handymax vessels Pella and Dion. In line with our strategy to further modernize our fleet, we took the sharp decision to part with all ships that formed the backbone of our very small company at the time back in 1993 MIF. With two Handymax ships will be delivered to the new owners at the end of this month after completing the current profitable with this and will realize an 8 million profit for the second quarter. The Aframax Panos was delivered in the first quarter and we had to realize about 5 million, 5 and a bit million to our bottom line for the first quarter.

Last month also we announced the sale of a contract that we bought back in November for our [Yerotsakos] Aframax which has resulted to a profit of close to $11 million in less than six months. As soon as this transaction was completed, we got the authorities come aboard and see alternative signs in new buildings, Aframax to replace the [Yerotsakos] ship with a Aframax sistership to the one we ordered back on, in August for a delivery in 2007. This profit is approximately 3 -- 2.5-3 years of what we estimated for the earnings of those ships. These transactions are liquidated to our balance sheet and put us in an advantageous position to look and make vessel acquisitions and exploit our new building program.

Then considers the S&P market as an integral part of our strategy. Traditionally shipping companies for centuries have made much of their work from lucrative S&P transactions as well as solid operations. Since the beginning of 2004, TEN has disposed off 7 vessels, totaling 485 million dead-weight tons, thousand dead-weight tons and we have contributed 45 million in capital gains to [inaudible]. In the same time, we have taken delivery of three new ships and placed 10 new buildings orders increasing our dead-weight to 1.4 million dead-weight capacity. Those 10 orders were placed over another 5 orders that were placed in 2003. So the company continues to grow while taking advantage of the S&P market and modernizing our fleet. Other new building program continues in '05, we will of course endeavor to fix, start it all over new buildings to delivery and we have already entered in discussion with major oil concerns to secure employment for several of our future deliveries.

Financing for the remaining vessels in our new building program is well advanced and at very competitive rates and we have worked diligently to position the company to a strong financial position. In April '05, we paid 95 cents as a semi annual dividend and that brings the total for the year '04 to a $1.65. We believe that our strong financial position and our fleet strategy have only partially been reflected in the price of 10 cents. Nevertheless we remain confident that our policies and our efforts will be recognized and reward all our shareholders who supported with high volume. And at this time I would like to ask Paul Durham to a talk a little bit on the financials. Thank you very much.

Thank you very much. Thank you Nikolas and thank you for joining us today. Before I begin please note that a summary of the selected financial data is included in the press release we have referenced and I would like now to talk about more significant items occurring during the quarter from a financial point of view. As you have just heard the company achieved net income of 59.9 million in quarter one 2005 compared to 33 million -- 33.4 million in quarter one 2004. But even excluding the capital gain of 5.2 million on the sale of the Panos G we still achieved 4% increase in net income from 33.4 million to 34.6 million. Despite it's likely smaller fleet of 27 vessels compared to 28 vessels in the previous years quarter.

Total revenue after voyage expenses was nearly $70 million compared to $72 million in quarter one 2004 and with one less vessel, almost the same utilization of approximately 96% of available data the average PCE for a vessel remained approximately same as [$30,000] daily. We maintained a balance charging strategy, with what we believe is a sensible mix of chartered type, depending on market prospects and timing of new deliveries and franchisor expiries. In recognition therefore that the market remains strong, with rate somewhat down from quarter one 2004 our stock exposure fell to 15% of total operating days during the period, compared to 27% in quarter one 2004. On the other hand the number of days under time charter with a variable rate, that is either with the profit share or market rate with a fixed floor, they increased from 10% to 19% of total operating days. These type of variable rate franchise is increasingly important for us. The latest addition to this group is the newly delivered product carrier Didimon which was a minimum of $18,500 a day actually earned $32,300 per day in the quarter. At which rounded rate achieved per category were the VLCC earned an average of approximately $50,000 -- $53,000 each in each quarter. Suezmax $39,000 compared to $27,000 last year, Aframax's which suffered from lower Caribbean rates was $28,500 in Q1 compared to $34,000 last year. Panamax's $35,500 compared to $29,500 last year, and product carriers listed by the Didimon $19,800 compared to $15,000 last year.

Total operating costs were up exactly the same as last year at $13.7 million. But, on a daily average cost of rental basis we go down from the quarter four average increased by 6% since last year's quarter one from $6,263 to $6,653 in 2005. Again a major part of this increase is due to the impact of the weaker dollar, which especially affected our quarter costs. But, there was also a significant repair and replacement work performed on the La Madrina, the Tamyra, the Pella, and the Dion. With regards to certain of the older vessels, such work was in preparation of a potential sale. Given the April dead line effectively prohibiting the carrying of products by elderly vessels and the fact that operating costs of these vessels were becoming burdensome, but despite Nikolas's sadness in the this respect, we are at least I am, pleased to bid farewell to the Panos G and soon to the Pella and Dion.

Daily G&A expenses fell 12% from quarter one 2004, despite lower active routes or activity this quarter one, and one up costs associated with delisting from the Oslo Stock Exchange. Part of the reason for this fall is due to the reduced expenses for professional services now that initial implementation of new corporate governance requirements has been completed. Management fees were approximately 12% higher due to daily rate adjustments agreed as from July 1, 2004. Basing together with our G&A expenses our total overhead costs, per day amounts to $786 in quarter one, compared to $720 per day in quarter one, 2004. The quarter one average daily G&A per vessel per day for those tanker companies in our peer group that have announced results so far, is about $2300 by our calculations. That’s a significant difference.

Total finance costs for the quarter amounts to $1.6 million a 60% decrease from quarter one 2004. Although average loans fell from $475 million to $385 million between the two quarters this was offset to an extent by increased interest rates. Most significantly however interest payable and interest rates swaps fell by nearly $1.8 million as hedging instrument began to take effect given the continued increases in interest rates. Capitalized interest also contributed an extra credit of $700,000. During the quarter the Panamax Bregen completed a special survey of the final cost of $2.7 million and losing 31 days and at least the Panamax Victory III started it's special survey losing 35 days in the quarter.

During quarter one, one new loan was received on delivery of the Didimon announced at $26.3 million. Total loan repayments in quarter one amounted to $8.5 million and there was a prepayment of $4 million on the sale of the Panos G bringing the total loans outstanding at the end of the quarter to [$379 million]. This brought our debt-to-capital ratio to 41% at the end of the quarter compared to 59% at the end of quarter one 2004. We continue to believe that our share price is at a considerable discount to NAV per share especially given the increase in the value of the contracts for vessels under construction, an evidence of this is the $10 million gain just achieved on the sale of one of those contracts of uncompleted Aframax. That’s more than the net income we expected to receive from the vessel over the 240 years until we received delivery of the replacement Aframax we have just ordered.

Following the delivery of the Eurochampion 2004 in April with the final delivery installment of $34 million we still have about 13 million vessels under construction at a total contract price of $693 million of which approximately $590 million still remains to be paid. 110 million between now and the year end, 180 million in 2006, and 300 million in 2007. The most finance -- with most new financing arrangements agreed I am giving our existing cash resources of approximately $160 million with another $60 million in unused facilities, we foresee no problem in meeting our commitments on the basis of current operating forecast. And this concludes my comments. Now I will hand the call back to Nikolas

Well, thank you much very much. We would like to open the floor to any questions. Thank you very much.

At this time I would like to remind everyone in order to ask a question please "*" then the number "1" on your telephone key pad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Magnus Fyhr of Jefferies and Company.

Thank you. Actually it's Doug Mavrinac for Magnus. First congratulations on a great quarter.

Thank you.

I've just got a couple of questions, starting with what you guys are seeing in terms of the time for the market. They have been reports of increasing interest on the part of charters -- standard time charters, are you guys seeing any evidence of this and how do you see them pointing options as far as time charter versus thought for your Ice Class vessels coming to the fleet?

Well, thank you very much. It is true that there is a lot more interest -- we've been saying this for the last year and we see it happening more and more. As you will see more owners now being attracted finally by May-June, companies offering employment, new companies like Exxon are out in the market for 3-7 years on almost any type of ship that is looking at that are out for Aframax also and still even big names are not getting a lot of interest because I presume many of the owners are drilling up like bullets. There was a big, a very significant major oil companies came out for a long time -- Aframax's and they only go to 5, you know 5,6 to bid for that business. So that is about a couple of years ago, we had 26 bidding for a business like this. So there's a bolus approach from the owners, so there's a wait and see attitude from there and the major oil companies are seeing the typical lull of the -- second quarter you see we have a traditional softening of the market as we see now. You know, perhaps the market is down 10-15%, but always -- if you started with -- you know, you have the heaping period going away and we're doing heaping period and [driving] period now so, that’s why the market is a bit softer although it is again picking up. But I think what, what we're expecting is more and more time charter inquiries, we have our chartering department too full right now. Our strategy on the Ice Class ships, we're planning to use the Eurochampion, I mean, the ship has been -- we have very good offers for that ship for 5-7 years employment. We believe that the head timing in business, in April we would like to use share in the spot market until the winter months which is November and take advantage of a strong Mediterranean market right now and so this is a difficult Black Sea market and also the Atlantic market and of course then we will be looking in for some bigger coverage.

That’s great. Thank you. And then finally on the, on your LNG new building, can you give us a status update on that particular vessel?

Well the ship is going to be delivered to us in February ’07 so in less than two years. Today, I mean we have offers for the ship for employment up to 20 years as we speak. We believe that we are looking to charter basically for a shorter period of time something between 3-5 years because it was strongly believed that this market will be more mature and more exciting for owners after one more project is on stream. So we could charter with a respectable not a very exciting but a respectable rate right now but we are holding back by looking for an employment of over shorter period at a higher rate that we bring this vessel back in the market at around 2010-2012 when we believe the market will be much more attractive for owners.

Got you. Great. Thank you very much.

Thank you

Thank you. You next question comes from John Copsonth (phonetic) of Smith Barney.

Yeah good afternoon. And congratulations for the quarter

Thank you

My first question has to do with your Panamax realizations 35,500 per day I guess you still have one time charger in two week the minimum charter there, if you adjust will that probably give you somewhere 38,000 for the spot market?

Yes, that’s correct.

What -- why this is so strong? I mean compared to your Aframax and Suezmax that was much stronger, what was going on there?

Well, I think one of the sectors of the market that has been mostly influenced by the April ’05 legislation is the Panamax vessels so that’s why in anticipation of that market and [lot of difficulty] we are moving towards the Far East coming from examples of 6 -- moving to the Far East will be stopped. I mean, we could trade efficiently after April '05 and that’s like we should have been, we still see that the Panamax market is very, very strong.

I see.

Few on this only did the spot on double, and double, double 6 and what the major Panamax fleet.

I see. Also on your Aframax, I guess you said that the Caribbean market was weaker this quarter, probably still weaker compared to the Med and Pacific, any thoughts on like moving maybe some vessels through these areas?

I think what you will get [inaudible] yes, absolutely we have more [inaudible] we found another good voyage from Venezuela to Italy and so she is one of the ships that we have on the spot there and she will be trading, she is making a very good back voyage in the magnitude of $20,000 a day and she will be trading in the very strong Mediterranean market now, so but we will always try to balance our business but of course we have obligations on three of our Aframax's which are on contracts in the Caribbean market.

Thanks. Okay, thank you very much.

Thank you.

Thank you, your next question comes from Pierre Conner of Hibernia Southwest Capital.

Good morning, gentlemen.

Good morning.

Just had a question on operating expenses, particularly crewing costs you mentioned there weakened by the -- impacted by the weakened dollar, I just wanted to see if you guys were seeing wage pressure going forward, if could probably give little bit of outlook on this particular segment?

Well, I think one of the most, one of the most difficult things in our business I mean as you know we do -- we actually manage our own ships as a group, so we have own hands management is to identify very well trained and educated crew, so we are building one of the most modern fleets in the world, and you know we might have spent $2.5 billion in building a very expensive fleet, but if you don’t have the right people to run it, then you are back in square one. So, we are seeing a scarcity of good quality people, we are focusing still on European mainly Greek officers because we want to be able to sleep at night as we say. And I think, the biggest problem is the -- of the dollar to the Euro. I think we are above 40% from the low, but couple of years ago we were 0.8, Euros to the dollar and now we are at the 130 but it is true that a lot of effort goes from us to try and identify the right people to run those state of the art ships, so we will be seeing that and we are making every effort to keep on running at full utilization with this group.

Okay, fair enough. Also I had a question on the demand side, I mean did you see demand strength through 2008 obviously driven by China and India and you mentioned some of the supply side economics there on scrapping, I was wondering if you could touch a little bit on what some of your estimates are for scrapping through 5 in those 60 sea scrapping slopping off a little bit this year, being pushed into next year, and which we are starting to see now, just trying to get some comments there, I would appreciate it?

Yes, I think this year we are seeing more and more scrapping as an effect in the market of the legislation in April '05. I think, -- I may be able to trade some of the single, single ships many of those ships in order to take [inaudible] their capacity significantly. We have just seen -- we are seeing the early 80’s -- Aframax is -- single Aframax is going for scrap this week so, we expect it to be a bit better than what we have considered in the scrapping but we expect most of the scrapping closer to 2010 when of course all the legislation is in full effect.

Okay, thank you gentlemen. I will turn it back.

Thank you.

Thank you, your next question comes from Rusty Lekab (phonetic) of John A. Leban (phonetic) and Company.

Hello guys, congratulations on a fantastic quarter. As you guys know we are one of the biggest shareholders of the company and we are really excited about the investment opportunity here and as you guys mentioned -- as Paul mentioned earlier the NAV discrepancy is just so substantial and I am just wondering what do you guys plan on doing in terms of proactively seeking to create shareholder value given the -- although I could say general statement of all these companies are extremely cheap, your company particularly is cheaper than -- significantly cheaper than everyone else in the industry and I am just wondering what do you guys plan on doing proactively to succeed in this evaluation gap?

Well you see I think we are the victim of forward thinking. Thank you for being supportive of the company. We have been in this business for many generations and we believe that the timings is very important on the asset and that’s why as you see we are also taking advantage of the S&P market. We have been, we have made majority of almost all of our new building orders during times of crisis. I mean, we started our new building program in '97 while there was a lot of ships then just up in 9/11 2002 and 2003 we took a little bit demoralized with option which was taking delivery now. So I think what we need to do with -- in terms of people like you is to try and explain that the evaluation that very few analysts take in account over capital appreciation of an asset. I mean to give you examples we have six but we ordered up close to $48 million that we could sell today and many, many of them at 92 so, almost double. Very few analysts take this in consideration and perhaps slightly it is all because those deliveries are that you know a year or 2 years down the road although we could sell those to -- if we wanted today. So I think you know trying to talk to people like yourselves and explain that why we have this difference in evaluation has to do with our forward -- new building programs. We are one of the few companies that has lease and that’s why you see this discrepancy. On the other hand I think we have to try and move around and talk to more investors and analysts and as our Chairman who is a big fan of shares repurchase program buy the best investment right now is to buy our shares but as you rightly said I believe the 4 sectors is very cheap. I mean the sector goes anywhere between 6-7 or 8 times earnings and I think that’s very, very cheap sector but has shown to and has maintained a very good profitability. I mean in our case we have been profitable since it's inception.

Sure, thank you. I guess my point on this is that, you know. a lot of your competitors if you kind of look at what you know for example -- when you are purchasing aggressively their stock if you look at the structure of their front-line I guess, it is large in terms of the aggressive dividend policy, GMR, on and on and on. It would be very -- I think it would be very exciting for all of us that you guys look at this possibilities and proactively seek to, you know, if the market is not rewarding with a fair value of the stock to seek a practical way to invest back in the Company?

Well, for sure. I think, I mean we are looking with -- you know we are looking of course to do the best we can in every quarter and we try to increase shareholders value without sacrificing the long-term view of the company. So we do not take actions that will make us happy for about 90 days and regret it later. You know, this is a family that has been in the business for many, many, many years and that’s what we try to do. We take aboard, I think our Chairman is again -- we would like to increase the dividend, buy back shares because it's a very good investment, but we will not give everything out just to have 90 days of bliss in our share price. I mean, we have to look forward, we have a very long new building program and as you see we keep on doing things, we just sold even a new building contract which we ordered just six months ago. We made a big capital gain and we're back ordering a sister vessel to keep the ball on the run the whole time.

I know, you guys you’ve done a fantastic job running the company. I mean, just through your fine chartering strategy, the way you’ve been able to buy and sell ships has been just great. I don’t think anyone could have any complaints about that. It's just really to be proactive about creating shareholder value. But I appreciate for your time. Thank you.

Thank you very much.

Again I would like to remind everyone in order to ask a question please "*" then the number "1" on your telephone keypad. Your next question comes from Harvey Stober of Dahlam Rose and Company.

Yes. Could you just maybe outline in terms or describe the terms of your strategy, why are you selling buildings that are deliverable now versus rolling out the delivery two years?

I think basically one would look at the mathematics of the opportunities. The vessel that we sold which was contracted in November of last year which was sold effective April of this year had a profit of approximately $10.5 million. If one looked at the perspective earnings over the ensuing 2.5-3 years one would be hard pressed to come up with the numbers superior to that so, having the bird in hand is worth more than the two in the bush it seemed appropriate that you take advantage of that. If we had not had the opportunity to replace it with a equal or superior vessel which has a cost of about 11 million less than what we have received from the sales we might not have done it because it would not have deserved the longer term earning power of the company but with a combination of all these factors we found compelling and of course if this was our only new building again we might not have done it but we have another 15 ships being built for us as we speak.

Okay, thank you very much.

Thank you. Your next question comes from Jon Chappell of J.P. Morgan.

Good afternoon. A question or two ago with the shareholder brought up a good point, can you just update us a little bit on the current chare share buy back program, with any repurchase trend of first quarter, with the current authorization how much remains of the current authorization

In general terms well we had only a modest amount of repurchases in the first quarter and we became reluctant to be active in the repurchase market when we were knowledgeable about the opportunities of selling three vessels at very significant profits and also then when we came against the time line of today's report I think one should properly speculate that we will be much more active in the repurchase market in the very near future.

Okay and how much is the still out there to repurchase

Well, Paul has these numbers -- is it about 8.2 million

That’s what we tell, about 0.5 million of that so 7.5 million is still available.

Okay, and Paul can you just give us an update on forward-looking numbers when you look at G&A, that came in much lower than I'd expect in the first quarter and obviously the house will be listing had a lot to do with that, but people are still talking about Sarbanes-Oxley having an impact in '05 and you mentioned that it come down to professional expenses, what you will be looking for --

One of the great advantages, of being associated with our technical managers who handle a lot of other work, but including the implementation of Sarbanes-Oxley. We were, ordered that you like by our auditors that’s not only 10 should comply with Sarbanes-Oxley, but also our technical [inaudible] managers so they are the four guys who have undertaken a lot of the work for the whole group, their own group and indeed much of that applies for us as well and they are very much of a cost at no extra cost to us. So in that respect the implementation of Sarbanes-Oxley as far we are concerned we are paying some direct fees to PricewaterhouseCoopers who have come in and done the work and a lot of the implementation work has been undertaken by them and the order being remunerated which is very, very kind of a what we believe is a very economic management fee we pay for them. But we don't think we are going to be hard hit by Sarbanes-Oxley in the future obviously its an ongoing thing we have a point if PricewaterhouseCoopers to be our internal auditors and therefore that will be a new on going expense. But apart from that we don't anticipate substantial cost of Sarbanes-Oxley. The point on workers stock exchange we had a [inaudible], from hence forth we will see the decision are not being only also a stock exchange.

Okay so second to fourth quarters could maybe look even more other than the first quarter?

Well, as Nikolas said we have to hit the road more often, so we got a lot of road shows and presentations planned internationally I mean we are in a remote location here in Athens, we got to get across the Atlantic and we got to go around Europe Russia, the Fareast, so we do have some heavy traveling schedule ahead of us. So won't necessarily be it lower significantly higher either.

Okay. Thanks a lot Paul.

Thank you. Your next question comes from Hardin Bethea Of Deprince, Race and Zollo.

Nick I guess this is a question for you, in previous conference calls, you've outlined the present value if you worked to sell all of your new building contracts what the incremental gain from the current market to what you actually initially paid would be can you update us on your estimation of that value?

Well I think we have close to as we said, in additional $15 per share, on from what we if we were to sell the contract today and I give examples and you know, I think this is as I said you we have been and always speak to this policy to try and take advantage and other ships not when its easy to raise money, I mean it is as we do it well its easy to raise money and then all ships but that means that if you are in the top of the market. We as a company have always tried to increase the size of the company as we have always done in our business, when things were bad and that s why we have about you know $15 per share above $300 million in excess of what we have paid for those ships today.

Okay, Thanks. The second question maybe for Paul. Related to the timing of expenditures for new buildings over the over '05 and '06 for those 110 million remaining for '05 is that company in any particular order?

No, the remainder of, sorry, quarter three we have about 40 million, quarter four 20 million and the remainder 40 or so million is in the rest of quarter fifth.

Okay, what about for do you have the same kind of back order for '06?

No, quarter one will be about 88 million. Quarter two 52 million, quarter three 12 million, quarter four 27 million. It's all from the top of my head by the way you believe me dear.

That’s pretty good and all of that is the non finance portion correct?

That is the total.

But that’s the total.

We will be receiving finance going on the way. If you just look at out of the pocket.

Yeah.

Will happen in your case out of our pocket will be potentially less to net amount in fact in quarter two because of the loan we are getting on the Eurochampion to be honest we have more money coming in quarter two, we have about 30 million coming in and quarter three is about breakeven in quarter four this year again is 20 million all out of our pocket, 2006 quarter one will be just about 2 million out of our pocket, quarter two 28 million, quarter three 12 million and quarter four 2 million.

Okay.

Come 2007 which I said earlier 300 million is the outgoing however the -- we'll have about a good two thirds so that would be coming in from financing.

The two thirds of the 300?

Yeah.

Okay, so I guess what I am getting that as we sit here today effectively if you are bringing in 20 in the second breaking even at the third and spending 20 in the fourth you know, the net investing flows are zero for the rest of the year and the total it looks like about 44 million in '06, and then call it a 100 million in '07 so you've got that amount of money on the balance sheet currently so I guess what I am getting at is assuming you don’t generate any cash for the next two years which I think is obviously not what we expect to happen you've got to do something with that cash flow and again I know you've had one caller tell you they would like to see you be more proactive I think there is a -- I am reiterating that point now.

We know what's coming.

You know $8.5 million buyback authorization doesn’t buy many shares at $40 a share I would hope that your Chairman hears me clearly when I ask for him to revaluate that dollar amount and --

There is no static in the line, so the communication is very clear.

So if you truly believe the value that’s embedded in your new building deliveries and the undervaluation reflected in your current market price your best investment is to buy your stock back?

Well, we're dealing with this. The only thing we don’t want to do is decrease completely the liquidity of the Company. Otherwise we will privatize the Company. But I agree with you and we have our annual meeting as you know in this month in 20 days and as agreed to an increase of the buyback, I think will be something that our Chairman of the Board will consider and because I think it's, a very good investment. And I think this is something we would like to do.

Okay. Thanks.

Thank you.

Thank you. Our next question comes from David Scharf (phonetic) of JMP Asset Management (phonetic).

I’d just like to reiterate what a wonderful quarter and fine management job. Nikolas and your team have been doing. All of my questions have been answered quite satisfactorily. Thank you very much.

Thank you.

Thank you.

Thank you. Your next question comes from Tommy Capathanos (phonetic) of Tenper Securities (phonetic).

Yes, good day gentlemen. I am new to the Tsakos story. I just started buying some for my [inaudible] clients. I have two questions basically that well one of them you probably already stated and unfortunate since maybe hear it correctly. But the first question is when you announced a capital gain on the older ships that you sell, are you stating that on your purchase price of the ship 20 years ago? Or you stating that on the depreciated values?

It's good to say that over our -- our difficulty precision makes us scrap and again I mean we're I think that’s another issue that our auditors are pushing us into. We have to consider, we have the committee we're still actually evaluating the ship down to scrap at a $180 per ton, the current track is 430. So we might have to adjust if it’s a some lay their basement is 25 years straight depreciation down to scrap. And that you know on top of course of the gains that those ships have made for us operationally over you know the 12 years after we have around.

Next question you said that if you look a the value of the ships for replacement cost of the value of the ships and basically what the value of the ships is in the holdings right now. You are saying that the company is selling at a very large discount in net asset value what -- did you mention what percentage discount that was?

The guidance that we've given to our owners in the market place is that from independent ship brokers we have been advised if you take the difference between the current value on our balance sheet of our ships if you take the difference between the contract prices for new buildings if you take the difference between our option to repurchase vessels which were sold on a sale and leased back basis that at fairly in the first quarter of this year the difference was approximately 700 million based on what has been recurring in the S&P market during the last two or three months I would suggest that number ahs not contracted.

Okay, so as a percentage how much is that I am sorry could you --

I don’t know the percentage.

You don’t know the percentage.

700 million over what you see as current values.

Okay very good and last question I guess I'd like to reiterate I mean like I said I am very new to this story and hopefully going to start buying more shares for our clients at the same time I mean if there is that much of value in the company as you see obviously we would like to see as well more aggressive stock buying plans. And thank you very much for your time gentlemen and good performance.

Thank you.

Thank you. Your next question comes from Rusty Lekab (phonetic) of John A. Leban (phonetic) and Company.

I am sorry guys, just a follow up regarding Niks comments about liquidity, if the market doesn't want to reward you for the true private market value when you are going and you buy a ship you pay private market value, when you sell a ship you pay private market value, when Wall Street did not want to reward you for the private market value of the company, why do you worry about liquidity, there's, I don't understand that concept at all, I do believe that you should take, you should take this company private its, don't use just the --?

Well I think.

If I were in your shoes.

I think we might agree with you and I think this is a -- I think this has to do with all the companies because I said there is always, if not only ourselves, I think one on one we are trading at very low multiples and we will give it another couple of years of time to convince you guys that we are working well but its still with a lot of paper work that you need to run from the company with Sarbanes-Oxley Act we don't have to increase the company's double fold in the next couple years, to make it work or perhaps as you said, you know, to take it private and that's very good ideal what you have, but for us I think it holds for the whole sector. I think if you look at the [inaudible] of the whole sector it is clearly very disheartening because they are very good companies out there, all of them having stellar performances, I mean the difference with us because of our strategy we have had this stellar or a positive performance through 12 years, many of those companies have more ups and downs than us but they are being run by very good professionals and I think we have all to do something and then --otherwise perhaps shipping is not meant for the public market so we have to go back to the future, from where we started from but, thank you very much.

Thank you.

Thank you, at this time there are no further questions.

Well Thank you very much for you know -- for your attention to the company that has -- we will try and do our best of our thing here. It's going to be visiting all over the place to try and keep the shipping banner up of the same as the other shipping companies are doing. We want to congratulate all of them for coming up with good results and its effect to us one our -- issues get to the mid teens around 15 I think then that s when we will have done a good job. Michael do you want to add something get to determine.

Just replying to Randy a little bit. Randy Hi, its Michael Joliffe here. You know I know you are very aggressive about the idea of seeing us kind of very aggressive share buyback program or even privatizing the Company, nevertheless, you know for the time being I think we got to look to how we are going to finance the new buildings that we have got coming on trade and perhaps others that we might tend to order if we see the market right. As the Chairman said earlier, if we could make an $11 million capital gain or $10.5 million capital gain that order and new ship for $11 million less than we sold the other ships for, it’s a no greatness, so there is a lot of activity we can do to increase shareholder value the point is to get the message out to you and your colleagues. This is a cheap stock it’s a solid stock its backed by another forward coverage and in the chopper market and its something, I think that requires a higher valuation from your guys all of you. And see you soon in New York.

Yeah we look forward to seeing you soon in New York, we'll be there for the Marine [inaudible] Conference. Thank you very much.

Thank you. This concludes today's conference call, you may now disconnect.