Tsakos Energy Navigation Ltd (TEN) 2010 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Tsakos Energy Navigation conference call on the third-quarter 2010 financial results. We have with us Mr. John Stavropoulos, Chairman of the Company. (Operator Instructions).

I must advise you that this conference is being recorded today, Tuesday, November 23, 2010. We now pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relations advisor for Tsakos Energy Navigation. Please go ahead, sir.

Thank you very much and good morning to all of our participants. This is Nicolas Bornozis of Capital Link, Investor Relations advisor to Tsakos Energy Navigation.

The Company released financial results for the third-quarter and nine-month period ended September 30, 2010. The press release has been distributed publicly and you should have received a copy of it by now. If you do not have a copy, please call us at 212-661-7566 or e-mail us at TEN@CapitalLink.com and we will be happy to send it to you.

Today in addition to the conference call there is also a live audio and slides webcast, which can be accessed through the Company's website at the front page at www.tenn.gr.

The conference call will follow the presentation slides, so we urge you to access the presentation and webcast. Please note that the slide and webcast will also be available as an archive after the conference call. The slides of the webcast are user controlled, so by click on the proper button you can move to the next or to the previous slide on your own.

At this time I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast 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 disclosed in TEN's filings with the Securities and Exchange Commission.

Before we start the call, I would kindly request that in observance to the passing of Ms. Maria Tsakos, sister of Mr. Nicolas Tsakos, that we keep one minute silence.

Ladies and gentlemen, we have with us today Mr. John Stavropoulos, Chairman of Tsakos Energy Navigation. We have also Mr. Paul Durham, the Chief Financial Officer, and Mr. George Saroglou, the Chief Operating Officer.

At this point I would like to turn the call over to Mr. John Stavropoulos, the Chairman of Tsakos Energy Navigation. Mr. Stavropoulos, please go ahead, sir.

Thank you very much and a good day to all of you, and thank you for joining us. The extremely soft charter market took its toll on TEN in the most recent quarter. Nevertheless, the nine-month results remain positive and provide assurance that the unbroken string of annual profitability since inception in 1993 will remain intact.

One-year results are important, but the long-term record is critical. We are very proud of these long-term achievements, both on an absolute basis and relative to our peers.

Looking forward we are very comforted by the interest shown by our long-established clients to expand our relationships. Next month we will advise the details of charters for two newbuild tankers that will increase earnings visibility for many years to come.

George, I would like to turn it over to you now.

Thank you, Mr. Chairman. It is my pleasure to speak with all of you today to provide you with details of the operations for another quarter. For those of you who are connected to the Internet and our website there is an online slide presentation whose format we will follow during the call.

Please go to page 4 on the online presentation. 17 years of continued profitable growth -- our annual profitability record continues. Every year since the Company's inception back in 1993, and regardless of the state of the economy or the state of the shipping market, we have remained profitable thanks to the Company's fleet employment strategy.

The third quarter's (inaudible) tanker rates weakened significantly after a stronger first half of the year. The third quarter is traditionally the weakest quarter in the demand for energy transportation.

The (inaudible) rebound that was expected from the beginning of the fourth quarter is now starting to materialize. There is healthy demand for [bigger] charter as our recent period renewal records indicate.

The global economy is growing again, with global GDP at 4.8% in 2010 and 4.2% expected for 2011, although there is disparity in the growth and growth prospects between advanced economies and emerging and developing economies.

The engine growth is developing Asia, China and India. And although we cannot ignore the fact that mature economies with few exceptions -- we cannot ignore the fact that mature economies could create difficulties, despite there is some debt crisis in Europe, they are on a slow path to recovery. And this we feel is very good.

The overall demand for 2010 grew strong. 87.3 million barrels per day, which is 2.3 million barrels per day up, or 2.7% up, from the 2009 numbers. It is expected to grow further in 2011 -- 88.5 million barrels per day, up 1.2 million barrels per day, or 1.4% from the 2010 numbers.

As we speak, TEN has a performance fleet of 50 tankers, with 48 in operation and with two Suezmax tankers under construction that are due to enter the fleet in the second and third quarter of the 2011.

The fleet is 100% double hull versus 90% for the world's tanker fleet, and has average age of 6.7 years versus 8.7 years for the world's tanker fleet. During the third quarter we operated a fleet of 45.7 vessels versus 47 vessels in the prior-year quarter.

We have another active year -- three quarters to report. During the third quarter we took delivery from Sumitomo shipyard of the Aframax DNA tanker, Uraga Princess, the last in the eight vessels (inaudible) series that we built in Japan.

The vessel was chartered (inaudible) on a (inaudible) and voyage from the Far East to the Atlantic Basin. We also completed the acquisition of the four 2009 build Panamax tankers that we announced in July, and we completed these vessel acquisitions in the third and fourth quarter of 2010.

All vessels come with employment attached. Two of the four are TEN chartered to (inaudible), raising to 7 the total number of vessels [redistributed] to clients.

These vessels share of replacements to the two oldest Company vessels, Panamax tanker (inaudible) and Victory that were sold in the second and third quarter of the year.

In the nine months we sold in total five vessels, registering a capital gain of $19.7 million. This is in line with our stated (inaudible) that sale and purchase transactions are an integral part of our operations. We continue to evaluate offers for vessels in our fleet, and we expect to report further profitable transactions in the near future.

Fleet utilization for the quarter was 96% in comparison to 95.7% in last year's quarter. For the nine-month period utilization was 97.7% versus 97.3% for last year.

Some metrics that we consider to be milestone (inaudible). Since the New York Stock Exchange listing in 2002 the accumulated net income exceeds $1 billion. Since 2003 we have grown the fleet, sold the old (inaudible) tankers, maintained the most (inaudible) and the young age of the fleet, and at the same time managed to register capital gains of approximately $275 million.

Since the New York Stock Exchange listing in 2002 we paid approximately $320 million in the form of cash dividends. The $85 million in the late October follow-on equity offering whose proceeds will be used for further acquisitions.

As you can see in the press release, we are making full utilization of the appropriate proceeds in the project we announced today that involves the building of two high specification tankers that are signed up with a 15-year time charter to a major state oil company.

A stable customer will be generated during the life of these long-time charters, and that for the two vessels is expected to exceed $600 million. The details of the transaction will be announced by a follow-on press release next month.

Let's move to slide number five. Some financial details then all -- later on in the call we give you more details. Full-year revenue for the nine months was $370 million. Net income at $22.4 million. Time charter, the equivalent transaction per day was at $20,360. And the OpEx from the vessel was $7,774, a 10% reduction from the nine-month 2009 OpEx levels.

On the quarter voyage revenues were $95.5 million. Net income, a loss of $5.5 million, primarily attributed to a repositioning of our LNG vessel. Time charter per vessel per day for the quarter was $18,315 per day. And the OpEx per vessel per day, $7,555, a 7% reduction from the same quarter in 2009.

We continued to exercise cost containment, and this is evidenced in the OpEx for the fleet growth for the nine months and for the six months (inaudible) in the quarterly results.

If we move to slide nine we can see that in July we rechartered the LNG carrier, Neo Energy, which we believe (inaudible) Aframax rebuilding tanker, acquired the four 2009 builds, (inaudible) Panamax product tankers. And we sold Victory III following the sale of her sister vessel, Hesnes, in April of this year.

In October we paid a dividend of $0.15. Raised $85 million in the follow-on offering for immediate fleet expansion. And then announced a series of renewals for our vessels in the fleet like the three-year time charter for the Handysize product tanker. A two-year extension for two Suezmax tankers, with one of these vessels having a one-year option.

And then also we announced the Corporation agreement with the Chinese Classification Society, which we believe is going to help us develop shipping and energy-related projects in China.

Moving on to slide seven, our modern and diversified fleet is filled with these proven product tankers. We have 23 full carriers, ranging from VLCCs all the way down to the Aframax size, and 36 product tankers from Aframax down to Handysize. Except for two VLCCs, the vast majority of the fleet is -- the rest of the fleet is built in South Korea and Japanese shipyards to high specifications and standards. 21 out of the 50 vessels have ice class status, which is one of the largest sub fleets that exists in the market.

Moving on to slide number eight, we continue the balanced employment strategy of the corporate fleet through a mix of short charters, CoAs, pools and period charters, with fixed-rate and period charters with profit-sharing arrangements. We currently have 10 tankers trading in the stock market, two tankers operating under Contract of Affreightment, six vessels in pooling arrangements, and 30 tankers and period charters with fixed-rate and profit-sharing arrangements.

The (inaudible) time charter policy with this bias [towards] time charter with profit-sharing has been the main reason for the Company's continued profitability over the last 17 years.

The next slide, slide nine, puts a dollar value to the current lease employment (inaudible). As of today we have 64% of the remaining available 2011 fleet operating days, and 33% of the 2012 available fleet operating days.

Assuming only the minimum rate for the 30 tankers and the 48 vessel fleet we currently operate, TEN has secured 434 months of forward employment for 1.2 years per vessel, which equates to [$152] million in minimum gross revenue.

The next slide demonstrates the fact -- slide number 10, demonstrates the fact of the sale and purchase activities we have done and the series of transactions we have done over the years. Since 2003 we have sold 33 tankers with capital gains of approximately $275 million. The Company reinvested these capital gains in the renewal of the fleet by ordering the majority of the new building tankers before new building prices started to rise.

55 tankers have been applied in the same period, of which 49 were new builds. This way we manage to grow the size of the fleet and maintain fleet mobility.

Moving on to slide number 11. This shows our dividend distribution since we listed the Company on the New York Stock Exchange. We paid in total $8.48 in (inaudible) dividends. On June 4th, the BOD announced the (inaudible) of the Company's dividend policy going from semiannually to quarterly. The first quarterly dividend of $0.15 per share was paid on July 15. The second -- the dividend for the fourth quarter was paid on October 26 -- it was also $0.15. The next quarterly dividend will be announced and paid by the BOD in January 2011.

We have -- the base of the dividends we continue to target the payout ratio of 25% to 50% of net income, subject of course to maintaining an appropriate level of liquidity as a function of a prudent and strong financial position. And each April, the Board of Directors will give consideration to the declaration of supplemental dividends.

That concludes the operational part of our presentation. And, Paul, now please walk us through the financials.

Thank you, George, and thank you all for joining us today. A summary of selected financial data is included in the press release, and I will say a few worlds on the significant items occurring in the nine months and quarter three.

In the nine months gross revenue was $313 million compared to $347 million for the prior-year and nine-month period. Operating income for the nine months was $71.7 million, including net gains on the sale of vessels of $19.7 million.

But for the prior-year nine-month period operating income was $80.7 million. Net income for the nine months was $22.4 million compared to $45.3 million in the prior nine-month period.

For the third quarter TEN incurred a net loss of $5.5 million, which includes 5 million -- sorry, $500,000 expenses on the sale of Victory III. In the prior-year quarter three net income of $2.1 million was achieved.

Diluted earnings per share for the third quarter was minus $0.14 or minus $0.13 without the vessel sale, Which is within the range of expected quarter three results publicly indicated last month.

Gross revenue for the third quarter was $95.5 million compared to $106.2 million in quarter three 2009. And operating income was $8.6 million for the quarter compared to $17.7 million in the previous third quarter.

Whilst Suezmax and Panamax average rates achieved in the quarter were slightly higher than those of the prior-year third quarter, all the categories -- all the other categories suffered declines. In particular, the LNG carrier came off a time charter, and after an essential repositioning voyage in which it earned no revenue and incurred high voyage expenses, it re-entered into a short-term time charter at a lower rate.

The average daily TCE per vessel for quarter three 2010 was $18,315 compared to $21,116 in the previous year quarter. For the nine-month period 2010 average TCE was $20,360 against $23,819 in 2009.

Total operating expenses in quarter three were $31.1 million compared to $34.4 million in quarter three 2009. While this is partly explained by two less vessels than in quarter three 2009, we again saw a substantial reduction in costs, as mentioned by George.

Average daily operating costs per vessel fell by 7%, and for the nine months fell by 10%. Again, much of this reduction is attributable to savings achieved by the new technical managers, TCN, who formally started operations from July 1. Also, the dollar was stronger in quarter three 2010 compared to quarter three 2009 by almost 10%, and this had a positive impact primarily on crew costs.

Overhead expenses per vessel per day, which includes G&A, management fees and amortization of stock grants, increased by $151, of which $85 was an increase in management fees from July 1.

Total finance costs in the quarter [totaled] $14.6 million, $1.4 million down from quarter three 2009, despite average loans being approximately the same in both third quarters. This was due to an increase in gains from bunker costs, lower negative charges relating to the evaluation of interest-rate swaps, and slightly lower interest rates, which resulted in our all-in debt cost falling from 4% to 3.9%.

Based on current long-term swap rates there is a present indication that interest-rate swap valuations will move positively by the end of quarter four, but that still remains to be seen.

During quarter three we drew down on two new loans totaling $70 million relating to the delivery of the newly acquired Panamaxes, World Harmony and Chantal. We made repayments of $23 million, plus a loan prepayment of $6 million following the sale of Victory III. At the end of quarter three, therefore, we had outstanding loans of $1.51 billion, bringing our net debt to capital ratio to 57.3%.

We have now taken delivery of the other two Panamaxes, Selini and Salamina, and inherited the related debt of $86 million at very competitive terms.

Quarter four expectant repayments totaled $31 million. This will bring our year-end debt to $1.56 billion, and an expected net debt to capital ratio of approximately 56%.

The only amount currently outstanding on the two Suezmaxes under construction total $62 million, which will be paid in 2011. We expect there will be new debt currently being discussed with several interested banks, which will more than cover these final payments. And indeed there will also be payments relating to the newly announced projects, but as mentioned, these will be disclosed in a separate announcement in due course.

Taking into account the $85 million we recently raised and the recent quarterly dividend payment, the expenditure on the new Panamaxes and vessels under construction, and debt service requirements, so far in quarter four our cash holdings are currently $292 million.

This leaves us in a strong position to take advantage, either or both on projects we are currently examining or of opportunities we hope will arise in the near future, while ensuring our ability to meet all existing commitments.

And this concludes my comments. And now, if you have any questions, we shall be pleased to answer them.

(Operator Instructions). Gregory Lewis, Credit Suisse.

Yes, thank you and good afternoon. I guess first my sincere condolences for your loss. But, Paul, when you lay out the cash position of the Company and you think about dollars, if we were to exclude, or include, however you want to do it, (inaudible) the project you just announced, at this point how much firepower do think -- or dry powder do you think you have to go out and actually go out and buy vessels in this sort of -- in this market as we look out over the next, call it, 6 to 12 months?

Well, as we said, the details of the new projects have not been disclosed yet, or we cannot disclose them, but, however, if we assume that given that we will obviously need to retain some amount for working capital requirements and debt service requirements, that we will have something like, let's say, $200 million cash. Then you multiply that by a factor of new debt, and we are talking in terms of total somewhere in the $500 million, $600 million range.

Okay, so in other words, so you would be -- you would be comfortable with a debt to cap somewhere approaching say 65% to 70%?

well, we have always said, as a shipping company, a capital-intensive -- in a capital-intensive industry, where debt is cheap, that we have never been afraid of high leverage. Even indeed as far as our bank covenants is concerned in terms of loan to current value, we can go as high as 70%. And that is something we have always felt we can happily manage, given our chartering policy, that we have had a chartering policy that ensures that we have the cash flow and to service all our debt requirements, our operational needs, of course, our CapEx requirements, and to pay a dividend. So we feel fairly comfortable with that extent of debt.

Okay, great. And then just -- I know you can't comment on much about the projects that you're thinking about in terms of these two vessels, but could you give us maybe some color on maybe when we could expect these vessels to actually -- when this contract might actually commence?

And then my follow-up to that would be, do you anticipate there being profit-sharing agreements on these two projects -- on these two [con] vessels?

Again, I can't go into too much detail, but we anticipate that we will be starting the project somewhere in (inaudible), at the beginning of next year, and delivery will be sometime around mid-2012 to end of 2012.

Okay, and at this point it hadn't been discussed whether or not there is going to be profit-sharing?

There has been no discussion in that respect, as far as I know.

Okay, great. And then just really last, real quickly, more of an industry question as it impacts your Suezmax and Aframax fleet. Can you talk a little bit about the delays right now that you are seeing in the Bosporus Strait and sort of what that is doing to that pocket of the market?

Hi, this is George. I mean this is helping the market a lot. We have had -- because of the delays right now we have (inaudible) between 16 to 18 days delay both ways. The market is at close to $50,000. The market was not there. I mean, the average for the year for this will be the $35,000. So we take advantage of the seasonal disnormality. And we hope that these delays will help in general the (inaudible) Suezmax market stay at higher average for the year.

Okay, and just in terms of that, what portion of, say, your vessels, of your Suezmax/Aframaxes are in there? Do you have sort of have (inaudible) estimate of how many vessels are actually operating in that basin right now?

We have all our -- we have, first of all, all our -- with the exception of two Aframaxes, the rest are operating in the Med. Now the Suezmaxes, all of the Suezmaxes have -- with the exception again of two -- the rest have profit-sharing elements, so they take advantage of whatever the spike in the spot market -- whatever spike the spot market gives us.

Okay, thank you very much for the time, gentlemen.

Jon Chappell, JPMorgan.

Thank you. Good afternoon. I echo Greg's comments. My condolences to the loss to the family. Paul, if you can just give a little bit of insight on, number one, asset prices from the transactions you have seen, both in looking for new projects and also selling some of the older ships in your fleet.

And then, two, is it relates to the asset prices, how do you stand currently with your debt covenants? When is the next update that you need to provide to the banks, and how do you the see that shaking out?

I will let George answer the first part of the question.

Hi, Jon. First of all on the asset prices, we think that -- I mean, the recent (inaudible) IPO markets -- the IPO transactions that we have seen has basically driven prices for crude tankers higher.

The spot market, however, from the beginning let's say of the summer months has not been there to support the levels that we have seen. And so we believe that we might see a correction unless we see significant improvement into the spot prices. Which may be, I think, good for all those companies that are cash rich and have the ability to take advantage of the growth opportunities that will be presented.

On the product tankers, the asset values have been significantly [steep] in 2009, and they have recovered a lot in 2010. However, we still feel that there is a significant room for improvement, considering where they have been in the 2007, 2008 time. And now on the covenants, I think --.

On the covenants we -- essentially we haven't had any noncompliance on any of the covenants that we've got. Of course, if asset prices were to collapse, and at some [states] presumably, yes. In fact, I would say the back of the envelope, which is just (inaudible) about 20% collapse before that we have breached any of the covenants.

Okay. Well, based on George's commentary that is most likely unlikely. I guess in the next two months you will probably have to give an update to the banks around year-end?

We have to give -- to some banks we have to give an update now that we have announced quarter three, and then to the pools after the year-end -- within a couple of months after the period end. Yes.

Okay, and then George also mentioned in his commentary still looking for potential disposition -- or sales of older assets. Which assets are presumably held for sale or should we look to maybe TNP disposing of it in the near future?

We are discussing -- I mean, you know that we have a very desirable fleet and people, who meet that very tight specification. So we have people who only -- we have market participants who are willing to acquire our vessels. We are in discussions for some vessels. We cannot disclose any details right now, but we think that we will be very close in coming up with a firm, let's say, transaction. And I think it is going to be discussed at the end of the year.

It is going to be, again, profitable. We are going to register significant [stockholder] gains by selling one or two vessels that we are talking to these people.

Okay. And then, finally, in the press release you mentioned the acceleration of some dry-docking in the third quarter to take advantage of the weak market. Is there an update on which vessels are still scheduled for dry-dock in 4Q and 2011?

Sure. During quarter four we are currently, or have finished -- well, we have finished the Ariadne now. And La Madrina is about to go in for a dry-docking. Ariadne lost about 12 days, and La Madrina will be in for about 3 to 4 weeks, depending on repairs required.

2011 we have scheduled the Alaska and Archangel and Arctic. So those three ultra Suezmaxes, if you like. The Izumo Princess and the Andromeda are all going in. Those are all in quarter one. I beg your pardon, it is Alaska and Archangel quarter one 2011.

Quarter two is Opal Queen, Vergina, Afrodite and [Prepare]. Quarter three is Prometheus. Quarter four, Arion. So quite heavy in the first half of 2011, but a lot lighter -- which means that from 2012 we might be able to bring some forward into 2011 towards the latter part of 2011, and we are talking there about quarter one 2012, [Aztec], Izumo and Andromeda.

And one in 2012?

Yes.

Yes, I am sorry, Paul, to make you repeat, but I couldn't write down the second quarter ones fast enough. You said the Opal Queen?

Actually, these will be on the website if you wanted more detail.

Okay.

Yes, I think it is probably better if you look there. Yes.

All right. Thanks for your help, Paul. Thanks, George.

[Chris Warner], [Forecast Capital Management].

Hello. I just had one question. Your share price is at a significant discount to NAV and to your peer group. Can you explain the reasons for this valuation disparity?

I think we have a hard time explaining [these] discounts as well to (inaudible). We think there is -- we tried to find the reason and we find none. And we have been continuously profitable, no matter where we are in the cycle, for the last 17 years since the Company's inception.

We are paying regular dividends. We have a strong balance sheet, strong cash reserves, and the ability for the Company to grow further as the transactions that we have done through the years, and that currently indicate.

We have a very modern fleet, with great earnings visibility and upside potential. And then you know that we have a very tight management operation, and great industry connection. So I don't know, what more can you ask?

One factor might be, and it has been suggested that we don't come over often enough. And I kind of make amends in that respect. I will be over next week with [Harry Stuvoutus], who if any of you listening would like to see us, please get in contact with Nicolas Bornozis; he will arrange a meeting so we can discuss this face-to-face if you like.

Terrific, thank you very much.

[Jennifer Herman], Westgate Capital.

I just have a question about your dividend, and I want to know is sustainable?

What is the question again? The dividend is what?

Sustainable.

If your dividend is sustainable.

We are quite confident that it is, yes.

Pardon me?

We are very confident that it is sustainable.

Okay. Okay, thanks. That is all I wanted to know.

(Operator Instructions). Natasha Boyden, Cantor Fitzgerald.

Hi, I would like to -- my sympathies (inaudible) as well. One or two -- just a quick question to follow up on , I guess, Jon's questions about selling assets. The VLCC carrier, can you talk about what your plans are for that ship, and whether or not -- I mean, it doesn't appear to be an integral part of the operations, so is that one of the vessels that you might consider for sale?

Yes, that would be a candidate.

It would be, okay. All right, that was it. That is all I have. Thank you.

Thank you. There are no further questions at this time. I would now like to hand back to George Saroglou for any closing comments. Please go ahead.

Thank you very much for your time and participation in our call. In closing I would like to, again, remind everybody that Mr. Paul Durham and [John Stavropoulos] are going to be in New York next week, and they would really like to meet with anybody who is interested to see the Company.

And also from all of us here in Athens, Greece, we would like to wish everybody in the States Happy Thanksgiving.

George, if I could add one small item to your comment. I was intrigued by Chris's question, and if you have an answer, would sure like to hear from you. We are absolutely befuddled with why our share price is at the level it is relative to the performance that we have demonstrated over the years, relative to the strength of our balance sheet, and also with the newest transactions, increased visibility of future earnings. Please help us to understand. We are at a loss. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.