Tsakos Energy Navigation Ltd (TEN) 2012 Q4 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 fourth quarter and year-end 2012 financial results. We have with us Mr. John Stavropoulos, Chairman; Mr. Nicolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the Company.

At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time if you wish to ask a question (Operator Instructions). I must advise you that this conference is being recorded today, Friday, April 19, 2013.

And I now pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relation Advisor of 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 its financial results for the fourth quarter and full-year 2012. The press release has been distributed publicly, and you should have received a copy of it by now. Should you not have a copy, please call us at 212-661-7566 or email us at TEN -- T-E-N -- at capitallink.com, and we will email it to you.

Parallel to today's conference call, there is also a live audio and slide 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 slides and webcast will also be available as an archive after the conference call. Also, please note that the slides of the webcast presentation are user-controlled, so by clicking 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.

Ladies and gentlemen, 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 good morning to all. Thank you for joining us. Before turning to TEN, I would like to say that all of us in the Tsakos group are deeply saddened and shocked at the tragic events at the Boston Marathon. As Greeks, we feel a special attachment to the Marathon and the Olympics, as symbols of pride in training and endurance. The bombings have reminded us of the shameful attacks at the Atlanta Olympics in 1996.

The importance of the human race is that we will overcome these shameful acts. The London Marathon on Sunday and the Boston Marathon in the future will confirm victory over evil. The Marathon will return to Boston with appropriate pride and celebration. The product of long training and experience, combined with endurance, will, again, be applauded.

Turning to TEN, the shipping industry is undergoing a severe test. TEN has not escaped the pain, as 2012 was the second consecutive year of losses. However, we take solace that TEN's employment strategy has buffered the impact. Management's focus on strong liquidity has been essential. The results of 2012 are much improved over those of 2011, and the activity thus far in 2013 is very encouraging. The Board of Directors, which met last week, is very proud of Nicolas Tsakos and the entire Tsakos team. Their plans for the future give us comfort that our mutual goal of rebuilding shareholder value will be realized.

Thank you. Thank you, Nicholas.

Chairman, thank you for your good words. And from all of us, we convey all our condolences to our friends in Boston and all over the United States, because it has been a really trying week with events in Texas, which was very close to us, because of our oil and transportation business down there, and of course, Boston. And we hope that there will be soon an end to all this.

And I thank the Chairman for your good words, although it's not -- after 20 years, we were likely to celebrate three weeks ago our 20th year as a publicly traded company on the New York Stock Exchange. We've been very proud that 18 of those years have been of significant profitability. The two recent years, as you mentioned, unfortunately, we have not been able to report profits because of the environment around us. However, the results of 2012 are significantly better by 45% better than the results of 2011. And the start of 2013 gives us comfort that we might be returning to profitability sooner rather than later.

And more so, as an industry, we are able to control our new building efforts, because I think this market has suffered basically from the oversupply rather from the lack of demand. And I think, as our COO will explain, we are still looking at growth, both significant growth in the transportation of products, significant growth also in the demand for crude. However, having more abilities in the [three], we have suffered for the last two years. It seems that in 2014, we will be finally getting out of this oversupply. However, I think we have to be cautious and tell to all our friends and colleagues that the last thing this market needs is more newbuildings.

Our company has been able to take advantage of our long-term relationships, enhance them even further, sign contracts in excess of $1 billion with an average of 3.2 years for our fixed vessels. And I think this is a very good position to be.

We have a diversified fleet. We are perhaps the largest product -- model product category in the water. I think a lot of companies out there that are ordering newbuildings for the future, for better or for worse. But I think we have, as we call it, products now and they are taking advantage, as you will see from our results, from this environment. Our R&D in certain tankers are also expanding our long-term investment in my shipping business, and at the same time, we believe that we should not be far away from that crude will turn the corner as products do there.

I would ask George Saroglou to give us the developments of the last year and the recent events. And then we will be happy to answer questions. George?

Thank you, Nicholas. It is my pleasure to speak with all of you today, and provide you with the details of the operation of another quarter and another year. For those of you who are connected to the Internet and our website, there is an online slide presentation. We will follow the format of the presentation during the call.

Let's turn to slide number 3, where we see the current fleet, which consists of 28 product tankers, all of them in the water, as we speak, producing for TEN. This is one of the largest product fleets in the water operating in a product tanker market, where we clearly see signs of trading profitably. We also have 19 crude carriers and two LNG vessels, including one in the water and one on north.

The next slide gives some general market highlights. Global oil demand is modestly growing, and currently stands at about 91 million barrels per day, which is at an all-time high level, that has increased tonnage demand, not enough, though, to offset the newbuilding deliveries, especially on the large crude carriers, the VLTCs and the swillbacks. However, the order book is coming down. It's 11.1% at the end of 2012 versus 14.4% at the end of 2012. And 2013 looks to be the last year with a big delivery schedule.

These are (inaudible) tanks in the cold weather in the Northern Hemisphere fleet, it's part again this winter, with Iceland through outperforming the general market. Just to give you an example, CT17, which is a main ice-class crude, was in the area and above 100,000 levels for about a month. And of course, we had to highlight product tankers, which continue to operate in an improving freight market environment. 2013 marks the fifth year of the freight market's downturn. However, based on what we see, and the continued (technical difficulty) all the majors have in fixing tonnage forward, we think the worst is behind us.

If we look at the corporate highlights, TEN has a pro forma fleet of 49 vessels. This figure includes 40 vessels -- 48 vessels -- 47 vessels in operation; one of DP2 Sureback shuttle tanker under construction, with expected delivery next week, and one tri-fuel LNG vessel under construction with option for one more. The fleet is 100% double hulled, very modern, 6.5 years the average age, and 21 tankers have ice-class capabilities; and 31 vessels out of the 49 vessel fleets have (inaudible) employment that ranges from 1 to 15 years. Thanks to our time travelers philosophy, we continue to operate fleets at the very high utilization rates -- 99.1% for the fourth quarter 2012, and the average for the tanker industry is around 85%.

Moving to the next slide, here we have the highlights of our press release. Nine-fold increase in operating income, 45% improvement in net results. We have maintained a strong balance sheets and strong cash reserves. We have further expanded in the LNG sector with the chartering of our neo energy, and the orders for one -- option one right-hull vessels. We have a total of nine vessels during 2012 with minimum tanks of revenue in excess of [$213 million], and we have strong (inaudible), which were the Company's oldest vessels.

The next slide presents a corporate fleet as it stands right now. In TEN, we focus in three market sectors -- conventional tankers, which covers both crude and product tankers; LNG, and shuttle tankers. Of the four markets, LNG and offshore shuttle tankers are potential growth areas for TEN, due to the growth prospects, (inaudible) supply demand fundamentals and barriers to entry.

Within conventional tankers, TEN operates both crude and product tankers. We have one of the largest and most modern product tanker fleets in the water now, which is, of course, taking advantage of an improving freight market environment. You will note again, the ice class capabilities of our fleet. And we have taken the liberty of the delivery of the first and next week of the second of the first two Greek flag shuttle tankers, which we are going to be fixed, or have been fixed on a 15-year time charter through a major oil company in South America.

We have one LNG in the water and one vessel under construction plus an option. Since 1997, the fleet that you see on this page was built exclusively with newbuilding orders in Korea and Japan.

Let's look at the employment slide -- how the fleet is employed. We continue to have a balanced employment strategy with the corporate fleet. We are a mix of four charters, pulling arrangements and period charters with fixed rates and profit sharing arrangements. The product fleet out of 28 vessels, we have 19 operating time charters with fixed and profit sharing arrangements, and nine vessels operate in the spot market. So, out of 19 vessels [with 6 of] employment, eight have profit sharing arrangements. So if one adds to these eight vessels and nine operating vessels, you have 17 product tankers that already take advantage of an improving product tanker freight environment.

On the crude side, we have 19 vessels, which 11 of them have been fixed, and eight vessels trade in the spot markets, mainly the seven Princes, Aframaxes, and one Suezmax tanker. Out of the 19 crude tankers, six operate in fixed time charters and continue the combination of market-related COAs, both volume and full arrangements. The slightest improvement in the spot market for Aframax tankers will go straight to the Company's bottom line.

Looking at dollar volume of the above on the next slide, slide number 7, as you can see, today we have [62%] of the remaining available 2013 fleet operating days and 48% of the available 2014 fleet operating days. Assuming only the minimum rate, TEN has accrued 1179 months of forward employment or [for] 3.2 years per vessel and over $1 billion in minimum gross revenue.

The next slide has the Company's track record in sale and purchase activities since 2003. Key takeaways in the sale and purchase activities are an integral part of our operations, as this record shows, and fleet modality is a key element of the corporate strategy. Since the New York Stock Exchange listing, we have generated capital gains of approximately $280 million, or in other words, $28 million per year. The Company reinvested those capital gains in the year of the fleet by ordering the majority of these newbuilding tankers before newbuilding prices started to rise.

The next slide is a dividend slide. And this slide shows the history of our cash dividend distribution. We announced today the dividend of $0.05 per share to be paid June 5. In total, since 2002, we have paid [$9.63] in cash dividends on approximately $376 million. And this compares with the listing price in our IPO of 2002 of $7.50, which has been adjusted for the November 2007 2-for-1 split.

TEN has raised from the equity market a little over $510 million in the 20 years since the Company's inception in 1993, and has returned since 2003, the Company's shareholders $82.5 million in the form of buybacks, and $376 million in the form of cash dividends. So almost 90% of the raised equity funds have been returned to the Company's shareholders, and today, those forms the stock on a Company, own a company, with a modern fleet of 49 vessels, with great customer and banking relationships, and growth initiatives in the LNG and the offshore shuttle tanker market sectors; a company that is well-positioned in conventional tankers, with crude and product tankers that are ready to take advantage of the market's expected recovery.

That concludes the operational part of our presentation. Paul will walk you through the financial highlights of the fourth quarter and the year. Paul?

Thank you, George. As you will see from our press release, we ended another tough year with some promising signs, with a 45% improvement in results over 2011, and a good start to 2013 in terms of charters. While a return to profitability was not in the cards for 2012, at least the possibility of a return in the near future became greater.

Excluding our impairment and small loss on vessel sells, the quarter-four loss was $9 million, half of that out for 2011. And operating income was positive at $4.8 million compared to a $2.9 million operating loss in last year's quarter-four. Similarly, for the full year, the net loss before impairment and capital loss was $33.8 million compared to $55.1 million loss in 2011.

Operating income, again, excluding both impairment and capital losses or gains, was at $16.7 million compared to an operating loss of $3.3 million last year, a very encouraging sign. The fact is that boosted quarter four and 2012 earnings in comparison to the previous periods were, firstly, the disposal of the VLCCs, which in 2011, incurred heavy voyage expenses in a difficult spot market. These vessels were inactive in quarter-four, and indeed inactive for most of 2012.

The LNG carrier enjoyed a significantly higher rate in quarter-four and in 2012. There was a boost in product carrier rates, especially for the smaller carriers. There was expiry of half of our interest rate swaps, which were a significant burden in recent years. And we kept control of the level of our expenditure.

We were obliged to incur an impairment charge of $13.6 million in our last -- on our last VLCC millennium. After it became clear, after the expiry later this year of existing long-term profitable charter, the market for such vessels would most likely not justify its book value. Quarter-four rounded average daily TCE -- Time Charter Equivalent -- per vessel was $17,200 compared to $15,750 in quarter-four 2011. And for the 12-month period, $17,160 against $16,050. Such levels surpassing breakeven again for several of the smaller vessels.

Excluding the non-operating VLCCs, only five vessels, all crude carriers, did not generate positive EBITDA in quarter-four. For the year, all but one of the operating vessels achieved positive EBITDA. Total EBITDA [and last to] $29 million in quarter-four. As for 2012, $117 million was achieved. Quarter-four operating expenses remained relatively unchanged at $32.5 million, with approximately the same fleet size. Hence, the daily average per ship was also little changed at $7545, with about the same for the year.

Finance costs in quarter-four were $13.8 million, a 6% fall from quarter-four 2011, mainly due to reduced swap interest payments due to expiry of swaps, which also resulted in reduced finance costs for the year. In quarter-four, we repaid $57 million in loans, including a pre-payment on the sale of La Madrina. We received $28 million in new loans, so total outstanding loans at the year-end was $1.44 billion, and net debt to capital was 58%.

The new loans related to the two shuttle tankers under construction being predelivery financing of the building installment. This led to $47 million each to be received on each vessel, the first of which happened in March with the delivery of Rio 2016, and the second will be received next week on delivery of Brazil 2014. While these vessels were not available to provide a contribution in quarter one, they will clearly do so for the rest of 2013. Nevertheless, quarter one, without the old VLCCs, and with higher product rates, should result in a further improvement over prior periods.

And this concludes my comments. And now I'll hand the call back to Nicolas.

Thanks, Paul. We go -- a positive note, I hope, and we would like to take this opportunity and open the floor for any questions from our listeners. Thank you very much.

(Operator Instructions) David Beard, Iberia.

Would you mind just reviewing your charter policy, and if you would tend to lead to be more spot or more fixed going into 2014, '15, just given we're obviously close to the bottom than the top of the markets?

Sure. Well, I mean, as I said, we have a mixed policy where we are using a lot of our long-term relationships in order to secure business with profits earnings. So as we speak today, we have about 62% of our business is fixed with profit settings or fixed by shutters, and the remaining 38%, these are now on the spot market.

Okay. Thanks. And maybe just talk a little bit about scrapping rates and what your Outlook is. And I know that varies quite a bit from your different product categories, but given where rates are, what is your outlook on scrapping?

Well, we expect our scrapping to maintain its strength. I mean, we have always been between $400 and $500. We will see a big level of -- for the largest vessel. And I think this way, we are seeing a significant scrapping so far, about 8 million deadweight tons for year-to-date having -- have been scrapped. So I think with increased scrapping, and also with these finally decreasings, newbuilding order book, where we will be certainly seeing a much more balanced market. We see this in most starting from the products, but also going towards the crude carriers.

Okay, great. And maybe one last question just focusing on LNG for a second, because there seems to be a lot of short-term concern over weakness in spot rates. Would you just talk about what you see in the spot market? And does that change your longer-term view on LNG?

No. I think the opposite. Today -- I mean, as you know, our vessels is fixed for another three years at $80,000 and change, which is a very substantial -- I mean, it's a very comfortable rate, since we have about a $30,000 breakeven. So this is, in fact, a lot of -- to our bottom line. Today, we have this vessel on this spot to learn closer to $100,000. It's correct that perhaps six months ago, it would have been $150,000, but I think at this level, the market is still strong.

The only reasons of concern are the delays of the various infrastructure on trains and product that might lead to have a delay in the demand for transportation. But that's closer to 2014 and '15. However, if you put the overall picture, I think the existing order book is not sufficient to cover the agreed need for transportation. So in general, it's a positive picture, but of course, there are some delays that correctly, as you said, make it take some time until supply and demand becomes balanced.

Okay, good. Thank you very much for your time. I appreciate it.

[Atias Stechen], Morgan Stanley.

Thank you very much for all the information you gave. So, I heard -- you mentioned that you wanted -- that you were urging for restraint in the business. And so I was wondering if you had any new acquisitions planned or -- and, if yes, in which sector you would be looking at?

Well, I think -- thank you for your question. We have our acquisitions in the stocking (inaudible) sphere and the LNGs are more specialized vessels, without excluding vessels, conventional tankers and without (inaudible) that would require us to buy for them. So which means that we will have a good employment. We are way away from the top of the market of these newbuilding or secondhand price market. So I think that in today's market, if we find opportunities, we will move.

Okay. Great. And so how would you -- if you had any new acquisitions, how were you thinking of financing them? And how would you see the financing market right now? What are your thoughts on like raising new capital through growth or raising through equity or higher yield bonds maybe?

Well, I think for us, I think our COO gave a presentation on how on we're surprised right now, has been better, almost is 50% down because mainly -- and that's on slide 12. And this, unfortunately, has to do because the majority, or a big part of our peer group, has gone -- has had prior difficulties. And I think if you have companies like OSG, which has been considered, I think, the head of our peer group, has unfortunately filed last summer for Chapter 11. And we used to say that OSD is the equivalent of us in shipping. So if you have that filing, I'm sure other companies would suffer.

So a surprise for Norwegian has to do with that. It is almost an amazing buy today. It's 50% of its value a year ago. And a year ago, the market was much worse than it was today. So in such logic, we cannot issue shares at this very diluted level. Of course, the Company is looking at other ways -- while there is still, for companies like us with certain projects, that is still [amply] bank debt, we just financed two shuttle tankers to very good terms at close to 80%, and very competitive rates. So as long as we have the projects, we are going to be able to finance them through bank debt and the cash flow that the Company is building up.

Great. Thank you very much for that. And on a previous call, you'd mentioned the possibility of creating an MLP with your vessels in longer charter. Has there been any progress on that front? And what would be the timing for that?

I think the MLP is something we are very closely considering, and I think the timing is within this year.

Okay, within this year. Great. And so -- we talked about this earlier, the Suezmax and the Aframax rates look to perform relatively during the last couple of months, despite the depressed VLCC market. To what do you attribute that? And how does the trade look like in the second quarter, as the last couple of weeks the Suezmax rates have shown to be heading lower?

Well, I think the -- certainly, it seems that the VLCC's are going to be the last vessels to react because of their size. The market right now is really based a lot on trade flexibility, so it's normal, it's like the Aframaxes and the Suezmaxes have been preferred by shutters that will rather take a risk on a 1 million barrels or 600,000 barrels rather than 2 million barrels.

That makes sense. Okay. And then one last question. Can you maybe talk to us about the shipbuilding market? What kind of development have you seen in the last couple of years? And how do your ships compare in terms of daily earnings compared to the -- these newly designed eco-ships that everybody is talking about, that are being delivered right now?

Yes, this is a very good point. And, as I said, I think our fleet is a very young fleet, and I think any -- and we are talking right here for the product carriers and the Aframaxes. I think the super-eco vessels when they will be correctly designed are going to make a lot of sense on high-speed vessels, but very huge amounts. So I think they will make sense on an 8000 PU or a 10,000 PU container. They might make sense going forward on VLCCs because of the sheer size of the vessels. But for the mainstream shipping, I think any vessel which is 10 years or younger can, by spending a minute percentage of what you need to spend on a ship as a newbuilding, you cannot get very similar results.

And as owners, and I am the Vice Chairman of Ricoton, which was actually represents all the independent tanker owners, we took caution because there's a lot of easy money floating around, and it's just the flavor of the month happens to be the super-eco ships. I am afraid that this first generation of the super-eco ships, for those who understand more the technical side, will be very similar like the first generation of the double-double ships.

When we started building double-double, most of those ships were built without the centerline bulkheads, and they ended up being untradeable after two or three years. So, like everything, this first generation of vessels, we are not going to enter and actually add insult to injury by building ships, because our ships right now are more than enough. And they are -- and our economic has the support looking first generation super-eco ships that people are building left and right, and unfortunately will hit the market.

Great. Thank you very much for that, Nikolas, and that was my last question.

Thank you.

Thank you. (Operator Instructions) Thank you. There are no further questions at this time. Please continue.

Well, again, thank you. Thank you very much for following our Company. As I said, we believe that there are strong signs, which we could not talk about a year ago, that the market following the return of the product carriers in good levels that could carry us, hopefully, we see signs of their following.

There's a huge appetite for all our major clients. And TEN is not an operator; we only term our ships to the major oil and industrial end users. And we -- if you follow our last couple of months, we've done a lot of business like that, with some first-class names, new and old relationships. So there are signs that the market is normalizing.

We believe right now where our service is really very competitive price, to say the least, and we hope that we will be able to come back to profitability sooner rather than later. The indications of the first quarter are positive, but Paul does not allow me to say too much about that until he finishes with all his calculations. But I have to say, we are in a better environment than we were a year ago in all respects.

So, thank you for your patience. As I said, we have 18 profitable years, two negative years. And hopefully, we will be able to go soon back to profitability. Chairman, would you like to add something?

Well, thank you. And again, to all of you in Boston and Texas, and all over the United States, our thoughts are with you. And we will be visiting the United States soon to talk to our shareholders face to face. Thank you.

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