Tsakos Energy Navigation Ltd (TEN) 2013 Q1 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 first-quarter 2013 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. (Operator Instructions). I must advise you that this conference is being recorded today, Friday, May 24, 2013.

And now I pass the floor to Mr. Nicolas Bornozis, President of Capital Link, an investor relation advisor to 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 first quarter of 2013. 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 e-mail us at TEN at CapitalLink.com and we will e-mail a copy to you right away.

Parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on 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 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 contain 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 to 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 everyone. As we all know, black is golden; unfortunately, the shipping industry is in a sea of red. Nevertheless TEN produced its first profitable quarter since the first quarter of 2011. After seven consecutive quarters of losses, this is a most welcome sign.

The number 8 is a Chinese numeral for good fortune, which indeed it was for TEN. But as we know, good luck does not come without effort. TEN has continued to effectively control its costs while maintaining quality service.

The future has many good elements, in addition to two shuttle tankers and the highly profitable re-employment of the LNG carrier Neo Energy. The balance sheet remains strong, and it has been further fortified by the proceeds from the issuance of preferred shares.

Today, we are happy to announce the declaration of the second dividend for the common shares in 2013. Our only comment on Nikolas and his management team is bravo. Bravo, Nikolas. Thank you very much.

Thank you, Chairman. I think this is a very good beginning of our third decade as a public company. We were lucky enough to celebrate our 30 years as a public company last month in New York, and I think it's a very nice development that, after 18 profitable years that we have enjoyed, we had the result of this very long-sitting crisis due to the oversupply of tonnage. And hopefully we are turning the corner, and we will be able to go back to the older ways of keeping things in the black, as the Chairman said.

It has been a very exciting first quarter and recent period. The delivery of the two shuttle tankers which our newbuilding [department] started in building from scratch, one is already in a deployment based in Brazil for the next 15 years and counting; and the other one is on the way. Both of them with cargoes, carrying products to this part of the world.

Being one of the largest product carriers in the world, we have been helped by the -- as you know, we have 28 product carriers in the water earning in every day. And those ships have attributed and increased by 25% the productivity to our bottom line.

At the same time, of course, our LNG is also helping and adding a significant amount from now in the near future to our bottom line. And in terms of the crude market, where we have 19 vessels, that has also turned the corner with the increase in ton miles and a very cold winter, which hopefully we will be able to see in the first- and the second-quarter results this year.

With this in mind, I would like George Saroglou, our COO, to give you a detailed analysis of the recent developments. Paul Durham will follow with the financial analysis, and then we will be available to answer any questions. Thank you.

Thank you, Nikolas. It is my pleasure to speak with all of you today and provide you with the details of the operation of another quarter. We are even more pleased to announce today that we operated a profitable quarter again, while the great shipping prices that started back in the end of 2008 is continuing.

For those who are connected to the Internet and our website, there is an online slide presentation, whose format we will follow during the call. Let's turn to side number 3, where we see the current fleet, which consists of 28 product tankers, all of them in the water, producing for TEN -- one of the largest product fleets in the water, operating in an improving product tanker market environment.

This quarter again our product fleet rated profitably. We have 19 crude carriers, which also did better in comparison to the fourth quarter of 2012, with our Aframaxes earning on average a little over $16,000 per day on time-charter equivalent, which is a $3,000 per day improvement over the fourth quarter of 2012 average, thanks mainly to the late winter spike in Europe and rate improvements in the Caribbean/US Gulf. And we see some of these improvements in the carriage continue in the quarter that we are in.

We have two LNG vessels, including one in the water and one on order.

The next slide gives you some market highlights. We have global oil demand growing modestly and currently stands at about 91 million barrels, which is an all-time high level.

There is increased oil demand; not enough, though, to offset these newbuilding deliveries, especially on the large-scale carriers. However, the order books continues to come down and currently stands at 11% of the total fleet. Global tanker rates continue to improve.

And despite the headwinds the global economy is facing, we are encouraged by the fact that the International Monetary Fund is forecasting a sustained global economic recovery, 4% GDP growth in 2014 versus 3.3% this year. This is good for global oil demand, which is expected to grow by another 1.3 million barrels per day in 2014 versus almost 1 million barrels this year; and this can only be good for tanker demand.

Looking at the Corporate highlights, TEN took delivery of both DP2 shuttle tankers -- the first one, Rio 2016, in the first quarter of 2013; and the second one, Brasil 2014, during April of 2013. The first unit arrived in Brazil and has already commenced her 15-year time charter for Petrobras, while the second vessel is expected to do the same in June.

The Company's pro forma fleet of 49 vessels includes 48 vessels in operation and one tri-fuel LNG vessel under construction. The Company has an option for one more LNG vessel to be declared within July of 2013.

The fleet is 100% double-hull, very modern, 6.5 years the average age. We have 21 tankers with ice-class capabilities, and 31 vessels out of the 49-vessel fleet have term employment that ranges from 1 to 15 years. Thanks to our time charter [diversity] we continue to operate the fleet at a very high utilization rate, 98% for the first quarter of 2013, when the average for the tanker industry is around 85%.

Slide number 6 has the main highlights of our press release -- a 10-fold increase in operating income; 44 out of 47 vessels that we operated with positive EBITDA; a [profitable] quarter again. We have maintained a strong balance sheet and cash reserves. And we also raised $50 million in a preferred offering at the beginning of May, further strengthening the Company's growth prospects.

We have new charters for nine vessels since January 1, 2013. And we celebrated our 20 years in the capital market.

The next slide presents the Corporate fleet as it stands right now. We focus in three market sector -- conventional tankers, which covers both crude and product tankers; LNG; and shuttle tankers. Of the four markets, LNG and offshore shuttle tankers are potentially growth areas for TEN due to their growth prospects, favorable supply/demand fundamentals, and barriers to entry.

Within conventional tankers, TEN operates both crude and product tankers. And we have one of the largest and most modern product tanker fleets in the water now, which is taking advantage of the much improving freight market environment. We have 21 ice-class tankers which contributed -- it was a contributing factor to the results of first quarter.

And we took delivery, as we said, of first two Greek flag shuttle tankers, which one has already been delivered to Petrobras and commenced a 15-year time charter. And the second one is en route to do the same thing in June.

We had one LNG in the water. This is one tri-fuel LNG vessel under construction, plus an option. We have increased the size of the vessel to reflect the longer-term prospects of the LNG market, and both the third and the optional vessel will be 174,000 cubic meters.

The delivery schedule for both the third and the optional vessel will be in the first half of 2016, and the option for the second vessel expires in July of 2013. Since 1997, the fleet was built exclusively with newbuilding orders in Korea and Japan.

The next slide shows the clients of TEN with whom the Company has built relationships over the years and is doing repeat business, thanks to the quality of service that we provide, the modernity of the fleet, and the safety record of the enterprise fleet. The same table, besides the name, also lists the top seven clients of TEN and the [sales] in revenue they contributed to the Company's revenue during 2012.

The next slide is the employment slide. We continue this balanced employment strategy where we have a mix of spot charters, contracts of affreightments, and pooling arrangements with dealer-charterers that have fixed rates and minimum rates with profit-sharing arrangements.

If we look separately at the sectors and what we have that we operate on the project fleet, out of the 21 vessels, 19 operate in time charters with fixed and profit-sharing arrangements; and 9 vessels trade in the spot market. Out of the 19 vessels with fixed employment, 7 have profit-sharing arrangements. If one adds the 9 spot trading vessels, you have 16 product tankers that already take advantage of an improving product tanker environment.

Of the 19 crude tankers, 11 have fixed employment; and 8 vessels trade in the spot market, mainly the 7 Princess series aframaxes and 1 [suezmax]. Out of the 19 crude tankers, 6 operate in fixed-time charters, and 13 vessels in a combination of market-related CoAs, spot voyages, and pool [alliances]. The slight improvement in the spot market for aframax tankers, as we have experienced already in the first quarter, will continue to impact positively the bottom line.

Looking at dollar value on the above, it is what we are trying to do in the next slide, slide number 10. As we stand today, we have fixed 72% of the remaining available 2013 fleet operating days and 58% of the available 2014 fleet operating days. If we assume only the minimum rates, TEN has secured 1,182 months of forward employment, or 3.2 years per vessel, and a little over $1 billion in minimum gross revenue.

Slide 11 basically shows the Company's track record in the sale and purchase activities. The key takeaways here is that sale and purchase is an integral part of our operations, as our records indicate, and that fleet modernity 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 an average $28 million for the year. The Company reinvested its capital gains in the renewal of the fleet by ordering the majority of its newbuilding tankers much before newbuilding prices started to rise.

Slide number 12. This slide shows the history of our cash dividend distribution. We announced today a dividend of $0.05 per share to be paid on September 12, 2013. In total, since 2012, we have paid $9.68 in cash dividends for a total of $380 million. This compares with a listing price in our IPO of $7.50, adapted for the November 2007 2-to-1 split.

With our latest $50 million preferred offering, TEN has raised from the equity market a little over $560 million in the 20 years since the Company's inception back in 1993, and has returned since 2003 to the Company's shareholders a combined of $462 million in the form of buybacks and dividends. So a little over 82% of the total capital raised through capital market fund raises has been returned to the Company's shareholders.

And today, those who own the stock 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 very well positioned in conventional tankers, with crude and product tankers fact that are already taking advantage of the market's slow recovery.

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

Thank you, George. Clearly TEN's net income of $1 million in quarter 1 was a great improvement over the negative, but manageable, results of prior quarters. Operating income alone was $9.7 million compared to just $1 million in quarter 1 2012.

In quarter 1, with two fewer vessels, revenue after voyage expenses was $73 million versus $70 million in quarter 1 2012. Average daily rounded time-charter equivalent per vessel was $18,180 compared to a 2012 average of $17,160.

The product carriers, half of which were on employment at market-related rates, achieved 25% higher average rates than in quarter 1 2012. Crude-carrying suezmaxes and aframaxes mainly -- many on spot, earned lower average rates than in quarter 1 2012, but earned significantly higher than quarter 4 rates. The LNG carrier earned twice as much as in the previous quarter 1, and so had a significant impact.

Fortunately for those vessels in the difficult spot markets, they at least took a 10% decrease in bulker prices since the previous quarter 1. As a result of both cheaper fuel and the quarter 4 sale of VLCCs, voyage expenses decreased by nearly $8 million, even though the percentage of operating days on spot voyages actually increased since the prior quarter 1.

Our EBITDA of $34 million was 30% greater than in quarter 1 2012, and 16% over quarter 4. All vessels earned positive EBITDA, except for one suezmax which underwent drydocking and two crude carriers on spot.

As part of its voyage to Brazil, our first new shuttle tanker, Rio 2016, was able to utilize in its coated tanks to take a cargo of naphtha and, as the world's largest product carrier, earned a respectable freight. Otherwise, it did not start earning its new charter hire until only last weekend, having just arrived in Brazil and been accepted by the charterer. Since the ship Brasil 2014, delivered in April, has also picked up a cargo en route to Brazil and is expected to start its time charter in early June, from that point on the combined impact of the vessels will be considerable.

Total operating expenses in quarter 1 were 12% down from the previous quarter 1, partly due to the VLCC sales, but also to daily average OpEx per vessel falling to $7,629 from $8,308 due to much lower repair and maintenance costs and to keeping stable other costs, mainly crude related. Depreciation fell by over $1 million due mainly to the quarter 4 increase in estimation of a vessel's scrap value, which is deducted from vessels book cost when calculating depreciation.

Finance costs were 75 down from quarter 1 2012. The expiry of seven interest-rate swaps in 2012 resulted in $5 million less swap interest, partly offset by lower non-cash gains on swap valuations and loan margin increases.

Other income includes $1 million relating to a deposit by a potential buyer of a VLCC who withdrew from the deal. This is not a windfall, but recovery for managerial time and related expenses incurred.

In quarter 1 we received $46 million on a loan relating to the delivery of the shuttle tanker. And we repaid debt amounting to nearly $[5]2 million, of which $20 million related to the December sale of VLCC La Prudencia. In quarter 2 we took delivery of the second shuttle tanker, drawing down a further $46 million in debt.

As mentioned, our liquidity has been boosted by over $50 million gross proceeds from the preferred stock offering. That has a positive effect on our leverage and has no dilutive effects on existing common shares.

This concludes my comments, and now I will hand the call back to Nikolas.

Thank you, Paul. I hope you will also keep the good news coming the remaining of the year. Of course we will make every effort to do so.

And with this we would like, if you have any questions, to answer any of your questions. We want to open the floor. Thank you.

(Operator Instructions). Greg Lewis, Credit Suisse.

Yes, thank you and good afternoon. Nick, I'd like to talk a little bit about the shuttle tankers. I guess we've taken delivery of the first shuttle tanker, and now it's operating in Brazil. You mentioned that it's a Greek flag vessel.

Are there any -- could you give a rundown of the crew? Were there any other -- is it all primarily Greek and Filipino seafarers on the vessel, or are there Brazilian? I'm just trying to get a sense for how much or how many locals are actually working on the vessel.

Well, as I said, being a Greek flag it has been a very interesting and I think education on a problem. One of the issues that we as an industry, not only we, will be facing in the future is the lack of sophisticated crews. So we decided to train our own crew in this. And as you correctly said, the majority of the crew is Greek officers with [32] more ratings.

And within this 15-year period our intention is to reduce some of the ratings with local Brazilian content. Initially I think it's too early, but I think this is a -- I would say it's an obligation that we have, but it is not really a contractual obligation. It will help our operating expenses, having local people working rather than having to import people from all over the world.

So I think, yes, this is something we are taking seriously. We are going to be building this operation. We have an office there, because as you saw Brazil is one of our largest clients. And we want to increase [use] on these more -- on these highly specification vessels.

Okay, perfect. Then just on, I guess shifting gears a little bit to future capital deployment and maybe future fleet expansion. Clearly the crude tanker market remains in a cyclical trough. The product market has gotten a little bit better.

But beyond the option for one LNG vessel, where do you think TEN -- what direction do you think TEN goes into in acquisitions beyond the potential option for LNG?

Well, as I said, we are taking careful steps. I would not say conservative, because as you know LNGs are at least $200 million per vessel, so it's not really -- it's like ordering four suezmaxes today or whatever number you say. So it's not -- the numbers are big, and we have to be careful.

We are looking to expand of course on the LNG based, but at good accretive contracts with very positive returns for our shareholders. And this is plan number one.

And at the same time, of course, continue to expand in the shuttle market exactly in the same way. And we are keeping our eyes open for opportunities that would arise and will arise on the conventional business.

Not include -- of course on that part, as you know, I believe that the market today has been glutted for the last five years from overcapacity of tonnage. So we are not looking, although we have built -- the whole period that we are operating has been built by us, for us. At this stage, we are not looking at conventional newbuilding vessels.

However, if there are vessels are there, like we have done in the past, that have been abandoned or are not going to be taken over by their owners, and are good quality fits, we might look at them. But I think right now we are focusing on the LNG, on the shuttle tankers, and we are always looking to renew our core fleet when opportunities arise.

So we are always looking in the market. One market that I think is faring as well as you know are the LR2s. There are 6 that have been performing good for us, so we have 3 of those vessels, young modern ships. And that could be a segment that we will look to expand because we believe in this side of the market.

Okay, great. Then just, Paul, real quick. There's a few product tanker vessels that actually have profit-sharing. Are you able to put a number around the amount of profit share that was generated in the first quarter for the product tanker fleet?

You're talking about our vessels?

Yes. Yes, I was wondering what was the benefit of the profit sharings for the product tanker fleet in the first quarter. Paul, is that something that you have, or is that something maybe we can get at a later date?

At the moment, we have about 7 product carriers on profit share; and let's see what they took. They are all in minimums during quarter 1.

Okay. Thanks, guys, for the time.

Urs Dur, Clarkson Capital Management.

Hey, good morning, good afternoon. Actually more simple questions. I think the market is pretty clear. I was wondering if you could give us, Paul, some guidance or remind us what the CapEx schedule is for this year and next.

Yes, well, as I said, we have the -- we would need another about $20 million down payment in the next couple of months for an existing LNG and if we decide to go ahead for a -- and if we decide to go -- to take the option for the second vessel, that'd be another about $20 million that we will have to put down this year. So I think we have made the down payment, so I think all together including -- we have either $20 million or $35 million for the remainder of the year on our LNG. It's not a very -- it's a very manageable amount and we always make sure that we have the Company well-funded for its growth. So it is either $20 million for one or if you get two, you pay $35 million, so it is a bit (inaudible).

Okay. A little bit more on the crude tanker markets and your outlook there. What's your view on the possibility down the road for improvement in that area? It seems awfully depressed. The liftings from the Atlantic basin to Asia, we have seen some improvement there. I was wondering if you could comment on market trends that you are seeing in that route possibly in particular, but also in other routes and ton mile demand if you have any commentary there.

Yes, as I said -- as I said earlier, I think our market has been (inaudible) -- it's not the lack of demand. I think George Saroglou gave you the slides showing the demand is growing. It has been the oversupply and we see, whenever you have movement of tonnage out of this market, the market actually moves quite drastically one way or the other. I mean we show in the last quarter we have seen that a lot of Aframaxes moved out on longer haul routes from the Caribbean because it is true that there has been a huge reduction of imports from the (inaudible) trade in the United States, which means a lot of Caribbean trading ships, which have been traditionally Caribbean traders were allowed to take cargoes from there into China or India. So they are going to be out of that market for three times the time that they would have been otherwise.

We have seen in the last six or seven weeks that this is happening. Very strong, a very strong competitively Aframax market in the Caribbean. We have four vessels there, so we are enjoying something starting with two, $20,000 or around (inaudible) 116 to 120. So I think this shows that the market is getting balanced. The positive thing at least as far as crude carriers is that we are not seeing the overordering on that segment because particularly they don't find any reason to order, which is good.

So I believe that this market with longer tone mile routes and with a lot of ships getting older and fewer and fewer ships coming in is going to turn. When it is going to turn, if we believe on the 10-year cycle and perhaps we are back in 2003, which will make all of us 10 years younger, which is good, I think it will turn around around the autumn of third or fourth quarter.

So I think we are not betting the ranch that the crude market is going to boom, but we are seeing signs that it's turning around, exactly where the product market was a year ago.

Excellent, thank you very much. And then just a small question. Just given the balance sheet data you've given us in this report, can you just remind us what your current portion of long-term debt is, Paul?

$136 million is our current short term.

Okay, that's the current. Thanks. I was a little high so very helpful. Thank you for your time, gentlemen. Congratulations on the quarter.

Thank you.

(Operator Instructions). We have no further questions. So I'd like to hand the conference back.

Well, again, thank you very much to everybody for the support in the Company. A couple months ago, we reported that we were hoping to be in this position that we are today. We are happy to be in this position. I hope in the -- in our August report, we are able to maintain this and going forward in the year conclude the whole year as the Chairman said in the black. I think we are all in the same market, all the companies. We wish for all the companies to be in the same position because I think this is a market where we either all make it or all (inaudible). So it's very important for all of us to try and protect our market, to try and stay away from excesses in this market because I think at the end of the day, without wanting to burst anyone's bubble, we all want to see black in the bottom of our bottom line.

Again, we want to thank you for your support. We hope, as we said a couple of quarters ago, that we have turned the corner in both the products where is our major participation and the crude and we will maintain what is very important for us, the enhanced management and make sure that our people on the ship understand also the situation and be able to maintain very good cost controls as we have done so far. And with that, I would like our Chairman to close this and thank you and talk to you soon. Our team is going to be in New York in June. I would be very happy to arrange a one-on-one for anybody who wants to find out about the Company.

Nikolas summed it up. As a shareholder, black is beautiful. Keep it up.

Thank you.

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